Indemnification Undertaking Letter In this undertaking the following terms shall bear the meaning ascribed beside them: Company Companies Law Securities Law Functionary Functionary Insurance Policy or Policy Court Israel Electric Corporation Ltd. The Companies Law, 5759 1999 and any law amending or replacing it, as in effect from time to time. The Securities Law, 5728 1968, and any law amending or replacing it, as in effect from time to time. Director of the Company who served in office at the Relevant Effective Date, the Company s general manager, the Company s chief financial officer the Company s general counsel, provided they served in such capacity at the Relevant Effective Date. Policy for insuring liability of directors and Functionaries purchased or to be purchased by the Company, whether as a single policy or multiple policies. Including court abroad. Relevant Effective Date With respect to the Prospectus (as defined hereunder) the date of publishing the Prospectus; with respect to performing a private issuance of debentures the date of adopting resolution at the Company s board of directors regarding performance of the private issuance. Prospectus Administrative Procedure Enforcement Prospectus for public offering of debentures by the Company, published on June 15, 2012. Procedure according to Chapters H3 (imposing pecuniary sanctions by the Securities Authority), H4 (imposing administrative enforcement sanctions by the administrative enforcement committee) or I1 (arrangement for avoiding initiating proceedings or for stopping proceedings, which is conditional) of the Securities Law, as well as procedure according to Mark D of the Fourth Chapter of the Ninth Part of the Companies Law, and/or any similar procedure, whatever name it may have.
the Company has a Functionaries Insurance Policy; and the coverage, the monetary scope or conditions of the Functionary Insurance Policy may not fully secure the Functionaries against any claim submitted against the Functionaries; and for covering the excess costs of fuel beyond the costs of fuels that shall be recognized in the framework of the outline published by the Electricity Authority, for spreading the increase in electricity tariff over a period of three years, and the Company is required, and may be required from time to time, to perform various raising of debts; and the Company desires to grant its Functionaries an autonomous indemnity undertaking, against claims, as set forth hereunder, as far as not completely covered by the insurance; and this undertaking letter does not apply to the events specified in Section 263 of the Companies Law; and you serve as Functionary with the Company. 1. Therefore with the approval and by virtue of resolution of the Company s audit committee dated August 23 rd, 2012, with the approval and by virtue of resolution of the Company s board of directors dated August 23 rd, 2012, and with the approval and by virtue of resolution of the Company s general meeting dated, the Company hereby undertakes according to the provisions of the Companies Law and Article 135 of the Company s articles of association to grant you the indemnity specified in this undertaking letter, with retroactive effect, so that the indemnification undertakings according to this indemnification undertaking letter shall apply with respect to any event that is indemnifiable according to Section 1.1 hereunder, even if the date of occurrence of the indemnifiable event was prior to the date of granting this indemnification letter. Subject to the conditions specified in this undertaking letter and to the provisions of the Companies Law and the Securities Law 1.1. The Company hereby undertakes, irrevocably, to indemnify every Functionary for any liability or expense as set forth in Section 1.2 hereunder, for which he did not receive full indemnity from another source: A. Adopting resolutions for performing private issuances and raising debt by the Company not through or based on a prospectus and the liability deriving thereunder and this for private issuances and raising debt carried out as of the date of approving this indemnification letter by the audit committee and the board of directors and until June 2103, provided the consideration of raising debt as set forth above is designated, in accordance with the advance written approval of the Director General of the Government Companies Authority, for purpose of covering excess cost of fuels beyond the cost of fuels recognized in the framework of the tariff as part of the outline published by the Electricity Authority for spreading the increase in electricity tariff over a period of three years ( Electricity Authority Outline ).
B. Preparing, approving, signing and publishing the prospectus by the Company, including, the disclosure in the framework of such prospectus, and issuance of securities by the Company based on such prospectus (including engagement under agreement for providing guarantees with the State of Israel and receiving the guarantee from the State of Israel for such issuance and including the actual decision to perform an issuance of securities of the Company for purpose of covering the excess cost of fuels beyond the costs of fuels that shall be recognized in the framework of the tariff as part of the Electricity Authority Outline) provided the consideration from issuance of securities issued by the Company shall be designated for covering the excess costs of fuels beyond the costs of fuels, which shall be recognized in the framework of the tariff as part of the Electricity Authority Outline. And all according to the conditions specified in this indemnification letter. 1.2. The undertaking to indemnify Functionaries as set forth in Section 1.1 above, shall apply to each of these: 1.2.1. Pecuniary liability if and as imposed on a Functionary in Israel and/or abroad in favor of another person and/or body, according to judgment, including judgment granted in settlement or arbitrator s decision approved by Court including, for the avoidance of doubt, payment to a victim of such a violation as specified in article 52nd(A)(1)(a) of the Securities Law; 1.2.2. Reasonable legal expenses, including attorney s fee, incurred by a Functionary, in a procedure filed against him by the Company or on its behalf by another person and/or body, or in a criminal indictment in which he is acquitted or in a criminal indictment in which he is convicted of an offense that does not require proving mens rea; 1.2.3. Reasonable legal expenses, including attorney s fee, incurred by a Functionary due to investigation or procedure conducted against him by an authority authorized to conduct an investigation or procedure (including, for the avoidance of doubt, an administrative enforcement procedure), which is concluded without an indictment against him and without imposing pecuniary liability in lieu of criminal procedure, or concluded without an indictment against him but while imposing pecuniary liability in lieu of criminal procedure for an offense that does not require proving mens rea, or in connection to pecuniary sanction. In this Subsection: Concluding procedure without an indictment on a matter subject of criminal investigation means closing the file according to Section 62 of the Criminal Procedure Law [Consolidated Version], 5742 1982 (hereinafter: Criminal Procedure Law ), or stay of proceedings by the Attorney General according to Section 231 of the Criminal Procedure Law, or, if the procedure is conducted abroad closing the file or stay of proceedings under similar circumstances; Pecuniary liability in lieu of criminal procedure pecuniary liability imposed according to law in lieu of criminal procedure, including an administrative fine according to Administrative Offenses Law, 5746 1985, a fine for an offense
defined as a fine offense according to the provisions of the Criminal Procedure Law, pecuniary sanction or ransom. 2. Exceptions Aforementioned indemnification shall not apply in the following events: 2.1. Breach of fiduciary duty, except breach of fiduciary duty towards the Company if the Functionary acted in good faith and had reasonable grounds to assume his action will not harm the benefit of the Company; 2.2. Willful or reckless breach of duty of care, except in the event of plain negligence; 2.3. Actions performed with the intent to unlawfully generate personal gain; 2.4. Indemnification for payment of civil fine, pecuniary sanction or ransom imposed on the Functionary. 2.5. Subject to the provisions of Sections 1.2.4 and 1.2.5 above administrative enforcement procedure conducted against the Functionary. 3. Indemnity amount 3.1. The indemnification amount that the Company may pay to all of the Functionaries, in aggregate, according to this Indemnification Letter, and according to any other undertaking or indemnification letter towards functionaries (as they are defined in the Companies Law, 5759 1999) and to employees of the Company (including undertakings and indemnification letters to functionaries and/or employees of the Company, granted by the Company in connection with preparation, approval and publication of the Company s financial statements dated June 30, 2009) or that shall be granted by it in the future, including, if and in so far as indemnification is granted by the Company in connection with structural change of the Company and/or privatization, shall not exceed 25% of the capital of the Company as of June 30, 2009, linked to the consumer price index in Israel as of the index for July 2009 ( Maximum Indemnity Amount ). 3.2. If and when the sum of all indemnity amounts the Company is required to pay, exceeds the Maximum Indemnity Amount or the balance of the Maximum Indemnity Amount (as available at such time) according to Section 3.1 above, the Maximum Indemnity Amount or it balance, as the case may be, shall be divided between the Functionaries eligible for indemnification, so that the indemnification received by each Functionary, in practice, is calculated according to the proportion between the indemnity amount due to each of the Functionaries for liability or expenses they are required to bear as result of the legal proceeding and between the amount of indemnity due to all such Functionaries, for the liabilities or expenses they must bear as result of the legal proceeding, in aggregate for the same event. 3.3. The Company s indemnity obligation shall not apply to any amount that the insurer of the functionary insurance policy has acknowledged liability for and has made it available to a Functionary at the date allowing him to fulfill liability imposed on him. However if the Functionary is held liable for an indemnifiable event in an amount that exceeds the amount the insurer paid him indemnity shall be granted with respect to the difference between the amount of monetary liability that the insurer paid him indemnity shall be
granted with respect to the difference between the monetary liability amount imposed on the functionary and/or the legal expenses incurred by or due from the Functionary, as set forth in Section 1 above, and the amount received from the insurer for the same affair, provided the indemnity amount the Company shall be required to pay according to this undertaking letter does not exceed the Maximum Indemnity Amount. In addition the Company will indemnify the Functionary for any deductible he is required to pay according to the insurance policy. In the event the insurer does not acknowledge liability for such event, indemnification of the Functionary shall not be deemed a waiver on the part of the Company regarding any claim towards the Insurer that the insurance applies to the incident. 4. Handling a claim In any event whereby a Functionary may be entitled to indemnity as set forth above, the Functionary and the Company shall act as follows: 4.1. The Functionary shall notify the Company in writing with respect to any legal proceeding initiated against him and with respect to any concern or threat that a legal proceeding shall be filed against him and of the circumstances that were brought to his knowledge that may cause filing a legal proceeding against him (hereinafter: Proceeding ) as soon as possible after first becoming aware of it, and shall transfer without delay to the Company or whoever is designated by the Company a copy of every document provided to him in connection with such Proceeding. 4.2. The Functionary shall fully cooperate with the Company and whoever is determined by the Company, including with the insurer of the functionary insurance policy, and shall provide all information required in connection with the claim and shall comply with all other provisions of the policy with respect to defending against claims. 4.3. The Company shall be entitled to assume handling legal defense of the Functionary against the Proceeding and turnover defense to an attorney whose identity shall be determined by the Company according to its discretion and while considering the obligations of the Company according to the functionary insurance policy and possibility of appointing an attorney on behalf of the insurer (hereinafter: Company Counsel ). 4.4. Notwithstanding the aforementioned in Paragraph 4.3 above, the Functionary shall be entitled to refuse to be represented by Company Counsel for reasonable grounds or under circumstances that in the opinion of the Functionary or in the opinion of the Company Counsel may cause conflict of interest between his defense and the defense of the Company. 4.5. If within fourteen days from receiving notice as set forth in Paragraph 4.1 above, the Company (or the insurer) has not assumed handling the defense of the Functionary against the Proceeding or if the Functionary and/or Company Counsel have refused representing him by the Company Counsel under circumstances set forth in Paragraph 4.4 above, the Functionary shall be entitled to transfer handling the defense to an attorney of his choice (hereinafter Other Counsel ), provided the amount of attorney s fee paid to the Other Counsel shall require approval of the Company s audit committee that shall examine its reasonability. The Functionary shall be provided the opportunity to appear and plead before the audit committee, and the audit committee shall reason its
decision. The Functionary shall be able to appeal the decision before the board of directors and the Functionary shall be provided the opportunity to appear and plead before the board of directors. In the event the full attorney s fee requested is not approved, and the Functionary has decided not to waive the services of the Other Counsel, the Functionary shall be entitled if he desires to receive from the Company the reasonable attorney s fee approved for him, and the balance shall be paid by the Functionary at his own expense. 4.6. Notwithstanding the aforementioned in Paragraphs 4.4 and 4.5 above in the event the Functionaries insurance policy applies to the affair and in the event turning over handling to the Other Counsel may allow the insurer to be released from or reduce his obligations, the Company shall act in accordance with the provisions of the policy with respect to disagreements with the insurer regarding the identity of counsel. Therefore, in such event, the provisions of the policy shall have precedent in this regard over the provisions of this indemnification letter, however the Company shall make every reasonable effort in the framework of its possibilities according to the policy to honor the will of the Functionary. 4.7. In the event the Company has decided to take upon itself handling defense against the Proceeding and the Functionary has not objected under circumstances set forth in Paragraph 4.4 above, the Functionary will sign, per the request of the Company, an authorization instrument that shall authorize the Company as well as the Company Counsel, to handle defense of the Proceeding on his behalf and represent him in connection with such defense, and the Company and the Company Counsel will be entitled to handle the aforementioned exclusively (but with continuous reporting to the Functionary and consulting with him and his legal advisors) and shall be entitled to bring the Proceeding to a conclusion, as they deem appropriate, subject to the provisions of Paragraph 4.15 hereunder. Attorney appointed by the Company to handle claims against the Functionary shall be loyal to the Company and to the Functionary, and in the event of conflict of interest the provisions of Sections 4.4 and 4.5 above shall apply. 4.8. The Functionary will cooperate with the Company and the Company Counsel in any reasonable way requested by either of them in the framework of handling the Proceeding, including signing motions, affidavits, and any other document, provided the Company ensures full coverage of all related expenses, so that the Functionary is not required to pay or finance them. 4.9. In the event the Company decides to undertake handling the defense against the Proceeding and the Functionary has not objected thereto under circumstances set forth in Paragraph 4.4 above, the Company shall bear all expenses and payments related thereto, so that the Functionary shall not be required to pay or finance them himself, and the Company shall not be liable towards the Functionary under this undertaking letter for any legal expenses including attorney s fee, expended by the Functionary for defense of the Proceeding. 4.10. Per the request of the Functionary the Company shall pay him as an advance an amount (or amounts) necessary in the opinion of the Company for covering reasonable expenses that the Functionary is anticipated to incur, including attorney s fee for which
the Functionary is entitled to indemnification according to this undertaking letter and all subject to fulfilling his obligations according to this undertaking letter and subject to the provisions of Section 263 of the Companies Law and the Securities Law. In the framework of its aforementioned undertaking, the Company shall also make available necessary guarantees or sureties that the Functionary shall be required to make available according to interim decisions of court (in a non-criminal proceeding) or of an arbitrator (hereinafter: Guarantees ), including for purpose of replacing liens imposed on assets of the Functionary, provided the sum of the pending Guarantees, including forfeited Guarantees, plus the amounts you have received or shall receive according to this indemnification letter, do not exceed the Maximum Indemnity Amount. 4.11. In the event the Company paid any amount to a Functionary under the indemnification undertaking, whether as an advance or in any other way and thereafter it is learned that the Functionary must return it, all or part, since he was not eligible for indemnity due to the provisions of Section 263 of the Companies Law or due to any other provision of law or due to the fact that he received indemnity form the insurer as set forth in Section 3.3 of this indemnification letter or from any other factor, such amounts shall be deemed as loans granted to the Functionary by the Company that the Functionary is required to repay to the Company together with linkage differentials to the consumer price index as of the date the amount was paid to him and until the date or repayment, and this immediately upon written request to do so and according to a payment schedule determined by the Company. 4.12. In the event the Company paid any amount to a Functionary or a third party under the indemnification undertaking, and thereafter the liability for which the amount was paid is made void or the amount has decreased for any reason, or due to the fact that he received indemnification from the insurer as set forth in Section 3.3 of this undertaking letter or from any other factor, the Functionary shall assign to the Company his full rights for restitution of the amount and shall do all that is necessary so that such assignment shall be valid and the Company shall be able to realize it, and once he has done so shall be exempt from repaying the amount the right of restitution thereof has been assigned. If he has failed to do so the Functionary shall be obligated to repay the amount, or part thereof, as applicable, together with linkage differentials and interest at rates and for the period whereby he is entitled to repayment of the amount from the plaintiff. 4.13. In the event the Company Counsel represented both the Company and the Functionary in a Proceeding, and thereafter it is learned that the Functionary was not eligible for indemnity due to the provisions of Section 263 of the Companies Law or due to any other provision of law and dispute arises with respect to the obligation of the Functionary to repay legal expenses or with respect to the amount subject to repayment, the dispute shall be transferred to an arbitrator agreed to by the parties. Per the request of the Functionary the Company shall provide him a loan in the amount (or amounts) necessary in the opinion of the Company for covering reasonable expenses the Functionary is expected to incur in connection with the aforementioned arbitration proceeding (including attorney s fee). Such loan shall become a grant in the event the arbitrator rejects the Company s claim.
4.14. A Functionary shall not agree to settle or transfer the Proceeding to arbitration, unless the Company has agreed thereto in advance and in writing, and if the consent of the insurer shall be required, than consent has also been obtained from the insurer of the functionary insurance policy. The Company shall not agree to settle unless the settlement agreement does not expose the Company and/or the Functionaries to additional claims on behalf of the plaintiff or plaintiffs and also that the agreement shall not be deemed admittance or acknowledgment of liability of the Functionaries to the cause subject of the Proceeding. The Company shall bring to the attention of the Functionaries the details of the settlement agreement. In the event of dispute between the Company and a Functionary or Functionaries on the question whether the settlement agreement complies with the provisions of this Section, the dispute shall be brought for swift decision before an arbitrator appointed according to the request of the Company or the Functionary. The arbitrator shall be appointed by mutual consent within 7 days of the request of either party to submit the dispute for arbitrator s decision and in the event the parties have not reached an agreement regarding the identity of the arbitrator the identity of the arbitrator shall be determined by the chairman of the Israel Bar Association. Per the request of the Functionary the Company shall provide him a loan in the amount (or amounts) necessary in the opinion of the Company for covering reasonable expenses the Functionary is expected to incur in connection with the aforementioned arbitration proceeding (including attorney s fee). Such loan shall become a grant in the event the arbitrator rejects the Company s claim. 4.15. The Company and the Company s Counsel shall not agree to a settlement the amount of which exceeds the indemnity amount the Functionary is entitled to, without the advance written consent of the Functionary, and in the event the consent of the insurer is required than also the advance consent of the insurer. In addition, the Company and the Company s Counsel shall not be entitled in a criminal proceeding or in a proceeding before an authority authorized to conduct an investigation or procedure as set forth in Section 1.2.3 above, to conclude the proceeding as they deem appropriate, including admission to any of the accusations on behalf of the Functionary or consent to a plea bargain, without the advance written consent of the Functionary, and in the event the consent of the insurer is required than also the advance consent of the insurer. 4.16. Without derogating from the provisions of Section 4.15 above, the Company shall be entitled, but not obligated, according to its discretion, to indemnify the Functionary in accordance with this indemnification letter against amounts paid by him for settlement of any argument, claim or other proceeding reached without the written consent of the Company. 5. Validity of the undertaking 5.1. The Company s undertaking according to this indemnification letter shall be in effect from the effective date. 5.2. The indemnification undertaking shall be valid with respect to proceedings initiated against the Functionary during his work or tenure with the Company and with respect to proceedings initiated against him, following the end of his employment or tenure with the Company provided they relate to acts carried out by him from the date of
appointment as Functionary while or due to being a Functionary of the Company or as result thereof. The indemnification undertaking shall also inure to the benefit of the estate of the Functionary, his heirs and his other alternates according to applicable law. 5.3. Indemnification according to this indemnification letter shall apply also to lawful payment of VAT, if applicable. 5.4. This undertaking letter shall not cancel or diminish or waive any other indemnification the Functionary is entitled to from any other source according to the provisions of applicable law or according to any other undertaking, provided the Company is not obligated to indemnify the Functionary for such amounts with respect to which he received indemnity under other undertakings. 5.5. This undertaking letter shall not limit the Company or preclude it from granting the Functionary additional and special indemnity or indemnities provided such shall not diminish or hinder the indemnification undertaking subject of this undertaking letter and that such additional and special indemnity or indemnities are lawfully approved according to applicable law and the Company s articles of association. 5.6. For avoidance of doubt it is hereby set forth that subject to the provisions of Section 5.2 of this undertaking letter, privity of contract applies to this undertaking letter. 6. The laws of the State of Israel apply to this indemnification letter, and the court in Tel Aviv shall have exclusive jurisdiction over disputes arising under implementation of this indemnification letter. In witness hereof we have signed. Israel Electric Corporation Ltd.