Debt and Warrants - The company took down a term loan of 5.0millioninFebruary2019and2.0 million in November 2019, with warrants issued for the purchase of 227,959 ordinary shares at an aggregate exercise price of 550,000[181]−Warrantsliabilityamountedto0.42 million as of December 31, 2022, compared to 1.62millionasofDecember31,2021[181]−ThecompanyutilizestheBlack−Scholesvaluationmodeltoestimatethefairvalueofwarrantliabilities,withsignificantassumptionsincludingvolatility[185]Share−BasedCompensation−Thecompanyelectedtorecognizeshare−basedcompensationcostsonastraight−linemethod,withthefairvalueofeachoptionawardestimatedusingtheBlack−Scholesoptionpricingmodel[183]−Share−basedcompensationexpenseforSeniorManagementanddirectorsin2022was2.24 million, compared to 387,000in2021[209]−OutstandingequityincentivesasofDecember31,2022include2,314,127optionsand204,907restrictedstockunitsataweighted−averageexercisepriceof5.66 per share[209] - Equity-based compensation for Senior Management vests over four years, while directors' compensation vests over three years[209] Emerging Growth Company Status - The company is classified as an "emerging growth company" and expects to continue taking advantage of the extended transition period for new or revised financial accounting standards[187] - The company's Post-Combination Company will remain an emerging growth company until the earliest of specific conditions, including achieving total annual gross revenue of 1.07billionormore[187]LeadershipandCompensation−Thecompany′sdirectorsandseniormanagementincludekeyfiguressuchasYairShamir,ChairmanoftheBoard,andKobiMarenko,ChiefExecutiveOfficerandDirector(co−founder)[187][188]−Thecompany′sdirectorshaveextensivebackgroundsintechnology,finance,andventurecapital,withnotableachievementsinvariousindustries[187][189][190][191][192][193][195]−AggregatecompensationfordirectorsandSeniorManagementin2022was4.53 million, including 411,000forpension,severance,andretirementbenefits[209]−CEOKobiMarenko′stotalcompensationfortheyearis513,987, including a base salary of 312,211,abonusof11,367, equity-based compensation of 166,965,andothercompensationof23,444[210] - CTO Noam Arkind's total compensation is 564,261,withabasesalaryof370,005, a bonus of 11,367,equity−basedcompensationof166,877, and other compensation of 16,012[210]−CBORamMachnessreceivesthehighesttotalcompensationat667,626, including a base salary of 274,319,abonusof60,000, equity-based compensation of 321,307,andothercompensationof12,000[210] - CFO Karine Pinto-Flomenboim's total compensation is 549,637,withabasesalaryof228,478, a bonus of 14,209,equity−basedcompensationof303,824, and other compensation of 3,126[210]−ChiefRadarOfficerGonenBarkan′stotalcompensationis470,138, including a base salary of 204,253,abonusof16,198, equity-based compensation of 236,263,andothercompensationof13,424[210] - Non-employee directors receive an annual compensation of 100,000plusVAT,withequity−basedcompensationvestingoverthreeyears[213]−Thecompany′sCompensationPolicycapsvariablecompensationcomponents(annualbonusandequity−basedcompensation)at8510 million in insurance coverage for its Office Holders, including directors and executive officers[219] - Indemnification agreements with Office Holders limit the maximum indemnification amount to the greater of 25% of shareholders' equity or $25 million[219] - The company provides maximum indemnity to its directors and Office Holders as permitted by the Israeli Companies Law, covering financial liabilities, litigation expenses, and reasonable attorney fees[263] - The company has entered into indemnification, insurance, and exculpation agreements with its directors and certain executive officers, ensuring coverage to the fullest extent permitted by law[263] - The company's Restated Articles allow it to exempt, indemnify, and insure Office Holders to the extent permitted by law, with current coverage under a directors and officers' liability insurance policy[263] Mergers and Acquisitions - Under Israeli law, a full tender offer is required if an acquirer aims to hold over 90% of the company's voting rights or share capital, with specific conditions for transfer and appraisal rights[268] - A special tender offer is mandatory under Israeli law if an acquisition would result in the purchaser holding 25% or more of the voting rights, or over 45% if no other shareholder holds more than 45%[269] - The company's board of directors must express an opinion on the advisability of a special tender offer or abstain with reasons, and Office Holders may face personal liability for actions impairing such offers[269] - Mergers under Israeli law require approval by the boards of directors and a majority of shareholders, with additional safeguards for creditors and specific timelines for completion[272] - The company may issue preferred shares with different rights, which could potentially frustrate takeovers or prevent shareholders from realizing a premium over market value[273] Taxation - Israeli corporate tax rate reduced from 25% to 24% effective January 1, 2017, and to 23% effective January 1, 2018[278] - Preferred Companies under the 2011 Amendment enjoy reduced corporate tax rates: 15% in 2011-2012, 12.5% in 2013, 16% in 2014-2016, and 16% in 2017 and thereafter[283] - Special Preferred Enterprises under the 2011 Amendment enjoy further reduced tax rates of 8% or 5% if located in a development zone[283] - Preferred Technological Enterprises under the 2017 Amendment enjoy a reduced corporate tax rate of 12%, or 7.5% if located in Development Zone A[284] - Special Preferred Technological Enterprises under the 2017 Amendment enjoy a reduced corporate tax rate of 6% regardless of location[284] - Dividends from Preferred Technological Income are generally subject to a 20% tax rate, or lower under applicable tax treaties[284] - Withholding tax rate for dividends to non-Israeli residents is 25%, or 30% for substantial shareholders[284] - Capital gains tax on sales of ordinary shares by non-Israeli residents may be exempt if shares were not held through a permanent establishment in Israel[286] - Inflationary surplus portion of capital gains is not subject to tax in Israel[285] - Research and development expenses may be deductible in the year incurred or over a three-year period, depending on approval[280] - Non-Israeli residents selling securities may be exempt from Israeli capital gains tax under applicable tax treaties, with specific conditions such as holding less than 10% voting power or not being present in Israel for 183 days or more[288] - Israeli resident corporations are subject to a 23% corporate tax rate on capital gains from the sale of shares in Israeli companies listed outside Israel[288] - Israeli resident individuals are subject to a 25% capital gains tax rate, which can increase to 30% for substantial shareholders or those claiming interest deductions[288] - Dividends received by Israeli resident individuals are taxed at 25% plus a 3% surtax, with a 30% rate plus surtax for substantial shareholders[289] - Non-Israeli residents receiving dividends are subject to a 25% withholding tax, which can be reduced to 12.5% for U.S. corporations holding 10% or more voting rights under the U.S.-Israel Tax Treaty[290] - Israeli institutions such as exempt trust funds and pension funds may be exempt from capital gains tax on the sale of shares[288] - Dividends distributed by Preferred Technology Enterprises or Special Preferred Technology Enterprises are subject to beneficial withholding tax rates[289][290] - Individuals subject to Israeli tax are also subject to a 3% surtax on annual income exceeding NIS 663,240 for 2022[291] - Israeli law does not impose estate or gift tax[292] - The company may be treated as a U.S. corporation for U.S. federal income tax purposes under Section 7874 of the Code if certain conditions are met[295] - Distributions on ordinary shares will be treated as dividends to the extent of current and accumulated earnings and profits, with any excess treated as a tax-free return of capital or gain from the sale of shares[298] - Dividends received by non-corporate U.S. Holders may qualify for lower capital gains tax rates if certain conditions are met, including holding period requirements and market tradability[298] - The company may not qualify for benefits under the U.S.-Israel income tax treaty, and ordinary shares may not be considered "readily tradable" on U.S. securities markets[298] - Dividends paid in foreign currency will be calculated in U.S. dollars based on the exchange rate at the time of receipt, potentially resulting in foreign currency gain or loss[298] - A U.S. Holder may recognize capital gain or loss on the sale, exchange, or redemption of ordinary shares or warrants, with long-term capital gains eligible for reduced tax rates[300] - The tax consequences of a cashless exercise of warrants are uncertain under current U.S. tax law, potentially resulting in tax-deferred treatment or taxable gain recognition[301] - The company may be classified as a Passive Foreign Investment Company (PFIC) for U.S. federal income tax purposes, which could result in adverse tax consequences for U.S. Holders[302] - If classified as a PFIC, U.S. Holders may be subject to excess distribution rules, with gains allocated over the holding period and taxed at the highest applicable rates[303] - The company's PFIC status is determined annually based on income and asset composition, with no assurance provided for 2022 or future taxable years[302] - U.S. Holders are urged to consult tax advisors regarding the application of PFIC rules and potential tax implications for their investments[303] - U.S. Holders may avoid taxation under excess distribution rules by making a timely and valid QEF election, but this requires the company to provide specific financial information annually[304] - If a U.S. Holder makes a QEF election, they must include their pro rata share of the company's ordinary earnings and net capital gains in their income, taxed as ordinary income and long-term capital gains respectively[304] - A U.S. Holder that does not make a QEF election or mark-to-market election will remain subject to the excess distribution rules[306] - A mark-to-market election allows U.S. Holders to include the excess of the fair market value of ordinary shares over their adjusted basis in income, with deductions allowed for the opposite scenario[306] - The mark-to-market election is only available for "marketable stock," which includes shares listed on Nasdaq, but there is no assurance that ordinary shares will qualify as "regularly traded"[306] - U.S. Holders of warrants cannot make a QEF or mark-to-market election, and any gain from selling warrants may be treated as an excess distribution[304] - A U.S. Holder that makes a QEF election for newly acquired ordinary shares after exercising warrants will have the QEF election apply to those shares, but excess distribution rules may still apply[304] - The QEF election is made on a shareholder-by-shareholder basis and can only be revoked with IRS consent[304] - U.S. Holders may be required to file IRS Form 8621 annually and provide additional information, with failure to do so extending the statute of limitations[306] - The PFIC rules, including QEF and mark-to-market elections, are complex and U.S. Holders are strongly encouraged to consult tax advisors[306]
Arbe Robotics .(ARBE)2023-03-21 16:00