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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 14, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CLICKSERVICE SOFTWARE LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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ISRAEL 7372 NOT APPLICABLE
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
</TABLE>
34 HABARZEL STREET
TEL AVIV, ISRAEL
(972-3) 765-9400
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
DR. MOSHE BEN-BASSAT
CHIEF EXECUTIVE OFFICER
CLICKSERVICE SOFTWARE, INC.
3425 S. BASCOM AVENUE
SUITE 230
CAMPBELL, CALIFORNIA 95008
(408) 377-6088
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
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Copies to:
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<S> <C> <C> <C>
JEFFREY D. SAPER, ESQ. IAN ROSTOWSKY, ADV. YUVAL HORN, ADV. RICHARD CAPELOUTO, ESQ.
RICHARD JAY SILVERSTEIN, DUBI ZOLTAK, ADV. ASAF BEN-ZEEV, ADV. MICHAEL NATHAN, ESQ.
ESQ. EFRATI, GALILI & CO. TAL SCHNEIDER, ADV. SIMPSON THACHER & BARTLETT
ALLISON L. BERRY, ESQ. 6 WISSOTSKY STREET DORON COHEN -- 3373 HILLVIEW AVENUE,
ROBERT F. WESTOVER, ESQ. TEL AVIV 62338 DAVID COHEN, LAW OFFICES SUITE 250
WILSON SONSINI ISRAEL 14 ABBA HILLEL SILVER ROAD PALO ALTO, CALIFORNIA 94304
GOODRICH & ROSATI (972-3) 605-1010 RAMAT-GAN 52506 (650) 251-5000
PROFESSIONAL CORPORATION ISRAEL
650 PAGE MILL ROAD (972-3) 753-1000
PALO ALTO, CA 94304-1050
(650) 493-9300
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement is declared effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is 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 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. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
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<S> <C> <C>
Ordinary Shares, par value NIS 0.02 per share............... $50,000,000 $13,200
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</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee, in accordance with to Rule 457(a) promulgated under the Securities Act
of 1933.
------------------------
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 THE 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> 2
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 WE ARE NOT SOLICITING OFFERS TO
BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED FEBRUARY 14, 2000
PROSPECTUS
Shares
[ClickService Logo]
Ordinary Shares
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This is our initial public offering of ordinary shares. We are offering
ordinary shares.
No public market currently exists for our ordinary shares.
We propose to list the ordinary shares on the Nasdaq National Market under the
symbol "CKSV."
The anticipated price range is $ to $ per share.
INVESTING IN OUR ORDINARY SHARES INVOLVES RISKS. "RISK FACTORS" BEGIN ON PAGE 7.
<TABLE>
<CAPTION>
PER SHARE TOTAL
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Public Offering Price................... $ $
Underwriting Discount and Commissions... $ $
Proceeds, before expenses, to
ClickService.......................... $ $
</TABLE>
We have granted the underwriters an option for a period of 30 days to purchase
up to additional ordinary shares on the same terms and conditions as
set forth above solely to cover over-allotments, if any.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Lehman Brothers expects to deliver the shares on or about , 2000.
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LEHMAN BROTHERS
CIBC WORLD MARKETS
SG COWEN
FIDELITY CAPITAL MARKETS
A DIVISION OF NATIONAL FINANCIAL
SERVICES CORPORATION
FACILITATING ELECTRONIC DISTRIBUTION
, 2000
<PAGE> 3
TABLE OF CONTENTS
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PAGE
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Prospectus Summary.................... 3
Risk Factors.......................... 7
Special Note Regarding Forward-Looking
Statements.......................... 19
Use of Proceeds....................... 20
Dividend Policy....................... 20
Capitalization........................ 21
Dilution.............................. 22
Selected Consolidated Financial
Data................................ 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 24
Business.............................. 34
Management............................ 46
Certain Transactions.................. 57
Principal Shareholders................ 59
</TABLE>
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PAGE
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Description of Share Capital.......... 62
Shares Eligible for Future Sale....... 67
United States Federal Income Tax
Considerations...................... 68
Israeli Taxation and Investment
Programs............................ 71
Conditions in Israel.................. 77
Enforceability of Civil Liabilities... 79
Where You Can Find More Information... 79
Legal Matters......................... 80
Experts............................... 80
ISA Exemption......................... 80
Underwriting.......................... 81
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
ABOUT THIS PROSPECTUS
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information that is different
from that contained in this prospectus. We are offering to sell ordinary shares
and seeking offers to buy ordinary shares 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 the ordinary shares.
Until , 2000, all dealers that buy, sell or trade the ordinary
shares, whether or not participating in this offering, may be required to
deliver a prospectus. This is an addition to the dealers' obligation to deliver
a prospectus when acting as underwriters and with respect to unsold allotments
or subscriptions.
"ClickService", "ClickSchedule", "ClickFix", "ClickAnalyze", "ClickBroker",
"ClickSchedule Fast Track", "W-6", "W-6 Service Scheduler" and "TechMate" are
our trademarks. This prospectus also contains trademarks, trade names and
service marks of other companies.
As used in this prospectus, the terms "we," "us," "our" and "ClickService"
mean ClickService Software Ltd. and its subsidiaries, unless otherwise
indicated.
For information regarding enforceability of civil liabilities against us
and other persons, see the section of this prospectus with the heading
"Enforceability of Civil Liabilities."
ClickService prepares its consolidated financial statements in United
States dollars in accordance with generally accepted accounting principles as
applied in the United States, or U.S. GAAP. All references in this prospectus to
"dollars" or "$" are to United States dollars and all references in this
prospectus to "NIS" are to New Israeli Shekels.
2
<PAGE> 4
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company and the ordinary shares being sold in this
offering and our financial statements and notes thereto appearing elsewhere in
this prospectus.
CLICKSERVICE SOFTWARE LTD.
We provide web-based infrastructure application software that enables
companies to efficiently fulfill service and product delivery in enterprise
environments and over the Internet. Our ClickSchedule product line allows our
clients to optimize resource utilization while offering their customers ease of
use and convenience when procuring services and products. Our ClickFix product
line facilitates the process of automated diagnosis and troubleshooting of
equipment. ClickSchedule and ClickFix are designed to enable our clients to
offer their customers the opportunity to schedule services and obtain self-help
directly over the Internet. Our solution is designed to enable our clients to
increase productivity, which can result in reduced costs and increased revenue
opportunities that otherwise would have been lost.
The market for service and product delivery has experienced significant
growth, both in terms of the variety of services and products available, as well
as transaction volume. Businesses engaged in service and product delivery must
deploy substantial resources in order to schedule and complete transactions that
require a same time and/or same place interaction between the service provider
and the customer. To build and maintain relationships with customers, businesses
are attempting to improve the quality and speed of their service and product
fulfillment in order to distinguish themselves from their competitors. Whether
scheduling telephone, cable or Internet access installation, or the repair of
office equipment, consumers and businesses need to be assured that services and
products will be delivered quickly and efficiently.
The emergence and acceptance of the Internet as a medium for commerce is
fundamentally changing the way companies communicate with their customers and
offer their services and products. While applications aimed at optimizing the
supply chain of manufacturing organizations have generally been successful,
service organizations are still facing significant challenges in today's
economy. Service organizations have continued to use conventional methods of
scheduling the fulfillment of services, primarily via telephone-based customer
service representatives. Accordingly, there is a need for a new class of
applications and technologies designed to optimize the utilization of
fulfillment resources and ensure successful completion of online transactions.
The ClickService solution, which is designed to enable our clients to offer
their customers the opportunity to schedule services and obtain self-help,
offers the following benefits to our clients and their customers:
- Greater Customer Service
- Optimized Utilization of Fulfillment Resources
- Seamless Integration into Existing Client Environments
- Rapid Return on Investment
3
<PAGE> 5
Our objective is to be the leading provider of web-based infrastructure
application software for optimizing service operations of business-to-business
and business-to-consumer enterprises. The key elements of our strategy include:
- Capitalize on our Existing Market Acceptance
- Extend our Brand Recognition
- Enhance our Sales and Implementation Channels
- Extend the Breadth and Depth of our Product Offerings
- Target Online Service Businesses
- Provide Customized Solutions for Additional Industries
Our products are based on our core technologies which have been developed
over the last 15 years and include sophisticated algorithms and business
scenario representation tools. Over the years we have gained vast experience
with the complex scheduling and troubleshooting needs of service organizations.
We market and sell our products primarily through our direct sales force
located in North America and Europe, as well as through reseller and joint
selling relationships with leading customer relationship management, or CRM, and
enterprise resource planning, or ERP, vendors. Our products are used by a broad
base of clients representing a variety of industries with unique needs,
including telecommunications, telephone and Internet access providers,
high-technology service providers and retailers, including Agilent Technologies,
Bell Atlantic, Canadian Red Cross, Caterpillar, Compaq Computer Corporation,
Covad Communications, High Speed Access (HSA), Level 3 Communications,
Montgomery Ward and Schindler Elevator.
CORPORATE INFORMATION
We were incorporated in Israel in September 1979. We changed our name to
ClickService Software Ltd. on January 30, 2000. Our principal executive offices
are located at 34 Habarzel Street, Tel Aviv, Israel and our telephone at that
address is (972-3) 765-9400. We also maintain corporate offices in the United
States at 3425 S. Bascom Avenue, Suite 230, Campbell, California, and our
telephone number at that address is (408) 377-6088. Our address on the World
Wide Web is www.clickservice.com. Information contained on our web site does not
constitute part of this prospectus.
4
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THE OFFERING
Ordinary shares offered by us......... shares
Ordinary shares to be outstanding
after the offering.................... shares
Use of proceeds....................... For working capital and general
corporate purposes, including
increased spending on sales and
marketing, professional services,
research and development and
expansion of our operational and
administrative infrastructure.
Proposed Nasdaq National Market
symbol................................ "CKSV"
Unless otherwise noted, share and per share amounts in this prospectus:
- give effect to the equivalent of a 3-for-5 reverse share split, which
will be effected prior to this offering through the combination of a
reverse share split and a share dividend;
- give effect to the conversion of all outstanding preferred shares into
13,499,898 ordinary shares immediately prior to the closing of the
offering;
- give effect to the conversion of all outstanding Ordinary A and Ordinary
B shares into ordinary shares immediately prior to the closing
of the offering; and
- assume no exercise of the underwriters' over-allotment option.
The ordinary shares to be outstanding after the offering is based on shares
outstanding as of December 31, 1999. This number excludes:
- 1,458,114 shares underlying outstanding options at a weighted exercise
price of $1.17 per share;
- 412,478 shares subject to outstanding warrants at a weighted exercise
price of $1.90 per share;
- 3,000,000 ordinary shares available for future grants under our 2000
Share Option Plan; and
- 800,000 ordinary shares available for issuance under our 2000 Employee
Share Purchase Plan.
As of December 31, 1999, 1,206,920 shares held by a trustee and reserved
for allocation upon exercise of other employee options were included in the
ordinary shares outstanding.
5
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table presents summary consolidated financial and operating
data derived from our consolidated financial statements. We have calculated pro
forma basic and diluted net loss per share assuming conversion of all of our
preferred shares into ordinary shares. You should read this summary information
along with the sections of the prospectus entitled "Selected Consolidated
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our consolidated financial statements and related
notes.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
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1995 1996 1997 1998 1999
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(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Software license............................ $ 2,111 $ 1,491 $ 1,235 $ 3,932 $ 5,414
Service and maintenance..................... 1,660 1,893 1,080 2,139 4,912
---------- ---------- ---------- ---------- -----------
Total revenues............................ 3,771 3,384 2,315 6,071 10,326
Cost of revenues:
Software license............................ 21 14 13 25 71
Service and maintenance..................... 1,484 1,514 1,035 2,301 4,299
---------- ---------- ---------- ---------- -----------
Total cost of revenues.................... 1,505 1,528 1,048 2,326 4,370
Gross profit.................................. 2,266 1,856 1,267 3,745 5,956
Loss from operations.......................... (1,112) (2,215) (4,364) (5,891) (7,725)
Net loss...................................... (1,322) (2,493) (4,512) (5,858) (7,979)
Basic and diluted net loss per share.......... $ (0.26) $ (0.48) $ (0.80) $ (0.99) $ (1.34)
Shares used in computing basic and diluted net
loss per share.............................. 5,081,265 5,216,705 5,657,728 5,914,765 5,948,846
Pro forma basic and diluted net loss per share
(unaudited)................................. $ (0.45)
Shares used in computing pro forma basic and
diluted net loss per share (unaudited)...... 17,692,994
</TABLE>
The following table provides a consolidated summary of our balance sheet as
of December 31, 1999 and as adjusted to give effect to the sale of
ordinary shares by us at an assumed initial public offering price of
$ per share and our anticipated application of the net proceeds of the
offering.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------
ACTUAL AS ADJUSTED
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(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 7,838 $
Working capital............................................. 8,007
Total assets................................................ 14,195
Long-term liabilities, net of current portion............... 1,112
Shareholders' equity........................................ 8,821
</TABLE>
6
<PAGE> 8
RISK FACTORS
You should carefully consider the following factors and other information
in this prospectus before you decide to invest in our ordinary shares. If any of
the negative events referred to below occurs, our business, financial condition
and results of operations could suffer. In any such case, the trading price of
our ordinary shares could decline, and you may lose all or part of your
investment.
RISKS RELATED TO OUR BUSINESS
OUR FINANCIAL PERFORMANCE MAY SUFFER BECAUSE WE HAVE RECENTLY CHANGED OUR
STRATEGIC FOCUS AND PRICING PROGRAM.
Historically, substantially all of our revenue has come from sales of our
ClickSchedule product, formerly known as W-6 Service Scheduler, and our ClickFix
product, formerly known as TechMate, to clients seeking application software
that enables efficient provisioning of services in enterprise environments. As a
result, while we sold the W-6 technology that is included in ClickSchedule and
the TechMate technology that is included in ClickFix prior to 1999, we have only
recently sold the new versions for Internet scheduling and troubleshooting. Our
current strategy is to expand upon our installed base of clients using our
software to become the leading provider of web-based resource optimization
software solutions for the service operations of business-to-business and
business-to-consumer enterprises. To the extent that our strategy is not
successful, our business, operating results and financial condition will suffer.
In December 1999, we introduced a new pricing program for our products.
Traditionally, we have generated revenue through one-time sales of licenses to
our clients at a price based upon the number of resources optimized. Our new
pricing model enables our clients to pay monthly user fees for licenses of our
software or to pay on a per-transaction basis. It is too early to determine
which pricing structure will become more prevalent, however many of our new
customers have chosen the new pricing model. If we have not determined
appropriate monthly or per transaction fees for our software licenses, our
revenues from software licenses may decrease or may not increase. Our new
pricing model will also result in delayed recognition of revenues, which may
cause our quarterly operating results to be lower than expected in any
particular quarter.
WE HAVE A HISTORY OF LOSSES AND EXPECT TO INCUR FUTURE LOSSES.
We have not achieved profitability and expect to continue to incur net
losses for the foreseeable future. We incurred net losses of approximately $4.5
million for the year ended December 31, 1997, $5.9 million for the year ended
December 31, 1998, and $8.0 million for the year ended December 31, 1999. As of
December 31, 1999, we had an accumulated deficit of approximately $23.7 million.
We expect to continue to incur significant sales and marketing, and
research and development expenses and expect such expenses to increase
significantly. As a result, we will need to generate significant revenues to
achieve and maintain profitability, which we may not be able to do.
OUR QUARTERLY OPERATING RESULTS ARE SUBJECT TO FLUCTUATIONS AND IF WE FAIL TO
MEET THE EXPECTATIONS OF SECURITIES ANALYSTS OR INVESTORS, OUR SHARE PRICE MAY
DECREASE SIGNIFICANTLY.
Our quarterly operating results are difficult to predict and are not a good
measure for comparison. Our future quarterly operating results may fluctuate
significantly and may not meet the expectations of securities analysts or
investors. If this occurs, the price of our ordinary shares may decrease
significantly. The factors that may cause fluctuations in our quarterly
operating results include the following:
- the volume and timing of customer orders;
- the length and unpredictability of our sales cycle;
- the mix of revenues generated by product licenses and professional
services;
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<PAGE> 9
- internal budget constraints of our current and prospective clients,
particularly newly formed Internet companies;
- announcement or introduction of new products or product enhancements by
us or our competitors;
- changes in prices of and the adoption of different pricing strategies for
our products and those of our competitors;
- changes in our business strategy;
- timing and amount of sales and marketing expenses;
- changes in our business relationships;
- technical difficulties or "bugs" affecting the operation of our software;
- foreign currency exchange rate fluctuations; and
- general economic conditions.
In addition, due to client purchasing patterns, we typically realize a
significant portion of our software license revenues in the last few weeks of a
quarter. As a result, we may experience significant variations in our license
revenues and results of operations if we incur any delays in client orders.
Our business strategy focuses on sales of our software products to both
Internet-based companies and to traditional companies seeking to offer
scheduling services to their customers via the internet as well as over the
telephone. These companies may defer or cancel their purchases of our products
if they experience a downturn in their businesses or if there is a downturn in
the general economy.
We will continue to determine our investment and expense levels based on
our expected future revenues. A significant portion of our expenses are fixed in
the short term and cannot be quickly reduced to respond to decreases in
revenues. Therefore, if our revenues are below our expectations, our operating
results are likely to be materially and adversely affected. In addition, we may
reduce our prices or accelerate our investment in research and development
efforts in response to competitive pressures or to pursue new market
opportunities. Any of these activities may further limit our ability to adjust
spending in response to revenue fluctuations.
FAILURE OF THE MARKET TO ACCEPT OUR TECHNOLOGY WOULD ADVERSELY AFFECT DEMAND FOR
OUR PRODUCTS AND THE PRICE OF OUR ORDINARY SHARES COULD DECLINE SIGNIFICANTLY.
Our products are based on complex technologies, including sophisticated
algorithms, and models which we have developed to address complex scheduling and
troubleshooting issues in the service industry. Although our products are
currently being used in the service industry, and we believe our technologies
address these problems, the methods we have chosen have not yet been widely
accepted by the service industry and other providers of similar software use
different technology and models. We cannot predict whether our products will be
widely accepted by the service industry. Failure of the market to accept our
technology would adversely affect demand for our products. In addition, we
participate in an industry with an inherently high failure rate and we cannot
assure you that our clients will achieve success when using our products and
services. Any publicized performance problems relating to our products or those
of our competitors could also slow client adoption of our products. Moreover, to
the extent that we are associated with unsuccessful client projects, even if due
to factors beyond our control, our reputation and competitive position in our
industry could be materially and adversely affected.
IF THE MARKET FOR SCHEDULING FULFILLMENT OF SERVICES AND PRODUCTS OVER THE
INTERNET DOES NOT DEVELOP AS EXPECTED OR AT ALL, OR IF OUR PRODUCTS ARE NOT
ACCEPTED BY BUSINESSES SCHEDULING SERVICES, DEMAND FOR OUR SOLUTIONS MAY NOT
DEVELOP AND THE PRICE OF OUR ORDINARY SHARES COULD DECLINE SIGNIFICANTLY.
Our business strategy is premised, in part, on our belief that traditional
bricks-and-mortar companies, such as utilities, as well as e-commerce companies,
will offer their customers the opportunity to schedule
8
<PAGE> 10
and obtain services online rather than on the telephone. While some of our
clients use the web-based features of our products in an intranet environment,
as of the date of this prospectus, none of our clients is currently offering
Internet self-scheduling options to its customers. In addition, in order for our
business strategy to be successful, consumers and businesses must move away from
telephone-based customer service to Internet-based customer service. While
adoption of the Internet as a new medium for commerce is occurring for purchases
of products, the adoption of the Internet to schedule and obtain services is at
a much earlier stage. If online service scheduling solutions are not widely
adopted by consumers and businesses engaging in e-commerce transactions, our
business will suffer. We began emphasizing our products' Internet capabilities
in September 1999 and we have devoted and expect to continue to devote
substantial resources to market these products. Our new business strategy
requires us to market our products to companies that utilize the Internet to
deliver service. Many of these companies may have limited capital resources and
may not be willing to invest in our solutions.
IF USE OF THE INTERNET FOR COMMERCIAL TRANSACTIONS DOES NOT GROW AS ANTICIPATED,
OUR BUSINESS STRATEGY MAY NOT BE SUCCESSFUL.
Our success will depend in large part on the acceptance of the Internet in
the commercial marketplace and on the ability of third parties to provide a
reliable Internet infrastructure network with the speed, data capacity, security
and hardware necessary for reliable Internet access and services. To the extent
that the Internet continues to experience increased numbers of users, increased
frequency of use or increased bandwidth requirements of users, the Internet
infrastructure may not be able to support the demands placed on it and the
performance and reliability of the Internet could suffer, which could cause the
market for our products to fail to grow or to grow more slowly than anticipated,
causing our business to suffer.
IF WE FAIL TO MANAGE OUR GROWTH EFFECTIVELY, OUR BUSINESS MAY NOT SUCCEED.
Our ability to successfully offer products and services and to implement
our business plan in the evolving market for service scheduling and resource
optimization software requires an effective planning and management process. We
continue to increase the scope of our operations in the United States and
internationally and expect to continue to increase our headcount substantially
in the future. As part of this growth, we have had to implement new operational
and financial systems, procedures and controls; expand, train and manage our
employee base; and maintain close coordination among our technical, accounting,
finance, marketing and sales staffs. These factors have placed, and our
anticipated expansion will continue to place, a significant strain on our
existing management systems and resources. We expect that we will need to
continue to expand our existing management and to improve our financial and
managerial controls and reporting systems and procedures, and expand, train and
manage our work force worldwide. Furthermore, we expect that we will be required
to manage multiple relationships as we expand our customer base and our business
relationships.
TWO PRODUCTS ACCOUNT FOR THE MAJORITY OF OUR REVENUES. IF THE DEMAND FOR THESE
PRODUCTS FALLS, OUR SALES COULD BE SIGNIFICANTLY REDUCED AND OUR FINANCIAL
PERFORMANCE COULD BE SERIOUSLY DAMAGED.
Historically, substantially all of our revenues has come from sales of, and
services related to, our ClickSchedule product, formerly known as W-6 Service
Scheduler, and our ClickFix product, formerly known as TechMate, to clients
seeking application software that enables efficient provisioning of services in
enterprise environments. As we pursue our new business strategy and develop our
products, we anticipate that revenues from sales of our ClickSchedule and
ClickFix product lines, together with related professional services fees, will
continue to account for substantially all of our revenues for the foreseeable
future. Accordingly, the widespread market acceptance of these products is
critical to our future success. Competition, technological change or other
factors could decrease demand for, or market acceptance of, these products or
make these products obsolete. Any decrease in demand or market acceptance would
have a material adverse effect on our business and operating results.
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OUR LONG AND UNPREDICTABLE SALES AND IMPLEMENTATION CYCLES DEPEND ON FACTORS
OUTSIDE OUR CONTROL, WHICH MAY CAUSE QUARTERLY LICENSE AND SERVICE FEES REVENUES
TO VARY SIGNIFICANTLY.
To date, our customers have taken a long time, typically ranging from three
months to one year, to evaluate our products before making their purchase
decisions. In addition, depending on the nature and specific needs of a client,
the implementation of our products can take up to three to twelve months. Sales
of licenses and implementation schedules are subject to a number of risks over
which we have little or no control, including clients' budgetary constraints,
clients' internal acceptance reviews, the success and continued internal support
of clients' own development efforts, the efforts of businesses we have
relationships with, the nature, size and specific needs of a client and the
possibility of cancellation of projects by clients. The uncertain outcome of our
sales efforts and the length of our sales cycles could result in substantial
fluctuations in license revenues. If sales forecasted from a specific client for
a particular quarter are not realized in that quarter, we are unlikely to be
able to generate revenues from alternate sources in time to compensate for the
shortfall. As a result, and due to the relatively large size of some orders, a
lost or delayed sale could have a material adverse effect on our quarterly
revenue and operating results. Moreover, to the extent that significant sales
occur earlier than expected, current revenue and operating results or those of
subsequent quarters may be adversely affected.
FAILURE TO EXPAND OUR SALES AND MARKETING ORGANIZATIONS COULD LIMIT OUR ABILITY
TO SELL ADDITIONAL PRODUCTS AND SERVICES, WHICH WOULD IMPAIR OUR ABILITY TO GROW
OUR BUSINESS AND INCREASE REVENUES.
We must expand our direct and indirect sales operations to increase market
awareness of our products and generate increased revenues. We cannot be certain
that we will be successful in these efforts. We have recently expanded our
direct sales force in North America and plan to hire additional sales personnel.
As of December 31, 1999, we employed over 40 individuals in our sales and
marketing organizations. Because a significant number of our sales personnel
joined us within the last twelve months, we will be required to devote
significant resources to the training of these new sales personnel. We believe
we will need to expand our sales and marketing organization significantly over
the next twelve months. We might not be able to hire or retain the kind and
number of sales and marketing personnel we are targeting because competition for
qualified sales and marketing personnel in our market is intense.
WE DEPEND ON KEY PERSONNEL, AND THE LOSS OF ANY KEY PERSONNEL COULD AFFECT OUR
ABILITY TO COMPETE AND OUR ABILITY TO ATTRACT ADDITIONAL KEY PERSONNEL AFTER THE
OFFERING MAY BE MORE DIFFICULT.
We believe our future success will depend on the continued service of our
executive officers and other key sales and marketing, product development and
professional services personnel. Dr. Moshe Ben-Bassat, our Chief Executive
Officer, has individually participated in and has been responsible for
overseeing much of the research and development of our core technologies. While
we currently have a significant development team in Israel working on our
products, Dr. Ben-Bassat is still involved in our research and development
efforts. The services of Dr. Ben-Bassat and other members of our senior
management team and key personnel would be very difficult to replace and the
loss of any of these employees could harm our business significantly. We have
employment agreements with Dr. Ben-Bassat and our Chief Financial Officer,
Shimon Rojany. None of our other officers or key employees is bound by an
employment agreement. Our relationships with these officers and key employees
are at will and the loss of any of our key personnel could harm our ability to
execute our business strategy and compete. In addition, we believe that the
prospective employees that we target after the offering may perceive that the
share option component of our compensation packages is not as valuable as the
component was prior to this offering. Consequently, we may have difficulty
hiring our desired numbers of key personnel after this offering. Moreover, even
if we are able to attract key personnel, the resources required to attract and
retain such personnel may adversely affect our operating results.
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IF WE FAIL TO EXPAND OUR PROFESSIONAL SERVICES ORGANIZATION, WE MAY NOT BE ABLE
TO SERVICE ADDITIONAL CLIENTS AND SELL ADDITIONAL LICENSES.
We cannot be certain that we can attract or retain a sufficient number of
highly qualified services personnel to meet our business needs. Clients that
license our software typically engage our professional services organization to
assist with the installation and operation of our software applications. Our
professional services organization also provides other assistance to our clients
and works with our clients' in-house staff to train them regarding the
maintenance, management and expansion of their software systems. Growth in
licenses of our software will depend in part on our ability to provide our
clients with these services. In addition, we will be required to expand our
professional services organization to enable us to continue to support our
existing installed base of customers as we focus on our new business strategy.
As a result, we plan to increase the number of our service personnel in order to
meet these needs. Competition for qualified services personnel with the relevant
knowledge and experience is intense, and we may not be able to attract and
retain necessary personnel. If we are not able to grow our professional services
organization, our ability to expand our business would be limited. To meet our
clients' needs for professional services, we may need to increase our use of
third-party consultants to supplement our own professional services group which
may be more costly and less successful than our own organization. In addition,
we could experience delays in recognizing revenue if our professional services
group fails to complete implementations in a timely manner.
OUR ABILITY TO ATTRACT AND RETAIN QUALIFIED DEVELOPERS IS CRUCIAL TO OUR FUTURE
GROWTH AND RESULTS OF OPERATIONS.
As a company focused on the development of software products, our research
and development personnel are one of our most valued assets. Our future success
depends in large part on our ability to hire, train and retain software
developers, systems architects, project managers, telecommunications business
process experts, systems analysts, trainers, writers, consultants and sales and
marketing professionals of various experience levels. Personnel possessing the
skills needed to contribute to our research and development efforts are in short
supply, and this shortage is likely to continue. As a result, competition for
these people is intense, and the industry turnover rate for them is high. Any
inability to hire, train and retain a sufficient number of qualified development
employees could hinder the research and development activities and growth of our
business.
IF WE FAIL TO EXPAND OUR RELATIONSHIPS WITH THIRD PARTIES THAT CAN PROVIDE
IMPLEMENTATION AND PROFESSIONAL SERVICES TO OUR CLIENTS, WE MAY BE UNABLE TO
INCREASE OUR REVENUES AND OUR BUSINESS COULD BE HARMED.
In order for us to focus more effectively on our core business of
developing and licensing software solutions, we need to continue to establish
relationships with third parties that can provide implementation and
professional services to our clients. Third-party implementation and consulting
firms can also be influential in the choice of resource optimization
applications by new clients. If we are unable to establish and maintain
effective, long-term relationships with implementation and professional services
providers, or if these providers do not meet the needs or expectations of our
clients, we may be unable to grow our revenues and our business could be
seriously harmed. As a result of the limited resources and capacities of many
third-party implementation providers, we may be unable to attain sufficient
focus and resources from the third-party providers to meet all of our clients'
needs, even if we establish relationships with these third parties. If
sufficient resources are unavailable, we will be required to provide these
services internally, which could limit our ability to expand our base of
clients. Even if we are successful in developing relationships with third-party
implementation and professional services providers, we will be subject to
significant risk, as we cannot control the level and quality of service provided
by third-party implementation and professional services partners.
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OUR MARKET IS HIGHLY COMPETITIVE AND ANY REDUCTION IN DEMAND FOR, OR PRICES OF,
OUR PRODUCTS COULD NEGATIVELY IMPACT OUR REVENUES, REDUCE OUR GROSS MARGINS AND
CAUSE OUR SHARE PRICE TO DECLINE.
The market for our products is competitive and rapidly changing. We expect
competition to increase significantly in the future as current competitors
expand their product offerings and new companies enter the market.
Our current and potential competitors include:
- independent systems integrators, consulting firms and in-house
information technology departments of enterprise and Internet businesses
which may develop their own solutions that compete with our products;
- traditional enterprise resource planning and customer relationship
management software application vendors;
- software vendors in the utility, telecom, field services, home delivery
and other vertical markets;
- providers of scheduling tools and components as well as various logistics
solutions providers; and
- providers of resource optimization tools.
Competition could result in price reductions, fewer customer orders,
reduced gross margin and loss of market share, any of which could cause our
business to suffer. We may not be able to compete successfully, and competitive
pressures may harm our business.
Some of our current and potential competitors have greater name
recognition, longer operating histories, larger customer bases and significantly
greater financial, technical, marketing, public relations, sales, distribution
and other resources than us. In addition, some of our potential competitors are
among the largest and most well-capitalized software companies in the world. For
additional discussion of our competition, please see "Business -- Competition."
FAILURE TO DEVELOP OR MAINTAIN KEY BUSINESS RELATIONSHIPS COULD LIMIT OUR
ABILITY TO SELL ADDITIONAL LICENSES WHICH COULD DECREASE OUR REVENUES AND
INCREASE OUR SALES AND MARKETING COSTS.
We believe that our success in penetrating our target markets depends in
part on our ability to develop and maintain business relationships with software
vendors, resellers, systems integrators, distribution partners and customers. If
we fail to develop these relationships, our growth could be limited. We have
recently entered into agreements with third parties relating to the integration
of our products with their product offerings, distribution, reselling and
consulting. We have not derived significant revenues from these agreements and
we may not be able to derive significant revenues in the future from these
agreements. In addition, our growth may be limited if prospective clients do not
accept the solutions offered by our strategic partners.
OUR MARKET MAY EXPERIENCE RAPID TECHNOLOGICAL CHANGES THAT COULD CAUSE OUR
PRODUCTS TO FAIL OR REQUIRE US TO REDESIGN OUR PRODUCTS, WHICH WOULD RESULT IN
INCREASED RESEARCH AND DEVELOPMENT EXPENSES.
Our market is characterized by rapid technological change, dynamic client
needs and frequent introductions of new products and product enhancements. If we
fail to anticipate or respond adequately to technology developments and client
requirements, or if our product development or introduction is delayed, we may
have lower revenues. Client product requirements can change rapidly as a result
of computer hardware and software innovations or changes in and the emergence,
evolution and adoption of new industry standards. For example, we offer Windows
NT versions of our products due to the market acceptance of Windows NT over the
last several years. We currently do not provide Unix versions of our software
and we may not be able to modify our products and services to address new
requirements and standards. The actual or anticipated introduction of new
products has resulted and will continue to result in some reformulation of our
product offerings. Technology and industry standards can make existing products
obsolete or unmarketable or result in delays in the purchase of such products.
As a result, the life
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cycles of our products are difficult to estimate. We must respond to
developments rapidly and make substantial product development investments. As is
customary in the software industry, we have previously experienced delays in
introducing new products and features, and we may experience such delays in the
future which could impair our revenue and operating results.
OUR PRODUCTS COULD BE SUSCEPTIBLE TO ERRORS OR DEFECTS THAT COULD RESULT IN LOST
REVENUES, LIABILITY OR DELAYED OR LIMITED MARKET ACCEPTANCE.
Complex software products such as ours often contain errors or defects,
particularly when first introduced or when new versions or enhancements are
released. In the past, some of our products have contained errors and defects
which have delayed implementation or required us to expend additional resources
to correct the problems. Despite internal testing and testing by current and
potential clients, our current and future products may contain serious defects
or errors. Any such defects or errors would likely result in lost revenues,
liability or a delay in market acceptance of these products, any of which would
have a material adverse effect on our business, operating results and financial
condition.
The performance of our products also depends upon the accuracy and
continued availability of third-party data. We rely on third parties that
provide information such as street and address locations and mapping functions
that we incorporate into our products. If these parties do not provide accurate
information, or if we are unable to maintain our relationships with them, our
reputation and competitive position in our industry could suffer and we could be
unable to develop or enhance our products as required.
OUR INTELLECTUAL PROPERTY COULD BE USED BY THIRD PARTIES WITHOUT OUR CONSENT
BECAUSE PROTECTION OF OUR INTELLECTUAL PROPERTY IS LIMITED.
Our success and ability to compete are substantially dependent upon our
internally developed technology, which we protect through a combination of
copyright, trade secret and trademark law. However, we may not be able to
adequately protect our intellectual property rights, which may significantly
harm our business. Specifically, we may not be able to protect our trademarks
for our company name and our product names, and unauthorized parties may attempt
to copy or otherwise obtain and use our products or technology. Policing
unauthorized use of our products and technology is difficult, particularly in
countries outside the U.S., and we cannot be certain that the steps we have
taken will prevent infringement or misappropriation of our intellectual property
rights. For a more detailed description of the protection of our intellectual
property, please see "Business -- Intellectual Property."
OUR TECHNOLOGY MAY BE SUBJECT TO INFRINGEMENT CLAIMS.
Substantial litigation regarding technology rights exists in the software
industry both in terms of infringement and ownership issues. A successful claim
of patent or copyright infringement or conflicting ownership rights against us
could significantly harm our business. We expect that software products may be
increasingly subject to third-party infringement or ownership claims as the
number of competitors in our industry segments grows and the functionality of
products in different industry segments overlaps. Third parties may make a claim
of infringement or conflicting ownership rights against us with respect to our
products and technology. Any claims, with or without merit, could:
- be time-consuming to defend;
- result in costly litigation;
- divert management's attention and resources;
- cause product shipment delays; or
- require us to enter into costly royalty or licensing agreements, if they
are even available, on commercially reasonable terms, or at all.
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Further, if an infringement or ownership claim is successfully brought
against us, we may have to pay damages or royalties, enter into a licensing
agreement, and/or stop selling the product or using the technology at issue. Any
such royalty or licensing agreements may not be available on commercially
reasonable terms, if at all. For additional information, please see
"Business -- Intellectual Property."
ANY FUTURE ACQUISITIONS OF COMPANIES OR TECHNOLOGIES MAY RESULT IN DISTRACTION
OF OUR MANAGEMENT AND DISRUPTIONS TO OUR BUSINESS.
We may acquire or make investments in complementary businesses,
technologies, services or products if appropriate opportunities arise. From time
to time we may engage in discussions and negotiations with companies regarding
our acquiring or investing in such companies' businesses, products, services or
technologies. We cannot make assurances that we will be able to identify future
suitable acquisition or investment candidates, or if we do identify suitable
candidates, that we will be able to make such acquisitions or investments on
commercially acceptable terms or at all. Our management has limited experience
in acquiring companies or technologies. If we acquire or invest in another
company, we could have difficulty assimilating that company's personnel,
operations, technology or products and service offerings. In addition, the key
personnel of the acquired company may decide not to work for us. These
difficulties could disrupt our ongoing business, distract our management and
employees, increase our expenses and adversely affect our results of operations.
Furthermore, we may incur indebtedness or issue equity securities to pay for any
future acquisitions. The issuance of equity securities could be dilutive to our
shareholders. As of the date of this prospectus, we have no agreement to enter
into any material investment or acquisition transaction.
OUR BUSINESS MAY BECOME INCREASINGLY SUSCEPTIBLE TO NUMEROUS RISKS ASSOCIATED
WITH INTERNATIONAL OPERATIONS.
A significant portion of our operations occur outside the United States.
Our facilities are located in North America, Israel and the United Kingdom and
our executive officers and other key employees are dispersed throughout the
world. This geographic dispersion requires significant management resources that
may place us at a disadvantage compared to our locally-based competitors. In
addition, our international operations are generally subject to a number of
risks, including:
- foreign currency exchange rate fluctuations;
- longer sales cycles;
- multiple, conflicting and changing governmental laws and regulations;
- expenses associated with customizing products for foreign countries;
- protectionist laws and business practices that favor local competition;
- difficulties in collecting accounts receivable; and
- political and economic instability.
We received approximately 32% of our total revenues in the year ended
December 31, 1999 from licenses and services sold to clients located outside of
North America. We expect international revenues to continue to account for a
significant percentage of total revenues in the future and we believe that we
must continue to expand our international sales and professional services
activities in order to be successful. Our international sales growth will be
limited if we are unable to expand our international sales management and
professional services organizations, hire additional personnel, customize our
products for local markets and establish relationships with additional
international distributors, consultants and other third parties. If we fail to
manage our geographically dispersed organization, we may fail to meet or exceed
our business plan and our revenues may decline.
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RISKS RELATED TO OUR LOCATION IN ISRAEL
WE ARE INCORPORATED IN ISRAEL AND HAVE IMPORTANT FACILITIES AND RESOURCES
LOCATED IN ISRAEL.
We are incorporated under the laws of the State of Israel and our research
and development facilities as well as significant executive offices are located
in Israel. Although a substantial portion of our sales currently are being made
to customers outside of Israel, political, economic and military conditions in
Israel could nevertheless directly affect our operations. Since the
establishment of the State of Israel in 1948, a number of armed conflicts have
taken place between Israel and its Arab neighbors and a state of hostility,
varying in degree and intensity, has led to security and economic problems for
Israel. We could be adversely affected by any major hostilities involving
Israel, the interruption or curtailment of trade between Israel and its trading
partners, a significant increase in inflation, or a significant downturn in the
economic or financial condition of Israel. Despite the progress towards peace
between Israel and its Arab neighbors, the future of these peace efforts is
uncertain. Several Arab countries still restrict business with Israeli companies
which may limit our ability to make sales in those countries. We could be
adversely affected by restrictive laws or policies directed towards Israel or
Israeli businesses.
In addition, certain of our officers and employees are currently obligated
to perform annual reserve duty in the Israel Defense Forces and are subject to
being called for active military duty at any time. The loss or extended absence
of any of our officers and key personnel due to these requirements could harm
our business.
WE ARE SUBJECT TO A RECENTLY ADOPTED NEW COMPANIES LAW WHICH HAS NOT YET BEEN
INTERPRETED.
Because we are incorporated under the laws of the State of Israel, your
rights as a shareholder will be governed by the Companies Law of Israel which
became effective on February 1, 2000. Certain obligations and fiduciary duties
of directors, officers and shareholders under the new Companies Law are new and
have not been interpreted or reviewed by the Israeli courts as not all of the
regulations have been promulgated to date. As a result, our shareholders may
have more difficulty and uncertainty in protecting their interests in the case
of actions by our directors, officers or controlling shareholders or third
parties than would shareholders of a corporation incorporated in a state or
other jurisdiction in the United States.
THE RATE OF INFLATION IN ISRAEL MAY NEGATIVELY IMPACT OUR COSTS IF IT EXCEEDS
THE RATE OF DEVALUATION OF THE NIS AGAINST THE DOLLAR.
Substantially all of our revenues are denominated in dollars or are
dollar-linked, but we incur a portion of our expenses, principally salaries and
related personnel expenses in Israel, in NIS. In 1999, 34% of our costs were
incurred in NIS. As a result, we are exposed to the risk that the rate of
inflation in Israel will exceed the rate of devaluation of the NIS in relation
to the dollar or that the timing of this devaluation will lag behind inflation
in Israel. In that event, the dollar cost of our operations in Israel will
increase and our dollar-measured results of operations will be adversely
affected. In 1998, the rate of devaluation of the NIS against the dollar
exceeded the rate of inflation in Israel which benefited us. However, we cannot
assure you that this reversal will continue or that we will not be materially
adversely affected in the future if the rate of inflation in Israel exceeds the
devaluation of the NIS against the dollar or if the timing of this devaluation
lags behind increases in inflation in Israel. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Impact of Inflation
and Currency Fluctuations."
THE GOVERNMENT PROGRAMS IN WHICH WE CURRENTLY PARTICIPATE AND TAX BENEFITS WHICH
WE CURRENTLY RECEIVE REQUIRE US TO SATISFY PRESCRIBED CONDITIONS AND MAY BE
TERMINATED OR REDUCED IN THE FUTURE. THIS WOULD INCREASE OUR COSTS AND TAXES.
We receive grants from the Government of the State of Israel through the
Office of the Chief Scientist of the Ministry of Industry and Trade, or the
Chief Scientist, for the financing of a significant portion of our research and
development expenditures in Israel and we may apply for additional grants in the
future. In 1998 and in 1999, we received or accrued grants from the Chief
Scientist totaling
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approximately $0.9 million and $1.0 million respectively, representing 27% and
26% of our total research and development expenditures in these years. We cannot
assure you that we will continue to receive grants at the same rate or at all.
The Chief Scientist budget has been subject to reductions which may affect the
availability of funds for Chief Scientist grants in the future. The percentage
of our research and development expenditures financed using grants from the
Chief Scientist may decline in the future, and the terms of such grants may
become less favorable. In connection with research and development grants
received from the Chief Scientist, we must make royalty payments to the Chief
Scientist on the revenues derived from the sale of products, technologies and
services developed with the grants from the Chief Scientist. From inception to
date, we have received grants totaling approximately $2.9 million and we have
paid or accrued royalties in an aggregate amount of $0.3 million. We expect to
pay or accrue additional royalties for the year 2000 at a rate equal to 3% of
our total revenues. In addition, our ability to manufacture products or transfer
technology outside Israel without the approval of the Chief Scientist is
restricted under law. Any manufacture of products or transfer of technology
outside Israel will also require the company to pay increased royalties to the
Chief Scientist up to 300%. In connection with our grant applications, we have
made representations and covenants to the Chief Scientist regarding our research
and development activities in Israel. The funding from the Chief Scientist is
subject to the accuracy of these representations and covenants. If we fail to
comply with any of these conditions, we could be required to refund any payments
previously received together with interest and penalties and would likely be
denied receipt of these grants thereafter.
In addition, pursuant to the Law for the Encouragement of Capital
Investments, the Government of the State of Israel through the Investment Center
has granted "Approved Enterprise" status to three of our existing capital
investment programs. Consequently, we are eligible for certain tax benefits for
the first several years in which we generate taxable income. ClickService,
however, has not yet begun to generate taxable income for purposes of this law
and it does not expect to utilize these tax benefits for the near future. Once
we begin to generate taxable income, our financial condition could suffer if our
tax benefits were significantly reduced. The benefits available to an approved
enterprise are dependent upon the fulfillment of certain conditions and
criteria. If we fail to comply with these conditions and criteria, the tax
benefits that we receive could be partially or fully canceled and we could be
forced to refund the amount of the benefits we received, adjusted for inflation
and interest. From time to time, the Government of Israel has discussed reducing
or limiting the benefits. We cannot assess whether these benefits will be
continued in the future at their current levels or at all. See "Taxation and
Foreign Exchange Regulation -- Israel Tax Considerations and Foreign Exchange
Regulation -- Tax Benefits Under the Law of Encouragement of Capital
Investments, 1959."
IT MAY BE DIFFICULT TO ENFORCE A U.S. JUDGMENT AGAINST US, OUR OFFICERS AND
DIRECTORS AND THE ISRAELI ACCOUNTANTS NAMED AS EXPERTS IN THIS PROSPECTUS OR TO
ASSERT U.S. SECURITIES LAWS CLAIMS IN ISRAEL OR SERVE PROCESS ON SUBSTANTIALLY
ALL OF OUR OFFICERS AND DIRECTORS AND THESE ACCOUNTANTS.
We are incorporated in Israel and maintain significant operations in
Israel. Some of our executive officers and directors and the Israeli accountants
named as experts in this prospectus reside outside of the United States and a
significant portion of our assets and the assets of these persons are located
outside the United States. Therefore, it may be difficult for an investor, or
any other person or entity, to enforce a U.S. court judgment based upon the
civil liability provisions of the U.S. federal securities laws in an Israeli
court against us or any of those persons or to effect service of process upon
these persons in the United States. Additionally, it may be difficult for an
investor, or any other person or entity, to enforce civil liabilities under U.S.
federal securities laws in original actions instituted in Israel. We have
appointed ClickService Software Inc., our U.S. subsidiary, as our agent to
receive of process in any action against us arising out of this Software
offering. We have not given our consent for our agent to accept service of
process in connection with any other claim. Furthermore, if a foreign judgement
is enforced by an Israeli court, it will be payable in NIS. See "Enforceability
of Civil Liabilities."
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RISKS RELATED TO THIS OFFERING
OUR OFFICERS, DIRECTORS AND AFFILIATED ENTITIES OWN A LARGE PERCENTAGE OF OUR
COMPANY AND COULD SIGNIFICANTLY INFLUENCE THE OUTCOME OF ACTIONS.
We anticipate that our executive officers, directors and entities
affiliated with them will, in the aggregate, beneficially own approximately
% of our outstanding ordinary shares following the completion of this
offering. These shareholders, if acting together, would be able to significantly
influence all matters requiring approval by our shareholders, including the
election of directors. This concentration of ownership may also have the effect
of delaying or preventing a change of control of our company, which could have a
material adverse effect on our stock price. These actions may be taken even if
they are opposed by our other investors, including those who purchase shares in
this offering. Please see "Management -- Election of Directors";
"-- Anti-Takeover Provisions; Mergers and Acquisitions Under Israel Law."
MANAGEMENT WILL HAVE DISCRETION OVER THE USE OF PROCEEDS FROM THIS OFFERING, HAS
NO SPECIFIC PLANS FOR THOSE PROCEEDS AND COULD SPEND OR INVEST THOSE PROCEEDS IN
WAYS WITH WHICH INVESTORS MIGHT NOT AGREE.
We do not have a definitive quantified plan with respect to the use of the
net proceeds of this offering. Accordingly, our management will have broad
discretion with respect to the use of the net proceeds from this offering, and
investors will be relying on the judgment of our management regarding the
application of these proceeds. Some of the uses we currently anticipate include
working capital and general corporate purposes, including increased spending on
sales and marketing, professional services, research and development and
expansion of our operational and administrative infrastructure. In addition, we
may use a portion of the net proceeds to acquire or invest in complementary
businesses, technologies, product lines or products. These investments may not
yield a favorable return.
THE LIQUIDITY OF OUR ORDINARY SHARES IS UNCERTAIN SINCE THEY HAVE NOT BEEN
PUBLICLY TRADED.
There has not been a public market for our ordinary shares. We cannot
predict the extent to which investor interest in our company will lead to the
development of an active, liquid trading market. Active trading markets
generally result in lower price volatility and more efficient execution of buy
and sell orders for investors. The initial public offering price for the
ordinary shares will be determined by negotiations between us and the
underwriters and may not be indicative of prices that will prevail in the
trading market.
WE EXPECT TO EXPERIENCE VOLATILITY IN OUR SHARE PRICE WHICH COULD NEGATIVELY
AFFECT YOUR INVESTMENT.
You may not be able to resell your shares at or above the initial public
offering price due to a number of factors, including:
- announcements of technological innovations;
- announcements relating to strategic relationships;
- conditions affecting the software and Internet industries; and
- trends related to the fluctuations of stock prices of Israeli companies.
The trading price of our ordinary shares may be volatile. The market for
technology and Internet-related companies has experienced extreme volatility
that often has been unrelated to the operating performance of particular
companies. These fluctuations may adversely affect the trading price of our
ordinary shares, regardless of our actual operating performance.
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WE ARE SUBJECT TO ANTI-TAKEOVER PROVISIONS THAT COULD DELAY OR PREVENT AN
ACQUISITION OF US, EVEN IF AN ACQUISITION WOULD BE BENEFICIAL TO OUR
SHAREHOLDERS.
Provisions of Israeli corporate and tax law and of our articles of
association may have the effect of delaying, preventing or making more difficult
a merger or other acquisition of us, even if doing so would be beneficial to our
shareholders. In addition, any merger or acquisition of us will require the
prior consent of the Chief Scientist. See "Description of Share
Capital -- Anti-Takeover Provisions; Mergers and Acquisitions under Israeli
Law."
Israeli law regulates mergers, votes required to approve a merger,
acquisition of shares through tender offers and transactions involving
significant shareholders. In addition, our articles of association provide for a
staggered board of directors and for restrictions on business combinations with
interested shareholders. Any of these provisions may make it more difficult to
acquire our company. See "Management -- Election of Directors" and "Description
of Share Capital."
OTHER ORDINARY SHARES MAY BE SOLD IN THE FUTURE. THIS COULD DEPRESS THE MARKET
PRICE FOR OUR ORDINARY SHARES.
After this offering, we will have ordinary shares outstanding,
ordinary shares issuable upon exercise of outstanding options and
warrants, and additional ordinary shares for issuance pursuant to our
stock option plans. We intend to file a Registration Statement on Form S-8 to
register for resale the ordinary shares reserved for issuance under our stock
option plans after the consummation of this offering. If we or our existing
shareholders sell a large number of our ordinary shares following this offering,
the price of our ordinary shares would likely decrease. Restrictions under the
securities laws and certain lock-up agreements limit the number of ordinary
shares available for sale by our shareholders in the public market. We and the
holders of ordinary shares and options exercisable into an aggregate
of ordinary shares have agreed not to sell ordinary shares or any
securities convertible into or exercisable for ordinary shares for 180 days
after this offering without the prior consent of Lehman Brothers. Lehman
Brothers may, in its sole discretion, release us all or any portion of the
securities subject to such lock-up agreements.
OUR NEED FOR ADDITIONAL FINANCING IS UNCERTAIN, AS IS OUR ABILITY TO RAISE
FURTHER FINANCING IF REQUIRED.
We currently anticipate that our available cash resources, combined with
the net proceeds from this offering, will be sufficient to meet our anticipated
working capital and capital expenditure requirements for at least twelve months
after the date of this prospectus. We may need to raise additional funds,
however, to respond to business contingencies which may include the need to:
- fund more rapid expansion;
- fund additional marketing expenditures;
- develop new or enhance existing products and services;
- enhance our operating infrastructure;
- hire additional personnel;
- respond to competitive pressures; or
- acquire complementary businesses or necessary technologies.
If additional funds are raised through the issuance of equity or
convertible debt securities, the percentage ownership of our shareholders will
be reduced, and these newly-issued securities may have rights, preferences or
privileges senior to those of existing shareholders, including those acquiring
shares in this offering. We cannot assure you that additional financing will be
available on terms favorable to us, or at all. If adequate funds are not
available or are not available on acceptable terms, our ability to fund our
operations, take advantage of unanticipated opportunities, develop or enhance
our products and services or otherwise respond to competitive pressures would be
significantly limited.
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YOU WILL EXPERIENCE IMMEDIATE AND SIGNIFICANT DILUTION OF BOOK VALUE PER SHARE.
The initial public offering price of our ordinary shares will be
substantially higher than the net tangible book value per share of the
outstanding ordinary shares immediately after this offering. Based upon an
assumed initial public offering price of $ per share, if you purchase our
ordinary shares in this offering, you will incur immediate dilution of
$ in the pro forma net tangible book value per share from the price you
pay for ordinary shares in this offering.
IF WE ARE CHARACTERIZED AS A PASSIVE FOREIGN INVESTMENT COMPANY, OUR UNITED
STATES SHAREHOLDERS WILL BE SUBJECT TO ADVERSE TAX CONSEQUENCES.
If, for any taxable year, our passive income, or our assets which produce
passive income, exceed specified levels, we may be characterized as a passive
foreign investment company for United States federal income tax purposes. We do
not currently anticipate that this will happen, but, if it does, our
shareholders will be subject to adverse United States tax consequences.
Prospective investors should consult with their own tax advisors with respect to
the tax consequences applicable to them of investing in our ordinary shares. See
"United States Federal Income Tax Considerations."
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
We make many statements in this prospectus under the captions "Prospectus
Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" and elsewhere that are
forward-looking and are not based on historical facts. These statements relate
to our future plans, objectives, expectations and intentions. We may identify
these statements by the use of words such as "believe," "expect," "will,"
"anticipate," "intend" and "plan" and similar expressions. These forward-looking
statements involve a number of risks and uncertainties. Our actual results could
differ materially from those anticipated in these forward-looking statements as
a result of various factors, including those we discuss in "Risk Factors" and
elsewhere in this prospectus. These forward-looking statements speak only as of
the date of this prospectus, and we caution you not to rely on these statements
without also considering the risks and uncertainties associated with these
statements and our business that are addressed in this prospectus.
19
<PAGE> 21
USE OF PROCEEDS
Our net proceeds from the sale of ordinary shares in this
offering at an assumed public offering price of $ per share, after deducting
the estimated underwriting discounts and commissions and estimated offering
expenses will be approximately $ . If the underwriters' over-allotment
option is exercised in full, our net proceeds will be approximately $ .
We do not have specific uses committed for most of the net proceeds of this
offering. The size of the offering has been determined primarily based upon our
desire to raise a sufficient amount of capital to afford us significant business
flexibility in the future.
The principal purposes of this offering are:
- to obtain additional working capital;
- to create a public market for our ordinary shares;
- to facilitate future access to public equity markets; and
- to enhance our ability to use our shares to make future acquisitions due
to the fact that our shares will be publicly traded.
We expect to use the net proceeds of the offering for working capital and
general corporate purposes, including increased spending on sales and marketing,
professional services, research and development and expansion of our operational
and administrative infrastructure. In addition, we may use a portion of the net
proceeds to acquire or invest in complementary businesses, technologies, product
lines or products. However, we have no current plans, agreements or commitments
with respect to any such acquisition, and we are not currently engaged in any
negotiations with respect to any such transaction. The amount we actually spend
for these purposes may vary significantly and will depend on a number of
factors, including our future revenue and cash generated by operations and the
other factors described in "Risk Factors." Therefore, we will have broad
discretion in the way we use the net proceeds.
Pending other uses, we intend to invest the net proceeds of this offering
in interest-bearing short-term investments or bank deposits. Any investments or
bank deposits in Israel will have interest and principal linked to a non-Israeli
currency or the consumer price index in Israel.
DIVIDEND POLICY
We have never paid cash dividends to our shareholders and we currently do
not intend to pay dividends for the foreseeable future. We intend to reinvest
earnings in the development and expansion of our business. We currently intend
to reinvest the amount of tax exempt income derived from our "Approved
Enterprise" and not to distribute such income as dividends. We may only pay cash
dividends in any fiscal year out of "profits," as determined under Israeli law.
In addition, the terms of certain financing arrangements restrict us from paying
dividends to our shareholders.
Because of our investment program's Approved Enterprise status, the payment
of dividends by us may be subject to Israeli taxes to which it would not
otherwise be subject. The tax exempt income attributable to the Approved
Enterprise can be distributed to shareholders without subjecting us to taxes
only upon a complete liquidation. If we decide to distribute cash dividends out
of income that has been exempt from tax, the income out of which the dividend is
distributed will be subject to Israeli corporate tax.
In the event we declare dividends in the future, we will pay those
dividends in U.S. dollars. Under current Israeli regulations, any dividends or
other distributions paid in respect of ordinary shares, may be freely paid in
non-Israeli currencies at the rate of exchange prevailing at the time of
conversion (provided that Israeli income tax has been paid on or withheld from
such dividends). Because exchange rates between NIS and the dollar fluctuate
continuously, a U.S. shareholder will be subject to currency fluctuation between
the date when the dividends are declared and the date the dividends are paid.
20
<PAGE> 22
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
- on an actual basis;
- on a pro forma basis, after giving effect to the equivalent of a 3-for-5
reverse share split to be effected through the combination of a reverse
share split and a share dividend and conversion of all outstanding
preferred shares into ordinary shares; and
- on a pro forma as adjusted basis to give effect to the receipt of the
estimated net proceeds from the sale of ordinary shares
offered hereby at an assumed public offering price of $
per share.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Current portion of long-term obligations.................. $ 173 $ 173
======== ======== ========
Long-term obligations, excluding current portion.......... $ 213 $ 213
-------- -------- --------
Shareholders' equity:
Preferred shares, NIS 0.02 par value: 20,430,238 shares
authorized; 13,499,898 shares issued and outstanding
actual; no shares issued and outstanding pro forma
and pro forma as adjusted............................ 60 --
Ordinary shares, NIS 0.02 par value: 9,809,761 shares
authorized; 7,208,846 shares issued and outstanding
actual; 20,708,744 shares issued and outstanding on a
pro forma basis; and shares issued and
outstanding on a pro forma as adjusted basis......... 13 73
Additional paid in capital................................ 35,063 35,063
Deferred compensation..................................... (2,663) (2,663)
Accumulated deficit....................................... (23,652) (23,652)
-------- -------- --------
Total shareholders' equity................................ 8,821 8,821
-------- -------- --------
Total capitalization...................................... $ 9,034 $ 9,034
======== ======== ========
</TABLE>
This table excludes the following:
- 1,458,114 shares underlying outstanding options at a weighted exercise
price of $1.17 per share;
- 412,478 shares subject to outstanding warrants at a weighted exercise
price of $1.90 per share;
- 3,000,000 ordinary shares available for future grants under our 2000
Share Option Plan; and
- 800,000 ordinary shares available for issuance under our 2000 Employee
Share Purchase Plan.
As of December 31, 1999, 1,206,920 shares held by a trustee and reserved
for allocation upon exercise of other employee options were included in the
ordinary shares outstanding.
21
<PAGE> 23
DILUTION
Our pro forma net tangible book value as of December 31, 1999 was $8.8
million or approximately $0.43 per share. Pro forma net tangible book value per
share represents the amount of our total tangible assets less total liabilities,
divided by the number of ordinary shares outstanding. Dilution in pro forma net
tangible book value per share represents the difference between the amount per
share paid by purchasers of ordinary shares in the offering made hereby and the
pro forma net tangible book value per ordinary share immediately after the
completion of this offering. After giving effect to the sale of the
ordinary shares offered by us hereby at an assumed public offering price of
$ per share and after deducting the underwriting discount and estimated
offering expenses payable by us, our pro forma net tangible book value at
, 2000 would have been $ or approximately $ per share.
This represents an immediate increase in pro forma net tangible book value of
$ per share to existing shareholders and an immediate dilution in net
tangible book value of $ per share to new investors or ordinary shares in
this offering. The following table illustrates this dilution on a per share
basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of
December 31, 1999.................................... $0.43
Increase per share attributable to new investors.......
-----
Pro forma net tangible book value per share after the
offering..................................................
-----
Dilution in net tangible book value per share to new
investors................................................. $
=====
</TABLE>
The following table sets forth on a pro forma basis, as of December 31,
1999, after giving effect to the automatic conversion upon the closing of the
offering of all our outstanding preferred shares into 13,499,898 ordinary
shares, the total number of ordinary shares purchased from us, the total
consideration paid and the average price per share paid by existing holders of
ordinary shares and by the new investors, before deducting the underwriting
discount and estimated offering expenses payable by us, at an assumed public
offering price of $ per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
---------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders............... 20,708,744 % $31,735,000 % $1.53
New public investors................ $
----------- --- ----------- ---
Total.......................... 100% $ 100%
=========== === =========== ===
</TABLE>
This table excludes the following:
- 1,458,114 shares underlying outstanding options at a weighted exercise
price of $1.17 per share;
- 412,478 shares subject to outstanding warrants at a weighted exercise
price of $1.90 per share;
- 3,000,000 ordinary shares available for future grants under our 2000
Share Option Plan; and
- 800,000 ordinary shares available for issuance under our 2000 Employee
Share Purchase Plan.
To the extent shares are issued upon the exercise of outstanding options or
warrants, there will be further dilution to new investors. As of December 31,
1999, 1,206,920 shares held by a trustee and reserved for allocation upon
exercise of other employee options were included in the ordinary shares
outstanding.
22
<PAGE> 24
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated statement of operations data for the years ended
December 31, 1997, 1998 and 1999 and the selected consolidated balance sheet
data as of December 31, 1998 and 1999 have been derived from our audited
financial statements included elsewhere in this prospectus. These financial
statements have been prepared in accordance with accounting principles generally
accepted in the United States. The consolidated statements of operations data
for the years ended December 31, 1995 and 1996 and the selected consolidated
balance sheet data as of December 31, 1995, 1996 and 1997 are derived from
audited consolidated financial statements that are not included herein. The
historical results are not necessarily indicative of results to be expected for
any future period. The following selected financial data are qualified by
reference to and should be read in conjunction with the Consolidated Financial
Statements and the Notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1995 1996 1997 1998 1999
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Software license............................. $ 2,111 $ 1,491 $ 1,235 $ 3,932 $ 5,414
Service and maintenance...................... 1,660 1,893 1,080 2,139 4,912
---------- ---------- ---------- ---------- ----------
Total revenues............................. 3,771 3,384 2,315 6,071 10,326
Cost of revenues:
Software license............................. 21 14 13 25 71
Service and maintenance...................... 1,484 1,514 1,035 2,301 4,299
---------- ---------- ---------- ---------- ----------
Total cost of revenues..................... 1,505 1,528 1,048 2,326 4,370
---------- ---------- ---------- ---------- ----------
Gross profit................................... 2,266 1,856 1,267 3,745 5,956
Operating expenses:
Research and development expenses, net....... 858 862 1,339 2,284 2,910
Sales and marketing expenses................. 1,848 2,184 3,172 6,019 8,274
General and administrative expenses.......... 672 1,025 1,120 1,333 1,759
Share based compensation..................... -- -- -- -- 738
---------- ---------- ---------- ---------- ----------
Total operating expenses................... 3,378 4,071 5,631 9,636 13,681
---------- ---------- ---------- ---------- ----------
Loss from operations........................... (1,112) (2,215) (4,364) (5,891) (7,725)
Interest and other (expenses) income, net...... (210) (278) (148) 33 (254)
---------- ---------- ---------- ---------- ----------
Net loss....................................... $ (1,322) $ (2,493) $ (4,512) $ (5,858) $ (7,979)
========== ========== ========== ========== ==========
Net loss per ordinary share.................... $ (0.26) $ (0.48) $ (0.80) $ (0.99) $ (1.34)
Shares used in computing basic and diluted net
loss per share............................... 5,081,265 5,216,705 5,657,728 5,914,765 5,948,846
Pro forma basic and diluted net loss per share
(unaudited).................................. $ (0.45)
Shares used in computing pro forma basic and
diluted net loss per share (unaudited)....... 17,692,994
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 72 $ 104 $ 201 $3,770 $ 7,838
Working capital............................................. (1,180) (2,770) (604) 4,178 8,007
Total assets................................................ 2,683 1,866 2,604 7,983 14,195
Long-term liabilities, net of current portion............... 1,334 1,954 1,530 1,254 1,112
Shareholders' equity (net capital deficiency)............... (1,416) (3,954) (3,177) 4,657 8,821
</TABLE>
23
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Except for historical information, the discussion in this report contains
forward-looking statements that involve risks and uncertainties. These
forward-looking statements include, among others, those statements including the
words, "expects," "anticipates," "intends," "believes" and similar language. Our
actual results could differ materially from those discussed herein. Factors that
could cause or contribute to such differences include, but are not limited to
the risks discussed in the section titled "Risk Factors" in this prospectus.
OVERVIEW
Prior to 1995, our operations were primarily related to consulting and
custom software solutions. In late 1996, we engaged in a comprehensive
reexamination of our strategy and changed our strategic focus to concentrate on
providing service optimization software products based on our W-6 Service
Scheduler and TechMate technologies. This change in focus was intended to allow
us to license software products useable by multiple clients, rather than
developing customized software for each client. In connection with this change
of strategy, we de-emphasized our consulting business. At that time we also spun
off our textile software operations to our then existing shareholders and
discontinued our defense application business. Since early 1997, we have
invested significant resources in developing products based on our W-6 Service
Scheduler and TechMate technologies, including increasing the number of our
employees involved in research and development, sales and marketing, and
professional services.
We believe that in today's economy businesses must provide their customers
the ability to schedule the delivery of services and products over the Internet
while also optimizing their existing delivery resources. In response to this
need, we repositioned our products to emphasize that they enable our clients to
offer self-scheduling capabilities and automated diagnostic and repair
capabilities over the Internet. Accordingly, in September 1999 we began
marketing our product lines under new names, ClickSchedule and ClickFix and in
January 1999 we changed our name to ClickService Software Ltd.
In conjunction with the repositioning of our ClickSchedule and ClickFix
product lines, we introduced additional software license pricing structures to
our clients. Until November 1999, our pricing model was based upon an initial
license fee determined by the number of service resources to be scheduled,
followed by periodic maintenance fees. Our new pricing structures include lower
initial license fees followed by monthly payments which are based on either the
number of service resources to be scheduled or the number of scheduling
transactions conducted. We believe that rapid acceptance of our new pricing
structures may reduce the initial amount of our software license revenues we
realize at the time of sale and could cause our revenues growth to decrease in
the short term.
We derive revenues from software licensing and service and maintenance
fees. Prior to 1997, substantially all of our revenues were derived from
professional service and maintenance fees for customized solutions and related
software license fees. As the sale of our products has grown, our professional
service and maintenance revenues have remained a significant percentage of
revenues reflecting the need to provide installations and professional services
to new clients. We believe that as our client base matures, and as an increasing
number of existing clients purchase additional licenses, the percentage of
revenues derived from license fees will increase as a percentage of revenues
while the percentage of revenues derived from service and maintenance fees will
increase on an absolute basis but decrease as a percentage of revenues. Our
gross margins on service and maintenance revenues are significantly lower than
our gross margins on software license revenues.
Our operating history shows that a significant percentage of our quarterly
revenues come from orders placed toward the end of a quarter. A delay in the
completion of a sale past the end of a particular quarter could negatively
impact results for that quarter. In addition, we expect that revenues in the
first quarter of each year will be lower than in the last quarter of the
previous year primarily due to the seasonality resulting from our current and
prospective clients' budgetary, procurement and sales cycles. As of December 31,
1999, we had outstanding trade receivables of approximately $4.0 million. Trade
receivables
24
<PAGE> 26
represent approximately 38% of 1999 total revenues. Our trade receivables
typically have 30 to 60 day terms, although we also negotiate longer payment
plans with some of our clients. Of the trade receivables outstanding as of
December 31, 1999 approximately $1.3 million or 33% of our receivables have
longer than 60 day terms.
Software license revenues are comprised of perpetual or annual software
license fees primarily derived from contracts with our direct sales clients and
our indirect distribution channels. We recognize revenues in accordance with the
American Institute of Certified Public Accountants Statement of Position 97-2,
"Software Revenue Recognition," or SOP 97-2, as amended by Statement of Position
98-4. Under SOP 97-2, we recognize software license revenues when a software
license agreement has been executed or a definitive purchase order has been
received and the product has been delivered to our clients, no significant
obligations with regard to implementation remain, the fee is fixed and
determinable, and collectability is probable.
Service and maintenance revenues are primarily comprised of revenues from
implementation, consulting, training release updates and customer service
support fees. Clients licensing our products generally purchase consulting
agreements from us. Consulting revenues are recognized on a straight-line basis
over the life of the agreement. Consulting services are billed at an agreed-upon
rate plus incurred expenses. Our products are marketed worldwide through a
combination of a direct sales force, consultants and various business
relationships we have with implementation and technology companies and
resellers.
Cost of revenues consists of cost of software license revenues and cost of
service and maintenance revenues. Cost of software license revenues consists of
expenses related to media duplication and packaging of our products. Cost of
service and maintenance revenues consists primarily of expenses related to
salaries and expenses of our professional services organizations and costs
related to third-party consultants.
Operating expenses are categorized into research and development expenses,
net, sales and marketing expenses, general and administrative expenses, and
share based compensation.
Research and development expenses consist primarily of personnel costs to
support product development, net of grants received from the Chief Scientist. In
return for some of these grants, we are obligated to pay the Israeli Government
royalties as described below which are included in sales and marketing expenses.
Software research and development costs incurred prior to the establishment of
technology feasibility are included in research and development expenses as
incurred.
Sales and marketing expenses consist primarily of personnel and related
costs primarily from our direct sales force and marketing staff, in addition to
marketing programs which include advertising, public relations, trade shows and
promotional events, net of grants received from the Fund for the Encouragement
of Marketing Activities established by the Government of Israel. In return for
these grants, we are obligated to pay the Israeli Government royalties as
described below. We expect that sales and marketing expenses will increase on an
absolute basis over the next year, as we hire additional sales and marketing
personnel, continue to promote our brand and Internet initiative and increase
our international sales efforts.
General and administrative expenses consist primarily of personnel and
related costs for corporate functions, including information services, finance,
accounting, human resources, facilities and legal.
Share based compensation represents the aggregate difference, at the date
of grant, between the respective exercise price of stock options and the deemed
fair market value of the underlying stock. Share based compensation is amortized
over the vesting period of the underlying options, generally four years. In the
year ended December 31, 1999, we recorded deferred share based compensation
totaling $3.4 million, of which $0.7 million was expensed in 1999. The total
deferred compensation of $2.7 million recorded as of December 31, 1999 will be
amortized as follows: $1.4 million in the year ended December 31, 2000; $0.8
million in the year ended December 31, 2001; $0.4 million in the year ended
December 31, 2002; and $0.1 million in the year ended December 31, 2003.
Interest and other (expenses) income, net, includes interest income earned
on our cash and cash equivalents, offset by interest expense, and also includes
the effects of foreign currency translations.
25
<PAGE> 27
The functional currency of our operations is the U.S. dollar, which is the
primary currency in the economic environment in which we conduct our business. A
significant portion of our research and development expenses is incurred in New
Israeli Shekels ("NIS") and a portion of our revenues and expenses are incurred
in British Pounds. The results of our operations are subject to fluctuations in
these exchange rates which are influenced by various global economic factors,
including inflation in Israel.
The effects of foreign currency exchange rates on our results of operations
for the years ended December 31, 1997, 1998 and 1999 were immaterial.
RESULTS OF OPERATIONS
Our historical operating results for each of the three years ended December
31, 1997, 1998 and 1999 as a percentage of total revenues are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
Revenues:
Software license.......................................... 53% 65% 52%
Service and maintenance................................... 47 35 48
---- --- ---
Total revenues......................................... 100 100 100
Cost of revenues:
Software licenses......................................... -- -- --
Service and maintenance................................... 45 38 42
---- --- ---
Total cost of revenues................................. 45 38 42
---- --- ---
Gross profit................................................ 55 62 58
Operating expenses:
Research and development expenses, net.................... 58 38 28
Sales and marketing expenses.............................. 137 99 80
General and administrative expenses....................... 48 22 18
Share based compensation.................................. -- -- 7
---- --- ---
Total operating expenses............................... 243 159 133
---- --- ---
Loss from operations........................................ (188) (97) (75)
Interest and other (expenses) income, net................... (6) -- (2)
---- --- ---
Net loss.................................................... (194)% (97)% (77)%
==== === ===
</TABLE>
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Revenues. Revenues increased $4.2 million or 70% to $10.3 million in 1999
from $6.1 million in 1998. In 1998 revenues increased $3.8 million or 165% to
$6.1 million, from $2.3 million in 1997. Revenues from clients outside North
America accounted for 32% of revenues during 1999, 29% of revenues during 1998
and 64% of revenues during 1997.
Software License. Software license revenues were $5.4 million or 52% of
revenues in 1999, $3.9 million or 65% of revenues in 1998 and $1.2 million or
53% of revenues in 1997. The increase in software license revenues was primarily
due to increased volumes of the number of ClickSchedule licenses sold through
growth of our client base among Internet access and telecommunication service
companies and recurring sales to our installed base of clients. The decrease in
software license revenues as a percentage of revenues in 1999 was primarily due
to the fact that many of our new implementations require higher initial service
and maintenance and a small number of software licenses.
Service and Maintenance. Service and maintenance revenues were $4.9
million or 48% of revenues in 1999, $2.1 million or 35% of revenues in 1998 and
$1.1 million or 47% of revenues in 1997. The increase
26
<PAGE> 28
in service and maintenance revenues from 1998 to 1999 was primarily due to an
increase in the number of our clients during these periods, and increased sales
of professional services related to ClickSchedule, primarily implementations,
that these new clients require. The increase in service and maintenance revenues
from 1997 to 1998 was due primarily to increased sales of ClickSchedule software
licenses.
Cost of Revenues. Cost of revenues were $4.4 million or 42% of revenues in
1999, $2.3 million or 38% of revenues in 1998 and $1.1 million or 45% of
revenues in 1997. This increase in the cost of revenues on an absolute basis was
due primarily to increased client demand for our professional services and our
increased use of third party contractors to provide a portion of these services.
Gross profit was 58% in 1999 as compared to 62% in 1998 and 55% in 1997. These
fluctuations are primarily due to the changing mix of service and maintenance
revenues compared to software license revenues. Our service and maintenance
revenues have significantly lower gross margins than our software license
revenues.
Cost of Software Licenses. Cost of software license revenues were $71,000
in 1999, $25,000 in 1998 and $13,000 in 1997. Cost of software license revenues
were less than 1% of revenues in 1999, 1998 and 1997.
Cost of Service and Maintenance. Cost of service and maintenance revenues
were $4.3 million or 42% of revenues in 1999, $2.3 million or 38% of revenues in
1998, and $1.0 million or 45% of revenues in 1997. This increase in the cost of
service and maintenance revenues from 1998 to 1999 was due primarily to
increased professional services and payments to third party consultants related
to our ClickService product line. The total number of professional services
employees employed by us was 37 on December 31, 1999, 24 on December 31, 1998
and 14 on December 31, 1997.
Operating Expenses. Total operating expenses were $13.7 million or 133% of
revenues in 1999, $9.6 million or 159% of revenues in 1998 and $5.6 million or
243% of revenues in 1997.
Research and Development Expenses, Net. Research and development expenses,
net of related grants, were $2.9 million or 28% of revenues in 1999, $2.3
million or 38% of revenues in 1998 and $1.3 million or 58% of revenues in 1997.
We received or accrued grants from the Chief Scientist in the amounts of $1.0
million in 1999, $0.9 million in 1998 and $0.5 million in 1997. The increase in
research and development expenses on an absolute basis was primarily due to
increased personnel related costs related to our ClickSchedule and ClickFix
product lines. We are continuing to invest substantially in research and
development, and we expect that research and development expenses will increase
on an absolute basis in the future.
Sales and Marketing Expenses. Sales and marketing expenses were $8.3
million or 80% of revenues in 1999, $6.0 million or 99% of revenues in 1998 and
$3.2 million or 137% of revenues in 1997. The increase in 1999 was primarily due
to additional sales and marketing efforts related to the new marketing focus for
our ClickService product line in the fourth quarter. We expect that sales and
marketing expenses will increase on an absolute basis in future periods, as we
hire additional sales and marketing personnel, continue to promote our brand and
establish sales in additional geographic areas.
General and Administrative Expenses. General and administrative expenses
were $1.8 million or 18% of revenues in 1999, $1.3 million or 22% of revenues in
1998 and $1.1 million or 48% of revenues in 1997. We expect that the absolute
dollar amount of general and administrative expenses will continue to increase
as we expand our operations and incur incremental costs of being a public
company.
Share Based Compensation. Share based compensation for the year ended
December 31, 1999 amounted to $0.7 million. Deferred compensation at December
31, 1999 amounted to $2.7 million which will be amortized over the period during
which the options vest, generally four years.
Interest and Other (Expenses) Income, Net. Interest expenses, net, were
$0.3 million or 2% of revenues in 1999, income was $33,000 or less than 1% of
revenues in 1998 and expenses were $0.2 million or 6% of revenues in 1997.
Income Taxes. As of December 31, 1999, we had approximately $9.8 million
of Israeli net operating loss carryforwards, approximately $10.0 million of U.S.
federal net operating loss carryforwards and
27
<PAGE> 29
approximately $0.7 million of British net operating loss carryforwards available
to offset future taxable income. The Israeli and British net operating loss
carryforwards have no expiration date. The U.S. net operating loss carryforwards
will expire in various amounts in the years 2008 to 2013.
QUARTERLY RESULTS OF OPERATIONS
The following table presents our historical unaudited quarterly results of
operations for the four quarters ended December 31, 1999. This data is unaudited
and derived from our audited annual Consolidated Financial Statements and Notes
appearing elsewhere in this prospectus. In the opinion of management, such
quarterly financial information has been prepared on the same basis as our
annual financial statements and includes all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the financial results
set forth therein. The statement of operations data should be read in
conjunction with the Consolidated Financial Statements and Notes in this
prospectus. Our results of operations have fluctuated and are likely to continue
to fluctuate significantly from quarter to quarter. Results of operations for
any previous quarter are not necessarily indicative of results for any future
period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------
MAR. 31, 1999 JUNE 30, 1999 SEPT. 30, 1999 DEC. 31, 1999
------------- ------------- -------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues:
Software license..................... $ 758 $ 1,033 $ 1,352 $ 2,271
Service and maintenance.............. 1,271 1,308 1,407 926
------- ------- ------- -------
Total revenues.................... 2,029 2,341 2,759 3,197
Cost of revenues:
Software license..................... 7 11 3 50
Service and maintenance.............. 925 958 1,156 1,260
------- ------- ------- -------
Total cost of revenues............ 932 969 1,159 1,310
------- ------- ------- -------
Gross profit........................... 1,097 1,372 1,600 1,887
Operating expenses:
Research and development expenses,
net............................... 553 625 843 889
Sales and marketing expenses......... 1,894 1,811 1,993 2,576
General and administrative
expenses.......................... 423 435 404 497
Share based compensation............. -- -- 295 443
------- ------- ------- -------
Total operating expenses.......... 2,870 2,871 3,535 4,405
------- ------- ------- -------
Loss from operations................... (1,773) (1,499) (1,935) (2,518)
Interest and other (expenses) income,
net.................................. (22) (65) 85 (252)
======= ======= ======= =======
Net loss............................... $(1,795) $(1,564) $(1,850) $(2,770)
======= ======= ======= =======
</TABLE>
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<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------
MAR. 31, 1999 JUNE 30, 1999 SEPT. 30, 1999 DEC. 31, 1999
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
AS A PERCENTAGE OF TOTAL REVENUES:
Revenues:
Software license..................... 37% 44% 49% 71%
Service and maintenance.............. 63 56 51 29
------- ------- ------- -------
Total revenues.................... 100 100 100 100
Cost of revenues:
Software license..................... -- -- -- 2
Service and maintenance.............. 46 41 42 39
------- ------- ------- -------
Total cost of revenues............ 46 41 42 41
------- ------- ------- -------
Gross profit........................... 54 59 58 59
Operating expenses:
Research and development expenses,
net............................... 27 27 30 28
Sales and marketing expenses......... 93 77 72 81
General and administrative
expenses.......................... 21 19 15 15
Share based compensation............. -- -- 11 14
------- ------- ------- -------
Total operating expenses.......... 141 123 128 138
------- ------- ------- -------
Loss from operations................... (87) (64) (70) (79)
Interest and other (expenses) income,
net.................................. (1) (3) 3 (8)
------- ------- ------- -------
Net loss............................... (88)% (67)% (67)% (87)%
======= ======= ======= =======
</TABLE>
Our 1999 quarterly operating results were driven primarily by the continued
acceptance of our ClickSchedule and ClickFix product lines, and increased
expenses related to these products. Our revenues grew on a quarterly basis
during 1999 due to the addition of 17 new clients and increased levels of
recurring sales to existing clients. The increase in the cost of revenues was
due primarily to the increase in the number of our professional services
personnel from 23 at the beginning of 1999 to 37 at the end of 1999. For
example, in the quarter ended December 31, 1999, the gross margin on service and
maintenance was negative due to the substantial increase in the number of
professional services personnel hired during this period. Research and
development expenses, net, increased primarily due to the continued development
of our ClickSchedule and ClickFix product lines. The increase in sales and
marketing expenses is attributable to the new marketing campaign for our
ClickSchedule and ClickFix product lines and costs related to increased sales
personnel and spending on trade shows and media advertising. General and
administrative expenses increased in the fourth quarter primarily due to greater
personnel expenses and costs associated with our anticipated public offering. We
intend to further increase our sales and marketing expenses as we continue to
promote our ClickSchedule and ClickFix product lines and also anticipate general
and administrative expenses will increase as a result of this offering.
The amount and timing of our operating expenses generally will vary from
quarter to quarter depending on our level of actual and anticipated business
activities. Our revenues and operating results are difficult to forecast and
will fluctuate, and we believe that period-to-period comparisons of our
operating results will not necessarily be meaningful. Additionally, as a
strategic response to a changing competitive environment, we may elect from time
to time to make pricing, service, marketing or acquisition decisions that could
have a negative effect on our quarterly financial performance. Our operating
history has shown that a significant percentage of our quarterly revenues come
from orders placed toward the end of a quarter. A delay in the completion of a
sale past the end of a particular quarter could negatively impact results for
that quarter. In addition, we expect that revenues in the first quarter of each
year will be lower than in the last quarter of the previous year primarily due
to the seasonality resulting from our current and prospective clients'
budgetary, procurement and sales cycles. Our future quarterly operating results
may not
29
<PAGE> 31
meet the expectations of security analysts or investors in any given quarter,
which may cause our ordinary shares to decline significantly.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have funded operations primarily through the
private placement of equity securities and, to a lesser extent, borrowings from
financial institutions. As of December 31, 1999, we had cash and cash
equivalents of $7.8 million. Cash used in operations includes expenditures
associated with research and development activities and marketing efforts
related to promotion of our products. For the year ended December 31, 1999, cash
used in operations was $6.5 million, comprised of the net loss of $8.0 million,
an increase in trade receivables of $1.9 million, partially offset by non-cash
charges of $1.3 million, and an increase in accrued expenses of $1.1 million and
an increase in deferred revenues of $1.1 million. For the year ended December
31, 1998, cash used in operations was $6.7 million, comprised of the net loss of
$5.9 million, an increase in trade receivable of $1.1 million, partially offset
by non-cash charges of $0.3 million. For the year ended December 31, 1997, cash
used in operations was $4.6 million, comprised of the net loss of $4.5 million,
an increase in accounts receivable of $0.6 million, partially offset by non-cash
charges of $0.4 million, and an increase in deferred revenues of $0.3 million.
As of December 31, 1999, we had outstanding trade receivables of approximately
$4.0 million. Trade receivables represent approximately 38% of 1999 total
revenues. Our trade receivables typically have 30 to 60 day terms, although we
also negotiate longer payment plans with some of our clients. Of the trade
receivables outstanding as of December 31, 1999 approximately $1.3 million or
33% of our receivables have longer than 60 day terms.
Expenditures on property and equipment were approximately $0.7 million for
the year ended December 31, 1999, $1.0 million in 1998 and $0.2 million in 1997.
From our inception through December 31, 1999, we have raised approximately
$31.7 million, net of issuance costs, from sales of equity securities,
consisting of $11.4 million in 1999, $11.7 million in 1998, $4.9 million in
1997, and $1.7 million prior to 1997. In 1997, we raised approximately $2.0
million from a convertible note that converted into equity securities in 1998.
Additionally, we have used debt to partially finance our capital purchases
secured by charges on these assets. As of December 31, 1999, we had outstanding
approximately $0.4 million of these long-term loans. We also have a revolving,
accounts receivable-based, secured credit facility of up to $2.5 million for
working capital purposes. The line of credit is limited to 80% of eligible trade
receivables and amounts outstanding bear interest at the U.S. prime rate plus
1%. As of December 31, 1999 there were no amounts outstanding under this
facility.
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 intend to continue
investing significant resources in our sales and marketing and research and
development operations in the future. We also expect to incur capital
expenditures of approximately $0.7 million in connection with the relocation of
our California facilities. We believe that our current cash balances along with
the proceeds raised from this offering will be sufficient to fund our operations
for at least the next twelve months. After that time, we cannot assure you that
cash generated from operations will be sufficient to satisfy our liquidity
requirements, and we may need to raise additional capital by selling additional
equity or debt securities or by increasing the size of our credit facility. If
additional funds are raised through the issuance of equity or debt securities,
these securities could have rights, preferences and privileges senior to those
of holders of ordinary shares, and the terms of these securities could impose
restrictions on our operations. The sale of additional equity or convertible
debt securities could result in additional dilution to our shareholders, and we
cannot be certain that additional financing will be available in amounts or on
terms acceptable to us, if at all. If we are unable to obtain this additional
financing, we may be required to reduce the scope of our planned product
development and marketing efforts, which could harm our business, financial
condition or operating results.
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EFFECTIVE CORPORATE TAX RATE
Our tax rate will reflect a mix of the United States statutory tax rate on
our United States income and the Israeli tax rate discussed below. We expect
that most of our taxable income will be generated in Israel. Israeli companies
are generally subject to income tax at the rate of 36% of taxable income. The
majority of our income, however, is derived from our company's capital
investment program with "Approved Enterprise" status under the Law for the
Encouragement of Capital Investments, and is eligible therefore for tax
benefits. Pursuant to these benefits, we will enjoy a tax exemption on income
derived during the first two years in which this investment program produces
taxable income, subject to certain timing restrictions, provided that we do not
distribute such income as a dividend, and a reduced tax rate of 10-25% for the
next 5 to 8 years. See "Israeli Taxation and Investment Programs -- Law for the
Encouragement of Capital Investments, 1959." There can be no assurance that we
will obtain approval for additional Approved Enterprises Programs, or that the
provisions of the law will not change. Since we have incurred tax losses through
December 31, 1999, we have not yet used the tax benefits for which we are
eligible. See "Risk Factors" and Note 13 to our Consolidated Financial
Statements.
IMPACT OF INFLATION AND CURRENCY FLUCTUATIONS
Our sales are primarily in U.S. dollars and, to a lesser extent, British
pounds. However, a significant portion of the cost of our Israeli operations,
mainly personnel and facility-related expenses, is incurred in NIS. Accordingly,
inflation in Israel and dollar exchange rate fluctuations have some influence on
our expenses and, as a result, on our net income. Any increase in the rate of
inflation in Israel will increase the dollar cost of our operations in Israel,
unless the increase is offset on a timely basis by a devaluation of the NIS in
relation to the dollar.
In 1997 and 1998, the rate of devaluation of the NIS against the dollar has
exceeded the rate of inflation. This was not the case in 1999. We have benefited
from the 1999 reversal, but we cannot be certain that it will continue, or that
the rate of inflation will not rise. We cannot be certain that we will not be
materially adversely affected in the future if inflation in Israel exceeds the
devaluation of the NIS against the dollar or if the timing of such devaluation
lags behind increases in inflation in Israel.
We do not presently engage in any hedging or other transactions intended to
manage risks relating to foreign currency exchange rate or interest rate
fluctuations. We also do not own any market risk sensitive instruments. However,
we may in the future undertake hedging or other similar transactions or invest
in the market risk sensitive instruments if management determines that it is
necessary to offset these risks. See "Risk Factors -- Risks Relating to Our
Location in Israel."
The representative dollar exchange rate for converting the NIS to dollars,
as reported by the Bank of Israel, was 3.54 NIS for one dollar U.S. on December
31, 1997, 4.16 NIS for one dollar U.S. on December 31, 1998 and 4.15 NIS for one
dollar U.S. on December 31, 1999.
YEAR 2000 READINESS
The year 2000 issue is the potential for system and processing failures of
date-related data and is the result of the computer-controlled systems using two
digits rather than four to define the applicable year. For example, computer
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar normal business activities.
We have designed our products for use in the year 2000 and beyond. To date,
our products have not revealed any significant year 2000 problems. As of
February 2, 2000, we have not experienced any significant issues as a result of
year 2000 problems and do not anticipate incurring material incremental costs in
future periods due to such issues.
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QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
The following discusses our exposure to market risk related to changes in
interest rates, equity prices and foreign currency exchange rates. This
discussion contains forward-looking statements that are subject to risks and
uncertainties. Actual results could vary materially as a result of a number of
factors including those set forth in the risk factors section of this
prospectus.
Foreign Currency Exchange Rate Risk
We develop products in Israel and sell them primarily in North America and
Europe. As a result, our financial results could be affected by factors such as
changes in foreign currency exchange rates or weak economic conditions in
foreign markets. As most of our sales are currently made in U.S. dollars, a
strengthening of the dollar could make our products less competitive in foreign
markets. Our interest income is sensitive to changes in the general level of
U.S. interest rates, particularly since the majority of our investments are in
short-term instruments. We regularly assess these risks and have established
policies and business practices to protect against the adverse effects of these
and other potential exposures. As a result, we do not anticipate material losses
in these areas. Due to the nature of our short-term investments, we have
concluded that there is no material market risk exposure. Therefore, no
quantitative tabular disclosures are required.
Interest Rate Risk
As of December 31, 1999, we had cash and cash equivalents of $7.8 million
which consist of cash and highly liquid short-term investments. Our short-term
investments will decline in value by an immaterial amount if market interest
rates increase, and, therefore, our exposure to interest rate changes has been
immaterial. Declines of interest rates over time will, however, reduce our
interest income from our short-term investments.
As of December 31, 1999, we had total short term debt of $0.3 million and
long-term debt net of current maturities of $0.2 million which bear interest at
rates that are linked to LIBOR or the Israeli consumer price index. We also have
a revolving, accounts receivable-based, secured credit facility of up to $2.5
million for working capital purposes. Amounts outstanding bear interest at the
U.S. prime rate plus 1%. As of December 31, 1999, there were no amounts
outstanding under this facility.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
established accounting and reporting standards requiring that every derivative
instrument be recorded in the balance sheet at its fair value. SFAS No. 133
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement. SFAS No. 133 is effective
for fiscal years beginning after June 15, 2000. We believe that the adoption of
SFAS No. 133 will not have a material effect on our financial statements.
In December 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-9. "Modification of SOP 97-2, Software
Revenue Recognition, with Respect to Certain Transaction". SOP 98-9 amends SOP
97-2 and SOP 98-4 by extending the deferral of the application of certain
provisions of SOP 97-2 amended by SOP 98-4 through fiscal years beginning on or
before March 15, 1999. All other provisions of SOP 98-9 are effective for
transactions entered into in fiscal years beginning after March 15, 1999. We do
not anticipate that this statement will have a material impact on our statement
of operations.
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GRANTS FROM THE GOVERNMENT OF THE STATE OF ISRAEL
In connection with our research and development, we have received
participation grants from the Chief Scientist of the State of Israel in the
total amount of $2.9 million. In return for the Government of Israel
participation, we are committed to pay royalties at a rate of 3% to 5% of sales
of the developed product, up to 100% - 150% of the amount of grants received. We
have paid royalties to date of $0.8 million.
In connection with our export marketing activities, we have received
participation payments from the Government of Israel through the Fund for the
Encouragement of Marketing Activities in the amount of $0.7 million. We
committed to pay royalties at a rate of 3% of the increase in export sales over
a base amount, up to the amount of the participations received. We have accrued
or paid royalties to date amounting to $0.3 million.
The Government of Israel does not own proprietary rights in any technology
developed using its funding and there is no restriction on the export of any
products manufactured using the technology. Some restrictions with respect to
the technology do apply, however, including the obligation to manufacture the
product based on the funded technology in Israel and to obtain the Chief
Scientist's consent for the transfer of the technology to a third party, for the
merger or acquisition of our company or for any transfer of our shares by an
Israeli shareholder to a non-Israeli shareholder. These restrictions will
continue to apply to us even when we have paid the full amount of royalties
payable in respect of the grants. If the Chief Scientist consents to the
manufacture of the products outside Israel, the regulations allow the Chief
Scientist to require the payment of increased royalties, ranging from 120% to
300% of the amount of the Chief Scientist grant, depending on the percentage of
foreign manufacture. If we determine to manufacture our product outside of
Israel, there can be no assurance that we will receive approval from the Chief
Scientist. In the event that we do receive approval, we may be required to pay
the Chief Scientist additional royalties.
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<PAGE> 35
BUSINESS
We provide web-based infrastructure application software that enables
companies to efficiently fulfill service and product delivery in enterprise
environments and over the Internet. Our ClickSchedule product line allows our
clients to optimize resource utilization while offering their customers ease of
use and convenience when procuring services and products. Our ClickFix product
line facilitates the process of automated diagnosis and troubleshooting of
equipment. ClickSchedule and ClickFix are designed to enable our clients to
offer their customers the opportunity to schedule services and obtain self-help
directly over the Internet. Our solution is designed to enable our clients to
increase productivity, which can result in reduced costs and increased revenue
opportunities that otherwise would have been lost.
INDUSTRY BACKGROUND
Growing Market for Service and Product Delivery
The market for service and product delivery has experienced significant
growth, both in terms of the variety of services and products available as well
as transaction volume. Businesses engaged in service and product delivery must
deploy substantial resources in order to schedule and complete transactions that
require a same time and/or same place interaction between the service provider
and the customer. Examples of these services include telephone, cable and
Internet access installation, computer and appliance delivery and repair, and
delivery of other consumer goods. In order to schedule these transactions, most
of these service providers expend substantial resources to maintain telephone
call centers staffed with customer service representatives, or CSRs, who answer
calls from customers and assign and schedule service and fulfillment resources.
According to International Data Corporation, worldwide call center services
revenues are estimated to increase from $23.1 billion in 1998 to $58.6 billion
in 2003.
Supply chain optimization technology successfully enabled manufacturing
organizations, which mainly rely on raw materials, machines and production
lines, to streamline their operations and begin to take advantage of the
benefits that the Internet offers. In contrast, service organizations, which
mainly rely on personnel, are still facing significant challenges in today's
economy:
- Service operations face increasing pressure to allocate scarce resources
and reduce operating costs in order to improve profitability;
- The scheduling of service personnel to customers and the effective
planning of their schedules and travel routes is a complex problem that
involves many parameters and business rules;
- In today's high speed economy, customers expect real-time responses to
their scheduling and troubleshooting needs;
- Call centers, which often require customers to wait in phone queues for
extended periods of time, are an inconvenient medium of communication;
- Global deregulation of industries, such as telecommunications and
utilities, are driving many businesses into a new era of intense
competition, further increasing the need to improve their customer
service while lowering the total cost of service;
- Knowledge gained by service personnel in solving equipment related
problems must be shared with other service personnel in an organization
and made available to its customers; and
- The inability of service organizations to effectively schedule the
fulfillment of the services they offer to their customers also inhibits
their ability to offer services online.
Customer Service is Critical in Today's Economy
To build and maintain relationships with customers, businesses are
attempting to improve the quality and speed of their service and product
fulfillment in order to distinguish themselves from their competitors. This
competitive edge may be even more important in today's business environment
where customers expect rapid and comprehensive customer service, and companies
that fail to provide superior customer
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service may lose sales and customers to competitors located a phone call or
mouse click away. Whether scheduling telephone or Internet access installation
or the repair of office equipment, consumers and businesses need to be assured
that services and products will be delivered quickly and efficiently. Currently,
to obtain service, customers must rely on traditional methods of communication
and contact CSRs, either in person, by phone, or by e-mail.
Growing Use of the Internet in the Fulfillment of Service and Product Delivery
The emergence and acceptance of the Internet as a medium for commerce is
fundamentally changing the way companies communicate with their customers and
offer services and products. Growing numbers of companies are transacting
business online in an attempt to capitalize on the compelling benefits that the
Internet offers, including increased revenue, reduced operating costs and
improved customer retention. International Data Corporation estimates that
business-to-business and business-to-consumer transactions will grow from $50.4
billion in 1998 to over $1.3 trillion in 2003. Businesses such as utilities and
telecommunications service providers have only begun to recognize the benefits
that the Internet can offer in delivering services to their customers.
Traditional "bricks and mortar" businesses are finding that they also must offer
their services and goods online in order to remain competitive, as
Internet-based businesses offering services and products online acquire
increasing market share. Forrester Research estimates that the percentage of
Fortune 1000 companies, that are using the Internet as a channel for commerce
will increase from 23% in 1999 to 93% in 2002. Because customers have a growing
number of easily accessible choices both on and off the Internet, companies must
differentiate their products and services to meet customers' individual
requirements and build and maintain customer loyalty.
Need to Enable Online Solutions for the Fulfillment of Service and Product
Delivery
Service organizations have continued to rely primarily on conventional
methods of scheduling the fulfillment of services primarily via telephone-based
customer service representatives. For traditional businesses, the inability to
effectively schedule the fulfillment of services also inhibits their ability to
grow their business online. For online businesses, this requires an inconvenient
two-step process involving online and telephone interaction, which is
inefficient, costly and difficult to manage, and is proving to be the bottleneck
for an otherwise streamlined online transaction. While applications aimed at
cost reduction in the supply chain have generally been successful, service
organizations have realized that these initiatives are only part of the solution
of providing seamless and timely fulfillment of services and products. In the
face of growing business challenges, such as the high cost of attracting new
customers, the proliferation of customer purchasing options, increased customer
sophistication and decreased customer loyalty, the importance of on-time
fulfillment of services continues to increase.
Service organizations are seeking a solution that enables them to improve
customer service as well as optimize and allocate internal resources. These
organizations are coping with these challenges in various ways, ranging from
developing software tools internally to increasing the number of service
personnel they employ. These approaches have difficulty scaling cost-effectively
to keep pace with the current volume of business and the rapid expansion of
transactions and do not provide the need for timely fulfillment of services and
products. In addition, these approaches do not offer a solution for the
limitations of the telephone as a medium of communication and are very limited
in the amount of personalization they offer to the calling customer.
Accordingly, there is a need for a new class of applications and technologies
designed to optimize the utilization of fulfillment resources and ensure
successful completion of online transactions.
THE CLICKSERVICE SOLUTION
We provide web-based infrastructure application software that enables
companies to efficiently fulfill service and product delivery in enterprise
environments and over the Internet. Our ClickSchedule product line enables our
clients to optimize resource utilization while offering their customers ease of
use and convenience while procuring services and products. Our ClickFix product
line facilitates the process of automated diagnosis and troubleshooting of
equipment. ClickSchedule and ClickFix are designed to enable
35
<PAGE> 37
our clients to offer their customers the opportunity to schedule appointments
and self-help services directly over the Internet. Our solution offers the
following benefits to our clients and their customers:
- Greater Customer Service. Our products enable our clients to offer their
customers better customer service, including the ability to schedule the
delivery of services and products online. Clients using our solution
provide their customers with more control over the fulfillment process by
offering instant quotes of narrow appointment time windows, flexibility
to choose from a greater variety of options, and immediate confirmation
of scheduled appointments, leading to an enhanced customer experience and
increased convenience.
- Optimized Utilization of Fulfillment Resources. Our solution offers the
efficient optimization of service and product fulfillment resources for
both our business-to-business and business-to-consumer clients,
providing:
- significant cost savings due to optimized utilization of resources
such as field representatives, CSRs and delivery vehicles;
- scalability to manage increased customer calls as clients' businesses
grow;
- greater customer satisfaction and retention as a result of increased
scheduling flexibility and more timely completion of transactions; and
- more visibility and control over fulfillment resources by providing
access to optimization data and graphical representations of
individual resource allocation status and needs.
ClickSchedule allows our clients to create and configure optimization
parameters for their business needs, such as required service levels,
geographic territories, overtime policies, outsourcing availability and
other company-specific requirements. It continuously monitors the status
of the client's logistical resources and automatically allocates these
resources efficiently in response to changing demands and resource
availability.
- Seamless Integration into Existing Client Environments. Our solution is
designed to integrate with back-end enterprise resource planning, or ERP,
applications and front-end customer relationship management, or CRM,
applications for real-time resource optimization and allocation. By using
already existing customer and internal company data, we believe our
solution allows companies to turn their currently under-utilized
applications into powerful and robust competitive tools. Our solution
empowers our clients to offer their customers a streamlined, end-to-end
online purchasing and improved customer service experience. We believe
our solution provides a simple, one-stop, real-time appointment
scheduling and self-help experience for customers.
- Rapid Return on Investment. We believe that once our products are
integrated and customized for specific client needs, immediate
efficiencies can be realized. These efficiencies in resource utilization
translate into capturing revenue opportunities that otherwise would have
been lost, resulting in a rapid return on investment. We believe our
solutions integrate with our clients' existing software applications and
infrastructure in a shorter period of time than typically required to
deploy similar solutions. As a result, our clients can more quickly
deploy our products in a cost-effective manner, further improving their
return on investment.
THE CLICKSERVICE STRATEGY
Our objective is to be the leading provider of web-based infrastructure
application software for optimizing service operations of business-to-business
and business-to-consumer enterprises. The key elements of our strategy include:
- Capitalize on Our Existing Market Acceptance and Extend Our Brand
Recognition. We believe we are a market leader in the deployment of
service scheduling solutions with resource optimization capabilities. By
building on our existing technology, we intend to be the leader in
providing resource optimization solutions to businesses that must support
operator assisted and Internet transactions.
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We intend to invest further to capitalize on our existing market
acceptance and further extend our brand recognition.
- Enhance Our Sales and Implementation Channels. We intend to expand our
direct sales force and enhance our indirect sales program with additional
strategic relationships. We intend to increase the number of direct sales
personnel focusing on specific industries and geographic areas. We
currently have business relationships with leading ERP and CRM vendors
including Astea, Clarify, JD Edwards, PeopleSoft and SAP. These
relationships provide us with access to new customers as well as their
existing installed bases. We intend to enter into relationships with
additional consulting firms and other implementation partners to expand
our coverage of geographic locations and augment our internal
professional services organization. Finally, we intend to form additional
relationships with OEMs and resellers in order to strengthen our market
position.
- Extend the Breadth and Depth of Our Product Offerings. Our core
technologies are based on over ten years of research and development. Our
strategy is to continue to invest in research and development of our core
technologies and our product offerings to provide more functionality and
to increase our competitive advantage. We are developing offerings to
provide decision support capabilities such as forecasting, resource
planning, capacity planning, and monitoring. We also intend to offer new
products which provide online comparison and bidding capabilities based
on service and delivery availability as well as pricing.
- Target Online Service Businesses. We believe our products are designed to
address the specific scheduling and fulfillment needs of online service
businesses. Our products incorporate many web-based technologies, such as
XML, browser interfaces and server side scripting, which provide
scalability and speed of integration. We intend to develop relationships
with Internet service portals that offer their customers online
scheduling of various services, such as interior design, home
improvement, painting, plumbing and landscaping. We intend to also target
various application service providers that are seeking to offer hosted
services including self-help and scheduling solutions.
- Provide Customized Solutions for Additional Industries. Our
ClickSchedule product line provides a scheduling and service fulfillment
optimization package that can be customized to meet specific business
rules established by our clients. We believe we have developed experience
in specific industries, such as telecommunications and Internet access,
and we intend to pre-configure versions of our products for additional
industries such as financial services and health care.
PRODUCTS
We have two product lines, ClickSchedule and ClickFix, which we sell to
companies to effectively fulfill service and product delivery in enterprise
environments and over the Internet.
ClickSchedule
ClickSchedule is a web-centric scheduling solution that enables service
organizations and their customers to schedule service, installation, product
delivery and consulting. ClickSchedule, which is based on our W-6 Service
Scheduler technology, addresses the dual challenge of simultaneously optimizing
for company resource utilization and customer responsiveness. ClickSchedule
allows our clients to customize their optimization parameters such as service
levels, geographic territories, overtime policies, outsourcing availability and
other company-specific business policies in order to optimize their internal
resource utilization. ClickSchedule provides a scalable solution that supports
changes in business policies, and increases in customer calls and the amount of
client resources available to allocate and schedule. In addition, ClickSchedule
offers a web-based scheduling feature which enables our clients' customers to
directly schedule appointments online, which we believe will result in improved
customer satisfaction.
ClickSchedule performs scheduling functions by integrating with our
clients' CRM applications. Using a CRM application, an online customer or a CSR
providing information on behalf of the customer, provides details regarding the
service request, such as the customer's name, location, desired service or
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<PAGE> 39
product and requested time of delivery. The CRM application transmits the
details regarding the request to the ClickSchedule web server. The ClickSchedule
software application examines the business rules established by the client, the
client's available resources, such as service technicians' appointment schedules
and routes and then immediately recommends preferred scheduling options based on
the parameters of the customer's request. The CRM application then presents the
scheduling options to the customer or CSR and finally provides notification of
the customer's selection back to ClickSchedule. Primary features of
ClickSchedule include:
<TABLE>
<CAPTION>
PRIMARY FEATURES DESCRIPTION
- ---------------------------------------- ----------------------------------------------------------
<S> <C> <C>
Sophisticated optimization capabilities - Provides instant and accurate response.
- Allows application of multiple client business rules.
- Can be customized for specific client needs.
Continuous optimization - Improves resource scheduling and route optimization.
- Automatic real-time adjustment of scheduling
according to changes in customer requests and
resource availability.
Open web-based architecture - Enables seamless integration with clients' other
information systems, such as CRM and ERP
applications.
- Allows easy access via a browser.
Scalability - Supports thousands of requests per hour.
- Enables scheduling of thousands of client resources.
Real time monitoring - Permits tracking of service delivery execution.
XML interface - Enhances integration with other web applications.
</TABLE>
ClickBroker and ClickAnalyze, which we expect to introduce in the second
quarter of 2000, are add-ons to ClickSchedule. ClickBroker is intended to offer
comparisons of service availability and price comparisons, along with bidding
capabilities, to customers for use over the Internet. ClickAnalyze is intended
to provide our clients with the ability to monitor and review key business
performance metrics of their service operations, such as the percentage of
on-time appointments.
ClickFix
ClickFix is a web-centric troubleshooting solution, which offers
equipment-related problem resolution support. ClickFix supports the complete
call life cycle from home users to help-desk operators and service engineers and
technicians on-site. ClickFix's web-based architecture is designed to enable
equipment owners or service personnel access over the Internet by logging into a
service provider's web site.
The ClickFix application allows the user to either select from a list of
common or potential problems associated with the particular equipment or to
enter a free-text description of the actual problem. Based on information
provided by the user as well as knowledge obtained from prior troubleshooting
experiences with the same equipment, ClickFix 'walks' the user through the
problem resolution process and proposes corrective actions. In addition,
ClickFix has a remote diagnostics capability that enables the equipment itself
to "phone in" for a service request and trigger the problem resolution sequence.
ClickFix has self-
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<PAGE> 40
learning algorithms that enable it to expand its problem resolution knowledge
base. Primary features of ClickFix include:
<TABLE>
<CAPTION>
PRIMARY FEATURES DESCRIPTION
- ----------------------------------- --------------------------------------------------------------
<S> <C> <C>
Optimizes the diagnostic process - Decreases number of steps required to diagnose.
- Increases first time fix rate.
Supports remote connectivity - Enables performance of remote diagnostics.
- Enables connectivity with various hand-held devices.
Facilitates predictive maintenance - Allows for automatic detection of potential problems
before they occur.
- Automatic creation of service orders when faults are
detected.
Open web-based architecture - Enables seamless integration with clients' other
information systems, such as CRM and ERP applications.
Online documentation - "How to fix" instructions online.
"Learning" capability - Automatic enhancement of knowledge base over time.
- Knowledge authoring tools for efficient creation of
knowledge base.
</TABLE>
TECHNOLOGY
Our ClickSchedule and ClickFix product lines are based upon our internally
developed core technologies, W-6 Service Scheduler and TechMate. These two core
technologies have been developed over the last decade and include sophisticated
algorithms and business scenario representation tools. Over the years we have
gained vast experience with the complex scheduling and troubleshooting needs of
service organizations. These scheduling and troubleshooting needs involve
scheduling personnel, rather than machines and raw materials, and are therefore
different from and more complex than the scheduling needs of supply chain or
manufacturing operations. We have incorporated many of the complex needs of
service organizations into our products, such as optimization objectives, skill
levels and labor policies.
Our applications are fully standards-based and are designed for the
Internet. Our applications can be run on standard web browsers and servers and
support leading relational database management systems, including Oracle and
Microsoft SQL Server. The multi-tier architecture connects browser-based
applications to Windows NT application servers through local area networks, wide
area networks, intranet or Internet connections. Our technology performs
messaging between clients and the application server in real time over TCP/IP.
Our applications are inherently scalable due to our multi-tier architecture that
uses thin clients, multi-threaded application servers and relational databases.
Specifically, our core technologies include:
- Internally developed scheduling optimization algorithms. These
algorithms provide efficient solutions for complex scheduling problems
arising from, among others, the following:
- the vast number of possible solutions associated with optimized
scheduling of personnel;
- the number of service organization-specific resources and variables;
- the need to instantly respond to concurrent users' service requests;
- the vast number of potential routes within a specific geographic area;
and
- various time zone considerations.
- Sophisticated service business scenario modeling. We have developed
models based on a vast number of variables and resource characteristics
common to service organizations. By employing
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<PAGE> 41
these models, we can use our algorithms to address the market needs of
different segments of the service industry.
- Open, multi-tiered architecture. Our architecture incorporates the
following key capabilities:
- An application server capable of performing high-speed optimization and
problem resolution;
- Extensible Markup Language, or XML, Application Programming Interface,
which enables other applications to access the data and services of
ClickSchedule; and
- Object-oriented code that can be re-used for future products.
The following diagram describes our ClickSchedule product architecture:
LOGO
Depicted on this page is a diagram of the ClickSchedule architecture
Industry Segment Specific Layer
Business oriented Programming Interface -- COM based
Business oriented Programming Interface -- XML based
Web Application Server
Industry specific algorithm solution
Industry specific data and knowledge
Core Product Technology
Scheduling engine
Internally Developed Scheduling Programming Interface
Algorithms
Rules and objectives
Optimization engines
Scheduling application parameters
Events to external systems
Infrastructure
Internally Developed Infrastructure Programming Interface
In memory concurrent object oriented database
Relational Database
- Problem resolution technology. Our problem resolution technology includes
the following key capabilities:
- Sophisticated algorithms for fast problem resolution based on equipment
model diagrams;
- Problem resolution knowledge base with learning capabilities; and
- Problem resolution authoring technology based on modeling the equipment
structure as well as historical cases.
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<PAGE> 42
The following diagram describes our ClickFix product architecture:
LOGO
Depicted on this page is a diagram of the ClickFix architecture
Interaction Layer
Remote Diagnostics
Mobile Communication
CRM Integration
Web Client
Business oriented Programming Interface--COM based
Web Application Server
Application-specific customizations
Predictive Maintenance
Monitor (MTS component)
Core Product Technology
Problem Resolution engine
Diagnostics Programming Interface--COM Based
Model-Based diagnostics algorithms
Case-Based Learning
Online "How-To" instructions
Infrastructure
Infrastructure Programming Interface
In-memory concurrent object-oriented knowledge base
Knowledge Authoring
Model-Based Knowledge
Historical Cases
Data-Import
Relational Database
PROFESSIONAL SERVICES AND CUSTOMER SUPPORT
Our professional services organization is integral to our ability to
provide our clients with our software solutions and is staffed by professionals
with significant experience in the resource optimization field. We provide our
clients with consulting services, upgrades, and comprehensive training and
support to help them achieve their business goals with a quick return on
investment. We also offer implementation services to assist our clients with the
installation and operation of our solutions and also work with the clients'
information technology departments to refine and support their strategies for
resource optimization. Our consulting services include the following:
- Business Analysis Assessment. Our consultants assess the client's
current or planned scheduling needs, develop and document a project plan
and deliver a design specification to address those needs. We provide a
configuration and implementation roadmap to help clients meet their
business goals, including a return on their investment.
- Project Implementations. Our professional services consultants
individually, or as members of our clients' teams, implement and assist
in the configuration of our solutions, to accelerate the project
deployment schedule and ensure a successful implementation process. These
professional service consultants perform the following tasks to implement
a ClickSchedule application for a client:
- develop a work plan to integrate ClickSchedule with the client's
existing information systems, such as CRM or ERP applications;
41
- customize the ClickSchedule logic to meet the client's business needs;
and
- install and test the application at the client's facilities.
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- ClickSchedule Fast Track. In order to facilitate the acceptance of our
ClickSchedule solution, we have recently introduced our ClickSchedule
Fast Track to provide accelerated ClickSchedule implementation. We
believe this initiative will enable clients to achieve benefits quickly
from a rapid implementation of the ClickSchedule solution. Once the
ClickSchedule Fast Track implementation is completed we offer
enhancements and customizations that provide additional functionality to
our ClickSchedule product.
Customer support is available by telephone and over the Internet seven days
a week, 24 hours a day. This support is provided by the technical support team
in our product development group, ensuring detailed product knowledge and access
to experts and testing facilities when required. The customer support team works
closely with the professional services organization in providing technical
support during client project implementations, and transferring completed
projects from professional services organization to client support team.
CUSTOMERS
We sell our products to a broad base of clients representing a variety of
industries with unique needs, including telecommunications and telephone and
Internet access providers, high-technology service providers and retailers. The
following is a representative list of our clients or end-users using our
products in an enterprise environment:
Agilent Technologies
Bell Atlantic
Canadian Red Cross
Caterpillar
Compaq Computer Corporation
Covad Communications
Crawfords & Company
EMC
Enbridge Services
High Speed Access (HSA)
Level 3 Communications
Maritime Telephone & Telegraph
New Brunswick Telephone
Schindler Elevator
Montgomery Ward
No customer accounted for greater than 10% of revenues during 1999. For the
year ended December 31, 1998, sales to the Canadian Red Cross, Caterpillar and
Montgomery Ward each constituted greater than 10% of our revenues. For the year
ended December 31, 1997, sales to the Canadian Red Cross and the Government of
Israel each constituted greater than 10% of our revenues.
BUSINESS RELATIONSHIPS
An important element of our strategy is to establish relationships and
alliances to assist us in marketing, selling and implementing our software
solutions. These relationships and alliances fall into the following two
categories:
- Reseller and joint selling relationships. We have entered into
arrangements with leading CRM and ERP vendors under which we join
together in our sales efforts or sell software solutions to them for
resale to their customers. These vendors include Astea, Clarify, Eftia,
JD Edwards, Orbital and SAP. We believe these relationships will extend
our presence and brand name in new and existing markets. These partners
have committed resources depending on the strength of the relationship,
ranging from building an interface for our product, to training their
employees, co-marketing programs and incorporating our products into
their market strategies. We provide sales materials and training to these
resellers on the implementation of our software solutions.
- Consulting and implementation relationships. We have business
relationships with several consulting and implementation companies where
we co-market and promote each other's solutions. In order to improve
their opportunity to generate service fees from our customers, each of
these entities has committed resources to training their consultants on
our products, co-marketing our products with their services and
incorporating our products into their CRM market strategies. We believe
these relationships will help enable the adoption and deployment of our
software.
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SALES AND MARKETING
We market and sell our products primarily through our direct sales force,
which is located in North America and Europe. Our multi-disciplined sales teams
consist of field sales executives, sales support engineers and internal sales
staff. The internal sales staff is responsible for generating leads and
qualifying prospective clients. Sales support engineers assist the sales
executives in the technical aspects of the sales process, including preparing
demonstrations and technical proposals. Our sales executives are responsible for
completing the sales process and managing the post-sale client relationship. Our
management also takes an active role in our sales efforts. Because our solutions
have broad functionality, we can rapidly develop custom demonstrations, which
we, or our business partners, can use to design models for full-scale
implementations. The knowledge gained by our sales and marketing force is also
communicated to our development team which uses this knowledge to improve the
functionality of our products for specific industries.
We typically direct our sales efforts to the chief executive officer, the
chief information officer, the vice presidents of customer service and other
senior executives responsible for improving customer service at our clients'
organizations, including, more recently, executives responsible for the
organizations' Internet strategies.
We focus our marketing efforts on identifying potential new clients,
generating new sales opportunities, and creating awareness in our target markets
about the value of our products and their applications. Our programs target
prospective clients across a wide variety of industries, business relationships
and geographies. In order to effectively promote product awareness, we engage in
marketing activities in a wide variety of areas including public relations and
analyst relations, creation and placement of advertising, direct mailings and
internal and external participation in leading trade shows.
Our marketing organization also supports joint marketing activities with
our business partners. Our business relationships enable us to use our partners'
market presence and sales channels to create additional revenue opportunities.
As of December 31, 1999, we employed over 40 individuals in our sales and
marketing department.
RESEARCH AND DEVELOPMENT
We believe that strong product development capabilities are essential to
our strategy of enhancing our core technology, developing additional products
and maintaining the competitiveness of our product and service offerings. We
have invested significant time and resources in creating a structured process
for undertaking all product development projects. These include documentation of
product requirements, specifying product features and workflow, developing the
software, quality assurance, documentation and packaging. Our research and
development center in Israel is ISO 9000 compliant and continuously updates its
software development procedures to maintain an ongoing improvement process and
high quality products.
Our future research and development strategies will concentrate on
broadening our product offerings to provide more functionality, including
decision support capabilities such as forecasting, resource planning, capacity
planning and monitoring, and to continue developing packaged offerings for
specific vertical industries.
Our research and development expenses, prior to participation grants from
the Office of the Chief Scientist of the Government of Israel, totaled $3.9
million for the year ended December 31, 1999, $3.1 million for the year ended
December 31, 1998, and $1.8 million for the year ended December 31, 1997. As of
December 31, 1999, we employed 39 individuals in our research and development
group. See "Israeli Taxation and Investment Programs."
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COMPETITION
The market for our products is competitive and rapidly changing. We expect
competition to increase significantly in the future as current competitors
expand their product offerings and new companies enter the market.
Our current and potential competitors include:
- independent systems integrators, consulting firms and in-house
information technology departments of bricks and mortar and
Internet-based businesses which may develop their own solutions that
compete with our products;
- traditional ERP and CRM software application vendors;
- software vendors in the utility, telecommunications, Internet access,
field services, home delivery and other markets;
- providers of scheduling tools and components as well as various logistics
solutions providers; and
- providers of resource optimization tools for other sectors of the
economy, such as providers of supply chain optimization tools.
Some of our current and potential competitors have greater name
recognition, longer operating histories, larger customer bases and significantly
greater financial, technical, marketing, public relations, sales, distribution
and other resources than we do. Some of our potential competitors are among the
largest and most well-capitalized software companies in the world.
Competition could result in price reductions, fewer customer orders,
reduced gross margin and loss of market share, any of which could cause our
business to suffer. We may not be able to compete successfully, and competitive
pressures may harm our business. In addition, our market is characterized by
rapid technological change, dynamic client needs and frequent introductions of
new products and product enhancements, which can make existing products,
including ours, obsolete or unmarketable.
INTELLECTUAL PROPERTY
Our future success depends in part on legal protection of our intellectual
property. To protect our intellectual property, we rely on a combination of the
following among others:
- copyright laws;
- trademark laws; and
- trade secret laws.
We also generally enter into non-disclosure agreements with our employees
and consultants and generally control access to and distribution of our
software, documentation and other proprietary information.
Our end-user licenses are designed to prohibit unauthorized use, copying
and disclosure of our software and technology. However, these provisions may be
unenforceable under the laws of some jurisdictions and foreign countries.
Unauthorized third parties may be able to copy some portions of our products or
reverse engineer or obtain and use information and technology that we regard as
proprietary. Third parties could also independently develop competing technology
or design around our technology. If we are unable to successfully detect
infringement and/or to enforce our rights to our technology, we may lose
competitive position in the market. We cannot assure you that our means of
protecting our intellectual property rights in the United States, Israel or
elsewhere will be adequate or that competing companies will not independently
develop similar technology. In addition, some of our licensed users may allow
additional unauthorized users to use our software, and if we do not detect such
use, we could lose potential license fees.
From time to time, we may encounter disputes over rights and obligations
concerning intellectual property. We also indemnify some of our customers
against claims that our products infringe the intellectual property rights of
others. We believe that our products do not infringe the intellectual property
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<PAGE> 46
rights of third parties. However, we cannot assure you that we will prevail in
all future intellectual property disputes. We have not conducted a search for
existing patents and other intellectual property registrations, and we cannot
assure you that our products do not infringe any issued patents. In addition,
because patent applications in the United States are not publicly disclosed
until the patent is issued, applications may have been filed which would relate
to our products.
Substantial litigation regarding technology rights exists in the software
industry, and we expect that software products may be increasingly subject to
third-party infringement and ownership claims as the number of competitors in
our industry segments grows and the functionality of products in different
industry segments overlaps. In addition, our competitors may file or have filed
patent applications, which are covering aspects of their technology that they
may claim our technology infringes. Third parties may assert infringement or
competing ownership claims with respect to our products and technology. Any such
claims, with or without merit, could be time-consuming to defend, result in
costly litigation, divert management's attention and resources or cause product
shipment delays. In the event of an adverse ruling in any such litigation, we
might be required to pay substantial damages, discontinue the use and sale of
infringing products, expand significant resources to develop non-infringing
technology or obtain licenses to or pay royalties to use a third party's
technology. Such royalty or licensing agreements may not be available on terms
acceptable to us, if at all. A successful claim of patent or copyright
infringement against us could significantly harm our business.
EMPLOYEES
As of December 31, 1999, we had 143 full-time employees, 39 of whom were
engaged in research and development, 44 in sales, marketing and business
development, 37 in professional services and technical support and 23 in
finance, administration and operations. None of our employees is represented by
a labor union. We consider our relations with our employees to be good.
In addition, 98 of our employees are located in Israel. Israeli law and
certain provisions of the nationwide collective bargaining agreements between
the Histadrut (General Federation of Labor in Israel) and the Coordinating
Bureau of Economic Organizations (the Israeli federation of employers'
organizations) apply to our Israeli employees. These provisions principally
concern the maximum length of the work day and the work week, minimum wages,
paid annual vacation, contributions to a pension fund, insurance for
work-related accidents, procedures for dismissing employees, determination of
severance pay and other conditions of employment. We provide our employees with
benefits and working conditions above the required minimums. Furthermore,
pursuant to such provisions, the wages of most of our employees are subject to
cost of living adjustments, based on changes in the Israeli CPI. The amounts and
frequency of such adjustments are modified from time to time. Israeli law
generally requires the payment of severance pay upon the retirement or death of
an employee or upon termination of employment by the employer or, in certain
circumstances, by the employee. We currently fund our ongoing severance
obligations for our Israeli employees by making monthly payments for managers
insurance policies and severance funds.
FACILITIES
ClickService leases approximately 22,500 square feet in an office building
located in Tel Aviv, Israel. The office space in Tel Aviv, Israel is leased
pursuant to a lease that expires in June 2003 with an option to extend the lease
until April 2008. We have also recently entered into a seven year lease for
approximately 17,130 square feet of office space in Campbell, California.
We also lease sales offices in the metropolitan areas of Anaheim, Atlanta,
Boston, Chicago, Dallas and New York. Our U.K. subsidiary currently operates
from a leased facility of approximately 3,000 square feet in London.
LEGAL PROCEEDINGS
We are not currently a party to any material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors and their ages as of December 31, 1999
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Dr. Moshe Ben-Bassat........... 52 Chief Executive Officer and Chairman of the Board
Shimon M. Rojany............... 52 Senior Vice President and Chief Financial Officer
David Schapiro................. 41 Vice President and General Manager, Product Development
Group
Ami Shpiro..................... 45 Vice President and General Manager, Europe Operations
Robert Spina................... 38 Vice President, Sales
Hannan Carmeli................. 41 Vice President and General Manager, ClickFix Division
Mark Trimue.................... 47 Vice President, Business Development and Channels
Development
Amit Bendov.................... 35 Vice President, Product Marketing
Dr. Israel Borovich(1)......... 58 Director
Fredric W. Harman(2)........... 39 Director
Jeffrey D. Saper............... 51 Director
Eddy Shalev(2)................. 52 Director
Zohar Zisapel.................. 51 Director
</TABLE>
- ---------------
(1) Member of audit committee.
(2) Member of compensation committee.
DR. MOSHE BEN-BASSAT co-founded ClickService and has served as our Chairman
and Chief Executive Officer since our inception. From 1976 to 1999, Dr.
Ben-Bassat served as a professor of Information Systems at the Faculty of
Management of Tel-Aviv University. From 1996 to January 1999, Dr. Ben-Bassat
also served as a director of Tadiran Telecommunications Inc., a
telecommunications company. From 1990 to 1996, Dr. Ben-Bassat served as director
of Tadiran Electronic Systems Ltd., a defense electronics company. Dr.
Ben-Bassat holds Bachelor of Science, a Master of Science and a Doctor of
Philosophy degrees in Mathematics and Statistics from Tel-Aviv University.
SHIMON M. ROJANY co-founded ClickService and has served as our Senior Vice
President and Chief Financial Officer since November 1999. From 1989 to the
present, Mr. Rojany has also served as Senior Vice President and Chief Financial
Officer of our U.S. subsidiary. From 1990 to 1999, Mr. Rojany also served as a
Senior Associate with Adizes Institute, Inc., a consulting company. Mr. Rojany
holds a Bachelor of Science degree in Accounting from California State
University at Northridge and a Master of Business Administration in Management
Decision Systems from the University of Southern California and is a certified
public accountant.
DAVID SCHAPIRO has served as our Vice President and General Manager of the
Product Development Group since November 1999. From October 1996 to November
1999, Mr. Schapiro served as the ClickSchedule Division General Manager. Prior
to November 1999, Mr. Schapiro served in various management and marketing
positions at ClickService including Vice President of Business Development.
Since 1984 Mr. Schapiro has served in positions at Applied Materials, a
semiconductor equipment manufacturer, and Scitex Corporation, a digital printing
system company. Mr. Schapiro holds a Bachelor of Science degree in Mathematics
and Computer Science from Tel Aviv University and a Master of Science degree in
Computer Science from Bar Ilan University.
AMI SHPIRO has served as Vice President of European Operations and Managing
Director of ClickService (Europe) Ltd. since October 1996. From 1994 to October
1996, Mr. Shpiro served as Vice President, W-6 division. Prior to 1994, Mr.
Shpiro had various roles in developing the W-6 scheduling system. Mr. Shpiro
holds a Bachelor of Science degree in Computer Science and a Master of Science
degree from the Hebrew University of Jerusalem.
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ROBERT SPINA has served as our Vice President of Sales since March 1999.
From February 1998 to March 1999, Mr. Spina served as our Vice President, Sales,
Eastern Region. From December 1995 to February 1998, Mr. Spina was a Vice
President at Berkeley Software Design, Inc., a provider of internet server
software to service providers and network equipment OEMs. Mr. Spina holds a
Bachelor of Science degree from Utica College.
HANNON CARMELI has served as Vice President and General Manager of the
ClickFix Division since October 1997. From September 1997 to October 1997, Mr.
Carmeli served as Manager of the TechMate Division. From December 1994 to
September 1996, Mr. Carmeli served as Sales Director for Surecomp, a software
vending company. Mr. Carmeli holds a Bachelor of Science degree from the
Technion Institute and a Master of Science degree in Computer Science from
Boston University.
MARK TRIMUE has served as our Vice President for Business Development since
November 1998. From January 1998 to November 1998, Mr. Trimue served as our Vice
President, Sales, Southern Region. From June 1995 to January 1998, Mr. Trimue
served as Vice President of Marketing of Berkeley Software Design, Inc. From
January 1994 to April 1995, Mr. Trimue served as Vice President of Sales
Management and Marketing of Equinox Systems, Inc. Mr. Trimue holds a Bachelor of
Arts degree in Economics from the University of Arkansas.
AMIT BENDOV has served as our Vice President of Product Marketing since
July 1998. From September 1996 to June 1998, Mr. Bendov served as our Director
of Customer Support and Integration. From August 1994 to August 1996, Mr. Bendov
served as our Research and Development Manager. Mr. Bendov holds a Bachelor of
Science degree in Computer Science and Statistics from Tel-Aviv University.
DR. ISRAEL BOROVICH has served as a director of ClickService since July
1997. Since 1988, Dr. Borovich has served as President of Arkia Israeli Airlines
and Knafaim-Arkia Holdings Ltd. Mr. Borovich also serves as a director of
Knafaim-Arkia Holdings, Ltd., Maman-Cargo Terminals & Handling Ltd., Issta Lines
Israel Students Travel Company Ltd., Ogen Investments, Ltd., Granit Hacarmel
Investments, Ltd. and Vulcan Batteries Ltd. Mr. Borovich holds Bachelor of
Science, Master of Science and a Doctor of Philosophy degrees in Industrial
Engineering from the Polytechnic Institute in Brooklyn.
FREDRIC W. HARMAN has served as a director of ClickService since April
1997. Since July 1994, Mr. Harman has served as a General Partner of several
venture capital limited partnerships including Oak VI Affiliates, one of our
shareholders. Mr. Harman also serves as director of ILOG, S.A., Inktomi
Corporation, Primus Knowledge Solutions, Inc., InterNAP Networking Services
Corp. and Quintus Corporation. Mr. Harman holds a Bachelor of Science degree in
Electrical Engineering and a Master of Science degree in Electrical Engineering
from Stanford University and Master of Business Administration degree from the
Harvard Graduate School of Business.
JEFFREY D. SAPER has served as a director of ClickService since December
1999. Since 1980, Mr. Saper has been a member of Wilson Sonsini Goodrich &
Rosati P.C. Mr. Saper also serves on the board of directors of Proxim, Inc., a
wireless local area data networking company. Mr. Saper holds Bachelor of Arts
and Juris Doctor degrees from New York University.
EDDY SHALEV has served as a director of ClickService since April 1997.
Since April 1997, Mr. Shalev has also served as a director of Fundtech Corp. Mr.
Shalev has served as Chief Executive Officer of E. Shalev Ltd. since January
1997 and as the Managing General Partner of E. Shalev Management since 1983. Mr.
Shalev holds a Master of Science degree in Management Information Systems from
Tel-Aviv University.
ZOHAR ZISAPEL has served as a director of ClickService since April 1997.
Since 1982, Mr. Zisapel has served as President of RAD Data Communications,
which he co-founded. Mr. Zisapel is a director of RAD Data Communications and
other companies in the RAD-BYNET group, including RADCOM, RadWare, SILICOM and
RIT. Mr. Zisapel holds Bachelor of Science and Master of Science degrees in
Electrical Engineering from the Technion, Israel Institute of Technology and a
Master of Business Administration degree from Tel-Aviv University.
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ELECTION OF DIRECTORS
An annual general meeting is required to be held at least once in every
calendar year, but not more than fifteen months after the last preceding annual
general meeting. Our articles of association currently provide that the number
of directors shall be no less than two nor more than eleven directors including
independent or external directors. There are no family relationships among any
of the Company's directors, officers or key employees. Pursuant to the Companies
Law the General Manager of a company shall not serve as the chairman of the
board unless it was authorized by the general meeting and for a period of not
more than three years from the date such decision was adopted. Our board of
directors has recommended that the shareholders adopt such a resolution.
Our board of directors will be divided into three classes, only one of
which will be elected each year, having terms of approximately three years each
with the following terms of office:
- Class I directors, whose term will expire at the annual meeting of
shareholders to be held in 2001;
- Class II directors, whose term will expire at the annual meeting of
shareholders to be held in 2002; and
- Class III directors, whose term will expire at the annual meeting of
shareholders to be held in 2003.
The Class I directors shall initially consist of Dr. Borovich and Mr.
Harmon, the Class II directors shall initially consist of Mr. Zisapel and Mr.
Saper and the Class III directors shall initially consist of Dr. Ben-Bassat and
Mr. Shalev.
Directors whose class is up for election will be elected by shareholders at
our annual general meeting and hold office until the annual general meeting held
in the third year following the year of their election. Vacancies on the board
of directors may be filled by a majority of the directors then in office. A
director so chosen will hold office until the next annual general meeting.
Our ordinary shares do not have cumulative voting rights in the election of
directors, which means that the holders of ordinary shares conferring more than
50% of the voting power represented in person or by proxy and voting on the
election of directors at a general meeting have the power to elect all of the
directors and, in such event, holders of the remaining ordinary shares will not
be able to elect any directors. See also "Risk Factors -- Risks Relating to this
Offering -- Our officers, directors and affiliated entities own a large
percentage of ClickService and could significantly influence the outcome of
actions."
EXTERNAL AND INDEPENDENT DIRECTORS
Under the Companies Law, Israeli companies whose shares have been offered
to the public in or outside of Israel are required to appoint two people to
serve as external directors on the board of directors of a company. The
Companies Law provides that a person may not be appointed as an external
director if the person or the person's relative, partner, employer or any entity
has at the date of appointment, or has had at any time during the two years
preceding that date, any affiliation with the company, any entity controlling
the company or any entity controlled by the company or by this controlling
entity. The term "affiliation" includes:
- an employment relationship;
- business or professional relationship maintained on a regular basis;
- control; or
- service as an officer.
No person can serve as an external director if the person's position or
other business creates, or may create, conflict of interests with the person's
responsibilities as an external director or if such position or other business
may impair such director's ability to serve as an external director. No person
who is a director in one company can serve as an external director in another
company, if at that time a director of
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the other company serves as an external director in the first company. The
Companies Law further provides that when, at the time of appointment of an
external director, all members of the board of directors of the company are of
one gender, then the external director appointed shall be of the other gender.
External directors are appointed by a majority vote at a shareholders'
meeting, provided that either: (1) the majority of shares voted at the meeting,
including at least one third of the shares of non-controlling shareholders voted
at the meeting, vote in favor of appointment of the director or (2) the total
number of shares of non-controlling shareholders voted against the election of
the director does not exceed one percent of the aggregate voting rights in the
company. The initial term of an external director will be three years and may be
extended for an additional three-year period. Each committee of a company's
board of directors will be required to include at least one external director
and all external directors must be members of the company's audit committee.
Regulations promulgated under the Companies Law provide that the applicability
of the Companies Law with respect to the nomination by foreign traded companies
shall commence on August 1, 2000. At such time, we shall be required to appoint
two external directors. As required by the Companies Law, since all the members
of our Board of Directors are men, one of the external directors must be a
woman.
In addition, we are obligated under the requirements for quotation on the
Nasdaq National Market to have at least two independent directors on our board
of directors, who also may serve as external directors under the Companies Law,
and to establish an audit committee, at least a majority of whose members are
independent of management. We intend to appoint a director in addition to Dr.
Israel Borovich, who will qualify as an independent director under the Nasdaq
National Market requirements. Dr. Borovich may not serve as an external
director.
An external director is entitled to consideration and to the refund of
expenses, only as provided in regulations adopted under the Companies Law and is
otherwise prohibited from receiving any other consideration, directly or
indirectly, in connection with service provided as an external director.
Nevertheless, the grant of an exemption from liability for breach of fiduciary
duty or duty of care, an undertaking to indemnify, indemnification or insurance
under the provisions of the Companies Law shall not be deemed as consideration.
Under the Companies Law, an external director cannot be dismissed from the
office unless:
- the board of directors determines that the external director no longer
meets the requirements for holding such office, as set forth in the
Companies Law or that the director is in breach of his or her fiduciary
duties to the company and the shareholders of the company vote (by the
same majority required for the appointment) to remove the external
director after the external director has been given the opportunity to
present his or her position;
- an Israeli court determines, upon a request of a director or a
shareholder, that the director no longer meets the requirements for
holding such office as set forth in the Companies Law or that the
director is in breach of his or her fiduciary duties to the company; or
- the court determines, upon a request of the company or a director,
shareholder or creditor of the company, that the external director is
unable to fulfill his or her duty or has been convicted of certain crimes
as specified in the Companies Law.
DUTY OF CARE AND FIDUCIARY AND LOYALTY DUTIES
The Companies Law codifies the duty of care and fiduciary and loyalty
duties that an officer owes to a company. The term officer includes any
director, managing director, general manager, chief executive officer, executive
vice president, vice president, other managers who are directly subject to the
general manager and any other person fulfilling or assuming any of these
positions or responsibilities without regard to such person's title. The
fiduciary and loyalty duties of an officer include:
- avoiding any conflict of interest between the officer's position with the
company and his personal affairs;
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<PAGE> 51
- avoiding any competition with the company;
- avoiding exploiting any of the company's business opportunities in order
to receive personal advantage for himself or others; and
- revealing to the company any information or documents relating to the
company's affairs which the officer has received due to his position as
an officer of the company.
In addition, the Companies Law requires disclosure by an officer to the
company in the event that an office holder is aware of a "personal interest" in
any transaction or proposed transaction of the company (including, generally, a
personal interest of certain relatives in an extraordinary transaction of the
company).
AUDIT COMMITTEE, INTERNAL AUDITOR AND CERTIFIED PUBLIC ACCOUNTANT
The Companies Law provides that public companies must appoint an audit
committee of the board of directors. The number of members of the audit
committee shall not be fewer than three and it shall include all of the external
directors. The chairman of the board of directors, any director who is employed
by the company or gives services to the company, on a regular basis, a
controlling shareholder or his relative cannot be a member of the audit
committee. Our audit committee consists of Mr. Borovich and two members to be
appointed.
Under the Companies Law, the board of directors must also appoint an
internal auditor in accordance with the recommendations of the audit committee.
The role of the internal auditor is to examine, among other matters, whether the
company's actions comply with the law, integrity and orderly business procedure.
The internal auditor may be an employee of the company but not a person holding
5% or more of a company's capital, a person who has the power to appoint one or
more directors or the general manager, an officer, or an affiliate or relative
of an office holder, and may not be the company's certified public accountant or
its representative. We intend to appoint an internal auditor shortly after this
offering. In addition, under the Companies Law, all companies must appoint a
certified public accountant to audit the company's financial statements.
APPROVAL OF SPECIAL TRANSACTIONS UNDER ISRAELI LAW
Each person listed in the table under "-- Directors and Executive Officers"
above is an officer. Under the Companies Law, the approval of the board of
directors is required only for arrangements with respect to compensation of a
company's chief executive officer. Arrangements regarding the compensation of
directors also require audit committee and shareholder approval.
The Companies Law requires that an officer or a controlling shareholder in
a public company, including an Israeli company that is publicly traded outside
of Israel, promptly disclose any personal interest that he may have and all
related material information known to him, in connection with any existing or
proposed transaction by the company (an office holder and a controlling
shareholder are under no such duty of disclosure when the personal interest
stems only from the personal interest of a relative in a transaction that is not
exceptional). In addition, if the transaction is an exceptional transaction, as
defined in the Companies Law, the officer must also disclose any personal
interest held by the officer's spouse, siblings, parents, grandparents,
descendants, spouse's descendants and the spouse of any of the foregoing, or by
a corporation in which the officer is a 5% or greater shareholder, director or
general partner or in which he or she has the right to appoint at least one
director or the general manager. The disclosure must be made without delay and
not later than the board of directors meeting as which the transaction is first
discussed. For these purposes, the definition of a controlling shareholder under
the Companies Law includes a shareholder that holds 25% or more of the voting
rights in a company, unless another shareholder holds more than 50% of the
voting rights (if two or more shareholders are interested parties in the same
transaction their shareholdings shall be deemed cumulative).
Once the officer or controlling shareholder complies with these disclosure
requirements, the company may approve the transaction in accordance with the
provisions of the Companies Law and its articles of
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association. Generally, the approval of the majority of the disinterested
members of the audit committee and the board of directors is required and, in
certain circumstances, shareholder approval may also be required. If the
transaction is with an officer or with a third party in which the officer or the
controlling shareholder has a personal interest, the approval must confirm that
the transaction is not adverse to the company's interest. Furthermore, if the
transaction is an exceptional transaction then, in addition to any approval
stipulated by the articles of association of the company, it also must be
approved by the company's audit committee and then by its board of directors.
The audit committee of a public company, and commencing August 1, 2000, an
Israeli company that is publicly traded outside of Israel, shall not be entitled
to grant any such approval, unless, at the time the approval was given, two
members of the audit committee were external directors and at least one of them
was present at the meeting at which the audit committee decided to grant the
approval. An exceptional transaction is a transaction other than in the ordinary
course of business, otherwise than on market terms or that is likely to have a
material impact on the company's profitability, assets or liabilities. Under
certain circumstances, shareholder approval is also required. For example,
shareholders must approve all compensation paid to directors in whatever
capacity, company's undertaking to indemnify a director or indemnification under
a permit to indemnify and any transaction in which a majority of the board
members have a personal interest. An office holder with a personal interest in
any matter may not be present at any audit committee or board of directors
meeting where such matter is being approved, and may not vote thereon.
Shareholders' approval for an exceptional transaction must include at least one
third of the shareholders who have no personal interest in the transaction and
are present at the meeting. However, the transaction can be approved by
shareholders without this one-third approval if the total shareholdings of those
who vote against the transaction do not represent more than one percent of the
voting rights in the company, unless the Minister of Justice shall determine a
different percentage.
In addition, the issue of shares by a public company, other than by way of
a public offering, to a 5% shareholder or to someone who, as a result of such
issue, shall become a 5% shareholder, requires the approval of the board of
directors and the shareholders at the general meeting.
For information concerning the direct and indirect personal interests of
certain Office Holders and principal shareholders of ClickService in certain
transactions with ClickService, see "Certain Transactions."
DUTY OF SHAREHOLDERS
Under the Companies Law, in exercising their rights and in fulfilling their
obligations to the company and the other shareholders, shareholders must act in
good faith and in a customary manner and refrain from abusing their power when,
among other things, voting at general or class meetings on any amendment of the
articles of association, an increase of the company's registered (authorized)
share capital, a merger or approval of certain acts and transactions which
require shareholder approval. The laws governing breach of contract apply, with
the necessary modifications, to breach of the above obligations. Furthermore, a
shareholder who may control the company, a shareholder who knows that his vote
will be decisive at a general or class meeting and a shareholder who has the
power to appoint or prevent the appointment of an office holder or who has any
other power with respect to the company, must act fairly towards the company.
Any breach by any such shareholder of these obligations is treated in the same
way as a breach by an office holder of his fiduciary duty, with the necessary
modifications.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Companies Law permits a company to insure an officer in respect of
liabilities incurred by him by reason of acts or omissions committed in his
capacity as an officer with respect to: a breach of the officer's duty of care
to the company or to another person, or a breach of the officer's fiduciary duty
to the company, to the extent that he acted in good faith and had reasonable
cause to believe that the act would not prejudice the company. Furthermore, the
Companies Law provides that a company can indemnify an officer for monetary
liabilities or obligations imposed upon him in favor of other persons pursuant
to a court judgement, including a compromise judgement or an arbitrator's
decision approved by a court, and
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reasonable litigation expenses, including attorney's fees, actually incurred by
the officer or imposed upon him by a court, in an action, suit or proceedings
brought against him by or on behalf of the company or by other persons, in
connection with a criminal action from which he was acquitted or in connection
with a criminal action which does not require intent in which he was convicted,
in each case by reasons of acts or omissions of such person in his capacity as
officer.
Furthermore, the Companies Law provides that the company's articles of
association may provide for indemnification of an officer post-factum and may
also provide that a company may undertake to indemnify an officer in advance,
provided such undertaking is limited to types of occurrences which, in the
opinion of the company's board of directors, are, at the time of the
undertaking, foreseeable and, to an amount the board of directors has determined
is reasonable in the circumstances.
Our articles of association allow us to insure and indemnify officers to
the fullest extent permitted by law. We intend to enter into indemnification
agreements with each of our officers and directors.
COMPENSATION COMMITTEE, INSIDER PARTICIPATION AND INTERLOCK
Our compensation committee consists of Messrs. Harman and Shalev.
None of the current members of our compensation committee is an officer or
employee of ClickService. No interlocking relationship exists between our board
of directors or compensation committee and the board of directors or
compensation committee of any other company, nor has such an interlocking
relationship existed in the past.
DIRECTOR COMPENSATION
Our directors may be compensated for their service as directors to the
extent such compensation is approved as required by the Companies Law. This
approval will generally require the approvals of our audit committee, our board
of directors and our shareholders.
Other than Mr. Saper, our directors who are not executive officers do not
receive cash compensation for their service on the board of directors or any
board of directors committee. However, all non-management directors are
reimbursed for their expenses for each board of directors meeting attended. Mr.
Saper receives annual compensation of $15,000 and an additional $1,000 for each
board meeting he attends.
As of the date of this offering, options to purchase 810,000 ordinary
shares granted to our directors are outstanding. The weighted average exercise
price of these options is $2.03 per share. Of these options, options to purchase
130,427 ordinary shares are currently exercisable or will become exercisable
within 60 days of December 31, 1999. The options to purchase 810,000 ordinary
shares excludes an option and fully-exercisable warrant, each exercisable into
75,000 shares at a price of $3.67 per share, granted to Jeffrey D. Saper in
connection with consulting services provided to us related to the offering.
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EXECUTIVE COMPENSATION
The following table sets forth all compensation paid or accrued during 1999
to our Chief Executive Officer and our four other most highly compensated
executive officers whose salary and bonus for the fiscal year ended December 31,
1999 was more than $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS
- --------------------------- -------- -------- ------------
<S> <C> <C> <C>
Moshe Ben-Bassat
Chief Executive Officer................................ $190,000 $160,000 $720,000
Amit Bendov
Vice President, Product Marketing...................... 105,000 48,120 9,000
Ami Shpiro
Vice President and General Manager, Europe
Operations............................................. 146,700 82,180 6,781
Robert Spina
Vice President, Sales.................................. 83,917 66,484 21,000
Mark Trimue
Vice President, Business Development and Channels
Development............................................ 126,663 38,753 24,000
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information relating to stock options awarded
to each of the Named Executive Officers during the year ended December 31, 1999.
Other than the options granted to Moshe Ben-Bassat, all such options were
awarded under our 1999 Option Plans and generally vest over four years.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
----------------------------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF
SECURITIES TOTAL OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED FOR OPTIONS TERM(3)
OPTIONS IN FISCAL EXERCISE EXPIRATION ------------------------
NAME GRANTED 1999(2) PRICE DATE 5% 10%
- ---- ---------- ------------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Moshe Ben-Bassat
Chief Executive
Officer................ 720,000(1) 50.7% $1.83 12/31/07
Amit Bendov
Vice President, Product
Marketing.............. 9,000 0.6% $0.83 12/31/07
Ami Shpiro
Vice President and
General Manager, Europe
Operations............. 6,781 0.5% $0.83 12/31/07
Robert Spina
Vice President,
Sales.................. 21,000 1.4% $0.83 12/31/07
Mark Trimue
Vice President,
Business Development
and Channels
Development............ 24,000 1.6% $0.83 12/31/07
</TABLE>
- ---------------
(1) The options granted to Dr. Ben-Bassat vest over a period of 41 months.
(2) Based on an aggregate of 1,493,809 options and warrants we granted in the
year ended December 31, 1999 to our employees, directors and consultants,
including the Named Executive Officers.
(3) The potential realizable value is calculated based on the term of the option
at its time of grant (up to 8 years). In accordance with the rules of the
Securities and Exchange Commission, this table also
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sets forth the potential realizable value over the term of the options (the
period from the grant date to the expiration date) based on assumed rates of
share appreciation of 5% and 10% compounded annually. These amounts do not
represent our estimate of future share price performance. Actual realizable
values, if any, of stock options will depend on the future performance of
the ordinary shares.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table set forth information for each of the Named Executive
Officers concerning option exercises for the fiscal year ended December 31,
1999, and exercisable and unexercisable options held at December 31, 1999. The
Named Executive Officers did not exercise any options during the fiscal year
ended December 31, 1999.
The value of unexercised in-the-money options at December 31, 1999 is based
on a value of $ per share of our ordinary shares, which is the assumed
initial public offering price, less the per share exercise price, multiplied by
the number of shares issuable upon exercise of the option. All options other
than those held by Dr. Ben-Bassat were granted under our 1996 Stock Plan, our
1997 Stock Plan, our 1998 Stock Plan or our 1999 Stock Plans.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT DECEMBER 31, 1999 DECEMBER 31, 1999
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Moshe Ben-Bassat........................... 87,805 632,195 $ $
Chief Executive Officer
Amit Bendov................................ 131,315 59,785
Vice President, Product Marketing
Ami Shpiro................................. 13,697 22,566
Vice President and General Manager,
Europe Operations
Robert Spina............................... 10,125 37,875
Vice President, Sales
Mark Trimue................................ 11,000 37,000
Vice President, Business Development and
Channels Development
</TABLE>
MANAGEMENT EMPLOYMENT AGREEMENTS
We have entered into employment agreements with Dr. Moshe Ben-Bassat, our
Chief Executive Officer, and Shimon Rojany, our Chief Financial Officer. The
agreements provide that the executives' employment relationships are "at-will"
and may be terminated at any time by either us or the executive with or without
cause or notice. The agreements provide that in the event the executive is
terminated by us without cause, the executive shall be entitled to severance
payments (to be paid in a lump sum or monthly at the executive's discretion) in
amounts equal to twelve months of annual base salary as of the date of
termination for Dr. Ben-Bassat and six months of the annual base salary as of
the date of termination for Mr. Rojany. Dr. Ben-Bassat is also entitled to full
acceleration of option vesting in the event of a change in control. The
executive's right to receive the benefits set forth above will immediately
terminate if the executive competes with us during the six or twelve months
following termination of employment with us.
OPTION PLANS AND OTHER OPTIONS AND WARRANTS
The purpose of our option plans is to afford an incentive to employees and
consultants of ours, or any of our subsidiaries, to acquire a proprietary
interest in us, to continue as officers, directors, employees and consultants,
to increase their efforts on behalf of us and to promote the success of our
business.
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We currently maintain five existing option plans, the 1996 Option Plan, the
1997 Option Plan, the 1998 Option Plan and the two 1999 Option Plans. As of the
date of this offering, options to purchase 2,665,034 ordinary shares were
outstanding under our existing option plans, stand-alone options and a warrant.
The weighted average exercise price of options outstanding under our option
plans is $1.17. We do not intend to grant additional options under these plans.
Our option plans are administered by our board of directors and, following
the closing of this offering, the compensation committee of our board of
directors. Under the option plans, options to purchase our ordinary shares may
be granted to officers, directors, employees or consultants of ours or our
subsidiaries. In addition, pursuant to the option plans, the exercise price of
options shall be determined by our compensation committee but may not be less
than the par value of the ordinary shares. The vesting schedule of the options
is also determined by our compensation committee but generally the options vest
over a three to four year period. Each option granted under the option plans is
exercisable until the expiration date of the respective option plans.
2000 SHARE OPTION PLAN
Our 2000 Share Option Plan was adopted by our board of directors on
February 10, 2000, and will be approved by our shareholders prior to the
offering. This plan provides for the grant of incentive stock options within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended, to our
employees and nonstatutory stock options to our employees, directors and
consultants. Prior to consummation of the offering a total of 3,000,000 ordinary
shares will be reserved for issuance pursuant to the plan. No options have yet
been issued pursuant to the plan. The number of ordinary shares reserved for
issuance under the plan will increase annually on January 1 of each calendar
year, effective beginning in 2001, equal to the lesser of 5% of the outstanding
shares on the first day of the year, 1,250,000 shares or such lesser amount as
our board of directors may determine. Our board of directors or a committee of
our board administers the plan. The committee may consist of two or more
"outside directors" to satisfy certain tax and securities requirements. The
administrator has the power to determine the terms of the options granted,
including the exercise price, the number of shares subject to each option, the
exercisability of the options and the form of consideration payable upon
exercise. The administrator determines the exercise price of options granted
under our share option plan, but with respect to incentive stock options, the
exercise price must at least be equal to the fair market value of our ordinary
shares on the date of grant. The administrator may reduce the exercise price of
any option if the fair market value of the shares covered by such option has
declined since the date of grant. Additionally, the term of an incentive stock
option may not exceed ten years. No optionee may be granted an option to
purchase more than 1,000,000 shares in any fiscal year. In connection with his
or her initial service, an optionee may be granted an additional option to
purchase up to 1,000,000 ordinary shares. After termination of one of our
employees, directors or consultants, he or she may exercise his or her option
for the period of time stated in the option agreement. If termination is due to
death or disability, the option will generally remain exercisable for 12 months
following such termination. In all other cases, the option will generally remain
exercisable for 3 months. An option may never be exercised later than the
expiration of its term. Unless otherwise determined by the administrator, the
share option plan generally does not allow for the transfer of options and only
the optionee may exercise an option during his or her lifetime. Our share option
plan provides that in the event of our merger with or into another corporation
or a sale of substantially all of our assets, the successor corporation will
assume or substitute for each option. If the outstanding options are not assumed
or substituted, all outstanding options will accelerate and become fully vested
prior to the closing of such merger or sale of assets. In the event of a bonus
share or share dividend, optionees exercising options shall be entitled to
receive the number of shares underlying their options plus any bonus shares or
share dividends declared between the date of grant and the date of exercise. The
plan will automatically terminate in 2010, unless we terminate it sooner. In
addition, our board of directors has the authority to amend, suspend or
terminate the plan provided it does not adversely affect any option previously
granted under the plan. In the event of our dissolution or liquidation, the
administrator, in its discretion, may provide that the options will vest and be
exercisable until fifteen days prior to such transaction.
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<PAGE> 57
2000 EMPLOYEE SHARE PURCHASE PLAN
Concurrently with this offering, we intend to establish a 2000 Employee
Share Purchase Plan. A total of 800,000 ordinary shares will be made available
for sale under the plan. In addition, our plan provides for annual increases in
the number of shares available for issuance under the plan on January 1 of each
year, beginning in 2001, equal to the lesser of 2% of the outstanding shares on
the first day of the calendar year, 500,000 shares, or such other lesser amount
as may be determined by our board of directors. All of our employees are
eligible to participate if they are customarily employed by us or any
participating subsidiary for at least 20 hours per week and more than five
months in any calendar year. However, an employee may not be granted the right
to purchase shares under the plan if such employee:
- immediately after the grant would own shares possessing 5% or more of the
total combined voting power or value of all classes of our capital
shares, or
- whose rights to purchase shares under all of our employee share purchase
plans accrues at a rate that exceeds $25,000 worth of shares for each
calendar year.
Our plan is intended to qualify for preferential tax treatment and contains
consecutive six-month offering periods. The offering periods generally start on
the first trading day on or after May 1 and November 1 of each year, except for
the first such offering period which will commence on the first trading day on
or after the effective date of this offering and will end on the last trading
day on or before October 31, 2000.
The plan permits participants to purchase ordinary shares through payroll
deductions of up to 12% of their eligible compensation which includes a
participant's base straight time gross earnings but excludes all other
compensation paid to our employees. A participant may purchase no more than
5,000 shares during any six-month offering period.
Amounts deducted and accumulated by the participant are used to purchase
full ordinary shares at the end of each six-month offering period. The exercise
price will be 85% of the lower of the fair market value of our ordinary shares
at the beginning or end of an offering period. Participants may end their
participation at any time during an offering period, and will be paid their
payroll deductions to date. Participation ends automatically upon termination of
employment with us.
A participant may not transfer rights granted under our employee share
purchase plan other than by will, the laws of descent and distribution or as
otherwise provided under the plan.
In the event of our merger with or into another corporation or a sale of
all or substantially all of our assets, a successor corporation may assume or
substitute each outstanding option. If the successor corporation refuses to
assume or substitute for the outstanding right, the offering period then in
progress will be shortened, and a new exercise date will be set. In the event of
a dissolution or liquidation, an offering period in progress will be shortened
by setting a new exercise date to precede the date of such transaction unless
otherwise provided by our board.
Our plan will terminate in 2010. However, our board of directors has the
authority to amend or terminate our plan, except that, subject to certain
exceptions described in the plan, no such action may adversely affect any
outstanding rights to purchase shares under our plan.
401(k) Plan
We provide a tax-qualified employee savings and retirement plan, commonly
known as a 401(k) plan, which covers our eligible employees in the United
States. Under our 401(k) plan, United States employees may elect to reduce their
current annual compensation, on a pre-tax basis, up to the lesser of 15% or the
statutorily prescribed limit, which was $10,000 in calendar year 1999 and will
be $10,500 in calendar year 2000, and have the amount of the reduction
contributed to the 401(k) plan. The 401(k) plan is intended to qualify under
Sections 401(a) and 401(k) of the Internal Revenue Code so that contributions by
our employees to the 401(k) plan and income earned on plan contributions are not
taxable to employees until withdrawn from the 401(k) plan and so that
contributions will be deductible by us when made. The trustee of the 401(k) plan
invests the assets of the 401(k) plan in the various investment options as
directed by the participants.
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CERTAIN TRANSACTIONS
STOCK AND WARRANT ISSUANCES
On April 13, 1997, we sold 2,810,424 Series A-1 Convertible Preferred
Shares at a price of $0.9785 per share. On April 12, 1997, August 5, 1997 and
October 15, 1997, we sold an aggregate of 2,299,438 Series A Convertible
Preferred Shares at a price of $0.9785 per share. On March 23, 1998, we sold
3,826,809 Series B Convertible Preferred Shares pursuant to the conversion of
previous issued convertible notes at a price of $1.9598 per share. On November
2, 1998, we sold 2,731,141 Series C Convertible Preferred Shares at a price of
$2.3207 per share. On December 15, 1999, we sold 1,832,086 shares of Series D
Convertible Preferred Shares at a price of $6.2770 per share. Upon the
consummation of this offering, all of the outstanding Series A-1 Convertible
Preferred Shares, Series A Convertible Preferred Shares, Series B Convertible
Preferred Shares, Series C Convertible Preferred Shares and Series D Convertible
Preferred Shares will automatically convert into ordinary shares on a
one-for-one basis. The following directors, executive officers and holders of
more than 5% of a class of voting securities purchased Series A-1 Convertible
Preferred Shares, Series A Convertible Preferred Shares, Series B Convertible
Preferred Shares, Series C Convertible Preferred Shares and Series D Convertible
Preferred Shares:
<TABLE>
<CAPTION>
SHARES OF SHARES OF SHARES OF SHARES OF SHARES OF
SERIES A-1 SERIES A SERIES B SERIES C SERIES D
PURCHASER PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED
- --------- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Moshe Ben-Bassat.................. -- 51,098 237,772 -- --
Shimon M. Rojany.................. -- 102,197 -- -- --
Jeffrey D. Saper.................. -- -- -- -- 14,736
Zohar Zisapel..................... -- 229,944 194,122 -- --
5% SHAREHOLDERS
Entities affiliated with Oak
Investment Partners............. 2,810,424 -- 922,070 861,797 --
Entities affiliated with Genesis
Partners........................ -- 1,686,254 568,550 538,624 --
Entities affiliated with Worldview
Technology Partners............. -- -- 1,530,724 1,292,696 --
Entities affiliated with MeriTech
Capital Partners................ -- -- -- -- 1,752,430
</TABLE>
- ---------------
See the notes to table of beneficial ownership in "Principal Shareholders" for
information relating to the beneficial ownership of such shares.
Concurrent with the issuance of Series B Convertible Preferred Shares in
April 1998, we issued warrants to purchase an aggregate of 393,552 Series B
Convertible Preferred Shares with an exercise price of $1.9598 per share and
warrants to purchase 18,926 Ordinary Shares with an exercise price of $0.58 per
share. The following directors, executive officer and holders of more than 5% of
our outstanding preferred shares received warrants to purchase Series B
Convertible Preferred Shares:
<TABLE>
<CAPTION>
NUMBER OF SERIES B
PURCHASER WARRANT SHARES
- --------- ------------------
<S> <C>
Entities affiliated with Oak Investment Partners............ 129,736
Entities affiliated with Genesis Partners................... 77,842
Moshe Ben-Bassat............................................ 88,277
Zohar Zisapel............................................... 26,578
</TABLE>
In November 1999, Jeffrey D. Saper, one of our directors, received an
option and fully-exercisable warrant each exercisable into 75,000 shares at a
price of $3.67 per share, in connection with consulting services provided to us
related to the offering.
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<PAGE> 59
In connection with the purchase of their shares of Series D Convertible
Preferred, in we granted entities affiliated with MeriTech Capital
Partners a warrant to purchase Ordinary Shares with an exercise price of
$ .
OTHER AGREEMENTS WITH SHAREHOLDERS
In early 1997 ClickService spun off its textile software operations to
Nester, Ltd., a private Israeli company controlled by Moshe Ben-Bassat and other
ClickService shareholders. ClickService provides administrative services to
Nester in consideration for an annual payment of approximately $48,000. In
addition, Nester uses a portion of our Israeli office space and equipment for
which they are charged on a per employee basis. As of December 31, 1999, Nester
owed us approximately $139,000.
We have sublet approximately 650 square meters of our facilities in Israel
to a company in which Zohar Zisapel, a director of ClickService, has a
significant interest. This sub-lease is until August 2001 with an option for an
additional 12 months at a monthly rental of $11,050.
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<PAGE> 60
PRINCIPAL SHAREHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our ordinary shares as of December 31, 1999 and as adjusted to
reflect the sale of ordinary shares being offered by us, for:
- each person or group known by us to beneficially own more than 5% of our
outstanding ordinary shares;
- each of our Named Executive Officers;
- each of our directors; and
- all of our executive officers and directors as a group.
Beneficial ownership of ordinary shares is determined in accordance with
the rules of the Securities and Exchange Commission and generally includes any
ordinary shares over which a person exercises sole or shared voting or
investment powers, or of which a person has a right to acquire ownership at any
time within 60 days of December 31, 1999. Except as otherwise indicated, and
subject to applicable community property laws, the persons named in this table
have sole voting and investment power with respect to all ordinary shares held
by them. Applicable percentage ownership in the following table is based on
20,708,744 shares outstanding as of December 31, 1999 and
ordinary shares outstanding immediately following completion of this offering.
These numbers assume the conversion of all outstanding preferred shares into
ordinary shares.
Unless otherwise indicated below, the address of each of the principal
shareholders is c/o ClickService Software Ltd., 34 Habarzel Street, Tel Aviv,
Israel.
<TABLE>
<CAPTION>
ORDINARY SHARES BENEFICIALLY ORDINARY SHARES BENEFICIALLY
OWNED PRIOR TO THE OFFERING OWNED AFTER THE OFFERING
----------------------------- ----------------------------
NAME AND ADDRESS NUMBER PERCENTAGE NUMBER PERCENTAGE
- ---------------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
NAMED EXECUTIVE OFFICERS AND DIRECTORS
Moshe Ben-Bassat(1)......................... 4,441,091 21.9% 4,441,091 %
Amit Bendov(2).............................. 142,228 * 142,228
Ami Shpiro(3)............................... 184,598 * 184,598
Robert Spina(4)............................. 13,500 * 13,500
Hannan Carmeli(5)........................... 19,324 * 19,324
Mark Trimue(6).............................. 12,000 * 12,000
Israel Borovich(7).......................... 1,250 * 1,250
Jeffrey D. Saper(8)......................... 95,986 * 95,986
Zohar Zisapel(9)............................ 629,945 3.0% 629,945
Frederic W. Harman(10)...................... 4,724,027 22.8% 4,724,027 %
c/o Oak Investment Partners
525 University Avenue, Suite 1300
Palo Alto, CA 94301
Eddy Shalev(11)............................. 2,871,270 13.9% 2,871,270 %
c/o Genesis Partners
50 Dizengoff Street
Tel-Aviv 64332, Israel
5% SHAREHOLDERS
Entities affiliated with Oak Investments
Partners(10).............................. 4,724,027 22.8% 4,724,027 %
525 University Avenue, Suite 1300
Palo Alto, CA 94301
</TABLE>
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<PAGE> 61
<TABLE>
<CAPTION>
ORDINARY SHARES BENEFICIALLY ORDINARY SHARES BENEFICIALLY
OWNED PRIOR TO THE OFFERING OWNED AFTER THE OFFERING
----------------------------- ----------------------------
NAME AND ADDRESS NUMBER PERCENTAGE NUMBER PERCENTAGE
- ---------------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Entities affiliated with Worldview
Technology Partners(12)................... 2,823,421 13.6% 2,823,421 %
435 Tasso Street, Suite 120
Palo Alto, CA 94301
Entities affiliated with Genesis
Partners(11).............................. 2,871,270 13.9% 2,871,270 %
50 Dizengoff Street
Tel-Aviv 64332, Israel
Entities affiliated with MeriTech Capital
Associates L.L.C.(13)..................... 1,828,630 8.8% 1,828,630 %
90 Middlefield Road, Suite 201
Menlo Park, CA 94025
All executive officers and directors as a
group (13 persons)........................ 13,752,288 67.2% 13,752,288 %
</TABLE>
- ---------------
(1) Includes 2,220,545 shares held by Dr. Ben-Bassat's spouse, Idit Ben-Bassat.
Dr. Ben-Bassat disclaims beneficial ownership of these shares. Includes
options to purchase 122,927 ordinary shares exercisable within 60 days of
December 31, 1999 held by Dr. Ben-Bassat.
(2) Includes options to purchase 138,328 Ordinary Shares exercisable within 60
days of December 31, 1999 held by Mr. Bendov.
(3) Includes options to purchase 13,861 Ordinary Shares exercisable within 60
days of December 31, 1999 held by Mr. Shpiro.
(4) Includes options to purchase 13,500 Ordinary Shares exercisable within 60
days of December 31, 1999 held by Mr. Spina.
(5) Includes options to purchase 19,324 Ordinary Shares exercisable within 60
days of December 31, 1999 held by Mr. Carmeli.
(6) Includes options to purchase 12,000 Ordinary Shares exercisable within 60
days of December 31, 1999 held by Mr. Trimue.
(7) Includes options to purchase 1,250 Ordinary Shares exercisable within 60
days of December 31, 1999 held by Mr. Borovich.
(8) Excludes 15,931 shares beneficially owned by an investment partnership
composed of certain current and former members of and persons associated
with Wilson Sonsini Goodrich & Rosati, P.C. Jeffrey D. Saper is a member of
Wilson Sonsini Goodrich & Rosati, P.C. Includes options to purchase 6,250
Ordinary Shares exercisable within 60 days of December 31, 1999 held by Mr.
Saper. Includes a warrant to purchase 75,000 Ordinary Shares held by Mr.
Saper which is currently exercisable.
(9) Includes 99,556 Ordinary Shares beneficially owned by Klil and Michael Ltd.
and 99,555 shares beneficially owned by Lumsha Ltd. Mr. Zisapel is a
trustee of Klil and Michael Ltd. and Lumsha Ltd. Mr. Zisapel disclaims
beneficial ownership of these shares.
(10) Includes 4,616,320 shares held by Oak Investment Partners VI, L.P., and
107,707 shares held by Oak Affiliates Fund, L.P. Mr. Harman is a managing
member of Oak Investment Partners VI, L.P. and Oak Affiliates Fund, L.P.
Mr. Harman disclaims beneficial ownership of these shares, except for his
proportional interest therein, if any. Includes ordinary shares
and non-voting shares.
(11) Includes 1,950,167 shares held by Genesis Partners I L.P. and 921,103
shares held by Genesis Partners I (Cayman) L.P. Eddy Shalev is a managing
general partner of Genesis Partners I, L.P. and Genesis Partners (Cayman)
L.P. Mr. Shalev disclaims beneficial ownership of these shares, except for
his proportional interest therein, if any.
60
<PAGE> 62
(12) Includes 1,913,029 shares held by Worldview Technology Partners I, L.P.,
745,612 shares held by Worldview Technology International I, L.P. and
164,780 shares held by Worldview Strategic Partners I, L.P.
(13) Includes 1,799,372 shares held by MeriTech Capital Partners L.P., and
29,258 shares held by MeriTech Capital Affiliates L.P.
61
<PAGE> 63
DESCRIPTION OF SHARE CAPITAL
DESCRIPTION OF SHARES
Set forth below is a summary of the material provisions governing our share
capital. This summary is not complete and should be read together with our
Memorandum of Association and Articles of Association, a copy of each of which
has been filed as an exhibit to the Registration Statement of which this
prospectus forms a part.
As of the date of this offering, our authorized share capital will consist
of 105,000,000 shares, NIS 0.02 nominal value per share, including 98,000,000
ordinary shares, 2,000,000 non-voting ordinary shares and 5,000,000 preferred
shares. As of December 31, 1999, there were 20,708,744 ordinary shares issued
and outstanding and there were approximately 80 holders of our ordinary shares.
DESCRIPTION OF ORDINARY SHARES
On , 2000, our shareholders approved the increase of our
authorized share capital to 100,000,000 ordinary shares, NIS 0.02 par value per
ordinary share, effective immediately prior to the completion of this offering.
Immediately prior to the completion of this offering, each preferred share will
automatically convert into one ordinary share. On , 2000, our
shareholders approved a 1-for-2 reverse stock split for each share outstanding
as of the record date and the issuance of bonus shares at a rate of 6 bonus
shares for every 5 shares held, effective immediately prior to the completion of
this offering. The effect of these transactions will be a 3 for 5 reverse share
split. Immediately following the reverse share split and distribution of the
share dividend, there will be 20,708,744 ordinary shares issued and outstanding.
Upon completion of this offering, all outstanding ordinary shares,
including the ordinary shares issued in this offering, will be validly issued
and fully paid and will not have preemptive rights. The ownership or voting of
ordinary shares by non-residents of Israel is not restricted in any way by our
memorandum of association, our articles of association or the laws of the State
of Israel, except that nationals of certain countries which are, or have been,
in a state of war with Israel may not be recognized as owners of ordinary
shares.
Transfer of Shares and Notices. Fully paid ordinary shares are issued in
registered form and may be freely transferred pursuant to our articles of
association unless such transfer is restricted or prohibited by another
instrument. Pursuant to the Companies Law, each shareholder of record in an
Israeli public company, including a company that is publicly traded outside of
Israel, is entitled to receive at least twenty one days' prior notice of a
General Meeting, unless provided by the company's articles of association that
notice need not be sent. The Company's articles of association provide for
twenty one days' prior notice of a General Meeting of the shareholders. The
Companies Law and the regulations promulgated thereunder provide that a notice
of a General Meeting in a company whose shares are publicly traded outside of
Israel, shall be published pursuant to the requirements of the Nasdaq National
Market.
Election of Directors. Our ordinary shares do not have cumulative voting
rights in the election of directors. As a result, the holders of ordinary shares
that represent more than 50% of the voting power have the power to elect all of
our directors.
Dividend and Liquidation Rights. We may declare a dividend to be paid to
the holders of ordinary shares according to their rights and interests in our
profits. In the event of our liquidation, after satisfaction of liabilities to
creditors, our assets will be distributed to the holders of ordinary shares in
proportion to the nominal value of their respective holdings. This right may be
affected by the grant of preferential dividend or distribution rights to the
holders of a class of shares with preferential rights that may be authorized in
the future. See "Description of Preferred Shares." Dividends may be distributed
only out of profits available for dividends as determined by the Companies Law,
provided that there is no reasonable concern that the distribution will prevent
us from being able to meet our existing and anticipated obligations when they
become due.
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<PAGE> 64
Generally, pursuant to the Companies Law, the decision to distribute
dividends and the amount to be distributed, whether interim or final, is taken
by the Board of Directors. However, a company may determine in its articles of
association that the decision to distribute dividends be made by the
shareholders in the general meeting after receiving the recommendations of the
Board of Directors, provided that the general meeting may reduce but not
increase the amount of the dividends proposed by the Board of Directors; after
the shareholders have determined at a general meeting the maximum amount which
may be distributed; or in any other way, provided that the board of directors
has had the opportunity to determine, prior to the distribution, that is not a
non-permissable distribution pursuant to the Companies Law. Our articles of
association provide that the Board of Directors has the authority to determine
the amount and time for payment of any dividends, whether interim or final and
the record date for determining the shareholders entitled thereto, provided such
date is not prior to the date of the resolution to distribute the dividend.
Voting, Shareholders' Meetings and Resolutions. Holders of ordinary shares
have one vote for each ordinary share held on all matters submitted to a vote of
shareholders. However, certain ordinary shares which are held by one of our
existing shareholders are non-voting ordinary shares. These voting rights may be
affected by the grant of any special voting rights to the holders of a class of
shares with preferential rights that may be authorized in the future. Any change
in our registered capital, including the creation of a new class of shares with
rights superior or inferior to existing classes of shares, may be adopted by a
resolution of the shareholders in a general meeting. Once the creation of a
class of shares with a preference rights has been approved, the Board of
Directors may issue such shares, unless it is limited from doing so by the
articles of association or a contractual provision.
The Companies Law provides that a shareholder in a public company who
wishes to vote in the shareholders' General Meeting shall prove to the company,
that he owns the shares.
Pursuant to the Companies Law the quorum required for shareholders'
meetings consists of at least two shareholders who hold between them at least
twenty five percent of the voting rights, unless a different quorum is
prescribed by the articles of association. Our articles provide that the
requisite quorum is 33%. A meeting adjourned for lack of a quorum generally is
adjourned to the same day in the following week at the same time and place or
any time and place as the directors designate in a notice to the shareholders.
At such reconvened meeting the required quorum consists of any two members
present in person or by proxy.
Resolutions, such as those amending our articles of association, assuming
the authority of the board of directors in certain circumstances, appointing
auditors, appointing external directors, approving certain transactions,
increasing or decreasing our registered share capital and approving a merger
with another company must be made by the shareholders at a general meeting. A
company may determine in its articles of association certain additional matters,
resolutions with respect to which must be made by the shareholders in a general
meeting.
However, a company, such as ours, incorporated prior to the effectiveness
of the Companies Law on February 1, 2000, is subject to various rules with
respect to the transition from being governed by the Companies Ordinance (New
Version), 1983, to being governed by the Companies Law. Under these rules, any
amendment to our articles of association requires a resolution adopted by the
holders of a majority of 75% or more of the voting power represented at a
general meeting and voting on such resolution unless and until we amend our
articles of association in such manner to provide for a different majority.
Some corporate actions such as a merger or liquidation, may also require
the prior approval of an Israeli court, and would be subject to court approval.
DESCRIPTION OF PREFERRED SHARES
As of the offering we will have an additional 5,000,000 million preferred
shares authorized. The board of directors has the authority to issue the
preferred shares without further vote or action by the shareholders in one or
more series and to fix the rights, preferences, privileges and restrictions of
the
63
<PAGE> 65
preferred shares, including dividend rights, dividend rates, conversion rights,
voting rights, terms of redemption, redemption prices, liquidation preferences
and the number of shares constituting any series. If the board of directors
issues preferred shares, this may delay, defer or prevent a change in control
without further action by the shareholders. For example, the board of directors
could issue preferred shares that have a class vote with respect to a change of
control transaction. The issuance of preferred shares with voting and conversion
rights may adversely affect the voting power of the holders of ordinary shares,
including the loss of voting control to others. We currently have no plans to
issue any of the unissued preferred shares. Although Israeli law does not
prohibit the issuance of preferred shares with rights which were not approved by
the shareholders at the time such preferred shares were authorized, this matter
has to date not been determined by Israeli courts, and there is a substantial
doubt as to the validity of such an issuance. Consequently, to the extent that
the rights, preferences and privileges attached to the preferred shares, if and
when issued, derogate from the rights of our ordinary shares, there can be no
assurance that, if such issuance was challenged in legal proceedings, the
legality of such issuance would be upheld by an Israeli court.
OPTIONS AND WARRANTS
As of December 31, 1999, options and a warrant to purchase 2,665,034 voting
and non voting ordinary shares were outstanding, with a weighted average
exercise price of $1.17 per share. ClickService has also issued warrants to
purchase an aggregate of 393,552 Preferred B Convertible Shares at an exercise
price of $1.96 per share and warrants to purchase 18,926 ordinary shares at an
exercise price of $0.58 per share. As of December 31, 1999, 1,206,920 ordinary
shares were held by a trustee and have been reserved for allocation against some
employee options granted but not yet exercised.
REGISTRATION RIGHTS
In connection with the private placement of our Series A, Series A-1,
Series B, Series C, Series D Convertible Preferred Shares and Series B
Convertible Ordinary Shares, most of our shareholders were granted registration
rights with respect to the ordinary shares received by such shareholders upon
conversion of their preferred shares (13,499,898 ordinary shares in the
aggregate) (the "Registrable Securities"). The registration rights agreement
provides that at any time after the earlier of March 29, 2001, or 12 months
following this offering, we shall be required to effect registration at the
request of at least 20% of the outstanding Registrable Securities or such lesser
number which would result in an aggregate offering of at least $10 million. We
can delay the registration for up to 90 days if, in the good faith opinion of
the Board of Directors, it would be seriously detrimental to the Company and the
shareholders for such registration statement to be filed at that time.
If we shall determine to register, or offer to the public in any
jurisdiction, any of our securities either for our own account or for the
account of a security holder or holders exercising their respective demand
registration rights, other than a registration (or its equivalent in other
jurisdictions) (i) relating solely to employee benefit plans or to a Rule 145
transaction, or (ii) on any form which does not permit secondary sales or does
not include substantially the same information as would be required to be
included in a registration statement covering the sale of Registrable
Securities, we must include all Registrable Securities requested to be included
in such registration. If the registration is an underwritten offering, the
amount of Registrable Securities to be registered is subject to underwriter's
cutback; in our initial public offering, the underwriters may exclude all
Registrable Securities from such registration and thereafter Registrable
Securities must constitute at least 25% of the total number of securities
offered to the public. In the event of underwriters cutbacks, the securities to
be registered in such registration and underwriting will be allocated as
follows: (i) 75% of the Registrable Securities to be included in such
registration and underwriting, and (ii) Moshe Ben-Bassat and Idit Ben-Bassat to
the extent of 25% of the Registrable Securities to be included in such
registration and underwriting. The holders of the Registrable Securities also
have unlimited Form S-3 registration rights.
All expenses of registration shall be borne by us, except that underwriting
discounts and selling expenses will be borne by the selling shareholders.
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<PAGE> 66
ANTI-TAKEOVER PROVISIONS; MERGERS AND ACQUISITIONS UNDER ISRAELI LAW
Pursuant to the Companies Law, if following any acquisition of shares of a
public company or of a class of shares of a public company the acquirer will
hold 90% or more of the company's shares or 90% of any class of the company's
shares, respectively, then the acquiror must make a tender offer for all of the
remaining shares or the particular class of shares of the company. In the event
that 5% or more of the shareholders have not responded favorably to a tender
offer, the offeror may not purchase more than 90% of that class of shares. This
rule does not apply if the acquisition is made by way of a merger. Furthermore,
the Companies Law provides that as long as a shareholder in a public company
holds more than 90% of the company's shares or of a class of shares, such
shareholder shall be precluded from purchasing any additional shares of that
type. The Companies Law further provides that if following the tender offer such
acquiring shareholder holds more than 95% of the outstanding shares of any
class, the holders of all the remaining shares will be obligated to transfer
such shares to the acquiror at the tender offer price. This entails the
possibility of additional delay and the imposition of further approval
requirements at the court's discretion.
The Companies Law requires that each company that is party to a merger
approve the transaction by a vote of the Board of Directors and by a vote of the
majority of its outstanding shares, generally excluding shares voted by the
other party to the merger or any person holding at least 25% of the other party
to the merger, at a shareholders' meeting called on at least 21 days prior
notice. In addition, the Companies Law does not generally require court approval
of a merger. Pursuant to the Companies Law the articles of association of
companies such as ours, which have been incorporated prior to February 1, 2000,
are deemed to include a provision whereby the approval of a merger requires
approval of the transaction by the majority of the shareholders present and
voting on the proposed transaction who hold at least 75% of the shares present
and voting at such meeting. In addition, a merger may not be completed unless at
least 70 days have passed from the time that a proposal for approval of the
merger has been filed with the Israeli Registrar of Companies and certain
notification and information have been provided to debtors.
Notwithstanding the approval requirements set forth in the Companies Law,
companies, such as ours, which have been incorporated prior to the Companies Law
coming into effect, must specifically amend their articles of association to
provide for the shareholder voting requirements contained in the Companies Law.
The Companies Law also provides that an open market acquisition of shares
in a public company must be made by means of a tender offer if as a result of
the acquisition the purchaser would become a holder of 25% of the voting rights
in the company. This rule does not apply if there already is another holder of
25% of the voting rights in the company. Similarly, the Companies Law provides
that an open market acquisition of shares in a public company must be made by
means of a tender offer if as a result of the acquisition the purchaser would
become the holder of 45% of the voting rights in the company. This rule does not
apply if another party already holds more than 50% of the voting rights in the
company.
MODIFICATION OF CLASS RIGHTS
Our articles provide that the rights attached to any class (unless
otherwise provided by the terms of such class), such as voting, rights to
dividends and the like, may be varied by written consent of all holders of the
issued shares of that class, or by adoption of a majority resolution at a
meeting of the holders of the shares of such class.
ISRAELI SECURITIES LAW REQUIREMENTS
We have requested from the Israeli Securities Authority an exemption from
Israel's prospectus delivery requirements and an exemption from the reporting
obligations to which Israeli companies whose shares are publicly traded are
subject, provided that a copy of each of the reports filed by us pursuant to
applicable United States law shall be available for public review at our
offices.
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<PAGE> 67
ACCESS TO INFORMATION
We file reports with the Israeli Registrar of Companies regarding our
registered address, our registered capital, our shareholders of record and the
number of shares held by each, the identity of the directors and details
regarding security interests on our assets. In addition, we must file with the
Registrar of Companies our articles of association and notices of resolutions
concerning the amendment of our articles of association, the change of our name,
the change of our registered address, merger with another company and any change
in our objectives. The information filed with the Registrar of Companies is
available to the public. In addition to the information available to the public,
our shareholders are entitled, upon request, to review and receive copies of all
minutes of meetings of our shareholders, our annual balance sheet, the register
of our shareholders and other documents provided for in the Companies Law.
TRANSFER AGENT AND REGISTRAR
We have appointed Boston Equiserve as our transfer agent and registrar for
the Ordinary Shares.
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<PAGE> 68
SHARES ELIGIBLE FOR FUTURE SALE
If our shareholders sell substantial amounts of our ordinary shares
(including shares issued upon the exercise of outstanding options and warrants)
in the public market following this offering, the market price of our ordinary
shares could fall dramatically. These sales also might make it more difficult
for us to sell equity or equity-related securities in the future at a time and
price that we deem appropriate.
The number of shares of ordinary shares available for sale in the public
market is limited by restrictions under United States federal securities law and
by certain "lock-up" agreements that our shareholders have entered into with the
underwriters. The lock-up agreements restrict our shareholders from selling or
otherwise disposing of any of their shares for a period of 180 days after the
date of this prospectus without the prior written consent of Lehman Brothers
Inc. Lehman Brothers Inc. may, however, in its sole discretion and without
notice, release all or any portion of the shares from the restrictions in the
lock-up agreements.
Upon completion of this offering, we will have outstanding
ordinary shares (based upon shares outstanding as of ,
2000), assuming no exercise of the underwriters' over-allotment option and no
exercise of outstanding options or warrants after , 1999. Of these
shares, the shares sold in this offering are freely tradable. This
leaves shares eligible for sale in the public market as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE
- ---------------- ----
<S> <C>
........................... , 2000
180 days from the date of this
........................... prospectus
</TABLE>
Any ordinary shares that may be purchased in this offering by our
"affiliates," as defined in Rule 144 of the Securities Act, will be subject to
the volume and other selling limitations under Rule 144 of the Securities Act.
of the shares available for sale at the 180th day after the date of
this prospectus or afterward will be subject initially to certain volume and
other limitations under Rule 144 of the Securities Act.
On or prior to the 180th day following the date of this prospectus, we
intend to register for resale an additional ordinary shares reserved
for issuance under our employee stock plans based upon the number of shares
reserved for issuance as of . In addition, the holders of
approximately ordinary shares have the right to require us to register
their shares for sale to the public. If these holders cause a large number of
shares to be registered and sold in the public market, our stock price could
fall materially.
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UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes the material United States federal income
tax consequences relating to an investment in ordinary shares as of the date
hereof. The summary is based on the Internal Revenue Code of 1986, and existing
final, temporary and proposed Treasury Regulations, rulings and judicial
decisions, all of which are subject to prospective and retroactive changes. We
will not seek a ruling from the Internal Revenue Service with regard to the
United States federal income tax treatment relating to investment in ordinary
shares and, therefore, there can be no assurance that the IRS will agree with
the conclusions set forth below. The summary does not purport to address all
federal income tax consequences that may be relevant to you. For example, the
summary assumes that you are a U.S. Holder, as defined below, hold ordinary
shares as capital assets within the meaning of Section 1221 of the Code, and
does not address the tax consequences that may be relevant to investors in
special tax situations (including, for example, persons who are not U.S.
Holders, as defined below, insurance companies, tax-exempt organizations,
dealers in securities or currency, banks or other financial institutions,
investors that hold ordinary shares as part of a hedge, straddle or conversion
transaction, or holders that own, directly or indirectly, ten percent or more of
our outstanding ordinary shares or persons who are not entitled to benefits
under the "U.S.-Israel Tax Treaty" pursuant to Article 25 thereof). Further, it
does not address the alternative minimum tax consequences of an investment in
ordinary shares or the indirect consequences to persons that own equity
interests in investors in ordinary shares. ACCORDINGLY, YOU SHOULD CONSULT YOUR
OWN TAX ADVISOR CONCERNING THE APPLICATION OF UNITED STATES FEDERAL INCOME TAX
LAWS, AS WELL AS THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION, TO
YOUR PARTICULAR SITUATION.
For purposes of this discussion, "U.S. Holder" means a holder of ordinary
shares that is:
- a citizen or resident of the United States;
- a partnership or corporation created or organized in the United States or
any State thereof (including the District of Columbia);
- an estate, the income of which is includable in gross income for United
States federal income tax purposes regardless of its source; or
- a trust if (1) a United States court is able to exercise primary
supervision over its administration and one or more United States persons
have the authority to control all of its substantial decisions, or (2)
the trust was in existence on August 20, 1996 and has properly elected to
continue to be treated as a United States person.
TAXATION OF U.S. HOLDERS
Distributions on Ordinary Shares. Distributions made by us with respect to
ordinary shares generally will constitute foreign source dividends for federal
income tax purposes and will be taxable to you as ordinary income to the extent
of our undistributed current or accumulated earnings and profits (as determined
for United States federal income tax purposes). Distributions in excess of our
current or accumulated earnings and profits will be treated first as a
non-taxable return of capital reducing your tax basis in the ordinary shares,
thus increasing the amount of any gain (or reducing the amount of any loss)
which might be realized by you upon the sale or exchange of such ordinary
shares. Any such distributions in excess of your tax basis in the ordinary
shares will be treated as capital gain to you and will be long term capital gain
if you have held the ordinary shares for more than one year. Dividends paid by
us generally will not be eligible for the dividends received deduction available
to certain United States corporate shareholders. The amount of any cash
distribution paid in a foreign currency will equal the U.S. dollar value of the
distribution, calculated by reference to the exchange rate in effect at the time
the dividends are received. You should not recognize any foreign currency gain
or loss if such foreign currency is converted into U.S. dollars on the day
received. If you do not convert the foreign currency into U.S. dollars on the
date of receipt, however, you may recognize gain or loss upon a subsequent sale
or other
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disposition of the foreign currency (including an exchange of the foreign
currency for U.S. dollars). Such gain or loss, if any, will be United States
source ordinary income or loss for United States federal income tax purposes.
Subject to certain conditions and limitations, any Israeli withholding tax
imposed upon distributions which constitute dividends under United States income
tax law will be eligible for credit against your federal income tax liability.
Alternatively, you may claim a deduction for such amount, but only for a year in
which you elect to do so with respect to all foreign income taxes. The overall
limitation on foreign taxes eligible for credit is calculated separately with
respect to specific classes of income. For this purpose, dividends distributed
by us with respect to ordinary shares will generally constitute "passive income"
or in the case of certain holders, "financial services income." The rules
governing the foreign tax credit are complex. You are urged to consult your tax
advisor regarding the availability of the foreign tax credit in your particular
circumstances.
Sale or Exchanges of Ordinary Shares. You generally will recognize capital
gain or loss upon the sale or exchange of the ordinary shares measured by the
difference between the amount realized and your tax basis in the ordinary
shares. Gain or loss will be computed separately for each block of shares sold
(shares acquired separately at different times and prices). The gain or loss on
such disposition will be long-term capital gain or loss if the ordinary shares
had been held for more than one year. Long-term capital gains of individuals is
eligible for reduced rates of taxation. The deductibility of capital losses is
restricted and generally may only be used to reduce capital gains to the extent
thereof.
Passive Foreign Investment Company. A foreign corporation generally will
be treated as a "passive foreign investment company" ("PFIC") if, after applying
certain "look-through" rules, either (1) 75% or more of its gross income is
passive income or (2) 50% or more of the average value of its assets is
attributable to assets that produce or are held to produce passive income
including cash (even if held or working capital). Passive income for this
purpose generally includes dividends, interest, rents, royalties and gains from
securities and commodities transactions. The look-through rules require a
foreign corporation that owns at least 25%, by value, of an operating subsidiary
to treat that proportion of the subsidiary's assets and income as held or
received directly by the foreign parent.
We do not believe that we currently are a PFIC nor do we anticipate that we
will be a PFIC in the future because we expect that less than 75% of our annual
gross income will be passive income and less than 50% of our assets will be
passive assets, based on the look-through rules, the current income and assets
of our subsidiaries, and the manner in which we expect to conduct our businesses
in the future. However, there can be no assurance that we are not or will not be
treated as a PFIC in the future. This conclusion is a factual determination made
annually and thus subject to change. In reaching the conclusion that we do not
believe that we are a PFIC, we have valued our assets based on the price per
share of the ordinary shares. This valuation method results in substantial value
being given to intangible assets, including goodwill, that are considered
neither to produce nor to be held for the production of passive income for
purposes of the PFIC rules. The Internal Revenue Service has neither approved
nor disapproved of this valuation method, although we believe that this a
reasonable method of valuing our non-passive assets and is consistent with the
policy underlying the PFIC provisions. If we were to be treated as a PFIC, you
may be required, in certain circumstances, to pay an interest charge together
with tax calculated at maximum rates on certain "excess distributions,"
including any gain on the sale of ordinary shares. In order to avoid this tax
consequence, you (1) may be permitted to make a "qualified electing fund"
election, in which case, in lieu of such treatment you would be required to
include in their taxable income certain undistributed amounts of our income or
(2) may elect to mark-to-market the ordinary shares and recognize ordinary
income (or possible ordinary loss) each year with respect to such investment and
on the sale or other disposition of the ordinary shares. Neither we nor our
advisors have the duty to or will undertake to inform you of changes in
circumstances that would cause us to become a PFIC. You should consult your own
tax advisors concerning our status as a PFIC at any point in time after the date
of this prospectus. We do not currently intend to take the action necessary for
you to make a "qualified electing fund" election in the event we are determined
to be a PFIC.
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Foreign Personal Holding Company. A foreign corporation may be classified
as a foreign personal holding company (a "FPHC", for federal income tax purposes
if both of the following tests are satisfied: (1) at any time during the taxable
year five or fewer individuals who are United States citizens or residents own
or are deemed to own (under certain attribution rules) more than 50% of its
stock (vote or value) and (2) at least 60% (50% for years subsequent to the year
in which it becomes a FPHC of its gross income (regardless of its source), as
specifically adjusted, "is foreign personal holding company income," which
includes dividends, interest, rents, royalties and gain from the sale of stock
or securities.
We do not believe that we are currently a FPHC nor do we anticipate that we
will be a FPHC in the future; however, no assurance can be given that we are or
will not become a FPHC as a result of future changes of ownership or changes in
the nature of our income. If we were to be classified as a FPHC, you would be
required to include in income as a taxable constructive dividend your pro rata
share of our undistributed foreign personal holding company income.
BACKUP WITHHOLDING
In general, information reporting requirements will apply to certain
distributions on the ordinary shares and to the proceeds of sale of ordinary
shares made to you (unless you are an exempt recipient such as a corporation). A
31% backup withholding tax will apply to such payments if you fail to provide a
taxpayer identification number, a certification of exempt status, or fail to
report in full dividend an interest income. If backup withholding applies, the
amount withheld is not an additional tax, but may be credited against your
United States federal income tax liability provided the required information is
furnished to the Internal Revenue Service.
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ISRAELI TAXATION AND INVESTMENT PROGRAMS
The following discussion summarizes some of the material current tax laws
of the State of Israel as they relate to the Company, its shareholders and
ownership and disposition of its ordinary shares. This summary does not discuss
all aspects of Israeli tax law that may be relevant to a particular shareholder
in light of his personal investment circumstances or to certain types of
investors subject to special treatment under Israeli law (for example, traders
in securities or persons that own, directly or indirectly, 10% or more of a
company's outstanding voting shares). The following also includes a discussion
of certain Israeli government programs benefiting various Israeli businesses
such as the Company. To the extent that the discussion is based on new
legislation yet to be subject to judicial or administrative interpretation,
there can be no assurance that the views expressed herein will accord with any
such interpretation in the future. This discussion is for general information
only and does not cover all possible tax consequences or situations, and
investors should consult their tax advisors regarding the tax consequences
unique to their situation, including the effects of applicable Israeli or
foreign tax laws and possible changes to tax laws.
GENERAL CORPORATE TAX RATE
In general, Israeli companies are currently subject to Company Tax at the
rate of 36% of taxable income. However, the effective tax rate payable by a
company which derives income from an "Approved Enterprise" (as further discussed
below), may be considerably less. Subject to relevant tax treaties, dividends or
interest received by an Israeli corporation from foreign subsidiaries are
generally subject to tax regardless of its status as an Approved Enterprise.
LAW FOR THE ENCOURAGEMENT OF CAPITAL INVESTMENTS, 1959
Certain of the Company's investment programs have been granted "Approved
Enterprise" status under the Law for the Encouragement of Capital Investments,
1959, as amended (the "Investment Law"). The Investment Law provides that a
capital investment in eligible facilities may, upon application to the Israel
Investment Center, be designated as an Approved Enterprise. Each certificate of
approval for an Approved Enterprise relates to a specific investment program
delineated both by its financial scope, including its capital sources and its
physical characteristics, e.g., the equipment to be purchased and utilized
pursuant to the program. The tax benefits derived from any such certificate of
approval relate only to taxable income attributable to the specific Approved
Enterprise.
Taxable income of a company derived from an Approved Enterprise may be
subject to Company Tax at the rate of 0% for the first two years and 25% (rather
than 36% as stated above) for the following five years, each commencing with the
year in which the Approved Enterprise first generated taxable income (limited to
twelve years from commencement of the operation of the Approved Enterprise or of
production or fourteen years from the date of approval, whichever is earlier)
and, under certain circumstances (as further detailed below), extending to a
maximum of ten years from the date from which the company has taxable income. In
the event a company is operating under more than one approval or that its
capital investments are only partly approved, its effective Company Tax rate is
the result of a weighted combination of the various applicable rates. Income
from an Approved Enterprise may be eligible for further reductions in tax rates,
if the company qualifies as a Foreign Investment Company, depending on the
percentage of the foreign investment of not less than 25% of the Company's share
capital (conferring voting rights, rights to profits and appointment of
directors) and of its combined share and loan capital which is owned by
non-Israeli residents. The tax rate is 20% if the foreign investment is 49% or
more but less than 74%; 15% if the foreign investment is 74% or more but less
than 90%; and 10% if the foreign investment is 90% or more. The lowest level of
foreign investment during the year is used to determine the relevant tax rate
for that year. The Company anticipates that following this offering, its foreign
investments shall be between % and %.
In addition, a company may elect (as the Company has) to forego certain
Government grants extended to Approved Enterprises in return for an "alternative
package" of tax benefits (the "Alternative Package"). Under the Alternative
Package, a company's undistributed income derived from an Approved
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Enterprise will be exempt from Company Tax for a period of between two and ten
years, depending on the geographic location of the Approved Enterprise within
Israel, and the type of approved enterprise, and such company will be eligible
for the standard tax benefits under the Investment Law for the remainder of the
Benefit Period.
Should the Company's foreign shareholdings exceed 25%, future Approved
Enterprises would qualify for reduced tax rates for an additional three years,
after the seven years mentioned above. However, there can be no assurance that
the Company will attain approval for additional Approved Enterprises, or that
the provisions of this Law will not change, or that the above-mentioned
shareholding proportion will be reached or maintained.
A company that has elected the Alternative Package and that subsequently
pays a dividend out of income derived from the Approved Enterprise(s) during the
tax exemption period will be subject to Company Tax in the year the dividend is
distributed in respect of the amount distributed at the rate that would have
been applicable had the company not elected the Alternative Package (between
10%-25%) depending on the percentage of the foreign investments in the Company.
The dividend recipient is taxed at the reduced rate applicable to dividends from
Approved Enterprises (15% as compared to 25%, subject to certain conditions), if
the dividend is distributed during the tax exemption period or within 12 years
after the benefit period. This tax must be withheld by the company at source,
regardless of whether the dividend is converted into foreign currency. In the
case of a Foreign Investment Company, such as us, the 12 years limitation on
reduced withholding tax on dividends does not apply.
Subject to certain provisions concerning income subject to the Alternative
Package, all dividends are considered to be attributable to the entire
enterprise and the effective tax rate is the result of a weighted combination of
the various applicable tax rates. However, a company may elect to attribute any
dividend distributed by it only to income not subject to the Alternative
Package. Since we participate in the Alternative Package, in the event we
distribute a cash dividend from income which is tax exempt, as described above,
we would have to pay tax at the rate of 25% (or less, depending on the
percentage of foreign investment as aforesaid) on an amount equal to the amount
distributed and the Company Tax thereon.
The Investment Law also provides that an Approved Enterprise is entitled to
accelerated depreciation on its property and equipment that are included in an
approved investment program. Future applications to the Investment Center will
be reviewed separately, and decisions as to whether or not to approve such
applications will be based, among other things, on the then prevailing criteria
set forth in the Investment Law, on the specific objectives of the applicant
company set forth in such applications and on certain financial criteria of the
applicant company. Accordingly, there can be no assurance that any such
applications will be approved.
The above tax benefits are conditioned upon fulfillment of the requirements
stipulated by the aforementioned law and the regulations promulgated thereunder,
as well as the criteria set forth in the certificates of approval. In the event
of our failure to comply with these conditions, the tax benefits could be
canceled, in whole or in part, and we would be required to refund the amount of
the canceled benefits, plus interest and certain inflation adjustments. In
management's opinion, we have been in full compliance with the aforementioned
conditions through December 31, 1999.
LAW FOR THE ENCOURAGEMENT OF INDUSTRY (TAXES), 1969
The Company currently qualifies as an "Industrial Company" within the
meaning of the Law of the Encouragement of Industry (Taxes), 1969 (the "Industry
Encouragement Law"). According to the Industry Encouragement Law, an "Industrial
Company" is a company resident in Israel, at least 90% of the income of which in
any tax year, determined in Israeli currency (exclusive of income from specified
sources) is derived from an "Industrial Enterprise" that it owns. An "Industrial
Enterprise" is defined by that law as an enterprise whose major activity in a
given tax year is industrial production activity.
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The following preferred corporate tax benefits are available to an
Industrial Company such as the Company:
- Amortization of purchases of know-how or patents that are utilized in
development or advancement of its enterprise over eight years for tax
purposes;
- Election under certain conditions to file a consolidated tax return with
additional related Israeli Industrial companies; and
- Accelerated depreciation rates on equipment and buildings.
In addition, an Industrial Company (but not an Industrial Holding Company)
is eligible to deduction of expenses incurred in connection with a public share
issuance over a three-year period.
Eligibility for the benefits under the Industry Encouragement Law is not
subject to receipt of prior approval from any governmental authority. No
assurance can be given that the Company will maintain its status under the
Industry Encouragement Law or that the benefits described above will be
available in the future.
TAXATION UNDER INFLATIONARY CONDITIONS
The Income Tax Law (Inflationary Adjustments), 1985 (the "Inflationary
Adjustments Law") represents an attempt to overcome the problems presented to a
traditional tax system by an economy undergoing rapid inflation. Generally, the
Adjustment for Inflation Law was designed to neutralize for Israeli tax purposes
the erosion of capital investments in businesses and to prevent unintended tax
benefits resulting from the deduction of inflationary financing expenses. The
Adjustment for Inflation Law applies a supplementary set of inflationary
adjustments to a normal taxable profit computed according to regular historical
cost principles.
The Adjustment for Inflation Law introduced a special adjustment for the
preservation of equity for tax purposes based on changes in the Israeli CPI,
whereby some corporate assets are classified broadly into fixed (inflation
resistant) assets and non-fixed assets. Where the shareholders' equity, as
defined in the Adjustment for Inflation Law, exceeds the depreciated costs of
fixed assets, a corporate tax deduction which takes into account the effect of
inflationary change on such excess is allowed (up to a ceiling of 70% of taxable
income in any single tax year, with the unused portion permitted to be carried
forward on an inflation-linked basis with no ceiling). If the depreciated costs
of fixed assets exceeds shareholders' equity, then such excess multiplied by the
annual rate of inflation is added to taxable income.
In addition, subject to certain limitations, depreciation on fixed assets
and loss carry forwards are adjusted for inflation based on changes in the
Israeli CPI. Also, under the Adjustment for Inflation Law, results for tax
purposes are measured in real terms, in accordance with changes in the Israeli
CPI. As a result, the net effect of the Adjustment for Inflation Law on a
company might be that the company's taxable income, as determined for Israeli
corporate tax purposes, will be different from the company's U.S. dollar income,
as reflected in its financial statements, due to the difference between the
annual changes in the CPI and in the NIS exchange rate with respect to the U.S.
dollar, causing changes in the actual tax rate.
The Israeli Income Tax Ordinance and the Adjustment for Inflation Law allow
Foreign Invested Companies, which maintain their accounts in U.S. Dollars in
compliance with regulations published by the Israeli Minister of Finance, to
base their tax returns on operating results as reflected in the U.S. dollar
financial statements or to adjust their tax returns based on exchange rate
changes rather than changes in the Israeli CPI (in lieu of the principles set
forth in the Adjustment for Inflation Law). For these purposes, a Foreign
Investment Company is a company more than 25% of whose share capital (in terms
of shares, rights to profits, voting and appointment of directors) and of whose
combined share and loan capital is held by persons who are not residents of
Israel. The Company currently qualifies as a Foreign Invested Company and
anticipates that it will continue to do so following this offering.
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LAW FOR THE ENCOURAGEMENT OF INDUSTRIAL RESEARCH AND DEVELOPMENT, 1984
Under the Law for the Encouragement of Industrial Research and Development,
1984, (the "Research Law") and the Instructions of the Director General of the
Ministry of Industry and Trade, research and development programs and the plans
for the intermediate stage between research and development, and manufacturing
and sales approved by a governmental committee of the Chief Scientist are
eligible for grants of up to 50% of the project's expenditure if they meet
certain criteria. These grants are issued in return for the payment of royalties
from the sale of the product developed in accordance with the program as
follows: 3% of revenues during the first three years, 4% of revenues during the
following three years, and 5% of revenues in the seventh year and thereafter,
with the total royalties not to exceed 100% of the dollar value of the Chief
Scientist grant (or in some cases as described below, total royalties up to 300%
of the grant). Following the full payment of such royalties, there is no further
liability for payment. For participation received with respect to approvals
granted after December 31, 1998, interest at the 12-month LIBOR rate as
published on the first business day of each calendar year will be added to the
royalty payments. As of December 31, 1999, the Company has a contingent
liability to pay royalties in the amount of $ million.
The Research Law further requires that products developed with government
grants be manufactured in Israel unless a special approval has been granted.
However, in the event that any portion of the manufacturing is not conducted in
Israel, if approval is received from the Chief Scientist, the Company would be
required to pay royalties that are adjusted in proportion to manufacturing
outside of Israel as follows: when the manufacturing is performed outside of
Israel by the Company or an affiliate company, the royalties are to be paid as
described above with the addition of 1%, and when the manufacturing outside of
Israel is not performed by a company or an affiliate, the royalties paid shall
be equal to the ratio of the amount of grant received from the Chief Scientist
divided by the amount of grant received from the Chief Scientist and the
investment(s) made by the Company in the project. The payback will also be
adjusted to 120%, 150% or 300% of the grant if the portion of manufacturing that
is performed outside of Israel is up to 50%, between 50% and 90%, or more than
90%, respectively. The know how which is used to manufacture the products
developed pursuant to the terms of these grants may not be transferred to third
parties without the prior approval of the Research Committee. Such approval is
not required for the export of any products resulting from such research or
development. Approval of the transfer of such know-how may be granted only if
the recipient abides by all the provisions of the Research Law and the
regulations promulgated thereunder, including the restrictions on the transfer
of know-how and the obligation to pay royalties in an amount that may be
increased.
In order to meet certain conditions in connection with the grants and
programs of the Chief Scientist, the Company has made certain representations to
the Israeli government about the Company's future plans for its Israeli
operations. From time to time the extent of the Company's Israeli operations may
in the future differ, from the Company's representations. If, after receiving
grants under certain programs sponsored by the Chief Scientist, the Company
fails to meet certain conditions to those benefits, the maintenance of a
material preserve in Israel, or if there is any material deviation from the
representations made by the Company to the Israeli government, the Company could
be required to refund to the State of Israel tax or other benefits previously
received (including interest and CPI linkage difference) and would likely be
denied receipt of such grants or benefits, and participation of such programs,
thereafter.
The Company may elect to participate in future programs sponsored by the
Chief Scientist for the support of research and development activities.
DIVIDENDS
Non-residents of Israel are subject to income tax on income derived from
sources in Israel. On distributions of dividends other than bonus shares (stock
dividends), income tax at the rate of 25% (15% for dividends generated by an
"Approved Enterprise") is withheld at source, unless a different rate is
provided in a treaty between Israel and the shareholder's country of residence.
The Convention Between the Government of the United States of America and the
Government of Israel with Respect to Taxes on
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Income (the "U.S.-Israel Tax Treaty") provides for a maximum tax of 25% on
dividends paid to a person who qualifies as a resident of the United States
within the meaning of the U.S.-Israel Tax Treaty and who is entitled to claim
the benefits afforded to such resident by the U.S.-Israel Tax Treaty ("Treaty
U.S. Resident"), and for a rate of 12.5% on dividends paid to a United States
corporation that holds 10% or more of an Israeli company's voting power
throughout the current year to the date the dividend is paid and the preceding
taxable year (as applicable) (unless such dividends are generated by an
"Approved Enterprise," in which case, the dividends will be taxed at the rate of
15%). The lower 12.5% rate applies only on dividends from income not derived
from an Approved Enterprise in the applicable period and does not apply if the
company has certain amounts of passive income.
A non-resident of Israel who has had dividend income derived or accrued in
Israel from which the applicable tax was withheld at source is generally exempt
from the duty to file an annual Israeli tax return with respect to such income,
provided such income was not derived from a business carried on in Israel by
such non-resident.
CAPITAL GAINS TAX
Israeli law imposes a capital gains tax on the sale of capital assets by
both residents and non-residents of Israel. The law distinguishes between the
"Real Gain" and the "Inflationary Surplus." The Real Gain is the excess of the
total capital gain over the Inflationary Surplus, computed on the basis of the
increase in the Israeli Consumer Price Index between the date of purchase and
the date of sale. The Inflationary Surplus is taxed at a rate of 10% for
residents of Israel (reduced to no tax for non-residents if calculated according
to the exchange rate of the dollar instead of the Israeli CPI), while the Real
Gain is added to ordinary income which is taxed at the ordinary rate for
individuals and 36% for companies, while Inflationary Surplus accumulated from
and after December 31, 1993 is exempt from any capital gains tax. Capital gain
realized from sales of securities of Israeli companies by both residents and
non-residents of Israel (other than certain Israeli companies) that qualify as
"Industrial Companies" or "Industrial Holding Companies" on or after the listing
of the shares for trading will be exempt from Israeli capital gains for the
shares of listed on an approved foreign securities market, which includes the
Nasdaq National Market in the U.S.
Under the Adjustment for Inflation Law, all corporate investors that hold
listed securities (other than corporations only owned by individuals), generally
will be subject to the provisions of the Adjustment for Inflation Law. A
comprehensive set of rules apply in the Adjustment for Inflation Law to
determine the gains or losses from the sale of listed securities. Under a
literal reading of the Adjustment of Inflation Law, it would appear that its
provisions apply also to foreign corporations, even though the foreign
corporation may have no other activity in Israel other than having a
shareholding in an Israeli company. Consequently, unless a tax treaty exemption
is applicable, the capital gain exemption available for individual shareholders
would not apply.
Pursuant to the U.S.-Israel Tax Treaty, the sale, exchange or disposition
of ordinary shares or redeemable warrants will not be subject to the Israeli
capital gains tax unless such Treaty U.S. Resident holds, directly or
indirectly, shares representing 10% or more of the voting power of a company
during any part of the 12-month period preceding such sale, exchange or
disposition. A sale, exchange or disposition of ordinary shares or redeemable
warrants by a Treaty U.S. Resident who holds, directly or indirectly, shares
representing 10% or more of the voting power of a company at any time during
such preceding 12-month period could be subject to such Israeli tax; however,
under the U.S.-Israel Tax Treaty, such Treaty U.S. Resident would be permitted
to claim a credit for such taxes against the U.S. income tax imposed with
respect to such sale, exchange or disposition, subject to the limitations
applicable to foreign tax credits.
The tax treatment of capital gains tax of non-US residents will depend on
the provisions of a tax treaty (if any) between Israel and the country of
residence of such shareholder.
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FUND FOR THE ENCOURAGEMENT OF MARKETING ACTIVITIES
The Israeli Government, through the Fund for the Encouragement of Marketing
Activities, awards to qualifying companies participations for marketing expenses
incurred to increase export sales from Israel. The participation, which has been
reflected as a reduction in selling expenses, is dollar-linked, does not bear
interest and is repaid through royalties on any increase in export sales at the
rate of 3.0% of the increased sales portion only up to the amount of the
participation. Until December 31, 1996, we received participation in the amount
of approximately $0.7 million. See Note 10 to the Consolidated Financial
Statements. The Company has paid or accrued royalties to date amounting to $0.3
million.
FOREIGN EXCHANGE REGULATIONS
The Israeli Currency Control Law, 1978 imposes certain limitations
concerning foreign currency transactions and transactions between Israeli and
non-Israeli residents, which limitations may be regulated or waived by the
Controller of Foreign Exchange at the Bank of Israel, through "general" and
"special" permits. In May 1998, a new "general permit" was issued pursuant to
which substantially all transactions in foreign currency are permitted. Any
dividends or other distributions paid in respect of ordinary shares and any
amounts payable upon the dissolution, liquidation or winding up of the affairs
of a company, as well as the proceeds of any sale in Israel of the company's
securities to an Israeli resident are freely repatriable into non-Israeli
currencies at the rate of exchange prevailing at the time of conversion,
provided that any Israeli income tax owing has been paid on (or withheld from)
such payments. Because exchange rates between the NIS and the U.S. dollar
fluctuate continuously, U.S. shareholders will be subject to any such currency
fluctuation during the period from when such dividend is declared through the
date payment is made in U.S. dollars.
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CONDITIONS IN ISRAEL
We are incorporated under the laws of the State of Israel, and
substantially all of our research and development and significant executive
facilities are located in Israel. Accordingly, we are directly affected by
political, economic and military conditions in Israel. Our operations would be
materially adversely affected if major hostilities involving Israel should occur
or if trade between Israel and its present trading partners should be curtailed.
POLITICAL CONDITIONS
Since the establishment of the State of Israel in 1948, a number of armed
conflicts have taken place between Israel and its Arab neighbors. A state of
hostility, varying from time to time in intensity and degree, has led to
security and economic problems for Israel. However, a peace agreement between
Israel and Egypt was signed in 1979, a peace agreement between Israel and Jordan
was signed in 1994 and, since 1993, several agreements between Israel and
Palestinian representatives have been signed. In addition, Israel and several
Arab States have announced their intention to establish trade and other
relations and are discussing certain projects. Israel has not entered into any
peace agreement with Syria or Lebanon, and there have been difficulties in the
negotiations with the Palestinians. We cannot be certain as to how the peace
process will develop or what effect it may have upon us.
Despite the progress towards peace between Israel, its Arab neighbors and
the Palestinians, certain countries, companies and organizations continue to
participate in a boycott of Israeli firms. We also not believe that the boycott
has had a material adverse effect on us, but restrictive laws, policies or
practices directed towards Israel or Israeli businesses may have an adverse
impact on the expansion of our business.
Generally, all male adult citizens and permanent residents of Israel under
the age of 51 are obligated to perform up to 39 days, or longer under certain
circumstances, of military reserve duty annually. Additionally, all these
residents are subject to being called to active duty at any time under emergency
circumstances. Currently, a majority of our officers and employees are obligated
to perform annual reserve duty. While we have operated effectively under these
requirements since we began operations, no assessment can be made as to the full
impact of these requirements on our workforce or business if conditions should
change, and no prediction can be made as to the effect on us of any expansion or
reduction of the obligations. See "Risk Factors -- We are incorporated in Israel
and have important facilities and resources located in Israel."
ECONOMIC CONDITIONS
Israel's economy has been subject to numerous destabilizing factors,
including a period of rampant inflation in the early to mid-1980s, low foreign
exchange reserves, fluctuations in world commodity prices, military conflicts
and civil unrest. The Israeli government has, for these and other reasons,
intervened in various sectors of the economy, employing, among other means,
fiscal and monetary policies, import duties, foreign currency restrictions and
controls of wages, prices and foreign currency exchange rates. The current
Israeli government elected in 1999 has expressed its intention to reduce
government involvement in the economy by various means, including relaxation of
foreign currency controls and certain budgetary restraints, and privatization of
certain government-owned companies. In 1998, the Israeli currency control
regulations were liberalized significantly, as a result of which Israeli
residents generally may freely deal in foreign currency and non-residents of
Israel generally may freely purchase and sell Israeli currency and assets. The
Israeli government has periodically changed its policies in all these areas.
There are currently no Israeli currency control restrictions on remittances of
dividends on the ordinary shares or the proceeds from the sale of the shares;
however, legislation remains in effect pursuant to which currency controls can
be imposed by administrative action at any time.
TRADE AGREEMENTS
Israel is a member of the United Nations, the World Bank Group (including
the International Finance Corporation), the European Bank for Reconstruction and
Development and the Inter-American
77
<PAGE> 79
Development Bank. Israel is also a signatory to the General Agreement on Tariffs
and Trade, which provides for reciprocal lowering of trade barriers among its
members. In addition, Israel has been granted preferences under the Generalized
System of Preferences from Japan. These preferences allow Israel to export the
products covered by such programs either duty-free or at reduced tariffs.
Israel has entered into preferential trade agreements with the European
Union, the United States, Canada, the European Free Trade Association and a
variety of other countries. In recent years, Israel has established commercial
and trade relations with a number of the other nations, including Russia and
China, with which Israel had not previously had such relations.
78
<PAGE> 80
ENFORCEABILITY OF CIVIL LIABILITIES
Service of process upon our directors and officers and the Israeli experts
names herein, a substantial number of whom reside outside the United States, may
be difficult to obtain within the United States. Furthermore, since
substantially all of our assets and a significant number of our directors and
officers and the Israeli experts named herein are located outside the United
States, any judgment obtained in the United States against us, the selling
shareholders or such directors, officers or Israeli experts predicated upon the
civil liability provisions of the federal securities laws of the United States
may not be collectible within the United States.
There are no treaties between the United States and Israel relating to the
reciprocal enforcement of foreign court judgments. We have been informed by our
legal counsel in Israel, Efrati, Galili & Co., that there is doubt as to the
enforceability of civil liabilities under the Securities Act and the Securities
Exchange Act of 1934 in original actions instituted in Israel. However, subject
to certain time limitations, Israeli courts may enforce United States final
executory judgments for liquidated amounts in civil matters, obtained after due
trial before a court of competent jurisdiction, according to the rules of
private international law currently prevailing in Israel, that enforces similar
judgments, provided that:
- due service of process has been effected and the defendant has had a
reasonable opportunity to be heard,
- the judgments or the enforcement thereof are not contrary to the law,
public policy, security or sovereignty of the State of Israel,
- the judgments were not obtained by fraud and do not conflict with any
other valid judgment in the same matter between the same parties, and
- an action between the same parties in the same matter is not pending in
any Israeli court at the time the lawsuit is instituted in the foreign
court.
We have irrevocably appointed ClickService Software Ltd., our wholly-owned
subsidiary, as our agent to receive service of process in any action against us
in any federal court or state court in the State of California arising out of
this offering or any purchase or sale of securities in connection therewith. We
have not given our consent for such agent to accept service of process in
connection with any other claim. These appointments are irrevocable, provided
that we shall have the right to appoint a successor agent for service, if such
successor is acceptable to the representatives of the underwriters, in their
reasonable judgment.
Foreign judgments enforced by Israeli courts will generally be payable in
Israeli currency and will be freely convertible into dollars or other foreign
currency and may be transferred out of Israel.
The usual practice in an action before an Israeli court to recover an
amount in a non-Israeli currency is for the Israeli court to render judgment for
the equivalent amount in Israeli currency at the rate of exchange in force on
the date thereof. Under existing Israeli law, a foreign judgment payable in
foreign currency may be paid in Israeli currency at the rate of exchange of such
foreign currency on the date of payment. Pending collection, the amount of the
judgment of an Israeli currency ordinarily will be linked to the Israeli CPI
plus interest at the annual statutory rate set by Israeli regulations prevailing
at such time. Judgment creditors must bear the risk of unfavorable exchange
rates fluctuations.
WHERE YOU CAN FIND MORE INFORMATION
ClickService has filed with the Securities and Exchange Commission a
registration statement on Form S-1 under the Securities Act with respect to the
ordinary shares offered hereby. This prospectus, which constitutes a part of the
registration statement, does not contain all of the information set forth in the
registration statement and the exhibits filed as a part thereof, certain parts
of which are omitted in accordance with the rules and regulations of the SEC.
For further information with respect to ClickService and the ordinary shares
offered hereby, reference is made to the registration statement and to the
exhibits
79
<PAGE> 81
filed as a part thereof. Statements contained in this prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete and are qualified in their entirety by reference to each
such contract, agreement or other document which is filed as an exhibit to the
registration statement. The registration statement, including the exhibits and
schedules thereto, may be inspected without charge at the principal office of
the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, or at the
Regional Offices of the Commission at Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, Suite 1300,
New York, New York 10048. In addition, such material will be available for
inspection at the offices of The Nasdaq Stock Market, Inc., at 1735 K Street,
N.W., Washington D.C. 20006. Copies of such material may be obtained by mail
from the Public Reference Branch of the commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates.
LEGAL MATTERS
Certain legal matters in connection with this offering with respect to
United States law will be passed upon for ClickService by Wilson Sonsini
Goodrich & Rosati, Professional Corporation, Palo Alto, California. The validity
of the ordinary shares offered hereby and certain other legal matters in
connection with this offering with respect to Israeli law will be passed upon
for ClickService by Efrati, Galili & Co., Law Offices, Tel-Aviv, Israel. Certain
legal matters in connection with this offering will be passed upon for the
underwriters by Simpson Thacher & Bartlett, with respect to United States law,
and by Doron Cohen -- David Cohen, Law Offices, with respect to Israeli law.
As of the date of this prospectus, an investment partnership composed of
certain current and former members of and persons associated with Wilson Sonsini
Goodrich & Rosati, P.C. and certain persons associated with Wilson Sonsini
Goodrich & Rosati, P.C. beneficially owned an aggregate of 31,862 ordinary
shares. Jeffrey D. Saper, a member of Wilson Sonsini Goodrich & Rosati, P.C.,
owns an option and full-exercisable warrant, exercisable into an aggregate of
150,000 ordinary shares. Jeffrey D. Saper, a member of Wilson Sonsini Goodrich &
Rosati, P.C., is a director of the Company.
EXPERTS
The financial statements included in this prospectus and elsewhere in the
registration statement have been audited by Luboshitz Kasirer, a member firm of
Arthur Andersen, independent public accountants, as indicated in their reports
with respect thereto, and are included herein in reliance upon the authority of
said firm as experts in accounting and auditing in giving said reports.
ISA EXEMPTION
ClickService will request the Israel Securities authority to grant us an
exemption from the obligation to publish this prospectus in the manner required
pursuant to the prevailing laws of the State of Israel, and from the obligation
to file reports with the Israel Securities Authority. ClickService will make a
copy of each report filed in accordance with United States law available for
public review at its principal office in Israel.
80
<PAGE> 82
UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement
dated the date hereof, the underwriters, for whom Lehman Brothers Inc., CIBC
World Markets Corp., SG Cowen Securities Corporation and Fidelity Capital
Markets, a division of National Financial Services Corporation, are acting as
representatives, have each agreed to purchase from us the respective number of
ordinary shares shown opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS ORDINARY SHARES
------------ ---------------
<S> <C>
Lehman Brothers Inc. .......................................
CIBC World Markets Corp. ...................................
SG Cowen Securities Corporation.............................
Fidelity Capital Markets, a division of
National Financial Services Corporation...................
--------
Total..................................................
========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase ordinary shares included in this offering depend on the
satisfaction of the conditions contained in the underwriting agreement, and that
if any of the ordinary shares are purchased by the underwriters under the
underwriting agreement, then all of the shares of the ordinary shares which the
underwriters have agreed to purchase under the underwriting agreement, must be
purchased. The conditions contained in the underwriting agreement include the
requirement that the representations and warranties made by us to the
underwriters are true, that there is no material change in the financial markets
and that we deliver to the underwriters customary closing documents.
The following table shows the per share and total underwriting discounts
and commissions to be paid to the underwriters by us. These amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares described below.
<TABLE>
<CAPTION>
PAID BY US NO EXERCISE FULL EXERCISE
---------- ----------- -------------
<S> <C> <C>
Per share............................................. $ $
Total................................................. $ $
</TABLE>
The representatives have advised us that the underwriters propose to offer
the ordinary shares directly to the public at the public offering price set
forth on the cover page of this prospectus, and to dealers, who may include the
underwriters, at a public offering price less a selling concession not in excess
of $ per share. The underwriters may allow, and the dealers may reallow, a
concession not in excess of $ per share to brokers and dealers. After the
offering, the underwriters may change the offering price and other selling
terms.
The underwriters have agreed that:
- they will not offer the ordinary shares to the public in Israel within
the meaning of Section 15(a) of the Israel Securities Law, 5728-1968;
- they will not offer the ordinary shares in Israel to more than 35
offerees in the aggregate;
- they will deliver to us and the Israel Securities Authority the names and
addresses of such offerees within 7 days of the consummation of the
offering; and
- they will obtain warranties from each such offeree that he or she is
purchasing the ordinary shares for investment purposes only and not for
purposes of resale.
81
<PAGE> 83
We have granted to the underwriters an option to purchase up to an
aggregate of additional ordinary shares, exercisable solely to cover
over-allotments, if any, at the public offering price less the underwriting
discounts and commissions shown on the cover page of this prospectus. The
underwriters may exercise this option at any time until 30 days after the date
of the underwriting agreement. If this option is exercised, each underwriter
will be committed, so long as the conditions of the underwriting agreement are
satisfied, to purchase a number of additional ordinary shares proportionate to
the initial commitment of each underwriter as indicated in the preceding tables
and we will be obligated, under the over-allotment option, to sell the ordinary
shares to the underwriters.
We, our executive officers and directors and certain of our other existing
shareholders have agreed not to directly or indirectly do any of the following,
whether any transaction described in clause (1) or (2) below is to be settled by
delivery of ordinary shares or other securities, in cash or otherwise, in each
case without the prior written consent of Lehman Brothers Inc. on behalf of the
underwriters, for a period of 180 days after the date of the underwriting
agreement:
(1) offer, sell or otherwise dispose of, or enter into any transaction or
arrangement which is designed or could be expected to, result in the
disposition or purchase by any person at any time in the future of, any
ordinary shares or securities convertible into or exchangeable for
ordinary shares or substantially similar securities, other than any of
the following:
- the ordinary shares sold by us under this prospectus
- ordinary shares we issue under employee benefit plans, qualified
stock option plans or other employee compensation plans existing on
the date of the underwriting agreement; or
(2) sell or grant options, rights or warrants with respect to any of our
ordinary shares or securities convertible into or exchangeable for our
ordinary shares or substantially similar securities, other than the
grant of options under option plans existing on the date of the
underwriting agreement; or
(3) enter into any swap or other derivatives transaction that transfers to
another, in whole or in part, any of the economic benefits or risks of
ownership of shares of ordinary shares.
Prior to the offering, there has been no public market for the ordinary
shares. The initial public offering price will be negotiated between the
representatives and us. In determining the initial public offering price of the
ordinary shares, the representatives will consider various factors, including:
- prevailing market conditions;
- our historical performance and capital structure;
- estimates of our business potential and earning prospects;
- an overall assessment of our management; and
- the consideration of the above factors in relation to market valuations
of companies in related businesses.
We have made an application for quotation of our ordinary shares on The
Nasdaq National Market under the symbol "CKSV."
Fidelity Capital Markets, a division of National Financial Services
Corporation, is acting as an underwriter in this offering and will be
facilitating electronic distribution of information through the Internet,
intranet and other proprietary electronic technology.
We have agreed in the underwriting agreement to indemnify the underwriters
against liabilities under the Securities Act and to contribute to payments that
the underwriters may be required to make for these liabilities.
We estimate that the total expenses of the offering, excluding underwriting
discounts and commissions, will be approximately $ .
82
<PAGE> 84
Until the distribution of the ordinary shares is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters and
selling group members to bid for and purchase ordinary shares. As an exception
to these rules, the representatives are permitted to engage in transactions that
stabilize the price of the ordinary shares. These transactions may consist of
bids or purchases for the purposes of pegging, fixing or maintaining the price
of the ordinary shares.
The underwriters may create a short position in the ordinary shares in
connection with the offering, which means that they may sell more shares than
are set forth on the cover page of this prospectus. If the underwriters create a
short position, then the representatives may reduce that short position by
purchasing ordinary shares in the open market. The representatives also may
elect to reduce any short position by exercising all or part of the
over-allotment option.
The underwriters have informed us that they do not intend to confirm sales
to discretionary accounts that exceed five percent of the total number of
ordinary shares offered by them.
The representatives also may impose a penalty bid on underwriters and
selling group members. This means that if the representatives purchase ordinary
shares in the open market to reduce the underwriters' short position or to
stabilize the price of the ordinary shares, they may reclaim the amount of the
selling concession from the underwriters and selling group members who sold
those ordinary shares offered by them.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of these purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
an offering.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the ordinary shares. In addition,
neither we nor any of the underwriters makes any representation that the
representatives will engage in these transactions or that these transactions,
once commenced, will not be discontinued without notice.
Any offers in Canada will be made only under an exemption from the
requirements to file a prospectus in the relevant province of Canada in which
the sale is made.
The ordinary shares offered in this prospectus are only being registered
for offering in the United States. No action will be taken by us and the
underwriters in any other jurisdiction where action is required to permit a
public offering of the ordinary shares offered in this prospectus. People who
obtain this prospectus are required by us and the underwriters to inform
themselves about and to observe any restrictions on the offering of the ordinary
shares and the distribution of this prospectus.
Purchasers of the ordinary shares offered in this prospectus may be
required to pay stamp taxes and other charges under the laws and practices of
the country of purchase, in addition to the offering price listed on the cover
page of this prospectus.
At our request, the underwriters have reserved up to ordinary
shares offered by this prospectus for sale to our officers, directors, employees
and their family members and to our business associates at the initial public
offering price set forth on the cover page of this prospectus. These persons
must commit to purchase no later than the close of business on the day following
the date of this prospectus. The number of ordinary shares available for sale to
the general public will be reduced to the extent these persons purchase the
reserved ordinary shares. To the extent that these persons have signed a lock-up
agreement, as described above, ordinary shares purchased by them will be subject
to the provisions of the lock-up agreement.
83
<PAGE> 85
CLICKSERVICE SOFTWARE LTD.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Changes in Shareholders'
Equity.................................................... F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to the Consolidated Financial Statements.............. F-7
</TABLE>
F-1
<PAGE> 86
After the change in share capital, the reverse share split and share dividend
discussed in Note 11 to the financial statements is effected, we expect to be in
a position to render the following audit report.
LUBOSHITZ KASIERER
Member Firm of Arthur Andersen
Tel-Aviv, Israel
February 14, 2000
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
ClickService Software Ltd.
We have audited the accompanying consolidated balance sheets of
ClickService Software Ltd. (an Israeli Corporation) as of December 31, 1998 and
1999, and the related consolidated statements of operations, changes in
shareholders' equity 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 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 under
the Auditors' Regulations (Auditor's Mode of Performance), 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 management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of December 31, 1998 and 1999, and the results of operations, changes in
shareholders' equity and 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.
F-2
<PAGE> 87
CLICKSERVICE SOFTWARE LTD.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1999
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (note 3)........................ $ 3,770 $ 7,838
Trade receivables, net of allowance of $0 and $130,
respectively........................................... 2,041 3,966
Other receivables and prepaid expenses (note 4)........... 439 465
-------- --------
Total current assets................................... 6,250 12,269
Property and equipment, net (note 5)........................ 1,240 1,498
Severance pay deposits (note 9)............................. 493 428
-------- --------
Total assets........................................... $ 7,983 $ 14,195
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt (note 6).................................. $ 299 $ 320
Accounts payable and accrued expenses (note 7)............ 1,687 2,799
Deferred revenues......................................... 86 1,143
-------- --------
Total current liabilities.............................. 2,072 4,262
-------- --------
LONG-TERM LIABILITIES:
Long-term debt (note 8)................................... 330 213
Accrued severance pay (note 9)............................ 924 899
-------- --------
Total long-term liabilities............................ 1,254 1,112
-------- --------
Total liabilities...................................... 3,326 5,374
-------- --------
Commitments and contingencies (note 10)
SHAREHOLDERS' EQUITY: (NOTE 11)
Convertible Preferred shares of NIS 0.02 par value:
Authorized -- 20,430,238 shares (1998 -- 18,600,000
shares); Issued and outstanding -- 13,499,898 shares
(1998 -- 11,667,812 shares)............................ 52 60
Ordinary shares of NIS 0.02 par value:
Authorized -- 9,809,761 shares (1998 -- 11,640,000
shares); Issued and outstanding -- 7,208,846 shares.... 13 13
Additional paid-in capital.................................. 20,265 35,063
Deferred compensation....................................... -- (2,663)
Accumulated deficit......................................... (15,673) (23,652)
-------- --------
Total shareholders' equity............................. 4,657 8,821
-------- --------
Total liabilities and shareholders' equity............. $ 7,983 $ 14,195
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 88
CLICKSERVICE SOFTWARE LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS )
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1998 1999
---------- ----------- -----------
<S> <C> <C> <C>
Revenues: (note 12)
Software license................................... $ 1,235 $ 3,932 $ 5,414
Service and maintenance............................ 1,080 2,139 4,912
---------- ----------- -----------
Total revenues.................................. 2,315 6,071 10,326
---------- ----------- -----------
Cost of revenues:
Software license................................... 13 25 71
Service and maintenance............................ 1,035 2,301 4,299
---------- ----------- -----------
Total cost of revenues.......................... 1,048 2,326 4,370
---------- ----------- -----------
Gross profit.................................... 1,267 3,745 5,956
---------- ----------- -----------
Operating expenses:
Research and development expenses.................. 1,836 3,150 3,935
Less -- participation by the Chief Scientist of the
Government of Israel (note 10).................. 497 866 1,025
---------- ----------- -----------
Research and development expenses, net............. 1,339 2,284 2,910
Sales and marketing expenses (note 10)............. 3,172 6,019 8,274
General and administrative expenses................ 1,120 1,333 1,759
Share-based compensation........................... -- -- 738
---------- ----------- -----------
Total operating expenses........................ 5,631 9,636 13,681
---------- ----------- -----------
Operating loss.................................. (4,364) (5,891) (7,725)
Interest and other (expenses) income, net............ (148) 33 (254)
---------- ----------- -----------
Net loss........................................ $ (4,512) $ (5,858) $ (7,979)
========== =========== ===========
Basic and diluted net loss per share (note 2)........ $ (0.80) $ (0.99) $ (1.34)
========== =========== ===========
Shares used in computing basic and diluted net loss
per share.......................................... 5,657,728 5,914,765 5,948,846
========== =========== ===========
Pro forma net loss per share (unaudited)............. $ (0.45)
===========
Shares used in computing basic and diluted pro forma
net loss per share (unaudited)..................... 17,692,994
===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 89
CLICKSERVICE SOFTWARE LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NUMBER OF
NUMBER OF CONVERTIBLE ADDITIONAL
ORDINARY PREFERRED SHARE PAID-IN DEFERRED ACCUMULATED
SHARES SHARES AMOUNT CAPITAL COMPENSATION DEFICIT TOTAL
--------- ----------- ------ ---------- ------------ ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of January 1, 1997.... 5,710,232 -- $ 8 $ 1,341 $ -- $ (5,303) $(3,954)
Shares issued net of issuance
costs of $121............... 1,498,614 5,109,862 28 5,261 -- -- 5,289
Net loss....................... -- -- -- -- -- (4,512) (4,512)
--------- ---------- --- ------- ------- -------- -------
Balance as of December 31,
1997........................... 7,208,846 5,109,862 36 6,602 -- (9,815) (3,177)
Shares issued net of issuance
costs of $155............... -- 6,557,950 29 13,663 -- -- 13,692
Net loss....................... -- -- -- -- -- (5,858) (5,858)
--------- ---------- --- ------- ------- -------- -------
Balance as of December 31,
1998........................... 7,208,846 11,667,812 65 20,265 -- (15,673) 4,657
Shares issued net of issuance
costs of $126............... -- 1,832,086 8 11,366 -- -- 11,374
Employee options exercised..... -- -- -- 31 -- -- 31
Deferred compensation....... -- -- -- 3,401 (3,401) -- --
Amortization of deferred
compensation................ -- -- -- -- 738 -- 738
Net loss....................... -- -- -- -- -- (7,979) (7,979)
--------- ---------- --- ------- ------- -------- -------
Balance as of December 31,
1999........................... 7,208,846 13,499,898 $73 $35,063 $(2,663) $(23,652) $ 8,821
========= ========== === ======= ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 90
CLICKSERVICE SOFTWARE LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $(4,512) $(5,858) $(7,979)
Adjustments to reconcile net loss to net cash used in
operating activities
Expenses not affecting operating cash flows:
Depreciation........................................... 237 323 484
Amortization of deferred compensation.................. -- -- 738
Severance pay.......................................... 164 15 40
Other.................................................. 78 37 (8)
Changes in operating assets and liabilities:
Trade receivables...................................... (569) (1,074) (1,925)
Other receivables...................................... (66) (189) (26)
Accounts payable and accrued expenses.................. (227) 398 1,112
Deferred revenues...................................... 290 (315) 1,057
------- ------- -------
Net cash used in operating activities................ (4,605) (6,663) (6,507)
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment...................................... (245) (1,039) (732)
Proceeds from sale of equipment............................. 27 -- --
------- ------- -------
Net cash used in investing activities................ (218) (1,039) (732)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term debt............................................. (1,464) (133) 14
Proceeds from long-term debt................................ 1,975 -- 35
Repayments of long-term debt................................ (370) (368) (147)
Net proceeds from issuance of convertible preferred
shares.................................................... 4,879 11,672 11,374
Employee options exercised.................................. -- -- 31
------- ------- -------
Net cash provided by financing activities............ 5,020 11,171 11,307
------- ------- -------
Increase in cash and cash equivalents....................... 197 3,469 4,068
Cash and cash equivalents at beginning of year.............. 104 301 3,770
------- ------- -------
Cash and cash equivalents at end of year.................... $ 301 $ 3,770 $ 7,838
======= ======= =======
Supplemental cash flow information
Cash paid for interest...................................... $ 119 $ 152 $ 137
======= ======= =======
Noncash transactions
Loans converted into shares................................. $ 410 $ 2,020 $ --
======= ======= =======
Transfer of intangible assets to an affiliated company...... $ 496 $ -- $ --
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 91
CLICKSERVICE SOFTWARE LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- GENERAL
ClickService Software Ltd. (formerly I.E.T. Intelligent Electronics Ltd.)
("the Company" or "ClickService"), was incorporated in Israel and provides
web-based application software that enables companies to efficiently provide
service and product delivery in enterprise environments and over the Internet.
The ClickSchedule product line enables clients to provide services and products
to their customers online by scheduling and optimizing appointments for their
delivery. The ClickFix product facilitates automated diagnosis and
troubleshooting of equipment. ClickSchedule and ClickFix enable clients to
optimize resource allocation, offering their customers ease of use and
convenience while procuring services and products. ClickService customers come
from a wide variety of industries, including: aerospace; defense; semi-conductor
and communications; software and automotive industry.
The Company has incurred net operating losses since inception and, as of
December 31, 1999, had an accumulated deficit of $23.7 million. The Company is
subject to various risks associated with companies in a comparable stage of
development, including competition from substitute products and larger
competitors, dependence on key individuals and the ability to obtain adequate
financing to support its growth.
The consolidated financial statements include the financial statements of
the Company and its wholly-owned subsidiaries in the U.S. (ClickService Software
Inc., a California Corporation) and in the UK (ClickService (Europe) Ltd.). The
subsidiaries are primarily engaged in the sale and marketing of the Company's
products within North America, Europe and the Far East.
The accompanying financial statements have been prepared in U.S. dollars,
as the currency of the primary economic environment in which the operations of
the Company are conducted is the U.S. dollar. Most of the Company's sales are
made outside Israel in non-Israeli currencies (mainly the U.S. dollar). A
majority of the purchases of materials and components are made outside Israel in
non-Israeli currencies. In addition, most marketing expenses are incurred
outside Israel, primarily in U.S. dollars. Thus, the functional currency of the
Company is the U.S. dollar.
Transactions and balances originally denominated in U.S. dollars are
presented at their original amounts. Transactions and balances in other
currencies are translated into U.S. dollars in accordance with principles set
forth in Statement No. 52 of the Financial Accounting Standards Board of the
United States ("FASB"). Accordingly, items have been translated as follows:
- Monetary items -- at the current exchange rate in effect at balance sheet
date.
- Non monetary items -- at historical exchange rates.
- Revenue and expense items -- at exchange rates in effect as of date of
recognition of those items (excluding depreciation and other items
deriving from non monetary items).
All exchange gains and losses from the aforementioned translation (which
are immaterial for each reported period) are reflected in the statements of
operations.
The representative rate of exchange of the U.S. dollar in relation to the
New Israeli Shekel ("NIS") at December 31, 1999 -- U.S.$1.00 = NIS 4.15
(1998 -- NIS 4.16; 1997 -- NIS 3.54).
F-7
<PAGE> 92
CLICKSERVICE SOFTWARE LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The financial statements have been prepared in conformity with accounting
principles generally accepted in the U.S. The significant accounting policies
followed in the preparation of the financial statements applied on a consistent
basis, are as follows:
Principles of Consolidation
The financial statements include the accounts of the Company and its
wholly-owned subsidiaries. Material intercompany balances and transactions have
been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
For the purpose of the statements of cash flows, the Company considers all
highly liquid investments purchased with a maturity of three months or less to
be cash equivalents.
Concentration of Credit Risk
The Company provides credit to its customers in the normal course of
business, performs ongoing credit evaluations of its customers and maintains
allowances for potential credit losses which, to date, have not been material.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets, ranging
from 3 to 16 years. Leasehold improvements are amortized using the straight line
method, over the shorter of the lease term, including renewal options, or the
useful lives of the improvements.
Software Research and Development Costs
Software research and development costs incurred prior to the establishment
of technological feasibility are included in research and development expenses.
The Company defines establishment of technological feasibility as the completion
of a working model. Software development costs incurred subsequent to the
establishment of technological feasibility through the period of general market
availability of the products are capitalized, if material, after consideration
of various factors, including net realizable value. To date, software
development costs that are eligible for capitalization have not been material
and have been expensed.
Revenue Recognition
Software license revenues are recognized in accordance with the American
Institute of Certified Public Accountants Statement of Position 97-2, "Software
Revenue Recognition," or SOP 97-2, as amended by Statement of Position 98-4.
Under SOP 97-2, we recognize software license revenues when a software license
agreement has been executed or a definitive purchase order has been received and
the
F-8
<PAGE> 93
CLICKSERVICE SOFTWARE LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
product has been delivered to our clients, no significant obligations with
regard to implementation remain, the fee is fixed and determinable, and
collectability is probable. Revenue related to post-contract support (PCS)
arrangements are recognized ratably over the term of the arrangements. Revenues
related to services are recognized as the services are rendered.
Basic and Diluted Net Loss Per Share and Pro Forma Basic and Diluted Net Loss
Per Share
Basic and diluted net loss per share are presented in conformity with
Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings per
Share" for all years presented. Basic and diluted net loss per share have been
computed using the weighted-average number of Ordinary shares outstanding during
the year, excluding Ordinary shares held by a trustee reserved for allocation
against employee options granted but not yet exercised (see note 11).
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1997 1998 1999
---------- ----------- -----------
(IN THOUSANDS EXCEPT PER SHARE
DATA AND SHARE NUMBERS)
<S> <C> <C> <C>
Net loss............................................. $ (4,512) $ (5,858) $ (7,979)
Basic and diluted:
Weighted average shares used in computing basic and
diluted net loss per Ordinary share............. 5,657,728 5,914,765 5,948,846
========== =========== ===========
Basic and diluted net loss per Ordinary share...... $ (0.80) $ (0.99) $ (1.34)
========== =========== ===========
Net loss............................................. $ (7,979)
Pro forma basic and diluted:
Shares used above.................................. 5,948,846
Pro forma adjustment to reflect weighted effect of
assumed conversion of Convertible Preferred
shares (unaudited).............................. 11,744,148
-----------
Shares used in computing pro forma basic and
diluted net loss per share (unaudited).......... 17,692,994
===========
Pro forma basic and diluted net loss per share
(unaudited)..................................... $ (0.45)
===========
</TABLE>
All Convertible Preferred shares, warrants for Convertible Preferred
shares, outstanding share options and shares issued and reserved for outstanding
share options have been excluded from the calculation of basic and diluted net
loss per share because all such securities are antidilutive for all years
presented. The total number of shares excluded from the calculations of basic
and diluted net loss per share were 6,369,862, 13,340,290 and 16,577,409 as of
December 31, 1997, 1998 and 1999, respectively.
Pro forma basic and diluted net loss per share, as presented in the
Statements of Operations, has been computed as described above and gives effect
to the automatic conversion of the Convertible Preferred shares that will
convert upon the closing of an initial public offering (using the if-converted
method from original date of issuance). The total number of shares excluded from
the calculation of pro forma basic and diluted net loss per share was 3,058,585
as of December 31, 1999.
Share-Based Compensation
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," in October 1995. This accounting standard permits the use of
either a fair value based method of accounting or the method prescribed in
Accounting Principles Board Opinion 25 ("APB 25"), "Accounting for Stock Issued
to Employees" to account for stock-based compensation arrangements. Companies
that elect to employ the
F-9
<PAGE> 94
CLICKSERVICE SOFTWARE LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
method prescribed by APB 25 are required to disclose the pro forma net loss that
would have resulted from the use of the fair value based method. The Company has
elected to account for its share-based compensation arrangements under the
provisions of APB 25, and accordingly, has included in note 11 the pro forma
disclosures required under SFAS No. 123.
Fair Value of Financial Instruments
Unless otherwise noted, the carrying amount of financial instruments
approximates fair value.
Income Taxes
The Company accounts for income taxes, in accordance with the provisions of
SFAS 109 "Accounting for Income Taxes," under the liability method of
accounting. Under the liability method, deferred taxes are determined based on
the differences between the financial statement and tax bases of assets and
liabilities at enacted tax rates in effect in the year in which the differences
are expected to reverse. Valuation allowances are established, when necessary,
to reduce deferred tax assets to amounts expected to be realized.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards requiring that every derivative
instrument be recorded in the balance sheet at its fair value. SFAS No. 133
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement. SFAS No. 133 is effective
for fiscal years beginning after June 15, 2000. The Company believes that the
adoption of SFAS No. 133 will not have a material effect on its financial
statements.
In December 1998, the American Institute of Certified Public Accountants
AICPA issued SOP 98-9, "Modification of SOP 97-2, Software Revenue Recognition,
with Respect to Certain Transactions". SOP 98-9 amends SOP 97-2 and SOP 98-4 by
extending the deferral of the application of certain provisions of SOP 97-2
amended by SOP 98-4 through fiscal years beginning on or before March 15, 1999.
All other provisions of SOP 98-9 are effective for transactions entered into in
fiscal years beginning after March 15, 1999. The Company does not anticipate
that this SOP will have a material impact on its results of operations.
NOTE 3 -- CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1998 1999
------ ------
(IN THOUSANDS)
<S> <C> <C>
In NIS...................................................... $ 38 $ --
In Pounds Sterling.......................................... 326 --
In U.S. dollars............................................. 3,406 7,838
------ ------
$3,770 $7,838
====== ======
</TABLE>
F-10
<PAGE> 95
CLICKSERVICE SOFTWARE LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- OTHER RECEIVABLES AND PREPAID EXPENSES
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1998 1999
----- -----
(IN THOUSANDS)
<S> <C> <C>
Government participations and other government
receivables............................................... $210 $142
Employees................................................... 57 60
Other receivables and prepaid expenses...................... 172 263
---- ----
$439 $465
==== ====
</TABLE>
NOTE 5 -- PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1998 1999
------ ------
(IN THOUSANDS)
<S> <C> <C>
COST
Computers and office equipment.............................. $2,152 $2,747
Leasehold improvements...................................... 357 357
Motor vehicles.............................................. 254 363
------ ------
2,763 3,467
ACCUMULATED DEPRECIATION.................................... 1,523 1,969
------ ------
NET BOOK VALUE.............................................. $1,240 $1,498
====== ======
</TABLE>
For the years ended December 31, 1997, 1998 and 1999, depreciation expense
was $237,000, $323,000 and $484,000, respectively.
The net book value of the Company's property and equipment located in
Israel was $973,000 and $1,156,000 as of December 31, 1998 and 1999,
respectively.
NOTE 6 -- SHORT-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1998 1999
----- -----
(IN THOUSANDS)
<S> <C> <C>
Short-term debt............................................. $ 11 $ 15
Current maturities of long-term debt (note 8)............... 156 173
Shareholder loan on demand.................................. 132 132
---- ----
$299 $320
==== ====
</TABLE>
In 1999 the Company established a revolving, trade receivable based, credit
facility of up to $2.5 million for working capital purposes. The line of credit
is limited to 80% of eligible trade receivables and the amount outstanding under
this facility as of December 31, 1999 was nil.
F-11
<PAGE> 96
CLICKSERVICE SOFTWARE LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1998 1999
------ ------
(IN THOUSANDS)
<S> <C> <C>
Suppliers................................................... $ 357 $ 805
Employees and related expenses.............................. 822 1,173
Accrued royalties........................................... 249 330
Other....................................................... 259 491
------ ------
$1,687 $2,799
====== ======
</TABLE>
NOTE 8 -- LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1998 1999
----- -----
(IN THOUSANDS)
<S> <C> <C>
Bank loans:
In U.S. dollars........................................... $210 $150
Linked to the Israeli CPI................................. 191 111
Other....................................................... 85 125
---- ----
486 386
Less -- current maturities (note 6)......................... 156 173
---- ----
$330 $213
==== ====
</TABLE>
- ---------------
The loan in US dollars bears annual interest of LIBOR plus 1% (7.5% as of
December 31, 1999). The loan linked to the Israeli CPI bears interest at 5.4%
per annum.
Long-term debt as of December 31, 1999, net of current maturities, is
repayable as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Second year................................................. $148
Third year.................................................. 54
Fourth year................................................. 10
Fifth year.................................................. 1
----
$213
====
</TABLE>
NOTE 9 -- SEVERANCE PAY
Under Israeli law and labor agreements, the Company is required to make
severance payments to its dismissed employees and employees leaving its
employment in certain other circumstances. The Company's severance pay
obligation to its employees which is calculated on the basis of the salary of
each employee for the last month of the reported period multiplied by the years
of such employee's employment, is reflected by the accrual presented in the
balance sheet and is partially funded by deposits with insurance companies and
provident funds.
Severance pay expenses amounted to $105,000, $272,000 and $202,000 for the
years ended December 31, 1997, 1998 and 1999, respectively.
F-12
<PAGE> 97
CLICKSERVICE SOFTWARE LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 -- COMMITMENTS AND CONTINGENCIES
In connection with its research and development, the Company received
participation payments from the State of Israel in the total amount of
$2,939,000. In return for the Government of Israel participation, the Company is
committed to pay royalties at a rate of 3% to 5% of sales of the developed
product, up to 100% -- 150% of the amount of grants received. The Company has
paid or accrued royalties to date of $829,000.
In connection with its export marketing activities, until December 31, 1996
the Company received participation payments from the Government of Israel
through the Fund for the Encouragement of Marketing Activities in the amount of
$707,000. The Company is committed to pay royalties at a rate of 3% of the
increase in export sales over a base amount, up to the amount of the
participations received. The Company has paid or accrued royalties to date
amounting to $305,000.
Long-term bank debt, and liabilities to banks in respect of guarantees
given for the benefit of the Company are secured by fixed charges on vehicles
and on amounts receivable from certain major customers.
The Company operates from facilities in Israel; the United States and the
U.K., leased for periods expiring in the years 2000 to 2003 (some with a renewal
option ending in May 2008) at annual rent of approximately $859,000. Minimum
future rental payments, at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
(IN
THOUSANDS)
-------------
<S> <C>
2000........................................................ $ 859
2001........................................................ 563
2002........................................................ 492
2003........................................................ 492
------
$2,406
======
</TABLE>
See note 15.
F-13
<PAGE> 98
CLICKSERVICE SOFTWARE LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11 -- SHAREHOLDERS' EQUITY
A. SHARE CAPITAL -- comprises of shares of NIS 0.02 par value.
<TABLE>
<CAPTION>
NUMBER OF SHARES
----------------------------------------------------------------------------
AUTHORIZED ISSUED AND OUTSTANDING
------------------------------------ -------------------------------------
1997 1998 1999 1997 1998 1999
---------- ---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Ordinary shares.................. 18,000,000 9,600,000 7,769,761 5,468,846 5,468,846 5,468,846
Ordinary A
shares -- non-voting........... 840,000 840,000 840,000 840,000(*) 840,000(*) 840,000(*)
Ordinary B Convertible shares --
non-voting..................... 1,200,000 1,200,000 1,200,000 900,000(*) 900,000(*) 900,000(*)
---------- ---------- ---------- --------- ---------- ----------
20,040,000 11,640,000 9,809,761 7,208,846 7,208,846 7,208,846
========== ========== ========== ========= ========== ==========
Preferred A-1 Convertible
shares......................... 5,700,000 5,700,000 5,700,000 2,810,424 2,810,424 2,810,424
Preferred A Convertible shares... 4,500,000 4,500,000 4,500,000 2,299,438 2,299,438 2,299,438
Preferred B Convertible shares... -- 4,800,000 4,800,000 -- 3,826,809 3,826,809
Preferred C Convertible shares... -- 3,600,000 3,600,000 -- 2,731,141 2,731,141
Preferred D Convertible shares
(see note 11B)................. -- -- 1,830,238 -- -- 1,832,086
---------- ---------- ---------- --------- ---------- ----------
10,200,000 18,600,000 20,430,238 5,109,862 11,667,812 13,499,898
========== ========== ========== ========= ========== ==========
</TABLE>
- ---------------
(*)Includes shares reserved for allocation against employee options granted but
not yet exercised, held by a trustee. The total number of Ordinary shares
held by the trustee are 1,260,000 as of December 31, 1997 and 1998 and
1,206,920 as of December 31, 1999.
A proposed 1 for 2 reverse share split and thereafter a share dividend of 6
shares for every 5 outstanding Ordinary shares and Preferred convertible shares
is subject to shareholder approval. All references to per share amounts and
number of shares in these financial statements have been retroactively restated
to reflect this reverse share split and share dividend. The combined reversed
share split and share dividend is the equivalent of a 3 for 5 reverse share
split.
Preferred Convertible A-1 shares do not entitle the holder to voting rights
and are convertible to Preferred A Convertible shares or Ordinary B Convertible
shares.
Preferred A, B, C, and D Convertible shares entitle the holder to full
voting rights and are convertible to Preferred A-1 Convertible shares or
Ordinary shares.
All types of Preferred shares entitle the holder to a preference dividend
at the rate of 110% of the dividend distributed to the holders of the Ordinary
shares, in preference to any distribution to the holders of Ordinary shares. In
the event of liquidation, the holders of preferred shares are entitled to the
following preferences:
- Preferred A and A-1 convertible shares to 3 times their initial effective
purchase price.
- Preferred B and C convertible shares to 2 times their initial effective
purchase price.
- Preferred D convertible shares to 1.75 times their initial effective
purchase price.
Preferred shares, Ordinary A shares and Ordinary B Convertible shares are
convertible to Ordinary shares on a one to one basis. In the event of an initial
public offering all of the aforementioned shares will automatically convert into
Ordinary shares.
F-14
<PAGE> 99
CLICKSERVICE SOFTWARE LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
B. Issuances
In December 1999, the Company signed an agreement to issue, in a private
placement, 1,832,086 Preferred D Convertible shares in consideration for
$11,500,000. As of December 31, 1999, the shares are reflected, as issued and
outstanding, however the shares were issued subsequent to year end. As of
December 31, 1999 the issue exceeded authorized share capital by 1,848 shares.
The Board of Directors has approved a proposed increase in authorized share
capital of Preferred D Convertible shares by reclassifying Ordinary shares to
Preferred D Convertible shares. This reclassification is subject to shareholder
approval which is perfunctory. Subsequent to this approval the unissued shares
will be issued.
In addition, in December 1999, certain employees exercised their options to
acquire 53,080 Ordinary shares (11,741 Ordinary A shares and 41,339 Ordinary B
Convertible shares). These shares had been previously issued and held by the
trustee and were included in the number of issued and outstanding Ordinary
shares.
C. Warrants
Warrants to purchase 393,552 Preferred B Convertible shares and warrants to
purchase 18,926 Ordinary shares, were issued on March 31, 1998 in conjunction
with the conversion to Preferred B Convertible shares of a convertible
subordinated promissory note. The warrants were recorded at their fair market
value and included in additional paid-in capital. The exercise price for the
purchase of 393,552 shares is $1.96, and the exercise price for the purchase of
18,926 shares is $0.58.
The warrants are exercisable in whole or in part at any time ending on the
earlier of March 31, 2003 or the date of any of the following:
- an initial public offering; or
- sale/transfer of substantially all of the Company's assets; or
- change in ownership of more than 50% of the voting power of the Company.
The warrants can either be exercised for cash consideration or any warrant
may be exercised by applying the value of a portion of the warrant, which is
equal to the number of shares issuable under the warrant being exercised,
multiplied by the fair market value of the security receivable upon exercise of
the warrant, less the per share exercise price, in lieu of payment of the
exercise price per share.
The warrants are subject to antidilution provisions.
D. Employee and Consultant Option Plans
The Company adopted an Employees' Stock Options Plan (1996 Option Plan)
according to which options for the purchase of up to 360,000 Ordinary A shares
may be granted to employees. The options have an exercise price of $0.58 per
share and shall vest over a four year period at the rate of 33% per year,
commencing in the second year from the date of the grant. In 1997, the Company
adopted an Employees' Stock Option Plan (1997 Option Plan) according to which
options for the purchase of up to 900,000 Ordinary B shares may be granted to
employees. The options are exercisable at a price of $0.58 per share and vest
over a four year period, with monthly vesting after two years. The options
issued to U.S. employees vest after 1 year. Employees' compensation in respect
of options granted under these plans is immaterial.
In 1999 the Company adopted new option plans according to which options for
the purchase of 608,809 Ordinary B shares may be granted to employees.
F-15
<PAGE> 100
CLICKSERVICE SOFTWARE LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On November 30, 1999 a warrant to purchase 75,000 Ordinary shares was
issued to a consultant (director) that vests immediately with an exercise price
of $3.67.
The Board of Directors has approved the grant of stand-alone options to
purchase 810,000 Ordinary shares to the Company's CEO, a director and a
consultant (director). The grants are subject to perfunctory shareholder
approval.
In connection with the grant of certain options to employees during fiscal
1999, the Company recorded deferred compensation of approximately $3,401,000,
representing the difference between the estimated fair value of the Ordinary
shares and the exercise price of these options at the date of grant. Such amount
is presented as a reduction of shareholders' equity and amortized over the
vesting period of the applicable options. The Company recorded amortization of
deferred compensation of approximately $738,000 during the year ended December
31, 1999. At December 31, 1999, the remaining deferred compensation of
approximately $2,663,000 will be amortized as follows: $1,417,000, $744,000,
$378,000 and $124,000 during the years ended 2000, 2001, 2002 and 2003,
respectively. The amortization expense relates to options awarded to employees
in all operating expense categories. The amount of deferred compensation expense
to be recorded in future periods could decrease if options for which accrued but
unvested compensation has been recorded, are forfeited.
If deferred compensation had been determined under the alternative fair
value accounting method provided for under SFAS No. 123, "Accounting for
Stock-Based Compensation", using the "minimum value" method with the following
weighted average assumptions used for grants in all reported periods: (1)
average expected life of the options is 1.36; (2) dividend yield of 0%; (3)
expected volatility of 0% and (4) risk-free interest rate of 5%, the effect on
the Company's net loss and net loss per share would have been immaterial for all
reported periods.
Transactions related to the above discussed options and warrants granted to
employees and consultants during the years ended December 31, 1997, 1998 and
1999 and the weighted average exercise prices per share and weighted average
fair value of the options at the date of grant are summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
WEIGHTED AVERAGE
AVERAGE FAIR
OPTIONS EXERCISE VALUE
AVAILABLE OUTSTANDING PRICE PER OF
FOR GRANT OPTIONS(*) SHARE OPTION
------------- ----------- --------- --------
<S> <C> <C> <C> <C>
Outstanding January 1, 1997............ 180,307 179,693 $0.58
Authorized........................... 1,200,000 --
Granted.............................. (652,026) 652,026 0.58 $0.40
Forfeited............................ 170,189 (170,189) 0.58
---------- ---------
Outstanding December 31, 1997.......... 898,470 661,530 0.58
Granted.............................. (627,810) 627,810 0.58 $1.14
Forfeited............................ 65,035 (65,035) 0.58
---------- ---------
Outstanding December 31, 1998.......... 335,695 1,224,305 0.58
Authorized........................... 1,493,809 --
Granted.............................. (1,493,809) 1,493,809 1.64 $2.62
Exercised............................ -- (53,080) 0.58
---------- ---------
Outstanding December 31, 1999.......... 335,695 2,665,034 1.17
========== =========
</TABLE>
- ---------------
(*) As of December 31, 1997 and 1998 1,260,000 Ordinary shares and as of
December 31, 1999 1,206,920 Ordinary shares are held by a trustee and have
been reserved for allocation against certain employee options granted but
not yet exercised.
F-16
<PAGE> 101
CLICKSERVICE SOFTWARE LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about options outstanding and
exercisable at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------- -------------------------
NUMBER WEIGHTED- NUMBER
OUTSTANDING AVERAGE WEIGHTED- OUTSTANDING WEIGHTED-
AT REMAINING AVERAGE AT AVERAGE
DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
EXERCISE PRICE 1999 LIFE PRICE 1999 PRICE
-------------- ------------ ----------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
$0.58.................... 1,171,225 7.34 $0.58 576,294 $0.58
0.83..................... 608,809 9.47 0.83 6,811 --
1.83..................... 720,000 9.58 1.83 87,757 1.83
3.67..................... 165,000 9.91 3.67 77,500 3.67
--------- -------
2,665,034 748,362
========= =======
</TABLE>
NOTE 12 -- SEGMENT REPORTING
In accordance with SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information", the Company is organized and operates as
one business segment, the design, development, and marketing of software
solutions.
The Company's revenue by geographic area is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1997 1998 1999
------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
North America........................................... $ 836 $4,293 $ 6,978
Europe.................................................. 570 1,193 2,163
Israel.................................................. 678 493 905
Singapore............................................... 231 92 280
------ ------ -------
$2,315 $6,071 $10,326
====== ====== =======
</TABLE>
Sales to a single customer exceeding 10%:
<TABLE>
<CAPTION>
% % %
--- --- ---
<S> <C> <C> <C>
Customer A.................................................. 11 13 (*)
Customer B.................................................. -- 12 (*)
Customer C.................................................. 21 (*) (*)
Customer D.................................................. -- 11 (*)
</TABLE>
- ---------------
(*) Under 10%
NOTE 13 -- TAXES ON INCOME
The Company is subject to the Income Tax Law (Inflationary Adjustments),
1985, measuring income on the basis of changes in the Israeli Consumer Price
Index.
Part of the Company's investment in equipment has received approvals in
accordance with the Law for the Encouragement of Capital Investments, 1959
("approved enterprise" status). The Company has chosen to receive its benefits
through the "Alternative Benefits" track, and, as such, is eligible for various
benefits. These benefits include accelerated depreciation of fixed assets used
in the investment program, as well as a full tax exemption on undistributed
income in relation to income derived from the first plan for a period of 2 years
and for the second and third plans for a period of 4 years. Thereafter a reduced
tax rate
F-17
<PAGE> 102
CLICKSERVICE SOFTWARE LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of 25% will be applicable for an additional period of up to 5 years for the
first plan and 3 years for the second and third plans, commencing with the date
on which taxable income is first earned but not later than certain dates. In the
case of foreign investment of more than 25%, the tax benefits are extended to 10
years, and in the case of foreign investment ranging from 49% to 100% the tax
rate is reduced on a sliding scale to 10%. The benefits are subject to the
fulfillment of the conditions of the letter of approval. The benefit periods of
the second and third plans have not yet commenced. The regular tax rate
applicable to the Company is 36%.
In the event of distribution by the Company of a cash dividend out of
retained earnings which were tax exempt due to its approved enterprise status,
the Company would have to pay a 25% corporate tax on the income from which the
dividend was distributed. A 15% withholding tax may be deducted from dividends
distributed to the recipients.
Final tax assessments in Israel have been received up to and including the
1993 tax year.
The Company has net operating loss carryforwards in Israel of approximately
$9.8 million as of December 31, 1999. In addition losses of approximately $10.0
million are attributable to the U.S. subsidiary which will expire between 2008
and 2013. The UK subsidiary has carryforward tax losses of approximately
$660,000 as of December 31, 1999. The carryforward tax losses for Israel and the
UK have no expiration date.
The Company expects that during the period in which these tax losses are
utilized its income would be substantially tax exempt. Accordingly there will be
no tax benefit available from such losses and no deferred income taxes have been
included in these financial statements. Deferred taxes in respect of other
temporary differences are immaterial.
NOTE 14 -- BALANCES AND TRANSACTIONS WITH RELATED PARTIES
On January 1, 1997, the Company transferred its "Nester" division to a
company under common control. The majority of the following balances and
transactions are with that affiliated company.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1998 1999
----- -----
(IN THOUSANDS)
<S> <C> <C>
Balances:
Accounts payable and accrued expenses..................... $ 75 $139
Loan from shareholder on demand........................... 132 132
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1998 1999
----- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Transactions:
Sales to Nester...................................... $ 20 $-- $--
Management fee income from Nester.................... 48 89 48
Transfer of intangible assets to Nester.............. 496 -- --
</TABLE>
NOTE 15 -- SUBSEQUENT EVENTS
Subsequent to year end, the Company changed its name from I.E.T.
Intelligent Electronics Ltd. to ClickService Software Ltd.
F-18
<PAGE> 103
CLICKSERVICE SOFTWARE LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On February 2, 2000 the Company signed a seven year operating lease of new
office premises in the U.S. The lease commences on June 1, 2000 and the future
minimum annual payments are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
2000........................................................ $ 240
2001........................................................ 420
2002........................................................ 437
2003........................................................ 455
2004........................................................ 473
2005 to 2008................................................ 1,221
------
$3,246
======
</TABLE>
F-19
<PAGE> 104
LOGO
Shares
[ClickService Logo]
Ordinary Shares
----------------------------
PROSPECTUS
, 2000
----------------------------
LEHMAN BROTHERS
CIBC WORLD MARKETS
SG COWEN
FIDELITY CAPITAL MARKETS
A DIVISION OF NATIONAL FINANCIAL SERVICES CORPORATION
FACILITATING ELECTRONIC DISTRIBUTION
<PAGE> 105
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the Registrant in connection with the sale
of the securities being registered. All amounts shown are estimates except for
the SEC registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 13,200
NASD filing fee............................................. 5,500
NASDAQ National Market Fees................................. *
Blue Sky qualification fees and expenses.................... *
Israeli stamp duty.......................................... *
Printing and engraving expenses............................. *
Accountant's fees and expenses.............................. *
Legal fees and expenses..................................... *
Miscellaneous............................................... *
--------
Total.................................................. $ *
========
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Israeli law permits a company to insure an Office Holder in respect of
liabilities incurred by him as a result of the breach of his duty of care to the
company or to another person, or as a result of the breach of his fiduciary duty
to the company, to the extent that he acted in good faith and had reasonable
cause to believe that the act would not prejudice the company. A company can
also insure an Office Holder for monetary liabilities as a result of an act or
omission that he committed in connection with his serving as an Office Holder.
Furthermore, a company can indemnify an Office Holder for monetary liability in
connection with his activities as an Office Holder.
The Articles of Association of ClickService allow ClickService to insure
and indemnify Office Holders to the fullest extent permitted by law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
(a) For the period from December 31, 1996 to December 31, 1999, the
Registrant has issued and sold the following unregistered securities.
1. From December 1996 to December 1999, the Registrant granted stock
options and warrants to employees, directors and consultants pursuant to
stand-alone option and warrant agreements, its 1997 Stock Option Plan, its
1998 Stock Option Plan and its 1999 Stock Option Plan covering an aggregate
of 2,773,645 shares of the Registrant's common stock with an aggregate
exercise price of $3,170,766.
2. In April, 1997, the Registrant issued an aggregate of 2,810,424
shares of its Series A-1 Convertible Preferred Stock to two investors for
an aggregate purchase price of $2,750,000.
3. From April 1997 to October, 1997, the Registrant issued an
aggregate of 2,299,438 shares of its Series A Convertible Preferred Stock
to seven investors for an aggregate purchase price of $2,250,000.
4. In March, 1998, the Registrant issued an aggregate of 3,826,809
shares of its Series B Convertible Preferred Stock to nineteen investors
for an aggregate purchase price of $7,500,000.
II-1
<PAGE> 106
5. In November, 1998, the Registrant issued an aggregate of 2,731,141
shares of its Series C Convertible Preferred Stock to twelve investors for
an aggregate purchase price of $6,338,243.
6. In December, 1999, the Registrant issued and sold an aggregate of
1,832,086 shares of its Convertible Series D Preferred Stock to seven
investors for an aggregate purchase price of $11,500,000.
(b) There were no underwritten offerings employed in connection with any of
the transactions set forth in Item 15(a).
The issuances described in Items 15(a)(2) through 15(a)(6) were deemed
exempt from registration under the Securities Act in reliance upon Section 4(2)
thereof as transactions by an issuer not involving any public offering. The
issuances described in Item 15(a)(1) were deemed exempt from registration under
the Securities Act in reliance upon Rule 701 promulgated thereunder in that they
were offered or sold either pursuant to a written contract relating to
compensation, as provided by Rule 701. In addition, such issuances were deemed
to be exempt from registration under Section 4(2) of the Securities Act as
transactions by an issuer not involving any public offering. The recipients of
securities in each such transaction represented their intentions to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT PAGE NO.
- ------- ----------------------- ----------
<C> <S> <C>
1.1* Form of Underwriting Agreement..............................
3.1 Articles of Association of ClickService Software Ltd........
3.2* Form of Articles of Association of ClickService Software
Ltd. to be adopted upon closing of this offering............
4.1* Specimen of Ordinary Share Certificate......................
4.2 Fourth Amended and Restated Registration Rights Agreement,
dated December 15, 1999.....................................
5.1* Opinion of Efrati, Galili & Co. as to the validity of the
shares......................................................
10.1 Form of 2000 Share Option Plan..............................
10.2 Form of 2000 Employee Share Purchase Plan...................
10.3 Employment Agreement between ClickService Software Ltd. and
Moshe Ben-Bassat............................................
10.4 Employment Agreement between ClickService Software Ltd. and
Shimon Rojany...............................................
10.5* Form of Indemnification Agreement...........................
23.1 Consent of Luboshitz Kasierer, a member firm of Arthur
Andersen....................................................
24.1 Powers of Attorney (included on page II-3)..................
27.1 Financial Data Schedule
</TABLE>
- -------------------------
* To be filed by amendment
(B) FINANCIAL STATEMENT SCHEDULES.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement, 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 foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
II-2
<PAGE> 107
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 public
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 430A and contained in
a form of prospectus filed by the registrant pursuant to 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 bona fide offering thereof.
II-3
<PAGE> 108
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto, duly
authorized, in the City of Campbell, California, on February 14, 2000.
CLICKSERVICE SOFTWARE LTD.
By: /s/ MOSHE BEN-BASSAT
------------------------------------
Dr. Moshe Ben-Bassat
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Dr. Moshe Ben-Bassat and Shimon Rojany,
and each of them his attorney-in-fact, with the power of substitution, for him
in any and all capacities, to sign any amendment or post-effective amendment to
this Registration Statement on Form S-1 or abbreviated registration statement
(including, without limitation, any additional registration filed pursuant to
Rule 462 under the Securities Act of 1933) with respect hereto and to file the
same, with exhibits thereto and other documents in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-fact, or his substitute or substitutes, may do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<C> <S> <C>
/s/ MOSHE BEN-BASSAT Chief Executive Officer and February 14, 2000
- --------------------------------------------------- Director (Principal
Dr. Moshe Ben-Bassat Executive Officer)
/s/ SHIMON M. ROJANY Chief Financial Officer February 14, 2000
- --------------------------------------------------- (Principal Financial And
Shimon M. Rojany Accounting Officer)
/s/ JEFFREY D. SAPER Director February 14, 2000
- ---------------------------------------------------
Jeffrey D. Saper
/s/ FREDERIC W. HARMAN Director February 14, 2000
- ---------------------------------------------------
Frederic W. Harman
/s/ EDDY SHALEV Director February 14, 2000
- ---------------------------------------------------
Eddy Shalev
Director February 14, 2000
- ---------------------------------------------------
Zohar Zisapel
Director February 14, 2000
- ---------------------------------------------------
Dr. Israel Borovich
</TABLE>
II-4
<PAGE> 109
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF DOCUMENT PAGE
- ------- ------------------------------------------------------------ ------------
<C> <S> <C>
1.1* Form of Underwriting Agreement..............................
3.1 Articles of Association of ClickService Software Ltd........
3.2* Form of Articles of Association of ClickService Software
Ltd. to be adopted upon closing of this offering............
4.1* Specimen of Ordinary Share Certificate......................
4.2 Fourth Amended and Restated Registration Rights Agreement,
dated December 15, 1999.....................................
5.1* Opinion of Efrati, Galili & Co. as to the validity of the
shares......................................................
10.1 Form of 2000 Share Option Plan..............................
10.2 Form of 2000 Employee Share Purchase Plan...................
10.3 Employment Agreement between ClickService Software Ltd. and
Moshe Ben-Bassat............................................
10.4 Employment Agreement between ClickService Software Ltd. and
Shimon Rojany...............................................
10.5* Form of Indemnification Agreement...........................
23.1 Consent of Luboshitz Kasierer, a member firm of Arthur
Andersen....................................................
24.1 Powers of Attorney (included on page II-3)..................
27.1 Financial Data Schedule
</TABLE>
- -------------------------
* To be filed by amendment
<PAGE> 1
EXHIBIT 3.1
ARTICLES OF ASSOCIATION
OF
I.E.T. - INTELLIGENT ELECTRONICS LTD.
AMENDED AND RESTATED AS OF DECEMBER, 1999
<PAGE> 2
ARTICLES OF ASSOCIATION
OF
I.E.T. - INTELLIGENT ELECTRONICS LTD.
- --------------------------------------------------------------------------------
INTERPRETATION
1. In these Articles, the words appearing in the first column of the table
next hereinafter contained shall bear the meanings set opposite them
respectively in the second column thereof, if not inconsistent with the
subject or context:
Words Meanings
----- --------
The Company The above-named company.
Companies Ordinance The Companies Ordinance (New Version) 1983
(the "Companies Ordinance") as amended and
as amended from time to time, including any
law or statute replacing it.
Dollar or $ United States Dollar
The Statutes The Companies Ordinance, the Securities Law
of 1968 and every other Ordinance or Law from
time to time in force concerning joint stock
companies and affecting the Company.
These Articles These Articles of Association, or as shall be
altered from time to time by Special
Resolution.
The Office The registered office for the time being of
the Company.
The Seal The Common Seal of the Company or rubber
stamp of the Company.
Month A Gregorian month.
The Director(s) A member of the Board of Directors elected or
appointed in accordance with these Articles.
The term herein defined shall include
substitute or alternate Directors or their
proxies.
<PAGE> 3
Writing Printing, lithography, photography and any
other mode or modes or representing or
reproducing words in a visible form.
Related Party any "interested person" within the meaning of
this term in Section 96.A of Chapter D2 of
the Companies Ordinance, any office holder in
such entities or any "family members" of such
persons, within the meaning of these terms in
Section 96 of the Companies Ordinance.
Related Party means any transaction involving, directly or
Transaction indirectly, a Related Party, including, but
not limited to, any investment by the Company
in enterprises in which a Related Party has
an economic interest, any guarantee or credit
or loan, given by the Company to a related
party or any transaction in which a related
party has a "personal interest" within the
meaning of this term in the Ordinance.
Words importing the singular only shall include the plural, and vice
versa.
Words importing the masculine gender shall include the feminine gender,
and words importing person shall include corporations.
Subject as aforesaid, any words or expressions defined in the Companies
Ordinance shall, except where the subject or context forbids, bear the
same meanings in these Articles.
2. The Regulations in Schedule II to the Companies Ordinance shall not apply
to the Company.
PRIVATE COMPANY
3. The Company is a private company and, accordingly:
(a) the number of members for the time being of the Company (exclusive
of persons who are in the employment of the Company and of persons
who, having been formerly in the employment of the Company were,
while in such employment, and have continued after such employment
to be, members of the Company) is not to exceed fifty (50), but
where two (2) or more persons hold one (1) or more share(s) in the
Company jointly, they shall, for the purposes of this paragraph, be
treated as a single member;
(b) any invitation to the public to subscribe for any shares or
debentures or debenture stock of the Company is hereby prohibited;
(c) the right of transfer of shares shall be restricted as hereinafter
provided.
-2-
<PAGE> 4
OFFICE
4. The office of the Company shall be at such place as the Directors shall
from time to time determine.
CAPITAL
5. The share capital of the Company is 504,000 New Israeli Shekels ("NIS"),
divided into (i) 12,949,602 Ordinary Shares of nominal value NIS 0.01
each, all ranking pari-passu ("Ordinary Shares"), (ii) 1,400,000 Class A
Ordinary Shares of nominal value NIS 0.01 each, all ranking pari-passu
("Class A Ordinary Shares"), (iii) 2,000,000 Class B Convertible Ordinary
Shares of nominal value NIS 0.01 each, all ranking pari-passu ("Class B
Ordinary Shares") (iv) 7,500,000 Class A Convertible Preferred Shares of
nominal value NIS 0.01 each, all ranking pari-passu ("Class A Preferred
Shares") and (v) 9,500,000 Class A-1 Convertible Preferred Shares of
nominal value NIS 0.01 each, all ranking pari-passu ("Class A-1 Preferred
Shares"), (vi) 8,000,000 Class B Convertible Preferred Shares of nominal
value NIS 0.01 each, all ranking pari-passu ("Class B Preferred Shares"),
(vii) 6,000,000 Class C Convertible Preferred Shares of nominal value NIS
0.01 each, all ranking pari-passu ("Class C Preferred Shares") and (viii)
3,050,398 Class D Convertible Preferred Shares of nominal value NIS 0.01
each, all ranking pari-passu ("Class D Preferred Shares").
In these Articles, any reference to "Ordinary Shares" shall include also
Class A Ordinary Shares and Class B Ordinary Shares unless expressly
stated otherwise or unless the context dictates otherwise. Unless
expressly stated otherwise or unless the context dictates otherwise, the
Class A Convertible Preferred Shares and Class A-1 Convertible Preferred
Shares, Class B Preferred Shares, Class C Preferred Shares Class D
Preferred are collectively referred to herein as "Preferred Shares".
RIGHTS OF THE SHARES
6. (a) Subject to these Articles or to the terms of any resolution
creating new shares, the unissued shares from time to time shall be
under the control of the Board of Directors, who shall have the
power to allot shares or otherwise dispose of them to such persons,
on such terms and conditions, and either at par or at a premium or,
subject to the provisions of the Companies Ordinance, at a
discount, and at such times, as the Board of Directors may think
fit, and the power to give to any person the option to acquire from
the Company any shares, either at par or at a premium or, subject as
aforesaid, at a discount, during such time and for such
consideration as the Board of Directors may think fit.
(b) Each of the Ordinary Shares and the Class A Preferred Shares
entitles its holder to receive notice of and participate in all
general meetings of the Company and to one vote in any such meeting
for every share held by such
-3-
<PAGE> 5
holder. The Class A Ordinary Shares will have the same rights as the
Ordinary Shares, except the right to receive notice of meetings of
shareholders and to participate in and vote at meetings of
shareholders.
The Class A Preferred Shares, the Class B Preferred Shares, the
Class C Preferred Shares and the Class D Preferred Shares will have
the same rights, except as otherwise specifically stated in these
Articles.
The Class A-1 Preferred Shares will have the same rights as the
Class A Preferred Shares, except that they will not have any voting
rights in the Company, including the right to receive notice of
meetings of shareholders and to participate in and vote at meetings
of shareholders.
Each Class B Ordinary Share will have the same rights as the
Ordinary Shares except that they will not have any voting rights in
the Company, including the right to receive notice of meetings of
shareholders and to participate in and vote at meetings of
shareholders.
(c) (1) In the event that the Company declares a dividend in cash
or in other assets of the Company (excluding bonus shares), on
its Ordinary Shares or otherwise, the aggregate sum of the
dividend so declared will be distributed in such a manner that
the holders of each of the Preferred Shares shall be entitled
to receive a dividend which is equal to one hundred and ten
percent (110%) of the dividend distributed to each of the
holders of the Ordinary Shares and the distribution to the
holders of the Preferred Shares shall be prior and in
preference to any distribution to the holders of the Ordinary
Shares (the "Preferred Dividend"). The Preferred Dividend
shall not be cumulative.
(2) In the event of any liquidation, dissolution or winding up of
the Company (whether voluntarily or involuntarily) or in the
case of the merger of the Company into another company in
which the shareholders of the Company do not own a majority of
its outstanding shares of the surviving corporation or the
sale of all or substantially all of the assets of the Company,
the holders of the Class A Preferred Shares, Class A-1
Preferred Shares, the Class B Preferred Shares, the Class C
Preferred Shares and the Class D Preferred shall be entitled
to receive, prior and in preference to any distribution to the
holders of Ordinary Shares, the Initial Effective Purchase
Price (as defined in sub-Article (d)(16) below) for each such
Preferred Share (the "Preferred Return").
If the assets and funds distributed as aforesaid in
sub-paragraphs (1) and (2) among the holders of the Preferred
Shares shall be insufficient to permit the payment to such
holders of the full amount of the Preferred Dividend or the
Preferred Return to which they are entitled as aforesaid, then
the entire assets and funds of the
-4-
<PAGE> 6
Company legally available for distribution shall be
distributed ratably among the holders of the Preferred Shares
in proportion to the Preferred Dividend or Preferred Return,
as the case may be, each such holder is otherwise entitled to
receive.
(3) After payment of the Preferred Return, the remaining assets
and funds of the Company legally available for distribution as
a dividend, if any, shall be distributed ratably to the
holders of all the Ordinary Shares and Preferred Shares, in
each case in proportion to the number of shares then held by
them, provided, however that after (i) the holders of the
Class A Preferred Shares and Class A-1 Preferred Shares have
received in the aggregate three (3) times the Initial
Effective Purchase Price of such Preferred Shares and (ii)
that after the holders of the Class B Preferred Shares and the
Class C Preferred Shares have received in the aggregate twice
the Initial Effective Purchase Price of such Preferred Shares
(including in each case the amount paid as the Preferred
Return), and (iii) that after the holders of the Class D
Preferred Shares have received in the aggregate 1.75 times the
Initial Effective Purchase Price of such Preferred Shares
(including in each case the amount paid as the Preferred
Return) the remaining assets of the Company available for
distribution to shareholders shall be distributed among the
holders of the Ordinary Shares (and not the holders of
Preferred Shares), pro rata, based on the number of Ordinary
Shares held by each shareholder.
(4) Whenever the distribution provided for in this Article 6(c)
shall be payable in securities or property other than cash,
the value of such distribution shall be the fair market value
of such securities or other property as determined in good
faith by the Board of Directors. The US Dollar equivalent of
the NIS value of any distribution under this Article 6 (c)
shall be determined in accordance with the Representative Rate
of Exchange last published by the Bank of Israel prior to the
date of the making of the distribution.
(d) Conversion Rights. The holders of the Preferred Shares and the
Ordinary Shares shall have conversion rights as follows (the
"Conversion Rights"):
(1) Right to Convert. Each Class B Ordinary Share is convertible
at any time after issuance of such share at the option of the
holder thereof and without payment of any additional
consideration into one (1) fully-paid and non-assessable
voting Ordinary Share, according to the procedure specified in
sub-Article (d)(3) below.
Each holder of a Class A Preferred Share may, at its option,
at any time after issuance of such share and without payment
of any additional consideration by the holder, convert of such
share into one fully-paid and non-assessable Class A-1
Preferred Share or one fully-paid and non-assessable voting
Ordinary Share.
-5-
<PAGE> 7
Each holder of a Class A-1 Preferred Share may, at its option,
at any time after issuance of such share without payment of
any additional consideration by the holder, convert such share
into one fully-paid and non-assessable Class A Preferred Share
or Class B Convertible Ordinary Share
Each holder of a Class B Preferred Share, a Class C Preferred
Share or a Class D Preferred Share may, at its option, at any
time after issuance of such share without payment of any
additional considerations by the holder, convert such share
into one fully-paid and non-assessable Ordinary Share.
(2) Automatic Conversion. Each Class A Preferred Share, Class B
Preferred Share, Class C Preferred Share and Class D
Preferred Share shall automatically be converted into one
fully paid and non-assessable Ordinary Share immediately (i)
prior to the closing of a firm commitment underwritten public
offering of Ordinary Shares of the Company pursuant to the
United States Securities Act of 1933 as amended or the
securities laws of any other jurisdiction at a public offering
price per share (prior to underwriting commissions and
expenses) of or equal to $5.00 or more (as adjusted for stock
splits, dividends, recapitalizations, recombinations and the
like) in an offering that results in gross proceeds to the
Company of not less than the equivalent of $3 million (a
"Qualified Initial Public Offering"), or (ii) upon the
affirmative vote or the written consent of holders of not less
than 75% of the then outstanding Class A Preferred Shares,
Class B Preferred Shares, Class C Preferred Shares and Class D
Preferred Shares, each voting as a separate class, as the case
may be.
Each share of Class A-1 Preferred Shares shall automatically
be converted into one fully-paid and non-assessable Class B
Ordinary Share (i) prior to the closing of a firm commitment
underwritten public offering of Ordinary Shares of the Company
at a public offering price per share (prior to underwriting
commissions and expenses) of or equal to $5.00 or more (as
adjusted for stock splits, recombinations and the like) in an
offering that results in gross proceeds to the Company of not
less than the equivalent of $10 million, or (ii) upon the
affirmative vote or the written consent of holders of not less
than 75% of the then outstanding Class A-1 Preferred Shares.
(3) Mechanics of Conversion. Before any holder of Class A
Preferred Shares, Class A-1 Preferred Shares, Class B
Preferred Shares, Class C Preferred Shares, Class D Preferred
Share, or Class B Ordinary Shares shall be entitled to convert
the same into Preferred Shares or into Ordinary Shares or into
Class B Ordinary Shares, as the case may be, the holder shall
deliver to the Company written
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<PAGE> 8
notice specifying the number and class of shares to be
converted (except that no such written notice shall be
necessary in the event of an automatic conversion pursuant to
sub-Article (2) above). From and after the date on which the
Company received such notice, shares included in such notice
shall be deemed converted as specified in the notice, and the
converting holder shall be deemed the owner and shall be
treated for all purposes as the record holder of the number
and class of shares into which such shares were converted.
Promptly after delivery of such written notice, the holder
shall surrender the certificate(s) therefor, duly endorsed, at
the office of the Company or of any transfer agent for such
shares. The Company shall, as soon as practicable thereafter,
issue and deliver at such office to such holder of Preferred
Shares, certificate(s) for the number shares to which such
holder shall be entitled as aforesaid.
(4) Adjustment of Purchase Price. Upon each issuance by the
Company of any Additional Shares (as defined in sub-Article
(d)(13) below) at a price per share less than the lower of:
(x) Initial Effective Purchase Price or (y) the applicable
Effective Purchase Price (as defined in sub-paragraph (d)(16)
below) then in effect, the Company shall issue to the holders
of the Preferred Shares additional Preferred Shares of the
same class or of a class that entitles its holders to the same
rights for their nominal value only, in a number such that the
Effective Purchase Price for all Preferred Shares held by each
holder of the Preferred Shares shall be equal to the New
Effective Purchase Price. The New Effective Price will be a
fraction:
(i) the numerator of which is the sum of (A) the total
number of Ordinary Shares outstanding prior to the
issuance of such Additional Shares (on a fully-diluted
basis after giving effect to all options or other rights
to purchase voting Ordinary Shares ("Options") and
assuming the conversion into Ordinary Shares of the
Preferred Shares multiplied by the applicable Effective
Purchase Price in effect prior to the issuance of such
Additional Shares, plus (B) the total amount of the
consideration received by the Company for such
Additional Shares; and
(ii) the denominator of which is the sum of: (A) the total
number of Ordinary Shares outstanding immediately prior
to the issuance of such Additional Shares (on a
fully-diluted basis after giving effect to all options
to purchase Ordinary Shares and assuming the conversion
into Ordinary Shares of all the Preferred Shares) plus
(B) the number of such Additional Shares issued.
The Company shall then issue such number of additional
Preferred Shares to such holder in consideration for
payment of their nominal value only, equal to the
remainder of:
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<PAGE> 9
(x) a fraction, (i) the numerator of which is the
product of (A) the total number of Preferred Shares held
by such holder prior to the issuance of such Additional
Shares multiplied by (B) the applicable Effective
Purchase Price in effect prior to the issuance of such
Additional Shares; and (ii) the denominator of which is
the applicable Effective Purchase Price in effect after
the issuance of such Additional Shares,
Minus
(y) the total number of Preferred Shares held by such
holder prior to the issuance of such additional shares.
As an illustration of the foregoing calculation:
if the total number of Ordinary Shares outstanding prior
to the issuance of the Additional Shares was 18,000,000
and the first issuance of Additional Shares were to be
an issuance of two million (2,000,000) Ordinary Shares
at a per share price of forty cents ($0.40), and the
Effective Purchase Price for Preferred Shares for the
holder thereof prior to such issuance was $0.60, then
the Effective Purchase Price following such issuance
would be $0.58, calculated as follows:
(18,000,000 x $0.60) + $800,000
------------------------------- = $0.58
18,000,000 + 2,000,000
in the event such holder held 500,000 Preferred Shares
(at an Effective Purchase Price of $0.60 per share prior
to the issuance of the Additional Shares, then, after
adjustment of the Effective Purchase Price to $0.58 per
share (as provided above), such holder would be issued
an additional 17,241 Preferred Shares (for their nominal
value only) as determined pursuant to the following
formula:
(500,000 x $0.60) - 500,000
--------------------------- = 17,241
$0.58
(5) Minimal Adjustment. No issue of additional Preferred Shares
(as set forth in sub-Article 6(d)(4) hereof) shall be made if
the change in the Effective Purchase Price shall be: (A) in
an amount less than one cent ($0.01) per share (but decreases
of the Effective Purchase Price shall be carried forward and
shall be made at the time and together with any subsequent
adjustment which on a cumulative basis amounts to $0.01 or
more in the Effective Purchase Price.), or (B) an increase
beyond the applicable Effective Purchase Price in effect
immediately prior to such adjustment.
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<PAGE> 10
If, pursuant to the above calculation, the Company shall
be required to issue fractions of Shares, the number of
such shares shall be rounded off (up or down) to the
nearest whole number.
(6) Issuance of Options. In the case of the issuance of Options, the
aggregate maximum number of Ordinary Shares deliverable upon exercise
(assuming the satisfaction of any conditions to exercisability,
including without limitation, the passage of time, but without taking
into account potential anti dilution adjustments) of such Options, shall
be deemed to have been issued immediately prior to the conversion of the
Preferred Shares at a consideration equal to the consideration received
by the Company upon the issuance of such options or rights plus any
additional consideration payable to the Company pursuant to the terms of
such Options (without taking into account potential anti-dilution
adjustments) for the Ordinary Shares covered thereby.
If, pursuant to the above calculation, the Company shall be required to
issue fractions of Preferred Shares, the number of such shares shall be
rounded up or down to the nearest whole number.
(7) No-Cash Consideration. In the case of the issuance of Ordinary Shares
for a consideration in whole or in part other than cash, the price per
Ordinary Shares shall be deemed to be the fair value thereof as
determined by the Board of Directors.
(8) U.S. Dollar Equivalent. For the purpose of this sub-Article 6(d), the
consideration of any Additional Shares shall be calculated at the U.S.
dollar equivalent thereof, on the day such Additional Shares are issued
or deemed to be issued pursuant to sub-Article (d)(4).
(9) Other Adjustments. Subject to Section 6(c):
(i) in case the Company shall declare a cash dividend upon its
Ordinary Shares payable otherwise than out of retained earnings or
shall distribute to holders of its Ordinary Shares or other shares
of its capital stock (other than Ordinary Shares), stock or other
securities of other persons, evidences of indebtedness issued by
the Company or other persons, assets (excluding cash dividends) or
options or rights, then, in each such case, the holders of
Preferred Shares and Class B Ordinary Shares shall, concurrent
with the distribution to holders of Ordinary Shares, receive a
like distribution based upon the number of Ordinary Shares into
which the Preferred Shares and the Class B Ordinary Shares are
convertible.
(ii) If the number of Ordinary Shares outstanding at any time is
increased by a stock dividend payable in Ordinary Shares or by
subdivision or split-up of Ordinary Shares, then, on the date such
payment is made or such change is effective (and subject to
Section 6(i)), the Company shall issue to holders of Preferred
Shares and Class B Ordinary Shares additional shares of the
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<PAGE> 11
same class held by them in a number in proportion to such increase
of outstanding shares.
(iii) If the number of Ordinary Shares outstanding at any time
after the Original issuance Date hereof is decreased by a
combination or consolidation of the outstanding Ordinary Shares
then, on the effective date of such combination the number of
Preferred Shares and Class B Ordinary Shares shall be decreased by
a similar action in proportion to such decrease in outstanding
shares.
(10) Issuance of Same Class. In each case that an issuance of additional
Preferred Shares or Class B Ordinary Shares is required to reflect the
issuance of bonus shares, or a subdivision or split of Ordinary Shares,
each holder of Preferred Shares will be entitled to receive from the
Company shares of a class that entitles its holders to the same rights
as the class of shares to be distributed, subject to sub-Article (12)
below.
(11) Capital Reorganization. In case, at any time after the Original Issue
Date (as defined in Sub-article (13) below), of any capital
reorganization, or any reclassification of the share capital of the
Company (other than as a result of a bonus shares or subdivision,
split-up or combination of shares), or the consolidation or merger of
the Company with or into another entity (other than a consolidation or
merger in which the Company is the continuing entity and which does not
result in any change in the Ordinary Shares), or of the sale or other
disposition of all or substantially all the properties and assets of the
Company (each such act to be defined as a "Transaction"), the Preferred
Shares shall, after such Transaction, be convertible into the kind and
number of shares or other securities or property of the Company or
otherwise to which such holder would have been entitled if immediately
prior to such Transaction the holder had converted the holder's
Preferred Shares into Ordinary Shares. The provisions of this
sub-Article (11) shall similarly apply to successive Transactions.
(12) The Company may not take any of the acts included in sub-Articles (9)
through (11) and may not enter into a transaction in which it is
required to take any such act, and such act or transaction by the
Company will be void unless each holder of Class A-1 Preferred Shares or
Class B Ordinary Shares has the option, without payment of any
additional consideration, to receive instead of all or part of
securities to be distributed, the same number of securities entitling
their holders to the same rights as the securities to be distributed, by
the Company or otherwise, except that such securities shall have (i) no
voting rights, and (ii) a right to convert the securities to be
distributed at the holder's option at any time after the issuance and
without payment of any additional consideration into voting shares.
(13) Additional Shares.
(i) "Additional Shares" shall mean all Ordinary Shares issued (or,
pursuant to clause (i) below, deemed to be issued) by the Company
after the date of issuance of the Preferred Shares (the "Original
Issue Date"), other than ordinary shares issued or issuable: (A)
upon conversion of Preferred
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<PAGE> 12
Shares; (B) up to a maximum of 3,873,695 shares to officers,
employees and directors of, or consultants to, the Company and its
wholly-owned subsidiaries pursuant to a stock grant, option plan
or purchase plan or other employee stock incentive program
approved by the Company's Board of Directors; (C) Ordinary Shares
issued by the Company to shareholders of another company in the
framework of a transaction in which more than fifty percent (50%)
of the outstanding shares or all or substantially all of the
assets of such other company are acquired by the Company; (D) As a
dividend or distribution on Preferred Shares; (E) Ordinary Shares
issued pursuant to any equipment leasing or loan arrangement or
debt financing from a bank or similar financial or lending
institution approved by the Company's Board of Directors; and (F)
by way of dividend or other distribution on Ordinary Shares
excluded from the definition of Additional Shares by the foregoing
clauses (A), (B), (C), (D) and (E) or on Ordinary Shares so
excluded.
(ii) Except as otherwise provided in clause (i), in the event the
Company at any time or from time to time after the Original Issue
Date shall issue any Options or shall fix a record date for the
determination of holders of any class of securities entitled to
receive any such Options, then the maximum number of Ordinary
Shares (as set forth in the instrument relating thereto without
regard to any provisions contained therein for a subsequent
adjustment of such number) issuable upon the exercise of such
Options, shall be deemed to be Additional Shares issued as of the
time of such issue or, in case such a record date shall have been
fixed, as of the close of business on such record date, provided
that Additional Shares shall not be deemed to have been issued
unless the consideration per share (determined pursuant to
paragraph (ii)) of such Additional Shares would be less than the
Effective Purchase Price in effect on the date of and immediately
prior to such issue, or such record date, as the case may be, and
provided further that in any such case in which Additional Shares
are deemed to be issued: (A) no further adjustment in the
Effective Purchase Price shall be made upon the subsequent issue
of Ordinary Shares upon the exercise of such Options; (B) if such
Options by their terms provide, with the passage of time or
otherwise, for any increase in the consideration payable to the
Company, or decrease in the number of ordinary shares issuable,
upon the exercise thereof, the Effective Purchase Price computed
upon the original issue thereof (or upon the occurrence of a
record date with respect thereto), and any subsequent adjustments
based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease
insofar as it affects such Options; and (C) no readjustment
pursuant to clause (B) above shall have the effect of increasing
the Effective Purchase Price to an amount which exceeds the lower
of (i) the Effective Purchase Price on the original adjustment
date, or (ii) the Effective Purchase Price that would have
resulted from any issuance of Additional Shares between the
original adjustment date and such readjustment date.
(iii) All calculations under this Clause shall be made to the nearest
cent-
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<PAGE> 13
equivalent or to the nearest one hundredth (1/100) of a share, as
the case may be.
(14) No Impairment. The Company will at all times in good faith assist in the
carrying out of all the provisions of this Clause and in the taking of
all such action as may be necessary or appropriate in order to protect
the rights of the holders of Preferred Shares pursuant to this
sub-Article 6(d) against impairment.
(15) Certificate as to Adjustments. Upon the occurrence of each adjustment or
readjustment of the number of issued Preferred Shares or Class B
Ordinary Shares pursuant to this sub-Article, the Company at its expense
shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and prepare and furnish to each holder of
Preferred Shares a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment
or readjustment is based. The Company shall, upon written request at any
time of any holder of Preferred Shares, furnish or cause to be furnished
to such holder a like certificate setting forth (i) such adjustments and
readjustments, (ii) the Effective Purchase Price at the time in effect,
and (iii) the number of Shares and the amount, if any, of other property
which at the time would be received.
(16) Effective Purchase Price.
(i) Initial Effective Purchase Price: The Initial Effective Purchase
Price for each Class A Preferred Share is $0.5871, for each Class
B Preferred Share is $1.1759, for each Preferred C Preferred Share
is $1.39244 and for each Class D Preferred Share is $3.7662.
(ii) New Effective Purchase Price: The new Effective Purchase Price
shall be as determined pursuant this sub-Article (d) hereof upon
the occurrence of the events set forth herein.
(iii) Effective Purchase Price: The Effective Purchase Price shall
be (A) the Initial Purchase Price, until such time as a new
Effective Purchase Price has been determined pursuant to this
sub-Article (d) and (B) at and after such time as a New Effective
Purchase Price (or any subsequent New Effective Purchase Price)
has been determined pursuant to this sub-Article (d), the
Effective Purchase Price shall be such New Effective Purchase
Price as is then in effect.
(17) [Reserved]
(18) Notices of Record Date. Without derogating from the rights of the
holders of the Preferred Shares pursuant to any applicable law, in the
event of any taking by the Company of a record of the holders of any
class of securities for the purpose of determining the holders thereof
who are entitled to receive any dividend (other than a cash dividend) or
other distribution, any right to subscribe for, purchase or otherwise
acquire any shares of any class or any other securities or property or
to
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<PAGE> 14
receive any other right, the Company shall mail to each shareholder,
including each holder of Preferred Shares, at least ten (10) days prior
to such record date, a notice specifying the date on which any such
record is to be taken for the purpose of such dividend or distribution
or right, and the amount and character of such dividend, distribution or
right.
(19) Reservation of Stock Issuable. The Company shall at all times reserve
and keep available out of its authorized but unissued share capital of
any class solely for the purpose of effecting the issuance of the
Preferred Shares and Class B Ordinary Shares, such number of its shares
of that class as shall from time to time be sufficient to effect such
issuance of additional shares as provided in this sub-Article. If at any
time the number of authorized but unissued shares of the required class
shall not be sufficient to issue such additional shares of such class or
effect such conversion, the Company will promptly take such corporate
action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of such class to such number of
shares as shall be sufficient for such purpose.
(20) No Reissuance of Converted Shares. No shares of Preferred Shares or
Class B Ordinary Shares which have been converted after the original
issuance thereof shall ever again be reissued and all such shares so
converted shall upon such conversion cease to be a part of the
authorized share capital of such class of shares of the Company.
7. If two or more persons are registered as joint holders of any share, any
one of such persons may give effectual receipts for any dividends or other
monies in respect of such share.
8. No person shall be recognized by the Company as holding any share upon any
trust, and the Company shall not be bound by or required to recognize any
equitable, contingent, future or partial interest in any share or any
right whatsoever in respect of any share other than an absolute right to
the entirety thereof in the registered holder.
9. Every member shall be entitled, without payment, to receive within a
reasonable period after allotment or registration of transfer, one
certificate under the Seal for all the shares registered in his name,
specifying the number and denoting numbers of the shares in respect of
which it is issued and the amount paid up thereon. Provided that, in the
case of joint holders, the Company shall not be bound to issue more than
one certificate to all the joint holders, and delivery of such certificate
to one of them shall be sufficient delivery to all. Every certificate
shall be signed by: (i) two Directors or (ii) one Director and (A) the
Secretary or (B) some other person nominated by the Board of Directors for
the purpose.
10. If any share certificate shall be defaced, worn out, destroyed or lost, it
may be renewed on such evidence being produced, and such indemnity (if
any) being given as the Directors shall require and (in the case of
defacement or wearing out) on delivery of the old certificate and, in any
case on payment of such sum not exceeding NIS 5 (five New Israeli Shekels)
as the Directors may from time to time
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<PAGE> 15
require.
11. No part of the funds of the Company shall be employed in the purchase of,
or in loans upon the security of, the Company's shares; but, nothing in
this Article shall prohibit the transactions mentioned in Section 139(b)
of the Companies Ordinance.
12. Where any shares are issued for the purpose of raising money to defray the
expenses of the construction of any works or buildings or the provision of
any plant which cannot be made profitable for a lengthy period, the
Company may pay interest on as much of such share capital as is, for the
time being, paid up for the period and subject to the conditions and
restrictions mentioned in Section 140 of the Companies Ordinance, and may
charge the sum so paid by way of interest to capital as part of the cost
of the construction of the work or building or the provision of a plant.
13. The Company may pay a commission at a rate not exceeding 4 (four) percent
of the price at which the shares or other securities are issued to any
person in consideration of his subscribing or agreeing to subscribe
(whether absolutely or conditionally) for any shares in the Company, or
other securities of the Company, or procuring or agreeing to procure
subscriptions (whether absolute or conditional) for any shares in the
Company or other securities of the Company.
CALLS ON SHARES
14. No member shall be entitled to receive any dividend or to exercise any
privileges as a member until he shall have paid all calls for the time
being due and payable on every share held by him, whether alone or jointly
with any other person, together with interest and expenses (if any).
15. (a) If, under the conditions of the issuance of shares, there is no
fixed date for the payments due therefor, the Board of Directors may
from time to time make such calls upon the members in respect of all
monies then unpaid on shares possessed by them, and every member
will pay the sum demanded of him at the place and time appointed by
the Board of Directors, provided that fourteen (14) days' notice as
to the place and date of payment was served on him. The Board of
Directors may revoke or postpone any call.
(b) A call shall be deemed to have been made at the time when the
Resolution of the Board of Directors authorizing such call was
passed.
(c) The joint holders of a share shall be jointly and severally liable
for the payment of all calls and installments in respect thereof.
(d)If, before or on the day appointed for payment thereof, a call or
installment payable in respect of a share is not paid, the holder or
allottee of the share shall pay interest on the amount of the call
or installment at such rate not exceeding the debitory rate
prevailing at the largest Israeli commercial bank on the day
appointed for the payment referred to, as the Board of Directors
shall
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<PAGE> 16
fix, from the day appointed for payment thereof to the time of
actual payment, but the Board of Directors may waive payment of such
interest wholly or in part.
16. (a) Any sum which, by the terms of allotment of a share, is made
payable upon allotment or at any fixed date, whether on account of
the amount of the share or by way of premium shall, for all purposes
of these Articles, be deemed to be a call duly made and payable on
the date fixed for payment and, in the case of non-payment, the
provisions of these Articles as to payment of interest and expenses,
forfeiture and the like, and all other relevant provisions of these
Articles shall apply as if such sum were a call duly made and
notified as hereby provided.
(b) The Directors may, at the time of allotment of shares, make
arrangements on the issue of shares for a difference between the
holders of such shares in the amount of calls to be paid and in the
time of payment of such call.
17. The Directors may, if they think fit, receive from any member willing to
advance the same, all or any part of the monies due upon his shares beyond
the sums actually called up thereon; and, upon the monies so paid in
advance, or so much thereof as exceeds the amount for the time being
called up on the shares in respect of which such advance has been made,
the Directors may pay or allow such interest as may be agreed by them and
the Company.
TRANSFER AND TRANSMISSION OF SHARES
18. No transfer of shares in the Company shall be registered unless the
transfer has been approved by the Board of Directors. The Directors will
not register a transfer if such transfer would result in the Company
having more than 50 members or if such transfer is not made in accordance
with the provisions of these Articles.
19. No transfer of shares shall be registered unless a proper instrument of
transfer has been submitted to the Company, coupled with the certificate
for the shares to be transferred and any other evidence as the Board of
Directors may reasonably require of the title of the transferor to
transfer his shares. As long as the transferee is not registered in the
Register of Members in respect of the shares transferred to him, the
rights and obligations of the registered owner of the shares shall in no
way be affected by the attempt to transfer.
20. The instrument of transfer of any share shall be in writing in the usual
or common form or in some other form approved by the Board of Directors
from time to time and shall be signed by the transferor and transferee.
21. The Board of Directors may suspend the registration of transfers during
the fourteen (14) days immediately preceding the ordinary General Meeting
in each year.
22. The executors and administrators of a deceased sole holder of a share or,
if there are no executors or administrators, the persons beneficially
entitled as heirs of a
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<PAGE> 17
deceased sole holder, shall be the only persons recognized by the Company
as having any title to the share.
In the case of a share registered in the names of two or more holders, the
Company shall recognize the survivor or survivors as the only persons
having any title to, or benefit in, the share.
23. The Company may recognize the receiver or liquidator of any member in
winding-up or dissolution, or the trustee in bankruptcy or any official
receiver of a bankrupt member as being entitled to the shares registered
in the name of such member.
24. Any person becoming entitled to a share in consequence of the death of any
person, upon producing evidence of the grant of probate or letters of
administration or declaration of succession or such other evidence as the
Board of Directors may deem sufficient that he sustains the character in
respect of which he proposes to act under this Article or of his title,
shall be registered as a member in respect of such shares or may, subject
to the regulations as to transfer herein contained, transfer such shares.
25. The receiver or liquidator of a member in winding-up or dissolution, or
the trustee in bankruptcy, or any official receiver of any bankrupt
member, upon producing such evidence as the Board of Directors may deem
sufficient that he sustains the character in respect of which he proposes
to act under this Article or of his title may, with the consent of the
Board of Directors (which the Board of Directors may refuse to grant
without assigning any reason for its refusal), be registered as a member
in respect of such shares or may, subject to the regulations as to
transfer herein contained, transfer such shares.
RIGHT OF FIRST REFUSAL
25.A Until the Closing of the initial public offering of its shares by
the Company pursuant to the United States Securities Act of 1933 as
amended (the "1933 Act") or the securities laws of any other
jurisdiction (the "IPO"), no shareholder who holds in the aggregate
five percent (5%) or more of the issued and outstanding share
capital of the Company (a "Selling Shareholder") shall be permitted,
without the prior written permission of all other shareholders of
the Company, to transfer (except to his Permitted Transferees as
defined below) any of his shares in the Company, except pursuant to
the provisions of this Article 25.A. In calculating the number of
shares held by a shareholder for the purposes of this Article, the
shares held by the Permitted Transferees of such shareholder shall
be deemed to be shares held by that shareholder.
For the purposes hereto, a Permitted Transferee shall be defined as
follows: (i) a transferee by will or operation of law; (ii) in the
case of a company, a corporation succeeding to all or substantially
all of the assets of the transferor or in excess of fifty percent
(50%) of the outstanding shares of the transferor;; (iii) a
wholly-owned subsidiary of the transferor; (iv) any investment fund
or investment company which is managed or advised by the same
manager or advisor as the transferor; (v) general or limited
partners of the transferor if the
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<PAGE> 18
transferor is a partnership; (vi) spouse (or widow or widower) of
the transferor and the transferor's children (including
step-children and adopted children) or a trust established solely
for the benefit of the transferor and such persons; (vii) Oak
Investment Partners VI, L.P., Oak VI Affiliates Fund L.P., Genesis
Partners L.P., Genesis Partners I (Cayman) L.P. Worldview
Technology Partners I, L.P., Worldview Technology International I,
L.P., Worldview Strategic Partners I, L.P., and Meritech Capital
Partners, L.P. and Meritech Capital Affiliates, L.P. ("Meritech")
may transfer shares to one another without restriction. In the event
of a transfer to a Permitted Transferee, such Permitted Transferee
shall be entitled to all the rights and shall assume in writing all
the obligations of the transferor with respect to the transferred
shares. However, no such transfer shall be allowed if in the opinion
of legal counsel to the Company it constitutes a public offering or
public distribution of the Company's shares pursuant to any
applicable law.
(a) In the event that any Selling Shareholder wishes to
offer for sale or otherwise transfer any or all of his
shares to a bona-fide third party purchaser other than a
Permitted Transferee (a "Third Party Purchaser"), such
Selling Shareholder shall give prompt written notice thereof
(the "Offering Notice") to each other shareholder, setting
forth the identity of the Third Party Purchaser, the number
of shares that the Selling Shareholder desires to sell, the
offering price and all of the other terms and conditions of
the offer. An Offering Notice shall constitute an
irrevocable offer to each other Shareholder in accordance
with the terms and conditions set forth below, to sell all,
but not less than all, of the shares covered thereby (the
"Offered Shares") to such other Shareholders, at a price
equal to the price set forth in the Offering Notice, and
upon all of the other terms and conditions set forth in the
Offering Notice.
At any time during the twenty one (21) days following the
date that the Offering Notice was given (the "Option
Period"), any other Shareholder may notify the Selling
Shareholder by written notice that he is exercising his
rights to purchase his pro rata portion (based upon the
relative shareholdings of all shareholders other than the
Selling Shareholder) of the Offered Shares on the terms and
conditions specified in the Offering Notice (an "Acceptance
Notice").
(b) If the Selling Shareholder shall receive Acceptance Notices
from all the other shareholders within the Option Period, he
shall be obligated to consummate such transaction with such
other shareholders, and the shareholders shall be obligated
(severally but not jointly) to purchase all, but not less
than all, of the Offered Shares to which their Acceptance
Notice relates, on the date that is twenty one (21) days
after the expiration of the Option Period (the "Option
Closing Date").
(c) In the event that the Selling Shareholder has not
received Acceptance Notices from all the other shareholders
during the Option Period, he shall by written notice (the
"Second Offer Notice") offer the shares for
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which no Acceptance Notice was received (the "Remaining
Shares") to the shareholders who submitted Acceptance
Notices (the "Participating Shareholders").
At any time during the five (5) day period following the
date that the Second Offer Notice was given, any
Participating Shareholder may notify the Selling Shareholder
by written notice that he is exercising his rights to
purchase all or part of the Remaining Shares on the terms
and conditions as specified in the Offering Notice.
If the Selling Shareholder receives Acceptance Notices for
the Remaining Shares, each Participating Shareholder who
submits an Acceptance Notice with respect to the Remaining
Shares will be required to purchase its pro rata portion of
the Remaining Shares (based upon the number of Remaining
Shares such Participating Shareholder specified in his
Acceptance Notice relative to the number of Remaining Shares
specified in all of the Acceptance Notices for the Remaining
Shares).
(d) The purchase and sale of those of the Offered Shares for
which Acceptance Notices were submitted pursuant to Article
(b) and the Remaining Shares will take place concurrently.
If, after the procedures specified in Articles (b) and (c)
above, the Selling Shareholder shall not receive any
Acceptance Notices or shall not receive Acceptance Notices
with respect to all of the Offered Shares, he may sell to
the Third Party Purchaser all or any of the Offered Shares
regarding which no Acceptance Notices were received, upon
such terms and conditions as are no less favorable to such
Selling Shareholder than those specified in the Offering
Notice; provided, however, that such sale must be
consummated within one hundred and twenty (120) days from
the date of the Offer.
(e) With respect to each purchase of Offered Shares pursuant
to this Article 25.A. by a Shareholder, the closing therefor
shall be on the Option Closing Date. The purchase price for
the Offered Shares shall be paid in full at such closing in
cash or by certified check (except as otherwise specified in
the terms of the Offer) payable to the order of the Selling
Shareholder against delivery of a duly executed share
transfer deed relating to the Offered Shares, together with
the corresponding original share certificates. Offered
Shares delivered at the closing hereunder shall be free and
clear of all security interests, and all title thereto, and
all rights and privileges of ownership thereof, shall
immediately be vested in the purchasers thereof upon
satisfaction of all the conditions set forth herein. Except
as stated in the terms of the Offering Notice, the
purchasing shareholders shall pay all transfer taxes (but
not capital gains or other income taxes) and all requisite
transfer tax stamps (if any) shall be duly affixed to the
share transfer deeds and certificates at the time of
delivery.
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<PAGE> 20
(f) The provisions of this Article 25A will not apply to the
transfer of shares to a Permitted Transferee of the
transferor.
(g) The Board of Directors shall not effect any transfer of
shares by any Shareholder until it has received evidence
satisfactory to it that the provisions of this 25.A., if
applicable to such transfer, have been complied with.
CO-SALE RIGHTS
25B(a) Until the closing of a Qualified Initial Public
Offering, in the event that either Moshe Ben-Bassat and/or
Idit Ben-Bassat (each a "Selling Founder") initiates or
otherwise receives a bona-fide offer from a third party (a
"Proposed Purchaser") to purchase all or any portion of the
shares owned by the Selling Founder (a "Proposed Transfer")
and the right of first refusal pursuant to Article 25A is
not exercised, then each of Oak Investment Partners VI,
L.P., Oak VI Affiliates Fund L.P., Genesis Partners I L.P. ,
Genesis Partners I (Cayman) L.P., Worldview Technology
Partners I. L.P., Worldview Technology International I,
L.P., Worldview Strategic Partners I, L.P. (a "Participating
Shareholder") shall have the right (the "Participation
Right") to require the Proposed Purchaser to purchase from
such Participating Shareholder, as part of the shares to be
purchased by the Proposed Purchaser, up to the number of
shares that is equal to the product of (i) the number of
shares to be sold by the Selling Founder in the Proposed
Transfer multiplied by (ii) a fraction the numerator of
which is the number of shares owned by the Participating
Shareholder at the time of the Proposed Transfer and the
denominator of which is the total number of shares owned by
all of the shareholders other than the Selling Founder at
the time of the Proposed Transfer.
(b) The Selling Founder shall, not less than twenty one (21)
nor more than forty-five (45) days prior to any Proposed
Transfer, notify each Participating Shareholder in writing
of such Proposed Transfer (the "Participation Notice"). Such
Participation Notice shall set forth: (i) the number of
shares proposed to be transferred (the "Transferred
Shares"), (ii) the name(s) and address(es) of the Proposed
Purchaser(s), (iii) the proposed amount and form of
consideration and terms and conditions of payment offered by
such Proposed Purchaser, and (iv) that the Proposed
Purchaser has been informed of the Participation Right
provided for in Article (a) above and has agreed to purchase
the Transferred Shares in accordance with the terms hereof.
Each Participating Shareholder shall have the right to
review the agreement between the Selling Founder and the
Proposed Purchaser, but not to comment on or change it.
(c) The Participation Right may be exercised by a Participating
Shareholder by delivery of a written notice to the Selling
Founder and to the Company (the "Participation Acceptance
Notice") within
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<PAGE> 21
fourteen(14) days following the giving of the Participation
Notice. The Participation Acceptance Notice shall state the
number of shares, subject to the limits set forth herein,
that such Participating Shareholder commits to include in
such transfer to the Proposed Purchaser.
(d) In the event that the Proposed Purchaser is not willing to
purchase shares from the Participating Shareholders on
substantially the same terms and conditions as specified in
the Participation Notice, then the Selling Founder shall not
be permitted to sell any shares to the Proposed Purchaser
pursuant to the Proposed Transfer.
(e) Those Participating Shareholders who have delivered
Participation Acceptance Notices within the fourteen (14)
day period referred to in Article (c) above, shall be
obligated, for a ninety (90) day period after the expiration
of the such fourteen (14) day period referred to above, to
transfer the number of shares set forth in the Participation
Acceptance Notice to the Proposed Purchaser on the terms and
conditions stated in the Participation Notice and in
accordance with the provisions of this Article 25.B. Any
shares purchased from Participating Shareholders pursuant to
this Article 25.B. shall be paid for at the same price per
share, with the same form of consideration and upon
substantially the same terms and conditions as such proposed
transfer by the Selling Founder, it being agreed, however,
that such terms and conditions do not include the making of
any representations and warranties, indemnities or other
similar agreements other than representations and warranties
with respect to title to the shares being sold and authority
to sell such shares and indemnities related thereto.
(f) Until the closing of the initial public offering of
shares by the Company pursuant to the 1933 Act or the
securities laws of any other country, in the event that
either Oak Investment Partners VI, L.P., Oak VI Affiliates
Fund L.P., Genesis Partners I L.P., Genesis Partners I
(Cayman) L.P., or Worldview Technology Partners I, L.P.,
Worldview Technology International I, L.P., and Worldview
Strategic Partners I, L.P. (each a "Selling Fund") initiates
or otherwise receives a bona-fide offer from a third party
(a "Proposed Purchaser") to purchase all or any portion of
the shares owned by the Selling Fund (a "Proposed Transfer")
and the right of first refusal pursuant to Article 25A is
not exercised, then each of Oak Investment Partners VI,
L.P., Oak VI Affiliates Fund L.P., Genesis Partners I L.P.,
Genesis Partners I(Cayman) L.P. or Worldview Technology
Partners I, L.P., Worldview Technology International I,
L.P., and Worldview Strategic Partners I, L.P. and Meritech
which is not a Selling Fund, (a "Participating Fund ") shall
have the right to require the Proposed Purchaser to purchase
from such Participating Fund, as part of the shares to be
purchased by the Proposed Purchaser, up to the number of
shares that is equal to the product of (i) the number of
shares to be sold by the Selling Fund in the Proposed
Transfer multiplied by (ii) a fraction the numerator of
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<PAGE> 22
which is the number of shares owned by the Participating
Fund at the time of the Proposed Transfer and the
denominator of which is the total number of shares owned by
all of the shareholders other than the Selling Fund at the
time of the Proposed Transfer. In addition, each of Moshe
Ben Bassat and Idit Ben Bassat shall have the right to
require the Proposed Purchaser to purchase from him and/or
her, as part of the shares to be purchased by the Proposed
Purchaser, up to the number of shares that is equal to one
third of the shares sold by such Selling Fund. However, if
the Selling Fund sells Preferred Shares which are not held
by Moshe and Idit Ben Bassat and the Proposed Purchaser
advises the Selling Fund and Moshe Ben Bassat that he does
not agree to purchase the Ordinary Shares of Moshe and Idit
Ben Bassat according to the same terms as agreed with the
Selling Fund with respect to the Preferred Shares, the
Proposed Purchaser will not be required to purchase any
Ordinary Shares of Moshe and Idit Ben Bassat unless the
Proposed Purchaser agrees with Moshe and Idit Ben Bassat on
an alternative purchase price for such shares. Any
negotiations between the Proposed Purchaser and Moshe and
Idit Ben Bassat will in no way prevent or delay the sale of
the shares of the Selling Fund and the Participating Funds
to the Proposed Purchaser. The procedure specified in this
Article 25B will apply, mutatis mutandis, to the sale of
shares according to this sub-Article (f).
(g) The provisions of this Article 25B will not apply to any
transfer of shares to a Permitted Transferee of the
transferor.
(h) The Board of Directors shall not effect any transfer of
shares by a Selling Founder unless it has received evidence
satisfactory to it that the provisions of this Article 25C
have been complied with.
(i) All shareholders to which this Article 25B applies will
exercise their rights pursuant to this Article in good faith
towards the other shareholders forfeiture of shares.
26. If any member fails to pay the whole or any part of any call or
installment of a call on or before the day appointed for the payment
thereof, the Board of Directors may, at any time thereafter during such
time as the call or installment or any part thereof remains unpaid, serve
a notice on him, or on the person entitled to the share by transmission
requiring him to pay such call or installment, or such part thereof as
remains unpaid, together with any expenses incurred by the Company by
reason of such non-payment.
27. The notice shall name a further day (not earlier than the expiration of
seven (7) days from the date of the notice) on or before which such call
or installment, or such part as aforesaid, and all interest and expenses
that have accrued by reason of such non-payment, is to be made, and shall
state that, in the event of non-payment at or before the time and at the
place appointed, the shares in respect of which such call was made will be
liable to be forfeited.
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<PAGE> 23
28. If the requisitions of any such notice as aforesaid are not complied with,
any share in respect of which such notice has been given may at any time
thereafter, before the payment required by the notice has been made, be
forfeited by a resolution of the Board of Directors to that effect. A
forfeiture of shares shall include all dividends in respect of the shares
not actually paid before the forfeiture, notwithstanding that they shall
have been declared.
29. Notwithstanding any such forfeiture as aforesaid, the Board of Directors
may, at any time before the forfeited share has been otherwise disposed
of, annul the forfeiture upon the terms of payment of all call and
interest due upon and expenses incurred in respect of the shares and upon
such further terms (if any) as they shall see fit.
30. Every share which shall be forfeited shall thereupon become the property
of the Company and may be either canceled or sold or re-allotted or
otherwise disposed of, either to the person who was before forfeiture the
holder thereof or entitled thereto, or to any other person, upon such
terms and in such manner as the Board of Directors shall think fit.
31. A member whose shares have been forfeited shall, notwithstanding, be
liable to pay to the Company all calls made and not paid on such shares at
the time of forfeiture, and interest thereon to the date of payment, in
the same manner in all respects as if the shares had not been forfeited
and to satisfy all (if any) the claims and demands which the Company might
have enforced in respect of the shares at the time of forfeiture, without
any deduction or allowance for the value of the shares at the time of
forfeiture.
32. The forfeiture of a share shall involve the extinction at the time of
forfeiture of all interest in and all claims and demands against the
Company in respect of the share, and all other rights and liabilities
incidental to the share as between the member whose share is forfeited and
the Company, except only such of those rights and liabilities as are by
these Articles expressly saved, or as are by the Companies Ordinance given
or imposed in the case of past members.
33. A sworn declaration in writing that the declarant is a Director of the
Company, and that a share has been duly forfeited in pursuance of these
Articles, and stating the date upon which it was forfeited shall, as
against all persons claiming to be entitled to the share adversely to the
forfeiture thereof, be conclusive evidence of the facts therein stated,
and such declaration, together with the receipt of the Company for the
consideration (if any) given for the share on the sale or disposition
thereof, and a certificate of proprietorship of the share under the Seal
delivered to the person to whom the same is sold or disposed of, shall
constitute a good title to the share, and such person shall be registered
as the holder of the share and shall be discharged from all calls made
prior to such sale or disposition, and shall not be bound to see to the
application of the purchase money (if any), nor shall his title to the
share be affected by any act, omission or irregularity relating to or
connected with the proceedings in reference to the forfeiture, sale,
re-allotment or disposal of the share.
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<PAGE> 24
LIEN
34. The Company shall have a first and paramount lien upon all shares (which
are not fully paid up) registered in the name of any member, either alone
or jointly with any other person, for his debts, liabilities and
engagements, whether solely or jointly with any other person, to or with
the Company, whether the period for the payment, fulfillment or discharge
thereof shall have actually arrived or not, and such lien shall extend to
all dividends from time to time declared in respect of such shares; but
the Directors may at any time declare any share to be exempt wholly or
partially from the provisions of this Article.
35. The Directors may sell the shares subject to any such lien at such time or
times and in such manner as they shall think fit, but no sale shall be
made until such time as the monies in respect of which such lien exists,
or some part thereof, are or is presently payable, or the liability or
engagement in respect of which such lien exists is liable to be presently
fulfilled or discharged, and until a demand and notice in writing, stating
the amount due or specifying the liability or engagement and demanding
payment or fulfillment or discharge thereof and giving notice of intention
to sell in default, shall have been served on such member, or the persons
(if any) entitled by transmission to the shares, and default in payment,
fulfillment or discharge shall have been made by him or them for fourteen
(14) days after such notice.
36. The net proceeds of such sale shall be applied in or towards satisfaction
of the amount due to the Company, or of the liability or engagement, as
the case may be, and the balance (if any) shall be paid to the member of
the person (if any) entitled by transmission to the shares so sold.
37. Upon any such sale (i.e., following forfeiture or foreclosing on a lien
for and bona fide use of the powers granted with respect thereto), the
Directors may enter the purchaser's name in the Register as the holder of
the shares, and the purchaser shall not be bound to see to the application
of the purchase money, nor shall his title to the shares be affected by
any irregularity or invalidity in the proceedings in reference to the
sale.
OFFER OF ANY UNISSUED SHARES TO EXISTING SHAREHOLDERS
38. If the Company proposes to issue or sell any New Securities (as
defined in this Article 38(a) prior to a Public Offering, the Company
shall (i) before such issuance offer to all shareholders who hold at least
one percent (1%) of the issued and outstanding share capital of the
Company, the right to purchase a pro-rata share of the New Securities. A
shareholder's pro-rata share, for purposes of this Article, is the ratio
of the number of shares owned by such Shareholder immediately prior to the
issuance of New Securities, to the total number of Ordinary Shares
outstanding immediately prior to the issuance of New Securities. Each
shareholder shall have a right to over-allotment such that if any
Shareholder fails to exercise its right hereunder to purchase a pro-rata
share of New Securities, the other Shareholders
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<PAGE> 25
may purchase the non-purchasing Shareholder's portion pro-rata according
to the shareholding ratio between such other shareholders shareholding in
the Company within ten (10) days from the date such non-purchasing
shareholder fails to exercise its rights hereunder to purchase its
pro-rata share of New Securities and (ii) concurrent with such issuance,
comply with the request of each of Oak Investment Partners VI, L.P. and
Oak VI Affiliates Fund L.P. that instead of purchasing all or part of
their pro rata shares of the New Securities, they will purchase an
issuance of a class of securities having the same rights as the new
securities to be issued except that such class does not entitle its
holders to any voting rights and is convertible into the class of New
Securities to be issued at any time at the holder's option and without
payment of any additional consideration by the holder.
(a) "New Securities" shall mean any equity interest (including Ordinary
Shares) in the Company, whether now authorized or not, and rights,
options or warrants to purchase such equity interests, and
securities of any type whatsoever that are convertible into equity
interests; provided that the term "New Securities" does not include:
(i) Ordinary Shares issued pursuant to any stock
grant, purchase plan Stock Option Plan or other
employee stock incentive program approved by the
Board of Directors, of up to a maximum of
3,873,695 shares to officers, employees and
directors of, or consultants to, the Company and
its wholly-owned subsidiaries pursuant to a
approved by the Company's Board of Directors, or
(ii) Ordinary Shares issued by the Company to
shareholders of another company in the framework
of a transaction in which more than fifty
percent (50%) of the outstanding shares or all
or substantially all of the assets of such other
company are acquired by the Company.
(iii) Bonus Shares.
(iv) Securities issued according to sub-Article 6(d)
above
(v) Securities issued according to outstanding
Warrants as of December 14, 1999.
(b) In the event the Company proposes to undertake the issuance of New
Securities, it shall give each Shareholder written notice of its
intention, describing the type of New Securities, and their price
and the general terms upon which the Company proposes to issue the
same. Each Shareholder shall have twenty-one (21) days after any
such notice is given to agree to purchase such Shareholder's pro
rata share of such New Securities for the price and upon the terms
specified in the notice by giving written notice to the Company and
stating therein the quantity of New Securities purchased, provided
that any such issuance is subject to the Company's concurrent
compliance.
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<PAGE> 26
(c) In the event the Shareholders fail to exercise fully the pre-emptive
right within the said twenty-one (21) day period and after the
expiration of the ten (10) day period for the exercise of the
over-allotment provisions of Article 38, the Company shall have one
hundred and twenty (120) days thereafter to sell or enter into an
agreement to sell the New Securities respecting which the
Shareholders pre-emptive right set forth in this Article 38 is not
exercised, at a price and upon terms no more favorable to the
purchasers thereof than specified in the Company's notice to the
Shareholders pursuant to Article 38(b). In the event the Company has
not sold or entered into an agreement to sell the New Securities in
accordance with the foregoing within one hundred twenty (120) days,
the Company shall not thereafter issue or sell any New Securities,
without first again offering such securities to the Shareholders in
the manner provided in this Article 38.
STOCK
39. (a) The Board of Directors may, with the approval of a Special
Resolution of shareholders of the Company, convert any paid-up
shares into stock and may, with like sanction, reconvert any stock
into paid-up shares of any denomination.
(b) The holders of stock may transfer the same, or any part thereof, in
the same manner and subject to the same regulations, as the shares
from which the stock arose, might have been transferred prior to
conversion, or as near thereto as circumstances admit, provided
however, that the Board of Directors may from time to time fix the
minimum amount of stock so transferable, and restrict or forbid the
transfer of fractions of such minimum, but the minimum shall not
exceed the nominal value of each of the shares from which such stock
arose.
(c) The holders of stock shall, in accordance with the amount of stock
held by them, have the same rights and privileges as regards
dividends, voting at meetings of the Company and other matters as if
they held the shares from which such stock arose, but no such right
or privilege, except participation in the dividends and profits of
the Company, shall be conferred by any such part of such stock as
would not, if existing in shares, have conferred that right or
privilege.
(d) Such of the Articles of the Company as are applicable to paid-up
shares shall apply to stock, and the words "share" and "shareholder"
(or "member") therein shall include "stock" and "stockholder".
ALTERATIONS OF CAPITAL
40. The Company may from time to time by Special Resolution:
(a) Consolidate and divide all or any of its share capital into shares
of larger
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<PAGE> 27
amount than its existing shares; or
(b) Cancel any shares not taken or agreed to be taken by any person; or
(c) Subject to Article 55, divide its share capital or any part thereof
into shares of smaller amount than is fixed by its Articles of
Association by sub-division of its existing shares or any of them
subject, nevertheless, to the provisions of the Companies Ordinance,
and so that as between the resulting shares, one or more of such
shares may, by the Resolution by which such sub-division is
effected, be given any preference or advantage as regards dividend,
capital, voting or otherwise over the others or any other shares; or
(d) Reduce its share capital and any capital redemption reserve fund in
any way that may be considered expedient and, in particular,
exercise all or any of the powers conferred by Section 151 of the
Companies Ordinance, or any statutory modification thereof.
41. The Company may, subject to applicable law, issue redeemable shares and
redeem the same.
INCREASE OF CAPITAL
42. The Company may from time to time by Special Resolution, whether all the
shares for the time being authorized shall have been issued or all the
shares for the time being issued shall have been fully called up or not,
increase its share capital by the creation of new shares; such new capital
to be of such amount and to be divided into shares of such respective
amounts and (subject to any special rights for the time being attached to
any existing class of shares) to carry such preferential, deferred or
other special rights (if any) or to be subject to such conditions or
restrictions (if any) in regard to dividend, return of capital, voting or
otherwise as the General Meeting deciding upon such increase directs.
43. Except so far as otherwise provided by or pursuant to these Articles or by
the conditions of issue, any new share capital shall be considered as part
of the original share capital of the Company, and shall be subject to the
same provisions with reference to the payment of calls, lien, transfer,
transmission, forfeiture and otherwise as the original share capital.
MODIFICATION OF CLASS RIGHTS
44. If, at any time, the share capital is divided into different classes of
shares, the rights attached to any class (unless otherwise provided by the
terms of issue of the shares of that class) may be modified, converted,
broadened, added or otherwise altered with the consent in writing of the
holders of three-fourths of the issued shares of that class, or with the
sanction of a Special Resolution passed at a separate meeting of the
holders of the shares of the class. To every such separate meeting, the
provisions of these Articles relating to General Meetings shall, mutatis
mutandis,
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<PAGE> 28
apply,but so that the necessary quorum shall be two persons at least
holding or representing by proxy one-third of the issued shares of the
class, and that any holder of shares of the class present in person or by
proxy may demand a poll. Unless otherwise provided by these Articles, the
enlargement of any existing class of shares, or the issuance or allotment
of additional shares thereof, or the creation of additional shares of that
class as a result of conversion of shares from another class, including
the conversion set forth in Article 6 hereof, or unification with another
class shall not be deemed to modify or alter the rights attached to the
previously issued shares of such class or any other class.
BORROWING POWERS
45. The Board of Directors may from time to time, in its discretion, cause the
Company to borrow or secure the payment of any sum or sums of money for
the purposes of the Company, and may secure or provide for the repayment
of such sum or sums in such manner, at such times and upon such terms and
conditions in all respects as it thinks fit and, in particular, by the
issuance of bonds, perpetual or redeemable debentures, debenture stock, or
any mortgages, charges or other securities on the undertaking, or the
whole or any part of the property of the Company, both present and future,
including its uncalled or called but unpaid capital for the time being.
GENERAL MEETINGS
46. General Meetings shall be held at least once in every calendar year at
such time, not being more than fifteen months after the holding of the
last preceding General Meeting, and at such place as may be determined by
the Directors. Such Annual General Meetings shall be called "Ordinary
Meetings", and all other General Meetings of the Company shall be called
"Extraordinary Meetings". The Annual General Meeting shall receive and
consider the Directors' Report, the Profit and Loss Account and Balance
Sheet, appoint auditors and transact any other business which, under these
Articles or by the Statutes, are to be transacted at a General Meeting of
the Company.
47. The Board of Directors may, whenever they think fit, and they shall upon
such requisition in writing as is provided by Sections 109 and 110 of the
Companies Ordinance, convene an Extraordinary Meeting.
48. Subject to the provisions herein relating to Special Resolutions, fourteen
days' notice at the least, specifying the place, the day and the hour of
meeting and, in the case of special business, the general nature of such
business, shall be given in manner hereinafter mentioned, to such members
as are under the provisions of these Articles, entitled to receive notices
from the Company. Whenever it is proposed to pass a Special Resolution,
twenty-one days' notice of the General Meeting convened to pass such
resolution shall be given. With the consent of all the members for the
time being entitled to receive notice of meetings, a meeting may be
convened upon a shorter notice or without notice, and generally in such
manner as such members may approve.
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<PAGE> 29
PROCEEDINGS AT GENERAL MEETINGS
49. No business shall be transacted at any General Meeting unless a quorum is
present when the meeting proceeds to business. The quorum at any Meeting
shall be two members present in person or by proxy, holding or
representing at least one-third of the total voting rights in the Company.
All proceedings of the general meetings of shareholders shall be conducted
in English and all materials and reports provided to shareholders shall be
in English.
50. If, within half an hour from the time appointed for the holding of a
General Meeting, a quorum is not present, the meeting shall be canceled if
it was called upon a request in writing as provided in Section 109 of the
Companies Ordinance or if it was called in accordance with Section 110 of
the Companies ordinance. However, in any other case, the meeting shall
stand adjourned to the same day in the next week at the same time and
place, or any time and hour as the Directors shall designate and state in
a notice to the members, and if, at such adjourned meeting, a quorum is
not present within half an hour from the time appointed for holding the
meeting, two members present in person or by proxy shall be a quorum.
51. The Chairman of the Board shall preside at every General Meeting, but if
there shall be no such Chairman, or if, at any meeting, he shall not be
present within fifteen minutes after the time appointed for holding the
same, or shall be unwilling to act as Chairman, the members present shall
choose a Director or, if no Director be present, or if all the Directors
present decline to take the Chair, they shall choose a member present to
be Chairman of the meeting.
52. The Chairman may, with the consent of any meeting at which a quorum is
present, and shall, if so directed by the meeting, adjourn any meeting
from time to time and from place to place as the meeting shall determine.
Whenever a meeting is adjourned pursuant to the provisions of this Article
for seven days or more, notice of the adjourned meeting shall be given in
the same manner as in the case of an original meeting. Save as aforesaid,
no member shall be entitled to any notice of an adjournment, or of the
business to be transacted at an adjourned meeting, however, business shall
be transacted at any adjourned meeting other than the business which might
have been transacted at the meeting from which the adjournment took place.
53. Any member entitled to be present and vote at a General Meeting may submit
to any General Meeting any resolution which is relevant to the objects for
which the meeting is convened, provided that, within the prescribed time
before the day appointed for the meeting, he shall have served upon the
Company a notice in writing signed by him containing the proposed
resolution and stating his intention to submit the same. The prescribed
time above mentioned shall be such that, between the date on which the
notice is served or deemed to be served and the day appointed for the
meeting, there shall be not less than four, nor more than fourteen,
intervening days.
54a) Members entitled to be present and vote at a General Meeting may
participate in a
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General Meeting by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can
hear each other, and such participation in a meeting shall constitute
attendance in person at the meeting, provided confirmation in writing by
each such participant be forwarded to the Company Secretary at any time
before such meeting.
b) A resolution in writing signed by all members then entitled to receive
notice of and to attend and vote at general meetings or to which all such
members have given their written consent (including, by letter or
facsimile,) shall be deemed to have been adopted as if it were adopted as
a regular, special or extraordinary resolution (as the case may be) at a
general meeting of the Company duly convened and held. Any such resolution
may consist of several documents in like form and signed or consented to
as aforesaid, by one or more members.
VOTES OF MEMBERS
55. a) Subject to Article 55(b), a resolution shall be deemed adopted if
approved by the holders of a majority of the voting rights in the
Company represented at the meeting in person or by proxy and voting
thereon in the case of an ordinary resolution and by the holders of
at least eighty percent (80%) of the voting rights in the Company
represented at the meeting in person or by proxy and voting thereon
in the case of a Special Resolution. In the case of an equality of
votes, either on a show of hands or a poll, the Chairman of the
meeting shall not be entitled to a further or casting vote.
b) Until the consummation of a Qualified Initial Public Offering and in
addition to any approvals which may be required according to
applicable law (including class rights), the Company shall not,
without the prior written consent of the majority of the outstanding
Class A Preferred Shares, carry out any of the following:
(i) change or adversely modify any of the rights, preferences, or
privileges or limitations attached to the Class A-1 and Class
A Preferred Shares or to Class B Ordinary Shares into which
the Class A-1 Preferred Shares are converted;
(ii) create, issue or undertake to issue any class or series of
securities or options or other rights to acquire securities
with rights on parity with or having preference over those
rights attached to the Class A-1 and Class A Preferred Shares;
(iii) reclassify the outstanding share capital of the Company so as
to adversely affect or modify the rights, preferences or
privileges attached to the Class A-1 and Class A Preferred
Shares or Class B Ordinary Shares;
(iv) authorize or issue additional Class A-1 and Class A Preferred
Shares or Class B Ordinary Shares
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(c) Until the consummation of a Qualified Initial Public Offering and in
addition to any approvals which may be required according to
applicable law (including class rights), the Company shall not,
without the prior written consent of the majority of the outstanding
Class B Preferred Shares, carry out any of the following:
(i) change or adversely modify any of the rights, preferences, or
privileges or limitations attached to the Class B Preferred
Shares;
(ii) create, issue or undertake to issue any class or series of
securities or options or other rights to acquire securities
with rights on parity with or having preference over those
rights attached to the Class B Preferred Shares;
(iii) reclassify the outstanding share capital of the Company so as
to adversely affect or modify the rights, preferences or
privileges attached to the Class B Preferred Shares;
(iv) authorize or issue additional Class B Preferred Shares
(d) Until the consummation of a Qualified Initial Public Offering and in
addition to any approvals which may be required according to
applicable law (including class rights), the Company shall not,
without the prior written consent of the majority of the outstanding
Class C Preferred Shares, carry out any of the following:
(i) change or adversely modify any of the rights, preferences, or
privileges or limitations attached to the Class C Preferred
Shares;
(ii) create, issue or undertake to issue any class or series of
securities or options or other rights to acquire securities
with rights on parity with or having preference over those
rights attached to the Class C Preferred Shares;
(iii) reclassify the outstanding share capital of the Company so as
to adversely affect or modify the rights, preferences or
privileges attached to the Class C Preferred Shares;
(iv) authorize or issue additional Class C Preferred Shares
(e) Until the consummation of a Qualified Initial Public Offering the
consent of the holders of at least 66 2/3% of the Class D Preferred
Shares shall be required for any action that (i) increases or
decreases the authorized number of shares of Ordinary or Class D
Preferred Shares, (ii) alters or changes the rights, preferences or
privileges of the Class D Preferred Shares, (iii) creates (by
reclassification or otherwise) any new class or series of shares
having rights, preferences or privileges senior to or on a parity
with the Class D Preferred Shares, (iv) results in the redemption of
any Ordinary Shares (other than
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pursuant to equity incentive agreements or employment agreements
with service providers giving the Company the right to repurchase
shares upon the termination of services), (v) amends or waives any
provision of the Company's Memorandum and Articles of Association
relative to the Class D Preferred Shares, (vi) results in the
payment or declaration of any dividend (other than in Ordinary
Shares) on any Ordinary Shares, or (vii) results in any merger,
other corporate re-organization, sale of control, or other
transaction in which holders of the Company's voting securities
prior to such transaction or series of related transactions hold
less than 50% of the Company's voting securities upon the closing of
such transaction or series of related transactions, or sale of all
or substantially all of the assets of the Company.
(f) Until the consummation of the Qualified Initial Public Offering and
in addition to any approvals which may be required according to
applicable law (including class rights), the Company shall not,
without the prior written consent of the majority of the outstanding
Preferred Shares, merge or consolidate with, or sell, assign, lease,
or otherwise dispose, transfer or convey of (whether in one
transaction or a series of transactions) all or substantially all of
its assets including any shareholdings in any company or any
Intellectual Property to any person or entity or effect any other
recapitalization or reorganization.
56. At all General Meetings, a resolution put to a vote at the meeting shall
be decided on a show of hands unless, according to the voting rights held
by each member present and voting on such resolutions before or upon the
declaration of the result of the show of hands, a poll in writing be
demanded by the Chairman (being a person entitled to vote), or by at least
two members present, in person or by proxy, holding at least ten percent
(10%) of the issued share capital of the Company and, unless a poll be so
demanded, a declaration by the Chairman of the meeting that a resolution
has been carried, or has been carried unanimously or by a particular
majority, or lost, or not carried by a particular majority, shall be
conclusive, and an entry to that effect in the Minute Book of the Company
shall be conclusive evidence thereof, without proof of the number or
proportion of the votes recorded in favor of or against such resolution.
57. If a poll be demanded in manner aforesaid, it shall be taken forthwith,
and the result of the poll shall be deemed to be the resolution of the
meeting at which the poll was demanded.
58. The demand of a poll shall not prevent the continuance of a meeting for
the transaction of any business other than the question on which a poll
has been demanded.
59. Subject to any rights or restrictions for the time being attached to any
class or classes of shares, every member shall have one vote for each
share of which he is the holder, whether on a show of hands or on a poll.
60. If any member be a lunatic, idiot, or non compos mentis, he may vote by
his committee, receiver, curator bonis or other legal curator, and such
last-mentioned persons may give their votes either personally or by proxy.
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61. If two or more persons are jointly entitled to a share then, in voting
upon any question, the vote of the senior who tenders a vote, whether in
person or by proxy, shall be accepted to the exclusion of the votes of the
other registered holders of the share and, for this purpose, seniority
shall be determined by the order in which the names stand in the Register
of Members.
62. Votes may be given either personally or by proxy. A proxy need not be a
member of the Company.
63. (a) The instrument appointing a proxy shall be in writing in the usual
common form, or such form as may be approved by the Directors, and
shall be signed by the appointor or by his attorney duly authorized
in writing or, if the appointor is a corporation, the corporation
shall vote by its representative, appointed by an instrument duly
signed by the corporation.
(b) The instrument appointing a proxy shall be deemed to include
authorization to demand a poll or to vote on a poll on behalf of the
appointor.
64. A vote given in accordance with the terms of an instrument of proxy shall
be valid notwithstanding the previous death or insanity of the principal,
or revocation of the proxy, or transfer of the share in respect of which
the vote is given, unless an intimation in writing of the death,
revocation or transfer shall have been received at the Office before the
commencement of the meeting or adjourned meetings at which the proxy is
used.
65. The instrument appointing a proxy, together with the power of attorney or
other authority (if any) under which it is signed, or a notarially
certified or office copy of such power of attorney, shall be deposited at
the Office or at such other place or places, whether in Israel or
elsewhere, as the Directors may from time to time, either generally or in
a particular case or class of cases prescribe, at least forty-eight hours
before the time appointed for holding the meeting or adjourned meeting at
which the person named in such instrument proposes to vote; otherwise, the
person so named shall not be entitled to vote in respect thereof; but no
instrument appointing a proxy shall be valid after the expiration of
twelve months from the date of its execution.
66. Subject to the provisions of the Companies Ordinance, a resolution in
writing signed by all the members, in person or by proxy, for the time
being entitled to vote at a General Meeting of the Company, shall be as
valid and as effectual as a resolution adopted by a General Meeting duly
convened, held and constituted for the purpose of passing such resolution.
A telecopy addressed to any member, setting forth the text of a resolution
and approved by the addressee in reply telecopy, which expressly
identified the telecopy to which it is a reply, shall be deemed a writing
signed by such member for the purposes of this Article.
67. A member will be entitled to vote at the Meetings of the Company by
several proxies appointed by him, provided that each proxy shall be
appointed with respect to different shares held by the appointing member.
Every proxy so appointed on behalf of the same member shall be entitled to
vote as he sees fit.
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68. No person shall be entitled to vote at any General Meeting (or be counted
as a part of the quorum thereof) unless all calls then payable by him in
respect of his shares in the Company shall have been paid.
THE BOARD OF DIRECTORS
69. The number of members of the Board of Directors of the Company shall be no
less than two and no more than seven.
70. (a) Members of the Board of Directors shall be appointed as follows:
(i) four (4) directors will be appointed by Moshe Ben Bassat
provided that each such nominees will be business
professionals with suitable credentials reasonably acceptable
to Oak and Oppenheimer (as defined below);
(ii) one director will be appointed by Oak Investment Partners VI
L.P. and Oak VI Affiliates Fund L.P. ("Oak");
(iii) one director will be appointed by Genesis Partners I L.P. and
Genesis Partners I (Cayman) L.P. ("Oppenheimer");
(iv) one director will be a director appointed by mutual agreement
of Oak, Oppenheimer and Moshe Ben Bassat.
(b) Any of the parties who has the right to appoint a Director may from
time to time and at any time:
(1) remove from office a Director and appoint another in his
place;
(2) appoint a Director in place of a Director whose office has
been vacated for any reason whatsoever.
(c) Any appointment or removal of Directors shall be made by notice in
writing to the Company under the hand of the appointing or removing
members, as the case may be, and shall become effective on the date
fixed in the notice of appointment or removal, as the case may be,
but not before delivery thereof to the Company.
(d) Until a Qualified Initial Public Offering, the holders of a majority
of the Class D Preferred Shares will be entitled to attend all
meetings of the Board of Directors and to receive copies of all
notices, consents, board and committee minutes and other materials
distributed to the Board or any Committee thereof. Such observer
will sign an appropriate confidentiality undertaking.
71. A person who has ceased to be a member of the Board of Directors shall be
eligible for re-election or re-appointment.
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72. If any member of the Board of Directors is not appointed, or if the office
of a member of the Board of Directors is vacated, the continuing members
of the Board of Directors may, as long as their number does not fall below
the quorum, act in every matter.
73. The Directors in their capacity as such, shall be entitled to receive
remuneration and reimbursement of expenses incurred by them in the course
of carrying out their duties as Directors.
74. The office of a Directors shall be vacated, ipso facto:
(a) upon his resignation by written notice signed by him and delivered
to the Office;
(b) if he becomes bankrupt or enters into an arrangement with his
creditors;
(c) if he be found to be a lunatic or becomes of unsound mind;
(d) if he be relieved of his office as provided in Article 70 hereof.
(e) if he is prevented from serving as a Director of the Company
according to any provision of Israeli law.
75. Subject to the Companies Ordinance, no Director shall be disqualified by
virtue of his office from holding any office, or deriving any profit from
any other office in the Company or from any company in which the Company
shall be a shareholder or otherwise interested, or from contracting with
the Company as a vendor, purchaser or otherwise, nor shall any such
contract, or any contract or arrangement entered into by or on behalf of
the Company in which the Director shall in any way be interested, be
avoided, nor shall any Director be liable to account to the Company for
any profit arising from any such office or realized by any such contract
or arrangement by reason only of such Director's holding that office or of
the fiduciary relations thereby established, provided the nature of his
interest is disclosed by him no later than the meeting of the Board of
Directors at which the contract or arrangement is first considered, if his
interest then exists or, in any other case, at the first meeting of the
Board of Directors after the acquisition of his interest. After such
disclosure, every Director whose interest is submitted for approval before
the Board shall not be present and shall not vote at such Board's
meetings. A general notice that a Director is a member of any firm or
company and is to be regarded as interested in all transactions with this
firm or company shall be a sufficient disclosure under this Article and,
after such general notice, it shall not be necessary to give any special
notice relating to any particular transaction with such firm or company.
76. [Reserved].
77. [Reserved]
78. [Reserved]
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<PAGE> 36
79. [Reserved]
PROCEEDINGS OF THE BOARD OF DIRECTORS
80. The Board of Directors may meet together and adjourn their meetings and
otherwise regulate their meetings and proceedings as they think fit. All
proceedings of the Board of Directors shall be conducted in English and
all material and reports provided to the Directors shall be in English.
81. Until otherwise decided by the Board of Directors and subject to any
applicable law, the quorum for the dispatch of business by the Board of
Directors shall be a majority of the Directors then holding office and
entitled to participate and vote on any such business provided that a
quorum of directors must include at least one representative appointed by
Moshe Ben Bassat and one by either Oak or Oppenheimer.
82. No business shall be transacted at a meeting of the Board of Directors
unless the requisite quorum is present at the commencement of the meeting,
and no resolution shall be adopted unless the requisite quorum is present
when the resolution is voted upon.
83. A member of the Board of Directors may, at any time, and the Secretary,
upon the request of such members shall, convene a meeting of the Board of
Directors.
84. The Chairman of the Board of Directors will be elected by a majority vote
of all Directors holding office. Moshe Ben Bassat will act as Chairman of
the Board of Directors as long as he holds (together with shareholders who
would qualify as his Permitted Transferees) at least twenty percent (20%)
of the issued and outstanding share capital of the Company.
85. The Chairman of the Board of Directors shall take the chair at every
meeting of the Board of Directors, but if there is no such Chairman, or if
at any meeting he is not present within 15 (fifteen) minutes of the time
appointed for the meeting, or if he is unwilling to take the chair, the
Directors present shall choose one of their number to be the Chairman of
such meeting.
86. A meeting of the Board of Directors at which a quorum is present shall be
competent to exercise all the authorities, powers and discretions by or
under the regulations of the Company for the time being vested in or
exercisable by the Board of Directors generally.
87. Resolutions proposed at any meeting of the Board of Directors shall be
deemed adopted if passed by a majority of the votes of the members of the
Board of Directors entitled to be present, entitled to vote and present
and voting at the meeting.
88. The Board of Directors may, for any special matter, delegate any of its
powers to
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committees consisting of one or several members, whether or not such
members are Directors, as the Board of Directors may deem fit, and it may
from time to time revoke such delegation. Any committee so formed (in
these Articles referred to as a "Committee of the Board of Directors")
shall, in the exercise of the powers so delegated, conform to any
regulations that may be imposed on it by the Board of Directors. The
meetings and proceedings of any such Committee of the Board of Directors
consisting of two (2) or more members, shall be governed by the provisions
herein contained for regulating the meetings of the Board of Directors, so
far as the same are applicable thereto and so far as not superseded by any
regulations made by the Board of Directors under this Article.
89. All acts done at any meeting of the Board of Directors, or of a Committee
of the Board of Directors, or by any person acting as a Director shall,
notwithstanding that it may afterwards be discovered that there was some
defect in the appointment of such Directors or members of a Committee of
the Board of Directors or person acting as aforesaid or any of them, or
that they or any of them were disqualified, be as valid as if every such
person had been duly appointed and was qualified to be a Director or a
member of such Committee of the Board of Directors.
90. A resolution in writing signed by all members of the Board of Directors or
to which all members of the Board of Directors have agreed in writing or
by telecopy, shall be as valid and effective for all purposes as if passed
at a meeting of the Board of Directors duly convened and held.
91. Members of the Board of Directors, or of any committee designated by the
Board of Directors, may participate in a meeting of the Board of
Directors, or of any committee, by means of a conference telephone or
similar communications equipment by means of which all persons
participating in the meeting can hear each others, and such participation
in a meeting shall constitute attendance in person at the meeting,
provided confirmation in writing by each such participant be forwarded to
the Company Secretary prior to such meeting.
91A. (a) A Director shall have the right, by written notice to the Company,
to appoint any one or more person(s), whether such person be a
Director or not, as a substitute to act in his place, to remove the
substitute and appoint another in his place and to appoint a
substitute in place of a substitute whose office was vacated for any
reason whatsoever. One person may serve as a substitute for several
Directors.
(b) Any notice given to the Company as aforesaid shall become effective
on the date fixed therein, upon delivery to the Company or when
approved by a majority of the Directors, whichever is later. The
approval of the appointing Director will be counted in calculating
whether a majority of Directors have approved. In the event the
person appointed as a substitute is a Director, it shall not be
necessary to receive the approval of the majority of the Directors.
(c) A substitute for a Director shall have - in addition to his own
vote, if he himself is a Director - a number of votes equal to the
number of Directors for whom he acts as substitute, and shall be
counted for purposes of establishing a
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quorum as the number of Directors for whom he acts as substitute,
provided however, that not more than one (1) substitute appointed to
act in place of a Director exercising this power may attend or vote
at the same meeting.
(d) A substitute for a Director shall have - subject to any instructions
or limitations contained in the instrument appointing him - all the
authority and powers held by the Director for whom he acts as
substitute, provided however, that he may not in turn appoint a
substitute for himself (unless the instrument appointing him
otherwise expressly provides), and provided further that a
substitute shall have no standing at any meeting of the Board of
Directors or any committee thereof at which the Director appointing
him is personally present. If the substitute himself is a Director,
his authority and powers as a substitute shall be in addition to,
and shall not derogate in any way from, his authority and powers as
a Director.
(e) The office of a substitute for a Director shall ipso facto be
vacated if he is removed by the director appointing him, or if the
office of the Director for whom he acts as substitute is vacated for
any reason whatsoever, or if one of the circumstances described in
Subsections (a)-(c) and (e) of Article 74 should befall the
substitute.
(f) Every substitute shall be entitled to receive, so long as he serves
as a substitute, notice of meetings of the Board of Directors and of
any relevant committees.
POWERS OF THE BOARD OF DIRECTORS
92. The management of the business of the Company shall be vested in the Board
of Directors, and the Board of Directors may exercise all such powers and
do all such acts and things as the Company is, by its Memorandum of
Association and/or its Articles of Association or under the Law,
authorized to exercise and do, and are not hereby or by statute directed
or required to be exercised or done by the Company in General Meeting but
subject, nevertheless, to the provisions of the Companies Ordinance, and
of these presents and any regulations or resolution not being inconsistent
with these presents made from time to time by the Company in General
Meeting; provided that no such regulation or resolution shall invalidate
any prior act done by or pursuant to the directions of the Board of
Directors which would have been valid if such regulation or resolution had
not been made.
LOCAL MANAGEMENTS
93. The Board of Directors may from time to time provide for the management
and transaction of the affairs of the Company in any specified locality,
whether at home
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or abroad, in such manner as they think fit, and the provisions contained
in the next following Article shall be without prejudice to the general
powers conferred by this Article on the Board of Directors.
94. The Board of Directors may, from time to time and at any time, establish
any local board or agency for managing any of the affairs of the Company
in any such specified locality, and may appoint any person to be a member
of such local board, or any manager or agent, and may fix their
remuneration. The Board of Directors may, from time to time and at any
time, delegate to any person so appointed any of the powers, authorities
and discretions for the time being vested in the Board of Directors, and
may authorize any member for the time being of any such local board to
continue in his office notwithstanding any vacancy which may occur, and
any such appointment or delegation may be made on such terms and subject
to such conditions as the Board of Directors may think fit, and the Board
of Directors may at any time remove any person so appointed and may annul
or vary any such delegation.
MANAGING DIRECTORS AND DIRECTORS GENERAL
95. The Board of Directors may from time to time appoint any one or more
persons whether or not a Director to be Managing Director(s) or
Director(s) General or President of the Company, or any similar function
regardless of the title either for a fixed term or without any limitation
as to the period for which he or they is or are to hold office, and may
from time to time (subject to any provisions of any contract between him
or them and the Company which will include the provision of this Article)
remove or dismiss him or them from office and appoint another or others in
his or their place or places.
96. The remuneration of any such Managing Director, Director General or
President, etc. shall from time to time (subject to any contract between
him and the Company) be fixed by the Board of Directors.
97. The Board of Directors may from time to time entrust to and confer upon a
Managing Director or Director General or President, etc. for the time
being such of the powers exercisable under these Articles by the Board of
Directors as it may think fit, and may confer such powers for such time,
and to be exercised for such objects and purposes, and upon such terms and
conditions, and with such restrictions, as it thinks expedient; and it may
confer such powers, either collaterally with, or to the exclusion of, and
in substitution for, all or any of the powers of the Board of Directors on
their behalf; and may from time to time revoke, withdraw, alter or vary
all or any of such powers.
MINUTES
98. The Board of Directors shall cause minutes to be duly entered in books
provided for the purpose:
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(a) of the names of the Directors present at each meeting of the Board
of Directors and of any committee of the Board of Directors;
(b) of the names of the members present at each General Meeting;
(c) of all directions given by the Board of Directors to any Committee
of the Board of Directors;
(d) of all proceedings and resolutions of General Meetings and of
meetings of the Board of Directors and Committees of the Board of
Directors.
99. Any minute as aforesaid of a meeting of the Board of Directors, of a
meeting of a Committee of the Board of Directors or of a General Meeting
of the Company, if purporting to be signed by the Chairman of such meeting
or by the Chairman of the next succeeding meeting or by the Chairman of
such General Meeting, shall be accepted as prima facie evidence of the
matters therein recorded.
100. [Reserved]
BRANCH REGISTERS
101. Subject to, and in accordance with, the provisions of the Companies
Ordinance and to all orders and regulations issued thereunder, the Company
may cause branch registers to be kept at any place outside Israel as the
Board of Directors may think fit and, subject to all applicable legal
requirements, the Board of Directors may from time to time adopt such
rules and procedures as it may think fit in connection with the keeping of
such branch registers.
SECRETARY
102. The Board of Directors may from time to time appoint a Secretary to the
Company as it deems fit, and may appoint a temporary Assistant Secretary
who shall act as Secretary for the term of his appointment.
RIGHTS OF SIGNATURE - STAMP AND SEAL
103. (a) Authorization to sign on behalf of the Company and thereby bind it
shall be made and granted from time to time by the Board of
Directors. The Company shall have at least one rubber stamp. The
Company shall be bound by the signature of the aforesaid appointees
if appearing together after its stamp or imprinted name (e.g.
checks).
(b) The Board of Directors may provide for a seal. If the Board of
Directors so provides, it shall also provide for the safe custody
thereof. Such seal shall not be used except by the authority of the
Board of Directors and in the presence of the person(s) authorized
to sign on behalf of the Company, who shall sign
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every instrument to which such seal is affixed.
DIVIDENDS
104. Subject to any preferential, deferred, qualified or other rights,
privileges or conditions attached to any special class of shares with
regard to dividends, the profits of the Company available for dividend and
resolved to be distributed shall be applied in payment of dividends upon
the shares of the Company in proportion to the amount paid up or credited
as paid up per the nominal value thereon respectively, otherwise than in
advance of calls. Unless not otherwise specified in the conditions of
issuing of the shares, all dividends with respect to shares which were not
fully paid up within a certain period, for which dividends were paid,
shall be paid proportionally to the amounts paid or credited as paid on
the nominal value of the shares during any portion of the abovementioned
period (pro rata temporis).
105. The expression "profits of the Company available for dividend" as used in
these Articles, means the profits of the Company which may be lawfully
distributed as dividends.
106. The Company, in General Meeting, may declare a dividend to be paid to the
members according to their rights and interests in the profits, and may
fix the time for payment. No larger dividend shall be declared than is
recommended by the Directors, but the Company in General Meeting may
declare a smaller dividend.
107. The Board of Directors may from time to time declare such interim
dividends as may appear to the Board of Directors to be justified by the
profits of the Company, whether existing profits or projected profits,
provided however, that no dividend in excess of the amount of existing
profits (retained earnings) shall be declared out of projected profits,
and cause the Company to pay such dividends out of such profit. The final
dividends in respect of any fiscal period shall be proposed by the Board
of Directors and shall be payable only after the same has been approved by
ordinary resolution of the Company in general meetings, but no such
resolution shall provide for the payment for an amount exceeding that
proposed by the Board of Directors for the payment of such final dividend,
and no such resolution or any failure to approve a final dividend shall
affect any interim dividend theretofore declared and paid. The Board of
Directors shall have the full authority to determine the time for payment
of such dividends, both interim and final, and the record date for
determining the Members entitled thereto, and no Member who shall be
registered in the Register with respect to any shares after the record
date so determined shall be entitled to share in any such interim or final
dividend with respect to such shares, even to the extent any such
dividends arise from profits accrued after the date any such Member is
registered in the Register with respect to such shares, or are paid after
such date.
108. The Board of Directors may retain any dividends on which the Company has a
lien, and may apply the same in or towards satisfaction of the debts,
liabilities or engagements in respect of which the lien exists.
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<PAGE> 42
109. A transfer of shares shall not pass the right to any dividend declared
thereon after such transfer and before the registration of the transfer.
110. Notice of the declaration of any dividend, whether interim or otherwise,
shall be given to the holders of registered shares in manner hereinafter
provided.
111. Unless otherwise directed, any dividend may be paid by check or warrant,
sent through the post to the registered address of the member or person
entitled or, in the case of joint registered holders, to that one of them
first named in the register in respect of the joint holding. Every such
check shall be made payable to the order of the person to whom it is sent.
The receipt by the person whose name, at the date of the declaration of
the dividend, appears in the register of members as the owner of any share
or, in the case of joint holders, of any one of such joint holders, shall
be a good discharge to the Company of all payments made in respect of such
share. All dividends unclaimed for one month after having been declared
may be invested or otherwise used by the Directors for the benefit of the
Company until claimed. No unpaid dividend or interest shall bear interest
as against the Company.
RESERVES
112. The Directors may from time to time set aside out of the profits of the
Company available for dividend as defined by Article 105 and carry to
revenue or general reserve such sums as they think expedient. All sums
carried and for the time being standing to revenue or general reserve
shall, at the discretion of the Directors, be applicable for meeting
contingencies, or for the gradual liquidation of any debt or liability of
the Company, or for repairing or maintaining any properties of the
Company, or for meeting losses on realization of or writing down
investments (either individually or in the aggregate) or, with the
previous sanction of the Company in General Meeting, for equalizing or
paying dividends, or for any other purpose to which profits of the Company
may properly be applied.
113. [Reserved]
114. All sums carried and standing to revenue or general reserve or capital
reserve may, pending any other application thereof authorized by the
preceding Articles, be invested together with any other monies of the
Company in the ordinary course of the Company's business, and without it
being necessary to distinguish between the investments of the reserves and
investments of the other monies of the Company or between investments of
the revenue or general reserve and investments of the capital reserve.
CAPITALIZATION OF RESERVES, ETC.
115. Subject to the Companies Ordinance, the Company, in General Meeting, may
at any time and from time to time pass a resolution that any sum not
required for the payment or provision of any fixed preferential dividend
and (a) for the time being
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<PAGE> 43
standing to the credit of any reserve fund or reserve account of the
Company, debentures or debenture stock of the Company, or (b) being
undivided net profits in the hands of the Company, be capitalized, and
that such sum be set free for distribution amongst the members in the
proportions in which they would have been entitled thereto if the same had
been distributed by way of dividend on the shares and in such manner as
the resolution may direct, and such resolution shall be effective; and the
Directors shall, in accordance with such resolution, apply such sum in
paying up in full any unissued shares in the capital on behalf of the
members as aforesaid, and appropriate such shares and distribute the same
credited as fully paid up amongst such members in the proportion aforesaid
in satisfaction of their shares and interests in the said capitalized sum,
or shall apply such sum or any part thereof on behalf of the members
aforesaid in paying up the whole or part of any uncalled balance which
shall for the time being be unpaid in respect of any issued shares held by
such members, or otherwise deal with such sum as directed by such
resolution. Where difficulty arises in respect of any such distribution,
the Directors may settle the same as they think expedient and, in
particular, they may issue fractional certificates, fix the value for
distribution of any fully paid up shares, make such payments to any
members on the footing of the value so fixed in order to adjust rights,
and vest any such shares in trustees upon such trusts for the persons
entitled to share in the appropriation and distribution as may seem just
and expedient to the Directors. When deemed requisite, a proper contract
for the allotment and acceptance of the shares to be distributed as
aforesaid shall be filed in accordance with Sections 129 and 130 of the
Companies Ordinance, and the Directors may appoint any person to sign such
contract on behalf of the persons entitled to share in the appropriation
and distribution, and such appointment shall be effective.
ACCOUNTS
116. The Directors shall cause true accounts to be kept:
(a) of the assets and liabilities of the Company;
(b) of all sums of money received and expended by the Company, and the
matters in respect of which such receipts and expenditure take
place;
(c) of all sales and purchases of goods by the Company.
The books of account shall be kept at the Office or at such other place as
the Directors shall think fit, and shall always be open to the inspection
of the Directors.
117. The Directors shall from time to time determine whether, in any particular
case or class of cases, or generally, and to what extent and at what time
and place and under what conditions or regulations the accounts and books
of the Company, or any of them, shall be open to the inspection of
members, and no member (not being a Director) shall have any right of
inspecting any account or book or document of the Company, except as
conferred by the Companies Ordinance or authorized by the Directors or by
a resolution of the Company in General Meeting.
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<PAGE> 44
118. No later than eighteen months after the incorporation of the Company and
subsequently, at least once in every calendar year, the Directors shall
present to the Company in General Meeting a profit and loss account for
the period since the preceding account or (in the case of the first
account) since the incorporation of the Company and, in accordance with
the Companies Ordinance in that behalf, a balance sheet shall be made out
in every year and laid before the Company in General Meeting, made up as
at the date to which the profit and loss account is made up. The balance
sheet shall have attached thereto the Auditor's report, and shall be
accompanied by a report of the Directors as to the state of the Company's
affairs, and the amount which they recommend to be paid by way of
dividend, and the amount (if any) that they recommend to carry to reserve.
NOTICES
119. A notice or any other document may be served by the Company upon any
member either personally or by sending it through the post in a prepaid
letter or by telex or cablegram or telecopy addressed to such member at
his registered address as appearing in the register of members.
120. All notices directed to be given to the members shall, with respect to any
shares to which persons are jointly entitled, be given to whichever of
such persons is named first in the register of members, and any notice so
given shall be sufficient notice to the holders of such share.
121. Any member described in the register of members by an address, whether
within or out of the State of Israel, shall be entitled to have served
upon him at such address any notice to which he would be entitled under
these Articles but, save as aforesaid, no member other than a member
described in the register of members by an address shall be entitled to
receive any notice from the Company.
122. Any member present, either personally or by proxy, at any General Meeting
shall, for all purposes, be deemed to have received due notice of such
General Meeting and, where requisite, of the purposes for which such
General Meeting was convened.
123. A notice may be given by the Company to the persons entitled to any share
in consequence of the death or bankruptcy of a member by sending it
through the post in a prepaid letter addressed to them by name or by the
titles of representatives or trustees of such deceased or bankrupt member,
at the address (if any) supplied for the purpose by such persons as
aforesaid or (until such address has been supplied), by giving the notice
in the manner in which the same would have been given if the death or
bankruptcy had not occurred.
124. Any notice or other document, if served by post, shall be deemed to have
been served at the time when the letter containing the notice would be
delivered in the ordinary course of post and, in proving such service, it
shall be sufficient to prove that the letter containing the notice or
document was properly addressed and put into the post office as a prepaid
letter. Any entry made in the ordinary course in any postal book of the
Company shall be prima facie evidence of such posting therein
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<PAGE> 45
recorded.
125. Where a given number of days' notice, or notice extending over any period,
is required to be given, the day of service shall be counted in such
number of days or other period.
RECONSTRUCTION
126. On any sale of the undertaking of the Company, the Directors or the
liquidators on a winding-up may, if authorized by Special Resolution,
accept fully paid up or partly paid up shares, debentures or securities of
any other company, whether Israeli or foreign, either then existing or to
be formed, for the purchase, in whole or in part, of the property of the
Company, and the Directors (if the profits of the Company permit), or the
liquidators (on a winding-up), may distribute such shares or securities,
or any other property of the Company, amongst the members without
realization, or vest the same in trustees for them, and any Special
Resolution may provide for the distribution or appropriation of the cash,
shares or other securities, benefits or property, otherwise than in
accordance with the strict legal rights of the members or contributors of
the Company, and for the valuation of any such securities or property at
such price and in such manner as the meeting may approve, and all holders
of shares shall be bound to accept and shall be bound by any valuation or
distribution so authorized, and waive all rights in relation thereto, save
only in the case the Company is proposed to be, or is, in the course of
being wound up, such statutory rights (if any) under the provisions of the
Companies Ordinance as are incapable of being varied or excluded by these
Articles.
INDEMNITY
127. Subject to the provisions of the Companies Ordinance, the Company may:
(a) (1) enter into a contract for the insurance of the liability, in
whole or in part, of any of its Officers with respect to any
of the following:
(i) a breach of duty of care to the Company or to any other
person;
(ii) a breach of fiduciary duty to the Company, provided that
the Officer has acted in good faith and had reasonable
grounds to assume that the act would not harm the good
of the Company;
(iii) a financial liability which may be imposed on such
Officer in favor of any other person, in respect of an
act performed by him by virtue of his being an Officer
of the Company;
(2) indemnify an Officer of the Company with respect to any of the
following:
(i) a fiduciary liability imposed on him in favor of any
other person by any judgment, including a judgment given
as a result of a settlement
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<PAGE> 46
or an arbitrator's award which has been confirmed by a
court, in respect of an act performed by him by virtue
of his being an Officer of the Company;
(ii) reasonable litigation costs, including lawyer's fees,
expended by an Officer or which were imposed on an
Officer by a court in proceedings filed against him by
the Company or in its name, or by any other person, or
in a criminal charge on which he was acquitted, in
respect of an act performed by him by virtue of his
being an Officer of the Company.
(b) In this Article, the term "Officer" shall mean an "office holder" as
defined in Section 96 of the Companies Ordinance, including a
Director, General Manager, Chief Executive Officer, Deputy General
Manager, Vice General Manager, any other manager directly
subordinate to the General Manager, and any person who fills one of
the said positions in the Company, even if he carries a different
title.
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<PAGE> 1
EXHIBIT 4.2
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
This Amended and Restated Registration Rights Agreement (the "AGREEMENT"), dated
as of December__, 1999, is entered into by and among IET-INTELLIGENT ELECTRONICS
LTD. (the "COMPANY"), OAK INVESTMENT PARTNERS VI, L.P., OAK VI AFFILIATES FUND
L.P., GENESIS PARTNERS I, L.P., THE GENESIS PARTNERS I (CAYMAN) L.P. WORLDVIEW
TECHNOLOGY PARTNERS I, L.P., WORLDVIEW TECHNOLOGY INTERNATIONAL I, L.P.,
WORLDVIEW STRATEGIC PARTNERS I L.P. SEMEL INVESTMENTS LTD., ADSHA PROJECT
INITIATION AND DEVELOPMENT LTD., NORMAN NIE, HAMBRECHT AND QUIST CALIFORNIA,
CHRISTINA M. MORGAN, JAMES A. DAVIDSON, MARK J. ZANOLI, ZOHAR ZISAPEL, MERITECH
CAPITAL PARTNERS L.P. and MERITECH CAPITAL AFFILIATES L.P. (collectively, the
"SHAREHOLDERS") and PROF. MOSHE BEN BASSAT and IDIT BEN BASSAT (together the
"FOUNDER").
R E C I T A L S
The parties wish to set out their respective rights and obligations with respect
to registration of the shares of the company for trading and to replace all
previous agreements between the Company and any of them regarding such
registration by the terms and provisions of this Agreement.
NOW THEREFORE, in consideration of the mutual promises and covenants hereinafter
set forth, the parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement, the following terms shall
have the following respective meanings:
"COMMISSION" shall mean the United States Securities and Exchange
Commission or any other federal agency at the time administering the
Securities Act or the equivalent authority of any other applicable
jurisdiction.
"DOLLAR OR $" shall mean United States dollar.
"EXCHANGE ACT" shall mean the United States Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
"HOLDER" shall mean any holder, or an assignee under Section 11 hereof, of
outstanding Registrable Securities.
"INITIATING HOLDERS" shall mean any Holders who in the aggregate are
Holders of twenty percent (20%) or more of the outstanding Registrable
Securities.
"ORDINARY SHARES" shall mean the voting ordinary shares of the Company.
"PUBLIC OFFERING" shall mean the closing of the initial offering to the
public of the Company's shares in any jurisdiction.
<PAGE> 2
The terms "REGISTER", "REGISTERED" and "REGISTRATION" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act or prospectus in compliance with the
Israel Securities Law, 1968 and the declaration or ordering of the
effectiveness of such registration statement.
"REGISTRABLE SECURITIES" shall mean Ordinary Shares (i) issued or issuable
pursuant to the conversion of the Shares, (ii) issued in respect of
securities issued pursuant to the conversion of the Shares upon any stock
split, stock dividend, recapitalization, substitution, or similar event,
(iii) issued in respect of securities purchased pursuant to preemptive
rights or rights of first refusal conferred upon the Holders of the
Shares, and (iv) only with regard to Section 3, held by the Founder and
Ordinary Shares issued, pursuant to the conversion of the Shares, but only
to the extent provided by Section 3(c) hereof; provided, however, that
Registrable Securities shall not include any (a) Ordinary Shares which
have previously been registered, (b) Ordinary Shares which have previously
been sold to the public, or (c) securities which would otherwise be
Registrable Securities held by a Holder who is then permitted to sell all
such securities within any three (3) month period following the Public
Offering pursuant to Rule 144 under the Securities Act if such securities
then held by such Holder constitute less than one percent of the Company's
out standing equity securities.
"REGISTRATION EXPENSES" shall mean all expenses (excluding Selling
Expenses) incurred in connection with a registration or offering under
this Agreement, including, without limitation, all registration and filing
fees, printing expenses, fees and disbursements of counsel for the
Company, blue sky fees and expenses, and the expense (not to exceed
$15,000) of any special audits incident to or required by any such
registration (but excluding the compensation of regular employees of the
Company, which shall be paid in any event by the Company).
"SECURITIES ACT" shall mean the United States Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
"SELLING EXPENSES" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities, and fees and
expenses of special counsel for the selling shareholders.
"SHARES" shall mean shares of the Company's Class A Convertible Preferred
Shares, Class A-1 Convertible Preferred Shares, Class B Convertible
Preferred Shares, Class B Convertible Ordinary Shares, Class C Convertible
Preferred Shares and Class D Convertible Preferred Shares.
2. Requested Registration.
a. Shares held by Founder: For the purpose of this Section only and
notwithstanding anything to the contrary contained herein,
Registrable Securities shall not include Ordinary Shares held by the
Founder, except for Ordinary Shares issued or issuable pursuant to
conversion of Preferred Shares.
b. Request for Registration. If after the earlier of March 29, 2001 or
12 months following the Public Offering, the Company shall receive
from Initiating Holders a written request that the Company effect
any registration in the jurisdiction in which the public offering is
made, with respect to the lesser of at least twenty
2
<PAGE> 3
percent (20%) of the Registrable Securities or such lesser number of
Registrable Securities which would result in an aggregate offering
of at least $10,000,000, the Company will:
(i) promptly give written notice of the proposed registration to
all other Holders; and
(ii) as soon as practicable, use its best efforts to effect such
registration (including, without limitation, the execution of
an undertaking to file post effective amendments, appropriate
qualification under applicable blue sky or other state
securities laws and appropriate compliance with applicable
regulations issued under the Securities Act) as may be so
requested and as would permit or facilitate the sale and
distribution of all or such portion of such Registrable
Securities as are specified in such request, together with all
or such portion of the Registrable Securities of any Holder or
Holders joining in such request as are specified in a written
request delivered to the Company within fifteen (15) days
after receipt of such written notice from the Company;
provided that the Company shall not be obligated to effect, or
to take any action to effect, any such registration pursuant
to this Section after the Company has effected two (2) such
registrations pursuant to this subsection (a) and such
registrations have been declared or ordered effective and the
sales of such Registrable Securities have closed (or such
registration was not declared or ordered effective); provided
further that no such demand shall be made within 180 days of
the effective date of a prior registration statement.
The Company shall file a registration statement covering the
Registrable Securities so requested to be registered as soon as
practicable, after receipt of the request or requests of the
Initiating Holders; provided, however, that if the Company shall
furnish to such Holders a certificate signed by the Chairman of the
Board of Directors of the Company stating that in the good faith
judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its shareholders for such
registration statement to be filed on or before the time filing
would be required and it is therefore essential to defer the filing
of such registration statement, the Company shall have the right to
defer such filing for a period of not more than ninety (90) days
after receipt of the request of the Initiating Holders.
A registration requested pursuant to this Section shall not be
deemed to have been effected (i) unless a registration statement
with respect thereto has become effective under the Securities Act
or any equivalent law of any other applicable jurisdiction, provided
that a registration which does not become effective after the
Company has filed a registration statement with respect thereto
solely by reason of the refusal of the holders of Registrable
Securities to proceed shall be deemed to have been effected by the
Company pursuant to this Section unless such refusal to proceed is
caused by a material adverse change in the business or operations of
the Company after such request for registration or (ii) if, after it
has become effective, such registration becomes subject to any stop
order, injunction or other order or requirement of the Commission or
other governmental agency or court for any reason and such order,
injunction or requirement is not promptly withdrawn or lifted.
3
<PAGE> 4
(c) Underwriting. If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Company as a part of their
request made pursuant to this Section, and the Company shall include
such information in the written notice referred to in subsection
(b)(i) above. The right of any Holder to registration pursuant to
this Section shall be conditioned upon such Holder's participation
in such underwriting and the inclusion of such Holder's Registrable
Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder
with respect to such participation and inclusion) to the extent
provided herein. A Holder may elect to include in such underwriting
all or a part of the Registrable Securities he holds.
The Company shall (together with all Holders proposing to distribute
their securities through such underwriting) enter into an
underwriting agreement in customary form with the representative of
the underwriter or underwriters (the "UNDERWRITER") selected for
such underwriting by sixty percent (60%) of the Initiating Holders
and reasonably acceptable to the Company. Notwithstanding any other
provision of this Section, if the Underwriter determines that
marketing factors require a limitation on the number of shares to be
underwritten, the Underwriter may (subject to the allocation
priority set forth below) limit the number of Registrable Securities
to be included in the registration and underwriting to not less than
fifty percent (50%) of the securities which Holders have requested
be included therein. The Company shall so advise all holders of
securities requesting registration, and the number of shares of
securities that are entitled to be included in the registration and
underwriting shall be allocated pro rata among such holders on the
basis of all Registrable Securities then held by such holders. If
any Holder disapproves of the terms of any such underwriting, such
holder may elect to withdraw therefrom by written notice to the
Company and the Underwriter. Any Registrable Securities excluded or
withdrawn from such underwriting shall be withdrawn from such
registration. If the Underwriter has not limited the number of
Registrable Securities or other securities to be underwritten, the
Company may include its securities for its own account in such
registration if the Underwriter so agrees and if the number of
Registrable Securities and other securities which would otherwise
have been included in such registration and underwriting will not
thereby be limited.
3. Company Registration.
(a) If the Company shall determine to register, or offer to the public
in any jurisdiction, any of its securities either for its own
account or for the account of a security holder or holders
exercising their respective demand registration rights, other than a
registration (or its equivalent in other jurisdictions) (i) relating
solely to employee benefit plans or to a Commission Rule 145
transaction, or (ii) on any form which does not permit secondary
sales or does not include substantially the same information as
would be required to be included in a registration statement
covering the sale of Registrable Securities, the Company will:
(i) promptly give to each Holder written notice thereof (which, to
the extent then known, shall include a list of the
jurisdictions in which the Company
4
<PAGE> 5
intends to attempt to qualify such securities under the
applicable blue sky or other state securities laws); and
(ii) include in such registration (and any related qualification
under blue sky laws or other compliance), and in any
underwriting involved therein, all of the Registrable
Securities specified in a written request or requests made by
any Holder within fifteen (15) days after receipt of the
written notice from the Company described in clause (i) above,
except as set forth in subsection (b) below. Such written
request may specify all or a part of a Holder's Registrable
Securities.
(b) Underwriting. If the registration of which the Company gives notice
is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice
given pursuant to subsection (b)(i) above. In such event the right
of any Holder to registration pursuant to this Section shall be
conditioned upon such Holder's participation in such underwriting
and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall
(together with the Company) enter into an underwriting agreement in
customary form with the Underwriter selected for underwriting by the
Company. Notwithstanding any other provision of this Section, if the
Underwriter determines that marketing factors require a limitation
on the number of shares to be underwritten, and (a) if such
registration is the first offering of the Company's securities to
the public, the Underwriter may (subject to the allocation priority
set forth below) exclude from such registration and underwriting
some or all of the Registrable Securities which would otherwise be
underwritten pursuant hereto (but no Registrable Securities may be
excluded until all other securities held by Company's shareholders
have been excluded), and (b) if such registration is other than the
first registered offering of the sale of the Company's securities to
the public, the Underwriter may (subject to the allocation priority
set forth below) limit the number of Registrable Securities to be
included in the secondary portion of the registration and
underwriting to not less than twenty five percent (25%) of the total
number of securities to be offered to the public. The Company shall
so advise all holders of securities requesting registration, and the
number of shares of securities that are entitled to be included in
the registration and underwriting by persons other than the Company
shall be allocated in the following priority: first, to Holders of
Registrable Securities and to the Founder only with respect to
Ordinary Shares issued pursuant to conversion of Shares of the
Founder, to the extent of seventy five percent (75%) of the
Registrable Securities to be included in the registration and
underwriting (and pro rata among such holders on the basis of all
the aforesaid shares); and then, to Founder, to the extent of
twenty-five percent (25%) of the Registrable Securities to be
included in the registration and underwriting. If any Holder
disapproves of the terms of any such underwriting, he may elect to
withdraw therefrom by written notice to the Company and the
Underwriter. Any Registrable Securities or other securities excluded
or withdrawn from such underwriting shall be withdrawn from such
registration.
(c) Piggyback Registration Rights. The Founder shall be entitled to
include (subject to any underwriter cutbacks as provided in this
Agreement) Ordinary Shares in any registration by the Company under
subsection (a) above.
5
<PAGE> 6
4. Registration on Form S-3. In case the Company shall receive from any
Holder or Holders of Registrable Securities a written request or requests
that the Company effect a registration on Form S-3 (or any successor to
Form S-3) or any similar short-form registration statement, including Form
F-3 (for purposes of this Agreement, "Form S-3"), and any related
qualification or compliance with respect to all or a part of the
Registrable Securities owned by such Holder or Holders, the Company will:
(i) promptly give written notice of the proposed registration, and any
related qualification or compliance, to all other Holders of
Registrable Securities; and
(ii) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would
permit or facilitate the sale and distribution of all or such
portion of such Holder's or Holders' Registrable Securities as are
specified in such request, together with all or such portion of the
Registrable Securities of any other Holder or Holders joining in
such request as are specified in a written request given within
fifteen (15) days after receipt of such written notice from the
Company, subject only to the following limitations:
(a) The Company shall not be obligated to cause a registration pursuant
on Form S-3 to become effective prior to sixty (60) days following
the effective date of the Company's most recent registration,
provided that the Company shall use its best efforts to achieve such
effectiveness promptly following such sixty (60) days period, and
that notice of Company-initiated registration is given to Holders
before the receipt of a request from a holder of Registrable
Securities for registration on Form S-3, provided, however, that if
the Company shall furnish to such Holders a certificate signed by
the Chairman of the Board of Directors of the Company stating that
in the good faith judgment of the Board of Directors of the Company,
it would be seriously detrimental to the Company and its
shareholders for such registration statement to be filed on or
before the time filing would be required and it is therefore
essential to defer the filing of such registration statement, the
Company shall have the right to defer such filing for a period of
not more than sixty (60) days after receipt of the request of the
Initiating Holders.
(b) The Company shall not be required to effect a registration pursuant
to this Section unless the Holder or Holders requesting registration
propose to dispose of shares of Registrable Securities having an
aggregate disposition price (before deduction of underwriting
discounts and expenses of sale) of at least $500,000; and
(iii) The Company shall not be required to maintain and keep any such
registration on Form S-3 effective for a period exceeding ninety
(90) days from the effective date thereof. The Company shall give
notice to all Holders of the receipt of a request for registration
pursuant to this Section and shall provide a reasonable opportunity
for all such other holders to participate in the registration.
Subject to the foregoing, the Company will use its best efforts to
effect promptly the registration of all shares of Registrable
Securities on Form S-3 to the extent requested by the Holder or
Holders thereof for purposes of disposition. In the event the
Underwriter determines that market factors require a limitation on
the number of shares to be underwritten, then shares shall be
excluded from such registration and underwriting pursuant to the
method described in Section 3(b).
6
<PAGE> 7
(iv) Subject to the foregoing, the Company shall file a Form S-3
registration statement covering the Registrable Securities and other
securities so requested to be registered as soon as practicable
after receipt of the request or requests of the Holders.
Registrations effected pursuant to this Section 4 shall not be
counted as requested registrations or registrations effected
pursuant to Sections 2 or 3, respectively.
5. Expenses of Registration. All Registration Expenses incurred in connection
with any registration, qualification or compliance pursuant to this
Agreement shall be borne by the Company, and all Selling Expenses shall be
borne by the holders of the securities so registered pro rata on the basis
of the number of their shares so registered; provided, however, that the
Company shall not be required to pay any Registration Expenses if, as a
result of the withdrawal of a request for registration by Initiating
Holders, the registration statement does not become effective, unless such
withdrawal is caused by a material adverse change in the business or
operations of the Company after such request for registration, or unless
the Initiating Holders agree to have such registration considered effected
and the sales of which have closed. If the Company is not required to pay
any Registration Expenses, then the Holders requesting registration shall
bear such Registration Expenses pro rata on the basis of the number of
their shares so included in the registration request, and such
registration shall not be considered a registration for purposes computing
the number of effected requested registrations of which the sales have
closed.
6. Registration Procedures. In the case of each registration effected by the
Company pursuant to this Agreement, the Company will keep each Holder
advised in writing as to the initiation of such registration and as to the
completion thereof. At its expense, the Company will:
(a) Prepare and file with the Commission a registration statement with
respect to such Registrable Securities and use all reasonable
efforts to cause such registration statement to become effective,
and, upon the request of the Holders of a majority of the
Registrable Securities registered thereunder, keep such registration
statement effective for up to ninety (90) days or, if earlier, until
the Holder or Holders have completed the distribution related
thereto.
(b) Prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with
the provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement for the
period set forth in paragraph (a) above.
(c) Furnish to the Holders such number of copies of a prospectus,
including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they
may reasonably request in order to facilitate the disposition of
Registrable Securities owned by them.
(d) Use its reasonable best efforts to register and qualify the
securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be
reasonably requested by the Holders; provided that the Company shall
not be required in connection therewith or as a condition thereto to
qualify to do business or to file a general consent to service of
process in any such states or jurisdictions.
7
<PAGE> 8
(e) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating
thereto is required to be delivered under the Securities Act of the
happening of any event as a result of which the prospectus included
in such registration statement, as then in effect, includes an
untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances
then existing.
(f) Use its best efforts to furnish, on the date that such Registrable
Securities are delivered to the underwriters for sale, if such
securities are being sold through underwriters, (i) an opinion,
dated as of such date, of the counsel representing the Company for
the purposes of such registration, in form and substance as is
customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and (ii) a letter
dated as of such date, from the independent certified public
accountants of the Company, in form and substance as is customarily
given by independent certified public accountants to underwriters in
an underwritten public offering addressed to the underwriters.
(g) In connection with any underwritten offering pursuant to a
registration statement filed pursuant to Section 2 hereof, the
Company will enter into any underwriting agreement reasonably
necessary to effect the offer and sale of Ordinary Shares, provided
such underwriting agreement contains customary underwriting
provisions, and provided further that if the underwriter so requests
the underwriting agreement will contain customary indemnification
and contribution provisions, and provided further that the
Underwriter is reasonably acceptable to the Company.
7. Indemnification.
(a) The Company will indemnify each Holder, each of its officers,
directors and partners, and each person controlling such Holder, if
Registrable Securities held by such Holder are included in the
securities with respect to which registration, qualification or
compliance has been effected pursuant to this Agreement, and each
underwriter, if any, and each person who controls any underwriter,
against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any
prospectus, offering circular or other document (including any
related registration statement, notification or the like) incident
to any such registration, qualification or compliance, or based on
any 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 circumstances in which they were made, not
misleading, or any violation by the Company of the Securities Act
including any rule or regulation thereunder applicable to the
Company relating to action or inaction required of the Company in
connection with any such registration, qualification or compliance,
and will reimburse each such Holder, each of its officers, directors
and partners, and each person controlling such Holder, each such
underwriter and each person who controls any such underwriter, for
any legal and any other expenses reasonably incurred in connection
with investigating and defending any such claim, loss, damage,
liability or action, provided that the Company will not be liable in
any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue
statement (or alleged untrue statement) or omission
8
<PAGE> 9
(or alleged omission) based upon written information furnished to
the Company by such Holder or underwriter and stated to be
specifically for use therein.
(b) Each Holder will, if Registrable Securities or other securities held
by such Holder are included in the securities as to which such
registration, qualification or compliance is being effected,
indemnify the Company, each of its directors, officers and agents
and each underwriter, if any, of the Company's securities covered by
such a registration statement, each person who controls the Company
or such underwriter within the meaning of the Securities Act and the
rules and regulations thereunder, each other such Holder and each of
their officers, directors and partners, and each person controlling
such Holder, against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained
in any such registration statement, prospectus, offering circular or
other document, or any 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 circumstances in
which they were made, not misleading, and will reimburse the Company
and such Holders, directors, officers, agents, partners, persons,
underwriters or control persons for any legal or any other expenses
reasonably incurred in connection with investigating of defending
any such claim, loss, damage, liability or action, in each case to
the extent, but only to the extent, that such untrue statement (or
alleged untrue statement) or omission (or alleged omission) is made
in such registration statement, prospectus, offering circular or
other document in reliance upon and in conformity with written
information furnished to the Company by such Holder and stated to be
specifically for use therein; provided, however, that the
obligations of such Holders hereunder shall be limited to an amount
equal to the proceeds to each such Holder of securities sold as
contemplated herein.
(c) Each party entitled to indemnification under this Section (the
"INDEMNIFIED PARTY") shall give notice to the party required to
provide indemnification (the "INDEMNIFYING PARTY") promptly after
such Indemnified Party has actual knowledge of any claim as to which
indemnity may be sought and shall permit the Indemnifying Party to
assume the defense of any such claim or any litigation resulting
therefrom, provided that counsel for the Indemnifying Party, who
shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose
approval shall not unreasonably be withheld), and the Indemnified
Party may participate in such defense at such party's expense, and
provided further that the failure of any Indemnified Party to give
notice as provided herein shall not relieve the Indemnifying Party
of its obligations under this Agreement. No Indemnifying Party in
the defense of any such claim or litigation shall, except with the
consent of each Indemnified Party, consent to entry of any judgment
or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect
to such claim or litigation. Each Indemnified Party shall furnish
such information regarding itself or the claim in question as an
Indemnifying Party may reasonably request in writing and as shall be
reasonably required in connection with defense of such claim and
litigation resulting therefrom.
8. Information by Holder. Each Holder holding securities included in any
registration shall furnish to the Company such information regarding such
Holder as the
9
<PAGE> 10
Company may reasonably request in writing and as shall be reasonably
required in connection with any registration, qualification or compliance
referred to in this Agreement.
9. Limitations on Registration. From and after the date of this Agreement,
the Company shall not enter into any agreement with any holder or
prospective holder of any securities of the Company giving such holder or
prospective holder rights that, in the good faith judgment of the
Company's Board of Directors, are superior to the rights herein, unless
such superior rights are granted to each Shareholder.
10. Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Commission which may permit the sale
of securities to the public without registration, the Company agrees to:
(a) Make and keep public information available as those terms are
understood and defined in Rule 144 under the Securities Act, at all
times from and after ninety (90) days following the effective date
of the first registration under the Securities Act filed by the
Company for an offering of its securities to the general public;
(b) Use its best efforts to file with the Commission in a timely manner
all reports and other documents required of the Company under the
Securities Act and the Exchange Act at any time after it has become
subject to such reporting requirements;
(c) Furnish to each Holder upon request a written statement by the
Company as to its compliance with the reporting requirements of Rule
144 (at any time from and after ninety (90) days following the
effective date of the first registration statement filed by the
Company for an offering of its securities to the general public),
and of the Securities Act and the Exchange Act (at any time after it
has become subject to such reporting requirements), a copy of the
most recent annual or quarterly report of the Company, and such
other reports and documents so filed as a Shareholder may reasonably
request in availing itself of any rule or regulation of the
Commission allowing a Holder to sell any such securities without
registration.
11. Transfer of Rights. The rights to cause the Company to register the
Shareholder's securities granted by the Company hereof may be transferred
or assigned, provided that (i) the Company is given written notice by a
Shareholder at the time of said transfer or assignment, stating the name
and address of said transferee or assignee and identifying the securities
with respect to which such registration rights are being transferred or
assigned, (ii) the transfer is in connection with a transfer of all
securities of the Company held by the transferor and involves at least
100,000 shares, or is to constituent partners or shareholders who agree to
act through a single representative; and (iii) the transferee or assignee
assumes the obligations of a Shareholder under this Agreement.
12. "Market Stand-off" Agreement. Each Shareholder and the Founder agrees, if
requested by the Company and an underwriter of Ordinary Shares (or other
securities) of the Company, not to sell or otherwise transfer or dispose
of any Ordinary Shares (or other securities) of the Company held by
Shareholder or Founder during a period of time determined by the Company
and its Underwriters (not to exceed 180 days) following the effective date
of a registration statement of the
10
<PAGE> 11
Company filed under the Securities Act, provided that all officers and
directors of the Company who then hold Ordinary Shares (or other
securities) of the Company and holders of more than 1% of the Company's
voting securities enter into similar agreements.
Such agreement shall be in writing in a form satisfactory to the Company
and such underwriter. The Company may impose stop-transfer instructions
with respect to the Shares (or securities) subject to the foregoing
restriction until the end of said period.
13. Transfers to Permitted Transferees. In the event of a transfer to a
Permitted Transferee (as defined in the Articles of Association of the
Company in force at the date of this Agreement), such Permitted Transferee
shall be entitled to all the rights and shall assume in writing all the
obligations of the transferor with respect to the transferred shares.
14. Public Offering Outside of the U.S. As to each Public Offering in a
jurisdiction outside the United States, the rights contained in this
Agreement shall be read as replaced (for such offering) by the most
comparable provisions of such jurisdiction's securities laws. The Company
and each of the Shareholders and the Founder shall take all necessary and
advisable action in order so that all the Company's Class B Ordinary
Shares and Class C Ordinary Shares will entitle their holders to the same
rights and privileges according to this Agreement as if they were holding
Ordinary Shares.
15. [Reserved]
16. Governing Law. This Agreement shall be governed by, construed and enforced
in accordance with the laws of the State of Israel, while giving effect to
the applicable securities and other laws of the United States.
17. Entire Agreement. This Agreement constitutes the full and entire
understanding and agreement between the parties regarding rights to
registration and all previous agreements regarding registration rights are
superseded by this Agreement and are of no further force and effect.
Except as otherwise expressly provided herein, the provisions hereof shall
inure to the benefit of, and be binding upon, the successors, assigns,
heirs, executors and administrators of the parties hereto.
18. Notices, Etc. All notices and other communications required or permitted
hereunder shall be in writing and shall be in English and be mailed by
first-class mail, postage prepaid, or otherwise delivered by hand or by
messenger, addressed at such address as such holder shall have furnished
the other parties in writing.
19. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
20. Amendments. Any provision of this Agreement may be amended, waived or
modified upon the written consent of the Company, the Founder and the
Shareholders (or their assignees to whom Shareholders have expressly
assigned their rights in compliance with Section 11 hereof) who then hold
at least seventy-five percent (75%) of the Registrable Securities then
held by persons entitled to registration rights hereunder (excluding the
Founder).
11
<PAGE> 12
[remainder of page left blank]
12
<PAGE> 13
IN WITNESS WHEREOF, the parties have executed this Amended and Restated
Registration Rights Agreement as of the date first above written.
IET - INTELLIGENT ELECTRONICS LTD.
By:
---------------------------------
------------------------ -----------------------
MOSHE BEN BASSAT IDIT BEN BASSAT
OAK INVESTMENT PARTNERS VI, L.P.
By:
---------------------------------
OAK VI AFFILIATES FUND L.P.
By:
---------------------------------
GENESIS PARTNERS I L.P
By:
---------------------------------
GENESIS PARTNERS (CAYMAN) I L.P.
By:
---------------------------------
WORLDVIEW TECHNOLOGY PARTNERS I, L.P.,
By:
---------------------------------
13
<PAGE> 14
WORLDVIEW TECHNOLOGY INTERNATIONAL I,
L.P.,
By:
-----------------------------------
WORLDVIEW STRATEGIC PARTNERS I, L.P.,
By:
-----------------------------------
SEMEL INVESTMENTS LTD.
By:
-----------------------------------
ADSHA PROJECT INITIATION DEVELOPMENT
(TA) LTD.
By:
-----------------------------------
------------------------------------------
ZOHAR ZISAPEL
HAMBRECHT AND QUIST CALIFORNIA
By:
-----------------------------------------
--------------------------------------------
NORMAN NIE
--------------------------------------------
CHRISTINA M. MORGAN
--------------------------------------------
JAMES A. DAVIDSON
--------------------------------------------
MARK J. ZANOLI
--------------------------------------------
MERITECH CAPITAL PARTNERS L.P.
By:
-----------------------------------
14
<PAGE> 15
------------------------------------------
MERITECH CAPITAL AFFILIATES L.P.
By:
-----------------------------------
15
<PAGE> 1
EXHIBIT 10.1
CLICKSERVICE SOFTWARE LTD.
2000 SHARE OPTION PLAN
1. Purposes of the Plan. The purposes of this Share Option Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees, Directors and
Consultants and to promote the success of the Company's business. Options
granted under the Plan may be Incentive Stock Options or Nonstatutory Stock
Options, as determined by the Administrator at the time of grant.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees as
shall be administering the Plan, in accordance with Section 4 hereof.
(b) "Applicable Laws" means the requirements relating to the
administration of share option plans under Israeli corporate and securities
laws, U.S. state corporate laws, U.S. federal and state securities laws, the
Code, any stock exchange or quotation system on which the Shares are listed or
quoted and the applicable laws of any country or jurisdiction where Options are
granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the U.S. Internal Revenue Code of 1986, as
amended.
(e) "Committee" means a committee of Directors appointed by the
Board in accordance with Section 4 hereof.
(f) "Company" means ClickService Software Ltd., a corporation
incorporated under the laws of the State of Israel.
(g) "Consultant" means any person who is engaged by the Company
or any Parent or Subsidiary to render consulting or advisory services to such
entity.
(h) "Director" means a member of the Board of Directors of the
Company.
(i) "Employee" means any person, including Officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company.
An Employee shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment
<PAGE> 2
upon expiration of a leave of absence approved by the Company is not so
guaranteed, on the 181st day of such leave any Incentive Stock Option held by
the Optionee shall cease to be treated as an Incentive Stock Option and shall be
treated for tax purposes as a Nonstatutory Stock Option. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(k) "Fair Market Value" means, as of any date, the value of a
Share determined as follows:
(i) If the Shares are listed on the Nasdaq National
Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, their Fair
Market Value shall be the closing sales price for such Shares (or the closing
bid, if no sales were reported) as quoted on such system for the last market
trading day prior to the time of determination, as reported in Globes, HaAretz
or such other source as the Administrator deems reliable;
(ii) If the Shares are listed on the Tel Aviv Stock
Exchange, but are not traded on the Nasdaq National Market or The Nasdaq Small
Cap Market, their Fair Market Value shall be the closing sales price for such
Shares (or the closing bid if no sales were reported) as quoted on such exchange
for the last market trading day prior to the time of determination, as reported
in The Wall Street Journal or such other source as the Administrator deems
reliable;
(iii) If the Shares are regularly quoted by a recognized
securities dealer but selling prices are not reported, their Fair Market Value
shall be the mean between the high bid and low asked prices for the Shares on
the last market trading day prior to the day of determination, or;
(iv) In the absence of an established market for the
Shares, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(l) "Incentive Stock Option" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code.
(m) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(n) "Officer" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(o) "Option" means a share option granted pursuant to the Plan.
(p) "Option Agreement" means a written or electronic agreement
between the Company and an Optionee evidencing the terms and conditions of an
individual Option grant. The Option Agreement is subject to the terms and
conditions of the Plan.
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<PAGE> 3
(q) "Optioned Shares" means the Shares subject to an Option.
(r) "Optionee" means the holder of an outstanding Option granted
under the Plan.
(s) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(t) "Plan" means this 2000 Share Option Plan.
(u) "Service Provider" means an Employee, Director or
Consultant.
(v) "Share" means a share of the Company's Ordinary Shares
having a nominal value of 1.00 NIS, as adjusted in accordance with Section 12
below.
(w) "Subsidiary" means a "subsidiary corporation," whether now
or hereafter existing, as defined in Section 424(f) of the Code.
3. Shares Subject to the Plan. Subject to the provisions of Section 12
of the Plan, the maximum aggregate number of Shares that may be subject to
option and sold under the Plan is 3,000,000 Shares, plus an annual increase to
be added on the first day of the Company's fiscal year beginning in 2001 equal
to the lesser of (i) 5% of outstanding shares on such date, (ii) 1,250,000
Shares, or (iii) a lesser amount determined by the Board. The Shares may be
authorized, but unissued, or reacquired.
If an Option expires or becomes unexercisable without having been
exercised in full, the unpurchased Shares which were subject thereto shall
become available for future grant or sale under the Plan (unless the Plan has
terminated); provided, however, that Shares that have actually been issued under
the Plan shall not be returned to the Plan and shall not become available for
future distribution under the Plan.
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. Different Committees
with respect to different groups of Service Providers may administer the Plan.
(ii) Section 162(m). To the extent that the
Administrator determines it to be desirable to qualify Options granted hereunder
as "performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
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<PAGE> 4
(iii) Rule 16b-3. To the extent desirable to qualify
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.
(iv) Other Administration. Other than as provided above,
the Plan shall be administered by (A) the Board or (B) a Committee, which
committee shall be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of
the Plan and, in the case of a Committee, the specific duties delegated by the
Board to such Committee, and subject to the approval of any relevant
authorities, the Administrator shall have the authority, in its discretion:
(i)to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options may
from time to time be granted hereunder;
(iii) to determine the number of Shares to be covered by
each such award granted hereunder;
(iv) to approve forms of agreement for use under the
Plan;
(v)to determine the terms and conditions of any Option
granted hereunder;
(vi) to determine whether and under what circumstances
an Option may be settled in cash under subsection 9(e) instead of Shares;
(vii) to reduce the exercise price of any Option to the
then current Fair Market Value (or the nominal value of the Shares, if higher
than the Fair Market Value), if the Fair Market Value of the Shares covered by
such Option has declined since the date the Option was granted;
(viii) to prescribe, amend and rescind rules and
regulations relating to the Plan;
(ix) to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan.
(c) Effect of Administrator's Decision. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Optionees.
5. Eligibility.
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<PAGE> 5
(a) Nonstatutory Stock Options may be granted to Service
Providers. Incentive Stock Options may be granted only to Employees.
6. Limitations.
(a) Each Option shall be designated in the Option Agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(b) Neither the Plan nor any Option shall confer upon an
Optionee any right with respect to continuing the Optionee's relationship as a
Service Provider with the Company, nor shall they interfere in any way with the
Optionee's right or the Company's right to terminate such relationship at any
time, with or without cause.
(c) The following limitations shall apply to grants of Options:
(i) No Service Provider shall be granted, in any fiscal
year of the Company, Options to purchase more than 1,000,000 Shares.
(ii) In connection with his or her initial service, a
Service Provider may be granted Options to purchase up to an additional
1,000,000 Shares, which shall not count against the limit set forth in
subsection (i) above.
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 12.
(iv) If an Option is cancelled in the same fiscal year
of the Company in which it was granted (other than in connection with a
transaction described in Section 12), the cancelled Option will be counted
against the limits set forth in subsections (i) and (ii) above. For this
purpose, if the exercise price of an Option is reduced, the transaction will be
treated as a cancellation of the Option and the grant of a new Option.
7. Term of Plan. The Plan shall become effective upon its adoption by
the Board. It shall continue in effect for a term of ten (10) years unless
sooner terminated under Section 14 of the Plan.
8. Term of Option. The term of each Option shall be stated in the Option
Agreement; provided, however, that the term shall be no more than ten (10) years
from the date of grant thereof. In the case of an Incentive Stock Option granted
to an Optionee who, at the time the Option is granted, owns shares representing
more than ten percent (10%) of the voting power of all classes of
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<PAGE> 6
shares of the Company or any Parent or Subsidiary, the term of the Option shall
be five (5) years from the date of grant or such shorter term as may be provided
in the Option Agreement.
9. Option Exercise Price and Consideration.
(a) The per share exercise price for the Shares to be issued
pursuant to exercise of an Option shall be such price as is determined by the
Administrator, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of
the grant of such Incentive Stock Option, owns shares representing more than ten
percent (10%) of the voting power of all classes of shares of the Company or any
Parent or Subsidiary, the exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.
(B) granted to any Employee other than an
Employee described in the preceding subparagraph, the per Share exercise price
shall be no less than 100% of the Fair Market Value per Share on the date of
grant.
(ii) In the case of a Nonstatutory Stock Option, the per
Share exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be
granted with a per Share exercise price (other than as required above) of less
than 100% of Fair Market Value on the date of grant pursuant to a merger or
other corporate transaction.
(b) The consideration to be paid for the Shares to be issued
upon exercise of an Option, including the method of payment, shall be determined
by the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash, (2)
check, (3) promissory note, (4) consideration received by the Company under a
formal cashless exercise program adopted by the Company in connection with the
Plan, or (5) any combination of the foregoing methods of payment. To the extent
that the consideration paid for the Shares is denominated in a currency other
than New Israeli Shekels, the exchange rate to be used to obtain a New Israeli
Shekel value of such consideration shall be the noon buying rate as reported by
the Federal Reserve Bank of New York (expressed in shekels per unit of
non-Israeli currency) on the date of grant of the Option. In making its
determination as to the type of consideration to accept, the Administrator shall
consider if acceptance of such consideration may be reasonably expected to
benefit the Company.
10. Exercise of Option.
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<PAGE> 7
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Options shall become exercisable at a rate to be
determined by the Administrator. Unless the Administrator provides otherwise,
vesting of Options granted hereunder shall be tolled during any unpaid leave of
absence. An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives:
(i) written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in (i) the name of the Optionee or,
if requested by the Optionee, in the name of the Optionee and his or her spouse,
or (ii) the name of the Optionee to Yoav Bruckner as trustee (the
"Trustee"), to be held by the Trustee on behalf of Optionee if so required by
Applicable Laws. Until the Shares are issued (as evidenced by the appropriate
entry on the books of the Company or of a duly authorized transfer agent of the
Company), no right to vote or receive dividends or any other rights as a
shareholder shall exist with respect to the Shares, notwithstanding the exercise
of the Option. The Company shall issue (or cause to be issued) such Shares
promptly after the Option is exercised. No adjustment will be made for a
dividend or other right for which the record date is prior to the date the
Shares are issued, except as provided in Section 12 of the Plan.
Exercise of an Option in any manner shall result in a decrease
in the number of Shares thereafter available, both for purposes of the Plan and
for sale under the Option, by the number of Shares as to which the Option is
exercised.
(b) Termination of Relationship as a Service Provider. If an
Optionee ceases to be a Service Provider, other than upon the Optionee's death
or Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that the Option is
vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). In the absence of
a specified time in the Option Agreement, the Option shall remain exercisable
for three (3) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified by the Administrator, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a
Service Provider as a result of the Optionee's disability, the Optionee may
exercise his or her Option within such period of time as is specified in the
Option Agreement to the extent the Option is vested on the date of termination,
but in no event later than the expiration date of the term of such Option as set
forth in the Option Agreement. In the absence of a specified time in the Option
Agreement, the Option shall remain exercisable for twelve (12) months following
the Optionee's termination. If, on the date of
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<PAGE> 8
termination, the Optionee is not vested as to the entire Option, the Shares
covered by the unvested portion of the Option shall revert to the Plan. If,
after termination, the Option is not exercised within the time specified herein,
the Option shall terminate, and the Shares covered by such Option shall revert
to the Plan. If such disability is not a "disability" as such term is defined in
Section 22(e)(3) of the Code, in the case of an Incentive Stock Option such
Incentive Stock Option shall automatically cease to be treated as an Incentive
Stock Option and shall be treated for tax purposes as a Nonstatutory Stock
Option on the day three months and one day following such termination.
(d) Death of Optionee. If an Optionee dies while a Service
Provider, the Option may be exercised within such period of time as is specified
in the Option Agreement to the extent that the Option is vested on the date of
death (but in no event later than the expiration of the term of such Option as
set forth in the Option Agreement) by the Optionee's estate or by a person who
acquires the right to exercise the Option by bequest or inheritance. In the
absence of a specified time in the Option Agreement, the Option shall remain
exercisable for twelve (12) months following the Optionee's termination. If, at
the time of death, the Optionee is not vested as to the entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If the Option is not so exercised within the time specified herein, the Option
shall terminate, and the Shares covered by such Option shall revert to the Plan.
11. Non-Transferability of Options. Unless determined otherwise by the
Administrator, Options may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee.
12. Adjustments Upon Changes in Capitalization or Merger.
(a) Changes in Capitalization. In the event the Shares shall be
subdivided or combined into a greater or smaller number of Shares or if, upon a
reorganization, recapitalization or the like, the Shares shall be exchanged for
other securities of the Company, each Optionee shall be entitled, subject to the
conditions herein stated, to purchase such number of Shares or amount of other
securities of the Company as were exchangeable for the number of Shares of the
Company which such Optionee would have been entitled to purchase except for such
action, and appropriate adjustments shall be made in the purchase price per
share to reflect such subdivision, combination or exchange.
In the event that the Company shall issue any of its Shares or
other securities as bonus shares or a stock dividend upon or with respect to any
Shares which shall at the time be subject to an Option hereunder, each Optionee
upon exercising such Option shall be entitled to receive (for the purchase price
payable upon such exercise), the Shares as to which he or she is exercising such
Option and, in addition thereto (at no additional cost), such number of shares
of the class or classes in which such bonus shares or stock dividend were
declared, and such amount of Shares (and the amount in lieu of fractional
Shares) as is equal to the Shares which he would have received had he been the
holder of the Shares as to which he is exercising his Option at all times
between the date of the granting of such Option and the date of its exercise.
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<PAGE> 9
Upon the occurrence of any of the foregoing events, the class
and aggregate number of Shares or other securities issuable pursuant to the
Plan, in respect of which Options have not yet been granted, shall also be
appropriately adjusted to reflect the events specified above. If the Company
offers the holders of the Shares, or of any other class of security for which
the Options are then exercisable, rights to purchase securities of the Company,
then the Company shall offer the same rights to the Optionees as if they had
exercised their Options on the record date with respect to such rights offering.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until fifteen (15) days prior to
such transaction as to all of the Optioned Shares, including Shares as to which
the Option would not otherwise be exercisable. To the extent it has not been
previously exercised, an Option will terminate immediately prior to the
consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the
Company with or into another corporation, or the sale of substantially all of
the assets of the Company, each outstanding Option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the Option, the Optionee shall
fully vest in and have the right to exercise the Option as to all of the
Optioned Stock, including Shares as to which it would not otherwise be vested or
exercisable. If an Option becomes fully vested and exercisable in lieu of
assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee in writing or electronically that the
Option shall be fully exercisable for a period of fifteen (15) days from the
date of such notice, and the Option shall terminate upon the expiration of such
period. For the purposes of this paragraph, the Option shall be considered
assumed if, following the merger or sale of assets, the option confers the right
to purchase or receive, for each Share of Optioned Shares immediately prior to
the merger or sale of assets, the consideration (whether shares, cash, or other
securities or property) received in the merger or sale of assets by holders of
Shares for each Share held on the effective date of the transaction (and if such
holders were offered a choice of consideration, the type of consideration chosen
by the holders of a majority of the outstanding Shares); provided, however, that
if such consideration received in the merger or sale of assets is not solely
ordinary shares (or their equivalent) of the successor corporation or its
Parent, the Administrator may, with the consent of the successor corporation,
provide for the consideration to be received upon the exercise of the Option,
for each Share of Optioned Shares, to be solely ordinary shares (or their
equivalent) of the successor corporation or its Parent equal in fair market
value to the per Share consideration received by holders of in the merger or
sale of assets.
13. Date of Grant. The date of grant of an Option shall, for all
purposes, be the date on which the Administrator makes the determination
granting such Option, or such other date as is determined by the Board. Notice
of the determination shall be given to each Service Provider to whom an Option
is so granted within a reasonable time after the date of such grant.
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<PAGE> 10
14. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend or terminate the Plan.
(b) Shareholder Approval. The Board shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment,
alteration, suspension or termination of the Plan shall impair the rights of any
Optionee, unless mutually agreed otherwise between the Optionee and the
Administrator, which agreement must be in writing and signed by the Optionee and
the Company. Termination of the Plan shall not affect the Administrator's
ability to exercise the powers granted to it hereunder with respect to Options
granted under the Plan prior to the date of such termination.
15. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to the
exercise of an Option unless the exercise of such Option and the issuance and
delivery of such Shares shall comply with Applicable Laws and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
(b) Investment Representations. As a condition to the exercise
of an Option, the Administrator may require the person exercising such Option to
represent and warrant at the time of any such exercise that the Shares are being
purchased only for investment and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required.
16. Inability to Obtain Authority. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
17. Reservation of Shares. The Company, during the term of this Plan,
shall at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
18. Shareholder Approval. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.
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EXHIBIT 10.2
CLICKSERVICE SOFTWARE LTD.
2000 EMPLOYEE SHARE PURCHASE PLAN
1. Purpose. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Ordinary
Shares of the Company through accumulated payroll deductions. It is the
intention of the Company to have the Plan qualify as an "Employee Share Purchase
Plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "Company" shall mean ClickService Software Ltd., a
corporation incorporated under the laws of the State of Israel, and any
Designated Subsidiary of the Company.
(d) "Compensation" shall mean all base straight time gross
earnings, exclusive of payments for commissions, overtime, shift premium,
incentive compensation, incentive payments, bonuses and other compensation.
(e) "Designated Subsidiary" shall mean any Subsidiary that has
been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(f) "Employee" shall mean any individual who is an Employee of
the Company for tax purposes whose customary employment with the Company is at
least twenty (20) hours per week and more than five (5) months in any calendar
year. For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
(g) "Enrollment Date" shall mean the first day of each Offering
Period.
(h) "Exercise Date" shall mean the last day of each Offering
Period.
(i) "Fair Market Value" shall mean, as of any date, the value of
a Share determined as follows:
<PAGE> 2
(1) If the Shares are listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, their
Fair Market Value shall be the closing sales price for such Shares (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day on the date of such determination, as reported in
The Wall Street Journal or such other source as the Board deems reliable, or;
(2) If the Shares are regularly quoted by a recognized
securities dealer but selling prices are not reported, their Fair Market Value
shall be the mean of the closing bid and asked prices for the Shares on the date
of such determination, as reported in The Globes, HaAretz or such other source
as the Board deems reliable, or;
(3) In the absence of an established market for the
Shares, the Fair Market Value thereof shall be determined in good faith by the
Board; or
(4) For purposes of the Enrollment Date of the first
Offering Period under the Plan, the Fair Market Value shall be the initial price
to the public as set forth in the final prospectus included within the
registration statement in Form S-1 filed with the Securities and Exchange
Commission for the initial public offering of the Company's Shares (the
"Registration Statement").
(j) "Offering Period" shall mean a period of approximately six
(6) months during which an option granted pursuant to the Plan may be exercised,
commencing on the first Trading Day on or after May 1 and terminating on the
last Trading Day in the period ending the following October 31, or commencing on
the first Trading Day on or after November 1 and terminating on the last Trading
Day in the period ending the following April 30; provided, however, that the
first Offering Period under the Plan shall commence with the first Trading Day
on or after the date on which the Securities and Exchange Commission declares
the Company's Registration Statement effective and ending on the last Trading
Day on or before October 31, 2000. The duration of Offering Periods may be
changed pursuant to Section 4 of this Plan.
(k) "Plan" shall mean this Employee Share Purchase Plan.
(l) "Purchase Price" shall mean an amount equal to 85% of the
Fair Market Value of a Share on the Enrollment Date or on the Exercise Date,
whichever is lower; provided, however, that the Purchase Price may be adjusted
by the Board pursuant to Section 20.
(m) "Reserves" shall mean the number of Shares covered by each
option under the Plan which have not yet been exercised and the number of Shares
which have been authorized for issuance under the Plan but not yet placed under
option.
(n) "Share" means a share of the Company's Ordinary Shares
having a nominal value of 0.01 NIS, as adjusted in accordance with Section 19
below.
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<PAGE> 3
(o) "Subsidiary" shall mean a corporation, domestic or foreign,
of which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(p) "Trading Day" shall mean a day on which national stock
exchanges and the Nasdaq System are open for trading.
3. Eligibility.
(a) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding,
no Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose shares
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital shares of the Company and/or hold outstanding options to
purchase such shares possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital shares of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase shares
under all employee share purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
shares (determined at the fair market value of the shares at the time such
option is granted) for each calendar year in which such option is outstanding at
any time.
4. Offering Periods. The Plan shall be implemented by consecutive
Offering Periods with a new Offering Period commencing on the first Trading Day
on or after May 1 and November 1 each year, or on such other date as the Board
shall determine, and continuing thereafter until terminated in accordance with
Section 20 hereof; provided, however, that the first Offering Period under the
Plan shall commence with the first Trading Day on or after the date on which the
Securities and Exchange Commission declares the Company's Registration Statement
effective and ending on the last Trading Day on or before October 31, 2000. The
Board shall have the power to change the duration of Offering Periods (including
the commencement dates thereof) with respect to future offerings without
shareholder approval if such change is announced at least five (5) days prior to
the scheduled beginning of the first Offering Period to be affected thereafter.
5. Participation.
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office prior
to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the
first payroll following the Enrollment Date and shall end on the last payroll in
the Offering Period to which such
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<PAGE> 4
authorization is applicable, unless sooner terminated by the participant as
provided in Section 10 hereof.
6. Payroll Deductions.
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding twelve percent (12%) of
the Compensation which he or she receives on each pay day during the Offering
Period.
(b) All payroll deductions made for a participant shall be
credited to his or her account under the Plan and shall be withheld in whole
percentages only. A participant may not make any additional payments into such
account.
(c) A participant may discontinue his or her participation in
the Plan as provided in Section 10 hereof, or may increase or decrease the rate
of his or her payroll deductions during the Offering Period by completing or
filing with the Company a new subscription agreement authorizing a change in
payroll deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a
participant's payroll deductions may be decreased to zero percent (0%) at any
time during an Offering Period. Payroll deductions shall recommence at the rate
provided in such participant's subscription agreement at the beginning of the
first Offering Period which is scheduled to end in the following calendar year,
unless terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or
at the time some or all of the Company's Shares issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Shares. At any time, the
Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Shares by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period, each
eligible Employee participating in such Offering Period shall be granted an
option to purchase on the Exercise Date of such Offering Period (at the
applicable Purchase Price) up to a number of Shares
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<PAGE> 5
determined by dividing such Employee's payroll deductions accumulated prior to
such Exercise Date and retained in the Participant's account as of the Exercise
Date by the applicable Purchase Price; provided that in no event shall an
Employee be permitted to purchase during each Offering Period more than 5,000
Shares (subject to any adjustment pursuant to Section 19), and provided further
that such purchase shall be subject to the limitations set forth in Sections
3(b) and 12 hereof. Exercise of the option shall occur as provided in Section 8
hereof, unless the participant has withdrawn pursuant to Section 10 hereof. The
Option shall expire on the last day of the Offering Period.
8. Exercise of Option. Unless a participant withdraws from the Plan as
provided in Section 10 hereof, his or her option for the purchase of Shares
shall be exercised automatically on the Exercise Date, and the maximum number of
full Shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional Shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full Share shall be retained in the participant's account for the subsequent
Offering Period, subject to earlier withdrawal by the participant as provided in
Section 10 hereof. Any other monies left over in a participant's account after
the Exercise Date shall be returned to the participant. During a participant's
lifetime, a participant's option to purchase Shares hereunder is exercisable
only by him or her.
9. Delivery. As promptly as practicable after each Exercise Date on
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, the Shares purchased upon exercise of his or
her option.
10. Withdrawal.
(a) A participant may withdraw all but not less than all the
payroll deductions credited to his or her account and not yet used to exercise
his or her option under the Plan at any time by giving written notice to the
Company in the form of Exhibit B to this Plan. All of the participant's payroll
deductions credited to his or her account shall be paid to such participant
promptly after receipt of notice of withdrawal and such participant's option for
the Offering Period shall be automatically terminated, and no further payroll
deductions for the purchase of shares shall be made for such Offering Period. If
a participant withdraws from an Offering Period, payroll deductions shall not
resume at the beginning of the succeeding Offering Period unless the participant
delivers to the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall not
have any effect upon his or her eligibility to participate in any similar plan
which may hereafter be adopted by the Company or in succeeding Offering Periods
which commence after the termination of the Offering Period from which the
participant withdraws.
11. Termination of Employment. Upon a participant's ceasing to be an
Employee for any reason, he or she shall be deemed to have elected to withdraw
from the Plan and the payroll deductions credited to such participant's account
during the Offering Period but not yet used to
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<PAGE> 6
exercise the option shall be returned to such participant or, in the case of his
or her death, to the person or persons entitled thereto under Section 15 hereof,
and such participant's option shall be automatically terminated. The preceding
sentence notwithstanding, a participant who receives payment in lieu of notice
of termination of employment shall be treated as continuing to be an Employee
for the participant's customary number of hours per week of employment during
the period in which the participant is subject to such payment in lieu of
notice.
12. Interest. No interest shall accrue on the payroll deductions of a
participant in the Plan.
13. Shares.
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 19 hereof, the maximum number of Shares which
shall be made available for sale under the Plan shall be 800,000 Shares, plus an
annual increase to be added on the first day of the Company's fiscal year
beginning in 2001 equal to the lesser of (i) 500,000 shares, (ii) 2% of the
outstanding shares on such date or (iii) a lesser amount determined by the
Board. If, on a given Exercise Date, the number of Shares with respect to which
options are to be exercised exceeds the number of Shares then available under
the Plan, the Company shall make a pro rata allocation of the Shares remaining
available for purchase in as uniform a manner as shall be practicable and as it
shall determine to be equitable.
(b) The participant shall have no interest or voting right in
Shares covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall
be registered in the name of the participant or in the name of the participant
and his or her spouse.
14. Administration. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. Designation of Beneficiary.
(a) A participant may file a written designation of a
beneficiary who is to receive any Shares and cash, if any, from the
participant's account under the Plan in the event of such participant's death
subsequent to an Exercise Date on which the option is exercised but prior to
delivery to such participant of such shares and cash. In addition, a participant
may file a written designation of a beneficiary who is to receive any cash from
the participant's account under the Plan in the event of such participant's
death prior to exercise of the option. If a participant is married and
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<PAGE> 7
the designated beneficiary is not the spouse, spousal consent shall be required
for such designation to be effective.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such Shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such Shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.
16. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive Shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the Company
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each
participant in the Plan. Statements of account shall be given to participating
Employees at least annually, which statements shall set forth the amounts of
payroll deductions, the Purchase Price, the number of Shares purchased and the
remaining cash balance, if any.
19. Adjustments Upon Changes in Capitalization, Dissolution,
Liquidation, Merger or Asset Sale.
(a) Changes in Capitalization. Subject to any required action by
the shareholders of the Company, the Reserves, the maximum number of Shares each
participant may purchase per Offering Period (pursuant to Section 7), as well as
the price per Share and the number of Shares covered by each option under the
Plan which has not yet been exercised shall be proportionately adjusted for any
increase or decrease in the number of issued Shares resulting from a share
split, reverse share split, share dividend, combination or reclassification of
the Shares, or any other increase or decrease in the number of Shares effected
without receipt of consideration by the Company; provided, however, that
conversion of any convertible securities of the Company shall not be deemed to
have been "effected without receipt of consideration." Such adjustment shall be
made by the Board, whose determination in that respect shall be final, binding
and conclusive. Except as expressly provided herein, no issuance by the Company
of shares of any class, or securities
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<PAGE> 8
convertible into shares of any class, shall affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of Shares subject to
an option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
(c) Merger or Asset Sale. In the event of a proposed sale of all
or substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, the Offering Period
then in progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date"). The New Exercise Date shall be before the date of the Company's
proposed sale or merger. The Board shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for the participant's option has been changed to the New Exercise Date and
that the participant's option shall be exercised automatically on the New
Exercise Date, unless prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10 hereof.
20. Amendment or Termination.
(a) The Board of Directors of the Company may at any time and
for any reason terminate or amend the Plan. Except as provided in Section 19
hereof, no such termination can affect options previously granted, provided that
an Offering Period may be terminated by the Board of Directors on any Exercise
Date if the Board determines that the termination of the Offering Period or the
Plan is in the best interests of the Company and its shareholders. Except as
provided in Section 19 and Section 20 hereof, no amendment may make any change
in any option theretofore granted which adversely affects the rights of any
participant. To the extent necessary to comply with Section 423 of the Code (or
any other applicable law, regulation or stock exchange rule), the Company shall
obtain shareholder approval in such a manner and to such a degree as required.
(a) Without shareholder consent and without regard to whether
any participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a
-8-
<PAGE> 9
participant in order to adjust for delays or mistakes in the Company's
processing of properly completed withholding elections, establish reasonable
waiting and adjustment periods and/or accounting and crediting procedures to
ensure that amounts applied toward the purchase of Shares for each participant
properly correspond with amounts withheld from the participant's Compensation,
and establish such other limitations or procedures as the Board (or its
committee) determines in its sole discretion advisable which are consistent with
the Plan.
(c) In the event the Board determines that the ongoing operation
of the Plan may result in unfavorable financial accounting consequences, the
Board may, in its discretion and, to the extent necessary or desirable, modify
or amend the Plan to reduce or eliminate such accounting consequence including,
but not limited to:
(1) altering the Purchase Price for any Offering Period
including an Offering Period underway at the time of the change in Purchase
Price;
(2) shortening any Offering Period so that Offering
Period ends on a new Exercise Date, including an Offering Period underway at the
time of the Board action; and
(3) allocating Shares.
Such modifications or amendments shall not require
shareholder approval or the consent of any Plan participants.
21. Notices. All notices or other communications by a participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the shares are being purchased only for investment and without any
present intention to sell or distribute such shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.
-9-
<PAGE> 10
23. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
-10-
<PAGE> 11
EXHIBIT A
CLICKSERVICE SOFTWARE LTD.
2000 EMPLOYEE SHARE PURCHASE PLAN
SUBSCRIPTION AGREEMENT
____ Original Application Enrollment Date: __________
____ Change in Payroll Deduction Rate
____ Change of Beneficiary(ies)
1. _____________________________________ hereby elects to participate in
the ClickService Software Ltd. 2000 Employee Share Purchase Plan (the
"Employee Share Purchase Plan") and subscribes to purchase Ordinary
Shares of the Company in accordance with this Subscription Agreement and
the Employee Share Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount
of ____% of my Compensation on each payday (from 0 to 12%) during the
Offering Period in accordance with the Employee Share Purchase Plan.
(Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of Shares at the applicable Purchase Price determined in
accordance with the Employee Share Purchase Plan. I understand that if I
do not withdraw from an Offering Period, any accumulated payroll
deductions will be used to automatically exercise my option.
4. I have received a copy of the complete Employee Share Purchase Plan. I
understand that my participation in the Employee Share Purchase Plan is
in all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is
subject to shareholder approval of the Employee Share Purchase Plan.
5. Shares purchased for me under the Employee Share Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only):
.
6. I understand that if I dispose of any shares received by me pursuant
to the Plan within 2 years after the Enrollment Date (the first day of
the Offering Period during which I purchased such shares), I will be
treated for federal income tax purposes as having received ordinary
income at the time of such disposition in an amount equal to the excess
of the fair market value of the shares at the time such shares were
purchased by me over the price which I paid for the shares. I hereby
agree to notify the Company in writing within 30 days after the date of
any
<PAGE> 12
disposition of shares and I will make adequate provision for Federal,
state or other tax withholding obligations, if any, which arise upon the
disposition of the Share. The Company may, but will not be obligated to,
withhold from my compensation the amount necessary to meet any
applicable withholding obligation including any withholding necessary to
make available to the Company any tax deductions or benefits
attributable to sale or early disposition of Shares by me. If I dispose
of such shares at any time after the expiration of the 2-year holding
period, I understand that I will be treated for federal income tax
purposes as having received income only at the time of such disposition,
and that such income will be taxed as ordinary income only to the extent
of an amount equal to the lesser of (1) the excess of the fair market
value of the shares at the time of such disposition over the purchase
price which I paid for the shares, or (2) 15% of the fair market value
of the shares on the first day of the Offering Period. The remainder of
the gain, if any, recognized on such disposition will be taxed as
capital gain.
7. I hereby agree to be bound by the terms of the Employee Share Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon
my eligibility to participate in the Employee Share Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Share Purchase Plan:
NAME: (Please print)
--------------------------------------------
(First) (Middle) (Last)
------------------------- --------------------------------------------
Relationship
--------------------------------------------
(Address)
Employee's Social
Security Number:
--------------------------------------------
Employee's Address:
--------------------------------------------
--------------------------------------------
-2-
<PAGE> 13
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:
------------------- --------------------------------------------
Signature of Employee
--------------------------------------------
Spouse's Signature (If beneficiary other
than spouse)
-3-
<PAGE> 14
EXHIBIT B
CLICKSERVICE SOFTWARE LTD.
2000 EMPLOYEE SHARE PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the ClickService
Software Ltd. 2000 Employee Share Purchase Plan which began on ___________,
______ (the "Enrollment Date") hereby notifies the Company that he or she hereby
withdraws from the Offering Period. He or she hereby directs the Company to pay
to the undersigned as promptly as practicable all the payroll deductions
credited to his or her account with respect to such Offering Period. The
undersigned understands and agrees that his or her option for such Offering
Period will be automatically terminated. The undersigned understands further
that no further payroll deductions will be made for the purchase of shares in
the current Offering Period and the undersigned shall be eligible to participate
in succeeding Offering Periods only by delivering to the Company a new
Subscription Agreement.
Name and Address of Participant:
------------------------------------
------------------------------------
------------------------------------
Signature:
------------------------------------
Date:
-------------------------------
<PAGE> 1
EXHIBIT 10.3
CLICKSERVICE SOFTWARE LTD.
EMPLOYMENT AGREEMENT
This Agreement is entered into as of February 10, 2000, (the "Effective
Date") by and between ClickService Software Ltd. (the "Company"), and Moshe
Benbassat (the "Executive").
WHEREAS, Executive currently serves as the Chief Executive Officer of
the Company;
WHEREAS, the parties desire and agree to enter into an employment
relationship by means of this Agreement; and
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, it is mutually covenanted and
agreed by and among the parties as follows:
1. Duties and Scope of Employment.
(a) Positions and Duties. As of the Effective Date, Executive
will continue to serve as Chief Executive Officer of the Company. Executive will
render such business and professional services in the performance of his duties,
consistent with Executive's position within the Company, as shall reasonably be
assigned to him by the Company's Board of Directors (the "Board"). The period of
Executive's employment under this Agreement is referred to herein as the
"Employment Term."
(b) Board Membership. During the Employment Term, Executive will
serve as a member and Chairman of the Board, subject to the Company's Articles
of Association.
(c) Obligations. During the Employment Term, Executive will
perform his duties faithfully and to the best of his ability and will devote his
full business efforts and time to the Company. For the duration of the
Employment Term, Executive agrees not to actively engage in any other
employment, occupation or consulting activity for any direct or indirect
remuneration without the prior approval of the Board. Notwithstanding the
foregoing, Executive may serve on the board of directors of any other companies
or work in academic pursuits as long as such service does not materially
interfere with the performance of his duties to the Company.
2. At-Will Employment. The parties agree that the Executive's employment
with the Company will be "at-will" employment and may be terminated at any time
with or without cause or notice. Executive understands and agrees that neither
his job performance nor promotions, commendations, bonuses or the like from the
Company give rise to or in any way serve as the basis for modification,
amendment, or extension, by implication or otherwise, of his employment with the
Company.
3. Compensation.
<PAGE> 2
(a) Base Salary. During the Employment Term, the Company will
pay Executive as compensation for his services a base salary at the annualized
rate of $225,000 (the "Base Salary"). The Base Salary will be paid periodically
in accordance with the Company's normal payroll practices and be subject to the
usual, required withholding.
(b) Bonus. In addition to the Base Salary, Executive shall be
entitled to earn an annual performance bonus of up to 100% of Base Salary (the
"Bonus"). Such Bonus, if any, shall be based on the achievement of target
milestones to be determined by the Compensation Committee of the Board after
consultation with Executive and shall be paid on a quarterly basis. The Bonus
may be reviewed annually by the Compensation Committee of the Board for possible
increases in light of Executive's performance.
(c) Relocation and Temporary Living Reimbursement. During the
Employment Term, the Company will reimburse the Executive for: (i) reasonable
moving expenses incurred by Executive and his family during their relocation
from Executive's primary residence to the Company's headquarters, and (ii)
reasonable housing and living expenses to be mutually agreed to by the Company
and Executive. The total of all such amounts shall not exceed $75,000 per year.
4. Employee Benefits. During the Employment Term, Executive will be
entitled to participate in the employee benefit plans currently and hereafter
maintained by the Company of general applicability to other senior executives of
the Company, including, without limitation, the Company's group medical, dental,
vision, disability, life insurance, and flexible-spending account plans. The
Company reserves the right to cancel or change the benefit plans and programs it
offers to its employees at any time.
5. Vacation. Executive will be entitled to paid vacation of twenty-six
(26) days per year in accordance with the Company's vacation policy, with the
timing and duration of specific vacations mutually and reasonably agreed to by
the parties hereto.
6. Expenses. The Company will reimburse Executive for reasonable travel,
entertainment or other expenses incurred by Executive in the furtherance of or
in connection with the performance of Executive's duties hereunder, in
accordance with the Company's expense reimbursement policy as in effect from
time to time.
7. Severance.
(a) Involuntary Termination. If Executive's employment with the
Company terminates other than for "Cause" (as defined herein), and Executive
signs and does not revoke a standard release of claims with the Company, then,
subject to Section 11, Executive shall be entitled to receive continuing
payments of severance pay (less applicable withholding taxes) at a rate equal to
his Base Salary rate, as then in effect, for a period of twelve (12) months from
the date of such termination, to be paid, in Executive's discretion, (i)
periodically in accordance with the Company's normal payroll policies or (ii) in
a lump-sum within thirty (30) days of such termination.
(b) Termination for Cause. If Executive's employment with the
Company terminates for Cause by the Company, then Executive will only be
eligible for severance benefits in accordance with the Company's established
policies as then in effect.
-2-
<PAGE> 3
8. Change of Control Benefits. In the event of a "Change of Control" (as
defined below) that occurs prior to the Executive's termination of service to
the Company, the Option will have its vesting accelerated so as to become 100%
vested. Thereafter, the Option will continue to be subject to the terms,
definitions and provisions of the Option Plan and Option Agreement.
9. Definitions.
(a) Cause. For purposes of this Agreement, "Cause" is defined as
(i) an act of dishonesty made by Executive in connection with Executive's
responsibilities as an employee, (ii) Executive's conviction of, or plea of nolo
contendere to, a felony, or (iii) Executive's gross misconduct.
(b) Change of Control. For purposes of this Agreement, "Change
of Control" of the Company is defined as: (i) any "person" (as such term is used
in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended)
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the Company representing 50% or more of
the total voting power represented by the Company's then outstanding voting
securities; or (ii) a change in the composition of the Board occurring within a
two-year period, as a result of which fewer than a majority of the directors are
Incumbent Directors. "Incumbent Directors" will mean directors who either (A)
are directors of the Company as of the date hereof, or (B) are elected, or
nominated for election, to the Board with the affirmative votes of at least a
majority of the Incumbent Directors at the time of such election or nomination
(but will not include an individual whose election or nomination is in
connection with an actual or threatened proxy contest relating to the election
of directors to the Company); or (iii) the date of the consummation of a merger
or consolidation of the Company with any other corporation that has been
approved by the stockholders of the Company, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the stockholders
of the Company approve a plan of complete liquidation of the Company; or (iv)
the date of the consummation of the sale or disposition by the Company of all or
substantially all the Company's assets.
10. Confidential Information. Executive agrees to enter into the
Company's standard Confidential Information and Invention Assignment Agreement
(the "Confidential Information Agreement") upon commencing employment hereunder.
-3-
<PAGE> 4
11. Conditional Nature of Severance Payments.
(a) Noncompete. Executive acknowledges that the nature of the
Company's business is such that if Executive were to become employed by, or
substantially involved in, the business of a competitor of the Company during
the twelve (12) months following the termination of Executive's employment with
the Company, it would be very difficult for the Executive not to rely on or use
the Company's trade secrets and confidential information. Thus, to avoid the
inevitable disclosure of the Company's trade secrets and confidential
information, Executive agrees and acknowledges that Executive's right to receive
the severance payments set forth in Section 7 (to the extent Executive is
otherwise entitled to such payments) shall be conditioned upon the Executive not
directly or indirectly engaging in (whether as an employee, consultant, agent,
proprietor, principal, partner, stockholder, corporate officer, director or
otherwise), nor having any ownership interested in or participating in the
financing, operation, management or control of, any person, firm, corporation or
business that competes with Company or is a customer of the Company. Upon any
breach of this section, all severance payments pursuant to this Agreement shall
immediately cease.
12. Assignment. This Agreement will be binding upon and inure to the
benefit of (a) the heirs, executors and legal representatives of Executive upon
Executive's death and (b) any successor of the Company. Any such successor of
the Company will be deemed substituted for the Company under the terms of this
Agreement for all purposes. For this purpose, "successor" means any person,
firm, corporation or other business entity which at any time, whether by
purchase, merger or otherwise, directly or indirectly acquires all or
substantially all of the assets or business of the Company. None of the rights
of Executive to receive any form of compensation payable pursuant to this
Agreement may be assigned or transferred except by will or the laws of descent
and distribution. Any other attempted assignment, transfer, conveyance or other
disposition of Executive's right to compensation or other benefits will be null
and void.
13. Notices. All notices, requests, demands and other communications
called for hereunder shall be in writing and shall be deemed given (i) on the
date of delivery if delivered personally, (ii) one (1) day after being sent by a
well established commercial overnight service, or (iii) four (4) days after
being mailed by registered or certified mail, return receipt requested, prepaid
and addressed to the parties or their successors at the following addresses, or
at such other addresses as the parties may later designate in writing:
If to the Company:
ClickService Software Ltd.
3425 South Bascom Avenue, Suite 230
Campbell, CA 95008
Attn: Shimon Rojany
If to Executive:
at the last residential address known by the Company.
-4-
<PAGE> 5
14. Severability. In the event that any provision hereof becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement will continue in full force and effect without said
provision.
15. Arbitration.
(a) Executive agrees that any dispute or controversy arising out
of, relating to, or in connection with this Agreement, or the interpretation,
validity, construction, performance, breach, or termination thereof, shall be
settled by binding arbitration to be held in Santa Clara County, California in
accordance with the National Rules for the Resolution of Employment Disputes
then in effect of the American Arbitration Association (the "Rules"). The
arbitrator may grant injunctions or other relief in such dispute or controversy.
The decision of the arbitrator will be final, conclusive and binding on the
parties to the arbitration. Judgment may be entered on the arbitrator's decision
in any court having jurisdiction.
(b) The arbitrator(s) will apply California law to the merits of
any dispute or claim, without reference to rules of conflicts of law. The
arbitration proceedings will be governed by federal arbitration law and by the
Rules, without reference to state arbitration law. The Executive hereby consents
to the personal jurisdiction of the state and federal courts located in
California for any action or proceeding arising from or relating to this
Agreement or relating to any arbitration in which the parties are participants.
(c) EXECUTIVE HAS READ AND UNDERSTANDS THIS SECTION, WHICH
DISCUSSES ARBITRATION. EXECUTIVE UNDERSTANDS THAT BY SIGNING THIS AGREEMENT,
EXECUTIVE AGREES TO SUBMIT ANY CLAIMS ARISING OUT OF, RELATING TO, OR IN
CONNECTION WITH THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION,
PERFORMANCE, BREACH OR TERMINATION THEREOF TO BINDING ARBITRATION, AND THAT THIS
ARBITRATION CLAUSE CONSTITUTES A WAIVER OF EXECUTIVE'S RIGHT TO A JURY TRIAL AND
RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THE
EMPLOYER/EMPLOYEE RELATIONSHIP, INCLUDING BUT NOT LIMITED TO, DISCRIMINATION
CLAIMS.
16. Integration. This Agreement, together with the Option Plan, Option
Agreement and the Confidential Information Agreement represents the entire
agreement and understanding between the parties as to the subject matter herein
and supersedes all prior or contemporaneous agreements whether written or oral.
No waiver, alteration, or modification of any of the provisions of this
Agreement will be binding unless in writing and signed by duly authorized
representatives of the parties hereto.
17. Tax Withholding. All payments made pursuant to this Agreement will
be subject to withholding of applicable taxes.
18. Governing Law. This Agreement will be governed by the laws of the
State of California (with the exception of its conflict of laws provisions).
-5-
<PAGE> 6
19. Acknowledgment. Executive acknowledges that he has had the
opportunity to discuss this matter with and obtain advice from his private
attorney, has had sufficient time to, and has carefully read and fully
understands all the provisions of this Agreement, and is knowingly and
voluntarily entering into this Agreement.
-6-
<PAGE> 7
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in
the case of the Company by their duly authorized officers, as of the day and
year first above written.
CLICKSERVICE SOFTWARE LTD.
By: Date:
------------------------ -------------------------------
Title:
---------------------
EXECUTIVE
/s/ Moshe Ben-Bassat
--------------------------- Date:
Moshe Ben-Bassat -------------------------------
-7-
<PAGE> 1
EXHIBIT 10.4
CLICKSERVICE SOFTWARE LTD.
EMPLOYMENT AGREEMENT
This Agreement is entered into as of February 10, 2000, (the "Effective
Date") by and between ClickService Software Ltd. (the "Company"), and Shimon
Rojany (the "Executive").
WHEREAS, Executive currently serves as the Chief Financial Officer of
the Company;
WHEREAS, the parties desire and agree to enter into an employment
relationship by means of this Agreement; and
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, it is mutually covenanted and
agreed by and among the parties as follows:
1. Duties and Scope of Employment.
(a) Positions and Duties. As of the Effective Date, Executive
will continue to serve as Chief Financial Officer of the Company. Executive will
render such business and professional services in the performance of his duties,
consistent with Executive's position within the Company, as shall reasonably be
assigned to him by the Company's Board of Directors (the "Board"). The period of
Executive's employment under this Agreement is referred to herein as the
"Employment Term."
(b) Obligations. During the Employment Term, Executive will
perform his duties faithfully and to the best of his ability and will devote his
full business efforts and time to the Company. For the duration of the
Employment Term, Executive agrees not to actively engage in any other
employment, occupation or consulting activity for any direct or indirect
remuneration without the prior approval of the Board. Notwithstanding the
foregoing, Executive may serve on the board of directors of any other companies
or work in academic pursuits as long as such service does not materially
interfere with the performance of his duties to the Company.
2. At-Will Employment. The parties agree that the Executive's employment
with the Company will be "at-will" employment and may be terminated at any time
with or without cause or notice. Executive understands and agrees that neither
his job performance nor promotions, commendations, bonuses or the like from the
Company give rise to or in any way serve as the basis for modification,
amendment, or extension, by implication or otherwise, of his employment with the
Company.
3. Compensation.
(a) Base Salary. During the Employment Term, the Company will
pay Executive as compensation for his services a base salary at the annualized
rate of $185,000 (the "Base Salary").
<PAGE> 2
The Base Salary will be paid periodically in accordance with the Company's
normal payroll practices and be subject to the usual, required withholding.
(b) Bonus. In addition to the Base Salary, Executive shall be
entitled to earn an annual performance bonus of up to $45,000 (the "Bonus").
Such Bonus, if any, shall be based on the achievement of target milestones to be
determined by the Compensation Committee of the Board after consultation with
Executive and shall be paid on a quarterly basis. The Bonus may be reviewed
annually by the Compensation Committee of the Board for possible increases in
light of Executive's performance.
4. Employee Benefits. During the Employment Term, Executive will be
entitled to participate in the employee benefit plans currently and hereafter
maintained by the Company of general applicability to other senior executives of
the Company, including, without limitation, the Company's group medical, dental,
vision, disability, life insurance, and flexible-spending account plans. The
Company reserves the right to cancel or change the benefit plans and programs it
offers to its employees at any time.
5. Vacation. Executive will be entitled to paid vacation of twenty-one
(21) days per year in accordance with the Company's vacation policy, with the
timing and duration of specific vacations mutually and reasonably agreed to by
the parties hereto.
6. Expenses. The Company will reimburse Executive for reasonable travel,
entertainment or other expenses incurred by Executive in the furtherance of or
in connection with the performance of Executive's duties hereunder, in
accordance with the Company's expense reimbursement policy as in effect from
time to time. In addition, the Company shall pay Executive an annual auto
allowance in an amount not to exceed $6,000 per year.
7. Severance.
(a) Involuntary Termination. If Executive's employment with the
Company terminates other than for "Cause" (as defined herein), and Executive
signs and does not revoke a standard release of claims with the Company, then,
subject to Section 11, Executive shall be entitled to receive continuing
payments of severance pay (less applicable withholding taxes) at a rate equal to
his Base Salary rate, as then in effect, for a period of six (6) months from the
date of such termination, to be paid, in Executive's discretion, (i)
periodically in accordance with the Company's normal payroll policies or (ii) in
a lump-sum within thirty (30) days of such termination.
(b) Termination for Cause. If Executive's employment with the
Company terminates for Cause by the Company, then Executive will only be
eligible for severance benefits in accordance with the Company's established
policies as then in effect.
8. Definition.
(a) Cause. For purposes of this Agreement, "Cause" is defined as
(i) an act of dishonesty made by Executive in connection with Executive's
responsibilities as an employee, (ii) Executive's conviction of, or plea of nolo
contendere to, a felony, or (iii) Executive's gross misconduct.
-2-
<PAGE> 3
9. Confidential Information. Executive agrees to enter into the
Company's standard Confidential Information and Invention Assignment Agreement
(the "Confidential Information Agreement") upon commencing employment hereunder.
10. Conditional Nature of Severance Payments.
(a) Noncompete. Executive acknowledges that the nature of the
Company's business is such that if Executive were to become employed by, or
substantially involved in, the business of a competitor of the Company during
the six (6) months following the termination of Executive's employment with the
Company, it would be very difficult for the Executive not to rely on or use the
Company's trade secrets and confidential information. Thus, to avoid the
inevitable disclosure of the Company's trade secrets and confidential
information, Executive agrees and acknowledges that Executive's right to receive
the severance payments set forth in Section 7 (to the extent Executive is
otherwise entitled to such payments) shall be conditioned upon the Executive not
directly or indirectly engaging in (whether as an employee, consultant, agent,
proprietor, principal, partner, stockholder, corporate officer, director or
otherwise), nor having any ownership interested in or participating in the
financing, operation, management or control of, any person, firm, corporation or
business that competes with Company or is a customer of the Company. Upon any
breach of this section, all severance payments pursuant to this Agreement shall
immediately cease.
11. Assignment. This Agreement will be binding upon and inure to the
benefit of (a) the heirs, executors and legal representatives of Executive upon
Executive's death and (b) any successor of the Company. Any such successor of
the Company will be deemed substituted for the Company under the terms of this
Agreement for all purposes. For this purpose, "successor" means any person,
firm, corporation or other business entity which at any time, whether by
purchase, merger or otherwise, directly or indirectly acquires all or
substantially all of the assets or business of the Company. None of the rights
of Executive to receive any form of compensation payable pursuant to this
Agreement may be assigned or transferred except by will or the laws of descent
and distribution. Any other attempted assignment, transfer, conveyance or other
disposition of Executive's right to compensation or other benefits will be null
and void.
12. Notices. All notices, requests, demands and other communications
called for hereunder shall be in writing and shall be deemed given (i) on the
date of delivery if delivered personally, (ii) one (1) day after being sent by a
well established commercial overnight service, or (iii) four (4) days after
being mailed by registered or certified mail, return receipt requested, prepaid
and addressed to the parties or their successors at the following addresses, or
at such other addresses as the parties may later designate in writing:
If to the Company:
ClickService Software Ltd.
3425 South Bascom Avenue, Suite 230
Campbell, CA 95008
Attn: Shimon Rojany
If to Executive:
-3-
<PAGE> 4
at the last residential address known by the Company.
13. Severability. In the event that any provision hereof becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement will continue in full force and effect without said
provision.
14. Arbitration.
(a) Executive agrees that any dispute or controversy arising out
of, relating to, or in connection with this Agreement, or the interpretation,
validity, construction, performance, breach, or termination thereof, shall be
settled by binding arbitration to be held in Santa Clara County, California in
accordance with the National Rules for the Resolution of Employment Disputes
then in effect of the American Arbitration Association (the "Rules"). The
arbitrator may grant injunctions or other relief in such dispute or controversy.
The decision of the arbitrator will be final, conclusive and binding on the
parties to the arbitration. Judgment may be entered on the arbitrator's decision
in any court having jurisdiction.
(b) The arbitrator(s) will apply California law to the merits of
any dispute or claim, without reference to rules of conflicts of law. The
arbitration proceedings will be governed by federal arbitration law and by the
Rules, without reference to state arbitration law. The Executive hereby consents
to the personal jurisdiction of the state and federal courts located in
California for any action or proceeding arising from or relating to this
Agreement or relating to any arbitration in which the parties are participants.
(c) EXECUTIVE HAS READ AND UNDERSTANDS THIS SECTION, WHICH
DISCUSSES ARBITRATION. EXECUTIVE UNDERSTANDS THAT BY SIGNING THIS AGREEMENT,
EXECUTIVE AGREES TO SUBMIT ANY CLAIMS ARISING OUT OF, RELATING TO, OR IN
CONNECTION WITH THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION,
PERFORMANCE, BREACH OR TERMINATION THEREOF TO BINDING ARBITRATION, AND THAT THIS
ARBITRATION CLAUSE CONSTITUTES A WAIVER OF EXECUTIVE'S RIGHT TO A JURY TRIAL AND
RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THE
EMPLOYER/EMPLOYEE RELATIONSHIP, INCLUDING BUT NOT LIMITED TO, DISCRIMINATION
CLAIMS.
15. Integration. This Agreement, together with the Option Plan, Option
Agreement and the Confidential Information Agreement represents the entire
agreement and understanding between the parties as to the subject matter herein
and supersedes all prior or contemporaneous agreements whether written or oral.
No waiver, alteration, or modification of any of the provisions of this
Agreement will be binding unless in writing and signed by duly authorized
representatives of the parties hereto.
16. Tax Withholding. All payments made pursuant to this Agreement will
be subject to withholding of applicable taxes.
17. Governing Law. This Agreement will be governed by the laws of the
State of California (with the exception of its conflict of laws provisions).
-4-
<PAGE> 5
18. Acknowledgment. Executive acknowledges that he has had the
opportunity to discuss this matter with and obtain advice from his private
attorney, has had sufficient time to, and has carefully read and fully
understands all the provisions of this Agreement, and is knowingly and
voluntarily entering into this Agreement.
-5-
<PAGE> 6
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in
the case of the Company by their duly authorized officers, as of the day and
year first above written.
CLICKSERVICE SOFTWARE LTD.
By: Date:
------------------------ -------------------------------
Title:
---------------------
EXECUTIVE
/s/ Shimon Rojany
--------------------------- Date:
Shimon Rojany -------------------------------
-6-
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated February 14, 2000 (and to all references to our Firm) included in or made
a part of this registration statement filed on Form S-1 registering Ordinary
Shares.
Luboshitz Kasierer
Member firm of Arthur Andersen
Tel Aviv February 14, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 DEC-31-1999
<CASH> 3,770 7,838
<SECURITIES> 0 0
<RECEIVABLES> 2,041 4,096
<ALLOWANCES> 0 (130)
<INVENTORY> 0 0
<CURRENT-ASSETS> 6,250 12,269
<PP&E> 2,763 3,467
<DEPRECIATION> (1,523) (1,969)
<TOTAL-ASSETS> 7,983 14,195
<CURRENT-LIABILITIES> 2,072 4,262
<BONDS> 0 0
0 0
52 60
<COMMON> 13 13
<OTHER-SE> 4,592 8,748
<TOTAL-LIABILITY-AND-EQUITY> 7,983 14,195
<SALES> 6,071 10,326
<TOTAL-REVENUES> 6,071 10,326
<CGS> 2,326 4,370
<TOTAL-COSTS> 2,326 4,370
<OTHER-EXPENSES> 9,636 13,681
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 152 137
<INCOME-PRETAX> (5,858) (7,979)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (5,858) (7,979)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (5,858) (7,979)
<EPS-BASIC> (0.99) (1.34)
<EPS-DILUTED> (0.99) (1.34)
</TABLE>
