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ATTUNITY LTD - 20-F - 20040630 - RESULTS_OF_OPERATIONS
Results of Operations
The following discussion of our results of operations for the years
ended December 31, 2001, 2002 and 2003, including the following table, which
presents selected financial information as a percentage of total revenues, is
based upon our statements of operations contained in our financial statements
for those periods, and the related notes, included in this annual report.
Year Ended December 31,
------------------------------
2003 2002 2001
---- ---- ----
Revenues:
Software licenses.................... 36% 40% 38%
Maintenance and support.............. 35 34 29
Services............................. 29 26 33
Total revenues.................. 100 100 100
Cost of revenues:
Software licenses.................... 13 11 15
Maintenance and support.............. 5 4 6
Services............................. 25 22 29
Total cost of revenues.......... 43 37 50
Gross profit............................ 57 63 50
Research and development, net........ 9 8 21
Selling and marketing................ 36 31 72
General and administrative........... 16 11 25
Restructuring and other
non-recurring charges.............. 6 10 8
Impairment of software development
costs.............................. 9 - 16
Total operating expenses............... 76 60 142
Operating profit (loss)................ (19) 3 (92)
Financial income, net.................. 1 0 0
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Taxes on income........................ 0 1 2
Profit (loss) from continuing
operations, net of taxes.......... (18) 2 (94)
Earnings from discontinued
operations of a segment, net of
taxes............................. - - 1
Gain (loss) on disposal of segment..... - - 1
------- ------- ----
Net profit (loss)...................... (18)% 2% (93)%
======== == =====
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Year Ended December 31, 2003 Compared with Year Ended December 31, 2002
Revenues. Our revenues are derived primarily from software licenses,
maintenance and support and professional services. Total revenues decreased 4.8%
to $16.6 million in 2003 from $17.5 million in 2002. This decrease is mainly
attributable to a 12.8% decrease in license revenues, which decreased to $6
million in 2003 from $6.9 million in 2002. We expect that our license revenue
will increase in 2004 based on our current license pipeline and that our
revenues from maintenance, support and professional services will remain at the
same level in 2004.
Cost of Revenues. Cost of license revenues consists primarily of
production costs including media, packaging, freight and documentation,
amortization of capitalized software development costs and certain royalties and
licenses payable to third parties and to the Office of the Chief Scientist of
the Ministry of Industry and Trade, or the Chief Scientist. Cost of maintenance,
support and services consists primarily of salaries of employees performing the
services and related overhead. Our cost of revenues increased 11% to $7.1
million in 2003 from $6.4 million in 2002 primarily due to the increase in
royalties to the Chief Scientist and increase in cost of services in our
European operations resulting from local currency changes against the dollar. We
anticipate that our cost of revenues as a percentage of sales will remain the
same in 2004.
Gross Profit. Our gross profit decreased 13.9% to $9.5 million in 2003
from $11.1 million in 2002, as a direct result of decreased revenues and
increased cost of revenues in 2003.
Research and Development, Net. Research and development expenses consist
primarily of salaries of employees engaged in on-going research and development
activities and other related costs. Total research and development costs, before
capitalized software costs, increased by 1.7% to $3.1 million in 2003 from $3
million in 2002. The increase is principally attributable to an increase in
salaries. We capitalized approximately $1.6 million of software developments
costs in 2003 and 2002. As a result of the foregoing, net research and
development costs increased by 3.7% to $1.5 million in 2003 from $1.4 million in
2002. We do not plan to significantly increase our expenditures for research and
development in 2004.
Selling and Marketing. Selling and marketing expenses consist primarily
of costs relating to compensation and overhead to sales, marketing and business
development personnel, travel and related expenses, advertising expenses and
sales offices maintenance and administrative costs. Selling and marketing
expenses increased by 10.6% to $5.9 million in 2003 from $5.4 million in 2002
due to an increase in marketing and business development investments. We expect
that our selling and marketing expenses will increase in 2004 as a result
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of our decision to add sales personnel and to increase our marketing expenses as
part of our plan to increase our license revenues.
General and Administrative. General and administrative expenses consist
primarily of compensation costs for administration, finance and general
management personnel, legal, audit, other administrative costs and bad debts.
General and administrative expenses increased by 41.8% to $2.7 million in 2003
from $1.9 million in 2002. The increase is principally attributable to the
increase of $0.4 million in bad debts in our Asia and Israeli operations, higher
legal fees, hiring a new CFO and to an increase in the compensation of our
Chairman and CEO. We do not believe that our general and administrative expenses
will increase significantly in 2004.
Restructuring and Other Non-Recurring Charges. We recorded non-recurring
charges of $0.4 million and $0.8 million relating to legal dispute with the
Special Situations Funds in 2003 and 2002 respectively and $0.6 million and $0.3
million relating to legal dispute with the landlord of our former offices in
Massachusetts in 2003 and 2002 respectively. Both disputes were resolved in
early 2004 without additional costs. In 2002 we had $0.6 million of charges
relating to severance payments and other expenses.
Impairment of Software Development Costs. In 2003, we recorded $1.5
million asset impairment charge with respect to our capitalized software costs
of a product we no longer sell.
Operating Income (Loss). Based on the foregoing, we recorded an
operating loss of $(3.1) million in 2003 compared to an operating profit of $0.6
million in 2002.
Financial Income, Net. Our financial income was offset in part by (i)
interest expense and (ii) currency translation adjustments between the dollar
and Europeans and Israeli currency. In 2003, we had net financial income of
$236,000 as compared to $141,000 in 2002. This increase in financial income is
attributable mainly to foreign currency translation adjustments.
Taxes on Income. Income taxes for 2003 were $84,000 compared with
$264,000 in 2002. In 2002, we incurred higher taxes due to a required increase
in withholding of taxes on export sales.
Year Ended December 31, 2002 Compared with Year Ended December 31, 2001
Revenues. Total revenues increased 3.5% to $17.5 million in 2002 from
$16.8 million in 2001. This increase is mainly attributable to a 9% increase in
revenues from software licenses, which increased to $6.9 million in 2002 from
$6.3 million in 2001.
Cost of Revenues. Cost of revenues decreased 24.6% to $6.3 million in
2002 from $8.5 million in 2001 primarily due to the decrease in amortization of
capitalized software development costs and salary expenses.
Gross Profit. Gross profit increased 31.6% to $11.1 million in 2002 from
$8.4 million in 2001, as a direct result of increased revenues and decreased
cost of revenues in 2002.
Research and Development, Net. Total research and development costs
decreased by 43.6% to $3 million in 2002 from $5.4 million in 2001. The decrease
is principally attributable
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to a decrease in headcount and in salaries. We capitalized approximately $1.6
million of software developments costs in 2002 and $1.8 million in 2001. As a
result of the foregoing, net research and development costs decreased by 60.0%
to $1.4 million in 2002 from $3.6 million in 2001.
Selling and Marketing, Net. Selling and marketing expenses decreased by
55.7% to $5.4 million in 2002 from $12.1 million in 2001 due to a substantial
decrease in marketing investments and a reduction in headcount.
General and Administrative. General and administrative expenses
decreased by 54.1% to $1.9 million in 2002 from $4.2 million in 2001. The
decrease is principally attributable to the decrease in headcount and decreased
lease and salary expenses.
Restructuring and Other Non-Recurring Charges. We recorded non-recurring
charges of $0.8 million and $0.3 million relating to legal disputes with the
Special Situations Funds and with the landlord of our former offices in
Massachusetts respectively and $0.6 million relating to severance payments and
other expenses in 2002, compared with restructuring charges of $1.3 million
relating to severance payments, write-off of leasehold improvements and other
related expenses in 2001.
Impairment of Software Development Costs and Other. We recorded a $2.4
million asset impairment charge with respect to our capitalized software
development costs and $0.3 relating to assembled workforce in 2001.
Operating Income (Loss). Based on the foregoing, we recorded an
operating income of $0.6 million in 2002 compared to an operating loss of $15.5
million in 2001.
Financial Income, Net. In 2002, we had net financial income of $141,000
as compared to $48,000 in 2001. This increase in financial income is
attributable to foreign currency translation adjustments.
Taxes on Income. The income taxes for 2002 were $264,000 compared with
an income tax provision of $402,000 in 2001.
Gain on Disposal of Segment. We recorded a $201,000 gain in 2001 with
respect to provisions related to the disposal of Medatech in our financial
statements for 2000.
Net Income (Loss). As a result of the foregoing, we had net income of
$0.5 million in 2002 compared to a net loss of $(15.6) million in 2001.
Conditions in Israel
We are incorporated under the laws of, and our principal executive
offices and manufacturing and research and development facilities are located
in, the State of Israel. Accordingly, our operations in Israel are directly
affected by political, economic and military conditions in Israel. Specifically,
we could be adversely affected by any major hostilities involving Israel, a full
or partial mobilization of the reserve forces of the Israeli army, the
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interruption or curtailment of trade between Israel and its present trading
partners, and a significant downturn in the economic or financial condition of
Israel.
Political Conditions
Since the establishment of the State of Israel in 1948, a number of
armed conflicts have taken place between Israel and its Arab neighbors, and a
state of hostility, varying from time to time in intensity, has led to security
and economic problems for Israel. Since September 2000, there has been a marked
increase in violence, civil unrest and hostility, including armed clashes,
between the State of Israel and the Palestinians, and acts of terror have been
committed inside Israel and against Israeli targets in the West Bank and Gaza.
There is no indication as to how long the current hostilities will last or
whether there will be any further escalation. Any further escalation in these
hostilities or any future armed conflict, political instability or violence in
the region may have a negative effect on our business condition, harm our
results of operations and adversely affect our share price. Furthermore, there
are a number of countries that restrict business with Israel and with Israeli
companies. Restrictive laws or policies of those countries directed towards
Israel or Israeli businesses may have an adverse impact on our operations, our
financial results or the expansion of our business.
In addition, some of our executive officers and employees in Israel are
obligated to perform up to 36 days, depending on rank and position, of military
reserve duty annually and are subject to being called for active duty under
emergency circumstances. If a military conflict or war arises, these individuals
could be required to serve in the military for extended periods of time. Our
operations could be disrupted by the absence for a significant period of one or
more of our executive officers or key employees or a significant number of other
employees due to military service. Any disruption in our operations could
adversely affect our business.
To date, no executive officer or key employee was recruited for military
service for any significant time period. Any further deterioration of the
hostilities between Israel and the Palestinian Authority into a full-scale
conflict might require more significant military reserve service by some of our
employees, which may have a material adverse effect on our business.
Economic Conditions
In recent years Israel has been going through a period of recession in
economic activity, resulting in low growth rates and growing unemployment. Our
operations could be adversely affected if the economic conditions in Israel
continue to deteriorate. In addition, due to significant economic measures
proposed by the Israeli Government, there have been strikes and work stoppages
in 2003 and 2004, affecting all banks, airports and ports. These strikes have
had an adverse effect on the Israeli economy and on business, including our
ability to deliver products to our customers. Following the passing by the
Israeli Parliament of laws to implement the economic measures, the Israeli trade
unions have threatened further strikes or work-stoppages, and these may have a
material adverse effect on the Israeli economy and on us.
Trade Relations
Israel is a member of the United Nations, the International
Monetary Fund, the International Bank for Reconstruction and Development and
the International Finance
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Corporation. Israel is a member of the World Trade Organization and is a
signatory to the General Agreement on Tariffs and Trade, which provides for
reciprocal lowering of trade barriers among its members. In addition, Israel has
been granted preferences under the Generalized System of Preferences from the
United States, Australia, Canada and Japan. These preferences allow Israel to
export products covered by such programs either duty-free or at reduced tariffs.
Israel and the European Union Community concluded a Free Trade Agreement
in July 1975, which confers certain advantages with respect to Israeli exports
to most European countries and obligates Israel to lower its tariffs with
respect to imports from these countries over a number of years. In 1985, Israel
and the United States entered into an agreement to establish a Free Trade Area.
The Free Trade Area has eliminated all tariff and specified non-tariff barriers
on most trade between the two countries. On January 1, 1993, an agreement
between Israel and the European Free Trade Association, known as EFTA,
established a free-trade zone between Israel and the EFTA nations. In November
1995, Israel entered into a new agreement with the European Union, which
includes redefinement of rules of origin and other improvements, including
providing for Israel to become a member of the research and technology programs
of the European Union. In recent years, Israel has established commercial and
trade relations with a number of other nations, including China, India, Russia,
Turkey and other nations in Eastern Europe and Asia.
Effective Corporate Tax Rate
Israeli companies are generally subject to income tax at the corporate
rate of 36% of taxable income. We have been granted the status of an "Approved
Enterprise" under the Law for the Encouragement of Capital Investments, 1959, or
the Investment Law, with respect to our production facilities. An enlargement
project of ours was granted "Approved Enterprise" status in December 1998. In
accordance with the provisions of the Investment Law, we have elected to enjoy
"alternative benefits," wherein a company waives the receipt of grants in return
for a tax exemption. Income derived from an "Approved Enterprise" is tax-exempt
for a period of two years, commencing with the year it first earns taxable
income, and is subject to corporate tax at the rate of 10% to 25% for additional
periods of five to eight years based on the percentage of foreign investments in
our company. Our subsidiary, Attunity Software Services Ltd., or Attunity
Services, was granted "Approved Enterprise" status for two separate investment
programs from 1991 and 1993 whereby it has elected to receive Government grants
and to enjoy the benefit of a reduced tax rate of 25% during a period of seven
years commencing with the year it first earns taxable income. The period of tax
benefits, detailed above, is subject to limits of the earlier of twelve years
from the commencement of production, or fourteen years from the date of
approval. In 1993, Attunity Services received approval for an expansion of the
aforementioned programs whereby it elected to enjoy "alternative benefits" -
waiver of grants in return for tax exemption - and, accordingly, its income from
the "Approved Enterprise" will be tax-exempt for a period of ten years
commencing with the year it first earns taxable income. As of December 31, 2003,
Attunity Services has not received final approvals for such programs.
Since we currently have no taxable income, the benefits have not yet
commenced for all programs. Should we or Attunity Services derive income from
sources other than the "Approved Enterprise" during the periods of benefits,
such income shall be taxable at the regular corporate
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tax rate of 36%. Our taxes outside Israel are dependent on our operations in
each jurisdiction as well as relevant laws and treaties. Under Israeli tax law,
the results of our foreign consolidated subsidiaries, which have generally been
unprofitable, cannot be consolidated for tax purposes with the results of
operations of the parent company.
Impact of Currency Fluctuations and of Inflation
Our financial results may be negatively impacted by foreign currency
fluctuations. Our foreign operations are generally transacted through our
international sales subsidiaries in Europe, the Middle East and Africa, and Asia
Pacific. As a result, these sales and related expenses are denominated in
currencies other than the U.S. dollar. Because our financial results are
reported in U.S. dollars, our results of operations may be adversely impacted by
fluctuations in the rates of exchange between the U.S. dollar and other
currencies, including:
o a decrease in the value of currencies in certain of the EMEA or APAC
relative to the U.S. dollar, which would decrease our reported U.S.
dollar revenue, as we generate revenue in these local currencies and
report the related revenue in U.S. dollars; and
o an increase in the value of currencies in certain of the EMEA or APAC,
or Israel relative to the U.S. dollar, which would increase our sales
and marketing costs in these countries and would increase research and
development costs in Israel.
The dollar cost of our operations in Israel is influenced by the extent
to which any increase in the rate of inflation in Israel is (or is not) offset,
or is offset on a lagging basis, by the devaluation of the NIS in relation to
the dollar. Unless offset by a devaluation of the NIS, inflation in Israel will
have a negative effect on our profitability as we incur expenses, principally
salaries and related personnel expenses, in NIS. For several years prior to
1997, the rate of inflation in Israel exceeded the rate of devaluation of the
NIS against the dollar and companies experienced increases in the dollar cost of
their operations in Israel. This trend was reversed during 1997 and 1998. In
1999 and 2000, the rate of inflation exceeded the rate of devaluation of the NIS
against the U.S. dollar. In 2001 and 2002, the devaluation rate again exceeded
the inflation rate in Israel. In 2003 the rate of inflation was negative and the
NIS was revaluated vis-a-vis the dollar. We cannot assure you that we will not
be materially and adversely affected in the future if inflation in Israel
exceeds the devaluation of the NIS against the dollar or if the timing of such
devaluation lags behind inflation in Israel.
The following table sets forth, for the periods indicated, information
with respect to the rate of inflation in Israel, the rate of devaluation of the
NIS against the dollar, and the rate of inflation in Israel adjusted for such
devaluation:
Israeli
Israeli inflation
Year ended Israeli Israeli devaluation adjusted for
December 31, price index inflation rate % rate % devaluation %
------------ ----------- ---------------- ------ -------------
1999 408.0 1.3 (0.2) 1.5
2000 408.0 0 (2.7) 2.8
2001 413.8 1.4 9.3 (7.8)
2002 440.65 6.4 7.3 (0.7)
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Israeli
Israeli inflation
Year ended Israeli Israeli devaluation adjusted for
December 31, price index inflation rate % rate % devaluation %
------------ ----------- ---------------- ------ -------------
2003 432.34 (1.9) (7.6) 6.1
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A devaluation of the NIS in relation to the dollar has the effect of
reducing the dollar amount of any of our expenses or liabilities which are
payable in NIS (unless such expenses or payables are linked to the dollar). Such
devaluation also has the effect of decreasing the dollar value of any asset,
which consists of NIS or receivables payable in NIS (unless such receivables are
linked to the dollar). Conversely, any increase in the value of the NIS in
relation to the dollar has the effect of increasing the dollar value of any
unlinked NIS assets and the dollar amounts of any unlinked NIS liabilities and
expenses.
B. LIQUIDITY AND CAPITAL RESOURCES
Historically, we have financed our operations through cash generated by
operations, funds generated by our public offering in 1992 (approximately $12
million), private equity investments (approximately $24.8 million), exercise of
stock options and warrants (approximately $9.5 million) as well as from research
and development and marketing grants, primarily from the Government of Israel.
In March 2000, we raised net proceeds of approximately $13 million in a private
placement of our securities. In October 2001, we raised additional proceeds of
approximately $5 million in a private placement of our securities. On a limited
basis we have also financed our operations through short-term loans and
borrowings under available credit facilities.
In May 2004, we concluded a transaction with a group of investors that
then owned 2,043,146 of our shares and warrants to purchase 2,944,651 shares at
exercise prices of $1.75 and $2.25, according to which the group invested an
additional $2 million in our company in the form of a five-year convertible
debenture, convertible at $1.75 per share and warrants to purchase 480,000
ordinary shares at an exercise price of $1.75 per share, subject to anti
dilution adjustments. See Item 7B. "Major Shareholders and Related Party
Transactions - Major Shareholders - Related Party Transactions."
In June 2004, we entered into an agreement with Plenus Technologies
Ltd., or Plenus, a venture capital lender, under which we secured a two-year $3
million credit line from Plenus at a fixed interest rate of 6.5% per annum. The
interest is payable quarterly on all amounts drawn under the credit line. We can
prepay or cancel the credit line at any time. We pay a commitment fee of 1% per
annum on the unutilized amount of the credit line. As collateral for the credit
line we registered a first ranking floating charge on all our assets and a first
ranking fixed charge on all our intellectual property. We undertook to issue to
Plenus five-year warrants to purchase our ordinary shares in an amount equal to
a percentage of the credit line divided by $3.00 per share, the exercise price
of the warrants (subject to anti-dilution adjustments), as follows: 20% of the
credit line if we terminate the credit line within the first year of its
initiation; 23% of the credit line if we terminate the credit line within the
second year of its initiation and we had not drawn any money from the credit
line prior to termination; and 30% of the credit line if we terminate the credit
line within the second year of its initiation and we had drawn money from the
credit line prior to termination.
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As of December 31, 2003, we had $3.3 million in cash, cash equivalents,
restricted cash, short term deposits and marketable securities as compared to
$2.8 million in cash and cash equivalents at December 31, 2002. As of December
31, 2003, we had a bank line of credit of approximately $0.2 million, which is
unused.
As of December 31, 2003 we had $52,000 in long-term loans from United
Mizrachi Bank Ltd. These loans bear interest ranging between 5% to 7.8%.
Principal and interest are linked to the Israeli Consumer Price Index.
Net cash provided by operating activities was $2.4 million in 2003 and
$1.7 million in 2002. Net cash used in investing activities was $2.8 million in
2003 and $1.8 million in 2002, which funds were used primarily for software
development costs. Net cash used in financing activities was $0.1 million in
2003 and $0.2 million in 2002.
Our principal commitments consist of obligations outstanding under
operating leases. Our capital expenditures were approximately $238,000 in 2003
and $199,000 in 2002. The majority of our capital expenditures were for
computers and software. We currently do not have significant capital spending or
purchase commitments.
We anticipate that our existing capital resources and the additional
funds provided by the convertible debenture, once approved by the shareholders
meeting, will be adequate to satisfy our working capital and capital expenditure
requirements until June 30, 2005, but we may need to raise additional funds in
the next twelve months in order to provide the capital necessary for our working
capital and capital expenditure requirements.
C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES
The software industry is characterized by rapid product change resulting
from new technological developments, performance improvements and lower hardware
costs and is highly competitive with respect to timely product innovation. We,
through our research and development and support personnel, work closely with
our customers and prospective customers to determine their requirements, to
design enhancements and new releases to meet their needs and to adapt our
products to new platforms, operating systems and databases. Research and
development activities for all products principally take place in our research
and development facilities in Israel. As of December 31, 2003, we employed 37
persons in research and development.
We seek external resources for co-financing our development projects,
mainly from the Office of the Chief Scientist of the Israeli Ministry of
Industry and Trade. The Office of the Chief Scientist participated in financing
Attunity Connect, APTuser and the Hungarian version of Mancal 2000. Under the
Israeli Law for the Encouragement of Industrial Research and Development, or the
Research Law, research and development programs which meet specified criteria
and are approved by the research committee of the Office of the Chief Scientist
are eligible for grants of up to 50% of certain of the project's expenditures,
as determined by the research committee. In exchange, the recipient of such
grants is required to pay the Office of the Chief Scientist royalties from
revenues derived from products (and ancillary services) incorporating technology
developed within the framework of each such program or derived
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therefrom, up to an aggregate of 100% of the dollar-linked value of the total
grants received in respect of such program, and with respect to grants received
as of 1999, plus interest. The royalty rates applicable to our programs range
from 3% to 5%. Our royalties expenses during the years 2001, 2002 and 2003 were
$156,000, $232,000 and $479,000 respectively.
The terms of the Israeli government participation generally requires
that the manufacture of products developed under a program be performed in
Israel. However, upon the approval of the Chief Scientist, some of the
manufacturing volume may be performed outside Israel, provided that the grant
recipient pays royalties at an increased rate and the aggregate repayment amount
is increased to 120%, 150% or 300% of the grant, depending on the portion of the
total manufacturing volume that is performed outside Israel. As of April 1,
2003, the Research Law also allows for the approval of grants in cases in which
the applicant declares that part of the manufacturing will be performed outside
of Israel or by non-Israeli residents and the research committee is convinced
that the same is essential for the execution of the program. In such cases, the
increased royalty and repayment amount will be required.
The Research Law also provides that know-how developed under an approved
research and development program may not be transferred to third parties in
Israel without the approval of the research committee of the Office of the Chief
Scientist. We cannot assure you that such consent, if requested, will be
granted. The Research Law further provides that the know-how developed under an
approved research and development program may not be transferred to any third
parties outside Israel. No approval is required for the export of any products
resulting from such research or development.
The Research Law imposes reporting requirements with respect to certain
changes in the ownership of a grant recipient. The Research Law requires the
grant recipient and its controlling shareholders and interested parties to
notify the Office of the Chief Scientist of any change in control of the
recipient or a change in the holdings of the means of control of the recipient
that results in a non-Israeli becoming an interested party directly in the
recipient and requires the new interested party to undertake to the Office of
the Chief Scientist to comply with the Research Law. Accordingly, any
non-Israeli who acquires 5% or more of our ordinary shares will be required to
notify the Office of the Chief Scientist that it has become an interested party
and to sign an undertaking to comply with the Research Law.
We have committed substantial financial resources to our research and
development efforts. During 2001, 2002 and 2003, our research and development
expenditures were $5.4 million, $3.0 million and $3.1 million, respectively. We
did not receive any reimbursement from the Office of the Chief Scientist during
the last three years. We capitalized computer software development costs of $1.8
million, $1.6 million and $1.6 million in 2001, 2002 and 2003, respectively. We
believe that our investment in product development activities in 2004 will be
consistent with our expenditures in 2003.
D. TREND FINFORMATION
We expect that our results will continue to be impacted by the continued
decline in revenues from our legacy products and by increased sales and
marketing expenditures while we attempt to gain market acceptance for our data
integration products. As a result of an
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unpredictable business environment and long sales cycles we are unable to
provide any guidance as to sales and profitability trends.
As a result of unfavorable decision against us in our litigation with
the various Special Situation Funds and a settlement we reached with the
landlord of our former offices in Massachusetts, we incurred liabilities of $1.9
million in the years ended December 31, 2003 and 2002 with respect to these
matters. In March 2004, we paid the Special Situation Funds $684,000 and in
April 2004, we paid $825,000 to the landlord of our former offices in
Massachusetts in full satisfaction of our lease commitment.
E. OFF-BALANCE SHEET ARRANGEMENTS
We are not a party to any material off-balance sheet arrangements. In
addition, we have no unconsolidated special purpose financing or partnership
entities that are likely to create material contingent obligations.
F. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
The following table summarizes our minimum contractual obligations and
commercial commitments, as of December 31, 2003 and the effect we expect them to
have on our liquidity and cash flow in future periods.
Contractual Obligations Payments due by Period
----------------------------------- -------------------------------------------
less than
Total 1 year 1-3 Years 3-5 Years
------ ------ --------- ---------
Long-term debt obligations....... $ 93 $ 41 $ 52 $--
Capital (finance) lease obligations 108 61 67 --
Operating lease obligations (*).. 1,549 590 889 70
- ----- --- --- --
Total............................ $1,750 $692 $1,008 $70
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(*) Does not include an operating lease obligation of $2,005 which was satisfied
by the payment of $825 in early April 2004.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. DIRECTORS AND SENIOR MANAGEMENT
The following table lists the name, age, principal position and a
biographical description of each of our executive officers and directors.
Name Age Position with the Company
---- --- -------------------------
Shimon Alon ................. 53 Chairman of the Board of Directors
Arie Gonen................... 58 Chief Executive Officer
Ofer Segev................... 45 Chief Financial Officer
Shlomo Baumgarten............ 55 Vice President-Finance and Secretary
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Name Age Position with the Company
---- --- -------------------------
Dov Biran ................... 51 Director
Dan Falk..................... 59 Director*
Roni Ferber.................. 61 Outside Director*
Anat Segal................... 37 Outside Director*
Ron Zuckerman................ 47 Director
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*Member of Audit Committee
Messrs. Gonen, Biran and Falk will serve as directors until our 2004
annual general meeting of shareholders and until their successors are elected.
Messrs. Alon and Zuckerman were appointed to our Board of Directors in May 2004
and will serve as directors until our 2004 annual general meeting of
shareholders and until their successors are elected. Mr. Roni Ferber was
designated an outside director by our board of directors in May 2001. According
to regulations promulgated under the Israeli Companies Law, the board of
directors of public companies like us, whose shares are traded outside Israel,
is permitted to designate a director who was appointed prior to February 1, 2000
and who would otherwise qualify as an outside director, as an outside director.
Mr. Roni Ferber will serve in such office pursuant to the provisions of the
Israeli Companies Law for a three-year term until our 2004 annual general
meeting of shareholders. Thereafter, his office may be renewed for only one
additional three-year term. Ms. Anat Segal was elected as an outside director in
December 2002. Ms. Anat Segal will serve in such office pursuant to the
provisions of the Israeli Companies Law for a three-year term until our 2005
annual general meeting of shareholders. Thereafter, her office may be renewed
for only one additional three-year term.
Our articles of association provide for a Board of Directors of not
fewer than three nor more than eleven members. The Board is currently composed
of six directors. Officers serve at the pleasure of the Board of Directors,
subject to the terms of any agreement between an officer and our company.
Shimon Alon was appointed Chairman of our Board of Directors in May
2004. From September 1997 until June 2003, Mr. Alon served as Chief Executive
Officer of Precise Software Solutions Ltd., or Precise, a leading provider of
application performance management. Since the acquisition of Precise by VERITAS
Software Corp., or VERITAS, in June 2003, Mr. Alon serves as an executive
advisor to VERITAS. Prior to Precise, Mr. Alon held a number of positions at
Scitex Corporation Ltd. and its subsidiaries, including President and Chief
Executive Officer of Scitex America and Managing Director of Scitex Europe. Mr.
Alon holds a degree from the Executive Management Program at the Harvard
Business School.
Arie Gonen has served as a director since December 1988. Mr. Gonen
served as the Chairman of our Board of Directors from October 31, 1988 until May
10, 2004. Mr. Gonen served as our Chief Executive Officer from October 31, 1988
until November 22, 2000. From September 1, 2002 through October 28, 2003, Mr.
Gonen served as our Interim Chief Executive Officer. Since October 28, 2003, Mr.
Gonen has served as our Chief Executive Officer. Prior to joining our company
and from 1976, Mr. Gonen served as President of Milan Software
33
Industries (1976) Ltd., an Israeli software company. Mr. Gonen received
a B.Sc. in Electrical Engineering and a M.Sc. in Computer Sciences from the
Technion Israel Institute of Technology.
Ofer Segev has been our Chief Financial Officer since June 2003.
From January 2002 until June 2003 he served as the Chief Executive Officer of
Teleknowledge Group Ltd., a private company in the billing and customer
care field. From May 2001, he was the Chief Financial Officer of
Teleknowledge Group Ltd. Prior to that, from May 2000 until April 2001, Mr.
Segev was the Chief Financial Officer of Tundo Corp., a company in the VoIP
field. Prior to that Mr. Segev was a partner at Kost Forer & Gabay, a
predecessor to Kost Forer Gabbay & Kasierer, a Member of Ernst & Young Global,
where he led the high technology service group. Mr. Segev holds a B.A.
degree in Economics and Accounting from Bar Ilan University in Israel and has
studied at the Kellogg Graduate School of Management at Northwestern
University.
Shlomo Baumgarten has been our Vice President-Finance since October
1992. FromOctober 1992 until June 2003, Mr. Baumgarten served as our Chief
Financial Officer, and previously he served as our Comptroller since our
incorporation in October 1988. Mr. Baumgarten served as a director of our
company from our inception until November 2000. Prior thereto and from 1983,
he was the Comptroller of Milan. Mr. Baumgarten holds a B.A. degree in
Economics and Auditing from Haifa University.
Dr. Dov Biran was appointed as a director in December 2003. Dr. Biran
has been a professor of computers and information systems at Northeastern
University in Boston since September 2001. Prior thereto, Dr. Biran served as
acting Chief Executive Officer, Chief Technology Officer and a director of our
company from March 2000 through October 2001. Dr. Biran was the founder and
president of Bridges for Islands, which was acquired by us in February 2000. For
over thirty years he has held various positions in the Information Technology,
or IT, area, including founder and Chief Executive Officer of Optimal
Technologies, a consulting IT firm, Chief Information Officer of Dubek Ltd.,
officer in the computer unit of the Israeli Defense Forces and as an adjunct
professor at Tel Aviv University.
Dan Falk was appointed as a director in April 2002, and was designated
as an outside director by our board of directors in May 2002. From 1999 until
2000, he served as the President and Chief Operating Officer and then Chief
Executive Officer of Sapiens International Corporation N.V., a publicly traded
company that provides cost-effective business software solutions. From 1995
until 1999, Mr. Falk was Executive Vice President and Chief Financial Officer of
Orbotech, a maker of automated optical inspection and computer aided
manufacturing systems. From 200 until 2003, Mr. Falk served as the chairman of
the board of directors of Atara Technology Ventures and is a member of the
boards of directors of Orbotech, Nice System Ltd, Orad Hi-Tec Systems Ltd.,
Netafim Ltd, Visionix Ltd., Ramdor Ltd., Medcon Ltd., Dor Chemicals Ltd, Poalim
Ventures 1 Ltd, Clicksoftware Ltd., Rontech Ltd, Ormat Industries Ltd and
Plastopil Ltd. He has an M.B.A. degree from the Hebrew University School of
Business.
Roni Ferber was appointed to the Board of Directors in October 1995
and was designated as an outside director by our Board of Directors in
May 2001. Since 1992, Mr. Ferber has been self-employed as a business
consultant. From 1967 until December 1992, Mr. Ferber was General
Manager and President of Nikuv Computers Ltd., a publicly-traded software
34
company located in Israel. Mr. Ferber serves as a director of Comtech Ltd.,
a computer software company, traded on the Tel Aviv Stock Exchange, and
Dmatek Ltd, a manufacturer and distributor of electronic tagging systems,
traded on the London Stock Exchange. He has a B.A in Economics from the
Hebrew University in Jerusalem, and an M.A. in Semitic Languages
from the Tel Aviv University.
Anat Segal was appointed as an outside director in December 2002. Since
January 2000 Ms. Segal has acted as an independent advisor providing investment
banking services and financial and strategic consulting to high-tech companies.
Ms. Segal is also Managing Partner of Xenia Ventures, a high tech incubator
based in Kiryat Gat, Israel. Prior to that and since 1998, she has served as the
Managing Director and Head of Corporate Finance of Tamir Fishman & Co., which
was then an Israeli strategic affiliate of Hambrecht and Quist. From 1996 until
1998 she served as a Vice President of Investment Banking, Robertson Stephens &
Co/Evergreen. From 1990 until 1996 Ms. Segal held senior positions with Bank
Hapoalim Group and Poalim Capital Markets. Ms. Segal also serves as a board
member of Orad Ltd, a public company traded on London Stock Exchange, Prior-Tech
Ltd traded on the Tel Aviv Stock Exchange and Marathon Ventures Ltd, traded on
the Tel Aviv Stock Exchange. Ms. Segal holds a B.A. degree in Economics and
Management, an M.B.A. degree and an L.L.B. degree from Tel Aviv University.
Ron Zuckerman was appointed a director in May 2004. Mr.
Zuckerman founded Sapiens International Corporation and served as its Chief
Executive Officer from 1995 until March 2000 and currently serves as the
Chairman of its board of directors. Mr. Zuckerman served as Chairman of
Precise Software Solutions Ltd. until it was acquired by VERITAS Software Corp.
in June 2003.
Robert J. Majteles, who served as a director from June 2002, resigned in
October 2003.
Pursuant to a certain Note and Warrant Purchase Agreement dated March
22, 2004 that we entered into with Messrs. Shimon Alon, Aki Ratner, Ron
Zuckerman and other investors represented by them, we agreed to provide the
investors with the right to designate Messrs. Shimon Alon, Ron Zuckerman and Aki
Ratner for election to our Board of Directors in 2004, thereafter to designate
two members for election to our Board of Directors so long as they continue to
beneficially own at least 15% of our issued and outstanding ordinary shares, on
an as converted basis (excluding unexercised warrants), and to designate one
member for election to our Board of Directors so long as they continue to
beneficially own at least 5% of our issued and outstanding ordinary shares, on
an as converted basis (excluding unexercised warrants). Messrs. Shimon Alon and
Ron Zuckerman began serving as directors in May 2004 and Mr. Aki Ratner will
begin his term as a director in July, 2004. See Item 7B. "Major Shareholders and
Related Party Transactions - Major Shareholders - Related Party Transactions."
35
B. COMPENSATION
The following table sets forth all compensation we paid with respect to
all of our directors and executive officers as a group for the year ended
December 31, 2003:
Salaries, fees,
commissions and Pension, retirement
bonuses and similar benefits
--------------- --------------------
All directors and executive officers
as a group, consisting of 7 persons ............. $807,032 $95,596
|
Non-employee directors received an annual fee of $33,000 and an
attendance fee of $300 per meeting attended.
As of December 31, 2003, our directors and executive officers as a
group, then consisting of 7 persons, held options to purchase an aggregate of
1,531,499 ordinary shares, at an exercise price of $0.82-$7.875 per share, with
vesting over three-year terms. Of such options, options to purchase 641,499
ordinary shares expire between 2005 and 2008. Such options were granted under
our 1998 and 2001 Employee Stock Option Plans and our 2003 Israeli Stock Option
Plan. See Item 6E. "Directors, Senior Management and Employee - Share Ownership
- Stock Option Plans."
C. BOARD PRACTICES
Election of Directors
Pursuant to our articles of association, all of our directors (except
the outside directors as detailed below) are elected at our annual general
meeting of shareholders by a vote of the holders of a majority of the voting
power represented and voting at such meeting. All the members of our Board of
Directors (except the outside directors) may be reelected upon completion of
their term of office. All our directors currently in office, except our outside
directors, were elected by our shareholders at our annual meeting of
shareholders of December 2003.
Independent and Outside Directors
The Israeli Companies Law requires Israeli companies with shares that
have been offered to the public in or outside of Israel to appoint at least two
outside directors. No person may be appointed as an outside director if the
person or the person's relative, partner, employer or any entity under the
person's control has or had, on or within the two years preceding the date of
the person's appointment to serve as outside director, any affiliation with the
company or any entity controlling, controlled by or under common control with
the company. The term affiliation includes:
o an employment relationship;
o a business or professional relationship maintained on a regular basis;
o control; and
36
o service as an officer holder.
No person may serve as an outside director if the person's position or
other activities create, or may create, a conflict of interest with the person's
responsibilities as an outside director or may otherwise interfere with the
person's ability to serve as an outside director. If, at the time an outside
director is to be appointed, all current members of the Board of Directors are
of the same gender, then the outside director must be of the other gender.
Outside directors are elected by shareholders. The shareholders voting
in favor of their election must include at least one-third of the shares of the
non-controlling shareholders of the company who are present at the meeting and
voting on the matter. This minority approval requirement need not be met if the
total shareholdings of those non-controlling shareholders who vote against their
election represent 1% or less of all of the voting rights in the company.
Outside directors serve for a three-year term, which may be renewed for only one
additional three-year term. Outside directors can be removed from office only by
the same special percentage of shareholders as can elect them, or by a court,
and then only if the outside directors cease to meet the statutory
qualifications with respect to their appointment or if they violate their duty
of loyalty to the company.
Any committee of the board of directors must include at least one
outside director and the audit committee must include all of the outside
directors. An outside director is entitled to compensation as provided in
regulations adopted under the Israeli Companies Law and is otherwise prohibited
from receiving any other compensation, directly or indirectly, in connection
with such service.
In addition, the Nasdaq National Market requires us to have at least two
independent directors on our board of directors and to establish an audit
committee. Under Nasdaq rules promulgated pursuant to the Sarbanes-Oxley Act of
2002, we will be required in the future to have three independent directors on
our audit committee. Messrs. Dan Falk and Roni Ferber and Ms. Segal qualify as
independent directors under the Nasdaq Market requirements. Mr. Dan Falk and Ms.
Segal qualify as outside directors under the Israeli Companies Law requirements.
Approval of Related Party Transactions Under Israeli Law
The Israeli Companies Law codifies the fiduciary duties that "office
holders," including directors and executive officers, owe to a company. An
office holder's fiduciary duties consist of a duty of care and a duty of
loyalty. The duty of care requires an office holder to act at a level of care
that a reasonable office holder in the same position would employ under the same
circumstances. The duty of loyalty includes avoiding any conflict of interest
between the office holder's position in the company and his personal affairs,
avoiding any competition with the company, avoiding exploiting any business
opportunity of the company in order to receive personal gain for the office
holder or others, and disclosing to the company any information or documents
relating to the company's affairs which the office holder has received due to
his position as an office holder. Each person listed as a director or executive
officer in the table under Item6A. "Directors, Senior Management and Employees
-- Directors and Senior Management" above is an office holder. Under the Israeli
Companies Law, all arrangements as to compensation of office holders who are not
directors require approval of our board of
37
directors, and, in certain cases, also our audit committee, and the compensation
of office holders who are directors must be approved by our audit committee,
board of directors and shareholders.
The Israeli Companies Law requires that an office holder promptly
disclose any personal interest that he or she may have and all related material
information known to him or her, in connection with any existing or proposed
transaction by us. In addition, if the transaction is an extraordinary
transaction, that is, a transaction other than in the ordinary course of
business, other than on market terms, or likely to have a material impact on the
company's profitability, assets or liabilities, the office holder must also
disclose any personal interest held by the office holder's spouse, siblings,
parents, grandparents, descendants, spouse's descendants and the spouses of any
of the foregoing, or by any corporation in which the office holder or a relative
is a 5% or greater shareholder, director or general manager or in which he or
she has the right to appoint at least one director or the general manager. Some
transactions, actions and arrangements involving an office holder (or a third
party in which an office holder has an interest) must be approved by the board
of directors or as otherwise provided for in a company's articles of
association, as not being adverse to the company's interest. In some cases, such
a transaction must be approved by the audit committee and by the board of
directors itself (with further shareholder approval required in the case of
extraordinary transactions). An office holder who has a personal interest in a
matter, which is considered at a meeting of the board of directors or the audit
committee, may not be present during the board of directors or audit committee
discussions and may not vote on this matter, unless the majority of the members
of the board or the audit committee have a personal interest, as the case may
be.
The Israeli Companies Law also provides that an extraordinary
transaction between a public company and a controlling shareholder, or
transactions in which a controlling shareholder of the company has a personal
interest but which are between a public company and another entity or the terms
of compensation of a controlling shareholder, require the approval of the board
of directors and of the shareholders. The shareholder approval for any such
extraordinary transaction must include at least one-third of the shareholders
who have no personal interest in the transaction and are present at the meeting.
The transaction can be approved by shareholders without this one-third approval,
if the total shareholdings of those shareholders who have no personal interest
and voted against the transaction do not represent more than one percent of the
voting rights in the company.
However, under the Companies Regulations (Relief From Related Party
Transactions), 5760-2000, promulgated under the Israeli Companies Law and
amended in January 2002, certain transactions between a company and its
controlling shareholder(s) do not require shareholder approval.
In addition, pursuant to the recent amendment to these regulations,
directors' compensation and employment arrangements do not require the approval
of the shareholders if both the audit committee and the board of directors agree
that such arrangements are for the benefit of the company. If the director or
the office holder is a controlling shareholder of the company, then the
employment and compensation arrangements of such director or office holder do
not require the approval of the shareholders provided that certain criteria are
met.
38
The above exemptions will not apply if one or more shareholders, holding
at least 1% of the issued and outstanding share capital of the company or of the
company's voting rights, objects to the grant of such relief, provided that such
objection is submitted to the company in writing not later than seven (7) days
from the date of the filing of a report regarding the adoption of such
resolution by the company pursuant to the requirements of the Israeli Securities
Law. If such objection is duly and timely submitted, then the compensation
arrangement of the directors will require shareholders' approval as detailed
above.
Exculpation, Indemnification and Insurance of Directors and Officers
The Israeli Companies Law provides that an Israeli company cannot
exculpate an office holder from liability with respect to a breach of his duty
of loyalty, but may, if permitted by its articles of association, exculpate in
advance an office holder from his liability to the company, in whole or in part,
with respect to a breach of his duty of care. Our articles of association permit
us to exculpate an officer to the maximum extent permitted by the Israeli
Companies Law.
The Israeli Companies Law provides that a company may, if permitted by
its articles of association, enter into a contract for the insurance of the
liability of any of its office holders with respect to an act performed by him
in his capacity as an office holder, for:
o a breach of his duty of care to us or to another person;
o breach of his duty of loyalty to us, provided that the office holder
acted in good faith and had reasonable cause to assume that his act
would not prejudice our interests; or
o a financial liability imposed upon him in favor of another person.
Our articles of association provide that we may enter into a contract
for the insurance of the liability, in whole in part, of any of its office
holders, to the maximum extent permitted by the Israeli Companies Law.
In addition, our articles of association provide that we may, with
respect to an act performed in the capacity of an office holder, (i) undertake
in advance to indemnify an office holder, provided that the undertaking shall be
restricted to foreseeable events and up to a feasible amount, as determined by
our board of directors; and (ii) indemnify an office holder retroactively;
against:
o a financial liability imposed on him in favor of another person by any
judgment, including a settlement or an arbitrator's award approved by
a court; and
o reasonable litigation expenses, including attorneys' fees, expended by
such office holder or charged to him by a court, in a proceeding we
instituted against him or instituted on our behalf or by another
person, or in a criminal charge from which he was acquitted or in
which he was convicted of an offense that does not require proof of
criminal intent.
39
These provisions are specifically limited in their scope by the Israeli
Companies Law, which provides that a company may not indemnify an office holder,
nor exculpate an office holder, nor enter into an insurance contract which would
provide coverage for any monetary liability incurred as a result of certain
improper actions.
Pursuant to the Israeli Companies Law, exculpation of, procurement of
insurance coverage for, and an undertaking to indemnify or indemnification of,
our office holders must be approved by our audit committee and our board of
directors and, if such office holder is a director, also by our shareholders.
We have undertaken to indemnify our office holders to the fullest extent
permitted by law. We currently maintain directors and officers liability
insurance with a per claim and aggregate coverage limit of $10 million including
legal costs incurred.
Directors' Service Contracts
Mr. Gonen has served as a director since December 1988 and served as the
Chairman of our Board of Directors from October 31, 1988 until May 10, 2004. Mr.
Gonen served as our Chief Executive Officer from October 31, 1988 until October
1, 2000. From August 22, 2002 through October 28, 2003, Mr. Gonen assumed the
position of Interim Chief Executive Officer. On October 28, 2003, our Board of
Directors appointed Mr. Gonen as our Chief Executive Officer, in addition to his
position at such time as Chairman of our Board of Directors, for a term not to
exceed three years, such appointment was approved by our annual general meeting
of shareholders in December 2003. In March 2003, we entered into a new
Employment and Services Agreement with Mr. Gonen, effective as of September 1,
2002, under which Mr. Gonen agreed to serve as the Chairman of our Board of
Directors and our Interim Chief Executive Officer and to act as a consultant for
a period of three years after termination of his employment. During the term of
his employment with our company, Mr. Gonen is entitled to a monthly gross salary
of NIS 90,000, linked to the Israeli Consumer Price Index (approximately
$20,500) and is entitled to a monthly consulting fee of $13,500 plus V.A.T.
during the three-year, post-termination consulting period. Mr. Gonen's monthly
gross salary during his employment term will be reduced by 20% as long as the
20% pay reduction for all our employees remains in force. Currently, Gonen's
monthly salary (as well as all of our employees salaries) is subject to a 14.4%.
reduction. During his employment term, Mr. Gonen is entitled to the use of a
company car, full reimbursement for his home telephone expenses, reimbursement
for all-reasonable entertainment and living expenses both in Israel and abroad,
managers insurance, and education fund and we granted Mr. Gonen options to
purchase 400,000 of our ordinary shares at a price of $1.75 per share. In
addition, we agreed to pay Mr. Gonen the following bonuses: (i) 9% of all
license and maintenance revenues received by us between January 1, 2003 and
December 31, 2007 from international distributors that our Board of Directors
assigned Mr. Gonen to appoint, provided that this yearly bonus would not exceed
the lower of (a) 5% of our yearly net profit, excluding any impairment of
intangible assets, and (b) $100,000 per year; (ii) 16% of revenues received from
Oracle in 2003 and 6% of revenues received from Oracle in 2004; (iii) three-year
warrants to purchase up to 7% of the amount of shares issued in any fund-raising
transaction to investors introduced by Mr. Gonen; (iv) up to 7% of the proceeds
of an acquisition transaction that our Board of Directors assigned Mr. Gonen to
manage; and (v) additional yearly bonuses at the discretion of our Board of
Directors of up to $100,000. The agreement also contains non-
40
competition and confidentiality provisions. Following termination of his
employment by us, except for cause, Mr. Gonen will be entitled to a severance
payment that is calculated at two times his last gross salary multiplied by the
number of years since October 1, 1987, less the amount accumulated in the
severance component of his manager's insurance maintained by us for him which
will be transferred to his name.
In connection with the appointment of Mr. Gonen as our Chief Executive
Officer as well as Chairman of our Board of Directors in October 2003, Mr.
Gonen's Employment and Service Agreement was amended, as approved by the annual
general meeting of shareholders in December 2003, pursuant to which we granted
Mr. Gonen an additional 600,000 options to purchase our ordinary shares at an
exercise price of $1.92 per share, with vesting conditioned on his spending at
least two-thirds of his time in the United States during 2004.
In April 2004, in connection with a private placement of our securities
(see Item 7B. "Major Shareholders and Related Party Transactions - Related Party
Transactions"), our shareholders approved a new Employment and Services
Agreement with Mr. Gonen, which amended and restated the then existing
Employment and Services Agreement (as amended), effective as of January 1, 2004.
The new Employment and Services Agreement reflects the terms of the previous
agreement, and in addition we have the right under the new agreement to change
Mr. Gonen's position as Chief Executive Officer while continuing his employment
with us, and such change of position will not constitute termination of his
employment. In the event that Mr. Gonen's employment with us is terminated due
to the failure of our company to achieve the financial milestones agreed upon
from time to time by him and our Board of Directors, we will have the right to
terminate his employment and pay Mr. Gonen a one-time, lump-sum payment of
$250,000 instead of the monthly consulting fee to which he is entitled during
the three-year consulting period. It was further agreed that Mr. Gonen's options
to purchase 600,000 of our ordinary shares will vest only in the event of a
change of control transaction. The grant of the option to purchase 600,000
ordinary shares is conditioned on his spending at least two-thirds of his time
in the United States from January 24, 2004 and until January 23, 2005. Mr. Gonen
will retain the 600,000 options, subject to vesting upon a change in control
transaction, in the event that: (i) his employment is terminated by us, except
for justifiable cause; (ii) he stops serving as our Chief Executive Officer at
our Board of Director's request; or (iii) is requested by our Board of Directors
not to spend 66% of his time in the United States during the period mentioned
above. Additionally, we agreed that in the event our company is acquired in a
merger or acquisition transaction, Mr. Gonen will be entitled to a fee of up to
7% of the total value of the consideration paid to our company in such a
transaction, the exact percentage to be determined by our Board of Directors;
however, the percentage will be no less than 3% in the event that the closing of
the transaction occurs on or before December 31, 2004; 2% if the closing of the
transaction occurs at any time between January 1, 2005 and December 31, 2005 and
1% if the closing of the transaction occurs at any time between January 1, 2006
and December 31, 2007. Thereafter, Mr. Gonen will not be entitled to any fee in
connection with or relating to an acquisition transaction.
In April 2004, one of our shareholders wrote a letter to our Audit
Committee asking that it investigate whether certain compensation provisions of
the employment agreement entered into by our company and Mr. Gonen in March 2003
were validly and duly authorized. At our Meeting of Shareholders held on April
22, 2004, the same shareholder reiterated his request.
41
Our Board of Directors resolved, pursuant to the recommendation of our Audit
Committee, to establish a special fact finding committee to investigate the
allegations and other matters relating to Mr. Gonen's compensation. Our Board of
Directors is currently assessing the matter.
Audit Committee
Our audit committee, which was established in accordance with Section
114 of the Israeli Companies Law and Section 3(a)(58)(A) of the Securities
Exchange Act of 1934, assists our board of directors in overseeing the
accounting and financial reporting processes of our company and audits of our
financial statements, including the integrity of our financial statements,
compliance with legal and regulatory requirements, our independent public
accountants' qualifications and independence, the performance of our internal
audit function and independent public accountants, finding any defects in the
business management of our company for which purpose the audit committee may
consult with our independent auditors and internal auditor, proposing to the
board of directors ways to correct such defects, approving related-party
transactions as required by Israeli law, and such other duties as may be
directed by our board of directors.
Our audit committee consists of three board members who satisfy the
respective "independence" requirements of the Securities and Exchange
Commission, Nasdaq and Israeli Law for audit committee members. Our audit
committee is currently composed of Ms. Anat Segal and Messrs. Dan Falk and Roni
Ferber. The audit committee meets at least once each quarter.
The responsibilities of the audit committee also include approving
related-party transactions as required by law. Under Israeli law an audit
committee may not approve an action or a transaction with a controlling
shareholder, or with an office holder, unless at the time of approval two
outside directors are serving as members of the audit committee and at least one
of the outside directors was present at the meeting in which an approval was
granted.
Internal Audit
The Israeli Companies Law requires the board of directors of a public
company to appoint an internal auditor nominated by the audit committee. A
person who does not satisfy the Israeli Companies Law's independence
requirements may not be appointed as an internal auditor. The role of the
internal auditor is to examine, among other things, the compliance of a
company's conduct with applicable law and orderly business practice. Yossi
Genossar serves as our internal auditor.
D. EMPLOYEES
On December 31, 2003, we employed 153 persons, comprised of 44 persons
in research and development, 9 persons in product and customer support, 53
persons in software services, 30 persons in marketing and sales and 17 persons
in general administration and management. As of December 31, 2003, we had 117
employees in Europe, the Middle East and Africa, 22 employees in the United
States and 14 employees located in other countries.
42
On December 31, 2002, we employed 158 persons, comprised of 34 persons
in research and development, 11 persons in product and customer support, 54
persons in software services, 38 persons in marketing and sales and 21 persons
in general administration and management. As of December 31, 2002, we had 118
employees in Europe, the Middle East and Africa, 26 employees in the United
States and 14 employees located in other countries.
On December 31, 2001, we employed 225 persons, comprised of 63 persons
in research and development, 17 persons in product and customer support, 61
persons in software services, 51 persons in marketing and sales and 33 persons
in general administration and management. As of December 31, 2001, we had 160
employees in Europe, the Middle East and Africa, 50 employees in the United
States and 15 employees located in other countries. Certain provisions of the
collective bargaining agreements between the Histadrut (General Federation of
Labor in Israel) and the Coordination Bureau of Economic Organizations
(including the Industrialists' Association) are applicable to our employees by
order of the Israeli Ministry of Labor. These provisions concern mainly the
length of the workday, minimum daily wages for professional workers,
contributions to a pension fund, insurance for work-related accidents,
procedures for dismissing employees, determination of severance pay and other
conditions of employment. We generally provide our employees with benefits and
working conditions beyond the required minimums.
Pursuant to Israeli law, we are legally required to pay severance
benefits upon certain circumstances, including the retirement or death of an
employee or the termination of employment of an employee without due cause.
Israeli employers and employees are required to pay predetermined amounts to the
National Insurance Institute, which is similar to the United States Social
Security Administration. In 2003, payments to the National Insurance Institute
amounted to approximately 16.3% of wages (up to a maximum amount), of which
approximately two-thirds was contributed by employees with the balance
contributed by the employer.
E. SHARE OWNERSHIP
Beneficial Ownership of Executive Officers and Directors
The following table sets forth certain information as of May 18, 2004
regarding the beneficial ownership of our ordinary shares by each of our
directors and executive officers:
Number of Ordinary Percentage of
Shares Outstanding
Beneficially Owned Ordinary Shares
(1) (2)
---------------------- ---------------
Shimon Alon ..................... 1,367,845 (3,4,5,6) 8.5%
Arie Gonen ...................... 1,383,333 9.0%
Ofer Segev....................... 95,000 (7) *
Shlomo Baumgarten................ 156,500 (7,8) 1%
Dov Biran........................ 863,720 5.7%
Dan Falk......................... 3,333 (7) *
|
43
Roni Ferber...................... 31,666 (7,9) *
Anat Segal....................... 3,333 (7) *
Ron Zuckerman.................... 1,367,845 (3,4,5,6) 8.5%
----------------
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* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Ordinary shares relating to
options currently exercisable or exercisable within 60 days of the date of
the above table are deemed outstanding for computing the percentage of the
person holding such securities but are not deemed outstanding for computing
the percentage of any other person. Except as indicated by footnote, and
subject to community property laws where applicable, the persons named in
the table above have sole voting and investment power with respect to all
shares shown as beneficially owned by them.
(2) The percentages shown are based on 15,221,538 ordinary shares issued and
outstanding as of May 18, 2004.
(3) Includes 441,698 ordinary shares issuable upon exercise of Series A
Warrants, exercisable at an exercise price of $1.75 per ordinary share.
(4) Includes 147,232 ordinary shares issuable upon exercise of Series B
Warrants, exercisable at an exercise price of $2.00 per ordinary share.
(5) Includes 160,000 ordinary shares issuable upon exercise of May 2004
Warrants, exercisable at an exercise price of $1.75 per ordinary share.
(6) Includes 210,286 ordinary shares issuable upon the conversion of five years
convertible debentures, at a conversion price of $1.75 per ordinary share.
(7) These ordinary shares are subject to currently exercisable options.
(8) Includes 156,500 ordinary shares subject to currently exercisable options
granted under our stock option plan, at exercise prices between $1.05 -
$7.875 per share. Such options expire between December 2006 and December
2008.
(9) Includes 28,332 ordinary shares subject to currently exercisable options
granted under our stock option plan, at exercise prices between
$1.05-$7.875 per share. Such options expire between December 2005 and
December 2007.
Stock Option Plans
1994 Stock Option Plan and 1998 Stock Option Plan
Under our 1994 Stock Option Plan, or the 1994 Plan, and our 1998 Stock
Option Plan, or the 1998 Plan, incentive stock options, or ISOs, as defined in
Section 422 of the United States Internal Revenue Code of 1986, as amended, may
be granted to our officers and employees or to employee of any of our
subsidiaries, and options which do not qualify as ISOs or non-qualified options,
may be granted to our employees, officers and directors or to employees of any
of our subsidiaries. An aggregate of 2,500,000 ordinary shares are reserved for
issuance under the 1994 Plan and 1998 Plan. Ordinary shares underlying any
options which are cancelled or not exercised become available for future grants.
The 1994 Plan and 1998 Plan will terminate in 2004 and 2008, respectively,
unless previously terminated by the Board of Directors.
44
The 1994 Plan and 1998 Plan are currently administered by our Board of
Directors, which in the future may delegate such administration to a committee
of directors. The Board or such committee, if appointed, has the authority to
determine the persons to whom options will be granted, the number of ordinary
shares to be covered by each option, the time or times at which options will be
granted or exercised, and the other terms and provisions of the options. The
exercise price of an ISO granted under such plans may not be less than 100%
(110% in the case of a 10% shareholder) and the exercise price of a
non-qualified option may not be less than 75% of the fair market value (as
defined in the plan) of our ordinary shares on the date of the grant.
It is intended that each option granted under the 1994 Plan and 1998
Plan will be exercisable in installments during the option term and shall not be
transferable by the optionee other than by will or by the laws of descent and
distribution. Options granted under such plans will terminate at such time (not
to exceed ten years from the date of grant) and under such circumstances as the
Board or Option Committee determines, generally not later than three months
after a termination of employment, or one year in the event of termination by
reason of the optionee's death or disability.
No options were granted under the 1994 Plan in 2003, and 400,916
ordinary shares remained available for future grant under the 1994 Plan at
December 31, 2003.
Options for the purchase of 55,000 ordinary shares, having exercise
prices ranging between $2.25 to $7.75 per share, were granted under the 1998
Plan in 2003 and at December 31, 2003 options for the purchase of 216,770
ordinary shares were available for future grants under such plan.
Of the outstanding options to purchase a total 1,545,454 ordinary shares
under the 1994 Plan and the 1998 Plan, options for the purchase of 45,800
ordinary shares will expire in 2004, options for the purchase of 49,000 ordinary
shares will expire in 2005 and the remaining options to purchase 1,450,654
ordinary shares will expire thereafter.
No ordinary shares were issued in 2003 upon exercise of options
previously granted under the 1994 Plan and 1998 Plan, and no options were
exercised by our officers and directors in 2003 under such plans.
2001 Stock Option Plan
In 2001 we adopted our 2001 Employee Stock Option Plan, or the 2001
Plan, which authorized the grant of options to purchase up to 1,000,000 ordinary
shares. In 2003, the 2001 Plan was amended such that the number of ordinary
shares issuable under the 2001 Plan was increased by 1,000,000 ordinary shares,
subsequent to which up to 2,000,000 ordinary shares are issuable under the 2001
Plan. Employees, officers, directors and consultants of our company and its
subsidiaries are eligible to participate in the 2001 Plan. Awards under the 2001
Plan may be granted in the forms of incentive stock options as provided in
Section 422 of the U.S. Internal Revenue Code of 1986, as amended, non-qualified
stock options, options granted pursuant to Section 102 of the Israeli Tax
Ordinance and options granted pursuant to Section 3.9 of the Israeli Tax
Ordinance. The 2001 Plan has a term of ten (10) years and will terminate in
2011. No award of options may be made after such date.
45
The 2001 Plan is currently administered by our Board of Directors, which
in the future may delegate such administration to a committee of directors.
Subject to the provisions of the 2001 Plan and applicable law, the Board of
Directors or the committee (if appointed) has the authority, to determine, among
other things to whom options may be granted; the number of ordinary shares to
which an option may relate; the exercise price for each share; the vesting
period of the option and the terms, conditions and restrictions thereof; to
construe and interpret the 2001 Plan; to prescribe, amend and rescind rules and
regulations relating to such plan; and to make all other determinations deemed
necessary or advisable for the administration of such plan.
The exercise price of an ISO granted under the plans may not be less
than 100% (110% in the case of a 10% shareholder) and the exercise price of a
non-qualified option may not be less than 100% of the fair market value (as
defined in the plan) of our ordinary shares on the date of the grant.
As of December 31, 2003, options to purchase 1,907,500 ordinary shares
had been granted under the 2001 Plan, having exercise prices ranging between
$0.82 - $1.92 per share. Such outstanding options will expire after 2005.
In 2003, options to purchase 890,000 ordinary shares were granted under
the 2001 Plan to our officers and directors.
As of December 31, 2003, our executive officers and directors as a
group, consisting of 7 persons, held options to purchase 1,320,000 ordinary
shares under the 2001 Plan, exercisable at an average exercise price of $1.67
per share.
2003 Israeli Stock Option Plan
As of January 1, 2003, Section 102 of the Israeli Income Tax Ordinance
[New Version] - 1961, or Section 102, which applies to stock option plans, was
amended, pursuant to which certain new tax advantages are afforded with respect
to option grants to employees and directors. In order to enable employees and
directors to benefit from such tax advantages with respect to future grants of
options and issuance of shares upon exercise thereof, such grants have to be
performed under a share option plan that is adjusted to the amended Section 102.
Since our then existing stock option plans do not comply with the amended
Section 102, we adopted the 2003 Israeli Stock Option Plan, or the 2003 Plan,
under which options may be granted to employees employed by us or by our
affiliates. Under the 2003 Plan options to purchase up to 1,500,000 ordinary
shares may be granted; however, this will not increase the total number of
shares available for option grants, but will allow us to roll over shares
available for grant under our 1994 Plan, 1998 Plan and 2001 Plan into the 2003
Plan according to a resolution of our Board of Directors from time to time.
Options to Israeli employees, directors and officers, other than
controlling shareholders (as such term is defined in the Israeli Income Tax
Ordinance), under the 2003 Plan may only be granted under Section 102. Under the
amended Section 102, we may designate options granted pursuant to Section 102 as
"Approved 102 Options" or "Unapproved 102 Options." An Approved 102 Option may
be classified as either a capital gains option or an ordinary income option. We
elected to initially grant options pursuant to Section 102 as Approved 102
Options,
46
under the capital gains tax route. Such election is effective as of the first
date of grant of such capital gain options under the 2003 Plan and shall remain
in effect at least until the lapse of one year following the end of the tax year
during which we first granted capital gain options. All Approved 102 Options (or
the ordinary shares issued upon exercise thereof) must be held in trust by a
trustee for the requisite holding period under the amended Section 102 in order
to benefit from the certain tax advantages. We may also grant Unapproved 102
Options, which do not have any tax benefit and are not held by a trustee.
Options granted under Section 102 are taxed on the date of sale of the exercised
ordinary shares and/or the date of the release of the options or such exercised
ordinary shares from the trust.
The 2003 Plan is currently administered by our Board of Directors, which
may delegate such administration to a committee of directors. Subject to the
2003 Plan and applicable law, the Board of Directors or the committee (if
appointed) has the authority to determine, among other things to whom options
may be granted; the time and the extent to which the options may be exercised,
the fair market value of the shares and the exercise price of shares covered by
each option (based on the fair market value); to designate the type of options;
to make an election as to the type of Approved 102 option; interpret the 2003
Plan; to prescribe, amend and rescind rules and regulations relating to such
plan; and to make all other determinations deemed necessary or advisable for the
administration of such plan.
Options granted under the 2003 Plan are not assignable or transferable
by the optionee, except as specifically allowed under the 2003 Plan, and during
the lifetime may only be exercised by the optionee. Such options may be
exercised as long as the optionee is employed by, or providing services to, us
or any of our affiliates, to the extent the options have vested.
As of December 31, 2003, options to purchase 1,481,500 ordinary shares
had been granted under the 2003 Plan, having an exercise price of $1.42 per
share. Such outstanding options will expire in December 2009.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. MAJOR SHAREHOLDERS
The following table sets forth certain information as of May 18, 2004
regarding the beneficial ownership by all shareholders known to us to own
beneficially more than 5% of our ordinary shares:
Number of Ordinary Percentage of
Shares Outstanding
Beneficially Owned (1) Ordinary Shares (2)
---------------------- -------------------
Arie Gonen..................................... 1,383,333 (3) 9.0%
Dov Biran...................................... 863,720 5.7%
Messrs. Shimon Alon, Aki Ratner, Ron Zuckerman
and other investors represented by them ..... 6,130,654 (4,5,6,7) 31.8%
Total.......................................... 8,377,707 (8) 43.1%
-------------
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47
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Ordinary shares relating to
options currently exercisable or exercisable within 60 days of the date of
this table are deemed outstanding for computing the percentage of the
person holding such securities but are not deemed outstanding for computing
the percentage of any other person. Except as indicated by footnote, and
subject to community property laws where applicable, the persons named in
the table above have sole voting and investment power with respect to all
shares shown as beneficially owned by them.
(2) The percentages shown are based on 15,221,538 shares issued and outstanding
as of May 18,, 2004.
(3) Includes 133,333 ordinary shares subject to currently exercisable options
granted under our stock option plan, exercisable at an exercise price of
$1.75 per share. Such options will expire on September 30, 2009.
(4) Includes 2,208,489 ordinary shares currently issuable upon exercise of
Series A Warrants, exercisable at an exercise price of $1.75 per share.
(5) Includes 736,162 ordinary shares currently issuable upon exercise of Series
B Warrants, exercisable at an exercise price of $2.00 per share.
(6) Includes 1,142,857 ordinary shares issuable upon the conversion of five
years convertible debentures, convertible at a conversion price of $1.75
per share.
(7) Under a certain Stockholders Agreement dated December 23, 2003, as amended
in February 2004, by and among Messrs. Shimon Alon, Ron Zuckerman, Aki
Ratner, and other investors represented by them, among other things,
Messrs. Alon, Zuckerman and Ratner (i) were granted, in any combination of
two signatures of such persons, joint sole discretionary authority over the
disposition of the ordinary shares, the exercise of the warrants and the
conversion of the convertible promissory notes, which were purchased by or
issued to such group of investors pursuant to or in connection with a
certain Purchase Agreement dated December 23, 2003, and the disposition of
the shares underlying such warrants and convertible promissory notes; and
(ii) were appointed, in any combination of two signatures of such persons,
as the group's powers of attorney, acting jointly, with sole discretionary
power to exercise the voting rights of each of the securities acquired
pursuant to the Purchase Agreement. See Item 7B. "Major Shareholders and
Related Party Transactions - Major Shareholders - Related Party
Transactions."
(8) See Footnotes (3) - (7).
Significant Changes in the Ownership of Major Shareholders.
On December 30, 2003, Messrs. Shimon Alon, Aki Ratner, Ron Zuckerman and
other investors represented by them purchased from the Special Situations Funds
their entire holding of 2,043,146 of our ordinary shares, Series A Warrants to
purchase 2,208,489 of our ordinary shares and Series B Warrants to purchase
736,162 of our ordinary shares. On April 24, 2004, at an extraordinary general
meeting of shareholders, the shareholders resolved to reduce the
48
exercise price of the Series B Warrants from $2.25 to $2.00. See Item 7B.
"Major Shareholders and Related Party Transactions - Major Shareholders -
Related Party Transactions."
Major Shareholders Voting Rights
Our major shareholders do not have different voting rights.
Record Holders
At June 23, 2004, there were 55 holders of record of our ordinary
shares, of which 38 record holders holding approximately 85.38% of our ordinary
shares had registered addresses in the United States, including banks, brokers
and nominees. Because these holders of record include banks, brokers and
nominees, the beneficial owners of these ordinary shares may include persons who
reside outside the United States. On April 22, 2004, we had approximately 1,405
beneficial holders of our ordinary shares, we do not believe this number has
materially changed.
B. RELATED PARTY TRANSACTIONS
On December 30, 2003, Messrs. Shimon Alon, Aki Ratner, Ron Zuckerman and
other investors represented by them purchased from the Special Situations Funds
their entire holding of 2,043,146 of our ordinary shares, Series A Warrants to
purchase 2,208,489 of our ordinary shares and Series B Warrants to purchase
736,162 of our ordinary shares. On the same date of their transaction with the
Special Situations Funds, we granted such group a 30-day option to invest $2
million in our company in the form of five-year convertible promissory notes,
convertible at $1.75 per share, and warrants to purchase 450,000 of our ordinary
shares at an exercise price of $1.75 per share. On January 29, 2004 we granted
the group a seven-day extension to exercise such option and on February 5, 2004
the group elected to exercise such option. Accordingly, on March 22, 2004 we
entered into a Note and Warrant Purchase Agreement with such group, pursuant to
which we issued the group convertible promissory notes in the aggregate
principal amount of $2 million, bearing interest at the rate of 5% per annum,
payable semi-annually, convertible at any time after issuance, in whole or in
part, into our ordinary shares, at a conversion price of $1.75 per share. In
April 2004, all such transactions were approved by our shareholders. The notes
and unpaid accrued interest thereon will be due and payable five years after
issuance, subject to early repayment in the event of default by us of our
obligations under the notes. In addition, we agreed to issue to certain members
of the group warrants to purchase an aggregate of 480,000 of our ordinary shares
at an exercise price of $1.75 per share, expiring three years after their
issuance. The convertible promissory notes and the warrants contain
anti-dilution provisions. In addition, the exercise price of the Series B
Warrants purchased by the group was reduced to $2.00 per share, and the term of
the Series A and Series B Warrants held by them was extended for one additional
year, to October 24, 2006. Under the agreement the group have the right to
designate Messrs. Shimon Alon, Ron Zuckerman and Aki Ratner for election to our
Board of Directors in 2004, thereafter to designate two members for election to
our Board of Directors so long as they continue to beneficially own at least 15%
of our issued and outstanding ordinary shares, on an as converted basis
(excluding unexercised warrants), and to designate one member for election to
our Board of Directors so long as they continue to beneficially own at least 5%
of our issued and outstanding ordinary shares, on an as converted basis
(excluding unexercised warrants). Under the agreement the group have a pre-
49
emptive right, so long as they hold at least 2% of our issued and outstanding
shares, to participate in certain future financings. The consent of a majority
of the promissory notes is required for any action that authorizes, creates,
reclassifies or issues any debt or equity security having preference senior to
or on parity with the promissory notes. We also undertook to register the shares
issuable upon conversion of the notes and exercise of the warrants under the
Securities Act of 1933 and to maintain a registration statement in effect in
order to allow the purchasers to freely sell these shares.
In connection with the transactions contemplated by our March 22, 2004
note and warrant purchase agreement, our shareholders approved a new employment
and services agreement with Mr. Gonen, which, effective as of January 1, 2004,
amended and restated his existing employment and services agreement. See Item
6C. "Directors, Senior Management and Employees - Board Practices - Directors'
Service Contracts."
C. INTERESTS OF EXPERTS AND COUNSEL
Not applicable.
ITEM 8. FINANCIAL INFORMATION
A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
See the consolidated financial statements, including the notes thereto,
and the exhibits listed in Item 19 hereof and incorporated herein by this
reference.
Legal Proceedings
In November 2002, four Special Situations Funds, or SSF, that invested
in our company in our October 2001 private placement, filed a complaint against
us alleging that we had breached the Registration Rights Agreement relating to
their investment in our company. SSF sought to collect liquidation damages of
approximately $603,000, plus unspecified actual damages allegedly due as a
result of a delay in the declaration of the effective date of the registration
statement covering the shares purchased by SSF, as provided for under the
Registration Rights Agreement. On March 28, 2003, the court ruled in favor of
SSF and awarded SSF liquidation damages in the amount of $ 603,000, plus
interest from the date on which the complaint was filed. We appealed the courts
decision and in January 2004, an appellate court affirmed the lower courts
decision and rejected our appeal. In 2002, we recorded a one-time charge in the
amount of $ 810,000 and an additional $365,000 in 2003 relating to the outcome
of the lawsuit and its related expenses. The charge was included in
restructuring and other non-recurring charges in our statement of operations.
During 2002, our U.S. subsidiary ceased to use its former leased
facilities prior to the end of the term of the lease, which was to expire in
September 2005. In 2003, the owner of the premises filed an action against us
for non-payment of the lease fees for 2003. In April 2004, we paid $825,000 to
settle the dispute with the owner.
50
Dividend Distribution Policy
We have never paid and do not intend to pay cash dividends on our
ordinary shares in the foreseeable future. Our earnings and other cash resources
will be used to continue the development and expansion of our business. Any
future dividend policy will be determined by our Board of Directors and will be
based upon conditions then existing, including our results of operations,
financial condition, current and anticipated cash needs, contractual
restrictions and other conditions.
According to the Israeli Companies Law, a company may distribute
dividends out of its profits, so long as the company reasonably believes that
such dividend distribution will not prevent the company from paying all its
current and future debts. Profits, for purposes of the Israeli Companies Law,
means the greater of retained earnings or earnings accumulated during the
preceding two years, as evidenced by financial statements prepared no more than
six months prior to the date of distribution. In the event cash dividends are
declared, such dividends will be paid in NIS.
B. SIGNIFICANT CHANGES
In May 2004, we announced that Mr. Shimon Alon was appointed Chairman of
our Board of Directors and that Messrs. Aki Ratner and Ron Zuckerman were
appointed directors of our company. Mr. Aki Ratner will begin his term as a
director in July 2004.
In June 2004, we entered into an agreement with Plenus Technologies
Ltd., or Plenus, under which we secured a two-year $3 million credit line from
Plenus at a fixed interest rate of 6.5% per annum. We undertook to issue to
Plenus five-year warrants to purchase our ordinary shares in an amount equal to
a percentage of the credit line divided by $3.00 per share, the exercise price
of the warrants (subject to anti-dilution adjustments), as follows: 20% of the
credit line if we terminate the credit line within the first year of its
initiation; 23% of the credit line if we terminate the credit line within the
second year of its initiation and we had not drawn any money from the credit
line prior to termination; and 30% of the credit line if we terminate the credit
line within the second year of its initiation and we had drawn money from the
credit line prior to termination. See Item 5B. "Operating and Financial Review
and Prospects - Liquidity and Capital Resources."
ITEM 9. THE OFFER AND LISTING
A. OFFER AND LISTING DETAILS
Annual Stock Information
The following table sets forth, for each of the years indicated, the
range of high ask and low bid prices of our ordinary shares on the Nasdaq
National Market:
Year High Low
---- ---- ---
1999.................................. $16.375 $6.75
2000.................................. $37.50 $3.3125
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51
2001.................................. $5.50 $0.75
2002.................................. $2.12 $0.50
2003.................................. $2.22 $0.80
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Quarterly Stock Information
The following table sets forth, for each of the full financial quarters
in the years indicated, the range of high ask and low bid prices of our ordinary
shares on the Nasdaq National Market:
High Low
---- ---
2002
----
First Quarter......................... $1.55 $0.72
Second Quarter........................ $1.94 $0.90
Third Quarter......................... $2.12 $0.90
Fourth Quarter........................ $1.34 $0.50
2003
----
First Quarter......................... $1.05 $0.80
Second Quarter........................ $1.59 $0.90
Third Quarter......................... $1.48 $1.00
Fourth Quarter........................ $2.22 $1.05
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Monthly Stock Information
The following table sets forth, for each of the most recent last six
months, the range of high ask and low bid prices of our ordinary shares on the
Nasdaq National Market:
Month High Low
------ ---- ---
December 2003........................ $2.22 $1.21
January 2004......................... $3.62 $2.08
February 2004........................ $3.34 $2.53
March 2004........................... $3.44 $2.60
April 2004........................... $3.36 $2.62
May 2004............................. $2.88 $2.33
B. PLAN OF DISTRIBUTION
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Not applicable.
C. MARKETS
Our ordinary shares have traded on the Nasdaq National Market since our
initial public offering on December 17, 1992. On October 27, 2000, our name was
changed to Attunity Ltd and our Nasdaq symbol changed to ATTU.
52
D. SELLING SHAREHOLDERS
Not applicable.
E. DILUTION
Not applicable.
F. EXPENSE OF THE ISSUE
Not applicable.
ITEM 10. ADDITIONAL INFORMATION
A. SHARE CAPITAL
Not applicable.
B. MEMORANDUM AND ARTICLES OF ASSOCIATION
Purposes and Objects of the Company
We are a public company registered under the Israel Companies Law,
1999-5759, or the Israeli Companies Law, as Attunity Ltd., registration number
52-003801-9. Our objects and purposes, as provided by our articles of
association, are to carry on any lawful activity.
The Powers of the Directors
Under the provisions of the Israeli Companies Law and our articles of
association, a director cannot participate in a meeting nor vote on a proposal,
arrangement or contract in which he or she is personally interested. In
addition, our directors cannot vote compensation to themselves or any members of
their body without the approval of our audit committee and our shareholders at a
general meeting. See Item 6C. "Directors, Senior Management and Employees -
Board Practices - Approval of Related Party Transactions Under Israeli Law."
The authority of our directors to enter into borrowing arrangements on
our behalf is not limited, except in the same manner as any other transaction by
us.
Under our articles of association, retirement of directors from office
is not subject to any age limitation and our directors are not required to own
shares in our company in order to qualify to serve as directors.
Rights Attached to Shares
Our authorized share capital consists of 30,000,000 ordinary shares of a
nominal value of NIS 0.1 each. All outstanding ordinary shares are validly
issued, fully paid and non-assessable.
The rights attached to our ordinary shares are as follows:
53
Dividend rights. Subject to any preferential, deferred, qualified or
other rights, privileges or conditions attached to any special class of shares
with regard to dividends, the profits of the company available for dividend and
resolved to be distributed shall be applied in payment of dividends upon the
shares of the company in proportion to the amount paid up or credited as paid up
per the nominal value thereon respectively. Unless not otherwise specified in
the conditions of issuance of the shares, all dividends with respect to shares
which were not fully paid up within a certain period, for which dividends were
paid, shall be paid proportionally to the amounts paid or credited as paid on
the nominal value of the shares during any portion of the abovementioned period.
The board of directors may declare interim dividends and propose the final
dividend with respect to any fiscal year only out of profits legally available
for distribution, in accordance with the provisions of the Israeli Companies
Law. See Item 8A. "Financial Information - Consolidated and Other Financial
Information - Dividend Distribution." If after one year a dividend has been
declared and it is still unclaimed, the board of directors is entitled to invest
or utilize the unclaimed amount of dividend in any manner to our benefit until
it is claimed. We are not obligated to pay interest or linkage differentials on
an unclaimed dividend.
Voting rights. Holders of ordinary shares have one vote for each
ordinary share held on all matters submitted to a vote of shareholders. Such
voting rights may be affected by the grant of any special voting rights to the
holders of a class of shares with preferential rights that may be authorized in
the future.
The quorum required at any meeting of shareholders consists of at least
two shareholders present in person or represented by proxy who hold or
represent, in the aggregate, at least one-third (33%) of the voting rights in
the company. A meeting adjourned for lack of a quorum generally is adjourned to
the same day in the following week at the same time and place or any time and
place as the directors designate in a notice to the shareholders. At the
reconvened meeting, the required quorum consists of any two members present in
person or by proxy.
Under our articles of association, all resolutions require approval of
no less than a majority of the voting rights represented at the meeting in
person or by proxy and voting thereon.
Pursuant to our articles of association, our directors (except
outside directors) are elected at our annual general meeting of shareholders
by a vote of the holders of a majority of the voting power represented and
voting at such meeting. See Item 6C. "Directors, Senior Management and
Employees - Board Practices - Election of Directors."
Rights to share in profits. Our shareholders have the right to
share in our profits distributed as a dividend and any other permitted
distribution. See this Item 10B. "Additional Information - Memorandum and
Articles of Association - Rights Attached to Shares - Dividend Rights."
Rights to share in surplus in the event of liquidation. In the event of
our liquidation, after satisfaction of liabilities to creditors, our assets will
be distributed to the holders of ordinary shares in proportion to the nominal
value of their holdings. This right may be affected by the grant of preferential
dividend or distribution rights to the holders of a class of shares with
preferential rights that may be authorized in the future.
54
Liability to capital calls by the company. Under our memorandum of
association and the Israeli Companies Law, the liability of our shareholders is
limited to the unpaid amount of the par value of the shares held by them.
Limitations on any existing or prospective major shareholder. See "Item
6C. Directors and Senior Management - Board Practices - Approval of Related
Party Transactions Under Israeli Law."
Changing Rights Attached to Shares
The rights attached to any class of shares (unless otherwise provided by
the terms of issuance of the shares of that class) may be varied with the
consent in writing of the holders of all the issued shares of that class, or
with the sanction of a vote at a meeting of the shareholders passed at a
separate meeting of the holders of the shares of the class by a majority of the
voting rights of such class represented at the meeting in person or by proxy and
voting thereon.
Under our articles of association, unless otherwise provided by the
conditions of issuance, the enlargement of an existing class of shares, or the
issuance of additional shares thereof, shall not be deemed to modify or abrogate
the rights attached to the previously issued shares of such class or of any
other class.
Annual and Extraordinary Meetings
The Board of Directors must convene an annual meeting of shareholders at
least once every calendar year, within fifteen months of the last annual
meeting. In accordance with our articles of association, unless a longer period
for notice is prescribed by the Israeli Companies Law, at least ten (10) days
and not more than sixty (60) days notice of any general meeting of shareholders
shall be given. An extraordinary meeting may be convened by the board of
directors, as it decides, or upon a demand of any two directors or 25% of the
directors, whichever is lower, or of one or more shareholders holding in the
aggregate at least 5% of the shares and 1% of the voting rights, or one or more
shareholders holding in the aggregate at least 5% of the voting rights in the
company. See Item 10B. "Additional Information -- Memorandum and Articles of
Association -- Rights Attached to Shares-Voting Rights."
Limitations on the Rights to Own Securities in Our Company
Neither our memorandum of association or our articles of association nor
the laws of the State of Israel restrict in any way the ownership or voting of
shares by non-residents, except with respect to subjects of countries which are
in a state of war with Israel.
Provisions Restricting Change in Control of Our Company
The Israeli Companies Law requires that mergers between Israeli
companies be approved by the board of directors and general meeting of
shareholders of both parties to the transaction. The approval of the board of
directors of both companies is subject to such boards' confirmations that there
is no reasonable doubt that after the merger the surviving company will be able
to fulfill its obligations towards its creditors. Each company must notify its
creditors about the contemplated merger. The approval of a merger by the general
meetings of
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shareholders of the companies is also subject to additional approval
requirements as specified in the Israeli Companies Law and regulations
promulgated thereunder.
The Israeli Companies Law also provides that an acquisition of shares in
a public company must be made by means of a tender offer if as a result of the
acquisition the purchaser would become a 25% shareholder of the company. This
rule does not apply if there is already another 25% shareholder of the company.
Similarly, the Companies Law provides that an acquisition of shares in a public
company must be made by means of a tender offer if as a result of the
acquisition the purchaser would become a 45% shareholder of the company, unless
there is a 50% shareholder of the company. Regulations under the Israeli
Companies Law provide that the Israeli Companies Law's tender offer rules do not
apply to a company whose shares are publicly traded outside of Israel, if
pursuant to the applicable foreign securities laws and stock exchange rules
there is a restriction on the acquisition of any level of control of the
company, or if the acquisition of any level of control of the company requires
the purchaser to make a tender offer to the public shareholders.
Under the Israeli Companies Law, a person may not purchase shares of a
public company if, following the acquisition, the purchaser would hold more than
90% of such company's shares or of any class of shares unless the purchaser
makes a tender offer to purchase all of the company's shares or all the shares
of the particular class, as applicable. If, as a result of the tender offer, the
purchaser would hold more than 95% of the company's shares or a particular class
of shares, the ownership of the remaining shares will be transferred to such
purchaser, However, if the entire tender offer has not been accepted, the
purchaser may not purchase, from those offerees who accepted the offer, shares
that will grant the purchaser ownership of more than 90% of the shares or class
of shares of the company, as applicable.
Disclosure of Shareholders Ownership
The Israeli Securities Law and regulations promulgated thereunder do not
require a company whose shares are publicly traded solely on a stock exchange
outside of Israel, as in the case of our company, to disclose its share
ownership. The Companies Law requires us to notify the identity and shareholding
of all registered shareholders to the Israeli Registrar of Companies.
Changes in Our Capital
Changes in our capital are subject to the approval of the shareholders
by a majority of the votes of shareholders present by person or by proxy and
voting in the shareholders meeting.
C. MATERIAL CONTRACTS
On March 22, 2004, we entered into a Note and Warrant Purchase Agreement
with Messrs. Shimon Alon, Aki Ratner, Ron Zuckerman and other investors
represented by them, pursuant to which we issued the group convertible
promissory notes in the aggregate principal amount of $2 million, bearing
interest at the rate of 5% per annum, payable semi-annually, convertible at any
time after issuance, in whole or in part, into our ordinary shares, at a
conversion price of $1.75 per share. The notes and unpaid accrued interest
thereon will be due and payable five years after issuance, subject to early
repayment in the event of default by us of
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our obligations under the notes. In addition, we agreed to issue to certain
members of the group warrants to purchase an aggregate of 480,000 of our
ordinary shares at an exercise price of $1.75 per share, expiring three years
after their issuance. The conversion price of the notes and the exercise price
of the warrants are subject to anti-dilution adjustments. See Item 7B. "Major
Shareholders and Related Party Transactions - Major Shareholders - Related Party
Transactions."
On June 3, 2004, we entered into an agreement with Plenus Technologies
Ltd., or Plenus, a venture capital lender, under which we secured a two-year $3
million credit line from Plenus, at a fixed interest rate of 6.5% per annum. See
Item 5B. "Operating and Financial Review and Prospects - Liquidity and Capital
Resources."
D. EXCHANGE CONTROLS
Israeli law and regulations do not impose any material foreign exchange
restrictions on non-Israeli holders of our ordinary shares. In May 1998, a new
"general permit" was issued under the Israeli Currency Control Law, 1978, which
removed most of the restrictions that previously existed under such law, and
enabled Israeli citizens to freely invest outside of Israel and freely convert
Israeli currency into non-Israeli currencies.
Non-residents of Israel who purchase our ordinary shares will be able to
convert dividends, if any, thereon, and any amounts payable upon our
dissolution, liquidation or winding up, as well as the proceeds of any sale in
Israel of our ordinary shares to an Israeli resident, into freely repatriable
dollars, at the exchange rate prevailing at the time of conversion, provided
that the Israeli income tax has been withheld (or paid) with respect to such
amounts or an exemption has been obtained.
E. TAXATION
Israeli Tax Consequences
The following is a summary of the current tax structure applicable to
companies in Israel, with special reference to its effect on us and our
shareholders. This summary does not discuss all the aspects of Israeli tax law
that may be relevant to a particular investor in light of his or her personal
investment circumstances or to some types of investors subject to special
treatment under Israeli law. Examples of this kind of investor include residents
of Israel, traders in securities or persons than own, directly or indirectly,
10% or more of our outstanding voting capital, all of whom are subject to
special tax regimes not covered in this discussion. To the extent that the
discussion is based on new tax legislation that has not been subject to judicial
or administrative interpretation, we cannot assure you that the tax authorities
will accept the views expressed in the discussion in question. The discussion is
not intended, and should not be taken, as legal or professional tax advice and
is not exhaustive of all possible tax considerations.
Recent Tax Reform
On January 1, 2003, the Law for Amendment of the Income Tax Ordinance
(Amendment No.132), 5762-2002, known as the Tax Reform, came into effect,
following its enactment by the
57
Israeli Parliament on July 24, 2002. On December 17, 2002, the Israeli
Parliament approved a number of amendments to the tax reform, which came into
effect on January 1, 2003.
The tax reform, aimed at broadening the categories of taxable income and
reducing the tax rates imposed on employment income, introduced the following,
among other things:
o Reduction of the tax rate levied on capital gains (other than gains
deriving from the sale of listed securities) derived after January 1,
2003, to a general rate of 25% for both individuals and corporations.
Regarding assets acquired prior to January 1, 2003, the reduced tax
rate will apply to a proportionate part of the gain, in accordance
with the holding periods of the asset, before or after January 1,
2003, on a linear basis;
o Imposition of Israeli tax on all income of Israeli residents,
individuals and corporations, regardless of the territorial source of
income, including income derived from passive sources such as
interest, dividends and royalties;
o Introduction of controlled foreign corporation, or CFC, rules into the
Israeli tax structure. Generally, under such rules, an Israeli
resident who holds, directly of indirectly, 10% or more of the rights
in a foreign corporation whose shares are not publicly traded, in
which more than 50% of the rights are held directly or indirectly by
Israeli residents, and a majority of whose income in a tax year is
considered passive income, will be liable for tax on the portion of
such income attributed to his holdings in such corporation, as if such
income were distributed to him as a dividend; and
o Imposition of capital gains tax on capital gains realized by
individuals as of January 1, 2003, from the sale of shares of publicly
traded companies (such gain was previously exempt from capital gains
tax in Israel). For information with respect to the applicability of
Israeli capital gains taxes on the sale of ordinary shares. See,
"Capital Gains Tax " below.
o Introduction of a new regime for the taxation of shares and options
issued to employees and officers (including directors). See, "Stock
Option Plans" in Item 6E. above.
General Corporate Tax Structure
Israeli companies are subject to "Company Tax" at the rate of 36% of
taxable income. However, the effective tax rate payable by a company that
derives income from an approved enterprise (as further discussed below) may be
considerably less. Subject to relevant tax treaties, dividends or interest
received by an Israeli corporation from foreign subsidiaries are generally
subject to tax regardless of its status as an Approved Enterprise.
Tax Benefits Under the Law for the Encouragement of Capital Investments,
1959
The Law for the Encouragement of Capital Investments, 1959, as amended,
commonly referred to as the Investment Law, provides that a proposed capital
investment in eligible facilities may, upon application to the Investment Center
of the Ministry of Industry and Trade of the State of Israel, be designated as
an approved enterprise. Each certificate of approval for an
58
approved enterprise relates to a specific investment program delineated both by
its financial scope, including its capital sources, and by its physical
characteristics, e.g., the equipment to be purchased and utilized pursuant to
the program. An approved enterprise is entitled to benefits including Israeli
Government cash grants and tax benefits in specified development areas. The tax
benefits derived from any such certificate of approval relate only to taxable
income attributable to the specific approved enterprise. If a company has more
than one approval or only a portion of its capital investments is approved, its
effective tax rate is the result of a weighted average of the applicable rates.
Taxable income of a company derived from an approved enterprise is
subject to Company Tax at the maximum rate of 25% (rather than 36%) for the
benefit period. This period is ordinarily seven years (or ten years if the
company qualifies as a foreign investors' company as described below) commencing
with the year in which the approved enterprise first generates taxable income,
and is limited to twelve years from commencement of production or fourteen years
from the date of approval, whichever is earlier. The Investment Law also
provides that a company that has an approved enterprise within Israel will be
eligible for a reduced tax rate for the remainder of the benefit period and is
entitled to claim accelerated depreciation on buildings, machinery and equipment
used by the approved enterprise.
A company owning an approved enterprise may elect to forego entitlement
to the grants otherwise available under the Investment Law and in lieu thereof
participate in an alternative package of benefits. Under the alternative package
of benefits, a company's undistributed income derived from an approved
enterprise will be exempt from company tax for a period of between two and ten
years from the first year of taxable income, depending on the geographic
location of the approved enterprise within Israel, and such company will be
eligible for a reduced tax rate for the remainder, if any, of the otherwise
applicable benefits period.
A company that has an approved enterprise program is eligible for
further tax benefits if it qualifies as a foreign investors' company. A foreign
investors' company is essentially a company more than 25% of whose share capital
and combined share and loan capital is owned by non-Israeli residents. A company
which qualifies as a foreign investors' company and has an approved enterprise
program is eligible for tax benefits for a ten year benefit period. Income
derived from the approved enterprise program will be exempt from tax for a
period of two years and will be subject to a reduced tax rate for an additional
eight years, provided that the company qualifies as a foreign investors' company
as follows:
The Company Tax
For a company with foreign investment of.... rate is
-------------------------------------------- -------
over 25% but less than 49%.................. 25%
49% or more but less than 74%............... 20%
74% or more but less than 90%............... 15%
90% or more................................. 10%
|
In addition, the dividend recipient is taxed at the reduced rate
applicable to dividends from approved enterprises (15%), if the dividend is
distributed during the tax benefit period or within twelve years thereafter. The
company must withhold this tax at source, regardless of whether the dividend is
converted into foreign currency.
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Subject to applicable provisions concerning income under the alternative
package of benefits, all dividends are considered to be attributable to the
entire enterprise and their effective tax rate is the result of a weighted
average of the various applicable tax rates. We currently intend to reinvest any
income derived from our approved enterprise programs and not to distribute such
income as a dividend.
The Investment Center bases its decision as to whether or not to approve
an application on the criteria set forth in the Investment Law and regulations,
the then prevailing policy of the Investment Center and the specific objectives
and financial criteria of the applicant. Accordingly, we cannot assure you that
any of our applications, if made, will be approved in the future.
Our production facilities and those of our subsidiary Attunity Services
have been granted "Approved Enterprise" status under the Investment Law.
In June 2000, we filed an application for a fourth investment program
which has not been approved, and the other three investment programs, which were
approved in February 1993, November 1993 and February 1998, will expire in
February 2005, October 2009 and February 2010, respectively. As of December 31,
2003, the investments under the June 2000 investment program remain in progress
and have not been completed.
According to the provisions of the Investment Law, we have elected to
enjoy "alternative benefits" - waiver of grants in return for tax exemption -
and, accordingly, income derived from the "Approved Enterprise" will be
tax-exempt for a period of two years commencing with the year we first earn
taxable income, and will be taxed at 10% to 25%, based upon the percentage of
our foreign investment in, for an additional period of five-eight years. The
period of tax benefits, detailed above, is subject to limits of the earlier of
twelve years from the commencement of production, or fourteen years from the
date of approval.
Attunity Services has been granted status as an "Approved Enterprise"
for two separate investment programs from 1991 and 1993 whereby it has elected
to receive government grants and to enjoy the benefit of a reduced tax rate of
25% during a period of seven years commencing with the year it first earns
taxable income. The period of tax benefits, detailed above, is subject to limits
of the earlier of twelve years from the commencement of production, or fourteen
years from the date of approval. In 1993, Attunity Services received approval
for an expansion of the aforementioned programs whereby it has elected to enjoy
"alternative benefits" - and, accordingly, its income from the "Approved
Enterprise" will be tax-exempt for a period of ten years commencing with the
year it first earns taxable income. As of December 31, 2002, Attunity Services
has not received final approvals for such programs.
If these retained tax-exempt profits are distributed in a manner other
than in our complete liquidation they would be taxed at the corporate tax rate
applicable to such profits as if the Company had not elected the alternative
system of benefits, currently between 15%-20% for an "Approved Enterprise." As
of December 31, 2003, our accumulated deficit does not include tax-exempt
profits earned by our and Attunity Services's "Approved Enterprises."
Since we currently have no taxable income, the benefits have not yet
commenced for all programs. Should we or Attunity Services derive income from
sources other than the "Approved
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Enterprise" during the periods of benefits, such income shall be taxable at the
regular corporate tax rate of 36%.
The tax benefits discussed above are conditioned upon fulfillment of the
requirements stipulated by the aforementioned law and the regulations
promulgated thereunder, as well as the criteria set forth in the certificates of
approval. In the event that we fail to comply with these conditions, the tax
benefits could be canceled, in whole or in part, and we would be required to
refund the amount of the canceled benefits, plus interest and certain inflation
adjustments. We believe that we have been in full compliance with the
aforementioned conditions through December 31, 2003.
The Investment Law has been extended until December 31, 2003 and there
is no assurance that it will be further extended. Failure to extend the law will
result in a significant increase in our effective corporate tax rate.
Tax Benefits Under the Law for the Encouragement of Industry (Taxes),
1969
According to the Law for the Encouragement of Industry (Taxes), 1969, or
the Industry Encouragement Law, an Industrial Company is a company resident in
Israel, at least 90% of the income of which, in a given tax year, determined in
Israeli currency (exclusive of income from some government loans, capital gains,
interest and dividends), is derived from an Industrial Enterprise owned by it.
An "Industrial Enterprise" is defined as an enterprise whose major activity in a
given tax year is industrial production activity.
Under the Industry Encouragement Law, Industrial Companies are entitled
to the following preferred corporate tax benefits:
o amortization of purchases of know-how and patents over an eight-year
period for tax purposes;
o the right to elect, under specified conditions, to file a consolidated
tax return with additional related Israeli Industrial Companies; and
o accelerated depreciation rates on equipment and buildings.
Eligibility for benefits under the Industry Encouragement Law is not
subject to receipt of prior approval from any governmental authority.
We cannot assure you that we will continue to qualify as an Industrial
Company or that the benefits described above will be available to us in the
future.
Taxation Under Inflationary Conditions
The Income Tax Law (Inflationary Adjustments), 1985, generally referred
to as the Inflationary Adjustments Law, represents an attempt to overcome the
problems presented to a traditional tax system by an economy undergoing rapid
inflation. The Inflationary Adjustments Law is highly complex. Its features
which may be material to us can be summarized as follows:
61
There is a special tax adjustment for the preservation of equity whereby
some corporate assets are classified broadly into fixed assets and non-fixed
assets. Where a company's equity, as defined in such law, exceeds the
depreciated cost of fixed assets, a deduction from taxable income that takes
into account the effect of the applicable annual rate of inflation on such
excess is allowed up to a ceiling of 70% of taxable income in any single tax
year, with the unused portion permitted to be carried forward on a linked basis.
If the depreciated cost of fixed assets exceeds a company's equity, then such
excess multiplied by the applicable annual rate of inflation is added to taxable
income.
o Subject to specific limitations, depreciation deductions on fixed
assets and losses carried forward are adjusted for inflation based on
the increase in the consumer price index.
o Capital gains on specific traded securities are normally exempt from
tax for individuals and are taxable for companies. However, dealers in
securities are subject to the regular tax rules applicable to business
income in Israel.
Capital Gains Tax
Israeli law imposes a capital gains tax on the sale of capital assets
located in Israel, including shares of Israeli companies by both residents and
non-residents of Israel unless a specific exemption is available or unless a tax
treaty between Israel and the shareholder's country of residence provides
otherwise. The law distinguishes between real gain and inflationary surplus. The
inflationary surplus is a portion of the total capital gain that is equivalent
to the increase of the relevant asset's purchase price which is attributable to
the increase in the Israeli consumer price index between the date of purchase
and the date of sale. The real gain is the excess of the total capital gain over
the inflationary surplus.
Prior to the tax reform, sales of our ordinary shares by individuals
were generally exempt from Israeli capital gains tax for so long as they were
quoted on Nasdaq or listed on a stock exchange in a country appearing in a list
approved by the Controller of Foreign Currency and we qualified as an Industrial
Company or an Industrial Holding Company.
Pursuant to the tax reform, generally, capital gains tax is imposed at a
rate of 15% on real gains derived on or after January 1, 2003, from the sale of
shares in companies (i) publicly traded on the Tel Aviv Stock Exchange, or TASE,
or; (ii) Israeli companies publicly traded on a recognized stock exchange
outside of Israel (such as Nasdaq).
This tax rate does not apply to: (i) dealers in securities; (ii)
shareholders that report in accordance with certain provisions of the
Inflationary Adjustment Law; or (iii) shareholders who acquired their shares
prior to an initial public offering (that are subject to a different tax
arrangement).
The tax basis of shares acquired prior to January 1, 2003 will be
determined in accordance with the average closing share price in the three
trading days preceding January 1,
62
2003. However, a request may be made to the tax authorities to consider the
actual adjusted cost of the shares as the tax basis if it is higher than such
average price.
Non-Israeli residents are exempt from Israeli capital gains tax on any
gains derived from the sale of shares publicly traded on the TASE, and are
exempt from Israeli capital gains tax on any gains derived from the sale of
shares of Israeli companies publicly traded on a recognized stock exchange
outside of Israel (including Nasdaq), provided however that such capital gains
are not derived from a permanent establishment of such shareholders in Israel
and provided that such shareholders did not acquire their shares prior to an
initial public offering.
However, non-Israeli corporations will not be entitled to such exemption
if an Israeli resident (i) has a controlling interest of 25% or more in such
non-Israeli corporation, or (ii) is the beneficiary or is entitled to 25% or
more of the revenues or profits of such non-Israeli corporation, whether
directly or indirectly.
In any event, the provisions of the tax reform shall not effect the
exemption from capital gains tax for gains accrued before January 1, 2003, as
described above.
In certain instances where our shareholders may be liable to Israeli tax
on the sale of their ordinary shares, the payment of the consideration may be
subject to the withholding of Israeli tax at the source.
Pursuant to the Convention between the Government of the United States
of America and the Government of Israel with respect to Taxes on Income, as
amended, the sale, exchange or disposition of ordinary shares by a person who
qualifies as a resident of the United States within the meaning of the U.S.-
Israel Tax Treaty and who is entitled to claim the benefits afforded to such
person by the U.S.-Israel Tax Treaty generally will not be subject to the
Israeli capital gains tax unless such Treaty U.S. Resident holds, directly or
indirectly, shares representing 10% or more of our voting power during any part
of the 12-month period preceding such sale, exchange or disposition, subject to
particular conditions. A sale, exchange or disposition of ordinary shares by a
Treaty U.S. Resident who holds, directly or indirectly, shares representing 10%
or more of our voting power at any time during such preceding 12-month period
would be subject to such Israeli tax, to the extent applicable; however, under
the U.S.-Israel Tax Treaty, such Treaty U.S. Resident would be permitted to
claim a credit for such taxes against the U.S. federal income tax imposed with
respect to such sale, exchange or disposition, subject to the limitations in
U.S. laws applicable to foreign tax credits. The U.S.-Israel Tax Treaty does not
relate to U.S. state or local taxes.
Taxation of Non-Residents
Non-residents of Israel are subject to income tax on income accrued or
derived from sources in Israel. Such sources of income include passive income
such as dividends, royalties and interest, as well as non-passive income from
services rendered in Israel. On distributions of dividends other than bonus
shares or stock dividends, income tax at the rate of 25% (12.5% for dividends
not generated by an approved enterprise if the non-resident is a U.S.
corporation and holds over 10% of our voting power, and 15% for dividends
generated by an approved enterprise) is withheld at source, unless a different
rate is provided in a treaty between Israel and
63
the shareholder's country of residence. Under the U.S.-Israel Tax Treaty, the
maximum tax on dividends paid to a holder of ordinary shares who is a Treaty
U.S. Resident will be 25%. However, under the Investment Law, dividends
generated by an approved enterprise are taxed at the rate of 15%, however this
reduced rate will not apply if more than 25% of the Israeli company's gross
income consists of interest or dividends, other than dividends or interest
received from subsidiary corporations or 50% or more of the outstanding shares
of the voting stock of which is owned by the Israeli company.
Under an amendment to the Inflationary Adjustments Law, non-Israeli
entities might be subject to Israeli taxes on the sale of traded securities in
an Israeli company, subject to the provisions of any applicable double taxation
treaty.
Tax Benefits and Government Support for Research and Development
Israeli tax law allows, under specific conditions, a tax deduction in
the year incurred for expenditures, including capital expenditures, relating to
scientific research and development projects, if the expenditures are approved
by the relevant Israeli Government ministry, determined by the field of
research, and the research and development is for the promotion of the company
and is carried out by or on behalf of the company seeking such deduction.
Expenditures not so approved are deductible over a three-year period. However,
expenditures from proceeds made available to us through government grants are
not deductible according to Israeli law.
United States Federal Income Tax Consequences
The following is a summary of certain material U.S. federal income tax
consequences that apply to U.S. Holders who hold ordinary shares as capital
assets. This summary is based on the United States Internal Revenue Code of
1986, as amended, or the Code, Treasury regulations promulgated thereunder,
judicial and administrative interpretations thereof, and the U.S.-Israel Tax
Treaty, all as in effect on the date hereof and all of which are subject to
change either prospectively or retroactively. This summary does not address all
tax considerations that may be relevant with respect to an investment in
ordinary shares. This summary does not account for the specific circumstances of
any particular investor, such as:
o broker-dealers;
o financial institutions;
o certain insurance companies;
o regulated investment companies;
o investors liable for alternative minimum tax;
o tax-exempt organizations;
o non-resident aliens of the U.S. or taxpayers whose functional currency
is not the U.S. dollar;
64
o persons who hold the ordinary shares through partnerships or other
pass-through entities;
o persons who acquired their ordinary shares through the exercise or
cancellation of employee stock options or otherwise as compensation
for services;
o investors that actually or constructively own 10 percent or more of
our voting shares; and
o investors holding ordinary shares as part of a straddle or a hedging
or conversion transaction.
This summary does not address the effect of any U.S. federal
taxation other than U.S. federal income taxation. In addition, this
summary does not include any discussion of state, local or foreign taxation.
You are urged to consult your tax advisors regarding the foreign and
United States federal, state and local tax considerations of an investment in
ordinary shares.
For purposes of this summary, a U.S. Holder is:
o an individual who is a citizen or, for U.S. federal income tax
purposes, a resident of the United States;
o a partnership, corporation or other entity created or organized in or
under the laws of the United States or any political subdivision
thereof;
o an estate whose income is subject to U.S. federal income tax
regardless of its source; or
o a trust that (a) is subject to the primary supervision of a court
within the United States and the control of one or more U.S. persons
or (b) has a valid election in effect under applicable U.S. Treasury
regulations to be treated as a U.S. person.
Taxation of Dividends
The gross amount of any distributions received with respect to ordinary
shares, including the amount of any Israeli taxes withheld therefrom, will
constitute dividends for U.S. federal income tax purposes, to the extent of our
current and accumulated earnings and profits as determined for U.S. federal
income tax principles. You will be required to include this amount of dividends
in gross income as ordinary income (see below in this Item 10E. "Additional
Information - Taxation - New Tax Law Applicable to Dividends and Long-Term
Capital Gain"). Distributions in excess of our earnings and profits will be
treated as a non-taxable return of capital to the extent of your tax basis in
the ordinary shares and any amount in excess of your tax basis, will be treated
as gain from the sale of ordinary shares. See below in this Item 10E.
"Additional Information - Taxation - Disposition of Ordinary Shares" for the
discussion on the taxation of capital gains. Dividends will not qualify for the
dividends-received deduction generally available to corporations under Section
243 of the Code.
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Dividends that we pay in NIS, including the amount of any Israeli taxes
withheld therefrom, will be included in your income in a U.S. dollar amount
calculated by reference to the exchange rate in effect on the day such
dividends are received. A U.S. Holder who receives payment in NIS and converts
NIS into U.S. dollars at an exchange rate other than the rate in effect on such
day may have a foreign currency exchange gain or loss that would be treated
as ordinary income or loss. U.S. Holders should consult their own tax
advisors concerning the U.S. tax consequences of acquiring, holding and
disposing of NIS.
Any Israeli withholding tax imposed on such dividends will be a foreign
income tax eligible for credit against a U.S. Holder's U.S. federal income tax
liability, subject to certain limitations set out in the Code (or,
alternatively, for deduction against income in determining such tax liability).
The limitations set out in the Code include computational rules under which
foreign tax credits allowable with respect to specific classes of income cannot
exceed the U.S. federal income taxes otherwise payable with respect to each such
class of income. Dividends generally will be treated as foreign-source passive
income or financial services income for United States foreign tax credit
purposes. Foreign income taxes exceeding the credit limitation for the year of
payment or accrual may be carried back for two taxable years and forward for
five taxable years in order to reduce U.S. federal income taxes, subject to the
credit limitation applicable in each of such years. Other restrictions on the
foreign tax credit include a prohibition on the use of the credit to reduce
liability for the U.S. individual and corporation alternative minimum taxes by
more than 90%. A U.S. Holder will be denied a foreign tax credit with respect to
Israeli income tax withheld from dividends received on the ordinary shares to
the extent such U.S. Holder has not held the ordinary shares for at least 16
days of the 30-day period beginning on the date which is 15 days before the
ex-dividend date or to the extent such U.S. Holder is under an obligation to
make related payments with respect to substantially similar or related property.
Any days during which a U.S. Holder has substantially diminished its risk of
loss on the ordinary shares are not counted toward meeting the 16-day holding
period required by the statute. Further, there are special rules for computing
the foreign tax credit limitation of a taxpayer who receives dividends subject
to a reduced tax rate under the recently enacted amendments to the Code, see
discussion below. The rules relating to the determination of the foreign tax
credit are complex, and you should consult with your personal tax advisors to
determine whether and to what extent you would be entitled to this credit.
Disposition of Ordinary Shares
If you sell or otherwise dispose of ordinary shares, you will recognize
gain or loss for U.S. federal income tax purposes in an amount equal to the
difference between the amount realized on the sale or other disposition and the
adjusted tax basis in ordinary shares. Subject to the discussion below under the
heading "Passive Foreign Investment Companies," such gain or loss generally will
be capital gain or loss and will be long-term capital gain or loss if you have
held the ordinary shares for more than one year at the time of the sale or other
disposition. In general, any gain that you recognize on the sale or other
disposition of ordinary shares will be U.S. source for purposes of the foreign
tax credit limitation; losses will generally be allocated against U.S. source
income. Deduction of capital losses is subject to certain limitations under the
Code.
66
In the case of a cash basis U.S. Holder who receives NIS in connection
with the sale or disposition of ordinary shares, the amount realized will be
based on the U.S. dollar value of the NIS received with respect to the ordinary
shares as determined on the settlement date of such exchange. A U.S. Holder who
receives payment in NIS and converts NIS into U.S. dollars at a conversion rate
other than the rate in effect on the settlement date may have a foreign currency
exchange gain or loss that would be treated as ordinary income or loss.
An accrual basis U.S. Holder may elect the same treatment required of
cash basis taxpayers with respect to a sale or disposition of ordinary shares,
provided that the election is applied consistently from year to year. Such
election may not be changed without the consent of the Internal Revenue Service,
or the IRS. In the event that an accrual basis U.S. Holder does not elect to be
treated as a cash basis taxpayer (pursuant to the Treasury regulations
applicable to foreign currency transactions), such U.S. Holder may have a
foreign currency gain or loss for U.S. federal income tax purposes because of
differences between the U.S. dollar value of the currency received prevailing on
the trade date and the settlement date. Any such currency gain or loss would be
treated as ordinary income or loss and would be in addition to gain or loss, if
any, recognized by such U.S. Holder on the sale or disposition of such ordinary
shares.
New Tax Law Applicable to Dividends and Long-Term Capital Gain
Under recently enacted amendments to the Code, dividends received by
non-corporate tax payers from certain foreign corporations, and long-term
capital gain realized by non-corporate tax payers, generally are subject to a
reduced maximum tax rate of 15% through December 31, 2008. Dividends received
with respect to ordinary shares should qualify for the 15% rate. The rate
reduction does not apply to dividends received from passive foreign investment
companies (see discussion below), or in respect of certain short-term or hedged
positions in the common stock or in certain other situations. The legislation
contains special rules for computing the foreign tax credit limitation of a
taxpayer who receives dividends subject to the rate reduction. U.S. Holders
should consult their own tax advisors regarding the implications of these rules
in light of their particular circumstances.
Passive Foreign Investment Companies
For U.S. federal income tax purposes, we will be considered a passive
foreign investment company, or PFIC, for any taxable year in which either (i)
75% or more of our gross income is passive income, or (ii) at least 50% of the
average value of all of our assets for the taxable year produce or are held for
the production of passive income. For this purpose, passive income includes
dividends, interest, royalties, rents, annuities and the excess of gains over
losses from the disposition of assets which produce passive income. If we were
determined to be a PFIC for U.S. federal income tax purposes, highly complex
rules would apply to U.S. Holders owning ordinary shares. Accordingly, you are
urged to consult your tax advisors regarding the application of such rules.
Based on our current and projected income, assets and activities, we
believe that we are not currently a PFIC nor do we expect to become a PFIC in
the foreseeable future. However, because the determination of whether we are a
PFIC is based upon the composition of our
67
income and assets from time to time, there can be no assurances that we will not
become a PFIC for any future taxable year.
If we are treated as a PFIC for any taxable year, then, unless you elect
either to treat your investment in ordinary shares as an investment in a
"qualified electing fund", or a QEF election, or to "mark-to-market" your
ordinary shares, as described below, dividends would not qualify for the reduced
maximum tax rate, discussed above, and:
o you would be required to allocate income recognized upon receiving
certain dividends or gain recognized upon the disposition of ordinary
shares ratably over the holding period for such ordinary shares;
o the amount allocated to each year during which we are considered a
PFIC other than the year of the dividend payment or disposition would
be subject to tax at the highest individual or corporate tax rate, as
the case may be, and an interest charge would be imposed with respect
to the resulting tax liability allocated to each such year;
o gain recognized upon the disposition of ordinary shares would be
taxable as ordinary income; and
o you would be required to make an annual return on IRS Form 8621
regarding distributions received with respect to ordinary shares and
any gain realized on your ordinary shares.
If you make either a timely QEF election or a timely mark-to-market
election in respect of your ordinary shares, you would not be subject to the
rules described above. If you make a timely QEF election, you would be required
to include in your income for each taxable year your pro rata share of our
ordinary earnings as ordinary income and your pro rata share of our net capital
gain as long-term capital gain, whether or not such amounts are actually
distributed to you. You would not be eligible to make a QEF election unless we
comply with certain applicable information reporting requirements.
Alternatively, if the ordinary shares are considered "marketable stock"
and if you elect to "mark-to-market" your ordinary shares, you will generally
include in income any excess of the fair market value of the ordinary shares at
the close of each tax year over your adjusted basis in the ordinary shares. If
the fair market value of the ordinary shares had depreciated below your adjusted
basis at the close of the tax year, you may generally deduct the excess of the
adjusted basis of the ordinary shares over its fair market value at that time.
However, such deductions generally would be limited to the net mark-to-market
gains, if any, that you included in income with respect to such ordinary shares
in prior years. Income recognized and deductions allowed under the
mark-to-market provisions, as well as any gain or loss on the disposition of
ordinary shares with respect to which the mark-to-market election is made, is
treated as ordinary income or loss.
68
Backup Withholding and Information Reporting
Payments in respect of ordinary shares may be subject to information
reporting to the U.S. Internal Revenue Service and to U.S. backup withholding
tax at a rate equal to the fourth lowest income tax rate applicable to
individuals (which, under current law, is 28%). Backup withholding will not
apply, however, if you (i) are a corporation or come within certain exempt
categories, and demonstrate the fact when so required, or (ii) furnish a correct
taxpayer identification number and make any other required certification.
Backup withholding is not an additional tax. Amounts withheld under the
backup withholding rules may be credited against a U.S. Holder's U.S. tax
liability, and a U.S. Holder may obtain a refund of any excess amounts withheld
under the backup withholding rules by filing the appropriate claim for refund
with the IRS.
Any U.S. holder who holds 10% or more in vote or value of our ordinary
shares will be subject to certain additional United States information reporting
requirements.
U.S. Gift and Estate Tax
An individual U.S. Holder of ordinary shares will be subject to U.S.
gift and estate taxes with respect to ordinary shares in the same manner and to
the same extent as with respect to other types of personal property.
F. DIVIDEND AND PAYING AGENTS
Not applicable.
G. STATEMENT BY EXPERTS
Not applicable.
H. DOCUMENTS ON DISPLAY
We are subject to the reporting requirements of the United States
Securities Exchange Act of 1934, as amended, as applicable to "foreign private
issuers" as defined in Rule 3b-4 under the Exchange Act, and in accordance
therewith, we file annual and interim reports and other information with the
Securities and Exchange Commission.
As a foreign private issuer, we are exempt from certain provisions of
the Exchange Act. Accordingly, our proxy solicitations are not subject to the
disclosure and procedural requirements of Regulation 14A under the Exchange Act,
transactions in our equity securities by our officers and directors are exempt
from reporting and the "short-swing" profit recovery provisions contained in
Section 16 of the Exchange Act. In addition, we are not required under the
Exchange Act to file periodic reports and financial statements as frequently or
as promptly as U.S. companies whose securities are registered under the Exchange
Act. However, we distribute annually to our shareholders an annual report
containing financial statements that have been examined and reported on, with an
opinion expressed by, an independent public accounting firm,
69
and we file reports with the Securities and Exchange Commission on Form 6-K
containing unaudited financial information for the first three quarters of each
fiscal year.
This annual report and the exhibits thereto and any other document we
file pursuant to the Exchange Act may be inspected without charge and copied at
prescribed rates at the following Securities and Exchange Commission public
reference rooms: 450 Fifth Street, N.W., Judiciary Plaza, Room 1024, Washington,
D.C. 20549; and on the Securities and Exchange Commission Internet site
(http://www.sec.gov) and on our website www.attunity.com. You may obtain
information on the operation of the Securities and Exchange Commission's public
reference room in Washington, D.C. by calling the Securities and Exchange
Commission at 1-800-SEC-0330 or by visiting the Securities and Exchange
Commission's website at http://www.sec.gov. The Exchange Act file number for our
Securities and Exchange Commission filings is 0-20892.
The documents concerning our company which are referred to in this
annual report may also be inspected at our offices located at Einstein Building,
Tirat Carmel, Haifa 39101, Israel.
I. SUBSIDIARY INFORMATION
Not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
We are exposed to a variety of risks, including changes in interest
rates affecting primarily the interest received on short term deposits, and
foreign currency fluctuations. We do not use derivative financial instruments
Interest Rate Risk
Our exposure to market risk for changes in interest rates relates
primarily to our cash and cash equivalents. Our cash and cash equivalents are
held in U.S. dollars and bear annual interest of 0.85% which is based upon the
London Inter Bank Offered Rate (LIBOR). We place our cash and cash equivalents
with major financial banks. For purposes of specific risk analysis, we use
sensitivity analysis to determine the impact that market risk exposure may have
on the financial income derived from our cash and cash equivalents. The
potential loss to us over one year that would result from a hypothetical change
of 10% in the LIBOR rate would not be substantial.
Foreign Currency Exchange Risk
Our financial results may be negatively impacted by foreign currency
fluctuations. Our foreign operations are generally transacted through our
international sales subsidiaries in Europe, the Middle East and Africa, and Asia
Pacific. As a result, these sales and related expenses are denominated in
currencies other than the U.S. dollar. Because our financial results are
reported in U.S. dollars, our results of operations may be adversely impacted by
fluctuations in the rates of exchange between the U.S. dollar and other
currencies.
70
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
Not applicable.
ITEM 15. CONTROLS AND PROCEDURES
During 2003, we carried out an evaluation, under the supervision and
with the participation of our senior management, including our chief executive
officer and chief financial officer, of the effectiveness of the design and
operation of our disclosure controls and procedures pursuant to Rule 13(a)-14 of
the Securities Exchange Act of 1934. Based upon that evaluation, our management,
including our chief executive officer and chief financial officer, concluded
that our company's disclosure controls and procedures are effective in timely
alerting them to material information relating to us required to be included in
the our periodic SEC filings.
There have been no significant changes in our internal controls or other
factors which could significantly affect internal controls subsequent to the
date of the evaluation.
It should be noted that any system of controls, however well designed
and operated, can provide only reasonable, and not absolute, assurance that the
objectives of the system are met. In addition, the design of any control system
is based in part upon certain assumptions about the likelihood of future events.
Because of these and other inherent limitations of control systems, there can be
no assurance that any design will succeed in achieving its stated goals under
all potential future conditions.
ITEM 16. [RESERVED]
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
Our board of directors has determined that Dan Falk meets the definition
of an audit committee financial expert, as defined in Item 401 of Regulation
S-K.
ITEM 16B. CODE OF ETHICS
We have adopted a code of ethics that applies to our chief executive
officer and all senior financial officers of our company, including the chief
financial officer, chief accounting officer or controller, or persons performing
similar functions. The code of ethics is publicly available on our website at
www.attunity.com. Written copies are available upon request. If we make any
71
substantive amendment to the code of ethics or grant any waivers, including any
implicit waiver, from a provision of the codes of ethics, we will disclose the
nature of such amendment or waiver on our website.
ITEM 16C. Principal Accounting Fees And Services
Fees Paid to Independent Public Accountants
The following table sets forth, for each of the years indicated, the
fees paid to our independent public accountants and the percentage of each of
the fees out of the total amount paid to the accountants.
Year Ended December 31,
-------------------------------------------------------
2002 2003
-------------------------- ---------------------------
Services Rendered Fees Percentages Fees Percentages
--------------------- --------- ----------- --------- -----------
Audit (1)............ $ 110,248 86% $ 158,281 83%
Audit-related (2).... 10,950 8% 14,560 9%
Tax (3).............. 7,369 6% 18,580 8%
Other ............... -- -- -- --
Total ............... $ 128,567 100% $ 191,421 100%
|
(1) Audit fees consist of services that would normally be provided in
connection with statutory and regulatory filings or engagements,
including services that generally only the independent accountant can
reasonably provide.
(2) Audit-related fees relate to assurance and associated services that
traditionally are performed by the independent accountant, including:
attest services that are not required by statute or regulation;
accounting consultation and audits in connection with mergers,
acquisitions and divestitures; employee benefit plans audits; and
consultation concerning financial accounting and reporting standards.
(3) Tax fees relate to services performed by the tax division for tax
compliance, planning, and advice.
Pre-Approval Policies and Procedures
Our audit committee has adopted a policy and procedures for the
pre-approval of audit and non-audit services rendered by our independent public
accountants, Kost, Forer, Gabbay & Kasierer, a Member firm of Ernst & Young
Global. Pre-approval of an audit or non-audit service may be given as a general
pre-approval, as part of the audit committee's approval of the scope of the
engagement of our independent auditor, or on an individual basis. Any proposed
services exceeding general pre-approved levels also require specific
pre-approval by our audit committee. The policy prohibits retention of the
independent public accountants to perform the prohibited non-audit functions
defined in Section 201 of the Sarbanes-Oxley Act or the rules of the SEC, and
also requires the audit committee to consider whether proposed services are
compatible with the independence of the public accountants.
72
ITEM 16D. EXEMPTIONS FROM THE LISTING REQUIREMENTS AND STANDARDS FOR AUDIT
COMMITTEE
Not applicable.
ITEM 16E. PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATES AND
PURCHASERS
Issuer Purchase of Equity Securities
Neither we, nor any affiliated purchaser of our company, have purchased
any of our securities during 2003.
PART III
ITEM 17. FINANCIAL STATEMENTS
The Company has elected to furnish financial statements and related
information specified in Item 18.
ITEM 18. FINANCIAL STATEMENTS
Consolidated Financial Statements.
Index to Financial Statements.....................................F-1
Report of Independent Auditors....................................F-2
Consolidated Balance Sheets.......................................F-3
Consolidated Statements of Operations.............................F-5
Statements of Changes in Shareholders' Equity.....................F-6
Consolidated Statements of Cash Flows.............................F-7
Notes to Consolidated Financial Statements........................F-9
|
ITEM 19. EXHIBITS
Index to Exhibits
Exhibit Description
------- -----------
1.1 Memorandum of Association of the Registrant (1)
1.2 Articles of Association of the Registrant, as amended (2)
2.1 Specimen of Ordinary Share Certificate (1)
|
73
4.7 1992 Employee Stock Option Plan (1)
4.8 1994 Employee Stock Option Plan
4.9 1998 Employee Stock Option Plan
4.10 2003 Israeli Stock Option Plan
4.11 Note and Warrant Purchase Agreement dated March 22, 2004
among the Registrant and the purchasers listed on Exhibit
A thereto, and ancillary documents (3)
4.12 Employment and Services Agreement among the Registrant and
Mr. Gonen, effective as of January 1, 2004
4.13 Loan Agreement dated June 3, 2004 among the Registrant and
Plenus Technologies Ltd., or Plenus; Warrant to purchase
Ordinary Shares issued by the Registrant to Plenus;
Floating Charge Agreement dated June 3, 2004 among the
Registrant, Plenus, Golden Gate Bridge Fund (Israel), or
Golden Gate, and United Mizrachi Bank, Ltd., or Mizrachi
Bank; and Fixed Charge Agreement dated June 3, 2004 among
the Registrant and Plenus, Golden Gate and Mizrachi Bank
4.14 Form of Warrant issued to Gaus Investments Ltd. and R.4.B
Ltd.
8 List of Subsidiaries of the Registrant
23.1 Consent of Kost Forer Gabbay & Kasierer, a Member of Ernst
& Young Global
31.1 Certification of Chief Executive Officer pursuant to Rule
13a-14(a) and Rule 15d-14(a) of the Securities Exchange
Act, as amended
31.2 Certification of Chief Financial Officer pursuant to Rule
13a-14(a) and Rule 15d-14(a) of the Securities Exchange
Act, as amended
32.1 Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
----------------
|
(1) Filed as an exhibit to the Registrant's Registration Statement on Form
F-1, registration number 33-54020, and incorporated herein by reference.
(2) Filed as an exhibit to the Registrant's annual report on Form 20-F for
the year ended December 31, 2000, and incorporated herein by reference.
(3) Filed as an exhibit to the Registrant's Report of Foreign Private Issuer
on Form 6-K submitted to the Securities and Exchange Commission on March
25, 204, and incorporated herein by reference.
74
ATTUNITY LTD. AND ITS SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2003
IN U.S. DOLLARS
INDEX
Page
----
Report of Independent Auditors F-2
Consolidated Balance Sheets F-3 - F-4
Consolidated Statements of Operations F-5
Statements of Changes in Shareholders' Equity F-6
Consolidated Statements of Cash Flows F-7 - F-8
Notes to Consolidated Financial Statements F-9 - F-34
|
F-1
ERNST & YOUNG
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of
ATTUNITY LTD.
We have audited the accompanying consolidated balance sheets of Attunity
Ltd. ("the Company") and its subsidiaries as of December 31, 2003 and 2002, and
the related consolidated statements of operations, changes in shareholders'
equity and cash flows for each of the three years in the period ended December
31, 2003. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Company and its subsidiaries as of December 31, 2003 and 2002, and the
consolidated results of their operations and cash flows for each of the three
years in the period ended December 31, 2003, in conformity with accounting
principles generally accepted in United States.
As discussed in Note 2j to the consolidated financial statements, the
Company adopted Statement of Financial Accounting Standard No. 142 in 2002.
/s/Kost Forer Gabbay and Kasierer
Tel-Aviv, Israel KOST FORER GABBAY & KASIERER
March 11, 2004 A Member of Ernst & Young Global
|
F-2
ATTUNITY LTD. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands
December 31,
-----------------------------
2003 2002
------------- -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,073 $ 2,693
Restricted cash 902 -
Short-term bank deposits 120 88
Marketable securities 200 -
Trade receivables (net of allowance for doubtful
accounts of $ 312 and
$ 33 at December 31, 2003 and 2002, respectively) 2,845 3,377
Other accounts receivable and prepaid expenses (Note 3) 1,006 1,233
------------- -------------
Total current assets 7,146 7,391
----- ------------- -------------
SEVERANCE PAY FUND 1,592 1,189
------------- -------------
PROPERTY AND EQUIPMENT, NET (Note 4) 926 1,145
------------- -------------
SOFTWARE DEVELOPMENT COSTS, NET (Note 5) 4,512 6,075
------------- -------------
GOODWILL (Note 6) 6,036 5,684
------------- -------------
Total assets $ 20,212 $ 21,484
----- ============= =============
|
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
ATTUNITY LTD. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands, except for share data
December 31,
-----------------------------
2003 2002
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term bank credit (Note 7) $ 206 $ 175
Current maturities of long-term debt (Note 9) 102 205
Trade payables 583 645
Deferred revenues 2,090 1,986
Employees and payroll accruals 1,239 1,055
Accrued expenses and other liabilities (Note 8) 3,479 2,658
------------- -------------
Total current liabilities 7,699 6,724
----- ------------- -------------
LONG-TERM LIABILITIES:
Long-term debts (Note 9) 99 55
Accrued severance pay 1,941 1,625
------------- -------------
Total long-term liabilities 2,040 1,680
----- ------------- -------------
COMMITMENTS AND CONTINGENT LIABILITIES (Note 11)
SHAREHOLDERS' EQUITY (Note 12):
Share capital - Authorized: 30,000,000
Ordinary shares of NIS 0.1 par value
at December 31, 2003 and 2002; Issued and outstanding:
14,767,432 shares at December 31, 2003 and 2002 525 525
Additional paid-in capital 86,504 86,504
Accumulated other comprehensive loss (259) (608)
Accumulated deficit (76,297) (73,341)
------------- -------------
Total shareholders' equity 10,473 13,080
----- ------------- -------------
Total liabilities and shareholders' equity $ 20,212 $ 21,484
----- ============= =============
|
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
ATTUNITY LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
U.S. dollars in thousands, except per share data
Year ended December 31,
-----------------------------------------
2003 2002*) 2001 *)
------------ ------------ -----------
Revenues (Note 15):
Software licenses $ 6,045 $ 6,931 $ 6,355
Maintenance and support 5,832 6,057 4,978
Services 4,740 4,467 5,536
------------ ------------ -----------
16,617 17,455 16,869
------------ ------------ -----------
Cost of revenues:
Software licenses 2,094 1,878 2,547
Maintenance and support 801 715 1,042
Services 4,184 3,782 4,862
------------ ------------ -----------
7,079 6,375 8,451
------------ ------------ -----------
Gross profit 9,538 11,080 8,418
------------ ------------ -----------
Operating expenses:
Research and development, net (Note 16a) 1,491 1,438 3,593
Selling and marketing 5,938 5,369 12,120
General and administrative 2,749 1,938 4,218
Restructuring and other non-recurring charges
(Note 16b) 925 1,708 1,326
Impairment of investment and other assets (Note 16c) 1,543 - 2,658
------------ ------------ -----------
Total operating expenses 12,646 10,453 23,915
----- ------------ ------------ -----------
Operating income (loss) (3,108) 627 (15,497)
Financial income, net (Note 16d) 236 141 48
Income taxes (Note 13) 84 264 402
------------ ------------ -----------
Gain (loss) from continued operations (2,956) 504 (15,851)
------------ ------------ -----------
Discontinued operations:
Gain on disposal of segment, net of income taxes - - 220
------------ ------------ -----------
Net income (loss) $ (2,956) $ 504 $ (15,631)
============ ============ ===========
Basic and diluted net earnings (loss) per share from
continued operations $ (0.20) $ 0.03 $ (1.36)
============ ============ ===========
Basic and diluted net earnings (loss) per share from
discontinued operations, net of income taxes $ - $ - $ 0.02
============ ============ ===========
Basic and diluted net earnings (loss) per share $ (0.20) $ 0.03 $ (1.34)
============ ============ ===========
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*) Reclassified.
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
ATTUNITY LTD. AND ITS SUBSIDIARIES
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
U.S. dollars in thousands, except share data
Accumulated
Additional Treasury other Total Total
Share paid-in shares at comprehensive Accumulated comprehensive shareholders'
capital capital cost loss deficit income(loss) equity
------- ---------- --------- ------------- ----------- ------------- -------------
Balance as of January 1, 2001 $ 431 $ 82,472 $ - $ (712) $(58,214) $ 23,977
Issuance of shares and options, net 89 4,577 - - - 4,666
Purchase of treasury shares as result of
Medatech and VisOpt annulment agreement (7) - (485) - - (492)
Issuance of shares and options related
to the acquisition of BFI 7 (492) 485 - - -
Treasury shares - (31) - - (31)
Other comprehensive loss:
Foreign currency translation adjustment - - - (164) - $ (164) (164)
Net loss - - - - (15,631) (15,631) (15,631)
------- ---------- --------- ------------- ----------- ------------- -------------
Total comprehensive loss $ (15,795)
===========
Balance as of December 31, 2001 520 86,557 (31) (876) (73,845) 12,325
Exercise of employees stock options 5 - - - - 5
Issuance expenses related to issuance
of shares in 2001 - (103) - - - (103)
Compensation in respect of warrants
granted to a consultant - 50 - - - 50
Treasury shares in respect of a senior
employee - - 31 - - 31
Other comprehensive income:
Foreign currency translation
adjustments - - - 268 - $ 268 268
Net income - - - - 504 504 504
------- ---------- --------- ------------- ----------- ------------- -------------
Total comprehensive income $ 772
==========
Balance as of December 31, 2002 525 86,504 - (608) (73,341) 13,080
Other comprehensive income:
Foreign currency translation
adjustments - - - 349 - $ 349 349
Net loss - - - - (2,956) (2,956) (2,956)
------- ---------- --------- ------------- ----------- ------------- -------------
Total comprehensive loss $ (2,607)
============
Balance as of December 31, 2003 525 $ 86,504 $ - $ (259) $(76,297) $ 10,473
======= ========== ========= ============= =========== -------------
|
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
ATTUNITY LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
Year ended December 31,
-----------------------------------------
2003 2002 2001
------------ ------------ -----------
Cash flows from operating activities:
-------------------------------------
Net income (loss) $ (2,956) $ 504 $ (15,631)
Adjustments required to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Depreciation and amortization 543 679 1,782
Impairment of property and equipment - - 389
Amortization of capitalized software development
costs 1,613 1,590 2,378
Gain from discontinued operations - - (220)
Impairment of investment and other assets 1,543 - 2,658
Decrease (increase) in marketable securities, net (214) 24 866
Decrease (increase) in trade receivables 311 (552) 3,115
Decrease (increase) in other accounts receivable and
prepaid expenses 149 (101) 321
Increase (decrease) in trade payables 99 (691) (864)
Increase (decrease) in deferred revenues 178 (291) (331)
Increase in accrued expenses, employees and other
liabilities 1,199 479 358
Increase (decrease) in accrued severance pay, net (74) (18) 117
Write-off of loan granted to employee - - 90
Compensation in respect of warrants granted to a
consultant - 50 -
Others - (9) (3)
------------ ------------ -----------
Net cash provided by (used in) operating activities 2,391 1,664 (4,975)
------------ ------------ -----------
Cash flows from investing activities:
-------------------------------------
Proceeds from restricted marketable securities - - 205
Investment in restricted marketable securities - - (205)
Capitalization of software development costs (1,593) (1,595) (2,000)
Purchase of property and equipment (238) (199) (400)
Proceeds from sale of property and equipment 6 46 63
Investment in short-term bank deposits, net (32) (88) -
Investment in restricted cash (902) - -
------------ ------------ -----------
Net cash used in investing activities (2,759) (1,836) (2,337)
------------ ------------ -----------
Cash flows from financing activities:
-------------------------------------
Proceeds from exercise of options - 5 -
Proceeds from issuance of shares and options, net - - 4,666
Issuance expenses related to issuance of shares in
2001 - (103) -
Short-term bank credit, net 32 2 108
Proceeds from long-term debt 69 86 33
Principal payment of long-term debt (180) (259) (292)
Proceeds from treasury shares in respect of a senior
employee - 31 -
------------ ------------ -----------
Net cash provided by (used in) financing activities (79) (238) 4,515
------------ ------------ -----------
Effect of exchange rate changes on cash and cash
equivalents (173) 58 (46)
------------ ------------ -----------
Decrease in cash and cash equivalents (620) (352) (2,843)
Cash and cash equivalents at the beginning of the year 2,693 3,045 5,888
------------ ------------ -----------
Cash and cash equivalents at the end of the year $ 2,073 $ 2,693 $ 3,045
============ ============ ===========
|
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
ATTUNITY LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
Year ended December 31,
-----------------------------------------
2003 2002 2001
------------ ------------ -----------
Supplemental disclosure of cash flow activities:
------------------------------------------------
Cash paid during the year for:
Interest $ 90 $ 60 $ 209
============ ============ ===========
Income taxes $ 25 $ 12 $ 402
============ ============ ===========
Supplemental disclosure of non-cash investing and
financing activities:
---------------------
Capital lease obligation incurred upon the
acquisition of property and equipment $ 50 $ - $ 259
============ ============ ===========
Purchase of treasury shares as result of Medatech and
VisOpt annulment agreement $ - $ - $ 492
============ ============ ===========
|
The accompanying notes are an integral part of the consolidated financial
statements.
F-8
ATTUNITY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 1:- GENERAL
Attunity Ltd. ("Attunity") and its subsidiaries ("the Company")
develop, market and provide support for computer software integration
tools and application development tools.
The Company's main product is the Attunity Connect. Attunity Connect
is an enterprise information infrastructure product, which is
available on multiple platforms and provides database-independent
access to many databases and file systems. Attunity Connect
standardizes the interaction between data sources and application
programs utilizing various universally accepted standards.
The Company's principal application development tools are CorVision,
an application generator, and APTuser, a database retrieval and
production report generator. The Company also supports through its
Israeli subsidiary, Attunity Software Services Ltd. ("ASS"), "Mancal
2000", a logistics application software package.
As for geographic markets and major customers, see Note 15.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared in accordance
with generally accepted accounting principles in the United States
("U.S. GAAP").
a. Use of estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual
results could differ from those estimates.
b. Financial statements in U.S. dollars ("dollars"):
A majority of the revenues of Attunity and certain of its
subsidiaries is generated in dollars. In addition, a substantial
portion of Attunity and certain subsidiaries' costs is
denominated in dollars. The Company's management believes that
the dollar is the primary currency in the economic environment in
which those companies operate. Thus, the functional and reporting
currency of those companies is the dollar.
Accordingly, monetary accounts maintained in currencies other
than the dollar are remeasured into dollars in accordance with
Statement of Financial Accounting Standard No. 52 "Foreign
Currency Translation" ("SFAS No. 52"). All transactions gains and
losses of the remeasurement of monetary balance sheet items are
reflected in the statement of operations as financial income or
expenses, as appropriate.
F-9
ATTUNITY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The financial statements of the Israeli and other foreign
subsidiaries whose functional currency is determined to be their
local currency, have been translated into dollars. All balance
sheet accounts have been translated using the exchange rates in
effect at the balance sheet date. Statement of operations amounts
have been translated using the average exchange rate for the
year. The resulting translation adjustments are reported as a
component of shareholders' equity, accumulated other
comprehensive loss.
c. Principles of consolidation:
The consolidated financial statements include the accounts of
Attunity and its wholly-owned subsidiaries. Intercompany balances
and transactions have been eliminated in consolidation.
d. Cash equivalents:
Cash equivalents are short-term highly liquid investments that
are readily convertible to cash, with maturities of three months
or less at the date acquired.
e. Restricted cash:
Restricted cash is primarily invested in highly liquid deposits,
which are used mainly as a security for the outcome of a lawsuit.
f. Short-term bank deposits:
Short-term bank deposits are deposits with maturities of more
than three months but less than one year. The deposits are in New
Israeli Shekels ("NIS") and bear interest at an average rate of
4.9%. The short-term deposits are presented at their cost,
including accrued interest.
g. Marketable securities:
The Company accounts for its investments in marketable securities
using Statement of Financial Accounting Standard No. 115,
"Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS No. 115").
Management determines the appropriate classification of its
investments in debt and marketable equity securities at the time
of purchase and reevaluates such determinations at each balance
sheet date. The securities are classified as trading securities
when the Company holds the securities for resale in anticipation
of short-term market movements. The Company's trading securities
carried at their fair value based upon the quoted market price of
those investments. Net realized and unrealized gains and losses
on these securities are included in financial expenses or income,
as appropriate.
F-10
ATTUNITY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
h. Property and equipment:
Property and equipment are stated at cost, net of accumulated
depreciation. Depreciation is calculated using the straight-line
method, over the estimated useful lives of the assets, at the
following annual rates:
%
------------------
Computers and peripheral equipment 20 - 33
Office furniture and equipment 10 - 20
Motor vehicles 15
Over the related lease
Leasehold improvements period
|
i. Impairment of long-lived assets:
The Company's long-lived assets are reviewed for impairment in
accordance with Statement of Financial Accounting Standard No.
144, "Accounting for the Impairment or Disposal of Long-lived
Assets" ("SFAS No. 144"), whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to
the future undiscounted cash flows expected to be generated by
the assets. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the
assets.
During 2001, the Company recorded impairment expenses amounting
to $ 272 attributed to assembled workforce, according to
Statement of Financial Accounting Standard No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of", which were included in "Impairment of
investment and other assets". In 2003 and 2002, no impairment
losses were identified.
j. Goodwill:
Goodwill arose from acquisitions prior to July 1, 2001, was
amortized until December 31, 2001, on a straight-line basis over
the estimated useful life, which is 7-10 years.
Statement of financial Accounting Standards No. 142, "Goodwill
and Other Intangible Assets" ("SFAS No.142") requires goodwill to
be tested for impairment on adoption and at least annually
thereafter or between annual tests in certain circumstances, and
written down when impaired, rather than being amortized as
previous accounting standards required. Goodwill is tested for
impairment by comparing the fair value of the Company's reporting
unit with its carrying value. Fair value was determined using
discounted cash flows, market multiples and comparative analyze.
Significant estimates used in the methodologies included
estimates of future cash flows and estimates of market multiples
for the reportable unit.
The Company performs the annual impairment test during the third
fiscal quarter. As of December 31, 2003, no impairment losses
have been identified.
F-11
ATTUNITY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
k. Research and development costs:
Research and development costs incurred in the process of
software development before establishment of technological
feasibility are charged to expenses as incurred. Costs of the
production of a detailed program design incurred subsequent to
the establishment of technological feasibility are capitalized
according to the principles set forth in Statement of Financial
Accounting Standards No.86 "Accounting for the Costs of Computer
Software to Be Sold, Leased, or Otherwise Marketed" ("SFAS
No.86").
Based on the Company product development process, technological
feasibility is established upon completion of a detail program
design.
Capitalized software costs are amortized by the greater of the
amount computed using the: (1) ratio that current gross revenues
from sales of the software to the total of current and
anticipated future gross revenues from sales of the software, or
(2) the straight-line method over the estimated useful life of
the product (five years), commencing with general product release
and included in cost of revenues.
At each balance sheet date, the Company assesses the
recoverability of this intangible asset by comparing the
unamortized capitalized software costs to the net realizable
value on a product by product basis. Should the amount of the
unamortized capitalized costs of a computer software product
exceeds the net realizable value, these products will be written
down by the excess amount. In the years ended December 31, 2003,
2002 and 2001 the Company recorded $ 1,543, $ 0 and $ 2,386,
respectively, as impairment of capitalized software costs, which
were included in "Impairment of investment and other assets".
l. Income taxes:
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109 "Accounting
for Income Taxes", ("SFAS No. 109"). This statement prescribes
the use of the liability method whereby deferred tax asset and
liability account balances are determined based on differences
between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to
reverse. The Company provides a valuation allowance, if
necessary, to reduce deferred tax assets to their estimated
realizable value.
m. Advertising expenses:
Advertising expenses are carried to the statement of operations,
as incurred. Advertising expenses for the years ended December
31, 2003, 2002 and 2001 amounted to $ 208, $ 55 and $ 648,
respectively.
F-12
ATTUNITY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
n. Revenue recognition:
The Company generates revenues mainly from license fees and
sub-license fees for the right to use its software products,
maintenance, support, consulting and training services. The
Company sells its products primarily through its direct sales
force to customers and indirectly through distributors and Value
Added Resellers ("VARs"). Both the customers and the distributors
or resellers are considered end users. The Company is also
entitled to royalties from some distributors and VARs upon the
sublicensing of the software to end users.
The Company accounts for software sales in accordance with
Statement of Position No. 97-2, "Software Revenue Recognition",
as amended ("SOP No. 97-2"). SOP No. 97-2, generally requires
revenue earned on software arrangements involving multiple
elements to be allocated to each element based on the relative
fair value of the elements. The Company has also adopted
Statement of Position No. 98-9, "Modification of SOP No. 97-2,
Software Revenue Recognition with Respect to Certain
Transactions" ("SOP No. 98-9"). SOP No. 98-9 requires that
revenue be recognized under the "residual method" when Vendor
Specific Objective Evidence ("VSOE") of fair value exists for all
undelivered elements and no VSOE exists for the delivered
elements and all other four criteria of SOP No. 97-2 are met.
Under the residual method any discount in the arrangement is
allocated to the delivered element. The Company and its
subsidiaries have also adopted Staff Accounting Bulletin ("SAB")
No. 104, "Revenue Recognition" ("SAB No. 104").
Revenue from license fees is recognized when persuasive evidence
of an agreement exists, delivery of the product has occurred, no
significant obligations with regard to implementation remain, the
fee is fixed or determinable and collectibility is probable. The
Company generally does not grant a right of return to its
customers. The Company considers all arrangements with payment
terms extending beyond one year not to be fixed or determinable.
If the fee is not fixed or determinable, revenue is recognized as
payments become due from the customer provided that all other
revenue recognition criteria have been met.
Revenues from royalties are recognized according to quarterly
royalties reports, as such reports are received from customers.
Royalties are received from customers who embedded the Company's
products in their own products and the Company is entitled to a
percentage of the customer revenue from the combined product.
Maintenance and support revenue included in multiple element
arrangement is deferred and recognized on a straight-line basis
over the term of the maintenance and support agreement.
Arrangements that include consulting and training services are
evaluated to determine whether those services are essential to
the functionality of other elements of the arrangement. To date,
the Company had determined that the services are not considered
essential to the functionality of other elements of the
arrangement, therefore, these revenues are recognized as the
services are performed.
Deferred revenues include unearned amounts received under
maintenance and support contracts and amounts received from
customers but not recognized as revenues.
F-13
ATTUNITY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
In transactions, where a customer's contractual terms include a
provision for customer acceptance, revenues are recognized either
when such acceptance has been obtained or as the acceptance
provision has lapsed.
o. Concentrations of credit risks:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and
cash equivalents, restricted cash, short-term bank deposits,
marketable securities and trade receivables.
Cash and cash equivalents, restricted cash and short-term bank
deposits are invested in major banks in Israel, Europe and the
United States. Such deposits in the United States may be in
excess of insured limits and are not insured in other
jurisdictions. Management believes that the financial
institutions that hold the Company's investments are financially
sound and, accordingly, minimal credit risk exists.
The Company's trade receivables are mainly derived from sales to
customers located primarily in the United States, Israel, Europe,
Far East and South America. The Company performs ongoing credit
evaluations of its customers and, through December 31, 2002, has
not experienced any material losses. An allowance for doubtful
accounts is determined with respect to those amounts that the
Company has determined to be doubtful of collection.
In 2003, the Company increased its allowance for doubtful
accounts to provide for doubtful receivables, mainly in the Far
East and in Israel .
Adjustments to allowance for doubtful accounts for the years
ended December 31, 2003, 2002 and 2001, were $ 279, $ (30) and $
(151), respectively.
The Company has no significant off-balance-sheet concentration of
credit risk such as foreign exchange contracts, option contracts
or other foreign hedging arrangements.
p. Accounting for stock-based compensation:
The Company has elected to follow Accounting Principles Board
Statement No. 25, "Accounting for Stock Issued to Employees"
("APB No. 25"), and FASB Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation" ("FIN No.
44"), in accounting for its employee stock option plans. Under
APB No. 25, when the exercise price of an employee stock option
is equivalent to or above the market price of the underlying
shares on the date of grant, compensation expense is recognized.
F-14
ATTUNITY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The Company adopted the disclosure provisions of Financial
Accounting Standards Board Statement No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure" ("SFAS No.
148"), which amended certain provisions of SFAS 123 to provide
alternative methods of transition for an entity that voluntarily
changes to the fair value based method of accounting for
stock-based employee compensation. The Company continues to apply
the provisions of APB No. 25, in accounting for stock-based
compensation.
Pro forma information regarding the Company's net income (loss)
and net earnings (loss) per share is required by Statement of
Financial Accounting Standard No. 123 "Accounting for Stock-Based
Compensation" and has been determined as if the Company had
accounted for its employee stock options under the fair value
method prescribed by SFAS No. 123.
The fair value for options granted in 2003, 2002 and 2001 is
amortized over their vesting period and estimated at the date of
grant using a Black-Scholes options pricing model with the
following weighted average assumptions:
2003 2002 2001
------- ------- -------
Dividend yield 0% 0% 0%
Expected volatility 43.8% 79.5% 130%
Risk-free interest 3.5% 3% 3%
Expected life of up to 6 years 6 years 6 years
|
F-15
ATTUNITY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
Pro forma information under SFAS No. 123, is as follows:
Year ended December 31,
-----------------------------------------
2003 2002 2001
------------ ------------ -----------
Net income (loss) from continued
operations $ (2,956) $ 504 $ (15,851)
Net income (loss) from discontinued
operations, net of income tax - - 220
------------ ------------ -----------
Net income (loss) $ (2,956) $ 504 $ (15,631)
============ ============ ===========
Deduct stock-based employee
compensation fair value $ (586) $ (994) $ (1,508)
============ ============ ===========
Pro forma:
Net loss from continued operations $ (3,542) $ (490) $ (17,359)
Net income from discontinued
operations, net of income tax - - 220
------------ ------------ -----------
Net loss $ (3,542) $ (490) $ (17,139)
============ ============ ===========
Net earnings (loss) per share:
Basic and diluted net earnings (loss)
per share from continued operations
as reported $ (0.20) $ 0.03 $ (1.36)
============ ============ ===========
Basic and diluted net earnings per
share from discontinued operations,
net of income tax $ - $ - $ 0.02
============ ============ ===========
Basic and diluted net earnings (loss)
per share $ (0.20) $ 0.03 $ (1.34)
============ ============ ===========
Pro forma basic and diluted net loss
per share from continued operations
as reported $ (0.23) $ (0.03) $ (1.49)
============ ============ ===========
Pro forma basic and diluted net
earnings per share from discontinued
operations, net of income taxes $ - $ - $ 0.02
============ ============ ===========
Pro forma basic and diluted net loss
per share $ (0.23) $ (0.03) $ (1.47)
============ ============ ===========
|
The Company applies SFAS No. 123 and Emerging Issues Task Force
No. 96-18, "Accounting for Equity Instruments that are Issued to
Other than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services" ("EITF 96-18"), with respect to
options and warrants issued to non-employees. SFAS No. 123
requires the use of option valuation model to measure the fair
value of the warrants at the date of grant.
F-16
ATTUNITY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share data
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
q. Basic and diluted net earnings (loss) per share:
Basic net earnings (loss) per share are computed based on the
weighted average number of Ordinary shares outstanding during
each year. Diluted net earnings per share are computed based on
the weighted average number of Ordinary shares outstanding during
each year, plus dilutive potential Ordinary shares considered
outstanding during the year, in accordance with Statement of
Financial Accounting Standard No. 128, "Earnings Per Share"
("SFAS No. 128").
Certain outstanding stock options and warrants have been excluded
from the calculation of the diluted net earnings (loss) per
Ordinary share because the securities are antidilutive for all
periods presented. The total weighted average number of shares
related to the outstanding stock options and warrants excluded
from the calculations of diluted net earnings (loss) per share
were 6,963,321, 6,367,656 and 6,950,161 for the years ended
December 31, 2003, 2002 and 2001, respectively.
r. Severance pay:
The Company's liability for severance pay is calculated pursuant
to Israeli severance pay law based on the most recent salary of
the employees multiplied by the number of years of employment, as
of the balance sheet date for all employees in Israel. Employees
are entitled to one month's salary for each year of employment or
a portion thereof. The Company's liability for all of its
employees is fully provided by monthly deposits with severance
pay fund, insurance policies and by an accrual. The value of
these policies is recorded as an asset in the Company's balance
sheet.
The deposited funds include profits accumulated up to the balance
sheet date. The deposited funds may be withdrawn only upon the
fulfillment of the obligation pursuant to Israeli severance pay
law or labor agreements. The value of these policies is recorded
as an asset in the Company's balance sheet.
Severance pay expenses for the years ended December 31, 2003,
2002 and 2001 were $ 498, $ 576 and $ 1,375, respectively.
s. Fair value of financial instruments:
The estimated fair value of financial instruments has been
determined by the Company using available market information and
valuation methodologies. Considerable judgment is required in
estimating fair values. Accordingly, the estimates may not be
indicative of the amounts the Company could realize in a current
market exchange.
The carrying amounts of cash and cash equivalents, restricted
cash, short-term bank deposits, trade receivables, short-term
bank credits trade payables deferred revenues, employees and
payroll accruals accrued expenses and other liabilities
approximate their fair values due to the short-term maturity of
these instruments.
The fair value for marketable securities is based on quoted
market prices and does not significantly differ from the carrying
amount.
F-17
ATTUNITY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except per share data
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The fair value of long-term liabilities was estimated by
discounting the future cash flow using rate currently available
for long-term liabilities of similar terms and maturity. The
carrying amount of the Company's long-term liabilities
approximates their fair value.
t. Impact of recently issued accounting standards:
In January 2003, the FASB issued Interpretation No. 46,
"Consolidation of Variable Interest Entities" ("FIN 46"). The
objective of FIN 46 is to improve financial reporting by
companies involved with variable interest entities. A variable
interest entity is a corporation, partnership, trust, or any
other legal structure used for business purposes that either (a)
does not have equity investors with voting rights or (b) has
equity investors that do not provide sufficient financial
resources for the entity to support its activities. FIN 46
requires a variable interest entity to be consolidated by a
company if that company is subject to a majority of the risk of
loss from the variable interest entity's activities or entitled
to receive a majority of the entity's residual returns or both.
FIN 46 also requires disclosures about variable interest entities
that the company is not required to consolidate but in which it
has a significant variable interest. The consolidation
requirements of FIN 46 apply immediately to variable interest
entities created after January 31, 2003. The consolidation
requirements apply to older entities in the first fiscal year or
interim period end after December 31, 2003. Certain of the
disclosure requirements apply in all financial statements issued
after January 31, 2003, regardless of when the variable interest
entity was established. As of December 31, 2003, the Company does
not expect the adoption of FIN 46 to have a material impact on
its consolidated financial statements.
In April 2003, the FASB issued SFAS No. 149 ("SFAS 149"),
"Amendment of Statement 133 on Derivative Instruments and Hedging
Activities." SFAS 149 amends and clarifies (1) the accounting
guidance on derivative instruments (including certain derivative
instruments embedded in other contracts) and (2) hedging
activities that fall within the scope of FASB Statement No. 133
("SFAS 133"), "Accounting for Derivative Instruments and Hedging
Activities." SFAS 149 amends SFAS 133 to reflect decisions made
(1) as part of the Derivatives Implementation Group ("DIG")
process that effectively required amendments to SFAS 133, (2) in
connection with other projects dealing with financial
instruments, and (3) regarding implementation issues related to
the application of the definition of a derivative. SFAS 149 is
effective (1) for contracts entered into or modified after June
30, 2003, with certain exceptions, and (2) for hedging
relationships designated after June 30, 2003. The guidance is to
be applied prospectively.
Generally, SFAS 149 improves financial reporting by (1) requiring
that contracts with comparable characteristics be accounted for
similarly and (2) clarifying when a derivative contains a
financing component that warrants special reporting in the
statement of cash flows. SFAS 149 is not expected to have a
material impact on the Company's financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for
Certain Financial Instruments with Characteristics of both
Liabilities and Equity" ("SFAS No. 150"), which establishes
standards for how an issuer of financial instruments classifies
and measures certain financial instruments with characteristics
of both liabilities and equity. It requires that an issuer
classify a financial instrument that is within its scope as a
liability (or an asset in
F-18
ATTUNITY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except per share data
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
some circumstances) if, at inception, the monetary value of the
obligation is based solely or predominantly on a fixed monetary
amount known at inception, variations in something other than the
fair value of the issuer's equity shares or variations inversely
related to changes in the fair value of the issuer's equity
shares. This statement is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning
after June 15, 2003. The adoption of SFAS No. 150 is not expected
to have a material impact on the Company's financial position or
results of operations.
u. Reclassification:
Certain amounts from prior years referring to expenses and
property and equipment have been reclassified to conform with
current year presentation. The reclassification had no effect on
previously reported operating income (loss), shareholders' equity
or cash flows.
NOTE 3:- OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES
December 31,
------------------------------
2003 2002
------------- -------------
Prepaid expenses $ 338 $ 460
Government authorities 485 370
Employees 64 166
Other 119 237
------------- -------------
$1,006 $1,233
============= =============
|
NOTE 4:- PROPERTY AND EQUIPMENT, NET
Cost:
Computers and peripheral equipment $3,559 $3,184
Office furniture and equipment 622 827
Motor vehicles 629 572
Leasehold improvements 1,182 1,110
------------- -------------
5,992 5,693
------------- -------------
Accumulated depreciation:
Computers and peripheral equipment 3,247 2,760
Office furniture and equipment 412 581
Motor vehicles 377 316
Leasehold improvements 1,030 891
------------- -------------
5,066 4,548
------------- -------------
Depreciated cost $ 926 $1,145
============= =============
|
Depreciation expenses for the years ended December 31, 2003, 2002
and 2001 are $ 543, $ 679 and $ 808, respectively.
As for charges on the Company's property and equipment, see Note
10.
F-19
ATTUNITY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except per share data
NOTE 5:- SOFTWARE DEVELOPMENT COSTS, NET
December 31,
------------------------------
2003 2002
------------- -------------
Software development costs $ 15,347 $ 15,297
Less - accumulated amortization 10,835 9,222
------------- -------------
Amortized cost $ 4,512 $ 6,075
============= =============
|
Amortization expenses for the years ended December 31, 2003, 2002 and
2001 are $ 1,613, $ 1,590 and $ 2,378, respectively.
The Company recorded impairment expenses amounting to $ 1,543, $ 0 and
$ 2,386, attributed to capitalized software costs in 2003, 2002 and
2001, respectively.
Estimated amortization expenses for the years ended:
December 31,
-------------
2004 $1,874
2005 1,077
2006 756
2007 494
2008 311
-------------
$4,512
=============
|
NOTE 6:- GOODWILL
a. The results of operations presented below for the three years
ended December 31, 2003, 2002 and 2001, reflect the operations
had the Company adopted the non-amortization provisions of SFAS
No. 142 effective January 1, 2001:
Year ended December 31,
---------------------------------------
2003 2002 2001
------------ ----------- ------------
Reported net income (loss) $ (2,956) $ 504 $ (15,631)
Goodwill amortization - - 974
------------ ----------- ------------
Adjusted net income (loss) $ (2,956) $ 504 $ (14,657)
============ =========== ============
Basic and diluted net earnings
(loss) per share:
Reported net income (loss) $ (0.20) $ 0.03 $ (1.34)
Goodwill amortization - - 0.08
------------ ----------- ------------
Adjusted net income (loss) $ (0.20) $ 0.03 $ (1.26)
============ =========== ============
|
b. The change in the carrying amount of goodwill for the year ended
December 31, 2003, is due to translation adjustments.
F-20
ATTUNITY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 7:- SHORT-TERM BANK CREDIT
Interest rate December 31,
--------------------- ------------------------------
2003 2002 2003 2002
--------- --------- ------------- -------------
%
---------------------
Short-term bank loans:
In NIS 8.0 11.7 $ 206 $ 149
Short-term bank credit:
In NIS 8.9 13.4 - 26
------------- -------------
$ 206 $ 175
============= =============
(1) Total authorized credit lines approximate $ 250
=============
(2) Unutilized credit lines approximate $ 250
=============
(3) Weighted average interest rates at the end of
the year 3.5% 12.2%
============= =============
NOTE 8:- ACCRUED EXPENSES AND OTHER LIABILITIES
Government authorities $ 498 $ 599
SSF Lawsuit (see also Note 16b) 1,000 810
Accrued expenses 425 687
Burlington lease lawsuit (see also Note 16b) 850 290
Royalties to Government authorities 642 270
Others 64 2
------------- -------------
$ 3,479 $ 2,658
============= =============
NOTE 9:- LONG-TERM DEBTS
Capital lease obligations, linked to the U.S. dollar
and bears interest of 9.1% $ 108 $ 174
Other loans, linked to the Israeli Consumer Price
Index and bears interest of 5% to 6.7% 93 86
------------- -------------
201 260
Less - current maturities:
Capital lease obligations 61 135
Other loans 41 70
------------- -------------
$ 99 $ 55
============= =============
|
F-21
ATTUNITY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 9:- LONG-TERM DEBTS (Cont.)
As of December 31, 2003, the aggregate annual maturities of long-term
debts are as follows:
December 31,
------------------------------
2003 2002
------------- -------------
First year (current maturities) $ 102 $ 205
Second year 49 41
Third year 42 14
Fourth year 8 -
------------- -------------
$ 201 $ 260
============= =============
|
See also Note 10.
NOTE 10:- CHARGES (ASSETS PLEDGED)
As collateral for certain liabilities of the Company to banks and
others, fixed charges have been recorded on certain property and
equipment of the Company.
NOTE 11:- COMMITMENTS AND CONTINGENT LIABILITIES
a. Lease commitments:
The Company leases its operating facilities under non-cancelable
operating lease agreements, which expire in various dates. Future
minimum commitments under these leases as of December 31, 2003, are as
follows:
Operating
Year ended December 31, leases
----------------------- ---------
2004 $ 590
2005 442
2006 and thereafter 517
---------
$1,549
=========
Operating lease obligation does not include $ 2,005 for which the
|
Company has entered into a settlement agreement in March 2004 (see
also Note 16b).
Rent expenses under operating leases for the years ended December 31,
2003, 2002 and 2001 were $ 580, $ 704 and $ 1,298, respectively.
F-22
ATTUNITY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 11:- COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)
b. Royalties:
The Company participates in programs sponsored by the Israeli
Government for the support of research and development
activities. As of December 31, 2003, the Company had obtained
grants from the Office of the Chief Scientist of the Israeli
Ministry of Industry and Trade ("the OCS") in the aggregate
amount of $ 2,418 for certain of the Company's research and
development projects. The Company is obligated to pay royalties
to the OCS, amounting to 2%-5% of the sales of the products and
other related revenues generated from such projects, up to
100%-150% of the grants received, linked to the U.S. dollar.
The obligation to pay these royalties is contingent on actual
sales of the products and in the absence of such sales no payment
is required.
Through December 31, 2003, the Company has paid or accrued
royalties to the OCS in the amount of $ 1,547. As of December 31,
2003, the aggregate contingent liability to the OCS amounted to $
871.
c. Litigation:
1. In November 2002, the four Special Situations Funds ("SSF")
that invested in the Company's October 2001 private
placement filed a complaint against the Company alleging
that the Company had breached the Registration Rights
Agreement related to their investment in the Company.
As such, SSF sought to collect liquidation damages of
approximately $ 603 plus unspecified actual damages
allegedly due as a result of delay in having Registration
Statement covering the shares purchased by SSF declared
effective at a later date. On March 28, 2003, the court
ruled against the Company, in favor of SSF. The judge
awarded SSF liquidation damages in the amount of $ 603, plus
interest from the date on which the complaint was filed.
The Company has appealed on the decision and, in January
2004, the upper court affirmed the decision against the
Company. In 2002, the Company recorded a one-time charge in
the amount of $ 810, and an addition $ 365 in 2003 related
to the outcome of the lawsuit and its related expenses. The
charge was included in restructuring and other non-recurring
charges in the statement of operations.
2. During 2002, the company's subsidiary in the United States
ceased the use of its former leased facilities before the
end of the agreement term, which will expire in September
2005.
In 2003, the landlord sued the company for non-payment of
the lease fees for 2003. Subsequent to the balance sheet
date, the company and the landlord settled the dispute where
the Company has agreed to pay $ 825 and will be released
from the lease agreement.
F-23
ATTUNITY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 12:- SHAREHOLDERS' EQUITY
a. The Ordinary shares of the Company are quoted on NASDAQ stock
market. The Ordinary shares confer upon the holders the right to
receive notice to participate and vote in general meetings of the
Company, and the right to receive dividends, if declared.
b. In October 2001, the Company issued 3,846,156 Ordinary shares to
private investors in net consideration of approximately $ 4,666.
In addition, the Company granted the investors and agents
warrants to purchase 4,150,387 of the Company's Ordinary shares
at an exercise price of $ 1.56 -$ 2.25. The agreement provides
that if the Company's stock price reaches $3 and $4 for certain
period of time, the warrants must be exercised or otherwise
forfeited. These warrants will expire in October 2005 (see also
Note 17).
c. Stock Option Plans:
Under the Company's 1992, 1994, 1998 and 2001 Stock Option Plans
(the "Plans"), the Company has granted options to purchase
Ordinary Shares to key employees, directors and officers as an
incentive to attract and retain qualified personnel. The exercise
price of options granted under the Plans may not be less than
100% (110% in the case of a 10% shareholder) of the fair market
value of the Company's Ordinary shares on the date of grant for
ISO options and 75% of the fair market for non-qualified options.
Under the terms of these four plans, options generally become
exercisable ratably over three to five years of employment,
commencing with the date of grant. The options generally expire
no later than 10 years from the date of the grant, and are
non-transferable, except under the laws of succession.
Under the Plans, 4,500,000 Ordinary shares of the Company were
reserved for issuance. Any options, which are canceled or
forfeited before expiration become available for future grants.
As of December 31, 2003, under the plans there are 639,186
options available for future grants.
The following is a summary of the Company's stock options granted
among the various plans:
Year ended December 31,
---------------------------------------------------------------
2003 2002 2001
-------------------- --------------------- --------------------
Weighted Weighted Weighted
Number average Number average Number average
of exercise of exercise of exercise
options price options price options price
---------- --------- ----------- --------- ---------- ---------
Outstanding at
beginning of year 1,604 $ 3.71 2,238 $ 3.87 1,226 $ 8.61
Granted 2,137 $ 1.57 143 $ 1.09 1,710 $ 1.26
Exercised - $ - (187) $ 0.02 (20) $ 0.02
Canceled or
forfeited (197) $ 7.83 (590) $ 4.85 (678) $ 5.57
---------- ----------- ----------
Outstanding at end
of year 3,544 $ 1.78 1,604 $ 3.71 2,238 $ 3.87
========== ========= =========== ========= ========== =========
Exercisable at end
of year 1,072 $ 3.78 990 $ 5.18 1,218 $ 5.74
========== ========= =========== ========= ========== =========
|
F-24
ATTUNITY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 12:- SHAREHOLDERS' EQUITY (Cont.)
The options outstanding as of December 31, 2003, have been
separated into ranges of exercise price as follows:
Weighted
Options Weighted Options average
outstanding average Weighted exercisable exercise
Range of as of remaining average as of price of
exercise December 31, contractual exercise December 31, options
price 2003 life price 2003 exercisable
----------------- ------------- ------------ ----------- -------------- -----------
$ In thousands Years $ In thousands $
----------------- ------------- ------------ ----------- -------------- -----------
$ 0.02 6 2 $ 0.02 6 $ 0.02
$ 0.8 - 0.91 230 6.75 $ 0.82 10 $ 0.82
$ 1.05 - 1.42 1,712 3.98 $ 1.20 560 $ 1.21
$ 1.5 - 2.25 1,146 5.31 $ 1.89 87 $ 1.89
$ 2.88 - 3.0 26 2.21 $ 2.94 20 $ 2.94
$ 4.5 - 6.5 49 2.91 $ 5.41 50 $ 5.41
$ 6.88 - 9.75 327 2.42 $ 7.86 291 $ 7.87
$ 10 - 13.25 35 2.35 $ 10.78 35 $ 10.78
$ 16 13 2 $ 16 13 $ 16
------------- -----------
3,544 $ 2.23 1,072 $ 3.78
============= =========== =========== ===========
|
Weighted average fair values and weighted average exercise prices
of options whose exercise prices is equal to, lower than or
exceeds market price of the shares at date of grant are as
follows:
Year ended December 31,
--------------------------------------------------------------------
2003 2002 2001
--------------------- ------------------- ----------------------
Weighted Weighted Weighted Weighted Weighted Weighted
average average average average average average
fair exercise fair exercise fair exercise
value price value price value price
--------- --------- --------- --------- --------- ----------
Equals market
price at
date of grant $ 0.70 $ 1.55 $ 0.84 $ 1.22 $ 0.98 $ 1.32
========= ========== ========= ========= ========= ==========
Exceeds market
price at
date of grant $ 0.24 $ 2.17 $ - $ - $ 1.30 $ 1.83
========= ========== ========= ========= ========= ==========
Lower than
market price
at date of
grant $ - $ - $ 1.29 $ 0.02 $ 1.77 $ 0.02
========= ========== ========= ========= ========= ==========
|
F-25
ATTUNITY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 12:- SHAREHOLDERS' EQUITY (Cont.)
d. Stock warrants:
The Company has issued warrants, as follows:
Outstanding Exercisable
as of as of
December 31, Exercise December 31, Exercisable
Issuance date 2003 price 2003 through
------------------- -------------- -------------- --------------- ------------------
June 2000 (1) 425,000 $12.3 - $15.50 425,000 March 31, 2005
October 2000 (2) 72,000 $7.65 72,000 October 31, 2005
June 2001 (3) 180,000 $2.5 180,000 December 31, 2004
October 2001 (4) 4,115,387 $1.56 - $2.25 4,115,387 October 16, 2005
--------- ---------
4,792,387 4,792,387
========= ==========
|
(1) Issued to investors and placement agents of 2000 private
placement.
(2) Issued to consultants and placement agents of 2000 private
placement.
|
(3) Issued to a consultant for public relations services.
(4) Issued to investors and placement agents of the October 2001
private placement.
The Company had accounted for its warrants to consultants under
the fair value method of SFAS No. 123 and EITF No. 96-18. The
fair value for these warrants was estimated using Black-Scholes
option-pricing model with the following weighted-average
assumptions for 2003, 2002 and 2001: risk-free interest rates of
2.5% for 2003, 2.5% for 2002 and 3% for 2001, dividend yields of
0% for each year, volatility factors of the expected market price
of the Company's Ordinary shares of 0.438, 0.795 and 1.3,
respectively and a weighted-average contractual life of
approximately 2 years for each year.
e. Dividends:
In the event that cash dividends are declared in the future, such
dividends will be paid in New Israeli Shekels ("NIS"). The
Company does not intend to pay cash dividends in the foreseeable
future.
NOTE 13:- INCOME TAXES
a. Tax benefits under the Law for the Encouragement of Capital
Investments, 1959 ("the Law"):
The production facilities of Attunity and its subsidiary Attunity
Software Services Ltd. ("ASS") have been granted "Approved
Enterprise" status under the Investment Law.
In June 2000, Attunity Ltd. filed an application for a fourth
investment program which has not yet been approved, the other
three investment programs, which were approved in February 1998,
April 1998 and November 2001, will expire in April 2006, November
2008 and December 2011, respectively.
F-26
ATTUNITY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 13:- INCOME TAXES (Cont.)
As of December 31, 2003, the investments under June 2000
investment program remain in progress and has not been completed.
According to the provisions of the Law, Attunity Ltd. has elected
to enjoy "alternative benefits" - waiver of grants in return for
tax exemption - and, accordingly, income derived from the
"Approved Enterprise" will be tax-exempt for a period of two
years commencing with the year it first earns taxable income, and
will be taxed at 10% to 25%, based upon the percentage of foreign
investment in Attunity for an additional period of five-eight
years. The period of tax benefits, detailed above, is subject to
limits of the earlier of 12 years from the commencement of
production, or 14 years from the date of approval.
ASS has been granted status as an "Approved Enterprise" for two
separate investment programs from 1991 and 1993 whereby it has
elected to receive Government grants and to enjoy the benefit of
a reduced tax rate of 25% during a period of seven years
commencing with the year it first earns taxable income. The
period of tax benefits, detailed above, is subject to limits of
the earlier of 12 years from the commencement of production, or
14 years from the date of approval. In 1993, ASS received
approval for an expansion of the aforementioned programs whereby
it has elected to enjoy "alternative benefits" - waiver of grants
in return for tax exemption - and, accordingly, its income from
the "Approved Enterprise" will be tax-exempt for a period of ten
years commencing with the year it first earns taxable income.
As of December 2003, ASS has not yet received final approvals for
such programs.
If these retained tax-exempt profits are distributed in a manner
other than in the complete liquidation of the Company they would
be taxed at the corporate tax rate applicable to such profits as
if the Company had not elected the alternative system of
benefits, currently between 15%-20% for an "Approved Enterprise".
As of December 31, 2003, the accumulated deficit of the Company
does not include tax-exempt profits earned by the Company's
"Approved Enterprise".
The Company's decision is not to distribute dividends, other than
upon the liquidation of the Company.
As Attunity currently has no taxable income, the benefits have
not yet commenced for all programs.
The entitlement to the above benefits is conditional upon the
Company's fulfilling the conditions stipulated by the above law,
regulations published hereunder and the instruments of approval
for the specific investments in "Approved Enterprises". In the
event of failure to comply with these conditions, the benefits
may be canceled and the Company may be required to refund the
amount of the benefits, in whole or in part, including interest.
Should Attunity or ASS derive income from sources other than the
"Approved Enterprise" during the periods of benefits, such income
shall be taxable at the regular corporate tax rate of 36%.
F-27
ATTUNITY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 13:- INCOME TAXES (Cont.)
b. Measurement of taxable income under the Income Tax (Inflationary
Adjustments) Law, 1985:
Results of Attunity and its Israeli subsidiaries for tax purposes
are measured and reflected in real terms of earnings in NIS after
certain adjustments for increases in the Consumer Price Index. As
explained in Note 2b, the financial statements are presented in
U.S. dollars. The difference between the annual change in the
Israeli Consumer Price Index and in the NIS/dollar exchange rate
causes a difference between taxable income or loss and the income
or loss before taxes shown in the financial statements. In
accordance with paragraph 9(f) of SFAS No. 109, the Company has
not provided deferred income taxes on this difference between the
reporting currency and the tax bases of assets and liabilities.
c. Tax benefits under the Law for the Encouragement of Industry
(Taxation),1969:
Attunity and ASS are "industrial companies" under the above law
and as such are entitled to certain tax benefits, mainly
accelerated depreciation of machinery and equipment. It may also
be entitled to deduct over three year period expenses incurred in
connection with a public share offering and to amortize know-how
acquired from third party.
d. On July 24, 2002, Amendment 132 to the Israeli Income Tax
Ordinance ("the Amendment") was approved by the Israeli
parliament and came into effect on January 1, 2003. The principal
objectives of the Amendment were to broaden the categories of
taxable income and to reduce the tax rates imposed on employees
income.
The material consequences of the Amendment applicable to the
Company include, among others, imposing tax upon all income of
Israel residents, individuals and corporations, regardless of the
territorial source of income and certain modifications in the
qualified taxation tracks of employee stock options.
e. Tax loss carryforward:
Net operating loss carryforward as of December 31, 2003 are as
follows:
Israel $ 34,633
United States *) 5,541
UK 2,589
Hong Kong 1,612
France 783
------------
$ 45,158
============
Net operating losses in Israel, UK and Hong Kong may be carried
|
forward indefinitely. Net operating losses in the U.S. are
available through 2023 and in France through 2006.
*) Utilization of U.S. net operating losses may be subject to
substantial annual limitation due to the "change in
ownership" provisions of the Internal Revenue Code of 1986
and similar state provisions. The annual limitation may
result in the expiration of net operating losses before
utilization.
F-28
|
ATTUNITY LTD. AND ITS SUBSIDIARIES
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 13:- INCOME TAXES (Cont.)
f. Deferred taxes:
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used
for income tax purposes. Significant components of the Company's
deferred tax liabilities and assets are as follows:
December 31,
----------------------------
2003 2002
------------ ------------
Net operating loss carryforward $ 11,428 $ 10,255
Other 890 1,211
------------ ------------
Total deferred tax asset before
valuation allowance 12,318 11,466
Less - valuation allowance (12,318) (11,466)
------------ ------------
Net deferred tax assets $ - $ -
============ ============
|
The Company has provided valuation allowances in respect of
deferred tax assets resulting from tax loss carryforward and
other temporary differences. Management currently believes that
since the Company has a history of losses it is more likely than
not that the deferred tax regarding the loss carryforward and
other temporary differences will not be realized in the
foreseeable future.
During fiscal year 2003, the Company increased the valuation
allowance by $ 852 to $ 12,318.
F-29
ATTUNITY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 13:- INCOME TAXES (Cont.)
g. Reconciliation:
A reconciliation of the theoretical tax expense, assuming all
income is taxed at the statutory rate applicable to the income of
the Company and the actual tax expense, is as follows:
Year ended December 31,
-----------------------------------------
2003 2002 2001
------------ ------------ -----------
Income (loss) from continued operations
before income taxes, as reported in
the consolidated statements of
operations $ (2,872) $ 768 $(15,449)
============ ============ ===========
Theoretical tax expense (income tax
benefit) computed at the rate
applicable to the Company (1) $ (1,034) $ 276 $ (5,562)
Tax adjustments in respect of inflation
in Israel and effect of different tax
rates for foreign subsidiaries - (471) (13)
Losses for which valuation allowance
was provided - - 3,965
Utilization of operating carryforward
tax losses (1,462) (227) -
Nondeductible expenses including
goodwill amortization, investment
impairment and others 2,496 422 1,626
Tax withholding 84 264 386
------------ ------------ -----------
Income taxes $ 84 $ 264 $ 402
============ ============ ===========
(1) Statutory rate applicable to the
Company 36% 36% 36%
============ ============ ===========
h. Pre-tax income (loss):
Domestic $ (2,489) $ (1,753) $(13,548)
Foreign (383) 2,521 (1,901)
------------ ------------ -----------
$ (2,872) $ 768 $(15,449)
============ ============ ===========
|
F-30
ATTUNITY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 14:- EARNINGS (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted
net earnings (loss) per share:
a. Numerator:
Year ended December 31,
-----------------------------------------
2003 2002 2001
------------ ------------ -----------
Net income (loss) from continued
operations $ (2,956) $ 504 $(15,851)
Net income from discontinued
operations, net of income tax - - 220
------------ ------------ -----------
Net income (loss) $ (2,956) $ 504 $(15,631)
============ ============ ===========
Numerator for basic and diluted net
earnings (loss) per share
from continued operations -
income available to shareholders
of Ordinary shares $ (2,956) $ 504 $(15,851)
============ ============ ===========
Numerator for basic and diluted net
earnings per share from discontinued
operations - income available to
shareholders of Ordinary shares $ - $ - $ 220
============ ============ ===========
Numerator for basic and diluted net
earnings (loss) per share - income
available to shareholders of Ordinary
shares $ (2,956) $ 504 $(15,631)
============ ============ ===========
b. Denominator:
Denominator for basic net earnings
per share - weighted average
number of Ordinary shares 14,767 14,697 11,666
Effect of dilutive securities:
Employee stock options *) - 28 *) -
------------ ----------- -----------
Denominator for diluted net
earnings (loss) per share -
adjusted weighted average number
of Ordinary shares,
assumed exercise of options 14,767 14,725 11,666
============ =========== ===========
|
*) The effect of the inclusion of the options and warrants in
2001 and 2003 would have been antidilutive
F-31
ATTUNITY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 15:- GEOGRAPHIC AND MAJOR CUSTOMERS INFORMATION
The Company manages its business on a basis of one reportable segment:
computer software integration tools and application development tools.
Total revenues are attributed to geographic areas based on the
location of the end customers. This data is presented in accordance
with Statement of Financial Accounting Standard No. 131, "Disclosures
about Segments of an Enterprise and Related Information" ("SFAS No.
131").
Revenues from sales to unaffiliated customers:
Year ended December 31,
-----------------------------------------
2003 2002 2001
------------ ------------ -----------
Israel $ 2,952 $ 2,576 $ 2,761
United States 6,528 7,025 7,589
Europe 5,411 4,950 4,012
Far East 908 1,064 1,212
South America 369 1,500 1,066
Other 449 340 229
------------ ------------ -----------
$ 16,617 $ 17,455 $ 16,869
============ ============ ===========
|
The Company's long-lived assets are as follows:
December 31,
------------------------------
2003 2002
------------- -------------
Israel $ 11,144 $ 12,467
United States 180 274
Other 150 163
------------- -------------
$ 11,474 $ 12,904
============= =============
|
In 2003, the Company had a customer that accounted for 10.3% of
revenues; in 2002, a different customer accounted for 10.3%; and in
2001, no customer accounted for more than 10% of revenues.
F-32
ATTUNITY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
NOTE 16:- SELECTED STATEMENTS OF OPERATIONS DATA
a. Research and development costs, net:
Year ended December 31,
-----------------------------------------
2003 2002 2001
------------ ------------ -----------
Total costs $ 3,084 $ 3,033 $ 5,382
Capitalized software development costs (1,593) (1,595) (1,789)
------------ ------------ -----------
$ 1,491 $ 1,438 $ 3,593
============ ============ ===========
b. Restructuring and other non-recurring
charges:
Restructuring charges (1) $ - $ - $ 1,326
SSF lawsuit (2) 365 810 -
Burlington lease lawsuit (3) 560 290 -
Employment termination benefits (4) - 467 -
Others - 141 -
------------ ------------ -----------
$ 925 $ 1,708 $ 1,326
============ ============ ===========
|
(1) In September 2001, after sustaining substantial losses, the
Company implemented a restructuring plan. The plan consisted
of the involuntary termination of 30 employees and write-off
of leasehold improvements that have no useful use as a
result of the dismissal of employees. The Company recorded
restructuring changes in accordance with Emerging Issues
Task Force No. 94-3, "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an
Activity (Including Certain costs in a restructuring) " and
Staff Accounting Bulletin No. 100, "Restructuring and
Impairment Changes".
(2) See Note 11c.
|
(3) In 2002, the Company's subsidiary in the United States
ceased the use of its former lease facilities before the end
of the agreement term, which will expire in September 2005.
The Company early adopted Statement of Financial Accounting
Standard No. 146, "Accounting for Costs Associated with Exit
Disposal Activities" ("SFAS No. 146"), which addresses the
recognition, measurement, and reporting of costs associated
with exit and disposal activities, including restructuring
activities.
According to SFAS No. 146, the Company recognized a one-time
charge, in a total amount of $290, related to the costs that
will continue to be incurred under the agreement for its
remaining time, without economic benefit to the Company.
The one-time charge was measured at its fair value at the
cease-of-use date, based on the future remaining lease
payments, reduced by estimated sublease rentals that could
be reasonably obtained for those facilities.
In 2003 the landlord sued the Company for non-payment of the
lease fees for 2003. In March 2004, the Company and the
landlord settled the dispute where the Company has agreed to
pay and be released from the lease agreement.
F-33
ATTUNITY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands
NOTE 16:- SELECTED STATEMENTS OF OPERATIONS DATA (Cont.)
(4) One time charge related to employment termination of the
then chief executive officer of the Company and other
employees during 2002.
c. Impairment of investment and other assets:
Year ended December 31,
-----------------------------------------
2003 2002 2001
------------ ------------ -----------
Impairment of capitalized software
costs $ 1,543 $ - $ 2,386
Impairment of assembled workforce - - 272
------------ ------------ -----------
$ 1,543 $ - $ 2,658
============ ============ ===========
d. Financial income, net:
Financial income:
Gain on trading marketable securities $ 3 $ - $ -
Interest and other income 90 69 142
Foreign currency translation
differences 588 141 515
------------ ----------- -----------
681 210 657
------------ ----------- -----------
Financial expenses:
Interest (100) (69) (304)
Foreign currency translation
differences (345) - (305)
------------ ----------- -----------
(445) (69) (609)
------------ ----------- -----------
$ 236 $ 141 $ 48
============ =========== ===========
|
NOTE 17:- SUBSEQUENT EVENTS (UNAUDITED)
In March 2004, the Company signed an agreement with a group of
investors ("the Group") that owns 2,043,146 shares and warrants to
purchase 2,208,489 shares at an exercise price of $ 1.75 and 736,162
shares at an exercise price of $ 2.25. According to the agreement, the
Group will invest, subject to a shareholders approval, an additional $
2 million in the Company as a five-year convertible debenture at $
1.75 per share, and warrants to purchase 480,000 Ordinary shares at an
exercise price of $ 1.75 per share.
F:\W2000\2235\M\03\E$12.DOC
F-34
S I G N A T U R E S
The registrant hereby certifies that it meets all of the requirements
for filing on Form 20-F and that it has duly caused and authorized the
undersigned to sign this annual report on its behalf.
ATTUNITY LTD.
By: /s/Arie Gonen
-------------
Arie Gonen
Chief Executive Officer
Dated: June 30, 2004
|
75
Exhibit 4.8
ISG INTERNATIONAL SOFTWARE GROUP LTD.
1994 STOCK OPTION PLAN
1. Purpose of Plan. The 1994 Stock Option Plan (the "Plan") is intended
as an incentive to retain, on the Board of Directors and in the employ of ISG
International Software Group Ltd. (the "Company") and its subsidiaries, persons
of training, experience, and ability, to attract new directors, consultants and
employees whose services are considered unusually valuable, to encourage the
sense of proprietorship of such persons, and to stimulate the active interest of
such persons in the development and financial success of the Company. Stock
options ("Options") granted under the Plan may contain such terms as will
qualify the options as incentive stock options ("ISOs") within the meaning of
Section 422(b) of the United States Internal Revenue Code of 1986, as amended
(the "Code").
2. Administration of Plan. The Board of Directors (the "Board") or a
Stock Option Committee (the "Committee") appointed and maintained by the Board
shall have the power to administer the Plan. The Committee shall consist of at
least two members who shall serve at the pleasure of the Board, and any member
of such Committee shall be eligible to receive Options under the Plan while
serving on the Committee, unless otherwise specified herein. The Board or the
Committee shall have full power and authority: (i) to designate participants;
(ii) to designate Options or any portion thereof as ISOs; (iii) to determine the
terms and provisions of respective option agreements (which need not be
identical) including, but not limited to, provisions concerning the time or
times when and the extent to which the Options may be exercised and the nature
and duration of restrictions as to transferability or restrictions constituting
substantial risk of
forfeiture; (iv) to accelerate the right of an optionee to exercise in whole or
in part any previously granted ISO; and (v) to interpret the provisions and
supervise the administration of the Plan.
The Board or the Committee shall have the authority to grant in its
discretion to the holder of an outstanding Option, in exchange for the surrender
and cancellation of such Option, a new Option having a purchase price lower than
provided in the Option so surrendered and canceled and containing such other
terms and conditions as the Board or the Committee may prescribe in accordance
with the provisions of the Plan.
All decisions and selections made by the Board or the Committee pursuant
to the provisions of the Plan shall be made by a majority of its members except
that no member of the Board or Committee shall vote on, or be counted for quorum
purposes, with respect to any proposed action of the Board or Committee relating
to any Option to be granted to that member. Any decision reduced to writing and
signed by a majority of the members who are authorized to make such decision
shall be fully effective as if it had been made by a majority at a meeting duly
held.
Each member of the Board or the Committee shall be indemnified and held
harmless by the Company against any cost or expense (including counsel fees)
reasonably incurred by him or liability (including any sum paid in settlement of
a claim with the approval of the Company) arising out of any act or omission to
act in connection with the Plan unless arising out of such member's own fraud or
bad faith, to the extent permitted by applicable law. Such indemnification shall
be in addition to any rights of indemnification the members may have as
directors or otherwise under the memorandum of association of the Company, any
agreement, any vote of stockholders or disinterested
2
directors, or otherwise.
3. Designation of Participants. The persons eligible for participation
in the Plan as recipients of Options shall include only employees of, or
consultants to, the Company or of any subsidiary of the Company. Directors of
the Company who are not employees of the Company shall also be eligible for
participation in the Plan as recipients of Options (but not ISOs). A person who
has been granted an Option hereunder may be granted additional Options, if the
Board or the Committee shall so determine.
4. Stock Reserved for Plan. Subject to adjustment as provided in
paragraph 6 hereof, a total of 500,000 Ordinary Shares, NIS 0.1 par value, of
the Company ("Stock") shall be subject to the Plan. The shares subject to the
Plan shall consist of unissued shares, and such number of shares shall be, and
hereby is, reserved for sale for such purpose. Any of such shares which may
remain unsold and which are not subject to outstanding options at the
termination of the Plan shall cease to be reserved for the purpose of the Plan,
but until termination of the Plan the Company shall at all times reserve a
sufficient number of shares to meet the requirements of the Plan. Should any
Option for any reason expire or be canceled prior to its exercise or
relinquishment in full, the shares theretofore subject to such Option may again
be subjected to an Option under the Plan.
5. Option Price. (a) The purchase price of each share subject to an ISO
shall not be less than 100% (or 110%, if at the time of grant the optionee owns
more than 10% of the voting stock of the Company) of the Fair Market Value of
such share (as defined in paragraph (b)) on the date the ISO is granted. The
purchase price of each share subject to an Option or any portion thereof which
is not designated as an ISO shall not be less than 75% of the Fair Market Value
of such share on the date the Option is granted and in no
3
event shall the purchase price be less than the par value of the Stock.
(b) The Fair Market Value of a share on a particular date shall be the
mean between the highest and lowest quoted selling prices on such date (the
valuation date) on the securities market where the Stock is principally traded.
If there were no sales on the valuation date, but there were sales within a
reasonable period both before or after that date, the Fair Market Value shall be
determined by taking a weighted average of the mean between the highest and
lowest selling prices on the nearest date before and the nearest date after the
valuation date. This average must be weighted inversely by the respective
numbers of trading days between the selling dates and the valuation date. If the
fair market value cannot be determined under the preceding three sentences, it
shall be determined in good faith by the Board or the Committee.
(c) The option price shall be payable upon the exercise of the Option in
cash, by check, or other form satisfactory to the Board or the Committee.
(d) The proceeds of the sale of the Stock subject to an Option are to be
added to the general funds of the Company and used for its corporate purposes.
6. Adjustments. (a) If the Company is separated or reorganized, or
merged, consolidated or amalgamated with or into another corporation while
unexercised Options remain outstanding under the Plan, there shall be
substituted for the shares subject to the unexercised portions of such
outstanding Options an appropriate number of shares of each class of stock or
other securities of the separated or reorganized, or merged, consolidated or
amalgamated corporation which were distributed to the shareholders of the
Company in respect of such shares; provided, however, that all such Options may
be exercised in full by the optionees as of the effective date of any such
separation, reorganization, merger,
4
consolidation or amalgamation, by the optionees' giving notice in writing to the
Company of their intention to so exercise.
(b) If the Company is liquidated or dissolved while unexercised Options
remain outstanding under the Plan, then all such outstanding Options may be
exercised in full by the optionees as of the effective date of any such
liquidation or dissolution of the Company, without regard to any vesting
requirement imposed pursuant to the provisions of paragraph 7(a), by the
optionees' giving notice in writing to the Company of their intention to so
exercise.
(c) If the outstanding shares of Stock shall at any time be changed or
exchanged by declaration of a stock dividend, stock split, combination or
exchange of shares, recapitalization, extraordinary dividend payable in stock of
a corporation other than the Company, or otherwise in cash, or any other like
event by or of the Company, and as often as the same shall occur, then the
number, class and kind of shares subject to this Plan or subject to any Options
theretofore granted, and the option prices, shall be appropriately and equitably
adjusted so as to maintain the proportionate number of shares without changing
the aggregate option price; provided, however, that no adjustment shall be made
by reason of the distribution of subscription rights on outstanding stock.
7. Term and Exercise of Options. (a) Each Option granted under this Plan
shall be exercisable on the date and for the number of shares as shall be
provided in the option agreement evidencing the Option and setting forth the
terms thereof. Such option agreement may provide that the optionee must complete
a minimum number of years of service with the Company prior to exercising in
whole or in part any previously granted Option. However, (i) no Option shall be
exercisable after the expiration of ten years from
5
the date of grant, and (ii) no ISO granted to a person who at the time of grant
owns more than 10% of the voting stock of the Company may be exercisable after
the expiration of five years from the date of grant.
(b) Options granted under the Plan shall not be transferable by
optionees other than by will or the laws of descent and distribution, and during
an optionee's lifetime shall be exercisable only by that optionee.
(c) Options may not be exercised after the termination of employment
and/or service as a director unless (i) prior to the date of such termination,
the Board or the Committee shall authorize, in the relevant option agreement or
otherwise, an extension of the term of all or part of the Option beyond the date
of such termination for a period not to exceed the period during which the
Option by its terms would otherwise have been exercisable, (ii) termination is
without cause, in which event any Options still in force and unexpired may be
exercised within a period of 90 days from the date of such termination, but only
with respect to the number of shares purchasable at the time of such
termination, (iii) termination is the result of death or disability, in which
event any Options still in force and unexpired may be exercised within a period
of six (6) months from the date of termination, but only with respect to the
number of shares purchasable at the time of such termination, or (iv)
termination of employment is the result of retirement under any deferred
compensation agreement or retirement plan of the Company or of any subsidiary of
the Company, while Options granted hereunder are still in force and unexpired,
in which case the Board or Committee shall have the discretion to permit any
unmatured installments of the Options to be accelerated as of the later of the
date of retirement or a date one year following the date of grant, and the
Options shall thereupon be exercisable
6
in full.
(d) The holders of Options shall not be or have any of the rights or
privileges of shareholders of the Company in respect of any shares purchasable
upon the exercise of any part of an Option unless and until, following exercise,
certificates representing such shares shall have been issued by the Company to
such holders.
(e) Any form of option agreement authorized by the Plan may contain such
other provisions as the Board or the Committee may, from time to time, deem
advisable. Without limiting the foregoing, the Board or the Committee may, with
the consent of the optionee, from time to time cancel all or any portion of any
Option then subject to exercise, and the Company's obligation in respect of such
Option may be discharged by (i) payment to the optionee of an amount in cash
equal to the excess, if any, of the Fair Market Value of the shares at the date
of such cancellation subject to the portion of the Option so canceled over the
aggregate purchase price of such shares, (ii) the issuance or transfer to the
optionee of shares of Stock with a Fair Market Value at the date of such
transfer equal to any such excess, or (iii) a combination of cash and shares
with a combined value equal to any such excess, all as determined by the Board
or the Committee in its sole discretion.
(f) Options shall be exercised by the optionee by giving written notice
to the Company, which exercise shall be effective upon receipt of such notice by
the Secretary of the Company at its principal office. The notice shall specify
the number of shares with respect to which the Option is being exercised.
8. Maximum ISO Award. The aggregate Fair Market Value of Stock
(determined as of the date of the grant of options) with respect to which ISOs
are
7
exercisable for the first time by any optionee during any calendar year shall
not exceed the limitation provided under Section 422(d) of the Code.
9. Purchase for Investment. Unless shares of Stock covered by the Plan
have been registered under the United States Securities Act of 1933, as amended,
or the Company has determined that such registration is unnecessary, each person
exercising an Option under the Plan may be required by the Company to give a
representation in writing that he is acquiring such shares for his own account,
for investment and not with a view to, or for sale in connection with, the
distribution of any part thereof.
10. Term Date of Plan. The Plan shall be effective as of October 31,
1994, and shall terminate on November 1, 2004.
11. Approval of Stockholders. The Plan shall be subject to approval by
the vote of stockholders holding at least a majority of the voting stock of the
Company voting in person or by proxy at a duly held stockholders' meeting, or by
written consent of a majority of all the stockholders, within twelve (12) months
after the adoption of the Plan by the Board and shall take effect as of the date
of adoption by the Board upon such approval. The Board or the Committee may
grant options under the Plan prior to such approval, but any such option shall
become effective as of the date of grant only upon such approval and,
accordingly, no such option may be exercisable prior to such approval.
12. Amendments or Termination. The Board may amend, alter, or
discontinue the Plan, except that no amendment or alteration shall be made which
would impair the rights of the holder of any Option theretofore granted without
his consent, and except that no amendment or alteration shall be made which,
without the approval of the shareholders, would:
8
(a) Change the class of persons eligible to participate in the Plan as
provided in Section 3;
(b) Decrease the option price provided in Section 5;
(c) Increase the total number of shares reserved for the purposes of the
Plan, except as is provided in Section 6; or
(d) Extend the option period provided for in Section 7.
13. No Special Employment Rights. Nothing contained in the Plan or in
any Option shall confer upon any optionee any right with respect to the
continuation of his or her employment by the Company (or any subsidiary) or
interfere in any way with the right of the Company (or any subsidiary), subject
to the terms of any separate employment agreement to the contrary, at any time
to terminate such employment or to increase or decrease the compensation of the
optionee from the rate in existence at the time of the grant of an Option.
14. Withholding. The Company's obligation to deliver shares upon the
exercise of any Option granted under the Plan shall be subject to the optionee's
satisfaction of all applicable Federal, state and local income and employment
tax withholding requirements. The Company and optionee may agree to withhold
shares of Stock purchased upon exercise of an Option to satisfy the
above-mentioned withholding requirements. With the approval of the Board or the
Committee, which shall have sole discretion to grant, and on such terms and
conditions as the Board or the Committee may impose, the optionee may satisfy
the foregoing condition by electing to have the Company withhold from delivery
shares having a value equal to the amount of tax to be withheld. The Board or
the Committee shall also have the right to require that shares be withheld from
delivery to
9
satisfy such condition.
15. Government Regulations The Plan, and the granting and exercise of
Options hereunder, and the obligation of the Company to sell and deliver shares
or cash under such Options, shall be subject to all applicable laws, rules, and
regulations, including the Code and the registration of the shares under the
United States Securities Act of 1933, and to such approvals by any governmental
agencies or national securities exchanges as may be required.
16. Governing Law. This Plan shall be deemed made in Israel and shall be
governed by and construed and enforced in accordance with the laws of Israel
applicable to contracts made and to be performed therein, without giving effect
to the principles of conflict of laws.
10
Exhibit 4.9
ISG INTERNATIONAL SOFTWARE GROUP LTD.
1998 STOCK OPTION PLAN
1. Purpose of the Plan. ISG International Software Group Ltd. 1998 Stock
Option Plan (the "Plan") is intended to advance the interests of ISG
International Software Group Ltd. (the "Company") by inducing individuals or
entities of outstanding ability and potential to join and remain with, or
provide consulting or advisory services to, the Company, by encouraging and
enabling employees, Directors, consultants and advisors to acquire proprietary
interests in the Company, and by providing those employees, Directors,
consultants and advisors with an additional incentive to promote the success of
the Company. This is accomplished by providing for the granting of "Options,"
which term, as used herein, includes both "Incentive Stock Options" and
"Nonstatutory Stock Options," as later defined, to employees and "Nonstatutory
Stock Options" to non-employee Directors, consultants and advisors.
2. Administration. The Plan shall be administered by the Board of
Directors of the Company (the "Board"). Except as herein specifically provided,
the interpretation and construction by the Board of any provision of the Plan or
of any Option granted under it, shall be final and conclusive. The receipt of
Options by Directors shall not preclude their vote on any matters in connection
with the administration or interpretation of the Plan.
3. Shares Subject to the Plan. The stock subject to Options granted
under the Plan shall be ordinary shares of the Company, par value NIS 0.1 per
share (the "Ordinary Shares") authorized but unissued. The maximum number of
Ordinary Shares which may be issued pursuant to Options granted under the Plan
shall not exceed five hundred
thousand (500,000) shares, subject to adjustment in accordance with the
provisions of Section 12 hereof The Company shall at all times while the Plan is
in force reserve such number of Ordinary Shares as will be sufficient to satisfy
the requirements of all outstanding Options granted under the Plan. In the event
any Option granted under the Plan shall expire or terminate for any reason
without having been exercised in full or shall cease for any reason to be
exercisable in whole or in part, the unpurchased Ordinary Shares subject thereto
shall again be available for Options under the Plan.
4. Participation. The class of persons which shall be eligible to
receive Options under the Plan shall be (a) with respect to Incentive Stock
Options described in Section 6 hereof, all employees of either the Company or
any subsidiary corporation of the Company; and (b) with respect to Nonstatutory
Stock Options described in Section 7 hereof, all employees and non-employee
Directors of, or consultants and advisors to, either the Company or any
subsidiary corporation of the Company; provided, however, that Nonstatutory
Stock Options shall not be granted to any such consultants and advisors unless
(i) bona fide services have been or are to be rendered by such consultant or
advisor; and (ii) such services are not in connection with the offer or sale of
securities in a capital raising transaction. The Board, in its sole discretion,
but subject to the provisions of the Plan, shall determine the employees and
non-employee Directors of, and the consultants and advisors to, the Company and
its subsidiary corporations to whom Options shall be granted (the "Optionees"),
the time or times when they shall be granted, the type of Option to be granted
and the number of shares to be covered by each Option, taking into account the
nature of the employment or services rendered by the individuals being
considered, their annual compensation, their present and potential contributions
to the
2
success of the Company and such other factors as the Board may deem relevant.
5 Stock Option Agreement. Each Option granted under the Plan shall be
authorized by the Board and shall be evidenced by a Stock Option Agreement which
shall be executed by the Company and by the Optionee to whom such Option is
granted. The Stock Option Agreement shall specify the number of Ordinary Shares
as to which any Option is granted, the period during which the Option is
exercisable and the option price per share thereof. All Options shall comply
with and be subject to the provisions of Section 6 or 7, whichever is applicable
as determined by the type of Option to be granted, as well as all other
provisions of this Plan and such other terms and conditions not inconsistent
with the Plan as the Board may deem desirable.
6 Incentive Stock Options. The Board may grant Options under the Plan
which are intended to meet the requirements of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code") (referred to herein as an
"Incentive Stock Option"), and which are subject to the following terms and
conditions and any other terms and conditions as may at any time be required by
Code Section 422:
a. An Incentive Stock Option may be granted to any individual eligible
to receive an Option under the Plan pursuant to Section 4(a) hereof.
b. Each Incentive Stock Option under the Plan must be granted prior to
[ , 2008].
c. The option price of the shares subject to any Incentive Stock Option
shall not be less than the fair market value of the Ordinary Shares at the time
such Incentive Stock Option is granted; provided, however, if an Incentive Stock
Option is granted to an Optionee who owns, at the time the Incentive Stock
Option is granted, more than ten
3
percent (10%) of the total combined voting power of all classes of stock of the
Company or of a parent corporation or subsidiary corporation of the Company, the
option price of the shares subject to the Incentive Stock Option shall be at
least one hundred ten percent (110%) of the fair market value of the Ordinary
Share at the time the Incentive Stock Option is granted.
d. No Incentive Stock Option granted under the Plan shall be exercisable
after the expiration of ten (10) years from the date of its grant. However, if
an Incentive Stock Option is granted to an Optionee who owns, at the time the
Incentive Stock Option is granted, more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or of a parent
corporation or subsidiary corporation of the Company, such Incentive Stock
Option shall not be exercisable after the expiration of five (5) years from the
date of its grant. Every Incentive Stock Option granted under the Plan shall be
subject to earlier termination as expressly provided in Section 10 hereof.
e. For purposes of determining share ownership under this Section 6, the
attribution rules of Code Section 424(d) shall apply.
f. For purposes of the Plan, fair market value shall be determined by
the Board. If the Ordinary Shares are listed on a national securities exchange
or traded on the Over-the-Counter market, fair market value shall be the closing
selling price or, if not available, the mean of the closing bid and asked prices
of the Ordinary Share, or, if not available, of the high bid and low asked
prices of the Ordinary Share quoted on such exchange, or on the Over-the-Counter
market as reported by the National Association of Securities Dealers Automated
Quotation (NASDAQ) system, or if the Ordinary Shares are not listed on NASDAQ,
then by the National Quotation Bureau, Incorporated, as the case
4
may be, on the day on which the Option is granted, or, if there is no trading or
bid or asked price on that day, the closing selling price or the mean of the
closing bid and asked prices or of the high bid and low asked prices on the
nearest trading date before that day and for which such prices are available,
and if the Ordinary Shares are not listed on such an exchange or traded in such
a market, then the fair market value shall be determined by taking into
consideration all relevant factors, including but not limited to the Company's
net worth, prospective earning power and dividend paying capacity.
7. Nonstatutory Stock Options. The Board may grant Options under the
Plan which are not intended to meet the requirements of Code Section 422, as
well as Options which are intended to meet the requirements of Code Section 422
but the terms of which provide that they will not be treated as Incentive Stock
Options (referred to herein as a "Nonstatutory Stock Option"). Nonstatutory
Stock Options shall be subject to the following terms and conditions:
a. A Nonstatutory Stock Option may be granted to any individual or
entity eligible to receive an Option under the Plan pursuant to Section 4(b)
hereof.
b. The option price of the shares subject to a Nonstatutory Stock Option
shall be determined by the Board, in its sole discretion, at the time of the
grant of the Nonstatutory Stock Option; provided, however, that the option price
of the shares subject to a Nonstatutory Stock Option granted to a person subject
to Section 16(b) of the Securities Exchange Act of 1934, as amended (an
"Insider"), shall not be less than the fair market value of the Ordinary Share
at the time such Nonstatutory Stock Option is granted.
c. A Nonstatutory Stock Option granted under the Plan may be of such
duration as shall be determined by the Board (subject to earlier termination as
expressly
5
provided in Section 10 hereof); provided, however, that no Nonstatutory Stock
Option granted under the Plan to an Insider shall be exercisable after the
expiration of ten (10) years from the date of its grant.
8. Transferability. No Incentive Stock Option granted under the Plan
shall be transferable by the Optionee otherwise than by will or the laws of
descent and distribution, and, during the lifetime of the Optionee shall not be
exercisable by any other person. [A Nonstatutory Stock Option may be transferred
(i) to one or more members of the Optionee's Immediate Family, (ii) to a trust
solely for the benefit of the Optionee and/or one or more members of his or her
Immediate Family, or (iii) to a partnership or limited liability company whose
only partners or members are the Optionee and/or persons referred to in clauses
(i) and (ii). For this purpose, members of an Optionee's "Immediate Family"
shall include his or her spouse, children or grandchildren (including adopted
children and grandchildren and step-children and step-grandchildren). Any such
transfer shall not be effective unless and until the Optionee has furnished the
Company with a written notice of the transfer and copies of all documents
evidencing the transfer. Any Option or portion thereof so transferred may be
exercised by the transferee to the same extent as the Optionee would have been
entitled to exercise it, and shall remain subject to all of the terms and
conditions that would have applied to such Option under the provisions thereof
and this Plan, if the Optionee had not transferred the Option or portion
thereof.]
9. Rights of Option Holders. An Option Holder shall have none of the
rights of a shareholder with respect to the Ordinary Shares covered by his
Option until such Ordinary Shares shall be transferred to him upon the exercise
of his Option. For purposes
6
of this Plan, "Option Holder" shall mean (i) an Optionee; or (ii) with respect
to any Option held by an Optionee at the date of his death, the Optionee's
Beneficiary, as determined pursuant to Section 19.
10. Termination of Employment or Death.
a. If the employment of an employee by, or the services of a
non-employee Director for, or consultant or advisor to, the Company or a
subsidiary corporation of the Company shall be terminated for cause or, subject
to the terms of the Stock Option Agreement, voluntarily by the employee,
non-employee Director, consultant or advisor, then his or its Option shall
expire forthwith. Subject to the terms of the Stock Option Agreement, and except
as provided in subsections (b) and (c) of this Section 10, if such employment or
services shall terminate for any other reason, then such Option may be exercised
at any time within three (3) months after such termination, subject to the
provisions of subsection (d) of this Section 10. For purposes of the Plan, the
retirement of an individual either pursuant to a pension or retirement plan
adopted by the Company or at the normal retirement date prescribed from time to
time by the Company shall be deemed to be termination of such individual's
employment other than voluntarily or for cause. For purposes of this subsection
(a), an employee, non-employee Director, consultant or advisor who leaves the
employ or services of the Company to become an employee or a non-employee
Director of, or a consultant or advisor to, a subsidiary corporation of the
Company or a corporation (or subsidiary corporation or parent corporation of the
corporation) which has assumed the Options of the Company as a result of a
corporate reorganization, etc., shall not be considered to have terminated his
employment or services.
7
b. Subject to the terms of the Stock Option Agreement, if an Optionee
dies (i) while employed by, or while serving as a non-employee Director for or
consultant or advisor to, the Company or a subsidiary corporation of the Company
or (ii) within three (3) months after the termination of his employment or
services other than voluntarily by the employee or non-employee Director, or for
cause, then such Option may, subject to the provisions of subsection (d) of this
Section 10, be exercised by the Optionee's Beneficiary at any time within one
(1) year after such death.
c. Subject to the terms of the Stock Option Agreement, if an Optionee
ceases employment or services because of permanent and total disability (within
the meaning of Code Section 22(e)(3)) while employed by, or while serving as a
non-employee Director for or consultant or advisor to, the Company or a
subsidiary corporation of the Company, then such Option may, subject to the
provisions of subsection (d) of this Section 10, be exercised at any time within
one (1) year after his termination of employment, termination of Directorship or
termination of consulting or advisory services, as the case may be, due to the
disability.
d. An Option may not be exercised pursuant to this Section 10 except to
the extent that the Option Holder was entitled to exercise the Option at the
time of termination of employment, termination of Directorship, termination of
consulting or advisory services, or death, and in any event may not be exercised
after the expiration of the Option.
e. For purposes of this Section 10, the employment relationship of an
employee of the Company or of a subsidiary corporation of the Company will be
treated as continuing intact while he is on military or sick leave or other bona
fide leave of
8
absence (such as temporary employment by the Government) if such leave does not
exceed ninety (90) days, or, if longer, so long as his right to reemployment is
guaranteed either by statute or by contract.
11. Exercise of Options.
a. Unless otherwise provided in the Stock Option Agreement, any Option
granted under the Plan shall be exercisable in whole at any time, or in part
from time to time, prior to expiration. The Board, in its absolute discretion,
may provide in any Stock Option Agreement that the exercise of any Option
granted under the Plan shall be subject: (i) to such condition or conditions as
it may impose, including, but not limited to, a condition that the Optionee
remain in the employ or service of, or continue to provide consulting or
advisory services to, the Company or a subsidiary corporation of the Company for
such period or periods from the date of grant of the Option as the Board, in its
absolute discretion, shall determine; and (ii) to such limitations as it may
impose, including, but not limited to, a limitation that the aggregate fair
market value of the Ordinary Shares with respect to which Incentive Stock
Options are exercisable for the first time by any Optionee during any calendar
year (under all plans of the Company and its parent corporation and subsidiary
corporations) shall not exceed one hundred thousand dollars ($100,000). In
addition, in the event that under any Stock Option Agreement the aggregate fair
market value of the Ordinary Shares with respect to which Incentive Stock
Options are exercisable for the first time by any Optionee during any calendar
year (under all plans of the Company and its parent corporation and subsidiary
corporations) exceeds one hundred thousand dollars ($100,000), the Board may,
when shares are transferred upon exercise of such Options, designate those
shares which shall be treated as transferred
9
upon exercise of an Incentive Stock Option and those shares which shall be
treated as transferred upon exercise of a Nonstatutory Stock Option.
b. An Option granted under the Plan shall be exercised by the delivery
by the Option Holder to the Company at its principal office (attention of the
Secretary) of written notice of the number of Ordinary Shares with respect to
which the Option is being exercised. Such notice shall be accompanied by payment
of the full option price of such shares, and payment of such option price shall
be made by the Option Holder's delivery of his check payable to the order of the
Company in such amount.
12. Adjustment Upon Change in Capitalization.
a. In the event that the outstanding Ordinary Shares is hereafter
changed by reason of reorganization, merger, consolidation, recapitalization,
reclassification, stock split-up, combination of shares, reverse split, stock
dividend or the like, an appropriate adjustment shall be made by the Board in
the aggregate number of shares available under the Plan, in the number of shares
and option price per share subject to outstanding Options, and in any limitation
on exercisability referred to in Section 11(a) (ii) hereof which is set forth in
outstanding Incentive Stock Options. If the Company shall be reorganized,
consolidated or merged with another corporation, an Option Holder shall be
entitled to receive upon the exercise of his Option the same number and kind of
shares of stock or the same amount of property, cash or securities as he would
have been entitled to receive upon the happening of any such corporate event as
if he had been, immediately prior to such event, the holder of the number of
shares covered by his Option; provided, however, that in such event the Board
shall have the discretionary power to take any action necessary or appropriate
to prevent any Incentive Stock Option granted hereunder
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from being disqualified as such under the then existing provisions of the Code
or any law amendatory thereof or supplemental thereto.
b. Any adjustment in the number of shares shall apply proportionately to
only the unexercised portion of the Option granted hereunder. If fractions of a
share would result from any such adjustment, the adjustment shall be revised to
the next lower whole number of shares.
13. Further Conditions of Exercise.
a. Unless prior to the exercise of the Option the shares issuable upon
such exercise have been registered with the Securities and Exchange Commission
pursuant to the Securities Act of 1933, as amended, the notice of exercise shall
be accompanied by a representation or agreement of the Option Holder to the
Company to the effect that such shares are being acquired for investment and not
with a view to the resale or distribution thereof, or such other documentation
as may be required by the Company, unless in the opinion of counsel to the
Company such representation, agreement or documentation is not necessary to
comply with such Act.
b. The Company shall not be obligated to deliver any Ordinary Shares
until it has been listed on each securities exchange on which the Ordinary
Shares may then be listed or until there has been qualification under or
compliance with such federal or state laws, rules or regulations as the Company
may deem applicable. The Company shall use reasonable efforts to obtain such
listing, qualification and compliance.
14. Effectiveness of the Plan. The plan was adopted by the Board on [ ,
1998] and approved by the shareholders of the Company on [ , 1998].
15. Termination, Modification and Amendment.
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a. The Plan shall terminate on [ , 2008], which is ten (10) years from
the date of the earlier of its adoption by the Board or its approval by the
Company's shareholders, or sooner as hereinafter provided, and no Option shall
be granted after termination of the Plan.
b. The Plan may from time to time be terminated, modified or amended by
the affirmative vote of the holders of a majority of the outstanding Ordinary
Shares of the Company present in person or by proxy at a meeting of shareholders
of the Company convened for such purpose.
c. The Board may at any time, on or before the termination date referred
to in Section 15 (a) hereof, terminate the Plan, or from time to time make such
modifications or amendments to the Plan as it may deem advisable; provided,
however, that the Board shall not, without approval by the affirmative vote of
the holders of a majority of the outstanding Ordinary Shares of the Company
present in person or by proxy at a meeting of shareholders of the Company
convened for such purpose, increase (except as provided by Section 12 hereof)
the maximum number of shares as to which Options may be granted hereunder,
change the designation of the employees or class of employees to receive
Options, or make any other change which would prevent any Incentive Stock Option
granted hereunder which is intended to be an "incentive stock option" from
qualifying as such under the then existing provisions of the Code or any law
amendatory thereof or supplemental thereto.
d. No termination, modification or amendment of the Plan may, without
the consent of the Option Holder, adversely affect the rights conferred by such
Option.
16. Not a Contract of Employment. Nothing contained in the Plan or in
any
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Stock Option Agreement executed pursuant hereto shall be deemed to confer upon
any Option Holder any right to remain in the employ or service of the Company or
a subsidiary corporation of the Company or any entitlement to any remuneration
or other benefit pursuant to any consulting or advisory arrangement.
17. Use of Proceeds. The proceeds from the sale of shares pursuant to
Options granted under the Plan shall constitute general funds of the Company.
18. Taxes. The Company may make such provisions and take such steps as
it may deem necessary or appropriate for the withholding of all taxes required
by law to be withheld with respect to Options granted under the Plan and the
exercise thereof including, but not limited to (i) deducting the amount so
required to be withheld from any other amount then or thereafter payable to an
Option Holder; or (ii) requiring an Option Holder to pay to the Company the
amount so required to be withheld as a condition of the issuance, delivery,
distribution or release of any Ordinary Shares.
19. Designation and Change of Beneficiary. Each Optionee shall file with
the Board a written designation of one or more persons (the "Beneficiary") as
the individual who shall be entitled to exercise any Options, or to receive any
amount payable, under the Plan upon his death. An Optionee may, from time to
time, revoke or change his Beneficiary designation without the consent of any
previously designated Beneficiary by filing a new designation with the Board.
The last such designation received by the Board shall be controlling; provided,
however, that no designation, or change or revocation thereof, shall be
effective unless received by the Board prior to the Optionee's death, and in no
event shall it be effective as of a date prior to such receipt. If at the date
of an Optionee's death, there is no designation of a Beneficiary in effect for
the Optionee
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pursuant to the provisions of this Section 19, or if no Beneficiary designated
by the Optionee in accordance with the provisions hereof survives to exercise
any Options that become exercisable, or to receive any amount that becomes
payable, under the Plan by reason of the Optionee's death, the Optionee's estate
shall be treated as the Optionee's Beneficiary for all purposes.
20. Payments to Persons Other Than Optionee. If the Board shall find
that any Option Holder to whom any amount, or any Ordinary Shares, is payable
under the Plan is unable to care for his affairs because of illness, accident or
legal incapacity, then if the Board so directs, such amount, or such Ordinary
Shares, may be paid to such Option Holder's spouse, child or other relative, an
institution maintaining or having custody of such person, or any other person
deemed by the Board to be a proper recipient on behalf of such Option Holder,
unless a prior claim therefor has been made by a duly appointed legal
representative of the Option Holder. Any payment made under this Section 20
shall be a complete discharge of the liability of the Company with respect to
such payment.
21. Indemnification of the Board. In addition to such other rights of
indemnification as they may have, the members of the Board shall be indemnified
by the Company to the extent permitted under applicable law against all costs
and expenses reasonably incurred by them in connection with any action, suit or
proceeding to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan or any rights
granted hereunder and against all amounts paid by them in settlement thereof or
paid by them in satisfaction of a judgment of any such action, suit or
proceeding, except a judgment based upon a finding of bad faith. Upon the
institution of any such action, suit or proceeding, the member or members of the
Board
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shall notify the Company in writing, giving the Company an opportunity at its
own cost to defend the same before such member or members undertake to defend
the same on their own behalf.
22. Definitions. For purposes of the Plan, the terms "parent
corporation" and "subsidiary corporation" shall have the meaning set forth in
Code Sections 424(e) and 424(f), respectively, and the masculine shall include
the feminine and the neuter as the context requires.
23. Governing Law. The Plan shall be governed by, and all questions
arising hereunder shall be determined in accordance with, the laws of the State
of Israel.
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Exhibit 4.10
ATTUNITY LTD.
THE 2003 ISRAELI SHARE OPTION PLAN
(*In compliance with Amendment No. 132 of the Israeli Tax Ordinance, 2002)
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TABLE OF CONTENTS
1. PURPOSE OF THE ISOP.........................................................3
2. DEFINITIONS.................................................................3
3. ADMINISTRATION OF THE ISOP..................................................6
4. DESIGNATION OF PARTICIPANTS.................................................7
5. DESIGNATION OF OPTIONS PURSUANT TO SECTION 102 .............................7
6. TRUSTEE.....................................................................8
7. SHARES RESERVED FOR THE ISOP................................................9
8. PURCHASE PRICE..............................................................9
9. ADJUSTMENTS................................................................10
10. TERM AND EXERCISE OF OPTIONS..............................................11
11. VESTING OF OPTIONS........................................................12
12. PURCHASE FOR INVESTMENT...................................................13
13. DIVIDENDS.................................................................13
14. RESTRICTIONS ON ASSIGNABILITY AND SALE OF OPTIONS.........................13
15. EFFECTIVE DATE AND DURATION OF THE ISOP...................................14
16. AMENDMENTS OR TERMINATION.................................................14
17. GOVERNMENT REGULATIONS....................................................14
18. CONTINUANCE OF EMPLOYMENT.................................................14
19. GOVERNING LAW & JURISDICTION..............................................14
20. TAX CONSEQUENCES..........................................................14
21. NON-EXCLUSIVITY OF THE ISOP...............................................15
22. MULTIPLE AGREEMENTS.......................................................15
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This plan, as amended from time to time, shall be known as Attunity Ltd.
2003 Israeli Share Option Plan (the "ISOP").
1. PURPOSE OF THE ISOP
The ISOP is intended to provide an incentive to retain, in the employ of
the Company and its Affiliates (as defined below), persons of training,
experience, and ability, to attract new employees, directors, consultants,
service providers and any other entity which the Board shall decide their
services are considered valuable to the Company, to encourage the sense of
proprietorship of such persons, and to stimulate the active interest of
such persons in the development and financial success of the Company by
providing them with opportunities to purchase shares in the Company,
pursuant to the ISOP.
2. DEFINITIONS
For purposes of the ISOP and related documents, including the Option
Agreement, the following definitions shall apply:
2.1 "Affiliate" means any "employing company" within the meaning of
Section 102(a) of the Ordinance.
2.2 "Approved 102 Option" means an Option granted pursuant to Section
102(b) of the Ordinance and held in trust by a Trustee for the benefit
of the Optionee.
2.3 "Board" means the Board of Directors of the Company.
2.4 "Capital Gain Option (CGO)" as defined in Section 5.4 below.
2.5 "Cause" means, (i) conviction of any felony involving moral turpitude
or affecting the Company; (ii) any refusal to carry out a reasonable
directive of the chief executive officer, the Board or the Optionee's
direct supervisor, which involves the business of the Company or its
Affiliates and was capable of being lawfully performed time to cure;
(iii) embezzlement of funds of the Company or its Affiliates; (iv) any
breach of the Optionee's fiduciary duties or duties of care of the
Company; including without limitation disclosure of confidential
information of the Company; and (v) any conduct (other than conduct in
good faith) reasonably determined by the Board to be materially
detrimental to the Company.
In order to remove doubt, it is hereby clarified that in any event of
conflict between the definition of the term "Cause" in this ISOP and
the definition of the term "Cause" in certain employment agreement,
the definition in this ISOP shall prevail in connection with the
Option, with the Option Agreement and with this ISOP.
2.6 "Chairman" means the chairman of the Committee.
2.7 "Code" means the United States Internal Revenue Code of 1986, as now
in effect or as hereafter amended.
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2.8 "Committee" means a share option compensation committee of the Board,
designated from time to time by the resolution of the Board, which
shall consist of no fewer than two members of the Board. The Committee
shall consist of directors who are "outside directors" as defined in
Section 162(m) of the Code and "Non-Employee Directors" as defined in
Rule 16b-3 promulgated by the Securities and Exchange Commission under
the United States Securities Exchange Act of 1934.
2.9 "Company" means Attunity Ltd., an Israeli company.
2.10 "Companies Law" means the Israeli Companies Law 5759-1999, as now in
effect or as hereafter amended.
2.11 "Controlling Shareholder" shall have the meaning ascribed to it in
Section 32(9) of the Ordinance.
2.12 "Date of Grant" means, the date of grant of an Option, as determined
by the Board or authorized Committee and set forth in the Optionee's
Option Agreement.
2.13 Employee" means a person who is employed by the Company or its
Affiliates, including an individual who is serving as a director or an
office holder, but excluding Controlling Shareholder.
2.14 "Expiration date" means the date upon which an Option shall expire, as
set forth in Section 10.2 of the ISOP.
2.15 "Fair Market Value" means as of any date, the value of a Share
determined as follows:
(i) If the Shares are listed on any established stock exchange or a
national market system , including without limitation the NASDAQ
National Market system, or the NASDAQ SmallCap Market of the NASDAQ
Stock Market, the Fair Market Value shall be the closing sales price
for such Shares (or the closing bid, if no sales were reported), as
quoted on such exchange or system for the last market trading day
prior to time of determination, as reported in the Wall Street
Journal, or such other source as the Board deems reliable.
Without derogating from the above, solely for the purpose of
determining the tax liability pursuant to Section 102(b)(3) of the
Ordinance, if at the Date of Grant the Company's shares are listed on
any established stock exchange or a national market system or if the
Company's shares will be registered for trading within ninety (90)
days following the Date of Grant, the Fair Market Value of a Share at
the Date of Grant shall be determined in accordance with the average
value of the Company's shares on the thirty (30) trading days
preceding the Date of Grant or on the thirty (30) trading days
following the date of registration for trading, as the case may be;
(ii) If the Shares are regularly quoted by a recognized securities
dealer but selling prices are not reported, the Fair Market Value
shall be the mean between the high bid and low asked prices for the
Shares on the last market trading day prior to the day of
determination, or;
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(iii) In the absence of an established market for the Shares, the Fair
Market Value thereof shall be determined in good faith by the Board.
2.16 "ISOP" means this 2003 Israeli Share Option Plan, as may be amended
from time to time.
2.17 "ITA" means the Israeli Tax Authorities.
2.18 "Non-Employee" means a consultant, adviser, service provider,
Controlling Shareholder or any other person who is not an Employee.
2.19 "Ordinary Income Option (OIO)" as defined in Section 5.5 below.
2.20 "Option" means an option to purchase one or more Shares of the Company
pursuant to the ISOP.
2.21 "102 Option" means any Option granted to Employees pursuant to Section
102 of the Ordinance.
2.22 "3(i) Option" means an Option granted pursuant to Section 3(i) of the
Ordinance to any person who is Non- Employee.
2.23 "Optionee" means a person who receives or holds an Option under the
ISOP.
2.24 "Option Agreement" means the share option agreement between the
Company and an Optionee that sets out the terms and conditions of an
Option.
2.25 "Ordinance" means the 1961 Israeli Income Tax Ordinance [New Version]
1961 as now in effect or as hereafter amended and regulations
promulgated thereunder.
2.26 "Purchase Price" means the price for each Share subject to an Option.
2.27 "Section 102" means section 102 of the Ordinance as now in effect or
as hereafter amended.
2.28 "Share" means the ordinary shares, NIS 0.1 par value each, of the
Company. 2.29 "Successor Company" means any entity the Company is
merged to or is acquired by, in which the Company is not the surviving
entity.
2.30 "Transaction" means (i) merger, acquisition or reorganization of the
Company with one or more other entities in which the Company is not
the surviving entity, (ii) a sale of all or substantially all of the
assets or shares of the Company not covered by paragraph (1) above.
2.31 "Trustee" means any individual appointed by the Company to serve as a
trustee and approved by the ITA, all in accordance with the provisions
of Section 102(a) of the Ordinance.
2.32 "Unapproved 102 Option" means an Option granted pursuant to Section
102(c) of the Ordinance and not held in trust by a Trustee for the
benefit of the Optionee.
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2.33 "Vested Option" means any Option, which has already been vested
according to the Vesting Dates.
2.34 "Vesting Dates" means, as determined by the Board or by the Committee,
the date as of which the Optionee shall be entitled to exercise the
Options or part of the Options, as set forth in section 11 of the
ISOP.
3. ADMINISTRATION OF THE ISOP
3.1 The Board shall have the power to administer the ISOP either directly
or upon the recommendation of the Committee, all as provided by
applicable law and in the Company's Articles of Association.
Notwithstanding the above, the Board shall automatically have residual
authority: (i) if no Committee shall be constituted or; (ii) if such
Committee shall cease to operate for any reason or; (iii) with respect
to the rights not delegated by the Board to the Committee.
3.2 The Committee shall select one of its members as its Chairman and
shall hold its meetings at such times and places as the Chairman shall
determine. The Committee shall keep records of its meetings and shall
make such rules and regulations for the conduct of its business as it
shall deem advisable.
3.3 The Committee shall have the power to recommend to the Board and the
Board shall have the full power and authority to: (i) designate
participants; (ii) determine the terms and provisions of the
respective Option Agreements, including, but not limited to, the
number of Options to be granted to each Optionee, the number of Shares
to be covered by each Option, provisions concerning the time and the
extent to which the Options may be exercised and the nature and
duration of restrictions as to the transferability or restrictions
constituting substantial risk of forfeiture and to cancel or suspend
awards, as necessary; (iii) determine the Fair Market Value of the
Shares covered by each Option; (iv) make an election as to the type of
Approved 102 Option; and (v) designate the type of Options.
The Committee shall have full power and authority to :(i) alter any
restrictions and conditions of any Options or Shares subject to any
Options (ii) interpret the provisions and supervise the administration
of the ISOP; (iii) accelerate the right of an Optionee to exercise in
whole or in part, any previously granted Option; (iv) determine the
Purchase Price of the Option; (v) prescribe, amend and rescind rules
and regulations relating to the ISOP; and (vi) make all other
determinations deemed necessary or advisable for the administration of
the ISOP.
3.4 Notwithstanding the above, the Committee shall not be entitled to
grant Options to the Optionees, however, it will be authorized to
issue Shares underlying Options which have been granted by the Board
and duly exercised pursuant to the provisions herein in accordance
with section 112(a)(5) of the Companies Law.
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3.5 The Board shall have the authority to grant, at its discretion, to the
holder of an outstanding Option, in exchange for the surrender and
cancellation of such Option, a new Option having a purchase price
equal to, lower than or higher than the Purchase Price of the original
Option so surrendered and canceled and containing such other terms and
conditions as the Committee may prescribe in accordance with the
provisions of the ISOP.
3.6 Subject to the Company's Articles of Association, all decisions and
selections made by the Board or the Committee pursuant to the
provisions of the ISOP shall be made by a majority of its members
except that, subject to the provisions of the Companies Law, no member
of the Board or the Committee shall vote on, or be counted for quorum
purposes, with respect to any proposed action of the Board or the
Committee relating to any Option to be granted to that member. Any
decision reduced to writing shall be executed in accordance with the
provisions of the Company's Articles of Association, as the same may
be in effect from time to time.
3.7 The interpretation and construction by the Board or the Committee of
any provision of the ISOP or of any Option Agreement thereunder shall
be final and conclusive unless otherwise determined by the Board.
3.8 Subject to the Company's Articles of Association and the Company's
decision, and to all approvals legally required, including, but not
limited to the provisions of the Companies Law, each member of the
Board or the Committee shall be indemnified and held harmless by the
Company against any cost or expense (including counsel fees)
reasonably incurred by him, or any liability (including any sum paid
in settlement of a claim with the approval of the Company) arising out
of any act or omission to act in connection with the ISOP unless
arising out of such member's own fraud or bad faith, to the extent
permitted by applicable law. Such indemnification shall be in addition
to any rights of indemnification the member may have as a director or
otherwise under the Company's Articles of Association, any agreement,
any vote of shareholders or disinterested directors, insurance policy
or otherwise.
4. DESIGNATION OF PARTICIPANTS
4.1 The persons eligible for participation in the ISOP as Optionees shall
include any Employees and/or Non-Employees of the Company or of any
Affiliate; provided, however, that (i) Employees may only be granted
102 Options; (ii) Non-Employees may only be granted 3(i) Options; and
(iii) Controlling Shareholders may only be granted 3(i) Options.
4.2 The grant of an Option hereunder shall neither entitle the Optionee to
participate nor disqualify the Optionee from participating in, any
other grant of Options pursuant to the ISOP or any other option or
share plan of the Company or any of its Affiliates.
4.3 Anything in the ISOP to the contrary notwithstanding, all grants of
Options to directors and office holders shall be authorized and
implemented in accordance with the provisions of the Companies Law or
any successor act or regulation, as in effect from time to time.
5. DESIGNATION OF OPTIONS PURSUANT TO SECTION 102
5.1 The Company may designate Options granted to Employees pursuant to
Section 102 as Unapproved 102 Options or Approved 102 Options.
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5.2 The grant of Approved 102 Options shall be made under this ISOP
adopted by the Board as described in Section 15 below, and shall be
conditioned upon the approval of this ISOP by the ITA as required by
Section 102.
5.3 Subject to the provisions of Section 5.6 below, Approved 102 Option
may either be classified as Capital Gain Option ("CGO") or Ordinary
Income Option ("OIO").
5.4 Approved 102 Option elected and designated by the Company to qualify
under the capital gain tax treatment in accordance with the provisions
of Section 102(b)(2) shall be referred to herein as CGO.
5.5 Approved 102 Option elected and designated by the Company to qualify
under the ordinary income tax treatment in accordance with the
provisions of Section 102(b)(1) shall be referred to herein as OIO.
5.6 The Company's election of the type of Approved 102 Options as CGO or
OIO granted to Employees (the "Election"), shall be appropriately
filed with the ITA before the Date of Grant of an Approved 102 Option.
Such Election shall become effective beginning the first Date of Grant
of an Approved 102 Option under this ISOP and shall remain in effect
until the end of the year following the year during which the Company
first granted Approved 102 Options. The Election shall obligate the
Company to grant only the type of Approved 102 Option it has elected,
and shall apply to all Optionees who were granted Approved 102 Options
during the period indicated herein, all in accordance with the
provisions of Section 102(g) of the Ordinance. For the avoidance of
doubt, such Election shall not prevent the Company from granting
Unapproved 102 Options simultaneously.
5.7 All Approved 102 Options must be held in trust by a Trustee, as
described in Section 6 below.
5.8 For the avoidance of doubt, the designation of Unapproved 102 Options
and Approved 102 Options shall be subject to the terms and conditions
set forth in Section 102 of the Ordinance and the regulations
promulgated thereunder.
5.9 With regards to Approved 102 Options, the provisions of the ISOP
and/or the Option Agreement shall be subject to the provisions of
Section 102 and the Tax Assessing Officer's permit, and the said
provisions and permit shall be deemed an integral part of the ISOP and
of the Option Agreement. Any provision of Section 102 and/or the said
permit which is necessary in order to receive and/or to keep any tax
benefit pursuant to Section 102, which is not expressly specified in
the ISOP or the Option Agreement, shall be considered binding upon the
Company and the Optionees.
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6. TRUSTEE
6.1 Approved 102 Options which shall be granted under the ISOP and/or any
Shares allocated or issued upon exercise of such Approved 102 Options
and/or other shares received subsequently following any realization of
rights, including without limitation bonus shares, shall be allocated
or issued to the Trustee and held for the benefit of the Optionees for
such period of time as required by Section 102 or any regulations,
rules or orders or procedures promulgated thereunder (the "Holding
Period"). In the case the requirements for Approved 102 Options are
not met, then the Approved 102 Options may be treated as Unapproved
102 Options, all in accordance with the provisions of Section 102 and
regulations promulgated thereunder.
6.2 Notwithstanding anything to the contrary, the Trustee shall not
release any Shares allocated or issued upon exercise of Approved 102
Options prior to the full payment of the Optionee's tax liabilities
arising from Approved 102 Options which were granted to him and/or any
Shares allocated or issued upon exercise of such Options.
6.3 With respect to any Approved 102 Option, subject to the provisions of
Section 102 and any rules or regulation or orders or procedures
promulgated thereunder, an Optionee shall not sell or release from
trust any Share received upon the exercise of an Approved 102 Option
and/or any share received subsequently following any realization of
rights, including without limitation, bonus shares, until the lapse of
the Holding Period required under Section 102 of the Ordinance.
Notwithstanding the above, if any such sale or release occurs during
the Holding Period, the sanctions under Section 102 of the Ordinance
and under any rules or regulation or orders or procedures promulgated
thereunder shall apply to and shall be borne by such Optionee.
6.4 Upon receipt of Approved 102 Option, the Optionee will sign an
undertaking to release the Trustee from any liability in respect of
any action or decision duly taken and bona fide executed in relation
with the ISOP, or any Approved 102 Option or Share granted to him
thereunder.
7. SHARES RESERVED FOR THE ISOP; RESTRICTION THEREON
7.1 The Company has reserved 1,500,000 (one million five hundred)
authorized but unissued Shares, for the purposes of the ISOP, the 2001
Employee Stock Option Plan, and for the purposes of any other share
option plans which may be adopted by the Company in the future,
subject to adjustment as set forth in Section 9 below. Any Shares
which remain unissued and which are not subject to the outstanding
Options at the termination of the ISOP shall cease to be reserved for
the purpose of the ISOP, but until termination of the ISOP the Company
shall at all times reserve sufficient number of Shares to meet the
requirements of the ISOP. Should any Option for any reason expire or
be canceled prior to its exercise or relinquishment in full, the
Shares subject to such Option may again be subjected to an Option
under the ISOP or under the Company's other share option plans.
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7.2 Each Option granted pursuant to the ISOP, shall be evidenced by a
written Option Agreement between the Company and the Optionee, in such
form as the Board or the Committee shall from time to time approve.
Each Option Agreement shall state, among other matters, the number of
Shares to which the Option relates, the type of Option granted
thereunder (whether a CGO, OIO, Unapproved 102 Option or a 3(i)
Option), the Vesting Dates, the Purchase Price per share, the
Expiration Date and such other terms and conditions as the Committee
or the Board in its discretion may prescribe, provided that they are
consistent with this ISOP. Unless otherwise explicitly expressed in
the Option Agreement or in this Plan, in any event of conflict between
the provisions of this ISOP and the provisions of the Option
Agreement, the provisions of this Option Agreement shall prevail.
8. PURCHASE PRICE
8.1 The Purchase Price of each Share subject to an Option shall be
determined by the Committee in its sole and absolute discretion in
accordance with applicable law, subject to any guidelines as may be
determined by the Board from time to time. Each Option Agreement will
contain the Purchase Price determined for each Optionee.
8.2 The Purchase Price shall be payable upon the exercise of the Option in
a form satisfactory to the Committee, including without limitation, by
cash or check. The Committee shall have the authority to postpone the
date of payment on such terms as it may determine.
8.3 The Purchase Price shall be denominated in the currency of the primary
economic environment of, either the Company or the Optionee (that is
the functional currency of the Company or the currency in which the
Optionee is paid) as determined by the Company.
9. ADJUSTMENTS
Upon the occurrence of any of the following described events, Optionee's
rights to purchase Shares under the ISOP shall be adjusted as hereafter
provided:
9.1 In the event of Transaction, the unexercised Options then outstanding
under the ISOP shall be assumed or substituted for an appropriate
number of shares of each class of shares or other securities of the
Successor Company (or a parent or subsidiary of the Successor Company)
as were distributed to the shareholders of Ordinary Shares of the
Company in connection and with respect to the Transaction. In the case
of such assumption and/or substitution of Options, appropriate
adjustments shall be made to the Purchase Price so as to reflect such
action and all other terms and conditions of the Option Agreements
shall remain unchanged, including but not limited to the vesting
schedule, all subject to the determination of the Committee or the
Board, which determination shall be in their sole discretion and
final. The Company shall notify the Optionee of the Transaction in
such form and method as it deems applicable at least ten (10) days
prior to the effective date of such Transaction.
9.2 Notwithstanding the above and subject to any applicable law, the Board
or the Committee shall have full power and authority to determine that
in certain Option Agreements there shall be a clause instructing that,
if in any such Transaction as described in section 9.1 above, the
Successor Company (or parent or subsidiary of the Successor Company)
does not agree to
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assume or substitute for the Options, the Vesting Dates shall be
accelerated so that any unvested Option or any portion thereof shall
be immediately vested as of the date which is ten (10) days prior to
the effective date of the Transaction and any Options not exercised by
ten (10) days prior to the effective date of the Transaction shall be
null and void and no consideration whatsoever shall be paid to the
Optionees in connection with such Options.
9.3 For the purposes of section 9.1 above, an Option shall be considered
assumed or substituted if, following the Transaction, the Option
confers the right to purchase or receive, for each Share underlying an
Option immediately prior to the Transaction, the consideration
(whether shares, options, cash, or other securities or property)
received in the Transaction by holders of Ordinary Shares held on the
effective date of the Transaction (and if such holders were offered a
choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding shares); provided, however,
that if such consideration received in the Transaction is not solely
ordinary shares (or their equivalent) of the Successor Company or its
parent or subsidiary, the Committee may, with the consent of the
Successor Company, provide for the consideration to be received upon
the exercise of the Option to be solely ordinary shares (or their
equivalent) of the Successor Company or its parent or subsidiary equal
in Fair Market Value to the per Share consideration received by
holders of a majority of the outstanding shares in the Transaction;
and provided further that the Committee may determine, in its
discretion, that in lieu of such assumption or substitution of Options
for options of the Successor Company or its parent or subsidiary, such
Options will be substituted for any other type of asset or property
including cash which is fair under the circumstances.
9.4 If the Company is voluntarily liquidated or dissolved while
unexercised Options remain outstanding under the ISOP, the Company
shall immediately notify all unexercised Option holders of such
liquidation, and the Option holders shall then have ten (10) days to
exercise any unexercised Vested Option held by them at that time, in
accordance with the exercise procedure set forth herein. Upon the
expiration of such ten-days period, all remaining outstanding Options
will terminate immediately.
9.5 If the outstanding shares of the Company shall at any time be changed
or exchanged by declaration of a share dividend (bonus shares), share
split, combination or exchange of shares, recapitalization, or any
other like event by or of the Company, and as often as the same shall
occur, then the number, class and kind of the Shares subject to the
ISOP or subject to any Options therefore granted, and the Purchase
Prices, shall be appropriately and equitably adjusted so as to
maintain the proportionate number of Shares without changing the
aggregate Purchase Price, provided, however, that no adjustment shall
be made by reason of the distribution of subscription rights (rights
offering) on outstanding shares. Upon happening of any of the
foregoing, the class and aggregate number of Shares issuable pursuant
to the ISOP (as set forth in Section 7 hereof), in respect of which
Options have not yet been exercised, shall be appropriately adjusted,
all as will be determined by the Board whose determination shall be
final.
10. TERM AND EXERCISE OF OPTIONS
10.1 Options shall be exercised by the Optionee by giving written notice to
the Company and/or to any third party designated by the Company (the
"Representative"), in such form and method as
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may be determined by the Company and when applicable, by the Trustee
in accordance with the requirements of Section 102, which exercise
shall be effective upon receipt of such notice by the Company and/or
the Representative and the payment of the Purchase Price at the
Company's or the Representative's principal office. The notice shall
specify the number of Shares with respect to which the Option is being
exercised.
10.2 Options, to the extent not previously exercised, shall terminate
forthwith upon the earlier of: (i) the date set forth in the Option
Agreement; and (ii) the expiration of any extended period in any of
the events set forth in section 10.5 below.
10.3 The Options may be exercised by the Optionee in whole at any time or
in part from time to time, to the extent that the Options become
vested and exercisable, prior to the Expiration Date, and provided
that, subject to the provisions of section 10.5 below, the Optionee is
employed by or providing services to the Company or any of its
Affiliates, at all times during the period beginning with the granting
of the Option and ending upon the date of exercise.
10.4 Subject to the provisions of section 10.5 below, in the event of
termination of Optionee's employment or services, with the Company or
any of its Affiliates, all Options granted to such Optionee will
immediately expire. A notice of termination of employment or service
shall be deemed to constitute termination of employment or service.
For the avoidance of doubt, in case of such termination of employment
or service, the unvested portion of the Optionee's Option shall not
vest and shall not become exercisable.
10.5 Notwithstanding anything to the contrary hereinabove and unless
otherwise determined in the Optionee's Option Agreement, an Option may
be exercised after the date of termination of Optionee's employment or
service with the Company or any Affiliates during an additional period
of time beyond the date of such termination, but only with respect to
the number of Vested Options at the time of such termination according
to the Vesting Dates, if:
(i) termination is without Cause, in which event any Vested Option
still in force and unexpired may be exercised within a period of
ninety (90) days after the date of such termination; or-
(ii) termination is the result of death or disability of the Optionee,
in which event any Vested Option still in force and unexpired may
be exercised within a period of twelve (12) months after the date
of such termination; or -
(iii)prior to the date of such termination, the Committee shall
authorize an extension of the terms of all or part of the Vested
Options beyond the date of such termination for a period not to
exceed the period during which the Options by their terms would
otherwise have been exercisable.
For avoidance of any doubt, if termination of employment or service is
for Cause, any outstanding unexercised Option (whether vested or
non-vested), will immediately expire and terminate, and the Optionee
shall not have any right in connection to such outstanding Options.
10.6 To avoid doubt, the Optionees shall not have any of the rights or
privileges of shareholders of
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the Company in respect of any Shares purchasable upon the exercise of
any Option, nor shall they be deemed to be a class of shareholders or
creditors of the Company for purpose of the operation of sections 350
and 351 of the Companies Law or any successor to such section, until
registration of the Optionee as holder of such Shares in the Company's
register of shareholders upon exercise of the Option in accordance
with the provisions of the ISOP, but in case of Options and Shares
held by the Trustee, subject to the provisions of Section 6 of the
ISOP.
10.7 Any form of Option Agreement authorized by the ISOP may contain such
other provisions as the Committee may, from time to time, deem
advisable.
10.8 With respect to Unapproved 102 Option, if the Optionee ceases to be
employed by the Company or any Affiliate, the Optionee shall extend to
the Company and/or its Affiliate a security or guarantee for the
payment of tax due at the time of sale of Shares, all in accordance
with the provisions of Section 102 and the rules, regulation or orders
promulgated thereunder.
11. VESTING OF OPTIONS
11.1 Subject to the provisions of the ISOP, each Option shall vest
following the Vesting Dates and for the number of Shares as shall be
provided in the Option Agreement. However, subject to the provisions
of Section 10.5 above, no Option shall be exercisable after the
Expiration Date.
11.2 An Option may be subject to such other terms and conditions on the
time or times when it may be exercised, as the Committee may deem
appropriate. The vesting provisions of individual Options may vary.
12. PURCHASE FOR INVESTMENT
The Company's obligation to issue or allocate Shares upon exercise of an
Option granted under the ISOP is expressly conditioned upon: (a) the
Company's completion of any registration or other qualifications of such
Shares under all applicable laws, rules and regulations or (b)
representations and undertakings by the Optionee (or his legal
representative, heir or legatee, in the event of the Optionee's death) to
assure that the sale of the Shares complies with any registration exemption
requirements which the Company in its sole discretion shall deem necessary
or advisable. Such required representations and undertakings may include
representations and agreements that such Optionee (or his legal
representative, heir, or legatee): (a) is purchasing such Shares for
investment and not with any present intention of selling or otherwise
disposing thereof; and (b) agrees to have placed upon the face and reverse
of any certificates evidencing such Shares a legend setting forth (i) any
representations and undertakings which such Optionee has given to the
Company or a reference thereto and (ii) that, prior to effecting any sale
or other disposition of any such Shares, the Optionee must furnish to the
Company an opinion of counsel, satisfactory to the Company, that such sale
or disposition will not violate the applicable laws, rules, and
regulations, whether of the State of Israel or of the United States or any
other State having jurisdiction over the Company and the Optionee.
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13. DIVIDENDS
With respect to all Shares (but excluding, for avoidance of any doubt, any
unexercised Options) allocated or issued upon the exercise of Options
purchased by the Optionee and held by the Optionee or by the Trustee, as
the case may be, the Optionee shall be entitled to receive dividends in
accordance with the quantity of such Shares, subject to the provisions of
the Company's Articles of Association (and all amendments thereto) and
subject to any applicable taxation on distribution of dividends, and when
applicable subject to the provisions of Section 102 and the rules,
regulations or orders promulgated thereunder.
14. RESTRICTIONS ON ASSIGNABILITY AND SALE OF OPTIONS
14.1 No Option or any right with respect thereto, purchasable hereunder,
whether fully paid or not, shall be assignable, transferable or given
as collateral or any right with respect to it given to any third party
whatsoever, except as specifically allowed under the ISOP, and during
the lifetime of the Optionee each and all of such Optionee's rights to
purchase Shares hereunder shall be exercisable only by the Optionee.
Any such action made directly or indirectly, for an immediate
validation or for a future one, shall be void.
14.2 As long as Options and/or Shares are held by the Trustee on behalf of
the Optionee, all rights of the Optionee over the Shares are personal,
can not be transferred, assigned, pledged or mortgaged, other than by
will or pursuant to the laws of descent and distribution.
15. EFFECTIVE DATE AND DURATION OF THE ISOP
The ISOP shall be effective as of the day it was adopted by the Board and
shall terminate at the end of ten (10) years from such day of adoption.
16. AMENDMENTS OR TERMINATION
The Board may at any time, but when applicable, after consultation with the
Trustee, amend, alter, suspend or terminate the ISOP. No amendment,
alteration, suspension or termination of the ISOP shall impair the rights
of any Optionee, unless mutually agreed otherwise between the Optionee and
the Company, which agreement must be in writing and signed by the Optionee
and the Company. Termination of the ISOP shall not affect the Committee's
ability to exercise the powers granted to it hereunder with respect to
Options granted under the ISOP prior to the date of such termination.
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17. GOVERNMENT REGULATIONS
The ISOP, and the granting and exercise of Options hereunder, and the
obligation of the Company to sell and deliver Shares under such Options,
shall be subject to all applicable laws, rules, and regulations, whether of
the State of Israel or of the United States or any other State having
jurisdiction over the Company and the Optionee, including the registration
of the Shares under the United States Securities Act of 1933, and the
Ordinance and to such approvals by any governmental agencies or national
securities exchanges as may be required. Nothing herein shall be deemed to
require the Company to register the Shares under the securities laws of any
jurisdiction.
18. CONTINUANCE OF EMPLOYMENT OR HIRED SERVICES
Neither the ISOP nor the Option Agreement with the Optionee shall impose
any obligation on the Company or an Affiliate thereof, to continue any
Optionee in its employ or service, and nothing in the ISOP or in any Option
granted pursuant thereto shall confer upon any Optionee any right to
continue in the employ or service of the Company or an Affiliate thereof or
restrict the right of the Company or an Affiliate thereof to terminate such
employment or service at any time.
19. GOVERNING LAW & JURISDICTION
The ISOP shall be governed by and construed and enforced in accordance with
the laws of the State of Israel applicable to contracts made and to be
performed therein, without giving effect to the principles of conflict of
laws. The competent courts of Tel-Aviv, Israel shall have sole jurisdiction
in any matters pertaining to the ISOP.
20. TAX CONSEQUENCES
20.1 Any tax consequences arising from the grant or exercise of any Option,
from the payment for Shares covered thereby or from any other event or
act (of the Company and/or its Affiliates, the Trustee or the
Optionee), hereunder, shall be borne solely by the Optionee. The
Company and/or its Affiliates and/or the Trustee shall withhold taxes
according to the requirements under the applicable laws, rules, and
regulations, including withholding taxes at source. Furthermore, the
Optionee shall agree to indemnify the Company and/or its Affiliates
and/or the Trustee and hold them harmless against and from any and all
liability for any such tax or interest or penalty thereon, including
without limitation, liabilities relating to the necessity to withhold,
or to have withheld, any such tax from any payment made to the
Optionee.
20.2 The Company and/or, when applicable, the Trustee shall not be required
to release any Share certificate to an Optionee until all required
payments have been fully made.
21. NON-EXCLUSIVITY OF THE ISOP
The adoption of the ISOP by the Board shall not be construed as amending,
modifying or rescinding any previously approved incentive arrangements or
as creating any limitations on the power of the Board to adopt such other
incentive arrangements as it may deem desirable, including, without
limitation, the granting of Options otherwise than under the ISOP, and such
arrangements may be either applicable generally or only in specific cases.
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For the avoidance of doubt, prior grant of options to Optionees of the
Company under their employment agreements, and not in the framework of any
previous option plan, shall not be deemed an approved incentive arrangement
for the purpose of this Section.
22. MULTIPLE AGREEMENTS
The terms of each Option may differ from other Options granted under the
ISOP at the same time, or at any other time. The Board may also grant more
than one Option to a given Optionee during the term of the ISOP, either in
addition to, or in substitution for, one or more Options previously granted
to that Optionee.
* * *
16
Exhibit 4.12
Employment and Services Agreement
Duly made and executed in Haifa, Israel
as of the ___ of March 2004
by and between
Attunity Ltd.
Company no. 520038019
of Einstein Building, Tirat Carmel 39101, Israel
(Hereinafter "ATTUNITY")
OF THE FIRST PART
And
Arie Gonen
I.D. NO. 00168950/4
2 Pinhas Lavon St.
Haifa, Israel
(Hereinafter "GONEN")
OF THE SECOND PART
WHEREAS GONEN has acted as CEO and Chairman of the Board of ATTUNITY from
October 1, 1987 until November 22, 2000 and has acted as Active
Chairman since November 22, 2000 until September 1, 2002 and
since September 1, 2002 has acted as Chairman and Interim CEO
until the date hereof; and
WHEREAS ATTUNITY wishes to appoint GONEN as Chairman and CEO and GONEN
agrees to serve as Chairman and CEO Attunity on the terms and
conditions set forth herein;
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NOW, THEREFORE, in condition of the mutual promises and undertaking of the
parties, it is hereby agreed as follows:
1. DUTIES AND RESPONSIBILITIES
1.1. Subject to the terms and conditions of this Agreement (i) GONEN shall
serve as Chairman of the Board of ATTUNITY, and (ii) GONEN shall also
serve as CEO of ATTUNITY.
1.2. During the term of GONEN's employment, GONEN shall:
1.2.1. Devote his full working time and best efforts to the business
and affairs of ATTUNITY and the performance of his duties
hereunder (this Section 1.2.1 is not applicable to the Services
Period as described in section 7 herein); and
1.2.2. Not engage in or be associated with, directly or indirectly,
any competitive business, duties or pursuits; and
1.2.3. Not undertake or accept any other paid or unpaid employment or
occupation or engage in or be associated with, directly or
indirectly, any other businesses, duties or pursuits to the
extent such activities will materially interfere with his duties
hereunder (this Section 1.2.1 is not applicable to the Services
Period as described in section 7 herein).
1.3. GONEN agrees that during a one year period ("One Year Period")
starting January 25, 2004 and ending January 24, 2005, GONEN will
spend at least sixty six percent (66%) of his time in the United
States. However, GONEN will be entitled to spend less than sixty six
percent (66%) of his time in the United States upon the occurrence of
any of the following events:
1.3.1. GONEN's employment is terminated by Attunity (except for
Justifiable Cause).
1.3.2. GONEN stop serving as CEO at the Company's request.
1.3.3. GONEN's is requested by the Board of Directors of ATTUNITY not
to spend sixty six percent (66%) of his time in the United States
during the One Year Period.
1.3.4. Change of Control.
1.4. For the purposes of this agreement, "Change of Control" shall mean:
1.4.1. The approval by the stockholders of ATTUNITY of a merger or
consolidation of ATTUNITY with any other corporation, other than
a merger or consolidation which would result in the voting
securities of ATTUNITY outstanding immediately prior thereto
continuing to represent (either
by remaining outstanding or by being converted into securities of
the surviving entity) sixty percent (60%) or more of the total
voting power represented by the voting securities of ATTUNITY or
such surviving entity outstanding immediately after such merger
consolidation; or
1.4.2. Any "person" (as that term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended) becoming the
"beneficial owner" (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934, as amended), directly or indirectly, of
securities of ATTUNITY representing 60% or more of the total
voting power represented by ATTUNITY's then outstanding voting
securities;
2. TERM AND TERMINATION
2.1. This Agreement shall commence as of January 1, 2004 and will remain in
effect until the end of the term of the Services Period (as defined in
Section 7.2 below), unless earlier terminated in accordance with the
terms and provisions of this Section 2.
2.2. ATTUNITY shall have the right to terminate this Agreement at any time
for Justifiable Cause (as hereunder defined) as determined by the
board of directors of ATTUNITY, by giving GONEN written notice of
termination for cause. In such event, this Agreement and the
employment relationship shall be deemed effectively terminated upon
the time of delivery of such notice.
The term "Justifiable Cause" shall mean (a) a serious breach of trust
including but not limited to theft, embezzlement, breach of fiduciary
duty, prohibited disclosure to unauthorized person or entities of
confidential or proprietary information of or relating to ATTUNITY and
the engaging by GONEN in any prohibited businesses competitive to the
business of ATTUNITY and its subsidiaries, affiliates or associated
companies, or (b) any willful failure to perform competently any of
GONEN's fundamental functions or duties hereunder or other cause
justifying termination or dismissal under applicable law.
2.3. During the period following the Termination of Employment Date (as
defined in Section 7.1 below), GONEN shall cooperate with ATTUNITY and
use his best
efforts to assist the integration into ATTUNITY's organization of the
person or persons who will assume GONEN's responsibilities.
3. COMPENSATION
3.1. Commencing January 1, 2004 and until the Termination of
Employment Date (as defined in Section 7 below), ATTUNITY shall
pay GONEN as compensation a monthly gross salary of ninety
thousand (90,000) New Israel Shekels ("NIS") payable until the
9th of the following month (the "Gross Salary"). The Gross Salary
payable each month shall be linked to the Israeli Consumer Price
Index published by the Israeli Central Statistic Bureau. The base
index will be the index of December 2003. The Gross Salary can be
only increased as a result of changes in the Israeli Consumer
Price Index. Such compensation shall be comprehensive and all -
inclusive in that it shall be deemed to include all overtime
payments according to the terms of the Working Hours and Rest Law
5711 - 1951 or any other similar law or provision which may
apply.
3.2. GONEN shall be entitled to the use of an automobile owned by
ATTUNITY ("Company Car"), the price of which will not exceed
seventy five thousand ($75,000) US Dollars. ATTUNITY shall
reimburse GONEN for all expenses relating to the use and upkeep
of such automobile. ATTUNITY will replace such Company Car at
least every forty-eight (48) months. Upon termination of this
Agreement for any reason, GONEN will have the option to purchase
such automobile at its book value at the time of such
termination. GONEN will keep his Company Car for six (6) months
commencing from the Termination of Employment Date as set for in
Section 7 herein.
3.3. GONEN shall be entitled to full reimbursement for his home
telephone expenses, including calls made abroad.
3.4. GONEN shall be entitled to a refund for all-reasonable
entertainment and living expenses both in Israel and abroad, upon
the furnishing of receipts, relating to his employment with
ATTUNITY.
3.5. ATTUNITY and GONEN shall obtain and maintain Managers Insurance
(Bituach Menahalim) in the customary form for the exclusive
benefit of GONEN. ATTUNITY shall pay an amount equal to 13.33% of
each monthly Gross Salary payment towards the premiums payable in
respect of such insurance. GONEN shall pay, by deduction from
salary, 5% of each monthly Gross Salary and ATTUNITY shall pay an
additional amount equal to 2.5% of each monthly Gross Salary for
insurance against disability. It is hereby agreed that GONEN's
benefits under the foregoing insurance shall come in lieu of, and
as full and final substitution for severance pay to which GONEN
may otherwise be entitled under applicable law.
When GONEN's employment is terminated for whatsoever reason
(except for Justifiable Cause) GONEN will be entitled to a
severance payment that is calculated at two times his last Gross
Salary (as described in Section 3.1) multiplied by the number of
years since October 1, 1987, less the amount accumulated in the
severance component of the Manager Insurance specified above and
GONEN's Managers Insurance will transferred to GONEN.
3.6. GONEN shall be entitled to "Keren Hishtalmut" as customary for
all ATTUNITY employees.
3.7. GONEN shall be entitled to paid annual vacation of twenty five
(25) working days, based on five (5) working days week, with
respect to and during each twelve (12) month period of his
employment hereunder. Such vacation, in respect to any year, may
be carried forward. GONEN will be entitled to be paid for
unutilized accrued vacation on a yearly basis. However, Gonen has
waived his accrued vacation until December 31, 2002.
3.8. In the event that GONEN shall be required by ATTUNITY to spend
time abroad, he shall be entitled to a special grant equal to the
amount of days he has spent outside Israel multiplied by a daily
rate of one hundred and thirty four US Dollars ($134), in
addition to the reimbursement of his expenses as specified in 3.4
above.
3.9. GONEN shall be entitled to a bonus according to the Bonus Plan
attached hereto as Schedule 1. In addition, commencing 2002, the
Board of Directors will be entitled to award GONEN with
additional bonuses, which shall not exceed One Hundred Thousand
US Dollars ($100,000) per calendar year.
3.10.Subject to GONEN's fulfillment of his obligations under Section
1.3 herein, GONEN has been granted six hundred thousand (600,000)
stock options to purchase Ordinary Shares of ATTUNITY pursuant to
ATTUNITY's 2003 Employee Stock Option Plan at a price of $1.92
per share to be vested only upon a Change of Control.
Those options are exercisable upon a Change of Control as defined
above.
3.11.GONEN agrees and accepts that in January 2002 ATTUNITY
implemented a 20% temporary salary reduction plan for all its
employees and as long as this reduction plan for all employees is
not changed Gonen's Gross Salary will be reduced by 20%. This
reduction will not apply to section 3.5 regarding which the
salary mentioned in section 3.1 shall prevail.
4. PROPRIETARY INFORMATION
4.1. GONEN acknowledges and agrees that ATTUNITY possesses and will
continue to possess and acquire information, trade secrets and
technology that has been created, discovered or developed, or has
otherwise become known to ATTUNITY in the field of computer software
and services, including without limitation, information and technology
that has been assigned or otherwise conveyed to ATTUNITY, which
information has commercial value in the business in which ATTUNITY is
engaged. Such information, whether documentary, written oral or
computer generated, shall be deemed to be and referred to as
"Proprietary Information", which includes but is not limited to trade
marks, trade secrets, copyrights, processes, formulas, data and
know-how, improvements, inventions, techniques, products, forecasts,
third party products and know-how and customer lists.
4.2. Proprietary Information shall be deemed to include any and all
proprietary information disclosed by or on behalf of ATTUNITY and
irrespective of form but excluding information that (a) was known to
GONEN prior to his association with ATTUNITY and can be so proven by
GONEN; (b) shall have become a part of the public knowledge except as
a result of breach of this Agreement by GONEN; (c) shall have been
received by GONEN from a third party having no obligation towards
ATTUNITY; (d) reflects general skills and experience gained during
GONEN's employment by ATTUNITY; or (e) reflects information and data
generally known within the industries or trades in which ATTUNITY
competes.
4.3. GONEN agrees and declares that all Proprietary Information, patents
and other rights in connection therewith shall be the sole property of
ATTUNITY and it's assigns. At all times, both during his employment by
ATTUNITY and after its termination, GONEN will not use or disclose any
Proprietary Information or anything relating thereto without the
written consent
of ATTUNITY except as may be necessary in the ordinary course of
performing his duties hereunder.
4.4. Should, for any reason, any one or more of the terms contained in
Sub-Paragraphs 4.1. 4.2. And 4.3 of this Section 4 be held to be
excessively broad with regard to time, geographic scope or activity,
that term shall be construed in a manner to enable it to be enforced
to the extant compatible with applicable law.
4.5. GONEN's undertakings in this Paragraph 4 shall remain in full force
and effect for two (2) years after termination of this Agreement.
5. NON-COMPETITION
GONEN agrees and undertakes that he will not, during the term of this
Agreement (including the Service Period) and for a period of one year
thereafter:
5.1. Directly or indirectly, as owner, partner, joint venturer, stock
holder, employee, broker, agent, principal, trustee, corporate
officer, director, licensor, licensee or any capacity whatsoever
engage in, become financially interested in, be employed by, or have
any connection with in Israel or any other country any business or
venture worldwide that is engaged in any activities involving either
(a) products or services similar to the actual products then produced
by ATTUNITY or its subsidiaries or affiliates, or (b) information
processes, technology or equipment in which ATTUNITY or its
subsidiaries or affiliates then has a proprietary interest; provided,
however that GONEN may own any securities of any corporation which is
engaged in such business and is and is publicly-owned and trade but in
any amount not to exceed at any one time ten percent (10%) of any
class of stock or securities of such company, so long as he has no
active role in the publicly-owned and traded company as traded company
as director, employee, consultant or otherwise.
5.2. Employ (other that through ATTUNITY or its subsidiaries) any person
employed by ATTUNITY during the previous twelve (12) months for any
purpose or in any place in any business in which he is deemed to be a
control person as defined under any Israeli or U.S. securities or
banking laws or regulations.
5.3. Should, for any reason, any one or more of the terms contained in
Sub-Paragraphs 5.1 and 5.2 of this
Section 5 be held to be excessively broad with regard to time,
geographic scope or activity, that term shall be construed in a manner
to enable it to be enforced to the extent compatible with applicable
law.
6. NO RESTRICTION ON EMPLOYMENT
GONENrepresents and warrants that on the date hereof he is free to be
employed by ATTUNITY upon the terms contained in this Agreement and that
there are no employment contracts, consulting contracts or restrictive
covenants preventing full performance of his duties hereunder.
7. TERMINATION OF GONEN's EMPLOYMENT AND THE SERVICES PERIOD
7.1. ATTUNITY has the right to change GONEN's position as CEO while
continuing GONEN's employment with ATTUNITY, and such change of
position shall not constitute termination of employment for purposes
of this Section 7 of this Agreement or for any other purpose. ATTUNITY
shall give GONEN at least thirty (30) days notice of the termination
of his employment with ATTUNITY. If GONEN wishes to terminate his
employment with Attunity, he shall give ATTUNITY at least thirty (30)
days written notice. (collectively the "Termination of Employment
Date")
7.2. After the Termination of Employment Date, GONEN shall not be entitled
to the Gross Salary and the other benefits specified in Section 3
above (except as expressly specified in Section 3.2 and according to
Sections 3.9 and 3.10) and the following provisions will instead
apply:
7.2.1. For a period of thirty six (36) months commencing on the
Termination of Employment Date (the "Services Period"), GONEN
undertakes to provide up to fifty four (54) hours of consulting
services per month to ATTUNITY and not more than One thousand
nine hundred forty four (1,944) hours on an accumulative basis.
The Board of ATTUNITY will exclusively determine GONEN's duties
and title during the Services Period. GONEN will be entitled to
all the payments under this Section 7.2 herein regardless of
whether ATTUNITY utilizes GONEN's services.
GONEN recognizes that from time to time the Board might require
from GONEN to provide more
than fifty four (54) hours per month. In such events GONEN will
make his best effort to comply with such requests, however,
GONEN's accumulative commitment will not exceed one thousand nine
hundred forty four (1,944) hours for the Services Period.
7.2.2. In the event that GONEN will be required by ATTUNITY to travel
abroad, a full day will be calculated at eight (8) hours and will
include GONEN's flying time. In such an event, GONEN shall be
entitled to a payment that is equal to the amount of days he has
spent outside Israel multiplied by a daily rate of one hundred
thirty four US Dollars ($134), in addition to the reimbursement
of his reasonable expenses, in accordance with ATTUNITY'S expense
reimbursement policy.
7.2.3. In consideration for GONEN's availability to provide the
Consulting Services during the Services Period, ATTUNITY shall
pay GONEN thirty six (36) monthly payments of thirteen thousand
five hundred US Dollars ($13,500) plus VAT (the "Payments"), to
be paid by the 25th of each month. GONEN will furnish ATTUNITY
with an invoice for each month by the 30th of the month. Payments
will be made in NIS in accordance with a last known
representative exchange rate published by the Bank of Israel.
These monthly payments will not be changed as long as the
cumulative commitment specified in section 7.2.1 will not exceed
one thousand nine hundred forty four (1,944) hours for the
Services Period.
7.3. In the event that ATTUNITY wishes to terminate GONEN's employment
agreement with ATTUNITY due to the failure of ATTUNITY to achieve its
financial milestones agreed to from time to time by GONEN and the
Board of Directors of ATTUNITY, in writing, ATTUNITY shall have the
right to pay GONEN a one-time, upfront lump-sum payment of two hundred
and fifty thousand US Dollars ($250,000) instead of the payments that
GONEN is entitled to receive during the Services Period described in
sections 7.2.1, 7.2.2, and 7.21.3 and GONEN will not be required to
provide the related services.
7.4. The parties acknowledge that during the Services Period, there will
not be any employer - employee
relationship between ATTUNITY and GONEN and GONEN will be acting as an
independent contractor.
8. GENERAL PROVISIONS
8.1. This Agreement shall not be amended, modified or varied by any oral
agreement or representation or otherwise than by a written instrument
executed by both parties or by their duly authorized representative.
8.2. No failure, delay or forbearance of either party in exercising any
power or right hereunder shall in any way restrict or diminish such
party's rights and powers under this Agreement, or operate as a waiver
of any of the terms or conditions hereof.
8.3. If any term or provision of this Agreement shall be declared invalid,
illegal, or unenforceable, to the extent that a court shall deem it
reasonable to enforce such term or provision and if such term or
provision shall be unreasonable to enforce to any extent, such term or
provision shall be severed and all remaining terms and provisions
shall be unaffected and shall continue in full force and effect.
8.4. The terms and conditions of this Agreement supersede those of all
previous agreements and arrangements, either written or oral, relating
to the subject hereof, including the Employment Agreement between
ATTUNITY and GONEN dated January 1, 1996 and including the Agreement
dated September 1, 2002.
8.5. This Agreement is personal to GONEN and GONEN shall not assign or
delegate his rights or duties to a third party, whether by contract,
will or operation of law, without ATTUNITY's prior written consent,
except moneys and compensation rights that may be passed to his heirs.
8.6. This Agreement shall inure to the benefit of ATTUNITY's successors and
assigns.
8.7. Each notice and/or demand given by one party pursuant to this
Agreement shall be given in writing and shall be sent by registered
mail to the other party at the address appearing in the caption of
this Agreement or by facsimile and such notice and/or demand shall be
deemed given at the expiration of twelve (12) hours after dispatch by
facsimile, three (3) days from the date of mailing by registered mail
or immediately if
delivered by hand. Such address shall be effective unless notice of
change in address is provided by registered mail to the other party.
8.8. Any dispute arising out of or in connection with this Agreement will,
in the failure of the parties to reach an amicable agreement, be
finally settled by a single arbitrator appointed in accordance with
the agreement of the parties. In the absence of agreement within
twenty one (21) days from the written request of one party for the
appointment of an arbitrator, the chairman of the Israeli Bar
Association shall appoint an arbitrator.
The arbitrator shall be a lawyer knowledgeable in the laws
appertaining to computers and software. The arbitrator shall be bound
in his deliberations by the substantive laws of the State of Israel
and shall provide the parties with written reasons for his decision.
8.9 This Agreement is subject to the required corporate approvals of
Attunity.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first above written.
Attunity Ltd. Arie Gonen
SCHEDULE 1 - BONUS PLAN
GONEN will receive a bonus according to the following:
1. Commencing January 1, 2004 and until December 31, 2007, ATTUNITY will pay
GONEN nine percent (9%) of all licenses and maintenance revenues received
by ATTUNITY from International Distributors, which the Board assigned GONEN
to appoint (including the International Distributors were appointed during
2002). This bonus will be paid within sixty (60) days of the receipt of
payments from the Internal Distributors. However, this yearly bonus will
not exceed the lower of (i) five percent (5%) of the yearly net profit
excluding impairment of intangible Assets of ATTUNITY and (ii) one hundred
thousand US Dollars ($100,000) per year.
2. GONEN will also receive an additional bonus that is equal to six percent
(6%) of revenues received from Oracle (Transparent Gateway) in 2004. These
bonuses will be paid within fourteen (14) days of the receipt of payments
from Oracle.
3. In the event that GONEN will be assigned by the Board to raise funds for
ATTUNITY in any form including equity and convertible debentures and
exercise of Warrants. GONEN will be entitled to three-year warrants at the
closing price of fund raising deal of up to seven percent (7%) of the
amount of shares that were issued in the fund raising deal, the exact
percentage to be determined by the Board of ATTUNITY. To remove doubt, this
provision will only apply to investors introduced to ATTUNITY by GONEN.
4. In the event that ATTUNITY will be acquired in a merger or an acquisition
transaction, GONEN will be entitled to a fee that is up to seven percent
(7%) of the total value of the consideration paid for ATTUNITY in such a
transaction, the exact percentage to be determined by the Board of
ATTUNITY. However, the percentage will be no less than three percent (3%)
in the event that the closing of the acquisition occurs on or before
December 31, 2004; two percent (2%) if the closing of the acquisition
transaction occurs at any time between January 1, 2005 and December 31,
2005 and one percent (1%) if the closing of the acquisition transaction
occurs at any time between January 1, 2006 and December 31, 2007.
Thereafter, GONEN shall not be entitled to any fee in connection with or
relating to an acquisition transaction.
Exhibit 4.13
LOAN AGREEMENT
THIS LOAN AGREEMENT (this "Agreement") made as of the 3rd day of June
2004, by and between Attunity Ltd., an Israeli company number 520038019, of
Einstein Building, Tirat Hacarmel, Israel 39101 (the "Company"), Plenus
Technologies, Ltd. ("Plenus" or the "Lender").
W I T N E S S E T H:
WHEREAS, the Company wishes to obtain a lending facility from the Lender
on the terms and conditions set forth in this Agreement; and
WHEREAS, the Lender is willing to make available a lending facility to
the Company on the terms and conditions set forth in this Agreement.
NOW THEREFORE, the parties hereto hereby agree as follows:
1. Loan, Warrant and Security.
1.1 Credit Line Amount. The Lender hereby undertakes to make available
to the Company a revolving credit facility in the aggregate amount of three
million dollars ($3,000,000) (the "Credit Line Amount").
1.2 Disbursement. The Credit Line Amount shall be provided in
installments of not less than two hundred and fifty thousand dollars ($250,000)
each ("Installment(s)"), upon the later of: (i) seven (7) business days
following the date on which Plenus receives a written disbursement request from
the Company stating the exact amount the Company wishes to receive from the
Lenders (the "Disbursement Request"), or (ii) the disbursement date specified in
the Disbursement Request; provided, however, that such later disbursement date
must always be within the Term (as defined in Section 1.6 hereof). Each
Installment shall be transferred by the Lender to the Company by means of wire
transfer in accordance with wire instructions to be provided in writing to
Plenus by the Company from time to time, or, if no other instructions are given,
to:
Attunity Ltd.
United Mizrahi Bank
26, Haneviim Street
Haifa, ISRAEL
Hadar Branch Haifa, # 441
Account # 578600
Swift code: MIZBILITA
1.3 Delivery of Documents. Concurrently with the execution and delivery
of this Agreement the Company shall deliver to Plenus the document referred to
in clauses (i) and (ii) below, and within thirty (30) days thereafter all of the
other documents referred to in clauses (iii) through (vi) below: (i) a warrant,
in the form attached hereto as Exhibit A (the "Warrant"), in the name of Plenus,
for the purchase of Warrant Shares (as defined in the
2
Warrant) in accordance with the terms of the Warrant, duly executed by the
Company; (ii) a Floating Charge Agreement (the "Floating Charge Agreement") and
a Fixed Charge Agreement (the "Fixed Charge Agreement") by and between the
Lender, Co-lenders and the Company, in the forms attached hereto as Exhibit B1
and Exhibit B2, respectively, duly executed by the Company; (iii) copies of
forms for creating a floating charge (as per Exhibit C1) and fixed charge (as
per Exhibit C2), both duly signed by the Company and stamped to indicate filing
with the Israeli Registrar of Companies, and certificates of registration of
such floating charge and fixed charge ; (iv) true and correct copies of
resolutions of the Company's Board of Directors (a) authorizing the Company to
enter into this Agreement, the Floating Charge Agreement and the Fixed Charge
Agreement, (b) authorizing the issuance of the Warrant to Plenus and reserving a
sufficient number of Ordinary Shares to be issued upon exercise of the Warrant,
in the event that Plenus elects to exercise the Warrant into such shares, and
(c) authorizing an officer of the Company to execute and deliver all of such
documents and their respective exhibits and schedules; (v) waivers, consents and
approvals in respect of the transactions contemplated herein, including, but not
limited to, regarding pre-emptive rights, registration rights and other rights
of third parties, including, without limitation, creditors and governmental
entities, if applicable; and (vi) a legal opinion by counsel to the Company, a
copy of which is attached hereto as Exhibit D.
The date on which all of the above documentation shall be delivered to Plenus to
its satisfaction shall be referred to herein as the "Closing Date". For the
purposes of this Agreement, including all of its schedules and exhibits, the
"Effective Date" shall be deemed the date hereof.
Without detracting from the Company's obligation to timely furnish Plenus with
all of the documents set forth above, the obligations of the Lender pursuant
hereto shall be subject to receipt of all of such documents, and the Lender
shall have the right to terminate this Agreement by written notice to the
Company should the Company breach its obligation to furnish the said documents
within the specified period.
1.4 Security. In accordance with the terms and the conditions of the
Floating Charge Agreement and the Fixed Charge Agreement, the Company agrees to
secure the repayment of any amount borrowed hereunder (the "Principal Amount"),
any accrued and unpaid Interest (as defined below) and the Credit Line Fee (as
defined below), by creating a first priority floating charge on the Company's
present and future tangible and intangible assets and rights of any kind,
whether contingent or absolute, as more fully set forth in the Floating Charge
Agreement, and a first priority fixed charge on the Company's technology, as
more fully set forth in the Fixed Charge Agreement for the benefit of the Lender
and for the benefit of the entities specified as Co-lenders in Schedule 1 hereto
(the "Co-lenders").
1.5 Seniority. The indebtedness evidenced by this Agreement is hereby
expressly stated to be senior in right of payment to any current or future
indebtedness of the Company (whether reflected in the balance sheet or not),
except for the indebtedness incurred in the Company's ordinary course of
business.
1.6 Term. The term during which the Credit Line Amount according to this
Agreement shall be made available by the Lender to the Company (the "Term") will
commence on the Closing Date and terminate twenty four (24) months following the
Effective
3
Date, unless this Agreement is earlier terminated or repayment is accelerated in
accordance with this Agreement.
2. Payments.
2.1 Principal Amount. The outstanding and unpaid Principal Amount shall
be due and payable, in one payment, twenty-four (24) months after the Effective
Date (the "Repayment Date").
2.2 Interest on Principal. The Company shall pay to the Lender interest
on the Principal Amount outstanding from time to time (denominated in dollars)
at an annual rate of six and one-half percent (6.5%), calculated from the
disbursement date of each Installment until the date of repayment of such
Installment, plus value added tax ("VAT"), if applicable (such interest together
with the VAT - the "Interest"). The Interest accrued in each calendar quarter
during the Term shall become due and payable on the first day of the next
ensuing calendar quarter, except for the Interest accrued during the last
quarter or partial quarter within the Term which shall become due and payable on
the last business day of the Term. In the event the Company is legally obliged
to deduct tax at source ("withholding tax") from any Interest payment, it shall
do so and provide the Lender with sufficient confirmation evidencing such
deduction. Alternatively, Lender may provide the Company with a tax deduction
exemption from the Income tax authorities.
2.3 Interest on Late Payment. Any amount owing by the Company to the
Lender hereunder which is not paid by the Company on its due date shall bear an
additional 5% interest per annum, plus VAT if applicable; which additional
interest shall be compounded daily.
2.4 Non-utilized Credit Line Fee. The Company shall pay to the Lender,
on each of the first and second anniversary of the Effective Date, a fee equal
to 1% of the Credit Line Amount which was not utilized in the contract year
ending on such anniversary date, plus VAT if applicable. For the purpose of such
fee, any Principal Amount borrowed and repaid during such year shall be taken
into account as partially utilized, based on the number of days it was
outstanding.
2.5 Division of Payments. All payments to be made by the Company to the
Lender shall be made to the following account: Plenus - account number 133021 at
United Mizrachi Bank Ltd., Branch No. 522, located in Herzliya, Swift Code:
MIZBILIT.
2.6 Prepayment. Notwithstanding anything to the contrary herein
contained, the Company may prepay any amounts owed to the Lender, at any time,
subject to the Company providing the Lender with thirty (30) days or more prior
written notice of such intention to prepay, and further provided that each such
prepayment is in an amount of not less than the lesser of (a) two hundred and
fifty thousand dollars ($250,000), or (b) the sum of the then outstanding
Principal Amount plus Interest accrued thereon.
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2.7 Early Termination. The Company may terminate this Agreement,
prospectively, at any time before the Repayment Date, by providing Plenus with a
notice in writing indicating its intention to terminate this Agreement, in the
form attached hereto as Exhibit E, provided that upon delivery of such notice to
the Lender, (i) the Company shall have satisfied all of its obligations under
this Agreement (including all exhibits and schedules hereto), and (ii) all
amounts due from the Company pursuant to this Agreement, on account of the
Principal Amount, the Interest, late payment interest, the Credit Line Fee or
otherwise, shall have been paid in full and the Company shall not have any
outstanding debts to the Lender pursuant to or in connection with this
Agreement.
2.8 Set-off. The Lender may set-off any obligation owed to them by the
Company under this Agreement, the Floating Charge Agreement, the Fixed Charge
Agreement or the Warrant (together, the "Transaction Documents") against any
obligation owed by the Lender to the Company, regardless of the place of
payment, booking branch or currency of either obligation, upon giving the
Company seven (7) days' prior written notice. If an obligation is not liquidated
or unascertained, the Lender may set-off in an amount estimated by them in good
faith to be the amount of that obligation. If obligations are in different
currencies, the Lender may convert either obligation at a market rate of
exchange in its usual course of business for the purpose of the set-off. The
Lender shall not be obliged to exercise any right given to them under this
Section 2.8. In the event that the foregoing set-off is made by the Lender, any
amounts set-off will be deemed to be payment as described in Section 2 above.
The Company may not set-off any obligation owed to it by the Lender against any
obligation it owes to the Lender under the Transaction Documents.
3. Acceleration.
Notwithstanding anything herein to the contrary, the entire unpaid
Principal Amount, together with accrued and unpaid Interest to date, shall be
due and payable at any time without any further demand, immediately upon the
occurrence of any of the events described below ("Event of Acceleration"),
unless otherwise provided herein:
(i) the Company fails to pay any sum due from it under any of the
Transaction Documents at the time, in the currency and in the manner
specified therein, or otherwise is in material breach of any of the
Transaction Documents and the same is not remedied within seven (7) days,
in case of non-payment, or fourteen (14) days in case of any other breach;
or
(ii) the Company performs a general readjustment or rescheduling
or another arrangement regarding its indebtedness pursuant to Section 350
to the Israeli Companies Law, 1999 (the "Companies Law") or otherwise; or
makes a general assignment for the benefit of, or a composition with, its
creditors pursuant to Section 350 to the Companies Law or otherwise; or
(iii) any indebtedness of the Company to a third party for
borrowed money in the amount of more than $100,000 is not paid when due;
or any indebtedness of the Company to a third party for borrowed money in
the amount of more than $100,000 becomes capable of being declared by such
third party to be, or is declared, due and payable prior to its specified
maturity; or
5
(iv) the filing against the Company of any petition in
liquidation or any petition for relief under the provisions of applicable
law for the relief of debtors, or the appointment of a special manager,
temporary liquidator, temporary receiver or trustee to take possession of
any material property or assets of the Company; or an attachment is placed
on any of the material assets of the Company; or the Company resolves to
voluntarily liquidate; or the appointment of a liquidator or receiver to
take possession of material property or assets of the Company; or
(v) any representation or statement made by the Company in any of
the Transaction Documents or in any notice or other document, certificate
or written statement delivered by it pursuant thereto or in connection
therewith is, or proves to have been, incorrect or misleading in any
material respect; or
(vi) any event or series of events occur(s) which, in the
reasonable opinion of Plenus, may have a material adverse effect on the
business, condition (financial or otherwise), or results of operations of
the Company or on the ability of the Company to comply with any of its
material obligations under any of the Transaction Documents; or
(vii) the Company consummates (a) an issuance of the Company's
securities or a consolidation or merger of the Company with or into
another entity, pursuant to which or as a result thereof the Company's
then current shareholders will own less than fifty (50%) percent of the
voting securities of the Company, the new entity or the surviving entity
(as the case may be) or they will no longer have the power or the right to
appoint more than fifty (50%) percent of the members of the board of
directors of such entity; (b) an issuance or sale of shares of the Company
constituting immediately thereafter more than fifty (50%) percent of the
Company's outstanding shares (on a fully diluted and as-converted basis)
to third parties other than the Company's current shareholders, (c) a sale
of a material part of the Company's assets; or (d) an equity investment,
or series equity of investments, in the Company resulting in proceeds to
the Company following the Effective Date in an aggregate amount of at
least fifteen million dollars ($15,000,000).
The Company shall promptly inform Plenus of the occurrence of any Event
of Acceleration and, upon receipt of a written request to that effect from
Plenus, shall confirm to Plenus that, except as previously notified to Plenus or
as notified in such confirmation, no Event of Acceleration has occurred.
4. Representations and Warranties.
The Company hereby represents and warrants to each of the Lenders, as of
the date hereof and the Closing Date and as of each date on which a Disbursement
Request is made by the Company (via a bring-down certificate as further
described below), each of the following representations and warranties. The
Company agrees to provide to Plenus a bring-certificate signed by the chief
executive officer of the Company and certifying that since the date hereof and
until each date on which a Disbursement Request was executed by the Company no
event or a series of events occurred which are reasonably likely to have a
material adverse effect on the business, condition (financial or otherwise), or
results of operations of the Company or on the ability of the Company to comply
with any of its material obligations under any of the
6
Transaction Documents. The Lenders shall not be obligated to comply with such
Disbursement Request pursuant to the terms of Section 1.2 hereof until Plenus
received such signed bring-down certificate from the Company.
(i) The Company is a company duly formed and validly existing under the
laws of the State of Israel. The Company's current Articles are attached hereto
as Schedule 4(i). The Company has full corporate power and authority to enter
into and perform its obligations under the Transaction Documents, and all of
such documents constitute legally binding obligations of the Company and are
enforceable against the Company in accordance with their respective terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation, conservatorship,
receivership or similar laws relating to, or affecting generally the enforcement
of, creditor's rights and remedies or by other equitable principles of general
application.
(ii) The Company has furnished Plenus with (i) its audited,
consolidated, financial statements as at, and for the year ended, December 31,
2003 [and (ii) its unaudited financial statements for the first quarter ended
March 31, 2004] ((i) and (ii) are collectively referred to herein as the
"Financial Statements"). The Financial Statements are true and correct in all
material respects, are in accordance with the books and records of the Company
and have been prepared in accordance with generally accepted accounting
principles consistently applied, and fairly and accurately present in all
material respects the financial position of the Company as of such dates and the
results of its operations for the periods then ended. Except as disclosed in
documents filed by the Company with the Securities and Exchange Commission
pursuant to the reporting requirements of the Securities Exchange Act of 1934,
including material filed pursuant to Section 13(a) of the Exchange Act (all of
the foregoing including filings incorporated by reference therein being referred
to herein as the "Commission Documents" ), the Financial Statements or listed in
Schedule 4(ii), since December 31, 2003, there has not been any material adverse
change in the assets, liabilities, condition (financial or otherwise) or
business of the Company, including, without limitation:
(a) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the assets, properties, conditions
(financial or otherwise), operating results or business of the Company;
(b) any waiver by the Company of a valuable right or of a
material debt owed to it;
(c) any satisfaction or discharge of any material lien, material
claim or material encumbrance or payment of any material obligation by the
Company, except in the ordinary course of business;
(d) any material change or amendment to a material contract or
material arrangement by which the Company or any of its assets or properties is
bound or subject;
(e) any loans made by the Company to its employees, officers, or
directors other than travel advances made in the ordinary course of business;
(f) any sale, transfer or lease of, except in the ordinary course
of business, or mortgage or pledge of imposition of lien on, any of the
Company's material assets; or
7
(g) any change in the accounting methods or accounting principles
or practices employed by the Company.
(iii) The execution and delivery of this Agreement (including all
exhibits and schedules) by the Company, and performance of the Company's
obligations hereunder, have been duly and validly authorized by all necessary
corporate action.
(iv) The Company has taken all corporate actions, and has procured all
consents and approvals, necessary for the issuance of the Warrant; and the
Warrant, and the Warrant Shares when issued, and with respect to the Warrant
Shares when the Exercise Price (as defined in the Warrant) is paid, shall be
duly authorized, validly issued, fully paid andnonassessable.
(v) Neither the execution nor the delivery of this Agreement, nor the
transactions contemplated hereby, will contravene any agreement or negative
pledge, or, to the Company's best knowledge, any law, rule, restriction or
decree to which the Company is subject, and will not result in any such
violation or be in conflict with or constitute, with or without the passage of
time and giving of notice, either a default under any such provision,
instrument, judgment, order, writ, decree or contract or an event that results
in the creation of any lien, charge or encumbrance upon any assets of the
Company or, to the knowledge of the Company, the suspension, revocation,
impairment, forfeiture, or non-renewal of any material permit, license,
authorization, or approval applicable to the Company, its business or operations
or any of its assets or properties.
(vi) There is no order, writ, injunction or decree of any court,
government or governmental agency affecting, or, to the best knowledge of
Company, which may affect, the Company or any of its businesses, assets or
interests, in a material adverse manner; nor is there any action, suit,
proceeding or investigation pending or, to the Company's knowledge, currently
threatened, against the Company, that questions the validity of any of the
Transaction Documents, or the right of the Company to execute and deliver any
such document or to consummate the transactions contemplated thereby, or that
might result, either individually or in the aggregate, in any material adverse
changes in the assets, condition, affairs or prospects of the Company,
financially or otherwise, nor is the Company aware that there is any basis for
the foregoing.
(vii) Other than as set forth in the Commission Documents and in
Schedule 4(vii) hereto and the Company's Financial Statements, there are no
material claims, guarantees, royalty payments, payments to government entities
or regulatory bodies, security interests, options or other rights outstanding
with respect to any of the Company's assets or securities, and the Company has
no outstanding loans or financial obligations to any third parties, including,
but not limited to, any banking obligations, and any liens on the Company's bank
accounts or other assets of the Company whether registered or not.
(viii) The Company, to the best of its knowledge, owns and has
developed, or has obtained the right to use, free and clear of all liens (other
than the liens created hereunder or by operation of law) and claims, all
patents, trademarks, domain names and copyrights, and applications, licenses and
rights with respect to the foregoing, and all trade secrets, including know-how,
inventions, designs, processes, works of authorship, computer programs and
8
technical data and information (collectively herein "Intellectual Property")
used and sufficient for use in the conduct of its business as now conducted, and
as same may be in effect from time to time, and, to the best of the Company's
knowledge, without infringing upon or violating any right, lien, or claim of
others, and the Company has taken security measures customary in the industry to
protect the secrecy, confidentiality and value of all the Intellectual Property,
except that the Company has not registered any patent, trademark or copyright
with respect to its Intellectual Property. A complete list of all patents,
trademarks and key domain names registered by the Company in any jurisdiction as
of the date hereof is set forth in Schedule 4(viii) attached hereto.
(ix) The Company's capitalization on a fully diluted basis, as of the
Effective Date, is as set forth in Schedule 4(ix) attached hereto. All of the
issued shares of the Company, of all classes are all duly and validly authorized
and issued, fully paid and nonassessable, and were issued in accordance with
every relevant securities laws, or pursuant to valid exemptions therefrom.
Except as provided in the Commission Documents and in Schedule 4(ix), there are
no outstanding options, warrants, rights (including conversion or pre-emptive
rights with respect to the Warrant Shares) or agreements for the purchase or
acquisition from the Company of any shares of its share capital. Except as set
forth in the Commission Documents and in Schedule 4(1x), the Company is not a
party or subject to any agreement or understanding which affects or relates to
the voting rights or which requires written consents with respect to (1) any of
the Company's securities (excluding options granted under the employee stock
option plan of the Company, if any), or (2) a director of the Company.
(x) To the best of the Company's knowledge, there are no investigations
or actions or administrative proceedings of or before any court or agency which
(a) could have a material adverse effect on the business, financial condition or
results of operations of the Company or the ability of the Company to perform
its obligations hereunder, or (b) purports to affect the legality, validity or
enforceability of any of the Transaction Documents.
(xi) Neither this Agreement (including any schedule or exhibit to this
Agreement) nor any documents, certificates or other items supplied by the
Company with respect to the transactions contemplated hereby, contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements herein or therein, in light of the circumstances in which they
were made, not misleading.
(xii) Other than the subsidiaries listed on Schedule 4(xii), the Company
has no subsidiaries ("Subsidiaries"). For the purposes of this section 4,
reference to the Company other than in this clause (xii), shall mean both the
Company and all of its Subsidiaries.
(xiii) No consent, approval, order or authorization of, or registration,
qualification, designation, declaration or filing with, any governmental
authority on the part of the Company is required in connection with the
consummation of the transactions contemplated by the Transaction Documents,
except for the registration of the charges under the Floating Charge Agreement
and the Fixed Charge Agreement and compliance with the applicable securities
laws and the consent of the Office of the Chief Scientist of the Israeli
Ministry of Industry, Trade and Employment.
(xiv) Each Material Agreement (as defined below) is in full force and
effect, none is subject to recession and to the best knowledge of the Company,
there are no existing
9
circumstances which would reasonably be expected to materially modify the terms
of any Material Agreement. To the Company's best knowledge, no third party is in
default under any Material Agreement. The Material Agreements which are not
referred to in the Commission Documents are set forth in Schedule 4(xiv)
attached hereto. Plenus or its counsel has received true and correct copies of
each Material Agreement. The Company is not in breach of any obligation under
any Material Agreement.
For the purposes of this Agreement, the term "Material Agreement" shall
mean any agreements, understandings, instruments, contracts, proposed
transactions, judgments, orders, writs or decrees to which the Company is a
party or by which it is bound that may involve (i) obligations (contingent or
otherwise) of, or payments to the Company, exceeding $100,000 each, or (ii)
intellectual property rights of the Company and/or the intellectual property
rights of any third party (other than the license of the Company's software and
products, or those of Company's suppliers, in the ordinary course of its
business which do not fall within any other category herein), or (iii)
distribution rights, or (iv) provisions restricting the development, manufacture
or distribution of the Company's products or services, or (v) restrictions or
limitations on the Company's right to do business or compete in any area or any
field with any person, firm or company, or (vi) indemnification by the Company
with respect to infringements of proprietary rights (other than those entered
into in the Company's ordinary course of business and which do not fall within
any other category herein). Notwithstanding the foregoing, "Material Agreement"
shall not include non-disclosure agreements executed in the Company's ordinary
course of business.
5. Reporting and Notice Rights.
5.1 Reporting and Notices. Until the termination of this Agreement, the
Company shall provide Plenus with the following: (i) consolidated audited
financial statements within ninety (90) days after the end of each fiscal year
(including an audited annual balance sheet of the Company as at the end of the
fiscal year and the statement of income and cash flow of the Company for the
fiscal year then ended), (ii) consolidated, un-audited, quarterly financial
statements within sixty (60) days after the end of each quarter, (iii) such
other data and information as Plenus may reasonably request, provided such data
is reasonably available, (iv) at least five (5) business days advanced written
notice of any equity investment in the Company occurring after the date hereof,
(v) at least five (5) business days advanced written notice of a merger or
consolidation of the Company, a sale of any substantial portion of the assets or
shares of the Company or any reorganization or restructuring of the Company
having similar effects, or a distribution of dividends, and (vi) at least five
(5) business days advanced written notice of a firmly underwritten initial
public offering of the Company's shares pursuant to a registration statement
filed with the Securities and Exchange Commission under the Securities Act of
1933 or pursuant to a registration statement filed with a similar law under any
other jurisdiction.
Furthermore, the Lenders shall have, subject to customary non-disclosure
obligations, at reasonable times and upon reasonable notice, full access to all
books and records of the Company and shall be entitled to inspect the properties
of the Company and consult with management of the Company regarding the same, to
the extent necessary or advisable for the purpose of monitoring observance by
the Company of its obligations under the Transaction Documents.
10
Following the termination of this Agreement, and for as long as the Warrant is
outstanding, the Lenders shall have the same reporting and information rights,
as granted to the holders of shares of the Company of any class.
5.2 [Reserved]
5.3 Information. The Company acknowledges that the Lenders will likely
have, from time to time, information that may be of interest to the Company
("Information") regarding a wide variety of matters. The Company, as a material
part of the consideration for this Agreement, agrees that the Lenders shall have
no duty to disclose any Information to the Company or permit the Company to
participate in any projects or investments based on any Information, or to
otherwise take advantage of any opportunity that may be of interest to the
Company if it were aware of such Information, and hereby waives, to the extent
permitted by law, any claim based on the corporate opportunity doctrine or
otherwise that could limit the Lenders' ability to pursue opportunities based on
such Information or that would require the Lenders to disclose any such
Information to the Company or offer any opportunity relating thereto to the
Company.
5.4 Confidentiality.
(a) Lender acknowledges that the data and the information obtained by it
from the Company or anyone on its behalf prior to or during the term of this
Agreement which relate to the Company, including, without limitation the
existence and terms of the Transaction Documents, are confidential, and agrees
that such data and information will not be disclosed by it to any third party
nor exploited for other projects, investments or the like, without the prior
written consent of the Company; provided, however, that in connection with
reports to their shareholders, investors and/or co-lenders, the Lender may,
without first obtaining such written consent, make general statements regarding
the nature and progress of the Company's business and provide non-confidential
data and information, provided that such shareholders, investors and/or
co-lenders shall maintain such information in confidence. Furthermore, the
Lender may disclose any data and information to their directors, officers and
employees on a need to know basis, provided that such directors, officers and
employees shall undertake the same obligations as the Lender undertakes
hereunder with respect to such data and information or that the Lender shall be
responsible for any disclosure or use thereby without the Company's consent.
(b) Except as required under applicable law or the NASDAQ rules, neither
party shall be entitled to issue a press release or any public statement
relating to the existence or terms of the Transaction Documents without
obtaining the prior written consent of the other party. The foregoing shall
similarly apply to any other form of public communication, including, but not
limited to, announcements, conferences, advertisements, professional or trade
publications, mass marketing materials etc.
6. Authority.
Notwithstanding any of the provisions set forth herein, the Company
acknowledges and agrees that Plenus has syndicated the loan granted hereunder to
the Co-lender and to the participants specified as such in Schedule 1 (the
"Participants") and that Plenus shall act as the lead manager of such
syndication on behalf of the Co-lender and on behalf of the
11
Participants. Plenus hereby represents and warrants to the Company that (a) the
Co-lenders and the Participants have agreed that Plenus at its sole discretion
shall determine (i) whether or not to realize any charges and/or pledges over
the assets of the Company created for the benefit of the Lenders, the Co-lender
or the Participants; (ii) whether or not repayment of any amounts hereunder owed
to the Lenders, the Co-lender or the Participants are to be accelerated and
whether or not an event of a default pursuant to the Floating Charge Agreement
or the Fixed Charge Agreement has occurred, (iii) any other decisions that needs
to be made with respect to any issue relating to the Transaction Documents, (b)
Plenus has been appointed the attorney-in-fact on behalf of the Co-lender and
the Participants in connection with all of the foregoing, (c) the Co-lender and
the Participants have agreed not to take any action to the contrary, (d) the
Co-lender and the Participants have agreed that in the event that Plenus should
give its consent under this Agreement, Plenus' consent shall bind them as well.
7. Holding the Warrant and the Warrant Shares.
Plenus shall be entitled to receive, upon the exercise of the Warrant by
Plenus, the Warrant Shares issuable upon such exercise, and Plenus shall be
entitled to transfer all or any part of the Warrant or the Warrant Shares so
issued to a Co-lender, Participant or Permitted Transferees (as defined in
Section 9.4 hereof), provided that such transferees are not direct competitors
of the Company, and provided further that Plenus shall have an irrevocable proxy
from all of such transferees with respect to all of the Warrant Shares held by
them.
8. Covenant.
The Company shall comply with the terms of, and do all that is
reasonably necessary to maintain in full force and effect all authorizations,
approvals, licenses and consents required by or under the laws and regulations
of the State of Israel and any other applicable jurisdiction to enable it
lawfully to enter into and perform its obligations under the Transaction
Documents, and to ensure the legality, validity, enforceability or admissibility
in evidence of all such documents.
9. Miscellaneous.
9.1 Further Action. The Company shall perform such further acts and
execute such further documents as, in Plenus's opinion, may be reasonably
necessary to carry out and give full effect to the provisions of this Agreement
and the intentions of the parties as reflected hereby.
9.2 Governing Law. This Agreement shall be governed by, and construed
according to, the laws of the State of Israel, without regard to the conflict of
laws provisions thereof.
9.3 Successors and Assigns. Except as otherwise expressly limited
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors, and administrators of the
parties hereto.
9.4 Non-assignability. None of the rights or obligations set forth in,
arising under, or created by this Agreement may be assigned or transferred by
the Company or Lender
12
without the prior consent in writing of the other party, which consent shall not
be unreasonably withheld. Anything herein to the contrary notwithstanding,
subject to applicable law and the second proviso to Section 7 above, Lender
shall have the right to assign or transfer its rights and obligations under this
Agreement, as long as such assignment or transfer is not to a competitor of the
Company, to any of the following (each a "Permitted Transferee"): (i) any other
entity which controls, is controlled by, or is under common control with Lender,
(ii) if the Lender is a trustee or is appointed to act on behalf of others - to
its beneficiaries, or (iii) if the Lender is a general or limited partnership -
to its partners and to affiliated partnerships managed by the same management
company or managing general partner or to an entity which controls, is
controlled by, or is under common control with, such management company or
managing general partner. The foregoing in clauses (i)-(iii) above is subject to
the assignee or transferee assuming in writing the obligations of the assignor
or transferor under this Agreement. The limited right of Lender to assign and
transfer pursuant to this Section 9.4 shall also apply, mutatis mutandis, to
each Permitted Transferee.
9.5 Entire Agreement. The Transaction Documents constitute the full and
entire understanding and agreement between the Company and the Lender with
regard to the subject matters hereof and thereof. The preamble, exhibits and
schedules hereto constitute an integral part hereof.
9.6 Fees and Taxes. The Company shall share in and contribute a total
amount of twenty thousand dollars ($20,000), plus VAT, towards the legal fees
and other expenses incurred by Plenus in connection with the transactions
contemplated under the Transaction Documents, as follows: Twenty thousand
dollars ($20,000), plus VAT, will be paid by the Company 10 business days after
signing the Loan agreement. The Company shall also be responsible for all taxes
and other compulsory payments to which the Lenders are or shall be subject under
the transactions contemplated by the Transaction Documents (other than taxes on
the income of the Lender imposed in the jurisdiction in which its principal or
lending office under this Agreement is located). Without derogating from the
foregoing, the Company will pay the stamp tax applicable to the Transaction
Documents and any document in connection therewith, including, without
limitation, the Warrant Shares.
9.7 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term hereof may be waived (either prospectively or
retroactively and either generally or in a particular instance) only with the
written consent of the Company and Plenus. No delay or omission to exercise any
right, power, or remedy accruing to any party upon any breach or default under
this Agreement, shall be deemed a waiver of any other breach or default
theretofore or thereafter occurring. All remedies, under this Agreement, by law
or otherwise, afforded to any of the parties, shall be cumulative and not
alternative.
9.8 Survival. All covenants made in this Agreement shall continue to
remain in full force and effect for as long as this Agreement is still in effect
pursuant to its terms. The Company's representations and warranties shall
survive the expiration or termination, for any reason, of this Agreement.
9.9 Notices. All notices and other communications required or
permitted hereunder to be given to a party to this Agreement shall be in writing
and shall be telecopied (faxed) or mailed by registered or certified mail,
postage prepaid, or by electronic mail, or otherwise delivered by hand or by
messenger as follows:
13
if to the Company - to the Company's address set forth above, to the
attention of Chief Executive Officer and Chief Financial Officer;
if to the Lender - to Plenus's address, to the attention of the
persons set forth in Schedule 1;
or to such other address, or to the attention of such other person,
with respect to a party as such party shall notify the other parties in writing
as above provided. Any notice sent in accordance with this Section 9.9 shall be
effective (i) if mailed, three (3) business days after mailing, (ii) if sent by
messenger, upon delivery, and (iii) if sent via telecopier (fax) or electronic
mail, upon transmission and electronic confirmation of receipt or - if
transmitted and received on a non-business day - on the first business day
following transmission and electronic confirmation of receipt.
9.10 Partial Invalidity. If any provision of this Agreement is
held by a court of competent jurisdiction to be invalid or unenforceable under
applicable law, then such provision shall be excluded from this Agreement and
the remainder of this Agreement shall be interpreted as if such provision were
so excluded and shall be enforceable in accordance with its terms; provided,
however, that in such event this Agreement shall be interpreted so as to give
effect, to the greatest extent consistent with and permitted by applicable law,
to the meaning and intention of the excluded provision as determined by such
court of competent jurisdiction.
9.11 Currency. The term "dollars" appearing in this Agreement
shall mean the legal currency of the United States of America, and all payments
hereunder shall be made in such currency, unless otherwise agreed in writing by
Plenus and the Company.
IN WITNESS WHEREOF the parties have signed this Loan Agreement in one or more
counterparts as of the date first appearing above.
ATTUNITY LTD.
By: ________________________
Its: ________________________
PLENUS TECHNOLOGIES, LTD.
By: ________________________
Its: ________________________
14
SCHEDULE 1
THE LENDER
Name and Address
----------------
Plenus Technologies Ltd. with a copy to: Steve Kronengold, Esq.
16 Abba Eben Avenues Rabin Science Park
Herzliya Pituach Rehovot
Israel Israel
Attn: Ruthi Simcha
|
Facsimile: (972-9) 957-8770 (972-8) 938-2975
THE CO-LENDERS
Name and Address
I
Golden Gate Bridge Fund
Mizrahi United Bank Ltd.
THE PARTICIPANTS
1. The Investment Corporation of United Mizrachi Bank Ltd.
2. Union Bank of Israel Ltd.
3. Industrial Development Bank of Israel Ltd.
4. D. Partners (BVI), L.P
5. CMA Technology Venture Partner Limited
6. D. Partners (Israel), Limited Partnership
7. Israel Continental Bank Ltd.
8. Nessuah Zannex Ltd.
9. Mercantile Discount Bank Ltd.
10. Benleumi Provident Funds
11. Bank Leumi Le-Israel B.M.
12. Kahal Ltd.
* Includes the aggregate participation amount of the Co-lender and all of the
Participants.
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED
OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
OR EXEMPTION FROM REGISTRATION UNDER THE FOREGOING LAWS.
SUBJECT TO THE PROVISIONS OF SECTION 10 HEREOF, THIS WARRANT SHALL BE
VOID AFTER 5:00 P.M. EASTERN TIME ON JUNE 2, 2009 (the "EXPIRATION DATE").
ATTUNITY LTD.
WARRANT TO PURCHASE ORDINARY SHARES
NOMINAL VALUE NIS 0.1 PER SHARE
For VALUE RECEIVED, Plenus Technologies Ltd. ("Plenus"), or any other
Holder (as defined in Section 2 hereof) (the "Warrantholder"), is entitled to
purchase, subject to the provisions of this Warrant, from Attunity Ltd., a
corporation organized under the laws of Israel ("Company"), at any time not
later than 5:00 P.M., Eastern time, on the Expiration Date, at an exercise price
per share equal to $3.00 (the exercise price in effect being herein called the
"Warrant Price"), the number of shares determined in accordance with Section 3A
herein ("Warrant Shares") of the Company's ordinary shares, nominal value NIS
0.1 per share ("Ordinary Shares"). The number of Warrant Shares purchasable upon
exercise of this Warrant and the Warrant Price shall be subject to adjustment
from time to time as described herein.
Section 1. Registration. The Company shall maintain books for the transfer
and registration of the Warrant. Upon the initial issuance of this Warrant, the
Company shall issue and register the Warrant in the name of the Warrantholder.
Section 2. Permitted Transfers. The Warrantholder shall be entitled to
transfer the Warrants to (i) a Co-Lender and each Participant (ii) any entity
which controls, is controlled by or is under common control with the
Warrantholder, (iii) if the Warrantholder is a trustee for, or acts on behalf of
other person - such other person, and (iv) if the Warrantholder is a general or
limited partnership - each of its partners and each other partnership managed by
the same management company or managing general partner or an entity which
controls, is controlled by, or is under common control with, such management
company or managing general partner. All transfers of this Warrant shall be
accompanied by an executed warrant transfer deed, under which the transferee
undertakes to be bound by all obligations of the Warrantholder under this
Warrant. The form of the deed of transfer and is attached hereto as Appendix B.
Section 3. Exercise of Warrant.
(a) Cash Exercise. Subject to the provisions hereof, the Warrantholder may
exercise this Warrant in whole or in part at any time upon surrender of the
Warrant, together with delivery of the duly executed Warrant exercise form
attached hereto as Appendix A (the "Exercise Agreement") and payment by cash,
certified check or wire transfer of funds for the aggregate Warrant Price for
that number of Warrant Shares then being purchased, to the Company during normal
business hours on any business day at the Company's principal executive offices
(or such other office or agency of the Company as it may designate by notice to
the holder hereof). The Warrant Shares so purchased shall be deemed to be issued
to the holder hereof or such holder's designee, as the record owner of such
shares, as of the close of business on the next business day after the date on
which this Warrant shall have been surrendered (or evidence of loss, theft or
destruction thereof and security or indemnity satisfactory to the Company), the
Warrant Price shall have been paid and the completed Exercise Agreement shall
have been delivered. Certificates for the Warrant Shares so purchased,
representing the aggregate number of shares specified in the Exercise Agreement,
shall be delivered to the holder hereof within a reasonable time, not exceeding
three (3) business days, after this Warrant shall have been so exercised. The
certificates so delivered shall be in such denominations as may be requested by
the holder hereof and shall be registered in the name of such holder or such
other name as shall be designated by such holder. If this Warrant shall have
been exercised only in part, then, unless this Warrant has expired, the Company
shall, at its expense, at the time of delivery of such certificates, deliver to
the holder a new Warrant representing the number of shares with respect to which
this Warrant shall not then have been exercised. As used herein, "business day"
means a day, other than a Saturday or Sunday, on which banks in New York City
are open for the general transaction of business.
(b) Cashless Exercise. In lieu of the payment method set forth in
sub-section (a) above, the Warrantholder may elect to exchange the Warrant for a
number of Warrant Shares computed using the following formula:
X = Y(A-B)/A
Where X = the number of Warrant Shares to be issued to the
Warrantholder.
Y = the number of Warrant Shares purchasable under the Warrant
(adjusted to the date of such calculation, but excluding Warrant
Shares already issued under this Warrant).
A = the Fair Market Value (as defined below) of one Ordinary Share.
B = Exercise Price (as adjusted to the date of such calculation).
"Fair Market Value" of an Ordinary Share shall mean the most recent
closing bid price of the Company's Ordinary Shares, as published by
Nasdaq, prior to the Warrantholder's exercise of the Warrant.
In the event of a cashless exercise under this Section 3(b), this Warrant must
be exercised for all the Warrant Shares then purchasable under this Warrant, and
must be surrendered to the Corporation along with the Notice of Exercise. After
such exercise and receipt by the Warrantholder of the appropriate amount of
Warrant Shares, this Warrant shall be null and void.
2
Section 3A. Number of Warrant Shares. The Company and Plenus have entered
into a certain Loan Agreement dated June __, 2004, pursuant to which Plenus has
made available to the Company a revolving credit facility in the amount of $3
million (the "Credit Line"). The number of Warrant Shares that the Warrantholder
may purchase pursuant to this Warrant shall be determined as follows:
(a) In the event the Credit Line is terminated within the
first year of its initiation, the Warrantholder shall
be entitled to purchase the number of Warrant Shares
equal to twenty percent (20%) of the Credit Line
divided by the Exercise Price, as adjusted.
(b) In the event the Credit Line is terminated within the
second year of its initiation and the Company had not
drawn any money from the Credit Line prior to
termination, the Warrantholder shall be entitled to
purchase the number of Warrant Shares equal to
twenty-three percent (23%) of the Credit Line divided
by the Exercise Price, as ad |
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