GOING PUBLIC – THE PROCESS, LEGAL ASPECTS AND ALTERNATIVESInteraction Between US/UK and Israeli Law

November 8, 2006

Daniel K. Gamulka

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Accessing Global Markets Requires Compliance with Multiple Regimes

Israel Companies Law, 1999

Israel Securities Law, 1968

Securities Act of 1933 and Securities Exchange Act of 1934 (US)

Stock Exchange Regulations

Financial Services and Markets Act 2000 (UK)

EU Prospectus Directive

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Offering Rules

Principally jurisdiction of offering

Israeli securities law may affect various aspects:

Avoiding public offering in Israel

Institutional road show

Employees

35 offerees in any 12-month period

Impact of local laws to certain issuers:

Regulatory

Government grants

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Corporate Governance

Principally Israeli law

All provisions of Israeli corporate law apply, unless specifically exempted

In US, Sarbanes-Oxley greatly expanded US role in corporate governance of foreign companies

Stock exchanges (NYSE, NASDAQ, LSE, AMEX) impose additional requirements

Israeli company listed abroad must meet all requirements, sometimes conflicting, unless exempted

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Corporate Governance (cont’d)

Board of Directors

Israeli Law:

Two “external” directors (dahatzim)

Elected by shareholders by a special majority

U.S. stock exchanges:

Require a majority of independent directors who are elected in same manner as other directors

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Examples

Board of Directors

U.S. stock exchanges: (cont’d)

Definition of independence

Differs from definition for audit committee purposes

Differences between U.S. and Israel

Differences between U.K. and Israel

NYSE and NASDAQ exemptions from foreign private issuers (including most Israeli companies)

Underwriters may require or recommend compliance

Company may want to adopt “Best Practice” even if exemption available

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Examples

Board of Directors

UK/Combined Code on Corporate Governance:

Except for smaller companies, majority of independent, non-executive directors

Division between Chairman and CEO.

AIM: More flexible:

Minimum of two independent directors for smaller AIM companies

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Examples

Audit Committees

Israeli Law:

At least 3 members

Including two “external directors” (dahatzim)

Principally focused on related party conflicts

U.S. Stock Exchanges:

All members must be “independent directors”

Principally focused on oversight of financial reporting.

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Examples

Audit Committees

U.K. / Combined Code:

LSE –

At least 3 directors (2 for small companies)

all of whom independent non-executives

monitor internal and external audit functions

AIM –

In majority of cases sponsor will require compliance with combined code

Makeup and role can be more flexible for smaller companies

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Examples

Other Committees

Israeli Law

One external director on each committee

No committees required, other than audit committee.

U.S. exchanges -

Compensation and nomination committees (or majority of independent directors, for NASDAQ)

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Examples Other Committees

U.S. exchanges (cont’d)

Compensation and nominations committees comprised of solely independent directors

NYSE and NASDAQ exemptions for foreign private issuers

Underwriters may require or recommend compliance

UK/Combined Code:

Audit, remuneration and nominations committees

Comprised of independent, non-executive directors

Only committee members entitled to attend meetings

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Examples

Shareholder Approval Requirements

Stock Option Plans:

Israel: shareholder approval required for grants of options to directors and controlling shareholders

U.S. exchanges: Shareholder approval for all option plans; exemptions for foreign private issuers.

U.K.:

LSE: Shareholder approval required, unless plan available to all employees on same terms

AIM: No approval required

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Examples

Shareholder Approval Requirements

Related party transactions:

Israel: shareholder approval required, at times with special majority

U.S. exchanges: shareholder approval required in cases of securities issuances

U.K.:

LSE: shareholder approval required, related party not counted in vote

AIM: no shareholder approval required; announcement and directors’ statement required for certain transactions with related parties

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Examples

Exemptions/Relief:

Israel: Regulatory exemptions for companies listed abroad or dual listed.

Reporting requirements

Means of convening shareholders meeting

External director-terms and compensation

Proxy rules