UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 

 
Form 20-F
 
(Mark One)
 
 
¨
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
 
OR
 
 
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2010
 
OR
 
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
OR
 
 
¨
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Date of event requiring this shell company report……
 
 
For the transition period from __________________ to __________________
 
Commission File Number 000-26498
 
ELLOMAY CAPITAL LTD.
(Exact Name of Registrant as specified in its charter)
 
ISRAEL
(Jurisdiction of incorporation or organization)
 
9 Rothschild Boulevard, 2nd floor
Tel Aviv 66881, Israel
(Address of principal executive offices)
 
Kalia Weintraub, Chief Financial Officer
Tel: +972-3-797-1108; Facsimile: +972-3-797-1122
9 Rothschild Boulevard, 2nd floor
Tel Aviv 66881, Israel
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
 
Securities registered or to be registered pursuant to Section 12(b) of the Act: None
 
Securities registered or to be registered pursuant to Section 12(g) of the Act:
 
Ordinary Shares
NIS 1.00 par value per share

Title of Class
 
 
 

 
 
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
 
None

Title of Class
 
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:  107,500,714 ordinary shares, NIS 1.00 par value per share.
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
 
Yes £   No þ

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
 
Yes £   No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
Yes þ    No £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
Yes £   No £
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer £
Accelerated filer £
Non-accelerated filer þ
 
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
 
U.S. GAAP £
International Financial Reporting Standards as issued þ
Other £
 
by the International Accounting Standards Board
 
 
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
 
Item 17 £  Item 18 £

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):
 
Yes £    No þ
 
 
2

 
 
Table of Contents
 
    Page
     
5
     
6
     
Part I
     
8
     
8
     
8
 
Selected Financial Data
8
 
Capitalization and Indebtedness
11
 
Risk Factors
11
     
24
 
History and Development of Ellomay
24
 
Business Overview
30
 
Organizational Structure
64
 
Property, Plants and Equipment
64
     
66
     
66
 
Operating Results
68
 
Liquidity and Capital Resources
72
 
Research and Development, Patents and Licenses, Etc.
74
 
Trend Information
74
 
Off-Balance Sheet Arrangements
75
 
Contractual Obligations
75
     
76
 
Directors and Senior Management
76
 
Compensation
78
 
Board Practices
81
 
Employees
90
 
Share Ownership
92
     
97
 
Major Shareholders
97
 
Related Party Transactions
101
     
101
 
Consolidated Statements and Other Financial Information
101
 
Significant Changes
103
 
 
3

 
 
104
 
Offer and Listing Details
104
 
Markets
104
     
105
 
Share Capital
105
 
Memorandum of Association and Second Amended and Restated Articles
105
 
Material Contracts
113
 
Exchange Controls
117
 
Taxation
117
 
Dividends and Paying Agents
123
 
Statement by Experts
123
 
Documents on Display
123
     
124
     
125
 
   
Part II
     
125
     
125
     
125
     
126
     
127
     
128
     
128
     
128
     
128
     
128
     
Part III
     
128
     
128
     
129

 
4

 
 

 
INTRODUCTION

The following is the Report on Form 20-F of Ellomay Capital Ltd. Unless the context in which such terms are used would require a different meaning, all references to “Ellomay,” “us,” “we,” “our” or the “Company” refer to Ellomay Capital Ltd. and its consolidated subsidiaries.

All references to “$,” “dollar,” “US$” or “U.S. dollar” are to the legal currency of the United States of America, references to “NIS” or “New Israeli Shekel” are to the legal currency of Israel and references to “€,” “Euro” or “EUR” are to the legal currency of the European Union.

We prepare our consolidated financial statements in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).  These are our first annual consolidated financial statements that were prepared in accordance with IFRS as issued by the IASB and IFRS 1 “First Time Adoption of International Financial Reporting Standards.” Until and including our financial statements for the year ended December 31, 2009, we prepared our consolidated financial statements in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). Our transition date to IFRS under First Time Adoption of International Financial Reporting Standards is January 1, 2009. Comparative data of our financial statements has been adjusted to retrospectively reflect the adoption of IFRS. The influence of the transition to IFRS (from financial statements prepared in accordance with U.S. GAAP) on our financial statements for the year ended December 31, 2009, our results of operations and our cash flows for that year, is set forth in Note 17 to our consolidated annual financial statements included elsewhere in this annual report.

All trademarks, service marks, trade names and registered marks used in this report are trademarks, trade names or registered marks of their respective owners.

Statements made in this Report concerning the contents of any agreement, contract or other document are summaries of such agreements, contracts or documents and are not complete description of all of their terms. If we filed any of these agreements, contracts or documents as exhibits to this Report or to any previous filing with the Securities and Exchange Commission (“SEC”), you may read the documents itself for a complete understanding of its terms.

 
5

 

FORWARD-LOOKING STATEMENTS

In addition to historical information, this report on Form 20-F contains forward-looking statements. Some of the statements under “Item 3.D: Risk Factors,” “Item 4: Information on Ellomay,” “Item 5: Operating and Financial Review and Prospects” and elsewhere in this report, constitute forward-looking statements. These statements relate to future events or other future financial performance, and are identified by terminology such as “may,” “will,” “should,” “expect,” “scheduled,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “aim,” “potential,” or “continue” or the negative of those terms or other comparable terminology, but the absence of these words does not mean that a statement is not forward-looking.

The forward-looking statements contained in this report are based on current expectations and beliefs concerning future developments and the potential effects on our business. There can be no assurance that future developments actually affecting us will be those anticipated. These forward-looking statements involve a number of risks, uncertainties or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements, including the following:

·
the profitability of the photovoltaic market which we have entered;
 
·
market, economical and political factors in Italy and generally in Europe, in Israel and worldwide;
 
·
our contractors’ technical, professional and financial ability to deliver on and comply with their contractual undertakings with us and our subsidiaries;
 
·
our ability to further familiarize ourselves and maintain expertise in the photovoltaic market and the energy market, and to track, monitor and manage the projects which we have undertaken;
 
·
our ability to identify, evaluate and consummate additional suitable business opportunities and strategic alternatives;
 
·
the price and market liquidity of our ordinary shares;
 
·
the fact that we may be deemed to be an “investment company” under the Investment Company Act of 1940 under certain circumstances (including as a result of the investments of assets following the sale of our business), and/or the risk that we may be required to take certain actions with respect to the investment of our assets or the distribution of cash to shareholders in order to avoid being deemed an “investment company”;
 
·
our plans with respect to the management of our financial and other assets; and
 
·
the possibility of future litigation.
 
 
6

 

Assumptions relating to the foregoing involve judgment with respect to, among other things, future economic, competitive and market conditions, and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. In light of the significant uncertainties inherent in the forward-looking information included herein, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives or plans will be achieved. Factors that could cause actual results to differ from our expectations or projections include the risks and uncertainties relating to our business described in this report under “Item 3.D: Risk Factors,” “Item 5: Operating and Financial Review and Prospects” and elsewhere in this report. In addition, new factors emerge from time to time, and it is not possible for management to predict all such factors, nor assess the impact of any such factor on our business or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis as of the date hereof. We undertake no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof, except as required by applicable law. In addition to the disclosure contained herein, readers should carefully review any disclosure of risks and uncertainties contained in other documents that we file from time to time with the SEC.

To the extent that this Report contains forward-looking statements (as distinct from historical information), we desire to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and we are therefore including this statement for the express purpose of availing ourselves of the protections of the safe harbor with respect to all forward-looking statements.

 
7

 

PART I

ITEM 1: Identity of Directors, Senior Management and Advisers

Not Applicable.
   
ITEM 2: Offer Statistics and Expected Timetable

Not Applicable.

ITEM 3: Key Information

A.
Selected Financial Data

For the years ended December 31, 2009 and 2010, we have prepared our consolidated financial statements in accordance with IFRS, as issued by the IASB. For periods prior to December 31, 2008, our consolidated financial statements were prepared accordance with United States generally accepted accounting principles (“U.S. GAAP”). We have therefore adjusted our consolidated financial information at and for the year ended December 31, 2009, in accordance with IFRS 1, “First Time Adoption of IFRS” (“IFRS 1”), and financial information set forth in this annual report for the year ended December 31, 2009 may differ from information previously published.

We adopted IFRS with a transition date of January 1, 2009. For details regarding the adjustments made with respect to the comparative data that were implemented by us refer to Note 17 to our consolidated financial statements included elsewhere in this report.

In February 2008 we sold our wide format and super-wide format printing system business to Hewlett-Packard Company (“HP”) pursuant to an asset purchase agreement executed on December 9, 2007 (the “Asset Purchase Agreement”), as more fully described below under Item 10.C “Material Contracts.” Following the consummation of the sale of our business to HP under the Asset Purchase Agreement and related agreements (the “HP Transaction”), we wholly own, directly and indirectly, several subsidiaries that are currently inactive and we are in the process of dissolving, or have already arranged for the dissolution of, a number of such inactive subsidiaries. The operating results and cash flows attributed to the digital wide format and super-wide format printing system business were presented in our statements of comprehensive income (loss) and cash flows as discontinued operations. Statements of financial position amounts related to this business are presented as assets and liabilities attributed to discontinued operations and are expected to be settled in one to two years.

During 2010, we entered into six Engineering Procurement & Construction contracts for the construction, installation, testing, commissioning, operating and maintenance of photovoltaic plants to be located in Italy (each, a “PV Project” and, together, the “PV Projects”) with Italian contractors (each, a “Contractor” and together, the “Contractors”). We also invested in two Israeli companies that are expected to operate or have holdings in companies that are expected to operate, in the energy and telecommunications business in Israel and entered into agreements to receive participation interests in four exploration licenses in Israel. See “Item 4.A: History and Development of Ellomay” for more information.
 
 
8

 
 
The following tables present the financial data for Ellomay together with its subsidiaries as of the periods presented. The selected consolidated financial data set forth below should be read in conjunction with and is qualified by reference to our consolidated financial statements and the related notes, as well as “Item 5: Operating and Financial Review and Prospects” included elsewhere in this report.

In accordance with IFRS
 
The tables below set forth selected consolidated financial data under IFRS for the years ended December 31, 2009 and 2010. The information included in the tables has been derived from the audited consolidated financial statements of Ellomay Capital Ltd. set forth in “Item 18: Financial Statements.”

Consolidated Statements of Comprehensive Income (Loss)
(in thousands of U.S. Dollars except per share and share data)

   
Year ended December 31,
 
   
2009
   
2010
 
             
General and administrative expenses
  $ 1,931     $ 3,211  
                 
Operating loss
    (1,931 )     (3,211 )
Financial income, net
    1,357       1,400  
Company’s share of losses of associate accounted for at equity
    -       (66 )
                 
Loss before taxes on income                                                                                                             
    (574 )     (1,877 )
Tax benefit (taxes on income)
    (69 )     44  
                 
Loss from continuing operations                                                                                                             
    (643 )     (1,833 )
Income (loss) from discontinued operations, net                                                                                                             
    (376 )     7,035  
                 
Net income (loss)                                                                                                             
    (1,019 )     5,202  
Other comprehensive income:
               
    Foreign currency translation adjustments                                                                                                             
    -       194  
Total other comprehensive income                                                                                                             
    -       194  
Total comprehensive income (loss)                                                                                                             
  $ (1,019 )   $ 5,396  
Basic net earnings (loss) per share:
               
Loss from continuing operations
  $ (0.01 )   $ (0.02 )
Earnings (loss) from discontinued operations
    *)       -       0.09  
Net earnings (loss)
  $ (0.01 )   $ 0.07  
                 
Diluted net earnings (loss) per share:
               
Loss from continuing operations
  $ (0.01 )   $ (0.02 )
Earnings (loss) from discontinued operations
    *)       -       0.08  
Net earnings (loss)
  $ (0.01 )   $ 0.06  

Weighted average number of shares used for computing basic earnings (loss) per share
    73,786,428       79,115,508  
                 
Weighted average number of shares used for computing diluted earnings (loss) per share
    73,786,428       89,042,496  
___________________________
*)           Less than $0.01
 
 
9

 
 
Consolidated Statements of Financial Position Sheet Data (in thousands of U.S. Dollars except share data)

   
At January 1,
   
At December 31,
 
   
2009
   
2009
   
2010
 
Working capital
  $ 76,172     $ 75,172     $ 72,300  
Total assets
  $ 78,232     $ 76,432     $ 106,074  
Total liabilities
  $ 7,303     $ 6,404     $ 17,508  
Total shareholders’ Equity
  $ 70,929     $ 70,028     $ 88,566  
Capital stock
  $ 89,109     $ 89,227     $ 102,369  
Ordinary shares outstanding
    73,786,428       73,786,428       107,500,714  

In accordance with U.S. GAAP
 
The tables below for the years ended December 31, 2006, 2007 and 2008 set forth selected consolidated financial information under U.S. GAAP, which has been derived from our previously published audited consolidated financial statements for the years ending on such dates.

Consolidated Statements of Income (Operations) Data
(in thousands of U.S. Dollars except per share and share data)

   
Year ended December 31,
 
   
2006
   
2007
   
2008
 
Revenues:
                 
Products                                                                                       
  $ 72,576     $ 80,228     $
$10,568
 
Services                                                                                       
    5,392       5,379       842  
                         
Total revenues
    77,968       85,607       11,410  
Cost of revenues:
                       
Products                                                                                       
    43,060       46,549       7,927  
Inventory write-off                                                                                       
    806       1,169       197  
      43,866       47,718       8,124  
Services                                                                                       
    7,379       8,759       2,862  
                         
Total cost of revenues
    51,245       56,477       10,986  
                         
Gross profit
    26,723       29,130       424  
                         
Operating expenses:
                       
Research and development, net                                                                                       
    5,827       7,046       1,942  
Selling and marketing                                                                                       
    11,747       13,815       3,075  
General and administrative                                                                                       
    9,803       11,129       9,830  
Doubtful accounts expenses (income)                                                                                       
    (314 )     942       368  
Amortization of other intangible assets
    167       42       -  
                         
Total operating expenses
    27,230       32,974       15,215  
                         
Operating loss
    (507 )     (3,844 )     (14,791 )
Gain on sale of Company’s business, net
    -       -       95,137  
Financial income (expenses), net
    (1,316 )     (1,738 )     7,596  
                         
Income (loss) before taxes on income                                                                                         
    (1,823 )     (5,582 )     87,942  
Taxes on income
    98       838       966  
                         
Net Income (loss)                                                                                         
  $ (1,921 )   $ (6,420 )   $ 86,976  
                         
Basic earnings (loss) per share                                                                                         
  $ (0.03 )   $ (0.09 )   $ 1.19  
Diluted earnings (loss) per share                                                                                         
  $ (0.03 )   $ (0.09 )   $ 1.01  
                         
Weighted average number of shares used for computing basic earnings (loss) per share
    60,506,854       71,537,501       72,972,565  
                         
Weighted average number of shares used for computing diluted earnings (loss) per share
    60,506,854       71,537,501       86,102,748  
 
 
10

 
 
Consolidated Balance Sheet Data (in thousands of U.S. Dollars except share data)

   
At December 31,
 
   
2006
   
2007
   
2008
 
Working capital (deficiency)
  $ 546     $ (4,782 )   $ 76,119  
Total assets
  $ 41,203     $ 52,327     $ 78,278  
Total liabilities
  $ 62,206     $ 74,506     $ 7,349  
Total shareholders’ Equity (deficiency)
  $ (21,003 )   $ (22,179 )   $ 70,929  
Capital stock
  $ 75,591     $ 82,850     $ 89,109  
Ordinary shares outstanding
    60,523,886       72,710,505       73,786,428  
 
B.            Capitalization and Indebtedness

Not Applicable.

C.            Reasons for the Offer and Use of Proceeds

Not Applicable.

D.            Risk Factors
 
Investing in our securities involves significant risk. You should carefully consider the risks described below as well as the other information contained in this report before making an investment decision. Any of the following risks could materially adversely affect our business, financial condition, results of operations and cash flows. In such case, you may lose all or part of your original investment.
 
The risks described below are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition or results of operations.
 
Risks Related to our Business

Risks Related to the Italian PV Projects

Our business depends to a large extent on the availability of financial incentives. The reduction or elimination of government subsidies and economic incentives could reduce our profitability and adversely impact our revenues and growth prospects.  Many countries, such as Germany, Spain, Italy, France, Portugal and Japan, offer substantial incentives to offset the cost of photovoltaic power systems in the form of feed-in tariffs (“FiT”) or other incentives to promote the use of solar energy and to reduce dependence on other forms of energy. These government incentives could potentially be reduced or eliminated altogether. Currently, PV plants connected within May 31, 2011 will benefit from the incentives. If the Italian government does not extend the incentive plan or elects to fix a certain cap for subsidized plants connected after May 31, 2011, this will adversely affect the profitability from any new photovoltaic plants developed by us, and may prevent us from continuing to invest in the PV market in Italy. In general, uncertainty about the introduction of, reduction in or elimination of incentives or delays or interruptions in the implementation of favorable laws could substantially affect our profitability and adversely affect our ability to continue and develop new photovoltaic plants. In addition, if we fail to build the photovoltaic plants currently constructed as part of the PV Projects as planned, we could lose our right to these incentives which could substantially affect our profitability.
 
 
11

 
 
Existing regulations, and changes to such regulations, may present technical, regulatory and economic barriers to the construction and operation of our photovoltaic power plants, which may significantly reduce our profitability.  Installation of photovoltaic power systems is subject to oversight and regulation in accordance with international, European, national and local ordinances, building codes, zoning, environmental protection regulation, utility interconnection requirements and other rules and regulations. For example, various governmental, municipal and other regulatory entities subject the installation and operation of the plants, and any other component of the PV Projects, to the issuance of relevant permits, licenses and authorizations. If such permits, licenses and authorizations are not issued, or are issued but not on a timely basis, this could result in the interruption, cessation or abandonment of one or more of our Italian PV Projects, or may require making significant changes to one or more of our PV Projects, any of which may cause severe losses. New government regulations or utility policies pertaining to photovoltaic power systems are unpredictable and may result in significant additional expenses or delays and, as a result, could cause a significant reduction in profitability. For example, total installations caps in certain jurisdictions effectively limit the aggregate amount of power that is entitled to receive the prevailing FiT. The government regulations are also subject to judicial review that may void certain of the benefits or governmental incentives intended to expedite construction of photovoltaic plants. For example, an Italian court recently annulled a regional law that enabled certain photovoltaic plants to be built under a self-certification, and therefore shorter, procedure. Although this specific resolution does not apply to the PV Projects, other judicial resolutions may in the future impact the profitability and availability of incentives applicable to the PV Projects.

Our involvement and investment in future projects similar to the PV Projects, in Italy or elsewhere, is substantially dependent on the regulation and changes in the regulation that applies and will apply to such projects in the locations we choose.  Prior to entering into additional projects similar to the PV Projects, we will have to ensure that the regulatory framework that will apply to the prospective projects and the thresholds set forth in such regulation (both with respect to timing and energy output) are such that the prospective projects are expected to yield the returns we are interested in. As this regulation is subject to changes, we cannot ensure that the current regulation will be applicable to any future projects and that we will meet the schedule and other requirements set forth in current and future regulations. For example, a new decree that entered into force on March 29, 2011 in Italy substantially shortens the period for applying the FiT that is set forth in the current regulations. Although this type of regulation usually does not apply to projects that are in progress we cannot be sure that the Italian regulator will not consider such projects in future regulation. Any changes in the incentive regime could significantly decrease the expected return on the investment in new projects (or certain projects that have commenced but are not yet in an advanced stage) and therefore our results of operations with respect to existing projects and our interest in new projects.
 
 
12

 
 
We have limited experience and limited independent expertise in the field of photovoltaic power plants, and are extensively reliant on our professional advisors and on our Contractors for the construction, operation and maintenance of the PV Projects.  We have limited experience and have limited independent expertise in the field of operations relating to the PV Projects, that is, the construction, installation, testing, commissioning, operation and maintenance of photovoltaic power plants and the supply of electricity to customers, whether in Italy or elsewhere. Our limited experience only relates to our recent involvement with the PV Projects. Accordingly, we are extensively dependent upon our professional advisors (such as technical, legal and insurance experts) and on our Contractors’ representations, warranties and undertakings regarding, inter alia: the execution and implementation of each of the PV Projects, the Contractors’ expertise and experience, the use of high-quality materials, securing land use rights and obtaining applicable permits, obtaining the incentive agreement in order to secure the FiT for the production and delivery of power to the national electricity grid through our photovoltaic power plants, obtaining the power purchase agreement for the sale of the produced electricity to the Italian energy company, obtaining the interconnection agreement with the national electricity grid operator, the commissioning of power plants that are fit for long-term use, strict compliance with applicable legal requirements, our Contractors’ financial stability and the profitability of the venture. If the advice received from our professional advisors is inaccurate, incomplete or otherwise flawed, or if the Contractors’ representations or warranties are inaccurate or untrue, or if any of the Contractors defaults on its obligations, or provides us with a system that is not free from defect which causes a delay in the implementation of the PV Projects, this could result in the interruption, cessation or abandonment of any or all of the PV Projects, or may require making significant changes to the PV Projects, any of which may cause us to incur severe losses. There is also no assurance that we could locate an alternative contractor in the place of a deficient contractor in a timely manner and on commercially reasonable terms.

We are dependent on the suppliers that supply the panels that will be installed in our photovoltaic plants. The lack of reliability of such suppliers or of their products, as well as such suppliers’ insolvency, may have an adverse effect on our business.  Our photovoltaic plant performance depends on the quality of the panels installed. One of the critical factors in the success of our photovoltaic plants is the existence of reliable panel suppliers, who guarantee the performance and quality of the panels supplied. Degradation in such performance above a certain minimum level is guaranteed by the panel suppliers, however, if any of the suppliers is unreliable or becomes insolvent, it may default on warranty obligations, and such default may cause an interruption in our business or reduction in the generation of energy power, and thus may have an adverse effect on us.

Delays in the construction of the PV Plants may result in loss of our eligibility to receive feed-in-tariffs or impede our ability to obtain financing at terms beneficial to us, or at all, and therefore may have an adverse effect on our results of operations and business. We have experienced delays in the completion of the construction of the PV Plants in four of our PV Projects. Although the EPC Contracts that govern these PV Projects include a system of liquidated damages and price reductions that apply in the event of delays or loss of certain FiT, these remedies are limited and may not completely offset the damages caused to us. Our limited ability to protect ourselves against damages caused due to delays, as well as any additional delays, may have an adverse effect on our results of operations and business.
 
 
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Success of the PV Projects, from the construction of the power plants through their commissioning and ongoing commercial operation, will depend to a large extent on the cooperation, reliability, solvency, and proper performance of the Contractors and of the other third parties involved, including subcontractors, financing entities, the land developer and land owners, suppliers of parts and equipment, the energy grid regulator, Italian governmental agencies and other potential purchasers of electricity, and the like.  The PV Projects are a complex endeavor requiring timely input often of a highly specialized technical nature, from several parties, including without limitation, the main supplier and contemplated plant operator, other suppliers of relevant parts and materials, the land developer and land owners, subcontractors, financing entities, the Italian government and related agency both as subsidizer and as the purchaser of the electricity to be generated by the power plants and Italian energy regulators. We have experienced delays in four of our six PV Projects. If any of these parties fails to perform its obligations properly and on a timely basis, at any point in any of the PV Projects, this could result in the interruption, cessation or abandonment of the relevant PV Project, or may require making significant changes to the relevant PV Project, any of which may cause us severe losses.
 
Our ability to leverage our investment and to increase the return on our equity investments depends, inter alia, on our ability to obtain attractive financing from financial entities.  Our ability to obtain financing and the terms of such financing, including interest rates, equity to debt ratio and timing of debt availability will significantly impact the return on our equity investments in the PV Projects. Although we have entered into financing agreements with respect to four of the six PV Projects, there is no assurance that we will be able to procure financing for the remaining two PV Projects or any future PV projects, on terms favorable to us or at all.
 
In the event we will be unable to continuously comply with the obligations and undertakings, including with respect to financial covenants, which we undertook in connection with the financing of the PV Projects, our results of operations may be adversely affected.  In connection with the financing of several of our PV Projects, we have entered into long-term agreements with outside sources of financing, including a bank and a leasing company. The agreements that govern the provision of financing include, inter alia, undertakings and financial covenants that we are required to maintain for the duration of such financing agreements. In the event we fail to comply with any of these undertakings and covenants, we may be subject to penalties, future financing requirements, and, finally, to the acceleration of the repayment of debt. These occurrences may have an adverse affect on our financial position and results of operations and on our ability to obtain outside financing for other projects. 

We and/or any of the respective Contractors may become subject to claims of infringement or misappropriation of the intellectual property rights of others with respect to the system components used in the PV Projects, which could prohibit us from implementing and profiting from the PV Projects as contemplated, require us and/or the respective Contractor to obtain licenses from third parties or to develop non-infringing alternatives and subject us and/or the respective Contractor to substantial monetary damages and injunctive relief.  The solar photovoltaic industry is characterized by the existence of patents that could result in frequent litigation based on allegations of patent infringement. The owners of these patents may assert that the manufacture, use, import, or sale of any part or component of the PV Projects, or the PV Projects as a whole, infringes one or more claims of their patents. Whether or not such claims and applications are valid, we cannot be certain that the components of our system do not infringe the intellectual property rights of such third parties. Any infringement or misappropriation claim could result in significant costs, substantial damages and an interruption, suspension or cessation of any or all of the PV Project. Even if the holders of the patents do not succeed in their claims of misappropriation or infringement, the litigation process involving patent infringement is very expensive and lengthy and sometimes involves temporary injunctions and could therefore materially affect our profitability and operating results.
 
 
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A drop in the retail price of conventional or other energy sources may negatively impact our ability to expand.  The decision to provide regulatory incentives for the construction of photovoltaic power plants, including through the provision of FiT, is also driven by the price of electricity produced by solar power systems compared to the price of electricity produced by conventional or other energy sources. Fluctuations in economic and market conditions that impact the prices of conventional and non-solar alternative energy sources, such as decreases in the prices of oil and other fossil fuels, could cause the demand for solar power systems to decline, which would have a negative impact on our ability to expand our photovoltaic business should we wish to do so, and may cause a reduction in the governmental economic incentives.

Photovoltaic power plant installations have increased over the past few years. If such trend continues, the increasing demand may drive up the prices of solar panels and other components of the system (such as invertors, steel and cables), impacting our profitability. Additionally, if there is a shortage of key components necessary for the production of the solar panels, that may constrain our revenue growth.   The demand for solar panels and other components of the photovoltaic system will likely increase in the future, especially if economic recovery continues, resulting in an increase in the pricing of solar panels and/or other components of the system to the extent the supply of such equipment will not be sufficiently increased as well. Should we decide to expand the business and construct additional plants over time, such increases may adversely affect our profitability. Silicon is a dominant component of the solar panels, and although manufacturing abilities have increased over-time, any shortage of silicon, or any other material component necessary for the manufacture of the solar panels, may adversely affect our business.

Our ability to produce solar power is dependent upon the magnitude and duration of sunlight as well as other meteorological factors.  As such, the power production has a seasonal cycle, and adverse meteorological conditions can have a material impact on the plant’s output and could result in production of electricity below expected output. This in turn could adversely affect our profitability.

As electric power accounts for a growing share of overall energy use, the market for solar energy is intensely competitive and rapidly evolving.  Many of our competitors who strive to construct new photovoltaic power plants have established more prominent market positions and are more experienced in this field. If we fail to attract and retain ongoing relationships with photovoltaic plants developers, we will be unable to reach additional agreements for the development and operation of additional photovoltaic plants. This could adversely impact our revenues and growth prospects.
 
 
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Risks Relating to Our Investment in Dori Energy
 
We hold a minority stake in Dori Energy, who, in turn, holds a minority stake in Dorad.  Therefore, we have no control and limited influence on the operations and actions of Dorad. Following the consummation of the Dori Investment in January 2011, we hold 40% of the equity of Dori Energy who, in turn, holds 18.75% of Dorad (both as defined in “Item 4.A. History and Development of Ellomay”). Although we entered into a shareholders’ agreement with the other shareholder of Dori Energy providing us with joint control of Dori Energy, differences of opinion as to the management, prospects and operations of Dori Energy could limit our ability to direct the operations of Dori Energy in what we believe to be is best for such company. In addition, Dori Energy holds a minority stake in Dorad and as of the date hereof is entitled to nominate only one director in Dorad. We therefore have no control and limited influence on Dorad’s operations. These factors could potentially adversely impact the business and operations of Dorad and Dori Energy and, in turn, our business and operations.
 
The Dori Energy Shareholders Agreement contains restrictions on our right to transfer our holdings in Dori Energy, which may make it difficult for us to terminate our involvement with Dori Energy.  In connection with our investment in Dori Energy, we entered into a shareholders agreement with Dori Energy and the other shareholder of Dori Energy, U. Dori Group Ltd. (the “Dori SHA”). The Dori SHA contains several restrictions on our ability to transfer our holdings in Dori Energy, including a “restriction period” during which we are not allowed to transfer our holdings in Dori Energy (other than to permitted transferees) and, thereafter, certain mechanisms such as a right of first refusal. Therefore, in the event we wish, for various reasons, to terminate our involvement with Dori Energy, the aforesaid restrictions may make it difficult for us to terminate our involvement with Dori Energy. These limitations may adversely affect the return on our investment in Dori Energy.
 
Non-compliance of the other shareholder of Dori Energy with its undertakings in connection with the financing of Dorad’s operations may impose obligations on us and adversely affect our financial condition.  The Dori Investment Agreement contains various undertakings by the Dori Group in connection with future financing of Dori Energy’s financial obligations to Dorad, including an undertaking to provide financing should financing not be obtained from outside sources. Noncompliance by Dori Group of this or any of its other undertakings to us and to Dori Energy in the Dori Investment Agreement may cause a breach of Dori Energy’s undertakings to Dorad or impose additional financing requirements on us, which may adversely affect Dori Energy’s operations or our financial position.
 
Dorad, which is currently the only asset held by Dori Energy, is involved in a complex project that includes the construction and thereafter the management, of the Dorad power plant, and its successful operations and profitability is dependent on a variety of factors, many of which are not within Dorad’s control.  Dorad is involved in the construction of a combined cycle power station based on natural gas, with a production capacity of approximately 800 MW, on the premises of the Eilat-Ashkelon Pipeline Company (EAPC) located south of Ashkelon, Israel (the “Dorad Project”). The Dorad Project is subject to various complex agreements with third parties (the Israeli Electric Company – “IEI”, the contractor, suppliers, private customers, etc.) and to regulatory restrictions and guidelines in connection with, among other issues, the tariffs paid by the IEI to Dorad for the energy produced. Various factors and events, both during the construction period of the Dorad Project and during the operations of such project, may materially adversely affect Dorad’s results of operations and profitability and, in turn, have a material adverse effect on Dori Energy’s and our results of operations and profitability. These factors and events include:
 
·           The Dorad Project is entering the construction phase and during such period Dorad is exposed to various risks, including, without limitation, in connection with noncompliance or breach by the contractor involved in the construction, noncompliance by Dorad or any of its shareholders with their undertaking to finance the Dorad Project, resulting in fines and penalties being imposed on Dorad, defects or delays in the construction due to the contractor or outside events and delays in supply of equipment required for the construction of the Dorad Project;
 
 
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·           Following the construction of the Dorad Project, and during its operations, the profitability of Dorad will depend, among other things, on the tariff that will be paid to it by the IEI, which is governed by Israeli regulation and is therefore subject to changes and updates in the future that may not necessarily involve negotiations or consultation with Dorad. Furthermore, the profitability of Dorad will also depend on the income from other end-users that will purchase energy directly from Dorad based on tariffs negotiated between Dorad and such end-users and on the balance and mixture of sales to end-users and to the IEI. The competitive landscape, involving both the IEI and other private energy producers, is also a factor that is expected to have bearing on the profitability of Dorad;
 
·           Dorad’s operations are mainly financed by a consortium of financing entities pursuant to long-term credit facility. Changes in the credit ratings of Dorad and its shareholders, non-compliance with financing and other covenants and additional factors may affect the prevailing interest rates and therefore may adversely affect Dorad’s operations and profitability; and
 
·           The Dorad Project is located in Ashkelon, which is a town in the southern part of Israel, in proximity to the Gaza Strip. The location of the Dorad Project is within range of missile strikes from the Gaza Strip. Any such attacks to the area or any direct damage to the location of the Dorad Project may disrupt the construction of the Dorad Project and thereafter its operations, and may cause financial losses and delays. Furthermore, various geopolitical factors may also impact the availability of Gas to the Dorad Project, which may have an adverse effect on the profitability of Dorad's operation.

Risks Related to our Other Activities

We may not be successful in identifying and evaluating additional suitable business opportunities in the fields that we are concentrating on.  Except with respect to the agreements necessary or incidental to the PV Projects and the investments in Israeli companies and licenses during the recent months described herein, we do not have an agreement or understanding with any third party with respect to our future operations. There can be no assurance that we will be successful in identifying and evaluating suitable business opportunities and we expect to incur expenses in connection with this identification and evaluation process, whether or not such process results in an investment of our funds. We may enter into an investment agreement in a business entity having no significant operating history or other negative characteristics such as having limited earnings or no potential for immediate earnings, limited assets and negative net worth. We may also pursue business opportunities that will not necessarily provide us with significant financial benefits in the short or long term. In the event that we complete an investment, the success of our operations will be dependent upon the performance of management of the target company (or the ability to successfully outsource certain management functions) and our ability to retain such management and numerous other factors, some of which are beyond our control. There is no assurance that we will be able to negotiate a business combination on terms favorable to us, or at all.
 
 
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If we do not conduct an adequate due diligence investigation of a target business, we may be required to subsequently take write-downs or write-offs, restructuring, and impairment or other charges that could have a significant negative effect on our financial condition, results of operations and our stock price, which could cause you to lose some or all of your investment.  We must conduct a due diligence investigation of target businesses that we would intend to acquire. Intensive due diligence is time consuming and expensive due to the operations, accounting, finance and legal professionals who must be involved in the due diligence process, such that in practice our due diligence efforts may be more limited in scope and extent. Even if we conduct extensive due diligence on a target business, we cannot assure you that this due diligence will reveal all material issues that may affect a particular target business, or that factors outside the control of the target business and outside of our control will not later arise. If our due diligence review fails to identify issues specific to a target business, industry or the environment in which the target business operates, we may be forced to later write-down or write-off assets, restructure our operations, or incur impairment or other charges that could result in losses. Even though these charges may be non-cash items and may not have an immediate impact on our liquidity, the fact that we report charges of this nature could contribute to negative market perceptions about us or our ordinary shares.

The current general economic and business conditions around the world and any subsequent economic downturn may adversely affect our ability to consummate a business combination, the prospects of any business we may acquire and the trading price of our ordinary shares.   Since mid-2008, due to the severity of the crisis affecting financial institutions in the United States and throughout the world, the rising costs of various commodities, the limited growth and economic development in the United States and throughout the world, as well as the recession, the general economic and business conditions in many countries around the world worsened, affecting, among other things, credit ratings of borrowers, the perceived and actual credit risks faced by lenders and purchasers of debt securities, the solvency of trade partners, market entities’ appetite for risk, the spending habits of consumers, the ability to procure financing. Although during 2010, in certain markets, including the United States and portions of Europe the general economic and business conditions around the world have shown indications of recovery, there is no assurance that this will continue over the short, medium or long term, or that the recession will be overcome in its entirety, or that any of the trends associated with such recession will be reversed in whole or in part. Furthermore, if any further economic downturns ensue, this may adversely affect our ability to procure financing required for prospective business combinations, the value of businesses we acquire and our financial condition and results of operations. In addition, if such economic downturn occurs, it may also affect the trading prices of securities in various capital markets around the world and may significantly and adversely affect the trading price of our ordinary shares.

We may not be able to consummate investments and acquisitions that will be beneficial to our shareholders.  We expect to encounter significant competition from entities having a business objective similar to ours, including our existing competitors in the solar energy field. Many of these potential competitors are well established and have extensive experience in identifying and effecting business opportunities in the renewable energy field. Such entities may possess greater technical, human and other resources than we do and our financial resources may be relatively limited when contrasted with those of many of these competitors.

 
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Our ability to successfully effect business combinations or acquisitions and to be successful thereafter will be significantly dependent upon the efforts of our key personnel. Several of our key personnel allocate their time to other businesses.  Our ability to successfully effect a business combination or acquisition is dependent upon the efforts of our key personnel, including Shlomo Nehama, our chairman of the board, Ran Fridrich, a director and our Chief Executive Officer and other members of our board of directors. Although we have entered into a Management Services Agreement with entities affiliated with three of our board members, including Messrs. Nehama and Fridrich, these and our other directors are not required to commit their full time to our affairs, which could create a conflict of interest when allocating their time between our operations and their other commitments. If our directors’ other business affairs require them to devote more substantial amounts of time to such affairs, it could limit their ability to devote time to our affairs and could have a negative impact on our ability to consummate a business combination.

As a substantial part of our business is currently located in Europe, we are subject to a variety of additional risks that may negatively impact our operations.  We currently have substantial operations in Italy and may make additional investments in businesses, located outside of Israel or the United States. Due to these operations and any additional future investments, we are subject to special considerations or risks associated with companies operating in the other jurisdiction, including rules and regulations, currency conversion, corporate withholding taxes, tariffs and trade barriers, regulations related to customs and import/export matters, different payment cycles, tax issues, such as tax law changes and variations in tax laws as compared to Israel and the United States, currency fluctuations and exchange controls, challenges in collecting accounts receivable, cultural and language differences, employment regulations, crime, strikes, riots, civil disturbances, terrorist attacks and wars and deterioration of political relations with Israel. The PV Projects subject us to a number of these risks, as well as the requirement to comply with Italian and European Union law. We cannot assure you that we would be able to adequately address these additional risks. If we were unable to do so, our operations might suffer.

Currency fluctuations may affect the value of our assets and decrease our earnings.  Substantially all of the consideration for the sale of our business to HP was paid to us in US$. However, most of our investments so far have been, and some of our retained assets and liabilities are, denominated in other currencies (Euro and NIS). The devaluation of the United States Dollar against the Euro or the NIS, and other currency fluctuations may decrease the value of our assets and could impact our business.

Risks Relating to the Results and Effects of the HP Transaction

If we are characterized as a passive foreign investment company, our U.S. shareholders may suffer adverse tax consequences.  As a result of the HP Transaction, since February 2008, our assets mainly consist of cash and cash equivalents producing passive income. Under the PFIC rules, for any taxable year that our passive income or our assets that produce passive income exceed specified levels, we will be characterized as a passive foreign investment company for U.S. federal income tax purposes. This characterization could result in adverse U.S. tax consequences for our U.S. shareholders, which may include having certain distributions on our ordinary shares and gains realized on the sale of our ordinary shares treated as ordinary income, rather than as capital gains income, and having potentially punitive interest charges apply to the proceeds of sales of our ordinary shares and certain distributions.
 
 
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As our assets and income in 2009 and 2010 exceeded the PFIC specified levels, we have not met the requirements set forth in Section 1298(b)(3) of the Internal Revenue Code, providing an exception from the PFIC status for a “change of business” situation for our 2008 taxable year. Therefore, we believe that we are a PFIC with respect to any U.S. shareholder that held our shares in 2008, 2009 and 2010. Since the determination of our PFIC status in 2011 (for shareholders that acquire our ordinary shares in 2011) depends on the type of assets we hold during the year and the income derived from such assets, we cannot determine as of yet whether or not we will be a PFIC for the 2011 tax year.

Certain elections may be made to reduce or eliminate the adverse impact of the PFIC rules for holders of our shares, but these elections may be detrimental to the shareholder under certain circumstances. The PFIC rules are extremely complex and U.S. investors are urged to consult independent tax advisers regarding the potential consequences to them of our classification as a PFIC. For a more detailed discussion of the consequences of our being classified as a PFIC, see “Item 10.E: Taxation” under the caption “U.S. Tax Considerations Regarding Ordinary Shares.”

We may be deemed to be an “investment company” under the Investment Company Act of 1940, which could subject us to material adverse consequences.  As a result of the HP Transaction, we could be deemed to be an “investment company” under the Investment Company Act of 1940, as amended (the “Investment Company Act”) if we invest more than 40% of our assets in “investment securities,” as defined in the Investment Company Act. Investments in securities of majority owned subsidiaries (defined for these purposes as companies in which we control 50% or more of the voting securities) are not “investment securities” for purposes of this definition. As we still maintain a majority of our assets in cash and cash equivalents and not all of our investments are in majority owned securities, unless we limit the nature of our investments of our cash assets to cash and cash equivalents (which are generally not “investment securities”), succeed in making strategic “controlling” investments and continue to monitor our investments that may be deemed to be “investment securities,” we may be deemed to be an “investment company.” We do not believe that our holdings in the PV Projects would be considered “investment securities,” as we control the PV Projects via wholly-owned subsidiaries and we do not believe that the current fair value of our investments in the MVNO project, Dori Energy or the Exploration Licenses (all as defined and more fully set forth under “Item 4.A: History and Development of Ellomay”), all of which may be deemed to be “investment securities,” would result in our being deemed to be an “investment company.” If we were deemed to be an “investment company,” we would not be permitted to register under the Investment Company Act without an order from the SEC permitting us to register because we are incorporated outside of the United States and, prior to being permitted to register, we would not be permitted to publicly offer or promote our securities in the United States. Even if we were permitted to register, it would subject us to additional commitments and regulatory compliance. Investments in cash and cash equivalents might not be as favorable to us as other investments we might make if we were not potentially subject to regulation under the Investment Company Act. We seek to conduct our operations, including by way of investing our cash and cash equivalents, to the extent possible, so as not to become subject to regulation under the Investment Company Act. In addition, because we are actively engaged in exploring and considering strategic investments and business opportunities, and in fact the majority of our investments to date (mainly in the Italian photovoltaic power plants market) were made through a controlling investment, we do not believe that we are currently engaged in “investment company” activities or business.
 
 
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We are exposed to certain potential liabilities in connection with the sale of our business to HP and are dependent on HP in connection with future third-party claims.  In connection with the HP Transaction, we have agreed to indemnify HP and its subsidiaries that purchased our assets, and their respective officers, directors, employees and affiliates, for certain breaches of the Asset Purchase Agreement, including, among others, any breach or inaccuracy of the representations and warranties, any liabilities that were not assumed by HP and certain environmental matters. Our indemnification liability pursuant to the Asset Purchase Agreement was generally limited to amounts deposited in an escrow account pursuant to such Agreement. As further detailed in “Item 5: Operating and Financial Review and Prospects – Overview” and “Item 10.C: Material Contracts,” during 2010 we entered into a settlement agreement and release with HP, which includes a mutual release of the parties to the HP Transaction, other than in the case of fraud and an undertaking by HP to bear sole responsibility for any demand or claim made by a third party against us with respect to the released matters. We are therefore still exposed to claims by HP on the basis of fraud and, furthermore, are dependent on HP to fulfill its obligations to us in the event of third party claims against us in connection with our business that was sold to HP. Any future claim by HP against us, failure of HP to fulfill its obligations to us under the HP Settlement Agreement in connection with third party claims and our expenses in connection with any resulting disagreement or dispute, would have a negative impact on our financial condition.

Risks Relating to our Ordinary Shares

You may have difficulty enforcing U.S. judgments against us in Israel.  We are organized under the laws of Israel and our headquarters are in Israel. Most of our officers and directors reside outside of the United States. Therefore, it may be difficult to effect service of process upon us or any of these persons within the United States. In addition, you may not be able to enforce any judgment obtained in the U.S. against us or any of such persons in Israel and in any event will be required to file a request with an Israeli court for recognition or enforcement of any non-Israeli judgment. Subject to certain time limitations, executory judgments of a United States court for liquidated damages in civil matters may be enforced by an Israeli court, provided that: (i) the judgment was obtained after due process before a court of competent jurisdiction, that recognizes and enforces similar judgments of Israeli courts and according to the rules of private international law currently prevailing in Israel, (ii) adequate service of process was effected and the defendant had a reasonable opportunity to be heard, (iii) the judgment and its enforcement are not contrary to the law, public policy, security or sovereignty of the State of Israel, (iv) the judgment was not obtained by fraud and does not conflict with any other valid judgment in the same matter between the same parties, (v) the judgment is no longer appealable, and (vi) an action between the same parties in the same matter is not pending in any Israeli court at the time the lawsuit is instituted in the foreign court. If a foreign judgment is enforced by an Israeli court, it will be payable in Israeli currency. You may not be able to enforce civil actions under U.S. securities laws if you file a lawsuit in Israel.

Provisions of Israeli law may delay, prevent or make difficult an acquisition of Ellomay or a controlling position in Ellomay, which could prevent a change of control and, therefore, depress the price of our shares.  Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for transactions involving directors, officers or significant shareholders and regulates other matters that may be relevant to these types of transactions. Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to some of our shareholders. These provisions of Israeli law may delay, prevent or make difficult an acquisition of Ellomay, which could prevent a change of control and therefore depress the price of our shares.
 
 
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We have undergone, and may in the future undergo, tax audits and may have to make material payments to tax authorities at the conclusion of these audits, including in connection with the sale of our business to HP.  Previously to the sale of our business to HP, we conducted business globally and a substantial part of our operations was conducted in various countries and our past tax obligations were not assumed or purchased by HP as part of the business sold. Since the execution of the EPC Contracts and our other investments, we now also conduct our business globally (currently mainly in Israel and Italy). Our domestic and international tax liabilities are subject to the allocation of revenues and expenses in different jurisdictions and the timing of recognizing revenues and expenses. Additionally, the amount of income taxes paid is subject to our interpretation of applicable laws in the jurisdictions in which we file. Not all of the tax returns of our operations in other countries and in Israel are final and may be subject to further audit and assessment by the applicable tax authorities. The consummation of the transaction with HP may increase the likelihood of additional audits of our tax returns in the future. While we believe we comply with applicable income tax laws, there can be no assurance that a governing tax authority will not have a different interpretation of the law and assess us with additional taxes, as a result of which our future results may be adversely affected.

We are controlled by a small number of shareholders, who may make decisions with which you may disagree.  In February and March 2008, a group of investors comprised of Kanir Joint Investments (2005) Limited Partnership (“Kanir”) and S. Nechama Investments (2008) Ltd. (“Nechama Investments”), acquired a substantial amount of our securities in a series of private transactions and have also entered into a shareholders agreement. Consequently, and following the exercise of various outstanding warrants, these shareholders currently hold 66.3% of our outstanding ordinary shares (and Shlomo Nehama, our Chairman of the Board who controls Nechama Investments holds directly an additional 4.3% of our outstanding ordinary shares). Therefore, acting together, they could exercise significant influence over our business, including with respect to the election of our directors and the approval of change in control and other material transactions. This concentration of control may have the effect of delaying or preventing changes in control or changes in management, or limiting the ability of our other shareholders to approve transactions that they may deem to be in their best interest. Moreover, at our general meeting of shareholders held on December 30, 2008, our shareholders adopted our Second Amended and Restated Articles, which were presented to our shareholders at the request of Kanir and Nechama Investments. Several of the amendments, including the casting vote provided to our Chairman of the Board under certain circumstances and the ability of members of our Board to demand that certain issues be approved by our shareholders, requiring a special majority, all as more fully described in “Item 10.B: Memorandum of Association and Second Amended and Restated Articles,” may have the effect of delaying or preventing certain changes and corporate actions that would otherwise benefit our shareholders.

Because our ordinary shares are quoted on the OTCQB market and their trading may become subject to the Securities and Exchange Commission’s “penny stock” regulations, the market liquidity of our ordinary shares is very limited.  On May 19, 2005, our ordinary shares were delisted from The NASDAQ Capital Market. The basis of the delisting was our failure to comply with the minimum stockholders’ equity requirement for continued listing on The NASDAQ Capital Market. Our ordinary shares are currently quoted on the over-the-counter market in the OTCQB market, which is operated by OTC Markets, Inc. OTCQB is a market tier of OTC Markets for companies registered with and reporting to the Securities and Exchange Commission. Our trading symbol is “EMYCF.PK.” As a result of the removal of our ordinary shares from quotation on The NASDAQ Capital Market, our ordinary shares are not regularly covered by securities analysts and the media and the liquidity of our ordinary shares is very limited. Such limited liquidity could result in lower prices for our ordinary shares than might otherwise prevail and in larger spreads between the bid and asked prices for our ordinary shares. Additionally, certain investors will not purchase securities that are quoted on the OTCQB, which could materially impair our ability to raise funds through the issuance of our ordinary shares in the securities markets.
 
 
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Because our ordinary shares have been removed from quotation on NASDAQ and the trading price of our ordinary shares is less than $5.00 per share, trading in our ordinary shares may become subject to the requirements of Rule 15g-9 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Although we currently meet the criteria of net tangible assets in excess of $2 million set forth in Rule 3a51-1(g)(1) which exempts our ordinary shares from being deemed “penny stock,” brokers are still subject to special record keeping requirements with respect to our ordinary shares and must demonstrate that we have met these criteria. Pursuant to Rule 15g-9, brokers and dealers who recommend penny stocks to persons other than established customers and accredited investors must satisfy special sales practice requirements, including a requirement that they make an individualized written suitability determination for the purchaser and receive the purchaser’s written consent prior to the transaction.

The Securities Enforcement Remedies and Penny Stock Reform Act of 1990 also requires additional disclosure in connection with any trades involving a stock defined as a penny stock (generally, according to regulations adopted by the SEC, any equity security not traded on an exchange or quoted on NASDAQ that has a market price of less than $5.00 per share, subject to certain exceptions), including the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and the risks associated therewith. Such requirements could further limit the market liquidity of our ordinary shares.

We do not intend to pay cash dividends in the near future.  We have not paid any cash dividends on our ordinary shares to date and do not intend to pay cash dividends in the near future. The payment of dividends will depend on our revenues and earnings, if any, capital requirements and general financial condition and will be within the discretion of our then-board of directors. As a result, any gains on an investment in our securities will need to come through appreciation of the value of such securities.

Our stock price has decreased significantly in the past and may continue to be volatile, which could adversely affect the market liquidity of our ordinary shares and our ability to raise additional funds.  Our ordinary shares have experienced substantial price volatility, particularly as there is very limited volume of trading in our ordinary shares and every transaction performed significantly influences the market price. The market price for our ordinary shares has generally followed a historical downward trend from 2000 through 2008 and has been volatile since. On May 19, 2005, our ordinary shares were delisted from The NASDAQ Capital Market due to our failure to comply with the minimum stockholders’ equity requirement for continued listing. Our ordinary shares are currently quoted on the over-the-counter market in OTCQB market, which is operated by OTC Markets, Inc. OTCQB is a market tier of OTC Markets for companies registered with and reporting to the Securities and Exchange Commission. Our trading symbol is “EMYCF.PK.”  Subsequent to the consummation of the HP Transaction and prior to the execution of the initial PV Projects, we were subject to price and volume fluctuations that affect trading in the securities of shell companies, special purpose acquisition companies and other publicly traded investment vehicles. Subsequent to the execution of the initial PV Projects, due to the limited liquidity and limited analyst coverage of our business and prospects, as well as general economic and political conditions, the market price for our ordinary shares continues to be volatile. The continuance of such factors and other factors relating to our business may materially adversely affect the market price of our ordinary shares in the future. Additionally, volatility or a lack of positive performance in our stock price may adversely affect our ability to retain or attract key employees, many of whom are generally granted stock options as part of their compensation package, and negatively affect our ability to raise funds through both debt and equity, discourage potential customers and partners from doing business with us, and could result in a material adverse effect on our business, financial condition, and results of operations.
 
 
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If we fail to maintain effective disclosure controls and procedures and internal controls over financial reporting in accordance with Sections 302 and 404 of the Sarbanes-Oxley Act, our business, operating results and share price could be materially adversely affected.   The Sarbanes-Oxley Act of 2002 imposes certain duties on us and our executives and directors. Our efforts to comply with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 have resulted in increased general and administrative expense and a diversion of management time and attention, and we expect these efforts to require the continued commitment of resources. Pursuant to the requirements of Sections 302 and 404 of the Sarbanes-Oxley Act of 2002, our management is required to design and evaluate the effectiveness of our disclosure controls and procedures and of our internal control over financial reporting as of the end of the fiscal year that is the subject of this report. Our management has in the past concluded that due to material weaknesses in our internal control over financial reporting our disclosure controls and procedures were not effective (as of the end of fiscal 2006 and 2007) and our internal control over financial reporting was not effective (as of the end of fiscal 2007). Although we have implemented corrective measures, documented and tested our internal control systems and procedures and have made improvements in order for us to comply with the requirements of Section 404 and while our management concluded that our disclosure controls and procedures and our internal control over financial reporting were effective as of December 31, 2008, 2009 and 2010, we may still be exposed to claims from regulatory authorities and our shareholders in connection with our ineffective controls in prior years.  In addition, we cannot predict the outcome of our testing in future periods. We may need to implement new internal control procedures over financial reporting with respect to the PV Projects, our other investments and any other operating business we may acquire. We may also experience higher than anticipated operating expenses and fees in this context. If we are unable to implement these changes effectively or efficiently, or if our internal controls are found to be ineffective in future periods, it could harm our financial reporting or financial results and impact the market price of our ordinary shares.

ITEM 4: Information on Ellomay

A.            History and Development of Ellomay

Our legal and commercial name is Ellomay Capital Ltd. Our office is located at 9 Rothschild Boulevard, 2nd floor, Tel-Aviv 66881, Israel, and our telephone number is +972-3-7971111. Our registered agent in the United States is CT Corporation System, 111 Eight Avenue, New York, New York 10011.
 
 
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We were incorporated as an Israeli corporation under the name Nur Advertisement Industries 1987 Ltd. on July 29, 1987. On August 1, 1993, we changed our name to NUR Advanced Technologies Ltd., on November 16, 1997, we again changed our name to NUR Macroprinters Ltd and on April 7, 2008, in connection with the closing of the sale of our business to HP, we again changed our name to Ellomay Capital Ltd. Our corporate governance is controlled by the Israeli Companies Law, 1999, as amended (the “Companies Law”).

Our ordinary shares are currently quoted on the over-the-counter market in OTCQB market, which is operated by OTC Markets, Inc. OTCQB is a market tier of OTC Markets for companies registered with and reporting to the Securities and Exchange Commission. Our trading symbol is “EMYCF.PK.” Our ordinary shares were delisted from The NASDAQ Capital Market on May 19, 2005 due to our failure to comply with the minimum stockholders’ equity requirement for continued listing.

During 2008 and 2009 we did not have any principal capital expenditures or divestitures. During 2010 and up to the date of filing of this report, we made or accrued capital expenditures, net of penalties due to delay in connection to the national grid of some of the PV Projects, in the amounts of $21.6 million and $0.3 million, respectively, in connection with the Italian PV Projects. During this period we also made a capital expenditure in the amount of $247,000 in connection with the MVNO (as defied below) project. Our aggregate capital expenditure in connection with the acquisition of shares in Dori Energy Infrastructure Ltd., was $14.1 million (of which $3.6 million was paid as advances during 2010). We currently have in progress principal capital expenditures (that were not accrued as of December 31, 2010 or paid prior to filing of this annual report during 2011) in the amount of approximately $21.6 million in connection with Italian PV Projects (including the two transactions we recently entered into as more described below under “Recent Events” and net of penalties due to delay in connection to the national grid of some of the PV Projects), some of which may be financed by third parties, whether prior to or following the expenditure by us, and capital expenditures in connection with the Farmout Agreements (as defined below) in the amount of $0.7 million.
  
On December 9, 2007, we entered into an Asset Purchase Agreement with HP for the sale of our business to HP and several of its subsidiaries. The Asset Purchase Agreement contemplated the sale of substantially all of our assets and liabilities relating to our business, with the exclusion of cash, debt and other specific assets and liabilities as agreed upon between the parties to the Asset Purchase Agreement. In connection with the Asset Purchase Agreement, HP and several of its subsidiaries also agreed to acquire three of our subsidiaries, NUR Europe S.A., a company organized pursuant to the laws of Belgium, NUR Japan Ltd., a company organized pursuant to the laws of Japan and NUR Do Brazil Ltda., a company organized pursuant to the laws of Brazil.
 
 
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The HP Transaction was consummated on February 29, 2008 (the “HP APA Closing Date”). The aggregate consideration in connection with the HP Transaction amounted to $122.6 million. Of the total consideration, an amount of $0.5 million withheld in connection with NUR Europe’s obligations with respect to the government grants, and $14.5 million was deposited into an escrow account to secure the indemnity obligations of the Company and its remaining subsidiaries. The escrow funds, net of amounts distributed to HP in satisfaction of indemnity obligations, were to be distributed to us in two installments. Following the submission by HP of claims demanding the release of amounts from the escrow funds to HP, our responses to such claims and negotiations between the parties to the Asset Purchase Agreement, on July 27, 2010, we executed a settlement agreement (the “HP Settlement Agreement”) with HP with respect to the release of funds deposited in the escrow account. As contemplated by the HP Settlement Agreement, HP received approximately $7.3 million of the escrow funds (plus accrued interest) while we received approximately $7.2 million (plus accrued interest), such amount including $5 million that was set aside exclusively to cover certain patent claims that did not materialize. HP also released to us an amount of $0.5 million withheld in connection with NUR Europe’s obligations with respect to government grants, all as further detailed in “Item 5: Operating and Financial Review and Prospects – Overview” and in “Item 10.C: Material Contracts.”
 
Following the closing of the HP Transaction we ceased to conduct operational activities, focusing instead on exploring investment and other business opportunities.

Italian PV Projects

Further to our efforts in locating suitable investments, we recognized the business opportunities in the renewable energy field in Italy and thus, on March 4, 2010, we entered into two Engineering Procurement & Construction projects Contracts (each, an “EPC Contract”) for the construction of photovoltaic plants in Italy. Since then, we entered into four additional EPC Contracts during 2010, all as more fully detailed in “Item 4.B: Business Overview” and into two additional EPC Contracts during 2011 as detailed below under “Recent Events.”

As part of our efforts to enter into the Italian photovoltaic market, on September 15, 2010, we entered into additional agreements (the “Puglia Agreements”) with an Italian EPC contractor (the “Puglia Contractor”) contemplating the purchase of photovoltaic plants of up to capacity of approximately 12,500 kWp, to be located in the Puglia region, Italy (the “Puglia Plants”). Under the Puglia Agreements, we undertook, subject to the fulfillment of the closing conditions, to purchase two Italian companies who were at the time the owners of all the licenses and authorizations to construct the Puglia plants. Upon execution of the Puglia Agreements, we transferred a deposit in the aggregate amount of Euro 910,000 to the Puglia Contractor. The closing of the purchase of such Italian companies holding the Puglia Plants was subject to the completion of a legal, technical and tax due diligence process to our full satisfaction. The Puglia Agreements provided that in the event the outcome of the due diligence process is not positive for objective reasons, the relevant plants will not be purchased and, if this is the result for all plants, the Puglia Agreements may be terminated by us. Thereafter, if the positive due diligence outcome condition was met and the Puglia Plants would have been connected to the Italian national grid at year 2010 rates, the consideration per each 1,000 kWp pursuant to the Puglia Agreements was an aggregate of approximately Euro 3.6 million (including the respective amount of the deposit prepaid by us). In the event any of the Puglia Plants was not connected to the Italian national grid with year 2010 FiT, we could either elect not to purchase such plant or to purchase it at a reduced price. The Puglia Agreements further provided that should we not purchase any or all of the Puglia Plants, a prorated portion of the deposit is to be refunded to us. On February 10, 2011, following completion of our due diligence process and due to the fact that none of the Puglia Plants were connected to the Italian national grid with year 2010 FiT, we terminated the Puglia Agreements and the deposit paid to the contractor is to be offset against payments due to the Puglia Contractor in connection with some of our other PV Projects.
 
 
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Investments in Israel

In addition to our Italian PV operations and investments, we also entered into several transactions involving Israeli entities. These transactions are investments in two Israeli companies that are expected to operate, or have holdings in companies that are expected to operate, in the energy and telecommunications business in Israel and the execution of Farmout Agreements contemplating the transfer to us of participating interests in four Israeli exploration licenses.

In November 2010, Ellomay Capital Communications Ltd. (“Ellomay Communications”), our wholly-owned subsidiary, entered into a binding Memorandum of Understanding (the “MVNO MOU”) with Alon Ribua Communications Ltd. (“Alon Ribua”), and Novosti Communications Ltd. (“Novosti”), with respect the launch of a virtual mobile operator (“MVNO”) in Israel. The MVNO is purported to be operated by Alon Cellular Ltd. (“Alon Cellular”), a wholly owned subsidiary of Alon Ribua Telecom Ltd. (“Alon Telecom”). Ellomay Communications holds 25% of Alon Telecom’s share capital, and the remainder is held by Alon Ribua (70.1%), and by Novosti (4.9%). Alon Cellular applied to the Israeli Ministry of Communications for an MVNO license, and such license was granted to it during March 2011. The MVNO MOU grants each shareholder of Alon Telecom a right to nominate a director in each of Alon Telecom and Alon Cellular with respect to each 10% holding in Alon Telecom’s share capital. Accordingly, Ellomay Communications has nominated two directors to Alon Telecom’s and Alon Cellular’s Board of Directors. The MVNO MOU also includes certain customary mechanisms that require a majority of more than 80% for the approval of certain resolutions of the Board of Directors of both Alon Telecom and Alon Cellular. Ellomay Communications extended NIS 875,000 (approximately $247,000) as a shareholder’s loan to Alon Telecom, which amount reflects 25% of the aggregate NIS 3,500,000 (approximately $986,000) shareholders’ loan that was extended by all shareholders of Alon Telecom. The proceeds of the aforementioned loan are intended to finance the initial and preparatory phase of launching the MVNO business. The MVNO MOU sets forth that the entire investment required to finance the MVNO up to positive cash flow is estimated at NIS 200 million (approximately $56 million). The shareholders of Alon Telecom are not obligated to finance the MVNO project and they may elect not to invest any additional funds in the MVNO project on top of the aforementioned shareholders’ loan, which would cause a dilution of their holdings.  During March 2011, Alon Cellular entered into an MOU with Partner Communications LTD., an Israeli mobile telephone network operator, for launching cellular services in an MVNO model. Given the competitive landscape of the Israeli cellular and MVNO markets, we cannot, at this time, assess the likelihood that Alon Cellular shall actually commence with operating an MVNO business. Therefore, and in light of the aggregate investment in these operations to date, we do not believe that our current investments and involvement in this field are material to us as of the date of filing of this annual report.

On November 25, 2010, Ellomay Clean Energy Ltd. (“Ellomay Energy”), our wholly-owned subsidiary, entered into an Investment Agreement (the “Dori Investment Agreement”) with U. Dori Group Ltd. (“Dori Group”), and U. Dori Energy Infrastructures Ltd. (“Dori Energy”), with respect to an investment by Ellomay Energy in Dori Energy. The transaction contemplated by the Dori Investment Agreement was finalized on January 27, 2011 whereby Ellomay Energy was issued shares representing 40% of Dori Energy’s issued and outstanding share capital on a fully diluted basis, in consideration for NIS 50 million. Dori Energy holds 18.75% of the share capital of Dorad Energy Ltd. (“Dorad”), which plans and promotes the construction of an approximate 800 MWp gas operated power plant in the vicinity of Ashkelon, Israel. For more information, see “Item 4.B: Business Overview.”
 
 
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On February 22, 2011 (the “Licenses Effective Date”) we entered into two Farmout Agreements (the “Farmout Agreements”), contemplating the acquisition of participating interests in four exploration licenses (the “Exploration Licenses”) as follows: (i) a Farmout Agreement among Delek Drilling Limited Partnership (“Delek”), Avner Oil Exploration Limited Partnership (“Avner”) and us contemplating the acquisition by us of 10% of the participating interests in each of the “337/Aviah” and “338/Qeren” drilling licenses (respectively, the “Aviah License” and the “Qeren License”); and (ii) a Farmout Agreement among Delek, Avenr, Noble Energy Mediterranean Ltd. (“Noble”) and us contemplating the acquisition by us of 15% of the participating interests in each of the “Ruth D” and “Alon E” drilling licenses (respectively, the “Ruth License” and the “Alon License”) (the transferors of the participating interests are referred to herein as “Farmors” and the transferees of the participating interests are referred to herein as “Farmees”). The consideration paid in connection with the acquisition of the participating interests is expected to be an aggregate of approximately $710,000 as reimbursement for past expenditures incurred by the Farmors in connection with operations under the Exploration Licenses until the Licenses Effective Date. In addition, we will be required to reimburse the Farmors for certain costs billed to us under the provisions of the relevant JOAs (as hereinafter defined) during the period between the Licenses Effective Date and the closing of the transactions contemplated by the Farmout Agreements, based on criteria set forth in the Farmout Agreements. In connection with the Farmout Agreements, we further undertook that it will not, prior to the earlier of: (i) the commencement of the drilling of the first well in any of the Exploration Licenses or (ii) December 31, 2011, sell, assign or otherwise transfer, directly or indirectly, whole or part of the participating interests (other than to an affiliate), without the prior written consent of the relevant Farmors. In the event such consent is granted, we undertook to pay to the relevant Farmors an aggregate of 35% of (x) the difference between the consideration paid under the Farmout Agreement and the consideration received by us in connection with the sale of the interests, less any reimbursement for past expenditures, and (y) any overriding royalty interest granted to us in connection with the sale of the interests. In connection with the Farmout Agreements, we entered into Overriding Royalty Deeds with the Farmors, providing them with an aggregate overriding royalty interest of 3% of the participating interest per each Exploration License. We further granted to each of the Farmors a one-time option to convert part or all of their participating interests in any of the Exploration Licenses, but not more than 3.33% in aggregate with respect to the Aviah License and the Qeren License and 15% in the aggregate with respect to the Ruth License and Alon License, into overriding royalty interests, exercisable at any time prior to the spudding of the first well in any of the Exploration Licenses and provided that such option shall also be exercised with respect to the other Farmees, on a pro rata basis. The conversion option provides for each 1% participating interest to be converted into 0.03% overriding royalty interest. In connection with the execution of the Farmout Agreements related to the Aviah License and Qeren License, we also entered into Joint Operating Agreements (“JOAs”) with the other holders of participating interests in such Exploration Licenses and with ATP Oil & Gas Corporation (NASDAQ: ATPG), which will be the operator of under such Exploration Licenses. In connection with the execution of the Farmout Agreements related to the Ruth License and Alon License, we, the other relevant Farmees and the Farmors entered into a novation agreement pursuant to which we and such Farmees joined the existing JOAs among the Farmors, under which Noble is acting as the operator. The closing of the Farmout Agreements is subject to various conditions, including the receipt of approval of the Israeli Ministry of National Infrastructures and the approval of the unit holders of Avner and Delek. In the event we elect, in our sole discretion, to participate in the drilling operations of the first well in any one of the Ruth License and Alon License, we will be required to bear, in addition to our pro rata portion of the cost of the drilling, certain additional drilling costs that would otherwise be borne by the Farmors, which additional drilling costs will not exceed $2,250,000. Similarly, in the event we elect, in our sole discretion, to participate in the drilling operations of the first well in any one of the Aviah License and Qeren License, we will be required to bear, in addition to our pro rata portion of the cost of the drilling, certain additional drilling costs that would otherwise be borne by the Farmors, which additional drilling costs will not exceed $500,000. Simultaneously with the execution of the Farmout Agreements with us, the Farmors entered into similar farmout agreements with third parties and, in the event the transfers of participating interests contemplated by such all such additional farmout agreements are consummated, Delek and Avner are expected to hold an aggregate of 25% of each of the Aviah License and Qeren License and Delek, Avner and Noble are expected to hold an aggregate of 50% of each of the Ruth License and Alon License. We cannot at this stage estimate whether all of the closing conditions will be fulfilled. Therefore, and in light of the aggregate investment in the Exploration Licenses to date, we do not believe that our current investments and involvement in this field are material to us as of the date of filing of this annual report.
 
 
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Recent Events

On March 14, 2011, we purchased the shares of an Italian company that owns a fully constructed photovoltaic plant of 994.43 KWp with fixed technology located in province of Lecce, municipality of Galatina, Puglia region, Italy (“Galatina”) and entered into an EPC Contract in connection with such plant, for an aggregate consideration of approximately Euro 3.9 million (including the consideration for the shares of the Italian company). This photovoltaic plant is expected to connect to the Italian national grid under 2010 FiT.

On March 25, 2011, we purchased the shares of an additional Italian company that holds the permits and plans for, and entered into an EPC Contract the construction of, a photovoltaic plant of 3,015 KWp with single tracker technology located in the province of Bari, municipality of Corato, Puglia region Italy (“Corato”) for an aggregate consideration of approximately Euro 11.8 million (including the consideration for the shares of the Italian company). The contractor has undertaken the photovoltaic plant to the Italian national grid by May 31, 2011 under the applicable 2011 FiT (with certain adjustments to the consideration in the event of delays).

Unless specifically mentioned below, the information concerning our PV Projects included under “Item 4.B: Business Overview” does not include references to the agreements and projects entered into in March 2011. However, due to the scope of consideration that we undertook to pay in the EPC Contract entered into in connection with the Corato project, this EPC Contract is being filed herewith as Exhibit 4.18.

In line with our concentration in the energy and renewable energy field, we may consider making additional investments in the photovoltaic or other renewable energy markets, in Italy or elsewhere, in the future and are in the process of due diligence activities with respect to additional photovoltaic plants in Italy.

For information on our financing activities please refer to “Item 4.B: Business Overview” and “Item 5: Operating and Financial Review and Prospects.”
 
 
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B.            Business Overview

As mentioned above, following the closing of the HP Transaction and the sale of our operating business to HP and several of its subsidiaries on February 29, 2008, we ceased all of the operations of our business as conducted prior to such date. Since March 4, 2010, our main business is the production of renewable energy through our ownership of photovoltaic plants in Italy. We also expect to be involved in the production of clean energy in Israel through our investment in Dorad.
  
Following our entry into the renewable energy field in Italy and our other investments in the Israeli market, as of March 31, 2011 we hold approximately $61.3 million in cash and cash equivalents.

Our current plan of operation is to manage our investments in the Italian PV field and in the Israeli market and, with respect to the remaining funds we hold, to identify and evaluate additional suitable business opportunities in the energy and infrastructure fields, including in the renewable energy field, through the direct or indirect investment in energy manufacturing plants, the acquisition of all or part of an existing business, pursuing business combinations or otherwise.

Italian Photovoltaic Projects

During 2010, we entered into six EPC Contracts with the Contractors with respect to six photovoltaic power plants constructed and located in Italy. We also entered into Operation and Maintenance Agreements (“O&M Agreements”) with the relevant Contractors with respect to these PV Projects. The following table provides a summary of information with respect to the Italian PV Projects:

PV Project Title
 
Expected Output
 
Location
 
Expected/Actual Connection to Grid and Expected/Actual Applicable FiT
 
PV Principal
                 
“Del Bianco”
 
734.40 kWp
 
Province of Macerata,
Municipality of Cingoli,
Marche region
 
June 2011
2010 FiT
(expected)
 
Ellomay PV One S.r.l. (“Ellomay PV One”)
                 
“Costantini” (together with Del Bianco, the “Macerata PV Projects”)
 
734.40 kWp
 
Province of Ancona,
Municipality of Senigallia,
Marche region
 
June 2011
2010 FiT
(expected)
 
Ellomay PV One
                 
“Giaché”
 
730.01 kWp
 
Province of Ancona,
Municipality of Filotrano,  
Marche region
 
June 2011
2010 FiT
(expected)
 
Ellomay PV Two S.r.l. (“Ellomay PV Two”)
                 
“Massaccesi” (together with Giaché, the “Ancona PV Projects”)
 
749.7 kWp
 
Province of Ancona,
Municipality of Arcevia,  
Marche region
 
June 2011
2010 FiT
(expected)
 
Ellomay PV Two
                 
“Troia 8”
 
995.67 kWp
 
Province of Foggia,
Municipality of Troia,
Puglia region
 
January 14, 2011
2010 FiT
 
Ellomay PV Six S.r.l.
                 
“Troia 9”  (together with Troia 8, the “Foggia PV Projects”)
 
995.67 kWp
 
Province of Foggia,
Municipality of Troia,
Puglia region
 
January 14, 2011
2010 FiT
 
Ellomay PV Five S.r.l.
 
 
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The Italian PV Projects entail the engagement of Contractors, in order to build, assemble, install, test, commission, operate and maintain photovoltaic power plants located in Italy, for the benefit of our wholly-owned subsidiaries.

Each of the PV Projects is implemented on the basis of the following agreements:

 
·
an EPC Contract, which governs the installation, testing and commissioning of a photovoltaic plant by the respective Contractor;

 
·
an O&M Agreement, which governs the operation and maintenance of the photovoltaic plant by the respective Contractor;

 
·
when applicable, a side agreement between our relevant Italian subsidiary and the Contractor, whereby the panels required for the construction of the photovoltaic plant will be purchased by such Italian subsidiary directly from a third party supplier of such panels, and then transferred to the Contractor;

 
·
a number of ancillary agreements, including:

 
m
one or more “surface rights agreements” with the land owners, which provide the terms and conditions for the lease of land on which the photovoltaic plants are constructed and operated;

 
m
standard “incentive agreements” with Gestore dei Servizi Elettrici (“GSE”), Italy’s energy regulation agency responsible, inter alia, for incentivizing and developing renewable energy sources in Italy and purchasing energy and re-selling it on the electricity market. Under such agreement, it is anticipated that GSE will grant the applicable FiT governing the purchase of electricity (FiTs are further detailed in “Item 4.B: Government Regulations - Regulatory Framework of Italian PV Projects”);

 
m
one or more “power purchase agreements” with GSE, specifying the power output to be purchased by GSE for resale and the consideration in respect thereof (in the event of sale via the “Dedicated Withdrawal System” as more fully described under “Item 4.B: Government Regulations - Regulatory Framework of Italian PV Projects”); and
 
 
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m
one or more “interconnection agreements” with the Enel Distribuzione S.p.A (“ENEL”), the Italian national electricity grid operator, which provide the terms and conditions for the connection to the Italian national grid.
 
 
·
optionally, one or more “project financing agreements” with financing entities, as were already executed with respect to several of the PV Projects and as more fully described below, and as may be executed in the future with respect to the remaining PV Projects;
 
 
· 
a stock purchase agreement in the event we acquire an existing company that owns a photovoltaic plant that is under construction or is already constructed.
 
The aggregate investment expected to be required in connection with the PV Projects is approximately Euro 17 million (excluding the annual operation and maintenance costs) and an additional aggregate expenses in the amount of approximately Euro 0.5 million for ancillary expenses.

The summaries below describe the material terms of the EPC Contracts and the O&M Agreements. The EPC Contracts and forms of O&M Agreements executed in connection with the Macerata PV Projects were filed with the SEC as exhibits to our annual report for fiscal year ended December 31, 2009. Other than as set forth herein, the additional EPC Contracts and O&M Agreements are similar in their material terms to the forms of such EPC Contracts and O&M Agreements that were previously filed and the following summary, which does not purport to be complete, is qualified in its entirety by reference to the full version of such agreements previously attached as exhibits to our Form 20-F for the fiscal year ended December 31, 2009.

Engineering Procurement and Construction Contracts

General

Each EPC Contract governs the construction, assembly, installation, testing and commissioning of a photovoltaic plant (each, a “PV Plant”) by the contractor, on behalf of one of our wholly-owned subsidiaries (the “PV Principal”). Please refer to the table set forth above for the location of each of such PV Plants. Pursuant to each EPC Contract, the Contractor is required to supply a PV Plant consisting of a power plant of the relevant electricity output, to transfer the land rights (diritto di superficie) on the area where the PV Plant is to be built to our subsidiary and to provide all the services necessary to bring the PV Plant into operation and to connect it to the national grid. Each of the Contractors is also required to provide standard warranty service, as further detailed below. Transfer of ownership of the PV Plant in favor of the PV Principal is to occur upon issuance of the “Provisional Acceptance Certificate” described below.

Representations and Warranties of the Contractors

The EPC Contracts include certain representations and warranties made by the respective Contractor that are standard in the market and requested by financial institutions. Inter alia, each of the Contractors represents and warrants that it has visited the area designated for the construction of the PV Plant, that the same is suitable for such construction and that it is not aware of facts and circumstances that could prejudice the formation or validity of the permits issued in connection with the PV Project. The Contractor also represents that the designated area for the PV Plant is free from encumbrances and that there are no third-party claims regarding rights in the land.
 
 
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Consideration and Payment Milestones

The aggregate consideration payable to the Contractors for the supply of each PV Plant and performance of the works, under each of the EPC Contracts and additional agreements related to the purchase and construction of the PV Project (the “Consideration”) is in the range of Euro 3-3.85 million per 1 MWp (1,000 kWp).
 
The conditions for the payment milestones set forth in the EPC Contracts executed in connection with the Macerata PV Projects are as follows:

 
m
Payment Milestone 1: (i) completion of procedures and formalities as to the obtaining of the building permits and other applicable permits (except for the FiT); (ii) transfer of the land rights to the PV Principal; (iii) time to connection to the grid is estimated by the Contractor to be within 120 days, and (iv) delivery of a guarantee covering the Contractor’s obligations under the EPC Contract, issued by the Contractor’s parent company, under which such parent company agrees to indemnify the PV Principal against losses and damages incurred up to an amount equal to the Consideration (which guarantee must be effective until the issuance of a “Final Acceptance Certificate” described below).

 
m
Payment Milestone 2: (i) satisfactory outcome of the technical inspection of the PV Plant and issuance of the “Technical Acceptance Certificate” described below, (ii) all the conditions precedent to Payment Milestone 1 are still met, and (iii) execution of the O&M Agreement.

 
m
Payment Milestone 3: (i) satisfactory outcome of the inspection of the PV Plant’s operations, and issuance of the “Provisional Acceptance Certificate”, (ii) all conditions precedent to Payment Milestones 1 and 2 are still met, and (iii) delivery by the Contractor of a warranty bond issued by an insurance company with S&P A-rating (such bond to be released upon issuance of the Final Acceptance Certificate, provided that the Contractor procures the insurance bond required under the O&M Agreement).
 
The conditions for the payment milestones set forth in the EPC Contracts executed in connection with the Ancona PV Projects are as follows:

 
m
Payment Milestone 1: (i) completion of procedures and formalities as to the obtaining of the building permits and other applicable permits (expect for the FiT), (ii) procurement of land rights in favor of the PV Principal, (iii) completion of purchase order of panels in an amount at least equal to the nominal power of the Plant, (iv) connection to the grid is estimated by the Contractor to be within 150 days and (v) delivery of a guarantee covering the Contractor’s obligations under the EPC Contract, issued by the Contractor’s parent company, under which such parent company agrees to indemnify the PV Principal against losses and damages incurred up to an amount equal to the Consideration (which guarantee must be effective until the issuance of a “Final Acceptance Certificate” described below).
 
 
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m
Payment Milestone 2: (i) satisfactory outcome of the technical inspection of the PV Plant and issuance of the “Technical Acceptance Certificate” described below, (ii) all the conditions precedent to Payment Milestone 1 are still met, and (iii) execution of the O&M Agreement.

 
m
Payment Milestone 3: (i) satisfactory outcome of the inspection of the PV Plant’s operations, and issuance of the “Provisional Acceptance Certificate”, (ii) all conditions precedent to Payment Milestones 1 and 2 are still met, and (iii) delivery by the Contractor of a warranty bond issued by an insurance company with S&P A-rating (such bond to be released upon issuance of the Final Acceptance Certificate, provided that the Contractor procures the insurance bond required under the O&M Agreement).
 
The conditions for the payment milestones set forth in the EPC Contracts executed in connection with the Foggia PV Projects are as follows:

 
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Payment Milestone 1: (i) completion of procedures and formalities as to the obtaining of the building permits and other applicable permits (except for the FiT), (ii) transfer of the permits to the PV Principal, (iii) submission by the Contractor of all the relevant technical documentation, (iv) setting up procurement of land rights in favor of the PV Principal, (v) connection to the grid is estimated by the Contractor to take place within January 16, 2011 and the completion of electrical and mechanical works is reasonably estimated by the Contractor to take place within December 31, 2010, (vi) completion of purchase order of panels in an amount at least equal to the nominal power of the PV Plant, and (vii) delivery of a guarantee covering the Contractor’s obligations under the EPC Contract, issued by the shareholders of the Contractor, under which they agree to indemnify the PV Principal against losses and damages incurred up to an amount equal to the Consideration (which guarantee must be effective until the issuance of a “Final Acceptance Certificate” described below).
 
 
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Payment Milestone 2:  (i) all the conditions precedent to Payment Milestone 1 are still met and (ii) an autonomous and first demand bank guarantee, to be issued by a primary and leading bank in favour of the PV Principal ,as guarantee for the obligations undertaken by the Contractor under the EPC Contract is delivered to the PV Principal (which guarantee must be effective until the issuance of a “Preliminary Acceptance Certificate” and the provision of the “Warranty Bond,” both described below).

 
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Payment Milestone 3:  (i) all the conditions precedent to Payment Milestones 1 and 2 are still met, and (ii) the PV Plant commences operations.

 
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Payment Milestone 4:  (i) satisfactory outcome of the inspection of the PV Plant’s operations, and issuance of the “Provisional Acceptance Certificate”, and (ii) delivery by the Contractor of a warranty bond issued by a primary and leading bank (such bond to become effective on payment of Payment Milestone 4 and released upon issuance of the Final Acceptance Certificate, provided that the Contractor procures all guarantees required under the O&M Agreement).
 
 
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Acceptance Testing and Certifications

Acceptance testing for the PV Plant consists principally of: (i) a technical inspection prior to operation, successful completion of which results in the issuance of the “Technical Acceptance Certificate”; (ii) a test that verifies the actual performance of the PV Plant, successful completion of which results in the issuance of the “Provisional Acceptance Certificate”; and (iii) two “reassessment” tests, conducted 12 months and 24 months after the Provisional Acceptance Certificate is issued in order to further test the performance of the PV Plant once it has been put into operation. The EPC Contracts in connection with the Foggia PV Projects also include the following conditions precedent to the issuance of the Provisional Acceptance Certificate: (i) the PV Plant is connected in parallel to the distributor’s electricity grid; (ii) all the meters required to calculate the energy produced, transferred or exchanged with the grid have been installed; (iii) the Power Purchase Agreement is in force; (iv) the Incentive request has been sent to the GSE in compliance with the terms indicated in Decree and GSE has approved the Plant’s admission to the Incentive pursuant to the Decree (comunicazione della tariffa incentivante by GSE); and (v) all obligations related to the regulation of access to the grid have been performed.

The “Final Acceptance Certificate” is to be issued by the PV Principal when the following conditions have been met: (i) the above reassessment tests have been successfully completed, (ii) the Contractor has paid any related performance liquidated damages, to the extent required; and (iii) the O&M Guarantee (as hereinafter defined) is in place. The EPC Contracts in connection with the Macerata PV Projects and the Ancona PV Projects also include the following conditions precedent to the issuance of the Final Acceptance Certificate: (i) the incentive agreement with GSE and the incentive as well as the Power Purchase Agreement are in force, and the related certificate attesting this has been issued; and (ii) all the obligations related to the regulation of access to the grids have been fulfilled.

Financing Entity

All EPC Contracts contemplate the procurement by the PV Principal of one or more credit lines, on a leasing or project finance basis from an Italian financial institution (the “Financing Entity”). If necessary, each of the Contractors is required to make changes in the EPC or O&M agreements in accordance to the financial institute demands and/or to enter into a direct agreement with the Financing Entity together with the PV Principal.

Contractor’s Obligations
 
Each Contractor’s main obligations under the EPC Contracts include: engineering, supply of apparatus, assembly and installation of the PV Plant, civil works, assisting with securing the land use rights, maintaining effective custody of the area, delivery of relevant documentation, supply of deliverables that meet world-class standards and in accordance with applicable laws, securing all applicable permits (operational and building permits) required for the implementation and functioning of the PV Plant and transferring them to the PV Principal, connecting the PV Plant to the national grid in accordance with the project implementation schedule, and clearance of the area after completion of the works. Each of the Contractors also undertook to provide Warranty Bonds in the range of 10%-15% of the applicable Consideration and guarantees as provided under the relevant milestones above.
 
 
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Warranties

Pursuant to the EPC Contracts, each of the Contractors warrants the performance of the PV Plant, and certain defects in the plans of the PV Plant, for a period of 24 months following issuance of the Provisional Acceptance Certificate. Efficiency of the photovoltaic modules shall be guaranteed by the manufacturer for long period of time (usually 20 years) with a certain cumulative deterioration of the photovoltaic modules (for example that the deterioration does not exceed, for the first 10 years, 10% and for the first 20 years, in the aggregate, 20%).

Termination

Each party may terminate the EPC Contract if the other party is in breach of certain obligations, as further set forth in the EPC Contract. If the termination is attributable to the Contractor, the Contractor must pay to the PV Principal a limited termination penalty.

In the event the termination is attributable to the PV Principal, the PV Principal takes delivery of the works that have been constructed up to the time of termination. However, pursuant to the EPC Contracts in connection with the Macerata PV Projects and the Ancona PV Projects, if the termination is due to the PV Principal’s failure to perform its payment obligations, the Contractor or a third party indicated by the Contractor can take possession and ownership of the PV Plant by reimbursing the amounts paid thus far by Contractor, less a penalty

In addition, the PV Principal can terminate the EPC Contract at any time, provided it pays to the Contractor the consideration for work performed up until that time, plus an indemnity equal to 10% of the value of the outstanding works. However, no such indemnity is required if the PV Principal terminates the contract due to a change in applicable laws or a “Force Majeure” (as defined in the EPC Contract).

Delay Liquidated Damages, Discounts and Penalties

Each of the EPC Contracts provide for the following liquidated damages, discounts and penalties:

 
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Delay Liquidated Damages – in the event the Contractor fails to comply with its estimation as to time to connection to the grid following the respective Payment Milestone 1 as set forth above or with the completion date in the event one is set forth in the EPC Contract, the PV Principal will be entitled to apply delay liquidated damages up to an agreed maximum amount. The delay liquidated damages applied in connection with the Macerata PV Projects and Ancona PV Projects amount, as of March 31, 2011, to an aggregate of approximately Euro 450,000 and have reached the agreed upon cap with respect to the Macerata PV Projects. The Foggia PV Projects were connected in accordance with the schedule and therefore no delay liquidated damages were incurred.

 
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Discounts – in the event the 2010 FiT (as more fully set forth under “Government Regulations - Regulatory Framework of Italian PV Projects” below) is not awarded to a PV Plant, the Contractor will grant the PV Principal a discount due to the expected loss of profit. As noted above the Macerata PV Projects and the Ancona PV Projects are expected to be connected under 2010 FiT and the Foggia PV Projects have already been connected with 2010 FiT. The discounts applicable to the Macerata and Ancona PV Projects are determined based on pre-determined payment per every cent reduction in the tariff that will not necessarily cover the economic loss due to the change in tariff.
 
 
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Penalties – in the event the effective performance ratio disclosed by one of the tests performed following the construction of the PV Plant is less than the applicable minimum guaranteed performance ratio (“MGPR”), the Contractor shall pay to the PV Principal performance liquidated damages in the range of Euro 5.6 – Euro 9.3 per kWp per each percentage point which is lower than the MGPR, up to a certain maximum percentage of the relevant Consideration and, in connection with the Foggia PV Projects, higher penalties in the event the second reassessment test shows a lower MGPR. These penalties will not necessarily cover the entire economic results of lower MGPR results and, as noted below, the O&M Agreements also include a bonus-malus feature covering deviations from certain benchmarks.

Dispute Resolution

Technical disputes between the parties are to be resolved by an expert, while other disputes are subject to arbitration in Milan, in accordance with the National Arbitration Chamber of Milan’s Rules of International Arbitration.

Purchase and Technology of Trackers

The technology used in the Macerata PV Projects and the Foggia PV Projects is fixed solar panels and in the Ancona PV Projects it is solar panels using dual axis tracking technology.

In addition to the EPC Contract, the PV Principals and the respective Contractors entered into side agreements, whereby the panels required for the construction of the PV Plant will be purchased by the PV Principal directly from a supplier of such panels, on the basis of the representations and assurances by the Contractor that the panels meet the specifications of the relevant PV Project. The panels will then be transferred to the Contractor. The above-mentioned consideration for the PV Projects includes the price of the panels. Under the side agreements, the Contractor bears the responsibility of taking delivery of the panels, insuring, storing and installing them for the benefit of the PV Principal.

Operation and Maintenance Agreements
 
General

As mentioned above, each EPC Contract contemplates the execution of an O&M Agreement, in respect of each PV Plant to be supplied.

The O&M Agreement sets out the terms under which each of the Contractors is to operate and maintain the PV Plant once it becomes operational, i.e. starting from the Provisional Acceptance Certificate described in connection with the review of the EPC Contracts and for a period of 20 years thereafter. The O&M Agreement is subsequently automatically extended for successive two (2) year periods, unless one party notifies the other party of its intention not to renew the agreement at least 6 months before the anticipated date of expiry of the applicable term.
 
 
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A technical adviser, appointed by the PV Principal and/or the Financing Entity, is responsible for monitoring the performance of the services (the “Technical Adviser”). Our current Technical Advisors company is a leading technical firm in Italy which appears in the Italian banks white list.

The Services

Each O&M Agreement governs the provision of the following services: (i) Subscription Services, which include Preventive Maintenance Services (attendance to incidents that might arise at the PV Plant, remote supervision of operation and full operational status of the PV Plant) and Corrective Maintenance Services (services to correct incidents arising at the PV Plant or to remedy any anomaly in the operation of the PV Plant), and (ii) Non-Subscription Services, which are all services that are outside of the scope of the Subscription Services.

The Consideration

The annual consideration for the Subscription Services shall be approximately Euro 26,000-Euro 35,000, (linked in accordance with the Italian inflation rate) for the PV Projects, paid on a quarterly basis. The Subscription Services fee is fixed and the Contractor is not entitled to request an increase in the price due to the occurrence of unforeseen circumstances. This annual consideration does not include the price of the all-risk policy and of other policies to be obtained by the PV Principal to the extent they have an exposure, including industrial accidents in favor of PV Principal’s employees, civil liability for workers and insurance to cover vehicle civil liability.
 
Additional charges apply for the Non-Subscription Services that are approved by the Financing Entity and the Technical Adviser.

Modifications to the scope of services (which can occur either at PV Principal’s request with the prior approval of the Financing Entity and the Technical Adviser, or if the Contractor deems that changes are necessary or appropriate to improve the quality, efficiency or safety of the PV Plant, its facilities or its supplies) are also subject to price changes. Moreover, changes to the scope of services due to a change in applicable laws may also involve a price increase, subject to the approval of the Financing Entity and the Technical Adviser, and provided that the prices take into account the Contractor’s official rates and do not exceed the cost of the additional work or supplies.

Bonus Malus

The O&M Agreements provides for a bonus to be paid to the Contractor if the annual performance benchmarks of the PV Plant guaranteed by the Contractor are exceeded, and on the other hand the Contractor shall owe a penalty to the PV Principal if the PV Plant’s performance is below these benchmarks (without prejudice to the PV Principal’s entitlement to compensation for further damages that it may have incurred). The penalties and bonuses start to apply only upon the issuance of the Final Acceptance Certificate, i.e. two years after the PV Plant is operational.

Contractor’s Obligations, Representations and Warranties

The Contractor’s obligations under the O&M Agreement include, inter alia, the duty to diligently perform the operation and maintenance services in compliance with the applicable law and permits in a workmanlike manner and using the most advanced technologies, to contract for adequate insurance with the PV Principal and the Financing Entity as additional insured parties, to guarantee the availability of spare parts and replenish the inventory as needed, and to assist the PV Principal and the Financing Entity in dealing with the authorities (including GSE and ENEL) by providing the necessary information required by such authorities. The Contractor represents and warrants, inter alia, that it holds the necessary permits and authorizations, and that it has the necessary skills and experience to perform the services contemplated by the O&M Agreement.
 
 
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Guarantees

The Contractor is required to provide an insurance bond, satisfactory to both the Contractor and the Financing Entity, for an amount equal to 15% - 100% of the annual applicable price (the “O&M Guarantee”) to be renewed annually.

Intellectual Property License

Pursuant to the O&M Agreement, the Contractor grants an irrevocable, royalty-free license to the creations, plans, specifications, drawings, procedures, methods, products and/or inventions prepared or developed by the Contractor pursuant to the O&M Agreement, for use in the specific PV Plant. This license is not transferable, except in conjunction with all of the rights and obligations of the PV Principal under this agreement or in relation with the PV Plant.

Financing Entity

As with the EPC Contracts, the O&M Agreement contemplates the financing of the planning, realization, operation and maintenance of the PV Plant by a Financing Entity, and states that adaptations may need to be made to the O&M Agreement in consideration of the terms agreed to with such Financing Entity and that the Contractor undertakes to enter into such direct agreement with the Financing Entity, if necessary, within 15 days of the Financing Entity’s or the PV Principal’s request to that effect.

Termination

The O&M Agreement is terminated automatically, subject to the Financing Entity’s consent, if the related EPC Contract is terminated for any reason.

Each party may terminate the O&M Agreement if the other is in breach of any of its obligations that remains uncured for 30 days following written notice thereof.

The PV Principal may terminate the O&M Agreement only after obtaining approval from the Financing Entity. Termination of the O&M Agreement by the PV Principal due to certain breaches by the Contractor (inter alia, due to the Contractor’s failure to enter into a direct agreement with the Financing Entity, to issue the Final Acceptance Certificate or to comply with the spare parts guarantee, or in the event that the maximum amount of liquidated damages is exceeded), entitle the PV Principal to liquidated damages calculated as a percentage of the applicable price for the relevant year, without prejudice to other damages that the PV Principal may incur.
 
 
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In the event of termination by the Contractor due to a breach of the PV Principal, the PV Principal must pay the Contractor compensation calculated as a percentage of the applicable price for the relevant year.

The O&M Agreement is automatically terminated if the Contractor is liquidated or becomes bankrupt or insolvent, and on other similar grounds.

In addition to termination due to breach, the parties to the O&M Agreement may withdraw from it as follows:

 
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The PV Principal may terminate the agreement at any time, by giving a 6-month - 12-month prior written notice to the Contractor. In the case of such withdrawal, the PV Principal may pay to the Contractor, in lieu of the notice, the amount the Contractor would have been entitled to receive during the applicable notice period.

 
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Under the O&M Agreements in connection with the Macerata PV Projects and Ancona PV Projects, the Contractor can withdraw from the O&M Agreement at the tenth anniversary thereof by sending a 12-month prior written notice to the PV Principal.

Additional termination provisions exist with respect to termination due to ongoing circumstances of “force majeure” as defined in the O&M Agreement.

In the event of termination of the O&M Agreement, the Contractor is obligated, inter alia, to deliver the PV Plant to the PV Principal within 30 days from the termination. Should the Contractor not comply with this obligation within the above mentioned term, then the Contractor shall pay to the PV Principal delay liquidated damages for each day of delay.

Assignment

The Contractor may not assign the O&M Agreement without the prior written consent of the PV Principal. The PV Principal is authorized to assign the agreement to the Financing Entity or any person appointed by the Financing Entity. If such assignment is by means of a line of business assignment, the Contractor may not withdraw from the agreement. In addition, the O&M Agreement stipulates that all receivables arising from this agreement are assigned or pledged to the Financing Entity as a security for the loan agreement with such entity.

Governing Law and Dispute Resolution

The O&M Agreement, like the EPC Contract, is governed and construed in accordance with Italian law. Disputes are generally subject to arbitration in Milan, although certain disputes may be resolved, at the request of one party, by a technical expert.

Additional Payments

In addition to payments to the Contractors under the O&M Agreements, the PV Principal will also be making annual payments to the owners of the land, pursuant to the building right agreements.
 
 
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Financing Agreements

As noted above, both the EPC Contract and the O&M Agreement contemplate the procurement by the PV Principal of one or more credit lines, on a leasing or project finance basis from a Financing Entity.

Leasint

On December 31, 2010, Ellomay PV Five S.r.l. and Ellomay PV Six S.r.l., our wholly-owned Italian subsidiaries that are the PV Principal in the Puglia PV Projects, respectively, entered into Financial Leasing Agreements (the “Leasing Agreements”) with Leasint S.p.A. (“Leasint”).

Pursuant to the Leasing Agreements, each of Ellomay PV Five and Ellomay PV Six sold the PV Plants owned by them for a Euro 3.795 million (such amount included payments to the EPC Contractors) and Leasint, in turn, leases the PV Plant to each of these entities in consideration for a down-payment equals approximately to 20% of the consideration and monthly payments commencing 210 days following the transfer of ownership of the relevant PV Plant to Leasint, for the duration of the Leasing Agreement (17 years), representing a nominal annual interest rate of 3.43%. The monthly payments are linked to the monthly EURIBOR (Euro Interbank Offered Rate). At the end of term of the Leasing Agreement, each of the respective subsidiaries has the option to purchase the PV Plant from Leasint for 1% of the consideration.

The Leasing Agreements provide that the PV Principals shall be responsible and liable to Leasint for the acceptance of the plant, for the adherence with applicable laws, shall undertake any risk in connection with the PV Plant, including, inter alia, the operation and the maintenance of the PV system and further includes indemnification undertakings towards Leasint. The Leasing Agreements further also provides Leasint with the rights to independently verify the correct performance of the works.

The Leasing Agreements prohibits assignment of the agreement or granting third parties with the right to use the PV Plant without the prior written consent of Leasint. The Leasing Agreements permit the PV Principal to commence legal action against the Contractor or third parties in connection with breach of contract but prohibits termination of any contract by the PV Principal.

Each of the Leasing Agreements may be terminated by Leasint automatically following a failed, delayed or partial fulfillment of certain obligations of the PV Principal under the Leasing Agreement, including, inter alia, the PV Principal’s duties and obligations in connection with the oversight and use of the PV Plant and maintenance of insurance policies. Leasint may withdraw from each of the Leasing Agreements following the occurrence of various events set forth in the Leasing Agreements, including, inter alia, a substantial modification of the PV Principal or its guarantors’ corporate structure, material modification or interruption of the PV Principal’s activity and hindrance to the use of the PV Plant as a result of the issue of judicial or administrative measures attributable to the PV Principal or third parties for certain periods. The Leasing Agreements further provides for automatic termination in the event of destruction, total loss of the assets, definitive impossibility to use for any reason whatsoever, including force majeure, act or fact of the PV Principal or third parties. In the event of termination of the Leasing Agreement and the transfer of possession of the PV Plant to Leasint, Leasint is obligated to notify the PV Principal of the price determined for sale of the PV Plant and to provide the PV Principal with the right to have a third party purchase the PV Plant under better conditions.
 
 
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The Leasing Agreements may not be assigned by the EPC Contractor. In connection with the Leasing Agreements, the relevant PV Principals assigned their rights to receive credits from GSE to Leasint (to be used for payment of the monthly installments).

In connection with the Leasing Agreements, Ellomay Luxemburg, our wholly-owned subsidiary and the parent company of Ellomay PV Five and Ellomay PV Six, (i) undertook not to transfer its holdings in these companies without the prior written consent of Leasint, (ii) provided a pledge on the shares it holds in such companies in favor of Leasint in order to guarantee the obligations of these companies under the respective Leasing Agreement, (iii) agreed to the subordination of any receivables it may be entitled to receive from these companies and (iv) undertook not to allow the distribution of profits from the relevant fiscal year and for the two subsequent years in the event the debt service cover ratio is below the ratio prescribed by the Leasing Agreements. In connection with the Leasing Agreements and the foregoing undertakings by Ellomay Luxemburg, we undertook not to transfer more than 20% of our holdings of Ellomay Luxemburg without the prior written consent of Leasint and further undertook to Ellomay Luxemburg that for so long as we remain its sole shareholder and it remains the sole shareholder of the Lessees under the Leasing Agreements and if it does not have sufficient funds, we will assist it in its undertaking in connection with the debt service cover ratio set forth under (iv) above.
 
Centrobanca

On February 17, 2011, Ellomay PV One S.r.l., our wholly-owned Italian subsidiary that is the PV Principal in the Macerata PV Projects entered into a project finance facilities credit agreement (the “Finance Agreement”) with Centrobanca – Banca di Credito Finanziario e Mobiliare S.p.A. (“Centrobanca”).

Pursuant to the Finance Agreement, Ellomay PV One received two lines of credit in the aggregate amount of Euro 4.65 million divided into:

 
(i)
a Senior Loan, to be applied to the costs of construction of the PV Plants (up to 80% of the relevant amount),  in the amount of Euro 4.1 million, accruing interest at the EURIBOR rate, increased by a margin of 200 basis points per annum, repaid semi annually; and

 
(ii)
a VAT Line, for payment of VAT due on the costs of construction in the amount of Euro 0.55 million, accruing interest at the EURIBOR rate, increased by 160 basis points per annum, repaid in one payment until December 31, 2013.

The Finance Agreement also requires the payment of commitment fees per annum, calculated as a certain percentage of the undrawn and un-cancelled amount of both the Senior Loan and the VAT Line and certain additional payments, including an arranging fee and an annual agency fee.
 
 
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The Finance Agreements provide for a defaults interest that will accrue upon the occurrence of certain events, including a delay in payments, acceleration, termination and withdrawal. The outstanding loans may be prepaid on predetermined dates, upon payment of a fee equal to 2% of the prepaid amount. The Finance Agreement also provides for mandatory prepayment upon the occurrence of certain events, including in the event the present value of cash flow available for debt services/debt outstanding (the Loan Life Coverage Ratio) is lower than a pre-determined ratio and in the event of a change of more than 49% of the ownership of Ellomay PV One (unless Centrobanca resolves to maintain the financing in force based on the identity and undertakings of the new shareholder). The Finance Agreement includes various customary representations, warranties and covenants, including covenants to maintain certain financial ratios.
 
No amount re-paid or pre-paid under the Finance Agreement may be re-borrowed by Ellomay PV One. Ellomay PV One may not transfer any of the credits or other rights or obligations under the Finance Agreement without the prior consent of Centrobanca.

The Finance Agreement grants Centrobanca the right to terminate the agreement upon the occurrence of certain “Relevant Events”, including nonpayment, breach of certain obligations and cross default under certain other financial indebtedness, the right to accelerate payments (provided in addition to the termination and other remedies available under the Finance Agreement and/or applicable law) upon to occurrence of certain other “Relevant Events”, including insolvency of Ellomay PV One and the right to withdraw from the Finance Agreement upon the occurrence of any of the “Relevant Events”.

In connection with the Finance Agreement, Ellomay PV One provided securities to Centrobanca, including a mortgage on the PV Plants and an assignment of receivables deriving from the project contracts (including the agreements with GSE) and VAT credits (to be used for repayment of the outstanding loans).

In connection with the Finance Agreement, Ellomay Luxemburg, our wholly-owned subsidiary and the parent company of Ellomay PV One (i) provided a pledge on the shares it holds in this company in favor of Centrobanca in order to guarantee the obligations  of this company under the Finance Agreement and related documents, (ii) agreed to the subordination of any receivables it may be entitled to receive from these companies and (iii) entered into an equity contribution agreement with Ellomay PV One. In connection with the Finance Agreement and the foregoing undertakings by Ellomay Luxemburg, we undertook to Ellomay Luxemburg that for so long as we remain its sole shareholder and it remains the sole shareholder of the Ellomay PV One and if it does not have sufficient funds, we will provide it with sums necessary to enable Ellomay Luxembourg to contribute equity to Ellomay PV One in order to, inter alia, cover part of the costs of the PV Project and ensure that the Debt/Equity Ratio meets the requirements of the Finance Agreement.
 
 
Photovoltaic Industry Background

Electric power accounts for a growing share of overall energy use. While a majority of the world’s current electricity supply is generated from fossil fuels such as coal, oil and natural gas, these traditional energy sources face a number of challenges including rising prices, security concerns over dependence on imports from a limited number of countries, and growing environmental concerns over the climate change risks associated with power generation using fossil fuels. As a result of these and other challenges facing traditional energy sources, governments, businesses and consumers are increasingly supporting the development of alternative energy sources, including solar energy.
 
 
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Solar energy is one of the most direct and unlimited energy sources. It is the underlying energy source for renewable fuel sources, including biomass fuels and hydroelectric energy. By extracting energy directly from the sun and converting it into an immediately usable form, either as heat or electricity, intermediate steps are eliminated.

The most common ways that solar energy can be converted into usable forms of energy are either through the photovoltaic effect (generating electricity from photons) or by generating heat (solar thermal energy).

Global trends in the industry

According to EPIA (European Photovoltaic Industry Association) the solar power market has grown significantly in the past decade. Despite the rapid growth, solar energy constitutes only a small fraction of the world’s energy output and therefore may have significant growth potential. According to EPIA, the global photovoltaic installations in 2010 reached 15 GW and may reach a total capacity of 688 GW by 2020 and 1,845 GW by 2030 as a function of the amount of incentives that are in place, such as FiT, further explained in “Item 4.B: Government Regulations - Regulatory Framework of Italian PV Projects”.

Anatomy of a Solar Power Plant

Solar power systems convert the energy in sunlight directly into electrical energy within solar cells based on the photovoltaic effect. Multiple solar cells, which produce DC power, are electrically interconnected into solar panels. A typical solar panel may have several dozens of individual solar cells. Multiple solar panels are electrically wired together and are electrically wired to an inverter, which converts the power from DC to AC and interconnects with the utility grid.

Solar electric cells convert light energy into electricity at the atomic level. The conversion efficiency of a solar electric cell is defined as the ratio of the sunlight energy that hits the cell divided by the electrical energy that is produced by the cell. The earliest solar electric devices converted about 1%-2% of sunlight energy into electric energy. Current solar electric devices convert 5%-25% of light energy into electric energy (the overall efficiency for solar panels is lower than solar cells because of the panel frame and gaps between solar cells), and current mass produced panel systems are substantially less expensive than earlier systems. Effort in the industry is currently being directed towards the development of new solar cell technology to reduce per watt costs and increase area efficiencies.

Solar electric panels are composed of multiple solar cells, along with the necessary internal wiring, aluminum and glass framework, and external electrical connections.

Inverters convert the DC power from solar panels to the AC power used in buildings. Grid-tie inverters synchronize to utility voltage and frequency and only operate when utility power is stable (in the case of a power failure these grid-tie inverters shut down to safeguard utility personnel from possible harm during repairs). Inverters also operate to maximize the power extracted from the solar panels, regulating the voltage and current output of the solar array based on sun intensity.
 
 
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Monitoring. There are two basic approaches to access information on the performance of a solar power system. The most accurate and reliable approach is to collect the solar power performance data locally from the inverter with a hard-wired connection and then transmit that data via the internet to a centralized database. Data on the performance of a system can then be accessed from any device with a web browser, including personal computers and cell phones. As an alternative to web-based remote monitoring, most commercial inverters have a digital display on the inverter itself that shows performance data and can also display this data on a nearby personal computer with a hard-wired or wireless connection.

Tracker Technology vs. Fixed Technology

As described above, some of our PV Plants use fixed solar panels while others use panels equipped with single or dual axis tracking technology. Tracking technology is used to minimize the angle of incidence between the incoming light and a photovoltaic panel. As photovoltaic panels accept direct and diffuse light energy and panels using tracking technology always gather the available direct light, the amount of energy produced by such panels, compared to panels with a fixed amount of installed power generating capacity, is higher. As the double axis trackers allow the photovoltaic production to stay closer to maximum capacity for many additional hours, an increase of approximately 20% (single) - 30% (dual) of the photovoltaic modules plane irradiation can be estimated.

Solar Power Benefits

The direct conversion of light into energy offers the following benefits compared to conventional energy sources:
 
 
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Economic - An increase in solar power generation will reduce dependence on fossil fuels. Worldwide demand for electricity is expected to nearly double by 2025, according to the U.S. Department of Energy. Additionally, according to International Energy Agency, over 60% of the world’s electricity is generated from fossil fuels such as coal, natural gas and oil. The combination of declining finite fossil fuel energy resources and increasing energy demand is depleting natural resources as well as driving up electricity costs, underscoring the need for reliable renewable energy production. Solar power systems are renewable energy sources that rely on the sun as an energy source and do not require a fossil fuel supply. As such, they are well positioned to offer a sustainable long-term alternative means of power generation. Once a solar power system is installed, the cost of generating electricity is relatively stable over the lifespan of the system. There are no risks that fuel prices will escalate or fuel shortages will develop, although cash paybacks for systems range depending on the level of incentives, electric rates, annualized sun intensity, installation costs and derogation in the efficiency of the panels.
 
 
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Convenience - Solar power systems can be installed on a wide range of sites, including small residential roofs, the ground, covered parking structures and large industrial buildings. Most solar power systems also have few, if any, moving parts and are generally guaranteed to operate for 20-25 years, resulting in low maintenance and operating costs and reliability compared to other forms of power generation.
 
 
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Environmental - Solar power is one of the cleanest electric generation sources, capable of generating electricity without air or water emissions, noise, vibration, habitat impact or waste generation. In particular, solar power does not generate greenhouse gases that contribute to global climate change or other air pollutants, as power generation based on fossil fuel combustion does, and does not generate radioactive or other wastes as nuclear power and coal combustion do. It is anticipated that greenhouse gas regulation will increase the costs and constrain the development of fossil fuel based electric generation and increase the attractiveness of solar power as a renewable electricity source.
 
 
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Security - Producing solar power improves energy security both on an international level (by reducing fossil energy purchases from hostile countries) and a local level (by reducing power strains on local electrical transmission and distribution systems).

These benefits have impacted our decision to enter into the solar photovoltaic market. We believe escalating fuel costs, environmental concerns and energy security make it likely that the demand for solar power production will continue to grow. Many countries, including Italy, have put incentive programs in place that directly spur the installation of grid-tied solar power systems. For further information please see “Item 4.B: Government Regulations - Regulatory Framework of Italian PV Projects.”
 
However, there are several risk factors associated with the photovoltaic market. See “Item 3.D: Risk Factors - Risks Relating to the Italian PV Projects”.

Investment in Dori Energy

On November 25, 2010, Ellomay Energy, our wholly-owned subsidiary, entered into the Dori Investment Agreement. The Dori Investment Agreement provided that subject to the fulfillment of certain conditions precedent, Ellomay Energy shall invest a total amount of NIS 50 million (approximately $ 14.1 million) in Dori Energy, and shall be issued a 40% stake in Dori Energy’s share capital. The transaction contemplated by the Dori Investment Agreement (the “Dori Investment”) was consummated on January 27, 2011 (the “Dori Closing Date”), and, consequently, Ellomay Energy now holds 40% of Dori Energy’s share capital. The remainder (60%) is held by Dori Group.

Ellomay Energy was also granted an option to acquire additional shares of Dori Energy that, if exercised, will increase Ellomay Energy’s percentage holding in Dori Energy to 49% and, subject to the obtainment of certain regulatory approvals – to 50%.

As of the Dori Closing Date, Dori Energy is the holder of 18.75% of Dorad, a private Israeli company that is promoting the Dorad Project. Dorad has entered into a credit facility agreement with a consortium lead by Bank Hapoalim Ltd., and financial closing of the Project was reached on January 27, 2011 (the “Dorad Financing Agreement”).

The Dorad Project entails the construction of a combined cycle power station based on natural gas, with a production capacity of approximately 800 MW, on the premises of the Eilat-Ashkelon Pipeline Company (EAPC) located south of Ashkelon. The electricity produced will be sold to end-users throughout Israel and to the National Electrical Grid. The transmission of electricity to the end-users shall be done via the existing transmission and distribution lines, in accordance with the provisions of the Electricity Sector Law and its Regulations, the Standards and the tariffs determined by the Public Utility Authority - Electricity. The Dorad power station will be based on combined cycle technology using natural gas. The combined cycle configuration is a modern technology to produce electricity, where gas turbines serve as the prime mover. After combustion in the gas turbine to produce electricity, the hot gases from the gas turbine exhaust are directed through an additional heat exchanger to produce steam. The steam powers a steam turbine connected to a generator, which produces additional electric energy.
 
 
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Concurrently with the consummation of the Dori Investment, Dori Energy entered into an agreement with Israel Discount Bank Ltd. (“Discount Bank” and the “Discount Bank Agreement”) pursuant to which Discount Bank extended to Dorad, as per Dori Energy’s request, a NIS 120 million (approximately $34 million) bank guarantee that was required to allow Dori Energy to extend its pro rata share of the equity required by Dorad for the power plant project. Ellomay Energy and we guaranteed, jointly and severally, 40% of the liabilities of Dori Energy towards Discount Bank under the Discount Bank Agreement. In addition, each of Ellomay Energy and U. Dori also pledged their holdings in Dori Energy in favor of Discount Bank as a security for the fulfillment of Dori Energy’s obligations to Discount Bank under the Discount Bank Agreement.

Concurrently with the execution of the Dori Investment Agreement, Ellomay Energy, Dori Energy and Dori Group have also entered into the Dori SHA that became effective upon the consummation of the Dori Investment. The Dori SHA provides that each of Dori Group and Ellomay Energy is entitled to nominate two directors (out of a total of four directors) in Dori Energy. The Dori SHA also grants each of Dori Group and Ellomay Energy with equal rights to nominate directors in Dorad, provided that in the event Dori Energy is entitled to nominate only one director in Dorad, such director shall be nominated by Ellomay Energy for so long as Ellomay Energy holds at least 30% of Dori Energy. The Dori SHA further includes customary provisions with respect to restrictions on transfer of shares, a reciprocal right of first refusal, tag along, principles for the implementation of a BMBY separation mechanism, veto rights, etc.

Competition

Italian PV Projects

As further detailed in “Item 4.B: Governmental Regulations - Regulatory Framework of Italian PV Projects,” currently, the Italian governmental agencies are willing to pay a FiT for the power production of photovoltaic plants in Italy, as long as they enter into operation within May 31, 2011, and once a power plant is connected to the national grid, the FiT is granted for a period of 20 years. The Italian government committed to issue by no later than April 30, 2011 the FiT that will apply to photovoltaic plants that will enter into operation after May 30, 2011. Thus, our competitors are mostly other entities that seek land and contractors to construct new power plants on their behalf, should we also wish to construct additional plants. The market for solar energy is intensely competitive and rapidly evolving, and many of our competitors who strive to construct new solar power plants have established more prominent market positions and are more experienced in this field. Our competitors in this market include Etrion Corporation (ETX.TO), Sunflower Sustainable Investments Ltd. (SNFL.TA), Allerion Cleanpower S.p.A., Origis Energy and Foresight Group. If we fail to attract and retain ongoing relationships with solar plants developers, we will be unable to reach additional agreements for the development and operation of additional solar plants, should we wish to do so.
 
 
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Seasonality

Solar power production has a seasonal cycle due to its dependency on the direct and indirect sunlight and the effect the amount of sunlight has on the output of energy produced. Adverse meteorological conditions can have a material impact on the PV Plant’s output and could result in production of electricity below expected output.

Sources and Availability of Components of the Solar Power Plant

As noted above, the construction of our PV Plants entails the assembly of solar panels and inverters that are purchased from third party suppliers. One of the critical factors in the success of our PV Plants is the existence of reliable panel suppliers, who guaranty the performance and quality of the panels supplied. Degradation in such performance above a certain minimum level is guaranteed by the panel suppliers, however, if any of the suppliers is unreliable or becomes insolvent, it may default on warranty obligations. In addition, as photovoltaic plants installations have increased over the past few years, the demand for such components has also increased. To the extent such increase in demand continues and is not met by a sufficient increase in supply, the availability of such components may decrease and the prices may increase.

There are currently sufficient numbers of solar panel manufacturers at sufficient quality and we are not currently dependent on one or more specific suppliers.

In addition, silicon is a dominant component of the solar panels, and although manufacturing abilities have increased over-time, any shortage of silicon, or any other material component necessary for the manufacture of the solar panels, may adversely affect our business.

Insurance

Following the consummation of the sale of our business to HP, we terminated all business related insurance policies and obtained new reduced coverage and certain run-off insurance policies. We believe that the insurance coverage is adequate and appropriate in light of our current business and the circumstances resulting from the HP Transaction. We issued all risks insurance policies for each of its operating PV plants covering, inter alia, third party liability, business interruption and loss of profits arising from direct damages resulting from accidental events such as earth quacks, wind atmosphere events etc. The amount insured is approximately  EUR 5-5.5 million .

Government Regulations

Regulatory Framework of Italian PV Projects

The regulatory framework surrounding the Italian PV Projects consists of legislation at the Italian national and local level. Relevant European legislation has been incorporated into Italian legislation, as described below.
 
 
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National Legislation

(i)           Construction Authorizations

Construction of the PV Plants is subject to receipt of appropriate construction authorizations, pursuant to Legislative Decree no. 380 of 2001 (“Decree 380”), and Legislative Decree 29 December 2003 no. 387 (“Decree 387”), the latter of which implements European Directive no. 77 of 2001 on the promotion of electricity produced from renewable energy sources in the internal electricity market.

Decree 387 aims to promote renewable energies, inter alia by simplifying the procedures required to commence constructions. In particular, it regulates the so-called Autorizzazione Unica (“AU”) in relation to renewable energy plants. The AU is an authorization issued by the Region in which the construction is to take place, or by other local competent authorities, and which joins together all permits, authorizations and opinions that would otherwise be necessary to begin construction (such as, building licenses, landscape authorizations, permits for the interconnection facilities, etc.). The only authorization not included in the AU is the environmental impact assessment (valutazione di impatto ambientale, or “VIA”, see below), which needs to be obtained before the AU procedure is started. The AU is issued following a procedure called Conferenza di Servizi in which all relevant entities and authorities participate. Such procedure is expected to be completed within 180 days of the filing of the relevant application, but such term is not mandatory and cannot entirely be relied upon.

Decree 380, which is the general law on building administrative procedures, provides another track for obtaining the construction permit. Pursuant to this decree, the construction authorization can be obtained through a permesso di costruire (“Building Permit”), which is an express authorization granted by the competent municipality. Upon positive outcome of the municipality’s review, the Building Permit is granted. Works must start, under penalty of forfeiture of the Building Permit, within one year following the date of issuance, and must be completed within the following three years.

Decree 380 also regulates the so-called Dichiarazione di inizio attività (“DIA”) procedure. DIA is a self-certification process whereby the applicant declares that the project in question complies with all relevant requirements and conditions. The competent authority can deny the authorization within 30 days of receipt of DIA; should such a denial not be issued within such term - which is mandatory - the authorization shall be deemed granted and the applicant is allowed to start the works. The DIA procedure can be used in relation to plants whose power is lower than 20 kW. Since the expected power output of the PV Projects exceeds 20kW, the DIA is not available for the PV Projects. However, this is not applicable in the Puglia region, where regional legislation has increased the limit within which the DIA procedure can be used (see relevant section below).

The PV Projects rely on six Building Permits that have already been issued.
 
 (ii)         Connection to the National Grid
 
The procedures for the connection to the national grid are provided by the Authority for Electric Energy and Gas (“AEEG”). Currently, the procedure to be followed for the connection is regulated by the AEEG Resolution no. 99 of 2008 (Testo Integrato delle Connessioni Attive, so-called “TICA”) which replaces previous legislation and has subsequently been integrated and partially amended by AEEG Resolutions no. 124/2010 and 125/2010. According to TICA, an application for connection must be filed with the competent local grid operator, after which the latter notifies the applicant the estimated time for connection (the “STMC”). The STMC shall be accepted within 45 days of issuance. However, in order for the authorization to the connection to become definitive, all relevant authorization procedures (such as easements, ministerial nulla osta, etc.) must be successfully completed.
 
 
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There are three alternative modalities to sell electricity:

 
·
by way of sale on the electricity market (Italian Power Exchange IPEX), the so called “Borsa Elettrica”;

 
·
through bilateral contracts with wholesale dealers;

 
·
via the so-called “Dedicated Withdrawal Plant” introduced by AEEG Resolution no. 280/07 and subsequent amendments. This is the most common way of selling electricity, as it affords direct and quick negotiations with the national energy handler (GSE), which will in turn deal with energy buyers on the market. We envisage selling electricity though this method.
 
Regional Regulation Applicable to the Marche Region

Marche Regional Law no. 7 of 2004 requires certain types of projects to be subjected to an Environmental Impact Assessment (the “VIA Procedure”) and states that the VIA Procedure is expressly excluded for photovoltaic plants whose surface is less than 5000 m2 (unless such plants are not listed as national protected areas pursuant to law no. 394 of December 6th 1991). Specific provisions prevent constructors from avoiding such limits by building various plants with a surface of less than 5.000 m2.

In addition, Regional Law no. 7 of 2004 has been amended by Law no. 99 of 2009, which specifies that the VIA Procedure is expressly excluded for plants with a nominal power lower than 1 MW. In the case of the PV Projects, the target nominal power for each PV Plant is less than 1 MW, such that the PV Projects are expected to be exempt from the VIA Procedure.
 
Regional Regulation Applicable to the Puglia Region

Regional Law 19 February 2008 no. 1 has established that the construction of renewable energy plants in Puglia whose power capacity is up to 1 MW can be authorized with DIA (without prejudice to applicable provisions on environmental impact assessment), in the case of photovoltaic plants located on industrial, commercial and service buildings, and/or located on the ground within industrial, commercial and service parks.

In this regard, by Circolare no. 38/8763 the Puglia Region pointed out the so-called “cluster issue” (i.e. group of plants whose capacity is lower than 1 MW each, located in the same agricultural area and authorized by means of DIAs, rather than under the AU procedure), providing that if plants cannot be deemed as single plants, the simplified DIA procedure shall be considered elusive of Legislative Decree no. 387/2003 and therefore the AU Procedure should be followed. The Circolare identified as signals to the occurrence of a cluster: (i) single point of connection for more than one plant; (ii) same landowner(s) for adjacent plants; or (iii) same economic and industrial initiative (i.e. same directors or shareholders, same developer, etc.).
 
 
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Regional Law 21 October 2008 no. 31 has subsequently provided a new regulation of the terms according to which the DIA procedure can be used in connection with plants having nominal power up to 1 MWp. Said law applies to DIA which have become effective after 7 November 2008 and provides that the commencement of the works concerning photovoltaic plants, whose power ranges from 20 kW up to 1 MW to be built on agricultural lands, can be authorized by way of DIA, provided that:

·
the area to be enslaved (asservimento) is at least twice the size of the radiant surface; and

·
the portion of the plot of land which is not occupied by the photovoltaic plant is used exclusively for agricultural activities.

However, on March 26, 2010 Regional Law no. 31/2008 was annulled by the Constitutional Court (the “Court”) in so far as, contrary to what is set forth in Legislative Decree no. 387/2003, it increases up to 1 MWp the maximum power threshold (20 kW) established by Law no. 244/2007 for application of the DIA procedure. DIA issued according to Regional Law no. 31/2008 can therefore be voided on the basis of the Court judgment provided that they are successfully challenged by a third party having an interest or by the administrative bodies acting in self-protection (“autotutela”). As noted above, the PV Projects rely on six Building Permits, that have already been issued, and not on the DIA procedure.

The Incentive Tariff System for Photovoltaic Plants

The Italian government promotes renewable energies by providing certain incentives. In particular, with Ministerial Decree 19.2.2007 (“Second Conto Energia”) the production of renewable electric energy from photovoltaic sources has been promoted by granting a fixed FiT for a period of 20 years from connection of PV plants. The FiT is determined with reference to the nominal power of the plant, the characteristics of the plant (plants are divided into non-integrated; partially integrated and architecturally integrated) and the year on which the plant has been connected to the grid. The FiT provided for by the Second Conto Energia are as follows:
 
Nominal Power kWp
Non-Integrated
Partially Integrated
Arch. Integrated
1 kW ≤ P ≤ 3 kW
0.40 Euro/kWh
0.44 Euro/kWh
0.49 Euro/kWh
3 kW < P ≤ 20 kW
0.38 Euro/kWh
0.42 Euro/kWh
0.46 Euro/kWh
P > 20 kW
0.36 Euro/kWh1
0.40 Euro/kWh
0.44 Euro/kWh
 
The figures above refer to plants which started operation within December 31, 2008. For plants which commence operation between January 1, 2010 and December 31, 2010, the FiT will be reduced by 2% for each calendar year following 2008.
 

1 With regard to the PV Plants the tariff for 2010 is equal to € 0.345/kWh.
 
 
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Pursuant to Ministerial Decree 6 August 2010 (“Third Conto Energia”) a fixed FiT is granted for a period of 20 years from the date on which the plant is connected to the grid in relation to plants that enter into operation after December 31, 2010 and until December 31, 2013. The FiT provided for by the Third Conto Energia are as follows:
 
 
A
B
C
Nominal Power
Plants entered in operation
after December 31, 2010 and
by April 30, 2011
Plants entered in operation
after April 30, 2011 and
by August 31, 2011
Plants entered in operation
after August 31, 2011 and
by December 31, 2011
PV plants on buildings
Other PV plants
PV plants on buildings
Other PV plants
PV plants on buildings
Other PV plants
[kW]
[€ /kWh]
[€/kWh]
[€/kWh]
[€/kWh]
[€/kWh]
[€/kWh]
1 ≤ P ≤ 3
0.402
0.362
0.391
0.347
0.380
0.333
3< P ≤20
0.377
0.339
0.360
0.322
0.342
0.304
20< P ≤200
0.358
0.321
0.341
0.309
0.323
0.285
200< P ≤1000
0.355
0.314
0.335
0.303
0.314
0.266
1000<P≤5000
0.351
0.313
0.327
0.289
0.302
0.264
P>5000
0.333
0.297
0.311
0.275
0.287
0.251
 
The plants entering into operation in 2012 and 2013 will be granted the tariff referred to in column C above deducted by 6% each year.

The FiT is payable by GSE upon the grant of an incentive agreement between the producer and GSE. Notwithstanding the foregoing, the first payment of the FiT to the producer is made retroactively, 6 months following connection to the national grid.

However, a new decree entered into force on March 29, 2011 (the “New Decree”) provides that the Third Conto Energia shall apply only to photovoltaic plants whose grid connection has been achieved by May 31, 2011. The incentives whose grid connection has been achieved after such date will be regulated within April 30, 2011, by a new decree to be adopted by the Ministry of Economic Development jointly with the Ministry of the Environment.

The New Decree provides that, starting from its entry into force, ground mounted PV plants installed on agricultural lands, will benefit from incentives, provided that:
 
a)
the power capacity of the plant is not higher than 1 MW and - in the case of lands owned by the same owner - the PV plants are installed at a distance of at least 2 km; and
 
 
b)
the installation of the PV plants does not cover more than 10% of the surface of agricultural land which is available to the applicant.
 
Such provisions shall not apply to ground mounted PV plants installed on agricultural lands provided either that they have been admitted to incentives within the date of entry into force of the New Decree, or the application for the incentives was submitted by January 1, 2011; and provided that in any case the PV plant comes into operation within one year from the date of entry into force of the New Decree. The PV Projects have all filed their application by January 1, 2011 and, as noted above, two of them have already been connected to the national grid. Therefore, if the application filed by the remaining four PV Projects will be accepted, then the New Decree will be applicable to these PV Projects only if they are not connected to the grid within one year from the date of entry into force of the New Decree.
 
 
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Other Renewable Energy Incentives

Legislative Decree no. 79 of 1999 implements the so-called “priority of dispatch” principle to the marketing of renewable energies, which means that the demand for electricity must be first satisfied by renewable energies.

In other words, in light of the increasing demand of energy, the sale of the total output of power plants fuelled by renewable sources is required by law, and the government must buy power from solar power plants that wish to sell to it, before it can buy the remainder of its power needs from fossil fuel energy resources.

Regulatory Framework of Dorad’s Operations

The regulatory framework applicable to the production of electricity by the private sector in Israel is provided under the Israeli Electricity Sector Law, 1996 (the “Electricity Law”) and the regulations promulgated thereunder, including the Electricity Market Regulations (Terms and procedures for the granting of a license and the duties of the Licensee), 1997, the Electricity Market Principles (Transactions with the supplier of an essential service), 2000, and the Electricity Market Regulations (Conventional Private Electricity Manufacturer), 2005. In addition, standards, guidelines and other instructions published by the Israeli Public Utilities Authority – Electricity (established pursuant to Section 21 of the Electricity Law, the “Authority”) and\or by the Israeli Electric Company also apply to the production of electricity by the private sector in Israel.

In February 2010, the Authority granted Dorad a Conditional License, as defined by the Electricity Market Regulations (Conventional Private Electricity Manufacturer), 2005, (the “Conditional License”) for the construction of a natural gas (and alternative fuel for back up purposes) operated power plant in Ashkelon, Israel for the production of electricity, with an installed production capacity of 760-850 MWp. The Conditional License includes several conditions precedent to the entitlement of the holder of the Conditional License to produce and sell electricity to the Israeli Electric Company. The Conditional License shall be valid for a period of fifty four (54) months commencing from the date of its approval by the Israeli Minister of National Infrastructures, subject to compliance, by Dorad, with the milestones set forth therein, and the other provisions set forth therein. If Dorad shall comply with all the conditions and meet all the milestones, as detailed in the Conditional License, it will be granted with a permanent electricity production license under the Conditional License. In September 2010, Dorad received a draft approval of conditional tariffs from the Authority that sets forth the tariffs applicable to the Dorad Project throughout the period of its operation.

In addition, in July 2009, the Licensing Authority of the National Planning and Construction Board for National Infrastructure established pursuant to the Israeli Zoning and Construction Law, 1996 (the “Construction Law”), granted a building permit with respect to the Dorad Project (Building License No. 2-01-2008), as required pursuant to the Construction Law.
 
 
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Investment Company Act of 1940

Regulation under the Investment Company Act governs almost every aspect of a registered investment company’s operations and can be very onerous. The Investment Company Act, among other things, limits an investment company’s capital structure, borrowing practices and transactions between an investment company and its affiliates, and restricts the issuance of traditional options, warrants and incentive compensation arrangements, imposes requirements concerning the composition of an investment company’s board of directors and requires shareholder approval of certain policy changes. In addition, contracts made in violation of the Investment Company Act are void.

An investment company organized outside of the United States is not permitted to register under the Investment Company Act without an order from the SEC permitting it to register and, prior to being permitted to register, it is not permitted to publicly offer or promote its securities in the United States.

As a result of the sale of our business to HP, we could fall within the definition of an “investment company” under the Investment Company Act, if we invest more than 40% of our assets in “investment securities”, as defined in the Investment Company Act. Investments in securities of majority owned subsidiaries (defined for these purposes as companies in which we control 50% or more of the voting securities) are not “investment securities” for purposes of this definition. Unless we limit the nature of our investments to cash and cash equivalents (which are generally not “investment securities”) and succeed in making strategic “controlling” investments, we may be deemed to be an “investment company.” We do not believe that our current asset structure results in our being deemed to be an “investment company,” as we control the Italian PV Projects via wholly-owned subsidiaries and the current fair value of the shares we hold in Dori Energy and of our interests in other activities as detailed above does not in our judgment exceed 40% of our aggregate assets, excluding our assets held in cash and cash equivalents. If we were deemed to be an “investment company,” we would not be permitted to register under the Investment Company Act without an order from the SEC permitting us to register because we are incorporated outside of the United States and, prior to being permitted to register, we would not be permitted to publicly offer or promote our securities in the United States. Even if we were permitted to register, it would subject us to additional commitments and regulatory compliance. Investments in cash and cash equivalents or in other assets that are not deemed to be “investment securities” might not be as favorable to us as other investments we might make if we were not potentially subject to regulation under the Investment Company Act. We seek to conduct our operations, including by way of investing our cash and cash equivalents, to the extent possible, so as not to become subject to regulation under the Investment Company Act. In addition, because we are actively engaged in exploring and considering strategic investments and business opportunities, and in fact have entered the Italian photovoltaic power plants market through controlling investments, we do not believe that we are currently engaged in “investment company” activities or business.

Shell Company Status

Following the consummation of the HP Transaction, we ceased conducting any operating activity and substantially all of our assets consisted of cash and cash equivalents. Accordingly, we may have been deemed to be a “shell company,” defined by Rule 12b-2 promulgated under the Securities Exchange Act of 1934 as (1) a company that has no or nominal operations; and (2) either: (i) no or nominal assets; (ii) assets consisting solely of cash and cash equivalents; or (iii) assets consisting of any amount of cash and cash equivalents and nominal other assets.
 
 
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Our characterization as a “shell company” subjected us to various restrictions and requirements under the U.S. Securities Laws. For example, in the event we consummated a transaction that caused us to cease being a “shell company,” we were required to file a report on Form 20-F within four business days of the closing of such transaction. We filed such Form 20-F that included full disclosure with respect to the PV Projects and our post-transaction status on March 10, 2010, following the execution of the EPC Contracts in connection with the Macerata PV Projects.

Therefore, we believe that since the execution of the Macerata PV Projects on March 4, 2010, we have ceased being a “shell company.” However, as noted below, the fact that we previously could have been deemed to be a “shell company” continues to affect us in certain ways.
 
During the period in which we were deemed to be a “shell company” and for a period of sixty days thereafter, we could not use any Form S-8 we have on file in order to enable the issuance of our shares and the resale of such shares by our employees.

In addition, pursuant to the provisions of Rule 144(i) promulgated under the Securities Exchange Act of 1934, shares issued by us at the time we were deemed to be a “shell company” and thereafter can only be resold pursuant to the general provisions of Rule 144 subject to the additional conditions included in Rule 144(i), requiring that a one-year period elapse since the date in which we file our “Form 10 information” (March 10, 2010) and that we have filed all reports and other materials required to be filed by section 13 or 15(d) of the Exchange Act, as applicable, during the twelve month period preceding the use of Rule 144 for resale of such shares. These continuing restrictions may limit our ability to, among other things, raise capital via the private placement of our shares.

Business Activities Prior to the HP Transaction

The following is a description of the business conducted by us prior to the closing of the HP Transaction. Please note that the information below reflects our business in the wide and super-wide format digital printing market, only up to the date of closing of the HP Transaction and is included in this annual report only due to the fact that for the first two months of fiscal 2008 we were still conducting business as described below:

Prior to the closing of the HP Transaction, we were a leading supplier of wide format and super-wide format digital printing systems worldwide. We developed, manufactured, sold and serviced digital color printers for the printing of large images such as billboards, posters and banners, point of purchase displays, exhibition and trade show displays, as well as decorations and backdrops for construction scaffolding covers, showrooms, television and film studios, museums and exhibits. We also supplied our customers with ink and solvent products for use with wide format and super-wide format digital printers.

We conducted the research and development activities related to printing equipment and ink at our facility in Lod, Israel, which we ceased leasing following the HP Transaction. We had worldwide marketing, sales and service subsidiaries or divisions in Europe, North America, South America, Asia Pacific and the Middle East and Africa regions.
 
 
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We offered several lines of printers in the wide and super-wide format categories which were either solvent-ink based or UV-ink based. In the solvent-ink based printers market we offered the NUR Fresco series and the NUR Tango. In the UV-ink based printers market, we offered the NUR Tempo series and the NUR Expedio series. These printers are sometimes referred to collectively herein as “our printers.”

We also sold specialized ink products for use with our printers. The ink products previously sold by us to our customers for use with the NUR Fresco, NUR Ultima, NUR Salsa, NUR Blueboard, NUR Tempo, NUR Expedio and NUR Tango printers were resistant to water and ultraviolet rays and were well suited for indoor and outdoor use.

We sold our printers and related products primarily to commercial digital printers, design and service firms, screen printers, commercial photo labs, outdoor media companies and trade shops. As of the consummation of the HP Transaction, our printers were installed in more than 800 sites throughout Europe, North and South America, Africa and Asia.

Industry Background

The market for printed applications requiring wide format and super-wide format printing expanded during the last few years during which we were active in such market. Wide format and super-wide format printing applications include billboards, flags, posters and banners, special event and trade show displays, point of purchase displays, fleet graphics, decorations and backdrops. For example, the retail, automotive, restaurant, travel and gasoline industries used outdoor advertising to promote their products in numerous locations including roadside billboards and posters displayed on streets and buildings, as well as the outside of buses, vans, trucks and trains, so-called vehicular graphics. Wide format and super-wide format prints could also be found in theaters as stage decorations, in museums and exhibitions as backdrops or displays and on construction sites as building site coverings. Prior to the introduction of digital printing systems, wide format and super-wide format short-run prints were produced either by hand painting, which is relatively slow and expensive, and produces lesser quality images, or by screen or offset printing, both of which are relatively expensive and time consuming processes.

Traditional Wide Format and Super-wide Format Printing Methods

Conventional methods of wide format and super-wide format printing have included hand painting, screen printing and offset printing. Generally, producing wide format and super-wide format color prints by traditional methods in relatively short runs (i.e., a few copies to a few hundred copies), depending on the application, has either been relatively slow and expensive or of limited quality. Because of the inherent limitations of the traditional wide format and super-wide format printing methods, quality wide format and super-wide format prints produced by these methods are generally limited to long runs of identical prints, designed and prepared well in advance or, in the case of hand painting, to single print applications. As a result, traditional methods of producing wide format and super-wide format prints have not provided timely and economic solutions for the needs of the short run printing market.
 
 
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Hand Painting.  Hand painting involves either the projection of an image onto a substrate, which is then drawn onto the substrate and subsequently painted by hand, or the spraying of paint onto material covered by a template that has been cut to the desired shape. The process of hand painting is an alternative mainly in developing countries where labor costs are significantly lower and where the significantly lower image quality is tolerated by the local market.

Screen Printing.  The screen-printing process is distinguished by its ability to print finely detailed images on practically any surface, including paper, plastics, metals and three-dimensional surfaces. However, the process requires significant set-up time and investment in materials before the image can be sent to press. This cost constrains the minimum number of copies the screen printer can produce economically. As screen-printing is a highly labor-intensive process, it is best suited for run lengths between 50 to 400 copies. Hence, this is a market in which we believe our digital printers can be highly competitive.

Offset Printing.  Offset color printing generally produces very high quality images compared to hand painting or screen-printing. However, because of the complex steps involved in offset color printing, each printing job, whether small or large, involves substantial set-up time and costs. In addition, much like hand painting and screen-printing, alterations and customizations are not economically feasible unless the entire offset color printing process is repeated. Another drawback is that the variety of substrate materials and widths suitable for use with offset printing machinery is limited. In general, offset color printing is best suited for long print runs.

Wide Format and Super-wide Format Digital Printing

The introduction of digital printing has aided in the transformation of the wide format and super-wide format printing industry by lowering set-up costs, shortening turnaround time and reducing labor requirements. Digital printing involves the production of hard-copy images and text from digital data that is either generated on a computer at the printing site or originated by a customer on the customer’s computer system. The digital data is then transferred directly from an electronic pre-press or desktop publishing system to the digital printer. During our operations in the digital printing business, there were several digital printing technologies available, including electrostatic, piezo drop-on-demand, thermal transfer and continuous inkjet printing.

Electrostatic Printing.  Electrostatic printing is a non-impact printing technique that employs an array of metal styli, selectively pulsed to a high potential to generate a charged latent image on dielectric-coated paper, which is then toned to develop the latent image into a visible image. The achievable printing resolution is up to 400 dots per square inch. The main drawback of the technology is the need for special and expensive substrates and toners. This requirement increases the cost of consumables considerably.

Piezo Drop-On-Demand Inkjet Printing.  Drop-on-demand technology involves the intermittent firing of ink drops when needed on the substrate. It provides high resolution and enables use of a variety of inks for home, office and industrial use. To address the needs of the wide format market for images with higher resolutions compared to those of other digital printing methods, for use with shorter viewing distances, we utilize drop-on-demand inkjet technology in our printers.
 
 
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Thermal Transfer Printing.  Thermal transfer printing is a contact printing technology that employs arrays of heated needles and pressure to melt and transfer wax based inks from a carrier roll onto a restricted variety of substrates. Like electrostatic printing, thermal transfer printing requires relatively expensive consumables.

Continuous Inkjet Printing.  Continuous inkjet printing technology involves the continuous flow of electrically conductive ink within a closed loop that is deflected onto a specific location on a sheet of paper or other medium. The ink is separated into uniform micro-drops and the micro-drops are electronically directed to be printed onto a selected area of the medium. Continuous inkjet printing technology allows for high-speed printing and produces images with good resolutions sufficient for viewing from distances of beyond five feet. Continuous inkjet printers also produce multiple copies with consistent color quality. The cost of equipment using continuous inkjet printing technology is relatively high in comparison to printers using electrostatic technology. However, the cost of the output produced with continuous inkjet printers is lower than that of electrostatic printers.

Products

Our revenues were derived primarily from the sale and service of our printers and the sale of ink and solvent products used with our printers. As previously mentioned, all products detailed herein have been sold to HP in connection with the HP Transaction and are no longer manufactured, sold or serviced by us.

Printers

UV-Ink Based Roll-Fed Printers

NUR Expedio™ Series

The NUR Expedio Series included NUR Expedio 5000, a 5-meter/16-feet super-wide inkjet production printer, NUR Expedio™ Revolution, a billboard printer using a special billboard ink, NUR Expedio™ 3200, a 3.2 meter, UV roll-to-roll printer, NUR Expedio™ Inspiration, a 3.2 meter, wide-format inkjet production printer with the ability to print on both flexible and rigid materials when combined with the NUR Expedio™ 3200 / Expedio Inspiration Flatbed Module, a flatbed add-on module for the NUR Expedio 3200 and the NUR Expedio Inspiration wide-format UV-inkjet production printers.

UV-Flatbed Digital Printers

NUR Tempo Series

The NUR Tempo Series included the NUR Tempo, able to print on almost any type of substrate, NUR Tempo L, a mid-range, four-color flatbed printer, NUR Tempo II, a flatbed wide-format inkjet printer and NUR Tempo Q, a high quality printer with increased printing capacity.
 
 
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Solvent-ink based Digital Printers

NUR Fresco™ Series

The NUR Fresco Series included NUR Fresco, a printer that used piezo drop-on-demand inkjet technology, NUR Fresco HiQ 8C, a printer based on a previous model printer which was modified to print using eight-color mode instead of the standard four-color mode, NUR Fresco X-Press 100, a printer that extended the productivity and versatility of the NUR Fresco photorealistic production printers to accommodate long print runs and high volume production environments, NUR Fresco II series, a series that replaced the NUR Fresco HiQ models and NUR Fresco III, a printer with higher speeds and productivity.

NUR Tango

The NUR Tango printer was manufactured by a third party under an exclusive OEM agreement and provided high production speeds and additional Color Activator (dryer) and switch-able Ink system for direct or indirect solvent dye sublimation printing. The OEM agreement was terminated prior to the consummation of the HP Transaction.

Our Printers - General

Our printers required little operator supervision, enabling one operator to run several machines at once. While the operators had to be specifically trained in the operation of our printers, unlike conventional methods such as offset printing, no special color mixing skills are required.

As compared to traditional methods of wide format and super-wide format printing, our printers could significantly reduce the set-up and operating costs associated with each print job. Both the number of personnel and the number of skilled personal that were required for the operation of our printers were lower than in traditional methods of wide-format and super-wide format printing. These advantages made wide format and super-wide format short-run color printing significantly more economical than is possible using traditional printing methods. Additionally, the relatively quick turnaround for the printed product enabled our printers to produce more output in a given period, thereby further lowering the costs of labor per print.

Unlike hand painting, screen or offset printing, the layout can be viewed through the pre-press workstation prior to printing, permitting last minute fine-tuning. By running a single copy of the print, corrections of text, enhancements of images, and additions of color can all be accomplished with minimal time, effort and cost. Additionally, since the format can readily be changed, our printers allowed the end-user to make each print in the run different, with little time, effort, or additional cost. For example, if so desired, different languages, graphics and text could be added to each print in a run.

As of the end of fiscal 2007, the retail prices of our printers generally ranged from $120,000 to $450,000 per machine.

Consumables

Inks

The NUR Tempo and NUR Expedio printers use specialized UV-curable inks. The ink used was resistant to water and ultraviolet rays, making it fairly durable and thus well suited for outdoor conditions. The NUR Tempo, through the utilization of the ink, can print on almost an unlimited variety of substrates. The NUR Expedio also prints on a variety of media. The ink we sold enabled the output of the NUR Tempo and NUR Expedio to be used both for indoor and outdoor advertising without additional lamination.
 
 
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The NUR Fresco and NUR Ultima printers use specialized all-in-one solvent-pigment based ink designed for the needs of the wide format and super-wide format market and suited for drop-on-demand technology printers. This ink was developed to ensure color-real, long lasting, color consistent, weather resistant prints. The NUR Blueboard printers that were in our installed base as of the consummation of the HP Transaction use specialized solvent-based pigmented ink designed for the needs of billboard application. The ink is resistant to water and ultraviolet rays, making it fairly durable and thus well suited for outdoor conditions.

We manufactured ink in our plant in Ashkelon, Israel, and our ink research and development activities were located in Lod, Israel.

Sales and Marketing

We distributed and sold our products directly and through the following wholly owned subsidiaries: NUR Europe (which was sold to HP), NUR America, NUR Asia Pacific, NUR DO Brazil (which was sold to HP) and NUR Japan (which was sold to HP).

Our marketing activities included participating in relevant tradeshows worldwide, advertising in trade publications, marketing directly to a target base, as well as publishing our own newsletters, participating in services and industry forums and maintaining an Internet site.

In addition, we worked to develop, market and sell a wide range of advanced ink products, all of which are designed to work with our previously existing range of printers.

The Israeli Government, through the Fund for the Encouragement of Marketing Activities of the Ministry of Industry, Trade and Labor (the “Marketing Fund”), awarded participation grants for marketing expenses incurred overseas. During 2007 and 2008 we did not receive grants from the Marketing Fund and we were not eligible to receive such grants. Under the terms of grants awarded to us in prior years by the Marketing Fund, we were obligated to pay a royalty of 3-4% of the export added value to the Marketing Fund until 100%-150% of the grants received in prior years had been repaid. In connection with a dispute with the Ministry of Industry, Trade and Labor, we withheld payments owed to the Marketing Fund. In February 2006, as part of the OCS Settlement Agreement described below, the District Court in Jerusalem approved a settlement between us and the Ministry of Industry, Trade and Labor in connection with our outstanding debt to the Marketing Fund. Under the terms of the approved settlement, we were required to make aggregate payments of approximately $0.78 million to the Marketing Fund over a three-year period. The liability to the Marketing Fund was fully paid during 2008.
 
 
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Production and Sources of Supply

We manufactured and assembled our printers at a single, large manufacturing facility located in the Telrad Campus in Lod, Israel.

Full system integration, acceptance and quality control testing of the printers were conducted by our employees at the manufacturing facility. Product quality control tests and inspections were performed at various steps throughout the manufacturing process, and each product was subject to a final test prior to delivery. As previously mentioned, NUR Tango printers were manufactured by a third party under an exclusive OEM agreement which was terminated prior to the sale of our business to HP.

During the conduct of our business, we were able to obtain adequate supplies of the components necessary to produce our printers and did not have any material problems with our subcontractors. The prices of our principal components did not materially change during 2007 and such portion of 2008 in which we still conducted our business (January – February).

We manufactured ink products at our plant in Ashkelon, Israel. The ink for use with the NUR Blueboard was manufactured by a third party, exclusively for us and under our brand name. Some of the ink products for use with the NUR Tempo and NUR Expedio were also manufactured for us by a third party under our previously-owned brand name.

Service and Support

Installation, post sale customer support and warranty services of our products were provided by us and our subsidiaries NUR America, NUR Europe (which was sold to HP), NUR Italy, NUR UK, NUR Asia Pacific, NUR DO Brazil (which was sold to HP) and NUR Japan (which was sold to HP). In most cases, our warranty to our direct customers and distributors covered defects in our printers for a period of six to twelve months after installation. We were also committed to maintaining sufficient spare parts and materials necessary for the operation of our printers for a certain period after cessation of the manufacturing of such printers.

Research and Development

Our research and development center, which up until the sale of our business to HP engaged over 50 employees, was focused on developing new products, enhancing the quality and performance relative to price of our existing products, reducing manufacturing costs, upgrading and expanding our product line through the development of additional features and improving functionality in response to market demand.

Total net research and development expenses were approximately $5.8 million, $7.0 million and $1.9 million in the years ended December 31, 2006, 2007 and 2008, respectively.

Research and development expenses were composed principally of salaries for employees, the hiring of subcontractors, prototype material costs and depreciation of printers and capital investment in infrastructure for software and electronic designs.
 
 
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Between 1997 and 2003, NUR Media Solutions, our subsidiary and NUR Europe, our former subsidiary (sold to HP), received three research and development grants in the aggregate amount of approximately EUR 2.4 million from local authorities in Belgium. The obligation to pay royalties from the sales of products developed with these grants was retained by NUR Media Solutions in connection with the HP Transaction and we undertook to release NUR Europe from its obligations, if any, pursuant to these grants. These grants are subject to certain terms and conditions pursuant to agreements entered into between the subsidiaries and the local authorities in Belgium. Under the terms of the grants, the subsidiaries have an obligation to pay royalties at the higher of a certain minimum annual amount or at a rate of 4% on the sales of products developed with funds provided by the local authorities in Belgium, up to an amount equal to the research and development grants received in connection with such products, linked to the Euro. The commencement of the royalty payments to the local authorities in Belgium is contingent upon such subsidiaries generating sales from products developed under these grants. The grants are not repayable in the event that the subsidiaries decide to cease the research and development activities or the exploitation of the products developed under these grants and all know- how and results of the research and development are transferred to the local authorities. In the event that such subsidiaries decide to cease exploitation of the products developed under these grants a notification thereof should be given to the local authorities in Belgium. Our subsidiaries ceased the research and development activities and the exploitation of certain products for which grants were received but did not submit notification to the local authorities and instead continued to pay royalties, with a total of EUR 0.659 million remitted through 2005. During the years ended December 31, 2006, 2007 and 2008, our subsidiaries did not pay any royalties to the local Belgian authorities, other than the settlement amount paid on December 2, 2008 as noted below.
 
During November 2008 NUR Media Solutions reached a settlement with the Belgian authorities by which the authorities waived the repayment of a portion of the grants and, in return, we paid back on December 2, 2008 a total of EUR 0.390 million as full and final settlement.

In the past, we received grants from the Government of Israel, through the Office of the Chief Scientist (the “OCS”), for the development of our systems and products. The terms of the grants prohibit the manufacture of products developed with government grants outside of Israel without the prior consent of the OCS. These restrictions do not bar exports from Israel of products developed with such technologies. In addition, the know-how and the technology developed pursuant to these grants may not be transferred to third parties or out of Israel without the approval of the OCS. The approval of the OCS, if granted, generally subjects us to additional financial obligations. These restrictions do not terminate following repayment of the grants. Other than with respect to the MAGNET and Magneton projects described below, we have not received research and development grants from the OCS since 2001. The OCS awards grants of up to 50% (and in certain circumstances up to 66%) of a project’s approved expenditures in return for royalties. Under the terms of previously granted funding, royalties were payable generally at a rate of 2% to 3% on sales of products developed from the funded project up to 100% to 150% of the dollar value of the original grant. During 2001, we made royalty payments of $0.2 million in respect of such grants to the OCS.  In February 2005, we filed a claim with the District Court in Jerusalem against the OCS for a declaratory judgment denying an alleged liability for unpaid royalties to the OCS of approximately $0.8 million and for the recovery of approximately $0.27 million that was previously paid to the OCS. In February 2006, the court approved a settlement between us and the OCS (the “OCS Settlement Agreement”). Under the terms of the OCS Settlement Agreement, we were required to make aggregate payments of approximately $0.6 to the OCS over a three-year period. We also agreed to make payments equal to 5% of our operating income in order to accelerate the repayment of the agreed upon royalties. The amounts required to be paid by us pursuant to the OCS Settlement Agreement were fully repaid by us during 2008.
 
 
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In addition to the OCS grants described above, following our participation in a research and development consortium of industrial companies and academic institution within the framework of the MAGNET program of the OCS, we worked on an ink technology project with the Technion – The Israel Institute of Technology, which received the approval of the Mini-MAGNET (or Magneton) committee of the OCS. The Magneton is designated to support knowledge-transfer relationships between industry and academic institutions. Under the terms of the Magneton program, the OCS contributes 66% of the OCS-approved program research budget. No royalties are payable to the OCS with respect to this funding, however, the terms of our agreement with the Technion required us to pay royalties to the Technion on the proceeds from sales of products resulting from this project when such sales commenced. The terms of the program prohibit both the manufacture of products using technology developed in the context of the program outside of Israel and the transfer of technology developed under the program, without the prior written consent of the OCS.  Such consent may require the refund of the grants awarded. We have not received any monies relating to the Magneton project, as a majority of the monies due to us in connection with grants were applied against our debt to the OCS pursuant to the OCS Settlement Agreement.

All of the intellectual property used in our business was sold to HP in connection with the HP Transaction, including intellectual property developed with the assistance of the OCS.
 
HP has approached the OCS and requested to transfer the technology and manufacturing of products developed with the assistance of the OCS outside of Israel. Pursuant to the terms of the Asset Purchase Agreement, we may be required to reimburse HP, out of the amounts deposited in the escrow account, for payments made to the OCS in connection with such transfer of manufacturing. HP demanded the release of amounts from the escrow funds in connection with payments it made to the OCS in this respect. For further information see “Item 5: Operating and Financial Review and Prospects – Overview”.

Competition

Prior to the consummation of the sale of our business to HP, the principal competitive factors that affected the sales of our products were their performance relative to price, productivity and throughput; product features and technology; quality, reliability, cost of operation and consumables; the quality and costs of training, support and service and our ability to be flexible in adapting to customers’ applications of our products. Other competitive factors included the ability to provide access to product financing, our reputation and the customers’ confidence that we would continually develop new products and product accessories that would help them maintain and grow their business.

Our main competitors in the roll-fed arena were EFI/VUTEk, Hewlett-Packard/Scitex Vision and Gandi Innovations. These companies introduced products that directly compete with the NUR Fresco and NUR Expedio printers. In the market for flatbed printers utilizing UV-curable ink, the main competitors were Durst Phototechnik, Inca Digital Printers, Hewlett-Packard/Scitex Vision, Leggett & Platt (Spuhl), Gandi Innovations and EFI/VUTEk. These companies introduced products that compete with the NUR Tempo. There was also a growing number of manufacturers in the Asia Pacific region (especially China and Korea) that began developing, manufacturing and selling inexpensive printers. In the years prior to the sale of our business to HP, these manufacturers have started to penetrate the international market.
 
 
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Trade Secrets, Patents and Proprietary Rights

Prior to the sale of our business to HP, we relied on a combination of trade secrets, licenses and patents, together with non-disclosure and confidentiality agreements, to establish and protect our proprietary rights in our products and intellectual property. We cannot provide any assurance that our existing or previously owned patents will not be challenged, invalidated, or circumvented. There can be no assurance that third parties will not assert infringement claims against us or HP in the future, in connection with intellectual property we sold to HP. See “Item 10.C: Material Contracts” for a description of the HP Settlement Agreement.

We believe that our success was less dependent upon the legal protection afforded by patent and other proprietary rights than on the knowledge, ability, experience and technological expertise of our employees and our key suppliers. It was our policy to have employees sign confidentiality agreements, and to have third parties sign non-disclosure agreements. Although we take and have in the past taken precautionary measures to maintain our trade secrets, no assurance can be given that others have not acquired equivalent trade secrets or otherwise gained access to or disclosed our proprietary technology.

C.            Organizational Structure

Prior to the consummation of the HP Transaction, we operated our business through wholly-owned subsidiaries that conducted sales and marketing activities in pre-defined geographical regions.

As part of the HP Transaction, we sold our holdings in three wholly owned subsidiaries (NUR Europe, NUR Japan and NUR Do Brazil) to several of HP’s subsidiaries. Following the consummation of the HP Transaction, we wholly own, directly and indirectly, several subsidiaries that are currently inactive and we are in the process of dissolving, or have already arranged for the dissolution of, a number of such inactive subsidiaries.

Our Italian PV Projects are held by the following Italian companies, wholly-owned by Ellomay Luxembourg Holdings S.àr.l. (a Luxemburg company), which, in turn, is wholly-owned by us: (i) Ellomay PV One S.r.l., (ii) Ellomay PV Two S.r.l., (iii) Ellomay PV Five S.r.l., (iv) Ellomay PV Six S.r.l., (v) Energy Resources Galatina S.r.l. and (vi) Pedale S.r.l.

Our holdings in Dori Energy are held by Ellomay Clean Energy Limited Partnership, an Israeli limited partnership whose general partner is Ellomay Clean Energy Ltd., a company incorporated under the laws of the State of Israel wholly-owned by us.

D.            Property, Plants and Equipment

Prior to the consummation of the HP Transaction, our production facilities were located in Lod, Israel and Ashkelon, Israel and our main office was located in Lod, Israel. We also leased additional premises (offices, demo centers and storage spaces) in Europe, the United States, Asia Pacific and Japan. Following the consummation of the HP Transaction, most of our operating and capital lease commitments were assumed by HP or its subsidiaries or terminated. We have retained a lease of premises of our US subsidiary, NUR America, which is fully sub-leased to a third party, and is expected to terminate during 2011.
 
 
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Our office space of approximately 306 square meters is located in Tel Aviv, Israel. This lease expires in April 2013 and we have an option to extend it until April 2016. We sub-lease a small part of our office space to a company controlled by Mr. Shlomo Nehama, at the same price per square meter as in our lease. This sub-lease agreement was approved by our Board of Directors.

The PV Plants are located in Italy. Pursuant to the building right agreements executed by our subsidiaries that are PV Principals in connection with the PV Plants, our subsidiaries own the PV Plants and received the right to maintain the PV Plant on the land on which they are located (the “Lands”). The ownership of the Lands remains with the relevant owners of the Lands who are the grantors of the building rights under the respective building right agreements. In the case of the Galatina Plant our subsidiary owns the land on which the PV Plant is built. The following table provides information with respect to the Lands and the PV Plants:
 
PV Project Title
 
Size of Property
 
Location
 
Owners of the PV Plants/Lands
             
“Del Bianco”
 
2.44.96 hectares
 
Province of Macerata,
Municipality of Cingoli,
Marche region
 
PV Plant owned  by Ellomay PV One S.r.l.(1) / Building right granted to  Ellomay PV One S.r.l. from owners
             
“Costantini”
 
2.25.76 hectares
 
Province of Ancona,
Municipality of Senigallia,
Marche region
 
PV Plant owned  by  Ellomay PV One S.r.l. (1) / Building right granted to Ellomay PV One S.r.l. from owners
             
“Giaché”
 
3.87.00 hectares
 
Province of Ancona,
Municipality of Filotrano, 
Marche region
 
PV Plant owned by Ellomay PV Two S.r.l. (1) / Building right granted to Ellomay PV Two S.r.l. from owners
             
“Massaccesi”
 
3,60,60 hectares
 
Province of Ancona,
Municipality of Arcevia, 
Marche region
 
PV Plant owned by Ellomay PV Two S.r.l. (1) / Building right granted to Ellomay PV Two S.r.l. from owners
             
“Troia 8”
 
2.42.15 hectares
 
Province of Foggia,
Municipality of Troia,
Puglia region
 
PV Plant owned by Leasint and leased to Ellomay Six S.r.l. / Building right granted to Ellomay PV Six S.r.l. from owners
             
“Troia 9”
 
2.39.23 hectares
 
Province of Foggia,
Municipality of Troia,
Puglia region
 
PV Plant owned by Leasint and leased to Ellomay Five S.r.l. / Building right granted to Ellomay PV Five S.r.l. from owners
             
“Galatina”
 
4.00.00 hectares
 
Province of Lecce,
Municipality of Galatina,
Puglia region
 
PV Plant and Land owned by Energy Resources Galatina S.r.l. (1)
             
“Corato”
 
13.59.52 hectares
 
Province of Bari,
Municipality of Corato,
Puglia region
 
Building Right granted to Pedale S.r.l. that will own the PV Plant once constructed(1) / Land held by owners and leased to Pedale S.r.l.
_____________________________________
(1) The applicable EPC Contracts provide that ownership of the PV Plant will be transferred to the PV Principal upon issuance of the Provisional Acceptance Certificate. As of March 31, 2011, Provisional Acceptance Certificates have not been issued in connection with these PV Plants.
 
 
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For more information concerning the use of the properties in connection with the PV Plants, including the expenditures in connection with the construction of the PV Plants at such locations and estimated dates for the completion of such construction, see “Item 4.A: History and Development of Ellomay” and “Item 4.B: Business Overview” above.

ITEM 4A: Unresolved Staff Comments

Not Applicable.

ITEM 5: Operating and Financial Review and Prospects

The following discussion and analysis is based on and should be read in conjunction with our consolidated financial statements, including the related notes, and the other financial information included in this annual report. The following discussion contains forward-looking statements that reflect our current plans, estimates and beliefs and involve risks and uncertainties. Our actual results may differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include those discussed below and elsewhere in this annual report.

Adoption of IFRS
 
We adopted IFRS with a transition date of January 1, 2009. For details regarding the adjustments made with respect to the comparative data that were implemented by us refer to Note 17 to our consolidated financial statements included elsewhere in this report.
 
 
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Overview

We are involved in the production of renewable energy through our ownership of photovoltaic plants in Ital. As of March 31, 2011, two of the PV Plants are operating, five of the PV Plants are constructed and awaiting connection to the national grid and the remaining one, that is subject to the EPC Contract entered into on March 25, 2011 - Pedale) is in the process of construction. In addition, we have made several investments in Israel, mainly in the energy manufacturing and energy related field. See “Item 4.A: History and Development of Ellomay” and “Item 4.B: Business Overview” for more information. Following the consummation of these investments and transactions, as of March 31, 2011, we hold approximately $61.3 million in cash and cash equivalents.

Our current plan of operation is to manage our investments in the Italian PV field and in the Israeli market and, with respect to the remaining funds we hold, to identify and evaluate additional suitable business opportunities in the energy and infrastructure fields, including in the renewable energy field, through the direct or indirect investment in energy manufacturing plants, the acquisition of all or part of an existing business, pursuing business combinations or otherwise.

The sale of our wide-format printing business to Hewlett-Packard Company, and several of its subsidiaries, was consummated on February 29, 2008, the HP APA Closing Date. The aggregate consideration in connection with the HP Transaction amounted to $122.6 million, of which $0.5 million was withheld in connection with NUR Europe's obligations with respect to government grants, and $14.5 million was deposited into an escrow account to secure the indemnification obligations of the Company and its remaining subsidiaries pursuant to the HP Transaction. The escrow funds, net of amounts distributed to HP in satisfaction of indemnification obligations, were to be released to us in two installments: $9.5 million was to be released eighteen months following the HP APA Closing Date and $5 million was to be released twenty-four months following the HP APA Closing Date.

In August 2009, we received two officer’s certificates from HP requesting the release of funds in the aggregate amounts of approximately $8.1 million and Euro 2.4 million from the escrow funds. The claims included in the officer’s certificates mainly refer to payments HP made to the Israeli Office of the Chief Scientist (the “OCS”), in connection with the transfer of technology claimed to have been developed with OCS funding, claims made by suppliers and alleged non-compliance with different environmental and safety regulations. We replied and objected to the claims made in the two Officer's Certificates on October 21, 2009 declining the vast majority of HP's claims (we agreed to release to HP an amount of approximately $0.3 million out of the escrow funds).

An additional officer’s certificate was sent by HP in January 2010 in which HP claims additional losses in the aggregate amount of approximately $2.9 million in connection with further issues relating to non-compliance with safety regulations. With respect to the last Officer's Certificate, we rejected the claims made in the Officer's Certificate. We held the position that as the due date for submitting an Officer's Certificate has passed, HP could not attempt to raise new claims against the escrow funds.
 
 
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Following the submission of the aforementioned claims and responses and negotiations between us and HP, we executed the HP Settlement Agreement with respect to the release of funds deposited in the escrow account on July 27, 2010. Subsequent to the execution of the HP Settlement Agreement, HP received approximately $7.3 million of the escrow funds (plus accrued interest) while we received approximately $7.2 million (plus accrued interest), such amount including the $5 million that was set aside exclusively to cover certain patent claims that did not materialize. HP also released to us an amount of $0.5 million withheld in connection with NUR Europe’s obligations with respect to government grants.

Following the closing of the HP Transaction, we ceased conducting any operating activity until the execution of the first EPC Contracts on March 4, 2010.

As we have only recently commenced new operations, and as our Italian PV Projects and other investments were not operating as of December 31, 2010, the data presented in our consolidated financial statements and in our discussion below are not indicative of our future operating results or financial position.

A.            Operating Results

General

Our net loss for the year ended December 31, 2009 was approximately $1 million.  Our net income for the year ended December 31, 2010 was approximately $5.2 million.

The net loss for the year ended December 31, 2009 was primarily due to administrative expenses. The net income for the year ended December 31, 2010 was primarily due to the release of funds from the escrow account following the execution of the HP Settlement Agreement.

Critical Accounting Policies and Estimates

On January 1, 2010, we changed our financial reporting principles from U.S. GAAP to IFRS. As permitted under the Exchange Act and the regulations promulgated thereunder, our consolidated financial statements for the year ended December 31, 2010 were prepared in conformity with IFRS (without reconciliation to U.S. GAAP) which are our first annual financial statements reported in accordance with IFRS.

 The preparation of our consolidated financial statements in accordance with IFRS resulted with adjustments to the accounting policies as compared with the most recent annual financial statements as of December 31, 2009 and for the year then ended prepared under U.S. GAAP. They also have been applied in preparing an opening IFRS balance sheet as of January 1, 2009 for the purposes of the transition to IFRS, as required by IFRS 1, “First-time Adoption of International Financial Reporting Standards” or IFRS 1.

IFRS differs in certain significant respects from U.S. GAAP. As a result, our financial information presented under IFRS is not directly comparable to our financial information presented under U.S. GAAP, and readers should avoid such a comparison. For details regarding the adjustments made with respect to the financial statement data that were published in the past in accordance with U.S. GAAP and are included as comparative data prepared in accordance with IFRS – see Note 17 to our consolidated financial statements.
 
 
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Our significant accounting policies are more fully described in Note 2 to our consolidated financial statements. Certain accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at that time. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements, as well as the reported amounts of income and expenses during the periods presented. To the extent there are material differences between these estimates, judgments or assumptions and actual results, our financial statements will be affected. The significant accounting policies that we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following:
 
Legal claims

When assessing the possible outcomes of legal claims that were filed against us and our subsidiaries, we and our subsidiaries relied on the opinions of our legal counsel. The opinions of our legal counsel are based on the best of their professional judgment, and take into consideration the current stage of the proceedings and the legal experience accumulated with respect to the various matters. As the results of the claims will ultimately be determined by the courts, they may be different from such estimates.

Classification of leases

In order to determine whether to classify a lease as a finance or operating lease, we evaluate whether the lease transfers substantially all the risks and benefits incidental to ownership of the leased asset. In this respect, we evaluate such criteria as the existence of a “bargain” purchase option, the lease term in relation to the economic life of the asset and the present value of the minimum lease payments in relation to the fair value of the asset.

Tax provision

We recognize a provision for tax uncertainties. In determining the amount of the provision, assumptions and estimates are made in relation to the probability that the position will be sustained upon examination and the amount that is likely of being realized upon settlement, using the facts, circumstances, and information available at the reporting date. We record additional tax charges in a period in which it determines that a recorded tax liability is less than it expects ultimate assessment to be. The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws and regulations themselves are subject to change as a result of changes in fiscal policy, changes in legislation, the evaluation of regulations and court rulings. Therefore, the actual tax liability may be materially different from our estimates, which could result in the need to record additional tax liabilities or potentially reverse previously recorded tax liabilities.
 
 
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Results of Operations

Year Ended December 31, 2010 Compared with Year Ended December 31, 2009

General and administrative expenses were, and consequently our operating loss was, approximately $3.2 million for the year ended December 31, 2010, compared to approximately $1.9 million for the year ended December 31, 2009. The increase was mainly attributable to the fact that during 2010 we invested in the PV Projects and other entities and to our expenses in connection with the process of pursuing these and other contemplated investments.
 
Financial income, net was approximately $1.4 million in the year ended December 31, 2010 and in the year ended December 31, 2009.

Company’s share of losses of associate accounted for at equity was approximately $0.07 million in the year ended December 31, 2010, compared to $0 in the year ended December 31, 2009. During 2010 we invested in the MVNO project.

Tax benefit was approximately $0.04 million in the year ended December 31, 2010 compared to tax expense of approximately $0.07 million in the year ended December 31, 2009. The tax benefit during 2010 is attributable to tax years that have reached their statute of limitations and the tax expense during 2009 is mainly attributable to interest and penalties for prior year tax positions.

Income from discontinued operations, net was approximately $7 million in the year ended December 31, 2010, compared with a loss from discontinued operations, net, of approximately $0.4 million in the year ended December 31, 2009. The income in the year ended December 31, 2010 was mainly due to the release of funds from the escrow account in connection with the HP Transaction, net of related expenses, and the loss during the year ended December 31, 2009 was mainly due to expenses incurred in connection with activities relating to liquidating our non-operating subsidiaries following the closing of the HP Transaction.

Foreign currency translation adjustments was approximately $0.2 million in the year ended December 31, 2010, compared with $0 in the year ended December 31, 2009. The adjustments for the year ended December 31, 2010 are attributable to translation of new activities conducted by subsidiaries whose functional currency is not the US$.

Impact of Inflation, Devaluation and Fluctuation of Currencies

The consideration received from HP upon consummation of the HP Transaction was denominated in U.S. dollars and has since been deposited in U.S. dollar denominated accounts. We currently conduct our business in Italy and in Israel and a significant portion of our expenses is in Euro and NIS. We therefore are affected by changes in the prevailing Euro/U.S. dollar and NIS/U.S. dollar exchange rates. We cannot predict the rate of revaluation/devaluation of the New Israeli Shekel or the Euro against the U.S. dollar in the future, and whether these changes will have a material adverse effect on our finances and operations.
 
 
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The tables below set forth the annual and semi-annual rates of devaluation (or revaluation) of the NIS against the U.S. dollar and of the U.S. dollar against the Euro.
 
   
Year ended December 31,
 
   
2008
   
2009
   
2010
 
                   
Revaluation(Devaluation)  of the NIS against the U.S. dollar
    1.1 %     0.7 %     (0.6 )%
                         
Revaluation (Devaluation) of the Euro against the U.S. dollar
    (5.3 )%     3.5 %     (7.4 )%
 
The annual rate of inflation in Israel was 3.8% in the year ended December 31, 2008, it increased to 3.9% in the year ended December 31, 2009 and decreased to 2.7% in the year ended December 31, 2010.

The representative dollar exchange rate was Euro 1.39 for one U.S. dollar on December 31, 2008, Euro 1.44 for one U.S. dollar on December 31, 2009, and Euro 1.33 for one U.S. dollar on December 31, 2010. The average exchange rates for converting the Euro to U.S. dollars during the years ended December 31, 2008, 2009 and 2010 were Euro 1.47, 1.39 and 1.33 for one U.S. dollar, respectively. The exchange rate as of March 31, 2011 was Euro 1.42 for one U.S. dollar.

The representative dollar exchange rate was NIS 3.802 for one U.S. dollar on December 31, 2008, NIS 3.775 for one U.S. dollar on December 31, 2009, and NIS 3.549 for one U.S. dollar on December 31, 2010. The average exchange rates for converting the New Israeli Shekel to U.S. dollars during the years ended December 31, 2008, 2009 and 2010 were NIS 3.5878, 3.9326 and 3.733 for one U.S. dollar, respectively. The exchange rate as of March 31, 2011 was NIS 3.481 for one U.S. dollar.

The consideration received in connection with the HP Transaction was denominated in U.S. dollars and has since been deposited in U.S. dollar denominated accounts. As we still maintain a majority of our assets in cash and cash equivalents deposited in U.S. dollar, we believe that the currency of the primary economic environment in which we operate is the U.S. dollar (“dollar”). Thus, the dollar is our reporting and functional currency. However, the functional currency of our Italian subsidiaries is the Euro and the functional currency of our equity investments in Israel is the NIS. When a company’s functional currency differs from its parent’s functional currency, that entity represents a foreign operation whose financial statements are translated so that they can be included in the consolidated financial statements as follows:

 
a)
Assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet.

 
b)
Income and expenses for each period presented in the statement of comprehensive income (loss) are translated at average exchange rates for the presented periods; however, if exchange rates fluctuate significantly, income and expenses are translated at the exchange rates at the date of the transactions.

 
c)
Share capital, capital reserves and other changes in capital are translated at the exchange rate prevailing at the date of issuance.
 
 
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d)
Retained earnings are translated based on the opening balance translated at the exchange rate at that date and other relevant transactions during the period are translated as described in b) and c) above.

 
e)
All resulting translation differences are recognized as a separate component of other comprehensive income (loss) in equity “adjustments arising from translating financial statement of foreign operations.”

On a total or partial disposal of a foreign operation, the relevant part of the other comprehensive income (loss) is recognized in the statement of comprehensive income (loss).

Intergroup loans for which settlement is neither planned nor likely to occur in the foreseeable future are, in substance, a part of the investment in that foreign operation and are accounted for as part of the investment and the exchange differences arising on these loans are recognized in the same component of equity as discussed in e) above.

For information concerning a temporary hedging transaction entered into in connection with our investment in Dori Energy, which was denominated in NIS, see “Item 11. Quantitative and Qualitative Disclosures About Market Risk.”

B.            Liquidity and Capital Resources

We have incurred operating losses prior to the HP Transaction. Following the consummation of the HP Transaction and the payment of some related liabilities (including repayment of our short and long-term debt), as of March 31, 2011 we hold approximately $61.3 million in cash and cash equivalents. Although we now hold these funds, we may need additional funds if we seek to acquire certain new businesses and operations. If we are unable to raise funds through public or private financing of debt or equity, we will be unable to fund certain business combinations that could ultimately improve our financial results. We cannot ensure that additional financing will be available on commercially reasonable terms or at all. We have entered into the Leasing Agreements with Leasint and into the Finance Agreements with Centrobanca in connection with the financing of four of our PV Projects and into the Discount Bank Agreement in connection with the financing of our portion of Dori Energy’s obligations to Dorad. We currently have no commitments for additional financing, however we intend to finance the remainder of our PV Projects by bank loans or other means of financing.

Our management believes that the existing cash balance is sufficient for our present requirements.

We currently invest our excess cash in cash and cash equivalents that are highly liquid.

At December 31, 2010 we had approximately $76.6 million of cash and cash equivalents compared with $75.3 million cash and cash equivalents at December 31, 2009 and $76 million cash, cash equivalents and short term deposits at December 31, 2008.

As of December 31, 2010, we had commitments for capital expenditures in the amount of approximately $6.3 million for services that were preformed and will be performed in connection with agreements entered into during 2010 (calculated net of penalties due to delay in connection to the national grid of some of the PV Projects accrued by December 31, 2010). We anticipate to use our cash assets and financing from third party financing entities (especially in connection with the financing of our Italian PV Projects) in order to meet such commitments.
 
 
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Operating activities

In the year ended December 31, 2010, we had a net income of approximately $5.2 million. Net cash used in operating activities was approximately $4.9 million.

In the year ended December 31, 2009, we had a net loss of $1 million. Net cash used in operating activities was approximately $1.2 million.

Following the consummation of the HP Transaction and until the execution of the transactions for the construction and operation of the photovoltaic plants in Italy and the investments in the Israeli transactions as detailed in Item 4, we had ceased conducting any operating activity. Currently a significant portion of our assets still consist of cash and cash equivalents. In addition to the business activities set forth in Item 4, and as more fully detailed above, we conduct activities which attempt to locate additional business opportunities and strategic alternatives and activities relating to the investment of our funds. We cannot at this point predict whether following the consummation of other business transactions, in addition to the Italian photovoltaic transactions and the Israeli investments, we will have sufficient working capital in order to fund our operations.

Investing activities

Net cash used in investing activities was approximately $12.2 million in the year ended December 31, 2010, primarily due to the execution of the transactions for the construction and operation of the photovoltaic plants in Italy and the investments in the Israeli transactions as detailed in Item 4.

Net cash provided by investing activities was approximately $49.5 million in the year ended December 31, 2009, primarily due to proceeds from short term deposits that were invested in cash equivalents.

Financing activities

Net cash provided by financing activities in the year ended December 31, 2010 was approximately $18.3 million, deriving primarily from the issuance of shares following the exercise of warrants and the receipt of long-term loans for financing the Foggia PV Projects. For more information concerning the Leasing Agreements see “Item 4.B: Business Overview” and for more information concerning hedging transactions undertaken in connection with financings granted at EURIBOR linked interest see “Item 11: Quantitative and Qualitative Disclosures About Market Risk.”

Net cash provided by financing activities in the year ended December 31, 2009 was $0.

During 2010, we entered into the Leasing Agreements with Leasint in connection with the financing of two of our PV Projects. As of December 31, 2010 we utilized approximately Euro 4 million out of the aggregate amount available under both Leasing Agreements. For more information concerning the terms of the Leasing Agreements see “Item 4.B.: Business Overview.”
 
 
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As of December 31, 2010, our total current assets amounted to approximately $79.9 million, out of which $76.6 million was in cash and cash equivalents, compared with total current liabilities of approximately $7.6 million. Our assets held in cash equivalents are held in money market accounts and short-term deposits, all of which are highly liquid investments that are readily convertible to cash with original maturities of three months or less at the date acquired.

As of December 31, 2009, our total current assets amounted to approximately $76.2 million, out of which $75.3 million was in cash and cash equivalents, compared with total current liabilities of approximately $1 million.

The increase in our cash balance is mainly attributable to the release of funds from the HP escrow account and cash received in connection with the exercise of warrants and the Leasing Agreements, net of amounts invested in new operations and general and administrative expenses.

Outstanding Warrants

As of March 31, 2011, there are outstanding warrants to purchase a total of 3,242,706 of our ordinary shares, all of which are currently exercisable. All of these warrants were granted to the investors participating in our private placement in January and February 2007 and are exercisable at $0.65 per share no later than January or February 2012.

C.            Research and Development, Patents and Licenses

Following the consummation of the HP Transaction, we ceased to engage in any research and development activities.

D.            Trend Information

During 2010 we entered into transactions for the construction and operation of six photovoltaic plants in Italy and certain investments in Israel as detailed in Item 4. None of these investments were operating as of December 31, 2010. Our current plan of operation is to manage our investments in the Italian PV field and in the Israeli market and, with respect to the remaining funds we hold, to identify and evaluate additional suitable business opportunities in the energy and infrastructure fields, including in the renewable energy field, through the direct or indirect investment in energy manufacturing plants, the acquisition of all or part of an existing business, pursuing business combinations or otherwise. There is no assurance that any of these alternatives will be pursued or, if one is pursued, the timing thereof, the terms on which it would occur, the type of industry that will be involved and the success of such activity. Therefore, our financial data reported in this report is not necessarily indicative of our future operating results or financial position.

Our business and revenue growth from the transactions in the Italian photovoltaic market depends, among other factors, on seasonality. Revenue tends to be lower in the winter, primarily because of adverse weather conditions. The growth of our solar business in Italy is affected significantly by government subsidies and economic incentives. See “Item 3.D. Risk Factors - Risks Related to the Italian PV Projects.” Our ability to continue to leverage the investment in this market, may affect the profitability of the transactions.
 
 
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E.            Off-Balance Sheet Arrangements

We are not a party to any material off-balance sheet arrangements. In addition we have no unconsolidated special purpose financing or partnership entities that are likely to create material contingent obligations.

F.            Contractual obligations

As of the HP APA Closing Date, most of the operating and capital lease commitments were assumed by HP. We have retained a lease of premises in the US, which is fully sub-leased to a third party and is expected to expire during 2011. We have also entered into land lease agreements in connection with our PV operations.

The following table of our material contractual obligations as of December 31, 2010, summarizes the aggregate effect that these obligations are expected to have on our cash flows in the periods indicated:

Payments due by period
(in thousands of U.S. dollars)
 
Contractual Obligations*
 
Total
   
Less than 1 year
   
1 – 3 years
   
3 – 5 years
   
more than
5 years
 
Finance lease obligations
  $ 5,228       -     $ 467     $ 533     $ 4,228  
Long-term rent obligations (1)
    1,646     $ 68       243       153       1,182  
Provision for tax uncertainties (2)
    4,600       -       -       -       4,600  
Other long-term liabilities (3)
    14       -       -       -       14  
Investment in MVNO (4)
    236       236       -       -       -  
Total
  $ 11,724     $ 304     $ 710     $ 686     $ 10,024  
______________________
*
For contractual obligations related to our investment in the Italian photovoltaic market, please refer to Item 4.
(1)
Includes land lease agreements of our Italian subsidiaries, lease agreement of our subsidiary NUR America, which was not assumed by HP in connection with the HP transaction. The premises are being sub leased. Rent until April 15, 2013 of our Tel Aviv Office is also included.
(2)
See Note 14b to our consolidated financial statements included elsewhere in this report.
(3)
Consists of accrued severance pay relating to obligations to our Israeli employees as required under Israeli labor law. These obligations, among others, are payable, upon termination, retirement or death of the respective employee.
(4)
Related to our commitment to invest $236,000 in the MVNO project.
 
 
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ITEM 6: Directors, Senior Management and Employees

A.           Directors and Senior Management

The following table sets forth certain information with respect to our directors and senior management, as of March 31, 2011:

Name
 
Age
 
Position with Ellomay
         
Shlomo Nehama(1)(2)
 
55
 
Chairman of the Board of Directors
Ran Fridrich(1)(2)
 
58
 
Director and Chief Executive Officer
Hemi Raphael(2)
 
59
 
Director
Anita Leviant(2)
 
56
 
Director
Oded Akselrod(3)
 
64
 
Director
Alon Lumbroso(3)(4)
 
54
 
Director
Barry Ben Zeev(1)(3)(4)
 
59
 
Director
Kalia Weintraub
 
32
 
Chief Financial Officer
Eran Zupnik
 
42
 
EVP of Business Development
______________________
(1)
Member of Ellomay’s Stock Option and Compensation Committee.
(2)
Elected pursuant to the Shareholders Agreement, dated as of March 24, 2008, between S. Nechama Investments (2008) Ltd. and Kanir Joint Investments (2005) Limited Partnership (See “Item 7.A. Major Shareholders”).
(3)
Member of Ellomay’s Audit Committee.
(4)
External Director.

The address of each of our executive officers and directors is c/o Ellomay Capital Ltd., 9 Rothschild Boulevard, 2nd floor, Tel Aviv 66881, Israel.

Shlomo Nehama has served as a director and Chairman of the Board of Ellomay since March 2008. From 1998 to 2007, Mr. Nehama served as the Chairman of the Board of Bank Hapoalim B.M., one of Israel’s largest banks. In 1997, together with the late Ted Arison, he organized a group of American and Israeli investors who purchased Bank Hapoalim from the State of Israel. From 1992 to 2006, Mr. Nehama served as the Chief Executive Officer of Arison Investments. From 1982 to 1992, Mr. Nehama was a partner and joint managing director of Eshed Engineers, a management consulting firm. He also serves as a director in several philanthropic academic institutions, on a voluntary basis. Mr. Nehama is a graduate of the Technion - Institute of Technology in Haifa, Israel, where he earned a degree in Industrial Management and Engineering. Mr. Nehama received an honorary doctorate from the Technion for his contribution to the strengthening of the Israeli economy.

Ran Fridrich has served as a director of Ellomay since March 2008, as our interim chief executive officer since January 2009, and as our chief executive officer since December 2009. Mr. Fridrich is the co-founder and executive director of Oristan, Investment Manager, an investment manager of CDO Equity and Mezzanine Funds and a Distress Fund, established in June 2004. In addition, Mr. Fridrich is a consultant to Capstone Investments, CDO Repackage Program, since January 2005. In January 2001 Mr. Fridrich founded the Proprietary Investment Advisory in Israel, an entity focused on fixed income securities, CDO investments and credit default swap transactions, and served as its investment advisor through January 2004. Prior to that, Mr. Fridrich served as the chief executive officer of two packaging and printing Israeli companies, Lito Ziv, a public company, from 1999 until 2001 and Mirkam Packaging Ltd. from 1983 until 1999. Mr. Fridrich also serves as a director of Cargal Ltd. since September 2002. Mr. Fridrich is a graduate of the Senior Executive Program of Tel Aviv University.

Hemi Raphael has served as a director of Ellomay since June 2006. Mr. Raphael is an entrepreneur and a businessman involved in various real estate and financial investments. Mr. Raphael also serves as a director of Cargal Ltd. since May 2004. Prior thereto, from 1984 to 1994, Mr. Raphael was an active lawyer and later partner at the law firm of Goldberg Raphael & Co. Mr. Raphael holds an LLB degree from the School of Law at the Hebrew University of Jerusalem and he is a member of the Israeli Bar Association and the California Bar Association.
 
 
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Anita Leviant has served as a director of Ellomay since March 2008. Ms. Leviant heads LA Global Consulting, a practice specializing in consulting and leading global and financial projects and cross border transactions. For a period of twenty years, until 2005, Ms. Leviant held several senior positions with Hapoalim Banking group including EVP Deputy Head of Hapoalim Europe and Global Private Banking and EVP General Global Counsel of the group, and served as a director in the overseas subsidiaries of Bank Hapoalim. Prior to that, Ms. Leviant was an associate in GAFNI & CO. Law Offices in Tel Aviv where she specialized in Liquidation, Receivership and Commercial Law and was also a Research Assistant to the Law School Dean in the Tel Aviv University specialized in Private International Law. Ms. Leviant holds a LL.B degree from Tel Aviv University Law School and is a member of both the Israeli and the New York State Bars. Ms. Leviant currently serves as President of the Israel-British Chamber of Commerce, Board member in the IBBC and a Co-Founder and Head of the Advisory Board of the Center for Arbitration and Dispute Resolutions Ltd.

Oded Akselrod has served as a director of Ellomay since February 2002. Mr. Akselrod serves as a business advisor to corporations and investment funds in Israel. Mr. Akselrod was the general manager of the Investment Corp. of United Mizrahi Bank Ltd., a wholly owned subsidiary of United Mizrahi Bank Ltd. that was merged into United Mizrahi Bank Ltd. on October 2004. Prior to joining the Investment Corp. of United Mizrahi Bank, from 1994 to 1997, Mr. Akselrod held the position of general manager of Apex-Leumi Partners Ltd. as well as Investment Advisor of Israel Growth Fund. Prior thereto, from 1991 to 1994, Mr. Akselrod served as general manager of Leumi & Co. Investment Bankers Ltd. Mr. Akselrod began his career in various managerial positions in the Bank Leumi Group including: member of the management team of Bank Leumi, deputy head of the international division, head of the commercial lending department of the banking division, member of all credit committees at the Bank, assistant to Bank Leumi’s CEO and head of the international lending division of Bank Leumi Trust Company of New York. Mr. Akselrod holds a Bachelor’s degree in Agriculture Economics from Hebrew University, Jerusalem and an MBA degree from Tel Aviv University. Mr. Akselrod is also a director of Gadish Global Ltd., Gadish Investments in Provident Funds Ltd., Geva Dor Investments Ltd. and Shalag Industries Ltd.

Alon Lumbroso has served as an external director of Ellomay since November 2006. Mr. Lumbroso serves as the Chief Executive Officer of Larotec Ltd. since the end of 2005. Mr. Lumbroso previously served as Chief Executive Officer of Mindguard Ltd., from 2003 to 2004. From 2000 to 2003, Mr. Lumbroso served as the managing director of the European subsidiary of Creo, Inc. Prior to that, Mr. Lumbroso served in a various executive positions, including VP Operations, VP Marketing and managing director of the Asian Pacific subsidiary of Scitex Corporation. In his positions with Scitex Corporation and Creo, Mr. Lumbroso was responsible for sales, marketing and service of prepress and digital printing equipment, including wide format digital printers. Mr. Lumbroso serves as the Chairman of Bioexplorers Ltd. and as a director of Larotec Ltd. Mr. Lumbroso holds an MBA from Bar Ilan University and a B.Sc. in Industrial Engineering from Tel-Aviv University. Mr. Lumbroso qualifies as an external director according to the Companies Law.
 
 
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Barry Ben Zeev has served as an external director of Ellomay since December 30, 2009. Mr. Ben Zeev is a business strategic consultant. From 1978 to 2008, Mr. Ben-Zeev served in various positions with Bank Hapoalim, one of the largest Israeli banks. During 2008, he served as the bank’s Deputy CEO and as its CFO, in charge of the financial division. From 2001 to 2007, he served as the bank’s Deputy CEO in charge first of the private international banking division and then of the client asset management division. Mr. Ben Zeev has served on the board of many companies, including as a director on the board of the Israeli Stock Exchange in 2006-2007. He currently serves as a director of Partner Communications Ltd. and Kali Equity Markets. Mr. Ben-Zeev holds an MBA from Tel-Aviv University specializing in financing, and a BA in Economics from Tel-Aviv University. Mr. Ben-Zeev qualifies as an external director according to the Companies Law.

Kalia Weintraub has served as our chief financial officer since January 2009. Prior to her appointment as our chief financial officer, Ms. Weintraub served as our corporate controller from January 2007 and was responsible, among her other duties, for the preparation of all financial reports. Prior to joining Ellomay, she worked as a certified public accountant in the AABS High-Tech practice division of the Israeli accounting firm of Kost Forer Gabbay & Kasierer, an affiliate of the international public accounting firm Ernst & Young, from 2005 through 2007 and in the audit division of the Israeli accounting firm of Brightman Almagor Zohar, an affiliate of the international public accounting firm Deloitte, from 2003 to 2004. Ms. Weintraub holds a B.A. in Economics and Accounting and an M.B.A. from the Tel Aviv University and is licensed as a CPA in Israel.

Eran Zupnik has served as our EVP of Business Development since November 2008. Prior to joining Ellomay, Eran was a mergers and acquisitions lawyer in New York with Skadden Arps Slate Meagher & Flom LLP, one of the world’s leading law firms. At Skadden, Eran led and advised US and International clients in more than 150 cross-border merger and acquisition transactions as well as securities offerings. Prior to Skadden, Eran was a consultant with the business advisory services group of PricewaterhouseCoopers LLP in Boston. Eran received his LLB and BA in Business Administration from the College of Management in Israel. He was admitted to both the New York and Israeli bar and is also a certified public accountant.

There are no family relationships among any of the directors or members of senior management named above.

 B.           Compensation

Salaries, fees, commissions and bonuses paid or accrued with respect to all of our directors and senior management as a group in the fiscal year ended December 31, 2010 was approximately $0.5 million, including an amount of approximately $0.03 million related to pension, retirement and other similar benefits. These figures do not include the compensation of Messrs. Shlomo Nehama, Ran Fridrich and Hemi Raphael, all of whom are members of our Board are currently compensated pursuant to the Management Services Agreement (see “Item 10.C: Material Contracts”) and have, in connection with such Agreement, waived their right to receive the compensation, including options, paid to our directors. In addition, Mr. Fridrich, who first served as our Interim Chief Executive Officer and is now our Chief Executive Officer, agreed to serve without any additional compensation or other benefits.

Other than options granted to members of our Board of Directors and the grant of options to one of our senior employees, we did not grant any options to purchase ordinary shares in 2010. See “Item 6.E. Share Ownership”.
 
 
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In connection with the HP Transaction in 2008, our Board approved the acceleration of the vesting of all outstanding employee stock options, including all stock options held by members of senior management and the repurchase, of the then-currently outstanding employee stock options to purchase approximately 9.9 million of our ordinary shares. The aggregate consideration for such employee stock options is expected to be up to $3.8 million. Of the total, approximately $3.1 million were paid during July 2008 and an additional payment, in the amount of approximately $0.6 million, was paid following the release of funds from the HP Transaction escrow account in connection with the HP Settlement Agreement and the calculation of our financial aspects based on the guidelines set forth in the aforementioned Board approval. An additional amount of $ 0.1 million is accrued as of December 31, 2010. The repurchase resolution did not apply to options held by our non-employee directors. Following the initial payment of $3.1 million in July 2008, all repurchased stock options were cancelled and the number of shares reserved for issuance under our 2000 stock option plan was reduced accordingly. Any outstanding employee stock option that was not repurchased was terminated pursuant to its terms following the termination of employment of the vast majority of our employees in connection with the consummation of the HP Transaction.

In connection with the HP Transaction, our Board also approved the payment of transaction bonuses to certain employees, including members of senior management, in the aggregate amount of approximately $0.7 million and established that, subject to the aforementioned determination and verification of all HP Transaction related issues and other financial aspects, additional bonuses in the amount of approximately $ 0.2 million were accrued as of December 31, 2010.

In December 2008, following the approval of our Audit Committee, Board of Directors and shareholders, we entered into a management services agreement with Kanir and with Meisaf Blue & White Holdings Ltd. (“Meisaf”), a private company controlled by Shlomo Nehama, effective as of March 31, 2008, the date of appointment of Messrs. Fridrich and Nehama as members of our Board. In consideration for the performance of the management services and the board services under the terms of the management services agreement, we agreed to pay Kanir and Meisaf, in equal parts and quarterly payments, an aggregate annual services fee in the amount of $250,000 plus value added tax pursuant to applicable law. Messrs. Nehama, Fridrich and Raphael waived any right to additional remuneration for their service as members of our board of directors. For more information see “Item 10.C: Material Contracts.”

As approved by our shareholders, we pay our non-executive directors (Anita Leviant, Oded Akselrod, Alon Lumbroso, and Barry Ben Zeev) remuneration for their services as directors. The remuneration paid in 2009 was an annual payment of $8,000 and additional payments of $500 per meeting and $250 per committee meeting. During 2010 and thereafter, based on the approval by our shareholders at our annual general meeting of shareholders held on December 30, 2009, our current and future directors have been and would in the following years be paid an annual fee of NIS 47,750 (equivalent to approximately $13,454) and an attendance fee of NIS 1,690 (equivalent to approximately $476) per meeting (board or committee). According to the Israeli Companies Regulations (Rules for Compensation and Expenses of External Directors), 5760-2000, which we apply to all our non-executive directors, the directors are entitled to 60% of the meeting fee if the meeting was held by teleconference and not in person, and to 50% of the meeting fee if resolutions were approved in writing, without convening a meeting.
 
 
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Each of these non-executive directors (Anita Leviant, Oded Akselrod, Alon Lumbroso and Barry Ben Zeev) also receives an annual grant of options to purchase 10,000 ordinary shares under the terms and conditions set forth in Ellomay’s 1998 Non-Employee Director Share Option Plan as more fully described below.

In 1998, we adopted the 1998 Non-Employee Director Share Option Plan (the “1998 Plan”) to provide for grants of options to purchase ordinary shares to non-employee directors of Ellomay. The 1998 Plan, as amended, is administered, subject to Board approval, by the Non-Employee Director Share Option Committee. An aggregate amount of not more than 750,000 ordinary shares is reserved for grants under the 1998 Plan. The original expiration date of the 1998 Plan pursuant to its terms was December 8, 2008 (10 years after its adoption). At the General Meeting of our shareholders, held on January 31, 2008, the term of the 1998 Plan was extended and as a result it will expire on December 8, 2018, unless earlier terminated by the Board.

Under the 1998 Plan, each non-employee director that served on the 1998 “Grant Date,” as defined below, automatically received an option to purchase 10,000 ordinary shares on such Grant Date and will receive an option to purchase an additional 10,000 ordinary shares on each subsequent Grant Date thereafter, provided that he or she is a non-employee director on the Grant Date and has remained a non-employee director for the entire period since the previous Grant Date. The “Grant Date” means, with respect to 1998, October 26, 1998, and with respect to each subsequent year, August 1 of such year. Directors first elected or appointed after the 1998 Grant Date, will automatically receive on such director’s first day as a director an option to purchase up to 10,000 ordinary shares prorated based on the number of full months of service between the prior Grant Date and the next Grant Date. Each such non-employee director would also automatically receive, as of each subsequent Grant Date, an option to purchase 10,000 ordinary shares provided that he or she is a non-employee director on the Grant Date and has served as a non-employee director for the entire period since the previous Grant Date.

The exercise price of the option shares under the 1998 Plan is 100% of the fair market of such ordinary shares at the applicable Grant Date. The fair market value means, as of any date, the average closing bid and sale prices of the ordinary shares for the date in question as furnished by the National Association of Securities Dealers, Inc. through Nasdaq or any similar organization if Nasdaq is no longer reporting such information, or such other market on which the ordinary shares are then traded, or if not then traded, as determined in good faith (using customary valuation methods) by resolution of the members of the Board of Directors of Ellomay, based on the best information available to it. The exercise price is required to be paid in cash.

The term of each option granted under the 1998 Plan is 10 years from the applicable date of grant. All options granted vest immediately upon the date of grant.

The options granted would be subject to restrictions on transfer, sale or hypothecation. All options and ordinary shares issuable upon the exercise of options granted to the non-employee directors of Ellomay could be withheld until the payment of taxes due with respect to the grant and exercise (if any) of such options.
 
 
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C.            Board Practices

In March 2011, the Israeli Parliament adopted the Companies Law (Amendment No. 16), 2011 (“Amendment No. 16 to the Companies Law”) that implements a comprehensive reform in corporate governance. The majority of the provisions of Amendment No. 16 will become effective 60 days after its official publication in the Israeli Official Gazette on March 15, 2011. A summary of certain, but not all, of the provisions of Amendment No. 16 to the Companies Law is included in this annual report.
 
According to the provisions of our Second Amended and Restated Articles (the “Articles”) and the Companies Law, the board of directors convenes in accordance with our requirements, and is required to convene at least once every three months. Furthermore, the Companies Law provides that the board of directors may also pass resolutions without actually convening, provided that all the directors entitled to participate in the discussion and vote on a matter that is brought for resolution agree not to convene for discussion of the matter.

Officers serve at the discretion of the Board or until their successors are appointed.

Terms of Directors

Our Board currently consists of seven members, including two external directors. Pursuant to our Articles, unless otherwise prescribed by resolution adopted at a General Meeting of shareholders, the Board shall consist of not less than four (4) nor more than eight (8) directors (including the external directors). Except for our two external directors, the members of our Board are elected annually at our annual shareholders’ meeting and remain in office until the next annual shareholders’ meeting, unless the director has previously resigned, vacated his office, or was removed in accordance with the Articles. The most recent annual meeting was held on December 22, 2010. In addition, the Board may elect additional members to the Board, to serve until the next shareholders’ meeting, so long as the number of directors on the Board does not exceed the maximum number established according to the Articles.

The members of our Board do not receive any additional remuneration upon termination of their services as directors.

External Directors

We are subject to the provisions of the Companies Law, which requires that we, as a public company, have at least two external directors.

Under the Companies Law, a person may not be appointed as an external director if he or his relative, partner, employer or any entity under his control has or had during the two years preceding the date of appointment any affiliation with the company, any entity controlling the company or any entity controlled by the company or by this controlling entity. The term affiliation includes: an employment relationship, a business or professional relationship maintained on a regular basis, control, and service as an office holder. No person can serve as an external director if the person’s position or other business creates, or may create, conflicts of interest with the person’s responsibilities as an external director, or if the person is an employee of the Israel Securities Authority or of an Israeli stock exchange. Until the lapse of two years from termination of office, a company may not engage an external director to serve as an office holder and cannot employ or receive services from that person, either directly or indirectly, including through a corporation controlled by that person. Regulations promulgated under Israeli law set the minimum and maximum compensation that may be paid to statutory external directors. Pursuant to Amendment No. 16 to the Companies Law, additional independence requirements applicable to external directors were adopted, including that an individual may not be appointed as an external director in a company that does not have a controlling shareholder, in the event that he has affiliation, at the time of his appointment, to the chairman of the board, chief executive officer, a 5% shareholder or the highest ranking officer in the financial field; in addition, an individual may not be appointed as an external director if she or he, or her or his relative, partner, employer, supervisor, or an entity he controls, has other than negligible business or professional relations with any of the persons with which the external director himself may not be affiliated, even if such relations are not routine or if the she or he received any consideration, directly or indirectly, in addition to the remuneration to which she or he are entitled and to reimbursement of expenses, for acting as a director in the company.
 
 
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Under the Companies Law, external directors must be elected by a majority vote at a shareholders’ meeting, provided that either: (i) the majority of shares voted at the meeting, including at least one-third of the shares of non-controlling shareholders voted at the meeting, vote in favor of the election; or (ii) the total number of shares voted against the election of the external director does not exceed one percent of the aggregate voting rights in the company. Pursuant to Amendment No. 16 to the Companies Law the condition set forth under (i) above has been revised to require a majority of the votes of shareholders that are not controlling shareholders or shareholders who have a personal interest in the approval of the appointment of the external director, other than a personal interest that is not as a result of such shareholder’s connections to the controlling shareholder, and the percentage under condition (ii) has been increased to two percent.

The initial term of an external director is three years, which term may be extended for an additional three-year period. Amendment No. 16 to the Companies Law permits the extension of external directors’ terms for two additional three-year periods. It further provides that external directors may be re-elected for additional terms in one of the two following methods: (i) the board of directors proposed the nomination of the external director for an additional term and her or his appointment was approved by the shareholders in the manner required to appoint external directors for an initial term as set forth above, or (ii) in the event a shareholder holding 1% or more of the voting rights proposed the nomination of the external director for an additional term, the nomination is required to be approved by a majority of the votes cast by the shareholders of the company; provided that: (x)  the votes of controlling shareholders, the votes of shareholders who have a personal interest in the approval of the appointment of the external director, other than a personal interest that is not as a result of such shareholder’s connections to the controlling shareholder, and abstaining votes are excluded from the counting of votes and (y) the aggregate votes cast by shareholders in favor of the nomination that are counted for purposes of calculating the majority constitute more than 2% of the voting rights in the company.

Each committee of a company’s board of directors must include at least one external director, and all external directors must serve on the audit committee. Our external directors are currently Alon Lumbroso and Barry Ben Zeev.

Under the Companies Law an external director cannot be dismissed from office unless: (i) the board of directors determines that the external director no longer meets the statutory requirements for holding the office, or that the external director is in breach of the external director’s fiduciary duties and the shareholders vote, by the same majority required for the appointment, to remove the external director after the external director has been given the opportunity to present his or her position; (ii) a court determines, upon a request of a director or a shareholder, that the external director no longer meets the statutory requirements of an external director or that the external director is in breach of his or her fiduciary duties to the company; or (iii) a court determines, upon a request of the company or a director, shareholder or creditor of the company, that the external director is unable to fulfill his or her duty or has been convicted of specified crimes.
 
 
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The Companies Law requires that at least one of the external directors have “Accounting and Financial Expertise” and the other external directors have “Professional Competence.” Under the regulations, a director having accounting and financial expertise is a person who, due to his or her education, experience and talents is highly skilled in respect of, and understands, business-accounting matters and financial reports in a manner that enables him or her to understand in depth the company’s financial statements and to stimulate discussion regarding the manner in which the financial data is presented. Under the regulations, a director having professional competence is a person who has an academic degree in either economics, business administration, accounting, law or public administration or an academic degree in an area relevant to the company’s business, or has at least five years experience in a senior position in the business management of a corporation with a substantial scope of business, in a senior position in the public service or a senior position in the field of the company’s main business. Our board of directors determined that Barry Ben Zeev is an accounting and financial expert and that Alon Lumbroso has professional competence.

Our Board further determined that at least two directors out of the whole Board shall be required to have accounting and financial expertise pursuant to the requirements of the Companies Law. Accordingly, our Board determined that Shlomo Nehama shall be designated as the additional accounting and financial expert.

Alternate Directors

The Articles provide that, subject to the Board’s approval, a director may appoint an individual, by written notice to us, to serve as an alternate director. The following persons may not be appointed nor serve as an alternate director: (i) a person not qualified to be appointed as a director, (ii) an actual director, or (iii) another alternate director. Any alternate director shall have all of the rights and obligations of the director appointing him or her, except the power to appoint an alternate (unless the instrument appointing him or her expressly provides otherwise). The alternate director may not act at any meeting at which the director appointing him or her is present. Unless the appointing director limits the time period or scope of any such appointment, such appointment is effective for all purposes and for an indefinite time, but will expire upon the expiration of the appointing director’s term. There are currently no alternate directors.

Duties of Office Holders and Approval of Certain Transactions under the Israeli Companies Law

The Companies Law codifies the duty of care and fiduciary duties that an office holder has to our company. An “office holder” is defined under the Companies Law as a director, general manager, chief business manager, vice general manager, other manager directly subordinate to the general manager and any other person assuming the responsibilities of any of the foregoing positions without regard to such person’s title. Amendment No. 16 to the Companies Law revised the definition of “office holder” as follows: general manager, chief business manager, vice general manager, any other person assuming the responsibilities of any of the foregoing positions without regard to such person’s title and a director, or manager directly subordinate to the general manager. The duty of care requires an office holder to act at a level of care that a reasonable office holder in the same position would employ under the same circumstances. This includes the duty to utilize reasonable means to obtain (i) information regarding the appropriateness of a given action brought for his or her approval or performed by the office holder by virtue of his or her position and (ii) all other information of importance pertaining to the foregoing actions. The duty of loyalty includes avoiding any conflict of interest between the office holder’s position in the company and his or her personal affairs or other positions, avoiding any competition with the company, avoiding exploiting any business opportunity of the company in order to receive personal gain for himself or herself or for others, and disclosing to the company any information or documents relating to the company’s affairs which the office holder has received due to his or her position as such. Each person identified as a director or member of our senior management in the first table in the section, is an office holder.
 
 
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The Companies Law requires that an office holder of a company promptly disclose to the company’s board of directors any personal interest that he or she may have, and all related material information known to him in connection with any existing or proposed transaction by the company. This disclosure must be made by the office holder, whether orally or in writing, no later than the first meeting of the company’s board of directors which discusses the particular transaction.

An office holder is deemed to have a “personal interest” if he has a personal interest in an act or transaction of a company, including a personal interest of his relative or of a corporation in which such office holder or his or her relative are a 5% or greater shareholder, but excluding a personal interest stemming from the fact of a shareholding in the company. Pursuant to Amendment No. 16 to the Companies Law, the definition of “personal interest” was revised to include a personal interest of a person voting pursuant to a proxy provided to him or her from another person even if such other person does not have a personal interest and to note that the vote of a person that received a proxy from a shareholder that has a personal interest as a vote of the shareholder with the personal interest, all whether the discretion with respect to the voting is held by the person voting or not.

An “Extraordinary Transaction” is defined as a transaction - other than in the ordinary course of business, not on market terms, or that is likely to have a material impact on the company’s profitability, assets or liabilities.

In the case of a transaction that is not an Extraordinary Transaction, after the Office Holder complies with the above disclosure requirements, only board approval is required. The transaction must not be adverse to the company’s interests. In the case of an Extraordinary Transaction, the company’s audit committee and board of directors, and, under certain circumstances, the shareholders of the company, must approve the transaction, in addition to any approval stipulated by the articles. For a review on the approval process for the terms of services of officers, see “Committees of the Board of Directors – Audit Committee” below.

A director who has a personal interest in a matter that is considered at a meeting of the board of directors or the audit committee may not be present at this meeting or vote on this matter, unless a majority of the members of the board of directors or audit committee, respectively, have a personal interest in the matter, in which case they may all be present and vote. In the event a majority of the members of the board of directors have a personal interest in a matter, such matter must be also approved by the shareholders of the company. Amendment No. 16 to the Companies Law provides that whoever has a personal interest in the approval of a transaction may not be present at the meeting or vote on this matter; provided that an Office Holder who has a personal interest may be present for the presentation of the transaction in the event the chairman of the audit committee or the chairman of the board, as the case may be, determine that she or he are required for the presentation of the transaction.
 
 
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Committees of the Board of Directors

Audit Committee

Under the Companies Law, we, as a public company, are required to have an audit committee. The Audit Committee must be comprised of at least three members of the Board, including the external directors. Audit Committee members may not be employees or regular service providers of the company, or controlling shareholders and their relatives. Pursuant to Amendment No. 16 to the Companies Law, the majority of the members of the audit committee is required to be "independent" (as such term is defined under the Israeli Companies Law), the chairman of the audit committee is required to be an external director, and the following are disqualified from serving as members of the audit committee: the chairman of the board, any director employed by the company or by its controlling shareholder or by an entity controlled by the controlling shareholder, a director who regularly provides services to the company or to its controlling shareholder or to an entity controlled by the controlling shareholder, and any director who derives most of its income from the controlling shareholder.

Our Audit Committee, acting pursuant to a written charter, currently consists of Barry Ben Zeev, Alon Lumbroso and Oded Akselrod.

Approval by the Audit Committee and thereafter by the Board is required for (i) proposed extraordinary transactions to which we intend to be a party in which an office holder has a direct or indirect personal interest, (ii) actions or arrangements which may otherwise be deemed to constitute a breach of fiduciary duty or of the duty of care of an office holder to Ellomay, (iii) arrangements with directors as to their terms of office, compensation, compensation for other positions held with the company, including the provision of indemnification or an undertaking to indemnify and the procurement of insurance, (iv) indemnification and insurance of office holders, other than directors, (v) an extraordinary transaction of the company in which a “controlling shareholder,” that is, a shareholder holding the ability to direct the actions of the company, other than by virtue of being a director or holding a position with the company, including a shareholder holding twenty five percent or more of the voting rights of the company if there is no other shareholder holding over fifty percent of the voting rights of the company, has a personal interest, (vi) an arrangement with a controlling shareholder or its relative (if such a relative is also an office holder) concerning the terms of his or her employment with the company, (vii) certain private placements of the company’s shares and (viii) compensation and scope of work of the independent auditor. In certain circumstances, some of the matters referred to above may also require shareholder approval.
 
 
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Amendment No. 16 to the Companies Law adds, iter alia, the following to the list of duties of the audit committee: (i) determining whether certain related party actions and transactions are “extraordinary transactions” in connection with their approval procedures, (ii) assessing the company’s internal audit system and the performance of its internal auditor and whether the internal auditor has the resources and tools required to it for the performance of its role, taking into account, among others, the special needs and size of the company, (iii) examining the scope of work and compensation of the company’s independent auditor and (iv) setting procedures in connection with the method of dealing with complaints of employees regarding defects in the management of the company’s business and with the protection that will be provided to employees who have complained. In addition, pursuant to Amendment No. 16 to the Companies Law, the approval of the terms of office and/or employment, including the grant of an exemption, insurance, undertaking to indemnify or indemnification (“Terms of Office and Employment”) of an officer require the approval of the audit committee and the board of directors, regardless of whether or not this transaction is an Extraordinary Transaction. However, Amendment No. 16 to the Companies Law provides that instead of audit committee approval for the Terms of Office and Employment of an officer, another committee of the board can approve the transaction if such committee meets all the requirements that apply to an audit committee and further provides that in the event the transaction relating to the Terms of Office and Employment of an officer is a revision of an existing transaction, the approval of the audit committee suffices if the audit committee determines that the change in terms is not material.

The Audit Committee may not approve an action or transaction with a controlling shareholder or with an office holder unless at the time of approval two external directors are serving as members of the Audit Committee and at least one participated in the meeting at which the action or transaction was approved.

The Audit Committee provides assistance to the Board of Directors in fulfilling its legal and fiduciary obligations in matters involving our accounting, auditing, financial reporting, internal control and legal compliance functions by approving the services performed by our independent accountants and reviewing their reports regarding our accounting practices and systems of internal accounting controls. Under the Sarbanes-Oxley Act of 2002, the Audit Committee is also responsible for the appointment, compensation, retention and oversight of our independent accountants and takes those actions as it deems necessary to satisfy itself that the accountants are independent of management. Under the Companies Law, the appointment of independent auditors requires the approval of our shareholders, accordingly, the appointment of the independent auditors is approved and recommended to the shareholders by the Audit Committee and the Board of Directors and ratified by the shareholders. Furthermore, pursuant to the Articles, our shareholders have the authority to determine the compensation of the independent auditors (or empower the Board to establish their remuneration), the compensation is approved following a recommendation of the Audit Committee. Under the Companies Law, the Audit Committee also is required to monitor deficiencies in the administration of a company, including by consulting with the internal auditor or independent accountants and suggesting methods of correction of such deficiencies to the Board, and to review and approve related party transactions.

The Audit Committee has discussed with the independent registered public accounting firm the matters covered by Statement on Auditing Standards No. 61, as well as their independence, and was satisfied as to the independent registered public accounting firm’s compliance with said standards.
 
 
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Stock Option and Compensation Committee

Under the Companies Law, the Board may appoint committees and delegate certain duties to such committees. At least one of the members of such committees is required to be one of the external directors of the company.

The Companies Law provides that the Board is entitled to delegate to Board committees its power, among other things, to allocate shares or securities convertible into shares of Ellomay relating to employees incentive plans, and employment or salary agreements between Ellomay and its employees, provided, that any such grant is subject to a detailed plan approved by the Board. The Board is also entitled to delegate to the general manager or person recommended by the general manager the Board’s authority to issue ordinary shares issuable upon exercise or conversion of Ellomay’s securities.

In March 1998, we established a Stock Option and Compensation Committee to administer and oversee the allocation and distribution of stock options under our stock option plans, other than the 1998 Non-Employee Director Share Option Plan, and to approve our executive officers’ annual compensation and other terms of employment. All arrangements as to compensation of office holders who are not directors also require the approval of the Board. The Stock Option and Compensation Committee is presently composed of three members: Shlomo Nehama, Ran Fridrich and Barry Ben Zeev.

Non-Employee Director Share Option Plan Committee

In February 1999, Ellomay established a committee to administer the Ellomay’s 1998 Non-Employee Director Share Option Plan (the “NEDSOP Committee”). The NEDSOP Committee is charged with administering and overseeing the allocation and distribution of stock options under the 1998 Non-Employee Director Share Option Plan. The Companies Law provides that the Board is not entitled to delegate to Board committees its power, among other things, to allocate shares or securities convertible into shares of Ellomay, except for allocation of shares or securities convertible into shares of Ellomay relating to employees incentive plans, and employment or salary agreements between Ellomay and its employees. Additionally, pursuant to the Companies Law, the terms of service (including the grant of options) of all directors also require shareholder approval. Accordingly, the NEDSOP Committee recommendations are subject to the approval of the Board and the shareholders.

Indemnification and Exculpation of Executive Officers and Directors

Consistent with the provisions of the Companies Law, our Articles include provisions permitting us to procure insurance coverage for our directors and officers, exempt them from certain liabilities and indemnify them, to the maximum extent permitted by law.

Indemnification

The Companies Law provides that a company may indemnify an Office Holder against: (a) a financial liability imposed on him in favor of another person by any judgment concerning an act preformed in his capacity as an office holder; (b) reasonable litigation expenses, including attorneys’ fees, expended by the office holder or charged to him by a court relating to an act preformed in his capacity as an office holder in connection with: (i) proceedings the company institutes against him or instituted on its behalf or by another person; (ii) a criminal charge from which he was acquitted; (iii) a criminal charge in which he was convicted for a criminal offence that does not require proof of criminal thought; and (iv) an investigation or a proceeding instituted against him by an authority competent to administrate such an investigation or proceeding that ended without the filing of an indictment against the office holder and, either without any financial obligation imposed on the office holder in lieu of criminal proceedings; or with financial obligation imposed on him in lieu of criminal proceedings, in a crime which does not require proof of criminal thought. The Companies Law also authorizes a company to undertake in advance to indemnify an office holder with respect to events specified above, provided that, with respect to indemnification under sub-section (a) above, the undertaking: (i) is limited to events which the board of directors determines can be anticipated, based on the activity of the company at the time the undertaking is given; (ii) is limited in amount or criteria determined by the board of directors to be reasonable for the circumstances; and (iii) specifies the abovementioned events, amounts or criteria.
 
 
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At the annual shareholders meeting held on October 27, 2005, our shareholders authorized us to enter into indemnification agreements with each of our current and future directors and officers. At the annual shareholders meeting held on December 30, 2009, a number of amendments to the indemnification agreements were approved. Ellomay shall, subject to the provisions of the indemnification agreement, indemnify each director and officer for future obligations or expenses imposed on them in consequence of an act done in their capacity as directors or officers of Ellomay (or of any other entity in which Ellomay holds shares or has interests and in which they serve as officers or directors at Ellomay’s request), as follows:
 
 
·
monetary liabilities imposed on, or incurred by, the director or officer for the benefit of another person pursuant to a judgment, including a judgment given in settlement or a court approved arbitrator’s award;
 
 
·
reasonable litigation expenses including legal fees, incurred by a director or officer in consequence of an investigation or proceeding filed or conducted against a director or officer by an authority that is authorized to file or conduct such investigation or proceeding, and that has ended without filing an indictment against, or imposing of a financial obligation in lieu of a criminal proceeding on, such director or officer, or that ended without filing an indictment against such director or officer but with imposing a financial obligation on such director or officer in lieu of a criminal proceeding in respect of an offense that does not require the proof of criminal thought;
 
 
·
reasonable litigation expenses, including legal fees, incurred by a director or officer or which a director or officer is ordered to pay by a court, in proceedings filed against such director or officer by Ellomay or on its behalf or by another person, or in a criminal charge of which he or she is acquitted, or in a criminal charge of which such director or officer is convicted of an offence that does not require proof of criminal thought; and
 
 
·
any other liability and/or litigation expense (including legal fees), which, according to the applicable law and Ellomay’s Amended and Restated Articles of Association, each as shall be in effect from time to time, Ellomay could indemnify a director or officer.

The indemnification undertaking is limited to certain categories of events and the aggregate indemnification amount that Ellomay shall pay (in addition to sums payable by insurance companies) for monetary liabilities imposed on, or incurred by, the director or officer pursuant to all the indemnification undertakings issued by Ellomay to its directors and officers, may not exceed an amount equal to the higher of: (i) fifty percent (50%) of the net equity of Ellomay at the time of indemnification, as reflected on its most recent financial statements at such time, or (ii) the annual revenue of Ellomay in the year prior to the time of indemnification.
 
 
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In such indemnification agreements, Ellomay also undertakes to (i) produce collateral, security, bond or any other guarantee that the director or officer may be required to produce as a result of any interim legal procedure (other than criminal procedures involving the proof of criminal thought), all up to the maximum indemnification amount set forth above; and (ii) to maintain a liability insurance policy with a reputable insurer to the extent permitted by the Companies Law, for all directors and officers of Ellomay, in a total amount of not less than $10 million during the period the recipient of the indemnity undertaking serves as a member of Ellomay’s board of directors and for a period of seven years thereafter.

We have entered into indemnification agreements with directors and officers providing for indemnification under certain circumstances for acts and omissions which may not be covered (or not be covered in full) by any directors’ and officers’ liability insurance. With respect to our directors, Shlomo Nehama, Ran Fridrich and Hemi Raphael, special shareholder approval was sought and received, as they are deemed to be “controlling shareholders.” Any of our future directors shall also receive such indemnification agreement. Such indemnification agreement, as amended, appears as part of the proxy statement in our current report on Form 6-K as filed with the SEC on November 24, 2009.

Exemption

Under the Companies Law, an Israeli company may not exempt an office holder from liability for a breach of his duty of loyalty, but may exculpate in advance an office holder from his liability to the company, in whole or in part, for a breach of his duty of care, provided that in no event shall the office holder be exempt from any liability for damages caused as a result of a breach of his duty of care to the company in the event of a “distribution” (as defined in the Companies Law). Our Articles authorize us to exculpate any director or officer from liability to us to the extent permitted by law.

The Companies Law provides that a company may not exculpate or indemnify an office holder nor enter into an insurance contract which would provide coverage for liability incurred as a result of any of the following: (a) a breach by the office holder of his or her duty of loyalty (however, a company may insure against such breach if the office holder acted in good faith and had a reasonable basis to assume that the act would not harm the company); (b) a breach by the office holder of his or her duty of care if the breach was done intentionally or recklessly, unless made in negligence only; (c) any act of omission done with the intent to derive an illegal personal benefit; or (d) any fine or monetary penalty levied against the office holder.
 
At the annual shareholders meeting held on October 27, 2004, our shareholders authorized us to exculpate our directors and officers in advance from liability to us, in whole or in part, for a breach of the duty of care. The form of exemption letter was approved at the annual shareholders meeting held on October 27, 2005 and amendments were approved at the annual shareholders meeting held on December 30, 2009. We have extended such exemption letters to all our directors and some officers. With respect to our directors, Shlomo Nehama, Ran Fridrich and Hemi Raphael, special shareholder approval was sought and received, as they are deemed to be “controlling shareholders.” Any of our future directors shall also receive such exemption letter. The amended form of exemption letter appears as part of the proxy statement in our current report on Form 6-K as filed with the SEC on November 24, 2009.
 
 
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Insurance

Under the Companies Law, a company may obtain insurance for any of its office holders for: (a) a breach of his duty of care to the company or to another person; (b) a breach of his duty of loyalty to the company provided that the office holder acted in good faith and had reasonable cause to assume that his act would not prejudice the company’s interests; or (c) a financial liability imposed upon him in favor of another person concerning an act preformed by him or her in his/her capacity as an office holder.

As stated above, in the indemnification agreements between us and our directors and officers, we have undertaken to maintain a liability insurance policy with a reputable insurer to the extent permitted by the Companies Law, for all of our directors and officers, in a total amount of not less than $10 million during the period the recipient of the indemnity undertaking serves as a member of our board of directors or as an officer, and for a period of seven years thereafter.

We have obtained directors’ and officers’ liability insurance covering our directors and officers. In our January 2008 general meeting of shareholders, our shareholders also approved the procurement of a “run-off” directors’ and officers’ liability insurance policy covering our directors and officers for events that occurred prior and up to the closing of the HP Transaction.

Internal Auditor 

Under the Companies Law, our Board is also required to appoint an internal auditor proposed by the Audit Committee. The role of the internal auditor is to examine, among other things, whether our activities comply with the law and orderly business procedure. The internal auditor may not be an interested party or office holder, or a relative of any interested party or office holder, and may not be a member of our independent auditor firm. The Companies Law defines the term “interested party” to include a person who holds 5% or more of the company’s outstanding share capital or voting rights, a person who has the right to appoint one or more directors or the general manager, or any person who serves as a director or as the general manager. Mr. Doron Cohen of Fahn, Kanne & Co., an Israeli accounting firm, serves as our internal auditor.

D.            Employees

As of December 31, 2010, we had 7 employees and independent contractors compared to 6 employees and independent contractors as of December 31, 2009 and 9 as of December 31, 2008. All of our employees and independent contractors, as of December 31, 2010, were in management, finance and administration and all, other than one independent contractor located in Italy, were located in Israel.

In connection with and following the consummation of the HP Transaction on February 29, 2008, approximately 80% of our employees world-wide were rolled over to various HP related entities. At that time, we terminated the employment of a majority of the other employees, including the majority of our senior management. The employees who were terminated were eligible to termination related severance and/or notice periods ranging between one and six months. In connection with such terminations, we recorded as of the HP APA Closing Date severance-related expenses in the approximate amount of $2.8 million.
 
 
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All of our employees who have access to confidential information are required to sign a non-disclosure agreement covering all of our confidential information that they might possess or to which they might have access.

We believe our relations with employees are satisfactory. We have never experienced a strike or work stoppage. We believe our future success will depend, in part, on our ability to continue to attract, retain, motivate and develop highly qualified personnel.

The Israeli Severance Pay Law, 1963 (the “Severance Pay Law”) generally requires the payment of severance pay equal to one month’s salary, based on the most recent salary, for each year of employment or a pro rata portion thereof upon the termination of employment of the employee. The employee is not entitled to severance pay in the event she or he willingly resigns. In order to fund, or partially fund as hereinafter explained, any future liability in connection with severance pay, we make payments equal to 8.33% of the employee’s salary every month, to various managers’ insurance policies or similar financial instruments. We record as an expense the increase in the severance liability, net of earnings (losses) from the managers’ insurance policy. Our liability is partially provided by such monthly deposits and any unfunded amounts (due to increase in the employee’s salary over time, or losses incurred by the insurance policy fund that invests our deposits) would be paid from operating funds and are covered by a provision we record.

In the event the employment agreement with an employee provides that the provisions of Section 14 of the Severance Pay Law will apply, our contributions for severance pay are instead of our severance liability and the employee is entitled to receive such contributions whether her or his employment is terminated by us or she or he resigns. Therefore, upon fulfillment of our obligation to make a monthly contribution to the managers’ insurance policies or similar financial instruments in the amount of 8.33% of the employee’s monthly salary, no additional payments must later be made to the employee on account of severance pay upon termination of the employment relationship. Further, the amounts deposited on behalf of such obligation are not stated in the balance sheet, as we are released from any further obligation towards the employee once they have been deposited.
 
Our employees are usually provided with an additional contribution toward their retirement that amounts to 10% of wages, of which the employee and the employer each contribute half. Furthermore, Israeli employees and employers are required to pay predetermined sums to the National Insurance Institute, which is similar to the United States Social Security Administration, and additional sums towards compulsory health insurance.
 
 
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E.           Share Ownership

Beneficial Ownership of Executive Officers and Directors

The following table sets forth certain information regarding the beneficial ownership of our ordinary shares as of March 31, 2011, of (i) each of our directors and (ii) each member of our senior management. All of the information with respect to beneficial ownership of the ordinary shares is given to the best of our knowledge and has been furnished in part by the respective directors and members of senior management.

Name of Beneficial Owner
 
Number of Shares
Beneficially Held (1)
   
Percent of Class
 
             
Shlomo Nehama(2)                                         
    40,168,422       37.3 %
Ran Fridrich(3)                                         
    -       -  
Hemi Raphael (3)                                         
    -       -  
Anita Leviant(4)                                         
    *       *  
Alon Lumbroso(4)                                         
    *       *  
Oded Akselrod(4)                                         
    *       *  
Barry Ben Zeev(4)                                         
    *       *  
Eran Zupnik(4)                                         
    1,100,844       1 %
Kalia Weintraub                                         
    -       -  

______________________________
* Less than one percent of the outstanding ordinary shares

(1)
As used in this table, “beneficial ownership” means the sole or shared power to vote or direct the voting or to dispose or direct the disposition of any security. For purposes of this table, a person is deemed to be the beneficial owner of securities that can be acquired within 60 days from March 31, 2011 through the exercise of any option or warrant. Ordinary shares subject to options or warrants that are currently exercisable or exercisable within 60 days are deemed outstanding for computing the ownership percentage of the person holding such options or warrants, but are not deemed outstanding for computing the ownership percentage of any other person. The amounts and percentages are based upon 107,778,493 ordinary shares outstanding as of March 31, 2011.
 
(2)
According to information provided by the holders, the 40,168,422 ordinary shares beneficially owned by Mr. Nehama consist of: (i) 35,518,695 ordinary shares held by S. Nechama Investments (2008) Ltd., an Israeli company (“Nechama Investments”), which constitute approximately 33% of the outstanding ordinary shares, and (ii) 4,649,727 ordinary shares held directly by Mr. Nehama, which constitute approximately 4.3% of the outstanding ordinary shares. Mr. Nehama, as the sole officer, director and shareholder of Nechama Investments, may be deemed to indirectly beneficially own any ordinary shares beneficially owned by Nechama Investments, which constitute (together with his shares) approximately 37.3% of the outstanding ordinary shares. By virtue of the 2008 Shareholders Agreement between Nechama Investments and Kanir (see “Item 7.A. Major Shareholders”), Mr. Nehama, Nechama Investments, Kanir and Messrs. Raphael and Fridrich may be deemed to be members of a group that holds shared voting power with respect to 71,449,675 ordinary shares, which together constitute approximately 66.3% of the outstanding ordinary shares, and holds shared dispositive power with respect to 53,997,025 ordinary shares, which constitute 50.1% of the outstanding ordinary shares. Accordingly, Mr. Nehama may be deemed to beneficially own (when including the ordinary shares directly held by him and not subject to the 2008 Shareholders Agreement) 76,099,402 ordinary shares, which constitute approximately 70.6% of the outstanding ordinary shares. Mr. Nehama and Nechama Investments both disclaim beneficial ownership of the ordinary shares beneficially owned by Kanir.
 
(3)
By virtue of their positions as sole shareholders and directors of Kanir Investments Ltd. (“Kanir Ltd.”), the general partner in Kanir Joint Investments (2005) Limited Partnership (“Kanir”), and limited partners in Kanir, Hemi Raphael and Ran Fridrich may be deemed to indirectly beneficially own the ordinary shares beneficially owned by Kanir. Messrs. Raphael and Fridrich disclaim beneficial ownership of such shares. Kanir owns 35,930,980 ordinary shares, which constitute approximately 33.3% of the outstanding ordinary shares. Please see footnote (2) with respect to the 2008 Shareholders Agreement. Kanir Ltd., Kanir and Messrs. Raphael and Fridrich all disclaim beneficial ownership of the shares held by Nechama Investments.
 
 (4)
Most directors and some officers also have outstanding options, many of which are currently exercisable. The directors and senior management of Ellomay hold, in the aggregate, options exercisable into 1,487,356 ordinary shares, 1,266,705 of which are currently exercisable or will become exercisable within 60 days from March 31, 2011.
 
 
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Our directors currently hold, in the aggregate, options exercisable into 165,863 ordinary shares. The 165,863 options have a weighted average exercise price of approximately $0.56 per share and have expiration dates until 2020. Under the 1998 Plan, Oded Akselrod, one of the members of our Board, was granted options to purchase 10,000 ordinary shares on December 30, 2004, August 1, 2005, August 1, 2006, August 1, 2007, August 1, 2008, August 1, 2009 and August 1, 2010. Anita Leviant, one of the members of our Board, was granted options to purchase 13,333 shares on August 1, 2008 and was also granted options to purchase 10,000 shares on August 1, 2009 and August 1, 2010. Alon Lumbroso, one of our external directors, was granted 6,667 options on November 27, 2006 and was also granted options to purchase 10,000 ordinary shares on August 1, 2007, August 1, 2008, August 1, 2009 and August 1, 2010. Barry Ben Zeev, another external director who was appointed on December 30, 2009, was granted 5,863 options on the date of his appointment and was also granted options to purchase 10,000 ordinary shares on August 1, 2010. The exercise price for the underlying shares of such options is the “Fair Market Value” (as defined in the 1998 Plan) of our ordinary shares at the date of grant. The options expire ten years after their grant date.

Only one of our officers currently holds options to purchase our ordinary shares. On January 4, 2009, Eran Zupnik, EVP of Business Development, was granted options to purchase 1,320,527 ordinary shares, at an adjusted exercise price of $0.85 per ordinary share. 16.67% of these options vested 6 months after the grant date, with a further 8.33% vesting at the end of every three-month period thereafter. In case of termination of the employment relationship with such officer, for whatever reason except termination for cause (as such term is defined in the 2000 Stock Option Plan described below) the officer will be able to exercise, within three months, not only those options that have already vested, but also a part of the next vesting portion, according to the part of the three-month period during which the employment relationship existed. Additionally, such officer was granted the entitlement to receive 1.125% of any securities (shares, warrants or options, other than shares underlying securities that existed at the time of execution of his employment agreement) we issue under the same terms and conditions of the issuance (however, the vesting schedule of the additional options shall in any event be 1/12 at the end of every three month period). As a result of the issuance of options to directors in 2009 (as detailed above), Eran Zupnik received an additional 450 options to purchase ordinary shares on August 1, 2009 and 66 options to purchase ordinary shares on December 30, 2009, at an exercise price identical to that of the directors ($0.47 and $0.63, respectively. As a result of the issuance of options to directors in 2010 (as detailed above), Eran Zupnik received additional options to purchase 450 ordinary shares on August 1, 2010, at an exercise price identical to that of the directors ($0.59). All of the options granted to Mr. Zupnik were granted under our 2000 Stock Option Plan and expire ten years after their grant date.

Outstanding Options

Immediately prior to the consummation of the HP Transaction, there were outstanding options to purchase 10,079,400 of our ordinary shares that were granted to our employees. In connection with the HP Transaction, the vesting of all such employee options was accelerated and all became immediately exercisable upon consummation of the sale of our business to HP on February 29, 2008. As more fully described herein, 9,893,550 of such options were thereafter purchased by us and cancelled in July 2008. Any options not repurchased (due to their relatively high exercise price) were canceled during 2008 pursuant to their terms and the terms of the 2000 Stock Option Plan.
 
 
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The options granted to directors under the 1998 Plan are not subject to vesting requirements and have an exercise price ranging from $0.31 to $1.86 per share, with various expiration dates.

1995 Israel Stock Option Plan

In 1995, we adopted the 1995 Israel Stock Option Plan (the “1995 Plan”), which provides for grants of stock options to our employees and consultants. Options to purchase an aggregate of 500,000 ordinary shares were originally available for grant under the 1995 Plan, as amended, including service options for future services, options for performance, and options to consultants for service or performance.

At the annual shareholders meeting held on November 18, 2003, our shareholders approved the Board’s resolution to terminate the 1995 Plan and to increase the number of ordinary shares authorized for issuance under our 2000 Stock Option Plan (as amended) in the aggregate amount that was outstanding for grant under the 1995 Plan as of July 15, 2003, thereby increasing the number of ordinary shares authorized for issuance under our 2000 Stock Option Plan by 33,261. At the annual shareholders meeting held on October 27, 2005, our shareholders approved an increase in the number of ordinary shares authorized for issuance under the 2000 Stock Option Plan by the number of ordinary shares underlying options cancelled under the 1995 Plan.

As of March 31, 2011, there are no outstanding options and no ordinary shares reserved for issuance under the 1995 Plan.

1997 Stock Option Plan

In 1997, we adopted the 1997 Stock Option Plan (the “1997 Plan”), which provides for grants of stock options to our employees, directors and consultants. Options to purchase an aggregate of 2,200,000 ordinary shares were originally available for grant under the 1997 Stock Option Plan, as amended.

At the annual shareholders meeting held on November 18, 2003, our shareholders approved the Board’s resolution to terminate the 1997 Plan and to increase the number of ordinary shares authorized for issuance under our 2000 Stock Option Plan in the aggregate amount that was outstanding for grant under the 1997 Plan as of July 15, 2003, thereby increasing the number of ordinary shares authorized for issuance under our 2000 Stock Option Plan by 464,329. At the annual shareholders meeting held on October 27, 2005, our shareholders approved an increase in the number of ordinary shares authorized for issuance under the 2000 Stock Option Plan by the number of ordinary shares underlying options cancelled under the 1997 Plan.

As of March 31, 2011, there are no outstanding options and no ordinary shares reserved for issuance under the 1997 Plan.
 
 
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1998 Non-Employee Director Share Option Plan

For discussion of the 1998 Non-Employee Director Share Option Plan see “Item 6.B: Compensation.”

As of March 31, 2011, there are 165,863 outstanding options and 499,970 ordinary shares available for future grants under the 1998 Non-Employee Director Share Option Plan.

2000 Stock Option Plan

In 2000, we adopted the 2000 Stock Option Plan (the “2000 Plan”) to provide for grants of service and non-employee options to purchase ordinary shares to our officers, employees, directors and consultants. The 2000 Plan provides that it may be administered by the Board, or by a committee appointed by the Board, and is currently administered by the Stock Option and Compensation Committee subject to Board approval.

At the annual shareholders meetings held on November 18, 2003 and October 27, 2004, our shareholders approved increases in the number of ordinary shares authorized for issuance under the 2000 Plan (as amended) to 2,997,590. At the annual shareholders meeting held on October 27, 2005, our shareholders approved an additional increase in the number of ordinary shares authorized for issuance under the 2000 Plan (as amended) by 14,500,000, from 2,997,590 to 17,497,590 and by the number of ordinary shares underlying options surrendered (except in the case of surrender for the exercise into shares) or which cease to be exercisable under the 1995 Plan and the 1997 Plan. The additional number of ordinary shares underlying options cancelled under the 1995 Plan and the 1997 Plan increased the number of ordinary shares authorized for issuance under the 2000 Plan by 227,000 from 17,497,590 to 17,724,590. Section 12 of the 2000 Plan provided originally that the 2000 Plan will expire on August 31, 2008, unless previously terminated or extended by the Board. At our Board meeting held on June 23, 2008, our Board resolved to amend Section 12 of the 2000 Plan to extend its term until August 31, 2018.

Our Board has broad discretion to determine the persons entitled to receive options under the 2000 Plan, the terms and conditions on which options are granted, and the number of ordinary shares subject thereto. Our Board delegated to our management its authority to issue ordinary shares issuable upon exercise of options under the 2000 Plan. The exercise price of the options under the 2000 Plan is determined by our Stock Option and Compensation Committee, provided, however, that the exercise price of any option granted shall not be less than eighty percent (80%) of the stock value at the date of grant of such options. The stock value at any time is equal to the then current fair market value of our ordinary shares. For purposes of the 2000 Plan (as amended), the fair market value means, as of any date, the last reported closing price of the ordinary shares on such principal securities exchange on the most recent prior date on which a sale of the ordinary shares took place.

Our Stock Option and Compensation Committee determines the term of each option granted under the 2000 Plan, including the vesting period; provided, however, that the term of an option shall not be for more than 10 years. Upon termination of employment, all unvested options lapse, and generally within three months from such termination all vested but not-exercised options shall lapse.

The options granted are subject to restrictions on transfer, sale or hypothecation. Options and ordinary shares issuable upon the exercise of options granted to our Israeli employees are held in a trust until the payment of all taxes due with respect to the grant and exercise (if any) of such options.
 
 
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We have elected the benefits available under the “capital gains” alternative of Section 102 of the Israeli Tax Ordinance. Pursuant to this election, capital gains derived by employees arising from the sale of shares acquired as a result of the exercise of options granted to them under Section 102, will be subject to a flat capital gains tax rate of 25% (instead of the gains being taxed as salary income at the employee’s marginal tax rate). However, as a result of this election, we will no longer be allowed to claim as an expense for tax purposes the amounts credited to such employees as a benefit when the related capital gains tax is payable by them, as we were previously entitled to do. We may change the election from time to time, as permitted by the Tax Ordinance. There are various conditions that must be met in order to qualify for these benefits, including registration of the options in the name of a trustee (the “Trustee”) for each of the employees who is granted options. Each option, and any ordinary shares acquired upon the exercise of the option, must be held by the Trustee for a period commencing on the date of grant and ending no earlier than 24 months after the date of grant.

Changes in Options Following Consummation of the HP Transaction
 
In connection with the HP Transaction, our Board of Directors approved the immediate acceleration of all outstanding employee stock options that were outstanding as of the date of execution of the Asset Purchase Agreement. Our Board of Directors further approved the offer to employees who hold outstanding stock options with exercise prices below $1.00 to repurchase their outstanding stock options, subject to and following the fulfillment of all regulatory requirements. The employees received offers from us, setting forth the consideration offered for such options. The employees were generally offered a choice between two methods of payment.

The first method entailed receipt, subject to and following fulfillment of regulatory requirements, of 75% of the consideration and receipt of up to 25% of the consideration following release of the monies deposited in escrow in connection with the HP Transaction. The exact amount of the second payment, if any, was to be determined based on the net cash generated by us from our remaining assets and liabilities based on the criteria set forth by our Board and such amount was to bear interest equal to the interest rate applicable to the monies deposited in the escrow account in connection with the HP Transaction commencing March 1, 2008. The second method entailed receipt, subject to and following fulfillment of regulatory requirements, of 90% of the consideration without entitlement to any additional payment in the future.

Under both payment methods, all outstanding options were to terminate immediately upon receipt of the first (or in the case of the second method, only) payment.

The offer to repurchase options was made to employees holding an aggregate of options to purchase approximately 9.9 million of our ordinary shares and the aggregate purchase price was up to approximately $3.8 million.

Based on the election of the employees between the two methods of payment described herein, on July 2008 we paid approximately $3.1 million in consideration for the options. On that date options to purchase 9,893,550 of our ordinary shares were cancelled. Following the execution of the HP Settlement Agreement, the release of a portion of the escrow funds to us and the calculation of our financial aspects based on the guidelines set forth in the aforementioned Board approval, we paid an additional aggregate amount of $0.6 million to former holders of options to purchase our ordinary shares and an additional amount of $0.3 million is still accrued as of December 31, 2010 as further detailed in “Item 6.B: Compensation.”
 
 
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Pursuant to the terms of our option plans, all options that were not repurchased expired 90 days following the termination of employment of the employees holding such options.

As of March 31, 2011, there are 1,321,493 outstanding options under the 2000 Plan. As a result of the repurchase and cancellation of the options set forth above, the number of additional ordinary shares available for issuance under the 2000 Plan, as of March 31, 2011, is 5,950,535.

ITEM 7: Major Shareholders and Related Party Transactions

A.           Major Shareholders

The following table sets forth information regarding the beneficial ownership of our ordinary shares as of March 31, 2011, by each person known by us to be the beneficial owner of more than 5% of our ordinary shares. Each of our shareholders has identical voting rights with respect to its shares. All of the information with respect to beneficial ownership of the ordinary shares is given to the best of our knowledge.

   
Ordinary Shares
Beneficially Owned(1)
   
Percentage of Ordinary Shares Beneficially Owned
 
             
Shlomo Nehama (2)(4)                                                        
    40,168,422       37.3 %
Kanir Joint Investments (2005) Limited Partnership (“Kanir”) (3)(4)(5)
    35,930,980       33.3 %
Zohar Zisapel (6)                                                        
    5,650,038       5.2 %
___________________________
(1)
As used in this table, “beneficial ownership” means the sole or shared power to vote or direct the voting or to dispose or direct the disposition of any security as determined pursuant to Rule 13d-3 promulgated under the U.S. Securities Exchange Act of 1934, as amended. For purposes of this table, a person is deemed to be the beneficial owner of securities that can be acquired within 60 days from March 31, 2011 through the exercise of any option or warrant. Ordinary shares subject to options or warrants that are currently exercisable or exercisable within 60 days are deemed outstanding for computing the ownership percentage of the person holding such options or warrants, but are not deemed outstanding for computing the ownership percentage of any other person. The amounts and percentages are based on a total of 107,778,493 ordinary shares outstanding as of March 31, 2011.
 
(2)
According to information provided by the holders, the 40,168,422 ordinary shares beneficially owned by Mr. Nehama consist of: (i) 35,518,695 ordinary shares held by S. Nechama Investments (2008) Ltd., an Israeli company (“Nechama Investments”), which constitute approximately 33% of the outstanding ordinary shares and (ii) 4,649,727 ordinary shares and held directly by Mr. Nehama, which constitute approximately 4.3% of the outstanding ordinary shares. Mr. Nehama, as the sole officer, director and shareholder of Nechama Investments, may be deemed to indirectly beneficially own any ordinary shares owned by Nechama Investments, which constitute (together with his shares) approximately 37.3% of the outstanding ordinary shares.
 
(3)
According to information provided by the holder, Kanir is an Israeli limited partnership. Kanir Investments Ltd. (“Kanir Ltd.”), in its capacity as the general partner of Kanir, has the voting and dispositive power over the ordinary shares directly beneficially owned by Kanir. As a result, Kanir Ltd. may be deemed to indirectly beneficially own the ordinary shares beneficially owned by Kanir. Messrs. Hemi Raphael and Ran Fridrich, who are members of our Board of Directors and director nominees, are the sole shareholders and directors of Kanir Ltd. As a result, they may be deemed to indirectly beneficially own the ordinary shares beneficially owned by Kanir. Kanir Ltd. and Messrs. Raphael and Fridrich disclaim beneficial ownership of such ordinary shares.
 
 
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(4)
By virtue of the 2008 Shareholders Agreement, Mr. Nehama, Nechama Investments, Kanir, Kanir Ltd., and Messrs. Raphael and Fridrich may be deemed to be members of a group that holds shared voting power with respect to 71,449,675 ordinary shares, which constitute approximately 66.3% of the outstanding ordinary shares, and holds shared dispositive power with respect to 53,997,025 ordinary shares, which constitute 50.1% of the outstanding ordinary shares. Accordingly, taking into account the shares directly held by Mr. Nehama, he may be deemed to beneficially own approximately 70.6% of the outstanding ordinary shares. Each of Mr. Nehama and Nechama Investments disclaims beneficial ownership of the ordinary shares beneficially owned by Kanir. Each of Kanir, Kanir Ltd. and Messrs. Raphael and Fridrich disclaims beneficial ownership of the ordinary shares beneficially owned by Nechama Investments. A copy of the 2008 Shareholders Agreement was filed with the SEC on March 31, 2008 as Exhibit 14 to an amendment to a Schedule 13D.
 
 (5)
Bonstar, an Israeli company, currently holds 846,905 ordinary shares, which constitute approximately 0.8% of the outstanding ordinary shares. Bonstar is a limited partner of Kanir and assisted Kanir in the financing of the purchase of some of its ordinary shares. Accordingly, Bonstar may be deemed to be a member of a group with Kanir and its affiliates, although there are no agreements between Bonstar and either of such persons and entities with respect to the ordinary shares beneficially owned by each of them. Mr. Joseph Mor and Mr. Ishay Mor are the sole shareholders of Bonstar and Mr. Joseph Mor serves as the sole director of Bonstar. Messrs. Joseph Mor and Ishay Mor also hold, through a company jointly held by them, 1,750,000 ordinary shares, which constitute approximately 1.6% of the outstanding ordinary shares. By virtue of their control over Bonstar and the other company, Messrs. Joseph Mor and Ishay Mor may be deemed to indirectly beneficially own the 2,596,905 ordinary shares beneficially owned by Bonstar and by the other company, which constitute approximately 2.4% of the ordinary shares. Each of Bonstar and Messrs. Joseph Mor and Ishay Mor disclaims beneficial ownership of the ordinary shares beneficially owned by Kanir and Nechama Investments. The information included in this report is based on a Schedule 13D/A filed by, among others, Bonstar, Mr. Joseph Mor and Mr. Ishay Mor on December 22, 2010 and on other previous Schedule 13D filings by these persons.
 
(6)
According to public filings, Zohar Zisapel is an Israeli citizen. As of December 31, 2010, the holdings of Mr. Zisapel consisted of: (i) 5,647,538 ordinary shares held by the Mr. Zisapel and (ii) 2,500 ordinary shares held of record by Lomsha Ltd., an Israeli company controlled by Mr. Zisapel. The information included in this report is based on a Schedule 13G/A filed by Mr. Zisapel on January 13, 2011.
 
 
Significant Changes in the Ownership of Major Shareholders

In February 2008, Kanir purchased, in a series of private transactions, additional Ellomay shares and warrants. The sellers in such private transactions included, among others, Dan and Edna Purjes, and entities they control or are affiliated with. Certain of the securities purchased by Kanir were subsequently transferred to Shlomo Nehama. Pursuant to information provided by Mr. Purjes, as a result of the sale of shares and warrants on February 2008, he and his affiliates, who as of May 2007 beneficially owned 12.51% of our ordinary shares, no longer beneficially owned any or our ordinary shares or warrants. We have no current information of Mr. Purjes’ or his affiliates’ holdings, if any.

In March and April 2008, Kanir, Shlomo Nehama and Nechama Investments purchased additional Ellomay shares and warrants in a series of private transactions, including (i) all of the shares and a majority of the warrants held by the Fortissimo Entities2, decreasing the percentage of ordinary shares beneficially owned by the Fortissimo Entities to 5.4%, (ii) a majority of the warrants held by Bank Hapoalim B.M., decreasing the percentage of ordinary shares beneficially owned by Bank Hapoalim B.M. from 6.3% to less than one percent, and (iii) shares held by certain of the entities affiliated with Meitav Investment House Ltd. (the “Meitav Entities”), decreasing the percentage of ordinary shares beneficially owned by the Meitav Entities from 6.34% to less than five percent.