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GOING PUBLIC – THE PROCESS, LEGAL ASPECTS AND ALTERNATIVES

GOING PUBLIC – THE PROCESS, LEGAL ASPECTS AND ALTERNATIVES. Interaction Between US/UK and Israeli Law November 8, 2006 Daniel K. Gamulka. Accessing Global Markets Requires Compliance with Multiple Regimes. Israel Companies Law, 1999 Israel Securities Law, 1968

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GOING PUBLIC – THE PROCESS, LEGAL ASPECTS AND ALTERNATIVES

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  1. GOING PUBLIC – THE PROCESS, LEGAL ASPECTS AND ALTERNATIVES Interaction Between US/UK and Israeli Law November 8, 2006 Daniel K. Gamulka

  2. 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

  3. 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

  4. 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

  5. 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

  6. 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

  7. 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

  8. 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.

  9. 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

  10. 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)

  11. 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

  12. 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

  13. 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

  14. 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

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