Orgenesis Inc.

Numerous other countries have, or are developing, laws governing the collection, use and transmission of personal information as well. The EU and other jurisdictions have adopted data protection laws and regulations, which impose significant compliance obligations. In the EU, for example, effective May 25, 2018, the GDPR replaced the prior EU Data Protection Directive (95/46) that governed the processing of personal data in the European Union. The GDPR imposes significant obligations on controllers and processors of personal data, including, as compared to the prior directive, higher standards for obtaining consent from individuals to process their personal data, more robust notification requirements to individuals about the processing of their personal data, a strengthened individual data rights regime, mandatory data breach notifications, limitations on the retention of personal data and increased requirements pertaining to health data, and strict rules and restrictions on the transfer of personal data outside of the EU, including to the U.S. The GDPR also imposes additional obligations on, and required contractual provisions to be included in, contracts between companies subject to the GDPR and their third-party processors that relate to the processing of personal data. The GDPR allows EU member states to make additional laws and regulations further limiting the processing of genetic, biometric or health data.

Significant disruptions to our information technology systems or breaches of information security could adversely affect our business. In the ordinary course of business, we collect, store and transmit confidential information, and it is critical that we do so in a secure manner in order to maintain the confidentiality and integrity of such confidential information. Our information technology systems are potentially vulnerable to service interruptions and security breaches from inadvertent or intentional actions by our employees, partners, vendors, or from attacks by malicious third parties. Maintaining the secrecy of this confidential, proprietary, and/or trade secret information is important to our competitive business position. While we have taken steps to protect such information and invested in information technology, there can be no assurance that our efforts will prevent service interruptions or security breaches in our systems or the unauthorized or inadvertent wrongful access or disclosure of confidential information that could adversely affect our business operations or result in the loss, dissemination, or misuse of critical or sensitive information. A breach of our security measures or the accidental loss, inadvertent disclosure, unapproved dissemination or misappropriation or misuse of trade secrets, proprietary information, or other confidential information, whether as a result of theft, hacking, or other forms of deception, or for any other cause, could enable others to produce competing products, use our proprietary technology and/or adversely affect our business position. Further, any such interruption, security breach, loss or disclosure of confidential information could result in financial, legal, business, and reputational harm to us and could have a material effect on our business, financial position, results of operations and/or cash flow.

We are subject to a non-competition covenant under the Purchase Agreement, which will limit our ability to engage in the CDMO business except with respect to certain of our subsidiaries' operations in South Korea and Israel.

 For a period of three (3) years in the European Union and five (5) years in the United States and the rest of the world (other than the European Union), and a period of three (3) years in the European Union, in each case from and after the sale of Masthercell February 10, 2020 closing date (the "Non-Competition Period"), we are subject to a non-competition covenant made in the Purchase Agreement that restricts our ability to engage in the CDMO business except with respect to certain of our subsidiaries' operations in South Korea and Israel. During the Non-Competition Period, we will be restricted from engaging in the business of providing on a contract basis to third-party customers cell or gene therapy development, analytical or manufacturing services or related products, including the development, analysis and manufacture of plasmids or genetically modified autologous or allogeneic cells; other cell characterization and engineering services; related analytical or bioanalytical services; or related fill and finish or other packaging services; provided, however, that we shall not be restricted from engaging in (i) our current or currently proposed POC business, (ii) research, manufacturing, development and other activities related to the research, development, manufacturing, discovery and commercialization of therapeutic products or technologies or (iii) our subsidiaries' CDMO operations in South Korea and Israel. This limitation may negatively impact the scope and/or volume of our business, which may adversely affect our financial condition and results of operations. In addition, certain third party acquirers of our current business would be subject to these limitations during the Non-Competition Period, which may limit our opportunities with respect to a future sale transaction of our current business during the Non-Competition Period that may otherwise be favorable to our stockholders.

On June 19, 2018, the Company and Mircod Limited, a company formed under the laws of Cyprus ("Mircod") entered into a Collaboration and License Agreement (the "Mircod Collaboration Agreement") for the adaptation of Mircod's background  technologies related to biological sensing for use for the Company's clinical development and manufacturing projects (the "Development Project"). The Development Project is to be carried out in accordance with an agreed development plan. Under the Mircod Collaboration Agreement, subject to fulfillment of Mircod's obligations, Company is required to pay Mircod certain amounts in accordance with the agreed upon budget. Under the Mircod Collaboration Agreement, all results of such Development Project ("Project Results") shall be jointly owned by Mircod and the Company. The Company was granted an exclusive, worldwide sub licensable license under Mircod's right in such Project Results to use and commercialize Project Results and a non-exclusive license under Mircod's background technology to the extent required to use and commercialize the Project Results in consideration for a royalty of 5% of net sales (as defined in the Collaboration Agreement) of biological systems of devices incorporating Project Results ("Products"). Upon and subject to completion of the Development Project, Mircod and the Company are to negotiate and enter into a manufacturing and supply agreement under which Mircod is to manufacture and supply Products only to Company and/or its affiliates and, at the Company's request, to provide support and maintenance service for such Products. If, for whatever reason, the parties fail to enter into such manufacturing and supply agreement within 90 days of the completion of the Development Project or if Mircod is unable to perform such services, then: (i) the Company shall be required to pay Mircod a one-time payment of $80,000; (ii) the Company and its affiliates shall have the exclusive right to manufacture the Products; and (iii) and royalties on Net Sales of Products shall be increased to 8% of Net Sales.

In addition, Mircod shall form a wholly owned US subsidiary named Mircod Biotech ("Mircod subsidiary"), and that the Mircod Subsidiary shall perform the duties of Mircod under the Collaboration Agreement, provided that Mircod shall remain responsible for the performance of the Mircod Subsidiary. At any time, the Company  shall have the option, at its sole discretion, to transfer and require Mircod or the Mircod Subsidiary to transfer the Project and/or the rights and licenses granted by Mircod to a joint venture company ("JV Entity") which shall be established by the Parties for the purposes of carrying out the Development Project and commercializing the Product, and in which the the Company and Mircod will each hold 50%. The Company shall also have the option to, at its sole discretion and subject to all rules and regulations to which it is then subject, require Mircod to transfer to the the Company the entirety of Mircod's equity interest in the JV Entity for a consideration of shares of common stock of the Company according to an agreed formula. The Parties agreed to amend the development plan to reflect the fact that the Parties shall collaborate with each other on: (i) Point of Care processing, regulatory and therapy development; (ii) setting up one or more point of care processing facilities in institutions or hospitals the territory of Russia; (iii)  supply of the Company's products and services within Russia and (iv) clinical, regulatory, development and commercialization in Russia. The Company may, at its sole discretion agree to provide Mircod with a convertible loan (which may be converted into shares of Mircod then outstanding or into the JV Entity, upon a valuation to be agreed between the Parties and validated by a third party subject to terms to be agreed upon by the parties in a separate convertible loan agreement. The convertible loan will be used to finance the modification of the processing facility or facilities including, planning, designing, testing, training and supervising, as required for obtaining cGMP status approval(s) and/or relevant certification for any processing facility and other activities. As at December 31, 2019, the loan agreement was not executed and the JV Entity was not incorporated.