<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 17, 2000
REGISTRATION STATEMENT NO. 333-32372
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
NOGATECH, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 3674 77-0525268
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
------------------------
5201 Great America Parkway
Santa Clara, California 95054
(408) 562-6200
(Address, Including Zip Code, and Telephone Number
Including Area Code, of Registrant's Principal Executive Offices)
--------------------------
Nathan Hod
Chairman of the Board
Nogatech, Inc.
5201 Great America Parkway
Santa Clara, California 95054
(408) 562-6200
(Name, Address, Including Zip Code, and Telephone Number
Including Area Code, of Agent for Service)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
Donald C. Reinke, Esq. Bruce A. Mann, Esq.
James L. Berg, Esq. Lloyd Harmetz, Esq.
Nicola R. Knight, Esq. Morrison & Foerster LLP
Gizelle A. Barany, Esq. 425 Market Street
Bay Venture Counsel, LLP San Francisco, California 94105-2482
1999 Harrison Street, Suite 1300 (415) 268-7584
Oakland, California 94612
(510) 273-8750
</TABLE>
------------------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.
--------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant under Rule 415 of the Securities Act of
1933, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED TO BE REGISTERED PER SHARE(1) PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, par value
$0.001 per share................. 4,025,000 $16.00 $64,400,000 $17,002(2)
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
(2) Previously paid.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 17, 2000
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
<TABLE>
<S> <C>
NOGATECH, INC.
[MAP] 3,500,000 Shares
of Common Stock
</TABLE>
<TABLE>
<S> <C> <C> <C>
OPENIPO: The method of
This is our initial public offering and no public market currently distribution being used by the
exists for our shares. We expect that the public offering price will be underwriters in this offering
between $12.00 and $16.00 per share. This price may not reflect the differs somewhat from that
market price of our shares after this offering. traditionally employed in firm
commitment underwritten
THE OFFERING PER SHARE TOTAL
-----------------------------------------------------------------------
public offerings. In particular,
the public offering price and
Public Offering Price $ $ allocation of shares will be
Underwriting Discount $ $ determined primarily by an
Proceeds to Nogatech $ $ auction process conducted by the
underwriters and other
securities dealers participating
We have granted the underwriters the right to purchase up to 525,000 in this offering. A more detailed
additional shares within 30 days to cover any overallotments. The description of this process, known
underwriters expect to deliver shares of common stock to purchasers on as an OpenIPO, is included in
, 2000. "Plan of Distribution."
Proposed Nasdaq National Market Symbol: NGTC
</TABLE>
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD PURCHASE
SHARES ONLY IF YOU CAN AFFORD A COMPLETE LOSS OF YOUR INVESTMENT.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
- --------------------------------------------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
W R H A M B R E C H T+C O
ING Barings
DLJDIRECT Inc.
The date of this prospectus is , 2000
<PAGE>
3-FOLD PART INSIDE FRONT COVER GRAPHICS
1(st) Page -- Nogatech Logo.
2(nd) and 3(rd) Pages gatefold -- These pages contain the caption "Providing
Compression Chips for Video Connectivity." The graphic is a Nogatech chip with
six different pictures surrounding the chip identifying various uses of
Nogatech's chips. The six pictures include two men with a TV camera, a man at a
keyboard, a woman, a computer monitor, a portable computer and a woman next to a
computer monitor.
A caption at the bottom of the page states "Our chips are designed into a
range of products enabling video connectivity to personal computers, notebooks
and hand-held personal computing devices through the Universal Serial Bus
interface." An additional caption states "The trademarks and tradenames
displayed are the property of their respective owners."
<PAGE>
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of our common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary.......................................... 3
The Offering................................................ 4
Summary Consolidated Financial Data......................... 5
Risk Factors................................................ 6
Cautionary Note on Forward-Looking Statements............... 17
Use of Proceeds............................................. 18
Dividend Policy............................................. 18
Capitalization.............................................. 19
Dilution.................................................... 20
Selected Consolidated Financial Data........................ 21
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 22
Business.................................................... 29
Management.................................................. 40
Certain Relationships and Related Transactions.............. 49
Principal Stockholders...................................... 51
Description of Capital Stock................................ 54
Shares Eligible for Future Sale............................. 56
Plan of Distribution........................................ 58
Legal Matters............................................... 64
Experts..................................................... 64
Where You Can Get More Information.......................... 64
Index to Consolidated Financial Statements.................. F-1
</TABLE>
------------------------
Our logo is our registered trademark. Other service marks, trademarks and
trade names referred to in this prospectus are the property of their respective
owners.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE FINANCIAL STATEMENTS AND NOTES APPEARING ELSEWHERE IN THIS
PROSPECTUS. THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD
CONSIDER BEFORE INVESTING IN OUR COMMON STOCK. YOU SHOULD READ THE ENTIRE
PROSPECTUS CAREFULLY. ALL INFORMATION IN THIS PROSPECTUS GIVES EFFECT TO A
ONE-FOR-TWO REVERSE STOCK SPLIT WITH RESPECT TO OUR COMMON STOCK THAT WILL BE
EFFECTED PRIOR TO THE CLOSING OF THIS OFFERING.
NOGATECH
We provide computer chips that compress digital video images and establish
connections, or video connectivity, between video devices and computers, as well
as between video devices across a variety of networks. Our products enable
real-time transmission of video, audio and data signals into personal computers
and hand-held personal computing devices known as personal digital assistants.
Our chips are small, power efficient and work together with our related
decompression software for use in processing video images on all major operating
systems. Our products are based on our proprietary mathematical procedures,
known as algorithms, and enable communication of video and other data from a
variety of video sources through standard interfaces into PCs. Our chips and
software provide high quality video while efficiently using the resources of the
PC's central processing unit.
We principally sell our chips on a stand-alone basis to original equipment
manufacturers, who design them into products such as PC digital video cameras,
video capture devices and PC-TVs. In addition, we sell to original equipment
manufacturers our own video devices that incorporate our chips. In 1999,
purchasers of our products included AME Group, Camtel Technology, Fujitsu
General, Hauppauge Computer Works, Interex, IO Data, Pinnacle Systems, Sharp
Electronics and X-10.com. Our chips are manufactured and tested by
subcontractors.
The convergence of TV and PC applications, the growth of the Internet and
the establishment of high speed broadband communication networks have created an
increased demand for high quality video connections. We believe that the
marketplace will demand additional digital video compression chips that are
compatible with the new industry standard for video compression, known as
MPEG-4. We are developing chips based on the MPEG-4 standard that will enable a
variety of applications, including processing and storing digital video data
across the Internet and mobile and broadcast networks.
Our objective is to be a leading provider of video connection chips for
computer products using advanced video compression technology and standard
computer connections between PCs and video accessories, known as plug-and-play
interfaces. Key elements of our strategy are to:
- maintain our expertise in video compression technology;
- focus on high volume applications;
- create and strengthen relationships with key customers; and
- build upon existing technologies to penetrate new markets.
Our sales were $3.2 million in 1998, $8.9 million in 1999 and $2.9 million
in the three months ended March 31, 2000, with net losses of $1.8 million in
1998 and $1.1 million in 1999, and net income of $93,000 in the three months
ended March 31, 2000.
We were initially incorporated in California in 1993 and reincorporated in
Delaware in 1999. Our principal executive offices are located at 5201 Great
America Parkway, Santa Clara, California, 95054, and our telephone number is
(408) 562-6200. The address of our office in Israel is 3 Gavish Street, Kfar
Saba 44641. Our world wide web address is www.nogatech.com. The information on
our website does not constitute part of this prospectus.
3
<PAGE>
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Common stock offered......................... 3,500,000 shares
Common stock to be outstanding after this
offering................................... 14,734,669 shares
Use of proceeds.............................. We expect to use the net proceeds from this
offering for working capital and other
general corporate purposes. We may use a
portion of the net proceeds to acquire
complementary products, technologies or
businesses.
Proposed Nasdaq National Market symbol....... NGTC
</TABLE>
The common stock to be outstanding after this offering is based on
11,234,669 shares outstanding as of March 31, 2000, after giving effect to:
- the conversion of our outstanding shares of Series A preferred stock into
8,609,783 shares of common stock;
- the conversion of our outstanding shares of Series B preferred stock into
an estimated 683,527 shares of common stock; and
- the assumed issuance of 1,213,319 shares of common stock upon the exercise
of options and warrants at a weighted average exercise price of $1.57 per
share that terminate upon the closing of this offering, a portion of which
are exercisable on a cashless basis.
The common stock to be outstanding after this offering excludes:
- 1,065,014 shares of common stock issuable as of March 31, 2000 upon the
exercise of outstanding stock options issued under our 1999 Stock Option
Plan at a weighted average exercise price of $1.47 per share;
- 3,850,000 shares of common stock reserved for issuance under our 2000
Equity Incentive Plan and 2000 Stock Purchase Plan; and
- 350,000 shares of common stock issuable as of March 31, 2000 upon the
exercise of warrants at an exercise price of $0.13 per share.
This offering will be made through the OpenIPO process, in which the
allocation of shares and the public offering price are primarily based on an
auction in which prospective purchasers are required to bid for the shares. This
process is described under "Plan of Distribution." Except as otherwise
indicated, the information in this prospectus assumes no exercise of the
underwriters' over-allotment option.
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table summarizes the consolidated financial data of our
business. The pro forma 2000 statement of operations data gives effect to the
automatic conversion of our Series A and Series B preferred stock. The
statements of operations data assume a one-for-two reverse stock split with
respect to our common stock that will be effected prior to the closing of this
offering. See note 1(k) to our consolidated financial statements for a
discussion of our pro forma basic and diluted net loss per share.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------- -----------------------
1997 1998 1999 1999 2000
-------- -------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales.......................................... $ 2,551 $ 3,205 $ 8,856 $ 870 $ $2,945
Gross profit................................... 852 1,167 3,745 352 1,284
Operating income (loss)........................ (1,430) (1,913) (1,107) (814) 105
Net income (loss).............................. (1,462) (1,823) (1,096) (817) 93
Charge for beneficial conversion feature of
Series B preferred stock..................... -- -- -- -- (4,570)
Accretion of redemption value of Series A
redeemable convertible preferred stock....... (300) (383) (427) (107) (165)
Net loss applicable to common stock............ (1,762) (2,206) (1,523) (924) (4,642)
Net loss per share of common stock, basic and
diluted...................................... $ (5.86) $ (7.13) $ (4.50) $ (2.97) $ (8.14)
Weighted average number of shares of common
stock outstanding............................ 300,709 309,536 338,295 310,995 570,557
======== ======== ========== ========== ==========
Pro forma net income (loss) per share of common
stock, basic and diluted..................... $ (0.12) $ (0.09) $ 0.01
========== ========== ==========
Pro forma weighted average number of shares of
common stock outstanding..................... 8,948,078 8,920,778 9,749,945
========== ========== ==========
</TABLE>
The following table summarizes our balance sheet data as of March 31, 2000.
This balance sheet data is presented:
- on an actual basis;
- on an as adjusted basis to give effect to:
- the conversion of all outstanding shares of preferred stock into an
estimated 9,293,310 shares of common stock upon the closing of this
offering;
- the assumed exercise of options and warrants to purchase up to
1,213,319 shares of our common stock upon completion of this offering
at a weighted average exercise price of $1.57 per share; and
- the sale of the shares of common stock in this offering at the assumed
initial public offering price of $14.00 per share, after deducting the
estimated underwriting discounts and commissions and offering expenses.
<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 6,612 $53,017
Working capital............................................. 8,627 55,032
Total assets................................................ 10,950 57,355
Series A redeemable convertible preferred stock............. 8,408 --
Series B redeemable convertible preferred stock............. 5,000 --
Stockholders' equity (capital deficiency)................... (4,555) 55,258
</TABLE>
5
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISKS AND ALL OTHER INFORMATION
CONTAINED IN THIS PROSPECTUS BEFORE YOU DECIDE TO BUY OUR COMMON STOCK. WE HAVE
INCLUDED A DISCUSSION OF EACH MATERIAL RISK THAT WE HAVE IDENTIFIED AS OF THE
DATE OF THIS PROSPECTUS. HOWEVER, ADDITIONAL RISKS AND UNCERTAINTIES NOT
PRESENTLY KNOWN TO US OR THAT WE CURRENTLY DEEM IMMATERIAL MAY ALSO IMPAIR OUR
BUSINESS OPERATIONS. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS,
FINANCIAL CONDITION OR OPERATING RESULTS COULD SUFFER. IF THIS OCCURS, THE
TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU COULD LOSE ALL OR PART
OF THE MONEY YOU PAID TO BUY OUR COMMON STOCK.
RISKS RELATING TO NOGATECH
OUR SALES WILL BE REDUCED IF WE ARE UNABLE TO KEEP PACE WITH TECHNOLOGICAL
CHANGES.
The emerging video compression and video image processing industry is
characterized by:
- rapidly changing technologies;
- frequent new product introductions; and
- rapid changes in customer requirements.
Video compression and video image processing technologies have reached
commercially acceptable levels only in the last several years and continue to
experience numerous changes. As a result, we must be able to sell products that
incorporate the technological advances in our industry in order to ensure that
they remain commercially viable.
Our future success will depend on our ability to enhance our existing
products and to develop and introduce new products and product features. These
products and features must be cost-effective and keep pace with technological
developments and address the increasingly sophisticated needs of our customers.
We may not be successful at these tasks. We may also experience difficulties
that could delay or prevent the successful development, introduction and
marketing of these new products and features. In either case, our sales would be
reduced.
WE MAY NOT BE ABLE TO TIMELY ADOPT EMERGING INDUSTRY STANDARDS, WHICH MAY MAKE
OUR PRODUCTS UNACCEPTABLE TO POTENTIAL CUSTOMERS, DELAY OUR PRODUCT
INTRODUCTIONS OR INCREASE OUR COSTS.
Our products must comply with a number of current industry standards and
practices established by various international bodies. Our failure to comply
with evolving standards, including video compression and computer interface
standards, will limit acceptance of our products by market participants. In
particular, the MPEG-4 standard is becoming the primary standard for PC
applications requiring video compression, but we have not yet completed our
development of any products that are based upon MPEG-4. Although we expect to
introduce products based upon MPEG-4 during the second half of 2001, we may not
succeed in doing so either within that time frame, or at all. If new standards
are adopted in our industry, we may be required to adopt those standards in our
products. It may take us a significant amount of time to develop and design
products incorporating these new standards, and we may not succeed in doing so.
We may also become dependent upon products developed by third parties and have
to pay royalty fees, which may be substantial, to the developers of the
technology that constitutes the newly adopted standards.
IF WE DO NOT DEVELOP NEW PRODUCTS OR NEW PRODUCT FEATURES IN RESPONSE TO
CUSTOMER REQUIREMENTS OR IN A TIMELY WAY, CUSTOMERS MAY NOT BUY OUR PRODUCTS.
Our customers' products tend to have short life cycles, which require both
them and us to design and introduce new products within a relatively limited
period of time. We must, therefore, coordinate our sales cycle with the sales
and development cycles of our customers. If we experience development, design or
manufacturing difficulties that delay or prevent our timely introduction or
marketing of a new
6
<PAGE>
chip, we would miss the opportunity to have the chip incorporated into a
customer's new product, which would cause us to lose sales.
WE RELY UPON OUR SALES OF A SMALL NUMBER OF PRODUCTS, AND THE FAILURE OF ANY ONE
OF OUR PRODUCTS TO BE SUCCESSFUL IN THE MARKET COULD SUBSTANTIALLY REDUCE OUR
SALES.
We currently rely upon sales from two products, our NT1003 and NT1004 chips,
to generate most of our sales. Sales of these products amounted to 41% of our
sales in 1999, and 68% of our sales in the three months ended March 31, 2000. We
are developing additional chips, but there can be no assurance that we will be
successful in doing so. Consequently, if our existing products are not
successful, our sales could decline substantially, which would adversely affect
our financial performance, and could cause us to incur significant losses.
THE LOSS OF ANY OF OUR LARGE CUSTOMERS, OR THE FAILURE OF ONE OF THESE CUSTOMERS
TO SELL A SUBSTANTIAL AMOUNT OF ITS PRODUCTS INCORPORATING OUR CHIPS, COULD
SUBSTANTIALLY REDUCE OUR SALES.
Historically, a substantial portion of our sales has come from purchases by
a few large customers. We expect this trend to continue. For example, our top
three customers accounted for approximately 51% of our sales in 1999, and 54% of
our sales in the three months ended March 31, 2000. Accordingly, our future
operating results depend on the ability of our largest customers to sell
products incorporating our chips and on our success in selling large quantities
of our products to them. We have not entered into long-term agreements with any
of our customers, nor have we obtained their commitment to purchase any specific
quantities of our products. Our customers may cancel or reschedule orders on
short notice or may discontinue using our products at any time. If we lose a
large customer and fail to add new customers to replace lost sales, our
operating results may not recover.
The concentration of our sales with a few customers makes us particularly
dependent on commercial factors affecting those customers. For example, if
demand for their products decreases, or if they identify alternative sources for
our chips, they may stop purchasing our products and our operating results will
suffer. These customers often have the resources to design and/or manufacture
products like ours internally, and if they elect to do so, they may cease to do
business with us. Additionally, if our target markets undergo a consolidation,
we may lose existing customers or have difficulties in obtaining new ones.
WE RELY ON OTHERS TO MANUFACTURE OUR CHIPS AND THEREFORE HAVE ONLY A LIMITED
ABILITY TO CONTROL MANUFACTURING COSTS, CHIP DELIVERY SCHEDULES OR MANUFACTURING
QUALITY.
Our chips are manufactured and tested by subcontractors located in Korea and
Japan, each of which provides a single type of chip. An affiliate of Hyundai in
Korea manufactures our NT1003 chip, and an affiliate of Fujitsu in Japan
manufactures our NT1004 chip. As a result of our reliance on subcontractors, we
cannot directly control chip delivery schedules. Recently, chip fabricating
subcontractors have not had sufficient capacity to keep up with chip fabrication
demand. This has led to longer chip manufacturing cycles and longer lead times
on orders. Any problems that occur and persist in connection with the delivery,
quality or costs of assembly of our chips could cause us to lose customers or
increase the expenses that we incur. Our reliance on subcontractors could lead
to product shortages or quality assurance problems. In addition, these
manufacturers could significantly increase the prices that they charge us, and
we may be unable to obtain alternative sources of supplies. We may need to hold
more inventory than is immediately required to compensate for potential
component shortages or discontinuation. These factors could lead to an increase
in the costs of manufacturing or assembling our chips.
We are in the process of qualifying additional subcontractors in order to
satisfy the demand for our products. However, qualification of new
subcontractors will require a significant period of time. Therefore, we may not
be able to obtain new subcontractors within a period of time that is sufficient
to respond to the needs of our customers.
7
<PAGE>
WE ACCUMULATE INVENTORY TO MINIMIZE THE IMPACT OF SHORTAGES FROM MANUFACTURERS,
AND MAY HAVE OBSOLETE INVENTORY THAT WE HAVE TO WRITE OFF AND SUFFER RESULTING
LOSSES.
Managing our inventory is complicated by fluctuations in the demand for our
products; however, we must have sufficient quantities of our products available
to satisfy our customers' demand. As a result, we generally accumulate inventory
for a period of time to minimize the impact of undercapacity at our suppliers'
plants. Although we expect to sell the inventory within a short period of time,
products may remain in inventory for extended periods of time and may become
obsolete because of the passage of time and the introduction of new products. In
these situations, we would be required to write off obsolete inventory and would
suffer losses accordingly.
IF WE MAY FAIL TO ADEQUATELY PROTECT OUR PROPRIETARY TECHNOLOGY, IT MAY BE
MISAPPROPRIATED BY OTHERS, INVALIDATED OR CHALLENGED, WHICH WOULD MATERIALLY
HARM OUR ABILITY TO SELL OUR PRODUCTS.
Our success and ability to compete depend primarily upon our proprietary
technology. We rely on a combination of trade secrets, copyright and trademark
laws, nondisclosure and other contractual agreements and technical measures to
protect our proprietary rights. Currently, we have three U.S. patents pending
that relate to our video technology. However, we have not obtained patent
protection for our proprietary algorithms, and the absence of patent protection
may increase the risk that those algorithms will be misappropriated.
We are subject to a number of risks relating to intellectual property
rights, including the following:
- the means by which we seek to protect our proprietary rights may not be
adequate to prevent others from misappropriating our technology or from
independently developing or selling technology or products with features
based on or similar to ours;
- our products may be sold in foreign countries that provide less protection
to intellectual property than is provided under U.S., Japanese or Israeli
laws;
- our intellectual property rights may be challenged, invalidated, violated
or circumvented and may not provide us with any competitive advantage; and
- our patents pending may not be approved or may be only partially approved.
IF OUR PROPRIETARY TECHNOLOGY INFRINGES UPON THE INTELLECTUAL PROPERTY RIGHTS OF
OTHERS, OUR COSTS COULD INCREASE AND OUR ABILITY TO SELL OUR PRODUCTS COULD BE
LIMITED.
Other companies may hold or obtain patents or may otherwise claim
proprietary rights to technology that is necessary to our business. Particular
aspects of our technology could be found to violate the intellectual property
rights of other parties. The resulting risks include the following:
- if we violate the intellectual property rights of other parties, we may be
required to modify our products or intellectual property or to obtain a
license to permit their continued use; and
- any future litigation to defend us against allegations that we have
infringed upon the rights of others could result in substantial costs to
us, even if we ultimately prevail.
There are a number of companies that hold patents for various aspects of the
technology incorporated in our industry's standards. We expect that companies
seeking to gain competitive advantages will increase their efforts to enforce
any patent rights that they may have. The holders of patents from which we have
not obtained licenses may take the position that we are required to obtain a
license from them. We cannot be certain that we would be able to negotiate any
license at an acceptable price. Our inability to do so could substantially
increase our operating expenses or require us to seek and obtain alternative
sources of technology necessary to produce our products.
8
<PAGE>
WE BEGAN SELLING OUR CURRENT PRODUCT LINE OF CHIPS ONLY RECENTLY AND, AS A
RESULT, YOUR ABILITY TO EVALUATE OUR PROSPECTS MAY BE LIMITED.
Although we have been operating since 1993, we did not begin commercial
shipments of our present product line of video compression chips until 1998.
Prior to that time, we sold different products, which we do not anticipate
selling after 2000. As a result, our future success will depend primarily upon
the sales of our chips. Our limited operating history with respect to our chips
may limit your ability to evaluate our prospects because of:
- our limited historical financial data relating to sales of our chips;
- our unproven potential to generate profits from sales of our chips; and
- our limited experience in addressing emerging trends that may affect our
chip business.
As a young company that recently commenced a new product line, we face risks
and uncertainties relating to our ability to implement our business plan
successfully. You should consider our prospects in light of the risks, expenses
and difficulties we may encounter.
WE HAVE ONLY RECORDED NET INCOME DURING THE LAST THREE QUARTERS, AND MAY NOT BE
PROFITABLE IN THE FUTURE.
We incurred net losses of $1.8 million in 1998 and $1.1 million in 1999. As
of December 31, 1999, we had an accumulated deficit of $10.6 million. Our sales
may not grow or even continue at their current level. Although we have recorded
net income for the last three quarters, if our sales do not increase or if our
expenses increase at a greater pace than our sales, we will not remain
profitable. In addition, we recognized a beneficial conversion charge of
$4.6 million in the first three months of 2000 on account of our issuance of
Series B preferred stock, which increased our net loss applicable to our common
stock in that period, and which will adversely affect our operating results
during the fiscal year ending December 31, 2000. Any losses that we incur could
be substantial.
OUR INABILITY TO MANAGE EFFECTIVELY OUR RECENT GROWTH, AND OUR EXPECTED
CONTINUING INCREASED GROWTH, COULD INCREASE OUR COSTS AND IMPAIR OUR ABILITY TO
MAINTAIN OR INCREASE OUR CUSTOMER BASE.
The growth in our business has placed, and is expected to continue to place,
a significant strain on our management and operations. To manage our growth, we
must continue to implement and improve our operational, financial and management
information systems and expand, train and manage our employees. We may not have
made adequate allowances for the costs and risks associated with this expansion,
and our systems, procedures or controls may not be adequate to support our
operations. Our failure to manage growth effectively could cause us to incur
substantial additional costs, lose opportunities to generate sales or impair our
ability to maintain our customers.
WE ARE SUBJECT TO RISKS FROM INTERNATIONAL SALES, INCLUDING THE RISK THAT THE
PRICES OF OUR PRODUCTS MAY BECOME LESS COMPETITIVE BECAUSE OF FOREIGN EXCHANGE
FLUCTUATIONS.
Sales to customers located outside the U.S. accounted for 51.8% of our sales
in 1997, 57.2% of our sales in 1998, 38.6% of our sales in 1999 and 50.4% of our
sales in the three months ended March 31, 2000. We expect that international
sales will continue to be significant. International sales are subject to a
variety of risks, including risks arising from currency fluctuations, trading
restrictions, tariffs, trade barriers and taxes.
Because most of our sales are denominated in dollars, our products become
less price competitive in countries with currencies that are low or are
declining in value against the dollar. In addition, our international customers
may not continue to place orders denominated in dollars. If they do not, our
reported sales and earnings will be subject to foreign exchange fluctuations.
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WE MAY EXPERIENCE FLUCTUATIONS IN OUR FUTURE OPERATING RESULTS, WHICH WILL MAKE
PREDICTING OUR FUTURE RESULTS DIFFICULT.
Historically, our quarterly and annual operating results have varied
significantly from period to period, and we expect that they will continue to do
so. These fluctuations result from a variety of factors, including:
- market acceptance of our products, including changes in order flow from
our largest customers, and our customers' ability to forecast their needs;
- the timing of new product announcements by us and our competitors, such as
chips that are compatible with the MPEG-4 standard;
- the lengthy sales cycle of our products;
- increased competition between chip manufacturers, including changes in
pricing by us or our competitors; and
- delays in deliveries by our limited number of suppliers and
subcontractors.
In addition, we expect that our revenues will be higher in the last two
quarters of each fiscal year than in the first two fiscal quarters of each
fiscal year, because our customers tend to purchase greater quantities of
components such as chips towards the end of each year. Accordingly, any sales or
net income in any particular period may be lower than our sales and net income
in a preceding or comparable period. Period-to-period comparisons of our results
of operations may not be meaningful, and you should not rely upon them as
indications of our future performance. In addition, our operating results may be
below the expectations of securities analysts and investors in future periods.
Our failure to meet these expectations will likely cause our share price to
decline.
WE RELY ON A SINGLE DISTRIBUTOR FOR MOST OF OUR SALES IN JAPAN, AND THE LOSS OF
THIS DISTRIBUTOR COULD SUBSTANTIALLY REDUCE OUR SALES.
Our future performance depends on our ability to compete successfully in
Japan, where all of our sales to date have been made through a single
distributor, Tomen Electronics Corporation. Upon completion of this offering,
Tomen will own approximately 8.5% of our common stock. We do not have a
distribution agreement with Tomen, and Tomen could terminate its relationship
with us at any time. In addition, Tomen is free to distribute the products of
our competitors as well as our products, and it is not required to maintain any
minimum sales levels. The loss of our relationship with Tomen, or any inability
or failure by Tomen to sell our products, could substantially reduce our sales.
In addition, we may not succeed in attracting new distributors for the Japanese
market or in replacing Tomen in the event that we do not continue our
relationship.
WE DEPEND ON A LIMITED NUMBER OF KEY PERSONNEL, IN PARTICULAR NATHAN HOD, OUR
CHAIRMAN, AND ARIE HEIMAN, OUR PRESIDENT AND CHIEF EXECUTIVE OFFICER, AND THE
LOSS OF ANY OF THEIR SERVICES COULD ADVERSELY AFFECT OUR FUTURE GROWTH AND
PROFITABILITY AND COULD SUBSTANTIALLY INTERFERE WITH OUR OPERATIONS.
Because our products are complex and our market is new and evolving, the
success of our business depends in large part upon the continuing contributions
of our management and technical personnel. The loss of the services of several
of our key officers, including Nathan Hod, our Chairman of the Board, and Arie
Heiman, our President and Chief Executive Officer, could adversely affect our
future growth and profitability and could substantially interfere with our
operations. Our dependence upon these officers is increased by the fact that
they are responsible for our sales and marketing efforts, as well as our overall
operations. We do not have key person life insurance policies covering any of
our employees other than Arie Heiman. The insurance coverage that we have on Mr.
Heiman is likely to be insufficient to compensate us for any loss of his
services.
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WE WILL NOT INCREASE OUR SALES OR GROW OUR BUSINESS IF WE ARE UNABLE TO ATTRACT,
TRAIN AND RETAIN QUALIFIED ENGINEERS AND SALES AND MARKETING AND TECHNICAL
SUPPORT PERSONNEL.
We will need to hire additional engineers and highly trained technical
support personnel in order to succeed. We will need to increase our technical
staff to support new customers and the expanding needs of existing customers, as
well as our continued research and development operations. We will need to hire
additional sales and marketing personnel to target our potential customers.
Hiring engineers and sales and marketing and technical support personnel is very
competitive in our industry because of the limited number of people available
with the necessary skills and understanding of our products. This is
particularly true in Israel and California, where the competition for qualified
personnel is intense. If we are unable to hire and retain necessary personnel,
our business will not develop, we may lose customers and we may incur
substantial losses.
OUR PRODUCTS COULD CONTAIN DEFECTS, WHICH COULD RESULT IN DELAYS IN RECOGNITION
OR LOSS OF SALES, LOSS OF MARKET SHARE OR MARKET ACCEPTANCE, OR CLAIMS AGAINST
US.
We develop complex chips and related software for video compression and
video image processing. Despite testing by our subcontractors and our customers,
errors may be found in our existing or future products. This could result in,
among other things, a delay in recognition or loss of sales, loss of market
share, failure to achieve market acceptance or substantial damage to our
reputation. We could be subject to material claims by customers, and we may need
to incur substantial expenses to correct any product defects. We do not have
product liability insurance to protect us against losses caused by defects in
our products, and we do not have "errors and omissions" insurance. As a result,
any payments that we may need to make to satisfy our customers may be
substantial.
FUTURE ACQUISITIONS BY US COULD DIVERT SUBSTANTIAL MANAGEMENT RESOURCES, GIVE
RISE TO UNKNOWN OR UNANTICIPATED LIABILITIES AND LEAD TO ADVERSE MARKET
CONSEQUENCES FOR OUR STOCK.
We may acquire or make substantial investments in other companies or
businesses in order to maintain our technological leadership or to obtain other
commercial advantages. Identifying and negotiating these transactions may divert
substantial management resources. An acquisition could require us to expend
substantial cash resources, to incur or assume debt obligations, or to issue
additional common or preferred stock. These additional equity securities would
dilute your holdings, and could have rights that are senior to or greater than
the shares that you purchase in this offering. We have no experience in making
acquisitions and we may not be successful in executing an acquisition
transaction or integrating an acquired entity into our operations. An
acquisition could involve significant one-time non-cash write offs, or could
involve the amortization of goodwill over a number of years, which would
adversely affect earnings in those years. Acquisitions outside our current
business may be viewed by market analysts as a diversion of our focus. For these
and other reasons, the market for our stock may react negatively to the
announcement of any acquisition. An acquisition will continue to require
attention from our management to integrate the acquired entity into our
operations, may require us to develop expertise in fields outside our current
area of focus, and may result in departures of management of the acquired
entity. An acquired entity may have unknown liabilities, and its business may
not achieve the results anticipated at the time of the acquisition.
RISKS RELATING TO OUR INDUSTRY
IF VIDEO COMPRESSION TECHNOLOGY OR OUR IMPLEMENTATION OF THIS TECHNOLOGY IS NOT
ACCEPTED, WE WILL NOT BE ABLE TO SUSTAIN OR EXPAND OUR BUSINESS.
Our future success depends on the growing use and acceptance of video
applications for PCs, including the growth of video on the Internet. The market
for these applications is new and is still evolving, and may not develop to the
extent necessary to enable us to expand our business. We have recently invested
and expect to continue to invest significant time and resources in the
development of new products for this market. Our dependence on sales of chips
and lack of product diversification
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exposes us to a substantial risk of loss in the event that the video compression
market does not develop or if a competing technology replaces our chips. If the
target market for our products does not grow, we may not obtain any benefits
from these investments.
WE ARE HEAVILY DEPENDENT ON THE U.S. AND ASIAN MARKETS FOR SALES OF OUR
PRODUCTS, AND ADVERSE CHANGES IN THESE MARKETPLACES COULD REDUCE OUR SALES.
Our future performance will be dependent, in large part, on our ability to
continue to compete successfully in the U.S. and Asian markets, particularly
Japan and Taiwan, where a large portion of our current and potential customers
are located. Our ability to compete in these markets will depend on several
factors, including:
- the state of trade relations among Japan, Taiwan, Israel and the United
States;
- the imposition of tariffs by the U.S., Taiwan or Japan on products of the
type that we develop;
- adverse changes in the political, economic or regulatory environments of
Taiwan, Japan or the U.S.;
- adverse changes in the relationships between major Asian countries;
- our ability to develop video compression products that meet the technical
requirements of Japanese, Taiwanese and American customers;
- our ability to maintain satisfactory relationships with our Japanese,
Taiwanese and American customers and distributors; and
- our ability to enforce our agreements and other rights in Japan or Taiwan.
THE MARKETS IN WHICH WE OPERATE ARE HIGHLY COMPETITIVE, AND MANY OF OUR
COMPETITORS HAVE MUCH GREATER RESOURCES THAN WE DO, WHICH MAY MAKE IT DIFFICULT
FOR US TO REMAIN PROFITABLE.
Competition in our industry is intense, and we expect competition to
increase. Competition could force us to charge lower prices for our products,
reduce demand for our products and reduce our ability to recover development and
manufacturing costs.
Some of our competitors:
- have greater financial, personnel and other resources than we have;
- offer a broader range of products and services than we offer;
- may be able to respond faster to new or emerging technologies or changes
in customer requirements than we can;
- may have a more substantial distribution network than we do;
- benefit from greater purchasing economies than we do;
- offer more aggressive pricing than we offer; and
- devote greater resources to the promotion of their products than we do.
We will not be able to compete effectively if we are not able to develop and
implement appropriate strategies to address these factors.
INTERNAL DEVELOPMENT EFFORTS BY OUR CUSTOMERS AND NEW ENTRANTS TO THE MARKET MAY
INCREASE COMPETITION, AND MAKE IT MORE DIFFICULT FOR US TO INCREASE OUR
PROFITABILITY.
In the future, some of our customers may internally develop products that
will replace the products that we currently sell to them. In addition, some
leading companies, with substantially greater resources than we have, may
attempt to enter our market. The recent substantial growth in the market for
video compression and related technologies is attracting large entrants. We
believe that some large companies may have already begun to develop internally
the technology that we provide. Furthermore,
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alliances between semiconductor companies and companies providing software to
them could increase our competition. These factors could make it more difficult
for us to increase our profitability.
WE HAVE EXPERIENCED, AND EXPECT TO CONTINUE TO EXPERIENCE, INTENSE DOWNWARD
PRICING PRESSURE ON OUR PRODUCTS, WHICH COULD SUBSTANTIALLY IMPAIR OUR OPERATING
PERFORMANCE.
We are experiencing, and are likely to continue to experience, downward
pricing pressure on our chips. As a result, we have experienced, and expect to
continue to experience, declining average sales prices for our products.
Increases in the number of units that we are able to sell or reductions in per
unit costs may not be sufficient to offset reductions in per unit sales prices,
in which case our net income could be reduced or we could incur losses. Since we
must typically negotiate supply arrangements far in advance of delivery dates,
we may need to commit to price reductions for our products before we are aware
of how, or if, these cost reductions can be obtained. As a result, any current
or future price reduction commitments and any inability of our company to
respond to increased price competition could result in substantially reduced
revenues and significant losses.
OUR PRODUCTS GENERALLY HAVE LONG SALES CYCLES AND IMPLEMENTATION PERIODS, WHICH
INCREASE OUR COSTS IN OBTAINING ORDERS AND REDUCES THE PREDICTABILITY OF OUR
EARNINGS, AND WE MAY NOT BE ABLE TO RECOUP COSTS FOR PROPOSALS THAT ARE NOT
ACCEPTED.
Our products are technologically complex and are typically designed into
applications and products that may be critical to the business of our customers.
Prospective customers generally must make a significant commitment of resources
to test and evaluate our chips and to integrate them into their products. As a
result, our sales process is often subject to delays associated with lengthy
approval processes that typically accompany the design and testing of new
computer accessories. For these and other reasons, the sales cycles of our
products to new customers are often lengthy, recently averaging approximately
six to nine months.
Long sales cycles are also subject to a number of significant risks over
which we have little or no control. These risks include our customers' budgetary
constraints, internal acceptance reviews and cancellations. In addition, orders
expected in one quarter could shift to another because of the timing of our
customers' procurement decisions. This complicates our planning process and
reduces the predictability of our financial results. We could incur costs that
might not be recouped if we respond to a request for proposals from a potential
customer who does not purchase our chips.
RISKS RELATING TO THIS OFFERING
OUR MANAGEMENT HAS BROAD DISCRETION AS TO THE USE OF THE NET PROCEEDS OF THIS
OFFERING AND, IF WE DO NOT ALLOCATE THESE PROCEEDS EFFECTIVELY, YOUR INVESTMENT
COULD SUFFER.
We intend to use the net proceeds from this offering for working capital and
general corporate purposes, including funding additional research and
development projects and expanding our sales and marketing activities. We may
also use a portion of the net proceeds to acquire complementary products,
technologies or businesses. However, there is no specific allocation of the
proceeds, and our management retains the right to use the net proceeds as they
determine. There can be no assurance that management will be able to use the
proceeds to continue the growth of our business effectively or to increase our
market value.
WE MAY NEED ADDITIONAL FINANCING, AND MAY NOT BE ABLE TO RAISE ADDITIONAL
FINANCING ON FAVORABLE TERMS OR AT ALL, WHICH COULD LIMIT OUR ABILITY TO GROW
AND INCREASE OUR COSTS.
We anticipate that we may need to raise additional capital in the future to
continue our longer term expansion plans, to respond to competitive pressures or
to respond to unanticipated requirements. We cannot be certain that we will be
able to obtain additional financing on commercially reasonable terms or at all.
Our failure to obtain additional financing or our inability to obtain financing
on acceptable terms could require us to limit our plans for expansion, incur
indebtedness that has high
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rates of interest or substantial restrictive covenants, issue equity securities
that will dilute your holdings or discontinue a portion of our operations.
THERE HAS BEEN NO PRIOR MARKET FOR OUR COMMON STOCK, AN ACTIVE MARKET MAY NOT
DEVELOP, THE MARKET PRICE OF OUR COMMON STOCK MAY FLUCTUATE SIGNIFICANTLY, AND
THE MARKET PRICE MAY NOT EXCEED THE INITIAL PUBLIC OFFERING PRICE.
Before this offering, our common stock did not trade in any market, and we
cannot be certain that an active market will develop. The initial public
offering price may not be indicative of our actual value. Numerous factors, many
of which are beyond our control, may cause the market price of the common stock
to fluctuate significantly. These factors include, but are not limited to, the
following:
- fluctuations in our quarterly sales and operating results;
- shortfalls in our operating results from levels forecast by securities
analysts;
- announcements concerning us, our competitors or our customers;
- expectations and forecasts regarding the demand for the products produced
by our customers;
- announcements of technological innovations, new industry standards or
changes in product price by us or our competitors; and
- market conditions in the industry and the general state of the securities
markets, particularly the technology and Israeli sectors.
In addition, the stock prices of many technology companies fluctuate
significantly for reasons that may be unrelated to operating results. These
fluctuations, as well as general economic, political and market conditions,
including recession, international instability or military tension or conflicts,
or any such conditions specifically affecting Israel, may adversely affect the
market price of our common stock. If we are named as a defendant in any
securities-related litigation as a result of decreases in the market price of
our shares, we may incur substantial costs, and our management's attention may
be diverted, for lengthy periods of time. The market price of our common stock
may not increase above the initial public offering price or maintain its price
at or above any particular level.
FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET MAY DEPRESS OUR STOCK
PRICE.
After this offering, we will have outstanding 14,734,669 shares of common
stock. Sales of a substantial number of shares of our common stock in the public
market following this offering could cause our stock price to decline. All the
shares sold in this offering will be freely tradable. Of the 11,234,669
remaining shares of common stock outstanding after this offering, an estimated
1,226,328 shares will be freely tradeable as of the date of this prospectus and
8,381,531 shares will be eligible for sale in the public market beginning 180
days after the effective date of this offering. The remaining 1,626,810 shares
will become freely tradable at various times thereafter. The holders of these
1,626,810 restricted shares of our common stock will have the right to require
us to register their shares for resale beginning 180 days after the effective
date of this offering. We intend to file a registration statement registering
shares of common stock subject to outstanding options or reserved for future
issuance under our stock option and purchase plans. As of March 31, 2000,
options to purchase a total of 1,446,514 shares were outstanding under our 1999
Stock Option Plan. As a result, common stock issuable upon exercise of
outstanding vested options, other than common stock issuable to our affiliates,
will be available for immediate resale in the open market. In addition, the sale
or registration of these shares could impair our ability to raise capital
through the sale of additional stock. See "Shares Eligible for Future Sale."
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BECAUSE OUR PRINCIPAL STOCKHOLDERS, EXECUTIVE OFFICERS AND DIRECTORS HAVE
SUBSTANTIAL CONTROL OVER MOST MATTERS SUBMITTED TO A VOTE OF THE STOCKHOLDERS,
YOUR ABILITY TO CONTROL OUR MANAGEMENT WILL BE LIMITED, AND ANY PREMIUM OVER
MARKET PRICE THAT AN ACQUIROR MIGHT OTHERWISE PAY MAY BE REDUCED AND ANY MERGER
OR TAKEOVER MAY BE DELAYED.
We anticipate that after this offering our officers, directors and present
stockholders will beneficially own 76.2% of our common stock, or 73.6% if the
underwriters' over-allotment option is exercised in full. As a result, these
stockholders will have the power to control the outcome of most matters
submitted to a vote of stockholders, including the election of members of our
board, and the approval of significant corporate transactions. The stockholders
purchasing shares in this offering will have little influence on these matters.
This concentration of ownership may also impede a merger, consolidation,
takeover or other business consolidation involving us, or discourage a potential
acquiror from making a tender offer for our shares. This concentration of our
ownership could also negatively affect our stock's market price or decrease any
premium over market price that an acquiror might otherwise pay.
THE EFFECTS OF ANTI-TAKEOVER PROVISIONS IN OUR CERTIFICATE OF INCORPORATION AND
BYLAWS MAY DISCOURAGE, DELAY OR PREVENT AN ACQUISITION OF US THAT A STOCKHOLDER
MAY CONSIDER FAVORABLE.
Several provisions of our certificate of incorporation and bylaws could
discourage potential acquisition proposals and could delay or prevent a change
in control of our company even if that change in control would be beneficial to
our stockholders. For example, only one-third of our board of directors will be
elected at each of our annual meetings of stockholders, which will make it more
difficult for a potential acquirer to change the management of our company, even
after acquiring a majority of the shares of our common stock. These provisions,
which cannot be amended without the approval of two-thirds of our stockholders,
could diminish the opportunities for a stockholder to participate in tender
offers, including tender offers at a price above the then current market value
of our common stock. In addition, our board of directors, without further
stockholder approval, may issue preferred stock, with such terms as the board of
directors may determine, that could have the effect of delaying or preventing a
change in control of our company. The issuance of preferred stock could also
adversely affect the voting powers of the holders of common stock, including the
loss of voting control to others. We are also afforded the protections of
Section 203 of the Delaware General Corporation Law, which could delay or
prevent a change in control of our company or could impede a merger,
consolidation, takeover or other business combination involving our company or
discourage a potential acquirer from making a tender offer or otherwise
attempting to obtain control of our company.
RISKS RELATING TO OUR OPERATIONS IN ISRAEL
POLITICAL OR ECONOMIC INSTABILITY OR MILITARY HOSTILITIES IN ISRAEL COULD RESULT
IN A LOSS OF SALES OR THE DISRUPTION OF OUR OPERATIONS.
The offices of our principal operating subsidiary are located in Israel.
This facility is the location of, among other things, our research and
development efforts. As a result, political, economic and military conditions in
Israel directly affect our operations. Accordingly, any major hostilities
involving Israel, the interruption or curtailment of trade between Israel and
its present trading partners or a significant downturn in the economic or
financial condition of Israel could result in a loss of sales or the disruption
of our operations. Despite the progress towards peace among Israel, neighboring
countries and the Palestinians, the future of these peace efforts is uncertain.
A number of countries continue to restrict or ban business with Israel or
Israeli companies. Restrictive laws or policies directed towards Israel or
Israeli businesses could impair our ability to increase our international sales.
Additionally, some of our officers and employees in Israel are obligated to
perform up to 39 days of military reserve duty annually. The absence of these
employees for significant periods during the workweek may cause us to operate
inefficiently during these periods.
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CURRENCY FLUCTUATIONS AND THE RATE OF INFLATION IN ISRAEL MAY INCREASE OUR
EXPOSURE TO VOLATILITY IN INTERNATIONAL MARKETS AND NEGATIVELY IMPACT OUR
FINANCIAL PERFORMANCE.
Most of our sales are in dollars or linked to dollars, and approximately
26.5% of our expenses were incurred in New Israeli Shekels (NIS) in the three
months ended March 31, 2000. As a result, we bear the risk that the rate of
inflation in Israel will differ from the rate of devaluation of the NIS in
relation to the dollar. For example, the annual rate of inflation in Israel was
an increase 7.0% in 1997, 8.6% in 1998, 1.3% in 1999 and a decrease of 1.2% in
the three months ended March 31, 2000, while the NIS was devalued against the
dollar by 8.8% in 1997 and 17.6% in 1998, and the dollar was devalued against
the NIS by 0.2% in 1999 and by 3.05% in the three months ended March 31, 2000.
The recent devaluation may be followed by an increased rate of inflation in
Israel, but the current economic outlook in Israel is uncertain. We may incur
losses in the future if the rate of inflation in Israel exceeds the devaluation
of the NIS against the dollar or if the timing of a devaluation lags behind
increases in inflation in Israel. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Market Risk."
To date, we have not engaged in hedging transactions. In the future, we may
enter into currency hedging transactions to decrease the risk of financial
exposure from fluctuations in the exchange rate of the dollar against the NIS.
These measures may not adequately protect us against these risks.
THE GOVERNMENT PROGRAMS AND TAX BENEFITS THAT WE CURRENTLY PARTICIPATE IN OR
RECEIVE REQUIRE US TO MEET SEVERAL CONDITIONS AND MAY BE TERMINATED OR REDUCED
IN THE FUTURE, WHICH WOULD INCREASE OUR COSTS.
We benefit from a variety of government programs and tax benefits,
particularly as a result of exemptions and reductions resulting from the
"Approved Enterprise" status of our existing facility in Israel. To be eligible
for these programs and tax benefits, we must continue to meet specific
conditions, including making specified investments in fixed assets and financing
a percentage of investments with share capital. If we fail to meet these
conditions in the future, the tax benefits would be canceled and we could be
required to refund the tax benefits to which we are entitled. Israeli
governmental authorities have indicated that these programs and tax benefits may
not be continued in the future at their current levels or at any level. For
example, the Israeli Ministry of Finance issued a report in May 2000
recommending legislation that would substantially reduce the tax benefits that
are currently enjoyed by our Israeli subsidiary. The termination or reduction of
these programs and tax benefits could increase our expenses substantially. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Effective Corporate Tax Rates."
Prior to 1995, we obtained royalty-bearing grants from the Office of the
Chief Scientist in Israel's Ministry of Industry and Trade to fund a portion of
our research and development. The terms of the grants from the Chief Scientist
prohibit the transfer of technology developed under these grants to any person
without the prior written consent of the Chief Scientist. We may apply for such
grants for the development of new products in the future.
IT MAY BE DIFFICULT TO ENFORCE A U.S. JUDGMENT AGAINST US, OUR OFFICERS AND
DIRECTORS AND SOME OF THE EXPERTS NAMED IN THIS PROSPECTUS, OR TO ASSERT U.S.
SECURITIES LAWS CLAIMS IN ISRAEL.
Substantially all of our executive officers and directors and some of the
experts named in this prospectus are nonresidents of the U.S., and a substantial
portion of our assets and the assets of these persons are located outside the
U.S. Therefore, it may be difficult to enforce a judgment obtained in the U.S.
against us or any of those persons or to effect service of process on them
outside the U.S. Additionally, it may be difficult for you to enforce civil
liabilities under U.S. federal securities laws in original actions instituted in
Israel.
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CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS
Some of the matters discussed under the captions "Prospectus Summary," "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business" and elsewhere in this prospectus include
forward-looking statements. We have based these forward-looking statements on
our current expectations and projections about future events, including, among
other things:
- implementing our business strategy;
- attracting and retaining customers;
- obtaining and expanding market acceptance of the products and services we
offer;
- forecasts of Internet usage and the size and growth of relevant markets;
- rapid technological changes in our industry and relevant markets; and
- competition in our market.
In some cases, you can identify forward-looking statements by terminology
such as "may," "will," "should," "could," "predicts," "potential," "continue,"
"expects," "anticipates," "future," "intends," "plans," "believes," "estimates"
and similar expressions. These statements are based on our current beliefs,
expectations and assumptions and are subject to a number of risks and
uncertainties. Actual results, levels of activity, performance, achievements and
events may vary significantly from those implied by the forward-looking
statements. A description of risks that could cause our results to vary appears
under the caption "Risk Factors" and elsewhere in this prospectus. These
forward-looking statements are made as of the date of this prospectus, and
except as required under applicable securities law, we assume no obligation to
update them or to explain the reasons why actual results may differ.
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USE OF PROCEEDS
We estimate that we will receive net proceeds from the sale of shares of our
common stock in this offering of approximately $44.5 million, and $51.4 million
if the underwriters exercise their over-allotment option in full, based upon an
assumed offering price of $14.00 per share and after deducting estimated
underwriting discounts and commissions and offering expenses. The principal
purposes of this offering are to obtain additional capital and to create a
public market for our common stock. We expect to use the net proceeds from this
offering for working capital and other general corporate purposes. We may use a
portion of the net proceeds to acquire complementary products, technologies or
businesses; however, we currently have no commitments or agreements relating to
any of these types of transactions.
We will have significant discretion in the use of the net proceeds of this
offering. Investors will be relying on the judgment of our management regarding
the application of the proceeds of this offering. Pending use of the net
proceeds as discussed above, we intend to invest these funds in short-term,
interest-bearing, investment-grade obligations.
DIVIDEND POLICY
We have never declared or paid any dividends on our capital stock. We expect
to retain any future earnings to fund the development and expansion our
business. Therefore, we do not anticipate paying cash dividends on our common
stock in the foreseeable future. Through our subsidiary, Nogatech Ltd., we
participate in the "alternative benefits program" under the Israeli Law for the
Encouragement of Capital Investments--1959, under which we currently receive a
number of tax exemptions. These tax exemptions will apply only after our net
operating losses are utilized. As a result, we have not yet benefited from these
exemptions. If Nogatech Ltd. distributes a cash dividend to us from income which
is tax exempt, it would have to pay corporate tax at the rate of between 10% to
15% on an amount equal to the amount distributed and the corporate tax which
would have been due in the absence of the tax exemption. As a result, we may
determine that it is not in your best interests to cause Nogatech Ltd. to
declare a dividend on any of its own profits to us in order to enable us to pay
a dividend to our stockholders.
18
<PAGE>
CAPITALIZATION
The following table summarizes our balance sheet data as of March 31, 2000.
This balance sheet data is presented:
- on an actual basis;
- on an as adjusted basis to give effect to:
- the conversion of all outstanding shares of preferred stock into an
estimated 9,293,310 shares of common stock upon the closing of this
offering;
- the assumed exercise of options and warrants to purchase up to
1,213,319 shares of our common stock upon completion of this offering
at a weighted average exercise price of $1.57 per share; and
- the sale of the shares of common stock in this offering at the assumed
initial public offering price of $14.00 per share, after deducting the
estimated underwriting discounts and commissions and offering expenses.
<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
Series A redeemable convertible preferred stock, $0.001 par
value, at redemption value; 30,000,000 shares authorized,
actual; no shares authorized, as adjusted; 15,906,304
shares issued and outstanding, actual; no shares issued
and outstanding, as adjusted (1).......................... $ 8,408 $ --
Series B redeemable convertible preferred stock, $0.001 par
value, at redemption value; 1,196,172 shares authorized,
issued and outstanding, actual; no shares authorized,
issued and outstanding, as adjusted(1).................... 5,000 --
Stockholders' equity:
Common stock, $0.001 par value; 40,000,000 shares
authorized; 728,040 shares issued and outstanding, actual;
14,734,669 shares issued and outstanding, as adjusted..... 1 15
Additional paid-in-capital.................................. 11,024 70,823
Deferred compensation....................................... (343) (343)
Accumulated deficit......................................... (15,237) (15,237)
------- --------
Total stockholders' equity (capital deficiency) (4,555) 55,258
------- --------
------- --------
Total capitalization........................................ $ 8,853 $ 55,258
======= ========
</TABLE>
- ------------------------------
(1) Our shares of Series A and Series B preferred stock entitle their holders to
a liquidation preference in the event that our operations terminate. The
terms of the preferred stock provide that events such as a change of control
are considered a liquidation that entitles the holders to the liquidation
preference.
The previous information should be read together with our consolidated
financial statements and the related notes and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing elsewhere
in this prospectus.
The shares of common stock outstanding in the pro forma as adjusted columns
exclude:
- 1,065,014 shares of common stock issuable as of March 31, 2000 upon the
exercise of outstanding stock options issued under our 1999 Stock Option
Plan at a weighted average exercise price of $1.47 per share;
- 3,850,000 shares of common stock reserved for issuance under our 2000
Equity Incentive Plan and 2000 Stock Purchase Plan; and
- 350,000 shares of common stock issuable as of March 31, 2000 upon the
exercise of outstanding warrants at an exercise price of $0.13 per share.
19
<PAGE>
DILUTION
Our pro forma net tangible book value as of March 31, 2000 was approximately
$8,853,000, or $0.88 per share of common stock. Pro forma net tangible book
value per share represents the amount of total tangible assets less total
liabilities, divided by 10,021,350, the number of shares of common stock treated
as outstanding on a pro forma basis after giving effect to the conversion of our
Series A and Series B preferred stock. After giving effect to the sale of the
shares of common stock offered in this offering at the assumed public offering
price, net of offering expenses, our pro forma net tangible book value at March
31, 2000 would have been $53,353,000, or $3.95 per share of common stock. This
represents an immediate increase in net pro forma tangible book value to
existing stockholders of $3.07 per share and an immediate dilution of $10.05 per
share to new investors. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share........... $14.00
Pro forma net tangible book value per share before this
offering as of March 31, 2000......................... $ 0.88
Increase per share attributable to new investors........ 3.07
------
Pro forma net tangible book value per share after this
offering................................................ 3.95
------
Dilution per share to new investors.......................
$10.05
======
</TABLE>
The following table summarizes on a pro forma basis, after giving effect to
the conversion of our Series A and Series B preferred stock, the total number of
shares of common stock purchased from us, the total consideration paid to us and
the average price per share paid by existing stockholders and by new investors,
in each case based upon the number of shares of common stock and Series A and
Series B preferred stock outstanding as of March 31, 2000, and assuming that
this offering is completed prior to May 30, 2000.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- -------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders..................... 10,021,350 74.0% $17,420,000 28.0% $1.74
New investors............................. 3,500,000 26.0% $44,500,000 72.0%
---------- ----- ----------- -----
Total................................... 13,521,350 100.0% $61,920,000 100.0%
========== ===== =========== =====
</TABLE>
If the underwriters' over-allotment option is exercised in full, the number
of shares of common stock held by existing stockholders will be reduced to 71.3%
of the total number of shares of common stock to be outstanding after this
offering and the number of shares of common stock held by new investors will
increase to 4,025,000 shares, or 28.7% of the total number of shares of common
stock to be outstanding immediately after this offering.
The foregoing discussions and tables assume no exercise of any stock options
or warrants outstanding. As of March 31, 2000, there were options outstanding to
purchase 1,065,014 shares of common stock at a weighted average exercise price
of $1.47 and 1,213,319 warrants and options outstanding to purchase shares of
common stock at a weighted average exercise price of $1.57 per share. If all of
these options and warrants were exercised on March 31, 2000, our pro forma net
tangible book value as of that date would have been $56,823,481, or $3.60 per
share of common stock, and this offering would represent an immediate dilution
of $10.40 per share to new investors.
20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The statement of operations data for each of the years in the three-year
period ended December 31, 1999 and the balance sheet data at December 31, 1998
and December 31, 1999 are derived from our audited financial statements included
elsewhere in this prospectus. The statement of operations data for each of the
three-month periods ended March 31, 1999 and 2000 and the balance sheet data at
March 31, 2000 are derived from our unaudited financial statements included
elsewhere in this prospectus. Such unaudited interim financial statements have
been prepared on the same basis as the audited financial statements and reflect
all adjustments (consisting only of normal recurring accruals) necessary for a
fair presentation of the financial information, in accordance with generally
accepted accounting principles. The statement of operations data for the year
ended December 31, 1996 and the balance sheet data at December 31, 1996 and 1997
are derived from our audited financial statements that are not included in this
prospectus. The statement of operations data for the year ended December 31,
1995 and the balance sheet data at December 31, 1995 are derived from our
unaudited financial statements that are not included in this prospectus. The
following selected consolidated financial data should be read in conjunction
with our consolidated financial statements and related notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------------------------- -----------------------
1995 1996 1997 1998 1999 1999 2000
----------- -------- -------- -------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales....................................... $ 931 $ 2,630 $ 2,551 $ 3,205 $ 8,856 $ 870 $ 2,945
Cost of sales............................... 777 1,855 1,699 2,038 5,111 518 1,661
----------- -------- -------- -------- ---------- ---------- ----------
Gross profit................................ 154 775 852 1,167 3,745 352 1,284
Operating expenses:
Research and development.................. 1,314 997 1,266 1,451 2,283 588 685
Sales and marketing....................... 491 898 695 1,020 1,689 383 290
General and administrative................ 258 473 321 609 880 195 204
----------- -------- -------- -------- ---------- ---------- ----------
Total operating expenses.................... 2,063 2,368 2,282 3,080 4,852 1,166 1,179
----------- -------- -------- -------- ---------- ---------- ----------
Operating (loss) income..................... (1,909) (1,593) (1,430) (1,913) (1,107) (814) 105
Other income (expense), net................. (288) (21) (32) 90 11 (3) (12)
----------- -------- -------- -------- ---------- ---------- ----------
Net (loss) income........................... (2,197) (1,614) (1,462) (1,823) (1,096) (817) 93
Charge for beneficial conversion feature of
Series B redeemable preferred stock....... - - - - - - (4,570)
Accretion of redemption value of Series A
redeemable convertible preferred stock.... (120) (173) (300) (383) (427) (107) (165)
----------- -------- -------- -------- ---------- ---------- ----------
Net loss applicable to common stock......... $ (2,317) $ (1,787) $ (1,762) $ (2,206) $ (1,523) $ (924) $ (4,642)
=========== ======== ======== ======== ========== ========== ==========
Net loss per share of common stock, basic
and diluted............................... $ (8.08) $ (6.23) $ (5.86) $ (7.13) $ (4.50) $ (2.97) $ (8.14)
=========== ======== ======== ======== ========== ========== ==========
Weighted average number of shares of common
stock outstanding......................... 286,625 286,625 300,709 309,536 338,295 310,995 570,557
=========== ======== ======== ======== ========== ========== ==========
Pro forma net income (loss) per share of
common stock, basic and diluted........... $ (0.12) $ (0.09) $ 0.01
========== ========== ==========
Pro forma weighted average number of shares
of common stock outstanding............... 8,948,078 8,920,778 9,749,945
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------------------- AS OF MARCH 31,
1995 1996 1997 1998 1999 2000
----------- -------- -------- -------- -------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................. $ 1,114 $ 95 $ 271 $ 3,791 $ 2,475 $ 6,612
Working capital....................................... 915 (96) 223 4,171 3,111 8,627
Total assets.......................................... 2,235 1,368 1,568 5,769 6,577 10,950
Series A redeemable convertible preferred stock....... 3,783 4,147 4,954 7,816 8,243 8,408
Series B redeemable convertible preferred stock....... - - - - - 5,000
Stockholders' equity (capital deficiency)............. (2,519) (4,047) (4,524) (3,517) (4,886) (4,555)
</TABLE>
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YOU SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS IN CONJUNCTION WITH
OUR CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED ELSEWHERE IN
THIS PROSPECTUS. EXCEPT FOR HISTORICAL INFORMATION, THE DISCUSSION IN THIS
PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE PRINCIPAL FACTORS THAT COULD CAUSE OR CONTRIBUTE TO
DIFFERENCES IN OUR ACTUAL RESULTS ARE DISCUSSED IN THE SECTION TITLED "RISK
FACTORS."
OVERVIEW
We design and sell chips that establish connections between video devices
and computers, as well as connections between video devices across a variety of
networks. Our chips and related decompression software use proprietary
algorithms designed to provide high quality video, low power consumption and
advanced capabilities. These features enable cost-effective plug-and-play video
connections.
In 1995 and 1996, we introduced our NT1001 video chip and NT1002 sound chip
for connecting video sources to laptop computers. We sold both of these chips
embedded in PCMCIA cards, which are connectors that allow accessory equipment,
such as modems, CD-ROM drives and video cameras, to be connected to personal
computers. In 1998, we introduced our NT1003 chip, which compresses video for
transfer through the Universal Serial Bus (USB) interface between computer
accessories and computers. The USB is an interface standard for connections
between a computer and its accessories using a standard cable. We sold the
NT1003 chip on a stand-alone basis to original equipment manufacturers for
integration into their video products and also incorporated into our own video
devices.
With the introduction of our NT1003 chip, we began to reduce our sales of
NT1001 and NT1002 chips embedded in PCMCIA cards. In addition, we began to
increase our sales of NT1003 chips on a stand-alone basis. Our strategy is to
continue increasing our sales of chips on a stand-alone basis rather than
incorporated into our own video devices. We anticipate that these sales will
constitute the primary portion of our future sales.
We primarily sell our chips to original equipment manufacturers that
incorporate our chips into their video applications and products. Purchasers of
our chips in 1999 were AME Group, Camtel Technology, Fujitsu General, Hauppauge
Computer Works, Ingram Micro, Interex, IO Data, Pinnacle Systems, Sharp
Electronics and X-10.com. In the first quarter of 2000, approximately 50% of our
sales were derived from customers in North America, 26% from customers in Asia
and 24% from customers in Europe and other regions. In 1999, approximately 61%
of our sales were derived from customers in North America, 31% from customers in
Asia, and 8% from customers in Europe and other regions.
Our sales are concentrated among relatively few customers. In the first
quarter of 2000, sales to Hauppauge represented approximately 31% of sales,
sales to Camtel represented approximately 12% of sales, and sales to Pinnacle
represented approximately 11% of sales. In 1999, sales to Hauppauge represented
approximately 24% of sales, sales to Tomen Electronics, our Japanese
distributor, represented approximately 14% of sales, and sales to Interex
represented approximately 13% of sales. Tomen Electronics accounted for
approximately 41% of sales in 1998 and 17% of sales in 1997. Although our
principal customers are likely to vary on a quarterly basis, we anticipate that
our sales will remain concentrated among a few customers for the foreseeable
future.
The sales prices of our chips decreased in 1999 and in the first quarter of
2000 primarily as a result of increased volume and competition, and we may need
to reduce prices further in order to remain competitive. We have offset
decreased chip prices by reducing the prices we pay our chip suppliers due to
increased volume. In addition, we design each generation of our chips to use
more advanced micron process technology, which determines the relative size of
our chips. For example, our NT1003 chip uses 0.60-micron process technology
while our NT1004 chip uses 0.35-micron process technology. Our use of smaller
micron process technology allows us to reduce the size of our chips and
22
<PAGE>
results in lower costs per chip. We are designing our next generation of chips
to be manufactured using smaller micron process technology, which we believe
will enable us to reduce manufacturing costs further.
We have incurred significant net losses since our inception, and we may
continue to do so for the foreseeable future. We incurred net losses of $1.8
million in 1998 and $1.1 million in 1999. Our accumulated deficit was
$10.6 million as of December 31, 1999 and $15.2 million as of March 31, 2000.
Our results of results of operations include our subsidiaries, Nogatech
Ltd., an Israeli corporation, and Nogatech California, Inc., unless the context
requires otherwise.
RESULTS OF OPERATIONS
The following table sets forth selected data from our consolidated statement
of operations as a percentage of sales for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------ ----------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(AS A PERCENTAGE OF SALES)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales........................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................................ 66.6 63.6 57.7 59.5 56.4
------ ------ ------ ------ ------
Gross profit................................. 33.4 36.4 42.3 40.5 43.6
Operating expenses:
Research and development................... 49.6 45.3 25.8 67.6 23.3
Sales and marketing........................ 27.2 31.8 19.1 44.0 9.9
General and administrative................. 12.6 19.0 9.9 22.4 6.9
------ ------ ------ ------ ------
Total operating expenses..................... 89.4 96.1 54.8 134.0 40.1
------ ------ ------ ------ ------
Operating income (loss)...................... (56.0) (59.7) (12.5) (93.5) 3.5
Other income (expense), net.................. (1.3) 2.8 0.1 (0.3) (0.4)
------ ------ ------ ------ ------
Net income (loss)............................ (57.3)% (56.9)% (12.4)% (93.8)% 3.1%
====== ====== ====== ====== ======
</TABLE>
SALES. Sales to original equipment manufacturers are recorded when we ship
our products. We recognize sales to distributors when they ship our products to
their customers. We accrue for estimated product warranty and liability costs
upon recognition of product sales.
Sales increased approximately 26% from $2.6 million in 1997 to $3.2 million
in 1998 and 176% to $8.9 million in 1999, and approximately 239% from
$0.9 million in first quarter 1999 to $2.9 million in the first quarter of 2000.
These increases primarily reflect the increase in unit sales of our products.
Sales increased from 1998 to 1999 and from the first quarter of 1999 to the
first quarter of 2000 primarily as a result of increased sales of our NT1003
chip, on both a stand-alone basis and incorporated into our video devices. Our
sales in 1997 and 1998 were primarily derived from sales of PCMCIA cards, which
we are no longer selling.
COST OF SALES. Cost of sales consists of component costs, warranty costs,
royalties and overhead related to manufacturing our products. Cost of sales
increased from $1.7 million in 1997 to $2.0 million in 1998 and to $5.1 million
in 1999, and from $0.5 million in the first quarter of 1999 to $1.7 million in
the first quarter of 2000. These increases were primarily due to increased
shipments of our products. Gross margins were 33.4% in 1997, 36.4% in 1998 and
42.3% in 1999, and were 40.5% in the first quarter of 1999 and 43.6% in the
first quarter of 2000. The increase from 1997 to 1998 was primarily due to cost
reductions that we implemented in our PCMCIA cards, and the increases from 1998
to
23
<PAGE>
1999 and from the first quarter of 1999 to the first quarter of 2000 were
primarily due to the transition to our higher margin video compression chip
business.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
consist primarily of personnel, equipment, software tools and supplies for our
research and development activities. Substantially all of our research and
development activities occur in our facility in Israel. These expenses are
charged to operations as incurred. Our research and development expenses
increased from $1.3 million in 1997 to $1.5 million in 1998 and to $2.3 million
in 1999, and from $0.6 million in the first quarter of 1999 to $0.7 million in
the first quarter of 2000. These increases were primarily due to increased
levels of research and development activities and related costs of personnel.
Research and development expenses as a percentage of sales were 49.6% in 1997,
45.3% in 1998 and 25.8% in 1999, and were 67.6% in the first quarter of 1999 and
23.3% in the first quarter of 2000. The decreases as a percentage of sales from
1998 to 1999 and from the first quarter of 1999 to the first quarter of 2000
were due to our substantial increase in sales in 1999 and in the first quarter
of 2000. We believe significant investment in research and development is
essential to our future success. We plan to increase our research and
development activities, including recruiting and hiring additional personnel,
and to incur non-recurring engineering expenses associated with the manufacture
of our next generation chips, which will result in increased expenses in
absolute dollars.
SALES AND MARKETING EXPENSES. Sales and marketing expenses consist of
salaries and related costs of sales and marketing employees, consulting fees,
and expenses for travel, trade shows and promotional activities. Sales and
marketing expenses increased from $0.7 million in 1997 to $1.0 million in 1998
and to $1.7 million in 1999, and decreased from $0.4 million in the first
quarter of 1999 to $0.3 million in the first quarter of 2000. These changes were
primarily due to increases in the number of our sales and marketing personnel.
Sales and marketing expenses as a percentage of sales were 27.2% in 1997, 31.8%
in 1998 and 19.1% in 1999, and 44.0% in the first quarter of 1999 and 9.9% in
the first quarter of 2000. The decreases as a percentage of sales from 1998 to
1999 and in the first quarter of 1999 to the first quarter of 2000 were due to
our substantial increase in sales in 1999 and in the first quarter of 2000. We
plan to increase our sales and marketing activities, including recruiting and
hiring additional senior personnel, which will result in increased expenses in
absolute dollars.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
consist primarily of personnel and related costs for general corporate
functions, including finance, accounting, strategic and business development,
human resources and legal. General and administrative expenses increased from
$321,000 in 1997 to $609,000 in 1998 and to $880,000 in 1999, and from $195,000
in the first quarter of 1999 to $204,000 in the first quarter of 2000. General
and administrative expenses as a percentage of sales were 12.6% in 1997, 19.0%
in 1998 and 9.9% in 1999, and 22.4% in the first quarter of 1999 and 6.9% in the
first quarter of 2000. In the fourth quarter of 1999, we recorded a $126,000
allowance for doubtful accounts to reflect a past due receivable from a single
customer. As of March 31, 2000, this receivable was $192,000. We believe that
the allowance is sufficient to reflect the potential loss related to this
receivable. We expect general and administrative expenses to increase in
absolute dollars as a result of our growing operational and corporate
activities, including activities related to our operations as a public company.
OTHER INCOME (EXPENSE), NET. Other income (expense) consists of interest
earned on cash and cash equivalents offset by interest expense related to bank
loans. Net interest income (expense) was an expense of $32,000 in 1997, income
of $90,000 in 1998 and income of $11,000 in 1999 and an expense of $3,000 in the
first quarter of 1999 and $12,000 in the first quarter of 2000.
INCOME TAXES. As of March 31, 2000, we had approximately $2.0 million of
Israeli net operating loss carryforwards, $5.2 million of U.S. federal net
operating loss carryforwards and $1.7 million of state net operating loss
carryforwards. The Israeli net operating loss carryforwards have no expiration
date. The U.S. net operating loss carryforwards expire in various amounts
between the years 2004 and 2019.
24
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The tables below set forth unaudited statement of operations data for each
of the eight consecutive quarters ended March 31, 2000. This information has
been prepared on the same basis as our audited consolidated financial
statements. The information should be read in conjunction with our consolidated
financial statements and notes thereto appearing elsewhere in this prospectus
and, in the opinion of management, includes all adjustments, consisting only of
normal recurring adjustments, that we believe are necessary to present fairly
the unaudited quarterly results. Our limited operating history with respect to
our current chips makes the prediction of future operating results difficult or
impossible. We believe that period-to-period comparisons of our financial
results are not necessarily meaningful and should not be relied upon as an
indication of future performance.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------------
JUNE 30, SEP. 30, DEC. 31, MAR. 31, JUNE 30, SEP. 30, DEC. 31, MAR. 31,
1998 1998 1998 1999 1999 1999 1999 2000
-------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales............................ $ 589 $ 873 $ 1,073 $ 870 $ 1,953 $ 2,947 $ 3,086 $ 2,945
Cost of sales.................... 361 529 648 518 1,167 1,678 1,748 1,661
----- ----- ------- ------- ------- ------- ------- -------
Gross profit..................... 228 344 425 352 786 1,269 1,338 1,284
Operating expenses:
Research and development....... 352 369 370 588 520 622 554 685
Sales and marketing............ 239 244 329 383 511 413 382 290
General and administrative..... 133 153 207 195 183 215 286 204
----- ----- ------- ------- ------- ------- ------- -------
Total operating expenses......... 724 766 906 1,166 1,214 1,250 1,222 1,179
===== ===== ======= ======= ======= ======= ======= =======
Operating income (loss).......... (496) (422) (481) (814) (428) 19 116 105
Other income (expenses), net..... (17) 64 55 (3) 9 59 (54) (12)
----- ----- ------- ------- ------- ------- ------- -------
Net income (loss)................ $(513) $(358) $ (426) $ (817) $ (419) $ 78 $ 62 93
===== ===== ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------------
JUNE 30, SEP. 30, DEC. 31, MAR. 31, JUNE 30, SEP. 30, DEC. 31, MAR. 31,
1998 1998 1998 1999 1999 1999 1999 2000
-------- -------- -------- -------- -------- -------- -------- --------
(AS A PERCENTAGE OF SALES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales............................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.................... 61.3 60.6 60.4 59.5 59.8 56.9 56.6 56.4
----- ----- ------- ------- ------- ------- ------- -------
Gross profit..................... 38.7 39.4 39.6 40.5 40.2 43.1 43.4 43.6
Operating expenses:
Research and development....... 59.8 42.3 34.5 67.6 26.6 21.1 18.0 23.3
Sales and marketing............ 40.6 27.9 30.7 44.0 26.2 14.0 12.4 9.9
General and administrative..... 22.6 17.5 19.3 22.4 9.4 7.3 9.2 6.9
----- ----- ------- ------- ------- ------- ------- -------
Total operating expenses: 123.0 87.7 84.5 134.0 62.2 42.4 39.6 40.1
----- ----- ------- ------- ------- ------- ------- -------
Operating income (loss).......... (84.3) (48.3) (44.9) (93.5) (22.0) 0.70 3.8 3.5
Other income (expenses), net..... (2.8) 7.3 5.1 (0.3) 0.5 2.0 (1.7) (0.4)
----- ----- ------- ------- ------- ------- ------- -------
Net income (loss)................ (87.1)% (41.0)% (39.8)% (93.8)% (21.5)% 2.7% 2.1% 3.1%
===== ===== ======= ======= ======= ======= ======= =======
</TABLE>
Our quarterly results tend to fluctuate significantly. Sales decreased from
the fourth quarter of 1998 to the first quarter of 1999 because of our shift in
product mix from selling chips embedded in PCMCIA cards to selling our chips and
video devices to original equipment manufacturers and the associated time
required to ramp-up sales of those products. Sales increased on a quarterly
basis in each year as a result of increased unit shipments of our NT1003 chip,
which was introduced in the
25
<PAGE>
second quarter of 1998. Gross margins have generally increased due to the
transition to our higher margin video compression chip business.
We have experienced seasonal sales patterns in the past and we expect to
continue to experience seasonal sales patterns in the future. Specifically, we
expect to experience stronger demand for our chips during the last two quarters
of each year and weaker demand in the first quarter of each year because the
purchasing cycles of many of our customers, particularly those in the consumer
electronics industry, generally result in their purchasing more chips in the
last quarter and less in the first quarter of the year.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have funded operations primarily through the private
placement of our preferred stock and bank loans. We raised proceeds of
approximately $1.8 million in 1997, $5.6 million in 1998 and $4.7 million in
January 2000 from private placements of our securities, net of issuance costs.
Through January 2000, we issued an aggregate of 15,906,304 shares of Series A
preferred stock and 1,196,172 shares of Series B preferred stock. We estimate
that these shares will be converted into approximately 9,293,310 shares of our
common stock upon the closing of this offering. As of December 31, 1999, we had
cash and cash equivalents of $2.5 million, and as of March 31, 2000, we had cash
and cash equivalents of $6.6 million.
Cash used in operations include expenditures associated with development
activities and marketing efforts related to commercialization and improvement of
our current products, as well as the development of our future products. Cash
used in operations was $1.1 million in 1997, $1.8 million in 1998, $1.1 million
in 1999 and $1.2 million in the first quarter of 2000. We made investments in
fixed assets of approximately $510,000 between January 1, 1997 and March 31,
2000.
We have a line of credit arrangement with a bank for an aggregate amount of
$2.0 million. The loans under this line of credit bear interest at a rate that
is a fixed percentage in excess of the interest rate set by the Bank of Israel.
The line of credit is secured by liens on our assets. Bank guarantees provided
under the line of credit amounted to approximately $0.5 million at March 31,
2000. As of that date, we had $1.5 million available under the line of credit.
Our capital requirements depend on numerous factors, including market
acceptance of our products, the resources we devote to developing, marketing,
selling and supporting our products, the timing and extent of establishing
additional international operations and other factors. We expect to devote
substantial capital resources to expand our research and development and our
sales and marketing activities, and to other general corporate activities. We
expect that the net proceeds from this offering, our cash on hand and cash from
operations will be sufficient to meet our working capital and capital
expenditure needs for at least the next 12 months. After that, we may need to
raise additional funds which we may not be able to obtain on acceptable terms,
if at all.
BENEFICIAL CONVERSION CHARGE
In January 2000, we issued 1,196,172 shares of our Series B preferred stock
to a financial investor, which will convert into shares of our common stock upon
the closing of this offering. In connection with this issuance, we have recorded
a beneficial conversion charge of $4.6 million in the three months ended
March 31, 2000. This charge is calculated as the difference between the
estimated fair value of one share of our common stock on the date of issuance
and the per share conversion price applicable to the Series B preferred stock,
multiplied by the number of shares of common stock into which the shares of
Series B preferred stock are convertible. This nonrecurring charge has been
reflected as a decrease of the net income that we recorded as applicable to
common stock during this period, against a corresponding credit to additional
paid-in capital.
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<PAGE>
EFFECTIVE CORPORATE TAX RATES
Our tax rate will reflect a mix of the U.S. federal and state tax on our
U.S. income and Israeli tax on non-exempt income. The majority of our Israeli
subsidiary's income is derived from our capital investment program with
"Approved Enterprise" status under the Israeli Law for the Encouragement of
Capital Investments--1959, and therefore is eligible for tax benefits. Under
these benefits, we will enjoy a tax exemption on income derived during the first
four years in which this investment program produces taxable income, provided
that our Israeli subsidiary does not distribute this income to us as a dividend,
and a reduced tax rate of 10% to 15% for the remaining term of the program. All
of these tax benefits are subject to various conditions and restrictions. Since
we have incurred tax losses through March 31, 2000, we have not yet used the tax
benefits for which we are eligible.
In May 2000, a special committee appointed by the Israeli Minister of
Finance issued a report relating in part to taxes to which we are subject.
Although the recommendations set forth in the report have been accepted by the
Israeli government, they will not be binding unless and until they are adopted
by the Israeli parliament. As a result, any legislation that is enacted as a
result of this report is not expected to take effect at least until January 1,
2001. In addition, substantial changes, which may be beneficial or adverse to
us, may be made to the recommendations set forth in the report before these
recommendations are enacted into law. However, if the recommendations in the
report are adopted without further modifications, there would be two primary
effects upon the tax laws to which we are subject:
- the exemption that we enjoy for income from our Israeli subsidiary that is
not distributed as a dividend would be revoked, and this undistributed
income would initially be taxed at the reduced rate of 10%; and
- after the initial period of reduced taxation, the income of our Israeli
subsidiary would generally be subject to a standard rate of income tax
applicable to approved enterprise companies of 25%.
YEAR 2000 ISSUES
We currently are not aware of any Year 2000 problem in any of our critical
systems and products. However, the success to date of our Year 2000 efforts
cannot guarantee that a Year 2000 problem affecting third parties upon which we
rely will not become apparent in the future and interfere with our operations or
otherwise harm our business.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, which establishes
accounting and reporting standards for derivative instruments and hedging
activities. SFAS No. 133 requires recognition of all derivatives at fair value
in the financial statements. We believe that, upon implementation, the standard
will not have a significant effect on our financial statements.
In December 1999, the U.S. Securities and Exchange Commission issued SAB
101, "Revenue Recognition in Financial Statements," which summarizes some of the
Commission's views in applying generally accepted accounting principles to
revenue recognition in financial statements. Our adoption of SAB 101 has not had
a material impact on our financial statements.
MARKET RISK
We are exposed to financial market risks including changes in interest rates
and foreign currency exchange rates. Substantially all of our cash and cash
equivalents consisted of short-term deposits and therefore are not subject to
significant interest rate risk. Substantially all of our sales and capital
spending is transacted in U.S. dollars, although approximately 54.3% of the cost
our operations,
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relating mainly to our personnel and facilities in Israel, was incurred in New
Israeli Shekels or NIS in the three months ended March 31, 2000. We have not
engaged in hedging transactions to reduce our exposure to fluctuations that may
arise from changes in foreign exchange rates. In the event of an increase in
inflation rates in Israel, or if appreciation of the NIS occurs without a
corresponding adjustment in our dollar-denominated sales, our results of
operations could be materially harmed.
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<PAGE>
BUSINESS
OVERVIEW
We design and sell computer chips that establish connections between video
devices and computers, as well as connections between video devices across a
variety of networks. Our chips and related decompression software use
proprietary mathematical procedures known as algorithms and are designed to
provide high quality video, low power consumption and advanced capabilities.
Our products simultaneously compress digital video signals and process audio
and data, enabling real-time transmission of signals from video sources into
personal computers and hand-held personal computing devices known as personal
digital assistants through the Universal Serial Bus (USB) interface standard.
The USB is a widely accepted interface standard for simplified plug-and-play
connections between a PC and its accessories. Our chips are integrated into PC
digital video cameras, video capture devices and PC-TVs.
Our products are compatible with the Windows 95, Windows 98, Windows 2000,
Mac OS and Windows CE operating systems. In addition to our chips, we also sell
our own video devices that incorporate our chips.
Demand for video over the Internet and over other communication networks,
for convenient connectivity solutions and for low-cost video-enabled consumer
products is currently undergoing substantial growth. In order to meet this
demand, the Moving Picture Experts Group, an industry committee commonly known
as MPEG, has developed a new standard for video compression known as MPEG-4.
MPEG-4 has been adopted by Microsoft in its new operating system, Windows
Millennium, which is expected to be released by the end of 2000. It has also
been adopted as the standard for the transmission of video in many new models of
mobile telephones. We expect that MPEG-4 will be the primary standard for
integrating and standardizing a wide range of video applications. We are
currently in the early stages of developing our next generation of chips to be
compatible with the MPEG-4 compression standard. We expect to release these
chips in the second half of 2001 and believe that compatibility with the MPEG-4
standard will enhance the market for our chips.
In 1999, purchasers of our products included AME Group, Camtel Technology,
Fujitsu General, Hauppauge Computer Works, Interex, IO Data, Pinnacle Systems,
Sharp Electronics and X-10.com.
INDUSTRY BACKGROUND
RECENT MARKET TRENDS
The markets for products that incorporate our chips are growing rapidly. The
primary factors driving this growth include the following:
- IMPLEMENTATION OF PLUG-AND-PLAY CONNECTIONS: New PC systems today are
generally being developed and shipped to the market with standard
plug-and-play interface ports. The USB is a widely accepted standard
interface between PCs and computer accessories. International Data
Corporation (IDC) estimated that the USB would be available on 92.2% of
all desktop PC shipments in the U.S. in 1999 and would reach 100% by the
year 2001. As a result, we expect that the demand for plug-and-play
computer accessories, especially in the video area, will increase.
- CONVERGENCE OF TV AND PC: In recent years, there has been substantial
convergence of applications designed for television sets and PCs,
including the capacity to watch television broadcasts on a PC. This
development has resulted in the introduction of new services and products,
such as targeted interactive Internet and TV advertising, video streaming
and digital TV and set top boxes.
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<PAGE>
- ESTABLISHMENT OF BROADBAND COMMUNICATION NETWORKS: Broadband communication
networks based on cable and wide-band digital subscriber line (DSL) modems
enable the use of digital video applications for high speed Internet
access and voice, data and video communications. We believe that broadband
communication networks will increase the popularity of applications such
as video conferencing and video streaming, or the transmission of video
data in real time. These networks may also lead to the development of
future applications, such as video cellular phones, that will require
advanced video compression and capture technology. According to a November
1999 IDC study, the number of U.S. households using cable modems was
expected to grow to 1.3 million in 1999 and to reach 9.0 million by 2003.
- DRAMATIC GROWTH OF INTERNET COMMUNICATION: According to IDC, there were
an estimated 144 million users of the Internet in 1998 and the number of
users is expected to grow to over 600 million by the end of 2003. The
dramatic growth of the Internet has led to substantial increases in the
amount of video, audio and other data that is transferred between
computers. In addition, Internet communication increasingly involves video
and audio streaming. As a result, there has been substantial growth in the
use of digital cameras for video e-mail, webcams, video conferencing and
website development, driving demand for products that can input video
images into computers.
- STANDARDIZATION OF DIGITAL VIDEO COMPRESSION: The sharp increase in
demand for video compression for the Internet, for convenient connections
between computers and for video-enabled consumer products has fueled the
computer industry's search for a compression standard. We expect that
MPEG-4 will become the primary standard for integrating and standardizing
a wide range of video compression applications, including video streaming,
digital television broadcasting, home video archiving, interactive local
multimedia and other modes of video communication across the Internet and
third generation mobile phone and broadcast networks. We believe that the
standardization of video compression through the growing acceptance of
MPEG-4 will significantly expand the range of products and devices that
use the next generation of our chips.
THE CHALLENGES
The technologies involved in video compression and its integration into
computer products pose unique challenges:
- TIME TO MARKET: In the computer industry, the average product life cycle
is short, making time to market critical. As a result, manufacturers must
continuously, effectively and rapidly offer new products.
- CPU EFFICIENCY: Video applications, such as video conferencing, video
e-mail and other related video capture software programs, use significant
power and memory of the CPU to compress and decompress video data.
Typically, the more complex the video application, the greater the
utilization of the CPU. The continued expansion of video applications
requires improvements in CPU speed and efficiency and, in particular,
requires an efficient balance between video compression and decompression
in order to minimize CPU usage.
- FLEXIBLE ADAPTATION TO CHANGING COMPUTER INTERFACES AND MULTIPLE OPERATING
SYSTEMS: The Universal Serial Bus is currently the most popular standard
for connecting PCs and video-based computer accessories. In the future,
however, manufacturers may introduce interfaces based on new standards. In
addition, original equipment manufacturers offer their products for use on
a wide range of operating systems. As a result, the chips used for video
devices must operate with major operating systems for PCs and personal
digital assistants, including Windows and Mac.
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- QUALITY OF VIDEO IMAGE: Efficient video compression algorithms are
essential for high quality video imaging. Without seamless migration of
the video image from the camera to the ultimate display on the screen,
poor quality video images will occur. As a result, the efficiency of
algorithms must continue to develop in a manner consistent with the
complexity of the video data that is being transmitted.
- DEMAND FOR STANDARD VIDEO COMPRESSION: The proliferation of video
communication applications has fueled the demand for standard video
compression for wide and narrow band video communication across the
Internet and mobile and broadcast networks. Video compression chips and
the algorithms on which those chips are based must enable video
compression and archiving for a broad range of applications in the
environment that we expect will be governed by the MPEG-4 video
compression standard.
THE NOGATECH SOLUTION
Our products are designed to address the substantial need for video
connections for computers. Our video compression chips, which are based upon our
algorithms, are incorporated into new video-to-PC solutions for consumer
electronics products, such as PC-TVs and PC digital video cameras. We expect to
develop new algorithms and chips that will respond to the growing demands for
connections between video devices across a variety of networks resulting from
increasing Internet video use and plug-and-play applications.
We believe that we were the first company to introduce a single chip that
enabled the streaming of video, audio and data through the Universal Serial Bus
interface for a variety of PC video products and applications. Our chips operate
on all major operating systems for PCs and personal digital assistants and are
compatible with a wide variety of video applications.
We believe that our technology and expertise will enable us to develop
future products that will comply with the evolving standardization of video
compression reflected in MPEG-4. We anticipate that our chips will have wide
applications for the broadband communication networks that are being established
and will ensure high video quality for the advanced video communication that
those networks will facilitate.
We believe that our products have successfully addressed the market's
challenges as follows:
- TIME TO MARKET: We design our chips to be compatible with products of
leading original equipment manufacturers and consumer electronics
companies. We support our customers with reference designs that facilitate
their ability to respond quickly and efficiently to market demands. In
addition, we work closely with our customers to tailor our products to
meet their specific needs. We assist our customers in integrating our
chips into their products and to help them bring their new products to
market on a cost-effective and timely basis.
- CPU EFFICIENCY: Our chips require low usage of CPU processing time,
memory and power. This is achieved through the combination of advanced
compression algorithms and efficient decompression software tailored
specifically to transferring video into the computer through the USB
interface.
- FLEXIBLE ADAPTATION TO CHANGING COMPUTER INTERFACES AND MULTIPLE OPERATING
SYSTEMS: We have developed compression algorithms that respond to the
changing requirements of a wide variety of computer interfaces. As the
interfaces have changed and advanced, we have adapted our technology to
the new interfaces. In addition, our products are used on a variety of
operating systems. We believe that we can rapidly adapt our software to
other operating systems. Our design also offers our customers additional
versatility in that our chips can be incorporated into different
video-based accessories, which reduces the customers' time to market,
support costs and overall chip costs.
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- QUALITY OF VIDEO IMAGE: Our compression algorithms are designed to
minimize noticeable degradation in video images.
- DEMAND FOR STANDARD VIDEO COMPRESSION: We have developed substantial
knowledge and experience in developing video compression algorithms in
order to develop algorithms and chips that can implement the broad range
of video applications that will be possible in the standardized MPEG-4
environment.
BUSINESS STRATEGY
Our goal is to be the leading provider of video connection solutions using
enhanced video compression technology and plug-and-play interfaces.
The following are the key elements of our strategy:
- MAINTAIN EXPERTISE IN VIDEO COMPRESSION TECHNOLOGY: We use our expertise
in developing and implementing algorithms and software to develop chips
that establish connections between video devices and computers, as well as
connections between video devices across a variety of networks and media.
We believe that our expertise in all aspects of video compression
technology and our focus on emerging industry standards enable us to
design chips that are attractive to a broad range of customers because
they incorporate several different operating functions on a single chip.
As a result, our products are referred to as "systems-on-chips." In
addition, our engineering team of mathematicians and chip designers, of
which a significant number hold Ph.D. and MSEE degrees, is experienced in
all aspects of algorithm development. For over 15 years, our key
development personnel have been developing video compression technology
and video connectivity products. We are active committee members in the
Video Class USB Implementers Forum, an industry organization founded by
the companies that developed the Universal Serial Bus standard.
- FOCUS ON HIGH VOLUME APPLICATIONS: We focus on designing chips for
manufacturers of video products for emerging high volume PC business and
consumer applications, such as video streaming, interactive multimedia on
mobile networks and digital multimedia broadcasting. We attempt to
identify market segments that have the potential for substantial growth
and to tailor our products for these markets. By focusing our marketing
efforts on leading OEMs with large volume potential, we believe that we
will reach a substantial segment of our potential customer base while
minimizing the cost and complexity of our marketing efforts.
- CREATE AND STRENGTHEN OUR RELATIONSHIPS WITH KEY CUSTOMERS: Our goal is
to sell our products to leading original equipment manufacturers in the
consumer electronics market and to develop long-term working relationships
with them. Our engineers work closely with our current and potential
customers both before and after we introduce our chips to develop and
modify our designs to meet their particular needs and to support their
future products. Based upon our experience with our customers' projects,
we typically are involved from the design stage to the product launch
stage.
- BUILD EXISTING TECHNOLOGIES TO PENETRATE NEW MARKETS: We plan to use the
algorithms that we developed in connection with the current video-based
Universal Serial Bus market to develop new chips for future products. Our
new products use many of the same design features that we have previously
developed. We believe that these factors will enable us to quickly
establish new reference designs for emerging new market opportunities for
our existing and potential original equipment manufacturer customers.
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PRODUCTS
We design, develop and market chips for video connectivity that enable
video-to-PC connections and high quality video on PCs. Our chips are
"system-on-chip" products that process and compress video images and handle the
transfer of data through the USB interface. Our chips work in tandem with our
PC-based software, which decompresses and processes the video. We believe that
our chips, which are small, power-efficient and compatible with a variety of
operating systems, are effective PC interface solutions for manufacturers of
Universal Serial Bus-based digital video cameras, PC-TVs and video capture
devices. We also provide our customers with comprehensive reference designs for
our chips. These reference designs enable our customers to design and build new
products rapidly and to reduce significantly the amount of time that they need
to introduce new products.
Each of our chips incorporates its own related software. Our software is the
interface between the chips and PCs and can be installed and used rapidly,
enabling plug-and-play connectivity. Our software enables video decompression,
Universal Serial Bus protocol implementation and video device control, such as
brightness, hue and zoom control. The key feature of our software is its ability
to maintain high video quality while using the CPU's resources efficiently.
The role that our chips play in the transmission of digital video from a
video device to a PC is illustrated below:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
VIDEO DEVICE
PC
VIDEO SOURCE NOGATECH CHIP
RAW VIDEO DATA COMPRESSED VIDEO DATA
NOGATECH SOFTWARE
- PC DIGITAL VIDEO - VIDEO COMPRESSION - VIDEO DECOMPRESSION
CAMERAS, PC-TVS AND - AUDIO/DATA STREAMING - SOFTWARE CONTROL OF
VIDEO CAPTURE - INTERFACE PROTOCOL VIDEO
DEVICES - PLUG-AND-PLAY (BRIGHTNESS, HUE, ZOOM)
- AUDIO/VIDEO DATA - PLUG-AND-PLAY
STREAMING
</TABLE>
[The words "Video source" and Nogatech chip are each within a rectangular
box with an arrow pointing from "Video source" to "Nogatech chip" above the
words "Raw video data." These words and the words "Video device" are within a
larger rectangular box with the words "Compressed video data" below an arrow
pointing from the rectangular box to a graphic depiction of a computer enclosing
the words "PC" and "Nogatech software."]
In the future, we expect that more advanced versions of our chips will
support additional connections between PCs and video-based accessories, as well
as video network connections for the Internet and mobile and broadcast
communication networks. We anticipate that our next-generation chips will be
compatible with MPEG-4 standard applications. These applications include
advanced video streaming through the Internet, digital video archiving, personal
video recorders and high quality streaming using wireless networks.
In 1995 and 1996, we introduced our NT1001 video chip and NT1002 sound chip
for connecting video sources to laptop computers. We sold both of these chips
embedded in PCMCIA cards. In 1998, we introduced our NT1003 chip which
compresses video for transfer through the Universal Serial Bus interface to
computers. We sold the NT1003 chip on both a stand-alone basis to original
equipment manufacturers for integration into their video products and also
incorporated into our own video devices.
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The following table describes our current and anticipated future chips and
the products in which they are or are expected to be used:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
CHIP DATE INTRODUCED DESCRIPTION OEM PRODUCTS
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NT1003 Second quarter 1998 - Video compression across USB - PC-TVs
interface - Video capture devices
- Plug-and-play - PC digital video cameras
- Low power consumption
- ---------------------------------------------------------------------------------------------------------------
NT1004 Fourth quarter 1999 - Video compression, audio and data - PC-TVs
streaming across USB interface - PC digital video cameras
- Plug-and-play - Video capture devices
- Low power consumption
- ---------------------------------------------------------------------------------------------------------------
NT1005 Second quarter 2000 - Companion chip for NT1004 chip - PC-TVs with Vertical Blank Interval
- Data streaming enhancements: (VBI)
Vertical Blank Interval (VBI)
- ---------------------------------------------------------------------------------------------------------------
NT1006 Scheduled for third - Chip that allows cameras to take - PC digital video cameras, with
quarter 2000 digital still pictures when possible dual mode for digital
detached from computer and live still pictures
video when connected to computer - Webcams
- For USB and wireless Bluetooth
interfaces
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
NT1003. The NT1003 is a video chip for video communication across the USB
channel to the PC. The NT1003 chip is incorporated into a variety of video
products, including PC-TVs, PC digital cameras and video capture devices. We
also sell our own video devices that incorporate the NT1003 chip. These devices
include our PC-TV device, which enables users to watch television on a PC, video
cable adapters and PC digital video cameras.
NT1004. The NT1004 chip incorporates video, audio and data streaming into a
single chip for video, audio and data transfer across the USB channel to the PC.
In addition to its use with PC cameras and PC-TVs, the NT1004 can be
incorporated into PC set-top boxes, cable modems and computer displays.
NT1005. The NT1005 is a companion chip to the NT1004. It enhances the
NT1004 chip by offering additional features such as data streaming for vertical
blank interval, which is a standard technique enabling transmission of digital
data simultaneously with standard analog video in connection with PC-TV
applications. We introduced this chip in April 2000 but have not yet made
substantial sales.
NT1006. The NT1006 chip is scheduled to be introduced in the third quarter
of 2000. It is being designed to enable larger video images than the NT1004 chip
and has additional features, such as permitting PC digital cameras to take both
still and video images. It also enables the transmission of live video through
the Bluetooth interface, a standard for short range wireless transmissions.
NEXT GENERATION. We are designing our next generation chips to be
compatible with the MPEG-4 standard. These chips will be designed to provide
video streaming through the Internet and video archiving for personal computers,
personal digital assistants, PC digital video cameras, video capture devices and
PC-TVs.
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SALES AND MARKETING
The majority of our customers are original equipment manufacturers that buy
our chips and design them into their products. We work closely with existing and
potential customers to assist them in integrating our chips into their products
by offering reference designs and close collaboration with our application
engineers. In some cases, we collaborate with manufacturers whose products work
together with our chips to create and market reference designs for original
equipment manufacturer customers. This approach encourages these manufacturers
to market our chips with their products, increasing our market reach and
visibility.
We market our products worldwide from our direct sales offices in the U.S.
and Israel. We depend solely upon Tomen Electronics for distribution of our
products in Japan, which we view as a critical market for our success. We
provide marketing and customer support services from our U.S. office.
The following table sets forth original equipment manufacturers that
purchased products in 1999 and their products incorporating our chips:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
<S> <C>
PURCHASER PRODUCTS
<CAPTION>
- -------------------------------------------------------------------------------------------
<S> <C>
AME Group Video capture devices, PC digital video cameras, PC-TVs
Camtel Technology Video capture devices, PC digital video cameras, PC-TVs
Fujitsu General PC digital video cameras
Hauppauge Computer Works Video capture devices, PC-TVs
Interex Video capture devices
IO Data Video capture devices
Pinnacle Systems PC-TVs
Sharp Electronics Video capture devices
X-10.com Video capture devices
- -------------------------------------------------------------------------------------------
</TABLE>
We do not have long-term contracts with any of our customers. Sales of our
products are made under firm purchase orders. However, we do at times allow
customers to reschedule deliveries. Our business is characterized by short lead
times and quick delivery schedules. Our backlog fluctuates substantially from
period to period. As a result, we do not believe that backlog at any given time
is a meaningful indicator of future sales.
CORE TECHNOLOGY
We believe that one of our key competitive advantages is our unique core
technologies. These range from advanced video compression and image processing
algorithms to the design of our system architecture, efficient software
implementation, cost-effective design of high-performance video processing chips
and the integration of these core technologies into our chips. We have developed
and continue to build on the following key technology areas:
- standard and proprietary high quality video compression algorithms;
- advanced image processing algorithms that enable our bit rate control of
USB data, vertical blank interval detection, infrared remote control
detection and scene analysis for computer control applications;
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- multiple-platform video streaming software for Windows 95, 98, 2000, CE
and Mac operating systems; and
- implementation of "system-on-chip" architecture for multiple video
applications.
Each of these technologies is described in further detail below:
STANDARD AND PROPRIETARY HIGH QUALITY VIDEO COMPRESSION ALGORITHMS
Video compression techniques exploit unchanged parts of a video image and
identical images in consecutive video frames. These redundancies are used to
reduce the data required for representing video on the computer while
maintaining acceptable video quality. In "closed loop systems," such as video
data transmitted through the Universal Serial Bus interface, no industry
standard is required. However, in open systems such as the Internet, standard
protocols must be used to facilitate communications between different systems.
As a result, our technology addresses standard as well as proprietary video
compression techniques.
Our compression technology provides the following features:
- high quality image with minimal and imperceptible degradation of the
picture;
- high frequency details of the image, including edges;
- efficient use of CPU resources;
- use of minimal silicon area on the chip;
- ability to compress images and display them in real time; and
- highly efficient cost and performance.
We are developing advanced video processing technology for implementation
and enhancement of the MPEG-4 video compression standard for PC video
accessories and for communication across networks. MPEG-4 builds on the
experience of the MPEG-1 and MPEG-2 standards, which are currently used in
digital video applications. MPEG-4 is rich in features, and can be customized to
serve the needs of specific industries while preserving a high level of
interoperability across a variety of applications. It allows a new level of
interaction with visual content, providing the ability to view, access and
manipulate objects rather than pixels. MPEG-4's impact is especially significant
in video streaming, digital television, mobile multimedia and game applications.
We are adapting and enhancing our existing core technologies in order to develop
algorithms and chips that will be compatible with the variety of Internet video,
plug-and-play and other applications based upon MPEG-4.
IMAGE PROCESSING ALGORITHMS
We have developed a library of digital signal, image and video processing
algorithms that provide video image processing solutions for different video
applications. These algorithms enable the delivery of additional functionality,
such as segmentation of objects by motion, bit rate control, vertical blank
interval detection and camera-aided touch-screen, as described below. The
segmentation of objects by motion involves the separation of images into
distinct visual objects and is an important feature of the MPEG-4 standard. As a
result, the MPEG-4 standard supports higher quality video images, especially for
mobile applications. We use bit rate control, vertical blank interval detection,
multiple-platform video streaming software and system-on-chip architecture in
our products, and we expect to include camera-aided touch screen in our future
products. These additional functions are described as follows:
- Bit rate control
In the USB interface, the available channel bandwidth between the PC and
its accessories varies. Consequently, when only a single accessory is
connected to the PC, available bandwidth may be fairly broad, while in
cases where multiple accessories are connected, the available bandwidth
per accessory will be narrower. Our flexible image processing algorithms
allow the PC to choose any bandwidth per accessory at variable rates.
This technology, which is known
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<PAGE>
as bit rate control, can be modified to comply with restrictions imposed
by the MPEG-4 standard and for other computer interfaces.
- Vertical blank interval detection
Vertical blank interval (VBI) is a standard technique that enables
transmission of digital data simultaneously with standard analog video.
This technique is used by most cable, over the-air and satellite
television companies and involves the insertion of information such as
closed-captions into the blank vertical lines in the broadcast video data
stream. We have developed an algorithm that allows detection of the VBI
information. In addition, we have developed technology that allows our
chips to use the VBI information to integrate television, VBI and
Internet capabilities.
- Multiple-operating system video streaming software
We have developed software that can be implemented on various operating
systems while maintaining an efficient decompression algorithm and bit
rate control. Our software maintains system stability, plug-and-play and
ease of use while achieving high performance on the target operating
system. The software, when used together with our chips, provides a
complete system solution. We work with Microsoft Corporation and Apple
Corporation to ensure that our software works properly on their operating
systems.
- "System-on-chip" architecture
Our chips are "system-on-chip" solutions, consisting of an image
processing unit, image compression unit and an interface protocol unit.
The image processing unit is designed to comply with as many available
digital video sources as possible. Our chips can process images from most
video sources without additional hardware changes. Using our chips,
systems designers are able to develop many cost-effective applications
for camera sensors, tuners or video decoders without any restrictions.
The image compression unit compresses the video signal to the desired bit
rate. The interface protocol unit handles the data transfer over the
Universal Serial Bus interface while optimizing overall system
performance, reliability, flexibility, image quality, size, cost and
power consumption.
- Camera-aided touch-screen
We developed our camera-aided touch-screen technology to provide
touch-screen pointing and selecting functionality using a conventional
low cost video camera together with image processing software running on
the PC. The video camera is used to obtain a video image of a finger or a
pointing device, pointing at an icon on the screen. The image processing
algorithm analyzes the video image and determines whether the icon is
being touched. In response, the computer performs the required operation
of the icon. We have applied for a patent relating to this technology,
which we plan to incorporate into our software.
RESEARCH AND DEVELOPMENT
In order to accommodate the rapidly changing needs of the markets that we
serve, we place a major emphasis on research projects designed to improve our
existing chips, software and reference designs. We are developing more advanced
video compression and video connectivity technology to meet the new standards
that are currently evolving. These new products will enable our customers to
operate their video-enhanced devices with the interfaces that will be used on
future PC platforms. From time to time, we engage in research and development
projects with our customers to develop special devices for their specific
product designs.
We are designing the NT1006 chip to support multiple applications, including
digital still camera mode as well as live video camera mode and the transmission
of live video for wireless applications. In 2000, a significant part of our
development efforts will concentrate on technology that is compatible with the
MPEG-4 video compression standard.
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As of March 31, 2000, 18 of our employees were engaged in research and
development.
Prior to 1995, we participated in two Israeli government research and
development incentive programs, under which we received research and development
participation of approximately $263,000. We are obligated to pay royalties to
the Office of the Chief Scientist of Israel's Ministry of Industry and Trade, at
rates that generally range from 3% to 5% of revenues resulting from the funded
projects up to maximum amounts of 100% to 150% of the funded amount. Because we
no longer intend to manufacture and sell products developed under the projects
funded by the Office of the Chief Scientist, we believe that we no longer have
these royalty liabilities. The Office of the Chief Scientist is of the opinion
that revenues already received by us involved products developed by us under
projects funded by the Office of the Chief Scientist. We do not believe that any
revenues received by us were generated from projects funded by the Office of the
Chief Scientist.
DESIGN AND MANUFACTURING
Our manufacturing process consists primarily of the production of chips,
test engineering, assembly of chips and original equipment manufacturer products
and quality control. In 1998 and 1999, Fujitsu Microelectronics Europe and
Hyundai Electronics manufactured all of our chips, which we purchased from
Supertec Electronics, an independent distributor based in Israel. We purchase
these chips under development agreements in which Supertec provides us with
development services and sells us the chips manufactured by Fujitsu and Hyundai.
We may use additional manufacturing sources in the future. Our manufacturers use
a range of manufacturing technology, known as process technology. Our NT1003
chip is based on 0.60-micron process technology. Our NT1004 and NT1005 chips are
based on the more advanced 0.35-micron process technology, which enables us to
produce a smaller and less expensive chip than the 0.60 micron process
technology used in the NT1003 chip. We believe that other components are generic
in nature and can be obtained from a variety of suppliers. Our USB video devices
are assembled by subcontractors in Israel.
COMPETITION
Our industry is characterized by intense competition. The markets in which
we operate are characterized by rapid technological change, evolving industry
standards and declining average selling prices, and we expect them to become
increasingly competitive. We believe that the key competitive factors in our
markets are product design, performance, price, features, size, reliability,
time to market and customer support. In particular, we believe that our ability
to offer chips that have the flexibility to be used in a variety of products and
on a variety of operating systems will be critical to the competitiveness of our
products.
Our principal competitors in the sale of USB-compliant chip solutions for
video applications include Divio, SunPlus Technology and Winbond Electronics,
each of which supplies these chips to original equipment manufacturers for use
in consumer electronics products. We expect that large manufacturers of generic
chips or manufacturers of chips in the video compression arena, such as Zoran
and C-Cube Microsystems, may begin marketing competing chips and become more
active in our target markets. Additionally, in the future, some of our customers
may internally develop products that we currently sell to them.
Some of our competitors have greater financial, personnel and other
resources or offer a broader range of products and services than we do, and may
be able to respond more quickly to new or emerging technologies or changes in
customer requirements, benefit from greater purchasing economies, offer more
aggressive pricing or devote greater resources to the promotion of their
products. In addition, one or more of our competitors may develop products that
are superior to ours or that will achieve greater market acceptance than our
products.
We believe that our success will depend primarily on our ability to provide
technologically advanced and cost-effective video connectivity solutions for
consumer electronics products. Additionally,
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<PAGE>
we will have to provide our customers with a short time to market for their
products and responsive customer support.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
Our success is largely dependent upon proprietary technology. We rely
primarily on a combination of copyright and trade secret laws, as well as
confidentiality procedures and contractual provisions, to protect our
proprietary rights. We also rely to a lesser extent on trademark protection
concerning various names and marks that serve to identify our products.
We have applied for three U.S. patents that relate to our video technology.
These patent applications do not cover our proprietary algorithms, for which we
have not applied for patents to date. While we do not currently intend to seek
patent protection for our algorithms, we may do so in the future. We also seek
to protect our proprietary rights through copyright protection and through
restrictions on access to our trade secrets and other proprietary information
contained in confidentiality agreements with our customers, suppliers, employees
and consultants. While our ability to compete may be affected by our ability to
protect our intellectual property, we believe that, because of the rapid pace of
technological change in our industry, maintaining our technological leadership
and our comprehensive familiarity with all aspects of the technology contained
in our chips and associated software is of great importance in addition to
patent protection.
EMPLOYEES
As of March 31, 2000, we employed a total of 37 persons worldwide, including
18 in research and development, eight in technical service support and sales and
marketing, eight in management and administration and three in operations. 33 of
our employees are based in Israel and four of our employees are based in Santa
Clara, California. None of our employees is subject to a collective bargaining
agreement, and we consider our relations with our employees to be good.
Israeli labor laws and regulations are applicable to our employees in
Israel. These laws principally concern matters such as paid annual vacation,
paid sick days, length of the workday, pay for overtime, insurance for
work-related accidents, severance pay and other conditions of employment.
Israeli law generally requires severance pay, which may be funded by Manager's
Insurance, described below, upon the retirement or death of an employee or
termination of employment without cause. This insurance policy provides a
combination of savings plans, insurance and severance pay, if the employee is
legally entitled upon termination of employment. Furthermore, Israeli employees
and employers are required to pay specified sums to the National Insurance
Institute. Since January 1, 1995, these amounts also include payments for
national health insurance. The payments to the National Insurance Institute are
approximately 14% of wages, up to a specified amount. The employee contributes
approximately 66% and the employer contributes approximately 34% of these
amounts. Although not legally required, we regularly contribute to a "Manager's
Insurance" fund or to a privately managed pension fund on behalf of our
employees located in Israel.
LEGAL PROCEEDINGS
We are not a party to any legal proceedings.
FACILITIES
We lease a 1,800 square foot facility in Santa Clara, California at an
annual rental of approximately $60,000. This lease expires in September 2002.
Our main office and research and development facilities, located in Kfar Saba,
Israel, occupy approximately 9,000 square feet, which we lease at an annual
rental of approximately $95,000. This lease expires in March 2003, with an
option to extend until February 2008, subject to an increase in our annual
rental payments to a range of $100,000 to $160,000. We believe that our
properties are adequate to meet our current needs and that any additional space
that we may need in the future will be available on commercially reasonable
terms.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information with respect to our directors and
executive officers:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------
<S> <C> <C>
Nathan Hod............................. 54 Chairman of the Board
Arie Heiman............................ 53 President and Chief Executive Officer and Director
Yaron Garmazi.......................... 35 Chief Financial Officer and Secretary
Arie Gavriely.......................... 38 Vice President of Engineering
Liat Hod............................... 26 Vice President of Business Development
Gerald Dogon........................... 60 Director
Avraham Fischer........................ 43 Director
Davidi Gilo............................ 43 Director
Moshe Harel............................ 59 Director
Yirmiyahu Kaplan....................... 64 Director
Andrew Schonzeit....................... 43 Director
Yossi Vinitski......................... 33 Director
</TABLE>
NATHAN HOD co-founded Nogatech in 1993. Mr. Hod has served as our Chairman
since August 1995 and does not currently hold any other position with us. From
August 1995 though November 1995, Mr. Hod also served as our Chief Executive
Officer, Treasurer and Chief Financial Officer. From March 1994 until July 1998,
Mr. Hod also served as Chief Executive Officer and President of DSP
Communications, a manufacturer of digital wireless technology that was acquired
by Intel in 1999. From November 1997 until October 1998, Mr. Hod also served as
Chairman of the Board of DSP Communications. Mr. Hod also served as General
Manager of Scitex Japan, a subsidiary of Scitex Corporation, a developer of
imaging and publishing systems, from 1986 until 1992. Mr. Hod has a Masters
degree in Business Administration from the University of Massachusetts, Amherst.
ARIE HEIMAN, PH.D., co-founded Nogatech in 1993. Dr. Heiman has served as a
director and as our Chief Executive Officer since November 1995 and served as
our Chief Financial Officer between November 1995 and February 1999. In
addition, from January 1993 to November 1995, Dr. Heiman served as our Vice
President of Engineering and Technology. From 1990 to 1993, Dr. Heiman served as
Vice President, Image Activity for DSP Group, a computer technology company.
From 1978 to 1990, Dr. Heiman was Head of Digital Signal Processing Activities
for Tadiran Communications Group, an electronics/communications manufacturing
company. Dr. Heiman has a Ph.D. degree in Electrical Engineering from Tel Aviv
University.
YARON GARMAZI has served as our Chief Financial Officer since February 1999.
From 1995 until that time, he served as Controller for DSP Communications, where
he was responsible for the company's financial reporting system. Prior to that
time he was an auditor with Doron & Co., an Israeli accounting firm.
Mr. Garmazi has a Bachelors degree from Tel Aviv Management College.
Mr. Garmazi is an Israeli certified public accountant.
ARIE GAVRIELY has served as our Vice President of Engineering since January
1998. From January 1997 to December 1997, Mr. Gavriely served as our Vice
President of Mobile Video Conference Products. From 1993 to December 1996 he
held various engineering positions with us. Mr. Gavriely was with the image
processing group at DSP Group from 1991 to 1993. He was with the Israeli Defense
Forces during from 1985 to 1991. Mr. Gavriely has a Masters of Science degree in
Electrical Engineering from the Technion Israel Institute of Technology.
LIAT HOD has served as our Vice President of Business Development since
August 1996. Between January 1996 and July 1996, she was our U.S. Marketing
Manager. Ms. Hod received her Masters
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<PAGE>
degree in Business Administration from San Francisco State University in June
1996. Ms. Hod is the daughter of Nathan Hod, our Chairman of the Board.
GERALD DOGON has served as a director since August 1999. Mr. Dogon served as
a director of DSP Communications from November 1997 through January 1999, as
Chief Financial Officer of DSP Communications from August 1994 through October
1998, as Executive Vice President of DSP Communications from July 1996 through
October 1998 and as Senior Vice President of DSP Communications from August 1994
through July 1996. Between April 1992 and August 1994, Mr. Dogon served as
Director of Finance of Nilit, an Israeli manufacturer of nylon fibers. From
March 1991 to March 1992, Mr. Dogon served as Vice President of Finance of
Mul-T-Lock, an Israeli manufacturer of security devices. Between March 1989 and
March 1991, he served as Manager of the International Division of the Israel
General Bank. From December 1987 to March 1989, he served as Chief Financial
Officer of Indigo, an Israeli developer of imaging systems. Prior to December
1987, he was employed for 17 years by Scitex, where he last served as Executive
Vice President and Chief Financial Officer. Mr. Dogon has a Bachelors degree in
Economics and Commerce from the University of Cape Town, South Africa.
AVRAHAM FISCHER has served as a director since January 1995. Mr. Fischer is
a managing partner of the law firm Fischer, Behar, Chen & Co., of Tel Aviv,
Israel, where he has practiced since 1982. Mr. Fischer has also served as a
director of DSP Group from 1989 through 1997, of DSP Communications from 1996
through 1999, and of Vyyo, a developer of wireless broadband technologies, since
April 1996. Since January 1998, Mr. Fischer has served as co-Chairman of the
Board of Israir Aviation and Tourism and since January 1997, he has been
co-Chairman of the Board of Ganden Investment, which has holdings in a group of
Israeli tourism and aviation companies. Mr. Fischer has a law degree from the
Tel Aviv University Law School and was a lecturer at the school from 1982 to
1987.
DAVIDI GILO has served as a director since August 1999. Mr. Gilo has served
as the Chairman of the Board of Vyyo since its inception in 1996. In March and
April 1996, and from April 1999 through the present, Mr. Gilo has served as the
Chief Executive Officer of Vyyo. Mr. Gilo served as the Chairman of the Board of
DSP Communications from October 1998 through November 1999, and as Chief
Executive Officer of DSP Communications from June 1999 through November 1999.
Mr. Gilo also served as the Chairman of the Board of DSP Communications from its
founding in 1987 through November 1997. Since 1996, Mr. Gilo has also been the
manager of the Gilo Group, an investment company he founded in 1996. Between
1987 and 1993, Mr. Gilo was the President and Chief Executive Officer of DSP
Group, and he served as Chairman of the board of DSP Group from 1987 until April
1995.
MOSHE HAREL has served as a director since July 1998. Mr. Harel joined the
Van Leer Group Foundation in 1991 as the General Manager of Sor-Van Radiation.
He is currently responsible for the business activities of the Van Leer Group
Foundation in Israel. Since 1994, Mr. Harel has served as a director and member
of the executive board of Inventech, Mercator Management and several companies
in which Inventech has invested. From 1980 to 1991, Mr. Harel served in
management positions at several Israeli and U.S. companies. In 1964, Mr. Harel
joined the Israeli Air Force and served as a research and development engineer
and a fighter pilot. He retired in 1980 after commanding the air force flight
test center. Mr. Harel has a Bachelors of Science degree in Aeronautical
Engineering from the Technion in Israel and a Masters of Science degree in Data
Management and Automation from Princeton University.
YIRMIYAHU KAPLAN has served as a director since July 1998. Since 1993,
Mr. Kaplan has been Managing Director of Ophir Holdings. From 1986 to 1993,
Mr. Kaplan managed various projects and activities for the Investment Company of
Bank Hapoalim. Mr. Kaplan is a director of a number of private companies in
which Ophir Holdings is a shareholder, including Memco Software. Mr. Kaplan
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<PAGE>
has a Bachelor of Arts degree in Economics and a Masters degree in Business
Administration from the Hebrew University.
ANDREW SCHONZEIT has served as a director since January 1996. Since 1984
Mr. Schonzeit has served as the President of Idesco, a manufacturer and
distributor of identification, security and safety products, and as its Chairman
of the board since 1989. Mr. Schonzeit served as a director of DSP
Communications from 1992 to 1999. Mr. Schonzeit has a Bachelors degree in
Economics from New York University.
YOSSI VINITSKI was appointed a director in December 1999. Mr. Vinitski is a
Vice President and investment committee member at Challenge Fund-Etgar, a
venture capital fund. From 1995 to 1999, Mr. Vinitski was a Senior Investment
Manager at Yozma Management and Investment Ltd., an Israeli venture capital
fund. From 1993 to 1995, Mr. Vinitski served as a development engineer for
several high-tech companies. Mr. Vinitski has a Bachelors of Science degree, cum
laude, in Mechanical Engineering and a Masters degree in Business Administration
from Tel Aviv University.
CLASSIFIED BOARD AND TERM OF OFFICES
Our bylaws provide for a board of directors consisting of nine members.
There are currently nine directors on the board. Effective upon the closing of
this offering, our board will be divided into three classes of directors,
denominated Class I, Class II and Class III. Members of each class will hold
their office for three-year staggered terms. At the annual meeting of our
stockholders to be held in 2001, the term of office of the Class I directors
will expire, and Class I directors will be elected for a three-year term. At the
annual meeting of our stockholders to be held in 2002, the term of office of the
Class II directors will expire, and Class II directors will be elected for a
three-year term. At the annual meeting of our stockholders to be held in 2003,
the term of office of the Class III directors will expire, and Class III
directors will be elected for a three-year term. At each succeeding annual
meeting of stockholders, successors to the class of directors whose term expires
at that annual meeting will be elected to a three-year term. The initial Class I
directors will be Messrs. Fischer, Heiman and Hod. The initial Class II
directors will be Messrs. Harel, Kaplan and Vinitski. The initial Class III
directors will be Messrs. Dogon, Gilo and Schonzeit.
Our certificate of incorporation does not provide for cumulative voting;
therefore, our stockholders representing a majority of the shares of common
stock outstanding will be able to elect all of the directors. The classification
of the board of directors and lack of cumulative voting will make it more
difficult for our existing stockholders to replace the board of directors or for
another party to obtain control of our company by replacing the board of
directors. Since the board of directors has the power to retain and discharge
our officers, these provisions could also make it more difficult for existing
stockholders or another party to effect a change in our management.
Under a stockholders' agreement dated as of January 13, 2000, Holland
Ventures, Ophir Holdings, Docor International, Inventech and Ronchal Investments
(the "Holland Investors"), together with some of our other stockholders,
including Nomura International, Challenge Fund-Etgar and Corex Israeli
Industries, agreed to vote their shares in favor of the election of the
following members of our board:
- Holland Investors Nominees:
- two representatives nominated by the Holland Investors, one of whom is
nominated by Holland Ventures, so long as the Holland Investors
collectively hold at least 10% of our issued and outstanding capital
stock; and
- one representative nominated by the Holland Investors, who is selected
by Holland Ventures, so long as the Holland Investors collectively own
less than 10%, and at least 5% of our issued and outstanding capital
stock.
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<PAGE>
- Challenge Nominee:
- one representative nominated by Challenge, so long as Challenge holds
at least 89,928 shares of our common stock.
Upon completion of the offering, the parties to this agreement will hold up
to approximately 9,023,431 shares of our common stock, or 61.2% of the total
outstanding number of shares. Mr. Vinitski currently serves as the designee of
Challenge and Messrs. Harel and Kaplan currently serve as the designees of the
Holland Investors. Unless otherwise terminated by the parties, this agreement
will continue in effect after the closing of the offering.
BOARD COMMITTEES
We have established an audit committee and a compensation committee. The
audit committee reviews our internal accounting procedures and considers and
reports to the board of directors with respect to other auditing and accounting
matters, including the selection of our independent auditors, the scope of
annual audits, the fees to be paid to our independent auditors and the
performance of our independent auditors. The audit committee consists of
Messrs. Dogon, Harel and Kaplan. The compensation committee reviews and
recommends to the board of directors the salaries, benefits and stock option
grants for all employees, consultants, directors and other individuals
compensated by us. The compensation committee also administers our stock option
and benefit plans. The compensation committee consists of Messrs. Fischer, Hod
and Schonzeit.
DIRECTOR COMPENSATION
Directors who are also our officers or employees do not receive any
compensation for their services as directors. Each nonemployee director receives
an annual retainer of $20,000, payable in quarterly installments of $5,000 each
at the end of each fiscal quarter. The retainer contemplates attendance at four
board meetings per year. Additional board meetings attended in person are
compensated at the rate of $1,000 per meeting. Additional board meetings
attended by telephone are compensated at the rate of $250 per meeting. In
addition, each committee member receives $500 for attending in person, and $250
for attending by telephone, each committee meeting held on a day other than a
day on which a board meeting is held. Directors are reimbursed for expenses
incurred in connection with attending board and committee meetings. Under our
2000 Equity Incentive Plan, each of our non-employee directors elected to the
board for the first time after the effective date of this offering will
automatically receive options to purchase 20,000 shares of our common stock at
fair market value on the date of grant. These options will have a 10-year term
and will vest over a four-year period. In addition, under the 2000 Plan, each of
our non-employee directors will annually receive options to purchase
5,000 shares of our common stock. These options will have a 10-year term and
will vest immediately upon the date of grant. In 1999, some of our directors
received options to purchase shares of our common stock as compensation for
their services. See "Stock Option Plans" and "Certain Relationships and Related
Transactions."
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EXECUTIVE COMPENSATION
SUMMARY OF COMPENSATION. The following table sets forth all compensation
earned or paid for services rendered to us in all capacities for the year ended
December 31, 1999 by our Chief Executive Officer and by our only other executive
officer who earned more than $100,000 in salary and bonus for the year ended
December 31, 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
----------------------------------------- ------------------------------------------
ALL OTHER ANNUAL SECURITIES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) COMPENSATION($) OPTIONS(#) COMPENSATION($)(1)
- --------------------------- --------- ---------- ---------------- --------------------- ------------------
<S> <C> <C> <C> <C> <C>
Arie Heiman...................... $168,500 -- -- 37,500 $34,621
President and Chief
Executive Officer
Arie Gavriely.................... $129,640 -- -- 15,000 $12,020
Vice President of
Engineering
</TABLE>
- --------------------------
(1) On behalf of each of these officers, we make monthly payments to a severance
fund, a pension fund and a risk/disability fund. The amounts held in such
funds on their behalf are payable to them upon termination of their
employment.
OPTION GRANTS. The following table sets forth information with respect to
stock options granted during 1999 to the executive officers named in the summary
compensation table. The exercise price of all of these stock options was equal
to or greater than the then fair market value of our common stock on the date of
grant. In determining "fair market value," our Board of Directors considered our
then current financial condition, recent arm's length sales of our equity, our
historical and then current chip sales and net losses and future market
prospects for our chips. In accordance with the rules of the Securities and
Exchange Commission, also shown below is the potential realizable value over the
term of the option based on assumed rates of stock appreciation of 5% and 10%,
compounded annually. We assume that:
- the fair market value of our common stock on the date of grant appreciates
at the indicated annual rate compounded annually for the entire term of
the option; and
- the option is exercised and sold on the last day of its term for the
appreciated stock price.
These amounts are based on assumed rates of appreciation and do not
represent an estimate of our future stock price. Actual gains, if any, on stock
option exercises will be dependent on the future performance of our common
stock.
OPTION GRANTS IN 1999
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT
----------------------------------------------------- ASSUMED RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM($)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION ---------------------
NAME GRANTED(#)(1) 1999(%)(2) PRICE($) DATE(3) 5% 10%
- ---- ------------- ------------ --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Arie Heiman................... 37,500 14.1% $3.00 08/06 $ 45,798 $106,731
Arie Gavriely................. 15,000 5.6% $3.00 08/06 $ 18,320 $ 42,692
</TABLE>
- --------------------------
(1) All options were granted under the 1999 Stock Option Plan.
(2) Based on an aggregate of 266,000 options granted to employees.
(3) These options will vest immediately if a change of control of our company
occurs or if we are merged into another company, unless these options are
assumed by our successor.
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<PAGE>
OPTION EXERCISES IN 1999 AND 1999 YEAR-END OPTION VALUES
The following table sets forth information concerning option exercises and
the aggregate value of unexercised options for the year ended December 31, 1999,
held by each executive officer named in the summary compensation table above.
Neither of these officers exercised any stock options in 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE
UNEXERCISED OPTIONS AS OF MONEY OPTIONS AS OF
SHARES DECEMBER 31, 1999 DECEMBER 31, 1999(1)
ACQUIRED ON VALUE --------------------------------- ---------------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE(#) UNEXERCISABLE(#) EXERCISABLE($) UNEXERCISABLE($)
- ---- ----------- ----------- -------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Arie Heiman................ -- -- 364,473 134,791 $5,040,000 $1,761,700
Arie Gavriely.............. -- -- 20,000 32,500 $ 274,525 $ 397,400
</TABLE>
- ------------------------
(1) Value is based on the difference between the option exercise price and
$14.00, the estimated initial public offering price of our common stock,
multiplied by the number of shares of common stock underlying the option. No
market existed for our common stock prior to this offering.
STOCK OPTION PLANS
1999 STOCK OPTION PLAN. Our 1999 Stock Option Plan provides for the grant
of incentive stock options and non-qualified stock options to our directors,
officers, employees and consultants, including some of our employees and
consultants that are based in Israel. A total of 3,041,537 shares of common
stock have been reserved for issuance under the 1999 Plan. As of March 31, 2000,
options to purchase 1,446,514 shares of common stock were outstanding under the
1999 Plan at a weighted average exercise price of $1.09 per share. We do not
currently anticipate granting options pursuant to the 1999 Plan following the
offering. The 1999 Plan will automatically terminate in October 2009.
The 1999 Plan is administered by our compensation committee. The
compensation committee has the authority to construe, apply and interpret the
terms of the 1999 Plan. In the event that we merge with or into another
corporation or sell substantially all of our assets, the 1999 Plan provides for
the full acceleration of the exercisability of all outstanding options, unless
an outstanding option is assumed or an equivalent option is substituted by the
successor corporation or the option is replaced by a cash incentive program of
the successor corporation that preserves the compensation element of the option
at the time of the transaction and provides for subsequent payout in accordance
with the vesting schedule applicable to the option.
2000 EQUITY INCENTIVE PLAN. Our 2000 Equity Incentive Plan was adopted in
March 2000 and will serve as the successor to our 1999 Plan. We do not intend to
issue any shares under the 2000 Plan until this offering is completed. The 2000
Plan is for the benefit of our officers, directors, employees, advisors and
consultants and provides for the issuance of stock-based incentive awards,
including stock options, stock appreciation rights, limited stock appreciation
rights, restricted stock, deferred stock and performance shares. An award may
consist of one arrangement or benefit or two or more of them. Under the 2000
Plan, awards covering no more than 80% of the shares reserved for issuance under
the 2000 Plan may be granted to any participant in any one year. We have
reserved 3,500,000 shares of common stock for issuance under the 2000 Plan. The
2000 Plan provides for an annual increase of the shares of common stock reserved
for issuance to be added automatically on the first day of each fiscal year,
commencing in 2001, equal to the lesser of 500,000 shares or 5% of the number of
outstanding shares of our common stock on the last day of the immediately
preceding fiscal year.
Each of our non-employee directors elected to the board for the first time
after the effective date of this offering will receive, upon election, options
to purchase 20,000 shares of our common stock at fair market value on the date
of grant. These options will have a 10-year term and will vest over a four-year
period. In addition, under the 2000 Plan, each of our non-employee directors
will annually receive options to purchase 5,000 shares of our common stock.
These options will have a 10-year term and will vest immediately upon the date
of grant.
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The compensation committee of our board of directors initially will be the
plan administrator of the 2000 Plan. The plan administrator may interpret the
2000 Plan and may prescribe, amend and rescind rules and make all other
determinations necessary or desirable for the administration of the 2000 Plan.
The 2000 Plan permits the plan administrator to select the officers, directors,
employees, advisors and consultants, including directors who are also employees,
who will receive awards and generally to determine the terms and conditions of
those awards.
We may issue two types of stock options under the 2000 Plan: incentive stock
options which are intended to qualify under the Internal Revenue Code and
non-qualified stock options. The option price of each incentive stock option
granted under the 2000 Plan must be at least equal to the fair market value of a
share of common stock on the date the incentive stock option is granted.
Stock appreciation rights and limited stock appreciation rights may be
granted under the 2000 Plan either alone or in conjunction with all or part of
any stock option granted under the 2000 Plan. A stock appreciation right granted
under the 2000 Plan entitles its holder to receive, at the time of exercise, an
amount per share equal to the excess of the fair market value at the date of
exercise of a share of common stock over a specified price fixed by the plan
administrator. A limited stock appreciation right granted under the 2000 Plan
entitles its holder to receive, at the time of exercise, an amount per share
equal to the excess of the price of a share of common stock upon a change in
control of our company over a specified price fixed by the plan administrator. A
limited stock appreciation right may only be exercised within the 30-day period
following a change in control.
Restricted stock, deferred stock and performance shares may be granted under
the 2000 Plan. The plan administrator will determine the purchase price,
performance period and performance goals, if any, with respect to the grant of
restricted stock, deferred stock and performance shares. Participants holding
restricted stock and performance shares generally have all of the rights of a
stockholder. With respect to deferred stock, during the deferral period, subject
to the terms and conditions imposed by the plan administrator, the deferred
stock units may be credited with dividend equivalent rights. If the performance
goals and other restrictions are not attained, the participant will forfeit his
or her shares of restricted stock, deferred stock and/or performance shares.
In the event we merge or consolidate with another entity in which we are not
the surviving corporation, dissolve or liquidate or sell substantially all of
our assets, outstanding awards under the 2000 Plan may be assumed or replaced by
the successor corporation, if any, or its parent. If the successor corporation
or its parent does not assume outstanding awards or substitute equivalent
awards, these awards will automatically become fully vested and exercisable and
be released from any restrictions on transfer or any repurchase or forfeiture
right.
The terms of the 2000 Plan provide that the plan administrator may amend,
suspend or terminate the 2000 Plan at any time, provided, however, that some
amendments require approval of our stockholders. Further, no action may be taken
that adversely affects any rights under outstanding awards without the holder's
consent. The 2000 Plan will terminate in 2010.
SPECIAL PROVISIONS FOR OPTION GRANTS TO ISRAELI EMPLOYEES AND
CONSULTANTS. The 2000 Plan and the 1999 Plan set forth special provisions to
ensure that awards to Israeli employees and consultants of Nogatech Ltd. conform
to the Israeli Income Tax Ordinance [New Version]--1961. All awards to Israeli
employees and consultants of Nogatech Ltd. will be subject to a trust agreement
among us, Nogatech Ltd., and a trustee who will hold the awards on behalf of
these employees and consultants in accordance with applicable law. All issuances
of common stock upon exercise of the options will be issued in the name of the
trustee until the shares may be released to the employee or consultant
beneficiary in accordance with applicable law. No shares of common stock will be
released to a beneficiary of the trust unless the beneficiary deposits
sufficient funds to discharge his or her tax obligations under Israeli law, or
otherwise establishes that those obligations have been satisfied. Once the
shares have been issued to the trustee, the employee or consultant beneficiary
will have the right to vote his or her shares and receive cash dividends on
those shares.
46
<PAGE>
2000 EMPLOYEE STOCK PURCHASE PLAN
Our 2000 Employee Stock Purchase Plan, or Purchase Plan, was adopted in
March 2000. We do not intend to issue any shares under the Purchase Plan until
this offering is completed. The Purchase Plan allows eligible employees to
purchase our common stock at a discount from fair market value. The Purchase
Plan initially will be administered by the compensation committee of our board
of directors A total of 350,000 shares of our common stock have initially been
reserved for issuance under the Purchase Plan. The number of shares reserved for
issuance will be increased automatically on the first day of our fiscal year,
commencing in 2001, by an amount equal to the lesser of 100,000 shares or 1% of
the number of outstanding shares on the last trading day of the immediately
preceding fiscal year. The plan administrator may interpret the Purchase Plan
and, subject to its provisions, may prescribe, amend and rescind rules and make
other determinations necessary or desirable for the administration of the
Purchase Plan.
Employees generally will be eligible to participate in our Purchase Plan if
they are employed by us, or any subsidiaries that we designate, for more than 20
hours per week and more than five months in a calendar year. Employees are not
eligible to participate in our Purchase Plan if they are 5% stockholders, or
would become 5% stockholders as a result of their participation in this plan.
Under our Purchase Plan, eligible employees may acquire shares of our common
stock through payroll deductions. Eligible employees select a rate of payroll
deduction between 1% and 15% of their cash compensation and are subject to a
maximum purchase limitations. An employee's participation in the Purchase Plan
ends automatically upon termination of employment for any reason. A participant
will not be able to purchase shares having a fair market value of more than
$25,000, determined as of the first day of the applicable offering period, for
each calendar year in which the employee participates. Each offering period
under the Purchase Plan will be for two years and will consist of four six-month
purchase periods. The first offering period is expected to begin on the first
business day after the date of this prospectus. Offering periods thereafter will
begin on February 15 and August 15. The purchase price for common stock
purchased under this plan will be 85% of the lesser of the fair market value of
our common stock on the first day of the applicable offering period or the last
day of each purchase period. The plan administrator will have the power to
change the duration of offering periods. Our Purchase Plan is intended to
qualify as an "employee stock purchase plan" under Section 423 of the Internal
Revenue Code. This plan will terminate in 2010, unless it is terminated earlier
under its terms.
EMPLOYMENT AGREEMENTS
We have entered into an employment agreement with Arie Heiman, our President
and Chief Executive Officer. The agreement with Dr. Heiman became effective on
March 1, 2000 and is for an initial term of 12 months and will automatically
renew for successive 12 month periods unless sooner terminated by us immediately
for cause or on 12 months notice without cause, or by Dr. Heiman on 30 days
notice. Under his agreement, Dr. Heiman is entitled to receive a monthly salary
equal to NIS 51,000, or approximately $12,700, adjusted periodically to reflect
changes to the Israeli consumer price index. We also contribute to a "Manager's
Insurance" policy on behalf of Dr. Heiman in an amount equal to 15.83% of his
salary and to a continuing education fund in an amount equal to 7.5% of his
salary. If Dr. Heiman's employment is terminated by us without cause, he is
entitled to the amounts accumulated in his Manager's Insurance policy and
education fund. We are also required on such a termination to extend to Dr.
Heiman a loan, repayable in five years, in an amount equal to the aggregate
price of his vested and unexercised stock options.
We have entered into an employment agreement with Arie Gavriely, our Vice
President of Engineering. The agreement with Mr. Gavriely became effective on
January 1, 1993 and is for an indefinite term. Mr. Gavriely's employment may be
terminated by Mr. Gavriely or by us with 30 days advance notice. Under this
agreement, Mr. Gavriely currently receives a monthly salary equal to
approximately NIS 25,000, or approximately $6,250 per month, adjusted
periodically to reflect changes to the Israeli consumer price index. Mr.
Gavriely is entitled to receive overtime payments at a rate of 175% of his
salary calculated on an hourly basis. We also contribute to a "Manager's
Insurance" policy
47
<PAGE>
on behalf of Mr. Gavriely in an amount equal to 13.33% of his salary and to a
continuing education fund in an amount equal to 7.5% of his salary. If
Mr. Gavriely's employment is terminated by us without cause, he is entitled to
the amounts accumulated in his Manager's Insurance policy and continuing
education fund.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee was formed in March 2000 and currently consists
of Messrs. Fischer, Hod and Schonzeit. Prior to that time, compensation
decisions were made by our board of directors. In 1999, Nathan Hod, our Chairman
of the Board, and Arie Heiman, our President and Chief Executive Officer,
participated in deliberations of our board of directors concerning executive
compensation. None of our executive officers serve as members of the board of
directors or compensation committee of any entity that has one or more executive
officers who serve on our board or compensation committee.
LIMITATION ON LIABILITIES AND INDEMNIFICATION MATTERS
Our certificate of incorporation limits the personal liability of our
directors to our stockholders to the maximum extent permitted by Delaware law.
Delaware law provides that directors of a corporation will not be personally
liable for monetary damages for breach of their fiduciary duties as directors,
except with respect to liability for:
- any breach of their duty of loyalty to the corporation or its
stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
- any transaction from which the director derived an improper personal
benefit.
This provision will have no effect on any non-monetary remedies that may be
available to us or our stockholders, nor will it relieve us or other officers or
directors from compliance with federal or state securities laws.
Our certificate of incorporation and bylaws also generally provide that we
will indemnify, to the fullest extent permitted by Section 145 of the Delaware
General Corporation Law, any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit,
investigation, administrative hearing or any other proceeding by reason of the
fact that he or she is or was a director or officer of ours, or is or was
serving at our request as a director, officer, employee or agent of another
entity, against expenses incurred by him or her in connection that proceeding.
An officer or director will not be entitled to indemnification by us if:
- the officer or director did not act in good faith and in a manner
reasonably believed to be in, or not opposed to, our best interests; or
- with respect to any criminal action or proceeding, the officer or director
had reasonable cause to believe his or her conduct was unlawful.
In addition, we have entered into indemnification agreements with our
directors and executive officers containing provisions that may require us,
among other things, to indemnify them against various liabilities that may arise
by virtue of their status or service as directors or executive officers and to
advance their expenses incurred as a result of any proceeding against them as to
which they could be indemnified.
At the present time there is no pending litigation or proceeding involving
any of our directors, officers, employees or agents for which indemnification
will be required or permitted. We are not aware of any threatened litigation or
proceeding which may result in a claim for indemnification.
48
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since January 1, 1997, there has not been, nor is there currently proposed,
any transaction or series of similar transactions to which we were or are to be
a party in which the amount involved exceeds $60,000 and in which any director,
executive officer or holder of more than 5% of our common stock, or an immediate
family member of any of the foregoing, had or will have a direct or indirect
interest other than:
- compensation arrangements described where required under "Management"; and
- the transactions described below.
SALES OF STOCK AND WARRANTS
On February 1, 2000, we sold 79,617 shares of common stock at $3.14 per
share to Les Fils Dreyfus & Cie., one of our principal shareholders, upon
exercise of a warrant.
On January 13, 2000, we sold 1,196,172 shares of Series B preferred stock at
$4.18 per share to Nomura International.
On July 15, 1998, we sold Series A preferred stock at $1.04 per share and
warrants to purchase shares of our common stock at an exercise price of $2.08
per share to the following investors, among others:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES NUMBER OF WARRANTS
- ---- ---------------- ------------------
<S> <C> <C>
Holland Ventures............................................ 1,921,667 144,125
Ophir Holdings.............................................. 1,441,251 108,094
Docor International......................................... 960,834 72,062
Inventech................................................... 960,834 72,062
</TABLE>
On February 4, 1997, we sold 159,235 shares of Series A preferred stock at
$1.57 per share and warrants to purchase 79,617 shares of our common stock at an
exercise price of $3.14 per share to Les Fils Dreyfus & Cie.
STOCK OPTION GRANTS
We have granted the following options to purchase shares of our common stock
to our directors and executive officers as set forth below:
<TABLE>
<CAPTION>
NAME NUMBER OF OPTIONS EXERCISE PRICE GRANT DATE RELATIONSHIP TO NOGATECH
- ---- ----------------- -------------- ---------- -------------------------------
<S> <C> <C> <C> <C>
Nathan Hod..................... 259,000 $0.02 07/98 Director, Chairman of the Board
Arie Heiman.................... 12,500 $0.72 01/98 Director, Chief Executive
Officer
122,500 $0.02 07/98
37,500 $3.00 08/99
Yaron Garmazi.................. 22,500 $0.72 03/99 Chief Financial Officer,
Secretary
2,500 $3.00 08/99
Arie Gavriely.................. 10,000 $0.72 03/97 Vice President of Engineering
12,500 $0.72 08/98
15,000 $3.00 08/99
Liat Hod....................... 20,000 $0.72 01/98 Vice President of Business
2,500 $0.72 08/98 Development
35,000 $3.00 08/99
Gerald Dogon................... 40,000 $3.00 08/99 Director
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
NAME NUMBER OF OPTIONS EXERCISE PRICE GRANT DATE RELATIONSHIP TO NOGATECH
- ---- ----------------- -------------- ---------- -------------------------------
<S> <C> <C> <C> <C>
Avraham Fischer................ 12,500 $0.72 01/98 Director
12,500 $3.00 08/99
Davidi Gilo.................... 75,000 $3.00 08/99 Director
Moshe Harel.................... 12,500 $3.00 08/99 Director
Andrew Schonzeit............... 12,500 $0.72 01/98 Director
12,500 $3.00 08/99
</TABLE>
In January 2000, Andrew Schonzeit, a member of our board, exercised options
to purchase 25,000 shares of our common stock at an exercise price of $0.14 per
share.
In January 2000, Nathan Hod, our Chairman of the Board, exercised options to
purchase 77,205 shares of our common stock at an exercise price of $0.14 per
share.
In February 2000, Davidi Gilo, a member of our board, exercised options to
purchase 75,000 shares of our common stock at an exercise price of $3.00 per
share.
OTHER
Tomen Electronics Corporation is our distributor in Japan and one of our
principal stockholders. Tomen purchases products from us and resells them to
OEMs. Our sales to Tomen were approximately $439,000 in 1997, approximately $1.3
million in each of 1998 and 1999, and approximately $242,000 in the first three
months of 2000. We purchased from Tomen components of our video devices having
an aggregate purchase price of approximately $194,000 in 1998 and $151,000 in
1999. We did not purchase any components from Tomen in the three months ended
March 31, 2000. In 1997, we entered into an engineering agreement with Tomen. In
1997, we received $100,000 under this agreement, which was terminated in 1998.
We believe that these transactions were on terms comparable to the terms that
would have applied to similar transactions with unrelated parties. Upon
completion of this offering, Tomen will own approximately 8.5% of the shares of
our common stock.
In 1997, Kenwood Corporation, one of our principal stockholders, subleased
property from us. Kenwood's rental payments to us amounted to approximately
$75,000.
In 1999, Fischer, Behar, Chen & Co., our Israeli counsel, provided us with
legal services with respect to a variety of matters. Mr. Avraham Fischer, one of
our directors, is a managing partner of the firm.
On July 8, 1997, Mr. Nathan Hod, our Chairman of the Board, issued to us an
amended and restated secured promissory note in the principal amount of $56,500
with accrued interest at an annual rate of 5.5%. This amended note extended the
term of a secured promissory note that Mr. Hod issued to us in July 1994 in
connection with his purchase of shares of our common stock. All principal and
accrued interest on this amended note was paid in full on March 8, 2000.
50
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table indicates information as of March 31, 2000 regarding the
beneficial ownership of our common stock by:
- each person known to the board of directors to own beneficially 5% or more
of our common stock;
- each of our directors;
- the executive officers identified in the Summary Compensation table under
"Management"; and
- all of our directors and executive officers as a group.
Information with respect to beneficial ownership has been furnished by each
director, officer or 5% or more stockholder, as the case may be. Except as
otherwise noted below, the address for each person listed on the table is c/o
Nogatech, Inc., 5201 Great America Parkway, Santa Clara, California 95054.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission which generally attribute beneficial
ownership of securities to persons who possess sole or shared voting power or
investment power with respect to those securities and includes shares of common
stock issuable pursuant to the exercise of stock options or warrants that are
immediately exercisable or exercisable within 60 days of March 31, 2000. These
shares are deemed to be outstanding and to be beneficially owned by the person
holding those options or warrants for the purpose of computing the percentage
ownership of that person, but are not treated as outstanding for the purpose of
computing the percentage ownership of any other person. Unless otherwise
indicated, the persons or entities identified in this table have sole voting and
investment power with respect to all shares shown as beneficially owned by them,
subject to applicable community property laws.
<TABLE>
<CAPTION>
PERCENT OF SHARES
NUMBER OF OUTSTANDING
SHARES BENEFICIALLY ----------------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED BEFORE THE OFFERING AFTER THE OFFERING
- ------------------------------------ ------------------- ------------------- ------------------
<S> <C> <C> <C>
NAMED EXECUTIVE OFFICERS AND DIRECTORS
Nathan Hod(1)..................................... 1,119,205 10.5% 7.3%
Arie Heiman(2).................................... 491,097 4.7 3.2
Arie Gavriely..................................... 22,500 * *
Gerald Dogon(3)................................... 40,000 * *
Avraham Fischer(4)................................ 85,000 * *
Davidi Gilo....................................... 75,000 * *
Moshe Harel(5).................................... 12,500 * *
Yirmiyahu Kaplan(6)............................... 828,719 8.2 5.6
Andrew Schonzeit(7)............................... 145,489 1.5 *
Yossi Vinitski.................................... -- * *
All directors and executive officers as a group 2,868,260 27.8% 17.2
(12 persons)....................................
</TABLE>
- ------------------------
* represents less than 1%
51
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF SHARES
NUMBER OF OUTSTANDING
SHARES BENEFICIALLY ----------------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED BEFORE THE OFFERING AFTER THE OFFERING
- ------------------------------------ ------------------- ------------------- ------------------
<S> <C> <C> <C>
5% STOCKHOLDERS
Kenwood Corporation ............................. 1,255,496 12.6% 8.5%
Alive Mitake
2-5, Shibuya 1-chome
Shibuya-ku
Tokyo, 150 Japan
Tomen Electronics Corporation ................... 1,255,496 12.6 8.5
1-1, Uchisaiwai-cho
2-Chome, Chiyoda-ku
Tokyo 100, Japan
Holland Ventures B.V.(8) ........................ 1,104,958 11.0 7.4
Dreeftoren-Etagel 14
Haaksbergweg 55
1101 BR Amsterdam Z.O.
Netherlands
Les Fils Dreyfus & Cie S.A. ..................... 838,876 8.4 5.7
c/o Ajax Trading Co.
2525 Davie Rd. Extension, Suite 320
Davie, FL 33317
Ophir Holdings Ltd.(9) .......................... 828,719 8.2 5.6
Amot Mishpat Bldg, 10(th) Floor
8 Shaul Hamelech Boulevard
Tel Aviv 64733, Israel
Nomura International plc ........................ 683,527 6.9 4.6
Nomura House
1 St. Martins-le-Grand
London EC1A 4NP, United Kingdom
Docor International B.V.(10) .................... 552,479 5.5 3.7
P.O. Box 448
Kiryat Weizman
Rehovot, 76100 Israel
Inventech Ltd.(11) .............................. 552,479 5.5 3.7
Shalom Tower
Echad Ha'am 9
P.O. Box 29076
Tel Aviv 65251, Israel
</TABLE>
- ------------------------
(1) Includes outstanding options and warrants to purchase 374,999 shares of
common stock that are exercisable on or prior to May 30, 2000. Also
includes an option to purchase 259,000 shares of common stock exercisable
with respect to 86,334 shares on or prior to May 30, 2000, and exercisable
with respect to the remaining 172,666 shares on the date of this
prospectus. We have assumed that the option to purchase 172,666 shares will
be exercised in full prior to its termination on the closing of this
offering.
(2) Includes outstanding options to purchase 326,765 shares of common stock
that are exercisable on or prior to May 30, 2000. Also includes an option
to purchase 122,500 shares of common stock exercisable with respect to
40,833 shares on or before May 30, 2000, and exercisable with respect to
the remaining 81,667 shares of common stock on the date of this prospectus.
We have assumed
52
<PAGE>
that the option to purchase 81,667 shares will be exercised in full prior
to its termination on the closing of this offering.
(3) Consists of outstanding options to purchase 40,000 shares of common stock
that are exercisable on or prior to May 30, 2000.
(4) Includes outstanding options to purchase 60,000 shares of common stock that
are exercisable on or prior to May 30, 2000.
(5) Includes outstanding options to purchase 12,500 shares of common stock that
are exercisable on or prior to May 30, 2000.
(6) Consists of 720,626 shares of common stock issuable upon conversion of
1,441,251 shares of our Series A preferred stock and a warrant to purchase
108,094 shares of common stock held by Ophir Holdings Ltd. Mr. Kaplan is
the Managing Director of Ophir Holdings Ltd. and may be deemed to share
voting and investment power with respect to the shares held by Ophir
Holdings Ltd. Mr. Kaplan disclaims beneficial ownership of these shares.
(7) Includes outstanding options to purchase 50,000 shares of common stock that
are exercisable on or prior to May 30, 2000. Excludes 13,176 shares of
common stock issuable upon conversion of 23,332 shares of our Series A
preferred stock held in four trusts for the benefit of Mr. Schonzeit's
children, as to which Mr. Schonzeit has no voting or investment power.
Mr. Schonzeit disclaims beneficial ownership of these shares.
(8) Includes 144,125 shares of common stock issuable upon exercise of warrants
that will terminate on the closing of this offering and which we have
assumed will be exercised.
(9) Includes 108,094 shares of common stock issuable upon exercise of warrants
that will terminate on the closing of this offering and which we have
assumed will be exercised.
(10) Includes 72,062 shares of common stock issuable upon exercise of warrants
that will terminate on the closing of this offering and which we have
assumed will be exercised.
(11) Includes 72,062 shares of common stock issuable upon exercise of warrants
that will terminate on the closing of this offering and which we have
assumed will be exercised.
53
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 40,000,000 shares of common stock,
$0.001 par value per share, and 32,000,000 shares of preferred stock, $0.001 par
value per share, all of which will be available for issuance upon completion of
this offering.
As of March 31, 2000, 728,040 shares of our common stock were outstanding.
As of March 31, 2000, 15,906,304 shares of Series A preferred stock were
outstanding, which will convert into 8,609,783 shares of common stock upon
completion of this offering. We also currently have 1,196,172 shares of
Series B preferred stock outstanding. Until May 31, 2000, the Series B preferred
stock will be convertible into 683,527 shares of common stock. From June 1, 2000
until June 30, 2000, the Series B preferred stock will be convertible into
724,952 shares of common stock. Thereafter, the number of shares of our common
stock into which our Series B preferred stock is convertible increases each day
based upon a formula set forth in our certificate of incorporation until
August 1, 2000 at which time the Series B preferred stock will be convertible
into 796,178 shares of common stock. For purposes of this prospectus, we have
assumed that the closing of this offering will take place prior to May 30, 2000,
and that the Series B preferred stock will convert into 683,527 shares of common
stock. Upon the consummation of this offering, no shares of preferred stock will
be outstanding, and we have no present plans to issue any shares of preferred
stock.
We have issued warrants to purchase up to 831,819 shares of our common stock
which will terminate upon the closing of this offering. A portion of these
warrants may be exercised on a cashless basis, in which case a smaller number of
shares of our common stock will be issued. We will not be certain as to the
exact number of shares that will be issued upon exercise of these warrants until
the closing of this offering. In addition, if all of the shares issuable upon
exercise of these warrants are exercised in cash for the maximum number of
shares that may be purchased, we will receive proceeds of approximately $1.9
million.
As of March 31, 2000, there were 21 holders of our common stock, 41 holders
of our Series A preferred stock and one holder of our Series B preferred stock.
COMMON STOCK
VOTING RIGHTS. Each outstanding share of common stock is entitled to one
vote on all matters submitted to a vote of our stockholders, including the
election of directors. There are no cumulative voting rights, and therefore the
holders of a plurality of the shares of common stock voting for the election of
directors may elect all of our directors standing for election. However, our
certificate of incorporation provides that actions may only be taken by our
stockholders at a duly called meeting, and may not be taken by written consent.
DIVIDENDS. Holders of common stock are entitled to receive dividends at the
same rate if and when dividends are declared by our board of directors out of
assets legally available for the payment of dividends, subject to preferential
rights of any outstanding shares of preferred stock.
LIQUIDATION. In the event of a liquidation, dissolution or winding up our
affairs, whether voluntary or involuntary, after payment of our debts or other
liabilities and making provisions for the holders of any outstanding shares of
preferred stock, our remaining assets will be distributed ratably among the
holders of shares of common stock.
RIGHTS AND PREFERENCES. Our common stock has no preemptive, redemption,
conversion or subscription rights. The rights, powers, references and privileges
of holders of common stock are subject to, and may be adversely affected by, the
rights of the holders of shares of any series of preferred stock that we may
designate and issue in the future.
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<PAGE>
FULLY PAID AND NONASSESSABLE. All of our outstanding shares of common stock
are, and the shares of common stock to be issued pursuant to this offering will
be, fully paid and nonassessable.
PREFERRED STOCK
Our board of directors has the authority, without action by our
stockholders, to provide for the issuance of preferred stock in one or more
classes or series and to designate the rights, preferences and privileges of
each class or series, which may be greater than the rights of the holders of
common stock. We cannot predict the effect of the issuance of any shares of
preferred stock upon the rights of holders of the common stock until the board
of directors determines the specific rights of the holders of the preferred
stock. However, the effects could include one or more of the following:
- restricting dividends on the common stock;
- diluting the voting power of the common stock;
- impairing the liquidation rights of the common stock; or
- delaying or preventing a change in control of us without further action by
the stockholders.
DELAWARE ANTI-TAKEOVER LAW
We are subject to Section 203 of the Delaware General Corporation Law, an
anti-takeover law. Generally, Section 203 of the Delaware General Corporation
Law prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless:
- prior to the date of the business combination, the transaction is approved
by the board of directors of the corporation;
- upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owns at
least 85% of the outstanding voting stock of the corporation; or
- on or after the date the business combination is approved by the board of
directors of the corporation and by the affirmative vote of at least 2/3
of the outstanding voting stock which is not owned by the interested
stockholder.
A "business combination" includes mergers, asset sales and other
transactions that may result in a financial benefit to the stockholder. An
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within the three-year period immediately prior to the
relevant date, did own, 15% or more of the corporation's outstanding voting
stock. The existence of this provision would be expected to have an
anti-takeover effect with respect to transactions not approved in advance by our
board of directors, including discouraging attempts that might result in a
premium over the market price for the shares of common stock held by
stockholders.
TRANSFER AGENT AND REGISTRAR
EquiServe Trust Company will serve as transfer agent and registrar for our
common stock.
LISTING
We have applied to have our common stock approved for quotation on the
Nasdaq National Market under the trading symbol "NGTC."
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of our common stock, and the availability of our common stock
for sale, may depress the market price for our common stock. After this
offering, 14,734,669 shares of common stock will be outstanding. All of the
shares sold in this offering will be freely tradable except for the shares
purchased by our affiliates. Except as set forth below, the remaining shares of
common stock outstanding after this offering will be restricted as a result of
securities laws or lock-up agreements. These remaining shares will be available
for sale in the public market as follows:
<TABLE>
<CAPTION>
APPROXIMATE
DATE OF AVAILABILITY FOR SALE NUMBER OF SHARES
- ----------------------------- ----------------
<S> <C>
As of the date of this prospectus........................... 1,226,328
180 days after the date of this prospectus.................. 8,381,531
At various times afterwards upon expiration of applicable
lock up agreements and holding periods.................... 1,626,810
</TABLE>
Each of our directors, executive officers and holders of 1% or more of our
outstanding common stock has agreed to certain restrictions on his ability to
sell, offer, contract or grant any option to sell, pledge, transfer or otherwise
dispose of shares of our common stock for a period of 180 days after the date of
this prospectus, without the prior written consent of WR Hambrecht + Co. WR
Hambrecht + Co may release all or a portion of the shares subject to this lockup
agreement at any time without notice.
In general, under Rule 144 under the Securities Act of 1933, as currently in
effect, a person who has beneficially owned shares of our common stock for at
least one year would be entitled to sell within any three-month period a number
of shares that does not exceed the greater of:
- 1% of the number of shares of our common stock then outstanding, which
will equal approximately 147,347 shares immediately after this offering;
or
- the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to the sale.
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us.
Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner other than an affiliate, is
entitled to sell the shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
Rule 701, as currently in effect, permits resales of shares in reliance upon
Rule 144 but without compliance with certain restrictions, including the holding
period requirement, of Rule 144. Any of our employees, officers, directors or
consultants who purchased shares under a written compensatory plan or contract
may be entitled to rely on the resale provisions of Rule 701. Rule 701 permits
affiliates to sell their Rule 701 shares under Rule 144 without complying with
the holding period requirements of Rule 144. Rule 701 further provides that
non-affiliates may sell their shares in reliance on Rule 144 without having to
comply with the holding period, public information, volume limitation or notice
provisions of Rule 144. All holders of Rule 701 shares are required to wait
until 90 days after the date of this prospectus before selling their shares.
However, substantially all Rule 701 shares are subject to lock-up agreements and
will only become eligible for sale at the earlier of the expiration of the
180-day lock-up agreements or no sooner than 90 days after the offering upon
obtaining the prior written consent of WR Hambrecht + Co.
56
<PAGE>
We intend to file a Registration Statement on Form S-8 registering shares of
common stock subject to outstanding options or reserved for future issuance
under our stock plans. As of March 31, 2000, options to purchase a total of
1,446,514 shares were outstanding under our 1999 Stock Option Plan. Common stock
issued upon exercise of outstanding vested options after the filing of this
Registration Statement on Form S-8, other than common stock issued to our
affiliates, will be available for immediate resale in the open market.
In addition, we have outstanding a warrant to purchase 350,000 shares of
common stock. Under Rule 144, these shares will not be eligible for resale until
one year after they are issued on the exercise of the warrant.
REGISTRATION RIGHTS
Upon completion of this offering, the holders of an aggregate of up to an
estimated 10,236,593 shares of our common stock and warrants to purchase shares
of our common stock will be entitled to rights with respect to the registration
of these shares under the Securities Act of 1933. Under the terms of the
registration rights agreements, if we propose to register any of our securities
under the Securities Act, either for our own account or for the account of other
security holders exercising registration rights, these holders are entitled to
notice of this registration and are entitled to include shares of common stock
in the registration. The rights are subject to conditions and limitations,
including the right of the underwriters of an offering subject to the
registration to limit the number of shares included in the registration. These
registration rights have been waived with respect to this offering. Holders of
these rights may also require us to file a registration statement under the
Securities Act at our expense with respect to their shares of common stock, and
we are required to use our best efforts to effect this registration.
Furthermore, beginning one year after the date of this prospectus, stockholders
with registration rights may require us to file additional registration
statements on Form S-3, if we qualify for the use of this form.
57
<PAGE>
PLAN OF DISTRIBUTION
In accordance with the terms of an underwriting agreement among us, W.R.
Hambrecht + Co., LLC, ING Barings LLC, and DLJDIRECT Inc. as representatives of
the underwriters, the underwriters will purchase from us the following
respective number of shares of common stock at the public offering price less
the underwriting discounts and commissions described on the cover page of this
prospectus.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
W.R. Hambrecht + Co., LLC..........................
ING Barings LLC....................................
DLJDIRECT Inc......................................
---------
Total...................................... 3,500,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
are subject to conditions, including the absence of any material adverse change
in our business, and the receipt of certificates, opinions and letters from us
and our counsel and independent accountants. Subject to those conditions, the
underwriters are committed to purchase all shares of our common stock offered if
any of the shares are purchased.
The underwriters propose to offer the shares of our common stock directly to
the public at the offering price set forth on the cover page of this prospectus,
as this price is determined by the OpenIPO process described below, and to
certain dealers at this price less a concession not in excess of $ per
share. Any dealers that participate in the distribution of our common stock may
be deemed to be underwriters within the meaning of the Securities Act, and any
discounts, commissions or concessions received by them and any provided by the
sale of the shares by them might be deemed to be underwriting discounts and
commissions under the Securities Act. After completion of the initial public
offering of the shares, the public offering price and other selling terms may be
changed by the underwriters. The underwriters have informed us that they do not
intend discretionary sales to exceed 5% of the shares of the common stock
offered by this prospectus.
The following table shows the per share and total underwriting discount to
be paid to the underwriters by us in connection with this offering. The
underwriting discount will be determined through negotiations between us and the
representatives of the underwriters, and will be calculated as a percentage of
the offering price. These amounts are shown assuming both no exercise and full
exercise of the over-allotment option.
<TABLE>
<CAPTION>
PER SHARE NO EXERCISE FULL EXERCISE
--------- ----------- -------------
<S> <C> <C> <C>
Public Offering Price.......................
Underwriting Discounts......................
Proceeds, before expenses, to us............
</TABLE>
The expenses of the offering, exclusive of the underwriting discounts, will
be approximately $1.5 million. These fees and expenses are payable entirely by
us. These fees include, among other things, our legal and accounting fees, our
printing expenses, our expenses incurred in connection with meetings with
potential investors, the filing fees of the Securities and Exchange Commission,
and the listing fees of the Nasdaq National Market.
An electronic prospectus is available on the websites maintained by WR
Hambrecht + Co and DLJDIRECT Inc., an affiliate of Donaldson, Lufkin & Jenrette
Securities Corporation, each of which is a representative of the underwriters.
Other than the prospectus in electronic format, the information on these
websites is not part of this prospectus and has not been approved or endorsed by
us.
58
<PAGE>
THE AUCTION PROCESS
The method of distribution being used by the underwriters in this offering
is known as the OpenIPO process. It differs from that traditionally employed in
underwritten public offerings. In particular, the public offering price will be
based primarily on an auction conducted by the underwriters. The allocation of
shares of our common stock will be determined entirely by the auction process.
The following describes how WR Hambrecht + Co, other underwriters and selected
dealers will conduct the auction process and confirm bids from prospective
investors:
- Before the registration statement relating to this offering becomes
effective, the underwriters and participating dealers will solicit bids
from prospective investors through the Internet, telephone and facsimile.
The bids will specify the number of shares of our common stock the
potential investor proposes to purchase and the price the potential
investor is willing to pay for the shares. These bids may be above or
below the range set forth on the cover page of this prospectus. The
minimum size of any bid is 100 shares.
- The shares offered by this prospectus may not be sold nor may offers to
buy be accepted prior to the time that the registration statement filed
with the Securities and Exchange Commission becomes effective. A bid
received by WR Hambrecht + Co involves no obligation or commitment of any
kind prior to the closing of the auction. Bids can be modified or revoked
at any time prior to the closing of the auction.
- Approximately two business days prior to the registration statement being
declared effective, prospective investors will receive, by e-mail, phone
or facsimile, a notice indicating the proposed effective date.
- After the registration statement relating to this offering becomes
effective, potential investors who have submitted bids to WR Hambrecht +
Co will be contacted by e-mail, telephone or facsimile. Potential
investors will be advised that the registration statement has been
declared effective and will be requested to confirm their bids.
- The auction will close after the registration statement becomes effective
at a time agreed to by us and WR Hambrecht + Co. The actual time at which
the auction closes will be determined by us and WR Hambrecht + Co based on
general market conditions during the period after the registration
statement becomes effective. After the registration statement has been
declared effective, the public offering price of our common stock may be
set at a price that is outside of the range set forth on the cover of this
prospectus.
- All bids that are not confirmed before the time specified by the
underwriters, or if the time is not specified, by the close of the
auction, will be deemed withdrawn.
- Once a potential investor affirmatively confirms its previous bid, the
confirmation will remain valid unless subsequently withdrawn by the
potential investor. Potential investors will be able to withdraw their
bids at any time before the close of the auction by notifying
WR Hambrecht + Co or a participating dealer.
- If the public offering price range is changed before or after a potential
investor affirmatively confirms a bid, or if the public offering price is
outside the public offering range previously provided to the potential
investor in the prospectus, the underwriters and participating dealers
will notify potential investors of the change and that offers will not be
accepted until the potential investor has again reconfirmed its bid
regardless of whether the potential investor's initial bid was above,
below or at the public offering price.
- Following the closing of the auction, WR Hambrecht + Co will determine the
highest price at which all of the shares offered, including shares that
may be purchased by the underwriters to cover any overallotments, may be
sold to potential investors. This price, which is called the
59
<PAGE>
"clearing price," will be determined based on the results of all valid
bids at the time the auction is closed. The clearing price will not
necessarily be the public offering price, which will be set as described
in "Determination of Public Offering Price" below. The public offering
price will determine the allocation of shares to potential investors, with
all bids submitted at or above the public offering price receiving a pro
rata portion of the shares bid for.
- Once the auction closes and a clearing price is set as described below, WR
Hambrecht + Co will accept the bids from those bidders whose bid is at or
above the public offering price but may allocate to a prospective investor
fewer shares than the number included in the investor's bid.
- WR Hambrecht + Co or a participating dealer will notify successful bidders
by e-mail, phone or fax that the auction has closed and that their
confirmed bids have been accepted. Other bidders will be notified that
their bids have not been accepted.
- Potential investors may at any time expressly request that all, or any
specific, communications between them and the underwriters and
participating dealers be made by specific means of communication,
including telephone and facsimile.
Some underwriters and selected dealers that participate in this offering may
request prospective investors to confirm their bids prior to the effective date
of the registration statement, if that practice is used by these institutions in
connection with initial public offerings that are not conducted using the
OpenIPO process. Bidders should carefully review the procedures of, and
communications from, the institution through which they bid to purchase our
shares. In general, approximately two business days before the registration
statement is declared effective, underwriters and dealers will request potential
investors to reconfirm the bids that they have submitted. If a bid is not
reconfirmed prior to the close of the auction, it will be rejected. If a bid is
reconfirmed, if may still be modified or revoked prior to the auction closing;
however, if the reconfirmed bid is not revoked prior to the effectiveness of the
registration statement and the closing of the auction, it will be considered a
firm bid and may be accepted at the closing of the auction. These underwriters
and dealers will also seek reconfirmation of bids in the event that the price
range of the offering is changed, or if the initial public offering price is set
at a price that is outside the range that has previously been provided to
potential investors.
DETERMINATION OF PUBLIC OFFERING PRICE
The public offering price for this offering will ultimately be determined by
negotiation between the underwriters and us after the auction closes and will
not necessarily bear any direct relationship to our assets, current earnings or
book value or to any other established criteria of value, although these factors
were considered in establishing the initial public offering price range. Prior
to the offering, there has been no public market for our common stock. The
principal factor in establishing the public offering price will be the clearing
price resulting from the auction.
The clearing price is the highest price at which all of the shares offered,
including the shares that may be purchased by the underwriters to cover any
overallotments, may be sold to potential investors, based on the valid bids at
the time the auction is run. The shares subject to the underwriters'
overallotment option will be used to calculate the clearing price whether or not
the option is actually exercised.
Factors considered in determining the initial public offering price range
included an assessment of our management, operating results, capital structure
and business potential and the demand for similar securities of comparable
companies. Changes, if any, in the public offering price range will be based
primarily on the bids received.
The public offering price may be lower, but will not be higher, than the
clearing price based on negotiations between the underwriters and us. The public
offering price will always determine the allocation of shares to potential
investors. Therefore, if the public offering price is below the clearing
60
<PAGE>
price, all bids that are at or above the public offering price will receive a
pro rata portion of the shares bid for. If sufficient bids are not received, or
if we do not consider the clearing price to be adequate, or if we and the
underwriters are not able to reach agreement on the public offering price, then
we and the underwriters will either postpone or cancel this offering.
Alternatively, we may file a post-effective amendment to the registration
statement in order to conduct a new auction.
The following simplified example illustrates how the public offering price
will be determined through the auction process:
Company X offers to sell 100 shares in its public offering through the
auction process. WR Ham-
brecht + Co, on behalf of Company X, receives five bids to purchase, all of
which are kept confidential until the auction closes.
The first bid is to pay $10 per share for 20 shares. The second bid is to
pay $9 per share for 30 shares. The third bid is to pay $8 per share for 60
shares. The fourth bid is to pay $7 per share for 40 shares. The fifth bid is to
pay $6 per share for 80 shares.
Assuming that all of these bids are confirmed and not withdrawn or modified
before the auction closes, and assuming that no additional bids are received,
the clearing price used to determine the public offering price would be $8 per
share, which is the highest price at which all 100 shares offered may be sold to
potential investors who have submitted valid bids. However, the shares may be
sold at a price below $8 per share based on negotiations between the
underwriters and Company X.
If the public offering price is the same as the $8 per share clearing price,
the underwriters will confirm bids at or above $8 per share. Because 110 shares
were bid for at or above the clearing price, each of the three potential
investors who bid $8 per share or more would receive approximately 90% of the
shares for which bids were made. The two potential investors whose bids were
below $8 per share would not receive any shares in this example.
If the public offering price is $7 per share, the underwriters will confirm
bids that were made at or above $7 per share. No bids made at a price of less
than $7 per share will be accepted. The four potential investors with the
highest bids would receive a pro rata portion of the 100 shares offered, based
on the 150 shares they requested, or two-thirds of the shares for which bids
were made. The potential investor with the lowest bid would not receive any
shares in this example.
The following table illustrates the example described above, assuming that
the initial public offering price is set at $8 per share. The table also assumes
that these bids are the final bids, and that they reflect any modifications that
have been made to reflect any prior changes to the offering range, and to avoid
the issuance of fractional shares.
INITIAL PUBLIC OFFERING OF COMPANY X
<TABLE>
<CAPTION>
BID INFORMATION AUCTION RESULTS
---------------------------------- ---------------------------------------------
APPROXIMATE
CUMULATIVE ALLOCATED
SHARES SHARES SHARES REQUESTED CLEARING AMOUNT
REQUESTED REQUESTED BID PRICE ALLOCATED SHARES PRICE RAISED
--------- ---------- --------- --------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
20 20 $10.00 18 90% $8.00 $144
30 50 $ 9.00 27 90% $8.00 $216
Clearing Price --> 60 110 $ 8.00 55 90% $8.00 $440
40 150 $ 7.00 0 0%
80 230 $ 6.00 0 0%
--- ----
Total: 100 $800
=== ====
</TABLE>
61
<PAGE>
REQUIREMENTS FOR VALID BIDS
Valid bids are those that meet the requirements, including eligibility,
account status and size, established by the underwriters or participating
dealers. In order to open a brokerage account with WR Hambrecht + Co, potential
investors must deposit $2,000 in their account. This brokerage account will be a
general account subject to WR Hambrecht + Co's customary rules, and will not be
limited to this offering. In addition, once the registration statement becomes
effective and the auction closes, a prospective investor submitting a bid
through a WR Hambrecht + Co brokerage account must have an account balance equal
to or in excess of the amount of its bid or its bid will not be accepted by WR
Hambrecht + Co. However, other than the $2,000 described above, prospective
investors will not be required to deposit any money into their accounts until
after the registration statement becomes effective. No funds will be transferred
to the underwriters, and any amounts in excess of $2,000 may be withdrawn, at
any time until the acceptance of the bid and the subsequent closing of this
offering. Conditions for valid bids, including eligibility standards and account
funding requirements of other underwriters or participating dealers other than
WR Hambrecht + Co, may vary.
SALE OF SHARES TO PERSONS WE DESIGNATE
The underwriters have reserved up to 100,000 shares of the common stock to
be sold in this offering for sale to individuals who have provided advisory
services to us, including our outside counsel. Offers to purchase shares
received from persons we designate will not be subject to pro rata reduction.
The number of shares used to determine the clearing price will be reduced by any
shares sold to persons we designate. The description of the auction process
assumes that no shares will be sold to persons we designate.
THE CLOSING OF THE AUCTION AND ALLOCATION OF SHARES
The auction will close on a date estimated and publicly disclosed in advance
by the underwriters on the web site of WR Hambrecht + Co at www.wrhambrecht.com
or www.openipo.com. The 3,500,000 shares offered hereby, or 4,025,000 shares if
the underwriters' overallotment option is exercised in full, will be purchased
from us by the underwriters and sold through the underwriters and participating
dealers to investors who have submitted bids at or higher than the public
offering price. These investors will be notified by e-mail, telephone, voice
mail, facsimile or mail as soon as practicable following the closing of the
auction that their bids have been accepted.
Each participating dealer has agreed with the underwriters to sell the
shares it purchases from the underwriters in accordance with the auction process
described above, unless the underwriters otherwise consent. The underwriters
reserve the right to reject bids that they deem manipulative or disruptive in
order to facilitate the orderly completion of this offering, and they reserve
the right, in exceptional circumstances, to alter this method of allocation as
they deem necessary to ensure a fair and orderly distribution of the shares of
our common stock. For example, large orders may be reduced to ensure a public
distribution and bids may be rejected or reduced by the underwriters or
participating dealers based on eligibility or creditworthiness criteria. In
addition, the underwriters or the participating dealers may reject or reduce a
bid by a prospective investor who has engaged in practices that could have a
manipulative, disruptive or otherwise adverse effect upon the offering.
Price and volume volatility in the market for our common stock may result
from the somewhat unique nature of the proposed plan of distribution. Price and
volume volatility in the market for our common stock after the completion of
this offering may adversely affect the market price of our common stock.
We have granted to the underwriters an option, exercisable no later than 30
days after the date of this prospectus, to purchase up to an aggregate of
525,000 additional shares of our common stock at the offering price, less the
underwriting discount, set forth on the cover page of this prospectus. To the
extent that the underwriters exercise this option, the underwriters will have a
firm commitment to purchase the additional shares, and we will be obligated to
sell the additional shares to the
62
<PAGE>
underwriters. The underwriters may exercise the option only to cover
over-allotments made in connection with the sale of shares offered. The
underwriting agreement provides that we will indemnify the underwriters against
specified liabilities, including liabilities under the Securities Act, or
contribute to payments that the underwriters may be required to make.
We have agreed not to offer, sell, contract to sell, or otherwise dispose of
any shares of common stock, or any options or warrants to purchase common stock
other than the shares of common stock or options to acquire common stock issued
under our stock option plans and stock purchase plan, for a period of 180 days
after the date of this prospectus, except with the prior written consent of WR
Hambrecht + Co., or in connection with a merger or an acquisition transaction.
Each of our directors, executive officers and additional holders of
approximately 9,800,000 shares of our outstanding capital stock has agreed to
restrictions on his or her ability to sell, offer, contract or grant any option
to sell, pledge, transfer or otherwise dispose of shares of our common stock for
a period of 180 days after the date of this prospectus, without the prior
written consent of WR Hambrecht + Co.
In connection with the offering, persons participating in the offering may
purchase and sell shares of common stock on the open market. These transactions
may include short sales, stabilizing transactions in accordance with Rule 104 of
Regulation M under the Securities Exchange Act of 1934, as amended, and
purchases to cover positions created by short sales. Short sales involve the
sale by the underwriters of a greater number of shares than they are required to
purchase in the offering which creates a syndicate short position. Stabilizing
transactions consist of certain bids or purchases made for the purpose of
preventing or retarding a decline in the market price of the common stock. The
underwriters also may impose a penalty bid. This occurs when a particular
underwriter repays to the underwriters a portion of the underwriting discount
received by it because the representative has repurchased shares sold by or for
the account of that underwriter in stabilizing or short covering transactions.
These activities by the underwriters may stabilize, maintain or otherwise affect
the market price of our common stock. As a result, the price of our common stock
may be higher than the price that otherwise might exist in the open market. If
these activities are commenced, they may be discontinued by the underwriters at
any time. These transactions may be effected on the Nasdaq National Market, in
the over-the-counter market or otherwise.
Persons participating in this offering may also engage in passive market
making transactions in our common stock on the Nasdaq National Market. Passive
market making consists of displaying bids on the Nasdaq National Market limited
by the prices of independent market makers and affecting purchases limited by
such prices and in response to order flow. Rule 103 of Regulation M promulgated
by the SEC limits the amount of net purchases that each passive market may make
and the displayed size of each bid.
Passive market making may stabilize the market price of our common stock at
a level above that which might otherwise prevail in the open market and, if
commenced, may be discontinued at any time.
WR Hambrecht + Co currently intends to act as a market maker for our common
stock following this offering. However, WR Hambrecht + Co is not obligated to do
so and may discontinue any market making at any time.
WR Hambrecht + Co is an investment banking firm formed in February 1998. In
addition to this offering, WR Hambrecht + Co has engaged in the business of
public and private equity investing and financial advisory services since its
inception. The manager of WR Hambrecht + Co, William R. Hambrecht, has 40 years
of experience in the securities industry.
63
<PAGE>
LEGAL MATTERS
The validity of our shares of common stock being offered will be passed upon
for us by Bay Venture Counsel, LLP, Oakland, California. Fischer, Behar, Chen &
Co. will render opinions for us as to matters of Israeli law. Mr. Avraham
Fischer, senior partner of Fischer, Behar, Chen & Co., is a member of our board
of directors and owns 25,000 shares of our common stock and options to purchase
60,000 shares of our common stock. In connection with this offering, attorneys
of Bay Venture Counsel, LLP are expected to purchase up to 10,000 shares of the
common stock that have been reserved by WR Hambrecht + Co. and
Mr. Donald C. Reinke, a partner of Bay Venture Counsel, LLP, is our assistant
secretary. Legal matters in connection with this offering will be passed upon
for the underwriters by Morrison & Foerster LLP, San Francisco, California.
EXPERTS
Our consolidated balance sheets at December 31, 1998 and 1999 and our
consolidated statements of operations, changes in stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1999 included
in this prospectus have been included herein in reliance on the report of
Kesselman & Kesselman, a member firm of PricewaterhouseCoopers International
Limited, independent certified public accountants in Israel, given upon the
authority of that firm as experts in accounting and auditing.
WHERE YOU CAN GET MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the shares of
common stock being offered. This prospectus does not contain all of the
information described in the registration statement and the related exhibits and
schedules. For further information with respect to Nogatech and the common stock
being offered, reference is made to the registration statement and the related
exhibits and schedule. Statements contained in this prospectus regarding the
contents of any contract or any other document to which reference is made are
not necessarily complete, and, in each instance, reference is made to the copy
of the contract or other document filed as an exhibit to the registration
statement, each statement being qualified in all respects by the reference. A
copy of the registration statement and the related exhibits and schedule may be
inspected without charge at the public reference facilities maintained by the
Commission in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's regional offices located at the Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade
Center, 13th Floor, New York, New York 10048, and copies of all or any part of
the registration statement may be obtained from these offices upon the payment
of the fees prescribed by the Commission. Information on the operation of the
Public Reference Room may be obtained by calling the Commission at
1-800-SEC-0330. The Commission maintains a World Wide Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of the
site is http://www.sec.gov.
We intend to provide our stockholders with annual reports containing
combined financial statements audited by an independent accounting firm and to
file with the Commission quarterly reports containing unaudited combined
financial data for the first three quarters of each year.
64
<PAGE>
NOGATECH, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets as of December 31, 1998 and 1999
and (unaudited) March 31, 2000............................ F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1998 and 1999 and for the (unaudited)
Three Months Ended March 31, 1999 and 2000................ F-4
Consolidated Statements of Changes in Stockholders' Equity
(Capital Deficiency) for the Years Ended December 31,
1997, 1998 and 1999 and for the (unaudited) Three Months
Ended March 31, 1999 and 2000............................. F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1998 and 1999 and for the (unaudited)
Three Months Ended March 31, 1999 and 2000................ F-8
Notes to Consolidated Financial Statements.................. F-9
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
NOGATECH, INC.
We have audited the consolidated balance sheets of Nogatech, Inc. and its
subsidiaries (collectively, the "Company") as of December 31, 1998 and 1999 and
the related consolidated statements of operations, changes in stockholders'
equity (capital deficiency) and cash flows for each of the three years in the
period ended December 31, 1999. These financial statements are the
responsibility of the Company's Board of Directors and management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards in Israel and in the United States, including those prescribed by the
Israeli Auditors (Mode of Performance) Regulations, 1973. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by the Company's Board
of Directors and management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a fair basis for our
opinion.
In our opinion, the consolidated financial statements referred to above,
present fairly, in all material respects, the consolidated financial position of
the Company as of December 31, 1998 and 1999 and the consolidated results of
their operations, changes in stockholders' equity (capital deficiency) and their
cash flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
<TABLE>
<S> <C>
Tel Aviv, Israel Kesselman & Kesselman
February 25, 2000 Certified Public Accountants (Israel)
(except for Note 6,
the date of which is
March 8, 2000)
</TABLE>
F-2
<PAGE>
NOGATECH, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
PRO FORMA
(NOTE 1O)
DECEMBER 31, -----------
------------------- MARCH 31, MARCH 31,
1998 1999 2000 2000
-------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 3,791 $ 2,475 $ 6,612 $ 6,612
Accounts receivable: (note 9a)
Trade................................................... 848 1,019 1,484 1,484
Other................................................... 140 197 213 213
Inventories (note 9b)..................................... 581 2,109 1,747 1,747
Other current assets...................................... 26 169 277 277
------- ------- -------- --------
Total current assets.................................. 5,386 5,969 10,333 10,333
------- ------- -------- --------
FIXED ASSETS (note 2):
Cost...................................................... 535 835 873 873
Less--accumulated depreciation and amortization........... (355) (483) (523) (523)
------- ------- -------- --------
Total fixed assets.................................... 180 352 350 350
------- ------- -------- --------
OTHER ASSETS................................................ 203 256 267 267
------- ------- -------- --------
$ 5,769 $ 6,577 $ 10,950 $ 10,950
======= ======= ======== ========
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accruals: (note 9c)
Trade................................................... $ 508 $ 1,967 $ 830 $ 830
Other................................................... 707 891 876 876
------- ------- -------- --------
Total current liabilities............................. 1,215 2,858 1,706 1,706
EMPLOYEE RIGHTS UPON RETIREMENT (note 3).................... 255 362 391 391
------- ------- -------- --------
COMMITMENTS AND CONTINGENT LIABILITIES (note 4)
Total liabilities....................................... 1,470 3,220 2,097 2,097
------- ------- -------- --------
SERIES A AND B REDEEMABLE CONVERTIBLE PREFERRED
STOCK, at redemption value (note 5)....................... 7,816 8,243 13,408 --
------- ------- --------
STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY) (note 6):
Common stock*, $0.001 par value:
authorized--40,000,000 shares at December 31, 1998,
1999 and March 31, 2000;
issued and outstanding: 310,995, 419,370 and 728,040
shares at December 31, 1998, 1999 and March 31, 2000,
respectively; March 31, 2000 pro forma 10,021,350
shares................................................ 1 1 1 10
Additional paid-in capital.............................. 5,882 6,157 11,024 24,423
Note receivable from a stockholder...................... (57) (57)
Deferred compensation................................... (271) (392) (343) (343)
Accumulated deficit..................................... (9,072) (10,595) (15,237) (15,237)
------- ------- -------- --------
Total stockholders' equity (capital deficiency)........... (3,517) (4,886) (4,555) 8,853
------- ------- -------- --------
$ 5,769 $ 6,577 $ 10,950 $ 10,950
======= ======= ======== ========
</TABLE>
- --------------------------
*After giving retroactive effect to the reverse stock split, see note 6a.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-3
<PAGE>
NOGATECH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -------------------------
1997 1998 1999 1999 2000
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SALES (notes 8 and 11)......................... $ 2,551 $ 3,205 $ 8,856 $ 870 $ 2,945
COST OF SALES (notes 8 and 11)................. 1,699 2,038 5,111 518 1,661
----------- ----------- ----------- ----------- -----------
GROSS PROFIT................................... 852 1,167 3,745 352 1,284
----------- ----------- ----------- ----------- -----------
OPERATING EXPENSES:
Research and development..................... 1,266 1,451 2,283 588 685
Sales and marketing.......................... 695 1,020 1,689 383 290
General and administrative................... 321 609 880 195 204
----------- ----------- ----------- ----------- -----------
TOTAL OPERATING EXPENSES....................... 2,282 3,080 4,852 1,166 1,179
----------- ----------- ----------- ----------- -----------
OPERATING INCOME (LOSS)........................ (1,430) (1,913) (1,107) (814) 105
OTHER INCOME (EXPENSE), NET.................... (32) 90 11 (3) (12)
----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS).............................. (1,462) (1,823) (1,096) (817) 93
CHARGE FOR BENEFICIAL CONVERSION FEATURE OF
SERIES B PREFERRED STOCK..................... -- -- -- -- (4,570)
ACCRETION OF REDEMPTION VALUE OF SERIES A
REDEEMABLE CONVERTIBLE PEREFERRED STOCK...... (300) (383) (427) (107) (165)
----------- ----------- ----------- ----------- -----------
NET LOSS APPLICABLE TO COMMON STOCK............ $ (1,762) $ (2,206) $ (1,523) $ (924) $ (4,642)
----------- ----------- ----------- ----------- -----------
NET LOSS PER SHARE OF COMMON STOCK,
basic and diluted (note 1k).................. $ (5.86) $ (7.13) $ (4.50) $ (2.97) $ (8.14)
=========== =========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON
STOCK OUTSTANDING (note 1k).................. 300,709 309,536 338,295 310,995 570,557
=========== =========== =========== =========== ===========
PRO FORMA NET INCOME (LOSS) PER SHARE OF COMMON
STOCK, basic and diluted (note 1k)........... $ (0.12) $ (0.09) $ 0.01
=========== =========== ===========
PRO FORMA WEIGHTED AVERAGE
NUMBER OF SHARES OF COMMON STOCK
OUTSTANDING (note 1k)........................ 8,948,078 8,920,778 9,749,945
=========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-4
<PAGE>
NOGATECH, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
NOTE TOTAL
COMMON STOCK ADDITIONAL RECEIVABLE STOCKHOLDERS'
------------------------- PAID-IN FROM A DEFERRED ACCUMULATED EQUITY (CAPITAL
NUMBER* AMOUNT CAPITAL STOCKHOLDER COMPENSATION DEFICIT DEFICIENCY)
----------- ----------- ----------- ----------- ------------ ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1,
1997..................... 286,625 $ 1 $ 1,113 $ (57) $ (5,104) $ (4,047)
Issuance of common stock
in connection with
stock options
exercised.............. 18,120 ** 2 2
Excess of consideration
received, net of
issuance costs of $60,
over the redemption
value of series A
redeemable convertible
preferred stock issued
(note 5b(1))........... 1,283 1,283
Accretion of redemption
value of series A
redeemable convertible
preferred stock........ (300) (300)
Net loss................. (1,462) (1,462)
---------- ---------- ---------- ---------- ---------- ---------- ----------
BALANCE AT DECEMBER 31,
1997..................... 304,745 1 2,398 (57) (6,866) (4,524)
Issuance of common stock
in connection with
stock options
exercised.............. 6,250 ** 1 1
Deferred compensation
related to employee
stock option grants.... 268 (268)
Deferred compensation
related to nonemployee
stock option grants.... 53 (53)
Amortization of deferred
compensation related to
stock option grants.... 50 50
Excess of consideration
received, net of
issuance costs of $355,
over the redemption
value of series A
redeemable convertible
preferred stock issued
(note 5b(1))........... 3,162 3,162
Accretion of redemption
value of series A
redeemable convertible
preferred stock........ (383) (383)
Net loss................. (1,823) (1,823)
---------- ---------- ---------- ---------- ---------- ---------- ----------
BALANCE AT DECEMBER 31,
1998--FORWARD............ 310,995 $ 1 $ 5,882 $ (57) $ (271) $ (9,072) $ (3,517)
</TABLE>
F-5
<PAGE>
NOGATECH, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL NOTE RECEIVABLE
----------------------- PAID-IN FROM A DEFERRED ACCUMULATED
NUMBER* AMOUNT CAPITAL STOCKHOLDER COMPENSATION DEFICIT
---------- ---------- ---------- --------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1998--BROUGHT
FORWARD.................................... 310,995 $ 1 $ 5,882 $ (57) $ (271) $ (9,072)
Issuance of common stock in connection with
stock options exercised.................. 108,375 ** 39
Deferred compensation related to employee
stock option grants...................... 214 (214)
Deferred compensation related to
nonemployee stock option grants.......... 22 (22)
Amortization of deferred compensation
related to stock option grants........... 115
Accretion of redemption value of series A
redeemable convertible preferred stock... (427)
Net loss................................... (1,096)
---------- ---------- ---------- ---------- ---------- ----------
BALANCE AT DECEMBER 31, 1999................. 419,370 1 6,157 (57) (392) (10,595)
Issuance of common stock in connection with
stock options and warrants exercised..... 308,670 ** 604
Deferred compensation related to employee
stock option grants...................... 35 (35)
Deferred compensation related to employee
stock option forfeited................... (40) 40
Repayment of note receivable from a
stockholder.............................. 57
Amortization of deferred compensation
related to stock option grants........... 44
Accretion of redemption value of Series A
redeemable convertible preferred stock... (165)
Beneficial conversion feature - relating to
Series B convertible preferred stock
(note 5c)................................ 4,570 (4,570)
Issuance costs related to Series B
redeemable convertible preferred stock
issued (note 5d)......................... (302)
Net income................................. 93
---------- ---------- ---------- ---------- ---------- ----------
BALANCE AT MARCH 31, 2000 (UNAUDITED)........ 728,040 $ 1 $ 11,024 $ (343) $ (15,237)
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY (CAPITAL
DEFICIENCY)
-----------------
<S> <C>
BALANCE AT DECEMBER 31, 1998--BROUGHT
FORWARD.................................... $ (3,517)
Issuance of common stock in connection with
stock options exercised.................. 39
Deferred compensation related to employee
stock option grants......................
Deferred compensation related to
nonemployee stock option grants..........
Amortization of deferred compensation
related to stock option grants........... 115
Accretion of redemption value of series A
redeemable convertible preferred stock... (427)
Net loss................................... (1,096)
----------
BALANCE AT DECEMBER 31, 1999................. (4,886)
Issuance of common stock in connection with
stock options and warrants exercised..... 604
Deferred compensation related to employee
stock option grants......................
Deferred compensation related to employee
stock option forfeited...................
Repayment of note receivable from a
stockholder.............................. 57
Amortization of deferred compensation
related to stock option grants........... 44
Accretion of redemption value of Series A
redeemable convertible preferred stock... (165)
Beneficial conversion feature - relating to
Series B convertible preferred stock
(note 5c)................................
Issuance costs related to Series B
redeemable convertible preferred stock
issued (note 5d)......................... (302)
Net income................................. 93
----------
BALANCE AT MARCH 31, 2000 (UNAUDITED)........ $ (4,555)
</TABLE>
F-6
<PAGE>
NOGATECH, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL NOTE RECEIVABLE
----------------------- PAID-IN FROM A DEFERRED ACCUMULATED
NUMBER* AMOUNT CAPITAL STOCKHOLDER COMPENSATION DEFICIT
---------- ---------- ---------- --------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT MARCH 31, 2000 (UNAUDITED)--
BROUGHT FORWARD.......................... 728,040 $ 1 $ 11,024 $ (343) $ (15,237)
Pro forma conversion of series A and B
redeemable convertible preferred stock
into common stock (note 1p)............ 9,293,310 9 13,399
---------- ---------- ---------- ---------- ---------- ----------
PRO FORMA STOCKHOLDERS' EQUITY AT MARCH 31,
2000 (NOTE 1P) (UNAUDITED)............... 10,021,350 10 24,423 (343) (15,237)
========== ========== ========== ========== ========== ==========
BALANCE AT JANUARY 1, 1999................. 310,995 $ 1 $ 5,882 $ (57) $ (271) $ (9,072)
Amortization of deferred compensation
related to stock option grants......... 28
Accretion of redemption value of Series A
redeemable convertible preferred
stock.................................. (107)
Net loss................................. (817)
---------- ---------- ---------- ---------- ---------- ----------
BALANCE AT MARCH 31, 1999 (UNAUDITED)...... 310,995 $ 1 $ 5,882 $ (57) $ (243) $ (9,996)
========== ========== ========== ========== ========== ==========
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY (CAPITAL
DEFICIENCY)
-----------------
<S> <C>
BALANCE AT MARCH 31, 2000 (UNAUDITED)--
BROUGHT FORWARD.......................... $ (4,555)
Pro forma conversion of series A and B
redeemable convertible preferred stock
into common stock (note 1p)............ 13,408
----------
PRO FORMA STOCKHOLDERS' EQUITY AT MARCH 31,
2000 (NOTE 1P) (UNAUDITED)............... 8,853
==========
BALANCE AT JANUARY 1, 1999................. $ (3,517)
Amortization of deferred compensation
related to stock option grants......... 28
Accretion of redemption value of Series A
redeemable convertible preferred
stock.................................. (107)
Net loss................................. (817)
----------
BALANCE AT MARCH 31, 1999 (UNAUDITED)...... $ (4,413)
==========
</TABLE>
- ------------------------
* After giving retroactive effect to the reverse stock-split, see note 6a.
** Representing an amount less than $1,000.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-7
<PAGE>
NOGATECH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................ $(1,462) $(1,823) $(1,096) $ (817) $ 93
------- ------- ------- ------- -------
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Employee rights upon retirement........................ 7 19 54 48 18
Depreciation and amortization.......................... 97 91 128 23 40
Compensation relating to stock options................. 50 115 28 44
Changes in operating asset and liability items:
Decrease (increase) in accounts receivable:
Trade.............................................. 1 (547) (171) (324) (465)
Other.............................................. (75) (65) (57) (69) (16)
Decrease (increase) in inventories................... 94 50 (1,528) (147) 362
Decrease (increase) in other current assets.......... (33) 57 (143) 7 (108)
Increase (decrease) in accounts payable and accruals:
Trade.............................................. 151 2 1,459 358 (1,152)
Other.............................................. 87 344 184 116 (15)
------- ------- ------- ------- -------
329 1 41 40 (1,292)
------- ------- ------- ------- -------
Net cash used in operating activities.................... (1,133) (1,822) (1,055) (777) (1,199)
------- ------- ------- ------- -------
CASH FLOWS USED IN INVESTING ACTIVITIES--purchases of fixed
assets.................................................... (108) (64) (300) (63) (23)
------- ------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of series A redeemable convertible preferred
stock, net of issuance costs of $60 and $355 in 1997
and 1998, respectively................................. 1,790 5,641 -- -- --
Issuance of series B redeemable convertible preferred
stock, net of issuance costs of $302................... -- -- -- -- 4,698
Issuance of common stock in connection with stock options
and warrants exercised................................. 2 1 39 -- 604
Receipt (repayment) of short-term credit, net............ (375) (236) -- 294 --
Repayment of note receivable from a stockholder.......... -- -- -- -- 57
------- ------- ------- ------- -------
Net cash provided by financing activities................ 1,417 5,406 39 294 5,359
------- ------- ------- ------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........... 176 3,520 (1,316) (546) 4,137
BALANCE OF CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD.................................................... 95 271 3,791 3,791 2,475
------- ------- ------- ------- -------
BALANCE OF CASH AND CASH EQUIVALENTS AT END OF PERIOD...... $ 271 $ 3,791 $ 2,475 $ 3,245 $ 6,612
======= ======= ======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION--CASH PAID
DURING THE PERIOD FOR:
Interest................................................. $ 27 $ 57 $ 41 $ 5 $ 24
======= ======= ======= ======= =======
Taxes.................................................... $ 2 $ 9 $ 4 $ 1 $ 1
======= ======= ======= ======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-8
<PAGE>
NOGATECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES:
a. GENERAL
1) NATURE OF OPERATIONS:
(a) Nogatech, Inc. ("Nogatech Delaware") was incorporated in Delaware on
September 22, 1999.
On December 28, 1999, Nogatech, Inc. ("Nogatech California"), which
was incorporated in California in 1993, merged into Nogatech
Delaware. In the merger, the stockholders of Nogatech California
exchanged their shares for all of the issued and outstanding stock of
Nogatech Delaware. At the time of the merger, the wholly owned
subsidiary of Nogatech California was Nogatech Ltd., an Israeli
company ("Nogatech Israel"). The ownership interest of each of the
two companies' stockholders before and after the merger was
identical.
(b) Nogatech Delaware and its two wholly owned subsidiaries, Nogatech
Israel and Nogatech California, Inc. (collectively, the "Company"),
are engaged in research, development, production, sales and
marketing of the Company's products to customers.
The Company provides video compression chips which establish
connections between video devices and computers, as well as
connections between video devices across a variety of networks. As to
information regarding the Company's major customers and supplier, see
note 11.
(c) The merger described in (a) above has been recorded as a
reorganization of entities under common control, and has been
accounted for at the recorded amount in Nogatech California's
(predecessor) financial statements. Accordingly, the Company's
consolidated financial statements reflect the predecessor's
financial position, results of operations and cash flows, from its
inception to December 28, 1999 (date of merger), in a manner similar
to a pooling-of-interests accounting. Such presentation reflects the
combined financial statements as if the merger occurred at the
beginning of the earliest period presented herein.
2) ACCOUNTING PRINCIPLES
The consolidated financial statements have been prepared in accordance
with generally accepted accounting principles ("GAAP") in the United
States ("U.S. GAAP").
3) USE OF ESTIMATES IN THE PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS
The preparation of financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets, liabilities at the date of the financial statements and the
reported amounts of sales and expenses during the reporting periods.
Actual results could differ from those estimates.
b. FUNCTIONAL CURRENCY
The currency of the primary economic environment in which the operations of
Nogatech Delaware and Nogatech California are conducted is the U.S. dollar
("$" or "dollar").
F-9
<PAGE>
NOGATECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Most of Nogatech Israel's sales are made in dollars. Substantially all of
the subsidiary's production costs are comprised of cost of materials, which
are purchased in dollars. Most of the research and development expenses and
general and administrative expenses are incurred in Israeli currency. Most
of the sales and marketing expenses are incurred in dollars. Thus, the
functional currency of Nogatech Israel is the dollar, and accordingly, the
functional currency of the Company is the dollar.
Transactions and balances originally denominated in dollars are presented at
their original amounts. Balances in non-dollar (Israeli) currency are
translated into dollars using historical and current exchange rates for
non-monetary and monetary balances, respectively. For non-dollar
transactions and other items (stated below) reflected in the statements of
operations, the following exchange rates are used: (i) for transactions --
exchange rates at transaction dates; and (ii) for other items (derived from
non-monetary balance sheet items, such as depreciation and amortization,
changes in inventories, etc.) -- historical exchange rates. The resulting
currency transaction gains or losses are included in other income or
expenses, as appropriate.
c. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Nogatech
Delaware and its two wholly owned subsidiaries. Intercompany balances and
transactions have been eliminated. Profits from intercompany sales, not yet
realized, have also been eliminated.
d. INVENTORIES
Inventories are recorded at the lower of cost or market. Cost is determined
on a "first-in, first-out" basis.
e. FIXED ASSETS
Fixed assets are stated at cost.
Depreciation in calculated using the straight-line method over the estimated
useful life of the assets, at the following annual rates:
<TABLE>
<CAPTION>
%
--------
<S> <C>
Computers and software...................................... 20-33
Office furniture and equipment.............................. 6-15
Laboratory equipment........................................ 20
Motor vehicles.............................................. 15
</TABLE>
Leasehold improvements are amortized by the straight-line method over the
term of the lease, which is shorter than the estimated useful life of the
improvements.
f. IMPAIRMENT IN VALUE OF FIXED ASSETS
The Company adopted Statement of Financial Accounting Standards FAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of". This Statement refers to fixed assets
and identifiable intangible assets (hereafter -- long-lived assets). Under
the provisions of FAS 121, the Company reviews its long-lived assets for
impairment on an exception basis whenever events or changes in circumstances
indicate that the carrying amount of
F-10
<PAGE>
NOGATECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
the assets may not be recoverable through future undiscounted cash flows. If
it is determined that an impairment has occurred, a loss will be recognized
in the statements of operations based on fair values determined using
discounted cash flows compared to carrying amounts.
g. REVENUE RECOGNITION
Revenue from product sales to customers, other than sales to distributors,
is recognized when products are shipped to the customers. Sales to
distributors, where the Company allows right of return on products unsold by
the distributors, are not recognized until the products are sold by the
distributors to their customers.
The provision for warranty is recorded at the time of the sale of the
related product for probable costs in connection with warranties, based on
the Company's experience.
h. RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses are charged to the statements of
operations as incurred.
i. CONCENTRATION OF CREDIT RISKS AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Financial instruments that subject the Company to credit risks consist
primarily of uninsured cash and cash equivalents, which are deposited in
major financial institutions in the United States and in Israel, and of
trade receivables. The Company performs ongoing credit evaluations of its
customers and generally does not require collateral. The Company provides
for estimated credit losses.
The provision for doubtful accounts is principally determined for specific
debts when their collection is doubtful.
j. CASH EQUIVALENTS
The Company considers all highly liquid investments, with an original
maturity of three months or less when issued, that are not restricted as to
withdrawal or use, to be cash equivalents.
k. NET LOSS PER SHARE OF COMMON STOCK ("EPS")
1) Historical EPS
a) Basic EPS is computed by dividing net loss applicable to common
stock by the weighted average number of shares of common stock
outstanding during each period.
b) Since the basic EPS for the years ended December 31, 1997, 1998 and
1999 and for the periods of three months ended March 31, 1999 and
2000, represents a loss per share of common stock, the effect of
including the incremental shares of common stock from assumed
exercise of options and from assumed conversion of redeemable
convertible preferred stock in EPS computation is anti-dilutive, and
accordingly the basic and diluted EPS are the same (see also note
9d).
2) Pro forma EPS
Pro forma basic and diluted EPS have been calculated assuming the
conversion of all outstanding shares of preferred stock that are
convertible upon the Company's initial public offering into common stock,
as if the shares had been converted immediately upon their
F-11
<PAGE>
NOGATECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
issuance. Accretion of redemption value of redeemable convertible
preferred stock and the deemed dividend relating to the beneficial
conversion feature of the Series B preferred stock have been excluded
from the calculation of pro forma basic and diluted EPS as the related
shares are assumed to have converted to common stock upon issuance.
3) Weighted average number of common shares outstanding used in the
computation of the basic and diluted historical EPS and pro forma EPS
has been calculated after giving retroactive effect in all the reported
periods, to a one-for-two reverse stock split, as approved by the
Company's Board of Directors on March 5, 2000 (note 6a).
l. STOCK-BASED COMPENSATION
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB 25), and related interpretations in
accounting for its stock option plan grants to employees and directors, with
the disclosure provisions of Statement of Financial Accounting Standards FAS
No. 123, "Accounting for Stock-Based Compensation" (FAS 123). Under APB 25,
compensation expense is computed under the intrinsic value method of
accounting to the extent that the fair value of the underlying stock on the
date of grant exceeds the exercise price of the stock option. Compensation
so computed is deferred and then recognized over the vesting period of the
stock option.
The Company applies FAS 123 in accounting for stock options granted to
nonemployees in exchange for services received using the fair value method
of accounting. Under FAS 123, these equity transactions are accounted for
based on the fair value of the consideration received or the fair value of
the equity instruments issued, whichever is more reliably measurable. The
value of the equity instruments is calculated using a Black-Scholes pricing
model.
m. REDEEMABLE CONVERTIBLE PREFERRED STOCK
The Series A and Series B preferred stock, which entitles its holders to
redeem their shares in certain events (see note 5b), is initially measured
at fair value (consideration received) and reported in stockholders' equity
and the amount equal to its cash redemption value is transferred apart from
the stockholders' equity and classified as redeemable convertible preferred
stock. The annual accretion of the redemption value computed using the
interest method is charged to accumulated deficit (see note 5d).
n. COMPREHENSIVE INCOME (LOSS)
The Company adopted FAS 130, "Reporting Comprehensive Income" (FAS 130). FAS
130 requires reporting and display of comprehensive income (loss) and its
components, in a full set of general-purpose financial statements. The
Company has no other comprehensive income (loss) components other than the
net income (loss) for the reported periods.
o. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:
1) In June 1998, the FASB issued FAS 133, "Accounting for Derivative
Instruments and Hedging Activities" (FAS 133). FAS 133 established a new
model for accounting for derivatives and hedging activities. FAS 133
requires companies to record derivatives on the balance sheet as assets
or liabilities, measured at fair value. Gains or losses resulting from
changes in the values of those derivatives would be accounted for,
depending on the use of the derivative and
F-12
<PAGE>
NOGATECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
whether it qualifies for hedge accounting. FAS 133 is effective for
calendar year companies beginning January 1, 2001. The Company does not
currently use derivative instruments, accordingly, it does not anticipate
that the new standard will have any impact on its financial statements.
2) In December 1999, the U.S. Securities and Exchange Commission (SEC)
issued SAB 101, "Revenue Recognition in Financial Statement", which
summarizes certain of the SEC staff views in applying generally accepted
accounting principles to revenue recognition in financial statements. The
company adopted SAB 101 in these financial statements. Such adoption has
no impact on the company's financial statement.
p. UNAUDITED PRO FORMA BALANCE SHEET
Upon the planned closing of the Company's anticipated initial public
offering in May 2000, the outstanding shares of redeemable convertible
preferred stock will automatically convert into common stock. The unaudited
pro forma balance sheet reflects these transactions as if they occurred on
March 31, 2000.
q. DEFERRED INCOME TAXES
Deferred income taxes are created for temporary differences between the
assets and liabilities as measured in the financial statements and for tax
purposes. Deferred taxes are computed using the tax rates expected to be in
effect when these differences reverse. Valuation allowances in respect of
deferred tax assets are provided when it is more likely than not that all or
part of the deferred tax assets will not be realized.
r. UNAUDITED INFORMATION
The financial statements include the unaudited consolidated balance sheets
and the related consolidated statements of operations, changes in
stockholders' equity (capital deficiency) and cash flows for the three
months ended March 31, 1999 and 2000. This unaudited information has been
prepared by the Company on the same basis as the audited consolidated
financial statements and, in management's opinion, reflects all adjustments
(consisting only of normal recurring accruals) necessary for a fair
presentation of the financial information, in accordance with generally
accepted accounting principles, for the period presented. Results for
interim periods are not necessarily indicative of the results to be excepted
for the entire year.
F-13
<PAGE>
NOGATECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--FIXED ASSETS:
A. Grouped by major classifications, fixed assets are composed as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- MARCH 31,
1998 1999 2000
-------- -------- --------------
(IN THOUSANDS) (IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C>
Cost:
Computers and software........................ $404 $647 $679
Office furniture and equipment................ 51 78 84
Laboratory equipment.......................... 40 45 45
Leasehold improvements........................ 40 41 41
Motor vehicles................................ -- 24 24
---- ---- ----
535 835 873
---- ---- ----
Less--accumulated depreciation and amortization:
Computers and software........................ 279 386 423
Office furniture and equipment................ 11 16 17
Laboratory equipment.......................... 36 38 39
Leasehold improvements........................ 29 40 40
Motor vehicles................................ -- 3 4
---- ---- ----
355 483 523
---- ---- ----
$180 $352 $350
==== ==== ====
</TABLE>
B. Depreciation and amortization expenses related to fixed assets totaled
$97,000, $91,000 and $128,000 for the years ended December 31, 1997, 1998
and 1999, respectively and (unaudited) $ 23,000 and (unaudited) $ 40,000
for the periods of three months ended March 31, 1999 and 2000,
respectively.
NOTE 3--EMPLOYEE RIGHTS UPON RETIREMENT:
A. Israeli labor laws and agreements require payment of severance pay upon
dismissal of an employee or upon termination of employment in certain
other circumstances. Nogatech Israel's severance pay liability for its
employees, which reflects the undiscounted amount of the liability, is
calculated based upon length of service and the latest monthly salary
(one month's salary for each year worked). This liability is mainly
covered by the Company's insurance policies.
B. The balance sheet liability for Israeli employee rights upon retirement,
and the amount funded with insurance companies, are composed as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- MARCH 31,
1998 1999 2000
-------- -------- --------------
(IN THOUSANDS) (IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C>
Severance pay liability........................... $255 $362 $391
Less--amount funded (presented in other assets)... 203 256 267
---- ---- ----
Unfunded balance.................................. $ 52 $106 $124
==== ==== ====
</TABLE>
F-14
<PAGE>
NOGATECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--COMMITMENTS AND CONTINGENT LIABILITIES:
a. LEASE COMMITMENTS
1) Rent:
a) The Company leases its U.S. facility under an operating lease
agreement which expires in September 2002. The Israeli
subsidiary's facility is leased under an operating lease which
expires on February 22, 2003, with an option to be extended until
February 2008. Up to $67,000 of the Israeli facility rent is
guaranteed by a financial institution. The guarantees expires on
March 9, 2001 and March 10, 2001.
b) Future minimum lease commitments under non-cancelable operating
lease agreements are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Nine months ending December 31, 2000 (unaudited)....... $117
Year ending December 31:
2001................................................... 158
2002................................................... 141
2003................................................... 24
----
$440
====
</TABLE>
2) Car lease:
a) The Company has four vehicles which have been leased since 1999
and 2000 under operating lease agreements for the periods ending
in 2002 and 2003.
b) Future minimum lease commitment under these agreements are as
follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Nine months ending December 31, 2000 (unaudited)....... $25
Year ending December 31:
2001................................................... 33
2002................................................... 31
2003................................................... 5
---
$94
===
</TABLE>
3) Lease expenses totaled $91,000, $86,000 and $135,000 in the years
ended December 31, 1997, 1998 and 1999, respectively, and (unaudited)
$22,000 and (unaudited) $39,000 in the periods of three months ended
March 31, 1999 and 2000, respectively.
b. ROYALTY COMMITMENTS
1) The Company licensed technologies from three companies that are
subject to a per unit royalty ranging from $0.50 to $3.00. The
royalties are included in the cost of sales and amounted to $61,000,
$40,000 and $43,000 in the years ended December 31, 1997, 1998 and
1999, respectively, and (unaudited) $10,000 and (unaudited) $5,000 in
the periods of three months ended March 31, 1999 and 2000,
respectively.
2) Prior to 1995, the Company participated in Israeli Government
research and development incentive programs under which the Company
received research and development participation of $263,000. As a
result of this participation, the Company is liable to pay royalties
to the Office of the Chief Scientist in the Israeli Ministry of
Industry and Trade at rates of 3% to 5% of revenues resulting from
projects funded by the Chief Scientist. The royalties to be paid are
up to maximum amounts of 100% to 150% of the funded
F-15
<PAGE>
NOGATECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--COMMITMENTS AND CONTINGENT LIABILITIES: (CONTINUED)
amounts. Through 1995, the Company repaid the Chief Scientist amounts
related to participation received of $138,000. Of the remaining
participation amount received of $125,000, the Chief Scientist is of
the opinion that revenues already received by the Company involved
products developed under projects funded by the Office of the Chief
Scientist. The Company is of the view that it no longer manufactures
or sells products developed under the funded projects, and believes
that it is not liable for any further royalty payments to the Office
of the Chief Scientist. Therefore, the Company did not provide in its
financial statements for exposure, ranging from $125,000 to $187,500,
with respect to royalties to the Chief Scientist.
c. COMMISSION COMMITMENTS
Nogatech Israel is committed to pay a consulting company a commission
equal to 3.0% of the initial order of the net sales initiated by that
consulting company and a commission of 1.5% to 2.5% for all subsequent
orders.
Nogatech Israel is also committed to pay a commission equal to 3.0% of
orders of the net sales initiated by two other companies in sales to the
Far East.
Commissions paid by the Company amounted to $81,000 in the year ended
December 31, 1999 and amounted to (unaudited) $2,500 and (unaudited)
$25,000 in the periods of three months ended March 31, 1999 and 2000,
respectively.
d. LINE OF CREDIT
The Company has obtained a line of credit from an Israeli financial
institution for working capital purposes, in the amount of $2,000,000.
Repayment terms and interest rates are determined at the time of each
request for credit. The Company has pledged all of its assets as
collateral for this credit line. As of March 31, 2000, the financial
institution has provided the Company guarantees in a total amount of
(unaudited) $456,000 in favor of rent facility, a supplier and customs
authorities in Israel, which reduce the available amount of line of
credit to zero.
NOTE 5--REDEEMABLE CONVERTIBLE PREFERRED STOCK:
a. Redeemable convertible preferred stock consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- MARCH 31,
1998 1999 2000
-------- -------- --------------
(IN THOUSANDS) (IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C>
Series A redeemable convertible preferred stock--$0.43
redemption value plus an accrued amount (see note b(1)
below): authorized 30,000,000 shares; issued and
outstanding--15,906,304 shares at December 31, 1998 and
1999 and at March 31, 2000 (at redemption value).......... $7,816 $8,243 $ 8,408
Series B redeemable convertible preferred stock--$4.18
redemption value: authorized at December 31, 1999 and
March 31, 2000--1,196,172 shares; no shares issued and
outstanding at December 31, 1999, 1,196,172 shares issued
and outstanding at March 31, 2000......................... -- -- 5,000
------ ------ -------
$7,816 $8,243 $13,408
====== ====== =======
</TABLE>
F-16
<PAGE>
NOGATECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--REDEEMABLE CONVERTIBLE PREFERRED STOCK: (CONTINUED)
In addition, the Company has authorized 803,828 shares of undesignated
convertible preferred stock.
b. Following are the main terms of the Company's redeemable convertible
preferred stock:
1) Liquidation preference
Holders of preferred stock are entitled to a liquidation preference
of $0.43 and $4.18 for series A and B, respectively, per share plus
an amount equal to 8% of such liquidation price, compounded annually,
for each year (or fraction thereof) after the first two years from
issuance of the stock, plus any declared but unpaid dividends. The
terms of the preferred stock stipulate that certain events (such as a
change in control) shall be considered as a deemed liquidation of the
Company which entitle the holders to redeem the outstanding shares
based on their liquidation amounts.
The excess of the consideration received, net of issuance costs, from
the issuance of the series A convertible preferred stock over its
redemption value, is recorded as additional paid-in capital at the
date of issuance. The annual accretion of the redemption value,
computed using the interest method, is charged to accumulated
deficit.
2) Voting rights
As long as an aggregate amount of at least 4,000,000 shares of
series A and series B preferred stock are outstanding, preferred
stockholders are entitled to vote on all matters submitted or
required to be submitted to a vote of the stockholders of the Company
and shall be entitled to the number of votes equal to the number of
full shares of common stock into which such shares of series A and
series B preferred stock could be converted.
3) Election of Directors
So long as at least 4,000,000 shares of series A preferred stock are
outstanding, the authorized number of directors shall be nine and any
change in the number shall be with the consent of the holders of a
majority of the outstanding series A preferred stock. The holders of
the outstanding shares of series A preferred stock, voting as a
single class, are entitled to elect seven directors to the board of
directors. The holders of the outstanding shares of common stock,
voting as a single class, shall be entitled to elect two directors to
the board of directors.
4) Right to convert
At the option of the holder, each share of series A preferred stock
is convertible, at any time after issuance, into common stock based
on the determined conversion price subject to certain antidilution
provisions. According to the determined conversion price, as of
March 31, 2000, 5,765,003 shares of series A preferred stock are
convertible on a basis of two shares of preferred stock for one share
of common stock and 10,141,301 shares are convertible according to a
ratio of 1.7707 share of preferred stock for one share of common
stock.
At the option of the holder, each share of series B preferred stock
is convertible, at any time after issuance, into common stock, based
on the determined conversion price subject to certain antidilution
provisions. The determined conversion price of series B preferred
stock will be equal to the quotient obtained by dividing $4.18 by the
Series B conversion
F-17
<PAGE>
NOGATECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--REDEEMABLE CONVERTIBLE PREFERRED STOCK: (CONTINUED)
price in effect immediately prior to the time of such conversion. The
"Series B Conversion Price" shall be equal to $8.36 through
February 28, 2000. Thereafter, commencing on February 29, 2000 though
May 31, 2000, the "Series B Conversion Price" shall be equal to
$7.315. Thereafter, commencing on June 1, 2000 through June 30, 2000,
the Series B Conversion Price shall be equal to $6.897. Thereafter,
commencing on July 1, 2000 through July 31, 2000, the "Series B
Conversion Price" on any given date shall be equal to the result
obtained by dividing (i) 100,000,000 less the result of multiplying
163,398.69 by the number of days after February 29, 2000 on which
such measurement date occurs, by (ii) 23,915,417, subject to certain
antidilution adjustments. Commencing on August 1, 2000, the
"Series B Conversion Price" shall be $6.28.
The series A and B preferred stock will be automatically converted
into common stock concurrently with the closing of an underwritten
public offering of common stock resulting in aggregate gross cash
proceeds from the issuance in excess of $10,000,000.
F-18
<PAGE>
NOGATECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--REDEEMABLE CONVERTIBLE PREFERRED STOCK: (CONTINUED)
5) Dividends
When and if declared by the board of directors, noncumulative
dividends at the annual rate of $0.0258 per share of series A
preferred stock and $0.1039 per share of series B preferred stock are
payable in cash to the preferred stockholders, in preference to any
declaration or payment on the common stock.
c. On January 13, 2000, the Company issued 1,196,172 shares of series B
redeemable convertible preferred stock to a financial investor for a
total consideration of (unaudited) $5,000,000. These shares of preferred
stock are convertible into common stock as described in note b(4) above.
In connection with this issuance, the Company recorded a beneficial
conversion charge of (unaudited) $4,570,000 in the three months ended
March 31, 2000. This charge is calculated as the difference between the
per share conversion price of $7.315 and the deemed fair value of a share
of common stock at commitment date (the mid-range of the expected initial
public offering price of $14.00 per share of common stock) multiplied by
the applicable number of equivalent shares of common stock (683,527
shares). This nonrecurring amount has been entirely reflected as a
decrease of the net income applicable to common stock, against a
corresponding credit to additional paid-in capital.
F-19
<PAGE>
NOGATECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--REDEEMABLE CONVERTIBLE PREFERRED STOCK: (CONTINUED)
D. Details regarding issuances of Series A and Series B redeemable
convertible preferred stock:
<TABLE>
<CAPTION>
NUMBER AMOUNT
---------- ---------------------------------------------------
CLASSIFIED AS
REDEEMABLE
PREFERRED
STOCK--AT CLASSIFIED CHARGED TO
REDEMPTION AS PAID-IN ACCUMULATED
VALUE CAPITAL DEFICIT TOTAL
------------- ---------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1. SERIES A REDEEMABLE CONVERTIBLE
PREFERRED STOCK:
Balance at January 1, 1997........... 8,962,959 $4,147 634 (293) $ 4,488
Preferred shares issued on February
4, 1997............................ 859,871 370 *936 1,306
Preferred shares issued on August 17,
1997............................... 318,471 137 *347 484
Accretion of redemption value for
1997............................... 300 (300) --
---------- ------ ------- ------- -------
Balance as of December 31, 1997...... 10,141,301 4,954 1,917 (593) 6,278
Preferred shares issued on July 15,
1998............................... 5,765,003 2,479 *3,162 5,641
Accretion of redemption value for
1998............................... 383 (383) --
---------- ------ ------- ------- -------
Balance as of December 31, 1998...... 15,906,304 7,816 5,079 (976) 11,919
Accretion of redemption value for
1999............................... 427 (427) --
---------- ------ ------- ------- -------
Balance as of December 31, 1999...... 15,906,304 8,243 5,079 (1,403) 11,919
Accretion of redemption value for the
three months ended March 31, 2000
(unaudited)........................ 165 (165) --
---------- ------ ------- ------- -------
Balance of Series A redeemable
convertible preferred stock as of
March 31, 2000 (unaudited)......... 15,906,304 8,408 5,079 (1,568) 11,919
========== ====== ======= ======= =======
2. SERIES B REDEEMABLE CONVERTIBLE
PREFERRED STOCK--
Preferred shares issued on
January 13, 2000................... 1,196,172 5,000 **(302) -- 4,698
Charge for beneficial conversion
feature............................ -- -- 4,570 (4,570) --
---------- ------ ------- ------- -------
Balance of Series B redeemable
convertible preferred stock as of
March 31, 2000 (unaudited)......... 1,196,172 5,000 4,268 (4,570) 4,698
========== ====== ======= ======= =======
TOTAL BALANCE OF REDEEMABLE
CONVERTIBLE PREFERRED STOCK AS OF
MARCH 31, 2000 (unaudited)......... 13,408 9,347 (6,138) 16,617
====== ======= ======= =======
</TABLE>
- ------------------------
* Net of issuance costs of $60,000 in 1997 and $355,000 in 1998.
** Reflects issuance costs.
F-20
<PAGE>
NOGATECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--STOCKHOLDERS' EQUITY
a. REVERSE STOCK SPLIT
On March 5, 2000, the Company's Board of Directors approved a
reorganization of the Company's share capital, whereby each two shares of
common stock of $0.001 par value will be reverse stock split into one
share of common stock of $0.001 par value. All share and per share data
included in these financial statements have been retroactively adjusted
to reflect the abovementioned reverse stock split. In addition, the
conversion ratio of the convertible preferred stock, the number of
options and their exercise price have been adjusted accordingly.
b. INITIAL PUBLIC OFFERING
On March 5, 2000, the Company's Board of Directors authorized the Company
to file a registration statement with the U.S. Securities and Exchange
Commission for an initial public offering of its common shares.
c. EMPLOYEE STOCK OPTION PLANS
1) Previous stock option plans:
a) U.S. 1993 Stock Option Plan
In February 1993, the Company's Board of Directors approved a
U.S. stock option plan (the U.S. plan), under which options are
to be granted to the Company's employees including officers,
directors and consultants, without consideration. Each option can
be exercised to purchase one common share of the Company. Any
option not exercised within 4 or 5 years, as applicable, from
allotment date will expire, unless extended by the Board of
Directors.
F-21
<PAGE>
NOGATECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--STOCKHOLDERS' EQUITY (CONTINUED)
Options granted under the plan may be either incentive stock
options or nonstatutory stock options and may become exercisable
as specified in each option agreement.
Options granted to a holder of more that 10% of the voting stock
of the Company may be granted at not less than 110% of fair value
of the common share on the date of grant. Incentive stock options
granted to employees under the U.S. plan must have exercise
prices not less than 100% of fair value of the common share on
the date of the grant, as determined by the Board of Directors.
b) Israeli 1993 Stock Option Plan
In July 1993, the Company's Board of Directors approved an
Israeli employee option plan (the Israeli plan), under which
options are to be granted to the Company's employees including
officers, directors and consultants without consideration. Each
option can be exercised to purchase one common share of the
Company. Any option not exercised within 7 years from allotment
date will expire, unless extended by the Board of Directors.
c) Options granted to consultants under these plans were excluded
from the summary presented in the tables 4 and 5 below and were
treated as options granted to nonemployees, see note 6(d) below.
2) Existing stock option plan--1999 stock option plan
On December 8, 1999, in connection with the merger (note 1a(1)), the
Company adopted the 1999 stock option plan. All issued and
outstanding options under the 1993 plans were assumed under the 1999
stock option plan. In addition, the Company has the right to issue
new options pursuant to the 1999 plan. The terms of the new options
issued under the 1999 plan are identical to the terms of the options
granted under the 1993 plans.
3) The 2000 Equity Incentive Plan
On March 5, 2000, the Board of Directors adopted the 2000 Equity
Incentive Plan, under which the Company's employees, directors and
consultants are eligible to receive grants of options to purchase
common stock, stock appreciation rights and restricted shares of
common stock. It was further resolved to reserve for issuance under
the plan a maximum amount of 3,500,000 shares plus automatic annual
increases equal to the lesser of 500,000 shares or 5% of the
Company's outstanding shares on the last day of the preceding year.
This plan will become effective after the consummation of the
Company's initial public offering.
The rights of the common stock obtained upon exercise of the options
will be identical to those of the other shares of common stock of the
Company.
F-22
<PAGE>
NOGATECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--STOCKHOLDERS' EQUITY (CONTINUED)
4) A summary of the status of the 1999 stock option plan as of
December 31, 1997, 1998, 1999, and as of (unaudited) March 31, 2000
and changes during the periods of three months ended on those dates,
is presented below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------- THREE MONTHS ENDED
1997 1998 1999 MARCH 31, 2000
------------------- -------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE
NUMBER PRICE NUMBER PRICE NUMBER PRICE NUMBER PRICE
-------- -------- --------- -------- --------- -------- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of period...... 772,720 $0.24 734,470 $0.28 1,248,470 $0.26 1,531,220 $ 0.94
Changes during the period:
Granted.................. 51,750 $0.72 549,000 $0.24 431,000 $2.78 21,000 $11.33
Exercised................ (18,120) $0.14 (6,250) $0.12 (100,875) $0.34 (187,206) $ 1.35
Forfeited................ (71,880) $0.30 (28,750) $0.64 (47,375) $0.72 (13,500) $ 5.22
------- --------- --------- ---------
Options outstanding at
period end............... 734,470 $0.28 1,248,470 $0.26 1,531,220 $0.94 1,351,514 $ 1.08
======= ========= ========= =========
Options exercisable at
period end............... 556,014 $0.26 791,146 $0.28 948,261 $0.72 775,994 $ 0.56
======= ========= ========= =========
Options available for grant
under the stock option
plan..................... 473,823 953,572 3,011,787 3,004,287
======= ========= ========= =========
Weighted average fair value
of options granted during
the period*.............. $0.27 $0.58 $1.34 $ 7.33
</TABLE>
- --------------------------
* The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option-pricing model, based on the following
weighted average assumptions: dividend yield of 0% for all periods; expected
volatility of 55% for all periods; risk-free interest rates (in dollar
terms): 1997 - 6.1%; 1998 - 5.4%; 1999 - 5.7% and 2000 - 6%; and expected
lives of 4 years in all periods.
F-23
<PAGE>
NOGATECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--STOCKHOLDERS' EQUITY (CONTINUED)
5) The following table summarizes information about options outstanding
at March 31. 2000 (unaudited):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------- ----------------------------
WEIGHTED
AVERAGE
REMAINING WEIGHTED
CONTRACTUAL AVERAGE WEIGHTED
RANGE OF NUMBER LIFE EXERCISE NUMBER AVERAGE
EXERCISE PRICE OF OPTIONS IN YEARS PRICE OF OPTIONS EXERCISE PRICE
- -------------- ----------- ----------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$0.02-$0.20 759,764 2.6 $ 0.08 502,931 $ 0.12
$0.72 297,250 3.4 $ 0.72 195,563 $ 0.72
$3.00 279,500 5.3 $ 3.00 77,500 $ 3.00
$8.00 5,000 6.8 $ 8.00
$15.00 10,000 2.0 $ 15.00
----------- -----------
1,351,514 $ 1.08 775,994 $ 0.56
=========== ===========
</TABLE>
6) Options to employees were granted at exercise prices which were equal
to the fair value of the common stock at dates of grant, except for
381,500 options granted in July 1998, to the Company's Chairman of
the Board of Directors and to its Chief Executive Officer and except
for 40,000 options granted to employees in December 1999 and 5,000
options granted to employees in February 2000 which were granted at
exercise prices lower than the fair value of each share of common
stock at dates of grant. The options granted in 1998 were issued at
an exercise price of $0.02 for each share of common stock, while the
fair value of each share of common stock was $0.72. The fair value of
each of these options granted was $0.71. These options will vest over
a period of three years but shall vest immediately upon the
consummation of an initial public offering or upon the occurrence of
a corporate sale, as defined in the agreement. These options will
expire if not exercised after a certain period. The 40,000 options
granted in 1999 were issued at an exercise price of $3.00 for each
share of common stock, while the fair value of each share of common
stock at the dates of grant, was $8.30. The fair value of each of
these options granted was $5.91. The 5,000 options granted in
February 2000 were issued at an exercise price of $8.00 for each
share of common stock, while the fair value of each share of common
stock at the date of grant, was $14.00. The fair value of each of
these options granted was $6.00.
7) Accounting treatment of the employee stock option plans
As to the accounting treatment with respect to employee stock option
grants, see note 1(l).
In 1998, 1999 and in the three months ended March 31, 2000, the
Company recorded $268,000, $214,000 and (unaudited) $35,000,
respectively, of deferred stock compensation for the excess of the
deemed fair value of a share of common stock over the exercise price
at the date of grant related to certain options granted to employees
and directors. The compensation expense is being amortized over the
vesting period of the options. The compensation costs that have been
charged to the statements of operations, under "general and
administrative expenses", in the years ended December 31, 1998 and
1999
F-24
<PAGE>
NOGATECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--STOCKHOLDERS' EQUITY (CONTINUED)
and in the period of three months ended March 31, 2000 are $45,000,
$90,000 and (unaudited) $32,000, respectively.
8) Pro forma disclosure
Had compensation cost for the Company's plans been determined using
the fair value at the grant dates, consistent with the method of
FAS 123, the Company's net loss and loss per share of common stock
would have been increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
YEAR ENDED DECEMBER 31, 1999 2000
--------------------------------------------------------------- ------------------- -------------------
1997 1998 1999 UNAUDITED UNAUDITED
------------------- ------------------- ------------------- ------------------- -------------------
AS PRO AS PRO AS PRO AS PRO AS PRO
REPORTED FORMA REPORTED FORMA REPORTED FORMA REPORTED FORMA REPORTED FORMA
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net loss applicable to
common stock--in
thousands............ $(1,762) $(1,766) $(2,206) $(2,225) $(1,523) $(1,668) $ (924) $ (987) $(4,642) $(4,663)
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Net loss per share of
common stock--Basic
and diluted.......... $ (5.86) $ (5.87) $ (7.13) $ (7.19) $ (4.50) $ (4.93) $ (2.97) $ (3.17) $ (8.14) $ (8.17)
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
d. WARRANTS AND OPTIONS TO NONEMPLOYEES
1) In 1998, in order to obtain a credit line, the Company granted a bank
options to purchase 240,208 shares of common stock at an exercise
price of $2.08 per share. These options are exercisable during a
period of three years. According to the agreement, the options will
expire after a certain period, if not exercised. The Company recorded
deferred compensation of $37,000 associated with these options based
on the fair value of these options at the date of grant.
2) In December 1998, the Board of Directors granted 75,000 options to a
consulting company in exchange for marketing services rendered. The
options which were vested in January 1999 and are exercisable for
75,000 shares of common stock at an exercise price of $0.72 per
share. The Company recorded deferred compensation of $16,000
associated with these options based on the fair value of these
options at the date of grant.
3) In connection with the change of ownership in the Company in 1995,
the Board of Directors granted 350,000 options to the Company's
current Chairman of the Board of Directors who did not have an active
role in the Company at the date of grant. The optionee paid $5,000
for this right. Each option can be exercised to purchase one share of
common stock of the Company at an exercise price of $0.125 per share.
The options expire in June 2000. An expense of $10,000 associated
with these options, reflecting the
F-25
<PAGE>
NOGATECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--STOCKHOLDERS' EQUITY (CONTINUED)
fair value of the option at date of grant, net of the amount paid for
the option, was charged in the statement of operations for the year
ended December 31, 1995.
4) a) In October 1995, the Company issued 7,500 common stock options
to a consultant at an exercise price of $0.125 per share. These
options were exercised in 1999.
b) In January 1996, the Company issued 10,000 common stock options
to a consultant at an exercise price of $0.14 per share. These
options were exercised in January 2000.
c) In August 1999, the Company issued 20,000 common stock options to
four consultants at an exercise price of $3.00 per share. Two
consultants' options vest ratably over a period of four years and
the options issued to the other consultants are fully vested. The
total deferred expense of $22,000 associated with these options
reflects the fair value of the options at dates of grant.
5) Accounting treatment of options granted to nonemployees.
As to the accounting treatment with respect to options granted to
nonemployees, see Note 1(l).
The fair value of equity instruments issued in exchange for services
received is charged against income over the vesting period.
The following weighted average assumptions were used for estimating
the fair value of the options under Black-Scholes option pricing
model: dividend yield of 0%; and expected volatility of 55% for the
years 1998 and 1999, risk free interest of 5.4% and 5.7% for the
years 1998 and 1999 respectively and average expected life of
4 years for the years 1998 and 1999.
Services costs charged against income in respect of equity
instruments granted to nonemployees were $5,000 and $25,000 in the
years ended December 31, 1998 and 1999, respectively, and (unaudited)
$6,000 and (unaudited) $12,000 in the three month periods ended
March 31, 1999 and 2000, respectively. These costs have been included
in the consolidated statements of operations under "general and
administrative expenses" (except for $16,000 charged to "sales and
marketing expenses" in the year ended December 31, 1999 and
(unaudited) $4,000 for the three months ended March 31, 1999).
e. WARRANTS ISSUED TO SERIES A REDEEMABLE CONVERTIBLE PREFERRED
STOCKHOLDERS
1) In 1997, in connection with the issuance of series A redeemable
convertible preferred stock, the Company issued to the buyers of
those shares options to purchase up to 589,171 shares of common stock
at an exercise price of $3.14 per share. 318,471 of these options
expired in 1999, 111,464 options were exercised in January 2000 and
159,236 options will expire in August 2000.
2) In 1998, in connection with the issuance of series A redeemable
convertible preferred stock, the Company granted the buyers of those
shares options to purchase 432,375 shares of common stock at an
exercise price of $2.08 per share. These options expire in
July 2000.
F-26
<PAGE>
NOGATECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--STOCKHOLDERS' EQUITY (CONTINUED)
3) According to the applicable agreements, the options described in 1
and 2 above will expire after a certain agreed period if not
exercised.
f. EMPLOYEE STOCK PURCHASE PLAN
On March 5, 2000, the Board of Directors adopted the 2000 Employee Stock
Purchase Plan which permits eligible employees to purchase shares of the
Company's common stock pursuant to payroll deductions periodically
applied to the purchase of such shares. A total of 350,000 shares of
common stock initially have been reserved for issuance under the Purchase
Plan. The number of shares reserved for issuance will be increased
automatically on the first day of the Company's fiscal year, commencing
in 2001, by an amount equal to the lesser of 500,000 shares or 1% of the
number of outstanding shares on the last trading day of the immediately
preceeding fiscal year.
g. COMMON STOCK RESERVED
As at March 31, 2000 (unaudited), the Company has reserved shares of
common stock for future issuance, as follows:
<TABLE>
<CAPTION>
NUMBER OF
SHARES
-----------
(UNAUDITED)
<S> <C>
Conversion of series A and B redeemable convertible
preferred stock........................................... 9,293,310
Employee stock option plans................................. 7,855,801
Warrants and options to nonemployees........................ 1,276,818
Employee stock purchase plan................................ 350,000
----------
18,775,929
==========
</TABLE>
h. On March 8, 2000, the note receivable from a stockholder was repaid to
the Company, including the interest accrued at the annual rate of 5.5%.
NOTE 7--INCOME TAXES:
A. U.S. INCOME TAXES
As of March 31, 2000, the Company had federal and state net operating loss
carryforwards of approximately (unaudited) $5,160,000 and (unaudited)
$1,673,000, respectively, which expire through 2019 and 2004, respectively.
As of December 31, 1999, the Company had federal and state net operating
loss carryforwards of approximately $5,200,000 and $1,700,000, respectively,
which expire through 2019 and 2004, respectively.
Utilization of the net operating loss carryforwards may be subject to a
substantial annual limitation due to the ownership change limitations
provided by the Internal Revenue Code of 1986, as amended, and similar state
provisions. The annual limitation may result in the expiration of net
operating loss carryforwards before utilization.
F-27
<PAGE>
NOGATECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--INCOME TAXES: (CONTINUED)
b. ISRAELI INCOME TAXES
Nogatech Israel has been awarded "approved enterprise" status by the Israeli
government, under the Law for the Encouragement of Capital Investments,
1959. Under the approved enterprise status, Nogatech Israel is entitled to a
four-year tax exemption on undistributed earnings commencing in the year in
which it attains taxable income and a reduced corporate tax rate of 10%-15%
for the remaining term of the program on the plan's proportionate share of
income. The period of tax benefits has not yet commenced. In the event of
the distribution of dividends from income which was tax exempt, the amount
distributed will be liable to corporate tax of 10%-15%.
The entitlement to the above benefits is conditional upon the fulfillment of
conditions stipulated by the law, regulations published thereunder and the
instrument of approval for the specific investment in approved enterprises.
In the event of failure to comply with these conditions, the benefits may be
cancelled and Nogatech Israel may be required to refund the amounts of the
benefits in whole or in part with the addition of linkage differences and
interest.
Nogatech Israel's results for tax purposes are measured on a real basis,
adjusted for the increase in the Israeli Consumer Price Index (CPI). As
explained in note 1b, the financial statements of the Israeli subsidiary
included in consolidation are expressed in U.S. dollars. The difference
between the changes in the Israeli CPI and the NIS/U.S. dollar exchange
rate--both on annual and cumulative basis--causes a difference between
taxable income (loss) and income (loss) reflected in Nogatech Israel's
financial statements expressed in dollars.
Israeli taxable income not eligible for "approved enterprise" benefits
mentioned above is taxed at the regular tax rate of 36%.
As of December 31, 1999 and as of March 31, 2000, Nogatech Israel has
Israeli net operating loss carryforwards of approximately $2,300,000 and
(unaudited) $2,000,000, respectively. The Israeli loss carryforwards have no
expiration date. The Company expects that during the period these tax losses
are utilized, most of its income would be tax exempt, and therefore, the
utilization of the net operating losses will generate no tax benefit.
Accordingly, deferred tax assets from such losses have not been included in
the financial statements.
c. DEFERRED INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------- -----------
1998 1999 2000
-------- -------- -----------
(IN THOUSANDS) (IN
THOUSANDS)
UNAUDITED
<S> <C> <C> <C>
In respect of the U.S. operating loss
carryforwards............................... $ 1,500 $ 2,000 $2,000
Valuation allowance........................... (1,500) (2,000) (2,000)
------- ------- ------
Net deferred tax assets....................... $ -- $ -- $ --
======= ======= ======
</TABLE>
F-28
<PAGE>
NOGATECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--INCOME TAXES: (CONTINUED)
The valuation allowance increased by $400,000, $300,000, $500,000 and
(unaudited) $0 for the years ended December 31 1997, 1998, 1999 and for the
three months ended March 31, 2000, respectively. These changes in the
valuation allowance were charged to expenses.
FAS 109 provides for the recognition of deferred tax assets if realization
of such assets is more likely than not. Based upon the weight of available
evidence, which includes the Company's historical operating performance and
the reported cumulative net losses in all prior years, management has
determined that the future realization of the tax benefit is not
sufficiently assured. Consequently, a full valuation allowance has been
provided against the net deferred tax assets.
d. NET LOSS (INCOME) APPLICABLE TO THE ISRAELI AND THE U.S. OPERATIONS.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(UNAUDITED)
IN THOUSANDS
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net loss (income) applicable to:
Israeli operations................ $1,006 $1,000 $1,805 $1,166 $ 30
U.S. operations................... 400 433 (264) (188) (123)
Eliminations...................... 56 390 (445) (161) --
------ ------ ------ ------ ------
$1,462 $1,823 $1,096 $ 817 $ (93)
====== ====== ====== ====== ======
</TABLE>
e. ISRAELI TAX ASSESSMENTS
Nogatech Israel has had no final tax assessments since its incorporation in
1993.
NOTE 8--RELATED PARTY TRANSACTIONS
Kenwood Corporation ("Kenwood") is a stockholder in the Company. During
1997, Kenwood subleased premises from the Company for a specific period of
time. Rental income earned by the Company from this sublease was $75,000 for
1997 and at December 31, 1997, Kenwood owed the Company $75,000 pertaining
to this sublease.
Tomen Electronics ("Tomen") is a stockholder in the Company. Sales made to
Tomen were $439,000, $1,324,000 and $1,272,000 in 1997, 1998 and 1999,
respectively, and (unaudited) $152,000 and (unaudited) $242,000 in the three
month periods ended March 31, 1999 and 2000, respectively. As of
December 31, 1998 and 1999, Tomen owed the Company $35,000 and $68,000,
respectively and $11,000 in the three months ended March 31, 2000. The
Company purchases certain products from Tomen. Purchases from Tomen
aggregated $194,000 and $151,000 in 1998 and 1999, respectively and
(unaudited) $60,000 in the three months ended March 31, 1999. As of
December 31, 1998 and 1999, the Company owed Tomen $32,000 and $60,000,
respectively, pertaining to these purchases. Additionally, during 1997, the
Company entered into an engineering agreement with Tomen, whereunder the
Company will receive four payments of $50,000 upon the achievement of
certain milestones, as agreed. The Company recognized $100,000 of revenue
under this agreement for the year ended December 31, 1997. In 1998, the
engineering agreement was canceled and it was agreed between the companies
that there would be no further obligations.
F-29
<PAGE>
NOGATECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION:
BALANCE SHEETS:
a. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1998 1999 2000
-------- -------- --------------
(IN THOUSANDS) (IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C>
1) Trade:
Open accounts......................................... $813 $ 951 $1,484
Related party (note 8)................................ 35 68
---- ------ ------
$848 $1,019 $1,484
==== ====== ======
The item is net of--
Allowance for doubtful accounts....................... $(24) $ (150) $ (175)
==== ====== ======
</TABLE>
The change in the allowance for doubtful accounts in the year ended
December 31, 1997 was a decrease of expenses of $23,000. The changes in
the allowance in the years ended December 31, 1998 and 1999 increased the
expenses by $20,000 and $126,000, respectively. The change in the
allowance for doubtful accounts in the three months ended March 31, 1999
was a decrease of expenses of (unaudited) $4,000. The change in the
allowance in the three months ended March 31, 2000 increased the expense
by (unaudited) $25,000.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1998 1999 2000
-------- -------- --------------
(IN THOUSANDS) (IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C>
2) Other:
Employees............................................. $ 65 $ 89 $ 127
Institutions.......................................... 36 82 77
Other receivables..................................... 39 26 9
---- ------ ------
$140 $ 197 $ 213
==== ====== ======
B. INVENTORIES
Raw materials......................................... $413 $ 843 $ 791
Finished goods........................................ 168 1,266 956
---- ------ ------
$581 $2,109 $1,747
==== ====== ======
C. ACCOUNTS PAYABLE AND ACCRUALS
1) Trade:
Open accounts......................................... $476 $1,907 $ 830
Related party (note 8)................................ 32 60
---- ------ ------
$508 $1,967 $ 830
==== ====== ======
2) Other and accruals:
Payroll and related expenses.......................... $149 $ 90 $ 125
Provision for vacation................................ 95 127 140
Deferred income....................................... 321 56 16
Provision for warranty................................ 65 177 219
Distributors.......................................... 11 244 252
Accrued expenses...................................... 66 197 124
---- ------ ------
$707 $ 891 $ 876
==== ====== ======
</TABLE>
F-30
<PAGE>
NOGATECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION: (CONTINUED)
STATEMENTS OF OPERATIONS:
D. NET LOSS PER SHARE OF COMMON STOCK
The following table sets forth the computation of historical basic and
diluted net loss per share of common stock:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------ -----------------------
1997 1998 1999 1999 2000
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NUMERATOR--IN THOUSANDS:
Net loss applicable to common
stock--numerator for basic net
loss per share of common
stock.......................... $ (1,762) $ (2,206) $ (1,523) (924) (4,642)
Deemed dividend for beneficial
conversion feature of preferred
stock.......................... -- -- -- -- 4,570
Accretion of redemption value of
series A and B redeemable
convertible preferred stock.... 300 383 427 107 165
---------- ---------- ---------- ---------- ----------
Numerator for diluted net income
(loss) per share of common
stock.......................... $ (1,462) $ (1,823) $ (1,096) (817) 93
========== ========== ========== ========== ==========
DENOMINATOR
Denominator for basic net loss
per share of common
stock--weighted average number
of shares of common stock...... 300,709 309,536 338,295 310,995 570,557
Incremental shares from assumed
conversions:...................
Series A and B redeemable
convertible preferred
stock........................ 5,568,334 7,048,428 8,609,783 8,609,783 9,179,388
Stock options.................. 2,638,257 3,879,996 2,058,358 3,206,664 1,977,721
---------- ---------- ---------- ---------- ----------
Denominator for diluted net loss
per share of common stock--
adjusted weighted average
number of shares............... 8,507,300 11,237,960 11,006,436 12,127,442 11,727,666
========== ========== ========== ========== ==========
</TABLE>
The effect of the inclusion of the redeemable convertible preferred stock
and stock options in the computation of the diluted net loss per share of
common stock in 1997, 1998 and 1999 is anti-dilutive.
NOTE 10--FAIR VALUE OF FINANCIAL INSTRUMENTS
The financial instruments of the Company consist of non-derivative current
assets and liabilities.
F-31
<PAGE>
NOGATECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
In view of their nature, the fair value of financial instruments included in
working capital of the Company is usually identical or close to their
carrying value.
NOTE 11--SEGMENT INFORMATION
The Company adopted the provisions of FAS 131 which sets out disclosure and
reporting requirements in respect of segments.
Management identifies two reportable operating segments that are
differentiated by the locations of the Company's customers: (1) the United
States and (2) the rest of the world. The Company evaluates performance of
these two operating segments based on sales only. The Company does not
evaluate performance based on segment asset information.
SEGMENT SALES--SALES CLASSIFIED BY GEOGRAPHIC AREA (BASED ON THE LOCATION OF
THE CUSTOMERS):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(IN THOUSANDS) (IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
United States--North America.......... $1,230 $1,373 $5,436 $509 $1,462
------ ------ ------ ---- ------
The rest of the world:
Japan............................... 836 1,341 1,314 152 282
Taiwan.............................. 93 59 1440 148 495
Europe.............................. 335 356 617 44 347
Other............................... 57 76 49 17 359
------ ------ ------ ---- ------
1,321 1,832 3,420 361 1,483
------ ------ ------ ---- ------
Total................................. $2,551 $3,205 $8,856 $870 $2,945
====== ====== ====== ==== ======
</TABLE>
COMPANY-WIDE DISCLOSURE REGARDING ITS TOTAL ASSETS, LONG-LIVED ASSETS AND
MAJOR CUSTOMERS:
A. TOTAL ASSETS AND LONG-LIVED ASSETS
The Company's total assets and long-lived assets, net of accumulated
depreciation and amortization, are located in the following geographical
areas:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
--------------------------------------------- ---------------------
1998 1999 2000
--------------------- --------------------- ---------------------
TOTAL LONG-LIVED TOTAL LONG-LIVED TOTAL LONG-LIVED
ASSETS ASSETS ASSETS ASSETS ASSETS ASSETS
-------- ---------- -------- ---------- -------- ----------
(IN THOUSANDS) (IN THOUSANDS) (IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Israel...................... $1,126 $168 $4,269 $324 $ 4,119 $324
North America............... 4,643 12 2,308 28 6,831 26
------ ---- ------ ---- ------- ----
Total....................... $5,769 $180 $6,577 $352 $10,950 $350
====== ==== ====== ==== ======= ====
</TABLE>
F-32
<PAGE>
NOGATECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--SEGMENT INFORMATION (CONTINUED)
B. MAJOR CUSTOMERS
In the years ended December 31, 1997, 1998 and 1999, and in the periods
of three months ended March 31, 1999 and 2000, major customers of the
Company represented the following percentages of sales:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31 MARCH 31,
------------------------------------ ----------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
UNAUDITED
<S> <C> <C> <C> <C> <C>
Customer A............................. * * 24% * 31%
Customer B............................. 17% 41% 14% 17% *
Customer C............................. * * 13% * *
Customer D............................. 32% 20% 11% 33% *
Customer E............................. * * * * 12%
Customer F............................. * * * * 11%
</TABLE>
- ------------------------
* Less than 10%.
MAJOR SUPPLIER
In the years ended December 31, 1997, 1998 and 1999, a major supplier of the
Company represented 8%, 10% and 58% of cost of sales, respectively.
In the periods of three months ended March 31, 1999 and 2000, a major
supplier of the company represented 41% and 57% of cost of sales,
respectively.
F-33
<PAGE>
INSIDE BACK COVER
The graphic consists of an AOL.com internet page computer monitor screen
display with four arrows pointing towards the page from the top, bottom and both
sides identifying different transmission methods.
<PAGE>
[LOGO]
Until , 2000 (25 days after the date of this offering), all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This is
in addition to the dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table indicates the expenses to be incurred in connection with
the offering described in this Registration Statement, all of which will be paid
by us. All amounts are estimates, other than the registration fee, the NASD
filing fee, and the Nasdaq National Market listing fee.
<TABLE>
<S> <C>
SEC Registration fee........................................ $ 17,002
NASD Filing fee............................................. 6,940
Nasdaq National Market listing fee.......................... 83,500
Accounting fees and expenses................................ 350,000
Legal fees and expenses..................................... 680,000
Printing and engraving expenses............................. 300,000
Transfer agent fees and expenses............................ 20,000
Blue sky fees and expenses.................................. 5,000
Miscellaneous fees and expenses............................. 120,000
----------
Total..................................................... $1,582,442
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 102 of the Delaware General Corporation Law, or the DGCL, as
amended, allows a corporation to eliminate the personal liability of directors
of a corporation to the corporation or its stockholders for monetary damages for
a breach of fiduciary duty as a director, except where the director breached his
duty of loyalty, failed to act in good faith, engaged in intentional misconduct
or knowingly violated a law, authorized the payment of a dividend or approved a
stock repurchase in violation of Delaware corporate law or obtained an improper
personal benefit.
Section 145 of the DGCL provides, among other things, that we may indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding (other than an
action by us or in our right) by reason of the fact that the person is or was
our director, officer, agent or employee or is or was serving at our request as
a director, officer, agent, or employee of another corporation, partnership,
joint venture, trust or other enterprise, against expenses, including attorneys'
fees, judgment, fines and amounts paid in settlement actually and reasonably
incurred by the person in connection with the action, suit or proceeding. The
power to indemnify applies (a) if the person is successful on the merits or
otherwise in defense of any action, suit or proceeding, or (b) if the person
acted in good faith and in a manner he or she reasonably believed to be in our
best interest, or not opposed to our best interest, and with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The power to indemnify applies to actions brought by us or in our
right as well, but only to the extent of defense expenses (including attorneys'
fees but excluding amounts paid in settlement) actually and reasonably incurred
and not to any satisfaction of judgment or settlement of the claim itself, and
with the further limitation that in these actions no indemnification shall be
made in the event of any adjudication of negligence or misconduct in the
performance of his or her duties to us, unless the court believes that in light
of all the circumstances indemnification should apply.
Section 174 of the DGCL provides, among other things, that a director, who
willfully or negligently approves of an unlawful payment of dividends or an
unlawful stock purchase or redemption, may be held liable for these actions. A
director who was either absent when the unlawful actions were approved or
dissented at the time, may avoid liability by causing his or her dissent to
these actions to
II-1
<PAGE>
be entered in the books containing the minutes of the meetings of the board of
directors at the time the action occurred or immediately after the absent
director receives notice of the unlawful acts.
Our certificate of incorporation includes a provision that eliminates the
personal liability of our directors for monetary damages for breach of fiduciary
duty as a director, except for liability for:
- any breach of the director's duty of loyalty to us or our stockholders;
- acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law;
- unlawful dividends and stock purchases; or
- any transaction from which the director derived an improper personal
benefit.
These provisions are permitted under Delaware law.
Our bylaws provide that:
- we must indemnify our directors and officers to the fullest extent
permitted by Delaware law;
- we may indemnify our other employees and agents to the same extent that we
indemnified our officers and directors, unless otherwise determined by our
board of directors; and
- we must advance expenses, as incurred, to our directors and executive
officers in connection with a legal proceeding to the fullest extent
permitted by Delaware law.
The indemnification provisions contained in our certificate of incorporation
and bylaws are not exclusive of any other rights to which a person may be
entitled by law, agreement, vote of stockholders or disinterested directors or
otherwise. In addition, we maintain insurance on behalf of our directors and
executive officers insuring them against any liability asserted against them in
their capacities as directors or officers or arising out of this status.
We have entered into agreements to indemnify our directors and executive
officers, in addition to indemnification provided for in our bylaws. These
agreements, among other things, will provide for indemnification of our
directors and executive officers for expenses, judgments, fines and settlement
amounts incurred by any such person in any action or proceeding arising out of
the person's services as a director or executive officer of us or another entity
at our request. We believe that these provisions and agreements are necessary to
attract and retain qualified persons as directors and executive officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since March 1, 1997, we have sold and issued the following unregistered
securities (the share numbers and per share prices below reflect the one-for-two
reverse stock split of the outstanding common stock to be effected prior to the
completion of this offering:
(1) Between March 1, 1997 and March 31, 2000, we granted stock options under
our 1999 Stock Option Plan to 66 of our officers, employees, directors and
consultants, to purchase an aggregate of 1,152,250 shares of common stock.
During this period, optionees exercised options to purchase an aggregate of
233,330 shares of common stock at various exercise prices.
(2) On August 17, 1997, we issued 318,471 shares of our Series A preferred
stock at $1.57 per share to Corex Israeli Industries Ltd. for an aggregate
cash consideration of $500,000.
(3) On August 17, 1997, we issued a warrant (the "1997 Warrant") to purchase
159,235 shares of our common stock to Corex Israeli Industries Ltd. at an
exercise price of $3.14 per share and an aggregate exercise price of
$500,000.
II-2
<PAGE>
(4) On June 24, 1998, we issued warrants to purchase an aggregate of 288,249
shares of our common stock to Hapoalim Nechasim (Menayot) Ltd. and Be'ery
Investment Bankers at an exercise price of $2.08 per share and an aggregate
exercise price of $600,000.
(5) On July 15, 1998, we issued 5,765,003 shares of our Series A preferred
stock to Docor International BV, Holland Ventures BV, Inventech Ltd., Ophir
Holdings Ltd. and Ronchal Investments NV, at $1.04 per share and an
aggregate cash consideration of $6,000,000.
(6) On July 15, 1998, we issued warrants to purchase 432,375 shares of our
common stock to Docor International BV, Holland Ventures BV, Inventech
Ltd., Ophir Holdings Ltd. and Ronchal Investments NV, at an exercise price
of $2.08 per share and an aggregate exercise price of $900,000.
(7) On July 15, 1998, we amended the 1997 Warrant and two warrants issued on
February 4, 1997 to purchase an aggregate of 111,464 shares of our common
stock to extend the term of the 1997 warrant and the two warrants by one
year.
(8) On September 24, 1999, in connection with our reincorporation into
Delaware, we issued one share of our common stock to one of our executive
officers who was not a U.S. resident for $1.00 per share.
(9) On January 13, 2000, we issued 1,196,172 shares of our Series B preferred
stock to Nomura International plc at $4.18 per share for an aggregate
consideration of $5,000,000.
The sales of the above securities were deemed to be exempt from registration
under the Securities Act of 1933, as amended (the "Act") in reliance on Section
4(2) of the Act, Regulation D promulgated under the Act, Regulation S
promulgated under the Act, or Rule 701 promulgated under Section 3(b) of the
Act. In each such transaction, the recipients of securities represented their
intentions to acquire securities for investment only and not with a view to or
for sale in connection with any distribution thereof, and appropriate legends
were affixed to the securities issued in such transactions.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
a. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
1.1 Form of Underwriting Agreement.
2.1** Agreement and Plan of Merger, by and between Nogatech, Inc.,
a California corporation and the Registrant, dated as of
December 28, 1999.
3.1** Second Amended and Restated Certificate of Incorporation of
the Registrant.
3.2** Bylaws of the Registrant.
3.3** Amendment to the Second Amended and Restated Certificate of
Incorporation of the Registrant, as filed with the Delaware
Secretary of State on April 14, 2000.
3.4** Amendment to the Second Amended and Restated Certificate of
Incorporation of the Registrant, as filed with the Delaware
Secretary of State on April 17, 2000.
4.1** Specimen common stock certificate.
5.1** Opinion of Bay Venture Counsel, LLP.
10.1.1** Warrant to purchase shares of common stock issued to Corex
Industries.
10.1.2** Warrant to purchase shares of common stock issued to Bank
Hapoalim.
10.1.3** Form of Warrant to purchase shares of common stock issued to
certain investors.
10.1.4** Warrant to purchase shares of common stock issued to Nathan
Hod.
10.2** Form of Indemnification Agreement for officers of the
Registrant.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
10.3** 1999 Stock Option Plan.
10.4** 2000 Equity Incentive Plan.
10.5** 2000 Employee Stock Purchase Plan.
10.6** Stock Purchase Agreement, by and among DSP Group, Inc.,
Scitex Corporation, Ltd., and Noga Technology, Inc., dated
as of January 1, 1993.
10.7** Stock Purchase Agreement, by and among DSP Group, Kenwood
Corporation, Tomen Electronics Corporation and Nogatech,
Inc., a California corporation, dated as of June 30, 1995.
10.8** Series A Preferred Stock Purchase Agreement by and between
the Registrant and Arie Heiman, dated February 28, 1996.
10.9** Series A Preferred Stock Purchase Agreement, by and among
Registrant and Nathan Hod, dated January 30, 1996.
10.10** Series B Preferred Stock Purchase Agreement, by and between
the Registrant and Nomura International plc, dated
January 13, 2000.
10.11** Shareholder Agreement, by and among Nomura International
plc., Holland Venture B.V., Ophir Holdings Ltd., Docor
International B.V., Inventech Ltd., Ronchal Investments
N.V., Challenge Fund-Etgar, L.P., and Corex Israeli
Industries Ltd., dated as of January 13, 2000.
10.12** Second Amended and Restated Registration Rights Agreement,
by and among the Registrant and certain security holders,
dated January 13, 2000.
10.13** Debenture Agreement by and between Bank Hapoalim and
Nogatech Ltd., dated June 16, 1998.
10.14+ Development Agreement, by and between Supertec Electronics
Ltd. and Nogatech, Ltd., dated as of August 1999.
10.15+ Development Agreement, by and between Supertec Electronics
Ltd. and Nogatech, Ltd., dated as of June 24, 1997.
10.16** Employment Agreement with Arie Heiman.
10.17** Employment Agreement with Yaron Garmazi.
10.18** Employment Agreement with Aryeh Gavrieli.
10.19** Employment Agreement with Liat Hod.
10.20** Series A Preferred Stock Purchase Agreement, by and among
the Registrant and Andrew Schonzeit, dated December 27,
1995.
21.1** Subsidiaries of the Registrant.
23.1 Consent of Kesselman & Kesselman, Independent Accountants.
23.2** Consent of Bay Venture Counsel, LLP (included at Exhibit
5.1).
24.1** Power of Attorney (included in signature pages).
27.1** Financial Data Schedule.
</TABLE>
- ------------------------
** Previously filed
+ We have requested confidential treatment from the Commission for selected
portions of this exhibit. The omitted portions have been separately filed
with the Commission.
II-4
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the provisions described in Item 14, or otherwise, the
Registrant has been informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against pubic policy as expressed in the Securities Act
and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 5430A and contained
in a form of prospectus filed by the Registrant under Rule 424(b) (1) or
(4) or 497 (h) under the Securities Act shall be deemed to be part of
this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bonafide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this amendment to registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Santa
Clara, State of California, on May 16, 2000.
<TABLE>
<S> <C> <C>
NOGATECH, INC.
By: /s/ YARON GARMAZI
-----------------------------------------
Yaron Garmazi
CHIEF FINANCIAL OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this amendment
to registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
* President and Chief Executive Officer May 16, 2000
--------------------------------- and Director (Principal Executive
Arie Heiman Officer)
/s/ YARON GARMAZI Chief Financial Officer and Secretary May 16, 2000
--------------------------------- (Principal Financial and Accounting
Yaron Garmazi Officer)
* Chairman of the Board May 16, 2000
---------------------------------
Nathan Hod
* Director May 16, 2000
---------------------------------
Gerald Dogon
* Director May 16, 2000
---------------------------------
Avraham Fischer
* Director May 16, 2000
---------------------------------
Davidi Gilo
* Director May 16, 2000
---------------------------------
Moshe Harel
* Director May 16, 2000
---------------------------------
Yirmiyahu Kaplan
* Director May 16, 2000
---------------------------------
Yossi Vinitski
* Director May 16, 2000
---------------------------------
Andrew Schonzeit
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ YARON GARMAZI
--------------------------------------
Yaron Garmazi, ATTORNEY-IN-FACT
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
1.1 Form of Underwriting Agreement.
2.1** Agreement and Plan of Merger, by and between Nogatech, Inc.,
a California corporation and the Registrant, dated as of
December 28, 1999.
3.1** Second Amended and Restated Certificate of Incorporation of
the Registrant.
3.2** Bylaws of the Registrant.
3.3** Amendment to the Second Amended and Restated Certificate of
Incorporation of the Registrant, as filed with the Delaware
Secretary of State on April 14, 2000.
3.4** Amendment to the Second Amended and Restated Certificate of
Incorporation of the Registrant, as filed with the Delaware
Secretary of State on April 17, 2000.
4.1** Specimen common stock certificate.
5.1** Opinion of Bay Venture Counsel, LLP.
10.1.1** Warrant to purchase shares of common stock issued to Corex
Industries.
10.1.2** Warrant to purchase shares of common stock issued to Bank
Hapoalim.
10.1.3** Form of Warrant to purchase shares of common stock issued to
certain investors.
10.1.4** Warrant to purchase shares of common stock issued to Nathan
Hod.
10.2** Form of Indemnification Agreement for officers of the
Registrant.
10.3** 1999 Stock Option Plan.
10.4** 2000 Equity Incentive Plan.
10.5** 2000 Employee Stock Purchase Plan.
10.6** Stock Purchase Agreement, by and among DSP Group, Inc.,
Scitex Corporation, Ltd., and Noga Technology, Inc. 1996,
dated as of January 1, 1993.
10.7** Stock Purchase Agreement, by and among DSP Group, Kenwood
Corporation, Tomen Electronics Corporation and Nogatech,
Inc., a California corporation, dated as of June 30, 1995.
10.8** Series A Preferred Stock Purchase Agreement by and between
the Registrant and Arie Heiman, dated February 28, 1996.
10.9** Series A Preferred Stock Purchase Agreement, by and among
Registrant and Nathan Hod, dated January 30, 1996.
10.10** Series B Preferred Stock Purchase Agreement, by and between
the Registrant and Nomura International plc, dated
January 13, 2000.
10.11** Shareholder Agreement, by and among Nomura International
plc., Holland Venture B.V., Ophir Holdings Ltd., Docor
International B.V., Inventech Ltd., Ronchal Investments
N.V., Challenge Fund-Etgar, L.P., and Corex Israeli
Industries Ltd., dated as of January 13, 2000.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
10.12** Second Amended and Restated Registration Rights Agreement,
by and among the Registrant and certain security holders,
dated January 13, 2000.
10.13** Debenture Agreement by and between Bank Hapoalim and
Nogatech Ltd., dated June 16, 1998.
10.14+ Development Agreement, by and between Supertec Electronics
Ltd. and Nogatech, Ltd., dated as of August 1999.
10.15+ Development Agreement, by and between Supertec Electronics
Ltd. and Nogatech, Ltd., dated as of June 24, 1997.
10.16** Employment Agreement with Arie Heiman.
10.17** Employment Agreement with Yaron Garmazi.
10.18** Employment Agreement with Aryeh Gavrieli.
10.19** Employment Agreement with Liat Hod.
10.20** Series A Preferred Stock Purchase Agreement, by and among
the Registrant and Andrew Schonzeit, dated December 27,
1995.
21.1** Subsidiaries of the Registrant.
23.1 Consent of Kesselman & Kesselman, Independent Accountants.
23.2** Consent of Bay Venture Counsel, LLP (included at Exhibit
5.1).
24.1** Power of Attorney (included in signature pages).
27.1** Financial Data Schedule.
</TABLE>
- ------------------------
** Previously filed.
+ We have requested confidential treatment from the Commission for selected
portions of this exhibit. The omitted portions have been separately filed
with the Commission.
<PAGE>
3,500,000 SHARES(1)
COMMON STOCK
UNDERWRITING AGREEMENT
May __, 2000
W.R. Hambrecht + Co., LLC
ING Barings LLC
DLJDIRECT Inc.
as Representatives of the several Underwriters
c/o W.R. Hambrecht + Co., LLC
550 Fifteenth Street
San Francisco, CA 94103
Ladies and Gentlemen:
Nogatech Inc., a Delaware corporation (the "Company"), proposes to
issue and sell up to an aggregate of 3,500,000 shares of its authorized but
unissued common stock, par value $0.001 per share (the "Common Stock") (said
3,500,000 shares of Common Stock being herein called the "Underwritten Stock")
to the Underwriters (as hereinafter defined) and to grant the Underwriters an
option to purchase up to an aggregate of 525,000 additional shares of Common
Stock (the "Option Stock" and collectively with the Underwritten Stock, the
"Shares"). The Common Stock is more fully described in the Registration
Statement and the Prospectus hereinafter mentioned.
The Company hereby confirms the agreements made with respect to the
purchase of the Shares by the underwriters, for whom you are acting as
representatives, named in Schedule I hereto (herein collectively called the
"Underwriters," which term shall also include any underwriter purchasing Shares
pursuant to Section 3(b) hereof). You represent and warrant that you have been
authorized by each of the other Underwriters to enter into this Agreement on its
behalf and to act for it in the manner herein provided.
As a part of the offering contemplated by this Agreement, W.R.
Hambrecht + Co., LLC has agreed to reserve out of the Underwritten Stock up
to 100,000 shares in the aggregate for sale to the Company's employees,
officers and directors and other parties associated with the Company
(collectively, "Participants"), as set forth in the Prospectus under the
heading "Plan of Distribution" (the "Reserved Share Program"). The shares of
Common Stock to be sold by W.R. Hambrecht + Co., LLC pursuant to the Reserved
Share Program (the "Reserved Shares") will be sold by them pursuant to this
Agreement at the initial public offering price. Any Reserved Shares not
orally confirmed for purchase by any Participants as of 7:00 am California
time on the first day that trading of the shares commences or paid for by any
Participants in accordance with the customary policies of W.R. Hambrecht +
Co., LLC may be offered to the public in such
- --------
(1) Plus an option to purchase from the Company up to an aggregate of
525,000 additional shares to cover over-allotments.
<PAGE>
lawful manner as W.R. Hambrecht + Co., LLC shall, in its sole discretion,
deem to be appropriate.
1. REGISTRATION STATEMENT. The Company has filed with the
Securities and Exchange Commission (the "Commission") a registration
statement on Form S-1 (No. 333-32372), including the related preliminary
prospectus, for the registration under the Securities Act of 1933, as amended
(the "Act"), of the Shares. Copies of such registration statement and of each
amendment thereto, if any, including the related preliminary prospectus
(meeting the requirements of Rule 430A of the rules and regulations of the
Commission) heretofore filed by the Company with the Commission have been
delivered to you.
The term "Registration Statement" as used in this Agreement shall
mean such registration statement, including all exhibits and financial
statements, all information omitted therefrom in reliance upon Rule 430A and
contained in the Prospectus referred to below, in the form in which it became
effective, and any registration statement filed pursuant to Rule 462(b) of
the rules and regulations of the Commission with respect to the Shares
(herein called a Rule 462(b) registration statement), and, in the event of
any amendment thereto after the effective date of such registration statement
(herein called the "Effective Date"), shall also mean (from and after the
effectiveness of such amendment) such registration statement as so amended
(including any rule 462(b) registration statement). The term "Prospectus" as
used in this Agreement shall mean the prospectus relating to the Shares first
filed with the Commission pursuant to Rule 424(b) and Rule 430A (or if no
such filing is required, as included in the Registration Statement) and, in
the event of any supplement or amendment to such prospectus after the
Effective Date, shall also mean (from and after the filing with the
Commission of such supplement or the effectiveness of such amendment) such
prospectus as so supplemented or amended. The term "Preliminary Prospectus"
as used in this Agreement shall mean each preliminary prospectus included in
such registration statement prior to the time it becomes effective.
The Registration Statement has been declared effective under the
Act, and no post-effective amendment to the Registration Statement has been
filed as of the date of this Agreement. The Company has caused to be
delivered to you copies of each Preliminary Prospectus and has consented to
the use of such copies for the purposes permitted by the Act.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to the Underwriters as follows:
(a) Neither the Commission nor any state securities commission
has issued any order preventing or suspending the use of any Preliminary
Prospectus or has instituted or, to the Company's knowledge, threatened to
institute any proceedings with respect to such an order. The Registration
Statement and the Prospectus comply, and on the Closing Date (as hereinafter
defined) and any later date on which the Option Stock is to be purchased, the
Prospectus will comply, in all material respects, with the provisions of the Act
and the rules and regulations of the Commission thereunder (the "Act and Rules")
and will comply in all material respects with any applicable laws or regulations
of foreign jurisdictions, if applicable, in which the Prospectus and any
Preliminary Prospectuses, as amended or supplemented, if applicable, are
distributed in connection with the offer and sale of the Reserved Shares. On the
Effective Date, the Registration Statement did not contain any untrue statement
of a material fact and did not omit to state any material fact required to be
stated
<PAGE>
therein or necessary in order to make the statements therein not misleading,
and on the Effective Date the Prospectus did not and, on the Closing Date and
any later date on which the Option Stock is to be purchased, will not contain
any untrue statement of a material fact and did not omit to state any
material fact required to be stated therein, or necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading; PROVIDED, HOWEVER, that none of the
representations and warranties in this subparagraph (a) shall apply to
statements in, or omissions from, the Registration Statement or the
Prospectus made in reliance upon and in conformity with information herein or
otherwise furnished in writing to the Company by or on behalf of the
Underwriters expressly for use in the Registration Statement or Prospectus.
(b Each of the Company and its subsidiaries (i) has been duly
organized and is validly existing and (with respect to the Company and its U.S.
subsidiaries) is in good standing under the laws of its jurisdiction of
incorporation or formation, as the case may be, having full power and corporate
authority to own or lease its properties and to conduct its business as
described in the Registration Statement and the Prospectus; and (ii) is duly
qualified to do business as a foreign corporation and is in good standing in all
jurisdictions other than the jurisdiction of its organization in which the
character of the property owned or leased or the nature of the business
transacted by it makes qualification necessary (except where the failure to be
so qualified would not have a material adverse effect on the business,
properties, financial condition or results of operations of the Company and its
subsidiaries, taken as a whole). The Company and its subsidiaries, collectively,
have employees located solely in Israel and California and in no other state in
the United States, and, notwithstanding anything in this (b)(ii) to the
contrary, each of the Company and Nogatech California, Inc. ("Nogatech
California") is duly qualified to do business as a foreign corporation and is in
good standing solely in California and Nogatech Ltd. ("Nogatech Israel") has not
qualified to do business in any jurisdiction other than the State of Israel, and
Delaware, California and Israel are the only jurisdictions in which the Company
or any of its subsidiaries are required to be so qualified except where the
failure to be so qualified would not have a material adverse effect on the
business, properties, financial condition or results of operations of the
Company and its subsidiaries, taken as a whole. The Company and its subsidiaries
do not own any capital stock or other equity securities in any entity other than
Nogatech California and Nogatech Israel.
(c) The Company has the duly authorized and validly issued
outstanding capitalization set forth under the caption "Capitalization" in the
Prospectus and will have the adjusted capitalization set forth therein on the
Closing Date and any later date on which the Option Stock is to be purchased,
based on the assumptions set forth therein. The securities of the Company
conform in all material respects to the descriptions thereof contained in the
Prospectus. The form of certificates for the Shares conforms to the corporate
law of the State of Delaware. The outstanding shares of Common Stock (other than
the Shares) have been duly authorized and validly issued by the Company and are
fully paid and nonassesable, and were issued in transactions that were exempt
from the registration requirements of the Act, without violation of any
preemptive rights, rights of first refusal or similar rights. Except as created
hereby or described in the Prospectus, there are no outstanding options,
warrants, rights or other arrangements requiring the Company at any time to
issue any capital stock. No holders of outstanding shares of capital stock of
the Company are entitled as such to any preemptive or other rights to subscribe
for any of the Shares, and neither the filing of the Registration Statement nor
the offering or sale of the Shares as contemplated by this Agreement gives rise
to any rights, other than those which have been waived or satisfied, for or
relating to, the registration of any securities of the Company. The Shares are
duly authorized, and will be, when sold to the Underwriters as provided herein,
validly issued, fully paid and nonassessable. No
<PAGE>
further approval or authority of the stockholders or the Board of Directors
of the Company will be required for the issuance and sale of the Shares as
contemplated herein. The outstanding shares of capital stock or ownership
interests of each of its subsidiaries have been duly authorized and validly
issued, are fully paid and non-assessable, and, except for one ordinary
share, par value NIS 1.00 per share, of Nogatech Israel owned by I. Fischer &
Co. Trustee Ltd., which accounts for less than [1%] of the issued and
outstanding capital stock of Nogatech Israel, are solely owned by the Company
free and clear of all liens, encumbrances and equities and claims; and no
options, warrants or other rights to purchase, agreements or other
obligations to issue or other rights to convert any obligations into shares
of capital stock or ownership interests in such subsidiary are outstanding.
(d) The Company has full legal right, power and authority to
enter into this Agreement and to consummate the transactions provided for
herein. This Agreement has been duly authorized, executed and delivered by the
Company and, assuming it is a binding agreement of the Underwriters, constitutes
a legal, valid and binding agreement of the Company enforceable against the
Company in accordance with its terms (except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application relating to or affecting the enforcement of
creditors' rights and the application of equitable principles relating to the
availability of remedies and except as rights to indemnity or contribution may
be limited by federal or state securities laws and the public policy underlying
such laws), and none of the Company's execution or delivery of this Agreement,
its performance hereunder, its consummation of the transactions contemplated
herein, its application of the net proceeds of the offering in the manner set
forth under the caption "Use of Proceeds" or the conduct of its business as
described in the Prospectus, conflicts or will conflict with or results or will
result in any breach or violation of any of the terms or provisions of, or
constitutes or will constitute a default under, causes or will cause (or permits
or will permit) the maturation or acceleration of any liability or obligation or
the termination of any right under, or result in the creation or imposition of
any lien, charge, or encumbrance upon, any property or assets of the Company or
any of its subsidiaries pursuant to the terms of (i) the certificate of
incorporation or bylaws of the Company or the organizational documents of its
subsidiaries, (ii) any indenture, mortgage, deed of trust, voting trust
agreement, stockholders' agreement, note agreement or other agreement or
instrument to which the Company or any of its subsidiaries is a party or by
which it is or may be bound or to which its respective property is or may be
subject or (iii) any statute, judgment, decree, order, rule or regulation
applicable to the Company or any of its subsidiaries of any government,
arbitrator, court, regulatory body or administrative agency or other
governmental agency or body, domestic or foreign, having jurisdiction over the
Company or any of its subsidiaries, or their activities or properties, which
would materially and adversely affect the business or properties of the Company
and its subsidiaries taken as a whole.
(e) The Common Stock has been approved for quotation on The
Nasdaq National Market subject only to official notes of issuance and, prior to
the Closing Date, (i) the Common Stock shall be listed and duly admitted to
trading on The Nasdaq National Market and (ii) the Shares will be authorized for
inclusion in The Nasdaq National Market.
(f) The financial statements of the Company and its
subsidiaries and the related notes and schedules thereto included in the
Registration Statement and the Prospectus fairly present the financial
position, results of operations, stockholders' equity and cash flows of
<PAGE>
the Company and its subsidiaries at the dates and for the periods specified
therein. Such financial statements and the related notes and schedules
thereto have been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods involved (except as
otherwise noted therein) and all adjustments necessary for a fair
presentation of results for such periods have been made; PROVIDED, HOWEVER,
that the unaudited financial statements are subject to normal year-end audit
adjustments (which are not expected to be material) and do not contain all
footnotes required under generally accepted accounting principles. The
summary and selected financial and statistical data included in the
Registration Statement and the Prospectus present fairly the information
shown therein and such data have been prepared on a basis consistent with the
financial statements contained therein and in the books and records of the
Company.
(g) Kesselman & Kesselman, who have certified the financial
statements filed with the Commission as part of the Registration Statement, are
independent public accountants as required by the Act and the rules and
regulations promulgated thereunder.
(h) Each of the Company and its subsidiaries maintain a system
of internal accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(i) Subject to applicable law, none of the Company's
subsidiaries is currently prohibited, directly or indirectly, from paying any
dividends to the Company, from making any other distribution on the subsidiary's
capital stock, from repaying to the Company any loans or advances to the
subsidiary from the Company or from transferring any of such subsidiary's
property or assets to the Company, except as described in or contemplated by the
Prospectus.
(j) The Company and its subsidiaries have filed all necessary
federal, state and local income, franchise and other material tax returns and
has paid all taxes shown as due thereunder, and the Company and its subsidiaries
have no tax deficiency that has been or, to their knowledge, which might be
assessed against the Company and its subsidiaries which, if so assessed, would
materially and adversely affect the business or properties of the Company and
its subsidiaries, taken as a whole. All tax liabilities accrued through the date
hereof have been adequately provided for on the books of the Company and its
subsidiaries.
(k) The Company and its subsidiaries maintain insurance
underwritten by insurers of recognized financial responsibility of the types and
in amounts and with such deductibles as are adequate for companies in the same
or similar business, all of which insurance is in full force and effect.
(l) Except as disclosed in the Prospectus, there is no
action, suit, claim, proceeding or investigation pending or, to the Company's
knowledge, threatened against the Company, any of its subsidiaries or any of
their directors, officers, employees or agents before or
<PAGE>
by any court, regulatory body or administrative agency or any other
governmental agency or body, domestic or foreign, which (i) questions the
validity of the capital stock of the Company or this Agreement or of any
action taken or to be taken by the Company pursuant to or in connection with
this Agreement, (ii) is required to be disclosed in the Registration
Statement which is not so disclosed (and such proceedings, if any, as are
summarized in the Registration Statement are accurately summarized in all
material respects), or (iii) may have a material adverse affect upon the
business operations, financial conditions or income of the Company and its
subsidiaries, taken as a whole.
(m) All executed agreements or copies of executed
agreements filed or incorporated by reference as exhibits to the Registration
Statement to which the Company or any of its subsidiaries is a party or by
which it is or may be bound or to which its assets, properties or businesses
are or may be subject have been duly and validly authorized, executed and
delivered by the Company or such subsidiary and constitute the legal, valid
and binding agreements of the Company or such subsidiary enforceable by and
against it in accordance with their respective terms (except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws relating to enforcement of creditors'
rights generally, and general equitable principles relating to the
availability of remedies, and except as rights to indemnity or contribution
may be limited by federal or state securities laws and the public policy
underlying such laws). The description in the Registration Statement of
contracts and other documents are accurate and fairly present the information
required to be shown with respect thereto by the Act or the rules and
regulations promulgated thereunder, and there are no contracts or other
documents which are required by the Act or the rules and regulations
promulgated thereunder to be described in the Registration Statement or filed
as exhibits to the Registration Statement which are not described or filed as
required and the exhibits which have been filed are materially complete and
correct copies of the documents of which they purport to be copies, except to
the extent that such agreements are subject to a request for confidential
treatment that has been duly filed under the Act. Except for such rights as
described in the Registration Statement and the Prospectus, no party has any
right to require to the Company to register any securities for sale under the
Act.
(n) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, and except as expressly
contemplated therein, neither the Company nor any of its subsidiaries has
incurred, other than in the ordinary course of its business, any material
liabilities or obligations, direct or contingent, purchased any of its
outstanding capital stock, paid or declared any dividends or other distributions
on its capital stock or entered into any material transactions, and there has
been no material change in capital stock or debt or any material adverse change
in the business, properties, assets, net worth, condition (financial or other),
or results of operations or prospects of the Company and its subsidiaries, taken
as a whole, whether or not arising from transactions in the ordinary course of
business.
(o) Neither the Company nor any of its subsidiaries is, or
with the giving of notice or lapse of time or both, will be, in violation of or
in default under, any term or provision of (i) its certificate of incorporation,
bylaws or other organizational documents, (ii) any indenture, mortgage, deed of
trust, voting trust agreement, stockholders' agreement, note agreement or other
agreement or instrument to which it is a party or by which it is or may be
<PAGE>
bound or to which any of its property is or may be subject, or any
indebtedness, the effect of which breach or default either individually or in
the aggregate would have a material adverse effect on the business,
management, properties, assets, rights, operations, or condition (financial
or otherwise) of the Company and its subsidiaries, taken as a whole, or (iii)
any statute, judgment, decree, order, rule or regulation applicable to the
Company or such subsidiary or of any arbitrator, court, regulatory body,
administrative agency or any other governmental agency or body, domestic or
foreign, having jurisdiction over the Company or such subsidiary or its
activities or properties and the effect of which breach or default either
individually or in the aggregate would have a material adverse effect on the
business, management, properties, assets, rights, operations, or condition
(financial or otherwise) of the Company and its subsidiaries, taken as a
whole.
(p) The Company has not incurred any liability for a fee,
commission, or other compensation on account of the employment of a broker or
finder in connection with the transactions contemplated by this Agreement other
than as contemplated hereby.
(q) No labor disturbance by the employees of the Company or
any of its subsidiaries or principal suppliers or customers exists or, to the
Company's knowledge, is imminent, which disturbance would have a material
adverse effect on the business, management, properties, assets, rights,
operations, or condition (financial or otherwise) of the Company and its
subsidiaries, taken as a whole.
(r) Except as disclosed in the Prospectus, each of the Company
and its subsidiaries owns, is licensed or otherwise possesses all rights to use,
all patents, patent rights, inventions, know-how (including trade secrets and
other unpatented or unpatentable proprietary or confidential information,
systems or procedures), trademarks, service marks, trade names, copyrights and
other intellectual property rights (collectively, the "Rights") necessary for
the conduct of its business as described in the Prospectus. To the Company's
knowledge, no claims have been asserted against the Company or any of its
subsidiaries by any person with respect to the use of any such Rights or
challenging or questioning the validity or effectiveness of any such Rights. The
continued use of the Rights in connection with the business and operations of
the Company and its subsidiaries does not, to the knowledge of the Company and
its subsidiaries, infringe on the rights of any person, which, if the subject of
an unfavorable decision, ruling or filing, would have a material adverse effect
on the condition, business or properties of the Company and its subsidiaries
taken as a whole.
(s) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery by the
Company of this Agreement and the consummation of the transactions herein
contemplated (except such additional steps as may be required by the National
Association of Securities Dealers, Inc. (the "NASD"), the Act, the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as amended or to qualify
or exempt the Shares for public offering by the Underwriters under state
securities or Blue Sky laws) has been obtained or made and is in full force and
effect.
(t) Neither the Company nor to the Company's knowledge, any
of its officers, directors or affiliates (within the meaning of the rules and
regulations promulgated under the
<PAGE>
Act) has taken or may take, directly or indirectly, any action designed to
cause or result in, or which has constituted or which might reasonably be
expected to constitute, the stabilization or manipulation of the price of the
shares of Common Stock of the Company, to facilitate the sale or resale of
the Shares or otherwise.
(u) Neither the Company nor any of its subsidiaries is, or
after giving effect to the issuance and sale of the Shares by the Company will
be, an "investment company" within the meaning of such term under the Investment
Company Act of 1940, as amended, and the rules and regulations of the Commission
promulgated thereunder.
(v) There are no transfer taxes or similar fees or charges
under Israeli law, federal law or the laws of any state, or any political
subdivision thereof, required to be paid in connection with the execution and
delivery of this Agreement or the issuance and sale by the Company of the
Shares.
(w) The Company and its subsidiaries have good and marketable
title to all properties and assets described in the Prospectus as owned by them,
free and clear of all liens, encumbrances, security interests, equities, claims
and defects, except such as are described in the Registration Statement and
Prospectus, or such as are not materially important in relation to the business
of the Company and its subsidiaries, taken as a whole. Except as disclosed in
the Prospectus, the Company has valid and enforceable leases for the properties
described in the Prospectus as leased by it, free and clear of all liens,
encumbrances, security interests, equities, claims and defects, except such as
are not material and do not interfere with the use made by the Company and its
subsidiaries thereof. Except as disclosed in the Prospectus, the Company and its
subsidiaries own or lease all such properties as are necessary to their
operations as now conducted, as set forth in the Registration Statement and the
Prospectus and the properties and business of the Company and its subsidiaries
conform in all material respects to the descriptions thereof contained in the
Registration Statement and the Prospectus.
(x) Except as disclosed in the Prospectus, each of the Company
and its subsidiaries holds all franchises, licenses, permits, approvals,
certificates and other authorizations from federal, state and other governmental
or regulatory authorities necessary to the ownership, leasing and operation of
its properties or required for the present conduct of its business, and such
franchises, licenses, permits, approvals, certificates and other governmental
authorizations are in full force and effect and the Company and its subsidiaries
are in compliance therewith in all material respects, except where the failure
so to obtain, maintain or comply with would not have a materially adverse effect
on the business, financial condition or results of operations of the Company and
its subsidiaries, taken as a whole.
(y) Nogatech Israel is in compliance with all material
conditions and requirements stipulated by the instruments of approval entitling
it or any of its operations to the status of "Approved Enterprise" under Israeli
law and by Israeli laws and regulations relating to such Approved Enterprise
status; all information supplied by Nogatech Israel with respect to such
applications was true, correct and complete in all material respects when
supplied to the appropriate authorities.
<PAGE>
(z) Nogatech Israel is not in material violation of any
conditions or requirements stipulated by the instruments of approval granted to
any of them by the Office of Chief Scientist in the Ministry of Industry and
Trade and any applicable laws and regulations, with respect to any research and
development grants given to it by such office; all information supplied by
Nogatech Israel with respect to such applications was true, correct and complete
in all material respects when supplied to the appropriate authorities.
(aa) The Company and its subsidiaries are in compliance in all
material respects with all presently applicable provisions of the Employee
Retirement Income Security Act of 1974, as amended, including the regulations
and published interpretations thereunder (herein called "ERISA"); no "reportable
event" (as defined in ERISA) has occurred with respect to any "pension plan" (as
defined in ERISA) for which the Company or any of its subsidiaries would have
any liability; the Company and its subsidiaries have not incurred and do not
expect to incur liability under (i) Title IV of ERISA with respect to
termination of, or withdrawal from, any "pension plan" or (ii) Sections 412 or
4971 of the Internal Revenue Code of 1986, as amended, including the regulations
and published interpretations thereunder (the "Code"); and each "Pension Plan"
for which the Company and its subsidiaries would have liability that is intended
to be qualified under Section 401(a) of the Code is so qualified in all material
respects and nothing has occurred, whether by action or by failure to act, which
would cause the loss of such qualification.
(bb) No relationship, direct or indirect, exists between or
among the Company or its subsidiaries, on the one hand, and the current or prior
directors, officers, five percent or greater stockholders, customers or
suppliers of the Company or its subsidiaries, on the other hand, which is
required to be described in the Prospectus that is not so described.
(cc) Neither the Company nor any of its subsidiaries, nor to
the Company's knowledge, any director, officer, agent, employee or other person
associated with or acting on behalf of the Company or any of its subsidiaries,
has used any corporate funds for any unlawful contribution, gift, entertainment
or other unlawful expense relating to political activity; made any direct or
indirect unlawful payment to any foreign or domestic government official or
employee from corporate funds; violated or is in violation of any provisions of
the Foreign Corrupt Practices Act of 1977; or made any bribe, rebate, payoff,
influence, payment, kickback or other unlawful payment.
(dd) The Company has reviewed, and is continuing to review,
its operations, products and services to evaluate the extent to which the
business or operations of the Company or its subsidiaries will be affected by
the Year 2000 problem (that is, any significant risk that computer hardware or
software applications used by the Company or its subsidiaries will not, in the
case of dates or time periods occurring after December 31, 1999, function at
least as effectively as in the case of dates or time periods occurring prior to
January 1, 2000); as a result of such review, the Company has no reason to
believe, and does not believe, that there are any issues related to the
Company's preparedness for the Year 2000 that (i) are of a character required to
be described or referred to in the Prospectus by the Act that have not been
accurately described in the Prospectus or (ii) could reasonably be expected to
have a material adverse effect on the business, properties, financial condition
or results of operations of the Company and its subsidiaries, taken as a whole.
<PAGE>
(ee) The business, operations and facilities of the Company
and each of its subsidiaries have been and are being conducted or operated in
compliance with all applicable laws, ordinances, rules, regulations, licenses,
permits, approvals, plans, authorizations or requirements relating to
occupational safety and health, pollution, protection of health or the
environment (including, without limitation, those relating to emissions,
discharges, release or threatened releases of pollutants, contaminants or
hazardous or toxic substances, materials or wastes into ambient air, surface
water, groundwater or land, or relating to the manufacture, processing,
distribution, use treatment, storage, disposal, transport or handling of
chemical substances, pollutants, contaminants or hazardous or toxic substances,
materials or wastes, whether solid, gaseous or liquid in nature) or otherwise
relating to remediating real property in which the Company or any of its
subsidiaries has or has had any interest, whether owned or leased, of any
governmental department, commission, board, bureau, agency or instrumentality of
the United States, any state or political subdivision thereof and all applicable
judicial or administrative agency or regulatory decrees, awards, judgments and
orders relating thereto, except for such failures to so comply as would not,
individually or in the aggregate, have a material adverse effect on the business
of the Company and its subsidiaries taken as a whole, and neither the Company
nor any of its subsidiaries has received any notice from a governmental
instrumentality or any third party alleging any violation thereof or liability
thereunder (including, without limitation, liability for costs of investigating
or remediating sites containing hazardous substances or damage to natural
resources).
(ff) Neither the Company nor any of its subsidiaries, nor to
the Company's knowledge any officer or employee of the Company or any of its
subsidiaries is a party to any contract or commitment that restricts in any
material respect the ability of the Company, any of its subsidiaries or such
individual to engage in the business of the Company or such subsidiary as
described in the Registration Statement and the Prospectus.
(gg) The Company has not offered, or caused W.R. Hambrecht +
Co., LLC to offer, Reserved Shares to any person pursuant to the Reserved Share
Program with the specific intent to unlawfully influence (i) a customer or
supplier of the Company to alter the customer's or supplier's level or type of
business with the Company or (ii) a trade journalist or publication to write or
publish favorable information about the Company or its products. Neither the
Company nor any person acting on its behalf has furnished any written materials
of any kind to any individual or entity with respect to the Reserved Share
Program unless such recipient first received a copy of the Company's Preliminary
Prospectus.
3. PURCHASE OF THE SHARES BY THE UNDERWRITERS.
(a) On the basis of the representations and warranties and
subject to the terms and conditions herein set forth, the Company shall issue
and sell the Underwritten Stock to the Underwriters, and the Underwriters agree
to purchase from the Company, the Underwritten Stock. The price at which such
shares of Underwritten Stock shall be sold by the Company and purchased by the
Underwriters shall be [$_____] per share (the "Purchase Price"). In making this
Agreement, each Underwriter is contracting severally and not jointly; except as
provided in paragraphs (b) and (c) of this Section 3, the agreement of each
Underwriter is to purchase only the respective number of shares of the
Underwritten Stock specified in Schedule I.
<PAGE>
(b) If for any reason one of the Underwriters shall fail or
refuse (other than for a reason sufficient to justify the termination of this
Agreement under the provisions of Section 7 or 12 hereof) to purchase and pay
for the number of Shares agreed to be purchased by such Underwriter, the Company
shall immediately give notice thereof to you, and the non-defaulting
Underwriters shall have the right within 24 hours after the receipt by you of
such notice to purchase, or procure one or more other Underwriters to purchase,
in such proportions as may be agreed upon between you and such purchasing
Underwriters and upon the terms herein set forth, all or any part of the Shares
which such defaulting Underwriter agreed to purchase. If the non-defaulting
Underwriters fail so to make such arrangements with respect to all such shares
and portion, the number of Shares which the non-defaulting Underwriters are
otherwise obligated to purchase under this Agreement shall be automatically
increased on a pro rata basis to absorb the remaining Shares and portion which
the defaulting Underwriter agreed to purchase; PROVIDED, HOWEVER, that the
non-defaulting Underwriters shall not be obligated to purchase the Shares and
portion which the defaulting Underwriter agreed to purchase if the aggregate
number of such Shares exceeds 10% of the total number of Shares which the
Underwriters agreed to purchase under this Agreement. If the total number of
Shares which the defaulting Underwriter agreed to purchase shall not be
purchased or absorbed in accordance with the two preceding sentences, the
Company shall have the right, within 24 hours next succeeding the 24-hour period
above referred to, to make arrangements with other underwriters or purchasers
satisfactory to you for purchase of such shares and portion on the terms herein
set forth. In any such case, either you or the Company shall have the right to
postpone the Closing Date determined as provided in Section 5 hereof for not
more than seven business days after the date originally fixed as the Closing
Date pursuant to said Section 5 in order that any necessary changes in the
Registration Statement, the Prospectus or any other documents or arrangements
may be made. If the non-defaulting Underwriters do not make arrangements within
the 24-hour periods stated above for the purchase of all the Shares which the
defaulting Underwriter agreed to purchase hereunder, this Agreement shall be
terminated without further act or deed and without any liability on the part of
the Company to the non-defaulting Underwriters and without any liability on the
part of the non-defaulting Underwriters to the Company. Nothing in this
paragraph (b), and no action taken hereunder, shall relieve the defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
(c) On the basis of the representations, warranties and
covenants herein contained, and subject to the terms and conditions herein set
forth, the Company grants an option to the Underwriters to purchase, severally
and not jointly, the Option Stock at the Purchase Price. Said option may be
exercised only to cover over-allotments in the sale of the Underwritten Stock by
the Underwriters and may be exercised in whole or in part at any time (but not
more than once) on or before the thirtieth day after the date of this Agreement
upon written or telegraphic notice by the Underwriters to the Company setting
forth the aggregate number of shares of Option Stock as to which the
Underwriters are exercising the option. Delivery of the certificates for the
shares of Option Stock, and payment therefor shall be made as provided in
Section 5 hereof. The number of shares of the Option Stock to be purchased by
each Underwriter shall be in such amounts as the Underwriters shall agree upon
prior to the exercise of the option set forth hereunder.
<PAGE>
4. OFFERING BY THE UNDERWRITERS.
(a) The terms of the initial public offering by the
Underwriters of the Shares to be purchased by them shall be as set forth in the
Prospectus. The Underwriters may from time to time change the public offering
price after the closing of the initial public offering and increase or decrease
the concessions and discounts to dealers as they may determine.
(b) The information set forth in the last paragraph in the
large box on the front cover page and under the caption "Plan of Distribution -
The Auction Process" in the Registration Statement, any Preliminary Prospectus
and the Prospectus relating to the Shares filed by the Company (insofar as such
information relates to the Underwriters or related persons) constitutes the only
information furnished by the Underwriters to the Company for inclusion in the
Registration Statement, any Preliminary Prospectus, and the Prospectus, and you
on behalf of the Underwriters represent and warrant to the Company that the
statements made therein (insofar as they relate to the Underwriters or related
persons) are correct and do not omit any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
5. DELIVERY OF AND PAYMENT FOR THE SHARES.
(a) Delivery of certificates for the shares of the
Underwritten Stock and the Option Stock (if the option granted by Section 3(c)
hereof shall have been exercised not later than 7:00 A.M., San Francisco time,
on the date two business days preceding the Closing Date), and payment therefor,
shall be made at the office of Morrison & Foerster LLP, 425 Market Street, San
Francisco, on the third business day after the date of this Agreement, or at
such time on such other day, not later than seven full business days after such
third business day, as shall be agreed upon in writing by the Company and you.
The date and hour of such delivery and payment are herein called the Closing
Date.
(b) If the option granted by Section 3(c) hereof shall be
exercised after 7:00 A.M., San Francisco time, on the date two business days
preceding the Closing Date, delivery of certificates for the shares of Option
Stock, and payment therefor shall be made at the office of Morrison & Foerster
LLP, 425 Market Street, San Francisco, at 7:00 A.M., San Francisco time, on the
third business day after the exercise of such Option.
(c) Payment for the Shares purchased from the Company shall be
made to the Company or its order by wire transfer or one or more certified or
official bank check or checks in same day funds. Such payment shall be made upon
delivery of certificates for the Shares to you against receipt therefor signed
by you. Certificates for the Shares to be delivered to you shall be registered
in the name or names and shall be in such denominations as you may request at
least one business day before the Closing Date, in the case of Underwritten
Stock, and at least one business day prior to the purchase thereof, in the case
of Option Stock. Such certificates will be made available to the Underwriters
for inspection, checking and packaging on the business day prior to the Closing
Date or, in the case of Option Stock, by 12:00 P.M., San Francisco time on the
business day preceding the date of purchase.
<PAGE>
6. COVENANTS OF THE COMPANY. The Company covenants and agrees
as follows:
(a) The Company will (i) prepare and timely file with the
Commission under 424(b) a Prospectus containing information previously omitted
at the time of effectiveness of the Registration Statement in reliance on Rule
430A and (ii) not file with the Commission any amendment to the Registration
Statement or supplement to the Prospectus (A) of which the Underwriters shall
not previously have been advised and furnished with a copy a reasonable period
of time prior to the proposed filing and as to which filing the Underwriters
shall not have given their consent or (B) which is not in compliance with the
Act or the rules and regulations of the Commission thereunder.
(b) As soon as the Company is advised or obtains knowledge
thereof, the Company will advise the Underwriters (i) of any request made by the
Commission for amendment of the Registration Statement, for supplement to the
Prospectus or for additional information, (ii) of the issuance by the Commission
of any stop order suspending the effectiveness of the Registration Statement, or
the institution or threat of any action, investigation or proceeding for that
purpose, or (iii) the receipt by the Company of any notification with respect to
the suspension of the qualification of the Shares for sale in any jurisdiction,
or the receipt by it of notice of the initiation or threatening of any
proceeding for that purpose. The Company will use its best efforts to prevent
the issuance of any such order and, if issued, to obtain the lifting or
withdrawal thereof as soon as possible.
(c) The Company will (i) on or before the Closing Date,
deliver to the Underwriters a signed copy of the Registration Statement as
originally filed and of each amendment thereto filed prior to the time the
Registration Statement becomes effective and, promptly upon the filing thereof,
a signed copy of each post-effective amendment, if any, to the Registration
Statement (together with, in each case, all exhibits thereto unless previously
delivered to the Underwriters), (ii) as promptly as possible deliver to the
Underwriters, at such office as the Underwriters may designate, as many copies
of the Prospectus as the Underwriters may reasonably request, and (iii)
thereafter from time to time during the period in which a prospectus is required
by law to be delivered by an Underwriter or dealer, likewise send to the
Underwriters as many additional copies of the Prospectus and as many copies of
any supplement to the Prospectus and of any amended prospectus, filed by the
Company with the Commission, as the Underwriters may reasonably request for the
purposes contemplated by the Act.
(d) If at any time during the period in which a prospectus
is required by law to be delivered by an Underwriter or dealer any event
relating to or affecting the Company, or of which the Company shall be
advised in writing by the Underwriters, shall occur as a result of which it
is necessary, in the opinion of counsel for the Company or of counsel for the
Underwriters, to supplement or amend the Prospectus in order to make the
Prospectus not misleading in the light of the circumstances existing at the
time it is delivered to a purchaser of the Shares, the Company will forthwith
prepare and file with the Commission a supplement to the Prospectus or an
amended prospectus so that the Prospectus as so supplemented or amended will
not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the light
of the circumstances existing at the time such Prospectus is delivered to
such purchaser, not misleading. If, after the initial public offering of the
Shares by the Underwriters and during such period, the Underwriters shall
propose to vary the terms of the offering thereof by reason of changes in
general market
<PAGE>
conditions or otherwise, you will advise the Company in writing of the
proposed variation, and, if in the opinion either of counsel for the Company
or of counsel for the Underwriters such proposed variation requires that the
Prospectus be supplemented or amended, the Company will forthwith prepare and
file with the Commission a supplement to the Prospectus or an amended
prospectus setting forth such variation. The Company authorizes the
Underwriters and all dealers to whom any of the Shares may be sold by the
Underwriters to use the Prospectus, as from time to time amended or
supplemented, in connection with the sale of the Shares in accordance with
the applicable provisions of the Act and the applicable rules and regulations
thereunder for such period.
(e) Prior to the filing thereof with the Commission, the
Company will submit to you, for your information, a copy of any post-effective
amendment to the Registration Statement and any supplement to the Prospectus or
any amended prospectus proposed to be filed.
(f) The Company will cooperate, when and as reasonably
requested by you, in the qualification of the Shares (including the Reserved
Shares to be offered in connection with the Reserved Share Program) for offer
and sale under the securities or blue sky laws of such jurisdictions as you may
designate and, during the period in which a prospectus is required by law to be
delivered by an Underwriter or a dealer, in keeping such qualifications in good
standing under said securities or blue sky laws; PROVIDED, HOWEVER, that the
Company shall not be required to qualify as a foreign corporation or file any
general consent to service of process in any jurisdiction in which it is not so
qualified. The Company will from time to time, prepare and file such statements,
reports, and other documents as are or may be required to continue such
qualifications in effect for so long a period as you may reasonably request for
distribution of the Shares.
(g) The Company agrees to pay all costs and expenses incident
to the performance of the obligations of the Company under this Agreement,
including, without limitation, all costs and expenses incident to (i) the
preparation, printing and filing with the Commission and the NASD of the
Registration Statement, any Preliminary Prospectus and the Prospectus, (ii) the
furnishing to the Underwriters of copies of any Preliminary Prospectus and of
the several documents required by paragraph (c) of this Section 6 to be so
furnished, (iii) the printing of this Agreement and related documents delivered
to the Underwriters, (iv) the preparation, printing and filing of all
supplements and amendments to the Prospectus referred to in paragraph (d) of
this Section 6, (v) the furnishing to you of the reports and information
referred to in paragraph (j) of this Section 6, and (vi) the printing and
issuance of stock certificates, including the transfer agent's fees.
(h) The Company agrees to reimburse you, for the account of
the several Underwriters, for blue sky fees and related disbursements (including
reasonable counsel fees and disbursements and cost of printing memoranda for the
Underwriters) paid by or for the account of the Underwriters or their counsel in
qualifying the Shares under state securities or blue sky laws and in the review
of the offering by the NASD.
(i) As soon as practicable, but in any event not later than
45 days after the end of the first fiscal quarter first occurring after the
first anniversary of the Effective Date, the Company will make generally
available to its security holders, in the manner specified in Rule
<PAGE>
158(b) of the rules and regulations promulgated under the Act, an earnings
statement which will be in the detail required by, and will otherwise comply
with, the provisions of Section 11(a) of the Act and Rule 158(a) of the rules
and regulations promulgated thereunder.
(j) During a period of three years after the date hereof, the
Company will furnish to you, and to each Underwriter who may so request in
writing, copies of all periodic and special reports furnished to stockholders of
the Company and of all information, documents and reports filed with the
Commission.
(k) The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a registrar
(which may be the same entity as the transfer agent) for its Common Stock.
(l) The Company will not, directly or indirectly, without the
prior written consent of W.R. Hambrecht + Co., LLC. on behalf of the
Underwriters, issue, offer, sell, grant any option to purchase or otherwise
dispose (or announce any issuance, offer, sale, grant of any option to purchase
or other disposition) of any shares of Common Stock or any securities
convertible into, or exchangeable or exercisable for, shares of Common Stock for
a period of 180 days following the commencement of the public offering of the
Shares by the Underwriters, except pursuant to this Agreement and except for
issuances pursuant to the exercise of stock options outstanding on or granted
subsequent to the date hereof, pursuant to a stock option or other employee
benefit plan in existence on the date hereof and except as contemplated by the
Prospectus.
(m) The Company will cause the Shares to be duly included for
quotation on the Nasdaq National Market prior to the Closing Date.
(n) The Company will not take, directly or indirectly, and
will use its best efforts to cause its officers, directors or affiliates not to
take, directly or indirectly, any action designed to, or which might in the
future reasonably be expected to cause or result in, stabilization or
manipulation of the price of any securities of the Company.
(o) The Company will apply the net proceeds of the offering
received by it in the manner set forth under the caption "Use of Proceeds" in
the Prospectus.
(p) The Company will timely file all such reports, forms or
other documents as may be required from time to time, under the Act, the rules
and regulations promulgated thereunder, the Exchange Act, and the rules and
regulations promulgated thereunder, and all such reports, forms and documents
filed will comply as to form and substance in all material respects with the
applicable requirements under the Act, the rules and regulations promulgated
thereunder, the Exchange Act and the rules and regulations promulgated
thereunder.
(q) The Company is familiar with the Investment Company Act of
1940, as amended, and has in the past conducted its affairs, and will in the
future conduct its affairs, in such a manner to ensure that the Company was not
and will not be an "investment company" or a "company" controlled by an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended, and the rules and regulations thereunder.
<PAGE>
(r) The Company has caused to be delivered to you prior to the
effective date of the Registration Statement a letter (the "Lock-Up Agreement")
from each of the Company's directors, officers and each holder of at least 1.0%
of the outstanding capital stock of the Company, stating that such person agrees
that he or she will not, without prior written consent of W.R. Hambrecht + Co.,
LLC, directly or indirectly, sell, offer, contract to sell, transfer the
economic risk of ownership in, make any short sale, pledge or otherwise dispose
of any shares of capital stock of the Company or any securities convertible into
or exchangeable or exercisable for or any other rights to purchase or acquire
capital stock, for a period of 180 days from the effective date of the
Registration Statement.
(s) The Company will comply with all applicable securities and
other applicable laws, rules and regulations in each jurisdiction in which the
Reserved Shares are offered in connection with the Reserved Share Program. The
Company hereby agrees that it will direct the Company's transfer agent to place
a stop transfer restriction for a period of three months from the date of this
Agreement upon any Reserved Shares that are restricted by the NASD or the NASD
rules from sale, transfer, assignment, pledge or hypothecation for such three
month period following the date of this Agreement. W.R. Hambrecht + Co., LLC
will notify the Company in writing as to which persons purchasing Reserved
Shares will need to be so restricted. If the Company shall release, or seek to
release, from such restrictions any of such Reserved Shares, the Company agrees
to reimburse W.R. Hambrecht + Co., LLC for any reasonable expenses (including
without limitation legal expenses) they incur in connection with, or as a result
of, such release.
7. CONDITIONS OF THE UNDERWRITER'S OBLIGATIONS. The obligations
of the several Underwriters under this Agreement are subject to the
performance by the Company on and as of the Closing Date or any later date on
which Option Stock is to be purchased, as the case may be, of its covenants
and agreements hereunder, and the following additional conditions:
(a) The Registration Statement shall have become effective,
and no stop order suspending the effectiveness of the Registration Statement
shall have been issued, and no proceedings for that purpose shall have been
instituted or threatened or, to the knowledge of the Company or the
Underwriter, shall be contemplated by the Commission.
(b) The Underwriters shall be satisfied that (i) as of the
Effective Date, the statements made in the Registration Statement and the
Prospectus were true and correct and neither the Registration Statement nor
the Prospectus omitted to state a fact required to be stated therein or is
necessary to make the statements therein not misleading, (ii) since the
Effective Date, no event has occurred which should have been set forth in a
supplement or amendment to the Prospectus which has not been set forth in an
effective supplement or amendment, (iii) since the respective dates as of
which information is given in the Registration Statement in the form in which
it originally became effective and the Prospectus contained therein, there
has not been any material adverse change or any development involving a
prospective material adverse change in the business, properties, financial
condition or results of operations of the Company and its subsidiaries, taken
as a whole, whether or not arising from transactions in the ordinary course
of business, and since such dates, except in the ordinary course of business,
neither the Company nor any of its subsidiaries has entered into any material
transaction not referred to in the Registration Statement in the form in
which it originally became effective and the Prospectus contained therein,
(iv) neither the Company nor any of its subsidiaries has any material
<PAGE>
contingent obligations which are not disclosed in the Registration Statement
and the Prospectus, (v) there are not pending or known threatened legal
proceedings to which the Company or any of its subsidiaries is a party or of
which property of the Company or any of its subsidiaries is subject which are
material and which are not disclosed in the Registration Statement and the
Prospectus, (vi) there are not any franchises, contracts, leases or other
documents which are required to be filed as exhibits to the Registration
Statement which have not been filed as required, and (vii) the
representations and warranties of the Company herein are true and correct in
all material respects as of the Closing Date or any later date on which
Option Stock is to be purchased, as the case may be.
(c) On or prior to the Closing Date, the legality and
sufficiency of the sale of the Shares hereunder and the validity and form of the
certificates representing the Shares, all corporate proceedings and other legal
matters incident to the foregoing, and the form of the Registration Statement
and of the Prospectus (except as to the financial statements contained therein),
shall have been approved at or prior to the Closing Date by Morrison & Foerster
LLP, counsel for the Underwriters. The Underwriters shall have received from
counsel to the Underwriters, such opinion or opinions with respect to the
issuance and sale of the Shares, the Registration Statement and the Prospectus
and such other related matters as the Underwriters reasonably may request and
such counsel shall have received such documents and other information as they
request to enable them to pass upon such matters.
(d) On the Closing Date, and if Option Stock is purchased at
any date after the Closing Date, on such later date, the Underwriters shall have
received an opinion addressed to the Underwriters, dated the Closing Date or, if
related to the later sale of Option Stock, such later date, of Bay Venture
Counsel, LLP, counsel to the Company, substantially to the effect set forth in
EXHIBIT A hereto, and of Fischer, Behar, Chen & Co., Israeli counsel to the
Company, substantially to the effect set forth in EXHIBIT B hereto. In rendering
any such opinion, such counsel may rely, as to matters of fact, to the extent
such counsel reasonably deems proper, and subject to the provisions of paragraph
(c) above, on certificates of responsible officers of the Company and public
officials. References to the Registration Statement and the Prospectus in this
paragraph (d) shall include any amendment or supplement thereto at the date of
such opinion.
(e) You shall have received from Kesselman & Kesselman a
letter or letters, addressed to the Underwriters and the Board of Directors
of the Company and dated the Closing Date and any later date on which Option
Stock is purchased, confirming that they are independent public accountants
with respect to the Company within the meaning of the Act and the applicable
published rules and regulations thereunder and based upon the procedures
described in their letter delivered to the Underwriters concurrently with the
execution of this Agreement (the "Original Letter"), but carried out to a
date not more than three business days prior to the Closing Date or such
later date on which Option Stock is purchased (i) confirming, to the extent
true, that the statements and conclusions set forth in the Original Letter
are accurate as of the Closing Date or such later date, as the case may be,
and (ii) setting forth any revisions and additions to the statements and
conclusions set forth in the Original Letter which are necessary to reflect
any changes in the facts described in the Original Letter since the date of
the Original Letter or to reflect the availability of more recent financial
statements, data or information. The letters shall not disclose any change,
or any development involving a prospective change, in or
<PAGE>
affecting the business or properties of the Company or any of its
subsidiaries, which in your sole judgment, makes it impractical or
inadvisable to proceed with the public offering of the Shares or the purchase
of the Option Stock as contemplated by the Prospectus.
(f) You shall have from Kesselman & Kesselman, a letter
stating that their review of the Company's internal accounting controls, to the
extent they deemed necessary in establishing the scope of their examination of
the Company's financial statements as at December 31, 2000, did not disclose any
weakness in internal controls that they considered to be material weaknesses.
(g) On the Closing Date, and on any later date on which Option
Stock is purchased, you shall have received a certificate, dated the Closing
Date or such later date, as the case may be, signed by the Chief Executive
Officer and Chief Financial Officer of the Company stating that the respective
signers of said certificate have carefully examined the Registration Statement
in the form in which it originally became effective and the Prospectus contained
therein and any amendments or supplements thereto and this Agreement, and, to
their knowledge that the statements included in paragraph (b) of this Section 7
are true and correct.
(h) You shall have been furnished evidence in usual written or
telegraphic form from the appropriate authorities of the several jurisdictions,
or other evidence satisfactory to you, of the qualification referred to in
paragraph (f) of Section 6 hereof.
(i) Prior to the Closing Date, the Shares shall have been duly
authorized for inclusion on the Nasdaq National Market upon official notice of
issuance.
In case any of the conditions specified in this Section 7 shall not
be fulfilled, this Agreement may be terminated by you by giving notice to the
Company. Any such termination shall be without liability of the Company to
the Underwriters and without liability of the Underwriters to the Company;
PROVIDED, HOWEVER, that (i) in the event of such termination, the Company
agrees to indemnify and hold harmless the Underwriters from all costs or
expenses incident to the performance of the obligations of the Company under
this Agreement, including all costs and expenses referred to in paragraphs
(g) and (h) of Section 6 hereof, and (ii) if this Agreement is terminated by
you because of any refusal, inability or failure on the part of the Company
to perform any agreement herein, to fulfill any of the conditions herein, or
to comply with any provision hereof other than by reason of a default by any
of the Underwriters, the Company will reimburse the Underwriters severally
upon demand for all out-of-pocket expenses (including reasonable fees and
disbursements of counsel) that shall have been incurred by them in connection
with the transactions contemplated hereby.
8. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY.
(a) The obligations of the Company to deliver the Shares shall
be subject to the conditions that (i) the Registration Statement shall have
become effective and (ii) no stop order suspending the effectiveness thereof
shall be in effect and no proceedings therefor shall be pending or threatened by
the Commission.
(b) In case either of the conditions specified in paragraph
(a) of this Section 8 shall not be fulfilled, this Agreement may be terminated
by the Company by giving notice to
<PAGE>
you. Any such termination shall be without liability of the Company to the
Underwriters and without liability of the Underwriters to the Company;
PROVIDED, HOWEVER, that in the event of any such termination the Company
agrees to indemnify and hold harmless the Underwriters from all costs or
expenses incident to the performance of the obligations of the Company under
this Agreement, including all costs and expenses referred to in paragraphs
(g) and (h) of Section 6 hereof.
9. INDEMNIFICATION AND CONTRIBUTION.
(a) Subject to the provisions of paragraph (d) of this
Section 9, the Company agrees to indemnify and hold harmless each Underwriter
(and any person participating in the distribution who is deemed to be an
underwriter (as defined in Section 2(11) of the Act) and each person
(including each member or officer thereof), if any, who controls any
Underwriter within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, from and against any and all losses, claims, damages or
liabilities, joint or several (and actions in respect thereof), to which such
indemnified parties or any of them may become subject, under the Act, the
Exchange Act or other federal or state statutory law or regulation, at common
law or otherwise, and the Company agrees to reimburse each such Underwriter
and controlling person for any legal or other expenses (including, except as
otherwise hereinafter provided, reasonable fees and disbursements of counsel)
incurred by the respective indemnified parties in connection with defending
against any such losses, claims, damages, or liabilities or in connection
with any investigation or inquiry of, or other proceeding which may be
brought against, the respective indemnified parties, in each case arising out
of or are based upon (i) any untrue statement or alleged untrue statement of
any material fact contained in the Registration Statement (including the
Prospectus as part thereof and any Rule 462(b) registration statement) or any
post-effective amendment thereto (including any Rule 462(b) registration
statement) or the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, or (ii) any untrue statement or alleged untrue
statement of any material fact contained in any Preliminary Prospectus or the
Prospectus (as amended or as supplemented if the Company shall have filed
with the Commission any amendment thereof or supplement thereto) or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstance under which they were made, not misleading, or (iii) any untrue
statement or alleged untrue statement of any material fact contained in any
audio or visual materials provided by the Company or based upon written
information furnished by or on behalf of the Company including, without
limitation, slides, videos, films or tape recordings, used in connection with
the marketing of the Underwritten Stock, including without limitation, untrue
or alleged untrue statements communicated to securities analysts employed by
the Underwriters; PROVIDED, HOWEVER, that (i) the indemnity agreement of the
Company contained in this paragraph (a) shall not apply to any such loss,
claim, damage, liability or action if such statement or omission was made in
reliance upon and in conformity with information furnished as herein stated
or otherwise furnished in writing to the Company by or on behalf of any
Underwriter expressly for use in any Preliminary Prospectus or the
Registration Statement or the Prospectus or any such amendment thereof or
supplement thereto, and (ii) that the indemnity agreement contained in this
paragraph (a) with respect to any Preliminary Prospectus shall not inure to
the benefit of any Underwriter (or such persons) if the person asserting any
such loss, claim, damage, liability or action purchased Shares which are the
subject thereof to the extent that any such loss, claim, damage,
<PAGE>
liability or action (A) results from the fact that such Underwriter failed to
send or give a copy of the Prospectus (as amended or supplemented) to such
person at or prior to the confirmation of the sale of such Shares to such
person in any case where such delivery is required by the Act and (B) arises
out of or is based upon an untrue statement or omission of a material fact
contained in such Preliminary Prospectus that was corrected in the Prospectus
(as amended and supplemented), unless such failure resulted from
non-compliance by the Company with paragraph (c) of Section 6 hereof. The
indemnity agreements of the Company contained in this paragraph (a) and the
representations and warranties of the Company contained in Section 2 hereof
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any indemnified party and shall survive
the delivery and payment for the Shares.
(b) Each Underwriter severally agrees to indemnify and hold
harmless the Company, each of its directors, each of its officers who has signed
the Registration Statement, each person, if any, who controls the Company within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act, and the
other Underwriters against any and all losses, claims, damages or liabilities,
joint or several, to which such indemnified parties or any of them may become
subject, under the Act, the Exchange Act or other federal or state statutory law
or regulation, at common law or otherwise and to reimburse each of them for any
legal or other expenses (including, except as otherwise hereinafter provided,
reasonable fees and disbursements of counsel) incurred by the respective
indemnified parties in connection with defending against any such losses,
claims, damages or liabilities or in connection with any investigation or
inquiry of, or other proceeding which may be brought against, the respective
indemnified parties, in each case arising out of or are based upon (i) any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement (including the Prospectus as part thereof and any
Rule 462(b) registration statement) or any post-effective amendment thereto
(including any Rule 462(b) registration statement) or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or (ii) any untrue
statement or alleged untrue statement of any material fact contained in any
Preliminary Prospectus or the Prospectus (as amended or as supplemented if the
Company shall have filed with the Commission any amendment thereof or supplement
thereto) or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstance under which they were made, not misleading, in each
case to the extent, but only to the extent, that such statement or omission was
made in reliance upon and in conformity with information furnished as herein
stated or otherwise furnished in writing by or on behalf of such indemnifying
Underwriter to the Company expressly for use in the Registration Statement or
the Prospectus or any such amendment thereof or supplement thereto, and will
reimburse, as incurred, all legal or other expenses reasonably incurred by the
Company or any such director, officer or controlling person in connection with
investigating or defending any such loss, claim, damage, liability or action.
The indemnity agreement of each Underwriter contained in this paragraph (b)
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any indemnified party and shall survive
the delivery and payment for the Shares.
(c) Each party indemnified under the provisions of
paragraph (a) or (b) of this Section 9 agrees that, upon the service of a
summons or other initial legal process upon it in any action or suit
instituted against it or upon its receipt of written notification of the
commencement of any investigation or inquiry of, or proceeding against it, in
respect of which indemnity may be
<PAGE>
sought on account of any indemnity agreement contained in such paragraphs,
such indemnified party will promptly notify any party or parties from whom
indemnification may be sought hereunder of the commencement thereof in
writing. No indemnification provided for in such paragraphs shall be
available to any party who shall fail so to give such notice if the party to
whom such notice was not given was unaware of the action, suit,
investigation, inquiry or proceeding to which such notice would have related
and was prejudiced by the failure to give the notice, but the omission so to
notify such indemnifying party or parties of any such service or notification
shall not relieve such indemnifying party or parties from any liability which
it or they may have to the indemnified party for contribution or otherwise
than on account of such indemnity agreement. Any indemnifying party or
parties against which a claim is to be made will be entitled, at its own
expense, to participate in the defense of such action, suit, investigation or
inquiry of, an indemnified party. Any indemnifying party shall be entitled,
if it so elects within a reasonable time after receipt of notice from the
indemnified party or parties of an action, suit, investigation or inquiry to
which indemnity may be sought, to assume the entire defense thereof (alone or
in conjunction with any other indemnifying party or parties), at its own
expense, in which case such defense shall be conducted by counsel reasonably
satisfactory to the indemnified party or parties; PROVIDED, HOWEVER, that (i)
if the indemnified party or parties has reasonably concluded that there may
be a conflict between the positions of the indemnifying party or parties and
of the indemnified party or parties in conducting the defense of such action,
suit, investigation, inquiry or proceeding or that there may be legal
defenses available to such indemnified party or parties different from or in
addition to those available to the indemnifying party or parties, then
counsel for the indemnified party or parties shall be entitled to conduct
such defense to the extent reasonably determined by such counsel to be
necessary to protect the interests of the indemnified party or parties and
(ii) in any event, the indemnified party or parties shall be entitled to have
counsel chosen by such indemnified party or parties participate in, but not
conduct, the defense. Upon receipt of notice from the indemnifying party to
such indemnified party of its election so to assume the defense of such
action and approval by the indemnified party of counsel, the indemnifying
party will not be liable to such indemnified party under this Section 9 for
any legal or other expenses (other than the reasonable costs of
investigation) subsequently incurred by such indemnified party in connection
with the defense thereof unless (i) the indemnified party has employed such
counsel in connection with the assumption of different or additional legal
defenses in accordance with the proviso to the immediately preceding
sentence, or (ii) the indemnifying party has authorized in writing the
employment of counsel for the indemnified party at the expense of the
indemnifying party. If no such notice to assume the defense of such action
has been given within a reasonable time of the indemnified party's or
parties' notice to such indemnifying party or parties, the indemnifying party
or parties shall be responsible for any legal or other expenses incurred by
the indemnified party or parties in connection with the defense of the
action, suit, investigation, inquiry or proceeding.
(d) If the indemnification provided for in this Section 9 is
unavailable or insufficient to hold harmless an indemnified party under
paragraph (a) or (b) above in respect of any losses, claims, damages, expenses
or liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities (or actions in respect thereof)
referred to in paragraphs (a) and (b) above (i) in such proportion as is
appropriate to reflect the relative benefits received by each of
<PAGE>
the contributing parties from the offering of the Shares or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of each
of the contributing parties, on the one hand, and the party to be
indemnified, on the other hand in connection with the statements or omissions
that resulted in such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations. The relative benefits received by
the Company, on the one hand, and the Underwriters, on the other, shall be
deemed to be in the same proportion as the total net proceeds from the
offering of the Shares (before deducting expenses) and the total underwriting
discount received by the Underwriters, in each case as set forth in the table
on the cover page of the Prospectus, bear to the aggregate public offering
price of the Shares. Relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by each indemnifying party, and the parties'
relative intent, knowledge, access to information and opportunity to correct
or prevent such untrue statement or omission.
The parties agree that it would not be just and equitable if
contributions pursuant to this paragraph (d) were to be determined by pro
rata allocation or by any other method of allocation which does not take into
account the equitable consideration referred to above. The amount paid or
payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions in respect thereof) referred to above in this
paragraph (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this paragraph (d), no Underwriter shall be required to
contribute any amount in excess of the underwriting discount applicable to
the Shares purchased by the Underwriter hereunder. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations in this paragraph
(d) to contribute are several in proportion to their respective underwriting
obligations and not joint.
Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted against
it in respect to which a claim for contribution may be made against another
party or parties under this paragraph (d), it will promptly notify such party or
parties from whom contribution may be sought, but the omission so to notify such
party or parties shall not relieve the party or parties from whom contribution
may be sought from any other obligation it may have hereunder or otherwise
(except as specifically provided in paragraph (c) of this Section 9). The
contribution agreement set forth above shall be in addition to any liabilities
which any indemnifying party may have at common law or otherwise.
(e) No indemnifying party will, without the prior written
consent of the indemnified party, settle or compromise or consent to the
entry of any judgment in any pending or threatened claim, action, suit or
proceeding in respect of which indemnification may be sought hereunder
(whether or not such indemnified party or any person who controls such
Underwriter within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act is a party to such claim, action, suit or proceeding) unless
such settlement, compromise or consent includes an unconditional release of
such indemnified party and each such controlling person from all liability
arising out of such claim, action, suit or proceeding.
<PAGE>
(f) The Company agrees to indemnify and hold harmless W.R.
Hambrecht + Co., LLC and each person (including each member of officer thereof),
if any, who controls W.R. Hambrecht + Co., LLC within the meaning of either
Section 15 of the Act or Section 20 of the Exchange Act ("Indemnified
Entities"), from and against any and all losses, claims, damages and liabilities
(including, without limitation, any legal or other expenses reasonably incurred
in connection with defending or investigating any such action or claim) (i)
caused by any untrue statement or alleged untrue statement of a material fact
contained in any material prepared by or with the consent of the Company for
distribution to participants in connection with the Reserved Share Program, or
caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; (ii) the failure of any Participant to pay for and accept delivery
of Reserved Shares that the participant has agreed to purchase; or (iii) related
to, arising out of, or in connection with the Reserved Share Program other than
losses, claims, damages or liabilities (or expenses relating thereto) that are
finally judicially determined to have resulted from the bad faith or gross
negligence of Indemnified Entities.
10. REIMBURSEMENT OF CERTAIN EXPENSES.
In addition to their other obligations under Section 9 of this Agreement, the
Company hereby agrees to reimburse on a quarterly basis the Underwriters for
all reasonable legal and other expenses incurred in connection with
investigating or defending any claim, action, investigation, inquiry or other
proceeding arising out of or based upon any statement or omission, or any
alleged statement or omission, described in paragraph (a) of Section 9 of
this Agreement, notwithstanding the absence of a judicial determination as to
the propriety and enforceability of the obligations under this Section 10 and
the possibility that such payments might later be held to be improper,
provided, however, that (i) to the extent that any such payment is ultimately
held to be improper, the Underwriters shall promptly refund it and (ii) the
Underwriters shall provide to the Company, upon request, reasonable
assurances of their ability to effect any refund, when and if due.
11. REPRESENTATIONS, ETC. TO SURVIVE DELIVERY. The respective
representations, warranties, agreements, covenants, indemnities and statements
of, and on behalf of, the Company and its officers, and the Underwriters,
respectively, set forth in or made pursuant to this Agreement will remain in
full force and effect, regardless of any investigation made by or on behalf of
the Underwriters, and will survive delivery of and payment for the Shares. Any
successors to the Underwriters shall be entitled to the indemnity, contribution
and reimbursement agreements contained in this Agreement.
12. TERMINATION.
(a) This Agreement (except for the provisions of Section 9
hereof) may be terminated by you by notice to the Company at any time prior to
the Closing Date if: (i) the Company shall have sustained a loss by strike,
fire, flood, accident or other calamity of such a character as to interfere
materially with the conduct of the business and operations of the Company
regardless of whether or not such loss was insured; (ii) trading in the Common
Stock shall have been suspended or trading in securities generally on the New
York Stock Exchange, the American Stock Exchange or the Nasdaq National Market
shall have been suspended or limitations on such trading shall have been imposed
or limitations on prices shall have been established on any such exchange or
market system; (iii) the engagement in hostilities or an
<PAGE>
escalation of major hostilities by the United States or Israel or the
declaration of war or a national emergency by the United States or Israel on
or after the date hereof shall have occurred; (iv) any outbreak of
hostilities or other national or international calamity or crisis or material
adverse change in economic or political conditions shall have occurred if the
effect of such outbreak, calamity, crisis or change in economic or political
conditions in the financial markets of the United States or Israel would, in
your reasonable judgment, make the offering or delivery of the Shares
impracticable; (v) the enactment, publication, decree or other promulgation
of any Israeli, federal or state statute, regulation, rule or order of, or
commencement of any proceeding or investigation by, any court, legislative
body, agency or other governmental authority shall have occurred which in the
Underwriter's reasonable opinion materially and adversely affects or will
materially or adversely affect the business or operations of the Company;
(vi) a banking moratorium shall have been declared by California, New York,
United States or Israeli authorities; or (vii) the taking of any action by
any Israeli, federal, state or local government or agency in respect of its
monetary or fiscal affairs shall have occurred which in your reasonable
judgment has a material adverse effect on the securities markets in the
United States or Israel.
(b) If this Agreement is terminated pursuant to this Section
12, there shall be no liability of the Company to the Underwriters and no
liability of the Underwriters to the Company; PROVIDED, HOWEVER, that in the
event of any such termination, the Company agrees to indemnify and hold harmless
the Underwriters from all costs or expenses incident to the performance of the
obligations of the Company under this Agreement, including all costs and
expenses referred to in paragraphs (g) and (h) of Section 6. Notwithstanding any
termination of this Agreement, the provisions of Section 9 hereof shall survive
and remain in full force and effect.
13. NOTICES. All communications hereunder shall be in writing
and if sent to the Underwriters shall be mailed or delivered or telegraphed
and confirmed by letter or telecopied and confirmed by letter to W.R.
Hambrecht + Co., LLC at 550 Fifteenth Street, San Francisco, California
94103, with copies to Morrison & Foerster LLP, 425 Market Street, San
Francisco, California 94105, Attention: Bruce A. Mann, Esq. or, if sent to
the Company, shall be mailed or delivered or telegraphed and confirmed to the
Company at 5201 Great America Parkway, Santa Clara, California 95054, with
copies to Bay Venture Counsel, LLP, 1999 Harrison Street, Suite 1300,
Oakland, California 94612, Attention: Donald C. Reinke, Esq.
14. SUCCESSORS. This Agreement shall incur to the benefit of
and be binding upon the Company and the Underwriters and, with respect to the
provisions of Section 9 hereof, the several parties (in addition to the
Company and the Underwriters) indemnified under the provisions of said
Section 9, and their respective personal representatives successors and
assigns. Nothing in this agreement is intended or shall be construed to give
any other person any legal or equitable right, remedy or claim under or in
respect of this agreement, or any provisions herein contained. The term
"successors and assigns" as herein used shall not include any purchaser, as
such purchaser, of any of the Shares from the Underwriters.
15. COUNTERPARTS. This agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original, and all of
which together shall be deemed to be one and the same instrument.
16. GOVERNING LAW. This agreement shall be governed by and
construed in accordance with the laws of the State of California. Any legal
suit, action or proceeding arising out of or based upon this Agreement or the
transactions contemplated hereby may be instituted in
<PAGE>
the federal courts of the United States of America located in the City and
County of San Francisco or the courts of the State of California in each case
located in the City and County of San Francisco (collectively, the "Specified
Courts"), and each party irrevocably submits to the exclusive jurisdiction
(except for proceedings instituted in regard to the enforcement of a judgment
of any such court, as to which such jurisdiction is non-exclusive) of such
courts in any such suit, action or proceeding. Service of any process,
summons, notice or document by mail to such party's address set forth above
shall be effective service of process for any suit, action or other
proceeding brought in any such court. The parties irrevocably and
unconditionally waive any objection to the laying of venue of any suit,
action or other proceeding in the Specified Courts and irrevocably and
unconditionally waive and agree not to plead or claim in any such court that
any such suit, action or other proceeding brought in any such court has been
brought in an inconvenient forum.
If the foregoing correctly sets forth our understanding, please
indicate the Underwriters' acceptance thereof in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement
between us.
Very truly yours,
NOGATECH, INC.
By: __________________________________
Name: ____________________________
Title: ___________________________
Accepted as of the date first above written:
W.R. HAMBRECHT + CO., LLC
ING Barings LLC
DLJDIRECT Inc.
as representatives of the
several Underwriters
By: W.R. Hambrecht + Co., LLC
By:_________________________________
Name:___________________________
Title:__________________________
<PAGE>
Exhibit 10.14
CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
DESIGN AND DEVELOPMENT AGREEMENT
This is an agreement, dated as of August, 1999 ("Effective Date") by and
between SUPERTEC ELECTRONICS LTD., address of 1 Hamasger St., POB 2550,
Raanana 43653, Israel (hereinafter "SUPERTEC"), and NOGATECH address of
3 Gavish, St. Kfar Saba 44444, Israel (hereinafter "CUSTOMER").
- -----------------------------
Whereas, CUSTOMER requires a design for a particular semiconductor based on
FUJITSU'S technology.
Whereas, SUPERTEC has expertise in the design of semiconductor products and
believes it can perform the obligations described herein relating to the
production of a design for the Product in accordance with this Agreement; and
Whereas, FUJITSU has expertise in the manufacturing of integrated circuits,
and believes it can perform the obligations described herein relating to the
production of a design for Product and the manufacture of the Product in
accordance with this Agreement;
Whereas, CUSTOMER desires to purchase from SUPERTEC as its supplier of
NT 1004 and targeting for the quantity of more than 100K PCS units per year,
and SUPERTEC desires to sell such semiconductor products which are developed by
NOGATECH and produced by FUJITSU.
Now, therefore, in consideration of the Agreements between SUPERTEC and FUJITSU
the parties hereto agree as follows:
PRODUCTION & DEVELOPMENT
SUPERTEC and CUSTOMER agree to use their respective best efforts to perform the
Design Steps for which such party is responsible as follows and to complete each
such Design Step by the appropriate Target Completion Date as follows:
<PAGE>
1. DEFINITION
Project Name: NT 1004
Part Number: CS66-P4 (MB87L2030)
Package: LQFP100
Technology: 0.35 um
2. TURN AROUND TIME
2.1 Validation and Layout-6 weeks
2.2 Prototypes - 8 Weeks Ex. Japan
2.3 Mass Production-
- Lead-Time for first mass production order (including QC) will be no more
than 12 weeks.
- SQTAT with 4 weeks delivery ex Japan, cost 50K DM, SQTAT Slot Time -
6/9/99.
2.4 In case CUSTOMER gets a big order that was out of the forecast, Fujitsu will
deliver the product no longer than 15 weeks. (This lead-time is independent of
the actual load on the Fujitsu Fab).
TERMS OF CONTRACT
1. GENERAL TERMS
This AGREEMENT shall be effective from the date that this agreement is signed by
both parties and shall extend for a term of 5 years from the function approval
of the samples.
The CUSTOMER should confirm in writing the Prototype approval of the ASIC
product as soon as possible after receipt of the Prototype but no later than 30
days.
In the event that CUSTOMER does not specifically reject the prototypes provided
by SUPERTEC in writing within 30 days, such samples shall be deemed to be
accepted by CUSTOMER.
After Prototype approval CUSTOMER will issue a non-binding 6-month rolling
forecast for expected quantity. The rolling forecast shall be updated by the
CUSTOMER in writing every month.
CUSTOMER will be able to increase the actual PO relative to the forecast as
follows
- One month before delivery no change.
- Two month before delivery increase of 10% from the forecast.
- Three month before delivery and above, 15% from the forecast.
<PAGE>
Any changes to the specifications of the Product requested by CUSTOMER shall be
subject to mutual agreement by both parties by written consent of both parties,
as to adjustments to the Design and Payment Schedule.
2. PRICES/SHIPMENT
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
PRODUCT QTY/YEAR Unit Price Unit Price
Package DIE/Wafer
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
0.35um CE66-P4 ** First order *.** USD
- ------------------------------------------------------------------------------------------
**** *.** USD *.** USD
- ------------------------------------------------------------------------------------------
****-**** *.** USD *.** USD
- ------------------------------------------------------------------------------------------
****-**** *.** USD *.** USD
- ------------------------------------------------------------------------------------------
****-***** *.** USD *.** USD
- ------------------------------------------------------------------------------------------
****-***** *.** USD *.** USD
- ------------------------------------------------------------------------------------------
NRE * ***,*** DM
- ------------------------------------------------------------------------------------------
2nd NRE (in case A. Metal only redesign * ***,*** DM
of redesign) (logic change)
- ------------------------------------------------------------------------------------------
B. More layers are * ***,*** DM
affected (RAM/ROM
size and/or location
change)
- ------------------------------------------------------------------------------------------
Supertec work SYNT+SCAN+ATPG **,*** USD
- ------------------------------------------------------------------------------------------
</TABLE>
- **,*** DM will be deducted from the first NRE (P3 Trial Layout),
- NRE includes * pcs ES
- Prices are valid on a cumulative package or wafer base and for calendar
year 1999 to 2001.
- Price for Additional ES is **.** USD.
- In case of 2nd NRE/A the reduction NRE has to be applied, as Fujitsu need
to change the routing metal layer only.
- In case of 2nd NRE/B, the full NRE has to be applied, as Fujitsu need a new
set of masks.
- Maximum number of chips Nogatech can order for the first shipment is ***
units.
- If Nogatech will request to stop the manufacturing of the *** units before
Fujitsu made the package and the testing. Nogatech will cover the actual
expenses that Fujitsu had up that point according to a price of $*.* per
chip.
Minimum order quantity is ****pcs. With deliveries within one year starting
from first mass production delivery date. Min LOT ****** each type package
or wafer/die.
3. PAYMENT
3.1 Payment for Mass Production orders Net 30 days, plus 17% VAT, covered by
CUSTOMER, Bank Guarantee in advance. After one year from first mass
production shipment date, the bank guarantee will be reviewed with the
intention to either reduce amount or cancel it.
3.2 Prices for Unit Price are in USD and price for NRE is in DM.
[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
3.3 The NRE'S Costs will be invoiced as follows:
25% at project start
50% at sign-off
25% at prototype delivery
4. SHIPMENT AND BILLING
4.1 Shipment from Supertec warehouse to Nogatech in Israel.
4.2 Drop shipments from FMG to Nogatech to max. 2 addresses.
4.3 All billings are from Supertec to Nogatech.
GENERAL
1. EXCLUSIVE RIGHTS AND CONFIDENTIALITY
Either parties understand and hereby acknowledge that it may become informed of,
and access to, confidential information of the other party including, but not
limited to trade secrets and technical information, and that such information is
the exclusive property of the other party.
Parts of the product which are not trade secrets or professional secrets or
commonly known and are released by the CUSTOMER, may be used in other designs
completed by SUPERTEC or FUJITSU or 3rd parties.
It is agreed that CUSTOMER is the owners and holders of all proprietary
rights and has exclusive rights and absolute title respecting all of the data
base that he has given to SUPERTEC including all inventions process,
know-how, computer program, and technical data and information trade secrets,
copy writing and any other rights with respect to the foregoing.
2. RESPONSIBILITY
CUSTOMER will be responsible for Prototypes and Sign Off Approvals and for all
the developmental work for both the CUSTOMER and SUPERTEC.
3. FORCE MAJOR
Neither party to this Agreement shall be liable for its failure to perform any
of its obligations hereunder during any period in which such performance is
prevented by any cause beyond its control such as war, riots, sovereign act,
civil conditions, act of God, earthquakes, epidemics, floods, fires, quarantine
restrictions, accident, strike or lock out (also on part of suppliers), delays
in transportation, raw material shortages or delay in the delivery of essential
operating supplies or raw materials. An agreed
<PAGE>
delivery period shall be extended for the time after which such prevention
continues and for a reasonable period.
4. APPLICABLE LAW; JURISDICTION
The validity, performance and construction of this Agreement shall be governed
by the laws of Israel, and Tel Aviv. Israel, shall be the appropriate venue and
jurisdiction for the resolution of disputes hereunder.
5. INVALIDITY
Should any one or more parts of this agreement be declared invalid by any court
of jurisdiction for any reason, such decision shall not affect the validity of
any portions, which shall remain in full force can effect as if this agreement
has executed with the invalid part or parts thereof eliminated.
6. ATTORNEY'S FEES
The prevailing party in any legal action arising out of or related to this
Agreement shall be entitled to its reasonable court costs and attorneys' fees.
SUPERTEC ELECTRONICS LTD. NOGATECH
BY: SUPERTEC ELECTRONICS LTD. BY: NOGATECH
NAME: YAACOV COHEN NAME: ARIE HEIMAN
SIGNATURE: /s/ Yaacov Cohen SIGNATURE: /s/ Arie Heiman
----------------- ----------------
TITLE: DIRECTOR TITLE: PRESIDENT
DATE: 30/8/99 DATE: 30/8/99
<PAGE>
CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
Exhibit 10.15
ASIC DEVELOPMENT AGREEMENT
This is an agreement, dated as of June 24th, 1997 ("Effective Date") by and
between SUPERTEC ELECTRONICS Ltd., located at 1 Hamasger St., Raanana 43653,
POB 2550 Israel (hereinafter "SUPERTEC"), and NOGATECH Ltd., located at 2 Miviz
Kadesh St. Givat Shmuel 54100, Israel (hereinafter "CUSTOMER").
Whereas, CUSTOMER requires a design for a particular semiconductor product in
accordance with the design based on LG SEMICON'S technology.
Whereas, SUPERTEC has expertise in the design of semiconductor products and
believes it can perform the obligations described herein relating to the design
and production of the Product in accordance with this Agreement; and
Whereas, LG SEMICON has expertise in the manufacturing of integrated circuits,
and believes it can perform the obligations described herein relating to the
production of a design for Product and the manufacture of the Product in
accordance with this Agreement;
Whereas, CUSTOMER desires to purchase from SUPERTEC as its sole supplier for the
following design, and targeting for the quantity of more than 1 MILLION units
per year and SUPERTEC desires to sell such semiconductor products which are
developed by CUSTOMER and SUPERTEC and produced by LG SEMICON.
Now, therefore, in consideration of the Agreements between SUPERTEC and LG
SEMICON the parties hereto agree as follows:
PRODUCTION & DEVELOPMENT
SUPERTEC and CUSTOMER agree to use their respective best efforts to perform the
Design Steps for which such party is responsible as follows and to complete each
such Design Step by the appropriate Target Completion Date as follows:
<PAGE>
1. DEFINITION
Project Name: NT 1003
Part Number: GVS 853XX
Package: 100 PQFP
Technology: 0.35 um SC TLM
Size: 4,014 um x 4,014 um
Description: 80 K gate 4 K byte DPRAM, USB transceiver, PLL,
Power-On-Reset, Clock Generator
2. DEVELOPMENT OF PRODUCT
2.1 Development of * module (DRAM controller preliminary estimation 1-2
months).
2.2 Synthesis of RTL Varilog files and test vectors generation (preliminary
estimation-4 months of half time of an engineer).
2.3 Development of first stage ASIC in 0.6 um SC for Comdex fair (including 80K
gate, 4K byte DPRAM, USB transceiver).
2.4 Development of second stage ASIC in 0.35 um S.C.
* If there is a significant change in the development hours (more than 10%)
SuperTec should notified Nogatech to get the exceeded hours.
3. FORECAST FOR COMPLETION DATES
<TABLE>
<CAPTION>
Design Step Completion Date
----------- ---------------
<S> <C>
* Beginning of ASIC design Upon placement of the CUSTOMER'S order
* Design 1 module 1-2 months - by Supertec
* Altera preliminary NL + TV Beginning of July - Nogatech releases
* Altera Full Integration Aug 3rd - Nogatech releases
* Altera Final NL + TV Aug. 10th - Nogatech releases
* LG final NL + TV Aug. 24th - Supertec releases
* LG final NL + TV tape-out Sep. 1st - Nogatech approval
* 1st Sign-Off, (0.6um) Sep. 8th - Nogatech approval
* SDF out (0.6um) Sep. 15th - LG releases
* 2nd Sign-Off (0.6um) Sep. 18th - Nogatech approval
* Delivery of Prototypes (0.6um) Oct. 20th - by LG ex Korea
* LG NL + TV tape-out (0.35um) Nov. 6th - by LG ex Korea
* 1st Sign-Off, (0.35um) Nov. 10th - Nogatech approval
* SDF est (0.35um) Nov. 17th - LG releases
* 2nd Sign-Off.(0.35um) Nov. 20th - Nogatech approval
* Delivery of Prototypes (0.35um) Dec. 25th - by LG ex Korea
* Prototype Approval (0.35um) Jan 8th 1998- Nogatech approval
* Mass Production (0.35um) Feb. 26th 1998 - by LG ex Korea
</TABLE>
[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
TERMS OF CONTRACT
1. GENERAL TERMS
This Agreement shall be effective from the date that this agreement is signed by
both parties and shall extend for a term of 5 years from the function approval
of the samples.
The CUSTOMER should confirm in writing the Prototype approval of the ASIC
product as soon as possible after receipt of the Prototype but no later than 60
days.
In the event that CUSTOMER does not specifically reject the prototypes provided
by SUPERTEC in writing within 60 days, such samples shall be deemed to be
accepted by CUSTOMER.
After Prototype approval CUSTOMER will issue a yearly forecast for expected
quantity. The CUSTOMER shall confirm the rolling forecast two quarters before
delivery. The rolling forecast shall be updated by the CUSTOMER in writing at
the beginning of each quarter.
After Prototype approval with respect to the yearly forecast, CUSTOMER must
issue a firm order 2-3 months before delivery. The order cannot be canceled 75
days before confirmed delivery date (Ex Korea).
Any changes to the specifications of the Product requested by CUSTOMER shall be
subject to mutual agreement by both parties by written consent of both parties,
as to adjustments to the Design and Payment Schedule.
2. PRICES
------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Pos. Product Pkg. Qty/Yr. Unit Price
USD
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1. 80K gates *** PQFP ***K *.**
4x1K 8bit DPRAM ***K *.**
SC TLM 0.35um ***K *.**
*M *.**
- ------------------------------------------------------------------------------------------
2. NRE - 0.35 um SC TLM 90,000
60 Prototypes are included
- ------------------------------------------------------------------------------------------
3. NRE - 0.6 um SC TLM 40,000
60 Prototypes are included
- ------------------------------------------------------------------------------------------
4. Development Charge per hour 65
- ------------------------------------------------------------------------------------------
</TABLE>
[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
3. PAYMENT
Payment for Mass Production orders will be NET 30 days after delivery, FOB
Korea, covered by CUSTOMER's Bank Guarantee in advance in addition to Bank
Guarantee according to paragraph 3.3, or any other arrangement which will be
agreed.
3.2 The NRE'S Costs will be invoiced as follows:
- $39 K immediately at Order Placing.
- $39 K immediately at the 0.6 um SC 1st Sign-Off design step.
- $52 K a 0.35 um SC at Prototype Delivery
- All development cost of $65 per Hour which will be paid during 1998,
and will be added to the Unit Price of the first 100K units, by
dividing the total cost to 100K units.
3.3 CUSTOMER will issue within the 0.6 um SC 1st Sign-Off design step, a Bank
Guarantee in the amount of $52,000 US plus 17% VAT with validity until Dec.
31, 1998.
3.4 SUPERTEC reserves the right to use the Bank Guarantee in paragraph 3.3 only
in case of the following:
- - None payment or Partial Payment by the CUSTOMER.
- - CUSTOMER fails to purchase the 100,000 pieces, by Dec. 31, 1998.
3.5 Unless otherwise stated herein, the prices quoted in this Agreement do not
include custom duties or sales, use, excise or other similar taxes payable
hereunder, and the same shall be added.
GENERAL
CUSTOMER agrees and understands that all development efforts were a long term
relationship. If the project will continue in a second generation or version,
the continued development will be done through SUPERTEC, based on first refusal,
and meeting technical and marketing requirements.
1. EXCLUSIVE RIGHTS AND CONFIDENTIALITY
Either parties understand and hereby acknowledge that it may become informed of,
and access to, confidential information of the other party including, but not
limited to trade secrets and technical information, and that such information is
the exclusive property of the other party.
<PAGE>
Parts of the product which are not trade secrets or professional secrets or
commonly known and are released by the CUSTOMER, may be used in other designs
completed by SUPERTEC or LG or 3rd parties.
It is agreed that CUSTOMER is the owners and holders of all proprietary
rights and has exclusive rights and absolute title respecting all of the data
base, that he has given to SUPERTEC including Verilog RTL and all inventions
process, know-how, computer program, technical data, information trade
secrets, copy writing and any other rights with respect to the foregoing.
It is agreed that SUPERTEC is the owners and holders of all proprietary rights
and has exclusive rights and absolute title respecting all of the data which
SUPERTEC developed for the project done by SUPERTEC for the CUSTOMER including
Net List, Test Vectors, Layout Masks and all inventions process, know-how
computer program, technical data, information trade secrets, copy writing and
any other rights with respect to the foregoing.
It is agreed that SUPERTEC is not allowed to use the Net List, Test Vectors, and
Layout Masks which SUPERTEC developed for the project done by SUPERTEC for the
CUSTOMER other than for the CUSTOMER Mass Production supply.
It is agreed that SUPERTEC is not the owners of the 2 modules which were
developed for the CUSTOMER.
2. RESPONSIBILITY
CUSTOMER will be responsible for Prototypes and Sign Off Approvals and for all
the developmental work for both the CUSTOMER and SUPERTEC.
3. MAJOR FORCE
Neither party to this Agreement shall be liable for its failure to perform any
of its obligations hereunder during any period in which such performance is
prevented by any cause beyond its control such as war, riots, sovereign act,
civil conditions, act of God, earthquakes, epidemics, floods, fires, quarantine
restrictions, accident, strike or lock out (also on part of suppliers), delays
in transportation, raw material shortages or delay in the delivery of essential
operating supplies or raw materials. An agreed delivery period shall be
extended for the time after which such prevention continues and for a reasonable
period of no more than 4 weeks.
4. APPLICABLE LAW; JURISDICTION
The validity, performance and construction of this Agreement shall be governed
by the laws of Israel, and Tel Aviv, Israel, shall be the appropriate venue and
jurisdiction for the resolution of disputes hereunder.
<PAGE>
5. INVALIDITY
Should any one or more parts of this agreement be declared invalid by any court
of jurisdiction for any reason, such decision shall not affect the validity of
any portions, which shall remain in full force can effect as if this agreement
has executed with the invalid part or parts thereof eliminated.
6. ATTORNEY'S FEES
The prevailing party in any legal action arising out of or related to this
Agreement shall be entitled to its reasonable court costs and attorneys' fees.
SUPERTEC ELECTRONICS LTD. NOGATECH LTD.
BY: SuperTec Electronics Ltd. By: Nogatech Ltd.
NAME: Udi Shamir NAME: Arie Heiman
Signature /s/ Udi Shamir Signature: /s/ Arie Heiman
-------------- ---------------
TITLE: General Manager TITLE: General Manager
DATE: 24 June, 1997 DATE: 24/June, 1997
-------------
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the use in the prospectus constituting part of this
Registration Statement (Number 333-32372) on Form S-1 of our report dated
February 25, 2000, except for Note 6 the date of which is March 8, 2000,
relating to the financial statements of Nogatech, Inc., which appear in such
Prospectus.
We also consent to the references to our firm under the caption "Experts".
<TABLE>
<S> <C>
Tel Aviv, Israel Kesselman & Kesselman
May 17, 2000 Certified Public Accountants (Israel)
</TABLE>
