<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 13, 2000
REGISTRATION NO. 333-30274
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
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)
Copies to:
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JEFFREY D. SAPER, ESQ. IAN ROSTOWSKY, ADV. YUVAL HORN, ADV. RICHARD CAPELOUTO, ESQ.
ALLISON L. BERRY, ESQ. DUBI ZOLTAK, ADV. ASAF BEN-ZEEV, ADV. MICHAEL NATHAN, ESQ.
ROBERT F. WESTOVER, ESQ. EFRATI, GALILI & CO. TAL SCHNEIDER, ADV. SIMPSON THACHER & BARTLETT
WILSON SONSINI 6 WISSOTSKY STREET DORON COHEN -- 425 LEXINGTON AVENUE,
GOODRICH & ROSATI TEL AVIV 62338 DAVID COHEN, LAW OFFICES NEW YORK, NEW YORK 10017
PROFESSIONAL CORPORATION ISRAEL 14 ABBA HILLEL SILVER ROAD (212) 455-2000
650 PAGE MILL ROAD (972-3) 605-1010 RAMAT-GAN 52506
PALO ALTO, CA 94304-1050 ISRAEL
(650) 493-9300 (972-3) 753-1000
</TABLE>
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. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PRICE PER SHARE(2) PRICE(1) REGISTRATION FEE(3)
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Ordinary Shares, par value
NIS 0.02 per share......... 5,750,000 $11.00 $63,250,000 $16,698
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(1) Includes 750,000 shares issuable upon exercise of the underwriters'
over-allotment option.
(2) 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.
(3) Includes $13,200 previously paid, therefore the amount of $3,498 accompanies
this filing.
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 APRIL 13, 2000
PROSPECTUS
5,000,000 Shares
[ClickService Logo]
Ordinary Shares
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This is our initial public offering of ordinary shares. We are offering
5,000,000 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 $9.00 to $11.00 per share.
INVESTING IN OUR ORDINARY SHARES INVOLVES RISKS. "RISK FACTORS" BEGIN ON PAGE 7.
<TABLE>
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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 750,000 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.
We have received from the Securities Authority of the State of Israel an
exemption from Israel's prospectus publication requirements. Nothing in this
exemption shall be construed as authenticating the matters contained in this
prospectus or as an approval of their reliability or adequacy or as an
expression of opinion as to the quality of the securities offered by this
prospectus.
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
, 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.......................... 20
Use of Proceeds....................... 21
Dividend Policy....................... 21
Capitalization........................ 22
Dilution.............................. 23
Selected Consolidated Financial
Data................................ 24
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 25
Business.............................. 36
Management............................ 49
Certain Transactions.................. 61
</TABLE>
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PAGE
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Principal Shareholders................ 63
Description of Share Capital.......... 65
Shares Eligible for Future Sale....... 70
United States Federal Income Tax
Considerations...................... 72
Israeli Taxation and Investment
Programs............................ 75
Conditions in Israel.................. 81
Enforceability of Civil Liabilities... 83
Where You Can Find More Information... 83
Legal Matters......................... 84
Experts............................... 84
ISA Exemption......................... 84
Underwriting.......................... 85
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", "ClickPlan", "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. The representative dollar
exchange rate for converting the NIS to dollars, as reported by the Federal
Reserve Bank of New York, was 0.249 U.S. dollars for one NIS on March 31, 2000.
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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 software that enables companies to efficiently schedule and
fulfill service and product delivery in enterprise environments and over the
Internet. Our ClickSchedule product line allows our clients to respond quickly
to customers' demand for service and to assign the right resource to the right
service request at the right time and place. Customers may place their service
requests either via the telephone or via the Internet to customer service
representatives in call centers. The ClickSchedule product line provides ease of
use and convenience to end user customers and optimizes utilization of clients'
fulfillment resources, thus maximizing the number of service calls that are
delivered per day. While ClickSchedule arranges service calls in order to reduce
travel times, our ClickFix product line is aimed at supporting the
troubleshooting process and reduce the need to dispatch repair personnel.
ClickFix provides customers with the information needed to diagnose system
errors and conduct remedial action. Our ClickSchedule and ClickFix product lines
can operate in both an organizational, or enterprise, environment and on an
Internet, or web-centric, basis. Our solution is designed to enable our clients
to increase the productivity of their service resources, resulting in reduced
costs and increased revenue opportunities that otherwise would have been lost.
The service sector represents an important component of the international
economy and is people-intensive. Without automation tools, 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 home and office equipment,
consumers and businesses need to be assured that their requests for services
will be quickly scheduled for narrow time slots, and then efficiently delivered.
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, we believe there is a need for software
designed to improve responsiveness to customers and to optimize the utilization
of service resources and ensure successful completion of the service call.
The ClickService solution offers a set of software optimization tools for
the individual service provider, as well as a set of tools to manage
interactions between customers and service providers in business-to-consumer and
business-to-business marketplaces.
Our solution offers the following benefits to our clients and their
customers:
- Greater customer service
- Optimized utilization of fulfillment resources by better fitting of
resources to customer requests, and minimizing idle and travel time
- Seamless integration with complementary enterprise software solutions
- Rapid return on investment due to increased service revenues with
existing service resources
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Our objective is to be the leading provider of web-based 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
based upon our 15 years of experience using sophisticated algorithms to provide
solutions to the service industry. Over the years we have gained experience with
the complex scheduling and troubleshooting needs of service organizations.
Although we believe that our sophisticated algorithms for software applications
and extensive knowledge of the service market provide us with a unique position
against the 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. We also face risks in the achievement of our strategy due to our history
of losses, our recent change in strategic focus and the need for the market to
accept our products. For additional discussion of the risks we face, please see
"Risk Factors" beginning on page 7.
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 vendors, 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, Level 3 Communications and Montgomery
Ward.
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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.
THE OFFERING
Ordinary shares offered by us......... 5,000,000 shares
Ordinary shares to be outstanding
after the offering.................... 25,708,744 shares
Use of proceeds....................... For working capital and general
corporate purposes, including 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 options outstanding as of December 31, 1999
at a weighted exercise price of $1.64 per share;
- 412,478 shares subject to warrants outstanding as of December 31, 1999 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 subject to an automatic increase of the lesser of 5% or
1,250,000 shares annually; and
- 800,000 ordinary shares available for issuance under our 2000 Employee
Share Purchase Plan subject to an automatic increase of the lesser of 2%
or 500,000 shares annually.
Since December 31, 1999, we have issued additional options to employees to
purchase 369,600 ordinary shares at a weighted average exercise price of $8.68
per share, issued a warrant to purchase 76,200 ordinary shares at an exercise
price of $0.02 per share and cancelled 75,000 options at an exercise price of
$3.67 per share. As of December 31, 1999, we also had additional outstanding
employee options to purchase 1,206,920 ordinary shares and all the underlying
shares to be issued upon exercise of these
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options are held by a trustee and reserved for allocation upon exercise of other
employee options were included in the ordinary shares outstanding.
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,
---------------------------------------------------------------
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 5,000,000
ordinary shares by us at an assumed initial public offering price of $10.00 per
share and our anticipated application of the net proceeds of the offering.
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DECEMBER 31, 1999
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ACTUAL AS ADJUSTED
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(UNAUDITED)
(IN THOUSANDS)
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CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 7,838 $53,088
Working capital............................................. 8,007 53,257
Total assets................................................ 14,195 59,445
Long-term liabilities, net of current portion............... 1,112 1,112
Shareholders' equity........................................ 8,821 54,071
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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, all of our operating 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, rather than
Internet, 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-scheduling and delivery software solutions for the service operations of
Internet companies. 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.
For the year ended December 31, 1999, we incurred sales and marketing and
research and development expenses totalling $11.2 million, and we expect to
continue to incur significant sales and marketing, and research and development
expenses and expect such expenses to increase significantly. A portion of our
expenses are fixed in the short term and cannot be quickly reduced to respond to
decreases in revenues. 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.
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. 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;
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- the mix of revenues generated by product licenses and professional
services;
- 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. For example, during the year ended December 31, 1999, we realized an
average of 45% of our revenues from software licenses during the last two weeks
of each 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.
FAILURE OF THE MARKET TO ACCEPT OUR TECHNOLOGY WOULD ADVERSELY AFFECT DEMAND FOR
OUR PRODUCTS AND THE PRICE OF OUR ORDINARY SHARES COULD DECLINE.
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 ACCORDINGLY.
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 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
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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. For example, the number of individuals we employed grew from 107
as of December 31, 1998, to 142 as of December 31, 1999, and was 158 as of
February 29, 2000. 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 REVENUE. IF THE DEMAND FOR THESE
PRODUCTS FALLS, OUR SALES COULD BE SIGNIFICANTLY REDUCED AND OUR FINANCIAL
PERFORMANCE COULD BE SERIOUSLY DAMAGED.
Historically, all of our operating revenue 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 all of our operating revenue 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.
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 FROM PERIOD TO PERIOD.
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
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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 19 of these 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 approximately 40 employees 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.
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.
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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.
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 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, such as Electronic Data Systems
Corporation, 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, including Oracle Corporation;
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- software vendors in the utility, telecom, field services, home delivery
and other vertical markets, including Mobile Data Solutions Inc.;
- providers of scheduling tools and components as well as various logistics
solutions providers such as ServicePower, Inc.; and
- providers of resource optimization tools for other sectors of the
economy, such as provides of supply chain optimization tools for
manufacturing processes, including Manugistics Group, Inc..
Because the market for service and delivery optimization software is
evolving, it is difficult to determine what portion of the market each currently
controls. However, 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 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.
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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, copyright or trademark infringement or conflicting ownership rights
against us could significantly harm our business. For example, on February 28,
2000 a trademark infringement complaint was filed against us with respect to the
use of our corporate name and Internet domain name. 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.
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."
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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 to pay for any future acquisitions. As of
the date of this prospectus, we have no agreement to enter into any material
investment or acquisition transaction.
FUTURE ACQUISITIONS MAY RESULT IN DILUTION TO OUR CURRENT SHAREHOLDERS.
In the future we may acquire complementary business through the issuance of
additional ordinary shares. Additional issuances of ordinary shares could
decrease the value of our ordinary shares and reduce the net tangible book value
per share. Consequently, an acquisition in which we issue additional shares
could actually decrease the value of your investment in ClickService. As of the
date of this prospectus, we have no agreement to enter into any material
acquisition which would result in the issuance of additional shares.
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 WHICH COULD BE NEGATIVELY AFFECTED DUE TO MILITARY OR
POLITICAL TENSIONS.
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.
CERTAIN OF OUR OFFICERS AND EMPLOYEES ARE REQUIRED TO SERVE IN THE ISRAEL
DEFENSE FORCES AND THIS COULD FORCE THEM TO BE ABSENT FROM OUR BUSINESS FOR
EXTENDED PERIODS.
David Schapiro, our Vice President and General Manger, product development
group, and Hannan Carmeli, our Vice President and General Manager, ClickFix, as
well as other male employees located in Israel are currently obligated to
perform up to 39 days of 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. In addition, 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."
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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 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. The amount of the grants received since inception are approximately
$2.9 million in respect of which we have already paid $0.8 million, out of a
total of $3.5 million, due to the Chief Scientist in the form of royalties. 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%. We currently conduct all of our manufacturing
activities in Israel and intend to continue doing so in the foreseeable future
and therefore do not believe there will be any increase in the amount of
royalties we pay to the Chief Scientist. Additionally, the licensing of our
software in the ordinary course of business is not considered a transfer of
technology by the Office of the Chief Scientist and we do not intend to transfer
any technology outside of Israel. Consequently, we do not anticipate having to
pay increased royalties to the Chief Scientist for the foreseeable future. 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.
WE ANTICIPATE RECEIVING TAX BENEFITS FROM THE GOVERNMENT OF THE STATE OF ISRAEL,
HOWEVER THESE BENEFITS MAY BE REDUCED OR TERMINATED IN THE FUTURE.
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."
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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 service 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."
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.
As of December 31, 1999, our executive officers, directors and entities
affiliated with them beneficially owned approximately 67.2% of our outstanding
ordinary shares and we anticipate that this group will own approximately 53.4%
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.
17
<PAGE> 19
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.
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." See "Description of Share Capital -- Provisions Affecting Potential Change
of Control."
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." Accordingly, an acquisition of us could be delayed or
prevented even if it would be beneficial to our shareholders.
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 25,708,744 ordinary shares outstanding,
2,165,192 ordinary shares issuable upon exercise of outstanding options and
warrants, and 3,800,000 additional ordinary shares for issuance pursuant to our
stock option plans and employee share purchase plan. 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 could
fall dramatically. 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. See "Shares Eligible for Future Sale."
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
18
<PAGE> 20
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. Additionally, prior to the issuance of additional equity
or convertible debt securities to entities outside of Israel, we will need to
obtain approval from the Chief Scientist of the State of Israel and there can be
no assurance that we will be able to obtain this consent in the future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Grants from the Government of the State of Israel."
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 $10.00 per share, if you purchase our
ordinary shares in this offering, you will incur immediate dilution of $7.90 per
share 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."
19
<PAGE> 21
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.
20
<PAGE> 22
USE OF PROCEEDS
Our net proceeds from the sale of 5,000,000 ordinary shares in this
offering at an assumed public offering price of $10.00 per share, after
deducting the estimated underwriting discounts and commissions and estimated
offering expenses, will be approximately $45,250,000. If the underwriters'
over-allotment option is exercised in full, our net proceeds will be
approximately $52,225,000.
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. See "Management's Discussion and
Analysis -- Liquidity and Capital Resources."
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.
21
<PAGE> 23
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 5,000,000 ordinary shares offered
hereby at an assumed public offering price of $10.00 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 $ 173
======== ======== ========
Long-term obligations, excluding current portion.......... $ 213 $ 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 25,708,744 shares issued and
outstanding on a pro forma as adjusted basis......... 13 73 98
Additional paid in capital................................ 35,063 35,063 80,288
Deferred compensation..................................... (2,663) (2,663) (2,663)
Accumulated deficit....................................... (23,652) (23,652) (23,652)
-------- -------- --------
Total shareholders' equity................................ 8,821 8,821 54,071
-------- -------- --------
Total capitalization...................................... $ 9,034 $ 9,034 $ 52,284
======== ======== ========
</TABLE>
This table excludes the following:
- 1,458,114 shares underlying options outstanding as of December 31, 1999
at a weighted exercise price of $1.64 per share;
- 412,478 shares subject to warrants outstanding as of December 31, 1999 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 subject to an automatic increase of the lesser of 5% or
1,250,000 shares annually; and
- 800,000 ordinary shares available for issuance under our 2000 Employee
Share Purchase Plan subject to an automatic increase of the lesser of 2%
or 500,000 shares annually.
Since December 31, 1999, we have issued additional options to employees to
purchase 369,600 ordinary shares at a weighted average exercise price of $8.68
per share, issued a warrant to purchase 76,200 ordinary shares at an exercise
price of $0.02 per share and cancelled 75,000 options at an exercise price of
$3.67 per share. As of December 31, 1999, we also had additional outstanding
employee options to purchase 1,206,920 ordinary shares and all the underlying
shares to be issued upon exercise of these options are held by a trustee and
reserved for allocation upon exercise of other employee options were included in
the ordinary shares outstanding.
22
<PAGE> 24
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 5,000,000
ordinary shares offered by us hereby at an assumed public offering price of
$10.00 per share and after deducting the underwriting discount and estimated
offering expenses payable by us, our pro forma net tangible book value at
December 31, 1999 would have been $54.1 million or approximately $2.10 per
share. This represents an immediate increase in pro forma net tangible book
value of $1.67 per share to existing shareholders and an immediate dilution in
net tangible book value of $7.90 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............. $10.00
Pro forma net tangible book value per share as of
December 31, 1999.................................... $0.43
Increase per share attributable to new investors....... 1.67
-----
Pro forma net tangible book value per share after the
offering.................................................. 2.10
------
Dilution in net tangible book value per share to new
investors................................................. $ 7.90
======
</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 $10.00 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 81% $31,735,000 39% $ 1.53
New public investors................ 5,000,000 19 50,000,000 61 10.00
----------- --- ----------- ---
Total.......................... 25,708,744 100% $81,735,000 100%
=========== === =========== ===
</TABLE>
This table excludes the following:
- 1,458,114 shares underlying options outstanding as of December 31, 1999
at a weighted exercise price of $1.64 per share;
- 412,478 shares subject to warrants outstanding as of December 31, 1999 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 subject to an automatic increase of the lesser of 5% or
1,250,000 shares annually; and
- 800,000 ordinary shares available for issuance under our 2000 Employee
Share Purchase Plan subject to an automatic increase of the lesser of 2%
or 500,000 shares annually.
Since December 31, 1999, we have issued additional options to employees to
purchase 369,600 ordinary shares at a weighted average exercise price of $8.68
per share, issued a warrant to purchase 76,200 ordinary shares at an exercise
price of $0.02 per share and cancelled 75,000 options at an exercise price of
$3.67 per share. 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, we also had additional outstanding employee
options to purchase 1,206,920 ordinary shares and all the underlying shares to
be issued upon exercise of these options are held by a trustee and reserved for
allocation upon exercise of other employee options were included in the ordinary
shares outstanding.
23
<PAGE> 25
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>
24
<PAGE> 26
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 successful businesses must provide
customer service over the Internet and increase the performance of their
existing service 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. 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 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 introduced this pricing structure to offer a more
flexible pricing structure for our clients with seasonal businesses. 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 at 48% 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 12%, which is 58% 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
25
<PAGE> 27
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. Outstanding 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. As of December 31, 1999, 14% of our
outstanding trade receivables had terms in excess of 60 days, with an average
term of 144 days. $63,217 of the trade receivables that were outstanding on
December 31, 1999 which do not have extended payment terms have not been paid as
of the date of this prospectus. 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 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. Customer support is charged as a percentage of
license fees depending upon the level of support coverage requested by the
customer. A fee of 18% of license fees is charged for five day a week, eight
hour a day coverage and 24% of license fees for seven day a week, twenty-four
hour coverage. 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 of expenses related to salaries,
expenses of our professional services organizations, costs related to
third-party consultants and equipment costs.
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.
These personnel expenses, net of grants received, account for 112% of research
and development expenses. 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 can be allocated to 56% for personnel and
related costs primarily from our direct sales force and marketing staff, in
addition to 44% for 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.
26
<PAGE> 28
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.
In 1997, 36% of our revenues were generated in North America, 25% in
Europe, 29% in Israel and 10% in Singapore. In 1998, 71% of our revenues were
generated in North America, 20% in Europe, 8% in Israel and 1% in Singapore. In
1999, 67% of our revenues were generated in North America, 21% in Europe, 9% in
Israel and 3% in Singapore. Additionally, as of December 31, 1998 we had
long-lived assets in North America of $220,000, in Europe of $47,000 and Israel
of $973,000. As of December 31, 1999 we had long-lived assets in North America
of $352,000, in Europe of $94,000 and Israel of $1.1 million. See also Note 5 to
the Consolidated Financial Statements.
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.
27
<PAGE> 29
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 33% of revenues during 1999, of which 21% were in Europe,
29% of revenues during 1998, of which 20% were in Europe and 64% of revenues
during 1997, of which 29% were in Israel, 25% were in Europe and 10% were in
Singapore.
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 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
28
<PAGE> 30
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 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.
29
<PAGE> 31
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)
======= ======= ======= =======
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>
30
<PAGE> 32
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. For example, in 1999 45% of
recognized revenue was realized in the last two weeks of each 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 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. Outstanding 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.
We have also received aggregate payments from the Government of the State
of Israel in the amount of $2.9 million related to research and development and
$707,000 related to marketing activities. As of December 31, 1999, we have paid
or accrued royalties related to these funds in the amount of
31
<PAGE> 33
$1.1 million. See "Israel's Taxation and Investment Programs -- Law for
Encouragement of Capital Investments," "-- Law for Encouragement of Industrial
Research and Development, 1984" and Note 10 to our Consolidated Financial
Statements.
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. Bank debt, and additional
liabilities to banks in respect of guarantees given on our behalf, are secured
by fixed charges on vehicles and on accounts receivable from selected major
customers. 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%. The line of credit also prohibits us
from paying dividends or making other distributions without the lender's prior
consent. 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.
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.
32
<PAGE> 34
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 following table sets forth, for the periods and dates indicated,
certain information concerning the representative dollar exchange rate for
translating NIS as determined by the Federal Reserve Bank of New York for the
years ended December 31, 1995 through 1999, and the four 1999 Quarters.
"Average" represents the average of the exchange rates between the NIS and the
dollar on the last day of each month during the period, as reported by the
Federal Reserve Bank of New York.
<TABLE>
<CAPTION>
DOLLARS PER NIS
----------------------------------------
PERIOD
YEAR ENDED DECEMBER 31, AVERAGE HIGH LOW END
----------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
1995................................................ 0.3322 0.3406 0.3140 0.3189
1996................................................ 0.3138 0.3241 0.3023 0.3081
1997................................................ 0.2901 0.3084 0.2781 0.2827
1998................................................ 0.2641 0.2827 0.2291 0.2404
1999................................................ 0.2416 0.2491 0.2333 0.2404
QUARTER ENDED
March 31, 1999...................................... 0.2462 0.2491 0.2404 0.2484
June 30, 1999....................................... 0.2446 0.2483 0.2403 0.2448
September 30, 1999.................................. 0.2391 0.2454 0.2333 0.2337
December 31, 1999................................... 0.2365 0.2411 0.2336 0.2404
</TABLE>
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.
33
<PAGE> 35
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. Additionally, we do not
participate in any speculative investments or hedging contracts related to
foreign currency exchange rate risks.
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.
34
<PAGE> 36
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.
All amounts related to these grants are denominated in U.S. dollars. Total
royalties to be paid relating to grants already received are $3.5 million, of
which $0.8 have been paid to date.
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. Because we have received
approval from the Chief Scientist for the transfer of up to 30% of our
outstanding ordinary shares on a fully-diluted basis to the public upon the
consummation of the offering, public transfers of our shares sold in this
offering will not be impacted by this restriction. We will need to obtain
approval from the Chief Scientist prior to the sale of additional shares to
entities located outside of Israel and there can be no assurance that we will be
able to obtain this consent in the future. 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. We currently conduct all of our manufacturing activities
in Israel and intend to remain doing so throughout the year 2000.
35
<PAGE> 37
BUSINESS
We provide software that enables companies to efficiently schedule and
fulfill service and product delivery in enterprise environments and over the
Internet. Our ClickSchedule product line allows our clients to respond quickly
to customers' demand for service and to assign the right resource to the right
service request at the right time and place. Customers may place their service
requests either via the telephone to customer service representatives in call
centers or via the Internet. The ClickSchedule product line provides ease of use
and convenience to end user customers and optimizes utilization of clients'
fulfillment resources, thus maximizing the number of service calls that are
delivered per day. While ClickSchedule arranges service calls in order to reduce
travel times, our ClickFix product line is aimed at supporting the
troubleshooting process and reduce the need to dispatch repair personnel.
ClickFix provides customers with the information needed to diagnose system
errors and conduct remedial action. Our ClickSchedule and ClickFix product lines
can operate in both an organizational, or enterprise, environment and on an
Internet, or web-centric, basis. Our solution is designed to enable our clients
to increase the productivity of their service resources, resulting 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 grown significantly, 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 immediate, or 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, is 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.
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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 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 assurance 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 70% 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. These inefficiencies also
impact organizations providing commercial, or business-to-business, and retail,
or business-to-consumer, solutions. 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.
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THE CLICKSERVICE SOLUTION
We provide software that enables companies to efficiently schedule and
fulfill service and product delivery in enterprise environments and over the
Internet. Our ClickSchedule product line allows our clients to respond quickly
to customers' demand for service and to assign the right resource to the right
service request at the right time and place. Customers may place their service
requests either via the Internet or the telephone to customer service
representatives in call centers. The ClickSchedule product line provides ease of
use and convenience to end user customers and optimizes utilization of clients'
fulfillment resources, thus maximizing the number of service calls that are
delivered per day. Our ClickSchedule product line also includes management tools
such as ClickAnalyze for generating business performance indicators and
ClickPlan for resource planning. While ClickSchedule arranges service calls in
order to reduce travel times, our ClickFix product line is aimed at supporting
the troubleshooting process and reduce the need to dispatch repair personnel.
ClickFix provides customers with the information needed to diagnose system
errors and conduct remedial action.ClickSchedule and ClickFix also enable our
clients to provide their own employees greater flexibility and reliability in
coordinating internal business processes. Our solution offers the following
benefits to our clients and ClickService end-users, whether customers or the
client's internal staff:
- 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 dates and time slots, 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
- greater control of an organization's fulfillment resources by
providing current reporting 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
integrates with back-end enterprise resource planning, or ERP,
applications that are located within an organization and used by
employees to coordinate internal business processes. Our solution also
integrates with front-end customer relationship management, or CRM,
applications which businesses currently use to provide responses to their
customers through the use of CSRs. 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.
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- Rapid Return on Investment. We believe that once we integrate and
customize our products 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 application
software for optimizing service operations of business-to-business and
business-to-consumer enterprises. The key elements of our strategy include:
- Expand Market Acceptance of our Products. 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.
We believe that additional offerings, such as products with decision
support capabilities including forecasting, resource planning, capacity
planning and monitoring will enable us to sell more products to our
existing client base. Additionally, we believe that by building upon our
existing customer base, we can further penetrate those sectors where our
customers are concentrated. We believe these efforts will enable us to
further expand market acceptance of our products and 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, which consist of co-marketing, joint sales calls and
advertising arrangements, 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. We currently
anticipate making initial releases of these products in the year 2000
with additional new products being released as they are developed.
- 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
Extensible Markup Language, or 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 companies that maintain and host software applications,
also known as 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
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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 throughout an
organization, or enterprise, environment or on a web-centric, or Internet,
basis.
ClickSchedule
ClickSchedule is a scheduling solution capable of operating over the
internet 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
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 year
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
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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 troubleshooting solution capable of operating over the
Internet, 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 end-user equipment owners or our client's service personnel
access over the Internet by logging into a service provider's web site.
ClickFix communicates with equipment that has the capability to output
messages such as event logs or errors which are then transmitted to the client
via a modem. The ClickFix application then 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.
For example, a refrigerator could be equipped with ClickFix software and a
modem, and the refrigerator could contact and provide diagnostic information to
a repair company when service is needed. ClickFix has self-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. Our research and
development personnel have been working on various service technology solutions
since 1985 including software solutions, system integration and troubleshooting
implementations. Based on those efforts, we have gained significant 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.
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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 these models, we can use
our algorithms to address the market needs of different segments of the
service industry.
- Open, multi-tiered architecture. Our development methodology includes
object oriented development techniques and focuses on implementing
reusable components that can be incorporated in future products.
Our architecture incorporates the following key components:
- Application software and web servers capable of performing high-speed
optimization, problem resolution, and Internet access to the system
which is hosting the applications.
- Extensible Markup Language, or XML, Application Programming Interfaces
(APIs), which enable other applications to integrate and access the date
and services of ClickSchedule or ClickFix.
- ClickSchedule scheduling engine with includes business rules and
objectives which define the constraints and policies of the service
organization, and optimization algorithms which schedule the service
resources based on these rules and objectives. These rules and
objectives and optimization algorithms are designed in a generic fashion
so that they can be applicable to a wide range of service scheduling
problems.
- ClickFix problem resolution engine that includes algorithms for fast
problem resolution based on equipment model diagrams, a knowledge base
with learning capabilities, and a component that creates new trouble
shooting solutions based on modeling the equipment structure as well as
historical cases.
- Industry Segment Layer, which includes data, algorithms, and APIs that
are specifically developed to address the needs of particular industry
segments.
- External customization points that enable ClickService professional
services personnel and third party system integrators to configure our
software to provide customization for particular customers.
- A Relational Database, which resides on a separate server and saves all
transactions and data to an accessible database.
- Problem resolution technology. Our problem resolution technology includes
the following key capabilities:
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- 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.
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;
- customize the ClickSchedule logic to meet the client's business needs;
and
- install and test the application at the client's facilities.
- ClickSchedule Fast Track. In order to increase the number of our
implementations and facilitate market 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. Customer
support is billed as a percentage of license fees depending upon the level of
support coverage requested by the customer. A fee of 18% of license fees is
charged for five day a week, eight hour a day coverage and 24% of license fees
for seven day a week, twenty-four hour coverage. 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.
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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:
- Enterprise resource planning and customer relationship management vendor
relationships. We have entered into co-marketing arrangements with
leading enterprise resource planning, or ERP, and customer relationship
management, or CRM, vendors under which we join together in our sales
efforts or sell software solutions to them for resale to their customers.
These vendors include Clarify, Eftia, JD Edwards, Orbital and SAP. These
agreements generally provide the parties with the rights to use each
other's names in marketing and advertising materials, and occasionally
conduct joint marketing programs. These agreements are generally for a
one-year period and are automatically renewable. 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. These relationships are
governed by statements of work that are limited to specific joint
projects. Relationships with these consulting and implementation
companies can range in duration from three to six months and generally
require us to provide technical support and training to clients. 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.
These business partners allow us to use their names and logos in
advertising materials and we will reciprocate upon request. We believe
these relationships will help enable the adoption and deployment of our
software.
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
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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, which consists of
ongoing relationship management and the sale of additional licenses as clients
require additional resources. 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, such as Electronic Data Systems
Corporation, 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, including Oracle
Corporation;
- software vendors in the utility, telecommunications, Internet access,
field services, home delivery and other markets including Mobile Data
Solutions Inc.;
- providers of scheduling tools and components as well as various logistics
solutions providers such as ServicePower, Inc.; and
- providers of resource optimization tools for other sectors of the
economy, such as providers of supply chain optimization tools for
manufacturing processes, including Mangustics Group, Inc.
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 have filed trademark applications in the United States for the use of
ClickService, ClickBroker, ClickAnalyze, ClickPlan, ClickForecast,
ClickPerformance Monitor, ClickSchedule, ClickFix and W-6. Our registered
trademarks also include Diagnostic Executive and Aitest. Although we rely on
copyright, trade secret and trademark law to protect our technology, we believe
that factors such as the technological and creative skills of our personnel, new
product developments, frequent product enhancements and reliable product
maintenance are more essential to establishing and maintaining a technology
leadership position. We can give no assurance that others will not develop
technologies that are similar or superior to our technology.
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
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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
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, 71 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. Severance pay expenses amounted to
$105,000 in 1997, $272,000 in 1998 and $202,000 in 1999.
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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. Our
U.K. subsidiary currently operates from a leased facility of approximately 3,000
square feet in London. Anticipated minimum net rents for these facilities are
approximately $1.1 million in 2000, $983,000 in 2001, $929,000 in 2002 and
$947,000 in 2003.
SUBSIDIARIES
ClickService Software Ltd. is organized under the laws of Israel. We have
two subsidiaries, ClickService Software, Inc., a California corporation, which
is our primary operating subsidiary, and ClickService Ltd., a company organized
under the laws of the United Kingdom.
LEGAL PROCEEDINGS
On February 28, 2000, a trademark infringement complaint was filed against
us in the United States District Court, Northern District of California, by
Clickservices.com, an unrelated third party. The complaint was served on us on
March 17, 2000. The complaint alleges that our use of the CLICKSERVICE trademark
and "clickservice.com" and "clickservice.net" Internet domain names have
resulted in trademark infringement and unfair competition in violation of
federal law. The complaint also alleges unfair competition, false advertising,
and false designation of origin in violation of California's Business and
Professions Code and trademark infringement in violation of California common
law. Clickservices.com is seeking a preliminary injunction to enjoin us from
using the CLICKSERVICE trademark and the domain names "clickservice.com" and
clickservice.net." Additionally, Clickservices.com is seeking damages from us in
an unspecified amount.
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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
Roni Einav..................... 44 Director
Dr. Israel Borovich(1)......... 58 Director
Nathan Gantcher................ 59 Director
Fredric W. Harman(1)(2)........ 39 Director
Eddy Shalev(1)(2).............. 52 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.
HANNAN 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.
RONI EINAV has served as a director of ClickService since April 2000. From
1983 to April 1999 , Mr. Einav served as Chairman of the Board of Directors of
New Dimension Software, Ltd., a software company which he founded. Mr. Einav has
also played a role in founding over ten additional Israeli high-tech companies
including: Liraz Computers, which owns Level 8, Jacada, UDS-Ultimate
Distribution Systems, CreditView, CePost, CeDimension, ComDa and Einav Systems.
Mr. Einav is a Major in the Israeli Defense Forces, serving in the Systems
Analysis Division. Mr. Einav holds a Bachelor of Science degree in Management
and Industrial Engineering and a Master of Science degree in Operations Research
from the Technion Institute.
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.
NATHAN GANTCHER has served as a director of ClickService since April 2000.
From October 1997 to October 1999, Mr. Gantcher served as Vice Chairman of CIBC
World Markets Corp. From 1983 to November 1997, Mr. Gantcher served as
President, Chief Operating Officer and Co-Chief Executive Officer of Oppenheimer
& Co. Since 1983, Mr. Gantcher has served as Chairman of the Board of Trustees
of Tufts University. Mr. Gantcher is a member of the Board of Overseers at the
Columbia University Graduate School of Business, a director of Mack-Cali Realty
Corp and the Jewish Communal Fund, and a trustee of the Anti-Defamation League
Foundation. Mr. Gantcher holds a Bachelor of Arts degree in Business from Tufts
University and an Master of Business Administration degree from the Columbia
University Graduate School of Business.
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
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Science degree in Electrical Engineering from Stanford University and Master of
Business Administration degree from the Harvard Graduate School of Business.
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.
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 our directors, officers or key employees. Pursuant to the Companies Law,
commencing three months after the date our shares are listed for trading on a
stock exchange, the general manager of our company shall not serve as the
chairman of the board unless it was authorized by a majority that includes at
least two-thirds of the shareholders who are not controlling shareholders, as
that term is defined in the Companies Law, who are present and voting, and for a
period of not more than three years from the date such decision was adopted. On
March 2000, our shareholders approved that Dr. Ben Bassat may serve as general
manager and as chairman of the ClickService board of directors until March 2003.
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.
Harman, the Class II directors shall initially consist of Mr. Gantcher and Mr.
Einav 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 and until their
successors have been duly elected and qualified. 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
controlled by that person has at the date of appointment, or has had at any time
during the two years preceding that date, any affiliation with
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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 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 Israeli companies whose
shares are publicly traded outside Israel only shall commence on August 1, 2000.
At such time, we shall be required to appoint two external directors. These
regulations also provide that, with respect to a company whose shares are
publicly traded outside Israel only, the external directors do not have to be
residents of Israel. 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;
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- 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;
- 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). We do not have any conflict of interest policy.
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, Mr. Harman and Mr.
Shalev.
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 a relative of the
foregoing or 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 and report any material
improprieties that he may discover to the chairman of the board of directors.
APPROVAL OF SPECIAL TRANSACTIONS UNDER ISRAELI LAW
Each person listed in the table under "-- Executive Officers and Directors"
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.
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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 to the audit committee, board of directors and, in
certain circumstances, the shareholders, 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 officer 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 manager 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 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 such as an
exceptional transaction such as a public company with a controlling shareholder,
or a transaction of a public company with a controlling shareholder who is also
an officer of the company relating to his terms of employment or affiliation,
shareholder approval may also be required. In such event, the principle terms of
such transaction must be disclosed in a notice to the shareholder which will
include all substantial documents relating to the transaction. 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 whose shares are publicly traded outside Israel only, 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 officer 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, unless the majority of the members of the audit committee or of the
board of directors have a personal interest in such approval. 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.
If audit committee approval is required for a transaction with an interested
party, an Officer or a controlling shareholder such approval may not be given
unless, at the time the approval was granted 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.
For information concerning the direct and indirect personal interests of
certain officers and principal shareholders of ClickService in certain
transactions with ClickService, see "Certain Transactions."
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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 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
proof of criminal 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 have approved indemnification for
officers and directors of up to $50,000,000 in the aggregate. 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.
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.
55
<PAGE> 57
As of the date of this offering, options to purchase 780,000 ordinary
shares granted to our directors are outstanding. The weighted average exercise
price of these options is $2.34 per share. Of these options, options to purchase
124,177 ordinary shares are exercisable or will become exercisable within 60
days of December 31, 1999.
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 POTENTIAL ANNUAL RATES OF
SECURITIES TOTAL OPTIONS REALIZABLE STOCK PRICE APPRECIATION
UNDERLYING GRANTED VALUE AT FOR OPTION TERMS(2)
OPTIONS IN FISCAL EXERCISE EXPIRATION ASSUMED INITIAL ------------------------
NAME GRANTED 1999(1) PRICE DATE OFFERING PRICE 5% 10%
- ---- ---------- ------------- -------- ---------- ---------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Moshe Ben-Bassat
Chief Executive
Officer................ 720,000(3) 48.2% $1.83 12/31/02 $5,882,400 $7,017,300 $8,265,600
Amit Bendov(4)
Vice President, Product
Marketing.............. 9,000 0.6% $0.83 12/31/07 82,530 125,501 185,453
Ami Shpiro(5)
Vice President and
General Manager, Europe
Operations............. 6,781 0.5% $0.83 12/31/07 62,182 94,558 139,729
Robert Spina(6)
Vice President,
Sales.................. 21,000 1.4% $0.83 12/31/07 192,570 292,836 432,724
Mark Trimue(7)
Vice President,
Business Development
and Channels
Development............ 24,000 1.6% $0.83 12/31/07 220,080 334,669 494,541
</TABLE>
- ---------------
(1) 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.
(2) The 5% and 10% assumed annual rate of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission and do not
represent our estimate or projection of our ordinary share prices. These
figures are based on an assumed offering price of $10.00 per share.
56
<PAGE> 58
(3) The options granted to Dr. Ben-Bassat vest over a period of 41 months.
(4) Excludes an additional option for 14,400 ordinary shares at an exercise
price of $8.50 per share granted to Mr. Bendov on March 21, 2000.
(5) Excludes an additional option for 18,000 ordinary shares at an exercise
price of $8.50 per share granted to Mr. Shpiro on March 21, 2000.
(6) Excludes an additional option for 7,200 ordinary shares at an exercise price
of $8.50 per share granted to Mr. Spina on March 21, 2000.
(7) Excludes an additional option for 7,200 ordinary shares at an exercise price
of $8.50 per share granted to Mr. Trimue on March 21, 2000.
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 $10.00 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 $ 717,367 $5,165,033
Chief Executive Officer
Amit Bendov............................... 131,315 59,785 1,236,987 560,925
Vice President, Product Marketing
Ami Shpiro................................ 13,697 22,566 129,026 210,876
Vice President and General Manager,
Europe Operations
Robert Spina.............................. 10,125 37,875 95,378 351,532
Vice President, Sales
Mark Trimue............................... 11,000 37,000 103,620 342,540
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.
57
<PAGE> 59
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.
We currently maintain eight existing option plans, the 1996 Option Plan,
the 1997 Option Plan, the 1998 Option Plan, the two 1999 Option Plans, the 2000
U.S. Option Plan, the 2000 Israeli Plan and the 2000 Unapproved U.K. Plan. As of
the date of this offering, options to purchase 1,458,114 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.
In March, 2000 we issued 369,600 ordinary shares pursuant to the 2000 U.S.
Option Plan, the 2000 Israeli Plan and the 2000 Unapproved U.K. Plan. These
options vest over a four year period beginning one year following the grant date
in the case of the 2000 U.S. Option Plan, and two years following the grant date
in the case of the 2000 Israeli Plan and the 2000 Unapproved U.K. Plan.
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 share options within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended, to our
employees and nonstatutory share 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.
58
<PAGE> 60
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.
UK 2000 UNAPPROVED AND UK 2000 APPROVED SCHEMES
We also have a stock option scheme, the UK 2000 Unapproved Share Scheme,
for our UK employees. Futures options issued under the plan will be over
ordinary shares. Our board of directors or a committee of the board administers
the plan. The plan provides that options may be granted at an exercise price and
subject to the criteria that the board determines. In the absence of alternative
provision determined at the date of grant, an option will be exercisable over
half the number of shares under option after 2 years from the date of grant and
will vest fully over a 4 year period. If an employee is terminated for cause,
his options lapse immediately. In other circumstances, an employee has two
months to exercise his option. Options must be exercised within 10 years of
their grant date.
We are also in the process of adopting a UK Inland Revenue Approved share
option scheme, the UK 2000 Approved Share Option Scheme. Options granted under
this scheme will be over ordinary shares and will be granted at the market value
of the shares at the date of grant. Provisions on vesting of options and rights
of exercise on termination are similar to the unapproved scheme. Options must be
exercised within 10 years of the date of grant.
Both of these plans will lapse in 2010.
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
59
<PAGE> 61
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.
60
<PAGE> 62
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 -- -- --
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
Shimon Rojany............................................... 23,466
</TABLE>
In connection with the purchase of their shares of Series D Convertible
Preferred, on February 10, 2000 we granted entities affiliated with MeriTech
Capital Partners a warrant to purchase 76,200 Ordinary Shares with an exercise
price of $0.01 per share.
The warrants for preferred shares 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
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<PAGE> 63
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.
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.
OTHER TRANSACTIONS
Our Board of Directors granted a stand-alone option to purchase 810,000
ordinary shares to Moshe Ben-Bassat in August, 1999 which was subsequently
approved by our shareholders. This option vests pro rata over a 41 month period,
with vesting commencing on August 1, 1999. Vesting of this option will
accelerate upon a change of control of the Company.
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<PAGE> 64
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 25,708,744 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)......................... 4,529,368 21.7% 4,529,368 17.5%
Amit Bendov(2).............................. 142,228 * 142,228 *
Ami Shpiro(3)............................... 184,598 * 184,598 *
Robert Spina(4)............................. 13,500 * 13,500 *
Mark Trimue(6).............................. 12,000 * 12,000 *
Israel Borovich(7).......................... 1,250 * 1,250 *
Nathan Gantcher............................. -- * -- *
Roni Einav.................................. -- * -- *
Frederic W. Harman(8)....................... 4,853,763 23.3% 4,853,763 18.8%
c/o Oak Investment Partners
525 University Avenue, Suite 1300
Palo Alto, CA 94301
Eddy Shalev(9).............................. 2,949,111 14.2% 2,949,111 11.4%
c/o Genesis Partners
50 Dizengoff Street
Tel-Aviv 64332, Israel
5% SHAREHOLDERS
Entities affiliated with Oak Investments
Partners(8)............................... 4,853,763 23.3% 4,853,763 18.8%
525 University Avenue, Suite 1300
Palo Alto, CA 94301
Entities affiliated with Genesis
Partners(9)............................... 2,949,111 14.2% 2,949,111 11.4%
50 Dizengoff Street
Tel-Aviv 64332, Israel
</TABLE>
63
<PAGE> 65
<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(10)................... 2,823,421 13.6% 2,823,421 11.0%
435 Tasso Street, Suite 120
Palo Alto, CA 94301
Entities affiliated with MeriTech Capital
Associates L.L.C.(11)..................... 1,904,830 9.2% 1,904,830 7.4%
90 Middlefield Road, Suite 201
Menlo Park, CA 94025
All executive officers and directors as a
group (13 persons)(12).................... 13,376,575 59.1% 13,376,575 50.6%
</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 and a warrant to purchase
88,277 Class B Convertible Preferred 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.
(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) 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.
Includes a warrant to purchase 126,778 Class B Convertible Preferred Shares
held by Oak Investment Partners VI, L.P. and a warrant to purchase 2,958
Class B Convertible Preferred Shares held by Oak Affiliates Fund, L.P.
exercisable within 60 days of December 31, 1999. Mr. Harman disclaims
beneficial ownership of these shares, except for his proportional interest
therein, if any. Includes ordinary shares and
non-voting shares.
(9) 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.
(10) 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.
(11) Includes 1,799,372 shares held by MeriTech Capital Partners L.P., and
29,258 shares held by MeriTech Capital Affiliates L.P.
(12) Includes options to purchase 400,630 ordinary shares and warrants to
purchase 319,320 Class B Convertible Preferred Shares exercisable within 60
days of December 31, 1999.
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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 special
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 March 20, 2000, our shareholders approved the increase of our authorized
share capital to 98,000,000 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 March 20, 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 1 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. Generally, pursuant to the Companies Law, each shareholder of record
in an Israeli public company, 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. Our articles of association provide
for at least ten days' and not more than sixty days' prior notice of a General
Meeting of the shareholders unless a longer period is prescribed by the
Companies Law. 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
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that the distribution will prevent us from being able to meet our existing and
anticipated obligations when they become due.
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.
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 SPECIAL PREFERRED SHARES
As of the offering we will have an additional 5,000,000 million special
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 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 special 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 special
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preferred shares that have a class vote with respect to a change of control
transaction. The issuance of special 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.
PROVISIONS AFFECTING POTENTIAL CHANGE OF CONTROL
Our Articles of Association provide that we may not engage in any business
combination with an interested shareholder for a period of three years following
the date that such shareholder became an interested shareholder, unless: (a)
prior to such date, the Board of Directors approved either the business
combination or the transaction that resulted in the shareholder becoming an
interested shareholder; or (b) upon consummation of the transaction that
resulted in the shareholder becoming an interested shareholder, the interested
shareholder owned at least 66 2/3% of our voting shares outstanding at the time
the transaction commenced. A business combination includes: (i) any merger or
consolidation involving us and the interested shareholder; (ii) any sale,
transfer, pledge or other disposition of 10% or more of our assets in a
transaction involving the interested shareholder; (iii) subject to certain
exceptions, any transaction that results in the issuance or transfer by us of
any shares to the interested shareholder; (iv) subject to certain minor
exceptions, any transaction involving us (or any of our direct or indirect
majority owned subsidiaries) which has the effect of increasing the
proportionate shareholding or convertible securities owned by the interested
shareholder; or (v) the receipt by the interested shareholder of the benefit of
any loans, advances, guarantees, pledges or other financial benefits provided by
or through us. In general, the Articles of Association define an interested
shareholder as any entity or person beneficially owning 15% or more of our
outstanding voting shares and any entity or person affiliated with, controlling
or controlled by such entity or person. In addition, the issuance of Special
Preferred Shares may have the effect of delaying, deferring or preventing a
change in control of ClickService without further action by the shareholders.
See "Description of Share Capital -- Description of Special Preferred Shares."
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. Warrants are exercisable upon the earlier of
March 31, 2003, following our initial public offering, the sale or transfer of
substantially all of our assets or a change in the majority ownership of our
voting securities. 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. 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. Options granted to employees
generally vest over a four year period at the rate of 33% per year with the
initial vesting either occurring after the first twelve months or, in the case
of Israeli options, the first twenty-four months. These options shall terminate
upon the optionees termination of employment with us. Consideration for these
options is payment of the exercise price. Our Board of Directors also granted a
stand-alone option to purchase 720,000 ordinary shares to Dr. Ben-Bassat, our
CEO, in August 1999 which was subsequently approved by our shareholders.
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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.
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
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the shareholders present and voting on the proposed transaction who hold at
least 75% of the shares present and voting at such meeting. Upon the request of
a creditor to either party to the proposed merger, the court may delay or
prevent the merger if it concludes that there exists a reasonable concern that
as a result of the merger, the surviving company will be unable to satisfy the
obligations of any of the parties to the merger. 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. Regulations promulgated under the companies law provide that these
tender offer requirements do not apply to companies whose shares are listed for
trading on a stock exchange outside of Israel only if, according to the laws in
the country in which its shares are traded there is either a limitation on the
acquisition of a specified percentage of control in the Company or the
acquisition of a specified percentage of control requires the purchaser to also
make a tender offer to the public.
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 received 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.
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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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, 25,708,744 shares of our common stock
will be outstanding, assuming that the underwriters do not exercise their
over-allotment option and there are no exercises of outstanding options or
warrants after , 2000. Of these shares, all of the
shares sold in this offering will be freely tradable in the
public market without restriction or further registration under the Securities
Act, unless these shares are held by "affiliates," as that term is defined in
Rule 144 under the Securities Act. For purposes of Rule 144, an "affiliate" of
an issuer is a person that, directly or indirectly through one or more
intermediaries, controls, or is controlled by or is under common control with,
the issuer. Shares purchased by an affiliate may not be resold except pursuant
to an effective registration statement or an applicable exemption from
registration, including an exemption under Rule 144 of the Securities Act. The
remaining 14,800,359 shares of our common stock held by existing stockholders
are "restricted securities," as that term is defined in Rule 144 of the
Securities Act. These restricted securities may be sold in the public market
only if they are registered or if they qualify for an exemption from
registration under Rule 144 or 701 under the Securities Act. These rules are
summarized below. Subject to the lock-up agreements described below and the
provisions of Rule 144 and Rule 701, additional shares will be available in the
public market as follows:
<TABLE>
<CAPTION>
NUMBER
OF SHARES DATE
--------- ----
<S> <C>
shares......................... On the date of this prospectus
shares......................... 180 days after the date of this
prospectus
shares......................... At various times beginning more than 180
days after the date of this prospectus
</TABLE>
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year from the later of the date those shares of
common stock were acquired from us or from an affiliate of ours would be
entitled to sell, within any three-month period, a number of shares that is not
more than the greater of:
(1) 1% of the number of shares of common stock then outstanding, which
will equal approximately shares immediately after this offering; or
(2) the average weekly trading volume of our common stock on the
Nasdaq National Market during the four calendar weeks before a notice of
the sale on Form 144 is filed.
Sales under Rule 144 are also subject to manner of sale provisions, notice
requirements and the availability of current public information about us.
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RULE 144(k)
In addition, under Rule 144(k), a person who is not one of our affiliates
at any time during the three months preceding a sale, and who has beneficially
owned the shares proposed to be sold for at least two years from the later of
the date these shares of common stock were acquired from us or from an affiliate
of ours, including the holding period of any prior owner other than an
affiliate, is entitled to sell those shares without complying with the manner of
sale, public information, volume limitation or notice provisions of Rule 144.
Therefore, unless otherwise restricted pursuant to the lock-up agreements, those
shares may be sold immediately upon the completion of this offering.
RULE 701
In general, under Rule 701 of the Securities Act as currently in effect,
subject to specified exceptions, our employees, consultants or advisors who
purchased shares from us in connection with a stock option plan can resell,
unless otherwise restricted pursuant to the lock-up agreements those shares 90
days after the date of this prospectus in reliance on Rule 144, but without
complying with some of the restrictions, including the holding period, contained
in Rule 144.
2000 SHARE OPTION PLAN
After this offering, we intend to file a registration statement under the
Securities Act covering shares of our common stock reserved for
issuance under our 2000 share option plan. This registration statement is
expected to be filed as soon as practicable after the closing of this offering.
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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 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 all 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 several 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. The tax authorities may construe this benefit
to be relevant only upon a public issuance of shares in Israel.
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 we will maintain our 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-U.S. 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
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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.
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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 Inc., 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
83
<PAGE> 85
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 and a member of Wilson Sonsini Goodrich & Rosati, P.C. owns a
fully-exercisable warrant exercisable into an aggregate of 75,000 ordinary
shares.
EXPERTS
The financial statements included in this prospectus and elsewhere in the
registration statement have been audited by Luboshitz Kasierer, 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
The Israel Securities Authority has granted 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. The exemption from filing reports is
subject to our maintaining a copy of each report filed in accordance with United
States law available for public review at our principal office in Israel. This
exemption will remain in force for as long as we have an obligation to report to
the U.S. authorities in accordance with U.S. law.
84
<PAGE> 86
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.
85
<PAGE> 87
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 $ .
86
<PAGE> 88
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.
87
<PAGE> 89
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> 90
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.
/s/ LUBOSHITZ KASIERER
Member Firm of Arthur Andersen
Tel-Aviv, Israel
April 11, 2000
F-2
<PAGE> 91
CLICKSERVICE SOFTWARE LTD.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
SHAREHOLDER
DECEMBER 31, EQUITY
-------------------- AT DECEMBER 31,
1998 1999 1999 (NOTE 2)
-------- -------- ---------------
(UNAUDITED)
<S> <C> <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);
issued and outstanding pro forma as of December
31, 1999 -- none.................................. 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; issued
and outstanding pro forma -- 20,708,744 shares as
of December 31, 1999.............................. 13 13 $ 73
Additional paid-in capital............................. 20,265 35,063 35,063
Deferred compensation.................................. -- (2,663) (2,663)
Accumulated deficit.................................... (15,673) (23,652) (23,652)
-------- -------- --------
Total shareholders' equity........................ 4,657 8,821 $ 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> 92
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> 93
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> 94
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> 95
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> 96
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> 97
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.
UNAUDITED PRO FORMA SHAREHOLDERS' EQUITY
In February 2000 the Company's board of directors authorized the filing of
a registration statement with the Securities and Exchange Commission to register
common shares in connection with the proposed initial public offering ("IPO").
If the IPO is consummated, all of the Convertible Preferred shares outstanding
will automatically be converted into ordinary shares. The effect of this
conversion has been reflected as unaudited pro forma shareholders' equity in the
accompanying consolidated balance sheet as of December 31, 1999.
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
F-9
<PAGE> 98
CLICKSERVICE SOFTWARE LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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.
F-10
<PAGE> 99
CLICKSERVICE SOFTWARE LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
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>
F-11
<PAGE> 100
CLICKSERVICE SOFTWARE LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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> 101
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> 102
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.
On March 20, 2000 the shareholders of the Company approved a 1 for 2
reverse share split and thereafter a share dividend of 1 share for every 5
outstanding Ordinary shares and Preferred convertible shares. 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> 103
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.
On March 20, 2000 the shareholders of the Company approved an increase in
authorized share capital of Preferred D Convertible shares by reclassifying
Ordinary shares to Preferred D Convertible shares. Subsequent to this approval
the unissued shares were 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.
In February 2000 the Company issued a warrant to purchase 76,200 Ordinary
Shares at an exercise price of $0.02 per share to an investor in connection with
the issuance of Preferred D Convertible Shares.
D. Employee and Consultant Option Plans
The Company adopted an Employees' Share Option 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' Share 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.
F-15
<PAGE> 104
CLICKSERVICE SOFTWARE LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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).
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.
F-16
<PAGE> 105
CLICKSERVICE SOFTWARE LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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>
Subsequent to year end, the Company adopted new option plans from which
369,600 options were issued at a weighted average exercise price of $8.68 per
share. Also 75,000 options at an exercise price of $3.67 were cancelled.
F-17
<PAGE> 106
CLICKSERVICE SOFTWARE LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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.
F-18
<PAGE> 107
CLICKSERVICE SOFTWARE LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. A trademark
infringement claim has been filed against the Company in the U.S. in relation to
the use of this name. The complaint alleges that the use of the ClickService
trademark and internet domain names has resulted in trademark infringement,
unfair competition and false advertising in violation of the law. The Plaintiff
seeks a temporary restraining order and a preliminary injunction to enjoin the
Company from using the trademark and the domain names and seeks damages of an
unspecified amount. The Company intends to vigorously defend this claim.
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> 108
LOGO
5,000,000 Shares
[ClickService Logo]
Ordinary Shares
----------------------------
PROSPECTUS
, 2000
----------------------------
LEHMAN BROTHERS
CIBC WORLD MARKETS
SG COWEN
FIDELITY CAPITAL MARKETS
A DIVISION OF NATIONAL FINANCIAL SERVICES CORPORATION
<PAGE> 109
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........................................ $ 16,698
NASD filing fee............................................. 6,825
NASDAQ National Market Fees................................. 17,500
Blue Sky qualification fees and expenses.................... 7,500
Israeli stamp duty.......................................... 25,000
Printing and engraving expenses............................. 250,000
Accountant's fees and expenses.............................. 250,000
Legal fees and expenses..................................... 600,000
Miscellaneous............................................... 76,477
----------
Total.................................................. $1,250,000
==========
</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.
Article 98 of the Articles of Association of ClickService allow
ClickService to insure and indemnify Office Holders in an aggregate amount of
not more than $50,000,000.
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 share
options and warrants to employees, directors and consultants pursuant to
stand-alone option and warrant agreements, its 1997 Share Option Plan, its
1998 Share Option Plan and its 1999 Share 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 Shares 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 Shares
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 Shares to nineteen investors
for an aggregate purchase price of $7,500,000.
II-1
<PAGE> 110
5. In November, 1998, the Registrant issued an aggregate of 2,731,141
shares of its Series C Convertible Preferred Shares 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 Shares to seven
investors for an aggregate purchase price of $11,500,000.
7. In February, 2000 the Registrant issued a warrant to purchase
76,200 Ordinary Shares at an exercise price of $0.02 per share
8. In March, 2000, the Registrant granted stock options for an
aggregate of 328,200 shares to employees pursuant to its 2000 U.S. Plan,
2000 Israeli Plan and 2000 U.K. Unapproved Plan.
(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
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
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
10.6 Form of 1996 Option Plan
10.7 Form of 1997 Option Plan
10.8 Form of 1998 Option Plan
10.9 Form of 1999 Option Plan
10.10 Form of 1999 Option Plan
10.11 Form of 2000 U.S. Option Plan
10.12 Form of 2000 Israeli Plan
10.13 Form of 2000 Unapproved U.K. Share Scheme
</TABLE>
II-2
<PAGE> 111
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
10.14** Form of 2000 Approved U.K. Share Scheme
23.1 Consent of Luboshitz Kasierer, a member firm of Arthur
Andersen
24.1 Powers of Attorney (included on page II-4)
27.1 Financial Data Schedule
</TABLE>
- -------------------------
* Previously filed
** 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
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> 112
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 April 13, 2000.
CLICKSERVICE SOFTWARE LTD.
By: /s/ MOSHE BEN-BASSAT
------------------------------------
Dr. Moshe Ben-Bassat
Chief Executive Officer
Authorized representative in the
United States:
CLICKSERVICE SOFTWARE, INC.
By: /s/ SHIMON M. ROJANY
------------------------------------
Shimon M. Rojany
Senior Vice President and
Chief Financial 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 April 13, 2000
- -------------------------------------------------------- Director (Principal
Dr. Moshe Ben-Bassat Executive Officer)
/s/ SHIMON M. ROJANY Chief Financial Officer April 13, 2000
- -------------------------------------------------------- (Principal Financial And
Shimon M. Rojany Accounting Officer)
/s/ RONNI EINAV Director April 13, 2000
- --------------------------------------------------------
Ronni Einav
/s/ NATHAN GANTCHER Director April 13, 2000
- --------------------------------------------------------
Nathan Gantcher
</TABLE>
II-4
<PAGE> 113
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<C> <S> <C>
/s/ SHIMON M. ROJANY AS ATTORNEY-IN-FACT Director April 13, 2000
- --------------------------------------------------------
Frederic W. Harman
/s/ SHIMON M. ROJANY AS ATTORNEY-IN-FACT Director April 13, 2000
- --------------------------------------------------------
Eddy Shalev
/s/ SHIMON M. ROJANY AS ATTORNEY-IN-FACT Director April 13, 2000
- --------------------------------------------------------
Dr. Israel Borovich
</TABLE>
II-5
<PAGE> 114
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- ------------------------------------------------------------
<C> <S>
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
10.6 Form of 1996 Option Plan
10.7 Form of 1997 Option Plan
10.8 Form of 1998 Option Plan
10.9 Form of 1999 Option Plan
10.10 Form of 1999 Option Plan
10.11 Form of 2000 U.S. Option Plan
10.12 Form of 2000 Israeli Plan
10.13 Form of 2000 Unapproved U.K. Share Scheme
10.14** Form of 2000 Approved U.K. Share Scheme
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>
- -------------------------
* Previously filed
** To be filed by amendment
<PAGE> 1
EXHIBIT 3.2
ARTICLES OF ASSOCIATION
OF
CLICKSERVICE SOFTWARE LTD.
AMENDED AND RESTATED AS OF MARCH ___, 2000
<PAGE> 2
ARTICLES OF ASSOCIATION
OF
CLICKSERVICE SOFTWARE LTD.
- --------------------------------------------------------------------------------
INTERPRETATION
1. In these Articles, the words in the first column of the following table
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 Law The Companies Law 1999 (the "Companies
Law") and all orders and regulations issued
thereunder as amended from time to time,
including any law or statute replacing it.
The Statutes The Companies Law, the Securities
Law of 1968 and every other ordinance or law
for the time being in force concerning
companies and affecting the Company.
These Articles These Articles of Association, as
shall be amended from time to time.
Officer A Director, President, General Manager, Chief
Executive Officer, Vice President, Chief
Financial Officer, any other manager directly
subordinate to the President, and any person
who fills one of the said positions in the
Company, even if he carries a different
title.
Audit Committee As defined in the Companies Law.
The Office The registered office of the Company.
The Seal Any of (i) the rubber stamp of the
Company, (ii) the facsimile signature of the
Company, or (iii) the electronic signature of
the Company as approved by the Board of
Directors.
Shareholders Register The shareholders register required
to be kept according to the Companies Law and
any other shareholders register permitted to
be kept by the Company according to the
Companies Law.
<PAGE> 3
Month A Gregorian month.
NIS New Israeli Shekel
Writing Printing, lithography, photography and any
other mode or modes of representing or
reproducing words in a visible form.
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 Statutes
shall, except where the subject or context forbids, bear the same meanings
in these Articles.
PUBLIC COMPANY
3. The Company is a limited public company, consequently:
(a) no limitations will apply to the transfer of its shares;
(b) the number of shareholders will be unlimited;
(c) the Company may issue shares, debentures or any other securities
to the public.
(d) the liability of its shareholders is limited by shares.
SHARE CAPITAL
4. (a) The share capital of the Company is NIS two million (2,100,000),
divided into:
(i) 98,000,000 Ordinary Shares of NIS 0.02 nominal value each
("Ordinary Shares");
(ii) 2,000,000 Non-Voting Ordinary Shares of NIS 0.02 nominal
value each ("Non-Voting Ordinary Shares"), and
(ii) 5,000,000 Special Preferred Shares of NIS 0.02 nominal
value each ("Special Preferred Shares").
Except as otherwise provided herein, the shares of each class will rank
pari passu with all the other shares in that class.
(b) Each Ordinary Share entitles its holder to receive notice of, and
to participate in, all General Meetings of the Company, and to
one (1) vote in such meetings for every share, and the other
rights specified in these Articles.
(c) The Special Preferred Shares may be issued from time to time as
shares of one or more series, with such distinctive serial
designations as may be stated or expressed in the resolution or
resolutions providing for the issuance of such shares from time
to time
<PAGE> 4
adopted by the Board of Directors of the Company. In the
resolution or resolutions providing for the issuance of such
shares, the Board of Directors of the Company is expressly
authorized, without the need for shareholder action, to fix the
terms and preferences of the shares of such series, including
without limitation the dividend rate, number of shares, and the
terms upon which the shares are convertible into or exchangeable
for shares of any other class or classes.
(d) Each Non-Voting 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.
Each Non-Voting 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 set out below. Before any holder of Non-Voting
Ordinary Shares shall be entitled to convert the same into
Ordinary Shares to be converted, the holder shall deliver to the
Company written notice specifying the number of shares to be
converted. From and after the date on which the Company or its
transfer agent 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 of
Ordinary 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, certificate(s) for the number of
shares to which such holder shall be entitled as aforesaid.
AMENDMENT OF ARTICLES
5. These Articles (with the exception of Article 100 which may be amended
as provided therein) may be amended by a majority vote at a meeting of
shareholders of the Company, with the exception of Article 100 which may
be amended only by the affirmative vote of two - thirds of the
shareholders present (in person or by proxy) and voting on such
resolution at a General Meeting.
If the Company's shares are divided into classes of shares, then a
change that infringes on the rights of a class of shares shall be made
only with the approval of a General Meeting of that class; the
provisions of these Articles shall apply, mutatis mutandis, to the
adoption of decisions by a class meeting.
Notwithstanding the provisions of this Article , a change of these
Articles that obligates a shareholder to acquire additional shares or to
increase the extent of his liability shall not obligate the shareholder
without his consent.
SHARES
6. Subject to these Articles or to the terms of any resolution creating new
shares, the unissued shares in the registered share capital of the
Company from time to time shall be under the
<PAGE> 5
control of the Board of Directors, which 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 Statutes, 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 nominal
value or at a premium or, subject as aforesaid, at a discount, during
such time and for such consideration as the Board of Directors may
determine.
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.
The Company shall not be required to recognize any holder of a share as
a holder other than the registered holder of such share.
8. Every shareholder registered in the Shareholders' Register shall be
entitled, without payment, to receive within thirty days after allotment
or registration of transfer (unless the conditions of issuance provide
for a longer interval), one certificate under the Seal for all the
shares registered in his name, and if the Board of directors so
approves, several certificates, each for one or more of such shares.
Each certificate shall specify the number and denoting numbers of the
shares in respect of which it is issued and may also specify 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 one
Director and countersigned by the Secretary or some other person
nominated by the Board of Directors for this purpose.
9. 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 Board of Directors shall require and (in the
case of defacement or wearing out) upon delivery of the old certificate
and, in any case, upon payment of such sum not exceeding NIS 50 (fifty
New Israeli Shekels) as the Board of Directors may from time to time
require.
10. The Company may, directly or indirectly, purchase its own shares subject
to the provisions of the Companies Law. If the Company purchases its own
shares, such shares will not have any rights as long as they are owned
by the Company.
11. (a) A subsidiary or some other corporate body under the Company's
control (in this Article: "ACQUIRING CORPORATE BODY") may acquire
shares of the Company subject to the provisions of the Companies
Law, on condition that the subsidiary's Board of Directors or the
Directors of the acquiring corporate body determined that - had
the acquisition been made by the Company - it would have been
permitted by the provisions of the Companies Law.
(b) If the Company's shares were acquired by a subsidiary or by an
acquiring corporate body, such shares shall not grant voting
rights as long as they are owned by the subsidiary or by the
acquiring body corporate.
(c) If a prohibited distribution (as defined in Section 301 to the
Companies Law) was made, then the refund specified in Section 310
to the Companies Law shall be made to the subsidiary or to the
acquiring body corporate and the provisions of Section 311 shall
apply, mutatis mutandis, to the Directors of the subsidiary and
to the Directors of the
<PAGE> 6
acquiring body corporate. However, if the Company's Board of
Directors determined that the distribution is permitted, then the
responsibility shall be that of the Company's Directors, as
provided in Section 311 to the Companies Law.
(d) Notwithstanding the provisions of Sub-article (a), acquisition by
a subsidiary or by an acquiring corporate body that is not wholly
owned by the Company constitutes a distribution in an amount
equal to the amount of the acquisition, multiplied by the
proportion of rights in the subsidiary's capital or in the
capital of the acquiring corporate body held by the Company.
TRANSFER OF SHARES
12. No transfer of shares shall be registered unless a proper writing or
instrument of transfer (in any customary form or any other form
satisfactory to the Board of Directors) has been submitted to the
Company (or its transfer agent), together with the share certificate(s)
and such other evidence of title as the Board of Directors may
reasonably require. Until the transferee has been registered in the
Shareholders Register (which the Company guarantees to perform promptly
from submission to it of the foregoing) in respect of the shares so
transferred, the Company may continue to regard the transferor as the
owner thereof.
13. The Board of Directors may refuse, without giving any reasons therefor,
to register any transfer of shares where the Company has a lien on the
shares, constituting the subject matter of the transfer, but fully
paid-up shares may be transferred freely and such transfers do not
require the approval of the Board of Directors.
All instruments of transfer shall remain in the custody of the Company,
but any such instrument which the Board of Directors refused to register
shall be returned to the person from whom it was received, if such
request be made by him.
14. The Transfer Records and the Shareholders Register and Debenture Holders
(if any) Register and Debenture Stock Holders (if any) Register and
other securities (if any) Register of the Company may be closed during
such time as the Board of Directors may deem fit, not exceeding, in the
aggregate, thirty (30) days in each year.
TRANSMISSION OF SHARES
15. In the case of the death of a shareholder, or a holder of a debenture,
the survivor or survivors, where the deceased was a joint holder, and
the executors and/or administrators and/or the legal heirs of the
deceased where he was a sole or only surviving holder, shall be the only
persons recognized by the Company as having any title to his shares or
his debentures, but nothing herein contained shall release the estate of
a deceased joint holder from any liability in respect of any share or
any debenture jointly held by him.
16. Any person who becomes entitled to a share or a debenture in consequence
of the death or bankruptcy or any shareholder may, upon producing such
evidence of title as the Board of Directors shall require, with the
consent of the Board of Directors, be registered himself as holder of
the share or the debenture or, subject to the provisions as to transfers
herein contained, transfer the same to some other person.
<PAGE> 7
17. A person entitled to a share or a debenture by transmission shall be
entitled to receive, and may given a discharge for, any dividends or
interest or other monies payable in respect of the share or debenture,
but he shall not be entitled in respect of it to receive notices of, or
to attend or vote at meetings of the Company or, save as aforesaid, to
exercise any of the rights or privileges of a shareholder or a holder of
a debenture unless and until he shall become a shareholder in respect of
the share or a holder of the debenture.
ALTERATIONS OF CAPITAL
18. Subject to the provisions of the Companies Law, the Company may from
time to time by a majority vote at a meeting of shareholders of the
Company:
(a) consolidate and divide all or any of its share capital into
shares of larger amount than its existing shares; or
(b) cancel registered share capital that has not yet been issued, on
condition that there are no undertakings of the Company -
including conditional undertakings to issue such shares; or
(c) 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 , 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, return of
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.
19. The Company may, subject to the Companies Law, issue redeemable shares
and redeem the same according to the terms and conditions which the
Company shall determine.
INCREASE OF CAPITAL
20. The Company may from time to time by a majority vote at a meeting of
shareholders, 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.
21. Except so far as otherwise provided by or pursuant to these Articles or
by the conditions of issuance, any new share capital shall be considered
as part of the original ordinary share capital of the Company, and shall
be subject to the same provisions with reference to liens, transfer,
transmission and otherwise as the original share capital.
<PAGE> 8
MODIFICATION OF CLASS RIGHTS
22. 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 issuance of the shares of that class) may be varied with
the consent in writing of the holders of all the issued shares of that
class, or with the sanction of a majority vote at a meeting of the
shareholders passed at a separate meeting of the holders of the shares
of the class. The provisions of these Articles relating to General
Meetings shall apply, mutatis mutandis, to every such separate General
Meeting. Any holder of shares of the class present in person or by proxy
may demand a secret poll.
23. Unless otherwise provided by the conditions of issuance, the enlargement
of an existing class of shares, or the issuance of additional shares
thereof, shall not be deemed to modify or abrogate the rights attached
to the previously issued shares of such class or of any other class.
BORROWING POWERS
24. 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 sees 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 units uncalled or
called but unpaid capital for the time being.
POWERS OF THE GENERAL MEETING
25. Without derogating from the authority of the General Meeting pursuant to
these Articles, the Company's decisions on the following matters shall
be adopted at a General Meeting:
(1) any changes in these Articles;
(2) exercise of the powers of the Board of Directors in accordance
with the provisions of Section 52(a) of the Companies Law;
(3) appointment of the Company's Auditor;
(4) appointment of External Directors, in accordance with the
provisions of the Companies Law;
(5) approval of acts and transactions that require approval by the
General Meeting under the provisions of Articles 255 and 268 to
275 of the Companies Law;
(6) the increase and reduction of the registered share capital, in
accordance with the provisions of Articles 286 and 287 to the
Companies Law;
(7) a merger, as specified in Article 320(a) to the Companies Law.
<PAGE> 9
GENERAL MEETINGS
26. (a) 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 time
and place as may be determined by the Board of Directors. Such
Annual General Meetings shall be called "Annual Meetings", and
all other General Meetings of the shareholders shall be called
"Special Meetings". The Annual Meeting shall receive and consider
the Directors' Report, the Financial Statements, appoint
auditors, elect directors, and transact any other business which,
under these Articles or by the Companies Law, may be transacted
at a General Meeting of the Company, provided that notice of such
other business was given to shareholders in accordance with the
provisions of these Articles. At a General Meeting, decisions
shall be adopted only on matters that were specified on the
agenda.
(b) Any reference in these Articles to a "General Meeting" will be
either a General Meeting or a Special Meeting, according to the
context.
27. The Board of Directors may, whenever it deems necessary, and shall upon
such requisition in writing as is provided by Section 63(b) of the
Companies Law, convene a General Meeting. Any such request must state
the purposes for which the meeting is to be called, be signed by the
requesting shareholders, and must be deposited at the Office. Such
request may consist of several documents in like form, each signed by
one or more requesting shareholder.
28. Unless a longer period for notice is prescribed by the Companies Law, at
least ten (10) days and not more than sixty (60) days notice of any
General Meeting shall be given, specifying the place, the day and the
hour of meeting and, in the case of special business, the nature of such
business, shall be given in the manner hereinafter mentioned, to such
shareholders as are under the provisions of these Articles, entitled to
receive notices from the Company. Notices shall be given by mail or by
personal delivery to every registered shareholder of the Company, to his
address as described in the Shareholders Register of the Company or such
other address as designated by him in writing for this purpose. Provided
that the accidental omission to give such notice to, or the non-receipt
of such notice by, any such shareholder shall not invalidate any
resolution passed or proceeding held at any such meeting and, with the
consent of all the shareholders 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 shareholders may
approve. Such consent may be given at the meeting or retrospectively
after the meeting. If the shareholder did not provide the Company any
address for the delivery of notices, the shareholder shall be deemed to
have waived his right to receive notices.
29. Only shareholders of record as reflected on the Company's Share Register
at the close of business on the date fixed by the Board of Directors as
the record date determining the then shareholders who will be entitled
to vote, shall be entitled to notice of, and to vote, in person or by
proxy, at a General Meeting and any postponement or adjournment thereof.
The Board of Directors will fix the record date of not less than ten
(10) nor more than sixty (60) days before the date of the General
Meeting.
<PAGE> 10
PROCEEDINGS AT GENERAL MEETINGS
30. 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 shareholders present in person or by proxy, holding
or representing at least thirty three percent (33%) of the total voting
rights in the Company. A company being a shareholder shall be deemed to
be personally present for the purpose of this Article if represented by
its representative duly authorized in accordance with Article 42.
31. If, within half an hour from the time appointed for the holding of a
General Meeting, a quorum is not present, 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 Board of Directors shall designate and state
in a notice to the shareholders entitled to vote at the original
meeting, and if, at such adjourned meeting, a quorum is not present
within half an hour from the time appointed for holding the meeting any
two shareholders present in person or by proxy shall constitute a
quorum. Notwithstanding the aforesaid, if a General Meeting was convened
at the demand of shareholders as permitted by Section 63(b) of the
Companies Law, then a quorum at such adjourned meeting shall be present
only if one or more shareholders are present who held in the aggregate
at least 5% of the issued share capital of the Company and at least 1%
of the voting rights in the Company or one or more shareholders who hold
in the aggregate at least 5% of the voting rights in the Company.
32. (a) At every General Meeting, a chairman shall be elected for that
meeting.
(b) The election of the meeting's chairman shall be held at the
beginning of the meeting's discussions, which shall be opened by
the chairman of the Board of Directors or by a Director whom the
Board of Directors authorized to do so.
33. 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 more than seven days, notice of the adjourned meeting
shall be given in the same manner as in the case of an original meeting.
Save as aforesaid, no shareholder shall be entitled to any notice of an
adjournment, or of the business to be transacted at an adjourned
meeting. No 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.
VOTES OF SHAREHOLDERS
34. Except as otherwise provided in these Articles, any resolution at a
General Meeting 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 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.
35. At all General Meetings, a resolution put to a vote at the meeting shall
be decided on a show of hands unless, 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
shareholders present, in person or by proxy, holding at least 5% of the
issued share capital of
<PAGE> 11
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 vote, or lost, or not carried by
a particular vote, 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.
36. 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. 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.
37. Any shareholder which is not a natural person may, by resolution of its
directors or other governing body, authorize such person as it thinks
fit to act as its representative at any General Meeting, and the person
so authorized to the satisfaction of the Company shall be entitled to
exercise the same powers on behalf of such company, which he represents
as that company could exercise if it were an individual shareholder.
38. Subject to any rights or restrictions for the time being attached to any
class or classes of shares, every shareholder shall have one vote for
each share of which he is the holder, whether on a show of hands or on a
poll.
39. If any shareholder 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.
40. If two or more persons are jointly entitled to a share then, in voting
upon any question, the vote of the senior person 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 Shareholders Register.
41. Votes may be given either personally or by proxy. A proxy need not be a
shareholder of the Company.
42. (a) The instrument appointing a proxy shall be in writing in the
usual common form, or such form as may be approved by the Board
of 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.
43. 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.
<PAGE> 12
44. The instrument appointing a proxy shall be deposited at the Office or at
such other place or places, whether in Israel or elsewhere, as the Board
of Directors may from time to time, either generally or in a particular
case or class of cases prescribe, at least forty-eight (48) 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.
45. Subject to the provisions of the Companies Law, a resolution in writing
(approved by letter, telex, facsimile or otherwise) by all the
shareholders, 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.
46. A shareholder 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
shareholder. Every proxy so appointed on behalf of the same shareholder
shall be entitled to vote as he sees fit.
47. 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.
DIRECTORS POWERS AND RESPONSIBILITIES OF THE BOARD OF DIRECTORS
48. (a) Without derogating from the authority of the General Meeting
pursuant to these Articles and the Companies Law, the Board of
Directors shall formulate the Company's policy and shall
supervise the exercise of the General Manager's office and his
acts, and as part thereof it -
(1) shall determine the Company's plans of activity, the
principles for financing such plans and the order of
priority among them;
(2) shall examine the Company's financial situation and set
the framework of credit which the Company may take;
(3) shall determine the organizational structure and the
compensation policy of employees;
(4) may decide to issue a series of debentures;
(5) is responsible for the preparation and approval of the
financial reports according to Section 171 to the
Companies Law;
(6) shall report to the Annual Meeting about the state of the
Company's affairs and on its business results, as required
by Section 173 to the Companies Law;
(7) shall appoint and dismiss the General Manager, as provided
by Section 250 to the Companies Law;
(8) shall decide on the acts and transactions that require its
approval in accordance with these articles or under the
provisions of Sections 255 and 268 to 275 to the Companies
Law;
(9) may issue shares and securities convertible into shares up
to the limit of the Company's registered share capital,
under the provisions of Section 288 to the Companies Law;
<PAGE> 13
(10) may decide on a distribution according to Sections 307 and
308 to the Companies Law;
(11) shall express its opinion on a special purchase offer,
according to Section 329 to the Companies Law.
(b) The powers of the Board of Directors under this Article cannot be
delegated to the General Manager.
DIRECTORS
49. The Board of Directors of the Company shall consist of a minimum of two
(2) and a maximum of eleven (11) Directors.
50. (a) Except for External Directors (as defined in the Companies Law),
all directors shall be classified, with respect to the time for
which they severally hold office, into three classes, as nearly
equal in number as possible, one class to hold office initially
for a term expiring at the 2001 Annual Meeting of the Company,
another class to hold office initially for a term expiring at the
2002 Annual Meeting of the Company, and another class to hold
office initially for a term expiring at the 2003 Annual Meeting
of the Company, with the members of each class to hold office
until their successors have been duly elected and qualified. At
each Annual Meeting following the 2001 Annual Meeting, the class
of directors whose term expires at that meeting shall be elected
to hold office for a term expiring at the Annual Meeting of the
Company held in the third year following the year of their
election and until their successors have been duly elected and
qualified.
(b) Any director or directors may be removed from office at any time,
but only for "cause" and only by the affirmative vote of (i) the
holders of the majority of the Ordinary Shares present in person
or by proxy and voting thereon, or (ii) a majority of the Board
of Directors. For purposes of this clause (b): "cause" shall mean
the willful and continuous failure of a director substantially to
perform such director's duties to the Company (other than any
such failure resulting from incapacity due to physical or mental
illness) or the willful engaging by a director in gross
misconduct materially and demonstrably injurious to the Company.
(c) The Company shall appoint External Directors as and to the extent
required by, and they shall hold office according to, the
Companies Law, as long as the Company is required by the
Companies Law to appoint External Directors.
51. (a) No person shall be nominated for the office of a director at a
General Meeting, except for directors whose term of office
expired at the time the General Meeting was convened, persons
nominated for the office of a director by the Board of Directors,
and as provided for in Article 51(b).
(b) Any shareholder entitled to receive notice of and vote at a
General Meeting desiring to propose a nominee for director to be
elected at an Annual General Meeting of Shareholders has to
deliver notice to the Secretary, at the Company's principal
offices, not later than ninety (90) days prior to the date of the
annual General Meeting at which meeting such election is to
occur, whichever date is later. The
<PAGE> 14
notice shall set forth: (i) the name and address, as they appear
on the Company's share register, of the shareholder proposing
such nominee, (ii) the identity and background of the nominee,
(iii) the class and number of shares of the Company beneficially
owned by such shareholder, (iv) a representation that such
shareholder is a shareholder of record and intends to appear by
person or by proxy at such General Meeting to bring the General
Meeting the nominee specified in the notice, (v) a brief
description of the reasons for wanting to nominate such nominee
as a director, (vi) any material interest that the shareholder
has in the election of such nominee and (vii) the written consent
of the nominee to be elected as a director of the Company.
52. 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.
53. The office of a Director 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 is or becomes of unsound mind;
(d) if he be relieved of his office as provided in Article 50(b)
hereof;
(e) if he is prevented by applicable law from serving as a director
of the Company.
(f) if the Board of Directors terminate his office according to
Section 231 of the Companies Law;
(g) if court order is given according to Section 233 of the Companies
Law.
54. (a) Subject to the provisions of the Companies Law, 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.
(b) Transactions entered into by the Company in which an office
holder of the Company has a personal interest, directly or
indirectly, will be valid in respect of the Company and the
office holder only if approved by the Company's Board of
Directors and, if such transactions are "irregular transactions"
as defined in the Companies Law, only if approved in accordance
with the requirements of the Companies Law.
55. A Director who has a personal interest in a matter which is brought for
discussion before the Board of Directors may participate in said
discussion, provided that he shall neither vote in nor attend
discussions concerning the approval of the activities or the
arrangements. If said Director did vote or attend as aforesaid, the
approval given to the aforesaid activity or arrangements shall be
invalid.
<PAGE> 15
56. In the event of one or more vacancies on the Board of Directors, the
continuing Directors may continue to act as long as the Board of
Directors consists of at least a majority of the total number of
Directors elected. However, in the event that the remaining Directors
are not a majority of the total number of Directors elected, the
remaining Director or Directors may call for the convening of a General
Meeting for the purpose of the election of Directors.
57. Subject to the limitation on the number of Directors as specified in
Article 49, the Board of Directors may, at any time and from time to
time, appoint any other person as a Director, whether to fill a vacancy
or to add to their number. Any Director so appointed shall hold office
until the next Annual Meeting at which the term of the class to which
they have been elected expires, and may be re-elected.
58. In case of any increase in the number of directors, the additional
director or directors, and in case of any vacancy in the Board of
Directors due to a death, resignation, removal, disqualification or any
other cause, the successors appointed according to Article 57 to fill
the vacancies shall be elected by a majority of the directors then in
office.
CONVENING THE BOARD OF DIRECTORS
59. (a) The Chairman of the Board of Directors may convene a meeting of
the Board of Directors at any time.
(b) The Board of Directors shall hold a meeting on a specified
subject on the demand of two Directors, or if the Board of
Directors consists of up to five Directors one Director;
(c) The Chairman of the Board of Directors shall convene the Board of
Directors upon a demand said in Sub-article (b) of this Article
59 or if Section 122(d) to the Companies Law applies, due to a
notice or report from the General Manager or due to a notice from
the Auditor of the Company under Section 169 to the Companies
Law.
(d) If a meeting of the Board of Directors was not convened within 14
days after the date of a demand pursuant to Sub-article (b) of
this Article 59, or after the date of a notice or report of the
General Manager according to Section 122(d) to the Companies Law,
or after notice of the Auditor under Section 169 to the Companies
Law, then each of those persons enumerated in Sub-articles (b)
and (c) may convene a meeting of the Board of Directors, which
shall discuss the subject specified in the demand, notice or
report, as the case may be.
MEETINGS OF THE BOARD OF DIRECTORS AND THEIR CONDUCT
60. The agenda of a meeting of the Board of Directors shall be set by the
Chairman of the Board of Directors, and it shall include:
(1) subjects determined by the Chairman of the Board of Directors;
(2) subjects determined as said in Section 98 to the Companies Law;
(3) any subject which a Director or the General Manager requested at
a reasonable time before the meeting was convened - of the
Chairman of the Board of Directors to include in the agenda
<PAGE> 16
61. (a) Notice of a meeting of the Board of Directors shall be delivered
to all its members at a reasonable time before the meeting, but
not later than forty eight (48) hours prior to the time set for
any such meeting,
(b) A notice under Sub-article (a) shall be delivered to the
Director's address that was given to the Company in advance, and
in it shall be stated the time of the meeting and the place where
it will convene, as well as reasonable details on all the
subjects on the agenda.
62. Notwithstanding the provision of Article 61 hereto, the Board of
Directors may - with the consent of all the Directors - convene for a
meeting without notice.
GENERAL MANAGER
63. The Board of Directors will appoint one or more persons as General
Manager, and they will be titled as President or Chief Executive Officer
(CEO) or Chief Operating Officer (COO). The Board of Directors may from
time to time remove or discharge him or them from office (subject to the
provisions of any agreement between any such person and the Company) and
appoint another or others in his or their place or places.
64. The Board of Directors may from time to time appoint one or more Vice
Presidents for certain functions, to carry out duties delegated to him
(them) by the President, CEO or COO.
65. To the extent permitted by the Companies Law, the Board of Directors may
from time to time confer upon and delegate to a President, CEO, COO or
other Executive Officer then holding office, such authorities and duties
of the Board of Directors as they may deem fit, and they may delegate
such authorities and duties for such period and for such purposes and
subject to such conditions and restrictions which they consider in the
bests interests of the Company, and they may delegate such authorities
and duties without waiving the authorities of the Board of Directors
with respect thereto and it may from time to time revoke, cancel and
alter such authorities and duties in whole or in part.
66. The remuneration of a President, CEO, COO or other Executive Officer
shall be fixed by the Board of Directors, taking into consideration any
agreement between him and the Company, and it may be in whole or in
part, in the form of salary, share options, or commissions or profit
sharing or a combination thereof.
DIRECTOR'S ACTS AND AUTHORITIES
67. The management of the business of the Company shall be vested in the
Board of Directors, which may exercise all such powers and do all such
acts and things as the Company is authorized to exercise and do, and are
not hereby or by law required to be exercised or done by the Company in
a General Meeting. The authority conferred on the Board of Directors by
this Article 67 shall be subject to the provisions of the Companies Law,
of these Articles and any regulation or resolution consistent with these
Articles adopted from time to time by the Company in a General Meeting,
provided, however that no such regulation or resolution shall invalidate
any prior act done by or pursuant to a decision of the Board of
Directors which would have been valid if such regulation or resolution
had not been adopted.
<PAGE> 17
68. The Directors may postpone their meetings and otherwise regulate them as
they shall deem fit. The quorum for the dispatch of business by the
Board of Directors shall be determined by the Directors and, if not so
determined, shall be the majority of the Directors then holding office.
69. A resolution in writing signed or otherwise approved in writing (by
letter, telegram, telex, facsimile, electronic mail or otherwise) by all
the Directors then in office shall be as valid and as effectual as a
resolution adopted by the Board of Directors at a meeting of the Board
of Directors duly convened and held.
70. 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 telephone conference 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.
71. (a) The Board of Directors shall elect a Chairman for the meeting and
fix the term of his office. The CEO shall not serve as Chairman
of the Board of Directors and vice versa unless the holders of
two thirds of the voting rights in the Company represented in
person or by proxy and voting on such resolution at a General
Meeting, who are not controlling shareholders of the Company or
their representatives and who are present at the vote, adopt a
decision to appoint the Chairman of the Board of Directors as the
CEO, for a period not exceeding three years after the date of the
adoption of the decision.
(b) In the event that a Chairman was not elected or if the Chairman
should fail to be present at a meeting fifteen (15) minutes after
the time set for its convening, the remaining Directors shall
elect one of those present to be Chairman of the meeting.
(c) All questions that arise at meetings of the Board of Directors
shall be decided by a majority of votes. In the event of a tie
vote, the Chairman of the Board of Directors shall cast the
deciding vote.
72. Any meeting of the Board of Directors at which a quorum is present shall
have the authority to exercise all or part of the authorities, powers of
attorney and discretion invested at such time in the Directors or
regularly exercised by them.
73. Subject to the Companies Law, the Board of Directors may delegate its
authorities in whole or in part to committees as it shall deem fit, and
it may from time to time revoke such delegation. Any committee so
created must, in exercising the authorities granted to it, adhere to all
the instructions of the Board of Directors given from time to time
and/or to the provisions of the Companies Law.
74. All acts done bona fide at any meeting of the Board of Directors, or of
a committee of the Board of Directors or by any person(s) acting as
Director(s) shall, notwithstanding that it may afterwards be discovered
that there was some defect in the appointment of the participants in
such meeting or any of them or any person(s) acting as aforesaid, or
that they or any of them or any person(s) acting as aforesaid, or that
they or any of them were disqualified, be as valid as if there were no
such defect or disqualification.
<PAGE> 18
75. The Board of Directors shall cause proper Minutes to be kept of the
following:
(a) the names of all the Directors present at any meeting of the
Board of Directors and at any meeting of a committee of the Board
of Directors;
(b) all proceedings and resolutions of General Meetings of the
Company, Board of Directors' meetings and Committees of the Board
of Directors' meetings.
Any Minutes as aforesaid, if purporting to be signed by the Chairman of
such meeting or by the Chairman of the next succeeding meeting, shall be
accepted as prima facie evidence of the matters therein recorded.
76. [Reserved.]
SHAREHOLDERS REGISTERS
77. Subject to, and in accordance with, the provisions of the Companies Law,
the Company may cause Shareholder Register to be kept at any place in
Israel and may cause a copy of the Shareholder Register to be kept
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 registers. In addition to the
Shareholders Register, the Company shall also keep a Register of
Substantial Shareholders as defined in the Companies Law.
SECRETARY
78. 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
79. (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 printed name.
(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 every
instrument to which such seal is affixed.
<PAGE> 19
DIVIDENDS
80. 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. Unless
not otherwise specified in the conditions of issuance 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.
81. The Board of Directors may declare a dividend to be paid to the
shareholders according to their rights and interests in the profits, and
may fix the record date for eligibility and the time for payment.
82. The Directors may from time to time pay to the shareholders on account
of the next forthcoming dividend such interim dividends as, in their
judgment, the position of the Company justifies.
83. A transfer of shares shall not pass the right to any dividend declared
thereon after such transfer and before the registration of the transfer.
84. Notice of the declaration of any dividend, whether interim or otherwise,
shall be given to the holders of registered shares in the manner
hereinafter provided.
85. Unless otherwise directed, any dividend may be paid by check, bank
transfer or warrant, sent through the post to the registered address of
the shareholder 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 shareholders 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 year 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.
86. The Board of Directors may determine that, a dividend may be paid,
wholly or partly, by the distribution of specific assets of the Company
or by distribution of paid-up shares, debentures or debenture stock or
any other securities of the Company or of any other companies or in any
one or more of such ways in the manner and to the extent permitted by
the Companies Law.
PROHIBITED DISTRIBUTION
87. (a) If the Company made a prohibited distribution as defined in the
Companies Law, then the shareholder must return to the Company
whatever he received, unless he did not know and did not need to
know that the distribution carried out was prohibited.
<PAGE> 20
(b) It is assumed that a shareholder in the Company, who at the time
of the distribution is not a Director, General Manager or
controlling member of the Company, did not know and did not need
to know that the distribution carried out was a prohibited
distribution.
88. If the Company carried out a prohibited distribution, then every person
who was a Director at the time of the distribution shall be treated as a
person who thereby committed breach of trust against the Company, unless
he proved one of the following:
(1) that he opposed the prohibited distribution and took all
reasonable steps to prevent it;
(2) that he exercised reasonable reliance on information under which
- had it not been misleading - the distribution would have
permitted;
(3) that under the circumstances of the case he did not know and did
not need to know of the distribution.
MERGER
89. A merger requires approval by the Board of Directors and by the General
Meeting, in accordance with the provisions of the Companies Law.
90. (a) The Board of Directors of the Company, while considering whether
to approve the merger, shall discuss and determine taking the
Company's financial situation into account - whether in its
opinion there is a reasonable suspicion that in consequence of
the merger the merged Company will not be able to meet the
Company's obligations to its creditors.
(b) If the Board of Directors determined that there is a suspicion as
said in Sub-article (a), then it shall not approve the merger.
91. If each of the Boards of Directors of the merging companies approved the
merger, then they shall jointly draw up a proposal for the approval of
the merger (hereafter: merger proposal) and sign it.
92. (a) The Company shall deliver the merger proposal to the Companies
Registrar within three days after the General Meeting was called.
(b) The Company shall inform the Companies Registrar of the General
Meetings decision within three days after the decision was
adopted, shall inform him that the notice was given to the
creditors under Section 318 to the Companies Law, and shall also
deliver to the Registrar a copy of the Court decision under
Sections 319 to 321 to the Companies Law within three days after
the said decision was given.
ACCOUNTS
93. The Board of Directors shall cause accurate books of account to be kept
in accordance with the provisions of the Companies Law and of any other
applicable law. Such books of account shall be kept at the Registered
Office of the Company, or at such other place or places as the
<PAGE> 21
Board of Directors may think fit, and they shall always be open to
inspection by all Directors. No shareholder not being a Director shall
have any right to inspect any account or book or other similar document
of the Company, except as conferred by law or authorized by the Board of
Directors of the Company.
94. At least once in every fiscal year the accounts of the Company shall be
audited and the correctness of the profit and loss account and balance
sheet certified by one or more duly qualified auditors.
95. The appointment, authorities, rights and duties of the auditor(s) of the
Company shall be regulated by the applicable law.
NOTICES
96. (a) A notice or any other document may be served by the Company upon
any shareholder either personally or by sending it by prepaid
mail in Israel (by air mail if sent to a place outside Israel,
other than the U.S. or Canada, or by first class mail if sent
within the U.S. or Canada) addressed to such shareholder at "his"
address as reflected on the Company's Shareholders Register or
such other address as he may have designated in writing for the
receipt of notices and other documents. Any written notice or
other document shall be deemed to have been served forty-eight
(48) hours after it has been mailed (seven (7) days if sent to a
place or mailed at a place outside of Israel, forty-eight (48)
hours if sent within the U.S. or Canada), or when actually
received by the addressee if sooner than forty-eight (48) hours
or seven (7) days, as the case may be, after it has been mailed,
or when actually tendered in person to such shareholder (or to
the Secretary or the President of the Company, as the case may
be); provided, however, that such notice or other document
mentioned above may be sent by facsimile and confirmed by
registered mail as aforesaid, and such notice shall be deemed to
have been given twenty-four (24) hours after such facsimile has
been sent or when actually received by such shareholder (or by
the Company), whichever is earlier. If a notice is, in fact,
received by the addressee, it shall be deemed to have been duly
served when received, notwithstanding that it was defectively
addressed or failed in some respect to comply with the provisions
of this Article.
(b) Unless otherwise specified in bearer share warrants, the holders
of such warrants shall not be entitled to receive notice of any
General Meeting of the Company, and the Company is under no
obligation to give notice of General Meetings to a person
entitled to a share by virtue of its delivery to him, unless he
is duly registered as a shareholder.
(c) All notices to be given to the shareholders shall, with respect
to any shares to which persons are jointly entitled, be given to
whichever of such persons is named first in the Shareholders
Register, and any notice so given shall be sufficient notice to
the holders of such shares.
(d) Any shareholder whose address is not described in the
Shareholders Register, and who shall not have designated in
writing an address for the receipt of notices, shall not be
entitled to receive any notice from the Company.
<PAGE> 22
(e) Any notice or other document served upon or sent to any
shareholder by publication in accordance with these Articles
shall, notwithstanding that he be then deceased or bankrupt, and
whether or not the Company has notice of his death or bankruptcy,
be deemed to be duly served or sent in respect of any shares held
by him (either alone or jointly with others) until some other
person is registered in his stead as the holder or joint holder
of such shares, and such service or sending shall be a sufficient
service on or sending to his heirs, executors, administrators or
assigns and all other persons (if any) interested in such share.
(f) 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
97. On any sale of the undertaking of the Company, the Board of Directors or
the liquidators on a winding-up may, if authorized by a majority vote at
a meeting of shareholders, accept fully 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 Board of 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 shareholders without realization, or vest the same
in trustees for them, and the shareholders of the Company at any General
Meeting may provide for the distribution or appropriation of the cash,
shares or other securities, benefits or property, in accordance with the
legal rights of the shareholders 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
Statutes as are incapable of being varied or excluded by these presents.
INDEMNITY AND INSURANCE OF OFFICERS
98. The Company may, to the maximum extent permitted by the Companies Law:
(a) enter into a contract for the insurance of the liability, in
whole or in part, of any of its Officers,
(b) may indemnify an Officer of the Company post factum; and
(c) may indemnify an Officer of the Company in advance for the
following events:
(i) Any financial obligation imposed on an Officer in favor of
a third party by a court judgment, including a compromise
judgment approved by court (provided that the Company
approved the compromise in advance) or an arbitrator's
award approved by court (provided that it was given
pursuant to arbitration agreed to by the Company in
advance), for an act or omission performed by an Officer
in his capacity as an Officer; and
<PAGE> 23
(ii) reasonable legal expenses, including attorneys' fees,
expended by or charged to an Officer or adjudicated
against an Officer by a court in a proceeding commenced
against an Officer by the Company or on its behalf or by
another person, or in a criminal charge from which an
Officer was acquitted, or in a criminal charge that does
not require intent, in which an Officer was convicted, all
for an act or omission performed in his capacity as an
Officer.
Such indemnity shall apply in certain foreseeable events and up
to a feasible amount under the circumstances, as determined by
the Board of Directors.
WINDING-UP
99. If the Company shall be wound up, whether voluntarily or otherwise, the
liquidators may, subject to the provision of the Statutes, divide among
the shareholders in specie any part of the assets of the Company and
may, with like sanction, vest any part of the assets of the Company in
trustees upon such trusts, for the benefit of the shareholders, as the
liquidators with like sanction shall think fit.
BUSINESS COMBINATIONS WITH INTERESTED SHAREHOLDERS
100. Notwithstanding any other provision of these Articles, the Company shall
not engage in any business combination with any interested shareholder
for a period of three years following the time that such shareholder
became an interested shareholder, unless:
(a) prior to such time the Board of Directors of the Company approved
either the business combination or the transaction which resulted
in the shareholder becoming an interested shareholder, or
(b) upon consummation of the transaction which resulted in the
shareholder becoming an interested shareholder, the interested
shareholder owned at least 85% of the voting shares of the
Company outstanding at the time the transaction commenced,
excluding for purposes of determining the number of shares
outstanding those shares owned (i) by persons who are directors
and also officers and (ii) employee share plans in which employee
participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a
tender or exchange offer, or
(c) at or subsequent to such time the business combination is
approved by the Board of Directors and authorized at a General
Meeting, and not by written consent, by the affirmative vote of
at least 66 2/3% of the outstanding voting shares which is not
owned by the interested shareholder.
(d) A shareholder becomes an interested shareholder inadvertently and
(i) as soon as practicable diverts itself of ownership of
sufficient shares so that the shareholder ceases to be an
interested shareholder; and (ii) would not, at any time within
the three - year period immediately prior to a business
combination between the Company and such shareholder, have been
an interested shareholder but for the inadvertent acquisition of
ownership; or
<PAGE> 24
(e) The business combination is proposed prior to consummation or
abandonment of and subsequent to the earlier of the public
announcement or the notice required hereunder of a proposed
transaction which (i) constitutes one of the transactions
described in the second sentence of this paragraph; (ii) is with
or by a person who either was not an interested shareholder
during the previous three years or who became an interested
shareholder with the approval of the Company's Board of
Directors; and (iii) is approved or not opposed by a majority of
the members of the Boards of Directors then in office who were
directors prior to any person becoming an interested shareholder
during the previous three years or were recommended for election
or were elected to succeed such directors by a majority of such
directors. The proposed transactions referred to in the preceding
sentences are limited to (x) a merger or consolidation of Company
(except for merger in respect of which no vote of shareholders of
the Company is required according to the Companies Law); (y) a
sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions),
whether as part of a dissolution or otherwise of assets of the
Company or of any direct or indirect majority-owned subsidiary of
the Company (other than to any direct or indirect wholly owned
subsidiary or to the Company) having an aggregate market value
equal to 50% or more of either that aggregate market value of all
of the assets of the Company determined on a consolidated basis
or the aggregate market of all the outstanding shares of the
Company; or (z) a proposed tender or exchange offer for 50% or
more of the outstanding voting shares of the Company. The Company
shall give not less than 20 days notice to all interested
shareholders prior to the consummation of any of the transaction
described in clause (x) or (y) of the second sentence of this
paragraph.
As used in this Article only, the term:
(1) "affiliate" means a person that directly, or indirectly
through one or more intermediaries, controls, is
controlled by or is under common control with another
person.
(2) "associate" when used to indicate a relationship with any
person, means (I) any corporation, partnership,
unincorporated association or other entity of which such
person is a director, officer or partner or is, directly
or indirectly, the owner of 20% or more of any class of
voting shares, (ii) any trust or other estate in which
such person has at least a 20% beneficial interest or as
to which such person serves as trustee or in a similar
fiduciary capacity, and (iii) any relative or spouse of
such person, or any relative of such spouse, who has the
same residence as such person.
(3) "business combination" when used in reference to the
Company and any interested shareholder of the Company,
means:
(i) any merger or consolidation of the Company or any
direct or indirect majority owned subsidiary of the
Company with (A) an interested shareholder, or (B)
with any other corporation, partnership,
unincorporated association or other entity if the
merger or consolidation is caused by an interested
shareholder and as a result of such merger or
consolidation Sub-article (a) of this Article 100
is not applicable to the surviving entity;
<PAGE> 25
(ii) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition (in one transaction
or a series of transactions), except
proportionately as a shareholder of such Company to
or with the interested shareholder, whether as part
of a dissolution or otherwise, of assets of the
Company or of any direct or indirect majority owner
subsidiary of the Company, which assets have an
aggregate market value equal to 10% or more of
either the aggregate market value of all of the
assets of the Company determined on a consolidated
basis or the aggregate market value of all of the
outstanding shares of the Company.
(iii) any transaction which results in the issuance or
transfer by the Company or by any direct or
indirect majority-owned subsidiary of the Company
of any shares of the Company or of such subsidiary
to the interested shareholder, except (A) pursuant
to the exercise, exchange or conversion of
securities exercisable for or convertible into
shares of the Company or any such subsidiary, which
securities were outstanding prior to the time that
the interested shareholder became such, (B)
pursuant to a dividend or distribution paid or
made, or the exercise, exchange or conversion of
securities exercisable for, exchangeable for or
convertible into shares of the Company or any such
subsidiary, which security is distributed pro rata
to all holders of a class or series of shares of
the Company subsequent to the time the interested
shareholder became such, (C) pursuant to an
exchange offer by the Company to purchase shares
made on the same terms to all holders of said
shares or (D) any issuance or transfer of shares by
the Company; provided, that in no case under
(B)-(D) above shall there be an increase in the
interested shareholder's proportionate share of the
shares of any class or series of the Company or of
the voting shares of the Company.
(iv) any transaction involving the Company or any direct
or indirect majority owned subsidiary of the
Company which has the effect directly or indirectly
of increasing the proportionate share of the shares
of any class or series or securities convertible
into the shares of any class or series of the
Company or of any such subsidiary which is owned by
the interested shareholder except as a result of
immaterial changes due to fractional share
adjustments or as a result of any purchase or
redemption of any shares not caused, directly or
indirectly, by the interested shareholder; or
(v) any receipt by the interested shareholder of the
benefit, directly or indirectly (except
proportionately as a shareholder of such Company),
of any loans, advances, guarantees, pledges or any
other financial benefits (other than those
expressly permitted in subparagraphs (i)-(iv)
above) provided by or through the Company or any
direct or indirect majority owned subsidiary.
<PAGE> 26
(4) "control" including the term "controlling," "controlled
by" and "under common control with," means the possession,
directly or indirectly, of the power to direct or cause
the direction of the management and policies of a person,
whether through the ownership of voting shares, by
contract or otherwise. A person who is the owner of 20% or
more of the outstanding voting shares of any company,
partnership, unincorporated association or other entity
shall be presumed to have control of such entity.
Notwithstanding the foregoing, a presumption of control
shall not apply where such person holds voting shares in
good faith and not for the purpose of circumventing this
Article as an agent, bank, broker, nominee, custodian or
trustee for one or more owners who do not individually or
as a group have control of such entity.
(5) "interested shareholder" means any person (other than the
Company and any direct or indirect majority owner
subsidiary of the Company) that (i) is the owner of 15% or
more of the outstanding voting shares of the Company, or
(ii) is an affiliate or associate of the Company and was
the owner of 15% or more of the outstanding voting shares
of the Company at any time within the three year period
immediately prior to that date on which it is sought to be
determined whether such person is an interested
shareholder and the affiliates and associates of such
person, or (iii) any person whose ownership of shares in
excess of the 15% limitation set forth herein is the
result of action taken solely by the Company provided that
such person shall be an interested shareholder if
thereafter such person acquires additional voting shares
of the Company, except as a result of further corporate
action not caused, directly or indirectly, by such person.
For the purpose of determining whether a person is an
interested shareholder, the voting shares of the Company
deemed to be outstanding shall include shares deemed to be
owned by the person through application of paragraph (8)
of this Sub-article but shall not include any other
unissued shares of the Company which may be issuable
pursuant to any agreement, arrangement or understanding,
or upon exercise of conversion rights, warrants or
options, or otherwise.
(6) "person" means any individual, company, partnership,
unincorporated association or other entity.
(7) "share" means with respect to the Company shares of its
capital and with respect to any other entity any equity
interest.
(8) "voting shares" means any class or series entitled to vote
generally in the election of directors of the Company and
generally.
(9) "owner" including the terms "own" and "owned," when used
with respect to any share, means a person that
individually or with or through any of its affiliates or
associates:
(i) beneficially owns such share, directly or
indirectly; or
(ii) has (A) the right to acquire such share (whether
such right is exercisable immediately or only after
the passage of time) pursuant to
<PAGE> 27
any agreement, arrangement or understanding or upon
the exercise of conversion rights, warrants or
options, or otherwise, provided, however, that a
person shall not be deemed the owner of share
tendered pursuant to a tender or exchange; or (B)
the right to vote such share pursuant to any
agreement, arrangement or understanding; provided,
however, that a person shall not be deemed the
owner of any share because of such person's right
to vote such share if the agreement, arrangement,
or understanding to vote such share arises solely
from a revocable proxy or consent given in response
to a proxy or consent solicitation made to 10 or
more persons: or
(iii) has any agreement, arrangement or understanding for
the purpose of acquiring, holding, voting (except
voting pursuant to a revocable proxy or consent as
described in item (b) of clause (ii) of this
paragraph) or disposing of such share with any
other person that beneficially owns or whose
affiliates or associates beneficially own, directly
or indirectly, such share.
**********************
<PAGE> 1
EXHIBIT 4.1
NUMBER S CLICKSERVICE SOFTWARE LTD. SHARES
-------- ---------
INCORPORATED UNDER THE LAWS OF SEE REVERSE FOR
THE STATE OF ISRAEL CERTAIN DEFINITIONS
CUSIP
THIS CERTIFIES THAT ___________________________ is the registered
holder of ___________________________ fully paid and non-assessable Ordinary
Shares, 0.02 NIS par value, of CLICKSERVICE SOFTWARE LTD. transferable on the
books of the Corporation by the holder hereof in person or by duly authorized
attorney upon surrender of this certificate properly endorsed. This
certificate is not valid unless countersigned and registered by the Transfer
Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
- ------------------------- -------------------------
Chief Financial Officer Chief Executive Officer
<PAGE> 2
CLICKSERVICE SOFTWARE LTD.
A statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights as established, from time to time, by the Articles of Association
of the Corporation and by any certificate of designation, and the number of
shares constituting each class and series and the designations thereof, may be
obtained by the holder hereof upon request and without charge from the
Corporation at its principal office.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT-- _______________Custodian_______________
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with rights under Uniform Gifts to Minors
of survivorship and not as Act_____________________________________
tenants in common (State)
UNIF TRF MIN ACT-- ____________Custodian (until age________)
(Cust)
______________ under Uniform Transfers
(Minor)
to Minors Act__________________________
(State)
</TABLE>
Additional abbreviations may also be used though not in the
above list.
FOR VALUE RECEIVED, ____________________________________________ hereby
sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Ordinary Shares
- -----------------------------------------------------------------
represented by the within Certificate, and do hereby irrevocably constitute
and appoint
Attorney
- ------------------------------------------------------------------------
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
--------------------------
X
---------------------------------------
X
---------------------------------------
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By
---------------------------------------
THE SIGNATURES MUST BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE> 1
EXHIBIT 10.5
CLICKSERVICE SOFTWARE LTD.
34A Habarzel Street
Ramat Ha Chayal
Tel Aviv, Israel
INDEMNIFICATION AGREEMENT
To: Date: _______________
________________________
________________________
________________________
________________________
Dear __________,
WHEREAS it is in the best interest of ClickService Software Ltd. (the
"COMPANY") to retain and attract as directors, officers and/or
employees the most capable persons available, and such persons are
becoming more reluctant to serve publicly-held companies unless they
are provided with adequate protection thorough insurance and
indemnification in connection with such service; and
WHEREAS you are a director, officer and/or employee of the Company, that
serves as an "office holder" as that term defined in the Companies Law
- 1999 ("OFFICE HOLDER", "LAW") and in order to enhance your continued
service to the Company in an effective manner, the Company desires to
provide hereunder for your indemnification to the fullest extent
permitted by law; and
WHEREAS the board of directors of the Company (the "BOARD") and the
Shareholders of the Company have resolved that the Company shall
indemnify you as further specified below and the general meeting of
the shareholders of the Company has approved that resolution.
NOW, THEREFORE, in consideration of your continuing to serve the Company, the
Company hereby undertakes to indemnify you in advance in respect of:
1. indemnification
<PAGE> 2
The Company shall indemnify you, to the maximum extent permitted by
applicable law, for the following ("Indemnifiable Events"):
1.1 Any financial obligation imposed on you in favor of a third party by a
court judgment, including a compromise judgment approved by
court(provided that the Company approved the compromise in advance) or
an arbitrator's award approved by court (provided that it was given
pursuant to arbitration agreed to by the Company in advance), for an
act or omission performed by you in your capacity as an Office
Holder.; and
1.2 reasonable legal expenses, including attorneys' fees, expended by or
charged to you or adjudicated against you by a court in a proceeding
commenced against you by the Company or on its behalf or by another
person, or in a criminal charge from which you were acquitted, or in a
criminal charge that does not require intent, in which you were
convicted, all for an act or omission performed in your capacity as an
Office Holder.
2. Without derogating from the aforesaid the said indemnity shall apply in
certain foreseeable events and up to a feasible amount under the
circumstances, as the Board shall determine and not apply with respect to:
2.1 a breach of a fiduciary duty, except for a breach of a fiduciary duty
to the Company while acting in good faith and having reasonable cause
to assume that such act would not prejudice the interests of the
Company;
2.2 a willful breach of the duty of care or reckless or with disregard for
the circumstances or to the consequences of a breach of the duty of
care;
2.3 an act with intent to unlawfully realize personal gain; or
2.4 a fine or monetary composition imposed for an offense.
3. The provisions of paragraph 1 above to the contrary notwithstanding, no
payment hereunder shall be made to you in connection with an Indemnifiable
Event for which payment is actually paid to you under a valid and
collectible insurance policy or under a valid and enforceable indemnity
clause or agreement, except in respect of any excess beyond the payment
under such insurance, clause or agreement.
2
<PAGE> 3
If so requested by you, the Company shall advance an amount (or amounts)
estimated by it to cover your reasonable legal expenses, including
attorneys' fees, with respect to which you are entitled to be indemnified
under paragraph 1 above. The obligation of the Company to make such
advances shall be subject to the condition that, if, when and to the extent
that it is determined that you were not entitled to be so indemnified under
applicable law, you hereby agree to promptly reimburse the Company for all
such amounts theretofore advanced.
As part of the aforementioned undertaking, the Company will make available
to you any security or guarantee that you may be required to post in
accordance with an interim decision given by a court or an arbitrator,
including for the purpose of substituting liens imposed on your assets.
4. The total amount of indemnification that the Company undertakes towards all
persons whom it has been resolved to indemnify pursuant to the above
resolutions, jointly and in the aggregate, shall not exceed the greater of:
4.1 An amount equal to 50 Million US Dollars, according to the
representative rate of exchange, or any other official rate of
exchange that may replace it, at the time of indebtedness; or
4.3 The amount adjudicated against you jointly and severally with others
who the Company has not resolved to indemnify pursuant to the above
resolutions - the amount adjudicated against you subject to the
limitations in paragraph 4.2 plus the amount adjudicated against such
others if their portion is not collected for any reason.
5. The Company will be entitled to any amount collected from a third party in
connection with liabilities indemnified hereunder.
NOTIFICATION AND DEFENSE OF CLAIM
6. Promptly after receipt by you of notice or any other indication of any
claim or of the commencement or threatened commencement of any action, suit
or other proceeding which may give rise to an Indemnifiable Event, you will
notify the Company in writing thereof and you will deliver to the Company
or pursuant to its instructions, without delay, and all documents which you
received or will receive in connection therewith.
7. Notwithstanding any other provision of this Agreement, with respect to any
claim, action, suit or other proceeding which may give rise to an
Indemnifiable Event: (other than with respect to proceedings that have been
initiated against you by the Company or in its name).
3
<PAGE> 4
7.1 The Company will be entitled to participate therein at its discretion
and expense;
7.2 You shall fully cooperate with the Company and provide any reasonable
assistance requested by the Company to it and its counsel including,
but not limited to, the execution of power(s) of attorney and other
documents, at the expense of the Company; and
7.3 To the extent that it may so desire, the Company shall be entitled to
assume the exclusive defense thereof and to settle the same as it sees
fit, with counsel satisfactory to the Company, provided that you do
not object, on reasonable grounds, to the Company's choice of counsel.
8. After notice from the Company to you of its election to so assume the
defense thereof, the Company shall not be liable to you under this
Agreement for any legal expenses, including attorneys' fees, subsequently
incurred by you in connection with the defense thereof.
9. The Company shall not be liable to indemnify you under this Agreement for
any amounts paid in settlement of any claim, action, suit or other
proceeding effected without the Company's written consent.
GOVERNING LAW
10. This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of Israel.
Kindly sign and return the enclosed copy of this letter to acknowledge your
agreement to the contents thereof.
Very truly yours,
CLICKSERVICE SOFTWARE LTD.
By:
----------------------
Title:
--------------------
ACKNOWLEDGMENT OF AGREEMENT:
- ----------------------------
Date:
----------------------
4
<PAGE> 1
Exhibit 10.6
FREE TRANSLATION OF THE HEBREW ORIGINAL
AGREEMENT FOR THE ALLOTMENT OF SHARE OPTIONS AND TRUST AGREEMENT
Made in Tel Aviv, this ___ day of ______ 1996
BETWEEN: I.E.T. INTELLIGENT ELECTRONICS LTD.
(hereinafter referred to as "the Company")
of the first part
AND: CERTAIN EMPLOYEES OF THE COMPANY WHO SHALL BE INVITED BY
THE COMPANY TO PARTICIPATE IN THE AGREEMENT AND SIGN THE
PARTICIPATION DOCUMENT
(such an employee is hereinafter referred to as "a
Participating Employee")
of the second part
AND: B.Y.A.D. TRUSTEES
(hereinafter referred to as "the Trustee")
of the third part
WHEREAS the Company wishes to grant to certain Participating
Employees, not including controlling shareholders, and up
to 30 (thirty) of such Participating Employees, within the
context of a trust, options for shares of the Company in
the first stage and thereafter to enable the Participating
Employees, upon certain terms and conditions, to receive
an actual allotment of shares;
AND WHEREAS the Company wishes to grant the options, such that they
shall be held by the Trustee on behalf of the
Participating Employees, whether existing employees or
employees who shall commence working for the Company;
<PAGE> 2
AND WHEREAS the Company wishes to appoint the Trustee, and the
provisions of this Agreement shall serve as an
instrument of trust and instructions to the Trustee;
AND WHEREAS the Trustee agrees to accept such position;
AND WHEREAS the parties intend to implement this arrangement
in accordance with section 102 of the Income Tax Ordinance
[New Version] (hereinafter: the "Ordinance")
AND WHEREAS the parties wish to define, determine and detail
the method of the allotment, the stages thereof and all
matters relating thereto or connected therewith or
deriving therefrom, all as detailed below in this
Agreement;
ACCORDINGLY, IT IS WARRANTED, PROVIDED AND AGREED BETWEEN THE PARTIES AS
FOLLOWS:
1. RECITALS
1.1 The recitals to this Agreement constitute an integral part
hereof.
1.2 The clause headings in this Agreement are for convenience and
orientation purposes only, they do not constitute any part
hereof and shall not be used for the interpretation hereof.
1.3 The provisions of this Agreement do not prejudice the rights or
holdings or shares of any of the holders of any classes of the
Company's shares at the time of the making hereof or thereafter,
unless otherwise expressly stated and provided herein.
2. THE TRUST
The parties hereby establish and create a trust and shall procure that
the Company shall allot to the Trustee the options for Ordinary "A"
shares of the Company and the shares, at the time of the exercise of
part or all of the options.
The provisions of this Agreement constitute an instrument of trust and
instructions to the Trustee.
It is agreed that Appendix B to the Income Tax Regulations (Tax Relief
Upon Allotment of Shares to Employees) 1989 (hereinafter the
"Regulations"), constitute an integral part of this Agreement,
Instrument of Trust and Instructions to the Trustee, in accordance with
this Agreement.
<PAGE> 3
3. THE OBJECT OF THE TRUST
The object of the trust is for options to shares to be held by the
Trustee for the benefit of employees of the Company whose names appear
in List "1" attached to this Agreement, as may be amended from time to
time by the Company by written notice to the Trustee detailing the names
of the beneficiaries and next to each beneficiaries' name, the number of
options which the Trustee holds or shall hold in trust for each
beneficiary.
3.1 The Trustee shall maintain and manage List "1" and shall attend
to updating it from time to time as required, including adding
new beneficiaries, recording options that have been allotted to
the Trustee on behalf of the beneficiaries according to the
ratio of their rights at the determining date, and he shall also
record the options that shall be added to the beneficiaries from
such allotment in List "1" to the credit of such beneficiaries.
3.2 The share options allotted upon exercise of the options shall be
allotted to the Trustee or that shall be held by the Trustee
pursuant to the provisions of this Agreement shall be registered
in the Trustee's name in the Company's register of shareholders.
3.3 The Trustee shall act in all matters relating to adding new
employees to List "1" and to determine the terms and conditions
of their entitlement pursuant to resolutions of the Company as
shall be passed from time to time. Nonetheless, the Trustee
shall not be entitled to detract from the rights and conditions
prescribed and/or that shall be prescribed for the beneficiaries
pursuant to this Agreement except with the prior written consent
of the Company and of the beneficiary or beneficiaries affected
by such change, as the case may be.
3.4 The beneficiaries included or that shall be included in List "1"
at any time whatsoever do not and shall not have any right or
claim against other beneficiaries being added to List "1" or
against the adding of rights or shares to those included in List
"1", in whole or in part.
3.5 Upon the fulfillment of the terms and conditions or at the
specified times, all pursuant to the terms and conditions
hereof, the Trustee shall transfer to the beneficiaries the
options or the shares allotted to them, as the case may be, all
subject to the provisions hereof, the provisions of the
Ordinance and the Regulations.
4. THE TRUSTEE'S DUTIES AND POWERS
The Company and the beneficiaries hereby instruct the Trustee to act
with the options which
<PAGE> 4
it holds and with the rights deriving therefrom in the following manner:
4.1 The Trustee shall apply to the authorities in a request for
approval of the trust as obligated by the provisions.
4.2 If the Company shall distribute bonus shares during the term of
the trust, the bonus shares that shall be distributed to the
Trustee in respect of the options pursuant to this Agreement
shall belong to the beneficiaries and they shall be credited to
them pro rata to their entitlement to the options according to
List "1", and at the date of the end of the trust and the
transfer of the shares to the beneficiaries, the Trustee and the
Company shall act to allot the bonus shares to them
simultaneously with the allotment of the shares due pursuant to
the options.
4.3 If rights in respect of the options are distributed by the
Company at the end of the trust, the Trustee shall give prior
written notice thereof to the beneficiaries in sufficient time
to receive their response and it shall act in accordance with
the beneficiaries' instructions. If the beneficiaries wish to
register the rights and they transfer the amount required
therefor to the Trustee, the Trustee shall purchase the rights
on their behalf or on behalf of some of them and they shall be
added to their rights at the end of the trust. If the
beneficiaries do not give notice or if the beneficiaries do not
reply to the Trustee at the time prescribed therefor, the
Trustee shall deem the beneficiaries who did not reply or who
did not pay the fixed consideration on due date as having
irrevocably waived the offered rights.
4.4 The Trustee shall act in its exclusive discretion regarding all
the other subjects or rights conferred pursuant to the options
or the shares upon exercise of the options. However, if the
Trustee receives rights or monies in respect of the options,
save for bonus shares, it shall transfer them to the
beneficiaries pursuant to their proportionate share of the
options pursuant to List "1".
5. THE BENEFICIARIES' PARTICIPATION
Each Participating Employee pursuant to this Agreement shall sign a
trust participation document in the form of wording set forth below:
INSTRUMENT OF PARTICIPATION
Employee's name ______________________________ (hereinafter
referred to as "the Participating Employee")
1. I hereby participate as a beneficiary pursuant to the
Option Agreement dated _______________ (hereinafter
referred to as "the Agreement") and undertake all the
obligations and rights of a beneficiary pursuant to the
Agreement.
<PAGE> 5
2. I sign this instrument of participation having read the
Agreement and having understood the provisions thereof.
3. I confirm my rights in the options held on my behalf by
the Trustee both pursuant to the Agreement and also
pursuant to the conditions of participating in the trust
dated _______________ and pursuant to the Ordinance and
Regulations.
--------------- -----------------------------
Date Signature of Participating Employee
Name of Participating Employee _______________
Identity No. of Participating Employee _______________
Address of Participating Employee _______________
Witness' signature: I certify the signature of the Participating
Employee
------------------------------
Director of the Company
We the undersigned hereby confirm your participation as a
beneficiary pursuant to the Agreement.
--------------- ---------------
Date The Trustee
6. THE OPTIONS
The employee participating in this Agreement, the trust and the option
entitlement arrangement is hereby granted and given options upon the
terms and conditions and at the times set forth below:
6.1 A conditional and suspensive right upon the cumulative
fulfillment of the terms and conditions detailed below to
receive by way of an actual allotment at the end of the option
period, _______________ Ordinary "A" Shares of the Company, as a
right to benefit from the Trust Arrangement upon joining the
Agreement and until the end of the Trust period, whereby in its
duration the Participating Employee is granted the right that
his name be registered in List "1" with a notation of the option
for the specific number of shares specified above.
6.2 The terms and conditions:
<PAGE> 6
The Participating Employee's right to convert the options held
in trust on his behalf by the Trustee into shares that shall be
actually allotted in his name is conditional and suspensive upon
the fulfillment of all the following terms and conditions:
6.2.1 Every actual period of employment with the Company of at
least 24 months from the participation date shall confer
the right to convert 1/3 (a third) of the number of
shares specified in the options into shares.
6.2.2 Every continuous and cumulative period of employment of
an additional 12 months shall confer the right to
convert a further 1/3 (one third) of the total number of
shares specified in the option, into shares actually
allotted.
6.2.3 After a continuous and cumulative actual period of
employment with the Company of 48 months, the
beneficiary's right shall be exhausted and the validity
of the trust in relation to him shall expire.
6.2.4 The exercise of the right to an actual allotment of "A"
Ordinary Shares is further conditional and suspensive
upon the payment of US $1.1273 (one US dollar, twelve
cents and seventy three hundredths of a cent) according
to the representative rate known at the time of the
allotment in respect of the right to each share.
6.2.5 In the event that it is required that a symbolic part of
the additional pay shall be waived as a condition for
approval of the fulfillment of this Agreement by the
relevant authorities, the beneficiaries will agree and
agree to these conditions.
(The periods specified in this clause above are hereinafter
referred to as "the Vesting Period".)
6.3 If the employee ceases to be an actual employee of the Company
at any stage whatsoever prior to the conversion of the options
or part thereof into shares and prior to the actual allotment of
shares, regardless of the reason for termination of employment
in the Company, the employee's rights to the allotment of
options or the exercise of the balance of the allotment in
accordance with this Agreement, shall expire, be cancelled and
be nullified and the Trust for the same employee shall expire.
The Management of the Company has full discretion whether or not
to implement or allot this Agreement to a particular employee,
if in the Company's sole discretion the said employee waited for
a period of 30 to 90 days, or a similar period, prior to a
notice of resignation, while the purpose for the delay or its
main purpose, in the opinion of Management, is to receive the
right to actual allotment
<PAGE> 7
only.
In the event that a beneficiary who ceased to be an employee
within two years from the date of this Option Agreement and the
tax exemption does not apply to the beneficiary, the same
employee shall be liable for the tax payment for tax upon
allotment and for tax pursuant to s.102 Ordinance, the higher of
the two.
6.4 If the options are cancelled because the terms and conditions of
this clause have not been fulfilled, the employee shall not be
entitled to consideration, refund or compensation or indemnity
whatsoever in respect of the cancellation.
7. THE BENEFICIARIES' LIABILITY
7.1 The Beneficiaries are aware that the Trustee may hold options on
their behalf which are not fully paid up, whether they are
options under this Agreement or additional rights as specified
in section 4 above, and in the event that a demand for payment
is received for the conversion of the options into shares or
other rights that are conditioned on payment, the Beneficiaries
shall pay the required sums immediately upon receipt of a
request from the Trustee in connection with it. Failure to
satisfy this requirement may bring to such results as if the
Beneficiaries ceased to be employed in the Company.
7.2 Every liability and every amount that a holder of the options is
under a duty to pay and all the obligations applicable pursuant
to the Companies Ordinance and the Company's documents of
incorporation to a holder of options or shares or a member of
the Company, shall be passed on from the Trustee to the
beneficiaries pursuant to the proportion of the options or the
shares held by the Trustee for the benefit of the beneficiaries.
7.3 The beneficiaries hereby confirm that they acknowledge that if
payment demands of them are not complied with, the Company may
forfeit the options held on their behalf by the Trustee pursuant
to the Company's Articles of Association and the results of the
forfeiture shall apply to each beneficiary in accordance with
the option for shares held on trust on his behalf by the
Trustee.
7.4 If the Trustee receives demands, requests, notices and claims,
including payment calls, demands for payments at the time of the
Company's winding up, notices in respect of forfeiting the
shares or any other demand, the Trustee shall, immediately upon
the receipt thereof, send them to each of the beneficiaries in
respect of whose shares held on his behalf by the Trustee the
said demands were received, to the beneficiary's address as
appearing in his participation notice or to another address
which the beneficiary sent the Trustee, provided that they shall
be sent in writing and the liability deriving from the said
demands shall apply to the beneficiary alone.
<PAGE> 8
7.5 The beneficiaries' liability pursuant to this clause shall apply
in accordance with the shares held on their behalf. If any
charge or payment demand whatsoever shall relate to shares held
for a number of beneficiaries, each beneficiary shall be liable
for the charge or the payment demand pro rata to the options
held on his behalf.
8. TERMINATION OF THE TRUST
8.1 If the Trustee holds options or shares for any beneficiary,
during the Vesting Period that shall not be less than two years,
the shares or options shall be transferred to the beneficiary's
possession either on its own initiative or on the beneficiary's
initiative, on the following terms and conditions:
8.1.1 The Company notified the Trustee that the employee is
continuously employed by the Company for the whole
vesting period, and continues to be employed by the
Company and he has requested to exercise an option and
has paid the Company the exercise price.
8.1.2 In the event that the Notification of Deduction at
Source Form has been completed and sent, as specified in
the Income Tax Regulations (Tax Relief Upon Allotment of
Shares to Employees) 1989, and tax is actually paid, at
the rate specified in the Regulations at that time.
8.2 If a Participating Employee ceases to be employed by the Company
at any time whatsoever and for any reason whatsoever, the trust
for him shall expire at the time of the termination of
employee-employer relations. Expiration of the Trust upon
termination of the employee-employer relationship will be
relative to the balance of the right of the Beneficiary at such
time.
8.3 If a Participating Employee exercises a right as a beneficiary
by way of exercising the conversion of an option into a share
that shall be actually allotted, subject to all the terms and
conditions of this Agreement, the trust shall expire in respect
of the part of the option converted and actually allotted at
such time.
9. ISSUE TO THE PUBLIC
9.1 If the Company notifies the Trustee that for the purposes of an
issue of shares to the public an undertaking by the beneficiary
option holders is required, pursuant whereto they undertake a
restriction on the transfer of the shares of which they are
beneficiaries or to which they are entitled pursuant to the
options or the trading of such shares, the Trustee shall be
entitled to assume the undertaking as aforesaid, provided that
such an undertaking shall not prevent it transferring options to
the
<PAGE> 9
beneficiaries, subject to the beneficiaries assuming the said
undertaking.
9.2 If as a condition for the issue of shares to the public the
option holders shall be required to undertake not to sell them
during a specific period (hereinafter referred to as "the
restriction period"), the Company is entitled to make demand of
the Trustee to join in giving an undertaking as aforesaid, and
in the event of a demand as aforesaid the Trustee shall accede
thereto, even if the Vesting Period, or part thereof, mentioned
in clause 6 above, has not yet terminated, and in such case the
trust period shall be extended by the restriction period and the
beneficiaries shall have no complaint in consequence thereof.
9.3 The beneficiaries are aware that the Company is considering an
issue to the public with the intention of listing the Company's
shares for trading on a stock exchange either in Israel or
abroad. The beneficiaries empower the Trustee to sign any
document which, in the opinion of the Company's board of
directors, is required to enable an issue as aforesaid,
including changes to the Company's documents of incorporation
and including changes in its capital structure, provided that
the changes shall not result in the shares the subject of the
options held in trust by the Trustee having inferior rights
(save for voting rights) compared with the rights which other
shares of the Company confer.
In the event that the shares are registered for trading, as
aforesaid, the employee shall be permitted to apply to the
Commissioner in a request that his shares will be seen as sold
pursuant to the average stock exchange price-list in the first
three days of trading.
10. NON-TRANSFERABILITY
The rights to the options pursuant to this Agreement and the shares that
shall be allotted to the Participating Employee pursuant thereto and
upon the terms and conditions thereof are granted to the Participating
Employee as a beneficiary and to him alone.
The beneficiaries' rights may not be transferred or assigned in any
manner whatsoever, including by way of pledge, charge, attachment,
assignment and the like.
Without derogating from the foregoing, rights to options may only be
transferred by way of implementing a will of an employee or his
inheritance if the employee dies on a date when he was an actual
employee of the Company.
11. REPLACEMENT TRUSTEE
If the Trustee is unable to perform its duties or does not wish to
perform its duties, the Company is entitled to appoint another trustee
and in such event the Trustee shall transfer the options it is holding
to the other trustee and the replacement trustee shall replace the
Trustee for all intents and purposes.
<PAGE> 10
12. THE COMPANY'S OTHER SHARES
12.1 The provisions of this Agreement do not prejudice the rights of
other holders of options or shares of the Company to which the
trust arrangement does not apply.
12.2 The parties are aware that additional employees of the Company
own rights in shares or to receive shares in other arrangements,
and it is hereby expressly agreed that this Agreement does not
apply to and does not affect or howsoever impair rights of other
shareholders of the Company or persons entitled to shares of the
Company, including employees entitled as aforesaid.
13. PAYMENT AND INDEMNITY
13.1 An action by the Trustee and any outcome of an action by the
Trustee, directly or indirectly, shall not render the Trustee
liable for any payment whatsoever. In any event in which the
Trustee is directly or indirectly ordered to make any payment in
connection with its actions as trustee, the Company undertakes
to directly effect and make the payment which shall be required,
for so long as it is a payment relating to the trust, or to
indemnify the Trustee for a payment as aforesaid upon demand
received from it.
13.2 Save in regard to the subjects detailed in clause 7 above, if
the Trustee is ordered to make any payment by a court or
tribunal or arbitrator in consequence of its operations as
trustee, whether directly or indirectly, the Company shall bear
the payment in its stead and shall effect the payment on the
required date, and the Trustee shall not be liable to indemnify
the Company for such payment.
13.3 The beneficiaries and the Company release the Trustee from any
liability for a negligent act or omission, and the Company shall
indemnify the Trustee for any payment which it is required to
pay in order to compensate any person or corporation for such an
act or omission.
The Trustee shall not be exempt from liability for acts or
omissions which were done with malice or lack of good faith.
14. GENERAL PROVISIONS
14.1 If the law so obliges or if the Company or any of its
shareholders so requests, the Company shall procure that the
Trustee shall be registered in the Company's register of
shareholders as the owner of the options for shares held by it
on trust.
14.2 The Company shall pay the Trustee's remuneration.
<PAGE> 11
14.3 If the Company resolves to issue any of its shares in
consequence of additional investors joining the Company or for
any other reason, the Trustee's part of the options convertible
into shares of the Company shall be diluted accordingly and the
beneficiaries' right shall also be diluted in accordance
therewith, and the beneficiaries shall not have any complaint or
claim in such regard.
14.4 In a case where the beneficiaries have been actually allotted
part of the shares at the time of a dilution as aforesaid or at
any other time thereafter, their shares shall be diluted in
respect of the joining of investors or other shareholders, and
the beneficiaries shall not, even as shareholders, have any
complaint or demand in such regard.
14.5 The Trustee is empowered to determine the terms and conditions
for beneficiaries participating in the trust, in its discretion.
14.6 The parties undertake to sign all the documents required to give
validity and effect to this Agreement.
14.7 If income tax or capital gains tax or any other tax applies in
respect of the options or in respect of the allotment of the
shares or in respect of the holding of the shares or the
transfer thereof, or for another reason, the tax shall be borne
by the beneficiary in respect of the options or the shares held
for his benefit by the Trustee. If tax as aforesaid is imposed,
the Trustee shall be entitled to make demand of the beneficiary
to pay the tax upon demand pursuant to this Agreement or to
deduct the imposed tax from the amounts due or that shall be due
to the beneficiary, and such being in addition to any other
remedy available to the Trustee at law. If the tax as aforesaid
is imposed upon the Company, the Trustee shall be under a duty,
upon the Company's demand, to deduct the said tax and to remit
the amount collected to the Company, as the case may be.
The beneficiary authorizes and empowers the Company and the
Trustee to deduct or collect tax as aforesaid.
14.8 In the event of the death of a beneficiary at a time when he is
not an actual employee of the Company, his rights shall
automatically expire and any prima facie transfer to his heirs
or to beneficiaries pursuant to his will, as the case may be,
shall not be valid, unless the Company confirms that as at the
date of the death the was an actual employee.
AS WITNESS THE HANDS OF THE PARTIES:
- ------------------------------ ------------------------------
I.E.T. INTELLIGENT ELECTRONICS LTD B.Y.A.D. TRUSTEES LTD.
<PAGE> 12
"THE COMPANY" "THE TRUSTEE"
<PAGE> 13
APPENDIX TO TRUST AGREEMENT -
CONDITIONS FOR PARTICIPATING IN THE TRUST
Made in Tel-Aviv this __ day of _______________.
BETWEEN: IET Intelligent Electronics Ltd.
AND: The Participating Employee, Mr./Ms. ______________________
WHEREAS IET Intelligent Electronics Ltd. (hereinafter referred
to as "the Company") shall allot options convertible
into shares in favor of the Participating Employee;
AND WHEREAS the employee wishes to participate in an Agreement dated
________________ 1996 (hereinafter referred to as "the
Agreement"), including the Trustee's trust and its
holding of the options until they mature;
ACCORDINGLY, IT IS WARRANTED AND AGREED AS FOLLOWS:
1. The recitals to this appendix constitute an integral part hereof.
2. The Participating Employee is entitled to be a beneficiary pursuant to
the Agreement from the date of the signing of this Conditions for
Participation Appendix.
3. The Participating Employee's entitlement shall confer upon him the
following rights:
3.1 The right to be registered as a beneficiary of options to
receive ____________ ordinary "A" shares of NIS 0. 01 each of
the Company in equal shares, in equal parts of one third, on
three dates, with the determining date for the first third being
after 24 months have elapsed of continuous work for the Company,
the second third after an additional 12 month period of
continuous work in the Company, and the last third after an
additional 12 month period of continuous work in the Company,
all the periods being cumulative (the "Vesting Period"). This
shall be subject to payment of the sum of US $1.1273 (one US
dollar, twelve cents and seventy three hundredths of a cent),
for the right to each share, at the representative rate known at
such time prior to the allotment of shares in the Company in his
name..
3.2 The said right is conditional and suspensive upon the
fulfillment of all the terms and conditions specified in the
Agreement.
3.3 If the employee ceases to be an actual employee of the Company
at any stage whatsoever until the conversion of the options or
part thereof into shares and prior to the actual allotment of
the shares, regardless of the reason for the termination of the
employment with the Company, his rights to an allotment or to
exercise the balance of the allotment shall expire, be cancelled
and nullified except to the extent specified in the Agreement.
3.4 The provisions set forth in this clause are in addition to the
provisions set forth in the
<PAGE> 14
Agreement.
3.5 The ancillary right upon the terms and conditions of the
Agreement distribution of additional rights or benefits, and
also those shall be granted in the future to holders of shares
or at the time of winding up, all pro rata to his entitlement to
options.
4. The option convertible into shares upon the terms and conditions of the
Agreement and the terms and conditions of this instrument of
participation shall be recorded in List "1" by the Trustee together with
the Participating Employee's name and his proportionate share of the
number of the shares as specified above.
5. The options that shall be recorded for the Participating Employee are in
addition to his other employment terms and conditions, and are not in
lieu thereof, but the Company's management may consider them a benefit
or other right conferred upon the employee in respect of and in
consequence of his employment.
6. The Participating Employee hereby agrees and confirms that if there
shall be a dilution of the Company's shares at any stage or in any
manner, whether during the course of the Vesting Period, or upon the
exercise of the conversion of the shares into an actual allotment of
shares, whether in stages or at the end of the entire Vesting Period,
his part shall also be diluted respectively.
In an event in which a waiver of a symbolic part of additional pay would
be required by the relevant authorities for the approval to implement
this Agreement, the beneficiaries shall and they do agree to such
conditions.
7. The Participating Employee accepts and agrees to all the terms and
conditions of the Agreement and confirms his express consent that in any
event of a contradiction between the provisions of this appendix and the
provisions of the Agreement, the provisions of the Agreement shall
prevail.
8. The Participating Employee hereby warrants and confirms his consent that
all the payment of taxes, official fees, levies and the like of
whatsoever description applicable now or that shall be applicable in the
future in respect of the Agreement, in respect of this instrument of
participation and in respect of the realization thereof shall be borne
by him alone.
9. The employee explicitly approves and agrees that he has been notified,
and it is within his knowledge, that the Arrangement for the Allotment
of Share Options for conversion is in accordance with section 102 Income
Tax Ordinance, and that he agrees that and undertakes not to request a
tax exemption under sections 95 or 97 (A) Income Tax Ordinance, or under
Chapter 7 Encouragement of Industry (Taxes) Law 1969.
10. This appendix constitutes an integral part of the instrument of
participation in the Agreement and the signing of the instrument of
participation constitutes the signing of this appendix.
The instrument of participation is annexed hereto.
- ----------------------------------------
Signature of the Participating Employee
<PAGE> 15
We agree to the foregoing:
- ----------------------------------------
IET Intelligent Electronics Ltd.
<PAGE> 16
INSTRUMENT OF PARTICIPATION
Employee's name _______________________________________________________________
(hereinafter referred to as "the Participating Employee")
1. I hereby participate as a beneficiary pursuant to the Option Agreement
dated ______________ (hereinafter referred to as "the Agreement") and
undertake all the obligations and rights of a beneficiary pursuant to
the Agreement.
2. I sign this instrument of participation having read the Agreement and
having understood the provisions hereof.
3. I confirm my rights in the options held on my behalf by the Trustee both
pursuant to the Agreement and also pursuant to the conditions of
participating in the trust dated ________________, and in accordance
with the Ordinance and the Regulations.
- --------------------- ------------------------------------
Date Signature of Participating Employee
Name of Participating Employee _______________________________________________
Identity No. of Participating Employee _______________________________________
Address of Participating Employee ____________________________________________
Witness' signature: I certify the signature of the Participating Employee
------------------------------
Director of the Company
We the undersigned hereby confirm your participation as a beneficiary pursuant
to the Agreement.
- --------------------- ------------------------------------
Date The Trustee
<PAGE> 1
Exhibit 10.7
FREE TRANSLATION OF THE HEBREW ORIGINAL
AGREEMENT FOR THE ALLOTMENT OF SHARE OPTIONS AND TRUST AGREEMENT
Made in Tel Aviv, this 31st day of December 1997
BETWEEN: I.E.T. INTELLIGENT ELECTRONICS LTD.
(hereinafter referred to as "the Company")
of the first part
AND: CERTAIN EMPLOYEES OF THE COMPANY WHO SHALL BE INVITED BY
THE COMPANY TO PARTICIPATE IN THE AGREEMENT AND SIGN THE
PARTICIPATION DOCUMENT
(such an employee is hereinafter referred to as "a
Participating Employee")
of the second part
AND: B.Y.A.D. TRUSTEES
(hereinafter referred to as "the Trustee")
of the third part
WHEREAS the Company wishes to grant to certain Participating
Employees, not including controlling shareholders, and up
to 35 (thirty five) of such Participating Employees,
within the context of a trust, options for shares of the
Company in the first stage and thereafter to enable the
Participating Employees, upon certain terms and
conditions, to receive an actual allotment of shares;
AND WHEREAS the Company wishes to grant the options, such that they
shall be held by the Trustee on behalf of the
Participating Employees, whether existing employees or
employees who shall commence working for the Company;
<PAGE> 2
AND WHEREAS the Company wishes to appoint the Trustee, and the
provisions of this Agreement shall serve as an
instrument of trust and instructions to the Trustee;
AND WHEREAS the Trustee agrees to accept such position;
AND WHEREAS the parties intend to implement this arrangement in
accordance with section 102 of the Income Tax Ordinance
[New Version] (hereinafter: the "Ordinance")
AND WHEREAS the parties wish to define, determine and detail the
method of the allotment, the stages thereof and all
matters relating thereto or connected therewith or
deriving therefrom, all as detailed below in this
Agreement;
ACCORDINGLY, IT IS WARRANTED, PROVIDED AND AGREED BETWEEN THE PARTIES AS
FOLLOWS:
1. RECITALS
1.1 The recitals to this Agreement constitute an integral part
hereof.
1.2 The clause headings in this Agreement are for convenience and
orientation purposes only, they do not constitute any part
hereof and shall not be used for the interpretation hereof.
1.3 The provisions of this Agreement do not prejudice the rights or
holdings or shares of any of the holders of any classes of the
Company's shares at the time of the making hereof or thereafter,
unless otherwise expressly stated and provided herein.
2. THE TRUST
The parties hereby establish and create a trust and shall procure that
the Company shall allot to the Trustee the options for Ordinary "B"
shares of the Company and the shares, at the time of the exercise of
part or all of the options.
The provisions of this Agreement constitute an instrument of trust and
instructions to the Trustee.
It is agreed that Appendix B to the Income Tax Regulations (Tax Relief
Upon Allotment of Shares to Employees) 1989 (hereinafter the
"Regulations"), constitute an integral part of this Agreement,
Instrument of Trust and Instructions to the Trustee, in accordance with
this
<PAGE> 3
Agreement.
3. THE OBJECT OF THE TRUST
The object of the trust is for options to shares to be held by the
Trustee for the benefit of employees of the Company whose names appear
in List "1" attached to this Agreement, as may be amended from time to
time by the Company by written notice to the Trustee detailing the names
of the beneficiaries and next to each beneficiaries' name, the number of
options which the Trustee holds or shall hold in trust for each
beneficiary.
3.1 The Trustee shall maintain and manage List "1" and shall attend
to updating it from time to time as required, including adding
new beneficiaries, recording options that have been allotted to
the Trustee on behalf of the beneficiaries according to the
ratio of their rights at the determining date, and he shall also
record the options that shall be added to the beneficiaries from
such allotment in List "1" to the credit of such beneficiaries.
3.2 The share options allotted upon exercise of the options shall be
allotted to the Trustee or that shall be held by the Trustee
pursuant to the provisions of this Agreement shall be registered
in the Trustee's name in the Company's register of shareholders.
3.3 The Trustee shall act in all matters relating to adding new
employees to List "1" and to determine the terms and conditions
of their entitlement pursuant to resolutions of the Company as
shall be passed from time to time. Nonetheless, the Trustee
shall not be entitled to detract from the rights and conditions
prescribed and/or that shall be prescribed for the beneficiaries
pursuant to this Agreement except with the prior written consent
of the Company and of the beneficiary or beneficiaries affected
by such change, as the case may be.
3.4 The beneficiaries included or that shall be included in List "1"
at any time whatsoever do not and shall not have any right or
claim against other beneficiaries being added to List "1" or
against the adding of rights or shares to those included in List
"1", in whole or in part.
3.5 Upon the fulfillment of the terms and conditions or at the
specified times, all pursuant to the terms and conditions
hereof, the Trustee shall transfer to the beneficiaries the
options or the shares allotted to them, as the case may be, all
subject to the provisions hereof, the provisions of the
Ordinance and the Regulations.
4. THE TRUSTEE'S DUTIES AND POWERS
<PAGE> 4
The Company and the beneficiaries hereby instruct the Trustee to act
with the options which it holds and with the rights deriving therefrom
in the following manner:
4.1 The Trustee shall apply to the authorities in a request for
approval of the trust as obligated by the provisions.
4.2 If the Company shall distribute bonus shares during the term of
the trust, the bonus shares that shall be distributed to the
Trustee in respect of the options pursuant to this Agreement
shall belong to the beneficiaries and they shall be credited to
them pro rata to their entitlement to the options according to
List "1", and at the date of the end of the trust and the
transfer of the shares to the beneficiaries, the Trustee and the
Company shall act to allot the bonus shares to them
simultaneously with the allotment of the shares due pursuant to
the options.
4.3 If rights in respect of the options are distributed by the
Company at the end of the trust, the Trustee shall give prior
written notice thereof to the beneficiaries in sufficient time
to receive their response and it shall act in accordance with
the beneficiaries' instructions. If the beneficiaries wish to
register the rights and they transfer the amount required
therefor to the Trustee, the Trustee shall purchase the rights
on their behalf or on behalf of some of them and they shall be
added to their rights at the end of the trust. If the
beneficiaries do not give notice or if the beneficiaries do not
reply to the Trustee at the time prescribed therefor, the
Trustee shall deem the beneficiaries who did not reply or who
did not pay the fixed consideration on due date as having
irrevocably waived the offered rights.
4.4 The Trustee shall act in its exclusive discretion regarding all
the other subjects or rights conferred pursuant to the options
or the shares upon exercise of the options. However, if the
Trustee receives rights or monies in respect of the options,
save for bonus shares, it shall transfer them to the
beneficiaries pursuant to their proportionate share of the
options pursuant to List "1".
5. THE BENEFICIARIES' PARTICIPATION
Each Participating Employee pursuant to this Agreement shall sign a
trust participation document in the form of wording set forth below:
INSTRUMENT OF PARTICIPATION
Employee's name ______________________________ (hereinafter
referred to as "the Participating Employee")
1. I hereby participate as a beneficiary pursuant to the
Option Agreement dated _______________ (hereinafter
referred to as "the Agreement") and undertake all the
obligations and rights of a beneficiary pursuant to the
<PAGE> 5
Agreement.
2. I sign this instrument of participation having read the
Agreement and having understood the provisions thereof.
3. I confirm my rights in the options held on my behalf by
the Trustee both pursuant to the Agreement and also
pursuant to the conditions of participating in the trust
dated _______________ and pursuant to the Ordinance and
Regulations.
--------------- -----------------------------------
Date Signature of Participating Employee
Name of Participating Employee _______________
Identity No. of Participating Employee _______________
Address of Participating Employee _______________
Witness' signature: I certify the signature of the Participating
Employee
------------------------------
Director of the Company
We the undersigned hereby confirm your participation as a
beneficiary pursuant to the Agreement.
--------------- ---------------
Date The Trustee
6. THE OPTIONS
The employee participating in this Agreement, the trust and the option
entitlement arrangement is hereby granted and given options upon the
terms and conditions and at the times set forth below:
6.1 A conditional and suspensive right upon the cumulative
fulfillment of the terms and conditions detailed below to
receive by way of an actual allotment at the end of the option
period, _______________ Ordinary "A" Shares of the Company, as a
right to benefit from the Trust Arrangement upon joining the
Agreement and until the end of the Trust period, whereby in its
duration the Participating Employee is granted the right that
his name be registered in List "1" with a notation of the option
for the specific number of shares specified above.
<PAGE> 6
6.2 The terms and conditions:
The Participating Employee's right to convert the options held
in trust on his behalf by the Trustee into shares that shall be
actually allotted in his name is conditional and suspensive upon
the fulfillment of all the following terms and conditions:
6.2.1 Every actual period of employment with the Company of at
least 24 months from the participation date shall confer
the right to convert 1/3 (a third) of the number of
shares specified in the options into shares.
6.2.2 Every month of continuous and cumulative period of
employment exceeding the first 24 months shall confer
the right to convert a further 1/36 (one thirty sixth)
from the balance of 2/3 (two-thirds) of the total number
of shares specified in the option, into shares actually
allotted, in an allotment at the end of the cumulative
period..
6.2.3 After a continuous and cumulative actual period of
employment with the Company of 48 months, the
beneficiary's right shall be exhausted and the validity
of the trust in relation to him shall expire.
6.2.4 The exercise of the right to an actual allotment is
further conditional and suspensive upon the payment of
US $0.35 (thirty five cents) according to the
representative rate known at the time of the allotment
in respect of the right to each share.
6.2.5 In the event that conditions are imposed by the
authorities as conditions for approval of the
fulfillment of this Agreement, the beneficiaries agree
and will agree to these conditions.
(The periods specified in this clause above are hereinafter
referred to as "the Vesting Period".)
6.3 If the employee ceases to be an actual employee of the Company
at any stage whatsoever prior to the conversion of the options
or part thereof into shares and prior to the actual allotment of
shares, regardless of the reason for termination of employment
in the Company, the employee's rights to the allotment of
options or the exercise of the balance of the allotment in
accordance with this Agreement, shall expire, be cancelled and
be nullified and the Trust for the same employee shall expire.
In the event that a beneficiary who ceased to be an employee
within two years from the date of this Option Agreement and the
tax exemption does not apply to the beneficiary, the same
employee shall be liable for the tax payment for tax upon
allotment and for tax pursuant to section 102 of the Ordinance,
the higher of the two.
<PAGE> 7
6.4 If the options are cancelled because the terms and conditions of
this clause have not been fulfilled, the employee shall not be
entitled to consideration, refund or compensation or indemnity
whatsoever in respect of the cancellation.
7. THE BENEFICIARIES' LIABILITY
7.1 The Beneficiaries are aware that the Trustee may hold options on
their behalf which are not fully paid up, whether they are
options under this Agreement or additional rights as specified
in section 4 above, and in the event that a demand for payment
is received for the conversion of the options into shares or
other rights that are conditioned on payment, the Beneficiaries
shall pay the required sums immediately upon receipt of a
request from the Trustee in connection with it. Failure to
satisfy this requirement may bring to such results as if the
Beneficiaries ceased to be employed in the Company.
7.2 Every liability and every amount that a holder of the options is
under a duty to pay and all the obligations applicable pursuant
to the Companies Ordinance and the Company's documents of
incorporation to a holder of options or shares or a member of
the Company, shall be passed on from the Trustee to the
beneficiaries pursuant to the proportion of the options or the
shares held by the Trustee for the benefit of the beneficiaries.
7.3 The beneficiaries hereby confirm that they acknowledge that if
payment demands of them are not complied with, the Company may
forfeit the options held on their behalf by the Trustee pursuant
to the Company's Articles of Association and the results of the
forfeiture shall apply to each beneficiary in accordance with
the option for shares held on trust on his behalf by the
Trustee.
7.4 If the Trustee receives demands, requests, notices and claims,
including payment calls, demands for payments at the time of the
Company's winding up, notices in respect of forfeiting the
shares or any other demand, the Trustee shall, immediately upon
the receipt thereof, send them to each of the beneficiaries in
respect of whose shares held on his behalf by the Trustee the
said demands were received, to the beneficiary's address as
appearing in his participation notice or to another address
which the beneficiary sent the Trustee, provided that they shall
be sent in writing and the liability deriving from the said
demands shall apply to the beneficiary alone.
7.5 The beneficiaries' liability pursuant to this clause shall apply
in accordance with the shares held on their behalf. If any
charge or payment demand whatsoever shall relate to shares held
for a number of beneficiaries, each beneficiary shall be liable
for the charge or the payment demand pro rata to the options
held on his behalf.
8. TERMINATION OF THE TRUST
<PAGE> 8
8.1 If the Trustee holds options or shares for any beneficiary,
during the Vesting Period that shall not be less than two years,
the shares or options shall be transferred to the beneficiary's
possession either on its own initiative or on the beneficiary's
initiative, on the following terms and conditions:
8.1.1 The Company notified the Trustee that the employee is
continuously employed by the Company for the whole
vesting period, and continues to be employed by the
Company and he has requested to exercise an option and
has paid the Company the exercise price.
8.1.2 In the event that the Notification of Deduction at
Source Form has been completed and sent, as specified in
the Income Tax Regulations (Tax Relief Upon Allotment of
Shares to Employees) 1989, and tax is actually paid, at
the rate specified in the Regulations at that time.
8.2 If a Participating Employee ceases to be employed by the Company
at any time whatsoever and for any reason whatsoever, the trust
for him shall expire at the time of the termination of
employee-employer relations. Expiration of the Trust upon
termination of the employee-employer relationship will be
relative to the balance of the right of the Beneficiary at such
time.
8.3 If a Participating Employee exercises a right as a beneficiary
by way of exercising the conversion of an option into a share
that shall be actually allotted, subject to all the terms and
conditions of this Agreement, the trust shall expire in respect
of the part of the option converted and actually allotted at
such time.
9. ISSUE TO THE PUBLIC
9.1 If the Company notifies the Trustee that for the purposes of an
issue of shares to the public an undertaking by the beneficiary
option holders is required, pursuant whereto they undertake a
restriction on the transfer of the shares of which they are
beneficiaries or to which they are entitled pursuant to the
options or the trading of such shares, the Trustee shall be
entitled to assume the undertaking as aforesaid, provided that
such an undertaking shall not prevent it transferring options to
the beneficiaries, subject to the beneficiaries assuming the
said undertaking.
9.2 If as a condition for the issue of shares to the public the
option holders shall be required to undertake not to sell them
during a specific period (hereinafter referred to as "the
restriction period"), the Company is entitled to make demand of
the Trustee to join in giving an undertaking as aforesaid, and
in the event of a demand as aforesaid the Trustee shall accede
thereto, even if the Vesting Period, or part
<PAGE> 9
thereof,mentioned in clause 6 above, has not yet terminated, and
in such case the trust period shall be extended by the
restriction period and the beneficiaries shall have no complaint
in consequence thereof.
9.3 The beneficiaries are aware that the Company is considering an
issue to the public with the intention of listing the Company's
shares for trading on a stock exchange either in Israel or
abroad. The beneficiaries empower the Trustee to sign any
document which, in the opinion of the Company's board of
directors, is required to enable an issue as aforesaid,
including changes to the Company's documents of incorporation
and including changes in its capital structure, provided that
the changes shall not result in the shares the subject of the
options held in trust by the Trustee having inferior rights
(save for voting rights) compared with the rights which other
shares of the Company confer.
In the event that the shares are registered for trading, as
aforesaid, the employee shall be permitted to apply to the
Commissioner in a request that his shares will be seen as sold
pursuant to the average stock exchange price-list in the first
three days of trading.
10. NON-TRANSFERABILITY
The rights to the options pursuant to this Agreement and the shares that
shall be allotted to the Participating Employee pursuant thereto and
upon the terms and conditions thereof are granted to the Participating
Employee as a beneficiary and to him alone.
The beneficiaries' rights may not be transferred or assigned in any
manner whatsoever, including by way of pledge, charge, attachment,
assignment and the like.
Without derogating from the foregoing, rights to options may only be
transferred by way of implementing a will of an employee or his
inheritance if the employee dies on a date when he was an actual
employee of the Company.
11. REPLACEMENT TRUSTEE
If the Trustee is unable to perform its duties or does not wish to
perform its duties, the Company is entitled to appoint another trustee
and in such event the Trustee shall transfer the options it is holding
to the other trustee and the replacement trustee shall replace the
Trustee for all intents and purposes.
12. THE COMPANY'S OTHER SHARES
12.1 The provisions of this Agreement do not prejudice the rights of
other holders of options or shares of the Company to which the
trust arrangement does not apply.
12.2 The parties are aware that additional employees of the Company
own rights in
<PAGE> 10
shares or to receive shares in other arrangements, and it is
hereby expressly agreed that this Agreement does not apply to
and does not affect or howsoever impair rights of other
shareholders of the Company or persons entitled to shares of the
Company, including employees entitled as aforesaid.
13. PAYMENT AND INDEMNITY
13.1 An action by the Trustee and any outcome of an action by the
Trustee, directly or indirectly, shall not render the Trustee
liable for any payment whatsoever. In any event in which the
Trustee is directly or indirectly ordered to make any payment in
connection with its actions as trustee, the Company undertakes
to directly effect and make the payment which shall be required,
for so long as it is a payment relating to the trust, or to
indemnify the Trustee for a payment as aforesaid upon demand
received from it.
13.2 Save in regard to the subjects detailed in clause 7 above, if
the Trustee is ordered to make any payment by a court or
tribunal or arbitrator in consequence of its operations as
trustee, whether directly or indirectly, the Company shall bear
the payment in its stead and shall effect the payment on the
required date, and the Trustee shall not be liable to indemnify
the Company for such payment.
13.3 The beneficiaries and the Company release the Trustee from any
liability for a negligent act or omission, and the Company shall
indemnify the Trustee for any payment which it is required to
pay in order to compensate any person or corporation for such an
act or omission.
14. GENERAL PROVISIONS
14.1 If the law so obliges or if the Company or any of its
shareholders so requests, the Company shall procure that the
Trustee shall be registered in the Company's register of
shareholders as the owner of the options for shares held by it
on trust.
14.2 The Company shall pay the Trustee's remuneration.
14.3 If the Company resolves to issue any of its shares in
consequence of additional investors joining the Company or for
any other reason, the Trustee's part of the options convertible
into shares of the Company shall be diluted accordingly and the
beneficiaries' right shall also be diluted in accordance
therewith, and the beneficiaries shall not have any complaint or
claim in such regard.
14.4 In a case where the beneficiaries have been actually allotted
part of the shares at the time of a dilution as aforesaid or at
any other time thereafter, their shares shall be diluted in
respect of the joining of investors or other shareholders, and
the beneficiaries shall not, even as shareholders, have any
complaint or demand in such regard.
<PAGE> 11
14.5 The Trustee is empowered to determine the terms and conditions
for beneficiaries participating in the trust, in its discretion.
14.6 The parties undertake to sign all the documents required to give
validity and effect to this Agreement.
14.7 If income tax or capital gains tax or any other tax applies in
respect of the options or in respect of the allotment of the
shares or in respect of the holding of the shares or the
transfer thereof, or for another reason, the tax shall be borne
by the beneficiary in respect of the options or the shares held
for his benefit by the Trustee. If tax as aforesaid is imposed,
the Trustee shall be entitled to make demand of the beneficiary
to pay the tax upon demand pursuant to this Agreement or to
deduct the imposed tax from the amounts due or that shall be due
to the beneficiary, and such being in addition to any other
remedy available to the Trustee at law. If the tax as aforesaid
is imposed upon the Company, the Trustee shall be under a duty,
upon the Company's demand, to deduct the said tax and to remit
the amount collected to the Company, as the case may be.
The beneficiary authorizes and empowers the Company and the
Trustee to deduct or collect tax as aforesaid.
14.8 In the event of the death of a beneficiary at a time when he is
not an actual employee of the Company, his rights shall
automatically expire and any prima facie transfer to his heirs
or to beneficiaries pursuant to his will, as the case may be,
shall not be valid, unless the Company confirms that as at the
date of the death the was an actual employee.
AS WITNESS THE HANDS OF THE PARTIES:
- ------------------------------ ------------------------------
I.E.T. INTELLIGENT ELECTRONICS LTD B.Y.A.D. TRUSTEES LTD.
"THE COMPANY" "THE TRUSTEE"
<PAGE> 12
APPENDIX TO TRUST AGREEMENT -
CONDITIONS FOR PARTICIPATING IN THE TRUST
Made in Tel-Aviv this __ day of _______________.
BETWEEN: IET Intelligent Electronics Ltd.
AND: The Participating Employee, Mr./Ms. _____________________
WHEREAS IET Intelligent Electronics Ltd. (hereinafter referred to
as "the Company") shall allot options convertible into
shares in favor of the Participating Employee;
AND WHEREAS the employee wishes to participate in an Agreement dated
________________ 1996 (hereinafter referred to as "the
Agreement"), including the Trustee's trust and its holding
of the options until they mature;
ACCORDINGLY, IT IS WARRANTED AND AGREED AS FOLLOWS:
1. The recitals to this appendix constitute an integral part hereof.
2. The Participating Employee is entitled to be a beneficiary pursuant to
the Agreement from the date of the signing of this Conditions for
Participation Appendix.
3. The Participating Employee's entitlement shall confer upon him the
following rights:
3.1 The right to be registered as a beneficiary of options to
receive ____________ ordinary "B" shares of NIS 0. 01 each of
the Company from which one third (1/3) the determining date for
the first third being after 24 months have elapsed of continuous
work for the Company. After this, each month of continuous
employment past the first 24 months , shall confer on the
employee the right to convert 1/36 (one thirty-sixth) of the
balance of 2/3 (two thirds) of the share options, into shares
actually allotted in an allotment at the end of the continuous
period. The entire cumulative period shall be entitled the
"Vesting Period". The right to shares as aforesaid shall be
subject to payment of the sum of $0.35 (thirty five cents), for
the right to each share, at the representative rate known at
such time.
3.2 The said right is conditional and suspensive upon the
fulfillment of all the terms and conditions specified in the
Agreement.
3.3 If the employee ceases to be an actual employee of the Company
at any stage whatsoever until the conversion of the options or
part thereof into shares and prior to the actual allotment of
the shares, regardless of the reason for the termination of the
employment with the Company, his rights to an allotment or to
exercise the balance of the allotment shall expire, be cancelled
and nullified except to the extent specified in the Agreement.
3.4 The provisions set forth in this clause are in addition to the
provisions set forth in the
<PAGE> 13
Agreement.
3.5 The ancillary right upon the terms and conditions of the
Agreement distribution of additional rights or benefits, and
also those shall be granted in the future to holders of shares
or at the time of winding up, all pro rata to his entitlement to
options.
4. The option convertible into shares upon the terms and conditions of the
Agreement and the terms and conditions of this instrument of
participation shall be recorded in List "1" by the Trustee together with
the Participating Employee's name and his proportionate share of the
number of the shares as specified above.
5. The options that shall be recorded for the Participating Employee are in
addition to his other employment terms and conditions, and are not in
lieu thereof, but the Company's management may consider them a benefit
or other right conferred upon the employee in respect of and in
consequence of his employment.
6. The Participating Employee hereby agrees and confirms that if there
shall be a dilution of the Company's shares at any stage or in any
manner, whether during the course of the Vesting Period, or upon the
exercise of the conversion of the shares into an actual allotment of
shares, whether in stages or at the end of the entire Vesting Period,
his part shall also be diluted respectively.
In an event in which a waiver of a symbolic part of additional pay would
be required by the relevant authorities for the approval to implement
this Agreement, the beneficiaries shall and they do agree to such
conditions.
7. The Participating Employee accepts and agrees to all the terms and
conditions of the Agreement and confirms his express consent that in any
event of a contradiction between the provisions of this appendix and the
provisions of the Agreement, the provisions of the Agreement shall
prevail.
8. The Participating Employee hereby warrants and confirms his consent that
all the payment of taxes, official fees, levies and the like of
whatsoever description applicable now or that shall be applicable in the
future in respect of the Agreement, in respect of this instrument of
participation and in respect of the realization thereof shall be borne
by him alone.
9. The employee explicitly approves and agrees that he has been notified,
and it is within his knowledge, that the Arrangement for the Allotment
of Share Options for conversion is in accordance with section102 Income
Tax Ordinance, and that he agrees that and undertakes not to request a
tax exemption under sections 95 or 97 (A) Income Tax Ordinance, or under
Chapter 7 of the Encouragement of Industry (Taxes) Law 1969.
10. This appendix constitutes an integral part of the instrument of
participation in the Agreement and the signing of the instrument of
participation constitutes the signing of this appendix.
The instrument of participation is annexed hereto.
- ----------------------------------------
Signature of the Participating Employee
<PAGE> 14
We agree to the foregoing:
- ----------------------------------------
IET Intelligent Electronics Ltd.
<PAGE> 15
INSTRUMENT OF PARTICIPATION
Employee's name _______________________________________________________________
(hereinafter referred to as "the Participating Employee")
1. I hereby participate as a beneficiary pursuant to the Option Agreement
dated ______________ (hereinafter referred to as "the Agreement") and
undertake all the obligations and rights of a beneficiary pursuant to
the Agreement.
2. I sign this instrument of participation having read the Agreement and
having understood the provisions hereof.
3. I confirm my rights in the options held on my behalf by the Trustee both
pursuant to the Agreement and also pursuant to the conditions of
participating in the trust dated ________________, and in accordance
with the Ordinance and the Regulations.
- --------------------- ------------------------------------
Date Signature of Participating Employee
Name of Participating Employee ________________________________________________
Identity No. of Participating Employee _________________________________________
Address of Participating Employee ______________________________________________
Witness' signature: I certify the signature of the Participating Employee
----------------------------
Director of the Company
We the undersigned hereby confirm your participation as a beneficiary pursuant
to the Agreement.
- --------------------- ------------------------------------
Date The Trustee
<PAGE> 16
Appendix to the Arrangement of Allotment of Options to Employees
To
Income Tax Assessor
Tax Commissioner's Office
RE: NOTICE REGARDING ENTITLING ALLOTMENT IN ACCORDANCE WITH THE INCOME TAX
REGULATIONS (TAX RELIEF UPON ALLOTMENT OF SHARES TO EMPLOYEES) 1989
(THE "REGULATIONS")
1. In accordance with section 3 of the Regulations, we hereby inform you
that IET Intelligent Electronics Ltd. (hereinafter the "Company") has
decided to adopt a share option plan, in accordance with section 102 of
the Income Tax Ordinance and in accordance with the Regulations, whereby
within its framework, employees of the Company will be allotted options
in an entitling allotment, as specified in the Regulations.
2. The date of the allotment of options within the framework of this plan
shall not be prior to 1.1.97 and not later than 31.12.2001.
3. B. A. Trustees shall become the Trustee for the fulfillment of this plan
(hereinafter the "Trustee"). The appointment of the Trustee has been
approved on August 25, 1996 by the Tax Commissioner's Office in
accordance with his authority under section 102 of the Ordinance.
4. A. In accordance with section 4(B) of the Regulations, the Company
hereby undertakes towards the Income Tax Assessor that if bonus shares
are allotted to an employee under the options allotted for him in the
framework of the entitling allotment, they shall be forwarded to the
Trustee as long as the Trustee holds for him options allotted for the
employee within the framework of the entitling allotment. The Trustee is
obligated to the Income Tax Assessor to apply the provisions of section
102 to the said bonus shares, as if the bonus shares were options
allotted to the employee in the framework of the entitling offer.
2nd. In accordance with section 4(B) of the Regulations, we
confirm that we hold a confirmation letter from the
employee that he agrees that the arrangement shall apply
to him and that he undertakes not to request a tax
exemption under sections 95 or 97(A) of the Ordinance or
under Chapter 7 Encouragement of Industry (Taxes) Law
1969 for any transfer of shares prior to the termination
of the holding period.
5. Attached is an Instrument of Trust as required by section 3 of the
Regulations.
6. The Trustee undertakes towards the Income Tax Assessor that he shall not
forward the options nor option certificates until after tax is paid
under section 102 of the Ordinance and in accordance with the
Regulations, or after the Trustee has forwarded to the Tax Assessor 30%
of the consideration for the account upon which tax applies.
7. Upon an approval by the Income Tax Assessor regarding the rate of tax
required to be paid as a condition for the transfer of options (or
shares) for the employee submitted by the Company or the employee to the
Trustee, the Trustee shall transfer the options into shares for the
employee but only after the sum of tax determined in the Income Tax
Assessor's approval has been paid.
Yours sincerely,
<PAGE> 17
B.Y.A.D. Trustees Ltd. IET Intelligent Electronics Ltd.
CC: Tax Commissioner's Office
Tax Deduction Assessor
APPENDIX TO THE ARRANGEMENT FOR ALLOTMENT OF OPTIONS TO EMPLOYEES
NOTICE REGARDING DEDUCTION AT SOURCE
Name of Trustee: B.Y.A.D. Trustees Ltd.
Name of Company: IET Intelligent
Electronics Ltd.
Name of Employee: _______________
Date: __________________________
To
Tax Assessor
Income Tax Commissioner
___________________Street
_________________________
Dear Sir / Madam,
RE: DEDUCTION AT SOURCE
We hereby inform you that:
Options to ____________, in the name of the Trustee B.Y.A.D. Trustees Ltd. for
the employee ___________________, which were bought/granted/purchased on
________________, in an allotment which received approval on
____________________, sold on _________________ , to __________________________
in consideration for NIS _________________.
The tax deducted at source is __________________ (attached is authorization for
the reduced deduction).
The tax was paid on ___________________ at _________________.
Yours sincerely,
B.Y.A.D. Trustees Ltd.
CC: Tax Commissioner's Office.
<PAGE> 1
EXHIBIT 10.8
AGREEMENT FOR THE ALLOTMENT OF OPTIONS
GIVING ENTITLEMENT TO SHARES AND TRUST AGREEMENT
Made in Tel Aviv this 10th day of October 1998
BETWEEN: I.E.T. INTELLIGENT ELECTRONICS LTD
(hereinafter referred to as "the Company")
of the first part
AND: CERTAIN MEMBERS OF THE COMPANY WHO SHALL BE INVITED BY THE COMPANY
TO PARTICIPATE IN THE AGREEMENT AND SIGN THE PARTICIPATION DOCUMENT
(such an employee is hereinafter referred to as "a Participating
Employee")
of the second part
AND: Y.S.M.A. TRUST COMPANY
(hereinafter referred to as "the Trustee")
of the third part
WHEREAS the Company wishes to allot to certain Participating Employees,
save for control owners, and up to 40 of such Participating
Employees, within the context of a trust, options for shares of
the Company in the first stage and thereafter to enable the
Participating Employees, upon certain terms and conditions, to
receive an actual allotment of shares;
AND WHEREAS the Company wishes to allot the options, such that they shall be
held by the Trustee on behalf of the Participating Employees,
whether existing employees or employees who shall commence
working for the Company;
AND WHEREAS the Company wishes to appoint the Trustee, and the provisions of
this agreement shall serve as an instrument of trust and
instructions to the Trustee;
<PAGE> 2
2 -
AND WHEREAS the Trustee agrees to accept such position;
AND WHEREAS the parties wish to define, determinate and particularize the
method of the allotment, the stages thereof and all matters
relating thereto or connected therewith or deriving therefrom,
all as particularized below in this agreement;
ACCORDINGLY, IT IS WARRANTED, PROVIDED AND AGREED BETWEEN THE PARTIES AS
FOLLOWS:
1. RECITALS
1.1 The recitals in this agreement constitute an integral part hereof.
1.2 The clause headings in this agreement are for convenience and
orientation purposes only, they do not constitute part hereof and
shall not be used for the interpretation hereof.
1.3 The provisions of this agreement do not prejudice the rights or
holdings or shares of any of the holders of any classes of the
Company's shares at the time of the making hereof or thereafter,
unless otherwise expressly stated and provided herein.
2. THE TRUST
The parties hereby establish and create a trust and shall procure that the
Company shall allot to the Trustee the shares in respect whereof the
options for ordinary "A" shares of the Company shall be allotted.
The provisions of this agreement constitute an instrument of trust and
instructions to the Trustee.
3. THE OBJECT OF THE TRUST
The object of the trust is for options to shares to be held by the Trustee
for the benefit of employees of the Company whose names appear in list 1
annexed hereto, as may be amended from time to time by the Company in
written notices to the Trustee detailing the names of the beneficiaries,
stating alongside the name of each beneficiary the number of options which
the Trustee holds or shall hold on trust for him.
<PAGE> 3
3
3.1 The Trustee shall maintain and manage list 1 and shall attend to
updating it from time to time as required, including adding new
beneficiaries, recording options that have been allotted to the
Trustee on behalf of the beneficiaries according to the ratio of
their rights at the determining date, and he shall also record the
options that shall be added to the beneficiaries from such allotment
in list 1 to the credit of such beneficiaries.
3.2 The shares the subject of the options that shall be allotted to the
Trustee or that shall be held by it pursuant to the provisions hereof
shall be registered in the Trustee's name in the Company's register
of shareholders.
3.3 The Trustee shall act in all matters relating to adding new employees
to list 1 and to determine the terms and conditions of their
entitlement pursuant to resolutions of the Company as shall be passed
from time to time. Nonetheless, the Trustee shall not be entitled to
detract from the rights and conditions prescribed and/or that shall
be prescribed for the beneficiaries pursuant to this agreement or
with the written consent of the Company and of the beneficiary or
beneficiaries as the case may be.
3.4 The beneficiaries included or that shall be included in list 1 at any
time whatsoever do not and shall not have any right or plea against
others joining list 1 or against the adding of rights or shares to
those included in list 1, in whole or in part.
3.5 Upon the fulfillment of the terms and conditions or upon the times
falling due, all pursuant to the terms and conditions hereof, the
Trustee shall transfer to the beneficiaries the shares allotted to it,
all subject to the provisions hereof, the provisions of the Ordinance
and the provisions of the Rules.
4. The Trustee's Duties and Powers
The Company and the beneficiaries hereby instruct the Trustee to act with
the options which it holds and with the rights deriving from the holding
thereof in the following manner:
4.1 The Trustee shall submit an application to the authorities to approve
the trust as obliged from the Rules.
4.2 If the Company shall distribute bonus shares during the term of the
trust, the bonus shares that shall be distributed to the Trustee in
respect of the options pursuant to this agreement shall be those of
the beneficiaries and they shall be credited to them pro rata to
their entitlement to the options as particularized in list 1, and at
the date of the end of the trust and the transfer of the shares to
the beneficiaries, the Trustee and the Company shall act to allot the
bonus shares to them simultaneously with the allotment of the shares
due pursuant to the options.
<PAGE> 4
-4-
4.3 If rights in respect of the options are distributed at the end of the
trust, the Trustee shall give prior written notice thereof to the
beneficiaries in sufficient time to receive their response and it
shall act in accordance with the beneficiaries' instructions. If the
beneficiaries wish to register the rights and they transfer the
amount required therefor to the Trustee, it shall purchase the rights
on their behalf or on behalf of some of them and they shall be added
to their rights at the end of the trust. If the beneficiaries do not
give notice or if the beneficiaries do not reply to the Trustee at
the time prescribed therefor, the Trustee shall deem the
beneficiaries who did not reply or who did not pay the fixed
consideration on due date as having waived the offered rights.
4.4 The Trustee shall act in its exclusive discretion regarding all the
other subjects or rights conferred pursuant to the options or the
shares upon exercise of the options. However, if the Trustee receives
rights or monies in respect of the options, save for bonus shares, it
shall transfer them to the beneficiaries pursuant to list 1 and their
proportionate part therein.
5. THE BENEFICIARIES' PARTICIPATION
Each Participating Employee pursuant to this agreement shall sign a trust
participation document in the form of wording set forth below:
INSTRUMENT OF PARTICIPATION
Employee's name (hereinafter referred to as "the Participating
Employee")
1. I hereby participate as a beneficiary pursuant to the option
agreement dated ____________________________________ (hereinafter
referred to as "the agreement") and undertake all the
obligations and rights of a beneficiary pursuant to the
agreement.
2. I sign this instrument of participation having read the
agreement and having understood the provisions hereof.
3. I confirm my rights in the options held on my behalf by the
Trustee, including quo options, both pursuant to the agreement
and also pursuant to the conditions of participating in the
trust dated October 10, 1998 and also pursuant to the Ordinance
and the Rules.
_______________ __________________________________________
Date Signature of Participating Employee
<PAGE> 5
5-
Name of Participating Employee Employee Name
Identity No. of Participating Employee
Address of Participating Employee
Witness' signature: I certify the signature of the Participating Employee
__________________________________________
Moshe Ben-Bassat
Director of the Company
We the undersigned hereby confirm you participation as a beneficiary
pursuant to the agreement.
_______________ __________________________________________
Date The Trustee
6. THE OPTIONS
The employee participating in this agreement, the trust and the option
entitlement arrangement is hereby granted and given options upon the terms
and conditions and at the times set forth below:
6.1 A conditional and suspensory right upon the cumulative fulfillment of
the terms and conditions particularized below to receive by way of an
actual allotment at the end of the option term ordinary "A" shares of
the Company, as a right to benefit from the trust arrangement at the
time of participating in the agreement until the end of the trust term,
and during the course whereof the Participating Employee is granted the
right that his name shall be registered in list 1 together with a
notation of the option for the specific number of shares specified above.
6.2 The terms and conditions:
The Participating Employee's right to convert the options held on trust
on his behalf by the Trustee into shares that shall be actually allotted
in his name is conditional and suspensory upon the fulfillment of all
the following terms and conditions:
6.2.1 After actual period of employment with the Company of at least 12
months from the participation date shall confer the right to
convert 1/4 (a fourth) of the number of shares specified in the
option into shares that shall be actually allotted.
<PAGE> 6
-6-
6.2.2 Every month of continuous and cumulative period of work
thereafter shall confer the right to convert a further 1/36
of the total number of shares specified in the option into
shares that shall be actually allotted.
6.2.3 After a continuous and cumulative actual period of work of 48
months, the beneficiary will have the right to convert the
total number of shares specified in the option into shares
that shall be actually allotted. The validity of the trust in
relation to him shall expire.
6.2.4 The exercise of the right to an actual allotment is further
conditional and suspensory upon the payment of $0.35
(thirty-five cents) per share.
(The periods specified in this clause above are hereinafter
referred to as "the entitling period").
6.3 If the employee ceases to be an actual employee of the Company at
any stage whatsoever until the conversion of the options or part
thereof into shares and prior to the actual allotment of shares,
regardless of the reason for the termination of employment with the
Company, his right to an allotment of shares or to exercise the
balance of the allotment pursuant to this agreement shall after 60
days of termination expire, be cancelled and nullified
automatically and the trust in respect of such employee shall
expire.
6.4 If the options are cancelled because the terms and conditions of
this clause have not been fulfilled, the employee shall not be
entitled to consideration, refund of a payment or compensation or
indemnity whatsoever in respect of the cancellation.
7. The Beneficiaries' Liability
7.1 The beneficiaries acknowledge that the Trustee is likely to hold
non-paid up options on their behalf, whether as options upon the
terms and conditions of this agreement or for additional rights as
specified in clause 4 above, and if there shall be a demand for
payment in respect of the conversion of the options into shares or
other rights given for payment, the beneficiaries shall pay the
amounts required immediately upon receiving the Trustee's demand
therefor.
Failure to comply with the demand as aforesaid is likely to lead
to the same results as if the beneficiaries had ceased to work for
the Company.
7.2 Every liability and every amount that a holder of the options is
under a duty to pay and all the obligations applicable pursuant to
the Companies Ordinance and the Company's documents of incorporation
to a holder of options or shares or a member of the Company, shall
be passed on from the Trustee to the beneficiaries
<PAGE> 7
-7-
pursuant to the rate of the options or the shares held by the
Trustee for the benefit of the beneficiaries.
7.3 The beneficiaries hereby confirm that they acknowledge that if
payment demands of them are not complied with, the Company may
forfeit the options held on their behalf by the Trustee pursuant to
the Company's articles of association and the results of the
forfeiture shall apply to each beneficiary in accordance with the
option for shares held on trust on his behalf by the Trustee.
7.4 If the Trustee receives demands, requests, notices and claims,
including payment calls, demands for payments at the time of the
Company's winding up, notices in respect of forfeiting the options
or any other demand, the Trustee shall, immediately upon the
receipt thereof, send them to each of the beneficiaries in respect
of whose options held on his behalf by the Trustee the said demands
were received, to the beneficiary's address as appearing in his
participation notice or to another address which the beneficiary
sent the Trustee, provided that they shall be sent in writing and
the liability deriving from the said demands shall apply to the
beneficiary alone.
7.5 The beneficiaries' liability pursuant to this clause shall apply in
accordance with the options held on their behalf. If any charge or
payment demand whatsoever shall relate to options held for a
number of beneficiaries, each beneficiary shall be liable for the
charge or the payment demand pro rata to the options held on his
behalf.
8. Termination of the Trust
8.1 If the Trustee holds options for any beneficiary, including his
successors and assigns, during the entitling period, the shares
shall be transferred to the beneficiary's possession either on its
own initiative or on the beneficiary's initiative, upon the
following terms and conditions:
8.1.1 The Company has given notice to the Trustee that an employee
engaged by it continuously throughout the entitling period
continues to be employed by it and has requested to exercise
the option and has paid the option monies to the Company.
<PAGE> 8
8 -
8.2 If a Participating Employee ceases working for the Company at any
time whatsoever and for any reason whatsoever, the trust for him
shall expire at the time of the termination of employee-employer
relations. The expiry of the trust at the time of the termination
of the employer-employee relations shall be pro rata to the
balance of the beneficiary's right at such time.
8.3 If a Participating Employee exercises a right as a beneficiary by way
of exercising the conversion of an option into a share that shall be
actually allotted, subject to all the terms and conditions of this
agreement, the trust shall expire in respect of the part of the option
converted and actually allotted at such time.
9. ISSUE TO THE PUBLIC
9.1 If the Company notifies the Trustee that for the purposes of an issue
of shares to the public an undertaking by the beneficiary option
holders is required, pursuant whereto they undertake a restriction on
the transfer of the shares of which they are beneficiaries or to which
they are entitled pursuant to the options or the trading of such
shares, the Trustee shall be entitled to assume the undertaking as
aforesaid, provided that such an undertaking shall not prevent it
transferring options to the beneficiaries, subject to the
beneficiaries assuming the said undertaking.
9.2 If as a condition for the issue of shares to the public the option
holders shall be required to undertake not to sell them during a
specific period (hereinafter referred to as "the restriction period"),
the Company is entitled to make demand of the Trustee to join in
giving an undertaking as aforesaid, and in the event of a demand as
aforesaid the Trustee shall accede thereto, even if the entitling
period, or part thereof, mentioned in clause 6 above, has not yet
terminated, and in such case the trust period shall be extended by the
restriction period and the beneficiaries shall have no complaint in
consequence thereof.
9.3 The beneficiaries are aware that the Company is considering an issue
to the public with the intention of listing the Company's shares for
trading on a stock exchange either in Israel or abroad. The
beneficiaries empower the Trustee to sign any document which, in the
opinion of the Company's board of directors, is required to enable an
issue as aforesaid, including changes to the Company's documents of
incorporation and including changes in its capital structure for so
long as the changes shall not result in the shares the subject of the
options held on trust by the Trustee having inferior rights (save for
voting rights) compared with the rights which other shares of the
Company confer.
If the shares are listed for trading as aforesaid, the employees shall
be entitled to apply to the Income Tax Commissioner for his shares to
be deemed as having been sold at the average stock exchange price in
the first three days of trading.
<PAGE> 9
9-
10. NON-TRANSFERABILITY
The rights to the options pursuant to this agreement and the shares that
shall be allotted to the Participating Employee pursuant thereto and upon
the terms and conditions thereof are granted to the Participating
Employee as a beneficiary and to him alone.
The beneficiaries' rights may not be transferred to assigned in any
manner whatsoever, including by way of pledge, charge, attachment,
assignment and the like.
Without derogating from the aforegoing, rights to options may only be
transferred by way of implementing a will of an employee or his
inheritance.
11. REPLACEMENT TRUSTEE
If the Trustee is unable to perform its duties or does not wish to
perform its duties, the Company is entitled to appoint a replacement
trustee and in such event the Trustee shall transfer the options it is
holding to the replacement trustee and the replacement trustee shall
replace the Trustee for all intents and purposes.
12. THE COMPANY'S OTHER SHARES
12.1 The provisions of this agreement do not prejudice the rights of
other holders of options or shares of the Company to which the
trust arrangement does not apply.
12.2 The parties are aware that additional employees of the Company own
rights in shares or to receive shares in other arrangements, and it
is hereby expressly agreed that this agreement does not apply to
and does not affect or howsoever impair rights of other
shareholders of the Company or persons entitled to shares of the
Company, including entitled employees as aforesaid.
13. PAYMENT AND INDEMNITY
13.1 An action by the Trustee and any outcome of an action by the
Trustee, directly or indirectly, shall not render the Trustee
liable for any payment whatsoever. In any event in which the
Trustee is directly or indirectly ordered to make any payment in
connection with its actions as trustee, the Company undertakes to
directly effect and make the payment which shall be required, for
so long as it is a payment relating to the trust, or to indemnify
the Trustee for a payment as aforesaid upon demand received from
it.
<PAGE> 10
10-
13.2 Save in regard to the subjects particularized in clause 7 above, if
the Trustee is ordered to make any payment by a court or tribunal
or arbitrator in consequence of its operations as trustee, whether
directly or indirectly, the Company shall bear the payment in its
stead and shall effect the payment on the required date, and the
Trustee shall not be liable to indemnify the Company for such
payment.
13.3 The beneficiaries and the Company release the Trustee from any
liability for a negligent act or omission, and the Company shall
indemnify the Trustee for any payment which it is required to pay
in order to compensate any person or corporation for such an act of
omission.
The Trustee shall not be exempt from liability for an act or
omission committed willfully or other than in good faith.
14. GENERAL PROVISIONS
14.1 If the law so obliges or if the Company or any of its shareholders
so requests, the Company shall procure that the Trustee shall be
registered in the Company's register of shareholders as the owner
of the options for shares held by it on trust.
14.2 The Company shall bear the Trustee's remuneration.
14.3 If the Company resolves to issue any of its shares in consequence
of additional investors joining the Company or for any other
reason, the Trustee's part of the options convertible into shares
of the Company shall be diluted respectively and the beneficiaries'
right shall also be diluted in accordance therewith, and the
beneficiaries shall not have any complaint or claim in such regard.
14.4 In a case where the beneficiaries have been actually allotted part
of the shares at the time of a dilution as aforesaid or any other
time thereafter, their shares shall be diluted in respect of the
joining of investors or other shareholders, and the beneficiaries
shall not, even as shareholders, have any complaint or demand in
such regard.
14.5 The Trustee is empowered to determine the terms and conditions for
beneficiaries participating in the trust, in its discretion.
14.6 The parties undertake to sign all the documents required to give
validity and effect to this agreement.
<PAGE> 11
11-
14.7 If income tax or capital gains tax or any other tax applies in
respect of the options or in respect of the allotment of the shares
or in respect of the holding of the shares or the transfer thereof,
or for another reason, the tax shall be borne by the beneficiary in
respect of the options or the shares held for his benefit by the
Trustee. If tax as aforesaid is imposed, the Trustee shall be
entitled to make demand of the beneficiary to pay the tax upon demand
pursuant to this agreement or to deduct the imposed tax from the
amounts due or that shall be due to the beneficiary, and such being
in addition to any other remedy available to the Trustee at law. If
the tax as aforesaid is imposed upon the Company, the Trustee shall
be under a duty, upon the Company's demand, to deduct the said tax
and to remit the amount collected to the Company, as the case may be.
The beneficiary authorizes and empowers the Company and the Trustee
to deduct or collect tax as aforesaid.
AS WITNESS THE HANDS OF THE PARTIES:
- ------------------------------------- -----------------------------------
L.E.T. INTELLIGENT ELECTRONICS LTD Y.S.M.A. TRUST COMPANY
"THE COMPANY" "THE TRUSTEE"
<PAGE> 12
12 -
APPENDIX TO TRUST AGREEMENT -
CONDITIONS FOR PARTICIPATING IN THE TRUST
Made in Tel-Aviv this 10th day of October 1998.
BETWEEN: IET Intelligent Electronics Ltd.
AND: The Participating Employee, Mr.
WHEREAS IET Intelligent Electronics Ltd. (hereinafter referred to as "the
Company") shall allot options convertible into shares in favor of
the Participating Employee;
AND WHEREAS the employee wishes to participate in an agreement dated __________
(hereinafter referred to as "the agreement"), including the
Trustee's trust and its holding of the options until they mature;
ACCORDINGLY, IT IS WARRANTED AND AGREED AS FOLLOWS:
1. The recitals to this appendix constitute an integral part hereof.
2. The Participating Employee is entitled to be a beneficiary pursuant to the
agreement from the date of the signing of this conditions for participation
appendix.
3. The Participating Employee's entitlement shall confer upon him the
following rights:
3.1 The right to be registered as a beneficiary of options to receive
ordinary "A" shares of NIS 0.001 each of the Company, according to the
following schedule: one fourth being after 12 months have elapsed of
continuous work for the Company. The balance of shares would vest
monthly at a rate of 1/36 of the total for the remainder three years
of the vesting period, and such being subject to payment of the sum of
$0.35 (thirty five cents), at the representative rate known at such
time, prior to the allotment of shares of the Company into his name.
3.2 The said right is conditional and suspensory upon the fulfillment of
all the terms and conditions specified in the agreement.
3.3 If the employee ceases to be an actual employee of the Company at any
stage whatsoever until the conversion of the options or part thereof
into shares and prior to the actual allotment of the shares,
regardless of the reason for the termination of the employment with
the Company, his rights to an allotment or to exercise the balance of
the allotment shall expire, be cancelled and nullified.
3.4 The provisions set forth in this clause are in addition to the
provisions set forth in the agreement.
<PAGE> 13
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3.5 The ancillary right upon the terms and conditions of the agreement
distribution of additional rights or benefits, and also those shall
be granted in the future to holders of shares or at the time of
winding up, all pro rata to his entitlement to options.
4. The option convertible into shares upon the terms and conditions of the
agreement and the terms and conditions of this instrument of participation
shall be recorded in list 1 by the Trustee together with the Participating
Employee's name and his proportionate share of the number of the shares as
specified above.
5. The options that shall be recorded for the Participating Employee are in
addition to his other employment terms and conditions, and are not in lieu
thereof, but the Company's management may consider them a benefit or other
right conferred upon the employee in respect of and in consequence of his
employment.
6. The Participating Employee hereby agrees and confirms that if there shall
be a dilution of the Company's shares at any stage or in any manner,
whether during the course of the entitling period, or upon the exercise of
the conversion of the shares into an actual allotment of shares, whether
in stages or at the end of the entire entitling period, his part shall
also be diluted respectively.
In an event in which additional conditions would be required by the
relevant authorities for the approval to implement this agreement, the
beneficiaries shall and they do agree to such conditions.
7. The Participating Employee accepts and agrees to all the terms and
conditions of the agreement and confirms his express consent that in any
event of a contradiction between the provisions of this appendix and the
provisions of the agreement, the provisions of the agreement shall prevail.
8. The Participating Employee hereby confirms his consent that all the
payment of taxes, official fees, levies and the like of whatsoever
description applicable now or that shall be applicable in the future in
respect of the agreement, in respect of this instrument of participation
and in respect of the realization thereof shall be borne by him alone.
9. This appendix constitutes an internal part of the instrument of
participation in the agreement and the signing of the instrument of
participation constitutes the signing of this appendix.
The instrument of participation is annexed hereto.
- --------------------------------------------
Signature of the Participating Employee
We agree to the aforegoing:
- --------------------------------------------
IET Intelligent Electronics Ltd.
<PAGE> 14
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INSTRUMENT OF PARTICIPATION
Employee's name: Amit Ben-Dov
(hereinafter referred to as "the Participating Employee")
1. I hereby participate as a beneficiary pursuant to the option agreement
dated Jan. 1, 1997 (hereinafter referred to as "the agreement") and
undertake all the obligations and rights of a beneficiary pursuant to the
agreement.
2. I sign this instrument of participation having read the agreement and
having understood the provisions hereof.
3. I confirm my rights in the options held on my behalf by the Trustee,
including qua options, both pursuant to the agreement and also pursuant to
the conditions of participating in the trust dated ____________ and also
pursuant to the Ordinance and the Rules.
1/1/ 1997
- -------------------- ---------------------------------------
Date Signature of Participating Employee
Name of Participating Employee
Social Security No. of Participating Employee
Address of Participating Employee:
Witness' signature: I certify the signature of the Participating Employee
---------------------------------
Moshe Ben-Bassat
Director of the Company
We the undersigned hereby confirm your participation as a beneficiary pursuant
to the agreement.
January 1, 1997
- -------------------- ---------------------------------------
Date The Trustee
<PAGE> 1
Exhibit 10.9
FREE TRANSLATION OF THE HEBREW ORIGINAL
AGREEMENT FOR THE ALLOTMENT OF SHARE OPTIONS AND TRUST AGREEMENT
Made in Tel Aviv, this 20th day of July 1999
BETWEEN: I.E.T. INTELLIGENT ELECTRONICS LTD.
(hereinafter referred to as "the Company")
of the first part
AND: CERTAIN EMPLOYEES OF THE COMPANY WHO SHALL BE INVITED BY
THE COMPANY TO PARTICIPATE IN THE AGREEMENT AND SIGN
THE PARTICIPATION DOCUMENT
(such an employee is hereinafter referred to as "a
Participating Employee")
of the second part
AND: B.Y.A.D. TRUSTEES
(hereinafter referred to as "the Trustee")
of the third part
WHEREAS the Company wishes to grant to certain Participating
Employees, not including controlling shareholders, and up
to 35 (thirty five) of such Participating Employees,
within the context of a trust, options for shares of the
Company in the first stage and thereafter to enable the
Participating Employees, upon certain terms and
conditions, to receive an actual allotment of shares;
AND WHEREAS the Company wishes to grant the options, such that they
shall be held by the Trustee on behalf of the
Participating Employees, whether existing employees or
employees who shall commence working for the Company;
<PAGE> 2
AND WHEREAS the Company wishes to appoint the Trustee, and the
provisions of this Agreement shall serve as an
instrument of trust and instructions to the Trustee;
AND WHEREAS the Trustee agrees to accept such position;
AND WHEREAS the parties wish to define, determine and detail the
method of the allotment, the stages thereof and all
matters relating thereto or connected therewith or
deriving therefrom, all as detailed below in this
Agreement;
ACCORDINGLY, IT IS WARRANTED, PROVIDED AND AGREED BETWEEN THE PARTIES AS
FOLLOWS:
1. RECITALS
1.1 The recitals to this Agreement constitute an integral part
hereof.
1.2 The clause headings in this Agreement are for convenience and
orientation purposes only, they do not constitute any part
hereof and shall not be used for the interpretation hereof.
1.3 The provisions of this Agreement do not prejudice the rights or
holdings or shares of any of the holders of any classes of the
Company's shares at the time of the making hereof or thereafter,
unless otherwise expressly stated and provided herein.
2. THE TRUST
The parties hereby establish and create a trust and shall procure that
the Company shall allot to the Trustee the options for Ordinary "B"
shares of the Company and the shares, at the time of the exercise of
part or all of the options.
The provisions of this Agreement constitute an instrument of trust and
instructions to the Trustee.
It is agreed that Appendix B to the Income Tax Regulations (Tax Relief
Upon Allotment of Shares to Employees) 1989 (hereinafter the
"Regulations"), constitute an integral part of this Agreement,
Instrument of Trust and Instructions to the Trustee, in accordance with
this Agreement.
<PAGE> 3
3. THE OBJECT OF THE TRUST
The object of the trust is for options to shares to be held by the
Trustee for the benefit of employees of the Company whose names appear
in List "1" attached to this Agreement, as may be amended from time to
time by the Company by written notice to the Trustee detailing the names
of the beneficiaries and next to each beneficiaries' name, the number of
options which the Trustee holds or shall hold in trust for each
beneficiary.
3.1 The Trustee shall maintain and manage List "1" and shall attend
to updating it from time to time as required, including adding
new beneficiaries, recording options that have been allotted to
the Trustee on behalf of the beneficiaries according to the
ratio of their rights at the determining date, and he shall also
record the options that shall be added to the beneficiaries from
such allotment in List 1 to the credit of such beneficiaries.
3.2 The share options allotted upon exercise of the options shall be
allotted to the Trustee or that shall be held by the Trustee
pursuant to the provisions of this Agreement shall be registered
in the Trustee's name in the Company's register of shareholders.
3.3 The Trustee shall act in all matters relating to adding new
employees to List "1" and to determine the terms and conditions
of their entitlement pursuant to resolutions of the Company as
shall be passed from time to time. Nonetheless, the Trustee
shall not be entitled to detract from the rights and conditions
prescribed and/or that shall be prescribed for the beneficiaries
pursuant to this Agreement except with the prior written consent
of the Company and of the beneficiary or beneficiaries affected
by such change, as the case may be.
3.4 The beneficiaries included or that shall be included in List "1"
at any time whatsoever do not and shall not have any right or
claim against other beneficiaries being added to the List or
against the adding of rights or shares to those included in List
"1", in whole or in part.
3.5 Upon the fulfillment of the terms and conditions or at the
specified times, all pursuant to the terms and conditions
hereof, the Trustee shall transfer to the beneficiaries the
options or the shares allotted to them, as the case may be, all
subject to the provisions hereof, the provisions of the
Ordinance and the Regulations.
3.6 The Company shall keep separate records as to every allotment,
and shall forward a copy of such records to the Trustee; the
records shall contain every detail connected to the allotment,
including -
(1) The names of the employees to whom shares were allotted
in the framework of an entitling allotment, their I.D.
numbers and addresses;
<PAGE> 4
(2) The number of shares which were allotted to each
employee, their class and description including the
share's serial number;
(3) The sum which was paid by every employee in
consideration for the shares and the dates of payments;
(4) The date of the allotment;
(5) Transactions which were carried out in connection with
the shares, including sales thereof and transfer thereof
to an employee or his successors;
4. THE TRUSTEE'S DUTIES AND POWERS
The Company and the beneficiaries hereby instruct the Trustee to act
with the options which it holds and with the rights deriving therefrom
in the following manner:
4.1 The Trustee shall apply to the the authorities in a request for
approval of the trust as obligated by the provisions.
4.2 If the Company shall distribute bonus shares during the term of
the trust, the bonus shares that shall be distributed to the
Trustee in respect of the options pursuant to this Agreement
shall belong to the beneficiaries and they shall be credited to
them pro rata to their entitlement to the options according to
List "1", and at the date of the end of the trust and the
transfer of the shares to the beneficiaries, the Trustee and the
Company shall act to allot the bonus shares to them
simultaneously with the allotment of the shares due pursuant to
the options.
4.3 If rights in respect of the options are distributed by the
Company at the end of the trust in accordance with Section 8
hereof, the Trustee shall give prior written notice thereof to
the beneficiaries in sufficient time to receive their response
and it shall act in accordance with the beneficiaries'
instructions. If the beneficiaries wish to register the rights
and they transfer the amount required therefor to the Trustee,
the Trustee shall purchase the rights on their behalf or on
behalf of some of them and they shall be added to their rights
at the end of the trust. If the beneficiaries do not give notice
or if the beneficiaries do not reply to the Trustee at the time
prescribed therefor, the Trustee shall deem the beneficiaries
who did not reply or who did not pay the fixed consideration on
due date as having irrevocably waived the offered rights.
4.4 The Trustee shall act in its exclusive discretion regarding all
the other subjects or rights conferred pursuant to the options
or the shares upon exercise of the options. However, if the
Trustee receives rights or monies in respect of the options,
save for bonus shares, it shall transfer them to the
beneficiaries pursuant to their
<PAGE> 5
proportionate share of the options pursuant to List "1".
4.5 The Trustee shall deliver all required reports in accordance
with the provisions and/or in accordance with the law and/or
other regulations applying to the subject matter of this
Agreement.
5. THE BENEFICIARIES' PARTICIPATION
Each Participating Employee pursuant to this Agreement shall sign a
trust participation document in the form of wording set forth below:
INSTRUMENT OF PARTICIPATION
Employee's name ______________________________ (hereinafter
referred to as "the Participating Employee")
1. I hereby participate as a beneficiary pursuant to the
Option Agreement dated _______________ (hereinafter
referred to as "the Agreement") and undertake all the
obligations and rights of a beneficiary pursuant to the
Agreement.
2. I sign this instrument of participation having read the
Agreement and having understood the provisions thereof.
3. I confirm my rights in the options held on my behalf by
the Trustee both pursuant to the Agreement and also
pursuant to the conditions of participating in the trust
dated _______________ and pursuant to the Ordinance and
Regulations.
--------------- ------------------------------------
Date Signature of Participating Employee
Name of Participating Employee _______________
Identity No. of Participating Employee _______________
Address of Participating Employee _______________
Witness' signature: I certify the signature of the Participating
Employee
------------------------------
Director of the Company
We the undersigned hereby confirm your participation as a
beneficiary pursuant to the Agreement.
<PAGE> 6
--------------- ---------------
Date The Trustee
6. THE OPTIONS
The employee participating in this Agreement, the trust and the option
entitlement arrangement is hereby granted and given options upon the
terms and conditions and at the times set forth below:
6.1 A conditional and suspensive right upon the cumulative
fulfillment of the terms and conditions detailed below and the
terms and conditions detailed in the Option Plan and in the
Trust Agreement to receive by way of an allotment of
_______________ Ordinary "B" Shares of the Company. Until the
registration of the shares in the employees name in accordance
with the Option Plan and the Trust Agreement as mentioned above,
the Participating Employee is granted the right that his name be
registered in List "1" with a notation of the option for the
specific number of shares specified above.
6.2 The terms and conditions:
The Participating Employee's right to convert the options held
in trust on his behalf by the Trustee into shares that shall be
actually allotted in his name is conditional and suspensive upon
the fulfillment of all the following terms and conditions:
6.2.1 Every actual period of employment with the Company of at
least 24 months from the participation date shall confer
the right to convert 1/3 (a third) of the number of
shares specified in the options into shares.
6.2.2 Every month of continuous and cumulative period of
employment exceeding the first 24 months shall confer
the right to convert a further 1/24 (one twenty-fourth)
from the balance of 2/3 (two-thirds) of the total number
of shares specified in the option, into shares actually
allotted, in an allotment at the end of the cumulative
period.
6.2.3 After a continuous and cumulative actual period of
employment with the Company of 48 months, the
beneficiary's right shall be exhausted and the validity
of the trust in relation to him shall expire.
6.2.4 The exercise of the right to an actual allotment of "B"
Ordinary Shares is further conditional and suspensive
upon the payment of $0.5 (fifty cents) according to the
representative rate known at the time of the allotment
in respect of the right to each share.
<PAGE> 7
6.2.5 In the event that conditions are imposed by the
authorities as conditions for approval of the
fulfillment of this Agreement, the beneficiaries will
agree and agree to these conditions.
(The periods specified in this clause above are hereinafter
referred to as "the Vesting Period".)
6.3 If the employee ceases to be an actual employee of the Company
at any stage whatsoever prior to the conversion of the options
or part thereof into shares and prior to the actual allotment of
shares, and provided that the circumstances of the termination
of employment are not breach of trust, grave disciplinary
offence or criminal offence ("Cause"), the options granted to
the employee until the date of the termination of his employment
with the Company can be exercised only for a period of three (3)
months from the date of the above-mentioned termination of
employment. After the end of the said three (3) month period,
the options granted to the employee which were not exercised,
shall expire and shall be void.
In the event that a beneficiary who ceased to be an employee
within two years from the date of this Option Agreement and the
tax exemption does not apply to the beneficiary, the same
employee shall be liable for the tax payment for tax upon
allotment and for tax pursuant to s.102 Ordinance, the higher of
the two.
6.4 If the options are cancelled because the terms and conditions of
this clause have not been fulfilled, the employee shall not be
entitled to consideration, refund or compensation or indemnity
whatsoever in respect of the cancellation.
7. THE BENEFICIARIES' LIABILITY
7.1 Every liability and every amount that a holder of the options is
under a duty to pay and all the obligations applicable pursuant
to the Companies Ordinance and the Company's documents of
incorporation to a holder of options or shares or a member of
the Company, shall be passed on from the Trustee to the
beneficiaries pursuant to the proportion of the options or the
shares held by the Trustee for the benefit of the beneficiaries.
7.2 The beneficiaries hereby confirm that they acknowledge that if
payment demands of them are not complied with, the Company may
forfeit the options held on their behalf by the Trustee pursuant
to the Company's Articles of Association and the results of the
forfeiture shall apply to each beneficiary in accordance with
the option for shares held on trust on his behalf by the
Trustee.
7.3 If the Trustee receives demands, requests, notices and claims,
including payment calls, demands for payments at the time of the
Company's winding up, notices in respect of forfeiting the
shares or any other demand, the Trustee shall, immediately upon
the receipt thereof, send them to each of the beneficiaries in
respect of whose
<PAGE> 8
shares held on his behalf by the Trustee the said demands were
received, to the beneficiary's address as appearing in his
participation notice or to another address which the beneficiary
sent the Trustee, provided that they shall be sent in writing
and the liability deriving from the said demands shall apply to
the beneficiary alone.
7.4 The beneficiaries' liability pursuant to this clause shall apply
in accordance with the shares held on their behalf. If any
charge or payment demand whatsoever shall relate to shares held
for a number of beneficiaries, each beneficiary shall be liable
for the charge or the payment demand pro rata to the options
held on his behalf.
8. TERMINATION OF THE TRUST
8.1 If the Trustee holds options or shares for any beneficiary,
including his successors and assigns, during the Vesting Period
that shall not be less than two years, the shares or options
shall be transferred to the beneficiary's possession either on
its own initiative or on the beneficiary's initiative, on the
following terms and conditions:
8.1.1 The Company notified the Trustee that the employee is
continuously employed by the Company for the whole
vesting period, and continues to be employed by the
Company and he has requested to exercise an option and
has paid the Company the exercise price.
8.1.2 In the event that the Notification of Deduction at
Source Form has been completed and sent, as specified in
the Income Tax Regulations (Tax Relief Upon Allotment of
Shares to Employees) 1989, and tax is actually paid, at
the rate specified in the Regulations at that time.
8.2 If a Participating Employee ceases to be employed by the Company
at any time whatsoever and for any reason whatsoever, the trust
for him shall expire at the time of the termination of
employee-employer relations.
8.3 If a Participating Employee exercises a right as a beneficiary
by way of exercising the conversion of an option into a share
that shall be actually allotted, subject to all the terms and
conditions of this Agreement, the trust shall expire in respect
of the part of the option converted and actually allotted at
such time.
9. ISSUE TO THE PUBLIC
9.1 If the Company notifies the Trustee that for the purposes of an
issue of shares to the
<PAGE> 9
public an undertaking by the beneficiary option holders is
required, pursuant whereto they undertake a restriction on the
transfer of the shares of which they are beneficiaries or to
which they are entitled pursuant to the options or the trading
of such shares, the Trustee shall be entitled to assume the
undertaking as aforesaid, provided that such an undertaking
shall not prevent it from transferring options to the
beneficiaries, subject to the beneficiaries assuming the said
undertaking.
9.2 If as a condition for the issue of shares to the public the
option holders shall be required to undertake not to sell them
during a specific period (hereinafter referred to as "the
restriction period"), the Company is entitled to make demand of
the Trustee to join in giving an undertaking as aforesaid, and
in the event of a demand as aforesaid the Trustee shall accede
thereto, even if the Vesting Period, or part thereof, mentioned
in clause 6 above, has not yet terminated, and in such case the
trust period shall be extended by the restriction period and the
beneficiaries shall have no complaint in consequence thereof.
9.3 The beneficiaries are aware that the Company is considering an
issue to the public with the intention of listing the Company's
shares for trading on a stock exchange either in Israel or
abroad. The beneficiaries empower the Trustee to sign any
document which, in the opinion of the Company's board of
directors, is required to enable an issue as aforesaid,
including changes to the Company's documents of incorporation
and including changes in its capital structure, provided that
the changes shall not result in the shares the subject of the
options held in trust by the Trustee having inferior rights
(save for voting rights) compared with the rights which other
shares of the Company confer.
In the event that the shares are registered for trading, as
aforesaid, the employee shall be permitted to apply to the
Commissioner in a request that his shares will be seen as sold
pursuant to the average stock exchange price-list in the first
three days of trading.
10. NON-TRANSFERABILITY
The rights to the options pursuant to this Agreement and the shares that
shall be allotted to the Participating Employee pursuant thereto and
upon the terms and conditions thereof are granted to the Participating
Employee as a beneficiary and to him alone.
The beneficiaries' rights may not be transferred or assigned in any
manner whatsoever, including by way of pledge, charge, attachment,
assignment and the like.
Without derogating from the foregoing, rights to options may only be
transferred by way of implementing a will of an employee or his
inheritance if the employee dies on a date when he was an actual
employee of the Company.
11. REPLACEMENT TRUSTEE
<PAGE> 10
If the Trustee is unable to perform its duties or does not wish to
perform its duties, the Company is entitled to appoint another trustee
and in such event the Trustee shall transfer the options it is holding
to the other trustee and the replacement trustee shall replace the
Trustee for all intents and purposes.
12. THE COMPANY'S OTHER SHARES
12.1 The provisions of this Agreement do not prejudice the rights of
other holders of options or shares of the Company to which the
trust arrangement does not apply.
12.2 The parties are aware that additional employees of the Company
own rights in shares or to receive shares in other arrangements,
and it is hereby expressly agreed that this Agreement does not
apply to and does not affect or howsoever impair rights of other
shareholders of the Company or persons entitled to shares of the
Company, including employees entitled as aforesaid.
13. PAYMENT AND INDEMNITY
13.1 An action by the Trustee and any outcome of an action by the
Trustee, directly or indirectly, shall not render the Trustee
liable for any payment whatsoever. In any event in which the
Trustee is directly or indirectly ordered to make any payment in
connection with its actions as trustee, the Company undertakes
to directly effect and make the payment which shall be required,
for so long as it is a payment relating to the trust, or to
indemnify the Trustee for a payment as aforesaid upon demand
received from it.
13.2 Save in regard to the subjects detailed in clause 7 above, if
the Trustee is ordered to make any payment by a court or
tribunal or arbitrator in consequence of its operations as
trustee, whether directly or indirectly, the Company shall bear
the payment in its stead and shall effect the payment on the
required date, and the Trustee shall not be liable to indemnify
the Company for such payment.
13.3 The beneficiaries and the Company release the Trustee from any
liability for a negligent act or omission, and the Company shall
indemnify the Trustee for any payment which it is required to
pay in order to compensate any person or corporation for such an
act or omission.
14. GENERAL PROVISIONS
14.1 If the law so obliges or if the Company or any of its
shareholders so requests, the Company shall procure that the
Trustee shall be registered in the Company's register of
shareholders as the owner of the options for shares held by it
on trust.
<PAGE> 11
14.2 The Company shall pay the Trustee's remuneration.
14.3 If the Company resolves to issue any of its shares in
consequence of additional investors joining the Company or for
any other reason, the Trustee's part of the options convertible
into shares of the Company shall be diluted accordingly and the
beneficiaries' right shall also be diluted in accordance
therewith, and the beneficiaries shall not have any complaint or
claim in such regard.
14.4 In a case where the beneficiaries have been actually allotted
part of the shares at the time of a dilution as aforesaid or at
any other time thereafter, their shares shall be diluted in
respect of the joining of investors or other shareholders, and
the beneficiaries shall not, even as shareholders, have any
complaint or demand in such regard.
14.5 The Trustee is empowered to determine the terms and conditions
for beneficiaries participating in the trust, in its discretion.
14.6 The parties undertake to sign all the documents required to give
validity and effect to this Agreement.
14.7 If income tax or capital gains tax or any other tax applies in
respect of the options or in respect of the allotment of the
shares or in respect of the holding of the shares or the
transfer thereof, or for another reason, the tax shall be borne
by the beneficiary in respect of the options or the shares held
for his benefit by the Trustee. If tax as aforesaid is imposed,
the Trustee shall be entitled to make demand of the beneficiary
to pay the tax upon demand pursuant to this Agreement or to
deduct the imposed tax from the amounts due or that shall be due
to the beneficiary, and such being in addition to any other
remedy available to the Trustee at law. If the tax as aforesaid
is imposed upon the Company, the Trustee shall be under a duty,
upon the Company's demand, to deduct the said tax and to remit
the amount collected to the Company, as the case may be.
The beneficiary authorizes and empowers the Company and the
Trustee to deduct or collect tax as aforesaid.
14.8 In the event of the death of a beneficiary at a time when he is
not an actual employee of the Company, his rights shall
automatically expire and any prima facie transfer to his heirs
or to beneficiaries pursuant to his will, as the case may be,
shall not be valid, unless the Company confirms that as at the
date of the death the was an actual employee.
AS WITNESS THE HANDS OF THE PARTIES:
<PAGE> 12
- ------------------------------ ------------------------------
I.E.T. INTELLIGENT ELECTRONICS LTD B.Y.A.D. TRUSTEES LTD.
"THE COMPANY" "THE TRUSTEE"
<PAGE> 13
APPENDIX TO TRUST AGREEMENT -
CONDITIONS FOR PARTICIPATING IN THE TRUST
Made in Tel-Aviv this __ day of _______________.
BETWEEN: IET Intelligent Electronics Ltd.
AND: The Participating Employee, Mr./Ms. _____________________
WHEREAS IET Intelligent Electronics Ltd. (hereinafter referred
to as "the Company") shall allot options convertible
into shares in favor of the Participating Employee;
AND WHEREAS the employee wishes to participate in an Agreement dated
20th July 1999 (hereinafter referred to as "the
Agreement"), including the Trustee's trust and its
holding of the options until they mature;
ACCORDINGLY, IT IS WARRANTED AND AGREED AS FOLLOWS:
1. The recitals to this appendix constitute an integral part hereof.
2. The Participating Employee is entitled to be a beneficiary pursuant to
the Agreement from the date of the signing of this conditions for
participation appendix.
3. The Participating Employee's entitlement shall confer upon him the
following rights:
3.1 The right to be registered as a beneficiary of options to
receive ____________ ordinary "B" shares of NIS 0.01 each of
the Company in equal shares of one third with the determining
date for the first third being after 24 months have elapsed of
continuous work for the Company. After this, each month of
continuous employment past the first 24 months , shall confer on
the employee the right to convert 1/36 (one thirty-sixth) of the
balance of 2/3 (two thirds) of the share options, into shares
actually allotted in an allotment at the end of the continuous
period. The entire cumulative period shall be entitled the
"Vesting Period". The right to shares as aforesaid shall be
subject to payment of the sum of $0.5 (fifty cents), for the
right to each share, at the representative rate known at such
time.
3.2 The said right is conditional and suspensive upon the
fulfillment of all the terms and conditions specified in the
Agreement.
3.3 If the employee ceases to be an actual employee of the Company
at any stage whatsoever until the conversion of the options or
part thereof into shares and prior to the actual allotment of
the shares, regardless of the reason for the termination of the
employment with the Company, his rights to an allotment or to
exercise the balance of the allotment shall expire, be cancelled
and nullified except to the extent specified in the Agreement.
3.4 The provisions set forth in this clause are in addition to the
provisions set forth in the
<PAGE> 14
Agreement.
3.5 The ancillary right upon the terms and conditions of the
Agreement distribution of additional rights or benefits, and
also those shall be granted in the future to holders of shares
or at the time of winding up, all pro rata to his entitlement to
options.
4. The option convertible into shares upon the terms and conditions of the
Agreement and the terms and conditions of this instrument of
participation shall be recorded in List "1" by the Trustee together with
the Participating Employee's name and his proportionate share of the
number of the shares as specified above.
5. The options that shall be recorded for the Participating Employee are in
addition to his other employment terms and conditions, and are not in
lieu thereof, but the Company's management may consider them a benefit
or other right conferred upon the employee in respect of and in
consequence of his employment.
6. The Participating Employee hereby agrees and confirms that if there
shall be a dilution of the Company's shares at any stage or in any
manner, whether during the course of the Vesting Period, or upon the
exercise of the conversion of the shares into an actual allotment of
shares, whether in stages or at the end of the entire Vesting Period,
his part shall also be diluted respectively.
In an event in which additional conditions would be required by the
relevant authorities for the approval to implement this Agreement, the
beneficiaries shall and they do agree to such conditions.
7. The Participating Employee accepts and agrees to all the terms and
conditions of the Agreement and confirms his express consent that in any
event of a contradiction between the provisions of this appendix and the
provisions of the Agreement, the provisions of the Agreement shall
prevail.
8. The Participating Employee hereby warrants and confirms his consent that
all the payment of taxes, official fees, levies and the like of
whatsoever description applicable now or that shall be applicable in the
future in respect of the Agreement, in respect of this instrument of
participation and in respect of the realization thereof shall be borne
by him alone.
9. The employee explicitly approves and agrees that he has been notified
that, and it is within his knowledge that the Arrangement for the
Allotment of Share Options for conversion is in accordance with s.102
Income Tax Ordinance, and that he agrees that and undertakes not to
request a tax exemption under sections 95 or 97 (A) Income Tax
Ordinance, or under Chapter 7 Encouragement of Industry (Taxes) Law
1969.
10. This appendix constitutes an integral part of the instrument of
participation in the Agreement and the signing of the instrument of
participation constitutes the signing of this appendix.
The instrument of participation is annexed hereto.
- ----------------------------------------
Signature of the Participating Employee
<PAGE> 15
We agree to the foregoing:
- ----------------------------------------
IET Intelligent Electronics Ltd.
<PAGE> 16
INSTRUMENT OF PARTICIPATION
Employee's name _______________________________________________________________
(hereinafter referred to as "the Participating Employee")
1. I hereby participate as a beneficiary pursuant to the Option Agreement
dated ______________ (hereinafter referred to as "the Agreement") and
undertake all the obligations and rights of a beneficiary pursuant to
the Agreement.
2. I sign this instrument of participation having read the Agreement and
having understood the provisions hereof.
3. I confirm my rights in the options held on my behalf by the Trustee both
pursuant to the Agreement and also pursuant to the conditions of
participating in the trust dated ________________, and in accordance
with the Ordinance and the Regulations.
- --------------------- ------------------------------------
Date Signature of Participating Employee
Name of Participating Employee ________________________________________________
Identity No. of Participating Employee _________________________________________
Address of Participating Employee ______________________________________________
Witness' signature: I certify the signature of the Participating Employee
------------------------------
Director of the Company
We the undersigned hereby confirm your participation as a beneficiary pursuant
to the Agreement.
- --------------------- ------------------------------------
Date The Trustee
<PAGE> 1
Exhibit 10.10
FREE TRANSLATION OF THE HEBREW ORIGINAL
AGREEMENT FOR THE ALLOTMENT OF SHARE OPTIONS AND TRUST AGREEMENT
Made in Tel Aviv, this 1st day of September 1999
BETWEEN: I.E.T. INTELLIGENT ELECTRONICS LTD.
(hereinafter referred to as "the Company")
of the first part
AND: CERTAIN EMPLOYEES OF THE COMPANY WHO SHALL BE INVITED BY
THE COMPANY TO PARTICIPATE IN THE AGREEMENT AND SIGN
THE PARTICIPATION DOCUMENT
(such an employee is hereinafter referred to as "a
Participating Employee")
of the second part
AND: B.Y.A.D.TRUSTEES
(hereinafter referred to as "the Trustee")
of the third part
WHEREAS the Company wishes to grant to certain Participating
Employees, not including controlling shareholders, and up
to 35 (thirty five) of such Participating Employees,
within the context of a trust, options for shares of the
Company in the first stage and thereafter to enable the
Participating Employees, upon certain terms and
conditions, to receive an actual allotment of shares;
AND WHEREAS the Company wishes to grant the options, such that they
shall be held by the Trustee on behalf of the
Participating Employees, whether existing employees or
employees who shall commence working for the Company;
<PAGE> 2
AND WHEREAS the Company wishes to appoint the Trustee, and the
provisions of this Agreement shall serve as an instrument
of trust and instructions to the Trustee;
AND WHEREAS the Trustee agrees to accept such position;
AND WHEREAS the parties wish to define, determine and detail the
method of the allotment, the stages thereof and all
matters relating thereto or connected therewith or
deriving therefrom, all as detailed below in this
Agreement;
ACCORDINGLY, IT IS WARRANTED, PROVIDED AND AGREED BETWEEN THE PARTIES AS
FOLLOWS:
1. RECITALS
1.1 The recitals to this Agreement constitute an integral part
hereof.
1.2 The clause headings in this Agreement are for convenience and
orientation purposes only, they do not constitute any part
hereof and shall not be used for the interpretation hereof.
1.3 The provisions of this Agreement do not prejudice the rights or
holdings or shares of any of the holders of any classes of the
Company's shares at the time of the making hereof or thereafter,
unless otherwise expressly stated and provided herein.
2. THE TRUST
The parties hereby establish and create a trust and shall procure that
the Company shall allot to the Trustee the options for Ordinary "B"
shares of the Company and the shares, at the time of the exercise of
part or all of the options.
The provisions of this Agreement constitute an instrument of trust and
instructions to the Trustee.
It is agreed that Appendix B to the Income Tax Regulations (Tax Relief
Upon Allotment of Shares to Employees) 1989 (hereinafter the
"Regulations"), constitute an integral part of this Agreement,
Instrument of Trust and Instructions to the Trustee, in accordance with
this Agreement.
<PAGE> 3
3. THE OBJECT OF THE TRUST
The object of the trust is for options to shares to be held by the
Trustee for the benefit of employees of the Company whose names appear
in List "1" attached to this Agreement, as may be amended from time to
time by the Company by written notice to the Trustee detailing the names
of the beneficiaries and next to each beneficiaries' name, the number of
options which the Trustee holds or shall hold in trust for each
beneficiary.
3.1 The Trustee shall maintain and manage List "1" and shall attend
to updating it from time to time as required, including adding
new beneficiaries, recording options that have been allotted to
the Trustee on behalf of the beneficiaries according to the
ratio of their rights at the determining date, and he shall also
record the options that shall be added to the beneficiaries from
such allotment in List 1 to the credit of such beneficiaries.
3.2 The share options allotted upon exercise of the options shall be
allotted to the Trustee or that shall be held by the Trustee
pursuant to the provisions of this Agreement shall be registered
in the Trustee's name in the Company's register of shareholders.
3.3 The Trustee shall act in all matters relating to adding new
employees to List "1" and to determine the terms and conditions
of their entitlement pursuant to resolutions of the Company as
shall be passed from time to time. Nonetheless, the Trustee
shall not be entitled to detract from the rights and conditions
prescribed and/or that shall be prescribed for the beneficiaries
pursuant to this Agreement except with the prior written consent
of the Company and of the beneficiary or beneficiaries affected
by such change, as the case may be.
3.4 The beneficiaries included or that shall be included in List "1"
at any time whatsoever do not and shall not have any right or
claim against other beneficiaries being added to the List or
against the adding of rights or shares to those included in List
"1", in whole or in part.
3.5 Upon the fulfillment of the terms and conditions or at the
specified times, all pursuant to the terms and conditions
hereof, the Trustee shall transfer to the beneficiaries the
options or the shares allotted to them, as the case may be, all
subject to the provisions hereof, the provisions of the
Ordinance and the Regulations.
3.6 The Company shall keep separate records as to every allotment,
and shall forward a copy of such records to the Trustee; the
records shall contain every detail connected to the allotment,
including -
(1) The names of the employees to whom shares were allotted
in the framework of an entitling allotment, their I.D.
numbers and addresses;
<PAGE> 4
(2) The number of shares which were allotted to each
employee, their class and description including the
share's serial number;
(3) The sum which was paid by every employee in
consideration for the shares and the dates of payments;
(4) The date of the allotment;
(5) Transactions which were carried out in connection with
the shares, including sales thereof and transfer thereof
to an employee or his successors;
4. THE TRUSTEE'S DUTIES AND POWERS
The Company and the beneficiaries hereby instruct the Trustee to act
with the options which it holds and with the rights deriving therefrom
in the following manner:
4.1 The Trustee shall apply to the the authorities in a request for
approval of the trust as obligated by the provisions.
4.2 If the Company shall distribute bonus shares during the term of
the trust, the bonus shares that shall be distributed to the
Trustee in respect of the options pursuant to this Agreement
shall belong to the beneficiaries and they shall be credited to
them pro rata to their entitlement to the options according to
List "1", and at the date of the end of the trust and the
transfer of the shares to the beneficiaries, the Trustee and the
Company shall act to allot the bonus shares to them
simultaneously with the allotment of the shares due pursuant to
the options.
4.3 If rights in respect of the options are distributed by the
Company at the end of the trust in accordance with Section 8
hereof, the Trustee shall give prior written notice thereof to
the beneficiaries in sufficient time to receive their response
and it shall act in accordance with the beneficiaries'
instructions. If the beneficiaries wish to register the rights
and they transfer the amount required therefor to the Trustee,
the Trustee shall purchase the rights on their behalf or on
behalf of some of them and they shall be added to their rights
at the end of the trust. If the beneficiaries do not give notice
or if the beneficiaries do not reply to the Trustee at the time
prescribed therefor, the Trustee shall deem the beneficiaries
who did not reply or who did not pay the fixed consideration on
due date as having irrevocably waived the offered rights.
4.4 The Trustee shall act in its exclusive discretion regarding all
the other subjects or rights conferred pursuant to the options
or the shares upon exercise of the options. However, if the
Trustee receives rights or monies in respect of the options,
save for bonus shares, it shall transfer them to the
beneficiaries pursuant to their
<PAGE> 5
proportionate share of the options pursuant to List "1".
4.5 The Trustee shall deliver all required reports in accordance
with the provisions and/or in accordance with the law and/or
other regulations applying to the subject matter of this
Agreement.
5. THE BENEFICIARIES' PARTICIPATION
Each Participating Employee pursuant to this Agreement shall sign a
trust participation document in the form of wording set forth below:
INSTRUMENT OF PARTICIPATION
Employee's name ______________________________ (hereinafter
referred to as "the Participating Employee")
1. I hereby participate as a beneficiary pursuant to the
Option Agreement dated _______________ (hereinafter
referred to as "the Agreement") and undertake all the
obligations and rights of a beneficiary pursuant to the
Agreement.
2. I sign this instrument of participation having read the
Agreement and having understood the provisions thereof.
3. I confirm my rights in the options held on my behalf by
the Trustee both pursuant to the Agreement and also
pursuant to the conditions of participating in the trust
dated _______________ and pursuant to the Ordinance and
Regulations.
--------------- -----------------------------
Date Signature of Participating Employee
Name of Participating Employee _______________
Identity No. of Participating Employee _______________
Address of Participating Employee _______________
Witness' signature: I certify the signature of the Participating
Employee
------------------------------
Director of the Company
We the undersigned hereby confirm your participation as a
beneficiary pursuant to the Agreement.
<PAGE> 6
--------------- ---------------
Date The Trustee
6. THE OPTIONS
The employee participating in this Agreement, the trust and the option
entitlement arrangement is hereby granted and given options upon the
terms and conditions and at the times set forth below:
6.1 A conditional and suspensive right upon the cumulative
fulfillment of the terms and conditions detailed below and the
terms and conditions detailed in the Option Plan and in the
Trust Agreement to receive by way of an allotment of
_______________ Ordinary "B" Shares of the Company. Until the
registration of the shares in the employees name in accordance
with the Option Plan and the Trust Agreement as mentioned above,
the Participating Employee is granted the right that his name be
registered in List "1" with a notation of the option for the
specific number of shares specified above.
6.2 The terms and conditions:
The Participating Employee's right to convert the options held
in trust on his behalf by the Trustee into shares that shall be
actually allotted in his name is conditional and suspensive upon
the fulfillment of all the following terms and conditions:
6.2.1 Every actual period of employment with the Company of at
least 24 months from the participation date shall confer
the right to convert 1/3 (a third) of the number of
shares specified in the options into shares.
6.2.2 Every month of continuous and cumulative period of
employment exceeding the first 24 months shall confer
the right to convert a further 1/24 (one twenty-fourth)
from the balance of 2/3 (two-thirds) of the total number
of shares specified in the option, into shares actually
allotted, in an allotment at the end of the cumulative
period.
6.2.3 After a continuous and cumulative actual period of
employment with the Company of 48 months, the
beneficiary's right shall be exhausted and the validity
of the trust in relation to him shall expire.
6.2.4 The exercise of the right to an actual allotment of "B"
Ordinary Shares is further conditional and suspensive
upon the payment of $0.5 (fifty cents) according to the
representative rate known at the time of the allotment
in respect of the right to each share.
<PAGE> 7
6.2.5 In the event that conditions are imposed by the
authorities as conditions for approval of the
fulfillment of this Agreement, the beneficiaries will
agree and agree to these conditions.
(The periods specified in this clause above are hereinafter
referred to as "the Vesting Period".)
6.3 If the employee ceases to be an actual employee of the Company
at any stage whatsoever prior to the conversion of the options
or part thereof into shares and prior to the actual allotment of
shares, and provided that the circumstances of the termination
of employment are not breach of trust, grave disciplinary
offence or criminal offence ("Cause"), the options granted to
the employee until the date of the termination of his employment
with the Company can be exercised only for a period of three (3)
months from the date of the above-mentioned termination of
employment. After the end of the said three (3) month period,
the options granted to the employee which were not exercised,
shall expire and shall be void.
In the event that a beneficiary who ceased to be an employee
within two years from the date of this Option Agreement and the
tax exemption does not apply to the beneficiary, the same
employee shall be liable for the tax payment for tax upon
allotment and for tax pursuant to s.102 Ordinance, the higher of
the two.
6.4 If the options are cancelled because the terms and conditions of
this clause have not been fulfilled, the employee shall not be
entitled to consideration, refund or compensation or indemnity
whatsoever in respect of the cancellation.
7. THE BENEFICIARIES' LIABILITY
7.1 Every liability and every amount that a holder of the options is
under a duty to pay and all the obligations applicable pursuant
to the Companies Ordinance and the Company's documents of
incorporation to a holder of options or shares or a member of
the Company, shall be passed on from the Trustee to the
beneficiaries pursuant to the proportion of the options or the
shares held by the Trustee for the benefit of the beneficiaries.
7.2 The beneficiaries hereby confirm that they acknowledge that if
payment demands of them are not complied with, the Company may
forfeit the options held on their behalf by the Trustee pursuant
to the Company's Articles of Association and the results of the
forfeiture shall apply to each beneficiary in accordance with
the option for shares held on trust on his behalf by the
Trustee.
7.3 If the Trustee receives demands, requests, notices and claims,
including payment calls, demands for payments at the time of the
Company's winding up, notices in respect of forfeiting the
shares or any other demand, the Trustee shall, immediately upon
the receipt thereof, send them to each of the beneficiaries in
respect of whose
<PAGE> 8
shares held on his behalf by the Trustee the said demands were
received, to the beneficiary's address as appearing in his
participation notice or to another address which the beneficiary
sent the Trustee, provided that they shall be sent in writing
and the liability deriving from the said demands shall apply to
the beneficiary alone.
7.4 The beneficiaries' liability pursuant to this clause shall apply
in accordance with the shares held on their behalf. If any
charge or payment demand whatsoever shall relate to shares held
for a number of beneficiaries, each beneficiary shall be liable
for the charge or the payment demand pro rata to the options
held on his behalf.
8. TERMINATION OF THE TRUST
8.1 If the Trustee holds options or shares for any beneficiary,
including his successors and assigns, during the Vesting Period
that shall not be less than two years, the shares or options
shall be transferred to the beneficiary's possession either on
its own initiative or on the beneficiary's initiative, on the
following terms and conditions:
8.1.1 The Company notified the Trustee that the employee is
continuously employed by the Company for the whole
vesting period, and continues to be employed by the
Company and he has requested to exercise an option and
has paid the Company the exercise price.
8.1.2 In the event that the Notification of Deduction at
Source Form has been completed and sent, as specified in
the Income Tax Regulations (Tax Relief Upon Allotment of
Shares to Employees) 1989, and tax is actually paid, at
the rate specified in the Regulations at that time.
8.2 If a Participating Employee ceases to be employed by the Company
at any time whatsoever and for any reason whatsoever, the trust
for him shall expire at the time of the termination of
employee-employer relations.
8.3 If a Participating Employee exercises a right as a beneficiary
by way of exercising the conversion of an option into a share
that shall be actually allotted, subject to all the terms and
conditions of this Agreement, the trust shall expire in respect
of the part of the option converted and actually allotted at
such time.
9. ISSUE TO THE PUBLIC
9.1 If the Company notifies the Trustee that for the purposes of an
issue of shares to the
<PAGE> 9
public an undertaking by the beneficiary option holders is
required, pursuant whereto they undertake a restriction on the
transfer of the shares of which they are beneficiaries or to
which they are entitled pursuant to the options or the trading
of such shares, the Trustee shall be entitled to assume the
undertaking as aforesaid, provided that such an undertaking
shall not prevent it from transferring options to the
beneficiaries, subject to the beneficiaries assuming the said
undertaking.
9.2 If as a condition for the issue of shares to the public the
option holders shall be required to undertake not to sell them
during a specific period (hereinafter referred to as "the
restriction period"), the Company is entitled to make demand of
the Trustee to join in giving an undertaking as aforesaid, and
in the event of a demand as aforesaid the Trustee shall accede
thereto, even if the Vesting Period, or part thereof, mentioned
in clause 6 above, has not yet terminated, and in such case the
trust period shall be extended by the restriction period and the
beneficiaries shall have no complaint in consequence thereof.
9.3 The beneficiaries are aware that the Company is considering an
issue to the public with the intention of listing the Company's
shares for trading on a stock exchange either in Israel or
abroad. The beneficiaries empower the Trustee to sign any
document which, in the opinion of the Company's board of
directors, is required to enable an issue as aforesaid,
including changes to the Company's documents of incorporation
and including changes in its capital structure, provided that
the changes shall not result in the shares the subject of the
options held in trust by the Trustee having inferior rights
(save for voting rights) compared with the rights which other
shares of the Company confer.
In the event that the shares are registered for trading, as
aforesaid, the employee shall be permitted to apply to the
Commissioner in a request that his shares will be seen as sold
pursuant to the average stock exchange price-list in the first
three days of trading.
10. NON-TRANSFERABILITY
The rights to the options pursuant to this Agreement and the shares that
shall be allotted to the Participating Employee pursuant thereto and
upon the terms and conditions thereof are granted to the Participating
Employee as a beneficiary and to him alone.
The beneficiaries' rights may not be transferred or assigned in any
manner whatsoever, including by way of pledge, charge, attachment,
assignment and the like.
Without derogating from the foregoing, rights to options may only be
transferred by way of implementing a will of an employee or his
inheritance if the employee dies on a date when he was an actual
employee of the Company.
11. REPLACEMENT TRUSTEE
<PAGE> 10
If the Trustee is unable to perform its duties or does not wish to
perform its duties, the Company is entitled to appoint another trustee
and in such event the Trustee shall transfer the options it is holding
to the other trustee and the replacement trustee shall replace the
Trustee for all intents and purposes.
12. THE COMPANY'S OTHER SHARES
12.1 The provisions of this Agreement do not prejudice the rights of
other holders of options or shares of the Company to which the
trust arrangement does not apply.
12.2 The parties are aware that additional employees of the Company
own rights in shares or to receive shares in other arrangements,
and it is hereby expressly agreed that this Agreement does not
apply to and does not affect or howsoever impair rights of other
shareholders of the Company or persons entitled to shares of the
Company, including employees entitled as aforesaid.
13. PAYMENT AND INDEMNITY
13.1 An action by the Trustee and any outcome of an action by the
Trustee, directly or indirectly, shall not render the Trustee
liable for any payment whatsoever. In any event in which the
Trustee is directly or indirectly ordered to make any payment in
connection with its actions as trustee, the Company undertakes
to directly effect and make the payment which shall be required,
for so long as it is a payment relating to the trust, or to
indemnify the Trustee for a payment as aforesaid upon demand
received from it.
13.2 Save in regard to the subjects detailed in clause 7 above, if
the Trustee is ordered to make any payment by a court or
tribunal or arbitrator in consequence of its operations as
trustee, whether directly or indirectly, the Company shall bear
the payment in its stead and shall effect the payment on the
required date, and the Trustee shall not be liable to indemnify
the Company for such payment.
13.3 The beneficiaries and the Company release the Trustee from any
liability for a negligent act or omission, and the Company shall
indemnify the Trustee for any payment which it is required to
pay in order to compensate any person or corporation for such an
act or omission.
14. GENERAL PROVISIONS
14.1 If the law so obliges or if the Company or any of its
shareholders so requests, the Company shall procure that the
Trustee shall be registered in the Company's register of
shareholders as the owner of the options for shares held by it
on trust.
<PAGE> 11
14.2 The Company shall pay the Trustee's remuneration.
14.3 If the Company resolves to issue any of its shares in
consequence of additional investors joining the Company or for
any other reason, the Trustee's part of the options convertible
into shares of the Company shall be diluted accordingly and the
beneficiaries' right shall also be diluted in accordance
therewith, and the beneficiaries shall not have any complaint or
claim in such regard.
14.4 In a case where the beneficiaries have been actually allotted
part of the shares at the time of a dilution as aforesaid or at
any other time thereafter, their shares shall be diluted in
respect of the joining of investors or other shareholders, and
the beneficiaries shall not, even as shareholders, have any
complaint or demand in such regard.
14.5 The Trustee is empowered to determine the terms and conditions
for beneficiaries participating in the trust, in its discretion.
14.6 The parties undertake to sign all the documents required to give
validity and effect to this Agreement.
14.7 If income tax or capital gains tax or any other tax applies in
respect of the options or in respect of the allotment of the
shares or in respect of the holding of the shares or the
transfer thereof, or for another reason, the tax shall be borne
by the beneficiary in respect of the options or the shares held
for his benefit by the Trustee. If tax as aforesaid is imposed,
the Trustee shall be entitled to make demand of the beneficiary
to pay the tax upon demand pursuant to this Agreement or to
deduct the imposed tax from the amounts due or that shall be due
to the beneficiary, and such being in addition to any other
remedy available to the Trustee at law. If the tax as aforesaid
is imposed upon the Company, the Trustee shall be under a duty,
upon the Company's demand, to deduct the said tax and to remit
the amount collected to the Company, as the case may be.
The beneficiary authorizes and empowers the Company and the
Trustee to deduct or collect tax as aforesaid.
14.8 In the event of the death of a beneficiary at a time when he is
not an actual employee of the Company, his rights shall
automatically expire and any prima facie transfer to his heirs
or to beneficiaries pursuant to his will, as the case may be,
shall not be valid, unless the Company confirms that as at the
date of the death the was an actual employee.
AS WITNESS THE HANDS OF THE PARTIES:
<PAGE> 12
- ------------------------------ ------------------------------
I.E.T. INTELLIGENT ELECTRONICS LTD B.Y.A.D. TRUSTEES LTD.
"THE COMPANY" "THE TRUSTEE"
<PAGE> 13
APPENDIX TO TRUST AGREEMENT -
CONDITIONS FOR PARTICIPATING IN THE TRUST
Made in Tel-Aviv this __ day of _______________.
BETWEEN: IET Intelligent Electronics Ltd.
AND: The Participating Employee, Mr./Ms. ______________________
WHEREAS IET Intelligent Electronics Ltd. (hereinafter referred to
as "the Company") shall allot options convertible into
shares in favor of the Participating Employee;
AND WHEREAS the employee wishes to participate in an Agreement dated
1st September 1999 (hereinafter referred to as "the
Agreement"), including the Trustee's trust and its holding
of the options until they mature;
ACCORDINGLY, IT IS WARRANTED AND AGREED AS FOLLOWS:
1. The recitals to this appendix constitute an integral part hereof.
2. The Participating Employee is entitled to be a beneficiary pursuant to
the Agreement from the date of the signing of this conditions for
participation appendix.
3. The Participating Employee's entitlement shall confer upon him the
following rights:
3.1 The right to be registered as a beneficiary of options to
receive ____________ ordinary "B" shares of NIS 0. 01 each of
the Company in equal shares of one third with the determining
date for the first third being after 24 months have elapsed of
continuous work for the Company. After this, each month of
continuous employment past the first 24 months , shall confer on
the employee the right to convert 1/36 (one thirty-sixth) of the
balance of 2/3 (two thirds) of the share options, into shares
actually allotted in an allotment at the end of the continuous
period. The entire cumulative period shall be entitled the
"Vesting Period". The right to shares as aforesaid shall be
subject to payment of the sum of $0.5 (fifty cents), for the
right to each share, at the representative rate known at such
time.
3.2 The said right is conditional and suspensive upon the
fulfillment of all the terms and conditions specified in the
Agreement.
3.3 If the employee ceases to be an actual employee of the Company
at any stage whatsoever until the conversion of the options or
part thereof into shares and prior to the actual allotment of
the shares, regardless of the reason for the termination of the
employment with the Company, his rights to an allotment or to
exercise the balance of the allotment shall expire, be cancelled
and nullified except to the extent specified in the Agreement.
3.4 The provisions set forth in this clause are in addition to the
provisions set forth in the
<PAGE> 14
Agreement.
3.5 The ancillary right upon the terms and conditions of the
Agreement distribution of additional rights or benefits, and
also those shall be granted in the future to holders of shares
or at the time of winding up, all pro rata to his entitlement to
options.
4. The option convertible into shares upon the terms and conditions of the
Agreement and the terms and conditions of this instrument of
participation shall be recorded in List "1" by the Trustee together with
the Participating Employee's name and his proportionate share of the
number of the shares as specified above.
5. The options that shall be recorded for the Participating Employee are in
addition to his other employment terms and conditions, and are not in
lieu thereof, but the Company's management may consider them a benefit
or other right conferred upon the employee in respect of and in
consequence of his employment.
6. The Participating Employee hereby agrees and confirms that if there
shall be a dilution of the Company's shares at any stage or in any
manner, whether during the course of the Vesting Period, or upon the
exercise of the conversion of the shares into an actual allotment of
shares, whether in stages or at the end of the entire Vesting Period,
his part shall also be diluted respectively.
In an event in which additional conditions would be required by the
relevant authorities for the approval to implement this Agreement, the
beneficiaries shall and they do agree to such conditions.
7. The Participating Employee accepts and agrees to all the terms and
conditions of the Agreement and confirms his express consent that in any
event of a contradiction between the provisions of this appendix and the
provisions of the Agreement, the provisions of the Agreement shall
prevail.
8. The Participating Employee hereby warrants and confirms his consent that
all the payment of taxes, official fees, levies and the like of
whatsoever description applicable now or that shall be applicable in the
future in respect of the Agreement, in respect of this instrument of
participation and in respect of the realization thereof shall be borne
by him alone.
9. The employee explicitly approves and agrees that he has been notified
that, and it is within his knowledge that the Arrangement for the
Allotment of Share Options for conversion is in accordance with s.102
Income Tax Ordinance, and that he agrees that and undertakes not to
request a tax exemption under sections 95 or 97 (A) Income Tax
Ordinance, or under Chapter 7 Encouragement of Industry (Taxes) Law
1969.
10. This appendix constitutes an integral part of the instrument of
participation in the Agreement and the signing of the instrument of
participation constitutes the signing of this appendix.
The instrument of participation is annexed hereto.
- ----------------------------------------
Signature of the Participating Employee
<PAGE> 15
We agree to the foregoing:
- ----------------------------------------
IET Intelligent Electronics Ltd.
<PAGE> 16
INSTRUMENT OF PARTICIPATION
Employee's name _______________________________________________________________
(hereinafter referred to as "the Participating Employee")
1. I hereby participate as a beneficiary pursuant to the Option Agreement
dated ______________ (hereinafter referred to as "the Agreement") and
undertake all the obligations and rights of a beneficiary pursuant to
the Agreement.
2. I sign this instrument of participation having read the Agreement and
having understood the provisions hereof.
3. I confirm my rights in the options held on my behalf by the Trustee both
pursuant to the Agreement and also pursuant to the conditions of
participating in the trust dated ________________, and in accordance
with the Ordinance and the Regulations.
- --------------------- ------------------------------------
Date Signature of Participating Employee
Name of Participating Employee ________________________________________________
Identity No. of Participating Employee _________________________________________
Address of Participating Employee ______________________________________________
Witness' signature: I certify the signature of the Participating Employee
------------------------------
Director of the Company
We the undersigned hereby confirm your participation as a beneficiary pursuant
to the Agreement.
- --------------------- ------------------------------------
Date The Trustee
<PAGE> 17
Date:_______________
To
Income Tax Assessor
Tax Commissioner's Office
RE: NOTICE REGARDING ENTITLING ALLOTMENT IN ACCORDANCE WITH THE INCOME TAX
REGULATIONS (TAX RELIEF UPON ALLOTMENT OF SHARES TO EMPLOYEES) 1989 (THE
"REGULATIONS")
1. In accordance with section 3 of the Regulations, we hereby inform you
that IET Intelligent Electronics Ltd. (hereinafter the "Company") has
decided to adopt a share option plan, in accordance with section 102 of
the Income Tax Ordinance and in accordance with the Regulations, whereby
within its framework, employees of the Company will be allotted options
in an entitling allotment, in accordance with the Regulations.
2. The date of the allotment of options within the framework of this plan
shall not be prior to 1.6.99 and not later than 31.12.2003.
3. B. A. Trustees shall become the Trustee for the fulfillment of this plan
(hereinafter the "Trustee"). The appointment of the Trustee has been
approved by the Tax Commissioner's Office in accordance with his
authority under section 102 of the Ordinance.
4. A. In accordance with section 4(B) of the Regulations, the Company
hereby undertakes towards the Income Tax Assessor that if bonus shares
are allotted to an employee under the options allotted for him in the
framework of the entitling allotment, they shall be forwarded to the
Trustee as long as the Trustee holds for him options allotted for the
employee within the framework of the entitling allotment. The Trustee is
obligated to the Income Tax Assessor to apply the provisions of section
102 to the said bonus shares, as if the bonus shares were options
allotted to the employee in the framework of the entitling offer.
2nd. In accordance with section 4(B) of the Regulations, we
confirm that we hold a confirmation letter from the
employee that he agrees that the arrangement shall apply
to him and that he undertakes not to request a tax
exemption under sections 95 or 97(A) of the Ordinance or
under Chapter 7 Encouragement of Industry (Taxes) Law
1969 for any transfer of shares prior to the termination
of the holding period.
5. Attached is an Instrument of Trust as required by section 3 Regulations.
6. The Trustee undertakes towards the Income Tax Assessor that he shall not
forward the options nor option certificates until after tax is paid
under section 102 of the Ordinance and in accordance with the
Regulations, or after the Trustee has forwarded to the Income Tax
Assessor 30% of the consideration for on the account for which tax
applies.
7. Upon an approval by the Income Tax Assessor regarding the rate of tax
required to be paid as a condition for the transfer of options (or
shares) for the employee submitted by the Company or the employee to the
Trustee, the Trustee shall transfer the options into shares for the
employee but only after the sum of tax determined in the Income Tax
Assessor's approval has been paid.
Yours sincerely,
<PAGE> 18
B.Y.A.D Trustees Ltd. IET Intelligent Electronics Ltd.
CC: Tax Commissioner's Office
Tax Deduction Assessor
APPENDIX TO THE ARRANGEMENT FOR ALLOTMENT OF OPTIONS TO EMPLOYEES
NOTICE REGARDING DEDUCTION AT SOURCE
Name of Trustee: B.Y.A.D Trustees Ltd.
Name of Company: IET Intelligent
Electronics Ltd.
Name of Employee: _______________
Date: __________________________
To
Tax Assessor
Income Tax Commissioner
___________________Street
_________________________
Dear Sir / Madam,
RE: DEDUCTION AT SOURCE
We hereby inform you that:
Options to ____________, in the name of the Trustee B.Y.A.D. Trustees Ltd. for
the employee ___________________, which were bought/granted/purchased on
________________, in an allotment which received approval on
____________________, sold on _________________ , to __________________________
in consideration for NIS _________________.
The tax deducted at source is __________________ (attached is authorization for
the reduced deduction).
The tax was paid on ___________________ at _________________.
Yours sincerely,
B.Y.A.D. Trustees Ltd.
CC: Tax Commissioner's Office.
<PAGE> 1
Exhibit 10.11
CLICKSERVICE SOFTWARE, LTD.
2000 STOCK PLAN
FOR EMPLOYEES OF CLICKSERVICE SOFTWARE, INC.
1. Purposes of the Plan. The purposes of this Stock 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. Stock Purchase
Rights may also be granted under the Plan.
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 stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Stock is listed or quoted and the applicable laws of any
other country or jurisdiction where Options or Stock Purchase Rights are granted
under the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the 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) "Common Stock" means the Common Stock of the Company.
(g) "Company" means ClickService Software, Ltd., an Israeli
corporation.
(h) "Consultant" means any person who is engaged by the Company
or any Parent or Subsidiary to render consulting or advisory services to such
entity.
(i) "Director" means a member of the Board.
(j) "Disability" means total and permanent disability as defined
in Section 22(e)(3) of the Code.
(k) "Employee" means any person, including Officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company. A
Service Provider 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
<PAGE> 2
reemployment upon expiration of such leave is guaranteed by statute or contract.
If reemployment 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.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(m) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is 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, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system 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;
(ii) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean between the high bid and low asked prices for the
Common Stock on the last market trading day prior to the day of determination;
or
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Administrator.
(n) "Incentive Stock Option" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code.
(o) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(p) "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.
(q) "Option" means a stock option granted pursuant to the Plan.
(r) "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.
(s) "Option Exchange Program" means a program whereby outstanding
Options are exchanged for Options with a lower exercise price.
(t) "Optioned Stock" means the Common Stock subject to an Option
or a Stock Purchase Right.
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(u) "Optionee" means the holder of an outstanding Option or Stock
Purchase Right granted under the Plan.
(v) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(w) "Plan" means this 2000 Stock Plan.
(x) "Restricted Stock" means shares of Common Stock acquired
pursuant to a grant of a Stock Purchase Right under Section 11 below.
(y) "Service Provider" means an Employee, Director or Consultant.
(z) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 12 below.
(aa) "Stock Purchase Right" means a right to purchase Common
Stock pursuant to Section 11 below.
(bb) "Subsidiary" means a "subsidiary corporation," whether now
or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock 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 [__________] Shares. The Shares may be
authorized but unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes
unexercisable without having been exercised in full, or is surrendered pursuant
to an Option Exchange Program, the unpurchased Shares which were subject thereto
shall become available for future grant or sale under the Plan (unless the Plan
has terminated). However, Shares that have actually been issued under the Plan,
upon exercise of either an Option or Stock Purchase Right, shall not be returned
to the Plan and shall not become available for future distribution under the
Plan, except that if Shares of Restricted Stock are repurchased by the Company
at their original purchase price, such Shares shall become available for future
grant under the Plan.
4. Administration of the Plan.
(a) Administrator. The Plan shall be administered by the Board or
a Committee appointed by the Board, which Committee shall be constituted to
comply with 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 and
Stock Purchase Rights may from time to time be granted hereunder;
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(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
or Stock Purchase Right granted hereunder. Such terms and conditions include,
but are not limited to, the exercise price, the time or times when Options or
Stock Purchase Rights may be exercised (which may be based on performance
criteria), any vesting acceleration or waiver of forfeiture restrictions, and
any restriction or limitation regarding any Option or Stock Purchase Right or
the Common Stock relating thereto, based in each case on such factors as the
Administrator, in its sole discretion, shall determine;
(vi) to determine whether and under what circumstances an
Option may be settled in cash under subsection 9(e) instead of Common Stock;
(vii) to reduce the exercise price of any Option to the
then current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option has declined since the date the Option was granted;
(viii) to initiate an Option Exchange Program;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(x) to allow Optionees to satisfy withholding tax
obligations by electing to have the Company withhold from the Shares to be
issued upon exercise of an Option or Stock Purchase Right that number of Shares
having a Fair Market Value equal to the amount required to be withheld. The Fair
Market Value of the Shares to be withheld shall be determined on the date that
the amount of tax to be withheld is to be determined. All elections by Optionees
to have Shares withheld for this purpose shall be made in such form and under
such conditions as the Administrator may deem necessary or advisable; and
(xi) 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.
(a) Nonstatutory Stock Options and Stock Purchase Rights may be
granted to Service Providers. Incentive Stock Options may be granted only to
Employees.
(b) 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
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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
5(b), 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.
(c) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon any Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall it interfere in
any way with his or her right or the Company's right to terminate such
relationship at any time, with or without cause.
6. 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.
7. 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 stock
representing more than ten percent (10%) of the voting power of all classes of
stock 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.
8. Option Exercise Price and Consideration.
(a) The per share exercise price for the Shares to be issued upon
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
grant of such Option, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock 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 other Employee, 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
(A) granted to a Service Provider who, at the time
of grant of such Option, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock 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 other Service Provider, the per
Share exercise price shall be no less than 85% 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 pursuant to
a merger or other corporate transaction.
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(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). Such consideration may consist of (1) cash,
(2) check, (3) full-recourse promissory note, (4) other Shares which (x) in the
case of Shares acquired upon exercise of an Option, have been owned by the
Optionee for more than six months on the date of surrender, and (y) have a Fair
Market Value on the date of surrender equal to the aggregate exercise price of
the Shares as to which such Option shall be exercised, (5) consideration
received by the Company under a cashless exercise program implemented by the
Company in connection with the Plan, or (6) any combination of the foregoing
methods of payment. 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.
9. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable according to the terms hereof at such
times and under such conditions as determined by the Administrator and set forth
in the Option Agreement. Except in the case of Options granted to Officers,
Directors and Consultants, Options shall become exercisable at a rate of no less
than 20% per year over five (5) years from the date the Options are granted.
Unless the Administrator provides otherwise, vesting of Options granted
hereunder to Officers and Directors 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 the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
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, such Optionee may exercise his or her
Option within such period of time as is specified in the Option Agreement (of at
least thirty (30) days) 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 the 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
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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
(of at least six (6) months) to the extent 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 twelve (12)
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
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
(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 (of at least six (6) months) 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 immediately 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.
(e) Buyout Provisions. The Administrator may at any time offer to
buy out for a payment in cash or Shares, an Option previously granted, based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
10. Non-Transferability of Options and Stock Purchase Rights. The
Options and Stock Purchase Rights 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.
11. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued
either alone, in addition to, or in tandem with other awards granted under the
Plan and/or cash awards made outside of the Plan. After the Administrator
determines that it will offer Stock Purchase Rights under the Plan, it shall
advise the offeree in writing or electronically of the terms, conditions and
restrictions related to the offer, including the number of Shares that such
person shall be entitled to purchase, the price to be paid, and the time within
which such person must accept such offer. The terms of the offer shall comply in
all respects with Section 260.140.42 of Title 10 of the California Code of
Regulations. The offer shall be accepted by execution of a Restricted Stock
purchase agreement in the form determined by the Administrator.
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<PAGE> 8
(b) Repurchase Option. Unless the Administrator determines
otherwise, the Restricted Stock purchase agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's service with the Company for any reason (including death or
disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at such rate as the
Administrator may determine.
Except with respect to Shares purchased by Officers,
Directors and Consultants, the repurchase option shall in no case lapse at a
rate of less than 20% per year over five (5) years from the date of purchase.
(c) Other Provisions. The Restricted Stock purchase agreement
shall contain such other terms, provisions and conditions not inconsistent with
the Plan as may be determined by the Administrator in its sole discretion.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
exercised, the purchaser shall have rights equivalent to those of a shareholder
and shall be a shareholder when his or her purchase is entered upon the records
of the duly authorized transfer agent of the Company. No adjustment shall be
made for a dividend or other right for which the record date is prior to the
date the Stock Purchase Right is exercised, except as provided in Section 12 of
the Plan.
12. Adjustments Upon Changes in Capitalization, Merger or Asset Sale.
(a) Changes in Capitalization. Subject to any required action by
the shareholders of the Company, the number of shares of Stock covered by each
outstanding Option or Stock Purchase Right, and the number of shares of Stock
which have been authorized for issuance under the Plan but as to which no
Options or Stock Purchase Rights have yet been granted or which have been
returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Stock covered by each such
outstanding Option or Stock Purchase Right, shall be proportionately adjusted
for any increase or decrease in the number of issued shares of Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Stock, or any other increase or decrease in the number
of issued shares of Stock effected without receipt of consideration by the
Company. The 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 stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Stock subject to an Option or Stock Purchase Right.
(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 or Stock Purchase Right until
fifteen (15) days prior to such transaction as to all of the Optioned Stock
covered thereby, including Shares as to which the Option or Stock Purchase Right
would not otherwise be exercisable. In addition, the Administrator may provide
that any Company repurchase option applicable to any
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Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse
as to all such Shares, provided the proposed dissolution or liquidation takes
place at the time and in the manner contemplated. To the extent it has not been
previously exercised, an Option or Stock Purchase Right 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 and Stock Purchase Right shall be
assumed or an equivalent option or right 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 or
Stock Purchase Right, the Optionee shall fully vest in and have the right to
exercise the Option or Stock Purchase Right as to all of the Optioned Stock,
including Shares as to which it would not otherwise be vested or exercisable.
If an Option or Stock Purchase Right 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 or Stock Purchase Right shall be fully
exercisable for a period of fifteen (15) days from the date of such notice, and
the Option or Stock Purchase Right shall terminate upon the expiration of such
period. For the purposes of this paragraph, the Option or Stock Purchase Right
shall be considered assumed if, following the merger or sale of assets, the
option or right confers the right to purchase or receive, for each Share of
Optioned Stock subject to the Option or Stock Purchase Right immediately prior
to the merger or sale of assets, the consideration (whether stock, cash, or
other securities or property) received in the merger or sale of assets by
holders of Stock for each Share held on the effective date of the transaction
(and if 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 Stock 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 or Stock
Purchase Right, for each Share of Optioned Stock subject to the Option or Stock
Purchase Right, to be solely Stock of the successor corporation or its Parent
equal in fair market value to the per share consideration received by holders of
Stock in the merger or sale of assets.
13. Time of Granting Options and Stock Purchase Rights. The date of
grant of an Option or Stock Purchase Right shall, for all purposes, be the date
on which the Administrator makes the determination granting such Option or Stock
Purchase Right, or such other date as is determined by the Administrator. Notice
of the determination shall be given to each Service Provider to whom an Option
or Stock Purchase Right is so granted within a reasonable time after the date of
such grant.
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.
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(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 degree and manner
required under Applicable Laws.
19. Information to Optionees and Purchasers. The Company shall provide
to each Optionee and to each individual who acquires Shares pursuant to the
Plan, not less frequently than annually during the period such Optionee or
purchaser has one or more Options or Stock Purchase Rights outstanding, and, in
the case of an individual who acquires Shares pursuant to the Plan, during the
period such individual owns such Shares, copies of annual financial statements.
The Company shall not be required to provide such statements to key employees
whose duties in connection with the Company assure their access to equivalent
information.
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EXHIBIT 10.12
AGREEMENT FOR THE ALLOTMENT OF SHARE OPTIONS AND TRUST AGREEMENT
Made in Tel Aviv, this ___ day of March 2000
BETWEEN: CLICKSERVICE SOFTWARE LTD.
(hereinafter referred to as "the Company")
of the first part
AND: CERTAIN EMPLOYEES OF THE COMPANY WHO SHALL BE INVITED BY
THE COMPANY TO PARTICIPATE IN THE AGREEMENT AND SIGN THE
PARTICIPATION DOCUMENT
(such an employee is hereinafter referred to as "a
Participating Employee")
of the second part
AND: B.Y.A.D. TRUSTEES
(hereinafter referred to as "the Trustee")
of the third part
WHEREAS the Company wishes to grant to certain Participating
Employees, not including controlling shareholders, and up
to 35 (thirty five) of such Participating Employees,
within the context of a trust, options for shares of the
Company in the first stage and thereafter to enable the
Participating Employees, upon certain terms and
conditions, to receive an actual allotment of shares;
AND WHEREAS the Company wishes to grant the options, such that they
shall be held by the Trustee on behalf of the
Participating Employees, whether existing or future
employees of the Company;
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AND WHEREAS the Company wishes to appoint the Trustee, and the
provisions of this Agreement shall serve as an instrument
of trust and instructions to the Trustee;
AND WHEREAS the Trustee agrees to accept such position;
AND WHEREAS the parties wish to define, determine and detail the
method of the allotment, the stages thereof and all
matters relating thereto or connected therewith or
deriving therefrom, all as detailed below in this
Agreement;
ACCORDINGLY, IT IS WARRANTED, PROVIDED AND AGREED BETWEEN THE PARTIES AS
FOLLOWS:
1. RECITALS
1.1 The recitals to this Agreement constitute an integral part
hereof.
1.2 The clause headings in this Agreement are for convenience and
orientation purposes only, they do not constitute any part
hereof and shall not be used for the interpretation hereof.
1.3 The provisions of this Agreement do not prejudice the rights or
holdings or shares of any of the holders of any classes of the
Company's shares at the time of the making hereof or thereafter,
unless otherwise expressly stated and provided herein.
2. THE TRUST
The parties hereby establish and create a trust and shall procure that
the Company shall allot to the Trustee the options for Class B Ordinary
shares of nominal value NIS 0.01 each of the Company and the shares, at
the time of the exercise of part or all of the options.
The provisions of this Agreement constitute an instrument of trust and
instructions to the Trustee.
It is agreed that Appendix B to the Income Tax Regulations (Tax Relief
Upon Allotment of Shares to Employees) 1989 (hereinafter the
"Regulations"), constitute an integral part of this Agreement,
Instrument of Trust and Instructions to the Trustee, in accordance with
this Agreement.
3. THE OBJECT OF THE TRUST
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The object of the trust is for options to shares to be held by the
Trustee for the benefit of employees of the Company whose names appear
in List "1" attached to this Agreement, as may be amended from time to
time by the Company by written notice to the Trustee detailing the names
of the beneficiaries and next to each beneficiaries' name, the number of
options which the Trustee holds or shall hold in trust for each
beneficiary.
3.1 The Trustee shall maintain and manage List "1" and shall attend
to updating it from time to time as required, including adding
new beneficiaries, recording options that have been allotted to
the Trustee on behalf of the beneficiaries according to the
ratio of their rights at the determining date, and he shall also
record the options that shall be added to the beneficiaries from
such allotment in List 1 to the credit of such beneficiaries.
3.2 The share options allotted upon exercise of the options shall be
allotted to the Trustee or that shall be held by the Trustee
pursuant to the provisions of this Agreement shall be registered
in the Trustee's name in the Company's register of shareholders.
3.3 The Trustee shall act in all matters relating to adding new
employees to List "1" and to determine the terms and conditions
of their entitlement pursuant to resolutions of the Company as
shall be passed from time to time. Nonetheless, the Trustee
shall not be entitled to detract from the rights and conditions
prescribed and/or that shall be prescribed for the beneficiaries
pursuant to this Agreement except with the prior written consent
of the Company and of the beneficiary or beneficiaries affected
by such change, as the case may be.
3.4 The beneficiaries included or that shall be included in List "1"
at any time whatsoever do not and shall not have any right or
claim against other beneficiaries being added to the List or
against the adding of rights or shares to those included in List
"1", in whole or in part.
3.5 Upon the fulfillment of the terms and conditions or at the
specified times, all pursuant to the terms and conditions
hereof, the Trustee shall transfer to the beneficiaries the
options or the shares allotted to them, as the case may be, all
subject to the provisions hereof, the provisions of the
Ordinance and the Regulations.
3.6 The Company shall keep separate records as to every allotment,
and shall forward a copy of such records to the Trustee; the
records shall contain every detail connected to the allotment,
including -
(1) The names of the employees to whom shares were allotted
in the framework of an entitling allotment, their I.D.
numbers and addresses;
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(2) The number of shares which were allotted to each
employee, their class and description including the
share's serial number;
(3) The sum which was paid by every employee in
consideration for the shares and the dates of payments;
(4) The date of the allotment;
(5) Transactions which were carried out in connection with
the shares, including sales thereof and transfer thereof
to an employee or his successors;
4. THE TRUSTEE'S DUTIES AND POWERS
The Company and the beneficiaries hereby instruct the Trustee to act
with the options which it holds and with the rights deriving therefrom
in the following manner:
4.1 The Trustee shall apply to the authorities in a request for
approval of the trust as obligated by the provisions.
4.2 If the Company shall distribute bonus shares during the term of
the trust, the bonus shares that shall be distributed to the
Trustee in respect of the options pursuant to this Agreement
shall belong to the beneficiaries and they shall be credited to
them pro rata to their entitlement to the options according to
List "1", and at the date of the end of the trust and the
transfer of the shares to the beneficiaries, the Trustee and the
Company shall act to allot the bonus shares to them
simultaneously with the allotment of the shares due pursuant to
the options.
4.3 If rights in respect of the options are distributed by the
Company at the end of the trust in accordance with Section 8
hereof, the Trustee shall give prior written notice thereof to
the beneficiaries in sufficient time to receive their response
and it shall act in accordance with the beneficiaries'
instructions. If the beneficiaries wish to register the rights
and they transfer the amount required therefor to the Trustee,
the Trustee shall purchase the rights on their behalf or on
behalf of some of them and they shall be added to their rights
at the end of the trust. If the beneficiaries do not give notice
or if the beneficiaries do not reply to the Trustee at the time
prescribed therefor, the Trustee shall deem the beneficiaries
who did not reply or who did not pay the fixed consideration on
due date as having irrevocably waived the offered rights.
4.4 The Trustee shall act in its exclusive discretion regarding all
the other subjects or rights conferred pursuant to the options
or the shares upon exercise of the options. However, if the
Trustee receives rights or monies in respect of the options,
save for bonus shares, it shall transfer them to the
beneficiaries pursuant to their proportionate share of the
options pursuant to List "1".
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<PAGE> 5
4.5 The Trustee shall deliver all required reports in accordance
with the provisions and/or in accordance with the law and/or
other regulations applying to the subject matter of this
Agreement.
5. THE BENEFICIARIES' PARTICIPATION
Each Participating Employee pursuant to this Agreement shall sign a
trust participation document in the form of wording set forth below:
INSTRUMENT OF PARTICIPATION
Employee's name ______________________________ (hereinafter
referred to as "the Participating Employee")
1. I hereby participate as a beneficiary pursuant to the
Option Agreement dated _______________ (hereinafter
referred to as "the Agreement") and undertake all the
obligations and rights of a beneficiary pursuant to the
Agreement.
2. I sign this instrument of participation having read the
Agreement and having understood the provisions thereof.
3. I confirm my rights in the options held on my behalf by
the Trustee both pursuant to the Agreement and also
pursuant to the conditions of participating in the trust
dated _______________ and pursuant to the Ordinance and
Regulations.
--------------- -----------------------------
Date Signature of Participating Employee
Name of Participating Employee _______________
Identity No. of Participating Employee _______________
Address of Participating Employee _______________
Witness' signature: I certify the signature of the Participating
Employee
------------------------------
Director of the Company
We the undersigned hereby confirm your participation as a
beneficiary pursuant to the Agreement.
5
<PAGE> 6
--------------- ---------------
Date The Trustee
6. THE OPTIONS
The employee participating in this Agreement, the trust and the option
entitlement arrangement is hereby granted and given options upon the
terms and conditions and at the times set forth below:
6.1 A conditional and suspensive right upon the cumulative
fulfillment of the terms and conditions detailed below and the
terms and conditions detailed in this Agreement to receive by
way of an allotment of _______________ Class B Ordinary Shares
of nominal value NIS 0.01 of the Company. Until the registration
of the shares in the employees name in accordance with the
Option Plan and the Trust Agreement as mentioned above, the
Participating Employee is granted the right that his name be
registered in List "1" with a notation of the option for the
specific number of shares specified above.
6.2 The terms and conditions:
The Participating Employee's right to convert the options held
in trust on his behalf by the Trustee into shares that shall be
actually allotted in his name is conditional and suspensive upon
the fulfillment of all the following terms and conditions:
6.2.1 Every actual period of employment with the Company of at
least 24 months from the participation date shall confer
the right to convert 1/3 (a third) of the number of
shares specified in the options into shares.
6.2.2 Every month of continuous and cumulative period of
employment exceeding the first 24 months shall confer
the right to convert a further 1/24 (one twenty-fourth)
from the balance of 2/3 (two-thirds) of the total number
of shares specified in the option, into shares actually
allotted, in an allotment at the end of the cumulative
period.
6.2.3 After a continuous and cumulative actual period of
employment with the Company of 48 months, the
beneficiary's right shall be exhausted and the validity
of the trust in relation to him shall expire.
6.2.4 The exercise of the right to an actual allotment of
Class B Ordinary Shares is further conditional and
suspensive upon the payment of $5.10 (five dollars and
ten cents) according to the representative rate known at
the time of the allotment in respect of the right to
each share.
6.2.5 In the event that conditions are imposed by the
authorities as conditions
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<PAGE> 7
for approval of the fulfillment of this Agreement, the
beneficiaries will agree and agree to these conditions.
(The periods specified in this clause above are hereinafter
referred to as "the Vesting Period".)
6.3 If the employee ceases to be an actual employee of the Company
at any stage whatsoever prior to the conversion of the options
or part thereof into shares and prior to the actual allotment of
shares, and provided that the circumstances of the termination
of employment are not breach of trust, grave disciplinary
offence or criminal offence ("Cause"), the options granted to
the employee until the date of the termination of his employment
with the Company can be exercised only for a period of three (3)
months from the date of the above-mentioned termination of
employment. After the end of the said three (3) month period,
the options granted to the employee which were not exercised,
shall expire and shall be void.
In the event that a beneficiary who ceased to be an employee
within two years from the date of this Option Agreement and the
tax exemption does not apply to the beneficiary, the same
employee shall be liable for the tax payment for tax upon
allotment and for tax pursuant to Section 102 of the Ordinance,
the higher of the two.
6.4 If the options are cancelled because the terms and conditions of
this clause have not been fulfilled, the employee shall not be
entitled to consideration, refund or compensation or indemnity
whatsoever in respect of the cancellation.
7. THE BENEFICIARIES' LIABILITY
7.1 Every liability and every amount that a holder of the options is
under a duty to pay and all the obligations applicable pursuant
to the Companies Ordinance and the Company's documents of
incorporation to a holder of options or shares or a member of
the Company, shall be passed on from the Trustee to the
beneficiaries pursuant to the proportion of the options or the
shares held by the Trustee for the benefit of the beneficiaries.
7.2 The beneficiaries hereby confirm that they acknowledge that if
payment demands of them are not complied with, the Company may
forfeit the options held on their behalf by the Trustee pursuant
to the Company's Articles of Association and the results of the
forfeiture shall apply to each beneficiary in accordance with
the option for shares held on trust on his behalf by the
Trustee.
7.3 If the Trustee receives demands, requests, notices and
claims, including payment calls, demands for payments at the
time of the Company's winding up, notices in respect of
forfeiting the shares or any other demand, the Trustee shall,
immediately upon the receipt thereof, send them to each of the
beneficiaries in respect of whose
7
<PAGE> 8
shares held on his behalf by the Trustee the said demands were
received, to the beneficiary's address as appearing in his
participation notice or to another address which the beneficiary
sent the Trustee, provided that they shall be sent in writing
and the liability deriving from the said demands shall apply to
the beneficiary alone.
7.4 The beneficiaries' liability pursuant to this clause shall apply
in accordance with the shares held on their behalf. If any
charge or payment demand whatsoever shall relate to shares held
for a number of beneficiaries, each beneficiary shall be liable
for the charge or the payment demand pro rata to the options
held on his behalf.
8. TERMINATION OF THE TRUST
8.1 If the Trustee holds options or shares for any beneficiary,
including his successors and assigns, during the Vesting Period
that shall not be less than two years, the shares or options
shall be transferred to the beneficiary's possession either on
its own initiative or on the beneficiary's initiative, on the
following terms and conditions:
8.1.1 The Company notified the Trustee that the employee is
continuously employed by the Company for the whole
vesting period, and continues to be employed by the
Company and he has requested to exercise an option and
has paid the Company the exercise price.
8.1.2 In the event that the Notification of Deduction at
Source Form has been completed and sent, as specified in
the Income Tax Regulations (Tax Relief Upon Allotment of
Shares to Employees) 1989, and tax is actually paid, at
the rate specified in the Regulations at that time.
8.2 If a Participating Employee ceases to be employed by the Company
at any time whatsoever and for any reason whatsoever, the trust
for him shall expire at the time of the termination of
employee-employer relations.
8.3 If a Participating Employee exercises a right as a beneficiary
by way of exercising the conversion of an option into a share
that shall be actually allotted, subject to all the terms and
conditions of this Agreement, the trust shall expire in respect
of the part of the option converted and actually allotted at
such time.
9. ISSUE TO THE PUBLIC
9.1 If the Company notifies the Trustee that for the purposes of an
issue of shares to the
8
<PAGE> 9
public an undertaking by the beneficiary option holders is
required, pursuant whereto they undertake a restriction on the
transfer of the shares of which they are beneficiaries or to
which they are entitled pursuant to the options or the trading
of such shares, the Trustee shall be entitled to assume the
undertaking as aforesaid, provided that such an undertaking
shall not prevent it from transferring options to the
beneficiaries, subject to the beneficiaries assuming the said
undertaking.
9.2 If as a condition for the issue of shares to the public the
option holders shall be required to undertake not to sell them
during a specific period (hereinafter referred to as "the
restriction period"), the Company is entitled to make demand of
the Trustee to join in giving an undertaking as aforesaid, and
in the event of a demand as aforesaid the Trustee shall accede
thereto, even if the Vesting Period, or part thereof, mentioned
in clause 6 above, has not yet terminated, and in such case the
trust period shall be extended by the restriction period and the
beneficiaries shall have no complaint in consequence thereof.
9.3 The beneficiaries are aware that the Company is considering an
issue to the public with the intention of listing the Company's
shares for trading on a stock exchange either in Israel or
abroad. The beneficiaries empower the Trustee to sign any
document which, in the opinion of the Company's board of
directors, is required to enable an issue as aforesaid,
including changes to the Company's documents of incorporation
and including changes in its capital structure, provided that
the changes shall not result in the shares the subject of the
options held in trust by the Trustee having inferior rights
(save for voting rights) compared with the rights which other
shares of the Company confer.
In the event that the shares are registered for trading, as
aforesaid, the employee shall be permitted to apply to the
Commissioner in a request that his shares will be seen as sold
pursuant to the average stock exchange price-list in the first
three days of trading.
10. NON-TRANSFERABILITY
The rights to the options pursuant to this Agreement and the shares that
shall be allotted to the Participating Employee pursuant thereto and
upon the terms and conditions thereof are granted to the Participating
Employee as a beneficiary and to him alone.
The beneficiaries' rights may not be transferred or assigned in any
manner whatsoever, including by way of pledge, charge, attachment,
assignment and the like.
Without derogating from the foregoing, rights to options may only be
transferred by way of implementing a will of an employee or his
inheritance if the employee dies on a date when he was an actual
employee of the Company.
11. REPLACEMENT TRUSTEE
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<PAGE> 10
If the Trustee is unable to perform its duties or does not wish to
perform its duties, the Company is entitled to appoint another trustee
and in such event the Trustee shall transfer the options it is holding
to the other trustee and the replacement trustee shall replace the
Trustee for all intents and purposes.
12. THE COMPANY'S OTHER SHARES
12.1 The provisions of this Agreement do not prejudice the rights of
other holders of options or shares of the Company to which the
trust arrangement does not apply.
12.2 The parties are aware that additional employees of the Company
own rights in shares or to receive shares in other arrangements,
and it is hereby expressly agreed that this Agreement does not
apply to and does not affect or howsoever impair rights of other
shareholders of the Company or persons entitled to shares of the
Company, including employees entitled as aforesaid.
13. PAYMENT AND INDEMNITY
13.1 An action by the Trustee and any outcome of an action by the
Trustee, directly or indirectly, shall not render the Trustee
liable for any payment whatsoever. In any event in which the
Trustee is directly or indirectly ordered to make any payment in
connection with its actions as trustee, the Company undertakes
to directly effect and make the payment which shall be required,
for so long as it is a payment relating to the trust, or to
indemnify the Trustee for a payment as aforesaid upon demand
received from it.
13.2 Save in regard to the subjects detailed in clause 7 above, if
the Trustee is ordered to make any payment by a court or
tribunal or arbitrator in consequence of its operations as
trustee, whether directly or indirectly, the Company shall bear
the payment in its stead and shall effect the payment on the
required date, and the Trustee shall not be liable to indemnify
the Company for such payment.
13.3 The beneficiaries and the Company release the Trustee from any
liability for a negligent act or omission, and the Company shall
indemnify the Trustee for any payment which it is required to
pay in order to compensate any person or corporation for such an
act or omission.
14. GENERAL PROVISIONS
14.1 If the law so obliges or if the Company or any of its
shareholders so requests, the Company shall procure that the
Trustee shall be registered in the Company's register of
shareholders as the owner of the options for shares held by it
on trust.
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<PAGE> 11
14.2 The Company shall pay the Trustee's remuneration.
14.3 If the Company resolves to issue any of its shares in
consequence of additional investors joining the Company or for
any other reason, the Trustee's part of the options convertible
into shares of the Company shall be diluted accordingly and the
beneficiaries' right shall also be diluted in accordance
therewith, and the beneficiaries shall not have any complaint or
claim in such regard.
14.4 In a case where the beneficiaries have been actually allotted
part of the shares at the time of a dilution as aforesaid or at
any other time thereafter, their shares shall be diluted in
respect of the joining of investors or other shareholders, and
the beneficiaries shall not, even as shareholders, have any
complaint or demand in such regard.
14.5 The Trustee is empowered to determine the terms and conditions
for beneficiaries participating in the trust, in its discretion.
14.6 The parties undertake to sign all the documents required to give
validity and effect to this Agreement.
14.7 If income tax or capital gains tax or any other tax applies in
respect of the options or in respect of the allotment of the
shares or in respect of the holding of the shares or the
transfer thereof, or for another reason, the tax shall be borne
by the beneficiary in respect of the options or the shares held
for his benefit by the Trustee. If tax as aforesaid is imposed,
the Trustee shall be entitled to make demand of the beneficiary
to pay the tax upon demand pursuant to this Agreement or to
deduct the imposed tax from the amounts due or that shall be due
to the beneficiary, and such being in addition to any other
remedy available to the Trustee at law. If the tax as aforesaid
is imposed upon the Company, the Trustee shall be under a duty,
upon the Company's demand, to deduct the said tax and to remit
the amount collected to the Company, as the case may be.
The beneficiary authorizes and empowers the Company and the
Trustee to deduct or collect tax as aforesaid.
14.8 In the event of the death of a beneficiary at a time when he is
not an actual employee of the Company, his heirs shall be
entitled to exercise any options vested for a period of 18
(eighteen) months after such death. Any options not yet vested
at the time of his death shall automatically expire and any
prima facie transfer to his heirs or to beneficiaries pursuant
to his will, as the case may be, shall not be valid.
AS WITNESS THE HANDS OF THE PARTIES:
11
<PAGE> 12
- ------------------------------ ------------------------------
CLICKSERVICE SOFTWARE LTD B.Y.A.D. TRUSTEES LTD.
"THE COMPANY" "THE TRUSTEE"
12
<PAGE> 13
APPENDIX TO TRUST AGREEMENT -
CONDITIONS FOR PARTICIPATING IN THE TRUST
Made in Tel-Aviv this __ day of _______________ 2000.
BETWEEN: ClickService Software Ltd.
AND: The Participating Employee, Mr./Ms. ____________________
WHEREAS ClickService Software Ltd. (hereinafter referred to as
"the Company") shall allot options convertible into shares
in favor of the Participating Employee;
AND WHEREAS the employee wishes to participate in an Agreement dated
___ February 2000 (hereinafter referred to as "the
Agreement"), including the Trustee's trust and its holding
of the options until they mature;
ACCORDINGLY, IT IS WARRANTED AND AGREED AS FOLLOWS:
1. The recitals to this appendix constitute an integral part hereof.
2. The Participating Employee is entitled to be a beneficiary pursuant to
the Agreement from the date of the signing of this conditions for
participation appendix.
3. The Participating Employee's entitlement shall confer upon him the
following rights:
3.1 The right to be registered as a beneficiary of options to
receive ____________ Class B Ordinary Shares of NIS 0.01 each of
the Company in equal shares of one third with the determining
date for the first third being after 24 months have elapsed of
continuous work for the Company. After this, every month of
continuous and cumulative period of employment exceeding the
first 24 months shall confer the right to convert a further 1/24
(one twenty-fourth) from the balance of 2/3 (two-thirds) of the
total number of shares specified in the option, into shares
actually allotted, in an allotment at the end of the cumulative
period.. The entire cumulative period shall be entitled the
"Vesting Period". The right to shares as aforesaid shall be
subject to payment of the sum of $5.10 (five dollars and ten
cents), for the right to each share, at the representative rate
known at such time.
3.2 The said right is conditional and suspensive upon the
fulfillment of all the terms and conditions specified in the
Agreement.
3.3 If the employee ceases to be an actual employee of the Company
at any stage whatsoever until the conversion of the options or
part thereof into shares and prior to the actual allotment of
the shares, regardless of the reason for the termination of the
employment with the Company, his rights to an allotment or to
exercise the balance of the allotment shall expire, be cancelled
and nullified except to the extent specified in the Agreement.
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<PAGE> 14
3.4 The provisions set forth in this clause are in addition to the
provisions set forth in the Agreement.
3.5 The ancillary right upon the terms and conditions of the
Agreement distribution of additional rights or benefits, and
also those shall be granted in the future to holders of shares
or at the time of winding up, all pro rata to his entitlement to
options.
4. The option convertible into shares upon the terms and conditions of the
Agreement and the terms and conditions of this instrument of
participation shall be recorded in List "1" by the Trustee together with
the Participating Employee's name and his proportionate share of the
number of the shares as specified above.
5. The options that shall be recorded for the Participating Employee are in
addition to his other employment terms and conditions, and are not in
lieu thereof, but the Company's management may consider them a benefit
or other right conferred upon the employee in respect of and in
consequence of his employment.
6. The Participating Employee hereby agrees and confirms that if there
shall be a dilution of the Company's shares at any stage or in any
manner, whether during the course of the Vesting Period, or upon the
exercise of the conversion of the shares into an actual allotment of
shares, whether in stages or at the end of the entire Vesting Period,
his part shall also be diluted respectively.
In an event in which additional conditions would be required by the
relevant authorities for the approval to implement this Agreement, the
beneficiaries shall and they do agree to such conditions.
7. The Participating Employee accepts and agrees to all the terms and
conditions of the Agreement and confirms his express consent that in any
event of a contradiction between the provisions of this appendix and the
provisions of the Agreement, the provisions of the Agreement shall
prevail.
8. The Participating Employee hereby warrants and confirms his consent that
all the payment of taxes, official fees, levies and the like of
whatsoever description applicable now or that shall be applicable in the
future in respect of the Agreement, in respect of this instrument of
participation and in respect of the realization thereof shall be borne
by him alone.
9. The employee explicitly approves and agrees that he has been notified
that, and it is within his knowledge that the Arrangement for the
Allotment of Share Options for conversion is in accordance with Section
102 Income Tax Ordinance, and that he agrees that and undertakes not to
request a tax exemption under sections 95 or 97 (A) Income Tax
Ordinance, or under Chapter 7 Encouragement of Industry (Taxes) Law
1969.
10. This appendix constitutes an integral part of the instrument of
participation in the Agreement and the signing of the instrument of
participation constitutes the signing of this appendix.
The instrument of participation is annexed hereto.
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<PAGE> 15
- ----------------------------------------
Signature of the Participating Employee
We agree to the foregoing:
- ----------------------------------------
ClickService Software Ltd.
15
<PAGE> 16
INSTRUMENT OF PARTICIPATION
Employee's name _______________________________________________________________
(hereinafter referred to as "the Participating Employee")
1. I hereby participate as a beneficiary pursuant to the Option Agreement
dated ______________ (hereinafter referred to as "the Agreement") and
undertake all the obligations and rights of a beneficiary pursuant to
the Agreement.
2. I sign this instrument of participation having read the Agreement and
having understood the provisions hereof.
3. I confirm my rights in the options held on my behalf by the Trustee both
pursuant to the Agreement and also pursuant to the conditions of
participating in the trust dated ________________, and in accordance
with the Ordinance and the Regulations.
- --------------------- ------------------------------------
Date Signature of Participating Employee
Name of Participating Employee ________________________________________________
Identity No. of Participating Employee ________________________________________
Address of Participating Employee______________________________________________
Witness' signature: I certify the signature of the Participating Employee
------------------------------
Director of the Company
We the undersigned hereby confirm your participation as a beneficiary pursuant
to the Agreement.
- --------------------- ------------------------------------
Date The Trustee
16
<PAGE> 17
Date:_______________
To
Income Tax Assessor
Tax Commissioner's Office
RE: NOTICE REGARDING ENTITLING ALLOTMENT IN ACCORDANCE WITH THE INCOME TAX
REGULATIONS (TAX RELIEF UPON ALLOTMENT OF SHARES TO EMPLOYEES) 1989 (THE
"REGULATIONS")
1. In accordance with section 3 of the Regulations, we hereby inform you
that ClickService Software Ltd. (hereinafter the "Company") has decided
to adopt a share option plan, in accordance with Section 102 of the
Income Tax Ordinance and in accordance with the Regulations, whereby
within its framework, employees of the Company will be allotted options
in an entitling allotment, in accordance with the Regulations.
2. The date of the allotment of options within the framework of this plan
shall not be prior to February ___, 2000 and not later than February
___, 2004.
3. B. A. Trustees shall become the Trustee for the fulfillment of this plan
(hereinafter the "Trustee"). The appointment of the Trustee has been
approved by the Tax Commissioner's Office in accordance with his
authority under Section 102 of the Ordinance.
4. A. In accordance with section 4(B) of the Regulations, the Company
hereby undertakes towards the Income Tax Assessor that if bonus shares
are allotted to an employee under the options allotted for him in the
framework of the entitling allotment, they shall be forwarded to the
Trustee as long as the Trustee holds for him options allotted for the
employee within the framework of the entitling allotment. The Trustee is
obligated to the Income Tax Assessor to apply the provisions of section
102 to the said bonus shares, as if the bonus shares were options
allotted to the employee in the framework of the entitling offer.
2nd. In accordance with section 4(B) of the Regulations, we confirm
that we hold a confirmation letter from the employee that he
agrees that the arrangement shall apply to him and that he
undertakes not to request a tax exemption under sections 95 or
97(A) of the Ordinance or under Chapter 7 Encouragement of
Industry (Taxes) Law 1969 for any transfer of shares prior to
the termination of the holding period.
5. Attached is an Instrument of Trust as required by section 3 Regulations.
6. The Trustee undertakes towards the Income Tax Assessor that he shall not
forward the options nor option certificates until after tax is paid
under section 102 of the Ordinance and in accordance with the
Regulations, or after the Trustee has forwarded to the Income Tax
Assessor 30% of the consideration for on the account for which tax
applies.
7. Upon an approval by the Income Tax Assessor regarding the rate of tax
required to be paid as a condition for the transfer of options (or
shares) for the employee submitted by the Company or the employee to the
Trustee, the Trustee shall transfer the options into shares for the
employee but only after the sum of tax determined in the Income Tax
Assessor's approval has been paid.
Yours sincerely,
17
<PAGE> 18
B.Y.A.D Trustees Ltd. ClickService Software Ltd.
CC: Tax Commissioner's Office
Tax Deduction Assessor
APPENDIX TO THE ARRANGEMENT FOR ALLOTMENT OF OPTIONS TO EMPLOYEES
NOTICE REGARDING DEDUCTION AT SOURCE
Name of Trustee: B.Y.A.D Trustees Ltd.
Name of Company: ClickService Software Ltd.
Name of Employee: _______________
Date: __________________________
To
Tax Assessor
Income Tax Commissioner
___________________Street
_________________________
Dear Sir / Madam,
RE: DEDUCTION AT SOURCE
We hereby inform you that:
Options to ____________, in the name of the Trustee B.Y.A.D. Trustees Ltd. for
the employee ___________________, which were bought/granted/purchased on
________________, in an allotment which received approval on
____________________, sold on _________________ , to __________________________
in consideration for NIS _________________.
The tax deducted at source is __________________ (attached is authorization for
the reduced deduction).
The tax was paid on ___________________ at _________________.
Yours sincerely,
B.Y.A.D. Trustees Ltd.
CC: Tax Commissioner's Office.
18
<PAGE> 1
Exhibit 10.13
CLICKSERVICE SOFTWARE LIMITED
RULES OF
UNAPPROVED SHARE OPTION SCHEME
FOR EMPLOYEES
DRAFT (2)
BIRD & BIRD
90 FETTER LANE
LONDON EC4A 1JP
TEL: 0171 415 6000
FAX: 0171 415 6111
<PAGE> 2
CLICKSERVICE SOFTWARE LIMITED
SHARE OPTION SCHEME RULES
1. DEFINITIONS
In these Rules of the Scheme the following words and expressions shall have the
following meanings:
"ADOPTION DATE" means the date on which the Scheme is adopted by the Company;
"APPROVED SCHEME" means the Approved Executive Share Option Scheme adopted by
the Company on [ ] 2000;
"ARTICLES" means the Articles of Association of the Company from time to time in
force;
"AUDITORS" means the auditors for the time being of the Company;
"BOARD" means the board of directors of the Company or a duly authorised
committee thereof appointed in accordance with Rule 11.2;
"COMPANY" means ClickService Software Limited;
"CONTROL" means control as defined in Section 840 of the Taxes Act;
"ELIGIBLE PERSON" means any person employed directly or indirectly by a member
or members of the Group under a contract of services or engaged under a contract
for services;
"EXERCISE PRICE" the price per Share payable on the exercise of an Option as
determined by the Board being a price not less than the nominal value of a
Share;
"GROUP" means the Company and all of the Subsidiaries and "MEMBER OF THE GROUP"
shall be construed accordingly;
"LISTING" means the listing of equity shares in the Company on a recognised
stock exchange (within the meaning of Section 841 of the Taxes Act);
"OPERATIVE PERIOD" means the period of ten years commencing on the Adoption
Date;
"OPTION" means a right to subscribe for Shares under the Scheme;
"PARTICIPANT" means an Eligible Person who has been granted an Option;
"RULES" means the rules of the Scheme contained in this document and Rule shall
be construed accordingly;
2
<PAGE> 3
"SALE" means the sale or transfer of more than fifty per cent. of the issued
ordinary share capital of the Company to another person or group of persons as a
result of a general offer made by such person or group of persons for the
acquisition of Shares or sales or transfers of Shares by private treaty by such
holders to such person or group of persons as part of a single transaction
involving a change of control in the Company;
"SCHEME" means the scheme contained in this document as from time to time
amended in accordance with the provisions hereof;
"SHARES" means Ordinary Shares and `A' Ordinary Shares of NIS 0.01 each in the
capital of the Company as defined in the Company's Articles. "SHARE" shall be
construed accordingly;
"SUBSIDIARY" a company which is a subsidiary of the Company within the meaning
of Section 736 of the Companies Act 1985 and which is under the Control of the
Company;
"SUBSISTING OPTION" means an option granted under this Scheme or the Approved
Scheme which has not lapsed or been exercised;
"TAXES ACT" means the Income and Corporation Taxes Act 1988;
"TERMINATION FOR CAUSE" means in relation to a Participant, termination of the
Participant's employment or engagement, as appropriate, with any member of the
Group in circumstances giving rise to summary dismissal or termination;
"VESTING COMMENCEMENT DATE" means, in relation to an Option, the second
anniversary of the date of grant of the Option or such other date that the Board
determines in relation to the Option and is specified in the option certificate
related to the relevant option; and
"2000 STOCK PLAN" means the 2000 Stock Plan adopted by the Company on [ ] 2000.
Any reference in these Rules to a statutory provision shall include a reference
to that provision as amended or re-enacted from time to time and any subordinate
legislation, orders or regulations made pursuant thereto. Where the context
permits the singular shall include the plural and vice versa and the masculine
gender shall include the feminine.
2. ELIGIBILITY
2.1 Subject to the following provisions of this Rule 2, the Board shall
have an absolute discretion as to the selection of persons to whom an Option is
granted by the Company.
2.2 An Option shall not be granted to any person unless he is an Eligible
Person.
2.3 An Option shall be personal to the Participant to whom it is granted
and may not be transferred to or exercised by any other person other than his
personal representatives.
3. GRANT OF OPTIONS
3
<PAGE> 4
3.1 An Option may, subject to Rule 2, be granted to a Participant at such
times and on such terms as the Board shall in its absolute discretion determine.
3.2 No Option may be granted after the expiry of the Operative Period.
3.3 An Option shall be granted by the Company executing as a deed and
issuing to the Participant an option certificate which contains an undertaking
by the Participant (duly executed as a deed) to be bound by the rules of this
Scheme and which specifies:
(a) the date of grant of the Option;
(b) the number of Shares in respect of which the Option is granted;
(c) the Exercise Price;
(d) the date(s) on which the Option may be exercised and the extent
to which the Option may be exercised on any such date;
(e) any performance-related conditions imposed pursuant to Rule 8 to
which the Option is subject;
(f) that the Participant agrees to indemnify each member of the Group
in respect of any tax liability falling within Rule 5.5,
and is otherwise in such form as the Board may from time to time
determine.
3.4 A Participant shall be entitled to renounce, surrender or cancel, or
agree to the cancellation of, an Option within the period of 30 days immediately
following the date of grant and if any Option is so renounced, surrendered or
cancelled it shall be deemed for the purposes of this Scheme never to have been
granted.
3.5 An Option shall not be granted by any person other than the Company
without the prior approval of the Board.
4. EXERCISE PRICE
The Exercise Price shall be determined by the Board at the date of
grant.
5. EXERCISE OF OPTIONS
5.1 NOTICE OF EXERCISE
An Option shall only be exercised by a Participant within such period
as may be applicable by virtue of the terms on which the Option was granted and
the provisions of Rule 7 and 8 below and subject thereto the exercise shall be
effected in such form and manner as the
4
<PAGE> 5
Board may from time to time prescribe. In the absence of the Board prescribing
to the contrary a Participant shall exercise an Option by his giving to the
Company at its registered office prior notice in writing signed by the
Participant, which notice shall specify the number of Shares (which shall be a
multiple of 100 or be equal to the balance of the Shares remaining subject to
the Option) in respect of which the Option is being exercised and shall be
accompanied both by payment in full of the aggregate Exercise Price for the
Shares in respect of which the Option is exercised and the option certificate
evidencing the grant of the relevant Option for cancellation or amendment. The
date of receipt of such notice shall (in the absence of the Board prescribing
otherwise) be deemed to be the date of exercise of the Option or of the relevant
portion of the Option, as the case may be.
5.2 ALLOTMENT
The Company shall enter the Participant in the Company's register of
members as the holder of the appropriate number of Shares within thirty days
after the date of exercise of the Option (the date of such entry being, for the
purposes of Rule 5.3 below, the ("DATE OF ALLOTMENT") and (provided that the
Company issues share certificates) the Company shall deliver to the Participant
a definitive share certificate in respect thereof.
5.3 RIGHTS OF SHARES
Any Shares issued pursuant to Rule 5.2 above shall rank pari passu in
all respects and form a uniform class with the Shares in issue on the date of
allotment save that they shall not rank for or be entitled to any dividend or
other distribution or any issue of Shares by way of capitalization of profits or
reserves or any issue of securities by way of rights which under the terms of a
resolution passed by the Company is to be or is proposed to be paid or made to
the holders of Shares on the register on a date prior to the date of allotment.
The Shares shall be issued subject to the Articles.
5.4 LISTING
The Company shall at its expense make application to the relevant
recognised stock exchange for the admission to Listing of all Shares allotted
pursuant to the exercise of any Option if Shares are then subject to a Listing.
5.5 CONDITION PRECEDENT
No Option may be exercised until the Participant has put the Company
in sufficient funds (which shall be determined by the Company) to meet any
obligation of the Company to account for income tax chargeable under the PAYE
system or employee's national insurance contributions in relation to the
exercise of such Option. The Company shall use reasonable endeavours (with the
Participant's assistance if required) to agree with the Inland Revenue the
amount of any such income tax or other liability in advance of any shares being
issued to the Participant following exercise of an Option. In the event that any
funds made available are less than or greater than the amount needed to meet any
obligation of the Company to account for income tax or other amounts that are
chargeable
5
<PAGE> 6
under the PAYE system in relation to the exercise of such Option, an appropriate
payment shall be made by the Participant to the Company, or vice versa, as
appropriate.
6. LIMITATIONS ON GRANTS
No options shall be granted pursuant to Rule 3 if such grant would
result in the aggregate of:
(a) the number of Shares over which Subsisting Options have been
granted under the Scheme after [date], the Approved Scheme and the 2000 Stock
Plan; and
(b) the number of Shares which have been issued on the exercise of
Options granted under the Scheme after [date], the Approved Scheme and the 2000
Stock Plan,
exceeding [3,000,000] Shares.
7. TIME FOR EXERCISE OF OPTIONS
7.1 Subject to the other provisions of this Rule 7 and Rule 8 and subject
to the terms on which the Option was granted providing otherwise, the Option may
not be exercised prior to the Vesting Commencement Date, whereupon one half of
the number of Shares the subject of the Option may be exercised, and thereafter
the Option may be exercised on the following basis:
n = a+24 x b
------
48
Where n is the number of Shares over which the Option may be
exercised on any date (the "EXERCISE DATE");
a is the number of complete months between the Vesting
Commencement Date and the Exercise Date; and
b is the number of shares subject to the Option.
7.2 If a Participant shall cease to be an Eligible Person by reason of
circumstances giving rise to Termination for Cause the Option shall lapse and
become of no effect.
7.3 If a Participant shall cease to be an Eligible Person otherwise than
by reason of circumstances giving rise to Termination for Cause, the Participant
(or his successors) may, subject to Rule 7.1 and Rule 8, exercise his Options to
the extent not previously exercised by the Participant within two months of such
cessation and to the extent not exercised after the end of that period the
Option shall lapse and become of no effect.
6
<PAGE> 7
7.4 For the purposes of this Rule 7 where a Participant's employment is
terminated without notice he shall cease to be an Eligible Person on the date on
which the termination takes effect and where the employment is terminated with
notice he shall cease to be an Eligible Person on the date on which such notice
is given.
7.5 An Option may not be exercised later than ten years after the date on
which it was granted and, to the extent unexercised after the expiry of that
period, it shall lapse and become of no effect.
8. PERFORMANCE-RELATED CONDITIONS OF EXERCISE
8.1 The exercise of an Option shall be conditional upon the performance of
the Company and, if the Board so determines, upon the performance of a
Subsidiary and/or the Participant over such period and measured against such
objective criteria as shall be determined by the Board and notified to the
Participant when the Option is granted. If no such objective criteria are
notified to the Participant when the Option is granted, this Rule 8 shall not
apply in relation to the Option.
8.2 Any such condition may provide that the Option shall become vested in
respect of a given number or proportion of the Shares over which it subsists
according to whether, and the extent to which, any given performance target is
met or exceeded.
8.3 After an Option has been granted the Board may, in appropriate
circumstances, amend any performance-related condition of exercise of an option
PROVIDED THAT no such amendment shall be made unless an event has occurred or
events have occurred in consequence of which the Board reasonably considers,
having due regard to the interests of the shareholders of the Company, that the
terms of the existing performance-related condition(s) of exercise of the Option
should be so varied for the purposes of ensuring that either the objective
criteria against which the performance of the Company and/or any Subsidiary
and/or the Participant will then be measured will be a fairer measure of such
performance or that any amended performance condition will afford a more
effective incentive to the Participant and will be no more difficult to satisfy
than were the original condition(s) when first set.
8.4 If, in consequence of a performance condition being met, an Option
becomes vested in respect of some but not all of the number of Shares over which
it subsists it shall thereupon lapse and cease to be exercisable in respect of
the balance of the Shares over which it was held.
9. VARIATIONS IN THE SHARE CAPITAL OF THE COMPANY
9.1 VARIATION OF CAPITAL
If at any time after the date of grant of an Option and before it
ceases to be exercisable there is a variation of the share capital of the
Company which involves the Shares by reason of:
7
<PAGE> 8
9.1.1 a capitalization of reserves; or
9.1.2 a reduction, sub-division, consolidation or reclassification of
capital, the Exercise Price and/or the number of Shares in respect of which the
Option may be exercised shall be adjusted to such extent and in such manner as
the Auditors shall in their opinion consider and confirm in writing to the Board
to be fair and reasonable, but so that the aggregate Exercise Price payable on
the exercise of an Option previously granted under these Rules shall not be
increased thereby.
9.2 NOTIFICATION
All Participants shall be notified in writing of any such adjustments
as soon as practicable thereafter and the Company shall be entitled to call in
the instruments evidencing the grant of the Options affected by such adjustments
for endorsement or replacement, as may appear appropriate.
10. OPTION ROLL-OVER
10.1 In the event of a Sale any Participant may at any time within the
applicable period during which Options may be exercised, by agreement with the
Acquiror or other relevant company, release any Option in whole or in part which
has not lapsed ("THE OLD OPTION") in consideration of the grant to him of an
Option ("THE NEW OPTION") which is equivalent to the Old Option but relates to
shares in a different company (whether the Acquiror or some other company).
10.2 The New Option shall be regarded for the purposes of this Rule 10 as
equivalent to the Old Option and the provisions of this Scheme shall be
construed as if:
(a) the New Option were an option granted under the Scheme at the
same time as the Old Option,
(b) the reference in the definition of the "Company" in Rule 1 were a
reference to the different company referred to in Rule 10.1,
(c) any conditions imposed on the exercise of Options under Rule
3.3(e) shall be regarded as varied in accordance with such terms as shall be
specified by the Acquiror or other relevant company with the agreement of the
Board.
10.3 For the purposes of this Rule 10, a sale shall be treated as taking
effect on the date on which the agreement(s) for the relevant sales or transfers
is (are) or become(s) unconditional in all respects.
11. ADMINISTRATION OF THE SCHEME
8
<PAGE> 9
11.1 GENERAL
The Scheme shall in all respects be administered under the direction
of the Board. The Board may make such rules for the conduct of the Scheme, not
being inconsistent with the provisions of these Rules, as it shall think fit.
Any dispute regarding the interpretation of the Scheme or the terms of any
Option shall be determined by the Board (after seeking such advice as it shall
consider necessary) and its decision shall be final and binding.
11.2 COMMITTEE
The Board may delegate all or any of its powers in relation to the
Scheme to a duly authorized committee of the Board.
11.3 AUTHORISED SHARE CAPITAL
The Company shall at all times maintain an amount of authorised and
unissued Shares sufficient to satisfy outstanding Options under the Scheme.
11.4 ARTICLES OF ASSOCIATION
The provisions of the Company's Articles of Association for the time
being with regard to the service of notices upon members of the Company shall
apply mutatis mutandis to any notice to be given by the Company to Participants
under the Scheme and all notices to be given to the Company under the Scheme
shall be delivered or sent by post to the Company at its registered office.
11.5 TRUSTEES
Any member of the Group may provide money to the trustees of any trust
or any other person to enable it, him or them to acquire Shares to be held for
the purposes of the Scheme, to enter into any guarantee or indemnity for these
purposes, to the extent permitted by Section 153 of the Companies Act 1985.
11.6 COPIES OF DOCUMENTS
The Participants shall be entitled to receive, upon request, copies of
all accounts, circulars, and notices sent to holders of Shares.
12. AMENDMENT OF THE SCHEME
12.1 RESOLUTION OF THE BOARD
The Board shall at any time be entitled to amend by resolution all or
any of the provisions of the Scheme provided that no amendment to the Scheme
shall be made which would prejudice the subsisting rights of existing
Participants in any manner without the prior written consent of existing
Participants entitled to exercise Options in respect of at least
9
<PAGE> 10
three quarters of the total number of Shares over which Options shall at that
time be subsisting;
12.2 NOTIFICATION
On any such amendment being made by the Board all Participants shall
be notified in writing as soon as practicable thereafter.
12.3 TERMINATION
The Board or the Company in General Meeting shall be entitled by
resolution to terminate the Scheme at any time but Options previously granted
shall continue to be valid and exercisable in accordance with the provisions of
the Scheme.
13. ADDITIONAL PROVISIONS
13.1 CONFLICT
Every Option shall be subject to the condition that no Shares shall be
issued to a Participant following the exercise of an Option if such issue would
be contrary to any enactment or regulation for the time being in force of the
United Kingdom or of any other country having jurisdiction in relation thereto.
The Company shall not be bound to take any action to obtain the consent of any
governmental authority to such issue or to take any action to ensure that any
such issue shall be in accordance with any such enactment or regulation if such
action could in the opinion of the Board be unduly onerous.
13.2 EMPLOYMENT
The rights and obligations of a Participant under his terms of
employment with any member of the Group shall not be affected by his
participation in the Scheme and the Scheme shall not afford to a Participant any
additional right to compensation in consequence of the termination of his
employment for any reason whatsoever.
13.3 AUDITORS
In any matter in which they are required to act under these Rules the
Auditors shall be deemed to be acting as experts and not as arbitrators.
13.4 GOVERNING LAW
The Scheme shall be governed by and interpreted in accordance with
English Law.
10
<PAGE> 11
CLICKSERVICE SOFTWARE LIMITED UNAPPROVED SHARE OPTION SCHEME
OPTION CERTIFICATE
Name of Optionholder:
------------------------------------------------------
Address of Optionholder:
------------------------------------------------------
------------------------------------------------------
Date of Grant
------------------------------------------------------
Max. No Shares:
------------------------------------------------------
Exercise Price:
------------------------------------------------------
ClickService Software Limited HEREBY GRANTS to the Optionholder named above an
Option to subscribe the above number of Shares in the Company at the above
Exercise Price.
This Option is exercisable subject to and in accordance with the rules of
ClickService Software Limited Share Option Scheme (the "SCHEME") as they are
amended from time to time. It is exercisable in accordance with the performance
conditions and the limitations on exercise contained in Part A and Part B
respectively of the Schedule (if any) to this Option Certificate and the rules
of the Scheme (and in particular Rule 7). In accordance with Rule 7.5, the
Option may not in any event be exercised later than the tenth anniversary of the
Date of Grant shown above.
To exercise the Option the Optionholder should complete the Notice of Exercise
on the reverse side of this Option Certificate.
The Option is not transferable.
EXECUTED AS A DEED by Director
----------------------------
CLICKSERVICE SOFTWARE
LIMITED
acting by: Secretary/Director
----------------------------
I HEREBY AGREE to accept the grant of this Option and agree and undertake:
(1) to be bound by their terms and conditions set out in the rules of the
ClickService Software Limited Share Option Scheme and the terms and
conditions of exercise set out in the Appendix to this Option Certificate;
(2) that to the extent any tax liability falling within Rule 5.5 of the Scheme
has not been deducted from my salary in the relevant month, my employing
company is authorised to make deductions from subsequent salary payments
and to apply the amounts so deduced in reimbursing the person which has
accounted for such liability;
(3) to indemnify the Company and each company in the Group in respect of any
liability falling within (2) above.
SIGNED but not delivered until the date hereof )
AS A DEED by )
-----------------------------------
in the presence of: )
----------------------------
(Optionholder signature)
Witness signature:
--------------------------
Witness name (print)
--------------------------
Address:
--------------------------
--------------------------
--------------------------
Occupation:
--------------------------
11
<PAGE> 12
SCHEDULE
PART A
PERFORMANCE CONDITIONS
12
<PAGE> 13
PART B
LIMITATIONS AS TO EXERCISE
13
<PAGE> 14
CLICKERVICE SOFTWARE LIMITED UNAPPROVED SHARE OPTION SCHEME
NOTICE OF EXERCISE OF OPTION
To: Company Secretary
ClickService Software Limited
I hereby exercise the Option referred to overleaf in respect of ________________
of the Shares over which the Option may be exercised, and request the allotment
or transfer to me of those Shares in accordance with the rules of the Scheme and
the Articles of Association of the Company.
I enclose a cheque made payable to ClickService Software Limited in the sum of
$______________ being the aggregate Exercise Price of such Shares.
Name (block letters) Signature
- -------------------------------------- -----------------------------------
Address
- -------------------------------------- Date
-------------------------------
- --------------------------------------
- --------------------------------------
NOTES:
1. This form must be accompanied by payment of the Exercise Price for the
Shares in respect of which the Option is exercised.
2. The Option may not be exercised in respect of less than 100 Shares or (if
less) all of the Shares over which the Option subsists.
3. The Scheme has not been approved by the Inland Revenue. There is no charge
to income tax on the receipt of a right to acquire Shares under such a
scheme. Under current tax rules a charge to tax will arise on the exercise
of the Option on the difference between the market value of the Shares at
the date of exercise and the price paid for them.
4. IMPORTANT The Company does not undertake to advise you on the tax
consequences of exercising your Option. If you are unsure of the tax
liabilities which may arise, you should take appropriate professional
advice before exercising your Option.
14
<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
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<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
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<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)
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