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EXHIBIT 3.1
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THE COMPANIES ORDINANCE [NEW VERSION]
A COMPANY LIMITED BY SHARES
ARTICLES OF ASSOCIATION
OF
VERISITY LTD
PRELIMINARY
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1. The Articles in the Second Schedule to the Companies Ordinance shall not
apply to the Company.
2. In these Articles, unless the context otherwise requires:
The "Company" shall mean Verisity Ltd.
The "Law" shall mean the Ordinance and the Securities Law-1968 as shall be
in effect from time to time and any other law that shall be in effect from
time to time with respect to companies and that shall apply to the Company.
The "Ordinance" shall mean the Companies Ordinance [New Version] 1983, as
amended.
The "Office" shall mean the registered Office of the Company as it shall be
from time to time.
The "Directors" shall mean the Company's Board of Directors.
The "Register" shall mean the Register of Members that is to be kept
pursuant to Section 61 of the Ordinance or, if the Company shall keep
branch registers, any such branch register, as the case may be.
A "Shareholder" or "Member" shall mean any person or entity that is the
owner of at least one share, or any fraction thereof, in the Company, as
registered in the Register.
"Writing" shall mean handwriting, typewriting, facsimile, print,
lithographic printing and every other form of affixing letters that are
seen.
"These Articles" shall mean the Articles of Association of the Company as
shall be in force from time to time.
"Investor Shareholder(s)" shall mean the original holders of the Preferred
Shares and all their Permitted Transferees.
"Investor Shares" shall mean Shares held by the Investor Shareholders.
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"Gemini" shall mean Gemini Israel Fund L.P., Advent Israel Limited
Partnership, Advent Israel (Bermuda) L.P., Dr. A.I. Mlavsky and Yossi Sela.
For the removal of doubt, any notice given to the Company by Gemini Israel
Fund L.P. shall bind all of the above.
"Sequoia Capital" shall mean Sequoia Capital VII, Sequoia Technology
Partners VII, SQP 1997, Sequoia 1997 LLC, Sequoia International Partners,
P.R Lamond and C.E Lamond Trust, and Len Lehmann. For the removal of doubt,
any notice given to the Company by Sequoia Capital shall bind all of the
above.
"Series D Investors" shall mean the original holders of the Series D
Preferred Shares.
"Permitted Transferee" shall mean a person who receives shares pursuant to
one of the following permitted transfers:
(a) Any Shareholder (the "transferor") may at any time transfer all or any
of the Shares held by it to: (i) a company in which the transferor(s)
own(s) directly or indirectly more than 75% of the equity and voting
capital or has the right or power to direct the policy and management
of such company; or (ii) a company that owns directly or indirectly
more than 75% of the equity and voting capital or has the right or
power to direct the policy and management of the transferor(s); or
(iii) in the case of a transfer by a limited partnership, to any
affiliated limited partnership managed by the same management company
or to the partners thereof; or (iv) in the case of a transfer by
limited liability company, to its members; or (v) in the case of a
body corporate, to its shareholders in the same proportion as their
ownership interest in the body corporate.
(b) Any Shareholder being an individual may at any time transfer all or
any shares held by him to his spouse, children, grandchildren
(including step and adopted children and grandchildren), siblings and
issue of his siblings.
(c) Any Investor Shareholder may transfer to another Investor Shareholder
holding the same Series of Preferred Shares.
(d) A Trustee of the Company's employee share plan may transfer to a
beneficiary and vice versa.
"Preferred Shares" shall mean Series A1 Preferred Shares, Series A2
Preferred Shares, Series A3 Preferred Shares (with the Series Al, A2 and A3
Preferred Shares being collectively referred to in these Articles as
"Series A Preferred Shares"), Series B1 Preferred Shares, Series B2
Preferred Shares (with the Series B1 and B2 Preferred Shares being
collectively referred to in these Articles as "Series B Preferred Shares"),
Series C1 Preferred Shares, Series C2 Preferred Shares (with the Series C1
and C2 Preferred Shares being collectively referred to in these Articles as
"Series C Preferred Shares") and Series D Preferred Shares.
"Ordinary Shares" shall include Ordinary Shares and Class B Ordinary
Shares, unless specifically stated otherwise.
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All monetary calculations in these Articles shall be made in U.S. Dollars.
For purposes of these Articles, purchases of shares of the Company that
were paid for in New Israeli Shekels shall be linked to the U.S. Dollar as
of the date of purchase of the shares, as determined in accordance with the
Representative Rate of Exchange published by the Bank of Israel on the date
of purchase.
Words and expressions defined in the Memorandum of Association of the
Company shall have the meanings defined therein.
In these Articles, subject to this Article and unless the context otherwise
requires, expressions defined in the Ordinance or any modification thereof
in force at the date on which these Articles become binding on the Company,
shall have the meaning so defined; and words importing the singular shall
include the plural, and vice versa, and words importing the masculine
gender shall include the feminine, and words importing persons shall
include companies, partnerships, associations and all other legal entities.
The titles of the Articles or of a chapter containing a number of Articles
are not part of the Article.
In the event that an Article has been added to these Articles which
contradicts an original Article found in these Articles, the Articles added
shall take precedence.
3. The Company is a private company, and accordingly -
(a) the right to transfer the shares of the Company shall be restricted as
stated hereinafter.
(b) the number of the Members of the Company (not including persons who
are in the employment of the Company, and persons who, having been
formerly in the employment of the Company were while in that
employment and have continued after the termination of that employment
to be Members of the Company) shall be limited to fifty, provided
that, for the purposes of this provision, where two or more persons
hold one or more shares in the Company jointly they shall be treated
as a single Member; and
(c) no invitation shall be issued to the public to subscribe to any shares
or debentures or debenture stocks of the Company.
BUSINESS
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4.
(a) The Directors shall be permitted to engage the Company in any one or
more of the businesses in which the Company is permitted to engage
under its Memorandum and Articles or under the law, or to discontinue
such engagement, at any time that they shall deem appropriate.
(b) The Office shall be at such place as the Directors shall from time to
time select.
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THE CAPITAL
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5. The share capital of the Company shall consist of NIS 500,000 divided into
ten classes of shares: 31,137,958 Ordinary Shares, 3,777,466 Class B
Ordinary Shares, 963,540 Series A1 Preferred Shares, 2,153,794 Series A2
Preferred Shares, 2,550,545 Series A3 Preferred Shares, 453,871 Series B2
Preferred Shares, 1,592,106 Series B2 Preferred Shares, 2,185,360 Series C1
Preferred Shares, 2,185,360 Series C2 Preferred Shares and 3,000,000 Series
D Preferred Shares. The Ordinary Shares and Preferred Shares shall each
have a nominal amount of NIS 0.01. The powers, preferences, rights,
restrictions, and other matters relating to the Ordinary Shares and
Preferred Shares are as set forth in the following Articles.
The Holders of Series A Preferred Shares shall have the right at any time
after the issuance of such shares to convert these shares into Ordinary
Shares, on a one for one basis, subject to Article 7 below.
The holders of Series B1 Preferred Shares shall have the right at any time
after the issuance of such shares to convert these shares into (i) Ordinary
Shares or (ii) Series B2 Preferred Shares, on a one for one basis and in
the case of conversion from Series B1 Preferred Shares to Ordinary Shares,
such conversion will be subject to Article 7 below.
The holders of Series C1 Preferred Shares shall have the right at any time
after the issuance of such shares to convert these shares into (i) Ordinary
Shares or (ii) Series C2 Preferred Shares, on a one for one basis and in
the case of conversion from Series C1 Preferred Shares to Ordinary Shares,
such conversion will be subject to Article 7 below.
The holders of Series D Preferred Shares shall have the right at any time
after the issuance of such shares to convert these shares into Ordinary
Shares, on a one for one basis, subject to Article 7 below.
The holders of Series B2 Preferred Shares shall have the right at any time
after the issuance of such shares to convert these shares into Class B
Ordinary Shares, on a one for one basis, subject to Article 7 below. In
addition, the holders of Series B2 Preferred Shares shall have the right at
any time after the issuance of such shares to convert these shares into
Series B1 Preferred Shares, on a one for one basis, provided that such
holder shall have certified to the Company that either (i) at the time of
such conversion capital gains earned upon a disposition of shares in the
Company are exempt from Israeli taxation in accordance with the terms of
the Income Tax Order (Exemption from Capital Gains Tax Upon a Sale of
Shares), 5742-1981, or any successor provision, or (ii) after giving effect
to such conversion such holder, together with all affiliates of such holder
(with the designation of such affiliates to be determined by such holder),
holds an aggregate voting power in the Company of less than 10%.
The holders of Series C2 Preferred Shares shall have the right at any time
after the issuance of such shares to convert these shares into Class B
Ordinary Shares, on a one for one basis, subject to Article 7 below. In
addition, the holders of Series C2 Preferred Shares shall have the right at
any time after the issuance of such shares to
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convert these shares into Series C1 Preferred Shares, on a one for one
basis, provided that such holder shall have certified to the Company that
either (i) at the time of such conversion capital gains earned upon a
disposition of shares in the Company are exempt from Israeli taxation in
accordance with the terms of the Income Tax Order (Exemption from Capital
Gains Tax Upon a Sale of Shares), 5742-1981, or any successor provision, or
(ii) after giving effect to such conversion such holder, together with all
affiliates of such holder (with the designation of such affiliates to be
determined by such holder), holds an aggregate voting power in the Company
of less than 10%.
The holders of Class B Ordinary Shares shall have the right at any time
after the issuance of such shares to convert these shares, on a one for one
basis, into Ordinary Shares, provided that such holder shall have certified
to the Company that either (i) at the time of such conversion capital gains
earned upon a disposition of shares in the Company are exempt from Israeli
taxation in accordance with the terms of the Income Tax Order (Exemption
from Capital Gains Tax Upon a Sale of Shares), 5742-1981, or any successor
provision, or (ii) after giving effect to such conversion such holder,
together with all affiliates of such holder (with the designation of such
affiliates to be determined by such holder), holds an aggregate voting
power in the Company of less than 10%.
LIQUIDATION PREFERENCE
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6. The following shall apply to distributions upon the liquidation of the
Company.
(a) (i) In the event of any liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, the holders of the Series D
Preferred Shares shall be entitled to receive on a pro rata basis
among themselves out of the assets and funds of the Company legally
available for distribution, if any, prior to and in preference to any
distribution of any of the assets and funds of the Company to the
holders of Ordinary Shares, Series A Preferred Shares, Series B
Preferred Shares and Series C Preferred Shares by reason of their
ownership thereof, an amount in U.S. Dollars equal to 1.3564 per share
or an equivalent amount in NIS, if not permitted to receive U.S.
Dollars under the Israeli Foreign Currency Control Law (as adjusted
for any bonus shares, combinations or splits with respect to such
shares).
(ii) After payment of the amounts set forth in Article 6(a)(i) above,
the holders of the Series D Preferred Shares and the holders of the
Series C1 and C2 Preferred Shares shall be entitled to receive on a
pro rata basis among themselves out of the assets and funds of the
Company legally available for distribution, if any, prior to and in
preference to any distribution of any of the assets and funds of the
Company to the holders of Ordinary Shares, Series A Preferred Shares
and Series B Preferred Shares by reason of their ownership thereof, an
amount in U.S. Dollars equal to 6.0091 per share or an equivalent
amount in NIS, if not permitted to receive U.S. Dollars under the
Israeli Foreign Currency Control Law (as adjusted for any bonus
shares, combinations or splits with respect to such shares).
(iii) After payment of the amounts set forth in Articles 6(a)(i) and
6(a)(ii) above, the holders of the Series B1 and B2 Preferred Shares
shall be entitled to
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receive on a pro rata basis among themselves out of the assets and
funds of the Company legally available for distribution, if any, prior
to and in preference to any distribution of any of the assets and
funds of the Company to the holders of Ordinary Shares and Series A
Preferred Shares by reason of their ownership thereof, an amount in
U.S. Dollars equal to 2.0947 per share or an equivalent amount in NIS,
if not permitted to receive U.S. Dollars under the Israeli Foreign
Currency Control Law (as adjusted for any bonus shares, combinations
or splits with respect to such shares).
(iv) After payment of the amounts set forth in Articles 6(a)(i),
6(a)(ii) and 6(a)(iii) above, the holders of the Series Al, A2 and A3
Preferred Shares shall be entitled to receive on a pro rata basis
among themselves out of the assets and funds of the Company legally
available for distribution, if any, prior to and in preference to any
distribution of any of the assets and funds of the Company to the
holders of Ordinary Shares by reason of their ownership thereof, an
amount in U.S. Dollars equal to 0.6944 per share or an equivalent
amount in NIS, if not permitted to receive U.S. Dollars under the
Israeli Foreign Currency Control Law (as adjusted for any bonus
shares, combinations or splits with respect to such shares).
(v) After payment of the amounts set forth in Articles 6(a)(i),
6(a)(ii), 6(a)(iii) and 6(a)(iv) above, the holders of the Series A2
and A3 Preferred Shares shall be entitled to receive on a pro rata
basis among themselves out of the assets and funds of the Company
legally available for distribution, if any, prior to and in preference
to any further distribution of any of the assets and funds of the
Company to the holders of the Series Al Preferred Shares and Ordinary
Shares by reason of their ownership thereof, an amount in U.S. Dollars
equal to 1.0417 per share or an equivalent amount in NIS, if not
permitted to receive U.S. Dollars under the Israeli Foreign Currency
Control Law (as adjusted for any bonus shares, combinations or splits
with respect to such shares), less the amount distributed to such
holders pursuant to Article 6(a)(iv) above.
(vi) After payment of the amounts set forth in Articles 6(a)(i),
6(a)(ii), 6(a)(iii), 6(a)(iv) and 6(a)(v) above, the holders of the
Series A3 Preferred Shares shall be entitled to receive on a pro rata
basis among themselves out of the assets and funds of the Company
legally available for distribution, if any, prior to and in preference
to any further distribution of any of the assets and funds of the
Company to the holders of the Series Al and A2 Preferred Shares and
Ordinary Shares by reason of their ownership thereof, an amount in
U.S. Dollars equal to 1.24 per share or an equivalent amount in NIS,
if not permitted to receive U.S. Dollars under the Israeli Foreign
Currency Control Law (as adjusted for any bonus shares, combinations
or splits with respect to such shares), less the amount distributed to
such holders pursuant to Articles 6(a)(iv) and 6(a)(v) above.
(b) After payment of the amounts set forth in Article 6(a) above, the
holders of the Ordinary Shares shall be entitled to receive on a pro
rata basis among themselves, out of the entire remaining assets and
funds of the Company legally available for distribution, if any, an
amount in U.S. Dollars equal to
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0.6944 per share or an equivalent amount in NIS, if not permitted to
receive U.S. Dollars under the Israeli Foreign Currency Control Law
(as adjusted for any bonus shares, combinations or splits with respect
to such shares).
(c) After payment of the amounts set forth in Articles 6(a) and 6(b)
above, the holders of Series Al Preferred Shares and the holders of
Ordinary Shares shall be entitled to receive on a pro rata basis among
themselves, out of the entire remaining assets and funds of the
Company legally available for distribution, if any, an amount in U.S.
Dollars equal to 0.3473 per share or an equivalent amount in NIS, if
not permitted to receive U.S. Dollars under the Israeli Foreign
Currency Control Law (as adjusted for any bonus shares, combinations
or splits with respect to such shares).
(d) After payment of the amounts set forth in Articles 6(a), 6(b) and 6(c)
above, the holders of Series Al and A2 Preferred Shares and the
holders of Ordinary Shares shall be entitled to receive on a pro rata
basis among themselves out of the entire remaining assets and funds of
the Company legally available for distribution, if any, an amount in
U.S. Dollars equal to 0.0293 per share or an equivalent amount in NIS,
if not permitted to receive U.S. Dollars under the Israeli Foreign
Currency Control Law (as adjusted for any bonus shares, combinations
or splits with respect to such shares).
(e) After payment of the amounts set forth in Articles 6(a), 6(b), 6(c)
and 6(d) above, the holders of the Ordinary Shares, the holders of the
Series A Preferred Shares and the holders of the Series B Preferred
Shares shall be entitled to receive on a pro rata basis among
themselves (treating the Preferred Shares on an as converted basis)
out of the entire remaining assets and funds of the Company legally
available for distribution, the total distributions under this Article
6(e) not to exceed an amount that equals (A) the product of (i) an
amount in United States Dollars equal to 6.0091 per share and (ii) the
total number of Ordinary Shares, Series A Preferred Shares and Series
B Preferred Shares outstanding, minus (B) the total distributions to
such holders under Articles 6(a)(iii), 6(a)(iv), 6(a)(v), 6(a)(vi),
6(b), 6(c) and 6(d) above (in this Article 6(e) "Prior
Distributions"). By way of example only, if such Prior Distributions
should equal U.S.$12,500,000, and if the total number of Ordinary
Shares, Series A Preferred Shares and Series B Preferred Shares
outstanding should equal 10,000,000, then the maximum distribution
under this Article 6(e) would equal U.S.$47,591,000 (the difference
between U.S.$60,091,000 (the product of U.S.$6.0091/share and
10,000,000 shares) and U.S.$12,500,000).
(f) After payment of the amounts set forth in Articles 6(a), 6(b), 6(c),
6(d) and 6(e) above, the holders of the Ordinary Shares, the holders
of the Series A Preferred Shares and the holders of the Series B
Preferred Shares and the holders of the Series C Preferred Shares
shall be entitled to receive on a pro rata basis among themselves
(treating the Preferred Shares on an as converted basis) out of the
entire remaining assets and funds of the Company legally available for
distribution, the total distributions under this Article 6(f) not to
exceed an amount that equals (A) the product of (i) an
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amount in United States Dollars equal to 7.3655 per share and (ii) the
total number of Ordinary Shares, Series A Preferred Shares, Series B
Preferred Shares and Series C Preferred Shares outstanding, minus (B)
the total distributions to such holders under Articles 6(a)(ii),
6(a)(iii), 6(a)(iv), 6(a)(v), 6(a)(vi), 6(b), 6(c), 6(d) and 6(e)
above (in this Article 6(f) "Prior Distributions"). By way of example
only, if such Prior Distributions should equal U.S.$65,300,000, and if
the total number of Ordinary Shares, Series A Preferred Shares, Series
B Preferred Shares and Series C Preferred Shares outstanding should
equal 10,800,000, then the maximum distribution under this Article
6(f) would equal U.S.$ 14,247,400 (the difference between
U.S.$79,547,400 (the product of U.S.$7.3655/share and 10,800,000
shares) and U.S.$65,300,000).
(g) After payment to the holders of the Shares of the amounts set forth in
Articles 6(a), 6(b), 6(c), 6(d), 6(e) and 6(f) above, the entire
remaining assets and funds of the Company legally available for
distribution, if any, shall be distributed ratably to the holders of
all the Ordinary Shares and Preferred Shares (treating the Preferred
Shares on an as converted basis) in each case in proportion to the
nominal value of the Shares then held by them.
(h) For purposes of this Article 6 and subject to and to the extent
permitted by law, in the event of any (1) acquisition of the Company
by means of merger or other form of corporate reorganization in which
outstanding shares of the Company are exchanged for securities or
other consideration issued, or caused to be issued, by the acquiring
company or its subsidiary, (2) sale of all or substantially all of the
assets of the Company, (3) transaction or a series of transactions in
which a person or entity acquires 50% or more of the outstanding and
issued shares of the Company (treating any Preferred Shares on an as
converted basis), or (4) transaction or series of transactions in
which a person or entity acquires the right to control the appointment
or voting into office of a majority of the members of the Board of
Directors of the Company, (each of the events described above in
Article 6(h)(l) through (4) is referred to as an "Event of Deemed
Liquidation"), the holders of the Preferred Shares shall have the
option, the exercise of which shall be approved by each of (A) the
holders of at least a majority of the outstanding Series A Preferred
Shares (B) the holders of majority of the outstanding Series B and
Series C Preferred Shares voting together in a separate Class meeting,
and (C) the holders of at least a majority of the outstanding Series D
Preferred Shares, to have such Event of Deemed Liquidation treated as
a liquidation, dissolution or winding up of the Company, which shall
entitle the holders of Ordinary and Preferred Shares to receive at the
closing of such acquisition or transaction a distribution in cash,
securities or other property (valued as provided in Article 6(i)
below) amounts as specified in Articles 6(a) through 6(g) above (the
"Deemed Liquidation Option"). In the event that the Company is not
actually liquidated, after payment of the amounts specified in
Articles 6(a) through 6(f) above the Preferred Shares in respect of
which such liquidation preference has been fully paid shall be
automatically converted into Ordinary Shares.
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Notwithstanding the above, if the Event of Deemed Liquidation is
subject to the approval of the holders of the Preferred Shares under
Article 8 the Company may seek such approval subject to the condition
that such holders waive their rights to exercise the Deemed
Liquidation Option upon the occurrence of such Event.
(i) Whenever the distribution provided for in this Article 6 shall be
payable in securities or property other than cash, the value of such
distribution shall be the fair market value of such securities or
other property as determined in good faith by the Board of Directors,
including the approval of at least one of the Directors appointed by
the Investor Shareholders and at least one of the Directors appointed
by Hollander.
CONVERSION
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7. The holders of Preferred Shares shall have conversion rights as follows
(the "Conversion Rights"):
(a) Subject to adjustment as specified below, the holders of the Preferred
Shares have the right at any time to convert their Preferred Shares
into such number of fully paid and non-assessable Ordinary Shares as
is determined by dividing the applicable Original Issue Price for such
share by the Conversion Price at the time in effect for such share.
The initial Conversion Price per share of the Preferred Shares shall
be the price at which such Preferred Share was issued ("Original Issue
Price"), provided, however, that the Conversion Price for the
Preferred Shares shall be subject to adjustment as set forth in
subsection (b) below, provided further that Series B2 and Series C2
Preferred Shares shall only be converted into Class B Ordinary Shares.
The Series A, B1, Cl and D Preferred Shares shall be automatically
converted into Ordinary Shares and the Series B2 and C2 Preferred
Shares shall be automatically converted into Class B Ordinary Shares
in accordance with these Articles if the following three conditions
are each met: (i) the consummation of the offering for sale to the
public of any equity securities of the Company on any recognized stock
exchange (or NASDAQ) in the United States, (ii) the offering is for a
minimum of $15 million (fifteen Million U.S. Dollars) net proceeds to
the Company, and (iii) the per share price in such public offering is
at least U.S $ 7.3655 (as adjusted for any bonus shares, combinations
or splits with respect to such shares). In addition, the Series D
Preferred Shares shall be automatically so converted into Ordinary
Shares in accordance with these Articles if the holders of the
majority of the issued and outstanding Series D Preferred Shares so
agree, the Series B1, Series B2, Series C1 and Series C2 Preferred
Shares shall be automatically converted into Ordinary Shares and Class
B Ordinary Shares, respectively, in accordance with these Articles if
the holders of the majority of the issued and outstanding Series B1
and Series C1 Preferred Shares voting together as a Class so agree,
and the Series A Preferred Shares shall be automatically so converted
into Ordinary Shares in accordance with these Articles if the holders
of the majority of the issued and outstanding Series A Preferred
Shares so agree.
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(b) The Conversion Price in effect for the Series A Preferred Shares, the
Series B1 and B2 Preferred Shares, the Series C1 and C2 Preferred
Shares and the Series D Preferred Shares shall each be subject to
adjustment in the following cases:
(i) Upon, and effective thereon, each bona fide issuance or deemed
issuance by the Company of any New Shares (as defined below) at a
price per share less than the Conversion Price of the applicable
Series of Preferred Shares, the Conversion Price of the Preferred
Shares will be reduced to a price determined by multiplying the
Conversion Price then in effect by a fraction (i) the numerator of
which is the sum of (A) the total number of Ordinary Shares
outstanding (assuming the conversion to Ordinary Shares of all
outstanding convertible securities, including the Preferred Shares and
outstanding warrants, and the exercise of all outstanding vested
options to purchase Ordinary Shares) plus (B) the number of New Shares
that can be purchased at that Conversion Price for the total
consideration received for the issuance of New Shares and (ii) the
denominator of which is the number of outstanding Ordinary Shares
(assuming the conversion to Ordinary Shares of all outstanding
convertible securities, including the Preferred Shares and outstanding
warrants, and the exercise of all outstanding vested options to
purchase Ordinary Shares) plus the number of New Shares issued in the
new issuance.
The formula can be expressed algebraically as follows:
N + np/P
P' = P x - - - - - - - - - -
N+n
where:
N = Number of Ordinary Shares outstanding (assuming the conversion to
Ordinary Shares of all outstanding convertible securities, including
the Preferred Shares and outstanding warrants, and the exercise of all
outstanding vested options to purchase Ordinary Shares) prior to the
dilutive issuance of shares
P = Conversion Price of the Preferred Shares prior to the dilutive
issuance
P' = New Conversion Price of the Preferred Shares after the dilutive
issuance
n = Number of New Shares issued in the dilutive issuance
p = Price per share in the dilutive issuance
No adjustments of the Conversion Price for the Preferred Shares shall
be made in an amount less than one U.S. cent per share. No adjustment
of such Conversion Price pursuant to this subsection (b)(i) shall be
made if it has the
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effect of increasing the Conversion Price above the Conversion Price
in effect immediately prior to such adjustment.
(ii) In the event the Company shall at any time change, by
subdivision or combination in any manner or by the making of a share
dividend (i.e. bonus shares), the number of Ordinary Shares then
outstanding into a different number of shares, then thereafter the
number of Ordinary Shares issuable upon the conversion of the
Preferred Shares shall be increased or decreased, as the case may be,
in direct proportion to the increase or decrease in the number of
Ordinary Shares by reason of such change.
(iii) Without limiting the rights of the holders of Preferred Shares
pursuant to Article 6 above, in the event of any capital
reorganization, or of any reclassification of the share capital of the
Company or in case of the consolidation or merger of the Company with
or into any other corporation (other than a consolidation or merger in
which the Company is the continuing corporation and which does not
result in any change in the Ordinary Shares), each Preferred Share
shall after such capital reorganization, reclassification of share
capital, consolidation, merger or sale entitle the holder to obtain
the kind and number of Ordinary Shares, or of the shares of the
corporation resulting from such consolidation or surviving such
merger, as the case may be, to which such holder would have been
entitled if he had held the Ordinary Shares issuable upon conversion
of such shares of Preferred Shares immediately prior to such capital
reorganization, reclassification of capital stock, consolidation,
merger or sale.
(c) If the Company (1) grants any rights, options or warrants (other than
rights, options or warrants issued in connection with the Compensatory
Shares or Lease/Bank Financing Shares, as those terms are defined in
Article 7(e) below) to subscribe for, purchase, or otherwise acquire
Ordinary Shares, or (2) issues or sells any security convertible into
or exchangeable for Ordinary Shares or rights to acquire such
convertible or exchangeable securities, then, in each case, the price
per Ordinary Share issuable on the exercise of the rights, options or
warrants or the conversion of the securities will be determined by
dividing the total amount, if any, received or receivable by the
Company as consideration for the granting of the rights, options or
warrants or the issuance or sale of the convertible or exchangeable
securities, plus the minimum aggregate amount of additional
consideration payable to the Company on exercise, conversion or
exchange of the securities, by the maximum number of Ordinary Shares
issuable on the exercise, conversion or exchange.
Such granting or issuance or sale will be deemed to be an issuance or
sale for cash of the maximum number of Ordinary Shares issuable on
exercise, conversion or exchange at the price per share determined
under this Article 7(c), and the Conversion Price in effect for the
Series A Preferred Shares, the Series B1 and B2 Preferred Shares, the
Series C1 and C2 Preferred Shares and the Series D Preferred Shares,
as the case may be, will be adjusted as above provided to reflect (on
the basis of that determination) the
<PAGE>
-12-
granting, issuance or sale. No further adjustment of such Conversion
Price will be made as a result of the actual issuance of Ordinary
Shares on the exercise of any such rights, option or warrants, the
conversion or any such convertible securities or the exchange of any
such exchangeable securities.
Upon the expiration or termination of the right to convert into,
exchange for, or exercise with respect to, Ordinary Shares, the
relevant Conversion Price will be readjusted to such price as would
have been obtained had the adjustment made upon their issuance been
made upon the basis of the issuance of only the number of such
securities as were actually converted into, exchanged for, or
exercised with respect to, Ordinary Shares. If the purchase price or
conversion or exchange rate provided for in any such security changes
at any time, then, upon such change becoming effective, the relevant
Conversion Price then in effect will be readjusted forthwith to such
price as would have been obtained had the adjustment made upon the
issuance of such securities been made upon the basis of (i) the
issuance of only the number of Ordinary Shares theretofore actually
delivered upon the conversion, exchange or exercise of such
securities, and the total of such consideration received therefor, and
(ii) the granting or issuance at the time of such change, of any such
securities then still outstanding for the consideration, if any,
received by the Company therefor and to be received on the basis of
such changed price or rate.
(d) In the case of the issuance of shares for a consideration in whole or
in part other than cash, the price per share shall be deemed to be the
fair market value thereof as determined by the Board of Directors,
including the approval of at least one of the Directors appointed by
the Investor Shareholders.
(e) For the purpose of Article 7(b) and 7(c), the consideration of any New
Shares shall be calculated at the U.S. dollar equivalent thereof, on
the day such New Shares are issued or deemed to be issued pursuant to
Article 7(b) or 7(c). "New Shares" shall mean shares of whatever class
issued or deemed to have been issued pursuant to Article 7(b) or 7(c)
by the Company other than (i) shares held by Ma'ahaz Ne'eman Ltd. or
its successor, as of the date of the adoption of these Articles, to be
distributed to employees and shares to be issued to bona fide
employees or consultants of the Company or of the Company's
subsidiaries pursuant to any share option plan or share incentive plan
approved by the Board of Directors in an amount not exceeding
3,806,000 Shares (as adjusted for any bonus shares, combinations,
splits etc. with respect to such shares) ("Compensatory Shares"), (ii)
Ordinary Shares issued upon the conversion of the Preferred Shares or
of Class B Ordinary Shares, or Series B1 Preferred Shares issued upon
the conversion of the Series B2 Preferred Shares or Series C1
Preferred Shares issued upon the conversion of the Series C2 Preferred
Shares, (iii) shares issued pursuant to an offering of shares by the
Company, to all Participating Shareholders (as that term is defined in
Article 50 below) only, (iv) shares issued upon the exercise of any
warrants issued to Gemini Israel Fund L.P., (v) shares, in an amount
not to exceed 3% of the then issued and outstanding share capital of
the Company on a fully diluted
<PAGE>
-13-
basis, issued to a "strategic investor", it being understood that the
then-sitting directors appointed by the Investor Shareholders, if any
are then sitting, shall solely decide whether an investor is a
"strategic investor", and (vi) shares issued to lenders or lessors in
connection with bona fide bank and lease financing approved by the
Board of Directors ("Lease/Bank Financing Shares").
(f) The Company shall at all times reserve and keep available out of its
authorized Ordinary Shares, solely for the purpose of issue upon
conversion of Preferred Shares as herein provided pursuant to Article
7(a), such number of Ordinary Shares as shall then be issuable upon
the conversion of all outstanding shares of Preferred Shares. All
Ordinary Shares which shall be so issued shall be duly and validly
issued and fully paid and nonassessable.
(g) Upon conversion pursuant to Article 7(a) other than automatic
conversion due to a public offering as aforesaid, the following
provisions shall have effect:
(i) the conversion shall be effected by notice in writing given to
the Company signed by the holder of the Preferred Shares wishing to
convert as the case may be and the conversion shall take effect
immediately upon the date of delivery of such notice to the Company
unless such notice states that conversion is to be effective on any
later date or when any conditions specified in the notice have been
fulfilled in which case conversion shall take effect on such other
date or when such conditions have been fulfilled;
(ii) forthwith after conversion takes effect the holders of the
Preferred Shares resulting from such conversion shall send to the
Company the certificates in respect of their respective holdings of
Preferred Shares and the Company shall issue to such holders
respectively certificates for the Ordinary Shares resulting from the
conversion;
(iii) the Ordinary Shares, save for the Class B Ordinary Shares which
will have no voting rights, resulting from the conversion shall rank
from date of conversion pari passu in all respects with the other
Ordinary Shares in the capital of the Company.
(h) If, pursuant to conversion, the Company shall be required to issue
fractions of Ordinary Shares, the number of such shares shall be
rounded up or down to the nearest whole number.
(i) Within ten days after the issuance of any New Shares at a price
per share less than the Conversion Price of the Preferred Shares, as
described in Article 7(b)(i) (an "Article 7(b)(i) Event"), the Company
shall instruct its auditors to calculate the adjustment under Article
7(b) and to present to the Company, within 30 (thirty) days, a report
on the adjustment under Article 7(b) (the "Article 7(b) Report"). The
Article 7(b) Report shall include a description of the results of the
calculation under Article 7(b), the method of calculation used, and
the resulting number of Ordinary Shares into which each of the
Preferred Shares can be converted. Within two business days
<PAGE>
-14-
after its receipt of the Article 7(b) Report from its auditors, the
Company shall forward a copy of that report to all Shareholders. In no
event shall the Company forward the Article 7(b) Report to the
Shareholders more than 50 (fifty) days after the 7(b)(i) Event. The
determinations of the auditors in the Article 7(b) Report shall be
conclusive if not challenged by a Shareholder within ten days of its
receipt of the Article 7(b) Report. If a meeting of the Shareholders
is noticed for a date during the period between an Article 7(b)(i)
Event and the expiration of the period in which the Shareholders may
challenge the Article 7(b) Report, the meeting of the Shareholders
shall be postponed until the date one week after the expiration of the
period in which the Shareholders may challenge the Article 7(b)
Report, and the Company shall give notice to that effect to all
Shareholders.
8. The Company shall not carry out, and shall exercise its control of its
subsidiaries in order that such subsidiaries shall not carry out, any of
the following without the prior written consent of the holders (i) of a
majority of the Series A Preferred Shares and (ii) the majority of the
Series BI and Series C1 Preferred Shares, acting together as single class
and (iii) the majority of the Series D Preferred Shares (if such decision
may be taken by the shareholders).
(a) Mergers, Etc. Merge or consolidate with, or sell, assign, lease, or
otherwise dispose of (whether in one transaction or a series of
transactions) all or substantially all of its assets to any person or
entity;
(b) Declare any dividend on any class or form of shares.
(c) Increase the size of the Board of Directors to include more than seven
(7) Directors.
The above shall be in force until such time as the earlier of: (i) in
respect of the Series A Preferred Shares, the Investor Shareholders holding
such Shares shall cease to hold in the aggregate at least 12% (twelve
percent) of the issued and outstanding share capital of the Company,
treating the Preferred Shares on an as-converted basis; in respect of the
Investor Shareholders holding Series B1 and Series C1 Preferred Shares
together, the Investor Shareholders holding Series B1, Series B2, Series C1
and Series C2 Preferred Shares shall cease to hold in the aggregate at
least 7% (seven percent) of the issued and outstanding share capital of the
Company, treating the Preferred Shares on an as-converted basis; and in
respect of the Series D Preferred Shares, the Investor Shareholders holding
such Shares shall cease to hold in the aggregate at least 7% (seven
percent) of the issued and outstanding share capital of the Company,
treating the Preferred Shares on an as-converted basis; or (ii) the closing
of the offering to the public of shares of the Company which causes the
Preferred Shares to be converted into Ordinary Shares pursuant to Article
7(a) above.
For the avoidance of doubt, for the purpose of acting together as a single
class as per the above, the holders of Series B1 and Series C1 Preferred
Shares shall be considered a single class.
<PAGE>
-15-
Any holder of Preferred Shares who has not responded within thirty (30)
days of receipt of a request from the Company for consent under this
Article shall be deemed to have given consent.
8A. The Company shall not adopt any Special Resolution, including any type of
resolutions and actions requiring a minimum majority of seventy-five per
cent (75%) of the shareholders of the Company according to the Companies
Ordinance as amended or to the Articles adversely modifying any of the
rights, preferences or privileges attached to the Preferred Shares or Class
B Ordinary Shares; increasing the number of authorized Preferred Shares as
set forth in the New Articles; creating any class or series of shares on
parity with or having preference over those rights attached to the
Preferred Shares; adversely modifying any of the rights, preferences or
privileges attached to the Preferred Shares; or reclassifying outstanding
capital shares of the Company so as to adversely affect or modifying the
rights, preferences or privileges attached to the Preferred Shares or Class
B Ordinary Shares, unless such resolution is approved by a 75% majority
vote by a separate Class or Series of Shares meeting of the Class of Shares
so adversely affected.
For the removal of doubt, if any such action adversely affects or modifies
the rights, preferences or privileges attached to the Series D Preferred
Shares, the special resolution so required shall be a resolution approved
by a 75% majority vote in a separate Class meeting of the Series D
Preferred Shares, and if any such action adversely affects or modifies the
rights, preferences or privileges attached to the Series B1, Series B2,
Series C1 or Series C2 Preferred Shares or the Class B Ordinary Shares, the
special resolution so required shall be a resolution approved by a 75%
majority vote in a separate Class meeting of the Series BI and Series C1
Preferred Shares together, and if any such action adversely affects or
modifies the rights, preferences or privileges attached to the Series A
Preferred Shares, the special resolution so required shall be a resolution
approved by a 75% majority vote in a separate Class meeting of the Series A
Preferred Shares.
For the avoidance of doubt, for the purpose of the separate Class meeting
as per the above, the holders of Series B1 and Series C1 Preferred Shares
shall be considered a single class.
The above shall be in force until the closing of the offering to the public
of shares of the Company which causes the Preferred Shares to be converted
into Ordinary Shares pursuant to Article 7(a) above.
9.
(a) If two or more persons are registered as joint holders of a share,
they shall be jointly and severally liable for any calls or any other
liability with respect to such share. However, with respect to voting,
power of attorney and furnishing of notices, the one registered first
in the register of Members shall be deemed to be the sole owner of the
share, unless all the registered joint holders notify the Company in
writing to treat another one of them as the sole owner of the share,
subject to the provisions of Article 70 hereof.
(b) If two or more persons are registered together as holders of a share,
each one of them shall be permitted to give receipts binding all the
joint holders
<PAGE>
-16-
for dividends or other monies or property received from the Company in
connection with the share and the Company shall be permitted to pay
all the dividend or other monies or property due with respect to the
share to one or more of the joint holders, as it shall choose.
10. Except upon court order so directing, the Company shall not recognize the
holder of a share as a trustee, and shall not be obligated to recognize a
right based upon the rules of equity or a right dependent upon a condition
or a future right or a partial right in a share, or any other right
whatsoever with respect to the share, except for the exclusive right of the
registered holder with respect to the share.
11.
(a) A Member shall be entitled to receive from the Company without
payment, one or more certificate(s) that shall state the number of
shares owned by him, their serial numbers and the amount paid on
account of their par value. However, in the event of more than one
person holding a share, the Company shall not be obligated to issue
more than one certificate to all of the joint holders, and the
transmission of such a certificate to one of the joint holders shall
be deemed to be a transmission to all of the partners.
(b) Each certificate shall carry the signature or signatures of those
persons appointed by the Board of Directors for this purpose and the
stamp or seal of the Company.
(c) If a share certificate is defaced, lost or destroyed, it may be
renewed on payment of such fee, if any, not exceeding one United
States dollar or the shekel equivalent thereof on the date of payment
and on such terms, if any, as to evidence and indemnity as the
Directors think fit.
SHARE WARRANTS
--------------
12. Subject to other provisions of these Articles, the Company shall be
entitled to issue share warrants in such form as agreed by the Board of
Directors of the Company.
13. Reserved.
REDEEMABLE SHARES
-----------------
14. Subject to other provisions of these Articles, the Company may, subject to
the provisions in this respect in the Memorandum of Association of the
Company and in the Ordinance, or any modification thereof in force from
time to time, issue and redeem redeemable shares.
MODIFICATION OF SHARE RIGHTS
----------------------------
15. Subject to Articles 8, if at any time the share capital is divided into
different classes of shares (unless otherwise provided for by the terms of
issuance for the shares of that class) the Company may change, convert,
broaden, add or vary in any other manner the rights, advantages,
restrictions and provisions related or unrelated at that time to one or
more of the classes, after receipt of the consent in
<PAGE>
-17-
writing of the holders of three fourths of the issued shares of the
affected class, or with the sanction of a special resolution passed at a
separate general meeting of the holders of the shares of the affected
class. To every such separate general meeting the provisions of these
Articles relating to general meetings shall apply mutatis mutandis. Any
holder of shares of the affected class present, either personally or by
proxy, may request a secret ballot.
PLEDGE
------
16. The Company shall have a lien and first pledge on all the shares that are
registered in the name of any Member (whether registered in his name only
or together with another or others), but not fully paid, for any amount
still outstanding with respect to that share, whether or not presently
payable.
Such a pledge shall exist whether the dates of payment or fulfillment or
execution of the obligations, debts or commitments have become due, and
shall apply to all dividends that shall be decided upon from time to time
in connection with such share. No benefit shall be created with respect to
such share based upon the rules of equity which shall frustrate this
pledge, although the Directors may declare at any time with respect to any
share, that it is released, wholly or in part, temporarily or permanently,
from the provisions of this Article. Registration by the Company of a share
transfer shall be deemed to be a waiver by the Company of its lien and
pledge on those shares.
17. The Company may sell, in such manner and at such time as the Directors
think fit, any of the pledged shares, but no sale shall be made unless the
date of payment of the monies due or a part thereof has arrived, or the
date of fulfillment and performance of the obligations and commitments in
consideration of which Director's pledge exists has arrived, and after a
written request has been furnished to the Member or person who has acquired
a right in the shares, which sets out the amount or obligation or
commitment due from him and which demands their payment, fulfillment or
execution, and which informs the person of the Directors' desire to sell
the shares in the event of nonfulfillment of the notice, and the person has
not fulfilled his obligation pursuant to the notice within seven days after
the notice had been sent to him.
18. The net proceeds of such sale of pledged shares shall be applied in payment
of such sum due to the Company or to the fulfillment of the obligation or
commitment, and the remainder (if any) shall be paid to the Member or to
the person who had acquired a right in the share sold, pursuant to the
above.
19. After execution of a sale of pledged shares as aforesaid, the Directors
shall be permitted to sign or to appoint someone to sign a deed of transfer
of the sold shares and to register the buyer's name in the Register of
Members as the owner of the shares so sold and it shall not be the
obligation of the buyer to supervise the application of monies nor will his
right in the shares be affected by a defect or illegality in the sale
proceedings after his name has been registered in the Register of Members
with respect to those shares. The sole remedy of one who has been aggrieved
by the sale shall be in damages only and against the Company exclusively.
<PAGE>
-18-
TRANSFER OF SHARES AND THE MANAGEMENT THEREOF
---------------------------------------------
20. The shares of the Company are transferable subject to the restrictions
contained in these Articles. Each transfer shall be made in writing in the
form appearing herein below, or in a similar form, or in any form approved
by the Directors from time to time. Such form shall be delivered to the
office together with the transferred share certificates, if share
certificates have been issued with respect to the shares to be delivered,
and any other proof of the transferor's title that the Directors may
require. The deed of transfer that shall have been registered or a
Photostat copy thereof, as shall be decided by the Directors, shall remain
with the Company. However, any deed of transfer that the Directors shall
refuse to register shall be returned, upon demand, to the person who
furnished it together with the share certificate (if furnished). The
Directors may refuse to register a transfer only if such transfer (i) is to
a competitor of the Company, or (ii) is in violation of a contractual
obligation of the Company, or (iii) would result in the Company having more
than 50 members or (iv) is in violation of any of Yoav Hollander's
obligations concerning the transfer of his shares.
Share Transfer Deed
-------------------
We, ______________________________________ with offices at
_______________________________ hereby transfer ____________________, an
Israeli company, Registration Number _________ nominal value NIS ____ each
(the "Shares") unto ______________, in consideration of payment of
___________ the same to be held by the transferee, its administrators,
executors, and assigns, under the same terms that we held the same on the
date of this Transfer Deed.
We, the transferee, hereby agree to accept the above Shares on the terms
stated.
Dated:
--------------------
TRANSFEROR:
-----------------------------
Transferee, by
By:
-----------------------
Name:
---------------------
Title:
--------------------
21. The share transfer deed shall be executed both by the transferor and
transferee, and the transferor shall be deemed to remain a holder of the
share until the name of the transferee is entered into the Register of
Members in respect thereof. The share transfer deed with respect to a share
that has been fully paid may be signed by the transferor only.
22. Reserved.
<PAGE>
-19-
23. The Company may impose a fee for registration of a share transfer, at a
reasonable rate as may be determined by the Directors from time to time.
24. The Register shall be closed for a period of fourteen days before every
ordinary general meeting of the Company and at other dates and for such
other periods as are determined by the Directors from time to time, upon
the condition that the Register shall not be closed for a total of more
than 30 days in any year.
25. Upon the death of a Member, the remaining partners (in the event that the
deceased was a partner in a share) or the administrators or executors or
heirs of the deceased (in the event the deceased was the sole holder of the
share or was the only one of the joint holders of the share to remain
alive) shall be recognized by the Company as the sole holders of any title
to the shares of the deceased. However, nothing aforesaid shall release the
estate of a joint holder of a share from any obligation to the Company with
respect to the share that he held in partnership.
26. Any person becoming entitled to a share as a consequence of the death or
bankruptcy or liquidation of a Member shall, upon such evidence being
produced as may from time to time be required by the Directors, have the
right either to be registered as a Member in respect of the share upon the
consent of the Directors or, instead of being registered himself, to
transfer such share to another person, subject to the provisions contained
in these Articles with respect to transfers.
27. A person becoming entitled to a share because of the death of a Member
shall be entitled to receive, and to give receipts for, dividends or other
payments paid with respect to the share.
Right of First Refusal.
-----------------------
28.
(a) In the event that a Shareholder who together with its Permitted
Transferees holds 3% or more of the issued and outstanding share
capital of the Company on an as if converted basis (the "Selling
Shareholder") desires to sell or transfer any or all of its Shares
(the "Offered Shares") to any party other than a Permitted Transferee,
it shall first give written notice thereof ("Notice of Sale") to all
Investor Shareholders and all other Shareholders holding 3% (three
percent) or more of the outstanding and issued share capital of the
Company ("Option Holders"). For purposes of calculating the 3% under
this Article 28, the shares held by the various shareholders
constituting Gemini as defined in Article 2 and Sequoia Capital as
defined in Article 2, shall in each case, be deemed to be held by a
single shareholder.
The above shall not apply to transfer of shares held by Ma'ahaz
Ne'eman Ltd. or by Verisity Design, Inc., or their respective
successors, to employees or consultants of the Company or of the
Company's subsidiaries pursuant to any share option plan or share
incentive plan or within any other arrangement approved by the Board
of Directors, and such transfer of shares shall not be subject to the
right of first refusal specified in this Article 28.
<PAGE>
-20-
(b) The Notice of Sale shall state the number of Offered Shares, that the
Offered Shares will, upon the sale, be free of all liens charges and
encumbrances, that a bona fide offer has been received from a third
party, the identity of the third party, and the price and terms of
payment for the Offered Shares. Upon receipt of the Notice of Sale,
the Option Holders shall have the right to exercise the option (the
"Option") contained in Articles 28(c) and (d).
(c) For a period of 20 days after receipt of the Notice of Sale, the
Option Holders collectively may elect to purchase all (but not part)
of the Offered Shares (those Option Holders which exercise the Option
are referred to as the "Buying Shareholders"). The Option shall be
exercised by delivery of a notice by one or more of the Buying
Shareholders to the Selling Shareholder within the aforesaid 20-day
period stating (i) that the Buying Shareholder intends to acquire its
pro rata share of the Offered Shares, according to the shareholding
ratio between the Option Holders as of the date immediately prior to
sending such notice; and (ii) in the event that the Selling
Shareholder receives notices from Buying Shareholders to buy some, but
not all, of the Offered Shares, how many additional Offered Shares the
Buying Shareholder intends to acquire of the Offered Shares remaining
as a result of the failure of all Buying Shareholders to offer to buy
their pro rata share (the "Remaining Offered Shares").
(d) If the Selling Shareholder receives notices from all Option Holders
that they wish to exercise the Option, then the Buying Shareholders
shall acquire the Offered Shares pro rata, according to the
shareholding ratio between the Option Holders as of the date
immediately prior to sending their notices. If the Selling Shareholder
receives notices from Buying Shareholders to buy some, but not all, of
the Offered Shares and the notices of the Buying Shareholders indicate
that the Buying Shareholders intend to buy a number of additional
Offered Shares equal to or greater than the number of the Remaining
Offered Shares, then (i) the Buying Shareholders shall each acquire
that percentage of the Offered Shares which corresponds to its
percentage ownership of the shares held by the Option Holders as of
the date immediately prior to sending their notices and (ii) the
Buying Shareholders shall acquire the Remaining Offered Shares pro
rata according to the number of additional Offered Shares that each
Buying Shareholder offered to acquire in its notice. The purchase of
the Offered Shares shall be on the same terms and conditions as stated
in the Notice of Sale.
(e) If the notices of the Buying Shareholders indicate that the Buying
Shareholders have not elected to purchase all of the Offered Shares,
then the Selling Shareholder shall be free, subject to the provisions
of Article 29 below, within 90 days of the date of expiration of the
Option, to sell such shares at the price and on the terms contained in
the Notice of Sale. If there is no sale within such 90 day period, the
Selling Shareholder shall not sell or transfer the Offered Shares, or
any other shares acquired before or after the date hereof, without
again complying with the provisions of this Article.
<PAGE>
-21-
(f) In the event that there is a situation in which fractional shares will
need to be transferred, the number of shares will be rounded up so
that only full shares will be transferred.
(g) The provisions of this Article 28 shall terminate on the initial
public offering of the shares of the Company.
Tag-along Rights.
-----------------
29.
(a) Except for transfers expressly permitted in the undertaking given by
Hollander to the Investor Shareholders holding Series A Preferred
Shares in respect of which tag-along rights shall not apply, if
Hollander or his Permitted Transferee is the Selling Shareholder
("Selling Insider") and all of the Offered Shares are not sold to the
Buying Shareholders pursuant to Article 28 above, then the provisions
of this Article 29 shall apply.
(b) The Selling Insider shall so notify the Investor Shareholders,
describing in such notification the material terms of such proposed
sale. Upon receipt of such notice, each of the Investor Shareholders
shall have the right to exercise the option contained in Article 29(c)
below.
(c) Each of the Investor Shareholders shall have the option, exercisable
by written notice to the Selling Insider, within 15 business days
after receipt of the notice described in Article 29(b) above, to
require the Selling Insider to provide as part of his proposed sale
that each of the Investor Shareholders be given the right to
participate, on the same terms and conditions as the Selling Insider,
in the sale pro rata in proportion to the respective numbers of Shares
owned at such time (on an as if converted basis) by the Selling
Insider and all Investor Shareholders who participate in the proposed
sale. Thus, for example, if the Selling Insider owns 100 Shares and
the participating Investor Shareholders own 200 Shares, then the
Selling Insider will be entitled to sell one-third of the Shares in
the proposed sale, while the participating Investor Shareholders will
be entitled to sell two-thirds of the Shares in the proposed sale. If
such option is exercised by one of the Investor Shareholders, the
Selling Insider shall not proceed with such sale unless the Investor
Shareholders are given the right to participate.
(d) The provisions of this Article 29 shall terminate on the initial
public offering of the shares of the Company.
30. Reserved.
31. Reserved
CALLS
-----
32. A Member, whether he is the sole holder or holds the shares together with
another person, shall not be entitled to receive dividends nor to use any
other right a Member has unless he has paid all the calls by the Company
that shall be made
<PAGE>
-22-
from time to time with respect to money unpaid on all of his shares, in
addition to interest and expenses if there shall be any.
33. The Directors may, subject to the provisions of these Articles, make calls
upon the Members from time to time in respect of any monies unpaid on their
shares as they shall determine proper, upon the condition that there shall
be given prior notice of fourteen days on every call, and each Member shall
pay the amount requested from him, and any installments on account of the
call at the times and places to be determined by the Directors.
34. Calls for payment shall be deemed to have been made from the date on which
the Directors decide upon the calls for payment.
35. The joint holders of a share shall be jointly and severally liable to pay
the calls for payment in full and any installments on account, in
connection with such calls.
36. If a sum called in respect of a share is not paid, the holders of the share
or the person to whom it has been issued shall be liable to pay interest
and linkage differentials upon the amount of the call or the payments on
account, at the rate to be determined by the Board of Directors commencing
from the day the payment is due to the time of actual payment, but the
Directors shall be at liberty to waive payment of that interest or linkage
differentials, wholly or in part.
37. Any amount that, according to the condition of issuance of a share, must be
paid at the time of issuance or at a fixed date, whether on account of the
value of the share or premium, shall be deemed for the purposes of these
Articles to be a call for payment that was made duly and the date of
payment shall be the date appointed for payment. In the event of non-
payment of this amount all of the above Articles dealing with payment of
interest, expenses, forfeiture, pledge and the like and all the other
Articles connected therewith, shall apply as if this sum had been duly
requested and notice had been given pursuant to Article 33.
38. Reserved.
39. The Directors may, if they think fit, receive from any Member willing to
pay in advance all or a part of the moneys that shall be due on account of
his shares, in addition to any amounts the payment of which in fact has
been requested, and the Directors shall be permitted to pay him: (1)
interest at such rate as the Directors and Member shall agree upon for the
amounts paid in advance as aforesaid, or upon the part thereof which is in
excess of the amounts whose payment was at the time requested on account of
his shares, and (2) any dividends that may be paid for that part of the
shares for which the Member has paid in advance.
FORFEITURE OF SHARES
--------------------
40. If a Member fails to pay any call or installment of a call on the day
appointed for payment thereof, the Directors may, at any time thereafter
during such time as any part of such call or installment remains unpaid,
serve a notice on him requiring payment of so much of the call or
installment as is unpaid, together with any interest which may have accrued
and any expenses that were incurred as a result of such non-payment.
<PAGE>
-23-
41. The notice shall specify a date not less than seven days from the date of
the notice, on or before which the payment of the call or installment or
part thereof is to be made together with interest and any expenses incurred
as a result of such non-payment. The notice shall also state the place the
payment is to be made and that in the event of non-payment at or before the
time appointed, the share in respect of which the call was made will be
liable to forfeiture.
42. If the requirements of any such notice as aforesaid are not complied with,
any share in respect of which the notice has been given may at any time
thereafter, before the payment required by the notice has been made, be
forfeited by a resolution of the Directors to that effect. The forfeiture
shall apply to those dividends that were declared but not yet distributed
with respect to the forfeited shares.
43. A share so forfeited shall be deemed to be the property of the Company and
can be sold or otherwise disposed of, on such terms and in such manner as
the Directors think fit. At any time before a sale or disposition the
forfeiture may be canceled on such terms as the Directors think fit.
44. A person whose shares have been forfeited shall cease to be a Member in
respect of the forfeited shares, but shall notwithstanding remain liable to
pay to the Company all moneys which, at the date of forfeiture, were
presently payable by him to the Company in respect of the shares.
45. The forfeiture of a share shall cause, at the time of forfeiture, the
cancellation of all rights in the Company and of any claim or demand
against the Company with respect to that share, and of other rights and
obligations between the share owner and the Company accompanying the share,
except for those rights and obligations which these Articles exclude from
such a cancellation or which the law imposes upon former Members.
46. A sworn declaration in writing by two Directors that a share in the Company
has been duly forfeited on the date stated in the declaration shall be
conclusive evidence of the facts therein stated against all persons
claiming to be entitled to the share. That declaration, together with the
receipt of the Company for the consideration, if any, given for the share
on the sale or disposition thereof and specifying the place of payment of
the consideration, shall constitute good title to the share. The person to
whom the share is sold or disposed of shall be registered as the holder of
the share and shall not be bound to see to the application of the purchase
money, if any, nor shall his title to the share be affected by any
irregularity or invalidity in the proceedings in reference to the
forfeiture, sale or disposal of the share.
47. The provisions of these Articles as to forfeiture shall apply in the case
of non-payment of any sum which, by the terms of issue of a share, becomes
payable at a fixed time, whether on account of the amount of the share, or
by way of premium, as if the same had been payable by virtue of a call duly
made and notified.
MODIFICATION OF CAPITAL
-----------------------
48. Subject to Articles 8, the Company may, from time to time, by special
resolution:
<PAGE>
-24-
(a) consolidate and divide its share capital or a part thereof into shares
of greater value than its existing shares;
(b) cancel any shares which have not been purchased or agreed to be
purchased by any person;
(c) by subdivision of its existing shares, or any of them, divide the
whole, or any part, of its share capital into shares of lesser value
than is fixed by the Memorandum of Association subject, however, to
the provisions of Section 144(4) of the Ordinance, and in a manner so
that with respect to the shares created as a result of the division it
will be possible to grant to one or more shares a right of priority,
preference or advantage with respect to dividend, capital, voting or
otherwise over the remaining or similar shares;
(d) reduce its share capital and any fund reserved for capital redemption
reserve fund in the manner that it shall deem to be desirable, and in
particular to use the rights, all or part thereof, contained in
Section 151 of the Ordinance;
(e) increase its share capital, regardless of whether or not all of its
shares have been issued, or whether the shares issued have been paid
in full, by the creation of new shares, divided into shares in such
amounts, and with such preferred or deferred or other special rights
(subject always to the special rights conferred upon any existing
class of share), and subject to any conditions and restrictions with
respect to dividends, return of capital, voting or otherwise, as shall
be directed by the special resolution, provided that except in the
case of bonus shares the share capital of Preferred Shares shall not
be increased without the consent of the majority of the holders of
Preferred Shares.
(f) convert its shares into stock.
49. Subject to Articles 8, the Company shall have the right in a general
meeting or a meeting of the Board of Directors, whichever is appropriate
under the Ordinance, to set out regulations with respect to issuance and
allotment of other types of securities, aside from shares, including but
without derogating from the generality of the above, debentures, options
and warrants and to determine that the aforesaid shall be convertible at a
specified rate or some other predetermined formula.
50. If at any time prior to the offering to the general public by prospectus or
similar document of shares of the Company, the Company proposes to issue or
sell any New Securities (as defined in Article 51(a) below), the Company
shall, before such issuance, offer to all Investor Shareholders and to all
shareholders holding 3% or more of the shares of the Company on a fully
diluted basis (the above mentioned shareholders are referred to as
"Participating Shareholders") the right to purchase a pro-rata share of the
New Securities. A Participating Shareholder's pro-rata share, for purposes
of this Article, is the ratio of the number of shares owned by such
Shareholder immediately prior to the issuance of New Securities (treating
all Preferred Shares as if fully converted), to the total number of all
Shares outstanding immediately prior to the issuance of New Securities
(including all convertible securities, warrants, and vested options and
treating all of the Preferred Shares as if fully converted). Any holder of
Series B1 B2, Cl or C2
<PAGE>
-25-
Preferred Shares who is a Participating Shareholder shall have the right to
receive all or any portion of its pro rata share of New Securities in non-
voting securities which otherwise have identical privileges and
restrictions as the New Securities issued to other Participating
Shareholders or third - party purchasers thereof, provided that if such New
Securities are convertible into Ordinary Shares such non voting New
Securities shall be convertible into Class B Ordinary Shares.
Each Participating Shareholder shall have a right of over-allotment such
that if any Participating Shareholder fails to exercise its right hereunder
to purchase its pro-rata share of New Securities, the other Participating
Shareholders may purchase the non-purchasing Participating Shareholder's
portion pro-rata according to the shareholding ratio between such other
Shareholders, within ten (10) days from the date such non-purchasing
Participating Shareholder fails to exercise its rights hereunder to
purchase its pro-rata share of New Securities. Every Participating
Shareholder may transfer all or part of its rights under this Article and
Article 51 to a Permitted Transferee, even if that Permitted Transferee is
not a shareholder of the Company.
51. This pre-emptive right shall be subject to the following provisions:
(a) "New Securities" shall mean any equity interest (including Ordinary
and Preferred Shares) in the Company, whether now authorized or not,
and rights, options or warrants to purchase such equity interests, and
securities of any type whatsoever that are convertible into equity
interests; provided that the term "New Securities" does not include:
(i) Ordinary Shares issued upon the conversion of the Preferred Shares
or of Class B Ordinary Shares, or Series B1 Preferred Shares issued
upon the conversion of the Series B2 Preferred Shares or Series C1
Preferred Shares issued upon the conversion of the Series C2 Preferred
Shares, (ii) Compensatory Shares in an amount not exceeding 3,806,000
Shares (as adjusted for any bonus shares combinations, splits etc.
with respect to such shares), (iii) shares issued upon the exercise of
any warrants issued to Gemini Israel Fund L.P., (iv) shares, in an
amount not to exceed 3% of the then issued and outstanding share
capital of the Company on a fully diluted basis, issued to a
"strategic investor", it being understood that the then-sitting
directors appointed by the Investor Shareholders, if any are then
sitting, shall solely decide whether an investor is a "strategic
investor", and (vi) Lease/Bank Financing Shares.
(b) In the event the Company proposes to undertake an issuance of New
Securities, it shall give each Participating Shareholder written
notice of its intention, describing the type of New Securities, and
their price and the general terms upon which the Company proposes to
issue the same. Each Participating Shareholder shall have twenty (20)
days after any such notice is delivered to agree to purchase such
Shareholder's pro rata share of such New Securities for the price and
upon the terms specified in the notice by giving written notice to the
Company and stating therein the quantity of New Securities to be
purchased.
(c) In the event the Participating Shareholders fail to exercise fully the
pre-emptive right within the said twenty (20) day period and after the
expiration of the ten-day period for the exercise of the over-
allotment provisions of
<PAGE>
-26-
Article 50, the Company shall have one hundred twenty (120) days
thereafter to sell or enter into an agreement to sell the New
Securities respecting which the Participating Shareholders' pre-
emptive right set forth in Article 50 is not exercised, at a price and
upon terms no more favorable to the purchasers thereof than specified
in the Company's notice to the Participating Shareholders pursuant to
Article 51(b). In the event the Company has not sold or entered into
an agreement to sell the New Securities in accordance with the
foregoing within one hundred twenty (120) days, the Company shall not
thereafter issue or sell any New Securities, without first again
offering such securities to the Participating Shareholders in the
manner provided in Article 51(b).
52. Subject to any decision to the contrary in the resolution authorizing the
increase in share capital pursuant to these Articles, the new share capital
shall be deemed to be part of the original share capital of the Company and
shall be subject to the same provisions with reference to payment of calls,
liens, title, forfeiture, transfer and otherwise as apply to the original
share capital.
BORROWING POWERS
----------------
53. Subject to Articles 8 and 8A, the Directors may from time to time, in their
discretion, borrow or secure the payment of any sum of money for the
purposes of the Company.
54. Subject to Articles 8 and any other provision of these Articles, the
Directors may raise or secure the repayment of such sum or sums in such
manner, at such times and upon such terms and conditions in all respects as
they think fit, and, in particular, by the issue of bonds, perpetual or
redeemable debentures, debenture stock, or any mortgages, charges, or other
securities on the undertaking of the whole or any part of the property of
the Company, both present and future, including its uncalled capital for
the time being and its called but unpaid capital.
GENERAL MEETINGS
----------------
55. A general meeting shall be held once in every year at such place and time,
not being more than fifteen months after the holding of the last preceding
general meeting, as may be prescribed by the Directors. The above mentioned
general meetings shall be called ordinary meetings. All other general
meetings shall be called extraordinary general meetings.
56. The Directors, whenever they think fit may, and upon a demand in writing as
provided for in Section 109 of the Ordinance shall, convene an
extraordinary general meeting. Every such demand shall include the objects
for which the meeting should be convened, shall be signed by those making
the demand (the "Petitioners") and shall be sent to the Office. The demand
may contain a number of documents similarly worded each of which is signed
by one or more Petitioners. If the Directors do not convene a meeting
within 21 days from the date of the submission of the demand as aforesaid,
the Petitioners, or a part thereof representing more than one half of the
voting rights of all of them, may convene by themselves a meeting upon 7
day's notice to all Shareholders. However, such a
<PAGE>
-27-
meeting shall not be held after two months have passed since the date of
the submission of the demand.
57. A prior notice of at least 7 days of any general meeting shall be given
with respect to the place, date and hour of the meeting, and in the event
that a special item shall be discussed, a general description of the nature
of that item. The notice shall be given as hereinafter provided to the
Members entitled pursuant to these Articles to receive notices from the
Company. In the event that a special resolution is to be proposed, a prior
notice of at least 21 days shall be given with respect to the meeting
convened to pass that resolution. Non-receipt of a notice given as
aforesaid shall not invalidate the resolution passed or the proceedings
held at that meeting. With the consent of all the Members who are entitled
at that time to receive notices, it shall be permitted to convene meetings
and to resolve all types of resolutions, upon shorter notice or without any
notice and in such manner, generally, as shall be approved by the Members.
PROCEEDINGS AT GENERAL MEETINGS
-------------------------------
58. Subject to the provisions of these Articles the function of the general
meeting shall be to receive and to deliberate with respect to the profit
and loss statements, the balance sheets, the ordinary reports and accounts
of the Directors and auditors, to declare dividends, to appoint auditors,
to fix their salaries, and any other matter required by law.
59. Every Member entitled to be present and to vote at a meeting shall be
permitted to propose to the general meeting any such resolution connected
with the objects for which the meeting was convened upon the condition that
he shall submit to the Company, not less than 7 days before the day of the
meeting, a notice in writing signed by him containing the proposed
resolution and indicating his intention to submit it.
60. In the event that a notice of intention to propose a resolution is received
by the Company before the notice of the meeting is sent, that notice of
meeting shall include the notice of intention to propose a resolution. If
the notice of intention to propose a resolution is received by the Company
after the notice of the meeting is sent, a new notice shall be sent as
quickly as possible to the Members entitled to receive a notice of meeting,
to the effect that such a resolution will be proposed.
61. No deliberation shall be commenced with respect to any matter at a general
meeting unless a quorum is present at the time when the general meeting
proceeds to deliberate. In an ordinary meeting two Members present,
including one of the Investor Shareholders, personally or by proxy, shall
be deemed to be a quorum. In an extraordinary meeting two Members,
including one of the Investor Shareholders, who hold or represent together
at least 51% of the voting rights of the issued share capital of the
Company (as set forth in Article 69), present personally or by proxy, shall
be deemed to be a quorum.
62. If within half an hour from the time appointed for the meeting a quorum is
not present, the meeting, if convened upon the requisition of the Members,
shall be dissolved; in any other case, it shall stand adjourned to the same
day in the next week at the same place and time, or any other day, hour
and/or place as the
<PAGE>
-28-
Directors shall notify the Shareholders. If a quorum is not present at the
second meeting within half an hour from the time appointed for the meeting,
any two Members present personally or by proxy shall be a quorum, and shall
be entitled to deliberate and to resolve in respect of the matters for
which the meeting was convened.
63. The chairman of the Board of Directors shall preside as chairman at all
general meetings. If there is no chairman or if he is not present within 15
minutes from the time appointed for the meeting or if he shall refuse to
preside at the meeting, the Members present shall elect one of the
Directors to act as chairman, and if only one Director is present, he shall
act as chairman. If no Directors are present or if they all refuse to
preside at the meeting, the Members present shall elect one of the Members
present to preside at the meeting.
64. The chairman may, with the consent of any meeting at which a quorum is
present, and shall if so directed by the meeting, adjourn the meeting from
time to time and from place to place, as the meeting shall decide. If the
meeting shall be adjourned for ten days or more a notice shall be given of
the adjourned meeting as in the case of an original meeting.
Except as aforesaid no Member shall be entitled to receive any notice of an
adjournment or of the business to be transacted at the adjourned meeting.
At an adjourned meeting no matters shall be discussed except for those
which could properly have been discussed at the meeting which decided upon
the adjournment.
65. Every resolution put to the vote at a meeting shall be decided by a show of
hands, unless before or upon the declaration of the result of the show of
hands a secret ballot is demanded by the chairman (if he is entitled to
vote) or by at least two Members present, or by a Member or Members present
and holding at least one twentieth of the voting rights of the share
capital issued by the Company. Unless a secret ballot is demanded as
aforesaid, the chairman's declaration of the result of the show of hands
shall be final, and an entry to that effect in the minute book of the
Company shall be conclusive evidence of the fact without the necessity of
proving the number or proportion of the votes recorded in favor or against
such a resolution. Except with respect to a special resolution and subject
to any provision in this regard in the Ordinance and these Articles, a
resolution shall be deemed to be passed at a general meeting if it received
an ordinary majority of votes.
66. If a secret ballot is duly demanded, it shall be taken in such manner as
the chairman directs, whether immediately or after an adjournment or
otherwise, and the results of the ballot shall be deemed to be a resolution
of the meeting wherein the secret ballot was demanded. Those requesting a
secret ballot can withdraw their request at any time before the secret
ballot is held.
67. A secret ballot demanded on the election of a chairman, or on a question of
adjournment shall be taken forthwith. A secret ballot demanded on any other
question shall be taken at such time as the chairman of the meeting
directs.
68. A demand for a secret ballot shall not prevent the continuation of the
meeting with respect to the transaction of any other business, except for
the matter with respect to which the secret ballot was demanded.
<PAGE>
-29-
VOTES OF MEMBERS
----------------
69. Each holder of Ordinary Shares (other than Class B Ordinary Shares) shall
be entitled to one (1) vote. Each holder of Series A Preferred Shares,
Series BI Preferred Shares, Series C1 Preferred Shares and Series D
Preferred Shares shall be entitled to the number of votes equal to the
number of Ordinary Shares into which the Preferred Shares could be
converted immediately prior to the date on which the voting in question has
taken place and shall have voting rights and powers of the Ordinary Shares
(except as otherwise expressly provided in these Articles or as required by
law), voting together with the Ordinary Shares as a single class (except as
otherwise expressly provided in these Articles or as required by law) and
shall be entitled to notice of any general meeting of shareholders in
accordance with these Articles.
Fractional votes shall not be permitted and any fractional vote resulting
from the conversion mechanism described above in this Article shall be
rounded to the nearest whole number (with one-half being rounded upward).
No member shall be permitted to vote at a general meeting or to appoint a
proxy to vote therein unless he has paid all calls for payment and all
moneys due to the Company from him with respect to his shares.
For the removal of doubt, the Series B2 Preferred Shares, the Series C2
Preferred Shares and the Class B Ordinary Shares shall have no voting
rights and shall not be entitled to receive notices in respect of any
General Meetings and Shareholders Meetings of the Company, to participate
in or vote at such meetings.
70. In the case of joint holders the vote of the senior who tenders a vote,
whether in person or by proxy (subject to the provisions of the second
following sentence), shall be accepted to the exclusion of the votes of the
other joint holders. For the purpose of this Article seniority shall be
determined by the order in which the names stand in the Register of
Members. The appointment of a proxy to vote on behalf of a share held by
joint holders shall be executed by the signature of the senior of the joint
holders.
71. An objection to the right of a Member or a proxy to vote in a general
meeting must be raised at such meeting or at such adjourned meeting wherein
that person was supposed to vote, and every vote not disqualified at such a
meeting shall be valid for each and every matter. The chairman of the
meeting shall decide whether to accept or reject any objection raised at
the appointed time with regard to the vote of a Member or proxy, and his
decision shall be final.
72. In every vote a Member shall be entitled to vote either personally or by
proxy. A proxy present at a meeting shall also have the same right as a
Member to request a secret ballot. A proxy need not be a Member of the
Company.
73. A Member of the Company that is a corporation shall be entitled by a
decision of its Board of Directors or by a decision of a person or other
body, according to a resolution of its Board of Directors, to appoint a
person who it shall deem fit to be its representative at every meeting of
the Company. The representative appointed as aforesaid shall be entitled to
perform on behalf of the corporation he represents all the powers that the
corporation itself might perform as if it were a person.
<PAGE>
-30-
74. A Member of unsound mind, or in respect of whom an order to that effect has
been made by any court having jurisdiction, may vote, whether on a show of
hands or by a secret ballot, only through his legal guardian or such other
person, appointed by the aforesaid court, who performs the function of a
representative or guardian. Such representative, guardian or other person
may vote by proxy.
75. A vote pursuant to an instrument appointing a proxy shall be valid
notwithstanding the death of the appointor or the appointor becoming of
unsound mind or the cancellation of the proxy or its expiration in
accordance with any law, or the transfer of the shares with respect to
which the proxy was given, unless a notice in writing of the death,
becoming of unsound mind, cancellation or transfer was received at the
office before the meeting took place. In the event of a secret vote, a
notice canceling the appointment of a proxy shall be valid if it is signed
by the appointor and was received in the office no later than one hour
prior to commencement of the vote.
76. A Member is entitled to vote by a separate proxy with respect to each share
held by him provided that each proxy shall have a separate letter of
appointment containing the serial number of the share(s) with respect to
which the proxy is entitled to vote. If a specific share is included by the
holder in more than one letter of appointment, that share shall not entitle
any of the proxy holders to a vote.
77. A letter of appointment of a proxy, power of attorney or other instrument
(if there shall be such) pursuant to which the appointee is acting shall be
in writing, and the signature of the appointor shall be confirmed by an
advocate or notary or bank or in any other manner acceptable to the
Director. Such confirmed instrument or a copy thereof shall be deposited in
the office, or at such other place in Israel or abroad as the Directors may
direct from time to time, at least twenty four hours before the time
appointed for the meeting or adjourned meeting wherein the person referred
to in the instrument is appointed to vote.
Otherwise that person shall not be entitled to vote that share. An
instrument appointing a proxy and which is not limited in time shall expire
12 months after the date of its execution. If the appointment shall be for
a limited period, whether in excess of 12 months or not, the instrument
shall be valid for the period stated therein.
78. An instrument appointing a proxy (whether for a specific meeting or
otherwise) may be in the following form or in any other similar form which
is appropriate under the circumstances.
Letter of Appointment of Proxy
------------------------------
"I, _________________, of _____________________, a Member holding shares in
_________________ and entitled to _______________ votes hereby appoint
_________________ of ____________________ or in his place _____________ of
__________________ to vote in my name and in my place at the general
meeting (regular, extraordinary, adjourned - as the case may be) of the
Company to be held on the ___________ day of_____________ 19 and at an
adjournment thereof.
<PAGE>
-31-
In witness whereof, I have hereby affixed my signature the ___________ day
of _____________ 19___.
------------------------------------
Appointor's Signature
I hereby confirm that the foregoing
instrument was signed before me by the Appointor.
--------------------------------------------
(name, profession and address)
79. Subject to the provisions of the law, a resolution in writing signed by the
holder or holders or shares, entitling their holders to all of the voting
rights of the shares outstanding at that time, and entitled to vote with
respect to such shares at general meetings, or a resolution as aforesaid
agreed upon by telex, telegram or facsimile, shall have the same validity
as any resolution carried in a general meeting of the Company duly convened
and formed for the purpose of passing such a resolution. If all the
shareholders shall consent in writing, or by telex, telegraph, or facsimile
to any action to be taken by the Shareholders, such action shall be as
valid as though it had been unanimously authorized at a duly convened
general or extraordinary meeting of the Shareholders.
DIRECTORS
---------
80. The Board of Directors shall be composed of not more than 7 members, as
follows:
(a) For purposes of this Article 80, Yoav Hollander's shares shall mean
all shares owned by him and all shares over which he has voting power
or control.
(b) So long as the combined holdings of Yoav Hollander and the Investor
Shareholders and all of their Permitted Transferees are 40% (forty
percent) or more of the outstanding and issued share capital of the
Company, the Directors shall not be elected by the General Meeting of
the Shareholders, but instead shall be appointed as follows:
(i) So long as Eurofund L.P. and Zohar Zisapel and its Transferees
within clauses (a) and (b) of the definition of "Permitted Transferee"
(in this Article Eurofund/Zisapel) collectively own no less than 8% of
the outstanding and issued share capital of the Company,
Eurofund/Zisapel shall have the right to appoint one member.
(ii) So long as Gemini and its Transferees within clauses (a) and (b)
of the definition of "Permitted Transferee" collectively own no less
than 6.5% of
<PAGE>
-32-
the outstanding and issued share capital of the Company, Gemini shall
have the right to appoint one member.
(iii) So long as Sequoia Capital and its Transferees within clauses
(a) and (b) of the definition of "Permitted Transferee" collectively
own no less than 8.6% of the outstanding and issued share capital of
the Company, Sequoia Capital shall have the right to appoint one
member.
(iv) So long as the Series D Investors and their Transferees within
clauses (a) and (b) of the definition of "Permitted Transferee"
collectively own no less than 5.5% of the outstanding and issued share
capital of the Company, the Series D Investors shall have the right to
appoint one member.
(v) So long as Hollander and his permitted Transferees collectively
own no less than 10.6% of the outstanding and issued share capital of
the Company, Hollander shall have the right to appoint two members. If
Hollander and his Permitted Transferees collectively own between 10.6%
and 5.5% of the outstanding and issues share capital of the Company,
Hollander shall have the right to appoint one member.
(vi) So long as Hollander and his Permitted Transferees collectively
own no less than 10.6% of the outstanding and issued share capital of
the Company, the seventh member of the Board shall be appointed by
mutual consent of all other six directors.
(vii) Any vacancy on the Board shall be filled by the Group, as this
term defined in this sub-Article below, who had appointed such
director.
Each of Eurofund/Zisapel, Gemini, Sequoia, the Series D Investors and
Hollander shall be called herein a "Group".
(viii) Notice of the Director appointed by a Group as per the above
shall be made in a written notice given to the Company, signed by
holders of the majority of the shares held by such Group.
(ix) In the event that a Shareholder is not entitled to nominate a
member, then the other members of the Board shall, by unanimous
consent, nominate additional members, such that there are a total of
seven persons nominated to the Board.
(c) In the event that the combined holdings of Yoav Hollander and the
Investor Shareholders and all of their Permitted Transferees fall
below 40% (forty percent) of the outstanding and issued share capital
of the Company, the Directors shall be elected by a plurality vote of
the Shareholders.
(d) So long as Zohar Zisapel or his Permitted Transferee under subsections
(a) and (b) of the definition of that term owns any shares of the
Company, Zohar Zisapel shall be entitled to serve as an observer on
the Board of Directors and its committees.
81. Reserved
<PAGE>
-33-
82.
(a) Any person, whether or not a Member of the Board Directors, may serve
as a substitute director (hereinafter - "substitute"). One person may
serve as the substitute for a number of directors.
(b) A substitute shall have - in addition to his vote if he himself is a
Member of the Board of Directors - the number of votes equal to the
number of Directors for whom he is serving as a substitute.
(c) A substitute shall have, subject to the provisions of the instrument
by which he was appointed, all the power and authority that the
Director for whom he is serving as director has, and in the event the
substitute is himself a Director, such powers and authorities shall be
in addition to his powers as a Member of the Board of Directors and
shall not in any way derogate therefrom.
(d) The appointment or removal of a substitute director shall be done in a
written document signed by the Director who appointed him. The
document shall be furnished to the Company.
(e) The office of a substitute director shall be automatically vacated if
his appointment is terminated by the Director who appointed him in
accordance with these regulations, or upon the occurrence with respect
to the substitute of one of the events described in sections (i),
(ii), (iii), (iv) or (v) of Article 83 or, if the office of the Member
of the Board of Directors with respect to whom he serves as a
substitute shall be vacated for any reason whatsoever.
83. Subject to the provisions of these Articles or to the provisions of an
existing contract, the tenure of office of a Director shall automatically
be terminated:
(i) if he becomes bankrupt;
(ii) if he is declared insane or becomes of unsound mind;
(iii) if he resigns by an instrument in writing delivered to the
Company, and if he was appointed by a Shareholder empowered to appoint
a director, with a copy to the Member or Member who appointed him;
(iv) with his death;
(v) with the liquidation of the Company; or
(vi) if he was appointed by a Shareholder, upon receipt by the
Company of a written notice from the Shareholder who appointed him, of
the termination of his appointment. Notice of termination of
appointment of a Director appointed by a Group, as this term defined
in Article 80 above, shall be made in a written notice given to the
Company, signed by holders of the majority of the shares held by such
Group.
84. Reserved.
<PAGE>
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85. Members of the Board of Directors who are not employees of the Company or
professionals providing special professional services for consideration to
the Company or its members shall not receive a salary from the funds of the
Company unless and to the extent that the general meeting has so decided.
The Directors and their substitutes, shall be entitled to reimbursement of
their reasonable expenses for travel, board and lodging that have been
expended for or during the performance of their duties as directors,
including actual and reasonable travel expenses to and from Board of
Director's meetings. The provisions of this Article 85 shall not derogate
from Shareholders rights under Section 96 of the Ordinance.
86. The Board of Directors shall have the powers set forth in this Article:
(a) The Directors pursuant to a duly convened and held Board Meeting of
the Directors of the Company may from time to time appoint one or more
persons, whether or not he is a Member of the Board of Directors, as
the General Manager or the Chief Executive Officer of the Company,
either for a fixed period of time or without limiting the time that he
or they will stay in office, and they may from time to time (subject
to any provision in any contract between him or them and the Company)
release him or them from their office and appoint another or others in
his or their place. The General Manager or Chief Executive Officer of
the Company, shall have the power to appoint the other officers of the
Company, without derogating from the power of the Board to remove
officers appointed by the General Manager for such reasons as the
Board determines.
The General Manager or Chief Executive Officer of the Company can only
be hired or removed pursuant to the affirmative vote of the number of
Directors which equals one less than the total number of the Directors
of the Company.
(b) The Board of Directors may from time to time grant and bestow upon the
General Manager or Chief Executive Officer, at that time, those powers
and authorities that it exercises pursuant to these Articles, as it
shall deem fit, and may grant those powers and authorities for such
period, and to be exercised for such objectives and purposes and in
such time and conditions, and on such restrictions, as it shall
decide; and it may grant such authorities whether concurrently with
the Board of Director's authorities in that area, or in place thereof
or any one of them, and it can from time to time revoke, repeal, or
change any one or all of those authorities.
Any substantial diminishment in the authority or powers of the General
Manager or Chief Executive Officer shall only be made with the
affirmative vote of the number of Directors which equals one less than
the total number of the Directors of the Company.
(c) Notwithstanding the provisions of Article 85, the wages and any other
compensation of the general manager shall be determined from time to
time by the Board of Directors (subject to any provision in any
contract between him and the Company) and it may be paid by way of a
fixed salary or commission or dividends, or a percentage of profits or
of the Company's turnover or of any other company that the Company has
an interest in, or by
<PAGE>
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participation in such profits, or in any combination of the
aforementioned methods, or such other method as the Directors shall
determine. The General Manager may determine the wages and other
compensation of the other officers of the Company, subject to the
review of the Board of Directors.
POWERS AND DUTIES OF DIRECTORS
------------------------------
87. Subject to Articles 8, the management of the business of the Company shall
be vested in the Board of Directors, and they may pay all expenses incurred
in connection with the founding and registration of the Company as they
shall see fit. They shall be entitled to perform all of the Company's
powers and authorities and to perform in its name all the acts that it is
entitled to do according to its Memorandum of Association and/or Articles
and/or Law except for those which pursuant to Law or the Articles are
vested in the general meeting of the Company, subject to any provisions in
the Law or in these Articles or the regulations that the Company shall
adopt in its general meeting (insofar as they do not contradict the Law or
these Articles). However any Article adopted by the Company in its general
meeting shall not affect the legality of any prior act of the Directors
that would be legal and valid, but for that Article.
88.
(a) A director shall not be required to hold qualifying shares.
(b) Subject to the Companies Ordinance, no Director shall be disqualified
by virtue of his office from holding any office, or, deriving any
profit from any other office in the Company or from any company in
which the Company shall be a shareholder or otherwise interested, or
from contracting with the Company as vendor, purchaser or otherwise,
nor shall any such contract, or any contract or arrangement entered
into by or on behalf of the Company in which the Director shall in any
way be interested, be avoided, nor shall any Director be liable to
account to the Company for any profit arising from any such office or
realized by any such contract or arrangement by reason only of such
Director's holding that office or of the fiduciary relations thereby
established, provided the nature of his interest is disclosed by him
no later than the meeting of the Board of Directors at which the
contract or arrangement is first considered, if his interest then
exists, or, in any other case, at the first meeting of the Board of
Directors, after the acquisition of his interest. After such
disclosure, every Director whose interest is submitted for approval
before the Board shall not be present and shall not vote at such
Board's meetings. A general notice that a Director is a member of any
firm or company and is to be regarded as interested in all
transactions with that firm or company shall be a sufficient
disclosure under this Article and after such general notice relating
to any particular transaction with such firm or company. The
provisions of this Article shall apply also to a substitute director
and proxy.
89. A Director may hold another paid position or function in the Company or in
any other company of which the Company is a shareholder or in which the
Company is a shareholder or in which the Company has some other interest,
or that has an
<PAGE>
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interest in the Company, together with his position as a Director (except
an auditor) upon these conditions with respect to salary and other matters
as decided by the Directors.
FUNCTIONS OF THE DIRECTORS
--------------------------
90.
(a) The Directors may meet, including but without limitation by means of
video or telephone conference, in order to transact business, to
adjourn their meetings or to organize them otherwise as they shall
deem fit and, subject to sub-Article (b) below, to determine the legal
quorum necessary to conduct business.
(b) The presence of three-fifths of the total number of members of the
Board of Directors, including at least one Director appointed by the
Investor Shareholders, will be necessary and sufficient to constitute
a quorum for the transaction of business, provided that if such quorum
is not present within half an hour from the time set for the meeting,
the meeting shall stand adjourned to the following day at the same
time and place, and at such adjourned meeting the directors present
shall constitute a quorum. Any Board of Director resolutions adopted
at a duly constituted meeting at which a quorum is present shall be
the act of the Board of Directors, except for such actions which
require the approval of the Investor Shareholders or holders of
Preferred Shares pursuant to these Articles.
(c) For the purposes of this Article, two Directors or more may be
represented by the same substitute, and every such substitute shall be
entitled to one vote for each director that he represents, in addition
to any vote he may have himself (if he has such a vote).
91. Subject to any resolution to the contrary adopted by the Board of
Directors, the chairman of the Board of Directors or any two directors may
at any time call a board of Directors' meeting, and the secretary shall be
required on the request of the chairman or such Directors to convene said
meeting.
92. The Directors may from time to time elect a chairman, and decide the period
of time he shall hold such an office, and he shall preside at the meetings
of the Board of Directors. However, if such a chairman is not elected or if
he is not present at any meeting, within thirty minutes after the time
appointed for the meeting, the Directors may choose one of their number to
serve as chairman of the meeting.
93. Any notice of a Board of Director's meeting can be given orally, by
telephone, in writing, or by telegram, facsimile or telex. Notice shall be
given at least 7 days before the time appointed for the meeting, unless all
of the Directors at that time agree to a shorter notice, or waive notice
altogether.
94.
(a) Issues raised before all meetings of the Board of Directors shall be
decided by majority vote unless otherwise provided in Articles 8 or
86.
<PAGE>
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(b) The chairman of a meeting of the Board of Directors, whether the
chairman of the Board of Directors or any other director chosen to
serve as chairman of the meeting, shall not have an additional or
casting vote.
95.
(a) Without derogating from the provisions of Articles 8 or 86, the
Directors may delegate any of their powers to committees consisting of
such member or members of their body as they deem fit, provided that
at least one member of each committee is a Director appointed by the
Investor Shareholders, and may from time to time revoke such
delegation.
(b) Without derogating from the provisions of Articles 8 or 86, each
committee to which any powers of the Directors have been delegated
shall abide by any regulations enacted by the Directors with respect
to the exercise of such delegated powers. In the absence of such
regulations or if such regulations are incomplete in any respect, the
committee shall conduct its business in accordance with these
Articles. The regulations set forth in these Articles concerning the
Directors, the conduct of their meetings and their manner of voting
shall apply mutatis mutandis to committees of the Board of Directors.
96. All actions performed in a bona fide fashion by the Board of Directors or
by a committee thereof or by any person acting as a director or as a
substitute shall be as valid as if each and every such person were duly and
validly appointed and fit to serve as a director or substitute as the case
may be, even if at a later date a flaw shall be discovered in the
appointment of such a director or such a person acting as aforesaid, or in
his qualifications so to serve.
97.
(a) The Directors shall cause minutes to be taken of all general meetings
of the Company, of the appointments of officers of the Company, of
Board of Director's meetings and of committee meetings, which minutes
shall include the following items, if applicable:
(1) the names of the Members present
(2) the matters discussed at the meeting
(3) the results of votes taken
(4) resolutions adopted at the meeting
(5) directives given by the meeting to the committees.
(b) The minutes of any meeting, signed or appearing to be signed by the
chairman of the meeting or by the chairman of the meeting held
immediately after that meeting or by the secretary, shall serve as a
prima facie proof of the facts in the minutes.
<PAGE>
-38-
98. A resolution in writing signed or agreed to in writing or by telephone,
telex or facsimile by all of the Directors, or by all of the Members of a
committee, as the case may be, shall be valid for every purpose as a
resolution adopted at a Board of Directors' or committee meeting, as the
case may be, that was duly convened and held. In place of a director, the
aforesaid resolution may be signed and delivered by his substitute or his
proxy or his substitute's proxy.
SEAL, STAMP AND SIGNATURES
--------------------------
99.
(a) The Directors shall cause the Company's seal (if the Company shall
have a seal) to be kept in safekeeping and it shall be forbidden to
use the seal unless prior permission of the Board of Directors is
given. Such permission may be given generally to a particular person
or persons, or with respect to a particular class or classes of
transactions. If such permission was given, the seal shall be affixed
in the presence of whoever has been so appointed by the Board of
Directors, and he shall sign any document upon which the seal has been
affixed.
(b) The Company shall have at least one rubber stamp. The Directors shall
ensure that such a stamp is kept in a safe place.
(c) The Board of Directors may designate any person or persons (even if
they are not Members of the Board of Directors) to act and to sign in
the name of the Company, and to apply the Company seal or stamp, and
the acts and signature of such person or persons shall bind the
Company, insofar as such person or persons have acted and signed
within the limits of their authority.
(d) The Company may exercise the authorities granted to a company in
Section 102 of the Ordinance with respect to the keeping of a seal for
use outside of Israel, and such authorities shall be granted to the
Directors.
(e) The printing of the name of the Company by a typewriter or by hand
next to the signatures of the authorized signatories of the Company,
pursuant to sub-article (c) above shall be valid as if the rubber
stamp of the Company was affixed.
LOCAL MANAGEMENT
----------------
100.
(a) The Directors may organize from time to time arrangements for the
management of the Company's business in any particular place, whether
in Israel or abroad, as they shall see fit, and the provisions of the
next section shall not derogate from the general powers granted to the
Board of Directors pursuant to this Article.
(b) The Directors may from time to time convene any local management or
agency to conduct the business of the Company in any particular place,
whether in Israel or abroad, and may appoint any person to be a member
of
<PAGE>
-39-
such local management, or to be a director or agent, and may decide
his manner of compensation. The Directors may from time to time grant
a person so appointed any power, authority, or discretion that the
Directors have at that time, and may authorize any person acting at
that time as a member of a local management to continue in his
position notwithstanding that some position has been vacated there,
and any such appointment or authorization may be made upon such
conditions as the Directors deem fit. The Directors may from time to
time relieve any person so appointed or revoke or change any such
authorization.
BRANCH REGISTERS
----------------
101. The Company may, subject to the provision of Sections 71 to 81 inclusive
of the Ordinance and any order given or to be given pursuant to those
Sections or any one of them, keep in every other country where those
provisions shall apply, a register or registers of Members living in that
other country, and exercise any other powers referred to in the laws with
respect to such branch registers.
102. Reserved.
DIVIDEND
--------
103. Subject to Article 8(b) the Company, at a general meeting and upon the
recommendation of the Directors may declare a dividend to be paid to the
Members, according to their rights and benefits in the profits, and to
decide the time of payment. A dividend may not be declared in excess of
that recommended by the Directors, although the Company may declare at a
general meeting a smaller dividend.
104. The Directors may from time to time pay to the Members on account of a
forthcoming dividend such interim dividend as shall be deemed just with
regard to the situation of the Company.
105. A notice of the declaration of a dividend, whether an interim dividend or
otherwise, shall be given to the Members registered in the Register, in
the manner provided for in these Articles.
106.
(a) Subject to the provisions of these Articles and subject to any rights
or conditions attached at that time to any share in the capital of
the Company granting preferential, special or deferred rights or not
granting any rights with respect to dividends, the profits of the
Company which shall be declared as dividends shall be distributed
according to the proportion of the nominal value paid up on account
of the shares held at the date so appointed by the Company, without
regard to the premium paid in excess of the nominal value, if any. No
amount paid or credited as paid on a share in advance of calls shall
be treated for purposes of this Article as paid on a share.
<PAGE>
-40-
(b) The Directors may issue any share upon the condition that a dividend
shall be paid at a certain date or that a portion of the declared
dividend for a certain period shall be paid, or that the period for
which a dividend shall be paid shall commence at a certain date, or
any similar condition. In every such case subject to the provision
mentioned in sub-article (a) above- the dividend shall be paid in
respect of such a share in accordance with such a condition.
107. At the time of declaration of a dividend the Company may decide that such
a dividend shall be paid in whole or in part by way of distribution of
certain properties, including by means of distribution of fully paid up
shares or debentures or debenture stock of the Company, or by means of
distribution of fully paid up shares or debentures or debenture stock of
any other company, or in one or more of the aforesaid ways.
108. The Directors may put a lien on any dividend on which the Company has a
charge, and may use it to pay any debts, obligations or commitments to
which the charge applies.
109. The persons registered in the Register as Members on the record date for
declaration of the dividend shall be entitled to receive the dividend. A
transfer of shares shall not transfer the right to a dividend which has
been declared after the transfer but before the registration of the
transfer.
110. A dividend may be paid, inter alia, by check or payment order to be mailed
to the registered address of a Member or person entitled thereto in the
Register, or in the case of joint owners to the address of one of the
joint owners as registered in the Register. Every such check shall be made
out to the person to whom it is sent. The receipt of the person who on the
date of declaration of the dividend is registered as the holder of any
share or, in the case of joint holders, of one of the joint holders, shall
serve as a release with respect to payments made in connection with that
share.
111.
(a) If at any time the share capital is divided into different classes of
shares, the distribution by way of dividend of fully paid up shares,
or from funds pursuant to Article 112 below, shall be made in one of
the two following manners as to be decided upon by the Directors:
(i) In such a manner so that all holders of a share entitled to
fully paid up shares shall receive one uniform class of share, or
(ii) In such manner so that each holder of shares entitled to fully
paid up shares shall receive shares of the class of shares held by
him and entitling him to fully paid up shares.
(b) If the Company has redeemed redeemable preference shares, then all
funds reserved for redemption of capital resulting from the
redemption of such shares may be used, in whole or in part, according
to a resolution of the Company, to pay in full or in part any new
share issues or any shares not yet
<PAGE>
-41-
issued, that shall be issued to such Members of the Company or other
persons, as shall be decided upon by the Board of Directors, up to
the sum equal to the nominal value of the shares to be issued.
(c) In order to give effect to any resolution in connection with
distribution of dividends, or distribution of property, fully paid-up
shares or debentures, the Board of Directors may resolve any
difficulty that shall arise with respect to such distribution in such
way as it shall deem proper, including the issuance of certificates
for fractional shares, and the determination of the value of certain
property for purposes of distribution. The Board may further decide
that payment in cash shall be made to a Member on the basis of the
value decided for that purpose, or that fractions the value of which
is less than one Israeli shekel shall not be taken into account for
the purpose of adjusting the rights of all the parties. The Board of
Directors shall be permitted in this regard to grant cash or property
to trustees in escrow for the benefit of persons entitled thereto, as
the Directors shall see fit. Wherever required, an agreement shall be
submitted to the Registrar of Companies and the Directors may appoint
a person to execute such an agreement in the name of the persons
entitled to any dividend, property, fully paid-up shares or
debentures as aforesaid, and such an appointment shall be valid.
(d) The Company shall not be obligated to pay interest on any dividend.
(e) The Board of Directors may, with respect to all dividends not
demanded within one year after their declaration, invest or use them
in another way for the benefit of the Company, until they shall be
demanded. The Company shall not pay interest for dividends or
interest not paid in such circumstances.
FUNDS
-----
112. The Directors may set aside from the profits of the Company the sums they
deem proper, as a reserve fund or reserve funds for extraordinary uses, or
for special dividends or other funds or for the purpose of preparing,
improving or maintaining any property of the Company and for such other
purposes as shall in the discretion of the Board of Directors be
beneficial to the Company. The Directors may invest the various sums so
set aside in such investments as they deem proper, and from time to time
deal in, change, or transfer such investments, in part or in whole, for
the benefit of the Company. The Board of Directors may also divide any
reserve fund to special funds as it shall deem proper, transfer moneys
from fund to fund and use every fund or any part thereof in the business
of the Company, without being required to keep such sums separate from the
rest of the Company's property.
The Directors may, from time to time, also transfer to the next year
profits out of such sums which are, in their discretion, beneficial to the
Company. Generally the Directors may create funds as they deem necessary,
either those resulting from profits of the Company or from re-evaluation
of property, or from premiums paid for shares or from any other source,
and use them in their discretion as they deem fit, including without
limitation for the full payment of the nominal value of shares
<PAGE>
-42-
issued upon the exercise of warrants on a net issuance basis, so long as
the creation, changes or uses of such funds do not exceed any provision of
the law or accepted accounting principles and practices.
113. Without derogating from the provisions of Article 112, premiums received
from the issue of shares shall not be treated as profits distributable as
dividends. The Board of Directors may organize a reserve capital liability
account and transfer from time to time all such premiums to the reserve
capital liability account or use such premiums and moneys to cover
depreciation or doubtful loss. All losses from sale of investments or
other property of the Company shall be debited to the reserve capital
liability account, unless the Directors decide to cover such losses from
other funds of the Company. The Board of Directors may use any moneys
credited to the reserve capital liability account in any manner that these
Articles or the law permits.
114. Any amounts transferred and credited to the account of income and expense
fund or general reserve liability account or capital liability reserve
account, may, until otherwise used in accordance with these Articles, be
invested together with such other moneys of the Company in the day to day
business of the Company without having to differentiate between these
investments and the investment of other moneys of the Company.
CAPITALIZATION OF RESERVE FUNDS
-------------------------------
115. The Company may from time to time resolve at a general meeting that any
sum, investment or property not required as a source for payment of fixed
preferential dividends and (a) standing credited at that time to any fund
or to any reserve liability account of the Company, including also
premiums received from issuance of shares, debentures, or debenture stock
of the Company; or (b) being net profits not distributed and remaining in
the Company, shall be capitalized, and that such investment sum or
property be released for distribution and be distributed as capital among
the Shareholders of the Company according to the proportion to which they
would be entitled if such amount were distributed as dividends on shares,
in the manner so directed by such resolution. The Board of Directors shall
use such investment sum or property, according to such a resolution, for
full payment of such shares of the Company's capital not issued to the
Shareholders and to issue such shares and to distribute them as fully paid
up shares among those Shareholders according to the pro rata rate for
payment of the value of the shares and their rights in the amount
capitalized, or as full payment of shares to be issued upon the exercise
of warrants on a net issuance basis. The Directors may also use such
investment sum or property or any part thereof for the aforesaid
Shareholders for full payment of those shares not issued, in proportion to
such shares of the Company's capital issued and held by such Shareholders,
or use such investment sum or property in any other manner permitted by
such a resolution. If any difficulty shall arise with respect to such a
distribution the Directors may organize the distribution as they deem
desirable.
They shall particularly be permitted to issue fractional certificates, to
determine the value of the property or investment for the purpose of
distribution of all fully paid up shares, to pay money to any such
Shareholder according to the value determined in this manner in order to
coordinate and adjust the Shareholders' rights. The
<PAGE>
-43-
Directors shall also be permitted to decide that parts the value of which
is less than one Israel shekel shall not be taken into account in order to
adjust the rights of all parties, to give all such shares, cash or
property to trustees to hold in escrow for such persons entitled to part
of the allocation and the distribution in accordance with and against such
securities as the Directors deem desirable. Where required, an agreement
pursuant to Section 129 of the Ordinance for the allocation and
distribution of the shares distributed in the manner aforementioned shall
be submitted to the Registrar of Companies for registration.
The Board of Directors may appoint a person to sign such an agreement in
the name of the persons entitled to part of the allocation and
distribution and such an appointment shall be valid.
ACCOUNTS AND AUDIT
------------------
116. The Directors shall cause correct accounts to be kept:
(a) of the assets and liabilities of the Company;
(b) of monies received or expended by the Company and the matters for
which such monies are expended or received;
(c) of all purchases and sales made by the Company.
The account books shall be kept in the office or at such other place as
the Directors deem fit and they shall be open for inspection by the
Directors.
117. The Directors shall determine from time to time, in any specific case or
type of case, or generally, whether and to what extent and at what times
and places and under what conditions or regulations the accounts and books
of the Company, or any of them, shall be open for inspection by the
Members. No Member other than a director shall have any right to inspect
any account book or document of the Company except as conferred by law or
authorized by the Board of Directors or by the Company in a general
meeting.
118. Not later than eighteen months after the registration of the Company and
thereafter not less than once a year, the Directors shall submit before
the Company at a general meeting a balance sheet and profit and loss
statement for the period after the previous statement, and if it is the
first statement for the period since registration of the Company, the
statement shall be prepared as of a date not more than nine months before
the date of the meeting and in accordance with the relevant provisions of
the Ordinance. A report of the auditor shall be attached to the
statements, and it shall be accompanied by a report from the Directors
with respect to the situation of the Company business, the amount (if any)
they propose as a dividend and the amount (if any) that they propose be
set aside for the fund accounts.
119. Auditors shall be appointed and their function shall be set out in
accordance with the Law.
<PAGE>
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NOTICES
-------
120. A notice or any other document may be served by the Company upon any
Member either personally or by sending it by post, telegram, facsimile or
telex addressed to such Member at his registered address as appearing in
the register of Members. If the address of a Member is outside of Israel,
then any notice sent by post shall be sent by airmail.
121. All notices with respect to any share to which persons are jointly
entitled, may be given to one of the joint holders, and any notice so
given shall be sufficient notice to all the holders of such share.
122. Any Member registered in the Register who shall from time to time furnish
the Company with an address at which notices may be served, shall be
entitled to receive all notices he is entitled to receive according to
these Articles at that address. However, except for the aforesaid, no
Member whose address is not registered in the register shall be entitled
to receive any notice from the Company.
123. A notice may be given by the Company to the persons entitled to a share in
consequence of the death or bankruptcy of a Member by sending it through
the post in a prepaid airmail letter or telegram or telex or facsimile
addressed to them by name, at the address, if any, furnished for the
purpose by the persons claiming to be so entitled or, until such an
address has been so furnished, by giving the notice in any manner in which
the same might have been given if the death or bankruptcy had not
occurred.
124. Any notice or other document, (i) if delivered personally, shall be deemed
to have been served upon delivery, (ii) if sent by post, shall be deemed
to have been served 14 days after the time when the letter was delivered
to the post, if sent by airmail, and seven days after the letter was
delivered to the post, if sent by domestic post, and (iii) if sent by
telex, facsimile or telegram, shall be deemed to have been served at such
time as the telex, facsimile or telegram was sent.
In proving such service it shall be sufficient to prove that the letter or
telegram or telex or facsimile containing the notice was properly
addressed and delivered at the post office or sent by telex, facsimile or
telegraph, as the case may be. Any list kept in the ordinary manner in any
mail list of the Company or any copy of any telex in the Company's
possession shall be prima facie proof of the delivery.
REORGANIZATION OF THE COMPANY
-----------------------------
125. In case of a sale of substantially all of the Company's assets the
Directors may, or in case of liquidation the liquidators may, if
authorized by a special resolution of the Company, receive shares paid in
full or part, debentures, or other securities of any other company,
whether already existing or about to be established for the purpose of
acquiring the property of the Company, or a part thereof. The Directors
(if the profits of the Company so permit) or the liquidators (at the time
of liquidation) may distribute among the Members the shares or aforesaid
securities or any other property of the Company without realizing them, or
may deposit them with trustees for the Members. Subject to Article 8A the
Company may, by special resolution, resolve as to the distribution or the
setting aside of cash, shares,
<PAGE>
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or other securities and the right or property of the Company in a manner
not entirely identical with the legal rights of the Members of the
Company, or its participants. Such a resolution may value the securities
or property aforesaid at such price and in such manner as the meeting
shall decide. All Shareholders shall be required to accept any valuation
or distribution decided as aforesaid and to waive all their rights in this
regard, except when the Company is at a liquidation stage or in the
process of liquidation, with respect to such legal rights (if any) which
according to the provisions of the law cannot be altered or renounced.
INSURANCE AND INDEMNITY OF OFFICERS
-----------------------------------
126.
(a) Subject to the provisions of the Companies Ordinance the Company may:
(1) enter into a contract for the insurance of the liability, in
whole or in part, of any of its Officers with respect to any of
the following:
(i) a breach of duty of care to the Company or to any other
person;
(ii) a breach of fiduciary duty to the Company provided that
the Officer has acted in good faith and that he had reasonable
grounds to assume that the act would not harm the good of the
Company;
(iii) a financial liability which shall be imposed on such
Officer in favor of any other person, in respect of an act
performed by him by virtue of his being an officer of the
Company;
(2) indemnify an Officer of the Company with respect to any of the
following;
(i) a financial liability imposed on him in favor of another
person by any judgment, including a judgment given as a result
of a settlement or an arbitrator's award which has been
confirmed by a court, in respect of an act performed by him by
virtue of his being an Officer of the Company.
(ii) reasonable litigation costs, including lawyer's fees,
expended by an Officer or which were imposed on an Officer by a
court in proceedings filed against him by the Company or in its
name or by any other person or in a criminal charge on which he
was acquitted, in respect of an act performed by him by virtue
of his being an Officer of the Company.
(b) In this Article the term "Officer" shall mean; a Director, General
Manager, Chief Executive Officer, Deputy General Manager, Vice
General Manager, any other manager directly subordinate to the
General Manager or the Chief Executive Officer, and any person who
fills one of the said positions in the Company, even if he carries a
different title.
93\3\6\
<PAGE>
Amendment of the
Articles of Association
-----------------------
dated May 27, 1999
"1. That the definition of the term "Permitted Transferee", as appearing in
Article 2 of the Articles of Association of the Company, shall be canceled
and replaced by a new definition as follows:
""Permitted Transferee" shall mean a person who receives shares pursuant to
one of the following permitted transfers:
(a) Any Shareholder (the "transferor") may at any time transfer all or any
of the Shares held by it to: (i) a company in which the transferor(s)
own(s) directly or indirectly more than 75% of the equity and voting
capital or has the right or power to direct the policy and management
of such company; or (ii) a company that owns directly or indirectly
more than 75% of the equity and voting capital or has the right or
power to direct the policy and management of the transferor(s); or
(iii) in the case of a transfer by a limited partnership, to any
affiliated limited partnership managed by the same management company
or to the partners thereof; or (iv) in the case of a transfer by
limited liability company, to its members; or (v) in the case of a
body corporate, to its shareholders in the same proportion as their
ownership interest in the body corporate.
Shareholder being an individual may at any time transfer all or any
shares held by him (i) to his spouse, children, grandchildren
(including step and adopted children and grandchildren), siblings and
issue of his siblings; (ii) to any trust, partnership, limited
liability company, custodianship or fiduciary account for the benefit
of the transferring Shareholder and/or any of the foregoing.
(c) Any Investor Shareholder may transfer to another Investor Shareholder
holding the same Series of Preferred Shares.
(d) A Trustee of the Company's employee share plan may transfer to a
beneficiary and vice versa."
2. That Article 7(e) of the Articles of Association in its current form shall
be canceled and replaced by a new Article 7(e) as follows:
"7(e) For the purpose of Article 7(b) and 7(c), the consideration of any
New Shares shall be calculated at the U.S. dollar equivalent
thereof, on the day such New Shares are issued or deemed to be
issued pursuant to Article 7(b) or 7(c). "New Shares" shall mean
shares of whatever class issued or deemed to have been issued
pursuant to Article 7(b) or 7(c) by the Company other than (i)
shares held by Ma'ahaz Ne'eman Ltd. or its successor, as of the
date of the adoption of these Articles, to be distributed to
employees and shares to be issued to bona fide employees or
consultants of the Company or of the Company's subsidiaries
<PAGE>
-2-
pursuant to any share option plan or share incentive plan approved
by the Board of Directors in an amount not exceeding 3,806,000
Shares (as adjusted for any bonus shares, combinations, splits etc.
with respect to such shares) ("Compensatory Shares"), (ii) Ordinary
Shares issued upon the conversion of the Preferred Shares or of
Class B Ordinary Shares, or Series B1 Preferred Shares issued upon
the conversion of the Series B2 Preferred Shares or Series C1
Preferred Shares issued upon the conversion of the Series C2
Preferred Shares, (iii) shares issued pursuant to an offering of
shares by the Company, to all Participating Shareholders (as that
term is defined in Article 50 below) only, (iv) shares issued upon
the exercise of any warrants issued to Gemini Israel Fund L.P., (v)
shares, in an amount not to exceed 3% of the then issued and
outstanding share capital of the Company on a fully diluted basis,
issued to a "strategic investor", it being understood that the
then-sitting directors appointed by the Investor Shareholders, if
any are then sitting, shall solely decide whether an investor is a
"strategic investor", (vi) shares issued to lenders or lessors in
connection with bona fide bank and lease financing approved by the
Board of Directors ("Lease/Bank Financing Shares"), and (vii)
shares issued upon the exercise of any warrants issued to
investment bankers providing services to the Company in connection
with capital raising transactions of the Company or to any
affiliate of such investment bankers ("Investment Bankers
Shares")."
3. That Article 51(a) of the Articles of Association in its current form shall
be canceled and replaced by a new Article 51(a) as follows:
"51(a) "New Securities" shall mean any equity interest (including Ordinary
and Preferred Shares) in the Company, whether now authorized or
not, and rights, options or warrants to purchase such equity
interests, and securities of any type whatsoever that are
convertible into equity interests; provided that the term "New
Securities" does not include: (i) Ordinary Shares issued upon the
conversion of the Preferred Shares or of Class B Ordinary Shares,
or Series B1 Preferred Shares issued, upon the conversion of the
Series B2 Preferred Shares or Series C1 Preferred Shares issued
upon the conversion of the Series C2 Preferred Shares, (ii)
Compensatory Shares in an amount not exceeding 3,806,000 Shares (as
adjusted for any bonus shares combinations, splits etc. with
respect to such shares), (iii) shares issued upon the exercise of
any warrants issued to Gemini Israel Fund L.P., (iv) shares, in an
amount not to exceed 3% of the then issued and outstanding share
capital of the Company on a fully diluted basis, issued to a
"strategic investor", it being understood that the then-sitting
directors appointed by the Investor Shareholders, if any are then
sitting, shall solely decide whether an investor is a "strategic
investor", (v) Lease/Bank Financing Shares, and (vi) Investment
Bankers Shares"."
-----------------------------------
[signatures in Hebrew]
123\3\6\
<PAGE>
Amendment of the
Articles of Association
-----------------------
dated November 7, 1999
1. To convert the Company from a Private Company into a Public Company, as
these terms are defined within the Companies Ordinance [New Version], 5743
- 1983.
2. To alter and modify the registered and the issued share capital of the
Company, by converting, consolidating and dividing part of the Company's
registered and issued share capital, as set forth below:
The registered and issued share capital of the Company as of today:
<TABLE>
<CAPTION>
Shares Class Par Value of Each Total Number of Total Number of
Share Registered Shares Issued Shares
---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Ordinary Shares NIS 0.01 31,137,958 4,557,993
---------------------------------------------------------------------------------------------
Ordinary B Shares NIS 0.01 3,777,466 --
---------------------------------------------------------------------------------------------
Series A1 Preferred
Shares NIS 0.01 963,540 432,000
---------------------------------------------------------------------------------------------
Series A2 Preferred
Shares NIS 0.01 2,153,794 960,000
---------------------------------------------------------------------------------------------
Series A3 Preferred
Shares NIS 0.01 2,550,545 1,129,020
---------------------------------------------------------------------------------------------
Series B1 Preferred
Shares NIS 0.01 453,871 453,871
---------------------------------------------------------------------------------------------
Series B2 Preferred
Shares NIS 0.01 1,592,106 1,138,235
---------------------------------------------------------------------------------------------
Series C1 Preferred
Shares NIS 0.01 2,185,360 870,630
---------------------------------------------------------------------------------------------
Series C2 Preferred
Shares NIS 0.01 2,185,360 --
---------------------------------------------------------------------------------------------
Series D Preferred
Shares NIS 0.01 3,000,000 1,672,20
---------------------------------------------------------------------------------------------
Total 50,000,000 11,214,069
------------------------------------------------------------------------
</TABLE>
will be consolidated in part and divided in part so that:
2.1 87,000 Series Al Preferred Shares of NIS 0.01 each of the Company,
issued and registered in the names of Zohar Zisapel (58,000 shares)
and Eurofund L.P. (29,000 shares) will be consolidated, divided and
converted into 87,000 Ordinary Shares of NIS 0.01 par value each of
the Company, to be held by their above holders in the above amount
held by each such holder.
<PAGE>
-2-
2.2 194,000 Series A2 Preferred Shares of NIS 0.01 each of the Company,
issued and registered in the names of Zohar Zisapel (97,000 shares)
and Eurofund L.P. (97,000 shares) will be consolidated, divided and
converted into 194,000 Ordinary Shares of NIS 0.01 par value each of
the Company, to be held by their above holders in the above amount
held by each such holder.
2.3 227,980 Series A3 Preferred Shares of NIS 0.01 each of the Company,
issued and registered in the names of Gemini Israel Fund L.P. (162,720
shares), Advent Israel L.P. (58,207 shares) and Advent Israel
(Bermuda) L.P. (7,053 shares) will be consolidated, divided and
converted into 227,980 Ordinary Shares of NIS 0.01 par value each of
the Company, to be held by their above holders in the above amount
held by each such holder.
2.4 91,020 Series Bl Preferred Shares of NIS 0.01 each of the Company,
issued and registered in the names of Sequoia Capital VII L.P. (83,284
shares), Sequoia Technology Partners VII (3,641 shares), SQP 1997
(1,689 shares), Sequoia 1997 LLC (950 shares) and Sequoia
International Partners (1,456 shares) will be consolidated, divided
and converted into 91,020 Ordinary Shares of NIS 0.01 par value each
of the Company, to be held by their above holders in the above amount
held by each such holder.
Therefore the registered and issued share capital of the Company after the
execution of the above alteration and modification of the share capital of
the Company, shall be as follows:
<TABLE>
<CAPTION>
Shares Class Par Value of Each Total Number of Total Number of
Share Registered Shares Issued Shares
---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Ordinary Shares NIS 0.01 31,737,958 5,157,993
---------------------------------------------------------------------------------------------
Ordinary B Shares NIS 0.01 3,777,466 --
---------------------------------------------------------------------------------------------
Series A1 Preferred
Shares NIS 0.01 876,540 345,000
---------------------------------------------------------------------------------------------
Series A2 Preferred
Shares NIS 0.01 1,959,794 766,000
---------------------------------------------------------------------------------------------
Series A3 Preferred
Shares NIS 0.01 2,322,565 901,040
---------------------------------------------------------------------------------------------
Series B1 Preferred
Shares NIS 0.01 362,851 362,851
---------------------------------------------------------------------------------------------
Series B2 Preferred
Shares NIS 0.01 1,592,106 1,138,235
---------------------------------------------------------------------------------------------
Series C1 Preferred
Shares NIS 0.01 2,185,360 870,630
---------------------------------------------------------------------------------------------
Series C2 Preferred
Shares NIS 0.01 2,185,360 --
---------------------------------------------------------------------------------------------
Series D Preferred
Shares NIS 0.01 3,000,000 1,672,20
---------------------------------------------------------------------------------------------
Total 50,000,000 11,214,069
------------------------------------------------------------------------
</TABLE>
<PAGE>
-3-
The powers, preferences, rights, restrictions and other matters relating to
the Ordinary Shares, the Ordinary B Shares, the Series A Preferred Shares,
the Series B Preferred Shares, the Series C Preferred Shares and the Series
D Preferred Shares shall all be determined in the Company's Articles of
Association as shall be in force from time to time.
3. That Section 4 of the Memorandum of Association of the Company in its
current form shall be canceled, and replaced by a new Section 4 as follows:
[paragraph in Hebrew]
4. That the Articles of Association of the Company shall be amended as
follows:
4.1 That the following definition shall be added to Article 2 of the
Articles of Association of the Company:
"SureFire Shareholders" shall mean Michael McNamara, Chong Guan Tan,
David Todd Massey, Chiahon Chien, Bob Emberley, Krist Roginski,
Woohyuk Lee, Kathleen Leavitt, White & Lee, LLP, Steve Blank,
Kanematsu Corporation, Venglobal Capital Fund, L.P., Venglobal Capital
Management Corporation, John Sanguinetti, Sanguinetti 1996 Trust and
all their Permitted Transferees."
4.2 That Article 3 of the Articles of Association shall be canceled.
4.3 That Article 5 of the Articles of Association in its current form
shall be canceled and replaced by a new Article 5 as follows:
"5. The share capital of the Company shall consist of NIS 500,000
divided into ten classes of shares: 31,737,958 Ordinary Shares,
3,777,466 Class B Ordinary Shares, 876,540 Series Al Preferred
Shares, 1,959,794 Series A2 Preferred Shares, 2,322,565 Series A3
Preferred Shares, 362,851 Series B1 Preferred Shares, 1,592,106
Series B2 Preferred Shares, 2,185,360 Series C1 Preferred Shares,
2,185,360 Series C2 Preferred Shares and 3,000,000 Series D
Preferred Shares. The Ordinary Shares and Preferred Shares shall
each have a nominal amount of NIS 0.01. The powers, preferences,
rights, restrictions, and other matters relating to the Ordinary
Shares and Preferred Shares are as set forth in the following
Articles.
The Holders of Series A Preferred Shares shall have the right at
any time after the issuance of such shares to convert these
shares into Ordinary Shares, on a one for one basis, subject to
Article 7 below.
The holders of Series B1 Preferred Shares shall have the right at
any time after the issuance of such shares to convert these
shares into (i) Ordinary Shares or (ii) Series B2 Preferred
Shares, on a one for one basis and in the case of conversion from
Series B1 Preferred Shares to Ordinary Shares, such conversion
will be subject to Article 7 below.
The holders of Series C1 Preferred Shares shall have the right at
any time after the issuance of such shares to convert these
shares into (i) Ordinary Shares or (ii) Series C2 Preferred
Shares, on a one for one basis and in the
<PAGE>
-4-
case of conversion from Series C1 Preferred Shares to Ordinary
Shares, such conversion will be subject to Article 7 below.
The holders of Series D Preferred Shares shall have the right at
any time after the issuance of such shares to convert these
shares into Ordinary Shares, on a one for one basis, subject to
Article 7 below.
The holders of Series B2 Preferred Shares shall have the right at
any time after the issuance of such shares to convert these
shares into Class B Ordinary Shares, on a one for one basis,
subject to Article 7 below. In addition, the holders of Series B2
Preferred Shares shall have the right at any time after the
issuance of such shares to convert these shares into Series BI
Preferred Shares, on a one for one basis, provided that such
holder shall have certified to the Company that either (i) at the
time of such conversion capital gains earned upon a disposition
of shares in the Company are exempt from Israeli taxation in
accordance with the terms of the Income Tax Order (Exemption from
Capital Gains Tax Upon a Sale of Shares), 5742-1981, or any
successor provision, or (ii) after giving effect to such
conversion such holder, together with all affiliates of such
holder (with the designation of such affiliates to be determined
by such holder), holds an aggregate voting power in the Company
of less than 10%.
The holders of Series C2 Preferred Shares shall have the right at
any time after the issuance of such shares to convert these
shares into Class B Ordinary Shares, on a one for one basis,
subject to Article 7 below. In addition, the holders of Series C2
Preferred Shares shall have the right at any time after the
issuance of such shares to convert these shares into Series C1
Preferred Shares, on a one for one basis, provided that such
holder shall have certified to the Company that either (i) at the
time of such conversion capital gains earned upon a disposition
of shares in the Company are exempt from Israeli taxation in
accordance with the terms of the Income Tax Order (Exemption from
Capital Gains Tax Upon a Sale of Shares), 5742-1981, or any
successor provision, or (ii) after giving effect to such
conversion such holder, together with all affiliates of such
holder (with the designation of such affiliates to be determined
by such holder), holds an aggregate voting power in the Company
of less than 10%.
The holders of Class B Ordinary Shares shall have the right at
any time after the issuance of such shares to convert these
shares, on a one for one basis, into Ordinary Shares, provided
that such holder shall have certified to the Company that either
(i) at the time of such conversion capital gains earned upon a
disposition of shares in the Company are exempt from Israeli
taxation in accordance with the terms of the Income Tax Order
(Exemption from Capital Gains Tax Upon a Sale of Shares), 5742-
1981, or any successor provision, or (ii) after giving effect to
such conversion such holder, together with all affiliates of such
holder (with the designation of such affiliates to be determined
by such holder), holds an aggregate voting power in the Company
of less than 10%."
4.4 That Article 7(c) of the Articles of Association in its current form
shall be canceled and replaced by a new Article 7(c) as follows:
<PAGE>
-5-
"(c) If the Company (1) grants any rights, options or warrants (other
than rights, options or warrants issued in connection with the
Compensatory Shares, Lease/Bank Financing Shares, Investment
Bankers Shares or Merger Consideration Shares, as those terms are
defined in Article 7(e) below) to subscribe for, purchase, or
otherwise acquire Ordinary Shares, or (2) issues or sells any
security convertible into or exchangeable for Ordinary Shares or
rights to acquire such convertible or exchangeable securities,
then, in each case, the price per Ordinary Share issuable on the
exercise of the rights, options or warrants or the conversion of
the securities will be determined by dividing the total amount,
if any, received or receivable by the Company as consideration
for the granting of the rights, options or warrants or the
issuance or sale of the convertible or exchangeable securities,
plus the minimum aggregate amount of additional consideration
payable to the Company on exercise, conversion or exchange of the
securities, by the maximum number of Ordinary Shares issuable on
the exercise, conversion or exchange.
Such granting or issuance or sale will be deemed to be an
issuance or sale for cash of the maximum number of Ordinary
Shares issuable on exercise, conversion or exchange at the price
per share determined under this Article 7(c), and the Conversion
Price in effect for the Series A Preferred Shares, the Series B1
and B2 Preferred Shares, the Series C1 and C2 Preferred Shares
and the Series D Preferred Shares, as the case may be, will be
adjusted as above provided to reflect (on the basis of that
determination) the granting, issuance or sale. No further
adjustment of such Conversion Price will be made as a result of
the actual issuance of Ordinary Shares on the exercise of any
such rights, option or warrants, the conversion or any such
convertible securities or the exchange of any such exchangeable
securities.
Upon the expiration or termination of the right to convert into,
exchange for, or exercise with respect to, Ordinary Shares, the
relevant Conversion Price will be readjusted to such price as
would have been obtained had the adjustment made upon their
issuance been made upon the basis of the issuance of only the
number of such securities as were actually converted into,
exchanged for, or exercised with respect to, Ordinary Shares. If
the purchase price or conversion or exchange rate provided for in
any such security changes at any time, then, upon such change
becoming effective, the relevant Conversion Price then in effect
will be readjusted forthwith to such price as would have been
obtained had the adjustment made upon the issuance of such
securities been made upon the basis of (i) the issuance of only
the number of Ordinary Shares theretofore actually delivered upon
the conversion, exchange or exercise of such securities, and the
total of such consideration received therefor, and (ii) the
granting or issuance at the time of such change, of any such
securities then still outstanding for the consideration, if any,
received by the Company therefor and to be received on the basis
of such changed price or rate."
4.5 That Article 7(e) of the Articles of Association in its current form
shall be canceled and replaced by a new Article 7(e) as follows:
<PAGE>
-6-
"(e) For the purpose of Article 7(b) and 7(c), the consideration of
any New Shares shall be calculated at the U.S. dollar equivalent
thereof, on the day such New Shares are issued or deemed to be
issued pursuant to Article 7(b) or 7(c). "New Shares" shall mean
shares of whatever class issued or deemed to have been issued
pursuant to Article 7(b) or 7(c) by the Company other than (i)
shares held by Ma'ahaz Ne'eman Ltd. or its successor, as of the
date of the adoption of these Articles, to be distributed to
employees and shares to be issued to bona fide employees or
consultants of the Company or of the Company's subsidiaries
pursuant to any share option plan or share incentive plan
approved by the Board of Directors, including shares to be issued
pursuant to options granted to employees of SureFire
Verification, Inc., ("SureFire") and assumed by the Company or
replaced by it under the Agreement and Plan of Merger dated as of
October 5, 1999 (the "Merger Agreement"), in an amount not
exceeding 4,221,000 Shares (as adjusted for any bonus shares,
combinations, splits etc. with respect to such shares)
("Compensatory Shares"), (ii) Ordinary Shares issued upon the
conversion of the Preferred Shares or of Class B Ordinary Shares,
or Series Bl Preferred Shares issued upon the conversion of the
Series B2 Preferred Shares or Series C1 Preferred Shares issued
upon the conversion of the Series C2 Preferred Shares, (iii)
shares issued pursuant to an offering of shares by the Company,
to all Participating Shareholders (as that term is defined in
Article 50 below) only, (iv) shares issued upon the exercise of
any warrants issued to Gemini Israel Fund L.P., (v) shares, in an
amount not to exceed 3% of the then issued and outstanding share
capital of the Company on a fully diluted basis, issued to a
"strategic investor", it being understood that the then-sitting
directors appointed by the Investor Shareholders, if any are then
sitting, shall solely decide whether an investor is a "strategic
investor", (vi) shares issued to lenders or lessors in connection
with bona fide bank and lease financing approved by the Board of
Directors ("Lease/Bank Financing Shares"), (vii) shares issued
upon the exercise of any warrants issued to investment bankers
providing services to the Company in connection with capital
raising transactions of the Company or to any affiliate of such
investment bankers ("Investment Bankers Shares"), and (viii)
Ordinary Shares issued to any of the shareholders of SureFire, as
part of the Merger Consideration as defined within the Merger
Agreement ("Merger Consideration Shares")."
4.6 That Article 8(c) of the Articles of Association in its current form
shall be canceled and replaced by a new Article 8(c) as follows:
"(c) Increase the size of the Board of Directors to include more than
eight (8) Directors."
4.7 That Article 20 of the Articles of Association in its current form
shall be canceled and replaced by a new Article 20 as follows:
"20. The shares of the Company are transferable subject to the
restrictions contained in these Articles. Each transfer shall be
made in writing in the form appearing herein below, or in a
similar form, or in any form approved by the Directors from time
to time. Such form shall be delivered
<PAGE>
-7-
to the office together with the transferred share certificates,
if share certificates have been issued with respect to the
shares to be delivered, and any other proof of the transferor's
title that the Directors may require. The deed of transfer that
shall have been registered or a Photostat copy thereof, as shall
be decided by the Directors, shall remain with the Company.
However, any deed of transfer that the Directors shall refuse to
register shall be returned, upon demand, to the person who
furnished it together with the share certificate (if furnished).
The Directors may refuse to register a transfer only if such
transfer (i) is to a competitor of the Company, or (ii) is in
violation of a contractual obligation towards the Company and/or
of the Company, or (iii) is in violation of any of Yoav
Hollander's obligations concerning the transfer of his shares.
Share Transfer Deed
-------------------
We, ______________________________________________ with offices
at _______________________________________ hereby transfer
_______________________, an Israeli company, Registration Number
_____________ nominal value NIS _____ each (the "Shares") unto
____________________, in consideration of payment of __________
the same to be held by the transferee, its administrators,
executors, and assigns, under the same terms that we held the
same on the date of this Transfer Deed.
We, the transferee, hereby agree to accept the above Shares on
the terms stated.
Dated:
--------------------
TRANSFEROR:
---------------
-------------------------
Transferee, by
By:
-----------------------
Name:
---------------------
Title: "
--------------------
4.8 That Article 51(a) of the Articles of Association in its current form
shall be canceled and replaced by a new Article 51(a) as follows:
"(a) "New Securities" shall mean any equity interest (including
Ordinary and Preferred Shares) in the Company, whether now
authorized or not, and rights, options or warrants to purchase
such equity interests, and securities of any type whatsoever that
are convertible into equity interests; provided that the term
"New Securities" does not include: (i) Ordinary Shares issued
upon the conversion of the Preferred Shares or of Class B
Ordinary Shares, or Series B1 Preferred Shares issued upon the
conversion of the Series B2 Preferred Shares or Series C1
Preferred Shares issued upon the conversion of the Series C2
Preferred Shares, (ii) Compensatory Shares in an amount not
exceeding 4,221,000 Shares (as adjusted for any bonus
<PAGE>
-8-
shares combinations, splits etc. with respect to such shares),
(iii) shares issued upon the exercise of any warrants issued to
Gemini Israel Fund L.P., (iv) shares, in an amount not to exceed
3% of the then issued and outstanding share capital of the
Company on a fully diluted basis, issued to a "strategic
investor", it being understood that the then-sitting directors
appointed by the Investor Shareholders, if any are then sitting,
shall solely decide whether an investor is a "strategic
investor", (v) Lease/Bank Financing Shares, (vi) Investment
Bankers Shares, and (vii) Merger Consideration Shares".
4.9 That Article 80 of the Articles of Association in its current form
shall be canceled and replaced by a new Article 80 as follows:
"80. The Board of Directors shall be composed of not less than 2
members and not more than 8 members, to be appointed as follows:
(a) For purposes of this Article 80, Yoav Hollander's shares
shall mean all shares owned by him and all shares over which
he has voting power or control.
(b) So long as the combined holdings of Yoav Hollander, the
Investor Shareholders and the SureFire Shareholders and all
of their Permitted Transferees are 40% (forty percent) or
more of the outstanding and issued share capital of the
Company, the Directors shall not be elected by the General
Meeting of the Shareholders, but instead shall be appointed
as follows:
(i) So long as Eurofund L.P. and Zohar Zisapel and its
Transferees within clauses (a) and (b) of the definition of
"Permitted Transferee" (in this Article Eurofund/Zisapel)
collectively own no less than 8% of the outstanding and
issued share capital of the Company, Eurofund/Zisapel shall
have the right to appoint one member.
<PAGE>
-9-
(ii) So long as Gemini and its Transferees within clauses
(a) and (b) of the definition of "Permitted Transferee"
collectively own no less than 6.5% of the outstanding and
issued share capital of the Company, Gemini shall have the
right to appoint one member.
(iii) So long as Sequoia Capital and its Transferees within
clauses (a) and (b) of the definition of "Permitted
Transferee" collectively own no less than 8.6% of the
outstanding and issued share capital of the Company, Sequoia
Capital shall have the right to appoint one member.
(iv) So long as the Series D Investors and their
Transferees within clauses (a) and (b) of the definition of
"Permitted Transferee" collectively own no less than 5.5% of
the outstanding and issued share capital of the Company, the
Series D Investors shall have the right to appoint one
member.
(v) So long as the SureFire Shareholders and their
Transferees within clauses (a) and (b) of the definition of
"Permitted Transferee" collectively own no less than 10% of
the outstanding and issued share capital of the Company, the
SureFire Shareholders shall have the right to appoint one
member. The first member to serve on behalf of the SureFire
Shareholders will be Mr. Michael McNamara.
(vi) So long as Hollander and his permitted Transferees
collectively own no less than 10.6% of the outstanding and
issued share capital of the Company, Hollander shall have
the right to appoint two members. If Hollander and his
Permitted Transferees collectively own between 10.6% and
5.5% of the outstanding and issues share capital of the
Company, Hollander shall have the right to appoint one
member.
(vii) So long as Hollander and his Permitted Transferees
collectively own no less than 10.6% of the outstanding and
issued share capital of the Company, the eighth member of
the Board shall be appointed by mutual consent of all other
seven directors.
(viii) Each of Eurofund/Zisapel, Gemini, Sequoia, the
Series D Investors, the SureFire Shareholders and Hollander
shall be called herein a "Group".
Any Group shall be entitled to remove the member appointed
by it from his office and to appoint another member in his
stead.
(ix) Notice of the Director appointed by a Group as per the
above shall be made in a written notice given to the
Company, signed by holders of the majority of the shares
held by such Group.
<PAGE>
-10-
(c) In the event that the combined holdings of Yoav Hollander,
the Investor Shareholders and the SureFire Shareholders and
all of their Permitted Transferees fall below 40% (forty
percent) of the outstanding and issued share capital of the
Company, the Directors shall be elected by a plurality vote
of the Shareholders.
(d) So long as Zohar Zisapel or his Permitted Transferee under
subsections (a) and (b) of the definition of that term owns
any shares of the Company, Zohar Zisapel shall be entitled
to serve as an observer on the Board of Directors and its
committees."
[Hebrew]
/s/ indecipherable
------------------------------------
[signatures in Hebrew]
148\3\6\
<PAGE>
Amendment of the
Articles of Association
-----------------------
dated February 2, 2000
"1. That Article 7(e) of the Articles of Association in its current form shall
be canceled and replaced by a new Article 7(e) as follows:
"7(e) For the purpose of Article 7(b) and 7(c), the consideration of any
New Shares shall be calculated at the U.S. dollar equivalent
thereof, on the day such New Shares are issued or deemed to be
issued pursuant to Article 7(b) or 7(c). "New Shares" shall mean
shares of whatever class issued or deemed to have been issued
pursuant to Article 7(b) or 7(c) by the Company other than (i)
shares held by Ma'ahaz Ne'eman Ltd. or its successor, as of the
date of the adoption of these Articles, to be distributed to
employees and shares to be issued to bona fide directors, officers,
employees, independent contractors, consultants, distributors,
representatives, sales agents or advisers of the Company or of the
Company's subsidiaries pursuant to any share option plan or share
incentive plan approved by the Board of Directors, including shares
to be issued pursuant to options granted to employees of SureFire
Verification, Inc., ("SureFire") and assumed by the Company or
replaced by it under the Agreement and Plan of Merger dated as of
October 5, 1999 (the "Merger Agreement"), in an amount not
exceeding 5,720,000 Shares (as adjusted for any bonus shares,
combinations, splits etc. with respect to such shares)
("Compensatory Shares"), (ii) Ordinary Shares issued upon the
conversion of the Preferred Shares or of Class B Ordinary Shares,
or Series B1 Preferred Shares issued upon the conversion of the
Series B2 Preferred Shares or Series C1 Preferred Shares issued
upon the conversion of the Series C2 Preferred Shares, (iii) shares
issued pursuant to an offering of shares by the Company, to all
Participating Shareholders (as that term is defined in Article 50
below) only, (iv) shares issued upon the exercise of any warrants
issued to Gemini Israel Fund L.P., (v) shares in an amount not to
exceed 3% of the then issued and outstanding share capital of the
Company on a fully diluted basis, issued to a "strategic investor",
it being understood that the then-sitting directors appointed by
the Investor Shareholders, if any are then sitting, shall solely
decide whether an investor is a "strategic investor", (vi) shares
issued to lenders or lessors in connection with bona fide bank and
lease financing approved by the Board of Directors ("Lease/Bank
Financing Shares"), (vii) shares issued upon the exercise of any
warrants issued to investment bankers providing services to the
Company in connection with capital raising transactions of the
Company or to any affiliate of such investment bankers ("Investment
Banker Shares"), and (viii) Ordinary Shares issued to any of the
shareholders of SureFire as part of the Merger Consideration as
defined within the Merger Agreement ("Merger Consideration
Shares")."
2. That Article 51(a) of the Articles of Association in its current form shall
be canceled and replaced by a new Article 51(a) as follows:
<PAGE>
-2-
"51(a) "New Securities" shall mean any equity interest (including Ordinary
and Preferred Shares) in the Company, whether now authorized or
not, and rights, options or warrants to purchase such equity
interests, and securities of any type whatsoever that are
convertible into equity interests; provided that the term "New
Securities" does not include: (i) Ordinary Shares issued upon the
conversion of the Preferred Shares or of Class B Ordinary Shares,
or Series B1 Preferred Shares issued upon the conversion of the
Series B2 Preferred Shares or Series C1 Preferred Shares issued
upon the conversion of the Series C2 Preferred Shares, (ii)
Compensatory Shares in an amount not exceeding 5,720,000 Shares (as
adjusted for any bonus shares combinations, splits etc. with
respect to such shares), (iii) shares issued upon the exercise of
any warrants issued to Gemini Israel Fund L.P., (iv) shares, in an
amount not to exceed 3% of the then issued and outstanding share
capital of the Company on a fully diluted basis, issued to a
"strategic investor", it being understood that the then-sitting
directors appointed by the Investor Shareholders, if any are then
sitting, shall solely decide whether an investor is a "strategic
investor", (v) Lease/Bank Financing Shares, (vi) Investment Bankers
Shares, and (vii) Merger Consideration Shares"."
/S/ X
--------------------------------
[signatures in Hebrew]
2/3/00 : [Hebrew]
--------------
197\3\6\
