ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Exemption, Insurance, and Indemnification of Directors and Officers
Exemption of Officers and Directors
Under the Israeli Companies Law, 1999, or the Israeli Companies Law, a company may not exempt an officer or director from liability with respect to a breach of his duty of loyalty but may exempt in
advance an officer or director from liability to the company, in whole or in part, with respect to a breach of his duty of care, except in connection with a prohibited distribution made by the company, if so provided in its articles of association.
Our articles of association provide for this exemption from liability for our directors and officers.
Directors’ and Officers’ Insurance
The Israeli Companies Law and our articles of association provide that, subject to the provisions of the Israeli Companies Law, we may obtain insurance for our directors and officers for any
liability stemming from any act performed by an officer or director in his capacity as an officer or director, as the case may be with respect to any of the following:
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a breach of such officer’s or director’s duty of care to us or to another person;
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a breach of such officer’s or director’s duty of loyalty to us, provided that such officer or director acted in good faith and had reasonable cause to assume that his act would not
prejudice our interests;
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a financial liability imposed upon such officer or director in favor of another person;
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financial liability imposed on the officer or director for payment to persons or entities harmed as a result of violations in administrative proceedings as described in Section
52(54)(a)(1)(a) of the Israeli Securities Law (the “Party Harmed by the Breach”);
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expenses incurred by such officer or director in connection with an administrative proceeding conducted in this matter, including reasonable litigation expenses, including legal fees; or
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a breach of any duty or any other obligation, to the extent insurance may be permitted by law.
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Pursuant to the Compensation Policy for directors and officers (the “Compensation Plan”), we may obtain a directors' and officers' liability insurance policy, which would apply to our and/or our
subsidiaries' directors and officers, as they may be, from time to time, subject to the following terms and conditions: (a) the total insurance coverage under the insurance policy may not exceed $100 million; and (b) the purchase of such policy
shall be approved by the Compensation Committee (and, if required by law, by the Board) which shall determine that such policy reflects the current market conditions, and it shall not materially affect the Company's profitability, assets or
liabilities. In addition, pursuant to our Compensation Policy, should we sell our operations (in whole or in part) or in case of merger, spin-off or any other significant business combination involving us or part or all of our assets, we may
obtain a director’s and officers’ liability insurance policy (run-off) for our directors and officers in office with regard to the relevant operations, subject to the following terms and conditions: (a) the insurance term may not exceed seven
years; (b) the coverage amount may not exceed $100 million; and (c) the purchase of such policy shall be approved by the Compensation Committee (and, if required by law, by the Board) which shall determine that such policy reflects the current
market conditions, and it shall not materially affect the Company's profitability, assets or liabilities. The Compensation Policy is in effect for three years from the 2019 annual general meeting.
Pursuant to the foregoing approvals, we carry directors' and officers' liability insurance. This insurance is renewed on an annual basis.
Indemnification of Officers and Directors
The Israeli Companies Law provides that a company may indemnify an officer or director for payments or expenses associated with acts performed in his capacity as an officer or director of the
company, provided the company’s articles of association include the following provisions with respect to indemnification:
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a provision authorizing the company to indemnify an officer or director for future events with respect to a monetary liability imposed on him in favor of another person pursuant to a
judgment (including a judgment given in a settlement or an arbitrator’s award approved by the court), so long as such indemnification is limited to types of events which, in the board of directors’ opinion, are foreseeable at the time of
granting the indemnity undertaking given the company’s actual business, and in such amount or standard as the board of directors deems reasonable under the circumstances. Such undertaking must specify the events that, in the board of
directors’ opinion, are foreseeable in view of the company’s actual business at the time of the undertaking and the amount or the standards that the board of directors deemed reasonable at the time;
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a provision authorizing the company to indemnify an officer or director for future events with respect to reasonable litigation expenses, including counsel fees, incurred by an officer or
director in which he is ordered to pay by a court, in proceedings that the company institutes against him or instituted on behalf of the company or by another person, or in a criminal charge of which he was acquitted, or a criminal charge
in which he was convicted of a criminal offense that does not require proof of criminal intent;
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a provision authorizing the company to indemnify an officer or director for future events with respect to reasonable litigation fees, including attorney’s fees, incurred by an officer or
director due to an investigation or proceeding filed against him by an authority that is authorized to conduct such investigation or proceeding, and that resulted without filing an indictment against him and without imposing on him
financial obligation in lieu of a criminal proceeding, or that resulted without filing an indictment against him but with imposing on him a financial obligation as an alternative to a criminal proceeding in respect of an offense that does
not require the proof of criminal intent or in connection with a monetary sanction;
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a provision authorizing the company to indemnify an officer or director for future events with respect to a Party Harmed by the Breach;
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a provision authorizing the company to indemnify an officer or director for future events with respect to expenses incurred by such officer or director in connection with an administrative
proceeding, including reasonable litigation expenses, including legal fees; and
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a provision authorizing the company to indemnify an officer or director retroactively.
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Limitations on Insurance, Exemption and Indemnification
The Israeli Companies Law and our articles of association provide that a company may not exempt or indemnify a director or an officer nor enter into an insurance contract, which would provide
coverage for any monetary liability incurred as a result of any of the following:
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a breach by the officer or director of his duty of loyalty, except for insurance and indemnification where the officer or director acted in good faith and had a reasonable basis to believe
that the act would not prejudice the company;
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a breach by the officer or director of his duty of care if the breach was done intentionally or recklessly, except if the breach was solely as a result of negligence;
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any act or omission done with the intent to derive an illegal personal benefit; or
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any fine, civil fine, monetary sanctions, or forfeit imposed on the officer or director.
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In addition, under the Israeli Companies Law, exemption of, indemnification of, and procurement of insurance coverage for, our directors and officers must be approved by our audit committee and
board of directors and, in specified circumstances, by our shareholders.
Letters of Indemnification
We may provide a commitment to indemnify in advance any director or officer of ours in the course of such person’s position as our director or officer, all subject to the letter of indemnification,
as approved by our shareholders from time to time and in accordance with our articles of association. We may provide retroactive indemnification to any officer to the extent allowed by the Israeli Companies Law. As approved by our shareholders on
July 18, 2013, the amount of the advance indemnity is limited to the higher of 25% of our then shareholders’ equity, per our most recent annual financial statements, or $5 million. In March 2021, our compensation committee and board of directors
approved an amendment to the letters of indemnification with our directors and officers to provide for an increase in the limit on the amount of the advance indemnity to $10 million. This amendment is subject to approval of our shareholders.
As part of the indemnification letters, we exempted our directors and officers, in advance, to the extent permitted by law, from any liability for any damage incurred by them, either directly or
indirectly, due to the breach of an officer’s or director’s duty of care vis-à-vis us, within his acts in his capacity as an officer or director. The letter provides that so long as not permitted by law, we
do not exempt an officer or director in advance from his liability to us for a breach of the duty of care upon distribution, to the extent applicable to the officer or director, if any. The letter also exempts an officer or director from any
liability for any damage incurred by him, either directly or indirectly, due to the breach of the officer or director’s duty of care vis-à-vis us, by his acts in his capacity as an officer or director prior
to the letter of exemption and indemnification becoming effective.