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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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 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 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 15
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