Item 6. Indemnification of Directors and Officers
Under the Israeli Companies Law – 1999 (the “Companies Law”), an Israeli company may not exempt an Office Holder (as defined in the Companies Law) from liability with respect to a breach of his or her duty of loyalty, but may exempt in advance an Office Holder from his or her liability to the company, in whole or in part, with respect to a breach of his or her duty of care, provided that a relevant provision is included in the company’s articles of association. However, a company may not exempt in advance a director from his or her liability to the company with respect to a breach of duty of care in connection with a distribution made by the company.
To the extent specifically allowed by the company’s articles of association, the Companies Law permits a company to obtain an insurance policy covering liabilities of Office Holders resulting from their actions in fulfilling their roles as Office Holders, in any of the following instances:
(1) breach of the Office Holder’s duty of care to the company or to another person;
(2) breach of the Office Holder’s duty of loyalty to the company, to the extent that the Office Holder acted in good faith and had a reasonable basis to believe that the act would not prejudice the interests of the company; or
(3) monetary liabilities imposed on the Office Holder for the benefit of another person.
The Israeli Securities Law – 1968 (the “Securities Law”) also permits such an insurance policy to cover a payment which an Office Holder is obligated to make to an injured party as set forth in the relevant sections of the Securities Law, as well as expenses incurred by an Office Holder in connection with certain proceedings that are specified in the Securities Law, including reasonable litigation expenses (including attorneys’ fees), provided that a relevant provision is included in the company’s articles of association.
Under the Companies Law, a company may indemnify an Office Holder against monetary liabilities and expenses imposed on or incurred by the Office Holder as a result of an act done by virtue of his or her role as an Office Holder for the following matters:
(1) financial liability imposed on the Office Holder in favor of another person pursuant to a judgment, including a judgment in the course of settlement arrangements or an arbitrator’s award approved by a court;
(2) reasonable litigation expenses, including attorneys’ fees, incurred by the Office Holder in an investigation or proceeding that has concluded without an indictment being filed and without any monetary liabilities being imposed on the Office Holder in lieu of criminal proceedings or has concluded without the filing of any indictment but with the imposition of monetary liability in lieu of criminal proceedings in an offense that does not require proof of criminal intent or in connection with a monetary sanction; and
(3) reasonable litigation expenses, including attorneys’ fees, incurred by the Office Holder or imposed by a court in a proceeding instituted against the Office Holder by the company, on its behalf or by any other person, or in connection with criminal proceedings in which the Office Holder was acquitted, or as a result of a conviction for an offense that does not require proof of criminal intent.
Under the Companies Law, a company may indemnify an Office Holder in respect of certain liabilities, either in advance of an event or following an event. If a company undertakes to indemnify an Office Holder in advance of an event, the indemnification, pursuant to (i) above, must be limited to foreseeable events in light of the company’s actual activities at the time the company undertook such indemnification and also limited to amounts or criteria determined by the board of directors as reasonable under the circumstances, and the undertaking to indemnify will specify any such events, amounts or criteria.
In addition, a company may indemnify, including in advance, an Office Holder in respect of payments that the Office Holder is obligated to make to an injured party as set forth in the relevant sections of the Securities Law, as well as expenses incurred by an Office Holder in connection with certain proceedings that are specified in the Securities Law, including reasonable litigation expenses (including attorneys’ fees). These indemnifications are subject to the inclusion of relevant provisions in the company’s articles of association.
A company may not indemnify an Office Holder or enter into an insurance contract that would provide coverage for, or exempt an Office Holder from, liability to the company with respect to any of the following:
(1) a breach of duty of loyalty, except indemnification or insurance that provides coverage for a breach of a duty of loyalty to the company while acting in good faith and having a reasonable basis to believe that such act would not prejudice the interests of the company;
(2) a willful or reckless breach of duty of care, other than mere negligence;
(3) an act done with the intent to unlawfully realize a personal gain;
(4) a fine, monetary penalty or forfeiture imposed upon such Office Holder; or
(5) certain monetary liabilities that are set forth in the Securities Law.
Exemption, Insurance and Indemnification of Directors and Officers under the Articles of Association
In accordance with and subject to the Companies Law and the Securities Law, the Registrant’s articles of association (the “Articles of Association”) permit the Registrant to exempt, in advance or retroactively, any director or officer from any liability to the Registrant attributed to damage or loss caused by breach of the director’s or officer’s duty of care owed to the Registrant.
Furthermore, in accordance with and subject to the provisions of the Companies Law and the Securities Law, the Registrant’s Articles of Association allow for directors and officers liability insurance, in respect of a liability or payment imposed on a director or officer as a result of an act carried out by such person in his or her capacity as a director or officer. This insurance may cover:
(1) a breach of his or her duty of care to the Registrant or to another person;
(2) a breach of his or her duty of loyalty to the Registrant, provided that the director or officer acted in good faith and had reasonable basis to assume that his or her act would not harm the interests of the Registrant;
(3) a financial obligation imposed on him or her in favor of another person;
(4) a payment that he or she is obligated to pay to an injured party as set forth in the relevant sections of the Securities Law;
(5) expenses incurred by him or her in connection with certain administrative proceedings specified in the Securities Law, including reasonable litigation expenses (including attorneys’ fees); or
(6) any other event for which insurance of a director or officer is or may be permitted.
In addition, in accordance with and subject to the Companies Law and the Securities Law, the Registrant’s Articles of Association permit indemnification, retroactively or in advance, of a director or officer against liability, payment or expense imposed on or incurred by him or her as a result of an act carried out in his or her capacity as a director or officer, that may include:
(1) a monetary liability imposed on the director or officer or paid by him or her in favor of a third party under a judgment, including a judgment by way of compromise or a judgment of an arbitrator approved by a court; provided however, that in case such undertaking is granted in advance it will be limited to events which, in the board of directors’ (the “Board”) opinion, are foreseeable in light of the Registrant’s actual activities at the time of granting the obligation to indemnify, and to a sum or under criteria as the Board deems reasonable under the circumstances, and the undertaking to indemnify will specify the aforementioned events and sum or criteria;
(2) a payment imposed on him or her in favor of an injured party in the circumstances specified in the relevant sections of the Securities Law;
(3) reasonable litigation expenses (including attorneys’ fees), incurred by a director or officer as a result of an investigation or proceeding conducted against him or her by an authority authorized to conduct such investigation or procedure, provided that such investigation or procedure: (i) concludes without the filing of an indictment against the director or officer and without imposition of monetary payment in lieu of criminal proceedings; or (ii) concludes with imposing on the director or officer a monetary payment in lieu of criminal proceedings, provided that the alleged criminal offense in question does not require proof of criminal intent or was incurred by the director or officer in connection with a monetary sanction imposed by the Companies Law or the Securities Law;
(4) expenses incurred by a director or an officer in connection with certain administrative proceedings set forth in the Securities Law, including reasonable litigation expenses (including attorneys’ fees); and
(5) reasonable litigation expenses (including attorneys’ fees), expended by the director or officer or imposed on him or her by the court for:
(i) proceedings issued against him or her by or on the Registrant’s behalf or by a third party;
(ii) criminal proceedings from which the director or officer was acquitted; or
(iii) criminal proceedings in which he or she was convicted of an offense that does not require proof of criminal intent; or
(iv) any other liability or expense for which it is or may be permissible to indemnify a director or an officer.
The Articles of Association permit the grant of similar indemnification to any person acting on behalf or at the request of the Registrant as a director or officer of another company in which the Registrant is directly or indirectly a shareholder or has any other interest.
The aggregate amount of indemnification by the Registrant to its Office Holders may not exceed 25% of the Registrant’s consolidated shareholders equity as reflected in its most recent consolidated financial statements published prior to the date of the indemnification payment.
In 2011, the Registrant’s Audit Committee, Board and shareholders approved the grant to members of our Board (including to Michael Federmann, who may be considered a direct or indirect controlling shareholder of the Registrant, and to his son David Federmann), of indemnification letters reflecting the above conditions and limitations. Similar letters were also approved by the Audit Committee or Compensation Committee (as the case may be) and the Board for indemnification of Office Holders of Elbit Systems who are not directors.
According to the Companies Law, the granting by a public company, such as the Registrant, of an indemnification letter (or exemption letter) to an Office Holder who may be considered as a direct or indirect controlling shareholder of that company or his or her relative, requires re-approval every three years by the company’s compensation committee, the board of directors and the company’s shareholders. The indemnification letters originally granted to Michael Federmann and David Federmann in 2011 were last re-approved, following the approval of the Registrant’s Compensation Committee and Board, by its shareholders at the Annual General Meeting of Shareholders in 2020, for an additional period of three years commencing on December 1, 2020.
The Registrant’s Compensation Policy allows the Registrant to purchase, from time to time during the term of the Compensation Policy, directors and officers (D&O) liability insurance. Pursuant to the Compensation Policy, the coverage limit under each such insurance policy will not exceed $200 million, and the insurance policy terms, as well as the premium paid by the Registrant will reflect the current market conditions with respect to the Company and the nature of its operations. In accordance with the Israeli Companies Regulations (Relief from Related Parties’ Transactions), 5760-2000, the inclusion of the Registrant’s Office Holders in any D&O liability insurance policy that is consistent with its Compensation Policy will require only the approval of the Compensation Committee if the D&O liability insurance policy applicable to each of them (i) is purchased on market terms and (ii) the purchase thereof will not have a material effect on the Registrant’s profitability, assets or obligations.
In a meeting held on February 27, 2022, the Compensation Committee approved the purchase of a D&O liability insurance policy which complies with the provisions of our Compensation Policy and further approved the inclusion therein, in addition to all other Office Holders, of Michael Federmann (who may be considered a direct or indirect controlling shareholder of the Registrant), of his son David Federmann and of Bezhalel Machlis, the Registrant’s President and CEO, in accordance with the requirements of the Israeli Companies Regulations (Relief from Related Parties’ Transactions), 5760-2000. As of March 15, 2022, the D&O policy’s limit of liability was $100 million. The Compensation Committee also approved the purchase of a D&O liability insurance policy for a subsidiary of the Registrant, which also covers certain Office Holders of the Registrant, including the President and CEO, in accordance with the limitations under the Compensation Policy.
In addition, the Compensation Policy authorizes the Registrant, subject to applicable law and the Registrant’s Articles of Association, to exempt its Office Holders, from liability for violating their duty of care towards the Registrant. However, such exemption will not apply with respect to any decision or transaction in which a controlling shareholder, executive officer or director of the Registrant (even if such shareholder, executive officer or director is not the one who is exempted) has a personal interest. At the Annual General Meeting of Shareholders held in April 2021, the Registrant's shareholders, following recommendation of its Compensation Committee and the approval of its Board, approved providing an exemption letter reflecting the above conditions and limitations to Bezhalel Machlis, the Registrant's President and CEO, and to the Registrant's current and future directors (including to Michael Federmann, who may be considered a direct or indirect controlling shareholder of the Registrant, and to his son David Federmann). Similar letters were also approved by the Compensation Committee and the Board for exemption of other Office Holders of the Registrant who are not directors. The exemption letters granted to Michael Federmann and David Federmann are valid until April 2024.
Item 9. Undertakings
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the Securities Act;
(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement;
(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the registration statement is on Form S-8, and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the SEC by the Registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference herein.
(2) That for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the Registrant’s annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the Registration Statement shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.