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 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 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 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 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 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 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 | Security Electronics and Networks, 01/12/2015 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 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. * β- beta8 - reflects the measure of volatility that a 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 % 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. 30.06.2015 Die DGAP Distributionsservices umfassen gesetzliche Meldepflichten, Corporate News/Finanznachrichten und Pressemitteilungen. DGAP-Medienarchive unter www.dgap-medientreff.de und www.dgap.de
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Sprache: Deutsch Unternehmen: Electronics Line 3000 Ltd. Hachoma St. 14 75655 Rishon LeZion Israel E-Mail: investor.relations@electronics-line.com Internet: http://www.electronics-line.com Ende der Mitteilung DGAP News-Service
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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 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 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 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 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 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 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 | Security Electronics and Networks, 01/12/2015 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 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. * β- beta8 - reflects the measure of volatility that a 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 % 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. 30.06.2015 Die DGAP Distributionsservices umfassen gesetzliche Meldepflichten, Corporate News/Finanznachrichten und Pressemitteilungen. DGAP-Medienarchive unter www.dgap-medientreff.de und www.dgap.de
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Sprache: Deutsch Unternehmen: Electronics Line 3000 Ltd. Hachoma St. 14 75655 Rishon LeZion Israel E-Mail: investor.relations@electronics-line.com Internet: http://www.electronics-line.com Ende der Mitteilung DGAP News-Service
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