going public – the process, legal aspects and alternatives interaction between us/uk and israeli...
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GOING PUBLIC – THE PROCESS, LEGAL ASPECTS AND ALTERNATIVESInteraction Between US/UK and Israeli Law
November 8, 2006
Daniel K. Gamulka
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Accessing Global Markets Requires Compliance with Multiple Regimes
Israel Companies Law, 1999
Israel Securities Law, 1968
Securities Act of 1933 and Securities Exchange Act of 1934 (US)
Stock Exchange Regulations
Financial Services and Markets Act 2000 (UK)
EU Prospectus Directive
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Offering Rules
Principally jurisdiction of offering
Israeli securities law may affect various aspects:
Avoiding public offering in Israel
Institutional road show
Employees
35 offerees in any 12-month period
Impact of local laws to certain issuers:
Regulatory
Government grants
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Corporate Governance
Principally Israeli law
All provisions of Israeli corporate law apply, unless specifically exempted
In US, Sarbanes-Oxley greatly expanded US role in corporate governance of foreign companies
Stock exchanges (NYSE, NASDAQ, LSE, AMEX) impose additional requirements
Israeli company listed abroad must meet all requirements, sometimes conflicting, unless exempted
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Corporate Governance (cont’d)
Board of Directors
Israeli Law:
Two “external” directors (dahatzim)
Elected by shareholders by a special majority
U.S. stock exchanges:
Require a majority of independent directors who are elected in same manner as other directors
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Examples
Board of Directors
U.S. stock exchanges: (cont’d)
Definition of independence
Differs from definition for audit committee purposes
Differences between U.S. and Israel
Differences between U.K. and Israel
NYSE and NASDAQ exemptions from foreign private issuers (including most Israeli companies)
Underwriters may require or recommend compliance
Company may want to adopt “Best Practice” even if exemption available
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Examples
Board of Directors
UK/Combined Code on Corporate Governance:
Except for smaller companies, majority of independent, non-executive directors
Division between Chairman and CEO.
AIM: More flexible:
Minimum of two independent directors for smaller AIM companies
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Examples
Audit Committees
Israeli Law:
At least 3 members
Including two “external directors” (dahatzim)
Principally focused on related party conflicts
U.S. Stock Exchanges:
All members must be “independent directors”
Principally focused on oversight of financial reporting.
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Examples
Audit Committees
U.K. / Combined Code:
LSE –
At least 3 directors (2 for small companies)
all of whom independent non-executives
monitor internal and external audit functions
AIM –
In majority of cases sponsor will require compliance with combined code
Makeup and role can be more flexible for smaller companies
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Examples
Other Committees
Israeli Law
One external director on each committee
No committees required, other than audit committee.
U.S. exchanges -
Compensation and nomination committees (or majority of independent directors, for NASDAQ)
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Examples Other Committees
U.S. exchanges (cont’d)
Compensation and nominations committees comprised of solely independent directors
NYSE and NASDAQ exemptions for foreign private issuers
Underwriters may require or recommend compliance
UK/Combined Code:
Audit, remuneration and nominations committees
Comprised of independent, non-executive directors
Only committee members entitled to attend meetings
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Examples
Shareholder Approval Requirements
Stock Option Plans:
Israel: shareholder approval required for grants of options to directors and controlling shareholders
U.S. exchanges: Shareholder approval for all option plans; exemptions for foreign private issuers.
U.K.:
LSE: Shareholder approval required, unless plan available to all employees on same terms
AIM: No approval required
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Examples
Shareholder Approval Requirements
Related party transactions:
Israel: shareholder approval required, at times with special majority
U.S. exchanges: shareholder approval required in cases of securities issuances
U.K.:
LSE: shareholder approval required, related party not counted in vote
AIM: no shareholder approval required; announcement and directors’ statement required for certain transactions with related parties
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Examples
Exemptions/Relief:
Israel: Regulatory exemptions for companies listed abroad or dual listed.
Reporting requirements
Means of convening shareholders meeting
External director-terms and compensation
Proxy rules