Salaries, fees, commissions and bonuses paid with respect to all of our directors and senior management as a group (including the members of our senior management who left during 2008) in the fiscal year ended December 31, 2008 was approximately $7.4 million, out of which an amount of approximately $3.1 million was paid as consideration in connection with the repurchase of employee stock options, an amount of approximately $2.8 million was related to pension, retirement and other similar benefits (including termination of employees in connection with the consummation of the HP Transaction) and an amount of approximately $0.7 million was paid as transaction bonuses to members of our senior management in connection with, and following, the consummation of the HP Transaction.
Our senior management is entitled to receive part of its compensation under our Management by Objectives (MBO) Compensation Plan. The MBO sets annual goals to be achieved by the executive officers throughout the year. The percentage of achievement determines the percent of the MBO bonus paid to each member of our senior management. The MBO plan for the benefit of our chief executive officer is administered by the Stock Option and Compensation Committee. The MBO plan for the benefit of the other executive and senior officers is administered by the chief executive officer. A portion of the bonus amounts are paid in cash in the year for which they are awarded and the balance is paid in cash in the year following the financial year for which they are awarded. In 2008, our senior management members received payments with respect to their achievements in 2007 in the amount of approximately $0.04 million.
Other than options granted to members of our Board of Directors, we did not grant any options to purchase ordinary shares in 2008. We currently have a contractual undertaking to one of our senior employees to grant options to purchase approximately 1.125% of our shares, on a fully diluted basis, subject to a vesting schedule and at an exercise price determined based on our economic value.
In connection with the HP Transaction, our Board approved the acceleration of the vesting of all outstanding employee stock options, including all stock options held by members of senior management and the repurchase, subject to the fulfillment of regulatory requirements, of currently outstanding employee stock options to purchase approximately 9.9 million ordinary shares of the Company. The aggregate consideration for such employee stock options is expected to be up to $3.8 million. Of the total, approximately $3.1 million were paid during July 2008 and an additional payment, up to the aggregate amount, will be calculated after all HP Transaction related issues and other financial aspects of the Company are known and verified and will be paid following the release to the Company of the funds deposited in the indemnity escrow account in connection with the HP Transaction. This resolution does not apply to options held by our non-employee directors. Following the payment of $3.1 million, all repurchased stock options were cancelled and the number of shares reserved for issuance under our 2000 stock option plan was reduced accordingly. Any outstanding employee stock option that was not repurchased, was terminated pursuant to its terms following the termination of employment of the vast majority of our employees in connection with the consummation of the HP Transaction.
In connection with the HP Transaction, our Board also approved the payment of transaction bonuses to certain employees, including members of senior management, in the aggregate amount of approximately $0.7 million and established that, subject to the aforementioned determination and verification of all HP Transaction related issues and other financial aspects of the Company, additional bonuses may be paid to certain employees, based on criteria, amounts and percentages pre-determined by our Board.
In December 2008, following the approval of our Audit Committee, Board of Directors and shareholders, we entered into a management services agreement with Kanir and with Meisaf Blue & White Holdings Ltd. (“Meisaf”), a private company controlled by Shlomo Nehama, effective as of March 31, 2008, the date of appointment of Messrs. Fridrich and Nehama as members of our Board. In consideration for the performance of the management services and the board services under the terms of the management services agreement, we agreed to pay Kanir and Meisaf, in equal parts and quarterly payments, an aggregate annual services fee in the amount of $250,000 plus value added tax pursuant to applicable law. For more information see “Item 10.C: Material Contracts.”
As approved by our shareholders, we pay our directors (Anita Leviant, Oded Akselrod, Lauri Hanover and Alon Lumbroso) remuneration for their services as directors. This remuneration includes an annual payment of $8,000 and additional payments of $500 per meeting and $250 per committee meeting. In our annual general meeting of shareholders held on December 30, 2008, our shareholders approved payment of these fees to our current and future directors.
Each of these directors (Anita Leviant, Oded Akselrod, Lauri Hanover and Alon Lumbroso) also receives an annual grant of options to purchase 10,000 ordinary shares under the terms and conditions set forth in Ellomay’s 1998 Non-Employee Director Share Option Plan as more fully described below.
In 1998, we adopted the 1998 Non-Employee Director Share Option Plan (the “1998 Plan”) to provide for grants of options to purchase ordinary shares to non-employee directors of Ellomay. The 1998 Plan, as amended, is administered, subject to Board approval, by the Non-Employee Director Share Option Committee. An aggregate amount of not more than 750,000 ordinary shares is reserved for grants under the 1998 Plan. The original expiration date of the 1998 Plan pursuant to its terms was December 8, 2008 (10 years after adoption). At the General Meeting of our shareholders, held on January 31, 2008, the term of the 1998 Plan was extended and as a result it will expire on December 8, 2018, unless earlier terminated by the Board.
Under the 1998 Plan, each non-employee director that served on the 1998 “Grant Date,” as defined below, automatically received an option to purchase 10,000 ordinary shares on such Grant Date and will receive an option to purchase an additional 10,000 ordinary shares on each subsequent Grant Date thereafter, provided that he or she is a non-employee director on the Grant Date and has remained a non-employee director for the entire period since the previous Grant Date. The “Grant Date” means, with respect to 1998, October 26, 1998, and with respect to each subsequent year, August 1 of such year. Directors first elected or appointed after the 1998 Grant Date, will automatically receive on such director’s first day as a director an option to purchase up to 10,000 ordinary shares prorated based on the number of full months of service between the prior Grant Date and the next Grant Date. Each such non-employee director would also automatically receive, as of each subsequent Grant Date, an option to purchase 10,000 ordinary shares provided that he or she is a non-employee director on the Grant Date and has served as a non-employee director for the entire period since the previous Grant Date.
The exercise price of the option shares under the 1998 Plan is 100% of the fair market of such ordinary shares at the applicable Grant Date. The fair market value means, as of any date, the average closing bid and sale prices of the ordinary shares for the date in question as furnished by the National Association of Securities Dealers, Inc. through Nasdaq or any similar organization if Nasdaq is no longer reporting such information, or such other market on which the ordinary shares are then traded, or if not then traded, as determined in good faith (using customary valuation methods) by resolution of the members of the Board of Directors of Ellomay, based on the best information available to it. The exercise price is required to be paid in cash.
53
The term of each option granted under the 1998 Plan is 10 years from the applicable date of grant. All options granted vest immediately upon the date of grant.
The options granted would be subject to restrictions on transfer, sale or hypothecation. All options and ordinary shares issuable upon the exercise of options granted to the non-employee directors of Ellomay could be withheld until the payment of taxes due with respect to the grant and exercise (if any) of such options.
In connection with the management services agreement entered into effective as of March 31, 2008, Messrs. Nehama, Fridrich and Raphael waived any right to additional remuneration for their service as members of our board of directors, including the right to receive the fees set forth above and the right to receive options under the 1998 Plan. For more information concerning the management services agreement see “Item 10.C: Material Contracts.”
Following the departure of Yossy Zylberberg, our former Interim Chief Executive officer and Chief Financial Officer on December 31, 2008, Mr. Ran Fridrich was appointed as our Interim Chief Executive Officer, effective as of January 1, 2009, for a period of one year. Mr. Fridrich has agreed to serve as our Interim Chief Executive Officer without compensation or other benefits.
According to the provisions of our Second Amended and Restated Articles (the “Articles”) and the Companies Law, the board of directors convenes in accordance with the Company’s requirements, and is required to convene at least once every three months. Furthermore, the Companies Law provides that the board of directors may also pass resolutions without actually convening, provided that all the directors entitled to participate in the discussion and vote on a matter that is brought for resolution agree not to convene for discussion of the matter.
Officers serve at the discretion of the Board or until their successors are appointed.
Terms of Directors
Our Board currently consists of seven members, including two external directors. Unless otherwise prescribed by resolution adopted at a General Meeting of shareholders, the Board shall consist of not less than four (4) nor more than eight (8) directors (including the external directors). The members of our Board are elected annually at our annual shareholders’ meeting and remain in office until the next annual shareholders’ meeting, unless the director has previously resigned, vacated his office, or was removed in accordance with the Articles. The last annual meeting was held on December 30, 2008. In addition, the Board may elect additional members to the Board, to serve until the next shareholders’ meeting, so long as the number of directors on the Board does not exceed the maximum number established according to the Articles.
54
On March 30, 2008, three members of our Board, Yuval Cohen, Shmoulik Barashi and Eli Blatt, resigned their position as directors of Ellomay following the sale of the ordinary shares and a majority of the warrants held by the Fortissimo entities. Pursuant to the Articles, the Board members appointed Shlomo Nehama, Anita Leviant and Ran Fridrich as directors, to serve until the next general meeting of our shareholders. Messrs. Nehama and Fridrich and Ms. Leviant were re-elected to serve on our Board at our annual shareholders’ meeting held on December 30, 2008. The members of our Board do not receive any additional remuneration upon termination of their services as directors.
External Directors
We are subject to the provisions of the Companies Law, which requires that we, as a public company, have at least two external directors.
Under the Companies Law, a person may not be appointed as an external director if he or his relative, partner, employer or any entity under his control has or had during the two years preceding the date of appointment any affiliation with the company, any entity controlling the company or any entity controlled by the company or by this controlling entity. The term affiliation includes: an employment relationship, a business or professional relationship maintained on a regular basis, control, and service as an office holder. No person can serve as an external director if the person’s position or other business creates, or may create, conflicts of interest with the person’s responsibilities as an external director, or if the person is an employee of the Israel Securities Authority or of an Israeli stock exchange. Until the lapse of two years from termination of office, a company may not engage an external director to serve as an office holder and cannot employ or receive services from that person, either directly or indirectly, including through a corporation controlled by that person. Regulations promulgated under Israeli law set the minimum and maximum compensation that may be paid to statutory external directors.
Under the Companies Law, external directors must be elected by a majority vote at a shareholders’ meeting, provided that either: (i) the majority of shares voted at the meeting, including at least one-third of the shares of non-controlling shareholders voted at the meeting, vote in favor of the election; or (ii) the total number of shares voted against the election of the external director does not exceed one percent of the aggregate voting rights in the company. The initial term of an external director is three years, which term may be extended for an additional three-year period. Each committee of a company’s board of directors must include at least one external director, and all external directors must serve on the audit committee. Our external directors are currently Lauri A. Hanover and Alon Lumbroso.
Under the Companies Law an external director cannot be dismissed from office unless: (i) the board of directors determines that the external director no longer meets the statutory requirements for holding the office, or that the external director is in breach of the external director’s fiduciary duties and the shareholders vote, by the same majority required for the appointment, to remove the external director after the external director has been given the opportunity to present his or her position; (ii) a court determines, upon a request of a director or a shareholder, that the external director no longer meets the statutory requirements of an external director or that the external director is in breach of his or her fiduciary duties to the company; or (iii) a court determines, upon a request of the company or a director, shareholder or creditor of the company, that the external director is unable to fulfill his or her duty or has been convicted of specified crimes.
55
The Companies Law requires that at least one of the external directors have “Accounting and Financial Expertise” and the other external directors have “Professional Competence.” Under the regulations, a director having accounting and financial expertise is a person who, due to his or her education, experience and talents is highly skilled in respect of, and understands, business-accounting matters and financial reports in a manner that enables him or her to understand in depth the Company’s financial statements and to stimulate discussion regarding the manner in which the financial data is presented. Under the regulations, a director having professional competence is a person who has an academic degree in either economics, business administration, accounting, law or public administration or an academic degree in an area relevant to the Company’s business, or has at least five years experience in a senior position in the business management of a corporation with a substantial scope of business, in a senior position in the public service or a senior position in the field of the Company’s main business. Our board of directors determined that Lauri A. Hanover is an accounting and financial expert and that Alon Lumbroso has professional competence.
Our Board further determined that at least two directors out of the whole Board shall be required to have accounting and financial expertise pursuant to the requirements of the Companies Law. Accordingly, our Board determined that Shlomo Nehama shall be designated as the additional accounting and financial expert.
Alternate Directors
The Articles provide that, subject to the Board’s approval, a director may appoint an individual, by written notice to us, to serve as an alternate director. The following persons may not be appointed nor serve as an alternate director: (i) a person not qualified to be appointed as a director, (ii) an actual director, or (iii) another alternate director. Any alternate director shall have all of the rights and obligations of the director appointing him or her, except the power to appoint an alternate (unless the instrument appointing him or her expressly provides otherwise). The alternate director may not act at any meeting at which the director appointing him or her is present. Unless the appointing director limits the time period or scope of any such appointment, such appointment is effective for all purposes and for an indefinite time, but will expire upon the expiration of the appointing director’s term. There are currently no alternate directors.
Duties of Office Holders and Approval of Certain Transactions Under the Israeli Companies Law
The Companies Law codifies the duty of care and fiduciary duties that an office holder has to our company. An “office holder” is defined under the Companies Law as a director, general manager, chief business manager, vice general manager, other manager directly subordinate to the general manager and any other person assuming the responsibilities of any of the foregoing positions without regard to such person’s title. The duty of care requires an office holder to act at a level of care that a reasonable office holder in the same position would employ under the same circumstances. This includes the duty to utilize reasonable means to obtain (i) information regarding the appropriateness of a given action brought for his or her approval or performed by the office holder by virtue of his or her position and (ii) all other information of importance pertaining to the foregoing actions. The duty of loyalty includes avoiding any conflict of interest between the office holder’s position in the company and his or her personal affairs or other positions, avoiding any competition with the company, avoiding exploiting any business opportunity of the company in order to receive personal gain for himself or herself or for others, and disclosing to the company any information or documents relating to the company’s affairs which the office holder has received due to his or her position as such. Each person identified as a director or member of our senior management in the first table in the section, other than employees of our subsidiaries, is an office holder.
56
The Companies Law requires that an office holder of a company promptly disclose to the company’s board of directors any personal interest that he or she may have, and all related material information known to him in connection with any existing or proposed transaction by the company. This disclosure must be made by the office holder, whether orally or in writing, no later than the first meeting of the company’s board of directors which discusses the particular transaction. An office holder is deemed to have a “personal interest” if he, certain members of his family, or a corporation in which he or any one of those family members is a 5% or greater shareholder or exercises or has the right to exercise control, has an interest in a transaction with the company. An “Extraordinary Transaction” is defined as a transaction – other than in the ordinary course of business, not on market terms, or that is likely to have a material impact on the company’s profitability, assets or liabilities.
In the case of a transaction that is not an Extraordinary Transaction, after the Office Holder complies with the above disclosure requirements, only board approval is required. The transaction must not be adverse to the company’s interests. In the case of an Extraordinary Transaction, the company’s audit committee and board of directors, and, under certain circumstances, the shareholders of the company, must approve the transaction, in addition to any approval stipulated by the articles. An office holder who has a personal interest in a matter that is considered at a meeting of the board of directors or the audit committee may not be present at this meeting or vote on this matter, unless a majority of the members of the board of directors or audit committee, respectively, have a personal interest in the matter, in which case they may all be present and vote. In the event a majority of the members of the board of directors have a personal interest in a matter, such matter must be also approved by the shareholders of the company.
57
Committees of the Board of Directors
Audit Committee
Under the Companies Law, the Audit Committee must be comprised of at least three members of the Board, including the external directors. Audit Committee members may not be employees or regular service providers of Ellomay, or controlling shareholders and their relatives.
Ellomay’s Audit Committee, acting pursuant to a written charter, currently consists of Lauri A. Hanover, Alon Lumbroso and Oded Akselrod. Approval by the Audit Committee and thereafter by the Board is required for (i) proposed extraordinary transactions to which Ellomay intends to be a party in which an office holder has a direct or indirect personal interest, (ii) actions or arrangements which may otherwise be deemed to constitute a breach of fiduciary duty or of the duty of care of an office holder to Ellomay, (iii) arrangements with directors as to their terms of office, compensation, compensation for other positions held with the company, including the provision of indemnification or an undertaking to indemnify and the procurement of insurance, (iv) indemnification and insurance of office holders, other than directors, (v) an extraordinary transaction of the company in which a “controlling shareholder,” that is, a shareholder holding the ability to direct the actions of the company, other than by virtue of being a director or holding a position with the company, including a shareholder holding twenty five percent or more of the voting rights of the company if there is no other shareholder holding over fifty percent of the voting rights of the company, has a personal interest, (vi) an arrangement with a controlling shareholder or its relative (if such a relative is also an office holder) concerning the terms of his or her employment with the company, (vii) certain private placements of the company’s shares and (viii) compensation and scope of work of the independent auditor. Arrangements with directors as to the terms of their service or compensation also require shareholder approval. In certain circumstances, some of the matters referred to above may also require shareholder approval.
The Audit Committee may not approve an action or transaction with a controlling shareholder or with an office holder unless at the time of approval two external directors are serving as members of the Audit Committee and at least one participated in the meeting at which the action or transaction was approved.
The Audit Committee provides assistance to the Board of Directors in fulfilling its legal and fiduciary obligations in matters involving our accounting, auditing, financial reporting, internal control and legal compliance functions by approving the services performed by our independent accountants and reviewing their reports regarding our accounting practices and systems of internal accounting controls. Under the Sarbanes-Oxley Act of 2002, the Audit Committee is also responsible for the appointment, compensation, retention and oversight of our independent accountants and takes those actions as it deems necessary to satisfy itself that the accountants are independent of management. Under the Companies Law, the appointment of independent auditors requires the approval of the shareholders of the Company, accordingly, the appointment of the independent auditors is approved and recommended to the shareholders by the Audit Committee and ratified by the shareholders. Furthermore, pursuant to the Articles, the shareholders have the authority to determine the compensation of the independent auditors (or empower the Board to establish their remuneration), the compensation is approved following a recommendation of the Audit Committee. Under the Companies Law, the Audit Committee also is required to monitor deficiencies in the administration of a company, including by consulting with the internal auditor or independent accountants and suggesting methods of correction of such deficiencies to the Board, and to review and approve related party transactions.
58
The Audit Committee has discussed with the independent registered public accounting firm the matters covered by Statement on Auditing Standards No. 61, as well as their independence, and was satisfied as to the independent registered public accounting firm’s compliance with said standards.
Stock Option and Compensation Committee
Under the Companies Law, the Board may appoint committees and delegate certain duties to such committees. At lease one of the members of such committees is required to be one of the external directors of the company.
The Companies Law provides that the Board is entitled to delegate to Board committees its power, among other things, to allocate shares or securities convertible into shares of Ellomay relating to employees incentive plans, and employment or salary agreements between Ellomay and its employees, provided, that any such grant is subject to a detailed plan approved by the Board. The Board is also entitled to delegate to the general manager or person recommended by the general manager the Board’s authority to issue ordinary shares issuable upon exercise or conversion of Ellomay’s securities.
In March 1998, Ellomay established a Stock Option and Compensation Committee to administer Ellomay’s stock option plans, other than the 1998 Non-Employee Director Share Option Plan. The Stock Option and Compensation Committee is charged with administering and overseeing the allocation and distribution of stock options under the approved stock option plans of Ellomay and approval of Ellomay’s executive officers’ annual compensation. All arrangements as to compensation of office holders who are not directors also require the approval of the Board. The Stock Option and Compensation Committee is presently composed of three members: Shlomo Nehama, Ran Fridrich and Lauri A. Hanover.
Non-Employee Director Share Option Plan Committee
In February 1999, Ellomay established a committee to administer the Ellomay’s 1998 Non-Employee Director Share Option Plan (the “NEDSOP Committee”). The NEDSOP Committee is charged with administering and overseeing the allocation and distribution of stock options under the 1998 Non-Employee Director Share Option Plan. The Companies Law provides that the Board is not entitled to delegate to Board committees its power, among other things, to allocate shares or securities convertible into shares of Ellomay, except for allocation of shares or securities convertible into shares of Ellomay relating to employees incentive plans, and employment or salary agreements between Ellomay and its employees. Additionally, pursuant to the Companies Law, the terms of service (including the grant of options) of all directors also require shareholder approval. Accordingly, the NEDSOP Committee recommendations are subject to the approval of the Board and the shareholders.
59
Indemnification and Exculpation of Executive Officers and Directors
Consistent with the provisions of the Companies Law, our Articles include provisions permitting us to procure insurance coverage for our directors and officers, exempt them from certain liabilities and indemnify them, to the maximum extent permitted by law.
Indemnification
The Companies Law provides that a company may indemnify an Office Holder against: (a) a financial liability imposed on him in favor of another person by any judgment concerning an act preformed in his capacity as an office holder; (b) reasonable litigation expenses, including attorneys’ fees, expended by the office holder or charged to him by a court relating to an act preformed in his capacity as an office holder in connection with: (i) proceedings the company institutes against him or instituted on its behalf or by another person; (ii) a criminal charge from which he was acquitted; (iii) a criminal charge in which he was convicted for a criminal offence that does not require proof of criminal intent; and (iv) an investigation or a proceeding instituted against him by an authority competent to administrate such an investigation or proceeding that ended without the filing of an indictment against the office holder and, either without any financial obligation imposed on the office holder in lieu of criminal proceedings; or with financial obligation imposed on him in lieu of criminal proceedings, in a crime which does not require proof of criminal intent. The Companies Law also authorizes a company to undertake in advance to indemnify an office holder with respect to events specified above, provided that, with respect to indemnification under sub-section (a) above, the undertaking: (i) is limited to events which the board of directors determines can be anticipated, based on the activity of the company at the time the undertaking is given; (ii) is limited in amount or criteria determined by the board of directors to be reasonable for the circumstances; and (iii) specifies the abovementioned events, amounts or criteria.
At the annual shareholders meeting held on October 27, 2005, our shareholders authorized us to enter into indemnification agreements with each of our current and future directors and officers. Ellomay shall, subject to the provisions of the indemnification agreement, indemnify each director and officer for future obligations or expenses imposed on them in consequence of an act done in their capacity as directors or officers of Ellomay or of its subsidiaries, as follows:
| | — | monetary liabilities imposed on, or incurred by, the director or officer for the benefit of another person pursuant to a judgment, including a judgment given in settlement or a court approved settlement of an arbitrator’s award; |
| | — | reasonable legal fees, including attorney’s fees, incurred by a director or officer in consequence of an investigation or proceeding filed against a director or officer by an authority that is authorized to conduct such investigation or proceeding, and that has ended without filing an indictment against, or imposing of a financial obligation in lieu of a criminal proceeding on, such director or officer, or that resulted without filing an indictment against such director or officer but with imposing a financial obligation on such director or officer as an alternative to a criminal proceeding in respect of an offense that does not require the proof of criminal intent; and |
60
| | — | reasonable litigation expenses, including attorney’s fees, incurred by a director or officer or which a director or officer is ordered to pay by a court, in a proceedings filed against such director or officer by Ellomay or on its behalf or by another person, or in a criminal charge of which he or she is acquitted, or in a criminal charge of which such director or officer is convicted of an offence that does not require proof of criminal intent. |
The indemnification undertaking is limited to certain categories of events and the aggregate indemnification amount that Ellomay shall pay may not exceed an amount equal to fifty percent (50%) of the net equity of Ellomay or to one time annual revenue of Ellomay in the year prior to the date of the claim with regard to judgment liability (the higher amount of the two) with regard to a final judgment by a competent court, and $3.0 million with regard to litigation expenses.
We have entered into indemnification agreements with directors and some officers providing for indemnification under certain circumstances for acts and omissions which may not be covered (or not be covered in full) by any directors’ and officers’ liability insurance. Such indemnification agreement appears in our current report on Form 6-K as filed with the SEC on October 14, 2005.
Exemption
Under the Companies Law, an Israeli company may not exempt an office holder from liability for a breach of his duty of loyalty, but may exculpate in advance an office holder from his liability to the company, in whole or in part, for a breach of his duty of care, provided that in no event shall the office holder be exempt from any liability for damages caused as a result of a breach of his duty of care to the company in the event of a “distribution” (as defined in the Companies Law). Our Articles authorize us to exculpate any director or officer from liability to us to the extent permitted by law.
The Companies Law provides that a company may not exculpate or indemnify an office holder nor enter into an insurance contract which would provide coverage for liability incurred as a result of any of the following: (a) a breach by the office holder of his or her duty of loyalty (however, a company may insure against such breach if the office holder acted in good faith and had a reasonable basis to assume that the act would not harm the company); (b) a breach by the office holder of his or her duty of care if the breach was done intentionally or recklessly, unless made in negligence only; (c) any act of omission done with the intent to derive an illegal personal benefit; or (d) any fine or monetary penalty levied against the office holder.
At the annual shareholders meeting held on October 27, 2004, Ellomay’s shareholders authorized the Company to exculpate its directors and officers in advance from liability to Ellomay, in whole or in part, for a breach of the duty of care. The form of exculpation letter was approved at the annual shareholders meeting held on October 27, 2005 and appears in our current report on Form 6-K as filed with the SEC on October 14, 2005.
Insurance
Under the Companies Law, a company may obtain insurance for any of its office holders for: (a) a breach of his duty of care to the company or to another person; (b) a breach of his duty of loyalty to the company provided that the office holder acted in good faith and had reasonable cause to assume that his act would not prejudice the company’s interests; or (c) a financial liability imposed upon him in favor of another person concerning an act preformed by him or her in his/her capacity as an office holder.
61
We have obtained directors’ and officers’ liability insurance covering our directors and officers. In our January 2008 general meeting of shareholders, our shareholders also approved the procurement of a “run-off” directors’ and officers’ liability insurance policy covering our directors and officers for events that occurred prior and up to the closing of the HP Transaction.
Following the changes in composition of our Board on March 2008, our Audit Committee and Board approved the entering into indemnification agreements with, the provision of exculpation letter to, and the inclusion in our directors’ and officers’ liability insurance policy of, our new directors. The approval as it relates to Shlomo Nehama and Ran Fridrich, who are both considered to be “controlling shareholders,” required further approval of our shareholders. In our December 30, 2008 annual shareholders meeting, our shareholders approved these resolutions.
Internal Auditor
Under the Companies Law, our Board is also required to appoint an internal auditor proposed by the Audit Committee. The role of the internal auditor is to examine, among other things, whether our activities comply with the law and orderly business procedure. The internal auditor may not be an interested party or officer holder, or a relative of any interested party or office holder, and may not be a member of our independent auditor firm. The Companies Law defines the term “interested party” to include a person who holds 5% or more of the company’s outstanding share capital or voting rights, a person who has the right to appoint one or more directors or the general manager, or any person who serves as a director or as the general manager. Mr. Doron Cohen of Fahn, Kanne & Co., an Israeli accounting firm, serves as our internal auditor.
As of December 31, 2008, we had 9 employees and independent contractors compared to 330 employees and independent contractors as of December 31, 2007 and 312 as of December 31, 2006. All of our employees and independent contractors, as of December 31, 2008, were in management, finance and administration and all were located in Israel.
In connection with and following the consummation of the HP Transaction on February 29, 2008, approximately 80% of our employees world-wide have been rolled over to various HP related entities. We have terminated the employment of a majority of the other employees, including the majority of our senior management. The employees who were terminated were eligible to termination related severance and/or notice periods ranging between one and six months. In connection with such terminations, we recorded as of the HP Transaction closing date severance-related expenses in the approximate amount of $2.8 million.
All of our employees who have access to confidential information are required to sign a non-disclosure agreement covering all of our confidential information that they might possess or to which they might have access.
62
We believe our relations with employees are satisfactory. We have never experienced a strike or work stoppage. We believe our future success will depend, in part, on our ability to continue to attract, retain, motivate and develop highly qualified personnel.
Israeli law generally requires the payment of severance pay equal to one month’s salary for each year of employment upon the termination of employment.
Our liability for future severance pay obligations is partially provided for by payments equal to 8.33% of an employee’s salary each month made to various managers’ insurance policies or similar financial instruments and by accrual. Our employees are usually provided with an additional contribution toward their retirement that amounts to 10% of wages, of which the employee and the employer each contribute half. Furthermore, Israeli employees and employers are required to pay predetermined sums to the National Insurance Institute, which is similar to the United States Social Security Administration, and additional sums towards compulsory health insurance.
Beneficial Ownership of Executive Officers and Directors
The following table sets forth certain information regarding the beneficial ownership of Ellomay’s ordinary shares as of March 15, 2009, of (i) each director of Ellomay and (ii) each member of senior management of Ellomay. All of the information with respect to beneficial ownership of the ordinary shares is given to the best of Ellomay’s knowledge and has been furnished in part by the respective directors and member of senior management.
| Name of Beneficial Owner
| Number of Shares
Beneficially Held(1)
| Percent of Class
|
|---|
| | | |
|---|
| | | |
|---|
| | | |
|---|
| | | |
|---|
| Shlomo Nehama (2) | 41,782,886 | 45.17% |
| Hemi Raphael (3) | - | - |
| Anita Leviant | * | * |
| Ran Fridrich (3) | - | - |
| Lauri A. Hanover | * | * |
| Alon Lumbroso | * | * |
| Oded Akselrod | * | * |
| Kalia Weintraub | - | - |
| Eran Zupnik | - | - |
| * Less than one percent of the outstanding ordinary shares. |
| (1) | As used in this table, “beneficial ownership” means the sole or shared power to vote or direct the voting or to dispose or direct the disposition of any security. For purposes of this table, a person is deemed to be the beneficial owner of securities that can be acquired within 60 days from March 15, 2009 through the exercise of any option or warrant. Ordinary shares subject to options or warrants that are currently exercisable or exercisable within 60 days are deemed outstanding for computing the ownership percentage of the person holding such options or warrants, but are not deemed outstanding for computing the ownership percentage of any other person. The amounts and percentages are based upon 73,786,428 ordinary shares outstanding as of March 15, 2009. |
63
| (2) | The 41,782,886 ordinary shares beneficially owned by Mr. Nehama consist of: (1) 22,661,551 ordinary shares , currently exercisable warrants to purchase 10,067,172 ordinary shares and a currently exercisable call option to purchase 2,789,971 currently exercisable warrants held by the Fortissimo Entities pursuant to the Fortissimo Call Option (both as hereinafter defined) held by Nechama Investments, which together constitute approximately 41.0% of the outstanding ordinary shares and (ii) 412,961 ordinary shares and currently exercisable warrants to purchase 5,851,231 ordinary shares held directly by Mr. Nehama, which together constitute approximately 7.9% of the outstanding ordinary shares. Mr. Nehama, as the sole officer, director and shareholder of Nechama Investments, may be deemed to indirectly beneficially own any ordinary shares beneficially owned by Nechama Investments, which constitute (together with his shares and warrants) approximately 45.2% of the outstanding ordinary shares. By virtue of the 2008 Shareholders Agreement (as defined below), Mr. Nehama, Nechama Investments, Kanir and Messrs. Raphael and Fridrich may be deemed to be members of a group that holds shared voting power with respect to 45,735,389 ordinary shares and currently exercisable warrants to purchase 23,143,793 ordinary shares, as well as currently exercisable warrants to purchase 4,184,957 that may be acquired pursuant to the Fortissimo Call Option, which together constitute approximately 72.3% of the outstanding ordinary shares, and holds shared dispositive power with respect to 36,967,000 ordinary shares, which constitute 50.1% of the outstanding ordinary shares. Accordingly, Mr. Nehama may be deemed to beneficially own approximately 74.2% of the outstanding ordinary shares. Mr. Nehama and Nechama Investments both disclaim beneficial ownership of the ordinary shares beneficially owned by Kanir. |
| (3) | By virtue of their positions as sole shareholders and directors of Kanir Investments Ltd. (“Kanir Ltd.”), the general partner in Kanir, and limited partners in Kanir, Hemi Raphael and Ran Fridrich may be deemed to indirectly beneficially own the ordinary shares and ordinary shares underlying warrants beneficially owned by Kanir. Messrs. Raphael and Fridrich disclaim beneficial ownership of such shares. |
Our directors hold, in the aggregate, options exercisable into 146,667 ordinary shares. The 146,667 options have a weighted average exercise price of approximately $0.65 per share and have expiration dates until 2019. Under the 1998 Plan, Oded Akselrod, one of the members of our Board, was granted options to purchase 10,000 ordinary shares on December 30, 2004, August 1, 2005, August 1, 2006, August 1, 2007 and August 1, 2008. Anita Leviant, one of the members of our Board, was granted options to purchase 13,333 shares on August 1, 2008. Lauri A. Hanover, one of our external directors, was granted options to purchase 6,667 shares on November 18, 2003 and was also granted options to purchase 10,000 ordinary shares on December 30, 2004, August 1, 2005, August 1, 2006, August 1, 2007 and August 1, 2008. Alon Lumbroso, our second external director, was granted 6,667 options on November 27, 2006 and was also granted options to purchase 10,000 ordinary shares on August 1, 2007 and August 1, 2008. The exercise price for the underlying shares of such options is the “Fair Market Value” (as defined in the 1998 Plan) of the ordinary shares of Ellomay at the date of grant.
Outstanding Options
Immediately prior to the consummation of the HP Transaction, there were outstanding options to purchase 10,079,400 of our ordinary shares that were granted to our employees. In connection with the HP Transaction, the vesting of all such employee options was accelerated and all became immediately exercisable upon consummation of the sale of our business to HP on February 29, 2008. As more fully described herein, 9,893,550 of such options were thereafter purchased by us and cancelled in July 2008. Any options not repurchased (due to their relatively high exercise price) were canceled during 2008 pursuant to their terms and the terms of the 2000 Stock Option Plan.
64
The options granted to directors under the 1998 Plan are not subject to vesting requirements and have an exercise price ranging from $0.31 to $1.86 per share, with various expiration dates. See Note 14 to our consolidated financial statements included as a part of this annual report on Form 20-F for more details.
1995 Israel Stock Option Plan
In 1995, we adopted the 1995 Israel Stock Option Plan (the “1995 Plan”), which provides for grants of stock options to our employees and consultants. Options to purchase an aggregate of 500,000 ordinary shares were originally available for grant under the 1995 Plan, as amended, including service options for future services, options for performance, and options to consultants for service or performance.
At the annual shareholders meeting held on November 18, 2003, our shareholders approved the Board’s resolution to terminate the 1995 Plan and to increase the number of ordinary shares authorized for issuance under our 2000 Stock Option Plan (as amended) in the aggregate amount that was outstanding for grant under the 1995 Plan as of July 15, 2003, thereby increasing the number of ordinary shares authorized for issuance under our 2000 Stock Option Plan by 33,261. At the annual shareholders meeting held on October 27, 2005, our shareholders approved an increase in the number of ordinary shares authorized for issuance under the 2000 Stock Option Plan by the number of ordinary shares underlying options cancelled under the 1995 Plan.
As of March 15, 2009, there are no outstanding options under the 1995 Plan.
1997 Stock Option Plan
In 1997, we adopted the 1997 Stock Option Plan (the “1997 Plan”), which provides for grants of stock options to our employees, directors and consultants. Options to purchase an aggregate of 2,200,000 ordinary shares were originally available for grant under the 1997 Stock Option Plan, as amended.
At the annual shareholders meeting held on November 18, 2003, our shareholders approved the Board’s resolution to terminate the 1997 Plan and to increase the number of ordinary shares authorized for issuance under our 2000 Stock Option Plan in the aggregate amount that was outstanding for grant under the 1997 Plan as of July 15, 2003, thereby increasing the number of ordinary shares authorized for issuance under our 2000 Stock Option Plan by 464,329. At the annual shareholders meeting held on October 27, 2005, our shareholders approved an increase in the number of ordinary shares authorized for issuance under the 2000 Stock Option Plan by the number of ordinary shares underlying options cancelled under the 1997 Plan.
As of March 15, 2009, there are no outstanding options under the 1997 Plan.
1998 Non-Employee Director Share Option Plan
For discussion of the 1998 Non-Employee Director Share Option Plan see “Item 6.B: Compensation.”
65
2000 Stock Option Plan
In 2000, we adopted the 2000 Stock Option Plan (the “2000 Plan”) to provide for grants of service and non-employee options to purchase ordinary shares to our officers, employees, directors and consultants. The 2000 Plan provides that it may be administered by the Board, or by a committee appointed by the Board, and is currently administered by the Stock Option and Compensation Committee subject to Board approval.
At the annual shareholders meetings held on November 18, 2003 and October 27, 2004, our shareholders approved increases in the number of ordinary shares authorized for issuance under the 2000 Plan (as amended) to 2,997,590. At the annual shareholders meeting held on October 27, 2005, our shareholders approved an additional increase in the number of ordinary shares authorized for issuance under the 2000 Plan (as amended) by 14,500,000, from 2,997,590 to 17,497,590 and by the number of ordinary shares underlying options surrendered (except in the case of surrender for the exercise into shares) or which cease to be exercisable under the 1995 Plan and the 1997 Plan. As of March 15, 2009, the additional number of ordinary shares underlying options cancelled under the 1995 Plan and the 1997 Plan increased the number of ordinary shares authorized for issuance under the 2000 Plan by 227,000 from 17,497,590 to 17,724,590. Section 12 of the 2000 Plan provided originally that the 2000 Plan will expire on August 31, 2008, unless previously terminated or extended by the Board. At our Board meeting held on June 23, 2008, our Board resolved to amend Section 12 of the 2000 Plan to extend its term until August 31, 2018.
Our Board has broad discretion to determine the persons entitled to receive options under the 2000 Plan, the terms and conditions on which options are granted, and the number of ordinary shares subject thereto. Our Board delegated to our management its authority to issue ordinary shares issuable upon exercise of options under the 2000 Plan. The exercise price of the options under the 2000 Plan is determined by our Stock Option and Compensation Committee, provided, however, that the exercise price of any option granted shall not be less than eighty percent (80%) of the stock value at the date of grant of such options. The stock value at any time is equal to the then current fair market value of our ordinary shares. For purposes of the 2000 Plan (as amended), the fair market value means, as of any date, the last reported closing price of the ordinary shares on such principal securities exchange on the most recent prior date on which a sale of the ordinary shares took place.
Our Stock Option and Compensation Committee determines the term of each option granted under the 2000 Plan, including the vesting period; provided, however, that the term of an option shall not be for more than 10 years. Upon termination of employment, all unvested options lapse.
The options granted are subject to restrictions on transfer, sale or hypothecation. Options and ordinary shares issuable upon the exercise of options granted to our Israeli employees are held in a trust until the payment of all taxes due with respect to the grant and exercise (if any) of such options.
66
We have elected the benefits available under the “capital gains” alternative of Section 102 of the Israeli Tax Ordinance. Pursuant to this election, capital gains derived by employees arising from the sale of shares acquired as a result of the exercise of options granted to them under Section 102, will be subject to a flat capital gains tax rate of 25% (instead of the gains being taxed as salary income at the employee’s marginal tax rate). However, as a result of this election, we will no longer be allowed to claim as an expense for tax purposes the amounts credited to such employees as a benefit when the related capital gains tax is payable by them, as we were previously entitled to do. We may change its election from time to time, as permitted by the Tax Ordinance. There are various conditions that must be met in order to qualify for these benefits, including registration of the options in the name of a trustee (the “Trustee”) for each of the employees who is granted options. Each option, and any ordinary shares acquired upon the exercise of the option, must be held by the Trustee for a period commencing on the date of grant and ending no earlier than 24 months after the date of grant.
Changes in Options Following Consummation of the HP Transaction
In connection with the HP Transaction, our Board of Directors approved the immediate acceleration of all outstanding employee stock options that were outstanding as of the date of execution of the Asset Purchase Agreement. Our Board of Directors further approved the offer to employees who hold outstanding stock options with exercise prices below $1.00 to repurchase their outstanding stock options, subject to and following the fulfillment of all regulatory requirements. The employees received offers from us, setting forth the consideration offered for such options. The employees were generally offered a choice between two methods of payment.
The first method entails receipt, subject to and following fulfillment of regulatory requirements, of 75% of the consideration and receipt of up to 25% of the consideration following release of the monies deposited in escrow in connection with the HP Transaction. The exact amount of the second payment, if any, will be determined based on the net cash generated by us from our remaining assets and liabilities based on the criteria set forth by our Board and such amount will bear interest equal to the interest rate applicable to the monies deposited in the escrow account in connection with the HP Transaction commencing March 1, 2008. The second method entails receipt, subject to and following fulfillment of regulatory requirements, of 90% of the consideration without entitlement to any additional payment in the future.
Under both payment methods, all outstanding options were to terminate immediately upon receipt of the first (or in the case of the second method, only) payment.
The offer to repurchase options was made to employees holding an aggregate of options to purchase approximately 9.9 million of our ordinary shares and the aggregate purchase price is up to approximately $3.8 million.
Based on the election of the employees between the two methods of payment described herein, on July 2008 we paid approximately $3.1 million in consideration for the options resulting in the immediate cancellation of options to repurchase 9,893,550 of our ordinary shares. The remainder, in the amount of up to $0.7 million, will be paid subject to the terms of the first method of payment set forth above.
Pursuant to the terms of our option plans, all options that were not repurchased expired 90 days following the termination of employment of the employees holding such options.
As a result of the purchase of the options and the cancellation of the options as set forth above, on March 15, 2009 the number of ordinary shares authorized for issuance under the 2000 Plan was 7,272,028. Currently, there are no options outstanding under the 2000 Plan.
67
ITEM 7: Major Shareholders and Related Party Transactions
The following table sets forth information regarding the beneficial ownership of our ordinary shares as of March 15, 2009, by each person known by us to be the beneficial owner of more than 5% of our ordinary shares. Each of our shareholders has identical voting rights with respect to its shares. All of the information with respect to beneficial ownership of the ordinary shares is given to the best of our knowledge.
| Ordinary Shares
Beneficially Owned(1)
| Percentage of Ordinary Shares
Beneficially Owned
|
|---|
| | | |
|---|
| | |
|---|
| | |
|---|
| | |
|---|
| Shlomo Nehama (2) | | | | 41,782,886 | | | 45.2 | % |
| Kanir Joint Investments (2005)Limited Partnership (3)(4) | | | | 37,545,445 | | | 42.5 | % |
| Zohar Zisapel (5) | | | | 5,359,708 | | | 7.3 | % |
| Old Lane Funds (6) | | | | 4,873,415 | | | 6.5 | % |
| Fortissimo Entities (7) | | | | 4,184,957 | | | 5.4 | % |
| (1) | As used in this table, “beneficial ownership” means the sole or shared power to vote or direct the voting or to dispose or direct the disposition of any security. For purposes of this table, a person is deemed to be the beneficial owner of securities that can be acquired within 60 days from March 15, 2009 through the exercise of any option or warrant. Ordinary shares subject to options or warrants that are currently exercisable or exercisable within 60 days are deemed outstanding for computing the ownership percentage of the person holding such options or warrants, but are not deemed outstanding for computing the ownership percentage of any other person. The amounts and percentages are based on a total of 73,786,428 ordinary shares outstanding as of March 15, 2009. |
| (2) | The 41,782,886 ordinary shares beneficially owned by Mr. Nehama consist of: (i) 22,661,551 ordinary shares, currently exercisable warrants to purchase 10,067,172 ordinary shares and a currently exercisable call option to purchase 2,789,971 currently exercisable warrants held by the Fortissimo Entities pursuant to the Fortissimo Call Option held by Nechama Investments, which together constitute approximately 41.0% of the outstanding ordinary shares and (ii) 412,961 ordinary shares and currently exercisable warrants to purchase 5,851,231 ordinary shares held directly by Mr. Nehama, which constitute approximately 7.9% of the outstanding ordinary shares. Mr. Nehama, as the sole officer, director and shareholder of Nechama Investments, may be deemed to indirectly beneficially own any ordinary shares beneficially owned by Nechama Investments, which constitute (together with his shares and warrants) approximately 45.2% of the outstanding ordinary shares. By virtue of the 2008 Shareholders Agreement, Mr. Nehama, Nechama Investments, Kanir, Kanir Ltd. and Messrs. Raphael and Fridrich may be deemed to be members of a group that holds shared voting power with respect to 45,735,389 ordinary shares and currently exercisable warrants to purchase 23,143,793 ordinary shares, as well as currently exercisable warrants to purchase 4,184,957 that may be acquired pursuant to the Fortissimo Call Option, which together constitute approximately 72.3% of the outstanding ordinary shares, and holds shared dispositive power with respect to 36,967,000 ordinary shares, which constitute 50.1% of the outstanding ordinary shares. Accordingly, Mr. Nehama may be deemed to beneficially own approximately 74.2% of the outstanding ordinary shares. Each of Mr. Nehama and Nechama Investments disclaims beneficial ownership of the ordinary shares beneficially owned by Kanir. |
68
| (3) | According to information provided by the holder, Kanir is an Israeli limited partnership. The holdings of Kanir include currently exercisable warrants to purchase 13,076,621 ordinary shares and a currently exercisable call option to purchase 1,394,986 currently exercisable warrants held by the Fortissimo Entities pursuant to the Fortissimo Call Option. Kanir Ltd., in its capacity as the general partner of Kanir LP, has the voting and dispositive power over the ordinary shares directly beneficially owned by Kanir. As a result, Kanir Ltd. may be deemed to indirectly beneficially own the ordinary shares beneficially owned by Kanir. Messrs. Raphael and Fridrich are the sole shareholders and directors of Kanir Ltd. As a result, they may be deemed to indirectly beneficially own the ordinary shares beneficially owned by Kanir. Messrs. Raphael and Fridrich disclaim beneficial ownership of such ordinary shares. By virtue of the 2008 Shareholders Agreement, Mr. Nehama, Nechama Investments, Kanir, Kanir Ltd. and Messrs Raphael and Fridrich may be deemed to be members of a group that holds shared voting power with respect to 45,735,389 ordinary shares and currently exercisable warrants to purchase 23,143,793 ordinary shares, as well as currently exercisable warrants to purchase 4,184,957 that may be acquired pursuant to the Fortissimo Call Option, which together constitute approximately 72.3% of the outstanding ordinary shares, and holds shared dispositive power with respect to 36,967,000 ordinary shares, which constitute 50.1% of the outstanding ordinary shares. Each of Kanir, Kanir Ltd. and Messrs. Raphael and Fridrich disclaims beneficial ownership of the ordinary shares beneficially owned by Nechama Investments. |
| (4) | Bonstar, an Israeli company, currently holds warrants to purchase 846,906 ordinary shares, which constitute approximately 1.1% of the outstanding ordinary shares. Bonstar is a limited partner of Kanir and assisted Kanir in the financing of the purchase of some of its ordinary shares. Accordingly, Bonstar may be deemed to be a member of a group with Kanir and its affiliates, although there are no agreements between Bonstar and either of such persons and entities with respect to the ordinary shares beneficially owned by each of them. Mr. Joseph Mor and Mr. Ishay Mor are the sole shareholders of Bonstar and Mr. Joseph Mor serves as the sole director of Bonstar. Messrs. Joseph Mor and Ishay also hold, through a company jointly held by them, 750,000 ordinary shares, which constitute approximately 1.0% of the outstanding ordinary shares. By virtue of their control over Bonstar and the other company, Messrs. Joseph Mor and Ishay Mor may be deemed to indirectly beneficially own the 1,596,906 ordinary shares beneficially owned by Bonstar and by the other company, which constitute approximately 2.1% of the ordinary shares. Each of Bonstar and Messrs. Joseph Mor and Ishay Mor disclaims beneficial ownership of the ordinary shares beneficially owned by Kanir and Nechama Investments. The information provided in the foregoing paragraph is based on public filings made by Bonstar and Messrs. Joseph Mor and Ishay Mor. |
| (5) | According to public filings and information provided by the holder, Zohar Zisapel is an Israeli citizen. |
| (6) | According to information provided by the holders, the Old Lane Funds include Old Lane Luxemburg Master Fund S.a.r.l (“Old Lane”), a private company registered in Luxemburg, and its shareholders: Old Lane Cayman Master Fund L.P., a limited partnership registered in the Cayman Islands (“Old Lane Cayman”), Old Lane HMA Master Fund, L.P., a limited partnership registered in the Cayman Islands (“Old Lane HMA”) and Old Lane U.S. Master Fund L.P., a limited partnership registered in Delaware, USA (“Old Lane US” and, together with Old Lane Cayman and Old Lane HMA, the “Old Lane Shareholders”). Old Lane currently beneficially holds 4,814,815 ordinary shares for the benefit of its shareholders as follows: (i) 2,207,408 ordinary shares and 662,222 ordinary shares underlying currently exercisable warrants held for the benefit of Old Lane Cayman, which also directly holds 34,522 ordinary shares, (ii) 625,926 ordinary shares and 187,778 ordinary shares underlying currently exercisable warrants held for the benefit of Old Lane HMA, which also directly holds 10,072 ordinary shares and (iii) 870,370 ordinary shares and 261,111 ordinary shares underlying currently exercisable warrants held for the benefit of Old Lane US, which also directly holds 14,006 ordinary shares. Old Lane disclaims beneficial ownership of the shares held for the benefit of the Old Lane Shareholders. |
| (7) | According to information provided by the holders, the “Fortissimo Entities” consist of Fortissimo Capital Fund GP, LP (“FFC-GP”), Fortissimo Capital Fund (Israel), LP (“FFC-Israel”); Fortissimo Capital Fund (Israel-DP), LP (“FFC-Israel-DP”); and Fortissimo Capital Fund, LP (“FFC Cayman”). FFC-GP and FFC Cayman are limited partnerships incorporated in the Cayman Islands. FFC-Israel and FFC-Israel-DP are limited partnerships incorporated in Israel. FFC-GP is the general partner of each of FFC-Israel, FFC-Israel-DP and FFC Cayman, which invest together in the framework of parallel private equity funds. The holdings of the Fortissimo Entities consist of currently exercisable warrants to purchase 3,742,048 ordinary shares held directly by FFC-Israel, currently exercisable warrants to purchase 333,516 ordinary shares held directly by FFC-Israel-DP and currently exercisable warrants to purchase 109,393 ordinary shares held directly by FFC Cayman. The 2005 shareholders agreement between FFC-GP and Kanir was terminated in connection with the sale of all of the ordinary shares and a majority of the warrants to purchase ordinary shares held by the Fortissimo Entities to Kanir and Nechama Investments in March 2008. Based on public filings made by Kanir and Nechama Investments, among the transaction set forth in the documents governing the sale of our securities by the Fortissimo Entities to Kanir and Nechama Investments, Kanir and Nechama Investments granted the Fortissimo Entities a put option exercisable at $0.50 per warrant, and the Fortissimo Entities granted Kanir and Nechama Investments a call option (the “Fortissimo Call Option”) exercisable at $0.80 per warrant, with respect to warrants to purchase 4,184,957 ordinary shares held by the Fortissimo Entities, in each case, subject to equitable adjustments in the event of customary capitalization events or dividend distributions. Said options are exercisable during the period commencing on March 27, 2009 and ending on the earlier to occur of (i) March 27, 2010 and (ii) the date on which such warrants have been listed for trade on a stock market. |
69
Significant Changes in the Ownership of Major Shareholders
In January and February 2007, we closed a private placement with certain investors. As of March 15, 2009, Old Lane Luxemburg, who participated in the private placement, is the beneficial owners of 4,814,815 ordinary shares (including 1,111,111 ordinary shares issuable upon exercise of warrants), or 6.4% of our outstanding ordinary shares. As a result of the private placement in the beginning of 2007, Bank Leumi Le Israel B.M. ceased to be a major shareholder of Ellomay.
In February 2008, Kanir purchased, in a series of private transactions, additional Ellomay shares and warrants. The sellers in such private transactions included, among others, Dan and Edna Purjes, and entities they control or are affiliated with. Certain of the securities purchased by Kanir were subsequently transferred to Shlomo Nehama. The Purjes’s beneficial ownership interest decreased from 16.51% to 12.51% as of May 2007 as a result of the private placement in early 2007 and, pursuant to information provided by Mr. Purjes, as a result of the sale of shares and warrants on February 2008, he and his affiliates no longer beneficially owned any Ellomay ordinary shares or warrants immediately following the sale.
In March and April 2008, Kanir, Shlomo Nehama and Nechama Investments purchased additional Ellomay shares and warrants in a series of private transactions, including all of the shares and a majority of the warrants held by the Fortissimo Entities, a majority of the warrants held by Bank Hapoalim, decreasing the percentage of ordinary shares beneficially owned by Bank Hapoalim from 6.3% to less than one percent, and shares held by certain of the entities affiliated with Meitav Investment House Ltd. (the “Meitav Entities”), decreasing the percentage of ordinary shares beneficially owned by the Meitav Entities from 6.34% to less than five percent.
In September 2008, warrants to purchase 240,000 ordinary shares, at an exercise price of $0.52 per share, were exercised. In October 2008, warrants to purchase 825,923 ordinary sharesat an exercise price of $0.34 per share, held equally by Kanir and Shlomo Nehama, were exercised. These exercises resulted in the receipt by us of aggregate consideration in the amount of $0.511 million.
70
Record Holders
Based on a review of the information provided to us by our transfer agent and major shareholders, as of March 15, 2009, there were 67* record holders of ordinary shares, of which 26 represented United States* record holders holding approximately 32.9% (of which approximately 32% are held by the Depository Trust Company) of our outstanding ordinary shares.
| * | Including the Depository Trust Company. |
2008 Shareholders Agreement
Pursuant to public filings made and information provided by Kanir and Nechama Investments and their affiliates, on March 24, 2008, Kanir and Nechama Investments entered into a shareholders agreement (the “2008 Shareholders Agreement”) with respect to their holdings of Ellomay. The following summary is based on public filings made by the parties to the 2008 Shareholders Agreement, which include a more detailed description of the 2008 Shareholders Agreement and a copy of such agreement.
The parties to the 2008 Shareholders Agreement agreed to vote all their Ellomay ordinary shares as provided in the 2008 Shareholders Agreement. Where the 2008 Shareholders Agreement is silent as to a matter brought before the shareholders of Ellomay, the parties will agree in advance as to how they will vote. In the event that the parties do not reach an agreement regarding any such matter, they will vote all of their ordinary shares against such matter. In addition, the parties agreed to use their best efforts to amend our articles to require that, if so requested by at least two of our directors, certain matters will require the approval of a simple majority of the outstanding ordinary shares, such as related party transactions and any material change in Ellomay’s scope of business. At our annual shareholders meeting held on December 30, 2008, our shareholders approved the adoption of our Second Amended and Restated Articles, as requested by Kanir and Nechama Investments and that includes, among other things, the revisions contemplated in the 2008 Shareholders Agreement. For more information, see “Item 10B: Memorandum of Association and Second Amended and Restated Articles.”
The parties to the 2008 Shareholders Agreement further agreed to use their best efforts to ensure that the composition of our Board will be in accordance with the agreements set forth therein.
The 2008 Shareholders Agreement also contains certain agreements with respect to the ordinary shares held by each party that constitute, from time to time, 25.05% of the outstanding ordinary shares and, in the aggregate, 50.1% of the outstanding ordinary shares (these shares are defined in the 2008 Shareholders Agreement as the “Restricted Shares”), including a lock-up period, right of first refusal, tag along and a buy/sell notice mechanism.
The parties to the 2008 Shareholders Agreement agreed not to enter into any additional voting or similar agreements with any other shareholders of Ellomay during the term of the 2008 Shareholders Agreement, which will be in effect so long as (i) the parties hold more than 50% of the outstanding ordinary shares of Ellomay or (ii) each of the parties holds all of its Restricted Shares (unless the lending bank of the parties to the agreement forecloses on its pledge on the Restricted Shares of either party, causing the immediate termination of the 2008 Shareholders Agreement).
71
Encumbrances Placed on Ellomay’s Securities
Pursuant to public filings made and information provided by Kanir and Nechama Investments and their affiliates, on March 27, 2007, each of Kanir and Nechama Investments entered into a separate five-year loan agreement with Israel Discount Bank Ltd. in order to finance the purchase of Ellomay ordinary shares and warrants to purchase ordinary shares. As collateral for the loans, Israel Discount Bank Ltd. received a first-priority pledge over 19,020,872 ordinary shares and warrants to purchase 2,027,426 ordinary shares, or, in the aggregate, 27.8% of the outstanding ordinary shares, held by Kanir and over 19,021,547 ordinary shares, or 25.8% of the outstanding ordinary shares, held by Nechama Investments. A default of either of Kanir and Nechama Investments under their agreements with Israel Discount Bank Ltd. could cause a foreclosure with respect to the ordinary shares of Ellomay subject to the pledge to such bank, which could result in a change of control of Ellomay.
| B. | Related Party Transactions |
On December 30, 2008, following the approval of our Audit Committee, Board of Directors and shareholders, we entered into a management services agreement with Kanir and Meisaf, effective as of March 31, 2008, the date of appointment of Messrs. Fridrich and Nehama as members of our Board. In consideration of the performance of the management services and the board services under the terms of the management services agreement we agreed to pay Kanir and Meisaf, in equal parts in and quarterly payments, an aggregate annual services fee in the amount of $250,000 plus value added tax pursuant to applicable law.
For a further discussion of transactions and balances with related parties see “Item 10.C: Material Contracts” and Note 13 to our consolidated financial statements, which are included as a part of this annual report.
| C. | Interests of Experts and Counsel |
Not Applicable.
ITEM 8: Financial Information
| A. | Consolidated Statements and Other Financial Information. |
Consolidated Statements
For our audited consolidated financial statements for the year ended December 31, 2008, please see pages F-1 to F-44 of this report.
Export Sales
See “Item 5: Operating and Financial Review and Prospects” under the caption “Geographic Breakdown of Revenues” for certain details of export sales for the last three fiscal years.
72
Legal Proceedings
We are a party to various legal proceedings incident to our business. Pursuant to the terms of the Asset Purchase Agreement with HP, a majority of the litigation we are party to was not assumed by HP or any of its subsidiaries and we continue to be responsible for the management and outcome of such litigation. In addition, we undertook to continue to be responsible for the management and outcome of the outstanding litigation involving NUR Europe, one of our previously wholly-owned subsidiaries that was acquired by HP.
Except as noted below, there are no material legal proceedings pending or, to our knowledge, threatened against us or our subsidiaries, and we are not involved in any legal proceedings that our management believes, individually or in the aggregate, would have a material adverse effect on our business, financial condition or operating results.
The US dollar amounts presented below are based on applicable conversion rates in effect as of December 31, 2008.
In October 2001, Distrade SL, a client of NUR Europe, filed a suit against NUR Europe in the Commercial Court of Brussels, alleging technical defaults in a machine purchased by it. Distrade sought reimbursement of the purchase price it paid amounting to approximately $0.18 million, as well as damages of approximately €0.23 million (or $0.33 million). NUR Europe filed a counterclaim of $0.216 million in respect of unpaid invoices. In October 2007 the court ruled that Distrade was not entitled to any damages and NUR Europe should credit it for the unpaid balance. Distrade was ordered to return the product to NUR Europe. The ruling was deemed final in April 2008 when the official time for appeal passed.
During 2002, two end-users, Jiaxing Dapeng Advertising Limited Company and Guangzhou Junhao Printing Limited Company, filed separate lawsuits in China against subsidiaries of the Company alleging bad quality of products and seeking reimbursement in aggregate amount of $0.584 million. The local court ruled that the subsidiaries should reimburse the clients with the aggregate amounts of $0.472 million. One of subsidiaries is in the process of liquidation and has no assets in China and the other is no longer active in China and based on advice received from legal counsel the judgment against it cannot be enforced in Hong Kong. The clients may file a suit in Hong Kong but have not done so to date. Based on the management’s estimate and the opinion of our legal counsel, it is less than likely that the subsidiaries will be required to pay the amount claimed.
During 2003, Julius Heywinkel GmbH, a former supplier and manufacturer of NUR Media Solutions filed suit against NUR Media Solutions in the Court of Osnabrück, Germany, claiming that NUR Media Solutions owed penalties as a result of NUR Media Solutions’ alleged failure to purchase certain minimum quantities prescribed under an agreement between NUR Media Solutions and Heywinkel. Heywinkel was seeking damages in approximately the amount of €0.93 million (or $ 1.388 million). In February 2006, the Court of Osnabrück ordered NUR Media Solutions to pay Heywinkel an aggregate amount of €1.2 million (or $1.76 million) representing penalties and accrued interest. NUR Media Solutions filed an appeal, which was rejected by the High Regional Court in Oldenburg, Germany in July 2006. During 2007, NUR Media Solutions reached an agreement with Heywinkel to pay the amount due over a period of 40 months and, pursuant to the terms of the payment arrangement, Ellomay provided a guarantee for the debt of NUR Media Solutions to Heywinkel. Following the consummation of the HP Transaction a second settlement agreement was reached by which the full amount was paid in a lump sum during August 2008.
73
In September 2003, we filed a suit in the Magistrate Court of Tel Aviv, Israel against R.R. Graphics Ltd., a former distributor in Israel, for the collection of unpaid invoices totaling approximately $0.42 million. In February 2004, R.R. Graphics filed a statement of defense denying our claims and it also filed a counter-claim for alleged damages caused to it by us in the amount of approximately $0.21 million. We believe that the counter-claim that was filed by R.R. Graphics is without merit and that a loss in not probable.
In December 2003, Imagens Digitais Ltda., a client of NUR Do Brazil Ltda., filed a suit against NUR Do Brazil Ltda. and NUR America in Brazil, alleging that a machine purchased by it failed to perform. Imagens is seeking reimbursement of the purchase price paid by it in the amount of approximately $0.29 million. We believe that the claim is without merit.
In February 2005, the OCS initiated administrative proceedings for the confiscation of certain of our assets to secure our alleged liability to the OCS of approximately $0.8 million in unpaid royalties related to the sale of equipment. On February 21, 2005, we filed a suit with the District Court in Jerusalem against the OCS and the Marketing Fund requesting a declaratory judgment denying the OCS claim for royalties and for the recovery of approximately $0.27 million that was previously paid to the OCS. We also filed a motion requesting the court to direct the OCS to cease and cancel the confiscations procedures. In February 2006, the court approved a settlement between Ellomay and the OCS. Under the terms of the approved settlement, we were required to make aggregate payments of approximately $0.6 million to the OCS and approximately $0.78 million to the Marketing Fund over a three-year period. As of December 31, 2008, the debt to the OCS and the debt to the Marketing Fund have been fully repaid.
In October 2005, Dan Purjes, our former chairman and a former beneficial owner of approximately 16.51% of our ordinary shares, filed a complaint against us in the Supreme Court, New York County seeking to recover the right to vote his ordinary shares. The right to vote Mr. Purjes’s ordinary shares had been transferred to us pursuant to a voting agreement dated January 23, 2005 by and between Mr. Purjes and us. The complaint filed by Mr. Purjes sought to have the voting agreement declared unenforceable. On March 14, 2008, following the sale of Mr. Purjes’s shares and warrants, the parties filed a stipulation of discontinuance with prejudice.
In February 2007 a claim was filed against us and one of our former officers by a person claiming to have been an agent of the company in West Africa for commissions on sales of printers. The claim is for NIS 3,000 ($0.79 million). We filed a statement of defense denying all claims, both with respect to the causes of action and with respect to the factual allegations in the claim. Based on management estimation and the opinion of its legal counsel no provision was recorded with respect to this claim.
In May 2007, a former managing director of NUR Europe filed a lawsuit against the Company and two of its subsidiaries claiming his resignation was for just cause due to demotion and therefore should be deemed as a termination of his employment by the subsidiary. The Company denied all the claims made by the former employee. The ruling in favor of the company was deemed final in March 2009 when the official time for appeal passed.
74
In January 2008, a former distributor of NUR Asia Pacific filed a lawsuit against the subsidiary claiming his distribution agreement was terminated in violation of its terms and seeking damages in the amount of $AUD 5.562 million. The subsidiary filed a statement of defense denying the claims and filed a counterclaim against the former distributor for non-payment and other damages in the amount of $0.882 million. The parties reached a settlement agreement by which the subsidiary paid the former distributor an amount of $0.175 million in October 2008.
During 2008, a former employee of a subsidiary filed a lawsuit against the Company in the amount of approximately $ 0.32 million alleging the Company did not provide him with the appropriate amount of time to exercise his stock options following the termination of the applicable blackout period. The Company and the former employee are negotiating a settlement proposal by which the Company undertakes to pay an amount of approximately $0.03 million and this amount shall be considered as the gross, exhaustive and final consideration paid to the former employee.
We may from time to time become a party to various legal proceedings in the ordinary course of our business.
Dividends
We do not anticipate that we will pay any cash dividend on our ordinary shares in the foreseeable future. Dividends, if any, will be paid in New Israeli Shekel. Dividends paid to shareholders outside Israel will be converted to U.S. dollars, on the basis of the exchange rate prevailing at the date of payment.
Except as otherwise disclosed in this annual report, no significant changes have occurred since December 31, 2008.
ITEM 9: The Offer and Listing
| A. | Offer and Listing Details |
Not applicable other than Item 9.A.4.
Stock Price History
The prices set forth below are high and low closing market prices for the ordinary shares of Ellomay as reported by the Nasdaq Capital Market or the Pink Sheets, as applicable, for the fiscal year ended December 31 of each year indicated below, for each fiscal quarter indicated below, and for each month for the six-month period ending February 28, 2009. Such quotations reflect inter-dealer prices, without retail markup, markdown, or commission and may not necessarily represent actual transactions. Our ordinary shares are currently quoted in the over-the-counter market in the “Pink Sheets” under the symbol “EMYCF.PK.”
75
Year
| High (US)
| Low (US)
|
|---|
| | | |
|---|
| | |
|---|
| | |
|---|
| | |
|---|
| 2004 | | | $ | 2.14 | | $ | 0.66 | |
| 2005 | | | | 0.83 | | | 0.18 | |
| 2006 | | | | 0.84 | | | 0.50 | |
| 2007 | | | | 0.84 | | | 0.43 | |
| 2008 | | | | 0.75 | | | 0.47 | |
| | |
| 2007 | | |
| First Quarter | | | $ | 0.65 | | $ | 0.43 | |
| Second Quarter | | | | 0.56 | | | 0.46 | |
| Third Quarter | | | | 0.62 | | | 0.44 | |
| Fourth Quarter | | | | 0.84 | | | 0.462 | |
| | |
| 2008 | | |
| First Quarter | | | $ | 0.75 | | $ | 0.60 | |
| Second Quarter | | | | 0.71 | | | 0.53 | |
| Third Quarter | | | | 0.65 | | | 0.47 | |
| Fourth Quarter | | | | 0.70 | | | 0.50 | |
| | |
| Most Recent Six Months | | |
| February 2009 | | | $ | 0.64 | | $ | 0.46 | |
| January 2009 | | | | 0.58 | | | 0.52 | |
| December 2008 | | | | 0.64 | | | 0.51 | |
| November 2008 | | | | 0.69 | | | 0.51 | |
| October 2008 | | | | 0.70 | | | 0.50 | |
| September 2008 | | | | 0.64 | | | 0.55 | |
As a result of the removal of our ordinary shares from quotation on the Nasdaq Capital Market, our ordinary shares are not regularly covered by securities analysts and the media and the liquidity of our ordinary shares is very limited. Such limited liquidity could result in lower prices for our ordinary shares than might otherwise prevail and in larger spreads between the bid and asked prices for our ordinary shares. Additionally, certain investors will not purchase securities that are quoted on the pink sheets, which could materially impair our ability to raise funds through the issuance of our ordinary shares in the securities markets.
Not Applicable.
Our ordinary shares are currently quoted in the over-the-counter market in the “Pink Sheets” under the symbol “EMYCF.PK.”
Our ordinary shares were traded on the Nasdaq National Market between October 1995 and July 2003. Our ordinary shares were traded on the Nasdaq Capital Market between July 2003 and May 2005.
76
Not Applicable.
Not Applicable.
ITEM 10: Additional Information
Not applicable.
| B. | Memorandum of Association and Second Amended and Restated Articles |
Set forth below is a brief description of certain provisions contained in the Memorandum of Association, the Second Amended and Restated Articles, adopted by our shareholders at our general meeting held on December 30, 2008, as well as certain statutory provisions of Israeli law. The Memorandum of Association and the Articles are incorporated by reference herein. The description of certain provisions does not purport to be a complete summary of these provisions and is qualified in its entirety by reference to such exhibits.
Authorized Share Capital
The authorized share capital of Ellomay is one hundred seventy million (170,000,000) New Israeli Shekels, divided into one hundred and seventy million ordinary shares, NIS 1.00 par value per share.
Due to the fact that we were incorporated prior to 1999, the year the Companies Law was enacted, a special majority of 75% of the shares voting on the matter is required in order to amend our Memorandum, which includes changes to our capital structure, such as an increase in our authorized capital.
At our general meeting held on December 30, 2008, our shareholders resolved to effect a reverse share split of our ordinary shares (on the effective date to be determined by our Board) where each ten ordinary shares will be consolidated into one single ordinary share of NIS 10.00 nominal value, such that our registered share capital will be divided into 17,000,000 ordinary shares. Our shareholders further resolved that all fractional shares which are one-half share or more will be increased to the next higher whole number of shares and all fractional shares which are less than one-half share will be decreased to the next lower whole number of shares and to authorize our Board to determine the timing of the reverse share split and also to determine not to implement the reverse share split, all based on our Board’s judgment of our best interests.
77
As more fully described in the proxy statement sent to our shareholders prior to the December 30, 2008 meeting, the purpose of the reverse share split is to enable us to meet the minimum bid price initial listing requirement of the NASDAQ Global Market. As we cannot currently attempt to list our shares on the NASDAQ Global Market due, among other things, to our lack of operations, our current intention is to implement the reverse share split prior to the closing of a business combination and to attempt to list our shares on the NASDAQ Global Market in conjunction with the closing of such business combination. Subsequently to the publication of our proxy statement, the NASDAQ issued new listing requirements, reducing the minimum bid price from $5.00 to $4.00 in all NASDAQ markets. We cannot predict if and when our ordinary shares will begin trading on the NASDAQ Global Market or any other NASDAQ market and cannot assure you that following the reverse share split the market price per each of our ordinary shares will either exceed or remain in excess of the $4.00 per share minimum bid price as required to meet the initial listing requirements for the NASDAQ Global Market. In addition, we cannot predict whether, or assure you that, we will otherwise meet the initial listing requirements and thereafter the continued listing requirements of the NASDAQ Global Market.
Purpose and Objective
We are a public company registered under the Companies Law as Ellomay Capital Ltd., registration number 52-003986-8. Pursuant to Article 3.1 of our Articles, our objective is to undertake any lawful activity, including any objective set forth in our Memorandum of Association. Pursuant to Article 3.2 of our Articles, our purpose is to operate in accordance with commercial considerations with the intentions of generating profits. In addition, we may contribute reasonable amounts for any suitable purpose even if such contributions do not fall within our business considerations. The Board may determine the amounts of the contributions, the purpose for which the contribution is to be made, and the recipients of any such contribution.
Board of Directors
Under the Companies Law, the Board is authorized to set our strategy and supervise the performance of the duties and actions of our chief executive officer. Our Board may not delegate to a committee of the Board or the chief executive officer the right to decide on certain of the authorities vested in it, including determination of our strategy, distributions, certain issuances of securities and approval of financial reports. The powers conferred upon the Board are vested in the Board as a collective body and not in each one or more of the directors individually. Unless otherwise set forth in a resolution of the shareholders, the Board shall consist of not less than four (4) nor more than eight (8) directors (including any external directors whose appointment is mandated under the Companies Law).
The directors are elected annually at a general meeting of shareholders and remain in office until the next annual meeting at which time they retire, unless their office is previously vacated as provided in the Articles. A retiring director may be reelected. If no directors are elected at the annual meeting, all of the retiring directors remain in office pending their replacement at a general meeting. Holders of the ordinary shares do not have cumulative voting rights in the election of directors. Consequently, the holders of ordinary shares in the aggregate conferring more than 50% of the voting power, represented in person or by proxy, will have the power to elect all the directors. Pursuant to the Companies Law, publicly traded companies must appoint at least two external directors to serve on their Board of Directors and Audit Committee. For further information concerning external directors see “Item 6.C: Board Practices.”
78
The Companies Law codifies the fiduciary duties that an office holder has to a company. An office holder’s fiduciary duties consist of a Duty of Loyalty and a Duty of Care. For more information concerning these duties, the approval process of certain transactions and other board practices see “Item 6.C: Board Practices.”
Under the Companies Law, all arrangements with regard to the compensation of office holders who are not directors require the approval of the board of directors. Arrangements regarding the compensation of directors require audit committee, board and shareholder approval. Borrowing powers exercisable by the directors are not specifically outlined in the Company’s Articles.
No person shall be disqualified to serve as a director by reason of his not holding shares in Ellomay. Additionally, there is no age limit for the retirement of directors.
Chairman of the Board
Our Articles provide that our Chairman of the Board shall have no casting vote, unless (i) the Chairman of the Board is then Mr. Shlomo Nehama and (ii) Nechama Investments, together with any Affiliates (as defined in our Articles) thereof, then holds at least 25.05% of our outstanding shares. Our Articles further provide that, notwithstanding the foregoing, in case Mr. Shlomo Nehama elects to exercise his casting vote in respect of a specific resolution brought before the Board (the “Triggering Resolution”), then (a) prior to such exercise, Nechama Investments shall be required to trigger the “Buy Me Buy You” mechanism set forth in Section 6 of the 2008 Shareholders Agreement as an Offering Party (as defined in the 2008 Shareholders Agreement), whereby the Triggering Resolution will be pending until the consummation of the sale of the Restricted Shares (as defined in the 2008 Shareholders Agreement) of one party to the 2008 Shareholders Agreement to the other party of the 2008 Shareholders Agreement in accordance with such “Buy Me Buy You” mechanism; and (b) in the event that three (3) directors of our so require, the Triggering Resolution shall be conditioned upon the approval of our General Meeting pursuant to Article 25.1 of the Articles (requiring a special majority of 50.1% of the outstanding shares). Upon a transfer of the Restricted Shares by Kanir to third party in accordance with the terms of the 2008 Shareholders Agreement, the casting vote of the Chairman of the Board shall expire.
Rights of Shareholders
No preemptive rights are granted to holders of ordinary shares under the Articles or the Companies Law. Each ordinary share is entitled to one vote on all matters to be voted on by shareholders, including the election of directors. Non-residents of Israel may freely hold and trade the ordinary shares pursuant to general and specific permits issued under Israel’s Currency Control Law, 1978. Neither the Memorandum of Association nor the Articles make any distinction between residents and non-residents of Israel with respect to the ownership of ordinary shares. The Memorandum of Association, the Articles and Israeli law do not make any distinction between residents and non-residents of Israel with respect to the voting rights related thereto.
An annual meeting of shareholders must be held once in every calendar year at such time (within a period of not more than fifteen months after the last preceding annual meeting) and at such place as may be determined by the Board. The Board may, at any time, convene Extraordinary General Meetings of shareholders, and shall be obligated to do so upon receipt of a requisition in writing of (i) two directors or one quarter of the directors holding office; and/or (ii) one or more shareholders holding at least 5% of the issued capital and at least 1% of the voting rights in the Company; and/or (iii) one or more shareholders holding at least 5% of the voting rights in the Company. A requisition must detail the objects for which the meeting must be convened and shall be signed by the persons requisitioning it and sent to the Company’s registered office. Where the Board of Directors is required to convene a special meeting, it shall do so within 21 days of the requisition being submitted. Prior to any general meeting a written notice thereof shall be made public as required by Israeli law. The Articles provided that we shall not be required to deliver notice to each shareholder, except as may be specifically required by Israeli law. The Articles further provide that a notice by us of a general meeting that is published in one international wire service shall be deemed to have been duly given on the date of such publication.
79
Two or more members present in person or by proxy and holding shares conferring in the aggregate more than 25% of the total voting power attached to our shares shall constitute a quorum at general meetings. If a meeting is adjourned due to the lack of a quorum (and provided that it was not convened due to the requisition of certain shareholders), any two shareholders, present in person or by proxy at the subsequent adjourned meeting, will constitute a quorum. Unless provided otherwise by the terms of issue of the shares, no member shall be entitled to be present or vote at a general meeting (or to be counted as part of the quorum) unless all amounts due as of the date designated for same general meeting with respect to his shares were paid. A resolution shall be deemed adopted if the requisite quorum is present and the resolution is supported by members present, in person or by proxy, vested with more than fifty percent (50%) of the total voting power attached to the shares whose holders were present, in person or by proxy, at such meeting and voted thereon, or such other percentage required by law or set forth in the Articles from time to time.
On March 24, 2008, in connection with the purchase of a controlling interest of our ordinary shares, Nechama Investments and Kanir entered into a shareholders agreement. Under the agreement, both parties agreed to vote all the Company’s shares held by them as provided in the agreement and, where the agreement is silent, as the parties shall agree prior to any meeting of the Company’s shareholders. In addition, the agreement provides that in the event the parties do not reach an agreement regarding certain resolution proposed to the Company’s shareholders meeting, the parties shall vote all of their shares against such proposed resolution. For further information with respect to the shareholders agreement, see “Item 7.A.: Major Shareholders” under the caption “2008 Shareholders Agreement.”
Following the adoption of the Second Amended and Restated Articles at our general meeting of shareholders held on December 30, 2008, Article 25.5 provide that for so long as the 2008 Shareholders Agreement is in effect, at the written request of any two directors with respect to any proposed action or transaction (including certain related party transactions, any amendments to our Memorandum of Association or Articles, any merger or consolidation of the Company, any material change in the scope of our business, the voluntary liquidation or dissolution of the Company, approval of annual budget or business plan and material deviations therefrom and any change in signatory rights on behalf of the Company), such action or transaction shall require the approval of our general meeting by a resolution supported by members present, in person or by proxy, vested with at least 50.1% of our outstanding shares, or by such higher approval threshold as may be required by Israeli law.
80
Changing Rights Attached to Shares
According to our Articles, in order to change the rights attached to any class of shares, unless otherwise provided by the terms of the class, such change must be adopted by a general meeting of the shareholders and by a separate general meeting of the holders of the affected class with a majority of the voting power participating in such meeting. The provisions of the Articles relating to General Meetings of our shareholders shall apply, mutatis mutandis, to any separate General Meeting of the holders of the shares of a specific class; provided, however, that the requisite quorum at any such separate General Meeting shall be one or more members present in person or by proxy and holding not less than thirty three and one third percent (33 1/3%) of the issued shares of such class.
Pursuant to the Companies Law, the quorum requirement for General Meetings and for separate General Meetings for holders of a specific class may be satisfied with the presence of at least two members present in person or by proxy and holding not less than 25% of the outstanding shares, or the shares of such class, as the case may be.
Dividends and Profits
Our Board may from time to time, subject to the provisions of Companies Law, declare and order the payment of a dividend from our accrued profits at the rate it may deem, provided that there is no reasonable concern that payment of such dividend may prevent us from meeting our current and expected liabilities when they become due. Upon recommendation by the Board, dividends may be paid, in whole or in part, by the distribution of certain of our specific assets and/or by the distribution of shares and/or debentures of Ellomay and/or of any other company, or in any combination of such manners. Subject to special or restricted rights conferred upon the holders of shares as to dividends, if any, the dividends shall be distributed in accordance with our paid-up capital attributable to the shares for which the dividend has been declared. Our obligation to pay dividends or any other amount in respect of shares may be set-off against any indebtedness, however arising, liquidated or non-liquidated, of the person entitled to receive the dividend. Any dividend unclaimed within the period of seven years from the date stipulated for its payment shall be forfeited and returned to us, unless otherwise directed by the Board. In the event of the winding up of Ellomay, then, subject to provisions of any applicable law and to any special or restricted rights attached to a share, our assets in excess of our liabilities will be distributed among the shareholders in proportion to the paid-up capital attributable to the shares in respect of which the distribution is being made.
Redemption Provisions
We may, subject to any applicable law, issue redeemable securities and then redeem them.
81
Certain Transactions with Controlling Persons
No provision in the Articles discriminates against an existing or prospective holder of securities, as a result of such shareholder owning a substantial amount of shares. However, the Companies Law extends the disclosure requirements applicable to Office Holder as described in “Item 6.C: Board Practices,” to a controlling shareholder in a public company. The Companies Law defines a controlling shareholder the shareholder who can direct the activities of the company, including a person who holds 25% or more of the voting rights at the company’s general meeting, provided there is no other person that holds more than 50% of the voting rights in the company. If two or more shareholders are interested parties in the same transaction, their shareholdings are combined for the purposes of calculating percentages. If two or more shareholders are parties to a voting agreement, their interests are also generally combined for the purposes of calculating percentages. Extraordinary transactions between a public company and a controlling shareholder or a controlling shareholder’s relative, extraordinary transactions in which a controlling shareholder has a personal interest but which are between a public company and another entity, and the entering into agreements with the controlling shareholder, or his relative if such relative is an Office Holder, in connection with their terms of compensation, all require the approval of the audit committee, the board of directors and the shareholders. If required, shareholder approval must include at least one-third of the shareholders who have no personal interest in the transaction and are present and voting at the meeting. Alternatively, the total shareholdings of the disinterested shareholders who vote against the transaction must not represent more than one percent of the voting rights in the company.
Under the Companies Regulations (Relief from Related Party Transactions), 2000, promulgated under the Companies Law (the “Relief Regulations”), certain extraordinary transactions between a company and its controlling shareholder(s), certain undertakings of a company to its directors in connection with their terms of service and certain transactions between a company and its controlling shareholder(s) or their relatives in their capacity as Office Holders of the company may be approved, if the conditions set forth in such regulations are met, without the requirement to obtain shareholder approval. The Relief Regulations require that the company’s audit committee and board of directors determine that the conditions set forth in the Relief Regulations are met. One of the alternative conditions for approving an extraordinary transaction with a controlling shareholder is that such transaction only benefits the company. Another available condition is that the transaction is in the ordinary course of business, on market terms, and does not harm the company. The foregoing relief will not apply if one or more shareholders holding at least 1% of the issued and outstanding share capital of the company or of the company’s voting rights objects to the use by the company of such relief, provided that such objection is submitted to the company in writing not later than fourteen (14) days from the date in which companies such as our company reported the adoption of the resolution pursuant to the Relief Regulations to its shareholders. If such objection is duly and timely submitted, then the transaction or compensation arrangement will require shareholders’ approval as detailed above.
Anti-takeover Provisions; Mergers and Acquisitions under Israeli Law
The Companies Law permits merger transactions with the approval of each party’s board of directors and generally requires shareholder approval, as well. Under a recent amendment to the Companies Law, a merger with a wholly owned subsidiary does not require approval of the surviving company’s shareholders. A merger does not require approval of the surviving company’s shareholders if (i) the merger does not require amending the surviving company’s memorandum of association or articles and (ii) the surviving company does not issue more than 20% of its voting power in connection with the merger and pursuant to the issuance no shareholder would become a controlling shareholder. Shareholder approval of the surviving company would nevertheless be required if the other party to the merger, or a person holding more than 25% of the outstanding voting shares or means of appointing the board of directors of the other party to the merger, holds any shares of the surviving company. In accordance with the Companies Law, our Articles provide that a merger may be approved at a shareholders meeting by a majority of the voting power represented at the meeting, in person or by proxy, and voting on that resolution. The Companies Law provides that in determining whether the required majority has approved the merger, shares held by the other party to the merger, any person holding at least 25% of the outstanding voting shares or means of appointing the board of directors of the other party to the merger, or the relatives or companies controlled by these persons, are excluded from the vote. As described above, our Articles currently provide, under certain circumstances, including a merger of the Company, that two directors may require that, in addition to the majority prescribed by the Companies Law, a merger be approved by a resolution supported by shareholders present, in person or by proxy, vested with at least 50.1% of our outstanding shares.
Under the Companies Law, a merging company must inform its creditors of the proposed merger. Any creditor of a party to the merger may seek a court order blocking the merger, if there is a reasonable concern that the surviving company will not be able to satisfy all of the obligations of the parties to the merger. Moreover, a merger may not be completed until at least 50 days have passed from the time that a merger proposal was filed with the Israeli Registrar of Companies and 30 days have passed from the shareholder approval of the merger in each merging company.
82
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 25% or greater shareholder of the company. This rule does not apply if there is already another 25% or greater shareholder of 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 hold greater than a 45% interest in the company, unless there is another shareholder holding more than a 45% interest in the company. These requirements do not apply if, in general, the acquisition (1) was made in a private placement that received shareholder approval, (2) was from a 25% or greater shareholder of the company which resulted in the acquiror becoming a 25% or greater shareholder of the company, or (3) was from a shareholder holding more than a 45% interest in the company which resulted in the acquiror becoming a holder of more than a 45% interest in the company.
If, as a result of an acquisition of shares, the acquiror will hold more than 90% of a company’s outstanding shares, the acquisition must be made by means of a tender offer for all of the outstanding shares. If less than 5% of the outstanding shares are not tendered in the tender offer, all the shares that the acquiror offered to purchase will be transferred to the acquirer. The Companies Law provides for appraisal rights if any shareholder files a request in court within three months following the consummation of a full tender offer. If more than 5% of the outstanding shares are not tendered in the tender offer, then the acquiror may not acquire shares in the tender offer that will cause his shareholding to exceed 90% of the outstanding shares.
Regulations under the Companies Law provide that the Companies Law’s tender offer rules do not apply to a company whose shares are publicly traded outside of Israel, if pursuant to the applicable foreign securities laws and stock exchange rules there is a restriction on the acquisition of any level of control of the company, or if the acquisition of any level of control of the company requires the purchaser to make a tender offer to the public shareholders.
Duties of Shareholders
Under the Companies Law, a shareholder has a duty to act in good faith towards the company and other shareholders and to refrain from abusing his or her power in the company including, among other things, when voting in a general meeting of shareholders or in a class meeting on the following matters:
| | — | any amendment to the articles; |
| | — | an increase in the company's authorized share capital; |
| | — | approval of related party transactions that require shareholder approval. |
A shareholder has a general duty to refrain from depriving any other shareholder of their rights as a shareholder. In addition, any controlling shareholder, any shareholder who knows that it possesses the power to determine the outcome of a shareholder vote and any shareholder who has the power to appoint or prevent the appointment of an office holder in the company is under a duty to act with fairness towards the company. The Companies Law does not describe the substance of this duty of loyalty.
83
2007 Private Placement
In the beginning of 2007 we raised $6.3 million through the private placement of 11,734,950 of our ordinary shares to various investors at a price of $0.54 per share. The investors also received warrants to purchase additional 3,520,485 ordinary shares at an exercise price of $0.65 per share, exercisable for a period of five years following the closing of the private placement. The private placement included two stages, an initial closing resulting in gross proceeds in the amount of $3.8 million in January 2007 and a follow-on investment resulting in gross proceeds of $2.5 million in February 2007. In connection with the private placement, we paid our adviser, Meitav Underwriting Ltd., a cash fee of $0.25 million.
Under the subscription agreement entered into between us and each of the investors, we were required, on a best efforts basis, to file a registration statement registering the ordinary shares and ordinary shares underlying warrants for resale within six months following the private placement. The investors in the private placement were provided with the same registration rights as those provided to the Fortissimo Entities in connection with their investment in Ellomay in late 2005 (as were reflected in a registration rights agreement executed among us and the Fortissimo Entities) and were also provided with the right to receive partial liquidated damages in the event the Company did not meet certain target dates set forth in the agreement in connection with the registration of the shares. The partial liquidated damages are in an amount equal to 1.0% of the aggregate purchase price paid by each investor per month of default, subject to an overall limit of up to 24 months of partial liquidated damages. On June 29, 2007, we filed a registration statement for the resale of certain ordinary shares and ordinary shares underlying warrants held by several of our shareholders, including the shares and shares underlying warrants issued in January and February 2007. The registration statement became effective on August 3, 2007 and temporarily lost its effectiveness on October 1, 2007, as it was not in compliance with financial disclosure requirements, but regained its effective status on June 30, 2008.
Asset Purchase Agreement with Hewlett-Packard Company
On December 9, 2007, we entered into an Asset Purchase Agreement with HP, whereby HP agreed to acquire, directly or through its subsidiaries, substantially all of our assets and business for a cash consideration of $117.5 million and to assume substantially all our business related liabilities. The shares of three of our wholly-owned subsidiaries, NUR Europe, NUR Japan and NUR Do Brazil were also included in the assets HP agreed to acquire. The purchase price was subject to upward or downward adjustment based on the net debt (bank debt less cash balances) of us and our subsidiaries as of the closing date.
The Asset Purchase Agreement includes representations and warranties made by us for the benefit of HP, with respect to our structure and various aspects of the business (including environmental and intellectual property issues), which generally survive for a period of eighteen months following the closing of the transaction or, with respect to representations and warranties made by us as to authorization and enforceability, the expiration of the applicable statute of limitations.
84
The assets and liabilities connected to our business that were not assumed by HP include, among other things, cash balances held by us and our subsidiaries that were not purchased by HP, short and long term bank credit and loans, all costs incurred in respect to the HP Transaction including severance liabilities, rights and obligations in respect to employees not transferred to HP, rights and obligations related to outstanding litigation, claims and disputes; intercompany balances, all tax benefits and obligations with the exception of such benefits and obligations relating to continuing operations from the closing date, assets and obligations in respect of certain government-supported research and development projects and obligations due to or from shareholders.
We agreed to indemnify HP against damages or losses arising from, among others, any breach or inaccuracy of the representations and warranties, any assets or liabilities that were not assumed by HP and certain environmental matters. Our indemnification liability pursuant to the Asset Purchase Agreement is subject to certain customary minimal amount limitations and is also generally limited to amounts deposited in an indemnity escrow ($9.5 million deposited for a period of 18 months and $5 million deposited for a period of 24 months). However, we agreed that claims for indemnity relating to certain liabilities, including, among others, fraud, willing and intentional breach of warranties, liabilities arising in connection with assets or liabilities that were not purchased by HP, failure to comply with certain restrictive covenants, and environmental issues, will not be limited to the amounts deposited in escrow.
The Asset Purchase Agreement also contains ongoing covenants on our part, such as undertakings with respect to confidential information and non-solicitation and non-compete restrictions.
On the APA Closing Date (February 29, 2008), the sale of our business to HP was finalized. The base purchase price pursuant to the Asset Purchase Agreement is $117.5 million. The purchase price was subject to upward or downward adjustment based on the net debt (bank debt less cash balances) of the Company and its subsidiaries that were not purchased by HP as of the APA Closing Date. The purchase price adjustment on such date was approximately $4 million, increasing the total consideration under the Asset Purchase Agreement from $117.5 million to $121.5 million. Following the APA Closing Date, the parties reached a mutual resolution to assign NUR Europe’s facilities and related capital lease to a third party. Therefore, we were entitled to additional net proceeds (after deduction of HP’s expenses in connection with such capital lease and other expenses that were to be borne by us pursuant to the Asset Purchase Agreement) in the amount of $1.1 million as additional consideration for NUR Europe’s shares, increasing the aggregate consideration in connection with the HP Transaction to $122.6 million.
Of the total consideration:
| | — | $103.9 million was transferred to us on the APA Closing Date. |
| | — | $1.6 million was withheld by HP until final calculation of the net debt as of the APA Closing Date. Based on the final net debt calculation we were entitled only to an amount of $1.504 million, which was transferred to us on July 30, 2008. |
| | — | $1.5 million was withheld by HP until the resolution of NUR Europe’s obligations with respect to its capital lease and Government grants. Of the $1.5 million withheld, an amount of $1 million was transferred to us on December 2, 2008 as a result of the assignment of NUR Europe’s facilities and related capital lease to a third party. The $0.5 million withheld in connection with NUR Europe’s obligations with respect to the government grants is still being held by HP. |
85
| | — | Of the additional proceeds in the amount of $1.1 million related to NUR Europe’s facilities, a total amount of $0.4 million was transferred to us on December 18, 2008 and an additional amount of approximately $0.7 million was transferred to us on March 13, 2009. |
| | — | The remaining $14.5 million was deposited into an escrow account to secure the indemnity obligations of the Company and its remaining subsidiaries. The escrow funds, net of amounts distributed to HP in satisfaction of indemnity obligations, are to be distributed to us in two installments: $9.5 million is to be distributed eighteen months following the APA Closing Date and $5 million is to be distributed to us twenty-four months following the APA Closing Date. |
The foregoing description of the Asset Purchase Agreement is only a summary and does not purport to be complete and is qualified by reference to the full text of the Asset Purchase Agreement filed by us as Exhibit 4.7 in Item 19.
For details with respect to additional consequences of the HP Transaction see "Item 6.B: Compensation," "Item 6.D: Employees" and "Item 5.B: Liquidity and Capital Resources."
Management Services Agreement with Kanir and Meisaf
At the annual shareholders meeting held on December 30, 2008, our shareholders approved the terms of a management services agreement among us, Kanir and Meisaf, effective as of March 31, 2008 (the “Management Agreement”).
The Management Agreement provides, among other things, that Meisaf and Kanir, through their employees, officers and directors, will assist us in connection with the process of identifying and evaluating opportunities to acquire operations, otherwise provide us with management services and advise and provide assistance to our management concerning our affairs and business. It is further agreed that the management services will be provided primarily by Messrs. Nehama, Fridrich and Raphael.
In addition, the Management Agreement notes that Kanir’s and Meisaf’s representatives on our Board of Directors, Messrs. Nehama, Fridrich and Raphael, or other affiliates of such entities, serve and will continue to serve on our Board of Directors. In providing the Board services, the directors and the Chairman of the Board will be subject to any and all fiduciary and other duties applicable to them under law and under our Articles and they are required to dedicate as much time as reasonably necessary for the proper performance of such services.
In consideration of the performance of the management services and the Board services, we have agreed to pay to Meisaf and Kanir, in equal parts, an aggregate annual fee in the amount of $250,000, to be paid on a quarterly basis. Meisaf and Kanir will also be entitled to receive reimbursement for reasonable out-of-pocket business expenses borne by them in connection with the provision of the services, as customary in the Company. In connection with the Management Agreement, the Board representatives of Kanir and Mr. Nehama waived any director fees and options to purchase our ordinary shares they may be entitled to as a result of their service on our Board of Directors.
86
The Management Agreement will remain in effect until the earlier of: (i) the second anniversary of the effective date of the Agreement or (ii) the termination of service of either of the Kanir and Nechama Investments affiliates on our Board of Directors. Any revision or amendment of the Management Agreement, or extension of its term, will require the approvals set forth under applicable law and our Articles.
Dividends, if any, paid by us to the 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-Israeli currency. If these amounts are paid in Israeli currency, they may be converted into U.S. dollars at the rate of exchange prevailing at the time of conversion. However, legislation remains in effect pursuant to which currency controls can be imposed by administrative action at any time.
The State of Israel does not restrict in any way the ownership or voting of ordinary shares of Israeli entities by non-residents of Israel, except with respect to subjects of countries that are in a state of war with Israel.
Israeli Taxation and Investment Programs
The following is a summary of the material Israeli tax consequences, Israeli foreign exchange regulations and certain Israeli government programs as they relate to our shareholders and us. To the extent that the discussion is based on new tax or other legislation that has not been subject to judicial or administrative interpretation, there can be no assurance that the views expressed in the discussion will be accepted by the tax or other authorities in question. The discussion is not intended, and should not be construed, as legal or professional tax advice and is not exhaustive of all possible tax considerations.
General Corporate Tax Structure
Israeli companies are generally subject to company tax on their taxable income. The applicable rate is 31% in 2006, 29% in 2007, 27% in 2008, 26% in 2009 and is scheduled to decline to 25% in 2010 and thereafter. However, the effective tax rate payable by a company which derives income from an approved enterprise may be considerably less, as further discussed below.
87
Special Provisions Relating to Taxation under Inflationary Conditions
The Income Tax Law (Inflationary Adjustments), 5745-1985, or the Inflationary Adjustments Law, represents an attempt to overcome the problems presented to a traditional tax system by an economy undergoing rapid inflation. The Inflationary Adjustments Law is highly complex. Its features, which are material to us, can be described as follows:
| | — | there is a special tax adjustment for the preservation of equity which classifies corporate assets into fixed assets and non-fixed assets. Where a company’s equity, as defined in the law, exceeds the depreciated cost of fixed assets, a deduction from taxable income that takes into account the effect of the applicable annual rate of inflation on the excess is allowed up to a ceiling of 70% of taxable income in any single tax year, with the unused portion permitted to be carried forward on a linked basis. If the depreciated cost of fixed assets exceeds a company’s equity, then the excess multiplied by the applicable annual rate of inflation is added to taxable income; |
| | — | subject to specified limitations, depreciation deductions on fixed assets and losses carried forward are adjusted for inflation based on the increase in the consumer price index; and |
| | — | in specified circumstances, gains on traded securities, which might otherwise be eligible for reduced rates of tax, will be liable to company tax rates, as mentioned above. |
In February 2008, the inflation adjustment law was cancelled.
Law for the Encouragement of Industry (Taxes), 5729-1969
The Law for the Encouragement of Industry (Taxes), 5729-1969, or the Industry Encouragement Law, provides several tax benefits for industrial companies. An industrial company is defined as a company resident in Israel, at least 90% of the income of which in a given tax year (determined in Israeli currency, exclusive of income from specified government loans, capital gains, interest and dividends) is derived from an industrial enterprise owned by it. An industrial enterprise is defined as an enterprise whose major activity in a given tax year is industrial production activity.
Under the Industry Encouragement Law, industrial companies are entitled to a number of corporate tax benefits, including:
| | — | deduction of purchase of know-how and patents over an eight-year period for tax purposes; and |
| | — | the right to elect, under specified conditions, to file a consolidated tax return with additional related Israeli industrial companies and an industrial holding company. |
Under some tax laws and regulations, an industrial enterprise may be eligible for special depreciation rates for machinery, equipment and buildings. These rates differ based on various factors, including the date the operations begin and the number of work shifts. An industrial company owning an approved enterprise may choose between these special depreciation rates and the depreciation rates available to the approved enterprise.
Eligibility for benefits under the Industry Encouragement Law is not subject to receipt of prior approval from any governmental authority.
88
Before the transaction with HP, the we were qualified as an industrial company within the definition of the Industry Encouragement Law.
Capital Gains Tax on Sales of Our Ordinary Shares
Israeli law generally imposes a capital gains tax on the sale of any capital assets by residents of Israel, as defined for Israeli tax purposes, and on the sale of assets located in Israel, including shares in Israeli companies, by both residents and non-residents of Israel, unless a specific exemption is available or unless a tax treaty between Israel and the shareholder’s country of residence provides otherwise. The law distinguishes between real gain and inflationary surplus. The inflationary surplus is a portion of the total capital gain, which is equivalent to the increase of the relevant asset’s purchase price, which is attributable to the increase in the Israeli consumer price index between the date of purchase and the date of sale. The real gain is the excess of the total capital gain over the inflationary surplus.
Taxation of Israeli Residents
The tax rate applicable to capital gains derived from the sale of shares, whether listed on a stock market or not, is 20% for Israeli individuals, unless such shareholder claims a deduction for financing expenses in connection with such shares, in which case the gain will generally be taxed at a rate of 25%. Additionally, if such shareholder is considered a “significant shareholder” at any time during the 12-month period preceding such sale (i.e., such shareholder holds directly or indirectly, including jointly with others, at least 10% of any means of control in the company) the tax rate will be 25%. Israeli companies are subject to the corporate tax rate on capital gains derived from the sale of shares, unless such companies were not subject to the Adjustments Law (or certain regulations) at the time of publication of the aforementioned amendment to the Tax Ordinance, in which case the applicable tax rate is 25%. However, different tax rates may apply to dealers in securities and shareholders who acquired their shares prior to an initial public offering.
Taxation of Non-Israeli Residents
Non-Israeli residents are generally exempt from Israeli capital gains tax on any gains derived from the sale of shares of Israeli companies publicly traded on a recognized stock market outside of Israel, provided such shareholders did not acquire their shares prior to the issuer’s initial public offering and that the gains did not derive from a permanent establishment of such shareholders in Israel and that such shareholders are not subject to the Inflationary Adjustments Law. However, non-Israeli corporations will not be entitled to such exemption if an Israeli resident (i) has a controlling interest of 25% or more in such non-Israeli corporation, or (ii) is the beneficiary or is entitled to 25% or more of the revenues or profits of such non-Israeli corporation, whether directly or indirectly.
In addition, the sale, exchange or disposition of our ordinary shares by a shareholder who is a U.S. resident (for purposes of the U.S.-Israel Tax Treaty) holding ordinary shares as a capital asset is also exempt from Israeli capital gains tax under the U.S.-Israel Tax Treaty unless either (i) the shareholder holds, directly or indirectly, shares representing 10% or more of our voting power during any part of the 12-month period preceding such sale or (ii) the capital gains arising from such sale are attributable to a permanent establishment of the shareholder located in Israel. If the above conditions are not met, the U.S. resident would be subject to Israeli tax, to the extent applicable; however, under the U.S.-Israel Tax Treaty, the gain would be treated as foreign source income for United States foreign tax credit purposes and such U.S. resident would be permitted to claim a credit for such taxes against the United States income tax imposed on such sale, exchange or disposition, subject to the limitations under the United States federal income tax laws applicable to foreign tax credits.
89
U.S. Tax Considerations Regarding Ordinary Shares
The following is a general summary of the material United States federal income tax consequences relating to the acquisition, ownership and disposition of our ordinary shares by an investor that holds those shares as capital assets within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the “Code”). The summary is based on the tax laws of the United States, and existing final, temporary and proposed Treasury Regulations, Revenue Rulings and judicial decisions, as in effect on the date hereof, all of which are subject to prospective and retroactive changes, and to differing interpretations. The summary does not purport to address all federal income tax consequences that may be relevant to particular investors, and does not take into account the specific circumstances of any particular investors, some of which (such as tax-exempt entities, banks and financial institutions, insurance companies, real estate investment trusts, regulated investment companies, broker-dealers, traders in securities that elect to use a mark-to-market method of accounting for their securities holdings, investors liable for alternative minimum tax, investors that own or are treated as owning 10% or more of our voting stock, investors that hold ordinary shares as part of a straddle, hedge, conversion transaction or other integrated transaction, U.S. expatriates and investors whose functional currency is not the U.S. dollar) may be subject to special tax rules. ACCORDINGLY, PERSONS CONSIDERING THE PURCHASE OF ORDINARY SHARES SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE APPLICATION OF UNITED STATES FEDERAL INCOME TAX LAWS, AS WELL AS THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION, TO THEIR PARTICULAR SITUATIONS.
For purposes of this discussion, a “U.S. Holder” is any beneficial owner of shares of our ordinary shares that, for U.S. federal income tax purposes, is:
| | (1) | an individual citizen or resident of the United States, |
| | (2) | a corporation or other entity taxable as a corporation for U.S. federal income tax purposes organized in or under the laws of the United States or any political subdivision thereof, |
| | (3) | an estate the income of which is subject to U.S. federal income tax without regard to its source, or |
| | (4) | a trust, if such trust was in existence on August 20, 1996 and has validly elected to be treated as a U.S. person for U.S. federal income tax purposes, or if (a) a court within the U.S. can exercise primary supervision over its administration and (b) one or more U.S. persons have the authority to control all of the substantial decisions of such trust. |
If a partnership (including for this purpose any entity treated as a partnership for U.S. tax purposes) is a beneficial owner of shares of our ordinary shares, the U.S. tax treatment of a partner in the partnership will generally depend on the status of the partner and the activities of the partnership. A holder of shares of our ordinary shares that is a partnership and partners in such partnership should consult their individual tax advisors about the U.S. federal income tax consequences of holding and disposing of shares of our ordinary shares.
90
A “Non-U.S. Holder” is any beneficial owner of our ordinary shares that is not a U.S. Holder and is not a partnership.
Taxation of U.S. Holders
Distributions on Ordinary Shares. Subject to the discussion in “Passive Foreign Investment Companies” below, distributions made by us with respect to ordinary shares generally will constitute dividends for federal income tax purposes and will be taxable to a U.S. Holder as a dividend to the extent of our undistributed current or accumulated earnings and profits (as determined for United States federal income tax purposes). Distributions in excess of our current and accumulated earnings and profits will be treated first as a nontaxable return of capital reducing the U.S. Holder’s tax basis in the ordinary shares, thus increasing the amount of any gain (or reducing the amount of any loss) which might be realized by such Holder upon the sale or exchange of such ordinary shares. Any such distributions in excess of the U.S. Holder’s tax basis in the ordinary shares will be treated as capital gain to the U.S. Holder and will be either long term or short term capital gain depending upon the U.S. Holder’s federal income tax holding period for the ordinary shares. Dividends paid by us generally will not be eligible for the dividends received deduction available to certain United States corporate shareholders under Code Sections 243 and 245. If you are a noncorporate U.S. Holder, dividends paid to you in taxable years beginning before January 1, 2011, will be taxable to you at a maximum rate of 15% provided that you hold ordinary shares for more than 60 days during the 120-day period beginning 60 days before the ex-dividend date and meet other holding period requirements.
A dividend paid in New Israeli Shekel will be included in gross income in a U.S. dollar amount based on the Israeli NIS/U.S. dollar exchange rate in effect on the date the dividend is included in the income of the U.S. Holder, regardless of whether the payment, in fact, is converted into U.S. dollars. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date the dividend payment is included in the gross income of a U.S. Holder through the date that payment is converted into U.S. dollars (or otherwise disposed of) will be treated as U.S. source ordinary income or loss and will not be eligible for the special tax rate applicable to qualified dividend income.
Subject to certain conditions and limitations, any Israeli withholding tax imposed upon distributions which constitute dividends under United States income tax law will be eligible for credit against a U.S. Holder’s federal income tax liability. Alternatively, a U.S. Holder may claim a deduction for such amount, but only for a year in which a U.S. Holder elects to do so with respect to all foreign income taxes. The overall limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends distributed with respect to our ordinary shares will generally constitute “passive income.”
Sale or Exchange of Ordinary Shares. Subject to the discussion in “Passive Foreign Investment Companies” below, a U.S. Holder of ordinary shares generally will recognize capital gain or loss upon the sale or exchange of the ordinary shares measured by the difference between the amount realized and the U.S. Holder’s tax basis in the ordinary shares. Gain or loss will be computed separately for each block of shares sold (shares acquired separately at different times and prices). The deductibility of capital losses is restricted and generally may only be used to reduce capital gains to the extent thereof. However, individual taxpayers generally may deduct annually $3,000 of capital losses in excess of their capital gains.
91
Passive Foreign Investment Company. A foreign corporation generally will be treated as a “passive foreign investment company” (“PFIC”) if, after applying certain “look-through” rules, either (i) 75% or more of its gross income is passive income or (ii) 50% or more of the average value of its assets is attributable to assets that produce or are held to produce passive income. Passive income for this purpose generally includes dividends, interest, rents, royalties and gains from securities and commodities transactions. The look-through rules require a foreign corporation that owns at least 25%, by value, of the stock of another corporation to treat a proportionate amount of assets and income as held or received directly by the foreign corporation. We must make a separate determination each year as to whether we are a PFIC. As a result, our PFIC status may change. The determination of whether or not we are a PFIC depends on the composition of our income and assets, including goodwill, from time to time.
Following the consummation of the HP Transaction, our assets mainly consist of cash and cash equivalents producing passive income. We believe that for fiscal year 2008 we met the requirements set forth in Section 1298(b)(3) of the Internal Revenue Code, providing an exception from the PFIC status for a “change of business” situation. We cannot assure you, however, that the Internal Revenue Service or the courts would agree with our conclusion if they were to consider our situation. Therefore, we cannot assure you that we will not be treated as a PFIC for fiscal year 2008. Furthermore, the exception does not apply unless we don’t expect to be, and we in fact are not, a PFIC for the following two years. Therefore, in the event we meet the definition of a PFIC for fiscal year 2009, and as we cannot use the “change of business” exception for two years in succession, we will be treated as a PFIC for fiscal year 2008 as well. Our status as a PFIC in fiscal year 2009 (and, as a result, in fiscal year 2008 as well) depends on the type of activity we conduct, the assets we hold and the income we generate during 2009.
If we are classified as a PFIC, U.S. Holders who own our ordinary shares during the taxable year in which we become a PFIC generally will be subject to increased U.S. tax liabilities and reporting requirements for that taxable year and all succeeding years, regardless of whether we continue to meet the income or asset test for PFIC status, although shareholder elections may apply in certain circumstances. U.S. Holders should consult their own tax advisors regarding our status as a PFIC and the consequences of investment in a PFIC.
If we are a PFIC for any taxable year during which you hold ordinary shares, you will be subject to special tax rules with respect to any “excess distribution” that you receive and any gain you realize from a sale or other disposition (including a pledge) of the ordinary shares, unless you make a “mark-to-market” election as discussed below. Distributions you receive in a taxable year that are greater than 125% of the average annual distributions you received during the shorter of the three preceding taxable years or your holding period for the ordinary shares will be treated as an excess distribution. Under these special tax rules:
| | (1) | the excess distribution or gain will be allocated ratably over your holding period for the ordinary shares, |
92
| | (2) | the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we were a PFIC, will be treated as ordinary income, and |
| | (3) | the amount allocated to each other year will be subject to tax at the highest tax rate in effect for that year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year. |
The tax liability for amounts allocated to years prior to the year of disposition or “excess distribution” cannot be offset by any net operating losses, and gains (but not losses) realized on the sale of the ordinary shares cannot be treated as capital, even if you hold the ordinary shares as capital assets.
If we are a PFIC, you may not avoid taxation under the rules described above by making a “qualified electing fund” election to include your share of our income on a current basis because we do not presently intend to prepare or provide information necessary to make such election.
Alternatively, a U.S. Holder of “marketable stock” in a PFIC may make a mark-to-market election for stock of a PFIC to elect out of the tax treatment discussed three paragraphs above. If you make a mark-to-market election for the ordinary shares, you will include in income each year an amount equal to the excess, if any, of the fair market value of the ordinary shares as of the close of your taxable year over your adjusted basis in such ordinary shares. You are allowed a deduction for the excess, if any, of the adjusted basis of the ordinary shares over their fair market value as of the close of the taxable year. However, deductions are allowable only to the extent of any net mark-to-market gains on the stock included in your income for prior taxable years. Amounts included in your income under a mark-to-market election, as well as gain on the actual sale or other disposition of the ordinary shares, are treated as ordinary income. Ordinary loss treatment also applies to the deductible portion of any mark-to-market loss on the ordinary shares, as well as to any loss realized on the actual sale or disposition of the ordinary shares, to the extent that the amount of such loss does not exceed the net mark-to-market gains previously included for such ordinary shares. Your basis in the ordinary shares will be adjusted to reflect any such income or loss amounts. The tax rules that apply to distributions by corporations which are not passive foreign investment companies generally would apply to distributions by us.
The mark-to-market election is available only for stock which is regularly traded on a national securities exchange that is registered with the Securities and Exchange Commission or on Nasdaq, or an exchange or market that the U.S. Secretary of the Treasury determines has rules sufficient to ensure that the market price represents a legitimate and sound fair market value. Our ordinary shares are currently quoted on the over-the-counter market in the “Pink Sheets.” As a result of our shares trading on the over-the-counter-market, the mark-to-market election may not be available to you if we were to become a PFIC.
Dividends paid by a PFIC (or by a company that was a PFIC in the year preceding the dividend) are not “qualified dividend income” for purposes of the preferential tax rate on dividends discussed above.
If you hold ordinary shares in any year in which we are a PFIC, you would be required to file Internal Revenue Service Form 8621 regarding distributions received on the ordinary shares and any gain realized on the disposition of the ordinary shares.
93
Taxation of Non-U.S. Holders
Distributions on Ordinary Shares. Distributions made with respect to our ordinary shares to non-U.S. Holders who are not engaged in the conduct of a trade or business within the United States will be subject to United States withholding tax only if 25% or more of our gross income (from all sources for the three-year period ending with the close of the taxable year preceding the declaration of the distribution) was effectively connected with our conduct of a trade or business in the United States. We do not anticipate engaging in the conduct of a trade or business within the United States, except through subsidiaries. However, if the 25% threshold for such period is exceeded, a portion of any distribution paid by us to a non-U.S. Holder could be subject to federal income tax withholding at the rate of 30%; the portion of the distribution that could be subject to withholding would correspond to the portion of our gross income for the period that is effectively connected to its conduct of a trade or business within the United States.
Sale or Exchange of Ordinary Shares. A non-U.S. Holder will not be subject to United States federal income tax on any gain realized upon the sale or exchange of ordinary shares unless (i) the gain is effectively connected with a trade or business in the United States of the non-U.S. Holder, or (ii) the non-U.S. Holder is an individual who was present in the United States for 183 days or more in the taxable year of the disposition and other conditions exist.
United States Business. Dividends and gains that are effectively connected with a Non-U.S. Holder’s conduct of a trade or business in the United States generally will be subject to tax in the same manner as they would be for U.S. Holder. Effectively connected dividends and gains received by a corporate Non-U.S. Holder may also be subject to an additional branch profits tax at a 30% rate or a lower tax treaty rate.
Backup Withholding and Information Reporting
In general, information reporting requirements will apply to dividends in respect of our ordinary shares or the proceeds received on the sale, exchange or redemption of our ordinary shares paid within the United States (and in certain cases, outside the United States) to U.S. Holders other than certain exempt recipients, such as corporations, and backup withholding tax may apply to such amounts if the U.S. Holder fails to provide an accurate taxpayer identification number or to report interest and dividends required to be shown on its U.S. federal income tax returns. The amount of any backup withholding from a payment to a U.S. Holder will be allowed as credit against the U.S. Holder’s U.S. federal income tax liability provided that the appropriate returns are filed.
A Non-U.S. Holder generally may eliminate the requirement for information reporting and backup withholding by providing certification of its foreign status to the payor, under penalties of perjury, on IRS Form W-8BEN.
| F. | Dividends and paying agents |
Not Applicable.
94
Not Applicable.
Any statement in this annual report about any of our contracts or other documents is not necessarily complete. If the contract or document is filed as an exhibit to this or other annual reports or to a registration statement or other documents filed by us, the contract or document is deemed to modify the description contained in this annual report. You must review the exhibits themselves for a complete description of the contract or document.
You may review a copy of our filings with the SEC, including exhibits and schedules, and obtain copies of such materials at the SEC’s public reference room at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W, Washington, D.C. 20549. You may also obtain copies of such materials from the Public Reference Room of the SEC, Room 1580, 100 Street, N.E., Washington, D.C. 20549, at proscribed rates. You may call the SEC at 1-800-SEC-0330 for further information on the public reference room. The SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC.
These SEC filings are also available to the public from commercial document retrieval services.
Not applicable.
ITEM 11: Quantitative and Qualitative Disclosures About Market Risk
Market risks relating to our operations result primarily from weak economic conditions in the markets in which we sell our products and from changes in exchange rates or in interest rates.
Inflation, Deflation and Fluctuation of Currencies
See “Item 5.A: Impact of Inflation, Deflation and Fluctuation of Currencies.”
Interest Rate
As we did not have any outstanding long-term or short-term bank loans as of December 31, 2008, we are not exposed to interest rate variation on liabilities.
Following the consummation of the HP Transaction in February 29, 2008, most of our assets are cash and short-term U.S. dollar-denominated deposits with a U.S. bank. We carefully monitor the banking institutions that we use with respect to their exposure to the current financial market situation. Other than that, the major market risk is currently the potential decline in the U.S. monetary interest rate that would impact our results of operations.
95
We do not otherwise believe the disclosure required by Item 11 of this annual report to be material to us.
ITEM 12: Description of Securities Other Than Equity Securities
Not Applicable.
PART II
ITEM 13: Defaults, Dividend Arrearages and Delinquencies
Not Applicable.
ITEM 14: Material Modifications to the Rights of Security Holders and Use of Proceeds
For the current terms of our Articles, following the adoption of our Second Amended and Restated Articles at our annual general meeting held on December 30, 2008, see “Item 10.B: Memorandum of Association and Second Amended and Restated Articles.” This Item is otherwise not applicable to us.
ITEM 15: Controls and Procedures
(a) Disclosure Controls and Procedures
Our principal executive officer and principal financial officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Such disclosure controls and procedures are designed to ensure that information required to be disclosed by us is accumulated and communicated to the appropriate management, including the principal executive officer and principal financial officer, on a basis that permits timely decisions regarding timely disclosure. Based on that evaluation, such principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.
In order to provide reasonable assurance that the information required to be disclosed by the Company in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms our chief executive officer and chief financial officer preformed several actions intended to assure the correctness of the information disclosed, including personal discussions with employees involved in the recording, processing and summarizing of information required to be disclosed.
96
(b) Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel, 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 and includes those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely protection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
During 2008 management carried out an evaluation of our internal control over financial reporting using the criteria in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In connection with such evaluation, our management assessed the risk and mapped all processes over major classes of transactions that are applicable to our business and situation following the consummation of the HP Transaction. Our management documented these processes and controls and tested and evaluated the design and operating effectiveness of our internal controls over financial reporting.
Based on this assessment, our Interim Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2008, our internal control over financial reporting is effective based on those criteria.
This annual report does not include an attestation report of the company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the company’s registered public accounting firm pursuant to temporary rules of the SEC that permit the company to provide only management’s report in this annual report.
(c) Changes in Internal Control over Financial Reporting
Other than as set forth above, there were no changes in our internal control over financial reporting that occurred during the year ended December 31, 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 16: Reserved
ITEM 16A: Audit Committee Financial Expert
In March 2004, our Board determined that it has at least one Audit Committee financial expert, as defined in Item 16A of Form 20-F, serving on the Audit Committee. Lauri A. Hanover has been designated as the Audit Committee financial expert and was also determined to be “independent” under the applicable SEC and Nasdaq regulations. For additional information regarding Lauri A. Hanover’s financial experience, see “Item 6: Directors and Senior Management.”
97
ITEM 16B: Code of Ethics
Our Audit Committee and Board have adopted a code of ethics, as defined in Item 16B of Form 20-F, that applies to our chief executive officer, chief financial officer and any other person bearing the title of vice president or higher in the Finance Department of Ellomay and its subsidiaries. A copy of the code of ethics has been filed as an exhibit to our annual report on Form 20-F for the year ended December 31, 2003.
There are no material modifications to, or waivers from, the provisions of the code of ethics that are required to be disclosed.
ITEM 16C: Principal Accountant Fees and Services
Fees paid to the Independent Registered Public Accounting Firm
Our principal accountants for the years 2007 and 2008 were Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global.
The following table sets forth, for each of the years indicated, the fees paid to our independent registered public accounting firm.
| 2007 | 2008 |
|---|
| (in thousands of U.S. Dollars) |
|---|
| | | |
|---|
| | |
|---|
| | |
|---|
| Audit Fees(1) | | | $ | 242 | | $ | 79 | |
| Audit-Related Fees | | | | - | | | - | |
| Tax Fees(2) | | | $ | 157 | | $ | 177 | |
| All Other Fees | | | | - | | | - | |
|
| |
| |
| Total | | | $ | 399 | | $ | 256 | |
| (1) | Professional services rendered by our independent registered public accounting firm for the audit of our annual financial statements or services that are normally provided by the accountants in connection with statutory and regulatory filings or engagements. |
| (2) | Professional services rendered by our independent registered public accounting firm for international and local tax compliance and tax advice services. |
Audit Committee’s pre-approval policies and procedures
Our Audit Committee nominates and engages our registered public accounting firm to audit our financial statements. See also the description under the heading in “Item 6.C: Board Practices.” In July 2003, our Audit Committee also adopted a policy requiring management to obtain the Audit Committee’s approval before engaging our independent auditors worldwide to provide any other audit or permitted non-audit services to us. Pursuant to this policy, which is designed to assure that such engagements do not impair the independence of our auditors, the Audit Committee pre-approves annually a catalog of specific audit and non-audit services in the categories audit service, audit-related service and tax services that may be performed by our auditors.
98
ITEM 16D: Exemptions from the Listing Standards for Audit Committees
Not Applicable.
ITEM 16E: Purchase of Equity Securities by the Company and Affiliated Purchasers
Not Applicable.
ITEM 16F: Change in Registrant’s Certifying Accountants
Not Applicable.
ITEM 16G: Corporate Governance
Not Applicable.
PART III
ITEM 17: Financial Statements
Not Applicable.
ITEM 18: Financial Statements
See Financial Statements included at the end of this report.
ITEM 19: Exhibits
| 1.1 | | Memorandum of Association of the Registrant (translated from Hebrew)(1) |
| 1.2 | | Second Amended and Restated Articles of the Registrant |
| 2.1 | | Specimen Certificate for ordinary shares(2) |
| 2.2 | | Form of Warrant Agreement, dated February 12, 2002, between the Registrant and Bank Leumi le-Israel B.M.(3) |
| 2.3 | | Form of Registration Rights Agreement, dated February 12, 2002, between the Registrant and Bank Leumi le-Israel B.M.(3) |
| 2.4 | | Form of Warrant Agreement, dated April 17, 2005 between the Registrant and Dan Purjes(4) |
| 2.5 | | Form of Registration Rights Agreement, dated March 7, 2005, between the Registrant and Dan Purjes(5) |
99
| 2.6 | | Form of Warrant Agreement, dated October 31, 2005, among the Registrant and certain investors(6) |
| 2.7 | | Form of Registration Rights Agreement, dated September 12, 2005, among the Registrant, certain investors, Bank Hapoalim, Bank Leumi and Israel Discount Bank(6) |
| 2.8 | | Form of Warrant Agreement, dated December 8, 2005, between the Registrant and Bank Hapoalim B.M.(6) |
| 2.9 | | Form of Warrant Agreement, dated December 8, 2005, between the Registrant and Bank Leumi le-Israel B.M.(6) |
| 2.10 | | Form of Warrant Agreement, dated December 8, 2005, between the Registrant and Israel Discount Bank Ltd.(6) |
| 2.11 | | Form of Subscription Agreement, dated January 25, 2007, between the Registrant and certain investors(7) |
| 2.12 | | Form of Warrant Agreement, dated January 25, 2007, between the Registrant and certain investors(7) |
| 4.1 | | 1995 Israel Stock Option Plan (previously referred to in Company filings as the 1995 Flexible Stock Incentive Plan or the 1995 Stock Option / Stock Purchase Plan)(2) |
| 4.2 | | Amendment to the 1995 Israel Stock Option Plan(8) |
| 4.3 | | 1997 Stock Option Plan(9) |
| 4.4 | | 1998 Non-Employee Directors Share Option Plan(7) |
| 4.5 | | 2000 Stock Option Plan(7) |
| 4.6 | | Form of Indemnification Agreement between the Registrant and its officers and directors(6) |
| 4.7 | | Asset Purchase Agreement, dated December 9, 2007, between the Registrant and Hewlett-Packard Company(10) |
| 4.8 | | Management Services Agreement, by and among the Registrant, Kanir Joint Investments (2005) Limited Partnership and Meisaf Blue & White Holdings Ltd., effective as of March 31, 2008(11) |
| 4.9 | | Form of Offer to Repurchase Employee Stock Options, dated April 2, 2008(12) |
| 8 | | List of Subsidiaries of the Registrant (Not Applicable) |
| 12.1 | | Certification of Principal Executive Officer required by Rule 13a-14(a) and Rule 15d-14(a) (Section 302 Certification) |
| 12.2 | | Certification of Principal Financial Officer required by Rule 13a-14(a) and Rule 15d-14(a) (Section 302 Certification) |
| 13 | | Certification of Principal Executive Officer and Principal Financial Officer required by Rule 13a-14(b) and Rule 15d-14(b) (Section 906 Certification) |
| 14.1 | | Consent of Kost Forer Gabbay & Kasierer |
| 14.2 | | Consent of BDO McCabe Lo Limited |
100
| (1) | Previously filed with the Registrant's Form 20-F for the year ended December 31, 2007 and incorporated by reference herein. |
| (2) | Previously filed with the Registrant's F-1 (File No. 33-93160) and incorporated by reference herein. |
| (3) | Previously filed with the Registrant's Form 20-F for the year ended December 31, 2001 and incorporated by reference herein. |
| (4) | Previously filed with the Registrant's Form 6-K dated February 6, 2005 and incorporated by reference herein. |
| (5) | Previously filed with the Registrant's Form 20-F for the year ended December 31, 2004 and incorporated by reference herein. |
| (6) | Previously filed with the Registrant's Form 6-K dated October 14, 2005 and incorporated by reference herein. |
| (7) | Previously filed with the Registrant's Form 20-F for the year ended December 31, 2006 and incorporated by reference herein. |
| (8) | Previously filed with the Registrant's Form F-1 (File No. 333-66103) and incorporated by reference herein. |
| (9) | Previously filed with the Registrant's Form 6-K dated October 14, 1997 and incorporated by reference herein. |
| (10) | Previously filed with the Registrant's Form 6-K dated January 3, 2008 and incorporated by reference herein. |
| (11) | Previously filed with the Registrant's Form 6-K dated December 1, 2008 and incorporated by reference herein. |
| (12) | Previously filed with the Registrant's Form CB dated April 3, 2008 and incorporated by reference herein. |
| (13) | Previously filed with the Registrant's Form 20-F for the year ended December 31, 2003 and incorporated by reference herein. |
101
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
| | Ellomay Capital Ltd.
By: /s/Ran Fridrich
——————————————
Ran Fridrich
Interim Chief Executive Officer |
Dated: March 31, 2009
102
ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2008
IN U. S. DOLLARS
INDEX
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
ELLOMAY CAPITAL LTD.
We have audited the accompanying consolidated balance sheets of Ellomay Capital Ltd. (“the Company”) and its subsidiaries as of December 31, 2007 and 2008 and the related consolidated statements of income (operations), changes in shareholders’ equity (deficiency) and cash flows for each of the three years in the period ended December 31, 2008. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of a consolidated subsidiary, whose assets constitute 7% of total consolidated assets as of December 31, 2007 and whose revenues constitute 8% and 8% of total consolidated revenues for the years ended December 31, 2006 and 2007, respectively. Those financial statements were audited by another auditor, whose report has been furnished to us, and our opinion, insofar as it relates to amounts included for this subsidiary, is based solely on the report of the other auditor.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration 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 examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits and the report of the other auditor provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditor, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company and its subsidiaries at December 31, 2007 and 2008 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2008, in conformity with U.S. generally accepted accounting principles.
As discussed in Note 2o to the consolidated financial statements, the Company adopted the provisions of Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”, on January 1, 2007.
| |
| /s/ Kost Forer Gabbay & Kasierer |
Tel-Aviv, Israel | KOST FORER GABBAY & KASIERER |
March 31, 2009 | A Member of Ernst & Young Global |
F - 2
| |
| ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES |
| |
CONSOLIDATED BALANCE SHEETS |
|
U.S. dollars in thousands |
| | December 31, | |
| |
| |
| | 2007 | | 2008 | |
| |
| |
| |
|
ASSETS | | | | | | | |
|
CURRENT ASSETS: | | | | | | | |
Cash and cash equivalents | | $ | 4,302 | | $ | 26,979 | |
Short term deposits | | | – | | | 49,000 | |
Restricted cash | | | 146 | | | – | |
Trade receivables (net of allowance for doubtful accounts of $ 4,851 and $ 0 at December 31, 2007, 2008, respectively) | | | 15,670 | | | – | |
Other accounts receivable and prepaid expenses (Note 3) | | | 4,425 | | | 2,151 | |
Inventories (Note 5) | | | 20,091 | | | – | |
| |
| |
| |
| | | | | | | |
Total current assets | | | 44,634 | | | 78,130 | |
| |
| |
| |
| | | | | | | |
LONG-TERM ASSETS: | | | | | | | |
Severance pay fund | | | 1,275 | | | 54 | |
Other assets | | | 474 | | | 94 | |
| |
| |
| |
| | | | | | | |
Total long-term assets | | | 1,749 | | | 148 | |
| |
| |
| |
| | | | | | | |
PROPERTY, PLANT AND EQUIPMENT, NET (Note 6) | | | 5,944 | | | – | |
| |
| |
| |
| | | | | | | |
Total assets | | $ | 52,327 | | $ | 78,278 | |
| |
| |
| |
The accompanying notes are an integral part of the consolidated financial statements.
F - 3
| |
| ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES |
| |
CONSOLIDATED BALANCE SHEETS |
|
U.S. dollars in thousands(except share and per share data) |
| |
| | December 31, | |
| |
| |
| | 2007 | | 2008 | |
| |
| |
| |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIENCY) | | | | | | | |
| | | | | | | |
CURRENT LIABILITIES: | | | | | | | |
Short-term bank credit and loans (including subordinated notes issued to related parties of $ 5,000 at December 31, 2007) (Note 8) | | $ | 13,962 | | $ | – | |
Current maturities of long-term loans (Note 9) | | | 649 | | | – | |
Trade payables | | | 21,388 | | | 37 | |
Deferred revenues | | | 2,434 | | | – | |
Other accounts payable and accrued expenses (Note 10) | | | 10,983 | | | 1,974 | |
| |
| |
| |
| | | | | | | |
Total current liabilities | | | 49,416 | | | 2,011 | |
| |
| |
| |
| | | | | | | |
LONG-TERM LIABILITIES: | | | | | | | |
Long-term loans, net of current maturities (including accrued interest on restructured debt of $ 7,567 at December 31, 2007) (Note 9) | | | 19,835 | | | – | |
Other long-term liabilities (Note 11, Note 15c) | | | 3,618 | | | 5,279 | |
Accrued severance pay | | | 1,637 | | | 59 | |
| |
| |
| |
| | | | | | | |
Total long-term liabilities | | | 25,090 | | | 5,338 | |
| |
| |
| |
| | | | | | | |
COMMITMENTS AND CONTINGENT LIABILITIES (Note 12) | | | | | | | |
| | | | | | | |
SHAREHOLDERS’ EQUITY (DEFICIENCY) (Note 14): | | | | | | | |
Share capital - | | | | | | | |
Ordinary shares of NIS 1 par value: | | | | | | | |
Authorized: 170,000,000 at December 31, 2007 and 2008; Issued and
outstanding: 72,710,505 and 73,786,428 shares at December 31, 2007 and 2008, respectively | | | 16,522 | | | 16,820 | |
Additional paid-in capital | | | 66,328 | | | 72,289 | |
Accumulated other comprehensive income | | | 127 | | | – | |
Accumulated deficit | | | (105,156 | ) | | (18,180 | ) |
| |
| |
| |
| | | | | | | |
Total shareholders’ equity (deficiency) | | | (22,179 | ) | | 70,929 | |
| |
| |
| |
| | | | | | | |
Total liabilities and shareholders’ equity (deficiency) | | $ | 52,327 | | $ | 78,278 | |
| |
| |
| |
The accompanying notes are an integral part of the consolidated financial statements.
F - 4
| ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES |
| |
CONSOLIDATED STATEMENTS OF INCOME (OPERATIONS) |
|
U.S. dollars in thousands (except share and per share data) |
| |
| | | | | | | | | | |
| | Year ended December 31, | |
| |
| |
| | 2006 | | 2007 | | 2008 | |
| |
| |
| |
| |
| | | | | | | | | | | |
Revenues (Note 17): | | | | | | | | | | |
Products | | $ | 72,576 | | $ | 80,228 | | $ | 10,568 | |
Services | | | 5,392 | | | 5,379 | | | 842 | |
| |
| |
| |
| |
| | | | | | | | | | |
Total revenues | | | 77,968 | | | 85,607 | | | 11,410 | |
| |
| |
| |
| |
| | | | | | | | | | |
Cost of revenues: | | | | | | | | | | |
Products (a) | | | 43,060 | | | 46,549 | | | 7,927 | |
Inventory write-off | | | 806 | | | 1,169 | | | 197 | |
| |
| |
| |
| |
| | | | | | | | | | |
| | | 43,866 | | | 47,718 | | | 8,124 | |
Services | | | 7,379 | | | 8,759 | | | 2,862 | |
| |
| |
| |
| |
| | | | | | | | | | |
Total cost of revenues | | | 51,245 | | | 56,477 | | | 10,986 | |
| |
| |
| |
| |
| | | | | | | | | | |
Gross profit | | | 26,723 | | | 29,130 | | | 424 | |
| |
| |
| |
| |
| | | | | | | | | | |
Operating expenses: | | | | | | | | | | |
Research and development, net (Note 18a) | | | 5,827 | | | 7,046 | | | 1,942 | |
Selling and marketing | | | 11,747 | | | 13,815 | | | 3,075 | |
Doubtful accounts expenses (income) | | | (314 | ) | | 942 | | | 368 | |
General and administrative | | | 9,803 | | | 11,129 | | | 9,830 | |
Amortization of other intangible assets | | | 167 | | | 42 | | | – | |
| |
| |
| |
| |
| | | | | | | | | | |
Total operating expenses | | | 27,230 | | | 32,974 | | | 15,215 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Operating loss | | | (507 | ) | | (3,844 | ) | | (14,791 | ) |
| Gain on sale of Company’s business, net | | | – | | | – | | | 95,137 | |
Financial income (expenses), net (Note 18b) | | | (1,316 | ) | | (1,738 | ) | | 7,596 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Income (loss) before taxes on income | | | (1,823 | ) | | (5,582 | ) | | 87,942 | |
Taxes on income (Note 15e) | | | 98 | | | 838 | | | 966 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Net income (loss) | | $ | (1,921 | ) | $ | (6,420 | ) | $ | 86,976 | |
| | |
| |
| |
| |
| | | | | | | | | | | |
| Basic earnings (loss) per share | | $ | (0.03 | ) | $ | (0.09 | ) | $ | 1.19 | |
| | |
| |
| |
| |
| Diluted earnings (loss) per share | | $ | (0.03 | ) | $ | (0.09 | ) | $ | 1.01 | |
| | |
| |
| |
| |
| | | | | | | | | | |
Weighted average number of shares used for computing basic earnings (loss) per share
| | | 60,506,854 | | | 71,537,501 | | | 72,972,565 | |
| |
| |
| |
| |
| | | | | | | | | | |
Weighted average number of shares used for computing diluted earnings (loss) per share | | | 60,506,854 | | | 71,537,501 | | | 86,102,748 | |
| |
| |
| |
| |
| | |
| (a) | Includes rent expenses charged by a related party totaling $ 248, $ 372 and $ 62 for the years ended December 31, 2006, 2007 and 2008, respectively. |
The accompanying notes are an integral part of the consolidated financial statements.
F - 5
| |
| ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES |
| |
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIENCY) |
|
U.S. dollars in thousands (except share data) |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Number of
Ordinary
shares
outstanding | | Share
capital | | Additional
paid-in
capital | | Receivables
on account
of shares | | Receipts on
account of
shares | | Accumulated
other
comprehensive
loss | | Accumulated
deficit | | Total
comprehensive
loss | | Total
shareholders’
deficiency | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
|
Balance as of January 1, 2006 | | | 60,498,062 | | $ | 13,629 | | $ | 60,582 | | $ | (7,000 | ) | $ | (77 | ) | $ | (490 | ) | $ | (94,198 | ) | | | | $ | (27,554 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Issuance of shares and warrants held by trustee | | | – | | | – | | | – | | | 7,000 | | | – | | | – | | | – | | | | | | 7,000 | |
| Stock - based compensation | | | – | | | – | | | 1,426 | | | – | | | – | | | – | | | – | | | | | | 1,426 | |
Reclassification of deferred compensation to additional paid in capital upon adoption of SFAS 123R | | | – | | | – | | | (77 | ) | | – | | | 77 | | | – | | | – | | | | | | – | |
Compensation in connection with modifications of option | | | – | | | – | | | 23 | | | – | | | – | | | – | | | – | | | | | | 23 | |
Exercise of stock options | | | 25,824 | | | 6 | | | 2 | | | – | | | – | | | – | | | – | | | | | | 8 | |
Comprehensive loss: | | | | | | | | | | | | | | | | | | – | | | | | | | | | | |
Net loss | | | – | | | – | | | – | | | – | | | – | | | – | | | (1,921 | ) | $ | (1,921 | ) | | (1,921 | ) |
Foreign currency translation adjustments | | | – | | | – | | | – | | | – | | | – | | | 15 | | | – | | | 15 | | | 15 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Total comprehensive loss | | | | | | | | | | | | | | | | | | | | | | | $ | (1,906 | ) | | | |
| | | | | | | | | | | | | | | | | | | | | | |
|
| | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2006 | | | 60,523,886 | | | 13,635 | | | 61,956 | | | – | | | – | | | (475 | ) | | (96,119 | ) | | | | | (21,003 | ) |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| | | | |
|
| |
The accompanying notes are an integral part of the consolidated financial statements.
F - 6
| |
| ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES |
| |
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIENCY) |
|
U.S. dollars in thousands (except share data) |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | Number of
Ordinary
Shares
outstanding | | Share
capital | | Additional
paid-in
capital | | Accumulated
other
comprehensive
income (loss) | | Accumulated
deficit | | Total
comprehensive
income (loss) | | Total
shareholders’
equity (deficiency) | |
| |
| |
| |
| |
| |
| |
| |
| |
| | | | | | | | | | | | | | | | | | | | | | |
Balance as of January 1, 2007 | | | 60,523,886 | | | 13,635 | | | 61,956 | | | (475 | ) | | (96,119 | ) | | – | | | (21,003 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
Issuance of shares and warrants, net | | | 11,734,950 | | | 2,774 | | | 3,303 | | | – | | | – | | | – | | | 6,077 | |
Stock - based compensation | | | – | | | – | | | 1,003 | | | – | | | – | | | – | | | 1,003 | |
Exercise of stock options | | | 451,669 | | | 113 | | | 66 | | | – | | | – | | | – | | | 179 | |
Cumulative effect adjustment upon adoption of FIN 48 | | | – | | | – | | | – | | | – | | | (2,617 | ) | | – | | | (2,617 | ) |
Comprehensive loss: | | | | | | | | | | | | | | | | | | | | | | |
Net loss | | | – | | | – | | | – | | | – | | | (6,420 | ) | $ | (6,420 | ) | | (6,420 | ) |
Foreign currency translation adjustments | | | – | | | – | | | – | | | 602 | | | – | | | 602 | | | 602 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Total comprehensive loss | | | | | | | | | | | | | | | | | $ | (5,818 | ) | | | |
| | | | | | | | | | | | | | | | |
|
| | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2007 | | | 72,710,505 | | | 16,522 | | | 66,328 | | | 127 | | | (105,156 | ) | | | | | (22,179 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Stock - based compensation | | | – | | | – | | | 2,196 | | | – | | | – | | | – | | | 2,196 | |
| Exercise of warrants | | | 1,065,923 | | | 295 | | | 215 | | | – | | | – | | | – | | | 510 | |
| Exercise of stock options | | | 10,000 | | | 3 | | | 1 | | | – | | | –- | | | – | | | 4 | |
Repurchase of employee stock options | | | – | | | – | | | (1,451 | ) | | – | | | – | | | – | | | (1,451 | ) |
Cancellation of a subordinated note to related parties | | | – | | | – | | | 5,000 | | | – | | | – | | | – | | | 5,000 | |
Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | |
Net income | | | – | | | – | | | – | | | – | | | 86,976 | | $ | 86,976 | | | 86,976 | |
Realization of foreign currency translation, net | | | | | | | | | | | | (127 | ) | | | | | (127 | ) | | (127 | ) |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Total comprehensive income | | | | | | | | | | | | | | | | | $ | 86,849 | | | | |
| | | | | | | | | | | | | | | | |
|
| | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2008 | | | 73,786,428 | | $ | 16,820 | | $ | 72,289 | | $ | – | | $ | (18,180 | ) | | | | $ | 70,929 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| | | | |
|
| |
The accompanying notes are an integral part of the consolidated financial statements.
F - 7
| |
| ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES |
| |
CONSOLIDATED STATEMENTS OF CASH FLOWS |
|
U.S. dollars in thousands |
| | | | | | | | | | |
| | Year ended December 31, | |
| |
| |
| | 2006 | | 2007 | | 2008 | |
| |
| |
| |
| |
| | | | | | | | | | | |
Cash flows used in operating activities: | | | | | | | | | | |
| | | | | | | | | | |
Net income (loss) | | $ | (1,921 | ) | $ | (6,420 | ) | $ | 86,976 | |
Adjustments to reconcile net income (loss) to net cash used in
operating activities: | | | | | | | | | | |
Gain from sale of Company’s business | | | – | | | – | | | (95,137 | ) |
Depreciation and amortization | | | 1,341 | | | 1,387 | | | 256 | |
Amortization of other intangible assets | | | 167 | | | 42 | | | – | |
Compensation in connection with modifications of options | | | 23 | | | – | | | – | |
Stock – based compensation | | | 1,426 | | | 1,003 | | | 2,196 | |
Foreign currency translation loss (gain) on inter company
balances with foreign subsidiaries | | | (499 | ) | | (453 | ) | | 109 | |
Currency fluctuation of long-term debt | | | 212 | | | 115 | | | 24 | |
Amortization of accrued interest on restructured debt | | | – | | | – | | | (7,335 | ) |
Accrued severance pay, net | | | 16 | | | 14 | | | (405 | ) |
Decrease (increase) in trade receivables, net | | | (2,442 | ) | | (4,661 | ) | | 4,812 | |
Decrease (increase) in other accounts receivable and
prepaid expenses | | | 1,470 | | | (1,831 | ) | | 1,103 | |
Increase in inventories | | | (4,347 | ) | | (4,478 | ) | | (2,768 | ) |
Write-off of inventories | | | 806 | | | 1,169 | | | 197 | |
Increase in other assets | | | (23 | ) | | (111 | ) | | (26 | ) |
Increase in trade payables | | | 1,494 | | | 9,833 | | | 2,192 | |
Increase (decrease) in deferred revenues | | | (2,628 | ) | | 170 | | | 718 | |
Decrease in other accounts payable and accrued expenses | | | (1,592 | ) | | (726 | ) | | (3,735 | ) |
Increase in other long-term liability | | | – | | | 811 | | | 1,661 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Net cash used in operating activities | | | (6,497 | ) | | (4,136 | ) | | (9,162 | ) |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Cash flows used in investing activities: | | | | | | | | | | |
| | | | | | | | | | |
Proceeds from (investment in) restricted cash | | | 41 | | | (29 | ) | | 146 | |
Investment in short-term bank deposit | | | – | | | – | | | (49,000 | ) |
Purchase of property and equipment | | | (1,648 | ) | | (1,170 | ) | | (148 | ) |
Proceeds from sale of the Company’s business, net (Note 1b) | | | – | | | – | | | 103,554 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Net cash provided by (used in) investing activities | | | (1,607 | ) | | (1,199 | ) | | 54,552 | |
| |
|
| |
|
| |
|
| |
The accompanying notes are an integral part of the consolidated financial statements.
F - 8
| |
| ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES |
| |
CONSOLIDATED STATEMENTS OF CASH FLOWS |
|
U.S. dollars in thousands |
| | | | | |
| | | | Year ended December 31, | |
| | | |
| |
| | | | 2006 | | 2007 | | 2008 | |
| | | |
| |
| |
| |
| | | | | | | | | | | | |
| Cash flows from financing activities: | | | | | | | | | | | |
| | | | | | | | | | | | |
| Proceeds from issuance of shares and warrants, net | | | | 7,000 | | | 6,077 | | | – | |
| Proceeds from exercise of options and warrants | | | | 8 | | | 179 | | | 514 | |
| Repurchase of employee stock option | | | | – | | | – | | | (1,451 | ) |
| Short-term bank credit and short-term loans, net | | | | (1,810 | ) | | (66 | ) | | (8,960 | ) |
| Payment of long-term loans, including interest on restructured debt | | | | (1,561 | ) | | (1,608 | ) | | (12,344 | ) |
|
| |
| |
| |
| | | | | | |
| Net cash provided by (used in) financing activities | | | | 3,637 | | | 4,582 | | | (22,241 | ) |
|
| |
| |
| |
| | | | | | |
| Effect of exchange rate changes on cash and cash equivalents | | | | 39 | | | 187 | | | (472 | ) |
|
| |
| |
| |
| | | | | | |
| Increase (decrease) in cash and cash equivalents | | | | (4,428 | ) | | (566 | ) | | 22,677 | |
| Cash and cash equivalents at the beginning of the year | | | | 9,296 | | | 4,868 | | | 4,302 | |
|
| |
| |
| |
| | | | | | |
| Cash and cash equivalents at the end of the year | | | $ | 4,868 | | $ | 4,302 | | $ | 26,979 | |
|
| |
| |
| |
| | | | | | | | | | | | |
|---|
| (1) Supplemental disclosure of cash flows activities: | | | | | | | | | | | |
| Cash paid during the year for: | | | | | | | | | | |
| | | | | | | | | | | | |
| Interest | | | $ | 1,407 | | $ | 1,524 | | $ | 527 | |
|
| |
| |
| |
| | | | | | | |
| Taxes | | | $ | – | | $ | 96 | | $ | – | |
|
| |
| |
| |
| | | |
| (2) Supplemental disclosure of non-cash investing activities: | | |
| | | |
Transfer of equipment from inventory to property, plant and
equipment | | | $ | 687 | | $ | 227 | | $ | 443 | |
|
| |
| |
| |
| | | | | | | | | | | | |
| Proceeds to be received from HP (see Note 1b) | | | $ | – | | $ | – | | $ | 1,183 | |
|
| |
| |
| |
The accompanying notes are an integral part of the consolidated financial statements.
F - 9
| |
| ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES |
| |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
U.S. dollars in thousands (except share and per share data) |
NOTE 1:- GENERAL
| a. | Ellomay Capital Ltd. (the “Company”) (formerly: NUR Macroprinters Ltd.), an Israeli Company, is a shell company whose current plan of operations is to identify and evaluate suitable business opportunities and strategic alternatives, including through the acquisition of all or part of an existing business, pursuing business combinations or otherwise. Until February 29, 2008, the Company and its subsidiaries (collectively, the “Group”) developed, manufactured, sold and provided support services for digital wide format and super-wide format printing systems for on-demand, short-run printing as well as related consumable products. |
| | |
| | Until February 29, 2008, the Company operated through wholly-owned subsidiaries for sales, support services and marketing of the Company’s products in their country or region of domicile, some of which were sold to HP and some of which have been dissolved during 2008. Such entities include NUR Europe S.A. (“NUR Europe”) in Belgium (sold to HP), NUR America, Inc. (“NUR America”) in the U.S. (dissolved in 2008), NUR Asia Pacific Limited (“NUR Asia Pacific”) in Hong Kong, NUR Do Brazil Ltda. (“NUR Brazil”) in Brazil (sold to HP) and NUR Japan Ltd. (“NUR Japan”) in Japan (sold to HP). |
| |
| b. | On December 9, 2007, the Company entered into an Asset Purchase Agreement (“the Agreement”) with Hewlett-Packard Company (“HP”) for the sale of its business to HP (the “HP Transaction”). The Agreement contemplated the sale of substantially all of the assets and liabilities relating to the business with the exception of specific assets and liabilities as defined in the Agreement. In connection with the Agreement, HP also agreed to acquire three of the Company’s subsidiaries, NUR Europe S.A., a company organized pursuant to the laws of Belgium, NUR Japan Ltd., a company organized pursuant to the laws of Japan and NUR Do Brazil Ltda., a company organized pursuant to the laws of Brazil. In addition to the transfer of the assets, liabilities and the shares of the aforementioned subsidiaries, one of the conditions to the consummation of the HP Transaction was the transfer of approximately 80% of the Company’s employees to HP and HP’s subsidiaries. The HP Transaction was completed and all included assets, liabilities and employees were transferred from the Company and its subsidiaries to HP and several of its subsidiaries on February 29, 2008 (the “Closing Date”). As of the Closing Date, the carrying value of assets and liabilities sold to HP was as follows: |
| | |
| | | | | |
| | | February 29,
2008 (*)
| |
| | |
| |
| | | | | | |
| Cash | | $ | 2,883 | |
| | Trade receivables, net | | | 11,207 | |
| Other accounts receivable and prepaid expenses | | | 2,569 | |
| Inventories | | | 22,454 | |
| Severance pay fund | | | 1,073 | |
| Other assets | | | 406 | |
| | Property, plant and equipment, net | | | 6,258 | |
| Realization of foreign currency translation adjustments | | | (237 | ) |
| | |
|
| |
| | | | | |
| Total assets | | | 46,613 | |
| | |
|
| |
| | | | | |
| Trade payables | | | 23,589 | |
| | Other accounts payable and accrued expenses | | | 5,406 | |
| Deferred revenues | | | 3,204 | |
| Accrued severance pay | | | 1,025 | |
| Long term loans, including current maturities | | | 831 | |
| | |
|
| |
| | | | | |
| Total liabilities | | | 34,055 | |
| | |
|
| |
| | | | | |
| Net assets sold | | $ | 12,558 | |
| | |
|
| |
| | | |
| | (*) | Reflects the amendment following the Closing Date with respect to NUR Europe’s facilities and related capital lease. |
F - 10
| |
| ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES |
| |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
U.S. dollars in thousands (except share and per share data) |
NOTE 1:- GENERAL (Cont.)
| | On February 29, 2008, the sale of our business to HP was finalized. The base purchase price pursuant to the agreement is $ 117,500. The purchase price was subject to upward or downward adjustment based on the net debt (bank debt less cash balances) of the Company and its subsidiaries that were not purchased by HP as of the Closing Date. The purchase price adjustment on such date was approximately $ 4,000, increasing the total consideration under the Asset Purchase Agreement from $ 117,500 to $ 121,500. Following the Closing Date, the parties reached a mutual resolution to assign NUR Europe’s facilities and related capital lease to a third party. Therefore, the Company was entitled to additional net proceeds (after deduction of HP’s expenses in connection with such capital lease and other expenses that were to be borne by the Company pursuant to the Asset Purchase Agreement) in the amount of $ 1,100 as additional consideration for NUR Europe’s shares, increasing the aggregate consideration in connection with the HP Transaction to $ 122,600. Of the total consideration: |
| |
| 1. | $ 103,900 was transferred to the Company on the Closing Date. |
| | |
| 2. | $ 1,600 was withheld by HP until final calculation of the net debt at closing. Based on the final net debt calculation the Company was entitled only to an amount of $ 1,504, which was transferred to the Company on July 30, 2008. |
| | |
| 3. | $ 1,500 was withheld by HP until the resolution of NUR Europe’s obligations with respect to its capital lease and Government grants. Of the $ 1,500 withheld, an amount of $ 1,000 was transferred to the Company on December 2, 2008 as a result of the assignment of NUR Europe’s facilities and related capital lease to a third party. The $ 500 withheld in connection with NUR Europe’s obligations with respect to the government grants is still being held by HP. |
| | |
| 4. | Of the additional proceeds in the amount of $ 1,100 related to NUR Europe’s facilities, a total amount of $ 400 was transferred to the Company on December 18, 2008 and an additional amount of approximately $ 700 was transferred to the Company on March 13, 2009. |
| | |
| 5. | The remaining $ 14,500 was deposited into an escrow account to secure the indemnity obligations of the Company and its remaining subsidiaries. The escrow funds, net of amounts distributed to HP in satisfaction of indemnity obligations, are to be distributed to the Company in two installments: $ 9,500 is to be distributed eighteen months following the Closing Date and $ 5,000 is to be distributed twenty-four months following the Closing Date. Due to the lack of clarity as to the outcome and scope of indemnification to be requested by HP, the escrow funds were not recorded as a receivable and were excluded from the calculation of the capital gain. |
| | |
| | In 2008, the Company recorded a gain (before taxes) of $ 95,137 with respect to the HP Transaction. |
| |
| | Assets and liabilities excluded from the Agreement, as amended, included, but were not limited to: cash balances held by the Company and subsidiaries that were not purchased by HP, short and long term bank credit and loans, all costs incurred in respect to the HP Transaction including severance liabilities, rights and obligations in respect to employees not transferred to HP, rights and obligations related to outstanding litigation, claims and disputes, intercompany balances, all tax benefits and obligations with the exception of such benefits and obligations relating to continuing operations from the Closing Date, assets and obligations in respect of certain government-supported research and development projects and obligations due to or from shareholders. |
F - 11
| |
| ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES |
| |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
U.S. dollars in thousands (except share and per share data) |
NOTE 1:- GENERAL (Cont.)
| | As part of the Agreement, the Company agreed to change its corporate name. The Company’s name was changed to Ellomay Capital Ltd. in April 2008. In addition, the Company agreed not to solicit any former employees who were transferred to HP or to engage in any business engaged directly in the same business as conducted by the Company at closing, both for a period of three years following the Closing Date. |
| |
| In connection with the HP Transaction, the Company’s Board of Directors approved the acceleration of the vesting of all outstanding employee stock options following the Closing Date and the repurchase, subject to the fulfillment of regulatory requirements, of the then outstanding employee stock options, representing, in the aggregate, rights to purchase approximately 9.9 million ordinary shares of the Company. The aggregate consideration for such employee stock options was approximately $ 3,800. Of the total aggregate consideration, approximately $ 3,100 was paid in July 2008 and an additional payment, up to the aggregate amount, will be calculated after all HP Transaction related issues and other financial aspects of the Company are known and verified and will be paid following the release of the funds deposited in escrow. The Company recorded an accrual in the amount of $ 414 with respect to its future liability, which is included within other accounts payable and accrued expenses. |
| |
| Upon closing of the HP Transaction, the acceleration resulted in full recognition of the remaining unrecognized compensation costs of $ 2,187. The repurchase was accounted for as a settlement in accordance with SFAS No. 123 (revised 2004), “Share-Based Payment” and the amount paid in excess of the fair value of the options repurchased was recognized as additional compensation cost of $1,610 in the statements of operations. |
| |
| In connection with the HP Transaction, the Company’s Board of Directors also approved the payment of transaction bonuses to certain employees in the aggregate amount of approximately $ 700 and established that, subject to the aforementioned determination and verification of all transaction related issues and other financial aspects of the Company, additional bonuses may be paid to certain employees, based on criteria, amounts and percentages pre-determined by the Board. The amount of $ 700 was paid during 2008 and was recorded as expense. In addition, the Company recorded a liability for the additional transaction bonuses in the amount of $ 35. |
| |
| | As a result of the HP Transaction and the cessation of virtually all operations, a majority of the Company’s employees that have not transferred to HP, including the majority of the Company’s senior management, have been terminated by the Company. In connection with such terminations, the Company recorded severance-related expenses in the approximate amount of $ 2,800. |
| |
| | In March 2008, following the consummation of the HP Transaction, the Company fully repaid its short-term debt to its lender banks (the “Banks”) in the amount of $9,800. In April 2008, it fully repaid outstanding long-term debt to its banks in the amount of $12,100. In May 2008, a $ 5,000 subordinated note due to a related party was cancelled effective as of March 30, 2008. In connection with the cancellation of the subordinated note, the Company recognized a capital contribution of $ 5,000. Upon full repayment of the loans, the Company recognized the remaining balance of accrued interest on restructured debt as financial income of approximately $ 7,335. |
| |
| | As the Company did not acquire a new operating business during the year ended December 31, 2008, the results of operations prior to the consummation of the sale of the business to HP are not reported as “discontinued operations” in the consolidated financial statements in accordance with SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. |
F - 12
| |
| ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES |
| |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
U.S. dollars in thousands (except share and per share data) |
NOTE 1:- GENERAL (Cont.)
| | Following the consummation of the HP Transaction, the Company’s primary asset is cash deposited in short term deposits and therefore, the sole source of income is the interest that such deposits earn. |
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
| | The consolidated financial statements have been prepared according to United States generally accepted accounting principles, as follows: |
| |
| | The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates, judgments and assumptions. 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 revenues and expenses during the reporting period. Actual results could differ from these estimates. |
| |
| b. | Financial statements in U.S. dollars: |
| | |
| | Following the HP Transaction, the Company’s management believes that the currency of the primary economic environment in which the Company and its remaining subsidiaries operate is the U.S. dollar (“dollar”). Thus, the dollar is the reporting and functional currency of the Company and its remaining subsidiaries. |
| |
| | Therefore, transactions and balances that are denominated in dollars are presented at their original amounts. Non-dollar transactions and balances have been remeasured to dollars in accordance with Statement of Financial Accounting Standard (“SFAS”) No. 52, “Foreign Currency Translation”. All foreign currency transaction gains and losses are reflected in the statements of operations as financial income or expenses, as appropriate. |
| |
| | Prior to the HP Transaction, for certain subsidiaries the functional currency was determined to be their local currency. For those subsidiaries, assets and liabilities were translated at year-end exchange rates and statement of operations items were translated at average exchange rates prevailing during the year. Such translation adjustments were recorded as a separate component of accumulated other comprehensive loss in shareholders’ equity (deficiency). |
| |
| c. | Principles of consolidation: |
| | |
| | The consolidated financial statements include the accounts of the Company and its wholly- owned subsidiaries. Intercompany transactions and balances, including profit from intercompany sales not yet realized outside the Group, have been eliminated upon consolidation. |
| |
| | Cash equivalents are short-term highly liquid investments that are readily convertible to cash with original maturities of three months or less at the date acquired. |
F - 13
| |
| ELLOMAY CAPITAL 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.)
| | Bank deposits with maturities of more than three months but less than one year are included in short-term deposits. Such short-term deposits are stated at cost which approximates market values. |
| |
| | Restricted cash was primarily invested in highly liquid deposits, which were used as security for certain of the Company’s liabilities and obligations. |
| |
| | Certain amounts in prior years’ financial statements have been reclassified to conform to the current year’s presentation. |
| | |
| h. | Inventories: |
| | |
| | Inventories were stated at the lower of cost or market value. |
| |
| | The Company reviewed its inventory quantities based primarily on its estimated forecast of product demand, production requirements and servicing commitments. Inventory write-offs were provided to cover risks arising from slow-moving items, technological obsolescence, excess inventories, discontinued products and for market prices lower than cost. |
| |
| | During 2006, 2007 and 2008, as a result of the demand for printers of older models, the Company began utilizing related inventories that were written-off in prior years. In 2006, 2007 and 2008, inventory previously written-off with a cost of $ 310, $ 803 and $ 908, respectively, was used as components for products in the Company’s regular line of production and was sold as finished goods. The sales of these related manufactured products were reflected in the Company’s revenues without an associated additional cost to the cost of revenues in the period in which the inventory was utilized. |
| |
| | Cost was determined as follows: |
| |
| | Raw materials - using the average cost method. |
| |
| | Work-in-progress and finished products - raw materials as above with the addition of direct manufacturing costs and indirect manufacturing costs allocated on an average basis. |
F - 14
| |
| ELLOMAY CAPITAL 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.)
| | Changes in the Group’s inventory provision were as follows: |
| |
| | | | | Provision for
slow-moving
inventory | |
| | | | |
| |
| | | | | | |
| | Balance as of January 1, 2006 | | | $ | 3,738 | |
| | Charge to cost | | | | 806 | |
| | Deduction | | | | (1,570 | ) |
|
| |
| | | | | | | |
| | Balance as of December 31, 2006 | | | | 2,974 | |
| | Charge to cost | | | | 1,169 | |
| | Deduction | | | | (803 | ) |
|
| |
| | |
| |
| | Balance as of December 31, 2007 | | | | 3,340 | |
| | Charge to cost | | | | 197 | |
| | Deduction | | | | (908 | ) |
| | Assumed by HP (See Note 1b) | | | | (2,629 | ) |
|
| |
| | |
| | Balance as of December 31, 2008 | | | $ | – | |
|
| |
| | |
| i. | Property, plant and equipment, net: |
| | |
| | Property, plant and equipment were stated at cost, net of accumulated depreciation. Depreciation was calculated using the straight-line method over the estimated useful lives of the assets at the following annual rates: |
| |
| | | |
| | | % |
| | |
|
|
| Machinery and equipment | | 10 - 33 |
| Motor vehicles | | 15 |
| Office furniture and equipment | | 6 - 10 |
| Buildings | | 3 |
| Leasehold improvements | | Over the shorter of the term of
the lease or the useful life |
| | |
| j. | Impairment of long-lived assets: |
| | |
| | The Group’s long-lived assets were reviewed for impairment in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets held for use is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. During 2006, 2007 and 2008, no impairment losses were identified. |
F - 15
| |
| ELLOMAY CAPITAL 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.)
| | Prior to the consummation of the HP Transaction, the Company generated revenues from the sale of its printers, inks and consumable products and from services to its products. The Company generated revenues from sale of its products directly to end-users and indirectly through independent distributors. |
| |
| | Revenues from printer sales were recognized in accordance with Staff Accounting Bulletin No. 104, “Revenue Recognition in Financial Statements” upon installation, provided that the collection of the resulting receivable was probable, there was persuasive evidence of an arrangement, no significant obligations in respect of installation remained and the price was fixed or determinable. The Company did not grant a right of return. |
| |
| | Revenues from selling these products to independent distributors were deferred until the Company’s products were installed in their customers’ premises, provided that all other revenue recognition criteria were met. |
| |
| | When a sale involved multiple elements, such as sales of printers that include a right to receive specified upgrades or an extended warranty agreement, the entire fee from the arrangement was evaluated under Emerging Issues Task Force (“EITF”) 00-21, “Revenue Arrangements with Multiple Deliverables”. In such arrangements, the Company accounted for the separate elements as different units of accounting, provided that the delivered element had value to the customer on a standalone basis and there was objective and reliable evidence of the fair value of the undelivered element. In cases where there was no objective and reliable evidence of the fair value of the undelivered element, the Company accounted for the total arrangement as one unit of accounting. As such, the Company recognized revenue for the arrangement only when all revenue recognition criteria were met for the undelivered element. |
| |
| | The Company considered all arrangements with payment terms extending beyond the standard payment terms not to be fixed or determinable. If the fee was not fixed or determinable, revenue was recognized as payments become due from the customer, provided that all other revenue recognition criteria have been met. |
| |
| | Revenues from ink and other consumable products were generally recognized upon shipment assuming all other revenue recognition criteria were met. |
| |
| | Revenues from services were comprised of maintenance and support arrangements. Revenues from maintenance and support arrangements were recognized on a straight-line basis over the term of the arrangement. |
| |
| | In cases where the Company traded-in old printers as part of sales of new printers, the fair value of the old printer was recorded as revenue, provided that such value could be determined. If such value could not be determined the old printers were recorded at zero value. The amount of revenues recognized for the transaction equaled the fair value of the old printer plus any monetary consideration received. |
| |
| | Deferred revenues included amounts received from customers for which revenue has not yet been recognized. |
F - 16
| |
| ELLOMAY CAPITAL 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 Group generally provided a warranty period of six to twelve months, at no extra charge. The Group estimated the costs that may be incurred under its standard limited warranty and recorded a liability in the amount of such costs at the time installation of the product was completed. Factors that affected the Group’s warranty liability included the number of installed units and historical warranty cost. The Group periodically assessed the adequacy of its recorded warranty liabilities and adjusted the amounts as necessary. |
| |
| | Changes in the Group’s liability during the year were as follows: |
| |
| | | | | December 31, | |
| | | | |
| |
| | | | | 2007 | | 2008 | |
| | | | |
| |
| |
| | | | | | | | |
| | Balance at the beginning of the year | | | $ | 1,505 | | $ | 1,593 | |
| | Utilization of warranties | | | | (1,945 | ) | | (226 | ) |
| | Changes in liability for warranty during the year | | | | 2,033 | | | 260 | |
| | Assumed by HP (See Note 1b) | | | | – | | | (1,627 | ) |
|
| |
| |
| | | | |
| | Balance at the end of the year | | | $ | 1,593 | | $ | – | |
|
| |
| |
| | |
| m. | Research and development costs, net: |
| | |
| | Research and development costs were charged to the statement of operations as incurred, net of grants received. |
| |
| | Royalty-bearing grants from the local authorities in Belgium and Israel for funding approved research and development projects were recognized at the time the Group was entitled to such grants, and were included as a reduction of the research and development costs. Related royalty obligations were recognized on an accrual basis, as the Group became liable. No royalty expenses were accrued or paid during 2006, 2007 and 2008, other than an amount of € 390 paid according to a settlement with the Belgian authorities (see Note 12b). |
| |
| | The Company accounts for income taxes in accordance with FASB Statement No. 109 “Accounting for Income Taxes” (“SFAS 109”). SFAS 109 prescribes the use of the liability method whereby deferred tax assets and liability account balances are determined based on differences between the 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 provides a valuation allowance, if necessary, to reduce deferred tax assets to amounts more likely than not to be realized. Deferred tax liabilities and assets are classified as current or non current based on the classification of the related asset or liability for financial reporting, or according to the expected reversal dates of the specific temporary differences if not related to an asset or liability for financial reporting. |
F - 17
| |
| ELLOMAY CAPITAL 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.)
| | On January 1, 2007, the Company adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 contains a two-step approach to recognizing and measuring uncertain tax positions accounted for in accordance with SFAS 109. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. The Company accrues interest and penalties related to unrecognized tax benefits in its provision for income tax. |
| |
| | As a result of the adoption of FIN 48 on January 1, 2007, the Group recorded $ 2,617 to accumulated deficit for uncertain tax positions which, if recognized, would affect the effective tax rate. This amount includes accrued interest expenses and penalties related to the unrecognized tax benefit as of that date. |
| |
| p. | Concentrations of credit risk: |
| | |
| | Financial instruments that potentially subject the Group to concentrations of credit risk consist principally of cash and cash equivalents and short-term deposits. |
| |
| | The majority of the Group’s cash and cash equivalents and short-term deposits are invested in U.S. dollar and Euro instruments with major banks in Israel and United States. Such deposits in the United States may be in excess of insured limits and are not insured in other jurisdictions. However, management believes that such financial institutions are financially sound, and accordingly, low credit risk exists with respect to these investments. |
| |
| | Prior to the HP Transaction, the trade receivables of the Group were derived mainly from sales to customers located primarily in Europe, America and Asia. Management believed that credit risks were moderated by the diversity of its end-customers and geographic sales areas. The Group performed ongoing credit evaluations of its customers’ financial condition. The Group did not require collateral from its customers. Management of the Company periodically performed an evaluation of its composition of accounts receivable and expected credit trends and established an allowance for doubtful accounts with respect to those amounts that were determined to be doubtful of collections and in accordance with aging key and charge off receivables where they deemed uncollectible. The past-due status of accounts receivable was determined primarily based upon contractual terms. |
| |
| | The Group has no off-balance-sheet concentration of credit risk. |
F - 18
| |
| ELLOMAY CAPITAL 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.)
| | Changes in the Group’s allowance for doubtful accounts were as follows: |
| | |
| | | | | | |
| | | | Allowance for
doubtful
accounts | |
| | | |
| |
| | |
| | Balance as of January 1, 2006 | | $ | 5,510 | |
| | Provision, net of recoveries | | �� | (314 | ) |
| | Write-off and other | | | (302 | ) |
| | | |
|
| |
| | | | | | |
| | Balance as of December 31, 2006 | | | 4,894 | |
| | Provision, net of recoveries | | | 942 | |
| | Write-off and other | | | (985 | ) |
| | | |
|
| |
| | | | | | |
| | Balance as of December 31, 2007 | | | 4,851 | |
| | Provision, net of recoveries | | | 368 | |
| | Write-off and other | | | – | |
| | Assumed by HP (See Note 1b) | | | (5,219 | ) |
| | | |
|
| |
| | | | | | |
| | Balance as of December 31, 2008 | | $ | – | |
| | | |
|
| |
| | The Company’s liability for severance pay is calculated pursuant to Israel’s Severance Pay Law based on the most recent salary of the employees multiplied by the number of years of employment, as of the balance sheet date. The Company records as expenses the increase in the severance liability, net of the earnings (losses) from the related investment fund. Employees are entitled to one month’s salary for each year of employment, or a portion thereof. The Company’s liability for all of employees is fully provided by monthly deposits with severance pay funds and insurance policies and by an accrual. The value of these policies is recorded as an asset in the Company’s consolidated balance sheet. |
| |
| | The deposited funds include profits (losses) accumulated up to the balance sheet date. The deposited funds may be withdrawn only upon the fulfillment of the obligation pursuant to Israel’s Severance Pay Law or labor agreements. |
| |
| | Severance expenses for the years ended December 31, 2006, 2007 and 2008 amounted to approximately $ 907, $ 905 and $ 2,900 respectively. The severance expenses for the year ended December 31, 2008 are mainly attributed to the termination of certain of our employees and of a majority of our senior management in connection with the HP Transaction. |
| |
| | The Company had a 401(K) defined contribution plan covering all employees in the U.S. All eligible employees could have elected to contribute up to 15%, but generally not in excess of $ 15 per year, of their annual compensation through salary deferrals, subject to IRS limits. The Company’s 401(K) contribution plan included a fixed matching contribution program of 50% of employee contributions to the plan up to a limit of 3% of their eligible compensation. During 2006, 2007 and 2008, the Company matched contributions in the amount of $ 23, $19 and $ 7, respectively. |
F - 19
| |
| ELLOMAY CAPITAL 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.)
| s. | Fair value of financial instruments: |
| | |
| | The carrying amounts of cash and cash equivalents, short-term deposits, restricted cash, trade receivables and other accounts receivable, short-term bank credit and loans, current maturities of long-term loans, trade payables and other accounts payable approximate their fair value, due to the short-term maturity of such instruments. |
| |
| | The carrying amount of the Company’s long-term loans (less accrued interest on restructured debt as described in Note 9) approximates their fair value. Book values of long-term loans bearing variable interest approximate fair values due to the variable interest rates on these loans. Book values of long-term loans bearing fixed interest approximate fair values as it is not materially different from the market rate for similar loans. |
| |
| | Advertising expenses were expensed as incurred. Advertising expenses for the years ended December 31, 2006, 2007 and 2008 amounted to $ 287, $ 442 and $ 50, respectively. |
| |
| u. | Basic and diluted earnings (loss) per share: |
| | |
| | Basic earnings (loss) per share is computed based on the weighted average number of Ordinary shares outstanding during each year. Diluted earnings (loss) per share is computed based on the weighted average number of Ordinary shares outstanding during the year plus dilutive potential Ordinary shares considered outstanding during the year, in accordance with SFAS No. 128, “Earnings Per Share”. |
| |
| | The total weighted average number of options and warrants excluded from the calculations of diluted earnings (loss) per share was 50,163,084, 54,749,478 and 7,393,004 for the years ended December 31, 2006, 2007 and 2008, respectively. |
| |
| v. | Accounting for stock-based compensation: |
| | |
| | The Company accounts for stock-based compensation in accordance with SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123(R)”). SFAS No. 123(R) requires companies to estimate the fair value of equity-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Company’s consolidated income statements. |
| |
| | The Company recognizes compensation expenses for the value of its awards granted based on the straight line method over the requisite service period of each of the awards, net of estimated forfeitures. SFAS No. 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Estimated forfeitures are based on actual historical pre-vesting forfeitures. |
| |
| | The Company selected the Black-Scholes-Merton option pricing model as the most appropriate fair value method for its stock-options awards and values restricted stock based on the market value of the underlying shares at the date of grant. 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. |
F - 20
| |
| ELLOMAY CAPITAL 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.)
| | Expected volatility was 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. |
| |
| | The fair value for options granted in 2006, 2007 and 2008 is estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions: |
| |
| | | | Year ended December 31, | |
| | | |
| |
| | | | 2006 | | 2007 | | 2008 | |
| | | |
| |
| |
| |
| | |
| | Dividend yield | | | 0% | | | 0% | | | 0% | |
| | Expected volatility | | | 1.12 | | | 1.07 | | | 0.8 | |
| | Risk-free interest | | | 4.67% | | | 4.41% | | | 2.76% | |
| | Expected life (in years) | | | 3.5 | | | 3.5 | | | 2 | |
| | |
| | The Company applies SFAS No. 123 “Accounting for Stock-Based Compensation” and EITF No. 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services,” with respect to options and warrants issued to non-employees. SFAS No. 123 requires the use of option valuation models to measure the fair value of the options and warrants at the measurement date as defined in EITF No. 96-18. |
| |
| | The Company accounts for comprehensive loss in accordance with SFAS No. 130, “Reporting Comprehensive Income”. This Statement establishes standards for the reporting and display of comprehensive loss and its components in a full set of general purpose financial statements. Comprehensive loss 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 only item of other comprehensive loss related to foreign currency translation adjustments. |
| |
| x. | Impact of recently issued accounting standards: |
| | |
| | In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS 141R”). SFAS 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non controlling interest in the acquiree and the goodwill acquired. SFAS 141R also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. SFAS 141R is effective for fiscal years beginning after December 15, 2008. Earlier adoption is prohibited. The impact of SFAS 141R on the Company’s consolidated results of operations and financial condition will depend on the nature and size of acquisitions, if any, subsequent to the effective date. |
F - 21
| |
| ELLOMAY CAPITAL 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 February 2008, the FASB issued FSP No. FAS 157-1, “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13”, and FSP No. FAS 157-2, “Effective Date of FASB Statement No. 157” (“FSP No. FAS 157-2”). Collectively, the Staff Positions defer the effective date of Statement 157 to fiscal years beginning after November 15, 2008 for nonfinancial assets and nonfinancial liabilities except for items that are recognized or disclosed at fair value on a recurring basis at least annually, and amend the scope of Statement 157. As described in Note 7, the Company adopted Statement 157 and the related FASB staff positions except for those items specifically deferred under FSP No. FAS 157-2. The Company does not expect the adoption of Statement 157, with respect to nonfinancial assets and liabilities under the scope of the FSP No. FAS 157-2, will have an impact on its consolidated financial statements. |
NOTE 3:- OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES
| | | | | December 31, | |
| | | | |
| |
| | | | | 2007 | | 2008 | |
| | | | |
| |
| |
| | | | | | | | | | |
| | Government authorities | | | $ | 2,752 | | $ | 311 | |
| | Employees | | | | 317 | | | – | |
| | Advances to suppliers | | | | 629 | | | – | |
| | Interest receivable | | | | – | | | 567 | |
| | Proceeds to be received from HP | | | | – | | | 1,183 | |
| | Prepaid expenses | | | | 595 | | | 33 | |
| | Office of the Chief Scientist (See Note 4) | | | | 79 | | | – | |
| | Other | | | | 53 | | | 57 | |
|
| |
| |
| | | | | | | | | | |
| | | | | $ | 4,425 | | $ | 2,151 | |
|
| |
| |
NOTE 4:- OFFICE OF CHIEF SCIENTIST
| a. | During 1998-2003, the Company participated in a research and development consortium of industrial companies and academic institutions within the framework of the MAGNET program of the Office of Chief Scientist of the Ministry of Industry, Trade and Labor (“OCS”). No royalties were payable to the OCS with respect to this funding. |
| | |
| | During 2005-2007, the Company participated in an ink technology project with the Technion - The Israel Institute of Technology (the “Technion”), which received the approval of the Mini-MAGNET (or Magneton) committee of the OCS. No royalties were payable to the OCS with respect to this funding; however, the terms of the agreement with the Technion required the Company to pay royalties to the Technion on the proceeds from sales of products resulting from this project when such sales commence. Sales of products had not commenced and therefore no royalties were due. Grants relating to the Magneton project in the amount of $ 379 were recorded during 2007. The agreement with the Techinion was assumed by HP in connection with the HP Transaction. |
F - 22
| |
| ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES |
| |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
U.S. dollars in thousands (except share and per share data) |
NOTE 4:- OFFICE OF CHIEF SCIENTIST (Cont.)
| b. | The Company entered into several project plans with the OCS in prior years. |
| | |
| | Following the settlement as described in (d) below, the full balance of commitments for amounts received in the past from the OCS was converted into and recorded as a settlement accrual. As of December 31, 2007, the liability of $ 79 was fully offset with the grant received from the Magneton project in accordance with the terms of the settlement. The liability to the OCS was fully paid during 2008. |
| |
| c. | Under the terms of grants awarded in prior years by the Fund for the Encouragement of Marketing Activities of the Ministry of Industry, Trade and Labor (“the Marketing Fund”) to the Company, the Company was obligated to pay royalties to the Marketing Fund at the rate of 3% - 4% of the increase in export sales of products for which the Company received grants for in support of its marketing activities, up to an amount equal to 100% - 150% of the grants received, linked to the U.S. dollar. |
| | |
| | Following the settlement described in (d) below, all the contingent commitments for amounts received in the past from the Marketing Fund were converted into and recorded as a settlement accrual. |
| |
| | As of December 31, 2007, the liability of $ 221 was fully offset with the grant received from the Magneton project in accordance with the terms of the settlement. The liability to the Marketing Fund was fully paid during 2008. |
| |
| d. | In the first calendar quarter of 2006, the District Court in Jerusalem approved the settlement between the Company and the OCS and the Marketing Fund. The agreement settled the dispute between the Company, the OCS and the Marketing Fund regarding the Company’s outstanding obligation to pay royalties and provided for the repayment of the outstanding debt in 36 equal monthly installments commencing January 2006. The Company also agreed to accelerate the payment of the outstanding balance by advancing payments equal to 5% of operating income. It was further agreed that all future grants due to the Company from the OCS or the Marketing Fund would be applied to the settlement balance until the liability was paid in full. |
| | |
| e. | According to the Encouragement of Industrial Research and Development Law, 1984, the Company’s technologies are subject to transfer of technology and manufacturing rights restrictions. The discretionary approval of the OCS committee is required for any transfer of technology developed with OCS funding (including Magnet and Magneton programs). OCS approval is not required for the export of any products resulting from the research or development, or for licensing of the technology in the ordinary course of business. |
| | |
| | Following the HP Transaction (see Note 1b), all of the Company’s intellectual property that was used for its business was sold to HP, including intellectual property developed with the assistance of the OCS. The OCS approved the transfer of the technology developed with OCS funding prior to the closing of the HP Transaction, subject to an exclusive and irrevocable manufacturing license provided by HP to its Israeli subsidiary. HP has approached the OCS and requested to transfer the technology and manufacturing of products developed with the assistance of the OCS outside of Israel. The Company may be required to reimburse HP for payments made to the OCS in connection with such transfer of manufacturing. It is too early to determine what amounts will be paid by HP to the OCS or will be required to be paid by the Company to HP. In the event that any payments are required, amounts due are to be deducted from the escrow account (see Note 1b). |
F - 23
| |
| ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES |
| |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
U.S. dollars in thousands (except share and per share data) |
NOTE 4:- OFFICE OF CHIEF SCIENTIST (Cont.)
| | | | | |
| | | December 31,
2007 | |
| | |
| |
| | | | | |
| OCS Magneton grant receivable | | $ | 379 | |
| | |
|
| |
| | | | | |
| Debt to the OCS (i) | | $ | (79 | ) |
| Debt to the Marketing Fund (ii) | | | (221 | ) |
| | |
|
| |
| | | | | |
| | | $ | (300 | ) |
| | |
|
| |
| | | | | |
| Net OCS grants receivable | | $ | 79 | |
| | |
|
| |
| | |
| (i) | The liability was linked to Israel’s Consumer Price Index (“CPI”) and bore an annual interest according to applicable laws. |
| | |
| (ii) | The balance was linked to the U.S. dollar and bore interest at a rate of six-month LIBOR. |
| | |
NOTE 5:- INVENTORIES
| | | | | |
| | | December 31,
2007 | |
| | |
| |
| | | | | |
| Raw materials | | $ | 4,651 | |
| Work in-progress | | | 2,020 | |
| Finished products | | | *) 13,420 | |
| | |
|
| |
| | | | | |
| | | $ | 20,091 | |
| | |
|
| |
| | |
| *) | Includes an amount of $ 2,329 with respect to inventory delivered to customers but for which no revenue was recognized. |
| | |
| | As of February 29, 2008, the inventories were acquired by HP (see Note 1b). |
| | |
NOTE 6:- PROPERTY, PLANT AND EQUIPMENT, NET
| a. | Composition of property, plant and equipment was as follows: |
| | |
| | | | | |
| | | December 31,
2007 | |
| | |
| |
| | | | | |
| Cost: | | | | |
| Machinery and equipment | | $ | 3,998 | |
| Motor vehicles | | | 26 | |
| Office furniture and equipment | | | 9,507 | |
| Buildings (b) | | | 1,626 | |
| Leasehold improvements | | | 5,717 | |
| | |
|
| |
| | | | | |
| | | | 20,874 | |
| Accumulated depreciation | | | 14,930 | |
| | |
|
| |
| | | | | |
| Property, plant and equipment, net | | $ | 5,944 | |
| | |
|
| |
| | |
| | As of February 29, 2008, the property, plant and equipment were acquired by HP (see Note 1b). |
F - 24
| |
| ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES |
| |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
U.S. dollars in thousands (except share and per share data) |
NOTE 6:- PROPERTY, PLANT AND EQUIPMENT, NET (Cont.)
| | NUR Europe, one of the Company’s subsidiaries that were was sold to HP, leased certain spaces under lease agreements which were recorded as capital leases. The related facilities were included in property, plant and equipment and depreciated accordingly. The cost and accumulated depreciation of facilities as of December 31, 2007 were $ 1,626 and $ 499, respectively. Following the consummation of the HP Transaction, as a result of a mutual resolution of the parties, the facilities and relating capital lease were assigned to a third party (see note 1b). |
NOTE 7:- FAIR VALUE MEASURMENTS
| | Effective January 1, 2008, the Company adopted SFAS 157, “Fair Value Measurements” and, effective October 10, 2008, adopted FSP No. SFAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active”, except as it applies to the nonfinancial assets and nonfinancial liabilities subject to FSP 157-2 “Effective Date of FASB Statement No. 157”. SFAS 157 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. As a basis for considering such assumptions, SFAS 157 establishes a three-tier 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. |
| |
| | Cash equivalents and short-term deposits are classified with level 2. |
NOTE 8:- SHORT-TERM BANK CREDIT AND LOANS
| | | | | | | | | |
| | | Linkage
terms | | Interest rate | | December 31, | |
| | | |
| |
|
| |
| | | | 2007 | | 2007 | |
| | |
| |
| |
|
| |
| | | | | % | | | | |
| | | | |
| | | | |
|
| Short-term bank credit (a) | | U.S. dollar | | LIBOR +
0.25 - 0.75 | | $ | 8,801 | |
| Short-term bank credit (a) | | NIS | | Prime + 2% | | | 161 | |
| Note from related parties (b) | | | | | | | 5,000 | |
| | | | | | |
|
| |
|
| | | | | | | $ | 13,962 | |
| | | | | | |
|
| |
| Weighted average interest rates at the end of the year | | | | | | | 5.66 | % |
| | | | | | |
|
| |
F - 25
| |
| ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES |
| |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
U.S. dollars in thousands (except share and per share data) |
NOTE 8:- SHORT-TERM BANK CREDIT AND LOANS (Cont.)
| a. | Short-term bank credit: |
| | |
| | In 2005 the Banks provided the Company with a credit facility that could have been utilized in U.S. dollars, NIS, GBP or Euro. The credit facility was renewable, at the request of the Company, on an annual basis through December 2011. The credit facility bore interest at a rate of LIBOR + a range between 0.25% - 0.75% or Prime + 2% for borrowings denominated in NIS and was payable on a quarterly basis. |
| |
| | As of December 31, 2007, $ 8,962 was utilized in the form of a short-term loan, $ 944 was utilized in guarantees, and $ 1,040 was utilized in the form of long-term loans. The total utilization of a $ 10,002 credit line exceeded the approved line of $ 9,850 (excluding guarantees) by $ 152 due to the increase in the Euro exchange rate in respect to the Euro-denominated long-term loan. The Banks did not request an immediate reduction in the short-term bank credit or the long-term loan balance. The credit facility was subject to immediate repayment upon the occurrence of certain events as defined in the agreement with the Banks. |
| |
| | During January and February 2008, an additional amount of approximately $ 800 was utilized by the Company in the form of a short-term loan. In March 2008, in connection with the HP Transaction, the credit facility was cancelled and all open balances were paid-in-full (see Note 1b). |
| |
| b. | The note from related parties of $ 5,000 bore no interest and was scheduled to expire on December 8, 2008. Prior to that date, the note was repayable only in the event of either bankruptcy, insolvency or reorganization proceeding under any bankruptcy, whether voluntary or involuntary, which proceedings were not lifted or stayed within 90 days. The note was assigned to Fortissimo by the Banks as part of the Debt Restructuring Agreement (see Note 9). |
| | |
| | In May 2008, in connection with the sale of the Company’s securities by the Fortissimo entities, the note was cancelled and recognized as a capital contribution (see Note 1b). |
NOTE 9:- LONG-TERM LOANS
| | On September 12, 2005, the Company entered into a debt restructuring agreement (the “Debt Restructuring Agreement”) with the Banks. The Debt Restructuring Agreement, which was consummated on December 8, 2005, called for the conversion and refinancing of the then outstanding bank debt in the amount of $ 41,018 to the Banks. Out of the amount of $ 41,018, an amount equal to $ 14,513 was converted into warrants to purchase up to 8,000,000 Ordinary shares, $ 5,000 was converted into subordinated notes, which were assigned by the Banks to Fortissimo (“Note from related parties”) and the remaining $ 21,505 was refinanced under new short and long term loan agreements. Following the HP Transaction, the Company used its right for early termination of the long-term loans, and in April 2008 fully repaid the long-term loans. |
| |
F - 26
| |
| ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES |
| |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
U.S. dollars in thousands (except share and per share data) |
NOTE 9:- LONG-TERM LOANS (Cont.)
| | | | | | | | | |
| | | Linkage
terms | | Interest rate | | December 31, | |
| | | |
| |
| |
| | | | 2007 | | 2007 | |
| | |
| |
| |
| |
| | | | | % | | | | |
| | | | |
| | | |
| | | | | | | | | |
| From banks (b) | | U.S. dollar | | LIBOR +
2.50 | | $ | 11,000 | |
| From banks (b) | | Euro | | LIBOR +
0.75 | | | 1,040 | |
| Capital leases | | Euro | | 4.95-6.30 | | | 877 | |
| | | | | | |
|
| |
| | | | | | | | | |
| | | | | | | | 12,917 | |
| Less - current maturities | | | | | | | 649 | |
| | | | | | |
|
| |
| | | | | | | | | |
| | | | | | | | 12,268 | |
| Accrued interest on restructured debt (c) | | | | | | | 7,567 | |
| | | | | | |
|
| |
| | | | | | | | | |
| | | | | | | $ | 19,835 | |
| | | | | | |
|
| |
| Weighted average interest rates at the end of the year | | | | | | | 7.115 | % |
| | | | | | |
|
| |
| | |
| b. | The long-term loans of $ 11,000 were repayable by the end of 2015. The Company was granted a 28-month grace period on the quarterly payments on account of principal. The revolving loan of $ 1,040 was renewable on an annual basis as long as the Company continued to meet the covenants mentioned in Note 9.e. The long-term loans bear interest at a rate of LIBOR+2.5% and LIBOR +0.75% per annum, payable on a quarterly basis. The long-term loans were subject to immediate repayment upon the occurrence of certain events as defined in the agreement with the Banks. |
| | |
| c. | The restructuring of the outstanding bank debt was accounted for in accordance with the provisions of SFAS 15 “Accounting by Debtors and Creditors for Troubled Debt Restructurings”. According to the guidance of SFAS No. 15, as a result of variable interest rate on the restructured debt, no gain was recognized on the restructuring date and the carrying amount of the debt remained unchanged. Future interest on the restructured debt was recorded as a reduction of the carrying amount of the debt instead of interest expenses. Interest payments in the amounts of $ 500 and $ 1,500 for 2008 and 2007, respectively, were recorded as a reduction of the carrying amount of the debt (accrued interest) instead of interest expenses in the statement of operations in accordance with the provisions of SFAS No. 15. |
| | |
| | Upon full repayment of the loans, the Company recognized the remaining balance of accrued interest on restructured debt as financial income of approximately $ 7,335 (see Note 1b). |
F - 27
| |
| ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES |
| |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
U.S. dollars in thousands (except share and per share data) |
NOTE 9:- LONG-TERM LOANS (Cont.)
| d. | The aggregate annual maturities of long-term loans were as follows: |
| | |
| | | | | |
| | | December 31,
2007 | |
| | |
| |
| | | | | |
| First year (current maturities) | | $ | 649 | |
| | |
|
| |
| | | | | |
| Second year | | | 658 | |
| Third year | | | 1,167 | |
| Fourth year | | | 2,217 | |
| Fifth year | | | 1,726 | |
| Sixth year and thereafter | | | 6,500 | |
| | |
|
| |
| | | | | |
| | | | 12,268 | |
| | |
|
| |
| | | | | |
| | | $ | 12,917 | |
| | |
|
| |
| | Under the Debt Restructuring Agreement, the Company agreed to maintain the following ratios of (1) the total amounts owed to the Banks plus available credit under the new short-term loans plus debts of subsidiaries to outside lenders incurred above an aggregate of $ 2,048 to (2) EBITDA as defined in the Debt Restructuring Agreement. |
| |
| | | |
| Period | | Ratio of debt
to EBITDA |
|
| |
|
| | | |
| Fiscal year ended December 31, 2008 | | 13:1 |
| Fiscal year ended December 31, 2009 | | 10:1 |
| Fiscal year ended December 31, 2010 | | 8:1 |
| Fiscal year ended December 31, 2011 and thereafter | | 6:1 |
| | |
| | The first measurement of the financial covenants was scheduled to take place following the end of the third quarter of 2008 based on the Company’s financial results during the first three quarters of 2008 and was to be measured on a quarterly basis thereafter, which measurement was to take into account the previous four calendar quarters. |
| |
| | In any case of certain breaches by the Company; (i) the Company might have been required by the Banks to repay all amounts then owed under any or all documentation between the Company and the Banks, to the Banks, and (ii) the Banks were to be entitled to exercise any and all rights set forth in any or all documentation between the Banks and the Company. |
F - 28
| |
| ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES |
| |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
U.S. dollars in thousands (except share and per share data) |
NOTE 10:- OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES
| | | | | December 31, | |
| | | | |
| |
| | | | | 2007 | | 2008 | |
| | | | |
| |
| |
| | | | | | | | | | |
| | Employees and payroll accruals | | | $ | 3,690 | | $ | 532 | |
| | Government authorities | | | | 340 | | | 82 | |
| | Royalties payable | | | | 152 | | | – | |
| | Warranty provision | | | | 1,593 | | | – | |
| | Professional services | | | | 588 | | | 107 | |
| | Advance from customers | | | | 964 | | | – | |
| | Provision for legal claims | | | | 2,103 | | | 180 | |
| | Accrued expenses | | | | 1,553 | | | 1,073 | |
|
| |
| |
| | | | |
| | | | | $ | 10,983 | | $ | 1,974 | |
|
| |
| |
NOTE 11:- OTHER LONG-TERM LIABILITIES
| | | | | | | | | | |
| | Unrecognized tax benefits (refer to Note 15c) | | | $ | 3,618 | | $ | 4,584 | |
| | Other long-term liabilities | | | | – | | | 695 | |
|
| |
| |
| | | | |
| | | | | $ | 3,618 | | $ | 5,279 | |
|
| |
| |
NOTE 12:- COMMITMENTS AND CONTINGENT LIABILITIES
| a. | Operating and capital lease commitments: |
| | |
| | Prior to the HP Transaction, the Company and most of its subsidiaries rented their facilities under various operating lease agreements. |
| |
| | Total rental lease expenses, net for the years ended December 31, 2006, 2007 and 2008 were $ 1,501, $ 1,691 and $ 282, respectively. |
| |
| | Following the HP Transaction, most of the operating and capital lease commitments were assumed by HP (see Note 1b). |
| |
| | The following table summarizes the remaining annual rental commitments as of the periods indicated under non-cancelable operating leases and sub-lease arrangements with initial or remaining terms of more than one year, reflecting the terms that were in effect as of December 31, 2008: |
| |
| | Year ended December 31, | | | Operating
lease | | Sub-lease | | Total | |
| |
| | |
| |
| |
| |
| | | | | | | | | | | | | |
| | 2009 | | | $ | 363 | | $ | (428 | ) | $ | (65 | ) |
| | 2010 | | | | 363 | | | (428 | ) | | (65 | ) |
| | 2011 | | | | 30 | | | (35 | ) | | (5 | ) |
|
| |
| |
| |
| | | | | | |
| | Total minimum lease payments (proceeds) | | | $ | 756 | | $ | (891 | ) | $ | (135 | ) |
|
| |
| |
| |
F - 29
| |
| ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES |
| |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
U.S. dollars in thousands (except share and per share data) |
NOTE 12:- COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)
| | Total sub-lease income for the years ended December 31, 2006, 2007 and 2008 was $ 361, $ 378 and $ 416, respectively. |
| |
| | Total vehicle lease expenses for the years ended December 31, 2006, 2007 and 2008 were $ 1,359, $ 1, 524 and $ 254, respectively. |
| |
| | During the period 1998-2003, the Company’s European subsidiary received research and development grants totaling € 2,435 ($ 3,583 at December 31, 2007) from the local authorities in Belgium. Under the terms of the grants, the Company’s European subsidiary had an obligation to pay royalties at the higher of a certain minimum annual amount or at a rate of 4% of the sales derived from the applicable products developed within the framework of such research and development projects, up to an amount equal to the research and development grants received in connection with such products, linked to the Euro. The commencement of the royalty payments to the local authorities in Belgium was contingent upon the Company’s European subsidiary generating sales from products developed under these grants. The grants were not repayable in the event that the Company’s European subsidiary decides to cease the research and development activities, or the exploitation of the products developed under these grants and all know-how and results of the research and development are transferred to the local authorities. In the event that the Company’s European subsidiary decided to cease exploitation of the products developed under these grants, a notification thereof should have been given to the local authorities in Belgium. |
| |
| | The Company’s European subsidiary ceased the research and development activities and the exploitation of certain products for which grants were received. The Company’s European subsidiary did not submit notification of this cessation to the local authorities and, instead, continued to pay royalties with a total of € 659 ($ 970 at December 31, 2007) remitted through 2005. As of December 31, 2007, the aggregate amount of grants received from the Belgian authorities, which had not yet been repaid amounted to $ 2,613 (€ 1,776 as of December 31, 2007). |
| |
| | In respect to 2006 and 2007, the European subsidiary received notice from the Belgian authorities requesting the annual minimum royalty payments of $ 285 and $ 368, respectively. |
| |
| | The European subsidiary did not pay the amounts requested as it believes that the royalty payment for 2006 and 2007 should have been only $ 184 and $ 250, respectively and that it has overpaid its royalty obligations for prior years. During discussions held with the Belgian authorities in February 2008, the authorities confirmed the Company’s position with respect to the amounts owed for 2006 and 2007. It was also agreed that the Company’s European subsidiary will submit a proposal to the authorities with respect to the overall open balance as described above. |
| |
| | During November 2008 the Company’s European subsidiary reached a settlement with the Belgian authorities by which the authorities waived the repayment of a portion of the grants and, in return, the Company paid back on December 2, 2008 a total of € 390 ($ 494) as full and final settlement. |
F - 30
| |
| ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES |
| |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
U.S. dollars in thousands (except share and per share data) |
NOTE 12:- COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)
| c. | Charges and guarantees: |
| | |
| | As security for the Company’s liabilities to the Banks, the Banks placed fixed charges on the Company’s share capital, as well as a floating lien on all of the Company’s assets. A second ranking floating lien was also placed on the Company’s assets in connection with the Note from related parties. |
| |
| | Following the consummation of the HP Transaction, the Company used its right for early termination, fully repaid its loans and was released from all charges and guarantees. |
| |
| 1. | During 2008, a former employee of a subsidiary filed a lawsuit against the Company in the amount of $ 322.5 alleging the Company did not provide him with the appropriate amount of time to exercise his stock options following the termination of the applicable blackout period. The Company and the former employee are negotiating a settlement proposal by which the Company undertakes to pay an amount of $ 33 and this amount shall be considered as the gross, exhaustive and final consideration paid to the former employee. A provision was recorded in the amount offered. |
| | |
| 2. | In January 2008, a former distributor of a subsidiary filed a lawsuit against the subsidiary claiming his distribution agreement was terminated in violation of its terms and seeking damages in the amount of $AUD 5,562 thousand. The subsidiary filed a statement of defense denying the claims and filed a counterclaim against the former distributor for non-payment and other damages in the amount of $ 882. The parties reached a settlement agreement by which the subsidiary paid the former distributor an amount of $ 175 in October 2008. |
| | |
| 3. | During 2003, a former supplier filed a lawsuit against a subsidiary, in the amount of € 943 thousand ($ 1,462), in connection with a disputed supply agreement. In February 2006, the court determined that the subsidiary is to pay the supplier an aggregate amount of € 1,246 thousand ($ 1,931), including penalties and accrued interest. The subsidiary filed an appeal, which was rejected by the court of appeals. During 2007, the Company reached an agreement with the supplier to pay the amount due plus interest on the principal amount over a period of 40 months. Following the consummation of the HP Transaction a second settlement agreement was reached by which the full amount was paid in a lump sum during August 2008. |
| | |
| 4. | During 2001, a client filed a lawsuit against a subsidiary in the amount of $ 450 alleging bad quality of products and damages. The subsidiary filed a counter claim of $ 216 in respect of unpaid invoices. In October 2007, the court ruled that the client is not entitled for any damages and the subsidiary should credit the client for the unpaid balance. The client was ordered to return the product to the Company’s subsidiary. The ruling was deemed final in April 2008 when the official time for appeal passed. |
| | |
| 5. | During 2002, an end-user filed a lawsuit in China against a subsidiary alleging bad quality of products. The court ruled that the subsidiary should reimburse the client with the amount of $ 186. Following an appeal filed by the subsidiary, the court ruled in September 2003 in favor of the end-user. The subsidiary is in the process of liquidation and has no assets; therefore the plaintiff has no remedy against the subsidiary. |
F - 31
| |
| ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES |
| |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
U.S. dollars in thousands (except share and per share data) |
NOTE 12:- COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)
| | The customer may elect to start new proceedings against another subsidiary operating in Hong Kong. However, to date, the customer has not filed any claim in Hong Kong. Based on management’s estimation and the opinion of its legal counsel, it is less than likely that the second subsidiary will be required to pay the amount ruled against the subsidiary in China. Therefore, no provision was recorded with respect to this claim. |
| |
| 6. | During 2002, a client filed a lawsuit in China against a subsidiary seeking reimbursement in the amount of $ 400 alleging bad quality of products. In July 2005, the court ruled that the subsidiary is to reimburse the client an amount of $ 286. The subsidiary no longer operates in China and under current law the ruling in China is not enforceable in Hong Kong. The subsidiary notified the customer in March 2006 that it intends to vigorously defend its claims if submitted to court in Hong Kong. To date, the customer has not filed any claim in Hong Kong. Based on management’s estimation and the opinion of its legal counsel, it is less than likely that the subsidiary will be required to pay the amount ruled against it in China. Therefore, no provision was recorded with respect to this claim. |
| | |
| 7. | In September 2003, the Company filed a lawsuit against a former distributor of the Company, for the collection of unpaid invoices in the amount of $ 420. In February 2004, the former distributor filed a statement of defense denying the Company’s claims and it also filed a counter-claim for alleged damages caused to it by the Company in the amount of $ 210. Based on the opinion of its legal counsel, management believes that the counter-claim that was filed by the former distributor is without merit and that a loss is not probable. Therefore, a provision was not recorded with respect to this claim. |
| | |
| 8. | In December 2003, a client of a subsidiary filed a lawsuit alleging that a machine purchased by it failed to perform. The customer is seeking reimbursement of the purchase price paid by it in the amount of $ 290. Based on management’s estimation and the opinion of its legal counsel, a provision of $ 145 was recorded with respect to this claim. |
| | |
| 9. | In May 2007, a former managing director of a subsidiary filed a lawsuit against the Company and two of its subsidiaries claiming his resignation was for just cause due to demotion and therefore should be deemed as a termination of his employment by the subsidiary. The Company denied all the claims made by the former employee. The ruling in favor of the Company was deemed final in March 2009 when the official time for appeal passed. |
| | |
| 10. | In February 2007, a claim was filed against the Company and one of its former officers by a person claiming to have been an agent of the Company in West Africa for commissions on sales of printers. The claim is for NIS 3,000 thousand ($ 789). The Company filed a statement of defense denying all claims, both with respect to the causes of action and with respect to the factual allegations in the claim. Based on management’s estimation and the opinion of its legal counsel, no provision was recorded with respect to this claim. |
| | |
| 11. | In October 2005, the former chairman and controlling shareholder filed a complaint against the Company in the Supreme Court, New York County seeking to recover the right to vote his Ordinary shares. The right to vote such Ordinary shares had been transferred to the Company pursuant to a Voting Agreement between the Former Director and the Company. The complaint filed by the Former Director seeks to have the Voting Agreement declared unenforceable. |
F - 32
| |
| ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES |
| |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
U.S. dollars in thousands (except share and per share data) |
NOTE 12:- COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)
| | In 2006, the Court dismissed part of the case with prejudice and the rest of the case was dismissed with leave to re-file. In February 2008, all of the Former Director’s shares and warrants were sold by him to another investor and the Company and the Former Director filed a stipulation of discontinuance with prejudice. |
| |
| 12. | From time to time, the Company is party to other various legal proceedings, claims and litigation that arise in the normal course of business. It is the opinion of management that the ultimate outcome of these matters will not have a material adverse effect on the Company’s financial position, results of operations or cash flows. |
| | |
| 13. | The Company has an outstanding indemnification obligation pursuant to the terms of the Asset Purchase Agreement with HP (see note 1b) |
| | |
NOTE 13:- TRANSACTIONS AND BALANCES WITH RELATED PARTIES
| a. | On December 30, 2008, the Company’s shareholders approved the terms of a management services agreement entered into among the Company, Kanir Joint Investments (2005) Limited Partnership (“Kanir”) and Meisaf Blue & White Holdings Ltd. (“Meisaf”), a company controlled by Shlomo Nehama, the Company’s chairman of the board and controlling shareholder, effective as of March 31, 2008 (the “Management Agreement”). According to the Management Agreement, Kanir and Meisaf, through their employees, officers and directors, provide assistance to the Company in all aspects of the new operations process, including but not limited to, any activities to be conducted in connection with identification and evaluation of the business opportunities, the negotiations and the integration and management of any new operations and including discussions with the Company’s management to assist and advise them on such matters and on any matters concerning the Company’s affairs and business. In consideration of the performance of the management services and the board services pursuant to the Management Agreement, the Company agreed to pay Kanir and Meisaf an aggregate annual management services fee in the amount $ 250. |
| | |
| b. | On October 27, 2005, the Company’s shareholders approved the terms of a management agreement entered into between the Company and Fortissimo on behalf of several private equity funds, which are managed by Fortissimo (“the “Fortissimo Management Agreement”). According to the Fortissimo Management Agreement, Fortissimo, through its employees, officers and directors, provided management services, advice and assistance to the Company’s management concerning the Company’s affairs and business. |
| | |
| | The Management Agreement also gave Fortissimo the right to elect a majority of the Company’s Board of Directors, including the chairman of the board of directors. In consideration of the performance of the management services and the board services pursuant to the Fortissimo Management Agreement, the Company agreed to pay Fortissimo an aggregate annual management services fee in the amount $ 250. |
| |
| | Pursuant to the Fortissimo Management Agreement, its terms were to remain in effect for so long as the position of chairman of the board of directors and another position of the Board of Directors are filled by Fortissimo directors. |
F - 33
| |
| ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES |
| |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
U.S. dollars in thousands (except share and per share data) |
NOTE 13:- TRANSACTIONS AND BALANCES WITH RELATED PARTIES (Cont.)
| | In March 2008, all of the shares and a majority of the warrants held by Fortissimo were sold, all of the Fortissimo directors resigned from the Company’s board of directors and the Fortissimo Management Agreement was terminated |
| |
| c. | On January 24, 2006, the Company entered into a lease agreement with Telrad Networks Ltd. the owner of an industrial park in Lod, Israel and a company controlled by the Company’s then controlling shareholders, the Fortissimo entities. The lease is for industrial space commencing May 7, 2006 for a period of five years, with a renewal option to continue the lease for another five years. A monthly fee of $ 31 is to be paid in advance every three months. Notwithstanding, the first year of rent was to be paid in three equal installments of $ 124, amounting to a sum of $ 372. In 2006, 2007 and 2008 the Company paid a total of $ 287, $ 372 and $ 62, respectively, to Telrad for the use of the production area in the facility. This agreement was assumed by HP on February 29, 2008. |
NOTE 14:- SHAREHOLDERS’ EQUITY (DEFICIENCY)
| a. | The Ordinary shares of the Company were traded until May 2005 on the Nasdaq Capital Market. From May 19, 2005, the Company’s Ordinary shares have been quoted over-the-counter in the “pink sheets”. |
| | |
| | On April 17, 2005, the Company’s shareholders approved an increase of the Company’s authorized Ordinary shares to 120,000,000 and an additional increase to 170,000,000 was approved on October 27, 2005. |
| |
| | Ordinary shares confer upon their holders voting rights, the right to receive dividends and the right to share in excess assets upon liquidation of the Company. |
| |
| c. | On January 30, 2007 and February 12, 2007, the Company, in connection with a private placement of its Ordinary shares, issued 7,105,320 and 4,629,630 of its Ordinary shares, respectively at $ 0.54 per share to various investors. The Company received from these investments proceeds in the amount of $ 6,100, net of issuance expenses in the amount of $ 250. The Company also issued to the investors warrants to purchase up to 2,131,596 and 1,388,889 Ordinary shares, respectively, of NIS 1 par value at an exercise price of $ 0.65 per share. The warrants are exercisable for five years from the closing date of the private placement. In accordance with EITF 00-19, the warrants are classified as permanent equity. |
| | |
| | The securities offered in the private placement may not be offered or sold in the United States absent registration, or an applicable exemption from registration. The Company agreed to use its best efforts to file a registration statement registering all the private placement related Ordinary shares (both those purchased and those issuable upon exercise of the warrants) prior to July 1, 2007. |
| |
| | In the event that the Company either failed to file a registration statement prior to July 1, 2007, or if such registration statement loses its effectiveness thereafter, the Company is committed to the payment of partial damages in cash equal to 1% of the aggregate purchase price paid by the investors for each month of default, subject to an overall limit of up to 24 months of partial liquidated damages. |
F - 34
| |
| ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES |
| |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
U.S. dollars in thousands (except share and per share data) |
NOTE 14:- SHAREHOLDERS’ EQUITY (DEFICIENCY) (Cont.)
| | On June 29, 2007, the Company filed a registration statement for the resale of certain Ordinary shares and Ordinary shares underlying warrants held by several of its shareholders, including the shares and shares underlying warrants issued in January and February 2007. The registration statement became effective on August 3, 2007, temporarily lost its effectiveness on October 1, 2007 and regained such effectiveness on June 30, 2008. |
| |
| d. | On March 31, 2008 the principal shareholders, the Fortissimo entities, completed the sale of all of the shares and a majority of the warrants held by them to Kanir Joint Investments (2005) Limited Partnership, which was also previously a controlling shareholder of the Company and to S. Nechama Investments (2008) Ltd., which became a controlling shareholder of the Company as a result of the purchase from the Fortissimo entities and from several other shareholders. |
| | |
| e. | Stock Option Plans: |
| | |
| 1. | In December 1998, the Company’s shareholders approved the non-employee director stock option plan (the “1998 plan”) according to which 250,000 options are available for grant with an exercise price of the average of the closing bid and sale price at the issuance date. Each option granted is vested immediately and expires after 10 years. Generally, the Company grants options under the plan with an exercise price equal to the market price of the underlying shares on the date of grant. |
| | |
| | In October 2005, the Company’s shareholders approved to increase the number of options available for grant under the 1998 plan by 500,000. |
| |
| | In August 2000, the Company’s board of directors adopted the 2000 Stock Option Plan (the “2000 Plan”). According to the 2000 Plan, 2,000,000 options may be granted to officers, directors, employees and consultants of the Company and its subsidiaries. The Options usually vest over a three or four-year period. The exercise price of the options under the 2000 Plan is determined to be not less than 80% of the fair market value of the Company’s Ordinary shares at the time of grant, and they usually expire after 10 years from the date of grant. During June 2008 the Company’s board of directors extended the 2000 Plan by an additional 10 years and the current expiration date of the 2000 Plan is August 31, 2018. Generally, the Company granted options under the plan with an exercise price equal to the market price of the underlying shares on the date of grant. |
| |
| | In November 2003, the Company’s shareholders approved the increase of the number of Ordinary shares authorized for issuance under the 2000 Plan by the number of Ordinary shares available for grant under the Company’s 1995 and 1997 option plans, thereby terminating such plans (other than with respect to outstanding options under such plans) (representing an increase of 497,590 Ordinary shares). |
| |
| | In October 2004 and October 2005, the Company’s shareholders approved the increase of the number of options available for grant under the 2000 Plan by 500,000 and 14,500,000, respectively. |
| |
| | In October 2005, the Company’s shareholders also approved the increase of the available number of Ordinary shares authorized for issuance under the 2000 Plan by the number of Ordinary shares underlying options cancelled (except in the case of surrender for the exercise into shares) or which cease to be exercisable under the Company’s previously terminated option plans, the 1995 and 1997 option plans. |
F - 35
| |
| ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES |
| |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
U.S. dollars in thousands (except share and per share data) |
NOTE 14:- SHAREHOLDERS’ EQUITY (DEFICIENCY) (Cont.)
| | During 2008, in connection with the HP Transaction (see Note 1b), the Board of Directors approved the acceleration of the vesting of all outstanding employee stock options following the Closing Date and the repurchase, subject to the fulfillment of regulatory requirements, of the then outstanding employee stock options to purchase approximately 9.9 million Ordinary shares of the Company. The repurchase was completed in July 2008. |
| |
| | Any options not repurchased (due to their relatively high exercise price) were canceled during 2008 pursuant to their terms and the terms of the 2000 Plan). |
| |
| | During 2006, 2007 and 2008, the Company granted to directors 36,667, 30,000 and 43,333 options, respectively. |
| |
| | Following the increases in options reserved for issuance under the Company’s 1998 and 2000 Plans, the Company reserved for issuance 750,000 and 17,724,590 Ordinary shares, respectively. As of December 31, 2008, 146,667 options are outstanding and 519,166 Ordinary shares are available for future grants under the 1998 Plan and no options are outstanding and 7,272,028 Ordinary shares are available for future grants under the 2000 Plan (the number of Ordinary shares available for issuance under the 2000 Plan was reduced by the number of Ordinary shares underlying options repurchased by the Company as more fully detailed above). Options that are cancelled or forfeited before expiration become available for future grant. |
| |
| 2. | A summary of the Company’s employee and director share option activity through December 31, 2008 for the Plans is as follows: |
| | |
| | | | | Options outstanding and
exercisable | |
| | | | |
| |
| | | | | Number
of options
| | Weighted
average
exercise price
| |
| | | | |
| |
| |
| | | | | | | | | | |
| | Balance as of January 1, 2006 | | | | 6,697,281 | | $ | 0.65 | |
| | Options granted | | | | 5,821,667 | | $ | 0.61 | |
| | Options exercised | | | | (25,824 | ) | $ | 0.32 | |
| | Options forfeited or expired | | | | (641,060 | ) | $ | 1.16 | |
| |
| | | |
| | | | | |
| | Balance as of December 31, 2006 | | | | 11,852,064 | | $ | 0.60 | |
| | Options granted | | | | 1,490,000 | | $ | 0.59 | |
| | Options exercised | | | | (451,669 | ) | $ | 0.40 | |
| | Options forfeited or expired | | | | (2,662,194 | ) | $ | 0.81 | |
|
| | | |
| | | | |
| | Balance as of December 31, 2007 | | | | 10,228,201 | | $ | 0.54 | |
| | Options granted | | | | 43,333 | | $ | 0.50 | |
| | Options exercised | | | | (10,000 | ) | $ | 0.31 | |
| | Options Repurchased | | | | (9,893,550 | ) | $ | 0.52 | |
| | Options forfeited or expired | | | | (221,317 | ) | $ | 1.50 | |
|
| | | |
| | | | |
| | Balance as of December 31, 2008 | | | | 146,667 | | $ | 0.65 | |
|
| | | |
| | Exercisable as of December 31, 2008 | | | | 146,667 | | $ | 0.65 | |
|
| | | |
| | Exercisable as of December 31, 2007 | | | | 3,817,120 | | $ | 0.57 | |
|
| | | |
| | |
| | As of December 31, 2008 all options outstanding were fully vested. |
F - 36
| |
| ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES |
| |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
U.S. dollars in thousands (except share and per share data) |
NOTE 14:- SHAREHOLDERS’ EQUITY (DEFICIENCY) (Cont.)
| | | | | Year ended
December 31, 2008 | |
| | | | |
| |
| | | | | | Options | | Aggregate
intrinsic value
(in thousands) | |
| | | | |
| |
| |
| | | | | | | | | | |
| | Outstanding as of January 1, 2008 | | | | 10,228,201 | | $ | *)1,864 | |
| | Granted | | | | 43,333 | | $ | 3 | |
| | Exercised | | | | (10,000 | ) | $ | 3 | |
| | Repurchased | | | | (9,893,550 | ) | $ | 731 | |
| | Forfeiture or expired | | | | (221,317 | ) | $ | N/A | |
|
| | |
| | | |
| | |
| | Outstanding and exercisable as of December 31, 2008 | | | | 146,667 | | $ | **)9 | |
|
| | |
| | |
| | |
| *) | Represents intrinsic value of 9,947,167 options that are in-the-money as of December 31, 2007. The remaining 281,034 options are out of the money as of December 31, 2007 and their intrinsic value was considered as zero. |
| | |
| **) | Represents intrinsic value of 63,333 options that are in-the-money as of December 31, 2008. The remaining 83,334 options are out of the money as of December 31, 2008 and their intrinsic value was considered as zero. |
| | |
| | Total intrinsic value of options exercised during 2006 and 2007 was $ 6 and $ 140, respectively. |
| 3. | The options outstanding as of December 31, 2008, all of them options granted to directors under the 1998 Plan, have been separated into ranges of exercise price, as follows: |
| | |
| | | | | | | | | | | | |
| Outstanding and excercisable | |
| |
| |
| Range of
exercise
price | | Options
outstanding | | Weighted
average
remaining
contractual
life | | Weighted
average
exercise
price | |
| |
| |
| |
| |
| |
| | | | | Years | | | |
| | | | |
| | | |
|
| | $ | 0.31-0.40 | | 20,000 | | | 6.59 | | $ | 0.31 | |
| | $ | 0.48-0.80 | | 100,000 | | | 8.78 | | $ | 0.58 | |
| | $ | 0.92-1.17 | | 20,000 | | | 6 | | $ | 0.92 | |
| | $ | 1.63-1.88 | | 6,667 | | | 4.88 | | $ | 1.86 | |
| | | | |
| | | | | | | |
| | | | | | | | | | | | |
| | | | | 146,667 | | | 7.92 | | $ | 0.65 | |
| | | | |
| |
|
| |
|
| |
| | |
| 4. | All options granted during 2006, 2007 and 2008, were granted with exercise price equal to the market price on the date of grant. Weighted average fair values and exercise price of options on dates of grant are as follows: |
| | |
| | | | | Equal market price | |
| | | | |
| |
| | | | | 2006 | | 2007 | | 2008 | |
| | | | |
| |
| |
| |
| | | | | | | | | | | | | |
| | Weighted average exercise prices | | | $ | 0.61 | | $ | 0.59 | | $ | 0.50 | |
|
| |
| |
| |
| | Weighted average fair value on grant date | | | $ | 0.45 | | $ | 0.41 | | $ | 0.22 | |
|
| |
| |
| |
F - 37
| |
| ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES |
| |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
U.S. dollars in thousands (except share and per share data) |
NOTE 14:- SHAREHOLDERS’ EQUITY (DEFICIENCY) (Cont.)
| g. | The Company’s outstanding warrants as of December 31, 2008, are as follows: |
| | |
| | Issuance date | | Number of
warrants
issued | | Exercise
price
per share | | Warrants
exercisable | | Expiration
date | |
| |
| |
| |
| |
| |
| |
| | | | | | | | | | | |
| | August 2003 | | 953,000 | | $ | 0.62 | | 953,000 | | January 2009 | |
| | March 2004 | | 646,542 | | $ | 1.54 | | 646,542 | | March 2009 | |
| | March 2004 | | 112,903 | | $ | 0.62 | | 112,903 | | March 2009 | |
| | March 2004 | | 129,310 | | $ | 1.16 | | 129,310 | | March 2009 | |
| | February 2002 | | 50,000 | | $ | 5.00 | | 50,000 | | August 2009 | |
| | April 2005 | | 3,000,000 | | $ | 0.75 | | 3,000,000 | | April 2010 | |
| | October 2005 | | 25,714,286 | | $ | 0.40 | | 25,714,286 | | October 2010 | |
| | December 2005 | | 8,000,000 | | $ | 0.35 | | 8,000,000 | | December 2010 | |
| | January 2007 | | 2,131,596 | | $ | 0.65 | | 2,131,596 | | January 2012 | |
| | February 2007 | | 1,388,889 | | $ | 0.65 | | 1,388,889 | | February 2012 | |
| | | |
| | | | |
| | | |
| | | | 42,126,526 | | | | | 42,126,526 | | | |
| | | |
| | | | |
| | | |
| | |
| | In September 2008, warrants to purchase 240,000 ordinary shares, at an exercise price of $ 0.52 per share, were exercised. In October 2008, warrants to purchase 825,923 ordinary shares at an exercise price of $0.34 per share, held equally by Kanir and Shlomo Nehama, were exercised. These exercises resulted in the receipt by us of aggregate consideration in the amount of $ 510. |
| |
| | In the event that cash dividends are declared in the future, such dividends will be paid in NIS. A dividend paid to shareholders outside Israel will be converted into dollars, on the basis of the exchange rate prevailing at the date of payment. The Company does not intend to pay cash dividends in the foreseeable future. |
NOTE 15:- TAXES ON INCOME
| 1. | Corporate tax structure: |
| | |
| | Taxable income of Israeli companies is subject to tax at the rate of 31% in 2006, 29% in 2007, 27% in 2008, 26% in 2009, 25% in 2010 and thereafter. |
| |
| 2. | Measurement of results for tax purposes under the Income Tax (Inflationary Adjustments) Law, 1985: |
| | |
| | Results for tax purposes are measured in terms of earnings in NIS after certain adjustments for increases in Israel’s Consumer Price Index (“CPI”). As explained in Note 2b, the financial statements are measured in U.S. dollars. The difference between the annual change in Israel’s CPI and in the NIS/dollar exchange rate causes a difference between taxable income and the income before taxes shown in the financial statements. In accordance with paragraph 9(f) of SFAS No. 109, the Company has not provided deferred income taxes in respect of the difference between the functional currency and the tax bases of assets and liabilities. Subsequent to balance sheet date, in February 2008, the inflation adjustment law was cancelled. |
F - 38
| |
| ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES |
| |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
U.S. dollars in thousands (except share and per share data) |
NOTE 15:- TAXES ON INCOME (Cont.)
| 3. | Tax benefits under the Law for the Encouragement of Industry (Taxation), 1969: |
| | |
| | Before the transaction with HP, the Company was an “industrial Company”, as defined by this law and, as such, was entitled to certain tax benefits, including accelerated rates of depreciation, in accordance with regulations published under the inflationary adjustments law. The Company was also entitled to claim public issuance expenses and patent amortization costs from its taxable income in three and eight equal annual installments, respectively. |
| |
| b. | Income taxes on non-Israeli subsidiaries: |
| | |
| | Non-Israeli subsidiaries are taxed according to the tax laws in their respective country of residence. |
| |
| | Israeli income taxes and foreign withholding taxes were not provided for undistributed earnings of the Company’s foreign subsidiaries. The Company’s Board of Directors has determined that the Company will not distribute any amounts of its undistributed earnings as dividend. The Company intends to reinvest these earnings indefinitely in its foreign subsidiaries. Accordingly, no deferred income taxes have been provided. If these earnings were distributed to Israel in the form of dividends or otherwise, the Company would be subject to additional Israeli income taxes (subject to an adjustment for foreign tax credits) and foreign withholding taxes. The determination of the deferred tax liability is not practicable. |
| |
| c. | Uncertain tax positions: |
| | |
| | As of December 31, 2008, the total amount of unrecognized tax benefits was $ 4,584 which, if recognized, would affect the effective tax rates in future periods. Included in that amount are cumulative accrued interest and penalties in respect to uncertain tax positions of $ 966 at December 31, 2008, of which $ 318 for interest and penalties expenses were recorded during 2008. |
| |
| | A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: |
| |
| | | | | 2007 | | 2008 | |
|---|
| | | | |
| |
| |
| | | | | | | | | | |
| | Beginning balance | | | $ | 2,617 | | $ | 3,618 | |
| | Additions for prior year tax positions | | | | 837 | | | 318 | |
| | Additions for current year tax position | | | | 164 | | | 648 | |
| | | | |
|
| |
| |
| | Ending balance | | | $ | 3,618 | | $ | 4,584 | |
|
| |
| |
| | |
| | The amount of income taxes paid by the Group is subject to ongoing audit by federal, state and foreign tax authorities, which often results in proposed assessments. Management performs a comprehensive review of its global tax positions on an annual basis and accrues amounts for contingent tax liabilities. Based on these reviews, the result of discussions and resolutions of matters with certain tax authorities and the closure of tax years subject to tax audit, reserves are adjusted as necessary. However, future results may include favorable or unfavorable adjustments to estimated tax liabilities in the period the assessments are determined or resolved. Additionally, the jurisdictions in which earnings and/or deductions are realized may differ from current expectations used as a basis for the above estimates. The Company does not expect that any tax audit would be completed within the next twelve months; therefore, the Company does not anticipate any significant impact on its unrecognized tax benefit balance in 2009. |
| |
| | The Company has tax assessments that are considered to be final up to 2002. |
F - 39
| |
| ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES |
| |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
U.S. dollars in thousands (except share and per share data) |
NOTE 15:- TAXES ON INCOME (Cont.)
| d. | Theoretical tax expenses: |
| | |
| | Statutory rate applied to corporations in Israel and the actual tax expense, is as follows: |
| |
| | | | | | | | | | | | |
| | | | Year ended December 31, | |
| | | |
| |
| | | | 2006 | | 2007 | | 2008 | |
| | | |
| |
| |
| |
| | |
| | Income (loss) before taxes on income | | $ | (1,823 | ) | $ | (5,582 | ) | $ | 87,942 | |
| | | |
|
| |
|
| |
|
| |
| | | | | | | | | | | | |
| | Statutory tax rate | | | 31 | % | | 29 | % | | 27 | % |
| | | |
|
| |
|
| |
|
| |
| | | | | | | | | | | | |
| | Theoretical tax expense (benefit) | | $ | (565 | ) | $ | (1,619 | ) | $ | 23,744 | |
| | Increase (decrease) in taxes: | | | | | | | | | | |
| | Approved enterprise | | | 734 | | | 1,225 | | | 490 | |
| | Income subject to reduced tax rate | | | (27 | ) | | 226 | | | (920 | ) |
| | Permanent differences | | | 105 | | | 1,168 | | | (17,500 | ) |
| | Foreign exchange differences (see 2 above) | | | 478 | | | 180 | | | 1,279 | |
| | Utilization of carryforward losses for which valuation allowance was provided | | | (175 | ) | | (1,327 | ) | | (10,294 | ) |
| | Deferred taxes on losses, reserves and allowances for which a valuation allowance was provided | | | (452 | ) | | 985 | | | 4,167 | |
| | | |
|
| |
|
| |
|
| |
| | | | | | | | | | | | |
| | Actual tax expense | | $ | 98 | | $ | 838 | | $ | 966 | |
| | | |
|
| |
|
| |
|
| |
| | | | | | | | | | | | |
| | Basic net Income (loss) per share amount of the tax benefit resulting from “Approved Enterprise” status | | | *)– | | | *)– | | | – | |
| | | |
|
| |
|
| |
|
| |
| | | | | | | | | | | | |
| | Diluted net Income (loss) per share amount of the tax
benefit resulting from “Approved Enterprise” status | | | *)– | | | *)– | | | – | |
| | | |
|
| |
|
| |
|
| |
| | | |
| | *) | Less than $ 0.01 |
| | |
| | **) | Carryforward losses of subsidiaries sold to HP were assumed by them. |
| | |
| e. | Taxes on income included in the statements of income (operations): |
| | |
| | | | | Year ended December 31, | |
| | | | |
| |
| | | | | 2006 | | 2007 | | 2008 | |
| | | | |
| |
| |
| |
| | | | | | | | | | | | | |
| | Current: | | | | | | | | | | | |
| | Domestic | | | $ | – | | $ | 434 | | $ | 130 | |
| | Foreign | | | | 98 | | | 404 | | | 836 | |
|
| |
| |
| |
| | | | | | |
| | | | | $ | 98 | | $ | 838 | | $ | 966 | |
|
| |
| |
| |
F - 40
| |
| ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES |
| |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
U.S. dollars in thousands (except share and per share data) |
NOTE 15:- TAXES ON INCOME (Cont.)
| | Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Group’s deferred tax assets are as follows: |
| |
| | | | | December 31, | |
| | | | |
| |
| | | | | 2007 | | 2008 | |
| | | | |
| |
| |
| | | | | | | | | | |
| | Deferred tax asset: | | | | | | | | |
| | Net operating losses and deductions carryforward | | | $ | 30,068 | | $ | 24,853 | |
| | Stock-based compensation | | | | 649 | | | 587 | |
| | Others | | | | 1,247 | | | 158 | |
|
| |
| |
| | | | |
| | Deferred tax assets before valuation allowance | | | | 31,964 | | | 25,598 | |
| | Valuation allowance (1) | | | | (31,725 | ) | | (25,598 | ) |
|
| |
| |
| | | | |
| | Net deferred tax assets (2) | | | $ | 239 | | $ | – | |
|
| |
| |
| | |
| (1) | The Group has provided valuation allowances in respect of deferred tax assets resulting from tax losses carryforward and other temporary differences. Management currently believes that since the Company has a history of losses it is more likely than not that the deferred tax regarding all loss carryforwards will not be utilized in the foreseeable future. The net change in the valuation allowance in the year ended 31 December, 2008 was approximately $ 6,127, which primarily relates to utilization of net operating losses in connection with the HP Transaction. Carryforward losses of subsidiaries sold to HP were assumed by them. |
| | |
| (2) | As of December 31, 2007 deferred taxes are recorded in current other accounts receivable and other assets. |
| | |
| g. | Carryforward tax losses and deductions: |
| | |
| | As of December 31, 2008, Ellomay Capital Ltd. had available carryforward tax losses and deductions aggregating to approximately $ 35,000, which have no expiration date. |
| |
| | NUR Asia Pacific had available carryforward losses as of December 31, 2008 aggregating to approximately $ 2,000, which have no expiration date. |
| |
| | NUR Media Solutions had available carryforward losses as of December 31, 2008 aggregating to approximately $ 6,000, which have no expiration date. |
| |
| | Additional carryforward losses of NUR America and NUR Salsa, which are located in the U.S, amount to approximately $ 33,000. Utilization of U.S. net operating losses may be subject to substantial annual limitation due to the “change in ownership provision of the Internal Revenue Code of 1986” and similar state provisions. As NUR America and NUR Salsa were dissolved during 2008, upon submitting the final tax returns of these companies, the remaining unutilized carryforward losses will expire. |
F - 41
| |
| ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES |
| |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
U.S. dollars in thousands (except share and per share data) |
NOTE 15:- TAXES ON INCOME (Cont.)
| h. | Income (loss) before taxes on income consists of the following: |
| | |
| | | | | Year ended December 31, | |
| | | | |
| |
| | | | | 2006 | | 2007 | | 2008 | |
| | | | |
| |
| |
| |
| | | | | | | | | | | | | |
| | Domestic | | | $ | (4,588 | ) | $ | (8,747 | ) | $ | 86,697 | |
| | Foreign | | | | 2,765 | | | 3,165 | | | 1,245 | |
|
| |
| |
| |
| | | | | | |
| | | | | $ | (1,823 | ) | $ | (5,582 | ) | $ | 87,942 | |
|
| |
| |
| |
NOTE 16:- EARNINGS PER SHARE
| | The following table sets forth the computation of basic and diluted earnings per share: |
| | |
| | | | | Years ended December 31, | |
| | | | |
| |
| | | | | 2006 | | 2007 | | 2008 | |
| | | | |
| |
| |
| |
| | | | | | | | | | | | | |
| | Net income (loss) | | | $ | (1,921 | ) | $ | (6,420 | ) | $ | 86,976 | |
|
| |
| |
| |
| | | | | | | | | | | | | |
| | Weighted average Ordinary shares outstanding | | | | 60,506,854 | | | 71,537,501 | | | 72,972,565 | |
|
| |
| |
| |
| | | | | | |
| | Dilutive effect: | | |
| | Employee stock options and warrants | | | | – | | | – | | | 13,783,971 | |
|
| |
| |
| |
| | | | | | |
| | Diluted weighted average Ordinary shares outstanding | | | | – | | | – | | | 86,102,748 | |
|
| |
| |
| |
| | | | | | | | | | | | | |
| | Basic earnings (loss) per share | | | $ | (0.03 | ) | $ | (0.09 | ) | $ | 1.19 | |
|
| |
| |
| |
| | | | | | |
| | Diluted earnings (loss) per share | | | $ | (0.03 | ) | $ | (0.09 | ) | $ | 1.01 | |
|
| |
| |
| |
NOTE 17:- MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION
| a. | Summary information about geographic areas: |
| | |
| | The Company managed its business on the basis of one reportable segment. Refer to Note 1a for a description of the Company’s business. The following data is presented in accordance with SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information”. Total revenues were attributed to geographical areas based on location of end customers. |
F - 42
| |
| ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES |
| |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
U.S. dollars in thousands (except share and per share data) |
NOTE 17:- MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION (Cont.)
| | The following table presents total revenues for the years ended December 31, 2006, 2007 and 2008 and long-lived assets as of December 31, 2007 and 2008: |
| |
| | | | | 2006 | | 2007 | | 2008 | |
| | | | |
| |
| |
| |
| | | | | Total
revenues
| | Total
revenues
| | Long-
lived
assets
| | Total
revenues
| |
| | | | |
| |
| |
| |
| |
| | | | | | | | | | | | | | | | |
| | Asia | | | $ | 8,740 | | $ | 10,811 | | $ | 327 | | $ | 664 | |
| | Europe and Middle East | | | | 42,391 | | | 48,344 | | | 5,398 | | | 7,589 | |
| | America | | | | 26,837 | | | 26,452 | | | 219 | | | 3,157 | |
|
| |
| |
| |
| |
| | | | | | | | |
| | | | | $ | 77,968 | | $ | 85,607 | | $ | 5,944 | | $ | 11,410 | |
|
| |
| |
| |
| |
| | Total revenues from external customers distributed on the basis of the Company’s product lines were as follows: |
| |
| | | | | Year ended December 31, | |
| | | | |
| |
| | | | | 2006 | | 2007 | | 2008 | |
| | | | |
| |
| |
| |
| | | | | | | | | | | | | |
|---|
| | Printers and spare parts | | | $ | 50,120 | | $ | 53,592 | | $ | 6,606 | |
| | Ink | | | | 22,456 | | | 26,636 | | | 3,962 | |
| | Services | | | | 5,392 | | | 5,379 | | | 842 | |
|
| |
| |
| |
| | | | | | |
| | | | | $ | 77,968 | | $ | 85,607 | | $ | 11,410 | |
|
| |
| |
| |
| | |
| c. | Major customer data as a percentage of total revenues: |
| | |
| | The Group did not have any major customers that represented 10% or more of the consolidated revenues for 2006, 2007 and 2008. |
NOTE 18:- SELECTED STATEMENTS OF INCOME (OPERATIONS) DATA
| a. | Research and development, net: |
| | |
| | | | | Year ended December 31, | |
| | | | |
| |
| | | | | 2006 | | 2007 | | 2008 | |
| | | | |
| |
| |
| |
| | | | | | | | | | | | | |
| | Research and development expenses | | | $ | 5,827 | | $ | 7,425 | | $ | 1,942 | |
| | Less – participation of the government in
research and development projects | | | | – | | | 379 | | | – | |
|
| |
| |
| |
| | | | | | |
| | | | | $ | 5,827 | | $ | 7,046 | | $ | 1,942 | |
|
| |
| |
| |
F - 43
| |
| ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES |
| |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
U.S. dollars in thousands (except share and per share data) |
NOTE 18:- SELECTED STATEMENTS OF INCOME (OPERATIONS) DATA (Cont.)
| b. | Financial expenses, net: |
| | |
| | | | | Year ended December 31, | |
| | | | |
| |
| | | | | 2006 | | 2007 | | 2008 | |
| | | | |
| |
| |
| |
| | | | | | | | | | | | | |
| | Expenses: | | | | | | | | | | | |
| | Interest on short-term bank credit and other
charges | | | $ | (385 | ) | $ | (512 | ) | $ | (610 | ) |
| | Interest on long-term loans | | | | (80 | ) | | (54 | ) | | – | |
| | Foreign currency loss | | | | (6,423 | ) | | (9,329 | ) | | (3,278 | ) |
|
| |
| |
| |
| | | | | | |
| | | | | | (6,888 | ) | | (9,895 | ) | | (3,888 | ) |
|
| |
| |
| |
| | Income: | | |
| | Interest on bank deposits and other | | | | 193 | | | 36 | | | 1,808 | |
| | Interest on restructured debt (see Note 1b) | | | | – | | | – | | | 7,335 | |
| | Foreign currency gain | | | | 5,379 | | | 8,121 | | | 2,341 | |
|
| |
| |
| |
| | | | | | |
| | | | | | 5,572 | | | 8,157 | | | 11,484 | |
|
| |
| |
| |
| | | | | | |
| | | | | $ | (1,316 | ) | $ | (1,738 | ) | $ | 7,596 | |
|
| |
| |
| |
F -44
[BDO McCabe Lo Limited Letterhead]
Report of IndependentRegistered Public Accounting Firm
To the Shareholders and the Board of Directors of
NUR Asia Pacific Limited
We have audited the accompanying balance sheets of NUR Asia Pacific Limited (the “Company”) as of December 31, 2007 and the related statements of operations, stockholders’ deficit and cash flows the two years in the period ended December 31, 2007. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits include consideration 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. Our audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of NUR Asia Pacific Limited as of December 31, 2007, and the results of its operations and cash flows for the two years in the period ended December 31, 2007, in conformity with accounting principles generally accepted in the United States of America.
/s/BDO McCabe Lo Limited
BDO McCabe Lo Limited
Certified Public Accountants
Hong Kong, 26 June 2008
