DJ DGAP-HV: Electronics Line 3000 Ltd.: Bekanntmachung der Einberufung zur Hauptversammlung am 03.08.2015 in Rishon LeZion mit dem Ziel der europaweiten Verbreitung gemäß §121 AktG
Electronics Line 3000 Ltd. / Bekanntmachung der Einberufung zur Hauptversammlung
30.06.2015 16:43
Bekanntmachung gemäß §121 AktG, übermittelt durch DGAP - ein Service der
EQS Group AG.
Für den Inhalt der Mitteilung ist der Emittent verantwortlich.
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ELECTRONICS LINE 3000 LTD.
(the 'Company')
14 Hachoma Street, Rishon LeZion, Israel
Telephone: +972-3- 9637777, Fax: +972-3-961658
www.electronics-line.com
NOTICE OF A SPECIAL GENERAL MEETING OF SHAREHOLDERS
Rishon LeZion, Israel
June 26, 2015
Dear Shareholder,
You are hereby invited to attend the Annual and special General
Meeting of Shareholders ('the Meeting') of the Company to be held at
14:30 on Monday, August 3, 2015, at the Company's offices at 14
Hachoma Street, Rishon LeZion, Israel.
The purpose of this Meeting is set forth in the accompanying
'Statement of the Company' for voting by means of Proxy. For the
reasons set forth in the Statement of the Company, the Company's Board
of Directors recommends that you vote 'FOR' the proposal set forth and
specified on the enclosed form for voting by means of Proxy (Appendix
B).
A copy of the Proxy is also available on the Company's web site:
www.electronics-line.com
The record date determining the eligibility of shareholders to vote at
the Meeting, as stated in Section 182 of the Israeli Companies Law,
1999, is the end of the day of trading in Frankfurt, Germany, the
exchange on which the shares of the Company are traded, on Monday,
July 6, 2015. If no trading of the Company's shares takes place on
such date the determining date shall be the last day of trading
preceding such date ('Record Date').
The share capital of the Company at the time of the notice of the
Meeting is NIS (New Israeli Shekel) 68,564,240 divided into 13,712,848
ordinary shares. The total number of voting rights at time of notice
of the Annual General Meeting of Shareholders is 13,712,848.
Shareholders, whose shares are represented by a global share
certificate deposited at Clearstream Banking AG, and who wish to
exercise their voting rights, may choose one of the following three
alternative voting procedures approved by a recognized financial
institution:
1. To send their Ownership Certificate in the form
attached hereto as Appendix A ('Ownership Certificate')
confirming their ownership of shares of the Company on the
Record Date approved by a recognized financial institution
together with the notice of appointment and instructions for
voting by means of Proxy in the form attached hereto as
Appendix B ('Proxy') directly to the Company. The Ownership
Certificate and the Proxy must be received by the Company at
its offices no later than 48 hours before the Meeting, via the
Company's fax number, +972-3-9616584 or mail
investor.relations@electronics-line.com as an alternative, or
2. To send their Ownership Certificate approved by a
recognized financial institution together with the notice of
appointment and instructions for voting by means of Proxy via
their depository bank to BANKHAUS NEELMEYER AG, Am Markt
14-16, 28195 Bremen, GERMANY, fax number +49-(0) 421-3603-153,
no later than 48 hours before the Meeting. BANKHAUS NEELMEYER
AG will forward the shareholders' Proxies together with the
Ownership Certificate to the Company, or
3. Shareholders who wish to vote in person shall
attend the Meeting at the said time and place with their
original Ownership Certificate, provided that they have
delivered their Ownership Certificate approved by a recognized
financial institution directly to the Company and that their
Ownership Certificate was received by the Company at its
offices no later than 48 hours before the Meeting, via the
said Company's fax number or mail as an alternative.
By Order of the Board,
Mr. Moshe Alkelai
Chairman of the Board
ELECTRONICS LINE 3000 LTD.
STATEMENT OF THE COMPANY
The enclosed Statement is solicited on behalf of the Board of
Directors (the 'Board') of Electronics Line 3000 Ltd. (the 'Company')
for use at the Company's special General Meeting of Shareholders (the
'Meeting') to be held at 14:30 on Monday, August 3, 2015, at the
Company's offices at 14 Hachoma Street, Rishon LeZion, Israel or at
any adjournment or postponement thereof, for the purposes set forth
herein.
It is proposed that at the Meeting, the shareholders of the Company
(the 'Shareholders') approve the following resolution:
To approve the Merger between a subsidiary of the Company's
controlling shareholder, RISCO Ltd. ('RISCO'), and the Company, the
details of which are set forth below (the 'Merger').
The approval of this proposal requires the affirmative vote of at
least a majority of the votes of shareholders present and voting at
the Meeting in person or by proxy. In addition, the Merger will not be
approved if a majority of the shareholders present at the vote who are
not RISCO, RISCO's shareholders or anybody on their behalf, including
their relatives or bodies corporate under their control, are opposed
to it.
Only shareholders of record at the close of business on the Record
Date will be entitled to a notice of and to vote at the Meeting,
provided that such shareholders sent their Ownership Certificate and
Proxy to the offices of the Company, no later than 48 hours before the
Meeting, as detailed in the notice.
Shareholders may revoke the authority granted by their execution of
proxies at any time before the effective exercise thereof, by filing
with the Company a written notice of revocation or a duly executed
proxy bearing a later date, or by voting in person at the Meeting.
In order for there to be a legal quorum at the Meeting, there must be
present, in person or by proxy, no less than two (2) shareholders
holding or representing at least one-quarter (1/4) of the voting
rights in the Company. If after half an hour of the commencement of
the Meeting no legal quorum is present, the Meeting will automatically
be adjourned for one week and shall reconvene at the same time and
location, unless notified otherwise by the Board. At such adjourned
Meeting the same agenda will be applicable and the legal quorum will
be two (2) shareholders.
The share capital of the Company at the of time of the notice of the
Annual General Meeting of Shareholders is NIS (New Israeli Shekel)
68,564,240 divided into 13,712,848 ordinary shares. The total number
of voting rights at time of notice of the Annual General Meeting of
Shareholders is 13,712,848.
ITEM 1 -a Merger between the Company and RISCO's subsidiary
The Board and the Audit Committee have recommended to approve the
Merger between RISCO Line Ltd.- an Israeli corporation wholly owned by
RISCO which was incorporated in 31 May, 2015 (the 'Subsidiary') and
the Company, the details of which are set forth below.
The Proposed Merger contemplates the purchase by RISCO of all of the
Company's outstanding share capital owned by the public for a cash
consideration of 0.46 Euro per share (subject to withholding Taxes as
set forth below), in accordance with Sections 314-327 of the Israeli
Companies Law, 5759-1999 (the 'Israeli Companies Law'). RISCO, the
Subsidiary and the Company intend to effect the merger of the
Subsidiary with and into the Company, pursuant to which the Subsidiary
shall cease to exist, the Company shall become a wholly-owned
subsidiary of RISCO and its controlling shareholders- Mr. Moshe
Alkelai and Mrs. Mazal Alkelai (the 'Controlling Shareholders')- and
the Company Ordinary Shares issued and outstanding immediately prior
to the Effective Time, except Shares held directly by the Parent and
by Controlling Shareholders (Collectively, the 'Controlling
Shareholders Shares') (the Company Ordinary Shares except for the
Controlling Shareholders Shares being the 'Converting Shares'), will
be converted into the right to receive the Merger Consideration.
As further detailed below, The Company, RISCO, and the Subsidiary,
approached the Israeli Tax Authority, in order to request to
pre-approve withholding tax procedures applicable to the Merger,
according to which 30% of the Merger Consideration, as defined
hereunder, will be held in trust (0.138 Euro per share) (the 'Trust
Amount'). The Trust Amount applicable to certain shareholder will be
released by the Israeli Paying Agent, as defined hereunder, only if
such shareholder provides the Israeli Paying Agent with a written
Declaration in the agreed and approved format by the Israeli Tax
Authority.
Background of the Merger
On 21 May, 2015, RISCO presented to the Company its proposal as to the
major terms of a merger between the Company and the Subsidiary (the
'Proposed
Merger').
The Proposed Merger contemplates the purchase by RISCO of all of the
Company's issued and outstanding share capital held by the public for
a cash consideration of 0.46 Euro per share, as a result of which the
Subsidiary would be merged with and into the Company and the Company
would become a wholly owned subsidiary of RISCO and its controlling
shareholders.
After considering the Proposed Merger as well considering the
definitive appraisal as to the share capital of the Company (as
attached hereto as Appendix C) that was prepared by an external
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independent appraiser-Fahn Kanne Consulting, the subsidiary of Fahn
Kanne & Co which is the Israeli member of Grant Thornton (the 'Appraiser'
and the 'Appraisal'), the Audit Committee of the Company and the Board
of Directors of the Company approved the proposed terms of the
proposed merger and resolved to submit the Merger to the shareholders
general meeting for voting.
As required under Israeli law, Mr. Moshe Alkelai and Mrs. Sharon
Sheep, who were deemed to have personal interest in the Merger, did
not attend and participate in the Board meeting. The directors present
in the Audit Committee and the Board meeting were the external
directors- Prof. Dan Elnathan and Mr. Rafi Durst- as well as Mr. Yigal
Fatran.
On June 24, 2015, the parties executed the Merger Agreement.
Reasons for the Merger; Recommendation of the Board of Directors
The Audit Committee and the Board of Directors evaluated the terms of
the Merger, including the terms and conditions of the Merger Agreement
between the Company, Risco and the Subsidiary (the 'Merger Agreement').
The Audit Committee and the Board of Directors approved the Merger
Agreement and the Merger, determined that the Merger is in the best
interests of the Company and its shareholders, unanimously approved
the execution, delivery and performance of the Merger Agreement and
the completion of the Merger, directed management to take such other
actions as are necessary to complete the Merger, resolved to recommend
that the shareholders approve the Merger and directed that such matter
be submitted for consideration by the shareholders at the Meeting.
In reaching these determinations, the Audit Committee and Board of
Directors considered (a) the information provided by the Company's
management as to the business, financial condition, results of
operations, and future prospects of the Company, (b) its familiarity
with the risks involved in achieving those prospects and objectives
under current industry and market conditions, and its familiarity with
the nature of the markets in which the Company operate, and (c) the
Appraisal which supports the consideration to be paid to the Company's
shareholders in connection with the Merger and was provided by the
Appraiser who is independent of each of the Company and its
Controlling Shareholders.
The Merger Agreement
The Merger Agreement provides for the Merger of the Subsidiary, with
and into the Company, upon the terms, and subject to the conditions of
the Merger Agreement, with the Company as the Surviving Company, all
in accordance with the relevant provisions of the Israeli Companies
Law. The Company will continue to exist following the Merger as
RISCO's and the Controlling Shareholders' wholly owned subsidiary.
Following the Merger, the Company will initiate the delisting of its
share capital, which will then be, in its entirety, owned by RISCO and
the Controlling Shareholders, from the Frankfurt Stock Exchange, so
that the share capital of the Company will no longer be publicly
traded. In addition, the Company's former shareholders will cease to
have any rights as shareholders of the Company, except for the right
to receive the Merger Consideration.
Effective Time of the Merger; Closing Date
The Merger will become effective upon the issuance and delivery by the
Companies Registrar of the Certificate of Merger in accordance with
the Israeli Companies Law (the 'Effective Time'). The certificate of
merger will be issued by the Israeli Companies Registrar following the
satisfaction of all requirements under the Companies Law if at least
fifty (50) days shall have elapsed after the filing of the merger
proposals by both the Company and the Subsidiary with the Israeli
Companies Registrar and at least thirty (30) days have elapsed after
the approval of the Merger by the Company's and the Subsidiary's
shareholders. The Merger Agreement provides that the closing of the
Merger shall take place as promptly as reasonably practicable (but no
later than the fifth business day) after satisfaction or waiver of the
conditions to the Merger (the 'Closing'). The parties are working to
complete the Merger as soon as practicable. However, the Merger is
subject to various closing conditions. No assurances can be given that
the parties will obtain the necessary approvals to complete the Merger
or that the parties will obtain them in a timely manner.
Merger Consideration
Ordinary Shares. The Converting Shares shall be converted into the
right to receive from RISCO 0.46 Euro in cash per Company Ordinary
Share without interest (the amount payable to a holder of Company
Ordinary Shares as a result of the Merger, the 'Merger Consideration',
which shall be subject to withholding Taxes as set forth below).
Stock Options. Prior to the Effective Time, the Company shall take all
actions necessary to provide that each option to acquire Company
Ordinary Shares automatically shall be cancelled and terminated at the
Effective Time without any payment or further rights or claims of the
holder thereof.
Share Capital of Subsidiary. The ordinary shares of the Subsidiary
issued and outstanding immediately prior to the effective time of the
Merger, will automatically be cancelled without any consideration
thereof, upon the effective time of the Merger.
Payment of the Merger Consideration
Prior to the Effective Time, RISCO shall appoint a Germany based bank
or trust company (the 'German Paying Agent') to act as paying agent
for the holders of Company Ordinary Shares in connection with the
Merger. In addition, under the Israeli Tax Ruling, as defined below,
assuming such Ruling will in fact be obtained, an Israeli Paying Agent
shall be appointed to act as a trustee for the Israeli withholding tax
purposes, as described below (the 'Israeli Paying Agent'). The German
Paying Agent and/or the Israeli Paying Agent shall receive, and hold
in trust for the benefit of holders of Company Ordinary Shares, the
aggregate Merger Consideration. RISCO shall deposit such aggregate
Merger Consideration with the German Paying Agent and/or the Israeli
Paying Agent not later than three business days following the
Effective Time.
RISCO and the Company shall instruct the German Paying Agent, as
promptly as reasonably practicable (but not later than the fifth
business day) after the Effective Time, to release to German central
depository Clearstream Banking AG, Frankfurt ('Clearstream'), cash in
an amount equal to the product of (A) the Merger Consideration payable
per Company Ordinary Share less the Withholding Tax Amount as defined
hereunder, multiplied by (B) the number of Converting Shares (the
product of (A) and (B), the 'Conversion Fund'). Clearstream shall
promptly deliver the Conversion Fund to the accounts of the depositary
banks of the owners of Converting Shares, which shall distribute the
respective and appropriate portion of the Conversion Fund to the
accounts of the owners of Converting Shares with such depositary banks
in accordance with customary stock surrender and payment procedures
under applicable regulations and terms and conditions of Clearstream.
At any time following the first anniversary of the Closing, Risco may
require the German Paying Agent to deliver to it any funds deposited
with the German Paying Agent which have not been disbursed to the
former holders of Converting Shares, and the Company shall be entitled
to require the German Paying Agent to return any portion of the
Conversion Fund not distributed to the owners of the Converting
Shares. Any amounts remaining unclaimed by such former shareholders
shall become, to the extent permitted by applicable Law, the property
of Risco, free and clear of all claims or interest of any Person
previously entitled thereto. If this Agreement is terminated prior to
the Closing (or the Merger does not become effective) for any reason
and any cash has been transmitted to the Paying Agent or Clearstream
prior to termination, such cash together with any interest or other
earnings thereon shall promptly be returned to RISCO.
Withholding Tax Procedures
Each of RISCO, the Company, the Depositary Banks of the owners of
Converting Shares the German Paying Agent and the Israeli Paying Agent
shall be entitled to deduct and withhold from the consideration
otherwise payable to any former holder of Converting Shares pursuant
to the Merger Agreement, any amounts required to be deducted and
withheld from such payments under the Israeli Income Tax Ordinance
[New Version], 1961, as amended, and the rules and regulations
promulgated thereunder (the 'Ordinance'), or under any other
applicable state, local, domestic or foreign Law (the amount withheld
per Converting Share being the 'Withholding Tax Amount'), provided,
however, that the withholding Taxes deduction in Israel shall be at
the highest applicable tax rate, unless otherwise indicated to the
Company the German Paying Agent and/or the Israeli Paying Agent, as
applicable, in a written approval from the ITA which provides a
withholding exemption or a reduced Tax rate, in which case the
deduction and withholding of any amounts under the Ordinance or any
other provision of Israeli law or requirement, if any, from the
aggregate Merger Consideration payable to such holder of record of
Converting Shares shall be made only in accordance with the provisions
of such approval.
The Company, RISCO and the Subsidiary, approached the Israeli Tax
Authority, in order to request to pre-approve the following
withholding tax procedures, applicable to the Merger (the 'Israeli Tax
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Ruling'). To the extent the request is approved, the following
procedures shall apply: 30% of the Merger Consideration will be held
in trust (0.138 Euro per share) (the 'Trust Amount') for a period of
up to 180 days from the Closing Date (the 'Trust Period'), and an
Israeli Paying Agent will be appointed for this purpose. The Trust
Amount applicable to certain shareholder will be released by the
Israeli Paying Agent only if such shareholder provides the Israeli
Paying Agent during the Trust Period with a written Declaration in the
agreed and approved format by the Israeli Tax Authority, , that all of
the following conditions are met: (a) such shareholder is not an
Israeli resident; and (b) such shareholder acquired the shares after
the registration for trade of such shares on the Frankfurt Stock
Exchange (i.e., after 28 June, 2004); and (c) the shares were no
acquired by such shareholder while being an Israeli tax resident; and
(d) such shareholder holds less than 5% of the issued share capital
(the 'Declaration'). Such procedures shall not be applicable to shares
of the Company that were purchase through lsraeli brokers, In such a
case, the Trust Amount shall be released by the Israeli Paying Agent
to such Israeli brokers who will be responsible for the Israeli
withholding process. In any case that such Declaration is not provided
within the Trust Period, the Trust Amount will be fully transferred to
the Israeli Tax Authority. It should be stressed that at this date no
assurances can be given that the requested Israeli Tax Ruling will in
fact will be obtained. The Company will publish an immediate report
upon the receiving of the Israeli Tax Ruling.
To the extent that amounts are so withheld and paid over to the
appropriate Governmental Authority by or on behalf of RISCO or the
Company (such as, by a Depositary Bank of the beneficial owners of
Converting Shares the Paying Agent and/or the Israeli Paying Agent),
RISCO or the Company, as the case may be, shall be treated as though
it withheld an appropriate amount of consideration otherwise payable
pursuant to the Merger Agreement to any former holder of Converting
Shares and paid an appropriate amount to such Governmental Authority.
Any amounts so withheld and paid over to the appropriate Governmental
Authority shall be treated for all purposes as having been paid
directly to the Person in respect of which such deduction and
withholding was made. RISCO and the Company applied to the ITA to seek
a pre-ruling for the method of deduction and applicable Tax rules. In
no event shall RISCO or the Company be required to pay interest on any
amounts payable to holders of Converting Shares so long as RISCO
timely complies with its obligations under the Merger Agreement.
Conditions to the Completion of the Merger
The obligations of each of the Company, RISCO and the Subsidiary to
effect the Merger are subject to the satisfaction (or waiver, if
permissible under applicable Law) of the following conditions:
- The Company Shareholders Approval shall have been
obtained in accordance with applicable Laws and the Company
Charter Documents;
- No Law or Order enacted, promulgated, issued,
entered, amended or enforced by any Governmental Authority
(collectively, 'Restraints') shall be in effect enjoining,
restraining, preventing, prohibiting or making illegal the
consummation of the Merger.
- At least 50 days shall have elapsed after the
filing of the Merger Proposals with the Companies Registrar
and at least 30 days shall have elapsed after the receipt of
the Company Shareholders Approval;
- The Parties shall have performed in all material
respects all obligations required to be performed by it under
the Merger Agreement at or prior to the Closing Date;
- The Company shall have obtained the Required
Regulatory Consent, which shall not include any burdensome
terms or conditions applicable to the Company, RISCO or their
respective Subsidiaries and Affiliates;
- There shall not be any Restraint in effect or any
Action pending or, to the Knowledge of the Company, threatened
by or before any Governmental Authority that is reasonably
likely to (i) restrain, enjoin, prevent, prohibit or make
illegal the acquisition of some or all of the Converting
Shares by RISCO or the Subsidiary or the consummation of the
Merger, (ii) impose limitations on the ability of RISCO
effectively to exercise full rights of ownership of the
Company, (iii) restrain, enjoin, prevent, prohibit or make
illegal, or impose limitations on, RISCO's ownership or
operation of all or any material portion of the businesses and
assets of the Company, RISCO or any of their respective
Subsidiaries, or (iv) compel RISCO to dispose of any shares of
the Company or to dispose of or hold separate any material
portion of the businesses or assets of the Company, RISCO or
any of their respective Subsidiaries;
Insurance
The Merger Agreement provides that the Company shall purchase, as of
the effective time of the Merger, a 'run off' policy to maintain in
effect the directors' and officers' liability insurance with respect
to the period prior to the effective time of the Merger in the same
amount and terms as applicable prior to the effective time of the
Merger, with an effective term of seven years from the effective time
of the Merger, to cover any insured events up until the effective time
of the Merger. The 'run off' policy shall specifically state it may
not be terminated by the insurance company.
The Merger Agreement provides that the Company, for a period of seven
years after the effective time of the Merger, shall maintain in effect
the above 'run off' policy in accordance with its terms.
Termination
The Company and RISCO also agreed that the Merger
Agreement shall be terminated in any of the following events:
- if the Merger is not consummated on or before the
Termination Date; provided, however, that the right to
terminate this Agreement under this clause shall not be
available to a party if the failure of the Merger to have been
consummated on or before the Termination Date was primarily
due to the failure of such party to perform any of its
obligations under this Agreement. 'Termination Date' means
December 31, 2015; provided, that the Termination Date may be
extended at RISCO's sole election by no more than 90 days in
the aggregate if on such date (a) the Company Shareholder
Meeting has not yet been held, (b) there are any Restraints
then in effect which are being challenged or appealed by RISCO
or at RISCO's request, (c) any Required Regulatory Consents
are then pending or have not been finally denied, (d) the
applicable waiting periods have not yet expired;
- if any Restraint shall be in effect and shall have
become final and nonappealable; provided, however, that the
right to terminate this Agreement under this clause shall not
be available to a party if such Restraint was primarily due to
the failure of such party to perform any of its obligations
under the Merger Agreement required by applicable law;
- if the Company Shareholder Approval is not obtained
by applicable law;
- if the Company or RISCO shall have breached or
failed to perform any of its covenants or agreements set forth
in the Merger Agreement (or if any of the representations or
warranties of the Company or RISCO set forth in the Merger
Agreement shall fail to be true), which breach, failure or
inaccuracy (A) would (if it occurred or was continuing as of
the Closing Date) give rise to the failure of a condition set
forth in the Merger Agreement (B) is incapable of being cured,
or, if susceptible to cure, is not cured by the violative
party within 30 calendar days following receipt of written
notice from the other Party of such breach or failure; or
Amendment of the Merger Agreement
At any time prior to the Effective Time, the Merger Agreement may be
amended or supplemented in any and all respects, whether before or
after receipt of the Company Shareholder Approval, by written
agreement of the parties hereto; provided, however, that following
receipt of the Company Shareholder Approval, there shall be no
amendment or change to the provisions which by Law would require
further approval by the Company's shareholders without such approval.
Governing Law; Venue
The Merger Agreement shall be governed by, and construed in accordance
with, the Laws of the State of Israel without regard to its conflict
or choice of law principles. In the event of any controversy, claim or
dispute between the parties arising out of or relating to the Merger
Agreement or any alleged breach thereof, either party may demand that
the dispute be exclusively resolved through binding arbitration by so
notifying the other party in writing. The arbitrator's decision shall
be final, conclusive and binding on the parties to the Arbitration,
and if either party requests the Arbitration shall be the exclusive
forum and dispute resolution procedure for any claims arising out of
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this Agreement or the subject matter hereof.
Interests of Controlling Shareholders in the Merger
Since RISCO is a controlling shareholder of both the Company and the
Subsidiary, then the Merger, with respect to the Company is deemed a
transaction in which a controlling shareholder has a personal
interest, pursuant to Section 270(4) of the Companies Law, and
therefore the Required Approval, as more specifically detailed above,
is subject to the requirements of Section 275 of the Companies Law,
requiring for an extraordinary transaction of a public company, with a
controlling shareholder, or in which a controlling shareholder has a
personal interest, the approval of the audit committee, the board of
directors and the shareholders, in that order.
It is proposed that at the Meeting, the following resolution be
adopted:
1. 'RESOLVED, to approve the Merger between the Subsidiary and the
Company.'
The Board recommends a vote FOR the approval of this proposed
resolution.
Dated: June 26, 2015
By Order of the Board of Directors,
Mr. Moshe Alkelai
Chairman of the Board
Appendix A
Electronics Line 3000 Ltd.
Ownership Certificate
Company Name: Electronics Line 3000 Ltd.
Company Registration Number: 51-334253-5
We, the undersigned, hereby certify, as of July 6, 2015, as follows:
Details of Shareholder:
(If there are several joint owners of the shares, their details should
all be included)
(1) Name of shareholder ________________
(2) Nationality of shareholder ___________
(3) I.D. No. __________________
If shareholder does not hold an Israeli I.D. -
Passport No. ______________ The Country of issuance
________________
If shareholder is a corporation -
Corporate identity number ___________
Country of incorporation __________
Details on the Shares:
(4) Name of the security - Ordinary Share;
Par value - N.I.S 5.00;
ISIN code - IL 0010905052
(5) Number of Share - __________
(6) Type of Shares: Ordinary
Approval by the recognized financial institution:
By: ____________
Date: _____________
Appendix B
ELECTRONICS LINE 3000 LTD.
THIS NOTICE OF APPOINTMENT AND INSTRUCTIONS FOR VOTING BY
MEANS OF PROXY ('PROXY') IS SOLICITED BY THE BOARD OF DIRECTORS
FOR THE SPECIAL GENERAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST 3, 2015
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned hereby
constitutes Sari Ellenberg and Yaron Herman, each of them, the true
and lawful attorneys, agents and proxies of the undersigned, with full
power of substitution, to vote with respect to all the Ordinary Shares
of ELECTRONICS LINE 3000 LTD. (the 'Company'), standing in the name of
the undersigned at the close of trading on Monday, July 6, 2015, at
the General meeting of Shareholders of the Company to be held at 14:30
on Monday, August 3, 2015, at the Company's offices at 14 Hachoma
Street, Rishon LeZion, Israel and any and all adjournments thereof,
with all power that the undersigned would posses if personally present
and especially (but without limiting the general authorization and
power hereby given) to vote as follows:
The shares represented by the Proxy will be voted in the manner
directed, and if no instructions to the contrary are indicated, will
be voted 'FOR' in all Proposals listed above.
Dated: , 2015
Name
Signature
Please sign exactly as name appears at the Ownership Certificate. Each
joint owner should sign. Executors, administrators, trustees, etc.
should indicate the capacity in which they sign.
Appendix C
Share Capital Appraisal
Electronics Line 3000 Ltd.
Company Valuation (May 2015)
Table of Contents
1. INTRODUCTION
1.1 Purpose of engagement
1.2 About the Company
1.3 Objective of the Work
1.4 Sources of information
1.5 Summary of valuation results
2. LIMITING CONDITIONS
3. COMPANY OVERVIEW
3.1 General
3.2 New business model - distribution via Risco
3.3 Main products and products families
3.4 Global Partnerships
3.5 Company's Strategy
3.6 Historical financial performance
4. INDUSTRY OUTLOOK
4.1 The Smart Home Security Market
4.2 Market forecast
4.3 Falling System Costs
4.4 Increased competition in the market
4.5 Trends in technology
4.6 Intrusion alarm trends
4.7 Competitors
5. METHODOLOGY
5.1 General
5.2 Applied Valuation Method
5.3 Date of Valuation
6. VALUATION ASSUMPTIONS
6.1 Forecast Period
6.2 New business model
6.3 Underlying assumptions of the forecast
6.4 Discount rate
6.5 Financial Liabilities
6.6 Summary of the valuation
1. Introduction
1.1 Purpose of engagement
At the request of the management of Electronics Line 3000 Ltd.
(hereinafter - 'EL' or 'Electronics Line' or 'the Company'), we were
engaged to assist in performing a valuation of the share capital of
the Company as of December 31, 2014.
1.2 About the Company
Electronics Line was incorporated in Israel in December 2002. The
Company's shares are publicly traded on the General Standard, a market
operated by the Frankfurt Stock Exchange.
The Company is engaged in the design, development, production,
marketing and sale of electronic security with remote management
solutions, and complementary products for the mass residential and
small commercial markets. These solutions can be monitored and can
enable remote management of the premises for security, and automation
and video application.
The registered office of the Company is located at Rishon LeZion,
Israel.
1.3 Objective of the Work
For the purpose of this valuation analysis, we have employed the
Income Approach that is based on the Discounted Cash Flow (DCF) method
of valuation, which we found to be the most appropriate in this case.
The valuation of the Company is primarily dependent on the feasibility
of the financial projections provided by the management of the Company
and ultimately achieving the projected results.
1.4 Sources of information
The information was principally obtained through discussions with the
management of the Company, a review of several agreements, financial
reports, investor presentations, business plans and other relevant
documents and through outside research.
All the information provided by management have been accepted without
further verification as correctly reflecting the results of operations
and the financial and business conditions of the Company. We have not
performed an audit, review or compilation of this information in the
capacity of certified public accountants. Our work cannot be relied
upon to discover errors, irregularities, or illegal acts.
Please refer to the Limiting Conditions under which this work was
prepared.
The valuation was performed, among other things, on the basis of the
following sources of information:
* 5 year's business plan of the Company (including
financial projections).
* Presentation regarding Company's finance
projections.
* Annual financial statements of the Company for the
years 2010 - 2014.
* Legal agreements.
* Other information we received, at our request, from
the management of EL, including meetings and discussions we
held with the management.
* In addition, we also made use of other available
public information collected by us.
1.5 Summary of valuation results
Below is a summary of the valuation results of the company.
a. Methodology
To value the equity of Electronics Line, we applied the Income
Approach, utilizing the DCF model.
When applying the Income Approach, the annual free cash flows of the
Company was forecasted for the entire projection period. This was then
subsequently discounted to the present value through the application
of a discount rate of 15% that reflects the appropriate risk for the
Company. The present value of aggregate annual free cash flows
represents the total capital or the net asset value of the operating
entity, which totals the combined debt and equity capital or
enterprise value of the Company.
b. Valuation results
Based on the assumptions and estimates as set out below in this
report, the equity value of Electronics Line is estimated between $7.5
and $8.5 million, as follows:
Lower Range Upper Range
WACC USD Thousand USD Thousand
14% 7,927 9,073
15% 7,456 8,502
16% 7,053 8,009
For further details see chapter 6 and appendixes A, B and C.
c. Trading Market Value
It should be noted that the Trading Market Value of the company in the
last few months is lower than the calculated estimated value: the
average adjusted close price of the shares was EUR0.25 in the last
month, EUR0.31 in the last 6 months and EUR0.41 in the last year.
For further details about the Trading Market Value see appendix F.
d. Book Value
The equity book value as of December 31st 2014 is $4,449 thousands.
e. Contingent Claim
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It should be noted that the Company is in process of filing a lawsuit
against its battery manufacturer (as well as against the insurance
company of the battery manufacturer) in sum of NIS 13.5M. We were
informed that as of the valuation date, the legal advisors of the
Company cannot predict the chances of winning the lawsuit since the
legal process is still at its preliminary stage, before a statement of
defense was submitted (see appendix E).
In addition, one of the Company's clients filed a lawsuit against the
Company on the grounds of a commercial dispute. The customer claims
damages and compensation in the amount of NIS 5M. We were informed
that as of the valuation date, the legal advisors of the Company do
not expect the Company to pay any material compensation.
Therefore, the estimated value of the Company as described below does
not include the possible positive effect and negative effect of the
abovementioned lawsuits.
The reader of this report should take into account the adjusted value
according to the predicted chances of this contingent claims.
We reserve the right to update our work in view of new information
that will be brought to our attention in this matter.
2. Limiting Conditions
This work constitutes the estimated value of Electronics Line 3000
Ltd. No other use may be made of this work, including being quoted in
a prospectus and/or any other document, without first obtaining the
express written consent from Fahn Kanne Consulting Ltd., save that
Fahn Kanne Consulting Ltd. has consented that this work may be
included in the materials sent to EL shareholders together with the
invitations for convening of shareholders meetings to be published by
the Company at Frankfurt Stock Exchange.
This work is based on, among other things, data obtained from the
management of the Company. The responsibility for the reliability of
the information, the data, representations and various explanations
with which we were provided in connection with the performance of the
work rests with the suppliers of the information. We are unable to
confirm the accuracy, integrity and fairness of the information. We
would like to emphasize that this work does not include a due
diligence and does not include an examination and verification of the
aforementioned data. Therefore, our work shall not be construed or
considered to be confirmation of the correctness, integrity or
accuracy of the data with which we were provided.
Under no circumstances whatsoever, are we to be held liable for any
loss, damage, cost or expense to be caused in any manner or form from
acts of fraud, misrepresentation, misstatement, provision of incorrect
information or withholding of information from us.
For purposes of this work, we assumed that the information provided to
us is accurate, complete, and fair and nothing has come to our
knowledge that might indicate a lack of reasonableness of the data we
used. If it becomes apparent that this assumption is incorrect, our
recommendation would change accordingly. Therefore, we reserve the
right to update our work in view of new information that was not
brought to our attention prior to our rendering a valuation in this
matter. In addition, this work should not be construed as a
recommendation to hold any shares, to vote in any matter, or as a
recommendation to purchase or sell the shares of the Company on the
basis of the findings of the work.
This opinion should not be construed as legal advice or a legal
opinion. Explanations of various documents that we reviewed were given
solely for purposes of this economic opinion. The information
appearing in our report should not be construed as containing all of
the information that a potential investor might need and it is not
designed to appraise the value of the Company for a different
investor, since different investors may have different goals and
considerations, as well as different methods of examination based on
different assumptions. Accordingly, the estimated economic value on
the basis of which various factors may perform economic transactions
could also be different.
We would like to point out that we have no personal interest in the
shares of the Company.
This valuation reflects our assessment of the various parameters and
is based an the information in our possession. If such assessments do
not reach fruition, the actual results may be significantly different
than the results of our appraisal.
Any third party who would wish to make use of this work may do so only
after signing a Consultant Release Letter in the formulation agreed by
us.
Neither bahn Kanne Consulting Ltd. nor any individuals associated with
this report shall be required by reason of this report to provide
testimony or to appear in tourt or at other legal proceedings, unless
specific arrangements to do so have been made.
We recommend that the reader peruse all of the assumptions made during
the entire appraisal process.
Sinccrely yours,
Kahn Kanne Consulting Ltd.
May 21, 2015
3. Company Overview
3.1 General
Electronics Line was incorporated in Israel in December 2002. The
Company's shares are publicly traded on the General Standard, a market
operated by the Frankfurt Stock Exchange.
The Company provides security solutions for the residential and small
commercial markets.
The Company is engaged in the design, development, production,
marketing and sale of electronic security with remote management
solutions, and complementary products for the mass residential and
small commercial markets. These solutions can be monitored and can
enable remote management of the premises for security, and automation
and video application. The registered office of the Company is located
at 14 Hachoma Street, Rishon LeZion, Israel.
3.2 New business model - distribution via Risco
We were informed that the Company signed a distribution agreement with
Risco Ltd. (hereinafter 'Risco') commencing October 2014.
Starting October 2014, all distribution activity will be provided via
Risco - sales managers, warehouse management, shipments, custom etc.
will be Risco's responsibility.
According to the Company management, the main reasons for this
decision are as follow:
1. Use Risco's global structure for better coverage.
2. Saving sales cost using Risco's professional
sales team.
3. Operational synergies with Risco that will allow
the Company to invest in R&D and marketing activities.
4. Introduce affordable products to Risco's
customers.
5. Reduce dependency on key customers.
For its distribution efforts, Risco will receive 15% of sales to
current customers and 20%-25% from sales to new customers.
Following the agreement, the Company has reduced its S&M personnel and
other S&M expenses.
In addition, the Company sold its entire inventory to Risco in the
last quarter of 2014, thus effecting 2014 financial results.
3.3 Main products and products families
The Company offers an array of security solutions for every need. EL's
wireless control systems enable end-users to choose the level of
control and monitoring they require using innovative remote solutions.
EL solutions enable new levels of control and maintenance in protected
sites through the ELAS (Electronics Line Application Server - see
description below), a proprietary remote management server. The
Company enjoys a unique market position in supplying ELAS-governed
systems for the home and workplace, which provide the multiple
benefits of a virtual security presence, convenient home automation,
and energy efficiency, all customized by the end-user and/or the
service provider.
EL's extensive product line includes both wired and wireless
solutions, as well as the integration of both types into one hybrid
system. EL solutions offer enhanced detection and
PSTN/IP/GSM/GPRS-based event reporting, along with advanced remote
management tools. The back-office support and customized branding of
EL solutions provide superior security with significant business
benefits and market expansion potential.
Advanced security detectors supply excellent interior and perimeter
protection while safety detectors offer enhanced environmental and
personal safety including: smoke, gas and water leak detection, panic
buttons and much more.
The systems can be activated using a variety of local control devices
such as keyfobs and keypads. EL also offers end-users and providers
advanced remote management applications for comprehensive control over
the system from any location.
Complementing accessories and add-ons include home automation modules,
zone expanders, receivers, sirens and more for a complete security
offering.
ELAS (Electronics Line Application Server)
ELAS is EL's cloud-based server which enables EL's intrusion systems
to be controlled remotely using the MyELAS smartphone app.
ELAS acts as a proxy that mediates between the various applications
and the panels. When the end-user exerts the MyELAS app, the
application connects to ELAS and ELAS in turn connects to its main
panel. Data is then transferred between the panel and the smartphone
in real-time.
Smartphone App
The MyELAS app enables end-users to control their EL intrusion systems
remotely, directly from their smartphones or via the web application
with the push of a button, giving them peace of mind at all times.
Remote Configuration and Diagnostics
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ELAS enables remote configuration and diagnostics, providing a more
efficient way for installers to troubleshoot and solve issues without
the need for extraneous onsite visits.
Utilizing the most Stringent Security Technologies
ELAS utilizes security technologies including encryption, advanced
firewalls and additional security safeguards that comply with the most
rigorous security standards to ensure that data cannot be accessed by
unauthorized users.
Reliable and Scalable
Our ELAS cloud server offers total reliability with full redundancy
during server downtime, enabling seamless operation in times of
crisis. The system offers a totally scalable architecture, i.e. the
ability to easily increase the capability of the server with the
growth of your company.
iConnect 2-Way
A powerful and streamlined 2-way wireless intrusion system, designed
for the residential and small commercial markets.
Connection to the cloud-based ELAS server enables users to remotely
control their iConnect 2-Way systems through the myELAS app (also
available via web browser). Visual verification is also supported with
the purchase of a PIR camera detector enabling users to view images on
demand of their homes or businesses directly from their smartphones,
allowing them to feel totally in control at all times. Users will
receive email/ SMS/ voice notifications in the event of an alarm, and
can also arm or disarm their iConnect 2-Way systems remotely.
iConnect 2-Way supports GPRS with GSM and IP as backup or IP and PSTN
as backup, and can be remotely configured saving installers time and
hassle. A wide range of 2-way detectors and accessories can be used
with the system.
Commpact
The Commpact intrusion system is named for its streamlined,
space-saving design, while offering a professional, highly reliable
system at a competitive price.
Commpact's connectivity to the cloud-based ELAS server enables it to
be controlled remotely by EL's smartphone app (also available via web
browser) which offers users the possibility to arm/disarm the system
remotely as well as to receive email/ SMS/ voice notifications and to
view and store a history of events.
Commpact supports a wide range of security and safety accessories
including elderly care and detectors against smoke, flood and
poisonous gases.
The simple and quick wireless installation and remote programming of
the Commpact system add further to its appeal as a powerful,
convenient system which allows users to enjoy a complete sense of
control as well as peace of mind.
Prime
A basic, reliable and robust security system using one-way wireless FM
technology. The system uses PSTN and GSM connectivity and is
compatible with all of EL's wireless keypads and peripherals. Prime
supports variable applications such as SMS event notifications, remote
programming and maintenance, audio communication or range extension.
3.4 Global Partnerships
In March 2010 Risco acquired a controlling interest in the Company.
Risco intends to maintain the Company's product offerings and
independence in the market by growing it as Risco's residential arm,
through product portfolio expansion into video and management
solutions together with its major partners worldwide.
In order to increase the Company's global coverage and to have better
penetration into new and existing markets, in August 2010, the Company
entered into management and distribution agreements with Risco as
Risco has the facilities to import, promote, sell, market and
distribute the products in the territory (as defined in the agreement)
and is willing to act as the supplier's non-exclusive distributor of
the 'Products in the Territory'.
The Company reorganized its sales force in order to achieve a better
coverage in its target markets. Mr. Douglas Luscombe, the Company's
CEO, was located in the UK, and several regional Sales Managers (RSM)
were assigned to cover the rest of Europe and the Russian markets.
The Company has a presence, and believes it is well positioned in
important markets around the world, in particular Northern and Western
Europe, and consistently strengthening its position in additional
regions in Latin America, APAC and more. The Company's brand is
associated with high quality products and solutions.
The Company continues to develop and expand its marketing and sales
capabilities with a focus on strategic customers and markets, while at
the same time, providing more marketing and technical support to
existing customers.
3.5 Company's Strategy
The Company is engaged in the design, development, production,
marketing and sales of next-generation security solutions for the
residential and small commercial markets.
Key elements of the Company's growth strategy include:
* Continuing to position the Company's advanced
2way wireless products as an innovative quality solution that
reduces operating expenses for the service provider and
increases functionality and control for the end user.
* Expanding and strengthening relationships with
key target customers in order to sell wireless security with
remote management solutions to their customers.
* Providing a full range of market solutions - from
standard, low cost solutions to high end, advanced solutions.
* Increasing services which are available as part
of the Company's platform for remote management solutions,
including advanced video capabilities, remote management
applications and more.
* Leveraging wireless technology and various
platforms to develop new solutions.
* Invest in both short-term and long-term R&D in
order to improve product design and achieve lower production
costs.
3.6 Historical financial performance
Below are the income statements of the Company as of December 31st for
the years 2010-2014 (in USD thousands):
USD Audited Audi- Audi- Audi- Audited 10'-14- 10'-14'
Thousands 2010 ted ted ted 2014 ' Accumu-
2011 2012 2013 Avera- lated
ge
Revenues 26,717 24,164 14,331 16,534 12,200 18,789 93,946
Cost of 18,338 15,745 9,007 9,507 8,286 12,177 60,883
revenues
Gross 8,379 8,419 5,324 7,027 3,914 6,613 33,063
profit
31.4% 34.8% 37.2% 42.5% 32.1% 35.2% 35.2%
Operating 1,884 1,733 1,247 1,235 1,119 1,444 7,218
costs and
expenses:
Research
and
develop-
ment
7,1% 7,2% 8,7% 7,5% 9,2% 7,7% 7,7%
Selling 3,840 2,878 1,556 1,851 1,635 2,352 11,760
and
marketing
14.4% 11.9% 10.9% 11.2% 13.4% 12.5% 12.5%
General 3,167 1,977 1,678 2,146 1,965 2,187 10,933
and
adminis-
trative
11.9% 8.2% 11.7% 13.0% 16.1% 11.6% 11.6%
Other 4,450 315 (402) - - 873 4,363
expenses
(income),
net
Total 13,341 6,903 4,079 5,232 4,719 6,855 34,274
operating
costs
49.9% 28.6% 28.5% 31.6% 38.7% 36.5% 36.5%
EBIT (512) 1,831 843 1,795 (805) 630 3,152
excluding
other
expenses
-1.9% 7.6% 5.9% 10.9% -6.6% 3.4% 3.4%
Operating (4,962) 1,516 1,245 1,795 (805) (242) (1,211)
profit
(loss)
-18.6% 6.3% 8.7% 10.9% -6.6% -1.3% -1.3%
Financial 62 51 - 167 49 66 329
income
Financial 428 405 166 130 130 252 1,259
expenses
Gain from - 1,224 - - - 245 1,224
sale of
subsidia-
ry
Income (5,328) 2,386 1,079 1,832 (886) (183) (917)
before
taxes
Taxes on (523) (54) - 1,095 (1,352) (167) (834)
income
(tax
benefit)
Net (5,851) 2,332 1,079 2,927 (2,238) (350) (1,751)
profit
(loss)
Net (0.58) 0.18 0.08 0.21 (0.16) (0.05) (0.27)
profit
(loss)
per share
* The Company's sales volume decreased by 26% from
US$ 16.5 million in 2013 to US$ 12.2 million in 2014, mainly
as a result of the delay in launching a new product line,
which serves as the basis for the Company's volume
expectations.
* Accordingly, the gross profit decreased from US$7.0 million
2013 to US$ 3.9 million in 2014. The gross profit margin
decreased from 42.5% in 2013 to 32.9% in 2014.
* In addition to the sales drop, the sharp decrease in the
gross margin was amplified by special discounts and promotion
activities carried out in order to stimulate sales.
* It should be noted that sales starting from the fourth
quarter of 2014 and onwards are presented as net sales, after
deduction of Risco's commission. The reader should consider
this when comparing profit ratios across the years.
Below are the Company's balance sheets as of December 31st, for the
years 2010-2014 (in USD thousands):
USD Thousands Dec-31 Dec-31 Dec-31 Dec-31 Dec-31
2010 2011 2012 2013 2014
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Cash and cash 983 1,687 803 1,988 219
equivalents
Trade receivables 2,970 2,017 658 927 3,971
Other accounts 1,484 1,912 170 164 38
receivable
Inventories 5,494 1,423 4,042 3,912 2,023
Total current assets 10,931 7,039 5,673 6,991 6,251
Property, plant and 1,987 524 609 574 466
equipment, net
Intangible assets 504 403 303 202 101
Deferred taxes 491 483 498 1,593 241
Security deposits 97 80 17 34 12
Total non current 3,079 1,490 1,427 2,403 820
assets
Total Assets 14,010 8,529 7,100 9,394 7,071
Short term credit 3,517 1,244 351 179 -
from banks
Short term credit 3,817 - - - -
from related parties
Trade payables 5,024 2,796 1,956 1,728 851
Income taxes payable 149 - - - -
Other current 2,162 925 811 563 1,737
liabilities
Total current 14,669 4,965 3,118 2,470 2,588
liabilities
Loans from banks 1,065 527 179 - -
Employee benefit 165 140 143 240 34
liabilities, net
Other long term 1,201 426 - - -
liabilities
Deferred taxes 379 - - - -
Total non current 2,810 1,093 322 240 34
liabilities
Share capital 10,933 15,933 15,933 15,933 15,933
Additional paid in 6,453 6,474 6,584 6,632 6,651
capital
Foreign currency 1,413 - - - -
translation reserve
Accumulated deficit (22,268) (19,936) (18,857) (15,881) (18,135)
Total equity -3,469 2,471 3,660 6,684 4,449
Total liabilities and 14,010 8,529 7,100 9,394 7,071
equity
4. Industry Outlook
4.1 The Smart Home Security Market1
General
Security, as such, is becoming a huge market worldwide, mainly due to
the rising crime rates in different parts of the world. As a result,
the electronic security equipments are expected to find potential
opportunities in this market.
The penetration level of security solutions in residential sector is
witnessing a rapid growth since the last few years. There are several
factors that can be attributed to this growth, such as increase in
home burglary rates, attractive insurance policies to residents for
installation of security solutions, growth in the tablets markets and
more.
The market for home security system solutions is, however, facing
challenges with respect to awareness levels about technological
advancements and higher cost of the solution. There are numerous
initiatives being taken by companies as well as governments to enhance
the awareness levels and achieve better co-operation amongst the
solution providers present along the value chain.
1 Source: the smart home security market, market analysis, vendor
Profiles & forecast, nextmarket insights.
Market Share
With increased awareness and increased adoption, it is expected that
the price of the solution will gradually decrease. In terms of revenue
generation as of 2011, North America held the highest share, i.e.
55.6%, followed by Asia-Pacific with 28.4%.
These systems are thus supposed to provide potential growth
opportunities to the solution providers. With respect to different
types of homes wherein the security solutions are utilized,
independent homes are observed to hold the highest share, i.e. 80.1%
in 2011. However, the adoption rate is expected to grow rapidly in
apartments in near future owing to the rise in nuclear families.
The global home security solutions market is expected to grow from
$20.64 billion in 2011 to $34.46 billion in 2017 at a CAGR of 9.1%
from 2012 to 2017. In order to achieve appropriate growth along with
profitability, companies need to largely focus on three specific
areas; namely provision of cost effective solution, product
leadership, and significant market presence.
Market transition
The home security market is in a period of great transition. A market
built over decades upon the bedrock of professionally installed and
monitored solutions is beginning to see cracks in the foundation as
new providers and technologies begin to enter the market.
One of the biggest changes in this market over the past few years is
the maturation and mass commercialization of smart home and Internet
of things technology. The mobile war 'peace dividend' has resulted in
low cost sensors and widely pervasive touch screen powered mobile
phones and tables with associated app frameworks, while cloud
computing has enabled scalable, low-cost internet based management of
in-home security and smart home networks.
Newer, more modern security approaches come in different forms. From
the completely self-installed, retail based offerings like that of
Dropcam's Tab, to professionally installed smart home-based security
offerings based on platform's like iControl is providing new
alternatives for consumers who traditionally either chose not to pay
for the higher cost of home security or had a lifestyle - a renter or
highly mobile person - who wasn't a fit for the traditional profile of
a monitored home security subscriber.
Newer security offerings can be defined based on modern cloud-centric
monitoring and smart home technology 'smart security'.
These offerings come in three different forms:
1. completely DIY (self-installed, self-monitored)
2. DIY self-installed home security with
professional monitoring and
3. Professionally installed and monitored solutions
that integrate smart home and cloud technologies as a core
part of their architecture.
Smart security is the offspring of the security market and the smart
home automation market. Smart security devices allow homeowners to
monitor, and manage their home security remotely by interacting with
these devices via smart phones, tablets and computers.
4.2 Market forecast2
The US smart security market is expected to increase from nearly 3
million users in 2014 to over 22 million users by 2020.
The home automation systems and services market is forecast to grow
from $3.6 billion in total systems hardware and recurring services and
subscriptions revenues in 2012 to $14.7 billion by 2017 worldwide,
driven in large part by a fast-growing service provider market where
home security companies, telcos, cable MSOs and electric/gas utilities
offer managed home automation services which help propel the market
from its fairly modest size today to one which serves over 35 million
households by 2017.
Initially, the vast majority of smart security users will be
subscribers of a professionally installed solution, whether that
service is offered from a traditional security provider or an emerging
offering from a broadband service provider such as Comcast or AT&T.
The market for self-installed solutions, however, is expected to grow
very rapidly over the forecast period and will account for over
one-third of smart security users by 2020.
Within self-installed category, basic all-in-one self-installable home
security appliances will have the greatest growth as these products
progress from early stage life cycle to more mature products with the
associated developed channel and marketing strategies. The total US
DIY home security hardware and services market in 2020 will be app.
$1.5 billion annual market by 2020.
The following chart presents the total smart home systems hardware and
services revenue 2012-2017 (US$ Millions):
2 Source: Smart Home & Home Automation, Analysis & Market Forecast
2012-2017, NextMarket Insights
4.3 Falling System Costs
The smart home could soon become truly commonplace by appealing to the
middle class consumers that previously neither possessed the technical
knowhow to build their own system, nor the requisite finance to hire a
specialist to design and install one on their behalf. One of the main
reasons for this is the fact that home automation systems are becoming
much more affordable to many more people.
Historically, the high cost of this technology has acted as the main
barrier to greater adoption but a number of factors are helping reduce
costs.
4.4 Increased competition in the market3
Some companies have introduced relatively inexpensive offerings that
are analogous in functionality to the luxury systems that have
dominated the market for some time.
In response, industry heavyweights such as Crestron have begun to
offer more basic solutions. Additionally, service providers are
providing managed subscription-based offerings. Lowe's, Verizon and
now Comcast, all offer smart home packages for less than $10 per
month.
The impact that quality, performance and sharp pricing is having on
competitors comes in multiple directions. Some have dropped prices;
some have standardized internal components as is increasingly common
in the consumer DSLR market.
3 Sources: (1) Smart Home & Home Automation, Analysis & Market
Forecast 2012-2017, NextMarket Insights (2) 2014: State of the market
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4.5 Trends in technology4
In the domestic market, digital continues to be a slowly unfolding
revolution. This is in considerable part due to the fact key
components of electronic security technology are now in lockstep with
consumer electronics and networking technologies. The cloud is the
biggest potential component.
Affordable bandwidth is the greatest stumbling block for the industry
and the strongest lever for telecommunications providers capable of
bundling security services with Internet, comms and TV.
Home automation was big in 2013 and it was strong again in 2014. It's
hard to say how big automation is locally when compared to straight
alarm panels but it's instructive to consider that 70% of ADT's sales
this year went on the company's Pulse security and automation panel.
AT&T spent 2014 continuing its rollout of Digital Life, a security and
automation solution and most other companies continued strengthening
their automation lineups.
4 Source: State of the market | Security Electronics and Networks,
01/12/2015
4.6 Intrusion alarm trends5
Alarm systems have had a giddy year. The primary drivers here are
towards local wireless communications, 3G and internet monitoring,
automation and remote management of security and domestic sub systems
via apps on smart devices.
Hardwire means no batteries and no interference with unsecure 433MHz
sensor-to-panel comms. Wireless means no chasing of cabling behind
walls, between different levels of buildings and far simpler control
panel installation. If sensor comms were highly secure and had
sufficient bandwidth to shift a handful of images for verification,
and battery life was 5 years or more on all devices, wireless would
win the day, though there are always sites that defy the passage of RF
signals.
5 Source: State of the market | Security Electronics and Networks,
01/12/2015
4.7 Competitors
The Company operates in a highly competitive market.
Its competitors are mainly small-mid size companies which design
and/or develop and/or produce and/or market security solutions for the
residential and small commercial markets. These companies include,
among others, Pyronix, Paradox, Satel, Pima and Bentel.
In addition, there are some big international companies that operate
in the same field, such as Tyco International Plc, Honeywell
International Inc., Napco Security Technologies Inc., Secom Co Ltd and
more.
5. Methodology
5.1 General
There are several approaches / methods to performing an economic
valuation. Each method has advantages and disadvantages and each
method can yield different results. When choosing a suitable method,
the nature of the asset, the purpose of the valuation as well as other
additional factors should be properly assessed. Below are the three
main approaches for performing an economic valuation:
Income Approach - According to the income approach, the value of an
asset is derived from the present value of the expected cash flows
throughout the asset's remaining economic life. When implementing this
approach, the expected cash flows that a specific asset will generate
are estimated (future receipts and payments) and are based, in part,
on an analysis of financial and operational information.
During the second stage, the values of future cash flows are brought
to their present value at the time of the valuation by their discount
rate (Discounted Cash Flow, or in short: DCF). The discounted cash
flow process uses a rate of return which should reflect the time value
of money, as well as the business risk. The fair value is essentially
the present value of future cash flows at the end of the forecast
period, including the residual value, if relevant.
One of the main advantages of this method is the fact that it is
applicable to each specific asset, taking into account specific
characteristics of that asset. The main disadvantages of this method
are due, in part, to the difficulty in predicting the future cash
flows, at the end of the forecast period, as well as the residual
value, if relevant.
Net Asset Value (NAV) - According to the NAV approach, the value of a
company is estimated according to the main economic value of the
assets and liabilities within it. In order to perform a valuation
based on this approach, the assets and liabilities that make up a
specific company are adjusted to their economic value. In other words,
this method adjusts the 'book value' of each asset and liability to
their 'fair value', based on the exit value. The difference between
the economic value of the assets and liabilities of the assessed
entity are meant to express its estimated economic value.
The NAV approach can be categorized as one of the cost approach
methods of valuation. The cost approach method is based on the
assumption that an investor will not pay for an asset that is valued
in excess of the amount required to replace it with another asset.
Market Approach / Multiplier - According to the market approach, a
company is evaluated on the basis of comparison between similar
entities. This approach is based on the premise that companies in the
same industry can be characterized by similar multiples and financial
ratios. This comparison is made by certain ratios known as
'multipliers.' A multiplier is usually a calculated ratio between the
market value or the enterprise value of a specific entity and a
selected index of performance, typically an accounting measure.
The use of comparative multipliers is based on the assumption that it
is possible to estimate the equity value of a company by using a
multiple of a certain number.
5.2 Applied Valuation Method
The Company valuation was performed on the basis of the income
approach using the discounted free cash flow method (DCF).
The underlying assumption of the DCF method, as stated above, is that
the value of a business is the discounted present value of the future
cash flows derived from the operating assets and working capital items
of the Company over time.
In making the analysis of the discounted cash flows, the appraiser
utilizes unlevered free cash flows. The result of the calculation
represents the value of the activity.
The analysis requires detailed assessments of the activity in each of
the coming years. Accepted practice is to divide the analysis into two
periods, the first period in which a detailed analysis is performed,
and the second period compromising the balance of the period, in which
the discount is based on a 'representative cash flow' due to the
inability to formulate a detailed forecast for a longer period of
time.
After obtaining the Company's enterprise value we reduced/added the
net financial liabilities/assets from the discounted cash flow and
valuated the Company options in order to calculate the value of the
shareholder's stock.
5.3 Date of Valuation
It is important to note that the valuation was performed as of
December 31, 2014.
6. Valuation assumptions
6.1 Forecast Period
In performing the valuation, we divided the forecast into two periods:
the first period was comprised the forecast years 2015-2019. The
second period included year 2020, from which we derived a
'representative cash flow'.
We estimated the expected cash flows of the Company on the basis of
the forecast that the Company Management provided us regarding the
future results of operations and capital investments over the next few
years.
6.2 New business model
We were informed that starting October 1st, 2014, all the distribution
activity of Company's products is carried out by Risco.
According to the Company, the main reasons for the change in the
distribution process are as follows:
* Ability to use Risco's global structure for
better coverage.
* Saving sales costs by using Risco's professional sales
teams.
* Distribution through Risco's channels enables operational
synergies with Risco that will allow the Company to invest in
developing and marketing activities.
* Introduction of affordable products to Risco's clients.
The reader of this report must take into consideration that the
implementation of the new business model might affect Company's
results in the short term.
6.3 Underlying assumptions of the forecast
Revenues
As mentioned above, starting from the fourth quarter of 2014, the
Company's distribution is being carried out by Risco. Thus, all of
EL's revenues are assumed to stem from Risco, while Risco is expected
to receive for its distribution efforts a 15% commission from sales to
existing customers and 20%-25% from sales to new customers.
The sales forecast in the valuation model is presented in net terms,
i.e. after deduction of Risco's commission for the sales.
The Company does not predict a sharp incline in revenues in the
forecast years. However, it should be noted, that in 2015, as
mentioned in Company's '2014 annual report management discussion and
analysis', EL is expected to launch a new product to market, which may
lead to a revenue growth and to future growth, in oppose to the
decline in revenues as observed in the last years. Consequently, the
expected gross revenues in 2015 (including Risco's commission) are
expected to total $13.6 million in the lower range and $14.0 million
in the upper range, reflecting net sales (after deduction of Risco's
commission) of $11.3 million in the lower range and $11.9 million in
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DJ DGAP-HV: Electronics Line 3000 Ltd.: -9-
the upper range. For the years 2016 - 2019, we assumed that the
revenues will increase by 3%-4% each year. In 2020, the representative
year, we assumed that the Company's revenues will increase by terminal
growth rate of 2.5%.
It should be noted that the delay in launching the new product line,
as mentioned above, might affect revenues in the short term, which may
differ from the predicted revenues in this report.
Since the Company's main functional currency is USD but close to 70%
of revenues are in Euro, the Company is exposed to fluctuations in
exchange rates, mainly USD-Euro exchange rate. We were informed that
the weakening of the Euro exchange rate causes major European clients
to reduce their orders or to demand bigger discounts. Moreover,
Company is operating in a very competitive market with hard
competitors, which also contributes to the lower growth rate
assumption for the forecast years.
The Company's predictions regarding future growth rates were lower
than the ones taken in our valuation.
Gross Profit
EL outsourced all of its production to China in 2012. The cost of
revenues includes cost of goods bought from the suppliers in China,
labor costs, depreciation and other related expenses.
The gross profit for the forecasted years is based on the Company's 5
year budget, and expected to total 33% of Company's gross sales. It
should be noted that gross sales are presented after deduction of
Risco's commission.
Research & Development expenses
The Company's products depend on its technology. Therefore, the
Company must continually invest in product development in order to
stay on the cutting edge of technology in its market and secure its
market position.
It was assumed that R&D expenses for 2015 will be in accordance to
Company's budget, which is 4.7% of revenues.
In the forecast years we assumed that the Company will keep
maintaining its existing technology and develop new products,
continuing the trend of previous years. Consequently, we assumed that
the R&D expenses will total 7% of revenues from 2016 onwards, similar
to the average rate in the years 2010-2014.
Selling & Marketing expenses
Since October 2014, Risco bears the majority of the sales costs of the
Company. According to the sales and marketing agreement, Risco
receives for its efforts 15% from sales to existing customers and
20%-25% from sales to new customers.
It should be noted that Risco will bear only sales expenses, while the
Company is expected to continue paying all the marketing expenses,
including (but not limited to) registration of new products, launching
new products, technical writing etc. We assume that those expenses
will amount to 3.7% of revenues. In case of weaker sales, we assume a
small reduction in Selling & Marketing costs, to a rate of 3.2% of
revenues.
General & Administrative expenses
Since August 2010, the Company entered into management service
agreements with Risco in order to assist the Company in the following
fields: (i) sales administration services; (ii) IT and computerized
systems; (iii) finance management and accounting; (iv) human
resources; (v) directors and consulting services; (vi) legal and
company secretarial services.
On August 29, 2013, the Company's shareholders approved an amendment
to the Management services agreement with Risco. The revised agreement
includes; (i) additional services which will be rendered by Risco to
the Company and (ii) revises the annual amount payable to Risco so
that the base amount will be $800K instead of $300K, and (iii) the
agreement has been extended for an additional three years period.
General and administrative costs in 2015, according to Company's
budget, are forecasted at 16.7% of revenues. We assume G&A to decrease
gradually as a percentage of income, reflecting amounts of general and
administrative expenses of the private company.
Taxes on income
As of December 31st, 2014, the Company has accumulated losses in the
amount of app. NIS 56 million.
According to the forecast, the Company will be able to use those
accumulated losses against operating revenues.
In years 2015-2019 we assumed there will be no tax liabilities due to
the accumulated losses. Since the Company will not use all the
accumulated losses until 2020, we calculated the remaining tax shield
in the year 2020 and added it to the Company's value, while assuming
tax liability in the representative year.
Depreciation and Amortization and Capital Expenditures
Through all the forecast years, as well as in the representative year,
it was assumed that the investment rate in fixed assets (CAPEX) will
be equal to the depreciation rate.
Depreciation and Amortization were taken according to the Company
budget and past records, an average of app. 2% of Company's revenues.
Working Capital
In order to obtain the Company's free cash flow, it is necessary to
deduct the Company's investments in operating working capital.
Operating working capital is the capital required by the Company to
finance its current operations. The Company's Operating working
capital consists of credit granted to customers (mainly Risco) and
other receivables and inventory financing costs, minus the credit
obtained by the Company from its suppliers, service providers and
other payables.
The working capital for the projected period was based on Company
historical data, as also on the new credit terms that are expected
according to the new distribution agreement with Risco.
Below are the main parameters that were used in order to obtain the
projected investment in working capital:
* Days Sales Outstanding - all distribution
activity of the Company's products is being done via Risco
starting October 1st 2014. We assumed the account receivables
days of Risco for the entire forecast period will be equal 90
days.
* Days for accounts payables - the accounts payables days for
2014 were app. 45 days. We determined that supplier's credit
days through the projection period will be in accordance with
the historical performance.
* Inventory Days - by the end of 2014, the inventory balance
was significantly low ($0.5 million as of the end of 2014
compared to $3.2 million as of September 30th, 2014). The
decrease in the inventory balance resulted mainly due to the
sale of most of the inventory to Risco. The Company believes
that it will not need higher inventory balances in the coming
years. This assumption reflects an average of 20 inventory
days through the projection period.
6.4 Discount rate
When applying the income approach, annual cash flows derived from an
estimated asset should be discounted by a discount rate which
considers all relevant inherent risks.
For the purpose of this report it was estimated that the appropriate
weighted average cost of capital (WACC) of EL is 15%.
The Discount rate calculation is presented in Appendix A.
6.5 Financial Liabilities
The following are the financial assets and financial liabilities of
EL, as of December 31st, 2014:
USD Thousands
Cash and Cash Equivalents 219
Security deposits 12
Severance Pay Fund* (253)
Total (22)
* Inc. 219K that were reclassified to current liability
6.6 Summary of the valuation
Based on the assumptions and estimates as set out below in this
report, the equity value of EL is estimated between $7.5 and $8.5
million, as follows:
Lower Upper
Range Range
Estimated Enterprise Value as of 31.12.2014 6,688 7,753
(USD Thousands)
Tax shield after 2019 790 771
Financial Liabilities, net:
Cash and Cash Equivalents 219 219
Security deposits 12 12
Severance Pay Fund* (253) (253)
Total (22) (22)
Estimated Equity Value of Electronics Line 7,456 8,502
Estimated Equity Value of Electronics Line 7,500 8,500
(Rounded) in USD
Estimated Share Price (Rounded) in USD as of 0.55 0.62
31.12.2014
Estimated Share Price (Rounded) in Euro as of 0.45 0.51
31.12.2014
* Inc. 219K that were reclassified to current liability
The equity value of EL is estimated between $7.5 and $8.5 million,
reflecting an estimated price per share of $0.55-$0.62, or
EUR0.45-EUR0.51 (as of 31st December 2014).
Appendix A - Discount rate (WACC)
The Weighted Average Cost of Capital (WACC) formula is as described
below:
Where:
* D/(D+E) - Long term level of leverage - was
estimated at 15%, based upon estimation of long term leverage
ratio of the Company.
* Re- Return on equity - is calculated by the following
formula:
* Rf- Risk-free interest rate - estimated at app. 2.17% based
on 10 year zero-coupon yield of government bonds in USA6.
* (Rm-Rf)- Risk premium7 - estimated at 5.75% as an average
risk premium expected on an equity investment in a fully
diversified portfolio in the US market.
* ß- beta8 - reflects the measure of volatility that a
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DJ DGAP-HV: Electronics Line 3000 Ltd.: -10-
particular asset contributes to the total volatility of the
entire market portfolio. For the purposes of this report, the
beta was estimated based on betas of companies in the security
products and services. We estimated a beta of approximately
0.9 using the weighted average unleveraged betas of the
comparison companies.
* ARP- Additional Risk Premium9 - It was assumed that a
premium of 9% would appropriately accumulate the non-liquidity
risk of the Company and other Company specific risks stemming
from its characteristics, above the industrial average risks
that are expressed in the average beta as estimated above.
Based on the CAPM model as described above, we assume the appropriate
discount rate of EL at 15%.
6 Source: Yahoo Finance.
7 Source: www.damodaran.com.
8 Source: Bloomberg
9 Source: Duff&Phelps 2014.
Appendix B - DCF calculation - Lower Range
USD Audi- Au- Au- Au- Audi- Fore- Fo- Fore- Fo- Fore- Ter-
Thou- ted di- di- di- ted cast re- cast re- cast mi-
sand- 2010 te- te- te- 2014 2015 cas- 2017 ca- 2019 nal
s d d d t st 202-
20- 20- 20- 201- 20- 0
11 12 13 6 18 on-
war-
ds
Reve- 26,717 24- 14- 16- 12,200 11,34- 11,- 12,27- 12- 13,085 13,-
nues ,1- ,3- ,5- 9* 803 5 ,7- 413
64 31 34 04
grow- -9- -4- 15- -26.2% -7.0% 4.0- 4.0% 3.- 3.0% 2.5-
th .6- 0.- .4- % 5% %
rate % 7% %
Cost 18,338 15- 9,- 9,- 8,286 7,633 7,9- 8,224 8,- 8,767 8,9-
of ,7- 00- 50- 20 51- 86
Reve- 45 7 7 2
nues
Gros- 8,379 8,- 5,- 7,- 3,914 3,715 3,8- 4,051 4,- 4,318 4,4-
s 41- 32- 02- 83 19- 26
Pro- 9 4 7 2
fit
% of 31.4% 34- 37- 42- 32.1% 32.7% 32,- 33.0% 33- 33.0% 33.-
reve- .8- .2- .5- 9% .0- 0%
nues % % % %
Rese- 1,884 1,- 1,- 1,- 1,119 858 826 859 88- 916 939
arch 73- 24- 23- 9
and 3 7 5
deve-
lop-
ment
ex-
pen-
ses
Sel- 3,840 2,- 1,- 1,- 1,635 443 379 394 40- 420 430
ling 87- 55- 85- 7
and 8 6 1
Mar-
ke-
ting
Ex-
pen-
ses
Gene- 3,167 1,- 1,- 2,- 1,965 1,992 1,9- 1,900 1,- 1,900 1,9-
ral 97- 67- 14- 00 90- 00
and 7 8 6 0
Admi-
nis-
tra-
tive
Ex-
pen-
ses
To- 8,891 6,- 4,- 5,- 4,719 3,292 3,1- 3,153 3,- 3,236 3,2-
tal 58- 48- 23- 05 19- 69
ope- 8 1 2 7
ra-
ting
ex-
pen-
ses
Ope- (512) 1,- 84- 1,- (805) 423 778 898 99- 1,083 1,1-
ra- 83- 3 79- 6 57
ting 1 5
Pro-
fit
% of -1.9% 7.- 5.- 10- -6.6% 3.7% 6.6- 7.3% 7.- 8.3% 8.6-
reve- 6% 9% .9- % 8% %
nues %
EBIT- 707 1,0- 1,143 1,- 1,344 1,4-
DA 14 25- 25
0
% of 6.2% 8.6- 9.3% 9.- 10.3% 10.-
reve- % 8% 6%
nues
Tax 0 0 0 0 0 307
Ope- 423 778 898 99- 1,083 850
ra- 6
ting
Pro-
fit
af-
ter
Tax
De- 284 236 245 25- 262 268
pre- 4
cia-
tion
and
Amor-
tiza-
tion
Capi- (227) (23- (245) (2- (262) (26-
tal 6) 54- 8)
Ex- )
pen-
ditu-
res
(CAP-
EX)
Chan- (417) (92- (168) (1- (134) (11-
ge ) 51- 5)
in )
Wor-
king
Capi-
tal
Chan- 1,500
ge
in
Wor-
king
Capi-
tal
as a
re-
sult
of
the
sale
of
the
in-
ven-
tory
to
Ris-
co
Net 1,563 686 729 84- 948 735
Cash 4
Flow
Year- 0.5 1.5 2.5 3.- 4.5
s to 5
Dis-
coun-
t
Dis- 1.07 1.2- 1.42 1.- 1.88
coun- 3 63
t
Rate
Dis- 1,458 556 514 51- 506 3,1-
coun- 8 36
ted
Cash
Flow
* correlates with Risco's sales of app. USD 13.6 M
Estimated Enterprise Value as of 31.12.2014 (USD Thousands) 6,688
Appendix C - DCF calculation - Upper Range
USD Audi- Au- Au- Au- Audi- Fore- Fo- Fore- Fo- Fore- Ter-
Thou- ted di- di- di- ted cast re- cast re- cast mi-
sand- 2010 te- te- te- 2014 2015 cas- 2017 ca- 2019 nal
s d d d t st 202-
20- 20- 20- 201- 20- 0
11 12 13 6 18 on-
war-
ds
Reve- 26,717 24- 14- 16- 12,200 11,94- 12,- 12,92- 13- 13,774 14,-
nues ,1- ,3- ,5- 6* 424 1 ,3- 118
64 31 34 73
grow- -9- -4- 15- -26.2% -2.1% 4.0- 4.0% 3.- 3.0% 2.5-
th .6- 0.- .4- % 5% %
rate % 7% %
Cost 18,338 15- 9,- 9,- 8,286 7,633 8,3- 8,657 8,- 9,229 9,4-
of ,7- 00- 50- 36 96- 59
Reve- 45 7 7 0
nues
Gros- 8,379 8,- 5,- 7,- 3,914 4,313 4,0- 4,264 4,- 4,545 4,6-
s 41- 32- 02- 87 41- 59
Pro- 9 4 7 3
fit
% of 31.4% 34- 37- 42- 32.1% 36.1% 32,- 33.0% 33- 33.0% 33.-
reve- .8- .2- .5- 9% .0- 0%
nues % % % %
Rese- 1,884 1,- 1,- 1,- 1,119 858 870 904 93- 964 988
arch 73- 24- 23- 6
and 3 7 5
deve-
lop-
ment
ex-
pen-
ses
Sel- 3,840 2,- 1,- 1,- 1,635 443 461 479 49- 511 523
ling 87- 55- 85- 6
and 8 6 1
Mar-
ke-
ting
Ex-
pen-
ses
Gene- 3,167 1,- 1,- 2,- 1,965 1,992 1,9- 1,900 1,- 1,900 1,9-
ral 97- 67- 14- 00 90- 00
and 7 8 6 0
Admi-
nis-
tra-
tive
Ex-
pen-
ses
To- 8,891 6,- 4,- 5,- 4,719 3,292 3,2- 3,283 3,- 3,375 3,4-
tal 58- 48- 23- 30 33- 12
ope- 8 1 2 2
ra-
ting
ex-
pen-
ses
Ope- (512) 1,- 84- 1,- (805) 1,020 857 980 1,- 1,171 1,2-
ra- 83- 3 79- 08- 47
ting 1 5 1
Pro-
fit
% of -1.9% 7.- 5.- 10- -6.6% 8.5% 6.9- 7.6% 8.- 8.5% 8.8-
reve- 6% 9% .9- % 1% %
nues %
EBIT- 1,319 1,1- 1,239 1,- 1,446 1,5-
DA 06 34- 30
9
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June 30, 2015 10:43 ET (14:43 GMT)
% of 11.0% 8.9- 9.6% 10- 10.5% 10.-
reve- % .1- 8%
nues %
Tax 0 0 0 0 0 331
Ope- 1,020 857 980 1,- 1,171 917
ra- 08-
ting 1
Pro-
fit
af-
ter
Tax
De- 299 248 258 26- 275 282
pre- 7
cia-
tion
and
Amor-
tiza-
tion
Capi- (239) (24- (258) (2- (275) (28-
tal 8) 67- 2)
Ex- )
pen-
ditu-
res
(CAP-
EX)
Chan- (417) (92- (168) (1- (134) (11-
ge ) 51- 5)
in )
Wor-
king
Capi-
tal
Chan- 1,500
ge
in
Wor-
king
Capi-
tal
as a
re-
sult
of
the
sale
of
the
in-
ven-
tory
to
Ris-
co
Net 2,163 765 812 93- 1,037 802
Cash 0
Flow
Year- 0.5 1.5 2.5 3.- 4.5
s to 5
Dis-
coun-
t
Dis- 1.07 1.2- 1.42 1.- 1.88
coun- 3 63
t
Rate
Dis- 2,017 620 573 57- 553 3,4-
coun- 0 20
ted
Cash
Flow
* correlates with Risco's sales of app. USD 14.4 M
Estimated Enterprise Value as of 31.12.2014 (USD Thousands) 7,753
Appendix D
Sensitivity Analysis - Lower Range
% WACC % representative year growth rate
1.5% 2.0% 2.5% 3.0% 3.5%
13% 8,126 8,298 8,485 8,691 8,917
14% 7,635 7,775 7,927 8,091 8,271
15% 7,216 7,331 7,456 7,590 7,735
16% 6,853 6,950 7,053 7,164 7,283
17% 6,536 6,618 6,705 6,798 6,897
Sensitivity Analysis - Upper Range
% WACC % representative year growth rate
1.5% 2.0% 2.5% 3.0% 3.5%
13% 9,357 9,543 9,746 9,968 10,214
14% 8,759 8,910 9,073 9,251 9,446
15% 8,243 8,368 8,502 8,646 8,803
16% 7,794 7,898 8,009 8,128 8,257
17% 7,398 7,486 7,579 7,678 7,785
Appendix E - Letter from the legal advisors regarding the damaged
battery lawsuit
Adv. Sari Ellenberg
Risco Group Ltd.
By e-mail
Dear Madam,
Re: Civil Suit 7597-05-15 (Lod Central District Court)
Electronics Line 3000 Ltd. (a Risco Group company) vs.
Semicom Lexis Ltd. and Migdal Insurance Company
Ltd. Claim no.: 130566000123
At your request 1 am pleased to provide you with an updated report:
1. The cause of action of the lawsuit which was filed in the sum of
NIS 13.58 million in the Central Distrid Court (Civil Suit 7597-05-15)
is a fundamental defect in batteries supplied by the defendant and
assembled in end units which were sold and assembled by customers in
Europe. Thousands of complaints were received, the majority relating
to the extremely short time the batteries operated, creating a
situation whereby the customers had to deal with numerous call-outs
for technicians to replace the defective batteries.
2. The claim filed is based on direct costs that were invested in
repairing malfunctions as well as consequential losses your company
sustained which were calculated by way of a comparison between the
forecasts prepared by the company and the actual results; all as
calculated by specialist loss assessors whose expert reports form the
Basis of the claim.
3. From the factual perspective, the claim relies on laboratory tests
which revealed that the batteries supplied were defective and the fact
that the supplier (defendant no. 1) agreed to credit you company with
the cost of the batteries.
4. The case has been set for a pre-trial Kearing before Hon. Judge
Yehezkiel Keenar on 18/10/15 at 09:30 hours, and by then the
statements of defence in the case will have been filed. At this stage
Migdal is not providing insurance cover to Semicom and hence separate
defences will be filed and it is possible that a legal dispute will
arise on a separate front between Semicom and Migdal regarding the
proper interpretation of the insurance policy.
5. Furthermore, Semicom' s Iawyer told me that they are considering
the possibility of bringing the Chinese manufacturer of the batteries
into the lawsuit. This procedure would require a permit from the court
for service outside of the Israeli jurisdiction of the court
(ex-juris).
Such a procedure would complicate and lengthen the case, although it
would have a clear advantage due to the fact that counter allegations
between the various defendants would play in our favour.
6. The claim is supported by the expert report of a loss adjuster who
made an in-depth review of the financial data relating to the damaltes
your company suffered and if it is put to the test - the claim has a
good chance of succeeding.
7. After the stage of filing the pleadings has been completed, I will
continue to update you and provide you with a detailed opinion.
Yours sincerely,
Mordechay Tagar
Appendix F - Market cap analysis
Adj Close Price Average Daily
(08/05/2015): Volume in EUR
(08/05/2015):
in EUR Aver- MIN MAX in EUR Aver- MIN MAX
age thousands age
Last week 0.23 0.21 0.26 Last week 0.16 0.00 0.67
Last month 0.25 0.21 0.28 Last month 0.28 0.00 1.62
Last 3 months 0.28 0.21 0.34 Last 3 months 0.38 0.00 4.87
Last 6 months 0.31 0.21 0.40 Last 6 months 0.52 0.00 5.81
Last 12 months 0.41 0.21 0.69 Last 12 months 1.75 0.00 133.72
Average Daily Market Cap
Volume (08/05/2015):
(08/05/2015):
No. of shares Avera- M- MAX in EUR Avera- MIN MAX
ge I- thousands ge
N
Last week 740 0 3,200 Last week 3,087 2,852 3,565
Last month 1,182 0 6,800 Last month 3,408 2,852 3,839
Last 3 months 1,372 0 17,400 Last 3 months 3,861 2,852 4,661
Last 6 months 1,708 0 17,400 Last 6 months 4,246 2,852 5,484
Last 12 months 3,898 0 284,500 Last 12 months 5,657 2,852 9,460
Daily Market Price and Volume (in EUR)
Appendix G
Appraiser Details
Fahn Kanne Consulting is a subsidiary of Fahn Kanne & Co., CPAs
(Isr.), one of Israel's six largest accounting firms.
Fahn Kanne Consulting is the Special Advisory Services division of
Grant Thornton International, a firm that specializes in international
lead transaction services, performance of company valuations and
transaction consulting, taking firms public on global markets and
management consulting and project financing.
Shlomi Bartov, CPA (Isr.), a partner and CEO of Fahn Kanne Consulting,
has an MBA and a BA in accounting and economics, both from Tel Aviv
University.
Mr. Bartov has extensive experience in accompaniment and consulting
for some of Israel's largest companies.
Mr. Roman Falk, CPA (Isr.), a director at Fahn Kanne Consulting Ltd.,
holds a BA degree in accounting and economics from Tel Aviv
University.
(c) 2015 Fahn Kanne Consulting Ltd. All rights reserved
Fahn Kanne Consulting Ltd. is a subsidiary of Fahn Kanne & Co. Grant
Thornton Israel, a member firm within Grant Thornton International
Ltd. Fahn Kanne Consulting Ltd. renders Specialist Advisory Services,
such as: M&A, Valuations, Transaction Advisory Services, Forensic and
Litigation Support, business risk services, Project Finance, Recovery
and Reorganization.
Grant Thornton International is one of the world's leading
organizations of independently owned and managed accounting and
consulting firms. These firms provide assurance, tax and specialist
advisory services to privately held businesses and public interest
entities. Clients of member and correspondent firms can access the
knowledge and experience of more than 2400 partners in over 100
countries and consistently receive a distinctive, high quality and
personalized service wherever they choose to do business.
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