F-4/A 1 e620857_f4a-cellect.htm

 

As filed with the Securities and Exchange Commission on August 10, 2021

 

Registration No. 333-257144

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

AMENDMENT NO. 3 TO

FORM F-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

  

CELLECT BIOTECHNOLOGY LTD.
(Exact name of registrant as specified in its charter)


N/A
(Translation of registrant name into English)

 

Israel 2836 N/A
(State or other jurisdiction of
incorporation or organization)
(Primary Standard Industrial
Classification Code Number)
(I.R.S. Employer
Identification Number)

 

23 Hata’as Street
Kfar Saba, Israel 44425
Tel: +86 20 2290-7888
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

Puglisi & Associates
850 Library Avenue
Newark, Delaware 19711
(302) 738-6680
(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

Copies of all communications to:

 

Yuval Horn, Adv.

Paz Abercohen, Adv.
Horn & Co., Law Offices
Amot Investment Tower, 24th Floor
2 Weizmann Street
Tel Aviv, Israel

Tel: +972-3-6378200

Brian S. Vargo, Esq.
Royer Cooper Cohen Braunfeld LLC
101 West Elm Street, Suite 400
Conshohocken, PA 19428
Tel: (610) 629-6919

Jeffrey A. Baumel, Esq.
Ilan Katz, Esq.

Greg Carney, Esq.
Denton US LLP
1221 Avenue of the Americas
New York, NY 10030
Tel: (212) 768-6700
 

 

Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this Registration Statement becomes effective and upon completion of the Merger described in the enclosed joint proxy statement/prospectus.

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.

 

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

 

☐ Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer) Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933:

 

Emerging growth company

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 7(a)(2)(B) of the Securities Act.

 

*The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

 

 

 

 

CALCULATION OF REGISTRATION FEE

Title of Each Class of Securities
to be Registered
Amount to be
Registered (3)(4)

Proposed

Maximum
Offering Price

Per Unit

Proposed

Maximum
Aggregate Offering
Price(5)

Amount of
Registration Fee
Ordinary shares, no par value per share to be issued  under the Merger Agreement (as defined below)(1), including the ordinary shares to be issued to the Investor under the Purchase Agreement (as defined below) (2) 2,937,874,100 (5) $8,151 $0.89 (8)
Ordinary shares, no par value, issuable upon exercise of the Exchange Warrants (as defined below) 495,371,700 (6) $15,282,217 $1667.29 (8)
Warrants to purchase ordinary shares, no par value per share, to be issued in exchange for the Bridge Warrants 495,371,700 (7) - -

  

(1) Represents an estimate of the maximum number of ordinary shares of Cellect Biotechnology Ltd. (“Cellect”), a corporation incorporated under the laws of the State of Israel, issuable upon completion of the transactions contemplated by the Agreement and Plan of Merger and Reorganization dated as of March 24, 2021 (the “Merger Agreement”), among Cellect, Quoin Pharmaceuticals, Inc. (“Quoin”) and CellMSC, Inc., as described in this registration statement.

 

(2) Represents 300% of the shares of Quoin common stock purchased under a securities purchase agreement between Quoin, Cellect and Altium Growth Fund, LP, which shares will be exchanged for Cellect ordinary shares pursuant to the Merger Agreement (the “Purchase Agreement”).

  

(3) Pursuant to Rule 416 under the Securities Act of 1933, as amended (the “Securities Act”), there are also being registered such additional Cellect ordinary shares that may be issued because of events such as recapitalizations, stock dividends, stock splits and reverse stock splits, and similar transactions.

 

(4) American Depositary Shares (“ADSs”) issuable upon deposit of the ordinary shares registered hereby have been registered pursuant to a separate registration statement on Form F-6 (File No. 333- 212698). Each ADS represents 100 ordinary shares.

 

(5) Calculated in accordance with Rule 457(f) of the Securities Act. Quoin is a private company and no market exists for its equity securities. Quoin has accumulated a capital deficit; therefore, pursuant to Rule 457(f)(2) under the Securities Act, the proposed maximum offering price is calculated based on one-third of the aggregate par value of Quoin’s securities being acquired in the proposed merger.

 

(6) Calculated in accordance with Rule 457(g) of the Securities Act.

 

(7) Pursuant to Rule 457(g) of the Securities Act, no separate registration fee is required for such warrants, as the securities issuable upon exercise thereof are also being registered for distribution in this registration statement.

  

(8) Previously paid.

  

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

 

The information in this proxy statement/prospectus is not complete and may be changed. Cellect Biotechnology Ltd. may not sell its securities pursuant to the proposed transactions until the Registration Statement filed with the Securities and Exchange Commission is effective. This proxy statement/prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

PRELIMINARY PROSPECTUS
SUBJECT TO COMPLETION, DATED AUGUST 10, 2021

 

PROPOSED MERGER

 

YOUR VOTE IS VERY IMPORTANT

 

To the shareholders of Cellect Biotechnology Ltd. and the stockholders of Quoin Pharmaceuticals, Inc.:

 

Cellect Biotechnology Ltd., a corporation organized under the laws of Israel (“Cellect”) and Quoin Pharmaceuticals, Inc., a Delaware corporation (“Quoin”). have entered into an Agreement and Plan of Merger and Reorganization, dated March 24, 2021 (the “Merger Agreement”) pursuant to which CellMSC, Inc., a wholly-owned subsidiary of Cellect, will merge with and into Quoin, with Quoin surviving as a wholly-owned subsidiary of Cellect (the “Merger”). Cellect and Quoin believe the Merger is in the best interest of both companies and their equity holders.

  

At the effective time of the Merger (the “Effective Time”), Quoin’s stockholders and the Investor, who became a Quoin stockholder in a financing as described herein (the “Quoin Financing”), will be entitled to receive approximately 29,378,741 Cellect ordinary shares, subject to adjustment. In addition, certain Quoin warrants will be exchanged for Series A Warrants/Primary Warrants (as defined below) of Cellect to purchase 25,010 ordinary shares following the Merger. The number of shares to be issued in the Merger is an estimate only as of the date hereof and the final number of shares will be determined pursuant to a formula described in more detail in the Merger Agreement and in the attached proxy statement/prospectus. At the Effective Time, Cellect’s shareholders will continue to own and hold their existing Cellect ordinary shares, and all outstanding and unexercised options to purchase Cellect ordinary shares and outstanding and unexercised warrants to purchase Cellect ordinary shares will remain in effect pursuant to their terms.

 

In connection with the Quoin Financing, on March 24, 2021, Quoin and Cellect entered into agreements with Altium Growth Fund, LP (the “Investor”) in private placement transactions. Pursuant to a securities purchase agreement (the “Bridge SPA”), the Investor agreed to purchase from Quoin certain senior secured notes (the “Notes”) in an aggregate amount of $5.0 million (the “Quoin Bridge Loan”), as well as warrants to purchase Quoin common stock (the “Bridge Warrants”) having an aggregate value of $5.0 million and with an initial exercise price reflecting a $56.25 million fully-diluted pre-Merger valuation of Quoin, with such exercise price subject to certain downward adjustments. The Notes were issued with a 25% original issue discount and accordingly the consideration received by Quoin for such Notes was $3.75 million. Pursuant to a separate securities purchase agreement (the “Purchase Agreement”, and together with the Bridge SPA, the “Securities Purchase Agreements”), the Investor agreed to purchase (i) $17.0 million of Quoin common stock (the “Primary Shares”), which will be exchanged for Cellect ordinary shares in the Merger pursuant to the Exchange Ratio which will represent an aggregate of 18.48% of the estimated Parent Fully Diluted Number (as defined in the Purchase Agreement) and (ii) up to an aggregate number of shares of Quoin common stock equal to 300% of the number of Primary Shares (the “Additional Purchased Shares”), and Cellect agreed to issue to the Investor warrants to purchase ordinary shares of Cellect (the “Primary Warrants”, and together with the Bridge Warrants, the “Investor Warrants”). The purchase price for the Primary Shares, Additional Purchased Shares and Primary Warrants may be offset by the principal amount outstanding under any Notes held by the Investor. The Primary Warrants are comprised of Series A Warrants, Series B Warrants and Series C Warrants, each to acquire (x) an initial amount of ADSs equal to 100% of the quotient determined by dividing the Purchase Price paid by the Investor on the Shares Closing Date (as defined in the Purchase Agreement), by the lower of the Closing Per Share Price and the Initial Per Share Price (each as defined in the Purchase Agreement), and (y) in the case of the Series C Warrants, an initial amount of ADSs equal to 100% of the quotient determined by dividing $9.5 million by the lower of the Closing Per Share Price and the Initial Per Share Price, subject to certain adjustments. The initial exercise price of the Primary Warrants is the lower of the Closing Per Share Price and the Initial Per Share Price, subject to certain downward adjustments.

  

In summary, immediately after the Merger, and not accounting for additional shares of Quoin or Cellect ordinary shares that may be issuable pursuant to the adjustment provisions in the Purchase Agreement in the Quoin Financing (see the section entitled “Agreements Related to the Merger—Quoin Financing” in this proxy statement/prospectus), Quoin’s stockholders (including the Investor) will own in the aggregate (or have the right to receive) approximately 80% of the outstanding capital stock of Cellect, with Cellect’s pre-closing shareholders owning approximately 20% of the outstanding capital stock of Cellect, subject to adjustment as set forth in this proxy statement/prospectus. The formula used to determine the shares to be issued to Quoin common stockholders in the Merger excludes Cellect’s outstanding stock options and warrants which are out-of-the-money and not exchangeable for ordinary shares of Cellect pursuant to a fundamental transaction.

  

 

 

 

Cellect has also signed an Amended and Restated Share Transfer Agreement to sell the entire share capital of its subsidiary company, Cellect Biotherapeutics Ltd. (the “Subsidiary”), which will retain all of its existing assets, to EnCellX Inc. (“EnCellX”), a newly formed U.S. privately held company based in San Diego, CA (the “Share Transfer”). The Share Transfer is intended to close concurrently with the closing of the Merger. In connection with the Share Transfer, the pre-closing Cellect shareholders will receive a contingent value right (“CVR”) entitling the holders to earnouts, during the Payment Period (as such term is defined in the Share Transfer Agreement), comprised mainly of payments upon sale, milestone payments, license fees and exit fees. In addition, the Share Transfer Agreement further provides for a bonus payment upon incorporation of EnCellX from the Company to Dr. Shai Yarkoni for his contribution to the contemplated transaction and to the continued success of EnCellX in an amount equal to the consideration that he would have received had he been issued 40% of EnCellX share capital on a fully diluted basis. Any dividend payments on account of such shares, or consideration received upon their sale, shall be paid by the Company solely to Dr. Yarkoni and not to any other shareholder of the Company. In order to secure such right, shares constituting 40% of EnCellX share capital shall be held in escrow by Altshuler Shaham Trusts Ltd.

  

In connection with the Share Transfer, Cellect will enter into a CVR Agreement with Mr. Eyal Leibovitz, in the capacity of Representative for the holders of CVRs, and Computershare Trust Company, N.A., a federally chartered trust company (the “Rights Agent”). Under the terms of the CVR Agreement, the holders of the Cellect ADSs immediately prior to the Merger will have the right to receive, through their ownership of CVRs, their pro-rata share of the net Share Transfer consideration, making such holders of CVRs the indirect beneficiaries of the net payments under the Share Transfer. CVRs will be recorded in a register administered by the Rights Agent but will not be certificated.

 

Cellect’s ADSs, each representing 100 Cellect ordinary shares, are currently listed on the Nasdaq Capital Market (“Nasdaq”) under the symbol “APOP.” Prior to the consummation of the Merger, Cellect intends to file an initial listing application with Nasdaq for the combined company. After completion of the Merger, and pending approval thereof, Cellect will be renamed Quoin Pharmaceuticals, Inc., and expects to trade on Nasdaq under the symbol “QNRX”. On June 15, 2021, the last trading day before the date of this proxy statement/prospectus, the closing sale price of Cellect’s ADSs on Nasdaq was $3.04 per share.

  

Cellect is holding a special meeting of its shareholders (the “Cellect special meeting”) in order to obtain the shareholder approvals necessary to complete the Merger and related matters. The special meeting will be held at the offices of the Company's legal counsel – Doron, Tikotzky, Kantor, Gutman Nass, Amit Gross and Co., at B.S.R 4 Tower, 33 Floor, 7 Metsada Street, Bnei Brak, Israel. At the Cellect special meeting, Cellect will ask its shareholders to, among other things, approve the Merger Agreement and certain resolutions in connection therewith, including the issuance of the Company’s ordinary shares to Quoin’s stockholders pursuant to the terms of the Merger Agreement.

 

The resolutions associated with the approval of the Merger include the following:

 

(i)In connection with the Dilution Escrow Shares (as defined below), to approve the Escrow Agreement between The Bank of New York Mellon (“BONY”), the Company and Dr. Michael Myers, as the representative of the parties listed on Exhibit A attached thereto;

 

(ii)To approve the purchase by the Company of a “run-off” directors’ and officers’ liability insurance policy for a period of seven years following the effective time of the Merger;

 

  (iii) To approve the Letter of Agreement between the Company and Dr. Shai Yarkoni, pursuant to which Dr. Yarkoni may be enitled to receive a bonus of up to 40% of the amount of (a) any dividend payment distributed by EnCellX or (b) the consideration received by shareholders of EnCellX upon a sale of EnCellX (see “THE SPECIAL MEETING OF CELLECT SHAREHOLDERS – APPROVAL OF THE MERGER AGREEMENT AND RELATED TRANSACTIONS – Letter Agreement with Dr. Shai Yarkoni” and “MATTERS BEING SUBMITTED TO A VOTE OF CELLECT SHAREHOLDERS – Approval of Merger and Related Agreements and Transactions – Letter Agreement with Dr. Shai Yarkoni”);

 

(iv)To approve the Securities Purchase Agreement between the Company, Quoin and the Investor in connection with the Equity Financing (the “Purchase Agreement”) including the issuance of Company’s securities in accordance with the terms of the Purchase Agreement and the related escrow agreement between BONY, the Company, Quoin and the Investor;

 

(v)To approve the sale of the Company’s Subsidiary in accordance with the terms of that certain Amended and Restated Share Transfer Agreement, by and between the Company and EnCellX (the “Share Transfer”);

 

  (vi) To approve the Contingent Value Rights Agreement with Mr. Eyal Leibovitz as the Representative thereunder and Computershare Trust Company, N.A. (the “CVR Agreement”) (see “THE SPECIAL MEETING OF CELLECT SHAREHOLDERS – APPROVAL OF THE MERGER AGREEMENT AND RELATED TRANSACTIONS – The CVR Agreement” and “MATTERSW BEING SUBMITTED TO A VOTE OF CELLECT SHAREHOLDERS – Approval of Merger and Related Agreements and Transactions – The CVR Agreement”);

 

(vii)To approve the Escrow Agreement by and among the Company, EnCellX and Althsuler Shaham Trusts Ltd.;

 

(viii)In connection with the CVR Agreement, to approve the related Representative Agreement by and among Mr. Eyal Leibovitz, the Company and EnCellX; and

 

(ix)To approve (i) an increase of the Company's share capital by NIS 12,000,000,000 ordinary shares, from NIS 500,000,000, to NIS 12,500,000,000 ordinary shares no par value per share; (ii) a change of the Company's name to "Quoin Pharmaceuticals, Ltd." or a similar name approved by the Israeli Companies Registrar; and (ii) a corresponding amendment to the Company's Articles of Association.

 

 

 

 

See “MATTERS BEING SUBMITTED TO CELLECT SHARHOLDERS – Approval of the Merger and the Related Documents and Transactions” for the resolutions to be presented to the Company’s shareholders. 

 

After careful consideration, Cellect’s board of directors (the “Cellect Board”) has (i) determined that the Merger and all related transactions contemplated by the Merger Agreement are fair to, advisable and in the best interests of Cellect and its shareholders, (ii) approved and declared advisable the Merger Agreement and the transactions contemplated therein and (iii) determined to recommend, upon the terms and subject to the conditions set forth in the Merger Agreement, that its shareholders vote to approve the issuance of Cellect ordinary shares pursuant to the Merger Agreement. The Cellect Board recommends that Cellect’s shareholders vote “FOR” the Merger and the related transactions and agreements.

 

After careful consideration, Quoin’s board of directors (the “Quoin Board”) has (i) determined that the Merger and all related transactions contemplated by the Merger Agreement are fair to, advisable and in the best interests of Quoin and its stockholders, (ii) approved and declared advisable the Merger Agreement and the transactions contemplated therein and (iii) determined to recommend, upon the terms and subject to the conditions set forth in the Merger Agreement, that its stockholders vote to adopt the Merger Agreement and approve the transactions contemplated thereby. The stockholders of Quoin have executed a written consent approving the Merger and the transactions contemplated by the Merger Agreement.

 

More information about Cellect, Quoin and the proposed transaction is contained in this proxy statement/prospectus. Cellect and Quoin urge you to read the accompanying proxy statement/prospectus carefully and in its entirety. IN PARTICULAR, YOU SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER “RISK FACTORS” BEGINNING ON PAGE 20.

 

Cellect and Quoin are excited about the opportunities that the Merger brings to both the equityholders of Cellect and Quoin and thank you for your consideration and continued support.

 

Dr. Shai Yarkoni Michael Myers, PhD
Chief Executive Officer Chief Executive Officer
Cellect Biotechnology Ltd. Quoin Pharmaceuticals, Inc.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this proxy statement/prospectus. Any representation to the contrary is a criminal offense.

 

The accompanying proxy statement/prospectus is dated   August 10, 2021, and is first being mailed to Cellect’s shareholders and Quoin’s stockholders on or about August 12, 2021.

  

 

 

 

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CELLECT BIOTECHNOLOGY LTD.
NOTICE OF SPECIAL GENERAL MEETING OF SHAREHOLDERS

 

Notice is hereby given that a Special General Meeting (the “Special Meeting”) of Shareholders of Cellect Biotechnology Ltd. (the “Company”) will be held at the offices of the Company's legal counsel – Doron, Tikotzky, Kantor, Gutman Nass, Amit Gross and Co., at B.S.R 4 Tower, 33 Floor, 7 Metsada Street, Bnei Brak, on September 19, 2021 at 11:00 a.m. Israel time or at any postponement or adjournment thereof.

  

As announced on March 24, 2021, the Company and Quoin Pharmaceuticals, Inc., a Delaware corporation (“Quoin”) entered into an Agreement and Plan of Merger and Reorganization, dated March 24, 2021 (the “Merger Agreement”). Pursuant to the Merger Agreement CellMSC, Inc., a newly formed wholly-owned subsidiary of the Company (“Merger Sub”) will merge with and into Quoin, with Quoin surviving as a wholly-owned subsidiary of the Company (the “Merger”).

 

Quoin secured $25.25 million in committed equity funding (the “Equity Financing”) from Altium Growth Fund, LP, an institutional healthcare investor (the “Investor”). The Investor and Quoin executed the agreement providing for the Equity Financing on March 24, 2021 The Merger Agreement, the Purchase Agreement, and the Investor Warrants provide for certain dilution protections for the Company’s pre-closing shareholders in connection with such Equity Financing.

  

The Merger Agreement contemplates the sale of the Company’s wholly-owned subsidiary, Cellect Biotherapeutics Ltd. (the “Subsidiary”), to EnCellX, Inc., a newly formed Delaware private corporation (“EnCellX”), which shall continue to employ the Company’s management as further described below. All shareholders of the Company immediately prior to the Closing will be entitled to their respective portions of the consideration received by the Company in connection with such sale. Payment of the consideration shall be made under Contingent Value Rights (“CVRs”) which shall be issued to such shareholders at the Closing of the Merger.

  

The Special Meeting is being called for the purpose of approving the Merger Agreement and certain resolutions in connection therewith, including the issuance of the Company’s ordinary shares to Quoin’s stockholders pursuant to the terms of the Merger Agreement. The resolutions associated with the approval of the Merger include the following:

 

(i)In connection with the Dilution Escrow Shares (as defined below), to approve the Escrow Agreement between The Bank of New York Mellon (“BONY”), the Company and Dr. Michael Myers, as the representative of the parties listed on Exhibit A attached thereto;

 

(ii)To approve the purchase by the Company of a “run-off” directors’ and officers’ liability insurance policy for a period of seven years following the effective time of the Merger;

 

(iii)To approve the Letter of Agreement between the Company and Dr. Shai Yarkoni;

 

(iv)To approve the Securities Purchase Agreement between the Company, Quoin and the Investor in connection with the Equity Financing (the “Purchase Agreement”) including the issuance of Company’s securities in accordance with the terms of the Purchase Agreement and the related escrow agreement between BONY, the Company, Quoin and the Investor;

 

(v)To approve the sale of the Company’s Subsidiary in accordance with the terms of that certain Amended and Restated Share Transfer Agreement, by and between the Company and EnCellX (the “Share Transfer”);

 

(vi)To approve the Contingent Value Rights Agreement with Mr. Eyal Leibovitz as the Representative thereunder and Computershare Trust Company, N.A. (the “CVR Agreement”);

 

(vii)To approve the Escrow Agreement by and among the Company, EnCellX and Althsuler Shaham Trusts Ltd.;

 

(viii)In connection with the CVR Agreement, to approve the related Representative Agreement by and among Mr. Eyal Leibovitz, the Company and EnCellX; and

 

(ix)To approve (i) an increase of the Company's share capital by NIS 12,000,000,000 ordinary shares, from NIS 500,000,000, to NIS 12,500,000,000 ordinary shares no par value per share; (ii) a change of the Company's name to "Quoin Pharmaceuticals, Ltd." or a similar name approved by the Israeli Companies Registrar; and (ii) a corresponding amendment to the Company's Articles of Association.

 

See “MATTERS BEING SUBMITTED TO CELLECT SHARHOLDERS – Approval of the Merger and the Related Documents and Transactions” for the resolutions to be presented to the Company’s shareholders. 

 

After careful consideration, the Company’s special committee and board of directors (the “Board”) have (i) determined that the Merger and all related transactions contemplated by the Merger Agreement are fair to, advisable, and in the best interests of the Company and its shareholders, (ii) approved and declared advisable the Merger Agreement, the Purchase Agreement and the transactions contemplated therein and (iii) determined to recommend, upon the terms and subject to the conditions set forth in the Merger Agreement, that its shareholders vote to approve the issuance of the Company’s ordinary shares pursuant to the Merger Agreement and the Purchase Agreement. The Board recommends that the Company’s shareholders and ADS holders vote “FOR” the Merger and the related transactions and agreements.

 

 

 

 

Shareholders and American Depositary Share (the “ADSs”) holders of record at the close of business on September 12, 2021 (the “Record Date”), are entitled to notice of and to vote at the Special Meeting either in person or by appointing a proxy to vote in their stead at the Special Meeting.

  

Shareholders registered in the Company’s shareholders’ register in Israel, and shareholders who hold ordinary shares through members of the Tel Aviv Stock Exchange may also vote by the attached proxy by completing, dating, signing and mailing the attached proxy to the Company’s offices, so that is received by the Company no later than four hours prior to the scheduled date and time of the Special Meeting. Such shareholders must also provide the Company with a copy of their identity card, passport, certificate of incorporation or certificate of formation, as applicable. Shareholders who hold shares through members of the Tel Aviv Stock Exchange and intend to vote their ordinary shares either in person or by proxy must deliver to the Company, no later than four hours prior to the scheduled date and time of the Special Meeting, an ownership certificate confirming their ownership of the Company’s ordinary shares on the Record Date, which certificate must be approved by a recognized financial institution, as required by the Israeli Companies Regulations (Proof of Ownership of Shares for Voting at General Meeting) 4760 - 2000, as amended (the "Ownership Regulations").

 

ADS holders should return their proxies by the date set forth on their voting instruction card.

 

Should changes be made to any item on the agenda for the Special Meeting after the publication of this notice, the Company will communicate the changes to its shareholders through the publication of a press release, a copy of which will be filed with the SEC on a Current Report on Form 6-K.

 

To the extent you would like to submit a position statement with respect to any of proposals described in the Proxy Statement pursuant to the Israeli Companies law, 5759-1999 (the "Companies Law"), you may do so by delivery of appropriate notice to Company’s offices (Attention: Chief Financial Officer) located at 23 Hata’as Street Kfar Saba, Israel 44425, Israel, not later than ten days before the Special Meeting date (i.e., September 9, 2021).

 

If you are a beneficial owner of ordinary shares registered in the name of a member of the Tel Aviv Stock Exchange and you wish to vote, either by appointing a proxy, or in person by attending the Special Meeting you must deliver to us a proof of ownership in accordance with the Companies Law and the Ownership Regulations. Detailed voting instructions are provided in the Proxy Statement.

 

 

Sincerely,

Avraham Nahmias

Chairman of the Board of Directors

 

August 12, 2021

 

 

 

 

REFERENCES TO ADDITIONAL INFORMATION

 

This proxy statement/prospectus incorporates important business and financial information about Cellect that is not included in or delivered with this document. You may obtain this information without charge upon your written or oral request by contacting the Corporate Secretary of Cellect Biotechnology Ltd., 23 Hata’as Street, Kfar Saba, Israel 44425, or by calling 86 20 2290-7888

 

To ensure timely delivery of these documents, any request should be made no later than September 1, 2021 to receive them before the special meeting.

 

For additional details about where you can find information about Cellect, please see the section entitled “Where You Can Find More Information” in this proxy statement/prospectus.

 

ABOUT THIS PROXY STATEMENT/PROSPECTUS

 

This proxy statement/prospectus, which forms part of a registration statement on Form F-4 filed with the Securities and Exchange Commission (the “SEC”) by Cellect (File No. 333- ), constitutes a prospectus of Cellect under Section 5 of the Securities Act of 1933, as amended (the “Securities Act”) with respect to the ordinary shares, no par value, of Cellect Biotechnology Ltd. to be issued pursuant to the Merger Agreement. This document also constitutes a notice of meeting with respect to the Cellect special meeting, at which Cellect shareholders will be asked to consider and vote on, among other matters, a proposal to approve the issuance of Cellect ordinary shares pursuant to the Merger Agreement.

 

No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this proxy statement/prospectus. This proxy statement/prospectus is dated August 10, 2021. The information contained in this proxy statement/prospectus is accurate only as of that date or, in the case of information in a document incorporated by reference, as of the date of such document, unless the information specifically indicates that another date applies.

 

This proxy statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction in which or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction.

 

The information concerning Cellect contained in this proxy statement/prospectus or incorporated by reference has been provided by Cellect, and the information concerning Quoin contained in this proxy statement/prospectus has been provided by Quoin.

 

 

 

 

TABLE OF CONTENTS

 

Page

 

PROXY STATEMENT 1
SPECIAL GENERAL MEETING OF SHAREHOLDERS 1
PROSPECTUS SUMMARY 7
SELECTED HISTORICAL AND UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA 17
RISK FACTORS 20
FORWARD-LOOKING STATEMENTS 77
THE SPECIAL MEETING OF CELLECT’S SHAREHOLDERS 79
APPROVAL OF THE MERGER AGREEMENT AND RELATED TRANSACTIONS 79
THE MERGER 86
THE MERGER AGREEMENT 120
AGREEMENTS RELATED TO THE MERGER 137
MATTERS BEING SUBMITTED TO A VOTE OF CELLECT’S SHAREHOLDERS 143
CELLECT BUSINESS 150
QUOIN BUSINESS 192
CELLECT MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 200
QUOIN MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 209
MANAGEMENT PRIOR TO AND FOLLOWING THE MERGER 221
CELLECT EXECUTIVE COMPENSATION 235
QUOIN EXECUTIVE COMPENSATION 237
RELATED PARTY TRANSACTIONS OF DIRECTORS AND EXECUTIVE OFFICERS OF QUOIN 239
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION 240
DESCRIPTION OF CELLECT’S CAPITAL STOCK 246
DESCRIPTION OF AMERICAN DEPOSITARY SHARES 251
COMPARISON OF RIGHTS OF HOLDERS OF CELLECT STOCK AND QUOIN STOCK 260
Summary of Material Differences Between the Rights of Quoin Stockholders and Cellect/Combined Company Shareholders 260
PRINCIPAL SHAREHOLDERS OF CELLECT 278
PRINCIPAL SECURITYHOLDERS OF QUOIN 280

 

i

 

PRINCIPAL STOCKHOLDERS OF THE COMBINED ORGANIZATION 281
LEGAL MATTERS 282
EXPERTS 282
WHERE YOU CAN FIND MORE INFORMATION 282
ADDITIONAL INFORMATION 282
STOCKHOLDER COMMUNICATIONS 283
INDEX TO FINANCIAL STATEMENTS F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM F-34
PART II INFORMATION NOT REQUIRED IN PROXY STATEMENT/PROSPECTUS II-1
INDEX TO EXHIBITS II-5
SIGNATURES II-8
Annex A - Merger Agreement  
Annex B – Opinion of Casset Salpeter & Co., LLC  
Annex C – Securities Purchase Agreement  
Annex D – Registration Rights Agreement  
Annex E – Amendment to Cellect Articles of Association  
Annex F – Form of Merger Escrow Agreement  
Annex G – Letter Agreement  
Annex H – Share Transfer Agreement  
Annex I – Form of CVR Agreement  
Annex J – Form of Altschuler Escrow Agreement  
Annex K – Form of Representative Agreement  
Annex L – Section 262 of DGCL  

 

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https:||www.sec.gov|Archives|edgar|data|1671502|000114420417015941|logo_ex99-1.jpg

 

CELLECT BIOTECHNOLOGY LTD.

 

KFAR SABA, ISRAEL

 

___________________

 

PROXY STATEMENT

 

___________________

 

SPECIAL GENERAL MEETING OF SHAREHOLDERS

 

August 10, 2021

 

This Proxy Statement is furnished to our holders of ordinary shares, no par value, and holders of our ordinary shares that are represented by ADSs, for the Special General Meeting (the “Special Meeting”) of Shareholders of Cellect Biotechnology Ltd. (the “Company”) to be held on September 19, 2021, at the offices of the Company’s legal counsel, Doron, Tikotzky, Kantor, Gutman, Nass, Amit Gross and Co., at B.S.R. 4 Tower, 33 Floor, 7 Metsada Street, Bnei Brak, Israel or at any adjournments thereof. The Special Meeting shall be held at 11:00 a.m., Israel time, on such day or at any adjournments thereof.

  

Throughout this Proxy Statement, we use terms such as “Cellect”, “we”, “us”, “our” and the “Company” to refer to Cellect Biotechnology Ltd. and terms such as “you” and “your” to refer to our shareholders and ADS holders.

 

Agenda Items

 

The agenda of the Special Meeting will be to approve the Merger Agreement and certain resolutions in connection therewith, including the issuance of the Company’s ordinary shares to Quoin’s stockholders pursuant to the terms of the Merger Agreement. The resolutions associated with the approval of the Merger include the following:

 

(i)In connection with the Dilution Escrow Shares (as defined below), to approve the Escrow Agreement between The Bank of New York Mellon (“BONY”), the Company and Dr. Michael Myers, as the representative of the parties listed on Exhibit A attached thereto;

 

(ii)To approve the purchase by the Company of a “run-off” directors’ and officers’ liability insurance policy for a period of seven years following the effective time of the Merger;

 

(iii)To approve the Letter of Agreement between the Company and Dr. Shai Yarkoni;

 

(iv)To approve the Securities Purchase Agreement between the Company, Quoin and the Investor in connection with the Equity Financing (the “Purchase Agreement”) including the issuance of Company’s securities in accordance with the terms of the Purchase Agreement and the related escrow agreement between BONY, the Company, Quoin and the Investor;

 

(v)To approve the sale of the Company’s Subsidiary in accordance with the terms of that certain Amended and Restated Share Transfer Agreement, by and between the Company and EnCellX (the “Share Transfer”);

 

(vi)To approve the Contingent Value Rights Agreement with Mr. Eyal Leibovitz as the Representative thereunder and Computershare Trust Company, N.A. (the “CVR Agreement”);

 

(vii)To approve the Escrow Agreement by and among the Company, EnCellX and Althsuler Shaham Trusts Ltd.;

 

(viii)In connection with the CVR Agreement, to approve the related Representative Agreement by and among Mr. Eyal Leibovitz, the Company and EnCellX; and

 

(ix)To approve (i) an increase of the Company's share capital by NIS 12,000,000,000 ordinary shares, from NIS 500,000,000, to NIS 12,500,000,000 ordinary shares no par value per share; (ii) a change of the Company's name to "Quoin Pharmaceuticals, Ltd." or a similar name approved by the Israeli Companies Registrar; and (ii) a corresponding amendment to the Company's Articles of Association.

 

Should any other matters be properly raised at the Special Meeting, the persons designated as proxies shall vote according to their own judgment on those matters.

 

1

 

Board Recommendation

 

In connection with the Merger, the Board nominated a special committee to analyze the material terms of the entire transaction and the alternatives at hand. The members of the special committee are Mr. Jonathan Burgin, Mr. Yali Sheffi and Mr. Abraham Nahmias (the “Special Committee”). The Special Committee convened several times and discussed the various business and financial matters in connection with the contemplated transactions.

 

In addition, in the course of its evaluation of the Merger, the Merger Agreement, the Purchase Agreement and the related agreements, the Board held several meetings and consulted with Company’s management, legal counsel and financial advisors, and reviewed a significant amount of information and, in reaching its decision to approve such agreements, the Board considered a number of factors, including, among others, the following:

 

·The Board reviewed the prior minutes of the meetings of its strategic committee and the Board from 2019, in which it was resolved that management shall seek strategic agreements to increase the value of the Company’s shares. Management further presented to the Board a business plan for 2021-2022 that required approximately $20 million to fund the clinical and business development of the Company’s technology. Accordingly, considering the Company’s business and financial prospects, the Board determined that the Company could not continue to operate as an independent company and needed to enter into an agreement with a strategic partner;

 

·Over the last 20 months, the Board was presented with a few alternative candidates for a transaction, including pharma, hi-tech and cannabis companies; however, following intensive evaluation all of such alternatives and corresponding negotiations, these transaction opportunities did not come to fruition;

 

·The Board assessed the possible alternatives to the Merger, the range of possible benefits and risks of those alternatives to the Company’s shareholders, and the timing and the likelihood of accomplishing any of such alternatives, and the Board determined that the Merger is a superior opportunity to such alternatives for the Company’s shareholders;

 

·The Board considered the valuation of the potential merger candidates. In particular, the Board found Quoin the most attractive candidate because of (i) its clinical program focused on rare and orphan diseases, (ii) its experienced leadership team, comprised of industry veterans with extensive relevant executive experience and record of recent success in the pharmaceutical industry, and (iii) the Board’s belief that the Merger with Quoin would create more value for Company’s shareholders than any of the other proposals that the Board had received or that the Company could create on its own;

 

·If the Merger is not approved, the Company will need to raise additional funds with an undesirable valuation and may not succeed in doing so, given that the Company currently has sufficient funds to finance operations for less than one year under its current cash projections;

 

·The Board considered that (i) the sale of the Subsidiary to EnCellX, pursuant to a separate agreement and as a condition to the Merger, would result in a company focused on the development of technology for the selection of stem cells from any given tissue that aims to improve a variety of cell-based therapies allowing cell-based treatments and procedures in a wide variety of applications in regenerative medicine and other indications and (ii) under the provisions of the CVR Agreement, the Company’s current shareholders would able to participate in the growth potential of the combined company, since they would have the right to receive a portion of the proceeds derived from the commercialization of products under the ApoGraft technology platform;

 

·An experienced senior management team would lead the combined public company, with Dr. Michael Myers serving as its Chief Executive Officer. In addition, EnCellX would be led by experienced CEO, Adi Mohanty, who would be supported by Dr. Shai Yarkoni as a CTO;

 

·Current financial market conditions, including the impact of the coronavirus pandemic on global financial markets, and historical market prices, volatility, and trading information with respect to the Company’s ADS indicate that this is a good time to execute the Merger;

 

·The terms of the Merger Agreement, the Purchase Agreement, and related agreements, including the parties’ representations, warranties and covenants, the conditions to their respective obligations and the termination rights of the parties are fair and appropriate;

 

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·Cassel Salpeter & Co., LLC presented its financial analysis to the Board on March 17, 2021, and, in its opinion, expressed to the Board that, as of such date, based upon and subject to the various assumptions made, procedures followed, matters considered, and qualifications and limitations set forth in such opinion, the Exchange Ratio (as defined in the Merger Agreement) was fair from a financial point of view, to the Company;

 

·The likelihood that the Merger would be consummated; and

 

·Quoin has $25.25 million in committed equity funding from Altium Capital, a well-regarded institutional healthcare investor, a portion of which will be provided concurrently with the Merger, to provide funds for the further development of Quoin’s business.

 

The Board also considered a number of uncertainties and risks in its evaluation of the Merger and the other transactions contemplated by the Merger Agreement, including the following:

 

·the possibility that the Merger will not be consummated and the potential negative effect of the public announcement of the Merger on the Company’s business and stock price;

 

·the possibility that any current or future products under the ApoGraft technology may not be successfully commercialized, that EnCellX may not raise the funds required for its successful operations, and/or the potential that the Company’s shareholders would receive no consideration under the CVR Agreement;

 

·certain provisions of the Merger Agreement could have the effect of discouraging competing proposals involving the Company, including the restrictions on Company’s ability to solicit proposals for competing transactions involving the Company, and under certain circumstances the Company may be required to pay to Quoin a termination fee of $500,000, expense reimbursements of up to $250,000, and all reasonable fees and expenses of incurred by Quoin, if the Merger Agreement were to be terminated;

 

·although under certain circumstances Quoin may be required to reimburse certain transaction expenses of the Company of up to $250,000 and/or pay to the Company a termination fee of $500,000, such reimbursement and/or termination fee might only offset a portion of expenses incurred by the Company in connection with the Merger;

 

·the strategic direction of the Company following the completion of the Merger will be determined by a board of directors initially comprised of a majority of designees of Quoin;

 

·the substantial fees and expenses associated with completing the Merger, including the costs associated with any related litigation; and

 

·the risk that the Merger may not be completed despite the parties’ efforts or that the closing may be unduly delayed and the effects such failure or delay might have on the Company, leaving the Company with a more limited range of alternative strategic transactions, as it likely would be unable to raise additional capital through the public or private sale of equity securities on favorable terms.

 

In considering the Board’s recommendation to issue the Company’s ordinary shares, as contemplated in the Merger Agreement, as well as the other matters to be acted upon by Company’s shareholders at the Company’s Special Meeting, the Company’s shareholders should be aware that certain members of the Board and certain of Company’s executive officers, including Dr. Shai Yarkoni, our CEO, and Mr. Eyal Leibovitz, our CFO, have interests in the Merger and in the related agreements that may be different from, or in addition to, the interests of Company’s shareholders. These interests, all of which are described in this Proxy Statement, may present them with actual or potential conflicts of interest, and those interests, to the extent material, are described below.

 

Each of the members of the Company’s Board and the members of the Board of Directors of Quoin was aware of these potential conflicts of interest and considered them, among other matters, in reaching their respective decisions to approve the Merger, the Merger Agreement, the Purchase Agreement and the related agreements, and to recommend that their stockholders or shareholders approve the same.

 

In light of the above, our Board of Directors unanimously recommends that you vote “FOR” the Merger and the related transactions and agreements.

 

3

 

Who Can Vote

 

Only shareholders and ADS holders of record at the close of business on September 12, 2021 (the “Record Date”), are entitled to notice of and to vote at the Special Meeting and any adjournment or postponement.

 

How You Can Vote

 

You can vote your ordinary shares by attending the Special Meeting. If you do not plan to attend the Special Meeting, the method of voting will differ for shares held as a record holder, shares held in “street name” through a Tel Aviv Stock Exchange (“TASE” member) and shares underlying ADSs that you hold. Record holders of shares will receive proxy cards. Holders of shares in “street name” through a TASE member will also vote via a proxy card, but through a different procedure (as described below). Holders of ADSs (whether registered in their name or in a “street name”) will receive voting instruction cards in order to instruct their banks, brokers or other nominees on how to vote.

 

Shareholders of Record

 

If you are a shareholder holder of record, you can submit your vote by completing, signing and submitting an applicable proxy card, which has been published at www.sec.gov.

 

Please follow the instructions on the applicable proxy card.

 

Shareholders Holding in “Street Name,” Through the TASE

 

If you hold ordinary shares in “street name,” that is, through a bank, broker or other nominee that is admitted as a member of the TASE, your votes will only be taken into account if you provide, via mail or in person, a completed, dated and signed version of the attached proxy to the Company’s offices such that it is received by the Company no later than four hours prior to the scheduled date and time of the Special Meeting if via mail, or, if you attend the Special Meeting, in person.

 

If voting by mail, you must sign and date an applicable proxy card in the form filed by us on www.sec.gov, so that it is received by the Company no later than four hours prior to the scheduled date and time of the Special Meeting and attach to it a certificate signed by the TASE Clearing House member through which the shares are held, which complies with the Ownership Regulations as proof of ownership of the shares, as applicable, on the Record Date, and return the applicable proxy card, along with the proof of ownership certificate, to us, as described in the instructions available on www.sec.gov.

 

If you choose to attend the Special Meeting (where ballots will be provided), you must bring the proof of ownership certificate from the TASE’s Clearing House member through which your shares are held, indicating that you are the beneficial owner of the shares, as applicable, on the Record Date.

 

Holders of ADSs

 

Under the terms of the Deposit Agreement by and among the Company, The Bank of New York Mellon, as depositary (“BNY Mellon”), and the holders of our ADSs, BNY Mellon shall endeavor (insofar as is practicable) to vote or cause to be voted the number of shares represented by ADSs in accordance with the instructions provided by the holders of ADSs to BNY Mellon. For ADSs that are held in “street name” (i.e. through a bank, broker or other nominee), the voting process will be based on the underlying beneficial holder of the ADSs’ directing the bank, broker or other nominee to arrange for BNY Mellon to vote the ordinary shares represented by the ADSs in accordance with the beneficial holder’s voting instructions. If no instructions are received by BNY Mellon from any holder of ADSs (whether held directly by a beneficial holder or in “street name”) with respect to any of the shares represented by the ADSs on or before the date established by BNY Mellon for such purpose, BNY Mellon will not vote or attempt to vote the shares represented by such ADSs.

 

4

 

Multiple Record Holders or Accounts

 

You may receive more than one set of voting materials, including multiple copies of this document and multiple proxy cards or voting instruction cards. For example, shareholders who hold ADSs in more than one brokerage account will receive a separate voting instruction card for each brokerage account in which ADSs are held. Shareholders of record whose shares are registered in more than one name will receive more than one proxy card. You should complete, sign, date and return each proxy card and voting instruction card you receive.

 

Our Board of Directors urges you to vote your shares so that they will be counted at the Special Meeting or at any postponements or adjournments of the Special Meeting.

 

Solicitation of Proxies

 

The Company is soliciting your proxy to vote at the Special Meeting. By appointing “proxies,” shareholders and ADS holders may vote at the Special Meeting whether or not they attend. If a properly executed proxy in the attached form is received by us at least four hours prior to the Special Meeting (and received by BNY Mellon no later than the date indicated on the voting instruction card, in the case of ADS holders), all of the shares represented by the proxy shall be voted as indicated on the form or, if no preference is noted, shall be voted in favor of the matter described above, and in such manner as the holder of the proxy may determine with respect to any other business as may come before the Special Meeting or any adjournment thereof. Shareholders and ADS holders may revoke their proxies at any time before the deadline for receipt of proxies by filing with us (in the case of holders of ordinary shares) or with BNY Mellon (in the case of holders of ADSs) a written notice of revocation or duly executed proxy bearing a later date.

 

Proxies are being distributed or made available to shareholders and ADS holders on or about August 12, 2021. Certain officers, directors, employees, and agents of ours, none of whom will receive additional compensation therefor, may solicit proxies by telephone, emails, or other personal contact. We will bear the cost for the solicitation of proxies, including postage, printing, and handling, and we will reimburse the reasonable expenses of brokerage firms and others for forwarding material to beneficial owners of ordinary shares and ADSs.

 

To the extent you would like to submit a position statement with respect to any of proposals described in the Proxy Statement pursuant to the Israeli Companies law, 1999 (the “Israeli Companies Law”), you may do so by delivery of appropriate notice to Company’s offices (Attention: Chief Financial Officer) located at 23 Hata’as Street Kfar Saba, Israel 44425, Israel, not later than ten days before the Special Meeting date (i.e., September 9, 2021).

 

Quorum

 

At the close of business on June 16, 2021, we had outstanding 392,173,700 ordinary shares. The foregoing number of outstanding ordinary shares excludes 2,641,693 ordinary shares that are held in treasury and have no voting rights. Each ordinary share (including ordinary shares represented by ADSs) outstanding as of the close of business on the record date is entitled to one vote upon each of the matters to be voted on at the Special Meeting. Abstentions are counted as ordinary shares present for the purpose of determining a quorum.

 

Under our Articles of Association, the Special Meeting will be properly convened if at least two shareholders attend the meeting in person or sign and return proxies, provided that they hold shares representing at least 33% of our voting power. If such quorum is not present within half an hour from the time the Special Meeting is scheduled to start, the meeting will be adjourned for one week (to the same day, time and place), or to a later date if so specified in the notice of the meeting. At the reconvened meeting, if there is no quorum within half an hour from the time the Special Meeting is scheduled to start, any number of our shareholders present in person or by proxy shall constitute a lawful quorum.

 

Vote Required for the Merger and Related Matters

 

The approval of the Merger and the related agreements, as stipulated in the Proxy Statement, is subject to the affirmative vote of holders of at least a majority of the ordinary shares, including those represented by ADSs, voted in person or by proxy at the Special Meeting, provided that either: (i) the shares voting in favor of such resolution include at least a majority of the shares voted by shareholders or ADS holders who are neither (a) “controlling shareholders” nor (b) have a “personal interest” in the approval of the Merger Agreement and the related transactions and agreements; or (ii) the total number of shares voted against the resolution by the disinterested shareholders described in clause (i) does not exceed 2% of the Company’s outstanding voting power. Abstentions and broker non-votes will have the same effect as votes “AGAINST” this proposal.

 

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For purposes of the foregoing, a “controlling shareholder” is any shareholder that has the ability to direct a company’s activities (other than by means of being a director or other office holder of the company). A person is presumed to be a controlling shareholder if he, she or it holds 50% or more of the voting rights in a company or has the right to appoint the majority of the directors of a company or its general manager, but excludes a shareholder whose power derives solely from his or her position as a director of the company or from any other position with the company.

 

A “personal interest” of a shareholder (i) includes any interest of any member of the shareholder’s immediate family (i.e., spouse, sibling, parent, parent’s parent, descendent, the spouse’s descendent, sibling or parent, and the spouse of each of these) or an interest of an entity with respect to which the shareholder (or such a family member thereof) serves as a director or the chief executive officer, owns at least 5% of the shares or such entity’s voting rights, or has the right to appoint a director or the chief executive officer; and (ii) excludes any interest arising solely from the ownership of shares of the Company. In determining whether a proxy vote is disinterested, a “personal interest” of the proxy holder is also considered and will cause that vote to be treated as the vote of an interested shareholder, even if the shareholder granting the proxy does not have a direct interest in the matter being voted upon.

 

As of June 16, 2021, the Company did not have a controlling shareholder.

 

You are required to indicate whether or not you are a controlling shareholder of the Company, or acting on its behalf, and whether you have a personal interest in the approval of the Merger Agreement and the related transactions and agreements. If you fail to indicate so on the proxy card, your vote will not be counted.

 

If you provide specific instructions (mark boxes) with regard to the proposal, your shares will be voted as you instruct. If you do not mark one of the boxes, your vote will not be counted.

 

If you are a shareholder of record and do not return your proxy card, your shares will not be voted. If you hold shares (or ADSs representing shares) beneficially in street name, your shares will also not be voted at the meeting if you do not return your proxy card or voting instruction card instructing your broker or BNY Mellon how to vote. Brokers and BNY Mellon may only vote in accordance with instructions from a beneficial owner of shares or ADSs.

 

Reporting Requirements

 

We are subject to the information reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) applicable to foreign private issuers. We fulfill these requirements by filing reports with the SEC, available to the public on the Commission’s website at http://www.sec.gov.

 

As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing certain disclosure and procedural requirements for proxy solicitations. In addition, we are not required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as United States companies whose securities are registered under the Exchange Act. This Notice of the Special General Meeting of Shareholders and the Proxy Statement have been prepared in accordance with applicable disclosure requirements in the State of Israel.

 

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PROSPECTUS SUMMARY

 

This summary highlights selected information from this proxy statement/prospectus and may not contain all of the information that is important to you. To better understand the Merger, the proposals being considered at the Cellect special meeting and Quoin’s actions that are a subject of the written consent, you should read this entire proxy statement/prospectus carefully, including the Merger Agreement attached as Annex A. For more information, please see the section entitled “Where you can Find More Information” in this proxy statement/prospectus.

 

The Companies

 

Cellect Biotechnology Ltd.

23 Hata’as Street

Kfar Saba, Israel 44425

86 20 2290-7888

Dr. Shai Yarkoni, Chief Executive Officer

 

We are an emerging biotechnology company that has developed a novel technology platform known as ApoGraft that functionally selects stem cells in order to improve the safety and efficacy of regenerative medicine and stem cell therapies. We aim to become the standard enabling technology for the enrichment of the stem cell population for companies developing stem cell therapies, for physicians practicing regenerative medicine and for researchers and academia engaged in stem cell research.

 

Quoin Pharmaceuticals, Inc.

42127 Pleasant Forest Ct

Ashburn, VA 20148

703-980-4182
Michael Myers, PhD, Chief Executive Officer

 

Quoin is an emerging specialty pharmaceutical company dedicated to developing products that help treat rare and orphan diseases for which there are currently no approved treatments. Quoin was co-founded by Dr. Michael Myers and Denise Carter, both of whom have extensive experience in the pharmaceutical industry. Dr. Myers and Ms. Carter have successfully developed and commercialized pharmaceutical products based on platform drug delivery technologies at previous companies where they have worked. Furthermore, Dr. Myers and Ms. Carter have successfully raised over $150 million from private and public company investors for other companies and have established broad relationships within the pharmaceutical industry.

 

Merger Sub

 

Merger Sub is a wholly-owned subsidiary of Cellect, and was formed solely for the purposes of carrying out the Merger.

 

The Merger

 

At the Effective Time, and not accounting for additional shares of Quoin or Cellect ordinary shares that may be issuable pursuant to the adjustment provisions in the Purchase Agreement in the Quoin Financing (see the section entitled “Agreements Related to the Merger—Quoin Financing” in this proxy statement/prospectus), Quoin’s stockholders (including the Investor) will be entitled to receive approximately 29,378,741 Cellect ordinary shares, subject to adjustment. The number of shares to be issued in the Merger is an estimate only as of the date hereof and the final number of shares will be determined pursuant to a formula described in more detail in the Merger Agreement and in this proxy statement/prospectus. In addition, certain Quoin warrants will be exchanged for Series A Warrants/Primary Warrants of Cellect to purchase 25,010 ordinary shares following the Merger.

 

At the Effective Time, Cellect’s shareholders will continue to own and hold their existing Cellect ordinary shares, and all outstanding and unexercised options to purchase Cellect ordinary shares and outstanding and unexercised warrants to purchase Cellect ordinary shares will remain in effect pursuant to their terms.

 

In connection with the Quoin Financing, on March 24, 2021, Quoin and Cellect entered into the Securities Purchase Agreements with the Investor pursuant to which, among other things, Quoin agreed to issue to the Investor Quoin common shares immediately prior to the Merger and Cellect agreed to issue to the Investor warrants to purchase Cellect ordinary shares.

 

 

7

 

 

In summary, immediately after the Merger, Quoin’s stockholders (including the Investor) will own in the aggregate (or have the right to receive) approximately 80% of the outstanding capital stock of Cellect, with Cellect’s pre-closing shareholders owning approximately 20% of the outstanding capital stock of Cellect, subject to adjustment as set forth in this proxy statement/prospectus. The formula used to determine the shares to be issued to Quoin common stockholders in the Merger excludes Cellect’s outstanding stock options and warrants which are out-of-the-money and not exchangeable for ordinary shares of Cellect pursuant to a fundamental transaction.

 

After the completion of the Merger, Cellect will change its corporate name to “Quoin Pharmaceuticals Ltd.” as required by the Merger Agreement and subject to approval of its shareholders.

 

Reasons for the Merger

 

In the course of reaching its decision to approve the Merger, the Cellect Board consulted with its senior management, financial advisor and legal counsel, reviewed a significant amount of information, and considered a number of factors, including, among others:

 

·The Board reviewed the prior minutes of the meetings of its strategic committee and the Board from 2019, in which it was resolved that management shall seek strategic agreements to increase the value of the Company’s shares. Management further presented to the Board a business plan for 2021-2022 that required approximately $20 million to fund the clinical and business development of the Company’s technology. Accordingly, considering the Company’s business and financial prospects, the Board determined that the Company could not continue to operate as an independent company and needed to enter into an agreement with a strategic partner;
   

·Over the last 20 months, the Board was presented with a few alternative candidates for a transaction, including pharma, hi-tech and cannabis companies; however, following intensive evaluation all of such alternatives and corresponding negotiations, these transaction opportunities did not come to fruition;
   

·The Board assessed the possible alternatives to the Merger, the range of possible benefits and risks of those alternatives to the Company’s shareholders, and the timing and the likelihood of accomplishing any of such alternatives, and the Board determined that the Merger is a superior opportunity to such alternatives for the Company’s shareholders;
   

·The Board considered the valuation of the potential merger candidates. In particular, the Board found Quoin the most attractive candidate because of (i) its clinical program focused on rare and orphan diseases, (ii) its experienced leadership team, comprised of industry veterans with extensive relevant executive experience and record of recent success in the pharmaceutical industry, and (iii) the Board’s belief that the Merger with Quoin would create more value for Company’s shareholders than any of the other proposals that the Board had received or that the Company could create on its own;
   

·Quoin has $25.25 million in committed equity funding from Altium Capital, a well-regarded institutional healthcare investor, a portion of which will be provided concurrently with the Merger, to provide funds for the further development of Quoin’s business;
   

·The Board considered that (i) the sale of the Subsidiary to EnCellX, pursuant to a separate agreement and as a condition to the Merger, would result in a company focused on the development of technology for the selection of stem cells from any given tissue that aims to improve a variety of cell-based therapies allowing cell-based treatments and procedures in a wide variety of applications in regenerative medicine and other indications and (ii) under the provisions of the Share Transfer Agreement and the CVR Agreement, the Company’s current shareholders would able to participate in the growth potential of EnCellX, since they would have the right to receive a portion of the proceeds derived from the commercialization of products under the ApoGraft technology platform;
   

·An experienced senior management team would lead the combined public company, with Dr. Michael Myers serving as its Chief Executive Officer. In addition, EnCellX would be led by experienced CEO, Adi Mohanty, who would be supported by Dr. Shai Yarkoni as a CTO;
   

·Current financial market conditions, including the impact of the coronavirus pandemic on global financial markets, and historical market prices, volatility, and trading information with respect to the Company’s ADS indicate that this is a good time to execute the Merger;
   

 

8

 

   
·The terms of the Merger Agreement, the Purchase Agreement, and related agreements, including the parties’ representations, warranties and covenants, the conditions to their respective obligations and the termination rights of the parties are fair and appropriate;
   

·Cassel Salpeter & Co., LLC presented its financial analysis to the Board on March 17, 2021, and, in its opinion, expressed to the Board that, as of such date, based upon and subject to the various assumptions made, procedures followed, matters considered, and qualifications and limitations set forth in such opinion, the Exchange Ratio (as defined in the Merger Agreement) was fair from a financial point of view, to the Company;
   

·The likelihood that the Merger would be consummated; and
   

·

If the Merger is not approved, the Company will need to raise additional funds with an undesirable valuation and may not succeed in doing so, given that the Company currently has sufficient funds to finance operations for less than one year under its current cash projections.

 

The Board also considered a number of uncertainties and risks in its evaluation of the Merger and the other transactions contemplated by the Merger Agreement, including the following:
 

·the possibility that the Merger will not be consummated and the potential negative effect of the public announcement of the Merger on the Company’s business and stock price;
   

·the possibility that any current or future products under the ApoGraft technology may not be successfully commercialized, that EnCellX may not raise the funds required for its successful operations, and/or the potential that the Company’s shareholders would receive no consideration under the CVR Agreement;
   

·certain provisions of the Merger Agreement could have the effect of discouraging competing proposals involving the Company, including the restrictions on Company’s ability to solicit proposals for competing transactions involving the Company, and under certain circumstances the Company may be required to pay to Quoin a termination fee of $500,000, expense reimbursements of up to $250,000, and all reasonable fees and expenses of incurred by Quoin, if the Merger Agreement were to be terminated;
   

·although under certain circumstances Quoin may be required to reimburse certain transaction expenses of the Company of up to $250,000 and/or pay to the Company a termination fee of $500,000, such reimbursement and/or termination fee might only offset a portion of expenses incurred by the Company in connection with the Merger;
   

·the strategic direction of the Company following the completion of the Merger will be determined by a board of directors initially comprised of a majority of designees of Quoin;
   

·the substantial fees and expenses associated with completing the Merger, including the costs associated with any related litigation; and
   

·the risk that the Merger may not be completed despite the parties’ efforts or that the closing may be unduly delayed and the effects such failure or delay might have on the Company, leaving the Company with a more limited range of alternative strategic transactions, as it likely would be unable to raise additional capital through the public or private sale of equity securities on favorable terms.

 

Opinion of the Financial Advisor to the Cellect Board

 

On March 17, 2021, Cassel Salpeter rendered its oral opinion to the Cellect Board (which was confirmed in writing by delivery of Cassel Salpeter’s written opinion dated such date), as to the fairness, from a financial point of view, to Cellect of the Exchange Ratio in the Merger pursuant to the Agreement.

 

The summary of Cassel Salpeter’s opinion in this proxy statement/prospectus is qualified in its entirety by reference to the full text of the written opinion, which is attached as Annex B to this proxy statement/prospectus and sets forth the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Cassel Salpeter in preparing its opinion. However, neither Cassel Salpeter’s written opinion nor the summary of its opinion and the related analyses set forth in this proxy statement/prospectus are intended to be, and do not constitute, advice or a recommendation to any stockholder as to how such stockholder should act or vote with respect to any matter relating to the proposed Merger or otherwise.

 

 

9

 

 

Material U.S. Federal Income Tax Consequences of the Merger

 

Cellect and Quoin intend that the steps involved in the transaction will qualify as a "reorganization" within the meaning of Section 368(a) of the Code, with the result that the transaction will not result in gain recognition by Quoin stockholders that exchange their shares of Quoin common stock for the merger consideration. See the discussion below under “U.S. Federal Income Tax Consequences of the Transaction.”

 

Any tax position taken by Cellect and Quoin will not be binding on the IRS or the courts, and neither Cellect nor Quoin intends to obtain a ruling from the IRS with respect to the tax consequences of the transaction. Consequently, no assurance can be given that the IRS will not assert, or that a court will not sustain, a position contrary to any of the tax consequences described in the discussion below. In particular, if the transaction did not qualify as a reorganization for U.S. federal income tax purposes, the transaction would be treated as a fully taxable transaction for such purposes, in which case a Quoin U.S. Holder would be required to recognize gain or loss on the exchange of shares of Quoin common stock for the merger consideration. In certain circumstances, a Quoin Non-U.S. Holder could be subject to U.S. federal income and/or withholding tax on the exchange of Quoin common stock for merger consideration if the transaction did not qualify as a reorganization.

 

For more information, see page 105.

 

Overview of the Merger Agreement

 

Merger Consideration

 

At the Effective Time, and not accounting for additional shares of Quoin or Cellect ordinary shares that may be issuable pursuant to the adjustment provisions in the Purchase Agreement in the Quoin Financing (see the section entitled “Agreements Related to the Merger—Quoin Financing” in this proxy statement/prospectus), Quoin’s stockholders (including the Investor) will be entitled to receive approximately 29,378,741 Cellect ordinary shares, subject to adjustment. The number of shares to be issued in the Merger is an estimate only as of the date hereof and the final number of shares will be determined pursuant to a formula described in more detail in the Merger Agreement and in this proxy statement/prospectus. In addition, certain Quoin warrants will be exchanged for Series A Warrants/Primary Warrants of Cellect to purchase 25,010 ordinary shares following the Merger.

 

Accordingly, by way of example only and assuming there are still 392,173,700 shares of Cellect stock outstanding, Cellect would issue an aggregate of approximately 2,937,874,100 ordinary shares to the holders of Quoin common shares, such numbers reflecting the relative valuations of Cellect and Quoin in accordance with the Merger Agreement, assuming the other assumptions set forth above remain the same.

 

The above example also assumes that (i) the Quoin Financing has been secured prior to the closing, and (ii) as a Quoin stockholder, the Investor will receive Cellect ordinary shares pursuant to the Exchange Ratio in the Merger Agreement.

 

The Merger Agreement does not include a price-based termination right and there will be no adjustments to the total Cellect ordinary shares that Quoin’s stockholders will be entitled to receive for changes in the market price of Cellect’s ordinary shares. Accordingly, the market value of the Cellect ordinary shares issued pursuant to the Merger will depend on their market value at the time the Merger closes and could vary significantly from the market value on the date of this proxy statement/prospectus.

 

Immediately after the Merger, Quoin’s stockholders (including the Investor) as of immediately prior to the Effective Time will own (or have the right to receive) approximately 80% of the outstanding capital stock of Cellect and Cellect’s shareholders as of immediately prior to the Effective Time will own approximately 20% of the outstanding capital stock of Cellect, subject to adjustment as set forth in this proxy statement/prospectus.

 

Treatment of Cellect’s Stock Options and Warrants

 

Each Cellect warrant outstanding immediately prior to the Effective Time will be retained. Each Cellect stock option outstanding immediately prior to the Effective Time will remain in full force and effect. The terms governing these warrants and options will otherwise remain in full force and effect following the closing of the Merger.

 

 

10

 

 

Conditions to the Completion of the Merger

 

To consummate the Merger, Cellect’s shareholders must approve the Merger and the transactions contemplated thereby. In addition, Quoin’s stockholders must adopt and approve the Merger Agreement, the Financing Proposal and the transactions contemplated thereby.

 

In addition to obtaining such stockholder and shareholder approvals and appropriate regulatory approvals, each of the other closing conditions set forth in the Merger Agreement, as described in the section entitled “The Merger Agreement—Conditions to the Completion of the Merger” in this proxy statement/prospectus must be satisfied or waived.

 

Non-Solicitation

 

Each of Cellect and Quoin has agreed that during the period commencing on the date of the Merger Agreement and ending on the earlier of the consummation of the Merger or the termination of the Merger Agreement, each of Cellect and Quoin and their respective subsidiaries will not, nor will it or any of its subsidiaries authorize any of its representatives, to:

 

·solicit, initiate, respond to or take any action to facilitate or encourage any inquiries or the communication, making, submission or announcement of any acquisition proposal or acquisition inquiry or take any action that could reasonably be expected to lead to an acquisition proposal or acquisition inquiry;
   

·enter into or participate in any discussions or negotiations with any person with respect to any acquisition proposal or acquisition inquiry;
   

·furnish any information regarding such party to any person in connection with, in response to, relating to or for the purpose of assisting with or facilitating an acquisition proposal or acquisition inquiry;
   

·approve, endorse or recommend any acquisition proposal;
   

·execute or enter into any letter of intent or similar document or any contract contemplating or otherwise relating to any acquisition transaction; or
   

·grant any waiver or release under any confidentiality, standstill or similar agreement.
   
An “acquisition inquiry” means, with respect to any party, an inquiry, indication of interest or request for information (other than an inquiry, indication of interest or request for information made or submitted by Quoin, on the one hand, or Cellect, on the other hand, to the other party) that would reasonably be expected to lead to an acquisition proposal with such party.
   
An “acquisition proposal” means, with respect to any party, any offer or proposal, whether written or oral (other than an offer or proposal made or submitted by or on behalf of Quoin or any of its affiliates, on the one hand, or by or on behalf of Cellect or any of its affiliates, on the other hand, to the other party) made by a third party contemplating or otherwise relating to any acquisition transaction with such party.
   
An “acquisition transaction” means any transaction or series of related transactions involving:
 

·any merger, consolidation, amalgamation, share exchange, business combination, issuance of securities, acquisition of securities, reorganization, recapitalization, tender offer, exchange offer or other similar transaction: (i) in which a party is a constituent corporation; (ii) in which a person or “group” (as defined in the Exchange Act and the rules promulgated thereunder) of persons directly or indirectly acquires beneficial or record ownership of securities representing more than 20% of the outstanding securities of any class of voting securities of a party or any of its subsidiaries; or (iii) in which a party or any of its subsidiaries issues securities representing more than 20% of the outstanding securities of any class of voting securities of such party or any of its subsidiaries;
   

·any sale, lease, exchange, transfer, license, acquisition or disposition of any business or businesses or assets that constitute or account for 20% or more of the consolidated book value or the fair market value of the assets of a party and its subsidiaries, taken as a whole; or
   

·any tender offer or exchange offer, that if consummated would result in any person beneficially owning 20% or more of the outstanding equity securities of a party or any of its subsidiaries.
   

 

11

 

 

However, before obtaining the applicable approval from the Quoin Board or the Cellect Board, as applicable, either party may enter into discussions or negotiations with, any person that has made (and not withdrawn) a bona fide, unsolicited, acquisition proposal, which such party’s board of directors determines in good faith, after consultation with its independent financial advisor, if any, and its outside legal counsel, constitutes, or would reasonably be expected to result in, a superior offer if:

 

·neither Cellect or Quoin, as applicable, nor any of its representatives has breached the non-solicitation provisions of the Merger Agreement described above;
   

·the Cellect Board or the Quoin Board, as applicable, determines in good faith based on the advice of outside legal counsel, that the failure to take such action would constitute a breach of the fiduciary duties of such board of directors under applicable law;
   

·at least three business days prior to furnishing any such non-public information to, or entering into discussions with, such person, Cellect or Quoin, as applicable, (i) gives the other party written notice of the identity of such person and of such party’s intention to furnish nonpublic information to, or enter into discussions with, such person, and (ii) furnishes such non-public information to the other party, to the extent such non-public information has not been previously furnished; and
   

·Cellect or Quoin, as applicable, receives from the third-party an executed confidentiality agreement containing provisions (including nondisclosure provisions, use restrictions, non-solicitation provisions, no hire provisions and standstill provisions) at least as favorable to such relevant party as those contained in the confidentiality agreement between Cellect and Quoin.
   
A “superior offer” is an unsolicited, bona fide written acquisition proposal (with all references to 20% in the definition of acquisition proposal being treated as references to 50% for these purposes) made by a third party that (a) was not obtained or made as a direct or indirect result of a breach of (or in violation of) the Merger Agreement; and (b) is on terms and conditions that the Cellect Board or the Quoin Board, as applicable, determines, in its reasonable, good faith judgment, after obtaining and taking into account such matters that its Board deems relevant following consultation with its outside legal counsel and financial advisor, if any (i) is more favorable, from a financial point of view, to the Cellect shareholders or the Quoin stockholders, as applicable, than the terms of the Merger; and (ii) is reasonably capable of being consummated; provided, however, that any such offer will not be deemed to be a “superior offer” if (A) any financing required to consummate the transaction contemplated by such offer is not committed and is not reasonably capable of being obtained by such third party or (B) if the consummation of such transaction is contingent on any such financing being obtained.
   
Either Cellect or Quoin, as the case may be, may terminate the Merger Agreement if the board of directors, and/or any committee of the board of directors, of the other party has:
   

·failed to include its approval and recommendation to shareholders or stockholders (as applicable) relating to the Merger in this proxy statement;
   

·willfully and intentionally breached, or any of its representatives have breached, the non-solicitation provisions of the Merger Agreement;
   

·approved, endorsed or recommended a competing proposal; or
   

·entered into a definitive agreement for a competing proposal.
   
Termination of the Merger Agreement
   
The Merger Agreement contains certain termination rights for both Cellect and Quoin. In connection with the termination of the Merger Agreement under specified circumstances, Cellect and Quoin may be required to pay the other party a termination fee. The parties’ termination rights are based on certain situations including:
   

·mutual written consent of the parties;
   

·by either party, if the Merger has not closed by September 30, 2021;
   

·by either party, if a court of competent jurisdiction or other governmental body has issued a final and nonappealable order, decree or ruling, or has taken any other action, having the effect of permanently restraining, enjoining or otherwise prohibiting the Merger;
   

 

12

 

   
·by Cellect, if Quoin does not receive the required consent of its stockholders to the Merger within five business days of the date of the Merger Agreement;
   

·by either party, if Cellect does not receive the vote of its shareholders required to approve the Cellect Biotechnology Shareholder Matters (as such term is defined in the Merger Agreement);
   

·by either party, if certain triggering events will have occurred;
   

·by Quoin, if the Cellect Board has approved, endorsed or recommended any other acquisition proposal; or
   

·by either party, upon the material breach of the Merger Agreement by the other that, if curable, is not cured within fifteen days of the breaching party’s receipt of written notice of such breach.
   

Management Following the Merger

 

Effective as of the closing of the Merger, Cellect’s executive officers are expected to include Michael Myers as Chief Executive Officer and Denise Carter as Chief Operating Officer.

 

Quoin Financing

 

Bridge SPA

 

On March 24, 2021, Quoin and the Investor entered into the Bridge SPA, pursuant to which, among other things, the Investor agreed to purchase from Quoin Notes in an aggregate principal amount of $5.0 million (in exchange for an aggregate purchase price of $3.75 million), as well as Bridge Warrants to purchase Quoin shares of common stock having an aggregate value of $5.0 million and with an initial exercise price reflecting a $56.25 million fully-diluted pre-Merger valuation of Quoin (the “Initial Bridge Exercise Price”), subject to certain downward adjustments. Pursuant to the Merger Agreement, the Bridge Warrants will be exchanged for identical warrants to purchase Cellect ordinary shares in an amount and at an exercise price adjusted to reflect the Exchange Ratio.

 

Following the closing date of the Bridge SPA, on each of the tenth trading day, the forty-fifth day, the ninetieth day, and the one hundred thirty-fifth day thereafter (each, a “Reset Date”), if the Initial Bridge Exercise Price is greater than the arithmetic average of 85% of the three lowest weighted average prices of the post-Merger ordinary shares of Cellect during the ten trading day period immediately preceding the applicable Reset Date (the “Reset Price”), the exercise price of the Bridge Warrants will be reset to the Reset Price. Furthermore, the number of Bridge Warrant Underlying Shares will be adjusted such that the aggregate number of shares of Quoin common stock issuable to the Investor upon exercise of the Bridge Warrants reflects the Reset Price instead of the Initial Bridge Exercise Price.

 

Purchase Agreement

 

On March 24, 2021, Quoin, Cellect and the Investor entered into the Purchase Agreement, which is attached as Annex C to this proxy statement/prospectus, pursuant to which, among other things, the Investor agreed to purchase (i) $17.0 million of Quoin common stock, which will be exchanged for Cellect ordinary shares in the Merger pursuant to the Exchange Ratio which will represent an aggregate of 18.48% of the estimated Parent Fully Diluted Number (as defined in the Purchase Agreement) and (ii) up to an aggregate number of shares of Quoin common stock equal to 300% of the number of Primary Shares, and Cellect agreed to issue to the Investor Primary Warrants to purchase ordinary shares of Cellect. The purchase price for the Primary Shares, Additional Purchased Shares and Primary Warrants may be offset by the principal amount outstanding under any Notes held by the Investor, such that the amount of new funds invested under the Purchase Agreement will be $12.0 million.

  

The Primary Shares will have an initial price per share (the “Initial Primary Price Per Share”) that reflects a $75.0 million pre-money valuation of the post-Merger combined company, and will be exchangeable in the Merger for Cellect ordinary shares constituting 18.48% of the post-closing company on a fully-diluted basis, which percentage is calculated assuming the return and cancellation of all of the Additional Purchased Shares (as defined below) from escrow. In addition, Quoin will deposit the Additional Purchased Shares into escrow with an escrow agent for the benefit of the Investor (together with the Initial Primary Shares the “Primary Financing Shares”), to be exchanged for Cellect ordinary shares at the Effective Time. On each Reset Date, if the Initial Primary Price Per Share is less than the Reset Price, the Investor will receive shares from escrow such that the effective price per share of all Primary Financing Shares received by such Investor will be equal to the Reset Price. Any Additional Purchased Shares not delivered to the Investor from escrow will be returned following the last Reset Date.

 

 

13

 

 

The Primary Warrants are comprised of Series A Warrants, Series B Warrants and Series C Warrants, each to acquire (x) an initial amount of ADSs equal to 100% of the quotient determined by dividing the Purchase Price paid by the Investor on the Shares Closing Date (as defined in the Purchase Agreement), by the lower of the Closing Per Share Price and the Initial Per Share Price (each as defined in the Purchase Agreement), and (y) in the case of the Series C Warrants, an initial amount of ADSs equal to 100% of the quotient determined by dividing $9.5 million by the lower of the Closing Per Share Price and the Initial Per Share Price, subject to certain adjustments. The initial exercise price of the Primary Warrants is the lower of the Closing Per Share Price and the Initial Per Share Price, subject to certain downward adjustments.

 

Series A Warrants

 

The Series A Warrants will be issued on the eleventh day following the issuance of the Primary Shares (the “Closing Date”), will have an initial exercise price per share equal to the lower of the Closing Per Share Price and the Initial Per Share Price, subject to adjustment as set forth above, and will be immediately exercisable and will have a term of sixty months from the date of issuance. The Series A Warrants issued to the Investor will initially be exercisable for an amount of Cellect ordinary shares as set forth above. The Series A Warrants will have full ratchet anti-dilution price protection with respect to future issuances of securities at a price below the exercise price of the Series A Warrants and a Black Scholes provision for fundamental transactions.

 

Series B Warrants

 

The Series B Warrants will be issued on the Closing Date, will have an initial exercise price per share equal to the lower of the Closing Per Share Price and the Initial Per Share Price, subject to adjustment as set forth above, will be immediately exercisable and will have a term of twenty-four months from the first date all of the shares underlying the Primary Warrants are registered by the Company for resale. The Series B Warrants issued to the Investor will initially be exercisable for an amount of Cellect ordinary shares as set forth above. The Series B Warrants will have full ratchet anti-dilution price protection with respect to future issuances of securities at a price below the exercise price of the Series B Warrants and a Black Scholes provision for fundamental transactions.

 

Series C Warrants

 

The Series C Warrants will be issued on the Closing Date, will have an initial exercise price per share equal to the lower of the Closing Per Share Price and the Initial Per Share Price, subject to adjustment as set forth above, will be immediately exercisable and will have a term of twenty-four months from the first date all of the shares underlying the Primary Warrants are registered by the Company for resale. The Series C Warrants issued to the Investor will initially be exercisable for (i) an amount of Cellect ordinary shares as set forth above, and (ii) a new Series A Warrant and Series B Warrant, each conferring the right to purchase the number of Cellect shares issued to the Investor upon the foregoing exercise of the Series C Warrants. The Series C Warrants will have a Black Scholes provision for fundamental transactions.

 

Registration Rights Agreement

 

In connection with the Quoin Financing, Cellect entered into a Registration Rights Agreement with the Investor (the “Registration Rights Agreement”), which is attached as Annex D to this proxy statement/prospectus. Pursuant to the Registration Rights Agreement, within 15 business days after a demand by the Investor, Cellect is required to file an initial resale registration statements with respect to the Cellect ordinary shares issuable upon exercise of (i) the Primary Warrants, and (ii) the Cellect warrants to be issued to the Investor in the Merger (collectively, the “Registrable Securities”). Cellect is required to file up to five such registration statements, and must file additional resale registration statements with respect to the Registrable Securities to the extent that such Registrable Securities (i) were not already registered for resale on a prior registration statement due to the requirements of Rule 415, or (ii) are newly issued as a result of the anti-dilution price protection in the Primary Warrants. Cellect will be required to use its reasonable best efforts to maintain the effectiveness of these registration statements until the earlier of (i) the date as of which the Investor may sell all of the Registrable Securities covered by the applicable registration statement(s) without restriction or limitation pursuant to Rule 144 and without the requirement to be in compliance with Rule 144(c)(1) (or any successor thereto) or (ii) the date on which the Investor has sold all of the Registrable Securities covered by the applicable registration statement(s).

 

Financing Lock-Up Agreements

 

In connection with the Quoin Financing, Cellect has entered into lock-up agreements (the “Financing Lock-Up Agreements”) with Dr. Myers and Ms. Carter (the “Financing Lock-Up Parties”), pursuant to which each of the Financing Lock-Up Parties have agreed that until the date that is 90 calendar days after the Trigger Date (as defined in the section entitled “Agreements Related to the Merger—Quoin Financing” in this proxy statement/prospectus), subject to certain customary exceptions, such Financing Lock-Up Party will not and will cause its affiliates not to (i) sell, offer to sell, contract or agree to sell, hypothecate, pledge, grant any option to purchase, make any short sale or otherwise dispose of or agree to dispose of, directly or indirectly, any Cellect ordinary shares or ordinary share equivalents, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position within the meaning of Section 16 of the Exchange Act with respect to any Cellect ordinary shares or ordinary share equivalents owned directly by the Financing Lock-Up Parties (including holding as a custodian) or with respect to which the undersigned has beneficial ownership within the rules and regulations of the Securities and Exchange Commission (collectively, the “Subject Shares”), or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of any of the Subject Shares, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Cellect ordinary shares or other securities, in cash or otherwise, (iii) make any demand for or exercise any right or cause to be filed a registration statement, including any amendments thereto, with respect to the registration of any Cellect ordinary shares or ordinary share equivalents or (iv) publicly disclose the intention to do any of the foregoing.

 

 

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Interests of Certain Directors, Officers and Affiliates of Cellect and Quoin

 

In considering the recommendation of the Cellect Board with respect to the issuance of ordinary shares of Cellect pursuant to the Merger Agreement and the other matters to be acted upon by Cellect’s shareholders at the Cellect special meeting, Cellect’s shareholders should be aware that certain members of the Cellect Board and executive officers of Cellect have interests in the Merger that may be different from, or in addition to, interests they have as Cellect’s shareholders.

 

As of June 16, 2021, Cellect’s directors and executive officers beneficially owned, in the aggregate, 3.68% of the outstanding ordinary shares of Cellect. As of June 16, 2021, Cellect’s directors and officers beneficially owned, in the aggregate, 41,467,435 options and warrants to purchase Cellect’s ordinary shares.

 

The compensation arrangements with Cellect’s officers and directors are discussed in greater detail in the section entitled “The Merger—Interests of Cellect’s Directors and Executive Officers in the Merger” in this proxy statement/prospectus.

 

In considering the recommendation of the Quoin Board with respect to approving the Merger and related transactions by written consent, Quoin’s stockholders should be aware that directors and executive officers of Quoin are expected to become directors and/or executive officers of Cellect after the closing of the Merger.

 

As of June 16, 2021, Quoin’s directors and executive officers beneficially owned 100% of the outstanding shares of common stock of Quoin, all of which will be converted into ordinary shares of Cellect in connection with the closing of the Merger. Directors and executive officers will own 59% of the outstanding ordinary shares of Cellect following the Merger.

 

The compensation arrangements with Quoin’s officers and directors are discussed in greater detail in the section entitled “The Merger—Interests of Quoin Directors and Officers in the Merger” in this proxy statement/prospectus.

 

Risk Factors

 

Both Cellect and Quoin are subject to various risks associated with their businesses and their respective assets. In addition, the Merger poses a number of risks to each company and its respective stockholders and shareholders, including the risk that the Merger may not be completed. These risks and others are discussed in greater detail under the section entitled “Risk Factors” in this proxy statement/prospectus. Cellect and Quoin encourage you to read and consider all of these risks carefully.

 

Regulatory Approvals

 

Each party to the Merger Agreement will use commercially reasonable efforts to take all actions necessary to comply promptly with any applicable law that may be imposed on such party with respect to the merger and the other transactions contemplated by the Merger Agreement.

 

Nasdaq Listing

 

The approval by Nasdaq of (i) the continued listing of the Cellect ordinary shares on the Nasdaq Capital Market following the Effective Time and (ii) the listing of the Cellect ordinary shares being issued in connection with the Merger on Nasdaq at or prior to the Effective Time are conditions to the closing of the Merger. Quoin has agreed to cooperate with Cellect to furnish to Cellect all information concerning Quoin and its stockholders that may be required or reasonably requested in connection with Nasdaq. If such approvals are obtained, Cellect anticipates that the combined company’s common stock will be listed on Nasdaq under the trading symbol “QNRX” following the closing of the Merger.

 

 

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Anticipated Accounting Treatment

 

The Merger will be accounted for by Cellect as a reverse merger in accordance with International Financial Reporting Standards as issued by the IASB (“IFRS”). For accounting purposes, Quoin is considered to be the accounting acquirer of Cellect as the shareholders of Quoin will hold the majority of the shares of Cellect after the merger. Accounting for reverse merger requires management of Cellect and Quoin to perform purchase price allocation (“PPA”) to the assets and liabilities of Cellect. As of the date of this proxy statement/prospectus, the PPA was not completed and hence amounts appearing herein are provisional and subject to changes. For further information see Unaudited Pro Forma Condensed Combined Financial Information.

 

Appraisal Rights

 

Under Section 262 of the Delaware General Corporation Law (“DGCL”), the holders of Quoin common stock are entitled to appraisal rights in connection with the Merger.

 

Comparison of Equity Holder Rights

 

Cellect is incorporated under the laws of the State of Israel and Quoin is incorporated under the laws of the state of Delaware and, accordingly, the rights of the securityholders of each are currently governed by the Israeli Companies Law and DGCL, respectively. If the Merger is completed, Quoin’s stockholders will become shareholders of Cellect and their rights will be governed by the Israeli Companies Law, and assuming the Merger and related matters as stipulated in the Proxy Statement are approved by Cellect’s shareholders at the special meeting, the articles of association of Cellect as amended by the amendments thereto attached to this proxy statement/prospectus as Annex E. The rights of Cellect’s shareholders as contained in such charter documents may differ from the rights of Quoin’s stockholders under Quoin’s certificate of incorporation, as amended, as more fully described in the section entitled “Comparison of Rights of Holders of Cellect Stock and Quoin Stock” in this proxy statement/prospectus.

 

 

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SELECTED HISTORICAL AND UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL DATA

 

The following tables present summary unaudited pro forma condensed financial data for Cellect and Quoin, and comparative historical and unaudited pro forma per share data for Cellect and Quoin.

 

Selected Historical Financial Data of Cellect

 

The selected financial data as of December 31, 2020 and 2019 and for the years ended December 31, 2020 and 2019 are derived from the Cellect audited consolidated financial statements prepared in conformity with International Financial Reporting Standards (“IFRS”), which are included in this proxy statement/prospectus. These historical results are not necessarily indicative of results to be expected in any future period. The financial data should be read in conjunction with “Cellect Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Cellect’s consolidated financial statements and related notes appearing elsewhere in this proxy statement/prospectus.

 

Selected Historical Consolidated Financial Data of Quoin

 

You should read the following summary consolidated financial and other data together with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this proxy statement/prospectus and the audited consolidated financial statements and the related notes thereto and the unaudited consolidated financial statements and the related notes thereto, each included elsewhere in this proxy statement/prospectus. The summary consolidated statement of operations data, cash flows data and other data for the three months ended March 31, 2021, and the three months ended March 31, 2020, and the summary consolidated balance sheet data as of March 31, 2021, and March 31, 2020 have been derived from the unaudited consolidated financial statements included elsewhere in this proxy statement/prospectus. The summary consolidated statement of operations data, cash flows data and other data for the years ended December 31, 2020 and December 31, 2019 and the summary consolidated balance sheet data as of December 31, 2020 and December 31, 2019 have been derived from the audited consolidated financial statements included elsewhere in this proxy statement/prospectus. Quoin’s historical results for any prior period are not necessarily indicative of results to be expected in any future period.

 

Three Months Ended March 31

  2021 2020
Statement of Operations Data    
Revenues $0 $0
Operating expenses:    
   General and administrative 744,973 322,385
   Research and development 56,788 75,901
Total operating expenses 801,761 398,736
Fair value adjustment to notes payable 500,000 --
Warranty liability expense 2,446,513 --
Financing expense 90,000 --
Total fair value adjustment to notes payable and related warrants

3,036,513

 

--
Interest expense 65,597 --
Net loss $(3,903,871) $(398,736)
     
Statement of cash flow data    
Cash flows used in operating activities $(413,726) $(322,835)
Cash flows used in investing activities (142,500) --
Cash flows used in financing activities 1,309,977 322,835
     

Balance sheet data

(as of period end)

   
Cash $1,077,583 $323,832
Intangible assets 886,637 912,648
Total assets $2,258,377 $1,377,818
Total liabilities $12,769,545 $7,985,115
Total stockholder’s deficit (10,511,168) (6,607,497)
Total liabilities and stockholder’s deficit $2,258,377 $1,377,818

 

Years Ended December 31

 

(dollars in millions, except per share data)

  2020 2019
Statement of Operations Data    
Revenues $0 $0
Operating expenses:    
   General and administrative 1,426 1,515
   Research and development 140 25
   Amortization of intangibles 104 20
Total operating expenses 1,670 1,560
Fair value adjustment to notes payable 378 -
Interest expense 47 -
Net loss $(2,095) (1,560)
     
Statement of cash flow data    
Cash flows used in operating activities $(1,339) $(1,299)
Cash flows used in investing activities (125) -
Cash flows used in financing activities 1,787 1.299
     
Balance sheet data – (as of period end)    
Cash $324 $-
Intangible assets 913 1,017
Total assets $1,378 $1,017
Total liabilities (1) $7,985 $5,529
Total stockholder’s deficit (6,607) (4,512)
Total liabilities and stockholder’s deficit $1,378 $1,017

 

(1)Includes $4,889 and $3,870 due to officers and $1,213 and $0 convertible notes payable at December 31, 2020 and 2019, respectively.

   

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Selected Unaudited Pro Forma Condensed Financial Data of Cellect and Quoin

 

The following selected unaudited pro forma condensed combined financial data was prepared using the reverse asset acquisition method of accounting under IFRS. For accounting purposes, Quoin was determined to be the accounting acquirer based upon the terms of the Merger and other factors including (i) Quoin stockholders and other persons holding securities convertible, exercisable or exchangeable directly or indirectly for Cellect ordinary shares are expected to own approximately 80% of Cellect immediately following the effective time of the Merger, (ii) Quoin will hold all the non-external board seats of the combined company and (iii) Quoin’s management will hold all key positions in the management of the combined company.

 

The Cellect and Quoin combined balance sheet data assume that the Merger took place on December 31, 2020 and combines the Cellect historical balance sheet as of December 31, 2020 and the Quoin historical balance sheet as of December 31, 2020. The Cellect and Quoin unaudited pro forma condensed combined statements of operations data assume that the Merger took place as of January 1, 2020 and combines the historical results of operations for Cellect for the year ended December 31, 2020 and Quoin for the period from January 1, 2020 to December 31, 2020.

 

The selected unaudited pro forma condensed combined financial data are presented for illustrative purposes only and are not necessarily indicative of the combined financial position or results of operations of future periods or the results that actually would have been realized had the entities been a single entity during these periods. The selected unaudited pro forma condensed combined financial data as of and for the period from January 1, 2020, to December 31, 2020 are derived from the unaudited pro forma condensed combined financial information and should be read in conjunction with that information. For more information, please see the section entitled “Unaudited Pro Forma Condensed Combined Financial Information” in this proxy statement/prospectus.

 

The unaudited pro forma condensed combined financial information assumes that, at the Effective Time, each share of Quoin will be converted into the right to receive Cellect ordinary shares such that, immediately following the Effective Time, Cellect’s shareholders as of immediately prior to the Effective Time are expected to own approximately 20% of the outstanding ordinary shares of Cellect, and Quoin’s stockholders (including the Investor) as of immediately prior to the Effective Time are expected to own (or have the right to receive) approximately 80% of the outstanding ordinary shares of Cellect.

 

The selected unaudited pro forma condensed combined financial data include the proceeds of the Quoin Financing.

 

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Comparative Historical and Unaudited Pro Forma Share Data

 

The information below reflects the historical and per share net loss and book value of Cellect’s ordinary shares and Quoin’s common shares in comparison with the unaudited pro forma net loss and book value after giving effect to the proposed Merger of Cellect and Quoin on a pro forma basis.

 

The tables below should be read in conjunction with the audited consolidated financial statements of Cellect and Quoin included in this proxy statement/prospectus, the unaudited pro forma condensed combined financial information and the notes related to such financial information included elsewhere herein.

 

As of and for the Year Ended December 31, 2020

 

(in thousands, except share and per share amounts)

 

  Cellect  Quoin  Pro Forma
          
Net income (loss)   (5,623)   (2,095)   (5,484)
Weighted average shares outstanding—basic and diluted   368,078,786    1,000,000    2,045,947,600 
Net income (loss) per share—basic and diluted  $(0.02)   $​(2.10)    $​(0.003) 

 

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RISK FACTORS

 

The combined company will be faced with a market environment that cannot be predicted and that involves significant risks, many of which will be beyond its control. In addition to the other information contained in this proxy statement/prospectus, you should carefully consider the material risks described below before deciding how to vote your shares of stock. In addition, you should read and consider the risks associated with Cellect’s business because these risks may also affect the combined organization—these risks can be found under the heading “Risk Factors—Risks Related to Cellect” in this proxy statement/prospectus. You should also read and consider the other information in this proxy statement/prospectus. Please see the section entitled “Where You Can Find More Information” in this proxy statement/prospectus.

 

Risk Factor Summary

 

The following is a summary of certain important factors that may make an investment in the Company speculative or risky. You should carefully consider the full risk factor disclosure set forth below, in addition to the other information herein, including the Management’s Discussion and Analysis of Financial Condition and Results of Operations of each of Cellect and Quoin, and the financial statements and related notes.

 

Risks Related to the Merger

 

·The issuance of Cellect’s ordinary shares to Quoin stockholders in connection with the Merger will substantially dilute the relative voting power of current Cellect shareholders, and as a result the Cellect shareholders will exercise substantially less influence over the management of the combined company following the completion of the Merger.

 

·Cellect shareholders may not realize a benefit from the Merger commensurate with the ownership dilution they will experience in connection with the Merger.

 

·Quoin is not a publicly traded company, making it difficult to determine the fair market value of Quoin.

 

·The conditions under the Merger Agreement to Quoin’s consummation of the Merger may not be satisfied at all or in the anticipated timeframe.

 

·The announcement and pendency of the Merger or failure to consummate the Merger could have an adverse effect on Cellect’s financial results, future business and operations, as well as the market price of Cellect’s ordinary shares.

 

·If the Merger is not completed, Cellect may elect to liquidate its remaining assets, and there can be no assurance as to the amount of cash available to distribute to Cellect’s shareholders after paying Cellect’s debts and other obligations.

 

·Cellect has incurred and expects to continue to incur substantial transaction-related costs in connection with the Merger.

 

·Even if the Merger is consummated, the combined company may fail to realize the anticipated benefits of the Merger.

 

·The Exchange Ratio will not be adjusted in the event of any change in Cellect’s share price or the value of Quoin’s stock.

 

·It is anticipated that, as a result of the transaction, Cellect will become treated as a U.S. domestic corporation for U.S. federal income tax purposes and will be liable for both U.S. and Israeli income tax.

 

·The U.S. federal income tax treatment of the CVRs is unclear.

 

Risks Related to Our Ordinary Shares

 

·The market price of our ordinary shares may be highly volatile.

 

·We may be at risk of securities class action litigation.

 

·Sales of a substantial number of our ordinary shares in the public market by our existing shareholders could cause our share price to fall.

 

·We may be unable to comply with the applicable continued listing requirements of Nasdaq.

 

Risks Related to Cellect

 

·We have a history of operating losses and expect that we will continue to incur significant operating losses for the foreseeable future.

 

·We expect that we will need to raise additional capital to fund operations, which may not be available on acceptable terms, or at all.

 

·We may not be able to conduct clinical trials, because of difficulties in enrolling patients or other reasons, to obtain favorable pre-clinical and clinical trial results, or to obtain regulatory approvals.

 

·We may not be able to develop and successfully commercialize our products, because of our inability to attract and retain employees with sufficient expertise, to ensure an adequate supply of the raw materials necessary for our products, to adequately protect our intellectual property, or to establish and maintain strategic partnerships and other corporate collaborations.

 

·We may face significant competition. If we cannot successfully compete with other companies and technologies, our marketing and sales will suffer, and we may never be profitable.

 

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Risks Related to Quoin

 

·We have a limited operating history that you can use to evaluate us, and the likelihood of our success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered by a small developing company.

 

·We have incurred significant losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future.

 

·We have never generated any revenue from product sales, have generated only limited revenue since inception, and may never be profitable.

 

·We expect that we will need to raise additional capital, which may not be available on acceptable terms, or at all.

 

Risks Related to the Combined Company

 

·Preclinical and clinical studies of our product candidates may not be successful. If we are unable to generate successful results from preclinical and clinical studies of our product candidates, or experience significant delays in doing so, our business may be materially harmed.

 

·We may not be successful in our efforts to identify or discover potential product candidates.

 

·Even if we complete the necessary preclinical studies and clinical trials, we cannot predict whether or when we will obtain regulatory approval to commercialize a product candidate and we cannot, therefore, predict the timing of any revenue from a future product.

 

·Even if we obtain regulatory approval for a product candidate, we will still face extensive regulatory requirements and our products may face future development and regulatory difficulties.

 

·We face significant competition from other biotechnology and pharmaceutical companies and our operating results will suffer if we fail to compete effectively.

 

·If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of our business.

 

·If we are unable to obtain or protect intellectual property rights related to our future products and product candidates, we may not be able to compete effectively in our markets.

 

·Our future success depends on our ability to attract and retain key executives and to attract, retain and motivate qualified personnel.

 

·We may need to expand our organization and may experience difficulties in managing this growth, which could disrupt our operations.

 

Risks Related to the Merger

 

The issuance of Cellect’s ordinary shares to Quoin stockholders in connection with the Merger will substantially dilute the relative voting power of current Cellect shareholders, and as a result the Cellect shareholders will exercise substantially less influence over the management of the combined company following the completion of the Merger.

 

Pursuant to the terms of the Merger Agreement, it is anticipated that Cellect will issue ordinary shares of Cellect to the stockholders of Quoin. Following the closing of the Merger, Cellect’s current shareholders will own approximately 20% of the combined company’s share capital, and existing Quoin stockholders will own approximately 80% of the combined company’s issued share capital using the treasury stock method.

 

Accordingly, the issuance of Cellect’s ordinary shares to Quoin stockholders in connection with the Merger will significantly reduce the relative voting power of each ordinary share held by current Cellect shareholders, and the existing Cellect shareholders will hold a minority stake in the combined company. In addition, all of the non-external members of the board of directors of the combined company will be designated by Quoin. Consequently, Cellect’s shareholders will exercise substantially less influence over the management and policies of the combined company than they currently exercise over the management and policies of Cellect.

 

Cellect shareholders may not realize a benefit from the Merger commensurate with the ownership dilution they will experience in connection with the Merger.

 

If the combined company is unable to realize the full strategic and financial benefits anticipated from the Merger, Cellect shareholders will have experienced substantial dilution of their ownership interests without receiving any commensurate benefit, or only receiving part of the commensurate benefit to the extent the combined company is able to realize only part of the strategic and financial benefits currently anticipated from the Merger.

 

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Quoin is not a publicly traded company, making it difficult to determine the fair market value of Quoin.

 

The outstanding capital stock of Quoin is privately held and is not traded on any public market, which makes it difficult to determine the fair market value of Quoin. There can be no assurance that the merger consideration to be issued to Quoin stockholders will not exceed the actual value of Quoin.

 

The conditions under the Merger Agreement to Quoin’s consummation of the Merger may not be satisfied at all or in the anticipated timeframe.

 

The obligation of Quoin to complete the Merger is subject to certain conditions, including the approval by Cellect’s shareholders of certain matters as set forth above, the accuracy of the representations and warranties contained in the Merger Agreement, subject to certain materiality qualifications, compliance by the parties with their respective covenants under the Merger Agreement and the absence of any law or order preventing the Merger. These conditions are described in more detail under “The Merger Agreement – Conditions to the Completion of the Merger” beginning on page 133 of this proxy statement. Cellect cannot assure you that all of the conditions will be satisfied or waived. If the conditions are not satisfied or waived, the Merger may not occur or will be delayed, and Cellect and Quoin each may not realize some or all of the intended benefits of the Merger.

 

The announcement and pendency of the Merger or failure to consummate the Merger could have an adverse effect on Cellect’s financial results, future business and operations, as well as the market price of Cellect’s ordinary shares.

 

The announcement and pendency of the Merger, or the companies’ failure to consummate the Merger, could disrupt Cellect’s business. Among other things, the attention of Cellect’s management may be directed toward the completion of the Merger and related matters and may be diverted from other opportunities that might otherwise be beneficial to Cellect. Should they occur, any of these matters could adversely affect Cellect’s financial condition, results of operations or business prospects.

 

The completion of the Merger is subject to a number of conditions, and there can be no assurance that the conditions to the completion of the Merger will be satisfied. If the Merger is not completed, Cellect will be subject to several risks, including:

 

·that most of the fees and expenses in connection with the Merger, such as legal, accounting and transaction agent fees, must be paid even if the Merger is not completed, and Cellect may be subject to payment of a termination fee and other Quoin expenses in the aggregate amount of approximately $750,000 in certain circumstances;

 

·that it may be very difficult to retain Cellect’s remaining directors and employees long enough to pursue other alternatives;

 

·the Board would need to reevaluate Cellect’s strategic alternatives, many of which may be less favorable to stakeholders, such as liquidation of the company;

 

·Cellect may be delisted from the Nasdaq Capital Market for failure to comply with continued listing requirements;

 

·Cellect would not realize any of the anticipated benefits of having completed the Merger;

 

·the price of Cellect’s ordinary shares may decline and remain volatile; and

 

·Cellect could be subject to litigation related to any failure to consummate the Merger or any related action that could be brought to enforce Cellect’s obligations under the Merger Agreement.

 

In addition, if the Merger Agreement is terminated and the Board determines to seek another business combination, there can be no assurance that it will be able to find a transaction that is superior or equal in value to the Merger.

 

If the Merger is not completed, Cellect may elect to liquidate its remaining assets, and there can be no assurance as to the amount of cash available to distribute to Cellect’s shareholders after paying Cellect’s debts and other obligations.

 

If the Merger is not completed, the Board of Cellect may elect to take the steps necessary to liquidate all of its remaining assets. The process of liquidation may be lengthy and Cellect cannot make any assurance regarding the timing of completing such a process. In addition, Cellect would be required to pay all of its debts and contractual obligations, and to set aside certain reserves for potential future claims. There can be no assurance as to the amount of available cash, if any, that might be available to distribute to shareholders after paying the debts and other obligations and setting aside funds for reserves, nor as to the timing of any such distribution.

 

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Cellect has incurred and expects to continue to incur substantial transaction-related costs in connection with the Merger.

 

Cellect has incurred, and expects to continue to incur, a number of non-recurring transaction-related costs associated with completing the Merger and combining the two companies. These fees and costs have been, and will continue to be, substantial. Non-recurring transaction costs include, but are not limited to, fees paid to legal, financial and accounting advisors, severance and benefit costs, filing fees and printing costs. Additional unanticipated costs may be incurred in the combined company’s business, which may be higher than expected and could have a material adverse effect on the combined company’s financial condition and operating results.

 

Even if the Merger is consummated, the combined company may fail to realize the anticipated benefits of the Merger.

 

The success of the Merger will depend on, among other things, the combined company’s ability to achieve its business objectives and raise the necessary capital to fund its operations, including the successful development of its current and future product candidates. If the combined company is not able to achieve these objectives, the anticipated benefits of the Merger may not be realized fully, may take longer to realize than expected, or may not be realized at all.

 

Cellect and Quoin have operated and, until the completion of the Merger, will continue to operate independently. Even if the Merger is completed, it is possible that the integration process could result in the loss of key employees, the disruption of each company’s ongoing business, an adverse impact on the value of the combined company’s assets, or inconsistencies in standards, controls, procedures or policies that could adversely affect the combined company’s ability to comply with reporting obligations as a public company, an inability to satisfy its obligations to third parties or to achieve the anticipated benefits of the Merger, or an inability to raise the necessary capital to fund each company’s operations. Integration efforts between the two companies will also divert management’s attention and resources. Any delays in the integration process or inability to realize the full extent of the anticipated benefits of the Merger could have an adverse effect on the combined company’s business and the results of the combined company’s operations. Such an adverse effect may impact the value of the shares of Cellect after the completion of the Merger.

 

The Exchange Ratio will not be adjusted in the event of any change in Cellect’s share price or the value of Quoin’s stock.

 

In the Merger, each outstanding share of common stock of Quoin (with certain exceptions), by virtue of the Merger and without any action on the part of the parties to the Merger Agreement or the holders of ordinary shares of Cellect, will be converted into the right to receive validly issued, fully paid and non-assessable ordinary shares of Cellect pursuant to an established exchange ratio set forth in the Merger Agreement, which we refer to as the “Exchange Ratio”. The Exchange Ratio is currently estimated to be approximately 12.0146 Cellect ordinary shares per share of Quoin. This Exchange Ratio will not be adjusted for changes in the market price or value of either Cellect’s ordinary shares or Quoin’s stock. However, the Exchange Ratio may be adjusted to eliminate the effect of certain events, including a reclassification, recapitalization, or share or stock split (as applicable) in the outstanding shares of the capital stock of either Cellect or Quoin.

 

Share price changes may result from a variety of factors (many of which are beyond our or Quoin’s control), including the following:

 

·changes in Cellect’s and Quoin’s respective businesses, operations and prospects, or market assessments;

 

·market assessments regarding the likelihood that the Merger will be completed; and

 

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·general market and economic conditions and other factors generally affecting the price of Cellect’s ordinary shares or the value of Quoin’s stock.

 

The price of Cellect’s ordinary shares at the closing of the Merger may vary from the price on the date the Merger Agreement was executed and the date of the Special Meeting. As a result, the market value of the merger consideration will also vary.

 

Based on a number of assumptions, it is anticipated that, as a result of the transaction, Cellect will likely become treated as a U.S. domestic corporation for U.S. federal income tax purposes and will be liable for both U.S. and Israeli income tax.

 

Based on certain assumptions, it is anticipated that, following the Merger, Quoin’s current equity holders will own at least 80% (by vote or value) of the combined company for purposes of applying Section 7874 of the Code, and thus, Cellect, although formed in Israel, will likely be treated as a U.S. domestic corporation for U.S. federal income tax purposes under Section 7874 of the Code, and as a result would be subject indefinitely to U.S. income tax on its worldwide income. Consequently Cellect would be liable for both U.S. and Israeli income tax, which could have a material adverse effect on its financial condition and results of operations and on the value of shareholders’ investment after the transaction.

 

Furthermore, as a result of and in connection with the potential conversion of Cellect to a U.S. domestic corporation for U.S. federal income tax purposes, Current Cellect U.S. Holders (as defined in “Material U.S. Federal Income Tax Consequences”) would in certain circumstances recognize taxable income and may be required to file a notice with its annual U.S. federal income tax return.

 

On the contrary, if the assumptions supporting the classification of Cellect as a U.S. domestic corporation prove false, certain current U.S. Holders of Quoin shares could recognize taxable income or be required to file annual information returns with their U.S. federal income tax returns.

 

For more information, see “Material U.S. Federal Income Tax Consequences.”

  

Prior to the transaction, Cellect may be classified as a passive foreign investment company (a “PFIC”) for U.S. federal income tax purposes, which could subject current Cellect U.S. shareholders to materially adverse United States federal income tax consequences in connection with the transaction.

 

If Cellect is or has been a PFIC for any taxable year during which a Current Cellect U.S. Holder (as defined in “Material U.S. Federal Income Tax Consequences”) has held Cellect shares, certain materially adverse U.S. federal income tax consequences could apply to such U.S. Holder. Cellect has not determined whether it is a PFIC for its current tax year or any prior taxable year. For further details, please refer to “Material U.S. Federal Income Tax Consequences— Tax Consequences to Cellect Holders— Passive Foreign Investment Company Considerations in connection with the Conversion.”

 

The U.S. federal income tax treatment of the CVRs is unclear.

 

We intend to report the receipt of the CVRs as a “closed transaction” for U.S. federal income tax purposes. Assuming this treatment is correct, and subject to the discussion below under “Material U.S. Federal Income Tax Consequences,” a payment with respect to a CVR would likely be treated as a non-taxable return of a holder’s adjusted tax basis in the CVR to the extent thereof. A payment in excess of such amount may be treated as (i) a payment with respect to a sale of a capital asset or (ii) income taxed at ordinary rates. Additionally, a portion of a payment with respect to a CVR may be reported or treated as imputed interest. However, the U.S. federal income tax treatment of the CVRs is unclear. There is no legal authority directly addressing the U.S. federal income tax treatment of the receipt of, and payments on, the CVRs, and there can be no assurance that the Internal Revenue Service, would not assert, or that a court would not sustain, a position that could result in different and materially worse U.S. federal income tax consequences to holders.

 

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For more information, see “Material U.S. Federal Income Tax Consequences of the Merger.”

 

Risks Related to Our Ordinary Shares

 

The market price of our ordinary shares may be highly volatile.

 

The trading price of our ordinary shares is likely to be volatile. Our share price could be subject to wide fluctuations in response to a variety of factors, including but not limited to the following factors:

 

·adverse results or delays in preclinical studies or clinical trials;

 

·inability to obtain additional funding;

 

·any delay in filing an Investigational New Drug application (“IND”) or Biologics License Application (“BLA”) for any of our product candidates and any adverse development or perceived adverse development with respect to the U.S. Food and Drug Administration (“FDA”) review of that IND or BLA;

 

·failure to enter into strategic alliances;

 

·failure by us or our licensors to prosecute, maintain or enforce our intellectual property rights;

 

·failure to successfully develop and commercialize our product candidates;

 

·changes in laws or regulations applicable to our preclinical and clinical development activities, product candidates or future products;

 

·inability to obtain adequate product supply for our product candidates or the inability to do so at acceptable prices;

 

·adverse regulatory decisions;

 

·introduction of new products, services or technologies by our competitors;

 

·failure to meet or exceed financial projections we may provide to the public;

 

·failure to meet or exceed the estimates and projections of the investment community;

 

·the perception of the pharmaceutical industry by the public, legislatures, regulators and the investment community;

 

·announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments by us or our competitors;

 

·disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our technologies;

 

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·additions or departures of key scientific or management personnel;

 

·significant lawsuits, including regarding patent or licensing matters;

 

·changes in the market valuations of similar companies;

 

·sales of our ordinary shares by us or our shareholders in the future; and

 

·trading volume of our ordinary shares.

 

In addition, companies trading in the stock market in general, and Nasdaq in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our ordinary shares, regardless of our actual operating performance.

 

The requirements of being a publicly traded company may strain our resources and divert management’s attention.

 

As a publicly traded company, we have incurred, and will continue to incur, significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act, as well as rules subsequently implemented by the SEC and Nasdaq have imposed various requirements on public companies. In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) was enacted. There are significant corporate governance and executive compensation related provisions in the Dodd-Frank Act that require the SEC to adopt additional rules and regulations in these areas such as “say on pay” and proxy access. Shareholder activism, the current political environment and the current high level of government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact the manner in which we operate our business in ways we cannot currently anticipate. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to incur substantial costs to maintain our current levels of such coverage.

 

We may be at risk of securities class action litigation.

 

We may be at risk of securities class action litigation. This risk is especially relevant for us due to our dependence on positive clinical trial outcomes and regulatory approvals of each of our product candidates. In the past, medical, biotechnology and pharmaceutical companies have experienced significant stock price volatility, particularly when associated with binary events such as clinical trials and product approvals. If we face such litigation, it could result in substantial costs, divert management’s attention and resources, or have a material adverse effect on our business, operating results and prospects.

 

Sales of a substantial number of our ordinary shares in the public market by our existing shareholders could cause our share price to fall.

 

If our existing shareholders sell, or indicate an intention to sell, substantial amounts of those ordinary shares in the public market, the trading price of our ordinary shares could decline. In addition, ordinary shares that are either subject to outstanding options or reserved for future issuance under our employee benefit plans are or may become eligible for sale in the public market to the extent permitted by the provisions of various vesting schedules and Rule 144 under the Securities Act. If ordinary shares are sold, or if it is perceived that they will be sold, in the public market, that could create downward pressure on the trading price of our ordinary shares and cause the trading price to decline.

 

26

 

Future sales and issuances of our ordinary shares or rights to purchase ordinary shares, including pursuant to our equity incentive plans, could result in additional dilution of the percentage ownership of our shareholders and could cause our share price to fall.

 

We expect that significant additional capital will be needed in the future to continue our planned operations. To the extent we raise additional capital by issuing equity securities, our shareholders may experience substantial dilution. Pursuant to equity incentive plans, our management may grant options and other equity-based awards to our employees, directors and consultants. We may sell ordinary shares, convertible securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time, any of which may result in material dilution to investors and/or our existing shareholders. New investors could also be issued securities with rights superior to those of our existing shareholders.

 

We may be unable to comply with the applicable continued listing requirements of Nasdaq.

 

ADSs representing our ordinary shares are currently listed on Nasdaq. In order to maintain this listing, we must satisfy minimum financial and other continued listing requirements and standards, including a minimum closing bid price requirement for our ADSs of $1.00 per ADS. There can be no assurance that we will be able to comply with the applicable listing standards. For example, if we were to fail to meet the minimum bid price requirement for 30 consecutive business days, we could become subject to delisting. Although Nasdaq may provide us with a compliance period in which to regain compliance with the minimum bid price requirement, we cannot assure you that we would be able to regain compliance within the period provided by Nasdaq. In order to regain compliance with such requirement, the closing bid price of our ADSs would need to meet or exceed $1.00 per share for at least 10 consecutive business days during the compliance period. If we were not able to regain compliance within the allotted compliance period for this requirement or any other applicable listing standard, including any extensions that may be granted by Nasdaq, our ADSs would be subject to delisting. In the event that our ADSs are delisted from Nasdaq and are not eligible for quotation or listing on another market or exchange, trading of our ADSs could be conducted only in the over-the-counter market or on an electronic bulletin board established for unlisted securities such as the Pink Sheets or the OTC Bulletin Board. In such event, it could become more difficult to dispose of, or obtain accurate price quotations for our ADSs and there would likely also be a reduction in our coverage by securities analysts and the news media, which could cause the price of our ADSs to decline further.

  

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We do not intend to pay dividends on our ordinary shares so any returns will be limited to the value of our shares.

 

We have never declared or paid any cash dividends on our ordinary shares. We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future.

 

Risks Related to Cellect

 

Risks Related to Our Financial Position and Capital Requirements

 

We are an early stage company with a limited operating history.

 

Our wholly owned subsidiary commenced operations developing our functional stem cell selection ApoGraft technology in 2011. As such, we have a limited operating history and our operations are subject to all of the risks inherent in the establishment of a new business enterprise, including a lack of operating history. We cannot be certain that our business strategy will be successful or that we will be solvent at any particular time. Our likelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with the establishment of any company. If we fail to address any of these risks or difficulties adequately, our business will likely suffer. Because of the numerous risks and uncertainties associated with developing and commercializing our ApoGraft technology, we are unable to predict the extent of any future losses or when we will become profitable, if ever. We may never become profitable and you may never receive a return on an investment in our securities. An investor in our securities must carefully consider the substantial challenges, risks and uncertainties inherent in the attempted development and commercialization of procedures and products in the medical, cell therapy, biotechnology and biopharmaceutical industries. We may never successfully commercialize ApoGraft and our business may fail.

 

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We have a history of losses and can provide no assurance of our future operating results.

 

Since 2011, we have been focused on research and development activities with a view to developing ApoGraft. We have financed our operations primarily through the sale of equity securities (both in private placements and in public offerings on the TASE and also on the Nasdaq) and have incurred losses in each year since our inception. We have historically incurred substantial net losses, including net losses of approximately NIS 18.1 million ($5.6 million) in 2020, approximately NIS 16.8 million ($4.9 million) in 2019, NIS 20.1 million ($5.9 million) in 2018, and NIS 28.2 million ($8.2 million) in 2017. As of December 31, 2020, we had an accumulated deficit of approximately NIS 118.9 million ($37.0 million). We do not know whether or when we will become profitable. To date, we have not commercialized our technology or generated any revenues and accordingly we do not have a revenue stream to support our cost structure. Our losses have resulted principally from costs incurred in development and discovery activities. The opinion of our independent registered public accounting firm on our audited financial statements as of and for the year ended December 31, 2020 contains an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern. We expect to continue to incur losses for the foreseeable future, and these losses will likely increase as we:

 

·initiate and manage preclinical development and clinical trials for ApoGraft;

 

·implement internal systems and infrastructures;

 

·seek to license additional technologies to develop;

 

·hire management and other personnel; and

 

·move towards commercialization.

 

We will need significant additional capital, which we may be unable to obtain. If we are unable to raise capital, we will be forced to reduce or eliminate our operations.

 

As of December 31, 2020, we had approximately NIS 17.0 million ($5.3 million) in cash and cash equivalents, working capital of NIS 14.3 million ($4.4 million) and an accumulated deficit of NIS 118.9 million ($37.0 million). We will need to raise significant additional capital, in one or more financings, and if we are unable to obtain sufficient additional financing, we will be forced to reduce the scope of or cease operations, which would have a materially adverse effect on our business and results of operations.

 

Since our inception, most of our resources have been dedicated to the development of ApoGraft. In particular, we have expended and believe that we will continue to expend significant operating and capital expenditures for the foreseeable future developing ApoGraft. These expenditures will include, but are not limited to, costs associated with research and development, manufacturing, conducting preclinical experiments and clinical trials, contracting manufacturing organizations, hiring additional management and other personnel and obtaining regulatory approvals, as well as commercializing any products approved for sale. Furthermore, we expect to incur additional costs associated with operating as a public company in the United States. Because the outcome of our planned and anticipated clinical trials is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of ApoGraft and any other future product. In addition, other unanticipated costs may arise. As a result of these and other factors currently unknown to us, we require substantial, additional funds through public or private equity or debt financings or other sources, such as strategic partnerships and alliances and licensing arrangements. In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. A failure to fund these activities may harm our growth strategy, competitive position, quality compliance and financial condition.

 

Our future capital requirements depend on many factors, including:

 

·the number and characteristics of products we develop from our ApoGraft technology platform;

 

·the scope, progress, results and costs of researching and developing our ApoGraft technology platform and any future products, and conducting preclinical and clinical trials;

 

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·the timing of, and the costs involved in, obtaining regulatory approvals;

 

·the cost of commercialization activities if any products are approved for sale, including marketing, sales and distribution costs;

 

·the cost of manufacturing any future product we successfully commercialize;

 

·our ability to establish and maintain strategic partnerships, licensing, supply or other arrangements and the financial terms of such agreements;

 

·the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome of such litigation;

 

·the costs of in-licensing further patents and technologies;

 

·the cost of development of in-licensed technologies;

 

·the timing, receipt and amount of sales of, or royalties on, any future products;

 

·the expenses needed to attract and retain skilled personnel; and

 

·any product liability or other lawsuits related to any future products.

 

Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timely basis, we may be required to delay, limit, reduce or terminate preclinical studies, clinical trials or other research and development activities for ApoGraft or delay, limit, reduce or terminate our establishment of sales and marketing capabilities or other activities that may be necessary to commercialize our ApoGraft technology.

 

We will need additional capital in the future. Raising additional capital may cause dilution to our existing shareholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.

 

We will require additional capital in the future. We may seek additional capital through a combination of private and public equity offerings, debt financings, strategic partnerships and alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of existing shareholders will be diluted, and the terms may include liquidation or other preferences that adversely affect shareholder rights and may cause the market price of our shares to decline. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take certain actions, such as incurring debt, making capital expenditures or declaring dividends. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or any products, or grant licenses on terms that are not favorable to us. If we are unable to raise additional funds through equity or debt financing when needed, we may be required to delay, limit, reduce or terminate our product development or commercialization efforts or grant rights to develop and market products that we would otherwise prefer to develop and market ourselves.

 

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Risks Related to Product Development and Regulatory Approval

 

Our business is subject to risks arising from a widespread outbreak of an illness or any other communicable disease, or any other public health crisis, such as the COVID-19 pandemic, which has impacted and could continue to impact our business.

 

Public health epidemics or outbreaks could adversely impact our business. In late 2019, a novel strain of COVID-19, also known as coronavirus, was reported in Wuhan, China. While initially the outbreak was largely concentrated in China, it has now spread to countries across the globe, including in Israel and the United States. Many countries around the world, including in Israel and the United States, have implemented significant governmental measures to control the spread of the virus, including temporary closure of businesses, severe restrictions on travel and the movement of people, and other material limitations on the conduct of business.

 

Combating the pandemic, bone marrow transplantations have been modified to reduce the risk of infecting the patients. In those clinical circumstances, we were unable to recruit patents to the Israeli and US trial Moreover, as a result of COVID-19 pandemic, there is a general unease of conducting unnecessary activities in medical centers. As a consequence, we implemented remote working and workplace protocols for our employees in accordance Israeli Ministry of Health requirements to ensure employee safety and the continuous operations of the company. In addition, the COVID-19 pandemic has resulted in logistical challenges including availability of materials required for our R&D activities, complete arrest in recruiting patients to our ongoing Israeli trial and delay of the initiation of our IND approved trial in Washington University. It further slowed business interactions started late 2019 around the business potential of our ApoGraft product manufacturing scale-up and automation. The extent to which the COVID-19 pandemic impacts our operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration and severity of the pandemic, the impact of new virus mutations, and the actions that may be required to contain the pandemic or treat its impact.

 

Our product development program is based on a novel functional stem cell selection technology platform and is inherently risky.

 

We are subject to the risks of failure inherent in the development of products based on new technologies. The novel nature of our ApoGraft technology creates significant challenges in regard to product development and optimization, manufacturing, government regulation, third-party reimbursement, and market acceptance, which makes it difficult to predict the time and cost of any product development and subsequently obtaining regulatory approval. These challenges may prevent us from developing and commercializing products on a timely or profitable basis or at all.

 

Our ApoGraft technology is in an early stage of discovery and development, and we may fail to develop any commercially acceptable or profitable products.

 

We are concentrating our efforts on developing our first line of products, which is based on our ApoGraft technology, to improve the safety and efficacy of allogeneic HSCT. To date, we are conducting clinical trials to ascertain our product’s safety and tolerability. As such, we have yet to ascertain our products’ efficacy to obtain approval for marketing, and our future success depends on the successful proof of concept of ApoGraft. There can be no assurance that any development problems we experience in the future related to our technology platform will not cause significant delays or unanticipated costs, or that such development problems can be solved. We may also experience delays in developing a sustainable, reproducible and scalable manufacturing process or transferring that process to commercial partners, which may prevent us from completing our clinical trials or commercializing ApoGraft on a timely or profitable basis, if at all. Our products are not expected to be commercially available for several years, if at all.

 

Future results released from our ongoing clinical trials may differ materially from interim or pre-clinical trial results.

 

Clinical trials are inherently risky and may reveal that ApoGraft is ineffective, unsafe or has unanticipated interactions that may significantly decrease trial success. Our pre-clinical trial results and our interim results of our ongoing clinical trials of ApoGraft or any other interim results may differ materially from final results and do not necessarily predict favorable final results.

 

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We may face numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent commercialization of ApoGraft. These clinical trials could be affected by negative or inconclusive trial results, unexpected delays, unanticipated patient drop-out rates or adverse side effects and future actions by regulatory authorities or additional expenses.

 

Clinical trials necessary to demonstrate proof of concept of ApoGraft are expensive and could require the enrollment of large numbers of suitable patients, who could be difficult to identify and recruit. Delays or failures in any necessary clinical trials could prevent us from commercializing ApoGraft and could adversely affect our business, operating results and prospects.

 

Initiating and completing clinical trials necessary to demonstrate proof of concept of ApoGraft, or additional safety and efficacy data that the FDA may require for any new specific indications of our technology that we may seek, are time consuming and expensive with an uncertain outcome.

 

Conducting successful clinical trials could require the enrollment of large numbers of patients, and suitable patients could be difficult to identify and recruit. To date, we have experienced delays in our ongoing Phase I/II clinical study in Israel and our Phase I clinical study in Washington University largely related to arrest of recruitment due to the COVID-19 pandemic. Patient enrollment in clinical trials and completion of patient participation and follow-up depends on many factors, including the size of the patient population, the nature of the trial protocol, the attractiveness of, or the discomforts and risks associated with, the treatments received by enrolled subjects, the availability of appropriate clinical trial investigators and support staff, the proximity to clinical sites of patients that are able to comply with the eligibility and exclusion criteria for participation in the clinical trial, and patient compliance. For example, patients could be discouraged from enrolling in our clinical trials if the trial protocol requires them to undergo extensive post-treatment procedures or follow-up to assess the safety and effectiveness of our product candidates or if they determine that the treatments received under the trial protocols are not attractive or involve unacceptable risks or discomforts. In addition, patients participating in clinical trials may die before completion of the trial or suffer adverse medical events unrelated to our product candidates.

 

Development of sufficient and appropriate clinical protocols to demonstrate safety and efficacy will be required and we may not adequately develop such protocols to support clearance or approval. Further, the FDA could require us to submit data on a greater number of patients than we originally anticipated and/or for a longer follow-up period or change the data collection requirements or data analysis applicable to our clinical trials. Delays in patient enrollment or failure of patients to continue to participate in a clinical trial could cause an increase in costs and delays in the approval and attempted commercialization of our product candidates or result in the failure of the clinical trial. Such increased costs and delays or failures could adversely affect our business, operating results and prospects.

 

The results of our clinical trials may not support our product candidate claims or any additional claims we may seek for our products and our clinical trials may result in the discovery of adverse side effects.

 

Even if any clinical trial that we need to undertake is completed as planned, we cannot be certain that its results will support our product candidate claims or any new indications that we may seek for our products or that the FDA or foreign authorities will agree with our conclusions regarding the results of those trials. The clinical trial process may fail to demonstrate that our products or a product candidate is safe and effective for the proposed indicated use, which could cause us to stop seeking additional clearances or approvals for our products, or abandon development of our ApoGraft technology. Any delay or termination of our clinical trials will delay the filing of our regulatory submissions and, ultimately, our ability to commercialize a product candidate. It is also possible that patients enrolled in clinical trials will experience adverse side effects that are not currently part of the product candidate’s profile.

 

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We might be unable to develop product candidates that will achieve commercial success in a timely and cost-effective manner, or ever.

 

Even if regulatory authorities approve our technology and products we develop, they may not be commercially successful. The products we develop may not be commercially successful because government agencies and other third-party payors may not cover the products or the coverage may be too limited to be commercially successful; physicians, researchers and others may not use or recommend our products, even following regulatory approval. A product approval, assuming one issues, may limit the uses for which the product may be distributed thereby adversely affecting the commercial viability of the products. Our expenses could increase beyond expectations if we are required by the FDA, the European Medicines Agency (“EMA”), or other regulatory agencies, domestic or foreign, to change our manufacturing processes or assays, or to perform clinical, nonclinical, or other types of studies in addition to those that we currently anticipate. Third parties may develop superior products or have proprietary rights that preclude us from marketing our products. We also expect that at least some of our product candidates will be expensive, if approved. Demand for any product we develop for which we obtain regulatory approval or license will depend largely on many factors, including but not limited to the extent, if any, of reimbursement of costs by government agencies and other third-party payors, pricing, the effectiveness of our marketing and distribution efforts, the safety and effectiveness of alternative products, and the prevalence and severity of side effects associated with our products. If physicians, government agencies and other third-party payors do not accept our products, we will not be able to generate significant revenue.

 

If we fail to obtain regulatory approval in jurisdictions outside the United States, we will not be able to market our products in those jurisdictions.

 

We intend to seek regulatory approval for our technology and products in a number of countries outside of the United States and expect that these countries will be important markets for our products, if approved. Marketing our products in these countries will require separate regulatory approvals in each market and compliance with numerous and varying regulatory requirements. The regulations that apply to the conduct of clinical trials and approval procedures vary from country to country and may require additional testing. Moreover, the time required to obtain approval may differ from that required to obtain FDA approval. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other foreign countries or by the FDA. The foreign regulatory approval process may include all of the risks associated with obtaining FDA approval. We may not obtain foreign regulatory approvals on a timely basis, if at all. We may not be able to file for regulatory approvals and may not receive necessary approvals to commercialize our products in any foreign market.

 

If we fail to obtain or maintain orphan exclusivity for our products we will have to rely on our data and marketing exclusivity, if any, and on our intellectual property rights, which may reduce the length of time that we can prevent competitors from selling generic versions of our products.

 

In September 2017, we announced that the FDA granted orphan drug designation for ApoGraft for the prevention of acute and chronic GvHD in transplant patients. Under the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is a drug intended to treat a rare disease or condition, defined, in part, as a patient population of fewer than 200,000 in the U.S.

 

In the U.S., the company that first obtains FDA approval for a designated orphan drug for the specified rare disease or condition receives orphan drug marketing exclusivity for that drug for a period of seven years. This orphan drug exclusivity prevents the FDA from approving another application, including a full NDA, to market the same drug for the same orphan indication, except in very limited circumstances. A designated orphan drug may not receive orphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. In addition, orphan drug exclusive marketing rights in the U.S. may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the drug to meet the needs of patients with the rare disease or condition.

 

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The EMA grants orphan drug designation to promote the development of products that may offer therapeutic benefits for life-threatening or chronically debilitating conditions affecting not more than five in 10,000 people in the E.U. Orphan drug designation from the EMA provides ten years of marketing exclusivity following drug approval, subject to reduction to six years if the designation criteria are no longer met.

 

Even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs can be approved for the same condition. Even after an orphan drug is approved, the FDA can subsequently approve the same drug for the same condition if the FDA concludes that the later drug is safer, more effective or makes a major contribution to patient care.

 

We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.

 

Although we believe that our ApoGraft technology has a broad range of applications, because we have limited financial and managerial resources, we are currently focused on clinical trials to prove the product safety and efficacy while scaling up the ApoGraft process in order to demonstrate commercial viability. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable products. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate.

 

We will need to outsource and rely on third parties for the clinical development and manufacture, sales and marketing of our current product candidates or any future product candidates that we may develop, and our future success will be dependent on the timeliness and effectiveness of the efforts of these third parties.

 

We do not have the required financial and human resources to carry out on our own all the preclinical and clinical development for our current technology and products or future products, and do not have the capability and resources to manufacture, market or sell our current future products candidates that we may develop. Our business model calls for the partial or full outsourcing of the clinical and other development and manufacturing, sales and marketing of our product candidates in order to reduce our capital and infrastructure costs as a means of potentially improving our financial position. Our success will depend on the performance of these outsourced providers. In particular, the COVID-19 pandemic could result in the inability of our providers to adequately perform on a timely basis or at all. If such providers fail to perform adequately, our development of product candidates may be delayed and any delay in the development of our product candidates would have a material and adverse effect on our business prospects.

 

If we or our contractors or service providers fail to comply with regulatory laws and regulations, we or they could be subject to regulatory actions, which could affect our ability to develop, market and sell our product candidates and any other or future product candidates that we may develop and may harm our reputation.

 

If we or our manufacturers or other third-party contractors fail to comply with applicable federal, state or foreign laws or regulations, we could be subject to regulatory actions, which could affect our ability to develop, market and sell our product or any future product candidates under development successfully and could harm our reputation and lead to reduced demand for or non-acceptance of our proposed product candidates by the market. Even technical recommendations or evidence by the FDA through letters, site visits, and overall recommendations to academia or biotechnology companies may make the manufacturing of a product extremely labor intensive or expensive, making the product candidate no longer viable to manufacture in a cost-efficient manner. The mode of administration may make the product candidate not commercially viable. The required testing of the product candidate may make that candidate no longer commercially viable. The conduct of clinical trials may be critiqued by the FDA, or a clinical trial site’s Institutional Review Board or Institutional Biosafety Committee, which may delay or make impossible clinical testing of a product candidate. The Institutional Review Board for a clinical trial may stop a trial or deem a product candidate unsafe to continue testing. This may have a material adverse effect on the value of the product candidate and our business prospects.

 

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Disruptions in our supply chain could delay any preclinical or clinical trials and the commercial launch of our product candidates.

 

Any significant disruption in our supplier relationships could harm our business. We currently rely on a single source supplier for the apoptotic inducing signal, Fas ligand (“FasL”), that we use, and we may rely on a limited number of suppliers for other raw material we use. There can be no assurance that we will not experience delays in supply of FasL in the future. If our current supplier or any other supplier suffers a major natural or man-made disaster at its manufacturing facility, or if they otherwise cease to supply to us, then this could result in further delays in our clinical studies and may delay product testing and potential regulatory approval until a qualified alternative supplier is identified. With respect to other raw materials for the ApoGraft technology platform, although alternative sources of supply exist, it could be expensive and take a significant amount of time to arrange for alternative suppliers. If our manufacturers or we are unable to purchase any key materials after regulatory approval has been obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortage in supply, which would impair our ability to generate revenues from the sale of our product candidates.

 

Should our products be approved for commercialization, adverse changes in reimbursement policies and procedures by payors may impact our ability to market and sell our products.

 

Healthcare costs have risen significantly over the past decade, and there have been and continue to be proposals by legislators, regulators and third-party payors to decrease costs. Third-party payors are increasingly challenging the prices charged for medical products and services and instituting cost containment measures to control or significantly influence the purchase of medical products and services. For example, in the United States, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the “PPACA”), among other things, reduced and/or limited Medicare reimbursement to certain providers. The Budget Control Act of 2011, as amended by subsequent legislation, further reduces Medicare’s payments to providers by 2% through fiscal year 2024. These reductions may reduce providers’ revenues or profits, which could affect their ability to purchase new technologies. Furthermore, the healthcare industry in the United States has experienced a trend toward cost containment as government and private insurers seek to control healthcare costs by imposing lower payment rates and negotiating reduced contract rates with service providers. Legislation could be adopted in the future that limits payments for our products from governmental payors. In addition, commercial payors, such as insurance companies, could adopt similar policies that limit reimbursement for medical device manufacturers’ products. Therefore, we cannot be certain that our products or the procedures or patient care performed using our products will be reimbursed at a cost-effective level. We face similar risks relating to adverse changes in reimbursement procedures and policies in other countries where we may market our products. Reimbursement and healthcare payment systems vary significantly among international markets. Our inability to obtain international reimbursement approval, or any adverse changes in the reimbursement policies of foreign payors, could negatively affect our ability to sell our products and have a material adverse effect on our business and financial condition.

  

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Public perception of ethical and social issues surrounding the use of stem cell technology may limit or discourage the use of our technologies.

 

For social, ethical, or other reasons, governmental authorities in the United States and other countries may call for limits on, or regulation of the use of, stem cell technologies. Although our platform technology is designed to enrich the stem cell population as an enabling technology rather than manufacture stem cells, claims that stem cell technologies are ineffective, unethical or pose a danger to the environment may influence public attitudes. The subject of stem cell technologies in general has received negative publicity and aroused public debate in the United States and some other countries. Ethical and other concerns about our stem cell technology could materially hurt the market acceptance of our technologies.

 

Our business and operations may be materially adversely affected in the event of computer system failures or security breaches.

 

Despite the implementation of security measures, our internal computer systems, and those of our contract research organizations and other third parties on which we rely, are vulnerable to damage from computer viruses, unauthorized access, cyber-attacks, natural disasters, fire, terrorism, war, and telecommunication and electrical failures. If such an event were to occur and interrupt our operations, it could result in a material disruption of our drug development programs. For example, the loss of clinical trial data from ongoing or planned clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach results in a loss of or damage to our data or applications, loss of trade secrets or inappropriate disclosure of confidential or proprietary information, including protected health information or personal data of employees or former employees, access to our clinical data, or disruption of the manufacturing process, we could incur liability and the further development of our drug candidates could be delayed. We may also be vulnerable to cyber-attacks by hackers or other malfeasance. This type of breach of our cybersecurity may compromise our confidential information and/or our financial information and adversely affect our business or result in legal proceedings. Further, these cybersecurity breaches may inflict reputational harm upon us that may result in decreased market value and erode public trust.

 

The members of our management team and certain consultants are important to the efficient and effective operation of our business. Failure to retain our management and consulting team could have a material adverse effect on our business, financial condition or results of operations.

 

Our senior management and technical personnel, as well as certain consultants, are important to the efficient and effective operation of our business, particularly Dr. Shai Yarkoni, our Chief Executive Officer. Our failure to retain the personnel that have developed much of the technology we utilize today, or any key management and technical personnel, could have a material adverse effect on our future operations. Our success is also dependent on our ability to attract, retain and motivate highly trained technical and management personnel, among others, to continue the development and commercialization of our current and future products. As of the date of this update, we do not have key-man insurance on any of our officers or consultants.

 

As such, our future success highly depends on our ability to attract, retain and motivate personnel, including contractors, required for the development, maintenance and expansion of our activities. There can be no assurance that we will be able to retain our existing personnel or attract additional qualified employees or consultants. The loss of personnel or the inability to hire and retain additional qualified personnel in the future could have a material adverse effect on our business, financial condition and results of operation.

 

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We face significant competition. If we cannot successfully compete with new or existing products, our marketing and sales will suffer, and we may never be profitable.

 

The field of regenerative medicine is expanding rapidly, mainly in uses of stem cells but also in the development of cell-based therapies and/or devices designed to isolate stem and progenitor cells from human tissues. As the field grows, we face, and will continue to face, increased competition from pharmaceutical, biopharmaceutical, medical device and biotechnology companies, as well as academic and research institutions and governmental agencies in the United States and abroad. In addition, many of these competitors, either alone or together with their collaborative partners, operate larger research and development programs than we do, and have substantially greater financial resources than we do, as well as significantly greater experience in:

 

·developing stem cell selection technology;

 

·undertaking preclinical testing and human clinical trials;

 

·obtaining FDA approvals and addressing various regulatory matters and obtaining other regulatory approvals;

 

·manufacturing medical devices; and

 

·launching, marketing and selling medical devices.

 

If our competitors develop and commercialize products faster than we do or develop and commercialize products that are superior to our ApoGraft technology, our commercial opportunities will be reduced or eliminated. Our competitors may succeed in developing and commercializing products earlier and obtaining regulatory approvals from the FDA and foreign regulatory authorities more rapidly than we do. Our competitors may also develop products or technologies that are superior to those we are developing and render our product candidate obsolete or non-competitive. If we cannot successfully compete with new or existing products, our marketing and sales will suffer and we may never be profitable.

 

The extent to which our product candidate achieves market acceptance will depend on competitive factors, many of which are beyond our control. Competition in the field of regenerative medicine is intense and has been accentuated by the rapid pace of technology development. Our competitors also compete with us to:

 

·attract parties for acquisitions, joint ventures or other collaboration;

 

·license proprietary technology that is competitive with ApoGraft technology platform and products;

 

·attract funding; and

 

·attract and hire scientific talent and other qualified personnel.

 

Product liability and other claims against us may in the future reduce demand for our products or result in substantial damages. We anticipate that we will need to obtain and maintain additional or increased insurance coverage, and we may not be able to obtain or maintain such coverage on commercially reasonable terms, if at all.

 

A product liability claim, a clinical trial liability claim or other claim with respect to uninsured liabilities or for amounts in excess of insured liabilities could have a material adverse effect on our business. Our business exposes us to potential liability risks that may arise from any future clinical testing of our product candidates in human clinical trials and the manufacture and sale of any approved products. Any clinical trial liability or product liability claim or series of claims or class actions brought against us, with or without merit, could result in:

 

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·liabilities that substantially exceed any clinical trial liability or product liability insurance that we may obtain in the future, which we would then be required to pay from other sources, if available;

 

·an increase in the premiums we may pay for any clinical trial liability or product liability insurance we may obtain in the future or the inability to renew or obtain clinical trial liability or product liability insurance coverage in the future on acceptable terms, or at all;

 

·withdrawal of clinical trial volunteers or patients;

 

·damage to our reputation and the reputation of our products, including loss of any future market share;

 

·regulatory investigations that could require costly recalls or product modifications;

 

·litigation costs; and

 

·diversion of management’s attention from managing our business.

 

We do not currently have product liability insurance because none of our product candidates has yet been approved for commercialization. If any of our product candidates are sold commercially, we will seek product liability insurance coverage. We cannot assure you that we will be able to maintain clinical trial or obtain and product liability insurance on commercially acceptable terms, if at all, or that we will be able to maintain such insurance at a reasonable cost or in sufficient amounts to protect against potential losses.

 

If our employees commit fraud or other misconduct, including noncompliance with regulatory standards and requirements and insider trading, our business may experience serious adverse consequences.

 

We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with FDA regulations, to provide accurate information to the FDA, to comply with manufacturing standards we have established, to comply with federal and state health-care fraud and abuse laws and regulations, to report financial information or data accurately or to disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation.

 

Our board of directors has adopted a Code of Ethics which became effective upon the listing of our ADSs on Nasdaq. However, it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions.

 

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In addition, during the course of our operations, our directors, executives and employees may have access to material, nonpublic information regarding our business, our results of operations or potential transactions we are considering. If a director, executive or employee was to be investigated, or an action was to be brought against a director, executive or employee for insider trading, it could have a negative impact on our reputation and the market price of the ADSs. Such a claim, with or without merit, could also result in substantial expenditures of time and money, and divert attention of our management team from other tasks important to the success of our business.

 

We may encounter difficulties in managing our growth. Failure to manage our growth effectively will have a material adverse effect on our business, results of operations and financial condition.

 

We may not be able to successfully grow and expand. Successful implementation of our business plan will require management of growth, including potentially rapid and substantial growth, which will result in an increase in the level of responsibility for management personnel and place a strain on our human and capital resources. To manage growth effectively, we will be required to continue to implement and improve our operating and financial systems and controls to expand, train and manage our employee base. Our ability to manage our operations and growth effectively will require us to continue to expend funds to enhance our operational, financial and management controls, reporting systems and procedures and to attract and retain sufficient talented personnel. If we are unable to scale up and implement improvements to our control systems in an efficient or timely manner, or if we encounter deficiencies in existing systems and controls, then we will not be able to successfully commercialize our ApoGraft technology. Failure to attract and retain sufficient talented personnel will further strain our human resources and could impede our growth or result in ineffective growth. Moreover, the management, systems and controls currently in place or to be implemented may not be adequate for such growth, and the steps we have taken to hire personnel and to improve such systems and controls might not be sufficient. If we are unable to manage our growth effectively, it will have a material adverse effect on our business, results of operations and financial condition.

 

If we are unable to obtain adequate insurance, our financial condition could be adversely affected in the event of uninsured or inadequately insured loss or damage. Our ability to effectively recruit and retain qualified officers and directors could also be adversely affected if we experience difficulty in obtaining adequate directors’ and officers’ liability insurance.

 

Our business will expose us to potential liability that results from risks associated with conducting any future clinical trials of our current or future technology and products. A successful clinical trial liability claim, if any, brought against us could have a material adverse effect on our business, prospects, financial condition and results of operations even though clinical trial insurance is successfully maintained or obtained. Our planned insurance coverage may only mitigate a small portion of a substantial claim against us. In addition, we may be unable to maintain sufficient insurance as a public company to cover liability claims made against our officers and directors. If we are unable to adequately insure our officers and directors, we may not be able to retain or recruit qualified officers and directors to manage us.

 

Our current management team has limited experience in managing and operating a publicly traded U.S. company. Any failure to comply or adequately comply with federal securities laws, rules or regulations could subject us to fines or regulatory actions, which may materially adversely affect our business, results of operations and financial condition.

 

Our current management team has a limited experience managing and operating a publicly traded U.S. company. Failure to comply or adequately comply with any laws, rules or regulations applicable to our business may result in fines or regulatory actions, which may materially adversely affect our business, results of operation or financial condition, and could result in delays in achieving the development of an active and liquid trading market for the ADSs.

 

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Risks Related to Our Intellectual Property

 

We rely upon patents to protect our technology.

 

The patent position of biotechnology firms is generally uncertain and involves complex legal and factual questions. We do not know whether any of our current or future patent applications will result in the issuance of any patents. Even issued patents may be challenged, invalidated or circumvented. Patents may not provide a competitive advantage or afford protection against competitors with similar technology. Competitors or potential competitors may have filed applications for or may have received patents and may obtain additional and proprietary rights to compounds or processes used by or competitive with ours.

 

Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for noncompliance with these requirements.

 

Periodic maintenance fees on any issued patent are due to be paid to the U.S. Patent and Trademark Office (“USPTO”) and foreign patent agencies in several stages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to office actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. In such an event, our competitors might be able to make use of our intellectual property, which would have a material adverse effect on our business.

 

We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time-consuming and ultimately unsuccessful.

 

Competitors may infringe our issued patents or other intellectual property. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time-consuming. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims against us alleging that we infringe their intellectual property. In addition, in a patent infringement proceeding, a court may decide that a patent of ours is invalid or unenforceable, in whole or in part, construe the patent’s claims narrowly or refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated or interpreted narrowly, which could adversely affect us.

 

Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on the success of our business.

 

Our commercial success depends upon our ability to develop, manufacture, market and sell our platform technology without infringing the proprietary rights of third parties. There is considerable intellectual property litigation in the medical device and pharmaceutical industries. While no such litigation has been brought against us and we have not been held by any court to have infringed a third party’s intellectual property rights, we cannot guarantee that our technology or use of our technology does not infringe third-party patents. It is also possible that we have failed to identify relevant third-party patents or applications that may have been issued or pending in the US or in a foreign jurisdiction. For example, applications filed before November 29, 2000 and certain applications filed after that date that will not be filed outside the United States remain confidential until patents issue. Patent applications in the United States and elsewhere are published approximately 18 months after the earliest date which they are entitled to, which is referred to as the priority date. Therefore, it cannot be ruled out that patent applications covering our technology were filed by others in the last 18 months about which we cannot have any knowledge. Additionally, pending patent applications which have been published can, subject to certain limitations, be later amended in a manner that could cover our technology.

 

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We may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our technology, including inter partes review, interference, or derivation proceedings before the USPTO and similar bodies in other countries. Third parties may assert infringement claims against us based on existing intellectual property rights and intellectual property rights that may be granted in the future.

 

If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue developing and marketing our technology. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. We could be forced, including by court order, to cease commercializing the infringing technology. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we are found to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our technology or force us to cease some of our business operations, which could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact on our business.

 

We may not be able to protect our intellectual property rights throughout the world.

 

Filing, prosecuting 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 and Israel can be less extensive than those in the United States and Israel. In addition, the laws of some foreign countries do not protect intellectual property to the same extent as laws in the United States and Israel. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States and Israel, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patents to develop their own products and further, may export otherwise infringing products to territories where we have patents, but enforcement is not as strong as that in the United States and Israel.

 

Many companies have encountered significant problems in protecting and defending intellectual property in foreign jurisdictions. The legal systems of certain countries, particularly China and certain other developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property, particularly those relating to medical devices and biopharmaceutical products, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. To date, we have not sought to enforce any issued patents in these foreign jurisdictions. Proceedings to enforce our patent rights in 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 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. The requirements for patentability may differ in certain countries, particularly developing countries. Certain countries in Europe and developing countries, including China and India, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In those countries, we and our licensors may have limited remedies if patents are infringed or if we or our licensors are compelled to grant a license to a third party, which could materially diminish the value of those patents. This could limit our potential revenue opportunities. 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.

 

We rely on confidentiality agreements that could be breached and may be difficult to enforce, which could result in third parties using our intellectual property to compete against us.

 

Although we believe that we take reasonable steps to protect our intellectual property, including the use of agreements relating to the non-disclosure of confidential information to third parties, as well as agreements that purport to require the disclosure and assignment to us of the rights to the ideas, developments, discoveries and inventions of our employees and consultants while we employ them, the agreements can be difficult and costly to enforce. Although we seek to enter into these types of agreements with our contractors, consultants, advisors and research collaborators, to the extent that employees and consultants utilize or independently develop intellectual property in connection with any of our projects, disputes may arise as to the intellectual property rights associated with our technology, products or any future product candidate. If a dispute arises, a court may determine that the right belongs to a third party. In addition, enforcement of our rights can be costly and unpredictable. We also rely on trade secrets and proprietary know-how that we seek to protect in part by confidentiality agreements with our employees, contractors, consultants, advisors or others. Despite the protective measures we employ, we still face the risk that:

 

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·these agreements may be breached;

 

·these agreements may not provide adequate remedies for the applicable type of breach;

 

·our proprietary know-how will otherwise become known; or

 

·our competitors will independently develop similar technology or proprietary information.

 

Intellectual property rights do not necessarily address all potential threats to our competitive advantage.

 

The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:

 

·others may be able to develop technology that is similar to our technology, products or any future product candidate, but that is not covered by the claims of the patents that we own;

 

·we or any future strategic partners might not have been the first to make the inventions covered by the issued patent or pending patent application that we own or have exclusively licensed;

 

·we or any future strategic partners might not have been the first to file patent applications covering certain of our inventions;

 

·others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights;

 

·it is possible that our pending patent applications will not lead to issued patents;

 

·issued patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid or unenforceable, as a result of legal challenges by our competitors;

 

·our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets;

 

·we may not develop additional proprietary technologies that are patentable; and

 

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We may be subject to claims challenging the inventorship of our patents and other intellectual property.

 

We may be subject to claims that former employees, collaborators or other third parties have an interest in our patents or other intellectual property as an inventor or co-inventor. For example, we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in developing our product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees. In addition, the Israeli Supreme Court ruled in 2012 that an employee who receives a patent or contributes to an invention during his employment may be allowed to seek compensation for such contributions from his or her employer, even if the employee’s contract of employment specifically states otherwise and the employee has transferred all intellectual property rights to the employer. The Israeli Supreme Court ruled that the fact that a contract revokes an employee’s right for royalties and compensation does not rule out the right of the employee to claim their right for royalties. As a result, it is unclear whether and, if so, to what extent our employees may be able to claim compensation with respect to our future revenue. We may receive less revenue from future products if any of our employees successfully claim for compensation for their work in developing our intellectual property, which in turn could impact our future profitability.

 

Risks Related to Our Operations in Israel

 

Potential political, economic and military instability in the State of Israel, where our senior management, our head executive office, and research and development facilities are located, may adversely affect our results of operations.

 

Our head executive office, our research and development facilities, as well as some of our planned clinical sites, are or will be located in Israel. All our officers and a majority of our directors are residents of Israel. Accordingly, political, economic and military conditions in Israel and the surrounding region may directly affect our business and operations. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboring countries. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its trading partners could adversely affect our operations and results of operations. During the summer of 2006 and the fall of 2012, Israel was engaged in an armed conflict with Hezbollah, a Lebanese Islamist Shiite militia group and political party. In December 2008, January 2009, November 2012 and July 2014, there were escalations in violence between Israel, on the one hand, and Hamas, the Palestinian Authority and/or other groups, on the other hand, as well as extensive hostilities along Israel’s border with the Gaza Strip, which resulted in missiles being fired from the Gaza Strip into Southern and central Israel, including near Tel Aviv and at areas surrounding Jerusalem. These conflicts involved missile strikes against civilian targets in various parts of Israel, including areas in which our employees and some of our consultants are located, and negatively affected business conditions in Israel. Our offices and laboratory, located in Kfar Saba, Israel, are within the range of the missiles and rockets that have been fired at Israeli cities and towns from Gaza sporadically since 2006, with escalations in violence (such as the recent escalation in July 2014) during which there were a substantially larger number of rocket and missile attacks aimed at Israel. In addition, since February 2011, Egypt has experienced political turbulence and an increase in terrorist activity in the Sinai Peninsula following the resignation of Hosni Mubarak as president. This turbulence included protests throughout Egypt, and the appointment of a military regime in his stead, followed by the elections to parliament which brought groups affiliated with the Muslim Brotherhood (which had been previously outlawed by Egypt), and the subsequent overthrow of this elected government by a military regime. Such political turbulence and violence may damage peaceful and diplomatic relations between Israel and Egypt, and could affect the region as a whole. Similar civil unrest and political turbulence has occurred in other countries in the region, including Syria, which shares a common border with Israel, and is affecting the political stability of those countries. Since April 2011, internal conflict in Syria has escalated, and evidence indicates that chemical weapons have been used in the region. This instability and any outside intervention may lead to deterioration of the political and economic relationships that exist between the State of Israel and some of these countries, and may have the potential for causing additional conflicts in the region. In addition, Iran has threatened to attack Israel and is widely believed to be developing nuclear weapons. Iran is also believed to have a strong influence among extremist groups in the region, such as Hamas in Gaza, Hezbollah in Lebanon, and various rebel militia groups in Syria. Additionally, a violent jihadist group named Islamic State of Iraq and Levant (ISIL) is involved in hostilities in Iraq and Syria and have been growing in influence. Although ISIL’s activities have not directly affected the political and economic conditions in Israel, ISIL’s stated purpose is to take control of the Middle East, including Israel. These situations may potentially escalate in the future to more violent events which may affect Israel and us. Any armed conflicts, terrorist activities or political instability in the region could adversely affect business conditions and could harm our results of operations and could make it more difficult for us to raise capital. Parties with whom we do business may decline to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements when necessary in order to meet our business partners face to face. In addition, the political and security situation in Israel may result in parties with whom we have agreements involving performance in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions in such agreements. Further, in the past, the State of Israel and Israeli companies have been subjected to economic boycotts. Several countries still restrict business with the State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on our operating results, financial condition or the expansion of our business.

 

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Shareholders may have difficulties enforcing a U.S. judgment, including judgments based upon the civil liability provisions of the U.S. federal securities laws, against us or our executive officers and directors, or asserting U.S. securities laws claims in Israel.

 

All our officers and a majority of our directors are residents of Israel. Most of our directors’ and officers’ assets and our assets are located outside the United States. Service of process upon us or our non-U.S. resident directors and officers and enforcement of judgments obtained in the United States against us or our non-U.S. directors and executive officers may be difficult to obtain within the United States. We have been informed by our legal counsel in Israel that it may be difficult to assert claims under U.S. securities laws in original actions instituted in Israel or obtain a judgment based on the civil liability provisions of U.S. federal securities laws. Israeli courts may refuse to hear a claim based on a violation of U.S. securities laws against us or our officers and directors because Israel may not be the most appropriate forum to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a 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. Israeli courts might not enforce judgments rendered outside Israel, which may make it difficult to collect on judgments rendered against us or our officers and directors.

 

Moreover, among other reasons, including but not limited to fraud or absence of due process, or the existence of a judgment which is at variance with another judgment that was given in the same matter if a suit in the same matter between the same parties was pending before a court or tribunal in Israel, an Israeli court will not enforce a foreign judgment if it was given in a state whose laws do not provide for the enforcement of judgments of Israeli courts (subject to exceptional cases) or if its enforcement is likely to prejudice the sovereignty or security of the State of Israel.

 

Under applicable U.S. and Israeli law, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors from benefiting from the expertise of some of our former employees. In addition, employees may be entitled to seek compensation for their inventions irrespective of their agreements with us, which in turn could impact our future profitability.

 

We generally enter into non-competition agreements with our employees and key consultants. These agreements prohibit our employees and key consultants, if they cease working for us, from competing directly with us or working for our competitors or clients for a limited period of time. We may be unable to enforce these agreements under the laws of the jurisdictions in which our employees work and it may be difficult for us to restrict our competitors from benefitting from the expertise our former employees or consultants developed while working for us. For example, Israeli courts have required employers seeking to enforce non-compete undertakings of a former employee to demonstrate that the competitive activities of the former employee will harm one of a limited number of material interests of the employer which have been recognized by the courts, such as the secrecy of a company’s confidential commercial information or the protection of its intellectual property. If we cannot demonstrate that such interests will be harmed, we may be unable to prevent our competitors from benefiting from the expertise of our former employees or consultants and our ability to remain competitive may be diminished.

 

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In addition, Chapter 8 to the Israeli Patents Law, 5727-1967 (the “Patents Law”) deals with inventions made in the course of an employee’s service and during his or her term of employment, whether or not the invention is patentable, or service inventions. Section 134 of the Patents Law sets forth that if there is no agreement which explicitly determines whether the employee is entitled to compensation for the service inventions and the extent and terms of such compensation, such determination will be made by the Compensation and Rewards Committee, a statutory committee of the Israeli Patents Office. The Israeli Supreme Court ruled in 2012 that an employee who contributes to a service invention during his or her employment may be allowed to seek compensation for such contributions from his employer, even if the employee’s contract of employment specifically states otherwise and the employee has assigned all intellectual property rights to the employer. The Israeli Supreme Court ruled that the fact that a contract revokes the employee’s right for royalties and compensation in connection with service inventions does not rule out the right of the employee to claim a right for royalties. Following such ruling, the Israeli Supreme Court remanded the proceedings to the District Court for further discussion and therefore the ultimate outcome has yet to be resolved. Several decisions of the Supreme Court and the National Labor Court in Israel in the recent years indicate that such courts do not tend to allow compensation for the service inventions if the agreement is clear as to the absence of such rights. However, in a settlement agreement from 2020 mediated by the National Labor Court, it was agreed by both parties that, although the language of an employment agreement was clear and the employee in that case was not entitled to compensation, the employee would be entitled to compensation for its service inventions. As a result, it is unclear if, and to what extent, our research and development employees may be able to claim compensation with respect to our future revenue. As a result, we may receive less revenue from future products if such claims are successful, which in turn could impact our future profitability.

 

Your rights and responsibilities as our shareholder will be governed by Israeli law, which may differ in some respects from the rights and responsibilities of shareholders of U.S. corporations.

 

Since we are incorporated under Israeli law, the rights and responsibilities of our shareholders are governed by our articles of association and Israeli law. These rights and responsibilities differ in some respects from the rights and responsibilities of shareholders of a corporation incorporated in the United States. In particular, a shareholder of an Israeli company, such as us, has a duty to act in good faith and in a customary manner in exercising its rights and performing its obligations towards us and other shareholders and to refrain from abusing its power in us, including, among other things, in voting at the general meeting of shareholders on certain matters, such as an amendment to our articles of association, an increase of our authorized share capital, a merger and approval of related party transactions that require shareholder approval. A shareholder also has a general duty to refrain from 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 of ours or other power towards us has a duty to act in fairness towards us. However, Israeli law does not define the substance of this duty of fairness. Since Israeli corporate law underwent extensive revisions approximately 15 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 otherwise impede a merger with, or an acquisition of, our company, which could prevent a change of control, even when the terms of such a transaction are favorable to us and our shareholders.

 

Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for transactions involving directors, officers or significant shareholders and regulates other matters that may be relevant to these types of transactions. For example, a merger may not be consummated unless at least 50 days have passed from the date that a merger proposal was filed by each merging company with the Israel Registrar of Companies and at least 30 days from the date that the shareholders of both merging companies approved the merger. In addition, the holder of a majority of each class of securities of the target company must approve a merger. Moreover, a full tender offer can only be completed if the acquirer receives at least 95% of the issued share capital (provided that a majority of the offerees that do not have a personal interest in such tender offer shall have approved the tender offer, except that if the total votes to reject the tender offer represent less than 2% of the company’s issued and outstanding share capital, in the aggregate, approval by a majority of the offerees that do not have a personal interest in such tender offer is not required to complete the tender offer), and the shareholders, including those who indicated their acceptance of the tender offer, may, at any time within six months following the completion of the tender offer, petition the court to alter the consideration for the acquisition (unless the acquirer stipulated in the tender offer that a shareholder that accepts the offer may not seek appraisal rights).

 

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Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to those of our shareholders whose country of residence does not have a tax treaty with Israel exempting such shareholders from Israeli tax. For example, Israeli tax law does not recognize tax-free share exchanges to the same extent as U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment of numerous conditions, including a holding period of two years from the date of the transaction during which sales and dispositions of shares of the participating companies are restricted. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomes payable even if no actual disposition of the shares has occurred.

 

These and other similar provisions could delay, prevent or impede an acquisition of us or our merger with another company, even if such an acquisition or merger would be beneficial to us or to our shareholders.

 

Because a certain portion of our expenses is incurred in currencies other than the U.S. dollar, our results of operations may be harmed by currency fluctuations and inflation.

 

Our reporting and functional currency is the NIS, but some portion of our clinical trials and operations expenses are in the U.S. dollar and Euro. As a result, we are exposed to some currency fluctuation risks. For example, if the NIS strengthens against either the U.S. dollar or the Euro, our reported revenues in NIS may be lower than anticipated. The Israeli rate of inflation has not offset or compounded the effects caused by fluctuations between the NIS and the U.S. dollar or the Euro. To date, we have not engaged in hedging transactions. Although the Israeli rate of inflation has not had a material adverse effect on our financial condition during 2018, 2019 or 2020 to date, we may, in the future, decide to enter into currency hedging transactions to decrease the risk of financial exposure from fluctuations in the exchange rate of the currencies mentioned above in relation to the NIS. These measures, however, may not adequately protect us from adverse effects.

 

Our operations may be disrupted as a result of the obligation of Israeli citizens to perform military service.

 

Many Israeli citizens are obligated to perform several days, and in some cases more, of annual military reserve duty each year until they reach the age of 40 (or older, for reservists who are military officers or who have certain occupations) and, in the event of a military conflict, may be called to active duty. In response to increases in terrorist activity, there have been periods of significant call-ups of military reservists. It is possible that there will be military reserve duty call-ups in the future. Our operations could be disrupted by such call-ups, which may include the call-up of members of our management. Such disruption could materially adversely affect our business, financial condition and results of operations.

 

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Risks Related to Ownership of Our ADSs

 

We may not be able to raise additional funds unless we increase our authorized share capital.

 

As of March 12, 2021, we have 500,000,000 authorized ordinary shares, out of which 390,949,079 ordinary shares are outstanding (which excludes 2,641,693 shares held in treasury), and 114,367,907 are reserved for future issuance under outstanding options and warrants and under our 2014 Global Incentive Option Scheme. Any equity financing necessary in order to fund our operations may require us to increase our authorized share capital prior to initiating any such financing transaction. Increasing our share capital is subject to the approval of our shareholders. In the event we fail to obtain the approval of our shareholders to such increase in our authorized share capital, our ability to raise sufficient funds, if at all, might be adversely affected.

 

We do not know whether a market for our securities will be sustained or what the trading price of our securities will be and as a result it may be difficult for you to sell our securities held by you.

 

Although our ADSs now trade on Nasdaq, an active trading market for the ADSs may not be sustained. It may be difficult for you to sell your ADSs without depressing the market price for the ADSs. As a result of these and other factors, you may not be able to sell your ADSs. Further, an inactive market may also impair our ability to raise capital by issuing securities and may impair our ability to enter into strategic partnerships or acquire companies or products by using our equity as consideration.

  

Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business, results of operation or financial condition. In addition, current and potential shareholders could lose confidence in our financial reporting, which could have a material adverse effect on the price of the ADSs.

 

Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. We will be required to document and test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act, which requires annual management assessments of the effectiveness of our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404. Disclosing deficiencies or weaknesses in our internal controls, failing to remediate these deficiencies or weaknesses in a timely fashion or failing to achieve and maintain an effective internal control environment may cause investors to lose confidence in our reported financial information, which could have a material adverse effect on the price of the ADSs. If we cannot provide reliable financial reports or prevent fraud, our operating results could be harmed.

 

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As an “emerging growth company” under the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements, which could make the ADSs less attractive to investors.

 

For as long as we are deemed an emerging growth company, we are permitted to and intend to take advantage of specified reduced reporting and other regulatory requirements that are generally unavailable to other public companies, including:

 

·an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting required by Section 404 of the Sarbanes-Oxley Act; and

 

·an exemption from compliance with any new requirements adopted by the PCAOB, requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about our audit and our financial statements.

 

We will be an emerging growth company until the earliest of: (i) the last day of the fiscal year during which we had total annual gross revenues of $1.07 billion or more, (ii) the last day of the fiscal year following the fifth anniversary of the date of the first sale of the ADSs pursuant to an effective registration statement, (iii) the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt or (iv) the date on which we are deemed a “large accelerated filer” as defined in Regulation S-K under the Securities Act.

 

We cannot predict if investors will find the ADSs less attractive because we may rely on these exemptions. If some investors find the ADSs less attractive as a result, there may be a less active trading market for the ADSs and the market price of the ADSs may be more volatile.

 

We are a “foreign private issuer” and have disclosure obligations that are different from those of U.S. domestic reporting companies.

 

We are a foreign private issuer and are not subject to the same requirements that are imposed upon U.S. domestic issuers by the SEC. Under the Exchange Act, we will be subject to reporting obligations that, in certain respects, are less detailed and less frequent than those of U.S. domestic reporting companies. For example, we will not be required to issue quarterly reports or proxy statements that comply with the requirements applicable to U.S. domestic reporting companies. Furthermore, although under a recent amendment to the regulations promulgated under the Israeli Companies Law, as amended, as an Israeli public company listed overseas we will be required to disclose the compensation of our five most highly compensated officers on an individual basis (rather than on an aggregate basis, as was previously permitted for Israeli public companies listed overseas prior to such amendment), this disclosure will not be as extensive as that required of U.S. domestic reporting companies. We will also have four months after the end of each fiscal year to file our annual reports with the SEC and will not be required to file current reports as frequently or promptly as U.S. domestic reporting companies. Furthermore, our officers, directors and principal shareholders will be exempt from the requirements to report transactions and short-swing profit recovery required by Section 16 of the Exchange Act. Also, as a “foreign private issuer,” we are not subject to the requirements of Regulation FD (Fair Disclosure) promulgated under the Exchange Act. These exemptions and leniencies will reduce the frequency and scope of information and protections available to you in comparison to those applicable to a U.S. domestic reporting companies.

 

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As a “foreign private issuer,” we are permitted, and intend, to follow certain home country corporate governance practices instead of otherwise applicable SEC and Nasdaq requirements, which may result in less protection than is accorded to investors under rules applicable to domestic U.S. issuers.

 

As a “foreign private issuer,” we are permitted to follow certain home country corporate governance practices instead of those otherwise required under the listing rules of Nasdaq for domestic U.S. issuers. For instance, we follow home country practice in Israel with regard to, among other things, board of directors independence requirements, director nomination procedures, and compensation committee matters. In addition, we will follow our home country law instead of the listing rules of Nasdaq that require that we obtain shareholder approval for certain dilutive events, such as the establishment or amendment of certain equity based compensation plans, an issuance that will result in a change of control of us, certain transactions other than a public offering involving issuances of a 20% or greater interest in the company, and certain acquisitions of the stock or assets of another company. We may in the future elect to follow home country corporate governance practices in Israel with regard to other matters. Following our home country corporate governance practices as opposed to the requirements that would otherwise apply to a U.S. company listed on Nasdaq may provide less protection to you than what is accorded to investors under the listing rules of Nasdaq applicable to domestic U.S. issuers.

 

If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they adversely change their recommendations or publish negative reports regarding our business or our traded securities, our securities price and trading volume could be negatively impacted.

 

The trading market for our securities will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market or our competitors. We do not have any control over these analysts, and we cannot provide any assurance that analysts will cover us or provide favorable coverage. If any of the analysts who may cover us adversely change their recommendation regarding the ADSs, or provide more favorable relative recommendations about our competitors, the price of the ADSs would likely decline. If any analyst who may cover us were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could negatively impact the price of the ADSs or their trading volume.

 

The market price for our ADSs may be volatile.

 

The market price for our ADSs is likely to be highly volatile and subject to wide fluctuations in response to numerous factors including the following:

 

·our failure to obtain the approvals necessary to commence clinical trials;

 

·results of clinical and preclinical studies;

 

·announcements of regulatory approval or the failure to obtain it, or changes or delays in the regulatory review process;

 

·announcements of technological innovations, new products or product enhancements by us or others;

 

·adverse actions taken by regulatory agencies with respect to our clinical trials, manufacturing supply chain or sales and marketing activities;

 

·changes or developments in laws, regulations or decisions applicable to our product candidates or patents;

 

·any adverse changes to our relationship with manufacturers or suppliers;

 

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·announcements concerning our competitors or the regenerative medicine or healthcare industries in general;

 

·achievement of expected product sales and profitability or our failure to meet expectations;

 

·our commencement of or results of, or involvement in, litigation, including, but not limited to, any product liability actions or intellectual property infringement actions;

 

·any major changes in our board of directors, management or other key personnel;

 

·announcements by us of significant strategic partnerships, out-licensing, in-licensing, joint ventures, acquisitions or capital commitments;

 

·expiration or terminations of licenses, research contracts or other collaboration agreements;

 

·public concern as to the safety of our products that we, our licensees or others develop;

 

·success of research and development projects;

 

·developments concerning intellectual property rights or regulatory approvals;

 

·variations in our and our competitors’ results of operations;

 

·changes in earnings estimates or recommendations by securities analysts, if our ordinary shares or the ADSs or the warrants are covered by analysts;

 

·future issuances of ordinary shares, ADSs or warrants or other securities;

 

·general market conditions and other factors, including factors unrelated to our operating performance, such as natural disasters and political and economic instability, including wars, terrorism, political unrest, results of certain elections and votes, emergence of a pandemic, or other widespread health emergencies (or concerns over the possibility of such an emergency, including for example, the COVID-19 pandemic), boycotts, adoption or expansion of government trade restrictions, and other business restrictions; and

 

·the other factors described in this “Risk Factors” section.

 

These factors and any corresponding price fluctuations may materially and adversely affect the market price of the ADSs and warrants, which would result in substantial losses by our investors. In addition, the securities market has from time to time experienced significant price and volume fluctuations that are not related to the operating performance of any particular company. These market fluctuations may also have a material adverse effect on the market price of the ADSs and warrants.

 

Substantial future sales or perceived potential sales of our ordinary shares or ADSs in the public market could cause the price of our ADSs decline.

 

Substantial sales of our ADSs on Nasdaq may cause the market price of our ADSs to decline. Sales by us or our security holders of substantial amounts of our ADSs or the perception that these sales may occur in the future, could cause a reduction in the market price of our shares ADSs. The issuance of any additional ordinary shares or any additional ADSs or warrants, or any securities that are exercisable for or convertible into our ordinary shares or ADSs, may have an adverse effect on the market price of our ADSs and will have a dilutive effect on our existing shareholders and holders of ADSs.

 

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We have not paid, and do not intend to pay, dividends on our ordinary shares and, therefore, unless our traded securities appreciate in value, our investors may not benefit from holding our securities.

 

We have not paid any cash dividends on our ordinary shares since inception. We do not anticipate paying any cash dividends on our ordinary shares in the foreseeable future. Moreover, the Companies Law imposes certain restrictions on our ability to declare and pay dividends. As a result, investors in our ADSs or ordinary shares, or investors who exercise our warrants, will not be able to benefit from owning these securities unless their market price becomes greater than the price paid by such investors and they are able to sell such securities. We cannot assure you that you will ever be able to resell our securities at a price in excess of the price paid.

 

You may not receive the same distributions or dividends as those we make to the holders of our ordinary shares, and, in some limited circumstances, you may not receive dividends or other distributions on our ordinary shares and you may not receive any value for them, if it is illegal or impractical to make them available to you.

 

The depositary for the ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on ordinary shares or other deposited securities underlying the ADSs, after deducting its fees and expenses. You will receive these distributions, if any, in proportion to the number of ordinary shares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act, but that are not properly registered or distributed under an applicable exemption from registration. In addition, conversion into U.S. dollars from foreign currency that was part of a dividend made in respect of deposited ordinary shares may require the approval or license of, or a filing with, any government or agency thereof, which may be unobtainable. In these cases, the depositary may determine not to distribute such property and hold it as “deposited securities” or may seek to effect a substitute dividend or distribution, including net cash proceeds from the sale of the dividends that the depositary deems an equitable and practicable substitute. We have no obligation to register under U.S. securities laws any ADSs, ordinary shares, rights or other securities received through such distributions. We also have no obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. In addition, the depositary may withhold from such dividends or distributions its fees and an amount on account of taxes or other governmental charges to the extent the depositary believes it is required to make such withholding. This means that you may not receive the same distributions or dividends as those we make to the holders of our ordinary shares, and, in some limited circumstances, you may not receive any value for such distributions or dividends if it is illegal or impractical for us to make them available to you. These restrictions may cause a material decline in the value of the ADSs.

 

Holders of ADSs must act through the depositary to exercise their rights as our shareholders.

 

Holders of the ADSs do not have the same rights of our shareholders and may only exercise the voting rights with respect to the underlying ordinary shares in accordance with the provisions of the deposit agreement for the ADSs. Under Israeli law, the minimum notice period required to convene a shareholders meeting is no less than 35 or 21 calendar days, depending on the proposals on the agenda for the shareholders meeting. When a shareholder meeting is convened, holders of the ADSs may not receive sufficient notice of a shareholders meeting to permit them to withdraw their ordinary shares to allow them to cast their vote with respect to any specific matter. In addition, the depositary and its agents may not be able to send voting instructions to holders of the ADSs or carry out their voting instructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to holders of the ADSs in a timely manner, but we cannot assure holders that they will receive the voting materials in time to ensure that they can instruct the depositary to vote their ADSs. Furthermore, the depositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of any such vote. As a result, holders of the ADSs may not be able to exercise their right to vote and they may lack recourse if their ADSs are not voted as they requested. In addition, in the capacity holders of ADSs, they will not be able to call a shareholders meeting.

 

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You may be subject to limitations on transfer of your ADSs.

 

Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deems expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary deems it advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason in accordance with the terms of the deposit agreement.

 

Your percentage ownership in us may be diluted by future issuances of share capital, which could reduce your influence over matters on which shareholders vote.

 

Our board of directors has the authority, in most cases without action or vote of our shareholders, to issue all or any part of our authorized but unissued shares, including ordinary shares issuable upon the exercise of outstanding warrants and options. Issuances of additional shares would reduce your influence over matters on which our shareholders vote.

 

Risks Related to Quoin

 

Unless the context indicates or suggests otherwise, reference to “we”, “our”, “us”, and “Quoin” in this section refers to Quoin Pharmaceuticals, Inc.

 

Risks Related to Quoin’s Business, Financial Position and Capital Requirements

 

We have a limited operating history that you can use to evaluate us, and the likelihood of our success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered by a small developing company.

 

We are an emerging specialty pharmaceutical company that was incorporated in March 2018 and have a limited operating history. Since inception, our operations have been primarily limited to acquiring and licensing intellectual property rights, undertaking research and conducting preclinical studies for our initial programs. We have not yet obtained regulatory approval for any product candidates. Consequently, any predictions about our future success or viability, or any evaluation of our business and prospects, may not be accurate. The likelihood of our success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered by a small developing company starting a new business enterprise and the highly competitive environment in which we will operate. Since we have a limited operating history, we cannot assure you that our business will be profitable or that we will ever generate sufficient revenues to meet our expenses and support our anticipated activities. In addition, there is no guarantee that any of our product candidates with ever receive FDA approval.

 

We have incurred significant losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future.

 

We have devoted most of our financial resources to research and development, including our preclinical development activities. To date, we have funded our operations primarily through research funding, and through the sale of equity and convertible securities. We expect to continue to incur substantial and increased expenses, losses and negative cash flows as we expand our development activities and advance our preclinical programs. If our product candidates are not successfully developed or commercialized, including because of a lack of capital, or if we do not generate enough revenue following marketing approval, we will not achieve profitability and our business may fail. Even if we successfully obtain regulatory approval to market a product candidate, our revenues will also depend upon the size of any markets in which our product candidates receive market approval and our ability to achieve sufficient market acceptance and adequate market share for our products.

 

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We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. The net losses we incur may fluctuate significantly from quarter to quarter. We anticipate that our expenses will increase substantially if and as we:

 

·continue our research and preclinical development of our product candidates, both independently and under our strategic alliance agreements;

 

·seek to identify additional product candidates;

 

·acquire or in-license other products and technologies;

 

·advance product candidates into clinical trials;

 

·seek marketing approvals for our product candidates that successfully complete clinical trials;

 

·ultimately establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain marketing approval;

 

·maintain, expand and protect our intellectual property portfolio;

 

·hire additional clinical, regulatory, research, executive and administrative personnel; and

 

·create additional infrastructure to support our operations and our product development and planned future commercialization efforts.

 

We have never generated any revenue from product sales, have generated only limited revenue since inception, and may never be profitable.

 

Our ability to generate revenue and achieve profitability depends on our ability, alone or with strategic alliance partners, to successfully complete the development of, obtain the necessary regulatory approvals for and commercialize our product candidates. We do not anticipate generating revenues from sales of our products for the foreseeable future, if ever. Our ability to generate future revenues from product sales depends heavily on our success in:

 

·completing our research and preclinical development of product candidates;

 

·initiating and completing clinical trials for product candidates with favorable results;

 

·seeking, obtaining, and maintaining marketing approvals for product candidates that successfully complete clinical trials;

 

·establishing and maintaining supply and manufacturing relationships with third parties;

 

·launching and commercializing product candidates for which we may obtain marketing approval, with an alliance partner or, if launched independently, successfully establishing a sales force, marketing and distribution infrastructure;

 

·maintaining, protecting and expanding our intellectual property portfolio; and

 

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·attracting, hiring and retaining qualified personnel.

 

Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to predict the timing or amount of increased expenses and when we will be able to achieve or maintain profitability, if ever. In addition, our expenses could increase beyond expectations if we are required by the FDA or other foreign regulatory agencies to perform studies and trials in addition to those that we currently anticipate.

 

Even if one or more of the product candidates that we independently develop is approved for commercial sale, we anticipate incurring significant costs associated with commercializing any approved product. Even if we are able to generate revenues from the sale of any approved products, we may not become profitable and may need to obtain additional funding to continue operations.

 

We expect that we will need to raise additional capital, which may not be available on acceptable terms, or at all.

 

Developing pharmaceutical products, including conducting preclinical studies and clinical trials, is expensive. We expect our research and development expenses to substantially increase in connection with our ongoing activities, particularly as we advance our product candidates towards or through clinical trials. We may need to raise additional capital to support our operations and such funding may not be available to us on acceptable terms, or at all. We cannot provide assurances that our plans will not change or that changed circumstances will not result in the depletion of our capital resources more rapidly than we currently anticipate. For example, our preclinical trials may encounter technical or other difficulties. Any of these events may increase our development costs more than we expect. In order to support our long-term plans, we may need to raise additional capital or otherwise obtain funding through additional strategic alliances if we choose to initiate preclinical or clinical trials for new product candidates other than programs currently partnered. In any event, we will require additional capital to obtain regulatory approval for, and to commercialize, future product candidates.

 

Any additional fundraising efforts may divert our management from our day-to-day activities, which may adversely affect our ability to develop and commercialize future product candidates. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. If we are unable to raise additional capital when required or on acceptable terms, we may be required to:

 

·significantly delay, scale back or discontinue the development or commercialization of any future product candidates;

 

·seek strategic alliances for research and development programs at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available; or

 

·relinquish or license on unfavorable terms, our rights to technologies or any future product candidates that we otherwise would seek to develop or commercialize ourselves.

 

If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we will be prevented from pursuing development and commercialization efforts, which will have a material adverse effect on our business, operating results and prospects.

 

We expect competition in the marketplace for our product candidates, should any of them receive regulatory approval.

 

If successfully developed and approved, our product candidates may face competition. We may not be able to compete successfully against organizations with competitive products, particularly large pharmaceutical companies. Many of our potential competitors have significantly greater financial, technical and human resources than us, and may be better equipped to develop, manufacture, market and distribute products. Many of these companies operate large, well-funded research, development and commercialization programs, have extensive experience in nonclinical and clinical studies, obtaining FDA and other regulatory approvals and manufacturing and marketing products, and have multiple products that have been approved or are in late-stage development. These advantages may enable them to receive approval from the FDA or any foreign regulatory agency before us.

 

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Currently, there are no approved products to treat Netherton Syndrome (“NS”). However, to our knowledge, there are a number of potentially competing therapeutic products at various stages of clinical development for the treatment of NS, including candidates from LifeMax Laboratories, PellePharma, Krystal Biotech, QID Pharmaceuticals, Azitra and Dermadis. Currently, to the best of our knowledge, none of these companies are conducting clinical trials in NS.

 

Risks Related to the Combined Company

 

For purposes of this section, “Quoin” refers to the organization that will exist following the completion of the Merger. These are risk factors that pertain to both Cellect and Quoin as they exist today.

 

Risks Related To The Discovery And Development Of Product Candidates

 

Preclinical and clinical studies of our product candidates may not be successful. If we are unable to generate successful results from preclinical and clinical studies of our product candidates, or experience significant delays in doing so, our business may be materially harmed.

 

We have no products approved for commercial marketing and all of our product candidates are either in preclinical development or about to enter into clinical testing. Our ability to achieve and sustain profitability depends on obtaining regulatory approvals for and, if approved, successfully commercializing our product candidates, either alone or with third parties. Before obtaining regulatory approval for the commercial distribution of our product candidates, we or an existing or future collaborator must conduct extensive preclinical tests and clinical trials to demonstrate the safety and efficacy of our product candidates.

 

The success of our product candidates will depend on several factors, including the following:

 

·successfully designing preclinical studies which may be predictive of clinical outcomes;

 

·successful enrollment in clinical trials and completion of preclinical and clinical studies with favorable results;

 

·receipt of marketing approvals from applicable regulatory authorities;

 

·obtaining and maintaining patent and trade secret protection for future product candidates;

 

·establishing and maintaining manufacturing relationships with third parties or establishing our own manufacturing capability; and

 

·successfully commercializing our products, if approved, including successfully establishing a sales force, marketing and distribution infrastructure, whether alone or in collaboration with others.

 

If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully complete the development or commercialization of our product candidates, which would materially harm our business.

 

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We may not be successful in our efforts to identify or discover potential product candidates.

 

The success of our business depends primarily upon our ability to identify, develop and commercialize our product candidates. Our research programs may initially show promise in identifying potential product candidates, yet fail to yield product candidates for clinical development for a number of reasons, including:

 

·our research methodology may be unsuccessful in identifying potential product candidates; or

 

·potential product candidates may be shown to have harmful side effects or may have other characteristics that may make the products unmarketable or unlikely to receive marketing approval.

 

If any of these events occur, we may be forced to abandon our development efforts for a program or programs, which would have a material adverse effect on our business and could potentially cause us to cease operations. Research programs to identify new product candidates require substantial technical, financial and human resources. We may focus our efforts and resources on potential programs or product candidates that ultimately prove to be unsuccessful.

 

If future clinical trials of our product candidates fail to demonstrate safety and efficacy to the satisfaction of regulatory authorities or do not otherwise produce positive results, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our product candidates.

 

Before obtaining marketing approval from regulatory authorities for the sale of product candidates, we must conduct extensive clinical trials to demonstrate the safety and efficacy of the product candidates in humans. Clinical trials are expensive, difficult to design and implement, can take many years to complete and are uncertain as to the outcome. A failure of one or more clinical trials can occur at any stage of testing. The outcome of preclinical studies and early clinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval for their products. Furthermore, even if prior animal studies have demonstrated the potential safety and efficacy of our product candidates, there can be no guarantee that such results will be reproducible in preclinical studies and clinical trials involving human subjects.

 

Events which may result in a delay or unsuccessful completion of clinical development include:

 

·delays in reaching an agreement with the FDA or other regulatory authorities on final trial design;

 

·delays in obtaining from the FDA, or comparable foreign regulatory authority, authorization to administer an investigational new drug product to humans through the submission or acceptance of an IND application;

 

·imposition of a clinical hold of our clinical trial operations or trial sites by the FDA or other regulatory authorities;

 

·delays in reaching agreement on acceptable terms with prospective contract research organizations (“CROs”) and clinical trial sites;

 

·our inability to adhere to clinical trial requirements directly or with third parties such as CROs;

 

·clinical trial site or CRO non-compliance with good clinical practices (“GCPs”), good laboratory practices, or other regulatory requirements;

 

·inability or failure of clinical trial sites to adhere to the clinical trial protocol;

 

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·delays in obtaining required IRB approval at each clinical trial site, or an IRB suspending or terminating a trial;

 

·delays in recruiting suitable patients to participate in a trial;

 

·delays in the testing, validation, manufacturing and delivery of the product candidates to the clinical sites;

 

·delays in having patients complete participation in a trial or return for post-treatment follow-up;

 

·delays caused by patients dropping out of a trial due to protocol procedures or requirements, product side effects or disease progression;

 

·clinical sites dropping out of a trial to the detriment of enrollment;

 

·time required to add new clinical sites; or

 

·delays by our contract manufacturers to produce and deliver sufficient supply of clinical trial materials.

 

Accordingly, we cannot be sure that we will submit INDs on the expected timelines and we cannot be certain the submission on an IND will be accepted by the FDA.

 

If we are required to conduct additional clinical trials or other testing of any product candidates beyond those that are currently contemplated, are unable to successfully complete clinical trials of any such product candidates or other testing, or if the results of these trials or tests are not positive, are only modestly positive or if there are safety concerns, we may:

 

·be delayed in obtaining marketing approval for our future product candidates;

 

·not obtain marketing approval at all;

 

·obtain approval for indications or patient populations that are not as broad as originally intended or desired;

 

·obtain approval with labeling that includes significant use or distribution restrictions or safety warnings;

 

·be subject to additional post-marketing testing requirements; or

 

·have the product removed from the market after obtaining marketing approval.

 

Our product development costs will also increase if we experience delays in testing or marketing approvals. We do not know whether any clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. Significant clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do, which would impair our ability to successfully commercialize our product candidates and may harm our business and results of operations. Any inability to successfully complete preclinical and clinical development could result in additional costs to us or impair our ability to generate revenues from product sales.

 

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Any of our product candidates may cause undesirable side effects or have other properties impacting safety that could delay or prevent their regulatory approval or limit the scope of any approved label or market acceptance.

 

Undesirable side effects caused by our product candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other regulatory authorities. While we have not yet initiated clinical trials for any of our product candidates, it is likely that there will be side effects associated with their use. Results of our trials could reveal a high and unacceptable severity and prevalence of side effects. In such an event, our trials could be suspended or terminated and the FDA or comparable foreign regulatory authorities could order us to cease further development of or deny approval of our product candidates for any or all targeted indications. Such side effects could also affect patient recruitment, the ability of enrolled patients to complete the trial or result in potential product liability claims. Any of these occurrences may materially and adversely affect our business, financial condition, results of operations and prospects.

 

Further, clinical trials by their nature test product candidates in only samples of the potential patient populations. With a limited number of patients and limited duration of exposure in such trials, rare and severe side effects of our product candidates may not be uncovered until a significantly larger number of patients are exposed to the product candidate.

 

If any of our product candidates receive marketing approval, and causes serious, unexpected, or undesired side effects, a number of potentially significant negative consequences could result, including:

 

·regulatory authorities may withdraw, suspend, or limit their approval of the product or impose restrictions on its distribution in the form of a modified risk evaluation and mitigation strategy;

 

·regulatory authorities may require the addition of labeling statements, such as warnings or contraindications;

 

·we may be required to change the way the product is administered or conduct additional clinical trials or post-marketing surveillance;

 

·we could be sued and held liable for harm caused to patients; or

 

·our reputation may suffer.

 

Any of these events could prevent us from achieving or maintaining market acceptance of the affected product and could substantially increase the costs of commercializing our future products and impair our ability to generate revenues from the commercialization of these products.

 

Even if we complete the necessary preclinical studies and clinical trials, we cannot predict whether or when we will obtain regulatory approval to commercialize a product candidate and we cannot, therefore, predict the timing of any revenue from a future product.

 

We cannot commercialize a product until the appropriate regulatory authorities, such as the FDA, have reviewed and approved the product candidate. The regulatory authorities may not complete their review processes in a timely manner, or we may not be able to obtain regulatory approval for many reasons including:

 

·regulatory authorities disagreeing with the design or implementation of our clinical trials;

 

·such authorities may disagree with our interpretation of data from preclinical studies or clinical trials;

 

·such authorities may not accept clinical data from trials which are conducted at clinical facilities or in countries where the standard of care is potentially different from that of the United States;

 

·unfavorable or unclear results from our clinical trials or results that may not meet the level of statistical significance required by the FDA or comparable foreign regulatory agencies for approval;

 

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·serious and unexpected drug-related side effects experienced by participants in our clinical trials or by individuals using drugs similar to our product candidates;

 

·the population studied in the clinical trial may not be sufficiently broad or representative to assure safety in the full population for which we seek approval;

 

·we may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;

 

·such authorities may not agree that the data collected from clinical trials of our product candidates are acceptable or sufficient to support the submission of a New Drug Application (“NDA”) or other submission or to obtain regulatory approval in the United States or elsewhere, and such authorities may impose requirements for additional preclinical studies or clinical trials;

 

·such authorities may disagree regarding the formulation, labeling and/or the specifications of our product candidates;

 

·such authorities may find deficiencies in the manufacturing processes or facilities of our third-party manufacturers with which we contract for clinical and commercial supplies; or the approval policies; or

 

·regulations of such authorities may significantly change in a manner rendering our or any of our potential future collaborators’ clinical data insufficient for approval;

 

Additional delays may result if an FDA advisory committee recommends restrictions on approval or recommends non-approval. In addition, we may experience delays or rejections based upon additional government regulation from future legislation or administrative action, or changes in regulatory agency policy during the period of product development, clinical trials and the review process.

 

Even if we obtain regulatory approval for a product candidate, we will still face extensive regulatory requirements and our products may face future development and regulatory difficulties.

 

Even if we obtain regulatory approval in the United States, the FDA may still impose significant restrictions on the indicated uses or marketing of our product candidates, or impose ongoing requirements for potentially costly post-approval studies or post-market surveillance. The FDA may also require risk evaluation and mitigation strategies as a condition of approval of our product candidates, which could include requirements for a medication guide, physician communication plans or additional elements to ensure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. Additionally, the manufacturing processes, packaging, distribution, adverse event reporting, labeling, advertising, promotion, and recordkeeping for the product will be subject to extensive and ongoing FDA regulatory requirements, in addition to other potentially applicable federal and state laws. These requirements include monitoring and reporting of adverse events (“AEs”) and other post-marketing information and reports, registration, as well as continued compliance with current good manufacturing practice (“cGMP”) regulations. The holder of an approved NDA must also submit new or supplemental applications and obtain FDA approval for certain changes to the approved product, product labeling or manufacturing process. If we or a regulatory agency discovers previously unknown problems with a product such as AEs of unanticipated severity or frequency, or problems with the facility where the product is manufactured, a regulatory agency may impose restrictions relative to that product or the manufacturing facility, including requiring recall or withdrawal of the product from the market or suspension of manufacturing.

 

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If we fail to comply with applicable regulatory requirements following approval of any of our product candidates, a regulatory agency may:

 

·issue a warning letter asserting that we are in violation of the law;

 

·seek an injunction or impose civil or criminal penalties or monetary fines;

 

·suspend or withdraw regulatory approval;

 

·suspend any ongoing clinical trials;

 

·refuse to approve a pending NDA or supplements to an NDA submitted by us;

 

·seize product or require a product recall; or

 

·refuse to allow us to enter into supply contracts, including government contracts.

 

Any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate negative publicity. The occurrence of any event or penalty described above may inhibit our ability to commercialize our future products, if approved, and generate revenues.

 

We may use our financial and human resources to pursue a particular research program or product candidate and fail to capitalize on programs or product candidates that may be more profitable or for which there is a greater likelihood of success.

 

As a result of our limited financial and human resources, we will have to make strategic decisions as to which product candidates to pursue and may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on research and development programs and product candidates for specific indications may not yield any commercially viable products. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through strategic alliance, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate, or we may allocate internal resources to a product candidate in a therapeutic area in which it would have been more advantageous to enter into a partnering arrangement.

 

We face significant competition from other biotechnology and pharmaceutical companies and our operating results will suffer if we fail to compete effectively.

 

The biotechnology and pharmaceutical industries are intensely competitive. We have competitors both in the United States and internationally, including major multinational pharmaceutical companies, biotechnology companies and universities and other research institutions. Our competitors may have substantially greater financial, technical and other resources, such as larger research and development staff and experienced marketing and manufacturing organizations. Additional mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated in our competitors. Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in these industries. Our competitors may succeed in developing, acquiring or licensing on an exclusive basis, drug products that are more effective or less costly than any product candidate that we may develop.

 

All of our programs are preclinical and targeted toward indications for which there are product candidates in clinical development. We will face competition from other drugs currently approved or that may be approved in the future for the same therapeutic indications as our product candidates. Our ability to compete successfully will depend largely on our ability to leverage our experience in drug discovery and development to:

 

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·discover and develop therapeutics that are superior to other products in the market;

 

·attract qualified scientific, product development and commercial personnel;

 

·obtain patent and/or other proprietary protection for our product candidates;

 

·obtain required regulatory approvals; and

 

·successfully collaborate with pharmaceutical companies in the discovery, development and commercialization of new therapeutics.

 

The availability of our competitors’ products could limit the demand, and the price we are able to charge, for any products that we may develop and commercialize. We will not achieve our business plan if the acceptance of any of these products is inhibited by price competition or the reluctance of physicians to switch from existing drug products to our products, or if physicians switch to other new drug products or choose to reserve our future products for use in limited circumstances. The inability to compete with existing or subsequently introduced drug products would have a material adverse impact on our business, financial condition and prospects.

 

Established pharmaceutical companies may invest heavily to accelerate discovery and development of novel compounds or to in-license novel compounds that could make our product candidates less competitive. In addition, any new product that competes with an approved product must demonstrate compelling advantages in efficacy, convenience, tolerability and safety in order to overcome price competition and to be commercially successful. Accordingly, our competitors may succeed in obtaining patent protection, receiving FDA approval or discovering, developing and commercializing product candidates before we do, which would have a material adverse impact on our business.

 

The commercial success of our product candidates will depend upon the acceptance of these product candidates by the medical community, including physicians, patients and healthcare payors.

 

The degree of market acceptance of any product candidates will depend on a number of factors, including:

 

·demonstration of clinical safety and efficacy compared to other products;

 

·the relative convenience, ease of administration and acceptance by physicians, patients and healthcare payors;

 

·the prevalence and severity of any AEs;

 

·limitations or warnings contained in the FDA-approved label for such products;

 

·availability of alternative treatments;

 

·pricing and cost-effectiveness;

 

·the effectiveness of our, or any of our collaborators’, sales and marketing strategies;

 

·our ability to obtain hospital or payor formulary approval;

 

·our ability to obtain and maintain sufficient third-party coverage and adequate reimbursement; and

 

·the willingness of patients to pay out-of-pocket in the absence of third-party coverage.

 

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If a product is approved but does not achieve an adequate level of acceptance by physicians, patients and healthcare payors, we may not generate sufficient revenues from such product and we may not become or remain profitable. Such increased competition may decrease any future potential revenue for future product candidates due to increasing pressure for lower pricing and higher discounts in the commercialization of our product.

 

If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell our product candidates, we may be unable to generate any revenues.

 

We currently do not have an organization for the sales, marketing and distribution of pharmaceutical products and the cost of establishing and maintaining such an organization may exceed the cost-effectiveness of doing so. In order to market any products that may be approved, we must build our sales, marketing, managerial and other non-technical capabilities or make arrangements with third parties to perform these services. With respect to future programs, we may rely completely on an alliance partner for sales and marketing. In addition, we may enter into strategic alliances with third parties to commercialize other product candidates, if approved, including in markets outside of the United States or for other large markets that are beyond our resources. Although we intend to establish a sales organization if we are able to obtain approval to market any product candidates for niche markets in the United States, we will also consider the option to enter into strategic alliances for future product candidates in the United States if commercialization requirements exceed our available resources. This will reduce the revenue generated from the sales of these products.

 

Any future strategic alliance partners may not dedicate sufficient resources to the commercialization of our product candidates, if approved, or may otherwise fail in their commercialization due to factors beyond our control. If we are unable to establish effective alliances to enable the sale of our product candidates, if approved, to healthcare professionals and in geographical regions, including the United States, that will not be covered by our own marketing and sales force, or if our potential future strategic alliance partners do not successfully commercialize the product candidates that may be approved, our ability to generate revenues from product sales will be adversely affected.

 

If we are unable to establish adequate sales, marketing and distribution capabilities, whether independently or with third parties, we may not be able to generate sufficient product revenue and may not become profitable. We will be competing with many companies that currently have extensive and well-funded marketing and sales operations. Without an internal team or the support of a third party to perform marketing and sales functions, we may be unable to compete successfully against these more established companies.

 

If we obtain approval to commercialize any approved products outside of the United States, a variety of risks associated with international operations could materially adversely affect our business.

 

If we obtain approval to commercialize any approved products outside of the United States, we expect that we will be subject to additional risks related to entering into international business relationships, including:

 

·different regulatory requirements for drug approvals in foreign countries;

 

·differing payor reimbursement regimes, governmental payors or patient self-pay systems and price controls;

 

·reduced protection for intellectual property rights;

 

·unexpected changes in tariffs, trade barriers and regulatory requirements;

 

·economic weakness, including inflation, or political instability in particular foreign economies and markets;

 

·compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;

 

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·foreign taxes, including withholding of payroll taxes;

 

·foreign currency fluctuations, which could result in increased operating expenses and reduced revenues, and other obligations incident to doing business in another country;

 

·workforce uncertainty in countries where labor unrest is more common than in the United States;

 

·production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and

 

·business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters including earthquakes, typhoons, floods and fires.

 

Coverage and adequate reimbursement may not be available for our product candidates, if approved, which could make it difficult for us to sell products profitably.

 

Market acceptance and sales of any product candidates that we develop will depend on coverage and reimbursement policies and may be affected by future healthcare reform measures. Government authorities and third-party payors, such as private health insurers, government payors and health maintenance organizations, decide which drugs they will pay for and establish reimbursement levels. We cannot be sure that coverage and adequate reimbursement will be available for any future product candidates. In the United States, the Centers for Medicare & Medicaid Services (“CMS”), an agency within the U.S. Department of Health and Human Services, decides whether and to what extent a new drug will be covered and reimbursed under Medicare. Private payors tend to follow the coverage reimbursement policies established by CMS to a substantial degree. It is difficult to predict what CMS will decide with respect to reimbursement for novel product candidates. Inadequate reimbursement amounts may reduce the demand for, or the price of, our future products. Further, one payor’s determination to provide coverage for a product does not assure that other payors will also provide coverage for the product. If reimbursement is not available, or is available only at limited levels, we may not be able to successfully commercialize product candidates that we develop and that may be approved. Thus, even if we succeed in bringing a product to market, it may not be considered medically necessary or cost-effective, and the amount reimbursed for any products may be insufficient to allow us to sell our products on a competitive basis.

 

There have been a number of legislative and regulatory proposals to change the healthcare system in the United States and in some foreign jurisdictions that could affect our ability to sell products profitably. These legislative and/or regulatory changes may negatively impact the reimbursement for drug products, following approval. The availability of numerous generic treatments may also substantially reduce the likelihood of reimbursement for our future products. We expect to experience pricing pressures in connection with the sale of any products that we develop, due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative changes. The downward pressure on healthcare costs in general, and prescription drugs in particular, has and is expected to continue to increase in the future. For instance, government and private payors who reimburse patients or healthcare providers are increasingly seeking greater upfront discounts, additional rebates and other concessions to reduce prices for pharmaceutical products. If we fail to successfully secure and maintain reimbursement coverage for our future products or are significantly delayed in doing so, we will have difficulty achieving market acceptance of our future products and our business will be harmed.

 

In addition, in some non-U.S. jurisdictions, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing vary widely from country to country. For example, the EU provides options for its member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements for any of our products. Historically, products launched in the EU do not follow price structures of the U.S. and generally tend to be priced significantly lower.

 

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If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of our business.

 

We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable materials, including chemicals and biological materials. Our operations also produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties.

 

Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials or other work-related injuries, this insurance may not provide adequate coverage against potential liabilities. In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research, development or production efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.

 

Risks Related To Our Reliance On Third Parties

 

We rely on third parties to conduct some aspects of our compound formulation, research and preclinical studies, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such formulation, research or testing.

 

We do not expect to independently conduct all aspects of our drug discovery activities, compound formulation research or preclinical studies of product candidates. We currently rely and expect to continue to rely on third parties to conduct some aspects of our preclinical studies and formulation development.

 

Any of these third parties may terminate their engagements with us at any time. If we need to enter into alternative arrangements, it would delay our product development activities. Our reliance on these third parties for research and development activities will reduce our control over these activities but will not relieve us of our responsibilities. For example, for product candidates that we develop and commercialize on our own, we will remain responsible for ensuring that each of our IND-enabling studies and clinical trials are conducted in accordance with the study plan and protocols for the trial.

 

If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our studies in accordance with regulatory requirements or our stated study plans and protocols, we will not be able to complete, or may be delayed in completing, the necessary preclinical studies to enable us to select viable product candidates for IND submissions and will not be able to, or may be delayed in our efforts to, successfully develop and commercialize such product candidates.

 

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We rely on third-party manufacturers to produce the supply of our preclinical product candidates, and we intend to rely on third parties to produce future clinical supplies of product candidates that we advance into clinical trials and commercial supplies of any approved product candidates.

 

Reliance on third-party manufacturers entails risks, including risks that we would not be subject to if we manufactured the product candidates ourselves, including:

 

·the inability to meet any product specifications and quality requirements consistently;

 

·a delay or inability to procure or expand sufficient manufacturing capacity;

 

·manufacturing and product quality issues related to scale-up of manufacturing;

 

·costs and validation of new equipment and facilities required for scale-up;

 

·a failure to comply with cGMP and similar foreign standards;

 

·the inability to negotiate manufacturing or supply agreements with third parties under commercially reasonable terms;

 

·termination or nonrenewal of manufacturing agreements with third parties in a manner or at a time that is costly or damaging to us;

 

·the reliance on a limited number of sources, and in some cases, single sources for raw materials, such that if we are unable to secure a sufficient supply of these product components, we will be unable to manufacture and sell future product candidates in a timely fashion, in sufficient quantities or under acceptable terms;

 

·the lack of qualified backup suppliers for any raw materials that are currently purchased from a single source supplier;

 

·operations of our third-party manufacturers or suppliers could be disrupted by conditions unrelated to our business or operations, including the bankruptcy of the manufacturer or supplier;

 

·carrier disruptions or increased costs that are beyond our control; and

 

·the failure to deliver products under specified storage conditions and in a timely manner.

 

Any of these events could lead to clinical study delays or failure to obtain regulatory approval, or impact our ability to successfully commercialize future products, if approved. Some of these events could be the basis for FDA action, including injunction, recall, seizure or total or partial suspension of production.

 

We rely on limited sources of supply for the drug substance of product candidates and any disruption in the chain of supply may cause a delay in developing and commercializing these product candidates.

 

We have established manufacturing relationships with a limited number of suppliers to manufacture raw materials and the drug substance used to create our product candidates. The availability of such suppliers to manufacture raw materials for our product candidates may be limited. Further, each supplier may require licenses to manufacture such components if such processes are not owned by the supplier or in the public domain. Our ability to obtain the necessary drug substance of product candidates could be adversely impacted by the Coronavirus pandemic. As part of any marketing approval, a manufacturer and its processes are required to be qualified by the FDA prior to commercialization. If supply from the approved vendor is interrupted, there could be a significant disruption in commercial supply. An alternative vendor would need to be qualified through an NDA supplement which could result in further delay. The FDA or other regulatory agencies outside of the United States may also require additional studies if a new supplier is relied upon for commercial production. Switching vendors may involve substantial costs and is likely to result in a delay in our desired clinical and commercial timelines.

 

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These factors could cause the delay of clinical trials, regulatory submissions, required approvals or commercialization of our product candidates, cause us to incur higher costs and prevent us from commercializing our products successfully. Furthermore, if our suppliers fail to deliver the required commercial quantities of active pharmaceutical ingredients on a timely basis and at commercially reasonable prices, and we are unable to secure one or more replacement suppliers capable of production in a timely manner at a substantially equivalent cost, our clinical trials may be delayed or we could lose potential revenue.

 

Manufacturing issues may arise that could increase product and regulatory approval costs or delay commercialization.

 

Manufacturing of product candidates and conducting required stability testing, product, packaging, equipment and process-related issues may require refinement or resolution in order to proceed with any clinical trials and obtain regulatory approval for commercial marketing. We may identify significant impurities, which could result in increased scrutiny by the regulatory agencies, delays in clinical programs and regulatory approval, increases in our operating expenses, or failure to obtain or maintain approval for product candidates or any approved products.

 

We intend to rely on third parties to conduct, supervise and monitor our clinical trials, and if those third parties perform in an unsatisfactory manner, it may harm our business.

 

We intend to rely on CROs and clinical trial sites to ensure the proper and timely conduct of our clinical trials. While we will have agreements governing their activities, we have limited influence over their actual performance. We will control only certain aspects of our CROs’ activities. Nevertheless, we will be responsible for ensuring that each of our clinical trials are conducted in accordance with the applicable protocol, legal, regulatory and scientific standards and our reliance on the CROs will not relieve us of our regulatory responsibilities.

 

We and our CROs will be required to comply with the FDA’s or other regulatory agency’s GCPs, for conducting, recording and reporting the results of IND-enabling studies and clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of future clinical trial participants are protected. The FDA and non-U.S. regulatory agencies enforce these GCPs through periodic inspections of trial sponsors, principal investigators and clinical trial sites. If we or our future CROs fail to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or applicable non-U.S. regulatory agency may require us to perform additional clinical trials before approving any marketing applications for the relevant jurisdiction. Upon inspection, the FDA or applicable non-U.S. regulatory agency may determine that our future clinical trials did not comply with GCPs. In addition, our future clinical trials will require a sufficiently large number of test subjects to evaluate the safety and effectiveness of a potential drug product. Accordingly, if our future CROs fail to comply with these regulations or fail to recruit a sufficient number of patients, we may be required to repeat such clinical trials, which would delay the regulatory approval process.

 

Our future CROs will not be our employees, and we will not be able to control whether or not they devote sufficient time and resources to our future clinical and nonclinical programs. These CROs may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical trials, or other drug development activities which could harm our competitive position. If our future CROs do not successfully carry out their contractual duties or obligations, fail to meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements, or for any other reasons, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for, or successfully commercialize our product candidates. As a result, our financial results and the commercial prospects for such products and any product candidates that we develop would be harmed, our costs could increase, and our ability to generate revenues could be delayed.

 

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We intend to rely on other third parties to store and distribute drug products for any clinical trials that we may conduct. Any performance failure on the part of our distributors could delay clinical development or marketing approval of our product candidates or commercialization of our products, if approved, producing additional losses and depriving us of potential product revenue.

 

Risks Related To Our Intellectual Property

 

If we are unable to obtain or protect intellectual property rights related to our future products and product candidates, we may not be able to compete effectively in our markets.

 

Our success depends in part on our ability to obtain and maintain patents and other forms of intellectual property rights, including in-licenses of intellectual property rights of others, for our product candidates, methods used to develop and manufacture our product candidates and methods for treating patients using our product candidates, as well as our ability to preserve our trade secrets, to prevent third parties from infringing upon our proprietary rights and to operate without infringing upon the proprietary rights of others. The strength of patents in the biotechnology and pharmaceutical field involves complex legal and scientific questions and can be uncertain. The patent applications that we own or in-license may fail to result in patents with claims that cover the products in the United States or in other countries. There is no assurance that all of the potentially relevant prior art relating to our patents and patent applications has been found; such prior art can invalidate a patent or prevent a patent from issuing based on a pending patent application. Even if patents do successfully issue, third parties may challenge their validity, enforceability or scope, which may result in such patents being narrowed or invalidated. Furthermore, even if they are unchallenged, our patents and patent applications may not adequately protect our intellectual property or prevent others from designing around our claims.

 

If the patent applications we hold or have in-licensed with respect to our programs or product candidates fail to issue or if their breadth or strength of protection is threatened, it could dissuade companies from collaborating with us to develop product candidates, and threaten our ability to commercialize, future products. We cannot offer any assurances about which, if any, patents will issue or whether any issued patents will be found invalid and unenforceable or will be threatened by third parties. A patent may be challenged through one or more of several administrative proceedings including post-grant challenges, re-examination or opposition before the USPTO or foreign patent offices. Any successful challenge of patents or any other patents owned by or licensed to us could deprive us of rights necessary for the successful commercialization of any product candidates that we may develop.

 

Since patent applications in the United States and most other countries are confidential for a period of time after filing, and some remain so until issued, we cannot be certain that we were the first to file any patent application related to a product candidate. Furthermore, in certain situations, if we and one or more third parties have filed patent applications in the United States and claiming the same subject matter, an administrative proceeding, known as an interference, can be initiated to determine which applicant is entitled to the patent on that subject matter. Such an interference proceeding provoked by third parties or brought by us may be necessary to determine the priority of inventions with respect to our patents or patent applications, or those of our licensors. An unfavorable outcome could require us to cease using the related technology or to require us to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license at all, or on commercially reasonable terms. Our defense of a patent or patent application in such a proceeding may not be successful and, even if successful, may result in substantial costs and distract our management and other employees.

 

In addition, patents have a limited lifespan. In the United States, the natural expiration of a patent is generally 20 years after it is filed. Various extensions may be available however the life of a patent, and the protection it affords is limited. Once the patent life has expired for a product, we may be open to competition from generic medications. Further, if we encounter delays in regulatory approvals, the period of time during which we could market a product candidate under patent protection could be reduced.

 

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In addition to the protection afforded by patents, we rely on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable, including processes for which patents are difficult to enforce and any other elements of our drug discovery and development processes that involve proprietary know-how, information or technology that is not covered by patents. Although each of our employees agrees to assign their inventions to us through an employee inventions agreement, and all of our employees, consultants, advisors and any third parties who have access to our proprietary know-how, information or technology are required to enter into confidentiality agreements, we cannot provide any assurances that all such agreements have been duly executed, that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. In addition, others may independently discover our trade secrets and proprietary information. For example, the FDA, as part of its Transparency Initiative, is currently considering whether to make additional information publicly available on a routine basis, including information that we may consider to be trade secrets or other proprietary information, and it is not clear at the present time how the FDA’s disclosure policies may change in the future, if at all.

 

Further, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the United States. As a result, we may encounter significant problems in protecting and defending our intellectual property both in the United States and abroad. If we are unable to prevent material disclosure of the non-patented intellectual property related to our technologies to third parties, and there is no guarantee that we will have any such enforceable trade secret protection, we may not be able to establish or maintain a competitive advantage in our market, which could materially adversely affect our business, results of operations and financial condition.

 

Third-party claims of intellectual property infringement may prevent or delay our development and commercialization efforts.

 

Our commercial success depends in part on our avoiding infringement of the patents and proprietary rights of third parties. There is a substantial amount of litigation, both within and outside the United States, involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries, including patent infringement lawsuits. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are pursuing development candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our product candidates may be subject to claims of infringement of the patent rights of third parties.

 

Third parties may assert that we are employing their proprietary technology without authorization. There may be third-party patents or patent applications with claims to materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of our product candidates. Because patent applications can take many years to issue, there may be currently pending patent applications which may later result in patents that our product candidates may infringe. In addition, third parties may obtain patents in the future and claim that use of our technologies infringes upon these patents. If any third-party patents were held by a court of competent jurisdiction to cover the manufacturing process of any of our product candidates, any molecules formed during the manufacturing process or any final product itself, the holders of any such patents may be able to block our ability to commercialize such product candidate unless we obtained a license under the applicable patents, or until such patents expire. Similarly, if any third-party patents were held by a court of competent jurisdiction to cover aspects of our formulations, processes for manufacture or methods of use, including combination therapy, the holders of any such patents may be able to block our ability to develop and commercialize the applicable product candidate unless we obtained a license or until such patent expires. In either case, such a license may not be available on commercially reasonable terms or at all.

 

Parties making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize one or more of our product candidates. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of management or employee resources from our business. In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, pay royalties, redesign our infringing products or obtain one or more licenses from third parties, which may be impossible or require substantial time and monetary expenditure.

 

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If we fail to obtain licenses or comply with our obligations in these agreements under which we license intellectual property rights from third parties or otherwise experience disruptions to our business relationships with our licensors, we could lose license rights that are important to our business.

 

We are a party to intellectual property license agreements that are important to our business and expect to enter into additional license agreements in the future. Our existing license agreements impose, and we expect that future license agreements will impose, various obligations on us.

 

We may need to obtain licenses from third parties to advance our research or allow commercialization of our product candidates, and we have done so from time to time. We may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all. In that event, we would be unable to further develop and commercialize one or more of our product candidates, which could harm our business significantly. We cannot provide any assurances that third-party patents do not exist which might be enforced against our future products, resulting in either an injunction prohibiting our sales, or, with respect to our sales, an obligation on our part to pay royalties and/or other forms of compensation to third parties.

 

We may be involved in lawsuits to protect or enforce our patents or the patents of our licensees, which could be expensive, time consuming and unsuccessful.

 

Competitors may infringe our patents or the patents of our licensees. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time-consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours or of our licensees is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation or defense proceedings could put one or more of our patents at risk of being invalidated or interpreted narrowly and could put our patent applications at risk of not issuing.

 

Our defense in a lawsuit may fail and, even if successful, may result in substantial costs and distract our management and other employees. We may not be able to prevent, alone or with our licensees, misappropriation of our intellectual property rights, particularly in countries where the laws may not protect those rights as fully as in the United States.

 

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of our ordinary shares.

 

We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties.

 

We employ individuals who were previously employed at other biotechnology or pharmaceutical companies. We may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed confidential information of our employees’ former employers or other third parties. We may also be subject to claims that former employers or other third parties have an ownership interest in our patents. Litigation may be necessary to defend against these claims. There is no guarantee of success in defending these claims, and if we are successful, litigation could result in substantial cost and be a distraction to our management and other employees.

 

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Risks Related To Our Business Operations And Industry

 

Our future success depends on our ability to attract and retain key executives and to attract, retain and motivate qualified personnel.

 

We are highly dependent on principal members of our executive team, and any reduction or loss of their services may adversely impact the achievement of our objectives. While we have entered into employment agreements with each of our executive officers, any of them could leave our employment at any time, as all of our employees are “at will” employees. Recruiting and retaining other qualified employees for our business, including scientific and technical personnel, will also be critical to our success. There is currently a shortage of skilled executives in our industry, which is likely to continue. As a result, competition for skilled personnel is intense and the turnover rate can be high. We may not be able to attract and retain personnel on acceptable terms given the competition among numerous pharmaceutical companies for individuals with similar skill sets. In addition, failure to succeed in preclinical studies and clinical trials may make it more challenging to recruit and retain qualified personnel. The inability to recruit any executive or key employee or the loss of the services of any executive or key employee might impede the progress of our research, development and commercialization objectives.

 

We may need to expand our organization and may experience difficulties in managing this growth, which could disrupt our operations.

 

In the future we may expand our employee base to increase our managerial, scientific, operational, commercial, financial and other resources and we may hire more consultants and contractors. Future growth would impose significant additional responsibilities on our management, including the need to identify, recruit, maintain, motivate and integrate additional employees, consultants and contractors. Also, our management may need to divert a disproportionate amount of its attention away from our day-to-day activities and devote a substantial amount of time to managing these growth activities. We may not be able to effectively manage the expansion of our operations, which may result in weaknesses in our infrastructure or give rise to operational mistakes, loss of business opportunities, loss of employees or reduced productivity among remaining employees. Our expected growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of additional product candidates. Moreover, if our management is unable to effectively manage our growth, our expenses may increase more than expected, our ability to generate and/or grow revenues could be reduced, and we may not be able to implement our business strategy. Our future financial performance and our ability to commercialize product candidates and compete effectively will depend, in part, on our ability to effectively manage any future growth.

 

Our employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements and insider trading.

 

We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional or nonintentional failures to comply with the regulations of the FDA and non-U.S. regulators, to provide accurate information to the FDA and non-U.S. regulators, to comply with healthcare fraud and abuse laws and regulations in the United States and abroad, to report financial information or data accurately or to disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements.

 

Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and cause serious harm to our reputation. We have adopted a code of conduct, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of civil, criminal and administrative penalties, damages, fines, possible exclusion from Medicare, Medicaid and other government healthcare programs, additional reporting requirements and/or oversight, particularly if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance, disgorgement, imprisonment, and contractual damages. Even if we are ultimately successful in defending against any such action, we could be required to divert financial and managerial resources in doing so and adverse publicity could result, all of which could harm our business.

 

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Future relationships with customers and third-party payors as well as certain of our business operations may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims laws and health information privacy and security laws. If we are unable to comply, or have not fully complied, with such laws, we could face criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings.

 

If we obtain FDA approval for any of our product candidates and begin commercializing those products in the United States, our operations may be directly, or indirectly through our customers, further subject to various federal and state fraud and abuse laws, including, without limitation, the federal Anti-Kickback Statute and the federal False Claims Act. These laws may impact, among other things, our proposed sales, marketing and education programs. In addition, we may be subject to patient privacy regulation by the federal government and by the U.S. states and foreign jurisdictions in which we conduct our business. The healthcare laws and regulations that may affect our ability to operate include:

 

·The federal Anti-Kickback Statute, which prohibits, among other things, persons and entities from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, to induce, or in return for, either the referral of an individual, or the purchase or recommendation of an item or service for which payment may be made under a federal healthcare program, such as the Medicare and Medicaid programs. Remuneration has been interpreted broadly to include anything of value. Although there are a number of statutory exemptions and regulatory safe harbors protecting certain common activities from prosecution, the exemptions and safe harbors are drawn narrowly, and those activities may be subject to scrutiny or penalty if they do not qualify for an exemption or safe harbor. A conviction for violation of the Anti-Kickback Statute requires mandatory exclusion from participation in federal healthcare programs. This statute has been applied to arrangements between pharmaceutical manufacturers and those in a position to purchase products or refer others, including prescribers, patients, purchasers and formulary managers. In addition, the Affordable Care Act amended the Social Security Act to provide that the U.S. government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act penalties for which are described below.

 

·Federal civil and criminal false claims laws and civil monetary penalty laws, including the federal False Claims Act (“FCA”), which imposes criminal or civil penalties, including through civil whistleblower or qui tam actions, against individuals or entities for, among other things, knowingly presenting, or causing to be presented, claims for payment to the federal government, including Medicare or Medicaid, that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government. FCA liability is potentially significant in the healthcare industry because the statute provides for treble damages and mandatory penalties of $5,500 to $11,000 per false claim or statement ($11,665 to $23,331 per false claim or statement for penalties assessed after January 15, 2020 for violations occurring after November 2, 2015).

 

·The civil monetary penalties statute, which imposes penalties against any person or entity who, among other things, is determined to have presented or caused to be presented a claim to a federal healthcare program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent.

 

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·The federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), which imposes civil and criminal penalties for, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or obtain, by means of false or fraudulent pretenses, representations or promises, any money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor (e.g., public or private), knowingly and willfully embezzling or stealing from a health care benefit program, willfully obstructing a criminal investigation of a healthcare offense and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statements in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare.

 

·HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 (“HITECH”), and its implementing regulations, which imposes certain requirements on certain types of individuals and entities, such as healthcare providers, health plans and healthcare clearing houses, known as “covered entities,” as well as their “business associates,” independent contractors or agents of covered entities that receive or obtain individually identifiable health information in connection with providing a service on behalf of a covered entity, relating to the privacy, security and transmission of individually identifiable health information.

 

·The federal Physician Payments Sunshine Act, which requires certain manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program, with specific exceptions, to report annually to CMS, information related to payments or other transfers of value made to physicians, and further requires applicable manufacturers and applicable group purchasing organizations to report annually to CMS ownership and investment interests held by physicians and their immediate family members. The SUPPORT for Patients and Communities Act expanded the scope of reporting, such that beginning January 1, 2021 companies must also report payments and transfers of value provided to other types of healthcare professionals. Failure to submit timely, accurately and completely the required information for all covered payments, transfers of value and ownership or investment interests may result in civil monetary penalties.; and

 

·Many state and foreign law equivalents of each of the above federal laws, such as: anti-kickback and false claims laws which may apply to items or services reimbursed by any third party payor, including commercial insurers; state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government; state laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; state and local laws that require the registration of pharmaceutical sales representatives; and state and foreign laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.

 

In addition, the European Union (“EU”) has established its own data security and privacy legal framework, including but not limited to Directive 95/46/EC (the “Data Protection Directive”). The European General Data Protection Regulation (“GDPR”) contains new provisions specifically directed at the processing of health information, higher sanctions and extra-territoriality measures intended to bring non-EU companies under the regulation. We anticipate that over time we may expand our business operations to include additional operations in the EU, including potentially conducting preclinical and clinical trials. With such expansion, we would be subject to increased governmental regulation in the EU countries in which we might operate, including regulation due to the GDPR.

 

If our operations are found to be in violation of any of the laws described above or any other governmental regulations or laws that apply to us, we may be subject to penalties, including, without limitation, civil, criminal and administrative penalties, damages, fines, possible exclusion from Medicare, Medicaid and other government healthcare programs, additional reporting requirements and/or oversight, particularly if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance, disgorgement, imprisonment, contractual damages, reputational harm, diminished profits and future earnings, and curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.

 

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Recent and future healthcare legislation may further impact our business operations.

 

The United States and some foreign jurisdictions are considering or have enacted a number of legislative and regulatory proposals to change the healthcare system in ways that could affect our ability to sell our products profitably. Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality or expanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives. For example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (the “ACA”) was enacted, which made a number of substantial changes in the way healthcare is financed by both governmental and private insurers. The ACA included a number of provisions that may reduce the profitability of drug products, including revising the rebate methodology for covered outpatient drugs under the Medicaid Drug Rebate Program, extending Medicaid rebates to individuals enrolled in Medicaid managed care plans, and requiring drug manufacturers to pay an annual fee based on their market share of prior year total sales of branded programs to certain federal health care programs.

 

Since its passage, there have been judicial and Congressional challenges to certain aspects of the ACA, as well as recent efforts to repeal or replace certain aspects of the ACA. Former President Trump signed two Executive Orders and other directives designed to delay the implementation of certain provisions of the ACA or otherwise circumvent some of the requirements for health insurance mandated by the ACA. Concurrently, Congress has considered legislation that would repeal or replace all or part of the ACA. While Congress has not passed comprehensive repeal legislation, two bills affecting the implementation of certain taxes under the ACA have been signed into law. On December 22, 2017, former President Trump signed into law H.R. 1, “An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018,” informally titled the Tax Cuts and Jobs Act, which significantly revises the U.S. Internal Revenue Code of 1986, as amended (the “Code”). The Tax Cuts and Jobs Act of 2017 includes a provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate.” Additionally, on December 23, 2019, former President Trump signed a spending bill that repealed the implementation of certain ACA-mandated fees, including the so-called “Cadillac” tax on certain high cost employer-sponsored insurance plans, the annual fee imposed on certain health insurance providers based on market share, and the medical device excise tax on non-exempt medical devices. Further, the Bipartisan Budget Act of 2018 (the “BBA”), among other things, amended the ACA, effective January 1, 2019, to increase from 50 percent to 70 percent the point-of-sale discount that is owed by pharmaceutical manufacturers who participate in Medicare Part D and to close the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole.” Additionally, in 2019, the United States Court of Appeals for the Fifth Circuit upheld a lower court decision finding the Affordable Care Act unconstitutional and eliminating the individual mandate. The U.S. Supreme Court declined to expedite this appeal, and thus will not issue a decision until early 2021. As a result, there is significant uncertainty regarding future healthcare reform and its impact on our operations.

 

In addition, other legislative changes have been proposed and adopted in the United States since the Affordable Care Act was enacted. On August 2, 2011, the Budget Control Act of 2011 among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions to Medicare payments to providers of 2% per fiscal year, which started in April 2013, and, due to subsequent legislative amendments, will remain in effect through 2027 unless additional Congressional action is taken. On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, also reduced Medicare payments to several categories of healthcare providers

 

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Further, there has been heightened governmental scrutiny in the United States of pharmaceutical pricing practices in light of the rising cost of prescription drugs and biologics. Such scrutiny has resulted in several recent Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for products. While any proposed measures will require authorization through additional legislation to become effective, Congress and the Biden administration have each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs. At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, to encourage importation from other countries and bulk purchasing.

 

We expect that healthcare reform measures that may be adopted in the future may result in more rigorous coverage criteria and lower reimbursement, and in additional downward pressure on the price that we receive for any approved product. Any reduction in reimbursement from Medicare or other government-funded programs may result in a similar reduction in payments from private payors.

 

We cannot predict what healthcare reform initiatives may be adopted in the future. Further federal, state and foreign legislative and regulatory developments are likely, and we expect ongoing initiatives to increase pressure on drug pricing. Such reforms could have an adverse effect on anticipated revenues from product candidates that we may successfully develop and for which we may obtain regulatory approval and may affect our overall financial condition and ability to develop product candidates.

 

We face potential product liability, and, if successful claims are brought against us, we may incur substantial liability and costs.

 

The use of our product candidates in future clinical trials and the sale of any products for which we obtain marketing approval exposes us to the risk of product liability claims. Product liability claims might be brought against us by consumers, healthcare providers, pharmaceutical companies or others selling or otherwise coming into contact with our products. For example, unanticipated adverse effects could result from the use of our future products or product candidates which may result in a potential product liability claim. If we cannot successfully defend against product liability claims, we could incur substantial liability and costs. In addition, regardless of merit or eventual outcome, product liability claims may result in:

 

·impairment of our business reputation;

 

·withdrawal of clinical trial participants;

 

·costs due to related litigation;

 

·distraction of management’s attention from our primary business;

 

·substantial monetary awards to patients or other claimants;

 

·the inability to commercialize our product candidates; and

 

·decreased demand for our product candidates, if approved for commercial sale.

 

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We plan to obtain product liability insurance relating to the use of our therapeutics in future clinical trials. However, such insurance coverage may not be sufficient to reimburse us for any expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive and in the future we may not be able to obtain or maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. If and when we obtain marketing approval for product candidates, we intend to expand our insurance coverage to include the sale of commercial products; however, we may be unable to obtain product liability insurance on commercially reasonable terms or in adequate amounts. On occasion, large judgments have been awarded in class action lawsuits based on drugs that had unanticipated adverse effects. A successful product liability claim or series of claims brought against us could cause our share price to decline and, if judgments exceed our insurance coverage, could adversely affect our results of operations and business.

 

Cyber security risks and the failure to maintain the confidentiality, integrity, and availability of our computer hardware, software, and Internet applications and related tools and functions could result in damage to our reputation and/or subject us to costs, fines or lawsuits.

 

Our business requires manipulating, analyzing and storing large amounts of data. In addition, we rely on a global enterprise software system to operate and manage our business. We also maintain personally identifiable information about our employees. Our business therefore depends on the continuous, effective, reliable, and secure operation of our computer hardware, software, networks, Internet servers, and related infrastructure. To the extent that our hardware or software malfunctions or access to our data by internal research personnel is interrupted, our business could suffer. The integrity and protection of our employee and company data is critical to our business and employees have a high expectation that we will adequately protect their personal information. The regulatory environment governing information, security and privacy laws is increasingly demanding and continues to evolve. Maintaining compliance with applicable security and privacy regulations may increase our operating costs. Although our computer and communications hardware is protected through physical and software safeguards, it is still vulnerable to fire, storm, flood, power loss, earthquakes, telecommunications failures, physical or software break-ins, software viruses, and similar events. These events could lead to the unauthorized access, disclosure and use of non-public information. The techniques used by criminal elements to attack computer systems are sophisticated, change frequently and may originate from less regulated and remote areas of the world. As a result, we may not be able to address these threats proactively or implement adequate preventative measures. If our computer systems are compromised, we could be subject to fines, damages, litigation and enforcement actions, and we could lose trade secrets, the occurrence of which could harm our business. In addition, any sustained disruption in internet access provided by other companies could harm our business.

 

The coronavirus pandemic has caused interruptions or delays of our business plan and may have a significant adverse effect on our business.

 

In December 2019, a strain of coronavirus, COVID-19, was reported to have surfaced in Wuhan, China, and on March 12, 2020, the World Health Organization declared COVID-19 to be a pandemic. In an effort to contain and mitigate the spread of COVID-19, many countries, including the United States, Canada and China, have imposed unprecedented restrictions on travel, quarantines, and other public health safety measures. The extent to which the pandemic may impact our business will depend on future developments, which are highly uncertain and cannot be predicted, but the development of clinical supply materials could be delayed and enrollment of patients in our pending clinical trials may be delayed or suspended, as hospitals and clinics in areas where we are conducting trials shift resources to cope with the COVID-19 pandemic and may limit access or close clinical facilities due to the COVID-19 pandemic. Additionally, if trial participants are unable to travel to clinical study sites as a result of quarantines or other restrictions resulting from the COVID-19 pandemic, we may experience higher drop-out rates or delays in clinical studies once commenced.

 

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Government-imposed quarantines and restrictions may also require us to temporarily terminate our clinical sites once commenced. We cannot predict the ultimate impact of the COVID-19 pandemic as consequences of such an event are highly uncertain and subject to change. We do not yet know the full extent of potential delays or impacts on our business, our clinical studies or as a whole; however, the COVID-19 pandemic may materially disrupt or delay our business operations, further divert the attention and efforts of the medical community to coping with COVID-19, disrupt the marketplace in which we operate, and/or have a material adverse effect on our operations.

 

Moreover, the various precautionary measures taken by many governmental authorities around the world in order to limit the spread of the coronavirus has had and may continue to have an adverse effect on the global markets and global economy generally, including on the availability and pricing of employees, resources, materials, manufacturing and delivery efforts and other aspects of the global economy. There have been business closures and a substantial reduction in economic activity in countries that have been significantly affected by COVID-19. Significant uncertainty remains as to the potential impact of the COVID-19 pandemic on the global economy as a whole. It is currently not possible to predict how long the pandemic will last or the time that it will take for economic activity to return to prior levels. The COVID-19 pandemic could materially disrupt our business and operations, interrupt our sources of supply, hamper our ability to raise additional funds or sell or securities, continue to slow down the overall economy or curtail consumer spending.

 

Business interruptions could delay us in the process of developing our future products.

 

We are vulnerable to natural disasters such as earthquakes and wild fires, as well as other events that could disrupt our operations. We do not carry insurance for earthquakes or other natural disasters and we may not carry sufficient business interruption insurance to compensate us for losses that may occur. Any losses or damages we incur could have a material adverse effect on our business operations.

 

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FORWARD-LOOKING STATEMENTS

 

This proxy statement/prospectus, the documents incorporated herein by reference and other written reports and oral statements made from time to time by Cellect or Quoin may contain so-called “forward-looking statements,” all of which are subject to risks and uncertainties. One can identify these forward-looking statements by their use of words such as “expect,” “plan,” “will,” “may,” “anticipate,” “believe,” “estimate,” “should,” “intend,” “forecast,” “project” the negative or plural of these words, and other comparable terminology. One can identify them by the fact that they do not relate strictly to historical or current facts. These statements are likely to address either company’s growth strategy, financial results and product and development programs. One must carefully consider any such statement and should understand that many factors could cause actual results to differ from either company’s forward-looking statements. These factors include inaccurate assumptions and a broad variety of other risks and uncertainties, including some that are known and some that are not. No forward-looking statement can be guaranteed, and actual future results may vary materially. Cellect and Quoin do not assume the obligation to update any forward-looking statement. Consequently, the reader should not consider any such list to be a complete list of all potential risks or uncertainties.

 

For a discussion of the factors that may cause Cellect, Quoin or the combined organization’s actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied in such forward-looking statements, or for a discussion of risk associated with the ability of Cellect and Quoin to complete the Merger and the effect of the Merger on the business of Cellect, Quoin and the combined organization, see the section “Risk Factors” beginning on page 20.

 

These forward-looking statements include, but are not limited to, statements concerning the following:

 

·the expected benefits of, and potential value created by, the Merger for the securityholders of Cellect and Quoin;

 

·likelihood of the satisfaction of certain conditions to the completion of the Merger, including the listing on Nasdaq of the Cellect ADSs to be issued;

 

·Cellect’s ability to control and correctly estimate its operating expenses and its expenses associated with the Merger;

 

·the impact of the coronavirus pandemic on the business of Cellect and Quoin;

 

·any statements of the plans, strategies and objectives of management for future operations, including the execution of integration plans and the anticipated timing of filings;

 

·any statements of plans to develop and commercialize additional products;

 

·any statements concerning the attraction and retention of highly qualified personnel;

 

·any statements concerning the ability to protect and enhance the combined company’s products and intellectual property;

 

·any statements concerning developments and projections relating to the combined company’s competitors or industry;

 

·any statements concerning the combined company’s financial performance;

 

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·any statements regarding expectations concerning Cellect’s or Quoin’s relationships and actions with third parties; and

 

·future regulatory, judicial and legislative changes in Cellect or Quoin’s industry.

 

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THE SPECIAL MEETING OF CELLECT’S SHAREHOLDERS

 

APPROVAL OF THE MERGER AGREEMENT AND RELATED TRANSACTIONS

 

The Merger

 

On March 24, 2021, the Company, Quoin and Merger Sub executed the Merger Agreement, which is attached as Annex A to this proxy statement/prospectus. In accordance with the terms of the Merger Agreement, Merger Sub will be merged into Quoin, which will be the surviving company, and Quoin will become a wholly-owned subsidiary of the Company (the “Merger”).

 

Immediately after the Merger, and not accounting for additional ordinary shares of Cellect that may be issuable pursuant to the adjustment provisions in the Purchase Agreement (see the section entitled “Agreements Related to the Merger—Quoin Financing” in this proxy statement/prospectus), it is expected that Quoin’s existing securityholders (including the Investor) will own (or have the right to receive) approximately 80% of the outstanding capital stock of Cellect and Cellect’s pre-closing shareholders will own approximately 20% of the outstanding capital stock of Cellect, subject to certain adjustments.

  

The Merger Agreement further contemplates the sale of the Company’s wholly-owned subsidiary to EnCellX, which shall continue to employ the Company’s management and develop its technology. All of the pre closing Company shareholders will be entitled to the consideration received by the Company in connection with such sale. Payment of the consideration shall be made under CVRs which shall be issued at closing of the Merger to all of the Company shareholders at such time.

 

Dilution Escrow Shares and Escrow Agreement

 

At the effective time of the Merger, the Company will withhold from the merger consideration payable to certain Quoin stockholders (the “Quoin Lock-up Signatories”) a number of Company ordinary shares equal to 12.25% of the (i) the maximum number of Company ordinary shares that may be issued to pursuant to the terms of the Purchase Agreement (but less a number of Company ordinary shares equal to the Exchange Escrow Shares (as such term is defined in the Purchase Agreement) number) after the Final Reset Date (as such term is defined in the Purchase Agreement) minus (ii) the maximum number of Company ordinary shares that may be issued to pursuant to the terms of the Purchase Agreement (but less a number of Company ordinary shares equal to the Exchange Escrow Shares number) as of immediately after the effective time of the Merger (“Dilution Escrow Shares”).

 

Following the Final Reset Date, if Company receives any Exchange Escrow Shares (as defined in the Purchase Agreement) from the escrow agent, Company will cause the escrow agent to release a portion of the Dilution Escrow Shares to the Quoin Lock-up Signatories equal to a fraction, the numerator of which will be the Company ordinary shares distributed to Company following the Final Reset Date by the escrow agent, and the denominator of which will be the total number of Company ordinary shares initially deposited with the escrow agent.

 

Any Dilution Escrow Shares that are not distributed to the Quoin Lock-up Signatories will be transferred by the escrow agent to the Company shareholders as of immediately prior to the effective time of the Merger who (i) continue to hold at least a portion of ADSs that represent Company ordinary shares beneficially owned by such shareholder immediately prior to such effective time until the final Reset Date and (ii) have provided evidence that is reasonably acceptable to the Company which confirms that they were shareholders of the Company immediately prior to the effective date of the Merger and through the Final Reset Date (each such shareholder, a “Qualified Cellect Shareholder”). Each Qualified Cellect Shareholder will be entitled to receive a portion of such distributable Dilution Escrow Shares equal to (i) the number of Company ordinary shares beneficially owned by such Company shareholder on the Final Reset Date, up to a maximum number equal to the number of Company ordinary shares beneficially owned by such Company shareholder immediately prior to the effective time of the Merger, divided by (ii) the aggregate number of Company ordinary shares outstanding immediately prior to such effective time.

 

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Any Dilution Escrow Shares that are not transferred to Company shareholders will be returned to the Quoin Lock-up Signatories.

 

Accordingly, BNY Mellon will enter into an escrow agreement with the Company and Dr. Michael Myers, as the representative of the parties listed on Exhibit A attached thereto (the “Merger Escrow Agreement”), the form of which is attached as Annex F to this proxy statement/prospectus, under which BNY Mellon will hold in trust the Dilution Escrow Shares in accordance with the terms thereof. BNY Mellon shall, inter alia, hold and distribute the Dilution Escrow Shares, plus all dividends and other distributions, payments and earnings thereon and proceeds thereof received by BNY Mellon, less any property and/or funds distributed or paid, all in accordance with the terms of the Merger Escrow Agreement. The Company shall be entitled to exercise all voting rights with respect to any Dilution Escrow Shares that are held by BNY Mellon until such time as BNY Mellon receives joint written instructions, signed by both parties, to release such Dilution Escrow Shares.

 

“Run-Off” Directors’ and Officers’ Insurance

 

The Company’s compensation policy allows us to purchase insurance coverage such as under a run-off directors’ and officers’ liability insurance policy, provided that the annual premium does not exceed the higher of $500,000 or 4% of the limit of liability of the relevant policy. In connection with the Merger, the run-off policy that the Company intends to purchase provides a limit of liability of $5,000,000 for a period of seven years following the closing of the Merger with an aggregate premium of approximately $645,000, paid on or around the time of the closing of the Merger and another “layer” for a limit of liability of $5,000,000 in excess of $5,000,000 for a period of three years with an aggregate premium of approximately $360,000 paid on or around the time of the closing of the Merger (the “Run-Off Insurance”).

 

In accordance with the provisions of the Israeli Companies Law, the Run-Off Insurance requires the approval of the Company’s Compensation Committee, the Board of Directors and the shareholders, in that order. The Compensation Committee and the Board of Directors approved the terms of the Run-Off Insurance on May 19, 2021.

 

Letter of Agreement with Dr. Shai Yarkoni

 

In connection with Dr. Shai Yarkoni’s contribution to the contemplated Merger Agreement, the Share Transfer Agreement and the continued success of EnCellX, the Company signed a Letter of Agreement with Dr. Yarkoni (the “Letter Agreement”), which is attached as Annex G to this proxy statement/prospectus, pursuant to which the Company has undertaken to compensate Dr. Yarkoni by way of bonus payment(s), in accordance with the following terms. Dr. Yarkoni shall be entitled to a cash bonus (the “Bonus”) reflecting payments he would have received had he owned, since incorporation of EnCellX, common shares equal to 40% of its capital stock on a fully diluted. The Bonus will be payable by the Company with respect to any (i) dividend payment distributed by EnCellX; or (ii) consideration received by EnCellX shareholders from the sale of their shares to a third party.

 

At this time, we are unable to estimate the dollar value or a range of values of the Bonus, given the uncertainties as to the validity and marketability of, and risks associated with, the Subsidiary’s technology, the ability of the Subsidiary to raise the necessary funds to continue its development and operations, the ability of the Subsidiary to find a purchaser, and the consideration that might be received from a purchaser. EnCellX is a start-up company with limited capital, and the business of the Subsidiary will remain subject to the significant risks discussed herein under “RISK FACTORS – Risks Related to Cellect” and, as applicable, under “RISK FACTORS – Risks of the Combined Company” (as they pertain to Cellect’s business and technology today), including, without limitation, risks related to the development, testing and marketing of such technology, the receipt of all necessary governmental and other regulatory approvals for the development, testing and marketing of such technology, and the life of all relevant patents and other intellectual property or rights associated with such technology. In addition to the risks associated with the development of the Subsidiary’s technology, there is uncertainty as to the ability of the Subsidiary to raise funds, or to find a purchaser. Furthermore, the dollar value of the Bonus will be dependent on the consideration received from a sale, if any, and the dilution suffered over time, as EnCellX raises additional capital to finance the development, testing and marketing of the Subsidiary’s technology.

 

Although we are unable to estimate the dollar value or a range of values of the Bonus at this time, the following table illustrates how the Bonus may vary upon a sale of EnCellX at various valuations. The initial scenario assumes that EnCellX will have been unable to raise capital to develop and commercialize the Subsidiary’s technology but can be sold at a valuation of $20 million. The subsequent scenarios assume that EnCellX will have been successful in developing and commercializing the Subsidiary’s technology, with various amounts of capital required to have been raised to do so (and thus various rates of dilution of EnCellX stockholders’ interests).

 

Bonus Scenarios

 

Sale Valuation

Approximate Capital Raised

 

Approximate Dilution Amount of Bonus*

$20,000,000

 

$8,000,000

$50,000,000

 

$12,000,000 53% $9,473,734

$100,000,000

 

$32,000,000 70% $12,413,836

$250,000,000

 

$80,000,000 80% $16,519,251

$400,000,000

 

$135,000,000 87% $20,775,768

*The Bonus is subject to a 50% tax deduction pursuant to the Letter Agreement and the Altshuler Escrow Agreement. The calculation does not reflect any investor preferences that might be granted in financings that might reduce the Bonus.

 

There is no guarantee that a sale of EnCellX will occur at all or at any of the above valuations or that EnCellX will be able to raise sufficient capital to successfully develop and commercialize the Subsidiary’s technology.

 

In order to secure the Bonus, such number of EnCellX common shares constituting 40% of the issued and outstanding share capital on a fully diluted basis on the date of its incorporation, will be issued by EnCellX to Altshuler Shaham Trusts Ltd. (the “Escrowed Securities”).

 

In accordance with the provisions of the Israeli Companies Law, the Letter Agreement and the payment of the Bonus to Dr. Yarkoni require the approval of the Company’s Compensation Committee, the Board of Directors and the shareholders, in that order. The Compensation Committee and the Board of Directors approved the terms of the Letter Agreement on March 17, 2021.

 

In order to secure the Bonus, such number of EnCellX common shares constituting 40% of the issued and outstanding share capital on a fully diluted basis on the date of its incorporation, will be issued by EnCellX to Altshuler Shaham Trusts Ltd. (the “Escrowed Securities”).

 

In accordance with the provisions of the Israeli Companies Law, the Letter Agreement and the payment of the Bonus to Dr. Yarkoni require the approval of the Company’s Compensation Committee, the Board of Directors and the shareholders, in that order. The Compensation Committee and the Board of Directors approved the terms of the Letter Agreement on March 17, 2021.

  

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Securities Purchase Agreement

 

On March 24, 2021, the Company, Quoin and the Investor entered into the Purchase Agreement, which is attached as Annex C to this proxy statement/prospectus, pursuant to which, among other things, (A) the Investor agreed to purchase (i) $17.0 million of Quoin common stock ($12 million in new funds and the surrender of $5 million in aggregate principal amount of Quoin issued notes under the Bridge Securities Purchase Agreement (as defined in the Purchase Agreement), which will be exchanged for Company ordinary shares in the Merger pursuant to the Exchange Ratio which will represent an aggregate of 18.48% of the estimated Parent Fully Diluted Number (as defined in the Purchase Agreement) and (ii) up to an aggregate number of shares of Quoin common stock equal to 300% of the number of Primary Shares; and (B) and the Company agreed to issue to the Investor warrants to purchase ordinary shares of the Company. The warrants to be issued under the Purchase Agreement are designated Series A, Series B and Series C. The Series A Warrants and Series B Warrants each represent the right to acquire an initial amount of ADSs equal to 100% of the quotient determined by dividing the purchase price paid by the Investor by the lower of the Closing Per Share Price and the Initial Per Share Price (each as defined in the Purchase Agreement). The Series A Warrants and the Series B Warrants will have full ratchet anti-dilution price protection with respect to future issuances of securities at a price below the exercise price of each applicable Series Warrants and a Black Scholes provision for fundamental transactions. The Series C Warrants represent the right to acquire (x) an initial amount of ADSs equal to 100% of the quotient determined by dividing $9,500,000, by the lower of the Closing Per Share Price and the Initial Per Share Price and (y) an additional amount of Series A Warrants and Series B Warrants, each to purchase a number of ADSs determined pursuant to the terms of the Series C Warrants. The Series C Warrants will have a Black Scholes provision for fundamental transactions.

 

The Primary Shares will have an initial price per share that reflects a $75.0 million pre-money valuation of the post-Merger combined company, and will be exchangeable in the Merger for Company ordinary shares constituting 18.48% of the post-closing company on a fully-diluted basis, which percentage is calculated assuming the return and cancellation of all of the Additional Purchased Shares from escrow. In addition, Quoin will deposit the Additional Purchased Shares into escrow with an escrow agent for the benefit of the Investor, to be exchanged for Company ordinary shares at the Effective Time (as such term is defined in the Purchase Agreement). On each Reset Date following the Closing Date, if the Initial Primary Price Per Share is less than the Reset Price Date (as such terms are defined in the Purchase Agreement), the Investor will receive Exchange Escrow Shares from escrow such that the effective price per share of all Primary Financing Shares received by such Investor will be equal to the Reset Price. Any Additional Purchased Shares not delivered to the Investor from escrow will be returned following the last Reset Date.

 

Accordingly, BNY Mellon will enter into an escrow agreement with the Company and Dr. Michael Myers, as the representative of the parties listed on Exhibit A attached thereto, under which BNY Mellon will hold in trust the Dilution Escrow Shares in accordance with the terms thereof. BNY Mellon shall, inter alia, hold and distribute the Dilution Escrow Shares, plus all dividends and other distributions, payments and earnings thereon and proceeds thereof received by BNY Mellon, less any property and/or funds distributed or paid, all in accordance with the terms of the Merger Escrow Agreement. The Company shall be entitled to exercise all voting rights with respect to any Dilution Escrow Shares that are held by BNY Mellon until such time as BNY Mellon receives joint written instructions, signed by both parties, to release such Dilution Escrow Shares.

 

The Company and the Investor have also executed a Registration Rights Agreement, which is attached as Annex D to this proxy statement/prospectus. The Registration Rights Agreement will grant the Investor certain rights to require the Company to register ADSs issuable upon exercise of the Primary Warrants for resale.

  

The Share Transfer

 

On May 27, 2021, the Company and EnCellx entered into an Amended and Restated Share Transfer Agreement (“Share Transfer Agreement”), which is attached as Annex H to this proxy statement/prospectus, pursuant to which the Company will sell all the outstanding shares of its wholly-owned Subsidiary to EnCellX at the closing of the Merger (the “Share Transfer”). All of the Company’s intellectual property rights are held by the Subsidiary and therefore will be indirectly transferred to EnCellX in the Share Transfer.

 

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In consideration for the shares of the Subsidiary, the Company will be entitled to receive the following payments, all as further outlined in the Share Transfer Agreement: (i) during the Payment Period (as such term is defined in the Share Transfer Agreement), an amount equal to 3.5% of all Net Sales of Products (as defined in the Share Transfer Agreement); (ii) a milestone payment of $6,000,000 upon attainment of the first regulatory approval for the commercial manufacture, marketing and sale of the Product in the United States; (iii) a milestone payment of $6,000,000 upon receipt of the first regulatory approval for the commercial manufacture, marketing and sale of the Product in the European Union; (iv) during the Payment Period, 20% of all License Revenues (as defined in the Share Transfer Agreement) in excess of $10,000,000, subject to a cap of $16,000,000 in the aggregate and reduction by the amount of any milestone payment(s) previously paid; and (v) an exit fee of 33% of the consideration to be paid to Dr. Yarkoni and Mr. Mohanty in connection with an Exit Transaction (as defined in the Share Transfer Agreement), in the event an Exit Transaction occurs before February 28, 2023 (the “Share Transfer Consideration”).

  

In addition, the Share Transfer Agreement further provides for a bonus payment by the Company to Dr. Shai Yarkoni, for his contribution to the contemplated transaction and to the continued success of EnCellX, in an amount equal to the consideration that he would have received, had he been issued 40% of EnCellX share capital on a fully diluted basis, upon incorporation of EnCellX. Any dividend payments on account of such shares, or consideration received upon their sale, shall be paid by the Company solely to Dr. Yarkoni and not to any other shareholder of the Company. In order to secure such right, shares constituting 40% of EnCellX share capital shall be held in escrow by Altshuler Shaham Trusts Ltd. Included in the Share Transfer Consideration is a provision stating that, if EnCellX fails to raise at least $3.0 million within 12 months of the closing of the Share Transfer in order to continue development of the technology, then EnCellX must engage an investment bank and initiate the process of the sale of the Subsidiary or its assets, with the net proceeds of such transaction payable to the Company within 15 business days of such receipt. The Share Transfer Consideration will include the net proceeds of any such sale.

 

EnCellX, Inc.

  

EnCellX is a private company incorporated and managed by Mr. Aditya Mohanty, who has extensive experience and success in developing multiple products that have had commercial success including cell therapy products and particularly orphan drug products like the ones that Subsidiary’s technology would initially be applied to.

 

Mr. Aditya Mohanty, the CEO of EnCellX, has over 25 years of experience in the biotech industry with almost 10 years in the regenerative medicine space. He has been CEO, President and has served as director of public and private companies. Mr. Mohanty has lead teams that have brought several products to market (U.S., EU and global approvals) starting from pre-clinical development and then having very successful commercial sales and had previous experience with managing teams with significant operations split between the U.S. and Israel.

 

Dr. Shai Yarkoni, the inventor of the technology to be transferred under the Share Transfer, will continue to manage the Subsidiary and will serve as the CTO of EnCellX, which will enable EnCellX to ensure a seamless transfer and then acceleration of the product development as well as growing into the U.S. and EU clinical trials and new indications and products.

 

The EnCellX team has a successful track record of obtaining financing for companies at various stages of development, developing products from early science stage through final regulatory approval, as well as launch and sales expansion of products.

 

The company expects to take advantage of the benefits of being in California, which has a very large cell therapy and regenerative medicine community as well as continuing to leverage the scientific foundation of the technology in Israel. EnCellX will maintain a science facility in Israel while expanding clinical and business operations in the USA in the near term and will explore further global expansion as applicable.

 

The CVR Agreement

 

In connection with the Share Transfer Agreement, the Company will enter into a CVR Agreement with Mr. Eyal Leibovitz, as the Representative for the holders of CVRs (the “Representative”), and Computershare Trust Company, N.A., a federally chartered trust company (the “Rights Agent”), the form of which is attached as Annex I to this proxy statement/prospectus.

 

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Under the terms of the CVR Agreement, the holders of the Company’s ADSs immediately prior to the Merger will have the right to receive, through their ownership of CVRs, their pro-rata share of the net Share Transfer Consideration, making such holders of CVRs the indirect beneficiaries of the net payments under the Share Transfer Agreement. 

 

CVRs will be recorded in a register administered by the Rights Agent but will not be certificated. CVRs may not be transferred, assigned or sold other than as permitted in the CVR Agreement. The CVRs do not represent an ownership right in EnCellX nor confer any rights on the holders thereof, except to receive their pro rata share of the net Share Transfer Consideration.

  

By accepting CVRs, the holders of the CVRs appoint, authorize and empower the Representative to be their exclusive agent and attorney-in-fact and to make all decisions and determinations with respect to actions of the CVR holders. The provisions detailing the duties, authority, liability and succession of Representatives are further described in the CVR Agreement.

 

The Share Transfer Escrow Agreement

 

In connection with the Share Transfer and the Letter Agreement, and as further required under the Tax Ruling granted by the Israeli Tax Authority (the “Ruling”), an escrow agreement shall entered into between the Company, EnCellX and Althsuler Shaham Trusts Ltd. (the “Escrow Agent” and the “Altshuler Escrow Agreement”, respectively), the form of which is attached as Annex J to this proxy statement/prospectus.

 

Pursuant to the provisions of the Altshuler Escrow Agreement, the Escrow Agent shall be responsible for: (i) holding the Escrowed Securities (as defined in the Letter Agreement) in trust on behalf of the Company and the Founder; (ii) holding and administering any (X) dividend payment distributed by EnCellX with respect to the Escrowed Securities; (Y) consideration received by the shareholders of EnCellX from a third party for the sale of the Escrowed Securities and following the IPO of EnCellX; and (iii) tax deduction as applicable under Israeli laws and in accordance with the terms of the Tax Ruling, with respect to any payment made by the EnCellX to the holders of CVRs and with respect to any payment made in connection with the Escrowed Securities.

 

In respect of the Escrow Agent’s services under Altshuler Escrow Agreement, EnCellX will be obligated to pay the Escrow Agent the fees, expenses, charges and other amounts as further stipulated in the Altshuler Escrow Agreement.

 

The Representative Agreement

 

In connection with the Share Transfer Agreement and the CVR Agreement, the Company will enter into a Representative Agreement between the Company, the Representative and EnCellX, Inc. (the “Representative Agreement”), the form of which is attached as Annex K to this proxy statement/ prospectus.

 

The Representative will undertake to: (i) provide instructions to the Escrow Agent in accordance with its responsibilities and tasks under the CVR Agreement; (ii) ensure that the provisions of the Share Transfer Agreement are being fulfilled; and (iii) act in accordance with its responsibilities under Section 7 of the Letter Agreement with Dr. Yarkoni.

 

In respect of the Representative’s services under the Representative Agreement, EnCellX will be obligated to pay the Representative a quarterly payment of $4,500 plus VAT as applicable, and such other fees, expenses, charges and other amounts as further stipulated in the Representative Agreement.

 

The Company will agree to indemnify the Representative for, and hold the Representative harmless against, any loss, liability, damage, judgment, fine, penalty, claim, demand, suit, settlement, cost or expense (including, without limitation, the reasonable fees and out-of-pocket expenses of legal counsel), incurred without willful misconduct, bad faith or gross negligence on the part of the Representative (the occurrence of each as determined by a final, non-appealable judgment of a court of competent jurisdiction), for any action taken, suffered or omitted to be taken by the Representative in connection with the Representative’s exercise or performance of its duties hereunder.

 

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Articles of Association

 

In connection with Section 1.4(b) of the Merger Agreement and in order to ensure that the Company will have available a sufficient number of ordinary shares to issue to Quoin stockholders, the Company will amend its Articles of Association to (i) change its name from “Cellect Biotechnology Ltd.” to “Quoin Pharmaceuticals, Ltd.” (or a similar name agreed between the parties and approved by the Israeli Companies Registrar); and (ii) increase its authorized share capital from 500,000,000 ordinary shares to 12,500,000,000 ordinary shares, no par value per share.

 

Additionally, the Company’s trading symbol on NASDAQ will change to “QNRX” following the closing of the Merger.

 

It is therefore proposed, in light of the aforementioned Board recommendations, the specific anti-dilution protection, the future potential proceeds to the CVR holders and the alternatives at hand, that the following resolutions be adopted at the Annual Meeting: 

 

RESOLVED, to approve the Merger Agreement by and among the Company, Quoin and Merger Sub; and be it

 

FURTHER RESOLVED, to approve the issuance of Company ordinary shares to Quoin’s stockholders pursuant to the terms of the Merger Agreement; and be it

 

FURTHER RESOLVED, to approve the Merger Escrow Agreement by and among BONY, the Company and Mr. Michael Myers, as the representative of the parties listed on Exhibit A attached thereto; and be it

 

FURTHER RESOLVED, to approve the purchase by the Company of a “run-off” directors’ and officers’ liability insurance policy for a period of seven years following the effective time of the Merger; and be it

 

FURTHER RESOLVED, to approve the Letter of Agreement by and between the Company and Dr. Shai Yarkoni; and be it

 

FURTHER RESOLVED, to approve the Registration Rights Agreement and the Purchase Agreement, each by and among the Company, Quoin and Altium Growth Fund, LP. (“Investor”) ; and be it

 

FURTHER RESOLVED, to approve the issuance of Company ordinary shares to the Investor pursuant to the terms of the Purchase Agreement; and be it

 

FURTHER RESOLVED, to approve the SPA Escrow Agreement by and among BONY, the Company, Quoin and the Investor; and be it

 

FURTHER RESOLVED, to approve the Share Transfer Agreement by and between the Company and EnCellX; and be it

 

FURTHER RESOLVED, to approve the CVR Agreement, by and among the Company, Mr. Eyal Leibovitz and Computershare Trust Company, N.A.; and be it

 

FURTHER RESOLVED, to approve the Altshuler Escrow Agreement by and among the Company, EnCellX and Althsuler Shaham Trusts Ltd.; and be it

 

FURTHER RESOLVED, to approve the Representative Agreement by and among the Company, Mr. Eyal Leibovitz and EnCellX; and be it

 

FURTHER RESOLVED, effective as of the closing of the Merger Agreement and contingent thereof, to approve an increase of the Company's authorized share capital by NIS 12,000,000,000 ordinary shares, from NIS 500,000,000 to NIS 12,500,000,000 ordinary shares no par value per share; and be it

 

FURTHER RESOLVED, to approve the change of the Company's name to "Quoin Pharmaceuticals, Ltd." or a similar name approved by the Israeli Companies Registrar; and be it

 

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FURTHER RESOLVED, to approve and adopt the Amended and Restated Articles of Association to reflect the foregoing changes.

 

The Board recommends that the shareholders vote “FOR” the proposed resolution with all related transactions and agreements.

 

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THE MERGER

 

This section and the section entitled “The Merger Agreement” in this proxy statement/prospectus describe the material aspects of the Merger, including the Merger Agreement. While Cellect and Quoin believe that this description covers the material terms of the Merger and the Merger Agreement, it may not contain all of the information that is important to you. You should carefully read this entire proxy statement/prospectus for a more complete understanding of the Merger and the Merger Agreement, including the Merger Agreement attached as Annex A and the other documents to which you are referred herein. See the section “Where You Can Find More Information” in this proxy statement/prospectus.

 

Background of the Merger

 

Historical Background for Cellect

 

The following is a summary of material events, meetings and discussions that are relevant to the Cellect Board’s decision to approve the Merger Agreement and related agreements and recommend the Merger and the related transactions to Cellect’s shareholders.

 

On November 17, 2020 JMP Securities LLC (“JMP”) introduced Dr. Shai Yarkoni to Michael Myers, Quoin’s Chief Executive Officer, and Denise Carter, Quoin’s Chief Operating Officer. Following such meeting, the parties agreed that they were interested in proceeding with discussions about a potential reverse merger. On November 22, 2020, JMP provided a preliminary proposal to Cellect’s senior management outlining a suggested structure and terms for the transaction.

 

The senior management of both companies held follow-up calls on November 25, 2020 and December 1, 2020 to review and discuss details of the proposal.

 

On December 6, 2020, Dr. Shai Yarkoni informed the Cellect Board that Quoin had approached them regarding such proposal. Accordingly, Quoin and Cellect entered into an Exclusivity Agreement, and the due diligence process commenced shortly thereafter. Cellect and its counsel were granted access to Quoin’s virtual data room on December 7, 2020, and a diligence commencement call was held on December 8, 2020, including members of each company’s legal counsel, financial advisors, auditors, and members of senior operational and executive management. Cellect conducted thorough due diligence with respect to Quoin’s technology, business, financial and IP status.

 

On December 13, 2020, Quoin’s counsel provided a first draft of a proposed Merger Agreement to Cellect.

 

On December 17, 2021, Cellect engaged Cassel Salpeter & Co., LLC to provide an opinion to the Cellect Board as to fairness, from a financial point of view, of the Exchange Ratio to Cellect.

 

On December 24, 2020 and January 4, 2021, senior management of Quoin and Cellect held a conference call to discuss the proposed capitalization of the post-merger company immediately following the proposed financing to be provided to Quoin by the Investor.

 

On December 30, 2020, David Braun, Jonathan Burgin and Yali Sheffi, members of the Cellect Board, held a conference call with JMP to further discuss the terms of the contemplated transactions.

 

On January 3, 2021, the Cellect Board held a meeting in which management updated the Directors regarding negotiations and due diligence and BDO presented an evaluation report regarding Quoin. Thereafter, a discussion ensued between the Cellect Board and Aditya Mohanty regarding his experience and his proposal to purchase the Subsidiary. Thereafter, the Cellect Board discussed the business of Quoin and the Directors’ view of the Merger with Michael Myers.

 

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On January 17, 2021, the Cellect Board held a meeting in which Dr. Shai Yarkoni updated the Directors on the on-going negotiations between Quoin and the Investor. The Cellect Board further discussed the necessity of forming a special committee for the purpose of continuing negotiations with Aditya Mohanty due to Mr. Mohanty’s request that Dr. Shai Yarkoni continue supporting the Subsidiary as its CTO, in the event of sale of the Subsidiary to a company to be formed by Mr. Mohanty. The Cellect Board appointed Abraham Nahmias, Jonathan Burgin and Yali Sheffi as the members of the Cellect Board’s special committee (the “Special Committee”).

 

On February 18, 2021, the Cellect Board held a meeting in which management detailed the progress that had been made, informed the Directors of the material terms and outline of the transactions, and recommended that Cellect continue negotiations. At the invitation of the Cellect Board, representatives of Cassel Salpeter & Co., LLC joined the meeting and reviewed the historical and projected financial information prepared by Cellect management and Quoin management, as well as historical trading information regarding Cellect’s ADS.

 

On February 23, 2021, the Cellect Board held a meeting in which the Directors discussed the CVR mechanism and the structure of the transaction with Aditya Mohanty for the sale of the Subsidiary.

 

On February 25, 2021, the Special Committee held a meeting to further discuss the terms and conditions of the Share Transfer Agreement with Aditya Mohanty, and management updated the Special Committee regarding the Merger Agreement, the Purchase Agreement, the CVR agreements, and the escrow-related agreements.

 

On March 17, 2021, the Audit Committee, Compensation Committee, and the Cellect Board each held meetings. The Audit Committee and Compensation Committee each reviewed all aspects of the transactions, including without limitation, the financial aspects, business aspects, and the proposed Letter Agreement with Dr. Shai Yarkoni, after which each committee approved and recommended that the Cellect Board approve the Merger and all related transactions. Following those meetings, the Cellect Board met to further consider the proposed transactions. At the invitation of the Cellect Board, members of Cellect’s senior management and representatives of Cellect’s legal and financial advisors also attended the meeting. Cellect’s legal counsel reviewed with the Directors their fiduciary duties in the context of the proposed transactions. Cellect’s legal counsel then summarized the material terms of the proposed form of the Merger Agreement. At the request of the Cellect Board, Cassel Salpeter & Co., LLC then reviewed and discussed its financial analyses with respect to Cellect, Quoin and the proposed Merger, and Cassel Salpeter & Co., LLC orally rendered its opinion to the Cellect Board (which was subsequently confirmed in writing by delivery of Cassel Salpeter & Co., LLC’s written opinion addressed to the Cellect Board and dated March 17, 2021), as to the fairness, from a financial point of view, of the Exchange Ratio in the Merger to Cellect. After review of the current status and financial needs of Cellect and the alternatives at hand, and following a thorough discussion, the Cellect Board resolved to approve the Merger Agreement and the resolutions associated with the approval of the Merger and all related transactions.

 

The management of both companies, together with their legal counsel, accountants, and special advisors, conducted weekly conference calls to discuss the process, present updates and timelines, reply to questions and solve problems that arose.

 

Historical Background for Quoin

 

In April 2020, Quoin engaged JMP Securities LLC (“JMP”) to advise the company on a capital raise. After Quoin executed a term sheet with the Investor in September 2020, JMP proceeded to initiate a process to identify a suitable publicly traded reverse merger target.

  

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On November 17, 2020 JMP introduced Dr. Shai Yarkoni to Michael Myers and Denise Carter. The parties communicated that they were interested in proceeding with discussions about a potential reverse merger. On November 22, 2020, JMP provided a preliminary proposal to Cellect’s senior management outlining a suggested structure and terms for the transaction.

 

The senior management teams of both companies held follow-up calls on November 25, 2020 and December 1, 2020 to review and discuss details of the proposal.

 

On December 6, 2020, Quoin and Cellect entered into an Exclusivity Agreement, and the due diligence process commenced thereafter. Cellect and its counsel were granted access to Quoin’s data room on December 7, 2020, and a diligence commencement call was held on December 8, 2020 between members of each company’s legal counsel, financial advisors, auditors, and members of senior operational and executive management.

 

On December 13, 2020, Quoin’s counsel provided a first draft of a proposed Merger Agreement to Cellect’s counsel.

 

On December 15, 2020, December 22, 2020, December 29, 2020, January 19, 2021 and February 9, 2021, each company’s legal counsel, financial advisors, auditors, and members of senior operational and executive management participated in diligence calls. On December 16, 2020, a financial diligence call was held.

 

On December 24, 2020 and January 4, 2021, senior management of Quoin and Cellect spoke by phone regarding the proposed capitalization of the post-merger company subsequent to the proposed financing by the Investor.

 

On January 25, 2021, Quoin had an introductory call with Cassel Salpeter.

 

On January 25, 2021, Quoin held a follow-up call with Cassel Salpeter to review Quoin’s financial model.

 

The management of both companies together with their legal counsel, accountants and special advisors conducted weekly conference calls to discuss the process, present updates and timelines, reply to questions and solve problems that arose.

 

On March 21, 2021, the board of Quoin approved the proposed Merger Agreement by unanimous written consent.

 

Reasons for the Merger

 

Cellect Reasons for the Merger

 

In the course of reaching its decision to approve the Merger, the Cellect Board consulted with its senior management, financial advisor and legal counsel, reviewed a significant amount of information, and considered a number of factors, including, among others:

 

·The Board reviewed the prior minutes of the meetings of its strategic committee and the Board from 2019, in which it was resolved that management shall seek strategic agreements to increase the value of the Company’s shares. Management further presented to the Board a business plan for 2021-2022 that required approximately $20 million to fund the clinical and business development of the Company’s technology. Accordingly, considering the Company’s business and financial prospects, the Board determined that the Company could not continue to operate as an independent company and needed to enter into an agreement with a strategic partner;

 

·Over the last 20 months, the Board was presented with a few alternative candidates for a transaction, including pharma, hi-tech and cannabis companies; however, following intensive evaluation all of such alternatives and corresponding negotiations, these transaction opportunities did not come to fruition;

 

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·The Board assessed the possible alternatives to the Merger, the range of possible benefits and risks of those alternatives to the Company’s shareholders, and the timing and the likelihood of accomplishing any of such alternatives, and the Board determined that the Merger is a superior opportunity to such alternatives for the Company’s shareholders;

 

·The Board considered the valuation of the potential merger candidates. In particular, the Board found Quoin the most attractive candidate because of (i) its clinical program focused on rare and orphan diseases, (ii) its experienced leadership team, comprised of industry veterans with extensive relevant executive experience and record of recent success in the pharmaceutical industry, and (iii) the Board’s belief that the Merger with Quoin would create more value for Company’s shareholders than any of the other proposals that the Board had received or that the Company could create on its own;

 

·Quoin has $25.25 million in committed equity funding from Altium Capital, a well-regarded institutional healthcare investor, a portion of which will be provided concurrently with the Merger, to provide funds for the further development of Quoin’s business;

 

·The Board considered that (i) the sale of the Subsidiary to EnCellX, pursuant to a separate agreement and as a condition to the Merger, would result in a company focused on the development of technology for the selection of stem cells from any given tissue that aims to improve a variety of cell-based therapies allowing cell-based treatments and procedures in a wide variety of applications in regenerative medicine and other indications and (ii) under the provisions of the Share Transfer Agreement and the CVR Agreement, the Company’s current shareholders would able to participate in the growth potential of EnCellX, since they would have the right to receive a portion of the proceeds derived from the commercialization of products under the ApoGraft technology platform;

 

·An experienced senior management team would lead the combined public company, with Dr. Michael Myers serving as its Chief Executive Officer. In addition, EnCellX would be led by experienced CEO, Adi Mohanty, who would be supported by Dr. Shai Yarkoni as a CTO;

 

·Current financial market conditions, including the impact of the coronavirus pandemic on global financial markets, and historical market prices, volatility, and trading information with respect to the Company’s ADS indicate that this is a good time to execute the Merger;

 

·The terms of the Merger Agreement, the Purchase Agreement, and related agreements, including the parties’ representations, warranties and covenants, the conditions to their respective obligations and the termination rights of the parties are fair and appropriate;

 

·Cassel Salpeter & Co., LLC presented its financial analysis to the Board on March 17, 2021, and, in its opinion, expressed to the Board that, as of such date, based upon and subject to the various assumptions made, procedures followed, matters considered, and qualifications and limitations set forth in such opinion, the Exchange Ratio (as defined in the Merger Agreement) was fair from a financial point of view, to the Company;

 

·The likelihood that the Merger would be consummated; and

 

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·If the Merger is not approved, the Company will need to raise additional funds with an undesirable valuation and may not succeed in doing so, given that the Company currently has sufficient funds to finance operations for less than one year under its current cash projections.

 

The Board also considered a number of uncertainties and risks in its evaluation of the Merger and the other transactions contemplated by the Merger Agreement, including the following:

 

·the possibility that the Merger will not be consummated and the potential negative effect of the public announcement of the Merger on the Company’s business and stock price;

 

·the possibility that any current or future products under the ApoGraft technology may not be successfully commercialized, that EnCellX may not raise the funds required for its successful operations, and/or the potential that the Company’s shareholders would receive no consideration under the CVR Agreement;

 

·certain provisions of the Merger Agreement could have the effect of discouraging competing proposals involving the Company, including the restrictions on Company’s ability to solicit proposals for competing transactions involving the Company, and under certain circumstances the Company may be required to pay to Quoin a termination fee of $500,000, expense reimbursements of up to $250,000, and all reasonable fees and expenses of incurred by Quoin, if the Merger Agreement were to be terminated;

 

·although under certain circumstances Quoin may be required to reimburse certain transaction expenses of the Company of up to $250,000 and/or pay to the Company a termination fee of $500,000, such reimbursement and/or termination fee might only offset a portion of expenses incurred by the Company in connection with the Merger;

 

·the strategic direction of the Company following the completion of the Merger will be determined by a board of directors initially comprised of a majority of designees of Quoin;

 

·the substantial fees and expenses associated with completing the Merger, including the costs associated with any related litigation; and

 

·the risk that the Merger may not be completed despite the parties’ efforts or that the closing may be unduly delayed and the effects such failure or delay might have on the Company, leaving the Company with a more limited range of alternative strategic transactions, as it likely would be unable to raise additional capital through the public or private sale of equity securities on favorable terms.

 

Quoin Reasons for the Merger

 

In the course of reaching its decision to approve the Merger, the Quoin Board consulted with its senior management, financial advisor and legal counsel, reviewed a significant amount of information and considered a number of factors, including, among others:

 

·the potential increased access to sources of capital at a lower cost of capital and a broader range of investors than it could otherwise obtain if it continued to operate as a stand-alone, privately-held company;

 

·the potential to provide its current members with greater liquidity by owning stock in a public company;

 

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·the Quoin Board’s belief that no alternatives to the Merger were reasonably likely to create greater value for Quoin stockholders after reviewing the various strategic options to enhance member value that were considered by the Quoin Board;

 

·the cash resources of Quoin expected to be available at the closing of the Merger;

 

·the expectation that the Merger with Cellect would be a more time- and cost-effective means to access capital than other options considered;

 

·the terms and conditions of the Merger Agreement, including, without limitation, the following:

 

othe determination that the expected relative percentage ownership of Cellect securityholders and Quoin securityholders in the combined company was appropriate, in the judgment of the Quoin Board, based on its assessment of the approximate valuations of Cellect and Quoin and the comparative costs and risks associated with alternatives to the Merger.

 

othe expectation that Quoin’s management will serve in similar roles at the combined organization.

 

othe conclusion of the Quoin Board that the potential termination fee payable by Cellect to Quoin and the circumstances when such fee may be payable, were reasonable.

 

othe fact that Cellect ordinary shares issued to Quoin stockholders will be registered on a Form F-4 registration statement by Cellect; and

 

othe likelihood that the Merger will be consummated on a timely basis.

 

The Quoin Board also considered a number of uncertainties and risks in its deliberations concerning the Merger and the other transactions contemplated by the Merger Agreement, including the following:

 

·the possibility that the Merger might not be completed and the potential adverse effect of the public announcement of the Merger on the reputation of Quoin and the ability of Quoin to obtain financing in the future in the event the Merger is not completed;

 

·the reasonableness of the termination fee, which could become payable by Quoin if the Merger Agreement is terminated in certain circumstances and certain events occur;

 

·the risk that the Merger might not be consummated in a timely manner or at all;

 

·the expenses to be incurred in connection with the Merger and related administrative challenges associated with combining the companies;

 

·the additional public company expenses and obligations that Quoin’s business will be subject to following the Merger that it has not previously been subject to; and

 

·various other risks associated with the combined company and the Merger, including the risks described in the sections titled “Risk Factors” and “Forward-Looking Statements” in this proxy statement/prospectus.

 

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Opinion of Financial Advisor to the Cellect Board

 

On March 17, 2021, Cassel Salpeter rendered its oral opinion to the Cellect Board (which was confirmed in writing by delivery of Cassel Salpeter’s written opinion dated such date), as to the fairness, from a financial point of view, to Cellect of the Exchange Ratio in the Merger pursuant to the Agreement.

 

The summary of Cassel Salpeter’s opinion in this proxy statement/prospectus is qualified in its entirety by reference to the full text of the written opinion, which is attached as Annex B to this proxy statement/prospectus and sets forth the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Cassel Salpeter in preparing its opinion. However, neither Cassel Salpeter’s written opinion nor the summary of its opinion and the related analyses set forth in this proxy statement/prospectus are intended to be, and do not constitute, advice or a recommendation to any stockholder as to how such stockholder should act or vote with respect to any matter relating to the proposed Merger or otherwise.

 

The opinion was addressed to the Cellect Board for the use and benefit of the members of the Cellect Board (in their capacities as such), in connection with the Cellect Board’s evaluation of the Merger. Cassel Salpeter’s opinion was just one of the several factors the Cellect Board took into account in making its determinations with respect to the Merger, including those described elsewhere in this proxy statement/prospectus.

 

Cassel Salpeter’s opinion only addressed whether, as of the date of the opinion, the Exchange Ratio in the Merger pursuant to the Agreement was fair, from a financial point of view, to Cellect. It did not address any other terms, aspects or implications of the Merger or the Agreement, or any other agreement including, without limitation (i) the support agreements to be entered into by certain Cellect stockholders and certain Quoin stockholders in connection with the Agreement, the CVRs to be issued to holders of Cellect ordinary shares pursuant to the CVR Agreement, the Bridge SPA and the Purchase Agreement, other than assuming the consummation thereof, the Quoin Financing, (ii) any term or aspect of the Merger that is not susceptible to financial analysis, (iii) the fairness of the Merger, or all or any portion of the Exchange Ratio, to any security holders of Cellect, Quoin or any other person or any creditors or other constituencies of Cellect, Quoin or any other person, (iv) the appropriate capital structure of Cellect, whether Cellect should be issuing debt or equity securities or a combination of both in the Merger or whether Quoin should be issuing debt or equity securities or a combination of both in the Quoin Financing, nor (v) the fairness of the amount or nature, or any other aspect, of any compensation or consideration payable to or received by any officers, directors, or employees of any parties to the Merger, or any class of such persons, relative to the Exchange Ratio in the Merger or otherwise. Cassel Salpeter did not express any view or opinion as to what the value of Cellect Ordinary Shares actually would be when issued in the Merger or the prices at which Cellect Ordinary Shares or shares of Quoin common stock may trade, be purchased or sold at any time.

  

Cassel Salpeter’s opinion did not address the relative merits of the Merger as compared to any alternative transaction or business strategy that might have existed for Cellect, or the merits of the underlying decision by the Cellect Board or Cellect to engage in or consummate the Merger. The financial and other terms of the Merger were determined pursuant to negotiations between the parties to the Agreement and were not determined by or pursuant to any recommendation from Cassel Salpeter. In addition, Cassel Salpeter was not authorized to, and did not, solicit indications of interest from third parties regarding a potential transaction involving Cellect.

 

Cassel Salpeter’s analysis and opinion were necessarily based upon market, economic, and other conditions as they existed on, and could be evaluated as of, the date or its opinion. Furthermore, as Cellect was aware, the credit, financial and stock markets were experiencing significant volatility, due to, among other things, the COVID-19 pandemic and related illnesses and the direct and indirect business, financial, economic and market implications thereof, and Cassel Salpeter expressed no opinion or view as to any potential effects of such matters on Cellect, Quoin or the Merger. Accordingly, although subsequent developments could arise that would otherwise affect its opinion, Cassel Salpeter did not assume any obligation to update, review, or reaffirm its opinion to Cellect or any other person or otherwise to comment on or consider events occurring or coming to Cassel Salpeter’s attention after the date of its opinion.

 

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In arriving at its opinion, Cassel Salpeter made such reviews, analyses, and inquiries as Cassel Salpeter deemed necessary and appropriate under the circumstances. Among other things, Cassel Salpeter:

 

·Reviewed a draft, dated March 9, 2021, of the Agreement.

 

·Reviewed certain publicly available financial information and other data with respect to Cellect and Quoin that Cassel Salpeter deemed relevant.

 

·Reviewed certain other information and data with respect to Cellect and Quoin made available to Cassel Salpeter by Cellect and Quoin, including financial projections with respect to the future financial performance of Quoin prepared by management of Quoin (the “Projections”), and other internal financial information furnished to Cassel Salpeter by or on behalf of Cellect and Quoin.

 

·Considered and compared the financial and operating performance of Quoin with that of companies with publicly traded equity securities that Cassel Salpeter deemed relevant.

 

·Considered the publicly available financial terms of certain transactions that Cassel Salpeter deemed relevant.

 

·Discussed the business, operations and prospects of Cellect, Quoin, and the proposed Merger with Cellect’s and Quoin’s management and certain of Cellect’s and Quoin’s representatives.

 

·Conducted such other analyses and inquiries, and considered such other information and factors, as Cassel Salpeter deemed appropriate.

 

For purposes of its analyses and opinion, Cassel Salpeter at Cellect’s direction assumed that the Exchange Ratio would be 12.0146 Cellect Ordinary Shares for each share of Quoin Common Stock. In addition, Cellect advised Cassel Salpeter that forecasts reflecting Cellect management’s best currently available estimates and judgments with respect to the future financial performance of Cellect were not available. Accordingly, Cassel Salpeter at Cellect’s direction assumed, for purposes of its analyses and opinion, that recent trading prices of Cellect Ordinary Shares provided a reasonable basis on which to evaluate Cellect and the Cellect Ordinary Shares to be issued in the Merger pursuant to the Agreement.

 

In arriving at its opinion, Cassel Salpeter, with Cellect’s consent, relied upon and assumed, without independently verifying, the accuracy and completeness of all of the financial and other information that was supplied or otherwise made available to Cassel Salpeter or available from public sources, and Cassel Salpeter further relied upon the assurances of Cellect’s and Quoin’s management that they were not aware of any facts or circumstances that would make any such information inaccurate or misleading. Cassel Salpeter also relied upon, without independent verification, the assessments of the management of Cellect and Quoin as to Quoin’s existing and future technology, products and services and the validity and marketability of, and risks associated with, such technology, products and services (including, without limitation, the development, testing and marketing of such technology, products and services; the receipt of all necessary governmental and other regulatory approvals for the development, testing and marketing thereof; and the life of all relevant patents and other intellectual and other property rights associated with such technology, products and services), and Cassel Salpeter assumed, at Cellect’s direction, that there would be no developments with respect to any such matters that would adversely affect its analyses or opinion. Cassel Salpeter is not a legal, tax, accounting, environmental, or regulatory advisor, and Cassel Salpeter did not express any views or opinions as to any legal, tax, accounting, environmental, or regulatory matters relating to Cellect, Quoin, the Merger, or otherwise. Cassel Salpeter understood and assumed that Cellect had obtained or would obtain such advice as it deemed necessary or appropriate from qualified legal, tax, accounting, environmental, regulatory, and other professionals, that such advice was or would be sound and reasonable and that Cellect had acted or would act in accordance therewith.

 

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With Cellect’s consent, Cassel Salpeter assumed that the Projections were reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of Quoin with respect to the future financial performance of Quoin. Cassel Salpeter assumed, at Cellect’s direction, that the Projections provided a reasonable basis upon which to analyze and evaluate Quoin and form an opinion. Cassel Salpeter expressed no view with respect to the Projections or the assumptions on which they were based. Cassel Salpeter did not evaluate the solvency or creditworthiness of Cellect, Quoin or any other party to the Merger, the fair value of Cellect, Quoin or any of their respective assets or liabilities, or whether Cellect, Quoin or any other party to the Merger is paying or receiving reasonably equivalent value in the Merger under any applicable foreign, state, or federal laws relating to bankruptcy, insolvency, fraudulent transfer, or similar matters, nor did Cassel Salpeter evaluate, in any way, the ability of Cellect, Quoin or any other party to the Merger to pay its obligations when they come due. Cassel Salpeter did not physically inspect Cellect’s or Quoin’s properties or facilities and did not make or obtain any evaluations or appraisals of Cellect’s or Quoin’s assets or liabilities (including any contingent, derivative, or off-balance-sheet assets and liabilities). Cassel Salpeter did not attempt to confirm whether Cellect or Quoin had good title to their respective assets. Cassel Salpeter’s role in reviewing any information was limited solely to performing such reviews as it deemed necessary to support its own advice and analysis and was not on behalf of the Cellect Board, Cellect, or any other party.

 

Cassel Salpeter assumed, with Cellect’s consent, that the Merger would be consummated in a manner that complies in all respects with applicable foreign, federal, state, and local laws, rules, and regulations and that, in the course of obtaining any regulatory or third party consents, approvals, or agreements in connection with the Merger, no delay, limitation, restriction, or condition would be imposed that would have an adverse effect on Cellect, Quoin or the Merger. Cassel Salpeter also assumed, with Cellect’s consent, that the final executed form of the Agreement would not differ in any material respect from the draft Cassel Salpeter reviewed and that the Merger would be consummated on the terms set forth in the Agreement, without waiver, modification, or amendment of any term, condition, or agreement thereof material to its analyses or opinion. Cassel Salpeter also assumed that the representations and warranties of the parties to the Agreement contained therein were true and correct and that each such party would perform all of the covenants and agreements to be performed by it under the Agreement. Cassel Salpeter offered no opinion as to the contractual terms of the Agreement or the likelihood that the conditions to the consummation of the Merger set forth in the Agreement would be satisfied. Cellect also advised Cassel Salpeter, and Cassel Salpeter assumed, that for U.S. federal tax income purposes the Merger would qualify as a plan of reorganization within the meaning of Section 368(a)of the Internal Revenue Code of 1986, as amended.

 

In connection with preparing its opinion, Cassel Salpeter performed a variety of financial analyses. The following is a summary of the material financial analyses performed by Cassel Salpeter in connection with the preparation of its opinion. It is not a complete description of all analyses underlying such opinion. The preparation of an opinion is a complex process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances. As a consequence, neither Cassel Salpeter’s opinion nor the respective analyses underlying its opinion is readily susceptible to partial analysis or summary description. In arriving at its opinion, Cassel Salpeter assessed as a whole the results of all analyses undertaken by it with respect to the opinion. While it took into account the results of each analysis in reaching its overall conclusions, Cassel Salpeter did not make separate or quantifiable judgments regarding individual analyses and did not draw, in isolation, conclusions from or with regard to any individual analysis or factor. Therefore, Cassel Salpeter believes that the analyses underlying the opinion must be considered as a whole and that selecting portions of its analyses or the factors it considered, without considering all analyses and factors underlying the opinion collectively, could create a misleading or incomplete view of the analyses performed by Cassel Salpeter in preparing the opinion.

 

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The implied valuation reference ranges indicated by Cassel Salpeter’s analyses are not necessarily indicative of actual values nor predictive of future results, which may be significantly more or less favorable than those suggested by such analyses. Much of the information used in, and accordingly the results of, Cassel Salpeter’s analyses are inherently subject to substantial uncertainty.

 

The following summary of the material financial analyses performed by Cassel Salpeter in connection with the preparation of its opinion includes information presented in tabular format. The tables alone do not constitute a complete description of these analyses. Considering the data in the tables below without considering the full narrative description of the analyses, as well as the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of the financial analyses Cassel Salpeter performed.

 

Share prices for the selected companies used in the selected companies analysis described below were as of March 16, 2021. Estimates of future financial performance for Quoin were based on the Projections, and estimates of future financial performance for the selected companies listed below were based on publicly available research analyst estimates for those companies.

 

Financial Analysis of Cellect

 

Cellect advised Cassel Salpeter that forecasts reflecting Cellect management’s best currently available estimates and judgments with respect to the future financial performance of Cellect were not available. Accordingly, for purposes of its analysis of Cellect, Cassel Salpeter, at the direction of the Cellect Board, evaluated Cellect based on recent trading prices of Cellect ADSs. The recent trading prices reviewed included the following:

 

     Closing Price
     Spot    1 Week    1 Year 
High       $3.86   $4.75 
Mean       $3.59   $2.62 
Median       $3.55   $2.49 
Low       $3.34   $1.26 
              
Volume Weighted Mean       $3.69   $3.04 
              
March 16, 2021   $3.55         

 

This review indicated an implied value reference range per Cellect Ordinary Share of $3.00 to $4.50.

 

Financial Analysis of Quoin

 

Risk-Adjusted Net Present Value Analysis. Cassel Salpeter performed a risk-adjusted net present value analysis of Quoin by calculating the estimated net present value of the risk-adjusted free cash flows of Quoin based on the Projections. In performing this analysis, Cassel Salpeter applied discount rates ranging from 27.50% to 32.50% to the projected free cash flows of Quoin through December 31, 2028 and no terminal value. This analysis indicated an implied value reference range per share of Quoin Common Stock of $38.62 to $51.23.

 

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Selected Companies Analysis. Cassel Salpeter considered certain financial and operating data for Quoin and selected companies with publicly traded equity securities Cassel Salpeter deemed relevant. The financial and operating data reviewed included market value, total invested capital, cash as a percentage of total invested capital, estimated 2022 revenue and estimated 2023 revenue. The selected companies with publicly traded equity securities and the resulting high, low, mean and median financial data were:

 

·Krystal Biotech, Inc.

 

·AVITA Medical, Inc.

 

·Forte Biosciences, Inc.

 

·Cerecor Inc.

 

·Abeona Therapeutics Inc.

 

·Brickell Biotech, Inc.

 

·Hoth Therapeutics, Inc.

 

·Timber Pharmaceuticals, Inc.

 

(Dollars in Thousands)

  Market Value  Total Invested Capital  Cash/Total Invested Capital  2022E Revenue  2023E Revenue
All Companies                         
High  $1,827,316   $1,831,262    41.3%  $332,460   $111,100 
Mean   428,494    430,934    22.9%   54,894    39,077 
Median   271,210    276,434    15.5%   5,575    26,300 
Low   26,433    29,135    6.0%        
                          
Companies with Less Than $100,000 Total Invested Capital       
        
High  $76,300   $76,811    41.3%  $3,150   $19,300 
Mean   45,490    46,560    31.5%   1,050    6,433 
Median   33,735    33,735    39.2%          
Low   26,433    29,135    13.9%          

 

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The selected companies analysis indicated an implied value reference range per share of Quoin Common Stock of $35.58 to $61.84.

 

None of the selected companies have characteristics identical to Quoin. An analysis of selected publicly traded companies is not mathematical; rather it involves complex consideration and judgments concerning differences in financial and operating characteristics of the selected companies and other factors that could affect the public trading values of the companies reviewed.

 

Selected Initial Public Offerings Analysis. Cassel Salpeter considered the financial terms of the following initial public offerings (“IPOs”) Cassel Salpeter deemed relevant. The financial data reviewed included gross offering amount, pre-offering equity value, post-offering equity value and the gross offering amount relative to the post-offering equity value. The selected IPOs and the resulting high, low, mean and median financial data were:

 

Date   Company
14-Jan-19   Hoth Therapeutics, Inc.
19-Sep-17   Krystal Biotech, Inc.
14-Oct-15   Cerecor, Inc.

 

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(Dollars in Thousands)

  Gross Offering Amount  Pre-Offering Equity Value  Post-Offering Equity Value  Amount as % of Post-Offering Equity Value
High  $39,600   $44,728   $74,509    53.1%
Mean   24,200    36,620    60,820    37.6%
Median   26,000    34,909    56,225    46.2%
Low   7,000    30,225    51,728    13.5%

 

The selected IPOs analysis indicated an implied value reference range per share of Quoin Common Stock of $26.27 to $38.88.

 

None of the companies in the selected IPOs have characteristics identical to Quoin. Accordingly, an analysis of selected IPOs is not mathematical; rather it involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies in the selected IPOs and other factors that could affect the respective values of the companies and IPOs reviewed.

 

Implied Exchange Ratio Reference Ranges.

 

Taking into account the results of its review of Cellect trading prices and its financial analyses of Quoin, Cassel Salpeter calculated implied exchange ratio reference ranges by comparing the high end of the per share value reference ranges indicated for Quoin and the low end of the per share value reference range indicated for Cellect and comparing the low end of the per share value reference ranges indicated for Quoin and the high end of the per share value reference range indicated for Cellect. This analysis indicated implied exchange ratio reference ranges of 8.5823 to 17.0776 Cellect Ordinary Shares per share of Quoin Common Stock based on the risk-adjusted net present value analysis of Quoin, 7.9058 to 20.6149 Cellect Ordinary Shares per share of Quoin Common Stock based on the selected companies analysis of Quoin, and 5.8375 to 12.9604 Cellect Ordinary Shares per share of Quoin Common Stock based on the selected IPOs analysis of Quoin, in each case as compared to the assumed exchange ratio of 12.0146 Cellect Ordinary Shares per share of Quoin Common Stock in the Merger pursuant to the Agreement.

 

Other Matters Relating to Cassel Salpeter’s Opinion

 

As part of its investment banking business, Cassel Salpeter regularly is engaged in the evaluation of businesses and their securities in connection with mergers, acquisitions, corporate restructurings, private placements and other purposes. Cassel Salpeter is a recognized investment banking firm that has substantial experience in providing financial advice in connection with mergers, acquisitions, sales of companies, businesses and other assets and other transactions. Cassel Salpeter received a fee of $90,000 for rendering its opinion, no portion of which was contingent upon the completion of the Merger. In addition, Cellect agreed to reimburse Cassel Salpeter for certain expenses incurred by it in connection with its engagement and to indemnify Cassel Salpeter and its related parties for certain liabilities that may arise out of its engagement or the rendering of its opinion. In accordance with Cassel Salpeter’s policies and procedures, a fairness committee of Cassel Salpeter was not required to, and did not, approve the issuance of Cassel Salpeter’s opinion.

 

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Interests of Cellect Directors and Executive Officers in the Merger

 

In considering the recommendation of the Cellect Board with respect to issuing Cellect ordinary shares as contemplated by the Merger Agreement and the other matters to be acted upon by Cellect’s shareholders at the Cellect special meeting, Cellect’s shareholders should be aware that certain members of the Cellect Board and certain of Cellect’s executive officers have interests in the Merger that may be different from, or in addition to, the interests of Cellect’s shareholders. These interests may present them with actual or potential conflicts of interest, and those interests, to the extent material, are described below.

 

Each of the members of the Cellect Board and the Quoin Board was aware of these potential conflicts of interest and considered them, among other matters, in reaching their respective decisions to approve the Merger, the Merger Agreement, the Purchase Agreement and the related agreements, and recommend that their stockholders or shareholders approve the same.

 

Ownership Interests

 

As of June 16, 2021, Cellect’s directors and named executive officers beneficially owned, in the aggregate, 3.68% of the ordinary shares of Cellect.

 

The approval of the Merger and the related agreements as stipulated in the Proxy Statement are subject to the affirmative vote of holders of at least a majority of the ordinary shares, including those represented by ADSs, voted in person or by proxy at the Special Meeting provided that either: (i) the shares voting in favor of such resolution include at least a majority of the shares voted by shareholders or ADS holders who are neither (a) “controlling shareholders” nor (b) have a “personal interest” in the approval of the Merger Agreement and the related transactions and agreements; or (ii) the total number of shares voted against the resolution by the disinterested shareholders described in clause (i) does not exceed 2% of the Company’s outstanding voting power. Abstentions and broker non-votes will have the same effect as votes “AGAINST” this proposal.

 

For purposes of the foregoing, a “controlling shareholder” is any shareholder that has the ability to direct a company’s activities (other than by means of being a director or other office holder of the company). A person is presumed to be a controlling shareholder if it holds 50% or more of the voting rights in a company or has the right to appoint the majority of the directors of a company or its general manager, but excludes a shareholder whose power derives solely from his or her position as a director of the Company or from any other position with the company.

 

A “personal interest” of a shareholder (i) includes an interest of any member of the shareholder’s immediate family (i.e., spouse, sibling, parent, parent’s parent, descendent, the spouse’s descendent, sibling or parent, and the spouse of each of these) or an interest of an entity with respect to which the shareholder (or such a family member thereof) serves as a director or the chief executive officer, owns at least 5% of the shares or its voting rights or has the right to appoint a director or the chief executive officer; and (ii) excludes an interest arising solely from the ownership of shares of the Company. In determining whether a vote cast by proxy is disinterested, a “personal interest” of the proxy holder is also considered and will cause that vote to be treated as the vote of an interested shareholder, even if the shareholder granting the proxy does not have a direct interest in the matter being voted upon.

 

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Effect of Merger on Cellect Options and Warrants

 

Each Cellect warrant outstanding immediately prior to the Effective Time will be retained. Each Cellect stock option outstanding immediately prior to the Effective Time will remain in full force and effect. The terms governing these warrants and options will otherwise remain in full force and effect following the closing of the Merger.

 

Director Compensation

 

As approved by our shareholders at our 2019 annual meeting of shareholders, in connection with their services as directors of the Company and in accordance with the Companies Regulations, each of our directors (other than Dr. Yarkoni) from time to time, including external directors, is entitled to an annual payment of NIS 35,144, plus value-added tax (“VAT”) if applicable, payable quarterly at the end of each quarter. In addition, each of our non-employee directors are entitled to receive an average payment of NIS 1,090 plus VAT, if applicable, per each board meeting or board committee meetings they have participated in.

 

As approved by our shareholders at a special general meeting in June 2020, Avraham Nahmias, our chairman of the board, receives a monthly payment of NIS 14,000 for his part time services (up to 37 hours per month). In addition, he was granted warrants to purchase 40,000 ADSs representing 4,000,000 ordinary shares at an exercise price of $2.53 per ADS, vesting over a period of 12 months with 25% of the warrants vesting on May 22, 2020 and the balance vesting in four subsequent quarterly increments. The vesting of the warrants will be fully accelerated in the event of a change of control.

 

Each of our external directors is entitled to an annual amount of NIS 35,144, plus VAT, if applicable, payable in quarterly installments at the end of each quarter. In addition, in accordance with the Companies Regulations, each of our external directors are entitled to receive an average payment of NIS 1,090 plus VAT, if applicable, per each board meeting or board committee meetings they have participated in. The compensation of external directors is also subject to the provisions of the Israeli regulations promulgated pursuant to the Companies Law governing the terms of compensation payable to external directors (the “Compensation Regulations”), which provide that such compensation will not be less than the Minimum Amount (as such term is defined in the Compensation Regulations).

 

Employment Agreements

 

Our senior management are employed under the terms and conditions prescribed in personal contracts. These personal contracts provide for notice periods of varying duration for termination of the agreement by us or by the relevant member of senior management, during which time such person will continue to receive base salary and benefits. These agreements also contain customary provisions regarding non-competition, the confidentiality of information and assignment of inventions. However, the enforceability of the non-competition and assignment of inventions provisions may be limited under applicable law. See “Risk Factors — Risks Related to Our Operations in Israel.”

 

Employment Agreement with Dr. Shai Yarkoni

 

On April 30, 2013, we entered into an employment agreement with Dr. Shai Yarkoni employing him on full-time basis as Chief Executive Officer. Dr. Yarkoni’s terms of employment have been subsequently amended on July 24, 2016. Dr. Yarkoni’s current monthly salary is NIS 70,000 and he is entitled to a maximum bonus of up to six monthly salaries. Dr. Yarkoni is entitled to an allocation to a manager’s insurance policy and study fund. Dr. Yarkoni is also entitled to reimbursement for reasonable out-of-pocket expenses, including travel expenses and a company car and mobile phone. The agreement originally had a term of 36 months and was extended for a further 36 months. The current term terminates on June 30, 2019. The agreement is terminable by either party upon 180 days prior written notice and terminable immediately by us for cause as such term is defined in the employment agreement.

 

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On September 8, 2014, we granted options to purchase 1,200,000 ordinary shares to Dr. Yarkoni. The options are exercisable at a price of NIS 1.40 per share. The options vested each quarter from the date of grant over three years in twelve equal installments and are fully vested. The options expire on September 8, 2024.

 

On August 26, 2015, we granted options to purchase 72,000 ordinary shares to Dr. Yarkoni. The options are exercisable at NIS 1.90 per share and expire on August 26, 2025. The options vest each quarter from the date of grant over three years in twelve equal installments.

 

On February 28, 2017, we granted options to purchase 3,024,040 ordinary shares to Dr. Yarkoni for his service on the board of directors. The options are exercisable at NIS 1.20 per share and expire on February 27, 2027. The options vest over a period of 48 months, with one quarter vesting 12 months from the grant date and the remaining three quarters vesting over the remaining 36 months on a quarterly basis beginning 12 months from the grant date.

 

On June 2, 2019, we granted options to purchase 4,000,000 ordinary shares to Dr. Yarkoni. The options are exercisable at NIS 0.141 per share and expire on June 1, 2029. The options vest over a period of one year on a quarterly basis beginning September 1, 2019.

 

On November 8, 2020, we granted options to purchase 97,736 ADSs representing 9,773,600 ordinary shares to Dr. Yarkoni. The options are exercisable at $2.631 per ADS and expire on November 7, 2030. The options vest over a four year period with 25% of the options to be vested one year from the date of grant and the balance vesting on a quarterly basis thereafter. The options will be fully accelerated in the event of a change of control.

 

Employment Agreement with Eyal Leibovitz

 

On October 25, 2016, we entered into an employment agreement with Eyal Leibovitz, employing him on full-time basis as Chief Financial Officer effective December 31, 2016. Mr. Leibovitz’s current monthly salary is NIS 52,500. In addition, Mr. Leibovitz will be entitled to an annual bonus equal up to 5 months’ salary based upon the completion of certain targets to be determined by the compensation committee and the board of directors, commencing in 2017 and thereafter. Mr. Leibovitz is entitled to an allocation to a manager’s insurance policy and study fund. Mr. Leibovitz is also entitled to reimbursement for reasonable out-of-pocket expenses, including travel expenses, professional fees, director and officer insurance and a company car and mobile phone. The agreement is terminable by either party upon 90 days prior written notice and terminable immediately by us for cause as such term is defined in the employment agreement.

 

In addition, pursuant to the employment agreement, we granted to Mr. Leibovitz options to purchase 1,936,503 ordinary shares at an exercise price of NIS 0.819 per share. The options vest on a quarterly basis in equal installments over 36 months. In the case of termination of the employment agreement not due to a material breach as defined therein, the vested options shall be exercisable for a period of 12 months from the date of termination. In addition, the employment agreement provided that upon the earlier of one year from the date of the option grant or such time as an analyst from a reputable investment bank in the U.S. publishes a favorable analyst report, Mr. Leibovitz will be entitled to an additional option to purchase 107,584 ordinary shares. These options were granted on January 1, 2018.

 

On June 2, 2019, we granted options to purchase 3,000,000 ordinary shares to Mr. Eyal Leibovitz. The options are exercisable at NIS 0.141 per share and expire on June 1, 2029. The options vest over a period of one year on a quarterly basis beginning September 1, 2019.

 

On September 16, 2020, we granted options to purchase 39,909 ADSs representing 3,909,200 ordinary shares to Mr. Eyal Leibovitz. The options are exercisable at $2.631 per ADS and expire on September 15, 2030. The options vest over a four year period with 25% of the options to be vested one year from the date of grant and the balance vesting on a quarterly basis thereafter. The options will be fully accelerated in the event of a change of control.

 

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Interests of Quoin Directors and Officers in the Merger

 

In considering the recommendation of the Quoin Board with respect to voting to approve the Merger and related transactions, Quoin stockholders should be aware that certain members of the board of directors and officers of Quoin have interests in the Merger that may be different from, or in addition to, interests they have as Quoin stockholders. All of Quoin’s directors and executive officers are expected to become directors and executive officers of the combined company upon the closing of the Merger.

 

Management Prior to and Following the Merger

 

As described elsewhere in this proxy statement/prospectus, including in the section captioned “Management Prior to and Following the Merger,” certain of Quoin’s directors and officers are expected to become directors and officers of Cellect following the closing of the Merger.

 

Amendment to the Articles of Association of Cellect

 

The articles of association of Cellect will be identical to the articles of association of Cellect immediately prior to the Effective Time, except as amended in accordance with the Proxy Statement to effect the increase in ordinary shares that may be issued and the Cellect Name Change, in each case, upon consummation of the Merger.

 

Indemnification and Insurance

 

Under the Merger Agreement, from the closing of the Merger through the seventh anniversary of the date on which the Effective Time of the Merger occurs, Cellect and the surviving corporation in the Merger agree to, jointly and severally, indemnify and hold harmless to the fullest extent allowed under the Companies Law, and the case of the surviving corporation, the DGCL, each present and former director or officer of Cellect against all claims, losses, liabilities, damages judgments, fines and reasonable fees, costs and expenses, including attorneys’ fees and disbursements, incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of such individual’s position as a director or officer of Cellect, whether asserted or claimed prior to, at or after the effective time of the Merger.

 

Under the Merger Agreement, the articles of association of Cellect and the articles of association of the surviving corporation will contain provisions no less favorable with respect to indemnification, advancement of expenses and exculpation of present and former directors and officers of each of Cellect and Quoin than are presently set forth in the articles of association of Cellect and the articles of association of the surviving corporation, as applicable, which provisions will not be amended, modified or repealed for a period of seven years’ time from the Effective Time of the Merger in a manner that would adversely affect the rights thereunder of individuals who, at or prior to the effective time of the Merger, were officers or directors of Cellect.

 

The Merger Agreement also provides that Cellect will purchase a run-off insurance policy for Cellect’s officers and directors in effect for seven years from the closing, providing at least the same coverage and amounts as the current directors’ and officers’ liability insurance policies maintained by Quoin and Cellect and containing terms and conditions that are not less favorable to current and former officers and directors of Cellect than the existing officers and directors insurance policies. Cellect is proposing the purchase of such a run-off insurance policy because the annual premium on the proposed run-off insurance policy exceeds the maximum annual premium permitted under Cellect’s executive compensation policy. Therefore, under the Companies Law, all resolutions proposed under the Proxy Statement must be approved by a special majority of the ordinary shares present and voting at the Special Meeting.

 

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Form of the Merger

 

The Merger Agreement provides that at the Effective Time, Merger Sub will be merged with and into Quoin. Upon the consummation of the Merger, Quoin will continue as the surviving entity and will be a wholly-owned subsidiary of Cellect.

 

After completion of the Merger, assuming the Merger is approved by Cellect’s shareholders at the Cellect special meeting, Cellect will be renamed “Quoin Pharmaceuticals, Inc.” and expects to trade on Nasdaq under the symbol “QNRX”.

 

Merger Consideration

 

At the Effective Time, Quoin’s stockholders (including the Investor) will be entitled to receive approximately 29,378,741 Cellect ordinary shares, subject to adjustment. The number of shares to be issued in the Merger is an estimate only as of the date hereof and the final number of shares will be determined pursuant to a formula described in more detail in the Merger Agreement and in this proxy statement/prospectus. In addition, certain Quoin warrants will be exchanged for Series A Warrants/Primary Warrants of Cellect to purchase 25,010 ordinary shares following the Merger.

 

Immediately after the Merger, and not accounting for additional shares of Quoin or Cellect ordinary shares that may be issuable pursuant to the adjustment provisions in the Purchase Agreement in the Quoin Financing (see the section entitled “Agreements Related to the Merger—Quoin Financing” in this proxy statement/prospectus), it is expected that Quoin’s existing securityholders (including the Investor) will own (or have the right to receive) approximately 80% of the outstanding capital stock of Cellect with Cellect’s pre-closing shareholders owning approximately 20% of the outstanding capital stock of Cellect, subject to certain adjustments.

  

The Merger Agreement does not contain a price-based termination right, and there will be no adjustment to the total number of Cellect ordinary shares that Quoin’s stockholders will be entitled to receive for changes in the market price of Cellect’s ordinary shares. Accordingly, the market value of Cellect ordinary shares issued pursuant to the Merger will depend on their market value at the time the Merger closes, and could vary significantly from the market value on the date of this proxy statement/prospectus.

 

No fractional Cellect ordinary shares will be issued in connection with the Merger. Each holder of Quoin common stock who would otherwise be entitled to receive a fractional Cellect ordinary share (after aggregating all fractional Cellect ordinary shares issuable to such holder) will instead be paid in cash a dollar amount, without interest, determined by multiplying such fraction by the value of a Cellect ordinary share, as determined based on the closing price of the ADSs on The Nasdaq Capital Market (or such other Nasdaq market on which the ADSs then trade) on the date the Merger becomes effective.

 

Effective Time of the Merger

 

Unless the Merger Agreement is earlier terminated under its terms and subject to the satisfaction of the other closing conditions described in the Merger Agreement, the Merger will be consummated as promptly as practicable, but in no event later than the second business day following the satisfaction or waiver of the last to be satisfied or waived of the conditions set forth in the Merger Agreement, other than those conditions which by their nature are to be satisfied at closing, or at such other time, date, and place as Cellect and Quoin may mutually agree.

 

At the closing, Cellect and Quoin will cause the Merger to be consummated by executing and filing with the Secretary of State of the State of Delaware a certificate of Merger with respect to the Merger, satisfying the applicable requirements of Delaware law and in a form reasonably acceptable to Cellect and Quoin. The Merger will become effective at the time of filing of such Certificate of Merger or at such later time as may be specified therein with the consent of Cellect and Quoin. Neither Cellect nor Quoin can predict the exact timing of the consummation of the Merger.

 

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Regulatory Approvals

 

Each party to the Merger Agreement will use commercially reasonable efforts to take all actions necessary to comply promptly with applicable law that may be imposed on such party with respect to the merger and the other transactions contemplated by the Merger Agreement.

 

Material U.S. Federal Income Tax Consequences of the Merger

 

The following discussion is a general summary, based on present law, of material U.S. federal income tax considerations and certain U.S. estate tax considerations that may be relevant to Quoin shareholders and current Cellect shareholders. This discussion is based upon the Internal Revenue Code of 1986, as amended (“Code”), U.S. Treasury regulations promulgated thereunder (which we refer to as the "Treasury Regulations"), judicial authorities, and published positions of the Internal Revenue Service ("IRS"), all as currently in effect, and all of which are subject to change or differing interpretations, in each case possibly with retroactive effect. Any such change or differing interpretation could affect the accuracy of the statements and conclusions set forth herein.

 

This discussion is for general information purposes only and is not a complete description of all tax considerations that may be relevant to holders of Quoin common stock, Cellect ADSs, or Cellect ordinary shares (Cellect ADSs and Cellect ordinary shares generally referred to as "Cellect shares"); it is not a substitute for tax advice. It applies only to holders that hold their shares of Quoin common stock or Cellect shares, and will hold the Cellect shares received in the transaction, as capital assets within the meaning of Section 1221(a) of the Code (generally, property held for investment) and that use the U.S. dollar as their functional currency. This discussion does not address holders of Quoin common stock who will exercise appraisal rights in the transaction. In addition, it does not describe all of the U.S. federal income and estate tax considerations that may be relevant to a holder of Quoin common stock or Cellect shares in light of such holder's particular circumstances, nor does it apply to holders subject to special rules under the U.S. federal income tax laws, such as:

 

·banks and other financial institutions;

 

·insurance companies;

 

·tax-exempt entities and organizations;

 

·dealers in securities or currencies;

 

·securities traders that elect a mark-to-market method of accounting;

 

·regulated investment companies and real estate investment trusts;

 

·pension funds, retirement plans, individual retirement accounts, and other tax-deferred accounts;

 

·partnerships and other pass-through entities and investors therein;

 

·"controlled foreign corporations, "passive foreign investment companies," and "personal holding companies";

 

·persons required to accelerate the recognition of any item of gross income as a result of such income being recognized on an "applicable financial statement";

 

·individuals that have ceased to be United States citizens or lawful permanent residents;

 

·persons that own or have owned, directly, indirectly, or constructively, 5% or more of the total combined voting power of Quoin’s or Cellect's voting stock or of the total value of Quoin’s or Cellect's equity interests;

 

·persons who received their shares of Quoin common stock (or CVRs) through the exercise of employee stock options or otherwise as compensation or through a tax-qualified retirement plan;

 

·investors holding their shares in connection with a trade or business; and

 

·persons that hold shares of Quoin common stock or Cellect shares as part of a hedge, straddle, conversion, constructive sale, or other integrated or risk reduction financial transaction.

 

This summary does not address any considerations relating to U.S. federal taxes other than the income tax and certain estate taxes (such as gift taxes), any U.S. state or local, or non-U.S., tax laws or considerations, the alternative minimum tax, or, except as expressly addressed below, any reporting requirements.

 

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As used in this section, "U.S. Holder" means a beneficial owner of shares of stock that is, for U.S. federal income tax purposes: (i) a citizen or individual resident of the United States; (ii) a corporation, or other entity or arrangement taxable as a corporation, created or organized in or under the laws of the United States, any state thereof, or the District of Columbia; (iii) a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust; or (iv) an estate the income of which is subject to U.S. federal income taxation regardless of its source. A “Quoin U.S. Holder” means a beneficial owner of Quoin common stock (and, after the exchange of shares of Quoin common stock for the merger consideration pursuant to the transaction, a beneficial owner of Cellect shares received in the transaction) that meets the above definition of a U.S. Holder. A “Current Cellect U.S. Holder” means a current beneficial owner of Cellect shares that meets the above definition of a U.S. Holder.

 

"Non-U.S. Holder" (and, as the case may be, a “Quoin Non-U.S. Holder” or “Current Cellect Non-U.S. Holder”) means a beneficial owner of shares of shares of stock that is not a U.S. Holder and that is an individual, corporation, trust, or estate.

 

The U.S. federal income tax treatment of a partner in a partnership (or other entity or arrangement treated as a partnership for U.S. federal income tax purposes) generally will depend on the status of the partner and the activities of the partnership. Partnerships and persons treated as partners in partnerships that hold shares of Quoin common stock and Cellect shares should consult their own tax advisors regarding the specific U.S. federal income tax consequences to them of participating in the transaction and of acquiring, owning, and disposing of Cellect shares and CVRs, as the case may be.

 

A U.S. Holder of Cellect ADSs, for U.S. federal income tax purposes, generally will be treated as the owner of the underlying Cellect ordinary shares that are represented by such Cellect ADSs. Accordingly, deposits or withdrawals of Cellect ordinary shares in exchange for Cellect ADSs will not be subject to U.S. federal income tax.

 

The following discussion does not purport to be a complete analysis or discussion of all U.S. federal income tax considerations relating to the transaction or to the ownership and disposition of Cellect shares, nor does it address all of the U.S. federal income tax consequences of certain transactions that may be entered into prior to, concurrently with or subsequent to the transaction (regardless of whether any such transaction is undertaken in connection with the transaction). All holders of Quoin common stock or Cellect shares should consult their own tax advisors as to the specific tax consequences to them of the transaction and of the ownership and disposition of Cellect shares or CVRs, including with respect to reporting requirements and the applicability and effect of any U.S. federal, state, local, non-U.S., or other tax laws in light of their particular circumstances.

  

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Tax Residence of Cellect

 

A corporation organized outside the U.S. and under non-U.S. law, such as Cellect, is generally treated as a foreign corporation for U.S. federal income tax purposes. Under Section 7874 of the Code, a corporation otherwise treated as a foreign corporation may nevertheless be treated as a U.S. corporation for such purposes if it acquires, directly or indirectly, substantially all of the assets held, directly or indirectly, by a U.S. corporation. These rules apply only if certain conditions are met, including that the former shareholders of the acquired U.S. corporation hold, by reason of their ownership of shares of that corporation, at least eighty percent (80%) of the shares of the acquiring foreign corporation. Based on certain assumptions and the percentage of the Cellect shares to be received by shareholders of Quoin in the transaction, these conditions are expected to be met and thus Cellect’s indirect acquisition of Quoin is expected to cause Cellect’s status to change such that it would be treated as a U.S. corporation for U.S. federal income tax purposes pursuant to Section 7874 of the Code (the “Conversion”).

 

Specifically, for purpose of the eighty-percent threshold under Section 7874 of the Code, it has been assumed (among other things) that the shares acquired by the Investor in the Equity Financing prior to the Merger will be included as stock owned by pre-transaction Quoin equity holders, that no other stock of Quoin or Cellect will be disregarded for purposes of the eighty-percent threshold.

  

Because Cellect is a taxable corporation in Israel, it would likely be subject to income taxation in both the United States and Israel on the same income, which could reduce the amount of income available for distribution to shareholders. Furthermore, Cellect and its subsidiaries could be subject to substantial additional U.S. tax liability and its non-U.S. shareholders could be subject to U.S. withholding tax on any dividends. This discussion assumes that Cellect will be treated as a U.S. corporation for U.S. tax purposes, but does not discuss the impact of non-U.S. taxes. If the Quoin equity holders are treated as owning less than 80% of the combined company following the Merger, the tax consequences described herein would materially and fundamentally differ. In such circumstances, Cellect would remain a foreign corporation for U.S. tax purposes, and would (based on certain assumptions) likely be classified as a “surrogate foreign corporation” under Section 7874 of the Code. Such classification would result in certain gain and income to Cellect becoming subject to U.S. federal income tax for a period of ten (10) years after the Merger. Further, in such circumstances, Quoin U.S. Holders may recognize gain on the Merger.

  

Tax Characterization of the Transaction

 

Cellect and Quoin intend that the steps involved in the transaction will qualify as a "reorganization" within the meaning of Section 368(a) of the Code, with the result that the transaction will not result in gain recognition by Quoin stockholders that exchange their shares of Quoin common stock for the merger consideration. See the discussion below under “U.S. Federal Income Tax Consequences of the Transaction.”

 

Any tax position taken by Cellect and Quoin will not be binding on the IRS or the courts, and neither Cellect nor Quoin intends to obtain a ruling from the IRS with respect to the tax consequences of the transaction. Consequently, no assurance can be given that the IRS will not assert, or that a court will not sustain, a position contrary to any of the tax consequences described in the discussion below. In particular, if the transaction did not qualify as a reorganization for U.S. federal income tax purposes, the transaction would be treated as a fully taxable transaction for such purposes, in which case a Quoin U.S. Holder would be required to recognize gain or loss on the exchange of shares of Quoin common stock for the merger consideration. In certain circumstances, a Quoin Non-U.S. Holder could be subject to U.S. federal income and/or withholding tax on the exchange of Quoin common stock for merger consideration if the transaction did not qualify as a reorganization.

  

Tax Consequences to Cellect Holders

 

Tax Consequences to Current Cellect U.S. Holders of the Deemed Conversion of Cellect into a U.S. Domestic Corporation

 

Tax Considerations upon the Conversion

 

Subject to the discussion in “Effects of Section 367(b) of the Code upon the Conversion” or “Passive Foreign Investment Company Considerations in connection with the Conversion” below, the following U.S. federal income tax consequences will result from the Conversion:

 

(i) Current Cellect U.S. Holders will be deemed to exchange their Cellect shares for Cellect shares in a U.S. domestic corporation;

 

(ii) U.S. Holders will recognize no gain or loss as a result of the Conversion;

 

(iii) a U.S. Holder’s aggregate tax basis of Cellect shares after the Conversion will be the same as such U.S. Holder’s aggregate tax basis in the Cellect shares immediately prior to the Conversion; and

 

(iv) a U.S. Holder’s holding period of Cellect shares will include the holding period of the Cellect shares prior to the Conversion.

 

For U.S. federal income tax purposes, insofar as relevant, the Conversion is deemed to occur at the end of the day immediately preceding the first date properties are acquired as part of the U.S. domestic entity acquisition.

 

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Effects of Section 367(b) of the Code upon the Conversion

 

Notwithstanding qualification of the Conversion as a tax-deferred reorganization under Section 368(a)(1)(F) of the Code, U.S. Holders may nevertheless, in certain circumstances, recognize taxable income in connection with the Conversion under Section 367(b) of the Code. Current Cellect U.S. Holders who own, directly or indirectly or constructively under certain stock attribution rules, 10% or more of the combined voting power or value of Cellect (each, a “10% U.S. Shareholder”) will be required to recognize as dividend income a proportionate share of Cellect’s “all earnings and profits amount” (“All E&P Amount”), if any, as determined under applicable Treasury Regulations.

 

A Current Cellect U.S. Holder that is not a 10% U.S. Shareholder is not required to include any part of the All E&P Amount in income unless such U.S. Holder makes an election to do so (a “Deemed Dividend Election”). Absent a Deemed Dividend Election, such Current Cellect U.S. Holder must recognize gain, but will not recognize any loss, upon the deemed exchange of such U.S. Holder’s Cellect shares for Cellect shares in a U.S. domestic corporation if such Cellect shares have a fair market value of U.S. $50,000 or more on the date the Conversion is completed. Any gain recognized will be added to the transferred basis in Cellect shares in a U.S. domestic corporation that such Current Cellect U.S. Holder will receive in exchange for the Cellect shares surrendered.

 

If a Current Cellect U.S. Holder that is not a 10% U.S. Shareholder and that does not make a Deemed Dividend Election holds different blocks of Cellect shares acquired at different prices and has a built-in gain in one or more blocks of such shares and a built-in loss in the remaining blocks of such shares, such U.S. Holder should consult its own tax advisors for purposes of determining the amount of gain to be recognized in connection with the disposition of such Cellect shares in the Conversion.

 

By making a Deemed Dividend Election, a Current Cellect U.S. Holder that is not a 10% U.S. Shareholder will, in lieu of recognizing gain upon the exchange of Cellect shares for Cellect shares in a U.S. domestic corporation under the Conversion as described above, recognize as dividend income a proportionate share of the Cellect’s All E&P Amount, if any. A Deemed Dividend Election can be made only if Cellect provides such Current Cellect U.S. Holder with information as to the All E&P Amount in respect of such U.S. Holder and the U.S. Holder elects and files certain notices with such U.S. Holder’s U.S. federal income tax return for the tax year in which the Conversion occurs.

 

A Current Cellect U.S. Holder that is not a 10% U.S. Shareholder and that owns Cellect shares with a fair market value of less than U.S.$50,000 on the date the Conversion is completed will not be subject to tax under Section 367(b) of the Code upon the Conversion.

 

Required Notices Under Section 367(b) of the Code

 

A notice under Section 367(b) of the Code (a “Section 367(b) Notice”) must be filed by 10% U.S. Shareholders. Current Cellect U.S. Holders that are not 10% U.S. Shareholders are required to file a Section 367(b) Notice only if they make a Deemed Dividend Election, and a notice of such election must be sent to Cellect on or before the date the Section 367(b) Notice is filed. A Current Cellect U.S. Holder filing a Section 367(b) Notice must attach such notice to its timely filed U.S. federal income tax return for the taxable year in which the Conversion occurs.

 

The requirements of Section 367(b) of the Code are complex. Current Cellect U.S. Holders should consult their own tax advisors regarding the application of Section 367(b) of the Code to their own particular circumstances and the notice and election requirements discussed above.

 

Passive Foreign Investment Company Considerations in connection with the Conversion

 

In addition to the possibility of taxation under Section 367(b) of the Code as described above, the Conversion may be a taxable event to Current Cellect U.S. Holders if Cellect is, or ever was, a passive foreign investment company (“PFIC”) under Section 1297 of the Code.

 

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A non-U.S. corporation is classified as a PFIC if, for a taxable year, (i) 75% or more of its gross income is passive income (as defined for U.S. federal income tax purposes) or (ii) 50% or more (by value) of its assets either produce or are held for the production of passive income, based on the quarterly average of the fair market value of such assets. For purposes of the PFIC provisions, “gross income” generally means sales revenues less cost of goods sold, plus income from investments and from incidental or outside operations or sources, and “passive income” generally includes dividends, interest, royalties, rents, and gains from commodities or securities transactions. In determining whether or not it is classified as a PFIC, a non-U.S. corporation is required to take into account its pro rata portion of the income and assets of each corporation in which it owns, directly or indirectly, at least a 25% interest by value.

 

Cellect has not determined whether it is a PFIC for its current tax year or any prior taxable year. PFIC classification is factual in nature, and generally cannot be determined until after the close of the tax year in question. Additionally, the analysis depends, in part, on the application of complex U.S. federal income tax rules, which are subject to differing interpretations. No opinion of legal counsel or ruling from the IRS concerning the PFIC status of Cellect has been obtained and none will be requested. Consequently, there can be no assurances regarding the PFIC status of Cellect during its current tax year or any prior tax year.

 

Under proposed Treasury Regulations, if Cellect was classified as a PFIC for any tax year during which a Current Cellect U.S. Holder held Cellect shares, special rules, set forth in the proposed Treasury Regulations, may increase such U.S. Holder’s U.S. federal income tax liability with respect to the Conversion. Such proposed Treasury Regulations generally would require gain recognition by Non-Electing Shareholders (as defined below) as a result of the Conversion. Under such rules:

 

(i) the Conversion may be treated as a taxable exchange to such U.S. Holder even if such transaction otherwise qualifies as a tax-deferred reorganization under Section 368(a)(1)(F) of the Code, as discussed above;

 

(ii) any gain on the deemed exchange of the Cellect shares for Cellect shares in a U.S. corporation pursuant to the Conversion will be allocated ratably over such U. S. Holder’s holding period;

 

(iii) the amount allocated to the current tax year and any tax year prior to the first tax year in which Cellect was classified as a PFIC will be taxed as ordinary income in the current tax year;

 

(iv) the amount allocated to each of the other tax years will be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for that year; and

 

(v) an interest charge for a deemed deferral benefit will be imposed with respect to the resulting tax attributable to each of the other tax years, which interest charge is not deductible by non-corporate U. S. Holders.

 

A Current Cellect U.S. Holder that has made a “mark-to-market” election under Section 1296 of the Code (a “Mark-to-Market Election”) or a timely and effective election to treat Cellect as a “qualified electing fund” (a “QEF”) under Section 1295 of the Code (a “QEF Election”) may generally mitigate or avoid the PFIC consequences described above with respect to the Conversion. A Current Cellect U.S. Holder that makes a timely and effective QEF Election generally must report on a current basis its share of Cellect’s net capital gain and ordinary earnings for any tax year in which Cellect is a PFIC, whether or not Cellect distributes any amounts to its shareholders. A Current Cellect U.S. Holder who makes the Mark-to-Market Election generally must include as ordinary income each year the excess of the fair market value of relevant shares over the U.S. Holder’s tax basis therein. Each Current Cellect U.S. Holder should consult its own tax advisors regarding the availability of, and procedure for making, a QEF Election. A shareholder that does not make a timely QEF Election or a Mark-to-Market Election is referred to for purposes of this summary as a “Non-Electing Shareholder.”

 

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The proposed Treasury Regulations discussed above were proposed in 1992 and have not been adopted in final form. The proposed Treasury Regulations state that they are to be effective for transactions occurring on or after April 1, 1992. However, because the proposed Treasury Regulations have not yet been adopted in final form, they are not currently effective and there is no assurance they will be finally adopted in the form and with the effective date proposed. Further, it is uncertain whether the IRS would consider the proposed Treasury Regulations to be effective for purposes of determining the U.S. federal income tax treatment of the Conversion.

 

The PFIC provisions are complex. Current Cellect U.S. Holders should consult their own tax advisors regarding the application of the PFIC regime, including whether the proposed Treasury Regulations under Section 1291(f) of the Code would apply to the Conversion, the impact of making a Mark-to-Market Election or a QEF Election and/or other elections under the PFIC provisions, and the availability of, and procedures for making, such elections under the Code and Treasury Regulations.

 

U.S. Federal Income Tax Consequences relating to the CVRs

 

This discussion assumes that the receipt of CVRs pursuant to the transaction is treated as a “closed transaction” for U.S. federal income tax purposes, meaning that the tax consequences of the receipt of the CVR will be determined generally at the time of such receipt. However, the U.S. federal income tax treatment of the CVRs is unclear. There is no legal authority directly addressing the U.S. federal income tax treatment of the CVRs, and there can be no assurance that the IRS would not assert, or that a court would not sustain, a contrary position.

 

Distribution of the CVRs

 

Cellect intends to take the position that issuance of CVRs will be treated for U.S. federal income tax purposes as a distribution of property. At the time of a distribution of a CVR, the recipient will be subject to tax on the fair market value of the CVR in a manner consistent with such treatment. Thus, if the distribution occurs at a time when Cellect is treated as a U.S. corporation for U.S. federal income tax purposes as described above, a recipient of a CVR will be treated as described under “U.S. Federal Income Taxation of U.S. Holders of Cellect Shares following the Transaction Dividends” or “U.S. Federal Income Taxation of Non-U.S. Holders of Cellect Shares following the Transaction Dividends,” as applicable. If the distribution occurs at a time prior to Cellect becoming treated as a U.S. corporation for U.S. federal income tax purposes, a recipient of a CVR that is a U.S. Holder would be subject to tax generally will be treated as described under “U.S. Federal Income Taxation of U.S. Holders of Cellect Shares following the TransactionDividends,” provided that if Cellect is or has been a PFIC, as described above, additional U.S. tax may be imposed on such U.S. Holder. If the distribution occurs at a time prior to Cellect becoming treated as a U.S. corporation for U.S. federal income tax purposes, a Non-U.S. Holder should not be subject to U.S. income tax with respect to receipt of the CVR.

 

A holder’s initial tax basis in each CVR received in distribution will be the fair market value of that CVR and its holding period in such CVR will begin on the day of receipt.

 

If the distribution of the CVRs occurs when Cellect is a U.S. corporation as described above, then Cellect will be subject to tax on any gain to the extent that the fair market value of the CVRs. Any U.S. tax to Cellect as a result of the distribution of the CVRs, could result in less after-tax proceeds to the recipients of the CVRs.

 

Tax Consequences of Payments Received under the CVRs

 

Cellect intends to take the position that a payment with respect to a CVR would likely be treated as a non-taxable return of a recipient’s adjusted tax basis in the CVR to the extent thereof. A payment in excess of such amount may be treated as (i) a payment with respect to a sale of a capital asset or (ii) income taxed at ordinary rates. Additionally, it is possible that a portion of the amount received by a U.S. Holder upon the sale or exchange of a CVR may be reported or treated as imputed interest income. Each holder of a CVR should consult its tax advisor regarding the treatment in its particular circumstances of a payment with respect to a CVR, including as a result of such holder’s method of accounting for income tax purposes.

 

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Tax Consequences of a Sale or Other Disposition or Expiration of the CVRs

 

Upon a sale or exchange of a CVR, a U.S. Holder should recognize capital gain or loss equal to the difference between (i) the sum of the amount of any cash and the fair market value of any property received upon such sale or exchange (less any imputed interest, as described below) and (ii) the U.S. Holder’s adjusted tax basis in the CVR. Such gain or loss generally will be long-term capital gain or loss if the U.S. Holder has a holding period in the CVR of more than one year. Additionally, it is possible that a portion of the amount received by a U.S. Holder upon the sale or exchange of a CVR may be reported or treated as imputed interest income. Each U.S. Holder of a CVR should consult its tax advisor regarding the treatment in its particular circumstances of a sale or exchange of a CVR, including as a result of such U.S. Holder’s method of accounting for tax purposes.

 

If a CVR expires without any payment with respect thereto, although it is not free from doubt, the U.S. Holder generally should recognize a loss, which loss likely would be a capital loss, in an amount equal to the U.S. Holder’s adjusted tax basis in the CVR. The use of capital losses is subject to limitations. Each U.S. Holder of a CVR should consult its tax advisors regarding the treatment in its particular circumstances of the expiration of a CVR without any payment.

 

Due to the legal and factual uncertainty regarding the valuation and tax treatment of the CVRs, all recipients of a CVR are urged to consult their tax advisors concerning the tax consequences to them of receiving, holding, and disposing of CVRs.

 

U.S. Federal Income Tax Consequences of the Transaction

 

Tax Consequences of the Transaction for Quoin U.S. Holders

 

A U.S. Holder that exchanges shares of Quoin common stock for Cellect shares in the transaction should recognize no gain or loss in the transaction. A U.S. Holder who receives cash in lieu of a fractional Cellect share in the transaction generally will be treated as having received such fractional share in the transaction and then as having received cash in exchange for such fractional Cellect share. Gain or loss generally will be recognized based on the difference between the amount of cash received in lieu of the fractional Cellect share and the portion of the U.S. Holder's aggregate tax basis in the shares of Quoin common stock surrendered allocable to the fractional Cellect share. Any such gain or loss generally will be capital gain or loss, which will be long-term capital gain or loss if the holding period for the shares of Quoin common stock is more than one year on the closing date of the transaction. A non-corporate U.S. Holder's long-term capital gain may be taxed at lower rates. Deductions for capital losses are subject to limitation.

 

The aggregate tax basis of the Cellect shares a Quoin U.S. Holder receives in the transaction (including any fractional Cellect shares deemed received) will generally be the same as such U.S. Holder's aggregate tax basis in its shares of Quoin common stock surrendered in exchange therefor. The holding period of the Cellect shares received by a Quoin U.S. Holder in the transaction will include such U.S. Holder's holding period in the shares of Quoin common stock surrendered in the transaction.

 

In the case of a Quoin U.S. Holder who holds shares of Quoin common stock with differing tax bases and/or holding periods, which generally occurs when blocks of shares have been purchased at different times or at different prices, the preceding rules must be applied separately to each identifiable block of shares of Quoin common stock, and such U.S. Holder may not offset a loss realized on one block of the shares against gain recognized on another block of the shares.

 

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Tax Consequences of the Transaction for Quoin Non-U.S. Holders

 

In general, the U.S. federal income tax consequences to a Quoin Non-U.S. Holder that exchanges its shares of Quoin common stock for Cellect shares in the transaction will be the same as those described above for a U.S. Holder, except that a Non-U.S. Holder generally will not be subject to U.S. federal withholding or income tax on any gain recognized in connection with the transaction unless:

 

(i)

 

the gain (if any) is effectively connected with such Non-U.S. Holder's conduct of a U.S. trade or business (and, where a tax treaty applies, is attributable to the Non-U.S. Holder's U.S. permanent establishment or fixed base in the United States), in which case such gain would be taxed on a net income basis in the same manner as if such Non-U.S. Holder were a U.S. person (and, if such Non-U.S. Holder is a corporation for U.S. federal income tax purposes, potentially an additional "branch profits tax" at a 30% rate or such lower rate as specified by an applicable income tax treaty);

 

(ii)

 

such Non-U.S. Holder is an individual present in the United States for at least 183 days during the taxable year of disposition and certain other conditions are met, in which case such Non-U.S. Holder would generally be subject to U.S. federal income tax at a rate of 30% on the amount by which such Non-U.S. Holder's capital gains allocable to U.S. sources, including gain from the disposition pursuant to the transaction, exceed any capital losses allocable to U.S. sources, except as otherwise required by an applicable income tax treaty; or

 

(iii)

 

Quoin is or has been a U.S. real property holding corporation (a "USRPHC"), as defined in Section 897 of the Code, at any time within the five-year period preceding the transaction and certain other conditions are satisfied. Quoin believes that, as of the effective time of the merger, Quoin will not have been a USRPHC at any time within the five-year period ending on the date thereof.

 

U.S. Federal Income Taxation of U.S. Holders of Cellect Shares following the Transaction

 

Dividends

 

Following the transaction, the gross amount of any distribution with respect to Cellect shares will be included in a U.S. Holder's gross income as a dividend to the extent of Cellect's current and accumulated earnings and profits as determined under U.S. federal income tax laws. To the extent that the amount of the distribution exceeds Cellect’s current and accumulated earnings and profits (as determined under U.S. federal income tax principles), such excess will be treated first as a tax-free return of the U.S. Holder’s tax basis in the Cellect shares, and then, to the extent such excess amount exceeds the U.S. Holder’s tax basis in the Cellect shares, as capital gain. Subject to applicable limitations and requirements, dividends received on Cellect shares generally should be eligible for the “dividends received deduction” available to corporate shareholders. A dividend paid by Cellect to certain non-corporate U.S. Holders, including individuals, generally will be subject to taxation at preferential rates if certain holding period requirements are met.

 

Dividends paid in a currency other than U.S. dollars will be included in income in a U.S. dollar amount based on the exchange rate in effect on the date the dividend is includible in the U.S. Holder's income, whether or not the currency is converted into U.S. dollars at that time. A U.S. Holder's tax basis in the non-U.S. currency will equal the U.S. dollar amount included in income. Any gain or loss realized on a subsequent conversion or other disposition of the non-U.S. currency for a different U.S. dollar amount generally will be U.S. source ordinary income or loss. If dividends paid in a currency other than U.S. dollars were converted into U.S. dollars on the day they were received, a U.S. Holder generally would not be required to recognize foreign currency gain or loss in respect of the dividend income.

 

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Sale or Other Disposition of Cellect Shares

 

A U.S. Holder generally will recognize capital gain or loss on the sale or other disposition of Cellect shares in an amount equal to the difference between the U.S. dollar value of the amount realized and the U.S. Holder's adjusted tax basis in the disposed Cellect shares. Any gain or loss generally will be treated as arising from U.S. sources and will be long-term capital gain or loss if the U.S. Holder's holding period exceeds one year. Deductions for capital loss are subject to significant limitations.

 

Net investment income tax

 

Section 1411 of the Code imposes a 3.8% federal tax (in addition to other federal taxes) on the net investment income (as defined for U.S. federal income tax purposes) (“NII”) of U.S. Holders who are individuals, estates, or trusts, to the extent such holder's modified adjusted gross income (as defined in Section 1411(d) of the Code) exceeds certain income thresholds. NII would generally include all income from dividends distributed with respect to Cellect shares and any taxable gain on the sale or other disposition of Cellect shares. U.S. holders are urged to consult their tax advisors regarding the effect, if any, of NII tax on their investment in the Cellect shares.

 

U.S. Federal Income Taxation of Non-U.S. Holders of Cellect Shares following the Transaction

 

Dividends

 

The gross amount of any distribution of with respect to Cellect shares will be treated as a dividend to the extent of Cellect's current and accumulated earnings and profits as determined under U.S. federal income tax laws. To the extent the amount of the distribution exceeds Cellect’s current and accumulated earnings and profits (as determined under U.S. federal income tax principles), such excess will be treated first as a tax-free return of the Non-U.S. Holder’s tax basis in the Cellect shares, and then, to the extent such excess amount exceeds the Non-U.S. Holder’s tax basis in the Cellect shares, as capital gain. Because we may not know the extent to which a distribution is a dividend for U.S. federal income tax purposes at the time it is made, for purposes of the withholding rules discussed below we or the applicable withholding agent may treat the entire distribution as a dividend.

 

Subject to the following paragraph regarding effectively connected income, a dividend paid to a Non-U.S. Holder will be subject to U.S. federal withholding tax at a rate of 30% of the gross amount of the dividend or such lower rate as is specified by an applicable income tax treaty, provided the Non-U.S. Holder furnishes a valid IRS Form W-8BEN or W-8BEN-E (or other applicable documentation) certifying qualification for the lower treaty rate. A Non-U.S. Holder that does not timely furnish the required documentation, but that qualifies for a reduced treaty rate, may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS. Non-U.S. Holders are urged to consult their own tax advisors regarding their entitlement to benefits under any applicable income tax treaty.

 

If a dividend paid to a Non-U.S. Holder is effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, the Non-U.S. Holder maintains a permanent establishment in the United States to which such dividends are attributable), the Non-U.S. Holder will be exempt from the U.S. federal withholding tax described above. To claim the exemption, the Non-U.S. Holder must furnish to the applicable withholding agent a valid IRS Form W-8ECI, certifying that the dividend is effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States. Any such effectively connected dividend will be subject to U.S. federal income tax on a net income basis at the regular tax rate. A Non-U.S. Holder that is a corporation may also be subject to a branch profits tax at a rate of 30% (or such lower rate as is specified by an applicable income tax treaty) on such effectively connected dividends, as adjusted for certain items. Non-U.S. Holders are urged to consult their own tax advisors regarding any applicable income tax treaties that may provide for different rules.

 

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Sale or Other Disposition of Cellect Shares

 

A Non-U.S. Holder generally should not be subject to U.S. federal income taxation on gain realized upon a sale, exchange, or other taxable disposition, except in the circumstances described above under “U.S. Federal Income Tax Consequences of the Transaction — Tax Consequences of the Transaction for Quoin Non-U.S. Holders.”

 

Backup Withholding and Information Reporting

 

In general, information reporting requirements may apply to the cash payments made to U.S. Holders and Non-U.S. Holders in connection with the transaction and in respect of Cellect shares, unless an exemption applies. Backup withholding tax may apply to amounts subject to reporting if the applicable stockholder fails to provide an accurate taxpayer identification number, fails to report all interest and dividends required to be shown on its U.S. federal income tax returns, or otherwise fails to establish an exemption to backup withholding. U.S. Holders and Non-U.S. Holders can claim a credit against their U.S. federal income tax liability for the amount of any backup withholding tax and a refund of any excess, provided that all required information is timely provided to the IRS. U.S. Holders and Non-U.S. Holders should consult their tax advisors as to their qualification for exemption from backup withholding and the procedure for establishing an exemption.

 

Withholding Requirements under FATCA

 

Under Sections 1471 through 1474 of the Code, and the Treasury Regulations and administrative guidance thereunder (“FATCA”), withholding tax may apply to certain types of payments made to “foreign financial institutions” (as defined in the Code) and certain other non-U.S. entities. Specifically, a 30% withholding tax may be imposed on dividends on Cellect shares paid to a foreign financial institution or to a non-financial foreign entity, unless (i) in the case of a foreign financial institution, such institution enters into an agreement with the U.S. government to withhold on certain payments, and to collect and provide to the U.S. tax authorities substantial information regarding U.S. account holders of such institution (which includes certain equity and debt holders of such institution, as well as certain account holders that are non-U.S. entities with U.S. owners); (ii) in the case of a non-financial foreign entity, such entity certifies that it does not have any “substantial United States owners” (as defined in the Code) or provides the applicable withholding agent with a certification identifying the direct and indirect substantial United States owners of the entity (in either case, generally on IRS Form W-8BEN-E); or (iii) the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from these rules and provides appropriate documentation (such as IRS Form W-8BEN-E). Foreign financial institutions located in jurisdictions that have an intergovernmental agreement with the United States may be subject to different rules. Under certain circumstances, a shareholder might be eligible for refunds or credits of such taxes.

 

Proposed Treasury Regulations would eliminate the requirement to withhold tax under FATCA on gross proceeds from the sale or disposition of property that can produce U.S.-source interest or dividends. The IRS has announced that taxpayers are permitted to rely on the proposed regulations until final Treasury Regulations are issued. Non-U.S. Holders are encouraged to consult their own tax advisors regarding the effect of FATCA on their investment in Cellect shares in light of their particular circumstances.

 

U.S. Federal Estate Tax

 

Cellect shares that are owned or treated as owned by an individual who is not a citizen or resident of the United States (as specially defined for U.S. federal estate tax purposes) at the time of death are considered U.S. situs assets and will be included in the individual’s gross estate for U.S. federal estate tax purposes. Such shares, therefore, may be subject to U.S. federal estate tax, unless an applicable estate tax or other treaty provides otherwise.

 

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THE DISCUSSION ABOVE IS A GENERAL SUMMARY. IT DOES NOT COVER ALL TAX MATTERS THAT MAY BE OF IMPORTANCE TO A PARTICULAR HOLDER. THE TAX CONSEQUENCES OF THE TRANSACTION AND OF HOLDING AND DISPOSING OF CELLECT SHARES WILL DEPEND ON A HOLDER'S SPECIFIC SITUATION. EACH HOLDER IS URGED TO CONSULT THEIR OWN TAX ADVISOR ABOUT THE TAX CONSEQUENCES TO THEM OF THE TRANSACTION AND HOLDING AND DISPOSING OF CELLECT SHARES IN LIGHT OF THE HOLDER'S OWN CIRCUMSTANCES, AS WELL AS THE APPLICABILITY AND EFFECT OF ANY U.S. FEDERAL, STATE, LOCAL, NON-U.S. OR OTHER TAX LAWS.

 

Material Israeli Tax Consequences of the Share Transfer and CVR Agreement

 

In connection with the Share Transfer Agreement between EnCellX and Cellect, and in accordance with the terms of the CVR Agreement, Cellect has approached the Israeli Tax Authority in order to obtain a tax ruling regulating the tax treatment applicable to the share transfer contingent consideration payable to (i) Cellect shareholders (as registered on the closing date of the Share Transfer) and (ii) Dr. Shai Yarkoni (together, the “Consideration”).

 

It is anticipated that the tax ruling will: (i) determine that the issuance of the CVRs by Cellect to its shareholders will not trigger a taxable event upon such issuance; (ii) determine that the tax liability in connection with the payment of the contingent consideration (if paid) to Cellect shareholders and Dr. Shai Yarkoni shall be deferred to the date of actual payment of such consideration; (iii) specify the Israeli taxation of the contingent consideration payable to the Dr. Yarkoni's; and (iv) specify the mechanism according to which the contingent consideration, payable by Cellect to the CVR holders, will be taxed in Israel (upon actual payment) as a dividend distribution, as well as ensure the collection of the applicable tax due in Israel through an Israeli escrow agent.

 

Nasdaq Market Listing

 

Cellect’s ADSs are currently listed on Nasdaq market under the symbol “APOP”. Cellect has agreed to use its commercially reasonable efforts, (i) to the extent required by the rules and regulations of Nasdaq market, to prepare and submit to Nasdaq market a notification for the listing of the Cellect ADSs to be issued in connection with the Merger, and to cause such shares to be approved for listing (subject to official notice of issuance) and (ii) to the extent required by Nasdaq Market rules, to file an initial listing application for the Cellect ordinary shares on Nasdaq market and to cause the listing application to be conditionally approved prior to the Effective Time.

 

Quoin has agreed to cooperate with Cellect as reasonably requested by Cellect with respect to the listing application and promptly furnish Cellect all information concerning Quoin and its stockholders that may be required or reasonably requested in connection with any action contemplated by the listing application.

 

Anticipated Accounting Treatment

 

The Merger will be accounted for by Cellect as a reverse merger in accordance with International Financial Reporting Standards as issued by the IASB (“IFRS”). For accounting purposes, Quoin is considered to be the accounting acquirer of Cellect as the shareholders of Quoin will hold the majority of the shares of Cellect after the merger. Accounting for reverse merger requires management of Cellect and Quoin to perform purchase price allocation (“PPA”) to the assets and liabilities of Cellect. As of the date of this proxy statement/prospectus, the PPA was not completed and hence amounts appearing herein are provisional and subject.

 

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Appraisal Rights

 

Cellect shareholders are not entitled to appraisal rights in connection with the Merger under the Israeli Companies Law.

 

Quoin stockholders are entitled to appraisal rights in connection with the Merger under Section 262 of the DGCL.

 

Under Section 262 of the DGCL, if a Quoin stockholder does not wish to accept the Merger Consideration provided for in the Merger Agreement, does not consent to the adoption of the Merger Agreement, and complies with the requirements for perfecting and preserving appraisal rights specified in Section 262 of the DGCL, and the Merger is consummated, such stockholder has the right to seek appraisal of his, her or its shares of Quoin stock and to receive payment in cash for the fair value of his, her or its shares of Quoin stock exclusive of any element of value arising from the accomplishment or expectation of the Merger, as determined by the Delaware Court of Chancery, together with interest, if any, to be paid upon the amount determined to be the fair value of such shares of Quoin stock. These rights are known as appraisal rights under Delaware law. The “fair value” of such shares of Quoin stock as determined by the Delaware Court of Chancery may be more or less than, or the same as, the Merger Consideration that a stockholder of record is otherwise entitled to receive for the same number of shares of Quoin stock under the terms of the Merger Agreement. Stockholders of Quoin who elect to exercise appraisal rights must comply with the provisions of Section 262 of the DGCL to perfect their rights. Strict compliance with the statutory procedures in Section 262 of the DGCL is required. Failure to strictly comply with such procedures in a timely and proper manner will result in the loss of appraisal rights under Delaware law. Stockholders of Quoin who wish to exercise appraisal rights, or preserve the ability to do so, must not deliver a signed written consent adopting the Merger Agreement.

 

This section is intended only as a brief summary of the material provisions of the statutory procedures under Section 262 of the DGCL that a Quoin stockholder must follow in order to seek and perfect appraisal rights. This summary, however, is not intended to be a complete statement of all applicable requirements and the law pertaining to appraisal rights under the DGCL, and is qualified in its entirety by reference to Section 262 of the DGCL, the full text of which is attached as Annex L to this proxy statement/prospectus. Annex L should be reviewed carefully by any Quoin stockholder who wishes to exercise appraisal rights or to preserve the ability to do so, as failure to comply with the procedures of Section 262 of the DGCL will result in the loss of appraisal rights. The following summary does not constitute any legal or other advice, nor does it constitute a recommendation that stockholders exercise their appraisal rights under Section 262 of the DGCL. Unless otherwise noted, all references in this summary to “stockholders” or “you” are to the record holders of shares of Quoin stock immediately prior to the Effective Time as to which appraisal rights are asserted. A person having a beneficial interest in shares of Quoin stock held of record in the name of another person must act promptly to cause the record holder to follow the steps summarized below properly and in a timely manner to perfect appraisal rights.

 

Section 262 of the DGCL requires that if the Merger is approved by a written consent of stockholders in lieu of a meeting of stockholders, each of the stockholders entitled to appraisal rights must be given notice of the approval of the Merger and that appraisal rights are available. A copy of Section 262 of the DGCL must be included with such notice. The notice must be provided after the Merger is approved and no later than 10 days after the Effective Time. Only those Quoin stockholders who did not submit a written consent adopting the Merger Agreement and who have otherwise complied with Section 262 of the DGCL are entitled to receive such notice. The notice will be given by Quoin. If given on or after the Effective Time, the notice must also specify the Effective Time; otherwise, a supplementary notice will provide this information. This proxy statement/prospectus is not intended to constitute such a notice. If you want to demand appraisal of your Quoin stock, do not send in your demand before the date of such notice because a demand for appraisal made prior to the date of giving such notice may not be effective to perfect your rights.

 

Following Quoin’s receipt of sufficient written consents to adopt the Merger Agreement, Quoin will send all non-consenting Quoin stockholders who satisfy the other statutory conditions the notice regarding the receipt of such written consents and the availability of appraisal rights. A Quoin stockholder electing to exercise his, her or its appraisal rights will need to take action at that time, in response to such notice, but this description is being provided to all Quoin stockholders now so you can determine whether you wish to preserve your ability to demand appraisal rights in the future in response to such notice.

 

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In order to preserve your right to receive notice and to demand appraisal rights, you must not deliver a written consent adopting the Merger Agreement. As described below, you must also continue to hold your shares for which you are demanding appraisal through the Effective Time.

 

If you elect to demand appraisal of your shares of Quoin stock, you must, within 20 days after the date of giving the notice of appraisal rights, make a written demand for the appraisal of your shares of Quoin stock to Quoin, at the specific address which will be included in the notice of appraisal rights. A demand may be delivered by electronic transmission if directed to an information processing system (if any) expressly designated for that purpose in such notice. Do not submit a demand before the date of the notice of appraisal rights because a demand that is made before the date of giving such notice may not be effective to perfect your appraisal rights.

 

A Quoin stockholder wishing to exercise appraisal rights must hold of record the shares of Quoin stock on the date the written demand for appraisal is made. In addition, a holder must continue to hold of record the shares of Quoin stock through the Effective Time. Appraisal rights will be lost if your shares of Quoin stock are transferred prior to the Effective Time. If you are not the stockholder of record, you will need to follow special procedures as summarized further below.

 

If you and/or the record holder of your shares of Quoin stock fail to comply with all of the conditions required by Section 262 of the DGCL to perfect your appraisal rights, and the Merger is completed, your shares of Quoin stock (assuming that you hold them through the Effective Time) will be converted into the right to receive the Merger Consideration in respect thereof, as provided for in the Merger Agreement, but without interest, and you will have no appraisal rights with respect to such shares.

 

As noted above, a holder of shares of Quoin stock wishing to exercise his, her or its appraisal rights must, within 20 days after the date of giving of the notice of appraisal rights, make a written demand for the appraisal of his, her or its shares of Quoin stock; provided that a demand may be delivered by electronic transmission if directed to an information processing system (if any) expressly designated for that purpose in such notice. The demand must reasonably inform Quoin of the identity of the stockholder of record and his, her or its intent thereby to demand appraisal of the fair value of the shares held by such holder. Only a holder of record of shares of Quoin stock issued and outstanding immediately prior to the Effective Time will be entitled to assert appraisal rights for the shares of Quoin stock registered in that holder’s name. The demand for appraisal should be executed by or on behalf of the holder of record of the shares of Quoin stock, fully and correctly, as the stockholder’s name appears on the Quoin stock certificate(s), as applicable, should specify the stockholder’s name and mailing address and the number of shares registered in the stockholder’s name, a