AIM Rule 26

Corporate governance

The Directors recognise the importance of sound corporate governance and confirm that, following Admission, they intend to comply as far as practicable, with the recommendations in the QCA Guidelines, which have become a widely recognised benchmark for corporate governance of small and mid-size quoted companies, particularly AIM companies. The Board also proposes to follow the UK Corporate Governance Code, to the extent they believe appropriate for a group of its nature and size. The Company has established Audit and Remuneration Committees of the Board with formally delegated duties and responsibilities and with specific terms of reference. From time to time separate committees may be set up by the Board to consider specific issues when the need arises. Due to the size of the Company, the Directors have decided that issues concerning the nomination of directors will be dealt with by the Board, rather than a committee but will regularly reconsider whether a nominations committee is required.

Board composition

The Board is entrusted with the responsibility for the overall management of the Company. The Board is required to meet at least four times a year, or more frequently as required, to review and monitor the Company’s operations. Matters specifically reserved to the Board for decision include matters relating to management structure and appointments, strategic and policy considerations, transactions and finance.

The independent Directors of the Company, namely Julia Hubbard and Iris Good, have confirmed that they are able to discharge their respective responsibilities as independent Directors of the Company and have undertaken to ensure that sufficient time and attention will be given to the Company’s affairs.

Audit committee
The Company has established a properly constituted audit remuneration committee of the Board with formally delegated duties and responsibilities.

The audit committee has primary responsibility for monitoring the quality of internal controls and ensuring that the financial performance of the Company is properly measured and reported on. It will receive and review reports from the Company’s management and auditors relating to the interim and annual accounts and the accounting and internal control systems in use throughout the Company. The audit committee will meet not less than twice in each financial year and will have unrestricted access to the Company’s auditors. Members of the audit committee are Julia Hubbard, who will act as chairman of the committee, Iris Good and Dennis Chen.

Remuneration committee

The Company has established a properly constituted remuneration committee of the Board with formally delegated duties and responsibilities.
The remuneration committee will review the performance of the Executive Directors and make recommendations to the Board on matters relating to their remuneration and terms of employment. The committee will also make recommendations to the Board on proposals for the granting of share options and other equity incentives pursuant to any share option scheme or equity incentive scheme in operation from time to time. The committee will meet as and when necessary to assess the suitability of candidates proposed for appointment by the Board. Members of the remuneration committee are Iris Good, who will act as chairman of the committee, Julia Hubbard and Dennis Hen.

Dividend Policy

The Company has not paid a dividend at any time since incorporation. The Company does not have any current intention to pay dividends as the Directors intend to utilise any available funds to invest in the growth of the Company. The Directors intend to retain a proportion of the Company’s future earnings, if any, to finance the continued growth and development of the Company’s business.

Internal controls

The Board is responsible for maintaining a sound system of internal control to safeguard shareholders’ investment and the Group’s assets and for reviewing its effectiveness. The Board reviews the effectiveness of the Group’s system of internal control on an ongoing basis. Annual budgets are prepared and detailed management reports and forecasts are presented to the Board and used to monitor financial performance and compliance with the Group’s policies and procedures. All controls are covered including financial and operational controls to manage risk. The Board meetings are also used to consider the Group’s major risks.

Israeli Law Requirements

In accordance with the Israeli Companies Law (Companies Law), the Company must always have at least two Outside Directors. The Outside Directors must meet certain statutory requirements of independence. The Company’s Outside Directors from Admission will be Dennis Hen and Julia Hubbard and Iris Good. The Board must also include at least one female independent director.

The term of office of an Outside Director is three years, which can be extended for two additional three year terms. Under the Companies Law, Outside Directors are elected by shareholders and approval of the election of an Outside Director must satisfy either of two additional tests:

  1. The shares voted in favour of the election must include at least a majority of the shares voted by shareholders other than Controlling Shareholders or shareholders who have a Personal Interest in the election of the Outside Director (excluding a Personal Interest that is not related to a relationship with the Controlling Shareholders); or
  2. The total number of shares held by non-Controlling Shareholders and shareholders without a Personal Interest in the election of the Outside Director (excluding a Personal Interest that is not related to a relationship with the Controlling Shareholders) that voted against the election of the Outside Director must not exceed 2% of the aggregate voting rights of the Company.

Subject to the provisions of the Companies Law, an Outside Director can only be removed from office (without his consent) in one or more of the following circumstances:

  1. by a competent court which, upon the application of the Company, a director, a shareholder or a creditor of the Company, orders termination of the office of that director because it has determined either that: (a) he is permanently unable to fulfil his functions; or (b) during his appointment he has been found guilty in a court outside of Israel of bribery, deceit, an offence of a manager of a corporate body or an offence involving the misuse of inside information;
  2. by a competent court which, upon the application of a director or shareholder of the Company, orders the termination of the office of that director because it has determined that he has ceased to fulfil one of the conditions required under the Companies Law for his appointment as an Outside Director or that he has breached his fiduciary duty to the Company; and
  3. by a shareholders’ resolution passed by the same majority required for the appointment of an Outside Director, provided that the Board has determined that either: (a) he no longer complies with the conditions set out by the Companies Law for the appointment of such a director; or (b) he has breached his fiduciary duty to the Company.

Any committee of the Board must include at least one Outside Director and the Audit Committee and Remuneration Committee must each include all of the Outside Directors (including one Outside Director serving as the chair of the Audit Committee and Remuneration Committee), and a majority of the members of each of the Audit Committee and Remuneration Committee must comply with the director independence requirements prescribed by the Companies Law.

At least one of the Outside Directors must have “accounting and financial expertise” and any other Outside Director must have “accounting and financial expertise” or “professional qualification,” as such terms are defined by regulations promulgated under the Companies Law.

The Audit Committee and the Remuneration Committee may not include the chairman of the Board, or any director employed by the Company, by a Controlling Shareholder or by any entity controlled by a Controlling Shareholder, or any director providing services to the Company, to a Controlling Shareholder or to any entity controlled by a Controlling Shareholder on a regular basis, or any director whose income is primarily dependent on a Controlling Shareholder, and may not include a Controlling Shareholder or any relatives of a Controlling Shareholder.

Individuals who are not permitted to be Audit Committee or Remuneration Committee members may not participate in the meeting of the committees other than to present a particular issue. However, an employee who is not a Controlling Shareholder or relative may participate in the committee’s discussions but not in any vote, and the Company’s legal counsel and secretary may participate in the committee’s discussions and attend the voting.

Anti-Bribery and Corruption Policy

The Board has adopted an Anti-Bribery and Corruption Statement, which is a high level statement by the Board committing the Company to carrying out its business fairly, openly and honestly and to preventing bribery and corruption by persons associated with the Company.

Share Trading Policy

The Company has adopted a Share Trading Policy for Directors, employees and their associates which is appropriate for a company whose shares are admitted to trading on AIM (in order to, inter alia, ensure compliance with Rule 21 of the AIM Rules for Companies). The Company will take all reasonable steps to ensure compliance with the terms of the Share Trading Policy by the Board and all other relevant persons.

Relations with shareholders

The Chief Executive and Finance Director meet with institutional investors within the confines of relevant legislation and guidance.

The Board invites communication from its private investors and encourages participation by them at the AGM.

Internal audit

The Board reviews from time to time the need for an internal audit function and remains of the opinion that the systems of internal financial control are appropriate for the Group’s present activities and that such a function is unnecessary.

The takeover code

The Company is not resident in the UK, Channel Islands or the Isle of Man and is therefore not subject to the UK Takeover Code.

Restrictions on the transfer of shares

Each of the Directors and Substantial Shareholders has agreed with of the Company, Grant Thornton and Hybridan not to dispose of any of their interests in Ordinary Shares held or acquired prior to the first anniversary of Admission, save in the limited circumstances.

In addition, the Directors and Substantial Shareholders have agreed that for 12 months following the date 12 months after Admission, not to dispose of their interests in the Ordinary Shares other than through Hybridan (or the Company’s broker from time to time), save in certain circumstances.

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