EGM 2007 - Amiad

THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION.If you are in any doubt as to the action you should take, you should immediatelyconsult your stockbroker, bank manager, solicitor, accountant or otherindependent financial adviser authorised under the Financial Services and MarketsAct 2000.If you have sold or otherwise transferred all your shares in Amiad Filtration Systems Ltd.,please send this document and the accompanying documents to the purchaser or transfereeor to the stockbroker, bank or other agent through whom the sale or transfer was effectedfor transmission to the purchaser or transferee.Amiad Filtration Systems Ltd.(Registered in Israel under company number 51-249769-4)NOTICE OF EXTRAORDINARY GENERAL MEETINGNotice of the extraordinary general meeting to be held at Adelaide House, London Bridge,London EC4R 9HA, England on Wednesday, 5 September 2007 commencing at 11am is setout on pages 5 to 6 of this circular. Copies of this document will be available to the publicfrom its date until the date of the extraordinary general meeting at the offices of PanmureGordon (Broking) Limited, Moorgate Hall, 155 Moorgate, London EC2M 6XB, England.

AMIAD FILTRATION SYSTEMS LTD.(incorporated and registered in Israel under company no 51-249769-4)Registered Office:DN Galil Elyon 112335Israel1 August 2007To Shareholders (with a copy, for information only, to the holders of options overshares in the Company)Dear ShareholderExtraordinary General Meeting: Wednesday, 5 September 2007You are cordially invited to attend the extraordinary general meeting (the “EGM”) of AmiadFiltration Systems Ltd. (the “Company”) to be held at 11am on Wednesday, 5 September 2007at Adelaide House, London Bridge, London EC4R 9HA, England. The notice of EGM (whichincludes the resolutions to be proposed at the meeting) is set out on pages 6 and 7 of thisdocument. The form of proxy or (if you are a holder of depository interests in the Company) aform of direction is enclosed.The business to be conducted at the EGM will be to consider and, if thought fit, passresolutions:• to appoint Mr Rami Treger, the Company’s Chief Executive Officer (“CEO”), as adirector of the Company;• to appoint Mr Ilan Benguigui as a non-executive director of the Company;• to approve the draft letter of appointment of Mr Benguigui with the Company and hisremuneration;• to approve the draft exemption and indemnification agreements between theCompany and each of Mr Treger and Mr Benguigui;• to authorise the Company to extend its existing directors’ and officers’ liabilityinsurance policy to cover Mr Rami Treger and Mr Ilan Benguigui;• to approve the entering into a share option agreement with Mr Treger (the “OptionAgreement”) pursuant to which Mr Treger shall be granted options to purchase54,722 ordinary shares of the Company;• to approve the terms and conditions for the payment of a phantom bonus to MrTreger;• to approve the terms of the Company’s bonus scheme for members of seniormanagement, in the form set out in appendix 1 to this circular (the “BonusScheme”); and• to approve the amendment to the human resources services agreement dated June1998 (as amended) between the Company and Kibbutz Amiad.1

The draft letter of appointment has been approved by the audit committee and the board ofdirectors of the Company.Resolution 4 (exemption and indemnification agreements for Mr Treger and MrBenguigui)Shareholders will be invited at the meeting to approve draft exemption and indemnificationagreements for each of Mr Treger and Mr Benguigui. Although not the case for listedcompanies incorporated in England, exemption and indemnification agreements are commonlyentered into by Israeli publicly-traded companies with their directors/other office holders. Thedraft exemption and indemnification agreements are on the same terms and conditions as theexemption and indemnification agreements which the Company previously entered into withother non-executive directors.The draft exemption and indemnification agreements have previously been approved by theaudit committee and the board of directors of the Company.Resolution 5 (extension of D&O insurance policy)This resolution authorises the Company to extend its existing directors’ and officers’ liabilityinsurance policy to cover Mr Treger and Mr Benguigui.Resolution 6 (Option Agreement with Rami Treger)Following the approval of the audit committee and the board of directors of the Company, thisresolution approves the entering into the Option Agreement pursuant to which Mr Treger isgranted options to purchase 54,722 ordinary shares of the Company, subject to the terms andconditions set out in the Option Agreement.Resolution 7 (approval of the terms of a phantom bonus to be paid to Rami Treger)Resolution 7 provides for the approval of the payment of a phantom bonus (the “Bonus”) to MrTreger in an amount produced by the following formula:X = (Y - Z) * A * BWhere:X = the amount of the Bonus in New Israeli Shekels (“NIS”);Y = the average price of the Company's ordinary share on AIM during the month of July 2009;Z = the average price of the Company's ordinary share on AIM during the month of July 2007;A = 97,282;B = the exchange rate of NIS against the Great British Pound as published by the Bank ofIsrael on 1 August 2009 (the “Record Date”).The Bonus will be paid to Mr Treger on August 2009, provided that he is employed by theCompany at the Record Date.Resolution 8 (approval of the terms of the Bonus Scheme)The Company is proposing to introduce the Bonus Scheme which will be available to membersof Senior Management (as defined in the Bonus Scheme), including three members of theboard (Mr Treger, Mr Eder and Mr Heifetz). Following the approval of the terms of the Bonus5753838.13

Scheme by the remuneration and audit committees and the board of directors, the terms ofthe scheme will also need to be approved at this meeting.Resolution 8 therefore provides for the approval of the terms of the Bonus Scheme in the formset out in appendix 1 to this circular.Resolution 9 (approval of the amendment to the human resources servicesagreement with Kibbutz Amiad)Resolution 9 provides for the approval of the amendment to the services agreement datedJune 1998 (as amended) between the Company and Kibbutz Amiad.The amendment has been approved by the audit committee and the board of directors of theCompany and is conditional on, and subject to, the approval of the general meeting of theCompany. Pursuant to the terms of the amendment, a proportion of the bonus pool payable toemployees under the approved Company’s staff bonus will be paid to Kibbutz Amiad inaccordance with the terms of such scheme. All other terms of the services agreement shallremain unchanged. The Company’s staff bonus scheme is enclosed as appendix 2 to thiscircular.Voting requirementsUnder the Companies Law, resolutions 1 to 8 (inclusive) require both the approval of theCompany’s audit committee and board of directors and a vote in favour by shareholdersholding a majority of the shares represented at the meeting, either in person or by proxy, andvoting on the resolution.Resolution 9 requires a special majority in favour in order for the resolution to be validlypassed. Under the Companies Law, a resolution concerning an exceptional transaction of apublic company with its “controlling shareholder” or with another person in whom thecontrolling shareholder has a personal interest requires the approval of the company’s auditcommittee, its board of directors and its shareholders in general meeting provided that, in thecase of the latter approval, either of the following conditions is satisfied:(a)(b)the majority of votes in favour includes at least one-third of the shares of shareholderswho have no “personal interest” in the approval of the resolution and who vote on theresolutions; orthe total number of shares of shareholders who have no “personal interest” and whovote against the resolutions does not exceed 1 per cent. of the issued share capital ofthe Company.Documents available for inspectionThe draft letter of appointment with Mr Benguigui, the draft exemption and indemnificationagreements to be entered into between the Company and each of Mr Treger Mr Benguigui, theOption Agreement and the amendment to the human resources services agreement withKibbutz Amiad will be available for inspection at the offices of Berwin Leighton Paisner LLP,Adelaide House, London Bridge, London EC4R 9HA, England from the date of this documentuntil the date of the EGM and at the EGM from 11am until the conclusion of the meeting.Form of proxy/Form of directionAs mentioned above, you will also find enclosed with this document a form of proxy (unlessyou are a holder of depository interests in the Company, in which case you will receive a formof direction) for use at the EGM.5753838.14

If you are a member of the Company, whether or not you intend to be present at the meeting,you are requested to complete and return the form of proxy (in accordance with theinstructions set out in that document) to the Company’s transfer agent, Capita Registrars, TheRegistry, 34 Beckenham Road, Beckenham, Kent BR3 4TU, England, as soon as possible and inany event so as to be received by the Company’s transfer agent by no later than 24 hoursbefore the time fixed for the meeting or any adjourned meeting. Completion and return of aform of proxy will not prevent you from attending the meeting and voting in person, if you sowish.If you are a holder of depository interests representing ordinary shares in the Company, pleasecomplete and return the form of direction (in accordance with the instructions set out in thatdocument) to the Company’s transfer agent, Capita Registrars, The Registry, 34 BeckenhamRoad, Beckenham, Kent BR3 4TU, England, as soon as possible and in any event so as to bereceived by the Company’s transfer agent by no later than 72 hours before the time fixed forthe meeting or any adjourned meeting.Directors’ recommendationThe Directors believe that the adoption of each of the resolutions to be proposed at the EGM isin the best interests of the Company and its shareholders as a whole. Accordingly, theDirectors recommend that you vote in favour of each resolution as they intend to do in respectof their own beneficial holdings.Yours faithfullyAbraham HeifetzChairman5753838.15

AMIAD FILTRATION SYSTEMS LTD.REGISTERED IN ISRAEL UNDER COMPANY NO: 51-249769-4NOTICE OF ANNUAL GENERAL MEETINGNotice is hereby given that the annual general meeting of Amiad Filtration Systems Ltd. (the“Company”) will be held at Adelaide House, London Bridge, London EC4R 9HA, England onWednesday, 5 September 2007 commencing at 11am for the following purposes:1 To appoint Mr Rami Treger as a director of the Company.2 To appoint Mr Ilan Benguigui as a non-executive director of the Company.3 To consider and, if thought fit, pass the following resolution:That, subject to the approval of such matters by the audit committee and the boardof directors of the Company, the terms of appointment and remuneration of Mr IlanBenguigui, as set out in his draft letter of appointment, a copy of which is producedto the meeting and initialled for the purposes of identification by the chairman of themeeting, be and are hereby approved.4 To consider and, if thought fit, pass the following resolution:That, subject to the approval of such drafts exemption and indemnificationagreements by the audit committee and the board of directors of the Company, thedraft exemption and indemnification agreements to be entered into by the Companyand each of Mr Rami Treger and Mr Ilan Benguigui, copies of which are produced tothe meeting and initialled for the purposes of identification by the chairman of themeeting, be and are hereby approved.5 To authorise the Company to extend its existing directors’ and officers’ liabilityinsurance policy to cover Mr Rami Treger and Mr Ilan Benguigui.6 To approve the entering into a share option agreement with Mr Rami Tregerpursuant to which Mr Rami Treger is granted options to purchase 54,722 ordinaryshares of the Company.7 To consider and, if thought fit, pass the following resolution:That, subject to the approval of such matters by the audit and remunerationcommittees and the board of directors of the Company, the terms of a phantombonus to be paid to Mr Treger, as set out in pages 3 and 4 of the circular dated 1August 2007, be and are hereby approved.8 To consider and, if thought fit, pass the following resolution:That, subject to the approval of such matters by the audit and remunerationcommittees and the board of directors of the Company, the terms of the bonusscheme to members of senior management, as set out in appendix 1 to the circulardated 1 August 2007, be and are hereby approved.9 To consider and, if thought fit, pass the following resolution:5753838.16

Appendix 1AMIAD FILTRATION SYSTEMS LTD.Senior Management Bonus Scheme1 Bonus targets1.1 A bonus scheme will be in operation in relation to financial year ending 31 December2007 which will pay a bonus to the Senior Management team by reference to theirmonthly salary. The level of bonus payable will depend on the achievement oftargets as set out below.1.1.1 Sales Performance of the GroupLevel of Sales (USD million) 50-51 51-52 52-53 53-54 54+Senior Management bonus excluding AviHeifetz (x month’s salary)0.3 0.6 0.9 1.2 1.5Avi Heifetz (x month’s salary) 0.4 0.8 1.2 1.6 2.01.1.2 EBIT Performance of the GroupLevel of EBIT (USD million) 5.5-5.65 5.65-5.8 5.8-5.95 5.95-6.1 6.1+Senior Management bonus excluding AviHeifetz (x month’s salary)0.3 0.6 0.9 1.2 1.5Avi Heifetz (x month’s salary) 0.4 0.8 1.2 1.6 2.01.2 If the minimum target level is reached a bonus will be payable. The amount of thebonus corresponds to the column showing the level of Sales and/or EBIT achieved.1.3 If the minimum target is reached for each of the Sales and EBIT performancecriteria, additional bonuses may be awarded in respect of:1.3.1 completion of the ERP project if it is fully functional and operationalbefore 1 January 2008Senior Management bonus excluding AviHeifetz (x month’s salary)Avi Heifetz (x month’s salary)1 (max)1 (max)1.3.2 personal performance as assessed by the individual’s supervisorand subject to the discretion of the ChairmanSenior Management bonus excluding AviHeifetz (x month’s salary)Avi Heifetz1 (max)n/a5753838.18

2 Calculation of the Bonus2.1 The amount of the bonus for members of the Senior Management shall be calculatedfor each person as a multiple of their monthly salary as set out in the above tables.The maximum bonus for each member of the Senior Management is thereforeequivalent to five months’ salary (1.5 + 1.5 + 1 + 1 or, in the case of Avi Heifetz, 2+ 2 +1). On the basis of the salaries of the Senior Management team, this equatesto a maximum total bonus liability for the Company of NIS 600,000.3 Payment Date3.1 Any bonus shall be paid following Board’s approval of the 2007 financial statementsin March 2008.3.2 If any member of Senior Management is not employed by the Company for thewhole of the Bonus Year or is not employed at the bonus payment date, thepayment of any bonus to that individual shall be subject to the absolute discretion ofthe Chairman and/or CEO of the Company.4 Miscellaneous4.1 Payments of any bonus shall be subject to deductions for tax.5 DefinitionsBoard shall mean board of directors of the Company.Bonus Year shall mean the financial year ending 31 December 2007.EBIT shall mean the operating profits as appearing in the approved consolidatedfinancial statements of the Company for the year ending 31 December 2007.Sales shall mean the revenues as appearing in the consolidated financial statementsof the Company for the year ending 31 December 2007.Senior Management shall meanAbraham Heifetz, Rami Treger, Arie Dayan,Rubi Halberthal and Itamar Eder5753838.19

X = 900,000 * Y/(Y+P)where:X = maximum amount payable to the kibbutzY = total fees payable to the kibbutz for human resources services provided duringthe year ending 31 December 2007P = total salaries payable to Employees during the year ending 31 December 20073 Payment Date3.1 The bonus shall be paid, subject to the absolute discretion of management,following Board’s approval of the 2007 financial statements in March 2008. As thepayment of the bonus is fully discretionary, the Company reserves the right not topay a bonus.4 Miscellaneous4.1 Payments of any bonus shall be subject to deductions for tax.5 DefinitionsBoard shall mean the board of directors of the Company.Employees shall mean all employees of the Company, excluding members of SeniorManagement (as defined in the Senior Management Bonus Scheme of the Company).EBIT shall mean the operating profits as appearing in the approved consolidatedfinancial statements of the Company for the year ending 31 December 2007.Sales shall mean the revenues as appearing in the consolidated financial statementsof the Company for the year ending 31 December 2007.Staff shall mean all Employees and (in relation to its provision of services under thehuman resources services agreement) Kibbutz Amiad.5753838.111