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

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3 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

4 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

5 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

6 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

7 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

8 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

9 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.

10 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

11 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)

12 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

13 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

14 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

15 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