Document:

fs10901_x103-nair.htm

EXHIBIT 10.3 TAX PRE RULLING DATED AUGUST 10, 2009

Department of Mergers and Divisions

20 Av 5769

August 10, 2009

Shekel and Associates, Attorneys

3 Azrieli Center

Tel Aviv 67023

Dear Sir/Madam:

	
RE:
	
Taxation Decision on the Agreement – Baby’s Breath Ltd. – Share Transfer in Accordance with Section 104 B of the Ordinance_____

(Reference: Your letter of July 1, 2009)

 

1.           The facts as they have been delivered to us by you:

	
  
	
1.1
	
Baby’s Breath Co. Ltd., Private Co. 51-3076943 (hereinafter: “the Company”) is a private company, domiciled in Israel, and established on February 5, 2001. The Company develops and markets medical devices. The Company has developed an innovative device to treat breathing problems in infants and children, and it holds the sole intellectual property
rights to this device.

	
  
	
1.2
	
The registered share capital of the Company comprises 1,000,000 ordinary shares with a nominal value of NIS 1 each, of which 32,388 shares have been allocated.1

1.3           Several shareholders hold shares in the Company, as follows:

1.3.1           10 residents of Israel hold 97.31% of Company shares

1.3.2           A resident of Canada holds 2.69% of Company shares

Detailed information of Company shareholders, accurate to the date of the provision of this taxation decision, is attached hereto as Appendix B to this taxation decision.

Outline of Change in Structure

	
  
	
1.4
	
Capital funds in the U.S. propose to invest in Company shares a sum that will grant them holdings of 20% of the Company’s share capital, provided that the investment thereof shall be in a company domiciled in the United States and registered for trade on the U.S. stock exchange (OTCBB). At this point, preliminary authorization shall be attained with an undertaking to invest the comprehensive sum of USD 3.55
million.

 

 

 

	
  
	
Accordingly, Company shareholders shall transfer the entirety of shares in the Company (hereinafter: “the Transferred Shares”) to the New Air Co. Inc., a private company domiciled in the United States, set up on July 10, 2009, especially for this purpose (hereinafter: “the Foreign Company”).
In return, Company shareholders shall be allocated shares solely in the foreign company (hereinafter: “the Allocated Shares”), in accordance with section 104 B (a) of the Income Tax Ordinance (New Version) 5721-1961 (hereinafter: “the Share Transfer”). Therefore, following the share transfer, the foreign company shall hold
the fully paid share capital of the Company and the shareholders in the Company shall hold in full the paid share capital of the foreign company.

	
  
	
1.5
	
In accordance with your declaration, part of the foreign company shares shall be registered for trade on the U.S. stock exchange (OTCBB). The initial draft of the prospectus shall be submitted to the U.S. Securities Exchange following on and proximate to the share transfer.

	
  
	
1.6
	
In accordance with your declaration, the provisions of the Encouragement of Capital Investments Law 5719-1959 (hereinafter: “Encouragement of Capital Investments Law”) failed to apply and fail to apply to the Company, as of the date of the share transfer, as stated in sub-section 3.4 herein below.

	
  
	
It should be noted that on December 29, 2004, the Company was given a letter of authorization for an alternate track (development area A), however the Company failed to meet the conditions of the letter of authorization. Accordingly, the Company was not entitled to any tax benefits whatsoever by virtue of the Encouragement of Capital Investments Law.

	
  
	
1.7
	
In accordance with your declaration, up to the date of the share transfer no loss in Company shares transferred to the foreign company is latent.

	
  
	
1.8
	
The Company and any party proximate thereto failed to take part in a change in structure, according to Part II of the Ordinance, in the five years prior to issuing this taxation decision.

	
  
	
On this matter, “proximate” – as defined in section 88 of the Income Tax (New Version) Ordinance 5721-1961 (hereinafter: “the Ordinance”).

	
  
	
1.9
	
According to your declaration, Company shareholders have not been given and shall not be given any proceeds whatsoever, whether directly or indirectly, for the share transfer, save for the allocated shares, as to be specified herein below.

	
  
	
1.10
	
The Appendices attached to this taxation decision constitute an inseparable part thereof.

 

2.           The Application:

	
  
	
2.1
	
To authorize that the share transfer, as specified in section 1.4 above, fulfills the conditions of section 104B of the Ordinance.

 

 

 

	
  
	
2.2
	
To authorize that the foreign company is “a company” in accordance with the provisions of section 104 of the Ordinance.

	
  
	
2.3
	
To authorize that the date of the share transfer shall be the date of the actual transfer thereof.

 

3.           Tax Arrangement and Conditions Thereof

	
  
	
3.1
	
Each term in this taxation decision shall have the definition assigned thereto in Part II of the Ordinance, as long as it is not otherwise explicitly stated.

	
  
	
3.2
	
Following the review of your Application, and subject to the accuracy of the facts as they have been presented to me and as they appear above, and on the fulfillment of all conditions determined herein in this taxation decision, I hereby authorize that the share transfer shall not be charged tax, in accordance with the provisions of section 104B of the Ordinance and the Regulations enacted by virtue thereof for the
assessing officer, and subject to the fulfillment of all conditions of Part II of the Ordinance, as well as additional conditions appearing herein in this taxation decision.

	
  
	
3.3
	
I hereby authorize that the foreign company shall be deemed a “company,” as defined in section 104 of the Ordinance, for the purpose of the share transfer, in accordance with the provisions of section 104B of the Ordinance, and subject to the conditions specified herein in this taxation decision.

	
  
	
3.4
	
I hereby authorize that the date of the share transfer shall be the date whereon the transferred shares are actually transferred (hereinafter: “the Date of the Share Transfer”).

	
  
	
It is hereby clarified that in the event that the share transfer fails to be carried out within 90 days of the date of signature of this taxation decision, this taxation decision shall be void retroactively.

	
  
	
3.5
	
All shares allocated to shareholders of the Company, which would have been taxable in Israel in respect of the share transfer had this taxation decision not been given (hereinafter: “the Obligated Shareholders”) as well as all the transferred shares shall be deposited with __________________ Ltd. (Deductions File ________________) (hereinafter: “the
Trustee”), proximate to the date of the share transfer. The Trustee shall be liable vis-à-vis the Tax Authorities for the full payment of the tax ensuing from the share transfer, the conditions of this taxation decision and the provisions of any law, in respect of the allocated shares to the obligated shareholders and in respect of the transferred shares. This obligation shall remain in effect until the receipt of authorization from the assessing officer of the full payment of tax owing in Israel.

 

 

 

	
  
	
3.6
	
The Trustee shall hold the allocated shares for the obligated shareholders in the foreign company as well as the entirety of the transferred shares, as aforesaid in sub-section 3.5 above, until the sale thereof and the tax deduction at source due to the sale, as aforesaid, at the tax rate stated in sections 91(a) or 91(b) of the Ordinance, as the case may be, for the profit of the capital or at a lower rate, as the
assessing officer shall determine, in accordance with a detailed report of the capital profit to be presented to him. The Trustee shall transfer the deduction of tax at source, as aforesaid, to the assessing officer within 30 days of the date of the sale to the assessing officer.

	
  
	
As regards this sub-section herein, “sale” includes the requisite sale, encumbrance or transfer of the rights to the holder of the rights.

	
  
	
3.7
	
The Trustee is to submit a report to the assessing officer on behalf of the obligated shareholders to include all details as required pursuant to section 91 (d) of the Ordinance, including the calculation of the capital profit or capital loss to be created as a result of the sale of the allocated shares.

	
  
	
3.8
	
For the avoidance of doubt, it is hereby clarified that the obligated shareholders shall be taxed in Israel on the sale of the allocated shares and the deduction of tax at source, as aforesaid, shall constitute solely an advance payment on account of the tax debt.

	
  
	
3.9
	
The Trustee undertakes to report to the assessing officer, within 7 days of the date of distribution, any distribution of dividends by the foreign company to shareholders thereof. In addition, this includes any distribution of dividends by the Company to the foreign company and the deduction of tax, in accordance with the provisions of this taxation decision.

	
  
	
3.10
	
The Trustee undertakes to report any transaction of the sale of allocated shares to obligated shareholders as well any sales transaction of transferred shares, including the sale to a relative of an obligated shareholder, from the date of the share transfer until the date of the full payment of tax ensuing from the share transfer, and this within 30 days of the date of the sales transaction.

	
  
	
As regards this matter, “Relative” – as defined in section 88 of the Ordinance.

	
  
	
3.11
	
The Trustee may not encumber the shares allocated to obligated shareholders and the transferred shares it holds in any manner whatsoever or use them and may not take any step signifying a sale of such shares and/or the rights by virtue thereof and/or the rights to acquire them, directly and/or indirectly, unless subject to the full payment of tax, as required, due to such rights and subject to the restrictions determined
in law.

	
  
	
3.12
	
With respect to this taxation decision, shares allocated by virtue of the transferred shares or the allocated shares shall also be deemed as transferred shares or allocated shares, as the case may be, inclusive of benefit shares, splits, issuing of rights, etc., allocated prior to the provision of this taxation decision or following thereafter.

	
  
	
3.13
	
The parties hereby agree that on the sale of transferred shares by the foreign company, the full tax required in respect of the sale shall be paid, as specified herein below:

 

 

 

	
  
	
3.13.1
	
The sale of transferred shares by the foreign company shall be deemed as if delivered by the company domiciled in Israel in accordance with Part V of the Ordinance, without any right of deduction, offset, exemption, spreading and credit, including credit regarding foreign tax, whatsoever.

	
  
	
3.13.2
	
The parties agree that notwithstanding the contents of the provisions of any law, the sale of the transferred shares by the foreign company shall be taxed in Israel even if the rate of foreign company holdings of the transferred rights shall be less than 10%.

	
  
	
3.13.3
	
The parties agree that in calculating capital profit from the sale of the transferred shares by the foreign company, with respect to the date of purchase and original price, the sale of the shares, as aforesaid, shall be made pro rata.

	
  
	
3.14
	
The parties agree that the sale of the allocated shares by the obligated shareholders requires the payment of full tax owing in respect of the sale, as specified herein below:

	
  
	
3.14.1
	
In respect of the sale of each share, full tax is to be paid in accordance with the provisions of Part V of the Ordinance.

	
  
	
3.14.2
	
The original price and date of purchase of the allocated shares shall be in accordance with and subject to the provisions of section 104 (f) of the Ordinance.

	
  
	
3.14.3
	
When calculating the capital profit ensuing from the sale of the allocated shares by the obligated shareholders, none of the following shall be given: credit, inclusive of credit for foreign tax, exemptions, nor any deduction whatsoever that failed to exist proximate to and prior to the share transfer.

	
  
	
3.14.4
	
It is hereby clarified that the tax obligation, as aforesaid, fails to establish that this is the final tax owing in respect of the sale of allocated shares by the obligated shareholders. This determination is under the authority of the assessing officer.

	
  
	
3.15
	
The parties agree that on distributing dividends from the Company to the foreign company, the Trustee shall deduct tax at source from the amount of the dividend divided by the rate determined in section 125B (5) of the Ordinance. Tax deduction at source, as aforesaid, shall be transmitted within 7 days to the assessing officer.

	
  
	
3.16
	
The parties further agree that on distributing dividends from the foreign company to obligated shareholders, derived from the dividend distributed from the Company to the foreign company and wherefore tax was deducted, as specified in sub-section 3.15 above, the obligated shareholders shall be required to pay tax in Israel, in accordance with the provisions of the Ordinance. When calculating the tax debt in respect
of the dividend, as aforesaid, no deduction, offset, exemption, spreading and credit shall be made or given, inclusive of credit for foreign tax, whatsoever, save for credit up to the amount of tax paid in Israel at the time of payment of the dividend from the Company to the foreign company, as a proportion of the sum of the dividend distributed by the foreign company to the obligated shareholders (the source whereof lies in the dividend distributed by the Company to the foreign company), to the sum of the dividend
distributed by the Company to the foreign company, as aforesaid. It is underscored that in any event, tax deducted at source by the Trustee, at the time of payment of the dividend by the Company to the foreign company, shall not be refunded, as aforesaid in sub-section 3.15 above.

 

 

 

	
  
	
3.17
	
It is hereby clarified that any payment the Company pays in any manner or by any means, directly or indirectly, to the foreign company as well as any payment the foreign company pays in any manner or by any means, directly or indirectly, to the obligated shareholders, save for a repayment of loans, shall be deemed the distribution of profits and shall be treated as a taxable dividend in Israel, in accordance with
the provisions of the Ordinance and in accordance with the provisions of this taxation decision. The provisions of this section shall not apply with respect to payments made during the ordinary course of business and at market price, as it was determined for parties who are not connected. For the avoidance of doubt, it is clarified that payments, as aforesaid, shall be subject to the assessment and authorization of the assessing officer.

	
  
	
3.18
	
It is hereby clarified that each of the obligated shareholders may sell up to 10% of the rights it holds in the foreign company or, with the agreement of the other obligated shareholders – a higher percentage – provided that the total rights in the foreign company being sold by obligated shareholders shall not exceed 10% of all obligated shareholder rights in the foreign company, as of the date of the
change in structure, subject to the contents determined in section 104D (b) of the Ordinance, mutatis mutandi.

	
  
	
3.19
	
The parties agree that concerning the application of this taxation decision, even if the residency of an obligated holder of rights has changed, this would fail to affect the obligation thereof to pay tax, as specified herein in this taxation decision, up to the full payment of tax in accordance with this taxation decision and the fulfillment of all undertakings specified herein.

	
  
	
3.20
	
The parties agree that with respect to the tax rate that applies to the sale of the allocated shares and/or the distribution of dividends by the foreign company, each of the obligated shareholders who, on the eve of the share transfer was a substantial shareholder in the Company, shall be deemed a substantial shareholder in the foreign company as well, pending the full sale of the allocated shares thereto.

	
  
	
On this matter, “a Substantial Shareholder” – as defined in section 88 of the Ordinance.

	
  
	
3.21
	
The parties agree that in the event that additional rights in the Company and/or the foreign company are acquired following the date of this taxation decision (hereinafter: “the Newly Acquired Rights”), by obligated shareholders or by the foreign company, as the case may be, the sale of rights in the companies, as aforesaid, shall be made pro rata,
that is, in each sale, the share of the newly acquired rights deemed as sold shall be proportional to the share of the rights held forthwith following the share transfer.

	
  
	
3.22
	
For the avoidance of doubt, it is hereby clarified that in the event the Company demands benefits in accordance with the Encouragement of Capital Investments Law, the Company shall not be deemed a company with capital investment as a result of the share transfer and the investors therein shall not be deemed foreign investors, for the purpose of the Encouragement of Capital Investments Law. It is hereby clarified
that should the Company in future be entitled to benefits by virtue of the Encouragement of Capital Investments Law, “the rate of foreign investment,” as defined in section 47 (A1) of the Encouragement of Capital Investments Law, shall be determined by the professional section of the Tax Authority in Israel.

 

 

 

	
  
	
3.23
	
For the avoidance of doubt, nothing stated in this taxation decision constitutes the making of an assessment and/or authorization of the facts you have presented. The facts presented, as aforesaid, may yet be verified by the assessing officer.

	
  
	
3.24
	
For the avoidance of doubt, nothing in this taxation decision constitutes authorization of the fulfillment of the conditions of section 104B of the Ordinance, a subject, which may yet be verified by the assessing officer.

	
  
	
3.25
	
For the avoidance of doubt, nothing in this taxation decision constitutes any authorization for a tax exemption according to the provisions of sections 97 (B1) or 97 (B3) of the Ordinance, a subject that may yet be verified by the assessing officer.

	
  
	
3.26
	
For the avoidance of doubt, nothing in this taxation decision constitutes any determination whatsoever regarding the residency of the shareholders in the Company, a subject that may yet be verified by the assessing officer.

	
  
	
3.27
	
The Company undertakes to include in the financial statements thereof and in the Tax Adjustment reports an explanation for the actual implementation of the change in structure. This explanation shall specify the conditions of this taxation decision. This requirement shall enter into force commencing with the first reports to be filed following receipt of this taxation
decision.

	
  
	
3.28
	
If it appears that any of the conditions determined in Part II of the Ordinance and/or any of the conditions specified herein in this taxation decision have failed to be fulfilled on time (hereinafter: “the Breach”), the provisions of section 104G of the Ordinance shall apply. The Trustee, the Company and the shareholders in the Company shall submit
to an assessing officer, within 30 days of the date of the breach, an assessment of the value of the shares being transferred for the date of the share transfer and the date of the breach.

	
  
	
3.29
	
This taxation decision is given based on representations and documents presented to us in writing and verbally, inclusive of those specified in this taxation decision and subject to the provisions determined in Part II of the Ordinance. This taxation decision shall be canceled retroactively if it appears that the information and facts delivered within the context of the application are significantly inaccurate or
incomplete or it becomes apparent that essential particulars specified failed to be fulfilled or conditions stipulated by the director in this taxation decision failed to be fulfilled.

	
  
	
3.30
	
It is hereby clarified that no expenses involved, directly and/or indirectly, in this change of structure shall be permitted for deduction, whether directly or indirectly, for the parties participating in the share transfer specified herein in this taxation decision and/or a party who is a relative thereto, inclusive of legal expenses, and costs of auditing, experts, consultants and other charges of various kinds,
as a deduction or as an expense, according to section 17 of the Ordinance.

 

 

 

	
  
	
3.31
	
The Trustee, the Company, the foreign company and the obligated shareholders in the Company undertake, jointly and severally, to authorize in writing to the Department of Mergers and Splits at the Tax Authority and to the assessing officer, within 30 days of the date of receiving this taxation decision, that they agree to accept all conditions of this taxation decision, word for word as written therein, with no reservations.
In the event that such authorization, as aforesaid, fails to be received on time, this taxation decision shall be deemed void retroactively.

 
1 Currently, the Company has one type of share granting equal rights to all shareholders.

  

  

  

 

Appendix A – Structure of Holdings Prior to the Share Transfer

and Following Thereafter

Structure of Holdings Prior to the Change in Structure:

    Shareholders in the Company

100%

     The Company

Structure of Holdings Following the Share Transfer:

    Shareholders in the Company

100%

  Foreign Company

100%

     The Company

  

  

  

 

Appendix B : List of Shareholders in the Company

Prior to the Share Transfer

	
No.
	
Name
	
I.D. / Private Co. / Passport

 
	
Country of residence
	
Relation to
	
No. of shares
	
No. of options
	
Date of Investment

 
	
Original Price

 
	
Percentage of Current Holdings

 
	
Percentage of Holdings Fully Diluted

 
	
Price per share
	
Holder of rights

Obl./not obl.

	
1. 
	
Dr. Israel Amirav
	
45140932
	
Israel
	  	
1,658
	
0
	
Feb. 5, 2001
	
NIS 1,658
	
5.12%
	
5.12%
	  	
Oblig.

	
2. 
	
Prof.David Groshar
	
81376060
	
Israel
	  	
1,222
	
0
	
Feb. 5, 2001
	
NIS 1,222
	
3.77%
	
3.77%
	  	
Oblig.

	
3. 
	
Assaf Halamish
	
050678796
	
Israel
	  	
3,533
	
0
	
Feb. 5, 2001
	
NIS 3,533
	
10.91%
	
10.91%
	  	
Oblig.

	
4. 
	
GPI
	
511664260
	
Israel
	  	
2,717
	
0
	
Jul. 30, 2002
	
NIS 610,555
	
8.39%
	
8.39%
	  	
Oblig.

	
5. 
	
Prof. Michael Newhouse
	
JW797870
	
Canada
	  	
870
	
0
	
Feb. 5, 2001
	
NIS 870
	
2.69%
	
2.69%
	  	
Not oblig.

	
6. 
	
Life Support
	
513331215
	
Israel
	  	
8,543
	
0
	
Apr. 4, 2004
	
$443,000
	
26.10%
	
26.10%
	  	
Oblig.

	
7. 
	
Ramport Finance
	
474849
	
BVI
	  	
3,530
	
0
	
Nov.27, 2005
	
$150,000
	
10.90%
	
10.90%
	  	
Oblig.

	
8. 
	
A.M. Maagal Marketing & Business Dev’t Ltd.
	
51265648-9
	
Israel
	  	
464
	
0
	
Apr. 4, 2004

 

May 15, 2008
	
$25,000

 

$164,000
	
1.43%
	
1.43%
	  	
Oblig.

	
9. 
	
Microdel
	
513577874
	
Israel
	  	
9,488
	
0
	
Apr. 26, 2009

Jun. 30, 2009
	
$228,000

$80,000
	
29.29%
	
29.29%
	  	
Oblig.

	
10. 
	
Orni Elad
	
004161238
	
Israel
	  	
193
	
0
	
To be issued prior to and proximate to the share transfer

 
	
NIS 193
	
0.60%
	
0.60%
	  	
Oblig.

	
11. 
	
Boaz Gruener
	
057931313
	
Israel
	  	
260
	
0
	
To be issued prior to and proximate to the share transfer

 
	
$40,000
	
0.80%
	
0.80%
	  	
Oblig.fs10901_x104-nair.htm

EXHIBIT 10.4 CURRENT SHAREHOLDERS AGREEMENT OF JULY 2009

 

AGREEMENT

Made and executed in Tel Aviv on the _____ day of __________________

Between:                                        Dr. Israel Amirav, I.D. 5140932-4 (hereinafter: “Dr. Amirav”)

The first party

And between:                                Prof. David Grusher, I.D. 1376060-8 (hereinafter: “Prof. Grusher”)

The second party

And between:                               Assaf Halamish, I.D. 050678796 (hereinafter: “Assaf”)

The third party

	
And between:
	
GPI Granot Development Enterprises Ltd., PC: 51-166426-0 (hereinafter: “GPI”)
	
 

The fourth party

	
And between:
	
Life Support Ltd., PC 513331915 (hereinafter: “Life Support”)

	
  
	
The fifth party

	
And between:
	
Ramport Ltd. _____________________((hereinafter: “Ramport”)

The sixth party

And between:                                Microdel Ltd., PC: 513577874 ((hereinafter: “Microdel”)

	
  
	
The seventh party

	
And between:
	
A.M. Maagal Ltd., PC: ____________((hereinafter: “Amado”)

The eighth party

All of the above mentioned parties, the first through the seventh (with the exception of Amado) shall be referred to hereinafter as the “Shareholders” or the “Current Shareholders”

WHEREAS

	
a.
	
Microdel is involved in mobilizing funds for the Babies’ Breath Co. Ltd., Private Co. 51-307694-3 (hereinafter: “the Company”) particularly by way of setting up a new company in the U.S. (hereinafter: “the Offered Company”) which shall hold all the share capital of the Company
and the shares whereof shall be registered for “over the counter” trading on the Nasdaq Stock Exchange in the United States. The source of the decisive majority of the funds of the offering is institutional bodies in the U.S., which will invest sums of money in the offered company that will serve to continue to finance the ongoing activity of the Company (hereinafter: “the Offering”).

 

1

 

	
b.
	
For the purpose of the Offering, the Articles of Incorporation of the Company must be changed so that all Company shares shall be shares of equal rights and the right of first refusal in the Articles of Incorporation of the Company must be updated so that it applies and obligates solely shareholders who hold at least 5% of the allocated capital of the Company.

	
c.
	
Within the context of the Offering procedure, all Company shareholders are to transfer all their shares in the Company to the Offered Company. And shares of equal rights are to be allotted to several private investors who are to invest in the Company together the sum of $150,000 (hereinafter: “the Private Investors”)
in order to meet the threshold demands of the Offering.

	
d.
	
The current Articles of Incorporation of the Company (hereinafter: “the Current Articles”) comprise three types of shares, all as specified in the current Articles of Incorporation.

	
e.
	
The parties agree to amend the Current Articles and at the shareholders’ General Meeting to pass a special resolution to amend the Articles so that all rights attached to Company shares shall be identical and to amend the section concerning the right of first refusal so that it applies and obligates solely shareholders who hold at least 5% of the allocated capital of the Company, all as specified herein in
this agreement.

	
f.
	
At the same time as the signature of this agreement, “A Pre-Offering Agreement” between Microdel and the Company has been signed (hereinafter: “the Pre-Offering Agreement”).

	
g.
	
The parties would like to preserve, to the extent possible and in the event that the offering fails to succeed, the rights between them concerning all that is connected to the rights to receive dividends in future from the Company, in the event of the failure of the Offering, so that they may remain as close as possible to the rights thereof pursuant to the current Articles in the event the Offering fails to succeed,
all as specified herein in this agreement and in accordance with the conditions and arrangements specified therein.

 

2

 

	
h.
	
The shares owing to Amado in the Company prior to the signature of this agreement are 564 ordinary C shares which have yet to be allocated to Amado in practice.

 

	
  
	
Accordingly, the parties have declared, agreed and stipulated as follows:

 

	
1.
	
Preamble and Interpretations

	
1.1
	
The preamble to this agreement constitutes an integral part thereof.

	
  
	
1.2
	
The section titles are solely for the sake of convenience and shall not be relied on in the interpretation or clarification of this agreement.

	
  
	
1.3
	
A definition given in this agreement in the plural shall have the same meaning also in the event that it appears in the singular and vice versa.

	
  
	
1.4
	
Unless otherwise stated explicitly, the terms in this agreement shall have the same meaning as the terms in the Pre-Offering Agreement.

 

2.           Definitions and Appendices

	
  
	
2.1
	
In this agreement, the following terms shall have the meaning specified alongside thereof insofar as this meaning fails to contradict the contents of matters or context thereof.

	
  
	
2.1.1
	
“Dollar, $” – A United States dollar. If the reference is to payment in dollars – the payment shall be performed in shekels according to the representative rate of the dollar publicized by the Bank of Israel and known on the date of actual payment.

	
  
	
2.12
	
“Future Dividends” – Dividends to be distributed by the Company in future if the Offering should fail.

 

3

 

	
  
	
2.1.3
	
“Attributed Future Dividends” – The total amount of dividends that the Company is to distribute from time to time to all current shareholders and/or the alternates thereof. (For example: If the Company decides to distribute dividends in any given year in the amount of $200,000 and the percentage of holdings of current
shareholders in the Company is 60%, then the sum of the attributed dividends with respect to the same distribution shall be $120,000.)

	
  
	
2.2
	
In the event of a conflict between the provisions of this agreement and one of the appendices thereof, the provisions of this agreement shall prevail.

	
  
	
2.3
	
The appendices attached hereto to this agreement shall constitute an integral part of the agreement.

 

3.           Percentage of Holdings of Current Shareholders in the Company

	
  
	
3.1
	
At the time of signing this agreement the holdings of the shareholders in the Company are as follows:

	
§  
	
Dr. Amirav                                                –
1,658 Type A ordinary shares

	
§  
	
Prof. Grusher                                           – 1,222 Type A ordinary
shares

	
§  
	
Assaf                                                      
   – 3,533 Type A ordinary shares

	
§  
	
GPI                                                         
   – 2,717 Type A ordinary shares

	
§  
	
Prof. M. Neuhouse                                      - 870 Type A shares

	
§  
	
Life Support                                              - 8,453 Type
A ordinary shares

	
§  
	
Ramport                                                    
- 1,765 Type A ordinary shares and

	
- 
	
 1,765 Type B shares

	
§  
	
Microdel                                                      
 - 187 Type A ordinary shares and 188 Type B shares (which constitute the “Unconditional Shares” as defined in the Pre-Offering Agreement)

	
§  
	
Amado                                                            -
564 Type C shares (which have yet to be allocated to Amado)

 

4

 

All holders of Type A ordinary shares shall be called together herein in this agreement “Holders of Ordinary A Shares” and all holders of Type B ordinary shares shall be called together herein in this agreement “Holders
of Ordinary B Shares.” This will be so even after all the shares of the Company become shares of the same type. The distribution between holders of ordinary A shares among themselves shall be according to the proportion of ordinary A shares that each of the shareholders held prior to the signature of this agreement in relation to all the ordinary A shares that were allocated and paid up prior to the signature of this agreement. The distribution between holders of ordinary B shares among themselves
shall be according to the proportion of ordinary B shares that each of the shareholders held prior to the signature of this agreement in relation to all the ordinary B shares allocated and paid up prior to the signature of this agreement.

	
  
	
3.2
	
According to the current Articles, the rights attached to the various shares are:

	
  
	
3.2.1
	
The rights attendant on Ordinary A Shares and Ordinary B Shares shall grant the holders thereof the following rights:

	
  
	
With respect to the distribution of dividends:

	
  
	
3.2.1.1
	
To receive dividends and participate in the distribution of Company revenues at a proportion of 60% for holders of Ordinary A Shares and 40% for holders of Ordinary B Shares, until all the holders of A shares receive the sum of $500,000.

	
  
	
3.2.1.2
	
Following the distribution of dividends of $500,000 to all holders of Ordinary A Shares, holders of Ordinary A Shares will not be entitled to receive any dividends until the holders of Ordinary B Shares receive dividends in the amount of the difference between the sum of the investment in cash and the sum of the dividend paid them by virtue of section 3.2.1.1 above, and they will be paid the sum of suppliers’
credit and the holders of Ordinary B Shares will be paid any other owners’ loan that they placed in favor of the Company. For the avoidance of doubt, it is clarified that the sum of dividends the holders of Ordinary B Shares will receive by virtue of combining the sums subject of sections 3.2.1.1 and 3.2.1.2 above together with the sum of suppliers’ credit that is refunded shall be equal to the sum of the comprehensive investment.

 

5

 

	
  
	
3.2.1.3
	
Following payment of the sums as aforesaid in section 3.2.1.2 above, all holders of Ordinary A shares shall be entitled to receive 60% “of the differential in Company profits” to be distributed during a period of 4 (four) years commencing on the date of payment of the final sum, according to section 3.2.1.2 above. In the event that during the aforesaid 4-year period, no profit that may be distributed
according to standard accounting rules, which accrued during the aforesaid 4-year period, are distributed (hereinafter: “the Undistributed Sum of Profits”), then the sum of the undistributed profits shall be distributed on the first date of dividend distribution at the Company in a division of 60% “of the differential of Company profits” to holders of Ordinary A Shares and 40%
to holders of Ordinary B Shares until the entire amount of undistributed profits is distributed, even if the distribution, as aforesaid, shall be subsequent to the 4-year period, as aforesaid.

	
  
	
“Company Profits Differential” signifies: all Company profits that are distributed as dividends with the deduction of the sums that are distributed as dividends to holders of Ordinary C Shares.

	
  
	
3.2.1.4
	
Following the occurrence of the aforesaid condition in subsection 3.2.1.3 above (including subsequent to the distribution of the sum of undistributed profits), the rights of the holders of Ordinary A Shares and the holders of Ordinary B Shares and the holders of Ordinary C Shares in relation to the right to receive dividends, shall be identical.

 

6

 

	
  
	
With respect to the remaining rights

	
  
	
3.2.1.5
	
Save with respect to the right to receive dividends as aforesaid, the rights attendant on the Ordinary A and B Shares shall be identical and shall grant the holders thereof the right to receive invitations and participate and vote at members’ meetings of the Company, the right to participate in receiving excess Company assets at the time of liquidation thereof and the right to receive face value of shares at
the time of liquidation thereof.

	
  
	
3.2.1.6
	
Whoever holds 5% or more or any group of holders of 5% (five percent) or more of the ordinary A and B share capital allotted by the Company shall be entitled to appoint one director to the Board of Directors of the Company, to dismiss any director who was appointed as aforesaid and to appoint another director in lieu thereof. A shareholder holding more than 5% as aforesaid may appoint one director by virtue of every
5% of ordinary A and B share capital allotted by the Company. The weight of each director’s vote shall be the relative weight of the number of ordinary A and/or B shares by virtue whereof he was appointed in relation to the total number of A and B shares allocated in the Company.

	
  
	
3.2.1.7
	
The supplementary rights for holders of ordinary C shares shall be solely to receive dividends and participate in Company profits, following payment of the sums aforesaid in section 3.1.2.2, in accordance with the relative share thereof in the total number of ordinary shares of the Company. Subsequent to the occurrence of the condition aforesaid in subsection 3.2.1.2 above, the supplementary rights to all the ordinary
shares, A, B and C, will be equal solely with respect to the distribution of dividends, subject to the priority given to holders of ordinary A shares as opposed to holders of ordinary B shares, according to subsection 3.2.1.3.

	
  
	
Apart from the aforesaid right (i.e., to participate in Company profits, as aforesaid), the ordinary C shares shall not grant the holder thereof any rights whatsoever – neither rights to vote at general meetings of shareholders nor rights to appoint directors to the Board of Directors of the Company and/or any other supplementary right.

 

7

 

4.           Agreement with Respect to the Distribution of Future Dividends

	
  
	
4.1
	
Current shareholders hereby give their agreement to vote at a general meeting of shareholders to pass a special resolution to amend the Articles of Incorporation of the Company so that all Company shares shall be shares of equal rights. Furthermore, current shareholders hereby agree irrevocably that in the event of the failure of the Offering, all attributed
future dividends shall be divided among them according to the principles in section 3.2.1 above so that each of the current shareholders and the alternates thereof shall receive a share in the attributed future dividends that reflects his portion and the type of shares he held at the time of signature of this agreement (i.e., prior to the Offering and prior to the amendment of the Articles of Incorporation of the Company). Thus, among the current shareholders, the provisions of section 3.2 above shall be read
with the following amendments specified herein below:

	
  
	
4.1.1.1
	
To receive dividends and participate in the distribution of attributed future dividends at a rate of 60% for holders of ordinary A shares and 40% for holders of ordinary B shares, until all holders of ordinary A shares shall receive the sum of $500,000.

	
  
	
4.1.1.2
	
Following the distribution of $500,000 of dividends from all the attributed future dividends to all holders of ordinary A shares, the ordinary A shares shall not be entitled to receive any dividends from the funds of the attributed future dividends until holders of ordinary B shares shall receive dividends in the amount of the difference between the sum of the investment in cash (i.e., $_______) and the sum of the
dividend paid them by virtue of section 4.1.1.1 above and shall be paid the sum of suppliers’ credit (i.e., the sum of $_______) and holders of ordinary B shares shall have any other loans from shareholders paid up, which they placed at the Company’s disposal (i.e., $_________). For the avoidance of doubt, it is clarified that the sum of the dividends that holders of ordinary B shares shall receive by virtue of combining the amounts subject of sections 4.1.1.1 and 4.1.1.2 above together with the sum
of suppliers’ credit to be refunded shall be equal to the sum of the comprehensive investment (i.e., $ ____________).

 

8

 

	
  
	
4.1.1.3
	
Following payment of the sums aforesaid in subsection 4.1.1.2, all holders of ordinary A shares shall be entitled to receive 60% of all attributed future dividends to be distributed during a period of four (4) years commencing on the date of payment of the final sum, pursuant to section 3.2.1.2 above. In the event that during the aforesaid 4-year period, no profits
that may be distributed according to standard accounting rules are distributed, which accrued during the aforesaid 4-year period (hereinafter: “the Sum of Undistributed Profits”), then the sum of undistributed profits shall be distributed on the first date of the distribution of dividends in the Company with a distribution
of 60% to holders of ordinary A shares and 40% to holders of ordinary B shares, until the entire sum of undistributed profits shall be distributed, even if the distribution, as aforesaid, shall take place following the 4-year period, as aforesaid.

	
  
	
“Company Profits Difference” signifies all attributed future dividends to be distributed with the deduction of the sums that will be distributed as dividends to holders of the other shares in the Company, who are not listed as current shareholders.

	
  
	
4.1.1.4
	
Following the occurrence of the condition aforesaid in subsection 4.1.1.3 (including after the distribution of the sum of undistributed profits), the rights of ordinary shareholders in the Company (including ordinary A and B shares) shall be the same in relation to the right to receive dividends.

 

9

 

	
  
	
4.2
	
If the Offering procedure fails, the parties shall give the Company an irrevocable instruction to divide the attributed future dividends among the current shareholders and the alternates thereof in accordance with the provisions of section 4.1.1 above. This section constitutes an irrevocable instruction to the Company to act in accordance with the provisions of section 4.1 above in the event of the failure of the
Offering. All current shareholders may contact the Company at any time and instruct it to act in accordance with the provisions of this section. In addition, the contents of this section shall apply with respect to any alternate of a current shareholder and current shareholders undertake to have anyone who comes in place thereof sign this agreement as a party thereto with respect to the shares being transferred. There shall be no validity to the transfer of shares in the Company of a current shareholder unless
the transferee shareholder has signed this agreement as a party thereto and as one who enters in place of the transferring shareholder, for the purposes of this agreement.

	
  
	
4.3
	
The parties are aware that if the Offering succeeds, then all Company shares shall be held by the offered company and the current shareholders shall hold shares in the offered company while all shares of the parties in the offered company shall be of equal rights. Accordingly, the current shareholders who hold ordinary A shares in this case waive their preferential right pursuant to the current Articles.

 

	
5.
	
Amendment of the Articles of Incorporation with Respect to the Right of First Refusal

	
  
	
Current shareholders hereby give their agreement to vote at a general meeting of shareholders to pass a special resolution to amend Regulation 32A of the Articles of Incorporation of the Company concerning the right of refusal of shareholders in the Company to purchase the shares of another member, so that this right shall obligate any shareholder to offer them first solely to whoever holds at least 5% of the allocated
capital of the Company such that the offerees pursuant to this regulation shall be solely holders of at least 5% of the allocated capital of the Company.

	
  
	
The text of the special resolution to amend Regulation 32A shall be signed at the same time as the signature of the Pre-Offering agreement.

 

10

 

	
6.
	
Lock-Up of Shares and Registration for Trade Rights

	
  
	
The parties agree that the Offering as defined above shall not obligate a shareholder to diverge from the two following principles:

	
  
	
6.1
	
All shareholders shall be subject to a contractual Lock-Up provision that applies to the shares thereof, which fails to exceed the lock-up period required by American law and the provisions of the Israeli Income Tax Ordinance as a result of the transfer of their shares in the Company to the offered company against receiving shares in the offered company. Each lock-up period or restriction beyond this with respect
to the shares of a current shareholder in the offered company shall require the advance written agreement thereof.

	
  
	
6.2
	
The shares of all current shareholders in the offered company shall benefit from the same “Registration for Trade Rights” as the shares to be allocated to institutional investors and to shareholders to whom Company shares will be allocated within the context of the Offering. Any variation from this principle with respect to shares of current shareholders in the offered company shall require the advance
written agreement thereof.

	
  
	
6.3
	
Notwithstanding the aforesaid, all current shareholders, save for Microdel, hereby undertake vis-à-vis GPI (hereinafter: “the Incubator”) as follows:

	
  
	
(1)
	
Insofar as there is a restriction on the registration of Incubator shares for trade and/or the sale thereof (such as the Lock-up period in American law) as a result of the Offering (insofar as it will be implemented), then the current shareholders shall instruct the Company to take steps so that the Incubator shares will be registered for trade at the first opportunity wherein the shares of the other shareholders
in the Company are registered following conclusion of the aforesaid restriction.

	
  
	
(2)
	
Notwithstanding the aforesaid in subsection (1), the current shareholders (save for Microdel) undertake vis-à-vis the Incubator that insofar as there will be a restriction on the number of shares that may be registered for trade within the confines of the Offering, which will preclude the registration of all current shareholders for trade, the current shareholders (with the exception of Microdel) shall waive
their right to register the relative share of their shares for trade and will allow the Incubator to register all the shares thereof for trade prior to the registration of their shares for trade. The waiver of the current shareholders (save for Microdel) strictly among themselves shall be relative to the percentage of holdings of the current shareholders (save for Microdel and the Incubator).

 

11

 

	
  
	
(3)
	
In the event that there is a restriction according to the Israeli tax laws on the sale of the shares of the current shareholders (i.e., a lock-up period which precludes the sale of shares) and it is not possible to be released from such restriction against the payment of the tax that the Incubator will be charged to pay or in the event the tax authorities in Israel demand that all current shareholders shall be subject
to restrictions it shall impose within the context of the “Early Authorization” procedure, without exception, without the possibility of the “release” of the Incubator from this demand (even “at the price” of its payment of the tax, a demand whereto the Incubator agrees), then despite the Incubator joining the  aforesaid arrangement with the Income Tax Authorities, the provisions of subsection (1) and (2) above shall apply in the event of the imposition of a restriction,
pursuant to the tax laws in Israel.

	
  
	
(4)
	
The agreement specified herein in this section above shall apply also in the event that the Offering is implemented by way of a different structure using the same Offering consultant, as aforesaid in section 10 of the Pre-Offering agreement between the Company and Microdel. Nonetheless, it shall not apply in the event that the Offering or the mobilization of capital is executed not by way of the Offering consultant,
as aforesaid, and/or anyone on behalf thereof and it shall not apply to any other offering that occurs in the event that the Offering, pursuant to this agreement, is not executed and the Company opts to undertake another offering procedure.

	
  
	
(5)
	
For the avoidance of doubt, the rights of the Incubator, pursuant to this section, shall apply also in the event that prior to the Offering, the Incubator transfers the shares thereof in the Company to a third party, subject to the provisions of the Articles of Incorporation of the Company. In such event, the third party transferee shall be entitled to rights pursuant to this section as a result of the implementation
of the Offering (insofar as it is implemented). However, the said rights shall expire in the event of the sale of the shares to a third party following the Offering.

	
7.
	
Temporary Right of Microdel to Appoint Two Directors and the Weight of their Votes

At the request of Microdel, the parties agree that Microdel shall appoint two directors to the Board of Directors of the Company as long as the Offering proceeding remains unaltered – Mr. Yossi De Levi and Mr. Alon Zifroni, notwithstanding the fact that according to the Articles of Incorporation of the Company, Microdel may not appoint
two directors. It is clarified that the weight of the votes of these two directors together shall be as the relative weight of the number of unconditional shares in relation to the entire number of shares allocated in the Company. If the Offering proceeding should fail, this right of Microdel shall expire of its own accord and forthwith, the directors on its behalf shall cease to serve as such and Microdel shall be able to appoint directors in accordance with the Articles of Incorporation of the Company. The
same is the rule in the event the Offering succeeds. In the event the Offering succeeds, this section shall expire and the appointment of the directors shall be in accordance with the Articles of Incorporation of the Company.

	
8.
	
Agreement to Restrictions to be Imposed by the Tax Authorities in Israel as a Condition to the Offering

	
  
	
It is hereby clarified that within the context of the tax arrangement pertaining to the transfer of shares of the shareholders in the Company to the offered company, prior to the Offering procedure, provisions that restrict the shareholders may be included, including a two-year restriction on the sale of shares in the offered company and a provision with respect to a trustee holding shares of shareholders in the
offered company, to be appointed on behalf thereof. The trustee shall be liable to pay the tax in the event of the sale of shares of current shareholders in the offered company. The current shareholders agree to take on, within the confines of the Offering procedure if it should succeed, the restrictions in the appendix indicated above (of a lock-up of shares and deposit with a trustee) and undertake to take steps to apply them insofar as the matter relates to shares held in the Company by each of the current
shareholders. The current shareholders further agree to transfer, within the confines of the Offering procedure, the shares thereof in the Company to the offered company, provided that they are allocated shares in the offered company at the same rate as the quantity of shares transferred, so that the percentage of holdings of the shareholders in the offered company is the same as the percentage of their holdings in the Company, prior to the transfer.

 

12

 

 

	
  
	
In Witness Whereof the Parties Have Signed:

	
____________________________
	
____________________________

	
Microdel
	
Life Support

	
____________________________
	
____________________________

	
Dr. Israel Amirav
	
Prof. David Grusher

	
____________________________
	
____________________________

	
Assaf Halamish
	
GPI Granot Development Enterprises Ltd.

	
____________________________
	
_____________________________

	
Prof. Michael Neuhouse
	
Ramport

	
  
	
_____________________________

	
  
	
A. A. Maagal Ltd. (Amado)

 

13

 

 

	
  
	
Company Authorization

The Company is aware of the agreement of the shareholders indicated above and undertakes to take steps to implement the provisions thereof with respect to all that pertains to the relations between current shareholders in connection with the registration rights for trade of the Company shares and the sale thereof as explained in the agreement
above.

	
  
	
_____________________________

	
  
	
Babies’ Breath Co. Ltd.

  

14

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