PETACH-TIKVA, ISRAEL -- Eltek has signed a definitive agreement to sell all its shares in money-losing Kubatronik-Leiterplatten to the subsidiary's founder.

The deal is expected to close by the end of 2016, and Eltek expects to take a loss of $675,000.

Eltek purchased its shares in Kubatronik from Alois Kubat, Kubatronik's only other shareholder, in 2002, along with a clause that granted Kubat the right to require Eltek to purchase his remaining interests in Kubatronik. However, Eltek's earnings have been hampered by Kubatronik for years, leading the PCB fabricator to cut ties with the German maker of high-end PCBs. 

Eltek chairman and chief executive Yitzhak Nissan said, "During the last several years Kubatronik's business has failed to pick up and it has drawn significant resources from Eltek. The sale of Kubatronik will allow us to focus on our continued development of advanced technological solutions and is expected, in the long run, to positively impact our financial results."

In anticipation of the transaction, Eltek will pay Kubat 483,000 Euros ($504,000) and provide Kubatronik with an advance of 110,000 Euros to support its cash flow. This advance, together with Kubatronik's existing debt to Eltek amounting to 1,031,000 Euros $1.08 million) will be forgiven as part of the transaction.

In consideration for the sale, Eltek shall be entitled to contingent consideration equal to 20% of Kubatronik's net profit in 2017, and 10% of Kubatronik's net profit in each of 2018 and 2019. Eltek and Kubatronik further agreed, that until the end of 2017 they shall offer a 10% discount on sales to one another of their corresponding products and pay a 10% commission on sales each party effects to customers introduced by the other.

In addition, during this period, Kubatronik shall continue to manage Eltek Europe GmbH, and Avi Gal shall continue to serve as Kubatronik's CEO, on a part-time basis.

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