BSD.L Regulatory News (BSD)

Emblaze Ltd. (LSE:BLZ) ("Emblaze" or "the Company") Interim Management Statement Herzeliya, Israel, 19 November 2013: During the period commencing 1 July 2013 to 18 November 2013 (the"Relevant Period"), the Company has undergone several changes. A summary ofthe material events and transactions that have taken place during the RelevantPeriod are set out below: Highlights - Revenues amounted to $1.6 million for the period of nine monthsending 30 September 2013 (Q3.2012: $1.4 million). The balance of cash and cashequivalent, short term investments and deposit in trust as of 30 September2013 is $142.4 million )of which approx. $120.4 million are deposited in trustin favour of the Proposed Transaction) (2012: $144.7 million). - The total issued share capital of the Company, as at 18 November2013, was 140,578,154 of which, 109,990,252 ordinary shares are outstanding,and 30,587,902 shares are held in treasury. - Acquisition by BGI Investments (1961) Ltd. (hereinafter: "BGI") on 14 August2013 of: i. 20.01% of the total issued and outstanding Ordinary Shares (excluding thetreasury shares) (hereinafter: "Issued Shares") of the Company; and ii. call options and grant of put options (hereinafter: "Options") in respectof a further 19.09 % of the Issued Shares (see Company announcement dated 15 August 2013) - Subsequent assignment of the Options to Chabad 770 B.V., the controllingshareholder of BGI (hereinafter: "Chabad") and exercise by Chabad of a calloption over 1,750,000 Ordinary Shares resulting in Chabad holding a total of1,750,000 ordinary shares of the Company, representing approximately 1.59% ofthe Company's issued share capital (excluding treasury shares). Together with Chabad, BGI currently holds a total of 23,766,166 ordinaryshares of the Company, representing approximately 21.6% of the Company'sIssued Shares and voting rights (see Company announcements dated 22 August 2013, 21 October 2013and 1 November 2013, as necessary) - Effective 14 August 2013, replacement of a majority of the Company's boardmembers. The board of directors of Emblaze (the "Board") consists now of the followingmembers: - Abraham Wolff (Chairman) - Israel Jossef Schneorson (CEO and Vice Chairman) - Zvi Shur (statutory independent non-executive director[1]) - Yosef Schvinger (independent non-executive director) - Chanoch Winderboim (non-executive Director) - Amnon Ben-Shay (non-executive Director). The Company's chief financial officer is Mr. Eyal Merdler. Naftali Shani, Yuval Cohen, Shmuel Barashi, Ilan Flato and HagitGal each resigned from the Board on 14 August 2013 and Nahum Admoni and ShimonLaor resigned from the Board on 16 August 2013 and 25 August 2013,respectively. (see Company announcement dated 15 August 2013, 16 August 2013 and26 August 2013) - Submission of an offer to IDB Holdings Corporation Ltd. (hereinafter: "IDB")on behalf of the Company and Netz Group Limited (hereinafter: "Netz Group")proposing the investment by Emblaze and Netz in IDB (hereinafter: the"Proposed Transaction"). (see Company announcements dated 15 August 2013 and 16 October2013, as necessary) - Extensions to deadline to submit proposals - first to 20 October 2013 andthen to 3 November 2013 - and deposit in trust through 26 August 2013 of$120.4 million (NIS 426 million) to be returned to the Company incircumstances where the proposed investment in IBD does not proceed. (see Company announcements dated 27 August 2013 and 18 October2013, as necessary) - Issue of circular on 16 October 2013 convening an ExtraordinaryGeneral Meeting to approve, amongst other things, the transfer of theCompany's listing category from the category of a premium listing (commercialcompany) on the Official List to a standard listing on the Official List onthe Official List (the "Transfer"). (see Company announcement dated 16 October 2013) - Approval by the Company's Shareholders on 30 October 2013 of,amongst other things, the Transfer. The date upon which the Transfer isexpected to become effective is 28 November 2013. (see Company announcement dated 30 October 2013) - Submission by IDB on 3 November 2013 of a proposal to theDistrict Court of Tel Aviv (the "Court"), on behalf of a consortium ofinvestors led by the Company (the "Consortium"), to acquire a controllingstake in IDB. (see Company announcement dated 4 November 2013 for further detailson the Proposed Transaction) - Addition of Neto Melinda Trade Ltd. (the "Neto Group") to theConsortium on 10 November 2013. (see Company announcement dated 11 November 2013) - Submission of letter by IDB to the Court- appointed expert on 11November 2013 clarifying certain matters relating to the Consortium'sProposal. (see Company announcement dated 12 November 2013) - Addition of Mr. Daniel Jusidman to the Consortium on 13 November2013. (see Company announcement dated 13 November 2013) A number of the matters referred to above have resulted in changesto the Board and in the make-up of the substantial shareholders in theCompany, particularly following the acquisition of Ordinary Shares by BGI. As stated above, In connection with the Proposed Transaction theCompany has deposited in trust, through 26 August 2013, an amount of NIS 425million (US $120 million). The deposit will be returned to the Company incircumstances where the proposed investment in IBD does not proceed. Trading Emblaze's shares have been temporarily suspended since 15 August2013 pending the publication of sufficient information on the ProposedTransaction. It is likely that suspension of trading in Ordinary Shares willcontinue following the completion of the transfer of the Company's listinginto the category of a standard listing on the Official List and completion ofthe Proposed Transfer until either the Company announces that it is ceasing topursue the Proposed Transaction, or the Company publishes a prospectus inrespect of the enlarged group (comprising the Company and IDB) following theCourt's approval of the Proposed Transaction. Intellectual Property In July 2010, Emblaze filed a complaint against Apple Inc. forinfringement of the Company's U.S. Patent No. 6,389,473 through Apple's HTTPLive Streaming protocol used in Apple products such as iPhones and iPads[2].The jury trial in this case was rescheduled for June 2014. In October 2012, the Company filed a complaint for patentinfringement against Microsoft Corporation ("Microsoft"). The complaintasserts that Microsoft's IIS Smooth Streaming system infringes Emblaze's U.S.patent No. 6,389,473 for media streaming technology[3]. Legal proceedings in these two cases are ongoing. Jossef Schneorson, CEO, commented: "we are committed to activelyseek to utilise the Company's resources in order to maximize value for itsshareholders. The transfer to standard listing should enable the Company torespond quickly to business opportunities and will better align the Company'sregulatory responsibilities given the Company's size and the nature of itsoperations. We are hoping that the proposal filed, together with our partners,for the acquisition of IDB will be the winning proposal. However, if theproposed investment in IBD does not proceed, we intend to explore businessopportunities in various sectors, in which the management of the Company canand would be actively involved." Enquiries: Hagit Gal hagit.gal@emblaze.com Emblaze Ltd.Emblaze Ltd. is traded on the London Stock Exchange (LSE: BLZ) since 1996.www.emblaze.com EMBLAZE LTD. INTERIM CONDESED CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2013 UNAUDITED U.S. DOLLARS IN THOUSANDS INDEX Page Report on Review of Interim Condensed Consolidated FinancialStatements 2 Interim Condensed Consolidated Statements of Financial Position 3 - 4 Interim Condensed Consolidated Statements of Profit or Loss andOther Comprehensive Income 5 Interim Condensed Consolidated Statements of Changes in Equity 6 - 7 Interim Condensed Consolidated Statements of Cash Flows 8 - 9 Notes to Interim Condensed Consolidated Financial Statements 10 - 25 - - - - - - - - - - Kost Forer Gabbay & Tel:Kasierer +972-8-6261300 21 Shazar Blvd., Noam Fax:Bldg. +972-3-5633428 Be'er Sheva 8489411, ey.comIsrael Report on Review of Interim Condensed Consolidated Financial Statements Board of Directors Emblaze Ltd. Introduction We have reviewed the accompanying interim condensed consolidatedstatement of financial position of Emblaze Ltd. and its subsidiaries ("theGroup") as of September 30, 2013 and the related interim condensedconsolidated statements of profit or loss and other comprehensive income,changes in equity and cash flows for the nine month period then ended andexplanatory notes. Management is responsible for the preparation andpresentation of these interim condensed consolidated financial statements inaccordance with IAS 34, "Interim Financial Reporting ("IAS 34"). Ourresponsibility is to express a conclusion on these interim condensedconsolidated financial statements based on our review. Scope of review We conducted our review in accordance with International Standardon Review Engagements 2410, Review of Interim Financial Information Performedby the Independent Auditor of the Entity. A review of interim financialinformation consists of making inquiries, primarily of persons responsible forfinancial and accounting matters, and applying analytical and other reviewprocedures. A review is substantially less in scope than an audit conducted inaccordance with International Standards on Auditing and consequently does notenable us to obtain assurance that we would become aware of all significantmatters that might be identified in an audit. Accordingly, we do not expressan audit opinion. Conclusion Based on our review, nothing has come to our attention that causesus to believe that the accompanying interim condensed consolidated financialstatements are not prepared, in all material respects, in accordance with IAS34. Beer-Sheva, Israel KOST FORER GABBAY & KASIERER A Member of Ernst & YoungNovember 18, 2013 Global EMBLAZE LTD. AND ITS SUBSIDIARIES INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION September 30, December 31, 2013 2012 Unaudited Audited U.S. dollars in thousandsASSETS CURRENT ASSETS:Cash and cash equivalents 5,782 9,333Deposit in trust (see Note 4) 120,428 -Short-term deposits 16,223 122,000Financial assets at fair value - 13,360through profit or lossAvailable for sale financial assets 205 215Restricted deposits 201 195Accrued interest receivable 122 966Prepaid expenses and other receivables 493 1,001 Total current assets 143,454 147,070 NON-CURRENT ASSETS: Equipment, net 65 67 Total assets 143,519 147,137 The accompanying notes are an integral part of the interimcondensed consolidated financial statements. EMBLAZE LTD. AND ITS SUBSIDIARIES INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION September 30, December 31, 2013 2012 Unaudited Audited U.S. dollars in thousandsLIABILITIES AND EQUITY CURRENT LIABILITIES:Trade payables 384 268Deferred revenues and accrued expenses 1,544 4,341 Total current liabilities 1,928 4,609 NON-CURRENT LIABILITIES: Employee benefit liabilities, net 18 34 EQUITY: Share capital 416 416Share premium 469,931 469,911Treasury shares (76,962) (76,275)Available for sale reserve 122 132Accumulated deficit (251,542) (251,346) Equity attributable to equity holders of the Company 141,965 142,838 Non- controlling interest (392) (344) Total equity 141,573 142,494 Total liabilities and equity 143,519 147,137The accompanying notes are an integral part of the interimcondensed consolidated financial statements. EMBLAZE LTD. AND ITS SUBSIDIARIES INTERIM CONDENSED CONSOLIDATED STATEMENTS OF PROFIT OR LOSS ANDOTHER COMPREHENSIVE INCOME Nine months ended Three months ended Year ended September, 30 September, 30 December, 31 2013 2012 2013 2012 2012 Unaudited Audited U.S. dollars in thousands (except earnings per share) Revenues 1,587 1,388 522 495 2,149Cost of revenues 334 325 62 101 525 Gross profit 1,253 1,063 460 394 1,624 Operating expenses:Research and development 1,154 1,322 393 502 1,751Selling and marketing 134 539 - 163 800General and administrative 3,422 1,902 1,873 527 2,620 Total operating expenses 4,710 3,763 2,266 1,192 5,171 Operating loss (3,457) (2,700) (1,806) (798) (3,547) Financial income 3,407 1,851 2,582 607 2,460Financial expense (323) (29) (271) (3) (58)Other income (loss) - 1,999 - (3) 2,061 Net income (loss) from (373) 1,121 505 (197) 916continuingoperationsNet income (loss) from 129 (13) (31) 6 (30)discontinuedoperations Net income (loss) (244) 1,108 474 (191) 886 Other comprehensive income(loss)to be reclassified to profit orloss insubsequent periods:Gain (loss) from (10) (6) - - 34available-for-sale financialassetsOther comprehensive income(loss) not to bereclassified to profit or lossin subsequentperiods:Actuarial loss from defined - - - - (32)benefit plans Total other comprehensive (10) (6) - - 2income (loss) Total comprehensive income (254) 1,102 474 (191) 888(loss) Net income (loss) attributableto:Equity holders of the Company (196) 1,036 493 (161) 968Non controlling interests (48) 72 (19) (30) (82) Net income (loss) (244) 1,108 474 (191) 886Total comprehensive income (206) 1,030 493 (161) 970(loss)attributable to: Equity holdersofthe CompanyNon controlling interests (48) 72 (19) (30) (82) Total comprehensive income (254) 1,102 474 (191) 888(loss) Basic and diluted net earnings(loss) per shareattributable to Company's equityholders(in U.S. dollars):Earnings from continuing - *) 0.01 - *) - *) 0.01operationsEarnings from discontinued - *) -*) - *) - *) - *)operations Net earnings (loss) per share - 0.01 - - 0.01 *) Less than U.S. $ 0.01 per share. The accompanying notes are an integral part of the interim condensedconsolidated financial statements. EMBLAZE LTD. AND ITS SUBSIDIARIES INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY Attributed to equity holders of the Company Share Share Treasury Available-for- Accumulated Non-controlling Total Capital premium shares sale reserve deficit Total interests equity U.S. dollars in thousands Unaudited Balance as of January1, 2013 (audited) 416 469,911 (76,275) 132 (251,346) 142,838 (344) 142,494 Loss - - - - (196) (196) (48) (244)Other comprehensiveloss - - - (10) - (10) - (10)Total comprehensiveloss - - - (10) (196) (206) (48) (254) Cost of share basedpayment - 20 - - - 20 - 20Purchase of treasurystock - - (687) - - (687) - (687) Balance as ofSeptember 30, 2013 416 469,931 (76,962) 122 (251,542) 141,965 (392) 141,573 Attributed to equity holders of the Company Available- Non- Share Share Treasury for-sale Accumulated controlling Total capital premium shares reserve deficit Total interests equity U.S. dollars in thousands Unaudited Balance as of January 1, 2012(audited) 416 469,864 (75,555) 98 (252,282) 142,541 (266) 142,275 Net income - - - - 1,036 1,036 72 1,108Other comprehensive loss - - - (6) - (6) - (6)Total comprehensive income(loss) - - - (6) 1,036 1,030 72 1,102 Cost of share based payment - 22 - - - 22 - 22Purchase of treasury stock - - (308) - - (308) - (308) Balance as of September 30,2012 416 469,886 (75,863) 92 (251,246) 143,285 (194) 143,091 The accompanying notes are an integral part of the interimcondensed consolidated financial statements. LTD. AND ITS SUBSIDIARIES INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY Attributed to equity holders of the Company Available- Non- Share Share Treasury for-sale Accumulated controlling Total capital premium shares reserve deficit Total interest equity U.S. dollars in thousands Audited Balance as of January 1,2012 416 469,864 (75,555) 98 (252,282) 142,541 (266) 142,275 Net income (loss) - - - - 968 968 (82) 886Other comprehensive income(loss) - - - 34 (32) 2 - 2Total comprehensive income(loss) - - - 34 936 970 (82) 888 Cost of share basedpayment - 47 - - - 47 4 51Purchase of treasury stock - - (720) - - (720) - (720) Balance as of December 31,2012 416 469,911 (76,275) 132 (251,346) 142,838 (344) 142,494 The accompanying notes are an integral part of the interimcondensed consolidated financial statements. EMBLAZE LTD. AND ITS SUBSIDIARIES INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Nine months ended Three months ended Year ended September, 30 September, 30 December 31, 2013 2012 2013 2012 2012 Unaudited Audited U.S. dollars in thousandsCash flows from operatingactivities: Income (loss) (244) 1,108 474 (191) 886Less - gain (loss) from 129 (13) (31) 6 (30)discontinued operations Income (loss) from continuing (373) 1,121 505 (197) 916operations Adjustments to reconcileincome (loss)from continuing operations tonet cashprovided by (used in)operatingactivities :Depreciation 23 22 7 7 30Cost of share-based payment 20 22 - - 51Change in financial assets at 271 (81) (57) (81) (70)fair valuethrough profit or lossDecrease (increase) in 844 (379) 581 (85) (614)accrued interestreceivablesInterest received-adjustment (1,631) (1,384) (220) (530) (1,426)Exchange rate differences on (2,516) - (2,516) - -deposit in trust (2,989) (1,800) (2,205) (689) (2,029)Changes in asset andliability items:Decrease in receivables and 377 127 268 277 35prepaid expensesDecrease in trade payables, (2,217) (2,710) (1,637) (1,843) (3,103)deferredrevenues, accrued expensesand otherliabilities, netInterest received 1,631 1,384 220 530 1,426 (209) (1,199) (1,149) (1,036) (1,642) Net cash used in operating (3,571) (1,878) (2,849) (1,922) (2,755)activities from continuingoperationsNet cash provided by (used (220) 2 (74) (3) 5in) operatingactivities from discontinuedoperations Net cash used in operating (3,791) (1,876) (2,923) (1,925) (2,750)activities The accompanying notes are an integral part of the interimcondensed consolidated financial statements. EMBLAZE LTD. AND ITS SUBSIDIARIES INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Nine months ended Three months ended Year ended September, 30 September, 30 December 31, 2013 2012 2013 2012 2012 Unaudited Audited U.S. dollars in thousandsCash flows from investingactivities:Purchase of property and (21) (22) (10) (5) (38)equipment, netMaturing of (investment in) 105,771 (129,183) 95,871 (23,391) (122,000)short-termbank depositsInvestment in deposit in trust (117,912) - (117,912) - -Purchase of financial assets at (13,352) (8,607) (640) (8,607) (15,133)fair valuethrough profit or lossProceeds from sale of financial 26,441 644 25,059 634 1,713assets atfair value through profit orloss andavailable for sale financialassets Net cash provided by (used in) 927 (137,168) 2,368 (31,369) (135,458)investing activities Cash flows from financingactivities: Purchase of treasury shares (687) (308) - (93) (720) Net cash used in financing (687) (308) - (93) (720)activities Net decrease in cash and cash (3,551) (139,352) (555) (33,387) (138,928)equivalents Cash and cash equivalents at 9,333 148,261 6,337 42,296 148,261thebeginning of the period Cash and cash equivalents at 5,782 8,909 5,782 8,909 9,333the endof the period The accompanying notes are an integral part of the interimcondensed consolidated financial statements. EMBLAZE LTD. AND ITS SUBSIDIARIES NOTES TO INTERIM CONDENSED COSOLIDTED FINANCIAL STATEMENTS NOTE 1:- GENERAL Emblaze Ltd. ("Emblaze" or "the Company") is a corporationregistered in Israel. As at the reporting date, the Company's shares arelisted for trading on the Official List of the London Stock Exchange ("LSE")under the symbol BLZ. See Note 4 for details of the transfer of listing andsuspension of trading in the Company's shares. NOTE 2:- BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES a. Basis of preparation: The interim condensed consolidated financial statements as of September 30,2013 and for the nine month period then ended ("interim consolidated financialstatements") have been prepared in accordance with IAS 34 - "Interim FinancialReporting". The interim consolidated financial statements do not include all theinformation and disclosures required in the annual financial statements, andshould be read in conjunction with the Company's annual financial statementsas of December 31, 2012. b. Functional and presentation currency: In accordance with IAS 21, "The Effects of Changes in ForeignExchange Rates", the Company's management believes that the U.S. dollar is theprimary currency of the primary economic environment in which the Company andits subsidiaries operate. Thus, the functional and reporting currency of theCompany and subsidiaries is the U.S. dollar. Accordingly, amounts incurrencies other than U.S. dollars have been translated as follows: - Monetary balances - at the exchange rate in effect on thereporting date. - Revenues and expenses - at the exchange rates in effect as of thedate of recognition of the transaction. All exchange gains and losses from the re-measurement mentionedabove are reflected in profit or loss in financial expenses and financialincome. c. Basis of consolidation: The consolidated financial statements comprise the financialstatements of companies that are controlled by the Company (subsidiaries).Control exists when the Company has the power, directly or indirectly, togovern the financial and operating policies of an entity. The effect ofpotential voting rights that are exercisable at the end of the reportingperiod is considered when assessing whether an entity has control. Theconsolidation of the financial statements commences on the date on whichcontrol is obtained and ends when such control ceases. The financial statements of the Company and of the subsidiaries areprepared as of the same dates and periods. The consolidated financialstatements are prepared using uniform accounting policies by all companies inthe Company. Intercompany balances and transactions and gains or lossesresulting from intercompany transactions are eliminated in full in theconsolidated financial statements. EMBLAZE LTD. AND ITS SUBSIDIARIES NOTES TO INTERIM CONDENSED COSOLIDTED FINANCIAL STATEMENTS NOTE 2:- BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES(Cont.) c. Basis of consolidation: (cont.) Non-controlling interests of subsidiaries represent thenon-controlling shareholders' share of the total comprehensive income (loss)of the subsidiaries and their share of the net assets at fair value/ at thefair value of the non-controlling interests upon the acquisition of thesubsidiaries. The non-controlling interests are presented in equity separatelyfrom the equity attributable to the equity holders of the Company. Losses areattributed to non-controlling interests even if they result in a negativebalance of non-controlling interests in the consolidated statement offinancial position. d. Cash and Cash equivalents: Cash equivalents are considered as highly liquid investments,including unrestricted short-term bank deposits with an original maturity ofthree months or less from the date of acquisition. e. Financial assets: Financial assets within the scope of IAS 39 are initiallyrecognized at fair value plus directly attributable transaction costs, exceptfor financial assets measured at fair value through profit or loss in respectof which transaction costs are recorded in profit or loss. After initial recognition, the subsequent accounting andmeasurement of financial assets depends on their classification as follows: 1. Financial assets at fair value through profit or loss. 2. Available-for-sale financial assets 3. Loans and receivable. 1. The Company has classified all of its financial assets asfollows: a) Financial assets at fair value through profit or loss: This category includes financial assets designated upon initialrecognition as at fair value through profit or loss. Financial assets aredesignated at fair value through profit or loss if the Company manages suchinvestments and makes purchase and sale decisions based on their fair value inaccordance with the Company's documented risk management or investmentstrategy. Financial assets at fair value through profit or loss are measuredat fair value, and changes therein are recognized in profit or loss. b) Available-for-sale financial assets: Available-for-sale financial assets are non-derivative financialassets that are designated as available for sale. After initial recognition,available-for-sale financial assets are measured at fair value. Gains orlosses from fair value adjustments, except for interest and exchange ratedifferences that relate to debt instruments, are recognized in othercomprehensive income. When the investment is disposed of or in case ofimpairment, the other comprehensive income (loss) is recognized in profit orloss. EMBLAZE LTD. AND ITS SUBSIDIARIES NOTES TO INTERIM CONDENSED COSOLIDTED FINANCIAL STATEMENTS NOTE 2:- BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES(Cont.) e. Financial assets: (cont.) c) Loans and receivables: Loans and receivables are investments with fixed or determinablepayments that are not quoted in an active market. After initial recognition,loans are measured based on their terms at amortized cost less directlyattributable transaction costs using the effective interest method and lessany impairment losses. Short- term deposits are deposits with originalmaturity of between three month and one year from date of investment. 2. Fair value: The fair value of financial instruments that are traded in anactive market is determined by reference to market prices at the end of thereporting period. For financial instruments where there is no active market,fair value is determined using valuation techniques. Such techniques includeusing recent arm's length market transactions; reference to the current marketvalue of another instrument which is substantially the same; discounted cashflow or other valuation models. 3. Derecognition of financial assets: A financial asset is derecognized when the contractual rights tothe cash flows from the financial asset expire or the Company has transferredits contractual rights to receive cash flows from the financial asset orassumes an obligation to pay the cash flows in full without material delay toa third party and has transferred substantially all the risks and rewards ofthe asset, or has neither transferred nor retained substantially all the risksand rewards of the asset, but has transferred control of the asset. 4. Impairment of financial assets: The Company assesses at the end of each reporting period whetherthere is any objective evidence of impairment of available-for-sale financialassets as follows: For equity instruments classified as available-for-sale financialassets, the objective evidence includes a significant or prolonged decline inthe fair value of the asset below its cost and evaluation of changes in thetechnological, market, economic or legal environment in which the issuer ofthe instrument operates. The determination of a significant or prolongedimpairment depends on the circumstances at the end of each reporting period.In making such a determination, historical volatility in fair value isconsidered, as well as a decline in fair value of 20% or more, or a decline infair value whose duration is six months or more. Where there is evidence ofimpairment, the cumulative loss - measured as the difference between theacquisition cost (less any previous impairment losses) and the fair value - isreclassified from other comprehensive income and recognized as an impairmentloss in profit or loss. In subsequent periods, any reversal of the impairmentloss is not recognized in profit or loss but recognized in other comprehensiveincome. EMBLAZE LTD. AND ITS SUBSIDIARIES NOTES TO INTERIM CONDENSED COSOLIDTED FINANCIAL STATEMENTS NOTE 2:- BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES(Cont.) f. Equipment, net: Equipment is measured at cost, including directly attributablecosts, less accumulated depreciation, accumulated impairment losses andexcluding day-to-day servicing expenses. Cost includes spare parts andauxiliary equipment that are used in connection with equipment. Depreciation is calculated on a straight-line basis over the usefullife of the assets at annual rates as follows: % Computers and peripheral 6%-33%equipmentThe useful life, depreciation method and residual value of an assetare reviewed at least each year-end and any changes are accounted forprospectively as a change in accounting estimate. Depreciation of an asset ceases at the earlier of the date that theasset is classified as held for sale and the date that the asset isderecognized. An asset is derecognized on disposal or when no further economicbenefits are expected from its use. The gain or loss arising fromderecognition of the asset (determined as the difference between the netdisposal proceeds and the carrying amount in the financial statements) isincluded in profit or loss when the asset is derecognized. g. Revenue recognition: Revenues are recognized in profit or loss when the revenues can bemeasured reliably, it is probable that the economic benefits associated withthe transaction will flow to the Company and the costs incurred or to beincurred in respect of the transaction can be measured reliably. Revenues aremeasured at the fair value of the consideration received less any tradediscounts, volume rebates and returns. The Company recognizes revenues from the sale of software onlyafter the significant risks and rewards of ownership of the software have beentransferred to the buyer for which a necessary, but not sufficient condition,is delivery of the software, either physically or electronically, or providingthe right to use or permission to make copies, of the software. The Companyrecognizes revenues from providing software related services. When the stageof completion cannot be determined reliably, revenues are recognized on astraight-line basis over the agreement period. i. Software arrangements generally contain multiple sale elements(software, integration, installation, upgrades, support, training,consultation etc.). The Company evaluates the arrangement's elements,including those delivered on a "when and if available basis", in order todetermine if the elements can be separately identified. ii.Financial income: Interest income resulting from cash deposits and financial assetsis accounted for in accordance with the effective interest method used forrecognizing interest income for the respective period. EMBLAZE LTD. AND ITS SUBSIDIARIES NOTES TO INTERIM CONDENSED COSOLIDTED FINANCIAL STATEMENTS NOTE 2:- BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES(Cont.) h. Treasury shares: Company shares held by the Company and/or subsidiaries arerecognized at cost and deducted from equity. Any gain or loss arising from apurchase, sale, issue or cancellation of treasury shares is recognizeddirectly in equity. i. Employee benefits liabilities: The Company has several employee benefit plans: 1. Short-term employee benefits: Short-term employee benefits include vacation pay, paid sick leaveand social security contributions Short-term employee benefit obligations aremeasured on an undiscounted basis and are recognized as expenses as theservices are rendered or upon the actual absence of the employee when thebenefit is not accumulated (such as maternity leave). 2. Post-employment benefits: The Company operates a defined benefit plan in respect of severancepay pursuant to the Severance Pay Law. According to the Law, employees areentitled to severance pay upon dismissal or retirement. The liability fortermination of employment is measured using the projected unit credit method.The actuarial assumptions include rates of employee turnover and future salaryincreases based on the estimated timing of payment. The amounts are presentedbased on discounted expected future cash flows using a discount ratedetermined by reference to yields on Government bonds with a term that matchesthe estimated term of the benefit obligation. In respect of its severance pay obligation to certain of itsemployees, the Company makes current deposits in pension funds and insurancecompanies ("the plan assets"). Plan assets comprise assets held by a long-termemployee benefit fund or qualifying insurance policies. Plan assets are notavailable to the Company's own creditors and cannot be returned directly tothe Company. Actuarial gains and losses are recognized in full in the period in which theyoccur in other comprehensive income. Such actuarial gains and losses are alsoimmediately recognized in accumulated deficit and are not reclassified toprofit or loss in subsequent periods. EMBLAZE LTD. AND ITS SUBSIDIARIES NOTES TO INTERIM CONDENSED COSOLIDTED FINANCIAL STATEMENTS NOTE 2:- BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES(Cont.) i. Employee benefits liabilities: (cont.) 3. Share-based payment transactions: The Company accounts for share-based compensation in accordancewith IFRS 2, "Share-Based Payment". The main impact of IFRS 2 on the Companyis the expensing of employees' and directors' share options (equity-settledtransactions). The cost of equity-settled transactions with employees is measuredat the fair value of the equity instruments granted at grant date. The fairvalue is determined by using the Binomial method option-pricing model takinginto accounts the terms and conditions upon which the instruments weregranted. The cost of equity-settled transactions is recognized, togetherwith a corresponding increase in equity, over the period in which theperformance and/or service conditions are fulfilled, ending on the date onwhich the relevant employees become fully entitled to the award ("the vestingdate"). The cumulative expense recognized for equity-settled transactions ateach reporting date until the vesting date reflects the extent to which thevesting period has expired and the Company's best estimate of the number ofequity instruments that will ultimately vest. The expense or income recognizedin profit or loss represents the change between the cumulative expenserecognized at the end of the reporting period and the cumulative expenserecognized at the end of the previous reporting period. The fair value of the options is estimated using a Binomial methodoptions pricing model. j. Provisions: A provision in accordance with IAS 37 is recognized when theCompany has a present obligation (legal or constructive) as a result of a pastevent, it is probable that an outflow of resources embodying economic benefitswill be required to settle the obligation and a reliable estimate can be madeof the amount of the obligation. If the Company expects part or all of theexpense to be reimbursed to the Company, such as in an insurance contract, thereimbursement is recognized as a separate asset only when it is virtuallycertain that it will be received by the Company. The expense is recognized inthe income statement net of the reimbursed amount. k. Research and development expenditures: Research expenditures are recognized in profit or loss when incurred. l. Discontinued operations: Under the provisions of IFRS 5, "Non-current Assets Held for Saleand Discontinued Operations" when a component of an entity, as defined in IFRS5, has been disposed of or is classified as held-for-sale, the results of itsoperations, including the gain or loss on its disposal are classified asdiscontinued operations. Comparative data are restated as if the operation hadbeen discontinued from the start of the earliest comparative period. EMBLAZE LTD. AND ITS SUBSIDIARIES NOTES TO INTERIM CONDENSED COSOLIDTED FINANCIAL STATEMENTS NOTE 2:- BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES(Cont.) m. New standards, interpretations and amendments applied for the first time bythe Company The following changes in accounting policies commencing from January 1, 2013due to the adoption of new standards did not have a material effect on theinterim financial statements: - IAS 19 (Revised) Employee benefits - IFRS 10 Consolidated Financial Statements - IFRS 11 Joint Arrangements - IFRS 13 Fair Value Measurement - Presentation of Items of other Comprehensive Income n. Financial Instrument disclosure 1. The fair value of financial assets and liabilities approximate theircarrying amount. 2. Exchange risk- During the three month period ended September 30, 2013, most of the Company'sinvestments and cash and cash equivalents were converted from the US Dollar,which is the functional and presentation currency to NIS. NOTE 3:- SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES ANDASSUPMTIONS USED IN THE PREPARATION OF THE FINANCIAL STATEMENTS In the process of applying the significant accounting policies, theCompany has made the following judgments which have the most significanteffect on the amounts recognized in the financial statements: a. Judgments: Determining the fair value of share-based payment transactions: The fair value of share-based payment transactions is determinedusing an acceptable option-pricing model. The model includes data as to theshare price and exercise price, and assumptions regarding expected volatility,expected life, expected dividend and risk-free interest rate. b. Estimates and assumptions: The preparation of the financial statements requires management tomake estimates and assumptions that have an effect on the application of theaccounting policies and on the reported amounts of assets, liabilities,revenues and expenses. Changes in accounting estimates are reported in theperiod of the change in estimate. The key assumptions made in the financial statements concerninguncertainties at the end of the reporting period and the critical estimatescomputed by the Company that may result in a material adjustment to thecarrying amounts of assets and liabilities within the next financial year arediscussed below. 1. Legal claims: In estimating the likelihood of outcome of legal claims filedagainst the Company and its investees, the companies rely on the opinion oftheir legal counsel. These estimates are based on the legal counsel's bestprofessional judgment, taking into account the stage of proceedings and legalprecedents in respect of the different issues. Since the outcome of the claimswill be determined in courts, the results could differ from these estimates. EMBLAZE LTD. AND ITS SUBSIDIARIES NOTES TO INTERIM CONDENSED COSOLIDTED FINANCIAL STATEMENTS NOTE 3:- SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES ANDASSUPMTIONS USED IN THE PREPARATION OF THE FINANCIAL STATEMENTS b. Estimates and assumptions: (cont.) 2. Pension and other post-employment benefits: The liability in respect of post-employment defined benefit plansis determined using actuarial valuations. The actuarial valuation involvesmaking assumptions about, among others, discount rates, expected rates ofreturn on assets, future salary increases and mortality rates. The carryingamount of the liability may be significantly affected by changes in suchestimates. NOTE 4:- SUPPLEMENTARY INFORMATION 4.1 Recent transactions in Ordinary Shares and Board changes On 14 August 2013, the Company was notified that BGI Investments (1961) Ltd.("BGI"), an Israeli public company admitted to trading on the Tel Aviv StockExchange (TASE), had: - acquired, directly or through a wholly-owned subsidiary of BGI, 20.01% ofthe total issued and outstanding Ordinary Shares (excluding the treasuryshares) ("Issued Shares") of the Company; and - granted written put options and purchased call options in respect of afurther 19.09 % of the Issued Shares. The Company was subsequently notified that BGI assigned the above options toChabad 770 B.V., the controlling shareholder of BGI ("Chabad"). After the reporting period, Chabad exercised call options in respect of1,750,000 Ordinary Shares of the Company, equal to 1.59% of the issued shares.BGI and Chabad are considered as holding together, approximately 21.6% of theissued shares. The following appointments to the Board took effect on 14 August 2013: - Mr.Abraham Wolff (Chairman); - Mr. Israel Jossef Schneorson (CEO and Vice Chairman); - Mr. Amnon Ben-Shay (Non-Executive Director); - Mr. Yosef Schvinger (Independent Non-Executive Director); and - Mr. Chanoch Winderboim (Non-Executive Director). On the same day, Mr. Naftali Shani, Mr. Yuval Cohen, Mr. ShmuelBarashi, Mr. Ilan Flato and Ms. Hagit Gal resigned from the Board. Further,Mr. Nahum Admoni and Mr. Shimon Laor also resigned from the Board on August16, 2013 and August 25, 2013, respectively. 4.2 Proposed investment in IDB Holdings Corporation Ltd. Following the Company's reconstituted board of directors, theCompany submitted on August 14, 2013 an offer to IDB Holdings Corporation Ltd.("IDB") on behalf of the Company and together with Netz Group Limited ("NetzGroup") proposing the investment by Emblaze and Netz in IDB pursuant to theterms of which they would pay New Israeli Shekels ("NIS") 826 million (US $233million) to subscribe for new shares in IDB constituting at least 80% of theissued share capital of IDB, post-investment (the "Proposed Transaction"). EMBLAZE LTD. AND ITS SUBSIDIARIES NOTES TO INTERIM CONDENSED COSOLIDTED FINANCIAL STATEMENTS NOTE 4:- SUPPLEMENTARY INFORMATION (cont.) 4.2 Proposed investment in IDB Holdings Corporation Ltd. (cont.) In connection with the Proposed Transaction through August 26, 2013the Company has deposited in trust an amount of NIS 425 million (US $120million). The deposit will be returned to the Company in circumstances wherethe proposed investment in IBD does not proceed. IDB is a holding company which, through its wholly ownedsubsidiary, IDB Development Corporation Ltd ("IDBD"), holds a mixture ofmajority and minority shareholdings in companies that are engaged in varioussectors of the Israeli economy and overseas. IDBD is a domestic Israeli entityincorporated in Israel. The securities of IDB are listed on TASE and most ofthe major companies held by IDB are traded on TASE or NASDAQ in the US. In April, 2013 a bondholder of IDB initiated a liquidationapplication against it owing to a going concern note in IDB's 2012 annualreport and accounts. In June 2013, the trustees of the IDB bondholders appliedto the District Court of Tel Aviv, Israel (the "Court") for a compromisearrangement in accordance with Section 350 of the Israel Companies Law, 1999("Compromise" or "Arrangement"). On June 9, 2013, the Court made a decision inwhich it ordered proposals for a creditors' arrangement to be filed andexamined by a Court-appointed expert. Subsequently, the Court extended thetimetable for submission of proposals to November 3, 2013. The ProposedTransaction as described below is intended to be carried out as part of thepotential implementation of such Arrangement. On November 3, 2013, IDB submitted to the Court a proposal, onbehalf of a consortium of investors led by the Company (the "Consortium"), toacquire a controlling stake in IDB. IDB, the Company, Mr. Nochi Dankner, NetzGroup, Alon Group and Mr. Yitzhak Dankner (together the "Consortium Members")have entered into a set of agreements which regulate the parties' respectiverights and obligations in relation to the Proposed Transaction (see"investment structure" below for further details). The proposal comprises two alternatives (amounts in NIS have beentranslated into US dollars based on the representative exchange rate onNovember 3, 2013 as published by the Bank of Israel): Alternative 1 The Consortium will invest NIS 1,170 million (US $ 332 million)based on an IDB valuation of NIS 1,090 million (US $ 309 million) (the"Alternative 1 Valuation") as follows: At closing of the Proposed Transaction ("Closing"), the Consortiumwill invest NIS 900 million (US $255 million) (the "Alternative 1 ClosingPayment"). In the event that proceeds exceeding NIS 1,000 million (US $283million) from the sale of shares of Clal Insurance Enterprises Holdings Ltd("Clal") are received by IDBD (the "Clal Closing") by June 1, 2014, then, outof the Alternative 1 Closing Payment: NIS 150 million (US $42 million) will bepaid to IDBD and NIS 750 million (US $213 million) will be paid to the IDBcreditors. In the event that the Clal Closing does not occur by 1 June 2014,out of the Alternative 1 Closing Payment, up to NIS 650 million (US $184million) will be paid to IDBD and NIS 250 million (US $71 million) will bepaid to the IDB creditors, who will also receive additional IDBD shares (asfurther detailed below). In order to provide for such mechanism, certain fundswill be put into escrow at Closing. EMBLAZE LTD. AND ITS SUBSIDIARIES NOTES TO INTERIM CONDENSED COSOLIDTED FINANCIAL STATEMENTS NOTE 4:- SUPPLEMENTARY INFORMATION (cont.) 4.2 Proposed investment in IDB Holdings Corporation Ltd. (cont.) Furthermore, up to an additional NIS 270 million (US $76 million)(the "Alternative 1 Post-Closing Payment", and together with the Alternative 1Closing Payment, the "Alternative 1 Payment") will be paid to the IDBcreditors within 36 months of Closing, of which at least NIS 135 million (US$38 million) will be paid within 18 months of Closing, by way of tender offersto be made by IDB at a price per share based on the Alternative 1 Valuationplus all amounts paid into IDBD by the Consortium. Pursuant to this Alternative 1, upon Closing, the Consortiummembers will hold 94.4% (if the Clal Closing does occur by June 1, 2014) or67.2% (if the Clal Closing does not occur by June 1, 2014) of the issued sharecapital of IDBD, and the remainder will be held by the IDB creditors. Pursuant to this Alternative 1, the IDB creditors will also begranted IDB's cash reserves (minus certain expenses) and any net amounts whichIDB may receive as a result of legal proceedings to which it is a party thebasis of which predates Closing. Alternative 1 includes a penalty mechanism in case the Consortiumfails to pay the Alternative 1 Payment in full, whereby the Consortium willpledge in favour of the IDB creditors IDBD shares equal to 25% (in case ofAlternative 1 Closing Payment) or 50% (in case of Alternative 1 Post-ClosingPayment) of the unpaid amount based on the Alternative 1 Valuation plus allamounts paid into IDBD by the Consortium. Alternative 2 The Consortium will invest up to NIS 1,550 million (US $440million) based on an IDB valuation of NIS 900 million (US $255 million) (the"Alternative 2 Valuation"), as follows: At Closing, NIS 350 million (US $ 99 million) will be paid to theIDB creditors, NIS 150 million (US $42 million) will be paid to IDBD, and anadditional NIS 400 million (US $113 million) will either be paid to the IDBcreditors if the Clal Closing occurs by June 1, 2014, or, if the Clal Closingdoes not occur by June 1, 2014, to IDBD (the "Alternative 2 Closing Payment").In order to provide for such mechanism, certain funds will be put into escrowat Closing. If the Clal Closing occurs by June 1, 2014, an additional NIS 150million (US $42 million) will be paid to the IDB creditors within 12 months ofClosing (together with annual interest equal to 7%), or, if the Clal Closingdoes not occur by June 1, 2014, (1) NIS 100 million (US $28 million) will bepaid to IDBD by June, 2014 and (2) NIS 550 million (US $156 million) will bepaid to the IDB creditors in 3 equal annual installments commencing one yearfrom Closing (together with annual interest equal to 7%) (the "Alternative 2Post-Closing Payment", and together with the Alternative 2 Closing Payment,the "Alternative 2 Payment"). In the event that the Clal Closing does not occur by June 1, 2014the total investment by the Consortium will be NIS 1,050 million (US $298million), based on the same valuation. EMBLAZE LTD. AND ITS SUBSIDIARIES NOTES TO INTERIM CONDENSED COSOLIDTED FINANCIAL STATEMENTS NOTE 4:- SUPPLEMENTARY INFORMATION (cont.) 4.2 Proposed investment in IDB Holdings Corporation Ltd. (cont.) Pursuant to this Alternative 2, at Closing, the Consortium memberswill hold 100% of the issued share capital of IDBD. Pursuant to this Alternative 2, the IDB creditors will also begranted IDB's cash reserves (minus certain expenses) and any net amounts whichIDB may receive as a result of legal proceedings to which it is a party thebasis of which predates Closing. Alternative 2 includes a penalty mechanism in case the Consortiumfails to pay the Alternative 2 Payment in full, whereby the Consortium willpledge in favour of the IDB creditors IDBD shares equal to 20% of the unpaidamount based on the Alternative 2 Valuation plus all amounts paid into IDBD bythe Consortium. Conditions to Closing The Proposed Transaction will be conditional upon, inter alia, thefollowing: a. the approval of the Proposed Transaction by the creditors ofIDB; b. the approval of the Proposed Transaction by the Court; c. various regulatory approvals required in connection with thetransfer of control of IDB and its subsidiaries, and the implementation of theProposed Transaction; and d. transfer of the Company's listing category on the Official Listof the LSE from a premium listing (commercial company) to a standard listing(the "Proposed Transfer"). On October 30, 2013 the Company's Shareholders approved (i) thetransfer of the Company's listing of ordinary shares out of the category of apremium listing (commercial company) on the Official List and into thecategory of a standard listing on the Official List and (ii) an amendment tothe Company's memorandum of incorporation. The date upon which the transfer of listing category is expected tobecome effective is November 28, 2013. The change to the Company's memorandumof incorporation will become effective on November 20, 2013. Investment structure The Consortium Members have entered into a set of agreements whichregulate the parties' respective rights and obligations in relation to theProposed Transaction. In order to participate in the Consortium, the Companyand Mr. Nochi Dankner have set up a new company ("Newco"), which is 70%-owned(indirectly through a wholly-owned subsidiary of the Company) by the Companyand 30%-owned by Mr. Dankner (through a company ("Dankner") controlled byhim). EMBLAZE LTD. AND ITS SUBSIDIARIES NOTES TO INTERIM CONDENSED COSOLIDTED FINANCIAL STATEMENTS NOTE 4:- SUPPLEMENTARY INFORMATION (cont.) 4.2 Proposed investment in IDB Holdings Corporation Ltd. (cont.) IDB, Newco, Netz Group, Alon Group and Yitzhak Dankner, undertookas follows: a. Newco undertook to invest at least NIS 500 million (US $142million), and in any case the total investment amount invested underAlternative 1 or Alternative 2 minus any amount invested by any other party; b. Alon Group, subject to certain conditions, undertook to investup to NIS 120 million (US $34 million); c. Netz Group undertook to invest NIS 64 million (US $18 million);and d. Mr.Yitzhak Dankner has an option to invest up to NIS 148 million(US $42 million). Netz Group and Alon Group will also be granted put options by Newcoin relation to their holdings in IDB (including convertible bonds), to beexercised within the period commencing 3 years from Closing and ending 6 yearsfrom Closing. Emblaze will guarantee payment in the event of the exercise ofsaid options. At Closing, each Consortium Member will be allocated and issued,pro-rata to its investment, IDB shares and/or non-tradable,non-interest-bearing convertible bonds, which in aggregate amount to 93.75% ofthe issued share capital of IDB. The agreements entered into between theConsortium Members include penalty mechanisms in case of default to carry outeach Consortium Member's investment undertaking. In the event that prior to Closing not all outstanding claimsagainst IDB have been terminated such that IDB is free and clear of allexposure to such claims and any future claims the basis of which predatesClosing, then, in order to avoid such exposure, Newco and the other ConsortiumMembers will have the option to invest, at the Company's discretion, in a newspecial purpose vehicle or directly in IDBD, rather than in IDB, in a mannerwhich reflects the financial rationale of the Proposed Transaction. At Closing, the Company will provide Newco with a loan secured byNewco's investment in IDB shares, of an amount equal to NIS 500 million (US$142 million). The loan will bear annual interest of 4% with repayment at theend of 5 years. The interest rate will be increased to 6% in case the loanrepayment is extended for a further 4-year period. At Closing, Newco will provide Netz Group with a non-interestbearing loan secured by a portion of Netz Group's IDB shares, of an amountequal to NIS 9 million (US $2.5 million) which will be repayable over 3 years.In case of a default by Netz Group to repay the loan, Newco's only recoursewill be enforcement of its security over said portion of Netz Group's IDBshares. In addition, the Company will invest an amount equal to NIS 9 million(US $2.5) based on a valuation equal to Netz Group's own capital. On November 11, 2013 IDB, on behalf of the Consortium, submitted tothe Court-appointed expert (the "Expert") a letter of clarification withrespect to the Proposal the letter further provided that in the event that theCourt sanctions the Proposal but Consortium fails to raise the Alternative 1Closing Payment for completion of the Proposed Transaction, the bond holderswill be able to choose, at their discretion, between one of the followingalternatives, as a final and complete relief: EMBLAZE LTD. AND ITS SUBSIDIARIES NOTES TO INTERIM CONDENSED COSOLIDTED FINANCIAL STATEMENTS NOTE 4:- SUPPLEMENTARY INFORMATION (cont.) 4.2 Proposed investment in IDB Holdings Corporation Ltd. (cont.) a. to proceed with the Proposal with the amounts made available bythe Consortium, and activate the penalty mechanism for Alternative 1 of theProposal, or; b. reject the Proposal and receive compensation in the amount ofNIS 100 million (US $28 million) out of the funds deposited in escrow - suchamount will be settled on a pro-rated basis between the Revised Consortiummembers. In addition, in the event that the Proposed Transaction cannot becompleted following the approval of the general meeting of IDB creditors andthe sanction of the Court, due to other conditions not being met, where IDBDrequires additional cash flow, the Consortium will agree to provide IDBD, nolater than 1 April 2014, with a bridge loan of NIS 100 million (US $28million). The bridge loan shall be pro-rated between the Consortium Members inaccordance with their respective portion of the Alternative 1 Closing Payment.The bridge loan will be for a period up to 6 months bearing interest at afixed rate of 5% and secured against 100% of IDB's holding in IDBD. Where the bond holders elect to exercise the compensation route, the bridgeloan amount shall constitute said compensation and eligibility on itssettlement shall be assigned to the eligible debt holders out of the escrow inan amount of NIS 100 million (US $28 million) as a final and complete relief.It was further agreed that the liability for the compensation amount shall beborne by the parties failing to fulfill their respective investmentundertaking towards the Base Consideration, on a pro-rated basis. As far as IDB is concerned, the Proposal shall not condition thecompletion of the Proposed Transaction upon the receipt of regulatoryapprovals in connection with Clal. IDB shall endeavour to maintain IDBD'sholding in Clal under the existing trust mechanism in accordance with thecurrent known regulatory position on this issue On November 10, 2013 the Consortium Members entered into anagreement with Neto Melinda Trade Ltd. (the "Neto Group") in relation to theProposed Transaction. Pursuant to the agreement Neto Group has undertaken toinvest NIS 135.4 million (US $38 million) in connection with the ProposedTransaction on similar terms to those entered into with Netz Group and AlonGroup, including the grant of a put options by Newco in relation to theirholdings in IDB (including convertible bonds), to be exercised within theperiod commencing 3 years from Closing and ending 6 years from Closing. Thecompany will guarantee payment in the event of the exercise of said option.The amount undertaken by Neto Group was added on November 11, 2013 to the NIS451 million (US $128 million) escrow account allocated by the ConsortiumMembers for the Proposed Transaction. On November 13, 2013, Newco has entered into an agreement with Mr.Daniel Jusidman in relation to the Proposed Transaction. Pursuant to theagreement, Mr. Daniel Jusidman has undertaken to invest NIS 90 million (US $26million) in connection with the Proposed Transaction. EMBLAZE LTD. AND ITS SUBSIDIARIES NOTES TO INTERIM CONDENSED COSOLIDTED FINANCIAL STATEMENTS NOTE 4:- SUPPLEMENTARY INFORMATION (cont.) 4.2 Proposed investment in IDB Holdings Corporation Ltd. (cont.) Except as detailed below, the agreement with Mr. Jusidman providesfor similar terms to those entered into with Netz Group, Alon Group, and NetoGroup, including the grant of a put option by Newco in relation to Mr.Jusidman's holdings in IDB (including convertible bonds), to be exercisedwithin the period commencing 3 years from Closing and ending 6 years fromClosing. The Company will guarantee payment in the event of the exercise ofsaid option. At Closing, each Consortium Member, including Mr. DanielJusidman, will be allocated and issued, pro-rata to its investment, IDB sharesand/or non-tradable, non-interest-bearing convertible bonds, which inaggregate amount to 93.75% of the issued share capital of IDB. With respect to the put option, it was further agreed with Mr.Jusidman that the exercise price of the option shall be the higher of: (i) thenominal investment amount paid by Mr. Jusidman per share actually allocated tohim upon Closing, including annual interest rate of 5 per cent commencing thetime of the Closing and until the time of exercise of the option, or (ii)market value, provided that the price per share upon exercise will notincrease the investment value per share including annual interest of 6 percent, 7 per cent or 7.5 per cent (depending on the timing of exercise of theput option), commencing the time of the Closing and until the time of exerciseof the option. In addition, it was agreed that should Newco (or the Company asthe guarantor) fail to pay the exercise of the put option in time, Newco (andthe Company) will be granted additional 6 months to fulfill its paymentobligations toward the exercise of the put options. During this extendedrelief period, the number of directors in the board of IDB and IDBD (or thenew special purpose vehicle, as applicable), shall be allocated equallybetween Newco on one hand, and all other Consortium members on the other. Thebalance in favour of Newco's board appointees shall be reinstated followingpayment of the exercised option. Following the investment by Neto Group and Mr. Jusidman, theCompany will maintain the right to appoint the majority of directors of theboards of directors of all IDB Group companies; the other Consortium Memberswill have the right to be represented on the boards of directors of all IDBGroup companies, subject to certain conditions. As of November 13, 2013, an amount equal to NIS 713.4 million (US$202 million) has been put into escrow by the Consortium Members (theCompany's share is NIS 426 (US $121 million)) and the remainder of theAlternative 1 Payment or Alternative 2 Payment, as applicable, will be fundedby the Consortium (including by way of external debt) prior to the dates ofactual payment. Additional investors may be added to the Consortium in thefuture. The General meeting of IDB creditors to vote on the proposals inrelation to IDB submitted by the Company and other parties is scheduled totake place no later than November 24, 2013. Date of sanction by the Court ofthe proposal approved by the IDB creditors in relation to IDB is set forDecember 5, 2013. It is expected that the Proposed Transaction, if sanctionedby the Court, will be completed during the first quarter of 2014. EMBLAZE LTD. AND ITS SUBSIDIARIES NOTES TO INTERIM CONDENSED COSOLIDTED FINANCIAL STATEMENTS NOTE 4:- SUPPLEMENTARY INFORMATION (cont.) 4.3 Suspension of trading in the Company's shares The proposed investment by the Company in IDB would constitute areverse takeover under the rules of the UK Listing Authority and afterconsultation with the UK Listing Authority, Emblaze's shares have beentemporarily suspended since August 15, 2013 pending the publication ofsufficient information on the Proposed Transaction. It is likely thatsuspension of trading in Ordinary Shares will continue following thecompletion of the Transfer Resolution and completion of the Proposed Transferuntil either the Company announces that it is ceasing to pursue the ProposedTransaction, or the Company publishes a prospectus in respect of the EnlargedGroup (comprising the Company and IDB) following the Court's approval of theProposed Transaction. 4.4 Treasury shares During the period between January 1, 2013 and September 30, 2013the Company purchased 923,898 of its own shares through the market inconsideration for approximately $687, including related expenses. As ofSeptember 30, 2013, the Company holds 30,587,902 of its shares in Treasury,the outstanding share capital (excluding shares held in Treasury) is109,990,252 shares, and the total issued share capital of the Company is140,578,154 shares. NOTE 5:- LEGAL PROCEEDINGS 1. Emblaze, and some of its directors and officers, were nameddefendants in a few proceedings in the context of Bankruptcy proceedingsbrought personally against Mr. Eli Reifman, a former director of the Company.As part of his fiduciary and regulatory obligations, Mr. Reifman was requiredto timely report to the Company of changes in his shareholding position. Mr.Reifman's reports were duly reflected in the Company's annual and immediatereports, respectively. Several of Mr. Reifman's creditors have filed claimsagainst numerous parties, as well as against the Company and some of itsdirectors and officers, asserting reliance on information provided by theCompany with respect to Mr. Reifman's holdings in the Company. Some of theclaims were directed at the Company, and some also named part of its directorsand officers as defendants, as detailed herebelow: a. In November, 2010, a claim was filed against the Company and itssubsidiary, ELSE Ltd. (discontinued operations), in the Tel Aviv LaborTribunal, claiming for termination indemnities in respect to an employmentcessation of a former employee. The claim against the Company was withdrawn inDecember 2011. In May 2013, the claim against ELSE Ltd. was dismissed bysettlement between the parties according to which ELSE Ltd's agreed to make anex-gratia release of pension funds already accrued to the benefit of theformer employee in the approximate amount of US $ 50. The excess provisionrecorded for this claim over the settlement amount was recorded as income inthe profit or loss from discontinued operations in the nine months endedSeptember 30, 2013. EMBLAZE LTD. AND ITS SUBSIDIARIES NOTES TO INTERIM CONDENSED COSOLIDTED FINANCIAL STATEMENTS NOTE 5:- LEGAL PROCEEDINGS (cont.) b. In April, 2012, two of Mr. Reifman's creditors filed a claimagainst the attorneys that represented them in their transaction with Mr.Reifman, alleging malpractice, negligence and failure by their attorneys toproperly secure their loans to Mr. Reifman. As part of this claim, the twocreditors have also named Emblaze, and some of its directors and officers, aswell as the Company's external legal advisor and auditors, as defendants for"caution reasons". The claim is for a sum of NIS 73.3 million (approximatelyUS$ 20.7 million as of September 30, 2013). Defense was filed in August, 2012.The claim was referred by the court to mediation between the various parties. c. In June, 2012, several other creditors of Mr. Reifman filed aclaim against Emblaze, some of its directors and officers as well as againstits external legal advisor and auditors. The claim is for a sum of NIS 86.6million (approximately US $24.5 million as of September 30, 2013). Defense wasfiled in October 2012. In June, 2013 the District Court has accepted in-partthe request for dismissal filed by the Company and some of its directors andofficers. The District Court dismissed the claim with respect to two of theclaimants, thus reducing the total sum of the claim to NIS 81.8 million(approximately US$ 23.1 million as of September 30, 2013). The Company stillwaits decision of the Supreme Court on its appeal against the permissiongranted on December 26, 2011 by the Bankruptcy Court in Israel to the trusteeto Mr. Reifman's bankruptcy to represent the majority of the Mr. Reifman'screditors in this claim. d. In November, 2012, two creditors of Mr. Reifman have filed aclaim for NIS 30 million against the attorneys involved in their transactionswith Mr. Reifman. The said attorneys submitted a third-party notificationagainst numerous parties that were involved in the transaction, as well asagainst Emblaze and some of its directors and officers, asserting that theyare to be indemnified in the event that the claim will be ruled against them.The third party notification is for a sum of NIS 7.6 million (approximatelyUS$ 2.1 million as of September 30, 2013). Defense was filed in January, 2013.On December 25, 2012, the said attorneys also filed an application to join theCompany as one of the defendants in the claim filed against them. While the cases described in 1(b), (c) and (d) above are still inpreliminary stages, the Company's legal advisors are of the opinion that thechances of success of these claims are remote. e. At the request of the Administrator for Mr. Reifman's bankruptcy(who was later appointed as the trustee to Mr. Reifman's bankruptcy), the Tel-Aviv District court issued an ex-parte temporary injunction on September 6,2010, ordering the Company to withhold 27.75% of any dividend the Company maydecide to distribute, to be held in trust by the General Administrator andOfficial Receivers Department of Israel's Ministry of Justice. The Courtclarified that any such amount belongs to all Company's shareholders.Following an appeal filed by the Company, the Supreme Court cancelled theinjunction on November 29, 2010, and limited the Company's responsibility onlyto notification obligation in case a decision on dividend distribution ismade. 2. The Company and/or its subsidiaries may be involved in variouslegal disputes within the ordinary course of business. The Company'smanagement is of the opinion that at this point the potential exposure of suchdisputes is immaterial. --------------------------------- [1]Pursuant to the Israeli Companies Law, companies incorporatedunder the laws of Israel whose shares have been offered to the public in oroutside of Israel, are required to appoint at least two statutory independentdirectors ("external director") who meet certain statutory criteria ofindependence, which are in line with the independence requirement under the2010 UK Corporate Governance. [2]Apple, iPhone, iPod Touch, iPad and Snow Leopard are proprietary names ofApple Inc. [3]Microsoft, IIS Smooth Streaming and Windows Azure Media Services areproprietary names of Microsoft Corporation.