Various Pledge Agreements
On August 14, 2013, BGI Investments (1961) acquired 20.01% of B.S.D.'s outstanding shares from Mr. Naftali Shani and Olamic Holding NV (collectively, "Shani"), Fortissimo Capital Management Ltd. ("Fortissimo") and others (collectively, the "Sellers"). Call options for approximately 19.01% of B.S.D.'s outstanding shares were subsequently assigned by BGI (with the consent of the Sellers) to Israel 18 (the "Call Options"). Upon exercise of the Call Options, Israel 18 paid approximately 72% of the consideration due upon exercise. As security for payment of the full exercise price of such Call Options, Israel 18 pledged in favor of Fortissimo approximately 4.1% of the shares of B.S.D. ("Fortissimo Collateral Shares"); in favor of Shani, Israel 18 pledged approximately 67.7% of the shares of BGI (net of BGI's treasury shares) ("Shani BGI Shares") and approximately 9.34% of the shares of B.S.D. ("Shani BSD Shares") (Shani BGI Shares and Shani BSD Shares are referred to collectively as "Shani Collateral Shares"). Under the terms of such agreement, Fortissimo and Shani undertook to grant a proxy to act in favor of Israel 18 with regard to the shares of B.S.D. and BGI, as the case may be, which have been pledged in favor of each of them.
In addition, Israel 18 pledged in favor of S.G. Textile Holdings Ltd. and Z. Birinboim Holdings Ltd. (S.G. Textile Holdings Ltd. and Z. Birinboim Holdings Ltd. referred to collectively as "S.G.") approximately 3.78% of the shares of B.G.I.
On July 21, 2015, Israel 18 and Fortissimo reached an agreement with regard to the outstanding consideration due to Fortissimo (the "Fortissimo Agreement"). Under the terms of such agreement, the Fortissimo Collateral Shares will continue to be held by Fortissimo and would be transferred to Israel 18 following payment in full of the outstanding consideration due to Fortissimo. In addition, Israel 18 assigned to Fortissimo its right to receive repayments on a $5 million loan provided by Israel 18 to BGI, provided that BGI shall have made complete payments to its Series 1 bondholders. Finally, as part of the Fortissimo Agreement, Mr. Gurtovoy personally guaranteed the repayment of the outstanding consideration due by Israel 18 to Fortissimo, which is in addition to the existing agreement between Mr. Alexander Granovskyi and Fortissimo where Mr. Granovskyi guaranteed the same obligation. On November 4, 2015, the Fortissimo Agreement was amended to postpone the payments due to Fortissimo.
Court Proceedings Regarding Various Pledge Agreements
On October 19, 2015, BGI received notice from Israel 18 that urgent motions had been filed against it in the District Court of Haifa for the liquidation of, and appointment of temporary liquidators over, Israel 18 by Fortissimo and S.G. (Fortissimo and S.G. referred to collectively as the "Applicants") on the grounds that Israel 18 is not compliant with its debt obligations to the Applicants. On November 3, 2015, Israel 18 reached a memorandum of understanding regarding an arrangement of its debts to Fortissimo and S.G. Subsequent to this memorandum of understanding, the Applicants and Israel 18 filed a consent motion by which the court canceled a scheduled hearing regarding the liquidation of Israel 18 and determined as follows: Fortissimo was provided 30 days to notify the court if it seeks to maintain the liquidation motion; and, with regard to S.G., the court (1) validated the consent motion filed by the parties to the arrangement; and (2) ruled that S.G. would have until November 20, 2015 to petition the court whether the agreements, as provided for in the consent motion, have been fulfilled. On December 26, 2015, the court approved: (a) the dismissal of the motion for the appointment of temporary liquidators over Israel 18; (b) approved the removal of S.G. from the liquidation motion of Israel 18; and (c) ordered the dismissal of the liquidation motions.
On March 23, 2016, two applications were filed with the Haifa District Court relating to the above proceedings: one was a joinder petition by S.G. to the liquidation petition described above by which S.G. claimed that Israel 18 is in breach of its obligations to S.G. and to Fortissimo; and the second was an urgent motion for the appointment of temporary liquidators over Israel 18, which was submitted by the Applicants for the second time (the "Motion"). In the Motion it was argued that since the dismissal of the petition for the appointment of temporary liquidators, Israel 18 had violated the arrangements signed with the Applicants. In a ruling dated March 24, 2016, the court scheduled a hearing for March 28, 2016 and stated that, until ruling on the Motion, Israel 18 is restricted from making any disposition of any assets or rights, and may consent as a shareholder to any disposition of such assets or rights by any subsidiaries. A response by Israel 18 is currently due April 12, 2016, and a hearing is scheduled for April 14, 2016.
Other Actions by Pledgees
In addition, on December 24, 2015. advocate Arnon Gitzelter, who to the best of the Issuer's knowledge holds in trust the Shani Collateral Shares (the "Trustee" or "Advocate Gitzelter"), sent a letter to the Tel Aviv Stock Exchange requesting the publication of an immediate announcement according to which, as a result of Israel 18’s violations of its obligations to Mr. Shani, Olamic Holdings NV and others (the "Beneficiaries"), full and clean ownership of the Shani Collateral Shares had apparently been transferred to the Trustee with the consent of Israel 18. In response to this request, Israel 18 clarified in a letter dated December 27, 2015 to BGI, inter alia, that Israel 18 remains in a position of ownership of the Shani Collateral Shares. Furthermore, Israel 18 sought to clarify that it is acting to repay the debt to the Beneficiaries, after which the pledge will expire.
On February 17, 2016, some of the directors of BGI received an email message from Shani which included an attached document entitled "Minutes of the Meeting of the Board of the Company held on February 17, 2016 at the offices of the Rothenstreich-Gitzelter Trust Company Ltd.” In the minutes it was recorded that at "the special general meeting of the Company", held the same day, "directors were appointed" and it was resolved to "end the tenure" of the other directors. In addition, the minutes indicated that, as a result of that "general meeting", a "board meeting" was held in which resolutions were adopted relating to (i) changes in the signatory rights of BGI, and (ii) a notice to convene a general meeting of shareholders of B.S.D. It is BGI’s position that until such time as BGI receives the ruling of a competent authority regarding the above dispute between the parties, it will not accept the position of Advocate Gitzelter nor will it recognize the validity of the minutes provided by email from Shani.
Additional Court Proceeding
On February 28, 2016, Advocate Gitzelter and Shani (the "Applicants") filed a new motion in the Economic Department of the Court in Tel Aviv against BGI's directors (the "Respondents") seeking declaratory relief as follows: that the extraordinary general meeting of BGI shareholders held on February 17, 2016, as described above in the minutes from Shani, was held in accordance with the law, that resolutions made regarding a change in the composition of the board were lawful, and that the directors elected at the said general meeting (in addition to the existing external director) are the Board of Directors of BGI (the "Originating Motion" or "Petition"). In its response, BGI said that it does not consider itself an active party in the dispute between Israel 18 and the Applicants, does not seek to determine the results of the dispute regarding its control, and would comply with any judicial decision in this regard. In addition, Israel 18 submitted an urgent joinder petition to become a party to the proceedings. A hearing was held on March 24, 2016, and a further hearing is scheduled for April 14, 2016 to allow Israel 18 time to file a response to the original motion.
Additional Related Actions
In addition, on February 3, 2016, B.S.D. received notice from the Trustee to convene an extraordinary general meeting of the shareholders of B.S.D. to replace the directors of B.S.D. (excluding the external directors) by those appointed by Mr. Shani. The Board of B.S.D. resolved that until such time as it receives a ruling by a competent authority regarding the dispute between the parties, the Trustee's request is not in accordance with the law.
In addition, BGI has pledged to the trustee for the BGI Bonds (Series 1) (the "BGI Bonds Trustee") approximately 25% of the B.S.D. shares held by it and its subsidiary in order to secure the repayment of liabilities between BGI and the holders of the Debentures (Series 1). BGI has repaid its obligations to the holders of the Debentures (Series 1), except for the reimbursement of Trustee expenses and costs, and legal fees (collectively, the "Expenses"). On March 28, 2016, following a clarification motion filed by the Trustee with the the court ruled that the Trustee may sell the shares of B.S.D. to pay such Expenses. However BGI was given a 15-day extension to pay the expenses from some other source before the sale of the said shares would be permitted to proceed.
In connection with the termination of the management service agreements between the Issuer and certain companies controlled by ZW and JW ("Termination of Management Service Agreements", as described in further detail in a Form 6-K by the Issuer on November 13, 2015), GG personally undertook to pay to ZW or JW (or certain companies controlled by ZW or JW) immediately upon demand the payment of $1,600,008 due in connection with the exercise of the Company Put Option. This undertaking was effective on January 13, 2016 with approval by shareholders of the Issuer of the Termination of Management Service Agreements.