DESCRIPTION OF SECURITIES
The following is a summary of some of the terms of our ordinary shares, based on our Articles of Association. In this section, “Articles of Association” refers to the Articles of Association of SuperCom in effect as of the date of this prospectus.
Share Capital ⸺ Our authorized share capital consists of 100,000,000 ordinary shares with a par value NIS 2.5 per share.
As of July 28, 2023, we had 6,010,054 ordinary shares issued and outstanding.
The authorized share capital may be increased or reduced (but not below the number of issued ordinary shares, deferred shares or preferred shares, as applicable) by a resolution approved by a simple majority of the votes of our shareholders cast at a general meeting (unless otherwise determined by the directors).
Articles of Association ⸺ Our affairs are governed by our Memorandum of Association and the Articles of Association, the Israeli Companies Law and the laws of Israel.
Issuance of Our Ordinary Shares ⸺ We may issue shares subject to the maximum authorized share capital contained in our Articles of Association (please see the section titled “Share Capital” above). Our Articles of Association authorize our directors to issue ordinary shares (subject to the maximum authorized but unissued share capital) at any time.
Repurchase of Our Ordinary Shares ⸺ Any share in our Company shall be deemed to be a redeemable share as and from the time of existence of an agreement or transaction between us and any person pursuant to which we will acquire a share or shares. Any acquisition by us of our shares other than a surrender for nil value shall constitute a redemption. No resolution (whether special or otherwise) is required to be passed to deem any share in the capital of our Company a redeemable share.
Under Israeli Companies Act, any redemption must be funded out of our distributable reserves or from the proceeds of a fresh issue of shares. Repurchased and redeemed shares may be cancelled or held as treasury shares.
Form and Transfer of Our Ordinary Shares ⸺ Subject to the Israeli Companies Act, any member may transfer all or any of his shares (of any class) by an instrument of transfer in the usual common form or in any other form which the Board may from time to time approve.
Liquidation Rights and Dissolution ⸺ On a return of capital on winding-up or otherwise (other than on conversion, redemption or purchase of ordinary shares), assets available for distribution among the holders of our ordinary shares shall be distributed among the holders thereof on a pro rata basis.
Merger ⸺ A merger of our Company with another company under the Israeli Companies Act must be approved at a general meeting of shareholders (or their equivalent) of each of the merging companies.
No Appraisal Rights ⸺ Under the Israeli Companies Act, our shareholders are not entitled to appraisal rights other than in connection with a completed tender offer.
Special Meeting of Shareholders ⸺ Pursuant to our Articles of Association, one or more of our shareholders holding at least five percent of our issued share capital and at least one percent of our shareholders' voting power, or one or more of our shareholders holding no less than five percent of our issued voting shares may require our board of directors to convene a special shareholder meeting.
General Meeting of Shareholders ⸺ General meetings of our shareholders will be held at a time and place as determined by our board of directors subject to each annual meeting having taken place no later than 15 months after the previous annual meeting, and no later than the end of the applicable calendar year. Shareholder meetings may be held within or outside Israel.
A copy of the notice of any general meeting shall be given at least twenty-one (21) days before the date of the proposed general meeting to our shareholders.
Voting Rights ⸺ Every shareholder entitled to attend, speak, ask questions and vote at a general meeting may appoint a proxy or proxies to attend, speak, ask questions and vote on behalf of the shareholder. Quorum is fixed by our Articles of Association, to consist of at least two shareholders present in person or by proxy entitled to exercise more than 33 1/3% of the voting rights of our issued ordinary shares.
Resolutions put to the vote of a meeting shall be decided on a poll, which shall be taken in such manner as the chairperson of the meeting directs. Subject to the provisions of our Articles of Association and any rights or restrictions attached to any shares, every shareholder of record present in person or by proxy shall have one vote for each share registered in his or her name.
Where the rights attaching to our shares are set out in our Articles of Association, any changes to these rights will need to be effected by way of a resolution (passed by our shareholders attending and voting at the general meeting holding majority of all votes properly cast at such general meeting) amending our Articles of Association. Additionally, the rights attaching to a particular class of shares may only be varied if a special resolution, passed at a separate meeting of the holders of that class, sanctions the variation.
Other matters to be decided upon by the shareholders require a majority vote of shareholders who, being so entitled, attend and vote at the meeting, unless the Israeli Companies Act or our Articles of Association require a higher majority.
Dividends ⸺ Our board of directors may from time to time pay such dividends as appear justified by our profits, provided that dividends may only be made out of our distributable reserves and if the dividend will not cause our net assets to fall below the aggregate of its called up share capital and undistributable reserves (as such terms are calculated in accordance with the Israeli Companies Act). Our board of directors may also recommend a dividend to be approved and declared by our shareholders at a general meeting.
Board of Directors ⸺ Under our Articles of Association, the number of Directors shall be not less than two nor more than ten.
Directors are eligible to stand for re-election at the relevant annual general meeting. Directors will hold office until the conclusion of the next annual meeting or until their earlier removal or resignation. However, if no directors are elected at an annual meeting, then the persons who served as directors immediately prior to the annual meeting shall be deemed reelected at the same meeting, and will continue to serve as directors unless otherwise determined by the annual meeting. There are no share ownership qualifications for directors. Meetings of our board of directors may be convened at such time and place as the directors determine. The quorum may be fixed by the directors and unless so fixed shall be a majority of the directors in office. The directors are not entitled to appoint alternates. Questions arising at a meeting of our board of directors are required to be decided by a simple majority of the directors present, with each director entitled to one vote. In the case of a tie vote, the chairperson of the meeting shall not have a second or casting vote. Our board of directors may pass resolutions without a meeting where such resolution is signed by all the directors.
Amendment of Articles of Association ⸺ Under the Israeli Companies Act, amendments to our Articles of Association require a special resolution to be passed by not less than majority of those shareholders entitled, attending and voting at the general meeting. Our Articles of Association may not be amended by resolution of directors, but the directors when issuing preference shares may fix the rights attaching to such shares.
On September 6, 2018 and October 26, 2018, through a two-stage closing process, the Company entered into a Senior Secured Credit Facility with affiliates of Fortress Investment Group LLC (“Fortress”) with an aggregate principal amount of up to $20,000,000 (the "Credit Facility").
In connection with the Credit Facility, the Investor received 2,500 warrants initially and an additional 7,500 warrants for amendments (the “Credit Facility Warrants”). The Credit Facility Warrants mature 7 years from the date of issuance, were set to be issued at a strike price at a premium to the then current market price.
As of December 31, 2020, the outstanding principal, including accrued interest, of the Credit Facility was $15,625 and the aggregate balance for these Subordinated Debt was $7,407.
On July 7, 2020, in connection with the Company's private placement consummated on such date, the Company issued 5-year warrants to purchase up to 237,000 of the Company's ordinary shares with an exercise price of $17 per share to certain institutional investors.
On March 31, 2023, we completed a registered direct offering with a single accredited institutional investor of an aggregate of 485,000 of its ordinary shares and 1,032,615 pre-funded warrants to purchase ordinary shares with an exercise price of $0.00001 per share, and concurrent private placement to such investor of our private 5-years warrants to purchase an aggregate of 1,517,615 of ordinary shares at an exercise price of $1.66 per share. As of July 28, 2023: (i) 157,000 pre-funded warrants to purchase ordinary shares with an exercise price of $0.00001 per share remain unexercised, and (ii) 5-years warrants to purchase an aggregate of 1,517,615 of ordinary shares at an exercise price of $1.66 per share remain unexercised.
In 2003, we adopted the SuperCom Ltd. 2003 Israeli Share Option Plan, a stock option plan under which we now issue stock options, or the Option Plan. The Option Plan is intended to provide incentives to our employees, officers, directors and/or consultants by providing them with the opportunity to purchase our ordinary shares. The Option Plan is subject to the provisions of the Companies Law, administered by the audit committee, and is designed: (i) to comply with Section 102 of the Israeli Tax Ordinance or any provision which may amend or replace it and the rules promulgated thereunder and to enable us and grantees thereunder to benefit from Section 102 of the Israeli Tax Ordinance and the Commissioner’s Rules; and (ii) to enable us to grant options and issue shares outside the context of Section 102 of the Israeli Tax Ordinance. Options granted under the Option Plan will become exercisable ratably over a period of three to five years or immediately in certain circumstances, commencing with the date of grant. The options generally expire no later than 10 years from the date of grant. Any options that are forfeited or canceled before expiration become available for future grants. As of December 31, 2022, 213,597 options were exercisable and 811,050 options were outstanding.
As a result of an amendment to Section 102 of the Israeli Tax Ordinance as part of the 2003 Israeli tax reform, and pursuant to an election made by us thereunder, capital gains derived by optionees arising from the sale of shares issued pursuant to the exercise of options granted to them under Section 102 after January 1, 2003 will generally be subject to a flat capital gains tax rate of 25%. However, as a result of this election, we will no longer be allowed to claim as an expense for tax purposes the amounts credited to such employees as a benefit when the related capital gains tax is payable by them, as we had previously been entitled to do under Section 102.
On June 27, 2007, our Compensation Committee and the board of directors approved a new option plan under which we may grant stock options to our U.S. employees and our subsidiaries. Under this option plan, we may grant both qualified (for preferential tax treatment) and non-qualified stock options. On August 15, 2007, this option plan was approved by our shareholders at the general shareholders meeting.
In June 2013, the Option plan was extended for another period of 10 years, until December 31, 2023.
As of December 31, 2022, we had outstanding options to purchase 811,050 ordinary shares at a weighted average exercise price of $3.58, of which 213,597 options were exercisable.
Our ordinary shares are currently listed on Nasdaq under the symbol SPCB.
Transfer Agent and Registrar
The registrar and transfer agent in respect of the ordinary shares is American Stock Transfer & Trust Company, LLC.
DESCRIPTION OF
SECURITIES WE ARE OFFERING
We are offering Units, each Unit consisting of one ordinary share and one Warrant to subscribe for one ordinary share each. We are also offering to each purchaser whose purchase of ordinary shares in this offering would otherwise result in the purchaser, together with its affiliates, beneficially owning more than 4.99% (or, at the election of the holder, 9.99%) of our outstanding ordinary shares immediately following the consummation of this offering, the opportunity to purchase, if the purchaser so chooses, Units containing Pre-Funded Warrants in lieu of ordinary shares that would otherwise result in the purchaser’s beneficial ownership exceeding 4.99% (or, at the election of the holder, 9.99%) of our outstanding ordinary shares. For each Pre-Funded Warrant issued (without regard to any limitation on exercise set forth therein), the number of ordinary shares we are offering will be decreased on a one-for-one basis. Because one Warrant is being sold together in this offering with each ordinary share or, in the alternative, each Pre-Funded Warrant to subscribe for one ordinary share, the number of Warrants sold in this offering will not change as a result of a change in the mix of the ordinary shares and Pre-Funded Warrants sold.
We are also registering the ordinary shares issuable from time to time upon exercise of the Warrants and Pre-Funded Warrants included in the Units offered hereby. Our Units have no stand-alone rights and will not be certificated or issued as stand-alone securities. The ordinary shares (or Pre-Funded Warrants) and the Warrants comprising our Units are immediately separable and will be issued separately in this offering.
The following summary of certain terms and provisions of the Pre-Funded Warrants and Warrants offered hereby is not complete and is subject to, and qualified in its entirety by the provisions of the form of Pre-Funded Warrant, and the form of Warrant, which are filed as exhibits to the registration statement of which this prospectus forms a part. Prospective investors should carefully review the terms and provisions set forth in the form of Pre-Funded Warrant and the form of Warrant.
Exercisability. The Pre-Funded Warrants are exercisable at any time after their original issuance until they are exercised in full. The Warrants are exercisable at any time after their original issuance up to the date that is five years after their original issuance. Each of the Warrants and the Pre-Funded Warrants will be exercisable, at the option of each holder, in whole or in part by delivering to us a duly executed exercise notice and, at any time a registration statement registering the issuance of the ordinary shares underlying the Warrants or Pre-Funded Warrants under the Securities Act of 1933, as amended (the “Securities Act”), is effective and available for the issuance of such shares, or an exemption from registration under the Securities Act is available for the issuance of such shares, by payment in full in immediately available funds for the number of ordinary shares subscribed for upon such exercise. If a registration statement registering the issuance of the ordinary shares underlying the Warrants or Pre-Funded Warrants under the Securities Act is not effective or available, the holder may, in its sole discretion, elect to exercise the Warrant or Pre-Funded Warrant through a cashless exercise, in which case the holder would receive upon such exercise the net number of ordinary shares determined according to the formula set forth in the Warrant or Pre-Funded Warrant provided a price of $0.00001 per share must be paid in respect of each ordinary share. No fractional ordinary shares will be issued in connection with the exercise of a Warrant or Pre-Funded Warrant. In lieu of fractional shares, we will pay the holder an amount in cash equal to the fractional amount multiplied by the exercise price.
Exercise Limitation. A holder will not have the right to exercise any portion of the Pre-Funded Warrants or Warrants if the holder (together with its affiliates) would beneficially own in excess of 4.99% (or, upon election by a holder prior to the issuance of any Warrants, 9.99%) of the number of shares of our ordinary shares outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the Warrants. However, any holder may increase or decrease such percentage to any other percentage not in excess of 9.99%, upon at least 61 days’ prior notice from the holder to us with respect to any increase in such percentage.
Exercise Price. The non pre-funded exercise price for the Pre-Funded Warrants is $0.00001 per share. The exercise price per whole ordinary issuable upon exercise of the Warrants is $0.85 per share (not less than the nominal value of such share, being $0.00001 per share as at the date hereof). The exercise price of the Warrants may also be reduced to any amount and for any period of time at the sole discretion of our Board of Directors. The exercise price and number of ordinary shares issuable upon exercise will adjust in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications, dilutive issuances or similar events affecting our ordinary shares.
Transferability. Subject to applicable laws, the Warrants and the Pre-Funded Warrants may be offered for sale, sold, transferred or assigned without our consent.
Exchange Listing. We do not intend to apply for the listing of the Warrants or Pre-Funded Warrants offered in this offering on any stock exchange. Without an active trading market, the liquidity of the Warrants and the Pre-Funded Warrants will be limited.
Rights as a Shareholder. Except as otherwise provided in the Warrants or the Pre-Funded Warrants or by virtue of such holder’s ownership of our ordinary shares, the holder of a Warrant or Pre-Funded Warrant does not have the rights or privileges of a holder of our ordinary shares, including any voting rights, until the holder exercises the Warrant.
Fundamental Transactions. In the event of a fundamental transaction, as described in the Warrants and the Pre-Funded Warrants and generally including, with certain exceptions, any reorganization, recapitalization or reclassification of our ordinary shares, the sale, transfer or other disposition of all or substantially all of our properties or assets, our consolidation or merger with or into another person, the acquisition of more than 50% of our outstanding ordinary shares, or any person or group becoming the beneficial owner of 50% of the voting power represented by our outstanding ordinary shares, the holders of the Warrants and the Pre-Funded Warrants will be entitled to receive upon exercise of the Warrants the kind and amount of securities, cash or other property that the holders would have received had they exercised the Warrants immediately prior to such fundamental transaction. Additionally, as more fully described in the Warrant, in the event of certain fundamental transactions, the holders of the Warrants will be entitled to receive consideration in an amount equal to the Black Scholes value of the Warrants on the date of consummation of such transaction.
Waivers and Amendments. The warrants may be modified or amended or the provisions of such warrants waived with our consent and the consent of the holders of at least a majority of the outstanding warrants.
Governing Law. The Pre-Funded Warrants and the Warrants are governed by New York law.
U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of United States federal income tax considerations generally applicable to U.S. Holders (as defined below) of acquiring, owning and disposing of our Units (each consisting of one ordinary share or Pre-Funded Warrant and one Warrant) (which units or components thereof we sometimes refer to as our “securities” and holders thereof as “security holders”). This discussion addresses only those security holders that hold their securities as a capital asset within the meaning of Section 1221 of the U.S. Internal Revenue Code of 1986, as amended (the “Code”) (generally, property held for investment). Because the ordinary share or Pre-Funded Warrant and Warrant components of a Unit are generally separable at the option of the holder, the holder of a Unit generally should be treated, for United States federal income tax purposes, as the owner of the underlying ordinary share or Pre-Funded Warrant and Warrant components. As a result, the discussion below with respect to holders of ordinary shares or Pre-Funded Warrants and Warrants should also apply to holders of Units (as the deemed owners of the underlying components that constitute the Units).
This discussion is a summary only and does not discuss all aspects of U.S. federal income taxation that may be relevant to holders in light of their particular circumstances or status including:
| • | financial institutions or financial services entities; |
| • | taxpayers that are subject to the mark-to-market accounting rules; |
| • | governments or agencies or instrumentalities thereof; |
| • | banks, insurance companies, and certain other financial institutions; |
| • | regulated investment companies or real estate investment trusts; |
| • | dealers or traders in securities, commodities or currencies; |
| • | persons subject to the alternative minimum tax; |
| • | expatriates and former citizens or long-term residents of the United States; |
| • | persons that actually or constructively own five percent or more of our voting shares; |
| • | persons that acquired our securities pursuant to an exercise of employee share options, in connection with employee share incentive plans or otherwise as compensation; |
| • | persons that hold our securities as part of a straddle, constructive sale, hedging, conversion or other integrated or similar transaction; |
| • | persons subject to special tax accounting rules under Section 451(b) of the Code; |
| • | passive foreign investment companies (“PFICs”) and corporations that accumulate earnings to avoid U.S. federal income tax; |
| • | Controlled foreign corporations or U.S. shareholders of controlled foreign corporations, as those terms are defined in Sections 951(b) and 957(a) of the Code, respectively; |
| • | S corporations, partnerships or other entities or arrangements treated as partnerships or other flow-through entities for U.S. federal income tax purposes (and investors therein); |
| • | tax-qualified retirement plans, individual retirement accounts, or other tax-deferred accounts; or |
| • | persons whose functional currency is not the U.S. dollar. |
This discussion is based on provisions of the Code, proposed, temporary and final U.S. Treasury Regulations promulgated under the Code, judicial decisions and published rulings and administrative interpretations thereof, all as in effect on the date hereof and all of which are subject to differing interpretations or change, which change could apply retroactively and could affect the tax considerations described herein.
This discussion does not address U.S. federal taxes other than those pertaining to U.S. federal income taxation (such as estate or gift taxes, the alternative minimum tax or the Medicare tax on investment income), nor does it address any aspects of U.S. state or local or non-U.S. taxation.
This discussion does not consider the tax treatment of partnerships or other pass-through entities or persons who hold our securities through such entities. If a partnership (or any entity or arrangement so characterized for U.S. federal income tax purposes) holds our securities, the tax treatment of such partnership and a person treated as a partner of such partnership will generally depend on the status of the partner and the activities of the partnership. Partnerships holding our securities and persons that are treated as partners of such partnerships should consult their tax advisors as to the particular U.S. federal income tax consequences of acquiring, owning and disposing of our securities.
Except where otherwise noted, this discussion assumes that, and we believe that, we are properly treated as a foreign corporation that is not, and will not become, a passive foreign investment company, or a PFIC, as described below.
THIS SUMMARY IS FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT PURPORT TO BE A COMPREHENSIVE ANALYSIS OR DESCRIPTION OF ALL POTENTIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF ACQUIRING, OWNING AND DISPOSING OF OUR SECURITIES. EACH HOLDER SHOULD CONSULT ITS OWN TAX ADVISOR WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO SUCH HOLDER OF ACQUIRING, OWNING AND DISPOSING OF OUR SECURITIES, INCLUDING THE EFFECTS OF U.S. FEDERAL, STATE AND LOCAL AND NON-U.S. TAX LAWS.
As used herein, a “U.S. Holder” is a beneficial owner of our securities who or that is, for U.S. federal income tax purposes:
| • | an individual citizen or resident of the United States, |
| • | a corporation (or other entity that is treated as a corporation for U.S. federal income tax purposes) that is created or organized (or treated as created or organized) in or under the laws of the United States or any state thereof or the District of Columbia, |
| • | an estate whose income is subject to U.S. federal income tax regardless of its source, or |
| • | a trust if (1) a U.S. court can exercise primary supervision over the administration of such trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (2) it has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person for U.S. federal income tax purposes. |
Allocation of Purchase Price and Characterization of a Unit
No statutory, administrative or judicial authority directly addresses the treatment of a unit or instruments similar to a unit for United States federal income tax purposes, and therefore, that treatment is not entirely clear. The acquisition of a unit should be treated for United States federal income tax purposes as the acquisition of one of our ordinary shares or Pre-Funded Warrants, as applicable, and one Warrant. We intend to treat the acquisition of a unit in this manner and, by purchasing a unit, you must adopt such treatment for tax purposes. For United States federal income tax purposes, each holder of a unit must allocate the purchase price paid by such holder for such unit between the ordinary share or Pre-Funded Warrant, as applicable, and the Warrants based on the relative fair market value of each at the time of issuance. The price allocated to each ordinary share or Pre-Funded Warrant and Warrants should be the shareholder’s tax basis in such ordinary share or Pre-Funded Warrant and Warrants. Any disposition of a unit should be treated for United States federal income tax purposes as a disposition of the ordinary share or Pre-Funded Warrant, as applicable, and the Warrants comprising the unit, and the amount realized on the disposition should be allocated between the ordinary share or Pre-Funded Warrant, as applicable, and the Warrants based on their respective relative fair market values. The separation of the ordinary share or Pre-Funded Warrant and the Warrants constituting a unit should not be a taxable event for United States federal income tax purposes.
The foregoing treatment of the unit and a holder’s purchase price allocation are not binding on the IRS or the courts. Because there are no authorities that directly address instruments that are similar to the units, no assurance can be given that the IRS or the courts will agree with the characterization described above or the discussion below. Accordingly, each prospective investor is urged to consult its own tax advisor regarding the tax consequences of an investment in a unit (including alternative characterizations of a unit). The balance of this discussion assumes that the characterization of the units described above is respected for United States federal income tax purposes.
Income Tax Treatment of Pre-funded Warrants
Although not entirely free from doubt, a Pre-Funded Warrant should be treated as an ordinary share for U.S. federal income tax purposes and a holder of Pre-Funded Warrants therefore should generally be taxed in the same manner as a holder of an ordinary share, as described below. Accordingly, no gain or loss should be recognized upon the exercise of a Pre-Funded Warrant and, upon exercise, the holding period of a Pre-Funded Warrant should carry over to the ordinary share received. Similarly, the tax basis of the Pre-Funded Warrant should carry over to the ordinary share received upon exercise, increased by the exercise price of $0.00001 per share. Each prospective investor is urged to consult its tax advisors regarding the tax risks associated with the acquisition of Pre-Funded Warrants pursuant to this offering (including potential alternative characterizations). The balance of this discussion generally assumes that the characterization described above is respected for U.S. federal income tax purposes and the discussion below, to the extent it pertains to ordinary shares, is generally intended also to pertain to Pre-Funded Warrants.
U.S. Federal Income Tax Considerations of Owning Ordinary Shares and Warrants
Taxation of Dividends and Other Distributions on Ordinary Shares
Subject to the discussion of the PFIC rules discussed below, if SuperCom makes a distribution of cash or other property to a U.S. Holder of ordinary shares, such distributions will generally be treated as a dividend for U.S. federal income tax purposes to the extent the distribution is paid out of SuperCom’s current or accumulated earnings and profits (as determined under U.S. federal income tax principles). Such dividends will be taxable to a corporate U.S. Holder at regular rates and will not be eligible for the dividends-received deduction generally allowed to domestic corporations in respect of dividends received from other domestic corporations.
Distributions in excess of such earnings and profits will generally be applied against and reduce the U.S. Holder’s basis in its ordinary shares (but not below zero) and, to the extent in excess of such basis, will be treated as gain from the sale or exchange of such ordinary shares.
With respect to non-corporate U.S. Holders, dividends will generally be taxed at preferential long-term capital gains rates only if (i) ordinary shares are readily tradable on an established securities market in the United States or (ii) if SuperCom is eligible for the benefits of the income tax treaty between the United States and Israel (the “Tax Treaty”), in each case provided that SuperCom is not treated as a PFIC at the time the dividend was paid or in the previous year and certain other requirements are met. Although the ordinary shares are listed on NASDAQ, there can be no assurances that SuperCom will be or remain eligible for benefits of the Tax Treaty or that the ordinary shares will be considered readily tradeable on an established securities market in the United States in future years. U.S. Holders should consult their tax advisors regarding the availability of the lower rate for any dividends paid with respect to our ordinary shares.
Subject to certain conditions and limitations (including, that any reduction in withholding available to the U.S. holder under the Tax Treaty have been claimed), non-refundable foreign “covered withholding taxes”, if any, on dividends paid on ordinary shares may be treated as foreign taxes eligible for a credit against a U.S. Holder’s U.S. federal income tax liability under the U.S. foreign tax credit rules. Dividends paid by SuperCom generally will constitute foreign source income for foreign tax credit limitation purposes. If such dividends are qualified dividend income (as discussed above), the amount of the dividend taken into account for purposes of calculating the foreign tax credit limitation will be limited to the gross amount of the dividend, multiplied by a fraction, the numerator of which is the reduced rate applicable to qualified dividend income and the denominator of which is the highest rate of tax normally applicable to dividends. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends distributed by SuperCom with respect to the ordinary shares generally will constitute “passive category income” but could, in the case of certain U.S. Holders, constitute “general category income.” The rules governing the U.S. foreign tax credit are complex and U.S. Holders should consult their tax advisors regarding the availability of the U.S. foreign tax credit under their particular circumstances.
A holder of a Pre-Funded Warrant should consult its tax advisor regarding the tax treatment of any distribution with respect to such Pre-Funded Warrant that is held in abeyance in connection with any applicable Beneficial Ownership Limitation.
Taxation on the Disposition of Securities
Subject to the PFIC rules discussed below, upon a sale or other taxable disposition of our securities, a U.S. Holder will generally recognize capital gain or loss. The amount of gain or loss recognized will generally be equal to the difference between (i) the sum of the amount of cash and the fair market value of any property received in such disposition (or, if the ordinary shares, Pre-Funded Warrants or Warrants are held as part of units at the time of the disposition, the portion of the amount realized on such disposition that is allocated to the ordinary shares, Pre-Funded Warrants or Warrants based upon the then fair market values of the ordinary shares or Pre-Funded Warrants and Warrants included in the units) and (ii) the U.S. Holder’s adjusted tax basis in its securities. A U.S. Holder’s adjusted tax basis in its ordinary shares or Pre-Funded Warrants and unexercised Warrants generally will equal the U.S. Holder’s acquisition cost (that is, the portion of the purchase price of a unit allocated to an ordinary share, Pre-Funded Warrant or Warrant, as described above under “—Allocation of Purchase Price and Characterization of a Unit”) reduced by any prior distributions treated as a return of capital. See “—Exercise, Lapse or Redemption of a Warrant” below for a discussion regarding a U.S. Holder’s basis in an ordinary share acquired pursuant to the exercise of a Warrant.
Under tax law currently in effect, long-term capital gains recognized by non-corporate U.S. Holders are generally subject to U.S. federal income tax at a reduced rate of tax. Capital gain or loss will constitute long-term capital gain or loss if the U.S. Holder’s holding period for the ordinary shares or Warrants exceeds one year. The deductibility of capital losses is subject to various limitations.
Any such gain or loss recognized generally will be treated as U.S. source gain or loss. Accordingly, in the event any non-U.S. tax (including “covered withholding tax”) is imposed upon such sale or other disposition, a U.S. Holder may not be able to utilize foreign tax credits unless such tax meets specific regulatory requirements and such U.S. Holder has foreign source income or gain in the same category from other sources. Moreover, there are special rules under the Tax Treaty, which may impact a U.S. Holder’s ability to claim a foreign tax credit. U.S. Holders are urged to consult their own tax advisors regarding the ability to claim a foreign tax credit and the application of the Tax Treaty to such U.S. Holder’s particular circumstances.
Exercise or Lapse of a Warrant
Subject to the PFIC rules discussed below and except as discussed below with respect to the cashless exercise of a Warrant, a U.S. Holder will generally not recognize gain or loss upon the exercise of a Warrant for cash. An ordinary share subscribed for pursuant to the exercise of a Warrant for cash will generally have a tax basis equal to the U.S. Holder’s tax basis in the Warrant (that is, the portion of the U.S. Holder’s purchase price for the units that is allocated to the Warrant, as described above under “—Allocation of Purchase Price and Characterization of a Unit”), increased by the amount paid to exercise the Warrant.
It is unclear whether a U.S. Holder’s holding period for the ordinary share will commence on the date of exercise of the Warrant or the day following the date of exercise of the Warrant; in either case, the holding period will not include the period during which the U.S. Holder held the Warrant. If a Warrant is allowed to lapse unexercised, a U.S. Holder will generally recognize a capital loss equal to such holder’s tax basis in the Warrant.
Because of the absence of authority specifically addressing the treatment of a cashless exercise of Warrants under U.S. federal income tax law, the treatment of such a cashless exercise is unclear. A cashless exercise may be tax-free, either because the exercise is not a realization event or because the exercise is treated as a recapitalization for U.S. federal income tax purposes. Alternatively, a cashless exercise could be treated as a taxable exchange in which gain or loss would be recognized.
In either tax-free situation, a U.S. Holder’s tax basis in the ordinary shares received would generally equal the U.S. Holder’s tax basis in the Warrants. If a cashless exercise is not treated as a realization event, it is unclear whether a U.S. Holder’s holding period for the ordinary shares received on exercise will be treated as commencing on the date of exercise of the Warrant or the following day. If a cashless exercise is treated as a recapitalization, the holding period of the ordinary shares received will include the holding period of the Warrants.
If a cashless exercise is treated as a taxable exchange, a U.S. Holder could be deemed to have surrendered Warrants with an aggregate fair market value equal to the exercise price for the total number of Warrants to be exercised. In this case, the U.S. Holder would recognize capital gain or loss in an amount equal to the difference between the fair market value of the Warrants deemed surrendered and the U.S. Holder’s tax basis in such Warrants. A U.S. Holder’s tax basis in the ordinary shares received would equal the sum of the U.S. Holder’s initial investment in the Warrants exercised (i.e., the U.S. Holder’s purchase price for the Warrant (or the portion of such U.S. Holder’s purchase price for units that is allocated to the Warrant) and the exercise price of such Warrants). It is unclear whether a U.S. Holder’s holding period for the ordinary shares would commence on the date of exercise of the Warrant or the day following the date of exercise of the Warrant.
SuperCom expects a U.S. Holder’s cashless exercise of Warrants to be treated as a recapitalization for U.S. federal income tax purposes. However, there can be no assurance which, if any, of the alternative tax consequences and holding periods described above would be adopted by the IRS or a court of law. Accordingly, U.S. Holders should consult their tax advisors regarding the tax consequences of a cashless exercise.
Possible Constructive Distributions
The terms of each Warrant provide for an adjustment to the number of ordinary shares for which the Warrant may be exercised or to the exercise price of the Warrant in certain events, as discussed under “Description of Securities.” An adjustment which has the effect of preventing dilution generally is not taxable. A U.S. Holder of a Warrant would, however, be treated as receiving a constructive distribution from us if, for example, the adjustment increases the holder’s proportionate interest in our assets or earnings and profits (for instance, through an increase in the number of ordinary shares that would be obtained upon exercise of such Warrant) as a result of a distribution of cash or other property such as other securities to the holders of the ordinary shares which is taxable to the U.S. Holders of such shares as described under “-Taxation of Dividends and Other Distributions on Ordinary Shares” above. Such constructive distribution would be subject to tax as described under that section in the same manner as if the U.S. Holder of such Warrant received a cash distribution from us equal to the fair market value of such increased interest.
Passive Foreign Investment Company Considerations
A foreign (i.e., non-U.S.) corporation will be a PFIC for U.S. federal income tax purposes if at least 75% of its gross income in a taxable year of the foreign corporation, including its pro rata share of the gross income of any corporation in which it is considered to own at least 25% of the shares by value, is passive income. Alternatively, a foreign corporation will be a PFIC if at least 50% of its assets in a taxable year of the foreign corporation, ordinarily determined based on fair market value and averaged quarterly over the year, including its pro rata share of the assets of any corporation in which it is considered to own at least 25% of the shares by value, are held for the production of, or produce, passive income. Subject to some limited exceptions, cash (whether or not constituting working capital or used to generate interest income) may be treated as a passive asset. Passive income generally includes dividends, interest, rents and royalties (other than certain rents or royalties derived from the active conduct of a trade or business) and gains from the disposition of passive assets.
The determination as to whether a non-U.S. corporation is a PFIC is based on the application of complex U.S. federal income tax rules, which are subject to differing interpretations, the composition of the income, expenses and assets of the non-U.S. corporation from time to time and the nature of the activities performed by its officers and employees. For this reason, while we do not presently expect to be a PFIC for the current taxable year or the immediate future, there can be no assurance that the composition of our income and assets will not change, or that the IRS will not reach a contrary conclusion. You are urged to consult your tax advisers regarding the risks associated in investing in a company that may be a PFIC. Further, the PFIC tests must be applied every year, and it is possible that we may become a PFIC in a future taxable year if the nature and extent of our activities were to change, or if the composition of our income and assets change in any material respect. In addition, our actual PFIC status for any taxable year is not determinable until after the end of such taxable year, and we may not determine our PFIC status for any future taxable year. Because of these uncertainties, it is possible that we may be a PFIC for the current or any other taxable year.
If SuperCom is determined to be a PFIC for any taxable year (or portion thereof) that is included in the holding period of a U.S. Holder and the U.S. Holder did not make a timely qualified electing fund (“QEF”) election for SuperCom’s first taxable year as a PFIC in which the U.S. Holder held (or was deemed to hold) ordinary shares, a QEF election along with a deemed sale (or purging) election, or a “mark-to-market” election, each as described below, such holder generally will be subject to special rules with respect to:
| • | any gain recognized by the U.S. Holder on the sale or other disposition of its ordinary shares or Warrants; and |
| • | any “excess distribution” made to the U.S. Holder (generally, any distributions to such U.S. Holder during a taxable year of the U.S. Holder that are greater than 125% of the average annual distributions received by such U.S. Holder in respect of SuperCom securities during the three preceding taxable years of such U.S. Holder or, if shorter, such U.S. Holder’s holding period for such securities). |
Under these rules:
| • | the U.S. Holder’s gain or excess distribution will be allocated ratably over the U.S. Holder’s holding period for its securities; |
| • | the amount allocated to the U.S. Holder’s taxable year in which the U.S. Holder recognized the gain or received the excess distribution, or to the period in the U.S. Holder’s holding period before the first day of our first taxable year in which we are a PFIC, will be taxed as ordinary income; |
| • | the amount allocated to other taxable years (or portions thereof) of the U.S. Holder and included in its holding period will be taxed at the highest tax rate in effect for that year and applicable to the U.S. Holder; and |
| • | the interest charge generally applicable to underpayments of tax will be imposed in respect of the tax attributable to each such other taxable year of the U.S. Holder. |
In general, if SuperCom is determined to be a PFIC, a U.S. Holder may avoid the PFIC tax consequences described above in respect to its ordinary shares (but not Warrants) by making a timely QEF election (if eligible to do so) to include in income its pro rata share of SuperCom’s net capital gains (as long-term capital gain) and other earnings and profits (as ordinary income), on a current basis, in each case whether or not distributed, in the first taxable year of the U.S. Holder in which or with which SuperCom’s taxable year ends if SuperCom is treated as a PFIC for that taxable year. A U.S. Holder generally may make a separate election to defer the payment of taxes on undistributed income inclusions under the QEF rules, but if deferred, any such taxes will be subject to an interest charge.
A U.S. Holder may not make a QEF election with respect to Warrants. As a result, if a U.S. Holder sells or otherwise disposes of such Warrants (other than upon exercise of such Warrants), any gain recognized will generally be subject to the special tax and interest charge rules treating the gain as an excess distribution, as described above, if is a PFIC at any time during the period the U.S. Holder held the Warrants. If a U.S. Holder that exercises such Warrants properly makes a QEF election with respect to the newly acquired ordinary shares, the QEF election will apply to the newly acquired ordinary shares, but the adverse tax consequences relating to PFIC shares, adjusted to take into account the current income inclusions resulting from the QEF election, will continue to apply with respect to such newly acquired ordinary shares (which will generally be deemed to have a holding period for purposes of the PFIC rules that includes the period the U.S. Holder held the Warrants), unless the U.S. Holder makes a purging election under the PFIC rules. The purging election creates a deemed sale of such shares at their fair market value. The gain recognized by the purging election will be subject to the special tax and interest charge rules treating the gain as an excess distribution, as described above. As a result of the purging election, the U.S. Holder will increase the adjusted basis in the ordinary shares acquired upon the exercise of the Warrants by the gain recognized and will also have a new holding period in such shares for purposes of the PFIC rules.
The QEF election is made on a shareholder-by-shareholder basis and, once made, can be revoked only with the consent of the IRS. A U.S. Holder generally makes a QEF election by attaching a completed IRS Form 8621 (Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund), including the information provided in a PFIC annual information statement, to a timely filed U.S. federal income tax return for the tax year to which the election relates. Retroactive QEF elections generally may be made only by filing a protective statement with such return and if certain other conditions are met or with the consent of the IRS. U.S. Holders should consult their own tax advisors regarding the availability and tax consequences of a retroactive QEF election under their particular circumstances.
In order to comply with the requirements of a QEF election, a U.S. Holder must receive a PFIC annual information statement from SuperCom. If SuperCom determines that it is a PFIC for any taxable year, it will endeavor to provide to a U.S. Holder upon request such information as the IRS may require, including a PFIC annual information statement, in order to enable the U.S. Holder to make and maintain a QEF election. However, there is no assurance that SuperCom will have timely knowledge of its status as a PFIC in the future or of the required information to be provided.
If a U.S. Holder has made a QEF election with respect to ordinary shares, and the special tax and interest charge rules do not apply to such shares (because of a timely QEF election for SuperCom’s first taxable year as a PFIC in which the U.S. Holder holds (or is deemed to hold) such shares or a purge of the PFIC taint pursuant to a purging election, as described above), any gain recognized on the sale of ordinary shares will generally be taxable as capital gain and no interest charge will be imposed under the PFIC rules. As discussed above, U.S. Holders who make a QEF election with respect to a PFIC are currently taxed on their pro rata shares of such PFIC’s earnings and profits, whether or not distributed. In such case, a subsequent distribution of such earnings and profits that were previously included in income should generally not be taxable as a dividend to such U.S. Holders. The tax basis of a U.S. Holder’s shares in a PFIC with respect to which a QEF election has been made will be increased by amounts that are included in income, and decreased by amounts distributed but not taxed as dividends, under the above rules. Similar basis adjustments apply to property if by reason of holding such property the U.S. Holder is treated under the applicable attribution rules as owning shares in a PFIC with respect to which a QEF election has been made.
As noted above, an initial determination that SuperCom is a PFIC will generally apply for subsequent years to a U.S. Holder who held SuperCom securities while SuperCom was a PFIC, whether or not SuperCom meets the test for PFIC status in those subsequent years. A U.S. Holder who makes the QEF election discussed above for SuperCom’s first taxable year as a PFIC in which the U.S. Holder holds (or is deemed to hold) ordinary shares, however, will not be subject to the PFIC tax and interest charge rules discussed above in respect to such shares. In addition, such U.S. Holder will not be subject to the QEF inclusion regime with respect to such shares for any taxable year of SuperCom that ends within or with a taxable year of the U.S. Holder and in which SuperCom is not a PFIC. On the other hand, if the QEF election is not effective for each of SuperCom’s taxable years in which SuperCom is a PFIC and the U.S. Holder holds (or is deemed to hold) ordinary shares, the PFIC rules discussed above will continue to apply to such shares unless the holder makes a purging election, as described above, and pays the tax and interest charge with respect to the gain inherent in such shares attributable to the pre-QEF election period.
Alternatively, if a U.S. Holder, at the close of its taxable year, owns (or is deemed to own) shares in a PFIC that are treated as marketable shares, the U.S. Holder may make a mark-to-market election with respect to such shares for such taxable year. If the U.S. Holder makes a valid mark-to-market election for the first taxable year of the U.S. Holder in which the U.S. Holder holds (or is deemed to hold) ordinary shares in and for which SuperCom is determined to be a PFIC, such holder will generally not be subject to the PFIC rules described above in respect to its ordinary shares as long as such shares continue to be treated as marketable shares. Instead, in general, the U.S. Holder will include as ordinary income for each year that SuperCom is treated as a PFIC the excess, if any, of the fair market value of its Ordinary Shares at the end of its taxable year over the adjusted basis in its ordinary shares. The U.S. Holder also will be allowed to take an ordinary loss in respect of the excess, if any, of the adjusted basis of its ordinary shares over the fair market value of its ordinary shares at the end of its taxable year (but only to the extent of the net amount of previously included income as a result of the mark-to-market election). The U.S. Holder’s basis in its ordinary shares will be adjusted to reflect any such income or loss amounts, and any further gain recognized on a sale or other taxable disposition of the ordinary shares in a taxable year in which SuperCom is treated as a PFIC will be treated as ordinary income. Special tax rules may also apply if a U.S. Holder makes a mark-to-market election for a taxable year after the first taxable year in which the U.S. Holder holds (or is deemed to hold) its ordinary shares and for which SuperCom is treated as a PFIC. Currently, a mark-to-market election may not be made with respect to Warrants.
The mark-to-market election is available only for stock that is regularly traded on a national securities exchange that is registered with the SEC, including Nasdaq, or on a foreign exchange or market that the IRS determines has rules sufficient to ensure that the market price represents a legitimate and sound fair market value. U.S. Holders should consult their own tax advisors regarding the availability and tax consequences of a mark-to-market election in respect to ordinary shares under their particular circumstances.
If SuperCom is a PFIC and, at any time, has a foreign subsidiary that is classified as a PFIC, U.S. Holders would generally be deemed to own a portion of the shares of such lower-tier PFIC, and generally could incur liability for the deferred tax and interest charge described above if SuperCom receives a distribution from, or disposes of all or part of SuperCom’s interest in, the lower-tier PFIC or the U.S. Holders otherwise were deemed to have disposed of an interest in the lower-tier PFIC. Upon request, SuperCom will endeavor to cause any lower-tier PFIC to provide to a U.S. Holder the information that may be required to make or maintain a QEF election with respect to the lower-tier PFIC. However, there is no assurance that SuperCom will have timely knowledge of the status of any such lower-tier PFIC. In addition, SuperCom may not hold a controlling interest in any such lower-tier PFIC and thus there can be no assurance we will be able to cause the lower-tier PFIC to provide the required information. A mark-to-market election generally would not be available with respect to such lower-tier PFIC. U.S. Holders are urged to consult their own tax advisors regarding the tax issues raised by lower-tier PFICs.
A U.S. Holder that owns (or is deemed to own) shares in a PFIC during any taxable year of the U.S. Holder, may have to file an IRS Form 8621(whether or not a QEF or market-to-market election is made) with such U.S. Holder’s U.S. federal income tax return and provide such other information as may be required by the U.S. Treasury Department. The rules dealing with PFICs and with the QEF and mark-to-market elections are very complex and are affected by various factors in addition to those described above. Accordingly, U.S. Holders of SuperCom securities should consult their own tax advisors concerning the application of the PFIC rules to SuperCom securities under their particular circumstances.
Information Reporting and Backup Withholding
In general, information reporting requirements will apply to dividends received by U.S. Holders of ordinary shares (including constructive dividends), and the proceeds received on the disposition of ordinary shares and Warrants effected within the United States (and, in certain cases, outside the United States), in each case, other than U.S. Holders that are exempt recipients (such as corporations). As stated above, information reporting requirements will also apply to redemptions from U.S. Holders of ordinary shares. Backup withholding (currently at a rate of 24%) may apply to such amounts if the U.S. Holder fails to provide an accurate taxpayer identification number (generally on an IRS Form W-9 provided to the paying agent or the U.S. Holder’s broker) or is otherwise subject to backup withholding.
Certain U.S. Holders holding specified foreign financial assets with an aggregate value in excess of the applicable dollar threshold are required to report information to the IRS relating to SuperCom securities, subject to certain exceptions (including an exception for SuperCom securities held in accounts maintained by U.S. financial institutions), by attaching a complete IRS Form 8938, Statement of Specified Foreign Financial Assets, with their tax return, for each year in which they hold SuperCom securities. In addition to these requirements, U.S. Holders may be required to annually file FinCEN Report 114 (Report of Foreign Bank and Financial Accounts) with the U.S. Department of Treasury. U.S. Holders should consult their own tax advisors regarding information reporting requirements relating to their ownership of SuperCom securities. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or credit against a holder’s U.S. federal income tax liability, if any, provided the required information is timely furnished to the IRS.
We are offering 3,235,295 Units, based on a public offering price of $0.85 per Unit, each consisting of an ordinary share or Pre-Funded Warrant and one Warrant to purchase one ordinary share each, for gross proceeds of $2.75 million before deduction of placement agent commissions and offering expenses and assuming no exercise of the Warrants, in a best-efforts offering. There is no minimum amount of proceeds that is a condition to closing of this offering.
Pursuant to a placement agency agreement, dated as of August 2, 2023, we have engaged Maxim Group LLC to act as our exclusive placement agent (the “Placement Agent”) to solicit offers to purchase the securities offered by this prospectus. The Placement Agent is not purchasing or selling any securities, nor is it required to arrange for the purchase and sale of any specific number or dollar amount of securities, other than to use its “reasonable best efforts” to arrange for the sale and/or issuance (as applicable) of the securities by us. Therefore, we may not sell the entire amount of securities being offered. We will enter into a securities purchase agreement directly with the institutional investors, at the investor’s option, who purchase our securities in this offering. Investors who do not enter into a securities purchase agreement shall rely solely on this prospectus in connection with the purchase of our securities in this offering. The Placement Agent may engage one or more subagents or selected dealers in connection with this offering.
The placement agency agreement provides that the Placement Agent’s obligations are subject to conditions contained in the placement agency agreement.
We will deliver the securities being issued to the investors upon receipt of investor funds for the purchase and/or subscription for (as applicable) of the securities offered pursuant to this prospectus. We expect to deliver the securities being offered pursuant to this prospectus on August 3, 2023.
Placement Agent Fees, Commissions and Expenses
Upon the closing of this offering, we will pay the Placement Agent a cash transaction fee equal to 7% of the aggregate gross cash proceeds to us from the sale and/or issuance (as applicable) of the securities in the offering. In addition, we will reimburse the Placement Agent for its out-of-pocket expenses incurred in connection with this offering, including the fees and expenses of the counsel for the Placement Agent, up to $40,000.
We estimate that the total expenses of the offering, including registration, filing and listing fees, printing fees and legal and accounting expenses, but excluding Placement Agent fees, will be approximately $80,000, all of which are payable by us. This figure includes the Placement Agent’s accountable expenses, including, but not limited to, legal fees for Placement Agent’s legal counsel, that we have agreed to pay at the closing of the offering up to an aggregate expense reimbursement of $40,000.
The following table shows the public offering price, Placement Agent fees and proceeds, before expenses, to us, assuming the purchase of all the securities we are offering.
| | | Per
Unit
| | | Total
| |
| Offering Price | | $ | 0.85 | | | $ | 2,750,000 | |
| Placement agent fees | | $ | 0.0595 | | | $ | 192,500 | |
| Proceeds before expenses to us | | $ | 0.7905 | | | $ | 2,557,500 | |
Indemnification
We have agreed to indemnify the placement agent against certain liabilities, including liabilities under the Securities Act and liabilities arising from breaches of representations and warranties contained in our engagement letter with the placement agent. We have also agreed to contribute to payments the placement agent may be required to make in respect of such liabilities.
Determination of Offering Price and Exercise Price
The actual public offering price of the securities we are offering, and the exercise price of the Warrants and Pre-Funded Warrants included in the Units that we are offering, were negotiated between us and the investors in the offering based on the trading of the ordinary shares prior to the offering, among other things. Other factors considered in determining the public offering price of the securities we are offering, as well as the exercise price of the Warrants included in the Units and Pre-Funded Warrants that we are offering include our history and prospects, the stage of development of our business, our business plans for the future and the extent to which they have been implemented, an assessment of our management, the general conditions of the securities markets at the time of the offering and such other factors as were deemed relevant.
Regulation M
The Placement Agent may be deemed to be an underwriter within the meaning of Section 2(a)(11) of the Securities Act, and any commissions received by it and any profit realized on the resale of the securities sold by it while acting as principal might be deemed to be underwriting discounts or commissions under the Securities Act. As an underwriter, the Placement Agent would be required to comply with the requirements of the Securities Act and the Exchange Act, including, without limitation, Rule 10b-5 and Regulation M under the Exchange Act. These rules and regulations may limit the timing of purchases and sales of our securities by the Placement Agent acting as principal. Under these rules and regulations, the Placement Agent (i) may not engage in any stabilization activity in connection with our securities and (ii) may not bid for or purchase any of our securities or attempt to induce any person to purchase any of our securities, other than as permitted under the Exchange Act, until it has completed its participation in the distribution.
Electronic Distribution
This prospectus in electronic format may be made available on websites or through other online services maintained by the placement agent, or by its affiliates. Other than this prospectus in electronic format, the information on the placement agent’s website and any information contained in any other website maintained by the placement agent is not part of this prospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsed by us or the placement agent in its capacity as an underwriter, and should not be relied upon by investors.
Certain Relationships
The Placement Agent and its affiliates have and may in the future provide, from time to time, investment banking and financial advisory services to us in the ordinary course of business, for which they may receive customary fees and commissions.
Selling Restrictions
No action has been taken in any jurisdiction (except in the United States) that would permit a public offering of our ordinary shares, the Units, the Warrants or the Pre-Funded Warrants, or the possession, circulation or distribution of this prospectus or any other material relating to us or our securities in any jurisdiction where action for that purpose is required. Accordingly, our securities may not be offered or sold, directly or indirectly, and this prospectus or any other offering material or advertisements in connection with our securities may be distributed or published, in or from any country or jurisdiction, except in compliance with any applicable rules and regulations of any such country or jurisdiction.
Notice to Non-U.S. Investors
In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a “Relevant Member State”) an offer to the public of any securities which are the subject of the offering contemplated by this prospectus may not be made in that Relevant Member State except that an offer to the public in that Relevant Member State of any such securities may be made at any time under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member State:
| | ● | to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities; |
| | ● | to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than €43,000,000 and (3) an annual net turnover of more than €50,000,000, as shown in its last annual or consolidated accounts; |
| | ● | by the underwriter to fewer than 100 natural or legal persons (other than qualified investors as defined in the Prospectus Directive); or |
| | ● | In any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of these securities shall result in a requirement for the publication by the issuer or the underwriter of a prospectus pursuant to Article 3 of the Prospectus Directive. |
For the purposes of this provision, the expression an “offer to the public” in relation to any of the securities in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any such securities to be offered so as to enable an investor to decide to purchase any such securities, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State and the expression” Prospectus Directive” means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State.
The representative has represented, warranted and agreed that:
| | a. | it has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000 (the FSMA)) received by it in connection with the issue or sale of any of the securities in circumstances in which section 21(1) of the FSMA does not apply to the issuer; and |
| | b. | it has complied with and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the securities in, from or otherwise involving the United Kingdom. |
In particular, this document does not constitute an approved prospectus in accordance with European Commission’s Regulation on Prospectuses no. 809/2004 and no such prospectus is to be prepared and approved in connection with this offering. Accordingly, in relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (being the Directive of the European Parliament and of the Council 2003/71/EC and including any relevant implementing measure in each Relevant Member State) (each, a Relevant Member State), with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State (the Relevant Implementation Date) an offer of securities to the public may not be made in that Relevant Member State prior to the publication of a prospectus in relation to such securities which has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus Directive, except that it may, with effect from and including the Relevant Implementation Date, make an offer of securities to the public in that Relevant Member State at any time:
| | ● | to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities; |
| | ● | to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than €43,000,000; and (3) an annual net turnover of more than €50,000,000, as shown in the last annual or consolidated accounts; or |
| | ● | in any other circumstances which do not require the publication by the Issuer of a prospectus pursuant to Article 3 of the Prospectus Directive. |
For the purposes of this provision, the expression an “offer of securities to the public” in relation to any of the securities in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the securities to be offered so as to enable an investor to decide to purchase or subscribe for the securities, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State. For these purposes the shares offered hereby are “securities.”
The securities may be sold in Canada only to purchasers purchasing, or deemed to be purchasing, as principal that are “accredited investors”, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are “permitted clients”, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the securities must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws. Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of these rights or consult with a legal advisor. Pursuant to section 3A.3 of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.
Listing
Our ordinary shares are currently listed on Nasdaq under the symbol SPCB.
MATERIAL CHANGES FROM FORM 20-F
See section captioned “Prospectus Summary ⸺ Recent Developments” above.
The following table sets forth the fees and expenses, other than placement agent fees, payable in connection with the registration of our securities hereunder. All amounts are estimates except the SEC registration fee and the FINRA filing fee.
| SEC registration fee | | $ | 2,204 | |
| FINRA filing fee | | $ | 5,000 | |
| Transfer agent fees and expenses | | $ | 2,000 | |
| Printing and mailing expenses | | $ | 1,000 | |
| Legal fees and expenses | | $ | 60,000 | |
| Accounting fees and expenses | | $ | 6,000 | |
| Miscellaneous | | $ | 4,000 | |
| Total | | $ | 80,204 | |
The validity of the securities offered by this prospectus and other legal matters concerning this offering relating to Israeli law has been passed upon for us by S. Friedman, Abramson & Co. Certain legal matters with respect to U.S. federal law and New York law in connection with this offering will be passed upon for us by Foley Shechter Ablovatskiy LLP. Certain legal matters will be passed upon for the Placement Agent by Pryor Cashman LLP, New York, New York.
The financial statements incorporated in this prospectus by reference to the Annual Report on Form 20-F for the year ended December 31, 2022 have been so incorporated in reliance on the report of Yarel + Partners, Certified Public Accountant (Isr.), an independent registered public accounting firm. The financial statements incorporated in this prospectus by reference to the Annual Report on Form 20-F for the year ended December 31, 2021 have been so incorporated in reliance on the report of Halperin Ilanit, Certified Public Accountant (Isr.), an independent registered public accounting firm.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form F-1 under the Securities Act with respect to the securities offered by this prospectus. This prospectus, which is part of the registration statement, omits certain information, exhibits, schedules and undertakings set forth in the registration statement. For further information pertaining to us and the securities offered hereby, reference is made to the registration statement and the exhibits and schedules to the registration statement. Statements contained in this prospectus as to the contents or provisions of any documents referred to in this prospectus are not necessarily complete, and in each instance where a copy of the document has been filed as an exhibit to the registration statement, reference is made to the exhibit for a more complete description of the matters involved.
You may read and copy all or any portion of the registration statement without charge at the public reference room of the Securities and Exchange Commission at 100 F Street, N.E., Washington, D.C. 20549. Copies of the registration statement may be obtained from the Securities and Exchange Commission at prescribed rates from the public reference room of the Securities and Exchange Commission at such address. You may obtain information regarding the operation of the public reference room by calling 1-800-SEC-0330. In addition, registration statements and certain other filings made with the Securities and Exchange Commission electronically are publicly available through the Securities and Exchange Commission’s website at www.sec.gov. The registration statement, including all exhibits and amendments to the registration statement, has been filed electronically with the Securities and Exchange Commission. You may also read all or any portion of the registration statement and certain other filings made with the Securities and Exchange Commission on our website at www.supercom.com. The information contained in, and that can be accessed through, our website is not incorporated into and is not part of this prospectus.
We are subject to the reporting requirements of the Exchange Act that are applicable to a foreign private issuer. In accordance with the Exchange Act, we file reports, including Annual Reports on Form 20-F by April 30 of each year. We also furnish to the SEC under cover of Form 6-K material information required to be made public in Israel, filed with and made public by any stock exchange or distributed by us to our shareholders.
As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of proxy statements to shareholders and our officers, directors and principal shareholders are exempt from the “short-swing profits” reporting and liability provisions contained in Section 16 of the Exchange Act and related Exchange Act rules.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
We file annual and special reports and other information with the SEC. These filings contain important information which does not appear in this prospectus. The SEC allows us to “incorporate by reference” information into this prospectus, which means that we can disclose important information to you by referring you to other documents which we have filed or will file with the SEC. We are incorporating by reference in this prospectus the documents listed below and all amendments or supplements we may file to such documents, as well as any future filings we may make with the SEC on Form 20-F under the Exchange Act before the time that all of the securities offered by this prospectus have been sold or de-registered:
| • | our Registration Statement on Form F-3, filed with the SEC on December 1, 2021; |
| • | our Annual Report on Form 20-F for the fiscal year ended on December 31, 2022, filed with the SEC on April 20, 2023; |
| • | our Report on Form 6-K filed with the SEC on March 31, 2023; and |
| • | our Report on Form 6-K filed with the SEC on April 3, 2023. |
Any statement contained in a document incorporated or deemed to be incorporated by reference into this prospectus will be deemed to be modified or superseded for purposes of this prospectus to the extent that a statement contained in this prospectus or any other subsequently filed document that is deemed to be incorporated by reference into this prospectus modifies or supersedes the statement. Any statement so modified or superseded will not be deemed, except as so modified or superseded, to constitute a part of this prospectus.
This prospectus shall also be deemed to incorporate by reference all subsequent annual reports filed on Form 20-F prior to the termination of the offering made by this prospectus. We may incorporate by reference into this prospectus, any Form 6-K meeting the requirements of Form F-1 which is submitted to the SEC after the date of this prospectus and before the date of termination of this offering. Any such Form 6-K which we intend to so incorporate shall state in such form that it is being incorporated by reference into this prospectus.
We will provide you without charge, upon your written or oral request, a copy of any of the documents incorporated by reference in this prospectus, other than exhibits to such documents which are not specifically incorporated by reference into such documents. Please direct your written or telephone requests to
SuperCom Ltd.
3 Rothschild Street
Tel-Aviv, Israel
Attn: Ordan Trabelsi, Chief Executive Officer
telephone number +972 (9) 889-0850
You may also obtain information about us by visiting our website at www.supercom.com. Information contained in our website is not part of this prospectus.
As a foreign private issuer, we are exempt from the rules under Section 14 of the Exchange Act prescribing the furnishing and content of proxy statements and our officers, directors and principal shareholders are exempt from the reporting and other provisions in Section 16 of the Exchange Act.
ENFORCEABILITY OF CIVIL LIABILITIES
We are incorporated under the laws of the State of Israel. Service of process upon us and upon our directors and officers and the Israeli experts named in this prospectus, substantially all of whom reside outside the United States, may be difficult to obtain within the United States. Furthermore, because substantially all of our assets and substantially all of our directors and officers are located outside the United States, any judgment obtained in the United States against us or any of our directors and officers may not be collectible within the United States.
It may be difficult to assert U.S. securities law claims in original actions instituted in Israel. Israeli courts may refuse to hear a claim based on a violation of U.S. securities laws because Israel is not 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.
Subject to specified time limitations and legal procedures, Israeli courts may enforce a United States judgment in a civil matter which, subject to certain exceptions, is non-appealable, including judgments based upon the civil liability provisions of the Securities Act and the Exchange Act and including a monetary or compensatory judgment in a non-civil matter, provided that:
| • | the judgments are obtained after due process before a court of competent jurisdiction, according to the laws of the state in which the judgment is given and the rules of private international law currently prevailing in Israel; |
| • | the prevailing law of the foreign state in which the judgments were rendered allows the enforcement of judgments of Israeli courts (however, the Israeli courts may waive this requirement following a request by the attorney general); |
| • | adequate service of process has been effected and the defendant has had a reasonable opportunity to be heard and to present his or her evidence; |
| • | the judgments are not contrary to public policy, and the enforcement of the civil liabilities set forth in the judgment does not impair the security or sovereignty of the State of Israel; |
| • | the judgments were not obtained by fraud and do not conflict with any other valid judgment in the same matter between the same parties; |
| • | an action between the same parties in the same matter is not pending in any Israeli court at the time the lawsuit is instituted in the foreign court; and |
| • | the obligations under the judgment are enforceable according to the laws of the State of Israel and according to the law of the foreign state in which the relief was granted. |
We have irrevocably appointed SuperCom, Inc. as our agent to receive service of process in any action against us in any United States federal or state court arising out of this offering or any purchase or sale of securities in connection with this offering.
If a foreign judgment is enforced by an Israeli court, it generally will be payable in Israeli currency, which can then be converted into non-Israeli currency and transferred out of Israel. The usual practice in an action before an Israeli court to recover an amount in a non-Israeli currency is for the Israeli court to issue a judgment for the equivalent amount in Israeli currency at the rate of exchange in force on the date of the judgment, but the judgment debtor may make payment in foreign currency. Pending collection, the amount of the judgment of an Israeli court stated in Israeli currency ordinarily will be linked to the Israeli consumer price index plus interest at the annual statutory rate set by Israeli regulations prevailing at the time. Judgment creditors must bear the risk of unfavorable exchange rates.
3,235,295 Units
consisting of
661,000 Ordinary Shares and 2,574,295 Pre-Funded Warrants to Purchase 2,574,295 Ordinary Shares and
3,235,295 Warrants to Purchase 3,235,295 Ordinary Shares
2,574,295 Ordinary Shares Underlying the Pre-Funded Warrants
3,235,295 Ordinary Shares Underlying the Warrants
SuperCom Ltd.
Preliminary Prospectus
