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Law

Companies Law, 5759-1999

חוק החברות

First Schedule (Section 19(2a)): Recommended Corporate Governance Provisions

Proportion of Independent Directors

[Amendment: 5771-3, 5771-4 | Anchor=First Schedule Item 1]

In a public company and in a private company that is a bond company, the proportion of independent directors shall be as set out below, as the case may be:

(1)In a company that has no controlling shareholder or person holding a control block (in this section – controlling shareholder) – the majority of the board members shall be independent directors;

(2)In a company that has a controlling shareholder – at least one third of the board members shall be independent directors.

Diversity of Board Composition

[Amendment: 5771-3, 5771-4 | Anchor=First Schedule Item 2]

In the appointment of a director in a public company and in a private company that is a bond company, the composition of the board shall be diversified with regard to the gender of the candidate, in addition to the obligation to diversify it with regard to the knowledge and experience of the candidate, in accordance with the special needs of the company.

Restriction on Office Holders Serving as Directors

[Amendment: 5771-3, 5771-4 | Anchor=First Schedule Item 3]

In a public company and in a private company that is a bond company, persons who are subordinate to the general manager, directly or indirectly, shall not serve as directors, except for a director who is an employee representative, if an employee representation exists in the company; a director in a corporation controlled by a public company or a private company that is a bond company may serve as a director in that company.

Director Training and Appointment of Corporate Governance Compliance Officer

[Amendment: 5771-3, 5771-4 | Anchor=First Schedule Item 4]

(a)A public company and a private company that is a bond company shall ensure the preparation of training programs for new directors, in the field of the company's business and in the field of the law applicable to the company and to the directors, and shall also ensure the preparation of continuing programs for serving directors, with the aim of updating their knowledge in the aforementioned fields; training programs shall be tailored, among other things, to the role that the director fulfills in the company.

(b)The chairperson of the board of directors or another person appointed by the board of directors shall act to implement the corporate governance provisions applicable to the company and to update the directors on matters relating to corporate governance.

Board Meetings Without the General Manager and Subordinates

[Amendment: 5771-3, 5771-4 | Anchor=First Schedule Item 5]

The board of directors of a public company and the board of directors of a private company that is a bond company shall hold, at least once a year, a discussion regarding the management of the company's business by the general manager and the office holders subordinate to him, without their presence, after they have been given an opportunity to express their positions.

Audit Committee Meetings with Internal Auditor and Auditing Accountant

[Amendment: 5771-3 | Anchor=First Schedule Item 6]

The audit committee shall hold, at least once a year, a meeting regarding deficiencies in the business management of the company, in the presence of the internal auditor and the auditing accountant, and without the presence of office holders in the company who are not members of the committee, after they have been given the opportunity to express their positions.

Appointment of External Director

[Amendment: 5771-3, 5771-4, 5774-2 | Anchor=First Schedule Item 7]

Notwithstanding the provisions of Section 239(b), external directors in a public company shall be appointed at the general meeting by a majority of votes, provided that all of the following conditions are met:

(1)In the count of the total votes of the shareholders at the general meeting, the votes of shareholders who are controlling shareholders of the company or who have a personal interest in the approval of the appointment shall not be taken into account, except for a personal interest that does not arise from a relationship with the controlling shareholder, as well as abstaining votes;

(2)The total votes in favor among shareholders who are neither controlling shareholders of the company nor persons with a personal interest in the approval of the appointment, except for a personal interest that does not arise from a relationship with the controlling shareholder, exceeded two percent of the total voting rights in the company.

(3)The external director to be appointed is not a related or competing shareholder, nor a relative of such a shareholder, at the time of appointment, and has no affiliation with a related or competing shareholder, at the time of appointment or within the two years preceding the time of appointment; for this purpose –

"related or competing shareholder" – the shareholder who proposed the appointment or a substantial shareholder, all provided that at the time of appointment such shareholder, a controlling shareholder thereof, or a company controlled by either of them, has business relations with the company, or such shareholder, a controlling shareholder thereof, or a company controlled by either of them, are competitors of the company; the Minister, in consultation with the Israel Securities Authority, may determine that certain matters, under conditions that the Minister prescribed, shall not constitute a business relationship with the company or competition therewith;

"affiliation" – as defined in Section 240(b), and the Minister, in consultation with the Israel Securities Authority, may determine that certain matters, under conditions that the Minister prescribed, shall not constitute an affiliation.

[Amendment: 5771-3, Regulations 5774-2 | Anchor=First Schedule Item 8]

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First Schedule A

Part A: Matters That Must Be Addressed in the Compensation Policy

(1).

The education, qualifications, expertise, professional experience, and achievements of the office holder;

(2).

The role of the office holder, their areas of responsibility, and prior compensation agreements entered into with them;

(3).

[Amendment: Regulations 5773-2|anchor=Schedule 1a Part A Item 3]

The ratio between the cost of the terms of office and employment of the office holder and the wage cost of the other employees of the Company and of contractor employees employed by the Company, and in particular the ratio to the average wage and the median wage of such employees, and the impact of the gaps between them on labor relations within the Company; for this purpose —

"Contractor employees employed by the Company" — employees of a manpower contractor for whom the Company is the actual employer, and employees of a service contractor employed in providing services at the Company; for this purpose, "manpower contractor", "service contractor", "actual employer" — as defined in the Employment of Employees by Manpower Contractors Law, 5756–1996;

"Wage cost" — any payment in respect of employment, including employer contributions, severance payments, a vehicle and the expenses of its use, and any other benefit or payment;

(4).

Where the terms of office and employment include variable components — the possibility of reducing the variable components at the discretion of the board of directors, and the possibility of setting a cap on the exercise value of variable equity components that are not settled in cash;

(5).

Where the terms of office and employment include retirement grants — the period of office or employment of the office holder, the terms of their office and employment during that period, the performance of the Company during the said period, the contribution of the office holder to the achievement of the Company's goals and to the maximization of its profits, and the circumstances of the retirement.

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Part B: Mandatory Provisions in the Compensation Policy

(1).

[Amendment: Regulations 5776 | Anchor: First Schedule A Part B Item 1]

With respect to variable components in terms of office and employment –

(a)Basing the components on performance from a long-term perspective, and in accordance with measurable criteria; however, a company may determine that a non-material portion of such components, or the aggregate of such components if their total amount does not exceed three monthly salaries per year, shall be granted on the basis of non-measurable criteria, taking into account the contribution of the office holder to the company; this sub-item shall not apply to an office holder who is subordinate to the Chief Executive Officer;

(b)The ratio between the variable components and the fixed components, as well as a cap on the value of the variable components at the time of their payment; however, with respect to equity-based variable components that are not settled in cash — a cap on their value at the time of their grant;

(2).

A provision whereby the office holder shall return to the company, under conditions to be set out in the compensation policy, amounts paid to him as part of the terms of office and employment, if such amounts were paid on the basis of data that proved to be erroneous and were restated in the company's financial statements;

(3).

A minimum holding or vesting period for equity-based variable components in the terms of office and employment, with reference to appropriate incentives from a long-term perspective;

(4).

A cap on retirement grants.

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Second Schedule (Section 345a): Specification of Public Purposes

A purpose whose subject matter is one of the following:

(1).

Environmental quality, environmental protection, or awareness of nature and the environment;

(2).

Health or saving of lives;

(3).

Religion, heritage, or commemoration;

(4).

Protection of animals and care for their welfare;

(5).

Human rights;

(6).

Education, vocational training, culture, or art;

(7).

Science, research, or higher education;

(8).

Sport;

(9).

Immigration, absorption, or settlement;

(10).

Charity or relief;

(11).

Community welfare or communal, social, or national activity;

(12).

Rule of law, governance, or public administration;

(13).

Establishment of funds or organizations for the promotion of or support for a body operating for one or more of the purposes enumerated in this Schedule.

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Third Schedule (Section 345m): Investment Methods of a Public Benefit Fund

Definitions

[Amendment: 5774-3, 5774-4|anchor=Schedule 3 Item 1]

In this Schedule –

"Tradeable bond" – a bond traded on a stock exchange;

"Rating" – a debt rating in Israel, as determined by a rating company as defined in the Credit Rating Companies Regulation Law, 5774–2014;

"Investment method" – including the investment period;

"Investment advisor" and "portfolio manager" – as defined in the Regulation of Investment Advisory and Portfolio Management Law, 5755–1995;

"Foreign currency" – as defined in the Bank of Israel Law, 5770–2010;

"Issuer" – a corporation that has issued securities, excluding the State of Israel;

"Mutual funds" – joint investment funds in trust as defined in the Joint Investments in Trust Law, 5754–1994.

Investment Methods

[Amendment: 5774-3|anchor=Schedule 3 Item 2]

(a)The surplus funds of a fund shall be invested in one or more of the following:

(1)bonds issued by the State or guaranteed by it for repayment;

(2)bank deposits in New Israeli Shekels that are index-linked and interest-bearing, or interest-bearing only;

(3)bank savings plans in New Israeli Shekels that are index-linked and interest-bearing;

(4)bank deposits denominated in foreign currency or linked to foreign currency;

(5)bank savings plans linked to foreign currency;

(6)tradeable bonds that are non-convertible, provided the investment is rated A- or A-2 at minimum;

(7)mutual funds whose entire assets are invested in one or more of the methods listed in paragraphs (1), (2), (4), or (6).

(b)A fund shall not invest in securities of a single issuer at a rate exceeding 20% of the monetary value of the surplus funds (hereinafter – the monetary value); if the monetary value exceeds the amounts set out below, the fund shall determine that the investment in a single corporation, in deposits, in savings plans, and in securities issued by that corporation, shall not exceed the rates stated alongside them:

(1)one million New Israeli Shekels – 50% of the monetary value;

(2)ten million New Israeli Shekels – 25% of the monetary value.

(c)Where an investment committee has been appointed for a fund pursuant to the provisions of this Schedule, the surplus funds of the fund shall be invested through the investment committee and in accordance with its discretion; in addition to the investment methods set out in subsection (a), the investment committee may choose to invest the surplus funds subject to the restrictions on investment methods of an investment committee under Section 27 of the Trust Law, with the necessary modifications; the investment committee of a fund shall not invest in a corporation in which a director, shareholder, controlling party, or major donor of the fund is a controlling party or interested party, nor in a manner that would result in the fund becoming a controlling party or interested party in a particular corporation; for this purpose, the fund and the director, shareholder, controlling party, or major donor of the fund, as the case may be, shall be deemed to be joint holders.

(d)The Registrar of Endowments may approve in advance, at the request of a fund, that the fund invest its surplus funds by a method other than those referred to in subsections (b) and (c); the request shall be submitted in writing and shall detail all of the following:

(1)the name of the fund, its address, date of establishment, date of recognition as a public benefit fund, and its purposes;

(2)particulars of its shareholders and serving directors;

(3)the total assets of the fund and its expected revenues in the coming years;

(4)the fund's obligations and its current and expected expenditures for the coming years;

(5)the reasons justifying investment of the funds by the requested method;

(6)any additional information required for determination of the request.

(e)The investment method of the surplus funds of a fund shall be chosen having regard, inter alia, to the purposes of the fund and to the fund distribution policy established in accordance with the provisions of the Law, taking into account changes that may occur from time to time, and subject to the articles of association of the company.

Obligation to Appoint an Investment Committee

[Amendment: 5774-3|anchor=Schedule 3 Item 3]

The board of directors of a fund whose surplus funds exceed 30 million New Israeli Shekels, or of a fund whose articles of association so provide, shall appoint an investment committee (hereinafter – the investment committee).

Composition and Qualifications of Investment Committee Members

[Amendment: 5774-3|anchor=Schedule 3 Item 4]

(a)The composition of the investment committee and the qualifications of its members shall be in accordance with the provisions established in that regard under Section 27 of the Trust Law, with the necessary modifications and with the following modifications:

(1)a person shall not serve as a member of the investment committee if that person, their relative, partner, employer, or a corporation in which that person is a controlling party, has a connection to a shareholder or director of the fund, other than a connection to an independent director of the fund, in all cases at the time of appointment, during the term of office, or within the two years preceding the date of appointment; for this purpose, "connection" – control, benefit, employment relations, family ties, or business or professional relationships in general;

(2)notwithstanding the provisions of paragraph (1), an independent director may serve as a member of the investment committee, provided that the provisions of that paragraph are satisfied with respect to a majority of the members of the investment committee.

(b)In this section, "independent director" – as defined in Section 345mb.

Duties and Rights of Investment Committee Members

[Amendment: 5774-3|anchor=Schedule 3 Item 5]

A member of the investment committee owes the fund a duty of care and a duty of loyalty as set out in Sections 252 and 254, and is entitled, for the purpose of performing their function, to receive information and to engage advisors as set out in Sections 265 and 266, as if they were an office holder in the company, with the necessary modifications.

Procedures for Investment Committee Operations

[Amendment: 5774-3|anchor=Schedule 3 Item 6]

The investment committee shall convene at least once per quarter, unless the board of directors has approved convening at a different frequency of no less than twice per year; the committee shall establish procedures for its operations with the approval of the fund's board of directors, and shall transmit to the board of directors the minutes of its deliberations and, once per year, a report on its activities; decisions of the investment committee shall be adopted by a majority of the votes of the members present.

Reimbursement of Expenses or Remuneration

[Amendment: 5774-3|anchor=Schedule 3 Item 7]

A fund that has acted for the purpose of investing its surplus funds through or with the assistance of another party, including a portfolio manager, investment advisor, or investment committee, shall not pay management fees, expenses, or remuneration out of the company's assets at a rate exceeding 0.5 percent per annum of the total surplus funds available for investment in that year.

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