Incredimail 2011 Annual Report Download - page 69

Under the Israeli Companies Law, a company may obtain insurance for an office holder against liabilities incurred in his or her capacity as an office holder, if
and to the extent provided for in its articles of association. These liabilities include a breach of duty of care to the company or a third-
party, a breach of duty of loyalty
and any monetary liability imposed on the office holder in favor of a third-party.
A company may, in advance only, exculpate an office holder for a breach of the duty of care. However, a company may not so exculpate an office holder for
a breach of the duty of care in connection with a distribution of dividends or a repurchase of the company’
s securities. A company may not exculpate an office holder
from a breach of the duty of loyalty towards the company.
Under the Israeli Companies Law, however, an Israeli company may only indemnify or insure an office holder against a breach of duty of loyalty to the
extent that the office holder acted in good faith and had reasonable grounds to assume that the action would not prejudice the company. In addition, an Israeli company
may not indemnify, insure or exculpate an office holder against a breach of duty of care if committed intentionally or recklessly, or an action committed with the intent
to derive an unlawful personal gain, or for a fine or forfeit levied against the office holder.
Our audit committee and board of directors have resolved to indemnify our office holders and directors, where the resolution regarding indemnification of our
directors was approved by our shareholders as well, per the terms of the Companies law, to the extent permitted by the Companies Law and by our articles of
association for liabilities not covered by insurance and that are of certain enumerated events, subject to an aggregate sum equal to 50.0% of the shareholders equity as
set forth in the financial report of the preceding year to which a claim for indemnification is made.
A recent amendment to the Israeli Securities Law, 5728-
1968 (the "Israeli Securities Law"), and a corresponding amendment to the Israeli Companies Law,
authorizes the Israeli Securities Authority to impose administrative sanctions against companies like ours and their office holders for certain violations of the Israeli
Securities Law or the Israeli Companies Law.
These sanctions include monetary sanctions and certain restrictions on serving as a director or senior officer of a public company for certain periods of time.
The maximum amount of the monetary sanctions that could be imposed upon individuals per instance of violation is a fine of NIS 1,000,000 (currently equivalent to
approximately $293,000), plus the greater of the following amounts payable to persons who suffered damages as a result of the violation: (i) the amount of profits
earned or losses avoided by the violator as a result of the violation, up to NIS 1,000,000, or (ii) compensation for damages suffered by the injured persons, up to 20%
of the fine imposed on the violator.
The amendments to the Israeli Securities Law and to the Israeli Companies Law provide that only certain types of such liabilities may be reimbursed by
indemnification and insurance. Specifically, legal expenses (including attorneys' fees) incurred by an individual in the applicable administrative enforcement
proceeding and any compensation payable to injured parties for damages suffered by them (as described in the immediately preceding paragraph) are permitted to be
reimbursed via indemnification or insurance, provided that such indemnification and insurance are authorized by the company's articles of association.
In order to be able to indemnify and insure our office holders to the full extent permitted by law, our Articles of Association would have to be amended to
include indemnification and insurance in connection with administrative proceedings, including without limitation, the specific amendments to the Israeli Securities
Law and the Israeli Companies Law with respect to administrative sanctions described above. Our shareholders at the Annual General Meeting held on October 27,
2011 voted to approve a revised form of indemnification letter that will be issued by the Company to the directors of the Company serving from time to time in such
capacity, which included revisions made with respect to indemnification for monetary sanctions in administrative proceedings. The resolution was passed by the
required majority amounting in the aggregate to at least a majority of the votes actually cast, but was also subject to the adoption by the shareholders of a resolution to
amend the Company's Articles of Association. Such resolution with respect to the amendment of the Articles of Asscoiation, while receiving a majority of the votes
cast, did not achieve the sufficient special majority required, as it did not receive the affirmative vote of shareholders present in person or by proxy and holding
Ordinary Shares amounting in the aggregate to at least more than two-
thirds of the voting power of the issued and outstanding share capital of the Company, as such
number of shareholders was not present at the Anuual General Meeting. As such, the Company has made appropriate amendments to the form of indemnification letter
which was approved by the audit committee, board of directors and shareholders, by removing cluases related to indemnification with respect to monetary sanctions as
a result of administrative proceeedings from the indemnification letter so that it is consistent with the provisions of the Company's current Articles of Association.
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