Registration No. 333-
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 16, 2006
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ELBIT MEDICAL IMAGING LTD.
(Exact name of registrant as specified in its charter)
ISRAEL N/A
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13 MOZES STREET, TEL-AVIV 67442, ISRAEL
(Address of Principal Executive Offices) (Zip Code)
2006 EMPLOYEES AND OFFICERS INCENTIVE PLAN - CAPITAL GAIN TAX TRACK
MORDECHAY ZISSER OPTION GRANT AGREEMENT
(Full title of the plans)
Corporation Service Company
2711 Centerville Road, Suite 400
Wilmington, DE 19808
(888)-690-2882(Name, address and telephone number, including area code,
of agent for service)
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Copies to:
Aya Yoffe, Adv.
Gross, Kleinhendler, Hodak, Halevy, Greenberg & Co.
One Azrieli Center
Tel Aviv 67021, Israel
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: From time to time
after the effective date of this Registration Statement.
CALCULATION OF REGISTRATION FEE
Proposed Maximum Proposed Maximum Amount of
Title of Securities Amount to be Offering Price Aggregate Offering Registration
to be Registered Registered (1) per Share (2) Price (2) Fee
---------------- -------------- ------------- --------- ------
Ordinary Shares, par value
NIS 1.0 per share, under
the 2006 Employees and 333,876(2) $22.92(5) $ 7,652,438(5) $ 818.81
Officers Incentive Plan 63,714(3) $24.35(6) $ 1,551,435(6) $ 166.00
Ordinary shares, par value
NIS 1.0 per share, under
Mordechay Zisser Option
Grant Agreement 350,000(4) 31.50(5) $11,025,000(5) $1,179.68
---------- --------- -------------- ---------
Total 747,590 $2,164.49
(1) This registration statement on Form S-8 (this "Registration Statement")
shall also cover any additional ordinary shares, par value NIS 0.01 per
share (the "Ordinary Shares") of Elbit Medical Imaging Ltd. (the
"Registrant") which become issuable under the Registrant's 2006 Employees
and Officers Incentive Plan - Capital Gains Track (the "Incentive Plan")
and the Mordechay Zisser Option Grant Agreement (the "Zisser Grant
Agreement" and, together with the Incentive Plan, the "Plans") by reason of
any stock split, stock dividend, recapitalization or similar transaction
effected without the receipt of consideration which results in an increase
in the number of the Registrant's outstanding Ordinary Shares.
(2) Represents 333,876 Ordinary Shares issuable upon exercise of outstanding
options under the Incentive Plan.
(3) Represents 63,714 Ordinary Shares available for future issuance under
options that have not been issued under the Incentive Plan.
(4) Represents 350,000 Ordinary Shares issuable upon exercise of outstanding
options under the Zisser Grant Agreement
(5) Pursuant to Rule 457(h) under the Securities Act, the Proposed Maximum
Offering Price Per Share and the Proposed Maximum Aggregate Offering Price
are based on the per share exercise price in NIS of the outstanding stock
options, translated into U.S. dollars based upon the daily representative
rate of exchange on August 9, 2006 as published by the Bank of Israel. Such
translation is being utilized solely for the purpose of calculating the
registration fee.
(6) Pursuant to Rules 457(c) and 457(h) under the Securities Act, the Proposed
Maximum Offering Price Per Share and the Proposed Maximum Aggregate
Offering Price for an aggregate of 63,714 Ordinary Shares available for
future awards under options that have not been issued under the Incentive
Plan are estimated based on the average of the high and low prices of the
Ordinary Shares reported on the Nasdaq Global Select Market on August 9,
2006, translated into U.S. dollars based upon the daily representative rate
of exchange on that date as published by the Bank of Israel. Such estimate
is being utilized solely for the purpose of calculating the registration
fee.
EXPLANATORY NOTE
Elbit Medical Imaging Ltd. prepared this registration statement in
accordance with the requirements of Form S-8 under the Securities Act of 1933,
as amended (the "Securities Act"), to register (i) 397,590 of the Company's
ordinary shares, par value NIS 1.0 per share, that may from time to time after
the date hereof be issued by the Company under its 2006 Employees and Officers
Incentive Plan - Capital Gain Tax Track (the "2006 Plan"); and (ii) 350,000 of
the Company's ordinary shares, par value NIS 1.0 per share, that may from time
to time after the date hereof be issued by the Company under Mordechay Zisser
Option Grant Agreement ("Zisser Option Grant").
Under cover of this Form S-8 is a reoffer prospectus prepared in accordance
with Part I under Form F-3 under the Securities Act and pursuant to General
Instruction C to Form S-8. The reoffer prospectus may be used for reoffers and
resales made on a continuous or delayed basis in the future of up to an
aggregate of 397,590 of these ordinary shares, which may constitute "control
securities" and/or "restricted securities," issued under the Plan to the selling
shareholders listed in the reoffer prospectus.
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PART I
INFORMATION REQUIRED IN THE SECTION 10(A) PROSPECTUS
Item 1. Plan Information.*
Item 2. Registrant Information and Employee Plan Annual Information.*
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* Information required by Part I to be contained in the Section 10(a) prospectus
is omitted from this Registration Statement in accordance with the "Note" to
Part I of Form S-8.
3
REOFFER PROSPECTUS
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ELBIT MEDICAL IMAGING LTD.
13 MOZES STREET, TEL-AVIV 67442, ISRAEL
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528,322 ORDINARY SHARES
This reoffer prospectus relates to the resale of up to 528,322 ordinary
shares of the Company, par value NIS 1.0 per share, being offered by the selling
shareholders listed on page 28.
The prices at which a selling shareholder may sell his or her shares will
be determined by the prevailing market price for the shares or in privately
negotiated transactions. Information regarding the selling shareholders and the
times and manner in which they may offer and sell the shares under this
prospectus is provided under "Selling Shareholders" and "Plan of Distribution"
in this prospectus. We will not receive any of the proceeds from the sale of the
shares under this prospectus. All expenses of registration incurred in
connection with this offering are being borne by us, but all brokerage
commissions and other expenses incurred by individual selling shareholders will
be borne by these selling shareholders.
Our ordinary shares trade on the Nasdaq National Market, under the trading
symbol "EMITF". On August 15, 2006, the last sale price of our ordinary shares
was $24.40.
THIS INVESTMENT INVOLVES RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 8.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
You should rely only on the information incorporated by reference or
provided in this reoffer prospectus or any supplement. We have not authorized
anyone else to provide you with different or additional information. This
reoffer prospectus may only be used where it is legal to sell these securities.
You should not assume that the information in this reoffer prospectus or any
supplement is accurate as of any date other than the date on the front of those
documents.
The date of this Prospectus is August 16, 2006.
4
TABLE OF CONTENTS
PAGE
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FORWARD-LOOKING INFORMATION 5
CORPORATE INFORMATION 6
THE COMPANY 6
RISK FACTORS 8
USE OF PROCEEDS 27
SELLING SHAREHOLDERS 28
PLAN OF DISTRIBUTION 29
OFFER AND LISTING DETAILS 31
LEGAL MATTERS 31
EXPERTS 31
DISCLOSURE OF COMMISSION POSITION
ON INDEMNIFICATION 31
AVAILABLE INFORMATION 32
INCORPORATION BY REFERENCE 32
FORWARD-LOOKING STATEMENTS
Our disclosure in this reoffer prospectus (including documents incorporated
by reference herein) contains "forward-looking statements." Forward-looking
statements are our current expectations or forecasts of future events. You can
identify these statements by the fact that they do not relate strictly to
historic or current facts. They use words such as "anticipate," "estimate,"
"expect," "project," "intend," "plan," "believe," and other words and terms of
similar meaning. These include statements, among others, relating to our planned
future actions, our beliefs with respect to the sufficiency of our cash and cash
equivalents, plans with respect to funding operations, projected expense levels
and the outcome of contingencies, such as future financial results.
Any or all of our forward-looking statements in this reoffer prospectus may
turn out to be wrong. They can be affected by inaccurate assumptions we might
make or by known or unknown risks and uncertainties. Consequently, no
forward-looking statement can be guaranteed. Actual results may vary materially.
The uncertainties that may cause differences include, but are not limited to,
the availability of necessary funds, our ability to raise capital when needed
and on reasonable terms, or at all, economic conditions as well as the risks
discussed in "Risks Factors" below. In addition, you should note that our past
financial and operation performance is not necessarily indicative of future
financial and operational performance. We undertake no obligation to update any
forward-looking statements, whether as a result of new information, future
events or otherwise.
5
CORPORATE INFORMATION
Our principal executive offices are located at 13 Mozes Street, Tel-Aviv
67442, Israel and our telephone number is (972-3)- 608-6010 and our fax number
is (972-3) 695-3080.
THE COMPANY
Elbit Medical Imaging Ltd. was incorporated in 1996. EMI is a company
incorporated under the laws of the State of Israel and is subject to the Israeli
Companies Law 1999 - 5759 and the Israeli Securities Law 1968 - 5728 and any
regulations published under these laws. Our shares are listed on the NASDAQ
National Market (ticker symbol: EMITF) and on the Tel Aviv Stock Exchange. Our
executive offices are located at 13 Mozes Street, Tel-Aviv 67442, Israel. You
may reach us by telephone at (972-3) 608-6000 or by fax at (972-3) 695-3080. Our
U.S. agent is CSC Corporation Service Company 2711 Centerville Road, Suite 400
Wilmington, DE 19808.
The following is a summary of the principal fields of our businesses:
o Initiation, construction, operation, management and sale of shopping
and entertainment centers in Israel and in Central and Eastern Europe.
o Hotels ownership, primarily in major European cities, as well as
operation, management and sale of same.
o Investments in the research and development, production and marketing
of magnetic resonance imaging guided focused ultrasound treatment
equipment, through InSightec Ltd. ("InSightec").
o Other activities consisting of the distribution and marketing of
women's fashion and accessories through our wholly-owned Israeli
subsidiary, Mango Israel Clothing and Footwear Ltd. ("Mango"), and
venture-capital investments.
Below is a description of our principal fields of activity:
SHOPPING AND ENTERTAINMENT CENTERS
The shopping and entertainment centers business includes our operational
shopping and entertainment centers and other shopping and entertainment centers
which are currently under construction and/or development. In addition, the
shopping and entertainment centers business includes the Dream Island project, a
tourist and entertainment area in central Budapest which includes designations
for commercial space, tourism, entertainment and leisure hotels and apartments
hotel, which is currently in preliminary stages of development as well as other
income producing real estate properties and other properties.
We presently have one shopping center in Israel and seven other projects in
various stages of planning and development in Poland, Hungary, the Czech
Republic and Latvia. The operations of each of our shopping and entertainment
center projects are conducted through a special purpose project corporation.
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Generally, approximately 75% of the total constructed area of each shopping
and entertainment center is set aside to be leased. The focus of our centers is
on two principal elements: shopping and entertainment. The anchor tenants form
the core of these elements, around which the smaller businesses and activities
are introduced, and provide a wide range and choice of activities to patrons.
The entertainment facilities generally include a cinema complex of between 8-12
screens, a video and gaming arcade, bowling alleys, billiard halls, fitness
centers, bars, discotheques, children's playgrounds and, in some projects, an
IMAX three-dimensional cinema screen. The food court consists of a range of
restaurants, offering a variety of culinary opportunities from fast food to
gourmet foods. We own 100% of the interest in most of these centers.
The commercial activities focus on supermarket and department store anchor
tenants, and are carefully monitored to allow an optimal mix of stores and
services to cater for all requirements and to offer the maximum range of
commodities to patrons.
In addition, we own interests in office buildings and in undeveloped plots
of land.
HOTELS
The goal of our hotel business is to acquire and manage, via management
companies, four-star hotel properties which provide, at four star hotel prices,
the business and vacation traveler with five star quality accommodations that
are conveniently located near major transportation stations.
We own interests in eight operating hotels and two hotels under
construction, which are located primarily in Europe and South Africa. We also
have development plans with respect to other new hotels. Our ownership
percentage in our hotels varies, and the remaining interests in those hotels
that are not wholly-owned by us are owned by various unrelated third parties,
including subsidiaries of the Red Sea group of companies ("Red Sea") which is
our business partner in six of our eight operating hotels and in one of the
hotels which is currently under development. Red Sea is engaged in the
initiation and development of residential and commercial real estate projects in
Israel and in the operation of chain of hotels and income producing real estate
abroad. Most of our operating hotels in which we have an interest have appointed
companies from the Park Plaza group ("Park Plaza"), an unrelated third party
company, as their hotel management company. In certain hotels, however, Park
Plaza holds 5% or 10% of the equity rights in the companies holding these
hotels.
THE IMAGE GUIDED TREATMENT BUSINESS
All of our activities in the image guided treatment field are performed
through InSightec. InSightec has developed and markets the ExAblate 2000, the
first FDA-approved system for Magnetic Resonance guided Focused Ultrasound
Surgery ("MRgFUS"). InSightec's objective is to transform the surgical
environment for the treatment of a limited number of forms of benign and
malignant tumors by replacing invasive and minimally invasive surgical
procedures with an incisionless surgical treatment solution. The system is
designed to deliver safe and effective non-invasive treatments while reducing
the risk of morbidity and potential complications, as well as the direct and
indirect costs associated with conventional surgery. In October 2004, InSightec
received FDA approval to market the ExAblate 2000 in the United States for the
treatment of uterine fibroids, a type of benign tumor of the uterus. Prior to
that, in October 2002, InSightec received authorization to affix the CE mark to
the ExAblate 2000, enabling it to market the system in the European Economic
Area for the treatment of uterine fibroids. InSightec also has regulatory
approval for the ExAblate 2000 for uterine fibroids in Russia, Taiwan, Australia
and Singapore. InSightec is also in various stages of development and clinical
research for the application of its MRgFUS technology to the treatment of other
types of benign and malignant tumors. These additional applications are being
developed to take advantage of the modular design of the ExAblate 2000, which
enables it to function as a common platform for multiple MRgFUS-based surgical
applications. Currently, InSightec has an installed base of 36 units around the
world in academic hospitals, community hospitals, MRI clinics and
physician-formed joint ventures. The ExAblate 2000 is operable only with certain
MRI systems manufactured by GE. InSightec estimates that the ExAblate 2000 is
compatible with approximately 2,400, or 34%, of the estimated 7,000 MRI systems
installed in the United States. InSightec recently signed an exclusive worldwide
(except for Russia and Japan) sales and marketing agreement with GE with respect
to the ExAblate 2000. InSightec believes that its relationship with GE will
enable us to leverage GE's marketing and sales resources to accelerate its
market penetration.
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As of December 31, 2005, the principal shareholders of InSightec were EMI
(69.40% shareholder and 52.15% shareholder on a fully diluted basis), GE (25.25%
shareholder and 20.63% shareholder on a fully diluted basis) and MTA (3.87%
shareholder and 6.87% shareholder on a fully diluted basis). The remaining
holdings of InSightec are held by employees, directors and officers.
OTHER ACTIVITIES
Mango is an apparel company that owns the distribution and retail rights in
Israel to the international retail brand name MANGO-MNG(TM). Mango currently
leases six stores in Israel and the key elements of Mango's strategy are to
increase sales to existing and new customers by adjusting our pricing strategy
and market behavior, localize and enhance the Mango brand in Israel by improving
its marketing and branding strategy, open new stores in strategic locations
across Israel with emphasis on opening smaller shops of 250-300 square meters
rather than stores of larger square meters, and reduce the percentage of outlet
stores out of the total Mango stores in Israel, and relocate the outlet stores
to the suburbs.
In addition to our core operations, we hold interests in various companies
which are not significant to our results of operations.
RISK FACTORS
You should carefully consider the risks described below before making an
investment in Elbit Medical Imaging Ltd. The risks and uncertainties described
below are not the only ones facing the Company, and there may be additional
risks that we do not presently know of or that we consider immaterial. All of
these risks may impair our business operations. If any of the following risks
actually occurs, our business, financial condition or results of operations
could be materially adversely affected. In such case, the trading price of our
ordinary shares could decline, and you may lose all or part of your investment.
RISKS RELATING TO THE SHOPPING AND ENTERTAINMENT CENTERS BUSINESS
SUITABLE LOCATIONS ARE CRITICAL TO THE SUCCESS OF A SHOPPING AND ENTERTAINMENT
CENTER.
The choice of suitable locations for the development of shopping and
entertainment center projects is an important factor in the success of the
individual projects. Ideally, these sites should be located: (i) within the city
center, with well-developed transportation infrastructure (road and rail)
located in close proximity to facilitate customer access; and (ii) within local
areas with sufficient population to support the centers. If we are not able to
find sites in the target cities which meet these criteria, either at all or at
viable prices, this may materially adversely affect our business and results of
operation.
Historically, most of the centers developed by us have been in Budapest and
other locations in Hungary. We do not currently believe that there are
additional suitable locations for the development of shopping and entertainment
centers in Hungary beyond those currently under development that satisfy our
investment criteria. Therefore, our future success will depend in large part on
our ability to identify locations and develop centers in other countries where
we may have less experience and less market knowledge than in Hungary. As a
result, we may not be as successful in the identification and development of
future projects as we have been historically in Hungary.
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ZONING RESTRICTION AND LOCAL OPPOSITION CAN DELAY OR PRECLUDE CONSTRUCTION OF A
CENTER.
Sites which meet our criteria must be zoned for commercial activities of
the type contained in shopping and entertainment centers. In instances where the
existing zoning is not suitable or in which the zoning has yet to be determined,
we will apply for the required zoning classifications. This procedure may be
protracted, particularly in countries where the bureaucracy is cumbersome and
inefficient, and we cannot be certain that the process of obtaining proper
zoning will be completed with sufficient speed to enable the centers to open
ahead of the competition or at all. Opposition by local residents to zoning
and/or building permit applications may also cause considerable delays. Certain
of our site acquisitions are conditioned upon the grant of a building permit. In
addition, arbitrary changes to applicable zoning may jeopardize projects that
have already commenced. For example, a ministerial decision was issued in Greece
which changed the land use of certain property owned by our Greek subsidiary and
as a result thereof a shopping and entertainment center may not be built on such
land. See "Item 4. Information on the Company - B. Business Overview - Shopping
and Entertainment Centers - Other Real Estate Properties" of our Annual Report
on Form 20-F for the fiscal year ended December 31, 2005 filed with the U.S.
Securities and Exchange Commission on June 30, 2006 (the "2005 20-F").
Therefore, if we cannot receive zoning approvals or if the procedures for the
receipt of such zoning approvals are delayed, our cost will increase which will
have an adverse affect on our business.
WE DEPEND ON CONTRACTORS AND SUBCONTRACTORS TO CONSTRUCT OUR CENTERS.
We rely on subcontractors for all of our construction and development
activities. If we cannot enter into subcontracting arrangements on terms
acceptable to us or at all, we will incur additional costs which will have an
adverse affect on our business. The competition for the services of quality
contractors and subcontractors may cause delays in construction, thus exposing
us to a loss of our competitive advantage. Subcontracting arrangements may be on
less favorable terms than would otherwise be available, which may result in
increased development and construction costs. By relying on subcontractors, we
become subject to a number of risks relating to these entities, such as quality
of performance, varied work ethics, performance delays, construction defects and
the financial stability of the subcontractors. A shortage of workers would have
a detrimental effect on us and our subcontractors and, as a result, on our
ability to conclude the construction phase on time and within budget. We
generally require our subcontractors to provide bank guarantees in our favor to
financially secure their performance. In the event the subcontractor fails to
perform, the bank guarantees provide for a monetary payment to us. The
guarantees do not, however, obligate the subcontractors to complete the project
and may not adequately cover our costs of completing the project or our lost
profits during the period while alternative means of completing the project are
sought.
DELAYS IN THE COMPLETION OF CONSTRUCTION PROJECTS COULD AFFECT OUR SUCCESS.
An important element in the success of our shopping and entertainment
center projects is the short construction time (generally 12 to 18 months from
the receipt of building permits, depending on the size of the project), and our
ability to open the centers ahead of our competition, particularly in cities
which do not have shopping and entertainment centers of the type constructed by
us.
This makes us subject to a number of risks relating to these activities,
including:
o delays in obtaining zoning and other approvals;
o the unavailability of materials and labor;
o the abilities of sub-contractors to complete work competently and
on schedule;
o the surface and subsurface condition of the land underlying the
project;
o environmental uncertainties;
9
o extraordinary circumstances or "acts of god"; and
o ordinary risks of construction that may hinder or delay the
successful completion of a particular project.
In addition, under our development contracts with local municipalities, we
have deadlines for most of our projects (subject to limited exceptions). If
construction of a project does not proceed in accordance with our schedule, we
may in some instances be required to pay penalties to the vendor (usually local
municipalities) based on the extent of the delay and in isolated instances to
forfeit rights in the land. The failure to complete a particular project on
schedule or on budget may have a material adverse effect on our business,
prospects, results of operations or financial condition.
WE ARE DEPENDENT ON ATTRACTING THIRD PARTIES TO ENTER INTO LEASE AGREEMENTS.
We are dependent on our ability to enter into new leases on favorable terms
in order to receive a profitable price for each shopping and entertainment
center. We may find it more difficult to engage third parties enter into leases
during periods when market rents are increasing, or when general consumer
activity is decreasing. We seek agreements in principle with anchor tenants
(such as the operators of cinemas, supermarkets, department stores and
electrical appliances stores), either generally or on a property-by property
basis, prior to entering into a formal lease. The termination of a lease by any
anchor tenant may adversely affect the relevant specific shopping and
entertainment center and the price obtainable for it. The failure of an anchor
tenant to abide by these agreements may cause delays, or result in a decline in
rental income (temporary or long term), the effect of which we may not be able
to offset due to difficulties in finding a suitable replacement tenant.
OUR RESULTS OF OPERATIONS MAY BE AFFECTED BY RETAIL CLIMATES AND TENANT
BANKRUPTCIES.
Bankruptcy filings by retailers are normal in the course of our operations.
We are continually re-leasing vacant spaces arising out of tenant terminations.
Pressures that affect consumer confidence, job growth, energy costs and income
gains can affect retail sales growth, and a continuing soft economic cycle may
impact our ability to find new tenants for property vacancies that result from
store closings or bankruptcies.
GENERAL ECONOMIC CONDITIONS IN A REGION WILL AFFECT OUR TENANTS.
If an economic recession occurs, the demand and rents for neighborhood and
community shopping and entertainment centers could decline and adversely affect
our financial condition and results of operations. Our financial condition and
results of operations could also be adversely affected if our tenants are unable
to make lease payments or fail to renew their leases as a result of declining
consumer spending.
WE ARE DEPENDENT ON THE PRESENCE OF ANCHOR TENANTS.
We rely on the presence of "anchor" tenants in our entertainment and
commercial centers. Anchor stores in entertainment and commercial centers play
an important part in generating customer traffic and making a center a desirable
location for other tenants. The failure of an anchor store to renew its lease,
the termination of an anchor store's lease, or the bankruptcy or economic
decline of an anchor tenant can have a material adverse effect on the economic
performance of the centers. There can be no assurance that if the anchor stores
were to close or fail to renew their leases, we would be able to replace such
anchor stores in a timely manner or that we could do so without incurring
material additional costs and adverse economic effects. The expiration of an
anchor lease at an entertainment and commercial center may make refinancing of
such center difficult.
10
COMPETITION IS BECOMING MORE RAPID IN THE CERTAIN EASTERN EUROPEAN COUNTRIES.
The shopping and entertainment centers business in Eastern Europe is rapidly
becoming more competitive, with a number of developers (particularly from
Germany and France) becoming active in our target areas. The shopping and
entertainment centers concept we promote is gaining increasing popularity due to
its potentially high yields. Developers compete not only for patrons, but also
for desirable properties, financing, raw materials, qualified contractors,
experienced system consultants, expert marketing agents and skilled labor. The
public bidding process (the process through which we often acquire new
properties) is subject to intense competition and some of our competitors have
longer operating histories and greater resources than us, all of which may limit
our ability to obtain such projects. There can be no assurance that we will be
successful in winning projects that we bid for or which are awarded pursuant to
fixed price tenders or that we will otherwise continue to be successful in
competing in Eastern Europe.
RISKS RELATING TO THE HOTEL BUSINESS
THE HOTELS INDUSTRY MAY BE AFFECTED BY ECONOMIC CONDITIONS, OVERSUPPLY, TRAVEL
PATTERNS, WEATHER AND OTHER CONDITIONS BEYOND OUR CONTROL WHICH MAY ADVERSELY
AFFECT OUR BUSINESS AND RESULTS OF OPERATIONS.
The hotels industry may be adversely affected by changes in national or local
economic conditions and other local market conditions. Our hotels generally, and
in particular, in London, Amsterdam and Budapest, may be subject to the risk of
oversupply of hotel rooms. Other general risks that may affect our hotels
business are changes in travel patterns, extreme weather conditions, changes in
governmental regulations which influence or determine wages, workers' union
activities, increases in land acquisition prices or construction costs, changes
in interest rates, the availability of financing for operating or capital needs,
and changes in real estate tax rates and other current operating expenses.
Unforeseen events, such as terrorist attacks, outbreaks of epidemics and
economic recessions have had and may continue to have an adverse effect on local
and international travel patterns and, as a result, on occupancy rates and
prices in our hotels. Downturns or prolonged adverse conditions in the real
estate or capital markets or in national or local economies and difficulties in
securing financing for the development of hotels could have a material adverse
effect on our business, results of operations, ability to develop new projects
and the attainment of our strategic goals.
COMPETITION IN THE HOTELS INDUSTRY COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR
BUSINESS AND RESULTS OF OPERATIONS.
The hotels business is highly competitive. This is particularly the case in
those areas where there is an over supply of rooms, such as in London, Amsterdam
and Budapest. Competitive factors within the industry include:
o convenience of location and accessibility to business centers;
o room rates;
o quality of accommodations;
o name recognition;
o quality and nature of service and guest facilities provided;
o reputation;
o convenience and ease of reservation systems; and
o the supply and availability of alternative lodging.
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We operate, and intend to develop or acquire, most of our hotels in geographic
locations where other hotels are or may be located. We expect to compete for
guests and development sites with national chains, large franchisees and
independent operators. Many of these competitors have greater financial
resources and better brand name recognition than we do, and may have more
established relationships with prospective franchisers, representatives in the
construction industry and other parties engaged in the lodging industry. The
number of competitive lodging facilities in a particular area could have a
material adverse effect on our hotel occupancy and rates and, therefore,
revenues of our hotels. We believe that competition within the lodging market
may increase in the foreseeable future in particular in our hotels located in
Eastern Europe.New or existing competitors may significantly reduce their rates
or offer greater convenience, services or amenities or significantly expand or
improve hotels in the markets in which we currently or may subsequently compete,
thereby materially adversely affecting our business and results of operations.
ACQUIRING, DEVELOPING AND RENOVATING HOTELS INVOLVES SUBSTANTIAL RISKS, AND WE
CANNOT BE CERTAIN OF THE SUCCESS OF ANY FUTURE PROJECTS.
Part of our strategy is to develop new hotels and to acquire and redevelop old
or under-performing hotels. Acquiring, developing and renovating hotels involves
substantial risks, including:
o costs exceeding budget or amounts agreed to with contractors, because of
several factors, including delays in completion of construction;
o competition for acquisition of suitable development sites from competitors,
who may have greater financial resources;
o the failure to obtain zoning and construction permits;
o unavailability of financing on favorable terms, if at all;
o the failure of hotels to earn profits sufficient to service debt incurred
in construction or renovation, or at all;
o the failure to comply with labor and workers' union legal requirements;
o relationships with and quality and timely performance by contractors; and
o compliance with changes in governmental rules, regulations, planning and
interpretations.
As of May 31, 2006, we were involved in the following construction hotel
projects: (i) we commenced the renovation and the refurbishment of the Bucuresti
Hotel in Bucharest, Romania; and (ii) we commenced the internal renovation of
the Ballet Institute Building in Budapest, Hungary. We cannot be certain that
present or future development or renovation will be successful. If we are not
successful in future projects, it will have a material adverse affect on our
business. For successful growth, we must be able to develop or acquire hotels on
attractive terms and integrate the new or acquired hotels into our existing
operations. For acquired hotels, we must consolidate management, operations,
systems, personnel and procedures, which may not be immediately possible due to
collective labor agreements or other legal or operational obstacles. Any
substantial delays or unexpected costs in this integration process could
materially affect our business, financial condition or results of operations. We
cannot be certain that our newly acquired hotels will perform as we expect or
that we will be able to realize projected cost savings.
CONTINUOUS DELAYS WITH RESPECT TO RENOVATIONS OF THE PHYSICAL ENVIRONMENT
APPROXIMATE TO THE ASTRID PARK PLAZA HOTEL IN BELGIUM MAY CONTINUE TO HAVE AN
ADVERSE EFFECT ON ITS OPERATIONS.
The Municipality of Antwerp is engaged in extensive construction in the
Astridplein, located directly opposite the Astrid Park Plaza Hotel since 2000.
The construction is intended to prepare the square to accommodate the increased
traffic which will result once the TGV services to the railway station located
adjacent to the square become operational. The completion of this construction
has been delayed several times, and has caused and continues to cause
obstructions to access to the hotel. In the past, this had an adverse effect on
the occupancy rate at our hotel and on the performance of the Aquatopia
attraction located within the hotel. The continuation of the construction, the
permanent changes to the traffic flow around the hotel and the less convenient
access for the hotel's patrons may have an adverse effect on our results of
operations.
12
WE DEPEND ON PARTNERS IN OUR JOINT VENTURES AND COLLABORATIVE ARRANGEMENTS.
We own interests in seven operational hotels and are developing two additional
hotels, in partnership with other entities, including in particular, the Red Sea
Group of companies ("Red Sea") (for information regarding our partnership with
Red Sea, see "Item 4. Information on the Company - B. Business Overview -
Hotels" of the 2005 20-F). Red Sea is engaged in the initiation and development
of residential and commercial real estate projects in Israel and in the
operation of chain of hotels and income producing real estate abroad. We may in
the future enter into joint ventures or other collaborative arrangements. Our
investments in these joint ventures, including in particular our numerous
partnerships with Red Sea, may, under certain circumstances, be subject to (i)
the risk that one of our partners may become bankrupt or insolvent, which may
cause us to be unable to fulfill our financial obligations, may trigger a
default under our bank financing agreements or, in the event of a liquidation,
may prevent us from managing or administering our business; (ii) the risk that
one of our partners may have economic or other interests or goals that are
inconsistent with our interests and goals, and that such partner may be in a
position to veto actions which may be in our best interests; and (iii) the
possibility that disputes may arise regarding the continued operational
requirements of our hotels that are jointly owned.
WE RELY ON MANAGEMENT AGREEMENTS WITH PARK PLAZA WHICH MAY NOT PROVIDE THE
INTENDED BENEFITS, AND MAY BE TERMINATED.
All of the operating hotels in which we have an interest (other than the
Centreville Apartment hotel in Bucharest) are either directly or indirectly
operated under long-term management agreements with Park Plaza. Park Plaza is
the franchisee for certain territories under territorial license and franchise
agreements with Golden Wall Investment Ltd., which entitles Park Plaza to use
the "Park Plaza" tradename. Any significant decline in the reputation of Park
Plaza or in its ability to ensure the performance of our hotels at anticipated
levels could adversely affect our results of operations. If for any reason Park
Plaza loses its principal franchise, we will automatically lose our ability to
use the Park Plaza name and other benefits, in which case we may suffer in the
areas of brand name recognition, marketing, and centralized reservations systems
provided by Park Plaza, which, in turn, could materially affect our operations.
If our agreement with Park Plaza is terminated, we would not be certain that we
would be able to obtain alternative management services of the same standard on
similar or better terms.
OUR AGREEMENTS WITH PARK PLAZA AND THE REZIDOR GROUP IMPOSE OBLIGATIONS ON US
THAT MAY FORCE US TO INCUR SIGNIFICANT COSTS.
Our agreements with Park Plaza (for the management of the operational hotels)
and the Rezidor group (for the future management of two hotels, which are
currently under construction and/or renovation: the National Ballet Building in
Hungary, which is intended to be operated under the "Regent" brand name, and the
Bucuresti hotel in Bucharest, which is intended to be operated under the brand
name "Radisson SAS") contain specific standards for, and restrictions and
limitations on, hotel operation and maintenance. These standards, restrictions
and limitations may conflict with our priorities, and impose capital demands
upon us. In addition, Park Plaza and the Rezidor group may alter their standards
or hinder our ability to improve or modify our hotels. In order to comply with
their requirements, or alternatively, to change a franchise affiliation for a
particular hotel and disassociate ourselves from any of the "Park Plaza",
"Regent" or "Radisson" tradenames, we may be forced to incur significant costs
or make capital improvements.
THE VALUE OF OUR INVESTMENT IN OUR HOTEL PROPERTIES IS SUBJECT TO VARIOUS RISKS
RELATED TO OWNERSHIP AND OPERATION OF REAL PROPERTY.
Our investment in hotel properties is subject to varying degrees of risk related
to the ownership and operation of real property. The intrinsic value of our
hotels and income from the hotels may be materially adversely affected by:
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o changes in global and national economic conditions, including global
or national recession;
o a general or local slowdown in the real property, market which may
make it difficult to sell a property;
o political events that may have a material adverse effect on the hotel
industry;
o competition from other lodging facilities, and oversupply of hotel
rooms in a specific location;
o material changes in operating expenses, including as a result of
changes in real property tax systems or rates;
o changes in the availability, cost and terms of financing;
o the effect of present or future environmental laws;
o our ongoing need for capital improvements and refurbishments; and
o material changes in governmental rules and policies.
OUR OWNERSHIP RIGHTS IN THE BUCURESTI HOTEL HAVE BEEN CHALLENGED.
Since we acquired a controlling interest in the Bucuresti Hotel complex in
Bucharest, Romania (which includes the Bucuresti Hotel and the Centerville
apartment hotel), we have encountered a number of attempts to challenge both the
validity of the acquisition of the complex and our control over the company
owning the rights to the hotel. To date, two claims have been filed challenging
our ownership in the Bucuresti Hotel Complex both of which are currently pending
in the Bucuresti court of appeal (See "Item 8. Financial Information - Legal
Proceedings" of the 2005 20-F). In addition, another appeal to the Romanian
Supreme Court was filed requesting to nullify the public tender for the sale of
Bucuresti shares, the privatization contract and the transfer of the Bucuresti
shares to our Company, Domino. We anticipate, based on our legal counsel's
advice, that the appeal will be rejected by the Supreme Court. Nevertheless, if
any of the above appeals will be accepted, our results of operation will be
materially adversely affected
RISKS RELATING TO BOTH THE SHOPPING AND ENTERTAINMENT CENTERS BUSINESS AND TO
THE HOTEL BUSINESS
THE FAILURE TO COMPLY WITH GOVERNMENT REGULATION MAY ADVERSELY AFFECT OUR
BUSINESS AND RESULTS OF OPERATIONS
Both the shopping and entertainment centers business and the hotel industry are
subject to numerous national and local government regulations, including those
relating to building and zoning requirements and fire safety control. In
addition, we are subject to laws governing our relationships with employees,
including minimum wage requirements, overtime, working conditions, and work
permit requirements, and in some localities to collective labor agreements. A
determination that we are not in compliance with these regulations could result
in the imposition of fines, an award of damages to private litigants and
significant expenses in bringing our shopping and entertainment centers and
hotels into compliance with the regulations. In addition, our ability to dismiss
unneeded staff may be hampered by local labor laws and courts which
traditionally favor employees in disputes with former employers, particularly in
countries with strong socialist histories such as those in Eastern Europe.
WE MAY BE HELD LIABLE FOR DESIGN OR CONSTRUCTION DEFECTS OF THIRD-PARTY
CONTRACTORS.
We rely on the quality and timely performance of construction activities by
third-party contractors. Claims may be asserted against us by local government
and zoning authorities or by third parties for personal injury and design or
construction defects. These claims may not be covered by the professional
liability insurance of the contractors or of the architects and consultants.
These claims may give rise to significant liabilities.
14
WE MAY BE AFFECTED BY SHORTAGES IN RAW MATERIALS AND EMPLOYEES.
The building industry may from time to time experience fluctuating prices
and shortages in the supply of raw materials as well as shortages of labor and
other materials. The inability to obtain sufficient amounts of raw materials and
to retain efficient employees on terms acceptable to us may result in delay in
the construction of the project and increase in the budget of the project and,
consequently may have a material adverse effect on the results of our
operations.
WE MAY EXPERIENCE FLUCTUATIONS IN OUR ANNUAL AND QUARTERLY RESULTS AS A RESULT
OF OUR OPENING NEW CENTERS, ENTERING INTO NEW BUSINESSES AND DISPOSING OF OTHER
CENTERS, HOTELS OR OTHER BUSINESSES.
We periodically review our business to identify properties or other assets
that we believe either no longer complement our business, or could be sold at
significant premiums. We are focused on restructuring and enhancing real estate
returns and monetizing investments and from time to time, attempt to sell these
identified properties and assets, refinance our properties and raise capital
directly or by our subsidiaries. There can be no assurance, however, that we
will be able to complete dispositions on commercially reasonable terms or at
all. We also periodically review our business to identify opportunities for the
acquisition or development of new centers and/or hotels. There can be no
assurance that we will be able to develop or acquire centers and/or hotels that
will become successful. As a result of our disposition and acquisition or
development of centers, we may experience significant fluctuations in our annual
and quarterly results. As a result, we believe that period-to-period comparisons
of our historical results of operations may not necessarily be meaningful and
that investors should not rely on them as an indication for future performance.
FACTORS THAT AFFECT THE VALUE OF OUR REAL-ESTATE ASSETS AND OUR INVESTMENTS MAY
ADVERSELY CHANGE AND THEREFORE WE WILL NEED TO CHARGE AN IMPAIRMENT LOSS NOT
PREVIOUSLY RECORDED.
Certain specific circumstances may affect the fair value of our real estate
assets (operating or under construction) and investments. An impairment loss not
previously recorded may be required and/or depreciation may be accelerated, upon
the occurrence of one or more of the following circumstances:
(i) ABSENCE OF OR MODIFICATIONS TO PERMITS OR APPROVALS. A construction
permit may be revoked as a result of unauthorized delays in commencing
construction; a construction permit may be cancelled altogether under
certain circumstances, such as where the use of land does not
correspond to the permitted usage; a need for a revised construction
permit arises by reasons of governmental or other instructions to
carry out modifications to our original architectural plans so as to
comply, among other things, with environmental and traffic impact plan
or obtain archeological clearance; new laws and regulations are
enacted which limit the use of our land for structures other than
centers or hotels; voluntary modifications to original plans where we
encounter opportunities to substantially upgrade our project by
acquisitions of adjacent land plots or expansion of original project
or otherwise, may trigger the need for a revision to or modification
of the issued construction permit if the permit becomes inapplicable;
a revised construction permit may be required where changes occur to
zoning plans which indirectly affect our proposed commercial center; a
new, revised permit, when required, may nevertheless be denied for
reasons beyond our control or following our failure to fulfill
preconditions or otherwise;
(ii) STRATEGY IN RESPECT OF LONG TERM LEASE COMMITMENTS. In commercial
centers, where a significant part of the rental areas is subject to
long term leases with a small group of retailers which is
distinguished (from other lessees) by a direct correlation between the
rental fees paid by such retailer and the revenues from their
respective rental areas, we may be exposed to a risk of rental fees
rates being significantly lower than originally anticipated. A
material decline in the long run in the business operations of such
retailers may therefore, have an adverse affect on the results of
operations of these commercial centers as well as on their recoverable
amount. Other commercial centers, the rental areas of which have not
been fully rented or which we have designated for an interim period as
free of charge public areas, may be required to alter their original
designation of use so as to serve, in the best optimal manner, our
strategy for the center. Should these areas remain vacant or public,
for a period longer than originally anticipated, our long-term cash
flows may be negatively impacted and, as a result, it may decrease the
value of the center;
15
(iii) EXTERNAL INTERRUPTIONS. Circumstances having significant impact on
our real estate may include extensive and continuous infrastructure
works carried out by municipalities or other legal authorities. Delays
in completion of such works, beyond the anticipated target, may cause
harm and damages to the results of operations of the real estate; and
(iv) LEGAL ISSUES AND OTHER UNCERTAINTIES. Lawsuits that are pending,
whether or not we are a party thereto, may have a significant impact
on our real estate assets and/or on certain of our shareholding rights
in the companies owning such assets. Certain laws and regulations,
applicable to our business in certain countries where the legislation
process undergoes constant changes, may be subject to frequent and
substantially different interpretations; agreements which may be
interpreted by governmental authorities so as to shorten term of use
of real estate, and which may be accompanied with a demand to demolish
the construction thereon erected, be that with or without
compensation, may significantly affect the value of such real estate
asset.
Since market conditions and other parameters (such as macroeconomic
environment trends, and others), which affect the fair value of our real-estate
and investment, vary from time to time, the fair value may not be adequate on a
date other than the date the measurement was executed (immediately prior to the
balance sheet date). In the event the projected forecasts regarding the future
cash flows generated by those assets are not met, we may have to record an
additional impairment loss not previously recorded.
RISKS RELATING TO THE IMAGE GUIDED TREATMENT BUSINESS
INSIGHTEC IS CURRENTLY DEPENDENT ON SALES OF THE EXABLATE 2000 FOR THE TREATMENT
OF UTERINE FIBROIDS FOR VIRTUALLY ALL OF ITS REVENUE.
The ExAblate 2000 is in an early stage of commercialization. InSightec
received FDA approval in October 2004 to market the ExAblate 2000 in the United
States only for the treatment of uterine fibroids. InSightec expects sales of
the ExAblate 2000 for this application to account for virtually all of its
revenues for the foreseeable future, depending upon the timing of regulatory
approval of additional applications for the ExAblate 2000. As a result, factors
adversely affecting InSightec's ability to sell, or pricing of or demand for,
InSightec's product for this application would have a material adverse effect on
its financial condition and results of operations, which would in turn adversely
affect the Company's results of operations.
IF THE EXABLATE 2000 DOES NOT ACHIEVE BROAD MARKET ACCEPTANCE FOR THE TREATMENT
OF UTERINE FIBROIDS, INSIGHTEC WILL NOT BE ABLE TO GENERATE SUFFICIENT SALES TO
SUPPORT ITS BUSINESS.
InSightec must achieve broad market acceptance of the ExAblate 2000 for the
treatment of uterine fibroids among physicians, patients and third party payors
in order to generate a sufficient amount of sales to support its business.
Physicians will not recommend the use of the ExAblate 2000 unless InSightec can
demonstrate that it produces results comparable or superior to existing
treatments for uterine fibroids. If long-term patient studies do not support
InSightec's existing clinical results, or if they indicate that the use of the
ExAblate 2000 has negative side effects on patients, physicians may not adopt or
continue to use the ExAblate 2000. Even if InSightec demonstrates the
effectiveness of the ExAblate 2000, physicians may still not use the system for
a number of other reasons. Physicians may continue to recommend traditional
uterine fibroid treatment options simply because those methods are already
widely accepted and are based on established technologies. Patients may also be
reluctant to undergo new, less established treatments for uterine fibroids. If,
due to any of these factors, the ExAblate 2000 does not receive broad market
acceptance among physicians or patients, InSightec will not generate significant
sales. In this event, InSightec's business, financial condition and results of
operations would be seriously harmed, and InSightec's ability to develop
additional treatment applications for the ExAblate 2000 would be adversely
affected.
16
IF PHYSICIANS, HOSPITALS AND OTHER HEALTHCARE PROVIDERS ARE UNABLE TO OBTAIN
COVERAGE AND SUFFICIENT REIMBURSEMENT FROM THIRD PARTY HEALTHCARE PAYORS FOR
TREATMENT PROCEDURES USING THE EXABLATE 2000, INSIGHTEC MAY BE UNABLE TO
GENERATE SUFFICIENT SALES TO SUPPORT ITS BUSINESS.
Demand for the ExAblate 2000 is likely to depend substantially on the
extent to which sufficient reimbursement for treatment procedures using
InSightec's system will be available from third party payors such as private
health insurance plans and health maintenance organizations and, to a lesser
degree, government payor programs such as Medicare and Medicaid. In the United
States, the assignment of a Current Procedural Terminology, or CPT, code is
generally necessary to facilitate claims for reimbursement. In July 2004, two
CPT III codes were implemented allowing to track the use of the ExAblate 2000
system to treat uterine fibroids. However, the assignment of these codes does
not require third party payors to provide reimbursement for procedures performed
with the ExAblate 2000. InSightec believes that third party payors will not
provide reimbursement on a national basis for treatments using the ExAblate 2000
unless InSightec can generate a sufficient amount of data through long-term
patient studies to demonstrate that such treatments produce favorable results in
a cost-effective manner relative to other treatments. Furthermore, InSightec
could be adversely affected by changes in reimbursement policies of private
healthcare or governmental payors to the extent any such changes affect
reimbursement for treatment procedures using the ExAblate 2000. If physicians,
hospitals and other healthcare providers are unable to obtain sufficient
coverage and reimbursement from third-party payors for treatment procedures
using the ExAblate 2000, InSightec may be unable to generate sufficient sales to
support its business.
InSightec's success in non-U.S. markets also depends on treatment
procedures using the ExAblate 2000 being eligible for reimbursement through
government-sponsored healthcare payment systems, private third-party payors and
labor unions. Reimbursement practices vary significantly from country to country
and within some countries, by region. Many non-U.S. markets have
government-managed healthcare systems that control reimbursement for new
products and procedures. Other non-U.S. markets have private insurance systems,
labor union-sponsored programs and government-managed systems that control
reimbursement for new products and procedures. To date, only one third party
payor, a health maintenance organization in Israel, has approved reimbursement
coverage for treatments using the ExAblate 2000. We cannot assure you that such
coverage will be approved by additional payors in other markets in a timely
manner, if at all, thereby materially adversely affecting our resutls our
operation. In the event that InSightec is unable to timely obtain acceptable
levels of reimbursement coverage in its targeted markets outside of the United
States, InSightec's ability to generate sales may be adversely affected.
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INSIGHTEC'S FUTURE GROWTH SUBSTANTIALLY DEPENDS ON ITS ABILITY TO DEVELOP AND
OBTAIN REGULATORY CLEARANCE FOR ADDITIONAL TREATMENT APPLICATIONS FOR THE
EXABLATE 2000.
Currently, InSightec has received regulatory approvals to market the
ExAblate 2000 in the United States, Israel, Russia, Taiwan, Australia, Singapore
and the European Union Economic Area, or EEA, which is comprised of the member
nations of the European Union and certain additional European nations, solely
for the treatment of uterine fibroids. InSightec's objective is to expand the
use of the ExAblate 2000 by developing and introducing new treatment
applications. InSightec is currently in various stages of product development
and clinical studies for a number of new treatment applications for the ExAblate
2000. It will be required to obtain FDA approval in the United States and other
regulatory approvals outside of the United States before marketing the ExAblate
2000 for these additional treatment applications. Furthermore, InSightec cannot
guarantee that InSightec's product development activities for these other
applications will be successful and in such event, InSightec's future growth
will be harmed. In particular, InSightec's future oncology treatment
applications are subject to significant risks since these applications must be
able to demonstrate complete ablation of malignant tumors. If InSightec is
unable to demonstrate this degree of efficacy, its future oncology treatment
applications may not prove to be successful. In addition, assuming product
development is successful, the regulatory processes can be lengthy, lasting many
years in some cases, and expensive. We cannot assure you that FDA approval or
other regulatory approvals will be granted.
In order to obtain FDA clearance and other regulatory approvals, and to
obtain reimbursement coverage for use of the ExAblate 2000 treatment for
additional applications, InSightec is required to conduct clinical studies to
demonstrate the therapeutic benefits and cost-effectiveness of these new
treatment applications and products. Clinical trials are expensive and may take
several years to complete. If future clinical trials indicate that the ExAblate
2000 is not as beneficial or cost-effective as existing treatment methods, or
that such products cause unexpected complications or other unforeseen adverse
events, InSightec may not obtain regulatory clearance to market and sell the
ExAblate 2000 for these additional treatment applications or obtain
reimbursement coverage, and InSightec's long-term growth would be seriously
harmed.
The product development and regulatory approval process for each of
InSightec's future applications is subject to a number of application-specific
risks and uncertainties. For example, the life expectancy from existing surgical
treatment options for breast cancer is long and the survival rate is relatively
high. As a result, InSightec will have to conduct extensive clinical trials
which may include several thousand participants and extend over several years of
follow-up. This may delay the commercial introduction of InSightec's
applications by several years. In addition, InSightec is still in the process of
developing and improving clinical prototypes for its liver, bone metastatic
tumors, prostate and brain treatment applications. If it is unable to surmount
these challenges, as well as the challenges relating to its other future
applications, its business and results of operations may be adversely affected.
INSIGHTEC IS DEPENDENT ON GENERAL ELECTRIC.
The ExAblate 2000 is compatible only with certain of GE Healthcare, a
division of the General Electric Company ("GE") Healthcare's Magnetic Resonance
Imaging (MRI) systems, which may limit InSightec's potential market. A
significant portion of the MRI systems in use in the United States and elsewhere
are not GE MRI systems. InSightec estimates that there are over 2,400 GE MRI
systems in the United States that are compatible with the ExAblate 2000 and
InSightec estimates that there are a similar number of such GE MRI systems
outside of the United States. InSightec has no current plans to develop a system
that would be compatible with MRI systems manufactured by companies other than
GE and is, therefore, limited in its target market to potential customers who
already own or otherwise have access to a compatible GE MRI system, or are
willing to purchase such a system in order to use the ExAblate 2000. In
addition, in the event that GE is unable to effectively market its MRI systems,
InSightec's ability to generate additional sales of the ExAblate 2000 may be
adversely affected.
InSightec depends on its collaboration with GE to ensure the compatibility
of the ExAblate 2000 with new models of GE MRI systems and upgrades to existing
GE MRI systems. GE regularly develops new models of its MRI systems, as well as
new capabilities for its existing MRI systems, which could affect their
compatibility with the ExAblate 2000. If InSightec is unable to receive
information regarding new models of the GE MRI systems or upgrades to existing
GE MRI systems, and coordinate corresponding upgrades to the ExAblate 2000 to
ensure continued compatibility with new and existing GE MRI systems, its ability
to generate sales of its system will be adversely affected. In addition, If
InSightec is unable to coordinate new applications or upgrades with GE's
research and development team, it may be unable to develop such applications or
upgrades in a timely manner and its future revenue growth may be seriously
harmed.
18
In addition, InSightec entered into a five year exclusive worldwide
(excluding Japan and Russia) sales and marketing agreement with GE with respect
to the ExAblate 2000. Although the agreement does not prohibit InSightec from
marketing and selling the ExAblate 2000 directly, InSightec expects that a
substantial portion of its sales of the ExAblate 2000 will be developed through
this agreement with GE. Since InSightec has no direct control over GE's sales
and marketing personnel, InSightec must rely on incentives provided by GE to its
personnel to encourage effective marketing of the ExAblate 2000, as well as
contractual provisions contained in the agreement. In addition, GE has a right
of first negotiation with respect to the distribution, financing and servicing
of our focused ultrasound products, and the design and supply of imaging devices
to be used in connection with our current and future MRgFUS products. These
rights continue until five years after the sale by GE of all of our ordinary
shares that it holds or, with respect to any distribution agreement, until the
earlier of three years after such sale of our ordinary shares or the date on
which GE fails to meet minimum thresholds provided in such distribution
agreement. We cannot assure you that GE will be successful in efforts to
generate sales of the ExAblate 2000 or any other products developed by us as to
which it obtains distribution rights. In such event InSightec's results of
operation may be materially adversely affected.
The sales and marketing agreement does not prohibit GE from marketing or
manufacturing other focused ultrasound-based products that may compete with the
ExAblate 2000. In addition, GE retained the right to use certain focused
ultrasound-related patents which it assigned to InSightec at the time of its
formation and InSightec has granted to GE a non-exclusive license to certain of
our patents derived from technology and patent rights licensed to InSightec by
GE. GE may use such patents to develop its own focused ultrasound based products
without InSightec's consent. In the event that GE chooses to distribute or
manufacture medical devices that may compete with the ExAblate 2000 or other
products based on the Magnetic Resonance Guided Focused Ultrasound (MRgFUS)
technology, InSightec's sales may be adversely affected.
IF INSIGHTEC IS UNABLE TO PROTECT ITS INTELLECTUAL PROPERTY RIGHTS, ITS
COMPETITIVE POSITION COULD BE HARMED. THIRD-PARTY CLAIMS OF INFRINGEMENT COULD
REQUIRE INSIGHTEC TO REDESIGN ITS PRODUCTS, SEEK LICENSES, OR ENGAGE IN FUTURE
COSTLY INTELLECTUAL PROPERTY LITIGATION, WHICH COULD IMPACT INSIGHTEC'S FUTURE
BUSINESS AND FINANCIAL PERFORMANCE.
InSightec's success and ability to compete depend in large part upon its
ability to protect its proprietary technology. InSightec relies on a combination
of patent, copyright, trademark and trade secret laws, and on confidentiality
and invention assignment agreements, in order to protect its intellectual
property rights. A few of InSightec's patents were transferred to InSightec from
GE at the time of its formation, and GE retains a non-exclusive license to make,
use and sell products covered under these patents in the imaging field only
without InSightec's permission. Prior to the transfer, GE had entered into
cross-license agreements with respect to these patents with a number of
companies, including some that may be potential competitors of InSightec. As a
result of these cross license agreements, InSightec may not be able to enforce
these patents against one or more of these companies.
The process of seeking patent protection can be long and expensive, and
there can be no assurance that InSightec's existing or future patent
applications will result in patents being issued, or that InSightec's existing
patents, or any patents which may be issued as a result of existing or future
applications, will provide meaningful protection or commercial advantage to
InSightec. Any issued patents may be challenged, invalidated or legally
circumvented by third parties. InSightec cannot be certain that its patents will
be upheld as valid, proven enforceable, or prevent the development of
competitive products. Consequently, competitors could develop, manufacture and
sell products that directly compete with InSightec's product, which could
decrease its sales and diminish its ability to compete.
19
Claims by competitors and other third parties that InSightec products
allegedly infringe the patent rights of others could have a material adverse
effect on InSightec's business. The medical device industry is characterized by
frequent and substantial intellectual property litigation. Intellectual property
litigation is complex and expensive, and the outcome of this type of litigation
is difficult to predict. Any future litigation, regardless of outcome, could
result in substantial expense and significant diversion of the efforts of
InSightec's technical and management personnel. An adverse determination in any
such proceeding could subject InSightec to significant liabilities or require
InSightec to seek licenses from third parties or pay royalties that may be
substantial.
RISKS RELATING TO OUR OTHER ACTIVITIES
OUR MANGO BUSINESS IS DEPENDENT ON A SINGLE FRANCHISE AND SUPPLIER WHICH COULD
CAUSE DELAYS OR DISRUPTIONS IN THE DELIVERY OF OUR MANGO PRODUCTS, WHICH COULD
HARM OUR BUSINESS AND RESULTS OF OPERATIONS.
Mango, an apparel company which we acquired in May 2005, depends on its
franchise with and supply of products from Punto Fa, S.L., a contemporary
women's apparel company, and its international brand name MANGO-MNG(TM) (which
supplier we refer to collectively herein as Mango International). If Mango
International ends its relationship with Mango or enters into liquidation,
Mango's business in Israel will be terminated. In addition, Mango relies on the
supply of its products from Mango International and may face a shortage of
inventory if there is a worldwide excess demand for Mango International's
products. If either of these events occurs, our results of operations may be
materially adversely affected.
A RISE IN WAGE LEVELS IN ISRAEL COULD ADVERSELY AFFECT MANGO'S FINANCIAL
RESULTS.
Mango relies mainly on minimum wage employees. The Israeli government
increased the applicable minimum wage effective as of July 2006. If wage levels
generally, and particularly the minimum wage in Israel, increase, Mango's
results of operations could be harmed.
THE APPAREL INDUSTRY IS SUBJECT TO CHANGES IN FASHION PREFERENCES. IF THE
MANUFACTURER OF MANGO PRODUCTS MISJUDGES FASHION TRENDS, OR IF WE FAIL TO CHOOSE
FROM THE MANGO INTERNATIONAL INVENTORY DESIGN PRODUCTS THAT APPEAL TO OUR
CUSTOMERS, OUR SALES COULD DECLINE AND OUR RESULTS OF OPERATIONS COULD BE
ADVERSELY AFFECTED.
Neither the manufacturer of Mango products nor Mango may be successful in
anticipating and responding to fashion trends in the future. Customer tastes and
fashion trends change rapidly. Our success depends in part on Mango
International's ability to effectively anticipate and respond to changing
fashion tastes and consumer demands and to translate market trends into
appropriate, saleable product offerings far in advance. If Mango International
is unable to successfully anticipate, identify or react to changing styles or
trends and misjudges the market for its products or any new product lines, or if
we fail to choose from the Mango International inventory design products that
appeal to our customers' changing fashion preferences, Mango's sales will be
lower and we may be faced with a significant amount of unsold finished goods
inventory. As a result, we may be forced to increase our marketing promotions or
price markdowns, which could have a material adverse effect on our business. Our
Mango brand image may also suffer if customers believe merchandise misjudgments
indicate that Mango no longer offers the latest fashions.
20
A CHANGE IN CUSTOMS RATES AND CUSTOM AND HARBOR STRIKES COULD ADVERSELY AFFECT
MANGO'S FINANCIAL RESULTS.
Mango is subject to Israeli customs since all of its products are imported.
An increase in customs rates on Mango's products could adversely affect Mango's
ability to compete against local manufacturers or with products from countries
which enjoy more favorable customs rates in Israel. On the other hand, a
reduction in customs rates may encourage entrance penetration of new competitors
to the market. In addition, since most of Mango's products are imported, custom
and harbor strikes and delays could adversely affect Mango's ability to meet
customer demands and adversely affect Mango's financial results.
MANGO MAY BE UNABLE TO COMPETE FAVORABLY IN THE HIGHLY COMPETITIVE WOMEN'S
APPAREL INDUSTRY, AND MANGO'S COMPETITORS MAY HAVE GREATER FINANCIAL, GEOGRAPHIC
AND OTHER RESOURCES.
The sale of fashionable women's apparel is highly competitive. Mango
competes directly with a number of Israeli and international brands (such as
Zara, Castro, Honigman, Renuar and Dan Casidi, some of which have longer
operating histories and enjoy greater financial and marketing resources than
Mango, for example, Mango's competitors may have the ability to obtain better
geographic locations for their stores in commercial centers, with better traffic
flow and access to customers, which would have a positive impact on their sales.
Increased competition could result in pricing pressure, increased marketing
expenditures or loss of market share to Mango and adversely affect Mango's
revenues and profitability. There can be no assurance that Mango will be able to
compete successfully against existing or new competitors.
MANGO HAS NO CONTROL OVER FLUCTUATIONS IN THE COST OF THE RAW MATERIALS IT USES
AND A RISE IN COSTS COULD HARM MANGO'S PROFITABILITY.
Mango buys its entire inventory from Mango International, which is
responsible for the design and manufacturing of all of Mango's products. The
prices of the inventory that Mango purchases from Mango International are
dependent on the manufacturing costs of Mango International. Mango
International's manufacturing costs are substantially dependent on the prices of
raw materials and level of wages in the countries where its products are
manufactured. Therefore, an increase in the manufacturing costs of Mango
International will cause an increase in Mango's cost of goods sold and Mango may
not be able to pass on the increased costs to its customers. Such increased
costs would likely adversely affect Mango's profitability, operational results
and its financial condition.
A DEVALUATION OF THE NIS AGAINST THE EURO COULD HARM MANGO'S PROFITABILITY.
Mango buys its entire inventory from Mango International. The price of this
inventory is denominated in Euros. Therefore, a devaluation of the NIS against
the Euro will cause an increase in Mango's cost of goods sold expressed in NIS,
and Mango may not be able to pass the increased costs to its customers. This
would likely adversely affect Mango's profitability, operational results and its
financial conditions.
OUR VENTURE CAPITAL INVESTMENTS ARE MADE IN DEVELOPMENT STAGE COMPANIES AND
INVOLVE HIGH RISKS.
Investments in biotechnology development stage companies involve high risks.
These companies are subject to various risks generally encountered by new
enterprises, including costly, delayed or protracted research and development
programs, the need for acceptance of their products in the market place, and the
need for additional financing which might not be available. We cannot be certain
that the assessments we made at the time of investment in our venture capital
investments, as to the quality of the concept or the prototype, will prove
correct, or that there will be an adequate return on investment, if at all. If
our assessment of the venture capital investments are incorrect, our results of
operations may be adversely affected.
21
OUR VENTURE CAPITAL INVESTMENTS ARE SPECULATIVE IN NATURE AND WE MAY NEVER
REALIZE ANY REVENUES OR PROFITS FROM THESE INVESTMENTS.
We cannot be certain that our venture capital investments will result in
revenues or profits. Economic, governmental, regulatory and industry factors
outside our control affect our venture capital investments. If our venture
capital investments will not successfully implement its business plan we will
not be able to realize any profits from it. Our ability to realize profits from
these investments will be dependent upon the management of these companies, the
success of its research and development activities, the timing of the marketing
of its products and numerous other factors beyond our control.
RISKS RELATING TO ISRAEL
SECURITY AND ECONOMIC CONDITIONS IN ISRAEL MAY AFFECT OUR OPERATIONS.
We are incorporated under Israeli law and our principal offices are located
in Israel. In addition, the Arena shopping and entertainment center is located
in Herzliya, Israel as well as our operations in our other activities segment,
such as Mango and other venture capital investment operating in Israel.
Political, economic and security conditions in Israel directly affect our
operations. Since the establishment of the State of Israel in 1948, various
armed conflicts have taken place between Israel and its Arab neighbors and a
state of hostility, varying in degree and intensity, has led to security and
economic problems for Israel. Israel signed a peace treaty with Egypt in 1979
and a peace treaty with Jordan in 1994. As of the date of this annual report,
Israel has not entered into any peace agreement with Syria or Lebanon. Since
1993, several agreements have been signed between Israel and the Palestinians,
but a final agreement has not been achieved. Since October 2000, there has been
a marked increase in hostilities between Israel and the Palestinians,
characterized by terrorist attacks on civilian targets, suicide bombings and
military incursions into areas under the control of the Palestinian Authority.
These developments have adversely affected the peace process, placed the Israeli
economy under significant stress, and have negatively influenced Israel's
relationship with several Arab countries. In January 2006, Hamas, an Islamic
movement responsible for many attacks against Israelis, won the majority of the
seats in the Parliament of the Palestinian Authority. The election of a majority
of Hamas-supported candidates is expected to be a major obstacle to relations
between Israel and the Palestinian Authority, as well as to the stability in the
Middle East as a whole. In July 2006, a conflict with Hezbollah escalated
significantly on Israel's northern border. This conflict included the firing of
multiple rockets by Hezbollah throughout northern Israel as well as retaliatory
attacks by Israel throughout Lebanon. In addition, some neighboring countries,
as well as certain companies and organizations, continue to participate in a
boycott of Israeli firms and others doing business with Israel or with Israeli
companies. Restrictive laws, policies or practices directed towards Israel or
Israeli businesses could have an adverse impact on the expansion of our
business. In addition, we could be adversely affected by the interruption or
curtailment of trade between Israel and its trading partners, a significant
increase in the rate of inflation, or a significant downturn in the economic or
financial condition of Israel.
MANY OF OUR DIRECTORS, OFFICERS AND EMPLOYEES ARE OBLIGATED TO PERFORM ANNUAL
MILITARY RESERVE DUTY IN ISRAEL. WE CANNOT ASSESS THE POTENTIAL IMPACT OF THESE
OBLIGATIONS ON OUR BUSINESS.
Our directors, officers and employees who are male adult citizens and
permanent residents of Israel under the age of 45 are, unless exempt, obligated
to perform annual military reserve duty and are subject to being called to
active duty at any time under emergency circumstances. The deteriorating
security situation in the Middle East has caused, and will continue to cause, a
sharp increase in the army reserve obligations of our directors, officers and
employees who are subject to such reserve duty obligations. Although we have
operated effectively under these requirements in the past, including during
recent hostilities with the Palestinians and the war in Iraq, we cannot assess
the full impact of these requirements on our workforce or business if conditions
should change, and we cannot predict the effect of any increase or reduction of
these requirements on us.
22
AN INCOME TAX REFORM IN ISRAEL MAY ADVERSELY AFFECT US.
Effective as of January 2003, the Israeli Parliament has enacted a
wide-ranging reform of the Israeli income tax system. These tax reforms have
resulted in significant changes to the Israeli tax system. The main effect of
this new tax reform on us is that we might be subject to additional tax arising
from profits from our foreign companies which would be defined as "Controlled
Foreign Companies" (CFC) in accordance with the provisions of the law. See "Item
10. Additional Information - E. Taxation - Taxation in Israel - Tax Reform in
Israel" of the 2005 20-F. This may have adverse tax consequences for us.
ISRAELI COURTS MIGHT NOT ENFORCE JUDGMENTS RENDERED OUTSIDE OF ISRAEL, WHICH MAY
MAKE IT DIFFICULT TO COLLECT ON JUDGMENTS RENDERED AGAINST US.
We are incorporated in Israel. Some of our directors and officers are not
residents of the United States and some of their assets and our assets are
located outside the United States. Service of process upon our non-U.S. resident
directors and officers and enforcement of judgments obtained in the United
States against us, and our directors and executive officers may be difficult to
obtain within the United States.
We have been informed by our Israeli legal counsel, that there is doubt as
to the enforceability of civil liabilities under U.S. securities laws in
original actions instituted in Israel. However, subject to certain time
limitations, an Israeli court may declare a foreign civil judgment enforceable
if it finds that all of the following terms are met: (i) the judgment was
rendered by a court which was, according to the laws of the state of the court,
competent to render the judgment; (ii) the judgment can longer be appealed;
(iii) the obligation imposed by the judgment is enforceable according to the
rules relating to the enforceability of judgments in Israel and the substance of
the judgment is not contrary to public policy; and (iv) the judgment is
executory in the state in which it was rendered or issued..
Even if the above conditions are satisfied, an Israeli court will not
enforce a foreign judgment if it was given in a state whose laws do not provide
for the enforcement of judgments of Israeli courts (subject to exceptional
cases) or if its enforcement is likely to prejudice the sovereignty or security
of the State of Israel. An Israeli court will also not declare a foreign
judgment enforceable in the occurrence of any of the following: (i) the judgment
was obtained by fraud; (ii) there was no due process; (iii) the judgment was
rendered by a court not competent to render it according to the laws of private
international law in Israel; (iv) the judgment is at variance with another
judgment that was given in the same matter between the same parties and which is
still valid; or (v) at the time the action was brought in the foreign court a
suit in the same matter and between the same parties was pending before a court
or tribunal in Israel.
ANTI-TAKEOVER PROVISIONS COULD NEGATIVELY IMPACT OUR SHAREHOLDERS.
The Israeli Companies Law of 1999 (the "Companies Law") provides that an
acquisition of shares in a public company must be made by means of a special
tender offer if as a result of such acquisition the purchaser becomes a holder
of 25% or more of the voting rights in the company. This rule does not apply if
there already is another holder of 25% or more of the voting rights in the
company. Similarly, the Companies Law provides that an acquisition of shares in
a public company must be made by means of a special tender offer, if as a result
of the acquisition the purchaser becomes a holder of more than 45% of the voting
rights in the company. This rule does not apply if another party already holds
more than 45% of the voting rights in the company.
Furthermore, under the Companies Law, a person is not permitted to acquire
shares of a public company or a class of shares of a public company, if
following such acquisition such person holds 90% or more of the company's shares
or class of shares, unless such person conducts a tender offer for all of the
company's shares or class of shares (a "Full Tender Offer"). In the event that
holders of less than 5% of the company's issued share capital or of the issued
class of shares did not respond to the tender offer, then such offer will be
accepted and all of the company's shares or class of shares with respect to
which the offer was made will be transferred to the offeror, including all of
the company's shares or class of shares held by such non-responsive shareholders
that will be transferred to the offeror by way of a compulsory sale of shares.
In the event that holders of 5% or more of the issued shares did not respond to
the tender offer, the offeror may not purchase more than 90% of the shares or
class of shares of such company.
23
At the request of an offeree of a Full Tender Offer which was accepted, the
court may determine that the consideration for the shares purchased under the
tender offer, was lower than their fair value and compel the offeror to pay to
the offerees the fair value of the shares. Such application to the court may be
filed as a class action.
The Companies Law provides that for as long as a shareholder in a publicly
held company holds more than 90% of the company's shares or of a class of
shares, such shareholder shall be precluded from purchasing any additional
shares.
THE VIOLATION OF CERTAIN CONDITIONS UNDER THE ISRAELI TAX ORDINANCE AND/OR THE
PRE-RULING ISSUED BY THE ISRAELI TAX AUTHORITIES IN CONNECTION WITH THE MERGER
BY WAY OF EXCHANGE OF SHARES BETWEEN EMI AND ITS SUBSIDIARY, ELSCINT, MAY RESULT
IN THE MERGER NOT BEING TREATED AS TAX EXEMPT BY THE ISRAELI TAX AUTHORITIES AND
THE IMPOSITION OF CAPITAL GAINS TAX ON THE EXCHANGE OF SHARES.
In November 2005, a merger between Elscint Limited ("Elscint"), our
subsidiary, and EMI was consummated pursuant to which EMI purchased the entire
outstanding share capital of Elscint not already owned by EMI and by or for the
benefit of Elscint, in consideration for 0.53 ordinary shares of EMI for each 1
ordinary share of Elscint. If any requirement or condition of the merger under
the Israeli Tax Ordinance [New Version] of 1961, the regulations promulgated
thereunder or the pre-ruling issued by the Israeli tax authorities in connection
with the merger is breached and/or is not met, the merger will not be treated as
tax exempt for Israeli tax purposes. As part of the final pre-ruling issued by
the Israeli tax authorities, EMI, Elscint and their controlling shareholders
were subject to certain restrictions and conditions. In that event, the Israeli
tax authorities may impose, in accordance with the Ordinance, Israeli capital
gains tax on EMI and on the former Elscint shareholders in respect of the
exchange of shares under the merger.
RISKS RELATING TO OPERATIONS IN EASTERN EUROPE
WE ARE SUBJECT TO VARIOUS RISKS RELATED TO OUR OPERATIONS IN EASTERN EUROPE,
INCLUDING ECONOMIC AND POLITICAL INSTABILITY, POLITICAL AND CRIMINAL CORRUPTION.
Many of the Eastern European countries in which we operate are countries
that until the last decade were allied with the former Soviet Union under a
communist economic system, and they are still subject to various risks. Certain
Eastern European countries, in particular those countries that are not expected
to join the European Union in the near future, are still economically and
politically unstable and suffer from political and criminal corruption, lack of
commercial experience, and unpredictability of the civil justice system. Certain
Eastern European countries also continue to suffer from high unemployment, low
wages and low literacy rates. These risks could be harmful to us and are very
difficult to quantify or predict. Although many governments of the Eastern
European countries have liberalized policies on international trade, foreign
ownership and development, investment, and currency repatriation to increase
both international trade and investment, such policies might change
unexpectedly. We will be affected by the rules and regulations regarding foreign
ownership of real and personal property. Such rules may change quickly and
dramatically and thus may have an adverse impact on ownership and may result in
a loss without recourse of our property or assets. Domestic and international
laws and regulations, whether existing today or in the future, could adversely
affect our ability to market and sell our products and could impair our
profitability.
24
Certain Eastern European countries may regulate or require governmental
approval for the repatriation of investment income, capital or the proceeds of
sales of securities by foreign investors. In addition, if there is deterioration
in a country's balance of payments or for other reasons, a country may impose
temporary restrictions on foreign capital remittances abroad. Any such
restrictions may adversely affect our ability to repatriate investment loans or
to remit dividends. Many emerging countries have experienced substantial, and in
some periods extremely high, rates of inflation for many years. Inflation and
rapid fluctuations in inflation rates have had and may continue to have negative
effects on the economies and securities markets of certain emerging countries.
In addition, in an attempt to control inflation, price controls at our hotels
have been imposed at times in certain countries, which may affect our ability to
increase our room rates.
ENVIRONMENTAL ISSUES ARE BECOMING OF INCREASING SIGNIFICANCE IN EASTERN EUROPE
WHICH MAY RESULT IN DELAYS IN CONSTRUCTION AND INCREASED COSTS.
There is increasing awareness of environmental issues in Eastern Europe.
This may be of critical importance in areas previously occupied by the Soviet
Army, where soil pollution may be prevalent. We generally insist upon receiving
an environmental report as a condition for purchase, or alternatively, conduct
environmental tests during our due diligence investigations. Also, some
countries such as Poland and the Czech Republic require that a developer carry
out an environmental report on the land before building permit applications are
considered. Nevertheless, we cannot be certain that all sites acquired will be
free of environmental pollution. If a property that we acquire turns out to be
polluted, such a finding will adversely affect our ability to construct, develop
and operate a shopping and entertainment center on such property, and may cause
us to suffer expenses incurred in cleaning up the polluted site which may be
significant. We have found sub-terranian oil storage tanks in our property in
Rybnik, Poland, which caused a delay of eight months in the construction works
of this center and an increase in construction costs.
WE ARE SUBJECT TO VARIOUS RISKS RELATED TO OUR OPERATIONS IN ROMANIA INCLUDING
THE UNPREDICTABILITY OF THE CIVIL JUSTICE SYSTEM.
Our Bucuresti Hotel is generally affected by risks of doing business in Romania.
Any foreign company or litigant may encounter difficulty in prevailing in any
dispute with, or enforcing any judgment against, the Romanian government or any
officers or directors under the Romanian legal system. If our ownership rights
in the company that owns the Bucuresti Hotel Complex are successfully
challenged, this may affect our ability to obtain compensation for our original
investment. We have faced several challenges to our acquisition under the
privatization contract. In addition, the privatization process itself has been
challenged as illegal. All of these claims have been dismissed (See "Item 3. Key
Information - D. Risk Factors - Risks Relating to the Hotel Business" above and
"Item 8. Financial Information - Legal Proceedings" of the 2005 20-F).
GENERAL
IF WE ARE CHARACTERIZED AS A PASSIVE FOREIGN INVESTMENT COMPANY FOR U.S. FEDERAL
INCOME TAX PURPOSE, HOLDERS OF ORDINARY SHARES MAY SUFFER ADVERSE TAX
CONSEQUENCES.
Generally, if for any taxable year 75% or more of our gross income is
passive income, or at least 50% of the our assets are held for the production
of, or produce, passive income, we will be characterized as a passive foreign
investment company ("PFIC"), for U.S. federal income tax purposes. A
determination that we are a PFIC could cause our U.S. shareholders to suffer
adverse tax consequences, including having gains realized on the sale of our
shares taxed at ordinary income rates, rather than capital gains rates and could
have an adverse effect on the price and marketability of our shares. See "Item
10. Additional Information - E. Taxation- Tax consequences if we are a Passive
Foreign Investment Company" of the 2005 20-F.
25
WE ARE SUBJECT TO VARIOUS LEGAL PROCEEDINGS THAT MAY HAVE A MATERIAL ADVERSE
EFFECT ON OUR RESULTS OF OPERATIONS.
Certain legal proceedings have been initiated against us, including
litigation in connection with the change of control of EMI and our subsidiary
Elscint Ltd. in May 1999 and the acquisition of the hotel businesses by Elscint
in September 1999, including motions to certify such claims as class actions.
See also "Item 8. Financial Information - Legal Proceedings" of the 2005 20-F. A
claim has also been made by an individual that a percentage of EMI and certain
of our subsidiaries belongs to him. We cannot estimate the results of these
proceedings. A determination against us in some or all of these proceedings may
materially adversely affect our results of operations.
WE HAVE SIGNIFICANT CAPITAL NEEDS AND ADDITIONAL FINANCING MAY NOT BE AVAILABLE.
The sectors in which we compete are capital intensive. We require
substantial up-front expenditures for land acquisition, development and
construction costs as well as certain investments in research and development.
In addition, following construction capital expenditures are necessary to
maintain the centers in good condition. As part of our growth strategy, we
intend to acquire, renovate and redevelop additional hotels and to develop new
hotels. In addition, in order for our hotels to remain competitive, they must be
maintained and refurbished on an ongoing basis. Accordingly, we require
substantial amounts of cash and construction financing from banks for our
operations and require financing for the development, renovation and maintenance
of our hotels. We cannot be certain that such external financing would be
available on favorable terms or on a timely basis or at all. In addition,
construction loan agreements generally permit the draw down of the loan funds
against the achievement of pre-determined construction and space leasing
milestones. If we fail to achieve these milestones, the availability of the loan
funds may be delayed, thereby causing a further delay in the construction
schedule. If we are not successful in obtaining financing to fund our planned
projects and other expenditures, our ability to undertake additional development
projects may be limited and our future profits and results of operations could
be materially adversely affected. Our inability to obtain financing may affect
our ability to construct or acquire additional centers and hotels, and we may
experience delays in planned renovation or maintenance of our hotels that could
have a material adverse affect on our results of operations.
OUR HIGH LEVERAGE COULD ADVERSELY AFFECT OUR ABILITY TO OPERATE OUR BUSINESS.
We are highly leveraged and have significant debt service obligations. As
of June 30, 2006, we had total debts to banks and other financial institutions
in the aggregate amount of NIS 2,258 million (approximately $491 million). In
addition, we and our subsidiaries may incur additional debt from time to time to
finance acquisitions or capital expenditures or for other purposes. We will have
substantial debt service obligations, consisting of required cash payments of
principal and interest, for the foreseeable future.
Our lenders require us to maintain and comply with certain financial and
operational covenants. Our ability to comply with these covenants may be
affected by events beyond our control. A breach of any of the covenants in our
debt instruments or our inability to comply with the required covenants could
result in an event of default, which, if not cured or waived, could have a
material adverse effect on us. In the event of any default under the loan
agreements, the lenders thereunder could elect to declare all borrowings
outstanding immediately due together with accrued and unpaid interest and other
fees. Furthermore, in the event of any default under the loan agreements, such
loans could be reclassified as short-term debt. Such classification in our
financial statements may improperly reflect our working capital ratio as well as
other financial indicators since the assets which were financed by these loans
are classified as non-current assets. As a result of our substantial
indebtedness:
o we could be more vulnerable to general adverse economic and industry
conditions;
o we may find it more difficult to obtain additional financing to fund
future working capital, capital expenditures and other general
corporate requirements;
o we will be required to dedicate a substantial portion of our cash flow
from operations to the payment of principal and interest on our debt,
reducing the available cash flow to fund other projects;
26
o we may have limited flexibility in planning for, or reacting to,
changes in our business and in the industry; and
o we may have a competitive disadvantage relative to other companies in
our business segments with less debt.
We cannot guarantee that we will be able to generate enough cash flow from
operations or that we will be able to obtain enough capital to service our debt
or fund our planned capital expenditures. In addition, we may need to refinance
some or all of our indebtedness on or before maturity. We cannot guarantee that
we will be able to refinance our indebtedness on commercially reasonable terms
or at all. We have the ability under our debt instruments to incur substantial
additional indebtedness and any additional indebtedness we incur could
exacerbate the risks described above.
RESULTS OF OPERATIONS FOR US FLUCTUATE DUE TO THE SEASONALITY OF OUR VARIOUS
BUSINESSES.
The annual revenues and earnings of our shopping and entertainment centers
business, hotels business and Mango, are substantially dependent upon general
business activity, vacation and holiday seasons and the influence of weather
conditions. As a result, changes in any of the above have a disproportionate
effect on the annual results of operations of our shopping and entertainment
centers, hotels and Mango businesses.
ONE OF OUR SHAREHOLDERS BENEFICIALLY OWNS A SUBSTANTIAL AMOUNT OF OUR ORDINARY
SHARES AND, THEREFORE, EFFECTIVELY CONTROLS OUR AFFAIRS.
As of May 31, 2006, Mordechay Zisser, the Executive Chairman of our board
of directors, held, directly or indirectly, approximately 48.73% of our issued
share capital. As a result of such holdings he has the ability, in effect, to
elect the members of our board of directors and to effectively control our
business.
A LOSS OF THE SERVICES OF MEMBERS OF THE SENIOR MANAGEMENT OF EMI, INCLUDING IN
PARTICULAR THAT OF MR. MORDECHAY ZISSER, COULD MATERIALLY ADVERSELY AFFECT OUR
BUSINESS AND RESULTS OF OPERATIONS
We depend on the continued services of the members of our senior management
team, including in particular that of Mr. Mordechay Zisser, our Executive
Chairman of the board of directors. Any loss of the services of Mr. Mordechay
Zisser or other member of our senior management team could result in the loss of
expertise necessary for us to succeed, which could cause our revenues to decline
and impair our ability to meet our objectives.
OUR ANNUAL AND QUARTERLY RESULTS MAY VARY WHICH MAY CAUSE THE MARKET PRICE OF
OUR ORDINARY SHARES TO DECLINE.
We have experienced at times in the past, and may in the future experience,
significant fluctuations in our quarterly and annual operating results which may
cause the market price of our ordinary shares to decline. These fluctuations may
be caused by various factors, particularly due to significant sales of our
properties and the frequency of such transactions. During 2005, we changed our
business strategy to the entrepreneurship and development of shopping and
entertainment centers supported by short term management and operation
activities with the principal objective of founding and stabilizing the centers
in order to sell them during their construction or as closely as possible to
their completion. Our decision to sell properties is based on various factors,
including market conditions, and we cannot predict when such sales will actually
occur. Accordingly, investors should not rely on the results of any past periods
as an indication of our future performance. It is likely that in some future
periods, our operating results may be below expectations of public market
analysts or investors. If this occurs, our share price may drop.
27
USE OF PROCEEDS
We will not receive any proceeds from the sale of the ordinary shares by
the selling shareholders to others.
SELLING SHAREHOLDERS
The ordinary shares to which this reoffer prospectus relates are being
registered for reoffers and resales by the selling shareholders, who acquired
the ordinary shares pursuant to the Plan.
The table below sets forth with respect to the selling shareholders based
upon information available to us as of August 16, 2006, the number of ordinary
shares beneficially owned, the number of ordinary shares registered by this
reoffer prospectus, and the number and percent of outstanding ordinary shares
that will be owned after the sale of the registered ordinary shares assuming the
sale of all of the registered ordinary shares. Since the selling shareholders
may sell all, some or none of their ordinary shares, no estimate can be made of
the aggregate number of shares that are to be offered by this reoffer prospectus
or that will be owned for the direct or indirect account of the selling
shareholder upon completion of the offering to which this reoffer prospectus
relates. The selling shareholders may offer the ordinary shares for sale from
time to time. See "Plan of Distribution."
Unless otherwise described below, to our knowledge, no selling
shareholder, who is an affiliate, nor any of its affiliates has held any
position or office with, been employed by or otherwise has had any material
relationship with us or our affiliates during the three years prior to the date
of this prospectus.
NUMBER OF PERCENTAGE OF
ORDINARY SHARES ORDINARY SHARES ORDINARY OUTSTANDING SHARES
NAME OF SELLING BENEFICIALLY COVERED BY THIS SHARES OWNED OWNED
SHAREHOLDER POSITION OWNED(1) REOFFER PROSPECTUS AFTER SALE AFTER SALE
------------------------------- ------------------- ---------- ---------- ---------- ----------
Mordechay Zisser Executive
13 Mozes St., Tel-Aviv, Chairman of the
Israel Board 12,753,634(2) 350,000 12,403,634 48.07
------------------------------- ------------------- ---------- ---------- ---------- ----------
Shimon Yitzhaki President and
13 Mozes St., Tel-Aviv, Israel Director 83,765 35,783 83,765 0.33
------------------------------- ------------------- ---------- ---------- ---------- ----------
Rachel Lavine
13 Mozes St., Tel-Aviv, Israel Director 17,311 29,819 17,311 0.07
------------------------------- ------------------- ---------- ---------- ---------- ----------
Abraham (Rami) Goren
13 Mozes St., Tel-Aviv, Israel Director 47,700 19,880 47,700 0.19
------------------------------- ------------------- ---------- ---------- ---------- ----------
Joshua Shuki Forer
10 Hapashos St. Rehovot,
Israel Director 6,000 5,964 6,000 0.02
------------------------------- ------------------- ---------- ---------- ---------- ----------
David Rubner
11 Amal St., Park Afek, Rosh
Ha'ain, Israel Director 0 11,928 0 0
------------------------------- ------------------- ---------- ---------- ---------- ----------
Zvi Tropp
22 Chen Avenue Rehovot,
Israel Director 0 11,928 0 0
------------------------------- ------------------- ---------- ---------- ---------- ----------
Yosef Apter
D.N. Efraim Shilo
Israel Director 0 11,928 0 0
------------------------------- ------------------- ---------- ---------- ---------- ----------
Moshe Lion
38 Ben Zwi St. Givataim
Israel Director 13,250 6,660 13,250 0.05
------------------------------- ------------------- ---------- ---------- ---------- ----------
Shmuel Perets
21 Zofit St. Neve Amit,
Rehovot, Israel Director 0 6,660 0 0
------------------------------- ------------------- ---------- ---------- ---------- ----------
Marc Lavine General Counsel,
13 Mozes St., Tel-Aviv, Corporate
Israel Secretary 0 18,886 0 0
------------------------------- ------------------- ---------- ---------- ---------- ----------
Dudi Machluf Chief Financial
13 Mozes St., Tel-Aviv, Israel Officer 0 18,886 0 0
------------------------------- ------------------- ---------- ---------- ---------- ----------
(1) Includes options to purchase ordinary shares that are exercisable
within 60 days.
(2) Includes 12,053,634 ordinary shares held by Europe-Israel (M.M.S.) Ltd.
wholly owned by Control Centers Ltd. which is indirectly controlled by
Mordechay Zisser.
28
PLAN OF DISTRIBUTION
The selling shareholders and any of their pledgees, donees, assignees or
transferees may sell any or all of the ordinary shares for value at any time or
from time to time under this reoffer prospectus in one or more transactions on
the Nasdaq National Market or any stock exchange, market or trading facility on
which the ordinary shares are traded, in a negotiated transaction or in a
combination of such methods of sale, at market prices prevailing at the time of
sale, at prices related to such prevailing market prices or at prices otherwise
negotiated. The selling shareholders will act independently of us in making
decisions with respect to the timing, manner and size of each sale. The selling
shareholders may use any one or more of the following methods when selling
shares:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o privately negotiated transactions;
o underwritten offerings;
o short sales;
o agreements by the broker-dealer and the selling shareholders to
sell a specified number of such shares at a stipulated price per
share;
o a combination of any such methods of sale; or
o any other method permitted by applicable law.
The selling shareholders may also sell shares under Rule 144 under the
Securities Act, if available, under Section 4(1) of the Securities Act or
directly to us in certain circumstances rather than under this reoffer
prospectus.
29
Unless otherwise prohibited, the selling shareholders may enter into
hedging transactions with broker-dealers or other financial institutions in
connection with distributions of the shares or otherwise. In such transactions,
broker-dealers or financial institutions may engage in short sales of the shares
in the course of hedging the position they assume with the selling shareholders.
The selling shareholders may also engage in short sales, puts and calls,
forward-exchange contracts, collars and other transactions in our securities or
derivatives of our securities and may sell or deliver shares in connection with
these trades. If the selling shareholders sell shares short, they may redeliver
the shares to close out such short positions. The selling shareholders may also
enter into option or other transactions with broker-dealers or financial
institutions which require the delivery to the broker-dealer or the financial
institution of the shares. The broker-dealer or financial institution may then
resell or otherwise transfer such shares pursuant to this reoffer prospectus. In
addition, the selling shareholders may loan their shares to broker-dealers or
financial institutions who are counterparties to hedging transactions and the
broker-dealers, financial institutions or counterparties may sell the borrowed
shares into the public market. The selling shareholders may also pledge their
shares to their brokers or financial institutions and under the margin loan the
broker or financial institution may, from time to time, offer and sell the
pledged shares. The selling shareholders have advised us that they have not
entered into any agreements, understandings or arrangements with any
underwriters, broker-dealers or financial institutions regarding the sale of
their shares other than ordinary course brokerage arrangements, nor is there an
underwriter or coordinating broker acting in connection with the proposed sale
of shares by the selling shareholders.
The selling shareholders and any broker-dealers that participate in the
distribution of the ordinary shares may be deemed to be "underwriters" within
the meaning of the Securities Act, and any commissions received by them and any
profit on the resale of the ordinary shares sold by them may be deemed to be
underwriting discounts and commissions under the Securities Act. All selling and
other expenses incurred by the selling shareholders will be borne by the selling
shareholders.
There is no assurance that the selling shareholders will sell all or any
portion of the ordinary shares offered under this reoffer prospectus.
OFFER AND LISTING DETAILS
The high and low sales prices for our ordinary shares as reported on the
Nasdaq National Market during the months of June 2006, July 2006, and August
2006 (through August 15, 2006) is set forth below. Other information regarding
the market price of our ordinary shares is located in our Form 20-F for the year
ended December 31, 2005 filed with the SEC on June 30, 2005.
2006
HIGH LOW
---- -----
June 25.00 20.19
July 24.38 19.44
August (through August 15, 2006) 24.93 23.80
LEGAL MATTERS
The validity of the ordinary shares being offered by this reoffer
prospectus will be passed upon for us by Gross, Kleinhendler, Hodak, Halevy,
Greenberg & Co., Tel-Aviv, Israel.
30
EXPERTS
Brightman Almagor & Co., a member firm of Deloitte Touche Tohmatsu, Tel
Aviv, Israel, independent auditors, have audited our consolidated financial
statements included in our Annual Report on Form 20-F for the year ended
December 31, 2005, as set forth in their report which is incorporated by
reference in this reoffer prospectus and elsewhere in the registration
statement. Our financial statements are incorporated by reference with such
firm's consent and in reliance on such firm's report given on their authority as
experts in accounting and auditing.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling our
business pursuant to the provision in the section entitled "Indemnification of
Directors and Officers" (see below), we have been informed that in the opinion
of the SEC such indemnification is against public policy as expressed in the
Securities Act of 1933 and is therefore unenforceable.
AVAILABLE INFORMATION
We are subject to the informational requirements of the Exchange Act of
1934, as amended, and in accordance therewith file reports and other information
with the Commission. The reports and other information filed by us with the
Commission can be inspected and copied at the public reference facilities
maintained by the Commission at 100 F Street, N.E., Washington, D.C. 20549. In
addition, copies may be obtained (at prescribed rates) at the regional offices
of the Commission located at Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511 and 11th floor, 5670 Wilshire
Boulevard, Los Angeles, California 90036. Copies of that material can also be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, the
Commission maintains a web site that contains reports, proxy and information
statements and other information regarding issuers that file electronically with
the Commission at http://www.sec.gov.
INCORPORATION BY REFERENCE
The following documents previously filed by us with the Commission are
incorporated in this Prospectus by reference:
(1) Our Annual Report on Form 20-F, as filed with the Commission on June
30, 2006;
(2) The description of our ordinary shares contained in our Annual Report
on Form 20-F as filed with the Commission on June 30, 2005; and
(3) all other reports filed by the Registrant pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
since the end of the fiscal year covered by the audited financial statements
described in (1) above.
All reports and other documents that we file pursuant to Sections 13(a),
13(c), 14 and 15(d) of the Exchange Act prior to the filing of a post-effective
amendment which indicates that all securities offered hereunder have been sold
or which deregisters all such securities then remaining unsold are incorporated
by reference in this registration statement and to be a part hereof from the
date of filing of such reports and documents.
Copies of all documents which are incorporated by reference will be
provided without charge to anyone to whom this Prospectus is delivered upon a
written or oral request to Elbit Medical Imaging Ltd. at 13 Mozes Street,
Tel-Aviv 67442, Israel. Our telephone number is (972-3)- 608-6010 and our fax
number is (972-3) 695-3080.
31
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
ITEM 3. INCORPORATION OF DOCUMENTS BY REFERENCE.
The following documents filed by us with the Commission are incorporated
herein by reference as of their respective dates:
(1) Our Annual Report on Form 20-F, as filed with the Commission on June
30, 2006 ("Annual Report on Form 20-F");
(2) all other reports filed by the Registrant pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
since the end of the fiscal year covered by the audited financial statements
described in (1) above;
(3) The description of our ordinary shares, par value NIS 1.0 per share,
that appears in "Item 10: Additional Information" in the Annual Report on Form
20-F; and
(4) All documents subsequently filed by us pursuant to Sections 13(a),
13(c), 14 and 15(d) of the Securities Exchange Act of 1934, prior to the filing
of a post-effective amendment which indicates that all securities offered have
been sold or which deregisters all securities then remaining unsold, shall be
deemed to be incorporated by reference in this Registration Statement and to be
a part hereof from the respective date of filing of such documents. Any
statement contained in a document incorporated by reference herein is modified
or superseded for all purposes to the extent that a statement contained in this
Registration Statement or in any other subsequently filed document which is
incorporated by reference modifies or replaces such statement.
ITEM 4. DESCRIPTION OF SECURITIES.
Not applicable.
ITEM 5. INTERESTS OF NAMED EXPERTS AND COUNSEL.
Not applicable.
ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
GENERAL. EMI's Articles of Association set forth the following provisions
regarding the grant of exemption, insurance and indemnification to any director
and/or officer of EMI, all subject to the provisions of the Israeli Companies
Law:
EXEMPTION - EMI may prospectively exempt any director and officer of EMI
from liability, in whole or in part, for damages sustained due to a breach by
the director and/or officer of such director's and/or officer's duty of care to
the EMI. A recent amendment to the Israeli Companies Law prohibits a company to
exempt any of its directors and officers in advance from its liability towards
such company for the breach of its duty of care in distribution as defined in
the Israeli Companies Law (including distribution of dividend and purchase of
such company's shares).
32
INSURANCE - EMI may subscribe for insurance of liability of any director
and officer of EMI imposed on such director and/or officer due to an act
performed by such director and/or officer in such director's and/or officer's
capacity as a director and/or officer of EMI, in any of the following:
(i) Breach by the director and/or officer of such director's and/or
officer's duty of care to EMI or to any other person;
(ii) Breach of the director's and/or officer's fiduciary duty to EMI,
provided that the director and/or officer acted in good faith and had
reasonable grounds to believe that the act would not prejudice the
interest of EMI;
(iii) Monetary liability imposed upon a director and/or officer in favor of
a third party;
(iv) Any other event in respect of which an insurance of a director and/or
officer is and/or may be permitted.
INDEMNIFICATION - EMI may prospectively undertake to indemnify a director
and/or officer of EMI, with respect to liability or expense set forth hereunder,
incurred by such director and/or officer for an act performed by such director
and/or officer in such director's and/or officer's capacity as a director and/or
officer of EMI, provided that the prospective indemnification undertaking shall
be limited to certain events that in the opinion of the EMI board of directors
are foreseeable at the time of issuance of the prospective indemnification
undertaking and to an amount that the EMI board of directors has determined that
is a reasonable amount under the circumstances.
EMI may retroactively indemnify a director and/or officer of EMI with
respect to liability or expense set forth hereunder, imposed on such director
and/or officer for an act performed by such director and/or officer in such
director's and/or officer's capacity as an director and/or officer of EMI. EMI's
Articles of Association also provide that, subject to the Israeli Companies Law,
a prospective indemnification undertaking or a retroactive indemnification, as
referred to above, may be issued or granted, as the case may be, with respect to
the following matters:
(i) Monetary liability imposed upon an officer in favor of a third party
by a judgment, including a settlement judgment approved by court or an
arbitrator's award approved by court;
(ii) Reasonable litigation expenses, including attorney's fees, incurred by
or charged to a director and/or officer by court, in proceedings
brought against the director and/or officer by EMI or on its behalf or
by a third party, or a criminal charge from which the director and/or
officer was acquitted or for a criminal charge in which such officer
was convicted of an offense not requiring proof of criminal intent;
(iii) Other liability or expense for which it is or may be permissible to
indemnify a director and/or officer.
The aggregate indemnification amount paid to directors and officers of EMI
pursuant to prospective undertake to indemnify a director and an officer of EMI
as described above, or a Director of the Other Company, as described below,
shall not exceed the lower of (i) 25% of the shareholders' equity of EMI as of
the date of actual payment by EMI of the indemnification amount (as set forth in
EMI's most recent consolidated financial statements prior to such payment); and
(ii) US$40 million, in excess of any amounts paid (if paid) by insurance
companies pursuant to insurance policies maintained by EMI, with respect to
matters covered by such indemnification.
33
EMI is also authorized to grant indemnification, either prospectively or
retroactively, to any person, including a director and an officer of EMI who
officiates or officiated on behalf of or at the request of EMI as a director of
another company of which EMI is either directly or indirectly a shareholder or
in which it has any other interest whatsoever ("DIRECTOR OF THE OTHER COMPANY"),
subject to certain limitations.
PROHIBITION ON THE GRANT OF EXEMPTION, INSURANCE AND INDEMNIFICATION - The
Israeli Companies Law provides that a company may not give insurance,
indemnification nor exempt its directors and/or officers from their liability in
the following events:
(i) a breach of the fiduciary duty vis-a-vis the company, except in
relation to indemnification and insurance due to a breach of fiduciary
duty towards the Company if the director or officer acted in good
faith and had a reasonable basis to believe that the act would not
harm the Company;
(ii) an intentional or reckless breach of the duty of care, except if such
breach of duty of care was made in negligence only;
(iii) an act done with the intention of unduly deriving a personal profit;
or
(iv) a fine imposed on the officer or director.
INSURANCE OF DIRECTORS AND OFFICERS. EMI purchased an insurance policy for
the coverage of the liability of directors and officers of the Company,
including as directors or officers of the Company's subsidiaries, for a one-year
period beginning on October 31, 2005 and ending on October 31, 2006. Such policy
covers a total liability of $40 million per occurrence and during the duration
of the policy, which represents the overall directors and officers liability
policy covering the directors and officers of Europe-Israel (the parent company
of the Company) and companies under its control (the liability of directors and
officers of Europe-Israel and companies controlled by it, other than the Company
and companies under its control, is limited to $10 million out of the aggregate
coverage amount of $40 million). The premium paid by the Company with respect to
this insurance policy was approximately $290,000 representing its share out of a
total premium of $315,000 paid for the overall policy for Europe-Israel and the
companies controlled by it. The coverage of such policy also includes acts
and/or omissions performed by previous directors and officers of the Company for
a one-year period beginning on October 31, 2005 and ending on October 31, 2006
without any retroactive limitation and subject to the terms of the policy.
EXEMPTION OF DIRECTORS AND OFFICERS. EMI shareholders approved on February
21, 2001 to prospectively exempt directors and officers of EMI (other than the
controlling shareholder of EMI at that time) from their liability for damages
sustained due to a breach by them of their duty of care to EMI, all in
accordance with the Israeli Companies Law.
INDEMNIFICATION OF DIRECTORS AND OFFICERS. In accordance with EMI
shareholders resolution adopted on February 21, 2001, EMI has undertaken to
indemnify its directors and officers to the fullest extent permitted by the
Israeli Companies Law and EMI Articles of Association. The following principles
shall apply to the prospective indemnification undertaking with respect to EMI
directors and officers:
1. The aggregate indemnification amount, paid to directors and officers of
EMI pursuant to prospective undertake to indemnify a director and an officer of
EMI, or a Director of the Other Company, shall not exceed the lower of (i) 25%
of the shareholders' equity of EMI as of the date of actual payment by EMI of
the indemnification amount (as set forth in EMI's most recent consolidated
financial statements prior to such payment); and (ii) US$40 million, in excess
of any amounts paid (if paid) by insurance companies pursuant to insurance
policies maintained by EMI, with respect to matters covered by such
indemnification.
34
2. The undertaking to prospectively indemnify shall apply (subject to any
limitations or restrictions under law) to the following events that, in the
opinion of EMI board of directors, are foreseeable at the date of the board of
directors' resolution on the grant of prospective undertaking to indemnify:
(i) Any issuance of securities, including without limitation, a public
offering pursuant to a prospectus, a private offering, the issuance of
bonus shares or any offer of securities in any other manner;
(ii) A "Transaction" within the meaning of Section 1 of the Companies
Law, including without limitation a transfer, sale or purchase of assets or
liabilities, including securities, or the grant or receipt of a right to
any of the foregoing, and any act directly or indirectly involved in such
"Transaction";
(iii) Report or notice filed in accordance with the Companies Law or
the Israeli Securities Law of 1968, including regulations promulgated
thereunder, or in accordance with rules or instructions prevailing on an
Israeli stock exchange or a stock exchange outside of Israel, or any law of
another country regulating similar matters and/or the omission to act
accordingly;
(iv) Amendment to EMI's structure or its reorganization or any
resolution with respect to such matters, including without limitation, a
merger, split, change in EMI's capital structure, incorporation of
subsidiaries, dissolution or sale thereof, issuance or distribution;
(v) The making of any statement, including a bona fide statement or
opinion made by an officer of EMI in such capacity, including during
meetings of the Board of Directors or any committee thereof;
(vi) An act in contradiction to the articles or memorandum of
association of EMI; and
(vii) Any of the foregoi ng events relating to the capacity of such
officer as an officer of a corporation controlled by EMI or otherwise
affiliated therewith.
ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED.
All issuances to the selling shareholders were made in reliance upon the
exemptions from registration set forth in Section 4(2) of the Securities Act of
1933 for transactions by an issuer not involving a public offering and/or
Regulation S of the Securities Act of 1933.
ITEM 8. EXHIBITS.
The following exhibits are filed herewith:
Exhibit No. Description
4.1 Employees and Officers Incentive Plan - Capital Gains Track.
4.2 Mordechay Zisser Option Grant Agreement.
5.1 Opinion of Gross, Kleinhendler, Hodak, Halevy, Greenberg &
Co. with respect to the legality of the ordinary shares
being registered.
35
23.1 Consent of Brightman Almagor & Co.
23.2 Consent of KPMG Hungaria Kft.
23.3 Consent of Mazars Paardekooper Hoffman N.V.
23.4 Consent of Kost, Forer, Gabbay & Kasierer
23.5 Consent of Gross, Kleinhendler, Hodak, Halevy, Greenberg &
Co. (contained in the opinion filed as Exhibit 5.1 to this
Registration Statement)
24.1 Powers of Attorney (included on the signature page)
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
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.
(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 15(d) of the Exchange
Act and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Exchange Act, that is incorporated by
reference in this 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 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 the 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.
36
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant, ELBIT MEDICAL IMAGING LTD., certifies that it has reasonable grounds
to believe that it meets all of the requirements for filing on Form S-8 and has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Tel Aviv, State of
Israel, on August 16, 2006.
ELBIT MEDICAL IMAGING LTD.
By: /s/ Shimon Yitzhaki
-----------------------
Shimon Yitzhaki
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Mordechay Zisser and Shimon Yitzhaki, and
each of them, his true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign this Registration Statement and any and all
future amendments (including post-effective amendments) to the Registration
Statement, and to file the same with all exhibits thereto, and all documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
Signature Title Date
/s/ Mordechay Zisser
---------------------------- Executive Chairman of
Mordechay Zisser the Board of Directors August 13, 2006
/s/ Shimon Yitzhaki
----------------------------
Shimon Yitzhaki President and Director August 13, 2006
/s/ Dudi Machluf
----------------------------
Dudi Machluf Chief Financial Officer August 13, 2006
/s/ Rachel Lavine
----------------------------
Rachel Lavine Director August 13, 2006
37
/s/ Abraham (Rami) Goren
----------------------------
Abraham (Rami) Goren Director August 13, 2006
/s/ Joshua (Shuki) Forer
----------------------------
Joshua (Shuki) Forer Director August 13, 2006
/s/ David Rubner
----------------------------
David Rubner Director August 13, 2006
/s/ Zvi Tropp
----------------------------
Zvi Tropp External Director August 13, 2006
/s/ Yosef Apter
----------------------------
Yosef Apter External Director August 13, 2006
/s/ Moshe Lion
----------------------------
Moshe Lion Director August 13, 2006
/s/ Shmuel Perets
----------------------------
Shmuel Perets Director August 13, 2006
Marc Lavine
---------------------------- General Counsel and
/s/ Marc Lavine Corporate Secretary August 14, 2006
Authorized Representative in the United States:
ELSCINT INC.
By: /s/ Uri Levin /s/ Shimon Yitzhaki
Uri Levin Shimon Yitzhaki August 13, 2006
38