UNFOLDINGIsraeli Market Developments

Welcome to the seventh issue of Unfolding, the quarterly newsletter of

Herzog Fox & Neeman, Israel’s leading international law firm. Once again,

Unfolding provides updates on developments in the Israeli marketplace,

including legal and regulatory developments. Unfolding also highlights

significant business trends and notable transactions taking place in Israel

or with a particular Israeli flavour.

Contents:

ABOVE THE FOLDA New Year’s Resolution for the Electronics Sector – New Environmental Legislation Comes into Force

CENTER FOLD Legal Developments – Critical Information for Importers of Telephony Equipment into Israel

THE FOLD OF THE MATTER All that Glitters is Not Gold - Updates and information on the developing energy sector in Israel

THE MANY FOLDS OF HFNHFN Highlights

Contacts:

Meir Linzen, Managing Partner, linzen@hfn.co.il

Alan Sacks, Head of HFN’s International Practice, sacksa@hfn.co.il

Gil White, International Relationships Partner, white@hfn.co.il

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The first of January 2014 is expected to welcome us with varying degrees of New Year’s party hangovers, but will also bring along with it a new era of environmental legislation in Israel. The Law for Environmental Treatment of Electronic and Electric Equipment and Batteries-2012 (in short: the Electronic Waste Law) that is expected to enter into force this January introduces new and comprehensive liabilities regarding handling of electronic waste and batteries.

As a result, manufacturers, importers and distributors of electronic equipment and batteries will be required to meet collection and recycling targets, publish guidelines for the environmental treatment of the electronic waste and set up drop-off locations for the public to dispose of used electronic equipment. Indeed, these are major additions to the New Year resolutions list for numerous business corporations with activities in Israel.

The Electronic Waste Law joins the expanding club of new environmental laws and regulations in Israel which apply to products’ end-of-life stage. Similar laws enacted in recent years cover the recycling of bottles, cans, tyres and packages, and all carry a clear message: we are in the new age of extended producer (and importer and distributor) responsibility. Environmental regulation and environmental liability no longer cover merely the production of goods, but in fact continue to address all aspects of the product’s life, up to the point where the end-user disposes of the product and beyond – whether to environmentally safe re-use, recycling or as a last resort, disposal.

This liability is not theoretical. Over the course of the past year, the Israeli Ministry of Environmental Protection imposed fines in the aggregate sum of over NIS 22 million (approximately USD 6 million) in connection with violations of the laws on the collection and recycling of bottles and packages. Failure to comply with Israeli environmental law also constitutes a criminal offence by the company and its managers and officers (and in some instances, also members of the board of directors). Additionally, apart from the monetary and criminal risks, corporate public image considerations also clearly exist.

Companies that distribute their products within the Israeli market should be aware of these developments and become acquainted with the new regulatory environmental obligations. The implementation of the laws requires, in some cases, not only extensive administrative and logistic adjustments but also adoption of a new state of mind. If you thought only industrial factories with polluting smoke stacks can become environmentally liable, think again. Nowadays, environmental regulation aims at a broad spectrum of business enterprises, including importers, distributers and even e-commerce retailers. Certainly a challenging way to bring in the new year.

For more information about the latest developments in the Environment sector, please contact Dr. Ruth Dagan, Head of HFN’s Environment & Climate Change department at daganr@hfn.co.il or on +972-3-692-7433 or Hen Tirosh at hetirosh@hfn.co.il or on +972-3-692-7433

ABOVE THE FOLDNew Environmental Legislation Comes into Force

A New Year’s Resolution for the Electronics Sector

CENTER FOLDLegal Developments - Critical information for Importers of Telephony Equipment into Israel

Client Update Regarding the Importation of Used/Refurbished Mobile Telephony Communication Terminal Equipment to Israel

About the team:

The Senior Vice President of Spectrum Management and Licensing of Frequencies in the Israeli Ministry of Communications has recently released a memorandum titled “Prohibition of Importing Used/Refurbished Mobile Telephony Communication Terminal Equipment to Israel”.The memorandum states that the regulations prescribed by the Ministry of Communications allow importing to Israel only mobile telephony communication terminal equipment that is new, original and not previously used, except for the re-importation of equipment previously exported overseas for repair (provided such equipment is marked with serial numbers).

Rotem Virnik of HFN’s Import, Export and International Forwarding team has communicated to the Ministry significant reservations of this prohibition. Pursuant to HFN’s complaint that this comprehensive prohibition is illegal and in violation of both Israeli fundamental law of freedom of occupation and Israel’s international commitment within the Agreement on Technical Barriers to Trade, this issue is now being re-examined by the Ministry of Communications. For the time being, while the re-assessment process is in motion, HFN has been able to work together with the Ministry of Communications to find practical solutions for two firm clients that allow them to continue importing used/refurbished cellular phones.

HFN has been requested by the Ministry of Communications to provide them with formal requests regarding specific issues raised by clients concerning the above mentioned import prohibition, in order to enable them to examine all the implications of this prohibition and to hopefully procure a better and legally acceptable solution instead of a comprehensive import prohibition.

HFN’s Import, Export and International Forwarding team is available to answer any question or request for clarification on the subject and will happily communicate any requests raised by clients regarding this issue to the Ministry of Communications.

The Import, Export and International Forwarding team in HFN’s Tax department provides comprehensive legal services to importers, exporters and other service providers engaged in all aspects of international trade.

The team has extensive experience providing legal services to importers, exporters and suppliers, as well as domestic and foreign manufacturers in various industries, including: food and nutritional supplements; cosmetics; plastics; automotive and auto parts; clothing and footwear; and chemicals.

For more information about the latest developments, please contact Rotem Virnik, Head of HFN’s Import, Export and International Forwarding team virnikr@hfn.co.il or on +972-3-692-2020

In recent years, we hear of more and more business moguls who have made their fortune in different business sectors and are looking into investing in the extractive industries sector (mining, oil & gas, etc.). Stories of business magnates turning from millionaires to billionaires after engaging in the extractive industry sector have ignited the imagination of many others, and encouraged them to look into opportunities in the extractive industries while ignoring the fact that this is the most risky industry known to man-kind since before the gold rush in California 160 years ago.

These risks do not relate only to the (correct) assumption that the probability of finding a mineral in necessary quantities, depths and geological structures, which would make it economically attractive to extract, is relatively low. They also have much to do with the recent global changes in this industry in terms of market conditions, regulation and transparency.

Although it would be impossible to cover in depth all of the related risks, I have tried to highlight the main risks associated with these industries while focusing on recent years’ market trends.

The investments required by investors in the extractive industry are enormous. The concession agreements require the payment of a significant up-front license fee. A typical concession agreement in many jurisdictions may also include: (i) the payment of rent and similar annual fees, (ii) an obligation to invest social funds in the community, (iii) infrastructure investments, (iv) obligations to protect the environment, (v) a profit sharing arrangements with the local government upon production, etc. The concession agreement would also normally set out the level of work (and the estimated funds to be expended) at each phase of the exploration stage. Failure to meet any of the milestones or criteria at the relevant time could result in losing some or all of the concession areas as well as incurring, in some cases, significant financial penalties. The exploration itself involves the expenditure of substantial funds, in equipment, 2D and 3D seismic surveys, drillings, hiring of expensive professional advisers, transportation of equipment and employees, etc. The exploitation/production stage requires even greater investment, but is usually more easily bankable/attractive to investors as there are inferred or proven reserves at that stage.

Around this industry there has also developed a thriving fund raising sector. Stock exchanges, such as the Toronto TSX Venture Exchange, have become suitable platforms for raising funds for early stage exploration companies. However, in recent years, it has become more difficult for these companies to raise funds, thereby making the big mining and oil and gas conglomerates (such as Rio Tinto, GlencoreXstrata, Total, as well as Chinese governmental companies, etc.) as the only candidates suitable to pursue these complex ventures, due to the lack of a better and more affordable source of funding. These types of companies would usually ask to “farm-in” the asset, ending up owning a relatively high stake or buying the asset as a whole.

Changes in commodity prices are also an inherent risk in this business. Metal trading prices, which are inherently volatile, normally result in a more limited ability to raise funds for companies which are exploring these metals.

All That Glitters is Not Gold

Enormous Capital Investment at a Very High Risk

FOLD OF THE MATTERUpdates and information on the developing energy sector in Israel

Vast investments in infrastructure in the concession area are also required, in order to enable the concessionaire to have proper access to the exploration areas and thereafter to enable efficient transportation of the relevant minerals from the mines or the wells to the relevant ports, refineries, or other applicable destinations (an extracted mineral which cannot be easily transported has a significantly lower value, and sometimes, has no market at all).

Please click here to continue reading.

For more information about the latest developments in minerals and mining, please contact Ran

Hai, Partner in HFN’s Capital Markets & Securities department

hair@hfn.co.il or on +972-3-692-2885

THE MANY FOLDS OF HFNHFN is once again the only Israeli law firm to be named as Tier 1 in all four practice areas evaluated in the 2013 IFLR1000 rankings: M&A, Capital Markets, Banking and Finance and Project Finance.

In addition, five HFN partners were named as Leading Lawyers: Alan Sacks, head of the Banking and Finance and M&A departments; Ehud Sol and Ilanit Landesman Yogev, joint heads of the Capital Markets and Securities department; and Adam Eytan and Mark Phillips, joint heads of the Project Finance department.

According to IFLR, “The only firm to feature in the top tier in every ranking, Herzog Fox & Neeman has outstanding practices across the board. Thanks to its excellent service it has a broad client base of private and public companies, domestically and abroad, and it is the counsel of choice for some of the largest state entitities.”

HFN was the top legal advisor in deal volume in the Middle East region from August 2010 to August 2013, according to mergermarket and Legal Week. During this three year period HFN advised on 49 M&A transactions, more than any other law firm in the region.

HFN partners Orly Gerbi and Esther Sternbach were once again included in Euromoney’s Guide to the World’s Leading Women in Business Law.

According to Euromoney, the guide is designed primarily for individuals who require access to pre-eminent practitioners in specific areas of law for the purpose of instruction on an international basis.

Orly Gerbi serves as head of HFN’s Labour and Employment Law department while Esther Sternbach is head of the Telecommunications and Media department.

HFN Leads Israeli Market in 2013 IFLR1000 Rankings

HFN Tops Mergermarket Rankings for Middle East Legal Advisors (by Volume)

2 HFN Partners Included in Guide to the World’s Leading Women in Business Law

RECENT POSTS FROM THE HFN BLOG:A common refrain in Israel is that its greatest natural resource is its human capital. But when it comes to mergers and acquisitions, Israel’s currency is its intellectual property. Nicknamed the “Startup Nation”, Israeli technology is fueled by an innovative and dynamic entrepreneurial culture as well as numerous government grants and tax incentives for R&D. It’s no surprise that a large number of acquisitions are aimed at extracting intellectual property from Israeli companies outside of Israel… click here to continue reading

The third part of the draft of the “Rikoziot” law, legislation aimed at lessening concentration in the Israeli marketplace, is working its way through the Israeli Knesset.

The draft was based on the recommendations of a committee appointed at the end of 2010 by the Prime Minister, to deal with the concentration of large portions of the economy in the hands of a small number of investment groups, which was thought to endanger the Israeli economy. This draft is yet another example of the deep crisis that Israeli regulators are experiencing and the sad aftermath of regulation created to satisfy public sentiment… click here to continue reading

For those of you who have been following recent developments in the oil and gas sector in Israel, you will have seen that over the past few months, the entire sector has been at something of a standstill. This is the result of two key factors – the ongoing uncertainty about the levels of natural gas exports to be permitted and disappointing results in a series of offshore exploratory drillings. Hopefully, at least one of these issues has now been resolved by a ruling of the Israeli Supreme Court…click here to continue reading

Hi-Tech Exits – Keep an Eye on the IP

Regulation with No Direction

Oil & Gas in Israel: What’s Next?

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