<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 2, 2000
REGISTRATION NO. 333-41526
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
RADVIEW SOFTWARE LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
ISRAEL 7372 NOT APPLICABLE
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
------------------------
7 NEW ENGLAND EXECUTIVE PARK
BURLINGTON, MASSACHUSETTS 01803
781-238-1111
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------------
ILAN KINREICH
7 New England Executive Park
Burlington, Massachusetts 01803
781-238-1111
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
DOUGLAS A. ZINGALE, ESQ. MARTIN CARMICHAEL III, P.C.
LEWIS J. GEFFEN, ESQ. Goodwin, Procter & Hoar LLP
Mintz, Levin, Cohn, Ferris, Glovsky and Exchange Place
Popeo, P.C. Boston, MA 02109
One Financial Center Phone (617) 570-1000
Boston, Massachusetts 02111 Fax (617) 523-1231
Phone (617) 542-6000
Fax (617) 542-2241
GALAI SHARIR, ADV. BARRY LEVENFELD
YORAM SHIV, ADV. JAMES RA'ANAN
Sharir, Shiv, Friedman & Co. Law Yigal Arnon & Co.
Offices 22 Rivlin Street
72 Pinhas Rosen Street P.O. Box 33777
Tel Aviv, Israel 69512 Jerusalem, Israel 91000
Phone (011) 972-3-644-0105 Phone (011) 972-2-623-9200
Fax (011) 972-3-644-0106 Fax (011) 972-2-623-9236
</TABLE>
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after
the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (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
number for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF MAXIMUM AMOUNT PROPOSED MAXIMUM OFFERING AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED TO BE REGISTERED (1) PRICE PER ORDINARY SHARE PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Ordinary Shares, NIS 0.01 par value
per share 5,750,000 $12.00 $69,000,000 $18,216
</TABLE>
(1) Includes 750,000 ordinary shares subject to the Underwriters' over-allotment
option.
(2) Estimated solely for the purpose of calculating the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 2, 2000
We will amend and complete the information in this prospectus. Although we are
permitted by US federal securities law to offer these securities using this
prospectus, we may not sell them or accept your offer to buy them until the
documentation filed with the SEC relating to these securities has been declared
effective by the SEC. This prospectus is not an offer to sell these securities
or our solicitation of your offer to buy these securities in any jurisdiction
where that would not be permitted or legal.
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
PROSPECTUS
, 2000
[LOGO]
5,000,000 ORDINARY SHARES
-------------------------------------------------------------------------
RADVIEW SOFTWARE:
- We provide software that enables
companies to assure the
performance of business-critical
web applications.
- RadView Software Ltd.
7 New England Executive Park
Burlington, Massachusetts 01803
(781) 238-1111
PROPOSED SYMBOL AND MARKET:
- RDVW/Nasdaq National Market
THE OFFERING:
- We are offering 5,000,000 ordinary
shares.
- The underwriters have an option
to purchase up to 750,000
additional ordinary shares from
us to cover over-allotments.
- This is the initial public offering
of our ordinary shares.
- We anticipate that the initial
public offering price will be
between $10.00 and
$12.00 per share.
- Closing: , 2000
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE TOTAL
<CAPTION>
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
Public Offering Price: $ $
Underwriting Fees:
Proceeds to RadView:
</TABLE>
---------------------------------------------------------------------------
THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 4.
--------------------------------------------------------------------------------
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS DETERMINED WHETHER THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. NOR HAVE THEY MADE, NOR WILL THEY MAKE, ANY
DETERMINATION AS TO WHETHER ANYONE SHOULD BUY THESE SECURITIES. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------------------------------------------------------------------
DONALDSON, LUFKIN & JENRETTE
U.S. BANCORP PIPER JAFFRAY
WIT SOUNDVIEW
DLJDIRECT INC.
<PAGE>
[Inside front cover includes the following language: design, development,
quality assurance and deployment; Accelerating e-business success.]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary................ 1
Risk Factors...................... 4
Special Note Regarding Forward-
Looking Statements; Market
Data............................ 16
Use of Proceeds................... 17
Dividend Policy................... 17
Corporate Information............. 17
Capitalization.................... 18
Dilution.......................... 19
Selected Consolidated Financial
Data............................ 20
Management's Discussion and
Analysis of Financial Condition
and Results of Operations....... 22
Business.......................... 32
Management........................ 46
</TABLE>
<TABLE>
<CAPTION>
Page
<S> <C>
Principal Shareholders............ 56
Certain Transactions with
Executive Officers, Directors
and Five Percent Shareholders... 59
Shares Eligible for Future Sale... 63
Description of Share Capital...... 65
Conditions in Israel.............. 69
Taxation and Government Programs.. 70
Underwriting...................... 79
Legal Matters..................... 82
Experts........................... 82
Enforceability of Civil
Liabilities..................... 82
Where You Can Find Additional
Information..................... 83
Index to Consolidated Financial
Statements...................... F-1
</TABLE>
i
<PAGE>
PROSPECTUS SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION IN THIS PROSPECTUS, INCLUDING RISK FACTORS, REGARDING OUR COMPANY
AND THE ORDINARY SHARES BEING SOLD IN THIS OFFERING.
RADVIEW SOFTWARE
We provide innovative software that enables companies to verify the
performance of their business-critical web applications--the software programs
that enable companies to conduct e-business. Our award-winning, internet-based
software is a comprehensive solution that efficiently simulates internet
operating conditions and effectively analyzes, interprets and reports on the
performance of web applications. Our software enables companies to ensure the
development of high-performance web applications and to accelerate the
deployment of applications that are essential to the success of their e-business
strategies.
The internet is fundamentally changing the way companies conduct business,
as it is being used to sell goods and services, interact with customers,
suppliers and partners, and communicate with employees. Forrester Research
estimates that e-business will grow from approximately $657 billion in 2000 to
approximately $6.8 trillion in 2004. As companies continue to capitalize on
e-business opportunities, they become highly reliant on the performance of their
web applications. If web applications perform poorly or fail, the resulting
financial and business costs can be substantial, including lost revenue,
customer defections, business interruptions and damaged reputation.
In today's competitive e-business environment, companies must be able to
rapidly deploy web applications. However, the rapid deployment of high
performance applications presents many challenges including meeting
time-to-market pressures, managing technological complexity, providing non-stop
operation and ensuring internet scalability. We believe that the continued
expansion of e-business and companies' increasing dependence on their web
applications create a significant market opportunity for solutions that assure
the performance of applications and facilitate their rapid deployment.
Our software products, WebLoad, introduced in 1997, and WebLoad Resource
Manager, introduced in February 2000, are based on internet standards and
comprehensively assess the performance of web applications. Our software enables
companies to quickly identify and resolve application errors and to accelerate
the successful deployment of their web applications. Our products include:
- WebLoad: provides an integrated solution that simultaneously verifies the
scalability, efficiency and reliability of web applications by effectively
simulating internet operating conditions.
- WebLoad Resource Manager: facilitates web application quality by extending
a comprehensive performance solution to all points within the application
development lifecycle.
Our objective is to be the leading provider of software solutions that
enable companies to successfully implement their e-business strategies by
assuring the performance of their business-critical web applications, and
facilitating their accelerated deployment. We plan to extend our product
leadership, expand our sales operations, develop additional strategic
relationships and leverage our customer base. We also intend to target
additional market opportunities, such as the increasing trend for wireless
access to web applications, and partnering with additional internet hosting
companies.
We primarily sell our software through a direct sales force in North America
and Europe and, to a lesser extent, through indirect distribution channels. We
have over 500 customers worldwide, including American Express, Bowstreet,
Compaq, Dell Computer, EarthLink, eBay, Fidelity Investments, Harvard
University, Hewlett-Packard, Lucent Technologies, NCR, Phone.com, Reynolds &
Reynolds, Sun Microsystems and Vanguard.
We have experienced net losses of $2.7 million for 1999 and $1.1 million for
the first quarter of 2000 and we have an accumulated deficit of approximately
$14.1 million as of March 31, 2000.
1
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Ordinary shares offered in this offering........... 5,000,000 shares
Ordinary shares to be outstanding after this 17,366,572 shares
offering.........................................
Use of proceeds.................................... We expect to use the net proceeds from this
offering to finance the continued growth of our
business and general corporate purposes and to
repay indebtedness.
Proposed Nasdaq National Market symbol............. RDVW
</TABLE>
Unless otherwise indicated, the number of ordinary shares to be outstanding
after this offering includes:
- 6,239,740 ordinary shares outstanding as of July 31, 2000;
- 5,265,575 ordinary shares to be issued upon the closing of this offering
upon the automatic conversion of all of our outstanding preferred shares
into ordinary shares;
- 142,857 ordinary shares to be issued upon the exercise of an outstanding
warrant at the closing of this offering;
- 459,900 ordinary shares to be issued upon the exercise of outstanding
options at the closing of this offering; and
- 258,500 ordinary shares to be issued to certain of our shareholders upon
the closing of this offering.
Unless otherwise indicated, the number of ordinary shares to be outstanding
after this offering excludes:
- any exercise of the underwriters' over-allotment option;
- 3,209,389 ordinary shares issuable as of July 31, 2000 upon the exercise
of outstanding options under our share option plans at a weighted average
exercise price of $1.78 per share; and
- 646,833 ordinary shares reserved for future issuance under our share
option plans.
2
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table summarizes our historical financial information. This
information should be read in conjunction with the financial statements and the
notes thereto appearing elsewhere in this prospectus. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The pro forma basic and diluted net loss per ordinary share with respect to
the consolidated statement of operations has been calculated assuming:
- 5,265,575 ordinary shares to be issued upon the closing of this offering
upon the automatic conversion of all of our outstanding preferred shares
into ordinary shares;
- 142,857 ordinary shares to be issued upon the exercise of an outstanding
warrant at an exercise price of $2.10 per share at the closing of this
offering;
- 933,800 ordinary shares issued through the exercise of options July 2000
at an exercise price of NIS 0.01 per share by certain shareholders;
- 459,900 ordinary shares to be issued upon the exercise of outstanding
options at the closing of this offering at an exercise price of NIS 0.01
per share held by certain shareholders;
- 656,300 ordinary shares issued through the exercise of options in June
2000;
- 391,100 ordinary shares issued through the exercise of options in July
2000; and
- 258,500 ordinary shares to be issued to certain shareholders upon the
closing of this offering.
In addition, the consolidated balance sheet data, on a pro forma as adjusted
basis, has been calculated assuming all of the foregoing, as well as our sale of
5,000,000 ordinary shares in this offering at an assumed public offering price
of $11.00 per share, after deducting the estimated underwriting discounts and
commissions and offering expenses payable by us and giving effect to the
repayment of a term loan.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:
Software licenses............................ $ 246 $ 914 $ 4,701 $ 589 $ 1,932
Services..................................... 8 52 409 39 334
------- ------- ------- ------ -------
Total revenues............................. 254 966 5,110 628 2,266
Gross profit................................... 234 885 4,703 566 2,061
Loss from operations........................... (2,877) (2,580) (2,401) (455) (992)
Net loss....................................... (3,005) (2,715) (2,741) (573) (1,050)
Pro forma basic and diluted net loss per
ordinary share............................... $ (0.35) $ (0.09)
Weighted average number of ordinary shares used
in computing pro forma basic and diluted net
loss per ordinary share...................... 7,784 11,887
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
-----------------------
PRO FORMA
ACTUAL AS ADJUSTED
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments......... $ 7,001 $51,114
Working capital........................................... 5,475 49,842
Total assets.............................................. 10,097 54,210
Long-term debt, less current portion...................... 3,587 --
Related party loan, less current portion.................. 1,128 --
Total shareholders' equity................................ 2,017 51,099
</TABLE>
RECENT FINANCIAL DEVELOPMENTS
For the second quarter of 2000, our total revenues were $2.7 million, of
which $2.3 million were software license revenues and $376,000 were service
revenues, and our operating loss was $2.0 million.
3
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISKS BEFORE MAKING AN
INVESTMENT DECISION. OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION
COULD BE MATERIALLY ADVERSELY AFFECTED BY ANY OF THE FOLLOWING RISKS. THE RISKS
DESCRIBED BELOW ARE NOT THE ONLY ONES WE FACE. ADDITIONAL RISKS AND
UNCERTAINTIES, INCLUDING THOSE THAT ARE NOT YET IDENTIFIED OR THAT WE CURRENTLY
THINK ARE IMMATERIAL, MAY ALSO MATERIALLY ADVERSELY AFFECT OUR BUSINESS, RESULTS
OF OPERATIONS AND FINANCIAL CONDITION. THE TRADING PRICE OF OUR ORDINARY SHARES
COULD DECLINE DUE TO ANY OF THESE RISKS, AND YOU COULD LOSE ALL OR PART OF YOUR
INVESTMENT. YOU SHOULD ALSO REFER TO THE OTHER INFORMATION SET FORTH IN THIS
PROSPECTUS, INCLUDING OUR FINANCIAL STATEMENTS AND RELATED NOTES.
RISKS RELATED TO OUR OPERATIONS
OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO EVALUATE OUR BUSINESS
PROSPECTS.
We are still in the early stages of our development. Evaluating our business
operations and our prospects is difficult. We incorporated in Israel in 1991,
commenced operations in 1993 and released our first product in 1994. In 1997, we
introduced WebLoad, which was initially focused on assessing the scalability of
web applications. We began generating revenues from licensing our WebLoad
product in 1997. Since our inception, we have devoted our efforts primarily to
the development of technology, recruiting management and technical staff,
acquiring operating assets and raising capital. We have marketed our products
for a relatively short time and the revenue and income potential of our business
and markets are unproven. As a result, you may find it difficult to assess our
prospects for future success.
WE HAVE HAD OPERATING LOSSES SINCE OUR INCEPTION AND EXPECT TO INCUR LOSSES
FOR THE FORESEEABLE FUTURE.
We incurred net losses of approximately $3.0 million in 1997, $2.7 million
in 1998, $2.7 million in 1999 and $1.1 million for the three months ended
March 31, 2000. As of March 31, 2000, we had an accumulated deficit of
approximately $14.1 million. Moreover, we expect to continue to incur
significant sales and marketing, research and development and general and
administrative expenses. We expect to incur losses for the foreseeable future
and cannot be certain if or when we will achieve profitability. Even if we do
achieve profitability, we may not be able to sustain or increase profitability
on a quarterly or annual basis in the future.
OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE, AND IF WE FAIL TO MEET THE
EXPECTATIONS OF SECURITIES ANALYSTS OR INVESTORS, OUR SHARE PRICE MAY DECREASE
SIGNIFICANTLY AND YOU COULD LOSE PART OR ALL OF YOUR INVESTMENT.
Our quarterly revenues and operating results have varied significantly in
the past and are likely to continue to vary significantly in the future. Our
future quarterly operating results may fluctuate significantly and may not meet
the expectations of securities analysts or investors. The factors that may cause
fluctuations of our operating results include the following:
- the size, timing and terms of sales of our products and services;
- unexpected delays we may encounter in introducing new versions of WebLoad
and WebLoad Resource Manager and new products and services;
- our ability to successfully retain and expand our direct sales force and
international sales organization;
- our ability to establish and maintain relationships with our partners; and
- the fixed nature of expenses such as base compensation and rent.
4
<PAGE>
Due to these and other factors, we believe that period-to-period comparisons
of our results of operations may not be meaningful and should not be relied upon
as indicators of our future performance. It is possible that in future periods
our results of operations may be below the expectations of public market
analysts and investors. Furthermore, our quarterly revenues could be
significantly affected by any future amendment or interpretation of applicable
accounting standards. If this occurs, the price of our ordinary shares may
decline.
WE ANTICIPATE INCREASED OPERATING EXPENSES AND IF WE DO NOT CORRESPONDINGLY
INCREASE REVENUES, OUR OPERATING RESULTS WILL BE HARMED.
We expect that our operating expenses will increase significantly in the
future as we take the following steps:
- expand our sales and marketing operations;
- broaden our customer support capabilities;
- develop new distribution channels and strategic alliances;
- fund increased levels of research and development; and
- build our operational infrastructure and information systems.
Our revenues may not grow at the same pace or even continue at their current
level. If our revenues do not increase as anticipated, or if expenses increase
at a greater pace than our revenues, our results of operations will be harmed.
If we do not increase revenues correspondingly with our expenses, our operating
results will be harmed.
WE EXPECT TO DEPEND ON SALES OF OUR WEBLOAD AND WEBLOAD RESOURCE MANAGER
PRODUCTS FOR SUBSTANTIALLY ALL OF OUR REVENUES FOR THE FORESEEABLE FUTURE.
Our WebLoad product accounted for all of our revenues prior to
February 2000. We anticipate that revenues from our WebLoad and WebLoad Resource
Manager products will constitute substantially all of our revenues for the
foreseeable future. Consequently, any decline in the demand for our WebLoad and
WebLoad Resource Manager products or their failure to achieve broad market
acceptance, would seriously harm our business.
IF WE FAIL TO DEVELOP NEW PRODUCTS AND ENHANCE OUR EXISTING PRODUCTS TO
RESPOND TO EMERGING TECHNOLOGIES AND INDUSTRY TRENDS, WE MAY LOSE MARKET SHARE
TO OUR COMPETITORS AND OUR REVENUES MAY DECLINE.
The target market for our products is characterized by rapid technological
change, frequent new product introductions, changes in customer requirements,
evolving industry standards and significant competition. We expect to introduce
new products and develop enhancements to our existing products. Our future
financial performance depends upon our ability to timely identify new market
trends and internet technology and to develop and commercialize software that is
compatible with these emerging trends and technologies. We may not accurately
identify trends and technologies or we may experience difficulties that delay or
prevent the successful development, introduction or marketing of new or enhanced
software products in the future. In addition, our products may not meet the
requirements of the marketplace or achieve market acceptance. If we fail to
successfully and timely develop and deploy new products or product enhancements,
we may lose market share to our competitors and our revenues may decline.
In addition, our existing software products could become obsolete and
unmarketable with the introduction of products, web applications or computer
systems employing new technologies or industry standards. If our current
software products become obsolete and we fail to introduce new products, our
business will not be viable. Further, if our competitors introduce products
earlier or that are more
5
<PAGE>
responsive than our products to emerging technologies and market trends, we will
lose market share to our competitors and our revenues may decline.
OUR WEBLOAD AND WEBLOAD RESOURCE MANAGER PRODUCTS ARE NEW AND IT IS UNCLEAR IF
THEY WILL ACHIEVE MARKET ACCEPTANCE.
We do not know if our WebLoad and WebLoad Resource Manager products will be
successful. The market for software that enables companies to assure the
performance of web applications is in its infancy, and we are not certain that
our target customers will use performance software or our products. In addition,
in February 2000, we introduced WebLoad Resource Manager, which we anticipate
will be a critical element in our future commercial success. Even if our
products provide effective solutions, our target customers may not choose them
for technical, cost, support or other reasons. If our products do not achieve
market acceptance, our business will be harmed.
WE FACE SIGNIFICANT COMPETITION FROM OTHER TECHNOLOGY COMPANIES AND WE MAY NOT
BE ABLE TO COMPETE EFFECTIVELY.
The web application performance and testing solutions market is intensely
competitive, subject to rapid change and significantly affected by new product
introductions and other activities of market participants. Our primary
competitors include companies who mainly offer application testing software,
such as Mercury Interactive. In addition, we compete against companies that
provide a broader spectrum of development tools that include some verification
functionality, such as Rational Software.
We expect that competition will intensify in the future and that additional
competitors will enter the market with competing products as the size and
visibility of the market opportunity increases. Increased competition is likely
to result in pricing pressures, reduced margins and may result in the failure of
our products to achieve or maintain market acceptance, any of which could have a
material adverse effect on our business, results of operations and financial
condition. Some of our competitors have longer operating histories, better brand
recognition, a larger installed base of customers and substantially greater
financial, technical, marketing and other resources than we do. In addition, we
anticipate that there will be continuing consolidation in our market.
Consequently, our competitors may be acquired by, receive investments from, or
enter into other commercial relationships with, larger, well-established and
well-financed companies. Therefore, they may be able to respond more quickly to
new or changing opportunities, technologies, standards or customer requirements.
Many of these competitors also have broader and more established distribution
channels that may be used to deliver competing products directly to customers
through bundling or other means. If competitors were to bundle competing
products with their products, the demand for our products might be substantially
reduced and our ability to distribute our products successfully would be
substantially diminished. The entry of new competitors into our market could
reduce our sales, require us to lower our prices, or both. Many of the factors
that affect competition are outside our control, and there can be no assurance
that we can maintain or enhance our competitive position against current and
future competitors.
OUR SALES CYCLE DEPENDS PARTLY ON FACTORS OUTSIDE OUR CONTROL AND MAY CAUSE
OUR REVENUES TO VARY SIGNIFICANTLY.
Our customers often view the purchase of our products as an important
decision, particularly with respect to WebLoad Resource Manager, which we
introduced in February 2000. As a result, our customers may take a long time to
evaluate our products before making their purchase decisions and this could
result in a long, and often unpredictable, sales and implementation cycle for
our products. This may cause our revenues and results of operations to vary
significantly from period to period. With respect to WebLoad Resource Manager,
we spend time educating and providing information to our prospective customers
regarding its use and benefits. In addition, we may expend significant sales and
6
<PAGE>
marketing expenses during the evaluation period before the customer places an
order with us. Our customers often begin by purchasing our products on a pilot
basis before they decide whether or not to purchase additional licenses for
broader use within their organizations.
We also have a limited order backlog, which makes revenues in any quarter
substantially dependent upon orders we receive and deliver in that quarter.
Because of these factors, our revenues and results of operations in any quarter
may not meet market expectations or be indicative of future performance and it
may be difficult for you to evaluate our prospects.
DEFECTS IN OUR PRODUCTS MAY INCREASE OUR COSTS AND DIMINISH THE DEMAND FOR OUR
PRODUCTS.
Our products are complex and they have occasionally contained, and may in
the future contain, undetected errors when first introduced or when new versions
are released. If our products do not perform as intended in specific company
environments, we may incur warranty and repair costs, be subject to liability
and experience delays. Regardless of the source of the errors, we must divert
the attention of our engineering personnel from our research and development
efforts to address the errors. We cannot assure you that we will not incur
warranty or repair costs, be subject to liability claims for damages related to
product errors or experience delays as a result of these errors in the future.
Any insurance policies that we may have may not provide sufficient protection
should a claim be asserted. Moreover, the occurrence of errors, whether caused
by our products or the products of another vendor, may result in significant
customer relations problems and injury to our reputation and may impair the
market acceptance of our products and technology.
FAILURE TO EXPAND OUR SALES AND MARKETING ORGANIZATIONS IN THE U.S. AND ABROAD
COULD LIMIT OUR GROWTH.
We believe that expansion of our U.S. and international direct and indirect
sales and marketing organization is necessary for our future success. Although
we have recently expanded our direct sales force in North America and Europe,
further expansion may be more difficult or take longer than we anticipate and we
may not be able to successfully market, sell, deliver and support our products
in the U.S. and abroad. We might not be able to hire or retain the kind and
number of sales and marketing personnel we are targeting because competition for
qualified sales and marketing personnel in our market is intense. Failure to
expand our sales and marketing organizations in the U.S. and abroad could limit
our growth.
FAILURE TO DEVELOP STRATEGIC RELATIONSHIPS COULD LIMIT OUR GROWTH.
We believe that our success in penetrating our target markets depends in
part on our ability to develop and maintain strategic relationships with
resellers, systems integrators and distribution partners. If we are unable to
maintain our existing marketing and distribution relationships, or fail to enter
into additional relationships, we will have to devote substantially more
resources to direct sales and marketing of our products. In addition, licenses
of our products through indirect channels have been limited to date. Our
existing relationships do not, and any future relationships may not, afford us
exclusive marketing or distribution rights. Therefore, our partners could reduce
their commitment to us at any time in the future. In addition, many of these
companies have multiple relationships and they may not regard us as significant
for their business. In addition, these companies may terminate their
relationships with us, pursue other relationships with our competitors or
develop or acquire products that compete with our products. Even if we succeed
in entering into these relationships, they may not result in additional
customers or revenues.
7
<PAGE>
WE MAY EXPERIENCE DIFFICULTIES MANAGING OUR CONTINUED GROWTH IN THE U.S. AND
ABROAD THAT COULD HARM OUR BUSINESS.
Our recent growth and expansion have placed significant strain on our
management and information systems and our administrative, operational and
financial resources. We intend to continue to increase the scope of our
operations in the U.S. and internationally. We expect that we will need to
continue to expand our financial, managerial and reporting systems, and
increase, train and manage our work force worldwide. Our anticipated future
operations will continue to place a significant strain on our management systems
and resources. If we are unable to manage our growth and expansion, our business
may be harmed.
FUTURE ACQUISITIONS MAY BE DIFFICULT TO INTEGRATE, DISRUPT OUR BUSINESS,
DILUTE SHAREHOLDER VALUE OR DIVERT MANAGEMENT ATTENTION.
As part of our business strategy, we may seek to acquire or invest in
businesses, products or technologies that we believe would complement or expand
our business, augment our market coverage, enhance our technical capabilities or
otherwise offer growth opportunities. Acquisitions could create risks for us,
including:
- difficulties in assimilation of acquired personnel, operations,
technologies or products;
- unanticipated costs associated with acquisitions;
- diversion of management's attention from other business concerns;
- adverse effects on our existing business relationships with suppliers and
customers; and
- use of substantial portions of our available cash, including the proceeds
of this offering, to consummate the acquisitions.
In addition, if we consummate acquisitions through an exchange of our
securities, you could suffer significant dilution. Any future acquisitions, even
if successfully completed, may not generate any additional revenue or provide
any benefit to our business.
IF WE FAIL TO MANAGE OUR GEOGRAPHICALLY DISPERSED ORGANIZATION, WE MAY FAIL TO
IMPLEMENT OUR BUSINESS PLAN AND OUR REVENUES MAY DECLINE.
We have our principal executive offices in the U.S. and conduct our research
and development primarily in Israel. In addition, we have sales offices in the
U.S., Israel and the United Kingdom. Our directors, executive officers and other
key employees are similarly dispersed throughout the world. Our management must
devote resources to manage geographically-diverse operations. In addition,
conducting international operations subjects us to risks we do not face in the
United States. These include:
- currency exchange rate fluctuations;
- seasonal fluctuations in purchasing patterns;
- unexpected changes in regulatory requirements;
- longer accounts receivable payment cycles and difficulties in collecting
accounts receivable;
- difficulties in managing and staffing international operations;
- potentially adverse tax consequences, including restrictions on the
repatriation of earnings;
- the burdens of complying with a wide variety of foreign laws; and
- reduced protection for intellectual property rights in some countries.
8
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In addition, the expansion of our existing international operations and
entry into additional international markets will require significant management
attention and financial resources. Failure to manage our geographically
dispersed organization could harm our business.
THE SUCCESS OF OUR BUSINESS DEPENDS ON OUR SENIOR MANAGEMENT, INCLUDING ILAN
KINREICH, OUR CHIEF EXECUTIVE OFFICER AND PRESIDENT, WHOSE KNOWLEDGE OF OUR
BUSINESS AND EXPERTISE WOULD BE DIFFICULT TO REPLACE.
Our success depends largely on the continued contributions of our senior
management. In particular, we depend on the services of Ilan Kinreich, our Chief
Executive Officer and President. We do not have agreements covering required
terms of employment in place with our senior management team and other key
personnel, including Mr. Kinreich, nor do we carry life insurance on our senior
management or other key personnel. If one or more members of our senior
management were to terminate their employment, we could experience delays in
product development, loss of sales and diversion of management resources.
WE MAY NOT BE ABLE TO RECRUIT OR RETAIN ADDITIONAL QUALIFIED PERSONNEL WHICH
COULD NEGATIVELY IMPACT DEVELOPMENT, SALES AND SUPPORT OF OUR PRODUCTS.
Our success depends on our ability to attract and retain qualified,
experienced employees. We will need to hire a significant number of additional
sales, support, marketing, and research and development personnel in the future
to increase our revenues. If we fail to attract qualified personnel or retain
current employees, our revenues may not increase and could decline. Competition
for qualified personnel is intense, and we may not be able to attract,
assimilate or retain additional highly qualified personnel. Our future success
also depends upon the continued service of our key sales, marketing and support
personnel. In addition, our products and technologies are complex and we are
substantially dependent upon the continued service of our existing engineering
personnel. None of our key employees are bound by an employment agreement
covering a required term of employment. If we are not able to recruit or retain
qualified personnel, we could have difficulty developing, selling or supporting
our products.
WE MAY NOT BE ABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS AND WE MAY LOSE
A VALUABLE ASSET OR INCUR COSTLY AND TIME-CONSUMING LITIGATION ATTEMPTING TO
PROTECT OUR RIGHTS.
Our success depends upon the protection of our technology, trade secrets and
trademarks. To protect our rights to our intellectual property, we rely on a
combination of trade secret protection, trademark law, confidentiality
agreements and other contractual arrangements. The protective steps we have
taken may be inadequate to deter infringement or misappropriation. We may be
unable to detect the unauthorized use of our intellectual property or take
appropriate steps to enforce our intellectual property rights. Policing
unauthorized use of our products and technology is difficult. In addition, the
laws of some foreign countries in which we currently or may in the future sell
our products do not protect our proprietary rights to as great an extent as do
the laws of the United States. Failure to adequately protect against or to
promptly detect unauthorized use of our intellectual property could devalue our
proprietary content and impair our ability to compete effectively. Further,
defending our intellectual property rights could result in the expenditure of
significant financial and managerial resources, whether or not the defense is
successful. Our means of protecting our proprietary rights may not be adequate
and our competitors may independently develop similar technology, or duplicate
our products or our other intellectual property. We may have to resort to
litigation to enforce our intellectual property rights, to protect our trade
secrets or know-how or to determine the scope, validity or enforceability of our
intellectual property rights. Our protective measures may prove inadequate to
protect our proprietary rights, and any failure to enforce or protect our rights
could cause us to lose a valuable asset.
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<PAGE>
WE MAY BE SUBJECT TO INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS THAT, WITH OR
WITHOUT MERIT, COULD BE COSTLY TO DEFEND OR SETTLE.
Substantial litigation regarding intellectual property rights exists in the
software industry. We expect that software products may be increasingly subject
to third-party infringement claims as the number of competitors in our industry
segments grow and the functionality of products in different industry segments
overlaps. Third parties may make a claim of infringement against us with respect
to our products and technology or claims that our intellectual property rights
are invalid. Any claims, with or without merit, could:
- be time-consuming to defend;
- result in costly litigation;
- divert management's attention and resources; or
- delay product delivery.
In addition, if our products were found to infringe a third party's
proprietary rights, we could be required to enter into royalty or licensing
agreements in order to continue to be able to sell our products. Royalty or
licensing agreements, if required, may not be available on terms acceptable to
us or at all. A successful claim of product infringement against us and our
failure or inability to license the infringed or similar technology could harm
our business.
WE DO NOT HAVE SUFFICIENT INSURANCE TO COVER ALL OF OUR POTENTIAL PRODUCT
LIABILITY AND WARRANTY CLAIMS.
Companies use our products to assure the performance of their web
applications. In many cases, web applications serve critical business functions.
The sale and support of our products may entail the risk of product liability or
warranty claims based on our products not detecting critical errors or problems
with web applications which fail in a "live" environment and cause companies
financial loss. In addition, the failure of our products to perform to customer
expectations could give rise to warranty claims. Although we seek to limit our
exposure to claims under our license terms and we carry general liability
insurance, it is unlikely that our insurance would cover potential claims of
this type and our insurance may not be adequate to protect us from all liability
that may be imposed. If we are subject to any claims, our results of operations
may be harmed.
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RISKS RELATING TO OUR INDUSTRY AND THE INTERNET
OUR FUTURE REVENUES AND PROFITS, IF ANY, DEPEND UPON THE WIDESPREAD ACCEPTANCE
AND USE OF THE INTERNET AS AN EFFECTIVE MEDIUM OF BUSINESS AND COMMUNICATION.
Rapid growth in the use of and interest in the internet as a medium for
communication and conducting business has occurred only recently. As a result,
acceptance and use may not continue to develop at historical rates, and a
sufficiently broad base of consumers may not adopt, and continue to use, the
internet, corporate intranets and other online services as a medium of commerce
and communication. Our success will depend, in large part, on the acceptance of
the internet to conduct business and on the ability of third parties to provide
a reliable internet infrastructure network with the speed, data capacity and
security necessary for reliable internet access and services. To the extent that
the internet continues to experience increased numbers of users, increased
frequency of use or increased bandwidth requirements of users, the internet
infrastructure may not be able to support the demands placed on it and the
performance or reliability of the internet could suffer, resulting in decreased
users and resulting harm to our business.
CAPACITY CONSTRAINTS MAY RESTRICT THE USE OF THE INTERNET, RESULTING IN
DECREASED DEMAND FOR OUR PRODUCTS.
The internet infrastructure may not be able to support the demands placed on
it by increased usage or the limited capacity of networks to transmit large
amounts of data. Other risks associated with commercial use of the internet
could slow its growth, including:
- outages and other delays resulting from the inadequate reliability of the
network infrastructure;
- slow development of enabling technologies and complementary products; and
- limited availability of cost-effective, high-speed access.
Delays in the development or adoption of new equipment standards or
protocols required to handle increased levels of internet activity could cause
the internet to lose its viability as a means of conducting business, resulting
in decreased use of web applications and decreased demand for our products.
IF REGULATION OF THE INTERNET INCREASES, IT COULD LIMIT THE MARKET FOR OUR
PRODUCTS WHICH COULD REDUCE OUR REVENUES.
As internet commerce continues to evolve, we expect that federal, state and
foreign governments will adopt laws and regulations covering issues such as user
privacy, taxation of goods and services provided over the internet and pricing,
content and quality of products and services. It is possible that legislation
could expose companies involved in e-business to liability, taxation or other
increased costs, any of which could limit the growth and use of web applications
generally. Legislation could dampen the growth in internet usage and decrease
its acceptance as a communications and commercial medium. Because our business
depends on the continued growth of web applications and the internet generally,
these laws and regulations, if enacted or promulgated, could limit the market
for our products and may reduce our revenues.
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RISKS RELATING TO THIS OFFERING
OUR EXECUTIVE OFFICERS, DIRECTORS AND MAJOR SHAREHOLDERS WILL RETAIN
SIGNIFICANT CONTROL OVER US AFTER THIS OFFERING, WHICH MAY LEAD TO CONFLICTS
WITH OTHER SHAREHOLDERS OVER CORPORATE GOVERNANCE MATTERS.
After this offering, executive officers, directors and holders of 5.0% or
more of our outstanding ordinary shares will own, in the aggregate,
approximately 69.5% of our outstanding ordinary shares. In addition, Yehuda and
Zohar Zisapel, who are brothers, will own, in the aggregate, directly or
indirectly through entities they control, approximately 23.9% of our outstanding
ordinary shares. These shareholders will be able to significantly influence all
matters requiring approval by our shareholders, including the election of
directors and the approval of significant corporate transactions. This
concentration of ownership may also delay, deter or prevent a third party from
acquiring us or merging with us and may make some other transactions more
difficult or impossible to complete without the support of these shareholders.
THE MARKET PRICE OF OUR ORDINARY SHARES MAY BE VOLATILE AND YOU COULD LOSE ALL
OR PART OF YOUR INVESTMENT.
Prior to this offering, you could not buy or sell our ordinary shares
publicly. An active public market for our ordinary shares may not develop or be
sustained after this offering. We will negotiate and determine the initial
public offering price with the representatives of the underwriters based on
several factors. This price may vary from the market price of our ordinary
shares after this offering. You may be unable to sell your ordinary shares at or
above the initial offering price. The market price of our ordinary shares may
fluctuate significantly in response to the following factors, some of which are
beyond our control:
- general fluctuations in stock market prices and volume, which are
particularly common among securities of software and internet-based
companies like ours;
- variations in our quarterly operating results;
- changes in securities analysts' estimates of our financial performance;
- changes in market valuations of similar companies;
- announcements by us or our competitors of significant products, contracts,
acquisitions or strategic partnership; and
- additions or departures of key personnel.
SUBSTANTIAL FUTURE SALES OF OUR SHARES COULD CAUSE OUR SHARE PRICE TO DECLINE.
Sales of a substantial number of our ordinary shares after this offering
could cause the market price of our ordinary shares to decline by potentially
introducing a large number of sellers of our ordinary shares into a market in
which our ordinary share price is already volatile. In addition, the sale of
these shares could impair our ability to raise capital through the sale of
additional equity securities. Based on shares outstanding and excluding options
issued under our share option plans as of July 31, 2000, we will have 17,366,572
of our ordinary shares outstanding upon completion of the offering, or
18,116,572 ordinary shares if the underwriters' over-allotment is exercised in
full. Our directors, executive officers and all shareholders have executed
lock-up agreements that prevent them from selling our ordinary shares for a
period of 180 days after the date of this prospectus without the prior written
approval of Donaldson, Lufkin & Jenrette Securities Corporation. However, 25.0%
of the ordinary shares subject to the restrictions described above, other than
shares owned by employees of the Company, will be released from these
restrictions if the reported last sale price of our ordinary shares on the
Nasdaq National Market is at least twice the initial public offering price for
20 of the 30 consecutive trading days ending on the last trading day of the
90-day period after the date of this prospectus and the second trading day after
the first public release of our quarterly results. An
12
<PAGE>
additional 25.0% of the shares subject to the restrictions describe above will
be released if the reported last sale price of our ordinary shares on the Nasdaq
National Market is at least twice the initial public offering price for 20 of
the 30 consecutive trading days ending on the last trading day of the 135-day
period after the date of this prospectus. When these lock-up agreements expire,
these shares and the ordinary shares underlying any options held by these
individuals will become eligible for sale, in some cases subject only to the
volume, manner of sale and notice requirements of Rule 144 of the Securities Act
of 1933.
YOU WILL EXPERIENCE IMMEDIATE AND SIGNIFICANT DILUTION OF BOOK VALUE PER
SHARE.
The initial public offering price of our ordinary shares will be
substantially higher than the net tangible book value per outstanding ordinary
share immediately after this offering. Assuming an initial public offering price
of $11.00 per ordinary share, you will incur immediate dilution of $8.05 in the
net tangible book value per ordinary share from the price you pay for any
ordinary shares you purchase in this offering.
OUR MANAGEMENT WILL HAVE BROAD DISCRETION CONCERNING THE USE OF PROCEEDS OF
THIS OFFERING AND IF THEY DO NOT USE THE PROCEEDS EFFECTIVELY, OUR RESULTS OF
OPERATIONS MAY SUFFER.
We currently have no specific plans for a significant portion of our net
proceeds from this offering. Consequently, our management will have broad
discretion concerning the use of the proceeds of this offering. They may spend
these proceeds in ways with which our shareholders may not agree. Management's
allocation of the proceeds of this offering may not benefit our business and the
investment of the proceeds may not yield a favorable return.
IF WE ARE CHARACTERIZED AS A PASSIVE FOREIGN INVESTMENT COMPANY, OUR U.S.
SHAREHOLDERS MAY SUFFER ADVERSE TAX CONSEQUENCES, INCLUDING HIGHER TAX RATES
AND POTENTIALLY PUNITIVE INTEREST CHARGES ON THE PROCEEDS OF SHARE SALES.
Generally, if for any taxable year 75.0% or more of our gross income is
passive income, or at least 50.0% of our assets are held for the production of,
or produce, passive income, we may be characterized as a passive foreign
investment company for U.S. federal income tax purposes. If we are characterized
as a passive foreign investment company, our U.S. shareholders may suffer
adverse tax consequences, including realizing gains on the sale of our shares as
ordinary income, rather than capital gain income, and having to pay potentially
punitive interest charges on the proceeds of share sales. For purposes of
determining if we are a passive foreign investment company, the proceeds of this
offering will constitute a passive asset and the income generated by the
proceeds will, until we employ it in the course of our business, constitute
passive income. Therefore, the timeliness of our use of the proceeds of this
offering may affect our status as a passive foreign investment company.
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RISKS RELATING TO OUR LOCATION IN ISRAEL
CONDITIONS IN ISRAEL AFFECT OUR OPERATIONS AND MAY LIMIT OUR ABILITY TO
PRODUCE AND SELL OUR PRODUCTS WHICH COULD DECREASE OUR REVENUES.
We incorporated under Israeli law and our primary research and development
facilities are located in Israel. Political, economic and military conditions in
Israel directly affect our operations. Since the establishment of the State of
Israel in 1948, a state of hostility, varying in degree and intensity, has led
to security and economic problems for Israel. Any major hostilities involving
Israel could adversely affect our results of operations, particularly if they
lead to an interruption or curtailment of trade between Israel and its trading
partners, a significant increase in inflation, or a significant downturn in the
economic or financial condition of Israel. Despite the progress towards peace
between Israel and its Arab neighbors, the future of these peace efforts is
uncertain. Several Arab countries still restrict business with Israeli
companies. We could be adversely affected by these restrictive laws or policies.
IF OUR KEY PERSONNEL ARE REQUIRED TO PERFORM MILITARY SERVICE, WE COULD
EXPERIENCE DISRUPTIONS IN OUR BUSINESS.
A number of our key personnel in Israel have standing obligations to perform
annual reserve duty in the Israel Defense Forces and are subject to be called
for active military duty at any time. If our key personnel are absent from our
business for a significant period of time, we may experience disruptions in our
business that could affect the development, sales or technical support of our
products. As a result, we might not be able to compete in the market and our
results of operations could be harmed.
BECAUSE SUBSTANTIALLY ALL OF OUR REVENUES ARE GENERATED IN U.S. DOLLARS, WHILE
A PORTION OF OUR EXPENSES IS INCURRED IN NEW ISRAELI SHEKELS, OR NIS,
INFLATION IN ISRAEL COULD HARM OUR RESULTS OF OPERATIONS.
Substantially all of our revenues are generated in U.S. dollars, while a
portion of our expenses, primarily salaries and personnel expenses related to
our Israeli facility, is in NIS. Our Israeli-based employees' salaries are
influenced by inflation in Israel. As a result, any increase in the rate of
inflation in Israel may have a negative impact on our operating results unless
the inflation in Israel is offset by a devaluation of the NIS in relation to the
U.S. dollar. In 1997 and 1998, the rate of devaluation of the NIS against the
dollar exceeded the rate of inflation, a reversal from prior years. However, in
1999, while the rate of inflation was 1.3%, there was an appreciation of 0.1% of
the NIS against the dollar. We cannot predict any future trends in the rate of
inflation in Israel or trends in the rate of exchange between the NIS and the
dollar. If the dollar cost of our operations in Israel increases, our dollar-
measured results of operations will be adversely affected.
ISRAELI REGULATIONS MAY IMPACT OUR ABILITY TO ENGAGE IN RESEARCH AND
DEVELOPMENT AND EXPORT OUR PRODUCTS IN ACCORDANCE WITH OUR CURRENT PRACTICES.
Israeli law requires us to obtain a government license to engage in research
and development of, and export of, the encryption technology incorporated in our
products. Our current government licenses to engage in production of our
encryption technology pertain to our products in their 40 and 128 bit versions
and expire, respectively, May 30, 2002 and October 31, 2002. Our research and
development activities in Israel would need to be modified to transfer this
activity to our U.S. development organization, and our current practice of
exporting our products from Israel to the U.S., with embedded encryption
technology, would need to be changed if:
- the Israeli government revokes our current licenses;
- our current licenses are not renewed;
- our licenses fail to cover the scope of the technology in our products; or
- Israeli law regarding research and development, export or use in general
of encryption technologies were to change.
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WE CURRENTLY BENEFIT FROM GOVERNMENT PROGRAMS AND TAX BENEFITS THAT MAY BE
DISCONTINUED OR REDUCED.
We received grants and currently receive tax benefits under Government of
Israel programs. In order to maintain our eligibility for these programs and
benefits, we must continue to meet specified conditions, including making
specified investments in fixed assets and paying royalties with respect to
grants received. We cannot assure you that we will continue to meet all such
conditions. In addition, some of these programs restrict our ability to
manufacture particular products or transfer particular technology outside of
Israel. If we fail to comply with these conditions in the future, the benefits
received could be canceled and we could be required to refund any payments
previously received under these programs or to retroactively pay tax on our
income at a higher tax rate than that applying under these benefits. The
government of Israel has reduced the benefits available under these programs in
recent years and we cannot guarantee that these programs and tax benefits will
continue in the future at their current levels or at all. If the government of
Israel reduces or ends these tax benefits, our business, financial condition and
results of operations could be materially adversely affected.
IT MAY BE DIFFICULT TO ENFORCE A U.S. JUDGMENT AGAINST US OR OUR OFFICERS AND
DIRECTORS, OR TO ASSERT U.S. SECURITIES LAWS CLAIMS IN ISRAEL OR SERVE PROCESS
ON OUR OFFICERS AND DIRECTORS.
We are incorporated in Israel. Our Chief Executive Officer and President
resides in the United States under a L-1 visa, some of our executive officers
and directors named in this prospectus are nonresidents of the United States and
a portion of our assets and the assets of these persons are located outside the
United States. Therefore, it may be difficult for an investor to enforce a
judgment obtained in the United States against us or any of those persons or to
effect service of process upon these persons in the United States. It may also
be difficult to enforce civil liabilities under U.S. federal securities laws in
original actions instituted in Israel.
THE NEW ISRAELI COMPANIES LAW MAY CAUSE UNCERTAINTIES REGARDING CORPORATE
GOVERNANCE; ISRAELI TAX LAW MAY INHIBIT AN ACQUISITION OF US.
The new Israeli Companies Law, 1999 which became effective on February 1,
2000, has brought about significant changes to Israeli corporate law. This law
provides for new arrangements in various corporate areas, including shareholder
voting rights, fiduciary obligations of shareholders and directors, mergers,
tender offers, transactions involving related parties or significant
shareholders, and anti-takeover provisions. Until a body of law develops with
respect to this new law, uncertainties will exist regarding its interpretation.
These uncertainties could have the effect of inhibiting third party attempts to
acquire us, and other transactions and decisions by or involving us.
PROPOSED TAX REFORM IN ISRAEL CREATES UNCERTAINTIES AS TO FUTURE TAX
CONSEQUENCES TO US AND OUR SHAREHOLDERS.
On May 4, 2000, a committee chaired by Avi Ben Bassat, the Director General
of the Israeli Ministry of Finance, issued its report recommending a major
reform in the Israeli tax system. The proposed tax reform, which may become
effective as of January 1, 2001, provides for material changes in the current
Israeli tax structure. Some of the committee's proposals may have adverse tax
consequences on us and on our shareholders. For example, the committee proposes
to impose a capital gains tax that would be applicable to sales of our ordinary
shares, and to eliminate the existing initial tax exemption granted with respect
to income generated from our future Approved Enterprise facilities. Because we
cannot predict whether, and to what extent, the Ben Bassat committee's
proposals, or any of them, will eventually be adopted and enacted into law, we
and our shareholders face uncertainties as to the potential consequences of
these tax reform proposals.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS; MARKET DATA
Some of the statements under "Prospectus Summary," "Risk Factors," "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business," and elsewhere in this prospectus, constitute
forward-looking statements. These statements relate to future events or other
future financial performance, and are identified by terminology such as "may,"
"will," "should," "expect," "scheduled," "plan," "intend," "anticipate,"
"believe," "estimate," "aim," "potential," or "continue" or the negative of such
terms or other comparable terminology. These statements are only predictions.
Actual events or results may differ materially. In evaluating these statements,
you should specifically consider various factors, including the risks outlined
under "Risk Factors." These factors may cause our actual results to differ
materially from any forward-looking statement.
This prospectus contains market data related to our business, our industry
and the internet. This market data includes projections that are based on a
number of assumptions. If these assumptions turn out to be incorrect, actual
results may differ from the projections based on these assumptions. As a result,
our markets may not grow at the rates projected by these data, or at all. The
failure of these markets to grow at these projected rates may have a material
adverse effect on our business, results of operations and financial condition,
and the market price of our ordinary shares.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot assure you that our future results, levels
of activity, performance, or goals will be achieved. We undertake no obligation
to update any of the forward-looking statements after the date of this
prospectus to conform such statements to reflect the occurrence of unanticipated
events.
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USE OF PROCEEDS
The net proceeds we will receive from the sale of ordinary shares offered by
us are estimated to be $48.8 million ($56.5 million if the underwriters'
over-allotment option is exercised in full) after deducting the estimated
underwriting discounts and commissions and offering expenses payable by us and
assuming an initial public offering price of $11.00.
We are required to repay a loan to Rad Data Communications Ltd., a related
party, in the amount of $1.4 million from the net proceeds of this offering.
This loan is linked to the Israeli Consumer Price Index and bears no stated
interest. See "Certain Transactions with Executive Officers, Directors and Five
Percent Shareholders." In addition, we intend to prepay loans from Bank Hapoalim
in the principal amount of $3.6 million. These bank loans bear interest at an
annual rate of LIBOR plus 1.5% and are currently repayable in 2001.
We also intend to use the net proceeds from this offering for working
capital and other general corporate purposes, which may include product research
and development, expansion of our operations and sales and marketing
capabilities, and acquisition of, or investment in, companies, technologies or
assets that complement our business. However, we currently have no present
understandings, commitments or agreements with respect to any potential
acquisition or any investment. Further, we have not determined the amounts we
plan to spend on any of the areas listed above or the timing of these
expenditures. As a result, our management will have broad discretion to allocate
the net proceeds from this offering. Pending application of the net proceeds as
described above, we intend to invest the net proceeds of the offering in
short-term, investment-grade, interest-bearing securities in U.S. dollar
accounts.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our ordinary shares. We
currently intend to retain any earnings to fund the development and expansion of
our business and do not anticipate paying cash dividends in the foreseeable
future.
CORPORATE INFORMATION
We were incorporated under the laws of the State of Israel in 1991. Our
principal executive offices are located at 7 New England Executive Park,
Burlington, Massachusetts, 01803 and our telephone number is 781-238-1111. Our
facility in Israel is located at 2 Habarzel St., Tel-Aviv, 69710, Israel and our
telephone number is 011-972-3-765-0555. Our website is located at
http://www.radview.com. We do not intend for information contained on our
website to be considered a part of this prospectus.
RadView-TM- and WebLoad-TM- are our trademarks. All other trademarks and
tradenames in this prospectus are the property of their respective owners.
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CAPITALIZATION
The following table describes our cash, cash equivalents and short-term
investments and capitalization as of March 31, 2000 on an actual basis and on a
pro forma as adjusted basis to give effect to:
- 5,265,575 ordinary shares to be issued at the closing of the offering upon
the automatic conversion of all of our outstanding preferred shares into
ordinary shares;
- 142,857 ordinary shares to be issued upon the exercise of an outstanding
warrant at an exercise price of $2.10 per share at the closing of this
offering;
- 933,800 ordinary shares issued through the exercise of options in
July 2000 at an exercise price of NIS 0.01 per share by certain
shareholders;
- 459,900 ordinary shares to be issued upon the exercise of outstanding
options at an exercise price of NIS 0.01 per share held by certain
shareholders at the closing of this offering;
- 391,100 ordinary shares issued through the exercise of options in
July 2000;
- 656,300 ordinary shares issued through the exercise of options in June
2000;
- 258,500 ordinary shares to be issued to certain of our shareholders at the
closing of this offering;(1)
- the repayment of indebtedness; and
- our sale of 5,000,000 ordinary shares in this offering, after deducting
the estimated underwriting discounts and commissions and offering expenses
payable by us.
You should read this table along with "Management's Discussion and Analysis
of Financial Condition and Results of Operations," our financial statements and
related notes and the other financial information in this prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
---------------------------------------------
PRO FORMA
ACTUAL AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C>
Cash, cash equivalents and short-term investments........... $ 7,001 $ 51,114
======== ========
Current maturities of long-term loans and related party
loan...................................................... 254 --
======== ========
Long-term obligations:
Long-term loans, less current portion..................... 3,587 --
Related party loan, less current portion.................. 1,128 --
Shareholders' equity:
Series A Convertible Preferred Shares, par value NIS 0.01
per share: 3,500,000 authorized, actual; 2,337,000
shares issued and outstanding, actual; no shares
authorized, issued and outstanding pro forma as
adjusted................................................ 6 --
Series B-1 Convertible Preferred Shares, par value
NIS 0.01 per share: 4,267,473 authorized, actual;
2,172,238 shares issued and outstanding, actual; no
shares authorized, issued and outstanding pro forma as
adjusted................................................ 5 --
Series B-2 Convertible Preferred Shares, par value
NIS 0.01 per share: 732,527 authorized, actual; 732,527
shares issued and outstanding, actual; no shares
authorized, issued and outstanding pro forma as
adjusted................................................ 2 --
Ordinary shares, par value NIS 0.01 per share: 11,000,000
authorized, actual; 4,194,000 shares issued and
outstanding, actual; 25,000,000 authorized pro forma as
adjusted; 17,302,032 issued and outstanding pro forma as
adjusted................................................ 12 44
Additional paid-in capital................................ 17,593 66,656
Deferred compensation..................................... (1,533) (1,533)
Accumulated deficit....................................... (14,068) (14,068)
-------- --------
Total shareholders' equity............................ 2,017 51,099
-------- --------
Total capitalization.............................. $ 6,732 $ 51,099
======== ========
</TABLE>
The table above excludes 2,183,129 shares issuable upon the exercise of
outstanding options under our share option plans at a weighted average exercise
price of $0.78 per share and shares reserved for issuance under our share option
plans and assumes no exercise of the underwriter's over-allotment option.
------------------------
(1) See Unaudited Pro Forma Presentation included in note 2 to the consolidated
financial statements.
18
<PAGE>
DILUTION
Our pro forma net tangible book value per share immediately after this
offering will be substantially less than the initial public offering price
because the initial public offering price will be substantially higher than the
current net tangible book value per share. Our pro forma net tangible book value
as of March 31, 2000 was approximately $2.3 million, or approximately $0.19 per
share. Pro forma net tangible book value per share represents pro forma tangible
assets less total liabilities, divided by the total number of ordinary shares
outstanding after giving effect to:
- 5,265,575 ordinary shares to be issued at the closing of this offering
upon the automatic conversion of all of our outstanding preferred shares
into ordinary shares;
- 142,857 ordinary shares to be issued upon the exercise of an outstanding
warrant at an exercise price of $2.10 per share at the closing of this
offering;
- 933,800 ordinary shares issued through the exercise of options in
July 2000 at an exercise price of NIS 0.01 per share by certain
shareholders;
- 459,900 ordinary shares to be issued upon the exercise of outstanding
options at the closing of this offering at an exercise price of NIS 0.01
per share held by certain shareholders;
- 656,300 ordinary shares issued through the exercise of options in June
2000;
- 391,100 ordinary shares issued through the exercise of options in
July 2000; and
- 258,500 ordinary shares to be issued to certain of our shareholders at the
closing of this offering.
After giving effect to the sale by us of 5,000,000 ordinary shares in this
offering at an assumed initial public offering price of $11.00 per share, and
deducting the estimated underwriting discounts and commissions and offering
expenses that we expect to pay, the pro forma net tangible book value as of
March 31, 2000 would have been $51.1 million, or $2.95 per share. This
represents an immediate increase in pro forma net tangible book value of $2.76
per share to existing stockholders and an immediate dilution of $8.05 per share
to investors purchasing ordinary shares in this offering. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price....................... $11.00
Pro forma net tangible book value per share as of March
31, 2000................................................ $0.19
Increase per share attributable to this offering.......... 2.76
-----
Pro forma net tangible book value per share after this
offering.................................................. 2.95
------
Dilution per share to new investors......................... $ 8.05
======
</TABLE>
The following table summarizes, on a pro forma basis, as of March 31, 2000,
the differences between the number of ordinary shares purchased from us, the
total consideration paid to us, and the average price per share paid by existing
shareholders and by new investors (in thousands).
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
<S> <C> <C> <C> <C> <C>
Existing shareholders........................... 12,302 71.1% $15,436 21.9% $1.25
New investors................................... 5,000 28.9 55,000 78.1 11.00
------ ----- ------- ----- -----
Total..................................... 17,302 100.0% $70,436 100.0% $4.07
====== ===== ======= ===== =====
</TABLE>
The discussion and the tables above assume no exercise of stock options
outstanding on March 31, 2000 under our option plans and no issuance of shares
granted or reserved for future issuance under our option plans. As of March 31,
2000, on a pro forma basis there were options to purchase 2,183,129 ordinary
shares at a weighted average exercise price of $0.78 per share outstanding under
our share option plans. To the extent that any of these options are exercised,
there will be further dilution to new investors.
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT EARNINGS (LOSS) PER SHARE DATA)
The selected consolidated financial data set forth below as of December 31,
1998 and 1999 and for the years ended December 31, 1997, 1998 and 1999 is
derived from consolidated financial statements audited by Luboshitz Kasierer, a
member firm of Arthur Andersen, independent public accountants, which are
included in this prospectus. The selected consolidated financial data as of
December 31, 1995, 1996 and 1997 and for the years ended December 31, 1995 and
1996 is derived from audited financial statements not included in this
prospectus. The selected consolidated financial data as of March 31, 2000 and
for the three months ended March 31, 1999 and 2000 are derived from unaudited
financial statements which are included in this prospectus and which include, in
our opinion, all adjustments, consisting of only normal recurring adjustments
that are necessary for a fair presentation of our financial position and results
of operations for those periods. The data should be read in conjunction with the
financial statements and related notes included elsewhere in this prospectus and
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1999 2000
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:
Software licenses............................... $ 34 $ 54 $ 246 $ 914 $ 4,701 $ 589 $ 1,932
Services........................................ 4 8 8 52 409 39 334
------- ------- ------- ------- ------- ------ -------
Total revenues................................ 38 62 254 966 5,110 628 2,266
Cost of revenues:
Software licenses............................... 1 10 17 59 340 38 153
Services........................................ -- 1 3 22 67 24 52
------- ------- ------- ------- ------- ------ -------
Total cost of revenues........................ 1 11 20 81 407 62 205
------- ------- ------- ------- ------- ------ -------
Gross profit...................................... 37 51 234 885 4,703 566 2,061
Operating expenses:
Research and development........................ 814 1,559 1,481 1,408 1,705 386 777
Sales and marketing............................. 298 386 800 1,425 3,973 473 1,427
General and administrative...................... 162 410 639 483 1,192 141 668
Stock-based compensation........................ -- -- 191 149 234 21 181
------- ------- ------- ------- ------- ------ -------
Total operating expenses...................... 1,274 2,355 3,111 3,465 7,104 1,021 3,053
------- ------- ------- ------- ------- ------ -------
Loss from operations.............................. (1,237) (2,304) (2,877) (2,580) (2,401) (455) (992)
Other income (expense):
Interest expense, net........................... (41) (188) (319) (202) (305) (95) (41)
Other income (expense), net..................... -- (2) 191 67 (35) (23) (17)
------- ------- ------- ------- ------- ------ -------
Total other income (expense).................. (41) (190) (128) (135) (340) (118) (58)
------- ------- ------- ------- ------- ------ -------
Net loss.......................................... $(1,278) $(2,494) $(3,005) $(2,715) $(2,741) $ (573) $(1,050)
======= ======= ======= ======= ======= ====== =======
Basic and diluted net loss per ordinary share..... $ (1.08) $ (1.48) $ (1.28) $ (1.04) $ (0.80) $(0.22) $ (0.25)
Weighted average number of ordinary shares used in
computing basic and diluted net loss per
ordinary share.................................. 1,188 1,686 2,356 2,599 3,413 2,599 4,194
Pro forma basic and diluted net loss per ordinary
share(1)........................................ $ (0.35) $ (0.09)
Weighted average number of ordinary shares used in
computing pro forma basic and diluted net loss
per ordinary share(1)........................... 7,784 11,887
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, MARCH 31,
---------------------------------------------------- ---------
1995 1996 1997 1998 1999 2000
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments...... $ 3 $ 6 $ 49 $ 1,442 $ 8,165 $ 7,001
Working capital (deficit).............................. (428) (1,867) (3,787) 484 7,002 5,475
Total assets........................................... 348 488 680 2,384 10,850 10,097
Long-term debt, less current portion................... 47 34 63 3,198 3,562 3,587
Related party loan, less current portion............... 1,461 1,551 1,532 1,351 1,332 1,128
Total shareholders' equity (deficit)................... (1,734) (3,152) (5,024) (3,726) 2,851 2,017
</TABLE>
------------------------------
(1) See Note 2 to our consolidated financial statements.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YOU SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS TOGETHER WITH OUR
FINANCIAL STATEMENTS, RELATED NOTES AND OTHER FINANCIAL INFORMATION APPEARING
ELSEWHERE IN THIS PROSPECTUS. IN ADDITION TO HISTORICAL INFORMATION, THE
FOLLOWING DISCUSSION AND OTHER PARTS OF THIS PROSPECTUS CONTAIN FORWARD-LOOKING
INFORMATION THAT INVOLVES RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE ANTICIPATED BY SUCH FORWARD-LOOKING INFORMATION DUE
TO COMPETITIVE FACTORS AND OTHER FACTORS DISCUSSED UNDER "RISK FACTORS" AND
ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
We develop, market and support software that enables companies to assure the
scalability, efficiency and reliability of web applications. We incorporated in
1991 in Israel and commenced operations in 1993 to provide application-testing
software. In 1994, we released our first product that focused on testing client
server applications. With the emergence of the internet and e-business, we
recognized a market opportunity for software to assess the performance of web
applications. In 1997, we introduced WebLoad, which was initially focused on
assessing the scalability of web applications. Since then, we have enhanced the
functionality of WebLoad to provide an integrated solution to assess the
performance and accelerate the deployment of web applications. In
February 2000, we introduced WebLoad Resource Manager, which is designed to
facilitate the systematic verification of web application quality throughout the
application development lifecycle and to accelerate the deployment of high
performance web applications.
Our revenues were $254,000, $966,000 and $5.1 million in 1997, 1998 and 1999
and $2.3 million for the three months ended March 31, 2000. We primarily derive
our revenues from the license of our WebLoad and WebLoad Resource Manager
solutions and, to a lesser extent, from related services including customer
support, training and maintenance. Our net losses were $3.0 million,
$2.7 million and $2.7 million in 1997, 1998 and 1999 and $1.1 million for the
three months ended March 31, 2000. These net losses resulted primarily from the
significant costs incurred in the development of our software, and in the
expansion of our operations. We expect to increase our operating expenses and
incur additional net losses for the foreseeable future.
We recognize software license revenues upon delivery of our software to
customers, provided persuasive evidence of an agreement exists, the fee is fixed
or determinable and collection of the related receivable is probable. We
allocate software license revenues under arrangements where we sell software and
services together under one contract to each element based on their relative
fair values, with these fair values being determined using the price charged
when that element is sold separately. If fair value for a delivered element does
not exist but the fair value does exist for all undelivered elements, we defer
the fair value of the undelivered elements and recognize the remaining value for
the delivered elements.
We generally recognize software license revenues from resellers or
distributors at time of shipment, provided that all other revenue recognition
criteria set forth in governing statements of position on software revenue
recognition have been met. We recognize services revenues from software
maintenance agreements ratably over the term of the maintenance period,
typically one year. We recognize services revenues from training as the services
are performed. Amounts collected or billed prior to satisfying the above revenue
recognition criteria are reflected as deferred revenue. Deferred revenue
primarily represents deferred maintenance revenue.
We license our software primarily through our direct sales force and, to a
lesser extent, through indirect channels. To date, we have licensed our software
to customers in North America, Europe, and the Middle East. Revenues derived
from North America accounted for 90.2%, 94.2% and 86.8% of total revenues for
1997, 1998, 1999 and 88.3% of total revenues for the three months ended
March 31,
22
<PAGE>
2000. While we expect to continue to derive the majority of our revenues from
North America, we intend to derive an increasing percentage of our revenues from
Europe and the Pacific Rim. Substantially all of our sales are denominated in
U.S. dollars.
RECENT FINANCIAL DEVELOPMENTS
For the second quarter of 2000, our total revenues were $2.7 million, of
which $2.3 million were software license revenues and $376,000 were service
revenues, and our operating loss was $2.0 million.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
total revenues of certain line items included in our statement of operations:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------ ----------------------
1997 1998 1999 1999 2000
<S> <C> <C> <C> <C> <C>
Revenues:
Software licenses.................... 96.9% 94.6% 92.0% 93.8% 85.3%
Services............................. 3.1 5.4 8.0 6.2 14.7
-------- ------ ------ ------ ------
Total revenues..................... 100.0 100.0 100.0 100.0 100.0
Cost of revenues:
Software licenses.................... 6.7 6.1 6.7 6.1 6.7
Services............................. 1.2 2.3 1.3 3.8 2.3
-------- ------ ------ ------ ------
Total cost of revenues............. 7.9 8.4 8.0 9.9 9.0
-------- ------ ------ ------ ------
Gross profit........................... 92.1 91.6 92.0 90.1 91.0
Operating expenses:
Research and development............. 583.1 145.8 33.4 61.5 34.3
Sales and marketing.................. 315.0 147.5 77.7 75.3 63.0
General and administrative........... 251.5 50.0 23.3 22.5 29.5
Stock-based compensation............. 75.2 15.4 4.6 3.3 8.0
-------- ------ ------ ------ ------
Total operating expenses........... 1,224.8 358.7 139.0 162.6 134.8
-------- ------ ------ ------ ------
Operating loss....................... (1,132.7) (267.1) (47.0) (72.5) (43.8)
Interest expense, net................ (125.6) (20.9) (6.0) (15.1) (1.8)
Other income (expense), net.......... 75.2 6.9 (0.7) (3.6) (0.7)
-------- ------ ------ ------ ------
Net loss............................... (1,183.1)% (281.1)% (53.7)% (91.2)% (46.3)%
======== ====== ====== ====== ======
</TABLE>
THREE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 2000
REVENUES
TOTAL REVENUES. Total revenues increased 260.8%, from $628,000 for the
three months ended March 31, 1999 to $2.3 million for the three months ended
March 31, 2000.
SOFTWARE LICENSES. Software license revenues increased 228.0%, from
$589,000 for the three months ended March 31, 1999 to $1.9 million for the three
months ended March 31, 2000. The increase was due to increased market acceptance
of WebLoad and the introduction of our WebLoad Resource Manager product in
February 2000, which represented 44.3% of software license revenues for the
three months ended March 31, 2000.
SERVICES. Services revenues increased 756.4%, from $39,000 for the three
months ended March 31, 1999 to $334,000 for the three months ended March 31,
2000. The increase was due to higher maintenance and training revenues resulting
from an increase in our customer base.
23
<PAGE>
COST OF REVENUES
SOFTWARE LICENSES. Cost of software licenses consists principally of direct
product costs, such as product media and packaging, as well as royalties due to
third parties. Cost of software licenses increased from $38,000 for the three
months ended March 31, 1999 to $153,000 for the three months ended March 31,
2000, representing 6.5% and 7.9% of software license revenues in the respective
periods. The increase was due to product-related costs associated with increased
licensing of our software.
SERVICES. Cost of services consists principally of personnel-related costs
associated with customer support and training. Cost of services increased from
$24,000 for the three months ended March 31, 1999 to $52,000 for the three
months ended March 31, 2000, representing 61.5% and 15.6% of services revenues
in the respective periods. The dollar increase was due to increases in services
personnel needed to support our growing customer base. The percentage decrease
was due to economies of scale associated with our larger customer base.
OPERATING EXPENSES
RESEARCH AND DEVELOPMENT. Research and development expenses consist
principally of personnel and related expenses required to develop and enhance
our products. Research and development expenses increased from $386,000 for the
three months ended March 31, 1999 to $777,000 for the three months ended
March 31, 2000, representing 61.5% and 34.3% of total revenues in the respective
periods. The dollar increase was due to increases in software engineering
personnel and related spending associated with the establishment of a software
development organization at our headquarters in Massachusetts during late 1999
and early 2000. The percentage decrease was due to our increased revenues.
SALES AND MARKETING. Sales and marketing expenses consist principally of
salaries and commissions earned by sales personnel, recruiting costs, trade show
costs, travel and other marketing communication costs, such as advertising and
promotion. Sales and marketing expenses increased from $473,000 for the three
months ended March 31, 1999 to $1.4 million for the three months ended
March 31, 2000, representing 75.3% and 63.0% of total revenues in the respective
periods. The dollar increase was due to the expansion of our sales force,
additional hiring of marketing personnel, higher commission expenses associated
with our higher sales, and higher occupancy and travel costs.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
principally of personnel and related expenses and costs. General and
administrative expenses increased from $141,000 for the three months ended
March 31, 1999 to $668,000 for the three months ended March 31, 2000,
representing 22.5% and 29.5% of total revenues in the respective periods. The
dollar and percentage increases were due to increases in finance, administrative
and information technology personnel to accommodate our growing U.S. operations.
The increase is also due to the addition of $50,000 to our allowance for
doubtful accounts in the first quarter of 2000 recorded to cover receivable
balances that are past due more than 90 days.
STOCK-BASED COMPENSATION. Stock-based compensation expenses increased from
$21,000 for the three months ended March 31, 1999 to $181,000 for the three
months ended March 31, 2000, representing 3.3% and 8.0% of total revenues in the
respective periods. For grants to employees, these non-cash expenses represent
the difference between the exercise price and the estimated fair value of our
ordinary shares on the date that related options are granted. For grants to
non-employees, these non-cash expenses represent the value of a particular grant
as determined by the Black-Scholes valuation model. All stock-based compensation
is expensed over the vesting period. Unearned compensation on the unvested
options is deferred and included as a component of shareholders' equity.
24
<PAGE>
Deferred stock-based compensation totaled $1.5 million at March 31, 2000, and
will result in additional charges to operations through March 31, 2004.
INTEREST EXPENSE, NET. Interest expense, net consists principally of
interest expense incurred in connection with our existing term debt, offset by
interest earnings. Interest expense, net decreased from $95,000 for the three
months ended March 31, 1999 to $41,000 for the three months ended
March 31, 2000. The decrease was due to higher interest earnings resulting from
the investment of proceeds from our December 1999 financing.
OTHER INCOME (EXPENSE), NET. Other income (expense), net consists
principally of currency translation gains and losses. Other income (expense),
net decreased from ($23,000) for the three months ended March 31, 1999 to
($17,000) for the three months ended March 31, 2000. The decrease was due to
exchange rate fluctuations.
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
REVENUES
TOTAL REVENUES. Total revenues were $254,000, $966,000 and $5.1 million in
1997, 1998 and 1999, representing increases of 280.3% from 1997 to 1998 and
428.0% from 1998 to 1999.
SOFTWARE LICENSES. Software license revenues were $246,000, $914,000 and
$4.7 million in 1997, 1998 and 1999, representing increases of 271.5% from 1997
to 1998 and 414.2% from 1998 to 1999. The increase from 1997 to 1998 was due to
the establishment of our U.S. sales operations in mid-1998. The increase from
1998 to 1999 was due to a full year of sales of our WebLoad product in the U.S.,
as well as increased sales and marketing efforts by our larger sales force.
SERVICES. Services revenues were $8,000, $52,000 and $409,000 in 1997, 1998
and 1999, representing increases of 550.0% from 1997 to 1998 and 686.5% from
1998 to 1999. The increases were due to an increased number of maintenance
agreements related to our larger customer base and, to a lesser extent,
additional training revenues associated with new customers.
COST OF REVENUES
SOFTWARE LICENSES. Cost of software licenses was $17,000, $59,000 and
$340,000 in 1997, 1998 and 1999, representing 6.9%, 6.5% and 7.2% of software
license revenues in the respective periods. The change in cost of software
licenses as a percentage of software license revenues was due to changes in
amounts expensed for royalties due to third parties and, to a lesser extent, in
direct product fulfillment costs.
SERVICES. Cost of services was $3,000, $22,000 and $67,000 in 1997, 1998
and 1999, representing 37.5%, 42.3% and 16.4% of services revenues in the
respective periods. The dollar increases were primarily due to increases in
professional service and support personnel needed to meet the requirements of a
growing customer base. The percentage decrease from 1998 to 1999 was due to
economies of scale associated with our larger customer base.
OPERATING EXPENSES
RESEARCH AND DEVELOPMENT. Research and development expenses were
$1.5 million, $1.4 million and $1.7 million in 1997, 1998 and 1999, representing
583.1%, 145.8% and 33.4% of total revenues in the respective periods. The dollar
decrease from 1997 to 1998 was principally the result of a decrease of $82,000
in research and development personnel spending. The dollar increase from 1998 to
1999 was primarily due to increases of $176,000 in salaries for software
engineering personnel along with increases in outside contract service spending
approximating $35,000. The percentage decrease for each of the periods was
primarily due to our increased revenues.
25
<PAGE>
SALES AND MARKETING. Sales and marketing expenses were $800,000,
$1.4 million and $4.0 million in 1997, 1998 and 1999, representing 315.0%,
147.5% and 77.7% of total revenues in the respective periods. The dollar
increases were primarily due to increased sales and marketing personnel-related
spending approximating $317,000 in 1998 and $1,205,000 in 1999, reflecting
higher variable-based compensation associated with higher sales levels in each
year, as well as spending to support our sales and marketing employee growth
from four employees in 1997, to eight and 23 employees in 1998 and 1999. In
addition, the dollar increase from 1998 to 1999 was also due to increased
spending on marketing programs approximating $768,000. The percentage decrease
for each of the periods presented was primarily due to our increased revenues.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were
$639,000, $483,000 and $1.2 million in 1997, 1998 and 1999, representing 251.5%,
50.0% and 23.3% of total revenues in the respective periods. The dollar decrease
from 1997 to 1998 was primarily due to a reclassification of personnel costs
from general and administrative to sales and marketing. The dollar increase from
1998 to 1999 was primarily due to increases in personnel-related spending of
approximately $737,000 in connection with the establishment of our U.S.
operations in 1998, which resulted in an increase in general and administrative
personnel from four employees in 1998 to 13 in 1999. The percentage decrease for
each of the periods presented was primarily due to our increased revenues.
STOCK-BASED COMPENSATION. Stock-based compensation expenses were $191,000,
$149,000 and $234,000 in 1997, 1998 and 1999, representing 75.2%, 15.4% and 4.6%
of total revenues in the respective periods.
INTEREST EXPENSE, NET. Interest expense, net was $319,000, $202,000 and
$305,000 in 1997, 1998 and 1999. The increase for each of the periods presented
was due to interest expense incurred in connection with term debt facilities,
partially offset by interest earnings.
OTHER INCOME (EXPENSE), NET. Other income (expense), net was $191,000,
$67,000, and $(35,000), in 1997, 1998 and 1999. The changes for each of the
periods presented was due to exchange rate fluctuations.
PROVISION FOR INCOME TAXES. We have incurred significant operating losses
for all periods since inception through March 31, 2000. We have recorded a
valuation allowance for the full amount of our net deferred tax assets as the
future realization of the tax benefit is not sufficiently assured.
QUARTERLY RESULTS OF OPERATIONS
The information in the table below should be read in conjunction with our
annual audited consolidated financial statements and related notes included
elsewhere in this prospectus. We have prepared this information on the same
basis as our consolidated financial statements and the information includes all
adjustments, consisting only of normal recurring adjustments, that we consider
necessary for a fair presentation of our financial position and operating
results for the quarters presented.
Our quarterly operating results have varied substantially in the past and
may vary substantially in the future. You should not draw any conclusions about
our future results for any period from the results of operations for any
particular quarter.
26
<PAGE>
The following table sets forth unaudited quarterly results of operations
data for the five quarters ended March 31, 2000, as well as such data expressed
as a percentage of our total revenues for the periods presented.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1999 1999 1999 1999 2000
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues:
Software licenses............... $ 589 $ 965 $ 1,402 $ 1,745 $ 1,932
Services........................ 39 56 186 128 334
------ ------ ------- ------- -------
Total revenues................ 628 1,021 1,588 1,873 2,266
Cost of revenues:
Software licenses............... 38 63 108 131 153
Services........................ 24 9 22 12 52
------ ------ ------- ------- -------
Total cost of revenues........ 62 72 130 143 205
------ ------ ------- ------- -------
Gross profit...................... 566 949 1,458 1,730 2,061
------ ------ ------- ------- -------
Operating expenses:
Research and development........ 386 441 396 482 777
Sales and marketing............. 473 819 1,073 1,608 1,427
General and administrative...... 141 187 297 567 668
Stock-based compensation........ 21 20 143 50 181
------ ------ ------- ------- -------
Total operating expenses...... 1,021 1,467 1,909 2,707 3,053
------ ------ ------- ------- -------
Operating loss.................... (455) (518) (451) (977) (992)
Interest expense, net........... (95) (64) (21) (125) (41)
Other income (expense), net..... (23) (3) 4 (13) (17)
------ ------ ------- ------- -------
Net loss.......................... $ (573) $ (585) $ (468) $(1,115) $(1,050)
====== ====== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUES
---------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1999 1999 1999 1999 2000
<S> <C> <C> <C> <C> <C>
Revenues:
Software licenses............... 93.8% 94.5% 88.3% 93.2% 85.3%
Services........................ 6.2 5.5 11.7 6.8 14.7
----- ----- ----- ----- -----
Total revenues................ 100.0 100.0 100.0 100.0 100.0
Cost of revenues:
Software licenses............... 6.1 6.2 6.8 7.0 6.7
Services........................ 3.8 0.9 1.4 0.6 2.3
----- ----- ----- ----- -----
Total cost of revenues........ 9.9 7.1 8.2 7.6 9.0
----- ----- ----- ----- -----
Gross profit...................... 90.1 92.9 91.8 92.4 91.0
Operating expenses:
Research and development........ 61.5 43.2 24.9 25.8 34.3
Sales and marketing............. 75.3 80.2 67.6 85.8 63.0
General and administrative...... 22.5 18.3 18.7 30.3 29.5
Stock-based compensation........ 3.3 2.0 9.0 2.7 8.0
----- ----- ----- ----- -----
Total operating expenses...... 162.6 143.7 120.2 144.6 134.8
----- ----- ----- ----- -----
Operating loss.................... (72.5) (50.8) (28.4) (52.2) (43.8)
Interest expense, net........... (15.1) (6.2) (1.3) (6.6) (1.8)
Other income (expense), net..... (3.6) (0.3) 0.3 (0.7) (0.7)
----- ----- ----- ----- -----
Net loss.......................... (91.2)% (57.3)% (29.4)% (59.5)% (46.3)%
===== ===== ===== ===== =====
</TABLE>
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<PAGE>
Our software license revenues increased in each of the five quarters ended
March 31, 2000. We believe this trend of increasing revenues is primarily due to
increased market acceptance of our products, and, for the quarter ended
March 31, 2000, due to the introduction of our WebLoad Resource Manager product.
Services revenues have also increased in each of these quarters, other than the
quarter ended December 31, 1999, primarily due to the recognition of maintenance
revenues from our growing installed customer base, and, to a lesser extent,
training services associated with increased licensing of our products.
As a result of our limited operating history, we cannot forecast operating
expenses based on historical results. Accordingly, we base our anticipated level
of expenses in part on future revenue projections. Most of our expenses are
fixed in the short term and we may not be able to quickly reduce spending if
revenues are lower than we have projected. Our ability to forecast our quarterly
revenues accurately is limited, given our short operating history, the length of
our sales cycle, particularly with respect to our WebLoad Resource Manager
product, and other uncertainties in our business. If revenues in a particular
quarter do not meet projections, our net losses in a given quarter would be
greater than expected. As a result, investors should not rely on the results of
one quarter as an indication of future performance.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily through the sale
of equity securities, demand and term debt borrowings and the sale of our
products and services. As of March 31, 2000, we have raised approximately
$14.9 million, net of offering costs, from the issuance of ordinary and
preferred shares. As of March 31, 2000, we had $7.0 million in cash, cash
equivalents and short-term investments.
We have term loans with Bank Hapoalim B.M., an Israeli bank, with an
aggregate principal balance of $3.6 million as of March 31, 2000, of which
$600,000 of principal matures in March 2001 and $3.0 million matures in
June 2001. These loans bear interest at LIBOR plus 1.5%. We also have a loan
from Rad Data Communications Ltd., a related party, the principal balance of
which as of March 31, 2000 equaled $1.4 million. This loan is required to be
paid in full with proceeds from this offering. This loan bears no stated
interest but the outstanding principal amount of this loan is adjusted annually
based on changes in the Israeli Consumer Price Index and must be repaid at an
annual rate equal to 3.0% of all annual revenues over a base amount of
$1.5 million.
Cash used in operating activities was $2.5 million, $2.4 million and
$1.5 million in 1997, 1998 and 1999 and $419,000 for the three months ended
March 31, 2000. Cash used in 1997 was primarily due to a net loss of
$3.0 million partially offset by depreciation, other noncash charges and modest
changes in working capital accounts. Cash used in 1998 was primarily due to a
net loss of $2.7 million, also partially offset by depreciation and other
noncash charges and small working capital account changes. Cash used in 1999 was
primarily due to a net loss of $2.7 million, partially offset by depreciation,
other noncash charges, deferred interest payments on the Company's bank term
debt, and small net changes to accounts receivable and accrued liabilities. Cash
used for the three months ended March 31, 2000 was due to a net loss of
$1.0 million and an increase in accounts receivable, offset in part by
depreciation, other noncash charges and an increase in accrued liabilities.
Cash used in investing activities was $221,000, $446,000 and $884,000 in
1997, 1998 and 1999 and $2.7 million for the three months ended March 31, 2000.
Cash used in investing activities was primarily for purchases of property and
equipment and short term investment activities for each period presented.
Cash provided by (used in) financing activities was $2.7 million,
$4.0 million and $8.9 million in 1997, 1998 and 1999 and ($93,000) for the three
months ended March 31, 2000. Cash provided by financing activities for each of
the periods presented consisted primarily of proceeds from private sales
28
<PAGE>
of preferred shares, and net borrowings under bank term financing facilities.
Cash used in financing activities for the three months ended March 31, 2000
consisted principally of repayment of principal on term notes.
We expect an increase to our operating expenses, particularly sales and
marketing and research and development expenses, for the foreseeable future as
we execute our business plan. As a result, we anticipate that these operating
expenses, as well as planned capital expenditures and repayment of existing term
debt, will constitute a material use of our cash resources. In addition, we may
utilize cash resources to fund acquisitions or investments in complementary
businesses, technologies or product lines. We believe that the net proceeds from
this offering will be sufficient to meet our anticipated needs for working
capital, term debt retirement and capital expenditures for at least the next
12 months. Thereafter, we may find it necessary to obtain additional equity or
debt financing. In the event additional financing is required, we may not be
able to raise it on acceptable terms or at all.
IMPACT OF INFLATION AND CURRENCY FLUCTUATIONS
Substantially all our revenues are received, and a large portion of our
expenses are incurred, in U.S. dollars. In 1999, approximately 92.0% and 60.0%
of our revenues and expenses, respectively, were denominated in U.S. dollars. A
portion of our expenses, mainly salary and personnel costs related to our
employees in Israel, is incurred in New Israeli Shekels, or NIS. The salaries of
our Israel-based employees are partially linked to inflation in Israel. As a
result, the U.S. dollar cost of our Israeli operations is influenced by
inflation in Israel, but may be offset by a devaluation of the NIS in relation
to the U.S. dollar. Any increase in the rate of inflation in Israel may have a
negative effect on our operating results, unless such inflation is offset by a
devaluation of the NIS in relation to the U.S. dollar. In addition to our
operations in Israel, we intend to expand our operations internationally.
Accordingly, we incur and expect to incur additional expenses in non-U.S. dollar
currencies.
In 1997 and 1998, the rate of inflation in Israel was 7.0% and 8.6%, and the
devaluation of the NIS against the U.S. dollar was 8.8% and 17.6%. In 1999, the
rate of inflation was 1.3%, and the rate of appreciation of the NIS against the
U.S. dollar was 0.1%. We cannot assure you that we will not be materially
adversely affected in the future if inflation in Israel exceeds the devaluation
of the NIS against the dollar, or if the timing of such devaluation lags behind
increases in inflation in Israel. Exchange rates between the NIS and the dollar
fluctuate continuously, and therefore exchange rate fluctuations and especially
larger periodic devaluations will have an impact on our operating results and
period-to-period comparisons of our results. The effects of foreign currency
translations are reported in our financial statements in current operating
results.
The following table presents information about the rate of inflation in
Israel, the rate of devaluation of the NIS against the U.S. dollar, and the rate
of inflation of Israel adjusted for the devaluation:
<TABLE>
<CAPTION>
ISRAELI INFLATION
YEAR ENDED ISRAELI ISRAELI RATE ADJUSTED
DECEMBER 31, INFLATION RATE DEVALUATION RATE FOR DEVALUATION
<S> <C> <C> <C>
1997 7.0% 8.8% (1.7)%
1998 8.6 17.6 (7.7)
1999 1.3 (0.1) 1.3
</TABLE>
We believe that neither inflation in Israel, nor exchange rate fluctuations
between the NIS and the U.S. dollar, historically has had a material effect on
our operations.
29
<PAGE>
GOVERNMENT GRANTS
The Government of Israel, through the Office of the Chief Scientist,
encourages research and development projects that result in products for export.
We received grants of approximately $605,000 from the Office of the Chief
Scientist through December 31, 1996, which were used to fund our initial
product. Since December 31, 1996, we have neither applied for nor received any
additional grants from the Office of the Chief Scientist. Pursuant to the terms
of these grants, we are obligated to pay royalties of 3.0% to 5.0% of revenues
derived from sales of products funded with these grants, up to 100.0% to 150.0%
of certain grant amounts received. In the event that a project funded by the
Office of the Chief Scientist does not result in the development of a product
that generates revenues, we would not be obligated to repay the grants we
received for the product's development. The terms of the grant also require that
the know-how from the research and development which is used to produce the
product may not be transferred to third parties without the approval of the
research committee. As of March 31, 2000, our maximum potential royalty
obligation to the Office of the Chief Scientist in respect of grants received is
approximately $670,000, of which $418,000 has been accrued and $56,000 has been
paid.
EFFECTIVE CORPORATE TAX RATE
Israeli companies are generally subject to tax at the rate of 36.0% of
taxable income. However, we have derived, and expect to continue to derive, a
substantial portion of our income under our Approved Enterprise capital
investment program. Subject to compliance with applicable requirements, this
income will be tax exempt for a period of two years and will be subject to a
reduced corporate tax rate of 25.0% in the following five years. If we do not
comply with the applicable requirements, the tax benefits may be canceled. We
believe that we comply with these conditions. If we operate under more than one
approval, or if our capital investments are only partially approved, our
effective tax rate will be a weighted combination of the various applicable tax
rates. We may not be able to obtain approval for additional Approved Enterprise
programs. Since we have incurred tax losses through December 31, 1999, we have
not yet used the tax benefits for which we are eligible.
MARKET RISK
We currently do not invest in, or hold for trading or other purposes, any
financial instruments subject to market risk. We currently pay interest on our
loan facilities based on the London interbank offered rate and the Israeli
Consumer Price Index, or the Israeli CPI. As a result, changes in the general
level of interest rates or the Israeli CPI directly affect the amount of money
payable by us under these facilities. However, because our outstanding debt
under these facilities has never exceeded $5.5 million, and as we expect to
repay these facilities with the proceeds of this offering, we do not expect our
exposure to market risk from changes in interest rates or the Israeli CPI to be
material.
RECENT ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. To
date, we have not engaged in derivative and hedging activities, and accordingly
do not believe that the adoption of the SFAS No. 133 will have a material impact
on our financial reporting and related disclosures. We will adopt SFAS No. 133
as required by SFAS No. 137, "Deferral of the Effective Date of FASB Statement
No. 133," in fiscal year 2001.
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<PAGE>
On December 3, 1999, the staff of the Securities and Exchange Commission
(SEC) issued Staff Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition
in Financial Statements." SAB 101, as amended, summarizes some of the staff's
interpretations of the application of generally accepted accounting principles
to revenue recognition. All registrants are expected to apply the accounting and
disclosure requirements that are described in SAB 101, which is effective for
periods beginning after December 15, 2000. We do not expect that the adoption of
the guidance required by SAB 101 will have a material impact on our financial
condition or results of operations.
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation--an Interpretation of APB Opinion No. 25." The interpretation
clarifies the application of APB Opinion No. 25 in certain situations, as
defined. The interpretation is effective July 1, 2000, but covers certain events
occurring during the period after December 15, 1998, but before the effective
date. To the extent that events covered by this interpretation occur during the
period after December 15, 1998, but before the effective date, the effects of
applying this interpretation would be recognized on a prospective basis from the
effective date. Accordingly, upon initial application of the final
interpretation, (a) no adjustments would be made to the financial statements for
periods before the effective date and (b) no expense would be recognized for any
additional compensation cost measured that is attributable to periods before the
effective date. We expect that the adoption of this interpretation would not
have any effect on the financial statements included elsewhere in this
prospectus.
31
<PAGE>
BUSINESS
THE FOLLOWING DESCRIPTION OF OUR BUSINESS SHOULD BE READ IN CONJUNCTION WITH
THE INFORMATION INCLUDED ELSEWHERE IN THIS PROSPECTUS. THIS DESCRIPTION CONTAINS
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL
RESULTS COULD DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THE
FORWARD-LOOKING STATEMENTS AS A RESULT OF THE FACTORS SET FORTH IN "RISK
FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
We provide innovative e-performance software solutions that enable companies
to assure the performance of their business-critical web applications. Our
award-winning software allows internet-based companies and traditional
enterprises to accelerate the deployment of their web applications and enables
the successful implementation of their e-business strategies.
Our software products, WebLoad and WebLoad Resource Manager, are based on
internet standards and offer an integrated solution to comprehensively assess
the scalability, efficiency and reliability of web applications. Our software
provides detailed performance analysis and allows companies to verify the
performance of their web applications throughout the development lifecyle. As a
result, companies can better identify and quickly address performance
bottlenecks and other problems, and accelerate the successful deployment of
their web applications. Our products and their key features are:
- WebLoad: efficiently and accurately simulates the large number and many
types of users, extreme fluctuations in traffic and complex usage patterns
associated with the internet.
- WebLoad Resource Manager: facilitates the systematic verification of
application quality throughout the application development life cycle,
from design to development and deployment.
We have over 500 customers worldwide, including American Express, Bowstreet,
Compaq, Dell Computer, EarthLink, eBay, Fidelity Investments, Harvard
University, Hewlett-Packard, Lucent Technologies, NCR, Phone.com, Reynolds &
Reynolds, Sun Microsystems, and Vanguard.
INDUSTRY BACKGROUND
GROWTH AND EVOLUTION OF E-BUSINESS
The internet has emerged as a global medium that enables millions of people
worldwide to communicate and obtain information, and is fundamentally changing
the way companies conduct business. Innovative internet-based companies, whose
success is tied exclusively to their online offerings, are introducing new
business models and challenging established companies in many industries. At the
same time, traditional enterprises have recognized the potential of e-business
and are increasingly moving critical business processes and operations to the
internet. Companies are using the internet to sell goods and services, interact
with customers, suppliers and partners and communicate with employees, as well
as to streamline complex business processes and improve productivity. Forrester
Research estimates that e-business will grow from approximately $657 billion in
2000 to approximately $6.8 trillion in 2004.
IMPORTANCE OF WEB APPLICATION PERFORMANCE
Due to their increasing use of the internet, companies have come to rely on
the performance of their web applications. If a company's web applications
perform poorly, or fail entirely, the resulting financial and business costs can
be substantial, including lost revenues, customer defections, business
interruptions and damage to its reputation. For example, if an e-commerce
company's web applications fail to deliver high levels of service to its
customers, the company may lose customers and revenue opportunities. Similarly,
if a manufacturer's web applications perform poorly, the manufacturer could
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<PAGE>
experience bottlenecks in its supply chain and decreased production rates.
According to a 1999 study by Zona Research, as much as $4.4 billion per year of
e-business revenues in the United States may be lost due to unacceptable
download times. In order to successfully compete in this emerging e-business
environment, companies must rapidly deploy web applications and assure the
performance of these applications.
The performance of web applications includes the following key elements:
- SCALABILITY: must scale to accommodate very large numbers of concurrent
users and complex usage patterns;
- EFFICIENCY: must operate rapidly and efficiently without deteriorating
response time or processing bottlenecks; and
- RELIABILITY: must consistently function as intended when deployed and
integrated into a company's existing and evolving systems.
The following chart depicts a typical web application and the complex
e-business environment in which it operates.
[GRAPH]
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<PAGE>
CHARACTERISTICS OF WEB APPLICATIONS
Web applications have the following characteristics that present significant
challenges to their successful development, deployment and ongoing operation:
- COMPLEXITY. Web applications typically involve the integration of many
hardware and software systems and technologies from multiple vendors often
requiring close collaboration among a wide array of technology, media and
graphic specialists;
- UNPREDICTABLE LOADS AND STRESSES. Web applications are available to a
potentially large number of users and can be subject to large traffic
spikes;
- NONSTOP OPERATION. Due to the business-critical nature of e-business
initiatives, web applications must be available to users on a constant
basis with minimal or no downtime for upgrades or modifications;
- RAPIDLY EVOLVING TECHNOLOGIES. Web applications are typically developed
using software that is continuously changing as new technologies and
standards emerge;
- INTENSE TIME-TO-MARKET PRESSURES. Companies are under intense competitive
pressure to rapidly develop and deploy their web applications; and
- CONTINUOUSLY MODIFIED AND UPDATED. Web applications are typically modified
and updated on a continuous basis as companies add new content and
functionality and incorporate new technologies and standards.
OUR MARKET OPPORTUNITY
As e-business continues to grow, companies are placing greater reliance on
their web applications and are increasingly exposed to the risks associated with
web application failures. The Newport Group estimates that 52.0% of companies
deploying web applications experience performance and scalability failures.
To date, companies have typically used conventional testing software to
separately and sequentially test the scalability, efficiency and reliability of
web applications. In addition, such software is generally used just prior to
deployment. Application errors identified late in the development cycle are
often difficult to fix and result in extended development cycles, delayed
deployment, higher costs and lost business opportunities.
We believe that the continued adoption of e-business and companies'
increasing reliance on web applications create a significant market opportunity
for solutions that assure the scalability, efficiency and reliability of web
applications and facilitate their rapid deployment. In our view, this
opportunity is best addressed by solutions that:
- efficiently and accurately simulate internet operating conditions;
- offer integrated and comprehensive performance assessment capabilities;
- allow performance assessment early in development process;
- provide detailed performance analyses to assist companies in better
identifying and quickly resolving performance bottlenecks and other
problems; and
- enable collaboration among all parties involved in the development and
deployment of web applications.
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<PAGE>
OUR SOLUTION
We are a leading provider of e-performance software that enables companies
to assure the performance of business-critical web applications. We address the
performance requirements of web applications throughout their lifecycle, from
initial design through development, deployment and ongoing modifications and
upgrades. In meeting these requirements, companies are able to mitigate the
financial and business costs that can result from unsuccessful deployment and
failures of their web applications. By assuring the rapid and successful
deployment of our customers' web applications, our software enables our
customers to accelerate their e-business strategies and:
- increase revenues;
- attract and retain customers;
- improve operating efficiencies; and
- enhance their reputations.
Key features of our software include:
COMPREHENSIVE E-PERFORMANCE SOFTWARE. Our software provides an integrated
solution to simultaneously verify the scalability, efficiency and reliability of
web applications. In addition, our software can assure a web application's
overall performance, the performance of an application's specific components and
determine critical thresholds where performance starts to deteriorate.
DESIGNED FOR WEB APPLICATIONS. Our software is specifically designed for
the complex internet computing environment and is based on internet standards,
such as JavaScript, Java, ActiveX, Hypertext Markup Language, or HTML,
Extensible Markup Language, or XML, and the Document Object Model, or DOM. This
enables efficient simulation of very large numbers of users, extreme
fluctuations in traffic and complex user demands placed on web applications and
allows our software to be readily adaptable to emerging internet technologies.
DETAILED PERFORMANCE ANALYSIS. Our software automatically monitors 75
performance criteria and supports an unlimited number of additional user-defined
criteria. Unlike existing solutions, companies using our products have the
ability to verify the performance of web applications for each simulated user or
transaction. By identifying the points in a user's interaction where a web
application fails, our comprehensive measurement and reporting mechanisms
expedite the process of problem resolution.
VERIFICATION EARLY IN THE DEVELOPMENT LIFECYCLE. Our software assists
companies in identifying and resolving issues with their web applications at
every point in the development life cycle. Resolving issues as early as possible
in the development life cycle can lower the cost of developing web applications
and accelerate the deployment of scalable, high performance web applications.
FACILITATE COLLABORATION THROUGHOUT THE DEVELOPMENT PROCESS. With our
software, designers, developers, quality assurance and information technology
professionals can store and share test scripts, test results and templates,
allowing previously isolated technical teams within a company to work on a
coordinated and collaborative basis.
EASE OF USE. All of our performance assessments are generated using
JavaScript, the computer language most commonly used by web application
developers. This avoids the learning curve and costs associated with other
products which utilize proprietary scripting languages.
EFFICIENT USE OF RESOURCES. We design our products to make efficient use of
a company's available computer resources, thereby reducing the hardware
requirements and investments needed to simulate heavy user traffic. In addition,
our software allows users to share company resources on an as-needed basis.
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<PAGE>
OUR STRATEGY
Our objective is to be the leading provider of software solutions that
enable companies to successfully implement their e-business strategies by
assuring the performance of their business-critical web applications. Key
elements of our strategy are:
EXTEND PRODUCT LEADERSHIP
We believe that our software provides the most comprehensive verification of
web applications, including scalability, efficiency and reliability, and is the
first solution supporting DOM-based verification, which enables quicker
identification and resolution of application errors. In addition to the DOM, our
award-winning software is based on internet standards such as JavaScript and XML
and has been recognized as an industry-leading solution that is used for
benchmarking the performance of web applications by testing laboratories, trade
media and independent software vendors. We intend to further extend our product
leadership through focused internal development, strategic partnerships and
potentially the acquisition of complementary technologies or businesses.
CAPITALIZE ON OUTSOURCING TRENDS
Increasingly, many companies are outsourcing the development, testing and
hosting of their web applications to third parties. We believe that web
integration, testing and hosting service providers represent a significant
market opportunity for our software. We have recently entered into an agreement
with KeyLabs, a subsidiary of Exodus Communications, a leading internet hosting
company, for use of our software to test the performance of its customers'
hosted web applications. We intend to pursue similar partnerships with other web
integration, testing and hosting service providers.
TARGET EMERGING MARKET OPPORTUNITIES, INCLUDING WIRELESS INTERNET ACCESS
Our software is based on internet standards and is adaptable to emerging
internet-based technologies. We plan to continue to rapidly develop and market
new product features that we believe will expand our market opportunities. Our
software supports the Wireless Access Protocol, or WAP, and can verify the
performance of web applications accessed through wireless devices such as
cellular telephones, personal digital assistants and pagers. As web applications
become increasingly accessible by wireless devices, the number of users and the
frequency of use of these applications will substantially increase. We believe
the resulting increase in traffic volume will further drive demand for our
software.
DEVELOP AND EXPAND STRATEGIC RELATIONSHIPS
We believe that strategic relationships with industry leaders enable us to
accelerate our market penetration and visibility, and maintain our technology
leadership. We collaborate with Bluestone, Compaq, Dell Computer, Exodus
Communications/KeyLabs, and Sun Microsystems, as well as other internet software
providers. These relationships help to ensure that our software is optimized for
use with their product offerings and promote market awareness of our products.
We plan to continue to develop strategic technology and marketing relationships
with leading providers of e-business software.
LEVERAGE OUR INSTALLED CUSTOMER BASE
To date, we have licensed our software to over 500 companies worldwide,
including Fortune 1000 companies, such as American Express, Dell Computer and
Fidelity Investments, and leading internet-based companies, such as EarthLink,
eBay and Phone.com. As our customers pursue additional e-business strategies and
increase the capabilities of their web applications to accommodate increasing
numbers of users, we believe there is a significant opportunity to increase the
use of our software, including our recently introduced WebLoad Resource Manager
product, within our installed customer base.
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<PAGE>
EXPAND SALES OPERATIONS
We currently market and distribute our products primarily through a direct
sales force, and to a lesser extent through indirect channels. We intend to
continue to grow our direct sales force and develop additional indirect sales
channels. To date we have primarily sold our software in the U.S. and Europe. We
currently have offices in the U.S. and Israel and intend to open additional
offices as well as expand our sales operations in the U.S., Europe and the
Pacific Rim.
PRODUCTS
Our current product line consists of:
- WebLoad: software that assures the performance of web applications by
efficiently simulating very large numbers of users, extreme fluctuations
in traffic and the complex user demands placed on web applications within
an e-business operating environment; and
- WebLoad Resource Manager: enterprise software that promotes efficient use
of resources, facilitates collaboration and enables increased productivity
by allowing developers, quality assurance, or QA, and information
technology staff to share the same testing technologies, methodologies and
resources throughout the application development life cycle. This enables
the systematic verification of web application quality at all stages and
facilitates rapid deployment.
Together, WebLoad and WebLoad Resource Manager provide a comprehensive
solution that enables users to verify their application's scalability,
efficiency and reliability at each point in the application development cycle.
We believe WebLoad and WebLoad Resource Manager are the only products that
combine all aspects of the web application performance verification process into
a single solution. Our products are designed specifically for the internet, and
employ internet-standard technologies such as JavaScript, Java, ActiveX, HTML,
XML and the DOM. Using a standards-based approach makes our products easier to
use and readily adaptable to new technology standards.
WEBLOAD
Using WebLoad, customers create scripts that simulate users' interactions
with web applications. These scripts are built in JavaScript, the web standard
for application scripting. WebLoad includes recorders that enable customers to
rapidly generate scripts by copying interactions between a web browser and a web
application. WebLoad also enables more advanced users to create highly complex
interactions using JavaScript and WebLoad's script authoring tools.
WebLoad can run multiple different scripts simultaneously which reflect
different user interactions with the underlying application. These differences
may be task based (for example, a retail application might mix browsers with
purchasers), or based on other user characteristics, such as their connection
speed, the browser they are using, or their Secure Socket Layer, which is an
encryption configuration.
WebLoad executes scripts for multiple simulated users, or virtual clients,
on load generation machines, such as existing servers, that are centrally
managed by the customer. The customer can schedule these virtual clients
independently to simulate fluctuating user traffic patterns. Alternatively, a
customer can use WebLoad's Cruise Control feature, which steadily increases the
number of virtual clients interacting with an application until that application
fails to perform based on one or more customer-defined performance criteria.
Cruise Control allows our customers to readily and rapidly determine the maximum
user load their application can support while maintaining specified performance
criteria.
WebLoad efficiently generates large numbers of virtual clients requiring
significantly less computer memory than competing products with comparable
functionality. This benefits companies by significantly reducing the cost of
hardware required to simulate large numbers of users.
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While a performance session is running, WebLoad generates over 75 different
pre-defined statistical measurements which are displayed to the user in real
time. Our customers can also add an unlimited number of user-defined
measurements and timers, as well as monitor the performance profile of the
components within a customer's internet architecture. WebLoad reports these data
points on a per client and per transaction level, thus providing detailed
information about the potential causes of any detected application failures
during the simulation and allowing customers to rapidly and effectively address
any performance issues. Customers can analyze this performance data and readily
export it to industry-standard, third-party formats, such as Microsoft Excel.
WebLoad has received the following awards:
- 1999 PC Week Analyst's Choice Award;
- 1999 Java Developer's Journal Award; and
- 2000 Crossroads A-List Award.
Key features and benefits of WebLoad are summarized below.
<TABLE>
<CAPTION>
FEATURE USER BENEFIT
------------------------------------- ------------------------------------------------------------
<S> <C>
Integrated Single Product Solution - Single solution that verifies web application performance
prior to deployment and enables accelerated application
development.
Internet Simulation - Provides users with the ability to emulate different types
and speeds of internet connections.
- Emulates any browser including all releases of Microsoft
and Netscape browsers for maximum real-world simulation.
- Enables users to assign unique IP addresses to virtual
clients in order to facilitate the assessment of system
components including firewalls, load balancers and
routers.
JavaScripting and Authoring - Delivers internet standard scripting for familiar writing
and editing, providing flexibility and automatic generation
of scripts using standard web browsers.
DOM Based - Provides efficient verification of application integrity.
Table Compare - Enables easy definition of expected results and comparison
with actual results for regression analysis.
Virtual Client Throttle - Enables users to dynamically adjust internet traffic
during performance sessions.
Unlimited Client Generation - Optimized, distributed architecture for efficient,
unlimited load generation.
Data Drilling - Allows users to drill down and verify the performance of
web applications at the per-user, per-transaction level.
Cruise Control - Predictive tool for establishing and verifying the
performance thresholds of web applications.
Web Application Server Integration - Seamless integration with leading web application server
platforms.
Comprehensive Performance Analysis - Over 75 performance metrics for testing flexibility and
accuracy and customer metrics.
- Integrates data from Windows NT and Unix Performance
Monitors providing a full performance picture of the web
application.
Comprehensive Test Session Reports - Save and compare graphical and statistical test reports
for measuring the scalability and integrity of an
application over time.
</TABLE>
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WEBLOAD RESOURCE MANAGER
WebLoad Resource Manager addresses the needs of companies to systematically
verify web application quality and standardize their web application performance
solution across the application design, development, quality assurance and
information technology functions. It allows companies to centrally-manage and
share WebLoad resources, so that a web application's architecture, design,
implementation and hardware environment can all be tested using the same
technology at each step of the development life cycle. Verification performed
earlier in the development process generally results in earlier problem
detection, lower costs and more rapid application development. Companies using
WebLoad Resource Manager can therefore capitalize on WebLoad's comprehensive,
integrated, standard-based approach to facilitate the rapid delivery of higher
quality web applications.
A depiction of a WebLoad Resource Manager deployment within an enterprise is
shown below.
[GRAPH]
Key features and benefits of WebLoad Resource Manager include:
COORDINATED MANAGEMENT OF RESOURCES. Customers who license WebLoad Resource
Manager receive a fixed number of virtual clients which may be distributed
throughout the enterprise upon an as-needed basis. For example, a customer with
a license for 10,000 virtual clients could allocate all 10,000 for use in one
performance session, or alternatively, could conduct several concurrent
performance sessions with any number of virtual clients, up to an aggregate of
10,000. WebLoad Resource Manager provides central administrative controls for
managing access to virtual clients and load generating hardware on a per-user,
per-group basis.
COLLABORATIVE AND ACCELERATED DEVELOPMENT. By enabling the sharing of
resources and verification technologies throughout the application development
lifecycle, WebLoad Resource Manager enables developers, QA engineers and IT
staff to use a common solution across the entire project. Using the same
technology in all phases of application development and deployment enables easy
communication
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across these functions. For example, WebLoad Resource Manager permits a QA
engineer to save a test script that identified a problem in the web application,
and allows a developer to share that test script in order to reproduce, diagnose
and fix the problem. Similarly, by using WebLoad Resource Manager early in the
development phase, developers can share their test scripts with QA engineers,
increasing the shared understanding of what verification work has already been
performed and allowing the QA function to scale these tests further.
WEBLOAD WORKSTATIONS. The WebLoad Workstation is a full feature version of
WebLoad, specifically designed to integrate with WebLoad Resource Manager. The
WebLoad Workstation can be used independently, in order to record, edit and test
user simulations with up to twenty virtual clients. The WebLoad Workstation can
also be connected to WebLoad Resource Manager over a company's network, in order
to perform full scale testing and to share test scripts.
CUSTOMERS
To date, we have licensed our software to over 500 customers worldwide. Our
customers include Fortune 1000 companies and internet-based companies across a
broad range of industries, including financial services, technology, retail,
manufacturing, telecommunication, health care and education.
The following is a list of our 50 largest customers, by revenue from
January 1, 1999 to April 30, 2000. We derived 32.6% and 45.6% of our revenue
from these customers for the twelve month period ended December 31, 1999 and the
four months ended April 30, 2000.
FINANCIAL SERVICES
American Express
Chase Manhattan Bank
Fidelity Investments
Fiserv
MBNA Hallmark Information Services
Minnesota Mutual
PNC Bank
State Street Bank
Travelers
UBS AG
Vanguard
SOFTWARE
Bluestone
Bowstreet
Kana Communications
Ventix Systems
TECHNOLOGY
Compaq
Dell Computer
Hewlett-Packard
iNautix
Lucent Technologies
NCR
Nortel Networks
Per Se Technologies
Sun Microsystems
E-BUSINESS SERVICES
Active Touch
Agillion
American Management Systems
Drinks.com
EarthLink
eBay
Icarian
KPHV Corporation
LOIS Inc.
Macromedia
Mambo.com
Panurgy NY Metro
Phone.com
TELECOMMUNICATIONS
BellSouth
Genuity
LHS Priority Call
NTN Communications
Telcordia
OTHER
Campus Pipeline
Harvard University
Mindersoft
Pearson Education
Politzer & Haney
Reynolds & Reynolds
SkillSoft
Xceed
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CASE STUDIES
The following case studies illustrate the challenges faced by representative
customers in deploying their web applications and the benefits they derived from
using our WebLoad and WebLoad Resource Manager software.
EXODUS COMMUNICATIONS/KEYLABS
Exodus provides internet hosting services for enterprises with
mission-critical internet operations and has over 2,200 customers and 27,000
customer servers worldwide.
Exodus' customers rely on its hosting services for the operation of their
business-critical web applications and websites. Through its recently acquired
KeyLabs subsidiary, Exodus also provides services to help its customers
anticipate, identify and resolve performance issues with their web applications
and websites. Given the importance of e-business for its customers, these
services offer a significant growth opportunity and Exodus wanted to increase
the use of these services among its customers. In addition, by providing these
services, Exodus can protect its infrastructure from the bottlenecks created by
poorly functioning web applications. KeyLabs had been using several internally
developed and proprietary software tools to assess the performance of web
applications. Exodus was looking for a standards-based solution that could
simultaneously verify the performance of its customers' web applications from
several geographically-dispersed locations in order to more accurately simulate
the operating environment and diversity of users of the internet.
Exodus chose our WebLoad and WebLoad Resource Manager software as its
solution to assure the performance of its customers' web applications and
websites. WebLoad Resource Manager's flexibility and ease of use enables Exodus
to assess the performance of a web application from an unlimited number of
servers. Currently, Exodus uses approximately 200-300 machines across many
locations. In addition, using our software Exodus can verify the performance of
a customer's web application or of a specific function during the development
phase as well as provide a comprehensive assessment of the overall performance
of a web application just prior to deployment. Exodus' customers can also assure
the proper functioning of their web applications through ongoing, periodic tests
in order to identify critical thresholds where their applications' performance
deteriorates. As a result, customers can address potential bottlenecks and
failures before they occur.
BLUESTONE
Bluestone provides application server software that enables businesses to
extend information over the web in a controlled manner and to support high
volumes of users and interactions.
Bluestone's customers rely on its application server software to build and
deploy their own web applications. As a key component of its customers'
e-business infrastructure, it is critical that Bluestone's software perform as
expected once deployed. Bluestone required a solution to assure the scalability,
efficiency and reliability of its application server software and provide
authoritative performance criteria for its growing customers base. Bluestone
wanted an easy to use solution based on internet standards that could
effectively simulate the complex environment of the internet and enable its
developers to identify and resolve performance issues prior to deployment.
Bluestone selected our WebLoad software after many of its customers were
also using it to verify the performance of their own web applications. WebLoad's
ease of use and JavaScripting capability, which is internet standards-based and
familiar to most technology professionals, were very important for Bluestone.
Bluestone is using WebLoad to benchmark the performance of its software and
rapidly address performance problems, thereby reducing the time and expense
associated with deploying applications for its customers. Bluestone also
purchased our WebLoad Resource Manager software to simulate internet traffic and
users from many load generation servers. In addition, as part of its sales
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and marketing efforts, Bluestone relies on our software to demonstrate to
prospective customers how well its software can perform.
BOWSTREET
Bowstreet provides software that enables companies to rapidly build scalable
business-to-business web sites and applications customized for each supplier,
business partner and customer.
Bowstreet's innovative software enables companies to quickly migrate
critical business processes to the internet in order to conduct e-business.
Bowstreet's software allows companies to rapidly deploy customized
business-to-business web sites and applications which must be highly scalable
and reliable in order to perform specific functions for an enterprise's
suppliers, business partners and customers. In order to assure both the
scalability and reliability of its products, Bowstreet required a solution to
assess the performance of its software throughout the development cycle, and to
simulate the effects of the complex internet environment.
During the development of its flagship software solution, Bowstreet used
WebLoad to assess the software's scalability and reliability, and continues to
rely on WebLoad to verify the performance of additional product functionality.
Bowstreet also recently licensed WebLoad Resource Manager for use throughout its
software development organization. WebLoad Resource Manager enables Bowstreet
engineers to collaborate throughout the development lifecycle and accelerate the
development of applications. WebLoad Resource Manager allows Bowstreet to assess
the reliability of specific application functions during development, and ensure
the scalability of its software, resulting in the rapid identification and
resolution of application errors and faster time-to-market deployments.
SALES AND MARKETING
SALES. We sell our products principally through a direct sales force. Our
direct sales force consists of sales personnel and sales engineers located at
our headquarters in Burlington, Massachusetts, as well as our offices in San
Ramon, California and Tel Aviv, Israel. In addition, we have indirect channel
partners, principally consisting of web system integrators and web hosting
companies, and international distributors in Europe and Israel. We intend to
expand our direct sales force and our pre-sales engineering personnel in the
United States and Europe and add personnel to assist us in broadening our
indirect distribution channels worldwide.
MARKETING. We engage in a variety of product marketing activities and
provide product information through our website. We offer a free trial of our
WebLoad software that can be downloaded from our website. Our marketing programs
are aimed at informing customers of the benefits of our software, increasing the
market awareness of our products and generating demand across all market
segments. Our marketing strategy includes participating in trade shows and
conferences, promoting special events and cultivating relationships with key
technology analysts about the competencies and benefits of our solution.
CUSTOMER SUPPORT
We offer a range of support and training services to our customers. We
believe that providing a high level of customer service and technical support is
necessary to achieve rapid product implementation which, in turn, is essential
to customer satisfaction and continued license sales and revenue growth. We
provide telephone and e-mail technical support from our corporate office in
Burlington, Massachusetts and from our development center in Israel. We track
support requests through a series of customer databases, including current
status reports and historical customer interaction logs. We use customer
feedback as a source of ideas for product improvements and enhancements. We also
provide training and consulting to assist our customers in the development and
deployment of e-business applications using our products.
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RESEARCH AND DEVELOPMENT
Our research and development efforts are focused on enhancing our core
technology and developing additional functionality and capabilities for our
WebLoad and WebLoad Resource Manager products. We conduct our research and
development principally from our facility in Israel, augmented by our
development group in the U.S. Our software development approach consists of a
methodology that provides guidelines for planning, controlling and implementing
projects. This approach uses a cross-functional, team-based development and
release process. Our development group works closely with our sales and
marketing groups, who provide customer and market requirements, and senior
management that provides strategic input, to assist in defining product
direction and to ensure that the right products are brought to market
successfully. Members of our research and development group have extensive
experience working with web technologies and software testing solutions. We
believe that our future performance will depend in large part on our ability to
enhance our current product line, develop new products and maintain our
leadership role in providing innovative solutions for verifying the performance
and scalability of web applications. As a result, we intend to continue to make
significant investments in our research and development initiatives.
PRODUCT TECHNOLOGY AND ARCHITECTURE
Our technologies are built on an open, portable architecture, based on
industry standard technologies. Our products may be deployed on Windows 98,
Windows NT, Windows 2000 or Sun Solaris operating systems and we intend to make
them available on Linux in the near future. Our products incorporate the web
standard scripting language, JavaScript, enabling our customers to easily
develop, deploy and manipulate the scripts required to assess the performance of
their web applications. We have also extended JavaScript to enable integration
of Java, ActiveX and XML and work with other standard web technologies, such as
SSL encryption schemes. Integration with these standard technologies helps
ensure our products are available for use regardless of the customer's operating
environment.
Use of JavaScript as a core technology enables our products to perform
extensive functional verification capabilities without the need for a browser
graphical user interface, or GUI. JavaScript exposes to users the DOM. Our DOM
extensions readily make XML available to the script developer in a familiar
paradigm making it easier to extend a web application to include XML
interactions. Our efficient browser emulator minimizes the use of computer
memory, thereby enabling companies to simulate a larger number of virtual
clients in order to place considerable load, or stress, on the underlying
application infrastructure.
We have developed an application architecture that scales to any arbitrary
test size, delivering consistent throughput for any arbitrary load size,
independent of the number of machines used to generate the load. We employ a
32-bit, multi-threaded and multi-process implementation, which dynamically
adjusts and allocates new processes as the load requirements are raised. This
ensures that load generators are optimized for the test and the load demanded of
them, as well as readily taking advantage of multi-processor machines to
increase performance.
COMPETITION
The web application performance and testing solutions market is intensely
competitive, subject to rapid change and significantly affected by new product
introductions and other activities of market participants. Our primary
competitors include companies who mainly offer application testing software,
such as Mercury Interactive. In addition, we compete against companies that
provide a broader spectrum of development tools that include some verification
functionality, such as Rational Software.
We expect that competition will intensify in the future and that additional
competitors will enter the market with competing products as the size and
visibility of the market opportunity increases.
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Increased competition is likely to result in pricing pressures, reduced margins
and may result in the failure of our products to achieve or maintain market
acceptance, any of which could have a material adverse effect on our business,
results of operations and financial condition. Some of our competitors have
longer operating histories, better brand recognition, a larger installed base of
customers and substantially greater financial, technical, marketing and other
resources than we do. In addition, we anticipate that there will be continuing
consolidation in the web application products market and related markets such as
computer software, media and communications. Consequently, our competitors may
be acquired by, receive investments from, or enter into other commercial
relationships with, larger, well-established and well-financed companies.
Therefore, they may be able to respond more quickly to new or changing
opportunities, technologies, standards or customer requirements. Many of these
competitors also have broader and more established distribution channels that
may be used to deliver competing products directly to customers through bundling
or other means. If competitors were to bundle competing products with their
products, the demand for our products might be substantially reduced and our
ability to distribute our products successfully would be substantially
diminished.
We believe the principal competitive factors affecting our market include:
- the ability to accurately emulate the internet, including efficient
simulation of very large numbers of users, extreme fluctuations in traffic
and complex user demands placed on web applications;
- breadth and depth of features for detecting and resolving software errors
early in the development cycle;
- ease of use and interactive user features;
- price and total cost of use, including hardware requirements;
- ability to stay technically current and compatible with rapidly emerging
and changing web technologies and standards; and
- compatibility with the user's existing network components and software
systems.
To expand our customer base, we must continue to innovate and improve the
performance of our products. Although we believe that our solution competes
favorably with respect to these factors, our market is relatively new and is
developing rapidly. We may not be able to maintain our competitive position
against current and potential competitors, especially those with significantly
greater financial, marketing, service, technical and other resources.
PROPRIETARY RIGHTS
Our success and ability to compete depend upon our proprietary technology.
In addition, we rely on copyright, trade secret and trademark law to protect our
proprietary information. We also typically enter into an agreement with each of
our employees, consultants and customers to control their access to and
distribution of our software, documentation and other proprietary information.
Nevertheless, a third party could copy or otherwise obtain our software or other
proprietary information without our authorization, or could develop software
competitive to ours. Our means of protecting our proprietary rights may not be
adequate and our competitors may independently develop similar technology or
duplicate our products or our other intellectual property. In addition, the laws
of some foreign countries do not protect our proprietary rights to as great an
extent as do the laws of the United States. We expect that it will become more
difficult for us to monitor the use of our products if we increase our
international presence.
There has been substantial litigation in the software and internet
industries regarding intellectual property rights. It is possible that, in the
future, third parties can claim that we, or our current or potential future
products, infringe on their intellectual property. We expect that software
product
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developers will increasing be subject to infringement claims as the number of
products and competitors in our industry segment grows and the functionality of
products in industry segments overlaps. Any claims, with or without merit, could
be time-consuming, result in costly litigation, cause product licensing delays
or require us to license or pay royalties for certain products in order to
continue to sell our products. Licensing or royalty agreements, if required, may
not be available on terms acceptable to us or at all. As a result, our business
could be harmed.
FACILITIES
We do not own any real property. We lease an 11,228 square foot facility in
Burlington, Massachusetts for our corporate headquarters under a lease that
expires in 2005. In addition, we lease approximately 7,700 square feet in Tel
Aviv, Israel for our principal research and development operations under a lease
that expires on August 31, 2001 and is renewable for another four years. We also
lease space for our sales operations in California and London. We believe that
suitable additional space will be available to us, when needed, on commercially
reasonable terms.
EMPLOYEES
As of July 7, 2000 we had 102 employees worldwide, of whom 36 were employed
in research and development, 35 in sales and marketing, 22 in management and
administration and 9 in technical support. Of our employees, 58 are based in the
United States, 42 are based in Israel and 2 are based in Europe. None of our
employees is represented by a labor union and we consider our relations with
employees to be good.
Although our Israeli employees are not party to any collective bargaining
agreement, all of our Israeli employees are subject to Israeli labor laws and
certain provisions of collective bargaining agreements among the Government of
Israel, the General Federation of Labor in Israel and Coordinating Bureau of
Economic Organizations. These provisions and laws principally concern the length
of the work day, minimum daily wages for workers, procedures for dismissing
employees, determination of severance pay and other conditions of employment.
LEGAL PROCEEDINGS
We are not party to any material legal proceedings.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following are our current directors, executive officers, key employees
and two individuals that will serve as our directors upon completion of this
offering, and their respective ages as of May 15, 2000:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Yehuda Zisapel (3).......... 57 Chairman of the Board
Ilan Kinreich (3)........... 42 Chief Executive Officer, President and Director
Michal Blumenstyk........... 38 Vice President, Product Development
Andrew Cabot................ 35 Vice President, Marketing
James Clemens............... 37 Vice President, Sales
Edward M. Durkin............ 39 Chief Financial Officer
Meir Halberstam............. 36 Vice President, Finance
Phil Hollows................ 35 Vice President, Technology
Zohar Zisapel (1)........... 50 Director
William J. Geary (2)(3)..... 41 Director
Shai Beilis (3)............. 52 Director
Jack Elaad (1).............. 52 Director
Thomas Bennett (1).......... 44 Director
Robert Steinkrauss 48 Director
(2)(3)(4).................
Christopher M. Stone 43 Director
(2)(3)(4).................
</TABLE>
------------------------
(1) Will cease to serve as a director upon completion of this offering.
(2) Audit Committee member.
(3) Compensation Committee member.
(4) Will serve as a director upon completion of this offering, subject to
shareholder approval.
YEHUDA ZISAPEL has served as our chairman since our inception. Mr. Zisapel
is also a founder and a director of RAD Data Communications Ltd., a data
communications company, and BYNET Data Communications Ltd., a distributor of
data communications products, chairman of the board of directors of RIT
Technologies, a technology company and is a director of several other companies
in the RAD-BYNET group, including SILICOM Ltd. and RADCOM Ltd. Mr. Zisapel holds
a B.Sc. and an M.Sc. degree in electrical engineering from the Technion, Israel
Institute of Technology and a M.B.A. from Tel Aviv University. Yehuda Zisapel
and Zohar Zisapel are brothers.
ILAN KINREICH has served as our Chief Executive Officer and President since
inception of our operations in 1993. From August 1989 to February 1991,
Mr. Kinreich was a co-founder and Vice President of Research and Development at
Mercury Interactive, a software testing company. From May 1985 until joining
Mercury Interactive, Mr. Kinreich held the position of Research and Development
Manager at Daisy Systems. Prior to that, Mr. Kinreich was part of the
integration team for the Lavi jet fighter. Prior to this, Mr. Kinreich served
seven years in the Israel Defense Forces, holding the rank of Captain, where he
led development and deployment of command and control systems. Mr. Kinreich
holds a B.Sc. in Mathematics and Computer Science from Bar Ilan University.
MICHAL BLUMENSTYK joined us as Vice President, Product Development in
November 1995. From May 1994 until joining us, Ms. Blumenstyk was a project
manager and Testware Engineering department manager at BVR Technologies, a
technology company. From September 1990 until joining BVR Technologies,
Ms. Blumenstyk was a team leader in the Research and Development group at
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Technomatix Technologies. Ms. Blumenstyk holds a M.Sc. in Computer Science from
Columbia University, New York, N.Y.
ANDREW CABOT joined us as our Vice President, Marketing in August 1998. From
July 1996 until joining us, Mr. Cabot managed the security and communications
product families at Cheyenne Software and Computer Associates
International Ltd., a technology company. From July 1994 until joining Cheyenne
Software and Computer Associates, Mr. Cabot was a co-founder of Mediatrends
Software and was responsible for managing the Quip communications product line.
Mr. Cabot holds a B.A. in Liberal Studies from Northeastern University.
JAMES CLEMENS joined us as our Vice President, Sales in April 2000. From
December 1998, until joining us, Mr. Clemens served as Vice President, Sales at
LiveVault Corporation, formerly Network Integrity, a software company. From
September 1988, until joining Network Integrity, Mr. Clemens served in several
positions for Silicon Graphics, and was most recently Area Vice President.
Mr. Clemens has a B.A. in Computer Science from Dartmouth College.
EDWARD M. DURKIN joined us as our Chief Financial Officer in April 2000.
From April 1996 until joining us, Mr. Durkin served as Vice President, Chief
Financial Officer and Treasurer of StarBurst Communications Corporation, a
software company. From March 1993 until joining StarBurst, Mr. Durkin served as
the Director of Finance and Administration for CrossComm Corporation. In
addition, Mr. Durkin has 10 years of public accounting experience as a Certified
Public Accountant with Ernst & Young, LLP. Mr. Durkin has a B.S., cum laude, in
accounting from the University of Massachusetts.
MEIR HALBERSTAM joined us as our Vice President, Finance in February 1997
and served as our Chief Financial Officer until April 2000. From 1992 until
joining us, Mr. Halberstam worked at National Semiconductor (Israel), as the
company controller. Prior to that, Mr. Halberstam worked for 3 years at two
accounting offices as an auditor. Mr. Halberstam is a qualified Certified Public
Accountant and holds a B.A. in Economics and Accounting from Bar-Ilan
University.
PHIL HOLLOWS joined us as our Vice President, Technology in October 1999.
From October 1995, until joining us, Mr. Hollows was, most recently, the
Technical Director for Kronos, a software company, where he was responsible for
technical strategy and implementation for the Timekeeper Systems Division. From
May 1993, until joining Kronos, Inc., Mr. Hollows was the Managing Consultant in
New York for the executive information system consultancy Metapraxis, Inc.
Mr. Hollows holds a B.A. in Physics from The Queen's College, Oxford, England.
ZOHAR ZISAPEL has served as a director since our inception. Mr. Zisapel is
also a founder and a director of RAD Data Communications Ltd. and has served as
President of RAD Data since 1982. Mr. Zisapel is a director of other companies
in the RAD-BYNET group, including SILICOM Ltd., RADCOM Ltd., and RIT
Technologies Ltd. Mr. Zisapel received B.Sc. and M.Sc. degrees in electrical
engineering from the Technion, Israel Institute of Technology and a M.B.A.
degree from Tel Aviv University. Zohar Zisapel and Yehuda Zisapel are brothers.
Zohar Zisapel will cease to serve as a director upon completion of this
offering.
WILLIAM J. GEARY has served as a director since December 1999. Mr. Geary has
been a General Partner of North Bridge Venture Partners III, L.P. since its
inception in August 1998, a General Partner of North Bridge Venture Partners II,
L.P. since its inception in September 1996, and a Principal of North Bridge
Venture Partners, L.P. since its inception in March 1994. Mr. Geary has also
been a General Partner of North Bridge Venture Partners IV, L.P. since its
inception in September 1999. Mr. Geary serves as a director in eBenX, Inc. and
2nd Century Communications, Inc. and several private technology companies
Mr. Geary holds a B.S. from Boston College, School of Management and is a
Certified Public Accountant.
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SHAI BEILIS has served as a director since May 1998. Mr. Beilis has been the
Chairman and Managing Partner of Formula Ventures Ltd. since December 1998. From
January 1995 until joining Formula, Mr. Beilis served as the Chief Executive
Officer of Argotec Ltd., a wholly-owned subsidiary of Formula Systems
(1985) Ltd. established in 1993 to capitalize on investment opportunities in the
IT sector where he was responsible for initiating, overseeing and managing
Argotec's investments. Before joining Formula Systems (1985) Ltd., Mr. Beilis
served as Chief Executive Officer of Clal Computers and Technology Ltd. and was
employed by Digital Equipment Corporation. Mr. Beilis serves as a director for
Formula Systems (1985) Ltd., Crystal System Solutions Ltd., Applicom Software
Industries Ltd. and several private companies. Mr. Beilis holds a B.S. degree in
Mathematics and Economics from the Hebrew University in Jerusalem and a M.S. in
Computer Science from the Weizmann Institute of Science.
JACK ELAAD has served as a director since July 1998. Since May 1996,
Mr. Elaad has been the chairman of Sadot Research and Development Fund and Chief
Executive Officer of Aria Razel Investment and Management Ltd. From May 1995
until joining Sadot, Mr. Elaad was a director of U.D.S. Ltd. Mr. Elaad serves as
a director on the board of Aria Razel Management and Investment Ltd., Aria Razel
Enterprise and Management (1992) Ltd., Igal Investment Ltd., Sadot Research and
Development Fund Ltd., Idcide Inc., Silentium Ltd., Crediview Inc. Mr. Elaad has
a B.A. and a M.B.A. from the Hebrew University of Jerusalem. Mr. Elaad will
cease to serve as a director upon completion of this offering.
THOMAS BENNETT has served as a director since September 1999. Since
April 1997, Mr. Bennett has served as the Senior Vice President of Business
Development for Computer Associates Ltd. From June 1978 until joining Computer
Associates, Mr. Bennett was employed by Policy Management Systems Corp., now
Mynd Corporation, a enterprise software and electronic commerce systems company.
Mr. Bennett currently serves on the board of I-Storm and several private
companies. Mr. Bennett attended the University of South Carolina. Mr. Bennett
will cease to serve as a director upon completion of this offering.
ROBERT STEINKRAUSS will serve as a director upon completion of this
offering, subject to shareholder approval. From November 1999 to April 2000,
Mr. Steinkrauss served as Vice President and General Manager of the WAN Systems
Group of Lucent Technologies Inc. Prior to that, Mr. Steinkrauss served as
President of Xedia Corporation from February 1998 to November 1999. From
February 1995 to February 1998, Mr. Steinkrauss served as Chairman, President
and Chief Executive Officer of Raptor Systems Inc. which was sold to Axent
Technologies Inc. in February 1998. Mr. Steinkrauss received a B.A. from Boston
College, magna cum laude, and is a Certified Public Accountant.
CHRISTOPHER M. STONE will serve as a director upon completion of this
offering, subject to shareholder approval. Mr. Stone is a founder and has served
as President and Chief Executive Officer of Tilion, Inc. since its inception in
January 2000. Tilion is an infrastructure service provider for in-the-net
commerce analytics. From August 1997 to October 1999, Mr. Stone served as
Executive Vice President of corporate strategy and development at Novell, Inc.
From 1989 to 1992, Mr. Stone served as Chief Executive Officer of the Object
Management Group Inc., a software development standardization group of which he
was also a founder. Mr. Stone currently serves on the board of directors of
Entrust Technologies, Inc. Mr. Stone holds a B.S. in Computer Science from
University of New Hampshire and an Executive M.B.A. from University of
Virginia's Darden School of Business.
COMMITTEES OF THE BOARD OF DIRECTORS
Our board of directors has standing audit and compensation committees. The
audit committee upon completion of this offering will consist of Messrs. Geary,
Steinkrauss and Stone. The audit committee oversees the engagement of our
independent public accountants, reviews the annual
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financial statements and the scope of the annual audits and considers matters
relating to accounting policy and internal contracts.
The compensation committee currently consists of Messrs. Yehuda Zisapel,
Kinreich, Geary and Beilis. The compensation committee administers our three
option plans: the Key Employee Share Incentive Plan (1996), the Affiliate
Employees Option Plan (1997) and the United States Share Incentive Plan (2000).
The compensation committee administers these plans and is authorized to submit
recommendations to our board of directors as to the issuance of options under
the plans. Under the Companies Law, the authority to issue options vests
exclusively with our board of directors.
ALTERNATE DIRECTORS
Our Articles of Association provide that a director may appoint, by written
notice to us, an individual to serve as an alternate director. Any alternate
director will have all of the rights and obligations of the director appointing
him or her, except the power to appoint an alternate (unless the instrument
appointing him or her provides otherwise) and the right to remuneration. The
alternate director may not act at any meeting in which the director appointing
him or her is present. Currently, no alternate directors have been appointed. A
person who is not qualified to be appointed as a director, or a person who
already serves as a director or an alternate director, may not be appointed as
an alternate director.
INDEPENDENT DIRECTORS
Upon the completion of this offering, our ordinary shares will be listed for
quotation on the Nasdaq National Market and we will be subject to the rules of
the Nasdaq National Market applicable to listed companies. Under the Nasdaq
rules, we are required to appoint a minimum of three independent directors, and
our audit committee is required to be comprised of at least three independent
directors, all of whom are financially literate and one of whom has accounting
or related management expertise. The independence standard under the Nasdaq
rules excludes any person who is a current or former employee of a company or
its affiliates as well as the immediate family members of an executive officer
of a company or its affiliates. Upon completion of this offering, Messrs. Geary,
Steinkrauss and Stone, will meet the independence standard and the audit
committee member requirements of the Nasdaq rules.
EXTERNAL DIRECTORS
The Israeli Companies Law, 1999, became effective on February 1, 2000. Under
the Companies Law, companies incorporated under the laws of Israel whose shares
have been offered to the public in or outside of Israel are required to appoint
two independent, or external, directors. A person may not be appointed as an
external director if the person's relative, partner, employer or any entity
under the person's control has, as of the date of the person's appointment as
external director, or had, during the preceding two years, any affiliation with:
- the company;
- any entity controlling the company; or
- any entity controlled by the company or by this controlling entity.
The term affiliation includes:
- an employment relationship;
- a business or professional relationship maintained on a regular basis;
- control; and
- service as an office holder.
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<PAGE>
A person may not serve as an external director if the person's position or
other business creates, or may create, a conflict of interest with the person's
responsibilities as an external director or may adversely impact such person's
ability to serve as an external director. Until the lapse of two years from
termination of office, a company may not engage an external director to serve as
an office holder and cannot employ or receive professional services from that
person, either directly or indirectly, including through an entity controlled by
that person.
The term of an external director is three years and may be extended for an
additional three years. Each committee of a company's board of directors is
required to include at least one external director.
External directors are elected by a majority vote at a shareholders'
meeting, provided that either:
- the majority of shares voting in favor of the election includes at least
one third of the shares of non-controlling shareholders voted at the
meeting; or
- the total number of shares of non-controlling shareholders voted against
the election of the external director does not exceed one percent of the
aggregate voting rights in the company.
External Directors are entitled to compensation as provided in regulations
adopted under the Companies Law and are otherwise prohibited from receiving any
other compensation, directly or indirectly, in connection with service provided
as a director.
We intend to appoint Messrs. Steinkrauss and Stone, who, subject to
shareholder approval, will serve as directors upon completion of this offering,
as external directors under the Companies Law. The appointment of the external
directors requires shareholder approval, as set forth in the Companies Law. We
will also appoint the external directors to committees of our board of directors
as required by applicable law.
Under the Companies Law, if, at the time external directors are to be
appointed, all current members of the board of directors are of the same gender,
then at least one external director must be of the other gender. We intend to
appoint a female director upon, or prior to, the appointment of the two external
directors.
AUDIT COMMITTEE; INTERNAL AUDITOR
Pursuant to the Companies Law, the board of directors of a public company
must appoint an audit committee, as well as an internal auditor. The audit
committee must be comprised of at least three directors, including all of the
external directors. The audit committee may not include the chairman of the
board, any director employed by the company or providing to the company services
on a regular basis, or a controlling shareholder or his relative. The Companies
Law also requires the board of directors of a public company to appoint an
internal auditor recommended by the audit committee. The role of the internal
auditor is to examine, among other things, whether the company's acts comply
with the law and orderly business procedure. The internal auditor may be an
employee of the company but may not be an affiliate or office holder, or a
relative of any affiliate or office holder, and may not be a member of the
company's independent accounting firm or its representative. We will constitute
our audit committee so that it will comply with the Companies Law.
FIDUCIARY DUTIES OF OFFICE HOLDERS
The Companies Law imposes fiduciary duties on a company's "office holders,"
which include a director, general manager, chief executive officer, executive
vice president, vice president, any person performing the foregoing functions
without regard to such person's title and any other manager directly subordinate
to the general manager. An office holder's fiduciary duties consist of a duty of
care and a duty of loyalty. The duty of care requires an office holder to act
with the level of skill with which a reasonable office holder in the same
position would have acted under the same circumstances. The duty of care
includes a duty to use reasonable means to obtain:
- information on the advisability of a given action brought for his approval
or performed by him by virtue of his position; and
50
<PAGE>
- all other significant information pertaining to these actions.
The duty of loyalty requires the office holder to act in good faith and for
the company's benefit and includes a duty to:
- avoid any conflict of interest between the office holder's position in the
company and any other position held by him or his personal affairs;
- avoid any competition with the company;
- avoid exploiting any business opportunity of the company to receive a
personal gain for himself or others; and
- disclose to the company any information or documents relating to the
company's affairs which the office holder has received due to his position
as an office holder.
Each person listed in the table under "--Directors, Executive Officers and
Key Employees" above is an office holder. Under the Companies Law, all
arrangements as to compensation of an office holder who are not directors
require approval of the board of directors and, with respect to indemnification
and insurance of these office holders, also require audit committee approval.
Arrangements regarding the compensation of directors, including in their
capacity as officers of the company, require audit committee, board of directors
and shareholder approval.
APPROVAL OF RELATED PARTY TRANSACTIONS UNDER ISRAELI LAW
The Companies Law requires that an office holder of a company promptly
disclose any personal interest that he or she may have and all related material
information known to him or her, relating to any existing or proposed
transaction by the company. This would include disclosure of a personal interest
of any corporation in which the office holder is a 5.0% or greater shareholder,
director, or general manager or in which he or she has the right to appoint at
least one director or the general manager. If the transaction is an
extraordinary transaction, that is, a transaction other than in the ordinary
course of business, otherwise than on market terms, or is likely to have a
material impact on the company's profitability, assets or liabilities, the
office holder must also disclose any personal interest of the office holder's
spouse, siblings, parents, grandparents, descendants, spouse's descendants, and
their spouses. Once an office holder complies with this disclosure requirement,
if the transaction is not an extraordinary transaction, the Companies Law
provides that only the approval of the board of directors is required, unless
the articles of association provide otherwise. Approval of these types of
transactions is conditioned on the transaction not being adverse to the
company's interest. If the transaction is an extraordinary transaction, then, in
addition to any approval stipulated by the articles of association, it must also
be approved by the company's audit committee and then by the board of directors,
and, under certain circumstances, by a meeting of the shareholders of the
company. A director who has a personal interest in a matter which is considered
at a meeting of the board of directors or the audit committee, may generally not
be present at this meeting or vote on this matter.
The Companies Law applies the same disclosure requirements to a controlling
shareholder of a public company. A controlling shareholder may include a
shareholder that holds 25.0% or more of the voting rights in a public company if
no other shareholder owns more than 50.0% of the voting rights in the company.
Subject to exceptions specified in regulations promulgated under the Companies
Law, extraordinary transactions with a controlling shareholder or in which a
controlling shareholder has a personal interest, and the terms of compensation
of a controlling shareholder who is an office holder or employee, require the
approval of the audit committee, the board of directors and a majority of the
shareholders of the company in a general meeting, provided that either:
- the majority of shares voting in favor of the transaction includes at
least one-third of the shareholders who have no personal interest in the
transaction and are present at the meeting; or
- the total number of shares of those who have no personal interest in the
transaction and who vote against the transaction does not exceed one
percent of the voting rights in the company.
51
<PAGE>
A private offer for the issuance of securities that will increase the
relative holdings of a shareholder that holds five percent or more of the
company's outstanding share capital, or that will cause any person to become, as
a result of the issuance, a holder of five percent or more of the company's
outstanding share capital, requires approval by the board of directors and the
shareholders of the company. However, regulations promulgated under the
Companies Law provide that this type of private issuance does not require these
approvals in the case of companies, such as us, whose shares are offered
publicly only outside of Israel.
INDEMNIFICATION, INSURANCE AND EXCULPATION OF OFFICE HOLDERS
Our articles of association provide that, to the extent permitted by the
Companies Law, we may indemnify our office holders for liability or expense
incurred by an office holder as a result of an act done by him in his capacity
as an office holder, as follows:
- financial liability imposed on him in favor of another person by a court
judgment, including a settlement judgment or an arbitrator's award
approved by a court; and
- reasonable litigation expenses, including attorney's fees, expended by an
office holder or charged to him by a court, in proceedings filed against
him by us or on our behalf or by another person, or in a criminal charge
from which he was acquitted, or in a criminal charge of which he was
convicted of a crime which does not require a finding of criminal intent.
The Companies Law and our Articles of Association provide that, subject to
certain limitations, we may undertake in advance to indemnify our office
holders.
Our articles of association provide that, to the extent permitted by the
Companies Law, we may enter into a contract for the insurance of the liability
of our office holders in respect of a liability imposed on an office holder as a
result of an act done by him in his capacity as an office holder, including the
following:
- a breach of his duty of care to us or to another person;
- a breach of his duty of loyalty to us, provided that he acted in good
faith and had reasonable grounds to assume that his act would not harm us;
or
- financial liability imposed upon him in favor of another person.
These provisions are specifically limited in their scope by the Companies
Law, which provides that a company may not indemnify or procure insurance for
the liability of an office holder for:
- a breach of the duty of loyalty, unless the office holder acted in good
faith and had reasonable grounds to assume that the action would not harm
the company;
- an intentional or reckless breach of the duty of care;
- an act done with the intent to unlawfully realize personal gain; or
- a criminal fine or penalty imposed on the office holder.
In addition, our articles of association provide that, to the extent
permitted by the Companies Law, we may release an office holder, in advance,
from liability, in whole or in part, for damages resulting from a breach of his
duty of care to us.
We have agreed to indemnify our office holders to the fullest extent
permitted under the Companies Law. In June 2000, we procured liability insurance
in the amount of $5,000,000, insuring our directors and officers in connection
with their service to us.
In July 2000, we have undertaken to indemnify, subject to the provisions of
the Companies Law, our office holders, for liability or expense incurred thereby
in connection with certain claims, specified in the arrangement, related to an
action or inaction on the part of the office holder while serving in such
capacity. The indemnity for any such claim will not exceed a specified maximum
amount. In addition, this arrangement includes an exemption and release of our
office holders from any liability
52
<PAGE>
related to any breach by an office holder of said officer's duty of care to us,
to the maximum extent permitted by the Companies Law.
COMPENSATION OF DIRECTORS
We reimburse our Directors for expenses incurred to attend meetings of our
Board of Directors and any committees of the Board of Directors. Currently, our
Directors who are not officers do not receive any other compensation.
EXECUTIVE COMPENSATION
The following table sets forth for the total compensation, during the year
ended December 31, 1999, paid to or accrued for our Chief Executive Officer and
President. Two other executive officers' salary and bonus exceeded $100,000 for
1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------- --------------------
NUMBER OF SECURITIES
NAME AND PRINCIPAL POSITION SALARY BONUS UNDERLYING OPTIONS
<S> <C> <C> <C>
Ilan Kinreich.......................................... $140,451 $45,000 147,510
Chief Executive Officer
and President
Andrew Cabot........................................... 107,810 20,000 107,810
Vice President, Marketing
Patricia Nagle (1)..................................... 92,307 38,098 184,390
Vice President, Sales
</TABLE>
------------------------
(1) Ms. Nagle served as our Vice President, Sales through February 2000.
OPTION GRANTS IN 1999
The following table presents each grant of stock options during the fiscal
year ended December 31, 1999, to each of the individuals listed in the Summary
Compensation Table. We have never granted stock appreciation rights.
The potential realizable value is calculated based on the 62-month term of
the option at the time of grant. Stock price appreciation of 5.0% and 10.0% is
assumed pursuant to the rules promulgated by the SEC does not represent our
estimate of future share price performance. The potential realizable value at
5.0% and 10.0% appreciation are calculated by:
- multiplying the number of ordinary shares under the option by the assumed
public offering price of $11.00 per share;
- assuming that the aggregate stock value derived from that calculation
compounds at the annual 5.0% or 10.0% rate shown in the table until the
expiration of the options; and
- subtracting from that result the aggregate option exercise price.
Percentages shown under "Percent of Total Options Granted to Employees in
1999" are based in an aggregate of 857,060 options granted to our employees
under our Key Employee Share Incentive
53
<PAGE>
Plan (1996) during 1999. The exercise price of each option is equal to the fair
market value of our ordinary shares on the date of grant as determined by our
board of directors.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------
PERCENT OF POTENTIAL REALIZABLE VALUE
NUMBER OF TOTAL OPTIONS AT ASSUMED ANNUAL RATES
SECURITIES GRANTED TO EXERCISE OF SHARE PRICE APPRECIATION
UNDERLYING EMPLOYEES PRICE FOR OPTION TERMS
OPTIONS IN PER EXPIRATION ---------------------------
NAME GRANTED 1999 SHARE DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Ilan Kinreich........... 147,510 17.2% $0.68 9/28/2004 $1,987,505 $2,554,770
Andrew Cabot............ 107,810 12.6 0.68 9/28/2004 1,452,600 1,867,194
Patricia Nagle.......... 184,390 21.5 0.68 10/23/2004 2,484,416 3,193,506
</TABLE>
OPTION VALUES AT DECEMBER 31, 1999
The following table presents the number and value of securities underlying
unexercised options that are held by each of the individuals listed in the
Summary Compensation Table as of December 31, 1999.
Amounts shown under the column "Value of Unexercised in-the-Money Options at
December 31, 1999" are based on the assumed initial public offering price of
$11.00, without taking into account any taxes that may be payable in connection
with the transaction, multiplied by the number of shares underlying the option,
less the exercise price payable for these shares.
AGGREGATED OPTION EXERCISES IN 1999
AND DECEMBER 31, 1999 OPTION VALUE
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT DECEMBER 31, 1999 DECEMBER 31, 1999
ACQUIRED ON VALUE ----------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
Ilan Kinreich.......... -- $ -- 427,978 110,632 $4,681,452 $1,141,722
Andrew Cabot........... -- -- 26,953 80,857 $ 278,155 $ 834,444
Patricia Nagle......... -- -- -- 184,390 -- $1,902,905
</TABLE>
EQUITY AND OTHER INCENTIVES
SHARE OPTION PLANS
As of July 31, 2000, pursuant to resolutions of our board of directors, a
total of 4,311,862 ordinary shares had been reserved for the granting of options
to our employees, officers, directors, consultants and affiliate employees
pursuant to our share option plans. These options have been reserved and granted
pursuant to our Key Employee Share Incentive Plan (1996), Affiliate Employees
Option Plan (1997) and United States Share Incentive Plan (2000).
Options granted under our option plans generally vest over a period of
between three to five years. Of the options reserved under the share option
plans, options to purchase 455,640 ordinary shares have been exercised, options
to purchase 3,209,389 shares were outstanding as of the date of this prospectus,
at a weighted average exercise price of $1.78 share and options to purchase up
to 646,833 ordinary shares are available for future grant.
The compensation committee administers these plans and is authorized to
submit recommendations to our board of directors as to the issuance of options
under the plans. Under the Companies Law, the authority to issue options vests
exclusively with our board of directors. Each grantee is responsible for all
personal tax consequences of the grant and the exercise thereof.
Our board of directors may terminate or amend our share option plans,
provided that any action by our board of directors which will alter or impair
the rights of an option holder requires the prior consent of that option holder.
54
<PAGE>
We have resolved that from the date of the closing of this offering and
thereafter we will issue options under the Key Employee Share Incentive Plan
(1996) and the United States Share Incentive Plan (2000) exclusively. From the
date of the closing of this offering and thereafter, we will not issue options
under the Affiliate Employees Option Plan (1997).
GENERAL PROVISIONS APPLICABLE TO THE UNITED STATES SHARE INCENTIVE PLAN (2000)
Options granted under the United States Share Incentive Plan (2000) may be
either (i) options intended to qualify as "incentive stock options" under
Section 422 of the Internal Revenue Code of 1986, as amended or
(ii) non-qualified stock options. Incentive stock options may only be granted to
our employees. The aggregate fair market value, determined on the date of grant,
of ordinary shares issuable pursuant to incentive stock options that become
exercisable in any calendar year under any of our existing or future potential
incentive stock plans may not exceed $100,000. Incentive stock options granted
under this Plan may not be granted at a price less than the fair market value of
our ordinary shares on the date of grant, or 110.0% of fair market value in the
case of employees holding more than 10.0% of our voting stock. Non-qualified
stock options granted under our plan may not be granted at an exercise price
less than the par value per share of our ordinary shares on the date of the
grant. Incentive stock options granted under this plan expire not more than 10
years from the date of grant, or not more than five years from the date of grant
in the case of incentive stock options granted to an employee or officer holding
10.0% or more of our voting stock. An option granted under the plan is not
transferable by the option holder except by will or by the laws of descent and
distribution or as otherwise determined by the Board of Directors and set forth
in the applicable option agreement.
EMPLOYMENT AGREEMENTS
At the start of their employment, our employees in the United States
generally sign offer letters specifying basic terms and conditions of employment
as well as agreements that include confidentiality, non-compete provisions and
assignment of intellectual property rights related to their employment. At the
start of their employment, our employees in Israel generally sign written
employment agreements that include confidentiality and non-compete provisions.
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<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information known to us regarding the
beneficial ownership of our ordinary shares as of July 31, 2000 giving effect to
conversion of all our preferred shares into ordinary shares and as adjusted to
reflect the sale of the ordinary shares in this offering by:
- each person known by us to beneficially own more than 5.0% of our ordinary
shares;
- each named executive officer;
- each of our directors; and
- all of our directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
ordinary shares under options and warrants held by that person that are
currently exercisable or exercisable within 60 days of July 31, 2000 are
considered outstanding. These shares, however, are not considered outstanding
when computing the percentage ownership of each other person.
Except as indicated in the footnotes to this table and pursuant to state
community property laws, each shareholder named in the table has sole voting and
investment power for the shares shown as beneficially owned by them. Ownership
percentages before offering are based on 12,366,572 ordinary shares outstanding
on a pro forma basis on July 31, 2000 and ownership percentages after offering
are based on the same number plus 5,000,000 ordinary shares to be issued upon
completion of this offering. This table assumes no exercise of the underwriters'
over-allotment option.
Unless otherwise noted below, each shareholder's address is c/o RadView
Software Ltd., 7 New England Executive Park, Burlington, Massachusetts 01803.
<TABLE>
<CAPTION>
TOTAL SHARES PERCENTAGE OF
BENEFICIALLY OWNED ORDINARY SHARES
----------------------- -------------------
BEFORE AFTER BEFORE AFTER
BENEFICIAL OWNER OFFERING OFFERING OFFERING OFFERING
<S> <C> <C> <C> <C>
FIVE PERCENT SHAREHOLDERS
Computer Associates International, Inc. (1)......... 1,548,900 1,635,067 12.5% 9.4%
Formula Ventures (2)................................ 2,518,656 2,604,823 20.4% 15.0%
North Bridge Venture Partners III, L.P. (3)......... 1,666,666 1,666,666 13.5% 9.6%
Sadot Research and Development Fund Ltd. (4)........ 1,510,959 1,510,959 12.2% 8.7%
DIRECTORS AND EXECUTIVE OFFICERS
Zohar Zisapel (5)................................... 2,051,320 2,079,522 16.6% 12.0%
Yehuda Zisapel (6).................................. 2,060,249 2,079,522 16.7% 12.0%
Ilan Kinreich (7)................................... 523,434 523,434 4.2% 3.0%
Andrew Cabot (8).................................... 71,780 71,780 * *
Michal Blumenstyk (9)............................... 66,450 66,450 * *
Edward M. Durkin.................................... -- -- -- --
Meir Halberstam (10)................................ 40,000 40,000 * *
Phil Hollows........................................ -- -- -- --
James Clemens....................................... -- -- -- --
William J. Geary (3)................................ 1,666,666 1,666,666 13.5% 9.6%
Shai Beilis (2)..................................... 2,518,656 2,604,823 20.4% 15.0%
Jack Elaad (4)...................................... 1,510,959 1,510,959 12.2% 8.7%
Thomas Bennett (1).................................. 1,548,900 1,635,067 12.5% 9.4%
Robert Steinkrauss.................................. -- -- -- --
Christopher M. Stone................................ -- -- -- --
All executive officers and directors as a group (15
persons).......................................... 12,043,533 12,278,223 95.1% 69.5%
</TABLE>
------------------------
* Represents beneficial ownership of less than one percent of our ordinary
shares.
56
<PAGE>
(1) Represents 1,548,900 ordinary shares owned of record by Computer Associates
International, Inc. and 86,167 ordinary shares issuable to Computer
Associates International, Inc. upon the closing of this offering. Our
director, Thomas Bennett, is a Senior Vice President, Business Development
of Computer Associates International, Inc. Mr. Bennett has no voting or
investment power over the ordinary shares held by Computer Associates
International, Inc. and disclaims beneficial ownership of these shares.
Computer Associates International, Inc. is a public company traded on The
Nasdaq National Market. Based on its most recent Proxy Statement on Form 14A
filed with the SEC on July 7, 1997, its directors are Russell M. Artzt,
William F.P. deVogel, Irving Goldstein, Richard A. Grasso, Shirley Strum
Kenny, Sanjay Kumar and Charles B. Wang. The address of Computer Associates
International, Inc. is One Computer Associates Plaza, Islandia, NY 11749.
(2) Represents 1,524,510 ordinary shares owned of record by Formula Ventures
L.P; 428,887 ordinary shares owned of record by FV-PEH L.P.; 489,701
ordinary shares owned of record by Formula Ventures (Israel) L.P.; 75,558
ordinary shares owned of record by Shem Basum Ltd. and 86,167 ordinary
shares in the aggregate issuable to Formula Ventures L.P., FV-PEH L.P.,
Formula Ventures (Israel) L.P., and Shem Basum Ltd. upon the closing of this
offering and distributed among them as follows: 52,157 ordinary shares will
be issued to Formula Ventures L.P., 14,674 ordinary shares will be issued to
FV-PEH L.P., 16,751 ordinary shares will be issued to Formula Ventures
(Israel) L.P., and 2,585 ordinary shares will be issued to Shem Basum Ltd.
Shai Beilis, our director, is the managing director of Formula Ventures
L.P., Formula Ventures Ltd. and the principal shareholder and a director of
Shem Basum Ltd. Shai Beilis disclaims beneficial ownership of the shares
held of record by Formula Ventures L.P.; FV-PEH L.P. and Formula Ventures
(Israel) L.P. except to the extent of his pecuniary interest therein. Shai
Beilis has sole voting and investment power and is the beneficial owner of
the 75,558 ordinary shares owned of record by Shem Basum Ltd. Formula
Ventures L.P., FV-PEH L.P. and Formula Ventures (Israel) L.P. are part of an
affiliated group of investment entities managed by Formula Ventures Ltd. and
Formula Ventures Partners (Cayman Islands) Ltd., a subsidiary thereof. Micha
Gaiger, Yigal Erlich, Shai Beilis, Ariel Sela, Moshe Shachaf, Dan Goldstein,
by virtue of their board position in Formula Venture Ltd., and Ben-Arie
Reuven and Ari Sternberg, by virtue of their board position in Formula
Venture Partners (Cayman Islands) Limited, each share voting and dispositive
power with respect to the shares held by Formula Ventures L.P.; FV-PEH and
Formula Ventures (Israel) L.P. Decisions with respect to voting and
investment of the shares owned of record are made by majority vote and as
managing director, Shai Beilis shares voting and investment power over the
ordinary shares held by Formula Ventures L.P., FV-PEH L.P. and Formula
Ventures (Israel) L.P. The address of Formula Ventures (Israel) L.P. is 11
Galgalei Haplada St., Herzliya, Israel 46733. The address of each of Formula
Ventures L.P. and FV-PEH L.P. is c/o Michael Fiamenbaum 666 Fifth Avenue,
New York, New York, USA. The address of Shem Basum Ltd. is 39 Shderot
Hagalim, Herzliya, Israel 46120.
(3) Represents 1,666,666 ordinary shares owned of record by North Bridge Venture
Partners III, L.P. The General Partner of North Bridge Venture Partners III,
L.P. is North Bridge Venture Management III, L.P. Our director Mr. William
J. Geary is a partner of North Bridge Venture Management III, L.P.
Mr. Geary shares voting and investment power over these shares, however, he
disclaims beneficial ownership of these shares except to the extent of his
pecuniary interest therein. Edward T. Andersen, William J. Geary, Richard
D'Amore and Jeffrey P. McCarthy, by virtue of their management position in
North Bridge entities, each have voting and dispositive power with respect
to the shares held by North Bridge Venture Partners III, L.P. The address of
North Bridge Venture Partners III, L.P. is 950 Winter Street, Suite 4600,
Waltham, MA 02451.
(4) Represents 1,510,959 ordinary shares owned of record by Sadot Research and
Development Fund Ltd. Upon the closing of this Offering, 226,644 of these
ordinary shares will be transferred to Arya Razel Enterprise and Management
(1992) Ltd. Jack Elaad, our director, is a director of Sadot
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<PAGE>
Research and Development Fund Ltd. and Arya Razel Enterprise and Management
(1992) Ltd. Mr. Elaad disclaims beneficial ownership of these shares. Sadot
Research and Development Fund Ltd. is a publicly held Israeli company traded
on the Tel Aviv stock exchange. Avraham Radgansky, Yossi Bert, Yakov Sadeh,
Shammai Mittelman, Graham Jeffrey Wolfman, Jack Elaad, Yitzhak Koul and
Itzhak Inbar are the directors of Sadot Research and Development Fund Ltd.
and share voting and dispositive power with respect to the shares held by
Sadot Research and Development Fund Ltd. Avraham Radginsky, Ben Zion Israel
and Jack Elaad are the directors of Arya Razel Enterprise and Management
(1992) Ltd. and share voting and dispositive power with respect to the
shares held by Arya Razel Enterprise and Management (1992) Ltd. The address
of Sadot Research and Development Fund Ltd. and Arya Razel Enterprise and
Management (1992) Ltd. is Textile House, 2 Kaufman Street, Tel Aviv, Israel
61500.
(5) Represents 678,891 ordinary shares owned of record by Zohar Zisapel; 678,774
ordinary shares owned of record by Michael and Klil Holdings (93) Ltd.;
678,774 ordinary shares owned of record by Lomsha Ltd.; 14,881 ordinary
shares owned by Rad Data Communications Ltd. and 43,083 ordinary shares
issuable to Zohar Zisapel upon the closing of this offering. Zohar Zisapel
is a principal shareholder and a director of each of Michael and Klil
Holdings (93) Ltd., Lomsha Ltd. and of Rad Data Communications Ltd. and is
also Chairman of Rad Data Communications Ltd. The 14,881 ordinary shares
owned by Rad Data Communications are held in trust for a group of employees
of companies in which Zohar and/or Yehuda Zisapel are principal shareholders
and/or directors. Rad Data Communications Ltd. serves as trustee of this
trust. Under the terms of the trust, the trustee has the power to vote the
shares but no investment power over the shares. The terms of the trust
provide that immediately prior to the closing of this offering the trust
shall dissolve and the shares are to be distributed to the beneficiaries of
the trust. Zohar Zisapel is not one of the beneficiaries and he disclaims
beneficial ownership of the shares held in trust. Zohar Zisapel's address is
8 Hanachoshet Street, Tel Aviv, Israel, 69710.
(6) Represents 2,036,439 ordinary shares owned of record by Yehuda Zisapel;
8,929 and 14,881 ordinary shares held by Bynet Data Communication Ltd. and
Rad Data Communications Ltd., respectively and 43,083 ordinary shares
issuable to Yehuda Zisapel (or entities controlled by him) upon the closing
of this offering. Yehuda Zisapel is a principal shareholder and a director
of each of Bynet Data Communication Ltd. and Rad Data Communications Ltd.
and is also president of Rad Data Communications Ltd. The 8,929 and 14,881
ordinary shares held respectively by Bynet Data Communication Ltd. and Rad
Data Communications are held in two trusts for a group of employees of
companies in which Zohar and or Yehuda Zisapel are principal shareholders
and/or directors. Rad Data Communications Ltd. and Bynet Data Communication
Ltd. are each the trustee in one of these trusts. Under the terms of these
trusts, the trustee has the power to vote the shares but no investment power
over the shares. The terms of these trusts provide that immediately prior to
the closing of this offering these trusts are to be dissolved and the shares
are to be distributed to the respective beneficiaries of the trusts. Yehuda
Zisapel is not one of the beneficiaries of either of these trusts and he
disclaims beneficial ownership of the shares held in trust. Yehuda Zisapel's
address is 8 Hanechoshet Street, Tel Aviv, Israel, 69710.
(7) Represents 403,005 ordinary shares owned of record and 120,429 options
exercisable within 60 days of July 31, 2000.
(8) Represents 71,780 options exercisable within 60 days of July 31, 2000.
(9) Represents 66,450 options exercisable within 60 days of July 31, 2000.
(10) Represents 40,000 options exercisable within 60 days of July 31, 2000.
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CERTAIN TRANSACTIONS WITH EXECUTIVE OFFICERS,
DIRECTORS AND FIVE PERCENT SHAREHOLDERS
Since April 1997, there has not been nor is there currently proposed, any
transaction or series of similar transactions to which we were or are to be a
party in which the amount involved exceeded or exceeds $60,000 and in which any
director, executive officer, holder of more than 5.0% of our ordinary shares or
any member of the immediate family of any of the foregoing persons had or will
have a direct or indirect material interest other than the transactions
described below.
TRANSACTIONS WITH RAD DATA COMMUNICATIONS LTD.
On, January 1, 1993, we borrowed an amount in NIS equal to $1.2 million from
Rad Data Communications Ltd. Messrs. Yehuda and Zohar Zisapel are our directors
and principal shareholders of Rad Data Communications Ltd. This loan bears no
interest and is linked to changes in the Israeli consumer price index that
occurred since the date of its transfer to the Company. At the end of each year,
we pay Rad Data Communications Ltd. 3.0% of any revenue above $1.5 million as
repayment of this loan. As of March 31, 2000, a balance of $1.4 million of the
loan was outstanding. By the terms of the loan, we must repay the outstanding
balance with the proceeds of this offering.
In addition, we have contracted for legal, accounting, purchasing and
administrative services, car maintenance and insurance from the Rad-Bynet group,
which is controlled by Messrs. Yehuda Zisapel and Zohar Zisapel, our directors.
We are not obligated to contract for any of these services and we can terminate
our contracts for any reason with a brief notice period. In the aggregate, we
paid less than $60,000 per year for the last three years for these services and
believe that the terms of our contracts were at least as favorable as we could
have obtained from an unaffiliated third party.
DISTRIBUTION AGREEMENT
In November 28, 1995, we signed a non-exclusive Distribution Agreement with
one of our shareholders Platinum Technology Inc. (which has since been acquired
by Computer Associates International, Inc. and is a wholly owned subsidiary
thereof). Under the agreement, we received 30.0% royalties on all of our
products sold by Computer Associates. In 1999, this agreement was assigned by
Platinum Technology, Inc. to Computer Associates International, Inc. In 1999,
Computer Associates paid us $26,000. We terminated this agreement and entered
into a new agreement in December 1999. Under the new agreement, we will provide
normal post sale help desk support for Computer Associates' current customers
that use our WebLoad products. Computer Associates pays us a fixed fee of
$40,000 per year for such support.
SECURED PROMISSORY NOTES
In June 2000, we approved the acceptance of promissory notes as payment of
the aggregate exercise price of stock options held by Ilan Kinreich, our
director, President and Chief Executive Officer and three of our other office
holders. Ilan Kinreich's note is limited to the amount of $150,000. The other
notes are limited to the amount of $30,000 each. None of these individuals will
exercise options with these notes prior to the closing of the initial public
offering. Amounts outstanding under such notes, if actually issued, shall bear
8% interest per annum. The entire unpaid principal balance and all accrued
interest shall be due and payable in 2005. The notes shall be secured by the
shares issued upon the exercise of the related options.
INSURANCE POLICY AND INDEMNIFICATION ARRANGEMENT
In June 2000, we procured liability insurance insuring our directors and
officers in connection with their service to us in an amount of $5,000,000. In
July 2000, we undertook to indemnify, subject to the
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<PAGE>
provisions of the Companies Laws, our office holders for liability incurred in
connection with certain claims specified in the arrangement, related to an
action or inaction on the part of the office holder while serving in such
capacity. The indemnity for any such claim will not exceed a specified maximum
amount. In addition, this arrangement includes an exemption and release of our
office holders from any liability related to any breach by an office holder of
said officer's duty of care to us, to the maximum extent permitted by the
Companies Laws.
RECENT SALES OF UNREGISTERED SECURITIES
The following executive officers, directors or holders of more than 5.0% of
our voting securities purchased securities as of the dates shown below. All
share and per share data in this chapter have been retroactively restated to
reflect two stock splits occurred since April 1997.
<TABLE>
<CAPTION>
SERIES A SERIES A
SERIES A OPTIONS FOR OPTIONS FOR SERIES B
INVESTORS PREFERRED ORDINARY SERIES A ORDINARY PREFERRED ORDINARY
--------- SHARES SHARES WARRANT SHARES SHARES SHARES
<S> <C> <C> <C> <C> <C> <C>
Yehuda Zisapel......................... 168,300 262,500 168,300 262,500 294,839 880,000
Zohar Zisapel.......................... 56,100 87,500 56,100 87,500 98,291 293,400
Lomsha Ltd............................. 56,100 87,500 56,100 87,500 98,274 293,300
Michael and Klil Holdings (93) Ltd..... 56,100 87,500 56,100 87,500 98,274 293,300
Computer Associates International,
Inc./ Platinum Technology, Inc....... 291,400 454,600 -- -- -- 802,900
Entities Affiliated with the Formula
Ventures/Argotec Ltd................. 420,700 656,300 420,700 656,300 364,656 --
Sadot Research and Development Fund
Ltd.................................. 252,400 393,700 252,400 393,700 218,759 --
Ilan Kinreich.......................... -- -- -- -- -- 391,100
Average Purchase Price................. $ 2.97 NIS 0.01 $ 2.97 NIS 0.01 $ 2.10 NIS 0.01
</TABLE>
Under an agreement dated May 1997, we issued 336,500 ordinary shares at a
purchase price of approximately $2.97 per share in a private placement to
Platinum Technology, Inc. (which has since been acquired by Computer Associates
International, Inc. and is a wholly owned subsidiary thereof), for an aggregate
gross consideration of $1,000,000. In December 1999, Platinum Technology, Inc.
transferred all of these ordinary shares to Computer Associates International,
Inc.
Under an agreement dated May 1998, we issued 168,300 Series A Preferred
Shares to Yehuda Zisapel, 56,100 Series A Preferred Shares to Zohar Zisapel,
56,100 Series A Preferred Shares to Lomsha Ltd., which is controlled by Zohar
Zisapel, 56,100 Series A Preferred Shares to Michael and Klil Holdings (93)
Ltd., which is controlled by Zohar Zisapel, 291,400 Series A Preferred Shares to
Platinum Technology, Inc., 201,900 Series A Preferred Shares to Sadot Research
and Development Fund Ltd. and 420,700 Series A Preferred Series Shares to
Argotec Ltd. The purchase price was approximately $2.97 per share.
The seven investors that participated in the Series A Preferred Shares
Private Offering paid an aggregate gross consideration of $3,716,000. Purchasers
in the Series A Preferred Shares Private Offering also received warrants to
purchase in the aggregate up to an additional 1,250,600 Series A Preferred
Shares at an exercise price of $2.97 per share. Pursuant to the Series A
Preferred Shares Private Offering, we also granted to these purchasers options
to purchase an aggregate of 1,950,900 ordinary shares at a per share exercise
price equal to the par value of our ordinary shares (the "First Options"). The
First Options are exercisable upon or after the occurrence of the earlier of:
- one (1) year following the closing of the Series A Preferred Shares
Private Offering;
- the happening of any one of certain liquidation events; or
- an initial public offering of our ordinary shares under certain
circumstances.
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In addition, we granted to these purchasers additional options to purchase
an aggregate of 1,950,900 ordinary shares at a per share exercise price equal to
the par value of our ordinary shares (the "Additional Options"). The Additional
Options are exercisable upon or after the warrants described above shall have
been exercised, or in the event any purchaser exercises in-part its warrant,
such purchaser shall be entitled to exercise a quantity of these options equal
in proportion to the warrants exercised by it, and after the occurrence of the
earlier of:
- two (2) years following the closing of the Series A Preferred Shares
Private Offering;
- the happening of any one of certain liquidation events; or
- an initial public offering of our ordinary shares under certain
circumstances.
The First and the Additional Options expire upon the occurrence of the
earlier of:
- the closing of an initial public offering of our ordinary shares under
certain circumstances;
- the sale of substantially all of our assets or issued shares to a third
party; or
- after five years shall have elapsed from the closing of the Series A
Preferred Shares Private Offering.
As part of the May 1998 private offering, we also granted to Argotec Ltd.,
Platinum Technology, Inc., Yehuda Zisapel and Zohar Zisapel (or entities
controlled by the Zisapels) the right to receive in the aggregate upon the
closing of an initial public offering of our ordinary shares under certain
circumstances, as a bonus, a number of our ordinary shares equal to 3.0% of the
Company's then issued share capital, on a fully diluted basis, but not more than
258,500 ordinary shares, subject to adjustment for stock splits and other forms
of recapitalization, with each of (i) Platinum Technology, Inc., (ii) Yehuda and
Zohar Zisapel (or entities controlled by the Zisapels), and (iii) Argotec Ltd.
eligible to receive one third of the shares issuable under the aforesaid right.
In 1998 Argotec Ltd. transferred its right to receive one third of these shares
and all of its Series A Preferred Shares, warrants, First Options and Additional
Options mentioned above, to Formula Ventures L.P., FV-PEH L.P., Formula Ventures
(Israel) L.P. and Shem Basum Ltd. In December 1999, Platinum Technology Inc.
transferred its aforesaid right to receive one third of these shares, and all of
its Series A Preferred Shares, its First and Additional Options and its warrant
mentioned above to Computer Associates International, Inc.
Under an agreement dated August 1998 we issued a total of 50,500 Series A
Preferred Shares at a purchase price of approximately $2.97 per share in a
private placement to Sadot Research and Development Fund Ltd. for an aggregate
gross consideration of $150,000. In addition, upon the completion of the
investment, we issued to Sadot Research and Development Fund Ltd.:
- a warrant to purchase up to 50,500 additional Series A Preferred Shares at
an exercise price per share of $2.97;
- options to purchase 78,700 ordinary shares which were deemed part of the
First Options and may be exercised under the same terms and conditions as
detailed above in connection with the First Options.
- additional options to purchase 78,700 ordinary shares which were deemed
part of the Additional Options and may be exercised under the same terms
and conditions as detailed above in connection with the Additional
Options.
In July 1999, we issued 1,595,400 ordinary shares at a purchase price per
share equal to the par value of our ordinary shares to nine investors pursuant
to the exercise of First Options granted to those investors in connection with
their respective purchases, during the months of May 1998 and August 1998 as
described above, of our Series A Preferred Shares for an aggregate consideration
of
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<PAGE>
NIS 15,954 which is equivalant to approximately $3,871 at the exchange rate of
the NIS against dollar as of July 1999.
In July 1999, we issued 1,022,800 Series A Preferred Shares at a purchase
price of $2.97 per share to 10 investors pursuant to the exercise of warrants
granted to those investors in connection with their respective purchases, during
the months of May 1998 and August 1998 as described above, of our Series A
Preferred Shares for an aggregate consideration of $3,039,250.
Under an agreement dated December 1999, we issued 2,172,238 Series B-1
Preferred Shares and 732,527 Series B-2 Preferred Shares at a purchase price of
$2.10 per share in a private placement to 15 investors for an aggregate gross
consideration of $6,100,006.50.
In June 2000, we issued 11,905 Series B-1 Preferred Shares at a per share
price of $2.10 to each of Ilan Kinreich, our Chief Executive Officer, and one
other individual.
In June 2000, we issued 656,300 ordinary shares at a purchase price per
share equal to the par value of our ordinary shares to Formula Ventures L.P.,
Formula Ventures (Israel) L.P., FV-PEH L.P. and Shem Basum Ltd., pursuant to the
exercise of the Additional Options held by these investors.
In July 2000, we issued 391,100 ordinary shares at a purchase price per
share equal to the par value of our ordinary shares to Ilan Kinreich pursuant to
the exercise of options held by him.
In July 2000, we issued 933,800 ordinary shares at a purchase price per
share equal to the par value of our ordinary shares to Zohar Zisapel, Michael
and Klil Holdings (93) Ltd., Lomsha Ltd., Yehuda Zisapel, Sadot Research and
Development Fund Ltd. and Shrem Pusim Kelner and Co. Ltd. pursuant to the
exercise of options held by them.
Upon the closing of this offering, 113,110 ordinary shares, 75,720 Series A
Preferred shares and 32,814 Series B-1 Preferred Shares currently held by Sadot
Research and Development Fund Ltd. will be transferred by Sadot Research and
Development Fund Ltd. to Arya Razel Enterprise and Management (1992) Ltd.
Under our incorporation documents, our founding agreement and the
dissolution of a certain trust arrangement, we have issued to each of Yehuda and
Zohar Zisapel an aggregate of 880,000 ordinary shares. In April 1997, Zohar
Zisapel transferred 293,300 ordinary shares to each of Lomsha Ltd. and Michael
and Klil Holding (93) Ltd., companies in which Zohar Zisapel is a principal
shareholder and a director. In addition, under an agreement dated
November 1995, we have issued 466,400 ordinary shares, respectively, to Platinum
Technology, Inc.
In connection with the private placements, we granted certain of our holders
registration rights. These rights allow holders to require us to register their
shares under the federal securities laws under certain circumstances. All of
these holders have waived their registration rights in connection with this
offering.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our ordinary shares in the public market
could adversely affect prevailing market prices of our ordinary shares.
Assuming no exercise of outstanding employee stock options, we will have an
aggregate of 16,975,472 ordinary shares outstanding upon completion of this
offering. Of these shares, the 5,000,000 shares sold in this offering will be
freely tradable without restriction or further registration under the Securities
Act, unless the shares are purchased by affiliates under Rule 144 of the
Securities Act.
The following table indicates approximately when the 12,366,572 ordinary
shares that are not being sold in this offering, but which will be outstanding
at the time this offering is complete, will be eligible for sale into the public
market, under the provisions of Rule 144 or 701:
ELIGIBILITY OF RESTRICTED SHARES FOR SALE IN PUBLIC MARKET
<TABLE>
<CAPTION>
APPROXIMATE NUMBER OF SHARES DESCRIPTION
---------------------------- -----------
<S> <C>
5,000,000................ After the date of this prospectus, freely tradable
shares sold in this offering.
12,366,572................ After 180 days from the date of this prospectus,
the lock-up period will expire and these shares
will be saleable under Rule 144 (subject, in some
cases, to applicable holding periods and volume
limitations).
</TABLE>
LOCK-UP AGREEMENTS
All of our officers and directors, all of our existing shareholders and
substantially all of our option holders have signed lock-up agreements under
which they agreed not to dispose of or hedge any ordinary shares or any
securities convertible into or exchangeable for ordinary shares for a period of
180 days after the date of this prospectus without the prior written approval of
Donaldson, Lufkin & Jenrette Securities Corporation. However, 25.0% of the
ordinary shares subject to the restrictions described above, other than shares
owned by employees of the Company, will be released from these restrictions if
the reported last sale price of our ordinary shares on the Nasdaq National
Market is at least twice the initial public offering price for 20 of the 30
consecutive trading days ending on the last trading day of the 90-day period
after the date of this prospectus and the second trading day after the first
public release of our quarterly results. An additional 25.0% of the shares
subject to the restrictions describe above will be released if the reported last
sale price of our ordinary shares on the Nasdaq National Market is at least
twice the initial public offering price for 20 of the 30 consecutive trading
days ending on the last trading day of the 135-day period after the date of the
prospectus. Donaldson, Lufkin & Jenrette Securities Corporation may, in its sole
discretion, at any time without notice, release all or any portion of the shares
subject to lock-up agreements.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned ordinary shares
for at least one year would be entitled to sell within any three-month period a
number of shares that does not exceed the greater of:
- 1.0% of the number of ordinary shares then outstanding, which will equal
approximately ordinary shares immediately after this offering; or
- the average weekly trading volume of the ordinary shares on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 in connection with the sale.
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<PAGE>
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us.
RULE 144(K)
Under Rule 144(k), a person:
- who is not considered to have been one of our affiliates at any time
during the 90 days preceding a sale; and
- who has beneficially owned the shares proposed to be sold for at least two
years, including the holding period of any prior owner other than an
affiliate,
is entitled to sell his shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. Therefore,
unless otherwise restricted, these shares may be sold immediately upon the
completion of this offering.
RULE 701
In general, under Rule 701, any of our employees, directors, officers,
consultants or advisors who purchases ordinary shares from us under a
compensatory stock or option plan or other written agreement before the
effective date of this offering is entitled to resell these shares. These shares
can be resold 90 days after the effective date of this offering in reliance on
Rule 144, without having to comply with restrictions, including the holding
period, contained in Rule 144.
The Securities and Exchange Commission has indicated that Rule 701 will
apply to typical stock options granted by an issuer before it becomes subject to
the reporting requirements of the Securities Exchange Act of 1934, along with
the shares acquired upon exercise of these options, including exercises after
the date of this prospectus. Securities issued in reliance on Rule 701 are
restricted securities and, subject to the contractual restrictions described
above, beginning 90 days after the date of this prospectus, may be sold:
- by persons other than affiliates subject only to the manner of sale
provisions of Rule 144; and
- by affiliates under Rule 144 without compliance with its one year minimum
holding period requirement.
OPTIONS
We intend to file a registration statement on Form S-8 under the Securities
Act covering all of the ordinary shares issuable upon the exercise of options
under our share option plans or otherwise granted to persons eligible for such
registration. Upon the effectiveness of the registration statement on Form S-8,
such shares will be immediately available for sale in the public market, subject
to the terms of grant of the related options and any applicable lock-up
agreements.
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<PAGE>
DESCRIPTION OF SHARE CAPITAL
DESCRIPTION OF SHARES
THE FOLLOWING IS A DESCRIPTION OF THE MATERIAL TERMS OF OUR SHARE CAPITAL.
FOR ADDITIONAL INFORMATION, SEE OUR MEMORANDUM OF ASSOCIATION AND ARTICLES OF
ASSOCIATION, AS AMENDED, COPIES OF WHICH HAVE BEEN FILED AS EXHIBITS 3.1, 3.2
AND 3.3 TO THE REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS FORMS A PART.
As of July 31, 2000, our authorized share capital consists of 25,000,000
ordinary shares par value NIS 0.01 per share, of which 6,239,740 ordinary shares
are issued and outstanding.
As of the date of this prospectus, we are authorized to issue 3,500,000
Series A Preferred Shares of which 2,337,000 are issued and outstanding,
4,267,473 Series B-1 Preferred Shares of which 2,196,048 are issued and
outstanding and 732,527 Series B-2 Preferred Shares, all of which are issued and
outstanding. Upon completion of this offering, all the outstanding preferred
shares will automatically be converted into an aggregate of 5,265,575 ordinary
shares, and our entire authorized share capital pursuant to our articles of
association, as amended upon the completion of the offering, will consist of
25,000,000 ordinary shares.
Our current shareholders will own 12,366,572 or 71.2% of the ordinary shares
outstanding immediately following this offering, assuming no exercise of the
underwriters' over-allotment option. See "Principal Shareholders."
Upon completion of this offering, all outstanding ordinary shares, including
the ordinary shares issued in this offering, will be validly issued and fully
paid and will not have preemptive rights. The ownership or voting of ordinary
shares by non-residents of Israel is not restricted in any way by our memorandum
of association, our articles of association or the laws of the State of Israel,
except for citizens of certain countries which are, or have been, in a state of
war with Israel.
DIVIDEND AND LIQUIDATION RIGHTS
When issued, the ordinary shares offered in this offering will be entitled
to the full amount of any cash dividend, share dividend or dividend in kind
declared in or after the date of this prospectus. Under the Companies Law and
our Articles of Association, we may pay dividends in any currency. However, we
presently intend to pay dividends, if any are declared, in U.S. dollars.
Holders of ordinary shares are entitled to receive dividends out of profits
legally available for distribution, provided that such distribution does not
create a reasonably foreseeable risk of insolvency. Declaration of a dividend
requires approval by an ordinary shareholders' resolution, which may decrease
but not increase the amount proposed by the Board. 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. These rights may be affected by the grant of
preferential dividend or distribution rights to the holders of a class of shares
with preferential rights that may be authorized in the future.
VOTING, SHAREHOLDERS' MEETING AND RESOLUTIONS
Holders of ordinary shares have one vote for each share held on all maters
submitted to a vote of shareholders. We will set a record date to determine
voter eligibility. Voting rights may be affected by the grant of any special
voting rights to the holders of any shares of a class with preferential rights
that may be authorized in the future. The quorum required for a general meeting
of shareholders consists of two or more shareholders present in person or by
proxy or who have delivered a deed of vote indicating their manner of voting,
and who hold, or represent in the aggregate at least 33 1/3% of the voting power
of the company. If convened upon request of shareholder pursuant to the
provisions of
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the Companies Law, a meeting adjourned for lack of quorum will be dissolved. In
any other case, it is adjourned to the same day in the next week at the same
time and place, or at a time and place as the chairman of the meeting may
determine with the consent of the holders of a majority of the voting power
represented at the meeting. At the adjourned meeting, the two shareholders
present in person, or by proxy or by deed of vote, constitute a quorum
regardless of the number of shares represented.
Our articles of association provide, subject to applicable law, that all
resolutions of the shareholders require a simple majority. However, a resolution
with respect to our liquidation will require a 75.0% majority. Under the
Companies Law, shareholder meetings generally require a prior notice of a least
21 days.
Under the Companies Law and our articles of association, we may hold
shareholder meetings anywhere in the world. We presently intend to hold
shareholder meetings in the U.S.
The Companies Law requires that
- any amendment to the articles of association;
- an increase of the company's authorized share capital;
- a merger; or
- certain other acts and transactions including compensation to directors,
the appointment of external directors and arrangements pertaining to
insurance and/or indemnification and/or exemption of office holders;
be approved by a general meeting of the shareholders.
PROXIES
We intend to solicit proxies from shareholders. The proxies will comply with
the regulations under the Securities Exchange Act of 1934 and the Companies Law.
TRANSFER OF SHARES
Fully paid ordinary shares are issued in registered form and may be
transferred freely, unless the transfer is restricted or prohibited by another
instrument or applicable law.
ELECTION OF DIRECTORS
The ordinary shares do not have cumulative voting rights in the election of
directors. As a result, the holders of ordinary shares conferring more than
50.0% of the voting power have the power to elect all of the directors, to the
exclusion of the remaining shareholders, subject to specific requirements under
the Companies Law with respect to the election of external directors.
SHAREHOLDER DUTIES
Under the Companies Law, a shareholder has a duty to act in good faith
towards the company and other shareholders and to refrain from improperly
exploiting his power in the company, including, among other things, when voting
in the general meeting of shareholders.
In addition, a shareholder has the general duty to refrain from depriving
rights of other shareholders. Furthermore, any controlling shareholder, any
shareholder who knows that it possesses the power to determine the outcome of a
shareholder vote and any shareholder that, under the provisions of the articles
of association, has the power to appoint an office holder in the company or
another power towards the company, is under a duty to act in fairness towards
the company. The Companies Law does not describe the substance of these duties.
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<PAGE>
REGISTRATION RIGHTS
We have entered into an agreement with substantially all our existing
shareholders entitling them to registration rights. Pursuant to the agreement,
at any time commencing one year and ending four years following the closing of
this offering, subject to certain other requirements, shareholders constituting
at least 30.0%
- of the aggregate total ordinary shares subject to registration rights that
were not issued upon conversion of our preferred shares and ordinary
shares issued to holders of our Series A Preferred Shares upon conversion
of such Series A Preferred Shares, as a group, or
- shareholders constituting at least 30.0% of the ordinary shares issued to
holders of our Series B Preferred Shares upon conversion of such Series B
Preferred Shares,
may request one time in writing that all or part of the requesting parties'
ordinary shares be registered for public trading.
In addition, we must notify all other holders of ordinary shares entitled to
registration rights of any written request for registration by the requesting
parties' of their ordinary shares and we must use our best efforts to register
in such registration for public sale all, subject to reduction by the managing
underwriter in the event of an underwritten public offering, of the ordinary
shares that the other holders request we register following our notification.
Pursuant to this agreement, such shareholders also have the right to have
all or a portion of their ordinary shares, subject to reduction by the managing
underwriter in the event of an underwritten public offering, included in
registrations of our ordinary shares commenced by us, including the registration
of ordinary shares in this offering. Pursuant to an amendment to the
registration rights agreement these registration rights do not apply to this
offering. Upon the completion of this offering, 10,905,665 of our outstanding
ordinary shares will be subject to this registration rights agreement.
MERGERS AND ACQUISITIONS; ANTI-TAKEOVER PROVISIONS
MERGER. The Companies Law requires that each company that is party to a
merger approve the transaction by its board of directors and a vote of the
majority of its shares, provided that the merger is not objected to be a
majority of the shares present at the meeting after excluding shares held by the
other party to the merger or any person holding at least a 25.0% interest in the
other party, including their relatives or entities under their control. Under
specified conditions, a court may allow these shares to be included. In
addition, the Companies Law does not require court approval of a merger other
than in specified situations. Upon the request of a creditor of either party to
the proposed merger, the court may delay or prevent the merger if it concludes
that there exists a reasonable concern that as a result of the merger, the
surviving company will be unable to satisfy the obligations of any of the
parties to the merger. In addition, a merger may be completed only after at
least 70 days have passed from the time that the requisite proposals for the
merger have been filed with the Israeli Registrar of Companies. Notwithstanding
the approval requirements set forth in the Companies Law, the law provides that
with respect to companies which have been incorporated prior to the
effectiveness of the Companies Law, the approval of a merger requires a 75.0%
shareholder majority, and an amendment of the articles of association will be
required to reduce this 75.0% majority requirement. Our articles of association,
as amended upon completion of the offering, require the vote of a simple
majority of shareholders to approve a merger. In addition, the Companies Law
contains provisions regarding "arrangements" between a company and its
shareholders. Those arrangements require approval of the transaction by at least
75.0% of the shares and a majority in number of the shareholders voting on the
proposed transaction at a shareholders' meeting, as well as court approval. This
entails the possibility of additional delay and the imposition of further
approval requirements at the court's discretion.
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TENDER OFFER. The Companies Law also provides that an acquisition of shares
of a public company on the open market must be made by means of a tender offer,
if as a result of the acquisition the purchaser would become a 25.0% shareholder
of the company, and there is no other 25.0% shareholder in the company, or if
there is already an existing 25.0% shareholder, if as a result of the
acquisition the purchaser would hold more than 45.0% of the company's shares and
there is no majority shareholder in the company. If a person becomes a holder of
25.0% or more than 45.0% of the voting rights in the company, as described
above, other than by means of a tender offer, the shares held by him exceeding
these percentages will not grant any voting rights to this shareholder.
Regulations promulgated under the Companies Law provide that the foregoing
tender offer rules do not apply to companies whose shares are publicly traded
outside of Israel, if pursuant to the applicable foreign laws there is a
restriction on the acquisition of any level of control of the company or if the
acquisition of any level of control of the company requires the purchaser to
make a tender offer to public shareholders. In addition, under the Companies
Law, if following any acquisition of shares, the acquiror will hold more than
90.0% of the company's shares or class of shares, the acquisition may not be
made other than through a tender offer to acquire all of the shares or class of
shares. The acquiror is entitled to acquire all such shares if the holdings of
the shareholders who have not accepted the offer are less than 5.0% of the
company's outstanding shares or the relevant class of shares. A shareholder
holding more than 90.0% of a company's shares, or class of shares, is prevented
from purchasing additional shares as long as it holds such amount of shares.
Under the Companies Law, shares purchased in violation of the foregoing
requirements will not grant any rights to their holders and are deemed "dormant"
shares.
Finally, Israeli tax law treats certain acquisitions, particularly
stock-for-stock swaps between an Israeli company and a foreign company, less
favorable than current United States tax law. Israeli tax law may, for instance,
subject a shareholder who exchanges his ordinary shares for shares in a foreign
company to immediate taxation.
MODIFICATION OF CLASS RIGHTS
Under our articles of association, the rights attached to any class, unless
otherwise provided by the terms of the class, including voting, rights to
dividends and the like, may be varied by:
- written consent of holders of more than fifty percent (50%) of the issued
shares of such class; or
- adoption of a resolution of a separate general meeting of the holders of
the shares of such class adopted by more than fifty percent (50%) of the
votes of the shareholders who are entitled to vote and who actually voted
in such separate general meeting.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our ordinary shares is EquiServe, L.P.
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CONDITIONS IN ISRAEL
We are incorporated under the laws of the State of Israel, and substantially
all of our research and development facilities are located in Israel.
Accordingly, we are directly affected by political, economic and military
conditions in Israel. Our operations would be materially adversely affected if
major hostilities involving Israel should occur or if trade between Israel and
its present trading partners should be curtailed.
POLITICAL CONDITIONS
Since the establishment of the State of Israel in 1948, a state of
hostility, varying from time to time in intensity and degree, has led to
security and economic problems for Israel. However, a peace agreement between
Israel and Egypt was signed in 1979, a peace agreement between Israel and Jordan
was signed in 1994 and, since 1993, several agreements between Israel and
Palestinian representatives have been signed. In addition, Israel and several
Arab States have announced their intention to establish trade and other
relations and are discussing certain projects. Israel has not entered into any
peace agreement with Syria or Lebanon, and there have been difficulties in the
negotiations with the Palestinians. We cannot be certain as to how the peace
process will develop or what effect it may have upon RadView.
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. RadView does not believe that the
boycott has had a material adverse effect on its business, but restrictive laws,
policies or practices directed towards Israel or Israeli businesses may have an
adverse impact on the expansion of RadView's business.
ARMY SERVICE
Generally, all male adult citizens and permanent residents of Israel under
the age of 48, unless exempt, are obligated to perform military reserve duty
annually. Additionally, all such residents may be called to active duty at any
time under emergency circumstances. Currently, some of our key employees are
obligated to perform annual reserve duty. While we have operated effectively
under these requirements since we began operations, no assessment can be made as
to the full impact of such requirements on our workforce or business if
conditions in Israel should change, and no prediction can be made as to the
effect on us of any expansion or reduction of such obligations.
ECONOMIC CONDITIONS
Israel's economy has been subject to numerous destabilizing factors,
including a period of rampant inflation in the early to mid-1980s, low foreign
exchange reserves, fluctuations in world commodity prices, military conflicts
and civil unrest. The Israeli government has, for these and other reasons,
intervened in various sectors of the economy, employing, among other means,
fiscal and monetary policies, import duties, foreign currency restrictions and
controls of wages, prices and foreign currency exchange rates. The Israeli
government's monetary policy contributed to relative price and exchange rate
stability in recent years, despite fluctuating rates of economic growth and a
high rate of unemployment. There can be no assurance that the Israeli government
will be successful in its attempts to keep prices and exchange rates stable.
Price and exchange rate instability may have a material adverse effect on our
business.
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TAXATION AND GOVERNMENT PROGRAMS
ISRAELI TAX CONSIDERATIONS AND FOREIGN EXCHANGE REGULATION
THE FOLLOWING IS A SUMMARY OF THE CURRENT TAX STRUCTURE APPLICABLE TO
COMPANIES IN ISRAEL, WITH SPECIAL REFERENCE TO ITS EFFECT ON US. THE FOLLOWING
ALSO CONTAINS A DISCUSSION OF ISRAELI TAX CONSEQUENCES MATERIAL TO PERSONS
PURCHASING THE ORDINARY SHARES OFFERED HEREBY AND ISRAELI GOVERNMENT PROGRAMS
BENEFITING US. TO THE EXTENT THAT THE DISCUSSION IS BASED ON TAX LEGISLATION
WHICH HAS NOT BEEN SUBJECT TO JUDICIAL OR ADMINISTRATIVE INTERPRETATION, THE
VIEWS EXPRESSED IN THE DISCUSSION MIGHT NOT BE ACCEPTED BY THE TAX AUTHORITIES
IN QUESTION. THE DISCUSSION IS NOT INTENDED, AND SHOULD NOT BE CONSTRUED, AS
LEGAL OR PROFESSIONAL TAX ADVICE AND DOES NOT EXHAUST ALL POSSIBLE TAX
CONSIDERATIONS.
PROSPECTIVE PURCHASERS OF OUR ORDINARY SHARES SHOULD CONSULT THEIR OWN TAX
ADVISORS AS TO THE UNITED STATES, ISRAELI OR OTHER TAX CONSEQUENCES OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF ORDINARY SHARES, INCLUDING, IN
PARTICULAR, THE EFFECT OF ANY FOREIGN, STATE OR LOCAL TAXES.
TAXATION OF RADVIEW
GENERAL CORPORATE TAX STRUCTURE
Israeli companies are subject to tax at the rate of 36.0% of taxable income.
However, the effective tax rate payable by a company which derives income from
an Approved Enterprise may be considerably less, as further discussed below.
TAX BENEFITS UNDER THE LAW FOR THE ENCOURAGEMENT OF CAPITAL INVESTMENTS, 1959
The Law for the Encouragement of Capital Investments, 1959, as amended,
known as the Investment Law, provides that, upon application to the Investment
Center of the Ministry of Industry and Commerce of the State of Israel, a
proposed capital investment in eligible facilities may be designated as an
Approved Enterprise. Each certificate of approval for an Approved Enterprise
relates to a specific investment program delineated both by its financial scope,
including its capital sources, and by its physical characteristics, for example,
the equipment to be purchased and utilized pursuant to the program. The tax
benefits derived from any such certificate of approval relate only to taxable
income attributable to the specific Approved Enterprise. If a company has more
than one approval or only a portion of its capital investments are approved, its
effective tax rate is the result of a weighted combination of the applicable
rates. The tax benefits under the Investment Law may not be available with
respect to income derived from products manufactured outside of Israel.
Taxable income of a company derived from an Approved Enterprise is subject
to tax at a reduced rate of 25.0%. This tax rate is subject to additional
reductions depending on the percentage of foreign investment in the relevant
company. The tax rate is 20.0% if the foreign investment is 49.0% or more but
less than 74.0%; 15.0% if the foreign investment is 74.0% or more but less than
90.0%; and 10.0% if the foreign investment is 90.0% or more. The lowest level of
foreign investment during the year will be used to determine the relevant tax
rate for that year. These tax benefits are granted for a period generally not
exceeding seven years commencing with the year in which the Approved Enterprise
first generates taxable income. In the case of a company with foreign investment
exceeding 25.0%, these tax benefits will be granted for a period of 10 years.
The period of the benefits is limited to 12 years from commencement of
production or 14 years from the date of approval, whichever is earlier. A
company owning an Approved Enterprise may elect to receive an "alternative
package of benefits," under which its undistributed income derived from an
Approved Enterprise will be exempt from tax for a period of between two and ten
years from the first year of taxable income, depending on the geographic
location of the Approved Enterprise within Israel, and such company will be
eligible for the tax benefits under the Investment Law for the remainder of the
benefit period. Dividends paid from income attributable to an Approved
Enterprise are subject to a 15.0% withholding tax rate if the dividends are
distributed during the reduced tax period or within 12 years thereafter. In the
case of a company with foreign
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investment exceeding 25.0%, there is no time limitation to the 15.0% reduced
withholding tax rate imposed on dividends paid from income attributable to the
Approved Enterprise.
Each application to the Investment Center is reviewed separately. A decision
whether to approve or reject an application is based on criteria set forth in
the Investment Law and regulations thereunder, the then prevailing policy of the
Investment Center, the specific objectives of the applicant company set forth in
such application and financial criteria of the applicant company. Accordingly, a
company cannot be certain in advance whether its application will be approved.
In addition, the benefits available to an Approved Enterprise are conditional
upon the fulfillment of the conditions stipulated in the Investment Law and
regulations thereunder and the criteria set forth in the specific certificate of
approval. In the event that these conditions are violated, in whole or in part,
the violating party would be required to refund the amount of tax benefits, in
addition to the Israeli consumer price index linkage adjustment and interest.
On May 7, 1998, our production facilities in Tel Aviv were granted Approved
Enterprise status under the Investment Law. We have elected to receive the
alternative package of benefits. We derived, and expect to continue to derive, a
portion of our income from our Approved Enterprise facilities. Subject to
compliance with the requirements of the Investment Law and with the terms set
forth in the grants of Approved Enterprise status received by us, income derived
from our Approved Enterprise facility will be tax exempt for a period of two
years after we have taxable income and will be subject to a reduced tax of up to
25.0% for the following five to eight years.
Subject to the provisions of the law relating to income under the
alternative package of benefits, all dividends are considered to be attributable
to the entire enterprise and their effective tax rate is the result of a
weighted combination of the applicable tax rates. We currently intend to
reinvest the amount of our tax exempt income and not to distribute such income
as a dividend. In the event that we do pay a dividend from a tax exempt income
that is derived from our Approved Enterprise pursuant to the alternative package
of benefits, we would be required to pay corporate tax on the amount intended to
be distributed as dividends at the rate which would have been applicable had we
not elected the alternative package of benefits, which rate is not higher than
25.0% and to withhold at source on behalf of the dividend recipient an
additional 15.0% of the amount, distributed as dividends.
The Investment Law also provides that an Approved Enterprise is entitled to
accelerated depreciation on its property and equipment that are included in an
approved investment program.
There is no certainty that the Israeli government will continue to provide
the same, or similar, tax benefits in the future.
GRANTS UNDER THE LAW FOR THE ENCOURAGEMENT OF INDUSTRIAL RESEARCH AND
DEVELOPMENT, 1984
Under the Law for the Encouragement of Industrial Research and Development,
1984, or Research Law, a research and development program which meets specified
criteria and is approved by a committee of the Office of the Chief Scientist is
eligible for grants of up to 50.0% of the program's expenses, as defined by the
committee. The recipient of the grants is required to return the grants by the
payment of royalties on the sale of products developed using the grants.
Regulations promulgated under the Research Law provide for the payment of
royalties to the Office of the Chief Scientist ranging from 3.0% to 6.0% on the
sale of products developed using such grants until 100.0% of the dollar linked
grant is repaid. Following the full payment of such royalties, there is no
further liability for payment, so long as the technology and manufacturing
remain in Israel. We received grants under the Research Law.
The terms of grants under the Research Law require that we manufacture in
Israel the products developed with these grants. Under the regulations
promulgated under the Research Law, any such product may be manufactured outside
Israel by us or another entity, if prior approval is received from the Office of
the Chief Scientist. Ordinarily, as a condition to obtaining such approval, we
would be
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required to pay increased royalties. If the manufacturing is performed by us,
the increased rate would ordinarily be one percentage point above the otherwise
applicable rate. If the manufacturering is performed by an entity other than us
the rate of the royalties would be adjusted to a percentage equal to the ratio
of the amount of grant received from the Office of the Chief Scientist, linked
to the dollar, divided by the amount of grant received from the Office of the
Chief Scientist, linked to the dollar, and the investment(s) made by us in the
project. The total amount to be repaid to the Office of the Chief Scientist
would also be adjusted to 120.0%, 150.0% or 300.0% of the grant if the
manufacturing volume that is performed outside Israel is less than 50.0%,
between 50.0% and 90.0% or more than 90.0%, respectively. 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 under the
Research Law. Approval is not required for the export of any products resulting
from such research or development. Approval of the transfer of technology may be
granted only if the recipient abides by all the provisions of the Research Law
and regulations thereunder, including the restrictions on the transfer of know
how and the obligation to pay royalties in an amount that may be increased.
Approval to manufacture products outside of Israel or consent to the transfer of
technology, if requested, might not be granted.
Pursuant to regulations promulgated under the Research Law in
November 1998, effective with regard to Office of the Chief Scientist grants
received under programs approved after January 1, 1999, repayments of such
grants will be subject to interest at an annual rate of LIBOR for 12 months
applicable to dollar deposits, based on the LIBOR rate published on the first
day of each year.
Since December 31, 1996, we have not applied for any additional grants
pursuant to the Research Law.
TAX BENEFITS FOR RESEARCH AND DEVELOPMENT
Israeli tax law allows a tax deduction in the year incurred for
expenditures, including capital expenditures, in scientific research and
development projects, if the expenditures are approved by the relevant Israeli
Government Ministry and the research and development is for the benefit of the
enterprise and is carried out by or on behalf of the company seeking such
deduction. Expenditures not so approved are deductible over a three year period.
TAX BENEFITS UNDER THE LAW FOR THE ENCOURAGEMENT OF INDUSTRY (TAXES), 1969
According to the Law for the Encouragement of Industry (Taxes), 1969, or
Industry Encouragement Law, an "industrial company" is a company resident in
Israel, at least 90.0% of the income of which, in any tax year, determined in
NIS, exclusive of income from certain 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 activity. We believe that we currently
qualify as an "industrial company" within the definition of the Industry
Encouragement Law.
Under the Industry Encouragement Law, industrial companies, including us,
are entitled to the following preferred corporate tax benefits:
- amortization of purchases of know how, patents or rights to utilize
patents over an eight-year period for tax purposes;
- an election to file a consolidated tax return with related Israeli
industrial companies which satisfy conditions set forth in the Industry
Encouragement Law; 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. However,
the Israeli tax authorities may determine that we do not qualify as an
industrial company. In addition, we might not continue to qualify as an
industrial
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company in the future. As a result of either of the foregoing, the benefits
described above might not be available in the future.
SPECIAL PROVISIONS RELATING TO TAXATION UNDER INFLATIONARY CONDITIONS
The Income Tax Law (Inflationary Adjustments), 1985, or Inflationary
Adjustments Law, represents an attempt to overcome the problems presented to a
traditional tax system by an economy undergoing rapid inflation. The
Inflationary Adjustments Law is highly complex. The features which are material
to us can be described as follows:
- a special tax adjustment for the preservation of equity whereby certain
corporate assets are classified broadly into fixed (inflation resistant)
assets and non fixed (soft) assets. Where a company's equity, as defined
in such law, exceeds the depreciated cost of its fixed assets, the company
may take a deduction from taxable income that reflects the effect of the
annual rate of inflation on such excess, up to a ceiling of 70.0% of
taxable income in any single tax year, with the unused portion carried
forward on a linked basis. If the depreciated cost of fixed assets exceeds
a company's equity, then such excess multiplied by the annual rate of
inflation is added to taxable income;
- subject to limitations set forth in the Inflationary Adjustments Law,
depreciation deductions on fixed assets and losses carried forward are
adjusted for inflation based on the increase in the Israeli consumer price
index; and
- gains on sales of traded securities which are capital assets and
ordinarily exempt from tax are taxable under the Inflationary Adjustments
Law.
TAXATION OF OUR SHAREHOLDERS
CAPITAL GAINS TAX
Israeli law imposes a capital gains tax on the sale of capital assets. The
law distinguishes between the inflationary surplus and the real gain. The
inflationary surplus is a portion of the total capital gain which is equivalent
to the increase of the relevant asset's purchase price which is attributable to
the increase in the Israeli consumer price index between the date of purchase
and the date of sale. The real gain is the excess of the total capital gain over
the inflationary surplus. The inflationary surplus accumulated from and after
December 31, 1993 is exempt from any capital gains tax in Israel, while the real
gain is added to ordinary income, which is taxed at ordinary rates of 30.0% to
50.0% for individuals and 36.0% for corporations.
Under current law, sales of our ordinary shares offered by this prospectus
other than sales by entities which are subject to the Inflationary Adjustment
Law are exempt from Israeli capital gains tax for so long as they are quoted on
Nasdaq or listed on a stock exchange in a country appearing in a list approved
by the Controller of Foreign Currency and we qualify as an industrial company.
The Israeli tax authorities might determine that we do not qualify as an
industrial company. We might not maintain our Nasdaq listing or our status as an
industrial company in the future. Notwithstanding the foregoing, dealers in
securities in Israel are taxed at regular tax rates applicable to business
income.
Pursuant to the Convention Between the Government of the United States of
America and the Government of Israel with Respect to Taxes on Income, as
amended, or a U.S.-Israel tax treaty, the sale, exchange or disposition of
ordinary shares which are held as a capital asset by a person who qualifies as a
resident of the United States within the meaning of the U.S.-Israel tax treaty
and who is entitled to claim the benefits afforded to such resident by the
U.S.-Israel tax treaty, or treaty U.S. resident, generally, will not be subject
to the Israeli capital gains tax unless such treaty U.S. resident holds,
directly or indirectly, shares representing 10.0% or more of our voting power
during any part of the 12-month period preceding such sale, exchange or
disposition. A sale, exchange or disposition of ordinary shares by a treaty U.S.
resident who holds, directly or indirectly, shares representing 10.0% or
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more of our voting power at any time during such preceding 12-month period would
be subject to such Israeli tax, to the extent applicable.
TAXATION OF NON-RESIDENT HOLDERS OF SHARES
Non-residents of Israel are subject to income tax on income accrued or
derived from sources in Israel or received in Israel. Such sources of income
include passive income such as dividends, royalties and interest, as well as
non-passive income from services rendered in Israel. Under the U.S.-Israel tax
treaty, on distributions to a treaty U.S. resident of dividends other than bonus
shares, or stock dividends, income tax at the rate of 25.0%, or in some cases
12.5% for dividends not generated by an approved enterprise if the non-resident
is a U.S. corporation and holds at least 10.0% of our voting power, and 15.0%
for dividends generated by an approved enterprise, is withheld at source.
Under a recent amendment to the Inflationary Adjustments Law, non-Israeli
corporations might be subject to Israeli taxes on the sale of traded securities
of an Israeli company, unless they are exempt under an applicable tax treaty
such as the U.S.-Israel tax treaty.
For information with respect to the applicability of Israeli capital gains
taxes on the sale of ordinary shares by United States residents, see "--Capital
Gains Tax," above.
NEW ISRAELI TAX REFORM PROPOSALS
On May 4, 2000, a committee chaired by Avi Ben Bassat, the Director General
of the Israeli Ministry of Finance, issued its report recommending a major
reform in the Israeli tax system. The proposed tax reform, which could become
effective as of January 1, 2001, provides for material changes in the current
Israeli tax structure and may have adverse tax consequences on us, as well as on
our shareholders. Before entering into effect, the tax reform must be approved
by the Israeli legislature. The Israeli Minister of Finance has enacted certain
directives related to the committee's proposals with immediate effect. We cannot
predict whether, and to what extent, the Ben Bassat committee's proposals, or
any of them, will eventually be adopted and enacted into law. Significant
changes recommended by the Ben Bassat committee include, among others:
- imposing a capital gains tax of 25.0% on individuals, and possibly a
higher rate on entities, on sales of our ordinary shares, subject to any
applicable tax treaty; and
- replacing the existing initial tax exemption granted with respect to
income generated from an Approved Enterprise under the "alternative
package of benefits" with a 10.0% tax rate, and eliminating the
differences between foreign and Israeli investors with respect to the tax
rates applicable to income derived from an Approved Enterprise.
FOREIGN EXCHANGE REGULATION
Dividends paid to the holders of the ordinary shares offered hereby, and any
amounts payable upon our dissolution, liquidation or winding up, as well as the
proceeds of any sale in Israel of the ordinary shares to an Israeli resident,
may be paid in non-Israeli currency or, if paid in Israeli currency, may be
converted into freely repatriable dollars at the rate of exchange prevailing at
the time of conversion. We do not currently expect to pay dividends in the
foreseeable future.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
Subject to the limitations described in the next paragraph, the following
discussion describes the material United States federal income tax consequences
to a holder of our ordinary shares who purchases such shares pursuant to this
offering. Such holder is referred to for purposes of this discussion as a U.S.
holder, if such holder is:
- a citizen or resident of the United States;
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- a corporation created or organized in the United States or under the laws
of the United States or of any state;
- an estate, the income of which is includible in gross income for United
States federal income tax purposes regardless of its source; or
- a trust, if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more U.S.
persons have the authority to control all substantial decisions of the
trust.
Several aspects of U.S. federal income tax generally relevant to a holder
other than a U.S. holder, or a Non-U.S. holder, are also discussed below.
This discussion is based on current provisions of the Internal Revenue Code
of 1986, as amended, current and proposed Treasury regulations promulgated
thereunder, and administrative and judicial decisions as of the date hereof, all
of which are subject to change, possibly on a retroactive basis.
This summary does not purport to be a comprehensive description of all of
the tax considerations that may be relevant to each person's decision to
purchase ordinary shares. 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 such holder's individual circumstances. In particular, this discussion
considers only U.S. holders that will own ordinary shares as capital assets,
that is, generally as investments and does not address the potential application
of the alternative minimum tax or the United States federal income tax
consequences to U.S. holders that are subject to special treatment, including:
- broker-dealers;
- insurance companies;
- taxpayers who have elected mark-to-market accounting;
- tax-exempt organizations;
- financial institutions or "financial services entities";
- taxpayers who hold ordinary shares as a part of a straddle, "hedge" or
"conversion transaction" with other investments;
- holders owning directly, indirectly or by attribution at least 10.0% of
our voting power; and
- taxpayers whose functional currency is not the U.S. dollar.
This discussion does not address any aspect of United States federal gift or
estate tax, or state, local or non-United States tax laws. Additionally, the
discussion does not consider the tax treatment of partnerships or persons who
hold ordinary shares through a partnership or other pass-through entity.
Each prospective investor is advised to consult such person's own tax
advisor with respect to the specific tax consequences to such person of
purchasing, holding or disposing of our ordinary shares.
TAXATION OF DIVIDENDS PAID ON ORDINARY SHARES
We have never paid dividends, and we currently do not intend to pay
dividends in the future. In the event that we do pay a dividend, and subject to
the discussion of the passive foreign investment company, or PFIC, rules below,
a U.S. holder will be required to include in gross income as ordinary income the
amount of any distribution paid on ordinary shares, including any Israeli taxes
withheld from the amount paid, on the date the distribution is received to the
extent the distribution is paid out of our current or accumulated earnings and
profits as determined for United States federal income tax purposes.
Distributions in excess of such earnings and profits will be applied against and
will reduce the U.S. holder's basis in the ordinary shares and, to the extent of
such basis, will be treated as capital gain.
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Distributions of current or accumulated earnings and profits paid in foreign
currency to a U.S. holder will be includible in the income of a U.S. holder in a
U.S. dollar amount calculated by reference to the exchange rate on the date the
distribution is received (or treated as received). A U.S. holder that receives a
foreign currency distribution and converts the foreign currency into U.S.
dollars subsequent to receipt will have foreign exchange gain or loss based on
any appreciation or depreciation in the value of the foreign currency against
the U.S. dollar, which will generally be U.S. source ordinary income or loss.
U.S. holders may have the option of claiming the amount of any Israeli
income taxes withheld at source either as a deduction from gross income or as a
dollar-for-dollar credit against their United States federal income tax
liability. Individuals who do not claim itemized deductions, but instead utilize
the standard deduction, may not claim a deduction for the amount of the Israeli
income taxes withheld, but such individuals may still claim a credit against
their United States federal income tax liability. The amount of foreign income
taxes which may be claimed as a credit in any year is subject to complex
limitations and restrictions, which must be determined on an individual basis by
each shareholder. The total amount of allowable foreign tax credits in any year
generally cannot exceed the pre-credit U.S. tax liability for the year
attributable to foreign source taxable income. A U.S. holder will be denied a
foreign tax credit with respect to Israeli income tax withheld from dividends
received on the ordinary shares to the extent such U.S. holder has not held the
ordinary shares for at least 16 days of the 30-day period beginning on the date
which is 15 days before the ex-dividend date or to the extent such U.S. holder
is under an obligation to make related payments with respect to substantially
similar or related property. Any days during which a U.S. holder has
substantially diminished its risk of loss on the ordinary shares are not counted
toward meeting the 16-day holding period required by the statute. In addition,
distributions of our current or accumulated earnings and profits will be foreign
source passive income for United States foreign tax credit purposes and may not
qualify for the dividends received deduction available to corporations.
TAXATION OF THE DISPOSITION OF ORDINARY SHARES
Subject to the discussion of the PFIC rules below, upon the sale, exchange
or other disposition of our ordinary shares, a U.S. holder will generally
recognize capital gain or loss in an amount equal to the difference between such
U.S. holder's basis in the ordinary shares, which is usually the cost of such
shares, and the amount realized on the disposition. If, as anticipated, the
ordinary shares are publicly traded, a disposition of shares will be considered
to occur on the "trade date," regardless of the holder's method of accounting.
Capital gain from the sale, exchange or other disposition of ordinary shares
held more than one year is long-term capital gain and is eligible for a maximum
20.0% rate of taxation for individuals. Gain or loss recognized by a U.S. holder
on a sale, exchange or other disposition of ordinary shares generally will be
treated as United States source income or loss for United States foreign tax
credit purposes. The deductibility of a capital loss recognized on the sale,
exchange or other disposition of ordinary shares is subject to limitations.
TAX CONSEQUENCES IF WE ARE A PASSIVE FOREIGN INVESTMENT COMPANY
We will be a PFIC if 75.0% of our gross income in a taxable year, including
the pro rata share of the gross income of any company, U.S. or foreign, in which
we are considered to own 25.0% or more of the shares by value, is passive
income. Alternatively, we will be considered to be a PFIC if 50.0% or more of
our assets in a taxable year, averaged over the year and ordinarily determined
based on fair market value and including the pro rata share of the assets of any
company in which we are considered to own 25.0% or more of the shares by value,
are held for the production of, or produce, passive income. Passive income
includes amounts derived by reason of the temporary investment of funds
76
<PAGE>
raised in this offering. If we were a PFIC, and a U.S. holder did not make a
qualifying election either to treat us as a "qualified electing fund" or mark
our shares to market:
- Excess distributions by us to a U.S. holder would be taxed in a special
way. "Excess distributions" are amounts received by a U.S. holder with
respect to our stock in any taxable year that exceed 125.0% of the average
distributions received by such U.S. holder from us in the shorter of
either the three previous years or such U.S. holder's holding period for
ordinary shares before the present taxable year. Excess distributions must
be allocated ratably to each day that a U.S. holder has held our stock. A
U.S. holder must include amounts allocated to the current taxable year in
its gross income as ordinary income for that year. A U.S. holder must pay
tax on amounts allocated to each prior taxable year at the highest rate in
effect for that year on ordinary income and the tax is subject to an
interest charge at the rate applicable to deficiencies for income tax.
- The entire amount of gain that is recognized by a U.S. holder upon the
sale or other disposition of ordinary shares will also be considered an
excess distribution and will be subject to tax as described above.
- The tax basis in shares of our stock that were acquired from a decedent
who was a U.S. holder would not receive a step-up to fair market value as
of the date of the decedent's death but would instead be equal to the
decedent's basis, if lower.
The special PFIC rules described above will not apply to a U.S. holder if
the U.S. holder makes an election to treat us as a "qualified electing fund" in
the first taxable year in which the U.S. holder owns ordinary shares and if we
comply with specified reporting requirements. Instead, a shareholder of a
qualified electing fund is required for each taxable year to include in income a
pro rata share of the ordinary earnings of the qualified electing fund as
ordinary income and a pro rata share of the net capital gain of the qualified
electing fund as long-term capital gain, subject to a separate election to defer
payment of taxes, which deferral is subject to an interest charge. The QEF
election is made on a shareholder-by-shareholder basis and can be revoked only
with the consent of the Internal Revenue Service, or IRS. A shareholder makes a
QEF election by attaching a completed IRS Form 8621, including the PFIC annual
information statement, to a timely filed United States federal income tax return
and by filing such form with the IRS Service Center in Philadelphia,
Pennsylvania. Even if a QEF election is not made, a shareholder in a PFIC who is
a U.S. person must file a completed IRS Form 8621 each year. Notwithstanding the
foregoing, ordinary shares held by a U.S. holder will not be treated as stock in
a QEF (and the QEF income rules would not apply) in any year in which we cease
to be a PFIC, provided the U.S. holder's holding period for such shares does not
include any period in which we were a PFIC without such U.S. holder having an
effective QEF election in place with respect to such shares.
A U.S. holder of PFIC stock which is publicly traded could elect to mark the
stock to market annually, recognizing as ordinary income or loss each year an
amount equal to the difference as of the close of the taxable year between the
fair market value of the PFIC stock and the U.S. holder's adjusted tax basis in
the PFIC stock. Losses would be allowed only to the extent of net mark-to-market
gain previously included by the U.S. holder under the election for prior taxable
years. If the mark-to-market election were made, then the rules set forth above
would not apply for periods covered by the election. A market-to-market
election, however, will not provide for an increase in the tax basis of our
ordinary shares to fair market value on the date of a U.S. holder's death and
would not prevent the PFIC rules from continuing to apply with respect to
ordinary shares held by a U.S. holder even after we cease to be a PFIC.
The tests for determining PFIC status are applied annually and, although it
is difficult to make accurate predictions of future income and assets relevant
to this determination, there can be no assurance that we will not be a PFIC in
2000 or a subsequent year. U.S. holders who hold ordinary
77
<PAGE>
shares during a period when we are a PFIC will be subject to the foregoing
rules, even if we cease to be a PFIC, subject to certain exceptions for U.S.
holders who made a QEF election. U.S. holders are strongly urged to consult
their tax advisors about the PFIC rules, including the consequences to them of
making a mark-to-market or QEF election with respect to our ordinary shares in
the event that we qualify as a PFIC.
TAX CONSEQUENCES FOR NON-U.S. HOLDERS OF ORDINARY SHARES
Except as described in "--United States Federal Income Tax
Considerations--Information Reporting and Back-up Withholding" below, a non-U.S.
holder of ordinary shares will not be subject to U.S. federal income or
withholding tax on the payment of dividends on, and the proceeds from the
disposition of, ordinary shares, unless:
- such item is effectively connected with the conduct by the non-U.S. holder
of a trade or business in the United States and, in the case of a resident
of a country which has a treaty with the United States, such item is
attributable to a permanent establishment or, in the case of an
individual, a fixed place of business, in the United States;
- the non-U.S. holder is an individual who holds the ordinary shares as a
capital asset and is present in the United States for 183 days or more in
the taxable year of the disposition and does not qualify for an exemption;
or
- the non-U.S. holder is subject to tax pursuant to the provisions of United
States tax law applicable to U.S. expatriates.
INFORMATION REPORTING AND BACK-UP WITHHOLDING
U.S. holders generally are subject to information reporting requirements
with respect to dividends paid in the United States on ordinary shares. Under
existing regulations, such dividends are not subject to back-up withholding.
U.S. holders are generally subject to information reporting and back-up
withholding at a rate of 31.0% on proceeds paid from the disposition of ordinary
shares unless the U.S. holder provides IRS Form W-9 or otherwise establishes an
exemption.
Non-U.S. holders generally are not subject to information reporting or
back-up withholding with respect to dividends paid on, or upon the disposition
of, ordinary shares, provided that such non-U.S. holder provides a taxpayer
identification number, certifies to its foreign status, or otherwise establishes
an exemption.
Treasury regulations effective January 1, 2001 may alter the rules regarding
information reporting and back-up withholding. In particular, those regulations
would impose back-up withholding on dividends paid in the United States on
ordinary shares unless the U.S. holder provides IRS Form W-9 or otherwise
establishes an exemption. Prospective investors should consult their tax
advisors concerning the effect, if any, of these Treasury regulations on an
investment in ordinary shares.
The amount of any back-up withholding will be allowed as a credit against a
U.S. or non-U.S. holder's United States federal income tax liability and may
entitle such holder to a refund, provided that certain information is furnished
to the IRS.
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<PAGE>
UNDERWRITING
GENERAL
Subject to the terms and conditions contained in an underwriting agreement
dated 2000, each of the underwriters named below, for whom Donaldson,
Lufkin & Jenrette Securities Corporation, U.S. Bancorp Piper Jaffray Inc., Wit
SoundView Corporation and DLJDIRECT Inc. are acting as representatives, has
agreed to purchase from us the number of ordinary shares shown opposite its name
below:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation......
U.S. Bancorp Piper Jaffray Inc...........................
Wit SoundView Corporation................................
DLJDIRECT Inc............................................
-----
Total..................................................
=====
</TABLE>
The underwriting agreement provides that the underwriters' obligations to
purchase and accept delivery of the ordinary shares offered by this prospectus
are subject to approval by their counsel of legal matters concerning the
offering and depend on the satisfaction of the conditions contained in the
underwriting agreement. If any of the ordinary shares are purchased by the
underwriters under the underwriting agreement, then all of the ordinary shares
which the underwriters have agreed to purchase under the underwriting agreement
(other than those shares covered by the over-allotment option described below)
must be purchased.
COMMISSIONS AND EXPENSES
The representatives had advised us that the underwriters propose to offer
the ordinary shares directly to the public at the public offering price
presented on the cover page of this prospectus, and to selected dealers, who may
include the underwriters, at the public offering price less a selling concession
not in excess of $ per share. The underwriters may allow, and the
selected dealers may reallow, a concession not in excess of $ per
share to brokers and dealers. After the initial offering, the underwriters may
change the offering price and other selling terms at any time without notice.
The underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
An electronic prospectus will be available on the web sites maintained by
DLJDIRECT Inc., an affiliate of Donaldson, Lufkin & Jenrette Securities
Corporation, and Wit Capital Corporation, an affiliate of Wit SoundView
Corporation. In addition, other dealers purchasing shares from Wit SoundView
Corporation in this offering have agreed to make a prospectus in electronic
format available on web sites maintained by each of these dealers. Other than
the prospectus in electronic format, the information on these web sites relating
to the offering is not part of this prospectus and had not been approved or
endorsed by us or the underwriters and should not be relied upon by prospective
investors.
The following table summarizes the underwriting discounts and commissions we
will pay. The underwriting discounts and commissions are equal to the public
offering price per share less the amount paid to us per share. The underwriting
discounts and commissions will equal % of the public offering price.
<TABLE>
<CAPTION>
WITHOUT WITH
TOTAL PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
<S> <C> <C>
Underwriting discounts and commissions to be paid by us..... $ $
</TABLE>
We estimate that the total expenses of the offering, including registration,
filing and listing fees, printing fees and legal and accounting expenses but
excluding underwriting discounts and commissions, will be approximately
$2,400,000.
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<PAGE>
OVER-ALLOTMENT OPTION
We have granted to the underwriters an option to purchase up to an aggregate
of 750,000 additional ordinary shares, exercisable solely to cover
over-allotments, if any, at the public offering price less the underwriting
discounts and commissions shown on the cover page of this prospectus. The
underwriters may exercise this option at any time, in whole or in part, and from
time to time, until 30 days after the date of the underwriting agreement. To the
extent the underwriters exercise this option, each underwriter will be
committed, so long as the conditions of the underwriting agreement are
satisfied, to purchase a number of additional ordinary shares proportionate to
that underwriter's initial commitment as indicated in the preceding table, and
we will be obligated, under the over-allotment option, to sell the ordinary
shares to the underwriters.
LOCK-UP AGREEMENTS
We, our executive officers and directors, all of our existing shareholders
and substantially all of our option holders are subject to agreements providing
that, with certain limited exceptions, we will not:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right
or warrant to purchase, lend, or otherwise transfer or dispose of directly
or indirectly any shares of ordinary shares or any securities convertible
into or exercisable or exchangeable for ordinary shares; or
- enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the
ordinary shares, whether any such transaction described above is to be
settled by delivery of ordinary shares or other securities, in cash or
otherwise
for a period of 180 days after the date of this prospectus without the prior
written approval of Donaldson, Lufkin & Jenrette Securities Corporation.
However, 25.0% of the ordinary shares subject to the restrictions described
above, other than shares owned by employees of the Company, will be released
from these restrictions if the reported last sale price of our ordinary shares
on the Nasdaq National Market is at least twice the initial public offering
price for 20 of the 30 consecutive trading days ending on the last trading day
of the 90-day period after the date of this prospectus and the second trading
day after the first public release of our quarterly results. An additional 25.0%
of the shares subject to the restrictions described above will be released if
the reported last sale price of our ordinary shares on the Nasdaq National
Market is at least twice the initial public offering price for 20 of the 30
consecutive trading days ending on the last trading day of the 135-day period
after the date of this prospectus.
Donaldson, Lufkin & Jenrette Securities Corporation may release some or all
of these shares from such restrictions prior to the expiration of the 180-day
period lock-up period, although it has no current intention of doing so. See
"Shares Eligible For Future Sale--Lock-up Agreements."
In addition, during such 180-day period, we have also agreed not to file any
registration statement with respect to the registration of any ordinary shares
or any securities convertible into or exercisable or exchangeable for ordinary
shares, without the prior written consent of Donaldson, Lufkin & Jenrette
Securities Corporation.
OFFERING PRICE DETERMINATION
Before this offering, there has been no public market for the ordinary
shares. The initial public offering price will be negotiated between the
representatives and us. In determining the initial public offering price of the
ordinary shares, the representatives will consider:
- prevailing market conditions;
- our historical performance and capital structure;
- estimates of our business potential and earnings prospects;
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<PAGE>
- an overall assessment of our management; and
- the consideration of these factors in relation to market valuation of
companies in related businesses.
INDEMNIFICATION
We have agreed to indemnify the underwriters against liabilities relating to
the offering, including liabilities under the Securities Act and liabilities
arising from breaches of the representations and warranties contained in the
underwriting agreement and to contribute to payments that the underwriters may
be required to make for these liabilities.
DIRECTED SHARE PROGRAM
The underwriters have reserved up to 300,000 shares of our ordinary shares
to be sold in this offering for sale to some of our employees and associates of
our employees and directors, and to other individuals or companies who have
commercial arrangements or personal relationships with us. Through this directed
share program, we intend to ensure that those individuals and companies that
have supported us, or who are in a position to support us in the future, have
the opportunity to purchase our ordinary shares at the same price that we are
offering for shares to the general public. Prospective participants will not
receive any investment materials other than a copy of this prospectus, and will
be permitted to participate in this offering at the initial public offering
price presented on the cover page of this prospectus. No commitment to purchase
shares by any participant in the directed share program will be accepted until
after the registration statement of which this prospectus is part is effective
and an initial public offering price has been established. The number of shares
available for sale to the general public will be reduced by the number of shares
sold through the directed share program. Any shares reserved for the directed
share program which are not so purchased will be offered by the underwriters to
the general public on the same basis as the other shares offered hereby.
STABILIZATION, SHORT POSITIONS AND PENALTY BIDS
In connection with the offering, the underwriter may engage in transactions
that stabilize, maintain or otherwise affect the price of the ordinary shares.
Specifically, the underwriters may create a syndicate short position by making
short sales of our ordinary shares and may purchase our ordinary shares on the
open market to cover syndicate short positions created by short sales. Short
sales involve the sale by the underwriters of a greater number of ordinary
shares than they are required to purchase in the offering. Short sales can be
either "covered" or "naked." "Covered" short sales are sales made in an amount
not greater than the underwriters' over-allotment option to purchase additional
shares in the offering. "Naked" short sales are sales in excess of the
over-allotment option. A naked short position is more likely to be created if
the underwriters are concerned that there may be downward pressure on the price
of the ordinary shares in the open market after pricing that could adversely
affect investors who purchase in the offering. The underwriters may close out
any covered short position by either exercising their over-allotment portion or
purchasing shares in the open market. In determining the source of shares to
close out 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. In addition, the underwriting syndicate may reclaim
selling concessions from syndicate members and selected dealers if they
repurchase previously distributed ordinary shares in syndicate covering
transactions, in stabilizing transactions or in some other way or if Donaldson,
Lufkin & Jenrette Securities Corporation receives a report that indicates
clients of such syndicate members have "flipped" the ordinary shares. These
activities may have the effect of raising or maintaining the market price of our
ordinary shares or preventing or retarding a decline in the market price of our
ordinary shares. As a result, the price of our ordinary shares may be higher
than the price that might otherwise exist in the open market. The underwriters
are not required to engage in these activities, and may end any of these
activities at any time.
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<PAGE>
OFFERS AND SALES IN ISRAEL
The underwriters have agreed that:
- they will offer or sell the ordinary shares in Israel to potential
purchasers limited to a number and type that shall not require the
publication of a prospectus under Israeli law;
- they will deliver to us the names and addresses of these potential
purchasers within seven days of the consummation of this offering; and
- they will obtain representations from each of these potential purchasers
who purchases ordinary shares that he is purchasing ordinary shares for
investment purposes only, and not for the purposes of resale.
LEGAL MATTERS
The validity of the ordinary shares being offered by this prospectus and
other legal matters concerning this offering relating to Israeli law will be
passed upon for us by Sharir, Shiv, Friedman & Co., Tel Aviv, Israel. Some legal
matters concerning this offering relating to United States law will be passed
upon for us by Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. A member of
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. beneficially owns 23,810
Series B-1 Preferred Shares.
Some legal matters concerning this offering relating to Israeli law will be
passed upon for the underwriters by Yigal Arnon & Co., Jerusalem, Israel. Some
legal matters concerning this offering relating to United States law will be
passed upon for the underwriters by Goodwin, Procter & Hoar LLP.
EXPERTS
Our financial statements at December 31, 1998 and 1999 and for the years
ended December 31, 1997, 1998 and 1999 appearing in this prospectus have been
audited by Luboshitz Kasierer, a member firm of Arthur Andersen, as stated in
their report on the financial statements appearing elsewhere in this prospectus,
and are included in reliance upon their report given upon the authority of this
firm as experts in auditing and accounting.
ENFORCEABILITY OF CIVIL LIABILITIES
Service of process upon us, some of our directors and officers, and the
Israeli experts named in this prospectus, who reside outside the United States,
may be difficult to obtain within the United States. Furthermore, because some
of our assets and some of our directors and officers are located outside the
United States, any judgment obtained in the United States against us or these
directors and officers may not be collectible within the United States.
We have been informed by our legal counsel in Israel, Sharir, Shiv,
Friedman & Co., that there is doubt as to the enforceability of civil
liabilities under the Securities Act and the Exchange Act in original actions
instituted in Israel. However, subject to certain time limitations, Israeli
courts may enforce United States final executory judgments for liquidated
amounts in civil matters obtained after due trial before a court of competent
jurisdiction, according to the rules of private international law currently
prevailing in Israel, that enforce similar Israeli judgements, provided that:
- service of process has been effected and the defendant has had a
reasonable opportunity be heard;
- the judgment or the enforcement thereof are not contrary to the law,
public policy, security or sovereignty of the State of Israel;
- the judgment was not obtained by fraud and does not conflict with any
other valid judgment in the same matter between the same parties; and
- an action between the same parties in the same matter is not pending in
any Israeli court at the time the lawsuit is instituted in the foreign
court.
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We have irrevocably appointed RadView Software, Inc., our U.S subsidiary, as
our agent to receive service of process in any action against us in any federal
court or court of the Commonwealth of Massachusetts arising out of this offering
or any purchase or sale of securities in connection with this offering. We have
not given our consent for this agent to accept service of process in connection
with any other claim.
The usual practice in an action before an Israeli court to recover an amount
in a non-Israeli currency is for the Israeli court to render a judgment for the
equivalent amount in Israeli currency at the rate of exchange in force on the
date of the judgment. Under existing Israeli law, a foreign judgment payable in
foreign currency may be paid in Israeli currency at the rate of exchange of such
foreign currency on the date of payment, and may be converted into foreign
currency and transferred out of Israel. The judgment debtor may also make
payment in foreign currency. Pending collection, the amount of the judgment of
an Israeli court stated in Israeli currency ordinarily will be linked to the
Israeli consumer price index plus interest at the annual rate set by Israeli
regulations prevailing at the time. Judgment creditors must bear the risk of
unfavorable exchange rates.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form F-1 under the Securities Act relating to this offering of our
ordinary shares. This prospectus does not contain all of the information
contained in the registration statement. The rules and regulations of the
Securities and Exchange Commission allow us to omit various information from
this prospectus that is included in the registration statement. Statements made
in this prospectus concerning the contents of any contract, agreement or other
document are summaries of all material information about the documents
summarized, but are not complete descriptions of all terms of these documents.
If we filed any of these documents as an exhibit to the registration statement,
you may read the document itself for a complete description of its terms.
You may read and copy the registration statement, including the related
exhibits and schedules, and any document we file with the Securities and
Exchange Commission without charge at the Securities and Exchange Commission's
public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies
of the material may be obtained by mail from the public reference branch of the
Securities and Exchange Commission at this address at rates specified by the
Securities and Exchange Commission. Please call the Securities and Exchange
Commission at 1-800-SEC-0330 for further information on the public reference
room. In addition, this registration statement and our other reports are
publicly available through the website maintained by the Securities and Exchange
Commission on the internet's worldwide web located at http://www.sec.gov.
After this registration statement is declared effective, we intend to comply
with the reporting requirements of the Securities Exchange Act of 1934. We will
file annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission. We intend to furnish
our shareholders with annual reports containing financial statements audited by
our independent auditors and quarterly reports containing unaudited financial
data for the first three quarters of each fiscal year.
83
<PAGE>
RADVIEW SOFTWARE LTD.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets as of December 31, 1998 and 1999
(audited) and March 31, 2000 (unaudited) and Pro Forma
March 31, 2000 (unaudited)................................ F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1998 and 1999 (audited) and for the
Three Months Ended March 31, 1999 and 2000 (unaudited).... F-4
Consolidated Statements of Shareholders' Equity (Deficit)
for the Years Ended December 31, 1997, 1998 and 1999
(audited) and the Three Months Ended March 31, 2000
(unaudited) and Pro Forma March 31, 2000 (unaudited)...... F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1998 and 1999 (audited) and the Three
Months Ended March 31, 1999 and 2000 (unaudited).......... F-6
Notes to the Consolidated Financial Statements.............. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
RadView Software Ltd.:
We have audited the accompanying consolidated balance sheets of RadView
Software Ltd. and subsidiary as of December 31, 1998 and 1999 and the related
consolidated statements of operations, shareholders' equity (deficit) and cash
flows for the three years ended December 31, 1997, 1998 and 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 the United States. 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 financial position of RadView Software Ltd. and
subsidiary as of December 31, 1998 and 1999 and the results of their operations
and their cash flows for the three years ended December 31, 1997, 1998 and 1999
in conformity with accounting principles generally accepted in the United
States.
Luboshitz Kasierer
Member Firm of Arthur Andersen
Tel-Aviv, Israel
March 31, 2000
F-2
<PAGE>
RADVIEW SOFTWARE LTD.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, MARCH 31, MARCH 31,
------------------- ----------- -----------
1998 1999 2000 2000
(UNAUDITED) (NOTE 2)
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 3)..................... $ 1,126 $ 7,652 $ 4,475 $ 4,807
Short-term investments (Note 4)........................ 316 513 2,526 2,526
Accounts receivable, net (Note 14)..................... 229 1,281 1,093 1,093
Prepaid expenses and other current assets.............. 100 322 399 399
-------- -------- -------- --------
Total current assets............................... 1,771 9,768 8,493 8,825
Property and Equipment, net (Note 5)..................... 447 783 1,263 1,263
Deposits with Insurance Companies (Note 9)............... 166 199 203 203
Deposits................................................. -- 100 138 138
-------- -------- -------- --------
Total.............................................. $ 2,384 $ 10,850 $ 10,097 $ 10,429
======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Short-term bank loans.................................. $ 585 $ -- $ -- $ --
Current maturities of long-term loans.................. 31 17 17 17
Related party loan (Note 7)............................ 63 115 237 237
Accounts payable....................................... 120 560 354 354
Other payables and accrued expenses (Note 6)........... 413 1,598 1,670 1,670
Deferred revenue....................................... 75 476 740 740
-------- -------- -------- --------
Total current liabilities.......................... 1,287 2,766 3,018 3,018
LONG-TERM LIABILITIES:
Long-term loans (Note 8)............................... 3,198 3,562 3,587 3,587
Related party loan (Note 7)............................ 1,351 1,332 1,128 1,128
Accrued severance pay (Note 9)......................... 274 339 347 347
-------- -------- -------- --------
Total long-term liabilities........................ 4,823 5,233 5,062 5,062
-------- -------- -------- --------
Total liabilities.................................. 6,110 7,999 8,080 8,080
-------- -------- -------- --------
SHAREHOLDERS' EQUITY (Deficit) (Note 11):
Series A preferred shares of NIS 0.01 par value--
Authorized--3,500,000 shares
Issued and outstanding--1,314,200, 2,337,000,
2,337,000 and 0 shares at December 31, 1998 and 1999,
March 31, 2000 and pro forma March 31, 2000,
respectively......................................... 4 6 6 --
Series B preferred shares of NIS 0.01 par value--
Authorized--5,000,000 shares
Issued and outstanding--0, 2,904,765, 2,904,765 and 0
shares at December 31, 1998 and 1999, March 31, 2000
and pro forma March 31, 2000, respectively........... -- 7 7 --
Ordinary shares of NIS 0.01 par value--
Authorized--11,000,000 shares actual and pro forma
Issued and outstanding--2,598,600, 4,194,000,
4,194,000 and 12,302,032 shares at December 31, 1998
and 1999, March 31, 2000 and pro forma March 31,
2000, respectively................................... 8 12 12 32
Additional paid-in capital............................. 6,623 16,269 17,593 17,918
Deferred compensation.................................. (84) (425) (1,533) (1,533)
Accumulated deficit.................................... (10,277) (13,018) (14,068) (14,068)
-------- -------- -------- --------
Total shareholders' equity (deficit)............... (3,726) 2,851 2,017 2,349
-------- -------- -------- --------
Total liabilities and shareholders' equity
(deficit)........................................ $ 2,384 $ 10,850 $ 10,097 $ 10,429
======== ======== ======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-3
<PAGE>
RADVIEW SOFTWARE 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:
Software licenses............................ $ 246 $ 914 $ 4,701 $ 589 $ 1,932
Services..................................... 8 52 409 39 334
--------- --------- --------- --------- ----------
Total revenues........................... 254 966 5,110 628 2,266
--------- --------- --------- --------- ----------
COST OF REVENUES:
Software licenses............................ 17 59 340 38 153
Services..................................... 3 22 67 24 52
--------- --------- --------- --------- ----------
Total cost of revenues................... 20 81 407 62 205
--------- --------- --------- --------- ----------
Gross profit............................. 234 885 4,703 566 2,061
--------- --------- --------- --------- ----------
OPERATING EXPENSES:
Research and development (1)................. 1,481 1,408 1,705 386 777
Sales and marketing (1)...................... 800 1,425 3,973 473 1,427
General and administrative (1)............... 639 483 1,192 141 668
Stock-based compensation (1)................. 191 149 234 21 181
--------- --------- --------- --------- ----------
Total operating expenses................. 3,111 3,465 7,104 1,021 3,053
--------- --------- --------- --------- ----------
Operating loss........................... (2,877) (2,580) (2,401) (455) (992)
--------- --------- --------- --------- ----------
Interest Expense............................... (343) (202) (394) (98) (139)
Interest Income................................ 24 -- 89 3 98
Other Income/(Expense), net.................... 191 67 (35) (23) (17)
--------- --------- --------- --------- ----------
Net loss................................. $ (3,005) $ (2,715) $ (2,741) $ (573) $ (1,050)
========= ========= ========= ========= ==========
Basic and diluted net loss per ordinary
share........................................ $ (1.28) $ (1.04) $ (0.80) $ (0.22) $ (0.25)
========= ========= ========= ========= ==========
Weighted average number of ordinary shares
outstanding--basic and diluted............... 2,356 2,599 3,413 2,599 4,194
========= ========= ========= ========= ==========
Pro forma basic and diluted net loss per
ordinary share............................... $ (0.35) $ (0.09)
========= ==========
Weighted average number of ordinary shares
outstanding--pro forma basic and diluted..... 7,784 11,887
========= ==========
</TABLE>
--------------------------
(1) The following summarizes the departmental allocation of the stock-based
compensation charge:
<TABLE>
<CAPTION>
FOR THE THREE
FOR THE YEARS ENDED MONTHS ENDED
DECEMBER 31, MARCH 31,
--------------------------------- ---------------------
1997 1998 1999 1999 2000
<S> <C> <C> <C> <C> <C>
Marketing and selling...................................... $ 6 $ 4 $ 71 $ 3 $ 58
Research and development................................... 152 120 86 20 30
General and administrative................................. 33 25 77 (2) 93
--------- --------- --------- --------- ---------
Total stock-based compensation....................... $ 191 $ 149 $ 234 $ 21 $ 181
========= ========= ========= ========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-4
<PAGE>
RADVIEW SOFTWARE LTD.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PREFERRED SHARES
---------------------------------- ORDINARY SHARES ADDITIONAL
SERIES A SERIES B --------------------- PAID-IN
SHARES PREFERRED PREFERRED SHARES AMOUNT CAPITAL
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996......................... -- $ -- $ -- 1,690,100 $ 5 $ 1,517
Ordinary shares issued, net of issuance costs of
$145........................................... -- -- -- 908,500 3 939
Deferred compensation............................ -- -- -- -- -- 451
Amortization of deferred compensation............ -- -- -- -- -- (111)
Net loss......................................... -- -- -- -- -- --
---------- ---- ---- ---------- --- -------
Balance, December 31, 1997......................... -- -- -- 2,598,600 8 2,796
Series A preferred shares issued, net of issuance
costs of $83................................... 1,314,200 4 -- -- -- 3,819
Imputed interest on related party loan........... -- -- -- -- -- 42
Amortization of deferred compensation............ -- -- -- -- -- (34)
Net loss......................................... -- -- -- -- -- --
---------- ---- ---- ---------- --- -------
Balance, December 31, 1998......................... 1,314,200 4 -- 2,598,600 8 6,623
Ordinary shares issued........................... -- -- -- 1,595,400 4 --
Series A preferred shares issued, net of issuance
costs of $30................................... 1,022,800 2 -- -- -- 3,007
Series B preferred shares issued, net of issuance
costs of $209.................................. 2,904,765 -- 7 -- -- 5,884
Warrants issued to bank.......................... -- -- -- -- -- 137
Imputed interest on related party loan........... -- -- -- -- -- 43
Deferred compensation............................ -- -- -- -- -- 582
Amortization of deferred compensation............ -- -- -- -- -- (7)
Net loss......................................... -- -- -- -- -- --
---------- ---- ---- ---------- --- -------
Balance, December 31, 1999......................... 5,241,765 6 7 4,194,000 12 16,269
Imputed interest on related party loan
(unaudited).................................... -- -- -- -- -- 10
Deferred compensation (unaudited)................ -- -- -- -- -- 1,348
Amortization of deferred compensation
(unaudited).................................... -- -- -- -- -- (59)
Other (unaudited)................................ -- -- -- -- -- 25
Net loss (unaudited)............................. -- -- -- -- -- --
---------- ---- ---- ---------- --- -------
Balance, March 31, 2000 (unaudited)................ 5,241,765 6 7 4,194,000 12 17,593
Series B preferred shares issued (See Note 16)
(unaudited).................................... 23,810 -- -- -- -- 25
Conversion of preferred stock into ordinary
shares (See Note 2) (unaudited)................ (5,265,575) (6) (7) 5,265,575 13 --
Exercise of options and warrants prior to and
upon proposed initial public offering (See Note
2) (unaudited)................................. -- -- -- 2,842,457 7 300
---------- ---- ---- ---------- --- -------
Pro forma balance, March 31, 2000 (unaudited)...... -- $ -- $ -- 12,302,032 $32 $17,918
========== ==== ==== ========== === =======
<CAPTION>
DEFERRED ACCUMULATED
COMPENSATION DEFICIT TOTAL
<S> <C> <C> <C>
Balance, December 31, 1996......................... $ (118) $ (4,557) $(3,153)
Ordinary shares issued, net of issuance costs of
$145........................................... -- -- 942
Deferred compensation............................ (451) -- --
Amortization of deferred compensation............ 302 -- 191
Net loss......................................... -- (3,005) (3,005)
------- -------- -------
Balance, December 31, 1997......................... (267) (7,562) (5,025)
Series A preferred shares issued, net of issuance
costs of $83................................... -- 3,823
Imputed interest on related party loan........... -- -- 42
Amortization of deferred compensation............ 183 -- 149
Net loss......................................... -- (2,715) (2,715)
------- -------- -------
Balance, December 31, 1998......................... (84) (10,277) (3,726)
Ordinary shares issued........................... -- -- 4
Series A preferred shares issued, net of issuance
costs of $30................................... -- -- 3,009
Series B preferred shares issued, net of issuance
costs of $209.................................. -- -- 5,891
Warrants issued to bank.......................... -- -- 137
Imputed interest on related party loan........... -- -- 43
Deferred compensation............................ (582) -- --
Amortization of deferred compensation............ 241 -- 234
Net loss......................................... -- (2,741) (2,741)
------- -------- -------
Balance, December 31, 1999......................... (425) (13,018) 2,851
Imputed interest on related party loan
(unaudited).................................... -- -- 10
Deferred compensation (unaudited)................ (1,348) -- --
Amortization of deferred compensation
(unaudited).................................... 240 -- 181
Other (unaudited)................................ -- -- 25
Net loss (unaudited)............................. -- (1,050) (1,050)
------- -------- -------
Balance, March 31, 2000 (unaudited)................ (1,533) (14,068) 2,017
Series B preferred shares issued (See Note 16)
(unaudited).................................... -- -- 25
Conversion of preferred stock into ordinary
shares (See Note 2) (unaudited)................ -- -- --
Exercise of options and warrants prior to and
upon proposed initial public offering (See Note
2) (unaudited)................................. -- -- 307
------- -------- -------
Pro forma balance, March 31, 2000 (unaudited)...... $(1,533) $(14,068) $ 2,349
======= ======== =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-5
<PAGE>
RADVIEW SOFTWARE LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss....................................... $(3,005) $(2,715) $(2,741) $ (573) $(1,050)
Adjustments to reconcile net loss to net cash
used in operating activities--
Income and expenses not affecting
operating cash flows--
Depreciation............................... 131 150 251 43 134
Amortization of deferred compensation...... 191 149 234 21 181
Interest accrued on long-term loans........ -- 91 385 95 137
Accrued severance pay...................... 31 -- 32 4 4
Changes in operating assets and liabilities--
Accounts receivable........................ (33) (150) (1,052) (217) 188
Prepaid expenses and other current
assets................................... (26) (15) (222) (58) (77)
Accounts payable........................... 72 (50) 440 48 (206)
Other payables and accrued expenses........ 177 30 794 17 6
Deferred revenue........................... -- 75 401 56 264
------- ------- ------- ------ -------
Net cash used in operating activities.... (2,462) (2,435) (1,478) (564) (419)
------- ------- ------- ------ -------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Purchases) maturities of short-term
investment................................... -- (316) (197) 316 (2,013)
Purchase of property and equipment............. (221) (130) (587) (37) (614)
Increase in deposits........................... -- -- (100) -- (38)
------- ------- ------- ------ -------
Net cash (used in) provided by investing
activities............................. (221) (446) (884) 279 (2,665)
------- ------- ------- ------ -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term bank loans... 1,762 (2,827) (585) (554) --
Long-term loans received....................... 44 3,000 600 600 --
Repayment of long-term loans received.......... (22) (37) (31) (8) (118)
Proceeds from shares issued.................... 942 3,822 8,904 -- --
Other.......................................... -- -- -- -- 25
------- ------- ------- ------ -------
Net cash provided by (used in) financing
activities............................. 2,726 3,958 8,888 38 (93)
------- ------- ------- ------ -------
Increase (decrease) in Cash and Cash
Equivalents.................................... 43 1,077 6,526 (247) (3,177)
Cash and Cash Equivalents, beginning of period... 6 49 1,126 1,126 7,652
------- ------- ------- ------ -------
Cash and Cash Equivalents, end of period......... $ 49 $ 1,126 $ 7,652 $ 879 $ 4,475
======= ======= ======= ====== =======
Cash paid during the period for interest......... $ 338 $ 197 $ 21 $ 19 $ --
======= ======= ======= ====== =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-6
<PAGE>
RADVIEW SOFTWARE LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
1. OPERATIONS
OPERATIONS. RadView Software Ltd. (the Company) is an Israeli corporation.
The Company has a wholly-owned subsidiary in the United States, RadView
Software, Inc. The Company develops, markets and supports software which enables
organizations to verify the scalability, efficiency and reliability of Web
applications, and facilitates their rapid development.
FINANCIAL STATEMENTS IN U.S. DOLLARS. The financial statements of the
Company have been prepared in U.S. dollars, as the currency of the primary
economic environment in which the operations of the Company are conducted is the
U.S. dollar. Substantially all of the Company's sales are in U.S. dollars. Most
purchases of materials and components and most marketing costs are denominated
in U.S. dollars. Therefore, the functional currency of the Company is the U.S.
dollar.
Transactions and balances denominated in dollars are presented at their
original amounts. Transactions and balances in other currencies are translated
into U.S. dollars in accordance with the principles set forth in Financial
Accounting Standards Board of the United States (FASB) Statement of Accounting
Standards (SFAS) No. 52, FOREIGN CURRENCY TRANSLATION. Accordingly, items have
been translated as follows:
- Monetary Items--At the exchange rate in effect on the balance sheet date.
- Nonmonetary Items--At historical exchange rates.
- Revenue and Expense Items--At the exchange rates in effect as of the date
of recognition of those items (excluding depreciation and other items
deriving from nonmonetary items).
All exchange gains and losses from the above-mentioned translation (which
are immaterial for all periods presented) are reflected in the statements of
operations. The representative rate of exchange as of December 31, 1997, 1998
and 1999 and March 31, 1999 and 2000 was U.S. $1.00 to 3.536, 4.16, 4.153, 4.034
and 4.026 New Israeli Shekel (NIS), respectively.
2. SIGNIFICANT ACCOUNTING POLICIES
The Company's financial statements are prepared in accordance with
accounting principles generally accepted in the United States. The significant
accounting policies followed in the preparation of the financial statements,
applied on a consistent basis, are as follows:
USE OF ESTIMATES. The preparation of the financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from these estimates.
INTERIM FINANCIAL STATEMENTS. The accompanying consolidated balance sheet
as of March 31, 2000, the consolidated statements of operations and cash flows
for the three months ended March 31, 1999 and 2000 and the consolidated
statement of shareholders' equity for the three months ended March 31, 2000 are
unaudited but, in the opinion of management, include all adjustments, consisting
of normal recurring adjustments, necessary for a fair presentation of results
for these interim periods. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been omitted, although the Company believes that
F-7
<PAGE>
RADVIEW SOFTWARE LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
the disclosures included are adequate to make the information presented not
misleading. The results of operations for the three months ended March 31, 2000
are not necessarily indicative of the results to be expected for the entire
fiscal year.
UNAUDITED PRO FORMA PRESENTATION. The unaudited pro forma balance sheet as
of March 31, 2000 has been calculated assuming:
- 5,265,575 ordinary shares are issued upon the closing of the proposed
initial public offering upon the automatic conversion of all of our
outstanding preferred shares into ordinary shares;
- 142,857 ordinary shares are issued upon the exercise of an outstanding
warrant at an exercise price of $2.10 per share at the closing of the
proposed initial public offering;
- 933,800 shares issued through the exercise of options in July 2000 at an
exercise price of NIS 0.01 per share by certain shareholders;
- 459,900 ordinary shares are issued upon the exercise of outstanding
options at an exercise price of NIS 0.01 per share held by certain
shareholders at the closing of the proposed initial public offering;
- 656,300 ordinary shares issued through the exercise of options in
June 2000;
- 391,100 ordinary shares issued through the exercise of options in
July 2000; and
- 258,500 ordinary shares are issued to certain of our Series A preferred
shareholders at the closing of the proposed initial public offering.
The issuance of the 258,500 ordinary shares will be accounted for as a stock
dividend. In the period in which these shares are issued, the Company will
record a charge to additional paid-in capital for the value of the ordinary
shares and the amount of net loss attributable to common shareholders used in
the computation of basic and diluted net loss per share will be increased by the
value of the ordinary shares issued.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of the Company and its wholly owned subsidiary in the U.S. (RadView
Software, Inc.). All material intercompany balances and transactions have been
eliminated in consolidation.
CASH AND CASH EQUIVALENTS. The Company accounts for investments under SFAS
No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES. Under
SFAS No. 115, investments for which the Company has the positive intent and
ability to hold to maturity, consisting of cash equivalents and short-term
investments, are reported at amortized cost, which approximates fair market
value. Cash equivalents are highly liquid investments with original maturities
of less than ninety days.
PROPERTY AND EQUIPMENT. Property and equipment are stated at cost.
Depreciation and amortization are computed by the straight-line method over the
estimated useful life of the assets. In accordance with SFAS No. 121, ACCOUNTING
FOR IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF,
the Company reviews its long-lived assets (which consists of property and
equipment) for impairment as events and circumstances indicate the carrying
amount of an asset may not be recoverable. Management believes that, as of each
of the balance sheet dates presented, none of the Company's long-lived assets
were impaired.
F-8
<PAGE>
RADVIEW SOFTWARE LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
REVENUE RECOGNITION. The Company recognizes revenue in accordance with
Statement of Position (SOP) 97-2, SOFTWARE REVENUE RECOGNITION and SOP 98-4,
DEFERRAL OF THE EFFECTIVE DATE OF A PROVISION OF SOP 97-2, SOFTWARE REVENUE
RECOGNITION. Revenues from software product licenses are recognized upon
delivery of the software provided there is persuasive evidence of an agreement,
the fee is fixed or determinable and collection of the related receivable is
probable. Revenues under multiple element arrangements, which may include
software, software maintenance and training, are allocated to each element based
on their respective fair values, based on vendor-specific objective evidence.
This objective evidence represents the price of products and services when sold
separately. Revenue is recognized for software licenses sold to resellers or
distributors at the time of shipment, provided that all revenue recognition
criteria set forth in SOP 97-2 are fulfilled. Revenues from software maintenance
agreements are recognized ratably over the term of the maintenance period, which
is typically one year. Revenues from training arrangements are recognized as the
services are performed. Amounts collected or billed prior to satisfying the
above revenue recognition criteria are reflected as deferred revenue. Deferred
revenue primarily represents deferred maintenance revenue.
In December 1998, the AICPA issued SOP 98-9, MODIFICATION OF SOP 97-2,
SOFTWARE REVENUE RECOGNITION, WITH RESPECT TO CERTAIN TRANSACTIONS. SOP 98-9
requires use of the residual method for recognition of revenues when
vendor-specific objective evidence exists for undelivered elements but does not
exist for delivered elements of a software arrangement. If fair value for a
delivered element does not exist but the fair value does exist for all
undelivered elements, the Company defers the fair value of the undelivered
elements and recognizes the remaining value for the delivered elements. The
Company is required to comply with the provisions of SOP 98-9 for transactions
entered into beginning January 1, 2000. The adoption of SOP 98-9 did not have a
material effect on the financial position or results of operations.
COST OF REVENUES. Cost of software license revenues consists of costs to
distribute the product, including the cost of the media on which it is delivered
and royalty payments to third-party vendors. Cost of software license revenues
also includes the amounts related to the royalties due to the Office of the
Chief Scientist of the Ministry of Industry and Trade (OCS)(see Note 10(a)).
Cost of services revenue consists primarily of training and support personnel
salaries and related costs.
RESEARCH AND DEVELOPMENT COSTS. The Company has evaluated the establishment
of technological feasibility of its products in accordance with SFAS No. 86,
ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED OR OTHERWISE
MARKETED. The Company sells products in a market that is subject to rapid
technological change, new product development and changing customer needs;
accordingly, the Company has concluded that technological feasibility is not
established until the development stage of the product is nearly complete. The
Company defines technological feasibility as the completion of a working model.
The time period during which costs could be capitalized, from the point of
reaching technological feasibility until the time of general product release, is
very short and, consequently, the amounts that could be capitalized are not
material to the Company's financial position or results of operations.
Therefore, the Company has charged all such costs to research and development
expense in the period incurred.
INCOME TAXES. The Company accounts for income taxes under the liability
method of accounting. Under the liability method, deferred taxes are determined
based on the differences between the financial statement and tax bases of assets
and liabilities at enacted tax rates in effect in the year in which the
differences are expected to reverse. Valuation allowances are established, when
necessary, to reduce deferred tax assets to amounts expected to be realized.
F-9
<PAGE>
RADVIEW SOFTWARE LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
NET LOSS PER SHARE. Basic and diluted net loss per share are presented in
conformity with SFAS No. 128, EARNINGS PER SHARE, for all periods presented.
Basic and diluted net loss per ordinary share was determined by dividing net
loss by the weighted average ordinary shares outstanding during the period.
Diluted net loss per ordinary share is the same as basic net loss per ordinary
share for all periods presented as the effects of the Company's potential
ordinary share equivalents are antidilutive. Options and warrants to purchase a
total of 594,650, 4,015,350, 3,674,267, 4,317,507 and 4,937,186 ordinary shares
have been excluded from the computation of diluted weighted average shares
outstanding for the years ended December 31, 1997, 1998 and 1999 and the three
months ended March 31, 1999 and 2000, respectively. Ordinary shares issuable
upon the conversion of outstanding preferred stock and issuable to certain
Series A preferred shareholders have also been excluded from the computation of
diluted net loss per share for all periods presented. In accordance with the
Securities and Exchange Commission Staff Accounting Bulletin No. 98, EARNINGS
PER SHARE IN AN INITIAL PUBLIC OFFERING, the Company determined that there were
no nominal issuances of the Company's ordinary shares prior to the Company's
planned initial public offering.
The following table reflects the reconciliation of the shares used in the
computation of pro forma loss per share.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
1999 2000
(IN THOUSANDS)
<S> <C> <C>
Pro forma basic and diluted:
Weighted average ordinary shares outstanding used in
computing basic and diluted net loss per share.......... 3,414 4,194
Weighted average ordinary shares issuable upon the
conversion of preferred stock........................... 1,949 5,242
Weighted average ordinary shares issuable upon the
exercise of outstanding warrant......................... 113 143
Weighted average ordinary shares issuable upon exercise of
outstanding options held by certain shareholders........ 2,050 2,050
Weighted average ordinary shares to be issued to certain
Series A preferred shareholders......................... 258 258
----- ------
Weighted average ordinary shares outstanding used in
computing pro forma basic and diluted net loss per
share................................................... 7,784 11,887
===== ======
</TABLE>
EMPLOYEE STOCK OPTIONS. SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, requires the measurement of the fair value of employee and
director stock options or warrants to be included in the statement of operations
or disclosed in the notes to financial statements. The Company has determined
that it will account for stock-based compensation for employees under the
Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES, and elect the disclosure-only alternative under SFAS No. 123 (see
Note 11(f)).
COMPREHENSIVE INCOME (LOSS). As of January 1, 1998, the Company adopted
SFAS No. 130, REPORTING COMPREHENSIVE INCOME. SFAS No. 130 requires disclosure
of all components of comprehensive income (loss) on an annual and interim basis.
Comprehensive income (loss) is defined as the change in equity of a business
enterprise during a period from transactions and other events and circumstances
F-10
<PAGE>
RADVIEW SOFTWARE LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
from nonowner sources. The Company's comprehensive loss is equal to net loss for
all periods presented.
FAIR VALUE OF FINANCIAL INSTRUMENTS. Financial instruments consist mainly
of cash and cash equivalents, short-term investments, accounts receivable,
accounts payable and long-term loans. The carrying amounts of these instruments
approximate their fair value.
CONCENTRATIONS OF CREDIT RISK. SFAS No. 105, DISCLOSURE OF INFORMATION
ABOUT FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND FINANCIAL
INSTRUMENTS WITH CONCENTRATIONS OF CREDIT RISK, requires disclosure of any
significant off-balance-sheet and credit risk concentrations. The Company has no
significant off-balance-sheet concentrations such as foreign exchange contracts,
option contracts or other foreign hedging arrangements. The Company's accounts
receivable credit risk is concentrated in the United States.
For the years ended December 31, 1997, 1998 and 1999 and the period ended
March 31, 1999, no customer individually comprised greater than 10% of total
revenue or total accounts receivable. For the period ended March 31, 2000, one
customer comprised 10% of the total consolidated revenue. At March 31, 2000, no
customer represented greater than 10% of total accounts receivable.
NEW ACCOUNTING STANDARDS. In March 2000, the FASB issued Interpretation
No. 44, ACCOUNTING FOR CERTAIN TRANSACTIONS INVOLVING STOCK COMPENSATION--AN
INTERPRETATION OF APB OPINION NO. 25. The interpretation clarifies the
application of APB Opinion No. 25 in certain situations, as defined. The
interpretation is effective July 1, 2000, but covers certain events occurring
during the period after December 15, 1998, but before the effective date. To the
extent that events covered by this interpretation occur during the period after
December 15, 1998, but before the effective date, the effects of applying this
interpretation would be recognized on a prospective basis from the effective
date. Accordingly, upon initial application of the final interpretation, (a) no
adjustments would be made to the financial statements for periods before the
effective date and (b) no expense would be recognized for any additional
compensation cost measured that is attributable to periods before the effective
date. The Company expects that the adoption of this interpretation will not have
any effect on the accompanying consolidated financial statements.
The Securities and Exchange Commission issued Staff Accounting Bulletin
(SAB) No. 101, REVENUE RECOGNITION, in December 1999. The Company is required to
adopt this new accounting guidance through a cumulative charge to operations, in
accordance with Accounting Principles Board Opinion (APB) No. 20, ACCOUNTING
CHANGES, no later than the fourth quarter of fiscal 2000. The Company believes
its current revenue recognition policy complies with the SEC guidelines.
Accordingly the Company believes that the adoption of the guidance provided in
SAB No. 101 will not have a material impact on future operating results.
In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. SFAS
No. 133, as amended by SFAS No. 137, is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. The Company believes that the
adoption of SFAS No. 133 will not have a material impact on the Company's
consolidated financial statements.
F-11
<PAGE>
RADVIEW SOFTWARE LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
3. CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1998 1999 2000
(IN THOUSANDS)
<S> <C> <C> <C>
Cash.............................................. $ 197 $1,142 $ 925
Bank deposits--
In U.S. Dollars (bearing annual interest rate of
5.9% to 6.0%)................................. 559 6,454 3,550
In NIS (bearing annual interest rate of 9.8%)... 370 56 --
------ ------ ------
$1,126 $7,652 $4,475
====== ====== ======
</TABLE>
The interest rates are as of March 31, 2000.
4. SHORT-TERM INVESTMENTS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1998 1999 2000
(IN THOUSANDS)
<S> <C> <C> <C>
Bank deposit in U.S. dollars, bearing annual interest
rate of 6.0%....................................... $ -- $513 $2,526
Short-term quoted debenture.......................... 316 -- --
---- ---- ------
$316 $513 $2,526
==== ==== ======
</TABLE>
The interest rates are as of March 31, 2000. The average maturity of the
Company's short-term investments was approximately ten days and one month at
December 31, 1999 and March 31, 2000, respectively.
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
USEFUL ------------------- MARCH 31,
LIFE 1998 1999 2000
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Equipment................................ 3 years $600 $1,160 $1,611
Motor Vehicles........................... 5 years 129 129 129
Office furniture......................... 3-5 years 65 87 198
Leasehold improvements................... Life of Lease 93 98 131
---- ------ ------
887 1,474 2,069
Less--Accumulated depreciation and
amortization........................... 440 691 806
---- ------ ------
$447 $ 783 $1,263
==== ====== ======
</TABLE>
6. OTHER PAYABLES AND ACCRUED EXPENSES
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1998 1999 2000
(IN THOUSANDS)
<S> <C> <C> <C>
Employees and employee institutions................. $253 $ 386 $ 288
Royalties due to third parties...................... 46 278 375
Other accrued expenses.............................. 114 934 1,007
---- ------ ------
$413 $1,598 $1,670
==== ====== ======
</TABLE>
F-12
<PAGE>
RADVIEW SOFTWARE LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
7. RELATED PARTY LOAN
In 1993, the Company entered into a loan agreement with a shareholder
(related party loan). The related party loan is linked to the Israeli Consumer
Price Index (CPI) and bears no stated rate of interest. The Company has recorded
the estimated incremental interest expense, of approximately 3%, the Company
would have incurred if the loan had been entered into with a third party. The
loan is to be repaid at a rate of 3% of all future annual sales over a base
amount of $1.5 million. The loan shall be repaid in full at the occurrence of
the earlier of (i) the initial public offering, merger or acquisition of the
Company, or (ii) May 5, 2005. The increase in the principal amount of the loan
due to fluctuations in the Israeli CPI are charged to interest expense. The
amounts charged to interest expense due to fluctuations in the Israeli CPI were
approximately $100, $111 and $31 during the years ended December 31, 1997, 1998
and 1999, respectively.
8. LONG-TERM LOANS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1998 1999 2000
(IN THOUSANDS)
<S> <C> <C> <C>
Bank loans (1).................................... $3,229 $3,662 $3,670
Less-unamortized discount......................... -- 83 66
Less--Current maturity............................ 31 17 17
------ ------ ------
$3,198 $3,562 $3,587
====== ====== ======
</TABLE>
------------------------
(1) The loans bear annual interest of principally Libor plus 1.5% (as of
March 31, 2000 - 6.9% to 7.8%). One loan for $3.0 million matures in
June 2000 and the Company has the option to extend the maturity on this loan
for one year, subject to certain conditions as defined. The remaining
balance outstanding as of March 31, 2000 matures in March 2001. In
connection with the loan, the Company issued warrants to the bank (see
Note 11(e)). Substantially all of the Company's tangible assets are pledged
as collateral on the loan.
9. ACCRUED SEVERANCE PAY
Under Israeli law and labor agreements, the Company is required to make
severance payments to dismissed employees leaving the Company in certain
circumstances. The Company's severance pay liability to its employees is
reflected by the balance sheet accrual and is funded mainly by the purchase of
insurance policies in the name of the Company. Severance pay expense for the
years ended December 31, 1997, 1998 and 1999 and for the periods ended
March 31, 1999 and 2000 amounted to approximately $67,000, $54,000, $76,000,
$9,000 and $8,000 respectively.
10. COMMITMENTS
PARTICIPATION PAYMENTS. In connection with its research and development
activities, the Company received participation payments from the Government of
Israel through the Ministry of Industry and Trade and Office of the Chief
Scientist in the total amount of approximately $605,000. In return for the
Government of Israel's participation, the Company is committed to pay royalties
at a rate of 3%--5% of sales of the developed product, up to 100% and 150%, for
certain grant amounts received. The Company's maximum royalty obligation is
approximately $670,000, of which approximately $418,000 has
F-13
<PAGE>
RADVIEW SOFTWARE LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
been paid or accrued at March 31, 2000. The Company will provide for the
remaining royalty obligation based on a percentage of future sales.
LEASES. The Company operates primarily from leased premises in Burlington,
Massachusetts in the United States and in Tel-Aviv, Israel. Lease agreements
expire in the year 2005. Annual minimum future rental payments due under the
above agreements, at exchange rates in effect on March 31, 2000, are
approximately as follows:
<TABLE>
<CAPTION>
AMOUNT
FOR THE YEAR ENDED DECEMBER 31, (IN THOUSANDS)
------------------------------- --------------
<S> <C>
2000........................................................ $ 371
2001........................................................ 453
2002........................................................ 462
2003........................................................ 462
2004........................................................ 462
Thereafter.................................................. 180
------------
$ 2,390
============
</TABLE>
11. SHAREHOLDERS' EQUITY
AUTHORIZED SHARE CAPITAL. During 1998 the Company increased its authorized
share capital by creating 3,500,000 Series A preferred shares (Series A) and
6,240,000 ordinary shares of NIS 0.01 par value per share. During 1999, the
Company increased its authorized share capital by creating 5,000,000 Series B
preferred shares (Series B) and 2,000,000 ordinary shares of NIS 0.01 par value
per share.
PREFERRED SHARES. In 1998, the Company issued 1,314,200 Series A, with
rights to purchase additional preferred and ordinary shares, to investors in
consideration for approximately $3.9 million. In July 1999, the Company issued
1,022,800 Series A to investors in consideration for approximately
$3.0 million. In December 1999, the Company issued 2,904,765 Series B preferred
shares NIS 0.01 par value at $2.10 per share for gross proceeds of approximately
$6.1 million.
The rights, preferences and privileges of the holders of Series A and
Series B are as follows:
DIVIDENDS. The holders of Series A and Series B are entitled to receive
dividends, when and if declared to the holders of ordinary shares, on an
as-converted basis.
LIQUIDATION. In the event of the liquidation, dissolution or winding-up of
the Company, holders of Series A will be entitled to receive, before any
distribution or payment is made on the ordinary shares, an amount equal to $2.97
per share, as defined. The holders of Series B will be entitled to receive,
before any distribution or payment is made on the Series A or ordinary shares,
an amount equal to $2.10 per share, as defined.
CONVERSION. Each share of Series A and Series B are convertible at the
option of the holder into one ordinary share, subject to adjustments for
dilutive issuances of stock. The conversion of Series B becomes automatic upon
the closing of an initial public offering in which not less than $20.0 million
of gross proceeds shall be received by the Company, at a price per share of at
least $6.30. The conversion of Series A becomes automatic upon the closing of an
initial public offering.
STOCK SPLIT. On July 27, 1998 the Company effected a ten-for-one stock
split of both ordinary and Series A preferred shares. In September 1999, the
Company effected a ten-for-one stock split of both
F-14
<PAGE>
RADVIEW SOFTWARE LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
ordinary and preferred shares. All share and per share data in the financial
statements have been retroactively restated to reflect these stock splits.
SHARE PURCHASE AGREEMENTS. In accordance with Series A purchase agreements
dated May 14, 1998, August 26, 1998 and August 30, 1998, the Company granted the
investors options to purchase an additional 2,050,000 ordinary shares at an
exercise price of NIS 0.01 per share (share par value). In July 1999, the
Company issued 1,595,400 ordinary shares NIS 0.01 par value as a result of the
exercise of certain of the abovementioned options. As of March 31, 2000, options
to purchase 454,600 ordinary shares remain outstanding.
According to the share purchase agreements, the Company issued to the
investors warrants which shall entitle the investors to purchase up to 1,314,200
Series A preferred shares at a price per share of $2.97. In addition, the
Company shall grant to the investors additional options to purchase 2,050,000
ordinary shares of the Company at a price of NIS 0.01 per share (share par
value). The investors are entitled to exercise the additional ordinary share
options only after the Series A preferred warrants have been exercised. In the
event any of the investors exercise part of the warrants, such investor shall be
entitled to exercise a quantity of additional options equal in proportion to the
warrants exercised until the earlier of May 2003, the sale of the Company or the
completion of the Company's proposed initial public offering. In July 1999, the
Company issued 1,022,800 Series A preferred shares NIS 0.01 par value, in
consideration for approximately $3.0 million as a result of the exercise of the
abovementioned warrants. In connection with this issuance of Series A preferred
shares, the Company issued options to purchase 1,595,400 ordinary shares. All of
the options remain outstanding at March 31, 2000. The remaining unexercised
warrant to purchase 291,400 shares of Series A has expired.
In connection with the May 1998 issuance of the Series A, certain investors
were given the right to receive a number of ordinary shares equal to 3% of the
Company's outstanding share capital at the time of the Series A offering, but
not greater than 258,500 total ordinary shares. The issuance of these shares
will be accounted for as a stock dividend. In the period in which these shares
are issued, the Company will record a charge to additional paid-in capital for
the value of the ordinary shares and the amount of net loss attributable to
common shareholders used in the computation of basic and diluted net loss per
share will be increased by the value of the ordinary shares issued.
ORDINARY SHARE WARRANTS. In March 1999, the Company granted a bank a fully
vested warrant to purchase $300,000 of ordinary shares at $2.10 per share. The
exercise price will increase by 25%, to $2.625, as of September 18, 2000. The
warrant may be exercised, in whole or in part, at the earlier of two years from
the date of issuance or the closing of the Company's proposed initial public
offering of ordinary shares. The warrants expire two years from the date of
issuance or the closing of the Company's proposed initial public offering of
ordinary shares. The Company has valued the warrant using the Black-Scholes
option pricing model with the following assumptions: (1) life of two years,
(2) no dividend yield, (3) volatility of 80%, (4) risk-free interest rate of 5%
and (5) the warrant is exercised at $2.10 per share. The Company determined the
value to be approximately $137,000, which is being amortized to interest expense
over the two year term of the note.
KEY EMPLOYEE SHARE INCENTIVE PLAN. In 1996, the Company adopted a key
employee share incentive plan which provides for the grant by the Company of
option awards to purchase up to an aggregate of 1,412,400 ordinary shares to
officers and employees of the Company and its subsidiaries and to non-employees.
In July and December 1999, the plan was increased by an additional 300,000 and
1,599,462 ordinary shares, respectively. The options vest ratably over vesting
periods ranging from three to five years. The options expire 62 months from the
date of issuance. Transactions related to the
F-15
<PAGE>
RADVIEW SOFTWARE LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
above noted options during the years ended December 31, 1997, 1998 and 1999 and
for the three months ended March 31, 2000 are summarized as follows:
Options to purchase 67,000 ordinary shares have been issued to
non-employees. The Company has accounted for these options in accordance with
SFAS No. 123 utilizing the Black-Scholes option pricing model with the following
assumptions: (1) life of 4 years, (2) no dividend yield, (3) volatility of 80%
and (4) risk-free interest rate of 5%. The aggregate value of the options
granted to non-employees was approximately $176,000. The Company has charged to
operations approximately $46,000, $29,000, $7,000 and $8,000 for the years ended
December 31, 1997, 1998 and 1999 and for the three months ended March 31, 2000,
respectively.
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE AVERAGE FAIR
EXERCISE VALUE OF
OUTSTANDING PRICE PER OPTIONS
OPTIONS SHARE GRANTED
<S> <C> <C> <C>
Outstanding as of January 1, 1997............ 368,200 $ --
Options granted.............................. 276,400 -- $2.07
Options forfeited............................ (49,950) --
--------- -----
Outstanding as of December 31, 1997.......... 594,650 --
Options granted.............................. 72,100 -- $0.25
Options forfeited............................ (15,700) --
--------- -----
Outstanding as of December 31, 1998.......... 651,050 --
Options granted.............................. 857,060 0.68 $1.04
Options forfeited............................ (26,800) 0.60
--------- -----
Outstanding as of December 31, 1999.......... 1,481,310 0.38
Options granted.............................. 1,225,940 1.00 $1.58
Options forfeited............................ (133,021) 0.68
--------- -----
Outstanding as of March 31, 2000............. 2,574,229 $0.66
========= =====
Exercisable as of March 31, 2000............. 755,758 $0.14
========= =====
Exercisable as of December 31, 1999.......... 657,706 $0.11
========= =====
Exercisable as of December 31, 1998.......... 503,527 $ --
========= =====
Exercisable as of December 31, 1997.......... 264,018 $ --
========= =====
</TABLE>
F-16
<PAGE>
RADVIEW SOFTWARE LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
The following table summarizes information about options outstanding and
exercisable at March 31, 2000:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------- ---------------------------
WEIGHTED--
NUMBER AVERAGE WEIGHTED-- NUMBER WEIGHTED--
OUTSTANDING AT REMAINING AVERAGE OUTSTANDING AT AVERAGE
EXERCISE MARCH 31, CONTRACTUAL EXERCISE MARCH 31, EXERCISE
PRICE 2000 LIFE PRICES 2000 PRICES
<S> <C> <C> <C> <C> <C>
$0.00 648,050 1.63 $0.00 602,842 $0.00
0.68 700,239 4.38 0.68 152,916 0.68
1.00 1,225,940 4.99 1.00 -- 1.00
--------- -------
2,574,229 755,758
========= =======
</TABLE>
In July 1999 and August 1999, the Company issued options that had
performance based vesting provisions. The performance criteria was based on the
Company attaining defined revenue and profitability amounts for 1999. In January
2000, the Company's Board of Directors approved the modification of these
performance based options to provide for time based vesting. Accordingly, with
this modification the options are now fixed grants. The Company has accounted
for the options with performance criteria as variable options through
December 31, 1999, marking them to market for the then current fair market
value.
The amounts of deferred compensation recognized arising from the difference
between the exercise price and the fair market value on the date of the grant of
approximately $451,000, $0, $582,000 and $1.3 million for options granted in the
years ended December 31, 1997, 1998, 1999 and for the three months ended
March 31, 2000, respectively, are included in shareholders' equity and are being
amortized over the vesting periods of the respective options in accordance with
APB 25. Under APB 25, the deferred compensation expense for the years ended
December 31, 1997, 1998, 1999 and for the period ended March 31, 2000 amounted
to approximately $191,000, $149,000, $234,000 and $131,000, respectively.
Subsequent to March 31, 2000, the Company granted 776,300 ordinary share options
to employees at an exercise price of $1.00. The Company expects to record
deferred compensation of approximately $7.3 million related to such grants.
If deferred compensation had been determined under the alternative fair
value accounting method provided for under SFAS No. 123, the Company's net loss
and net loss per share would have been increased to the following pro forma
amounts:
<TABLE>
<CAPTION>
FOR THE THREE
FOR THE YEAR ENDED MONTHS
DECEMBER 31, ENDED MARCH 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net loss:
As reported.................... $(3,005) $(2,715) $(2,741) $ (573) $(1,050)
Pro forma...................... (3,005) (2,715) (2,831) (579) (1,107)
Net loss per share:
As reported.................... $ (1.28) $ (1.04) $ (0.80) $(0.22) $ (0.25)
Pro forma...................... (1.28) (1.04) (0.83) (0.22) (0.26)
</TABLE>
Under SFAS No. 123, the fair value of each option grant is estimated on the
date of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for
F-17
<PAGE>
RADVIEW SOFTWARE LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
grants in 1997, 1998, 1999 and 2000: (1) expected life of the options of four
years; (2) no dividend yield; (3) expected volatility of 80%; and (4) risk-free
interest rate of 5%.
12. TAXES ON INCOME
ALTERNATIVE BENEFITS METHOD. The Company's investment program totaling
approximately $66,000 has been granted "Approved Enterprise" status under the
Law for Encouragement of Capital Investments, 1959. The Company is entitled to a
benefit period of seven years, on income derived from this program, as follows:
a full income tax exemption for the first two years and a reduced income tax
rate of 25% (instead of the regular rate of 36%) for the remaining five year
period. If foreign shareholdings in the Company exceed 25%, the period for which
the Company is entitled to a reduced income tax is extended to eight years.
If the Company distributes a cash dividend out of retained earnings which
were tax exempt due to its approved enterprise status, the Company would have to
pay a 25% corporate tax on the amount distributed, and a further 15% withholding
tax would be deducted from the amounts distributed to the recipients.
Should the Company derive income from sources other than the approved
enterprise programs during the relevant period of benefits, such income will be
taxable at the regular corporate tax rate, which is 36%.
The benefits from the Company's approved enterprise programs are dependent
upon the Company fulfilling the conditions stipulated by the Law for
Encouragement of Capital Investments, 1959 and the regulations published under
this law, as well as the criteria in the approval for the specific investment in
the Company's approved enterprise programs. If the Company does not comply with
these conditions, the tax benefits may be canceled, and the Company may be
required to refund the amount of the canceled benefits, with the addition of
linkage differences and interest. As of the date of these financial statements,
the Company believes it complies with these conditions.
INFLATIONARY ADJUSTMENTS. The Company is subject to the Income Tax Law
(Inflationary Adjustments), 1985 measuring income on the basis of changes in the
Israeli Consumer Price Index.
INDUSTRIAL COMPANY. The Company currently qualifies as an "Industrial
Company" under the Law for Encouragement of Industry (Taxes), 1969 and is
therefore entitled to tax benefits, mainly accelerated depreciation of machinery
and equipment and deduction of expenses incurred in connection with a public
offering.
LOSSES FOR TAX PURPOSES. Through December 31, 1995, the Company's losses
for tax purposes were assigned to a shareholder, and are not available to the
Company.
NET OPERATING LOSSES. As of December 31, 1999, the Company's net operating
loss carryforwards for tax purposes amounted to approximately $5.8 million.
These net operating losses may be carried forward indefinitely and offset
against future taxable income. The Company expects that during the period in
which these tax losses are utilized its income would be substantially tax
exempt. Therefore, the income tax rate of the Company during the tax-exempt
period will be zero and there will be no tax benefit available from these losses
and no deferred income taxes have been included in these financial statements.
Deferred taxes in respect of other temporary differences are immaterial.
The U.S. subsidiary's carryforward tax losses through December 31, 1999
amounted to approximately $2.8 million. These losses are available to offset any
future U.S. taxable income of the U.S. subsidiary and will expire between 2012
and 2019. Net operating loss carryforwards are subject to
F-18
<PAGE>
RADVIEW SOFTWARE LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
review and possible adjustments by the Internal Revenue Service and may be
limited in the event of certain cumulative changes in excess of 50% in the
ownership interests of significant shareholders over a three-year period. The
Company has recorded a full valuation allowance against its deferred tax asset
due to the uncertainty surrounding the timing of the realization of these tax
benefits.
The components of the Company's deferred tax asset are approximately as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
<S> <C> <C>
Net operating loss carryforwards.................... $ 252 $ 980
Temporary items..................................... 16 130
----- -------
268 1,110
Less-valuation allowance............................ (268) (1,110)
----- -------
Net deferred tax asset.............................. $ -- $ --
===== =======
</TABLE>
The Company has not recorded an income tax benefit for all periods presented
given the uncertainty surrounding the utilization of its net operating loss
carryforwards.
FINAL TAX ASSESSMENTS. The Company has received final tax assessments
regarding tax years until the end of 1995.
13. RELATED PARTY BALANCES AND TRANSACTIONS
Balances with related parties consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31
1998 1999 2000
(IN THOUSANDS)
<S> <C> <C> <C>
Accounts receivable................................ $ 10 $ 39 $ 28
Accounts payable and accrued expenses.............. 12 36 7
Long-term loan (see Note 7)........................ 1,414 1,447 1,365
</TABLE>
Transactions with related parties consisted of the following:
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS
FOR THE YEARS ENDED ENDED
DECEMBER 31, MARCH 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues................................... $ 4 $ 71 $ 64 $ -- $ --
Costs and expenses......................... (191) (51) (58) (12) (10)
Finance expenses........................... (26) (118) (33) (38) (42)
Property and equipment purchased........... 12 22 1 1 --
</TABLE>
Management believes that all related party transactions have been conducted
on an arms length basis.
F-19
<PAGE>
RADVIEW SOFTWARE LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
14. VALUATION AND QUALIFYING ACCOUNTS
A summary of the allowance for doubtful accounts is as follows:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
------------ -------------------
1999 1999 2000
(IN THOUSANDS)
<S> <C> <C> <C>
Balance, beginning of period....................... $ -- $ -- $150
Additions.......................................... 150 -- 50
---- ---- ----
Balance, end of period............................. $150 $ -- $200
==== ==== ====
</TABLE>
15. DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE
The Company has adopted SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 establishes standards for
reporting information regarding operating segments in annual financial
statements and requires selected information for those segments to be presented
in interim financial reports issued to stockholders. SFAS No. 131 also
establishes standards for related disclosures about products and services and
geographic areas. Operating segments are identified as components of an
enterprise about which separate discrete financial information is available for
evaluation by the chief operating decision maker, or decision making group, in
making decisions how to allocate resources and assess performance. The Company's
chief operating decision makers, as defined under SFAS No. 131, are the Chief
Executive Officer and the Chief Financial Officer. To date, the Company has
viewed its operations and manages its business as principally one operating
segment.
The Company's sales by geographic area are as follows:
<TABLE>
<CAPTION>
FOR THE THREE
FOR THE YEAR ENDED MONTHS
DECEMBER 31, ENDED MARCH 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
United States............................ $229 $910 $4,433 $530 $2,001
Europe................................... 11 39 413 49 210
Israel................................... 10 13 241 39 41
Other.................................... 4 4 23 10 14
---- ---- ------ ---- ------
$254 $966 $5,110 $628 $2,266
==== ==== ====== ==== ======
</TABLE>
16. SUBSEQUENT EVENTS
In March 2000, the Company granted the right to purchase 23,810 shares of
Series B at $2.10 per share to two individuals. The Company has recorded
stock-based compensation expense on these grants of approximately $70,000 which
represents the difference between the deemed fair value of the Series B and the
purchase price. The Company received $25,000 of proceeds in March 2000 and
$25,000 in May 2000 from the two individuals for the exercise of these rights.
The 23,810 shares of Series B Preferred Stock were issued in June 2000.
In June 2000, the Company's Board of Directors and shareholders authorized
an increase in the total number of authorized ordinary shares to 25,000,000.
F-20
<PAGE>
RADVIEW SOFTWARE LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
In June and July 2000, the Company issued 1,590,100 ordinary shares upon the
exercise of options to purchase ordinary shares issued under the share purchase
agreement in connection with the Series A preferred share issuance (see
Note 11).
In July 2000, the Company granted options to purchase 318,000 ordinary
shares to certain employees and directors of the Company at an exercise price of
$10.00 per share. In addition, the Company granted options to purchase 6,760
ordinary shares to nonemployees at an exercise price of $10.00 which vest over a
period of four years. The Company has determined the fair value of the options
granted to nonemployees to be $43,000 on the date of grant and will account for
them in accordance with Emerging Issues Task Force 96-18, ACCOUNTING FOR EQUITY
INSTRUMENTS THAT ARE ISSUED TO OTHER THAN EMPLOYEES FOR ACQUIRING, OR IN
CONJUNCTION WITH SELLING, GOODS OR SERVICES.
Also, in July 2000, a shareholder of the Company exercised an option to
purchase 391,100 ordinary shares at an exercise price of NIS 0.01 per share.
F-21
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
, 2000
[LOGO]
5,000,000 ORDINARY SHARES
------------------
P R O S P E C T U S
---------------------
DONALDSON, LUFKIN & JENRETTE
U.S. BANCORP PIPER JAFFRAY
WIT SOUNDVIEW
DLJDIRECT INC.
---------------------------------------------------------
We have not authorized any dealer, sales person or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy these securities in any jurisdiction where
that would not be permitted or legal. Neither the delivery of this prospectus
nor any sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of RadView have
not changed since the date hereof.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Until , 2000 (25 days after the date of this prospectus), all
dealers that effect transactions in these ordinary shares may be required to
deliver a prospectus. This is in addition to the dealer's obligation to deliver
a prospectus when acting as an underwriter 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 expenses, other than underwriting commissions, expected to be incurred
by RadView in connection with the issuance and distribution of the securities
being registered under this Registration Statement will be paid by RadView and
are estimated to be as follows:
<TABLE>
<CAPTION>
AMOUNT
ITEM (IN THOUSANDS)
<S> <C>
Securities and Exchange Commission Registration Fee......... $ 18
National Association of Securities Dealers, Inc. Filing
Fee....................................................... 18
Nasdaq National Market Filing Fee........................... 95
Israeli Stamp Tax........................................... 600
Printing and Engraving...................................... 200
Legal Fees and Expenses..................................... 800
Accounting Fees and Expenses................................ 450
Miscellaneous fees and expenses............................. 219
------
Total..................................................... $2,400
======
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
OFFICE HOLDER INDEMNIFICATION AND INSURANCE
Our Articles of Association provide that, to the extent permitted by the
Companies Law, we may indemnify our office holders for liability or expense
incurred by an office holder as a result of an act done by him in his capacity
as an office holder, as follows:
- financial liability imposed on him in favor of another person by a court
judgment, including a settlement judgment or an arbitrator's award
approved by a court; and
- reasonable litigation expenses, including attorney's fees, expended by an
office holder or charged to him by a court, in proceedings filed against
him by us or on our behalf or by another person, or in a criminal charge
from which he was acquitted, or in a criminal charge of which he was
convicted of a crime which does not require a finding of criminal intent.
Our articles of association provide that, to the extent permitted by the
Companies Law, we may enter into a contract for the insurance of the liability
of our office holders in respect of a liability imposed on an office holder as a
result of an act done by him in his capacity as an office holder, including the
following:
- a breach of his duty of care to us or to another person;
- a breach of his duty of loyalty to us, provided that he acted in good
faith and had reasonable grounds to assume that his act would not harm us;
or
- financial liability imposed upon him in favor of another person.
These provisions are specifically limited in their scope by the Companies
Law, which provides that a company may not indemnify or procure insurance for
the liability of an office holder for:
- a breach of the duty of loyalty, unless the office holder acted in good
faith and had reasonable grounds to assume that the action would not harm
the company;
- an intentional or reckless breach of the duty of care;
II-1
<PAGE>
- an act done with the intent to unlawfully realize personal gain; or
- a criminal fine or penalty imposed on the office holder.
In addition, our articles of association provide that, to the extent
permitted by the Companies Law, we may release an office holder, in advance,
from liability, in whole or in part, for damages resulting from a breach of his
duty of care to us.
We have agreed to indemnify our office holders to the fullest extent
permitted under the Companies Law. In June 2000, we procured liability insurance
in the amount of $5,000,000 insuring our directors and officers in connection
with their service to us.
In July 2000, we have undertaken to indemnify, subject to the provisions of
the Companies Law, our office holders, for liability or expense incurred thereby
in connection with certain claims, specified in the arrangement, related to an
action or inaction on the part of the office holder while serving in such
capacity. The indemnity for any such claim will not exceed a specified maximum
amount. In addition, this arrangement includes an exemption and release of our
office holders from any liability related to any breach by an office holder of
said officer's duty of care to us, to the maximum extent permitted by the
Companies Law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Set forth in chronological order is information regarding sales of and
grants of options and warrants to purchase our ordinary and preferred shares
since April 1997. Also included is the consideration, if any, received by us for
such sales or grants of options or warrants and information relating to the
exemptions from applicable securities laws claimed in these sales or grants. All
share and per share data in this Item 15 have been retroactively restated to
reflect two stock splits that have occurred since April 1997. The sales and
grants of options and warrants described were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act or Rule 701 promulgated under Section 3(b) of the Securities Act,
as transactions by an issuer not involving a public offering or transactions
pursuant to compensatory benefit plans and contracts relating to compensation as
provided in Rule 701. The recipients of the securities in each such transaction
represented their intention to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof and
appropriate legends were affixed to the share certificates and instruments
issued in such transactions. All recipients had adequate access to information
about the Company.
1. Under an agreement dated May 1997, we issued 336,500 ordinary shares at a
purchase price of approximately $2.97 per share in a private placement to
Platinum Technology, Inc. (which has since been acquired by Computer Associates
International Inc. and is a wholly owned subsidiary thereof) for an aggregate
gross consideration of $1,000,000. In December 1999, Platinum Technology Inc.
transferred all of these ordinary shares to Computer Associates International
Inc.
2. Under an agreement dated May 1998, we issued an aggregate of 1,250,600
Series A Preferred Shares at a purchase price of approximately $2.97 per share
in a private placement to Yehuda Zisapel, Zohar Zisapel, Lomsha Ltd., Michael
and Klil Holdings (93) Ltd., Sadot Research and Development Fund Ltd., Platinum
Technology, Inc. and Argotec Ltd., for an aggregate gross consideration of
$3,716,000. Purchasers in this Series A Preferred Share offering also received
warrants to purchase in the aggregate up to an additional 1,250,600 Series A
Preferred Shares at an exercise price of $2.97 per share. Pursuant to this
Series A Preferred Share offering, we also granted to these purchasers options
to purchase an aggregate of 1,950,900 ordinary shares at a per share exercise
price equal to the par value of our ordinary shares (hereinafter, the "First
Options"). The First Options were exercisable upon or after the occurrence of
the earlier of:
- one (1) year following the closing of the Series A Preferred Share
offering;
II-2
<PAGE>
- the happening of any one of certain liquidation events; or
- an initial public offering of our ordinary shares under certain
circumstances.
In addition, we granted to these purchasers additional options to purchase
an aggregate of 1,950,900 ordinary shares at a per share exercise price equal to
the par value of our ordinary shares (hereinafter, the "Additional Options").
The Additional Options are exercisable upon or after the warrants described
above shall have been exercised, or in the event any purchaser exercises in-part
its warrant, such purchaser shall be entitled to exercise a quantity of these
options equal in proportion to the warrants exercised by it, and after the
occurrence of the earlier of:
- two (2) years following the closing of the Series A Preferred Share
offering;
- the happening of any one of certain liquidation events; or
- an initial public offering of our ordinary shares under certain
circumstances.
The First and the Additional Options expire upon the occurrence of the
earlier of:
- the closing of an initial public offering of our ordinary shares under
certain circumstances;
- the sale of substantially all of our assets or issued shares to a third
party; or
- after five years shall have elapsed from the closing of this Series A
Preferred Share offering.
As part of this Series A Preferred Share offering, we also granted to
Argotec Ltd., Platinum Technology Inc. and Yehuda Zisapel and Zohar Zisapel (or
entities controlled by the Zisapels) the right to receive in the aggregate upon
the closing of an initial public offering of our ordinary shares under certain
circumstances, as a bonus, a number of our ordinary shares equal to 3% of the
Company's then issued share capital, on a fully diluted basis, but not more than
258,500 ordinary shares, subject to adjustment for stock splits and other forms
of recapitalization, with each of: (i) Platinum Technology, Inc.; (ii) Yehuda or
Zohar Zisapel (or entities controlled by the Zisapels) and (iii) Argotec Ltd. to
be eligible for one third of the shares issuable under the aforesaid right. In
1998, Argotec Ltd. transferred its aforesaid right to receive one third of these
shares and all its Series A Preferred Shares, Warrants, First Options and
Additional Options mentioned above to Formula FV-PEH L.P., Formula Ventures
(Israel) and Shem Basum Ltd. In December 1999, Platinum Technology Inc.
transferred its aforesaid right to receive one third of these shares, and all of
its Series A Preferred Shares, its First and additional options and its warrant
to Computer Associates International Inc.
3. Under an agreement dated August 1998, we issued a total of 13,100
Series A Preferred Shares at a purchase price of approximately $2.97 per share
in a private placement governed under the laws of the State of Israel to Dovrat
Shrem and Co. Ltd. and Ori Eisenberg for an aggregate gross consideration of
$38,927 In addition, we granted to these purchasers:
- a warrant to purchase up to an aggregate of 13,100 additional Series A
Preferred Shares at an exercise price per share of $2.97;
- options to purchase an aggregate of 20,400 ordinary shares which shall be
deemed part of the First Options and may be exercised under the same terms
and conditions as detailed above in connection with the First Options; and
- additional options to purchase an aggregate of 20,400 ordinary shares
which shall be deemed part of the Additional Options and may be exercised
under the same terms and conditions as detailed above in connection with
the Additional Options.
4. Under an agreement dated August 1998 we issued a total of 50,500
Series A Preferred Shares at a purchase price of approximately $2.97 per share
in a private placement to Sadot Research and
II-3
<PAGE>
Development Fund Ltd. for an aggregate gross consideration of $150,000. In
addition, upon the completion of the investment, we issued to Sadot Research and
Development:
- a warrant to purchase up to 50,500 additional Series A Preferred Shares at
an exercise price per share of $2.97;
- options to purchase 78,700 ordinary shares which shall be deemed part of
the First Options and may be exercised under the same terms and conditions
as detailed above in connection with the First Options; and
- additional options to purchase 78,700 ordinary shares which shall be
deemed part of the Additional Options and may be exercised under the same
terms and conditions as detailed above in connection with the Additional
Options.
5. In July 1999, we issued 1,595,400 ordinary shares at a purchase price per
share equal to the par value of our ordinary shares to nine investors pursuant
to the exercise of First Options granted to those investors in connection with
their respective purchases, during the months of May 1998 and August 1998 as
described above, of our Series A Preferred Shares for an aggregate consideration
of NIS 15,954 (approximately $3,871 at the exchange rate of the NIS against the
dollar as of July 1999).
6. In July 1999, we issued 1,022,800 Series A Preferred Shares at a purchase
price of $2.97 per share to 10 investors pursuant to the exercise of warrants
granted to those investors in connection with their respective purchases, during
the months of May 1998 and August 1998 as described above, of our Series A
Preferred Shares for an aggregate consideration of $3,039,250. A remaining
unexercised warrant to purchase 291,400 Series A Preferred Shares has expired.
7. In July 1996, we adopted the RadView Software Ltd. Key Employees Share
Incentive Plan. In addition, in January 1997, we adopted the RadView Software
Affiliated Employees Option Plan. In July 1998, July 1999, December 1999 and
May 2000, our Board of Directors approved and adopted increases in the number of
ordinary shares for which options may be granted under these plans to a total of
4,311,862 ordinary shares. Since July 1996, we have issued options to purchase a
total of 3,306,194 of our ordinary shares pursuant to these plans.
8. In March 1999, we issued a warrant, exercisable, in whole, or in part,
during the period beginning on March 18, 1999 and ending at the earlier of
March 18, 2001, or the closing of our first underwritten public offering, to
Hapoalim Nechasim (Menayot) Ltd. to purchase an amount of our ordinary shares
having an aggregate exercise price equal to $300,000, with a per share exercise
price of $2.10.
9. Under an agreement dated December 1999, we issued 2,172,238 Series B-1
Preferred Shares and 732,527 Series B-2 Preferred Shares at a purchase price of
$2.10 per share in a private placement to 15 investors for an aggregate gross
consideration of $6,100,006.50.
10. In June 2000, we issued 23,810 Series B-1 Preferred Shares at a price
per share of $2.10 to Ilan Kinreich and Yossi Elihav.
11. In June 2000, we issued 656,300 ordinary shares at a purchase price per
share equal to the par value of our ordinary shares to Formula Ventures L.P.,
Formula Ventures (Israel) L.P., FV-PEH L.P. and Shem Basum Ltd. pursuant to the
exercise of the Additional Options held by these investors.
12. Upon the closing of this offering, 113,110 ordinary shares, 75,720
Series A Preferred shares and 32,814 Series B-1 Preferred Shares currently held
by Sadot Research and Development Fund Ltd. will be transferred by Sadot
Research and Development Fund Ltd. to Arya Razel Enterprise and
Management (1992) Ltd.
13. In July 2000, we issued 391,100 ordinary shares at a purchase price per
share equal to the par value of our ordinary shares to Ilan Kinreich pursuant to
the exercise of options held by him.
II-4
<PAGE>
14. In July 2000, we issued 933,800 ordinary shares at a purchase price per
share equal to the par value of our ordinary shares to Zohar Zisapel, Michael
and Klil Holdings (93) Ltd., Lomsha Ltd., Yehuda Zisapel, Sadot Research and
Development Fund Ltd. and Shrem Pusim Kelner and Co. Ltd.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1** Form of Underwriting Agreement
3.1** Memorandum of Association of Registrant (English
translation)
3.2** Articles of Association of Registrant
3.3 Form of Articles of Association of Registrant (proposed to
be adopted effective upon this offering)
4.1 Form of Ordinary Share Certificate
4.2** Investor Rights Agreement
5.1 Opinion of Sharir, Shiv, Friedman and Co.
10.1** Lease Agreement for 2 Habarzel St., Tel-Aviv, 69710, Israel
(English translation)
10.2** Lease Agreement for 7 New England Executive Park,
Burlington, Massachusetts, 01803
10.3** Lease Agreement for 890 Hillview Court, Suite 130, Milpitas,
California 95035
10.4 Key Employee Share Incentive Plan (1996)
10.5** Affiliate Employees Option Plan (1997)
10.6** United States Share Incentive Plan (2000)
10.7 Form of Indemnification Agreement
21.1** Subsidiaries of the Registrant
23.1 Consent of Luboshitz Kasierer, Member Firm of Arthur
Andersen
23.2 Consent of Sharir, Shiv, Friedman and Co. (included in
Exhibit 5.1)
24.1** Power of Attorney (included in the signature pages to the
Registration Statement)
99.1** Consent of Christopher M. Stone
99.2** Consent of Robert Steinkrauss
99.3** Consent of Zona Research
99.4** Consent of The Newport Group
</TABLE>
------------------------
* To be filed by amendment
** Previously filed
ITEM 17. UNDERTAKINGS.
(a) 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.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 14 above, or
otherwise, the Registrant has been advised that, in the opinion of the
Securities and
II-5
<PAGE>
Exchange Commission, such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, 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 this offering of such securities at that time shall be
deemed to be the initial BONA FIDE offering thereof.
II-6
<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 of the
requirements for filing on Form F-1 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Burlington, Massachusetts, on the 2nd day of August,
2000.
<TABLE>
<S> <C> <C>
RADVIEW SOFTWARE LTD.
By: /s/ ILAN KINREICH
-----------------------------------------
Name: Ilan Kinreich
Title: Chief Executive Officer and
President
</TABLE>
POWER OF ATTORNEY
The registrant and each person whose signature appears below constitutes and
appoints Ilan Kinreich and Edward Durkin, and each of them singly, his, her or
its true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him, her or it and in his, her or its name,
place and stead, in any and all capacities, to sign and file (i) any and all
amendments (including post-effective amendments) to this Registration Statement,
with all exhibits thereto, and other documents in connection therewith, and
(ii) a registration statement, and any and all amendments thereto, relating to
the offering covered hereby filed pursuant to Rule 462(b) under the Securities
Act of 1933, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he, she, or it
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ILAN KINREICH
--------------------------------- Chief Executive Officer, President and August 2, 2000
Ilan Kinreich Director (principal executive officer)
/s/ EDWARD M. DURKIN Chief Financial Officer (principal
--------------------------------- financial August 2, 2000
Edward M. Durkin and accounting officer)
*
--------------------------------- Chairman of the Board of Directors August 2, 2000
Yehuda Zisapel
*
--------------------------------- Director August 2, 2000
Zohar Zisapel
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
*
--------------------------------- Director August 2, 2000
William J. Geary
*
--------------------------------- Director August 2, 2000
Jack Elaad
*
--------------------------------- Director August 2, 2000
Shai Beilis
*
--------------------------------- Director August 2, 2000
Thomas Bennett
Authorized Representative in the United
States:
/s/ ILAN KINREICH August 2, 2000
---------------------------------
Ilan Kinreich
</TABLE>
*By Power of Attorney
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1** Form of Underwriting Agreement
3.1** Memorandum of Association of Registrant (English
translation)
3.2** Articles of Association of Registrant
3.3 Form of Articles of Association of Registrant (proposed to
be adopted effective upon this offering)
4.1 Form of Ordinary Share Certificate
4.2** Investor Rights Agreement
5.1 Opinion of Sharir, Shiv, Friedman and Co.
10.1** Lease Agreement for 2 Habarzel St., Tel-Aviv, 69710, Israel
(English translation)
10.2** Lease Agreement for 7 New England Executive Park,
Burlington, Massachusetts, 01803
10.3** Lease Agreement for 890 Hillview Court, Suite 130, Milpitas,
California 95035
10.4 Key Employee Share Incentive Plan (1996)
10.5** Affiliate Employees Option Plan (1997)
10.6** United States Share Incentive Plan (2000)
10.7 Form of Indemnification Agreement
21.1** Subsidiaries of the Registrant
23.1 Consent of Luboshitz Kasierer, Member Firm of Arthur
Andersen
23.2 Consent of Sharir, Shiv, Friedman and Co. (included in
Exhibit 5.1)
24.1** Power of Attorney (included in the signature pages to the
Registration Statement)
99.1** Consent of Christopher M. Stone
99.2** Consent of Robert Steinkrauss
99.3** Consent of Zona Research
99.4** Consent of The Newport Group
</TABLE>
------------------------
* To be filed by amendment
** Previously filed
