<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 21, 2000
REGISTRATION NO. 333-12292
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
------------------------------
AMENDMENT NO. 1
TO
FORM F-1
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
------------------------------
CAMTEK LTD.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
ISRAEL 3827 NOT APPLICABLE
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
------------------------------
INDUSTRIAL ZONE
P.O. BOX 631
MIGDAL HAEMEK
ISRAEL 10556
011-972-6-644-0521
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
------------------------------
CAMTEK USA, INC.
468 INDUSTRIAL WAY WEST
EATONTOWN, NJ 07724
(908) 542-7711
(Name, address, including zip code and telephone number, including area code, of
agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C> <C> <C>
RICHARD H. GILDEN, ESQ. LIOR AVIRAM, ADV. DAVID J. GOLDSCHMIDT, ESQ. AVRAHAM M. FISCHER, ADV.
BROBECK, PHLEGER & HARRISON SHIBOLETH, YISRAELI, SKADDEN, ARPS, SLATE, FISCHER, BEHAR, CHEN & CO.
LLP ROBERTS, MEAGHER & FLOM LLP 3 DANIEL FRISCH STREET
1633 BROADWAY ZISMAN & CO. FOUR TIMES SQUARE TEL AVIV 62371, ISRAEL
NEW YORK, NEW YORK 10019 46 MONTEFIORE ST. NEW YORK, NEW YORK 10036 (972) 3-694-4111
(212) 581-1600 TEL AVIV 65201, ISRAEL (212) 735-3000
(972) 3-710-3311
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act, check
the following box: / /
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / ____________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ____________
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
AMOUNT TO PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED SHARE(1) PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Ordinary Shares, NIS 6,440,000(2) $12.00 (3) (3)
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
(2) Includes 840,000 Ordinary Shares which may be issued upon exercise of the
Underwriters' over-allotment option.
(3) 3,320,000 ordinary shares were registered under Registration Statement
No. 333-11628, the registration statement of which the combined prospectus
contained herein is also a part. Registration Statement No. 333-11628 was
declared effective in April 2000 but no securities were sold pursuant to
such Registration Statement. This Registration Statement is filed, to enable
the prospectus included herein to be used pursuant to Section 10(a) of the
Securities Act of 1933, as amended. Since filing the previous Registration
Statement No. 333-11628, the Registrant effected a two-for-one stock split
such that the number of shares to be registered increased from 3,220,000 to
6,440,000. No additional registration fee is required for such additional
shares pursuant to Rule 416(b). The Registrant paid a registration fee of
$15,302 with respect to Registration Statement No. 333-11628. Accordingly,
no additional registration fee is required under Rule 416(b). The proposed
maximum offering price per share has been increased from $9.00 (giving
effect to the two-for-one stock split) to $12.00. Under Rule 457(a) no
additional fee is required as a result of such increase. As a result, the
$15,302 previously paid amounts to the entire registration fee required with
respect to this registration.
Pursuant to Rule 429 of the Securities Act of 1933, as amended, the prospectus
contained in this Registration Statement and supplements to such prospectus will
also be used in connection with the ordinary shares registered under
Registration Statement No. 333-11628.
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 specifically stating that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of the Securities
Act of 1933, as amended, or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED JULY 21, 2000
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
5,600,000 ORDINARY SHARES
[LOGO]
$ PER ORDINARY SHARE
-------------------------------------------------------------------------
This is an initial public offering of ordinary shares of Camtek Ltd. Camtek is
offering all the ordinary shares in this offering.
Camtek expects that the price to the public in the offering will be between
$10.00 and $12.00 per share.
Camtek has applied for quotation of the ordinary shares on the Nasdaq National
Market under the symbol "CAMT."
INVESTING IN THE ORDINARY SHARES INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 6.
<TABLE>
<CAPTION>
PER SHARE TOTAL
-------------- --------------
<S> <C> <C>
Price to the public.................... $ $
Underwriting discount..................
Proceeds to Camtek.....................
</TABLE>
Camtek has granted an over-allotment option to the underwriters. Under this
option, the underwriters may elect to purchase a maximum of 840,000 additional
shares from Camtek within 30 days following the date of this prospectus to cover
over-allotments.
--------------------------------------------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
We have obtained from the Securities Authority of the State of Israel an
exemption from Israel's prospectus publication requirements. Nothing in that
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.
CIBC WORLD MARKETS
UBS WARBURG LLC
NEEDHAM & COMPANY, INC.
The date of this prospectus is , 2000
<PAGE>
DESCRIPTION OF ARTWORK
A picture of the Orion automated optical inspection system. In the left hand
lower corner is the logo "Camtek AOI Systems."
GATEFOLD. Upper left hand corner says "Camtek Complete AOI Solutions."
INSIDE FRONT COVER.
Lower left hand corner says:
"AOI-Automated Optical Inspection"
"CAI-Camtek AOI Interface"
"CVR-Camtek Verification & Repair"
"CPC-Camtek Process Control"
Upper right hand corner says "Growing global force in providing AOI solutions."
A picture of the Camtek AOI Interface, which is linked to three AOI systems.
Each of the three AOI systems is linked to a Camtek Process Control as well as
two Camtek Verification & Repair stations. In the background is a portion of a
globe.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary.......................................... 4
Risk Factors................................................ 6
Forward Looking Statements.................................. 12
Use of Proceeds............................................. 13
Dividend Policy............................................. 14
Capitalization.............................................. 15
Dilution.................................................... 16
Selected Consolidated Financial Data........................ 17
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 18
Business.................................................... 27
Management.................................................. 39
Principal Shareholders...................................... 47
Related Party Transactions.................................. 48
Description of Ordinary Shares.............................. 50
Shares Eligible for Future Sale............................. 53
U.S. Tax Considerations Regarding Shares Acquired by U.S.
Taxpayers................................................. 54
Israeli Taxation............................................ 57
Conditions in Israel........................................ 62
Underwriting................................................ 63
Legal Matters............................................... 65
Experts..................................................... 66
Enforceability of Civil Liabilities......................... 66
Where You Can Find More Information......................... 67
Index to Consolidated Financial Statements.................. F-1
</TABLE>
------------------------
Our consolidated financial statements are prepared in U.S. dollars in accordance
with generally accepted accounting principles in Israel and in the United States
(as applicable to these financial statements, such accounting principles do not
differ in any material respects). All references to "dollars" or "$" in this
prospectus are to U.S. dollars, and all references to "Shekels" or "NIS" are to
new Israeli shekels. On July 10, 2000, the representative exchange rate between
the NIS and the dollar, as quoted by the Bank of Israel, was NIS 4.11 to $1.00.
Our principal executive offices are located at the Industrial Zone, P.O. Box
631, Migdal Haemek, Israel. Our telephone number is 011-972-6-644-0521.
Unless otherwise stated, all information contained in this prospectus:
- assumes no exercise of the over-allotment option granted to the underwriters;
- assumes no exercise of options granted to employees to acquire an aggregate of
845,980 ordinary shares, at a weighted average exercise price of $2.74 per
share;
- assumes no exercise of options granted to employees to acquire an aggregate of
152,000 ordinary shares, at an exercise price equal to the initial public
offering price; and
- reflects a two-for-one split of our ordinary shares in July 2000.
The underwriters may reject all or part of any order.
3
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED IN OTHER PARTS OF THIS PROSPECTUS.
THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION YOU SHOULD CONSIDER BEFORE
INVESTING IN THE ORDINARY SHARES. YOU SHOULD READ THE ENTIRE PROSPECTUS
CAREFULLY.
ABOUT CAMTEK
We design, develop, manufacture and market technologically advanced and
cost-effective automated optical inspection, or AOI, systems and related
products. AOI systems are used to detect defects in printed circuit boards
during the manufacturing process. They are designed to ensure the quality of
printed circuit boards and enhance production yield for manufacturers. To date,
we have focused on low- to medium-volume manufacturers of high-end printed
circuit boards. We have also penetrated the market comprised of high-volume
manufacturers of high-end printed circuit boards. As of March 31, 2000, we had
sold 475 AOI systems in 25 countries worldwide.
We believe the following are the major factors that currently drive the
increased need for AOI systems:
- the increase in the number of printed circuit boards produced each year
because of increased demand for electronic products and shortened product life
cycles;
- the expanded use of printed circuit boards with higher densities;
- the increase in the cost of highly complex boards;
- the need to identify, in real-time, flaws in the manufacturing process;
- the increase in the number of purchasers of printed circuit boards insisting
that AOI systems be used during the manufacturing process;
- the proliferation of advanced high density substrates, or connecting
materials, such as ball grid arrays, or BGAs;
- the trend towards industry consolidation; and
- the desire of printed circuit board manufacturers to reduce their need for
costly manual visual inspection.
We believe that our AOI systems, which use proprietary advanced technology,
offer printed circuit board manufacturers a high level of defect detection at a
low cost per scan, thereby increasing the production yield and enhancing the
quality of printed circuit boards.
We believe that our attractive price structure enables printed circuit board
manufacturers to plan their investment in AOI systems incrementally in
accordance with their increasing throughput and growth. We have also developed a
real-time process control application that we refer to as CPC, which is designed
to move our AOI systems beyond detection to prevention. In addition, the
easy-to-use design of our products and the single system for both inspection and
verification, a concept which we refer to as Inspectify, may increase the
efficiency of the manufacturing process.
Our strategy includes the following elements:
- strengthen our position in the high-end market for low-to medium-volume
manufacturers;
- further penetrate the high-volume, high-end market;
- penetrate new segments of the markets for multilayer printed circuit boards
and advanced substrates;
- continue our focus on research and development in order to expand our core
technology base; and
- continue to provide responsive and efficient customer service and support
worldwide.
PCB Ltd. currently owns 92.4% of our outstanding ordinary shares. PCB is
publicly traded on the Tel Aviv Stock Exchange. Based on sales volume, PCB is
one of the largest manufacturers of printed circuit boards in Israel.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Ordinary shares offered by Camtek.......................... 5,600,000 shares
Ordinary shares to be outstanding after the offering....... 21,861,002 shares
Use of proceeds............................................ We plan to use the proceeds of this
offering for:
- completion of our new facility;
- repayment of indebtedness, including
funds owed to PCB;
- funding our sales and marketing
activities;
- investment in research and development
activities; and
- working capital and general corporate
purposes. See "Use of Proceeds."
Our proposed Nasdaq National Market symbol................. CAMT
</TABLE>
------------------------
Ordinary shares to be outstanding after the offering excludes options to
purchase the following:
- 845,980 ordinary shares at a weighted average exercise price of $2.74 per
share and
- 152,000 ordinary shares at an exercise price equal to the initial public
offering price.
SUMMARY CONSOLIDATED FINANCIAL DATA
(In thousands, except per share data)
The "As Adjusted" column of the following balance sheet data gives effect to the
sale by us of 5,600,000 ordinary shares in this offering at an assumed initial
public offering price of $11.00 per share and the application of the net
proceeds from this offering, after deducting the underwriting discount and
estimated offering expenses.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues............................................. $15,733 $20,343 $23,892 $4,417 $10,517
Cost of revenues..................................... 6,602 10,095 12,159 2,096 4,867
------- ------- ------- ------ -------
Gross profit......................................... 9,131 10,248 11,733 2,321 5,650
Research and development costs, net................ 1,573 2,326 2,419 946 939
Selling, general and administrative expenses....... 5,429 6,848 7,827 1,809 2,154
Operating income (loss).............................. 2,129 1,074 1,487 (434) 2,557
Financial and other (expenses) income, net........... (137) 241 (862) (467) (605)
------- ------- ------- ------ -------
Income (loss) before income taxes.................... 1,992 1,315 625 (901) 1,952
Provision for income taxes........................... -- -- -- -- 241
Net income (loss).................................... $ 1,992 $ 1,315 $ 625 $ (901) $ 1,711
======= ======= ======= ====== =======
Earnings (loss) per ordinary share:
Basic.............................................. $ 0.13 $ 0.09 $ 0.04 $(0.06) $ 0.11
======= ======= ======= ====== =======
Diluted............................................ $ 0.12 $ 0.08 $ 0.04 $(0.06) $ 0.10
======= ======= ======= ====== =======
Weighted average number of ordinary shares
outstanding:
Basic.............................................. 15,020 15,020 15,226 15,020 16,261
Diluted............................................ 16,130 16,494 16,422 15,020 16,830
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 2000
----------------------
ACTUAL AS ADJUSTED
-------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 1,647 $47,597
Working capital............................................. 676 56,548
Deferred registration costs................................. 1,388 --
Total assets................................................ 24,434 68,996
Total debt.................................................. 9,922 --
Shareholders' equity........................................ 5,116 59,600
</TABLE>
5
<PAGE>
RISK FACTORS
YOU SHOULD CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS IN ADDITION TO THE
OTHER INFORMATION IN THIS PROSPECTUS BEFORE PURCHASING OUR ORDINARY SHARES.
BUSINESS, MARKET AND SHAREHOLDER RISKS
AOI SYSTEM TECHNOLOGY IS RAPIDLY EVOLVING, AND WE MAY NOT BE ABLE TO KEEP PACE
WITH THESE CHANGES OR WITH EMERGING INDUSTRY STANDARDS. THIS COULD RESULT IN A
LOSS OF REVENUES.
The markets for AOI systems are characterized by changing technology, evolving
industry standards, changes in end-user requirements and new product
introductions. Potential new technologies and improvements to existing
production equipment for printed circuit boards could significantly improve
production yields, thereby lowering the cost-benefit equation currently
justifying the use of our AOI systems. In addition, new ways of inspecting
printed circuit boards could emerge as an alternative to using AOI systems.
Our future success will depend on our ability to enhance our existing AOI
systems and to develop and introduce new technologies for automated optical
inspection of printed circuit boards. These products and features must keep pace
with technological developments and address the increasingly sophisticated needs
of our customers. Our failure to keep pace with technological changes and
emerging industry standards could damage our reputation and adversely affect our
ability to attract new business and generate revenues.
A REDUCTION IN DEMAND IN THE PRINTED CIRCUIT BOARD INDUSTRY FOR OUR PRODUCTS
WILL NEGATIVELY IMPACT OUR SALES.
We derive our revenues entirely from sales of our AOI systems and related
services. Our business depends in large part upon capital expenditures by
printed circuit board manufacturers, which in turn depend upon the current and
anticipated demand for products using printed circuit boards. We expect that a
significant portion of the demand for our AOI systems will come from the trend
in the printed circuit board industry towards increased product complexity,
continual new product introductions and new applications in advanced electronic
products. We cannot be certain as to whether this demand will grow or at what
level it will be sustained.
We have only a limited ability to reduce expenses during any period of a
downturn in demand because of the need for significant ongoing investment in
engineering, research and development and worldwide customer service and support
operations. Accordingly, during any continuing period of reduction in the demand
for printed circuit boards or in capital investments by manufacturers of printed
circuit boards, our sales will decrease.
THE MARKETS WE SERVE ARE HIGHLY COMPETITIVE, THERE IS A DOMINANT MARKET
PARTICIPANT AND SOME OF OUR COMPETITORS HAVE GREATER RESOURCES, WHICH MAY MAKE
IT DIFFICULT FOR US TO MAINTAIN PROFITABILITY.
Competition in our industry is intense, and it may increase. This could mean
lower prices for our products, reduced demand for our products and a
corresponding reduction in our ability to recover development, engineering and
manufacturing costs. If we have to lower prices to remain competitive, this
could impact our profit levels. If we were unable to compete effectively, our
sales will suffer.
Competitors currently sell products that provide similar benefits to those that
we sell. Our principal direct competitor in the sale of AOI systems is Orbotech
Ltd., an Israeli company, which currently commands a substantial majority of the
market for AOI systems and services for printed circuit board manufacturers.
Some of our competitors, most notably Orbotech, have greater financial,
personnel and other resources, offer a broader range of products and services
than we do and may be able to respond more quickly to new or emerging
technologies or changes in customer requirements, develop additional or superior
6
<PAGE>
products, benefit from greater purchasing economies, offer more aggressive
pricing or devote greater resources to the promotion of their products.
To date, Orbotech has dominated the high-volume printed circuit board
manufacturing sector which has resulted, in some instances, in the unwillingness
of high-volume printed circuit board manufacturers to purchase our products. Our
inability to further penetrate the high-volume printed circuit board
manufacturing sector or the development of superior products by one or more
competitors may make it difficult for us to maintain profitability.
IF WIDESPREAD ACCEPTANCE OF AOI TECHNOLOGY DOES NOT CONTINUE TO DEVELOP, OUR
BUSINESS WILL NOT GROW.
Our future growth depends substantially on the widespread acceptance of AOI
systems. While AOI systems are currently the prevalent standard for monitoring,
controlling and ensuring printed circuit board manufacturing quality, we cannot
be certain that they will remain the prevalent standard. The markets for AOI
systems are currently emerging and may not fully develop, whether as a result of
competition, alternative technologies, changes in technology, changes in product
standards or otherwise.
IF WE ARE NOT ABLE TO PROTECT OUR PROPRIETARY TECHNOLOGY, WE MAY NOT BE ABLE TO
COMPETE EFFECTIVELY.
We differentiate our AOI systems through the use of our proprietary software,
our image processing algorithms and the integration of our advanced hardware
components. We rely on a combination of copyrights, trade secrets, patents,
trademarks, confidentiality and non-disclosure agreements to protect our
proprietary know-how and intellectual property, including both hardware and
software components of our AOI systems. These measures may not be adequate to
protect our proprietary technology, and it may be possible for a third party,
including a competitor, to copy or otherwise obtain and use our products or
technology without authorization or to develop similar technology independently.
Additionally, our products may be sold in foreign countries that provide less
protection to intellectual property than that provided under U.S. or Israeli
laws.
OUR PRODUCTS MAY INFRINGE ON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS, WHICH
COULD RESULT IN CLAIMS AGAINST US.
Third parties may assert claims that we have violated patents or that we have
infringed upon their intellectual property rights. Any intellectual property
claims against us, even if without merit, could cost us a significant amount of
money to defend and divert management's attention away from our business.
In July 1998, we received a letter from Orbotech alleging, among other things,
infringement of an Israeli patent and unjust enrichment due to misappropriation
of confidential information with respect to the technologies used in the
manufacture and design of our products. We believe that we would have sound
defenses to these allegations, if formally made. Since 1998, Orbotech has not
taken any further action with respect to this matter. If Orbotech were
successful in an action against us, we might be compelled to modify all of our
AOI systems products and/or we might be subject to substantial damages.
IF ONE OR MORE OF OUR THIRD-PARTY SUPPLIERS DO NOT PROVIDE US WITH KEY
COMPONENTS, THEN WE MAY NOT BE ABLE TO DELIVER OUR PRODUCTS TO OUR CUSTOMERS IN
A TIMELY MANNER AND WE MAY INCUR SUBSTANTIAL COSTS TO OBTAIN THESE COMPONENTS
FROM ALTERNATE SOURCES.
Currently, we rely on single source suppliers for a number of essential
components of our AOI systems. We have not signed agreements with these
suppliers for the continued supply of the components they provide.
An interruption in supply from these sources or an unexpected termination of the
manufacture of key electronic components would, therefore, disrupt production
and adversely affect our ability to deliver products to our customers. An
unexpected termination of supply would require an investment in capital and
manpower resources in order to shift to other suppliers and might cause a
significant delay in introducing
7
<PAGE>
replacement products since we do not develop and supply these components
in-house.
WE DEPEND ON A FEW LARGE ORDERS, AND THE INABILITY TO GENERATE THOSE ORDERS IN
ANY GIVEN PERIOD COULD HAVE A DISPROPORTIONATE IMPACT ON OUR REVENUE.
Historically, a substantial portion of our revenue has come from large purchases
by a small number of customers. We expect this trend to continue. For example,
in 1998, one customer accounted for about 12.6% of our total revenue, in 1999,
two customers together accounted for about 14.5% of our total revenue and in the
three months ended March 31, 2000, two customers together accounted for about
15.7% of our total revenue. Based on our experience, we expect that the identity
of our customers may change from period to period. We have not entered into
long-term agreements with any of our large customers nor have we secured
commitments to purchase any specific quantities of our products from any of our
customers. In any given period, if we do not have at least one customer that
makes large purchases, we may not be able to meet our sales expectations.
DUE TO FLUCTUATIONS IN FOREIGN EXCHANGE RATES, THE PRICES OF OUR PRODUCTS MAY
BECOME LESS COMPETITIVE OR WE MAY INCUR ADDITIONAL EXPENSES.
Foreign currency fluctuations may affect the prices of our products. Our prices
in most countries outside of Europe are denominated in dollars. In those
countries, if there is a significant devaluation in the local currency as
compared to the dollar, the prices of our products will increase relative to
that local currency and may be less competitive. In 1999 and the three months
ended March 31, 2000, we derived approximately 21% and 25% of our revenues from
customers in Europe where our prices are denominated in European currencies. A
devaluation of those currencies as compared to the dollar can cause our revenues
to decrease in dollar terms. If a larger number of our sales were to be
denominated in currencies other than dollars, our reported revenue and earnings
would be subject to a greater degree of foreign exchange fluctuations.
WE MAY EXPERIENCE FLUCTUATIONS IN OUR FUTURE OPERATING RESULTS WHICH MAKE IT
DIFFICULT TO PREDICT FUTURE RESULTS.
Our revenues and net income, if any, in any particular period may be lower than
revenues and net income, if any, in a preceding or comparable period. This
complicates our planning processes and reduces the predictability of our
earnings. Period-to-period comparisons of our results of operations may not be
meaningful, and you should not rely upon them as indications of our future
performance.
Our quarterly results of operations may be subject to significant fluctuations
due to the following factors:
- the size, timing and shipment of orders;
- product introductions;
- the timing of new product upgrade or enhancement announcements;
- interest and exchange rates; and
- the cyclical nature of the electronics industry.
For example, the introduction of our new Orion product in the first half of 1999
resulted in a decline in the sales of our older products.
WE DEPEND ON A LIMITED NUMBER OF KEY PERSONNEL WITH PARTICULAR KNOWLEDGE OF THE
AOI SYSTEMS INDUSTRY AND TECHNOLOGY WHO WOULD BE DIFFICULT TO REPLACE.
Our continued growth and success largely depends on the managerial and technical
skills of the members of our senior management. In particular, we may find it
difficult to hire key personnel with the requisite knowledge of AOI systems
business and technology. If Mr. Rafi Amit or other members of our senior
management team are unable or unwilling to continue in our employ, our business
could suffer. We do not have a key man life insurance policy on Mr. Amit.
WE MAY ENCOUNTER DIFFICULTIES IN MANAGING OUR EXPANDING OPERATIONS.
Our growth has placed, and may continue to place, a significant strain on our
engineering, technical, administrative, operational, financial
8
<PAGE>
and marketing resources, as well as increased demands on our systems and
controls. We also believe that we will need to promote and hire qualified
engineering, administrative, operational, financial and marketing personnel.
Competition for qualified engineering and technical personnel is intense in
Israel. There are a limited number of persons with the requisite knowledge and
experience in AOI systems and other necessary technology areas. The process of
locating, training and successfully integrating qualified personnel into our
operations can be lengthy and expensive. We may not be successful in attracting,
integrating and retaining those new employees.
We also intend to expand our marketing and sales activities in North America,
Europe and Asia. We may not be able to manage successfully our efforts to
increase our international presence.
Our inability to satisfy increased customer orders could result in the loss of
customers or could cause customers to seek alternative sources for products. In
addition, our financial control systems, infrastructure and existing facilities
may not be adequate to maintain and effectively monitor our future growth. Our
inability to manage our operating and financial control systems, recruit and
hire necessary personnel or successfully integrate new personnel into our
operations could adversely affect our ability to grow.
OUR MANAGEMENT HAS BROAD DISCRETION AS TO THE USE OF THE PROCEEDS OF THIS
OFFERING AND, IF WE DO NOT ALLOCATE THESE PROCEEDS WISELY, YOUR INVESTMENT COULD
SUFFER.
Other than repayment of outstanding indebtedness and the completion of our new
facility, there is no specific allocation of the net proceeds from the offering,
and our management retains the right to utilize the net proceeds as they
determine. The unallocated portion of our net proceeds will be approximately
$40.6 million of total estimated net proceeds of $54.5 million at an assumed
initial public offering price of $11.00 per share. There can be no assurance
that management will be able to use the proceeds effectively to continue the
growth of our business.
THERE MAY BE AN ADVERSE EFFECT ON THE MARKET PRICE OF OUR SHARES AS A RESULT OF
ADDITIONAL SHARES BEING AVAILABLE FOR SALE IN THE FUTURE.
If our shareholders sell substantial amounts of our ordinary shares, including
shares issued upon the exercise of outstanding options, the market price of our
ordinary shares may fall. These sales also might make it more difficult for us
to sell equity or equity-related securities in the future. After completion of
this offering, we will have 21,861,002 ordinary shares outstanding. All of the
shares sold in this offering will be freely tradeable. The remaining shares are
subject to a lock-up agreement with the underwriters and will be eligible for
sale in the public market 180 days following the date of this prospectus,
subject to some exceptions. However, the underwriters may, in their sole
discretion and at any time or from time to time, without notice, release all or
any portion of the securities subject to the lock-up agreements. The shares held
by our affiliates, including PCB, will be subject to volume limitations under
U.S. federal securities laws.
PCB LTD. HAS SUBSTANTIAL CONTROL OVER MOST MATTERS SUBMITTED TO A VOTE OF OUR
SHAREHOLDERS, THEREBY LIMITING YOUR POWER TO INFLUENCE CORPORATE ACTION.
We anticipate that after this offering PCB will beneficially own 68.7% of our
ordinary shares, or 66.2%, if the underwriters' over-allotment option is
exercised in full. As a result, PCB will have the power to control the outcome
of most matters submitted to a vote of shareholders, including the election of
members of our board and the approval of significant corporate transactions.
Shareholders purchasing shares in this offering will have little influence on
these matters. This concentration of ownership may also have the effect of
making it more difficult to obtain approval for a change in control of Camtek.
The equity interest of PCB will make it impossible to obtain shareholder
approval without PCB's consent on matters requiring shareholder approval.
Messrs. Rafi Amit, Yotam
9
<PAGE>
Stern and Itzhak Krell control PCB and may be deemed to control us.
OUR RELATIONSHIP WITH PCB LTD. MAY GIVE RISE TO CONFLICTS OF INTEREST.
From time to time, we use services and products of other companies owned or
controlled by PCB, which may create a conflict of interest. Although Israeli law
imposes procedural requirements, like obtaining special approvals, in order to
approve extraordinary interested party transactions, we cannot be certain that
those procedures will eliminate the possible detrimental effects of any of these
potential conflicts of interest. In addition, under a management services
agreement between PCB, our principal shareholder, and us, both Mr. Rafi Amit,
our general manager, and Mr. Yotam Stern, our chief financial officer, may
dedicate up to 25% of their time to PCB.
THE EFFECTS OF ANTI-TAKEOVER PROVISIONS COULD INHIBIT THE ACQUISITION OF US BY
OTHERS.
Some of the provisions of our articles of association and Israeli law could,
together or separately:
- discourage potential acquisition proposals;
- delay or prevent a change in control; and
- limit the price that investors might be willing to pay in the future for our
ordinary shares.
We are subject to Israeli corporate law. Generally, under Israeli corporate law,
a merger may be effected (1) if effected within the framework of an
"arrangement," the merger is subject to approval by the court and a majority of
shareholders present and voting on the proposed merger, holding at least 75% of
the shares represented at the shareholders' meeting and a similar majority at
the creditors' meeting or; (2) if effected not within the framework of an
"arrangement," if it receives the approval of the board of directors and
shareholders of both merging companies, and 70 days have passed from the date
the merger proposal was filed with the Registrar of Companies. Additionally, a
tender offer for our shares, or the acquisition of the interests of our minority
shareholders, may be subject to the requirements of Israeli corporate law. The
requirements of Israeli corporate law generally make these forms of acquisition
significantly more difficult than under United States corporate laws.
Israeli tax law treatment for acquisitions, like stock-for-stock exchanges
between an Israeli company and a foreign company, may be less favorable than the
treatment that may be available under U.S. tax law. Israeli tax law may, for
instance, subject a shareholder who exchanges his shares in us for shares in a
foreign corporation to immediate taxation.
In addition, our technology developed pursuant to the terms of the Law for the
Encouragement of Industrial Research and Development, 1984 may not be
transferred to third parties without the prior approval of a governmental
committee. This approval is not required for the export of any products
resulting from that research and development. Approval for the transfer of
technology may be granted only if the recipient abides by all of the provisions
of the research law and its associated regulations, including the restrictions
on the transfer of know-how, the obligation to manufacture in Israel and the
obligation to pay royalties in an amount that may be increased. These
requirements could inhibit the acquisition of us by others. There can be no
assurance that this consent, if requested, will be granted.
RISKS RELATING TO OUR OPERATIONS IN ISRAEL
CONDUCTING BUSINESS IN ISRAEL ENTAILS SPECIAL RISKS.
We are incorporated under the laws of, and our principal offices are located in,
the State of Israel. We are directly influenced by the political, economic and
military conditions affecting Israel. Our product development depends on
components imported from outside of Israel. A majority of our sales occur
outside of Israel. We could be adversely affected by:
- any major hostilities involving Israel;
- the interruption or curtailment of trade between Israel and its present
trading partners;
10
<PAGE>
- a significant increase in inflation; and
- a significant downturn in the economic or financial condition of Israel.
There remain a number of countries that restrict business with Israel or Israeli
companies. Restrictive laws or policies directed towards Israel or Israeli
businesses may have an adverse impact on our operating results, financial
condition or the expansion of our business.
THE ISRAELI RATE OF INFLATION MAY NEGATIVELY IMPACT OUR COSTS IF IT EXCEEDS THE
RATE OF DEVALUATION OF THE NEW ISRAELI SHEKEL AGAINST THE U.S. DOLLAR.
We generate most of our revenues in dollars but we incur the majority of our
salary and operating expenses in new Israeli shekels, or NIS. As a result, we
bear the risk that the rate of inflation in Israel will exceed the rate of
devaluation of the NIS in relation to the dollar, which will increase our costs
expressed in dollars.
THE GOVERNMENT PROGRAMS AND TAX BENEFITS IN WHICH WE CURRENTLY PARTICIPATE OR
FROM WHICH WE RECEIVE BENEFITS, REQUIRE US TO MEET SEVERAL CONDITIONS. THESE
PROGRAMS OR BENEFITS MAY BE TERMINATED OR REDUCED IN THE FUTURE, WHICH COULD
INCREASE OUR COSTS.
Since our inception, we have relied on government grants for the financing of a
significant portion of our product development expenditures. We have received
and continue to receive grants and we participate in programs sponsored by the
Government of Israel through the Ministry of Industry and Trade, Office of the
Chief Scientist. In addition, we benefit from government programs and tax
benefits, particularly as a result of the Approved Enterprise status of our
existing facilities. To be eligible for these programs and tax benefits, we must
continue to meet certain conditions, including:
- making investments in fixed assets, the amount of which varies depending on
the program approved by the Government of Israel;
- financing at least 30% of the investment for the Approved Enterprise with
share capital; and
- receiving revenues from the Approved Enterprise.
The tax benefits could be cancelled and we may be required to refund the tax
benefits already received if we fail to meet these conditions in the future.
These programs and tax benefits may not be continued in the future at their
current levels or at any level or our requests for continued participation in
these programs may not be approved. In May 2000, the Israeli government approved
in principle a tax reform proposal that would reduce or eliminate some of these
benefits in the future. Legislation will be required to implement these changes
and we are not certain whether legislation will be enacted. If the tax reform
recommendations are enacted, we may be required to pay taxes in the future at
the rate of 10% on our profits derived from approved enterprises, which are
currently exempt from income tax.
The terms of the Israeli government participation in research and development
programs also require that the manufacture of products developed with government
grants be performed in Israel. However, in the event that any of the
manufacturing rights are transferred with the approval of Israel's Office of the
Chief Scientist, we would be required to pay royalties at a higher royalty rate
and an increased aggregate pay back amount in proportion to manufacturing
performed outside of Israel. This could result in our being required to repay up
to three times the amount of our original grant. The lack of approval by
Israel's Office of the Chief Scientist with respect to the transfer of
manufacturing rights out of Israel could have a material adverse effect on our
ability to enter into strategic alliances in the future that provide for the
transfer of manufacturing rights.
IT MAY BE DIFFICULT TO ENFORCE A U.S. JUDGMENT AGAINST US, OUR OFFICERS AND
DIRECTORS AND SOME OF THE EXPERTS NAMED IN THIS PROSPECTUS OR TO ASSERT U.S.
SECURITIES LAW CLAIMS IN ISRAEL.
We are incorporated in Israel. Substantially all of our executive officers and
directors and our Israeli accountants and attorneys, are nonresidents of the
United States, and a substantial portion of our assets and the assets
11
<PAGE>
of these persons are located outside the United States. Therefore, it may be
difficult to enforce a judgment obtained in the United States against us or any
of these persons. Additionally, it may be difficult for you to enforce civil
liabilities under U.S. federal securities laws in original actions instituted in
Israel. For further information regarding enforceability of civil liabilities
against us and other persons, see "Enforceability of Civil Liabilities."
FORWARD LOOKING STATEMENTS
The information in this prospectus contains forward-looking statements. These
statements may be found under "Prospectus Summary," "Risk Factors," "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations-Liquidity and Capital Resources," and "Business."
Forward-looking statements typically are identified by use of terms including
"may," "will," "believe," "expect," "anticipate," "estimate" and similar words,
although some forward-looking statements are expressed differently. You should
be aware that our actual results could differ materially from those contained in
the forward-looking statements due to a number of factors, including
technological changes, increased competition, insufficient capital resources and
adverse economic conditions. You should also consider carefully the statements
under "Risk Factors" and other sections of this prospectus, which address
additional factors that could cause our actual results to differ from those
reflected in the forward-looking statements.
12
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from the sale of the shares we are offering
will be approximately $54.5 million. If the underwriters fully exercise the
over-allotment option, the net proceeds to us will be approximately
$63.0 million, assuming an initial public offering price of $11.00 per share.
"Net proceeds" is what we expect to receive after paying the underwriting
discount and expenses of the offering. The principal purposes of this offering
are to increase our working capital, to create a public market for our shares,
to facilitate future access to public capital markets and to increase our
visibility in the marketplace.
We intend to use a portion of the proceeds of this offering as follows:
- completion of our new facility, estimated to cost a total of $4.0 million; and
- repayment of indebtedness which as of March 31, 2000 was $0.9 million owed to
PCB Ltd. and $9.0 million owed to Bank Leumi under credit facilities.
Prior to July 1, 2000, the PCB loan was linked to the Israeli consumer price
index and bore interest at a fixed rate of 2% per year. As of July 1, 2000, the
PCB loan is linked to the U.S. dollar and bears interest at a fixed rate of 6.5%
per year. This loan matures upon the earlier of completion of this offering or
December 31, 2000. The Bank Leumi credit facilities bear interest at various
rates. The Bank Leumi credit facilities bear interest as follows: (1) loans in
NIS bear interest at rates ranging from Israeli prime rate minus 0.5% to Israeli
prime rate plus 1% per year; (2) loans in Euros bear interest at the rate of
5.5% per year; and (3) loans in U.S. dollars bear interest at the rate of 8% per
year. These credit facilities are extendible on a monthly basis, with respect to
loans in NIS, and on a quarterly basis, with respect to foreign currency loans.
We currently intend to use the remaining net proceeds over time:
- to fund our sales and marketing activities;
- to invest in research and development activities; and
- for other general corporate purposes.
As of the date of this prospectus, we have not made any specific expenditure
plans with respect to these remaining net proceeds. Therefore, we cannot specify
with certainty the particular uses for the net proceeds to be received upon
completion of this offering. Accordingly, our management will have significant
flexibility in applying the net proceeds of this offering.
We believe that opportunities exist for the possible acquisition of additional
businesses and technologies or the establishment of joint ventures that are
complementary to our current or future business. Currently, we have no specific
plans or commitments with respect to any acquisitions or joint ventures. We
cannot be certain that we will complete any acquisition or joint venture or
that, if completed, any acquisition or joint venture will be successful.
Until we use the net proceeds of the offering, we will invest the funds in
interest-bearing investments with interest and principal linked to the dollar,
hedged to the dollar or linked to the Israeli consumer price index, or deposit
the funds in dollar-linked or dollar-hedged bank accounts in Israel, Europe or
the United States.
13
<PAGE>
DIVIDEND POLICY
We have never paid any cash dividends on our share capital. We anticipate that
we will retain earnings to support operations and to finance the growth and
development of our business. Therefore, we do not expect to pay cash dividends
in the foreseeable future.
We participate in the "alternative benefits program" under the Law for the
Encouragement of Capital Investments, 1959, under which we realize tax
exemptions. If we distribute a cash dividend from income which is tax exempt, we
would have to pay corporate tax at the rate of up to 25% on an amount equal to
the amount distributed and the corporate tax which would have been due in the
absence of the tax exemption.
Cash dividends may be paid by an Israeli company only out of profits as
determined under Israeli law. Our articles of association provide that dividends
will be paid in accordance with our board's resolution. See "Description of
Ordinary Shares" and "Israeli Taxation."
14
<PAGE>
CAPITALIZATION
The following table shows our actual capitalization and our short-term bank
credit and our as adjusted capitalization on March 31, 2000. The "As Adjusted"
column of the following table assumes the completion of the offering at an
assumed initial offering price of $11.00 per share and the use of the net
proceeds as described under "Use of Proceeds."
<TABLE>
<CAPTION>
MARCH 31, 2000
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(In thousands)
<S> <C> <C>
Short-term bank credit...................................... $8,997 --
======
Due to PCB Ltd. (short-term)................................ $ 925 --
------ -------
Shareholders' equity
Ordinary shares, NIS 0.01 par value; 100,000,000 shares
authorized; 16,261,002 shares issued and outstanding
actual, 21,861,002 issued and outstanding as adjusted..... $ 98 $ 112
Additional paid-in capital.................................. 1,240 55,710
Unearned portion of compensatory stock options.............. (92) (92)
Retained earnings........................................... 3,870 3,870
------ -------
Total shareholders' equity............................ $5,116 $59,600
------ -------
Total capitalization.............................. $6,041 $59,600
====== =======
</TABLE>
15
<PAGE>
DILUTION
Our net tangible book value on March 31, 2000 was approximately $3.5 million or
$0.22 per share. "Net tangible book value" is total assets minus the sum of
liabilities and intangible assets. "Net tangible book value per share" is net
tangible book value divided by the total number of shares outstanding before the
offering.
After giving effect to adjustments relating to the offering, our pro forma net
tangible book value on March 31, 2000, would have been $59.4 million or $2.72
per share. The adjustments made to determine pro forma net tangible book value
per share are the following:
- An increase in total assets to reflect the net proceeds of the offering as
described under "Use of Proceeds."
- The addition of the number of shares offered by this prospectus to the number
of shares outstanding.
The following table illustrates the pro forma increase in net tangible book
value of $2.50 per share and the dilution to new investors. Dilution is the
difference between the offering price per share and net tangible book value per
share.
<TABLE>
<S> <C> <C>
Initial public offering price per share..................... $11.00
Net tangible book value per share as of March 31, 2000.... 0.22
Increase in net tangible book value per share attributable
to the offering......................................... 2.50
------
Pro forma net tangible book value per share as of March 31,
2000 after giving effect to the offering.................. 2.72
------
Dilution per share to new investors in the offering......... $ 8.28
======
</TABLE>
The following table shows the difference between existing shareholders and new
investors with respect to the number of shares purchased from us, the total
consideration paid and the average price paid per share. The table does not
reflect the underwriting discount and the expenses related to the offering.
<TABLE>
<CAPTION>
AVERAGE
ORDINARY TOTAL PRICE
SHARES PURCHASED CONSIDERATION PER
--------------------- ---------------------- ORDINARY
NUMBER PERCENT AMOUNT PERCENT SHARES
---------- -------- ----------- -------- --------
<S> <C> <C> <C> <C> <C>
Existing shareholders....................... 16,261,002 74.4% $ 375,000 0.6% $ 0.02
New investors(1)............................ 5,600,000 25.6% $61,600,000 99.4% 11.00
---------- ----- -----
Total..................................... 21,861,002 100.0% $61,975,000 100.0%
---------- ----- -----
</TABLE>
------------------------------
(1) If the underwriters' over-allotment option is exercised in full the number
of shares held by new investors will be increased to 6,440,000 or 28.4% of
the total number of ordinary shares outstanding after this offering.
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
This section presents selected historical consolidated financial data of Camtek.
You should read carefully the consolidated financial statements included in this
prospectus, including the notes to the consolidated financial statements. The
selected consolidated financial data in this section are not intended to replace
the financial statements.
Camtek derived the statement of operations data for the years ended
December 31, 1997, 1998 and 1999, and balance sheet data as of December 31, 1998
and 1999 from the audited financial statements in this prospectus. The
consolidated financial statements for the years ended December 31, 1997, 1998,
and 1999 were jointly audited by Goldstein Sabo Tevet and Richard A. Eisner &
Company, LLP, independent auditors. Camtek derived the statement of operations
data for the years ended December 31, 1995 and 1996, and the balance sheet data
as of December 31, 1995, 1996 and 1997 from audited financial statements that
are not included in the prospectus. The statement of operations data for the
three months ended March 31, 1999 and 2000 and the balance sheet data as of
March 31, 2000 are derived from Camtek's unaudited financial statements in this
prospectus. In the opinion of Camtek's management, the unaudited financial
statements have been prepared on a basis consistent with the financial
statements in the prospectus, and include all adjustments, consisting only of
normal recurring adjustments necessary for a fair statement of the financial
position and results of operations for these unaudited periods. Historical
results are not necessarily indicative of results to be expected in the future
or for the full year.
For all fiscal periods for which consolidated financial data are set forth
below, as applied to our audited consolidated financial statements, Israeli GAAP
and United States GAAP do not differ in any material respect.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................. $ 4,677 $ 7,692 $15,733 $20,343 $23,892 $ 4,417 $10,517
Cost of revenues..................................... 2,946 3,990 6,602 10,095 12,159 2,096 4,867
------- ------- ------- ------- ------- ------- -------
Gross profit......................................... 1,731 3,702 9,131 10,248 11,733 2,321 5,650
Research and development cost:
Expenses........................................... 820 1,400 2,138 3,503 4,307 946 1,455
Less royalty-bearing participations from the
Government of Israel............................. 347 477 565 1,177 1,888 -- 516
------- ------- ------- ------- ------- ------- -------
Research and development costs, net................ 473 923 1,573 2,326 2,419 946 939
Selling, general and administrative expenses......... 1,213 2,781 5,429 6,848 7,827 1,809 2,154
------- ------- ------- ------- ------- ------- -------
Operating income (loss).............................. 45 (2) 2,129 1,074 1,487 (434) 2,557
Financial and other (expenses) income, net........... (155) (333) (137) 241 (862) (467) (605)
------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes.................... (110) (335) 1,992 1,315 625 (901) 1,952
Provision for income taxes........................... -- -- -- -- -- -- 241
------- ------- ------- ------- ------- ------- -------
Net income (loss).................................... $ (110) $ (335) $ 1,992 $ 1,315 $ 625 $ (901) $ 1,711
======= ======= ======= ======= ======= ======= =======
Earnings (loss) per ordinary shares outstanding
Basic.............................................. $ (0.01) $ (0.02) $ 0.13 $ 0.09 $ 0.04 $ (0.06) $ 0.11
======= ======= ======= ======= ======= ======= =======
Diluted............................................ $ (0.01) $ (0.02) $ 0.12 $ 0.08 $ 0.04 $ (0.06) $ 0.10
======= ======= ======= ======= ======= ======= =======
Weighted average number of shares outstanding:
Basic.............................................. 15,020 15,020 15,020 15,020 15,226 15,020 16,261
Diluted............................................ 15,020 15,890 16,130 16,494 16,422 15,020 16,830
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------------------------------------------- -----------
1995 1996 1997 1998 1999 2000
-------- -------- -------- -------- -------- -----------
(UNAUDITED)
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 425 $ 276 $ 566 $ 328 $ 538 $ 1,647
Working capital............................................. (1,745) (2,527) (588) 12 (304) 676
Total assets................................................ 4,380 6,892 10,283 12,915 18,613 24,434
Total debt.................................................. 3,174 5,361 5,474 6,854 8,479 9,922
Shareholders' equity (deficit).............................. (708) (1,046) 1,034 2,420 3,389 5,116
</TABLE>
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
YOU SHOULD READ THIS DISCUSSION WITH THE CONSOLIDATED FINANCIAL STATEMENTS AND
OTHER FINANCIAL INFORMATION INCLUDED IN THIS PROSPECTUS.
OVERVIEW
We design, develop, manufacture and market technologically advanced and
cost-effective AOI systems and related products used to detect defects in
printed circuit boards during the manufacturing process. We began operations in
1987 and during our first years of operation, we were engaged in the
development, production and marketing of a manual optical inspection system for
the detection of manufacturing defects in printed circuit boards. In 1992, PCB
purchased all of our shares then held by Camtek Corp. N.V., and became the
holder of a controlling interest of 66 2/3% in us. In April 1996, PCB purchased
all of the remaining shares of Camtek and Camtek became a wholly-owned
subsidiary of PCB.
During 1993, we began development of our AOI systems and sold our first AOI
systems in the last quarter of 1994. Since 1995, we have derived substantially
all of our revenues from sales of our AOI systems and the remainder of our
revenues from sales of related services.
We recognize revenues from the sales of our products upon the acceptance of our
AOI systems, which, in general, occurs no earlier than at the time we install
the AOI system at the customer's site. The total cost of our AOI systems listed
in inventory which have been delivered to customers on a trial or contingency
basis was approximately $2.3 million as of March 31, 2000.
We recognize revenues from the provision of services at the time the service is
provided or, if provided under a service contract, over the life of the contract
on a straight-line basis. We expect that revenues from the performance of
services and, in particular, from service contracts, will increase with the
increase in the installed base and as more high-volume manufacturers are added
to our customer base. High-volume manufacturers are likely to enter into service
contracts more often than lower-volume customers. Estimated warranty obligations
are charged to operations in the period in which the associated revenue is
recognized. Our research and development costs are expensed as incurred.
Grants received from the Office of the Chief Scientist for approved research and
development programs are recognized upon the later of the time the costs related
to a particular project are incurred and the time that project receives approval
from the Office of the Chief Scientist. Royalties related to those grants are
included in selling, general and administrative expenses when paid. See
"Business--Research and Development."
We sell our products to PCB at a discount of 30% off the list price of our AOI
systems. Sales to PCB represented 0.3% of sales in 1998, 3.4% of sales in 1999
and 4.5% of sales in the three months ended March 31, 2000.
The currency of the primary economic environment in which our operations are
conducted is the dollar. Most of our revenues are derived in dollars while the
prices of most of our materials and components are purchased in dollars or are
linked to changes in the dollar/NIS exchange rate effective on the date of
delivery of the goods to our factory. Most of our marketing expenses are also
denominated in dollars or are dollar linked. Salaries and other operating
expenses in Israel are paid in NIS. In our consolidated financial statements,
transactions and balances originally denominated in dollars are presented at
their original amounts. In Europe, our sales are denominated in European
currencies. Gains and losses arising from non-dollar transactions and balances
are included in the determination of net income as part of financial expenses,
net.
18
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the percentage relationships of these items from
our consolidated statements of operations, as a percentage of total revenues for
the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues........................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues................................... 42.0 49.6 50.9 47.5 46.3
----- ----- ----- ----- -----
Gross profit....................................... 58.0 50.4 49.1 52.5 53.7
----- ----- ----- ----- -----
Research and development costs, net.............. 10.0 11.4 10.1 21.4 8.9
Selling, general and administrative expenses..... 34.5 33.7 32.8 41.0 20.5
----- ----- ----- ----- -----
Operating income (loss)............................ 13.5 5.3 6.2 (9.9) 24.3
Financial and other (expenses) income, net......... (0.8) 1.2 (3.6) (10.5) (5.7)
----- ----- ----- ----- -----
Income (loss) before income taxes.................. 12.7 6.5 3.0 (20.4) 18.6
Provision per income taxes......................... -- -- -- -- 2.3
----- ----- ----- ----- -----
Net income (loss).................................. 12.7% 6.5% 2.6% (20.4)% 16.3%
===== ===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Sales by Geographic Region:
United States...................................... 34.3% 45.3% 22.7% 22.0% 21.0%
Europe............................................. 20.1 21.5 20.9 41.0 25.5
Taiwan............................................. 18.4 20.5 25.3 11.2 12.2
Japan.............................................. 12.2 2.6 5.5 2.4 4.9
Other Asia......................................... 12.2 9.0 22.1 22.1 30.2
Rest of World...................................... 2.8 1.1 3.5 1.3 6.2
----- ----- ----- ----- -----
Total........................................ 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
REVENUES. Revenues increased 138.6% to $10.5 million in the three months ended
March 31, 2000 from $4.4 million in the three months ended March 31, 1999 as a
result of increased sales of our new Orion AOI systems that were introduced in
the second quarter of 1999. A significant portion of this increase resulted from
sales in Asia, which increased from 35.7% of revenues in the three months ended
March 31, 1999 to 47.3% of revenues in the three months ended March 31, 2000. We
believe that the percentage of our revenues derived from sales in Asia will
increase as printed circuit board manufacturing in Asia grows. We anticipate
that our revenue growth for the six months ended June 30, 2000 as compared to
the six months ended June 30, 1999 will be comparable to the revenue growth we
experienced in the three months ended March 31, 2000 as compared to the three
months ended March 31, 1999. Results for the six months ended June 30, 2000 are
not yet available and accordingly, we are not making a statement as to
profitability for this period.
GROSS PROFIT. Our gross profit consists of revenues less cost of revenues,
which includes the cost of components, other production materials, labor,
depreciation, factory overhead, installation and training. These expenditures
are only partially affected by sales volume. Our gross profit increased 147.8%
to $5.7 million in three months ended March 31, 2000 from $2.3 million in three
months ended March 31,
19
<PAGE>
1999. Gross margin increased slightly to 53.7% in the three months ended March
31, 2000 from 52.5% in the three months ended March 31, 1999.
RESEARCH AND DEVELOPMENT COSTS, NET. Research and development expenses consist
primarily of salaries and costs associated with subcontracting certain
development efforts. Before participation by the Office of the Chief Scientist,
research and development expenses increased 66.7% to $1.5 million in the three
months ended March 31, 2000 from $0.9 million in the three months ended
March 31, 1999. This increase was offset by the receipt of $516,000 of
participation from the Office of the Chief Scientist in the three months ended
March 31, 2000 as compared to no participation in the three months ended March
31, 1999. The net research and development expense decreased 0.7% from $946,000
in the three months ended March 31, 1999 to $939,000 in the three months ended
March 31, 2000.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses consist primarily of expenses associated with salaries,
commissions, royalties, promotional and travel, and rent costs. Our selling,
general and administrative expenses increased 22.2% to $2.2 million in the three
months ended March 31, 2000 from $1.8 million in the three months ended
March 31, 1999. Selling, general and administrative expenses as a percentage of
revenues decreased to 20.5% in the three months ended March 31, 2000 from 41.0%
in the three months ended March 31, 1999, due to the fact that the majority of
these expenditures are fixed, and as a result of a decrease in our use of sales
agents.
FINANCIAL AND OTHER (EXPENSES) INCOME, NET. We had a net financial expense of
$605,000 in the three months ended March 31, 2000, as compared to a net
financial expense of $467,000 in the three months ended March 31, 1999. This
difference is the result of increased interest expense due to higher borrowings
and fluctuations in the value of the dollar against the Israeli and European
currencies.
PROVISION FOR INCOME TAXES. We had a provision for income taxes of $241,000 in
the three months ended March 31, 2000. We had no provision for income taxes for
the three months ended March 31, 1999. The provision in 2000 was attributable to
the expiration of our initial approved enterprise status.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
REVENUES. Revenues increased 17.7% to $23.9 million in 1999 from $20.3 million
in 1998 as a result of increased sales of our new Orion AOI systems that were
introduced in 1999 and an increase in service revenue. Service revenue increased
from $705,000 in 1998 to $1,911,000 in 1999 as a result of an increase in our
installed base. Revenues from sales in the United States decreased from 45.3% of
revenues in 1998, to 22.7% of revenues in 1999. This decrease was primarily the
result of a large sale of our AOI systems to a high-volume U.S. printed circuit
board manufacturer in 1998, which accounted for 12.6% of our revenues during
that year, and a shift in our market focus to the growing markets in Taiwan and
other countries in Asia in 1999.
GROSS PROFIT. Our gross profit increased 14.7% to $11.7 million in 1999 from
$10.2 million in 1998. Gross margin, however, decreased slightly to 49.1% in
1999 from 50.4% for 1998. The 1.3% decrease in our gross margin resulted
primarily from the introduction of the Orion product line, which was accompanied
by introductory prices and trade-ins.
RESEARCH AND DEVELOPMENT COSTS, NET. Before participation by the Office of the
Chief Scientist, research and development expenses increased 22.9% to
$4.3 million in 1999 from $3.5 million in 1998 due to an increase in the number
of research and development projects. The net research and development expenses
increased 4.0% from $2.3 million in 1998 to $2.4 million in 1999. This smaller
increase in the net expense was due to approval by the Office of the Chief
Scientist of more extensive development programs.
20
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Our selling, general and
administrative expenses increased 14.7% to $7.8 million in 1999 from
$6.8 million in 1998. Selling, general and administrative expenses as a
percentage of revenues decreased slightly in 1999, due to an increase in our
sales and the fact that the majority of these expenses are fixed.
FINANCIAL AND OTHER (EXPENSES) INCOME, NET. We had a net financial expense of
$862,000 in 1999, as compared to a net financial income of $241,000 in 1998.
This difference is the result of increased interest due to higher borrowings and
fluctuations in the value of the dollar against the Israeli and European
currencies. In 1998, there were two factors that caused us to have financial
income instead of financial expenses:
- a real devaluation of the NIS against the dollar, which means that the
devaluation rate exceeded the inflation rate; as a result, our bank debt and
debt to PCB decreased at a rate higher than the interest on those debts; and
- a devaluation of the dollar against European currencies meant that our
accounts receivable from our European customers were worth more in dollar
terms.
In 1999, the effect was the opposite. While there was a slight appreciation of
the NIS against the dollar, the rate of inflation was higher than the rate of
devaluation (appreciation). In addition, the interest rates in Israel increased
during the year and resulted in higher financial expenses. Additionally, in
1999, there was a devaluation of the European currencies against the dollar,
which meant that our accounts receivable from our European customers were worth
less in dollar terms.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
REVENUES. Revenues increased 29.3% to $20.3 million in 1998 from $15.7 million
in 1997. The increase in revenues was due primarily to an increase in unit sales
to various high volume printed circuit board manufacturers in the United States
and Europe, which was partially offset by decreased sales to Japan and Korea as
a result of the economic crisis in Asia. In 1998, sales to one end user in the
United States accounted for 12.6% of revenues. In 1997, sales to one end user
accounted for 11.0% of revenues.
GROSS PROFIT. Gross profit increased 12.1% to $10.2 million in 1998 from
$9.1 million in 1997. Gross margins decreased to 50.4% in 1998 from 58.0% in
1997. Gross margins decreased due to the expansion of our production facilities
and customer support personnel in accordance with our forecast of accelerated
sales, not realized primarily due to the economic crisis in Asia during the last
two quarters of 1998.
RESEARCH AND DEVELOPMENT COSTS, NET. Before participations from the Office of
the Chief Scientist, research and development expenses increased 66.7% to
$3.5 million in 1998 from $2.1 million in 1997. This increase was due primarily
to an expansion in our research and development activities and the hiring of
more employees for those purposes.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 25.9% to $6.8 million in 1998 from
$5.4 million in 1997. The increase in selling, general and administrative
expenses was due largely to the expansion of our marketing efforts in 1998, for
which we incurred additional expenses including salaries and sales commissions
paid to sales representatives and agents. Selling, general and administrative
expenses as a percentage of revenues decreased to 33.7% in 1998 from 34.5% in
1997 due primarily to improved economies of scale.
FINANCIAL AND OTHER (EXPENSES) INCOME, NET. We had a net financial income of
$241,000 in 1998 as compared to net financial expenses of $137,000 in 1997,
resulting from differences in the rate of inflation in Israel relative to the
rate of devaluation of the dollar as against the NIS.
21
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table shows unaudited quarterly financial information for each of
the past nine quarters. We have prepared this information on the same basis as
our audited consolidated financial statements. This information should be read
in conjunction with our consolidated financial statements.
<TABLE>
<CAPTION>
QUARTERS ENDED
--------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1998 1998 1998 1998 1999 1999 1999
---------- -------- --------- -------- ---------- -------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues...................... $ 4,872 $ 4,831 $ 5,126 $ 5,514 $ 4,417 $ 4,651 $ 6,820
Cost of revenues.............. 2,287 2,444 2,693 2,671 2,096 2,568 3,558
------- ------- ------- ------- ------- ------- -------
Gross profit.................. 2,585 2,387 2,433 2,843 2,321 2,083 3,262
------- ------- ------- ------- ------- ------- -------
Research and development
costs, net................ 917 124 543 742 946 158 644
Selling, general and
administrative expenses... 1,438 1,838 1,721 1,851 1,809 1,762 2,056
------- ------- ------- ------- ------- ------- -------
Operating income (loss)....... 230 425 169 250 (434) 163 562
Financial and other (expenses)
income, net................. (8) (22) 177 94 (467) (287) 304
------- ------- ------- ------- ------- ------- -------
Income (loss) before income
taxes....................... 222 403 346 344 (901) (124) 866
Provision for income taxes.... -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Net income (loss)............. $ 222 $ 403 $ 346 $ 344 $ (901) $ (124) $ 866
======= ======= ======= ======= ======= ======= =======
Earnings (loss) per ordinary
share
Basic......................... $ 0.01 $ 0.03 $ 0.02 $ 0.02 $ (0.06) $ (0.01) $ 0.06
======= ======= ======= ======= ======= ======= =======
Diluted....................... $ 0.01 $ 0.02 $ 0.02 $ 0.02 $ (0.06) $ (0.01) $ 0.05
======= ======= ======= ======= ======= ======= =======
Weighted average number of
ordinary shares outstanding
Basic......................... 15,020 15,020 15,020 15,020 15,020 15,020 15,020
Diluted....................... 16,318 16,422 16,480 16,518 15,020 15,020 16,484
<CAPTION>
QUARTERS ENDED
---------------------
DEC. 31, MARCH 31,
1999 2000
-------- ----------
(In thousands)
<S> <C> <C>
Revenues...................... $ 8,004 $10,517
Cost of revenues.............. 3,937 4,867
------- -------
Gross profit.................. 4,067 5,650
------- -------
Research and development
costs, net................ 671 939
Selling, general and
administrative expenses... 2,200 2,154
------- -------
Operating income (loss)....... 1,196 2,557
Financial and other (expenses)
income, net................. (412) (605)
------- -------
Income (loss) before income
taxes....................... 784 1,952
Provision for income taxes.... -- 241
------- -------
Net income (loss)............. $ 784 $ 1,711
======= =======
Earnings (loss) per ordinary
share
Basic......................... $ 0.05 $ 0.11
======= =======
Diluted....................... $ 0.05 $ 0.10
======= =======
Weighted average number of
ordinary shares outstanding
Basic......................... 15,848 16,261
Diluted....................... 16,426 16,830
</TABLE>
<TABLE>
<CAPTION>
QUARTERS ENDED
--------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1998 1998 1998 1998 1999 1999 1999
---------- -------- --------- -------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues...................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues.............. 46.9 50.6 52.5 48.4 47.5 55.2 52.2
----- ----- ----- ----- ------ ------ -----
Gross profit.................. 53.1 49.4 47.5 51.6 52.5 44.8 47.8
----- ----- ----- ----- ------ ------ -----
Research and development
costs, net................ 18.8 2.6 10.6 13.5 21.4 3.4 9.4
Selling, general and
administrative expenses... 29.6 38.0 33.6 33.6 41.0 37.9 30.2
----- ----- ----- ----- ------ ------ -----
Operating income (loss)....... 4.7 8.8 3.3 4.5 (9.8) 3.5 8.2
Financial and other (expenses)
income, net................. (0.1) (0.5) 3.5 1.7 (10.6) (6.2) 4.5
----- ----- ----- ----- ------ ------ -----
Income (loss) before income
taxes....................... 4.6 8.3 6.8 6.2 (20.4) (2.7) 12.7
Provision for income taxes.... -- -- -- -- -- -- --
----- ----- ----- ----- ------ ------ -----
Net income (loss)............. 4.6% 8.3% 6.8% 6.2% (20.4)% (2.7)% 12.7%
===== ===== ===== ===== ====== ====== =====
<CAPTION>
QUARTERS ENDED
--------------------
DEC. 31, MARCH 31,
1999 2000
-------- ---------
<S> <C> <C>
Revenues...................... 100.0% 100.0%
Cost of revenues.............. 49.2 46.3
----- ------
Gross profit.................. 50.8 53.7
----- ------
Research and development
costs, net................ 8.4 8.9
Selling, general and
administrative expenses... 27.5 20.5
----- ------
Operating income (loss)....... 14.9 24.3
Financial and other (expenses)
income, net................. (5.1) (5.7)
----- ------
Income (loss) before income
taxes....................... 9.8 18.6
Provision for income taxes.... -- 2.3
----- ------
Net income (loss)............. 9.8% 16.3%
===== ======
</TABLE>
22
<PAGE>
Our quarterly results of operations may be subject to significant fluctuations
due to several factors, including the size, timing and shipment of orders,
customer budget cycles, the timing of new product upgrade or enhancement
announcements, or product introductions and general economic conditions as they
affect the industry.
Revenues in the first quarter of 1999 decreased as a result of fewer sales of
our older product line due to anticipation of the introduction of our Orion
product line. Our revenues recovered and increased in the third and fourth
quarters of 1999 and the first quarter of 2000 due to market acceptance of our
Orion products which resulted in an increased number of sales of AOI systems.
Gross margin decreased significantly from 52.5% in the the first quarter of 1999
to 44.8% in the three months ended June 30, 1999 due to the introduction, in the
second quarter of 1999, of the Orion product line accompanied by introductory
prices and trade-ins. Additionally, grants received from the Office of the Chief
Scientist for research and development are recognized upon the later of the time
the costs related to a particular project are incurred and the time such project
receives approval from the Office of the Chief Scientist. As a result, operating
income can fluctuate significantly due to the timing of recognition of grants
from the the Office of Chief Scientist. Given the relatively small number of AOI
systems which constitute our sales in each quarter, the timing of sales of a few
AOI systems may significantly change the results of operations in any given
quarter.
Our quarterly and annual operating results have in the past varied significantly
depending upon a variety of factors, many of which are beyond our control. We
generally arrange shipment of our AOI systems soon after receipt of orders and
we have, therefore, traditionally operated with relatively little backlog.
Accordingly, the shifting of any large order of AOI systems from one fiscal
quarter to another fiscal quarter could cause substantial variability in our
quarterly results of operations. We cannot be certain that revenues and net
income, if any, in any particular quarter or year will not be lower than
revenues and net income, if any, in a preceding or comparable quarter or
quarters or year or years. Furthermore, period-to-period comparisons of our
results of operations may not necessarily be meaningful and you should not rely
upon them as indications of future performance.
LIQUIDITY AND CAPITAL RESOURCES
During 1997, we generated a positive cash flow from operations of $2.3 million,
of which $1.5 million was used to repay a portion of the PCB loan. During 1998,
1999 and the first quarter of 2000, we financed our operations primarily through
short-term bank credit lines.
At December 31, 1998, the outstanding balances of the PCB loan totaled
$3.8 million. During 1999, we repaid $2.1 million of the PCB loan, and during
the first quarter of 2000 we repaid $0.8 million of the PCB loan. As of
March 31, 2000, the outstanding balance of the loan, totaled $0.9 million. Until
June 30, 2000, the PCB loan was linked to the Israeli CPI and bore interest at a
fixed rate of 2% per year. As of July 1, 2000, the PCB loan is linked to the
dollar and bears interest at a fixed rate of 6.5% per year.
We entered into a line of credit agreement with a bank. This agreement expires
in July 2000 and provides for borrowings of up to approximately $1.2 million as
of December 31, 1999 based on the conversion rate at that date. As of March 31,
2000, the outstanding balance of this line of credit was approximately $1.0
million. We also entered into another line of credit with the same bank, which
expired in January 2000 and is extendable on a monthly basis. This credit line
provided for borrowings of up to approximately $722,000 as of December 31, 1999.
As of March 31, 2000, there were no borrowings under this credit line. The
outstanding balance of both lines of credit at December 31, 1999 was
$1.9 million. As of December 31, 1999, we had a short-term loan payable to a
bank of $4.9 million bearing interest at the Israeli prime rate plus 1%. As of
March 31, 2000, the outstanding balance of the short-term loan totaled
$7.9 million and bore interest at 11.1% and the outstanding balance of the
credit line totaled $1.1 million. The short-term loan and credit line are
collateralized by all of our
23
<PAGE>
assets and are guaranteed by PCB. We intend to use a portion of the proceeds
from this offering to repay all of our debt. Current borrowings under our credit
facilities bear interest as follows: (1) loans in NIS bear interest at rates
ranging from Israeli prime rate minus 0.5% to Israeli prime rate plus 1% per
year; (2) loans in Euros bear interest at the rate of 5.5% per year; and (3)
loans in U.S. dollars bear interest at the rate of 8% per year.
Cash and cash equivalents were $328,000 at December 31, 1998, $538,000 at
December 31, 1999 and $1.6 million at March 31, 2000. Net cash provided by
operating activities was $887,000 for the three months ended March 31, 2000 as
compared to net cash used in operating activities of $114,000 for the three
months ended March 31, 1999. The increase in net cash provided by operating
activities in 2000 resulted primarily from an increase in accounts payable in
the amount of $2.6 million. The increase in accounts payable resulted primarily
from an increase in inventory, including components, completed systems and
partially completed systems. Net cash used in operating activities was $391,000
for 1999, compared to $610,000 for 1998. Net operating cash in 1999 was
negatively impacted by increased inventory costs principally the result of
(1) increased costs associated with components for our Orion product line
introduced in 1999 and (2) increased costs associated with systems required by
high volume manufacturers to evaluate our AOI systems. Net cash used in
operating activities in 1998 was $610,000, compared to cash flows provided by
operations of $2.3 million in 1997. The decrease in net cash provided by
operating activities in 1998 resulted primarily from increases in accounts
receivable, that were due to increased sales with extended terms of payment,
mainly to customers in the United States and Europe.
Cash used in investing activities was $315,000 in 1997, $708,000 in 1998,
$1.4 million in 1999 and $414,000 in the three months ended March 31, 2000. Cash
used in investing activities represents primarily purchases of manufacturing
equipment and vehicles. In 1999 and the three months ended March 31, 2000, cash
used in investing activities also represents investment in land and building
under construction.
We believe that the net proceeds from this offering together with existing
sources of liquidity and anticipated cash flow from operations will satisfy our
anticipated working capital and capital equipment requirements for at least the
next 18 months.
EFFECTIVE CORPORATE TAX RATE
Our production facilities, which were the subject of two "investment programs,"
have been granted "Approved Enterprise" status under the Law for Encouragement
of Capital Investments, 1959, and consequently are eligible for tax benefits for
the first several years in which they generate taxable income. We are entitled
to a tax holiday for a period of ten years from the year in which the Approved
Enterprise first earns taxable income, limited to 12 years from the commencement
of production or 14 years from the date of approval, whichever is earlier. The
period of benefits relating to our latest Approved Enterprise status will expire
in 2008. The tax benefits with regard to our first investment program which
received Approved Enterprise status, expired on December 31, 1999. Income
related to that first investment program is now subject to a 36% corporate tax
rate. The percentage of our income which will be subject to the 36% tax rate is
dependent on several factors, mainly the amount of our revenues in Israel. We
estimate that in the year 2000 approximately a quarter of our income will be
subject to the 36% tax rate.
In the event that we operate under more than one approval or that our capital
investments are only partly approved, our effective tax rate will be a weighted
combination of the various applicable tax rates.
24
<PAGE>
IMPACT OF INFLATION, DEVALUATION AND FLUCTUATION OF CURRENCIES ON RESULTS OF
OPERATIONS, LIABILITIES AND ASSETS
Since the majority of our revenues are denominated in dollars, we believe that
inflation and fluctuations in the NIS/dollar exchange rate have no material
effect on our revenues. However, a portion of the cost of our Israeli
operations, mainly personnel and facility-related, is incurred in NIS. Inflation
in Israel and dollar exchange rate fluctuations, however, have some influence on
our expenses and, as a result, on our net income. Our NIS costs, as expressed in
dollars, increase to the extent by which any increase in the rate of inflation
in Israel is not offset, or is offset on a lagging basis, by a devaluation of
the NIS in relation to the dollar or to the extent that the NIS appreciates in
relation to the dollar.
The following table sets forth, for the periods indicated, information with
respect to the rate of inflation in Israel and the rate of devaluation
(appreciation) of the NIS in Israel. These figures are based on reports of the
Israel Central Statistics Bureau. Inflation is the percentage change in the
Israeli consumer price index between December 31 of the year indicated and
December of the preceding year. Devaluation is the percentage decrease in the
value of the Israeli currency in relation to the dollar calculated by comparing
the rate of exchange at the beginning and the end of the year.
<TABLE>
<CAPTION>
ISRAELI DEVALUATION
INFLATION (APPRECIATION)
YEAR ENDED DECEMBER 31, RATE % RATE %
----------------------- --------- --------------
<S> <C> <C>
1995........................................................ 8.1 3.9
1996........................................................ 10.6 3.7
1997........................................................ 7.0 8.8
1998........................................................ 8.6 17.6
1999........................................................ 1.3 (0.2)
QUARTER ENDED MARCH 31,
------------------------------------------------------------
1999........................................................ (1.2) (3.0)
2000........................................................ (1.4) (3.0)
</TABLE>
Until March 31, 2000, we did not engage in any hedging or other transactions
intended to manage risks relating to foreign currency exchange rate or interest
rate fluctuations. At December 31, 1998 and December 31, 1999, we did not own
any market risk sensitive instruments. In the second quarter of 2000, we
converted approximately $6.0 million of our shekel dominated borrowings to U.S.
dollars and hedged a portion of our shekel denominated borrowings by investing
in market risk sensitive instruments as determined by our management to minimize
the risks related to these borrowings. However, we intend to repay our
indebtedness with the proceeds of this offering. See "Risk Factors-Risks
Relating to Operations in Israel."
NEW ACCOUNTING PRONOUNCEMENTS
In December 1999, the staff of the Securities and Exchange Commission issued an
accounting bulletin on revenue recognition which provides, among other matters,
that when contractual acceptance provisions exist, the seller should not
recognize revenue until acceptance occurs. Accordingly, in 1999, we changed our
method of recognizing revenue and retroactively restated our financial
statements for the prior years to conform to the accounting bulletin. When
acceptance provisions exist, our accounting policy now recognizes revenue upon
acceptance, which, in general, occurs no earlier than at the time we install the
AOI system at the customer's premises.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. This statement
requires companies to record derivatives on the balance sheet as assets or
liabilities, measured at fair value. Gains or losses resulting from
25
<PAGE>
changes in the values of those derivatives would be accounted for depending on
the use of the derivative and whether it qualifies for hedge accounting. If the
derivative is a hedge, depending on the nature of the hedge, changes in the fair
value of derivatives will either be offset against the change in fair value of
the hedged assets, liabilities, or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings. In May 1999, SFAS 133 was amended to defer
its effective date. SFAS 133 will be effective for our first quarterly filing of
2001. We commenced using derivatives in the second quarter of 2000 and have not
determined what the effect of SFAS No. 133 will be on our earnings and financial
position.
26
<PAGE>
BUSINESS
GENERAL
We design, develop, manufacture and market technologically advanced and
cost-effective automated optical inspection, or AOI, systems and related
products used to detect defects in printed circuit boards during the
manufacturing process. AOI systems are designed to ensure the quality of printed
circuit boards and enhance production yield for printed circuit board
manufacturers. Our market focus has been on low- and mid-volume manufacturers of
high-end printed circuit boards. We have also penetrated the market comprised of
high-volume manufacturers of high-end printed circuit boards and intend to
increase our sales into this market with our latest product line of AOI systems,
the Orion. As of March 31, 2000, we had sold 475 AOI systems in 25 countries
worldwide.
We believe that our AOI systems offer printed circuit board manufacturers a high
level of defect detection at a low cost per scan, thereby enhancing the quality
and production yield of printed circuit boards. Our AOI systems use proprietary
advanced software, as well as advanced electro-optics, precision mechanics and
image processing technology. We believe that the modular design of our AOI
systems and our attractive price structure enable printed circuit board
manufacturers to plan their investments in AOI systems incrementally in
accordance with their increasing throughput and growth. In addition, our
products are designed for easy operation and maintenance which, we believe,
permits less skilled operators to run the AOI systems. Our products provide
customers with a single system for both inspection and verification, a concept
which we refer to as Inspectify.
PCB, our parent company, engages in various aspects of electronic packaging,
including the assembly of printed circuit boards and the development of advanced
substrates, which are the intermediate components connecting between the chip
and the printed circuit board. PCB is also one of the largest manufacturers of
printed circuit boards in Israel, based on 1999 sales. We have worked closely
with PCB and have utilized PCB's facilities to develop, modify and test our AOI
systems during the printed circuit board manufacturing process. This
relationship has provided us with insights into the needs of our customers and
has enabled us to develop and refine our products and technology with a customer
orientation.
INDUSTRY BACKGROUND
The printed circuit board is generally used as the basic platform to
interconnect and mount a broad array of electronic components and can be found
in virtually all electrical and electronic products, including consumer
electronics, computers and automotive, telecommunications, industrial, medical,
military and aerospace equipment. Printed circuit boards consist of traces, or
"lines," of conductive material such as copper laminated on either a rigid or
flexible insulated base. These conductive traces provide electrical
interconnections for electronic components and are essential to the functioning
of electronic products.
The continued development of more sophisticated electronic devices combining
higher performance and reliability with reduced size and cost, such as portable
phones and computers, has created a demand for increased complexity and
miniaturization of printed circuit boards. In response to this demand, printed
circuit board manufacturers are increasingly producing printed circuit boards
with narrower and more dense traces, as well as multi-layer boards. Multi-layer
boards consist of several layers of circuitry laminated together to form a
single board with both horizontal and vertical electrical interconnections. In
addition, multi-layer boards are continuing to evolve with new technologies,
including sequential build up multi-layer boards. Currently, high-end printed
circuit boards use conductive traces and spaces of 1.5 to 6 mils wide, with
printed circuit boards of 1.5 to 2 mils representing the most advanced level in
the high-end segment. One mil is the equivalent of one-thousandth of an inch. We
believe that a substantial majority of AOI systems purchased by printed circuit
board manufacturers are devoted to the production of multi-layer boards.
27
<PAGE>
In addition, technological advances in the design and manufacture of integrated
circuits have resulted in the use of advanced substrates. In recent years, the
manufacturing of advanced substrates has migrated from integrated circuit
manufacturers to printed circuit board manufacturers, which offer more
cost-effective solutions for customers' needs. These advanced substrates, such
as BGAs, are both dense and complex, using conductive traces and spaces of 1.5
to 2 mils wide.
The manufacturing process of multi-layer boards is comprised of three essential
stages:
- tooling;
- production of each of the inner layers; and
- production of the external layers.
TOOLING
The pre-production stage of tooling involves the creation of the artwork, which
is used as a model for the production of each layer of the printed circuit
board.
PRODUCTION OF THE INNER LAYERS
Production of each of the inner layers consists of several steps commencing with
the selection and cutting of a raw material panel consisting of an
electricity-insulating base, covered with a foil of conducting material, which
is typically copper. The cutting is followed by the photoprint process and
developing stage in which the artwork is used to generate an image of the
desired interconnecting pattern on the foil. This is followed by the etching
process, in which excess conducting material is removed. Once etching is
completed, the photoresist, a material which protects the traces of conducting
material, is stripped from each inner layer. The inner layers are then aligned
and laminated together with an external layer of foil. Once lamination is
completed, production work begins on the external layers of the laminated board.
PRODUCTION OF THE EXTERNAL LAYERS
The first step of external layer production involves the drilling of holes in
the board. This is followed by the "plating through hole" process in which
conductive paths are created from the external layers to the internal layers
through the drilled holes. Images of the desired interconnect pattern are
created on the external layers via the photoprint process, which is followed by
the etching process and the stripping of the photoresist. The board is then
coated with an adhesive material which protects the conductive traces during the
soldering process in the final assembly of the board. The final steps in the
manufacturing process of multi-layer boards involve the finishing of the
conductors, pads and holes to enable the placement of the electronic components
on multi-layer boards, as well as the shaping of the board to its required
dimensions and the testing of the board.
Imperfections in the various stages of the manufacturing process of printed
circuit boards result in defects, like open conductive traces, electrical
shorts, nicks and inappropriate line widths. Historically, conductive traces
were wide and easily visible and inspections were performed manually by
production floor staff. However, the increased usage of more complex, dense and
miniaturized printed circuit boards has rendered non-automated visual inspection
for defects impractical and has resulted in an increasing number of printed
circuit board manufacturers utilizing AOI systems as part of their standard
manufacturing procedure. Furthermore, the more advanced printed circuit board
manufacturers have begun to use AOI systems at multiple production stages in
order to better control the manufacturing process to detect defects before
additional production stages are completed and to prevent serial defects due to
systemic production problems.
28
<PAGE>
During tooling, AOI systems are used for inspection of artwork to ensure that
the proposed image of each layer is free of defects and complies with the
customer's specifications. An AOI system is the only inspection method that
ensures that a printed circuit board is manufactured according to a customer's
design specifications, a process known as "design rule check." During inner
layer production, the detection of defects by AOI systems after the developing
process allows printed circuit board manufacturers to either repair the defects
immediately or reinitiate the photoprint process. Detection of defects in the
etched inner layer, prior to the lamination process, is crucial so that any
defective individual layers may be repaired or replaced while still accessible.
Once the multi-layer board is laminated, any undetected defect in any specific
layer will result in discarding the entire board, thereby increasing production
costs and diminishing production yields. Similarly, AOI systems are used during
the production of the external layers to detect defects after developing and
etching. AOI systems are also used in the final inspection of external layers in
order to assure proper quality control of the finished board.
The following diagram is a flow chart showing the process of manufacturing
multilayer boards and the points in the process where AOI systems are typically
used:
[LOGO]
According to industry reports, the aggregate worldwide sales of printed circuit
boards are estimated to be $34.3 billion in 1999 and to increase to
$43.3 billion in 2002. The aggregate worldwide sales of multi-layer boards in
1999 are estimated to comprise $18.4 billion, or 53.7% of total printed circuit
board sales. The aggregate worldwide sales of multi-layer boards are estimated
to increase to $24.1 billion by 2002. In 1998, annual capital expenditures by
the printed circuit board industry were estimated at $2.2-$2.5 billion and are
estimated to increase to $4.0-$4.7 billion by 2005, with AOI systems accounting
for an increasing share of these capital expenditures. The market for advanced
high-density substrates is estimated to grow from 2.0 billion units in 1998 to
12.8 billion units in 2003.
The printed circuit board industry is highly fragmented. Industry sources
estimate that in 1998 there were 3,200 printed circuit board manufacturers
worldwide. During 1998, the top 100 printed circuit board manufacturers
accounted for approximately 60% of industry revenues. The printed circuit board
industry is undergoing a process of consolidation, which is resulting in the
creation of larger companies.
There are a number of factors currently driving the increased need for AOI
systems:
- the increase in the number of printed circuit boards being produced each year
in response to increased demand for electronic products and as a result of
shortened product life cycles;
- the expanded use of printed circuit boards with higher densities;
29
<PAGE>
- the increase in the costs of highly complex boards and the importance of the
early detection of a defective layer;
- the increase in the number of purchasers of printed circuit boards insisting
that AOI systems be used during the manufacturing process to ensure that board
quality meets international standards;
- the proliferation of advanced substrates, such as ball grid arrays, or BGAs;
- the trend towards industry consolidation leading to the formation of larger
manufacturers, which have greater capital resources to invest in capital
equipment than do low-to-medium manufacturers; and
- printed circuit board manufacturers seeking to reduce the need for highly
trained visual inspection operators, due to difficulties in recruiting those
employees and the desire to reduce costs, thereby increasing the need for
easy-to-use AOI systems.
These factors have led many printed circuit board manufacturers which had not
previously been using AOI systems to purchase AOI systems and caused many of
those manufacturers which have been using AOI systems to increase their
purchases of these systems. Many manufacturers of high-end printed circuit
boards require AOI systems which offer them low cost per scan by minimizing
initial investment, set-up time, operating costs and downtime, while maximizing
defect detection and throughput. While AOI systems are currently the prevalent
standard for monitoring, controlling and ensuring printed circuit board
manufacturing process quality, there can be no assurance that they will remain
the prevalent standard. Potential new technologies and improvements to existing
production equipment could significantly improve production yields, thereby
lowering the cost-benefit equation currently justifying the use of AOI systems.
In addition, new ways of inspecting printed circuit boards could emerge as an
alternative to using AOI systems.
THE CAMTEK SOLUTION
Camtek's AOI systems offer printed circuit board manufacturers a low cost per
scan and increased yield and profitability by featuring the following benefits:
- HIGH LEVEL OF DEFECT DETECTION. Our systems use proprietary advanced software,
as well as advanced electro-optics, precision mechanics and image processing
technology. Therefore, we believe that our AOI systems yield a high level of
defect detection.
- ATTRACTIVE ENTRY PRICES. We believe that the modular design of our AOI systems
and our attractive price structure, enable printed circuit board manufacturers
to plan their investments in AOI systems incrementally in accordance with
their increasing throughput and growth. We price our AOI systems to provide
printed circuit board manufacturers with an affordable means of efficiently
delivering reliable inspection and verification of printed circuit boards. The
prices of our basic AOI systems justify the purchase of these AOI systems even
by printed circuit board manufacturers with lower levels of production volume.
- SINGLE SYSTEM FOR INSPECTION AND VERIFICATION--INSPECTIFY. Under the
Inspectify concept, the fast inspection of the panels is followed by
verification, during which the operator views an enlarged video image of both
the detected defects and a reference master image of the region where the
defect was detected. The enlarged video image and reference master image allow
the operator to easily detect and verify defects on the panels. This enables
the operator to decide whether to disregard the defect, to mark the defect, to
repair it or to reject the panel. Inspectify eliminates the need to stockpile
printed circuit board panels in queues waiting for a dedicated verification
machine, thereby minimizing material handling; shortening queuing delays;
preserving workflow continuity; and speeding printed circuit board lot
turnarounds.
30
<PAGE>
- REAL-TIME FEEDBACK. We have developed a real-time process control method
called Camtek Process Control, or CPC. With this software application, our
customers have the ability to immediately identify process problems, allowing
the customer to correct process faults resulting in fewer repeat defects. The
CPC is designed to provide the means to move our AOI system beyond detection
to prevention.
- USER-FRIENDLY DESIGN. Our products are designed to be easy to operate and
maintain which, we believe, permits less skilled operators to run the AOI
systems. This ease of use also results in less set up time for the machine,
further improving efficiencies and reducing costs. Our products operate in the
Windows NT environment, which, we believe, simplifies the operation of the
inspection units by AOI system operators. These factors maximize ease of use
and operator comfort, resulting in increased throughput.
- FLEXIBILITY. The affordable price of our products gives printed circuit board
manufacturers the ability to purchase, within a given budget, a larger number
of our AOI systems, which can then be placed in different areas of the
production floor. This also decreases the likelihood of a disruption in
production due to the breakdown of any specific machine.
STRATEGY
Our strategy includes the following elements:
- STRENGTHEN OUR POSITION IN THE HIGH-END MARKET FOR LOW- TO MEDIUM-VOLUME
MANUFACTURERS. We have been able to establish a strong position in both unit
sales and revenues, of AOI systems to low- and medium-volume manufacturers of
high-end printed circuit boards. We intend to further build our reputation and
market share in this segment of the printed circuit board manufacturing
industry by continuing to improve our product features through investments in
research and development and feedback from our growing customer base.
- FURTHER PENETRATE THE HIGH-VOLUME, HIGH-END MARKET. We are seeking to further
penetrate the market segment of high-volume manufacturers of high-end printed
circuit boards by emphasizing the advantages of our AOI systems, which include
a high degree of defect detection and throughput capabilities at an attractive
price, all resulting in a low cost per scan. In addition, through our CPC
application we are able to provide unique solutions for the special needs of
our high-volume customers, including sample testing and real-time processing
feedback between the inspection location and the manufacturing floor.
- PENETRATE NEW SEGMENTS OF THE MARKETS FOR PRINTED CIRCUIT BOARDS AND ADVANCED
SUBSTRATES. Advances in technologies have resulted in more complex and dense
printed circuit boards, which include advanced high-density substrates for
integrated circuit packaging, such as BGAs, and new multi-layer board
technologies. We are continuing to develop products to inspect and verify
these new advanced substrates.
- EXPAND OUR TECHNOLOGY BASE. Our research and development strategy is to
improve and expand our proprietary image acquisition systems and image
processing algorithms and to incorporate advanced hardware components into AOI
systems in order to meet our customers' evolving AOI systems needs. We are
also focusing on the mechanical engineering of our products by developing
solutions for automated material handling. Our research and development
efforts are aided by our close relationships with our customers, including
PCB.
- PROVIDE RESPONSIVE AND EFFICIENT CUSTOMER SERVICE AND SUPPORT. We provide
responsive and efficient customer service and support, which we believe
constitutes a competitive advantage. We already have an extensive customer
service and support infrastructure in place to service our customers anywhere
in the world and intend to continue to expand and enhance our service and
support capabilities as
31
<PAGE>
our customer base increases. We also focus on training our personnel to remain
market oriented in their dealings with customers.
PRODUCTS
AOI SYSTEMS
Our AOI systems consist of:
- a movable table;
- a tower which houses image-capturing equipment;
- a console having two display monitors; and
- computer hardware which assists in executing the inspection and verification
process.
An AOI system operator places a printed circuit board panel on the movable
table. The table moves the printed circuit board under the tower, which proceeds
to scan the panel for defects. At the completion of scanning, the AOI system
displays magnified images of the area containing the detected defects for
verification by the operator. On the reference monitor, images of the defective
areas are displayed for comparison purposes on a background of corresponding
reference layouts. During the verification process, the operator determines
whether the detected defects require repair or disposal of the board.
Immaterial defects are cleared, while other more significant defects can be
repaired manually or may be marked for later repair. Since the operator has
convenient access to the panel, the operator may use other tools to repair the
defect while it is still in the system. Panels with irreparable defects are
rejected. At the end of the inspection and verification of one side of the
panel, the panel is flipped and the other side is immediately inspected and
verified in the same manner. At the end of the cycle, cleared boards are
forwarded directly to the next production stage.
Our various AOI systems utilize technology that enables the customer to handle a
wide scope of sophisticated printed circuit board inspection and verification
needs. Advanced software algorithms, designed for intelligent feature
recognition, provide for a high level of defect detection and are programmed to
run on very high speed processors operating in the Windows NT environment.
32
<PAGE>
The following table describes our current product line:
<TABLE>
<CAPTION>
SCAN RATE
LINE/SPACE
PRODUCT TARGET MARKET FUNCTIONALITY DENSITY INSPECTED
----------------------
<S> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------
---------------------
Orion-604-HR2 Medium- to high- High resolution From 0.7 mil Up to 310 Sq. Ft./Hr.
volume manufacturers inspection and line/space at 4 mil line width
of fine-line, high verification
density printed
circuit boards
---------------------
Orion-604 High volume Inspection and From 3.0 mil Up to 540 Sq. Ft./Hr.
manufacturers of verification line/space at 5 mil line width
printed circuit boards
---------------------
Orion-604-WR High volume Inspection and From 1.5 mil Up to 540 Sq. Ft./Hr.
manufacturers of verification line/space at 5 mil line width
printed circuit boards
with a wide resolution
range
---------------------
Orion-603-WR Medium volume Inspection and From 1.5 mil Up to 405 Sq. Ft./Hr.
manufacturers of verification line/space at 5 mil line width
printed circuit boards
with a wide resolution
range
---------------------
Orion-602-WR Low volume Inspection and From 1.5 mil Up to 270 Sq. Ft./Hr.
manufacturers of verification line/space at 5 mil line width
printed circuit boards
with a wide resolution
range
---------------------
Orion-604-AR2 Medium to high end Artwork inspection From 0.7 mil Up to 310 Sq. Ft./Hr.
manufacturers of high- line/space at 4 mil line width
end artwork
---------------------
CVR Customers who require Stand alone Not applicable Not applicable
offline verification verification
station
---------------------
</TABLE>
Our current AOI systems generally have a list price per unit of between $200,000
for the base model, the Orion-602-WR, and $350,000 for the most advanced model,
the Orion-604-HR2, with various options. Each model of the Orion is field
upgradeable to a more advanced model.
OPTIONAL SOFTWARE APPLICATIONS
- CAMTEK AOI INTERFACE. We utilize our Camtek AOI Interface, or CAI, software
packages to link our AOI systems with the customer's computer aided
manufacturing, or CAM, workstations, for the preparation and downloading of
the reference files required for the inspection process. The CAI software
packages eliminate the time-consuming manual setup of the inspection
preparation processing on the AOI systems and the CAM workstations. Automatic
file transfer is done via the customer's network using standard client/server
protocols.
33
<PAGE>
- CAMTEK PROCESS CONTROL. Our Camtek Process Control, or CPC, offers printed
circuit board manufacturers a real-time tool for AOI data collection,
reporting, analysis and alerting the manufacturing floor of process-related
problems and repeat defects. Because process-related defects are identified on
the CPC station in real-time, manufacturers can implement the necessary
process changes immediately to eliminate subsequent repeat defects and
consequently increase production yield.
- SPRINTER. Our Sprinter application offers a quick sampling of a production
batch. The Sprinter application works in conjunction with the CAI and CPC to
allow minimal AOI setup time and to ensure against repeatable defects.
CUSTOMERS
During the period from late 1994, when we commenced commercial shipment of our
products, until March 31, 2000, we had sold 475 AOI systems, including some of
the world's leading printed circuit board manufacturers. Our customers are
located in 25 countries. During the year ended December 31, 1999 and the three
months ended March 31, 2000, our top two customers together accounted for about
14.5% and 15.7% of our total revenues.
RESEARCH AND DEVELOPMENT
In order to accommodate the rapidly changing needs of the printed circuit board
industry, we place considerable emphasis on research and development projects
designed to improve our existing product lines and to develop new products. As
of June 30, 2000, 44 of our employees were engaged primarily in research and
development.
We are focusing our product development efforts on three enhanced or new product
lines. First, we are working to enhance the current line of Orion systems.
Second, we are pursuing a new product utilizing an automated material handling
system to accommodate the automation needs of some customers. Third, we are
pursuing a new product for final inspection and automated handling of BGA
strips.
Our research is centered on two principal areas. We are enhancing our image
acquisition technology, which includes a high intensity illumination block and a
special high resolution lens. In addition, we are developing improved image
processing algorithms. We have decided to focus our internal research and
development activities on enhancing our core technologies. We use subcontractors
for the development of some of the elements of new product lines. For example,
we use subcontractors to help create specialized lenses and cameras and the
mechanical design for our new automated handling systems under development. We
also use subcontractors to develop the platform for and integration of our new
generation of CVRs.
A portion of our research and development expenses has been funded through
third-party royalty-bearing participations from the Government of Israel. The
following table shows our total research and development expenditures and
participation in these expenditures by the Government of Israel for the periods
indicated:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Research and development expenses... $2,138 $3,503 $4,307 $ 946 $1,455
Royalty-bearing participations
from the Government of Israel..... 565 1,177 1,888 -- $ 516
------ ------ ------ ------ ------
Research and development costs,
net............................... $1,573 $2,326 $2,419 $ 946 $ 939
====== ====== ====== ====== ======
</TABLE>
34
<PAGE>
We are obligated to pay to the State of Israel royalties ranging from 4% to 6%
of revenues derived in connection with products we develop as a result of
research and development funded by Chief Scientist participations of up to 100%
of the dollar-linked value of the participations received. During 1997, our
royalty expenses to the Government of Israel with respect to its participations
were approximately $629,000, during 1998 they were approximately $813,000,
during 1999 they were approximately $956,000 and during the three months ended
March 31, 2000 they were approximately $421,000. In addition, products developed
under programs supported by the Office of the Chief Scientist may not be
manufactured, nor may the technology embodied in those products be transferred,
outside of Israel without appropriate government approvals. Accordingly, we may
not be able to take advantage of strategic manufacturing and other opportunities
outside of Israel. These restrictions do not apply to the sale or export from
Israel of our products developed with that know-how.
SALES, MARKETING AND CUSTOMER SUPPORT
Our policy is to provide customer support and services through local
subsidiaries in each territory in which our products are sold. We have
established a global distribution and support network, spread over territories
in which we have sales, including North America, Europe and Asia. We expect to
expand our network into additional territories as market conditions warrant.
In North America, we currently market our products through Camtek USA Inc., our
wholly owned subsidiary, which operates independently using a direct sales force
and through a network of local agents. In Europe and Asia, we market our
products using distributors, sales representatives and our own sales support
personnel. Our foreign subsidiaries in Belgium, Hong Kong, Japan, Taiwan and the
United States employ local personnel. Worldwide marketing efforts are
coordinated by the Vice President of Sales and Subsidiaries, who is based at our
headquarters in Israel.
As of June 30, 2000, 74 people were engaged in our worldwide sales and support
efforts. Our marketing efforts include participation in various trade shows and
conventions, publications and trade press, demonstrations performed at our
facilities and regular contact with customers by sales personnel.
We service and provide training to customers on all our AOI systems. We provide
our customers with system documentation and training in maintenance and use. In
addition, for a fee, we offer service and maintenance contracts commencing after
the expiration of the warranty period, which is typically one year. Under our
service and maintenance contracts, we provide prompt on-site customer support.
Software updates are typically included in the service and maintenance contract
fees.
MANUFACTURING
We maintain a 14,000 square foot, ISO-9002 certified, manufacturing facility in
Israel for production of our AOI systems. The ISO-9002 standard relates to a
series of documents that provide international guidelines on quality management.
It is a quality assurance model that is used by companies that produce, inspect,
test, install and service items. ISO representatives perform on-site inspections
as part of an evaluation process aimed at certifying that a company follows the
ISO guidelines for quality assurance. Periodic inspections continue after
certification, to ensure continued adherence to the guidelines. An increasing
number of customers of printed circuit board manufacturers are insisting that
AOI systems be used in the manufacturing process of printed circuit boards to
ensure that the quality of the printed circuit boards used in their end products
meet international quality standards including ISO-9002.
We believe that our production capacity is sufficient for our current level of
sales and permits us to ship products within three to four weeks of receipt of
customer orders. In the event that sales of our products increase significantly,
we may institute a second production shift or secure additional facilities to
accommodate an increase, which we believe will be available on commercially
reasonable terms. We intend to relocate to our new facility in the first quarter
of 2001. See "--Facilities."
35
<PAGE>
Our manufacturing activities consist primarily of the assembly, integration and
testing of parts, components and subassemblies which are acquired from
third-party vendors and subcontractors. We utilize subcontractors in Israel, the
United States, Europe and Japan for the production of mechanical parts, optical
components, castings and casings, electronic cabinets, printed circuit board
fabrication and a portion of the required electronic assembly. Most electronic
components are imported from the United States, Europe and Japan.
We purchase some of the key components and subassemblies included in our AOI
systems from a limited group of suppliers. To date, we have been able to obtain
sufficient units of these components to meet our needs and do not foresee any
short-term supply difficulty in obtaining timely delivery of any parts or
components. We generally maintain a two- to three-month inventory of critical
components used in the manufacture and assembly of our AOI systems.
COMPETITION
The AOI systems and services industry for printed circuit boards is
characterized by intense competition. We believe our success will depend
primarily on our ability to provide competitively priced, efficient and
easy-to-use AOI systems which offer reliable defect detection capability, as
well as prompt delivery and responsive customer support. As a result, we cannot
be certain that the products and services we offer will compete effectively with
those of our competitors. Furthermore, should competition intensify, we may have
to reduce the prices of our products. If we are unable to compete successfully
against our competitors, our business would be materially adversely affected.
We believe our principal competitive advantage is that the AOI systems that we
have developed provide a high level of detectability, an attractive price
structure and overall user-friendliness. Another competitive advantage is our
CPC application, which provides printed circuit board manufacturers with
real-time data for analysis of the manufacturing process itself. Although we are
currently developing a line of products with automated handling systems, some of
our competitors already offer systems with this feature. We cannot be certain
that we will remain competitive in these and our other development efforts. See
"--Research and Development."
Our principal competitor is Orbotech, which currently commands a substantial
majority of the market for AOI systems and services for printed circuit board
manufacturers. Our other competitors include Lloyd Doyle, Dainippon Screen
Manufacturing, Barco, Manya and Focus AOI. To date, Orbotech has dominated the
high-volume printed circuit board manufacturing sector which has resulted, in
some instances, in an unwillingness on the part of high-volume printed circuit
board manufacturers to adopt our products. Our inability to further penetrate
the high-volume printed circuit board manufacturing sector or the development of
superior products by one or more competitors, or our failure to successfully
respond to these developments, could adversely affect our business prospects.
Some of our competitors, most notably Orbotech, have greater financial,
personnel and other resources, offer a broader range of products and services
than we do, and may be able to respond more quickly to new or emerging
technologies or changes in customer requirements, benefit from greater
purchasing economies, offer more aggressive pricing or devote greater resources
to the promotion of their products. In addition, one or more of our competitors
may develop superior products and these products may achieve greater market
acceptance than our products.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
In general, we rely on a combination of copyrights, trade secrets, patents,
trademarks and non-disclosure agreements to protect our proprietary know-how and
intellectual property. We also enter into confidentiality agreements with our
key employees and key sub-contractors who develop and manufacture components for
use in our products. We cannot be certain that actions we take to protect our
proprietary rights will be adequate nor can we be certain that we will be able
to deter reverse
36
<PAGE>
engineering or that there will not be independent third-party development of our
technology. Although we have not been involved in any litigation regarding our
intellectual property rights, we cannot be certain that any litigation will not
be brought in the future.
In July 1998, we received a letter from Orbotech alleging, among other things,
infringement of an Israeli patent and unjust enrichment due to misappropriation
of confidential information with respect to the technologies used in the
manufacture and design of our products. We believe that we would have sound
defenses to these allegations, if formally made. If Orbotech were successful in
an infringement action, we might be compelled to modify all of our AOI systems
products and/or we might be subject to substantial damages. Any litigation could
involve substantial expenditures by us and a diversion of management's
attention. Since 1998, Orbotech has not taken any further action with respect to
this matter.
We have a patent application pending with the Patent Office of Israel relating
to Inspectify. In addition, we are registering six of our trademarks with the
Israeli Registrar of Trademarks. We consider aspects of all elements of our AOI
systems to be proprietary to us. To the extent that we rely on technology which
we license from third parties, including software that is integrated with
internally developed software and used in our products and services we cannot be
certain that these third-party technology licenses will continue to be available
to us on commercially reasonable terms or at all.
EMPLOYEES
As of June 30, 2000, we employed a total of 198 people worldwide, including
44 in research and development, 6 in executive management, 47 in customer
service and support, 27 in sales and marketing, 23 in administration and 51 in
operations.
Israeli labor laws and regulations are applicable to our employees in Israel.
These laws principally concern matters like paid annual vacation, paid sick
days, length of the workday, pay for overtime, insurance for work-related
accidents, severance pay and other conditions of employment. Israeli law
generally requires severance pay, which may be funded by Manager's Insurance as
described below, upon the retirement or death of an employee or the termination
of employment by the employer. Furthermore, Israeli employees and employers are
required to pay predetermined sums to the National Insurance Institute. Since
January 1, 1995, these amounts also include payments for national health
insurance. The payments to the National Insurance Institute are approximately
14.5% of wages (up to a specified amount), of which the employee contributes
approximately 66% and the employer contributes approximately 34%.
Although not legally required, we regularly contribute to a "Manager's
Insurance" fund or to a privately managed pension fund on behalf of our
employees located in Israel. These funds provide employees with a lump sum
payment upon retirement (or a pension, in case of a pension fund) and severance
pay, if legally entitled thereto, upon termination of employment. We provide for
payments to a Manager's Insurance Fund and pension fund contributions in the
amount of 13.3% of an employee's salary on account of severance pay and
provident payment or pension, with the employee contributing 5.0% of his salary.
We also pay an additional 2.5% to some of our employees' salaries in connection
with disability payments. In addition, we administer an Education Fund for our
Israeli employees and pay 7.5% thereto, with the employees contributing 2.5% of
their salary.
Furthermore, our employees are subject to the provisions of the collective
bargaining agreements between the Histadrut, which is the General Federation of
Labor in Israel, and the Coordination Bureau of Economic Organizations,
including the Industrialists Associations, by order of the Israeli Ministry of
Labor and Welfare. These provisions principally concern cost of living
increases, recreation pay and other conditions of employment. We generally
provide our employees with benefits and working conditions above the required
minimums. Our employees, as a group, are not currently represented by a labor
union. To date, we have not experienced any work stoppages.
37
<PAGE>
LEGAL PROCEEDINGS
We are not party to any material legal proceedings.
FACILITIES
Our main office and research and development facilities, located in the Migdal
Haemek industrial park in northern Israel, occupy 12,400 square feet and are
leased from PCB. Under this lease, we currently pay $6,450 per month, plus
V.A.T. We use another facility in the Migdal Haemek industrial park for our
manufacturing activities which consists of 14,000 square feet and is leased from
a third party for $4,448 per month through 2001, and thereafter for $4,907 per
month, plus V.A.T. linked to the Israeli CPI. We believe that these facilities
are adequate for our current operations until our anticipated relocation to our
new facility in the first quarter of 2001.
On September 14, 1998, we entered into an agreement to lease a 40,000 square
foot building in the Ramat Gavriel new industrial area of Migdal Haemek, to be
built by the lessor. We intend to relocate to this facility upon its completion
which is expected to be in the first quarter of 2001. The lease is for a term of
23 years and eight months commencing upon the completion of the building and the
transfer thereof to us, which the lessor has guaranteed would occur no later
than December 31, 2000. The lease payments will be equal to the actual cost of
the building, estimated at $4.9 million, plus standard financing costs and
$595,000, less any grants received for the building, divided by the term of the
lease. We have the right to terminate the lease agreement after seven years
following the transfer of the building to us and at the end of each three year
period thereafter.
Within the framework of the lease agreement, we purchased an option to acquire
all of the lessor's rights to the building and the land, at a price equal to the
actual cost of the building, estimated at $4.9 million plus standard financing
costs and $595,000, less any grants received for the building, any lease
payments we make and the $10,000 we paid for the option. The effectiveness of
the lease agreement and the option to acquire the lessor's rights to the
building and the land is conditioned upon the fulfillment of a number of
conditions precedent, including the receipt of certain governmental and
municipal consents, approvals and permits.
38
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEE
The following table sets forth information with respect to our executive
officers, directors and key employees:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- -------------------- --------
<S> <C> <C>
Rafi Amit................................. 51 Chairman of the Board of Directors and
General Manager
Yotam Stern............................... 47 Chief Financial Officer and Director
Moshe Amit................................ 55 Executive Vice President, Sales and
Subsidiaries
Ronni Flieswasser......................... 40 Vice President
Vitaly Roginsky........................... 44 Vice President, Research and Development
Benjamin P. Sabbah........................ 67 Executive Vice President, New Technologies
Amir Gilead............................... 49 Vice President, Marketing
Meir Ben-Shoshan.......................... 69 Director
Haim Horowitz............................. 52 Director
Dror Hurwitz.............................. 41 Director
Yuval Attias.............................. 33 Controller
</TABLE>
RAFI AMIT has served as our General Manager, or Chief Executive Officer since
January 1998 and has served as Chairman of the Board of Directors since 1987.
Since 1981, Mr. Amit has also served as the President, General Manager and
director of PCB and has been the Chairman of the Board of Directors of PCB since
1988. Mr. Amit has a B.Sc. in Industrial Engineering and Management from The
Technion-Israel Institute of Technology. Rafi Amit is the brother of Moshe Amit.
YOTAM STERN has served as our Chief Financial Officer since January 1998 and as
a Director since 1987. Mr. Stern has also served as the Chief Financial Officer
of PCB since 1981 and has served as a director of PCB Ltd. since 1985.
Mr. Stern has a B.A. in Economics from the Hebrew University of Jerusalem.
MOSHE AMIT has served as our Vice President, Sales and Subsidiaries since March
2000, and prior to that, Mr. Amit served as our Vice President, Sales and
Marketing since October 1994. From 1987 until 1994, Mr. Amit served as the
President of PCE, Inc., a New Jersey-based company affiliated with Camtek and,
which until recently, sold and serviced printed circuit boards and AOI systems.
Mr. Amit has a B.Sc. in Industrial Engineering and Management from the Technion.
Moshe Amit is the brother of Rafi Amit.
RONNI FLIESWASSER has served as our Vice President since August 1999. In
September 1995, Mr. Flieswasser established the then European branch of Camtek,
prior to the establishment of Camtek Europe NV. Prior to joining Camtek,
Mr. Flieswasser worked with AOI systems at Orbotech, and was a partner for four
years in a software company specializing in business applications.
VITALY ROGINSKY has served as our Vice President, Research and Development since
May 1999. From 1992 until May 1999, Mr. Roginsky served as our Software
Department Manager. Mr. Roginsky has 25 years experience in the development and
management of electronics, software, computer and multi-discipline projects.
Mr. Roginsky has an M.Sc. in Electronics from Sebastopol Institute in Ukraine.
39
<PAGE>
BENJAMIN P. SABBAH has served as our Executive Vice President, New Technologies
since May 1999, and, from November 1995 until May 1999 Mr. Sabbah was our
Executive Vice President, Research and Development. Mr. Sabbah is also a senior
member of the Institute of Electronic Engineers in Israel. Prior to joining
Camtek, Mr. Sabbah co-founded and served as the President, Chief Executive
Officer and Chief Operations Officer of Elscint Ltd., which was a medical
imaging equipment company. From 1987 to 1989, Mr. Sabbah was a senior research
associate and lecturer at the Technion. Mr. Sabbah has a B.S. and an M.Sc. in
Electrical Engineering from the Technion.
AMIR GILEAD has served as our Vice President, Marketing since March 2000. From
1999 until March 2000, Mr. Gilead served as President and Chief Executive
Officer of Advanced Automation International Inc., a startup in the
semiconductor equipment manufacturing industry. From 1990 until 1999, Mr. Gilead
held various executive positions with Kulicke & Soffa, a semiconductor equipment
manufacturer. From 1984 until 1990, Mr. Gilead held various management positions
with Optrotech Ltd., which subsequently merged with Orbotech. Mr. Gilead has an
M.Sc. in electrical engineering from the Technion.
MEIR BEN-SHOSHAN has served as one of our Directors since November 1998. From
May 1995 until March 1999, Mr. Ben-Shoshan was a director of AG Associates
(Israel) Ltd., a manufacturer of integrated processing equipment for the
semiconductor industry, and was Chairman of its Board from April 1996 to
March 1999. From 1986 to 1998, Mr. Ben-Shoshan was a Vice President of Clal
Electronics Industries Ltd., an electronics company the shares of which are
traded on the Tel-Aviv Stock Exchange. Mr. Ben-Shoshan has been a director of
Tower Semiconductor Ltd., a Nasdaq-listed company since March 2000, and in IFN
Ltd., a company listed on the Tel Aviv stock exchange, since January 2000; and
is Chairman of the Board of Jordan Valley Applied Radiation Ltd. since August
1999. Mr. Ben-Shoshan is also a director of a number of privately-held
companies. Mr. Ben-Shoshan has been a member of the Association of Production
Engineers in England since 1965, and received an M.B.A. from Tel-Aviv
University.
HAIM HOROWITZ has served as one of our Directors since November 1998.
Mr. Horowitz is also the Vice President and Chief Financial Officer of Menen
Medical Ltd., a medical equipment manufacturer, since 1994 and from 1993 has
been the Chief Financial Officer of Menen Medical Corp., a subsidiary of Menen
Medical Ltd. From 1991 to 1993, Mr. Horowitz served as Treasurer of
Elscint, Inc., which was a medical imaging equipment company. Mr. Horowitz holds
a B.Sc. in Industry and Management from the Technion.
DROR HURWITZ has served as one of our Directors since November 1998.
Mr. Hurwitz has also been the manager of the advanced substrates division of
PCB, since 1996. From 1993 to 1996, Mr. Hurwitz served as the Operations Manager
of PCB. Mr. Hurwitz holds a B.Sc. in Chemical Engineering from the Technion.
YUVAL ATTIAS has served as our Controller since February 1999, prior to which
Mr. Attias was an auditor with Somekh Chaikin, the Israeli affiliate of KPMG
Peat Marwick. Mr. Attias has a B.A. in Economics and Accounting from Haifa
University and is a registered CPA in Israel.
BOARD OF DIRECTORS
Our articles of association provide that the board of directors shall consist of
not less than five nor more than ten directors, including the outside directors.
Currently, our board consists of five directors.
Directors, other than outside directors, are elected by a resolution of the
shareholders at the annual general meeting and serve until the conclusion of the
next annual meeting of the shareholders. Directors may be removed at any time by
a resolution of the shareholders. Since directors may be elected and removed by
a majority vote, PCB, which holds a majority of the voting power of our
shareholders after this offering, will have the power to elect all of our
directors, subject to the restrictions placed on the election of outside
directors as described below. The General Manager, and
40
<PAGE>
any officer who is also a controlling shareholder or a director, is appointed by
and serves at the pleasure of the board. Each of the other officers is appointed
by the General Manager.
The Chairman of our Board of Directors is Mr. Rafi Amit, who also serves as our
General Manager, or Chief Executive Officer. Under the new Israeli Companies
Law, 1999, effective as of February 1, 2000, the Chief Executive Officer of a
public company may not hold the position of Chairman of the Board unless that
designation is approved by a vote of at least two-thirds of the non-controlling
shareholders attending the meeting and voting on the resolution. In any case,
the Chief Executive Officer of a public company may not hold the position of
Chairman of the Board for more than three years. This provision will apply to us
beginning three months following the closing of this offering.
Our articles provide that any director may appoint, by written notice to us or
to the Chairman of the Board, any individual who is qualified to serve as
director and who is not then serving as a director or alternate director, to
serve as an alternate director.
An alternate director has all of the rights and obligations of a director,
excluding the right to appoint an alternate for himself. Unless the period or
scope of any such appointment is limited by the appointing director, the
appointment is effective for all purposes and for a period of time concurrent
with the term of the appointing director. Currently there are no alternate
directors on our board.
OUTSIDE DIRECTORS; AUDIT COMMITTEES
Under the new Israeli Companies Law, "public" Israeli companies, including those
whose shares are registered for trade outside of Israel, are required to appoint
at least two directors who are not affiliated with the company.
The outside directors that must be appointed under the new Israeli Companies Law
must not have any relationship with us. An individual whose relatives, business
partners, employers or controlled companies have a relationship with us may not
serve as an outside director. In addition, an individual whose other business
affairs may cause a conflict of interest with us may not serve as an outside
director. Outside directors are elected by the shareholders, and the
shareholders voting in favor of their election must include at least one third
of the shareholders present and voting at the meeting, not counting abstentions,
who are not controlling shareholders of the company. This minority approval
requirement need not be met if the total shareholdings of those who vote against
their election represent 1% or less of all of the voting rights in us. However,
shareholder approval is not required if the board of directors resolves that a
director in office at the time the new Israeli Companies Law became effective,
be deemed to be an outside director, provided that he or she otherwise qualifies
as an outside director.
Outside directors serve for a three-year term, which may be renewed for a
maximum of one additional three-year term. An outside director can be removed
from office only by either the same percentages of shareholders that may elect
him, or by a court order and then only if the outside director ceases to meet
the statutory qualifications or breaches his fiduciary duty. The court may also
remove an outside director from office if he is unable to perform his duties on
a regular basis. According to new regulations promulgated under the new Israeli
Companies Law, outside directors of an Israeli company whose shares are
registered for trade outside of Israel may be non-Israeli residents. If at the
time an outside director is appointed by the shareholders, all other directors
are of the same gender, the outside director to be appointed shall be of the
other gender.
Mr. Horowitz and Mr. Ben-Shoshan qualify as outside directors and our board of
directors has determined that Messrs. Horowitz and Ben-Shoshan shall be regarded
as outside directors upon consummation of this offering.
The new Israeli Companies Law also provides that public companies must appoint
an audit committee of the board of directors, of at least three members,
including all the outside directors. Neither the chairman of the board, nor any
director who is an employee of or provides services to the company on
41
<PAGE>
a regular basis, nor a controlling shareholder or its relatives may be members
of the audit committee. A public company must also appoint a certified public
accountant to audit its financial statements and to report any improprieties
that he or she may discover to the Chairman of the Board, as well as an internal
auditor.
NASDAQ REQUIREMENTS
Under the requirements for listing on the Nasdaq National Market, we are
required to have at least three independent directors on our board of directors
and to establish an audit committee, which must have a minimum of three members,
all of whom are independent directors. The members of the audit committee must
have experience in reviewing and understanding financial statements and at least
one member must have employment experience in finance or accounting. We
currently have two independent directors, Haim Horowitz and Meir Ben-Shoshan. We
will appoint at least one other independent director shortly after the
completion of this offering. Our audit committee will consist of at least three
independent directors. Prior to the consummation of this offering, we will
establish a compensation committee, at least a majority of whose members will be
independent of management.
DUTIES OF OFFICE HOLDERS AND APPROVAL OF TRANSACTIONS UNDER THE ISRAELI LAW
We are subject to the provisions of the new Israeli Companies Law, which became
effective on February 1, 2000. This law codifies the duty of care and fiduciary
duties that an office holder has to us. An office holder's duty of care includes
the duty to act as a "reasonable" office holder would have acted in the same
position under the same circumstances. An office holder's fiduciary duty
includes:
- avoiding conflicts of interest between the office holder's position with us
and his personal affairs;
- avoiding any competition with us;
- avoiding the exploitation of our business opportunities in order to receive a
personal advantage or an advantage for others; and
- revealing to us any information or documents relating to our affairs which the
officer holder has received due to his position.
An "office holder," as defined in the new Israeli Companies Law, is a director,
general manager, chief executive officer, executive vice president, vice
president, any other person acting in any of the foregoing positions, without
regard to such person's title, or any other manager directly subordinate to the
general manager. Each person listed in the table under "Management" is one of
our office holders, with the exception of our controller. All arrangements as to
compensation of office holders who are not directors and who are not controlling
shareholders, require the approval of our general manager. The compensation of
office holders who are directors or controlling shareholders, and any other
employee who is a controlling shareholder, must be approved by the audit
committee, our board of directors and our shareholders. Special shareholder
voting procedures are required for the approval of compensation of office
holders or employees who are also controlling shareholders.
Israeli corporate law requires an office holder and a controlling shareholder to
disclose personal interests in an existing or a proposed transaction. This
disclosure must be made no later than the first board meeting when the
transaction is discussed. A personal interest does not include an interest
arising solely from shareholdings in the company. A personal interest includes a
personal interest of:
- the office holder's spouse or close family members;
- a corporation in which the office holder holds directly or indirectly at least
5% of the equity;
- a corporation in which the office holder is a director or general manager; or
- a corporation in which the office holder has the right to appoint at least one
director or the general manager.
42
<PAGE>
If the transaction is not an extraordinary transaction, the office holder or
controlling shareholder is not required to disclose a personal interest arising
only from an interest of a spouse or close family member.
An extraordinary transaction is a transaction that is:
- not in the ordinary course of business,
- not on market terms, or
- likely to have a material impact on our profitability or financial condition.
A controlling shareholder is a person or entity who, directly or indirectly, has
the ability to control the activities of a company. Being an office holder does
not in and of itself make a person a controlling shareholder. For the purposes
of approving transactions, a shareholder that holds 25% or more of our voting
rights is considered a controlling shareholder if no other shareholder holds
more than 50% of the voting rights.
Transactions, actions and arrangements which are not extraordinary transactions
involving an office holder or a third party, in which an office holder has a
personal interest, must receive board approval. An office holder is not deemed
to have a personal interest merely due to his position as an office holder both
in a parent company and its controlled and wholly-owned subsidiary. An
extraordinary transaction must be approved by the audit committee, and then by
the board. A director may not participate in the approval of a transaction in
which he has a personal interest if it is an extraordinary transaction or a
transaction related to compensation, directors' and officers' insurance or
indemnification for that director. If a majority of the members of the audit
committee or the board of directors has a personal interest in the transaction,
then the interested members may nonetheless participate in the meeting in which
the transaction is discussed, but the transaction will require shareholder
approval.
The new Israeli Companies Law also requires that the audit committee, the board
and the shareholders approve the following transactions:
- extraordinary transactions between a public company and a controlling
shareholder;
- transactions in which a controlling shareholder of the company has a personal
interest; and
- the terms of engagement, employment and compensation of a controlling
shareholder.
For these transactions to be effective, approval at the shareholders' meeting
requires one of the following criteria:
- the affirmative vote of at least one third of the shareholders who are present
at the meeting and have no personal interest in the transaction, abstentions
not being counted for this purpose; or
- the total share holdings of those who vote against the transaction do not
represent more than one percent of the voting rights in the company.
A shareholder who participates in this vote must provide notice to the company
if he has a personal interest in the transaction. In the absence of this notice,
he may not vote, and his vote shall not be counted.
According to regulations promulgated under the new Israeli Companies Law, the
following extraordinary transactions with a controlling shareholder do not
require approval by the shareholders, provided that the audit committee and the
board of directors have approved such transactions and determined that such
transactions meet the criteria specified below:
- an extension of an existing transaction which was previously approved
according to the new Israeli Companies Law and no material change occurred
with regard to the terms of the extended transaction;
43
<PAGE>
- a transaction that is only beneficial to the company;
- a transaction that is in accordance with the terms of a framework transaction
previously approved in accordance with the requirements of the new Israeli
Companies Law;
- a transaction that is part of a transaction with a third party or a joint
offer to contract with a third party, provided the terms and conditions of the
transaction for the company are not materially different than the terms and
conditions of the controlling shareholder taking into account the proportional
interest of each of the parties; and
- a transaction between companies controlled by a common controlling shareholder
or a transaction between a public company and its controlling shareholder,
provided that the transaction is on market terms, in the ordinary course of
business and does not adversely affect the interests of the company.
INDEMNIFICATION AND INSURANCE
Our articles provide that, subject to the provisions of the new Israeli
Companies Law, we may:
(1) Obtain insurance for any of our office holders for liability for an act
performed in his capacity as an office holder with respect to:
- a violation of the duty of care to us or to another person;
- a breach of fiduciary duty, provided that the officer acted in good faith and
had reasonable grounds to assume that the act would not cause us harm; and
- a monetary liability imposed on him for the benefit of another person.
(2) Undertake to indemnify our office holders, or indemnify an office holder
retroactively for a liability imposed on approved by a court and for
reasonable legal fees in an action brought against him by us or in criminal
proceedings in which the office holder is acquitted or an offense that does
not require proof of criminal intent. An undertaking to indemnify an office
holder must be limited to categories of events that can be reasonably
foreseen and up to a reasonable amount under the circumstances.
We may not insure, indemnify or exempt an office holder for a violation of the
duty of care (1) if the act was committed recklessly or with intent, (2) if the
act was committed with the intent to realize illegal personal gain, or (3) for
any fine imposed on him or for breach of fiduciary duty, except as provided
above.
We may exempt, in advance, an office holder from all or part of his
responsibility for damages occurring as a result of a breach of his duty of
care. We may also approve an action taken by the office holder performed in
breach of his fiduciary duty, if he acted in good faith, the action does not
adversely affect us, and the office holder has revealed to the board his
personal interest in the action.
We have procured insurance for our office holders in accordance with our
articles; and have adopted the necessary resolutions both to exempt them in
advance from any liability for damages arising from a breach of their duty of
care to the Company, and to provide them with indemnification undertakings in
accordance with our articles. We are currently in the process of providing our
office holders with these indemnification undertakings.
COMMITTEES
Our articles of association provide that the board of directors may delegate its
powers to such committees of the board of directors as it deems appropriate,
subject to the provisions of the new Israeli Companies Law. Powers that may not
be delegated include, among others, the power to distribute dividends, the
determination of a company's economic policy or the allotment of securities or
the approval of financial reports. However, those matters can be delegated to
committees for
44
<PAGE>
recommendation. According to the new Companies Law, at least one outside
director must be appointed to serve on each committee of the board.
COMPENSATION OF OFFICERS AND DIRECTORS
Regulations promulgated under the new Israeli Companies Law regulate the annual
remuneration and remuneration for participation in meetings of outside directors
and the refund of their expenses.
The aggregate remuneration paid by us to the ten persons who served in the
capacity of director or executive officer in the year ended December 31, 2000
was approximately $1.2 million, which includes amounts paid to provide pension,
retirement or similar benefits, as well as amounts expended by us for
automobiles made available to all our officers, expenses reimbursed to officers
and other fringe benefits commonly reimbursed or paid by companies in Israel.
EMPLOYMENT AGREEMENTS
We maintain written employment agreements with our key employees that contain
customary provisions, like non-compete and confidentiality agreements.
Effective January 1, 1998, we entered into an employment agreement with
Mr. Rafi Amit, our General Manager. The agreement is for an initial term of two
years and is automatically renewable for two-year periods thereafter. The
agreement contains confidentiality and non-compete provisions for the term of
Mr. Amit's employment and for a two-year period after the termination of his
employment. Furthermore, the agreement provides that all intellectual property
developed by Mr. Amit, or in which he took part, in connection with his
employment, are the sole property of us. Pursuant to a management services
agreement between PCB and us, Mr. Amit may dedicate not more than 25% of his
time to PCB. The employment agreement may be terminated by either party or not
renewed at the end of the initial term or any extension, by written notice of
termination or non-renewal delivered to the other party eight months in advance.
We, however, may immediately terminate the employment of Mr. Amit in various
circumstances, including a breach of fiduciary duty.
Effective January 1, 1998, we entered into an employment agreement with
Mr. Yotam Stern, our Chief Financial Officer. This agreement is for an initial
term of two years and is automatically renewable for two-year periods
thereafter. The agreement contains confidentiality and non-compete provisions
for the term of Mr. Stern's employment and for a two-year period after the
termination of his employment. Pursuant to a management services agreement
between PCB and us, Mr. Stern may dedicate not more than 25% of his time to PCB.
The employment agreement may be terminated by either party at any time, or not
renewed at the end of the initial term or any extension, by written notice of
termination or non-renewal delivered to the other party six months in advance.
We, however, may immediately terminate the employment of Mr. Stern upon the
occurrence of various circumstances, including a breach of fiduciary duty.
SHARE OPTION PLANS
In September 1997, our board of directors adopted share option plans, under
which options for our shares are granted to employees as determined by the board
from time to time. One of the share option plans covers Israeli employees, while
the remaining two share option plans cover employees of our European, U.S. and
Asian subsidiaries. The share option plans are intended to afford key employees
the opportunity to acquire a proprietary interest in Camtek, thus encouraging
them and also providing them with an incentive to remain in our employ and to be
personally involved in our long-term success. The share option plans are
administered by the board of directors which, among other things, is authorized
to designate the recipients of the options, the number of the options to be
granted and the exercise price therefor. The options issued are non-assignable,
except by the laws of descent. The options are exercisable, following a vesting
period, into ordinary shares. However, the ordinary shares issued upon exercise
of options within the first two years after the issuance of the
45
<PAGE>
options are deposited with a trustee and may be released to the employee only at
the expiration of this two year period. With respect to options issued to
Israeli employees, the waiting period is a restriction period in accordance with
the provisions of the Israeli Income Tax Ordinance and the regulations
promulgated thereunder, as amended from time to time. The share option plan for
Israeli employees is subject to the Israeli Income Tax Ordinance, under which
the payment of tax regarding the grant of the options is delayed so that the
recipient is taxed only upon the sale or transfer of shares into which the
options are exercisable. During July 2000, our board of directors increased the
number of shares issuable upon exercise of options under our share option plans.
To date, there are outstanding options exercisable for 845,980 ordinary shares
at an average weighted exercise price of $2.74 per share, options exercisable
for 152,000 ordinary shares at a price equal to the initial offering price, and
an additional 475,148 ordinary shares have been reserved for future allocation
to employees, as determined by the board of directors. It is contemplated that
our chief executive officer, Mr. Rafi Amit, and our chief financial officer,
Mr. Yotam Stern will be granted options following the offering in amounts and
upon terms to be determined, not to exceed options to purchase 200,000 ordinary
shares in the aggregate.
46
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth the number of ordinary shares, as of June 30,
2000, beneficially owned by all shareholders who we know beneficially own more
than 10% of the ordinary shares and all our directors and officers as a group.
Except where otherwise indicated, we believe, based on information furnished to
us by the owners, that the beneficial owners of the ordinary shares listed below
have sole investment and voting power with respect to those shares. Except as
otherwise noted and pursuant to applicable community property laws, each person
or entity named in the table has sole voting and investment power with respect
to all ordinary shares listed as owned by that person or entity. Shares
beneficially owned include shares that may be acquired pursuant to the exercise
of fully vested options that are exercisable within 60 days of June 30, 2000.
<TABLE>
<CAPTION>
ORDINARY SHARES ORDINARY SHARES
BENEFICIALLY OWNED BENEFICIALLY OWNED
PRIOR TO AFTER THE
THE OFFERING OFFERING
-------------------------- ---------------------
NAME AND ADDRESS NUMBER PERCENT NUMBER PERCENT
---------------- ------------ -------- ---------- --------
<S> <C> <C> <C> <C>
PCB Ltd.(1)
Industrial Zone
Migdal Haemek
10556, Israel.................................. 15,020,002 92.4% 15,020,002 68.7%
All directors and executive officers as a
group(2)....................................... 16,284,557 99.7% 16,284,557 74.2%
</TABLE>
------------------------
(1) A majority of the PCB voting equity is subject to a voting agreement. As a
result of this agreement Messrs. Rafi Amit, Yotam Stern and Itzhak Krell
may be deemed to control PCB.
(2) Includes options to purchase 78,855 ordinary shares.
47
<PAGE>
RELATED PARTY TRANSACTIONS
On January 1, 1998, we entered into a real property lease agreement with PCB,
which replaced a previous agreement for the lease of an industrial building to
us by PCB under which we paid PCB $49,000 in 1997. Under the lease agreement, we
lease from PCB a building of 7,500 square feet for a term of four years, at a
monthly rental rate of $3,500 plus V.A.T. As of January 1, 1999, the leased area
was increased to 8,600 square feet, and the monthly rate was increased to
$4,000. As of January 1, 2000, the leased area was increased to 12,400 square
feet and the monthly rate was increased to $6,450.
During 1997, we paid to PCB an amount of $251,000 for administrative expenses
including the services of two officers. The payments were determined according
to an estimate of their actual costs to PCB. On January 1, 1998, we entered into
a services agreement with PCB replacing their previous agreement with regard to
the provision of services by PCB. Under the services agreement, PCB undertook to
provide services to us, including accounting and bookkeeping, building
maintenance, human resources, payroll, vehicles, maintenance, employee
transportation and employee meals services. Under the services agreement, we are
entitled to terminate the provision of any service received from PCB by prior
written notification to PCB. The consideration to be paid by us is generally
calculated as a percentage of PCB's actual costs in providing these services to
both us and to PCB itself, whereas the actual percentage paid by us depends on
the relative portion of each service rendered to us out of PCB's total costs for
each service. The term of the services agreement is four years which
automatically extends for one year periods, unless written notice of termination
is given by one party to the other three months prior to the end of the initial
term or any extension thereof. In 1998, we paid $166,000 to PCB under this
agreement. No services were provided under this agreement in 1999 and in the
three months ended March 31, 2000.
Through July 1997, we incurred distribution and administrative expenses,
including administration fees in the amount of $1.2 million in connection with
the distribution of our products in the United States by a subsidiary of PCB.
After July 1, 1997, these functions were performed by Camtek USA, Inc., our U.S.
subsidiary, and we have not made any payments since then.
On January 1, 1998, we entered into a management services agreement with PCB,
under which we render to PCB the management services of Rafi Amit, our General
Manager, or Chief Executive Officer, and Yotam Stern, our Chief Financial
Officer. Under this agreement, Mr. Amit has agreed to dedicate not more than 25%
of his time to PCB, where he serves as General Manager, and Mr. Stern has agreed
to dedicate not more than 25% of his time to PCB, where he serves as Chief
Financial Officer. The management services agreement provides that no
employer-employee relationship shall exist between PCB and either of
Messrs. Amit and Stern, and that we shall have no liability in connection with
their previous employment by PCB. In consideration for these management
services, PCB pays us, on a monthly basis, a portion of our compensation costs
with respect to Mr. Amit's and Mr. Stern's employment, which portion is to be
calculated on the basis of the actual amount of time spent in rendering those
services in relation to our total monthly compensation costs with respect to
Mr. Amit's and Mr. Stern's employment, assuming a full time position of
180 hours per month. This agreement may be terminated by us upon prior written
notice of one year, or by PCB upon prior written notice of three months. PCB was
charged $37,000 in 1998, $100,000 for management services in 1999, and $25,000
in the three months ended March 31, 2000.
On January 1, 1998, we entered into a loan agreement with PCB, with respect to
the repayment of loans granted to us by PCB beginning in 1995. On December 31,
1998 some of the amounts previously owed to affiliates were assumed by PCB and
were also to be repaid under the terms of the loan agreement. The outstanding
principal amount of the loan, totaling approximately $0.9 million as of
March 31, 2000. Prior to July 1, 2000, the loan was linked to the Israeli CPI
and bore annual interest at a fixed rate of 2% per year. As of July 1, 2000, the
loan is linked to the U.S. dollar and bears interest at a fixed rate of 6.5% per
year until the repayment of any outstanding portion of the linked principal
48
<PAGE>
amount. The loan is to be repaid in full upon the earlier of the completion of
our initial public offering or December 31, 2000. We will use $0.9 million of
the net proceeds of this offering to repay the amount loaned to us by PCB.
In January 1988, we entered into an agreement with PCB, whereby we undertook to
pay PCB royalties from the sale of our AOI systems in exchange for financing
provided by PCB to us to assist us in product development. Under an agreement
dated May 21, 1998 it was mutually agreed that our obligation to pay royalties
to PCB would end on December 31, 1999. The royalties were based on a percentage
of revenues derived from sales of our AOI systems, which was 0.5% at
December 31, 1999. During 1997, 1998 and 1999 we paid an aggregate of $300,000
in royalties to PCB. In addition, PCB was granted "favored customer status,"
meaning that it is given a discount of 30% off the list price of our AOI
systems.
From time to time we have made transactions in the ordinary course of business
with PCB and its affiliates. Our purchases of raw materials, such as printed
circuit boards and assembled printed circuit board from PCB and its affiliates,
totaled $715,000, $701,000, $590,000 and $477,000 in 1997, 1998, 1999 and the
three months ended March 31, 2000, respectively. In 1999 and the three months
ended March 31, 2000, we sold an aggregate of $824,000 and $478,000 of AOI
systems and related services to PCB. In addition, we have committed to purchase
printed circuit boards from PCB for the development and manufacture of our
systems so long as the price charged is comparable to the best offer we could
obtain from a third party.
Our credit facility with Bank Leumi is guaranteed by PCB. As a result of our
repaying this loan with a portion of the proceeds of this offering, the
guarantee will be terminated.
As a result of this offering, the ordinary shares held by PCB will have a value
of $165.2 million at an assumed initial public offering price of $11.00 per
share. In addition, PCB will now have a public market for these shares.
For information on compensation payable to Mr. Rafi Amit and Mr. Yotam Stern,
see "Management--Employment Agreements."
49
<PAGE>
DESCRIPTION OF ORDINARY SHARES
FOLLOWING IS A SUMMARY OF MATERIAL INFORMATION CONCERNING OUR SHARE CAPITAL AND
A BRIEF DESCRIPTION OF THE MATERIAL PROVISIONS CONTAINED IN OUR ARTICLES.
COMPLETE COPIES OF THE MEMORANDUM OF ASSOCIATION AND THE ARTICLES OF ASSOCIATION
HAVE BEEN FILED AS EXHIBITS TO THIS REGISTRATION STATEMENT.
Our authorized share capital consists of 100,000,000 ordinary shares, par value
NIS 0.01 per share, of which 16,261,002 ordinary shares have been issued. Upon
completion of the offering, 21,861,002 shares will be issued and outstanding,
and 22,701,002 will be issued and outstanding if the underwriters' over-
allotment option is exercised in full.
The ordinary shares do not have preemptive rights. The ownership and voting of
ordinary shares by non-residents of Israel are not restricted in any way by our
memorandum of association or articles or by the laws of the State of Israel.
Under the new Companies Law, Israeli companies may purchase or hold their own
shares subject to the same conditions that apply to distribution of dividends.
These shares do not confer any rights whatsoever for as long as they are held by
the company. Additionally, a subsidiary may purchase or hold shares of its
parent company to the same extent that the parent company is entitled to
purchase its own shares and these shares do not confer any voting rights for as
long as they are held by the subsidiary.
TRANSFER OF SHARES AND NOTICES. Ordinary shares are issued in registered form.
Shares registered on the books of the transfer agent in the United States may be
freely transferred on the transfer agent's books. Each shareholder of record is
entitled to receive at least 21 days prior notice for a general meeting of the
shareholders. We will be obligated to deliver notices to shareholders in
accordance with Nasdaq requirements.
DIVIDEND AND LIQUIDATION RIGHTS.
Our board may declare a dividend to be paid to the holders of ordinary shares
out of our profits on condition that there is no reasonable concern that the
distribution will prevent us from meeting existing or expected liabilities when
these liabilities come due. For these purposes, "profits" are defined as the
larger of (1) the profit balance or (2) profits accrued in the two years prior
to the distribution, as reflected in the last audited or reviewed financial
report prepared less than six months prior to distribution. Dividends are
distributed to shareholders in proportion to the nominal value of their
respective holdings. 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 any class of shares with preferential rights that may
be authorized in the future. The shareholders would need to approve any class of
shares with preferential rights.
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 the
shareholders. These voting rights may be affected by the grant of special voting
rights to the holders of any class of shares with preferential rights that may
be authorized in the future. An annual meeting of the shareholders must be held
every year and not later than 15 months following the last annual meeting.
A special meeting of the shareholders may be convened by the board of directors
at its decision or upon the demand of any of: (1) two of the directors or 25% of
the then serving directors, whichever is fewer; (2) shareholders owning at least
5% of the issued share capital and at least 1% of the voting rights in the
company; or (3) shareholders owning at least 5% of the voting rights in the
company. If the board does not convene a meeting upon a valid demand of any of
the above, then whoever made the demand, and in the case of shareholders, those
shareholders holding more than half of the voting rights of the persons making
the demand, may, not later than three months after having made the demand,
convene a meeting of the shareholders. Alternatively, upon application by the
individuals
50
<PAGE>
making the demand, a court may order that a meeting be convened. The quorum
required for a meeting of shareholders consists of at least two shareholders
present in person or by proxy who hold or represent together at least 33 1/3% of
the issued shares of the company which entitle the holders thereof to
participate and vote at shareholders' meetings. A meeting adjourned due to lack
of a quorum is generally 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. If a quorum is not present at the deferred meeting, the
meeting may be held with any number of participants. However, if the meeting was
convened following a demand by the shareholders, the quorum will be that minimum
number of shareholders authorized to make the demand.
In any shareholders' meeting, a shareholder can vote either in person or by
proxy. General meetings of shareholders will be held in Israel, unless decided
otherwise by our board.
Most resolutions at a shareholders' meeting may be passed by a simple majority.
Resolutions requiring special voting procedures include the appointment of
outside directors and approval of transactions with controlling shareholders.
See "Management--Duties of Office Holders and Approval of Transactions under the
Israeli Law."
Under the new Companies Law, a shareholder has a duty to act in good faith and
in a customary manner in exercising his rights and duties towards the company
and other shareholders, to refrain from prejudicing the rights of other
shareholders and to refrain from abusing his power in the company. The rights
and duties include, among other things, in voting at the general meeting of the
shareholders on the following matters: (1) amendments to the articles of
association; (2) an increase in the company's authorized share capital; (3) a
merger; or (4) an approval of those related party transactions that require
shareholder approval.
In addition, any shareholder who: (1) knows that it possesses power to determine
the outcome of a shareholder vote; (2) under the provisions of the articles of
association, has the power to appoint or to prevent the appointment of an office
holder in the company; or (3) controls the company in any other way, is under a
duty to act in fairness towards the company.
ANTI-TAKEOVER EFFECTS OF ISRAELI LAWS; MERGERS AND ACQUISITIONS UNDER ISRAELI
LAW
The new Companies Law provides for several means of effecting a merger.
Provisions in the Companies Law that deal with "arrangements" between a company
and its shareholders or creditors may be used to effect mergers. Such
"arrangements" are subject to approval by an Israeli court. The court may also,
upon application by the company, a creditor or a shareholder, order that a
creditors' meeting or a shareholders' meeting be convened. At a shareholders' or
creditors' meeting, as applicable, the merger must be approved by a majority of
the shareholders or creditors, as applicable, who are present and voting on the
proposed merger, and who together hold at least 75% of the value represented at
the meeting. In addition to these approvals, upon application to the court for
approval of the merger, the court may, in an order approving the application or
in an order delivered thereafter, provide orders regarding the implementation of
the merger. This process may involve further delay and the imposition of
additional requirements at the court's discretion.
The new Companies Law also allows that a merger be effected by the merging
companies themselves without the need for court approval if the merger receives
approval of the boards of directors and a majority of the shareholders present
at the shareholders' general meeting of each of the merging companies, excluding
any shares held by the other party to the merger or by any person holding at
least 25% of the shares of the other party to the merger. Mergers effected in
this way may nonetheless require court approval if a petition is filed by
objecting shareholders or creditors. Upon petition by a creditor of a merging
company, the court may delay or prevent the effecting of the merger if it deems
that there is a reasonable concern that as a result of the merger either of the
merging companies will not be able to meet its obligations to creditors. A
merger may not be completed until 70 days after the
51
<PAGE>
merger proposal has been received by the Israeli Registrar of Companies and
until all approvals have been obtained and submitted to the Registrar of
Companies.
A merger may be subject to approval by the Israeli Controller of Restrictive
Trade Practices, who may impede or delay a merger in accordance with the
Restrictive Trade Practices Law, 1988.
The new Israeli Companies Law also provides that an 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 25.0% or more of the voting
power at general meetings. This rule does not apply if there is already another
holder of 25.0% or more of the voting power at general meetings. Similarly, the
new Israeli Companies Law provides that an acquisition of shares of 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 more than 45.0% of the
voting power of the company. This rule does not apply if someone else already
holds a majority of the voting power of the company. These tender offer
requirements do not apply to companies whose shares are listed for trading
outside of Israel if under local law or the rules of the stock exchange on which
their shares are traded, there is a limitation on the percentage of control
which may be acquired or the purchaser is required to make a tender offer to the
public.
An acquisition of shares following which the purchaser would become a holder of
90% or more of a public company's shares or class of shares must be made by a
tender offer for the purchase of all the remaining shares or class of shares. A
shareholder who holds more than 90% of the shares of a public company may not
purchase additional shares as long as he holds that percentage. Under the new
Israeli Companies Law, shares acquired in violation of these provisions become
dormant and cease to confer any rights upon their holder; and all rights are
suspended as long as the shares are held by the acquiror.
In addition, our technology, developed pursuant to the terms of the Law for the
Encouragement of Industrial Research and Development, 1984, may not be
transferred to third parties without the prior approval of a governmental
committee. This approval is not required for the export of any products
resulting from that research and development. Approval for the transfer of
technology may be granted only if the recipient undertakes to abides by all of
the provisions of the Industrial and Research Development Law and its associated
regulations, including the restrictions on the transfer of know-how, the
obligation to manufacture in Israel and the obligation to pay royalties in an
amount that might be increased. These requirements could inhibit the acquisition
of us by others. There can be no assurance that this consent, if requested, will
be granted.
Finally, Israeli tax law treatment of certain acquisitions, such as
stock-for-stock swap between an Israeli company and a foreign company, may be
less favorable than the treatment that may be applicable under U.S. tax law. For
example, Israeli tax law may subject a shareholder who exchanges his ordinary
share for shares in a foreign corporation to immediate taxation. However, a bill
was recently submitted to Israel's parliament, pursuant to which a
stock-for-stock swap will not be subject to taxation until the earlier of
(1) the time at which the shares will be sold and (2) the lapse of two years
from the date of the transaction. The bill has not yet been approved and we do
not know whether this bill will ever be enacted into law.
TRANSFER AGENT
The transfer agent and registrar for the ordinary shares is the American Stock
Transfer & Trust Company, New York, New York.
MARKET
We have applied to list the ordinary shares for quotation on the Nasdaq National
Market under the symbol "CAMT." We cannot be certain that the quotation will be
maintained. We have no present intention to list or quote our securities in
Israel or other markets outside the United States; however, we may seek
additional listings if our board of directors determines that it is in our best
interest to do so. There are currently no record holders of the ordinary shares
in the United States.
52
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
When the offering is completed, we will have a total of 21,861,002 ordinary
shares outstanding. Of these shares, the 5,600,000 shares offered by this
prospectus will be tradeable without further restriction under the Securities
Act, except for shares purchased by any of our affiliates, which will be subject
to the limitations of Rule 144 under the Securities Act of 1933. The remaining
shares are "restricted," which means they were originally sold in offerings that
were not subject to a registration statement filed with the Securities and
Exchange Commission. These restricted securities may be resold only through
registration under the Securities Act of 1933 or under an available exemption
from registration, such as provided through Rule 144.
In general, under Rule 144, beginning 90 days after the date of this prospectus,
a person who beneficially owned restricted securities for at least one year
would be entitled to sell within any three-month period a number of shares that
does not exceed the greater of one percent of the then outstanding ordinary
shares or the average weekly trading volume of the ordinary shares on the Nasdaq
National Market during the four calendar weeks preceding the sale. Sales under
Rule 144 are also subject to provisions including notice requirements and the
availability of current public information about our company.
Any person who is not deemed to have been our affiliate at any time during the
three months preceding a sale, and who has beneficially owned shares for at
least two years would be entitled to sell the shares under Rule 144(k) without
regard to the volume limitations.
PCB, our officers and directors and all other shareholders have agreed to a
"lock-up" agreement with respect to the shares owned by them. This means that
they cannot sell these shares during the 180 days following the date of this
prospectus, except that they may make a gift or transfer shares so long as the
donee or transferee agrees to be bound by the terms of the lock-up agreement.
However, CIBC World Markets may, in their sole discretion and at any time or
from time to time, without notice, release all or any portion of the securities
subject to the lock-up agreements. See "Underwriting" for additional details.
After the 180-day lock-up period, these shares may be sold in accordance with
Rule 144. Of these shares, the 15,020,002 shares held by PCB are subject to
volume limitations and other Rule 144 restrictions because PCB is an affiliate
of ours. An "affiliate" is a person that directly, or indirectly through one or
more intermediaries, controls, is controlled by or under common control with the
issuer.
53
<PAGE>
U.S. TAX CONSIDERATIONS REGARDING SHARES ACQUIRED BY U.S. TAXPAYERS
Subject to the limitations described in the next paragraph, the following
describes the material U.S. federal income tax consequences of the purchase,
ownership and disposition of the ordinary shares to a U.S. holder.
A U.S. holder is
- an individual citizen or resident of the United States;
- a corporation or another entity taxable as a corporation created or organized
under the laws of the United States or any political subdivision thereof;
- 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 a U.S. court is able to exercise primary supervision over its
administration and one or more United States persons who have the authority to
control all of its substantial decisions.
Unless otherwise specifically indicated, this summary does not consider the
United States tax consequences to a person that is not a U.S. holder and
considers only U.S. holders that will own the ordinary shares as capital assets.
This discussion is based on current provisions of the Internal Revenue Code of
1986, as amended, referred to as the Code, current and proposed Treasury
regulations promulgated under the Code and administrative and judicial
interpretations of the Code, all as in effect today and all of which are subject
to change, possibly with a retroactive effect. This discussion does not address
all aspects of U.S. federal income taxation that may be relevant to any
particular U.S. holder based on the U.S. holder's particular circumstances, like
the tax treatment of U.S. holders who are broker-dealers or who own, directly,
indirectly or constructively, 10% or more of our outstanding voting shares, U.S.
holders holding the ordinary shares as part of a hedging, straddle or conversion
transaction, U.S. holders whose functional currency is not the U.S. dollar,
insurance companies, tax-exempt organizations, financial institutions and
persons subject to the alternative minimum tax, who may be subject to special
rules not discussed below. Additionally, the tax treatment of persons who hold
the ordinary shares through a partnership or other pass-through entity is not
considered, nor is the possible application of U.S. federal estate or gift taxes
or any aspect of state, local or non-U.S. tax laws.
YOU ARE ADVISED TO CONSULT YOUR TAX ADVISOR WITH RESPECT TO THE SPECIFIC U.S.
FEDERAL INCOME TAX CONSEQUENCES TO YOU OF PURCHASING, HOLDING OR DISPOSING OF
THE ORDINARY SHARES.
DISTRIBUTIONS ON THE ORDINARY SHARES
The amount of a distribution with respect to the ordinary shares will equal the
amount of cash and the fair market value of any property distributed and will
also include the amount of any Israeli taxes withheld as described below under
"Israeli Taxation-Taxation of Non-Residents on Receipt of Dividends." A
distribution paid by us with respect to the ordinary shares to a U.S. holder
will be treated as ordinary dividend income to the extent that the distribution
does not exceed our current and accumulated earnings and profits, as determined
for U.S. federal income tax purposes. The amount of any distribution which
exceeds these earnings and profits will be treated first as a non-taxable return
of capital, reducing the U.S. holder's tax basis in its ordinary shares to the
extent thereof, and then as capital gain from the deemed disposition of the
ordinary shares. Corporate holders will not be allowed a deduction for dividends
received in respect of the ordinary shares.
Dividends paid by us in NIS will be included in the income of U.S. holders at
the dollar amount of the dividend, based upon the spot rate of exchange in
effect on the date of the distribution. U.S. holders will have a tax basis in
the NIS for U.S. federal income tax purposes equal to that dollar value. Any
subsequent gain or loss in respect of the NIS arising from exchange rate
fluctuations will be taxable as ordinary income or loss and will be U.S. source
income or loss.
Subject to the limitations set forth in the Code and the Treasury regulations
thereunder, U.S. holders may elect to claim as a foreign tax credit against
their U.S. federal income tax liability the Israeli
54
<PAGE>
income tax withheld from dividends received in respect of the ordinary shares.
The limitations on claiming a foreign tax credit include, among others,
computation rules under which foreign tax credits allowable with respect to
specific classes of income cannot exceed the U.S. federal income taxes otherwise
payable with respect to each such class of income. In this regard, dividends
paid by us will be foreign source "passive income" for U.S. foreign tax credit
purposes or, in the case of a financial services entity, "financial services
income." U.S. holders that do not elect to claim a foreign tax credit may
instead claim a deduction for the Israeli income tax withheld. The rules
relating to foreign tax credits are complex, and you should consult your tax
advisor to determine whether and to what extent you would be entitled to this
credit.
DISPOSITION OF THE ORDINARY SHARES
Upon the sale or exchange of the ordinary shares, a U.S. holder will recognize
capital gain or loss in an amount equal to the difference between the amount
realized on the sale or exchange and the U.S. holder's tax basis in the ordinary
shares. The gain or loss recognized on the sale or exchange of the ordinary
shares will be long-term capital gain or loss if the U.S. holder held the
ordinary shares for more than one year at the time of the sale or exchange.
Gain or loss recognized by a U.S. holder on a sale, exchange or other
disposition of ordinary shares will be treated as U.S. source income or loss for
U.S. foreign tax credit purposes.
PASSIVE FOREIGN INVESTMENT COMPANIES
We will be a passive foreign investment company if either (1) 75% or more of our
gross income in a taxable year is passive income; or (2) 50% or more of the
value, determined on the basis of a quarterly average, of our assets in a
taxable year are held for the production of passive income. If we own (directly
or indirectly) at least 25% by value of the stock of another corporation, we
will be treated for purposes of the foregoing tests as owning our proportionate
share of the other corporation's assets and as directly earning our
proportionate share of the other corporation's income. If we are a passive
foreign investment company:
- A U.S. holder who has held our shares during more than one taxable year during
which we were a passive foreign investment company will be required to report
any gain on the disposition of the shares as ordinary income rather than
capital gain. That U.S. holder will also be required to compute the tax
liability on that gain, as well as on dividends and other distributions, as if
the income had been earned ratably over each day in the holding period of the
shareholder;
- A U.S. holder automatically will be subject to the highest ordinary income tax
rate for each taxable year during which we were a passive foreign investment
company and for which the items are treated as having been earned regardless
of the rate otherwise applicable to that U.S. holder during those taxable
years;
- The taxes attributable to the prior years will be increased by an interest
factor; and
- A U.S. holder who acquires our shares in that corporation from a decedent will
be denied the normally available step-up in tax basis to fair market value for
the shares at the date of death and instead will have a tax basis equal to the
decedent's tax basis.
STATUS OF CAMTEK AS A PASSIVE FOREIGN INVESTMENT COMPANY. We believe that
in 1999 we were not a passive foreign investment company and currently we expect
that we will not be a passive foreign investment company in 2000. However,
passive foreign investment company status is determined as of the end of the
taxable year and is dependent on a number of factors, including the value of a
corporation's assets and the amount and type of its gross income. Therefore,
there can be no assurance that we will not become a passive foreign investment
company for the current fiscal year ending December 31, 2000 or in a future
year.
We will notify U.S. holders in the event we conclude that we will be treated as
a passive foreign investment company for any taxable year to enable U.S. holders
to consider whether or not to elect to treat us as a "qualified electing fund"
for U.S. federal income tax purposes or to elect to "mark to
55
<PAGE>
market" the ordinary shares. If a U.S. holder makes one of these two elections,
distributions and gain will not be recognized ratably as ordinary income over
the U.S. holder's holding period or be subject to an interest charge as
described above. Further, gain on the sale of the ordinary shares will be
characterized as capital gain and the denial of basis step-up at death described
above will not apply. However, U.S. holders making one of the two elections may
be subject to current income recognition, even if we do not distribute any cash.
BOTH OF THESE ELECTIONS ARE SUBJECT TO A NUMBER OF SPECIFIC RULES AND
REQUIREMENTS, AND YOU ARE URGED TO CONSULT YOUR TAX ADVISOR CONCERNING THESE
ELECTIONS IF WE BECOME A PASSIVE FOREIGN INVESTMENT COMPANY.
BACKUP WITHHOLDING
A U.S. holder may be subject to backup withholding at rate of 31% with respect
to dividend payments and receipt of the proceeds from the disposition of the
ordinary shares. Backup withholding will not apply with respect to payments made
to exempt recipients, including corporations and tax-exempt organizations, or if
a U.S. holder provides a correct taxpayer identification number (or certifies
that he has applied for a taxpayer identification number), certifies that such
holder is not subject to backup withholding or otherwise establishes an
exemption. Backup withholding is not an additional tax and may be claimed as a
credit against the U.S. federal income tax liability of a U.S. holder, or
alternatively, the U.S. holder may be eligible for a refund of any excess
amounts withheld under the backup withholding rules, in either case, provided
that the required information is furnished to the Internal Revenue Service.
NON-U.S. HOLDERS OF ORDINARY SHARES
Except as provided below, a non-U.S. holder of ordinary shares except certain
former U.S. citizens and long-term residents of the United States will not be
subject to U.S. federal income or withholding tax on the receipt of dividends
on, and the proceeds from the disposition of, an ordinary share, unless that
item is effectively connected with the conduct by the non-U.S. holder of a trade
or business in the United States or, in the case of a resident of a country
which has an income tax treaty with the United States, that item is attributable
to a permanent establishment in the United States or, in the case of an
individual, a fixed place of business in the United States. In addition, gain
recognized by an individual non-U.S. holder will be subject to tax in the United
States if the non-U.S. holder is present in the United States for 183 days or
more in the taxable year of the sale and other conditions are met.
Non-U.S. holders will not be subject to information reporting or backup
withholding with respect to the payment of dividends on ordinary shares unless
the payment is made through a paying agent, or an office of a paying agent, in
the United States. Non-U.S. holders will be subject to information reporting
and, under regulations generally effective January 1, 2001, to backup
withholding at a rate of 31% with respect to the payment within the United
States of dividends on the ordinary shares unless the holder provides its
taxpayer identification number, certifies to its foreign status, or otherwise
establishes an exemption.
Non-U.S. holders will be subject to information reporting and backup withholding
at a rate of 31% on the receipt of the proceeds from the disposition of the
ordinary shares to, or through, the United States office of a broker, whether
domestic or foreign, unless the holder provides a taxpayer identification
number, certifies to its foreign status or otherwise establishes an exemption.
Non-U.S. holders will not be subject to information reporting or backup
withholding with respect to the receipt of proceeds from the disposition of the
ordinary shares by a foreign office of a broker; provided, however, that if the
broker is a U.S. person or a "U.S. related person," information reporting (but
not backup withholding) will apply unless the broker has documentary evidence in
its records of the non-U.S. holder's foreign status or the non-U.S. holder
certifies to its foreign status under penalties of perjury or otherwise
establishes an exemption. For this purpose, a "U.S. related person" is a broker
or other intermediary that maintains one or more enumerated U.S. relationships.
Backup withholding is not an additional tax and may be claimed as a credit
against the U.S. federal income tax liability of a U.S. holder, or
alternatively, the U.S. holder may be eligible for a refund of any excess
amounts withheld under the backup withholding rules, in either case, provided
that the required information is furnished to the Internal Revenue Service.
56
<PAGE>
ISRAELI TAXATION
The following summary describes the current tax structure applicable to
companies in Israel, with special reference to its effect on us. It also
discusses Israeli tax consequences material to persons purchasing our ordinary
shares. To the extent that the summary is based on new tax legislation yet to be
judicially or administratively interpreted, we cannot be sure that the views
expressed will accord with any future interpretation. The summary is not
intended, and should not be construed, as specific professional advice and does
not exhaust all possible tax considerations. Accordingly, you should consult
your tax advisor as to the particular tax consequences of an investment in our
ordinary shares.
POSSIBLE TAX REFORM
In May 2000, the Israeli government approved in principle a tax reform proposal
that would alter the taxation of individuals and reduce or eliminate some of the
benefits granted to an approved enterprise. Legislation will be required to
implement these changes and we are not certain whether legislation will be
enacted.
TAXATION OF CAMTEK
GENERAL CORPORATE TAX STRUCTURE
Most Israeli companies are subject to corporate tax at the rate of 36% of their
taxable income. In our case, the rate is currently effectively reduced, as set
forth below.
TAXATION UNDER INFLATIONARY CONDITIONS
The Income Tax Law (Inflationary Adjustments), 1985, or the "Inflationary
Adjustments Law," is intended to neutralize the erosion of capital investments
and to prevent tax benefits resulting from deduction of inflationary expenses.
This law applies a supplementary set of inflationary adjustments to the normal
taxable profits and losses computed under the regular cost principles. We are
subject to tax under this law.
Under the Inflationary Adjustments Law, income and loss for tax purposes are
adjusted for inflation on the basis of changes in the Israeli consumer price
index. In addition, subject to limitations regarding depreciation of fixed
assets and losses carried forward are adjusted for inflation on the basis of
changes in the Israeli consumer price index.
LAW FOR THE ENCOURAGEMENT OF CAPITAL INVESTMENTS, 1959
GeNeRAL. The Law for Encouragement of Capital Investments, 1959 provides that
capital investments in a production facility (or other eligible assets) may,
upon approval by 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 the financial scope of the
investment and by the physical characteristics of the facility or the asset. The
tax benefits from any such certificate of approval relate only to taxable
profits attributable to the specific Approved Enterprise. An Approved Enterprise
is entitled to benefits, including Israeli Government cash grants, which are
made available if it is located in a government designated development area, and
tax benefits. As discussed below, our production facilities have been granted
Approved Enterprise status.
TAX BENEFITS. Taxable income derived from an Approved Enterprise is subject
to a reduced corporate tax rate of 25% until the earlier of
- the end of the seven year period (or ten in the case of a Foreign Investment
Company as defined below) commencing in the year in which the Approved
Enterprise first generates taxable income;
57
<PAGE>
- the end of the 12-year period from commencement of production; or
- the end of the 14-year period from the date of approval of the Approved
Enterprise status.
That income is eligible for further reductions in tax rates if the company
qualifies as a Foreign Investors' Company, or Foreign Investment Company,
depending on the percentage of the foreign ownership of its equity. 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 loan
capital is owned by non-Israeli residents. The tax rate is reduced to 20% if the
foreign ownership of the foreign investment company is 49% or more but less than
74%; 15% if the foreign ownership of the foreign investment company is 74% or
more but less than 90%; and 10% if the foreign ownership of the foreign
investment company is 90% or more. The determination of foreign ownership is
made on the basis of the lowest level of foreign ownership during the tax year.
If the tax reform recommendations are adopted, a foreign investor's company
would no longer be entitled to preferential tax treatment.
In the event that a company is operating under more than one approval, or that
not all of its capital investments are approved, its effective corporate tax
rate is the result of a weighted combination of the various applicable rates.
A company may elect to forego entitlement to the grants otherwise available
under the Investment Law and, in lieu thereof, participate in an alternative
benefits program, referred to as the Alternative Benefits Program, under which
the undistributed income from the Approved Enterprise is fully exempt from
corporate tax for a period of between two and ten years, depending upon the
location within Israel and the type of the Approved Enterprise. Upon expiration
of the exemption period, the Approved Enterprise is eligible for beneficial tax
rates under the Investment Law for the remainder, if any, of the otherwise
applicable benefits period. We participate in the Alternative Benefits Program.
There can be no assurance that this benefit program will continue to be
available or that we will continue to qualify for benefits under the current
program. Furthermore, if the tax reform recommendations are adopted, the tax
exemption would be cancelled and a corporate tax rate of 10% would apply during
the exemption periods described above.
Dividends paid by a company that owns an Approved Enterprise and that are
attributable to income derived from that Approved Enterprise during the
applicable benefits period, are taxed at a reduced rate of 15%, if the dividends
are paid during the benefit period or no more than twelve years thereafter; or,
if the Company qualifies as a foreign investment company without any time
limitations. This tax must be withheld at source by the company paying the
dividend. A dividend paid from income derived from an enterprise owned by a
company that has elected the Alternative Benefits Program during the period in
which it is exempt from tax is also subject to tax at a 15% rate but causes the
company to be liable for corporate tax on the amount distributed which for this
purpose includes the amount of the corporate tax at the rate that would have
been applicable had the company not elected the Alternative Benefits Program of
up to 25%.
Our production facilities have been granted Approved Enterprise status under the
Investment Law. We participate in the Alternative Benefits Program and,
accordingly, income from our first Approved Enterprise will be tax exempt for 10
years due to the fact that we operate in "Zone A". This tax exempt status
commences in the year in which our Approved Enterprise first generates taxable
income. The period of benefits expired in December 1999 for our first Approved
Enterprise and will expire in 2008 for our second.
Since we participate in the Alternative Benefits Program, in the event we
distribute a cash dividend from income that is tax exempt, as described above,
we would have to pay corporate tax at the rate of up to 25% on an amount equal
to the amount distributed and the corporate tax thereon.
The benefits available to an Approved Enterprise are conditioned upon terms
stipulated in the Investment Law and the regulations thereunder and the criteria
set forth in the applicable certificate of
58
<PAGE>
approval. These conditions include the filing of periodic reports and a
requirement that minimum proportions of our paid-up capital be 30% of our fixed
assets. In the event that we do not fulfill these conditions in whole or in
part, the benefits can be canceled and we may be required to refund the amount
of the benefits, with the addition of the Israeli consumer price index linkage
differences and interest. We believe that our Approved Enterprises currently
operate in compliance with all applicable conditions and criteria, but there can
be no assurance that they will continue to do so.
LAW FOR THE ENCOURAGEMENT OF INDUSTRY (TAXES), 1969
We believe that we currently qualify as an "Industrial Company" within the
meaning of the Law for the Encouragement of Industry (Taxes), 1969, or the
Industry Encouragement Law. According to the Industry Encouragement Law, an
"Industrial Company" is a company resident in Israel, 90% or more of the income
of which in any tax year, other than of income from defense loans, capital
gains, interest and dividends, is derived from an "Industrial Enterprise" owned
by it. An "Industrial Enterprise" is defined as an enterprise whose major
activity in a given tax year is industrial production.
The following corporate tax benefits are available to Industrial Companies:
- amortization of the cost of purchased know-how and patents over an eight-year
period for tax purposes;
- amortization of expenses incurred in some cases in connection with a public
issuance of securities over a three-year period;
- an election to file consolidated tax returns with additional related Israeli
Industrial Companies; and
- accelerated depreciation rates on equipment and buildings.
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 qualify or will continue to qualify as an "Industrial Company"
or that the benefits described above will be available in the future. See
note 16 to the consolidated financial statements.
LAW FOR THE ENCOURAGEMENT OF INDUSTRIAL RESEARCH AND DEVELOPMENT, 1984
Under the Law for the Encouragement of Industrial Research and Development,
1984, research and development programs approved by a governmental committee of
the Office of the Chief Scientist are eligible for grants, in exchange for
payment of royalties from revenues generated by the products developed in
accordance with the program. Once a project is approved, the Office of the Chief
Scientist will award grants up to 50% of the project's cost, in exchange for
royalties at a rate of 2% to 6%, depending on the date of approval of the
project, of the proceeds from the sales of the products that are developed from
projects funded by the Office of the Chief Scientist. These royalties must be
paid beginning with the commencement of sales of those products and ending when
100% of the dollar value of the grant was repaid or, for projects approved after
January 1, 1999, the dollar amount of the grant plus interest at the rate of
LIBOR for dollar deposits in a twelve-month period.
The terms of this Israeli governmental participation also require that the
products developed with government grants be manufactured in Israel, unless the
Office of the Chief Scientist in its discretion consents to manufacturing
abroad. However, in the event that any of the manufacturing rights are
transferred out of Israel, if approved by the Office of the Chief Scientist, we
may be required to pay royalties at a higher rate and be liable to an increased
aggregate pay back amount in proportion to manufacturing performed outside of
Israel, up to a maximum of 300% of the dollar amount of the grant, or of the
dollar amount plus interest, as applicable. The technology developed pursuant to
the terms of these grants may not be transferred to third parties without the
prior approval of a governmental committee. This approval is not required for
the export of any products resulting from
59
<PAGE>
that research development. Approval of the transfer of technology may be granted
only if the recipient abides by all of the provisions of the research law and
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. There can be no assurance that this consent, if requested, will be
granted.
Each application to the Office of the Chief Scientist is reviewed separately,
and grants are based on the program approved by the research committee of the
Office of the Chief Scientist. Expenditures supported under other incentive
programs of the State of Israel are not eligible for Office of the Chief
Scientist grants. As a result, there is no assurance that applications to the
Office of the Chief Scientist will be approved and, if approved, what will be
the amounts of the grants. There can be no assurance that the grants awarded
under the research law will not be reduced or terminated. In addition, the
Israeli authorities have indicated that the government may reduce or abolish
Office of the Chief Scientist grants in the future.
As of March 31, 2000, the maximum royalty payable by us on future sales was
approximately $2.6 million. Our annual repayments were $629,000 in 1997,
$813,000 in 1998, $956,000 in 1999 and $421,000 in the three months ended
March 31, 2000.
TAXATION OF SHAREHOLDERS
CAPITAL GAINS TAX
Israeli law imposes a capital gains tax on the sale of capital assets. The law
distinguishes between the "Real Gain" and the "Inflationary Surplus." The Real
Gain is the difference between the total capital gain and the Inflationary
Surplus. The Inflationary Surplus is computed on the basis of the difference
between the Israeli consumer price index in the month of sale and the month of
purchase. The Inflationary Surplus accumulated until December 31, 1993 is taxed
at a rate of 10% for Israeli residents. The tax rate used for the Inflationary
Surplus is reduced to zero for nonresidents if calculated according to the
exchange rate of the foreign currency lawfully invested in shares of the Israeli
resident company, instead of the Israeli consumer price index. The Real Gain is
added to ordinary income, and is taxed at ordinary rates of up to 50% for
individuals and 36% for corporations. Inflationary Surplus accumulated from and
after December 31, 1993 is exempt from capital gains tax. Under current law,
sales of the ordinary shares offered by this Prospectus are exempt from Israeli
capital gains tax so long as the ordinary shares are listed on the Nasdaq
National Market or on another stock exchange recognized by the Israeli Ministry
of Finance and so long as we qualify as an Industrial Company or industrial
holding company. There can be no assurance that we will maintain this listing or
qualification. See "Law for Encouragement of Industry (Taxes), 1969." The
foregoing exemption does not apply to the sales of our ordinary shares by
dealers in securities in Israel or by companies subject to the Inflationary
Adjustments Law. If the tax reform recommendations are adopted, sales of
securities traded on stock exchanges will be subject to capital gains tax at the
rate of up to 25% of the real gain for individuals and 36% of the real gain for
companies.
APPLICATION OF THE U.S.-ISRAEL TAX TREATY TO CAPITAL GAINS TAX
Subject to the U.S.-Israel Tax Treaty, the sale, exchange or disposition of the
ordinary shares by a person who qualifies as a resident of the United States and
who is entitled to claim the benefits afforded to that resident, which is called
a Treaty U.S. Resident, will not be subject to Israeli capital gains tax unless
that Treaty U.S. Resident held, directly or indirectly, shares representing 10%
or more of our voting power during any part of the 12-month period preceding the
sale, exchange or disposition. A sale, exchange or disposition of the ordinary
shares by a Treaty U.S. Resident who held, directly or indirectly, shares
representing 10% or more of our voting power at any time during the 12-month
period preceding the sale, exchange or disposition will be subject to Israeli
capital gains tax, to the extent applicable. However, under the U.S.-Israel Tax
Treaty, this Treaty U.S. Resident would be
60
<PAGE>
permitted to claim credit for these taxes against U.S. income tax imposed with
respect to such sale, exchange or disposition, subject to the limitations set in
U.S. laws applicable to foreign tax credits.
TAXATION OF NON-RESIDENTS ON RECEIPT OF DIVIDENDS
Nonresidents of Israel will be subject to Israeli income tax on the receipt of
dividends paid on the ordinary shares at the rate of 25%, which tax will be
withheld at source, unless the dividends are paid from income derived from an
approved enterprise during the applicable benefit period, or a different rate is
provided in a treaty between Israel and the shareholder's country of residence.
Under the U.S.-Israel Tax Treaty, the maximum tax on dividends paid to a holder
of the ordinary shares who is a Treaty U.S. Resident will be 25%. However, when
dividends are paid from income derived during any period for which the Israeli
company is not entitled to the reduced tax rate applicable to an approved
enterprise under Israel's Law for the Encouragement of Capital Investments,
1959, the maximum tax will be 12.5% if the holder is a company holding shares
representing 10% or more of the voting power during the part of the taxable year
preceding the date of payment of dividends and during the whole of its prior
taxable year, if any. When dividends are paid from income derived during any
period for which the Israeli company is entitled to the reduced tax rate
applicable to an approved enterprise, then the tax will be 15%.
FOREIGN EXCHANGE REGULATIONS
Nonresidents of Israel who purchase the shares offered hereby may exchange any
NIS received as dividends, if any, thereon, and any amounts payable upon the
dissolution, liquidation or winding up of our affairs, as well as the proceeds
of any sale in Israel of the ordinary shares to an Israeli resident, into freely
repatriable dollars, at the rate of exchange prevailing at the time of exchange,
pursuant to regulations issued under the Currency Control Law, 1978, provided
that Israeli income tax has been withheld with respect to amounts that are being
repatriated to the extent applicable or an exemption has been obtained.
Israeli residents are eligible, subject to reporting requirements, to purchase
securities in foreign currencies and will be eligible to purchase the ordinary
shares offered hereby.
The proceeds of a public offering outside Israel may be retained outside Israel.
61
<PAGE>
CONDITIONS IN ISRAEL
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 and 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. As of the date hereof, Israel has
not entered into any peace agreement with Syria and Lebanon. There can be no
assurance 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 do not believe that the boycott
has had a material adverse effect on us, but we cannot be certain that
restrictive laws, policies or practices directed towards Israel or Israeli
businesses will not have an adverse impact on the expansion of our business.
Generally, all male adult citizens and permanent residents of Israel under the
age of 50 are, unless exempt, obligated to perform up to 39 days of military
reserve duty annually. Additionally, all such residents are subject to being
called to active duty at any time under emergency circumstances. Some of our
officers and employees are currently 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 those
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
those obligations.
TRADE AGREEMENTS
Israel is a member of the United Nations, the International Monetary Fund, the
International Bank for Reconstruction and Development and the International
Finance Corporation. Israel is a signatory to the General Agreement on Tariffs
and Trade, which provides for the reciprocal lowering of trade barriers among
its members. In addition, Israel has been granted preferences under the
Generalized System of Preferences from the United States, Canada and Japan.
These preferences allow Israel to export the products covered by this program
either duty-free or at reduced tariffs. Israel has entered into preferential
trade agreements with the European Union, the United States and the European
Free Trade Association. In recent years, Israel has established commercial and
trade relations with a number of the other nations, including Russia, China and
India, with which Israel had not previously had relations.
62
<PAGE>
UNDERWRITING
We have entered into an underwriting agreement with the underwriters named
below. CIBC World Markets Corp., UBS Warburg LLC and Needham & Company, Inc. are
acting as representatives of the underwriters.
The underwriting agreement provides for the purchase of a specific number of
ordinary shares by each of the underwriters. The underwriters' obligations are
several, which means that each underwriter is required to purchase a specified
number of shares, but is not responsible for the commitment of any other
underwriter to purchase shares. Subject to the terms and conditions of the
underwriting agreement, each underwriter has severally agreed to purchase the
number of shares set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
ORDINARY
UNDERWRITERS SHARES
------------ ---------
<S> <C>
CIBC World Markets Corp.....................................
UBS Warburg LLC.............................................
Needham & Company, Inc......................................
---------
Total................................................. 5,600,000
=========
</TABLE>
This is a firm commitment underwriting. This means that the underwriters have
agreed to purchase all of the shares offered by this prospectus (other than
those covered by the over-allotment option described below) if any are
purchased. Under the underwriting agreement, if an underwriter defaults in its
commitment to purchase shares, the commitments of the non-defaulting
underwriters may be increased or the underwriting agreement may be terminated,
depending on the circumstances.
The underwriters are offering the shares subject to various conditions and may
reject all or part of any order. The shares should be ready for delivery on or
about , 2000 against payment in immediately available funds.
The representatives have advised us that the underwriters propose to offer the
shares directly to the public at the public offering price that appears on the
cover page of this prospectus. In addition, the representatives may offer some
of the shares to securities dealers at a price less a concession of $ per
share. The underwriters may also allow, and the dealers may reallow, a
concession not in excess of $ per share to other dealers. After the shares are
released for sale to the public, the representatives may change the offering
price and other selling terms from time to time.
We have granted the underwriters an over-allotment option. This option is
exercisable for up to 30 days after the date of this prospectus and permits the
underwriters to purchase a maximum of 840,000 additional shares to cover
over-allotments. If the underwriters exercise all or part of this option, they
will purchase shares covered by the option at the initial public offering price
that appears on the cover page of this prospectus, less the underwriting
discount. If this option is exercised in full, the total price to the public
will be $ and the total proceeds to Camtek will be $ . The
underwriters have severally agreed that, to the extent the over-allotment option
is exercised, they will each purchase a number of additional shares
proportionate to the underwriter's initial amount reflected in the foregoing
table.
63
<PAGE>
The following table provides information regarding the amount of the discount we
will pay to the underwriters:
<TABLE>
<CAPTION>
TOTAL WITHOUT TOTAL WITH FULL
EXERCISE OF EXERCISE OF
PER OVER-ALLOTMENT OVER-ALLOTMENT
SHARE OPTION OPTION
-------- -------------- ---------------
<S> <C> <C> <C>
Camtek.................................................... $
</TABLE>
We estimate that the total expenses of the offering, excluding the underwriting
discount, will be approximately $ .
We have agreed to indemnify the underwriters against some liabilities, including
liabilities under the Securities Act of 1933.
We, along with our officers, directors, PCB and all other shareholders have
agreed to a 180-day "lock-up" with respect to the shares and other securities
that we and they beneficially own, including securities that are convertible
into ordinary shares and securities that are exchangeable or exercisable for
ordinary shares. This means that, for a period of 180 days following the date of
this prospectus, subject to some exceptions, we and those persons may not offer,
sell, pledge or otherwise dispose of these securities without the prior written
consent of CIBC World Markets Corp. or except in connection with issuance and
sale of shares in this offering and the issuance of shares pursuant to our
existing employee share plans.
The representatives have informed us that they do not expect discretionary sales
by the underwriters to exceed five percent of the shares offered by this
prospectus.
There is no established trading market for the shares. The offering price for
the shares will be determined by the representatives and us, based on the
following factors:
- the history of and the prospects for the industry in which we compete;
- our management;
- our past and present operations;
- our historical results of operations;
- our prospects for future earnings and business potential;
- the general condition of the securities markets at the time of this offering;
- the recent market prices of securities of generally comparable companies;
- the market capitalizations and stages of development of other companies which
we and the representatives believe to be comparable us; and
- other factors deemed to be relevant.
Rules of the Securities and Exchange Commission may limit the ability of the
underwriters to bid for or purchase shares before the distribution of the shares
is completed. However, the underwriters may engage in the following activities
in accordance with the rules:
- Stabilizing transactions--The representatives may make bids or purchases for
the purpose of pegging, fixing or maintaining the price of the shares so long
as stabilizing bids do not exceed a specified maximum.
- Over-allotments and syndicate covering transactions--The underwriters may sell
more shares of our common stock in connection with this offering than the
number of shares that they have committed to purchase. This over-allotment
creates a short position for the underwriters. This short sales
64
<PAGE>
position may involve either "covered" short sales or "naked" short sales.
Covered short sales are short sales made in an amount not greater than the
underwriters' over-allotment option to purchase additional shares in this
offering described above. The underwriters may close out any covered short
position either by exercising their over-allotment option or by purchasing
shares in the open market. To determine how they will close the covered short
position, the underwriters will consider, among other things, the price of
shares available for purchase in the open market, as compared to the price at
which they may purchase shares through the over-allotment option. Naked short
sales are short sales in excess of the over-allotment option. The underwriters
must close out any naked short position by purchasing shares in the open
market. A naked short position is more likely to be created if the
underwriters are concerned that, in the open market after pricing, there may
be a downward pressure on the price of the shares that could adversely affect
investors who purchase shares in this offering.
- Penalty bids--If the representatives purchase shares in the open market in a
stabilizing transaction or syndicate covering transaction, they may reclaim a
selling concession from the underwriters and selling group members who sold
those shares as part of this offering.
Similar to other purchase transactions, the underwriters' purchases to cover the
syndicate short sales or to stabilize the market price of our common stock may
have the effect of raising or maintaining the market price of our common stock
or preventing or mitigating a decline in the market price of our common stock.
As a result, the price of the shares of our common stock may be higher than the
price that might otherwise exist in the open market. The imposition of a penalty
bid might also have an effect on the price of the shares if it discourages
resales of the shares.
Stabilization and syndicate covering transactions may cause the price of the
shares to be higher than it would be in the absence of those transactions. The
imposition of a penalty bid might also have an effect on the price of the shares
if it discourages resales of the shares.
Neither the underwriters nor we make any representation or prediction as to the
effect that the transactions described above may have on the price of the
shares. These transactions may occur on the Nasdaq National Market or otherwise.
If those transactions are commenced, they may be discontinued without notice at
any time.
At our request, the representatives have reserved up to 280,000 shares, or 5% of
our ordinary shares offered by this prospectus, for sale pursuant to a directed
share program to our employees, affiliates and to family members of the
Company's executives. All the persons purchasing the reserved shares must commit
to purchase no later than the close of business following the date of this
prospectus. The number of shares available for sale to the general public will
be reduced to the extent that these persons purchase the reserved shares.
LEGAL MATTERS
The validity of the issuance of the ordinary shares being offered hereby and
legal matters under Israeli law in connection with the offering will be passed
upon for us by Shiboleth, Yisraeli, Roberts, Zisman & Co., Tel-Aviv, Israel, our
Israeli counsel, and for the underwriters by Fischer, Behar, Chen & Co. In
addition, matters with respect to United States law will be passed upon for us
by Brobeck, Phleger & Harrison LLP, New York, New York, and for the underwriters
Skadden, Arps, Slate, Meagher & Flom LLP. As to matters of Israeli law, Brobeck,
Phleger & Harrison LLP. will rely upon the opinion of Shiboleth, Yisraeli,
Roberts, Zisman & Co. As to matters of U.S. law, Shiboleth, Yisraeli, Roberts,
Zisman & Co. will rely upon the opinion of Brobeck, Phleger & Harrison LLP.
65
<PAGE>
EXPERTS
Our consolidated financial statements included in this prospectus have been
audited by Goldstein Sabo Tevet, independent public accountants in Israel, and
Richard A. Eisner & Company, L.L.P., a member of Summit International
Associates, Inc., independent auditors, for the periods indicated in their
reports thereon. These consolidated financial statements are set forth in
reliance upon the reports of these firms given upon the authority of these firms
as experts in accounting and auditing.
ENFORCEABILITY OF CIVIL LIABILITIES
We are incorporated in Israel, most of our directors and executive officers and
the Israeli experts named herein are not residents of the United States and
substantially all of their assets and our assets are located outside the United
States. Service of process upon our non-U.S. resident directors and executive
officers or the Israeli experts named herein and enforcement of judgments
obtained in the United States against us, our directors and executive officers,
or the Israeli experts named in this prospectus, may be difficult to obtain
within the United States. Camtek USA, Inc., is the U.S. agent authorized to
receive service of process in any action against us in any federal court located
in the City of New York or court of the state of New York arising out of the
offering made hereby or any purchase or sale of securities in connection with
this prospectus. We have not given consent for this agent to accept service of
process in connection with any other claim.
We have been informed by our legal counsel in Israel, Shiboleth, Yisraeli,
Roberts, Zisman & Co., that there is doubt as to the enforceability of civil
liabilities under the Securities Act or the Exchange Act, in original actions
instituted in Israel. However, subject to certain time limitations, an Israeli
court may declare a foreign civil judgment enforceable if it finds that
- the judgment was rendered by a court which was, according to the laws of the
state of the court, competent to render the judgment,
- the judgment is no longer appealable,
- the obligation imposed by the judgment is enforceable according to the rules
relating to the enforceability of judgments in Israel and the substance of the
judgment is not contrary to public policy, and
- the judgment can be executed in the state in which it was given.
A foreign judgment will not be declared enforceable if it was given in a state
whose laws do not provide for the enforcement of judgments of Israeli courts
(subject to exceptional cases) or if its enforcement is likely to prejudice the
sovereignty or security of the State of Israel. An Israeli court also will not
declare a foreign Judgment enforceable if it is proved to the Israeli court that
- the judgment was obtained by fraud,
- there was no due process,
- the judgment was rendered by a court not competent to render it according to
the laws of private international law in Israel,
- the judgment is at variance with another judgment that was given in the same
matter between the same parties and which is still valid, or
- at the time the action was brought in the foreign court a suit in the same
matter and between the same parties was pending before a court or tribunal in
Israel.
66
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form F-1 with the Securities and
Exchange Commission in connection with this offering. You may read and copy the
registration statement and any other documents we file at the Securities and
Exchange Commission's Public Reference Room at 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549 or at the regional offices of the Securities and
Exchange Commission located at CitiCorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661, and Seven World Trade Center, 13th Floor, New
York, New York 10048.
This prospectus is part of the registration statement and does not contain all
of the information included in the registration statement. All descriptions in
this prospectus of any of our contracts or other documents include all material
information regarding those documents. You may also refer to the exhibits that
are a part of the registration statement for a copy of the contract or document.
After the offering, we will become subject to the informational reporting
requirements of the Exchange Act. We, as a "foreign private issuer," are exempt
from the rules under the Exchange Act prescribing disclosure and procedural
requirements for proxy solicitations and our officers, directors and principal
shareholders are exempt from the reporting and "short-swing" profit recovery
provisions contained in Section 16 of the Exchange Act, with respect to their
purchases and sales of ordinary shares. In addition, we are not required to file
annual, quarterly and current reports and financial statements with the
Securities and Exchange Commission as frequently or as promptly as U.S.
companies whose securities are registered under the Exchange Act. However, we
intend to file with the Securities and Exchange Commission, within 180 days
after the end of each fiscal year, an annual report on Form 20-F containing
financial statements that will be examined and reported on, with an opinion
expressed, by an independent accounting firm, as well as quarterly reports on
Form 6-K containing unaudited financial information for the first three quarters
of each fiscal year, within 60 days after the end of each such quarter.
We have received an exemption from the Israel Securities Authority from the
reporting obligations as specified in Chapter Six of the Israel Securities Law
5728-1968, which include the obligation to submit periodic and immediate reports
to the authority, provided that a copy of each report submitted in accordance
with applicable United States law shall be available for public review at our
office in Israel.
67
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Independent auditors' reports............................... F-2
Consolidated balance sheets as of December 31, 1998,
December 31, 1999 and March 31, 2000 (unaudited).......... F-3
Consolidated statements of operations for the years ended
December 31, 1997, 1998 and 1999 and the three months
ended March 31, 1999 (unaudited) and 2000 (unaudited)..... F-4
Statements of changes in shareholders' equity for the years
ended December 31, 1997, 1998 and 1999 and the three
months ended March 31, 2000 (unaudited)................... F-5
Consolidated statements of cash flows for the years ended
December 31, 1997, 1998 and 1999 and the three months
ended March 31, 1999 (unaudited) and 2000 (unaudited)..... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
Camtek Ltd.
Migdal Haemek, Israel
We have audited the accompanying consolidated balance sheets of Camtek Ltd. and
subsidiaries as of December 31, 1998 and 1999, and the related consolidated
statements of operations, changes in shareholders' equity (capital deficiency)
and cash flows for each of the three years in the period ended December 31,
1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in Israel and in the United States (such auditing standards are substantially
identical). 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Camtek Ltd. and
subsidiaries as of December 31, 1998 and 1999, and the consolidated results of
their operations and their consolidated cash flows for each of the three years
in the period ended December 31, 1999 in conformity with accounting principles
generally accepted in Israel and in the United States (as applicable to these
financial statements, such accounting principles do not differ in any material
respects).
<TABLE>
<S> <C>
Richard A. Eisner & Company, LLP Goldstein Sabo Tevet
Certified Public Accountants (Isr.)
New York, New York Tel-Aviv, Israel
February 11, 2000, except for Note 12(A) as
to which the date is July 11, 2000
</TABLE>
F-2
<PAGE>
CAMTEK LTD.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1998 1999 2000
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 328 $ 538 $ 1,647
Accounts receivable--trade (net of allowance of $524, $551
and $477)............................................... 6,011 6,588 8,234
Inventories............................................... 3,432 6,574 8,395
Other current assets...................................... 708 1,161 1,673
------- ------- -------
Total current assets.................................... 10,479 14,861 19,949
Fixed assets, net........................................... 1,493 2,555 2,887
Intangibles, net............................................ 435 255 210
Deferred registration costs................................. 508 942 1,388
------- ------- -------
$12,915 $18,613 $24,434
======= ======= =======
LIABILITIES
Current liabilities:
Short-term bank credit.................................... $ 3,095 $ 6,794 $ 8,997
Accounts payable.......................................... 1,127 2,211 4,817
Due to PCB Ltd............................................ 3,759 1,685 925
Due to affiliates......................................... 206 716 355
Other current liabilities................................. 2,280 3,759 4,179
------- ------- -------
Total current liabilities............................... 10,467 15,165 19,273
Accrued severance pay, net of amounts funded................ 28 59 45
------- ------- -------
10,495 15,224 19,318
Commitments and contingent liabilities (Note 9)
SHAREHOLDERS' EQUITY
Ordinary shares NIS 0.01 par value, authorized 100,000,000
shares, outstanding 15,020,002 shares in 1998 and
16,261,002 shares in 1999 and 2000........................ 95 98 98
Additional paid-in capital.................................. 994 1,240 1,240
Unearned portion of compensatory stock options.............. (203) (108) (92)
Retained earnings........................................... 1,534 2,159 3,870
------- ------- -------
2,420 3,389 5,116
------- ------- -------
$12,915 $18,613 $24,434
======= ======= =======
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-3
<PAGE>
CAMTEK LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues........................................ $15,733 $20,343 $23,892 $4,417 $10,517
Cost of revenues................................ 6,602 10,095 12,159 2,096 4,867
------- ------- ------- ------ -------
Gross profit.................................... 9,131 10,248 11,733 2,321 5,650
------- ------- ------- ------ -------
Research and development costs:
Expenses...................................... 2,138 3,503 4,307 946 1,455
Less royalty-bearing participations from the
Government of Israel........................ 565 1,177 1,888 516
------- ------- ------- ------ -------
Research and development costs, net........... 1,573 2,326 2,419 946 939
------- ------- ------- ------ -------
Selling, general and administrative expenses.... 5,429 6,848 7,827 1,809 2,154
------- ------- ------- ------ -------
Operating income (loss)......................... 2,129 1,074 1,487 (434) 2,557
Financial and other (expenses) income, net...... (137) 241 (862) (467) (605)
------- ------- ------- ------ -------
INCOME (LOSS) BEFORE INCOME TAXES............... 1,992 1,315 625 (901) 1,952
Provision for income taxes...................... 241
------- ------- ------- ------ -------
NET INCOME (LOSS)............................... $ 1,992 $ 1,315 $ 625 $ (901) $ 1,711
======= ======= ======= ====== =======
EARNINGS (LOSS) PER ORDINARY SHARE:
BASIC......................................... $ 0.13 $ 0.09 $ 0.04 $(0.06) $ 0.11
======= ======= ======= ====== =======
DILUTED....................................... $ 0.12 $ 0.08 $ 0.04 $(0.06) $ 0.10
======= ======= ======= ====== =======
WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES
OUTSTANDING:
BASIC......................................... 15,020 15,020 15,226 15,020 16,261
======= ======= ======= ====== =======
DILUTED....................................... 16,130 16,494 16,422 15,020 16,830
======= ======= ======= ====== =======
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-4
<PAGE>
CAMTEK LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (CAPITAL DEFICIENCY)
(in thousands)
<TABLE>
<CAPTION>
ORDINARY A ORDINARY B
------------------- -------------------
NIS 0.01 PAR NIS 25 PAR UNEARNED RETAINED
VALUE VALUE ADDITIONAL PORTION OF EARNINGS
------------------- ------------------- PAID-IN COMPENSATORY (ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCK OPTIONS DEFICIT) TOTAL
-------- -------- -------- -------- ---------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE--JANUARY 1, 1997...... 20 6 $ 95 $ 635 $ (1,773) $ (1,043)
Exchange of ordinary B shares
for ordinary A shares....... 15,000 $ 95 (6) (95)
Issuance of options to
employees................... 170 $ (170)
Amortization of share
options..................... 14 14
Capital contribution by PCB
Ltd......................... 70 70
Net income.................... 1,992 1,992
------ ---- -- ---- ------- -------- --------- ---------
BALANCE--DECEMBER 31, 1997.... 15,020 95 875 (156) 219 1,033
Issuance of options to
employees................... 119 (119)
Amortization of share
options..................... 72 72
Net income.................... 1,315 1,315
------ ---- -- ---- ------- -------- --------- ---------
BALANCE--DECEMBER 31, 1998.... 15,020 95 994 (203) 1,534 2,420
Cancellation of share
options..................... (25) 25
Amortization of share
options..................... 70 70
Exercise of share options..... 1,241 3 271 274
Net income.................... 625 625
------ ---- -- ---- ------- -------- --------- ---------
BALANCE--DECEMBER 31, 1999.... 16,261 98 1,240 (108) 2,159 3,389
------ ---- -- ---- ------- -------- --------- ---------
Amortization of shares
options..................... 16 16
Net income.................... 1,711 1,711
------ ---- -- ---- ------- -------- --------- ---------
BALANCE--MARCH 31, 2000
(UNAUDITED)................. 16,261 $ 98 $ $ 1,240 $ (92) $ 3,870 $ 5,116
====== ==== == ==== ======= ======== ========= =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-5
<PAGE>
CAMTEK LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................. $1,992 $1,315 $ 625 $ (901) $1,711
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization.................. 332 429 474 116 128
(Gain) loss on disposal of fixed assets........ (8) 1 18 2 (1)
Compensation related to share options.......... 14 72 70 18 16
Changes in:
Accounts receivable.......................... (769) (2,294) (577) 1,091 (1,646)
Inventories.................................. (1,636) 45 (3,142) (1,229) (1,821)
Other current assets......................... (556) 164 (453) (136) (424)
Accounts payable............................. 1,709 (1,214) 1,084 974 2,606
Accrued severance pay........................ (2) 31 (17) (14)
Other current liabilities.................... 1,207 872 1,479 (32) 332
------ ------ ------ ------ ------
Net cash provided by (used in)
operating activities..................... 2,283 (610) (391) (114) 887
------ ------ ------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets........................... (338) (735) (1,421) (224) (417)
Proceeds from disposal of fixed assets............. 23 27 47 14 3
------ ------ ------ ------ ------
Net cash used in investing activities...... (315) (708) (1,374) (210) (414)
------ ------ ------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term bank credit...... (333) 2,008 3,699 662 2,203
Decrease in due to PCB Ltd. and affiliates......... (1,345) (420) (1,564) 651 (1,121)
Exercise of share options.......................... 274
Payments for deferred registration costs........... (508) (434) (127) (446)
------ ------ ------ ------ ------
Net cash (used in) provided by
financing activities..................... (1,678) 1,080 1,975 1,186 636
------ ------ ------ ------ ------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................................ 290 (238) 210 862 1,109
Cash and cash equivalents at beginning of period..... 276 566 328 328 538
------ ------ ------ ------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........... $ 566 $ 328 $ 538 $1,190 $1,647
====== ====== ====== ====== ======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Interest......................................... $ 207 $ 296 $ 647 $ 112 $ 299
Noncash transactions:
Debt payable to PCB Ltd. converted into one
ordinary share................................. $ 70
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-6
<PAGE>
CAMTEK LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1999
(unaudited with respect to March 31, 2000 and
for the three-month periods ended March 31, 1999 and 2000)
(in thousands)
NOTE 1--GENERAL
Camtek Ltd. ("Camtek"), which was incorporated in Israel, is a majority owned
(92.4%) subsidiary of PCB Ltd., an Israeli company that is listed on the
Tel-Aviv Stock Exchange. Camtek designs, develops, manufactures and markets
automated optical inspection ("AOI") systems and related products used to detect
defects in printed circuit boards during the manufacturing process.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
(A) BASIS OF PREPARATION:
The consolidated financial statements include the accounts of Camtek Ltd.
and its subsidiaries, (collectively the "Company"), the principal subsidiary
being Camtek USA, Inc. which was formed in 1997 and is located and sells AOI
systems in the United States. All material intercompany balances and
transactions have been eliminated.
The consolidated financial statements are prepared in accordance with
accounting principles generally accepted in Israel and in the United States
(as applicable to these financial statements, such accounting principles do
not differ in any material respects).
PCB Ltd. acquired 66 2/3% of Camtek's outstanding shares from a third party
in 1992 and purchased the remaining outstanding shares of Camtek in 1996.
PCB Ltd.'s cost of acquiring Camtek's shares were used to establish a new
accounting basis in Camtek's financial statements and accordingly, the
excess of PCB Ltd.'s cost over the underlying book value related to shares
acquired was recorded as an intangible asset with a corresponding credit to
additional paid-in capital (see Note 2(H)).
(B) 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 revenue and expense during the
reporting period. Actual results may differ from those estimates.
(C) FOREIGN CURRENCY TRANSACTIONS:
The functional currency of the Company is the U.S. dollar. Substantially all
revenues generated by the Company are from outside Israel and a majority
thereof are received in U.S. dollars. In addition, most materials and
components purchased and marketing expenses incurred are either paid for in
U.S. dollars or in New Israeli Shekels ("NIS") where cost is linked to
changes in the dollar/NIS exchange rate. A significant portion of the
Company's expenses are incurred in Israel and paid for in NIS. Foreign
currency gains and losses included in financial and other (expenses) income,
net resulting from transactions not denominated in U.S. dollars were not
material in 1997 and 1998 and amounted to a loss of $155, $327 and $313 in
the year ended 1999 and for the three months ended March 31, 1999 and 2000,
respectively.
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(unaudited with respect to March 31, 2000 and
for the three-month periods ended March 31, 1999 and 2000)
(in thousands)
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(D) CASH EQUIVALENTS:
All highly liquid investments purchased with a maturity of three months or
less are considered to be cash equivalents.
(E) INVENTORIES:
Inventories consist of completed AOI systems, AOI systems partially
completed and components, and are recorded at the lower of cost, determined
on a first-in first-out basis, or market.
(F) FIXED ASSETS:
Fixed assets are stated at cost less accumulated depreciation and are
depreciated over their estimated useful lives on a straight-line basis.
Annual rates of depreciation are as follows:
<TABLE>
<S> <C> <C>
Machinery and equipment............................. 10-20 (mainly 20%)
Office furniture and equipment...................... 6-20 (mainly 6%)
Automobiles......................................... 15-20
</TABLE>
(G) FAIR VALUES OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," requires the Company to disclose estimated
fair value for its financial instruments. The carrying amounts reported in
the balance sheet for cash and cash equivalents, accounts receivable,
accounts payable and accrued expenses and amounts due to affiliates
approximate fair value because of the short-term duration of those items.
The carrying amounts of short-term bank credit and amounts due to PCB Ltd.
approximate fair value because the interest rates on such debt approximate
the market rate.
(H) AMORTIZATION OF INTANGIBLES:
Intangible assets, consisting of patents and related intellectual property
purchased from a former shareholder $(297) and the excess of the purchase
price over the underlying book value related to shares of the Company's
stock acquired by PCB Ltd. from former shareholders $(628), are being
amortized over a period of five years. Accumulated amortization at
December 31, 1998, December 31, 1999 and March 31, 2000 was $490, $670 and
$715, respectively.
(I) RECOGNITION OF REVENUE:
In the year ended December 31, 1999, the Company changed its method of
recognizing revenue and retroactively restated its prior years financial
statements to reflect the application of the new method. Prior to the
change, the Company recognized revenue from sales of its products upon
shipment of its systems to its customers. In December 1999, the staff of the
Securities and Exchange Commission issued an accounting bulletin on revenue
recognition which provides, among other matters, that when contractual
acceptance provisions exist, the seller should not recognize
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(unaudited with respect to March 31, 2000 and
for the three-month periods ended March 31, 1999 and 2000)
(in thousands)
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
revenue until acceptance occurs. Accordingly, when acceptance provisions
exist, the Company changed its accounting policy from recognizing revenue
upon shipment to recognizing revenue upon acceptance which, in general,
occurs no earlier than at the time the Company installs the AOI system at
the customer's premises.
Service fees are recognized at the time the service is provided or over the
life of the service contract on a straight-line basis. Service fees
aggregated $572, $705 and $1,911 for the years ended December 31, 1997, 1998
and 1999, respectively and $437 and $582 for the three months ended
March 31, 1999 and 2000, respectively.
(J) WARRANTY:
Estimated warranty obligations are charged to operations in the period in
which the sale is recognized. AOI systems are generally sold with a six to
twelve month warranty.
(K) INCOME TAXES:
The Company uses the liability method of accounting for income taxes.
Deferred taxes which may arise as a result of temporary differences between
the reported amount of an asset or a liability in the balance sheet and its
tax basis will be recognized at their statutory rate. A valuation allowance
may reduce any resulting deferred tax asset to the amount that is more
likely than not to be realized (Note 16).
(L) RESEARCH AND DEVELOPMENT:
Research and development costs are expensed as incurred. Grants received
from the Government of Israel through the Ministry of Industry and Trade,
Office of the Chief Scientist (the "Chief Scientist") for approved research
and development programs are recognized upon the later of the time the costs
related to a particular project are incurred and the time such project
receives approval from the Chief Scientist.
(M) LONG-LIVED ASSETS:
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. If an evaluation is required, the estimated future undiscounted
cash flows associated with the asset would be compared to the asset's
carrying amount to determine if a writedown to market value or discounted
cash flow value is required.
(N) EARNINGS PER ORDINARY SHARE:
Basic earnings per share is calculated utilizing only weighted average
ordinary shares outstanding after giving retroactive effect to the stock
splits in July 2000 and December 1997 (Note 12). Diluted earnings per share
gives effect to dilutive potential ordinary shares outstanding during the
reporting periods. Such dilutive shares consist of incremental shares,
utilizing the treasury stock method, from assumed exercise of share options.
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(unaudited with respect to March 31, 2000 and
for the three-month periods ended March 31, 1999 and 2000)
(in thousands)
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(O) UNAUDITED INTERIM FINANCIAL STATEMENTS:
In the opinion of management, the unaudited financial statements include all
adjustments, consisting of normal recurring adjustments, necessary for a
fair presentation of the Company's financial position as of March 31, 2000
and the results of its operations and its cash flows for the three-month
periods ended March 31, 1999 and 2000. The financial statements as of
March 31, 2000 and for the three months ended March 31, 2000 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 2000.
(P) NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. This statement
requires companies to record derivatives on the balance sheet as assets or
liabilities, measured at fair value. Gains or losses resulting from changes
in the values of those derivatives would be accounted for depending on the
use of the derivative and whether it qualifies for hedge accounting. If the
derivative is a hedge, depending on the nature of the hedge, changes in the
fair value of derivatives will either be offset against the change in fair
value of the hedged assets, liabilities, or firm commitments through
earnings or recognized in other comprehensive income until the hedged item
is recognized in earnings. The ineffective portion of a derivative's change
in fair value will be immediately recognized in earnings. In May 1999,
SFAS 133 was amended to defer its effective date. SFAS 133 will be effective
for the Company's first quarterly filing of 2001. The Company commenced
using derivatives in the second quarter of 2000 and has not determined what
the effect of SFAS No. 133 will be on the earnings and financial position of
the Company.
NOTE 3--INVENTORIES
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1998 1999 2000
-------- -------- ---------
<S> <C> <C> <C>
Components........................................ $1,915 $2,673 $3,066
Systems partially completed....................... 339 639 989
Completed systems, including systems not yet
purchased at customer locations................. 1,178 3,262 4,340
------ ------ ------
$3,432 $6,574 $8,395
====== ====== ======
</TABLE>
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(unaudited with respect to March 31, 2000 and
for the three-month periods ended March 31, 1999 and 2000)
(in thousands)
NOTE 4--OTHER CURRENT ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1998 1999 2000
-------- -------- ---------
<S> <C> <C> <C>
Due from Government of Israel departments
and agencies...................................... $290 $ 560 $ 966
Due from employees.................................. 149 187 200
Other............................................... 269 414 507
---- ------ ------
$708 $1,161 $1,673
==== ====== ======
</TABLE>
NOTE 5--FIXED ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1998 1999 2000
-------- -------- ---------
<S> <C> <C> <C>
Building under construction and underlying land
($150, $425 and $425)........................... $ 150 $1,000 $1,315
Machinery and equipment........................... 1,264 1,444 1,508
Office furniture and equipment.................... 171 477 446
Automobiles....................................... 479 499 502
------ ------ ------
2,064 3,420 3,771
Less accumulated depreciation..................... 571 865 884
------ ------ ------
$1,493 $2,555 $2,887
====== ====== ======
</TABLE>
In September 1998, the Company entered into a lease for a building in Israel to
be built by the lessor and also acquired an option to purchase the building and
underlying land from the lessor. Both the lease payments and the option price
will equal the cost of constructing the building, plus financing costs and
$595,000 for the land, less any grants received. In addition, if the option is
exercised, the option price is reduced for any payments made under the lease.
The lease is for a term of 23 years and 8 months and commences upon completion
of construction. The Company intends to exercise the option. As the Company is
providing construction financing, it is being treated as the owner of the land
and building.
NOTE 6--SHORT-TERM BANK CREDIT
The Company entered into a line of credit agreement with a bank expiring in
July 2000, which provides for borrowings of up to approximately $961 (NIS 4,000)
at December 31, 1998, $1,204 (NIS 5,000) at December 31, 1999 and $1,238 (NIS
5,000) at March 31, 2000 based on the conversion rate at such dates. The Company
entered into another line of credit agreement with the same bank, expiring in
January 2000 and extendable on a monthly basis, which provided for borrowings of
up to approximately $722 (NIS 3,000) at December 31, 1999 based on the
conversion rate at such dates. As of March 31,
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(unaudited with respect to March 31, 2000 and
for the three-month periods ended March 31, 1999 and 2000)
(in thousands)
NOTE 6--SHORT-TERM BANK CREDIT (CONTINUED)
2000, there were no borrowings under this credit line. Borrowings under both
agreements bear interest at the Israeli prime rate plus 1% and 3%, respectively
(18% at December 31, 1998, 13.7%-15.7% at December 31, 1999 and 12.1%-14.1% at
March 31, 2000), plus an additional 3.5% for advances in excess of the credit
limits. The total outstanding balances were $932 at December 31, 1998, $1,858 at
December 31, 1999 and $1,049 at March 31, 2000.
At December 31, 1998 and 1999 and March 31, 2000 the Company also had a
short-term loan payable to the bank of $2,163 (NIS 9,000), $4,936 (NIS 20,500)
and $7,948, (NIS 32,000) respectively, bearing interest at 15.5%, 13%, and 11.1%
respectively. The loan is being extended on a monthly basis.
Borrowings under the credit agreement and loan are collateralized by all of the
assets of the Company, and are guaranteed by PCB Ltd.
NOTE 7--OTHER CURRENT LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1998 1999 2000
-------- -------- ---------
<S> <C> <C> <C>
Accrued compensation and related benefits......... $ 656 $ 872 $1,021
Government of Israel departments and agencies
(substantially for royalties)................... 425 526 784
Accrued warranty costs............................ 374 614 799
Commissions....................................... 358 791 885
Advances from customers........................... 217 605 141
Other............................................. 250 351 549
------ ------ ------
$2,280 $3,759 $4,179
====== ====== ======
</TABLE>
NOTE 8--SEVERANCE PAY
Israeli law requires payment of severance pay in certain circumstances. The
Company's severance pay liability to its Israeli employees, based upon the
number of years of service and the latest monthly salary, is partly covered by
regular deposits with severance pay funds, recognized pension funds and by
purchase of managers' insurance policies.
The amounts accrued and the portion funded with severance pay funds and by
purchase of insurance policies are composed as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1998 1999 2000
-------- -------- ---------
<S> <C> <C> <C>
Accrued severance pay................................ $120 $265 $237
Less amounts funded.................................. 92 206 192
---- ---- ----
Unfunded balance..................................... $ 28 $ 59 $ 45
==== ==== ====
</TABLE>
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(unaudited with respect to March 31, 2000 and
for the three-month periods ended March 31, 1999 and 2000)
(in thousands)
NOTE 8--SEVERANCE PAY (CONTINUED)
The Company may only make withdrawals from the funds for the purpose of paying
severance pay.
The severance pay liabilities covered by the pension funds are not reflected in
the above amounts as the severance pay liabilities have been irrevocably
transferred to the pension funds.
Severance pay expense was $122, $222, $255, $58 and $73 for the years ended
December 31, 1997, 1998 and 1999, and for the three months ended March 31, 1999
and 2000, respectively.
NOTE 9--COMMITMENTS AND CONTINGENT LIABILITIES
(A) ROYALTIES:
(1) The Company is committed to pay royalties to the Government of Israel on
sales of products in which the Government participates by way of research
and development grants, up to the amount of the grants received for
certain projects. Since January 1, 1996, the royalty rates have been
between 4%--6% of revenues. The maximum royalty payable by the Company on
future sales approximates $1,605, $2,536 and $2,632 at December 31, 1998
and 1999 and March 31, 2000, respectively.
(2) In 1989, PCB Ltd. invested approximately $645 (NIS 1,000) in the
Company's research and development. In return, the Company agreed to pay
royalties to PCB Ltd. of .5% of aggregate sales of the systems, purchase
circuit boards from PCB Ltd. at prevailing market prices and to grant
PCB Ltd. favored customer status in its purchase of AOI systems. The
obligation of the Company to pay PCB Ltd. the aforementioned royalties
terminated for sales made after December 31, 1999.
(3) Royalty expense totaled $708, $915, $1,075, $197 and $421 for the years
ended December 31, 1997, 1998 and 1999, and for the three months ended
March 31, 1999 and 2000, respectively, including amounts to PCB Ltd. (see
Note 17).
(B) OPERATING LEASES:
(1) The Company has entered into an operating lease agreement with PCB Ltd.
for an administrative office and research and development facilities. The
initial lease agreement expired in December 1997 and was renewed for an
additional four-year term at an annual rental of $48. At January 1, 2000,
the Company leased additional space and the aggregate annual rental
increased to $77. Minimum future rental payments as of December 31, 1999
and March 31, 2000 under the lease amount to $154 and $135, respectively.
(2) Effective January 1, 1998, the Company entered into a cancelable
four-year term operating lease for production facilities in Migdal
Haemek, Israel. The annual rental approximates $53 through 2001 and will
increase to $59 thereafter.
(3) Aggregate rent expense amounted to $49, $182, $291, $67 and $75 for the
years ended December 31, 1997, 1998 and 1999 and for the three months
ended March 31, 1999 and 2000, respectively.
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(unaudited with respect to March 31, 2000 and
for the three-month periods ended March 31, 1999 and 2000)
(in thousands)
NOTE 9--COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
(C) PATENT INFRINGEMENT ALLEGATION:
On July 21, 1998, the Company received a letter from Orbotech Ltd., a
principal competitor, alleging, among other things, infringement of an
Israeli patent and unjust enrichment due to misappropriation of confidential
information by the Company with respect to certain technologies used in the
manufacture and design of certain of the Company's products. Management
believes that Orbotech's allegations are without merit; nevertheless, a
final judicial decision adverse to the Company with respect to these
allegations could have a material adverse effect on the Company's business,
financial condition and results of operations. Any litigation could involve
substantial expenditures by the Company and diversion of management's
attention.
NOTE 10--CONCENTRATION OF RISK
During the year ended December 31, 1997, sales to one customer aggregated 11% of
revenue. During the year ended December 31, 1998, sales to one customer
aggregated 12.6% of revenue. During the year ended December 31, 1999, no
customer accounted for 10% or more of the Company's revenue. During the
three-month period ended March 31, 1999 sales to one customer aggregated 10.6%
of revenue. For the three-month period ended March 31, 2000 no customer
accounted for 10% or more of the Company's revenue.
At December 31, 1998, accounts receivable from two customers approximated $1,162
and $656, respectively. At December 31, 1999, accounts receivable from two
customers approximated $899 and $765, respectively. At March 31, 2000, accounts
receivable from one customer approximated $901.
NOTE 11--PROPOSED PUBLIC OFFERING
The Company's Board of Directors has authorized a public offering of the
Company's securities. There is no assurance that such offering will be
consummated. In connection therewith, the Company anticipates incurring
substantial costs, which, if the offering is not consummated, will be charged to
operations. Deferred offering costs incurred of approximately $508, $942 and
$1,388 have been classified as other assets in the accompanying balance sheets
at December 31, 1998, December 31, 1999 and March 31, 2000, respectively.
NOTE 12--SHAREHOLDERS' EQUITY
(A) ORDINARY SHARES:
In January 1997, the Company exchanged each outstanding ordinary B share for
25 ordinary A shares.
In December 1997, the Company effected a 50 to 1 stock split. In
February 2000, the Company changed its designation of ordinary A shares to
ordinary shares. On July 11, 2000, the Board of Directors approved a 2 for 1
ordinary share stock split. Share and per share amounts in the accompanying
consolidated financial statements give retroactive effect to these splits
and the new designation.
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(unaudited with respect to March 31, 2000 and
for the three-month periods ended March 31, 1999 and 2000)
(in thousands)
NOTE 12--SHAREHOLDERS' EQUITY (CONTINUED)
(B) SHARE OPTIONS:
In September 1997, the Company's Board of Directors adopted three share
option plans for key employees, one of which covers employees in Israel and
the others cover employees in the United States and Europe. The plans are
administered by the Board of Directors, which designates the recipients,
number of options granted and exercise price. Options to purchase an
aggregate of 1,073,128 ordinary shares may be granted under the plans, of
which 845,980 options have been granted through December 31, 1999. Unless
otherwise determined by the Board, options vest up to 50% after two years of
continued employment with an additional 25% vesting after each of years
three and four. Vested options are exerciseable for two years beginning the
earlier of seven years after date of grant or when the Company's shares are
traded on a stock exchange. Options granted during 1999 were greater than
estimated fair value at date of grant. Options granted during 1997 and 1998
were at less than estimated fair value at date of grant.
Share option activity during the periods is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS
------------------------------------------------------------------- ENDED
1997 1998 1999 MARCH 31, 2000
-------------------- -------------------- --------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OF EXERCISE OF EXERCISE OF EXERCISE OF EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE
--------- -------- --------- -------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
period........................ 1,241,000 $0.22 1,519,620 $0.42 1,714,128 $0.52 735,980 $1.94
Granted......................... 278,620 1.33 194,508 1.33 345,456 2.66 110,000 8.00
Cancelled....................... (82,604) 1.33
Exercised....................... (1,241,000) 0.22
--------- ----- --------- ----- ---------- ----- ------- -----
Outstanding at end of period.... 1,519,620 0.42 1,714,128 0.52 735,980 1.95 845,980 2.74
========= ===== ========= ===== ========== ===== ======= =====
Shares exercisable at end of
period........................ 910,148 0.22 1,241,000 0.22 119,410 1.33 185,312 1.33
========= ===== ========= ===== ========== ===== ======= =====
</TABLE>
The remaining contractual life of options granted at exercise prices of
$1.33 and $2.66, respectively, is seven years and nine years at
December 31, 1999.
The Company applies Accounting Principles Board Opinion No. 25 ("APB 25") in
accounting for stock-based compensation to employees and, accordingly,
recognizes compensation expense for the difference between the fair value of
the underlying ordinary shares and the exercise price of the option at the
date of grant. Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation ("SFAS 123"), issued in
October 1995, requires the use of the fair value based method of accounting
for stock options. Under this method, compensation cost is measured at the
grant date based on the fair value of the options granted and is recognized
over the vesting period. SFAS 123, however, allows the Company to continue
to measure the compensation cost of employees in accordance with APB 25, but
requires the Company to disclose pro forma information regarding net income
and per share data determined as if the Company had accounted for its
employee share options under the fair value method of that statement. Pro
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(unaudited with respect to March 31, 2000 and
for the three-month periods ended March 31, 1999 and 2000)
(in thousands)
NOTE 12--SHAREHOLDERS' EQUITY (CONTINUED)
forma net income and per share data had the Company adopted the fair value
method of SFAS 123 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Pro forma:
Net income (loss)............................... $1,942 $1,171 $480 $(932) $1,659
====== ====== ==== ===== ======
Earnings per ordinary share--basic.............. $ .13 $ .08 $.03 $(.06) $ .10
====== ====== ==== ===== ======
Earnings per ordinary share--diluted............ $ .12 $ .07 $.03 $(.06) $ .10
====== ====== ==== ===== ======
</TABLE>
The weighted average fair value of the options granted during 1997, 1998 and
1999 in applying the fair value method was estimated at $.97, $1.03 and
$1.04, respectively, using the Black-Scholes pricing model with the
following assumptions:
<TABLE>
<CAPTION>
1997 GRANT 1998 GRANT 1999 GRANT
---------- ---------- ----------
<S> <C> <C> <C>
Dividend yield............................... 0 0 0
Volatility................................... 30% 40% 40%
Risk-free interest rate...................... 6.22% 5.71% 5.80%
Expected life................................ 4 4 4
</TABLE>
NOTE 13--MONETARY BALANCES IN NONDOLLAR CURRENCIES
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------------
1998 1999 MARCH 31, 2000
---------------------------------- ---------------------------------- ----------------------------------
ISRAEL CURRENCY (A) OTHER ISRAEL CURRENCY (A) ISRAEL CURRENCY (A)
--------------------- NONDOLLAR --------------------- NONDOLLAR --------------------- NONDOLLAR
UNLINKED LINKED (B) CURRENCIES UNLINKED LINKED (B) CURRENCIES UNLINKED LINKED (B) CURRENCIES
-------- ---------- ---------- -------- ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets--current...... $ 379 $ 1 $1,651 $ 732 $ 2 $1,273 $ 241 $3,555
Liabilities--current... 4,745 3,611 114 9,616 2,041 645 15,587 $1,280 632
</TABLE>
------------------------------
(a) The above does not include balances in Israeli currency linked to the
dollar.
(b) To the Israeli CPI.
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(unaudited with respect to March 31, 2000 and
for the three-month periods ended March 31, 1999 and 2000)
(in thousands)
NOTE 14--GEOGRAPHIC INFORMATION
Substantially all fixed assets are located in Israel and substantially all
revenues are derived from shipments to other countries. Revenues are
attributable to geographic areas/countries based upon the destination of
shipment of product as follows:
<TABLE>
<CAPTION>
REVENUES THREE MONTHS
------------------------------ ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
United States................... $ 5,402 $ 9,210 $ 5,413 $ 973 $ 2,213
Europe.......................... 3,158 4,385 4,990 1,811 2,680
Japan........................... 1,915 523 1,322 105 517
Taiwan.......................... 2,889 4,182 6,045 494 1,285
Other Asia...................... 1,913 1,825 5,290 978 3,171
Rest of the world............... 456 218 832 56 651
------- ------- ------- ------ -------
$15,733 $20,343 $23,892 $4,417 $10,517
======= ======= ======= ====== =======
</TABLE>
NOTE 15--SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Selling............................. $4,616 $5,274 $6,224 $1,444 $1,761
General and administrative.......... 813 1,574 1,603 365 393
------ ------ ------ ------ ------
$5,429 $6,848 $7,827 $1,809 $2,154
====== ====== ====== ====== ======
</TABLE>
NOTE 16--TAXES ON INCOME
(A) TAX BENEFITS UNDER THE LAW FOR ENCOURAGEMENT OF CAPITAL INVESTMENTS, 1959:
The Company's production facilities have been granted "approved enterprise"
status under the above law. The Company participates in the Alternative
Benefits Program and, accordingly, income from its approved enterprises will
be tax exempt for a period of ten years (limited to 12 years from
commencement of production or 14 years from the date of approval, whichever
is earlier), commencing in the first year in which the approved enterprise
first generates taxable income due to the fact that the Company operates in
Zone "A" in Israel.
The period of benefits relating to the recent approved enterprise will
expire in 2008. The tax benefits with regard to the first approved
enterprise of the production facilities of the Company expired on
December 31, 1999. In the event of distribution of cash dividends from
income which was tax exempt as above, the Company would have to pay the 25%
tax in respect of the amount distributed (the amount distributed for this
purpose includes the amount of the Company's tax that
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(unaudited with respect to March 31, 2000 and
for the three-month periods ended March 31, 1999 and 2000)
(in thousands)
NOTE 16--TAXES ON INCOME (CONTINUED)
applies as a result of the distribution). The Company has decided to
reinvest the amount of the tax exempt income, and not to distribute such
income as cash dividends. Accordingly, no deferred income tax has been
provided with respect to the tax exempt income.
Undistributed taxable earnings in Israel for which taxes had not been
provided aggregated $4,903, $6,243 and $8,674 at December 31, 1998 and 1999
and at March 31, 2000, respectively. The amount of tax that would be owed if
such amounts were distributed would be approximately $1,226, $1,561 and
$2,168 at December 31, 1998, 1999 and March 31, 2000, respectively.
The entitlement to the above benefits is conditional upon the Company's
fulfilling the conditions stipulated by the above law, regulations published
thereunder and the certificate of approval for the specific investments in
approved enterprises. In the event of failure to comply with these
conditions, the benefits may be canceled and the Company may be required to
refund the amount of the benefits, in whole or in part, with the addition of
linkage differences to the Israeli CPI and interest.
(B) MEASUREMENT OF RESULTS FOR TAX PURPOSES UNDER THE INCOME TAX (INFLATIONARY
ADJUSTMENTS) LAW, 1985 (THE "INFLATIONARY ADJUSTMENTS LAW"):
Under this law, results for tax purposes are measured on a real
basis--adjusted to the increase in the Israeli CPI. These financial
statements are presented in dollars. The difference between the change in
the Israeli CPI and in the exchange rate of the dollar, both on annual and
cumulative bases, will cause a difference between taxable income and income
reflected in these financial statements.
(C) TAX BENEFITS UNDER THE LAW FOR THE ENCOURAGEMENT OF INDUSTRY (TAXES), 1969:
The Company is an "industrial company" as defined by this law and as such is
entitled to certain tax benefits, mainly accelerated depreciation as
prescribed by regulations published under the Inflationary Adjustments Law
and the right to claim public issuance expenses as a deduction for tax
purposes.
(D) LOSS OF NON-ISRAELI SUBSIDIARIES:
Non-Israeli subsidiaries are taxed according to tax laws in their countries
of residence.
As of December 31, 1998 and 1999 and March 31, 2000, Camtek USA, Inc., a
United States subsidiary of the Company, has a net operating loss
carryforward of $100, $673 and $582, respectively, which expires in 2018 and
2019. The Company has a deferred tax asset of $175, $431 and $395 at
December 31, 1998 and 1999 and March 31, 2000, respectively, which has been
fully offset by a valuation allowance. The deferred tax asset relates to
future tax benefits attributable to the net operating loss carryforward and
deductible temporary differences related to accrued warranties, allowance
for returns and doubtful accounts, and deferred fee income. The valuation
allowance increased by $50, $125 and $256 during 1997, 1998, 1999,
respectively, and decreased by $36 during 2000.
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(unaudited with respect to March 31, 2000 and
for the three-month periods ended March 31, 1999 and 2000)
(in thousands)
NOTE 16--TAXES ON INCOME (CONTINUED)
(E) TAXES ON INCOME INCLUDED IN THE INCOME STATEMENTS:
Following is a reconciliation of the theoretical tax expense, assuming all
income is taxed at the regular tax rate applicable to Israeli companies, and
the actual tax expense:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Income (loss) before taxes on income (a)............. $1,992 $1,315 $ 625 $(901) $1,952
====== ====== ====== ===== ======
Theoretical tax on the above amount at 36%........... $ 717 $ 473 $ 225 (324) 703
Less tax benefits arising from "approved
enterprises"....................................... 884 881 482 134 716
------ ------ ------ ----- ------
(167) (408) (257) (190) (13)
Increase (decrease) in taxes resulting from:
Temporary differences for which deferred taxes were
not provided..................................... 210 (25) 111 2 (54)
Permanent differences, including difference between
Israeli CPI-adjusted tax returns and
dollar-adjusted financial statements--net........ 54 308 (110) 188 344
Increase in valuation allowance for United States
deferred tax asset............................... 50 125 256
Decrease in taxes resulting from utilization of
carryforward tax losses for which deferred taxes
were not provided in previous years.............. (147) (36)
------ ------ ------ ----- ------
Actual tax expense................................... $ 0 $ 0 $ 0 $ 0 $ 241
====== ====== ====== ===== ======
(a) Consists of income (loss) as follows:
Taxable in Israel.................................. $2,032 $1,922 $2,307 $(208) $2,657
Taxable outside of Israel.......................... (40) (607) (1,682) (693) (705)
------ ------ ------ ----- ------
$1,992 $1,315 $ 625 $(901) $1,952
====== ====== ====== ===== ======
Per share effect of tax benefits from "approved
enterprises":
Basic.............................................. $ .06 $ .06 $ .03 $ .01 $ .04
Diluted............................................ $ .05 $ .05 $ .03 $ .01 $ .04
</TABLE>
F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(unaudited with respect to March 31, 2000 and
for the three-month periods ended March 31, 1999 and 2000)
(in thousands)
NOTE 17--TRANSACTIONS WITH RELATED PARTIES
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Rent expense to PCB Ltd. (Note 9(B))...................... $ 49 $42 $ 48 $12 $ 19
Royalty expense to PCB Ltd. (Note 9(A))................... 79 102 119 27
Administrative expenses from PCB Ltd. (a)................. 251 166
Purchases from PCB Ltd.................................... 187 206 96 38 21
Interest expense to PCB Ltd............................... 225 146 75 33 4
Participation of PCB Ltd. in expenses of the Company...... (37) (100) (25)
Sales to PCB Ltd.......................................... (259) (71) (824) (18) (478)
Interest expense to other affiliates...................... 26 64 15 6
Purchases from other affiliates........................... 528 495 494 31 456
Services from other affiliates (b)........................ 1,154
Commissions to other affiliates........................... 87
</TABLE>
------------------------
(a) Through December 31, 1997, expenses were allocated based on an estimate of
the portion of expenses applicable to the Company, including the services of
two officers. Management believes the allocation method used is reasonable.
(b) Represents distribution and administrative expenses, including
administrative fee, incurred on behalf of the Company by a subsidiary of
PCB Ltd. located in the United States for distributing the Company's
products in the United States prior to the formation of Camtek USA, Inc. on
July 1, 1997. Subsequent to July 1, 1997, such expenses were incurred by
Camtek USA, Inc.
On January 1, 1998, the Company and PCB Ltd. entered into a Services Agreement
replacing their previous agreement with regard to the provision of services by
PCB Ltd. to the Company (see (a) above). Under the Services Agreement, PCB Ltd.
provides certain services to the Company, including bookkeeping, payroll and
maintenance. The consideration to be paid by the Company is generally calculated
as a percentage of the actual costs in providing these services based on the
relative portion of each service rendered to the Company out of the total costs
for each service incurred by PCB Ltd. The term of the Services Agreement is four
years which automatically extends for one year periods, unless written notice of
termination is given three months prior to the end of the initial term or any
extension thereof. Management believes the allocation method used is reasonable.
On January 1, 1998, the Company and PCB Ltd. also entered into a Management
Services Agreement under which the Company provides to PCB Ltd. management
services of Rafi Amit and Yotam Stern, Chief Executive Officer and Chief
Financial Officer of the Company, respectively. Prior to such date, such
individuals were employed by PCB Ltd. (see (a) above). PCB Ltd. shall pay
monthly to the Company a portion of compensation costs with respect to
Mr. Amit's and Mr. Stern's employment, which portion shall be calculated on the
basis of the actual amount of time spent in rendering such services in relation
to the Company's total monthly compensation costs with respect to Mr. Amit's and
F-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(unaudited with respect to March 31, 2000 and
for the three-month periods ended March 31, 1999 and 2000)
(in thousands)
NOTE 17--TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
Mr. Stern's employment. The Management Services Agreement may be terminated by
either the Company or PCB Ltd. upon prior written notice of one year or three
months, respectively. Management believes the allocation method used is
reasonable.
On January 1, 1998, the Company entered into a loan agreement with PCB Ltd. with
respect to the repayment of loans granted to the Company, beginning in 1995. On
December 31, 1998, amounts previously owed to affiliates were assumed by
PCB Ltd. and were also to be repaid pursuant to the terms of the loan agreement.
The outstanding principal amount of the loan, amounting to $3,759, $1,685 and
$925 as of December 31, 1998, December 31, 1999 and March 31, 2000,
respectively, is linked to the Israeli CPI and bears annual interest of 2% from
the date of execution of the agreement until the repayment of any outstanding
portion of the linked principal amount. The loan is to be repaid in full upon
the earlier of the completion of a public offering of the Company's securities
or December 31, 2000.
NOTE 18--SUBSEQUENT EVENT (UNAUDITED)
In July 2000, the Company's Board of Directors approved an increase in the
number of shares under the share option plans from 1,073,128 to 1,473,128. Also
in July 2000, the Company granted options to purchase 152,000 ordinary shares at
an exercise price equal to the initial public offering price of the Company's
ordinary shares.
F-21
<PAGE>
INSIDE BACK COVER
At the top of the page is the slogan "Orion-AOI Solutions for diverse inspection
needs."
In the middle of the page is an AOI system with arrows pointing to different
versions of Camtek's current AOI Systems, including the Orion-604 High Volume
Inspection Systems, the Orion-604-HR2 High Resolution Inspection, the
Orion-604-AR2 Artwork Inspection, Orion-603-WR Medium Volume Inspection for Wide
Resolution Range and the Orion-602-WR Low Volume Inspection for Wide Resolution
Range.
In the lower right hand corner is the logo "Camtek AOI Systems."
<PAGE>
--------------------------------------------------------------------------------
[LOGO]
CAMTEK LTD.
5,600,000 ORDINARY SHARES
-------------------
PROSPECTUS
-------------------
, 2000
CIBC WORLD MARKETS
UBS WARBURG LLC
NEEDHAM & COMPANY, INC.
--------------------------------------------------------------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. NO DEALER,
SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE INFORMATION THAT IS NOT
CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR IS IT
SEEKING AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR
SALE IS NOT PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT
ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF THE DELIVERY
OF THIS PROSPECTUS OR ANY SALE OF THESE SECURITIES.
UNTIL, , 2000, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES,
WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The Registrant estimates that expenses payable by the Registrant in connection
with the offering described in this registration statement (other than
underwriting discount) will be as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission Filing Fee............... $ 20,402*
NASD Filing Fee............................................. 8,228*
Nasdaq Listing Fee.......................................... 77,850*
Israel Stamp Duty........................................... 616,000*
Fees of Transfer Agent and Registrar........................ 3,500*
Accounting Fees............................................. 740,000*
Legal Fees.................................................. 1,098,000*
Printing and Engraving Fees................................. 160,000*
Officers and Directors Insurance............................ 25,000*
Miscellaneous............................................... 55,020*
----------
Total....................................................... $2,804,000
==========
</TABLE>
------------------------
* Estimate.
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
A company may not exempt an office holder--defined in the new Israeli Companies
Law as a director, general manager, chief executive officer, executive vice
president, vice president, any other person acting in any of the foregoing
positions without regard to such person's title or any other manager directly
subordinate to the general manager--from liability with respect to a breach of
his fiduciary duty to it. A company may, however, if so provided in its
articles, exempt an office holder in advance from all or part of his liability
for damages arising from a breach of his duty of care towards the company,
except for liability arising from either a breach of care committed
intentionally or recklessly or an act performed with the intention of making
unlawful personal profit.
A company may, if so provided in its articles, indemnify, or undertake in
advance to indemnify, an office holder for liabilities imposed or expenses
incurred due to an act performed by him in his capacity as such, with respect
to: (1) a monetary liability imposed upon the office holder in favor of another
person in any judgment, including a settlement judgment or an arbitrator's award
confirmed by a court; or (2) reasonable litigation expenses, including
attorney's fees, incurred by the office holder or imposed upon him by a court in
proceedings instituted against him by Camtek or on its behalf or by another
person, or in a criminal charge from which he was acquitted, or in a criminal
charge for which he was convicted but which does not require proof of criminal
intent. If a company undertakes in advance to indemnify an office holder as
mentioned above, the undertaking will be limited (a) to such types of
occurrences which, in the discretion of the Board of Directors, are foreseeable
at the time at which the company provides the undertaking, and (b) to an amount
which the Board of Directors shall have determined to be reasonable under the
circumstances.
A company also may, if so provided in its articles, take out an insurance policy
to cover any liability of an office holder imposed upon him as a result of an
act performed by him in his capacity as such, with respect to the following: (i)
a breach of his duty of care to the company or to another person, unless the
breach was intentional or reckless or involved an action taken with the intent
of obtaining unlawful personal profit; (ii) a breach of his fiduciary duty to
the company, except with respect to any action
II-1
<PAGE>
taken with the intent of obtaining unlawful personal profit, and provided that
the office holder acted in good faith and had reasonable grounds to assume that
his act would not adversely affect the interests of the company; and (iii) a
monetary liability, other than a fine, imposed on him in favor of another
person, except for a liability arising from an intentionally or recklessly
committed breach of his duty of care, an action taken with the intent of
obtaining unlawful personal profit, or a breach of his fiduciary duty in which
the office holder was not acting both in good faith and upon reasonable grounds
to assume that his act would not adversely affect the company.
Our articles include provisions which allow us to grant exemptions,
indemnification, indemnification undertakings, and insurance coverage as
described above. We have adopted resolutions to: (a) grant advance exemptions to
our office holders from liability arising from a breach of the duty of care
towards us as described above; (b) grant our office holders undertakings in
advance to indemnify them against liabilities as described above, up to the
amount of $25 million; and (c) take out an insurance policy to insure our office
holders against liabilities as described above, in an amount of $10 million.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Company sold on December 31, 1997, one share to PCB Ltd. in the amount of
NIS 247,250, without registration under the Securities Act. PCB Ltd. is neither
a national nor resident of the United States and no facilities or
instrumentalities of United States interstate commerce were used in connection
with any offer or sale thereof. The securities issued in this transaction were
offered and sold outside the United States and, accordingly, are not subject to
the Securities Act of 1933, as amended.
To date, the Company has issued options to purchase 845,980 Ordinary Shares of
the Company at a weighted average exercise price of $2.74 per share and options
to purchase 152,000 Ordinary Shares of the Company at a price equal to the
initial public offering price. The issuance of these options was exempt from
registration under the Securities Act because they were made outside the United
State to non-U.S. individuals, or in reliance upon the exemptions from
registration provided under Section 4(2) of the Securities Act and/or Rule 701
of the rules and regulations promulgated thereunder. There were no underwriters,
brokers, or finders employed in connection with any of the transactions set
forth in Item 15.
On July 11, 2000, the Company's board of directors approved a 2-for-1 stock
split of the Company's Ordinary Shares.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
--------------------- -------
<S> <C>
1.1 Form of Underwriting Agreement.
3.1 Memorandum of Association of Registrant.++
3.2 Articles of Association of Registrant.++
4.1 Specimen of Certificate for Ordinary Shares.
5.1 Opinion of Shiboleth, Yisraeli, Roberts, Zisman & Co.
10.1 Employee Share Option Plan.
10.2 Employee Share Option Plan--United States.
10.3 Employee Share Option Plan--Europe.
10.4 Lease Agreement between the Company and PCB Ltd., dated
January 1, 1998, as amended on January 1, 2000.++
10.5 Services Agreement between the Company and PCB Ltd., dated
January 1, 1998.++
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
--------------------- -------
<S> <C>
10.6 Management Services Agreement between the Company and PCB
Ltd., dated January 1, 1998.
10.7 Loan Agreement between the Company and PCB Ltd., dated
January 1, 1998.++
10.8 Royalty Agreement between the Company and PCB Ltd., dated
January 1988.++
10.9 Termination Agreement between the Company and PCB Ltd.,
dated May 21, 1998.++
10.10 Form of Indemnification Agreement.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Shiboleth, Yisraeli, Roberts, Zisman & Co.
(contained in their opinion constituting Exhibit 5.1).
23.2 Consent of Richard A. Eisner & Company, LLP and Goldstein
Sabo Tevet.
24.1 Power of attorney (included in signature page, which has
been previously filed).*
</TABLE>
------------------------
++ English translations from Hebrew original.
* Previously filed.
(B) FINANCIAL STATEMENT SCHEDULES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS.
II-3
<PAGE>
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 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 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)(i) 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-4
<PAGE>
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 the
requirements for filing on Form F-1 and has duly caused this Amendment No. 1 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Migdal Haemek, Israel on the 21st day
of July 2000.
<TABLE>
<S> <C> <C>
CAMTEK LTD.
By: /s/ YOTAM STERN
-----------------------------------------
Yotam Stern
CHIEF FINANCIAL OFFICER
</TABLE>
II-5
<PAGE>
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ RAFI AMIT Chairman of the Board of Directors and July 21, 2000
------------------------------------- General Manager (Principal Executive
Rafi Amit Officer)
/s/ YOTAM STERN Chief Financial Officer and Director July 21, 2000
------------------------------------- (Principal Financial and Accounting
Yotam Stern Officer)
/s/ * Director July 21, 2000
-------------------------------------
Haim Horowitz
/s/ * Director July 21, 2000
-------------------------------------
Meir Ben-Shoshan
/s/ * Director July 21, 2000
-------------------------------------
Dror Hurwitz
AUTHORIZED REPRESENTATIVE IN THE UNITED STATES:
CAMTEK USA, INC.
</TABLE>
<TABLE>
<S> <C> <C> <C>
By: /s/ RAFI AMIT
--------------------------------------
Name: Rafi Amit
Title: Director
*By: /s/ YOTAM STERN
--------------------------------------
Name: Yotam Stern
Attorney in fact
</TABLE>
II-6
<PAGE>
SCHEDULE II
CAMTEK LTD.
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
<TABLE>
<CAPTION>
CHARGED
BALANCE AT COSTS BALANCE AT
BEGINNING AND END OF
DESCRIPTION PERIOD OF PERIOD EXPENSES DEDUCTIONS PERIOD
----------- --------------------------------------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Accounts receivables-
allowance
Year Ended December 31, 1997........... $(134) $(289) $134 $(289)
Year Ended December 31, 1998........... $(289) $(524) $289 $(524)
Year Ended December 31, 1999........... $(524) $(551) $524 $(551)
Three Months Ended March 31, 2000...... $(551) $(477) $551 $(477)
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT PAGE
--------------------- ------- --------
<S> <C> <C>
1.1 Form of Underwriting Agreement.
3.1 Memorandum of Association of Registrant.++
3.2 Articles of Association of Registrant.++
4.1 Specimen of Certificate for Ordinary Shares.
5.1 Opinion of Shiboleth, Yisraeli, Roberts, Zisman & Co.
10.1 Employee Share Option Plan.
10.2 Employee Share Option Plan--United States.
10.3 Employee Share Option Plan--Europe.
10.4 Lease Agreement between the Company and PCB Ltd., dated
January 1, 1998, as amended on January 1, 2000.++
10.5 Services Agreement between the Company and PCB Ltd., dated
January 1, 1998.++
10.6 Management Services Agreement between the Company and PCB
Ltd., dated January 1, 1998.
10.7 Loan Agreement between the Company and PCB Ltd., dated
January 1, 1998.++
10.8 Royalty Agreement between the Company and PCB Ltd., dated
January 1988.++
10.9 Termination Agreement between the Company and PCB Ltd.,
dated May 21, 1998.++
10.10 Form of Indemnification Agreement.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Shiboleth, Yisraeli, Roberts, Zisman & Co.
(contained in their opinion constituting Exhibit 5.1).
23.2 Consent of Richard A. Eisner & Company, LLP and Goldstein
Sabo Tevet.
24.1 Power of attorney (included in signature page, which has
been previously filed).*
</TABLE>
------------------------
++ English translations from Hebrew original.
* Previously filed.
