Israel Company Law 1999

Article B: Dividend

306. (a) A shareholder shall have the right to receive a dividend, or bonus shares, if the company passes a resolution to that effect.

(b) Where there are shares in the capital of the company with different nominal values, dividends or bonus shares shall be distributed relative to the nominal value of each share, unless otherwise provided in the articles of association.

Right to dividend or to bonus shares

307. The resolution of a company to pay a dividend shall be passed by the board of directors of the company; however, the company may prescribe in its articles of association that the resolution be passed in one of the following ways:

(1) at the general meeting, having been brought before it upon the recommendation of the board of directors; the general meeting may accept the recommendation or reduce the sum, but may not increase it;

(2) at the board of directors of the company, after the general meeting has determined the maximum amount of the distribution;

(3) in such other manner as may be determined in the articles of association, provided that the board of directors is given a proper opportunity to determine that the distribution is not a prohibited distribution before it is effected.

Resolution on payment of dividend

Article C: Purchase

308. Where a company purchases one of its own shares, the share shall not afford any rights (hereinafter “a dormant share”) for so long as the dormant share is owned by the company.

Consequences of purchase

309. (a) A subsidiary or other corporation in control of a parent company (in this section the “purchasing corporation”), may purchase shares of the parent company to the same extent as the parent company may effect distributions, provided that the board of directors of the subsidiary or the managers of the purchasing corporation have determined that if the purchase of the shares were to be effected by the parent company, it would be considered a permitted distribution.

(b) Where a share in a parent company is purchased by a subsidiary or by a purchasing corporation, such share shall not afford any voting rights for so long as the share is owned by the subsidiary company or by the purchasing corporation.

(c) Where a prohibited distribution is effected, restitution referred to in section 310 shall be effected to the subsidiary or to the purchasing corporation, and the provisions of section 311 shall apply, mutatis mutandis, to the directors of the subsidiary and the managers of the purchasing corporation; however, if the board of directors of the parent company resolves that the distribution is permitted, the liability shall fall on the directors of the parent company, as set out in section 311.

(d) Notwithstanding the provisions of subsection (a), a purchase by a subsidiary company or by a purchasing corporation that is not wholly owned by the parent company shall be a distribution of the product of the purchase money and the rights in the capital of the subsidiary or in the capital of the purchasing corporation held by the parent company.

Purchase by a controlled corporation

Article D: Prohibited Distribution

310. (a) Where a company effects a prohibited distribution, the shareholder shall restore what he received to the company, unless the shareholder did not know and ought not to have known that the distribution effected was prohibited.

(b) It is to be presumed that a shareholder in a public company who is not also a director, general manager or holder of control of the company at the time of the distribution, did not know or ought not to have known that the distribution effected by the company was a prohibited distribution.

Consequences of prohibited distribution

311. Where a prohibited distribution is effected in a company, any person who is, at the date of the distribution, a director, shall be considered to have thereby committed a breach of his fiduciary duty to the company, unless he proves one of the following:

(1) that he objected to the prohibited distribution and took all reasonable steps to prevent it;

(2) that he reasonably and in good faith relied on information that, but for its being misleading, the distribution would have been permitted;

(3) that in the circumstances of the case, he did not know nor ought to have known of the distribution.

Liability of directors for prohibited distribution