C(1) The Scope of the Plaintiffs' Holdings in the Company's Shares
- In the usual situation, a person who seeks the assistance of the court with regard to Regulation 10(b) of the Regulations holds shares in the amount of less than five percent of the total voting rights that are not held by the controlling shareholder, and will try to persuade him that despite the relatively small scope of his holdings, he should be allowed to examine the voting data. In our case, even holding in the same extent as the plaintiffs' formal holding, a little less than a percentage of the share capital, was sufficient to justify the possibility of reviewing the voting data, for the reasons detailed later in the judgment. But in addition, and in an exceptional manner, we are also dealing with plaintiffs who, as already noted in a number of previous decisions in the parallel proceeding, can be said to have a clear connection to holdings in the scope of about 21% of the company's shares.
- According to the plaintiffs, their Mann shares are, even though Daza Management and Krebs, in cooperation with the company's board of directors, tried to fraudulently steal those shares from them and transfer them to Daza Management by virtue of the alleged "right of refusal letter". The very filing of the lawsuit means that theoretically it is possible that the plaintiffs will be declared to own 21% of the company's share capital. In order to prevent a situation in which the very filing of a claim to win shares, whatever its intensity, will constitute a sufficient basis for requests to review voting data by virtue of Regulation 10 of the Written Voting Regulations, then there is no choice but to relate with great caution to the chances of that parallel proceeding: prima facie, without elaborating and without expressing an opinion, of course, before summarizing, it seems that the chances of plaintiffs 2-4 of convincing that Mann's shares are theirs are very good. that there is no basis for a daring attempt by management to take them away from them, and that it would be correct to view the plaintiffs as owning more than 20% of the company's shares. Hence, the plaintiffs' deep, albeit informal, affinity for Mann's shares therefore places them in a conceptual proximity to someone who already officially holds shares on a scale that grants him an automatic right to review the voting data. The exercise of discretion in a manner that grants the plaintiffs the right of review in view of their connection to the shares of Mann is therefore necessary, even in isolation from the other considerations that must be examined at the request of a person whose scope of holdings in the public company falls below the minimum threshold.
C(2). The degree of subsistence of the resolution voted on by the General Assembly
- This is a decision regarding the approval of a management agreement between the public company and the company serving as its manager, for a period of three years, which is very significant for the management of the company, as well as for the company.
- The management of the company has two interests: holdings in the company, as a shareholder (about 19% of the share capital), and the management of the company, by virtue of the management agreement (to the extent that it is valid), a matter that gives it a lot of money. In accordance with the existing agreement and the one whose approval has been requested for three years, Tauza Management is entitled to an annual management fee of 3% of the company's equity, plus VAT, as well as 20% of the company's capital gains (clauses 4.1 and 4.2 of the management agreement). As detailed in the appendix to the agreement, in the ten years preceding the approval of the agreement, Tauza Management received close to $8 million from the company by virtue of the management agreement (and an annual average: close to $800,000 per year) in the form of management fees. In the three years out of the ten in which the company also recorded capital gains, Tauza received an additional $2.2 million in management. These arrangements were requested by the management to be maintained for another three years. It is therefore understandable how significant this agreement is from the perspective of the management's boldness, and how much its motivation is to ensure that the agreement is approved. It is also clear how significant the agreement is for the company, which has no employees of its own, both in view of the large amount of money it is required to pay in terms of management fees, and in terms of projecting the company's manager's actions to the company's business success. When it comes to the approval procedures of a cardinal agreement for both the controlling shareholder and the company, there will certainly be an increased tendency to allow the shareholders from among the public to take a closer look.
C(3). The extent of the controlling shareholder's involvement in the voting and the extent of his influence on the company and its ability to supervise the voting process
- The company has no disagreement, no employees of its own. The management company serves as the company's CEO, and Krebs serves as the CEO of the management company, which is also the controlling shareholder of the company. The management company was responsible for all the procedures for approving the agreement, as well as for coordinating the ballots sent to the company prior to the voting date (p. 126 of the minutes). The meeting was held in her offices. Audacity Management and Krebs, which headed it, were fully involved in everything related to the vote, before and after the meeting: representatives of Tauza Management were in contact with the Israel Securities Authority regarding bringing the agreement to a vote (p. 113 of the transcript, which did not match its description in paragraph 17 of his affidavit). The position management daring has the ability to receive full information regarding the number of expected supporters and opponents in accordance with the voting papers sent to the company during the month preceding the meeting (and whose senders have the right to 'withdraw' them before the meeting itself), to act as much as possible to achieve the required majority, and theoretically to be in contact with the opponents in order to dissuade them from opposing them. I am not required to rule on the plaintiffs' claim, which comes from the rumor alone, that the management daring even used this ability to influence the actual voters.
- The company itself, on the other hand, is devoid of almost any independent activity. It does not have employees. Its directors (and I will not rule on the plaintiffs' claim that most of them should be considered directors dependent on the controlling shareholder) are devoid of any involvement in everything that takes place in connection with the voting process. Except for the approval of the agreement (on the basis of the data presented to them by the management company itself), their duties ended, before, after the vote, and even when necessary, in examining the plaintiffs' request to review the voting data or the legal proceeding. The only active person on behalf of the company was Gleitman, the chairman of the board of directors, who made it clear (pp. 81-82 of the minutes) that he had been Krebs' acquaintance for about 40 years, and like others on the board of directors, he had been a director of the company for over 20 years. The problematic feeling left by the company's conduct, as well as Gleitman's testimony, is that of a unified front betweenthe company and the boldness of management, without distinguishing between the two companies to an extent that exceeds the discharge of an obligation. Thus, the chairman of the company's board of directors did not see fit to convene the board of directors, nor did he consider whether to accede to the plaintiffs' request to review the voting data, nor in order to formulate a position in the lawsuit that was filed, even though the company (if it had independent discretion) had the right to decide to allow the plaintiffs to review the voting data, and to make the clarification redundant. Even if there is no explicit obligation to convene the board of directors, this choice is jarring when the court instructs the company in its decision to "examine whether there is a clear reason not to allow the applicants to be examined in the circumstances" (my decision of July 10, 2023 in the parallel case) - and the board of directors did not examine them, since Gleitman and the company's counsel believe that they are sufficient. I reiterated explicitly during the hearing of the parallel proceeding that it is appropriate for the company to examine whether to grant the request, and I have listed reasons why it is appropriate to do so (p. 17, paras. 28-34 of the minutes of the hearing of July 17, 2023), and even this did not motivate the company to thoroughly examine the possibility of acceding, or the board of directors - to convene. When the management company wanted to, so did the company. Even in its defense, the company was not satisfied with an attempt to refute the claims against it, but also those directed at Tauza Management, as if it had been appointed to protect one shareholder from the other (see the title of chapter E.2 of the statement of defense); a move that continued in Gleitman's affidavit (where he complained about "the plaintiffs' attempt to blacken the conduct of Audacity, Bada Management and Mr. Krebs" (para. 6); and expressed concern that the examination of the voting data "will harm the company and the boldness of management" (paragraph 35.4)); in his testimony (where he tried to explain why there is a "substantial dependence" on the management company, even if only in the short term, even though the company formally advertised that there was no dependence on a specific service provider (pp. 108-109 of the minutes, and the annual report P/5); and also see his reiteration of his concern that management daring would be harmed if the plaintiffs were allowed to review the voting data (p. 162)); and ending with the summaries of the company, which it saw as a means to protect not only its officers but also its officers with daring management (paragraph 1 of the summaries). But the company is not supposed to be the daring of management, to protect it, or to serve as a long hand in the struggle against the plaintiffs.
- In this situation, it should be determined that the degree of influence of the controlling shareholder on the company and its ability to supervise the voting process is great, while the degree of effective supervision of the company over the management company and everything involved in the voting process, particularly in the voting papers, is on the lower side. On behalf of the company: A director on its behalf conducted the meeting, and in addition, the company appointed its representative, Adv. Hollander, to appoint the voting data. This appointment, which is a necessity of the law (Regulation 11 of the Written Voting Regulations), is of clear importance. But without detracting from the absolute integrity of the commissioner in this case, there is no sufficiently significant oversight of everything involved in voting. A variety of malfunctions, difficulties, or events that can raise 'red flags' regarding the voting of entities declaring that they are disinterested can easily escape the company's eyes when this is the sum total of the supervision (and it should be emphasized - everything is said here theoretically, without attributing this at all to the matter of the company or its controlling shareholder in the particular case): Thus, the voting data meter will not necessarily be aware of a situation of 'withdrawing' a ballot (Regulation 9) and replacing it with another (perhaps out of opposition to support the decision); or withdrawing an opponent's ballot without replacing it with another; or a change on the part of a shareholder who initially stated in a ballot that he had a personal interest in the resolution (Regulation 7(a)(8)) - to someone who did not identify himself at the time of his vote as such; or a change made in a ballot that was entered into the electronic voting system (Regulation 5(c) of the Regulations); or to the fact that a party that everyone involved in the company had the insight that he had an affinity for the decision, identified himself as not one. Understandably, all of the above (which does not relate to voting in the particular case before us) does not necessarily mean that there was a defect in the voting process, but it should be assessed that the technical supervision of the company's attorney over the voting data share is of limited effectiveness. Transferring the voting data to the court, or some other neutral party, as the company proposed as an 'alternative' to rejecting the lawsuit, will not necessarily substantially increase the effectiveness of the supervision, as distinct from the examination of them by a shareholder who has determination and the ability to further and deepen the investigation into the voting data and their significance, even after the initial review.
- Given the significant influence of the controlling shareholder on what happens in the written voting process, and on the other hand, very limited supervision on the part of the company, the scales certainly tend to allow a shareholder who expresses an interest to review the voting data, and thus increase the effective supervision of the shareholders over the integrity of the proceeding.
C(4). Other circumstances that affect the fairness of the possibility of reviewing
- Scope of participation in the voting and its results: Out of all the shares of the public that are ostensibly untainted, and could be voted on by virtue of them (i.e., 114 million shares, minus those of the controlling shareholders as well as Mann shares, which cannot be voted on at this time, a total of about 69 million shares), the holders of about 54 million shares voted (about 78% of the aforesaid). In other words, unusually active participation, and the plaintiffs tasted: exceptional even in relation to the company's meetings. As for the majority that was achieved: the proposal was supported by holders of about 34 million shares (about 63%) that declared themselves untainted, while holders of about 20 million shares (about 37%) opposed it. Assuming that all of them are indeed untainted, this is a clear gap, of course, but one that a change in the number of voters (which will be recognized) as unrelated can be impossible (and by the way, if the plaintiffs had been able to vote by virtue of Mann shares and oppose the approval, the result would have been the opposite). This is therefore a vote that aroused clear and unusual interest among the shareholders from among the public, and the results of which could justify a close and in-depth examination by the plaintiffs of the voting data, if only the court would allow them to do so.
- Convening a meeting at the request of the Israel Securities Authority: We are not dealing with a routine situation in which a company wishes on its own initiative to approve an unusual transaction with the controlling shareholder, and acts in accordance with the advice of its advisors to obtain the approval of the general meeting by a special majority, as required by law. Here we are dealing with an exceptional case in which the Authority, following the plaintiffs' request, saw fit to exercise its authority, to clarify its position that "the management agreement was not lawfully approved" as required by section 272(c1) of the Companies Law (Appendix 9 to the Bustani affidavit), and to believe that it is necessary to approve it. Only in this way did we arrive at a process in which the management company sought to bring about "ratification" (which has been delayed for the time being) in relation to the past, and the approval of the current management agreement. These circumstances, of course, intensify the need for close supervision of the approval process.
Note: Both sides wish to hold on to the ISA's unusual involvement even after the meeting, when it demanded more details from the company regarding the vote (Appendix 13 to Gleitman's affidavit). The plaintiffs see this as evidence of the difficulty inherent in the approval; The defendant, on the other hand, sees the lack of additional involvement of the authority even after the passage of time as a kind of ratification that there was no defect in the approval process. Neither of these claims have real weight: a request by the regulator for information about the results of the vote, a request that has no continuation, does not on its own indicate a malfunction in the process. But on the other hand, even the Securities Authority's silence since it requested and received the information (which we will not know what it is) cannot positively indicate anything. As is well known, "the absence of enforcement action on the part of the regulator should not be regarded as the absence of the need for enforcement. ... The fact that a regulator did not enforce a certain norm does not indicate that it was not violated" (Civil Appeal 6187/15 Psagot Provident Funds and Pension in Tax Appeal v. Zoller at paragraph 37 [Nevo] (May 28, 2018)). Certainly, when the ISA's ability to investigate and reach insights solely on the basis of the share of voting data, it may be relatively limited for an investigative shareholder.
- Failure to publish the voting data lawfully: The plaintiffs insisted that the company submitted an immediate report with respect to the meeting, which did not include the details required by law (Regulation 36D of the Securities Regulations (Periodic and Immediate Reports), 5730-1970); A glitch that was at the basis of the ISA's additional request after the vote. Thus, the Company was required to publish a variety of details regarding the voting manner of the securities holders who are interested parties, senior officers, and institutional entities (including, in our case, the person who became an interested party shortly before the vote): their identity, the manner of their voting, their personal interest, and "other connections" to the best of the Company's knowledge, between the voter and the controlling shareholder. The company did not do so, the plaintiffs claimed. The company did not deny it. In other words, prima facie we are dealing with a situation in which the company submitted a partial report, which lacked details that it was supposed to publish and thus allow the public to understand, even if only initially, the way the stakeholders in the company voted and their lack of connection to the controlling shareholder, but it now proposes that the shareholders receive the bottom line in the report, in the sense of 'such a view and sanctification'. This approach of society is difficult.
- Interim summary: A variety of considerations that clearly support the plaintiffs' permission to review the voting data. Towards the end, therefore, it is necessary to address only two of the main arguments of the company in its defense and summaries, as to why there are reasons not to allow the examination:
(a) The company's claim that the plaintiffs have no interest in the company, that their preoccupation with the matters of the management agreement is related to the Beyoncé lawsuit, and that their request is lacking in good faith: A very powerful claim. Indeed, it can be assumed that the plaintiffs' appreciation of Krebs is not great. Initiating class proceedings against them in the Beyoncé case is likely to have contributed to this feeling. All the more so, Krebs's choice in 2022 to take Mann's shares, worth about ILS 17 million, and place them in the pocket of management daring, by virtue of the alleged 'right of refusal' letter, did not appeal to the plaintiffs. But the unsympathetic attitude of a shareholder from the public to the controlling shareholder (and it is doubtful that anyone else would have wished to review the voting data), and the fact that the plaintiffs now have increased motivation to investigate properly Approval of The management agreement, which transfers many millions of dollars from the company to the management daring, does not make the plaintiffs in bad faith, or those who are improper in asking for an interest in the voting data.