We believe that, considering the use of cash in our ongoing operations, together with the existing sources of liquidity described above, our working capital will be sufficient to meet our present requirements and our needs for cash for at least the next 12 months. However, our liquidity and capital requirements are affected by many factors, some of which are based on the normal ongoing operations of our businesses and some of which arise from uncertainties related to global economies and the markets that we target for our services. In addition, we routinely review potential acquisitions, including the transaction we recently entered into for the acquisition of a real estate properties portfolio in Germany (see Item 10.C. “Material Contracts”), which requires moremay require additional funds than are currently available. Therefore, we would likely seek additional equity or debt financing, although we cannot assure you that we would be successful in obtaining such financing on favorable terms or at all.
5.C. RESEARCH AND DEVELOPMENT
5.D. TREND INFORMATION
Starting in 2008 the global economic downturn caused a slowdown in the real estate market. In the later part of 2008 and through 2010, banks have lowered interest rates, but at the same time were reluctant to provide financing or perform refinancing of existing debt. Although interest rates have increased during 2011, banks are still reluctant to provide financing or perform refinancing of existing debt. Moreover, in the past few years, several European countries were experiencing difficulties refinancing their governmental debts. Such difficulties influenced the European and entire world economy, and eventually brought to a sovereign debt crisis in Europe during 2011.
Recent U.S. debt ceiling and budget deficit concerns have increased the possibility of additional downgrades of sovereign credit ratings and economic slowdowns. In August 2011, Standard & Poor’s Ratings Services lowered its long-term sovereign credit rating on the U.S. from “AAA” to “AA+”. The impact of this or any further downgrades to the U.S. government’s sovereign credit rating, or its perceived creditworthiness, is inherently unpredictable and could adversely affect the U.S. and global financial markets and economic conditions. These developments, and the U.S. government’s credit concerns in general, could cause interest rates and borrowing costs to rise. In addition, the lowered credit rating could create broader financial turmoil and uncertainty. In addition, during 2013, the pressure on properties’ pricing have eased somewhat and the U.S. real estate market was showing signs of stabilization and an increase towards the end of the year. During 2014 and through 2015 the U.S. real estate market has shown signs of improvement and a consistent increase in assets prices as the demand for investments increased significantly also driven by financial institutions increased willingness to finance new transactions along with low interest rates. Economically, that had been supported by moderate job growth, record housing affordability and fewer distressed property sales. Throughout 2015,2016 and to date, we have witnessed yet a further increasedecrease in demand for high end residential projects in the U.S. market, while the demand for other quality projects both in the residential and the commercial markets. More recently we have seen an easemarkets is keeping stable and in that demand, especially for high end residential projects in the U.S. market.
In addition, the Swiss economy led to a slight increase in demand in the office property market in 2011. In particular, Switzerland remains an attractive location for international service providers and corporate headquarters. There is also still a demand for high-quality, modern spaces, which ultimately allows for a certain stability on the rent level. However, while jobs were still being created at the beginning of 2011, the Swiss economy slowed down and consumer sentiment dimmed somewhat in the second half of the year. Towards the end of the year, the demand for office space slowed down due to announced and expected job losses. During 2013, 20142015 and throughout 2015,2016, as Swiss interest rates declined further, the Swiss real estate prices remained stable in most segments, while other segments were showing signs of increase mainly due to the low interest rates and lack of investments alternatives. At the same time, there was no increase in the demand for new rental spaces and the rental market appeared to be slowing down further, in particular the demand for prime office space and the price for such real estate properties.properties. Although economic conditions were promising in 2013, stagnating sales, depressed income and ongoing structural challenges meant that demand for retail floor space was modest. In addition, the two most highly developed tenant markets, Zurich and Geneva, are still exposed to growing oversupply of office space. Despite the above, during 20132014 and 2014,2015, market values on direct investments generally continued to rise, mainly due to low interest rates, and lack of investment alternatives, but have been stable during 2015.2016 and 2017. As this was accompanied by moderate demand for rents and stability in rental prices, the overall yields on such investments have decreased further. During 2015, 2016 and 2017 and to date, the Swiss Central Bank has set negative interest rates for CHF deposits. This in-turn pushed investors to further invest in the real estate market while looking for investments alternatives to generate positive returns on their investments.
Our financial income is affected by changes in the 6-month Libor rate, see Item 3.D. “Risk Factors - Risks Relating to the Economy, Our Financial Condition and Shareholdings” above.
5.E. OFF-BALANCE SHEET ARRANGEMENTS
There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
5.F. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
Set forth below are our contractual obligations and other commercial commitments as of December 31, 2015:2017:
6.A. DIRECTORS AND SENIOR MANAGEMENT
The following table sets forth information with respect to the individuals who are currently our directors and executive officers. All of these individuals are presently serving in the respective capacities described below:
Amir Philips serves as our Chief Executive Officer. Mr. Philips has been serving in this position since June 2011. Prior to this position, Mr. Philips served as our Chief Financial Officer from May 2007, and as Vice President Finance of Optibase Inc. from July 2004. From 2000 until 2004, Mr. Philips held the position of Group Controller and Financial Manager at Optibase Ltd. Before joining Optibase, Mr. Philips was an accountant and auditor at Lotker Stein Toledano and Co., currently a member of BDO Ziv Haft. Mr. Philips is a Certified Public Accountant in Israel. He holds an MBA from the Kellogg-Recanati School of Business and a B.B. degree in Accounting and Business Management from the Israeli College of Management.
Shlomo (Tom) Wyler serves as the Chief Executive Officer of our subsidiary Optibase Inc. Until December 19, 2013, Mr. Wyler has served as a president and a member our board of directors. Since his investment in us in September 2001 (then through Festin Management Corp.), Mr. Wyler has served in various senior executive positions. His other areas of involvement include investment banking, foreign exchange, financial futures and real-estate. In the early 1990s, Mr. Wyler turned his efforts to real estate interests. Mr. Wyler holds a Masters degree in Business Economics from the University of Zurich. Mr. Wyler is Reuwen Schwarz' father in law.
Yakir Ben-Naim serves as our Chief Financial Officer. Ms. Ben-Naim has been serving in this position since June 2011. From 2004 until May 2011, Ms. Ben-Naim held the position of Corporate Controller and Financial Manager at Optibase Ltd. Before joining Optibase, Ms. Ben-Naim was a controller at V.Box Communications Ltd., and an accountant at Ernst & Young. Ms. Ben-Naim is a Certified Public Accountant in Israel.
Orli Garti Seroussi joined our board of directors on January 31, 2008 as an external director. Ms. Garti-Seroussi serves as an Independent Business Consultant and as an external director of Unet Credit Financial Services Ltd., Apio (Africa) Ltd. Andand of Gamatronic Ltd. From May 2017, Ms. Garti-Seroussi serves as a director of Meuhedet Healthcare Organization from May 2016, as a board member in the Israel Electricity Company Ltd. and as a council member of the Public Israeli Broadcast Corporation. During 2012 and 2013, Ms. Garti-Seroussi served as the Deputy Director and CFO of the Jerusalem Cinematheque - Israel Film Archive. From August 2001 until June 2011, Ms. Garti-Seroussi served as the General Manager of the Bureau of Municipal Corporation in the municipality of Tel-Aviv Jaffa. From June 1999 until July 2001 Ms. Garti-Seroussi served as manager of consulting department in Shif-Hazenfrats & Associations, CPA firm. Prior to that, Ms. Garti-Seroussi served as Deputy Director of the Department of Market Regulation in the Israel Securities Authority and as an Auditor in the Tel Aviv Stock Exchange. Ms. Garti-Seroussi holds an M.P.A from Harvard University and M.B.A degree and a B.A degree in economics and accounting from Tel Aviv University. Ms. Garti-Seroussi is a Certified Public Accountant in Israel.
Danny Lustiger joined our board of directors in October 2009. Mr. Lustiger is the president and Chief Executive Officer of Cupron Scientific Ltd. and has over 22 years of experience in various aspects of Hi-Tech industry at senior positions together with Real estate and infrastructure industries, experience at senior position in public companies. From 2007 until 2009, Mr. Lustiger served as the Chief Financial officer of Shikun & Binui Holdings Ltd. From 1996 and until 2005, Mr. Lustiger served at different managerial positions at Optibase including Chief Financial Officer. From 1993 to 1996 Mr. Lustiger held the position of an accountant and auditor at Igal Brightman & Co. (currently Brightman Almagor & Co., a member of Deloitte & Touche Tomatsu International). Mr. Lustiger is a Certified Public Accountant in Israel. Mr. Lustiger holds a B.A. degree in Accounting and Economics and an MBA in Finance and International management from the Tel-Aviv University.
Chaim Labenski joined our board of directors in December 2010. From 1977 to 1999, Mr. Labenski held a number of positions at Securities Division of Bank Hapoalim BM, including being First Vice president and Head of Foreign Securities and was involved in consulting, securities research, trading and I.P.O coordination with global investment houses. Since 1999 he acts as a private investor. Mr. Labenski holds a B.Sc degree in Civil Engineering from AstorAston University, U.K, a M.Sc degree in Engineering Management from Leeds University and D.B.A degree in Business Administration from Manchester Business School.
Reuwen Schwarz joined our board of directors in July 2014. Mr. Schwarz serves as an independent contractor providing services to the Company since November 2013. Since 2012, Mr. Schwarz serves as a real estate manager for a private company. From 2008 through 2012 Mr. Schwarz has served as a manager for Centris Capital AG. From 2006 through 2008 Mr. Schwarz has served as a banker for Meinl Bank AG, Vienna. Mr. Schwarz holds a Magister (MA) degree from the University of Economic and Business Administration Vienna, Austria. Mr. Schwarz is Mr. Wyler's son in law.
6.B. COMPENSATION
The compensation terms for the Company’s directors and officers is derived from their employment and services agreements and comply with our Compensation Policy for Executive Officers and Directors as last approved by the Company’s shareholders on December 19, 2013 and on December 29, 2016, or the Compensation Policy.
The table and summary below outline the compensation granted to the five highest compensated directors and officers of the Company during the year ended December 31, 2015.2017. The compensation detailed in the table below refers to actual compensation granted or paid to the director or officer during the year 2015.2017.
Name and Position of director or officer | | Salary or Monthly Payment (1) | | | Value of Social Benefits (2) | | | Bonuses | | | Value of Equity Based Compensation Granted (3) | | | All Other Compensation (4) | | | Total | | | Salary or Monthly Payment (1) | | | Value of Social Benefits (2) | | | Bonuses | | | Value of Equity Based Compensation Granted (3) | | | All Other Compensation (4) | | | Total | |
| | (U.S. dollars in thousands) | | | (U.S. dollars in thousands) | |
Amir Philips, Chief Executive Officer (5) | | | 172 | | | | 59 | | | | - | | | | 40 | (10) | | | 21 | | | | 292 | | | | 251.7 | | | | 69.2 | | | | - | | | | 7.5 | | | | 34 | | | | 362.4 | |
Shlomo (Tom) Wyler, Chief Executive Officer of Optibase Inc. (6) | | | 170 | | | | 10 | | | | - | | | | 21 | (11) | | | - | | | | 201 | | | | 200 | | | | 10.8 | | | | - | | | | - | | | | - | | | | 210.8 | |
Yakir Ben-Naim, Chief Financial Officer (7) | | | 86 | | | | 28 | | | | 26 | | | | - | | | | 13 | | | | 153 | | | | 120 | | | | 39.4 | | | | - | | | | - | | | | 13.7 | | | | 173.1 | |
Alex Hilman, Executive Chairman of our board of directors (8) | | | 62 | | | | - | | | | - | | | | 41 | (12) | | | - | | | | 103 | | | | 78 | | | | - | | | | - | | | | 7.5 | | | | - | | | | 85.5 | |
Reuwen Schwarz, Director (9) | | | 59 | | | | - | | | | - | | | | - | | | | 5 | | | | 64 | | | | 54.2 | | | | - | | | | - | | | | - | | | | 4.7 | | | | 58.9 | |
| (1) | “Salary”Salary” means yearly gross base salary with respect to our Executive Officers (Mr. Philips, Mr. Wyler and Ms. Ben-Naim). “Monthly Payment” means the aggregate gross monthly payments with respect to the members of our board of directors (Mr. Hilman and Mr. Schwarz) for the year 2015.2017. |
| (2) | “Social Benefits”Benefits” include payments to the National Insurance Institute, advanced education funds, managers’ insurance and pension funds; vacation pay; and recuperation pay as mandated by Israeli law. |
| (3) | Consists of amounts recognized as share-based compensation (options and restricted shares) expense on our financial statements for the year ended December 31, 2015.2017. |
| (4) | “All Other Compensation”Compensation” includes, among other things, car-related expenses (including tax gross-up), telephone, basic health insurance, and holiday presents. |
| (5) | Mr. Philips’ employment terms as our Chief Executive Officer provide that Mr. Philips is entitled to a monthly base gross salary of NIS 55,00075,000 (approximately $14,000)$20,800). Mr. Philips is further entitled to vacation days, sick days and convalescence pay in accordance with market practice and applicable law, monthly remuneration for a study fund, contribution by us to an insurance policy and pension fund, and additional benefits, including communication expenses. In addition, Mr. Philips is entitled to reimbursement of car-related expenses from us (including tax gross-up). Mr. Philips’ employment terms include an advance notice period of six months. During such advance notice period, Mr. Philips will be entitled to all of the compensation elements, and to the continuation of vesting of any options or restricted shares granted to him. In MarchMay 2016, following the approval by our compensation committee and board of directors, our shareholders approved the following amendments to the compensation terms of Mr. Philips: (i) the monthly gross base salary will be updated to NIS 65,000 for a full time position, as of January 1, 2016 and to NIS 75,000 as of January 1, 2017; andand (ii) the grant of a special bonus in the amount of NIS120,000. The amendments are subject to shareholders' approval.NIS 120,000. |
| (6) | For details on Mr. Wyler’s compensation terms as approved by our shareholders on December 19, 2013, see Item 7.B. “Related Party Transactions”, below. In MarchMay 2016, following the approval by our compensation committee, audit committee and board of directors, our shareholders approved an amendment to Mr. Wyler's compensation terms in a manner that Mr. Wyler's annual gross base salary shall be $200,000 for a full time position, as of January 1, 2016. This amendment is subject to shareholders' approval. |
| (7) | Ms. Ben-Naim’s employment terms as our Chief Financial Officer provide that Ms. Ben-Naim is entitled to a monthly base gross salary of NIS 28,00036,000 (approximately $7,000)$10,000). Ms. Ben-Naim is further entitled to vacation days, sick days and convalescence pay in accordance with market practice and applicable law, monthly remuneration for a study fund, contribution by us to an insurance policy and pension fund, and additional benefits including communication expenses. In addition, Ms. Ben-Naim is entitled to reimbursement of car-related expenses from us. Ms. Ben-Naim’s employment terms include an advance notice period of three months. During such advance notice period, Ms. Ben-Naim may be entitled to all of the compensation elements, and to the continuation of vesting of her options or restricted shares, if granted. In March 2016, our compensation committee and board of directors approved an amendment to Ms. Ben-Naim's compensation terms in a manner that Ms. Ben-Naim's monthly base gross salary will be updated to NIS 36,000 for a full time position, as of January 1, 2016. |
| (8) | The compensation terms of Mr. Hilman as the Executive Chairman of our board of directors were approved by our shareholders on October 19, 2009. For details on Mr. Hilman’s compensation terms, including options and restricted shares granted to him, see Item 7.B. “Related Party Transactions”, below. |
| (9) | Mr. Reuwen Schwarz entered into a service agreement with us, for the provision of real estate related consulting services to us, our subsidiaries and affiliates. Such agreement, including the compensation terms of Mr. Schwarz in consideration for the services under the agreement, were approved by our shareholders on December 19, 2013.2013 and on December 29, 2016. For further details see Item 7.B. “Related Party Transactions”, below. |
| (10) | See footnote no. 3 above. We granted Mr. Philips 41,16120,000 options and 10,00016,000 restricted shares that are currently exercisable or exercisable within 60 days as of March 21, 2016. In addition, we granted Mr. Philips 6,000 restricted shares issued to a trustee under our 2006 Israeli Incentive Compensation Plan which have equity rights, but no voting rights as of March 21, 2016 or within 60 days thereafter.20, 2018. |
| (11) | See footnote no. 3 above. We granted Mr. Wyler 20,000 options and 2,400 restricted shares that are currently exercisable or exercisable within 60 days as of March 21, 2016.20, 2018. |
| (12) | See footnote no. 3 above. We granted Mr. Hilman 41,85020,000 options and 10,80016,800 restricted shares that are currently exercisable or exercisable within 60 days as of March 21, 2016. In addition, we granted Mr. Hilman 6,000 restricted shares issued to a trustee under our 2006 Israeli Incentive Compensation Plan which have equity rights, but no voting rights as of March 21, 2016 or within 60 days thereafter.20, 2018. |
In addition, all of our directors and officers are entitled to benefit from coverage under our directors’ and officers’ liability insurance policies and were granted letters of indemnification by us. For further details see “Indemnification, exemption and insurance of Directors and Officers”Officers”, below.
Following the approval by our shareholders on December 19, 2013 and in accordance with our Compensation Policy (for further information, see itemItem 6.D. “The Compensation Committee”), each of our directors (including external directors and independent directors, but excluding the executive chairman of our board of directors and directors who serve in other roles at the Company) is entitled to a grant of compensation pursuant to the fixed amounts permitted to be paid to external directors (depending on our equity level), all in accordance with applicable regulations promulgated under the Companies Law, or the 'External Directors' Compensation Regulations, as may be from time to time. This remuneration is paid plus value added tax (as applicable). Directors are reimbursed for expenses incurred as part of their service as directors. None of the directors have agreements with us that provide for benefits upon termination of service.
As of March 21, 2016,20, 2018, our directors and executive officers beneficially owned 309,509267,865 shares (of which 115,64446,640 ordinary shares held by a trustee for the benefit of our directors and executive officers under our 2006 Plan, vested as of March 20, 2018 or within 60 days thereafter and 62,000 shares are issuable upon exercise of options that are currently vested or will vest within 60 days as of March 21, 2016)20, 2018). For further information, see itemItem 6.E. “Share Ownership”.
Indemnification, exemption and insurance of Directors and Officers
The Companies Law permits a company to insure its directors and officers, provide them with indemnification, either in advance or retroactively, and exempt its directors and officers from liability resulting from their breach of their duty of care towards the company, all in accordance with the terms and conditions specified under Israeli law. Our articles of association include clauses allowing us to provide our directors and officers with insurance, indemnification and to exempt them from liability subject to the terms and conditions set forth by the Companies Law, as described below.
In addition, the Israeli Securities Law of 1968, or the Securities Law, includes provisions to make the enforcement of violations of the Securities Law and certain provisions of the Companies Law more efficient by the Israel Securities Authority, or the ISA. Under the Securities Law, the ISA is allowed to initiate administrative proceedings against entities and individuals with respect to such violations, and to impose various sanctions, including fines, payment of damages to the person or entities harmed as a result of such violations, limitations on the service of any individual as director or officer and suspension or cancellation of certain permits granted to the entity. Under the Securities Law, a company is not allowed to indemnify or insure its directors and officers in connection with administrative proceedings initiated against them by the ISA, except that a company is allowed to insure and indemnify its directors and officers for any of the following: (i) financial liability imposed on any director or officer for payment to persons or entities harmed as a result of any violation for which an administrative proceedings has been initiated; (ii) expenses incurred by any director or officer in connection with administrative proceedings, including reasonable litigation fees, and including attorney fees.
Subject to statutory limitations, our articles of association provide that we may insure the liability of our directors and offices to the fullest extent permitted by the Companies Law. Without derogating from the aforesaid we may enter into a contract to insure the liability of our directors and officer for an obligation or payment imposed on such director or officer in consequence of an act done in his capacity as a director or officer of Optibase, in any of the following cases:
| v | A breach of the duty of care vis-a-vis us or vis-a-vis another person; |
| v | A breach of the fiduciary duty vis-a-vis us, provided that the director or officer acted in good faith and had a reasonable basis to believe that the act would not harm us; |
| v | A monetary obligation imposed on him or her in favor of another person; |
| v | Financial liability imposed on him or her for payment to persons or entities harmed as a result of violations in Administrative Proceedings, as detailed in section 52(54)(A)(1)(a) of the Israeli Securities Law; |
| v | Expenses incurred by him or her in connection with Administrative Proceedings (as defined above) he was involved in, including reasonable litigation fees, and including attorney fees; or |
| v | Any other matter in respect of which it is permitted or will be permitted under applicable law to insure the liability of our director or officer. |
Our articles of association further provide that we may indemnify our directors and officers, to the fullest extent permitted by the Companies Law. Without derogating from the aforesaid, we may indemnify our directors and officers for liability or expense imposed on them in consequence of an action made by them in the capacity of their position as directors or officers of Optibase, as follows:
| v | Any financial liability he or she incurs or imposed on him or her in favor of another person in accordance with a judgment, including a judgment given in a settlement or a judgment of an arbitrator, approved by a court. |
| v | Reasonable litigation expenses, including legal fees, incurred by the director or officer or which he or she was ordered to pay by a court, within the framework of proceedings filed against him or her by or on behalf of Optibase, or by a third party, or in a criminal proceeding in which he or she was acquitted, or in a criminal proceeding in which he or she was convicted of a felony which does not require a finding of criminal intent. |
| v | Reasonable litigation expenses, including legal fees he or she incurs due to an investigation or proceeding conducted against him or her by an authority authorized to conduct such an investigation or proceeding, and which was ended without filing an indictment against him or her and without being subject to a financial obligation as a substitute for a criminal proceeding, or that was ended without filing an indictment against him, but with the imposition of a financial obligation, as a substitute for a criminal proceeding relating to an offence which does not require criminal intent, within the meaning of the relevant terms in the Companies Law. |
| v | Financial liability he or she incurs for payment to persons or entities harmed as a result of violations in Administrative Proceedings, as detailed in section 52(54)(A)(1)(a) of the Securities Law. For this purpose “Administrative Proceeding” shall mean a proceeding pursuant to Chapters H3 (Imposition of Monetary Sanction by the Israel Securities Authority), H4 (Imposition of Administrative Enforcement Means by the Administrative Enforcement Committee) or I1 (Settlement for the Avoidance of Commencing Proceedings or Cessation of Proceedings, Conditioned upon Conditions) of the Securities Law, as shall be amended from time to time. |
| v | Expenses that he or she incurs in connection with Administrative Proceedings (as defined above) he was involved in, including reasonable litigation fees, and including attorney fees. |
| v | Any other obligation or expense in respect of which it is permitted or will be permitted under law to indemnify a director or officer of Optibase. |
In addition, our articles of association provide that we may give an advance undertaking to indemnify a director and/or an officer in respect of all of the matters above, provided that with respect to the first matter above, the undertaking is restricted to events, which in the opinion of our board of directors, are anticipated in light of our actual activity at the time of granting the obligation to indemnify and is limited to a sum or measurement determined by our board of directors as reasonable under the circumstances. We may further indemnify an officer therein, save for the events subject to any applicable law.
Our articles of association further provide that we may exempt a director in advance and retroactively for all or any of his or her liability for damage in consequence of a breach of the duty of care vis-a-vis Optibase, to the fullest extent permitted by the Companies Law. Notwithstanding the foregoing, the Companies Law prohibits a company to exempt any of its directors and officers in advance from their liability towards such company for the breach of its duty of care in distribution, as defined in the Companies Law, for such company’s shareholders (including distribution of dividend and purchase of such company’s shares by the company or an entity held by it).
The above provisions with regard to insurance, exemption and indemnity are not and shall not limit the Company in any way with regard to its entering into an insurance contract and/or with regard to the grant of indemnity and/or exemption in connection with a person who is not an officer of the Company, including employees, contractors or consultants of the Company, all subject to any applicable law.
All of the above shall apply mutatis mutandis in respect of the grant of insurance, exemption and/or indemnification for persons serving on behalf of the Company as officers in companies controlled by the Company, or in which the Company has an interest.
The Companies Law provides that companies may not give insurance, indemnification (including advance indemnification), or exempt their directors and/or officers from their liability in the following events:
| v | a breach of the fiduciary duty, except for a breach of the fiduciary duty vis-à-vis the company with respect to indemnification and insurance if the director or officer acted in good faith and had a reasonable basis to believe that the act would not harm the company; |
| v | an intentional or reckless breach of the duty of care, except for if such breach was made in negligence; |
| v | an act done with the intention of unduly deriving a personal profit; or |
| v | Fine, civil penalty, a financial sanction or penalty imposed on the directors or officers. |
We have a directors and officers liability insurance policy, as described below.
On December 19, 2013,29, 2016, following the approval by our compensation committee and board of directors, our shareholders approved an amendment to our Compensation policy which include clauses allowing us to provide our directors and officers with insurance, indemnification and to exempt them from liability subject to the purchaseterms and conditions set forth by the Company (including for the avoidance of doubt, any renewals or extensions), from time to time, of directors' and officers' liability insurance policies, including as directors or officers of our subsidiaries, in Israel or overseas, for a period of three years commencing on December 19, 2013, or until the annual general meeting of our shareholders to be held in 2016, whichever is later;Companies Law; provided however, that insurance policies purchased under this frameworkthe Compensation Policy comply with all of the following conditions:
| v | the maximum coverage amount under each policy shall not exceed the higher of: (i) US $10,000,000;$20 million; or (ii) 25% of our shareholders equity based on our most recent financial statements at the time of approval by our compensation committee; |
| v | the maximum yearly premium to be paid by us for each policy shall not exceed 1% of the aggregate coverage of such policy; |
| v | the terms of the policy shall comply with our Compensation Policy for directors and officers; and |
| v | the purchase of the policy (including any renewal or extension) shall be approved by our compensation committee (and, if required by law, by our board of directors) which shall determine whether the coverage amount and the relevant premium sums are reasonable considering our exposures, the scope of coverage and market conditions and that the policy reflects the current market conditions, and it shall not materially affect our profitability, assets or liabilities. |
We currently have an insurance policy for our directors' and officers' liability, including as directors or officers of our subsidiaries, for the period commencing on SeptemberNovember 1, 20152017 and ending on AugustOctober 31, 2016,2018, as approved by our compensation committee and board of directors. The coverage amount under such policy and the yearly premium to be paid by us for such policy are US $19,000,000$19 million and US $50,000,$142,000, respectively. The terms of such policy are in accordance with our Compensation Policy and in accordance with the framework resolution with respect to the purchase by us, from time to time, of directors’ and officers’ liability insurance policies, including as directors or officers of our subsidiaries, asPolicy.
As approved by our shareholders aton December 21, 2017, following the annual general meeting held at December 19, 2013.
Weapproval by our compensation committee and board of directors, we have undertaken to indemnify all of our directors and officers, including Mr. Tom Wyler, the Chief Executive Officer of our subsidiary Optibase Inc., to the fullest extent permitted by the Companies Law and our articles of association and entered into an indemnity letter with each of our directors and executive officers. The aggregate indemnification amount shall not exceed the higher of: (i) 25% of our shareholders’ equity, as set forth in our financial statements prior to such payment; or (ii) $10$20 million. On November 17, 2011, our shareholders approvedFor further details regarding the approval of an amendment to the indemnification letters, of indemnification issued by us to all of our directorssee Item 6.A “Directors and officers, with respect to recent amendments to the Israeli Securities Law, in connection with administrative proceedings. In addition, on October 22, 2014, our shareholders further approved the following amendments to the letters of indemnification issued by us to all of our directors and officers: (a) inclusion of additional events upon the occurrence of which we may indemnify our current and future directors and officers; and (b) increase of the aggregate and accumulated indemnification amount that we may pay our directors and officers, to an amount that shall not exceed the higher of: (i) 25% of the shareholders’ equity of the Company, as set forth in our most recent consolidated financial statements prior to such payment; (ii) $10 million.Senior Management”.
6.C. BOARD PRACTICES
Pursuant to our articles of association, our board of directors is required to consist of three to nine members. Directors are elected at the annual general meeting of our shareholders by a vote of the holders of a majority of the voting power represented at such meeting. Each director holds office until the annual general meeting of shareholders following the annual general meeting at which the director was elected or until his or her earlier resignation or removal. A director may be re-elected for subsequent terms. At present, our board of directors consists of five members, including two external directors appointed in accordance with the Israeli law requirements, as detailed herein. Our articles of association provide that our directors may at any time and from time to time, appoint any other person as a director, either to fill in a vacancy or to increase the number of members of our board of directors.
Under the Companies Law, each Israeli public company is required to determine the minimum number of directors with “accounting and financial expertise” that such company believes is appropriate in light of the particulars of such company and its activities. A director with “accounting and financial expertise” is a person that, due to education, experience and qualifications, is highly skilled and has an understanding of business-accounting issues and financial statements in a manner that enables him/her to understand in depth the company’s financial statements and stimulate discussion regarding the manner of presentation of the financial data. Our board of directors resolved on March 30, 2006 and on June 27, 2010 that the minimum number of directors with accounting and financial expertise appropriate for us in light of the size of the board of directors and nature and volume of the Company’s operations is one director (such director may serve as an external director, see below).
External Directors
Under the Companies Law, Israeli public companies are required to appoint at least two external directors to serve on their board of directors (following Amendment 27 to the Companies Law all of such external directors are no longer required to be Israeli residents if a company's shares are listed on a foreign stock exchange, such as our Company). OurOn December 29, 2016, our shareholders approved on December 19, 2013 the re-appointment of Mr. Chaim Labenski and Ms. Orli Garti-Seroussi as our external directors as offor an additional three years term commencing on December 29, 201331, 2016 and as of January 31, 2014, respectively, for a three-year term.2017, respectively. In addition, each committee of the board of directors entitled to exercise any powers of the board is required to include at least one external director. The audit committee must include all the external directors, see “Committees of the Board of Directors” below.
Pursuant to the Companies Law, at least one external director is required to have “accounting and financial expertise” and the other is required to have “professional qualification” or “accounting and financial expertise”. A director has “professional qualification” if he or she satisfies one of the following:
| (i) | the director holds an academic degree in one of these areas: economics, business administration, accounting, law or public administration; |
| (ii) | the director holds an academic degree or has other higher education, all in the main business sector of the company or in a relevant area for the board position; or |
| (iii) | the director has at least five years’ experience in one or more of the following or an aggregate five years’ experience in at least two or more of these: (a) senior management position in a corporation of significant business scope; (b) senior public office or senior position in the public sector; or (c) senior position in the main business sector of the company. |
| (i)(iv) | A director with “accounting and financial expertise” is a person that in light of his or her education, experience and skills has high skills and understanding of business-accounting issues and financial reports which allow him or her to deeply understand the financial reportsevaluation of the company and holdprofessional qualification of a discussion relating to the presentation of financial information. The company’scandidate shall be made by our board of directors will take into consideration in determining whether a director has “accounting and financial expertise”, among other things, his or her education, experience and knowledge in any of the following: our nominating committee. |
a director with “accounting and financial expertise” is a person that in light of his or her education, experience and skills has high skills and understanding of business-accounting issues and financial reports which allow him or her to deeply understand the financial reports of the company and hold a discussion relating to the presentation of financial information. The company’s board of directors will take into consideration in determining whether a director has “accounting and financial expertise”, among other things, his or her education, experience and knowledge in any of the following:
| (i) | accounting issues and accounting control issues characteristic to the segment in which the company operates and to companies of the size and complexity of the company; |
| (ii) | the functions of the external auditor and the obligations imposed on such auditor; |
| (iii) | preparation of financial reports and their approval in accordance with the companies lawCompanies Law and the securities law. |
A company whose shares are traded in certain exchanges outside of Israel, including The NASDAQ Global Market, such as our company, is not required to nominate at least one external director who has accounting and financial expertise so long as another independent director for audit committee purposes who has such expertise serves on board of directors pursuant to the applicable foreign securities laws. In such case, all external directors will have professional qualification.
Under Israeli law, a person may not serve as an external director if he or she is a relative of any of the controlling shareholders or at the date of the person’s appointment or within the prior two years the person, or his or her relatives, partners, employers or entities under the person’s control or entities which he or she are subject to their control, have or had any affiliation with us, with our controlling shareholder, or its relative or any entity controlling, controlled by or under common control with us. Under the Companies Law, “affiliation” includes an employment relationship, a business or professional relationship maintained on a regular basis or control or service as an executive officer, excluding service as a director in anticipation of serving as an external director in a company that is about to offer its shares to the public for the first time.
Furthermore, under Israeli law, a person may not serve as an external director if he or she, or his or her relatives, partners, employers or a person or entity he or she is subordinate to directly or indirectly, or an entity controlled by the external director has business or professional relations (excluding insignificant relations) with a person or entity whose affiliation with such external director is forbidden.
A person may not serve as an external director if that person’s position or other business activities create, or may create, a conflict of interest with the person’s service as an external director or may otherwise interfere with the person’s ability to serve as an external director. If at the time any external director is appointed, all members of the board (who are not a controlling shareholder or its relative) are the same gender, then the external director to be appointed must be of the other gender.
External directors are elected by a majority vote at a shareholders’ meeting, so long as either:
| (i) | the majority of shares voted for the election includes the majority of the shares of non-controlling shareholders or with no personal interest excluding a personal interest not resulting from relation with controlling shareholders, voted at the meeting;meeting (votes abstaining shall not be taken into account in counting the shareholders' votes); or |
| (ii) | the total number of shares to total amount of shareholders listed in subsection (i) above, who voted against the election of the external director does not exceed two percent (2%) of the aggregate voting rights of the company. |
The Companies Law provides for an initial three-year term for an external director which may be extended, for two additional three-year terms subject to provision specified in the Companies Law. In the case of a company whose shares are traded in certain exchanges outside of Israel, including The Nasdaq Global Market, such as our company, regulations promulgated under the Companies Law provide that the service of an external director can be extended to additional three-year terms, if both the audit committee and the board of directors confirm that in light of the expertise and contribution of the external director, the extension of such external director's term would be in the interest of the company. Election of external directors requires a special majority, as described above and that the period which that person served as an external director together with the reasons for the extension given by the audit committee presented to the shareholders prior to such approval. External directors may be removed only by the same special majority required for their election or by a court, and then only if the external directors cease to meet the statutory qualifications for their appointment or if they violate their duty of loyalty to the company. In the event the number of external directors is less than two external directors, our board of directors is required under the Companies Law to call a shareholders' meeting to appoint a new external director.
External directors may be compensated only in accordance with regulations adopted under the Companies Law.
Our board of directors has a majority of independent directors required pursuant to the NASDAQ Global Market rules.
Independent Directors
Under the Companies Law, the majority of the members of the audit committee must be independent directors. In addition, the Companies Law includes a corporate governance recommendation according to which the majority of the members of the board of directors in a public company that does not have a controlling shareholder should be independent directors, and in a company with a controlling shareholder at least third of the board of directors should be independent directors. A public company may classify an external director or an individual serving as a director, as an independent director only if (i) the audit committee has determined that he or she is qualified to serve as an external director (with the exception that such director does not have to have professional qualifications or accounting and financial expertise in order to serve as an independent director), and (ii) he or she is not serving as a director in the company for more than consecutive nine years (only a period of two or more years, in which such person did not serve as a director in the company, shall be deemed to discontinue the nine year sequence).
Committees of the Board of Directors
As of the date of this annual report, we have threefour committees of the board of directors, which includes our audit committee, our financial statements review committee, our nominating committee and our compensation committee, as described below.
The Audit Committee
The Companies Law requires public companies to appoint an audit committee. The responsibilities of the audit committee include, among others, identifying irregularities and deficiencies in the management of the company’s business and approval of related party transactions as required by law. An audit committee must consist of at least three members, and include all of the company’s external directors. In addition, the majority of its members shall be independent directors in accordance with the requirements of The Companies Law. However, the chairman of the board of directors, any director employed by the company or by its controlling shareholder or by any other entity controlled by such controlling shareholder or a director providing, on a regular basis, services to the company, to any controlling shareholder or to other entity controlled by such controlling shareholder, or any director whose livelihood relies on any controlling shareholder, may not be a member of the audit committee. Any controlling shareholder and any relative of a controlling shareholder may also not be a member of the audit committee. The chairman of the audit committee must be an external director, who has not been serving as a chairman of the audit committee for more than nine years. An audit committee recommends approval of transactions that are deemed interested party transactions, including directors’ compensation and transactions between a company and its controlling shareholder or transactions between a company and another person in which its controlling shareholder has a personal interest. The audit committee must also determine whether a transaction constitute an extraordinary transaction. Pursuant to Amendment 22 to the Companies Law, effective as of January 10, 2014, the responsibilities of the audit committee under the Companies Law also include the following matters: (i) to ensure that a competitive procedure is conducted for related party transactions with a controlling shareholder (regardless of whether or not such transactions are deemed extraordinary transactions), optionally based on criteria which may be determined by the audit committee annually in advance; and (ii) setting forth the approval process for transactions that are 'non-negligible' (i.e. transactions with a controlling shareholder that are classified by the audit committee as non-negligible, even though they are not deemed extraordinary transactions), as well as determining which types of transactions would require the approval of the audit committee, optionally based on criteria which may be determined annually in advance by the audit committee. An audit committee may not approve an action or a transaction with an officer or director, a transaction in which an officer or director has a personal interest, a transaction with a controlling shareholder and certain other transactions specified in the Companies Law, unless at the time of approval two external directors are serving as members of the audit committee and at least one ofmeets all the external directors was present atcriteria required under the meeting in which an approval was granted.Companies Law.
Subject to the exceptions specified in the Companies Law, any person who is not eligible to serve in the audit committee shall not participate in its meetings.
Legal quorum shall be constituted when the majority members of the audit committee shall be present at the meeting, provided that: (a) the majority of the present members are independent directors; and, (b) at least one of the present members is an external director.
Under the Companies Law there are restrictions regarding engagement or benefits with a person who served as an external director (or his or her relative) for period of two years commencing the time when such external director leaves office.
In accordance with the Sarbanes-Oxley Act of 2002 and NASDAQ requirements, our audit committee reviews our internal accounting procedures and consults with and reviews the services provided by our independent auditors.
The rules of NASDAQ currently applicable to foreign private issuers, such as us, require us to establish an audit committee of at least three members, comprised solely of independent directors. All of the members of the audit committee must be able to read and understand basic financial statements, and at least one member must have experience in finance or accounting, requisite professional certification in accounting or comparable experience or background. The board has determined that Ms. Orli Garti-Seroussi is an audit committee financial expert as defined by applicable Securities and Exchange Commission, or the “SEC” or “Commission” regulation. The responsibilities of the audit committee under the NASDAQ rules include the selection and evaluation of the outside auditors and evaluation of their independence.
The members of our audit committee are Mr. Chaim Labenski, Mr. Danny Lustiger and Ms. Orli Garti-Seroussi. These include our two external directors as required under the Companies Law, and we believe that all of the members of our audit committee are independent of management, and satisfy the requirements of Companies Law, the SEC’s rules and NASDAQ rules.
The Financial Statements Review Committee
Our board of directors appointed a financial statement review committee, which consists of members with accounting and financial expertise or the ability to read and understand financial statements, with at least one of the members having “accounting and financial expertise” (as defined above). According to a resolution of our board of directors, the audit committee has been assigned the responsibilities and duties of a financial statement review committee, as permitted under relevant regulations promulgated under the Companies Law. From time to time as necessary and required to approve our financial statements, the audit committee holds separate meetings, prior to the scheduled meetings of the entire board of directors regarding financial statement approval.
The function of a financial statement review committee is to discuss and provide recommendations to its board of directors (including the report of any deficiency found) with respect to the following issues: (i) estimations and assessments made in connection with the preparation of financial statements; (ii) internal controls related to the financial statements; (iii) completeness and propriety of the disclosure in the financial statements; (iv) the accounting policies adopted and the accounting treatments implemented in material matters of the company; (v) value evaluations, including the assumptions and assessments on which evaluations are based and the supporting data in the financial statements. Our independent auditors and our internal auditor are invited to attend all meetings of the audit committee when it is acting in a role of the financial statement review committee or at which matters concerning the financial statements are discussed.
The financial statement review committee is required to consist at least three members, all of its members must be directors, and the majority of its members are required to be directors who meet certain independence requirements of the Companies Law. However, the chairman of the board of directors, any director employed by the company or by its controlling shareholder or by any other entity controlled by such controlling shareholder or a director providing, on a regular basis, services to the company, to any controlling shareholder or to other entity controlled by such controlling shareholder, or any director whose livelihood relies on any controlling shareholder, may not be a member of the financial statement review committee. In addition, any controlling shareholder and any relative of a controlling shareholder may also not be a member of the financial statement review committee. All the committee members are required to give a declaration before their appointment, and the chairperson of the committee must be an external director.
Legal quorum shall be constituted when the majority members of the financial statement review committee shall be present at the meeting, provided that: (a) the majority of the present members are independent directors; and, (b) at least one of the present members is an external director.
The members of our financial statement review committee are Mr. Chaim Labenski, Mr. Danny Lustiger and Ms. Orli Garti-Seroussi. These include our two external directors as required under the Companies Law, and we believe that all of the members of our financial statement review committee satisfy with the requirements of the Companies Law.
The Nominating Committee
The function of our nominating committee is described in the approved charter of the committee and includes responsibility for identifying individuals qualified to become a board members and recommending director nominees to the board of directors for election at the general meeting of shareholders. The nominating committee is also responsible for developing and recommending to the board of directors a set of corporate governance guidelines applicable to the Company, periodically reviewing such guidelines and recommending any changes thereto.
The members of our nominating committee are Mr. Chaim Labenski, Mr. Danny Lustiger and Ms. Orli Garti-Seroussi. We believe that all of the members of our nominating committee are independent of management, and satisfy the requirements of the NASDAQ rules.
The Compensation Committee
Under the Companies Law, a public company is required to appoint a compensation committee. The compensation committee must consist of at least three directors, must include all the external directors, the majority of its members must be external directors, and its chairman must be an external director. In addition, all members of the compensation committee must meet the requirements under the Companies Law for membership in the audit committee, as described above.above, and all of its members shall be compensated in accordance with section 244 of the Companies Law.
Under the Companies Law and our compensation committee charter, our compensation committee is responsible, among others, for (i) recommending to the board of directors regarding its approval of a compensation policy in accordance with the requirements of the Companies Law, and any other compensation policies, incentive-based compensation plans and equity-based plans; (ii) overseeing the development and implementation of such compensation plans and policies that are appropriate in light of all relevant circumstances and recommending to the board of directors regarding any amendments or modifications that the compensation committee deems appropriate; (iii) determining whether to approve transactions concerning the terms of engagement and employment of our officers and directors that require compensation committee approval under the Companies Law or our compensation plans and policies; and (iv) taking any further actions as the compensation committee is required or allowed to under the Companies Law or the compensation plans and policies.
The members of our compensation committee are Mr. Chaim Labenski, Mr. Danny Lustiger and Ms. Orli Garti-Seroussi.
We do not have a nomination committee. The actions ordinarily taken by such committee are resolved by the majority of our independent directors, in accordance with the Companies Law and the NASDAQ Global Market listing requirements.
Internal auditor
The Companies Law requires the board of directors of a public company to appoint an internal auditor pursuant to the audit committee’s proposal. The internal auditor must satisfy certain independence requirements as required by the law. The role of the internal auditor is to examine, among other things, the compliance of the company's conduct with applicable law and orderly business procedures. Our internal auditor is Mr. Doron Cohen of Fahn Kanne & Co., a member firm of Grant Thornton International Ltd.
Employment Agreements
Each of our executive officers entered into a written employment agreement with us that provides, among other things, that such officers be paid a monthly salary and bonuses. Each such agreement can be terminated either by us, or by the employee, upon prior notice, which ranges between 30 to 120 days for most of the management team. The employment agreements also provide that each executive officer will maintain confidentiality of matters relating to us and will not compete with us during the period of the officer’s employment and for a certain period thereafter.
6.D. EMPLOYEES
Since the sale of our Video Solutions Business on July 1, 2010 and as of the date of this annual report, we have ten12 employees, including employees in our subsidiaries, all of them employed in our general and administrative, finance and human resources divisions.
Out of whom 7 employees are employed in Israel, 4 are employed in the United States and 1 is employed in Europe. All of our employees are currently employed pursuant to personal employment agreements.
6.E. SHARE OWNERSHIP
As of March 21, 2016,20, 2018, our current directors and executive officers (eight persons) beneficially owned an aggregate of 309,509267,865 ordinary shares of our Company of which 115,64446,640 ordinary shares held by a trustee for the benefit of our directors and executive officers under our 2006 Plan, vested as of March 20, 2018 or within 60 days thereafter and 62,000 shares are issuable upon exercise of options that may be currently exercisable or exercisable within 60 days of March 21, 2016. Such number excludes 12,000 ordinary shares held by a trustee for the benefit of directors and executive officers under the Company’s incentive plan which have not vested as of March 21, 2016 or 60 days thereafter, and award their holder no voting and equity rights. Other than Shlomo (Tom) Wyler and Alex Hillman, all20, 2018. All of our directors or executive officers hold less than 1% of our shares except for Mr. Shlomo (Tom) Wyler who holds, to the Company knowledge, approximately 179,218 ordinary shares of which 20,000 shares are issuable upon exercise of options that may be currently exercisable or exercisable within 60 days of March 20, 2018, which is approximately 3.45% of the Company's outstanding shares. See Item 7.A. “Major Shareholders” for more information regarding Mr. Wyler's holdings.
Incentive Plans
As of March 21, 2016,20, 2018, options to purchase 112,00062,000 of our ordinary shares were outstanding, with exercise prices ranging from $5.96$7.79 to $10 per share. As of March 21, 2016, 112,00020, 2018, 62,000 of the options described above have vested or are exercisable within 60 days of such date. The expiration date of the aforementioned options is generally seven years from the date of their grant. As of December 31, 20142016 and 2015,2017, the number of options reserved for issuance under our plans was 482,722.491,991 and 511,260, respectively.
As of March 21, 201620, 2018 or within 60 days thereafter, an aggregate of 183,690 ordinary shares has been reserved for issuance under the 2006 Plan, and 12,000 were granted and are outstanding.Plan. As of December 31, 20142016 and 2015,2017, the number of restricted shares reserved for issuance under the 2006 Plan was 199,690 and 191,690, respectively.183,690.
The following table shows the number of options and restricted shares outstanding and reserved for issuance under each of our incentive plans, as of March 21, 201620, 2018 or within 60 days thereafter.
Plan | | Number of options outstanding | | Number of options reserved for issuance | Number of options outstanding | Number of options reserved for issuance |
1999 Israeli Plan | | 112,000 | | 482,722 | 62,000 | 511,260 |
Plan | | Number of shares outstanding | | Number of shares reserved for issuance | Number of shares outstanding | Number of shares reserved for issuance |
2006 Israeli Incentive Compensation Plan | | 12,000 | | 183,690 | - | 183,690 |
The following is a description of our incentive plans currently in effect.
1999 Plans
In January 1999, our shareholders approved the adoption of an Israeli option plan, or the 1999 Israeli Plan, and a U.S. option plan, or the 1999 U.S. Plan, collectively the “1999 Plans” both plans have a joint pool of underlying shares to be granted thereunder. The 1999 Plans were amended from time to time to include different tax tracks. The purpose of the 1999 Plans is to attract and retain the best available personnel, to provide additional incentive to employees, directors and consultants and to promote the success of our business. In December 1999, our board of directors adopted a resolution to amend the 1999 Plans in a manner that as of April 1, 2000, the number of shares made available for grant under the 1999 Plans will be automatically increased annually, to equal 5% of our outstanding share capital at the relevant time. In May 2003 we amended our 1999 Israeli Plan to provide for the grant of options to Israeli optionees under the new capital gains track provisions of the Israeli Tax Ordinance. As of March 21, 2016,20, 2018, or within 60 days thereafter, an aggregate of 482,722511,260 ordinary shares has been reserved for issuance under the 1999 Israeli Plan, and 112,00062,000 were granted and are outstanding. Unless specifically changed for a certain grantee, options vest monthly over a period of four years, starting one year after the date of grant, subject to the continued employment of the grantee. The exercise price of the options is determined by our board of directors, subject to limitations. Generally, options granted under each of the 1999 Plans will have a term of no more than seven years from the date of grant. All options are subject to earlier termination upon termination of the grantee’s employment or other relationship with us, generally no less than three months from termination. We may make certain exceptions, from time to time, in the vesting and expiration terms of options granted to certain grantees.
2006 Israeli Incentive Compensation Plan
In May 2006, our board of directors approved the adoption of the 2006 Israeli Incentive Compensation Plan, or the 2006 Plan, the purpose of which is to secure the benefits arising from ownership of share capital by our employees, officers and directors who are expected to contribute to the Company’s future growth and success. The 2006 Plan provides for the grant of options, restricted shares and restricted share units in accordance with various Israeli tax tracks. We currently use the 2006 Plan for the grant of restricted shares only. The restricted shares are granted for no consideration and with a vesting schedule of two years (50% each year). The restricted shares are granted in accordance with the Israeli capital gains tax track. Termination of employment of a grantee for any reason will result in the forfeiture of such grantee’s unvested restricted shares. All restricted shares are subject to earlier termination upon termination of the grantee’s employment or other relationship with us, generally no less than 90 days from termination. We may make certain exceptions, from time to time, in the vesting and expiration terms of the securities granted to certain grantees. In November 2013, our board of directors approved the increase of number of shares under the 2006 Plan in additional 50,000 shares and in August 2014, our board of directors approved the increase of number of shares under the 2006 Plan in additional 150,000 shares. As of March 21, 201620, 2018 or within 60 days thereafter, an aggregate of 183,690 ordinary shares has been reserved for issuance under the 2006 Plan, and 12,000 were granted and are outstanding.Plan.
NASDAQ Listing Rules permitpermit foreign private issuers to follow home countrycountry practices in regard to certain requirements, including the requirement to obtain shareholder approval in connection with the establishment of certain incentive plans. In June and September 2006, we notified NASDAQ that we elected to follow home practices with regard to the adoption of, and the amendment to, the 2006 Plan. Accordingly, the adoption of, and the amendments to, the 2006 Plan were not approved by our shareholders.
ITEM 7.7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
7.A. MAJOR SHAREHOLDERS
The following table sets forth certain information known to us regarding the beneficial ownership of our outstanding ordinary shares as of March 21, 201620, 2018 of (i) each person or group known by us to beneficially own 5% or more of the outstanding ordinary shares and (ii) the beneficial ownership of all officers and directors as a group, in each case as reported by such persons:
Name of Beneficial Owner | | No. of Ordinary Shares Beneficially Owned(1) | | | Percentage of Ordinary Shares Beneficially Owned | |
The Capri Family Foundation (2) | | | 3,796,284 | | | | 73.28 | % |
Shareholding of all directors and officers as a group (eight persons)(3) | | | 267,865 | | | | 5.11 | % |
Name of Beneficial Owner | | No. of Ordinary Shares Beneficially Owned(1) | | | Percentage of Ordinary Shares Beneficially Owned | |
The Capri Family Foundation (2) | | | 3,796,284 | | | | 73.95 | |
Shareholding of all directors and officers as a group (eight persons)(3) | | | 309,509 | | | | 5.9 | |
_________________________
(1) Number of shares and percentage ownership is based on 5,133,6305,214,256 ordinary shares outstanding as of March 21, 2016.20, 2018. Such number excludes: (i) 49,89529,895 ordinary shares held by us or for our benefit, and (ii) 12,000 ordinary shares granted under our 2006 Plan held by a trustee for the benefit of the grantees thereunder, both have no voting or equity rights as of the date hereof or within 60 days thereafter.benefit. Beneficial ownership is determined in accordance with rules of the SEC and includes voting and investment power with respect to such shares. Shares subject to options that are currently exercisable or exercisable within 60 days of March 21, 201620, 2018 are deemed to be outstanding and to be beneficially owned by the person holding such options for the purpose of computing the percentage ownership of such person, but are not deemed to be outstanding and to be beneficially owned for the purpose of computing the percentage ownership of any other person. All information with respect to the beneficial ownership of any principal shareholder has been furnished by such shareholder and, unless otherwise indicated below, we believe that persons named in the table have sole voting and sole investment power with respect to all the shares shown as beneficially owned, subject to community property laws, where applicable. The shares beneficially owned by the directors include the ordinary shares owned by their family members to which such directors disclaim beneficial ownership.(2) The information is accurate as of March 18, 2015, and based on Amendment No. 6 to Schedule 13D filed with the SEC on March 18, 2015, by The Capri Family Foundation. According to such Amendment No. 6 to Schedule 13D, Capri directly owns 3,796,284 of our ordinary shares. The core activity of Capri is the holding of investments. In addition, the beneficiaries of Capri are the children of Mr. Tom Wyler, the Chief Executive Officer of our subsidiary, Optibase Inc.
(3) Includes 193,865159,225 ordinary shares and 115,644 ordinary shares issuable upon exercise of options exercisable within 60 days of March 21, 2016. Excludes 12,000, 46,640 ordinary shares held by a trustee for the benefit of our directors and executive officers under our 2006 Plan, which have not vested on March 21, 201620, 2018 or within 60 days thereafter and do not acquire any voting62,000 ordinary shares issuable upon exercise of options exercisable within 60 days of March 20, 2018. Other than Shlomo (Tom) Wyler, all of our directors or equity rights. No individual director or officer holds one percent (1%) or moreexecutive officers hold less than 1% of the Company's issued share capital.our shares.
Significant changes in the ownership of our shares.
The following table specifies significant changes in the ownership of our shares held by Gesafi Real Estate S.A. This information is based on Schedules 13D filed by Gesafi Real Estate S.A during the period beginning on January 1, 2013, regarding ownership of our shares, and to date:
Beneficial Owner – | | Date of filing | | No. Of Shares Beneficially Held | |
Gesafi Real Estate S.A* | | February 3, 2014 | | | 0 | ** |
| * To the best of our knowledge, 100% of the equity interest of Gesafi Real Estate S.A, or Gesafi, is held by The Capri Family Foundation, or Capri. The beneficiaries of Capri are the children of Mr. Shlomo (Tom) Wyler, the Chief Executive Officer of our subsidiary, Optibase Inc. |
| ** The information is based on Amendment No. 5 to Schedule 13D filed with the SEC on February 3, 2014, by Gesafi and Capri, pursuant to the powers of the councillors of Capri, Gesafi transferred 1,127,185 ordinary shares held by it to Capri without consideration, as follows: 5,000 ordinary shares on November 8, 2013, 8,000 ordinary shares on November 12, 2013 and 1,114,185 ordinary shares on November 19, 2013. |
The following table specifies significant changes in the ownership of our shares held by The Capri Family Foundation. This information is based on Schedules 13D filed by The Capri Family Foundation during the period beginning on January 1, 2013,2015, regarding ownership of our shares, and to date:
Beneficial Owner – | | Date of filing | | No. Of Shares Beneficially Held | |
The Capri Family Foundation* | | February 3, 2014 | | | 3,725,055 | | | |
The Capri Family Foundation | | March 18, 2015 | | | 3,796,284 | ** |
| * To the best of our knowledge, the beneficiaries of The Capri Family Foundation are the children of Mr. Shlomo (Tom) Wyler, the Chief Executive Officer of our subsidiary, Optibase Inc. |
* | ** The information is based on Amendment No. 6 to Schedule 13D filed with the SEC on March 18, 2015, by Capri, in connection with the acquisition of an additional 71,229 ordinary shares by Capri, as follows: (a) on January 30, 2015, Capri acquired an additional 52,483 ordinary shares in a private transaction with an unrelated third party at a price of $6.71 per share; and (b) on February 25, 2015, Capri acquired an additional 18,746 ordinary shares on the Nasdaq Global Market, at a price of $6.40 per share. |
All of our shares have the same voting rights.
On March 21, 2016,20, 2018, registered holders in the United States hold approximately 54% of our ordinary shares. To the best of our knowledge, except as described above, we are not owned or controlled directly or indirectly by any government or by any other corporation. We are not aware of any arrangement, the operation of which may at a subsequent date result in a change in control of us.
7.B. RELATED PARTY TRANSACTIONS
For a description of the insurance, indemnification and exemption granted to our directors and officers, see Item 6.B. “Compensation” above.
For a description of the grant of options to our directors and officers, see Item 6.E. “Share Ownership”, above. In addition, each member of our board of directors is granted compensation pursuant to the fixed amounts permitted to be paid to external directors (depending on our equity level), all in accordance with the 'External Directors' Compensation Regulations, as may be from time to time, for his/her service as a director. For additional information see Item 6.B. “Compensation” above.
On October 19, 2009, our shareholders approved the compensation of Mr. Alex Hilman, a director of the Company, who was appointed on September 1, 2009 as Executive Chairman of the board of directors. The principal terms of such compensation are as follows: a monthly payment of NIS 20,000 plus applicable value added tax, against the receipt of a tax invoice. The Company will also reimburse Mr. Hilman for his reasonable expenses directly incurred by him in the performance of his duties against the production of appropriate receipts. In addition, Mr. Hilman was granted on October 19, 2009, 20,000 options exercisable into 20,000 ordinary shares NIS 0.65 nominal value each of the Company under the Company's 1999 Israeli Share Option Plan. The options were granted under the Section 102 of the Israeli Tax Ordinance, through the capital gains tax track. The exercise price of each option is $5.96. The options vest over a period of four years in equal parts, and may be exercisable until their 10th anniversary. All other terms of the options are as stated in the Company's 1999 Israeli Share Option Plan.
On May 6, 2010, our shareholders approved the grant of 50,000 options exercisable into 10,000 ordinary shares NIS 0.65 nominal value each of the Company under the Company's 1999 Israeli Share Option Plan to Mr. Danny Lustiger as a director of the Company. The options were granted under Section 102 of the Israeli Tax Ordinance, through the capital gains tax track. The exercise price of each option is $10. The options vest over a period of four years in four equal parts, and may be exercisable until their 10th anniversary. All other terms of the options are as stated in the Company's 1999 Israeli Share Option Plan. Mr. Lustiger was also entitled to 800 restricted shares, which vest over two years in two equal parts, and which were granted pursuant to the Company's 2006 Israeli Incentive Compensation Plan.
On December 29, 2010, our shareholders approved the grant by the Company of 2,400 restricted shares of the Company, in three equal consecutive annual grants, to each of Mr. Alex Hilman, Ms. Dana Tamir-Tavor and Mr. Danny Lustiger, or the Recipients, who served at that time as directors of the Company, under the Company's 2006 Israeli Incentive Compensation Plan. The restricted shares were granted to the Recipients for no consideration, and vest after a two-year period (50% each year) from their date of grant, subject to the continued employment or service of the Recipients in the Company.
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Our shareholders have further approved on December 19, 2013, the reappointment of Ms. Garti-Seroussi and Mr. Labenski as external directors of the Company, including the compensation terms for their service as external directors of the Company, in the compensation terms specified in Item 6.B. “Compensation” above.
On November 17, 2011, and following the approval by our audit committee and board of directors, our shareholders approved a grant of 20,000 options exercisable into 20,000 ordinary shares NIS 0.65 nominal value each of the Company to Mr. Hilman, the Executive Chairman of the board of directors, under the Company's 1999 Israeli Share Option Plan, without consideration. The Options were granted to a trustee for the benefit of Mr. Hilman in accordance with the requirements of the capital gains tax track chosen by the Company. The exercise price of each option is $10. The options vest during a four-year period as of their date of grant (25% each year), and may not be exercised following their 10th anniversary. All other terms of the options are as stated in the Company's 1999 Israeli Share Option Plan. Along with the approval of the grant of options to Mr. Hilman, the Company's shareholders approved a similar grant of 20,000 options exercisable into 20,000 ordinary shares to Mr. Shlomo (Tom) Wyler, the Chief Executive Officer of our subsidiary, Optibase Inc., who then served as our president and member of our board of directors, under the Company's 1999 Israeli Share Option Plan. The terms of grant of such options to Mr. Wyler are identical to the terms of grant of the options to Mr. Hilman as described above, except that the tax track available to Mr. Wyler, who considered to be our controlling shareholder as of the date grant of such options, is different from the capital gains tax track afforded to all other directors and officers of the Company. Under this tax track, we will also not be able to recognize expenses pertaining to this grant.
In July 2013, our audit committee and board of directors approved the receipt of guarantees from our controlling shareholder or any affiliate thereof, to financing institutions in connection with us, our subsidiaries' or affiliated companies' real estate and real estate related activities. For further details see Item 5.B. “Operating and Financial Review and Prospects - Liquidity and Capital Resources” above. On May 26, 2015 we utilized the guaranty given by our controlling shareholder and drew a total of €5 million that were used to partially finance the closing of the portfolio acquisition transaction in Germany. The funds were drawn in a form of a monthly credit facility bearing a yearly rate of approximately 76 basis points (0.76%). On July 24, 2015 the Company covered the monthly credit facility in full.
On December 19, 2013, and following the approval by our compensation committee and board of directors, our shareholders approved the grant of our 12,000 restricted shares, in three equal consecutive annual grants (commencing on January 1, 2014), to each of Mr. Alex Hilman, the executive chairman of our board of directors, and Mr. Amir Philips, our chief executive officer, or the Recipients, under the Company's 2006 Israeli Incentive Compensation Plan. The restricted shares were granted to the Recipients for no consideration, and vest after a two-year period (50% each year) from their date of grant, subject to the continued employment or service of the Recipients in the Company.
On December 19, 2013, and following the approval by our audit committee, compensation committee and board of directors, our shareholders approved the compensation terms of Mr. Shlomo (Tom) Wyler, for his service as Chief Executive Officer of our subsidiary Optibase Inc. According to the terms approved by our shareholders, Mr. Wyler serves as Chief Executive Officer of Optibase Inc. and is responsible for the implementation of our strategy in North America, recognizing new local opportunities, forming strategic alliances and overseeing the ongoing management of our current U.S. real estate portfolio. The yearly gross base salary in consideration for Mr. Wyler's services as Chief Executive Officer of Optibase Inc. will be $170,000 for a full time position as well as reimbursement of health insurance expenses of up to $24,000 per year, and including reimbursement of reasonable work-related expenses incurred as part of his activities as Chief Executive Officer of Optibase Inc., of up to $50,000 per year. The employment of Mr. Wyler is for a three-year term commencing on January 1, 2014. Mr. Wyler's service as our president and member of our board of directors ended as of December 19, 2013. On May 16, 2016, following the approval by our compensation committee, audit committee and board of directors, our shareholders approved an amendment to Mr. Wyler's compensation terms in a manner that Mr. Wyler's annual gross base salary was set at $200,000 for a full time position, as of January 1, 2016. Mr. Wyler was also granted reimbursement of health insurance expenses of up to $24,000 per year, as well as reimbursement of reasonable work-related expenses incurred as part of his activities as Chief Executive Officer of Optibase Inc., of up to $50,000 per year.
On December 19, 2013, and following the approval by our audit committee and board of directors, our shareholders approved the a service agreement between the Company and Mr. Reuwen Schwarz, currently serves also as a member of our board of directors, for the provision of real estate related consulting services to us, our subsidiaries and affiliates. Mr. Schwarz is a relative of the beneficiaries of Capri, our controlling shareholder. According to term of the service agreement with Mr. Schwarz, he will provide us with real estate related consulting services, including: (i) searching, introducing and advising us on real estate transactions, (ii) advising and negotiating with banks and financing institutions, (iii) advising us on our financing agreements, all as requested by us from time to time and at our sole discretion. Such services will be provided by Mr. Schwarz at the request of the Company. Mr. Schwarz will render such services faithfully and diligently for the benefit of the Company, and will devote all necessary time and attention for the performance of the services. Mr. Schwarz will also use his best efforts to implement the policies established by us in the performance of such services. In consideration for such services, we will pay Mr. Schwarz a monthly fee of EURO 4,000 (approximately $5,350) plus applicable value added tax (if applicable). Mr. Schwarz will also be reimbursed for expenses incurred as part of the services provided by him which shall not exceed EURO 12,000 (approximately $16,060) per year. In the event the service agreement with Mr. Schwarz is terminated during a certain month, Mr. Schwarz will be entitled to a pro rata fee based on the number of days that has lapsed until the termination date of the service agreement. Mr. Schwarz may either provide the services by himself or through a corporation under his control, provided that the consideration under the service agreement remains unchanged. The service agreement with Mr. Schwarz will be in effect retroactively from November 1, 2013 for a period of three years. On December 29, 2016, and following the approval by our audit committee and board of directors, our shareholders approved the extension of Mr. Schwarz' service agreement, which will be in effect retroactively from November 1, 2016 for a period of three years. Each of Mr. Schwarz and us may terminate the service agreement by giving a prior written notice of 30 days. During such advance notice period, Mr. Schwarz will be required to continue the provision of the services provided by him under the agreement (unless we have instructed him otherwise) and in any event Mr. Schwarz will be entitled to receive the consideration for such period, except for cause.
On October 22, 2014, our shareholders approved, following the approval by our compensation committee, audit committee and board of directors, the following amendments to our prospective undertaking to indemnify our current and future directors, including our Chief Executive Officer and including directors and officers who are affiliated with our controlling shareholder, and the grant of amended letters of indemnification accordingly: (a) inclusion of additional events upon the occurrence of which the Company may indemnify its current and future directors and officers; and (b) increase of the aggregate and accumulated indemnification amount that the Company may pay its directors and officers, to an amount that shall not exceed the higher of: (i) 25% of the shareholders’ equity of the Company, as set forth in the Company’s most recent consolidated financial statements prior to such payment; (ii) 10 million U.S. Dollars. On December 21, 2017, our shareholders approved, following the approval by our compensation committee, audit committee and board of directors, the following amendment to our prospective undertaking to indemnify our current and future directors, including our Chief Executive Officer and including directors and officers who are affiliated with our controlling shareholder, and the grant of amended letters of indemnification accordingly: an increase of the aggregate and accumulated indemnification amount that the Company may pay its directors and officers, to an amount that shall not exceed the higher of: (i) 25% of the shareholders’ equity of the Company, as set forth in the Company’s most recent consolidated financial statements prior to such payment; (ii) 20 million U.S. Dollars.
On October 22, 2014, our shareholders approved, following the approval by our compensation committee and board of directors, the grant of the following compensation to Mr. Amir Philips, our Chief Executive Officer, and to amend the compensation terms of Mr. Philips, as follows: (a) the grant of a special bonus in the amount of $50,000 to Mr. Philips; and (b) the extension of Mr. Philips’ existing four (4) months advanced notice period under his employment agreement with the Company to an advance notice period of six (6) months. On May 16, 2016, our shareholders approved, following the approval by our compensation committee and board of directors, certain amendments to the compensation terms of Mr. Philips and the grant of special bonus as follows: (a) Mr. Philips' monthly gross base salary was updated to NIS 65,000 for a full time position, as of January 1, 2016 and would increase to NIS 75,000 as of January 1, 2017; and (b) Mr. Philips was awarded a special bonus in the amount of NIS 120,000. The new compensation terms shall be in effect for a three year term as of January 1, 2016.
On May 26, 2015 we utilized a guaranty given by our controlling shareholder to a financing institution that allowed us to withdraw from such financing institution a total of €5 million that were used to partially finance the closing of the portfolio acquisition transaction in Germany. The funds were drawn in a form of a monthly credit facility bearing a yearly rate of approximately 76 basis points (0.76%). On July 24, 2015 the Company covered the monthly credit facility in full.
On December 29, 2016, our shareholders approved the reappointment of Ms. Garti-Seroussi and Mr. Labenski as external directors of the Company for an additional three years term commencing on January 31, 2017 and on December 31, 2016, respectively, including the compensation terms for their service as external directors of the Company, in the compensation terms specified in Item 6.B. “Compensation” above.
In March 2017, our audit committee and board of directors approved the receipt of a loan from our Controlling shareholder. The Loan was granted to the Company on March 28, 2017. For further details see Item 5.B. “Operating and Financial Review and Prospects - Liquidity and Capital Resources” above.
Condominium Units in Miami Beach, Florida
On December 19, 2013, following the approval of our audit committee and board of directors, our shareholders approved the purchase by two wholly owned subsidiaries of the Company of twelve luxury condominium units located in Miami Beach, Florida, or the Units, in consideration for the issuance of our 1.37 million newly issued ordinary shares (of which approximately 67,000 ordinary shares were off set against the lease of one unit), representing, as of the date of the approval of the transaction by our board of directors, a value of approximately $8.8 million. The Units were sold by private companies indirectly controlled by Capri, our controlling shareholder. At closing, and following the approval of the transaction by our shareholders, we issued to Capri a net sum of 1,300,580 of our ordinary shares, as detailed below. The net fair value of the condominium units as recorded in our financial statement as of the closing date was approximately $7.2 million, representing the fair value of the ordinary shares issued as of the closing date. Set forth below is additional information with respect to the transaction to purchase the Units.
The Flamingo Condominium Units
Our wholly-owned subsidiary, Optibase FMC LLC, a Delaware limited liability company, or Optibase FMC, has entered into two purchase and sale agreements, or the Flamingo Agreements, to acquire eleven luxury condominium units, or the Flamingo Units, including ten parking spaces in the Flamingo-South Beach One Condominium located at 1500 Bar Road in Miami Beach, Florida, or the Flamingo Condominium. The sellers of the Flamingo Units, or the Sellers, are two private companies indirectly controlled by Capri, our controlling shareholder.
The Flamingo Units are located on various floors of the South Building of the Flamingo Condominium, and ranging in size from 924 to 2,347 square feet. The Flamingo Condominium is a 15-story tower with 513 luxury residential units ranging in size from approximately 450 to approximately 2,347 square feet.
The purchase price agreed upon by the parties in consideration for the Flamingo Units was $3,870,750 in the aggregate, and was be paid by the Company in 600,115 newly issued ordinary shares of the Company issued to the Sellers, at a price per share of $6.45. The price per share was set based on a calculation of average closing price of our ordinary shares on the Nasdaq Global Market during the 30 trading days preceding the signing date of the Flamingo Agreements.
On September 17, 2014, following the approval of our audit committee and board of directors, we entered into a transaction to sell the eleven Flamingo Units, to an unrelated third party, in consideration for an aggregate price of approximately $6.4 million to be paid to us. The transaction was conditioned on the purchaser’s execution of a purchase and sale agreement to acquire an additional nineteen (19) condominium units located in the Flamingo Condominium from a company affiliated with our controlling shareholder. Therefore, in the interest of caution, we treated the transaction as a transaction between a public company and another party, in which the company’s controlling shareholder has personal interest, as defined under the Companies Law. The transaction was subject to a twenty (20) day inspection period during which the purchaser had the right to terminate the purchase and sale agreement. The closing of the transaction occurred on October 20, 2014. At the closing of the transaction, the purchaser paid to us an aggregated gross price of $6.4 million, in consideration for the Flamingo Units. We recorded a capital gain of approximately $2.7 million resulting from such transaction.
The Continuum Unit
The Company's wholly-owned subsidiary, Optibase Real Estate Miami LLC, a Florida limited liability company, or Optibase Miami, has entered into an agreement, or the Continuum Agreement, to acquire a luxury condominium unit (including 2 parking spaces) in the Continuum on South Beach Condominium, or the Continuum Unit, located in Miami Beach, Florida. The seller of the Continuum Unit, or the Seller, is indirectly controlled by Capri, our controlling shareholder.
The Continuum Unit is located on the 33rd floor of the North Tower of the Continuum on South Beach Condominium located at 50 S. Pointe Drive, Miami Beach, Florida. The Continuum on South Beach Condominium is a 37-story ocean-front tower with 203 luxury residential units ranging in size from 1,554 to 3,497 square feet. Residences of the Continuum on South Beach Condominium enjoy the right to use the common areas of the residence, including swimming pool, tennis courts, spa and a sporting club.
The purchase price under the Continuum Agreement is $4,950,000,$4.95 million, to be paid by the Company in 767,442 newly issued ordinary shares of the Company to be issued to the Seller, at a price per share of $6.45. The price per share was set based on a calculation of average closing price of our ordinary shares on the Nasdaq Global Market during the 30 trading days, respectively, preceding the signing date of the Continuum Agreement. We were not required to pay any deposits in connection with the Continuum Agreement.
Beginning at the closing of Optibase Miami's acquisition of the Continuum Unit, the Seller leased the Continuum Unit from us for a term of 36 months. The rent for the entire period of the lease, or the Rent, was prepaid at a rate of $12,000 per month including sales tax (for a total rent of $432,000 including sales tax). The Rent was paid by the Seller at the closing date of the transaction in 66,977 ordinary shares of the Company, at a price of $6.45 per share (which were offset the number of Shares to be issued by us as detailed above).
The acquisitions pursuant to the Flamingo Agreements and the Continuum Agreement closed on December 31, 2013. Accordingly, at the closing of the transactions, and upon instructions provided to us by the sellers of the Units, we issued to Capri on December 31, 2013 a net sum of 1,300,580 of our ordinary shares as consideration for the purchase of the Units, represented, as of the closing date of the agreement, approximately 25.4% of our issued share capital on a fully diluted basis. The net fair value of the condominium units as recorded in our financial statement as of the closing date was approximately $7.2 million, representing the fair value of the ordinary shares issued as of the closing date.
On December 29, 2016, our shareholders approved, following the approval by our audit committee and board of directors, a new lease agreement to be entered into with an affiliate of Capri, or the Tenant. The new lease will be in effect for a one-year term commencing on January 2, 2017, which will be automatically extended by a one-year term and up to a total of three years. The Tenant may decide not to extend the New Lease provided that it has given notice to that effect to the Company at least 45 days before the end of each year. The monthly rent to be paid by the Tenant to the Company is $25,000, including sales tax, the Rent. The Rent will be increased by 3% every year.
Registration Rights Agreement
On October 22, 2014, our shareholders approved, following the approval by our audit committee and board of directors, the entrance by us into a registration rights agreement with Mr. Shlomo (Tom) Wyler and Capri, or the Holders, for the filing of a registration statement in order to register for resale all of our ordinary shares of held by them. The following is a short summary of the principal terms of the agreement:
Demand registration rights
At any time after nine months following the approval of the agreement by our shareholders, at the request of the holders of at least 5% of the ordinary shares outstanding on the effective date of the agreement, we must register any or all of the Holders’ ordinary shares as follows: (i) in the event that we are not eligible under applicable securities laws to file a registration statement on Form F-3, we are required to effect up to two such registrations, but only if the minimum anticipated gross aggregate offering price of the shares to be registered exceeds $5,000,000,$5 million, and (ii) in the event that we are eligible under applicable securities laws to file a registration statement on Form F-3, we are required to effect an unlimited number of registrations, but only (a) if the minimum gross anticipated aggregate offering price of the shares to be registered exceeds $5,000,000,$5 million, and (b) up to two within a period of twelve months. Such registration must also include any additional registrable securities requested to be included in such registration by any other holders who are party to the agreement or entitled thereunder.
Our obligation to effect a registration is subject to certain qualifications and limitations, including our right to postpone a registration during the period that is 90 days before our good faith estimate of the date of filing of, and ending up to 180 days after the effective date of, a registration statement initiated by us and for which the piggyback rights described below will apply, our right to postpone a registration for a period of up to 60 days in the event of our furnishing a certificate signed by our Chief Executive Officer that states that in the good faith judgment of our board of directors, it would be materially detrimental to us or our shareholders for such registration statement to either become effective or remain effective, because such action would (i) materially interfere with a significant acquisition, corporate reorganization, or other similar transaction involving us or (ii) require premature disclosure of material information that we have a bona fide business purpose for preserving as confidential. However, we may not invoke this postponement right for more than an aggregate of 90 days in any 12 month period.
Piggyback registration rights
The Holders have the right to request that we include their registrable securities in any registration statement that we file (other than a registration statement on Form S-8, S-4 or other equivalent form). The right of a Holder to include shares in the registration related thereto is conditioned upon the shareholder accepting the terms of the underwriting, if any, as agreed between us and the underwriters and then only in such quantity as the underwriters in their sole discretion determine will not jeopardize the success of our offering. However, we have agreed not to grant any other shareholders priority to have their securities registered prior the securities of a Holder.
Expenses
All expenses incurred in effecting a registration provided for under the agreement, including, without limitation, all registration and filing fees, printing expenses, reasonable fees and disbursements of counsel for us and for one U.S. counsel and one Israeli counsel, underwriting expenses (other than share transfer taxes, selling Holder underwriting discounts or commissions), road show expenses, expenses of any audits incident to or required by any such registration, shall be paid by us.
Indemnification
The agreement further includes mutual indemnification obligations between the parties, according to which, subject to applicable law, each party to the agreement shall indemnify and hold harmless the other party, from and against any and all losses, claims, expenses, damages or liabilities, joint or several as the same are incurred to which they, or any of them, may become subject under the Securities Act, the Securities Exchange Act of 1934, as amended, other federal or state statutory law or regulation, at common law, or otherwise, insofar as such losses, claims, expenses, damages or liabilities (or action in respect thereof) arise out of or are based upon any of the events specified in the agreement.
Termination of Registration Rights
The Holders’ right to request registration or to include registrable securities held by them in any registration pursuant to the agreement, shall terminate upon the earlier of (a) seven (7) years following the effective date of the agreement or (b) when all of their registrable securities can be sold without restriction pursuant to Rule 144 under the Securities Act and without the requirement for us to be in compliance with the current public information requirements under Rule 144 as confirmed by an unqualified opinion by counsel of us.
Commercial Office Building in Philadelphia
On October 12, 2012, following the approval of our audit committee and board of directors, and the approval of our shareholders during an annual general meeting of our shareholders held on August 16, 2012, our wholly-owned subsidiary, Optibase 2 Penn, LLC, became a limited partner of 2 Penn Philadelphia LP, a Pennsylvania limited partnership, or the Partnership, which acquired an approximately 20% indirect beneficial interest in the owner of a Class A 20-story commercial office building in Philadelphia known as Two Penn Center Plaza, or the 2 Penn Property, and entered into the Limited Partnership Agreement of the Partnership, or the 2 Penn LPA. As of December 31, 2017, the Company indirect beneficial interest in the 2 Penn Property is 22.16%.
The general partner of the partnership and certain other limited partners of the Partnership, are persons or entities affiliated with Mr. Shlomo (Tom) Wyler, the Chief Executive Officer of our subsidiary, Optibase Inc,Inc., who was then our president and member of our board of directors and considered the controlling shareholder of the Company, as detailed herein. The 2 Penn LPA sets forth the terms and conditions of the investment in the Partnership. According to the 2 Penn LPA our subsidiary acquired approximately 26% of the limited partnership interests in the Partnership in consideration for $4,025,000.approximately $4 million.
The Partnership owns a beneficial interest in the owner of the 2 Penn Property by being issued a 85.76% partnership interest in Two Penn Investor LP, a Pennsylvania limited partnership, or the 2 Penn Investor, which acquired 88% (As of December 31, 2017 - 99%) of the limited partnership interests in Crown Two Penn Center Associates Limited Partnership, or the Property Owner, and Two Penn General LLC from Crown Penn Associates, L.P., or Crown Penn. Two Penn General LLC, a Delaware limited liability company controlled by Mr. Alex Schwartz acquired a 1% general partner interest in the Property Owner from Two Penn Center GP Corp., a Pennsylvania corporation, or the Existing General Partner, for the aggregate sum of approximately $12.8 million.
In connection with the closing of the sale agreement transaction, 2 Penn Investor provided a loan to Crown Penn in the original principal amount of $1,573,357,approximately $1.6 million, or the Purchaser Loan. The Purchaser Loan will bear interest at a rate of 12% per annum and will mature in slightly more than 3 years and will be secured by a pledge of Crown Penn’s remaining 11% of the interests in the Partnership.
The 2 Penn Property has existing mortgage financing of approximately $51.7 million from UBS Real Estate Securities Inc., or UBS. The mortgage loan has a fixed interest rate of 5.61% and matures in May 2021, and requires monthly payments of principal and interest of approximately $300,000. The acquisition of the partnership interests in the Property Owner from Existing General Partner and Crown Penn and the performance of the transactions as a whole were conditioned on UBS consenting to the change in ownership of the Property Owner.
Below is a description of the main provisions of the 2 Penn LPA setting forth the terms and conditions of our subsidiary’s investment in the Partnership:
Purpose of the Partnership
The stated purpose of the Partnership is solely to acquire, own, operate and ultimately sell beneficial interests in the 2 Penn Investor (which directly owns partnership interests in the Property Owner) and transact any lawful business that is necessary to accomplish this.
Capital Contributions
The partners will contribute initial capital contributions to the Partnership in the aggregate amount of approximately $15,500,000$15.5 million (of which our subsidiary's share is $4,025,000)approximately $4 million). The Partnership will contribute the initial capital contribution to 2 Penn Investor which will use the funds to acquire the limited partnership interests in the Property Owner, to provide the Purchaser Loan, to pay closing costs for the transaction, and to establish reserves for improvements to the 2 Penn Property.
Additional capital contributions may be requested of limited partners at any time that Two Penn Philadelphia GP LLC (which is the general partner of the Partnership, controlled by Mr. Alex Schwartz, who is affiliated with Mr. Wyler as set forth below, or the General Partner) determines that the Partnership requires additional funds. The General Partner may request loans or capital contributions from the limited partners, provided that if the General Partner requests loans or capital calls exceeding $2,000,000$2 million during any four-year period it must obtain the approval of partners owning at least 65% of the interests in the Partnership.
If a limited partner does not provide its capital contributions, the other limited partners will have the option to fund the failed contribution in proportion to their relative percentage interests. The portion of the deficiency funded shall be treated as a loan from the lending non-defaulting partners to the defaulting limited partner and shall bear a floating interest rate equal to the prime rate of PNC Bank plus 9% (which shall be compounded annually to the extent not paid). The loan shall be repaid directly on a first priority basis out of any subsequent distributions to the defaulting limited partner. A limited partner's liability for a default loan shall be limited to its share of future distributions from the Partnership.
Limited Partner Approval Rights
The General Partner has full management authority over the Partnership, subject to certain major decisions which require the approval of partners owning 65% of the interests in the Partnership. These decisions include: (a) sale or transfer of any asset of the Partnership or granting approval for the sale of the 2 Penn Property; (b) borrowing money from itself or third parties for Partnership purposes or to mortgage, pledge or assign any of the Partnerships assets; (c) requesting capital contributions or borrowing money from the partners in an amount exceeding $2,000,000$2 million during any four year period; (d) admission of any new partners; (e) removal of the General Partner; (f) termination and dissolution of the Partnership; (g) amendment of the Partnership agreement; (h) merger or consolidation into or with another entity; (i) amendment of the Partnership certificate in a material manner; or (j) entering into a new line of business.
Fees Paid to the General Partner
The General Partner or its affiliates may receive an annual management fee of four percent (4%) of gross revenues from the Property from the Property Owner in connection with management of the 2 Penn Property and shall be entitled to be reimbursed for expenses incurred in the management of the Partnership business. The General Partner and its affiliates may not receive any other fees or payments from the Partnership, 2 Penn Investor or from the Property Owner without the consent of limited partners owning at least 65% of the interests in the Partnership.
Distributions
All revenue of the Partnership, less the operating expenses and any reserves established by the GP, or Net Cash Flow, will be distributed as follows:
| (a) | First, to repay partners who loaned sums to other limited partners who defaulted on their capital contributions; |
| (b) | Second, to partners that have made voluntary loans to the Partnership; |
| (c) | Third, to repay the partners their capital contributions; and |
| (d) | Fourth, to the partners in accordance with their percentage interests in the Partnership. |
The General Partner has undertaken to cause Two Penn Investor and Crown 2 Penn LLC to distribute all net cash flow received from the 2 Penn Property to their limited partners. Other than with the consent of partners holding at least 65% of the interests in the Partnership, Crown 2 Penn LLC may only withhold net cash flow in order to: (1) establish reserves not exceeding one million dollars ($1,000,000)1 million) for future expenses of the 2 Penn Property, (2) reserve funds to service debt or loan document obligations of the Property Owner, and (3) avoid the violation of applicable laws and avoid the imposition of transfer taxes.
Transfer Restrictions
General Partner Consent to Transfer of the Company’s Percentage Interest: After a three year and one month so long as there has not been a change in the controlling shareholder of the Company, our subsidiary shall be permitted to transfer all or part of its interests in the Partnership without obtaining the General Partner's prior consent unless:
(1) the proposed transferee is subject to trade restrictions under US law,
(2) the transfer would violate federal or state securities laws, or
(3) the transfer would violate terms of debt obligations which the Property Owner has incurred.
LP Consent to GP Transfer: The General Partner must receive the consent of partners owning at least sixty five percent (65%) of the interests in the Partnership to transfer the General Partner interest. Any transfer of the General Partner must be to a person who or which agrees to serve as a replacement General Partner. So long as the Company is a limited partner, unless otherwise consented to by Partners owning at least 65% of the Partnership interests, the General Partner will ensure that, as long as it is controlled by Alex Schwartz (a) at least 20% of the percentage interests of the Partnership will at all times be held or controlled by Alex Schwartz and his family members and (b) the general partners of Two Penn Investor and the Property Owner shall be solely controlled by Alex Schwartz.
Right of First Offer: Transfers by partners of their interests in the Partnership are generally subject to a right of first offer in favor of the other partners. The selling party must first offer the portion of its percentage interest that it is looking to sell to the General Partner and other limited partners, before selling such portion to a third party. If the other partners do not send the selling party a notice of acceptance within the prescribed time or do not agree to purchase all of the percentage interest contained in the offer, the selling party shall have the right to sell such percentage interest to a third party.
Tag Along: If the General Partner or Alex Schwartz receive an offer to sell all or a portion of their percentage interests, after which Alex and his family members or entities under his control would collectively own less than 20% of the percentage interests, the other Partners shall have the right to sell to the offering third party the same portion of their percentage interests that such third party is willing to purchase from the General Partner and/or Alex Schwartz, on the same terms. If the third party refuses to purchase the other Partners' percentage interests, the General Partner and/or Alex Schwartz may not sell.
Bring Along: If the Partners receive a bona fide offer from a third party to acquire all of the percentage interests of the Partnership and the General Partner and partners holding at least 65% of the interests in the Partnership agree to accept the offer, then the other limited partners will be obligated to sell their percentage interests on the same terms as the other Partners.
Removal of the General Partner
For as long as Alex Schwartz is controlling the General Partner, a vote by partners holding 65% or more of the interests in the Partnership is necessary to remove the General Partner. If the General Partner is no longer controlled by Alex Schwartz, a vote of partners owning at least 51% of the interests in the Partnership is required to remove the General Partner. Appointment of a new General Partner requires the consent of 51% of the limited partners. If the General Partner is removed, the replacement General Partner must buy-out the General Partner’s interest at fair market value.
Amendment of the LPA
Amendment of the LPA requires approval of limited partners owning at least 65% of the Partnership interests provided that any change affecting a Partner's rights must be approved by the affected Partner.
Undertaking Ensuring Limited Partner Rights
Together with the signing of the LPA, Alex Schwartz, the General Partner and the general partner of Two Penn Investor will sign an undertaking according to which they shall (1) not permit Two Penn Investor or the Property Owner to take any of the actions set forth in the Section entitled “Limited Partner Approval Rights” above without obtaining the prior written consent of 65% of the limited partners of the Partnership, and (2) not to permit Two Penn Investor or the Property Owner to withhold distributions other than as set forth in the Section entitled “Distributions” above without the consent of partners owning at least 65% of the interests in the Partnership, and (3) not to permit a change in the ownership of the general partner of the 2 Penn Investor or the Property Owner as long as Alex Schwartz controls the General Partner interest.
Indemnification
The Partnership will indemnify the General Partner and its members from any claim, judgment or liability and from any loss or expense which may be imposed on the General Partner as a result of (i) an act performed by the General Partner on behalf of the Partnership or (ii) the inaction of the General Partner or from (iii) any liabilities arising under federal and state securities laws so long as the General Partner acts in good faith in the best interest of the Partnership and the conduct of the General Partner does not constitute gross negligence or willful misconduct.
7.C. INTERESTS OF EXPERTS AND COUNSEL
Not applicable.
ITEM 8.8. FINANCIAL INFORMATION
8.A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
See Item 18 “Financial Statements” for a list of financial statements filed as part of this annual report on Form 20-F.
Legal proceedings
Receipt of a Motion to Approve a Derivative Claim
On October 26, 2014, we received a letter on behalf of two purported shareholders of us, or the Shareholders, demanding us to file a derivative claim against our controlling shareholder and our directors and officers, according to procedures of the Companies Law and requesting discovery of our internal documents. The demand alleges, among other things, breach of fiduciary duties by our directors and officers with respect to the approval of the transaction to acquire luxury condominium units in Miami Beach, Florida, or the Transaction. The Shareholders are seeking damages which were not specified in the letter allegedly caused to us by its controlling shareholder and its directors and officers. In accordance with the Companies Law, we informed the Shareholders in December 2014 of the way in which we wish to proceed with respect to the demand. At the Shareholders’ request, we presented the Shareholders with certain materials in connection with the Transaction for their review.
On May 12, 2015 we have been served with a motion to approve the filing of a derivative claim (on behalf of the Company) against our controlling shareholder, directors and CEO and against certain former controlling shareholder and directors, or the Motion, and a copy of the derviative claim, or the Claim, which were submitted with the Centeral (Lod) District Court, by two purported shareholders of the Company, or the Applicants.
The Claim alleges, among other things, a breach of fiduciary duties by the our directors, officers and controlling shareholder, and an exploitation of a business opportunity by the our current and former controlling shareholder with respect to certain private placements of the Company's shares to our controlling shareholder conducted in June 2008, May 2011 and December 2013. The Claim further alleges, that such private placements constitute a prohibited distribution as the shares were issued for an unfair consideration. As a result of the above, the Applicants request the Court to allow them to continue with this derivative claim and ultimately to require all the defendants to pay the Company an aggregate amount of USD 41,857,778,approximately $41.9 million, as well as required our shareholder (current and former) to pay us USD 2,768,004approximately $2.9 million plus interest (for the exploitation of a business opportunity). The Applicants further require reimbursement of expenses, legal fees and award to the Applicants.
On July 14, 2015 the Applicants submitted an application to approve a service to Capri Family Foundation, or Capri, according to regulation 482 to the Civil Law Procedure Regulations of 1984 or alternatively, an application to allowing service outside of the court's jurisdiction, or Application No. 4. On July 29, 2015, the Applicants submitted an application to approve a service to Mr. Shlomo (Tom) Wyler, or Application No. 7, on the same basis as Application No. 4. On September 1, 2015 we have submitted our response to Application No. 7 regarding the service to Mr. Wyler and on September 24, 2015, we have submitted our response to Application No. 4 regarding the service to Capri. The Applicants submitted their answer on October 6, 2015.
On November 8, 2015, we have submitted our response to the Motion and Claim together with an expert opinion. We have raised several arguments against the Motion including, inter alia, preliminary claims to dismiss the Motion in-limine. On November 13, 2015, the directors, CEO and former directors submitted their response to the Motion.
On December 9, 2015,September 6, 2016, the Applicants submitted to the District Court their answer to our response to the motion to approve the filing of a courtderivative claim, together with an expert opinion.
On October 30, 2016, a pre-trial hearing was held during which the court suggestedCourt gave instruction regarding the partiesscope of disclosure that we need to reachdiscover.
On March 14, 2017 we, our directors, CEO and former directors’ submitted an expert opinion as a mutual agreement based on the following outline: (i) service to Capri and Mr. Wyler will be to an address given by them; (ii) the parties would reach an agreement on an identity of a mediator; and (iii) Capri and Mr. Wyler would submit their response to the Motion within 90 days from February 1, 2016 andexpert opinion submitted by the Applicants would submit their answer to Capri and Mr. Wyler'sApplicants.
On May 29, 2017 our controlling shareholder submitted an expert opinion as a response within 30 days from receiving Capri and Mr. Wyler 's response. We gave our consent to the proposed outline andexpert opinion submitted by the court ordered the parties to act accordingly.
On January 4, 2016, the Applicants submitted an application for discovery of documents. On January 25, 2016, we have submitted a motion to dismiss the discovery's application. On March 29, 2016 the Applicants submitted an application to attach an expert opinionApplicants.
A Pre-trialThe first cross-examination hearing was held on October 31, 2017. Additional hearings was held on November 19, 2018, December 5, 2017 and February 25, 2018.
The next cross-examination hearing is scheduled for JulyOctober 7, 2016.2018.
At this preliminary stage, we cannot provide an assessment as to the chances of the claim and the exposure to the Company.Company.
Demand to Receive Certain Data in Connection with an Option Agreement
On May 19, 2015, we have received a letter on behalf of Swiss Pro Capital Limited, a company organized under the laws of Switzerland, demanding the Company to provide Swiss Pro with certain relevant data in connection with an option agreement dated March 1, 2010, or the Agreement (for further details on the Agreement see Item 10.C. “Material Contracts”“Material Contracts”). According to the Agreement, Swiss Pro was granted an option to purchase 20% of the shares of Optibase RE 1 s.a.r.l, the owner of the Rümlang property. We have sent a preliminary response letter on or about June 30, 2015 stating that a detailed response letter will be sent later on. On August 18, 2015 we have sent a detailed letter in which we rejected all allegations against us. On December 24, 2015 Swiss Pro sent another letter repeating its arguments and we have sent our response to the letter on or about December 31, 2015. On May 25, 2016 Swiss Pro sent another letter in which they asked for exercise of the granted option. On June 29, 2016, we responded to this letter and detailed the required sum for exercise of the granted option, however, we have not yet received a response. The Option Agreement has expired in October, 2017, within eight years from the entrance into the agreement,
At this preliminary stage we cannot provide an assessment as to the chances of the arguments raised by Swiss Pro and the exposure to the Company.
Receipt of a Claim from Tenant in the CTN Complex
On April 16, 2015, our subsidiary Eldista GmbH, filed a claim to the court in Switzerland in an amount of approximately CHF 961,3011 million (app. $$1$1 million) due to damages and unpaid amounts from a specific tenant. Shortly thereafter, the tenant filed a counterclaim against Eldista GmbH in an amount of approximately CHF 157,047157,000 (app. $171,200) for damages allegedly caused to it. The court suggested the parties to transfer to mediation proceedings which failed. At this time, testimonies hearings are taking place.The court handed down a partial judgment on 31, October 2016, dismissing against the judgment. The appeal is currently pending before the court of appeal of Geneva.
At this stage, we cannot assess whether the court will receive Elista's or the tenant's arguments.
Receipt of a Claim from Tenant in the CTN Complex
On March 1 2017, our subsidiary Eldista Gmbh, received a notice from its largest tenant in Switzerland, LEM Switzerland SA, or LEM, regarding the deposit of the monthly rent for March 2017 amounting to approximately CHF 279,400 (app. $276,800 vat inclusive) with Banque cantonale de Genève under the control of the Pouvoir judiciaire of the Canton of Geneva, as a preliminary process for filing a claim with the Commission de Conciliation en Matière de Baux et Loyers of the Canton of Geneva, or the Commission. LEM claims that there are serious defects affecting the rented premises, which merit LEM with a reimbursement of approximately CHF 2.4 million (app, $2.4 million) (excluding VAT) as well as approximately CHF 69,200 (app. $68,500) as indemnification for consequential damages for the years 2014 and 2015. LEM also reserves its claims regarding damages suffered before year 2014.
On April 5, 2017 LEM withdrew the deposit of the monthly rent for March 2017 with Banque cantonale de Genève under the control of the Pouvoir judiciaire of the Canton of Geneva and released the amount to the Company. Thus, paying the full payment of the rent.
In July 2017, LEM filed an application, pursuant to which LEM mainly demands the elimination of certain alleged defects in the CTN Complex and that LEM be authorized to carry out the works at the expense of Eldista Gmbh if the works are not executed within a specific time frame as well as a 20%-reduction in rent from February 2012 and until the completion of the works. LEM demands that Eldista Gmbh be ordered to reimburse a monthly amount of CHF 47,600 as rent overpayment from February 2012 (representing the 20% reduction in rent) until (i) the completion of the works or (ii) the month of the entry into force of the judgment, whichever occurs first and that Eldista Gmbh be ordered to pay an amount of app, CHF 147,000 (subject to amplification) plus interest as of May 5, 2017 as consequential damages. LEM further demands to be reserved the right to claim the reimbursement of overpaid ancillary fees. According to the application, the dispute amounts to a total of CHF 3.54 million (app. $ 3.68 million). On October 23, 2017 the Tenant filed a claim with the first instance court, requesting a rent reduction and related damages amounting to a minimum capital amount of CHF 3,833 (approximately $ 3,926 as of December 31, 2017), based on various defects allegedly affecting the rented premises. On February 16, 2018 Eldista submitted a reply brief to the court, the Tenant will have until April 9, 2018 to submit a complementary brief and Eldista until May 14, 2018. The Company has sufficient provision to cover the expected outcome of this claim.
Dividend Policy
We have not declared or paid any cash dividends on our ordinary shares in the past. We do not expect to pay cash dividends on our ordinary shares in the foreseeable future and intend to retain our future earnings, if any, to finance the development of our business.
A dividend policy, if adopted, will be determined by our board of directors and will depend, among other factors, upon our earnings, financial condition, capital requirements, the impact of the distribution of dividends on our financial condition and tax liabilities, and such other conditions as our board of directors may deem relevant. Under Israeli law, an Israeli company may pay dividends only out of its retained earnings as determined for statutory purposes. Under our articles of association the distribution of dividends will be made by a resolution of our board of directors. See “Description of Share Capital” and “Israeli Taxation and Investment Programs”.
Cash dividends paid by an Israeli company are normally subject to a withholding tax, except for dividends paid to an Israeli company in which case no tax is withheld unless the dividend is in respect of earnings from an Approved Enterprise. In addition, because we have received certain benefits under Israeli laws relating to Approved Enterprises, the payment of dividends by us may be subject to certain Israeli taxes to which we would not otherwise be subject. The tax-exempt income attributable to the Approved Enterprise can be distributed to shareholders without subjecting us to taxes only upon our complete liquidation. If we decide to distribute cash dividends out of income that has been exempted from tax, the income out of which the dividend is distributed will be subject to corporate tax. See “Israeli Taxation and Investment Programs”. In the event that cash dividends are declared in the future, such dividends will be paid in NIS or in foreign currency subject to any statutory limitations. Under current Israeli regulations, any dividends or other distributions paid in respect of ordinary shares will be freely repatriable in such non-Israeli currencies at the rate of exchange prevailing at the time of conversion, provided that Israeli income tax has been paid on, or withheld from, such payments. Because exchange rates between the NIS and the dollar fluctuate continuously, a U.S. shareholder will bear the risks of currency fluctuations during the period between the date such dividend is declared and paid by us in NIS and the date conversion is made by such shareholder into U.S. dollars.
ITEM 8.B. SIGNIFICANT CHANGES
Since the date of our financial statements for the year ended December 31, 2015,2017, as part of the motion to approve the filing of a derivative claim, on January 4, 2016, the applicants submitted an application for discovery of documents. On JanuaryFebruary 25, 2016, we submitted a motion to dismiss the discovery's application and on March 29, 2016 the Applicants submitted an application to attach an expert opinion. A Pre-trial2018, additional hearings was held. The next cross-examination hearing is scheduled for JulyOctober 7, 2016. For further details see Item 8. “Financial Information 2018.
- Legal Proceedings”.75 -
ITEM 9.9. THE OFFER AND LISTING
9.A. OFFER AND LISTING DETAILS
Our ordinary shares are traded on The NASDAQ Global Market under the symbol OBAS since our initial public offering on April 7, 1999. On April 29, 2015, our ordinary shares were registered for trading on the Tel Aviv Stock Exchange.
The following table sets forth, for the periods indicated, the high and low closing sale prices per share of our ordinary shares as reported by The NASDAQ Global Market and by the Tel Aviv Stock Exchange.
| | Nasdaq | | | TASE | | | Nasdaq | | | TASE | |
Year | | High | | | Low | | | High | | | Low | | | High | | | Low | | | High | | | Low | |
2011 | | $ | 8.75 | | | $ | 4.95 | | | | - | | | | - | | |
2012 | | $ | 6.45 | | | $ | 4.51 | | | | - | | | | - | | |
2013 | | $ | 6.9 | | | $ | 4.51 | | | | - | | | | - | | | $ | 6.9 | | | $ | 4.51 | | | | - | | | | - | |
2014 | | $ | 8.21 | | | $ | 5.15 | | | | - | | | | - | | | $ | 8.21 | | | $ | 5.15 | | | | - | | | | - | |
2015 | | $ | 9.29 | | | $ | 6.03 | | | NIS 3.68 | | | NIS 2.72 | | | $ | 9.29 | | | $ | 6.03 | | | NIS 36.8 | | | NIS 27.2 | |
2016 | | | $ | 9.2 | | | $ | 6.21 | | | NIS 30.54 | | | NIS 26.01 | |
2017 | | | $ | 10.3 | | | $ | 6.6 | | | NIS 39.24 | | | NIS 23.5 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2014 | | | | | | | | | | | | | | | | | |
2016 | | | | | | | | | | | | | | | | | |
First Quarter | | $ | 6.47 | | | $ | 5.25 | | | | - | | | | - | | | $ | 8.2 | | | $ | 6.75 | | | NIS 30.54 | | | NIS 26.01 | |
Second Quarter | | $ | 6.5 | | | $ | 5.15 | | | | - | | | | - | | | $ | 8 | | | $ | 6.21 | | | NIS 29.5 | | | NIS 26.61 | |
Third Quarter | | $ | 6.8 | | | $ | 5.95 | | | | - | | | | - | | | $ | 8.45 | | | $ | 6.65 | | | NIS 29.55 | | | NIS 29.49 | |
Fourth Quarter | | $ | 8.21 | | | $ | 6.5 | | | | - | | | | - | | | $ | 9.2 | | | $ | 7.5 | | | NIS 30 | | | NIS 28.01 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2015 | | | | | | | | | | | | | | | | | |
2017 | | | | | | | | | | | | | | | | | |
First Quarter | | $ | 7.21 | | | $ | 6.03 | | | | - | | | | - | | | $ | 9.35 | | | $ | 7.20 | | | NIS 39.19 | | | NIS 26.63 | |
Second Quarter | | $ | 9.29 | | | $ | 6.25 | | | NIS 3.68 | | | NIS 2.89 | | | $ | 10.30 | | | $ | 7.70 | | | NIS 39.24 | | | NIS 28.05 | |
Third Quarter | | $ | 8.75 | | | $ | 6.5 | | | NIS 3.2 | | | NIS 2.83 | | | $ | 10.00 | | | $ | 6.60 | | | NIS 38.19 | | | NIS 24.61 | |
Fourth Quarter | | $ | 8 | | | $ | 6.37 | | | NIS 3.2 | | | NIS 2.72 | | | $ | 8.90 | | | $ | 6.90 | | | NIS 31.88 | | | NIS 23.50 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2016 | | | | | | | | | | | | | | | | | |
First Quarter Until March 21, 2016) | $ | 8.2 | | | $ | 6.79 | | | NIS 3.053 | | | NIS 2.7 | | |
2018 | | | | | | | | | | | | | | | | | |
First Quarter (Until March 20, 2018) | | | $ | 8.68 | | | $ | 7.42 | | | NIS 29.64 | | | NIS 24.09 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Most Recent Six Months | | High | | | Low | | | High | | | Low | | | High | | | Low | | | High | | | Low | |
October 2015 | | $ | 7.49 | | | $ | 7.35 | | | NIS 3.09 | | | NIS 2.762 | | |
November 2015 | | $ | 7.6 | | | $ | 7.49 | | | NIS 3.199 | | | NIS 2.78 | | |
December 2015 | | $ | 8 | | | $ | 6.37 | | | NIS 2.891 | | | NIS 2.936 | | |
January 2016 | | $ | 8.2 | | | $ | 6.9 | | | NIS 3.054 | | | NIS 2.705 | | |
February 2016 | | $ | 7.04 | | | $ | 6.79 | | | NIS 2.75 | | | NIS 2.706 | | |
March 2016 (Until March 21, 2016) | | $ | 7.05 | | | $ | 6.75 | | | NIS 2.75 | | | NIS 2.7 | | |
October 2017 | | | $ | 8.90 | | | $ | 6.90 | | | NIS 31.88 | | | NIS 23.50 | |
November 2017 | | | $ | 8.75 | | | $ | 7.70 | | | NIS 30.66 | | | NIS 27.30 | |
December 2017 | | | $ | 8.70 | | | $ | 7.55 | | | NIS 30.00 | | | NIS 27.05 | |
January 2018 | | | $ | 8.68 | | | $ | 7.65 | | | NIS 29.64 | | | NIS 27.07 | |
February 2018 | | | $ | 8.25 | | | $ | 7.42 | | | NIS 27.80 | | | NIS 24.09 | |
March 2018 (Until March 20, 2018) | | | $ | 8.20 | | | $ | 7.85 | | | NIS 27.88 | | | NIS 25.00 | |
On March 28, 2016,20, 2018, the reported closing sale price of our ordinary shares on The NASDAQ Global Market, was $6.8$7.85 per share and on the Tel Aviv Stock Exchange, was NIS 2.627.88 per share.
9.B. PLAN OF DISTRIBUTION
Not applicable.
Not applicable.9.C. MARKETS
9.C. MARKETS
Our ordinary shares have been listed on The NASDAQ Global Market since April 7, 1999, under the symbol “OBAS”. On April 2015 we have listed our ordinary shares for trading on the Tel Aviv Stock Exchange under the symbol “OBAS”“OBAS”.
9.D. SELLING SHAREHOLDERS
Not applicable.
9.E. DILUTION
Not applicable.
9.F. EXPENSES OF THE ISSUE
Not applicable.
ITEM 10.10. ADDITIONAL INFORMATION
10.A. SHARE CAPITAL
Not applicable.
10.B. MEMORANDUM AND ARTICLES OF ASSOCIATION
Purposes and Objects of the Company
We are a public company registered under the Companies Law as Optibase Ltd., registration number 52-003707-8.
Pursuant to our articles of association, our objectives are to engage in any lawful business and our purpose is to act pursuant to business considerations to make profits. A consideration to the Company's purpose and objectives can be found in Chapter 1 to the Company's articles of association.
Our articles of association also state that we may contribute a reasonable amount for an appropriate cause, even if the contribution is not within the framework of our business considerations.
The Powers of the Directors
The power of our directors to vote on a proposal, arrangement or contract in which the director is interested is limited by the relevant provisions of the Companies Law. In addition, the power of our directors to vote on compensation to themselves or any members of their body is limited in that such decision requires the approval of the compensation committee, the board of directors and the shareholders at a general meeting, see “Approval of Certain Transactions” below.
Under Israeli law each director must act with an independent and sole discretion. Director who does not act this way is in breach of his fiduciary duties.
The powers of our directors to borrow are not limited, except in the same manner as any other transaction by the Company.
Rights Attached to Shares
Our registered share capital is NIS 3,900,000 divided into a single class of 6,000,000 ordinary shares, par value NIS 0.65 per share, of which 5,133,6305,214,256 ordinary shares were issued and outstanding as of March 21, 2016.20, 2018. All outstanding ordinary shares are validly issued, fully paid and non-assessable. The rights attached to the Ordinary Shares are as follows:
Dividend rights
Holders of Ordinary Shares are entitled to the full amount of any cash or share dividend subsequently declared. The board of directors may propose a dividend only out of profits, in accordance with the provisions of the Companies Law. Declaration of a dividend requires the approval of our board of directors. Please see Item 10.E. “Taxation” below.
One year after a dividend has been declared and is still unclaimed, the board of directors is entitled to invest or utilize the unclaimed amount of dividend in any manner to our benefit until it is claimed. We are not obligated to pay interest or linkage differentials on an unclaimed dividend.
Voting rights
Holders of ordinary shares have one vote for each ordinary share held on all matters submitted to a vote of shareholders. Such voting rights may be affected by the grant of any special voting rights to the holders of a class of shares with preferential rights that may be authorized in the future. Currently there are no shares of capital stock outstanding with special voting rights. The quorum required for an ordinary meeting of shareholders consists of at least two shareholders present in person or by proxy who hold or represent, in the aggregate, at least thirty three and one third percent (33.3%) of our voting rights. In the event that a quorum is not present within half an hour of the scheduled time, the shareholders' meeting will be adjourned to the same day of the following week, at the same time and place, or such time and place as the board of directors may determine by a notice to the shareholders. If at such adjourned meeting a quorum is not present at the time of opening of such meeting, two shareholders, at least, present in person or by proxy, shall constitute a quorum.
An ordinary resolution, such as a resolution for the election of directors, or the appointment of auditors, requires the approval by the holders of a majority of the voting rights represented at the meeting, in person, by proxy or through a voting instrument and voting thereon. Under our articles of association, if a resolution to amend the articles of association is recommended by our board of directors, such recommended resolution’s adoption in a general meeting of the shareholders requires an ordinary majority. In any other case, such a resolution requires approval of a special majority of more than three quarters of the votes of the shareholders entitled to vote themselves, by proxy or through a voting instrument.
The directors (who are not external directors) are appointed by decision of an ordinary majority at a general meeting. The directors have the right at any time, in a resolution approved by at least a majority of our directors, to appoint any person as a director, subject to the maximum number of directors specified in our articles of association, to fill in a place which has randomly been vacated, or as an addition to the board of directors. Any such director so appointed shall hold office until the next annual general meeting and may be reelected.
Under our articles of association our directors (who are not external directors) are elected by an ordinary majority of the shareholders at each duly convened annual meeting, and they serve until the next annual meeting, provided that external directors shall be elected in accordance with the Companies Law. In each annual meeting the directors that were elected at the previous annual meeting are deemed to have resigned from their office. A resigning director may be reelected.
Under the NASDAQ corporate governance rules, foreign private issuers are exempt from many of the requirements if they instead elect to be exempted from such requirements, provided they are not prohibited by home country practices and disclose where they have elected to do so.
Rights in the Company’s profits
All of our ordinary shares have the rights to share in our profits distributed as a dividend and any other permitted distribution.
Rights in the event of liquidation
All of our ordinary shares confer equal rights among them with respect to amounts distributed to shareholders in the event of liquidation.
Changing Rights Attached to Shares
According to our articles of association, our share capital may be divided into different classes of shares or the rights of such shares may be altered by an ordinary majority resolution passed by the general meetings of the holders of each class of shares separately, or after obtaining the written consent of the holders of all of the classes of shares. As of the date hereof, we only have one class of shares.
Annual and Extraordinary Meetings
Our board of directors must convene an annual meeting of shareholders every year by no later than the end of fifteen months from the last annual meeting. Notice of at least twenty-one days prior to the date of the meeting is required. An extraordinary meeting may be convened by the board of directors, as it decides or upon a demand of any two directors or 25% of the directors, whichever is lower, or by one or more shareholders holding in the aggregate at least 5% of the voting rights in the Company. Where the board of directors is requisitioned to call a special meeting, it shall do so within twenty-one days, for a date that shall not be later than thirty-five days from the date on which the notice of the special meeting is published. Notice of a general meeting shall be given to all shareholders entitled to attend and vote at such meeting. No separate notice is to be given to registered shareholders of the Company. Notices may be provided by the Company in person, in mail, transmission by fax or in electronic form. A notice to a shareholder may alternatively be served, as general notice to all shareholders, in accordance with the rules and regulations of any applicable securities authority with jurisdiction over the Company or in accordance with the rules of any stock market upon which the Company's shares are traded.
Limitations on the Rights to Own Securities in the U.S.
Our memorandum and articles of association do not restrict in any way the ownership of our shares by non-residents of Israel, and neither the memorandum and articles of association nor Israeli law restricts the voting rights of non-residents of Israel, except that under Israeli law, any transfer or issue of shares of a company to a resident of an enemy state of Israel is prohibited and shall have no effect, unless authorized by the Israeli Minister of Finance.
Limitations on Change in Control and Disclosure Duties
Our memorandum and articles of association do not restrict the change of control nor do they impose any disclosure duties beyond the requirements set out in Israeli law. For restriction of change of control provision under Israeli law, see Item 3.D. “Risk Factors”, under the heading “Risks Relating to Operations in Israel – Anti-takeover Provisions” above.
Changes in Our Capital
Changes in our capital are subject to the approval of the shareholders at a general meeting by an ordinary majority of shareholders participating and voting in the general meeting.
Fiduciary Duty and Duty of Care of Directors and Officers
The Companies Law codifies the duties directors and officers owe to a company. An “Officer” includes a company’s general manager, general business manager, executive vice president, vice president, any other person assuming the responsibilities of any of the foregoing positions without regard to such person’s title and other directors or managers directly subordinate to the general manager. The directors’ and officers’ principal duties to the company are a duty of care and a fiduciary duty to act in good faith for the company’s benefit which include:
| v | the avoidance of any conflict of interest between the director’s or officer’s position with the company and any other position he or she fulfills or with his or her personal affairs; |
| v | the avoidance of any act in competition with the company’s business; |
| v | the avoidance of exploiting any of the company’s business opportunities in order to gain a personal advantage for himself or for others; and |
| v | the disclosure to the company of any information and documentation relating to the company’s affairs obtained by the director or officer due to his or her position with the company. |
The Companies Law requires that directors, officers or a controlling shareholder of a public company disclose to the company any personal interest that he or she may have, including all related material facts or documents in connection with any existing or proposed transaction by the company. The disclosure must be made without delay and no later than the first board of directors meeting at which the transaction is first discussed.
Approval of Certain Transactions
Generally, under the Companies Law, engagement terms of directors, including the grant of an exemption from liability, purchase of directors’ and officers’ insurance, or grant of indemnification (whether prospective or retroactive) and engagement terms of such director with a company in other positions require the approval of the audit committee, the board of directors and the shareholders of the company. In addition, transactions between a public company and its director or officer, or a transaction between such company and other person in which such director or officer has a personal interest must be approved by such company’s board of directors, and if such transaction is considered an extraordinary transaction (as defined below) it must receive the approval of such company’s audit committee as well. The determination whether such transaction is considered extraordinary or not is required to be made by audit committee.
The Companies Law also requires that any extraordinary transaction between a public company and its controlling shareholder or an extraordinary transaction between such company and other person in which such company’s controlling shareholder has a personal interest must be approved by the audit committee, the board of directors and the shareholders of the company by an ordinary majority, provided that (i) such majority vote at the shareholders meeting shall include a majority of the total votes of shareholders having no personal interest in the transaction, participating at the voting (excluding abstaining votes); or (ii) the total number of votes of shareholders mentioned in clause (i) above who voted against such transaction does not exceed two percent (2%) of the total voting rights in the company. An “extraordinary transaction” is defined in the Companies Law as any of the following: (i) a transaction not in the ordinary course of business; (ii) a transaction that is not on market terms; or (iii) a transaction that is likely to have a material impact on the company’s profitability, assets or liability. Such an extraordinary transaction which shall last for a period exceeding three years shall be approved again by such company’s audit committee, board of directors and general meeting of shareholders by the special majority described above once in every three years.
The Companies Law further provides that the engagement terms of a controlling shareholder or its relative (including by an entity controlled by such controlling shareholder or its relative) with the company, either as an officer or an employee, must also be approved by such company’s auditcompensation committee, board of directors and general meeting by the special majority described above. Such an engagement which shall last for a period exceeding three years shall be approved again by such company’s audit committee, board of directors and general meeting by the special majority described above once in every three years. However, an engagement described in the beginning of this paragraph only which may be approved for a period exceeding three years, provided that the audit committee approved the engagement term to be reasonable under the circumstances.
The Companies Law prohibits any person who has a personal interest in a matter to participate in the discussion and voting pertaining to such matter in the company’s board of directors or audit committee except for in circumstances when the majority of the board of directors’ (or the audit committee – as the case may be) has a personal interest in the matter. In case the majority has a personal interest in such matter then such matter must also be approved by the company’s shareholders. An officer who has a personal interest may be present for the presentation of the transaction if the chairman of the audit committee or the chairman of the board of directors as the case may be, determined that such officer’s presence is required for the presentation of the said transaction.
Compensation of Officers and Directors
Pursuant to the Companies Law, Israeli Public Companies are required to establish a compensation committee and adopt a compensation policy regarding the compensation and terms of employment of their directors and officers. For information on the composition, roles and objectives of the compensation committee pursuant to the Companies Law and our compensation committee charter, see Item 6.C. “Board Practices – Committees of the Board of Directors – The Compensation Committee”.
The compensation policy must be approved by the company's board of directors after reviewing the recommendations of the compensation committee. The compensation policy also requires the approval of the general meeting of the shareholders, which approval must satisfy one of the following (which we refer to hereinafter as the Majority Requirement): (i) the majority should include at least a majority of the shares of the voting shareholders who are non-controlling shareholders or do not have a personal interest in the approval of the compensation policy (in counting the total votes of such shareholders, abstentions shall not be taken into account) or (ii) the total number of votes against the proposal among the shareholders mentioned in paragraph (i) does not exceed two percent of the aggregate voting power in the company. Under certain circumstances and subject to certain exceptions, the board of directors may approve the compensation policy despite the objection of the shareholders, provided that the compensation committee and the board of directors determines that it is for the benefit of the company, following an additional discussion and based on detailed arguments. The Companies Law provides that the compensation policy must be re-approved every three years, in the manner described above. Moreover, the board of directors is responsible for reviewing from time to time the compensation policy and deciding whether or not there are any circumstances that require an adjustment to the company's compensation policy.
Pursuant to the Companies Law any transaction with an executive office (except directors and the CEO of the company) with respect to such officer's compensation arrangements and terms of engagement, requires the approval of the compensation committee and the board of directors. Transactions between Israeli Public Companies and their chief executive officer, with respect to his or her compensation arrangement and terms of engagement, require the approval of the compensation committee, the board of directors and the shareholder's meeting, provided that the approval of the shareholders' meeting must satisfy the Majority Requirement. Notwithstanding the above, the compensation committee and the board of directors may, under special circumstances, approve such transaction with the CEO even if the shareholders' meeting objected to its approval. With respect to transactions relating to the compensation arrangement and terms of engagements of directors in public companies (including companies that have issued only debentures to the public), the Companies Law provides that such transaction shall be subject to the approval of the compensation committee, the board of directors and the shareholders' meeting.
Such transactions for the approval of compensation arrangements with officers and directors of Israeli Public Companies must be consistent with the provisions of the company's compensation policy, provided that the compensation committee and the board of directors may, under special circumstances, approve such transaction that is not in accordance with the company's compensation policy, if the conditions under the Companies Law are met and the company's shareholders approved the transaction in the Majority Requirement. Notwithstanding the above, with respect to the approval of compensation terms of an executive officer (except directors and the CEO of the company), the compensation committee and the board of directors may, under special circumstances, approve such transaction even if the shareholders' meeting objected to its approval, provided that (i) both the compensation committee and the board of directors re-discussed the transactions and decided to approve it despite the shareholder's objection, based on detailed arguments, and (ii) the company is not a Public Pyramid Held Company. Non material amendments of transactions relating to the compensation arrangement or terms of engagement of executive officer (including the CEO), require only the approval of the compensation committee.
On December 19, 2013,29, 2016, and following the approval by our compensation committee and our board of directors, our shareholders approved a new compensation policy and such policy is in affect for our directors and officers, in accordance with the provisions of the Companies Lawa 3-year term.
On January 11, 2013, the SEC approved the amended NASDAQ listing standards on compensation committees and advisers. Among others, the amended NASDAQ listing standards include provisions relating to the establishment of a compensation committee, the compensation committee charter, compensation committee members' independence requirements, and arrangements relating to advisers retained by the compensation committee. Under the amended rules, the compensation committee adviser and compensation committee authority requirements become effective on July 1, 2013. However, NASDAQ listed companies will have, until their first annual meeting after January 15, 2014, or, if earlier, October 31, 2014, to comply with other standards, including the compensation committee member independence standards and the requirement to have a compensation committee and charter (including any charter amendment to reflect the compensation committee authority requirements). NASDAQ listed companies must certify compliance with the listing standards within 30 days after the applicable implementation deadline. In addition, under the amended rules, foreign private issuers are exempt from compliance with the amended listing standards if home country practice is followed and the listed company discloses with the SEC the reasons why it does not have an independent compensation committee. Our compensation committee charter was updated in accordance with said amendments.
Anti-Takeover Provisions; Mergers and Acquisitions
Special Tender Offer. The Companies Law provides that an acquisition of shares of an Israeli public company must be made by means of a special tender offer if, as a result of the acquisition, the purchaser would become a holder of at least 25% of the voting rights in the company. This rule does not apply if there is already another holder of at least 25% of the voting rights in the company. Similarly, the Companies Law provides that an acquisition of shares in a public company must be made by means of a tender offer if, as a result of the acquisition, the purchaser would become a holder of more than 45% of the voting rights in the company and no other shareholder of the company holds more than 45% of the voting rights in the company. These requirements do not apply if the acquisition (i) occurs in the context of a private placement by the company that received shareholder approval, (ii) was from a shareholder holding at least 25% of the voting rights in the company and resulted in the acquirer becoming a holder of at least 25% of the voting rights in the company, or (iii) was from a holder of more than 45% of the voting rights in the company and resulted in the acquirer becoming a holder of more than 45% of the voting rights in the company. The special tender offer may be consummated only if (a) at least 5% of the voting power attached to the company’s outstanding shares will be acquired by the offeror and (b) the number of shares tendered in the offer exceeds the number of shares whose holders objected to the offer.
In the event that a special tender offer is made, a company’s board of directors is required to express its opinion on the advisability of the offer or shall abstain from expressing any opinion if it is unable to do so, provided that it gives the reasons for its abstention. An executive officer in a target company who, in his or her capacity as an executive officer, performs an action the purpose of which is to cause the failure of an existing or foreseeable special tender offer or is to impair the chances of its acceptance, is liable to the potential purchaser and shareholders for damages, unless such executive officer acted in good faith and had reasonable grounds to believe he or she was acting for the benefit of the company. However, executive officer of the target company may negotiate with the potential purchaser in order to improve the terms of the special tender offer, and may further negotiate with third parties in order to obtain a competing offer.
A special tender offer may not be consummated unless a majority of the shareholders who announced their stand on such offer have accepted it (in counting the total votes of such shareholders, shares held by the controlling shareholder, shareholders who have personal interest in the offer, or shareholder who own 25% or more of the voting rights in the company, shall not be taken into account). If a special tender offer was accepted by a majority of the shareholders who announced their stand on such offer, then shareholders who did not announce their stand or who had objected to the offer may accept the offer within four days of the last day set for the acceptance of the offer.
In the event that a special tender offer is accepted, the purchaser or any person or entity controlling it at the time of the offer or under common control with the purchaser or such controlling person or entity shall refrain from making a subsequent tender offer for the purchase of shares of the target company and cannot execute a merger with the target company for a period of one year from the date of the offer, unless the purchaser or such person or entity undertook to effect such an offer or merger in the initial special tender offer.
Full Tender Offer. A person wishing to acquire shares or a class of shares of an Israeli public company and who would, as a result, hold over 90% of the target company’s issued and outstanding share capital or that certain class of shares is required by the Companies Law to make a tender offer to all of the company’s shareholders for the purchase of all of the issued and outstanding shares of the company or class of shares. If either (i) the shareholders who do not accept the offer hold less than 5% of the issued and outstanding share capital of the company or of the applicable class, and more than half of the shareholders who do not have a personal interest in the offer accept the offer, or (ii) the shareholder who do not accept the offer hold less than 2% of the issued and outstanding share capital of the company or of the applicable class, then all of the shares that the acquirer offered to purchase will be transferred to the acquirer by operation of law. However, a shareholder that had its shares so transferred, whether it accepted the tender offer or not, may, within six months from the date of acceptance of the tender offer, petition the court to determine that tender offer was for less than fair value and that the fair value should be paid as determined by the court. If the shareholders who did not accept the tender offer hold at least 5% of the issued and outstanding share capital of the company or of the applicable class of shares, the acquirer may not acquire shares of the company that will increase its holdings to more than 90% of the company’s issued and outstanding share capital or of the applicable class from shareholders who accepted the tender offer.
Merger. The Companies Law permits merger transactions if approved by each party’s board of directors and, unless certain requirements described under the Companies Law are met, a majority of each party’s shares voted on the proposed merger at a shareholders’ meeting called with at least 35 days’ prior notice.
For purposes of the shareholder vote, unless a court rules otherwise, the merger will not be deemed approved if a majority of the shares represented at the shareholders meeting that are held by parties other than the other party to the merger, or by any person who holds 25% or more of the outstanding shares or the right to appoint 25% or more of the directors of the other party, vote against the merger. If the transaction would have been approved but for the separate approval of each class or the exclusion of the votes of certain shareholders as provided above, a court may still approve the merger upon the request of holders of at least 25% of the voting rights of a company if the court holds that the merger is fair and reasonable, taking into account the value of the parties to the merger and the consideration offered to the shareholders.
Upon the request of a creditor of either party to the proposed merger, the court may delay or prevent the merger if it concludes that there exists a reasonable concern that, as a result of the merger, the surviving company will be unable to satisfy the obligations of any of the parties to the merger, and may further give instructions to secure the rights of creditors.
In addition, a merger may not be completed unless at least 50 days have passed from the date that a proposal for approval of the merger was filed by each party with the Israeli Registrar of Companies and 30 days have passed from the date the merger was approved by the shareholders of each of the merging companies.
Anti-Takeover Measures Under Israeli Law. The Companies Law allows us to create and issue shares having rights different from those attached to our ordinary shares, including shares providing certain preferred rights, distributions or other matters and shares having preemptive rights. As of the date of this annual report, we do not have any authorized or issued shares other than our ordinary shares. In the future, if we do create and issue a class of shares other than ordinary shares, such class of shares, depending on the specific rights that may be attached to them, may delay or prevent a takeover or otherwise prevent our shareholders from realizing a potential premium over the market value of their ordinary shares. The authorization of a new class of shares will require an amendment to our articles of association which requires the prior approval of the holders of a majority of our ordinary shares at a general meeting.
Tax Law. Israeli tax law treats some acquisitions, such as a stock-for-stock swap between an Israeli company and a foreign company, less favorably than U.S. tax law. For example, Israeli tax law may subject a shareholder who exchanges his ordinary shares for shares in a foreign corporation to immediate taxation. Please see Item 10E. “Taxation”.
The Centralization Law. The Israeli parliament (the Knesset) has recently approved the new Promotion of Competition and Reduction of Centralization Law, 5774-2013, or the Centralization Law, which, among others, imposes new constraints and stricter corporate governance rules on pyramid conglomerates, and forces separation between equity holdings in significant non-financial corporate businesses and equity holdings in significant financial businesses. The Centralization Law has entered into force on December 11, 2013.
10.C. MATERIAL CONTRACTS
Swiss Pro Capital Limited
On March 1, 2010, the Company’s subsidiary in Luxembourg Optibase RE 1 SARL or Optibase RE 1 entered into an Option Agreement, or the Option Agreement, with a Cypriot company, Swiss Pro, with respect to a commercial building acquired by the Company in October, 2009 in Rümlang, Switzerland. Through its beneficial owner, Swiss Pro introduced Optibase to the Rümlang property and facilitated Optibase’s acquisition and financing of the property. Under the Option Agreement, Optibase RE 1 granted Swiss Pro an option to purchase twenty percent (20%) of the share capital of Optibase RE 1. Swiss Pro undertook to pay a purchase price for the option of CHF 315,000 for the option. The exercise price under the Option Agreement is calculated based on twenty percent (20%) Optibase’s acquisition costs for the Rümlang Property plus interest and an adjustment for proceeds that are distributed to the shareholders of Optibase RE 1. The shares that would be issued to Swiss Pro upon exercise of the option will not have voting rights and would be subject to transfer restrictions in favor of Optibase. The option granted under the Option Agreement will expire within eight years from the entrance into the agreement, i.e.: on February 28, 2018.in October, 2017.
Shareholders Agreement with The Phoenix
In connection with the purchase of the office complex in Geneva, Switzerland, we and The Phoenix entered on February 8, 2011 into a Shareholders Agreement regarding our joint shareholdings in OPCTN. The Shareholders Agreement provides that Optibase will manage the day-to-day operations of OPCTN and Eldista but that certain actions of OPCTN and Eldista are subject to the joint approval of and The Phoenix. These actions include amendments to organizational documents, changes to business activity, financing arrangements, related party agreements, lease agreements exceeding twenty five percent of the leasable area of the Property, and requesting investments from shareholders in excess of CHF one million in a given year and CHF 2.5 million in aggregate.
The Shareholders Agreement also provides that Optibase and The Phoenix will fund operating expenses and necessary capital expenditures for the Property that are not adequately funded by operating income, up to an amount of CHF two million per event or CHF five million per event if the capital expenditures are recommended by a third-party building engineering company. If we or The Phoenix do not provide our respective share of these expenses, the Shareholders Agreement provides that the OPCTN shareholdings (and shareholders loans) of the non-funding shareholder ownership will be diluted.
The Shareholders Agreement prohibited us and The Phoenix from transferring shares in OPCTN until March 2012 and provides that any transfer of shares thereafter (other than to a related party) is subject to the reasonable approval of Optibase and The Phoenix. In addition, the Shareholders Agreement includes right of first offer, tag along and drag along rights in favor of both Optibase and The Phoenix. The agreement provides that Optibase will make day-to-day decisions and provides The Phoenix with customary protective rights.
German Commercial Properties Portfolio
On December 18, 2014, our wholly owned European subsidiary, Optibase Bavaria GmbH & Co. KG, or Optibase Bavaria, entered into a purchase agreement with Lincoln Dreizehnte Deutche Grundstucksgellschaft GmbH and Lincoln Land Passau GmbH, unrelated third parties, or the Sellers, to acquire a retail portfolio of twenty-six (26) separate commercial properties in Bavaria, Germany, and one (1) commercial property in Saxony, Germany, or the Transaction Portfolio. On June 2, 2015 Optibase Bavaria completed the acquisition of twenty-five (25) supermarkets from the Seller and on July 8, 2015 Optibase Bavaria completed the acquisition of two (2) supermarkets. The two acquisitions completes the purchase of twenty-seven (27) supermarkets.
Purchase Price
The total purchase price paid by us to the Sellers at the closings of the transaction, was EUR 28.75 million (approximately(app. $31.5 million) (EUR 24 million for the twenty-five supermarkets and additional EUR 4,750,0004.75 million for the two supermarkets), or the Purchase Price. In addition to the Purchase Price, we incurred acquisition costs, including real estate transfer taxes, of approximately EUR 2.1 million (approximately(app. $2.4 million).
We financed a portion of the Purchase Price with the proceeds of a EUR 20 million senior mortgage loan from DG HYP secured by the Transaction Portfolio (as detailed above), and the remaining part through a contribution of equity in part from working capital and in part by obtaining additional financing.
Properties
In general, the Transaction Portfolio, which represents a homogenous retail portfolio in established retail locations, has approximately 37,000 square meters of total rental space and currently generates annual net rental income of more than EUR 3 million (approximately $3.64$3.6 million). The properties have an average occupancy rate of more than 90% of the total rental area, and an average remaining lease term of approximately seven years.
Upon the acquisition of the Transaction Portfolio, Optibase Bavaria was assigned the Sellers’ rights and obligations under the leases. The tenants currently operating on Transaction Portfolio include 26 supermarket, and one commercial building with mixed retail and office uses. The largest tenant in the Transaction Portfolio is EDEKA Handelsgesellschaft Südbayern mbH, or Edeka, one of the largest supermarket chain in the German market, currently leases 2219 of the rental properties in the Transaction Portfolio. In addition to the hypermarkets and supermarkets, smaller shops (such as bakeries and post offices) operate on several locations as subtenants of Edeka.
Leases
Optibase Bavaria accepted the assignment of the Sellers’ rights and obligations under the leasehold estate agreements in respect of the properties, as of the effective date of the purchase agreement, and the Sellers were released from all rights and claims of the tenants and future tenants relating to the period after the respective closing dates. Optibase Bavaria retained EUR 295,979 of the Purchase Price (i.e. one gross monthly payment from all the lease agreements acquired) to apply to any amounts which tenants erroneously pay to the Sellers. All rental deposits paid by the tenants up until the effective date were transferred by the Sellers to Optibase Bavaria.
Property-Related Agreements
Upon the closing of the Transaction Portfolio, Optibase Bavaria assumed the Sellers’ rights and obligations under certain services and property management agreements.
Under the terms of a Property Management Agreement, McCafferty Asset Management GmbH, or the Manager, manages the Transaction Portfolio for Optibase Bavaria. The property management agreement provides for payment of a yearly property management fee equal to two and one half percent (2.5%) of the net rental income of the Transaction Portfolio. Under the terms of an Asset Management Agreement between Optibase Bavaria and the Manager, the Manager provides asset management services for the Transaction Portfolio and is paid two and one half percent (2.5%) of the net rental income of the Transaction Portfolio, payable monthly in arrears within 10 business days of receipt of the invoice of a statement showing a detailed calculation of the fee.
Insurance
Optibase Bavaria obtained its own insurance for the Transaction Portfolio from the closing dates of the Transaction Portfolio.
South Riverside Plaza Office Tower, Chicago
On December 29, 2015 our wholly owned Delaware subsidiary, Optibase Chicago 300 LLC, or Optibase Chicago, completed an investment of 30% interest in 300 River Holdings, LLC, or the Joint Venture Company, which beneficially owns the rights to a 23-story Class A office building, located at 300 South Riverside Plaza in Chicago, or the Property. The Property is under a 99 year ground lease expiring in 2114.
The remaining 70% of the Joint Venture Company is owned by 300 River Plaza One LLC.As part of this transaction, WKEM Riverside Member LLC, or the Outgoing Member, redeemed its 30% interest in the Joint Venture Company.
Investment Amount
We have invested $12.9 million, or the Invested Amount, in exchange for a thirty percent (30%) interest in the Joint Venture Company. In addition to the Investment Amount, we incurred acquisition costs of approximately $242,000$242,000.
On June 17, 2016, and in accordance with our initial investment agreement in 300 South Riverside Plaza, Chicago, we have invested an additional amount of $3 million which accrues interest of 12% per annum which was distributed back to the Company on November 21, 2017.
Property
In general, the Property is a 23-story, trophy Class A office building located in Chicago’s premier West Loop submarket and encompasses more thanapproximately 1.1 million square feet of total rental space, of which 98% is currently occupied. Thewas occupied at the purchase date. As of the purchase date, the Property currently generatesgenerated annual net rental income of $17.4 million.
The largest tenant in the Property iswas JP Morgan, which currently leasesat the date of the purchase leased 486,000 square feet or 46% of the Property. In addition, there are also smaller tenants and retail tenants. JP Morgan has exercised its option to terminate its entire office space at no penalty after September 20162016.
Management
The Joint Venture Partner serves as the Managing and generally has the authority to make decisions on behalf of the Company, subject to certain approval rights of Optibase Chicago set forth in the Operating Agreement of the Joint Venture Company.
Debt
As a part of the transaction, the Joint Venture Company executed a promissory notes in favor of the Joint Venture Partner in the amount of $42 million with no maturity date and in favor of the Outgoing Member in the amount of $18 million with a maturity date of 7 years. The interest rate for both notes compounds annually and is equal to four percent (4%) for the first three (3) years, five percent (5%) for the fourth (4th) year, six percent (6%) for the fifth (5th) year, and twelve percent (12%) from and following the sixth (6th) year. All payments to be made under the note will be made from and subject to net cash flow of the Joint Venture Company.
The Joint Venture Company will also seek to fund anticipated tenant improvements through the issuance of up to $40 million of promissory notes, or the Senior Notes, of which Optibase will have the right (but not the obligation) to fund up to 30%. Such promissory notes will rank ahead of the abovementioned promissory notes in favor of the Joint Venture Partner and the Outgoing Member. It is anticipate that the Senior Notes will have a term of six (6) years and an interest rate of twelve percent (12%) per annum, compounding annually.
On June 17, 2016, and in accordance with our initial investment agreement in 300 South Riverside Plaza, Chicago, we have invested an additional amount of $3 million which accrues interest of 12% per annum which was distributed back to the Company on November 21, 2017.
Financing Agreements
For a summary of the principal terms of our material financing agreements, see Item 5.B "Operating and Financial Review and Prospects - Liquidity and Capital Resources".
10.D. EXCHANGE CONTROLS
Israeli law and regulations do not impose any material foreign exchange restrictions on non-Israelinon‑Israeli holders of our ordinary shares. In May 1998, a new “general permit” was issued under the Israeli Currency Control Law, 1978, which removed most of the restrictions that previously existed under the law and enabled Israeli citizens to freely invest outside of Israel and freely convert Israeli currency into non-Israelinon‑Israeli currencies.
Dividends, if any, paid to holders of our ordinary shares, and any amounts payable upon our dissolution, liquidation or winding up, as well as the proceeds of any sale in Israel of our ordinary shares to an Israeli resident, may be paid in non-Israelinon‑Israeli currency or, if paid in Israeli currency, may be converted into freely repatriable dollars at the rate of exchange prevailing at the time of conversion.
Under Israeli law (and our memorandum and articles of association), persons who are neither residents nor nationals of Israel may freely hold, vote and transfer ordinary shares in the same manner as Israeli residents or nationals. Subject to anti-terror legislations, there are no limitations on the rights of non-resident or foreign owners to hold or vote ordinary shares imposed under Israeli law or under our articles of association.
10.E. TAXATION
The following is a discussion of tax consequences material to us and our Israeli and U.S. shareholders. To the extent the discussion is based on new tax legislation, which has not been subject to judicial or administrative interpretation, we cannot assure you that the tax authorities or the courts will accept the views expressed in this section. The discussion is not intended, and should not be construed, as legal or professional tax advice and does not exhaust all possible tax considerations. Holders of our ordinary shares should consult their own tax advisors as to the United States, Israeli or other tax consequences of the purchase, ownership and disposition of ordinary shares, including, in particular, the effect of any non-U.S., state or local taxes.
Israeli taxation
General Corporate Tax Structure in Israel
Taxable income of the Company isIsraeli companies are generally subject to the Israeli corporate tax aton their taxable income. As of 2017, the following rates: 2013 - corporate tax rate is 24% (in 2015 and 2016, the corporate tax rate was 26.5% and 25%, 2014 and 2015%respectively). On 5 JanuaryIn December 2016, the Israeli Parliament officially publishedapproved the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policy for the Amendment of the Israeli Tax Ordinance (Amendment 216)2017 and 2018 Budget Years), thatwhich reduces the standard corporate income tax rate to 24% (instead of 25%) effective from 26.5%January 1, 2017 and to 25%.
A company in Israel is taxable on its real (non-inflationary) capital gains at the corporate tax rate of 26.5% in the year of sale.23% effective from January 1, 2018.
Israeli Tax Consequences for Our Shareholders
The following description is not intended to constitute a complete analysis of all tax consequences relating to the acquisition, ownership and disposition of our ordinary shares. You should consult your own tax advisor concerning the tax consequences of your particular situation, as well as any tax consequences that may arise under the laws of any state, local, foreign or other taxing jurisdiction.
Certain Israeli Tax Consequences
This summary does not discuss all the aspects of Israeli tax law that may be relevant to a particular investor in light of his or her personal investment circumstances or to some types of investors subject to special treatment under Israeli law. Examples of such investors include residents of Israel or traders in securities who are subject to special tax regimes not covered in this discussion. Because parts of this discussion are based on new tax legislation that has not yet been subject to judicial or administrative interpretation, we cannot assure you that the appropriate tax authorities or the courts will accept the views expressed in this discussion. The discussion below is subject to change, including due to amendments under Israeli law or changes to the applicable judicial or administrative interpretations of Israeli law, which change could affect the tax consequences described below.
Capital Gains Taxes Applicable to Non Israeli Resident Shareholders.
A non Israeli resident who derives capital gains from the sale of shares in an Israeli resident company that were purchased after the company was listed for trading on a stock exchange outside of Israel should be exempt from Israeli tax so long as the shares were not held through a permanent establishment that the non residentnonresident maintains in Israel. However, non Israeli corporations will not be entitled to the foregoing exemption if Israeli residents: (i) have a controlling interest of 25% or more in such non Israeli corporation or (ii) are the beneficiaries of, or are entitled to, 25% or more of the revenues or profits of such non Israeli corporation, whether directly or indirectly. Such exemption is not applicable to a person whose gains from selling or otherwise disposing of the shares are deemed to be a business income.
Additionally, a sale of shares by a non Israeli resident may be exempt from Israeli capital gains tax under the provisions of an applicable tax treaty. For example, under the United States Israel Tax Treaty, the disposition of shares by a shareholder who (i) is a U.S. resident (for purposes of the treaty), (ii) holds the shares as a capital asset, and (iii) is entitled to claim the benefits afforded to such person by the treaty, is generally exempt from Israeli capital gains tax. Such exemption will not apply if: (i) the capital gain arising from the disposition can be attributed to a permanent establishment in Israel; (ii) the shareholder holds, directly or indirectly, shares representing 10% or more of the voting capital during any part of the 12 month period preceding the disposition, subject to certain conditions; or (iii) such U.S. resident is an individual and was present in Israel for a period or periods aggregating to 183 days or more during the relevant taxable year. In such case, the sale, exchange or disposition of our ordinary shares would be subject to Israeli tax, to the extent applicable; however, under the United States Israel Tax Treaty, the taxpayer would be permitted to claim a credit for such taxes against the U.S. federal income tax imposed with respect to such sale, exchange or disposition, subject to the limitations under U.S. law applicable to foreign tax credits. The United States Israel Tax Treaty does not relate to U.S. state or local taxes.
In some instances where our shareholders may be liable for Israeli tax on the sale of their ordinary shares, the payment of the consideration may be subject to the withholding of Israeli tax at source. Shareholders may be required to demonstrate that they are exempt from tax on their capital gains in order to avoid withholding at source at the time of sale. Specifically, in transactions involving a sale of all of the shares of an Israeli resident company, in the form of a merger or otherwise, the Israel Tax Authority may require from shareholders who are not liable for Israeli tax to sign declarations in forms specified by this authority or obtain a specific exemption from the Israel Tax Authority to confirm their status as non Israeli resident, and, in the absence of such declarations or exemptions, may require the purchaser of the shares to withhold taxes at source.
Taxation of Non Israeli Shareholders on Receipt of Dividends.
Non-Israeli residents are generally subject to Israeli income tax on the receipt of dividends paid on our ordinary shares at the rate of 25%, unless relief is provided in a treaty between Israel and the shareholder’s country of residence. With respect to a person who is a “substantial shareholder” at the time of receiving the dividend or on any time during the preceding twelve months, the applicable tax rate is 30%. A “substantial shareholder” is generally a person who alone or together with such person’s relative or another person who collaborates with such person on a permanent basis, holds, directly or indirectly, at least 10% of any of the “means of control” of the corporation. “Means of control” generally include the right to vote, receive profits, nominate a director or an executive officer, receive assets upon liquidation, or order someone who holds any of the aforesaid rights how to act, regardless of the source of such right. However, a distribution of dividends to non-Israeli residents is subject to withholding tax at source at a rate of 15% if the dividend is distributed from income attributed to an Approved Enterprise or a Benefited Enterprise or 20% if the dividend is distributed from income attributed to a Preferred Enterprise, unless a reduced tax rate is provided under an applicable tax treaty. Dividends paid on publicly traded shares, which are registered with and held by a nominee company, to non-Israeli residents are generally subject to Israeli withholding tax at a rate of 25%, unless a different rate is provided under an applicable tax treaty, provided that a certificate from the Israel Tax Authority allowing for a reduced withholding tax rate is obtained in advance. Under the United States-Israel Tax Treaty, the maximum rate of tax withheld at source in Israel on dividends paid to a holder of our ordinary shares who is a U.S. resident (for purposes of the United States-Israel Tax Treaty) is 25%.
U.S. residents who are subject to Israeli withholding tax on a dividend may be entitled to a credit or deduction for United States federal income tax purposes in the amount of the taxes withheld, subject to detailed rules contained in U.S. tax legislation.
Excess Tax.
Beginning on January 1, 2013, an additional tax liability at the rate of 2% was added to the applicable tax rate on the annual taxable income of individuals who are subject to tax in Israel (whether any such individual isare also subject to an Israeli resident or non-Israeli resident)additional tax at a rate of 2% on annual income exceeding 803,520 for 2016 (and as of 2017, the additional tax will be at a rate of 3% on annual income exceeding NIS 810,720 (in 2014)640,000), which amount is linked to the annual change in the Israeli consumer price index, including, but not limited to, dividends, interest and capital gain, subject to the provisions of an applicable tax treaty.gain.
United States Federal Income Tax Consequences
The following is a summary of certain material U.S. federal income tax consequences that apply to U.S. Holders who hold ordinary shares as capital assets. This summary is based on the United States Internal Revenue Code of 1986 or the Code, as amended, Treasury regulations promulgated thereunder, judicial and administrative interpretations thereof, and the U.S.-Israel Tax Treaty, all as in effect on the date hereof and all of which are subject to change either prospectively or retroactively. This summary does not address all tax considerations that may be relevant with respect to an investment in ordinary shares. This summary does not account for the specific circumstances of any particular investor, such as:
v | certain insurance companies, |
v | investors liable for alternative minimum tax, |
v | tax-exempt organizations, |
v | non-resident aliens of the U.S. or taxpayers whose functional currency is not the U.S. dollar, |
v | persons who hold the ordinary shares through partnerships or other pass-through entities, |
v | investors that actually or constructively own 10 percent or more of our voting shares, and |
v | investors holding ordinary shares as part of a straddle or a hedging or conversion transaction. |
This summary does not address the effect of any U.S. Federal taxation other than U.S. Federal income taxation. In addition, this summary does not include any discussion of state, local or foreign taxation. You are urged to consult your tax advisors regarding the non-U. S. and United States federal, state and local tax considerations of an investment in ordinary shares.
For purposes of this summary, a U.S. Holder is:
v | an individual who is a citizen or, a resident of the United States for U.S. federal income tax purposes; |
v | a partnership, corporation or other entity created or organized in or under the laws of the United States or any political subdivision thereof; |
v | an estate whose income is subject to U.S. federal income tax regardless of its source; |
v | a trust if: (a) a court within the United States is able to exercise primary supervision over administration of the trust, and (b) one or more United States persons have the authority to control all substantial decisions of the trust; or |
v | a trust, if the trust were in existence and qualified as a “United States person,” within the meaning of the Code, on August 20, 1996 under the law as then in effect and elected to continue to be so treated. |
Additional Tax on Investment Income
In addition to the income taxes described above, U.S. holders that are individuals, estates or trusts and whose income exceeds certain thresholds will be subject to a 3.8% Medicare contribution tax on net investment income, which includes dividends and capital gains.
Taxation of Dividends
The gross amount of any distributions received with respect to ordinary shares, including the amount of any Israeli taxes withheld therefrom, will constitute dividends for U.S. Federal income tax purposes, to the extent of our current and accumulated earnings and profits as determined for U.S. federal income tax principles. You will be required to include this amount of dividends in gross income as ordinary income. Distributions in excess of our earnings and profits will be treated as a non-taxable return of capital to the extent of your tax basis in the ordinary shares and any amount in excess of your tax basis, will be treated as gain from the sale of ordinary shares. See Item 10.D. “Exchange Controls” under the heading “Disposition of Ordinary Shares” below for the discussion on the taxation of capital gains. Dividends will not qualify for the dividends-received deduction generally available to U.S. corporations under Section 243 of the Code.
Certain dividend income received by individual U.S. Holders, may be eligible for a reduced rate of taxation. Such dividend income will be taxed at the applicable long-term capital gains rate (currently, a maximum rate of 20%) if the dividend is received from a “qualified foreign corporation,” and the shareholder of such foreign corporation holds such stock for at least 61 days during the 121-day period that begins on the date that is 60 days before the ex-dividend date for the stock. The holding period is tolled for any days on which the shareholder has reduced his risk of loss. A “qualified foreign corporation” is one that is eligible for the benefits of a comprehensive income tax treaty with the United States. A foreign corporation will be treated as qualified with respect to any dividend paid, if its stock is readily tradable on an established securities market in the United States. Dividend income will not qualify for the reduced rate of taxation if the corporation is a passive foreign investment company, or PFIC (see below), for the year in which the dividend is distributed or for the previous year.
Dividends that we pay in NIS, including the amount of any Israeli taxes withheld therefrom, will be included in your income in a U.S. dollar amount calculated by reference to the exchange rate in effect on the day such dividends are received. A U.S. Holder who receives payment in NIS and converts NIS into U.S. dollars at an exchange rate other than the rate in effect on such day may have a foreign currency exchange gain or loss that would be treated as U.S. source ordinary income or loss. U.S. Holders should consult their own tax advisors concerning the U.S. tax consequences of acquiring, holding and disposing of NIS.
Any Israeli withholding tax imposed on such dividends will be a foreign income tax eligible for credit against a U.S. Holder’s U.S. federal income tax liability, subject to certain limitations set out in the Code (or, alternatively, for deduction against income in determining such tax liability). The limitations set out in the Code include computational rules under which non-U.S. tax credits allowable with respect to specific classes of income cannot exceed the U.S. federal income taxes otherwise payable with respect to each such class of income. Dividends generally will be treated as foreign-source passive income for United States foreign tax credit purposes. Foreign income taxes exceeding the credit limitation for the year of payment or accrual may be carried back for the first preceding taxable years and forward for the first ten taxable years in order to reduce U.S. federal income taxes, subject to the credit limitation applicable in each of such years. A U.S. Holder will be denied a foreign tax credit with respect to Israeli income tax withheld from dividends received on the ordinary shares to the extent such U.S. Holder has not held the ordinary shares for at least 16 days of the 31-day period beginning on the date which is 15 days before the ex-dividend date or to the extent such U.S. Holder is under an obligation to make related payments with respect to substantially similar or related property. Any days during which a U.S. Holder has substantially diminished its risk of loss on the ordinary shares are not counted toward meeting the 16-day holding period required by the statute. The rules relating to the determination of the foreign tax credit are complex, and you should consult with your personal tax advisors to determine whether and to what extent you would be entitled to this credit.
Dispositions of Ordinary Shares
If you sell or otherwise dispose of ordinary shares, you will recognize gain or loss for U.S. Federal income tax purposes in an amount equal to the difference between the amount realized on the sale or other disposition and the adjusted tax basis in ordinary shares. Subject to the discussion below under the heading “Passive Foreign Investment Companies,” such gain or loss generally will be capital gain or loss and will be long-term capital gain or loss if you have held the ordinary shares for more than one year at the time of the sale or other disposition. In general, any gain that you recognize on the sale or other disposition of ordinary shares will be U.S.-source for purposes of the foreign tax credit limitation; losses will generally be allocated against U.S. source income. Deduction of capital losses is subject to certain limitations under the Code.
In the case of a cash basis U.S. Holder who receives NIS in connection with the sale or disposition of ordinary shares, the amount realized will be based on the U.S. dollar value of the NIS received with respect to the ordinary shares as determined on the settlement date of such exchange. A U.S. Holder who receives payment in NIS and converts NIS into United States dollars at a conversion rate other than the rate in effect on the settlement date may have a foreign currency exchange gain or loss that would be treated as U.S. source ordinary income or loss.
Passive Foreign Investment Companies, or PFIC
There is a substantial risk that we are a passive foreign investment company, or PFIC, for U.S. federal income tax purposes. Our treatment as a PFIC could result in a reduction in the after-tax return to the U.S. Holders of our ordinary shares and may cause a reduction in the value of such shares.
For U.S. federal income tax purposes, we will be classified as a PFIC for any taxable year in which either (i) 75% or more of our gross income is passive income, or (ii) the average percentage of the value of all of our assets for the taxable year which produce or are held for the production of passive income is at least 50%. For this purpose, cash and real estate properties are considered to be an asset which produces passive income. Passive income includes, among others, dividends, interest, certain types of royalties and rents, annuities, net foreign exchange gains and losses and the excess of gains over losses from the disposition of assets which produce passive income. As a result of our substantial cash position and the decline in the value of our stock, we may be a PFIC under a literal application of the asset test that looks solely to market value. If we are a PFIC for U.S. federal income tax purposes, U.S. Holders of our ordinary shares would be required, in certain circumstances, to pay an interest charge together with tax calculated at maximum rates on certain “excess distributions,” including any gain on the sale of ordinary shares.
The consequences described above can be mitigated if the U.S. Holder makes an election to treat us as a qualified electing fund, or QEF. A shareholder making the QEF election is required for each taxable year to include in income a pro rata share of the ordinary earnings and net capital gain of the QEF, subject to a separate election to defer payment of taxes, which deferral is subject to an interest charge. We have agreed to supply U.S. Holders with the information needed to report income and gain pursuant to a QEF election. The QEF election is made on a shareholder-by-shareholder basis and can be revoked only with the consent of the Internal Revenue Service, or IRS.
As an alternative to making the QEF election, the U.S. Holder of PFIC stock which is publicly traded could mitigate the consequences of the PFIC rules by electing to mark the stock to market annually, recognizing as ordinary income or loss each year an amount equal to the difference as of the close of the taxable year between the fair market value of the PFIC stock and the U.S. Holder's adjusted tax basis in the PFIC stock. Losses would be allowed only to the extent of net mark-to-market gain previously included by the U.S. Holder under the election for prior taxable years. All U.S. Holders are advised to consult their own tax advisers about the PFIC rules generally and about the advisability, procedures and timing of their making any of the available tax elections, including the QEF or mark-to-market elections.
Backup Withholding and Information Reporting
Payments in respect of ordinary shares may be subject to information reporting to the U.S. Internal Revenue Service and to a 28 percent U.S. backup withholding tax. Backup withholding will not apply, however, if you (i) are a corporation or come within certain exempt categories, and demonstrate the fact when so required, or (ii) furnish a correct taxpayer identification number and make any other required certification. Backup withholding is not an additional tax. Amounts withheld under the backup withholding rules may be credited against a U.S. Holder’s U.S. tax liability, and a U.S. Holder may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the IRS. Any U.S. holder who holds 10% or more in vote or value of our ordinary shares may be subject to certain additional United States information reporting requirements.
U.S. Gift and Estate Tax
An individual U.S. Holder of ordinary shares will be subject to U.S. gift and estate taxes with respect to ordinary shares in the same manner and to the same extent as with respect to other types of personal property.
Other Income Tax
Taxable income of the Company's subsidiary in Luxemburg, Switzerland and the United States is subject to tax at the rate of approximately 29%, 24% and 34% respectively in 2015.2017.
10.F. DIVIDEND AND PAYING AGENTS
Not applicable.
10.G. STATEMENT BY EXPERTS
Not applicable.
10.H. DOCUMENTS ON DISPLAY
Reports and other information of Optibase filed electronically with the SEC may be found at www.sec.gov. They can also be inspected without charge and copied at prescribed rates at the public reference facilities maintained by the SEC Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Copies of this material are also available by mail from the Public Reference Room at 100 F Street, NE, Washington, D.C. 20549, at prescribed rates.
10.I. SUBSIDIARY INFORMATION
Not applicable.
ITEM 11.11. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Most of our revenues are generated in CHF but a portion of our expenses is incurred in NIS and in U.S. dollars. Therefore, our results of operations may be seriously harmed by inflation in Israel and currency fluctuations. In addition, following the closing of the Transaction Portfolio in Germany as detailed in Item 10.C. “Material Contracts” above, our results of operations will be exposed to fluctuations in the exchange rate of NIS against the U.S. dollar and against the EUR as well.
The inflationdeflation rate in Israel was approximately 1.8%(1)% and (0.2)% in 2013,2015 and a deflation2016, respectively, and an inflation rate of approximately (0.2)%0.4% in 2014 and (1)% in 2015.2017. The changes of the NIS against the dollar was an appreciation of approximately 7% in 2013, and a devaluation of approximately (12)% in 2014 and (0.3)% in 2015.2015 and appreciation of approximately 1.5% and 9.8% in 2016 and 2017, respectively. The change of the CHF against the dollar was a devaluation of approximately (0.2)% and (2.8)% in 2015 and 2016, respectively, and an appreciation of approximately 2.8%4.4% in 2013, and a devaluation of approximately (10)% in 2014 and (0.2)% in 2015.2017. The change of the Euro against the dollar was a devaluation of approximately (10)% 2015.
and (3.6)% in 2015 and 2016, respectively, and an appreciation of approximately 13.7% in 2017.
Our operations could be adversely affected if we are unable to guard against currency fluctuations in the future. Accordingly, we may enter into currency hedging transactions to decrease the risk of financial exposure from fluctuations in the exchange rate of NIS against the U.S. dollar and against the CHF and against the EUR. These measures, however, may not adequately protect us from material adverse effects due to the impact of inflation in Israel.
The presentation currency of the financial statements is the U.S. dollar.
Our functional currency is the U.S Dollar.
The functional currencies of ourOptibase’s subsidiaries are CHF, EuroEUR and U.S dollar. The Company has elected to use U.S dollar as its reporting currency for all years presented.
While the functional currency of our subsidiaries in the United States is the U.S dollars, the functional currency of our subsidiaries in Switzerland and Germany is their lead currency, i.e. CHF and Euro respectably. Since our functional and reporting currency is the U.S dollars, the financial statements of Optibase Real Estate SARL and OPCTN S.A whose functional currency has been determined to be CHF and Optibase Bavaria whose functional currency has been determined to be Euro have been translated into U.S. dollars. Assets and liabilities of this subsidiarythese subsidiaries are translated at the year-end exchange rates and their statement of operations items are translated using the actualaverage exchange rates at the dates on which those items are recognized. Suchfor all periods presented. The resulting translation adjustments are recorded as a separate component of accumulated other comprehensive income in shareholders' equity.
In February 2016, we entered into a hedging of cross currency interest rate swap transaction for the total amount of approximately NIS 34.2 million at fixed interest rate of 6.7% in exchange for approximately $8.7 million at fixed interest rate of 7.95% with semi-annually payments commencing on June2016June 2016 through December 2021, the termination date.
Interest Rate and Rating Risks
Our exposure to market risk for changes in interest rates in Switzerland relates primarily to our long term loan taken for the purchase of our real-estate property in Switzerland and denominated in Swiss Franks (CHF). Changes in Swiss interest rates, could affect our financial results.
Investments Risks
In the second quarter of 2003, we transferred approximately $39.3 million of our monies and investments to Optibase, Inc. to achieve better net profit from the investment. As of December 31, 2015,2017, our available net cash was 24.5$20.3 million. As of December 31, 2015,2017, our available cash was invested in interest bearingvarious bank deposits and money market funds with various banks. Our available cash is subject to the credit risk of the banks with which the funds are deposited and as such we may suffer losses if those banks fail to repay those deposits.
ITEM 12.12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable. (forFor a description of our Series A Bonds see “Item 5.B: Operating and Financial Review and Prospects - Liquidity and Capital Resources”).
ITEM 13.13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
Not applicable.
ITEM 14.14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
Not applicable.
ITEM 15.15. CONTROLS AND PROCEDURES
(a) Our management, including our chief executive officer and chief financial officer, has evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2015.2017. Based on such review, our chief executive officer and chief financial officer have concluded that we have in place effective controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure, and is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.
(b) Our management, under the supervision of our chief executive officer and chief financial officer, is responsible for establishing and maintaining adequate internal control over our financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934, as amended. The Company’s internal control over financial reporting is defined as a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes policies and procedures that:
| · | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and asset dispositions; |
| · | provide reasonable assurance that transactions are recorded as necessary to permit the preparation of our financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and |
| · | provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on our financial statements. |
Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we evaluated the effectiveness of our internal control over financial reporting as of December 31, 20152017 based on the framework for Internal Control-Integrated Framework (1992) set forth by The Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded that the Company’s internal controls over financial reporting were effective as of December 31, 2015.2017.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting, because we are neither a “large accelerated filer” nor an “accelerated filer” as those terms are defined in the Securities Exchange Act.
(c) There were no changes in our internal controls over financial reporting identified with the evaluation thereof that occurred during the period covered by this annual report that have materially affected, or are reasonable likely to materially affect our internal control over financial reporting.
ITEM 16A.16A. AUDIT COMMITTEE FINANCIAL EXPERT
The board of directors has determined that Ms. Orli Garti-Seroussi is an “audit committee financial expert” and that she is independent under the applicable Securities and Exchange Commission and NASDAQ listing rules.
ITEM 16B.16B. CODE OF ETHICS
We have adopted a Code of Business Conduct and Ethics for our employees, including our chief executive officer and senior financial officers. The Code of Business Conduct and Ethics is attached as Exhibit 11.1 to this annual report, and published on our website in the address: http://www.optibase-holdings.com.www.optibase-holdings.com.
ITEM 16C.16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Kost, Forer Gabbay & Kasierer, a member of Ernst & Young Global, or Ernst & Young has served as our independent public accountants for each of the fiscal years in the three-year period ended December 31, 2015,2017, for which audited financial statements appear in this annual report on Form 20-F.
The following table presents the aggregate fees for professional services and other services rendered by Kost, Forer Gabbay & Kasierer in Israel and by Ernst & Young in Switzerland and in the United States, to Optibase in 20142016 and 20152017 (in thousands)thousands of dollars):
| | 2016 | | | 2017 | |
Audit fees (1) | | | 95 | | | | 111 | |
Audit-related fees (2) | | | 5 | | | | 5 | |
Tax fees (3) | | | 56 | | | | 42 | |
Total | | | 156 | | | | 158 | |
| | 2014 | | | 2015 | |
Audit fees (1) | | | 97 | | | | 89 | |
Audit-related fees (2) | | | 4 | | | | 26 | |
Tax fees (3) | | | 30 | | | | 46 | |
All other fees (4) | | | -- | | | | | |
Total | | | 131 | | | | 161 | |
(1) | Audit fees consist of fees billed for the annual audit services engagement and other audit services, which are those services that only the external auditor can reasonably provide, and include the group audit; statutory audits; comfort letters and consents; attest services; and assistance with and review of documents filed with the SEC. |
(2) | Audit-related fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements or that are traditionally performed by the external auditor, and include consultations concerning financial accounting and reporting standards; internal control reviews of new systems, programs and projects; review of security controls and operational effectiveness of systems; review of plans and control for shared service centers, due diligence related to acquisitions; accounting assistance and audits in connection with proposed or completed acquisitions; and employee benefit plan audits. |
(3) | Tax fees include fees billed for tax compliance services, including the preparation of original and amended tax returns and claims for refund; tax consultations, such as assistance and representation in connection with tax audits and appeals, tax advice related to mergers and acquisitions, transfer pricing, and requests for rulings or technical advice from taxing authority; tax planning services; and expatriate tax planning and services. |
(4) | All other fees include fees billed for training; forensic accounting; data security reviews; treasury control reviews and process improvement and advice; and environmental, sustainability and corporate social responsibility advisory services. |
Audit Committee Pre-approval Policies and Procedures
Our audit committee's main role is to assist the board of directors in fulfilling its responsibility for oversight of the quality and integrity of the accounting, auditing and reporting practices of the Company. Our audit committee oversees the appointment, compensation, and oversight of the public accounting firm engaged to prepare or issue an audit report on the financial statements of the Company. Our audit committee's specific responsibilities in carrying out its oversight role include the approval of all audit and non-audit services to be provided by the external auditor and quarterly review the firm's non-audit services and related fees. These services may include audit services, audit-related services, tax services and other services, as described above. It is the policy of our audit committee to approve in advance the particular services or categories of services to be provided to the Company periodically. Additional services may be pre-approved by our audit committee on an individual basis during the year.
During 20142016 and 2015,2017, our audit committee approved all the audit-related fees, tax fees or other fees provided to us by Kost, Forer Gabbay & Kasierer in Israel or by Ernst & Young in Switzerland and in the United States.
ITEM 16D.16D. EXEMPTION FROM THE LISTING STANDARDS FOR AUDIT COMMITTEE
We have not and do not expect to apply for any exemptions from the NASDAQ listing standards for audit committees.
ITEM 16E.16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Not applicable.
ITEM 16F.16F. CHANGES IN REGISTRANT’S CERTIFYING ACCOUNTANT
None.
ITEM 16G.16G. CORPORATE GOVERNANCE
We do not have a nomination committee as required by the Nasdaq Listing Rules. However, the actions ordinarily taken by such committee are resolved by the majority of our independent directors, in accordance with the Companies Law and the Nasdaq Global Market listing requirements.
Otherwise, thereThere are no significant ways in which the Company’s corporate governance practices differ from those followed by domestic companies listed on the Nasdaq Global Market.
ITEM 16H. 16H. MINE SAFETY DISCLOSURE
Not Applicable.
ITEM 17.17. FINANCIAL STATEMENTS
Not Applicable.
ITEM 18.18. FINANCIAL STATEMENTS
The following are our financial statements auditedrequired by Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global, together withthis item are found at the reports of Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global, for the fiscal year ended December 31, 2015, are filed as partend of this annual report:report, beginning on page F-1. The financial statements of 300 RIVER HOLDINGS, LLC are also provided pursuant to Rule 3-09 of Regulation S-X.:
Consolidated Financial Statements | Page |
| F-2 |
| F-3 - F-4 |
| F-5 |
| F-6 |
| F-7 |
| F-8 - F-9 |
| F-10 - F-42F-43 |
| |
| |
Consolidated Financial Statements | Page |
| F-44 –F-58 |
| |
See Exhibit Index.
OPTIBASE LTD. AND ITS SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2015
2017
U.S. DOLLARS IN THOUSANDS
INDEX
| Page |
| |
| F-2 |
| |
| F-3 - F-4 |
| |
| F-5 |
| |
| F-6 |
| |
| F-7 |
| |
| F-8 - F-9 |
| |
| F-10 - F-42F-43 |
| |
| Kost Forer Gabbay & Kasierer 144 Menachem Begin Road, Building A Tel-Aviv 6492102, Israel | Tel: +972-3-6232525 Fax: +972-3-5622555 ey.com |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMReport of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors and Shareholders of
OPTIBASE LTD.Optibase LTD
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Optibase Ltd. and its subsidiaries (the "Company") as of December 31, 20152017 and 2014, and2016, the related consolidated statements of operations, comprehensive income, changeschange in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2015. 2017, and the related notes (collectively referred to as the "financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.
We did not audit the financial statements of 300 RIVER HOLDINGS LLC ,an associate accounted for using the equity method, amounted to approximately $ 10,287 thousand as of December 31, 2017, and the Company's share in its net loss amounted to approximately $ 1,797 thousand for the year ended December 31, 2017. Those statements were audited by other auditors, whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for 300 RIVER HOLDINGS LLC, is based solely on the report of the other auditor.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on thesethe Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. Wemisstatement, whether due to error or fraud. The Company is not required to have, nor were notwe engaged to perform, an audit of the Company'sits internal control over financial reporting. OurAs part of our audits included considerationwe are required to obtain an understanding of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, andas well as evaluating the overall presentation of the financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.
KOST FORER GABBAY & KASIERER or /s/ KOST FORER GABBAY & KASIERER
A Member of Ernst & Young Global
We have served as the consolidated financial statements referredCompany's auditor since at least 1997, but we are unable to above, present fairly, in all material respects,determine the consolidated financial position of the Company and its subsidiaries as of December 31, 2015 and 2014, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2015, in conformity with United States generally accepted accounting principles.specific year.
Tel-Aviv, Israel | KOST FORER GABBAY & KASIERER |
March 31, 2016 | A Member of Ernst & Young Global |
Tel-Aviv, Israel
March 28, 2018
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands
| | December 31, | | | December 31, | |
| | 2015 | | | 2014 | | | 2017 | | | 2016 | |
ASSETS | | | | | | | | | | | | |
| | | | | | | | | | | | |
CURRENT ASSETS: | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 23,806 | | | $ | 22,902 | | | $ | 20,268 | | | $ | 16,024 | |
Trade receivables (net of allowance for doubtful accounts of $118 and $154 at December 31, 2015 and 2014, respectively) | | | 177 | | | | 286 | | |
Restricted cash | | | | 292 | | | | - | |
Trade receivables (net of allowance for doubtful accounts of $ 161 and $ 154 at December 31, 2017 and 2016, respectively) | | | | 332 | | | | 220 | |
Other accounts receivable and prepaid expenses | | | 318 | | | | 1,396 | | | | 506 | | | | 528 | |
| | | | | | | | | | | | | | | | |
Total current assets | | | 24,301 | | | | 24,584 | | | | 21,398 | | | | 16,772 | |
| | | | | | | | | | | | | | | | |
LONG-TERM INVESTMENTS: | | | | | | | | | | | | | | | | |
Long-term deposits | | | 2,670 | | | | 54 | | | | 3,483 | | | | 2,785 | |
Investments in companies and associates | | | 20,663 | | | | 7,553 | | | | 17,556 | | | | 22,892 | |
| | | | | | | | | | | | | | | | |
Total long-term investments | | | 23,333 | | | | 7,607 | | | | 21,039 | | | | 25,677 | |
| | | | | | | | | | | | | | | | |
PROPERTY AND OTHER ASSETS, NET | | | | | | | | | | | | | | | | |
Real estate property, net | | | 214,840 | | | | 185,204 | | | | 216,726 | | | | 207,690 | |
Other assets, net | | | 470 | | | | 609 | | | | 140 | | | | 245 | |
| | | | | | | | | | | | | | | | |
Total property, equipment and other assets | | | 215,310 | | | | 185,813 | | | | 216,866 | | | | 207,935 | |
| | | | | | | | | | | | | | | | |
Total assets | | $ | 262,944 | | | $ | 218,004 | | | $ | 259,303 | | | $ | 250,384 | |
The accompanying notes are an integral part of the consolidated financial statements.
OPTIBASE LTD.
AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands (except share and per share data)
| | December 31, | |
| | 2015 | | | 2014 | |
LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | |
| | | | | | |
CURRENT LIABILITIES: | | | | | | |
Current maturities of long term loans and bonds | | $ | 8,535 | | | $ | 2,401 | |
Other accounts payable and accrued expenses | | | 3,297 | | | | 4,991 | |
Other short-term liabilities | | | - | | | | 539 | |
Total liabilities attributed to discontinued operations | | | 2,109 | | | | 2,153 | |
| | | | | | | | |
Total current liabilities | | | 13,941 | | | | 10,084 | |
| | | | | | | | |
COMMITMENTS AND CONTINGENT LIABILITIES | | | | | | | | |
| | | | | | | | |
LONG-TERM LIABILITIES: | | | | | | | | |
Deferred tax liabilities | | | 14,178 | | | | 14,237 | |
Land lease liability, net | | | 6,412 | | | | 6,528 | |
Other Long-Term Liabilities | | | 264 | | | | - | |
Long term loans, net of current maturities | | | 140,082 | | | | 110,080 | |
Long term bonds, net of current maturities | | | 12,483 | | | | - | |
| | | | | | | | |
Total long-term liabilities | | | 173,419 | | | | 130,845 | |
| | | | | | | | |
SHAREHOLDERS' EQUITY: | | | | | | | | |
Share capital - | | | | | | | | |
Ordinary Shares of NIS 0.65 par value - Authorized: 6,000,000 shares at December 31, 2015 and 2014; Issued: 5,183,525 shares at December 31, 2015 and 2014; Outstanding: 5,133,631 and 5,127,631 shares at December 31, 2015 and 2014, respectively | | | 988 | | | | 988 | |
Additional paid-in capital | | | 137,961 | | | | 137,898 | |
Treasury shares: 49,895 and 55,895 shares at December 31, 2015 and 2014, respectively | | | (354 | ) | | | (554 | ) |
Accumulated other comprehensive loss | | | (1,906 | ) | | | (1,221 | ) |
Accumulated deficit | | | (80,905 | ) | | | (79,672 | ) |
| | | | | | | | |
Total shareholders' equity of Optibase Ltd. | | | 55,784 | | | | 57,439 | |
| | | | | | | | |
Non-controlling interests | | | 19,800 | | | | 19,636 | |
| | | | | | | | |
Total shareholders' equity | | | 75,584 | | | | 77,075 | |
| | | | | | | | |
Total liabilities and shareholders' equity | | $ | 262,944 | | | $ | 218,004 | |
| | December 31, | |
| | 2017 | | | 2016 | |
CURRENT LIABILITIES: | | | | | | |
Current maturities of long-term loans and bonds | | $ | 6,048 | | | $ | 10,360 | |
Other accounts payable and accrued expenses | | | 4,362 | | | | 4,254 | |
Total liabilities attributed to discontinued operations | | | 2,061 | | | | 2,061 | |
| | | | | | | | |
Total current liabilities | | | 12,471 | | | | 16,675 | |
| | | | | | | | |
COMMITMENTS AND CONTINGENT LIABILITIES | | | | | | | | |
| | | | | | | | |
LONG-TERM LIABILITIES: | | | | | | | | |
Deferred tax liabilities | | | 14,042 | | | | 13,620 | |
Land lease liability, net | | | 6,295 | | | | 6,133 | |
Other Long-Term Liabilities | | | 294 | | | | 407 | |
Loan from controlling shareholder | | | 4,886 | | | | - | |
Long-term loans, net of current maturities | | | 135,774 | | | | 129,261 | |
Long-term bonds, net of current maturities | | | 8,473 | | | | 10,160 | |
| | | | | | | | |
Total long-term liabilities | | | 169,764 | | | | 159,581 | |
| | | | | | | | |
SHAREHOLDERS' EQUITY: | | | | | | | | |
Share capital - | | | | | | | | |
Ordinary shares of NIS 0.65 par value - | | | 993 | | | | 993 | |
Authorized: 6,000,000 shares at December 31, 2017 and 2016; Issued: 5,214,256 shares at December 31, 2017 and 2016; | | | | | | | | |
Outstanding: 5,180,361 and 5,172,361 shares at December 31, 2017 and 2016, respectively | | | | | | | | |
Additional paid-in capital | | | 138,170 | | | | 138,155 | |
Treasury shares: 33,895 and 41,895 shares at December 31, 2017 and 2016, respectively | | | (87 | ) | | | (87 | ) |
Other reserves | | | 9 | | | | (3,002 | ) |
Accumulated deficit | | | (82,048 | ) | | | (80,925 | ) |
| | | | | | | | |
Total shareholders' equity of Optibase Ltd. | | | 57,037 | | | | 55,134 | |
| | | | | | | | |
Non-controlling interests | | | 20,031 | | | | 18,994 | |
| | | | | | | | |
Total shareholders' equity | | | 77,068 | | | | 74,128 | |
| | | | | | | | |
Total liabilities and shareholders' equity | | $ | 259,303 | | | $ | 250,384 | |
The accompanying notes are an integral part of the consolidated financial statements.
March 31, 201628, 2018 | | | | |
Date of approval of the | | Amir Philips | | Alex Hilman |
financial statements | | Chief Executive Officer | | Executive Chairman of the Board |
CONSOLIDATED STATEMENTS OF
OPERATIONS
U.S. dollars in thousands (except share and per share data)
| | Year ended December 31, | |
| | 2015 | | | 2014 | | | 2013 | |
| | | | | | | | | |
Fixed income from real estate rent | | $ | 15,273 | | | $ | 13,938 | | | $ | 13,711 | |
| | | | | | | | | | | | |
Costs and expenses: | | | | | | | | | | | | |
Cost of real estate operations | | | 2,958 | | | | 2,777 | | | | 2,199 | |
Real estate depreciation and amortization | | | 3,925 | | | | 3,813 | | | | 3,369 | |
General and administrative | | | 1,849 | | | | 2,167 | | | | 1,870 | |
Other operating costs | | | 2,352 | | | | - | | | | - | |
| | | | | | | | | | | | |
Total costs and expenses | | | 11,084 | | | | 8,757 | | | | 7,438 | |
| | | | | | | | | | | | |
Gain on sale of operating properties | | | - | | | | 2,709 | | | | - | |
| | | | | | | | | | | | |
Operating income | | | 4,189 | | | | 7,890 | | | | 6,273 | |
| | | | | | | | | | | | |
Other income | | | 429 | | | | 394 | | | | 384 | |
Financial expenses, net | | | (1,807 | ) | | | (1,151 | ) | | | (1,343 | ) |
| | | | | | | | | | | | |
Income before taxes on income | | | 2,811 | | | | 7,133 | | | | 5,314 | |
Taxes on income | | | (1,609 | ) | | | (1,502 | ) | | | (1,518 | ) |
Equity share in losses of associates, net | | | (31 | ) | | | (186 | ) | | | (172 | ) |
| | | | | | | | | | | | |
Net income | | | 1,171 | | | | 5,445 | | | | 3,624 | |
| | | | | | | | | | | | |
Net income attributable to non-controlling interest | | | 2,239 | | | | 2,106 | | | | 2,159 | |
| | | | | | | | | | | | |
Net income (loss) attributable to Optibase Ltd. | | $ | (1,068 | ) | | $ | 3,339 | | | $ | 1,465 | |
| | | | | | | | | | | | |
Net earnings per share: | | | | | | | | | | | | |
| | | | | | | | | | | | |
Basic and diluted net earnings (loss) per share | | $ | (0.21 | ) | | $ | 0.65 | | | $ | 0.38 | |
| | | | | | | | | | | | |
Weighted average number of shares used in computing basic net earnings per share: | | | 5,133,024 | | | | 5,126,616 | | | | 3,822,032 | |
| | | | | | | | | | | | |
Weighted average number of shares used in computing diluted net earnings per share: | | | 5,133,024 | | | | 5,131,072 | | | | 3,825,610 | |
| | Year ended December 31, | |
| | 2017 | | | 2016 | | | 2015 | |
| | | | | | | | | |
Fixed income from real estate rent | | $ | 16,587 | | | $ | 16,338 | | | $ | 15,273 | |
| | | | | | | | | | | | |
Costs and expenses: | | | | | | | | | | | | |
Cost of real estate operations | | | 3,057 | | | | 3,159 | | | | 2,958 | |
Real estate depreciation and amortization | | | 4,209 | | | | 4,244 | | | | 3,925 | |
General and administrative | | | 2,698 | | | | 2,615 | | | | 1,849 | |
Other operating costs | | | - | | | | - | | | | 2,352 | |
| | | | | | | | | | | | |
Total costs and expenses | | | 9,964 | | | | 10,018 | | | | 11,084 | |
| | | | | | | | | | | | |
Operating income | | | 6,623 | | | | 6,320 | | | | 4,189 | |
| | | | | | | | | | | | |
Other income | | | 597 | | | | 1,116 | | | | 429 | |
Financial expenses, net | | | (2,769 | ) | | | (3,366 | ) | | | (1,807 | ) |
| | | | | | | | | | | | |
Income before taxes on income | | | 4,451 | | | | 4,070 | | | | 2,811 | |
Taxes on income | | | (1,602 | ) | | | (1,627 | ) | | | (1,609 | ) |
Equity share in losses of associates, net | | | (1,677 | ) | | | (323 | ) | | | (31 | ) |
| | | | | | | | | | | | |
Net income | | | 1,172 | | | | 2,120 | | | | 1,171 | |
| | | | | | | | | | | | |
Net income attributable to non-controlling interest | | | 2,295 | | | | 1,925 | | | | 2,239 | |
| | | | | | | | | | | | |
Net income (loss) attributable to Optibase Ltd. | | $ | (1,123 | ) | | $ | 195 | | | $ | (1,068 | ) |
| | | | | | | | | | | | |
Net earnings per share: | | | | | | | | | | | | |
| | | | | | | | | | | | |
Basic and diluted net earnings (loss) per share | | $ | (0.22 | ) | | $ | 0.04 | | | $ | (0.21 | ) |
| | | | | | | | | | | | |
Weighted average number of shares used in computing basic net earnings per share: | | | 5,180,163 | | | | 5,147,130 | | | | 5,133,024 | |
| | | | | | | | | | | | |
Weighted average number of shares used in computing diluted net earnings per share: | | | 5,180,163 | | | | 5,157,165 | | | | 5,133,024 | |
The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
(LOSS)
U.S. dollars in thousands
| | Year ended December 31, | |
| | 2015 | | | 2014 | | | 2013 | |
| | | | | | | | | |
Net income | | $ | 1,171 | | | $ | 5,445 | | | $ | 3,624 | |
| | | | | | | | | | | | |
Foreign currency translation adjustments | | | (467 | ) | | | (5,325 | ) | | | 1,477 | |
Financial liability related to hedging | | | (264 | ) | | | - | | | | - | |
| | | | | | | | | | | | |
Other comprehensive income | | | 440 | | | | 120 | | | | 5,101 | |
| | | | | | | | | | | | |
Net earnings attributable to non-controlling interests | | | (2,239 | ) | | | (2,106 | ) | | | (2,159 | ) |
Other comprehensive income (loss) attributable to non-controlling interests | | | 46 | | | | 2,265 | | | | (624 | ) |
| | | | | | | | | | | | |
Comprehensive income (loss) attributable to Optibase Ltd. | | $ | (1,753 | ) | | $ | 279 | | | $ | 2,318 | |
| | Year ended December 31, | |
| | 2017 | | | 2016 | | | 2015 | |
| | | | | | | | | |
Net income | | $ | 1,172 | | | $ | 2,120 | | | $ | 1,171 | |
| | | | | | | | | | | | |
Foreign currency translation adjustments | | | 3,357 | | | | (1,475 | ) | | | (467 | ) |
Financial liability related to hedging | | | 113 | | | | (143 | ) | | | (264 | ) |
| | | | | | | | | | | | |
Comprehensive income | | | 4,642 | | | | 502 | | | | 440 | |
| | | | | | | | | | | | |
Net earnings attributable to non-controlling interests | | | (2,295 | ) | | | (1,925 | ) | | | (2,239 | ) |
Other comprehensive loss (income) attributable to non-controlling interests | | | (831 | ) | | | 522 | | | | 46 | |
| | | | | | | | | | | | |
Comprehensive income (loss) attributable to Optibase Ltd. | | $ | 1,516 | | | $ | (901 | ) | | $ | (1,753 | ) |
The accompanying notes are an integral part of the consolidated financial statements.
STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY
U.S. dollars in thousands
| | Ordinary shares | | | Additional paid-in capital | | | Treasury shares | | | Accumulated other comprehensive income (loss) | | | Accumulated deficit | | | Total shareholders' equity of Optibase Ltd. | | | Non-controlling interests | | | Total shareholders' equity | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of January 1, 2013 | | $ | 744 | | | $ | 130,824 | | | $ | (821 | ) | | $ | 986 | | | $ | (84,259 | ) | | $ | 47,474 | | | $ | 19,078 | | | $ | 66,552 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Issuance of ordinary shares | | | 244 | | | | 6,909 | | | | - | | | | - | | | | - | | | | 7,153 | | | | - | | | | 7,153 | |
Stock-based compensation related to options and unvested shares | | | - | | | | 118 | | | | - | | | | - | | | | - | | | | 118 | | | | - | | | | 118 | |
Issuance of treasury shares upon vesting of shares | | | - | | | | (26 | ) | | | 133 | | | | - | | | | (107 | ) | | | - | | | | - | | | | - | |
Other comprehensive income | | | - | | | | - | | | | - | | | | 853 | | | | - | | | | 853 | | | | 624 | | | | 1,477 | |
Net income | | | - | | | | - | | | | - | | | | - | | | | 1,465 | | | | 1,465 | | | | 2,159 | | | | 3,624 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2013 | | | 988 | | | | 137,825 | | | | (688 | ) | | | 1,839 | | | | (82,901 | ) | | | 57,063 | | | | 21,861 | | | | 78,924 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stock-based compensation related to options and unvested shares | | | - | | | | 97 | | | | - | | | | - | | | | - | | | | 97 | | | | - | | | | 97 | |
Issuance of treasury shares upon vesting of shares | | | - | | | | (24 | ) | | | 134 | | | | - | | | | (110 | ) | | | - | | | | - | | | | - | |
Dividend distribution | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (2,066 | ) | | | (2,066 | ) |
Other comprehensive loss | | | - | | | | - | | | | - | | | | (3,060 | ) | | | - | | | | (3,060 | ) | | | (2,265 | ) | | | (5,325 | ) |
Net income | | | - | | | | - | | | | - | | | | - | | | | 3,339 | | | | 3,339 | | | | 2,106 | | | | 5,445 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2014 | | | 988 | | | | 137,898 | | | | (554 | ) | | | (1,221 | ) | | | (79,672 | ) | | | 57,439 | | | | 19,636 | | | | 77,075 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stock-based compensation related to options and unvested shares | | | - | | | | 98 | | | | - | | | | - | | | | - | | | | 98 | | | | - | | | | 98 | |
Issuance of treasury shares upon vesting of shares | | | - | | | | (35 | ) | | | 200 | | | | - | | | | (165 | ) | | | - | | | | - | | | | - | |
Dividend distribution | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (2,029 | ) | | | (2,029 | ) |
Other comprehensive loss | | | - | | | | - | | | | - | | | | (685 | ) | | | - | | | | (685 | ) | | | (46 | ) | | | (731 | ) |
Net income (loss) | | | - | | | | - | | | | - | | | | - | | | | (1,068 | ) | | | (1,068 | ) | | | 2,239 | | | | 1,171 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2015 | | $ | 988 | | | $ | 137,961 | | | $ | (354 | ) | | $ | (1,906 | ) | | $ | (80,905 | ) | | $ | 55,784 | | | $ | 19,800 | | | $ | 75,584 | |
| | Ordinary shares | | | Additional paid-in capital | | | Treasury shares | | | Other reserves | | | Accumulated deficit | | | Total shareholders' equity of Optibase Ltd. | | | Non-controlling interests | | | Total shareholders' equity | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of January 1, 2015 | | $ | 988 | | | $ | 137,898 | | | $ | (554 | ) | | $ | (1,221 | ) | | $ | (79,672 | ) | | $ | 57,439 | | | $ | 19,636 | | | $ | 77,075 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stock-based compensation | | | - | | | | 98 | | | | - | | | | - | | | | - | | | | 98 | | | | - | | | | 98 | |
Issuance of treasury shares upon vesting of shares | | | - | | | | (35 | ) | | | 200 | | | | - | | | | (165 | ) | | | - | | | | - | | | | - | |
Dividend to non-controlling interests | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (2,029 | ) | | | (2,029 | ) |
Other comprehensive loss | | | - | | | | - | | | | - | | | | (685 | ) | | | - | | | | (685 | ) | | | (46 | ) | | | (731 | ) |
Net income (loss) | | | - | | | | - | | | | - | | | | - | | | | (1,068 | ) | | | (1,068 | ) | | | 2,239 | | | | 1,171 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2015 | | | 988 | | | | 137,961 | | | | (354 | ) | | | (1,906 | ) | | | (80,905 | ) | | | 55,784 | | | | 19,800 | | | | 75,584 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stock-based compensation | | | - | | | | 60 | | | | - | | | | - | | | | - | | | | 60 | | | | - | | | | 60 | |
Issuance of shares upon exercise of stock options | | | 5 | | | | 186 | | | | - | | | | - | | | | - | | | | 191 | | | | - | | | | 191 | |
Issuance of treasury shares upon vesting of shares | | | - | | | | (52 | ) | | | 267 | | | | - | | | | (215 | ) | | | - | | | | - | | | | - | |
Dividend to non-controlling interests | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (2,209 | ) | | | (2,209 | ) |
Other comprehensive loss | | | - | | | | - | | | | - | | | | (1,096 | ) | | | - | | | | (1,096 | ) | | | (522 | ) | | | (1,618 | ) |
Net income | | | - | | | | - | | | | - | | | | - | | | | 195 | | | | 195 | | | | 1,925 | | | | 2,120 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2016 | | | 993 | | | | 138,155 | | | | (87 | ) | | | (3,002 | ) | | | (80,925 | ) | | | 55,134 | | | | 18,994 | | | | 74,128 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stock-based compensation | | | - | | | | 15 | | | | - | | | | - | | | | - | | | | 15 | | | | - | | | | 15 | |
Dividend to non-controlling interests | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (2,089 | ) | | | (2,089 | ) |
Other comprehensive income | | | - | | | | - | | | | - | | | | 2,639 | | | | - | | | | 2,639 | | | | 831 | | | | 3,470 | |
Equity component of transaction with controlling shareholder | | | - | | | | - | | | | - | | | | 372 | | | | - | | | | 372 | | | | - | | | | 372 | |
Net income (loss) | | | - | | | | - | | | | - | | | | - | | | | (1,123 | ) | | | (1,123 | ) | | | 2,295 | | | | 1,172 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2017 | | $ | 993 | | | $ | 138,170 | | | $ | (87 | ) | | $ | 9 | | | $ | (82,048 | ) | | $ | 57,037 | | | $ | 20,031 | | | $ | 77,068 | |
The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
| | Year ended December 31, | |
| | 2017 | | | 2016 | | | 2015 | |
Cash flows from operating activities: | | | | | | | | | |
| | | | | | | | | |
Net income | | $ | 1,172 | | | $ | 2,120 | | | $ | 1,171 | |
Adjustments required to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | | |
Depreciation and amortization | | | 4,209 | | | | 4,244 | | | | 3,925 | |
Stock-based compensation related to options and unvested shares | | | 15 | | | | 60 | | | | 98 | |
Decrease (increase) in trade receivables | | | (112 | ) | | | (46 | ) | | | 111 | |
Equity share in losses of associates, net | | | 1,998 | | | | 520 | | | | 31 | |
Increase (decrease) in deferred tax liabilities | | | (169 | ) | | | (177 | ) | | | (48 | ) |
Decrease in other short-term liabilities | | | - | | | | - | | | | (538 | ) |
Decrease in land lease liabilities | | | (106 | ) | | | (107 | ) | | | (109 | ) |
Decrease (increase) in other accounts receivable and prepaid expenses | | | (791 | ) | | | (370 | ) | | | 1,070 | |
Increase (decrease) in accrued expenses and other accounts payable | | | 1,685 | | | | 1,060 | | | | (1,687 | ) |
| | | | | | | | | | | | |
Net cash provided by continuing operations | | | 7,901 | | | | 7,304 | | | | 4,024 | |
Net cash used in discontinued operations | | | - | | | | (48 | ) | | | (44 | ) |
| | | | | | | | | | | | |
Net cash provided by operating activities | | | 7,901 | | | | 7,256 | | | | 3,980 | |
| | | | | | | | | | | | |
Cash flows from investing activities: | | | | | | | | | | | | |
| | | | | | | | | | | | |
Investment in real estate property | | | (2,195 | ) | | | (2,450 | ) | | | (2,215 | ) |
Increase in restricted cash | | | (292 | ) | | | - | | | | - | |
Proceeds from (investments in) associates, net | | | 3,338 | | | | (2,749 | ) | | | (13,142 | ) |
Decrease (increase) in other long-term deposits | | | 265 | | | | 159 | | | | (2,616 | ) |
Acquisition of Optibase Bavaria (b) | | | - | | | | - | | | | (31,473 | ) |
| | | | | | | | | | | | |
Net cash provided by (used in) investing activities | | | 1,116 | | | | (5,040 | ) | | | (49,446 | ) |
The accompanying notes are an integral part of the consolidated financial statements.
.
OPTIBASE LTD.
AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
| | Year ended December 31, | |
| | 2017 | | | 2016 | | | 2015 | |
Cash flows from financing activities: | | | | | | | | | |
| | | | | | | | | |
Repayment of long-term bank loans and bonds | | | (8,431 | ) | | | (8,112 | ) | | | (2,811 | ) |
Proceeds from bank loan | | | - | | | | 530 | | | | 36,969 | |
Proceeds from issuance of long-term bonds | | | - | | | | - | | | | 15,045 | |
Dividend paid to non-controlling interests | | | (2,089 | ) | | | (2,209 | ) | | | (2,029 | ) |
Proceeds from controlling shareholders' loan | | | 5,118 | | | | - | | | | - | |
Issuance of shares upon exercise of stock options | | | - | | | | 191 | | | | - | |
| | | | | | | | | | | | |
Net cash provided by (used in) financing activities | | | (5,402 | ) | | | (9,600 | ) | | | 47,174 | |
| | | | | | | | | | | | |
Exchange differences on balances of cash and cash equivalents | | | 629 | | | | (398 | ) | | | (804 | ) |
| | | | | | | | | | | | |
Increase (decrease) in cash and cash equivalents | | | 4,244 | | | | (7,782 | ) | | | 904 | |
Cash and cash equivalents at the beginning of the year | | | 16,024 | | | | 23,806 | | | | 22,902 | |
| | | | | | | | | | | | |
Cash and cash equivalents at the end of the year | | $ | 20,268 | | | $ | 16,024 | | | $ | 23,806 | |
| | Year ended December 31, | |
| | 2015 | | | 2014 | | | 2013 | |
Cash flows from operating activities: | | | | | | | | | |
| | | | | | | | | |
Net income | | $ | 1,171 | | | $ | 5,445 | | | $ | 3,624 | |
Adjustments required to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | | |
Depreciation and amortization | | | 3,925 | | | | 3,813 | | | | 3,369 | |
Gain on sale of real estate | | | - | | | | (2,709 | ) | | | - | |
Stock-based compensation related to options and unvested shares | | | 98 | | | | 97 | | | | 118 | |
Decrease (Increase) in trade receivables | | | 111 | | | | (61 | ) | | | (134 | ) |
Equity share in losses of associates, net | | | 31 | | | | 186 | | | | 172 | |
Increase (decrease) in deferred tax liabilities | | | (48 | ) | | | (1,577 | ) | | | 44 | |
Decrease in other long-term liabilities | | | - | | | | - | | | | (1,254 | ) |
Decrease in other short-term liabilities | | | (538 | ) | | | (944 | ) | | | - | |
Decrease in land lease liabilities | | | (109 | ) | | | (187 | ) | | | (91 | ) |
Decrease (increase) in other accounts receivable and prepaid expenses | | | 1,070 | | | | (1,174 | ) | | | 79 | |
Increase (decrease) in accrued expenses and other accounts payable | | | (1,687 | ) | | | 1,737 | | | | 1,615 | |
| | | | | | | | | | | | |
Net cash provided by continuing operations | | | 4,024 | | | | 4,626 | | | | 7,542 | |
Net cash provided by (used in) discontinued operations | | | (44 | ) | | | 693 | | | | (123 | ) |
| | | | | | | | | | | | |
Net cash provided by operating activities | | | 3,980 | | | | 5,319 | | | | 7,419 | |
| | | | | | | | | | | | |
Cash flows from investing activities: | | | | | | | | | | | | |
| | | | | | | | | | | | |
Proceeds from (investment in) long-term lease deposits | | | - | | | | 7 | | | | (11 | ) |
Investment in real estate property | | | (2,215 | ) | | | (1,093 | ) | | | (5,795 | ) |
Sale of real estate property, net | | | - | | | | 6,169 | | | | - | |
Decrease (increase) in restricted cash | | | - | | | | 144 | | | | (10 | ) |
Proceeds from (investments in) associates | | | (13,142 | ) | | | - | | | | 83 | |
Increase in other long term deposits | | | (2,616 | ) | | | - | | | | - | |
Acquisition of Optibase Bavaria (c) | | | (31,473 | ) | | | - | | | | - | |
| | | | | | | | | | | | |
Net cash provided by (used in) investing activities | | | (49,446 | ) | | | 5,227 | | | | (5,733 | ) |
(a) | Supplemental cash flow activities: | | | | | | | | | |
| | | | | | | | | | |
Cash paid during the year for: | | | | | | | | | |
| | | | | | | | | | |
Taxes | | $ | 2,744 | | | $ | 1,420 | | | $ | 3,971 | |
| | | | | | | | | | | | | |
Interest | | $ | 2,554 | | | $ | 2,896 | | | $ | 1,795 | |
| | | | | | | | | | | | | |
(b) | Acquisition of Optibase Bavaria: | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Real estate property | | $ | - | | | $ | - | | | $ | 31,399 | |
Other assets, net | | | - | | | | - | | | | 74 | |
| | | | | | | | | | | | | |
Cash paid by the Company | | $ | - | | | $ | - | | | $ | 31,473 | |
The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands | | Year ended December 31, | |
| | 2015 | | | 2014 | | | 2013 | |
Cash flows from financing activities: | | | | | | | | | |
| | | | | | | | | |
Repayment of long term bank loans | | | (2,811 | ) | | | (2,599 | ) | | | (2,580 | ) |
Proceeds from bank loan | | | 36,969 | | | | - | | | | - | |
Proceeds from issuance of Long term bonds | | | 15,045 | | | | - | | | | - | |
Dividend distribution | | | (2,029 | ) | | | (2,066 | ) | | | - | |
| | | | | | | | | | | | |
Net cash provided by (used in) financing activities | | | 47,174 | | | | (4,665 | ) | | | (2,580 | ) |
| | | | | | | | | | | | |
Exchange differences on balances of cash and cash equivalents | | | (804 | ) | | | (1,790 | ) | | | 563 | |
| | | | | | | | | | �� | | |
Increase (decrease) in cash and cash equivalents | | | 904 | | | | 4,091 | | | | (331 | ) |
Cash and cash equivalents at the beginning of the year | | | 22,902 | | | | 18,811 | | | | 19,142 | |
| | | | | | | | | | | | |
Cash and cash equivalents at the end of the year | | $ | 23,806 | | | $ | 22,902 | | | $ | 18,811 | |
(a) | Supplemental cash flow activities: | | | | | | | | | |
| | | | | | | | | | |
| Cash paid during the year for: | | | | | | | | | |
| | | | | | | | | | |
| Taxes | | $ | 3,971 | | | $ | 27 | | | $ | 875 | |
| | | | | | | | | | | | | |
| Interest | | $ | 1,795 | | | $ | 2,109 | | | $ | 2,702 | |
| | | | | | | | | | | | | |
(b) | Significant non-cash transactions: | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Sale of real estate property | | $ | - | | | $ | 105 | | | $ | - | |
| | | | | | | | | | | | | |
| Purchase of investments in consideration of issue of shares | | $ | - | | | $ | - | | | $ | 7,153 | |
(c) | Acquisition of Optibase Bavaria: | | | | | | | | | |
| | | | | | | | | | |
| Real estate property | | $ | 31,399 | | | $ | - | | | $ | - | |
| Other assets, net | | | 74 | | | | - | | | | - | |
| | | | | | | | | | | | | |
| Cash paid by the Company | | $ | 31,473 | | | $ | - | | | $ | - | |
The accompanying notes are an integral part of the consolidated financial statements.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
| a. | Optibase Ltd. (the "Company") was incorporated and commenced operations in 1990. |
During 2009 the Company entered into the fixed-income real estate sector after an acquisition of a commercial building in Switzerland.
Until the sale of its video solutions business to VITEC Multimedia ("Vitec") in July 2010 (see Note 1d below), the Company and its U.S subsidiary, Optibase Inc., provided equipment for a wide range of professional video applications in the Broadband IPTV, Broadcast, Government, Enterprise and Post-production markets. (collectively,(Collectively, the "Video Activity"). Following the sale of the Video Activity, the Company's only operation is the fixed-income real-estate.
As of December 31, 2015,2017, the Company manages its activity through three active subsidiaries: Optibase Inc. in the United States which was incorporated in 1991 ("Optibase Inc."), Optibase Real Estate Europe SARL ("Optibase SARL") in Luxembourg which was incorporated in October 2009, and OPCTN SA, a Luxembourg company owned 51% by the Company which was incorporated in February 2011 ("Subsidiaries"), (collectively, the "Group").
| b. | Acquisitions and investments in associates: |
| 1. | Luxury suite condominium Miami, Florida: |
On April 9, 2013 and on August 22, 2013, the Company through its subsidiary Optibase Inc. acquired two luxury penthouses located in the Marquis Residence in Miami and one penthouse located in the Ocean One condominium in Sunny Isles Beach in Miami Beach, Florida, respectively, in a cash consideration for a purchase price of approximately $ 4,800.
| 2. | Condominium units in Miami Beach, Florida:
On December 31, 2013 following the approval of the Company's audit committee, board of directors and the Company's shareholders, the Company, through its subsidiary Optibase Inc., completed the purchase of 12 residential units in the Flamingo South Beach One Condominium and the Continuum on South Beach condominium, both located in Miami Beach, Florida from two private companies indirectly controlled by the Company's controlling shareholder (the "seller") for an aggregate net consideration of $ 7,153,net following the set off of rental income of one unit for a period of three years to the seller, representing the fair value of 1.31 million new ordinary shares of the Company issued to the seller.
|
| 3. | Sell of condominium units in Miami Beach, Florida: |
On September 17, 2014 the Company, through its subsidiary, Optibase Inc. sold 11 residential condominium units located in Florida. The total consideration was amounted to $ 6,411 and was paid at full on closing during October, 2014.
OPTIBASE LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
| 4. | Retail portfolio in Bavaria, Germany: |
On December 18, 2014 the Company through Optibase SARL subsidiary, Optibase Bavaria GmbH & Co. KG (“ ("Optibase Bavaria”Bavaria"), entered into a Purchase Agreement with an unrelated third party to acquire a retail portfolio of twenty-seven Commercial properties in, Germany (the "Retail Portfolio in Germany").
The Retail Portfolio in Germany represents a homogenous retail portfolio in established retail locations, it has approximately 37,000 square meters of total rental space.space.
The largest tenant in the Retail Portfolio in Germany is EDEKA, which currently leases 2219 of the rental properties in the portfolio. In addition to the hypermarkets and supermarkets, smaller shops (such as bakeries and post offices) operate on several locations as subtenants of EDEKA.
On June 2, 2015 the first stage of the transaction closing occurred and the Company acquired twenty-five (25) supermarkets in consideration of a purchase price of ˆ€ 24,000 (approximately $ 26,249 as of the purchase date). On July 8, 2015 the Company acquired the two (2) remaining supermarkets for an additional purchase price of ˆ€ 4,750 (approximately $ 5,224 as of the purchase date).
In addition to the purchase price, the Company incurred acquisition costs, including real estate transfer taxes of ˆ€ 2,075 (approximately $ 2,352 during 2015) and presented in the consolidated statements of operations as other operating costs.
OPTIBASE LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
The portfolio purchase price has been allocated to real estate properties and other assets, net, in accordance with the Company's accounting policies for business combinations.
The total purchase price was allocated as follows:
Real estate property | | $ | 31,399 | |
Other assets, net | | | 74 | |
| | | | |
Total purchase price | | $ | 31,473 | |
2. 300 South Riverside Plaza, Chicago:
| | USD | |
| | | |
Real estate property | | | 31,399 | |
Other assets, net | | | 74 | |
| | | | |
Total purchase price | | | 31,473 | |
| 5. | 300 South Riverside Plaza, Chicago: |
On December 29, 2015, the company through its subsidiary, Optibase Inc., completed an investment in 300 River Holdings, LLC, (the “Joint"Joint Venture Company”Company") which beneficially owns the rights to a 23-story Class A office building located at 300 South Riverside Plaza in Chicago under a 99 year ground lease expiring in 2114. The company invested $12,900$ 12,900 in exchange for a thirty percent (30%) interest in the Joint Venture Company. In addition to the Purchase Price, the Company incurred acquisition costs of approximately $242.$ 242.
OPTIBASE LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollarsOn June 17, 2016, and in thousands (except shareaccordance with the Company's initial investment agreement, the Company had invested an additional amount of $ 3,000 which accrued interest of 12% per annum, and per share data)was distributed back to the company on November 21, 2017.
| c. | The CompanyCompany's two major tenants accounted for 18% and 16%, 18%, and 18% and 23% and 12% and 23% and 10% of the Company revenues in the years ended December 31, 2015, 20142017, 2016 and 20132015 respectively. No other tenants accounted for more than 10% of the company revenues. |
| d. | Sale of the Video Activity (discontinued operations): |
For further details regarding a dispute to which OPCTN's subsidiary, Eldista Gmbh (“Eldista”), see Note 11e(4).
d. Sale of the Video Activity (discontinued operations):
Until the sale of its video solutions business to VITEC Multimedia ("Vitec") in July 2010, the Company and its U.S subsidiary, Optibase Inc., provided equipment for a wide range of professional video applications in the Broadband IPTV, Broadcast, Government, Enterprise and Post-production markets.markets (collectively, the "Video Activity").
On March 16, 2010, the Company and its subsidiary, Optibase Inc., entered into an asset purchase agreement (the "Agreement") with Optibase Technologies Ltd. and Stradis Inc., wholly owned subsidiaries of S.A. Vitec (also known as Vitec Multimedia) (S.A. Vitec, Optibase Technologies Ltd. and Stradis Inc., collectively, "Vitec"). According to the Agreement, the Company sold to Vitec all of the assets and liabilities related to the Company's Video Solutions Business (the "Video Activity") for an aggregate consideration of $ 8,000.. The closing of the transaction occurred on July 1, 2010.
According to the Agreement, the Company and Vitec agreed on a price adjustment mechanism to the initial consideration, upon which, Vitec shall add or subtract to the consideration an amount equal to accounts receivable, net plus other receivables and prepaid expenses minus accounts payable and other payables, all as of the Closing date (the "Adjustment Amount"). The Adjustment Amount as calculated by the Company would be deposited by Vitec in escrow within five days from the closing date, to be released over a period of 12 months as Vitec collects amounts owed to the Company from customers. Vitec has refrained from depositing any amount in escrow which led to a dispute between the parties. See details in Note 11d(1).F - 11
OPTIBASE LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
The liabilities of the Video activity for the years ended December 31, 20142017 and 2015,2016, which relates to the discontinued operations and presented in the consolidated balance sheets, are summarized as follows:
| | Year ended December 31, | |
| | 2015 | | | 2014 | |
Liabilities: | | | | | | |
| | | | | | |
Other accounts payable and accrued expenses | | $ | 2,109 | | | $ | 2,153 | |
| | | | | | | | |
Total liabilities | | $ | 2,109 | | | $ | 2,153 | |
OPTIBASE LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data) | | Year ended December 31, | |
| | 2017 | | | 2016 | |
Liabilities: | | | | | | |
| | | | | | |
Total liabilities attributed to discontinued operations | | $ | 2,061 | | | $ | 2,061 | |
| | | | | | | | |
Total liabilities | | $ | 2,061 | | | $ | 2,061 | |
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
| a. | Basis of presentation of the financial statements: |
The preparation of financial statements in conformity with U.S generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The Company's management believes that the estimates, judgments and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenuerevenues and expenses during the reporting period.period. Actual results could differ from those estimates.
| b. | Functional currency, presentation currency and foreign currency: |
The presentation currency of the financial statements is the U.S. dollar.
The functional currency of the Company is the U.S Dollar.
The functional currencies of Optibase's subsidiaries are CHF, EUR and U.S dollar. The Company has elected to use U.S dollar as its reporting currency for all years presented.
While the functional currency of the Company's subsidiaries in the United States is the U.S dollars, the functional currency of the subsidiaries in Switzerland and Germany is their lead currency, i.e. CHF and EUR. Since the Company's functional and reporting currency is the USD, the financial statements of Optibase Real Estate SARL and OPCTN S.A. has been translated into U.S. dollars. Assets and liabilities of these subsidiaries are translated at the year-end exchange rates and their statement of operations items are translated using the actualaverage exchange rates at the dates on which those items are recognized. Suchfor all periods presented. The resulting translation adjustments are recorded as a separate component of accumulated other comprehensive income in shareholders' equity.
| c. | Principles of consolidation: |
The consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany transactions and balances have been eliminated upon consolidation.
OPTIBASE LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
| d. | Non-controlling interests: |
Non-controlling interests generally represent the portion of equity that the Company does not own in the consolidated entities. The Company accounts for and reports its non-controlling interests in accordance with the provisions required under the Consolidation Topic of the FASB ASC 810. Non-controlling interests are separately presented within the equity section of the consolidated balance sheets. The amounts of consolidated net earnings attributable to the Company and to the non-controlling interests are presented on the consolidated statement of operations.
OPTIBASE LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
Cash equivalents include short-term, highly liquid investments that are readily convertible to cash, with original maturities of three months or less at the date acquired.
| f. | Property and equipment: |
Real estate properties and equipment are stated at cost net of accumulated depreciation. Costs include those related to acquisition, including building improvements.
Depreciation is computed using the straight-line method over the estimated useful lives of the assets, as follows:
| Years |
| |
Building | 25 - 63 |
Buildings' improvements | 5 - 20 |
Condominium units | 30 |
| g. | Long-livedImpairment of long-lived assets includingand intangible assets: |
The Company and its subsidiarie'sGroup's long-lived assets are reviewed for impairment in accordance with ASC 360, "Property, Plant and Equipment" and ASC 350, “Intangibles - Goodwill and other”, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In assessing the recoverability of long-lived assets, the Company makes judgments regarding whether impairment indicators exist based on legal factors, market conditions and operating performances of assets or asset groups. Recoverability of assets held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment recognized is measured by the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed are reported at the lower of the carrying amount or fair value less costs to sell.
OPTIBASE LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The Company reviews assets on a component-level basis, which is the lowest level of assets for which there are identifiable cash flows that can be distinguished operationally and for financial reporting purposes. The carrying amount of the asset group was compared with the related expected undiscounted future cash flows to be generated by those assets over the estimated remaining useful life of the primary asset. In cases where the expected undiscounted future cash flows were less than the carrying amounts of the assets, those assets were considered impaired and written down to their fair values. Fair value was established based on discounted cash flows. As of December 31, 2015, 20142017 and 20132016, no impairment losses have been identified.
OPTIBASE LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollarsh. Investments in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)companies:
| h. | Investments in companies: |
Investments in non-marketable equity securities of companies in which the Company does not have control or the ability to exercise significant influence over their operation and financial policies are recorded at cost.
The management evaluates investments in non-marketable equity securities as evidence of other-than temporary declines in value. When relevant factors indicate a decline in value that is other-than temporary the Company recognizes an impairment loss for the decline in value.
| i. | Investments in associates: |
Associates are companies in which the Company has significant influence over the financial and operating policies without having control. The investment in associates is accounted for using the equity method of accounting. Under the equity method, the investment in associates is accounted for in the financial statements at cost plus changes in the Group's share of net assets, including other comprehensive income (loss) of the associates. The equity method is applied until the loss of significant influence or classification of the investment as non-current asset held-for-sale.
The accounting policy in the financial statements of the associates has been applied consistently and uniformly with the policy applied in the financial statements of the Group.
Intangible assets consist of above-market value of in-place leases that were recorded in connection with the acquisition of the properties. Intangible assets are amortized and accreted using the straight-line method over the term of the related leases. When a lease is terminated early, any remaining unamortized balances under lease intangible assets or liabilities are charged to earnings.
OPTIBASE LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
| k. | Derivative instruments: |
The Company accounts for derivatives and hedging based on ASC No. 815, "Derivatives and Hedging". ASC No. 815 requires the Company to recognize all derivatives at fair value. The accounting for changes in the fair value of a derivative instrument (i.e., gains or losses) depends on whether it has been designated and qualified as part of a hedging relationship and further, on the type of hedging relationship. For those derivative instruments that are designated and qualified as hedging instruments, the Company must designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, cash flow hedge, or a hedge of a net investment in a foreign operation. If the derivatives meet the definition of a hedge and are so designated, depending on the nature of the hedge, changes in the fair value of such derivatives will either be offset against the change in fair value of the hedged assets, liabilities, firm commitments through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings.
The ineffective portion of a derivative's change in fair value is recognized in earnings. As of December 31, 2015,2017 and 2016, the Company had outstanding hedging instruments in amount of $264.$ 294 and $ 407 respectively. At times, the Company may use derivative instruments to manage exposure to variable interest rate risk. Occasionally, the Company enters into interest rate swaps to manage its exposure to variable interest rate risk and treasury locks to manage the risk of interest rates rising prior to the issuance of debt. The Company generally enters into derivative instruments that qualify as cash flow hedges and it does not enter into derivative instruments for speculative purposes.
OPTIBASE LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The Company generates revenues from fixed income real-estate derived from its buildings held through its subsidiaries in Switzerland (Rümlang and Geneva), Germany and Miami FL.
Rental income includes minimum rents which are recognized on an accrual basis over the terms of the related leases on a straight-line basis. Lease revenue recognition commences when the lessee is given possession of the leased space and there are no contingencies offsetting the lessee's obligation to pay rent.
Revenue of maintenance expenses recoveries from the tenants for mainly electricity, heating and water is reported net from the related expenses.
The Company periodically estimates the impact of various conditions, situations and/or circumstances involving uncertain outcomes to its financial condition and operating results.
OPTIBASE LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The Company accounts for contingent events as required by ASC 450 "Contingencies". ASC 450 defines a contingency as "an existing condition, situation, or set of circumstances involving uncertainty as to possible gain or loss to an enterprise that will ultimately be resolved when one or more future events occur or fail to occur". Legal proceedings are a form of such contingencies.
In accordance with ASC 450, accruals for exposures or contingencies are being provided when the expected outcome is probable. However, it is possible that future results of operations for any particular quarter or annual period could be materially affected by changes in the Company's assumptions, the actual outcome of such proceedings or as a result of the effectiveness of the Company strategies related to these proceedings.
OPTIBASE LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The Company and its subsidiaries account for income taxes in accordance with ASC Topic 740, "Income Taxes" "ASC 740", prescribes the use of the liability method, whereby deferred tax asset and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company and its subsidiaries provide a valuation allowance, if necessary, to reduce deferred tax assets to amounts more likely than not to be realized.
ASC 740 clarifies the accounting for uncertainties in income taxes by establishing minimum standards for the recognition and measurement of tax positions taken or expected to be taken in a tax return. Under the requirements of ASC 740, the Company must review all of its tax positions and make a determination as to whether its position is more-likely-than-not to be sustained upon examination by regulatory authorities. If a tax position meets the more-likely–than-not standard, then the related tax benefit is measured based on a cumulative probability analysis of the amount that is more-likely-than-not to be realized upon ultimate settlement or disposition of the underlying issue. The Company policy is to accrue interest and penalties related to unrecognized tax benefits in its financial expenses.
The Company believes that its tax positions are all highly certain of being upheld upon examination. As such, as of December 31, 20152017 and 20142016 the Company has not recorded a liability for uncertain tax positions.positions.
| o. | Concentrations of credit risk: |
Financial instruments that potentially subject the Company and its subsidiaries to concentrations of credit risk consist principally of cash and cash equivalents, accounts receivables and long-term lease deposits.
OPTIBASE LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
Cash and cash equivalents are invested in U.S. dollar deposits with major banks in Israel, the United States, Switzerland and Germany. Cash and cash equivalents in the United States may be in excess of insured limits and are not insured in other jurisdictions. The Company maintains cash and cash equivalents with diverse financial institutions and monitors the amount of credit exposure to each financial institution.
Accounts receivable includes amounts billed to tenants and accrued expense recoveries due from tenants. The Company makes estimates of un-collectability from its accounts receivable using the specific identification method related to base rents, straight-line rent balances, expense reimbursements and other revenues.
OPTIBASE LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The Company also analyzes accounts receivable and historical bad debt levels, tenant credit-worthiness, payment history and current economic trends when evaluating the adequacy of the allowance for doubtful accounts. Accounts receivable are written-off when they are deemed to be uncollectible and the Company is no longer actively pursuing collection. The Company's reported net income is directly affected by the management's estimate of the collectability of accounts receivable.
| p. | Earnings (loss) per share: |
Basic net earnings (losses) per share are computed based on the weighted average number of Ordinary shares outstanding during each year. Diluted net earnings (losses) per share is computed based on the weighted average number of Ordinary shares outstanding during each year, plus dilutive potential Ordinary shares considered outstanding during the year, in accordance with ASC 260, "Earning Per Share".
OptionOptions and restricted shares that have been excluded from the calculations of diluted net income per share was 5,546 and 3,578were 10,035 for the years ended December 31, 2014 and 2013, respectively.2016.
| q. | Accounting for stock-based compensation: |
ASC Topic 718 "Compensation - Stock Compensation" "ASC 718", requires companies to estimate the fair value of share-based awards on the date of grant using an option-pricing model.
The Company recognizes these compensation costs net of forfeiture rate and recognizes the compensation costs for only those shares expected to vest on a straight-line basis over the requisite service period of the award, which is generally the option vesting term of four years. ASC 718 requires forfeitures to be estimated at the time of grant
OPTIBASE LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.per share data
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The Company estimates the fair value of stock options granted using the Black-Scholes- Merton option pricing model. The option-pricing model requires a number of assumptions, of which the most significant are the expected stock price volatility and the expected option term. Expected volatility is calculated based upon actual historical stock price movements. The expected term of options granted is based upon historical experience and represents the period of time that options granted are expected to be outstanding. The risk free interest rate is based on the yield from U.S. treasury bonds with an equivalent term. The Company has historically not paid dividends and has no foreseeable plans to pay dividends.
OPTIBASE LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The fair value was estimated at the date of grant using the following weighted average assumptions for the Black-Scholes model for the year ended December 31, 2011.model. During 20152017 and 20142016 there were no new grants.
During the past years, the Company repurchased certain Ordinary shares on the open market and holds such shares as treasury shares. The Company presents the cost to repurchase treasury shares as a reduction from the shareholders' equity. From time to time the Company reissues treasury shares under the stock purchase plan, upon exercise of option and upon vesting of restricted stock units.
When treasury stock is reissued, the Company accounts for the re-issuance in accordance with ASC No. 505-30, "Treasury Stock" and charges the excess of the purchase cost, including related stock-based compensation expenses, over the re-issuance price to retained earnings. The purchase cost is calculated based on the specific identification method. In case the purchase cost is lower than the re-issuance price, the Company credits the difference to additional paid-in capital.
| s. | s. Fair value of financial instruments: |
The carrying amounts of the Company's financial instruments, including cash and cash equivalents, other accounts receivable, trade payables, other accounts payable, and accrued liabilities, approximate fair value because of their generally short-term maturities.
ASC 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.
OPTIBASE LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
As a basis for considering such assumptions, ASC 820 establishes a three-level value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:
| Level 1 - | Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. |
| Level 2 - | Include other inputs that are directly or indirectly observable in the marketplace. |
| Level 3 - | Unobservable inputs which are supported by little or no market activity. |
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
Swap instrumentinstruments are measured at fair value under ASC 820 on a recurring basis as of December 31, 20152017 and 2014.2016.
The Company accounts for comprehensive lossincome in accordance with ASC No. 220, "Comprehensive Income". Comprehensive income generally represents all changes in shareholders' equity during the period except those resulting from investments by, or distributions to, shareholders. The Company determined that its items of comprehensive loss relate to foreign currency translation adjustments.
| u. | Recent Accounting Pronouncementsaccounting pronouncements: |
In May 2014, the Financial Accounting Standards Board (FASB)("FASB") issued, Accounting Standards Update No.("ASU") 2014-09, (ASU 2014-09) "Revenue from Contracts with Customers.Customers (Topic 606)" ASU 2014-09 supersedes the. The guidance substantially converges final standards on revenue recognition requirementsbetween the FASB and the International Accounting Standards Board providing a framework on addressing revenue recognition issues and, upon its effective date, replaces almost all exiting revenue recognition guidance, including industry-specific guidance, in “Revenue Recognition (Topic 605)”, and requires entities tocurrent U.S. generally accepted accounting principles.
The core principle of the guidance is that an entity should recognize revenue when it transfersto depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. As currently issued To achieve that core principle, an entity should apply the following steps:
• | | Step 1: Identify the contract(s) with a customer. |
• | | Step 2: Identify the performance obligations in the contract. |
• | | Step 3: Determine the transaction price. |
• | | Step 4: Allocate the transaction price to the performance obligations in the contract. |
• | | Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation. |
The Company examined the new revenue recognition standard and amended,concluded that the new revenue recognition standard is out of scope.
OPTIBASE LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The amendments in this ASU 2014-09 isare effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, though early adoptionperiod. Earlier application is permitted foronly as of annual reporting periods beginning after December 15, 2016.2016, including interim reporting periods within that reporting period. The Company is currently in the process of evaluating the impact of theGroup does not anticipate that this adoption of ASU 2014-09 on the Company's consolidated financial statements, implementing accounting system changes related to the adoption, and considering additional disclosure requirements. The Company still evaluating the effect that the updated standard will have on the Company's consolidated financial statements and related disclosures.
OPTIBASE LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
In November 2015, the FASB issued Accounting Standards Update No. 2015-17 (ASU 2015-17) “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes”. ASU 2015-17 simplifies the presentation of deferred income taxes by eliminating the separate classification of deferred income tax liabilities and assets into current and noncurrent amounts in the consolidated balance sheet statement of financial position. The amendments in the update require that all deferred tax liabilities and assets be classified as noncurrent in the consolidated balance sheet. The amendments in this update are effective for annual periods beginning after December 15, 2016, and interim periods therein and may be applied either prospectively or retrospectively to all periods presented. Early adoption is permitted. The Company early adopted this standard in the fourth quarter of 2015 on a retrospective basis. Prior periods have been retrospectively adjusted.