-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WqJoAMbUyuyb0wHjzJ32yPog7obTkHzt1UvtxFpNwucBxTWyCbew6l921D0RV8eL Qu0MBc6MSal0RgCHJT2/RQ== 0000891618-00-000804.txt : 20000215 0000891618-00-000804.hdr.sgml : 20000215 ACCESSION NUMBER: 0000891618-00-000804 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 20000214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CLICKSERVICE SOFTWARE LTD CENTRAL INDEX KEY: 0001105841 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-30274 FILM NUMBER: 537510 BUSINESS ADDRESS: STREET 1: 3425 S BASCOM AVENUE STREET 2: SUITE 230 CITY: CAMPBELL STATE: CA ZIP: 95008 BUSINESS PHONE: 4083776088 S-1 1 FORM S-1 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 14, 2000 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ CLICKSERVICE SOFTWARE LTD. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ------------------------ ISRAEL 7372 NOT APPLICABLE (STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER) INCORPORATION OR CLASSIFICATION CODE ORGANIZATION) NUMBER)
34 HABARZEL STREET TEL AVIV, ISRAEL (972-3) 765-9400 (ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------ DR. MOSHE BEN-BASSAT CHIEF EXECUTIVE OFFICER CLICKSERVICE SOFTWARE, INC. 3425 S. BASCOM AVENUE SUITE 230 CAMPBELL, CALIFORNIA 95008 (408) 377-6088 (NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE) ------------------------ Copies to: JEFFREY D. SAPER, ESQ. IAN ROSTOWSKY, ADV. YUVAL HORN, ADV. RICHARD CAPELOUTO, ESQ. RICHARD JAY SILVERSTEIN, DUBI ZOLTAK, ADV. ASAF BEN-ZEEV, ADV. MICHAEL NATHAN, ESQ. ESQ. EFRATI, GALILI & CO. TAL SCHNEIDER, ADV. SIMPSON THACHER & BARTLETT ALLISON L. BERRY, ESQ. 6 WISSOTSKY STREET DORON COHEN -- 3373 HILLVIEW AVENUE, ROBERT F. WESTOVER, ESQ. TEL AVIV 62338 DAVID COHEN, LAW OFFICES SUITE 250 WILSON SONSINI ISRAEL 14 ABBA HILLEL SILVER ROAD PALO ALTO, CALIFORNIA 94304 GOODRICH & ROSATI (972-3) 605-1010 RAMAT-GAN 52506 (650) 251-5000 PROFESSIONAL CORPORATION ISRAEL 650 PAGE MILL ROAD (972-3) 753-1000 PALO ALTO, CA 94304-1050 (650) 493-9300
------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement is declared effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [ ] If this Form is to register additional securities for an offering pursuant to rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] ------------------------ CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- PROPOSED MAXIMUM TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE - -------------------------------------------------------------------------------------------------------------- Ordinary Shares, par value NIS 0.02 per share............... $50,000,000 $13,200 - -------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of computing the amount of the registration fee, in accordance with to Rule 457(a) promulgated under the Securities Act of 1933. ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. SUBJECT TO COMPLETION, DATED FEBRUARY 14, 2000 PROSPECTUS Shares [ClickService Logo] Ordinary Shares - -------------------------------------------------------------------------------- This is our initial public offering of ordinary shares. We are offering ordinary shares. No public market currently exists for our ordinary shares. We propose to list the ordinary shares on the Nasdaq National Market under the symbol "CKSV." The anticipated price range is $ to $ per share. INVESTING IN OUR ORDINARY SHARES INVOLVES RISKS. "RISK FACTORS" BEGIN ON PAGE 7.
PER SHARE TOTAL ------------------------------- ------------------------------- Public Offering Price................... $ $ Underwriting Discount and Commissions... $ $ Proceeds, before expenses, to ClickService.......................... $ $
We have granted the underwriters an option for a period of 30 days to purchase up to additional ordinary shares on the same terms and conditions as set forth above solely to cover over-allotments, if any. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. Lehman Brothers expects to deliver the shares on or about , 2000. - -------------------------------------------------------------------------------- LEHMAN BROTHERS CIBC WORLD MARKETS SG COWEN FIDELITY CAPITAL MARKETS A DIVISION OF NATIONAL FINANCIAL SERVICES CORPORATION FACILITATING ELECTRONIC DISTRIBUTION , 2000 3 TABLE OF CONTENTS
PAGE ---- Prospectus Summary.................... 3 Risk Factors.......................... 7 Special Note Regarding Forward-Looking Statements.......................... 19 Use of Proceeds....................... 20 Dividend Policy....................... 20 Capitalization........................ 21 Dilution.............................. 22 Selected Consolidated Financial Data................................ 23 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 24 Business.............................. 34 Management............................ 46 Certain Transactions.................. 57 Principal Shareholders................ 59
PAGE ---- Description of Share Capital.......... 62 Shares Eligible for Future Sale....... 67 United States Federal Income Tax Considerations...................... 68 Israeli Taxation and Investment Programs............................ 71 Conditions in Israel.................. 77 Enforceability of Civil Liabilities... 79 Where You Can Find More Information... 79 Legal Matters......................... 80 Experts............................... 80 ISA Exemption......................... 80 Underwriting.......................... 81 Index to Consolidated Financial Statements.......................... F-1
ABOUT THIS PROSPECTUS You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information that is different from that contained in this prospectus. We are offering to sell ordinary shares and seeking offers to buy ordinary shares only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the ordinary shares. Until , 2000, all dealers that buy, sell or trade the ordinary shares, whether or not participating in this offering, may be required to deliver a prospectus. This is an addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to unsold allotments or subscriptions. "ClickService", "ClickSchedule", "ClickFix", "ClickAnalyze", "ClickBroker", "ClickSchedule Fast Track", "W-6", "W-6 Service Scheduler" and "TechMate" are our trademarks. This prospectus also contains trademarks, trade names and service marks of other companies. As used in this prospectus, the terms "we," "us," "our" and "ClickService" mean ClickService Software Ltd. and its subsidiaries, unless otherwise indicated. For information regarding enforceability of civil liabilities against us and other persons, see the section of this prospectus with the heading "Enforceability of Civil Liabilities." ClickService prepares its consolidated financial statements in United States dollars in accordance with generally accepted accounting principles as applied in the United States, or U.S. GAAP. All references in this prospectus to "dollars" or "$" are to United States dollars and all references in this prospectus to "NIS" are to New Israeli Shekels. 2 4 PROSPECTUS SUMMARY You should read the following summary together with the more detailed information regarding our company and the ordinary shares being sold in this offering and our financial statements and notes thereto appearing elsewhere in this prospectus. CLICKSERVICE SOFTWARE LTD. We provide web-based infrastructure application software that enables companies to efficiently fulfill service and product delivery in enterprise environments and over the Internet. Our ClickSchedule product line allows our clients to optimize resource utilization while offering their customers ease of use and convenience when procuring services and products. Our ClickFix product line facilitates the process of automated diagnosis and troubleshooting of equipment. ClickSchedule and ClickFix are designed to enable our clients to offer their customers the opportunity to schedule services and obtain self-help directly over the Internet. Our solution is designed to enable our clients to increase productivity, which can result in reduced costs and increased revenue opportunities that otherwise would have been lost. The market for service and product delivery has experienced significant growth, both in terms of the variety of services and products available, as well as transaction volume. Businesses engaged in service and product delivery must deploy substantial resources in order to schedule and complete transactions that require a same time and/or same place interaction between the service provider and the customer. To build and maintain relationships with customers, businesses are attempting to improve the quality and speed of their service and product fulfillment in order to distinguish themselves from their competitors. Whether scheduling telephone, cable or Internet access installation, or the repair of office equipment, consumers and businesses need to be assured that services and products will be delivered quickly and efficiently. The emergence and acceptance of the Internet as a medium for commerce is fundamentally changing the way companies communicate with their customers and offer their services and products. While applications aimed at optimizing the supply chain of manufacturing organizations have generally been successful, service organizations are still facing significant challenges in today's economy. Service organizations have continued to use conventional methods of scheduling the fulfillment of services, primarily via telephone-based customer service representatives. Accordingly, there is a need for a new class of applications and technologies designed to optimize the utilization of fulfillment resources and ensure successful completion of online transactions. The ClickService solution, which is designed to enable our clients to offer their customers the opportunity to schedule services and obtain self-help, offers the following benefits to our clients and their customers: - Greater Customer Service - Optimized Utilization of Fulfillment Resources - Seamless Integration into Existing Client Environments - Rapid Return on Investment 3 5 Our objective is to be the leading provider of web-based infrastructure application software for optimizing service operations of business-to-business and business-to-consumer enterprises. The key elements of our strategy include: - Capitalize on our Existing Market Acceptance - Extend our Brand Recognition - Enhance our Sales and Implementation Channels - Extend the Breadth and Depth of our Product Offerings - Target Online Service Businesses - Provide Customized Solutions for Additional Industries Our products are based on our core technologies which have been developed over the last 15 years and include sophisticated algorithms and business scenario representation tools. Over the years we have gained vast experience with the complex scheduling and troubleshooting needs of service organizations. We market and sell our products primarily through our direct sales force located in North America and Europe, as well as through reseller and joint selling relationships with leading customer relationship management, or CRM, and enterprise resource planning, or ERP, vendors. Our products are used by a broad base of clients representing a variety of industries with unique needs, including telecommunications, telephone and Internet access providers, high-technology service providers and retailers, including Agilent Technologies, Bell Atlantic, Canadian Red Cross, Caterpillar, Compaq Computer Corporation, Covad Communications, High Speed Access (HSA), Level 3 Communications, Montgomery Ward and Schindler Elevator. CORPORATE INFORMATION We were incorporated in Israel in September 1979. We changed our name to ClickService Software Ltd. on January 30, 2000. Our principal executive offices are located at 34 Habarzel Street, Tel Aviv, Israel and our telephone at that address is (972-3) 765-9400. We also maintain corporate offices in the United States at 3425 S. Bascom Avenue, Suite 230, Campbell, California, and our telephone number at that address is (408) 377-6088. Our address on the World Wide Web is www.clickservice.com. Information contained on our web site does not constitute part of this prospectus. 4 6 THE OFFERING Ordinary shares offered by us......... shares Ordinary shares to be outstanding after the offering.................... shares Use of proceeds....................... For working capital and general corporate purposes, including increased spending on sales and marketing, professional services, research and development and expansion of our operational and administrative infrastructure. Proposed Nasdaq National Market symbol................................ "CKSV" Unless otherwise noted, share and per share amounts in this prospectus: - give effect to the equivalent of a 3-for-5 reverse share split, which will be effected prior to this offering through the combination of a reverse share split and a share dividend; - give effect to the conversion of all outstanding preferred shares into 13,499,898 ordinary shares immediately prior to the closing of the offering; - give effect to the conversion of all outstanding Ordinary A and Ordinary B shares into ordinary shares immediately prior to the closing of the offering; and - assume no exercise of the underwriters' over-allotment option. The ordinary shares to be outstanding after the offering is based on shares outstanding as of December 31, 1999. This number excludes: - 1,458,114 shares underlying outstanding options at a weighted exercise price of $1.17 per share; - 412,478 shares subject to outstanding warrants at a weighted exercise price of $1.90 per share; - 3,000,000 ordinary shares available for future grants under our 2000 Share Option Plan; and - 800,000 ordinary shares available for issuance under our 2000 Employee Share Purchase Plan. As of December 31, 1999, 1,206,920 shares held by a trustee and reserved for allocation upon exercise of other employee options were included in the ordinary shares outstanding. 5 7 SUMMARY CONSOLIDATED FINANCIAL DATA The following table presents summary consolidated financial and operating data derived from our consolidated financial statements. We have calculated pro forma basic and diluted net loss per share assuming conversion of all of our preferred shares into ordinary shares. You should read this summary information along with the sections of the prospectus entitled "Selected Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes.
YEAR ENDED DECEMBER 31, --------------------------------------------------------------- 1995 1996 1997 1998 1999 ---------- ---------- ---------- ---------- ----------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenues: Software license............................ $ 2,111 $ 1,491 $ 1,235 $ 3,932 $ 5,414 Service and maintenance..................... 1,660 1,893 1,080 2,139 4,912 ---------- ---------- ---------- ---------- ----------- Total revenues............................ 3,771 3,384 2,315 6,071 10,326 Cost of revenues: Software license............................ 21 14 13 25 71 Service and maintenance..................... 1,484 1,514 1,035 2,301 4,299 ---------- ---------- ---------- ---------- ----------- Total cost of revenues.................... 1,505 1,528 1,048 2,326 4,370 Gross profit.................................. 2,266 1,856 1,267 3,745 5,956 Loss from operations.......................... (1,112) (2,215) (4,364) (5,891) (7,725) Net loss...................................... (1,322) (2,493) (4,512) (5,858) (7,979) Basic and diluted net loss per share.......... $ (0.26) $ (0.48) $ (0.80) $ (0.99) $ (1.34) Shares used in computing basic and diluted net loss per share.............................. 5,081,265 5,216,705 5,657,728 5,914,765 5,948,846 Pro forma basic and diluted net loss per share (unaudited)................................. $ (0.45) Shares used in computing pro forma basic and diluted net loss per share (unaudited)...... 17,692,994
The following table provides a consolidated summary of our balance sheet as of December 31, 1999 and as adjusted to give effect to the sale of ordinary shares by us at an assumed initial public offering price of $ per share and our anticipated application of the net proceeds of the offering.
DECEMBER 31, 1999 ---------------------- ACTUAL AS ADJUSTED ------- ----------- (UNAUDITED) (IN THOUSANDS) CONSOLIDATED BALANCE SHEET DATA: Cash and cash equivalents................................... $ 7,838 $ Working capital............................................. 8,007 Total assets................................................ 14,195 Long-term liabilities, net of current portion............... 1,112 Shareholders' equity........................................ 8,821
6 8 RISK FACTORS You should carefully consider the following factors and other information in this prospectus before you decide to invest in our ordinary shares. If any of the negative events referred to below occurs, our business, financial condition and results of operations could suffer. In any such case, the trading price of our ordinary shares could decline, and you may lose all or part of your investment. RISKS RELATED TO OUR BUSINESS OUR FINANCIAL PERFORMANCE MAY SUFFER BECAUSE WE HAVE RECENTLY CHANGED OUR STRATEGIC FOCUS AND PRICING PROGRAM. Historically, substantially all of our revenue has come from sales of our ClickSchedule product, formerly known as W-6 Service Scheduler, and our ClickFix product, formerly known as TechMate, to clients seeking application software that enables efficient provisioning of services in enterprise environments. As a result, while we sold the W-6 technology that is included in ClickSchedule and the TechMate technology that is included in ClickFix prior to 1999, we have only recently sold the new versions for Internet scheduling and troubleshooting. Our current strategy is to expand upon our installed base of clients using our software to become the leading provider of web-based resource optimization software solutions for the service operations of business-to-business and business-to-consumer enterprises. To the extent that our strategy is not successful, our business, operating results and financial condition will suffer. In December 1999, we introduced a new pricing program for our products. Traditionally, we have generated revenue through one-time sales of licenses to our clients at a price based upon the number of resources optimized. Our new pricing model enables our clients to pay monthly user fees for licenses of our software or to pay on a per-transaction basis. It is too early to determine which pricing structure will become more prevalent, however many of our new customers have chosen the new pricing model. If we have not determined appropriate monthly or per transaction fees for our software licenses, our revenues from software licenses may decrease or may not increase. Our new pricing model will also result in delayed recognition of revenues, which may cause our quarterly operating results to be lower than expected in any particular quarter. WE HAVE A HISTORY OF LOSSES AND EXPECT TO INCUR FUTURE LOSSES. We have not achieved profitability and expect to continue to incur net losses for the foreseeable future. We incurred net losses of approximately $4.5 million for the year ended December 31, 1997, $5.9 million for the year ended December 31, 1998, and $8.0 million for the year ended December 31, 1999. As of December 31, 1999, we had an accumulated deficit of approximately $23.7 million. We expect to continue to incur significant sales and marketing, and research and development expenses and expect such expenses to increase significantly. As a result, we will need to generate significant revenues to achieve and maintain profitability, which we may not be able to do. OUR QUARTERLY OPERATING RESULTS ARE SUBJECT TO FLUCTUATIONS AND IF WE FAIL TO MEET THE EXPECTATIONS OF SECURITIES ANALYSTS OR INVESTORS, OUR SHARE PRICE MAY DECREASE SIGNIFICANTLY. Our quarterly operating results are difficult to predict and are not a good measure for comparison. Our future quarterly operating results may fluctuate significantly and may not meet the expectations of securities analysts or investors. If this occurs, the price of our ordinary shares may decrease significantly. The factors that may cause fluctuations in our quarterly operating results include the following: - the volume and timing of customer orders; - the length and unpredictability of our sales cycle; - the mix of revenues generated by product licenses and professional services; 7 9 - internal budget constraints of our current and prospective clients, particularly newly formed Internet companies; - announcement or introduction of new products or product enhancements by us or our competitors; - changes in prices of and the adoption of different pricing strategies for our products and those of our competitors; - changes in our business strategy; - timing and amount of sales and marketing expenses; - changes in our business relationships; - technical difficulties or "bugs" affecting the operation of our software; - foreign currency exchange rate fluctuations; and - general economic conditions. In addition, due to client purchasing patterns, we typically realize a significant portion of our software license revenues in the last few weeks of a quarter. As a result, we may experience significant variations in our license revenues and results of operations if we incur any delays in client orders. Our business strategy focuses on sales of our software products to both Internet-based companies and to traditional companies seeking to offer scheduling services to their customers via the internet as well as over the telephone. These companies may defer or cancel their purchases of our products if they experience a downturn in their businesses or if there is a downturn in the general economy. We will continue to determine our investment and expense levels based on our expected future revenues. A significant portion of our expenses are fixed in the short term and cannot be quickly reduced to respond to decreases in revenues. Therefore, if our revenues are below our expectations, our operating results are likely to be materially and adversely affected. In addition, we may reduce our prices or accelerate our investment in research and development efforts in response to competitive pressures or to pursue new market opportunities. Any of these activities may further limit our ability to adjust spending in response to revenue fluctuations. FAILURE OF THE MARKET TO ACCEPT OUR TECHNOLOGY WOULD ADVERSELY AFFECT DEMAND FOR OUR PRODUCTS AND THE PRICE OF OUR ORDINARY SHARES COULD DECLINE SIGNIFICANTLY. Our products are based on complex technologies, including sophisticated algorithms, and models which we have developed to address complex scheduling and troubleshooting issues in the service industry. Although our products are currently being used in the service industry, and we believe our technologies address these problems, the methods we have chosen have not yet been widely accepted by the service industry and other providers of similar software use different technology and models. We cannot predict whether our products will be widely accepted by the service industry. Failure of the market to accept our technology would adversely affect demand for our products. In addition, we participate in an industry with an inherently high failure rate and we cannot assure you that our clients will achieve success when using our products and services. Any publicized performance problems relating to our products or those of our competitors could also slow client adoption of our products. Moreover, to the extent that we are associated with unsuccessful client projects, even if due to factors beyond our control, our reputation and competitive position in our industry could be materially and adversely affected. IF THE MARKET FOR SCHEDULING FULFILLMENT OF SERVICES AND PRODUCTS OVER THE INTERNET DOES NOT DEVELOP AS EXPECTED OR AT ALL, OR IF OUR PRODUCTS ARE NOT ACCEPTED BY BUSINESSES SCHEDULING SERVICES, DEMAND FOR OUR SOLUTIONS MAY NOT DEVELOP AND THE PRICE OF OUR ORDINARY SHARES COULD DECLINE SIGNIFICANTLY. Our business strategy is premised, in part, on our belief that traditional bricks-and-mortar companies, such as utilities, as well as e-commerce companies, will offer their customers the opportunity to schedule 8 10 and obtain services online rather than on the telephone. While some of our clients use the web-based features of our products in an intranet environment, as of the date of this prospectus, none of our clients is currently offering Internet self-scheduling options to its customers. In addition, in order for our business strategy to be successful, consumers and businesses must move away from telephone-based customer service to Internet-based customer service. While adoption of the Internet as a new medium for commerce is occurring for purchases of products, the adoption of the Internet to schedule and obtain services is at a much earlier stage. If online service scheduling solutions are not widely adopted by consumers and businesses engaging in e-commerce transactions, our business will suffer. We began emphasizing our products' Internet capabilities in September 1999 and we have devoted and expect to continue to devote substantial resources to market these products. Our new business strategy requires us to market our products to companies that utilize the Internet to deliver service. Many of these companies may have limited capital resources and may not be willing to invest in our solutions. IF USE OF THE INTERNET FOR COMMERCIAL TRANSACTIONS DOES NOT GROW AS ANTICIPATED, OUR BUSINESS STRATEGY MAY NOT BE SUCCESSFUL. Our success will depend in large part on the acceptance of the Internet in the commercial marketplace and on the ability of third parties to provide a reliable Internet infrastructure network with the speed, data capacity, security and hardware necessary for reliable Internet access and services. To the extent that the Internet continues to experience increased numbers of users, increased frequency of use or increased bandwidth requirements of users, the Internet infrastructure may not be able to support the demands placed on it and the performance and reliability of the Internet could suffer, which could cause the market for our products to fail to grow or to grow more slowly than anticipated, causing our business to suffer. IF WE FAIL TO MANAGE OUR GROWTH EFFECTIVELY, OUR BUSINESS MAY NOT SUCCEED. Our ability to successfully offer products and services and to implement our business plan in the evolving market for service scheduling and resource optimization software requires an effective planning and management process. We continue to increase the scope of our operations in the United States and internationally and expect to continue to increase our headcount substantially in the future. As part of this growth, we have had to implement new operational and financial systems, procedures and controls; expand, train and manage our employee base; and maintain close coordination among our technical, accounting, finance, marketing and sales staffs. These factors have placed, and our anticipated expansion will continue to place, a significant strain on our existing management systems and resources. We expect that we will need to continue to expand our existing management and to improve our financial and managerial controls and reporting systems and procedures, and expand, train and manage our work force worldwide. Furthermore, we expect that we will be required to manage multiple relationships as we expand our customer base and our business relationships. TWO PRODUCTS ACCOUNT FOR THE MAJORITY OF OUR REVENUES. IF THE DEMAND FOR THESE PRODUCTS FALLS, OUR SALES COULD BE SIGNIFICANTLY REDUCED AND OUR FINANCIAL PERFORMANCE COULD BE SERIOUSLY DAMAGED. Historically, substantially all of our revenues has come from sales of, and services related to, our ClickSchedule product, formerly known as W-6 Service Scheduler, and our ClickFix product, formerly known as TechMate, to clients seeking application software that enables efficient provisioning of services in enterprise environments. As we pursue our new business strategy and develop our products, we anticipate that revenues from sales of our ClickSchedule and ClickFix product lines, together with related professional services fees, will continue to account for substantially all of our revenues for the foreseeable future. Accordingly, the widespread market acceptance of these products is critical to our future success. Competition, technological change or other factors could decrease demand for, or market acceptance of, these products or make these products obsolete. Any decrease in demand or market acceptance would have a material adverse effect on our business and operating results. 9 11 OUR LONG AND UNPREDICTABLE SALES AND IMPLEMENTATION CYCLES DEPEND ON FACTORS OUTSIDE OUR CONTROL, WHICH MAY CAUSE QUARTERLY LICENSE AND SERVICE FEES REVENUES TO VARY SIGNIFICANTLY. To date, our customers have taken a long time, typically ranging from three months to one year, to evaluate our products before making their purchase decisions. In addition, depending on the nature and specific needs of a client, the implementation of our products can take up to three to twelve months. Sales of licenses and implementation schedules are subject to a number of risks over which we have little or no control, including clients' budgetary constraints, clients' internal acceptance reviews, the success and continued internal support of clients' own development efforts, the efforts of businesses we have relationships with, the nature, size and specific needs of a client and the possibility of cancellation of projects by clients. The uncertain outcome of our sales efforts and the length of our sales cycles could result in substantial fluctuations in license revenues. If sales forecasted from a specific client for a particular quarter are not realized in that quarter, we are unlikely to be able to generate revenues from alternate sources in time to compensate for the shortfall. As a result, and due to the relatively large size of some orders, a lost or delayed sale could have a material adverse effect on our quarterly revenue and operating results. Moreover, to the extent that significant sales occur earlier than expected, current revenue and operating results or those of subsequent quarters may be adversely affected. FAILURE TO EXPAND OUR SALES AND MARKETING ORGANIZATIONS COULD LIMIT OUR ABILITY TO SELL ADDITIONAL PRODUCTS AND SERVICES, WHICH WOULD IMPAIR OUR ABILITY TO GROW OUR BUSINESS AND INCREASE REVENUES. We must expand our direct and indirect sales operations to increase market awareness of our products and generate increased revenues. We cannot be certain that we will be successful in these efforts. We have recently expanded our direct sales force in North America and plan to hire additional sales personnel. As of December 31, 1999, we employed over 40 individuals in our sales and marketing organizations. Because a significant number of our sales personnel joined us within the last twelve months, we will be required to devote significant resources to the training of these new sales personnel. We believe we will need to expand our sales and marketing organization significantly over the next twelve months. We might not be able to hire or retain the kind and number of sales and marketing personnel we are targeting because competition for qualified sales and marketing personnel in our market is intense. WE DEPEND ON KEY PERSONNEL, AND THE LOSS OF ANY KEY PERSONNEL COULD AFFECT OUR ABILITY TO COMPETE AND OUR ABILITY TO ATTRACT ADDITIONAL KEY PERSONNEL AFTER THE OFFERING MAY BE MORE DIFFICULT. We believe our future success will depend on the continued service of our executive officers and other key sales and marketing, product development and professional services personnel. Dr. Moshe Ben-Bassat, our Chief Executive Officer, has individually participated in and has been responsible for overseeing much of the research and development of our core technologies. While we currently have a significant development team in Israel working on our products, Dr. Ben-Bassat is still involved in our research and development efforts. The services of Dr. Ben-Bassat and other members of our senior management team and key personnel would be very difficult to replace and the loss of any of these employees could harm our business significantly. We have employment agreements with Dr. Ben-Bassat and our Chief Financial Officer, Shimon Rojany. None of our other officers or key employees is bound by an employment agreement. Our relationships with these officers and key employees are at will and the loss of any of our key personnel could harm our ability to execute our business strategy and compete. In addition, we believe that the prospective employees that we target after the offering may perceive that the share option component of our compensation packages is not as valuable as the component was prior to this offering. Consequently, we may have difficulty hiring our desired numbers of key personnel after this offering. Moreover, even if we are able to attract key personnel, the resources required to attract and retain such personnel may adversely affect our operating results. 10 12 IF WE FAIL TO EXPAND OUR PROFESSIONAL SERVICES ORGANIZATION, WE MAY NOT BE ABLE TO SERVICE ADDITIONAL CLIENTS AND SELL ADDITIONAL LICENSES. We cannot be certain that we can attract or retain a sufficient number of highly qualified services personnel to meet our business needs. Clients that license our software typically engage our professional services organization to assist with the installation and operation of our software applications. Our professional services organization also provides other assistance to our clients and works with our clients' in-house staff to train them regarding the maintenance, management and expansion of their software systems. Growth in licenses of our software will depend in part on our ability to provide our clients with these services. In addition, we will be required to expand our professional services organization to enable us to continue to support our existing installed base of customers as we focus on our new business strategy. As a result, we plan to increase the number of our service personnel in order to meet these needs. Competition for qualified services personnel with the relevant knowledge and experience is intense, and we may not be able to attract and retain necessary personnel. If we are not able to grow our professional services organization, our ability to expand our business would be limited. To meet our clients' needs for professional services, we may need to increase our use of third-party consultants to supplement our own professional services group which may be more costly and less successful than our own organization. In addition, we could experience delays in recognizing revenue if our professional services group fails to complete implementations in a timely manner. OUR ABILITY TO ATTRACT AND RETAIN QUALIFIED DEVELOPERS IS CRUCIAL TO OUR FUTURE GROWTH AND RESULTS OF OPERATIONS. As a company focused on the development of software products, our research and development personnel are one of our most valued assets. Our future success depends in large part on our ability to hire, train and retain software developers, systems architects, project managers, telecommunications business process experts, systems analysts, trainers, writers, consultants and sales and marketing professionals of various experience levels. Personnel possessing the skills needed to contribute to our research and development efforts are in short supply, and this shortage is likely to continue. As a result, competition for these people is intense, and the industry turnover rate for them is high. Any inability to hire, train and retain a sufficient number of qualified development employees could hinder the research and development activities and growth of our business. IF WE FAIL TO EXPAND OUR RELATIONSHIPS WITH THIRD PARTIES THAT CAN PROVIDE IMPLEMENTATION AND PROFESSIONAL SERVICES TO OUR CLIENTS, WE MAY BE UNABLE TO INCREASE OUR REVENUES AND OUR BUSINESS COULD BE HARMED. In order for us to focus more effectively on our core business of developing and licensing software solutions, we need to continue to establish relationships with third parties that can provide implementation and professional services to our clients. Third-party implementation and consulting firms can also be influential in the choice of resource optimization applications by new clients. If we are unable to establish and maintain effective, long-term relationships with implementation and professional services providers, or if these providers do not meet the needs or expectations of our clients, we may be unable to grow our revenues and our business could be seriously harmed. As a result of the limited resources and capacities of many third-party implementation providers, we may be unable to attain sufficient focus and resources from the third-party providers to meet all of our clients' needs, even if we establish relationships with these third parties. If sufficient resources are unavailable, we will be required to provide these services internally, which could limit our ability to expand our base of clients. Even if we are successful in developing relationships with third-party implementation and professional services providers, we will be subject to significant risk, as we cannot control the level and quality of service provided by third-party implementation and professional services partners. 11 13 OUR MARKET IS HIGHLY COMPETITIVE AND ANY REDUCTION IN DEMAND FOR, OR PRICES OF, OUR PRODUCTS COULD NEGATIVELY IMPACT OUR REVENUES, REDUCE OUR GROSS MARGINS AND CAUSE OUR SHARE PRICE TO DECLINE. The market for our products is competitive and rapidly changing. We expect competition to increase significantly in the future as current competitors expand their product offerings and new companies enter the market. Our current and potential competitors include: - independent systems integrators, consulting firms and in-house information technology departments of enterprise and Internet businesses which may develop their own solutions that compete with our products; - traditional enterprise resource planning and customer relationship management software application vendors; - software vendors in the utility, telecom, field services, home delivery and other vertical markets; - providers of scheduling tools and components as well as various logistics solutions providers; and - providers of resource optimization tools. Competition could result in price reductions, fewer customer orders, reduced gross margin and loss of market share, any of which could cause our business to suffer. We may not be able to compete successfully, and competitive pressures may harm our business. Some of our current and potential competitors have greater name recognition, longer operating histories, larger customer bases and significantly greater financial, technical, marketing, public relations, sales, distribution and other resources than us. In addition, some of our potential competitors are among the largest and most well-capitalized software companies in the world. For additional discussion of our competition, please see "Business -- Competition." FAILURE TO DEVELOP OR MAINTAIN KEY BUSINESS RELATIONSHIPS COULD LIMIT OUR ABILITY TO SELL ADDITIONAL LICENSES WHICH COULD DECREASE OUR REVENUES AND INCREASE OUR SALES AND MARKETING COSTS. We believe that our success in penetrating our target markets depends in part on our ability to develop and maintain business relationships with software vendors, resellers, systems integrators, distribution partners and customers. If we fail to develop these relationships, our growth could be limited. We have recently entered into agreements with third parties relating to the integration of our products with their product offerings, distribution, reselling and consulting. We have not derived significant revenues from these agreements and we may not be able to derive significant revenues in the future from these agreements. In addition, our growth may be limited if prospective clients do not accept the solutions offered by our strategic partners. OUR MARKET MAY EXPERIENCE RAPID TECHNOLOGICAL CHANGES THAT COULD CAUSE OUR PRODUCTS TO FAIL OR REQUIRE US TO REDESIGN OUR PRODUCTS, WHICH WOULD RESULT IN INCREASED RESEARCH AND DEVELOPMENT EXPENSES. Our market is characterized by rapid technological change, dynamic client needs and frequent introductions of new products and product enhancements. If we fail to anticipate or respond adequately to technology developments and client requirements, or if our product development or introduction is delayed, we may have lower revenues. Client product requirements can change rapidly as a result of computer hardware and software innovations or changes in and the emergence, evolution and adoption of new industry standards. For example, we offer Windows NT versions of our products due to the market acceptance of Windows NT over the last several years. We currently do not provide Unix versions of our software and we may not be able to modify our products and services to address new requirements and standards. The actual or anticipated introduction of new products has resulted and will continue to result in some reformulation of our product offerings. Technology and industry standards can make existing products obsolete or unmarketable or result in delays in the purchase of such products. As a result, the life 12 14 cycles of our products are difficult to estimate. We must respond to developments rapidly and make substantial product development investments. As is customary in the software industry, we have previously experienced delays in introducing new products and features, and we may experience such delays in the future which could impair our revenue and operating results. OUR PRODUCTS COULD BE SUSCEPTIBLE TO ERRORS OR DEFECTS THAT COULD RESULT IN LOST REVENUES, LIABILITY OR DELAYED OR LIMITED MARKET ACCEPTANCE. Complex software products such as ours often contain errors or defects, particularly when first introduced or when new versions or enhancements are released. In the past, some of our products have contained errors and defects which have delayed implementation or required us to expend additional resources to correct the problems. Despite internal testing and testing by current and potential clients, our current and future products may contain serious defects or errors. Any such defects or errors would likely result in lost revenues, liability or a delay in market acceptance of these products, any of which would have a material adverse effect on our business, operating results and financial condition. The performance of our products also depends upon the accuracy and continued availability of third-party data. We rely on third parties that provide information such as street and address locations and mapping functions that we incorporate into our products. If these parties do not provide accurate information, or if we are unable to maintain our relationships with them, our reputation and competitive position in our industry could suffer and we could be unable to develop or enhance our products as required. OUR INTELLECTUAL PROPERTY COULD BE USED BY THIRD PARTIES WITHOUT OUR CONSENT BECAUSE PROTECTION OF OUR INTELLECTUAL PROPERTY IS LIMITED. Our success and ability to compete are substantially dependent upon our internally developed technology, which we protect through a combination of copyright, trade secret and trademark law. However, we may not be able to adequately protect our intellectual property rights, which may significantly harm our business. Specifically, we may not be able to protect our trademarks for our company name and our product names, and unauthorized parties may attempt to copy or otherwise obtain and use our products or technology. Policing unauthorized use of our products and technology is difficult, particularly in countries outside the U.S., and we cannot be certain that the steps we have taken will prevent infringement or misappropriation of our intellectual property rights. For a more detailed description of the protection of our intellectual property, please see "Business -- Intellectual Property." OUR TECHNOLOGY MAY BE SUBJECT TO INFRINGEMENT CLAIMS. Substantial litigation regarding technology rights exists in the software industry both in terms of infringement and ownership issues. A successful claim of patent or copyright infringement or conflicting ownership rights against us could significantly harm our business. We expect that software products may be increasingly subject to third-party infringement or ownership claims as the number of competitors in our industry segments grows and the functionality of products in different industry segments overlaps. Third parties may make a claim of infringement or conflicting ownership rights against us with respect to our products and technology. Any claims, with or without merit, could: - be time-consuming to defend; - result in costly litigation; - divert management's attention and resources; - cause product shipment delays; or - require us to enter into costly royalty or licensing agreements, if they are even available, on commercially reasonable terms, or at all. 13 15 Further, if an infringement or ownership claim is successfully brought against us, we may have to pay damages or royalties, enter into a licensing agreement, and/or stop selling the product or using the technology at issue. Any such royalty or licensing agreements may not be available on commercially reasonable terms, if at all. For additional information, please see "Business -- Intellectual Property." ANY FUTURE ACQUISITIONS OF COMPANIES OR TECHNOLOGIES MAY RESULT IN DISTRACTION OF OUR MANAGEMENT AND DISRUPTIONS TO OUR BUSINESS. We may acquire or make investments in complementary businesses, technologies, services or products if appropriate opportunities arise. From time to time we may engage in discussions and negotiations with companies regarding our acquiring or investing in such companies' businesses, products, services or technologies. We cannot make assurances that we will be able to identify future suitable acquisition or investment candidates, or if we do identify suitable candidates, that we will be able to make such acquisitions or investments on commercially acceptable terms or at all. Our management has limited experience in acquiring companies or technologies. If we acquire or invest in another company, we could have difficulty assimilating that company's personnel, operations, technology or products and service offerings. In addition, the key personnel of the acquired company may decide not to work for us. These difficulties could disrupt our ongoing business, distract our management and employees, increase our expenses and adversely affect our results of operations. Furthermore, we may incur indebtedness or issue equity securities to pay for any future acquisitions. The issuance of equity securities could be dilutive to our shareholders. As of the date of this prospectus, we have no agreement to enter into any material investment or acquisition transaction. OUR BUSINESS MAY BECOME INCREASINGLY SUSCEPTIBLE TO NUMEROUS RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS. A significant portion of our operations occur outside the United States. Our facilities are located in North America, Israel and the United Kingdom and our executive officers and other key employees are dispersed throughout the world. This geographic dispersion requires significant management resources that may place us at a disadvantage compared to our locally-based competitors. In addition, our international operations are generally subject to a number of risks, including: - foreign currency exchange rate fluctuations; - longer sales cycles; - multiple, conflicting and changing governmental laws and regulations; - expenses associated with customizing products for foreign countries; - protectionist laws and business practices that favor local competition; - difficulties in collecting accounts receivable; and - political and economic instability. We received approximately 32% of our total revenues in the year ended December 31, 1999 from licenses and services sold to clients located outside of North America. We expect international revenues to continue to account for a significant percentage of total revenues in the future and we believe that we must continue to expand our international sales and professional services activities in order to be successful. Our international sales growth will be limited if we are unable to expand our international sales management and professional services organizations, hire additional personnel, customize our products for local markets and establish relationships with additional international distributors, consultants and other third parties. If we fail to manage our geographically dispersed organization, we may fail to meet or exceed our business plan and our revenues may decline. 14 16 RISKS RELATED TO OUR LOCATION IN ISRAEL WE ARE INCORPORATED IN ISRAEL AND HAVE IMPORTANT FACILITIES AND RESOURCES LOCATED IN ISRAEL. We are incorporated under the laws of the State of Israel and our research and development facilities as well as significant executive offices are located in Israel. Although a substantial portion of our sales currently are being made to customers outside of Israel, political, economic and military conditions in Israel could nevertheless directly affect our operations. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its Arab neighbors and a state of hostility, varying in degree and intensity, has led to security and economic problems for Israel. We could be adversely affected by any major hostilities involving Israel, the interruption or curtailment of trade between Israel and its trading partners, a significant increase in inflation, or a significant downturn in the economic or financial condition of Israel. Despite the progress towards peace between Israel and its Arab neighbors, the future of these peace efforts is uncertain. Several Arab countries still restrict business with Israeli companies which may limit our ability to make sales in those countries. We could be adversely affected by restrictive laws or policies directed towards Israel or Israeli businesses. In addition, certain of our officers and employees are currently obligated to perform annual reserve duty in the Israel Defense Forces and are subject to being called for active military duty at any time. The loss or extended absence of any of our officers and key personnel due to these requirements could harm our business. WE ARE SUBJECT TO A RECENTLY ADOPTED NEW COMPANIES LAW WHICH HAS NOT YET BEEN INTERPRETED. Because we are incorporated under the laws of the State of Israel, your rights as a shareholder will be governed by the Companies Law of Israel which became effective on February 1, 2000. Certain obligations and fiduciary duties of directors, officers and shareholders under the new Companies Law are new and have not been interpreted or reviewed by the Israeli courts as not all of the regulations have been promulgated to date. As a result, our shareholders may have more difficulty and uncertainty in protecting their interests in the case of actions by our directors, officers or controlling shareholders or third parties than would shareholders of a corporation incorporated in a state or other jurisdiction in the United States. THE RATE OF INFLATION IN ISRAEL MAY NEGATIVELY IMPACT OUR COSTS IF IT EXCEEDS THE RATE OF DEVALUATION OF THE NIS AGAINST THE DOLLAR. Substantially all of our revenues are denominated in dollars or are dollar-linked, but we incur a portion of our expenses, principally salaries and related personnel expenses in Israel, in NIS. In 1999, 34% of our costs were incurred in NIS. As a result, we are exposed to the risk that the rate of inflation in Israel will exceed the rate of devaluation of the NIS in relation to the dollar or that the timing of this devaluation will lag behind inflation in Israel. In that event, the dollar cost of our operations in Israel will increase and our dollar-measured results of operations will be adversely affected. In 1998, the rate of devaluation of the NIS against the dollar exceeded the rate of inflation in Israel which benefited us. However, we cannot assure you that this reversal will continue or that we will not be materially adversely affected in the future if the rate of inflation in Israel exceeds the devaluation of the NIS against the dollar or if the timing of this devaluation lags behind increases in inflation in Israel. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Impact of Inflation and Currency Fluctuations." THE GOVERNMENT PROGRAMS IN WHICH WE CURRENTLY PARTICIPATE AND TAX BENEFITS WHICH WE CURRENTLY RECEIVE REQUIRE US TO SATISFY PRESCRIBED CONDITIONS AND MAY BE TERMINATED OR REDUCED IN THE FUTURE. THIS WOULD INCREASE OUR COSTS AND TAXES. We receive grants from the Government of the State of Israel through the Office of the Chief Scientist of the Ministry of Industry and Trade, or the Chief Scientist, for the financing of a significant portion of our research and development expenditures in Israel and we may apply for additional grants in the future. In 1998 and in 1999, we received or accrued grants from the Chief Scientist totaling 15 17 approximately $0.9 million and $1.0 million respectively, representing 27% and 26% of our total research and development expenditures in these years. We cannot assure you that we will continue to receive grants at the same rate or at all. The Chief Scientist budget has been subject to reductions which may affect the availability of funds for Chief Scientist grants in the future. The percentage of our research and development expenditures financed using grants from the Chief Scientist may decline in the future, and the terms of such grants may become less favorable. In connection with research and development grants received from the Chief Scientist, we must make royalty payments to the Chief Scientist on the revenues derived from the sale of products, technologies and services developed with the grants from the Chief Scientist. From inception to date, we have received grants totaling approximately $2.9 million and we have paid or accrued royalties in an aggregate amount of $0.3 million. We expect to pay or accrue additional royalties for the year 2000 at a rate equal to 3% of our total revenues. In addition, our ability to manufacture products or transfer technology outside Israel without the approval of the Chief Scientist is restricted under law. Any manufacture of products or transfer of technology outside Israel will also require the company to pay increased royalties to the Chief Scientist up to 300%. In connection with our grant applications, we have made representations and covenants to the Chief Scientist regarding our research and development activities in Israel. The funding from the Chief Scientist is subject to the accuracy of these representations and covenants. If we fail to comply with any of these conditions, we could be required to refund any payments previously received together with interest and penalties and would likely be denied receipt of these grants thereafter. In addition, pursuant to the Law for the Encouragement of Capital Investments, the Government of the State of Israel through the Investment Center has granted "Approved Enterprise" status to three of our existing capital investment programs. Consequently, we are eligible for certain tax benefits for the first several years in which we generate taxable income. ClickService, however, has not yet begun to generate taxable income for purposes of this law and it does not expect to utilize these tax benefits for the near future. Once we begin to generate taxable income, our financial condition could suffer if our tax benefits were significantly reduced. The benefits available to an approved enterprise are dependent upon the fulfillment of certain conditions and criteria. If we fail to comply with these conditions and criteria, the tax benefits that we receive could be partially or fully canceled and we could be forced to refund the amount of the benefits we received, adjusted for inflation and interest. From time to time, the Government of Israel has discussed reducing or limiting the benefits. We cannot assess whether these benefits will be continued in the future at their current levels or at all. See "Taxation and Foreign Exchange Regulation -- Israel Tax Considerations and Foreign Exchange Regulation -- Tax Benefits Under the Law of Encouragement of Capital Investments, 1959." IT MAY BE DIFFICULT TO ENFORCE A U.S. JUDGMENT AGAINST US, OUR OFFICERS AND DIRECTORS AND THE ISRAELI ACCOUNTANTS NAMED AS EXPERTS IN THIS PROSPECTUS OR TO ASSERT U.S. SECURITIES LAWS CLAIMS IN ISRAEL OR SERVE PROCESS ON SUBSTANTIALLY ALL OF OUR OFFICERS AND DIRECTORS AND THESE ACCOUNTANTS. We are incorporated in Israel and maintain significant operations in Israel. Some of our executive officers and directors and the Israeli accountants named as experts in this prospectus reside outside of the United States and a significant portion of our assets and the assets of these persons are located outside the United States. Therefore, it may be difficult for an investor, or any other person or entity, to enforce a U.S. court judgment based upon the civil liability provisions of the U.S. federal securities laws in an Israeli court against us or any of those persons or to effect service of process upon these persons in the United States. Additionally, it may be difficult for an investor, or any other person or entity, to enforce civil liabilities under U.S. federal securities laws in original actions instituted in Israel. We have appointed ClickService Software Inc., our U.S. subsidiary, as our agent to receive of process in any action against us arising out of this Software offering. We have not given our consent for our agent to accept service of process in connection with any other claim. Furthermore, if a foreign judgement is enforced by an Israeli court, it will be payable in NIS. See "Enforceability of Civil Liabilities." 16 18 RISKS RELATED TO THIS OFFERING OUR OFFICERS, DIRECTORS AND AFFILIATED ENTITIES OWN A LARGE PERCENTAGE OF OUR COMPANY AND COULD SIGNIFICANTLY INFLUENCE THE OUTCOME OF ACTIONS. We anticipate that our executive officers, directors and entities affiliated with them will, in the aggregate, beneficially own approximately % of our outstanding ordinary shares following the completion of this offering. These shareholders, if acting together, would be able to significantly influence all matters requiring approval by our shareholders, including the election of directors. This concentration of ownership may also have the effect of delaying or preventing a change of control of our company, which could have a material adverse effect on our stock price. These actions may be taken even if they are opposed by our other investors, including those who purchase shares in this offering. Please see "Management -- Election of Directors"; "-- Anti-Takeover Provisions; Mergers and Acquisitions Under Israel Law." MANAGEMENT WILL HAVE DISCRETION OVER THE USE OF PROCEEDS FROM THIS OFFERING, HAS NO SPECIFIC PLANS FOR THOSE PROCEEDS AND COULD SPEND OR INVEST THOSE PROCEEDS IN WAYS WITH WHICH INVESTORS MIGHT NOT AGREE. We do not have a definitive quantified plan with respect to the use of the net proceeds of this offering. Accordingly, our management will have broad discretion with respect to the use of the net proceeds from this offering, and investors will be relying on the judgment of our management regarding the application of these proceeds. Some of the uses we currently anticipate include working capital and general corporate purposes, including increased spending on sales and marketing, professional services, research and development and expansion of our operational and administrative infrastructure. In addition, we may use a portion of the net proceeds to acquire or invest in complementary businesses, technologies, product lines or products. These investments may not yield a favorable return. THE LIQUIDITY OF OUR ORDINARY SHARES IS UNCERTAIN SINCE THEY HAVE NOT BEEN PUBLICLY TRADED. There has not been a public market for our ordinary shares. We cannot predict the extent to which investor interest in our company will lead to the development of an active, liquid trading market. Active trading markets generally result in lower price volatility and more efficient execution of buy and sell orders for investors. The initial public offering price for the ordinary shares will be determined by negotiations between us and the underwriters and may not be indicative of prices that will prevail in the trading market. WE EXPECT TO EXPERIENCE VOLATILITY IN OUR SHARE PRICE WHICH COULD NEGATIVELY AFFECT YOUR INVESTMENT. You may not be able to resell your shares at or above the initial public offering price due to a number of factors, including: - announcements of technological innovations; - announcements relating to strategic relationships; - conditions affecting the software and Internet industries; and - trends related to the fluctuations of stock prices of Israeli companies. The trading price of our ordinary shares may be volatile. The market for technology and Internet-related companies has experienced extreme volatility that often has been unrelated to the operating performance of particular companies. These fluctuations may adversely affect the trading price of our ordinary shares, regardless of our actual operating performance. 17 19 WE ARE SUBJECT TO ANTI-TAKEOVER PROVISIONS THAT COULD DELAY OR PREVENT AN ACQUISITION OF US, EVEN IF AN ACQUISITION WOULD BE BENEFICIAL TO OUR SHAREHOLDERS. Provisions of Israeli corporate and tax law and of our articles of association may have the effect of delaying, preventing or making more difficult a merger or other acquisition of us, even if doing so would be beneficial to our shareholders. In addition, any merger or acquisition of us will require the prior consent of the Chief Scientist. See "Description of Share Capital -- Anti-Takeover Provisions; Mergers and Acquisitions under Israeli Law." Israeli law regulates mergers, votes required to approve a merger, acquisition of shares through tender offers and transactions involving significant shareholders. In addition, our articles of association provide for a staggered board of directors and for restrictions on business combinations with interested shareholders. Any of these provisions may make it more difficult to acquire our company. See "Management -- Election of Directors" and "Description of Share Capital." OTHER ORDINARY SHARES MAY BE SOLD IN THE FUTURE. THIS COULD DEPRESS THE MARKET PRICE FOR OUR ORDINARY SHARES. After this offering, we will have ordinary shares outstanding, ordinary shares issuable upon exercise of outstanding options and warrants, and additional ordinary shares for issuance pursuant to our stock option plans. We intend to file a Registration Statement on Form S-8 to register for resale the ordinary shares reserved for issuance under our stock option plans after the consummation of this offering. If we or our existing shareholders sell a large number of our ordinary shares following this offering, the price of our ordinary shares would likely decrease. Restrictions under the securities laws and certain lock-up agreements limit the number of ordinary shares available for sale by our shareholders in the public market. We and the holders of ordinary shares and options exercisable into an aggregate of ordinary shares have agreed not to sell ordinary shares or any securities convertible into or exercisable for ordinary shares for 180 days after this offering without the prior consent of Lehman Brothers. Lehman Brothers may, in its sole discretion, release us all or any portion of the securities subject to such lock-up agreements. OUR NEED FOR ADDITIONAL FINANCING IS UNCERTAIN, AS IS OUR ABILITY TO RAISE FURTHER FINANCING IF REQUIRED. We currently anticipate that our available cash resources, combined with the net proceeds from this offering, will be sufficient to meet our anticipated working capital and capital expenditure requirements for at least twelve months after the date of this prospectus. We may need to raise additional funds, however, to respond to business contingencies which may include the need to: - fund more rapid expansion; - fund additional marketing expenditures; - develop new or enhance existing products and services; - enhance our operating infrastructure; - hire additional personnel; - respond to competitive pressures; or - acquire complementary businesses or necessary technologies. If additional funds are raised through the issuance of equity or convertible debt securities, the percentage ownership of our shareholders will be reduced, and these newly-issued securities may have rights, preferences or privileges senior to those of existing shareholders, including those acquiring shares in this offering. We cannot assure you that additional financing will be available on terms favorable to us, or at all. If adequate funds are not available or are not available on acceptable terms, our ability to fund our operations, take advantage of unanticipated opportunities, develop or enhance our products and services or otherwise respond to competitive pressures would be significantly limited. 18 20 YOU WILL EXPERIENCE IMMEDIATE AND SIGNIFICANT DILUTION OF BOOK VALUE PER SHARE. The initial public offering price of our ordinary shares will be substantially higher than the net tangible book value per share of the outstanding ordinary shares immediately after this offering. Based upon an assumed initial public offering price of $ per share, if you purchase our ordinary shares in this offering, you will incur immediate dilution of $ in the pro forma net tangible book value per share from the price you pay for ordinary shares in this offering. IF WE ARE CHARACTERIZED AS A PASSIVE FOREIGN INVESTMENT COMPANY, OUR UNITED STATES SHAREHOLDERS WILL BE SUBJECT TO ADVERSE TAX CONSEQUENCES. If, for any taxable year, our passive income, or our assets which produce passive income, exceed specified levels, we may be characterized as a passive foreign investment company for United States federal income tax purposes. We do not currently anticipate that this will happen, but, if it does, our shareholders will be subject to adverse United States tax consequences. Prospective investors should consult with their own tax advisors with respect to the tax consequences applicable to them of investing in our ordinary shares. See "United States Federal Income Tax Considerations." SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS We make many statements in this prospectus under the captions "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business" and elsewhere that are forward-looking and are not based on historical facts. These statements relate to our future plans, objectives, expectations and intentions. We may identify these statements by the use of words such as "believe," "expect," "will," "anticipate," "intend" and "plan" and similar expressions. These forward-looking statements involve a number of risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those we discuss in "Risk Factors" and elsewhere in this prospectus. These forward-looking statements speak only as of the date of this prospectus, and we caution you not to rely on these statements without also considering the risks and uncertainties associated with these statements and our business that are addressed in this prospectus. 19 21 USE OF PROCEEDS Our net proceeds from the sale of ordinary shares in this offering at an assumed public offering price of $ per share, after deducting the estimated underwriting discounts and commissions and estimated offering expenses will be approximately $ . If the underwriters' over-allotment option is exercised in full, our net proceeds will be approximately $ . We do not have specific uses committed for most of the net proceeds of this offering. The size of the offering has been determined primarily based upon our desire to raise a sufficient amount of capital to afford us significant business flexibility in the future. The principal purposes of this offering are: - to obtain additional working capital; - to create a public market for our ordinary shares; - to facilitate future access to public equity markets; and - to enhance our ability to use our shares to make future acquisitions due to the fact that our shares will be publicly traded. We expect to use the net proceeds of the offering for working capital and general corporate purposes, including increased spending on sales and marketing, professional services, research and development and expansion of our operational and administrative infrastructure. In addition, we may use a portion of the net proceeds to acquire or invest in complementary businesses, technologies, product lines or products. However, we have no current plans, agreements or commitments with respect to any such acquisition, and we are not currently engaged in any negotiations with respect to any such transaction. The amount we actually spend for these purposes may vary significantly and will depend on a number of factors, including our future revenue and cash generated by operations and the other factors described in "Risk Factors." Therefore, we will have broad discretion in the way we use the net proceeds. Pending other uses, we intend to invest the net proceeds of this offering in interest-bearing short-term investments or bank deposits. Any investments or bank deposits in Israel will have interest and principal linked to a non-Israeli currency or the consumer price index in Israel. DIVIDEND POLICY We have never paid cash dividends to our shareholders and we currently do not intend to pay dividends for the foreseeable future. We intend to reinvest earnings in the development and expansion of our business. We currently intend to reinvest the amount of tax exempt income derived from our "Approved Enterprise" and not to distribute such income as dividends. We may only pay cash dividends in any fiscal year out of "profits," as determined under Israeli law. In addition, the terms of certain financing arrangements restrict us from paying dividends to our shareholders. Because of our investment program's Approved Enterprise status, the payment of dividends by us may be subject to Israeli taxes to which it would not otherwise be subject. The tax exempt income attributable to the Approved Enterprise can be distributed to shareholders without subjecting us to taxes only upon a complete liquidation. If we decide to distribute cash dividends out of income that has been exempt from tax, the income out of which the dividend is distributed will be subject to Israeli corporate tax. In the event we declare dividends in the future, we will pay those dividends in U.S. dollars. Under current Israeli regulations, any dividends or other distributions paid in respect of ordinary shares, may be freely paid in non-Israeli currencies at the rate of exchange prevailing at the time of conversion (provided that Israeli income tax has been paid on or withheld from such dividends). Because exchange rates between NIS and the dollar fluctuate continuously, a U.S. shareholder will be subject to currency fluctuation between the date when the dividends are declared and the date the dividends are paid. 20 22 CAPITALIZATION The following table sets forth our capitalization as of December 31, 1999: - on an actual basis; - on a pro forma basis, after giving effect to the equivalent of a 3-for-5 reverse share split to be effected through the combination of a reverse share split and a share dividend and conversion of all outstanding preferred shares into ordinary shares; and - on a pro forma as adjusted basis to give effect to the receipt of the estimated net proceeds from the sale of ordinary shares offered hereby at an assumed public offering price of $ per share.
DECEMBER 31, 1999 ------------------------------------ PRO FORMA ACTUAL PRO FORMA AS ADJUSTED -------- --------- ----------- (IN THOUSANDS) Current portion of long-term obligations.................. $ 173 $ 173 ======== ======== ======== Long-term obligations, excluding current portion.......... $ 213 $ 213 -------- -------- -------- Shareholders' equity: Preferred shares, NIS 0.02 par value: 20,430,238 shares authorized; 13,499,898 shares issued and outstanding actual; no shares issued and outstanding pro forma and pro forma as adjusted............................ 60 -- Ordinary shares, NIS 0.02 par value: 9,809,761 shares authorized; 7,208,846 shares issued and outstanding actual; 20,708,744 shares issued and outstanding on a pro forma basis; and shares issued and outstanding on a pro forma as adjusted basis......... 13 73 Additional paid in capital................................ 35,063 35,063 Deferred compensation..................................... (2,663) (2,663) Accumulated deficit....................................... (23,652) (23,652) -------- -------- -------- Total shareholders' equity................................ 8,821 8,821 -------- -------- -------- Total capitalization...................................... $ 9,034 $ 9,034 ======== ======== ========
This table excludes the following: - 1,458,114 shares underlying outstanding options at a weighted exercise price of $1.17 per share; - 412,478 shares subject to outstanding warrants at a weighted exercise price of $1.90 per share; - 3,000,000 ordinary shares available for future grants under our 2000 Share Option Plan; and - 800,000 ordinary shares available for issuance under our 2000 Employee Share Purchase Plan. As of December 31, 1999, 1,206,920 shares held by a trustee and reserved for allocation upon exercise of other employee options were included in the ordinary shares outstanding. 21 23 DILUTION Our pro forma net tangible book value as of December 31, 1999 was $8.8 million or approximately $0.43 per share. Pro forma net tangible book value per share represents the amount of our total tangible assets less total liabilities, divided by the number of ordinary shares outstanding. Dilution in pro forma net tangible book value per share represents the difference between the amount per share paid by purchasers of ordinary shares in the offering made hereby and the pro forma net tangible book value per ordinary share immediately after the completion of this offering. After giving effect to the sale of the ordinary shares offered by us hereby at an assumed public offering price of $ per share and after deducting the underwriting discount and estimated offering expenses payable by us, our pro forma net tangible book value at , 2000 would have been $ or approximately $ per share. This represents an immediate increase in pro forma net tangible book value of $ per share to existing shareholders and an immediate dilution in net tangible book value of $ per share to new investors or ordinary shares in this offering. The following table illustrates this dilution on a per share basis: Assumed initial public offering price per share............. $ Pro forma net tangible book value per share as of December 31, 1999.................................... $0.43 Increase per share attributable to new investors....... ----- Pro forma net tangible book value per share after the offering.................................................. ----- Dilution in net tangible book value per share to new investors................................................. $ =====
The following table sets forth on a pro forma basis, as of December 31, 1999, after giving effect to the automatic conversion upon the closing of the offering of all our outstanding preferred shares into 13,499,898 ordinary shares, the total number of ordinary shares purchased from us, the total consideration paid and the average price per share paid by existing holders of ordinary shares and by the new investors, before deducting the underwriting discount and estimated offering expenses payable by us, at an assumed public offering price of $ per share.
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE ---------------------- ---------------------- PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE ----------- ------- ----------- ------- --------- Existing shareholders............... 20,708,744 % $31,735,000 % $1.53 New public investors................ $ ----------- --- ----------- --- Total.......................... 100% $ 100% =========== === =========== ===
This table excludes the following: - 1,458,114 shares underlying outstanding options at a weighted exercise price of $1.17 per share; - 412,478 shares subject to outstanding warrants at a weighted exercise price of $1.90 per share; - 3,000,000 ordinary shares available for future grants under our 2000 Share Option Plan; and - 800,000 ordinary shares available for issuance under our 2000 Employee Share Purchase Plan. To the extent shares are issued upon the exercise of outstanding options or warrants, there will be further dilution to new investors. As of December 31, 1999, 1,206,920 shares held by a trustee and reserved for allocation upon exercise of other employee options were included in the ordinary shares outstanding. 22 24 SELECTED CONSOLIDATED FINANCIAL DATA The selected consolidated statement of operations data for the years ended December 31, 1997, 1998 and 1999 and the selected consolidated balance sheet data as of December 31, 1998 and 1999 have been derived from our audited financial statements included elsewhere in this prospectus. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The consolidated statements of operations data for the years ended December 31, 1995 and 1996 and the selected consolidated balance sheet data as of December 31, 1995, 1996 and 1997 are derived from audited consolidated financial statements that are not included herein. The historical results are not necessarily indicative of results to be expected for any future period. The following selected financial data are qualified by reference to and should be read in conjunction with the Consolidated Financial Statements and the Notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus.
YEAR ENDED DECEMBER 31, -------------------------------------------------------------- 1995 1996 1997 1998 1999 ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenues: Software license............................. $ 2,111 $ 1,491 $ 1,235 $ 3,932 $ 5,414 Service and maintenance...................... 1,660 1,893 1,080 2,139 4,912 ---------- ---------- ---------- ---------- ---------- Total revenues............................. 3,771 3,384 2,315 6,071 10,326 Cost of revenues: Software license............................. 21 14 13 25 71 Service and maintenance...................... 1,484 1,514 1,035 2,301 4,299 ---------- ---------- ---------- ---------- ---------- Total cost of revenues..................... 1,505 1,528 1,048 2,326 4,370 ---------- ---------- ---------- ---------- ---------- Gross profit................................... 2,266 1,856 1,267 3,745 5,956 Operating expenses: Research and development expenses, net....... 858 862 1,339 2,284 2,910 Sales and marketing expenses................. 1,848 2,184 3,172 6,019 8,274 General and administrative expenses.......... 672 1,025 1,120 1,333 1,759 Share based compensation..................... -- -- -- -- 738 ---------- ---------- ---------- ---------- ---------- Total operating expenses................... 3,378 4,071 5,631 9,636 13,681 ---------- ---------- ---------- ---------- ---------- Loss from operations........................... (1,112) (2,215) (4,364) (5,891) (7,725) Interest and other (expenses) income, net...... (210) (278) (148) 33 (254) ---------- ---------- ---------- ---------- ---------- Net loss....................................... $ (1,322) $ (2,493) $ (4,512) $ (5,858) $ (7,979) ========== ========== ========== ========== ========== Net loss per ordinary share.................... $ (0.26) $ (0.48) $ (0.80) $ (0.99) $ (1.34) Shares used in computing basic and diluted net loss per share............................... 5,081,265 5,216,705 5,657,728 5,914,765 5,948,846 Pro forma basic and diluted net loss per share (unaudited).................................. $ (0.45) Shares used in computing pro forma basic and diluted net loss per share (unaudited)....... 17,692,994
DECEMBER 31, ---------------------------------------------- 1995 1996 1997 1998 1999 ------- ------- ------- ------ ------- (IN THOUSANDS) CONSOLIDATED BALANCE SHEET DATA: Cash and cash equivalents................................... $ 72 $ 104 $ 201 $3,770 $ 7,838 Working capital............................................. (1,180) (2,770) (604) 4,178 8,007 Total assets................................................ 2,683 1,866 2,604 7,983 14,195 Long-term liabilities, net of current portion............... 1,334 1,954 1,530 1,254 1,112 Shareholders' equity (net capital deficiency)............... (1,416) (3,954) (3,177) 4,657 8,821
23 25 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Except for historical information, the discussion in this report contains forward-looking statements that involve risks and uncertainties. These forward-looking statements include, among others, those statements including the words, "expects," "anticipates," "intends," "believes" and similar language. Our actual results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include, but are not limited to the risks discussed in the section titled "Risk Factors" in this prospectus. OVERVIEW Prior to 1995, our operations were primarily related to consulting and custom software solutions. In late 1996, we engaged in a comprehensive reexamination of our strategy and changed our strategic focus to concentrate on providing service optimization software products based on our W-6 Service Scheduler and TechMate technologies. This change in focus was intended to allow us to license software products useable by multiple clients, rather than developing customized software for each client. In connection with this change of strategy, we de-emphasized our consulting business. At that time we also spun off our textile software operations to our then existing shareholders and discontinued our defense application business. Since early 1997, we have invested significant resources in developing products based on our W-6 Service Scheduler and TechMate technologies, including increasing the number of our employees involved in research and development, sales and marketing, and professional services. We believe that in today's economy businesses must provide their customers the ability to schedule the delivery of services and products over the Internet while also optimizing their existing delivery resources. In response to this need, we repositioned our products to emphasize that they enable our clients to offer self-scheduling capabilities and automated diagnostic and repair capabilities over the Internet. Accordingly, in September 1999 we began marketing our product lines under new names, ClickSchedule and ClickFix and in January 1999 we changed our name to ClickService Software Ltd. In conjunction with the repositioning of our ClickSchedule and ClickFix product lines, we introduced additional software license pricing structures to our clients. Until November 1999, our pricing model was based upon an initial license fee determined by the number of service resources to be scheduled, followed by periodic maintenance fees. Our new pricing structures include lower initial license fees followed by monthly payments which are based on either the number of service resources to be scheduled or the number of scheduling transactions conducted. We believe that rapid acceptance of our new pricing structures may reduce the initial amount of our software license revenues we realize at the time of sale and could cause our revenues growth to decrease in the short term. We derive revenues from software licensing and service and maintenance fees. Prior to 1997, substantially all of our revenues were derived from professional service and maintenance fees for customized solutions and related software license fees. As the sale of our products has grown, our professional service and maintenance revenues have remained a significant percentage of revenues reflecting the need to provide installations and professional services to new clients. We believe that as our client base matures, and as an increasing number of existing clients purchase additional licenses, the percentage of revenues derived from license fees will increase as a percentage of revenues while the percentage of revenues derived from service and maintenance fees will increase on an absolute basis but decrease as a percentage of revenues. Our gross margins on service and maintenance revenues are significantly lower than our gross margins on software license revenues. Our operating history shows that a significant percentage of our quarterly revenues come from orders placed toward the end of a quarter. A delay in the completion of a sale past the end of a particular quarter could negatively impact results for that quarter. In addition, we expect that revenues in the first quarter of each year will be lower than in the last quarter of the previous year primarily due to the seasonality resulting from our current and prospective clients' budgetary, procurement and sales cycles. As of December 31, 1999, we had outstanding trade receivables of approximately $4.0 million. Trade receivables 24 26 represent approximately 38% of 1999 total revenues. Our trade receivables typically have 30 to 60 day terms, although we also negotiate longer payment plans with some of our clients. Of the trade receivables outstanding as of December 31, 1999 approximately $1.3 million or 33% of our receivables have longer than 60 day terms. Software license revenues are comprised of perpetual or annual software license fees primarily derived from contracts with our direct sales clients and our indirect distribution channels. We recognize revenues in accordance with the American Institute of Certified Public Accountants Statement of Position 97-2, "Software Revenue Recognition," or SOP 97-2, as amended by Statement of Position 98-4. Under SOP 97-2, we recognize software license revenues when a software license agreement has been executed or a definitive purchase order has been received and the product has been delivered to our clients, no significant obligations with regard to implementation remain, the fee is fixed and determinable, and collectability is probable. Service and maintenance revenues are primarily comprised of revenues from implementation, consulting, training release updates and customer service support fees. Clients licensing our products generally purchase consulting agreements from us. Consulting revenues are recognized on a straight-line basis over the life of the agreement. Consulting services are billed at an agreed-upon rate plus incurred expenses. Our products are marketed worldwide through a combination of a direct sales force, consultants and various business relationships we have with implementation and technology companies and resellers. Cost of revenues consists of cost of software license revenues and cost of service and maintenance revenues. Cost of software license revenues consists of expenses related to media duplication and packaging of our products. Cost of service and maintenance revenues consists primarily of expenses related to salaries and expenses of our professional services organizations and costs related to third-party consultants. Operating expenses are categorized into research and development expenses, net, sales and marketing expenses, general and administrative expenses, and share based compensation. Research and development expenses consist primarily of personnel costs to support product development, net of grants received from the Chief Scientist. In return for some of these grants, we are obligated to pay the Israeli Government royalties as described below which are included in sales and marketing expenses. Software research and development costs incurred prior to the establishment of technology feasibility are included in research and development expenses as incurred. Sales and marketing expenses consist primarily of personnel and related costs primarily from our direct sales force and marketing staff, in addition to marketing programs which include advertising, public relations, trade shows and promotional events, net of grants received from the Fund for the Encouragement of Marketing Activities established by the Government of Israel. In return for these grants, we are obligated to pay the Israeli Government royalties as described below. We expect that sales and marketing expenses will increase on an absolute basis over the next year, as we hire additional sales and marketing personnel, continue to promote our brand and Internet initiative and increase our international sales efforts. General and administrative expenses consist primarily of personnel and related costs for corporate functions, including information services, finance, accounting, human resources, facilities and legal. Share based compensation represents the aggregate difference, at the date of grant, between the respective exercise price of stock options and the deemed fair market value of the underlying stock. Share based compensation is amortized over the vesting period of the underlying options, generally four years. In the year ended December 31, 1999, we recorded deferred share based compensation totaling $3.4 million, of which $0.7 million was expensed in 1999. The total deferred compensation of $2.7 million recorded as of December 31, 1999 will be amortized as follows: $1.4 million in the year ended December 31, 2000; $0.8 million in the year ended December 31, 2001; $0.4 million in the year ended December 31, 2002; and $0.1 million in the year ended December 31, 2003. Interest and other (expenses) income, net, includes interest income earned on our cash and cash equivalents, offset by interest expense, and also includes the effects of foreign currency translations. 25 27 The functional currency of our operations is the U.S. dollar, which is the primary currency in the economic environment in which we conduct our business. A significant portion of our research and development expenses is incurred in New Israeli Shekels ("NIS") and a portion of our revenues and expenses are incurred in British Pounds. The results of our operations are subject to fluctuations in these exchange rates which are influenced by various global economic factors, including inflation in Israel. The effects of foreign currency exchange rates on our results of operations for the years ended December 31, 1997, 1998 and 1999 were immaterial. RESULTS OF OPERATIONS Our historical operating results for each of the three years ended December 31, 1997, 1998 and 1999 as a percentage of total revenues are as follows:
YEAR ENDED DECEMBER 31, ------------------------- 1997 1998 1999 ----- ----- ----- Revenues: Software license.......................................... 53% 65% 52% Service and maintenance................................... 47 35 48 ---- --- --- Total revenues......................................... 100 100 100 Cost of revenues: Software licenses......................................... -- -- -- Service and maintenance................................... 45 38 42 ---- --- --- Total cost of revenues................................. 45 38 42 ---- --- --- Gross profit................................................ 55 62 58 Operating expenses: Research and development expenses, net.................... 58 38 28 Sales and marketing expenses.............................. 137 99 80 General and administrative expenses....................... 48 22 18 Share based compensation.................................. -- -- 7 ---- --- --- Total operating expenses............................... 243 159 133 ---- --- --- Loss from operations........................................ (188) (97) (75) Interest and other (expenses) income, net................... (6) -- (2) ---- --- --- Net loss.................................................... (194)% (97)% (77)% ==== === ===
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 Revenues. Revenues increased $4.2 million or 70% to $10.3 million in 1999 from $6.1 million in 1998. In 1998 revenues increased $3.8 million or 165% to $6.1 million, from $2.3 million in 1997. Revenues from clients outside North America accounted for 32% of revenues during 1999, 29% of revenues during 1998 and 64% of revenues during 1997. Software License. Software license revenues were $5.4 million or 52% of revenues in 1999, $3.9 million or 65% of revenues in 1998 and $1.2 million or 53% of revenues in 1997. The increase in software license revenues was primarily due to increased volumes of the number of ClickSchedule licenses sold through growth of our client base among Internet access and telecommunication service companies and recurring sales to our installed base of clients. The decrease in software license revenues as a percentage of revenues in 1999 was primarily due to the fact that many of our new implementations require higher initial service and maintenance and a small number of software licenses. Service and Maintenance. Service and maintenance revenues were $4.9 million or 48% of revenues in 1999, $2.1 million or 35% of revenues in 1998 and $1.1 million or 47% of revenues in 1997. The increase 26 28 in service and maintenance revenues from 1998 to 1999 was primarily due to an increase in the number of our clients during these periods, and increased sales of professional services related to ClickSchedule, primarily implementations, that these new clients require. The increase in service and maintenance revenues from 1997 to 1998 was due primarily to increased sales of ClickSchedule software licenses. Cost of Revenues. Cost of revenues were $4.4 million or 42% of revenues in 1999, $2.3 million or 38% of revenues in 1998 and $1.1 million or 45% of revenues in 1997. This increase in the cost of revenues on an absolute basis was due primarily to increased client demand for our professional services and our increased use of third party contractors to provide a portion of these services. Gross profit was 58% in 1999 as compared to 62% in 1998 and 55% in 1997. These fluctuations are primarily due to the changing mix of service and maintenance revenues compared to software license revenues. Our service and maintenance revenues have significantly lower gross margins than our software license revenues. Cost of Software Licenses. Cost of software license revenues were $71,000 in 1999, $25,000 in 1998 and $13,000 in 1997. Cost of software license revenues were less than 1% of revenues in 1999, 1998 and 1997. Cost of Service and Maintenance. Cost of service and maintenance revenues were $4.3 million or 42% of revenues in 1999, $2.3 million or 38% of revenues in 1998, and $1.0 million or 45% of revenues in 1997. This increase in the cost of service and maintenance revenues from 1998 to 1999 was due primarily to increased professional services and payments to third party consultants related to our ClickService product line. The total number of professional services employees employed by us was 37 on December 31, 1999, 24 on December 31, 1998 and 14 on December 31, 1997. Operating Expenses. Total operating expenses were $13.7 million or 133% of revenues in 1999, $9.6 million or 159% of revenues in 1998 and $5.6 million or 243% of revenues in 1997. Research and Development Expenses, Net. Research and development expenses, net of related grants, were $2.9 million or 28% of revenues in 1999, $2.3 million or 38% of revenues in 1998 and $1.3 million or 58% of revenues in 1997. We received or accrued grants from the Chief Scientist in the amounts of $1.0 million in 1999, $0.9 million in 1998 and $0.5 million in 1997. The increase in research and development expenses on an absolute basis was primarily due to increased personnel related costs related to our ClickSchedule and ClickFix product lines. We are continuing to invest substantially in research and development, and we expect that research and development expenses will increase on an absolute basis in the future. Sales and Marketing Expenses. Sales and marketing expenses were $8.3 million or 80% of revenues in 1999, $6.0 million or 99% of revenues in 1998 and $3.2 million or 137% of revenues in 1997. The increase in 1999 was primarily due to additional sales and marketing efforts related to the new marketing focus for our ClickService product line in the fourth quarter. We expect that sales and marketing expenses will increase on an absolute basis in future periods, as we hire additional sales and marketing personnel, continue to promote our brand and establish sales in additional geographic areas. General and Administrative Expenses. General and administrative expenses were $1.8 million or 18% of revenues in 1999, $1.3 million or 22% of revenues in 1998 and $1.1 million or 48% of revenues in 1997. We expect that the absolute dollar amount of general and administrative expenses will continue to increase as we expand our operations and incur incremental costs of being a public company. Share Based Compensation. Share based compensation for the year ended December 31, 1999 amounted to $0.7 million. Deferred compensation at December 31, 1999 amounted to $2.7 million which will be amortized over the period during which the options vest, generally four years. Interest and Other (Expenses) Income, Net. Interest expenses, net, were $0.3 million or 2% of revenues in 1999, income was $33,000 or less than 1% of revenues in 1998 and expenses were $0.2 million or 6% of revenues in 1997. Income Taxes. As of December 31, 1999, we had approximately $9.8 million of Israeli net operating loss carryforwards, approximately $10.0 million of U.S. federal net operating loss carryforwards and 27 29 approximately $0.7 million of British net operating loss carryforwards available to offset future taxable income. The Israeli and British net operating loss carryforwards have no expiration date. The U.S. net operating loss carryforwards will expire in various amounts in the years 2008 to 2013. QUARTERLY RESULTS OF OPERATIONS The following table presents our historical unaudited quarterly results of operations for the four quarters ended December 31, 1999. This data is unaudited and derived from our audited annual Consolidated Financial Statements and Notes appearing elsewhere in this prospectus. In the opinion of management, such quarterly financial information has been prepared on the same basis as our annual financial statements and includes all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial results set forth therein. The statement of operations data should be read in conjunction with the Consolidated Financial Statements and Notes in this prospectus. Our results of operations have fluctuated and are likely to continue to fluctuate significantly from quarter to quarter. Results of operations for any previous quarter are not necessarily indicative of results for any future period.
THREE MONTHS ENDED ----------------------------------------------------------------- MAR. 31, 1999 JUNE 30, 1999 SEPT. 30, 1999 DEC. 31, 1999 ------------- ------------- -------------- ------------- (DOLLARS IN THOUSANDS) Revenues: Software license..................... $ 758 $ 1,033 $ 1,352 $ 2,271 Service and maintenance.............. 1,271 1,308 1,407 926 ------- ------- ------- ------- Total revenues.................... 2,029 2,341 2,759 3,197 Cost of revenues: Software license..................... 7 11 3 50 Service and maintenance.............. 925 958 1,156 1,260 ------- ------- ------- ------- Total cost of revenues............ 932 969 1,159 1,310 ------- ------- ------- ------- Gross profit........................... 1,097 1,372 1,600 1,887 Operating expenses: Research and development expenses, net............................... 553 625 843 889 Sales and marketing expenses......... 1,894 1,811 1,993 2,576 General and administrative expenses.......................... 423 435 404 497 Share based compensation............. -- -- 295 443 ------- ------- ------- ------- Total operating expenses.......... 2,870 2,871 3,535 4,405 ------- ------- ------- ------- Loss from operations................... (1,773) (1,499) (1,935) (2,518) Interest and other (expenses) income, net.................................. (22) (65) 85 (252) ======= ======= ======= ======= Net loss............................... $(1,795) $(1,564) $(1,850) $(2,770) ======= ======= ======= =======
28 30
THREE MONTHS ENDED ----------------------------------------------------------------- MAR. 31, 1999 JUNE 30, 1999 SEPT. 30, 1999 DEC. 31, 1999 ------------- ------------- -------------- ------------- AS A PERCENTAGE OF TOTAL REVENUES: Revenues: Software license..................... 37% 44% 49% 71% Service and maintenance.............. 63 56 51 29 ------- ------- ------- ------- Total revenues.................... 100 100 100 100 Cost of revenues: Software license..................... -- -- -- 2 Service and maintenance.............. 46 41 42 39 ------- ------- ------- ------- Total cost of revenues............ 46 41 42 41 ------- ------- ------- ------- Gross profit........................... 54 59 58 59 Operating expenses: Research and development expenses, net............................... 27 27 30 28 Sales and marketing expenses......... 93 77 72 81 General and administrative expenses.......................... 21 19 15 15 Share based compensation............. -- -- 11 14 ------- ------- ------- ------- Total operating expenses.......... 141 123 128 138 ------- ------- ------- ------- Loss from operations................... (87) (64) (70) (79) Interest and other (expenses) income, net.................................. (1) (3) 3 (8) ------- ------- ------- ------- Net loss............................... (88)% (67)% (67)% (87)% ======= ======= ======= =======
Our 1999 quarterly operating results were driven primarily by the continued acceptance of our ClickSchedule and ClickFix product lines, and increased expenses related to these products. Our revenues grew on a quarterly basis during 1999 due to the addition of 17 new clients and increased levels of recurring sales to existing clients. The increase in the cost of revenues was due primarily to the increase in the number of our professional services personnel from 23 at the beginning of 1999 to 37 at the end of 1999. For example, in the quarter ended December 31, 1999, the gross margin on service and maintenance was negative due to the substantial increase in the number of professional services personnel hired during this period. Research and development expenses, net, increased primarily due to the continued development of our ClickSchedule and ClickFix product lines. The increase in sales and marketing expenses is attributable to the new marketing campaign for our ClickSchedule and ClickFix product lines and costs related to increased sales personnel and spending on trade shows and media advertising. General and administrative expenses increased in the fourth quarter primarily due to greater personnel expenses and costs associated with our anticipated public offering. We intend to further increase our sales and marketing expenses as we continue to promote our ClickSchedule and ClickFix product lines and also anticipate general and administrative expenses will increase as a result of this offering. The amount and timing of our operating expenses generally will vary from quarter to quarter depending on our level of actual and anticipated business activities. Our revenues and operating results are difficult to forecast and will fluctuate, and we believe that period-to-period comparisons of our operating results will not necessarily be meaningful. Additionally, as a strategic response to a changing competitive environment, we may elect from time to time to make pricing, service, marketing or acquisition decisions that could have a negative effect on our quarterly financial performance. Our operating history has shown that a significant percentage of our quarterly revenues come from orders placed toward the end of a quarter. A delay in the completion of a sale past the end of a particular quarter could negatively impact results for that quarter. In addition, we expect that revenues in the first quarter of each year will be lower than in the last quarter of the previous year primarily due to the seasonality resulting from our current and prospective clients' budgetary, procurement and sales cycles. Our future quarterly operating results may not 29 31 meet the expectations of security analysts or investors in any given quarter, which may cause our ordinary shares to decline significantly. LIQUIDITY AND CAPITAL RESOURCES Since our inception, we have funded operations primarily through the private placement of equity securities and, to a lesser extent, borrowings from financial institutions. As of December 31, 1999, we had cash and cash equivalents of $7.8 million. Cash used in operations includes expenditures associated with research and development activities and marketing efforts related to promotion of our products. For the year ended December 31, 1999, cash used in operations was $6.5 million, comprised of the net loss of $8.0 million, an increase in trade receivables of $1.9 million, partially offset by non-cash charges of $1.3 million, and an increase in accrued expenses of $1.1 million and an increase in deferred revenues of $1.1 million. For the year ended December 31, 1998, cash used in operations was $6.7 million, comprised of the net loss of $5.9 million, an increase in trade receivable of $1.1 million, partially offset by non-cash charges of $0.3 million. For the year ended December 31, 1997, cash used in operations was $4.6 million, comprised of the net loss of $4.5 million, an increase in accounts receivable of $0.6 million, partially offset by non-cash charges of $0.4 million, and an increase in deferred revenues of $0.3 million. As of December 31, 1999, we had outstanding trade receivables of approximately $4.0 million. Trade receivables represent approximately 38% of 1999 total revenues. Our trade receivables typically have 30 to 60 day terms, although we also negotiate longer payment plans with some of our clients. Of the trade receivables outstanding as of December 31, 1999 approximately $1.3 million or 33% of our receivables have longer than 60 day terms. Expenditures on property and equipment were approximately $0.7 million for the year ended December 31, 1999, $1.0 million in 1998 and $0.2 million in 1997. From our inception through December 31, 1999, we have raised approximately $31.7 million, net of issuance costs, from sales of equity securities, consisting of $11.4 million in 1999, $11.7 million in 1998, $4.9 million in 1997, and $1.7 million prior to 1997. In 1997, we raised approximately $2.0 million from a convertible note that converted into equity securities in 1998. Additionally, we have used debt to partially finance our capital purchases secured by charges on these assets. As of December 31, 1999, we had outstanding approximately $0.4 million of these long-term loans. We also have a revolving, accounts receivable-based, secured credit facility of up to $2.5 million for working capital purposes. The line of credit is limited to 80% of eligible trade receivables and amounts outstanding bear interest at the U.S. prime rate plus 1%. As of December 31, 1999 there were no amounts outstanding under this facility. Our capital requirements depend on numerous factors, including market acceptance of our products, the resources we devote to developing, marketing, selling and supporting our products, the timing and extent of establishing additional international operations and other factors. We intend to continue investing significant resources in our sales and marketing and research and development operations in the future. We also expect to incur capital expenditures of approximately $0.7 million in connection with the relocation of our California facilities. We believe that our current cash balances along with the proceeds raised from this offering will be sufficient to fund our operations for at least the next twelve months. After that time, we cannot assure you that cash generated from operations will be sufficient to satisfy our liquidity requirements, and we may need to raise additional capital by selling additional equity or debt securities or by increasing the size of our credit facility. If additional funds are raised through the issuance of equity or debt securities, these securities could have rights, preferences and privileges senior to those of holders of ordinary shares, and the terms of these securities could impose restrictions on our operations. The sale of additional equity or convertible debt securities could result in additional dilution to our shareholders, and we cannot be certain that additional financing will be available in amounts or on terms acceptable to us, if at all. If we are unable to obtain this additional financing, we may be required to reduce the scope of our planned product development and marketing efforts, which could harm our business, financial condition or operating results. 30 32 EFFECTIVE CORPORATE TAX RATE Our tax rate will reflect a mix of the United States statutory tax rate on our United States income and the Israeli tax rate discussed below. We expect that most of our taxable income will be generated in Israel. Israeli companies are generally subject to income tax at the rate of 36% of taxable income. The majority of our income, however, is derived from our company's capital investment program with "Approved Enterprise" status under the Law for the Encouragement of Capital Investments, and is eligible therefore for tax benefits. Pursuant to these benefits, we will enjoy a tax exemption on income derived during the first two years in which this investment program produces taxable income, subject to certain timing restrictions, provided that we do not distribute such income as a dividend, and a reduced tax rate of 10-25% for the next 5 to 8 years. See "Israeli Taxation and Investment Programs -- Law for the Encouragement of Capital Investments, 1959." There can be no assurance that we will obtain approval for additional Approved Enterprises Programs, or that the provisions of the law will not change. Since we have incurred tax losses through December 31, 1999, we have not yet used the tax benefits for which we are eligible. See "Risk Factors" and Note 13 to our Consolidated Financial Statements. IMPACT OF INFLATION AND CURRENCY FLUCTUATIONS Our sales are primarily in U.S. dollars and, to a lesser extent, British pounds. However, a significant portion of the cost of our Israeli operations, mainly personnel and facility-related expenses, is incurred in NIS. Accordingly, inflation in Israel and dollar exchange rate fluctuations have some influence on our expenses and, as a result, on our net income. Any increase in the rate of inflation in Israel will increase the dollar cost of our operations in Israel, unless the increase is offset on a timely basis by a devaluation of the NIS in relation to the dollar. In 1997 and 1998, the rate of devaluation of the NIS against the dollar has exceeded the rate of inflation. This was not the case in 1999. We have benefited from the 1999 reversal, but we cannot be certain that it will continue, or that the rate of inflation will not rise. We cannot be certain that we will not be materially adversely affected in the future if inflation in Israel exceeds the devaluation of the NIS against the dollar or if the timing of such devaluation lags behind increases in inflation in Israel. We do not presently engage in any hedging or other transactions intended to manage risks relating to foreign currency exchange rate or interest rate fluctuations. We also do not own any market risk sensitive instruments. However, we may in the future undertake hedging or other similar transactions or invest in the market risk sensitive instruments if management determines that it is necessary to offset these risks. See "Risk Factors -- Risks Relating to Our Location in Israel." The representative dollar exchange rate for converting the NIS to dollars, as reported by the Bank of Israel, was 3.54 NIS for one dollar U.S. on December 31, 1997, 4.16 NIS for one dollar U.S. on December 31, 1998 and 4.15 NIS for one dollar U.S. on December 31, 1999. YEAR 2000 READINESS The year 2000 issue is the potential for system and processing failures of date-related data and is the result of the computer-controlled systems using two digits rather than four to define the applicable year. For example, computer programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices or engage in similar normal business activities. We have designed our products for use in the year 2000 and beyond. To date, our products have not revealed any significant year 2000 problems. As of February 2, 2000, we have not experienced any significant issues as a result of year 2000 problems and do not anticipate incurring material incremental costs in future periods due to such issues. 31 33 QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK The following discusses our exposure to market risk related to changes in interest rates, equity prices and foreign currency exchange rates. This discussion contains forward-looking statements that are subject to risks and uncertainties. Actual results could vary materially as a result of a number of factors including those set forth in the risk factors section of this prospectus. Foreign Currency Exchange Rate Risk We develop products in Israel and sell them primarily in North America and Europe. As a result, our financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets. As most of our sales are currently made in U.S. dollars, a strengthening of the dollar could make our products less competitive in foreign markets. Our interest income is sensitive to changes in the general level of U.S. interest rates, particularly since the majority of our investments are in short-term instruments. We regularly assess these risks and have established policies and business practices to protect against the adverse effects of these and other potential exposures. As a result, we do not anticipate material losses in these areas. Due to the nature of our short-term investments, we have concluded that there is no material market risk exposure. Therefore, no quantitative tabular disclosures are required. Interest Rate Risk As of December 31, 1999, we had cash and cash equivalents of $7.8 million which consist of cash and highly liquid short-term investments. Our short-term investments will decline in value by an immaterial amount if market interest rates increase, and, therefore, our exposure to interest rate changes has been immaterial. Declines of interest rates over time will, however, reduce our interest income from our short-term investments. As of December 31, 1999, we had total short term debt of $0.3 million and long-term debt net of current maturities of $0.2 million which bear interest at rates that are linked to LIBOR or the Israeli consumer price index. We also have a revolving, accounts receivable-based, secured credit facility of up to $2.5 million for working capital purposes. Amounts outstanding bear interest at the U.S. prime rate plus 1%. As of December 31, 1999, there were no amounts outstanding under this facility. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 established accounting and reporting standards requiring that every derivative instrument be recorded in the balance sheet at its fair value. SFAS No. 133 requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement. SFAS No. 133 is effective for fiscal years beginning after June 15, 2000. We believe that the adoption of SFAS No. 133 will not have a material effect on our financial statements. In December 1998, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 98-9. "Modification of SOP 97-2, Software Revenue Recognition, with Respect to Certain Transaction". SOP 98-9 amends SOP 97-2 and SOP 98-4 by extending the deferral of the application of certain provisions of SOP 97-2 amended by SOP 98-4 through fiscal years beginning on or before March 15, 1999. All other provisions of SOP 98-9 are effective for transactions entered into in fiscal years beginning after March 15, 1999. We do not anticipate that this statement will have a material impact on our statement of operations. 32 34 GRANTS FROM THE GOVERNMENT OF THE STATE OF ISRAEL In connection with our research and development, we have received participation grants from the Chief Scientist of the State of Israel in the total amount of $2.9 million. In return for the Government of Israel participation, we are committed to pay royalties at a rate of 3% to 5% of sales of the developed product, up to 100% - 150% of the amount of grants received. We have paid royalties to date of $0.8 million. In connection with our export marketing activities, we have received participation payments from the Government of Israel through the Fund for the Encouragement of Marketing Activities in the amount of $0.7 million. We committed to pay royalties at a rate of 3% of the increase in export sales over a base amount, up to the amount of the participations received. We have accrued or paid royalties to date amounting to $0.3 million. The Government of Israel does not own proprietary rights in any technology developed using its funding and there is no restriction on the export of any products manufactured using the technology. Some restrictions with respect to the technology do apply, however, including the obligation to manufacture the product based on the funded technology in Israel and to obtain the Chief Scientist's consent for the transfer of the technology to a third party, for the merger or acquisition of our company or for any transfer of our shares by an Israeli shareholder to a non-Israeli shareholder. These restrictions will continue to apply to us even when we have paid the full amount of royalties payable in respect of the grants. If the Chief Scientist consents to the manufacture of the products outside Israel, the regulations allow the Chief Scientist to require the payment of increased royalties, ranging from 120% to 300% of the amount of the Chief Scientist grant, depending on the percentage of foreign manufacture. If we determine to manufacture our product outside of Israel, there can be no assurance that we will receive approval from the Chief Scientist. In the event that we do receive approval, we may be required to pay the Chief Scientist additional royalties. 33 35 BUSINESS We provide web-based infrastructure application software that enables companies to efficiently fulfill service and product delivery in enterprise environments and over the Internet. Our ClickSchedule product line allows our clients to optimize resource utilization while offering their customers ease of use and convenience when procuring services and products. Our ClickFix product line facilitates the process of automated diagnosis and troubleshooting of equipment. ClickSchedule and ClickFix are designed to enable our clients to offer their customers the opportunity to schedule services and obtain self-help directly over the Internet. Our solution is designed to enable our clients to increase productivity, which can result in reduced costs and increased revenue opportunities that otherwise would have been lost. INDUSTRY BACKGROUND Growing Market for Service and Product Delivery The market for service and product delivery has experienced significant growth, both in terms of the variety of services and products available as well as transaction volume. Businesses engaged in service and product delivery must deploy substantial resources in order to schedule and complete transactions that require a same time and/or same place interaction between the service provider and the customer. Examples of these services include telephone, cable and Internet access installation, computer and appliance delivery and repair, and delivery of other consumer goods. In order to schedule these transactions, most of these service providers expend substantial resources to maintain telephone call centers staffed with customer service representatives, or CSRs, who answer calls from customers and assign and schedule service and fulfillment resources. According to International Data Corporation, worldwide call center services revenues are estimated to increase from $23.1 billion in 1998 to $58.6 billion in 2003. Supply chain optimization technology successfully enabled manufacturing organizations, which mainly rely on raw materials, machines and production lines, to streamline their operations and begin to take advantage of the benefits that the Internet offers. In contrast, service organizations, which mainly rely on personnel, are still facing significant challenges in today's economy: - Service operations face increasing pressure to allocate scarce resources and reduce operating costs in order to improve profitability; - The scheduling of service personnel to customers and the effective planning of their schedules and travel routes is a complex problem that involves many parameters and business rules; - In today's high speed economy, customers expect real-time responses to their scheduling and troubleshooting needs; - Call centers, which often require customers to wait in phone queues for extended periods of time, are an inconvenient medium of communication; - Global deregulation of industries, such as telecommunications and utilities, are driving many businesses into a new era of intense competition, further increasing the need to improve their customer service while lowering the total cost of service; - Knowledge gained by service personnel in solving equipment related problems must be shared with other service personnel in an organization and made available to its customers; and - The inability of service organizations to effectively schedule the fulfillment of the services they offer to their customers also inhibits their ability to offer services online. Customer Service is Critical in Today's Economy To build and maintain relationships with customers, businesses are attempting to improve the quality and speed of their service and product fulfillment in order to distinguish themselves from their competitors. This competitive edge may be even more important in today's business environment where customers expect rapid and comprehensive customer service, and companies that fail to provide superior customer 34 36 service may lose sales and customers to competitors located a phone call or mouse click away. Whether scheduling telephone or Internet access installation or the repair of office equipment, consumers and businesses need to be assured that services and products will be delivered quickly and efficiently. Currently, to obtain service, customers must rely on traditional methods of communication and contact CSRs, either in person, by phone, or by e-mail. Growing Use of the Internet in the Fulfillment of Service and Product Delivery The emergence and acceptance of the Internet as a medium for commerce is fundamentally changing the way companies communicate with their customers and offer services and products. Growing numbers of companies are transacting business online in an attempt to capitalize on the compelling benefits that the Internet offers, including increased revenue, reduced operating costs and improved customer retention. International Data Corporation estimates that business-to-business and business-to-consumer transactions will grow from $50.4 billion in 1998 to over $1.3 trillion in 2003. Businesses such as utilities and telecommunications service providers have only begun to recognize the benefits that the Internet can offer in delivering services to their customers. Traditional "bricks and mortar" businesses are finding that they also must offer their services and goods online in order to remain competitive, as Internet-based businesses offering services and products online acquire increasing market share. Forrester Research estimates that the percentage of Fortune 1000 companies, that are using the Internet as a channel for commerce will increase from 23% in 1999 to 93% in 2002. Because customers have a growing number of easily accessible choices both on and off the Internet, companies must differentiate their products and services to meet customers' individual requirements and build and maintain customer loyalty. Need to Enable Online Solutions for the Fulfillment of Service and Product Delivery Service organizations have continued to rely primarily on conventional methods of scheduling the fulfillment of services primarily via telephone-based customer service representatives. For traditional businesses, the inability to effectively schedule the fulfillment of services also inhibits their ability to grow their business online. For online businesses, this requires an inconvenient two-step process involving online and telephone interaction, which is inefficient, costly and difficult to manage, and is proving to be the bottleneck for an otherwise streamlined online transaction. While applications aimed at cost reduction in the supply chain have generally been successful, service organizations have realized that these initiatives are only part of the solution of providing seamless and timely fulfillment of services and products. In the face of growing business challenges, such as the high cost of attracting new customers, the proliferation of customer purchasing options, increased customer sophistication and decreased customer loyalty, the importance of on-time fulfillment of services continues to increase. Service organizations are seeking a solution that enables them to improve customer service as well as optimize and allocate internal resources. These organizations are coping with these challenges in various ways, ranging from developing software tools internally to increasing the number of service personnel they employ. These approaches have difficulty scaling cost-effectively to keep pace with the current volume of business and the rapid expansion of transactions and do not provide the need for timely fulfillment of services and products. In addition, these approaches do not offer a solution for the limitations of the telephone as a medium of communication and are very limited in the amount of personalization they offer to the calling customer. Accordingly, there is a need for a new class of applications and technologies designed to optimize the utilization of fulfillment resources and ensure successful completion of online transactions. THE CLICKSERVICE SOLUTION We provide web-based infrastructure application software that enables companies to efficiently fulfill service and product delivery in enterprise environments and over the Internet. Our ClickSchedule product line enables our clients to optimize resource utilization while offering their customers ease of use and convenience while procuring services and products. Our ClickFix product line facilitates the process of automated diagnosis and troubleshooting of equipment. ClickSchedule and ClickFix are designed to enable 35 37 our clients to offer their customers the opportunity to schedule appointments and self-help services directly over the Internet. Our solution offers the following benefits to our clients and their customers: - Greater Customer Service. Our products enable our clients to offer their customers better customer service, including the ability to schedule the delivery of services and products online. Clients using our solution provide their customers with more control over the fulfillment process by offering instant quotes of narrow appointment time windows, flexibility to choose from a greater variety of options, and immediate confirmation of scheduled appointments, leading to an enhanced customer experience and increased convenience. - Optimized Utilization of Fulfillment Resources. Our solution offers the efficient optimization of service and product fulfillment resources for both our business-to-business and business-to-consumer clients, providing: - significant cost savings due to optimized utilization of resources such as field representatives, CSRs and delivery vehicles; - scalability to manage increased customer calls as clients' businesses grow; - greater customer satisfaction and retention as a result of increased scheduling flexibility and more timely completion of transactions; and - more visibility and control over fulfillment resources by providing access to optimization data and graphical representations of individual resource allocation status and needs. ClickSchedule allows our clients to create and configure optimization parameters for their business needs, such as required service levels, geographic territories, overtime policies, outsourcing availability and other company-specific requirements. It continuously monitors the status of the client's logistical resources and automatically allocates these resources efficiently in response to changing demands and resource availability. - Seamless Integration into Existing Client Environments. Our solution is designed to integrate with back-end enterprise resource planning, or ERP, applications and front-end customer relationship management, or CRM, applications for real-time resource optimization and allocation. By using already existing customer and internal company data, we believe our solution allows companies to turn their currently under-utilized applications into powerful and robust competitive tools. Our solution empowers our clients to offer their customers a streamlined, end-to-end online purchasing and improved customer service experience. We believe our solution provides a simple, one-stop, real-time appointment scheduling and self-help experience for customers. - Rapid Return on Investment. We believe that once our products are integrated and customized for specific client needs, immediate efficiencies can be realized. These efficiencies in resource utilization translate into capturing revenue opportunities that otherwise would have been lost, resulting in a rapid return on investment. We believe our solutions integrate with our clients' existing software applications and infrastructure in a shorter period of time than typically required to deploy similar solutions. As a result, our clients can more quickly deploy our products in a cost-effective manner, further improving their return on investment. THE CLICKSERVICE STRATEGY Our objective is to be the leading provider of web-based infrastructure application software for optimizing service operations of business-to-business and business-to-consumer enterprises. The key elements of our strategy include: - Capitalize on Our Existing Market Acceptance and Extend Our Brand Recognition. We believe we are a market leader in the deployment of service scheduling solutions with resource optimization capabilities. By building on our existing technology, we intend to be the leader in providing resource optimization solutions to businesses that must support operator assisted and Internet transactions. 36 38 We intend to invest further to capitalize on our existing market acceptance and further extend our brand recognition. - Enhance Our Sales and Implementation Channels. We intend to expand our direct sales force and enhance our indirect sales program with additional strategic relationships. We intend to increase the number of direct sales personnel focusing on specific industries and geographic areas. We currently have business relationships with leading ERP and CRM vendors including Astea, Clarify, JD Edwards, PeopleSoft and SAP. These relationships provide us with access to new customers as well as their existing installed bases. We intend to enter into relationships with additional consulting firms and other implementation partners to expand our coverage of geographic locations and augment our internal professional services organization. Finally, we intend to form additional relationships with OEMs and resellers in order to strengthen our market position. - Extend the Breadth and Depth of Our Product Offerings. Our core technologies are based on over ten years of research and development. Our strategy is to continue to invest in research and development of our core technologies and our product offerings to provide more functionality and to increase our competitive advantage. We are developing offerings to provide decision support capabilities such as forecasting, resource planning, capacity planning, and monitoring. We also intend to offer new products which provide online comparison and bidding capabilities based on service and delivery availability as well as pricing. - Target Online Service Businesses. We believe our products are designed to address the specific scheduling and fulfillment needs of online service businesses. Our products incorporate many web-based technologies, such as XML, browser interfaces and server side scripting, which provide scalability and speed of integration. We intend to develop relationships with Internet service portals that offer their customers online scheduling of various services, such as interior design, home improvement, painting, plumbing and landscaping. We intend to also target various application service providers that are seeking to offer hosted services including self-help and scheduling solutions. - Provide Customized Solutions for Additional Industries. Our ClickSchedule product line provides a scheduling and service fulfillment optimization package that can be customized to meet specific business rules established by our clients. We believe we have developed experience in specific industries, such as telecommunications and Internet access, and we intend to pre-configure versions of our products for additional industries such as financial services and health care. PRODUCTS We have two product lines, ClickSchedule and ClickFix, which we sell to companies to effectively fulfill service and product delivery in enterprise environments and over the Internet. ClickSchedule ClickSchedule is a web-centric scheduling solution that enables service organizations and their customers to schedule service, installation, product delivery and consulting. ClickSchedule, which is based on our W-6 Service Scheduler technology, addresses the dual challenge of simultaneously optimizing for company resource utilization and customer responsiveness. ClickSchedule allows our clients to customize their optimization parameters such as service levels, geographic territories, overtime policies, outsourcing availability and other company-specific business policies in order to optimize their internal resource utilization. ClickSchedule provides a scalable solution that supports changes in business policies, and increases in customer calls and the amount of client resources available to allocate and schedule. In addition, ClickSchedule offers a web-based scheduling feature which enables our clients' customers to directly schedule appointments online, which we believe will result in improved customer satisfaction. ClickSchedule performs scheduling functions by integrating with our clients' CRM applications. Using a CRM application, an online customer or a CSR providing information on behalf of the customer, provides details regarding the service request, such as the customer's name, location, desired service or 37 39 product and requested time of delivery. The CRM application transmits the details regarding the request to the ClickSchedule web server. The ClickSchedule software application examines the business rules established by the client, the client's available resources, such as service technicians' appointment schedules and routes and then immediately recommends preferred scheduling options based on the parameters of the customer's request. The CRM application then presents the scheduling options to the customer or CSR and finally provides notification of the customer's selection back to ClickSchedule. Primary features of ClickSchedule include:
PRIMARY FEATURES DESCRIPTION - ---------------------------------------- ---------------------------------------------------------- Sophisticated optimization capabilities - Provides instant and accurate response. - Allows application of multiple client business rules. - Can be customized for specific client needs. Continuous optimization - Improves resource scheduling and route optimization. - Automatic real-time adjustment of scheduling according to changes in customer requests and resource availability. Open web-based architecture - Enables seamless integration with clients' other information systems, such as CRM and ERP applications. - Allows easy access via a browser. Scalability - Supports thousands of requests per hour. - Enables scheduling of thousands of client resources. Real time monitoring - Permits tracking of service delivery execution. XML interface - Enhances integration with other web applications.
ClickBroker and ClickAnalyze, which we expect to introduce in the second quarter of 2000, are add-ons to ClickSchedule. ClickBroker is intended to offer comparisons of service availability and price comparisons, along with bidding capabilities, to customers for use over the Internet. ClickAnalyze is intended to provide our clients with the ability to monitor and review key business performance metrics of their service operations, such as the percentage of on-time appointments. ClickFix ClickFix is a web-centric troubleshooting solution, which offers equipment-related problem resolution support. ClickFix supports the complete call life cycle from home users to help-desk operators and service engineers and technicians on-site. ClickFix's web-based architecture is designed to enable equipment owners or service personnel access over the Internet by logging into a service provider's web site. The ClickFix application allows the user to either select from a list of common or potential problems associated with the particular equipment or to enter a free-text description of the actual problem. Based on information provided by the user as well as knowledge obtained from prior troubleshooting experiences with the same equipment, ClickFix 'walks' the user through the problem resolution process and proposes corrective actions. In addition, ClickFix has a remote diagnostics capability that enables the equipment itself to "phone in" for a service request and trigger the problem resolution sequence. ClickFix has self- 38 40 learning algorithms that enable it to expand its problem resolution knowledge base. Primary features of ClickFix include:
PRIMARY FEATURES DESCRIPTION - ----------------------------------- -------------------------------------------------------------- Optimizes the diagnostic process - Decreases number of steps required to diagnose. - Increases first time fix rate. Supports remote connectivity - Enables performance of remote diagnostics. - Enables connectivity with various hand-held devices. Facilitates predictive maintenance - Allows for automatic detection of potential problems before they occur. - Automatic creation of service orders when faults are detected. Open web-based architecture - Enables seamless integration with clients' other information systems, such as CRM and ERP applications. Online documentation - "How to fix" instructions online. "Learning" capability - Automatic enhancement of knowledge base over time. - Knowledge authoring tools for efficient creation of knowledge base.
TECHNOLOGY Our ClickSchedule and ClickFix product lines are based upon our internally developed core technologies, W-6 Service Scheduler and TechMate. These two core technologies have been developed over the last decade and include sophisticated algorithms and business scenario representation tools. Over the years we have gained vast experience with the complex scheduling and troubleshooting needs of service organizations. These scheduling and troubleshooting needs involve scheduling personnel, rather than machines and raw materials, and are therefore different from and more complex than the scheduling needs of supply chain or manufacturing operations. We have incorporated many of the complex needs of service organizations into our products, such as optimization objectives, skill levels and labor policies. Our applications are fully standards-based and are designed for the Internet. Our applications can be run on standard web browsers and servers and support leading relational database management systems, including Oracle and Microsoft SQL Server. The multi-tier architecture connects browser-based applications to Windows NT application servers through local area networks, wide area networks, intranet or Internet connections. Our technology performs messaging between clients and the application server in real time over TCP/IP. Our applications are inherently scalable due to our multi-tier architecture that uses thin clients, multi-threaded application servers and relational databases. Specifically, our core technologies include: - Internally developed scheduling optimization algorithms. These algorithms provide efficient solutions for complex scheduling problems arising from, among others, the following: - the vast number of possible solutions associated with optimized scheduling of personnel; - the number of service organization-specific resources and variables; - the need to instantly respond to concurrent users' service requests; - the vast number of potential routes within a specific geographic area; and - various time zone considerations. - Sophisticated service business scenario modeling. We have developed models based on a vast number of variables and resource characteristics common to service organizations. By employing 39 41 these models, we can use our algorithms to address the market needs of different segments of the service industry. - Open, multi-tiered architecture. Our architecture incorporates the following key capabilities: - An application server capable of performing high-speed optimization and problem resolution; - Extensible Markup Language, or XML, Application Programming Interface, which enables other applications to access the data and services of ClickSchedule; and - Object-oriented code that can be re-used for future products. The following diagram describes our ClickSchedule product architecture: LOGO Depicted on this page is a diagram of the ClickSchedule architecture Industry Segment Specific Layer Business oriented Programming Interface -- COM based Business oriented Programming Interface -- XML based Web Application Server Industry specific algorithm solution Industry specific data and knowledge Core Product Technology Scheduling engine Internally Developed Scheduling Programming Interface Algorithms Rules and objectives Optimization engines Scheduling application parameters Events to external systems Infrastructure Internally Developed Infrastructure Programming Interface In memory concurrent object oriented database Relational Database - Problem resolution technology. Our problem resolution technology includes the following key capabilities: - Sophisticated algorithms for fast problem resolution based on equipment model diagrams; - Problem resolution knowledge base with learning capabilities; and - Problem resolution authoring technology based on modeling the equipment structure as well as historical cases. 40 42 The following diagram describes our ClickFix product architecture: LOGO Depicted on this page is a diagram of the ClickFix architecture Interaction Layer Remote Diagnostics Mobile Communication CRM Integration Web Client Business oriented Programming Interface--COM based Web Application Server Application-specific customizations Predictive Maintenance Monitor (MTS component) Core Product Technology Problem Resolution engine Diagnostics Programming Interface--COM Based Model-Based diagnostics algorithms Case-Based Learning Online "How-To" instructions Infrastructure Infrastructure Programming Interface In-memory concurrent object-oriented knowledge base Knowledge Authoring Model-Based Knowledge Historical Cases Data-Import Relational Database PROFESSIONAL SERVICES AND CUSTOMER SUPPORT Our professional services organization is integral to our ability to provide our clients with our software solutions and is staffed by professionals with significant experience in the resource optimization field. We provide our clients with consulting services, upgrades, and comprehensive training and support to help them achieve their business goals with a quick return on investment. We also offer implementation services to assist our clients with the installation and operation of our solutions and also work with the clients' information technology departments to refine and support their strategies for resource optimization. Our consulting services include the following: - Business Analysis Assessment. Our consultants assess the client's current or planned scheduling needs, develop and document a project plan and deliver a design specification to address those needs. We provide a configuration and implementation roadmap to help clients meet their business goals, including a return on their investment. - Project Implementations. Our professional services consultants individually, or as members of our clients' teams, implement and assist in the configuration of our solutions, to accelerate the project deployment schedule and ensure a successful implementation process. These professional service consultants perform the following tasks to implement a ClickSchedule application for a client: - develop a work plan to integrate ClickSchedule with the client's existing information systems, such as CRM or ERP applications; 41 - customize the ClickSchedule logic to meet the client's business needs; and - install and test the application at the client's facilities. 42 43 - ClickSchedule Fast Track. In order to facilitate the acceptance of our ClickSchedule solution, we have recently introduced our ClickSchedule Fast Track to provide accelerated ClickSchedule implementation. We believe this initiative will enable clients to achieve benefits quickly from a rapid implementation of the ClickSchedule solution. Once the ClickSchedule Fast Track implementation is completed we offer enhancements and customizations that provide additional functionality to our ClickSchedule product. Customer support is available by telephone and over the Internet seven days a week, 24 hours a day. This support is provided by the technical support team in our product development group, ensuring detailed product knowledge and access to experts and testing facilities when required. The customer support team works closely with the professional services organization in providing technical support during client project implementations, and transferring completed projects from professional services organization to client support team. CUSTOMERS We sell our products to a broad base of clients representing a variety of industries with unique needs, including telecommunications and telephone and Internet access providers, high-technology service providers and retailers. The following is a representative list of our clients or end-users using our products in an enterprise environment: Agilent Technologies Bell Atlantic Canadian Red Cross Caterpillar Compaq Computer Corporation Covad Communications Crawfords & Company EMC Enbridge Services High Speed Access (HSA) Level 3 Communications Maritime Telephone & Telegraph New Brunswick Telephone Schindler Elevator Montgomery Ward No customer accounted for greater than 10% of revenues during 1999. For the year ended December 31, 1998, sales to the Canadian Red Cross, Caterpillar and Montgomery Ward each constituted greater than 10% of our revenues. For the year ended December 31, 1997, sales to the Canadian Red Cross and the Government of Israel each constituted greater than 10% of our revenues. BUSINESS RELATIONSHIPS An important element of our strategy is to establish relationships and alliances to assist us in marketing, selling and implementing our software solutions. These relationships and alliances fall into the following two categories: - Reseller and joint selling relationships. We have entered into arrangements with leading CRM and ERP vendors under which we join together in our sales efforts or sell software solutions to them for resale to their customers. These vendors include Astea, Clarify, Eftia, JD Edwards, Orbital and SAP. We believe these relationships will extend our presence and brand name in new and existing markets. These partners have committed resources depending on the strength of the relationship, ranging from building an interface for our product, to training their employees, co-marketing programs and incorporating our products into their market strategies. We provide sales materials and training to these resellers on the implementation of our software solutions. - Consulting and implementation relationships. We have business relationships with several consulting and implementation companies where we co-market and promote each other's solutions. In order to improve their opportunity to generate service fees from our customers, each of these entities has committed resources to training their consultants on our products, co-marketing our products with their services and incorporating our products into their CRM market strategies. We believe these relationships will help enable the adoption and deployment of our software. 43 44 SALES AND MARKETING We market and sell our products primarily through our direct sales force, which is located in North America and Europe. Our multi-disciplined sales teams consist of field sales executives, sales support engineers and internal sales staff. The internal sales staff is responsible for generating leads and qualifying prospective clients. Sales support engineers assist the sales executives in the technical aspects of the sales process, including preparing demonstrations and technical proposals. Our sales executives are responsible for completing the sales process and managing the post-sale client relationship. Our management also takes an active role in our sales efforts. Because our solutions have broad functionality, we can rapidly develop custom demonstrations, which we, or our business partners, can use to design models for full-scale implementations. The knowledge gained by our sales and marketing force is also communicated to our development team which uses this knowledge to improve the functionality of our products for specific industries. We typically direct our sales efforts to the chief executive officer, the chief information officer, the vice presidents of customer service and other senior executives responsible for improving customer service at our clients' organizations, including, more recently, executives responsible for the organizations' Internet strategies. We focus our marketing efforts on identifying potential new clients, generating new sales opportunities, and creating awareness in our target markets about the value of our products and their applications. Our programs target prospective clients across a wide variety of industries, business relationships and geographies. In order to effectively promote product awareness, we engage in marketing activities in a wide variety of areas including public relations and analyst relations, creation and placement of advertising, direct mailings and internal and external participation in leading trade shows. Our marketing organization also supports joint marketing activities with our business partners. Our business relationships enable us to use our partners' market presence and sales channels to create additional revenue opportunities. As of December 31, 1999, we employed over 40 individuals in our sales and marketing department. RESEARCH AND DEVELOPMENT We believe that strong product development capabilities are essential to our strategy of enhancing our core technology, developing additional products and maintaining the competitiveness of our product and service offerings. We have invested significant time and resources in creating a structured process for undertaking all product development projects. These include documentation of product requirements, specifying product features and workflow, developing the software, quality assurance, documentation and packaging. Our research and development center in Israel is ISO 9000 compliant and continuously updates its software development procedures to maintain an ongoing improvement process and high quality products. Our future research and development strategies will concentrate on broadening our product offerings to provide more functionality, including decision support capabilities such as forecasting, resource planning, capacity planning and monitoring, and to continue developing packaged offerings for specific vertical industries. Our research and development expenses, prior to participation grants from the Office of the Chief Scientist of the Government of Israel, totaled $3.9 million for the year ended December 31, 1999, $3.1 million for the year ended December 31, 1998, and $1.8 million for the year ended December 31, 1997. As of December 31, 1999, we employed 39 individuals in our research and development group. See "Israeli Taxation and Investment Programs." 43 45 COMPETITION The market for our products is competitive and rapidly changing. We expect competition to increase significantly in the future as current competitors expand their product offerings and new companies enter the market. Our current and potential competitors include: - independent systems integrators, consulting firms and in-house information technology departments of bricks and mortar and Internet-based businesses which may develop their own solutions that compete with our products; - traditional ERP and CRM software application vendors; - software vendors in the utility, telecommunications, Internet access, field services, home delivery and other markets; - providers of scheduling tools and components as well as various logistics solutions providers; and - providers of resource optimization tools for other sectors of the economy, such as providers of supply chain optimization tools. Some of our current and potential competitors have greater name recognition, longer operating histories, larger customer bases and significantly greater financial, technical, marketing, public relations, sales, distribution and other resources than we do. Some of our potential competitors are among the largest and most well-capitalized software companies in the world. Competition could result in price reductions, fewer customer orders, reduced gross margin and loss of market share, any of which could cause our business to suffer. We may not be able to compete successfully, and competitive pressures may harm our business. In addition, our market is characterized by rapid technological change, dynamic client needs and frequent introductions of new products and product enhancements, which can make existing products, including ours, obsolete or unmarketable. INTELLECTUAL PROPERTY Our future success depends in part on legal protection of our intellectual property. To protect our intellectual property, we rely on a combination of the following among others: - copyright laws; - trademark laws; and - trade secret laws. We also generally enter into non-disclosure agreements with our employees and consultants and generally control access to and distribution of our software, documentation and other proprietary information. Our end-user licenses are designed to prohibit unauthorized use, copying and disclosure of our software and technology. However, these provisions may be unenforceable under the laws of some jurisdictions and foreign countries. Unauthorized third parties may be able to copy some portions of our products or reverse engineer or obtain and use information and technology that we regard as proprietary. Third parties could also independently develop competing technology or design around our technology. If we are unable to successfully detect infringement and/or to enforce our rights to our technology, we may lose competitive position in the market. We cannot assure you that our means of protecting our intellectual property rights in the United States, Israel or elsewhere will be adequate or that competing companies will not independently develop similar technology. In addition, some of our licensed users may allow additional unauthorized users to use our software, and if we do not detect such use, we could lose potential license fees. From time to time, we may encounter disputes over rights and obligations concerning intellectual property. We also indemnify some of our customers against claims that our products infringe the intellectual property rights of others. We believe that our products do not infringe the intellectual property 44 46 rights of third parties. However, we cannot assure you that we will prevail in all future intellectual property disputes. We have not conducted a search for existing patents and other intellectual property registrations, and we cannot assure you that our products do not infringe any issued patents. In addition, because patent applications in the United States are not publicly disclosed until the patent is issued, applications may have been filed which would relate to our products. Substantial litigation regarding technology rights exists in the software industry, and we expect that software products may be increasingly subject to third-party infringement and ownership claims as the number of competitors in our industry segments grows and the functionality of products in different industry segments overlaps. In addition, our competitors may file or have filed patent applications, which are covering aspects of their technology that they may claim our technology infringes. Third parties may assert infringement or competing ownership claims with respect to our products and technology. Any such claims, with or without merit, could be time-consuming to defend, result in costly litigation, divert management's attention and resources or cause product shipment delays. In the event of an adverse ruling in any such litigation, we might be required to pay substantial damages, discontinue the use and sale of infringing products, expand significant resources to develop non-infringing technology or obtain licenses to or pay royalties to use a third party's technology. Such royalty or licensing agreements may not be available on terms acceptable to us, if at all. A successful claim of patent or copyright infringement against us could significantly harm our business. EMPLOYEES As of December 31, 1999, we had 143 full-time employees, 39 of whom were engaged in research and development, 44 in sales, marketing and business development, 37 in professional services and technical support and 23 in finance, administration and operations. None of our employees is represented by a labor union. We consider our relations with our employees to be good. In addition, 98 of our employees are located in Israel. Israeli law and certain provisions of the nationwide collective bargaining agreements between the Histadrut (General Federation of Labor in Israel) and the Coordinating Bureau of Economic Organizations (the Israeli federation of employers' organizations) apply to our Israeli employees. These provisions principally concern the maximum length of the work day and the work week, minimum wages, paid annual vacation, contributions to a pension fund, insurance for work-related accidents, procedures for dismissing employees, determination of severance pay and other conditions of employment. We provide our employees with benefits and working conditions above the required minimums. Furthermore, pursuant to such provisions, the wages of most of our employees are subject to cost of living adjustments, based on changes in the Israeli CPI. The amounts and frequency of such adjustments are modified from time to time. Israeli law generally requires the payment of severance pay upon the retirement or death of an employee or upon termination of employment by the employer or, in certain circumstances, by the employee. We currently fund our ongoing severance obligations for our Israeli employees by making monthly payments for managers insurance policies and severance funds. FACILITIES ClickService leases approximately 22,500 square feet in an office building located in Tel Aviv, Israel. The office space in Tel Aviv, Israel is leased pursuant to a lease that expires in June 2003 with an option to extend the lease until April 2008. We have also recently entered into a seven year lease for approximately 17,130 square feet of office space in Campbell, California. We also lease sales offices in the metropolitan areas of Anaheim, Atlanta, Boston, Chicago, Dallas and New York. Our U.K. subsidiary currently operates from a leased facility of approximately 3,000 square feet in London. LEGAL PROCEEDINGS We are not currently a party to any material legal proceedings. 45 47 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS Our executive officers and directors and their ages as of December 31, 1999 are as follows:
NAME AGE POSITION - ---- --- -------- Dr. Moshe Ben-Bassat........... 52 Chief Executive Officer and Chairman of the Board Shimon M. Rojany............... 52 Senior Vice President and Chief Financial Officer David Schapiro................. 41 Vice President and General Manager, Product Development Group Ami Shpiro..................... 45 Vice President and General Manager, Europe Operations Robert Spina................... 38 Vice President, Sales Hannan Carmeli................. 41 Vice President and General Manager, ClickFix Division Mark Trimue.................... 47 Vice President, Business Development and Channels Development Amit Bendov.................... 35 Vice President, Product Marketing Dr. Israel Borovich(1)......... 58 Director Fredric W. Harman(2)........... 39 Director Jeffrey D. Saper............... 51 Director Eddy Shalev(2)................. 52 Director Zohar Zisapel.................. 51 Director
- --------------- (1) Member of audit committee. (2) Member of compensation committee. DR. MOSHE BEN-BASSAT co-founded ClickService and has served as our Chairman and Chief Executive Officer since our inception. From 1976 to 1999, Dr. Ben-Bassat served as a professor of Information Systems at the Faculty of Management of Tel-Aviv University. From 1996 to January 1999, Dr. Ben-Bassat also served as a director of Tadiran Telecommunications Inc., a telecommunications company. From 1990 to 1996, Dr. Ben-Bassat served as director of Tadiran Electronic Systems Ltd., a defense electronics company. Dr. Ben-Bassat holds Bachelor of Science, a Master of Science and a Doctor of Philosophy degrees in Mathematics and Statistics from Tel-Aviv University. SHIMON M. ROJANY co-founded ClickService and has served as our Senior Vice President and Chief Financial Officer since November 1999. From 1989 to the present, Mr. Rojany has also served as Senior Vice President and Chief Financial Officer of our U.S. subsidiary. From 1990 to 1999, Mr. Rojany also served as a Senior Associate with Adizes Institute, Inc., a consulting company. Mr. Rojany holds a Bachelor of Science degree in Accounting from California State University at Northridge and a Master of Business Administration in Management Decision Systems from the University of Southern California and is a certified public accountant. DAVID SCHAPIRO has served as our Vice President and General Manager of the Product Development Group since November 1999. From October 1996 to November 1999, Mr. Schapiro served as the ClickSchedule Division General Manager. Prior to November 1999, Mr. Schapiro served in various management and marketing positions at ClickService including Vice President of Business Development. Since 1984 Mr. Schapiro has served in positions at Applied Materials, a semiconductor equipment manufacturer, and Scitex Corporation, a digital printing system company. Mr. Schapiro holds a Bachelor of Science degree in Mathematics and Computer Science from Tel Aviv University and a Master of Science degree in Computer Science from Bar Ilan University. AMI SHPIRO has served as Vice President of European Operations and Managing Director of ClickService (Europe) Ltd. since October 1996. From 1994 to October 1996, Mr. Shpiro served as Vice President, W-6 division. Prior to 1994, Mr. Shpiro had various roles in developing the W-6 scheduling system. Mr. Shpiro holds a Bachelor of Science degree in Computer Science and a Master of Science degree from the Hebrew University of Jerusalem. 46 48 ROBERT SPINA has served as our Vice President of Sales since March 1999. From February 1998 to March 1999, Mr. Spina served as our Vice President, Sales, Eastern Region. From December 1995 to February 1998, Mr. Spina was a Vice President at Berkeley Software Design, Inc., a provider of internet server software to service providers and network equipment OEMs. Mr. Spina holds a Bachelor of Science degree from Utica College. HANNON CARMELI has served as Vice President and General Manager of the ClickFix Division since October 1997. From September 1997 to October 1997, Mr. Carmeli served as Manager of the TechMate Division. From December 1994 to September 1996, Mr. Carmeli served as Sales Director for Surecomp, a software vending company. Mr. Carmeli holds a Bachelor of Science degree from the Technion Institute and a Master of Science degree in Computer Science from Boston University. MARK TRIMUE has served as our Vice President for Business Development since November 1998. From January 1998 to November 1998, Mr. Trimue served as our Vice President, Sales, Southern Region. From June 1995 to January 1998, Mr. Trimue served as Vice President of Marketing of Berkeley Software Design, Inc. From January 1994 to April 1995, Mr. Trimue served as Vice President of Sales Management and Marketing of Equinox Systems, Inc. Mr. Trimue holds a Bachelor of Arts degree in Economics from the University of Arkansas. AMIT BENDOV has served as our Vice President of Product Marketing since July 1998. From September 1996 to June 1998, Mr. Bendov served as our Director of Customer Support and Integration. From August 1994 to August 1996, Mr. Bendov served as our Research and Development Manager. Mr. Bendov holds a Bachelor of Science degree in Computer Science and Statistics from Tel-Aviv University. DR. ISRAEL BOROVICH has served as a director of ClickService since July 1997. Since 1988, Dr. Borovich has served as President of Arkia Israeli Airlines and Knafaim-Arkia Holdings Ltd. Mr. Borovich also serves as a director of Knafaim-Arkia Holdings, Ltd., Maman-Cargo Terminals & Handling Ltd., Issta Lines Israel Students Travel Company Ltd., Ogen Investments, Ltd., Granit Hacarmel Investments, Ltd. and Vulcan Batteries Ltd. Mr. Borovich holds Bachelor of Science, Master of Science and a Doctor of Philosophy degrees in Industrial Engineering from the Polytechnic Institute in Brooklyn. FREDRIC W. HARMAN has served as a director of ClickService since April 1997. Since July 1994, Mr. Harman has served as a General Partner of several venture capital limited partnerships including Oak VI Affiliates, one of our shareholders. Mr. Harman also serves as director of ILOG, S.A., Inktomi Corporation, Primus Knowledge Solutions, Inc., InterNAP Networking Services Corp. and Quintus Corporation. Mr. Harman holds a Bachelor of Science degree in Electrical Engineering and a Master of Science degree in Electrical Engineering from Stanford University and Master of Business Administration degree from the Harvard Graduate School of Business. JEFFREY D. SAPER has served as a director of ClickService since December 1999. Since 1980, Mr. Saper has been a member of Wilson Sonsini Goodrich & Rosati P.C. Mr. Saper also serves on the board of directors of Proxim, Inc., a wireless local area data networking company. Mr. Saper holds Bachelor of Arts and Juris Doctor degrees from New York University. EDDY SHALEV has served as a director of ClickService since April 1997. Since April 1997, Mr. Shalev has also served as a director of Fundtech Corp. Mr. Shalev has served as Chief Executive Officer of E. Shalev Ltd. since January 1997 and as the Managing General Partner of E. Shalev Management since 1983. Mr. Shalev holds a Master of Science degree in Management Information Systems from Tel-Aviv University. ZOHAR ZISAPEL has served as a director of ClickService since April 1997. Since 1982, Mr. Zisapel has served as President of RAD Data Communications, which he co-founded. Mr. Zisapel is a director of RAD Data Communications and other companies in the RAD-BYNET group, including RADCOM, RadWare, SILICOM and RIT. Mr. Zisapel holds Bachelor of Science and Master of Science degrees in Electrical Engineering from the Technion, Israel Institute of Technology and a Master of Business Administration degree from Tel-Aviv University. 47 49 ELECTION OF DIRECTORS An annual general meeting is required to be held at least once in every calendar year, but not more than fifteen months after the last preceding annual general meeting. Our articles of association currently provide that the number of directors shall be no less than two nor more than eleven directors including independent or external directors. There are no family relationships among any of the Company's directors, officers or key employees. Pursuant to the Companies Law the General Manager of a company shall not serve as the chairman of the board unless it was authorized by the general meeting and for a period of not more than three years from the date such decision was adopted. Our board of directors has recommended that the shareholders adopt such a resolution. Our board of directors will be divided into three classes, only one of which will be elected each year, having terms of approximately three years each with the following terms of office: - Class I directors, whose term will expire at the annual meeting of shareholders to be held in 2001; - Class II directors, whose term will expire at the annual meeting of shareholders to be held in 2002; and - Class III directors, whose term will expire at the annual meeting of shareholders to be held in 2003. The Class I directors shall initially consist of Dr. Borovich and Mr. Harmon, the Class II directors shall initially consist of Mr. Zisapel and Mr. Saper and the Class III directors shall initially consist of Dr. Ben-Bassat and Mr. Shalev. Directors whose class is up for election will be elected by shareholders at our annual general meeting and hold office until the annual general meeting held in the third year following the year of their election. Vacancies on the board of directors may be filled by a majority of the directors then in office. A director so chosen will hold office until the next annual general meeting. Our ordinary shares do not have cumulative voting rights in the election of directors, which means that the holders of ordinary shares conferring more than 50% of the voting power represented in person or by proxy and voting on the election of directors at a general meeting have the power to elect all of the directors and, in such event, holders of the remaining ordinary shares will not be able to elect any directors. See also "Risk Factors -- Risks Relating to this Offering -- Our officers, directors and affiliated entities own a large percentage of ClickService and could significantly influence the outcome of actions." EXTERNAL AND INDEPENDENT DIRECTORS Under the Companies Law, Israeli companies whose shares have been offered to the public in or outside of Israel are required to appoint two people to serve as external directors on the board of directors of a company. The Companies Law provides that a person may not be appointed as an external director if the person or the person's relative, partner, employer or any entity has at the date of appointment, or has had at any time during the two years preceding that date, any affiliation with the company, any entity controlling the company or any entity controlled by the company or by this controlling entity. The term "affiliation" includes: - an employment relationship; - business or professional relationship maintained on a regular basis; - control; or - service as an officer. No person can serve as an external director if the person's position or other business creates, or may create, conflict of interests with the person's responsibilities as an external director or if such position or other business may impair such director's ability to serve as an external director. No person who is a director in one company can serve as an external director in another company, if at that time a director of 48 50 the other company serves as an external director in the first company. The Companies Law further provides that when, at the time of appointment of an external director, all members of the board of directors of the company are of one gender, then the external director appointed shall be of the other gender. External directors are appointed by a majority vote at a shareholders' meeting, provided that either: (1) the majority of shares voted at the meeting, including at least one third of the shares of non-controlling shareholders voted at the meeting, vote in favor of appointment of the director or (2) the total number of shares of non-controlling shareholders voted against the election of the director does not exceed one percent of the aggregate voting rights in the company. The initial term of an external director will be three years and may be extended for an additional three-year period. Each committee of a company's board of directors will be required to include at least one external director and all external directors must be members of the company's audit committee. Regulations promulgated under the Companies Law provide that the applicability of the Companies Law with respect to the nomination by foreign traded companies shall commence on August 1, 2000. At such time, we shall be required to appoint two external directors. As required by the Companies Law, since all the members of our Board of Directors are men, one of the external directors must be a woman. In addition, we are obligated under the requirements for quotation on the Nasdaq National Market to have at least two independent directors on our board of directors, who also may serve as external directors under the Companies Law, and to establish an audit committee, at least a majority of whose members are independent of management. We intend to appoint a director in addition to Dr. Israel Borovich, who will qualify as an independent director under the Nasdaq National Market requirements. Dr. Borovich may not serve as an external director. An external director is entitled to consideration and to the refund of expenses, only as provided in regulations adopted under the Companies Law and is otherwise prohibited from receiving any other consideration, directly or indirectly, in connection with service provided as an external director. Nevertheless, the grant of an exemption from liability for breach of fiduciary duty or duty of care, an undertaking to indemnify, indemnification or insurance under the provisions of the Companies Law shall not be deemed as consideration. Under the Companies Law, an external director cannot be dismissed from the office unless: - the board of directors determines that the external director no longer meets the requirements for holding such office, as set forth in the Companies Law or that the director is in breach of his or her fiduciary duties to the company and the shareholders of the company vote (by the same majority required for the appointment) to remove the external director after the external director has been given the opportunity to present his or her position; - an Israeli court determines, upon a request of a director or a shareholder, that the director no longer meets the requirements for holding such office as set forth in the Companies Law or that the director is in breach of his or her fiduciary duties to the company; or - the court determines, upon a request of the company or a director, shareholder or creditor of the company, that the external director is unable to fulfill his or her duty or has been convicted of certain crimes as specified in the Companies Law. DUTY OF CARE AND FIDUCIARY AND LOYALTY DUTIES The Companies Law codifies the duty of care and fiduciary and loyalty duties that an officer owes to a company. The term officer includes any director, managing director, general manager, chief executive officer, executive vice president, vice president, other managers who are directly subject to the general manager and any other person fulfilling or assuming any of these positions or responsibilities without regard to such person's title. The fiduciary and loyalty duties of an officer include: - avoiding any conflict of interest between the officer's position with the company and his personal affairs; 49 51 - avoiding any competition with the company; - avoiding exploiting any of the company's business opportunities in order to receive personal advantage for himself or others; and - revealing to the company any information or documents relating to the company's affairs which the officer has received due to his position as an officer of the company. In addition, the Companies Law requires disclosure by an officer to the company in the event that an office holder is aware of a "personal interest" in any transaction or proposed transaction of the company (including, generally, a personal interest of certain relatives in an extraordinary transaction of the company). AUDIT COMMITTEE, INTERNAL AUDITOR AND CERTIFIED PUBLIC ACCOUNTANT The Companies Law provides that public companies must appoint an audit committee of the board of directors. The number of members of the audit committee shall not be fewer than three and it shall include all of the external directors. The chairman of the board of directors, any director who is employed by the company or gives services to the company, on a regular basis, a controlling shareholder or his relative cannot be a member of the audit committee. Our audit committee consists of Mr. Borovich and two members to be appointed. Under the Companies Law, the board of directors must also appoint an internal auditor in accordance with the recommendations of the audit committee. The role of the internal auditor is to examine, among other matters, whether the company's actions comply with the law, integrity and orderly business procedure. The internal auditor may be an employee of the company but not a person holding 5% or more of a company's capital, a person who has the power to appoint one or more directors or the general manager, an officer, or an affiliate or relative of an office holder, and may not be the company's certified public accountant or its representative. We intend to appoint an internal auditor shortly after this offering. In addition, under the Companies Law, all companies must appoint a certified public accountant to audit the company's financial statements. APPROVAL OF SPECIAL TRANSACTIONS UNDER ISRAELI LAW Each person listed in the table under "-- Directors and Executive Officers" above is an officer. Under the Companies Law, the approval of the board of directors is required only for arrangements with respect to compensation of a company's chief executive officer. Arrangements regarding the compensation of directors also require audit committee and shareholder approval. The Companies Law requires that an officer or a controlling shareholder in a public company, including an Israeli company that is publicly traded outside of Israel, promptly disclose any personal interest that he may have and all related material information known to him, in connection with any existing or proposed transaction by the company (an office holder and a controlling shareholder are under no such duty of disclosure when the personal interest stems only from the personal interest of a relative in a transaction that is not exceptional). In addition, if the transaction is an exceptional transaction, as defined in the Companies Law, the officer must also disclose any personal interest held by the officer's spouse, siblings, parents, grandparents, descendants, spouse's descendants and the spouse of any of the foregoing, or by a corporation in which the officer is a 5% or greater shareholder, director or general partner or in which he or she has the right to appoint at least one director or the general manager. The disclosure must be made without delay and not later than the board of directors meeting as which the transaction is first discussed. For these purposes, the definition of a controlling shareholder under the Companies Law includes a shareholder that holds 25% or more of the voting rights in a company, unless another shareholder holds more than 50% of the voting rights (if two or more shareholders are interested parties in the same transaction their shareholdings shall be deemed cumulative). Once the officer or controlling shareholder complies with these disclosure requirements, the company may approve the transaction in accordance with the provisions of the Companies Law and its articles of 50 52 association. Generally, the approval of the majority of the disinterested members of the audit committee and the board of directors is required and, in certain circumstances, shareholder approval may also be required. If the transaction is with an officer or with a third party in which the officer or the controlling shareholder has a personal interest, the approval must confirm that the transaction is not adverse to the company's interest. Furthermore, if the transaction is an exceptional transaction then, in addition to any approval stipulated by the articles of association of the company, it also must be approved by the company's audit committee and then by its board of directors. The audit committee of a public company, and commencing August 1, 2000, an Israeli company that is publicly traded outside of Israel, shall not be entitled to grant any such approval, unless, at the time the approval was given, two members of the audit committee were external directors and at least one of them was present at the meeting at which the audit committee decided to grant the approval. An exceptional transaction is a transaction other than in the ordinary course of business, otherwise than on market terms or that is likely to have a material impact on the company's profitability, assets or liabilities. Under certain circumstances, shareholder approval is also required. For example, shareholders must approve all compensation paid to directors in whatever capacity, company's undertaking to indemnify a director or indemnification under a permit to indemnify and any transaction in which a majority of the board members have a personal interest. An office holder with a personal interest in any matter may not be present at any audit committee or board of directors meeting where such matter is being approved, and may not vote thereon. Shareholders' approval for an exceptional transaction must include at least one third of the shareholders who have no personal interest in the transaction and are present at the meeting. However, the transaction can be approved by shareholders without this one-third approval if the total shareholdings of those who vote against the transaction do not represent more than one percent of the voting rights in the company, unless the Minister of Justice shall determine a different percentage. In addition, the issue of shares by a public company, other than by way of a public offering, to a 5% shareholder or to someone who, as a result of such issue, shall become a 5% shareholder, requires the approval of the board of directors and the shareholders at the general meeting. For information concerning the direct and indirect personal interests of certain Office Holders and principal shareholders of ClickService in certain transactions with ClickService, see "Certain Transactions." DUTY OF SHAREHOLDERS Under the Companies Law, in exercising their rights and in fulfilling their obligations to the company and the other shareholders, shareholders must act in good faith and in a customary manner and refrain from abusing their power when, among other things, voting at general or class meetings on any amendment of the articles of association, an increase of the company's registered (authorized) share capital, a merger or approval of certain acts and transactions which require shareholder approval. The laws governing breach of contract apply, with the necessary modifications, to breach of the above obligations. Furthermore, a shareholder who may control the company, a shareholder who knows that his vote will be decisive at a general or class meeting and a shareholder who has the power to appoint or prevent the appointment of an office holder or who has any other power with respect to the company, must act fairly towards the company. Any breach by any such shareholder of these obligations is treated in the same way as a breach by an office holder of his fiduciary duty, with the necessary modifications. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Companies Law permits a company to insure an officer in respect of liabilities incurred by him by reason of acts or omissions committed in his capacity as an officer with respect to: a breach of the officer's duty of care to the company or to another person, or a breach of the officer's fiduciary duty to the company, to the extent that he acted in good faith and had reasonable cause to believe that the act would not prejudice the company. Furthermore, the Companies Law provides that a company can indemnify an officer for monetary liabilities or obligations imposed upon him in favor of other persons pursuant to a court judgement, including a compromise judgement or an arbitrator's decision approved by a court, and 51 53 reasonable litigation expenses, including attorney's fees, actually incurred by the officer or imposed upon him by a court, in an action, suit or proceedings brought against him by or on behalf of the company or by other persons, in connection with a criminal action from which he was acquitted or in connection with a criminal action which does not require intent in which he was convicted, in each case by reasons of acts or omissions of such person in his capacity as officer. Furthermore, the Companies Law provides that the company's articles of association may provide for indemnification of an officer post-factum and may also provide that a company may undertake to indemnify an officer in advance, provided such undertaking is limited to types of occurrences which, in the opinion of the company's board of directors, are, at the time of the undertaking, foreseeable and, to an amount the board of directors has determined is reasonable in the circumstances. Our articles of association allow us to insure and indemnify officers to the fullest extent permitted by law. We intend to enter into indemnification agreements with each of our officers and directors. COMPENSATION COMMITTEE, INSIDER PARTICIPATION AND INTERLOCK Our compensation committee consists of Messrs. Harman and Shalev. None of the current members of our compensation committee is an officer or employee of ClickService. No interlocking relationship exists between our board of directors or compensation committee and the board of directors or compensation committee of any other company, nor has such an interlocking relationship existed in the past. DIRECTOR COMPENSATION Our directors may be compensated for their service as directors to the extent such compensation is approved as required by the Companies Law. This approval will generally require the approvals of our audit committee, our board of directors and our shareholders. Other than Mr. Saper, our directors who are not executive officers do not receive cash compensation for their service on the board of directors or any board of directors committee. However, all non-management directors are reimbursed for their expenses for each board of directors meeting attended. Mr. Saper receives annual compensation of $15,000 and an additional $1,000 for each board meeting he attends. As of the date of this offering, options to purchase 810,000 ordinary shares granted to our directors are outstanding. The weighted average exercise price of these options is $2.03 per share. Of these options, options to purchase 130,427 ordinary shares are currently exercisable or will become exercisable within 60 days of December 31, 1999. The options to purchase 810,000 ordinary shares excludes an option and fully-exercisable warrant, each exercisable into 75,000 shares at a price of $3.67 per share, granted to Jeffrey D. Saper in connection with consulting services provided to us related to the offering. 52 54 EXECUTIVE COMPENSATION The following table sets forth all compensation paid or accrued during 1999 to our Chief Executive Officer and our four other most highly compensated executive officers whose salary and bonus for the fiscal year ended December 31, 1999 was more than $100,000. SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ------------ ANNUAL COMPENSATION SECURITIES -------------------- UNDERLYING NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS - --------------------------- -------- -------- ------------ Moshe Ben-Bassat Chief Executive Officer................................ $190,000 $160,000 $720,000 Amit Bendov Vice President, Product Marketing...................... 105,000 48,120 9,000 Ami Shpiro Vice President and General Manager, Europe Operations............................................. 146,700 82,180 6,781 Robert Spina Vice President, Sales.................................. 83,917 66,484 21,000 Mark Trimue Vice President, Business Development and Channels Development............................................ 126,663 38,753 24,000
OPTION GRANTS IN LAST FISCAL YEAR The following table provides information relating to stock options awarded to each of the Named Executive Officers during the year ended December 31, 1999. Other than the options granted to Moshe Ben-Bassat, all such options were awarded under our 1999 Option Plans and generally vest over four years.
INDIVIDUAL GRANTS POTENTIAL REALIZABLE ----------------------------------------------------- VALUE AT ASSUMED NUMBER OF PERCENT OF ANNUAL RATES OF SECURITIES TOTAL OPTIONS STOCK PRICE APPRECIATION UNDERLYING GRANTED FOR OPTIONS TERM(3) OPTIONS IN FISCAL EXERCISE EXPIRATION ------------------------ NAME GRANTED 1999(2) PRICE DATE 5% 10% - ---- ---------- ------------- -------- ---------- ---------- ---------- Moshe Ben-Bassat Chief Executive Officer................ 720,000(1) 50.7% $1.83 12/31/07 Amit Bendov Vice President, Product Marketing.............. 9,000 0.6% $0.83 12/31/07 Ami Shpiro Vice President and General Manager, Europe Operations............. 6,781 0.5% $0.83 12/31/07 Robert Spina Vice President, Sales.................. 21,000 1.4% $0.83 12/31/07 Mark Trimue Vice President, Business Development and Channels Development............ 24,000 1.6% $0.83 12/31/07
- --------------- (1) The options granted to Dr. Ben-Bassat vest over a period of 41 months. (2) Based on an aggregate of 1,493,809 options and warrants we granted in the year ended December 31, 1999 to our employees, directors and consultants, including the Named Executive Officers. (3) The potential realizable value is calculated based on the term of the option at its time of grant (up to 8 years). In accordance with the rules of the Securities and Exchange Commission, this table also 53 55 sets forth the potential realizable value over the term of the options (the period from the grant date to the expiration date) based on assumed rates of share appreciation of 5% and 10% compounded annually. These amounts do not represent our estimate of future share price performance. Actual realizable values, if any, of stock options will depend on the future performance of the ordinary shares. AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES The following table set forth information for each of the Named Executive Officers concerning option exercises for the fiscal year ended December 31, 1999, and exercisable and unexercisable options held at December 31, 1999. The Named Executive Officers did not exercise any options during the fiscal year ended December 31, 1999. The value of unexercised in-the-money options at December 31, 1999 is based on a value of $ per share of our ordinary shares, which is the assumed initial public offering price, less the per share exercise price, multiplied by the number of shares issuable upon exercise of the option. All options other than those held by Dr. Ben-Bassat were granted under our 1996 Stock Plan, our 1997 Stock Plan, our 1998 Stock Plan or our 1999 Stock Plans.
NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT OPTIONS AT DECEMBER 31, 1999 DECEMBER 31, 1999 ---------------------------- ---------------------------- NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ---- ----------- ------------- ----------- ------------- Moshe Ben-Bassat........................... 87,805 632,195 $ $ Chief Executive Officer Amit Bendov................................ 131,315 59,785 Vice President, Product Marketing Ami Shpiro................................. 13,697 22,566 Vice President and General Manager, Europe Operations Robert Spina............................... 10,125 37,875 Vice President, Sales Mark Trimue................................ 11,000 37,000 Vice President, Business Development and Channels Development
MANAGEMENT EMPLOYMENT AGREEMENTS We have entered into employment agreements with Dr. Moshe Ben-Bassat, our Chief Executive Officer, and Shimon Rojany, our Chief Financial Officer. The agreements provide that the executives' employment relationships are "at-will" and may be terminated at any time by either us or the executive with or without cause or notice. The agreements provide that in the event the executive is terminated by us without cause, the executive shall be entitled to severance payments (to be paid in a lump sum or monthly at the executive's discretion) in amounts equal to twelve months of annual base salary as of the date of termination for Dr. Ben-Bassat and six months of the annual base salary as of the date of termination for Mr. Rojany. Dr. Ben-Bassat is also entitled to full acceleration of option vesting in the event of a change in control. The executive's right to receive the benefits set forth above will immediately terminate if the executive competes with us during the six or twelve months following termination of employment with us. OPTION PLANS AND OTHER OPTIONS AND WARRANTS The purpose of our option plans is to afford an incentive to employees and consultants of ours, or any of our subsidiaries, to acquire a proprietary interest in us, to continue as officers, directors, employees and consultants, to increase their efforts on behalf of us and to promote the success of our business. 54 56 We currently maintain five existing option plans, the 1996 Option Plan, the 1997 Option Plan, the 1998 Option Plan and the two 1999 Option Plans. As of the date of this offering, options to purchase 2,665,034 ordinary shares were outstanding under our existing option plans, stand-alone options and a warrant. The weighted average exercise price of options outstanding under our option plans is $1.17. We do not intend to grant additional options under these plans. Our option plans are administered by our board of directors and, following the closing of this offering, the compensation committee of our board of directors. Under the option plans, options to purchase our ordinary shares may be granted to officers, directors, employees or consultants of ours or our subsidiaries. In addition, pursuant to the option plans, the exercise price of options shall be determined by our compensation committee but may not be less than the par value of the ordinary shares. The vesting schedule of the options is also determined by our compensation committee but generally the options vest over a three to four year period. Each option granted under the option plans is exercisable until the expiration date of the respective option plans. 2000 SHARE OPTION PLAN Our 2000 Share Option Plan was adopted by our board of directors on February 10, 2000, and will be approved by our shareholders prior to the offering. This plan provides for the grant of incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, to our employees and nonstatutory stock options to our employees, directors and consultants. Prior to consummation of the offering a total of 3,000,000 ordinary shares will be reserved for issuance pursuant to the plan. No options have yet been issued pursuant to the plan. The number of ordinary shares reserved for issuance under the plan will increase annually on January 1 of each calendar year, effective beginning in 2001, equal to the lesser of 5% of the outstanding shares on the first day of the year, 1,250,000 shares or such lesser amount as our board of directors may determine. Our board of directors or a committee of our board administers the plan. The committee may consist of two or more "outside directors" to satisfy certain tax and securities requirements. The administrator has the power to determine the terms of the options granted, including the exercise price, the number of shares subject to each option, the exercisability of the options and the form of consideration payable upon exercise. The administrator determines the exercise price of options granted under our share option plan, but with respect to incentive stock options, the exercise price must at least be equal to the fair market value of our ordinary shares on the date of grant. The administrator may reduce the exercise price of any option if the fair market value of the shares covered by such option has declined since the date of grant. Additionally, the term of an incentive stock option may not exceed ten years. No optionee may be granted an option to purchase more than 1,000,000 shares in any fiscal year. In connection with his or her initial service, an optionee may be granted an additional option to purchase up to 1,000,000 ordinary shares. After termination of one of our employees, directors or consultants, he or she may exercise his or her option for the period of time stated in the option agreement. If termination is due to death or disability, the option will generally remain exercisable for 12 months following such termination. In all other cases, the option will generally remain exercisable for 3 months. An option may never be exercised later than the expiration of its term. Unless otherwise determined by the administrator, the share option plan generally does not allow for the transfer of options and only the optionee may exercise an option during his or her lifetime. Our share option plan provides that in the event of our merger with or into another corporation or a sale of substantially all of our assets, the successor corporation will assume or substitute for each option. If the outstanding options are not assumed or substituted, all outstanding options will accelerate and become fully vested prior to the closing of such merger or sale of assets. In the event of a bonus share or share dividend, optionees exercising options shall be entitled to receive the number of shares underlying their options plus any bonus shares or share dividends declared between the date of grant and the date of exercise. The plan will automatically terminate in 2010, unless we terminate it sooner. In addition, our board of directors has the authority to amend, suspend or terminate the plan provided it does not adversely affect any option previously granted under the plan. In the event of our dissolution or liquidation, the administrator, in its discretion, may provide that the options will vest and be exercisable until fifteen days prior to such transaction. 55 57 2000 EMPLOYEE SHARE PURCHASE PLAN Concurrently with this offering, we intend to establish a 2000 Employee Share Purchase Plan. A total of 800,000 ordinary shares will be made available for sale under the plan. In addition, our plan provides for annual increases in the number of shares available for issuance under the plan on January 1 of each year, beginning in 2001, equal to the lesser of 2% of the outstanding shares on the first day of the calendar year, 500,000 shares, or such other lesser amount as may be determined by our board of directors. All of our employees are eligible to participate if they are customarily employed by us or any participating subsidiary for at least 20 hours per week and more than five months in any calendar year. However, an employee may not be granted the right to purchase shares under the plan if such employee: - immediately after the grant would own shares possessing 5% or more of the total combined voting power or value of all classes of our capital shares, or - whose rights to purchase shares under all of our employee share purchase plans accrues at a rate that exceeds $25,000 worth of shares for each calendar year. Our plan is intended to qualify for preferential tax treatment and contains consecutive six-month offering periods. The offering periods generally start on the first trading day on or after May 1 and November 1 of each year, except for the first such offering period which will commence on the first trading day on or after the effective date of this offering and will end on the last trading day on or before October 31, 2000. The plan permits participants to purchase ordinary shares through payroll deductions of up to 12% of their eligible compensation which includes a participant's base straight time gross earnings but excludes all other compensation paid to our employees. A participant may purchase no more than 5,000 shares during any six-month offering period. Amounts deducted and accumulated by the participant are used to purchase full ordinary shares at the end of each six-month offering period. The exercise price will be 85% of the lower of the fair market value of our ordinary shares at the beginning or end of an offering period. Participants may end their participation at any time during an offering period, and will be paid their payroll deductions to date. Participation ends automatically upon termination of employment with us. A participant may not transfer rights granted under our employee share purchase plan other than by will, the laws of descent and distribution or as otherwise provided under the plan. In the event of our merger with or into another corporation or a sale of all or substantially all of our assets, a successor corporation may assume or substitute each outstanding option. If the successor corporation refuses to assume or substitute for the outstanding right, the offering period then in progress will be shortened, and a new exercise date will be set. In the event of a dissolution or liquidation, an offering period in progress will be shortened by setting a new exercise date to precede the date of such transaction unless otherwise provided by our board. Our plan will terminate in 2010. However, our board of directors has the authority to amend or terminate our plan, except that, subject to certain exceptions described in the plan, no such action may adversely affect any outstanding rights to purchase shares under our plan. 401(k) Plan We provide a tax-qualified employee savings and retirement plan, commonly known as a 401(k) plan, which covers our eligible employees in the United States. Under our 401(k) plan, United States employees may elect to reduce their current annual compensation, on a pre-tax basis, up to the lesser of 15% or the statutorily prescribed limit, which was $10,000 in calendar year 1999 and will be $10,500 in calendar year 2000, and have the amount of the reduction contributed to the 401(k) plan. The 401(k) plan is intended to qualify under Sections 401(a) and 401(k) of the Internal Revenue Code so that contributions by our employees to the 401(k) plan and income earned on plan contributions are not taxable to employees until withdrawn from the 401(k) plan and so that contributions will be deductible by us when made. The trustee of the 401(k) plan invests the assets of the 401(k) plan in the various investment options as directed by the participants. 56 58 CERTAIN TRANSACTIONS STOCK AND WARRANT ISSUANCES On April 13, 1997, we sold 2,810,424 Series A-1 Convertible Preferred Shares at a price of $0.9785 per share. On April 12, 1997, August 5, 1997 and October 15, 1997, we sold an aggregate of 2,299,438 Series A Convertible Preferred Shares at a price of $0.9785 per share. On March 23, 1998, we sold 3,826,809 Series B Convertible Preferred Shares pursuant to the conversion of previous issued convertible notes at a price of $1.9598 per share. On November 2, 1998, we sold 2,731,141 Series C Convertible Preferred Shares at a price of $2.3207 per share. On December 15, 1999, we sold 1,832,086 shares of Series D Convertible Preferred Shares at a price of $6.2770 per share. Upon the consummation of this offering, all of the outstanding Series A-1 Convertible Preferred Shares, Series A Convertible Preferred Shares, Series B Convertible Preferred Shares, Series C Convertible Preferred Shares and Series D Convertible Preferred Shares will automatically convert into ordinary shares on a one-for-one basis. The following directors, executive officers and holders of more than 5% of a class of voting securities purchased Series A-1 Convertible Preferred Shares, Series A Convertible Preferred Shares, Series B Convertible Preferred Shares, Series C Convertible Preferred Shares and Series D Convertible Preferred Shares:
SHARES OF SHARES OF SHARES OF SHARES OF SHARES OF SERIES A-1 SERIES A SERIES B SERIES C SERIES D PURCHASER PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED - --------- ---------- --------- --------- --------- --------- EXECUTIVE OFFICERS AND DIRECTORS Moshe Ben-Bassat.................. -- 51,098 237,772 -- -- Shimon M. Rojany.................. -- 102,197 -- -- -- Jeffrey D. Saper.................. -- -- -- -- 14,736 Zohar Zisapel..................... -- 229,944 194,122 -- -- 5% SHAREHOLDERS Entities affiliated with Oak Investment Partners............. 2,810,424 -- 922,070 861,797 -- Entities affiliated with Genesis Partners........................ -- 1,686,254 568,550 538,624 -- Entities affiliated with Worldview Technology Partners............. -- -- 1,530,724 1,292,696 -- Entities affiliated with MeriTech Capital Partners................ -- -- -- -- 1,752,430
- --------------- See the notes to table of beneficial ownership in "Principal Shareholders" for information relating to the beneficial ownership of such shares. Concurrent with the issuance of Series B Convertible Preferred Shares in April 1998, we issued warrants to purchase an aggregate of 393,552 Series B Convertible Preferred Shares with an exercise price of $1.9598 per share and warrants to purchase 18,926 Ordinary Shares with an exercise price of $0.58 per share. The following directors, executive officer and holders of more than 5% of our outstanding preferred shares received warrants to purchase Series B Convertible Preferred Shares:
NUMBER OF SERIES B PURCHASER WARRANT SHARES - --------- ------------------ Entities affiliated with Oak Investment Partners............ 129,736 Entities affiliated with Genesis Partners................... 77,842 Moshe Ben-Bassat............................................ 88,277 Zohar Zisapel............................................... 26,578
In November 1999, Jeffrey D. Saper, one of our directors, received an option and fully-exercisable warrant each exercisable into 75,000 shares at a price of $3.67 per share, in connection with consulting services provided to us related to the offering. 57 59 In connection with the purchase of their shares of Series D Convertible Preferred, in we granted entities affiliated with MeriTech Capital Partners a warrant to purchase Ordinary Shares with an exercise price of $ . OTHER AGREEMENTS WITH SHAREHOLDERS In early 1997 ClickService spun off its textile software operations to Nester, Ltd., a private Israeli company controlled by Moshe Ben-Bassat and other ClickService shareholders. ClickService provides administrative services to Nester in consideration for an annual payment of approximately $48,000. In addition, Nester uses a portion of our Israeli office space and equipment for which they are charged on a per employee basis. As of December 31, 1999, Nester owed us approximately $139,000. We have sublet approximately 650 square meters of our facilities in Israel to a company in which Zohar Zisapel, a director of ClickService, has a significant interest. This sub-lease is until August 2001 with an option for an additional 12 months at a monthly rental of $11,050. 58 60 PRINCIPAL SHAREHOLDERS The following table sets forth information with respect to the beneficial ownership of our ordinary shares as of December 31, 1999 and as adjusted to reflect the sale of ordinary shares being offered by us, for: - each person or group known by us to beneficially own more than 5% of our outstanding ordinary shares; - each of our Named Executive Officers; - each of our directors; and - all of our executive officers and directors as a group. Beneficial ownership of ordinary shares is determined in accordance with the rules of the Securities and Exchange Commission and generally includes any ordinary shares over which a person exercises sole or shared voting or investment powers, or of which a person has a right to acquire ownership at any time within 60 days of December 31, 1999. Except as otherwise indicated, and subject to applicable community property laws, the persons named in this table have sole voting and investment power with respect to all ordinary shares held by them. Applicable percentage ownership in the following table is based on 20,708,744 shares outstanding as of December 31, 1999 and ordinary shares outstanding immediately following completion of this offering. These numbers assume the conversion of all outstanding preferred shares into ordinary shares. Unless otherwise indicated below, the address of each of the principal shareholders is c/o ClickService Software Ltd., 34 Habarzel Street, Tel Aviv, Israel.
ORDINARY SHARES BENEFICIALLY ORDINARY SHARES BENEFICIALLY OWNED PRIOR TO THE OFFERING OWNED AFTER THE OFFERING ----------------------------- ---------------------------- NAME AND ADDRESS NUMBER PERCENTAGE NUMBER PERCENTAGE - ---------------- ------------- ------------ ------------ ------------ NAMED EXECUTIVE OFFICERS AND DIRECTORS Moshe Ben-Bassat(1)......................... 4,441,091 21.9% 4,441,091 % Amit Bendov(2).............................. 142,228 * 142,228 Ami Shpiro(3)............................... 184,598 * 184,598 Robert Spina(4)............................. 13,500 * 13,500 Hannan Carmeli(5)........................... 19,324 * 19,324 Mark Trimue(6).............................. 12,000 * 12,000 Israel Borovich(7).......................... 1,250 * 1,250 Jeffrey D. Saper(8)......................... 95,986 * 95,986 Zohar Zisapel(9)............................ 629,945 3.0% 629,945 Frederic W. Harman(10)...................... 4,724,027 22.8% 4,724,027 % c/o Oak Investment Partners 525 University Avenue, Suite 1300 Palo Alto, CA 94301 Eddy Shalev(11)............................. 2,871,270 13.9% 2,871,270 % c/o Genesis Partners 50 Dizengoff Street Tel-Aviv 64332, Israel 5% SHAREHOLDERS Entities affiliated with Oak Investments Partners(10).............................. 4,724,027 22.8% 4,724,027 % 525 University Avenue, Suite 1300 Palo Alto, CA 94301
59 61
ORDINARY SHARES BENEFICIALLY ORDINARY SHARES BENEFICIALLY OWNED PRIOR TO THE OFFERING OWNED AFTER THE OFFERING ----------------------------- ---------------------------- NAME AND ADDRESS NUMBER PERCENTAGE NUMBER PERCENTAGE - ---------------- ------------- ------------ ------------ ------------ Entities affiliated with Worldview Technology Partners(12)................... 2,823,421 13.6% 2,823,421 % 435 Tasso Street, Suite 120 Palo Alto, CA 94301 Entities affiliated with Genesis Partners(11).............................. 2,871,270 13.9% 2,871,270 % 50 Dizengoff Street Tel-Aviv 64332, Israel Entities affiliated with MeriTech Capital Associates L.L.C.(13)..................... 1,828,630 8.8% 1,828,630 % 90 Middlefield Road, Suite 201 Menlo Park, CA 94025 All executive officers and directors as a group (13 persons)........................ 13,752,288 67.2% 13,752,288 %
- --------------- (1) Includes 2,220,545 shares held by Dr. Ben-Bassat's spouse, Idit Ben-Bassat. Dr. Ben-Bassat disclaims beneficial ownership of these shares. Includes options to purchase 122,927 ordinary shares exercisable within 60 days of December 31, 1999 held by Dr. Ben-Bassat. (2) Includes options to purchase 138,328 Ordinary Shares exercisable within 60 days of December 31, 1999 held by Mr. Bendov. (3) Includes options to purchase 13,861 Ordinary Shares exercisable within 60 days of December 31, 1999 held by Mr. Shpiro. (4) Includes options to purchase 13,500 Ordinary Shares exercisable within 60 days of December 31, 1999 held by Mr. Spina. (5) Includes options to purchase 19,324 Ordinary Shares exercisable within 60 days of December 31, 1999 held by Mr. Carmeli. (6) Includes options to purchase 12,000 Ordinary Shares exercisable within 60 days of December 31, 1999 held by Mr. Trimue. (7) Includes options to purchase 1,250 Ordinary Shares exercisable within 60 days of December 31, 1999 held by Mr. Borovich. (8) Excludes 15,931 shares beneficially owned by an investment partnership composed of certain current and former members of and persons associated with Wilson Sonsini Goodrich & Rosati, P.C. Jeffrey D. Saper is a member of Wilson Sonsini Goodrich & Rosati, P.C. Includes options to purchase 6,250 Ordinary Shares exercisable within 60 days of December 31, 1999 held by Mr. Saper. Includes a warrant to purchase 75,000 Ordinary Shares held by Mr. Saper which is currently exercisable. (9) Includes 99,556 Ordinary Shares beneficially owned by Klil and Michael Ltd. and 99,555 shares beneficially owned by Lumsha Ltd. Mr. Zisapel is a trustee of Klil and Michael Ltd. and Lumsha Ltd. Mr. Zisapel disclaims beneficial ownership of these shares. (10) Includes 4,616,320 shares held by Oak Investment Partners VI, L.P., and 107,707 shares held by Oak Affiliates Fund, L.P. Mr. Harman is a managing member of Oak Investment Partners VI, L.P. and Oak Affiliates Fund, L.P. Mr. Harman disclaims beneficial ownership of these shares, except for his proportional interest therein, if any. Includes ordinary shares and non-voting shares. (11) Includes 1,950,167 shares held by Genesis Partners I L.P. and 921,103 shares held by Genesis Partners I (Cayman) L.P. Eddy Shalev is a managing general partner of Genesis Partners I, L.P. and Genesis Partners (Cayman) L.P. Mr. Shalev disclaims beneficial ownership of these shares, except for his proportional interest therein, if any. 60 62 (12) Includes 1,913,029 shares held by Worldview Technology Partners I, L.P., 745,612 shares held by Worldview Technology International I, L.P. and 164,780 shares held by Worldview Strategic Partners I, L.P. (13) Includes 1,799,372 shares held by MeriTech Capital Partners L.P., and 29,258 shares held by MeriTech Capital Affiliates L.P. 61 63 DESCRIPTION OF SHARE CAPITAL DESCRIPTION OF SHARES Set forth below is a summary of the material provisions governing our share capital. This summary is not complete and should be read together with our Memorandum of Association and Articles of Association, a copy of each of which has been filed as an exhibit to the Registration Statement of which this prospectus forms a part. As of the date of this offering, our authorized share capital will consist of 105,000,000 shares, NIS 0.02 nominal value per share, including 98,000,000 ordinary shares, 2,000,000 non-voting ordinary shares and 5,000,000 preferred shares. As of December 31, 1999, there were 20,708,744 ordinary shares issued and outstanding and there were approximately 80 holders of our ordinary shares. DESCRIPTION OF ORDINARY SHARES On , 2000, our shareholders approved the increase of our authorized share capital to 100,000,000 ordinary shares, NIS 0.02 par value per ordinary share, effective immediately prior to the completion of this offering. Immediately prior to the completion of this offering, each preferred share will automatically convert into one ordinary share. On , 2000, our shareholders approved a 1-for-2 reverse stock split for each share outstanding as of the record date and the issuance of bonus shares at a rate of 6 bonus shares for every 5 shares held, effective immediately prior to the completion of this offering. The effect of these transactions will be a 3 for 5 reverse share split. Immediately following the reverse share split and distribution of the share dividend, there will be 20,708,744 ordinary shares issued and outstanding. Upon completion of this offering, all outstanding ordinary shares, including the ordinary shares issued in this offering, will be validly issued and fully paid and will not have preemptive rights. The ownership or voting of ordinary shares by non-residents of Israel is not restricted in any way by our memorandum of association, our articles of association or the laws of the State of Israel, except that nationals of certain countries which are, or have been, in a state of war with Israel may not be recognized as owners of ordinary shares. Transfer of Shares and Notices. Fully paid ordinary shares are issued in registered form and may be freely transferred pursuant to our articles of association unless such transfer is restricted or prohibited by another instrument. Pursuant to the Companies Law, each shareholder of record in an Israeli public company, including a company that is publicly traded outside of Israel, is entitled to receive at least twenty one days' prior notice of a General Meeting, unless provided by the company's articles of association that notice need not be sent. The Company's articles of association provide for twenty one days' prior notice of a General Meeting of the shareholders. The Companies Law and the regulations promulgated thereunder provide that a notice of a General Meeting in a company whose shares are publicly traded outside of Israel, shall be published pursuant to the requirements of the Nasdaq National Market. Election of Directors. Our ordinary shares do not have cumulative voting rights in the election of directors. As a result, the holders of ordinary shares that represent more than 50% of the voting power have the power to elect all of our directors. Dividend and Liquidation Rights. We may declare a dividend to be paid to the holders of ordinary shares according to their rights and interests in our profits. In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of ordinary shares in proportion to the nominal value of their respective holdings. This right may be affected by the grant of preferential dividend or distribution rights to the holders of a class of shares with preferential rights that may be authorized in the future. See "Description of Preferred Shares." Dividends may be distributed only out of profits available for dividends as determined by the Companies Law, provided that there is no reasonable concern that the distribution will prevent us from being able to meet our existing and anticipated obligations when they become due. 62 64 Generally, pursuant to the Companies Law, the decision to distribute dividends and the amount to be distributed, whether interim or final, is taken by the Board of Directors. However, a company may determine in its articles of association that the decision to distribute dividends be made by the shareholders in the general meeting after receiving the recommendations of the Board of Directors, provided that the general meeting may reduce but not increase the amount of the dividends proposed by the Board of Directors; after the shareholders have determined at a general meeting the maximum amount which may be distributed; or in any other way, provided that the board of directors has had the opportunity to determine, prior to the distribution, that is not a non-permissable distribution pursuant to the Companies Law. Our articles of association provide that the Board of Directors has the authority to determine the amount and time for payment of any dividends, whether interim or final and the record date for determining the shareholders entitled thereto, provided such date is not prior to the date of the resolution to distribute the dividend. Voting, Shareholders' Meetings and Resolutions. Holders of ordinary shares have one vote for each ordinary share held on all matters submitted to a vote of shareholders. However, certain ordinary shares which are held by one of our existing shareholders are non-voting ordinary shares. These voting rights may be affected by the grant of any special voting rights to the holders of a class of shares with preferential rights that may be authorized in the future. Any change in our registered capital, including the creation of a new class of shares with rights superior or inferior to existing classes of shares, may be adopted by a resolution of the shareholders in a general meeting. Once the creation of a class of shares with a preference rights has been approved, the Board of Directors may issue such shares, unless it is limited from doing so by the articles of association or a contractual provision. The Companies Law provides that a shareholder in a public company who wishes to vote in the shareholders' General Meeting shall prove to the company, that he owns the shares. Pursuant to the Companies Law the quorum required for shareholders' meetings consists of at least two shareholders who hold between them at least twenty five percent of the voting rights, unless a different quorum is prescribed by the articles of association. Our articles provide that the requisite quorum is 33%. A meeting adjourned for lack of a quorum generally is adjourned to the same day in the following week at the same time and place or any time and place as the directors designate in a notice to the shareholders. At such reconvened meeting the required quorum consists of any two members present in person or by proxy. Resolutions, such as those amending our articles of association, assuming the authority of the board of directors in certain circumstances, appointing auditors, appointing external directors, approving certain transactions, increasing or decreasing our registered share capital and approving a merger with another company must be made by the shareholders at a general meeting. A company may determine in its articles of association certain additional matters, resolutions with respect to which must be made by the shareholders in a general meeting. However, a company, such as ours, incorporated prior to the effectiveness of the Companies Law on February 1, 2000, is subject to various rules with respect to the transition from being governed by the Companies Ordinance (New Version), 1983, to being governed by the Companies Law. Under these rules, any amendment to our articles of association requires a resolution adopted by the holders of a majority of 75% or more of the voting power represented at a general meeting and voting on such resolution unless and until we amend our articles of association in such manner to provide for a different majority. Some corporate actions such as a merger or liquidation, may also require the prior approval of an Israeli court, and would be subject to court approval. DESCRIPTION OF PREFERRED SHARES As of the offering we will have an additional 5,000,000 million preferred shares authorized. The board of directors has the authority to issue the preferred shares without further vote or action by the shareholders in one or more series and to fix the rights, preferences, privileges and restrictions of the 63 65 preferred shares, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting any series. If the board of directors issues preferred shares, this may delay, defer or prevent a change in control without further action by the shareholders. For example, the board of directors could issue preferred shares that have a class vote with respect to a change of control transaction. The issuance of preferred shares with voting and conversion rights may adversely affect the voting power of the holders of ordinary shares, including the loss of voting control to others. We currently have no plans to issue any of the unissued preferred shares. Although Israeli law does not prohibit the issuance of preferred shares with rights which were not approved by the shareholders at the time such preferred shares were authorized, this matter has to date not been determined by Israeli courts, and there is a substantial doubt as to the validity of such an issuance. Consequently, to the extent that the rights, preferences and privileges attached to the preferred shares, if and when issued, derogate from the rights of our ordinary shares, there can be no assurance that, if such issuance was challenged in legal proceedings, the legality of such issuance would be upheld by an Israeli court. OPTIONS AND WARRANTS As of December 31, 1999, options and a warrant to purchase 2,665,034 voting and non voting ordinary shares were outstanding, with a weighted average exercise price of $1.17 per share. ClickService has also issued warrants to purchase an aggregate of 393,552 Preferred B Convertible Shares at an exercise price of $1.96 per share and warrants to purchase 18,926 ordinary shares at an exercise price of $0.58 per share. As of December 31, 1999, 1,206,920 ordinary shares were held by a trustee and have been reserved for allocation against some employee options granted but not yet exercised. REGISTRATION RIGHTS In connection with the private placement of our Series A, Series A-1, Series B, Series C, Series D Convertible Preferred Shares and Series B Convertible Ordinary Shares, most of our shareholders were granted registration rights with respect to the ordinary shares received by such shareholders upon conversion of their preferred shares (13,499,898 ordinary shares in the aggregate) (the "Registrable Securities"). The registration rights agreement provides that at any time after the earlier of March 29, 2001, or 12 months following this offering, we shall be required to effect registration at the request of at least 20% of the outstanding Registrable Securities or such lesser number which would result in an aggregate offering of at least $10 million. We can delay the registration for up to 90 days if, in the good faith opinion of the Board of Directors, it would be seriously detrimental to the Company and the shareholders for such registration statement to be filed at that time. If we shall determine to register, or offer to the public in any jurisdiction, any of our securities either for our own account or for the account of a security holder or holders exercising their respective demand registration rights, other than a registration (or its equivalent in other jurisdictions) (i) relating solely to employee benefit plans or to a Rule 145 transaction, or (ii) on any form which does not permit secondary sales or does not include substantially the same information as would be required to be included in a registration statement covering the sale of Registrable Securities, we must include all Registrable Securities requested to be included in such registration. If the registration is an underwritten offering, the amount of Registrable Securities to be registered is subject to underwriter's cutback; in our initial public offering, the underwriters may exclude all Registrable Securities from such registration and thereafter Registrable Securities must constitute at least 25% of the total number of securities offered to the public. In the event of underwriters cutbacks, the securities to be registered in such registration and underwriting will be allocated as follows: (i) 75% of the Registrable Securities to be included in such registration and underwriting, and (ii) Moshe Ben-Bassat and Idit Ben-Bassat to the extent of 25% of the Registrable Securities to be included in such registration and underwriting. The holders of the Registrable Securities also have unlimited Form S-3 registration rights. All expenses of registration shall be borne by us, except that underwriting discounts and selling expenses will be borne by the selling shareholders. 64 66 ANTI-TAKEOVER PROVISIONS; MERGERS AND ACQUISITIONS UNDER ISRAELI LAW Pursuant to the Companies Law, if following any acquisition of shares of a public company or of a class of shares of a public company the acquirer will hold 90% or more of the company's shares or 90% of any class of the company's shares, respectively, then the acquiror must make a tender offer for all of the remaining shares or the particular class of shares of the company. In the event that 5% or more of the shareholders have not responded favorably to a tender offer, the offeror may not purchase more than 90% of that class of shares. This rule does not apply if the acquisition is made by way of a merger. Furthermore, the Companies Law provides that as long as a shareholder in a public company holds more than 90% of the company's shares or of a class of shares, such shareholder shall be precluded from purchasing any additional shares of that type. The Companies Law further provides that if following the tender offer such acquiring shareholder holds more than 95% of the outstanding shares of any class, the holders of all the remaining shares will be obligated to transfer such shares to the acquiror at the tender offer price. This entails the possibility of additional delay and the imposition of further approval requirements at the court's discretion. The Companies Law requires that each company that is party to a merger approve the transaction by a vote of the Board of Directors and by a vote of the majority of its outstanding shares, generally excluding shares voted by the other party to the merger or any person holding at least 25% of the other party to the merger, at a shareholders' meeting called on at least 21 days prior notice. In addition, the Companies Law does not generally require court approval of a merger. Pursuant to the Companies Law the articles of association of companies such as ours, which have been incorporated prior to February 1, 2000, are deemed to include a provision whereby the approval of a merger requires approval of the transaction by the majority of the shareholders present and voting on the proposed transaction who hold at least 75% of the shares present and voting at such meeting. In addition, a merger may not be completed unless at least 70 days have passed from the time that a proposal for approval of the merger has been filed with the Israeli Registrar of Companies and certain notification and information have been provided to debtors. Notwithstanding the approval requirements set forth in the Companies Law, companies, such as ours, which have been incorporated prior to the Companies Law coming into effect, must specifically amend their articles of association to provide for the shareholder voting requirements contained in the Companies Law. The Companies Law also provides that an open market acquisition of shares in a public company must be made by means of a tender offer if as a result of the acquisition the purchaser would become a holder of 25% of the voting rights in the company. This rule does not apply if there already is another holder of 25% of the voting rights in the company. Similarly, the Companies Law provides that an open market acquisition of shares in a public company must be made by means of a tender offer if as a result of the acquisition the purchaser would become the holder of 45% of the voting rights in the company. This rule does not apply if another party already holds more than 50% of the voting rights in the company. MODIFICATION OF CLASS RIGHTS Our articles provide that the rights attached to any class (unless otherwise provided by the terms of such class), such as voting, rights to dividends and the like, may be varied by written consent of all holders of the issued shares of that class, or by adoption of a majority resolution at a meeting of the holders of the shares of such class. ISRAELI SECURITIES LAW REQUIREMENTS We have requested from the Israeli Securities Authority an exemption from Israel's prospectus delivery requirements and an exemption from the reporting obligations to which Israeli companies whose shares are publicly traded are subject, provided that a copy of each of the reports filed by us pursuant to applicable United States law shall be available for public review at our offices. 65 67 ACCESS TO INFORMATION We file reports with the Israeli Registrar of Companies regarding our registered address, our registered capital, our shareholders of record and the number of shares held by each, the identity of the directors and details regarding security interests on our assets. In addition, we must file with the Registrar of Companies our articles of association and notices of resolutions concerning the amendment of our articles of association, the change of our name, the change of our registered address, merger with another company and any change in our objectives. The information filed with the Registrar of Companies is available to the public. In addition to the information available to the public, our shareholders are entitled, upon request, to review and receive copies of all minutes of meetings of our shareholders, our annual balance sheet, the register of our shareholders and other documents provided for in the Companies Law. TRANSFER AGENT AND REGISTRAR We have appointed Boston Equiserve as our transfer agent and registrar for the Ordinary Shares. 66 68 SHARES ELIGIBLE FOR FUTURE SALE If our shareholders sell substantial amounts of our ordinary shares (including shares issued upon the exercise of outstanding options and warrants) in the public market following this offering, the market price of our ordinary shares could fall dramatically. These sales also might make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate. The number of shares of ordinary shares available for sale in the public market is limited by restrictions under United States federal securities law and by certain "lock-up" agreements that our shareholders have entered into with the underwriters. The lock-up agreements restrict our shareholders from selling or otherwise disposing of any of their shares for a period of 180 days after the date of this prospectus without the prior written consent of Lehman Brothers Inc. Lehman Brothers Inc. may, however, in its sole discretion and without notice, release all or any portion of the shares from the restrictions in the lock-up agreements. Upon completion of this offering, we will have outstanding ordinary shares (based upon shares outstanding as of , 2000), assuming no exercise of the underwriters' over-allotment option and no exercise of outstanding options or warrants after , 1999. Of these shares, the shares sold in this offering are freely tradable. This leaves shares eligible for sale in the public market as follows:
NUMBER OF SHARES DATE - ---------------- ---- ........................... , 2000 180 days from the date of this ........................... prospectus
Any ordinary shares that may be purchased in this offering by our "affiliates," as defined in Rule 144 of the Securities Act, will be subject to the volume and other selling limitations under Rule 144 of the Securities Act. of the shares available for sale at the 180th day after the date of this prospectus or afterward will be subject initially to certain volume and other limitations under Rule 144 of the Securities Act. On or prior to the 180th day following the date of this prospectus, we intend to register for resale an additional ordinary shares reserved for issuance under our employee stock plans based upon the number of shares reserved for issuance as of . In addition, the holders of approximately ordinary shares have the right to require us to register their shares for sale to the public. If these holders cause a large number of shares to be registered and sold in the public market, our stock price could fall materially. 67 69 UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS The following summary describes the material United States federal income tax consequences relating to an investment in ordinary shares as of the date hereof. The summary is based on the Internal Revenue Code of 1986, and existing final, temporary and proposed Treasury Regulations, rulings and judicial decisions, all of which are subject to prospective and retroactive changes. We will not seek a ruling from the Internal Revenue Service with regard to the United States federal income tax treatment relating to investment in ordinary shares and, therefore, there can be no assurance that the IRS will agree with the conclusions set forth below. The summary does not purport to address all federal income tax consequences that may be relevant to you. For example, the summary assumes that you are a U.S. Holder, as defined below, hold ordinary shares as capital assets within the meaning of Section 1221 of the Code, and does not address the tax consequences that may be relevant to investors in special tax situations (including, for example, persons who are not U.S. Holders, as defined below, insurance companies, tax-exempt organizations, dealers in securities or currency, banks or other financial institutions, investors that hold ordinary shares as part of a hedge, straddle or conversion transaction, or holders that own, directly or indirectly, ten percent or more of our outstanding ordinary shares or persons who are not entitled to benefits under the "U.S.-Israel Tax Treaty" pursuant to Article 25 thereof). Further, it does not address the alternative minimum tax consequences of an investment in ordinary shares or the indirect consequences to persons that own equity interests in investors in ordinary shares. ACCORDINGLY, YOU SHOULD CONSULT YOUR OWN TAX ADVISOR CONCERNING THE APPLICATION OF UNITED STATES FEDERAL INCOME TAX LAWS, AS WELL AS THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION, TO YOUR PARTICULAR SITUATION. For purposes of this discussion, "U.S. Holder" means a holder of ordinary shares that is: - a citizen or resident of the United States; - a partnership or corporation created or organized in the United States or any State thereof (including the District of Columbia); - an estate, the income of which is includable in gross income for United States federal income tax purposes regardless of its source; or - a trust if (1) a United States court is able to exercise primary supervision over its administration and one or more United States persons have the authority to control all of its substantial decisions, or (2) the trust was in existence on August 20, 1996 and has properly elected to continue to be treated as a United States person. TAXATION OF U.S. HOLDERS Distributions on Ordinary Shares. Distributions made by us with respect to ordinary shares generally will constitute foreign source dividends for federal income tax purposes and will be taxable to you as ordinary income to the extent of our undistributed current or accumulated earnings and profits (as determined for United States federal income tax purposes). Distributions in excess of our current or accumulated earnings and profits will be treated first as a non-taxable return of capital reducing your tax basis in the ordinary shares, thus increasing the amount of any gain (or reducing the amount of any loss) which might be realized by you upon the sale or exchange of such ordinary shares. Any such distributions in excess of your tax basis in the ordinary shares will be treated as capital gain to you and will be long term capital gain if you have held the ordinary shares for more than one year. Dividends paid by us generally will not be eligible for the dividends received deduction available to certain United States corporate shareholders. The amount of any cash distribution paid in a foreign currency will equal the U.S. dollar value of the distribution, calculated by reference to the exchange rate in effect at the time the dividends are received. You should not recognize any foreign currency gain or loss if such foreign currency is converted into U.S. dollars on the day received. If you do not convert the foreign currency into U.S. dollars on the date of receipt, however, you may recognize gain or loss upon a subsequent sale or other 68 70 disposition of the foreign currency (including an exchange of the foreign currency for U.S. dollars). Such gain or loss, if any, will be United States source ordinary income or loss for United States federal income tax purposes. Subject to certain conditions and limitations, any Israeli withholding tax imposed upon distributions which constitute dividends under United States income tax law will be eligible for credit against your federal income tax liability. Alternatively, you may claim a deduction for such amount, but only for a year in which you elect to do so with respect to all foreign income taxes. The overall limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends distributed by us with respect to ordinary shares will generally constitute "passive income" or in the case of certain holders, "financial services income." The rules governing the foreign tax credit are complex. You are urged to consult your tax advisor regarding the availability of the foreign tax credit in your particular circumstances. Sale or Exchanges of Ordinary Shares. You generally will recognize capital gain or loss upon the sale or exchange of the ordinary shares measured by the difference between the amount realized and your tax basis in the ordinary shares. Gain or loss will be computed separately for each block of shares sold (shares acquired separately at different times and prices). The gain or loss on such disposition will be long-term capital gain or loss if the ordinary shares had been held for more than one year. Long-term capital gains of individuals is eligible for reduced rates of taxation. The deductibility of capital losses is restricted and generally may only be used to reduce capital gains to the extent thereof. Passive Foreign Investment Company. A foreign corporation generally will be treated as a "passive foreign investment company" ("PFIC") if, after applying certain "look-through" rules, either (1) 75% or more of its gross income is passive income or (2) 50% or more of the average value of its assets is attributable to assets that produce or are held to produce passive income including cash (even if held or working capital). Passive income for this purpose generally includes dividends, interest, rents, royalties and gains from securities and commodities transactions. The look-through rules require a foreign corporation that owns at least 25%, by value, of an operating subsidiary to treat that proportion of the subsidiary's assets and income as held or received directly by the foreign parent. We do not believe that we currently are a PFIC nor do we anticipate that we will be a PFIC in the future because we expect that less than 75% of our annual gross income will be passive income and less than 50% of our assets will be passive assets, based on the look-through rules, the current income and assets of our subsidiaries, and the manner in which we expect to conduct our businesses in the future. However, there can be no assurance that we are not or will not be treated as a PFIC in the future. This conclusion is a factual determination made annually and thus subject to change. In reaching the conclusion that we do not believe that we are a PFIC, we have valued our assets based on the price per share of the ordinary shares. This valuation method results in substantial value being given to intangible assets, including goodwill, that are considered neither to produce nor to be held for the production of passive income for purposes of the PFIC rules. The Internal Revenue Service has neither approved nor disapproved of this valuation method, although we believe that this a reasonable method of valuing our non-passive assets and is consistent with the policy underlying the PFIC provisions. If we were to be treated as a PFIC, you may be required, in certain circumstances, to pay an interest charge together with tax calculated at maximum rates on certain "excess distributions," including any gain on the sale of ordinary shares. In order to avoid this tax consequence, you (1) may be permitted to make a "qualified electing fund" election, in which case, in lieu of such treatment you would be required to include in their taxable income certain undistributed amounts of our income or (2) may elect to mark-to-market the ordinary shares and recognize ordinary income (or possible ordinary loss) each year with respect to such investment and on the sale or other disposition of the ordinary shares. Neither we nor our advisors have the duty to or will undertake to inform you of changes in circumstances that would cause us to become a PFIC. You should consult your own tax advisors concerning our status as a PFIC at any point in time after the date of this prospectus. We do not currently intend to take the action necessary for you to make a "qualified electing fund" election in the event we are determined to be a PFIC. 69 71 Foreign Personal Holding Company. A foreign corporation may be classified as a foreign personal holding company (a "FPHC", for federal income tax purposes if both of the following tests are satisfied: (1) at any time during the taxable year five or fewer individuals who are United States citizens or residents own or are deemed to own (under certain attribution rules) more than 50% of its stock (vote or value) and (2) at least 60% (50% for years subsequent to the year in which it becomes a FPHC of its gross income (regardless of its source), as specifically adjusted, "is foreign personal holding company income," which includes dividends, interest, rents, royalties and gain from the sale of stock or securities. We do not believe that we are currently a FPHC nor do we anticipate that we will be a FPHC in the future; however, no assurance can be given that we are or will not become a FPHC as a result of future changes of ownership or changes in the nature of our income. If we were to be classified as a FPHC, you would be required to include in income as a taxable constructive dividend your pro rata share of our undistributed foreign personal holding company income. BACKUP WITHHOLDING In general, information reporting requirements will apply to certain distributions on the ordinary shares and to the proceeds of sale of ordinary shares made to you (unless you are an exempt recipient such as a corporation). A 31% backup withholding tax will apply to such payments if you fail to provide a taxpayer identification number, a certification of exempt status, or fail to report in full dividend an interest income. If backup withholding applies, the amount withheld is not an additional tax, but may be credited against your United States federal income tax liability provided the required information is furnished to the Internal Revenue Service. 70 72 ISRAELI TAXATION AND INVESTMENT PROGRAMS The following discussion summarizes some of the material current tax laws of the State of Israel as they relate to the Company, its shareholders and ownership and disposition of its ordinary shares. This summary does not discuss all aspects of Israeli tax law that may be relevant to a particular shareholder in light of his personal investment circumstances or to certain types of investors subject to special treatment under Israeli law (for example, traders in securities or persons that own, directly or indirectly, 10% or more of a company's outstanding voting shares). The following also includes a discussion of certain Israeli government programs benefiting various Israeli businesses such as the Company. To the extent that the discussion is based on new legislation yet to be subject to judicial or administrative interpretation, there can be no assurance that the views expressed herein will accord with any such interpretation in the future. This discussion is for general information only and does not cover all possible tax consequences or situations, and investors should consult their tax advisors regarding the tax consequences unique to their situation, including the effects of applicable Israeli or foreign tax laws and possible changes to tax laws. GENERAL CORPORATE TAX RATE In general, Israeli companies are currently subject to Company Tax at the rate of 36% of taxable income. However, the effective tax rate payable by a company which derives income from an "Approved Enterprise" (as further discussed below), may be considerably less. Subject to relevant tax treaties, dividends or interest received by an Israeli corporation from foreign subsidiaries are generally subject to tax regardless of its status as an Approved Enterprise. LAW FOR THE ENCOURAGEMENT OF CAPITAL INVESTMENTS, 1959 Certain of the Company's investment programs have been granted "Approved Enterprise" status under the Law for the Encouragement of Capital Investments, 1959, as amended (the "Investment Law"). The Investment Law provides that a capital investment in eligible facilities may, upon application to the Israel Investment Center, be designated as an Approved Enterprise. Each certificate of approval for an Approved Enterprise relates to a specific investment program delineated both by its financial scope, including its capital sources and its physical characteristics, e.g., the equipment to be purchased and utilized pursuant to the program. The tax benefits derived from any such certificate of approval relate only to taxable income attributable to the specific Approved Enterprise. Taxable income of a company derived from an Approved Enterprise may be subject to Company Tax at the rate of 0% for the first two years and 25% (rather than 36% as stated above) for the following five years, each commencing with the year in which the Approved Enterprise first generated taxable income (limited to twelve years from commencement of the operation of the Approved Enterprise or of production or fourteen years from the date of approval, whichever is earlier) and, under certain circumstances (as further detailed below), extending to a maximum of ten years from the date from which the company has taxable income. In the event a company is operating under more than one approval or that its capital investments are only partly approved, its effective Company Tax rate is the result of a weighted combination of the various applicable rates. Income from an Approved Enterprise may be eligible for further reductions in tax rates, if the company qualifies as a Foreign Investment Company, depending on the percentage of the foreign investment of not less than 25% of the Company's share capital (conferring voting rights, rights to profits and appointment of directors) and of its combined share and loan capital which is owned by non-Israeli residents. The tax rate is 20% if the foreign investment is 49% or more but less than 74%; 15% if the foreign investment is 74% or more but less than 90%; and 10% if the foreign investment is 90% or more. The lowest level of foreign investment during the year is used to determine the relevant tax rate for that year. The Company anticipates that following this offering, its foreign investments shall be between % and %. In addition, a company may elect (as the Company has) to forego certain Government grants extended to Approved Enterprises in return for an "alternative package" of tax benefits (the "Alternative Package"). Under the Alternative Package, a company's undistributed income derived from an Approved 71 73 Enterprise will be exempt from Company Tax for a period of between two and ten years, depending on the geographic location of the Approved Enterprise within Israel, and the type of approved enterprise, and such company will be eligible for the standard tax benefits under the Investment Law for the remainder of the Benefit Period. Should the Company's foreign shareholdings exceed 25%, future Approved Enterprises would qualify for reduced tax rates for an additional three years, after the seven years mentioned above. However, there can be no assurance that the Company will attain approval for additional Approved Enterprises, or that the provisions of this Law will not change, or that the above-mentioned shareholding proportion will be reached or maintained. A company that has elected the Alternative Package and that subsequently pays a dividend out of income derived from the Approved Enterprise(s) during the tax exemption period will be subject to Company Tax in the year the dividend is distributed in respect of the amount distributed at the rate that would have been applicable had the company not elected the Alternative Package (between 10%-25%) depending on the percentage of the foreign investments in the Company. The dividend recipient is taxed at the reduced rate applicable to dividends from Approved Enterprises (15% as compared to 25%, subject to certain conditions), if the dividend is distributed during the tax exemption period or within 12 years after the benefit period. This tax must be withheld by the company at source, regardless of whether the dividend is converted into foreign currency. In the case of a Foreign Investment Company, such as us, the 12 years limitation on reduced withholding tax on dividends does not apply. Subject to certain provisions concerning income subject to the Alternative Package, all dividends are considered to be attributable to the entire enterprise and the effective tax rate is the result of a weighted combination of the various applicable tax rates. However, a company may elect to attribute any dividend distributed by it only to income not subject to the Alternative Package. Since we participate in the Alternative Package, in the event we distribute a cash dividend from income which is tax exempt, as described above, we would have to pay tax at the rate of 25% (or less, depending on the percentage of foreign investment as aforesaid) on an amount equal to the amount distributed and the Company Tax thereon. The Investment Law also provides that an Approved Enterprise is entitled to accelerated depreciation on its property and equipment that are included in an approved investment program. Future applications to the Investment Center will be reviewed separately, and decisions as to whether or not to approve such applications will be based, among other things, on the then prevailing criteria set forth in the Investment Law, on the specific objectives of the applicant company set forth in such applications and on certain financial criteria of the applicant company. Accordingly, there can be no assurance that any such applications will be approved. The above tax benefits are conditioned upon fulfillment of the requirements stipulated by the aforementioned law and the regulations promulgated thereunder, as well as the criteria set forth in the certificates of approval. In the event of our failure to comply with these conditions, the tax benefits could be canceled, in whole or in part, and we would be required to refund the amount of the canceled benefits, plus interest and certain inflation adjustments. In management's opinion, we have been in full compliance with the aforementioned conditions through December 31, 1999. LAW FOR THE ENCOURAGEMENT OF INDUSTRY (TAXES), 1969 The Company currently qualifies as an "Industrial Company" within the meaning of the Law of the Encouragement of Industry (Taxes), 1969 (the "Industry Encouragement Law"). According to the Industry Encouragement Law, an "Industrial Company" is a company resident in Israel, at least 90% of the income of which in any tax year, determined in Israeli currency (exclusive of income from specified sources) is derived from an "Industrial Enterprise" that it owns. An "Industrial Enterprise" is defined by that law as an enterprise whose major activity in a given tax year is industrial production activity. 72 74 The following preferred corporate tax benefits are available to an Industrial Company such as the Company: - Amortization of purchases of know-how or patents that are utilized in development or advancement of its enterprise over eight years for tax purposes; - Election under certain conditions to file a consolidated tax return with additional related Israeli Industrial companies; and - Accelerated depreciation rates on equipment and buildings. In addition, an Industrial Company (but not an Industrial Holding Company) is eligible to deduction of expenses incurred in connection with a public share issuance over a three-year period. Eligibility for the benefits under the Industry Encouragement Law is not subject to receipt of prior approval from any governmental authority. No assurance can be given that the Company will maintain its status under the Industry Encouragement Law or that the benefits described above will be available in the future. TAXATION UNDER INFLATIONARY CONDITIONS The Income Tax Law (Inflationary Adjustments), 1985 (the "Inflationary Adjustments Law") represents an attempt to overcome the problems presented to a traditional tax system by an economy undergoing rapid inflation. Generally, the Adjustment for Inflation Law was designed to neutralize for Israeli tax purposes the erosion of capital investments in businesses and to prevent unintended tax benefits resulting from the deduction of inflationary financing expenses. The Adjustment for Inflation Law applies a supplementary set of inflationary adjustments to a normal taxable profit computed according to regular historical cost principles. The Adjustment for Inflation Law introduced a special adjustment for the preservation of equity for tax purposes based on changes in the Israeli CPI, whereby some corporate assets are classified broadly into fixed (inflation resistant) assets and non-fixed assets. Where the shareholders' equity, as defined in the Adjustment for Inflation Law, exceeds the depreciated costs of fixed assets, a corporate tax deduction which takes into account the effect of inflationary change on such excess is allowed (up to a ceiling of 70% of taxable income in any single tax year, with the unused portion permitted to be carried forward on an inflation-linked basis with no ceiling). If the depreciated costs of fixed assets exceeds shareholders' equity, then such excess multiplied by the annual rate of inflation is added to taxable income. In addition, subject to certain limitations, depreciation on fixed assets and loss carry forwards are adjusted for inflation based on changes in the Israeli CPI. Also, under the Adjustment for Inflation Law, results for tax purposes are measured in real terms, in accordance with changes in the Israeli CPI. As a result, the net effect of the Adjustment for Inflation Law on a company might be that the company's taxable income, as determined for Israeli corporate tax purposes, will be different from the company's U.S. dollar income, as reflected in its financial statements, due to the difference between the annual changes in the CPI and in the NIS exchange rate with respect to the U.S. dollar, causing changes in the actual tax rate. The Israeli Income Tax Ordinance and the Adjustment for Inflation Law allow Foreign Invested Companies, which maintain their accounts in U.S. Dollars in compliance with regulations published by the Israeli Minister of Finance, to base their tax returns on operating results as reflected in the U.S. dollar financial statements or to adjust their tax returns based on exchange rate changes rather than changes in the Israeli CPI (in lieu of the principles set forth in the Adjustment for Inflation Law). For these purposes, a Foreign Investment Company is a company more than 25% of whose share capital (in terms of shares, rights to profits, voting and appointment of directors) and of whose combined share and loan capital is held by persons who are not residents of Israel. The Company currently qualifies as a Foreign Invested Company and anticipates that it will continue to do so following this offering. 73 75 LAW FOR THE ENCOURAGEMENT OF INDUSTRIAL RESEARCH AND DEVELOPMENT, 1984 Under the Law for the Encouragement of Industrial Research and Development, 1984, (the "Research Law") and the Instructions of the Director General of the Ministry of Industry and Trade, research and development programs and the plans for the intermediate stage between research and development, and manufacturing and sales approved by a governmental committee of the Chief Scientist are eligible for grants of up to 50% of the project's expenditure if they meet certain criteria. These grants are issued in return for the payment of royalties from the sale of the product developed in accordance with the program as follows: 3% of revenues during the first three years, 4% of revenues during the following three years, and 5% of revenues in the seventh year and thereafter, with the total royalties not to exceed 100% of the dollar value of the Chief Scientist grant (or in some cases as described below, total royalties up to 300% of the grant). Following the full payment of such royalties, there is no further liability for payment. For participation received with respect to approvals granted after December 31, 1998, interest at the 12-month LIBOR rate as published on the first business day of each calendar year will be added to the royalty payments. As of December 31, 1999, the Company has a contingent liability to pay royalties in the amount of $ million. The Research Law further requires that products developed with government grants be manufactured in Israel unless a special approval has been granted. However, in the event that any portion of the manufacturing is not conducted in Israel, if approval is received from the Chief Scientist, the Company would be required to pay royalties that are adjusted in proportion to manufacturing outside of Israel as follows: when the manufacturing is performed outside of Israel by the Company or an affiliate company, the royalties are to be paid as described above with the addition of 1%, and when the manufacturing outside of Israel is not performed by a company or an affiliate, the royalties paid shall be equal to the ratio of the amount of grant received from the Chief Scientist divided by the amount of grant received from the Chief Scientist and the investment(s) made by the Company in the project. The payback will also be adjusted to 120%, 150% or 300% of the grant if the portion of manufacturing that is performed outside of Israel is up to 50%, between 50% and 90%, or more than 90%, respectively. The know how which is used to manufacture the products developed pursuant to the terms of these grants may not be transferred to third parties without the prior approval of the Research Committee. Such approval is not required for the export of any products resulting from such research or development. Approval of the transfer of such know-how may be granted only if the recipient abides by all the provisions of the Research Law and the regulations promulgated thereunder, including the restrictions on the transfer of know-how and the obligation to pay royalties in an amount that may be increased. In order to meet certain conditions in connection with the grants and programs of the Chief Scientist, the Company has made certain representations to the Israeli government about the Company's future plans for its Israeli operations. From time to time the extent of the Company's Israeli operations may in the future differ, from the Company's representations. If, after receiving grants under certain programs sponsored by the Chief Scientist, the Company fails to meet certain conditions to those benefits, the maintenance of a material preserve in Israel, or if there is any material deviation from the representations made by the Company to the Israeli government, the Company could be required to refund to the State of Israel tax or other benefits previously received (including interest and CPI linkage difference) and would likely be denied receipt of such grants or benefits, and participation of such programs, thereafter. The Company may elect to participate in future programs sponsored by the Chief Scientist for the support of research and development activities. DIVIDENDS Non-residents of Israel are subject to income tax on income derived from sources in Israel. On distributions of dividends other than bonus shares (stock dividends), income tax at the rate of 25% (15% for dividends generated by an "Approved Enterprise") is withheld at source, unless a different rate is provided in a treaty between Israel and the shareholder's country of residence. The Convention Between the Government of the United States of America and the Government of Israel with Respect to Taxes on 74 76 Income (the "U.S.-Israel Tax Treaty") provides for a maximum tax of 25% on dividends paid to a person who qualifies as a resident of the United States within the meaning of the U.S.-Israel Tax Treaty and who is entitled to claim the benefits afforded to such resident by the U.S.-Israel Tax Treaty ("Treaty U.S. Resident"), and for a rate of 12.5% on dividends paid to a United States corporation that holds 10% or more of an Israeli company's voting power throughout the current year to the date the dividend is paid and the preceding taxable year (as applicable) (unless such dividends are generated by an "Approved Enterprise," in which case, the dividends will be taxed at the rate of 15%). The lower 12.5% rate applies only on dividends from income not derived from an Approved Enterprise in the applicable period and does not apply if the company has certain amounts of passive income. A non-resident of Israel who has had dividend income derived or accrued in Israel from which the applicable tax was withheld at source is generally exempt from the duty to file an annual Israeli tax return with respect to such income, provided such income was not derived from a business carried on in Israel by such non-resident. CAPITAL GAINS TAX Israeli law imposes a capital gains tax on the sale of capital assets by both residents and non-residents of Israel. The law distinguishes between the "Real Gain" and the "Inflationary Surplus." The Real Gain is the excess of the total capital gain over the Inflationary Surplus, computed on the basis of the increase in the Israeli Consumer Price Index between the date of purchase and the date of sale. The Inflationary Surplus is taxed at a rate of 10% for residents of Israel (reduced to no tax for non-residents if calculated according to the exchange rate of the dollar instead of the Israeli CPI), while the Real Gain is added to ordinary income which is taxed at the ordinary rate for individuals and 36% for companies, while Inflationary Surplus accumulated from and after December 31, 1993 is exempt from any capital gains tax. Capital gain realized from sales of securities of Israeli companies by both residents and non-residents of Israel (other than certain Israeli companies) that qualify as "Industrial Companies" or "Industrial Holding Companies" on or after the listing of the shares for trading will be exempt from Israeli capital gains for the shares of listed on an approved foreign securities market, which includes the Nasdaq National Market in the U.S. Under the Adjustment for Inflation Law, all corporate investors that hold listed securities (other than corporations only owned by individuals), generally will be subject to the provisions of the Adjustment for Inflation Law. A comprehensive set of rules apply in the Adjustment for Inflation Law to determine the gains or losses from the sale of listed securities. Under a literal reading of the Adjustment of Inflation Law, it would appear that its provisions apply also to foreign corporations, even though the foreign corporation may have no other activity in Israel other than having a shareholding in an Israeli company. Consequently, unless a tax treaty exemption is applicable, the capital gain exemption available for individual shareholders would not apply. Pursuant to the U.S.-Israel Tax Treaty, the sale, exchange or disposition of ordinary shares or redeemable warrants will not be subject to the Israeli capital gains tax unless such Treaty U.S. Resident holds, directly or indirectly, shares representing 10% or more of the voting power of a company during any part of the 12-month period preceding such sale, exchange or disposition. A sale, exchange or disposition of ordinary shares or redeemable warrants by a Treaty U.S. Resident who holds, directly or indirectly, shares representing 10% or more of the voting power of a company at any time during such preceding 12-month period could be subject to such Israeli tax; however, under the U.S.-Israel Tax Treaty, such Treaty U.S. Resident would be permitted to claim a credit for such taxes against the U.S. income tax imposed with respect to such sale, exchange or disposition, subject to the limitations applicable to foreign tax credits. The tax treatment of capital gains tax of non-US residents will depend on the provisions of a tax treaty (if any) between Israel and the country of residence of such shareholder. 75 77 FUND FOR THE ENCOURAGEMENT OF MARKETING ACTIVITIES The Israeli Government, through the Fund for the Encouragement of Marketing Activities, awards to qualifying companies participations for marketing expenses incurred to increase export sales from Israel. The participation, which has been reflected as a reduction in selling expenses, is dollar-linked, does not bear interest and is repaid through royalties on any increase in export sales at the rate of 3.0% of the increased sales portion only up to the amount of the participation. Until December 31, 1996, we received participation in the amount of approximately $0.7 million. See Note 10 to the Consolidated Financial Statements. The Company has paid or accrued royalties to date amounting to $0.3 million. FOREIGN EXCHANGE REGULATIONS The Israeli Currency Control Law, 1978 imposes certain limitations concerning foreign currency transactions and transactions between Israeli and non-Israeli residents, which limitations may be regulated or waived by the Controller of Foreign Exchange at the Bank of Israel, through "general" and "special" permits. In May 1998, a new "general permit" was issued pursuant to which substantially all transactions in foreign currency are permitted. Any dividends or other distributions paid in respect of ordinary shares and any amounts payable upon the dissolution, liquidation or winding up of the affairs of a company, as well as the proceeds of any sale in Israel of the company's securities to an Israeli resident are freely repatriable into non-Israeli currencies at the rate of exchange prevailing at the time of conversion, provided that any Israeli income tax owing has been paid on (or withheld from) such payments. Because exchange rates between the NIS and the U.S. dollar fluctuate continuously, U.S. shareholders will be subject to any such currency fluctuation during the period from when such dividend is declared through the date payment is made in U.S. dollars. 76 78 CONDITIONS IN ISRAEL We are incorporated under the laws of the State of Israel, and substantially all of our research and development and significant executive facilities are located in Israel. Accordingly, we are directly affected by political, economic and military conditions in Israel. Our operations would be materially adversely affected if major hostilities involving Israel should occur or if trade between Israel and its present trading partners should be curtailed. POLITICAL CONDITIONS Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its Arab neighbors. A state of hostility, varying from time to time in intensity and degree, has led to security and economic problems for Israel. However, a peace agreement between Israel and Egypt was signed in 1979, a peace agreement between Israel and Jordan was signed in 1994 and, since 1993, several agreements between Israel and Palestinian representatives have been signed. In addition, Israel and several Arab States have announced their intention to establish trade and other relations and are discussing certain projects. Israel has not entered into any peace agreement with Syria or Lebanon, and there have been difficulties in the negotiations with the Palestinians. We cannot be certain as to how the peace process will develop or what effect it may have upon us. Despite the progress towards peace between Israel, its Arab neighbors and the Palestinians, certain countries, companies and organizations continue to participate in a boycott of Israeli firms. We also not believe that the boycott has had a material adverse effect on us, but restrictive laws, policies or practices directed towards Israel or Israeli businesses may have an adverse impact on the expansion of our business. Generally, all male adult citizens and permanent residents of Israel under the age of 51 are obligated to perform up to 39 days, or longer under certain circumstances, of military reserve duty annually. Additionally, all these residents are subject to being called to active duty at any time under emergency circumstances. Currently, a majority of our officers and employees are obligated to perform annual reserve duty. While we have operated effectively under these requirements since we began operations, no assessment can be made as to the full impact of these requirements on our workforce or business if conditions should change, and no prediction can be made as to the effect on us of any expansion or reduction of the obligations. See "Risk Factors -- We are incorporated in Israel and have important facilities and resources located in Israel." ECONOMIC CONDITIONS Israel's economy has been subject to numerous destabilizing factors, including a period of rampant inflation in the early to mid-1980s, low foreign exchange reserves, fluctuations in world commodity prices, military conflicts and civil unrest. The Israeli government has, for these and other reasons, intervened in various sectors of the economy, employing, among other means, fiscal and monetary policies, import duties, foreign currency restrictions and controls of wages, prices and foreign currency exchange rates. The current Israeli government elected in 1999 has expressed its intention to reduce government involvement in the economy by various means, including relaxation of foreign currency controls and certain budgetary restraints, and privatization of certain government-owned companies. In 1998, the Israeli currency control regulations were liberalized significantly, as a result of which Israeli residents generally may freely deal in foreign currency and non-residents of Israel generally may freely purchase and sell Israeli currency and assets. The Israeli government has periodically changed its policies in all these areas. There are currently no Israeli currency control restrictions on remittances of dividends on the ordinary shares or the proceeds from the sale of the shares; however, legislation remains in effect pursuant to which currency controls can be imposed by administrative action at any time. TRADE AGREEMENTS Israel is a member of the United Nations, the World Bank Group (including the International Finance Corporation), the European Bank for Reconstruction and Development and the Inter-American 77 79 Development Bank. Israel is also a signatory to the General Agreement on Tariffs and Trade, which provides for reciprocal lowering of trade barriers among its members. In addition, Israel has been granted preferences under the Generalized System of Preferences from Japan. These preferences allow Israel to export the products covered by such programs either duty-free or at reduced tariffs. Israel has entered into preferential trade agreements with the European Union, the United States, Canada, the European Free Trade Association and a variety of other countries. In recent years, Israel has established commercial and trade relations with a number of the other nations, including Russia and China, with which Israel had not previously had such relations. 78 80 ENFORCEABILITY OF CIVIL LIABILITIES Service of process upon our directors and officers and the Israeli experts names herein, a substantial number of whom reside outside the United States, may be difficult to obtain within the United States. Furthermore, since substantially all of our assets and a significant number of our directors and officers and the Israeli experts named herein are located outside the United States, any judgment obtained in the United States against us, the selling shareholders or such directors, officers or Israeli experts predicated upon the civil liability provisions of the federal securities laws of the United States may not be collectible within the United States. There are no treaties between the United States and Israel relating to the reciprocal enforcement of foreign court judgments. We have been informed by our legal counsel in Israel, Efrati, Galili & Co., that there is doubt as to the enforceability of civil liabilities under the Securities Act and the Securities Exchange Act of 1934 in original actions instituted in Israel. However, subject to certain time limitations, Israeli courts may enforce United States final executory judgments for liquidated amounts in civil matters, obtained after due trial before a court of competent jurisdiction, according to the rules of private international law currently prevailing in Israel, that enforces similar judgments, provided that: - due service of process has been effected and the defendant has had a reasonable opportunity to be heard, - the judgments or the enforcement thereof are not contrary to the law, public policy, security or sovereignty of the State of Israel, - the judgments were not obtained by fraud and do not conflict with any other valid judgment in the same matter between the same parties, and - an action between the same parties in the same matter is not pending in any Israeli court at the time the lawsuit is instituted in the foreign court. We have irrevocably appointed ClickService Software Ltd., our wholly-owned subsidiary, as our agent to receive service of process in any action against us in any federal court or state court in the State of California arising out of this offering or any purchase or sale of securities in connection therewith. We have not given our consent for such agent to accept service of process in connection with any other claim. These appointments are irrevocable, provided that we shall have the right to appoint a successor agent for service, if such successor is acceptable to the representatives of the underwriters, in their reasonable judgment. Foreign judgments enforced by Israeli courts will generally be payable in Israeli currency and will be freely convertible into dollars or other foreign currency and may be transferred out of Israel. The usual practice in an action before an Israeli court to recover an amount in a non-Israeli currency is for the Israeli court to render judgment for the equivalent amount in Israeli currency at the rate of exchange in force on the date thereof. Under existing Israeli law, a foreign judgment payable in foreign currency may be paid in Israeli currency at the rate of exchange of such foreign currency on the date of payment. Pending collection, the amount of the judgment of an Israeli currency ordinarily will be linked to the Israeli CPI plus interest at the annual statutory rate set by Israeli regulations prevailing at such time. Judgment creditors must bear the risk of unfavorable exchange rates fluctuations. WHERE YOU CAN FIND MORE INFORMATION ClickService has filed with the Securities and Exchange Commission a registration statement on Form S-1 under the Securities Act with respect to the ordinary shares offered hereby. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement and the exhibits filed as a part thereof, certain parts of which are omitted in accordance with the rules and regulations of the SEC. For further information with respect to ClickService and the ordinary shares offered hereby, reference is made to the registration statement and to the exhibits 79 81 filed as a part thereof. Statements contained in this prospectus as to the contents of any contract, agreement or other document referred to are not necessarily complete and are qualified in their entirety by reference to each such contract, agreement or other document which is filed as an exhibit to the registration statement. The registration statement, including the exhibits and schedules thereto, may be inspected without charge at the principal office of the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, or at the Regional Offices of the Commission at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, Suite 1300, New York, New York 10048. In addition, such material will be available for inspection at the offices of The Nasdaq Stock Market, Inc., at 1735 K Street, N.W., Washington D.C. 20006. Copies of such material may be obtained by mail from the Public Reference Branch of the commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. LEGAL MATTERS Certain legal matters in connection with this offering with respect to United States law will be passed upon for ClickService by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto, California. The validity of the ordinary shares offered hereby and certain other legal matters in connection with this offering with respect to Israeli law will be passed upon for ClickService by Efrati, Galili & Co., Law Offices, Tel-Aviv, Israel. Certain legal matters in connection with this offering will be passed upon for the underwriters by Simpson Thacher & Bartlett, with respect to United States law, and by Doron Cohen -- David Cohen, Law Offices, with respect to Israeli law. As of the date of this prospectus, an investment partnership composed of certain current and former members of and persons associated with Wilson Sonsini Goodrich & Rosati, P.C. and certain persons associated with Wilson Sonsini Goodrich & Rosati, P.C. beneficially owned an aggregate of 31,862 ordinary shares. Jeffrey D. Saper, a member of Wilson Sonsini Goodrich & Rosati, P.C., owns an option and full-exercisable warrant, exercisable into an aggregate of 150,000 ordinary shares. Jeffrey D. Saper, a member of Wilson Sonsini Goodrich & Rosati, P.C., is a director of the Company. EXPERTS The financial statements included in this prospectus and elsewhere in the registration statement have been audited by Luboshitz Kasirer, a member firm of Arthur Andersen, independent public accountants, as indicated in their reports with respect thereto, and are included herein in reliance upon the authority of said firm as experts in accounting and auditing in giving said reports. ISA EXEMPTION ClickService will request the Israel Securities authority to grant us an exemption from the obligation to publish this prospectus in the manner required pursuant to the prevailing laws of the State of Israel, and from the obligation to file reports with the Israel Securities Authority. ClickService will make a copy of each report filed in accordance with United States law available for public review at its principal office in Israel. 80 82 UNDERWRITING Subject to the terms and conditions stated in the underwriting agreement dated the date hereof, the underwriters, for whom Lehman Brothers Inc., CIBC World Markets Corp., SG Cowen Securities Corporation and Fidelity Capital Markets, a division of National Financial Services Corporation, are acting as representatives, have each agreed to purchase from us the respective number of ordinary shares shown opposite its name below:
NUMBER OF UNDERWRITERS ORDINARY SHARES ------------ --------------- Lehman Brothers Inc. ....................................... CIBC World Markets Corp. ................................... SG Cowen Securities Corporation............................. Fidelity Capital Markets, a division of National Financial Services Corporation................... -------- Total.................................................. ========
The underwriting agreement provides that the obligations of the several underwriters to purchase ordinary shares included in this offering depend on the satisfaction of the conditions contained in the underwriting agreement, and that if any of the ordinary shares are purchased by the underwriters under the underwriting agreement, then all of the shares of the ordinary shares which the underwriters have agreed to purchase under the underwriting agreement, must be purchased. The conditions contained in the underwriting agreement include the requirement that the representations and warranties made by us to the underwriters are true, that there is no material change in the financial markets and that we deliver to the underwriters customary closing documents. The following table shows the per share and total underwriting discounts and commissions to be paid to the underwriters by us. These amounts are shown assuming both no exercise and full exercise of the underwriters' option to purchase additional shares described below.
PAID BY US NO EXERCISE FULL EXERCISE ---------- ----------- ------------- Per share............................................. $ $ Total................................................. $ $
The representatives have advised us that the underwriters propose to offer the ordinary shares directly to the public at the public offering price set forth on the cover page of this prospectus, and to dealers, who may include the underwriters, at a public offering price less a selling concession not in excess of $ per share. The underwriters may allow, and the dealers may reallow, a concession not in excess of $ per share to brokers and dealers. After the offering, the underwriters may change the offering price and other selling terms. The underwriters have agreed that: - they will not offer the ordinary shares to the public in Israel within the meaning of Section 15(a) of the Israel Securities Law, 5728-1968; - they will not offer the ordinary shares in Israel to more than 35 offerees in the aggregate; - they will deliver to us and the Israel Securities Authority the names and addresses of such offerees within 7 days of the consummation of the offering; and - they will obtain warranties from each such offeree that he or she is purchasing the ordinary shares for investment purposes only and not for purposes of resale. 81 83 We have granted to the underwriters an option to purchase up to an aggregate of additional ordinary shares, exercisable solely to cover over-allotments, if any, at the public offering price less the underwriting discounts and commissions shown on the cover page of this prospectus. The underwriters may exercise this option at any time until 30 days after the date of the underwriting agreement. If this option is exercised, each underwriter will be committed, so long as the conditions of the underwriting agreement are satisfied, to purchase a number of additional ordinary shares proportionate to the initial commitment of each underwriter as indicated in the preceding tables and we will be obligated, under the over-allotment option, to sell the ordinary shares to the underwriters. We, our executive officers and directors and certain of our other existing shareholders have agreed not to directly or indirectly do any of the following, whether any transaction described in clause (1) or (2) below is to be settled by delivery of ordinary shares or other securities, in cash or otherwise, in each case without the prior written consent of Lehman Brothers Inc. on behalf of the underwriters, for a period of 180 days after the date of the underwriting agreement: (1) offer, sell or otherwise dispose of, or enter into any transaction or arrangement which is designed or could be expected to, result in the disposition or purchase by any person at any time in the future of, any ordinary shares or securities convertible into or exchangeable for ordinary shares or substantially similar securities, other than any of the following: - the ordinary shares sold by us under this prospectus - ordinary shares we issue under employee benefit plans, qualified stock option plans or other employee compensation plans existing on the date of the underwriting agreement; or (2) sell or grant options, rights or warrants with respect to any of our ordinary shares or securities convertible into or exchangeable for our ordinary shares or substantially similar securities, other than the grant of options under option plans existing on the date of the underwriting agreement; or (3) enter into any swap or other derivatives transaction that transfers to another, in whole or in part, any of the economic benefits or risks of ownership of shares of ordinary shares. Prior to the offering, there has been no public market for the ordinary shares. The initial public offering price will be negotiated between the representatives and us. In determining the initial public offering price of the ordinary shares, the representatives will consider various factors, including: - prevailing market conditions; - our historical performance and capital structure; - estimates of our business potential and earning prospects; - an overall assessment of our management; and - the consideration of the above factors in relation to market valuations of companies in related businesses. We have made an application for quotation of our ordinary shares on The Nasdaq National Market under the symbol "CKSV." Fidelity Capital Markets, a division of National Financial Services Corporation, is acting as an underwriter in this offering and will be facilitating electronic distribution of information through the Internet, intranet and other proprietary electronic technology. We have agreed in the underwriting agreement to indemnify the underwriters against liabilities under the Securities Act and to contribute to payments that the underwriters may be required to make for these liabilities. We estimate that the total expenses of the offering, excluding underwriting discounts and commissions, will be approximately $ . 82 84 Until the distribution of the ordinary shares is completed, rules of the Securities and Exchange Commission may limit the ability of the underwriters and selling group members to bid for and purchase ordinary shares. As an exception to these rules, the representatives are permitted to engage in transactions that stabilize the price of the ordinary shares. These transactions may consist of bids or purchases for the purposes of pegging, fixing or maintaining the price of the ordinary shares. The underwriters may create a short position in the ordinary shares in connection with the offering, which means that they may sell more shares than are set forth on the cover page of this prospectus. If the underwriters create a short position, then the representatives may reduce that short position by purchasing ordinary shares in the open market. The representatives also may elect to reduce any short position by exercising all or part of the over-allotment option. The underwriters have informed us that they do not intend to confirm sales to discretionary accounts that exceed five percent of the total number of ordinary shares offered by them. The representatives also may impose a penalty bid on underwriters and selling group members. This means that if the representatives purchase ordinary shares in the open market to reduce the underwriters' short position or to stabilize the price of the ordinary shares, they may reclaim the amount of the selling concession from the underwriters and selling group members who sold those ordinary shares offered by them. In general, purchases of a security for the purpose of stabilization or to reduce a syndicate short position could cause the price of the security to be higher than it might otherwise be in the absence of these purchases. The imposition of a penalty bid might have an effect on the price of a security to the extent that it were to discourage resales of the security by purchasers in an offering. Neither we nor any of the underwriters makes any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the ordinary shares. In addition, neither we nor any of the underwriters makes any representation that the representatives will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice. Any offers in Canada will be made only under an exemption from the requirements to file a prospectus in the relevant province of Canada in which the sale is made. The ordinary shares offered in this prospectus are only being registered for offering in the United States. No action will be taken by us and the underwriters in any other jurisdiction where action is required to permit a public offering of the ordinary shares offered in this prospectus. People who obtain this prospectus are required by us and the underwriters to inform themselves about and to observe any restrictions on the offering of the ordinary shares and the distribution of this prospectus. Purchasers of the ordinary shares offered in this prospectus may be required to pay stamp taxes and other charges under the laws and practices of the country of purchase, in addition to the offering price listed on the cover page of this prospectus. At our request, the underwriters have reserved up to ordinary shares offered by this prospectus for sale to our officers, directors, employees and their family members and to our business associates at the initial public offering price set forth on the cover page of this prospectus. These persons must commit to purchase no later than the close of business on the day following the date of this prospectus. The number of ordinary shares available for sale to the general public will be reduced to the extent these persons purchase the reserved ordinary shares. To the extent that these persons have signed a lock-up agreement, as described above, ordinary shares purchased by them will be subject to the provisions of the lock-up agreement. 83 85 CLICKSERVICE SOFTWARE LTD. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Report of Independent Public Accountants.................... F-2 Consolidated Balance Sheets................................. F-3 Consolidated Statements of Operations....................... F-4 Consolidated Statements of Changes in Shareholders' Equity.................................................... F-5 Consolidated Statements of Cash Flows....................... F-6 Notes to the Consolidated Financial Statements.............. F-7
F-1 86 After the change in share capital, the reverse share split and share dividend discussed in Note 11 to the financial statements is effected, we expect to be in a position to render the following audit report. LUBOSHITZ KASIERER Member Firm of Arthur Andersen Tel-Aviv, Israel February 14, 2000 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders of ClickService Software Ltd. We have audited the accompanying consolidated balance sheets of ClickService Software Ltd. (an Israeli Corporation) as of December 31, 1998 and 1999, and the related consolidated statements of operations, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards in Israel and in the United States, including those prescribed under the Auditors' Regulations (Auditor's Mode of Performance), 1973. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 1998 and 1999, and the results of operations, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. F-2 87 CLICKSERVICE SOFTWARE LTD. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, -------------------- 1998 1999 -------- -------- ASSETS CURRENT ASSETS: Cash and cash equivalents (note 3)........................ $ 3,770 $ 7,838 Trade receivables, net of allowance of $0 and $130, respectively........................................... 2,041 3,966 Other receivables and prepaid expenses (note 4)........... 439 465 -------- -------- Total current assets................................... 6,250 12,269 Property and equipment, net (note 5)........................ 1,240 1,498 Severance pay deposits (note 9)............................. 493 428 -------- -------- Total assets........................................... $ 7,983 $ 14,195 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Short-term debt (note 6).................................. $ 299 $ 320 Accounts payable and accrued expenses (note 7)............ 1,687 2,799 Deferred revenues......................................... 86 1,143 -------- -------- Total current liabilities.............................. 2,072 4,262 -------- -------- LONG-TERM LIABILITIES: Long-term debt (note 8)................................... 330 213 Accrued severance pay (note 9)............................ 924 899 -------- -------- Total long-term liabilities............................ 1,254 1,112 -------- -------- Total liabilities...................................... 3,326 5,374 -------- -------- Commitments and contingencies (note 10) SHAREHOLDERS' EQUITY: (NOTE 11) Convertible Preferred shares of NIS 0.02 par value: Authorized -- 20,430,238 shares (1998 -- 18,600,000 shares); Issued and outstanding -- 13,499,898 shares (1998 -- 11,667,812 shares)............................ 52 60 Ordinary shares of NIS 0.02 par value: Authorized -- 9,809,761 shares (1998 -- 11,640,000 shares); Issued and outstanding -- 7,208,846 shares.... 13 13 Additional paid-in capital.................................. 20,265 35,063 Deferred compensation....................................... -- (2,663) Accumulated deficit......................................... (15,673) (23,652) -------- -------- Total shareholders' equity............................. 4,657 8,821 -------- -------- Total liabilities and shareholders' equity............. $ 7,983 $ 14,195 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. F-3 88 CLICKSERVICE SOFTWARE LTD. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS )
YEAR ENDED DECEMBER 31, ---------------------------------------- 1997 1998 1999 ---------- ----------- ----------- Revenues: (note 12) Software license................................... $ 1,235 $ 3,932 $ 5,414 Service and maintenance............................ 1,080 2,139 4,912 ---------- ----------- ----------- Total revenues.................................. 2,315 6,071 10,326 ---------- ----------- ----------- Cost of revenues: Software license................................... 13 25 71 Service and maintenance............................ 1,035 2,301 4,299 ---------- ----------- ----------- Total cost of revenues.......................... 1,048 2,326 4,370 ---------- ----------- ----------- Gross profit.................................... 1,267 3,745 5,956 ---------- ----------- ----------- Operating expenses: Research and development expenses.................. 1,836 3,150 3,935 Less -- participation by the Chief Scientist of the Government of Israel (note 10).................. 497 866 1,025 ---------- ----------- ----------- Research and development expenses, net............. 1,339 2,284 2,910 Sales and marketing expenses (note 10)............. 3,172 6,019 8,274 General and administrative expenses................ 1,120 1,333 1,759 Share-based compensation........................... -- -- 738 ---------- ----------- ----------- Total operating expenses........................ 5,631 9,636 13,681 ---------- ----------- ----------- Operating loss.................................. (4,364) (5,891) (7,725) Interest and other (expenses) income, net............ (148) 33 (254) ---------- ----------- ----------- Net loss........................................ $ (4,512) $ (5,858) $ (7,979) ========== =========== =========== Basic and diluted net loss per share (note 2)........ $ (0.80) $ (0.99) $ (1.34) ========== =========== =========== Shares used in computing basic and diluted net loss per share.......................................... 5,657,728 5,914,765 5,948,846 ========== =========== =========== Pro forma net loss per share (unaudited)............. $ (0.45) =========== Shares used in computing basic and diluted pro forma net loss per share (unaudited)..................... 17,692,994 ===========
The accompanying notes are an integral part of these consolidated financial statements. F-4 89 CLICKSERVICE SOFTWARE LTD. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE DATA)
NUMBER OF NUMBER OF CONVERTIBLE ADDITIONAL ORDINARY PREFERRED SHARE PAID-IN DEFERRED ACCUMULATED SHARES SHARES AMOUNT CAPITAL COMPENSATION DEFICIT TOTAL --------- ----------- ------ ---------- ------------ ----------- ------- Balance as of January 1, 1997.... 5,710,232 -- $ 8 $ 1,341 $ -- $ (5,303) $(3,954) Shares issued net of issuance costs of $121............... 1,498,614 5,109,862 28 5,261 -- -- 5,289 Net loss....................... -- -- -- -- -- (4,512) (4,512) --------- ---------- --- ------- ------- -------- ------- Balance as of December 31, 1997........................... 7,208,846 5,109,862 36 6,602 -- (9,815) (3,177) Shares issued net of issuance costs of $155............... -- 6,557,950 29 13,663 -- -- 13,692 Net loss....................... -- -- -- -- -- (5,858) (5,858) --------- ---------- --- ------- ------- -------- ------- Balance as of December 31, 1998........................... 7,208,846 11,667,812 65 20,265 -- (15,673) 4,657 Shares issued net of issuance costs of $126............... -- 1,832,086 8 11,366 -- -- 11,374 Employee options exercised..... -- -- -- 31 -- -- 31 Deferred compensation....... -- -- -- 3,401 (3,401) -- -- Amortization of deferred compensation................ -- -- -- -- 738 -- 738 Net loss....................... -- -- -- -- -- (7,979) (7,979) --------- ---------- --- ------- ------- -------- ------- Balance as of December 31, 1999........................... 7,208,846 13,499,898 $73 $35,063 $(2,663) $(23,652) $ 8,821 ========= ========== === ======= ======= ======== =======
The accompanying notes are an integral part of these consolidated financial statements. F-5 90 CLICKSERVICE SOFTWARE LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, ----------------------------- 1997 1998 1999 ------- ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss.................................................... $(4,512) $(5,858) $(7,979) Adjustments to reconcile net loss to net cash used in operating activities Expenses not affecting operating cash flows: Depreciation........................................... 237 323 484 Amortization of deferred compensation.................. -- -- 738 Severance pay.......................................... 164 15 40 Other.................................................. 78 37 (8) Changes in operating assets and liabilities: Trade receivables...................................... (569) (1,074) (1,925) Other receivables...................................... (66) (189) (26) Accounts payable and accrued expenses.................. (227) 398 1,112 Deferred revenues...................................... 290 (315) 1,057 ------- ------- ------- Net cash used in operating activities................ (4,605) (6,663) (6,507) ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of equipment...................................... (245) (1,039) (732) Proceeds from sale of equipment............................. 27 -- -- ------- ------- ------- Net cash used in investing activities................ (218) (1,039) (732) ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Short-term debt............................................. (1,464) (133) 14 Proceeds from long-term debt................................ 1,975 -- 35 Repayments of long-term debt................................ (370) (368) (147) Net proceeds from issuance of convertible preferred shares.................................................... 4,879 11,672 11,374 Employee options exercised.................................. -- -- 31 ------- ------- ------- Net cash provided by financing activities............ 5,020 11,171 11,307 ------- ------- ------- Increase in cash and cash equivalents....................... 197 3,469 4,068 Cash and cash equivalents at beginning of year.............. 104 301 3,770 ------- ------- ------- Cash and cash equivalents at end of year.................... $ 301 $ 3,770 $ 7,838 ======= ======= ======= Supplemental cash flow information Cash paid for interest...................................... $ 119 $ 152 $ 137 ======= ======= ======= Noncash transactions Loans converted into shares................................. $ 410 $ 2,020 $ -- ======= ======= ======= Transfer of intangible assets to an affiliated company...... $ 496 $ -- $ -- ======= ======= =======
The accompanying notes are an integral part of these consolidated financial statements. F-6 91 CLICKSERVICE SOFTWARE LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 -- GENERAL ClickService Software Ltd. (formerly I.E.T. Intelligent Electronics Ltd.) ("the Company" or "ClickService"), was incorporated in Israel and provides web-based application software that enables companies to efficiently provide service and product delivery in enterprise environments and over the Internet. The ClickSchedule product line enables clients to provide services and products to their customers online by scheduling and optimizing appointments for their delivery. The ClickFix product facilitates automated diagnosis and troubleshooting of equipment. ClickSchedule and ClickFix enable clients to optimize resource allocation, offering their customers ease of use and convenience while procuring services and products. ClickService customers come from a wide variety of industries, including: aerospace; defense; semi-conductor and communications; software and automotive industry. The Company has incurred net operating losses since inception and, as of December 31, 1999, had an accumulated deficit of $23.7 million. The Company is subject to various risks associated with companies in a comparable stage of development, including competition from substitute products and larger competitors, dependence on key individuals and the ability to obtain adequate financing to support its growth. The consolidated financial statements include the financial statements of the Company and its wholly-owned subsidiaries in the U.S. (ClickService Software Inc., a California Corporation) and in the UK (ClickService (Europe) Ltd.). The subsidiaries are primarily engaged in the sale and marketing of the Company's products within North America, Europe and the Far East. The accompanying financial statements have been prepared in U.S. dollars, as the currency of the primary economic environment in which the operations of the Company are conducted is the U.S. dollar. Most of the Company's sales are made outside Israel in non-Israeli currencies (mainly the U.S. dollar). A majority of the purchases of materials and components are made outside Israel in non-Israeli currencies. In addition, most marketing expenses are incurred outside Israel, primarily in U.S. dollars. Thus, the functional currency of the Company is the U.S. dollar. Transactions and balances originally denominated in U.S. dollars are presented at their original amounts. Transactions and balances in other currencies are translated into U.S. dollars in accordance with principles set forth in Statement No. 52 of the Financial Accounting Standards Board of the United States ("FASB"). Accordingly, items have been translated as follows: - Monetary items -- at the current exchange rate in effect at balance sheet date. - Non monetary items -- at historical exchange rates. - Revenue and expense items -- at exchange rates in effect as of date of recognition of those items (excluding depreciation and other items deriving from non monetary items). All exchange gains and losses from the aforementioned translation (which are immaterial for each reported period) are reflected in the statements of operations. The representative rate of exchange of the U.S. dollar in relation to the New Israeli Shekel ("NIS") at December 31, 1999 -- U.S.$1.00 = NIS 4.15 (1998 -- NIS 4.16; 1997 -- NIS 3.54). F-7 92 CLICKSERVICE SOFTWARE LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES The financial statements have been prepared in conformity with accounting principles generally accepted in the U.S. The significant accounting policies followed in the preparation of the financial statements applied on a consistent basis, are as follows: Principles of Consolidation The financial statements include the accounts of the Company and its wholly-owned subsidiaries. Material intercompany balances and transactions have been eliminated. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents For the purpose of the statements of cash flows, the Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. Concentration of Credit Risk The Company provides credit to its customers in the normal course of business, performs ongoing credit evaluations of its customers and maintains allowances for potential credit losses which, to date, have not been material. Property and Equipment Property and equipment is stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, ranging from 3 to 16 years. Leasehold improvements are amortized using the straight line method, over the shorter of the lease term, including renewal options, or the useful lives of the improvements. Software Research and Development Costs Software research and development costs incurred prior to the establishment of technological feasibility are included in research and development expenses. The Company defines establishment of technological feasibility as the completion of a working model. Software development costs incurred subsequent to the establishment of technological feasibility through the period of general market availability of the products are capitalized, if material, after consideration of various factors, including net realizable value. To date, software development costs that are eligible for capitalization have not been material and have been expensed. Revenue Recognition Software license revenues are recognized in accordance with the American Institute of Certified Public Accountants Statement of Position 97-2, "Software Revenue Recognition," or SOP 97-2, as amended by Statement of Position 98-4. Under SOP 97-2, we recognize software license revenues when a software license agreement has been executed or a definitive purchase order has been received and the F-8 93 CLICKSERVICE SOFTWARE LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) product has been delivered to our clients, no significant obligations with regard to implementation remain, the fee is fixed and determinable, and collectability is probable. Revenue related to post-contract support (PCS) arrangements are recognized ratably over the term of the arrangements. Revenues related to services are recognized as the services are rendered. Basic and Diluted Net Loss Per Share and Pro Forma Basic and Diluted Net Loss Per Share Basic and diluted net loss per share are presented in conformity with Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings per Share" for all years presented. Basic and diluted net loss per share have been computed using the weighted-average number of Ordinary shares outstanding during the year, excluding Ordinary shares held by a trustee reserved for allocation against employee options granted but not yet exercised (see note 11).
DECEMBER 31, ---------------------------------------- 1997 1998 1999 ---------- ----------- ----------- (IN THOUSANDS EXCEPT PER SHARE DATA AND SHARE NUMBERS) Net loss............................................. $ (4,512) $ (5,858) $ (7,979) Basic and diluted: Weighted average shares used in computing basic and diluted net loss per Ordinary share............. 5,657,728 5,914,765 5,948,846 ========== =========== =========== Basic and diluted net loss per Ordinary share...... $ (0.80) $ (0.99) $ (1.34) ========== =========== =========== Net loss............................................. $ (7,979) Pro forma basic and diluted: Shares used above.................................. 5,948,846 Pro forma adjustment to reflect weighted effect of assumed conversion of Convertible Preferred shares (unaudited).............................. 11,744,148 ----------- Shares used in computing pro forma basic and diluted net loss per share (unaudited).......... 17,692,994 =========== Pro forma basic and diluted net loss per share (unaudited)..................................... $ (0.45) ===========
All Convertible Preferred shares, warrants for Convertible Preferred shares, outstanding share options and shares issued and reserved for outstanding share options have been excluded from the calculation of basic and diluted net loss per share because all such securities are antidilutive for all years presented. The total number of shares excluded from the calculations of basic and diluted net loss per share were 6,369,862, 13,340,290 and 16,577,409 as of December 31, 1997, 1998 and 1999, respectively. Pro forma basic and diluted net loss per share, as presented in the Statements of Operations, has been computed as described above and gives effect to the automatic conversion of the Convertible Preferred shares that will convert upon the closing of an initial public offering (using the if-converted method from original date of issuance). The total number of shares excluded from the calculation of pro forma basic and diluted net loss per share was 3,058,585 as of December 31, 1999. Share-Based Compensation The Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," in October 1995. This accounting standard permits the use of either a fair value based method of accounting or the method prescribed in Accounting Principles Board Opinion 25 ("APB 25"), "Accounting for Stock Issued to Employees" to account for stock-based compensation arrangements. Companies that elect to employ the F-9 94 CLICKSERVICE SOFTWARE LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) method prescribed by APB 25 are required to disclose the pro forma net loss that would have resulted from the use of the fair value based method. The Company has elected to account for its share-based compensation arrangements under the provisions of APB 25, and accordingly, has included in note 11 the pro forma disclosures required under SFAS No. 123. Fair Value of Financial Instruments Unless otherwise noted, the carrying amount of financial instruments approximates fair value. Income Taxes The Company accounts for income taxes, in accordance with the provisions of SFAS 109 "Accounting for Income Taxes," under the liability method of accounting. Under the liability method, deferred taxes are determined based on the differences between the financial statement and tax bases of assets and liabilities at enacted tax rates in effect in the year in which the differences are expected to reverse. Valuation allowances are established, when necessary, to reduce deferred tax assets to amounts expected to be realized. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards requiring that every derivative instrument be recorded in the balance sheet at its fair value. SFAS No. 133 requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement. SFAS No. 133 is effective for fiscal years beginning after June 15, 2000. The Company believes that the adoption of SFAS No. 133 will not have a material effect on its financial statements. In December 1998, the American Institute of Certified Public Accountants AICPA issued SOP 98-9, "Modification of SOP 97-2, Software Revenue Recognition, with Respect to Certain Transactions". SOP 98-9 amends SOP 97-2 and SOP 98-4 by extending the deferral of the application of certain provisions of SOP 97-2 amended by SOP 98-4 through fiscal years beginning on or before March 15, 1999. All other provisions of SOP 98-9 are effective for transactions entered into in fiscal years beginning after March 15, 1999. The Company does not anticipate that this SOP will have a material impact on its results of operations. NOTE 3 -- CASH AND CASH EQUIVALENTS
DECEMBER 31, ---------------- 1998 1999 ------ ------ (IN THOUSANDS) In NIS...................................................... $ 38 $ -- In Pounds Sterling.......................................... 326 -- In U.S. dollars............................................. 3,406 7,838 ------ ------ $3,770 $7,838 ====== ======
F-10 95 CLICKSERVICE SOFTWARE LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 4 -- OTHER RECEIVABLES AND PREPAID EXPENSES
DECEMBER 31, -------------- 1998 1999 ----- ----- (IN THOUSANDS) Government participations and other government receivables............................................... $210 $142 Employees................................................... 57 60 Other receivables and prepaid expenses...................... 172 263 ---- ---- $439 $465 ==== ====
NOTE 5 -- PROPERTY AND EQUIPMENT
DECEMBER 31, ---------------- 1998 1999 ------ ------ (IN THOUSANDS) COST Computers and office equipment.............................. $2,152 $2,747 Leasehold improvements...................................... 357 357 Motor vehicles.............................................. 254 363 ------ ------ 2,763 3,467 ACCUMULATED DEPRECIATION.................................... 1,523 1,969 ------ ------ NET BOOK VALUE.............................................. $1,240 $1,498 ====== ======
For the years ended December 31, 1997, 1998 and 1999, depreciation expense was $237,000, $323,000 and $484,000, respectively. The net book value of the Company's property and equipment located in Israel was $973,000 and $1,156,000 as of December 31, 1998 and 1999, respectively. NOTE 6 -- SHORT-TERM DEBT
DECEMBER 31, -------------- 1998 1999 ----- ----- (IN THOUSANDS) Short-term debt............................................. $ 11 $ 15 Current maturities of long-term debt (note 8)............... 156 173 Shareholder loan on demand.................................. 132 132 ---- ---- $299 $320 ==== ====
In 1999 the Company established a revolving, trade receivable based, credit facility of up to $2.5 million for working capital purposes. The line of credit is limited to 80% of eligible trade receivables and the amount outstanding under this facility as of December 31, 1999 was nil. F-11 96 CLICKSERVICE SOFTWARE LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 7 -- ACCOUNTS PAYABLE AND ACCRUED EXPENSES
DECEMBER 31, ---------------- 1998 1999 ------ ------ (IN THOUSANDS) Suppliers................................................... $ 357 $ 805 Employees and related expenses.............................. 822 1,173 Accrued royalties........................................... 249 330 Other....................................................... 259 491 ------ ------ $1,687 $2,799 ====== ======
NOTE 8 -- LONG-TERM DEBT
DECEMBER 31, -------------- 1998 1999 ----- ----- (IN THOUSANDS) Bank loans: In U.S. dollars........................................... $210 $150 Linked to the Israeli CPI................................. 191 111 Other....................................................... 85 125 ---- ---- 486 386 Less -- current maturities (note 6)......................... 156 173 ---- ---- $330 $213 ==== ====
- --------------- The loan in US dollars bears annual interest of LIBOR plus 1% (7.5% as of December 31, 1999). The loan linked to the Israeli CPI bears interest at 5.4% per annum. Long-term debt as of December 31, 1999, net of current maturities, is repayable as follows:
(IN THOUSANDS) Second year................................................. $148 Third year.................................................. 54 Fourth year................................................. 10 Fifth year.................................................. 1 ---- $213 ====
NOTE 9 -- SEVERANCE PAY Under Israeli law and labor agreements, the Company is required to make severance payments to its dismissed employees and employees leaving its employment in certain other circumstances. The Company's severance pay obligation to its employees which is calculated on the basis of the salary of each employee for the last month of the reported period multiplied by the years of such employee's employment, is reflected by the accrual presented in the balance sheet and is partially funded by deposits with insurance companies and provident funds. Severance pay expenses amounted to $105,000, $272,000 and $202,000 for the years ended December 31, 1997, 1998 and 1999, respectively. F-12 97 CLICKSERVICE SOFTWARE LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 10 -- COMMITMENTS AND CONTINGENCIES In connection with its research and development, the Company received participation payments from the State of Israel in the total amount of $2,939,000. In return for the Government of Israel participation, the Company is committed to pay royalties at a rate of 3% to 5% of sales of the developed product, up to 100% -- 150% of the amount of grants received. The Company has paid or accrued royalties to date of $829,000. In connection with its export marketing activities, until December 31, 1996 the Company received participation payments from the Government of Israel through the Fund for the Encouragement of Marketing Activities in the amount of $707,000. The Company is committed to pay royalties at a rate of 3% of the increase in export sales over a base amount, up to the amount of the participations received. The Company has paid or accrued royalties to date amounting to $305,000. Long-term bank debt, and liabilities to banks in respect of guarantees given for the benefit of the Company are secured by fixed charges on vehicles and on amounts receivable from certain major customers. The Company operates from facilities in Israel; the United States and the U.K., leased for periods expiring in the years 2000 to 2003 (some with a renewal option ending in May 2008) at annual rent of approximately $859,000. Minimum future rental payments, at December 31, 1999 are as follows:
(IN THOUSANDS) ------------- 2000........................................................ $ 859 2001........................................................ 563 2002........................................................ 492 2003........................................................ 492 ------ $2,406 ======
See note 15. F-13 98 CLICKSERVICE SOFTWARE LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 11 -- SHAREHOLDERS' EQUITY A. SHARE CAPITAL -- comprises of shares of NIS 0.02 par value.
NUMBER OF SHARES ---------------------------------------------------------------------------- AUTHORIZED ISSUED AND OUTSTANDING ------------------------------------ ------------------------------------- 1997 1998 1999 1997 1998 1999 ---------- ---------- ---------- --------- ---------- ---------- Ordinary shares.................. 18,000,000 9,600,000 7,769,761 5,468,846 5,468,846 5,468,846 Ordinary A shares -- non-voting........... 840,000 840,000 840,000 840,000(*) 840,000(*) 840,000(*) Ordinary B Convertible shares -- non-voting..................... 1,200,000 1,200,000 1,200,000 900,000(*) 900,000(*) 900,000(*) ---------- ---------- ---------- --------- ---------- ---------- 20,040,000 11,640,000 9,809,761 7,208,846 7,208,846 7,208,846 ========== ========== ========== ========= ========== ========== Preferred A-1 Convertible shares......................... 5,700,000 5,700,000 5,700,000 2,810,424 2,810,424 2,810,424 Preferred A Convertible shares... 4,500,000 4,500,000 4,500,000 2,299,438 2,299,438 2,299,438 Preferred B Convertible shares... -- 4,800,000 4,800,000 -- 3,826,809 3,826,809 Preferred C Convertible shares... -- 3,600,000 3,600,000 -- 2,731,141 2,731,141 Preferred D Convertible shares (see note 11B)................. -- -- 1,830,238 -- -- 1,832,086 ---------- ---------- ---------- --------- ---------- ---------- 10,200,000 18,600,000 20,430,238 5,109,862 11,667,812 13,499,898 ========== ========== ========== ========= ========== ==========
- --------------- (*)Includes shares reserved for allocation against employee options granted but not yet exercised, held by a trustee. The total number of Ordinary shares held by the trustee are 1,260,000 as of December 31, 1997 and 1998 and 1,206,920 as of December 31, 1999. A proposed 1 for 2 reverse share split and thereafter a share dividend of 6 shares for every 5 outstanding Ordinary shares and Preferred convertible shares is subject to shareholder approval. All references to per share amounts and number of shares in these financial statements have been retroactively restated to reflect this reverse share split and share dividend. The combined reversed share split and share dividend is the equivalent of a 3 for 5 reverse share split. Preferred Convertible A-1 shares do not entitle the holder to voting rights and are convertible to Preferred A Convertible shares or Ordinary B Convertible shares. Preferred A, B, C, and D Convertible shares entitle the holder to full voting rights and are convertible to Preferred A-1 Convertible shares or Ordinary shares. All types of Preferred shares entitle the holder to a preference dividend at the rate of 110% of the dividend distributed to the holders of the Ordinary shares, in preference to any distribution to the holders of Ordinary shares. In the event of liquidation, the holders of preferred shares are entitled to the following preferences: - Preferred A and A-1 convertible shares to 3 times their initial effective purchase price. - Preferred B and C convertible shares to 2 times their initial effective purchase price. - Preferred D convertible shares to 1.75 times their initial effective purchase price. Preferred shares, Ordinary A shares and Ordinary B Convertible shares are convertible to Ordinary shares on a one to one basis. In the event of an initial public offering all of the aforementioned shares will automatically convert into Ordinary shares. F-14 99 CLICKSERVICE SOFTWARE LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) B. Issuances In December 1999, the Company signed an agreement to issue, in a private placement, 1,832,086 Preferred D Convertible shares in consideration for $11,500,000. As of December 31, 1999, the shares are reflected, as issued and outstanding, however the shares were issued subsequent to year end. As of December 31, 1999 the issue exceeded authorized share capital by 1,848 shares. The Board of Directors has approved a proposed increase in authorized share capital of Preferred D Convertible shares by reclassifying Ordinary shares to Preferred D Convertible shares. This reclassification is subject to shareholder approval which is perfunctory. Subsequent to this approval the unissued shares will be issued. In addition, in December 1999, certain employees exercised their options to acquire 53,080 Ordinary shares (11,741 Ordinary A shares and 41,339 Ordinary B Convertible shares). These shares had been previously issued and held by the trustee and were included in the number of issued and outstanding Ordinary shares. C. Warrants Warrants to purchase 393,552 Preferred B Convertible shares and warrants to purchase 18,926 Ordinary shares, were issued on March 31, 1998 in conjunction with the conversion to Preferred B Convertible shares of a convertible subordinated promissory note. The warrants were recorded at their fair market value and included in additional paid-in capital. The exercise price for the purchase of 393,552 shares is $1.96, and the exercise price for the purchase of 18,926 shares is $0.58. The warrants are exercisable in whole or in part at any time ending on the earlier of March 31, 2003 or the date of any of the following: - an initial public offering; or - sale/transfer of substantially all of the Company's assets; or - change in ownership of more than 50% of the voting power of the Company. The warrants can either be exercised for cash consideration or any warrant may be exercised by applying the value of a portion of the warrant, which is equal to the number of shares issuable under the warrant being exercised, multiplied by the fair market value of the security receivable upon exercise of the warrant, less the per share exercise price, in lieu of payment of the exercise price per share. The warrants are subject to antidilution provisions. D. Employee and Consultant Option Plans The Company adopted an Employees' Stock Options Plan (1996 Option Plan) according to which options for the purchase of up to 360,000 Ordinary A shares may be granted to employees. The options have an exercise price of $0.58 per share and shall vest over a four year period at the rate of 33% per year, commencing in the second year from the date of the grant. In 1997, the Company adopted an Employees' Stock Option Plan (1997 Option Plan) according to which options for the purchase of up to 900,000 Ordinary B shares may be granted to employees. The options are exercisable at a price of $0.58 per share and vest over a four year period, with monthly vesting after two years. The options issued to U.S. employees vest after 1 year. Employees' compensation in respect of options granted under these plans is immaterial. In 1999 the Company adopted new option plans according to which options for the purchase of 608,809 Ordinary B shares may be granted to employees. F-15 100 CLICKSERVICE SOFTWARE LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) On November 30, 1999 a warrant to purchase 75,000 Ordinary shares was issued to a consultant (director) that vests immediately with an exercise price of $3.67. The Board of Directors has approved the grant of stand-alone options to purchase 810,000 Ordinary shares to the Company's CEO, a director and a consultant (director). The grants are subject to perfunctory shareholder approval. In connection with the grant of certain options to employees during fiscal 1999, the Company recorded deferred compensation of approximately $3,401,000, representing the difference between the estimated fair value of the Ordinary shares and the exercise price of these options at the date of grant. Such amount is presented as a reduction of shareholders' equity and amortized over the vesting period of the applicable options. The Company recorded amortization of deferred compensation of approximately $738,000 during the year ended December 31, 1999. At December 31, 1999, the remaining deferred compensation of approximately $2,663,000 will be amortized as follows: $1,417,000, $744,000, $378,000 and $124,000 during the years ended 2000, 2001, 2002 and 2003, respectively. The amortization expense relates to options awarded to employees in all operating expense categories. The amount of deferred compensation expense to be recorded in future periods could decrease if options for which accrued but unvested compensation has been recorded, are forfeited. If deferred compensation had been determined under the alternative fair value accounting method provided for under SFAS No. 123, "Accounting for Stock-Based Compensation", using the "minimum value" method with the following weighted average assumptions used for grants in all reported periods: (1) average expected life of the options is 1.36; (2) dividend yield of 0%; (3) expected volatility of 0% and (4) risk-free interest rate of 5%, the effect on the Company's net loss and net loss per share would have been immaterial for all reported periods. Transactions related to the above discussed options and warrants granted to employees and consultants during the years ended December 31, 1997, 1998 and 1999 and the weighted average exercise prices per share and weighted average fair value of the options at the date of grant are summarized as follows:
WEIGHTED WEIGHTED AVERAGE AVERAGE FAIR OPTIONS EXERCISE VALUE AVAILABLE OUTSTANDING PRICE PER OF FOR GRANT OPTIONS(*) SHARE OPTION ------------- ----------- --------- -------- Outstanding January 1, 1997............ 180,307 179,693 $0.58 Authorized........................... 1,200,000 -- Granted.............................. (652,026) 652,026 0.58 $0.40 Forfeited............................ 170,189 (170,189) 0.58 ---------- --------- Outstanding December 31, 1997.......... 898,470 661,530 0.58 Granted.............................. (627,810) 627,810 0.58 $1.14 Forfeited............................ 65,035 (65,035) 0.58 ---------- --------- Outstanding December 31, 1998.......... 335,695 1,224,305 0.58 Authorized........................... 1,493,809 -- Granted.............................. (1,493,809) 1,493,809 1.64 $2.62 Exercised............................ -- (53,080) 0.58 ---------- --------- Outstanding December 31, 1999.......... 335,695 2,665,034 1.17 ========== =========
- --------------- (*) As of December 31, 1997 and 1998 1,260,000 Ordinary shares and as of December 31, 1999 1,206,920 Ordinary shares are held by a trustee and have been reserved for allocation against certain employee options granted but not yet exercised. F-16 101 CLICKSERVICE SOFTWARE LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table summarizes information about options outstanding and exercisable at December 31, 1999:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ---------------------------------------- ------------------------- NUMBER WEIGHTED- NUMBER OUTSTANDING AVERAGE WEIGHTED- OUTSTANDING WEIGHTED- AT REMAINING AVERAGE AT AVERAGE DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE EXERCISE PRICE 1999 LIFE PRICE 1999 PRICE -------------- ------------ ----------- --------- ------------ --------- $0.58.................... 1,171,225 7.34 $0.58 576,294 $0.58 0.83..................... 608,809 9.47 0.83 6,811 -- 1.83..................... 720,000 9.58 1.83 87,757 1.83 3.67..................... 165,000 9.91 3.67 77,500 3.67 --------- ------- 2,665,034 748,362 ========= =======
NOTE 12 -- SEGMENT REPORTING In accordance with SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information", the Company is organized and operates as one business segment, the design, development, and marketing of software solutions. The Company's revenue by geographic area is as follows:
YEAR ENDED DECEMBER 31, --------------------------- 1997 1998 1999 ------ ------ ------- (IN THOUSANDS) North America........................................... $ 836 $4,293 $ 6,978 Europe.................................................. 570 1,193 2,163 Israel.................................................. 678 493 905 Singapore............................................... 231 92 280 ------ ------ ------- $2,315 $6,071 $10,326 ====== ====== =======
Sales to a single customer exceeding 10%:
% % % --- --- --- Customer A.................................................. 11 13 (*) Customer B.................................................. -- 12 (*) Customer C.................................................. 21 (*) (*) Customer D.................................................. -- 11 (*)
- --------------- (*) Under 10% NOTE 13 -- TAXES ON INCOME The Company is subject to the Income Tax Law (Inflationary Adjustments), 1985, measuring income on the basis of changes in the Israeli Consumer Price Index. Part of the Company's investment in equipment has received approvals in accordance with the Law for the Encouragement of Capital Investments, 1959 ("approved enterprise" status). The Company has chosen to receive its benefits through the "Alternative Benefits" track, and, as such, is eligible for various benefits. These benefits include accelerated depreciation of fixed assets used in the investment program, as well as a full tax exemption on undistributed income in relation to income derived from the first plan for a period of 2 years and for the second and third plans for a period of 4 years. Thereafter a reduced tax rate F-17 102 CLICKSERVICE SOFTWARE LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) of 25% will be applicable for an additional period of up to 5 years for the first plan and 3 years for the second and third plans, commencing with the date on which taxable income is first earned but not later than certain dates. In the case of foreign investment of more than 25%, the tax benefits are extended to 10 years, and in the case of foreign investment ranging from 49% to 100% the tax rate is reduced on a sliding scale to 10%. The benefits are subject to the fulfillment of the conditions of the letter of approval. The benefit periods of the second and third plans have not yet commenced. The regular tax rate applicable to the Company is 36%. In the event of distribution by the Company of a cash dividend out of retained earnings which were tax exempt due to its approved enterprise status, the Company would have to pay a 25% corporate tax on the income from which the dividend was distributed. A 15% withholding tax may be deducted from dividends distributed to the recipients. Final tax assessments in Israel have been received up to and including the 1993 tax year. The Company has net operating loss carryforwards in Israel of approximately $9.8 million as of December 31, 1999. In addition losses of approximately $10.0 million are attributable to the U.S. subsidiary which will expire between 2008 and 2013. The UK subsidiary has carryforward tax losses of approximately $660,000 as of December 31, 1999. The carryforward tax losses for Israel and the UK have no expiration date. The Company expects that during the period in which these tax losses are utilized its income would be substantially tax exempt. Accordingly there will be no tax benefit available from such losses and no deferred income taxes have been included in these financial statements. Deferred taxes in respect of other temporary differences are immaterial. NOTE 14 -- BALANCES AND TRANSACTIONS WITH RELATED PARTIES On January 1, 1997, the Company transferred its "Nester" division to a company under common control. The majority of the following balances and transactions are with that affiliated company.
DECEMBER 31, -------------- 1998 1999 ----- ----- (IN THOUSANDS) Balances: Accounts payable and accrued expenses..................... $ 75 $139 Loan from shareholder on demand........................... 132 132
YEAR ENDED DECEMBER 31, ----------------------- 1997 1998 1999 ----- ----- ----- (IN THOUSANDS) Transactions: Sales to Nester...................................... $ 20 $-- $-- Management fee income from Nester.................... 48 89 48 Transfer of intangible assets to Nester.............. 496 -- --
NOTE 15 -- SUBSEQUENT EVENTS Subsequent to year end, the Company changed its name from I.E.T. Intelligent Electronics Ltd. to ClickService Software Ltd. F-18 103 CLICKSERVICE SOFTWARE LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) On February 2, 2000 the Company signed a seven year operating lease of new office premises in the U.S. The lease commences on June 1, 2000 and the future minimum annual payments are as follows:
(IN THOUSANDS) -------------- 2000........................................................ $ 240 2001........................................................ 420 2002........................................................ 437 2003........................................................ 455 2004........................................................ 473 2005 to 2008................................................ 1,221 ------ $3,246 ======
F-19 104 LOGO Shares [ClickService Logo] Ordinary Shares ---------------------------- PROSPECTUS , 2000 ---------------------------- LEHMAN BROTHERS CIBC WORLD MARKETS SG COWEN FIDELITY CAPITAL MARKETS A DIVISION OF NATIONAL FINANCIAL SERVICES CORPORATION FACILITATING ELECTRONIC DISTRIBUTION 105 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth all expenses, other than the underwriting discounts and commissions, payable by the Registrant in connection with the sale of the securities being registered. All amounts shown are estimates except for the SEC registration fee and the NASD filing fee. SEC registration fee........................................ $ 13,200 NASD filing fee............................................. 5,500 NASDAQ National Market Fees................................. * Blue Sky qualification fees and expenses.................... * Israeli stamp duty.......................................... * Printing and engraving expenses............................. * Accountant's fees and expenses.............................. * Legal fees and expenses..................................... * Miscellaneous............................................... * -------- Total.................................................. $ * ========
- --------------- * To be filed by amendment. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Israeli law permits a company to insure an Office Holder in respect of liabilities incurred by him as a result of the breach of his duty of care to the company or to another person, or as a result of the breach of his fiduciary duty to the company, to the extent that he acted in good faith and had reasonable cause to believe that the act would not prejudice the company. A company can also insure an Office Holder for monetary liabilities as a result of an act or omission that he committed in connection with his serving as an Office Holder. Furthermore, a company can indemnify an Office Holder for monetary liability in connection with his activities as an Office Holder. The Articles of Association of ClickService allow ClickService to insure and indemnify Office Holders to the fullest extent permitted by law. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. (a) For the period from December 31, 1996 to December 31, 1999, the Registrant has issued and sold the following unregistered securities. 1. From December 1996 to December 1999, the Registrant granted stock options and warrants to employees, directors and consultants pursuant to stand-alone option and warrant agreements, its 1997 Stock Option Plan, its 1998 Stock Option Plan and its 1999 Stock Option Plan covering an aggregate of 2,773,645 shares of the Registrant's common stock with an aggregate exercise price of $3,170,766. 2. In April, 1997, the Registrant issued an aggregate of 2,810,424 shares of its Series A-1 Convertible Preferred Stock to two investors for an aggregate purchase price of $2,750,000. 3. From April 1997 to October, 1997, the Registrant issued an aggregate of 2,299,438 shares of its Series A Convertible Preferred Stock to seven investors for an aggregate purchase price of $2,250,000. 4. In March, 1998, the Registrant issued an aggregate of 3,826,809 shares of its Series B Convertible Preferred Stock to nineteen investors for an aggregate purchase price of $7,500,000. II-1 106 5. In November, 1998, the Registrant issued an aggregate of 2,731,141 shares of its Series C Convertible Preferred Stock to twelve investors for an aggregate purchase price of $6,338,243. 6. In December, 1999, the Registrant issued and sold an aggregate of 1,832,086 shares of its Convertible Series D Preferred Stock to seven investors for an aggregate purchase price of $11,500,000. (b) There were no underwritten offerings employed in connection with any of the transactions set forth in Item 15(a). The issuances described in Items 15(a)(2) through 15(a)(6) were deemed exempt from registration under the Securities Act in reliance upon Section 4(2) thereof as transactions by an issuer not involving any public offering. The issuances described in Item 15(a)(1) were deemed exempt from registration under the Securities Act in reliance upon Rule 701 promulgated thereunder in that they were offered or sold either pursuant to a written contract relating to compensation, as provided by Rule 701. In addition, such issuances were deemed to be exempt from registration under Section 4(2) of the Securities Act as transactions by an issuer not involving any public offering. The recipients of securities in each such transaction represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (A) EXHIBITS.
EXHIBIT SEQUENTIAL NUMBER DESCRIPTION OF DOCUMENT PAGE NO. - ------- ----------------------- ---------- 1.1* Form of Underwriting Agreement.............................. 3.1 Articles of Association of ClickService Software Ltd........ 3.2* Form of Articles of Association of ClickService Software Ltd. to be adopted upon closing of this offering............ 4.1* Specimen of Ordinary Share Certificate...................... 4.2 Fourth Amended and Restated Registration Rights Agreement, dated December 15, 1999..................................... 5.1* Opinion of Efrati, Galili & Co. as to the validity of the shares...................................................... 10.1 Form of 2000 Share Option Plan.............................. 10.2 Form of 2000 Employee Share Purchase Plan................... 10.3 Employment Agreement between ClickService Software Ltd. and Moshe Ben-Bassat............................................ 10.4 Employment Agreement between ClickService Software Ltd. and Shimon Rojany............................................... 10.5* Form of Indemnification Agreement........................... 23.1 Consent of Luboshitz Kasierer, a member firm of Arthur Andersen.................................................... 24.1 Powers of Attorney (included on page II-3).................. 27.1 Financial Data Schedule
- ------------------------- * To be filed by amendment (B) FINANCIAL STATEMENT SCHEDULES. ITEM 17. UNDERTAKINGS. The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission II-2 107 such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-3 108 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-1 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto, duly authorized, in the City of Campbell, California, on February 14, 2000. CLICKSERVICE SOFTWARE LTD. By: /s/ MOSHE BEN-BASSAT ------------------------------------ Dr. Moshe Ben-Bassat Chief Executive Officer POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Dr. Moshe Ben-Bassat and Shimon Rojany, and each of them his attorney-in-fact, with the power of substitution, for him in any and all capacities, to sign any amendment or post-effective amendment to this Registration Statement on Form S-1 or abbreviated registration statement (including, without limitation, any additional registration filed pursuant to Rule 462 under the Securities Act of 1933) with respect hereto and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - --------- ----- ---- /s/ MOSHE BEN-BASSAT Chief Executive Officer and February 14, 2000 - --------------------------------------------------- Director (Principal Dr. Moshe Ben-Bassat Executive Officer) /s/ SHIMON M. ROJANY Chief Financial Officer February 14, 2000 - --------------------------------------------------- (Principal Financial And Shimon M. Rojany Accounting Officer) /s/ JEFFREY D. SAPER Director February 14, 2000 - --------------------------------------------------- Jeffrey D. Saper /s/ FREDERIC W. HARMAN Director February 14, 2000 - --------------------------------------------------- Frederic W. Harman /s/ EDDY SHALEV Director February 14, 2000 - --------------------------------------------------- Eddy Shalev Director February 14, 2000 - --------------------------------------------------- Zohar Zisapel Director February 14, 2000 - --------------------------------------------------- Dr. Israel Borovich
II-4 109 EXHIBIT INDEX
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION OF DOCUMENT PAGE - ------- ------------------------------------------------------------ ------------ 1.1* Form of Underwriting Agreement.............................. 3.1 Articles of Association of ClickService Software Ltd........ 3.2* Form of Articles of Association of ClickService Software Ltd. to be adopted upon closing of this offering............ 4.1* Specimen of Ordinary Share Certificate...................... 4.2 Fourth Amended and Restated Registration Rights Agreement, dated December 15, 1999..................................... 5.1* Opinion of Efrati, Galili & Co. as to the validity of the shares...................................................... 10.1 Form of 2000 Share Option Plan.............................. 10.2 Form of 2000 Employee Share Purchase Plan................... 10.3 Employment Agreement between ClickService Software Ltd. and Moshe Ben-Bassat............................................ 10.4 Employment Agreement between ClickService Software Ltd. and Shimon Rojany............................................... 10.5* Form of Indemnification Agreement........................... 23.1 Consent of Luboshitz Kasierer, a member firm of Arthur Andersen.................................................... 24.1 Powers of Attorney (included on page II-3).................. 27.1 Financial Data Schedule
- ------------------------- * To be filed by amendment EX-3.1 2 EX-3.1 1 EXHIBIT 3.1 ARTICLES OF ASSOCIATION OF I.E.T. - INTELLIGENT ELECTRONICS LTD. AMENDED AND RESTATED AS OF DECEMBER, 1999 2 ARTICLES OF ASSOCIATION OF I.E.T. - INTELLIGENT ELECTRONICS LTD. - -------------------------------------------------------------------------------- INTERPRETATION 1. In these Articles, the words appearing in the first column of the table next hereinafter contained shall bear the meanings set opposite them respectively in the second column thereof, if not inconsistent with the subject or context: Words Meanings ----- -------- The Company The above-named company. Companies Ordinance The Companies Ordinance (New Version) 1983 (the "Companies Ordinance") as amended and as amended from time to time, including any law or statute replacing it. Dollar or $ United States Dollar The Statutes The Companies Ordinance, the Securities Law of 1968 and every other Ordinance or Law from time to time in force concerning joint stock companies and affecting the Company. These Articles These Articles of Association, or as shall be altered from time to time by Special Resolution. The Office The registered office for the time being of the Company. The Seal The Common Seal of the Company or rubber stamp of the Company. Month A Gregorian month. The Director(s) A member of the Board of Directors elected or appointed in accordance with these Articles. The term herein defined shall include substitute or alternate Directors or their proxies. 3 Writing Printing, lithography, photography and any other mode or modes or representing or reproducing words in a visible form. Related Party any "interested person" within the meaning of this term in Section 96.A of Chapter D2 of the Companies Ordinance, any office holder in such entities or any "family members" of such persons, within the meaning of these terms in Section 96 of the Companies Ordinance. Related Party means any transaction involving, directly or Transaction indirectly, a Related Party, including, but not limited to, any investment by the Company in enterprises in which a Related Party has an economic interest, any guarantee or credit or loan, given by the Company to a related party or any transaction in which a related party has a "personal interest" within the meaning of this term in the Ordinance. Words importing the singular only shall include the plural, and vice versa. Words importing the masculine gender shall include the feminine gender, and words importing person shall include corporations. Subject as aforesaid, any words or expressions defined in the Companies Ordinance shall, except where the subject or context forbids, bear the same meanings in these Articles. 2. The Regulations in Schedule II to the Companies Ordinance shall not apply to the Company. PRIVATE COMPANY 3. The Company is a private company and, accordingly: (a) the number of members for the time being of the Company (exclusive of persons who are in the employment of the Company and of persons who, having been formerly in the employment of the Company were, while in such employment, and have continued after such employment to be, members of the Company) is not to exceed fifty (50), but where two (2) or more persons hold one (1) or more share(s) in the Company jointly, they shall, for the purposes of this paragraph, be treated as a single member; (b) any invitation to the public to subscribe for any shares or debentures or debenture stock of the Company is hereby prohibited; (c) the right of transfer of shares shall be restricted as hereinafter provided. -2- 4 OFFICE 4. The office of the Company shall be at such place as the Directors shall from time to time determine. CAPITAL 5. The share capital of the Company is 504,000 New Israeli Shekels ("NIS"), divided into (i) 12,949,602 Ordinary Shares of nominal value NIS 0.01 each, all ranking pari-passu ("Ordinary Shares"), (ii) 1,400,000 Class A Ordinary Shares of nominal value NIS 0.01 each, all ranking pari-passu ("Class A Ordinary Shares"), (iii) 2,000,000 Class B Convertible Ordinary Shares of nominal value NIS 0.01 each, all ranking pari-passu ("Class B Ordinary Shares") (iv) 7,500,000 Class A Convertible Preferred Shares of nominal value NIS 0.01 each, all ranking pari-passu ("Class A Preferred Shares") and (v) 9,500,000 Class A-1 Convertible Preferred Shares of nominal value NIS 0.01 each, all ranking pari-passu ("Class A-1 Preferred Shares"), (vi) 8,000,000 Class B Convertible Preferred Shares of nominal value NIS 0.01 each, all ranking pari-passu ("Class B Preferred Shares"), (vii) 6,000,000 Class C Convertible Preferred Shares of nominal value NIS 0.01 each, all ranking pari-passu ("Class C Preferred Shares") and (viii) 3,050,398 Class D Convertible Preferred Shares of nominal value NIS 0.01 each, all ranking pari-passu ("Class D Preferred Shares"). In these Articles, any reference to "Ordinary Shares" shall include also Class A Ordinary Shares and Class B Ordinary Shares unless expressly stated otherwise or unless the context dictates otherwise. Unless expressly stated otherwise or unless the context dictates otherwise, the Class A Convertible Preferred Shares and Class A-1 Convertible Preferred Shares, Class B Preferred Shares, Class C Preferred Shares Class D Preferred are collectively referred to herein as "Preferred Shares". RIGHTS OF THE SHARES 6. (a) Subject to these Articles or to the terms of any resolution creating new shares, the unissued shares from time to time shall be under the control of the Board of Directors, who shall have the power to allot shares or otherwise dispose of them to such persons, on such terms and conditions, and either at par or at a premium or, subject to the provisions of the Companies Ordinance, at a discount, and at such times, as the Board of Directors may think fit, and the power to give to any person the option to acquire from the Company any shares, either at par or at a premium or, subject as aforesaid, at a discount, during such time and for such consideration as the Board of Directors may think fit. (b) Each of the Ordinary Shares and the Class A Preferred Shares entitles its holder to receive notice of and participate in all general meetings of the Company and to one vote in any such meeting for every share held by such -3- 5 holder. The Class A Ordinary Shares will have the same rights as the Ordinary Shares, except the right to receive notice of meetings of shareholders and to participate in and vote at meetings of shareholders. The Class A Preferred Shares, the Class B Preferred Shares, the Class C Preferred Shares and the Class D Preferred Shares will have the same rights, except as otherwise specifically stated in these Articles. The Class A-1 Preferred Shares will have the same rights as the Class A Preferred Shares, except that they will not have any voting rights in the Company, including the right to receive notice of meetings of shareholders and to participate in and vote at meetings of shareholders. Each Class B Ordinary Share will have the same rights as the Ordinary Shares except that they will not have any voting rights in the Company, including the right to receive notice of meetings of shareholders and to participate in and vote at meetings of shareholders. (c) (1) In the event that the Company declares a dividend in cash or in other assets of the Company (excluding bonus shares), on its Ordinary Shares or otherwise, the aggregate sum of the dividend so declared will be distributed in such a manner that the holders of each of the Preferred Shares shall be entitled to receive a dividend which is equal to one hundred and ten percent (110%) of the dividend distributed to each of the holders of the Ordinary Shares and the distribution to the holders of the Preferred Shares shall be prior and in preference to any distribution to the holders of the Ordinary Shares (the "Preferred Dividend"). The Preferred Dividend shall not be cumulative. (2) In the event of any liquidation, dissolution or winding up of the Company (whether voluntarily or involuntarily) or in the case of the merger of the Company into another company in which the shareholders of the Company do not own a majority of its outstanding shares of the surviving corporation or the sale of all or substantially all of the assets of the Company, the holders of the Class A Preferred Shares, Class A-1 Preferred Shares, the Class B Preferred Shares, the Class C Preferred Shares and the Class D Preferred shall be entitled to receive, prior and in preference to any distribution to the holders of Ordinary Shares, the Initial Effective Purchase Price (as defined in sub-Article (d)(16) below) for each such Preferred Share (the "Preferred Return"). If the assets and funds distributed as aforesaid in sub-paragraphs (1) and (2) among the holders of the Preferred Shares shall be insufficient to permit the payment to such holders of the full amount of the Preferred Dividend or the Preferred Return to which they are entitled as aforesaid, then the entire assets and funds of the -4- 6 Company legally available for distribution shall be distributed ratably among the holders of the Preferred Shares in proportion to the Preferred Dividend or Preferred Return, as the case may be, each such holder is otherwise entitled to receive. (3) After payment of the Preferred Return, the remaining assets and funds of the Company legally available for distribution as a dividend, if any, shall be distributed ratably to the holders of all the Ordinary Shares and Preferred Shares, in each case in proportion to the number of shares then held by them, provided, however that after (i) the holders of the Class A Preferred Shares and Class A-1 Preferred Shares have received in the aggregate three (3) times the Initial Effective Purchase Price of such Preferred Shares and (ii) that after the holders of the Class B Preferred Shares and the Class C Preferred Shares have received in the aggregate twice the Initial Effective Purchase Price of such Preferred Shares (including in each case the amount paid as the Preferred Return), and (iii) that after the holders of the Class D Preferred Shares have received in the aggregate 1.75 times the Initial Effective Purchase Price of such Preferred Shares (including in each case the amount paid as the Preferred Return) the remaining assets of the Company available for distribution to shareholders shall be distributed among the holders of the Ordinary Shares (and not the holders of Preferred Shares), pro rata, based on the number of Ordinary Shares held by each shareholder. (4) Whenever the distribution provided for in this Article 6(c) shall be payable in securities or property other than cash, the value of such distribution shall be the fair market value of such securities or other property as determined in good faith by the Board of Directors. The US Dollar equivalent of the NIS value of any distribution under this Article 6 (c) shall be determined in accordance with the Representative Rate of Exchange last published by the Bank of Israel prior to the date of the making of the distribution. (d) Conversion Rights. The holders of the Preferred Shares and the Ordinary Shares shall have conversion rights as follows (the "Conversion Rights"): (1) Right to Convert. Each Class B Ordinary Share is convertible at any time after issuance of such share at the option of the holder thereof and without payment of any additional consideration into one (1) fully-paid and non-assessable voting Ordinary Share, according to the procedure specified in sub-Article (d)(3) below. Each holder of a Class A Preferred Share may, at its option, at any time after issuance of such share and without payment of any additional consideration by the holder, convert of such share into one fully-paid and non-assessable Class A-1 Preferred Share or one fully-paid and non-assessable voting Ordinary Share. -5- 7 Each holder of a Class A-1 Preferred Share may, at its option, at any time after issuance of such share without payment of any additional consideration by the holder, convert such share into one fully-paid and non-assessable Class A Preferred Share or Class B Convertible Ordinary Share Each holder of a Class B Preferred Share, a Class C Preferred Share or a Class D Preferred Share may, at its option, at any time after issuance of such share without payment of any additional considerations by the holder, convert such share into one fully-paid and non-assessable Ordinary Share. (2) Automatic Conversion. Each Class A Preferred Share, Class B Preferred Share, Class C Preferred Share and Class D Preferred Share shall automatically be converted into one fully paid and non-assessable Ordinary Share immediately (i) prior to the closing of a firm commitment underwritten public offering of Ordinary Shares of the Company pursuant to the United States Securities Act of 1933 as amended or the securities laws of any other jurisdiction at a public offering price per share (prior to underwriting commissions and expenses) of or equal to $5.00 or more (as adjusted for stock splits, dividends, recapitalizations, recombinations and the like) in an offering that results in gross proceeds to the Company of not less than the equivalent of $3 million (a "Qualified Initial Public Offering"), or (ii) upon the affirmative vote or the written consent of holders of not less than 75% of the then outstanding Class A Preferred Shares, Class B Preferred Shares, Class C Preferred Shares and Class D Preferred Shares, each voting as a separate class, as the case may be. Each share of Class A-1 Preferred Shares shall automatically be converted into one fully-paid and non-assessable Class B Ordinary Share (i) prior to the closing of a firm commitment underwritten public offering of Ordinary Shares of the Company at a public offering price per share (prior to underwriting commissions and expenses) of or equal to $5.00 or more (as adjusted for stock splits, recombinations and the like) in an offering that results in gross proceeds to the Company of not less than the equivalent of $10 million, or (ii) upon the affirmative vote or the written consent of holders of not less than 75% of the then outstanding Class A-1 Preferred Shares. (3) Mechanics of Conversion. Before any holder of Class A Preferred Shares, Class A-1 Preferred Shares, Class B Preferred Shares, Class C Preferred Shares, Class D Preferred Share, or Class B Ordinary Shares shall be entitled to convert the same into Preferred Shares or into Ordinary Shares or into Class B Ordinary Shares, as the case may be, the holder shall deliver to the Company written -6- 8 notice specifying the number and class of shares to be converted (except that no such written notice shall be necessary in the event of an automatic conversion pursuant to sub-Article (2) above). From and after the date on which the Company received such notice, shares included in such notice shall be deemed converted as specified in the notice, and the converting holder shall be deemed the owner and shall be treated for all purposes as the record holder of the number and class of shares into which such shares were converted. Promptly after delivery of such written notice, the holder shall surrender the certificate(s) therefor, duly endorsed, at the office of the Company or of any transfer agent for such shares. The Company shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Preferred Shares, certificate(s) for the number shares to which such holder shall be entitled as aforesaid. (4) Adjustment of Purchase Price. Upon each issuance by the Company of any Additional Shares (as defined in sub-Article (d)(13) below) at a price per share less than the lower of: (x) Initial Effective Purchase Price or (y) the applicable Effective Purchase Price (as defined in sub-paragraph (d)(16) below) then in effect, the Company shall issue to the holders of the Preferred Shares additional Preferred Shares of the same class or of a class that entitles its holders to the same rights for their nominal value only, in a number such that the Effective Purchase Price for all Preferred Shares held by each holder of the Preferred Shares shall be equal to the New Effective Purchase Price. The New Effective Price will be a fraction: (i) the numerator of which is the sum of (A) the total number of Ordinary Shares outstanding prior to the issuance of such Additional Shares (on a fully-diluted basis after giving effect to all options or other rights to purchase voting Ordinary Shares ("Options") and assuming the conversion into Ordinary Shares of the Preferred Shares multiplied by the applicable Effective Purchase Price in effect prior to the issuance of such Additional Shares, plus (B) the total amount of the consideration received by the Company for such Additional Shares; and (ii) the denominator of which is the sum of: (A) the total number of Ordinary Shares outstanding immediately prior to the issuance of such Additional Shares (on a fully-diluted basis after giving effect to all options to purchase Ordinary Shares and assuming the conversion into Ordinary Shares of all the Preferred Shares) plus (B) the number of such Additional Shares issued. The Company shall then issue such number of additional Preferred Shares to such holder in consideration for payment of their nominal value only, equal to the remainder of: -7- 9 (x) a fraction, (i) the numerator of which is the product of (A) the total number of Preferred Shares held by such holder prior to the issuance of such Additional Shares multiplied by (B) the applicable Effective Purchase Price in effect prior to the issuance of such Additional Shares; and (ii) the denominator of which is the applicable Effective Purchase Price in effect after the issuance of such Additional Shares, Minus (y) the total number of Preferred Shares held by such holder prior to the issuance of such additional shares. As an illustration of the foregoing calculation: if the total number of Ordinary Shares outstanding prior to the issuance of the Additional Shares was 18,000,000 and the first issuance of Additional Shares were to be an issuance of two million (2,000,000) Ordinary Shares at a per share price of forty cents ($0.40), and the Effective Purchase Price for Preferred Shares for the holder thereof prior to such issuance was $0.60, then the Effective Purchase Price following such issuance would be $0.58, calculated as follows: (18,000,000 x $0.60) + $800,000 ------------------------------- = $0.58 18,000,000 + 2,000,000 in the event such holder held 500,000 Preferred Shares (at an Effective Purchase Price of $0.60 per share prior to the issuance of the Additional Shares, then, after adjustment of the Effective Purchase Price to $0.58 per share (as provided above), such holder would be issued an additional 17,241 Preferred Shares (for their nominal value only) as determined pursuant to the following formula: (500,000 x $0.60) - 500,000 --------------------------- = 17,241 $0.58 (5) Minimal Adjustment. No issue of additional Preferred Shares (as set forth in sub-Article 6(d)(4) hereof) shall be made if the change in the Effective Purchase Price shall be: (A) in an amount less than one cent ($0.01) per share (but decreases of the Effective Purchase Price shall be carried forward and shall be made at the time and together with any subsequent adjustment which on a cumulative basis amounts to $0.01 or more in the Effective Purchase Price.), or (B) an increase beyond the applicable Effective Purchase Price in effect immediately prior to such adjustment. -8- 10 If, pursuant to the above calculation, the Company shall be required to issue fractions of Shares, the number of such shares shall be rounded off (up or down) to the nearest whole number. (6) Issuance of Options. In the case of the issuance of Options, the aggregate maximum number of Ordinary Shares deliverable upon exercise (assuming the satisfaction of any conditions to exercisability, including without limitation, the passage of time, but without taking into account potential anti dilution adjustments) of such Options, shall be deemed to have been issued immediately prior to the conversion of the Preferred Shares at a consideration equal to the consideration received by the Company upon the issuance of such options or rights plus any additional consideration payable to the Company pursuant to the terms of such Options (without taking into account potential anti-dilution adjustments) for the Ordinary Shares covered thereby. If, pursuant to the above calculation, the Company shall be required to issue fractions of Preferred Shares, the number of such shares shall be rounded up or down to the nearest whole number. (7) No-Cash Consideration. In the case of the issuance of Ordinary Shares for a consideration in whole or in part other than cash, the price per Ordinary Shares shall be deemed to be the fair value thereof as determined by the Board of Directors. (8) U.S. Dollar Equivalent. For the purpose of this sub-Article 6(d), the consideration of any Additional Shares shall be calculated at the U.S. dollar equivalent thereof, on the day such Additional Shares are issued or deemed to be issued pursuant to sub-Article (d)(4). (9) Other Adjustments. Subject to Section 6(c): (i) in case the Company shall declare a cash dividend upon its Ordinary Shares payable otherwise than out of retained earnings or shall distribute to holders of its Ordinary Shares or other shares of its capital stock (other than Ordinary Shares), stock or other securities of other persons, evidences of indebtedness issued by the Company or other persons, assets (excluding cash dividends) or options or rights, then, in each such case, the holders of Preferred Shares and Class B Ordinary Shares shall, concurrent with the distribution to holders of Ordinary Shares, receive a like distribution based upon the number of Ordinary Shares into which the Preferred Shares and the Class B Ordinary Shares are convertible. (ii) If the number of Ordinary Shares outstanding at any time is increased by a stock dividend payable in Ordinary Shares or by subdivision or split-up of Ordinary Shares, then, on the date such payment is made or such change is effective (and subject to Section 6(i)), the Company shall issue to holders of Preferred Shares and Class B Ordinary Shares additional shares of the -9- 11 same class held by them in a number in proportion to such increase of outstanding shares. (iii) If the number of Ordinary Shares outstanding at any time after the Original issuance Date hereof is decreased by a combination or consolidation of the outstanding Ordinary Shares then, on the effective date of such combination the number of Preferred Shares and Class B Ordinary Shares shall be decreased by a similar action in proportion to such decrease in outstanding shares. (10) Issuance of Same Class. In each case that an issuance of additional Preferred Shares or Class B Ordinary Shares is required to reflect the issuance of bonus shares, or a subdivision or split of Ordinary Shares, each holder of Preferred Shares will be entitled to receive from the Company shares of a class that entitles its holders to the same rights as the class of shares to be distributed, subject to sub-Article (12) below. (11) Capital Reorganization. In case, at any time after the Original Issue Date (as defined in Sub-article (13) below), of any capital reorganization, or any reclassification of the share capital of the Company (other than as a result of a bonus shares or subdivision, split-up or combination of shares), or the consolidation or merger of the Company with or into another entity (other than a consolidation or merger in which the Company is the continuing entity and which does not result in any change in the Ordinary Shares), or of the sale or other disposition of all or substantially all the properties and assets of the Company (each such act to be defined as a "Transaction"), the Preferred Shares shall, after such Transaction, be convertible into the kind and number of shares or other securities or property of the Company or otherwise to which such holder would have been entitled if immediately prior to such Transaction the holder had converted the holder's Preferred Shares into Ordinary Shares. The provisions of this sub-Article (11) shall similarly apply to successive Transactions. (12) The Company may not take any of the acts included in sub-Articles (9) through (11) and may not enter into a transaction in which it is required to take any such act, and such act or transaction by the Company will be void unless each holder of Class A-1 Preferred Shares or Class B Ordinary Shares has the option, without payment of any additional consideration, to receive instead of all or part of securities to be distributed, the same number of securities entitling their holders to the same rights as the securities to be distributed, by the Company or otherwise, except that such securities shall have (i) no voting rights, and (ii) a right to convert the securities to be distributed at the holder's option at any time after the issuance and without payment of any additional consideration into voting shares. (13) Additional Shares. (i) "Additional Shares" shall mean all Ordinary Shares issued (or, pursuant to clause (i) below, deemed to be issued) by the Company after the date of issuance of the Preferred Shares (the "Original Issue Date"), other than ordinary shares issued or issuable: (A) upon conversion of Preferred -10- 12 Shares; (B) up to a maximum of 3,873,695 shares to officers, employees and directors of, or consultants to, the Company and its wholly-owned subsidiaries pursuant to a stock grant, option plan or purchase plan or other employee stock incentive program approved by the Company's Board of Directors; (C) Ordinary Shares issued by the Company to shareholders of another company in the framework of a transaction in which more than fifty percent (50%) of the outstanding shares or all or substantially all of the assets of such other company are acquired by the Company; (D) As a dividend or distribution on Preferred Shares; (E) Ordinary Shares issued pursuant to any equipment leasing or loan arrangement or debt financing from a bank or similar financial or lending institution approved by the Company's Board of Directors; and (F) by way of dividend or other distribution on Ordinary Shares excluded from the definition of Additional Shares by the foregoing clauses (A), (B), (C), (D) and (E) or on Ordinary Shares so excluded. (ii) Except as otherwise provided in clause (i), in the event the Company at any time or from time to time after the Original Issue Date shall issue any Options or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options, then the maximum number of Ordinary Shares (as set forth in the instrument relating thereto without regard to any provisions contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options, shall be deemed to be Additional Shares issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date, provided that Additional Shares shall not be deemed to have been issued unless the consideration per share (determined pursuant to paragraph (ii)) of such Additional Shares would be less than the Effective Purchase Price in effect on the date of and immediately prior to such issue, or such record date, as the case may be, and provided further that in any such case in which Additional Shares are deemed to be issued: (A) no further adjustment in the Effective Purchase Price shall be made upon the subsequent issue of Ordinary Shares upon the exercise of such Options; (B) if such Options by their terms provide, with the passage of time or otherwise, for any increase in the consideration payable to the Company, or decrease in the number of ordinary shares issuable, upon the exercise thereof, the Effective Purchase Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options; and (C) no readjustment pursuant to clause (B) above shall have the effect of increasing the Effective Purchase Price to an amount which exceeds the lower of (i) the Effective Purchase Price on the original adjustment date, or (ii) the Effective Purchase Price that would have resulted from any issuance of Additional Shares between the original adjustment date and such readjustment date. (iii) All calculations under this Clause shall be made to the nearest cent- -11- 13 equivalent or to the nearest one hundredth (1/100) of a share, as the case may be. (14) No Impairment. The Company will at all times in good faith assist in the carrying out of all the provisions of this Clause and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holders of Preferred Shares pursuant to this sub-Article 6(d) against impairment. (15) Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the number of issued Preferred Shares or Class B Ordinary Shares pursuant to this sub-Article, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Preferred Shares a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Company shall, upon written request at any time of any holder of Preferred Shares, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Effective Purchase Price at the time in effect, and (iii) the number of Shares and the amount, if any, of other property which at the time would be received. (16) Effective Purchase Price. (i) Initial Effective Purchase Price: The Initial Effective Purchase Price for each Class A Preferred Share is $0.5871, for each Class B Preferred Share is $1.1759, for each Preferred C Preferred Share is $1.39244 and for each Class D Preferred Share is $3.7662. (ii) New Effective Purchase Price: The new Effective Purchase Price shall be as determined pursuant this sub-Article (d) hereof upon the occurrence of the events set forth herein. (iii) Effective Purchase Price: The Effective Purchase Price shall be (A) the Initial Purchase Price, until such time as a new Effective Purchase Price has been determined pursuant to this sub-Article (d) and (B) at and after such time as a New Effective Purchase Price (or any subsequent New Effective Purchase Price) has been determined pursuant to this sub-Article (d), the Effective Purchase Price shall be such New Effective Purchase Price as is then in effect. (17) [Reserved] (18) Notices of Record Date. Without derogating from the rights of the holders of the Preferred Shares pursuant to any applicable law, in the event of any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of any class or any other securities or property or to -12- 14 receive any other right, the Company shall mail to each shareholder, including each holder of Preferred Shares, at least ten (10) days prior to such record date, a notice specifying the date on which any such record is to be taken for the purpose of such dividend or distribution or right, and the amount and character of such dividend, distribution or right. (19) Reservation of Stock Issuable. The Company shall at all times reserve and keep available out of its authorized but unissued share capital of any class solely for the purpose of effecting the issuance of the Preferred Shares and Class B Ordinary Shares, such number of its shares of that class as shall from time to time be sufficient to effect such issuance of additional shares as provided in this sub-Article. If at any time the number of authorized but unissued shares of the required class shall not be sufficient to issue such additional shares of such class or effect such conversion, the Company will promptly take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of such class to such number of shares as shall be sufficient for such purpose. (20) No Reissuance of Converted Shares. No shares of Preferred Shares or Class B Ordinary Shares which have been converted after the original issuance thereof shall ever again be reissued and all such shares so converted shall upon such conversion cease to be a part of the authorized share capital of such class of shares of the Company. 7. If two or more persons are registered as joint holders of any share, any one of such persons may give effectual receipts for any dividends or other monies in respect of such share. 8. No person shall be recognized by the Company as holding any share upon any trust, and the Company shall not be bound by or required to recognize any equitable, contingent, future or partial interest in any share or any right whatsoever in respect of any share other than an absolute right to the entirety thereof in the registered holder. 9. Every member shall be entitled, without payment, to receive within a reasonable period after allotment or registration of transfer, one certificate under the Seal for all the shares registered in his name, specifying the number and denoting numbers of the shares in respect of which it is issued and the amount paid up thereon. Provided that, in the case of joint holders, the Company shall not be bound to issue more than one certificate to all the joint holders, and delivery of such certificate to one of them shall be sufficient delivery to all. Every certificate shall be signed by: (i) two Directors or (ii) one Director and (A) the Secretary or (B) some other person nominated by the Board of Directors for the purpose. 10. If any share certificate shall be defaced, worn out, destroyed or lost, it may be renewed on such evidence being produced, and such indemnity (if any) being given as the Directors shall require and (in the case of defacement or wearing out) on delivery of the old certificate and, in any case on payment of such sum not exceeding NIS 5 (five New Israeli Shekels) as the Directors may from time to time -13- 15 require. 11. No part of the funds of the Company shall be employed in the purchase of, or in loans upon the security of, the Company's shares; but, nothing in this Article shall prohibit the transactions mentioned in Section 139(b) of the Companies Ordinance. 12. Where any shares are issued for the purpose of raising money to defray the expenses of the construction of any works or buildings or the provision of any plant which cannot be made profitable for a lengthy period, the Company may pay interest on as much of such share capital as is, for the time being, paid up for the period and subject to the conditions and restrictions mentioned in Section 140 of the Companies Ordinance, and may charge the sum so paid by way of interest to capital as part of the cost of the construction of the work or building or the provision of a plant. 13. The Company may pay a commission at a rate not exceeding 4 (four) percent of the price at which the shares or other securities are issued to any person in consideration of his subscribing or agreeing to subscribe (whether absolutely or conditionally) for any shares in the Company, or other securities of the Company, or procuring or agreeing to procure subscriptions (whether absolute or conditional) for any shares in the Company or other securities of the Company. CALLS ON SHARES 14. No member shall be entitled to receive any dividend or to exercise any privileges as a member until he shall have paid all calls for the time being due and payable on every share held by him, whether alone or jointly with any other person, together with interest and expenses (if any). 15. (a) If, under the conditions of the issuance of shares, there is no fixed date for the payments due therefor, the Board of Directors may from time to time make such calls upon the members in respect of all monies then unpaid on shares possessed by them, and every member will pay the sum demanded of him at the place and time appointed by the Board of Directors, provided that fourteen (14) days' notice as to the place and date of payment was served on him. The Board of Directors may revoke or postpone any call. (b) A call shall be deemed to have been made at the time when the Resolution of the Board of Directors authorizing such call was passed. (c) The joint holders of a share shall be jointly and severally liable for the payment of all calls and installments in respect thereof. (d)If, before or on the day appointed for payment thereof, a call or installment payable in respect of a share is not paid, the holder or allottee of the share shall pay interest on the amount of the call or installment at such rate not exceeding the debitory rate prevailing at the largest Israeli commercial bank on the day appointed for the payment referred to, as the Board of Directors shall -14- 16 fix, from the day appointed for payment thereof to the time of actual payment, but the Board of Directors may waive payment of such interest wholly or in part. 16. (a) Any sum which, by the terms of allotment of a share, is made payable upon allotment or at any fixed date, whether on account of the amount of the share or by way of premium shall, for all purposes of these Articles, be deemed to be a call duly made and payable on the date fixed for payment and, in the case of non-payment, the provisions of these Articles as to payment of interest and expenses, forfeiture and the like, and all other relevant provisions of these Articles shall apply as if such sum were a call duly made and notified as hereby provided. (b) The Directors may, at the time of allotment of shares, make arrangements on the issue of shares for a difference between the holders of such shares in the amount of calls to be paid and in the time of payment of such call. 17. The Directors may, if they think fit, receive from any member willing to advance the same, all or any part of the monies due upon his shares beyond the sums actually called up thereon; and, upon the monies so paid in advance, or so much thereof as exceeds the amount for the time being called up on the shares in respect of which such advance has been made, the Directors may pay or allow such interest as may be agreed by them and the Company. TRANSFER AND TRANSMISSION OF SHARES 18. No transfer of shares in the Company shall be registered unless the transfer has been approved by the Board of Directors. The Directors will not register a transfer if such transfer would result in the Company having more than 50 members or if such transfer is not made in accordance with the provisions of these Articles. 19. No transfer of shares shall be registered unless a proper instrument of transfer has been submitted to the Company, coupled with the certificate for the shares to be transferred and any other evidence as the Board of Directors may reasonably require of the title of the transferor to transfer his shares. As long as the transferee is not registered in the Register of Members in respect of the shares transferred to him, the rights and obligations of the registered owner of the shares shall in no way be affected by the attempt to transfer. 20. The instrument of transfer of any share shall be in writing in the usual or common form or in some other form approved by the Board of Directors from time to time and shall be signed by the transferor and transferee. 21. The Board of Directors may suspend the registration of transfers during the fourteen (14) days immediately preceding the ordinary General Meeting in each year. 22. The executors and administrators of a deceased sole holder of a share or, if there are no executors or administrators, the persons beneficially entitled as heirs of a -15- 17 deceased sole holder, shall be the only persons recognized by the Company as having any title to the share. In the case of a share registered in the names of two or more holders, the Company shall recognize the survivor or survivors as the only persons having any title to, or benefit in, the share. 23. The Company may recognize the receiver or liquidator of any member in winding-up or dissolution, or the trustee in bankruptcy or any official receiver of a bankrupt member as being entitled to the shares registered in the name of such member. 24. Any person becoming entitled to a share in consequence of the death of any person, upon producing evidence of the grant of probate or letters of administration or declaration of succession or such other evidence as the Board of Directors may deem sufficient that he sustains the character in respect of which he proposes to act under this Article or of his title, shall be registered as a member in respect of such shares or may, subject to the regulations as to transfer herein contained, transfer such shares. 25. The receiver or liquidator of a member in winding-up or dissolution, or the trustee in bankruptcy, or any official receiver of any bankrupt member, upon producing such evidence as the Board of Directors may deem sufficient that he sustains the character in respect of which he proposes to act under this Article or of his title may, with the consent of the Board of Directors (which the Board of Directors may refuse to grant without assigning any reason for its refusal), be registered as a member in respect of such shares or may, subject to the regulations as to transfer herein contained, transfer such shares. RIGHT OF FIRST REFUSAL 25.A Until the Closing of the initial public offering of its shares by the Company pursuant to the United States Securities Act of 1933 as amended (the "1933 Act") or the securities laws of any other jurisdiction (the "IPO"), no shareholder who holds in the aggregate five percent (5%) or more of the issued and outstanding share capital of the Company (a "Selling Shareholder") shall be permitted, without the prior written permission of all other shareholders of the Company, to transfer (except to his Permitted Transferees as defined below) any of his shares in the Company, except pursuant to the provisions of this Article 25.A. In calculating the number of shares held by a shareholder for the purposes of this Article, the shares held by the Permitted Transferees of such shareholder shall be deemed to be shares held by that shareholder. For the purposes hereto, a Permitted Transferee shall be defined as follows: (i) a transferee by will or operation of law; (ii) in the case of a company, a corporation succeeding to all or substantially all of the assets of the transferor or in excess of fifty percent (50%) of the outstanding shares of the transferor;; (iii) a wholly-owned subsidiary of the transferor; (iv) any investment fund or investment company which is managed or advised by the same manager or advisor as the transferor; (v) general or limited partners of the transferor if the -16- 18 transferor is a partnership; (vi) spouse (or widow or widower) of the transferor and the transferor's children (including step-children and adopted children) or a trust established solely for the benefit of the transferor and such persons; (vii) Oak Investment Partners VI, L.P., Oak VI Affiliates Fund L.P., Genesis Partners L.P., Genesis Partners I (Cayman) L.P. Worldview Technology Partners I, L.P., Worldview Technology International I, L.P., Worldview Strategic Partners I, L.P., and Meritech Capital Partners, L.P. and Meritech Capital Affiliates, L.P. ("Meritech") may transfer shares to one another without restriction. In the event of a transfer to a Permitted Transferee, such Permitted Transferee shall be entitled to all the rights and shall assume in writing all the obligations of the transferor with respect to the transferred shares. However, no such transfer shall be allowed if in the opinion of legal counsel to the Company it constitutes a public offering or public distribution of the Company's shares pursuant to any applicable law. (a) In the event that any Selling Shareholder wishes to offer for sale or otherwise transfer any or all of his shares to a bona-fide third party purchaser other than a Permitted Transferee (a "Third Party Purchaser"), such Selling Shareholder shall give prompt written notice thereof (the "Offering Notice") to each other shareholder, setting forth the identity of the Third Party Purchaser, the number of shares that the Selling Shareholder desires to sell, the offering price and all of the other terms and conditions of the offer. An Offering Notice shall constitute an irrevocable offer to each other Shareholder in accordance with the terms and conditions set forth below, to sell all, but not less than all, of the shares covered thereby (the "Offered Shares") to such other Shareholders, at a price equal to the price set forth in the Offering Notice, and upon all of the other terms and conditions set forth in the Offering Notice. At any time during the twenty one (21) days following the date that the Offering Notice was given (the "Option Period"), any other Shareholder may notify the Selling Shareholder by written notice that he is exercising his rights to purchase his pro rata portion (based upon the relative shareholdings of all shareholders other than the Selling Shareholder) of the Offered Shares on the terms and conditions specified in the Offering Notice (an "Acceptance Notice"). (b) If the Selling Shareholder shall receive Acceptance Notices from all the other shareholders within the Option Period, he shall be obligated to consummate such transaction with such other shareholders, and the shareholders shall be obligated (severally but not jointly) to purchase all, but not less than all, of the Offered Shares to which their Acceptance Notice relates, on the date that is twenty one (21) days after the expiration of the Option Period (the "Option Closing Date"). (c) In the event that the Selling Shareholder has not received Acceptance Notices from all the other shareholders during the Option Period, he shall by written notice (the "Second Offer Notice") offer the shares for -17- 19 which no Acceptance Notice was received (the "Remaining Shares") to the shareholders who submitted Acceptance Notices (the "Participating Shareholders"). At any time during the five (5) day period following the date that the Second Offer Notice was given, any Participating Shareholder may notify the Selling Shareholder by written notice that he is exercising his rights to purchase all or part of the Remaining Shares on the terms and conditions as specified in the Offering Notice. If the Selling Shareholder receives Acceptance Notices for the Remaining Shares, each Participating Shareholder who submits an Acceptance Notice with respect to the Remaining Shares will be required to purchase its pro rata portion of the Remaining Shares (based upon the number of Remaining Shares such Participating Shareholder specified in his Acceptance Notice relative to the number of Remaining Shares specified in all of the Acceptance Notices for the Remaining Shares). (d) The purchase and sale of those of the Offered Shares for which Acceptance Notices were submitted pursuant to Article (b) and the Remaining Shares will take place concurrently. If, after the procedures specified in Articles (b) and (c) above, the Selling Shareholder shall not receive any Acceptance Notices or shall not receive Acceptance Notices with respect to all of the Offered Shares, he may sell to the Third Party Purchaser all or any of the Offered Shares regarding which no Acceptance Notices were received, upon such terms and conditions as are no less favorable to such Selling Shareholder than those specified in the Offering Notice; provided, however, that such sale must be consummated within one hundred and twenty (120) days from the date of the Offer. (e) With respect to each purchase of Offered Shares pursuant to this Article 25.A. by a Shareholder, the closing therefor shall be on the Option Closing Date. The purchase price for the Offered Shares shall be paid in full at such closing in cash or by certified check (except as otherwise specified in the terms of the Offer) payable to the order of the Selling Shareholder against delivery of a duly executed share transfer deed relating to the Offered Shares, together with the corresponding original share certificates. Offered Shares delivered at the closing hereunder shall be free and clear of all security interests, and all title thereto, and all rights and privileges of ownership thereof, shall immediately be vested in the purchasers thereof upon satisfaction of all the conditions set forth herein. Except as stated in the terms of the Offering Notice, the purchasing shareholders shall pay all transfer taxes (but not capital gains or other income taxes) and all requisite transfer tax stamps (if any) shall be duly affixed to the share transfer deeds and certificates at the time of delivery. -18- 20 (f) The provisions of this Article 25A will not apply to the transfer of shares to a Permitted Transferee of the transferor. (g) The Board of Directors shall not effect any transfer of shares by any Shareholder until it has received evidence satisfactory to it that the provisions of this 25.A., if applicable to such transfer, have been complied with. CO-SALE RIGHTS 25B(a) Until the closing of a Qualified Initial Public Offering, in the event that either Moshe Ben-Bassat and/or Idit Ben-Bassat (each a "Selling Founder") initiates or otherwise receives a bona-fide offer from a third party (a "Proposed Purchaser") to purchase all or any portion of the shares owned by the Selling Founder (a "Proposed Transfer") and the right of first refusal pursuant to Article 25A is not exercised, then each of Oak Investment Partners VI, L.P., Oak VI Affiliates Fund L.P., Genesis Partners I L.P. , Genesis Partners I (Cayman) L.P., Worldview Technology Partners I. L.P., Worldview Technology International I, L.P., Worldview Strategic Partners I, L.P. (a "Participating Shareholder") shall have the right (the "Participation Right") to require the Proposed Purchaser to purchase from such Participating Shareholder, as part of the shares to be purchased by the Proposed Purchaser, up to the number of shares that is equal to the product of (i) the number of shares to be sold by the Selling Founder in the Proposed Transfer multiplied by (ii) a fraction the numerator of which is the number of shares owned by the Participating Shareholder at the time of the Proposed Transfer and the denominator of which is the total number of shares owned by all of the shareholders other than the Selling Founder at the time of the Proposed Transfer. (b) The Selling Founder shall, not less than twenty one (21) nor more than forty-five (45) days prior to any Proposed Transfer, notify each Participating Shareholder in writing of such Proposed Transfer (the "Participation Notice"). Such Participation Notice shall set forth: (i) the number of shares proposed to be transferred (the "Transferred Shares"), (ii) the name(s) and address(es) of the Proposed Purchaser(s), (iii) the proposed amount and form of consideration and terms and conditions of payment offered by such Proposed Purchaser, and (iv) that the Proposed Purchaser has been informed of the Participation Right provided for in Article (a) above and has agreed to purchase the Transferred Shares in accordance with the terms hereof. Each Participating Shareholder shall have the right to review the agreement between the Selling Founder and the Proposed Purchaser, but not to comment on or change it. (c) The Participation Right may be exercised by a Participating Shareholder by delivery of a written notice to the Selling Founder and to the Company (the "Participation Acceptance Notice") within -19- 21 fourteen(14) days following the giving of the Participation Notice. The Participation Acceptance Notice shall state the number of shares, subject to the limits set forth herein, that such Participating Shareholder commits to include in such transfer to the Proposed Purchaser. (d) In the event that the Proposed Purchaser is not willing to purchase shares from the Participating Shareholders on substantially the same terms and conditions as specified in the Participation Notice, then the Selling Founder shall not be permitted to sell any shares to the Proposed Purchaser pursuant to the Proposed Transfer. (e) Those Participating Shareholders who have delivered Participation Acceptance Notices within the fourteen (14) day period referred to in Article (c) above, shall be obligated, for a ninety (90) day period after the expiration of the such fourteen (14) day period referred to above, to transfer the number of shares set forth in the Participation Acceptance Notice to the Proposed Purchaser on the terms and conditions stated in the Participation Notice and in accordance with the provisions of this Article 25.B. Any shares purchased from Participating Shareholders pursuant to this Article 25.B. shall be paid for at the same price per share, with the same form of consideration and upon substantially the same terms and conditions as such proposed transfer by the Selling Founder, it being agreed, however, that such terms and conditions do not include the making of any representations and warranties, indemnities or other similar agreements other than representations and warranties with respect to title to the shares being sold and authority to sell such shares and indemnities related thereto. (f) Until the closing of the initial public offering of shares by the Company pursuant to the 1933 Act or the securities laws of any other country, in the event that either Oak Investment Partners VI, L.P., Oak VI Affiliates Fund L.P., Genesis Partners I L.P., Genesis Partners I (Cayman) L.P., or Worldview Technology Partners I, L.P., Worldview Technology International I, L.P., and Worldview Strategic Partners I, L.P. (each a "Selling Fund") initiates or otherwise receives a bona-fide offer from a third party (a "Proposed Purchaser") to purchase all or any portion of the shares owned by the Selling Fund (a "Proposed Transfer") and the right of first refusal pursuant to Article 25A is not exercised, then each of Oak Investment Partners VI, L.P., Oak VI Affiliates Fund L.P., Genesis Partners I L.P., Genesis Partners I(Cayman) L.P. or Worldview Technology Partners I, L.P., Worldview Technology International I, L.P., and Worldview Strategic Partners I, L.P. and Meritech which is not a Selling Fund, (a "Participating Fund ") shall have the right to require the Proposed Purchaser to purchase from such Participating Fund, as part of the shares to be purchased by the Proposed Purchaser, up to the number of shares that is equal to the product of (i) the number of shares to be sold by the Selling Fund in the Proposed Transfer multiplied by (ii) a fraction the numerator of -20- 22 which is the number of shares owned by the Participating Fund at the time of the Proposed Transfer and the denominator of which is the total number of shares owned by all of the shareholders other than the Selling Fund at the time of the Proposed Transfer. In addition, each of Moshe Ben Bassat and Idit Ben Bassat shall have the right to require the Proposed Purchaser to purchase from him and/or her, as part of the shares to be purchased by the Proposed Purchaser, up to the number of shares that is equal to one third of the shares sold by such Selling Fund. However, if the Selling Fund sells Preferred Shares which are not held by Moshe and Idit Ben Bassat and the Proposed Purchaser advises the Selling Fund and Moshe Ben Bassat that he does not agree to purchase the Ordinary Shares of Moshe and Idit Ben Bassat according to the same terms as agreed with the Selling Fund with respect to the Preferred Shares, the Proposed Purchaser will not be required to purchase any Ordinary Shares of Moshe and Idit Ben Bassat unless the Proposed Purchaser agrees with Moshe and Idit Ben Bassat on an alternative purchase price for such shares. Any negotiations between the Proposed Purchaser and Moshe and Idit Ben Bassat will in no way prevent or delay the sale of the shares of the Selling Fund and the Participating Funds to the Proposed Purchaser. The procedure specified in this Article 25B will apply, mutatis mutandis, to the sale of shares according to this sub-Article (f). (g) The provisions of this Article 25B will not apply to any transfer of shares to a Permitted Transferee of the transferor. (h) The Board of Directors shall not effect any transfer of shares by a Selling Founder unless it has received evidence satisfactory to it that the provisions of this Article 25C have been complied with. (i) All shareholders to which this Article 25B applies will exercise their rights pursuant to this Article in good faith towards the other shareholders forfeiture of shares. 26. If any member fails to pay the whole or any part of any call or installment of a call on or before the day appointed for the payment thereof, the Board of Directors may, at any time thereafter during such time as the call or installment or any part thereof remains unpaid, serve a notice on him, or on the person entitled to the share by transmission requiring him to pay such call or installment, or such part thereof as remains unpaid, together with any expenses incurred by the Company by reason of such non-payment. 27. The notice shall name a further day (not earlier than the expiration of seven (7) days from the date of the notice) on or before which such call or installment, or such part as aforesaid, and all interest and expenses that have accrued by reason of such non-payment, is to be made, and shall state that, in the event of non-payment at or before the time and at the place appointed, the shares in respect of which such call was made will be liable to be forfeited. -21- 23 28. If the requisitions of any such notice as aforesaid are not complied with, any share in respect of which such notice has been given may at any time thereafter, before the payment required by the notice has been made, be forfeited by a resolution of the Board of Directors to that effect. A forfeiture of shares shall include all dividends in respect of the shares not actually paid before the forfeiture, notwithstanding that they shall have been declared. 29. Notwithstanding any such forfeiture as aforesaid, the Board of Directors may, at any time before the forfeited share has been otherwise disposed of, annul the forfeiture upon the terms of payment of all call and interest due upon and expenses incurred in respect of the shares and upon such further terms (if any) as they shall see fit. 30. Every share which shall be forfeited shall thereupon become the property of the Company and may be either canceled or sold or re-allotted or otherwise disposed of, either to the person who was before forfeiture the holder thereof or entitled thereto, or to any other person, upon such terms and in such manner as the Board of Directors shall think fit. 31. A member whose shares have been forfeited shall, notwithstanding, be liable to pay to the Company all calls made and not paid on such shares at the time of forfeiture, and interest thereon to the date of payment, in the same manner in all respects as if the shares had not been forfeited and to satisfy all (if any) the claims and demands which the Company might have enforced in respect of the shares at the time of forfeiture, without any deduction or allowance for the value of the shares at the time of forfeiture. 32. The forfeiture of a share shall involve the extinction at the time of forfeiture of all interest in and all claims and demands against the Company in respect of the share, and all other rights and liabilities incidental to the share as between the member whose share is forfeited and the Company, except only such of those rights and liabilities as are by these Articles expressly saved, or as are by the Companies Ordinance given or imposed in the case of past members. 33. A sworn declaration in writing that the declarant is a Director of the Company, and that a share has been duly forfeited in pursuance of these Articles, and stating the date upon which it was forfeited shall, as against all persons claiming to be entitled to the share adversely to the forfeiture thereof, be conclusive evidence of the facts therein stated, and such declaration, together with the receipt of the Company for the consideration (if any) given for the share on the sale or disposition thereof, and a certificate of proprietorship of the share under the Seal delivered to the person to whom the same is sold or disposed of, shall constitute a good title to the share, and such person shall be registered as the holder of the share and shall be discharged from all calls made prior to such sale or disposition, and shall not be bound to see to the application of the purchase money (if any), nor shall his title to the share be affected by any act, omission or irregularity relating to or connected with the proceedings in reference to the forfeiture, sale, re-allotment or disposal of the share. -22- 24 LIEN 34. The Company shall have a first and paramount lien upon all shares (which are not fully paid up) registered in the name of any member, either alone or jointly with any other person, for his debts, liabilities and engagements, whether solely or jointly with any other person, to or with the Company, whether the period for the payment, fulfillment or discharge thereof shall have actually arrived or not, and such lien shall extend to all dividends from time to time declared in respect of such shares; but the Directors may at any time declare any share to be exempt wholly or partially from the provisions of this Article. 35. The Directors may sell the shares subject to any such lien at such time or times and in such manner as they shall think fit, but no sale shall be made until such time as the monies in respect of which such lien exists, or some part thereof, are or is presently payable, or the liability or engagement in respect of which such lien exists is liable to be presently fulfilled or discharged, and until a demand and notice in writing, stating the amount due or specifying the liability or engagement and demanding payment or fulfillment or discharge thereof and giving notice of intention to sell in default, shall have been served on such member, or the persons (if any) entitled by transmission to the shares, and default in payment, fulfillment or discharge shall have been made by him or them for fourteen (14) days after such notice. 36. The net proceeds of such sale shall be applied in or towards satisfaction of the amount due to the Company, or of the liability or engagement, as the case may be, and the balance (if any) shall be paid to the member of the person (if any) entitled by transmission to the shares so sold. 37. Upon any such sale (i.e., following forfeiture or foreclosing on a lien for and bona fide use of the powers granted with respect thereto), the Directors may enter the purchaser's name in the Register as the holder of the shares, and the purchaser shall not be bound to see to the application of the purchase money, nor shall his title to the shares be affected by any irregularity or invalidity in the proceedings in reference to the sale. OFFER OF ANY UNISSUED SHARES TO EXISTING SHAREHOLDERS 38. If the Company proposes to issue or sell any New Securities (as defined in this Article 38(a) prior to a Public Offering, the Company shall (i) before such issuance offer to all shareholders who hold at least one percent (1%) of the issued and outstanding share capital of the Company, the right to purchase a pro-rata share of the New Securities. A shareholder's pro-rata share, for purposes of this Article, is the ratio of the number of shares owned by such Shareholder immediately prior to the issuance of New Securities, to the total number of Ordinary Shares outstanding immediately prior to the issuance of New Securities. Each shareholder shall have a right to over-allotment such that if any Shareholder fails to exercise its right hereunder to purchase a pro-rata share of New Securities, the other Shareholders -23- 25 may purchase the non-purchasing Shareholder's portion pro-rata according to the shareholding ratio between such other shareholders shareholding in the Company within ten (10) days from the date such non-purchasing shareholder fails to exercise its rights hereunder to purchase its pro-rata share of New Securities and (ii) concurrent with such issuance, comply with the request of each of Oak Investment Partners VI, L.P. and Oak VI Affiliates Fund L.P. that instead of purchasing all or part of their pro rata shares of the New Securities, they will purchase an issuance of a class of securities having the same rights as the new securities to be issued except that such class does not entitle its holders to any voting rights and is convertible into the class of New Securities to be issued at any time at the holder's option and without payment of any additional consideration by the holder. (a) "New Securities" shall mean any equity interest (including Ordinary Shares) in the Company, whether now authorized or not, and rights, options or warrants to purchase such equity interests, and securities of any type whatsoever that are convertible into equity interests; provided that the term "New Securities" does not include: (i) Ordinary Shares issued pursuant to any stock grant, purchase plan Stock Option Plan or other employee stock incentive program approved by the Board of Directors, of up to a maximum of 3,873,695 shares to officers, employees and directors of, or consultants to, the Company and its wholly-owned subsidiaries pursuant to a approved by the Company's Board of Directors, or (ii) Ordinary Shares issued by the Company to shareholders of another company in the framework of a transaction in which more than fifty percent (50%) of the outstanding shares or all or substantially all of the assets of such other company are acquired by the Company. (iii) Bonus Shares. (iv) Securities issued according to sub-Article 6(d) above (v) Securities issued according to outstanding Warrants as of December 14, 1999. (b) In the event the Company proposes to undertake the issuance of New Securities, it shall give each Shareholder written notice of its intention, describing the type of New Securities, and their price and the general terms upon which the Company proposes to issue the same. Each Shareholder shall have twenty-one (21) days after any such notice is given to agree to purchase such Shareholder's pro rata share of such New Securities for the price and upon the terms specified in the notice by giving written notice to the Company and stating therein the quantity of New Securities purchased, provided that any such issuance is subject to the Company's concurrent compliance. -24- 26 (c) In the event the Shareholders fail to exercise fully the pre-emptive right within the said twenty-one (21) day period and after the expiration of the ten (10) day period for the exercise of the over-allotment provisions of Article 38, the Company shall have one hundred and twenty (120) days thereafter to sell or enter into an agreement to sell the New Securities respecting which the Shareholders pre-emptive right set forth in this Article 38 is not exercised, at a price and upon terms no more favorable to the purchasers thereof than specified in the Company's notice to the Shareholders pursuant to Article 38(b). In the event the Company has not sold or entered into an agreement to sell the New Securities in accordance with the foregoing within one hundred twenty (120) days, the Company shall not thereafter issue or sell any New Securities, without first again offering such securities to the Shareholders in the manner provided in this Article 38. STOCK 39. (a) The Board of Directors may, with the approval of a Special Resolution of shareholders of the Company, convert any paid-up shares into stock and may, with like sanction, reconvert any stock into paid-up shares of any denomination. (b) The holders of stock may transfer the same, or any part thereof, in the same manner and subject to the same regulations, as the shares from which the stock arose, might have been transferred prior to conversion, or as near thereto as circumstances admit, provided however, that the Board of Directors may from time to time fix the minimum amount of stock so transferable, and restrict or forbid the transfer of fractions of such minimum, but the minimum shall not exceed the nominal value of each of the shares from which such stock arose. (c) The holders of stock shall, in accordance with the amount of stock held by them, have the same rights and privileges as regards dividends, voting at meetings of the Company and other matters as if they held the shares from which such stock arose, but no such right or privilege, except participation in the dividends and profits of the Company, shall be conferred by any such part of such stock as would not, if existing in shares, have conferred that right or privilege. (d) Such of the Articles of the Company as are applicable to paid-up shares shall apply to stock, and the words "share" and "shareholder" (or "member") therein shall include "stock" and "stockholder". ALTERATIONS OF CAPITAL 40. The Company may from time to time by Special Resolution: (a) Consolidate and divide all or any of its share capital into shares of larger -25- 27 amount than its existing shares; or (b) Cancel any shares not taken or agreed to be taken by any person; or (c) Subject to Article 55, divide its share capital or any part thereof into shares of smaller amount than is fixed by its Articles of Association by sub-division of its existing shares or any of them subject, nevertheless, to the provisions of the Companies Ordinance, and so that as between the resulting shares, one or more of such shares may, by the Resolution by which such sub-division is effected, be given any preference or advantage as regards dividend, capital, voting or otherwise over the others or any other shares; or (d) Reduce its share capital and any capital redemption reserve fund in any way that may be considered expedient and, in particular, exercise all or any of the powers conferred by Section 151 of the Companies Ordinance, or any statutory modification thereof. 41. The Company may, subject to applicable law, issue redeemable shares and redeem the same. INCREASE OF CAPITAL 42. The Company may from time to time by Special Resolution, whether all the shares for the time being authorized shall have been issued or all the shares for the time being issued shall have been fully called up or not, increase its share capital by the creation of new shares; such new capital to be of such amount and to be divided into shares of such respective amounts and (subject to any special rights for the time being attached to any existing class of shares) to carry such preferential, deferred or other special rights (if any) or to be subject to such conditions or restrictions (if any) in regard to dividend, return of capital, voting or otherwise as the General Meeting deciding upon such increase directs. 43. Except so far as otherwise provided by or pursuant to these Articles or by the conditions of issue, any new share capital shall be considered as part of the original share capital of the Company, and shall be subject to the same provisions with reference to the payment of calls, lien, transfer, transmission, forfeiture and otherwise as the original share capital. MODIFICATION OF CLASS RIGHTS 44. If, at any time, the share capital is divided into different classes of shares, the rights attached to any class (unless otherwise provided by the terms of issue of the shares of that class) may be modified, converted, broadened, added or otherwise altered with the consent in writing of the holders of three-fourths of the issued shares of that class, or with the sanction of a Special Resolution passed at a separate meeting of the holders of the shares of the class. To every such separate meeting, the provisions of these Articles relating to General Meetings shall, mutatis mutandis, -26- 28 apply,but so that the necessary quorum shall be two persons at least holding or representing by proxy one-third of the issued shares of the class, and that any holder of shares of the class present in person or by proxy may demand a poll. Unless otherwise provided by these Articles, the enlargement of any existing class of shares, or the issuance or allotment of additional shares thereof, or the creation of additional shares of that class as a result of conversion of shares from another class, including the conversion set forth in Article 6 hereof, or unification with another class shall not be deemed to modify or alter the rights attached to the previously issued shares of such class or any other class. BORROWING POWERS 45. The Board of Directors may from time to time, in its discretion, cause the Company to borrow or secure the payment of any sum or sums of money for the purposes of the Company, and may secure or provide for the repayment of such sum or sums in such manner, at such times and upon such terms and conditions in all respects as it thinks fit and, in particular, by the issuance of bonds, perpetual or redeemable debentures, debenture stock, or any mortgages, charges or other securities on the undertaking, or the whole or any part of the property of the Company, both present and future, including its uncalled or called but unpaid capital for the time being. GENERAL MEETINGS 46. General Meetings shall be held at least once in every calendar year at such time, not being more than fifteen months after the holding of the last preceding General Meeting, and at such place as may be determined by the Directors. Such Annual General Meetings shall be called "Ordinary Meetings", and all other General Meetings of the Company shall be called "Extraordinary Meetings". The Annual General Meeting shall receive and consider the Directors' Report, the Profit and Loss Account and Balance Sheet, appoint auditors and transact any other business which, under these Articles or by the Statutes, are to be transacted at a General Meeting of the Company. 47. The Board of Directors may, whenever they think fit, and they shall upon such requisition in writing as is provided by Sections 109 and 110 of the Companies Ordinance, convene an Extraordinary Meeting. 48. Subject to the provisions herein relating to Special Resolutions, fourteen days' notice at the least, specifying the place, the day and the hour of meeting and, in the case of special business, the general nature of such business, shall be given in manner hereinafter mentioned, to such members as are under the provisions of these Articles, entitled to receive notices from the Company. Whenever it is proposed to pass a Special Resolution, twenty-one days' notice of the General Meeting convened to pass such resolution shall be given. With the consent of all the members for the time being entitled to receive notice of meetings, a meeting may be convened upon a shorter notice or without notice, and generally in such manner as such members may approve. -27- 29 PROCEEDINGS AT GENERAL MEETINGS 49. No business shall be transacted at any General Meeting unless a quorum is present when the meeting proceeds to business. The quorum at any Meeting shall be two members present in person or by proxy, holding or representing at least one-third of the total voting rights in the Company. All proceedings of the general meetings of shareholders shall be conducted in English and all materials and reports provided to shareholders shall be in English. 50. If, within half an hour from the time appointed for the holding of a General Meeting, a quorum is not present, the meeting shall be canceled if it was called upon a request in writing as provided in Section 109 of the Companies Ordinance or if it was called in accordance with Section 110 of the Companies ordinance. However, in any other case, the meeting shall stand adjourned to the same day in the next week at the same time and place, or any time and hour as the Directors shall designate and state in a notice to the members, and if, at such adjourned meeting, a quorum is not present within half an hour from the time appointed for holding the meeting, two members present in person or by proxy shall be a quorum. 51. The Chairman of the Board shall preside at every General Meeting, but if there shall be no such Chairman, or if, at any meeting, he shall not be present within fifteen minutes after the time appointed for holding the same, or shall be unwilling to act as Chairman, the members present shall choose a Director or, if no Director be present, or if all the Directors present decline to take the Chair, they shall choose a member present to be Chairman of the meeting. 52. The Chairman may, with the consent of any meeting at which a quorum is present, and shall, if so directed by the meeting, adjourn any meeting from time to time and from place to place as the meeting shall determine. Whenever a meeting is adjourned pursuant to the provisions of this Article for seven days or more, notice of the adjourned meeting shall be given in the same manner as in the case of an original meeting. Save as aforesaid, no member shall be entitled to any notice of an adjournment, or of the business to be transacted at an adjourned meeting, however, business shall be transacted at any adjourned meeting other than the business which might have been transacted at the meeting from which the adjournment took place. 53. Any member entitled to be present and vote at a General Meeting may submit to any General Meeting any resolution which is relevant to the objects for which the meeting is convened, provided that, within the prescribed time before the day appointed for the meeting, he shall have served upon the Company a notice in writing signed by him containing the proposed resolution and stating his intention to submit the same. The prescribed time above mentioned shall be such that, between the date on which the notice is served or deemed to be served and the day appointed for the meeting, there shall be not less than four, nor more than fourteen, intervening days. 54a) Members entitled to be present and vote at a General Meeting may participate in a -28- 30 General Meeting by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute attendance in person at the meeting, provided confirmation in writing by each such participant be forwarded to the Company Secretary at any time before such meeting. b) A resolution in writing signed by all members then entitled to receive notice of and to attend and vote at general meetings or to which all such members have given their written consent (including, by letter or facsimile,) shall be deemed to have been adopted as if it were adopted as a regular, special or extraordinary resolution (as the case may be) at a general meeting of the Company duly convened and held. Any such resolution may consist of several documents in like form and signed or consented to as aforesaid, by one or more members. VOTES OF MEMBERS 55. a) Subject to Article 55(b), a resolution shall be deemed adopted if approved by the holders of a majority of the voting rights in the Company represented at the meeting in person or by proxy and voting thereon in the case of an ordinary resolution and by the holders of at least eighty percent (80%) of the voting rights in the Company represented at the meeting in person or by proxy and voting thereon in the case of a Special Resolution. In the case of an equality of votes, either on a show of hands or a poll, the Chairman of the meeting shall not be entitled to a further or casting vote. b) Until the consummation of a Qualified Initial Public Offering and in addition to any approvals which may be required according to applicable law (including class rights), the Company shall not, without the prior written consent of the majority of the outstanding Class A Preferred Shares, carry out any of the following: (i) change or adversely modify any of the rights, preferences, or privileges or limitations attached to the Class A-1 and Class A Preferred Shares or to Class B Ordinary Shares into which the Class A-1 Preferred Shares are converted; (ii) create, issue or undertake to issue any class or series of securities or options or other rights to acquire securities with rights on parity with or having preference over those rights attached to the Class A-1 and Class A Preferred Shares; (iii) reclassify the outstanding share capital of the Company so as to adversely affect or modify the rights, preferences or privileges attached to the Class A-1 and Class A Preferred Shares or Class B Ordinary Shares; (iv) authorize or issue additional Class A-1 and Class A Preferred Shares or Class B Ordinary Shares -29- 31 (c) Until the consummation of a Qualified Initial Public Offering and in addition to any approvals which may be required according to applicable law (including class rights), the Company shall not, without the prior written consent of the majority of the outstanding Class B Preferred Shares, carry out any of the following: (i) change or adversely modify any of the rights, preferences, or privileges or limitations attached to the Class B Preferred Shares; (ii) create, issue or undertake to issue any class or series of securities or options or other rights to acquire securities with rights on parity with or having preference over those rights attached to the Class B Preferred Shares; (iii) reclassify the outstanding share capital of the Company so as to adversely affect or modify the rights, preferences or privileges attached to the Class B Preferred Shares; (iv) authorize or issue additional Class B Preferred Shares (d) Until the consummation of a Qualified Initial Public Offering and in addition to any approvals which may be required according to applicable law (including class rights), the Company shall not, without the prior written consent of the majority of the outstanding Class C Preferred Shares, carry out any of the following: (i) change or adversely modify any of the rights, preferences, or privileges or limitations attached to the Class C Preferred Shares; (ii) create, issue or undertake to issue any class or series of securities or options or other rights to acquire securities with rights on parity with or having preference over those rights attached to the Class C Preferred Shares; (iii) reclassify the outstanding share capital of the Company so as to adversely affect or modify the rights, preferences or privileges attached to the Class C Preferred Shares; (iv) authorize or issue additional Class C Preferred Shares (e) Until the consummation of a Qualified Initial Public Offering the consent of the holders of at least 66 2/3% of the Class D Preferred Shares shall be required for any action that (i) increases or decreases the authorized number of shares of Ordinary or Class D Preferred Shares, (ii) alters or changes the rights, preferences or privileges of the Class D Preferred Shares, (iii) creates (by reclassification or otherwise) any new class or series of shares having rights, preferences or privileges senior to or on a parity with the Class D Preferred Shares, (iv) results in the redemption of any Ordinary Shares (other than -30- 32 pursuant to equity incentive agreements or employment agreements with service providers giving the Company the right to repurchase shares upon the termination of services), (v) amends or waives any provision of the Company's Memorandum and Articles of Association relative to the Class D Preferred Shares, (vi) results in the payment or declaration of any dividend (other than in Ordinary Shares) on any Ordinary Shares, or (vii) results in any merger, other corporate re-organization, sale of control, or other transaction in which holders of the Company's voting securities prior to such transaction or series of related transactions hold less than 50% of the Company's voting securities upon the closing of such transaction or series of related transactions, or sale of all or substantially all of the assets of the Company. (f) Until the consummation of the Qualified Initial Public Offering and in addition to any approvals which may be required according to applicable law (including class rights), the Company shall not, without the prior written consent of the majority of the outstanding Preferred Shares, merge or consolidate with, or sell, assign, lease, or otherwise dispose, transfer or convey of (whether in one transaction or a series of transactions) all or substantially all of its assets including any shareholdings in any company or any Intellectual Property to any person or entity or effect any other recapitalization or reorganization. 56. At all General Meetings, a resolution put to a vote at the meeting shall be decided on a show of hands unless, according to the voting rights held by each member present and voting on such resolutions before or upon the declaration of the result of the show of hands, a poll in writing be demanded by the Chairman (being a person entitled to vote), or by at least two members present, in person or by proxy, holding at least ten percent (10%) of the issued share capital of the Company and, unless a poll be so demanded, a declaration by the Chairman of the meeting that a resolution has been carried, or has been carried unanimously or by a particular majority, or lost, or not carried by a particular majority, shall be conclusive, and an entry to that effect in the Minute Book of the Company shall be conclusive evidence thereof, without proof of the number or proportion of the votes recorded in favor of or against such resolution. 57. If a poll be demanded in manner aforesaid, it shall be taken forthwith, and the result of the poll shall be deemed to be the resolution of the meeting at which the poll was demanded. 58. The demand of a poll shall not prevent the continuance of a meeting for the transaction of any business other than the question on which a poll has been demanded. 59. Subject to any rights or restrictions for the time being attached to any class or classes of shares, every member shall have one vote for each share of which he is the holder, whether on a show of hands or on a poll. 60. If any member be a lunatic, idiot, or non compos mentis, he may vote by his committee, receiver, curator bonis or other legal curator, and such last-mentioned persons may give their votes either personally or by proxy. -31- 33 61. If two or more persons are jointly entitled to a share then, in voting upon any question, the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other registered holders of the share and, for this purpose, seniority shall be determined by the order in which the names stand in the Register of Members. 62. Votes may be given either personally or by proxy. A proxy need not be a member of the Company. 63. (a) The instrument appointing a proxy shall be in writing in the usual common form, or such form as may be approved by the Directors, and shall be signed by the appointor or by his attorney duly authorized in writing or, if the appointor is a corporation, the corporation shall vote by its representative, appointed by an instrument duly signed by the corporation. (b) The instrument appointing a proxy shall be deemed to include authorization to demand a poll or to vote on a poll on behalf of the appointor. 64. A vote given in accordance with the terms of an instrument of proxy shall be valid notwithstanding the previous death or insanity of the principal, or revocation of the proxy, or transfer of the share in respect of which the vote is given, unless an intimation in writing of the death, revocation or transfer shall have been received at the Office before the commencement of the meeting or adjourned meetings at which the proxy is used. 65. The instrument appointing a proxy, together with the power of attorney or other authority (if any) under which it is signed, or a notarially certified or office copy of such power of attorney, shall be deposited at the Office or at such other place or places, whether in Israel or elsewhere, as the Directors may from time to time, either generally or in a particular case or class of cases prescribe, at least forty-eight hours before the time appointed for holding the meeting or adjourned meeting at which the person named in such instrument proposes to vote; otherwise, the person so named shall not be entitled to vote in respect thereof; but no instrument appointing a proxy shall be valid after the expiration of twelve months from the date of its execution. 66. Subject to the provisions of the Companies Ordinance, a resolution in writing signed by all the members, in person or by proxy, for the time being entitled to vote at a General Meeting of the Company, shall be as valid and as effectual as a resolution adopted by a General Meeting duly convened, held and constituted for the purpose of passing such resolution. A telecopy addressed to any member, setting forth the text of a resolution and approved by the addressee in reply telecopy, which expressly identified the telecopy to which it is a reply, shall be deemed a writing signed by such member for the purposes of this Article. 67. A member will be entitled to vote at the Meetings of the Company by several proxies appointed by him, provided that each proxy shall be appointed with respect to different shares held by the appointing member. Every proxy so appointed on behalf of the same member shall be entitled to vote as he sees fit. -32- 34 68. No person shall be entitled to vote at any General Meeting (or be counted as a part of the quorum thereof) unless all calls then payable by him in respect of his shares in the Company shall have been paid. THE BOARD OF DIRECTORS 69. The number of members of the Board of Directors of the Company shall be no less than two and no more than seven. 70. (a) Members of the Board of Directors shall be appointed as follows: (i) four (4) directors will be appointed by Moshe Ben Bassat provided that each such nominees will be business professionals with suitable credentials reasonably acceptable to Oak and Oppenheimer (as defined below); (ii) one director will be appointed by Oak Investment Partners VI L.P. and Oak VI Affiliates Fund L.P. ("Oak"); (iii) one director will be appointed by Genesis Partners I L.P. and Genesis Partners I (Cayman) L.P. ("Oppenheimer"); (iv) one director will be a director appointed by mutual agreement of Oak, Oppenheimer and Moshe Ben Bassat. (b) Any of the parties who has the right to appoint a Director may from time to time and at any time: (1) remove from office a Director and appoint another in his place; (2) appoint a Director in place of a Director whose office has been vacated for any reason whatsoever. (c) Any appointment or removal of Directors shall be made by notice in writing to the Company under the hand of the appointing or removing members, as the case may be, and shall become effective on the date fixed in the notice of appointment or removal, as the case may be, but not before delivery thereof to the Company. (d) Until a Qualified Initial Public Offering, the holders of a majority of the Class D Preferred Shares will be entitled to attend all meetings of the Board of Directors and to receive copies of all notices, consents, board and committee minutes and other materials distributed to the Board or any Committee thereof. Such observer will sign an appropriate confidentiality undertaking. 71. A person who has ceased to be a member of the Board of Directors shall be eligible for re-election or re-appointment. -33- 35 72. If any member of the Board of Directors is not appointed, or if the office of a member of the Board of Directors is vacated, the continuing members of the Board of Directors may, as long as their number does not fall below the quorum, act in every matter. 73. The Directors in their capacity as such, shall be entitled to receive remuneration and reimbursement of expenses incurred by them in the course of carrying out their duties as Directors. 74. The office of a Directors shall be vacated, ipso facto: (a) upon his resignation by written notice signed by him and delivered to the Office; (b) if he becomes bankrupt or enters into an arrangement with his creditors; (c) if he be found to be a lunatic or becomes of unsound mind; (d) if he be relieved of his office as provided in Article 70 hereof. (e) if he is prevented from serving as a Director of the Company according to any provision of Israeli law. 75. Subject to the Companies Ordinance, no Director shall be disqualified by virtue of his office from holding any office, or deriving any profit from any other office in the Company or from any company in which the Company shall be a shareholder or otherwise interested, or from contracting with the Company as a vendor, purchaser or otherwise, nor shall any such contract, or any contract or arrangement entered into by or on behalf of the Company in which the Director shall in any way be interested, be avoided, nor shall any Director be liable to account to the Company for any profit arising from any such office or realized by any such contract or arrangement by reason only of such Director's holding that office or of the fiduciary relations thereby established, provided the nature of his interest is disclosed by him no later than the meeting of the Board of Directors at which the contract or arrangement is first considered, if his interest then exists or, in any other case, at the first meeting of the Board of Directors after the acquisition of his interest. After such disclosure, every Director whose interest is submitted for approval before the Board shall not be present and shall not vote at such Board's meetings. A general notice that a Director is a member of any firm or company and is to be regarded as interested in all transactions with this firm or company shall be a sufficient disclosure under this Article and, after such general notice, it shall not be necessary to give any special notice relating to any particular transaction with such firm or company. 76. [Reserved]. 77. [Reserved] 78. [Reserved] -34- 36 79. [Reserved] PROCEEDINGS OF THE BOARD OF DIRECTORS 80. The Board of Directors may meet together and adjourn their meetings and otherwise regulate their meetings and proceedings as they think fit. All proceedings of the Board of Directors shall be conducted in English and all material and reports provided to the Directors shall be in English. 81. Until otherwise decided by the Board of Directors and subject to any applicable law, the quorum for the dispatch of business by the Board of Directors shall be a majority of the Directors then holding office and entitled to participate and vote on any such business provided that a quorum of directors must include at least one representative appointed by Moshe Ben Bassat and one by either Oak or Oppenheimer. 82. No business shall be transacted at a meeting of the Board of Directors unless the requisite quorum is present at the commencement of the meeting, and no resolution shall be adopted unless the requisite quorum is present when the resolution is voted upon. 83. A member of the Board of Directors may, at any time, and the Secretary, upon the request of such members shall, convene a meeting of the Board of Directors. 84. The Chairman of the Board of Directors will be elected by a majority vote of all Directors holding office. Moshe Ben Bassat will act as Chairman of the Board of Directors as long as he holds (together with shareholders who would qualify as his Permitted Transferees) at least twenty percent (20%) of the issued and outstanding share capital of the Company. 85. The Chairman of the Board of Directors shall take the chair at every meeting of the Board of Directors, but if there is no such Chairman, or if at any meeting he is not present within 15 (fifteen) minutes of the time appointed for the meeting, or if he is unwilling to take the chair, the Directors present shall choose one of their number to be the Chairman of such meeting. 86. A meeting of the Board of Directors at which a quorum is present shall be competent to exercise all the authorities, powers and discretions by or under the regulations of the Company for the time being vested in or exercisable by the Board of Directors generally. 87. Resolutions proposed at any meeting of the Board of Directors shall be deemed adopted if passed by a majority of the votes of the members of the Board of Directors entitled to be present, entitled to vote and present and voting at the meeting. 88. The Board of Directors may, for any special matter, delegate any of its powers to -35- 37 committees consisting of one or several members, whether or not such members are Directors, as the Board of Directors may deem fit, and it may from time to time revoke such delegation. Any committee so formed (in these Articles referred to as a "Committee of the Board of Directors") shall, in the exercise of the powers so delegated, conform to any regulations that may be imposed on it by the Board of Directors. The meetings and proceedings of any such Committee of the Board of Directors consisting of two (2) or more members, shall be governed by the provisions herein contained for regulating the meetings of the Board of Directors, so far as the same are applicable thereto and so far as not superseded by any regulations made by the Board of Directors under this Article. 89. All acts done at any meeting of the Board of Directors, or of a Committee of the Board of Directors, or by any person acting as a Director shall, notwithstanding that it may afterwards be discovered that there was some defect in the appointment of such Directors or members of a Committee of the Board of Directors or person acting as aforesaid or any of them, or that they or any of them were disqualified, be as valid as if every such person had been duly appointed and was qualified to be a Director or a member of such Committee of the Board of Directors. 90. A resolution in writing signed by all members of the Board of Directors or to which all members of the Board of Directors have agreed in writing or by telecopy, shall be as valid and effective for all purposes as if passed at a meeting of the Board of Directors duly convened and held. 91. Members of the Board of Directors, or of any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or of any committee, by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each others, and such participation in a meeting shall constitute attendance in person at the meeting, provided confirmation in writing by each such participant be forwarded to the Company Secretary prior to such meeting. 91A. (a) A Director shall have the right, by written notice to the Company, to appoint any one or more person(s), whether such person be a Director or not, as a substitute to act in his place, to remove the substitute and appoint another in his place and to appoint a substitute in place of a substitute whose office was vacated for any reason whatsoever. One person may serve as a substitute for several Directors. (b) Any notice given to the Company as aforesaid shall become effective on the date fixed therein, upon delivery to the Company or when approved by a majority of the Directors, whichever is later. The approval of the appointing Director will be counted in calculating whether a majority of Directors have approved. In the event the person appointed as a substitute is a Director, it shall not be necessary to receive the approval of the majority of the Directors. (c) A substitute for a Director shall have - in addition to his own vote, if he himself is a Director - a number of votes equal to the number of Directors for whom he acts as substitute, and shall be counted for purposes of establishing a -36- 38 quorum as the number of Directors for whom he acts as substitute, provided however, that not more than one (1) substitute appointed to act in place of a Director exercising this power may attend or vote at the same meeting. (d) A substitute for a Director shall have - subject to any instructions or limitations contained in the instrument appointing him - all the authority and powers held by the Director for whom he acts as substitute, provided however, that he may not in turn appoint a substitute for himself (unless the instrument appointing him otherwise expressly provides), and provided further that a substitute shall have no standing at any meeting of the Board of Directors or any committee thereof at which the Director appointing him is personally present. If the substitute himself is a Director, his authority and powers as a substitute shall be in addition to, and shall not derogate in any way from, his authority and powers as a Director. (e) The office of a substitute for a Director shall ipso facto be vacated if he is removed by the director appointing him, or if the office of the Director for whom he acts as substitute is vacated for any reason whatsoever, or if one of the circumstances described in Subsections (a)-(c) and (e) of Article 74 should befall the substitute. (f) Every substitute shall be entitled to receive, so long as he serves as a substitute, notice of meetings of the Board of Directors and of any relevant committees. POWERS OF THE BOARD OF DIRECTORS 92. The management of the business of the Company shall be vested in the Board of Directors, and the Board of Directors may exercise all such powers and do all such acts and things as the Company is, by its Memorandum of Association and/or its Articles of Association or under the Law, authorized to exercise and do, and are not hereby or by statute directed or required to be exercised or done by the Company in General Meeting but subject, nevertheless, to the provisions of the Companies Ordinance, and of these presents and any regulations or resolution not being inconsistent with these presents made from time to time by the Company in General Meeting; provided that no such regulation or resolution shall invalidate any prior act done by or pursuant to the directions of the Board of Directors which would have been valid if such regulation or resolution had not been made. LOCAL MANAGEMENTS 93. The Board of Directors may from time to time provide for the management and transaction of the affairs of the Company in any specified locality, whether at home -37- 39 or abroad, in such manner as they think fit, and the provisions contained in the next following Article shall be without prejudice to the general powers conferred by this Article on the Board of Directors. 94. The Board of Directors may, from time to time and at any time, establish any local board or agency for managing any of the affairs of the Company in any such specified locality, and may appoint any person to be a member of such local board, or any manager or agent, and may fix their remuneration. The Board of Directors may, from time to time and at any time, delegate to any person so appointed any of the powers, authorities and discretions for the time being vested in the Board of Directors, and may authorize any member for the time being of any such local board to continue in his office notwithstanding any vacancy which may occur, and any such appointment or delegation may be made on such terms and subject to such conditions as the Board of Directors may think fit, and the Board of Directors may at any time remove any person so appointed and may annul or vary any such delegation. MANAGING DIRECTORS AND DIRECTORS GENERAL 95. The Board of Directors may from time to time appoint any one or more persons whether or not a Director to be Managing Director(s) or Director(s) General or President of the Company, or any similar function regardless of the title either for a fixed term or without any limitation as to the period for which he or they is or are to hold office, and may from time to time (subject to any provisions of any contract between him or them and the Company which will include the provision of this Article) remove or dismiss him or them from office and appoint another or others in his or their place or places. 96. The remuneration of any such Managing Director, Director General or President, etc. shall from time to time (subject to any contract between him and the Company) be fixed by the Board of Directors. 97. The Board of Directors may from time to time entrust to and confer upon a Managing Director or Director General or President, etc. for the time being such of the powers exercisable under these Articles by the Board of Directors as it may think fit, and may confer such powers for such time, and to be exercised for such objects and purposes, and upon such terms and conditions, and with such restrictions, as it thinks expedient; and it may confer such powers, either collaterally with, or to the exclusion of, and in substitution for, all or any of the powers of the Board of Directors on their behalf; and may from time to time revoke, withdraw, alter or vary all or any of such powers. MINUTES 98. The Board of Directors shall cause minutes to be duly entered in books provided for the purpose: -38- 40 (a) of the names of the Directors present at each meeting of the Board of Directors and of any committee of the Board of Directors; (b) of the names of the members present at each General Meeting; (c) of all directions given by the Board of Directors to any Committee of the Board of Directors; (d) of all proceedings and resolutions of General Meetings and of meetings of the Board of Directors and Committees of the Board of Directors. 99. Any minute as aforesaid of a meeting of the Board of Directors, of a meeting of a Committee of the Board of Directors or of a General Meeting of the Company, if purporting to be signed by the Chairman of such meeting or by the Chairman of the next succeeding meeting or by the Chairman of such General Meeting, shall be accepted as prima facie evidence of the matters therein recorded. 100. [Reserved] BRANCH REGISTERS 101. Subject to, and in accordance with, the provisions of the Companies Ordinance and to all orders and regulations issued thereunder, the Company may cause branch registers to be kept at any place outside Israel as the Board of Directors may think fit and, subject to all applicable legal requirements, the Board of Directors may from time to time adopt such rules and procedures as it may think fit in connection with the keeping of such branch registers. SECRETARY 102. The Board of Directors may from time to time appoint a Secretary to the Company as it deems fit, and may appoint a temporary Assistant Secretary who shall act as Secretary for the term of his appointment. RIGHTS OF SIGNATURE - STAMP AND SEAL 103. (a) Authorization to sign on behalf of the Company and thereby bind it shall be made and granted from time to time by the Board of Directors. The Company shall have at least one rubber stamp. The Company shall be bound by the signature of the aforesaid appointees if appearing together after its stamp or imprinted name (e.g. checks). (b) The Board of Directors may provide for a seal. If the Board of Directors so provides, it shall also provide for the safe custody thereof. Such seal shall not be used except by the authority of the Board of Directors and in the presence of the person(s) authorized to sign on behalf of the Company, who shall sign -39- 41 every instrument to which such seal is affixed. DIVIDENDS 104. 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, otherwise than in advance of calls. Unless not otherwise specified in the conditions of issuing 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 (pro rata temporis). 105. The expression "profits of the Company available for dividend" as used in these Articles, means the profits of the Company which may be lawfully distributed as dividends. 106. The Company, in General Meeting, may declare a dividend to be paid to the members according to their rights and interests in the profits, and may fix the time for payment. No larger dividend shall be declared than is recommended by the Directors, but the Company in General Meeting may declare a smaller dividend. 107. The Board of Directors may from time to time declare such interim dividends as may appear to the Board of Directors to be justified by the profits of the Company, whether existing profits or projected profits, provided however, that no dividend in excess of the amount of existing profits (retained earnings) shall be declared out of projected profits, and cause the Company to pay such dividends out of such profit. The final dividends in respect of any fiscal period shall be proposed by the Board of Directors and shall be payable only after the same has been approved by ordinary resolution of the Company in general meetings, but no such resolution shall provide for the payment for an amount exceeding that proposed by the Board of Directors for the payment of such final dividend, and no such resolution or any failure to approve a final dividend shall affect any interim dividend theretofore declared and paid. The Board of Directors shall have the full authority to determine the time for payment of such dividends, both interim and final, and the record date for determining the Members entitled thereto, and no Member who shall be registered in the Register with respect to any shares after the record date so determined shall be entitled to share in any such interim or final dividend with respect to such shares, even to the extent any such dividends arise from profits accrued after the date any such Member is registered in the Register with respect to such shares, or are paid after such date. 108. The Board of Directors may retain any dividends on which the Company has a lien, and may apply the same in or towards satisfaction of the debts, liabilities or engagements in respect of which the lien exists. -40- 42 109. A transfer of shares shall not pass the right to any dividend declared thereon after such transfer and before the registration of the transfer. 110. Notice of the declaration of any dividend, whether interim or otherwise, shall be given to the holders of registered shares in manner hereinafter provided. 111. Unless otherwise directed, any dividend may be paid by check or warrant, sent through the post to the registered address of the member or person entitled or, in the case of joint registered holders, to that one of them first named in the register in respect of the joint holding. Every such check shall be made payable to the order of the person to whom it is sent. The receipt by the person whose name, at the date of the declaration of the dividend, appears in the register of members as the owner of any share or, in the case of joint holders, of any one of such joint holders, shall be a good discharge to the Company of all payments made in respect of such share. All dividends unclaimed for one month after having been declared may be invested or otherwise used by the Directors for the benefit of the Company until claimed. No unpaid dividend or interest shall bear interest as against the Company. RESERVES 112. The Directors may from time to time set aside out of the profits of the Company available for dividend as defined by Article 105 and carry to revenue or general reserve such sums as they think expedient. All sums carried and for the time being standing to revenue or general reserve shall, at the discretion of the Directors, be applicable for meeting contingencies, or for the gradual liquidation of any debt or liability of the Company, or for repairing or maintaining any properties of the Company, or for meeting losses on realization of or writing down investments (either individually or in the aggregate) or, with the previous sanction of the Company in General Meeting, for equalizing or paying dividends, or for any other purpose to which profits of the Company may properly be applied. 113. [Reserved] 114. All sums carried and standing to revenue or general reserve or capital reserve may, pending any other application thereof authorized by the preceding Articles, be invested together with any other monies of the Company in the ordinary course of the Company's business, and without it being necessary to distinguish between the investments of the reserves and investments of the other monies of the Company or between investments of the revenue or general reserve and investments of the capital reserve. CAPITALIZATION OF RESERVES, ETC. 115. Subject to the Companies Ordinance, the Company, in General Meeting, may at any time and from time to time pass a resolution that any sum not required for the payment or provision of any fixed preferential dividend and (a) for the time being -41- 43 standing to the credit of any reserve fund or reserve account of the Company, debentures or debenture stock of the Company, or (b) being undivided net profits in the hands of the Company, be capitalized, and that such sum be set free for distribution amongst the members in the proportions in which they would have been entitled thereto if the same had been distributed by way of dividend on the shares and in such manner as the resolution may direct, and such resolution shall be effective; and the Directors shall, in accordance with such resolution, apply such sum in paying up in full any unissued shares in the capital on behalf of the members as aforesaid, and appropriate such shares and distribute the same credited as fully paid up amongst such members in the proportion aforesaid in satisfaction of their shares and interests in the said capitalized sum, or shall apply such sum or any part thereof on behalf of the members aforesaid in paying up the whole or part of any uncalled balance which shall for the time being be unpaid in respect of any issued shares held by such members, or otherwise deal with such sum as directed by such resolution. Where difficulty arises in respect of any such distribution, the Directors may settle the same as they think expedient and, in particular, they may issue fractional certificates, fix the value for distribution of any fully paid up shares, make such payments to any members on the footing of the value so fixed in order to adjust rights, and vest any such shares in trustees upon such trusts for the persons entitled to share in the appropriation and distribution as may seem just and expedient to the Directors. When deemed requisite, a proper contract for the allotment and acceptance of the shares to be distributed as aforesaid shall be filed in accordance with Sections 129 and 130 of the Companies Ordinance, and the Directors may appoint any person to sign such contract on behalf of the persons entitled to share in the appropriation and distribution, and such appointment shall be effective. ACCOUNTS 116. The Directors shall cause true accounts to be kept: (a) of the assets and liabilities of the Company; (b) of all sums of money received and expended by the Company, and the matters in respect of which such receipts and expenditure take place; (c) of all sales and purchases of goods by the Company. The books of account shall be kept at the Office or at such other place as the Directors shall think fit, and shall always be open to the inspection of the Directors. 117. The Directors shall from time to time determine whether, in any particular case or class of cases, or generally, and to what extent and at what time and place and under what conditions or regulations the accounts and books of the Company, or any of them, shall be open to the inspection of members, and no member (not being a Director) shall have any right of inspecting any account or book or document of the Company, except as conferred by the Companies Ordinance or authorized by the Directors or by a resolution of the Company in General Meeting. -42- 44 118. No later than eighteen months after the incorporation of the Company and subsequently, at least once in every calendar year, the Directors shall present to the Company in General Meeting a profit and loss account for the period since the preceding account or (in the case of the first account) since the incorporation of the Company and, in accordance with the Companies Ordinance in that behalf, a balance sheet shall be made out in every year and laid before the Company in General Meeting, made up as at the date to which the profit and loss account is made up. The balance sheet shall have attached thereto the Auditor's report, and shall be accompanied by a report of the Directors as to the state of the Company's affairs, and the amount which they recommend to be paid by way of dividend, and the amount (if any) that they recommend to carry to reserve. NOTICES 119. A notice or any other document may be served by the Company upon any member either personally or by sending it through the post in a prepaid letter or by telex or cablegram or telecopy addressed to such member at his registered address as appearing in the register of members. 120. All notices directed to be given to the members shall, with respect to any shares to which persons are jointly entitled, be given to whichever of such persons is named first in the register of members, and any notice so given shall be sufficient notice to the holders of such share. 121. Any member described in the register of members by an address, whether within or out of the State of Israel, shall be entitled to have served upon him at such address any notice to which he would be entitled under these Articles but, save as aforesaid, no member other than a member described in the register of members by an address shall be entitled to receive any notice from the Company. 122. Any member present, either personally or by proxy, at any General Meeting shall, for all purposes, be deemed to have received due notice of such General Meeting and, where requisite, of the purposes for which such General Meeting was convened. 123. A notice may be given by the Company to the persons entitled to any share in consequence of the death or bankruptcy of a member by sending it through the post in a prepaid letter addressed to them by name or by the titles of representatives or trustees of such deceased or bankrupt member, at the address (if any) supplied for the purpose by such persons as aforesaid or (until such address has been supplied), by giving the notice in the manner in which the same would have been given if the death or bankruptcy had not occurred. 124. Any notice or other document, if served by post, shall be deemed to have been served at the time when the letter containing the notice would be delivered in the ordinary course of post and, in proving such service, it shall be sufficient to prove that the letter containing the notice or document was properly addressed and put into the post office as a prepaid letter. Any entry made in the ordinary course in any postal book of the Company shall be prima facie evidence of such posting therein -43- 45 recorded. 125. Where a given number of days' notice, or notice extending over any period, is required to be given, the day of service shall be counted in such number of days or other period. RECONSTRUCTION 126. On any sale of the undertaking of the Company, the Directors or the liquidators on a winding-up may, if authorized by Special Resolution, accept fully paid up or partly paid up shares, debentures or securities of any other company, whether Israeli or foreign, either then existing or to be formed, for the purchase, in whole or in part, of the property of the Company, and the Directors (if the profits of the Company permit), or the liquidators (on a winding-up), may distribute such shares or securities, or any other property of the Company, amongst the members without realization, or vest the same in trustees for them, and any Special Resolution may provide for the distribution or appropriation of the cash, shares or other securities, benefits or property, otherwise than in accordance with the strict legal rights of the members or contributors of the Company, and for the valuation of any such securities or property at such price and in such manner as the meeting may approve, and all holders of shares shall be bound to accept and shall be bound by any valuation or distribution so authorized, and waive all rights in relation thereto, save only in the case the Company is proposed to be, or is, in the course of being wound up, such statutory rights (if any) under the provisions of the Companies Ordinance as are incapable of being varied or excluded by these Articles. INDEMNITY 127. Subject to the provisions of the Companies Ordinance, the Company may: (a) (1) enter into a contract for the insurance of the liability, in whole or in part, of any of its Officers with respect to any of the following: (i) a breach of duty of care to the Company or to any other person; (ii) a breach of fiduciary duty to the Company, provided that the Officer has acted in good faith and had reasonable grounds to assume that the act would not harm the good of the Company; (iii) a financial liability which may be imposed on such Officer in favor of any other person, in respect of an act performed by him by virtue of his being an Officer of the Company; (2) indemnify an Officer of the Company with respect to any of the following: (i) a fiduciary liability imposed on him in favor of any other person by any judgment, including a judgment given as a result of a settlement -44- 46 or an arbitrator's award which has been confirmed by a court, in respect of an act performed by him by virtue of his being an Officer of the Company; (ii) reasonable litigation costs, including lawyer's fees, expended by an Officer or which were imposed on an Officer by a court in proceedings filed against him by the Company or in its name, or by any other person, or in a criminal charge on which he was acquitted, in respect of an act performed by him by virtue of his being an Officer of the Company. (b) In this Article, the term "Officer" shall mean an "office holder" as defined in Section 96 of the Companies Ordinance, including a Director, General Manager, Chief Executive Officer, Deputy General Manager, Vice General Manager, any other manager directly subordinate to the General Manager, and any person who fills one of the said positions in the Company, even if he carries a different title. -45- EX-4.2 3 EX-4.2 1 EXHIBIT 4.2 AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT This Amended and Restated Registration Rights Agreement (the "AGREEMENT"), dated as of December__, 1999, is entered into by and among IET-INTELLIGENT ELECTRONICS LTD. (the "COMPANY"), OAK INVESTMENT PARTNERS VI, L.P., OAK VI AFFILIATES FUND L.P., GENESIS PARTNERS I, L.P., THE GENESIS PARTNERS I (CAYMAN) L.P. WORLDVIEW TECHNOLOGY PARTNERS I, L.P., WORLDVIEW TECHNOLOGY INTERNATIONAL I, L.P., WORLDVIEW STRATEGIC PARTNERS I L.P. SEMEL INVESTMENTS LTD., ADSHA PROJECT INITIATION AND DEVELOPMENT LTD., NORMAN NIE, HAMBRECHT AND QUIST CALIFORNIA, CHRISTINA M. MORGAN, JAMES A. DAVIDSON, MARK J. ZANOLI, ZOHAR ZISAPEL, MERITECH CAPITAL PARTNERS L.P. and MERITECH CAPITAL AFFILIATES L.P. (collectively, the "SHAREHOLDERS") and PROF. MOSHE BEN BASSAT and IDIT BEN BASSAT (together the "FOUNDER"). R E C I T A L S The parties wish to set out their respective rights and obligations with respect to registration of the shares of the company for trading and to replace all previous agreements between the Company and any of them regarding such registration by the terms and provisions of this Agreement. NOW THEREFORE, in consideration of the mutual promises and covenants hereinafter set forth, the parties hereto agree as follows: 1. Certain Definitions. As used in this Agreement, the following terms shall have the following respective meanings: "COMMISSION" shall mean the United States Securities and Exchange Commission or any other federal agency at the time administering the Securities Act or the equivalent authority of any other applicable jurisdiction. "DOLLAR OR $" shall mean United States dollar. "EXCHANGE ACT" shall mean the United States Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. "HOLDER" shall mean any holder, or an assignee under Section 11 hereof, of outstanding Registrable Securities. "INITIATING HOLDERS" shall mean any Holders who in the aggregate are Holders of twenty percent (20%) or more of the outstanding Registrable Securities. "ORDINARY SHARES" shall mean the voting ordinary shares of the Company. "PUBLIC OFFERING" shall mean the closing of the initial offering to the public of the Company's shares in any jurisdiction. 2 The terms "REGISTER", "REGISTERED" and "REGISTRATION" shall refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act or prospectus in compliance with the Israel Securities Law, 1968 and the declaration or ordering of the effectiveness of such registration statement. "REGISTRABLE SECURITIES" shall mean Ordinary Shares (i) issued or issuable pursuant to the conversion of the Shares, (ii) issued in respect of securities issued pursuant to the conversion of the Shares upon any stock split, stock dividend, recapitalization, substitution, or similar event, (iii) issued in respect of securities purchased pursuant to preemptive rights or rights of first refusal conferred upon the Holders of the Shares, and (iv) only with regard to Section 3, held by the Founder and Ordinary Shares issued, pursuant to the conversion of the Shares, but only to the extent provided by Section 3(c) hereof; provided, however, that Registrable Securities shall not include any (a) Ordinary Shares which have previously been registered, (b) Ordinary Shares which have previously been sold to the public, or (c) securities which would otherwise be Registrable Securities held by a Holder who is then permitted to sell all such securities within any three (3) month period following the Public Offering pursuant to Rule 144 under the Securities Act if such securities then held by such Holder constitute less than one percent of the Company's out standing equity securities. "REGISTRATION EXPENSES" shall mean all expenses (excluding Selling Expenses) incurred in connection with a registration or offering under this Agreement, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel for the Company, blue sky fees and expenses, and the expense (not to exceed $15,000) of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company, which shall be paid in any event by the Company). "SECURITIES ACT" shall mean the United States Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. "SELLING EXPENSES" shall mean all underwriting discounts and selling commissions applicable to the sale of Registrable Securities, and fees and expenses of special counsel for the selling shareholders. "SHARES" shall mean shares of the Company's Class A Convertible Preferred Shares, Class A-1 Convertible Preferred Shares, Class B Convertible Preferred Shares, Class B Convertible Ordinary Shares, Class C Convertible Preferred Shares and Class D Convertible Preferred Shares. 2. Requested Registration. a. Shares held by Founder: For the purpose of this Section only and notwithstanding anything to the contrary contained herein, Registrable Securities shall not include Ordinary Shares held by the Founder, except for Ordinary Shares issued or issuable pursuant to conversion of Preferred Shares. b. Request for Registration. If after the earlier of March 29, 2001 or 12 months following the Public Offering, the Company shall receive from Initiating Holders a written request that the Company effect any registration in the jurisdiction in which the public offering is made, with respect to the lesser of at least twenty 2 3 percent (20%) of the Registrable Securities or such lesser number of Registrable Securities which would result in an aggregate offering of at least $10,000,000, the Company will: (i) promptly give written notice of the proposed registration to all other Holders; and (ii) as soon as practicable, use its best efforts to effect such registration (including, without limitation, the execution of an undertaking to file post effective amendments, appropriate qualification under applicable blue sky or other state securities laws and appropriate compliance with applicable regulations issued under the Securities Act) as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any Holder or Holders joining in such request as are specified in a written request delivered to the Company within fifteen (15) days after receipt of such written notice from the Company; provided that the Company shall not be obligated to effect, or to take any action to effect, any such registration pursuant to this Section after the Company has effected two (2) such registrations pursuant to this subsection (a) and such registrations have been declared or ordered effective and the sales of such Registrable Securities have closed (or such registration was not declared or ordered effective); provided further that no such demand shall be made within 180 days of the effective date of a prior registration statement. The Company shall file a registration statement covering the Registrable Securities so requested to be registered as soon as practicable, after receipt of the request or requests of the Initiating Holders; provided, however, that if the Company shall furnish to such Holders a certificate signed by the Chairman of the Board of Directors of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its shareholders for such registration statement to be filed on or before the time filing would be required and it is therefore essential to defer the filing of such registration statement, the Company shall have the right to defer such filing for a period of not more than ninety (90) days after receipt of the request of the Initiating Holders. A registration requested pursuant to this Section shall not be deemed to have been effected (i) unless a registration statement with respect thereto has become effective under the Securities Act or any equivalent law of any other applicable jurisdiction, provided that a registration which does not become effective after the Company has filed a registration statement with respect thereto solely by reason of the refusal of the holders of Registrable Securities to proceed shall be deemed to have been effected by the Company pursuant to this Section unless such refusal to proceed is caused by a material adverse change in the business or operations of the Company after such request for registration or (ii) if, after it has become effective, such registration becomes subject to any stop order, injunction or other order or requirement of the Commission or other governmental agency or court for any reason and such order, injunction or requirement is not promptly withdrawn or lifted. 3 4 (c) Underwriting. If the Initiating Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to this Section, and the Company shall include such information in the written notice referred to in subsection (b)(i) above. The right of any Holder to registration pursuant to this Section shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder with respect to such participation and inclusion) to the extent provided herein. A Holder may elect to include in such underwriting all or a part of the Registrable Securities he holds. The Company shall (together with all Holders proposing to distribute their securities through such underwriting) enter into an underwriting agreement in customary form with the representative of the underwriter or underwriters (the "UNDERWRITER") selected for such underwriting by sixty percent (60%) of the Initiating Holders and reasonably acceptable to the Company. Notwithstanding any other provision of this Section, if the Underwriter determines that marketing factors require a limitation on the number of shares to be underwritten, the Underwriter may (subject to the allocation priority set forth below) limit the number of Registrable Securities to be included in the registration and underwriting to not less than fifty percent (50%) of the securities which Holders have requested be included therein. The Company shall so advise all holders of securities requesting registration, and the number of shares of securities that are entitled to be included in the registration and underwriting shall be allocated pro rata among such holders on the basis of all Registrable Securities then held by such holders. If any Holder disapproves of the terms of any such underwriting, such holder may elect to withdraw therefrom by written notice to the Company and the Underwriter. Any Registrable Securities excluded or withdrawn from such underwriting shall be withdrawn from such registration. If the Underwriter has not limited the number of Registrable Securities or other securities to be underwritten, the Company may include its securities for its own account in such registration if the Underwriter so agrees and if the number of Registrable Securities and other securities which would otherwise have been included in such registration and underwriting will not thereby be limited. 3. Company Registration. (a) If the Company shall determine to register, or offer to the public in any jurisdiction, any of its securities either for its own account or for the account of a security holder or holders exercising their respective demand registration rights, other than a registration (or its equivalent in other jurisdictions) (i) relating solely to employee benefit plans or to a Commission Rule 145 transaction, or (ii) on any form which does not permit secondary sales or does not include substantially the same information as would be required to be included in a registration statement covering the sale of Registrable Securities, the Company will: (i) promptly give to each Holder written notice thereof (which, to the extent then known, shall include a list of the jurisdictions in which the Company 4 5 intends to attempt to qualify such securities under the applicable blue sky or other state securities laws); and (ii) include in such registration (and any related qualification under blue sky laws or other compliance), and in any underwriting involved therein, all of the Registrable Securities specified in a written request or requests made by any Holder within fifteen (15) days after receipt of the written notice from the Company described in clause (i) above, except as set forth in subsection (b) below. Such written request may specify all or a part of a Holder's Registrable Securities. (b) Underwriting. If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to subsection (b)(i) above. In such event the right of any Holder to registration pursuant to this Section shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company) enter into an underwriting agreement in customary form with the Underwriter selected for underwriting by the Company. Notwithstanding any other provision of this Section, if the Underwriter determines that marketing factors require a limitation on the number of shares to be underwritten, and (a) if such registration is the first offering of the Company's securities to the public, the Underwriter may (subject to the allocation priority set forth below) exclude from such registration and underwriting some or all of the Registrable Securities which would otherwise be underwritten pursuant hereto (but no Registrable Securities may be excluded until all other securities held by Company's shareholders have been excluded), and (b) if such registration is other than the first registered offering of the sale of the Company's securities to the public, the Underwriter may (subject to the allocation priority set forth below) limit the number of Registrable Securities to be included in the secondary portion of the registration and underwriting to not less than twenty five percent (25%) of the total number of securities to be offered to the public. The Company shall so advise all holders of securities requesting registration, and the number of shares of securities that are entitled to be included in the registration and underwriting by persons other than the Company shall be allocated in the following priority: first, to Holders of Registrable Securities and to the Founder only with respect to Ordinary Shares issued pursuant to conversion of Shares of the Founder, to the extent of seventy five percent (75%) of the Registrable Securities to be included in the registration and underwriting (and pro rata among such holders on the basis of all the aforesaid shares); and then, to Founder, to the extent of twenty-five percent (25%) of the Registrable Securities to be included in the registration and underwriting. If any Holder disapproves of the terms of any such underwriting, he may elect to withdraw therefrom by written notice to the Company and the Underwriter. Any Registrable Securities or other securities excluded or withdrawn from such underwriting shall be withdrawn from such registration. (c) Piggyback Registration Rights. The Founder shall be entitled to include (subject to any underwriter cutbacks as provided in this Agreement) Ordinary Shares in any registration by the Company under subsection (a) above. 5 6 4. Registration on Form S-3. In case the Company shall receive from any Holder or Holders of Registrable Securities a written request or requests that the Company effect a registration on Form S-3 (or any successor to Form S-3) or any similar short-form registration statement, including Form F-3 (for purposes of this Agreement, "Form S-3"), and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holder or Holders, the Company will: (i) promptly give written notice of the proposed registration, and any related qualification or compliance, to all other Holders of Registrable Securities; and (ii) as soon as practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holder's or Holders' Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within fifteen (15) days after receipt of such written notice from the Company, subject only to the following limitations: (a) The Company shall not be obligated to cause a registration pursuant on Form S-3 to become effective prior to sixty (60) days following the effective date of the Company's most recent registration, provided that the Company shall use its best efforts to achieve such effectiveness promptly following such sixty (60) days period, and that notice of Company-initiated registration is given to Holders before the receipt of a request from a holder of Registrable Securities for registration on Form S-3, provided, however, that if the Company shall furnish to such Holders a certificate signed by the Chairman of the Board of Directors of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its shareholders for such registration statement to be filed on or before the time filing would be required and it is therefore essential to defer the filing of such registration statement, the Company shall have the right to defer such filing for a period of not more than sixty (60) days after receipt of the request of the Initiating Holders. (b) The Company shall not be required to effect a registration pursuant to this Section unless the Holder or Holders requesting registration propose to dispose of shares of Registrable Securities having an aggregate disposition price (before deduction of underwriting discounts and expenses of sale) of at least $500,000; and (iii) The Company shall not be required to maintain and keep any such registration on Form S-3 effective for a period exceeding ninety (90) days from the effective date thereof. The Company shall give notice to all Holders of the receipt of a request for registration pursuant to this Section and shall provide a reasonable opportunity for all such other holders to participate in the registration. Subject to the foregoing, the Company will use its best efforts to effect promptly the registration of all shares of Registrable Securities on Form S-3 to the extent requested by the Holder or Holders thereof for purposes of disposition. In the event the Underwriter determines that market factors require a limitation on the number of shares to be underwritten, then shares shall be excluded from such registration and underwriting pursuant to the method described in Section 3(b). 6 7 (iv) Subject to the foregoing, the Company shall file a Form S-3 registration statement covering the Registrable Securities and other securities so requested to be registered as soon as practicable after receipt of the request or requests of the Holders. Registrations effected pursuant to this Section 4 shall not be counted as requested registrations or registrations effected pursuant to Sections 2 or 3, respectively. 5. Expenses of Registration. All Registration Expenses incurred in connection with any registration, qualification or compliance pursuant to this Agreement shall be borne by the Company, and all Selling Expenses shall be borne by the holders of the securities so registered pro rata on the basis of the number of their shares so registered; provided, however, that the Company shall not be required to pay any Registration Expenses if, as a result of the withdrawal of a request for registration by Initiating Holders, the registration statement does not become effective, unless such withdrawal is caused by a material adverse change in the business or operations of the Company after such request for registration, or unless the Initiating Holders agree to have such registration considered effected and the sales of which have closed. If the Company is not required to pay any Registration Expenses, then the Holders requesting registration shall bear such Registration Expenses pro rata on the basis of the number of their shares so included in the registration request, and such registration shall not be considered a registration for purposes computing the number of effected requested registrations of which the sales have closed. 6. Registration Procedures. In the case of each registration effected by the Company pursuant to this Agreement, the Company will keep each Holder advised in writing as to the initiation of such registration and as to the completion thereof. At its expense, the Company will: (a) Prepare and file with the Commission a registration statement with respect to such Registrable Securities and use all reasonable efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for up to ninety (90) days or, if earlier, until the Holder or Holders have completed the distribution related thereto. (b) Prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement for the period set forth in paragraph (a) above. (c) Furnish to the Holders such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them. (d) Use its reasonable best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders; provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. 7 8 (e) Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. (f) Use its best efforts to furnish, on the date that such Registrable Securities are delivered to the underwriters for sale, if such securities are being sold through underwriters, (i) an opinion, dated as of such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, and (ii) a letter dated as of such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering addressed to the underwriters. (g) In connection with any underwritten offering pursuant to a registration statement filed pursuant to Section 2 hereof, the Company will enter into any underwriting agreement reasonably necessary to effect the offer and sale of Ordinary Shares, provided such underwriting agreement contains customary underwriting provisions, and provided further that if the underwriter so requests the underwriting agreement will contain customary indemnification and contribution provisions, and provided further that the Underwriter is reasonably acceptable to the Company. 7. Indemnification. (a) The Company will indemnify each Holder, each of its officers, directors and partners, and each person controlling such Holder, if Registrable Securities held by such Holder are included in the securities with respect to which registration, qualification or compliance has been effected pursuant to this Agreement, and each underwriter, if any, and each person who controls any underwriter, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any prospectus, offering circular or other document (including any related registration statement, notification or the like) incident to any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, or any violation by the Company of the Securities Act including any rule or regulation thereunder applicable to the Company relating to action or inaction required of the Company in connection with any such registration, qualification or compliance, and will reimburse each such Holder, each of its officers, directors and partners, and each person controlling such Holder, each such underwriter and each person who controls any such underwriter, for any legal and any other expenses reasonably incurred in connection with investigating and defending any such claim, loss, damage, liability or action, provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement (or alleged untrue statement) or omission 8 9 (or alleged omission) based upon written information furnished to the Company by such Holder or underwriter and stated to be specifically for use therein. (b) Each Holder will, if Registrable Securities or other securities held by such Holder are included in the securities as to which such registration, qualification or compliance is being effected, indemnify the Company, each of its directors, officers and agents and each underwriter, if any, of the Company's securities covered by such a registration statement, each person who controls the Company or such underwriter within the meaning of the Securities Act and the rules and regulations thereunder, each other such Holder and each of their officers, directors and partners, and each person controlling such Holder, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, and will reimburse the Company and such Holders, directors, officers, agents, partners, persons, underwriters or control persons for any legal or any other expenses reasonably incurred in connection with investigating of defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Company by such Holder and stated to be specifically for use therein; provided, however, that the obligations of such Holders hereunder shall be limited to an amount equal to the proceeds to each such Holder of securities sold as contemplated herein. (c) Each party entitled to indemnification under this Section (the "INDEMNIFIED PARTY") shall give notice to the party required to provide indemnification (the "INDEMNIFYING PARTY") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense at such party's expense, and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Agreement. No Indemnifying Party in the defense of any such claim or litigation shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. Each Indemnified Party shall furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with defense of such claim and litigation resulting therefrom. 8. Information by Holder. Each Holder holding securities included in any registration shall furnish to the Company such information regarding such Holder as the 9 10 Company may reasonably request in writing and as shall be reasonably required in connection with any registration, qualification or compliance referred to in this Agreement. 9. Limitations on Registration. From and after the date of this Agreement, the Company shall not enter into any agreement with any holder or prospective holder of any securities of the Company giving such holder or prospective holder rights that, in the good faith judgment of the Company's Board of Directors, are superior to the rights herein, unless such superior rights are granted to each Shareholder. 10. Rule 144 Reporting. With a view to making available the benefits of certain rules and regulations of the Commission which may permit the sale of securities to the public without registration, the Company agrees to: (a) Make and keep public information available as those terms are understood and defined in Rule 144 under the Securities Act, at all times from and after ninety (90) days following the effective date of the first registration under the Securities Act filed by the Company for an offering of its securities to the general public; (b) Use its best efforts to file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act at any time after it has become subject to such reporting requirements; (c) Furnish to each Holder upon request a written statement by the Company as to its compliance with the reporting requirements of Rule 144 (at any time from and after ninety (90) days following the effective date of the first registration statement filed by the Company for an offering of its securities to the general public), and of the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), a copy of the most recent annual or quarterly report of the Company, and such other reports and documents so filed as a Shareholder may reasonably request in availing itself of any rule or regulation of the Commission allowing a Holder to sell any such securities without registration. 11. Transfer of Rights. The rights to cause the Company to register the Shareholder's securities granted by the Company hereof may be transferred or assigned, provided that (i) the Company is given written notice by a Shareholder at the time of said transfer or assignment, stating the name and address of said transferee or assignee and identifying the securities with respect to which such registration rights are being transferred or assigned, (ii) the transfer is in connection with a transfer of all securities of the Company held by the transferor and involves at least 100,000 shares, or is to constituent partners or shareholders who agree to act through a single representative; and (iii) the transferee or assignee assumes the obligations of a Shareholder under this Agreement. 12. "Market Stand-off" Agreement. Each Shareholder and the Founder agrees, if requested by the Company and an underwriter of Ordinary Shares (or other securities) of the Company, not to sell or otherwise transfer or dispose of any Ordinary Shares (or other securities) of the Company held by Shareholder or Founder during a period of time determined by the Company and its Underwriters (not to exceed 180 days) following the effective date of a registration statement of the 10 11 Company filed under the Securities Act, provided that all officers and directors of the Company who then hold Ordinary Shares (or other securities) of the Company and holders of more than 1% of the Company's voting securities enter into similar agreements. Such agreement shall be in writing in a form satisfactory to the Company and such underwriter. The Company may impose stop-transfer instructions with respect to the Shares (or securities) subject to the foregoing restriction until the end of said period. 13. Transfers to Permitted Transferees. In the event of a transfer to a Permitted Transferee (as defined in the Articles of Association of the Company in force at the date of this Agreement), such Permitted Transferee shall be entitled to all the rights and shall assume in writing all the obligations of the transferor with respect to the transferred shares. 14. Public Offering Outside of the U.S. As to each Public Offering in a jurisdiction outside the United States, the rights contained in this Agreement shall be read as replaced (for such offering) by the most comparable provisions of such jurisdiction's securities laws. The Company and each of the Shareholders and the Founder shall take all necessary and advisable action in order so that all the Company's Class B Ordinary Shares and Class C Ordinary Shares will entitle their holders to the same rights and privileges according to this Agreement as if they were holding Ordinary Shares. 15. [Reserved] 16. Governing Law. This Agreement shall be governed by, construed and enforced in accordance with the laws of the State of Israel, while giving effect to the applicable securities and other laws of the United States. 17. Entire Agreement. This Agreement constitutes the full and entire understanding and agreement between the parties regarding rights to registration and all previous agreements regarding registration rights are superseded by this Agreement and are of no further force and effect. Except as otherwise expressly provided 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. 18. Notices, Etc. All notices and other communications required or permitted hereunder shall be in writing and shall be in English and be mailed by first-class mail, postage prepaid, or otherwise delivered by hand or by messenger, addressed at such address as such holder shall have furnished the other parties in writing. 19. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. 20. Amendments. Any provision of this Agreement may be amended, waived or modified upon the written consent of the Company, the Founder and the Shareholders (or their assignees to whom Shareholders have expressly assigned their rights in compliance with Section 11 hereof) who then hold at least seventy-five percent (75%) of the Registrable Securities then held by persons entitled to registration rights hereunder (excluding the Founder). 11 12 [remainder of page left blank] 12 13 IN WITNESS WHEREOF, the parties have executed this Amended and Restated Registration Rights Agreement as of the date first above written. IET - INTELLIGENT ELECTRONICS LTD. By: --------------------------------- ------------------------ ----------------------- MOSHE BEN BASSAT IDIT BEN BASSAT OAK INVESTMENT PARTNERS VI, L.P. By: --------------------------------- OAK VI AFFILIATES FUND L.P. By: --------------------------------- GENESIS PARTNERS I L.P By: --------------------------------- GENESIS PARTNERS (CAYMAN) I L.P. By: --------------------------------- WORLDVIEW TECHNOLOGY PARTNERS I, L.P., By: --------------------------------- 13 14 WORLDVIEW TECHNOLOGY INTERNATIONAL I, L.P., By: ----------------------------------- WORLDVIEW STRATEGIC PARTNERS I, L.P., By: ----------------------------------- SEMEL INVESTMENTS LTD. By: ----------------------------------- ADSHA PROJECT INITIATION DEVELOPMENT (TA) LTD. By: ----------------------------------- ------------------------------------------ ZOHAR ZISAPEL HAMBRECHT AND QUIST CALIFORNIA By: ----------------------------------------- -------------------------------------------- NORMAN NIE -------------------------------------------- CHRISTINA M. MORGAN -------------------------------------------- JAMES A. DAVIDSON -------------------------------------------- MARK J. ZANOLI -------------------------------------------- MERITECH CAPITAL PARTNERS L.P. By: ----------------------------------- 14 15 ------------------------------------------ MERITECH CAPITAL AFFILIATES L.P. By: ----------------------------------- 15 EX-10.1 4 EX-10.1 1 EXHIBIT 10.1 CLICKSERVICE SOFTWARE LTD. 2000 SHARE OPTION PLAN 1. Purposes of the Plan. The purposes of this Share Option Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees, Directors and Consultants and to promote the success of the Company's business. Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options, as determined by the Administrator at the time of grant. 2. Definitions. As used herein, the following definitions shall apply: (a) "Administrator" means the Board or any of its Committees as shall be administering the Plan, in accordance with Section 4 hereof. (b) "Applicable Laws" means the requirements relating to the administration of share option plans under Israeli corporate and securities laws, U.S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Shares are listed or quoted and the applicable laws of any country or jurisdiction where Options are granted under the Plan. (c) "Board" means the Board of Directors of the Company. (d) "Code" means the U.S. Internal Revenue Code of 1986, as amended. (e) "Committee" means a committee of Directors appointed by the Board in accordance with Section 4 hereof. (f) "Company" means ClickService Software Ltd., a corporation incorporated under the laws of the State of Israel. (g) "Consultant" means any person who is engaged by the Company or any Parent or Subsidiary to render consulting or advisory services to such entity. (h) "Director" means a member of the Board of Directors of the Company. (i) "Employee" means any person, including Officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. An Employee shall not cease to be an Employee in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor. For purposes of Incentive Stock Options, no such leave may exceed ninety days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment 2 upon expiration of a leave of absence approved by the Company is not so guaranteed, on the 181st day of such leave any Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient to constitute "employment" by the Company. (j) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (k) "Fair Market Value" means, as of any date, the value of a Share determined as follows: (i) If the Shares are listed on the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, their 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 system for the last market trading day prior to the time of determination, as reported in Globes, HaAretz or such other source as the Administrator deems reliable; (ii) If the Shares are listed on the Tel Aviv Stock Exchange, but are not traded on the Nasdaq National Market or The Nasdaq Small Cap Market, their 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 for the last market trading day prior to the time of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; (iii) If the Shares are regularly quoted by a recognized securities dealer but selling prices are not reported, their 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; (iv) In the absence of an established market for the Shares, the Fair Market Value thereof shall be determined in good faith by the Administrator. (l) "Incentive Stock Option" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code. (m) "Nonstatutory Stock Option" means an Option not intended to qualify as an Incentive Stock Option. (n) "Officer" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (o) "Option" means a share option granted pursuant to the Plan. (p) "Option Agreement" means a written or electronic agreement between the Company and an Optionee evidencing the terms and conditions of an individual Option grant. The Option Agreement is subject to the terms and conditions of the Plan. -2- 3 (q) "Optioned Shares" means the Shares subject to an Option. (r) "Optionee" means the holder of an outstanding Option granted under the Plan. (s) "Parent" means a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code. (t) "Plan" means this 2000 Share Option Plan. (u) "Service Provider" means an Employee, Director or Consultant. (v) "Share" means a share of the Company's Ordinary Shares having a nominal value of 1.00 NIS, as adjusted in accordance with Section 12 below. (w) "Subsidiary" means a "subsidiary corporation," whether now or hereafter existing, as defined in Section 424(f) of the Code. 3. Shares Subject to the Plan. Subject to the provisions of Section 12 of the Plan, the maximum aggregate number of Shares that may be subject to option and sold under the Plan is 3,000,000 Shares, plus an annual increase to be added on the first day of the Company's fiscal year beginning in 2001 equal to the lesser of (i) 5% of outstanding shares on such date, (ii) 1,250,000 Shares, or (iii) a lesser amount determined by the Board. The Shares may be authorized, but unissued, or reacquired. If an Option expires or becomes unexercisable without having been exercised in full, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated); provided, however, that Shares that have actually been issued under the Plan shall not be returned to the Plan and shall not become available for future distribution under the Plan. 4. Administration of the Plan. (a) Procedure. (i) Multiple Administrative Bodies. Different Committees with respect to different groups of Service Providers may administer the Plan. (ii) Section 162(m). To the extent that the Administrator determines it to be desirable to qualify Options granted hereunder as "performance-based compensation" within the meaning of Section 162(m) of the Code, the Plan shall be administered by a Committee of two or more "outside directors" within the meaning of Section 162(m) of the Code. -3- 4 (iii) Rule 16b-3. To the extent desirable to qualify transactions hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder shall be structured to satisfy the requirements for exemption under Rule 16b-3. (iv) Other Administration. Other than as provided above, the Plan shall be administered by (A) the Board or (B) a Committee, which committee shall be constituted to satisfy Applicable Laws. (b) Powers of the Administrator. Subject to the provisions of the Plan and, in the case of a Committee, the specific duties delegated by the Board to such Committee, and subject to the approval of any relevant authorities, the Administrator shall have the authority, in its discretion: (i)to determine the Fair Market Value; (ii) to select the Service Providers to whom Options may from time to time be granted hereunder; (iii) to determine the number of Shares to be covered by each such award granted hereunder; (iv) to approve forms of agreement for use under the Plan; (v)to determine the terms and conditions of any Option granted hereunder; (vi) to determine whether and under what circumstances an Option may be settled in cash under subsection 9(e) instead of Shares; (vii) to reduce the exercise price of any Option to the then current Fair Market Value (or the nominal value of the Shares, if higher than the Fair Market Value), if the Fair Market Value of the Shares covered by such Option has declined since the date the Option was granted; (viii) to prescribe, amend and rescind rules and regulations relating to the Plan; (ix) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan. (c) Effect of Administrator's Decision. All decisions, determinations and interpretations of the Administrator shall be final and binding on all Optionees. 5. Eligibility. -4- 5 (a) Nonstatutory Stock Options may be granted to Service Providers. Incentive Stock Options may be granted only to Employees. 6. Limitations. (a) Each Option shall be designated in the Option Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Optionee during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 6(a), Incentive Stock Options shall be taken into account in the order in which they were granted. The Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted. (b) Neither the Plan nor any Option shall confer upon an Optionee any right with respect to continuing the Optionee's relationship as a Service Provider with the Company, nor shall they interfere in any way with the Optionee's right or the Company's right to terminate such relationship at any time, with or without cause. (c) The following limitations shall apply to grants of Options: (i) No Service Provider shall be granted, in any fiscal year of the Company, Options to purchase more than 1,000,000 Shares. (ii) In connection with his or her initial service, a Service Provider may be granted Options to purchase up to an additional 1,000,000 Shares, which shall not count against the limit set forth in subsection (i) above. (iii) The foregoing limitations shall be adjusted proportionately in connection with any change in the Company's capitalization as described in Section 12. (iv) If an Option is cancelled in the same fiscal year of the Company in which it was granted (other than in connection with a transaction described in Section 12), the cancelled Option will be counted against the limits set forth in subsections (i) and (ii) above. For this purpose, if the exercise price of an Option is reduced, the transaction will be treated as a cancellation of the Option and the grant of a new Option. 7. Term of Plan. The Plan shall become effective upon its adoption by the Board. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 14 of the Plan. 8. Term of Option. The term of each Option shall be stated in the Option Agreement; provided, however, that the term shall be no more than ten (10) years from the date of grant thereof. In the case of an Incentive Stock Option granted to an Optionee who, at the time the Option is granted, owns shares representing more than ten percent (10%) of the voting power of all classes of -5- 6 shares of the Company or any Parent or Subsidiary, the term of the Option shall be five (5) years from the date of grant or such shorter term as may be provided in the Option Agreement. 9. Option Exercise Price and Consideration. (a) The per share exercise price for the Shares to be issued pursuant to exercise of an Option shall be such price as is determined by the Administrator, but shall be subject to the following: (i) In the case of an Incentive Stock Option (A) granted to an Employee who, at the time of the grant of such Incentive Stock Option, owns shares representing more than ten percent (10%) of the voting power of all classes of shares of the Company or any Parent or Subsidiary, the exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant. (B) granted to any Employee other than an Employee described in the preceding subparagraph, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant. (ii) In the case of a Nonstatutory Stock Option, the per Share exercise price shall be determined by the Administrator. In the case of a Nonstatutory Stock Option intended to qualify as "performance-based compensation" within the meaning of Section 162(m) of the Code, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant. (iii) Notwithstanding the foregoing, Options may be granted with a per Share exercise price (other than as required above) of less than 100% of Fair Market Value on the date of grant pursuant to a merger or other corporate transaction. (b) The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant) and may consist entirely of (1) cash, (2) check, (3) promissory note, (4) consideration received by the Company under a formal cashless exercise program adopted by the Company in connection with the Plan, or (5) any combination of the foregoing methods of payment. To the extent that the consideration paid for the Shares is denominated in a currency other than New Israeli Shekels, the exchange rate to be used to obtain a New Israeli Shekel value of such consideration shall be the noon buying rate as reported by the Federal Reserve Bank of New York (expressed in shekels per unit of non-Israeli currency) on the date of grant of the Option. In making its determination as to the type of consideration to accept, the Administrator shall consider if acceptance of such consideration may be reasonably expected to benefit the Company. 10. Exercise of Option. -6- 7 (a) Procedure for Exercise; Rights as a Shareholder. Any Option granted hereunder shall be exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Administrator and set forth in the Option Agreement. Options shall become exercisable at a rate to be determined by the Administrator. Unless the Administrator provides otherwise, vesting of Options granted hereunder shall be tolled during any unpaid leave of absence. An Option may not be exercised for a fraction of a Share. An Option shall be deemed exercised when the Company receives: (i) written or electronic notice of exercise (in accordance with the Option Agreement) from the person entitled to exercise the Option, and (ii) full payment for the Shares with respect to which the Option is exercised. Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Option Agreement and the Plan. Shares issued upon exercise of an Option shall be issued in (i) the name of the Optionee or, if requested by the Optionee, in the name of the Optionee and his or her spouse, or (ii) the name of the Optionee to Yoav Bruckner as trustee (the "Trustee"), to be held by the Trustee on behalf of Optionee if so required by Applicable Laws. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Shares, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 12 of the Plan. Exercise of an Option in any manner shall result in a decrease in the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) Termination of Relationship as a Service Provider. If an Optionee ceases to be a Service Provider, other than upon the Optionee's death or Disability, the Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement to the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for three (3) months following the Optionee's termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified by the Administrator, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (c) Disability of Optionee. If an Optionee ceases to be a Service Provider as a result of the Optionee's disability, the Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement to the extent the Option is vested on the date of termination, but in no event later than the expiration date of the term of such Option as set forth in the Option Agreement. In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Optionee's termination. If, on the date of -7- 8 termination, the Optionee is not vested as to the entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Option is not exercised within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. If such disability is not a "disability" as such term is defined in Section 22(e)(3) of the Code, in the case of an Incentive Stock Option such Incentive Stock Option shall automatically cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option on the day three months and one day following such termination. (d) Death of Optionee. If an Optionee dies while a Service Provider, the Option may be exercised within such period of time as is specified in the Option Agreement to the extent that the Option is vested on the date of death (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement) by the Optionee's estate or by a person who acquires the right to exercise the Option by bequest or inheritance. In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Optionee's termination. If, at the time of death, the Optionee is not vested as to the entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If the Option is not so exercised within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. 11. Non-Transferability of Options. Unless determined otherwise by the Administrator, Options may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. 12. Adjustments Upon Changes in Capitalization or Merger. (a) Changes in Capitalization. In the event the Shares shall be subdivided or combined into a greater or smaller number of Shares or if, upon a reorganization, recapitalization or the like, the Shares shall be exchanged for other securities of the Company, each Optionee shall be entitled, subject to the conditions herein stated, to purchase such number of Shares or amount of other securities of the Company as were exchangeable for the number of Shares of the Company which such Optionee would have been entitled to purchase except for such action, and appropriate adjustments shall be made in the purchase price per share to reflect such subdivision, combination or exchange. In the event that the Company shall issue any of its Shares or other securities as bonus shares or a stock dividend upon or with respect to any Shares which shall at the time be subject to an Option hereunder, each Optionee upon exercising such Option shall be entitled to receive (for the purchase price payable upon such exercise), the Shares as to which he or she is exercising such Option and, in addition thereto (at no additional cost), such number of shares of the class or classes in which such bonus shares or stock dividend were declared, and such amount of Shares (and the amount in lieu of fractional Shares) as is equal to the Shares which he would have received had he been the holder of the Shares as to which he is exercising his Option at all times between the date of the granting of such Option and the date of its exercise. -8- 9 Upon the occurrence of any of the foregoing events, the class and aggregate number of Shares or other securities issuable pursuant to the Plan, in respect of which Options have not yet been granted, shall also be appropriately adjusted to reflect the events specified above. If the Company offers the holders of the Shares, or of any other class of security for which the Options are then exercisable, rights to purchase securities of the Company, then the Company shall offer the same rights to the Optionees as if they had exercised their Options on the record date with respect to such rights offering. (b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Administrator shall notify each Optionee as soon as practicable prior to the effective date of such proposed transaction. The Administrator in its discretion may provide for an Optionee to have the right to exercise his or her Option until fifteen (15) days prior to such transaction as to all of the Optioned Shares, including Shares as to which the Option would not otherwise be exercisable. To the extent it has not been previously exercised, an Option will terminate immediately prior to the consummation of such proposed action. (c) Merger or Asset Sale. In the event of a merger of the Company with or into another corporation, or the sale of substantially all of the assets of the Company, each outstanding Option shall be assumed or an equivalent option substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the Option, the Optionee shall fully vest in and have the right to exercise the Option as to all of the Optioned Stock, including Shares as to which it would not otherwise be vested or exercisable. If an Option becomes fully vested and exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Administrator shall notify the Optionee in writing or electronically that the Option shall be fully exercisable for a period of fifteen (15) days from the date of such notice, and the Option shall terminate upon the expiration of such period. For the purposes of this paragraph, the Option shall be considered assumed if, following the merger or sale of assets, the option confers the right to purchase or receive, for each Share of Optioned Shares immediately prior to the merger or sale of assets, the consideration (whether shares, cash, or other securities or property) received in the merger or sale of assets by holders of Shares for each Share 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 merger or sale of assets is not solely ordinary shares (or their equivalent) of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option, for each Share of Optioned Shares, to be solely ordinary shares (or their equivalent) of the successor corporation or its Parent equal in fair market value to the per Share consideration received by holders of in the merger or sale of assets. 13. Date of Grant. The date of grant of an Option shall, for all purposes, be the date on which the Administrator makes the determination granting such Option, or such other date as is determined by the Board. Notice of the determination shall be given to each Service Provider to whom an Option is so granted within a reasonable time after the date of such grant. -9- 10 14. Amendment and Termination of the Plan. (a) Amendment and Termination. The Board may at any time amend, alter, suspend or terminate the Plan. (b) Shareholder Approval. The Board shall obtain shareholder approval of any Plan amendment to the extent necessary and desirable to comply with Applicable Laws. (c) Effect of Amendment or Termination. No amendment, alteration, suspension or termination of the Plan shall impair the rights of any Optionee, unless mutually agreed otherwise between the Optionee and the Administrator, which agreement must be in writing and signed by the Optionee and the Company. Termination of the Plan shall not affect the Administrator's ability to exercise the powers granted to it hereunder with respect to Options granted under the Plan prior to the date of such termination. 15. Conditions Upon Issuance of Shares. (a) Legal Compliance. Shares shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares shall comply with Applicable Laws and shall be further subject to the approval of counsel for the Company with respect to such compliance. (b) Investment Representations. As a condition to the exercise of an Option, the Administrator may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required. 16. Inability to Obtain Authority. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 17. Reservation of Shares. The Company, during the term of this Plan, shall at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. 18. Shareholder Approval. The Plan shall be subject to approval by the shareholders of the Company within twelve (12) months after the date the Plan is adopted. Such shareholder approval shall be obtained in the manner and to the degree required under Applicable Laws. -10- EX-10.2 5 EX-10.2 1 EXHIBIT 10.2 CLICKSERVICE SOFTWARE LTD. 2000 EMPLOYEE SHARE PURCHASE PLAN 1. Purpose. The purpose of the Plan is to provide employees of the Company and its Designated Subsidiaries with an opportunity to purchase Ordinary Shares of the Company through accumulated payroll deductions. It is the intention of the Company to have the Plan qualify as an "Employee Share Purchase Plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The provisions of the Plan, accordingly, shall be construed so as to extend and limit participation in a manner consistent with the requirements of that section of the Code. 2. Definitions. (a) "Board" shall mean the Board of Directors of the Company. (b) "Code" shall mean the Internal Revenue Code of 1986, as amended. (c) "Company" shall mean ClickService Software Ltd., a corporation incorporated under the laws of the State of Israel, and any Designated Subsidiary of the Company. (d) "Compensation" shall mean all base straight time gross earnings, exclusive of payments for commissions, overtime, shift premium, incentive compensation, incentive payments, bonuses and other compensation. (e) "Designated Subsidiary" shall mean any Subsidiary that has been designated by the Board from time to time in its sole discretion as eligible to participate in the Plan. (f) "Employee" shall mean any individual who is an Employee of the Company for tax purposes whose customary employment with the Company is at least twenty (20) hours per week and more than five (5) months in any calendar year. For purposes of the Plan, the employment relationship shall be treated as continuing intact while the individual is on sick leave or other leave of absence approved by the Company. Where the period of leave exceeds 90 days and the individual's right to reemployment is not guaranteed either by statute or by contract, the employment relationship shall be deemed to have terminated on the 91st day of such leave. (g) "Enrollment Date" shall mean the first day of each Offering Period. (h) "Exercise Date" shall mean the last day of each Offering Period. (i) "Fair Market Value" shall mean, as of any date, the value of a Share determined as follows: 2 (1) If the Shares are listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, their 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 on the date of such determination, as reported in The Wall Street Journal or such other source as the Board deems reliable, or; (2) If the Shares are regularly quoted by a recognized securities dealer but selling prices are not reported, their Fair Market Value shall be the mean of the closing bid and asked prices for the Shares on the date of such determination, as reported in The Globes, HaAretz or such other source as the Board deems reliable, or; (3) In the absence of an established market for the Shares, the Fair Market Value thereof shall be determined in good faith by the Board; or (4) For purposes of the Enrollment Date of the first Offering Period under the Plan, the Fair Market Value shall be the initial price to the public as set forth in the final prospectus included within the registration statement in Form S-1 filed with the Securities and Exchange Commission for the initial public offering of the Company's Shares (the "Registration Statement"). (j) "Offering Period" shall mean a period of approximately six (6) months during which an option granted pursuant to the Plan may be exercised, commencing on the first Trading Day on or after May 1 and terminating on the last Trading Day in the period ending the following October 31, or commencing on the first Trading Day on or after November 1 and terminating on the last Trading Day in the period ending the following April 30; provided, however, that the first Offering Period under the Plan shall commence with the first Trading Day on or after the date on which the Securities and Exchange Commission declares the Company's Registration Statement effective and ending on the last Trading Day on or before October 31, 2000. The duration of Offering Periods may be changed pursuant to Section 4 of this Plan. (k) "Plan" shall mean this Employee Share Purchase Plan. (l) "Purchase Price" shall mean an amount equal to 85% of the Fair Market Value of a Share on the Enrollment Date or on the Exercise Date, whichever is lower; provided, however, that the Purchase Price may be adjusted by the Board pursuant to Section 20. (m) "Reserves" shall mean the number of Shares covered by each option under the Plan which have not yet been exercised and the number of Shares which have been authorized for issuance under the Plan but not yet placed under option. (n) "Share" means a share of the Company's Ordinary Shares having a nominal value of 0.01 NIS, as adjusted in accordance with Section 19 below. -2- 3 (o) "Subsidiary" shall mean a corporation, domestic or foreign, of which not less than 50% of the voting shares are held by the Company or a Subsidiary, whether or not such corporation now exists or is hereafter organized or acquired by the Company or a Subsidiary. (p) "Trading Day" shall mean a day on which national stock exchanges and the Nasdaq System are open for trading. 3. Eligibility. (a) Any Employee who shall be employed by the Company on a given Enrollment Date shall be eligible to participate in the Plan. (b) Any provisions of the Plan to the contrary notwithstanding, no Employee shall be granted an option under the Plan (i) to the extent that, immediately after the grant, such Employee (or any other person whose shares would be attributed to such Employee pursuant to Section 424(d) of the Code) would own capital shares of the Company and/or hold outstanding options to purchase such shares possessing five percent (5%) or more of the total combined voting power or value of all classes of the capital shares of the Company or of any Subsidiary, or (ii) to the extent that his or her rights to purchase shares under all employee share purchase plans of the Company and its subsidiaries accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of shares (determined at the fair market value of the shares at the time such option is granted) for each calendar year in which such option is outstanding at any time. 4. Offering Periods. The Plan shall be implemented by consecutive Offering Periods with a new Offering Period commencing on the first Trading Day on or after May 1 and November 1 each year, or on such other date as the Board shall determine, and continuing thereafter until terminated in accordance with Section 20 hereof; provided, however, that the first Offering Period under the Plan shall commence with the first Trading Day on or after the date on which the Securities and Exchange Commission declares the Company's Registration Statement effective and ending on the last Trading Day on or before October 31, 2000. The Board shall have the power to change the duration of Offering Periods (including the commencement dates thereof) with respect to future offerings without shareholder approval if such change is announced at least five (5) days prior to the scheduled beginning of the first Offering Period to be affected thereafter. 5. Participation. (a) An eligible Employee may become a participant in the Plan by completing a subscription agreement authorizing payroll deductions in the form of Exhibit A to this Plan and filing it with the Company's payroll office prior to the applicable Enrollment Date. (b) Payroll deductions for a participant shall commence on the first payroll following the Enrollment Date and shall end on the last payroll in the Offering Period to which such -3- 4 authorization is applicable, unless sooner terminated by the participant as provided in Section 10 hereof. 6. Payroll Deductions. (a) At the time a participant files his or her subscription agreement, he or she shall elect to have payroll deductions made on each pay day during the Offering Period in an amount not exceeding twelve percent (12%) of the Compensation which he or she receives on each pay day during the Offering Period. (b) All payroll deductions made for a participant shall be credited to his or her account under the Plan and shall be withheld in whole percentages only. A participant may not make any additional payments into such account. (c) A participant may discontinue his or her participation in the Plan as provided in Section 10 hereof, or may increase or decrease the rate of his or her payroll deductions during the Offering Period by completing or filing with the Company a new subscription agreement authorizing a change in payroll deduction rate. The Board may, in its discretion, limit the number of participation rate changes during any Offering Period. The change in rate shall be effective with the first full payroll period following five (5) business days after the Company's receipt of the new subscription agreement unless the Company elects to process a given change in participation more quickly. A participant's subscription agreement shall remain in effect for successive Offering Periods unless terminated as provided in Section 10 hereof. (d) Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's payroll deductions may be decreased to zero percent (0%) at any time during an Offering Period. Payroll deductions shall recommence at the rate provided in such participant's subscription agreement at the beginning of the first Offering Period which is scheduled to end in the following calendar year, unless terminated by the participant as provided in Section 10 hereof. (e) At the time the option is exercised, in whole or in part, or at the time some or all of the Company's Shares issued under the Plan is disposed of, the participant must make adequate provision for the Company's federal, state, or other tax withholding obligations, if any, which arise upon the exercise of the option or the disposition of the Shares. At any time, the Company may, but shall not be obligated to, withhold from the participant's compensation the amount necessary for the Company to meet applicable withholding obligations, including any withholding required to make available to the Company any tax deductions or benefits attributable to sale or early disposition of Shares by the Employee. 7. Grant of Option. On the Enrollment Date of each Offering Period, each eligible Employee participating in such Offering Period shall be granted an option to purchase on the Exercise Date of such Offering Period (at the applicable Purchase Price) up to a number of Shares -4- 5 determined by dividing such Employee's payroll deductions accumulated prior to such Exercise Date and retained in the Participant's account as of the Exercise Date by the applicable Purchase Price; provided that in no event shall an Employee be permitted to purchase during each Offering Period more than 5,000 Shares (subject to any adjustment pursuant to Section 19), and provided further that such purchase shall be subject to the limitations set forth in Sections 3(b) and 12 hereof. Exercise of the option shall occur as provided in Section 8 hereof, unless the participant has withdrawn pursuant to Section 10 hereof. The Option shall expire on the last day of the Offering Period. 8. Exercise of Option. Unless a participant withdraws from the Plan as provided in Section 10 hereof, his or her option for the purchase of Shares shall be exercised automatically on the Exercise Date, and the maximum number of full Shares subject to option shall be purchased for such participant at the applicable Purchase Price with the accumulated payroll deductions in his or her account. No fractional Shares shall be purchased; any payroll deductions accumulated in a participant's account which are not sufficient to purchase a full Share shall be retained in the participant's account for the subsequent Offering Period, subject to earlier withdrawal by the participant as provided in Section 10 hereof. Any other monies left over in a participant's account after the Exercise Date shall be returned to the participant. During a participant's lifetime, a participant's option to purchase Shares hereunder is exercisable only by him or her. 9. Delivery. As promptly as practicable after each Exercise Date on which a purchase of shares occurs, the Company shall arrange the delivery to each participant, as appropriate, the Shares purchased upon exercise of his or her option. 10. Withdrawal. (a) A participant may withdraw all but not less than all the payroll deductions credited to his or her account and not yet used to exercise his or her option under the Plan at any time by giving written notice to the Company in the form of Exhibit B to this Plan. All of the participant's payroll deductions credited to his or her account shall be paid to such participant promptly after receipt of notice of withdrawal and such participant's option for the Offering Period shall be automatically terminated, and no further payroll deductions for the purchase of shares shall be made for such Offering Period. If a participant withdraws from an Offering Period, payroll deductions shall not resume at the beginning of the succeeding Offering Period unless the participant delivers to the Company a new subscription agreement. (b) A participant's withdrawal from an Offering Period shall not have any effect upon his or her eligibility to participate in any similar plan which may hereafter be adopted by the Company or in succeeding Offering Periods which commence after the termination of the Offering Period from which the participant withdraws. 11. Termination of Employment. Upon a participant's ceasing to be an Employee for any reason, he or she shall be deemed to have elected to withdraw from the Plan and the payroll deductions credited to such participant's account during the Offering Period but not yet used to -5- 6 exercise the option shall be returned to such participant or, in the case of his or her death, to the person or persons entitled thereto under Section 15 hereof, and such participant's option shall be automatically terminated. The preceding sentence notwithstanding, a participant who receives payment in lieu of notice of termination of employment shall be treated as continuing to be an Employee for the participant's customary number of hours per week of employment during the period in which the participant is subject to such payment in lieu of notice. 12. Interest. No interest shall accrue on the payroll deductions of a participant in the Plan. 13. Shares. (a) Subject to adjustment upon changes in capitalization of the Company as provided in Section 19 hereof, the maximum number of Shares which shall be made available for sale under the Plan shall be 800,000 Shares, plus an annual increase to be added on the first day of the Company's fiscal year beginning in 2001 equal to the lesser of (i) 500,000 shares, (ii) 2% of the outstanding shares on such date or (iii) a lesser amount determined by the Board. If, on a given Exercise Date, the number of Shares with respect to which options are to be exercised exceeds the number of Shares then available under the Plan, the Company shall make a pro rata allocation of the Shares remaining available for purchase in as uniform a manner as shall be practicable and as it shall determine to be equitable. (b) The participant shall have no interest or voting right in Shares covered by his option until such option has been exercised. (c) Shares to be delivered to a participant under the Plan shall be registered in the name of the participant or in the name of the participant and his or her spouse. 14. Administration. The Plan shall be administered by the Board or a committee of members of the Board appointed by the Board. The Board or its committee shall have full and exclusive discretionary authority to construe, interpret and apply the terms of the Plan, to determine eligibility and to adjudicate all disputed claims filed under the Plan. Every finding, decision and determination made by the Board or its committee shall, to the full extent permitted by law, be final and binding upon all parties. 15. Designation of Beneficiary. (a) A participant may file a written designation of a beneficiary who is to receive any Shares and cash, if any, from the participant's account under the Plan in the event of such participant's death subsequent to an Exercise Date on which the option is exercised but prior to delivery to such participant of such shares and cash. In addition, a participant may file a written designation of a beneficiary who is to receive any cash from the participant's account under the Plan in the event of such participant's death prior to exercise of the option. If a participant is married and -6- 7 the designated beneficiary is not the spouse, spousal consent shall be required for such designation to be effective. (b) Such designation of beneficiary may be changed by the participant at any time by written notice. In the event of the death of a participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such participant's death, the Company shall deliver such Shares and/or cash to the executor or administrator of the estate of the participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such Shares and/or cash to the spouse or to any one or more dependents or relatives of the participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate. 16. Transferability. Neither payroll deductions credited to a participant's account nor any rights with regard to the exercise of an option or to receive Shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution or as provided in Section 15 hereof) by the participant. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw funds from an Offering Period in accordance with Section 10 hereof. 17. Use of Funds. All payroll deductions received or held by the Company under the Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such payroll deductions. 18. Reports. Individual accounts shall be maintained for each participant in the Plan. Statements of account shall be given to participating Employees at least annually, which statements shall set forth the amounts of payroll deductions, the Purchase Price, the number of Shares purchased and the remaining cash balance, if any. 19. Adjustments Upon Changes in Capitalization, Dissolution, Liquidation, Merger or Asset Sale. (a) Changes in Capitalization. Subject to any required action by the shareholders of the Company, the Reserves, the maximum number of Shares each participant may purchase per Offering Period (pursuant to Section 7), as well as the price per Share and the number of Shares covered by each option under the Plan which has not yet been exercised shall be proportionately adjusted for any increase or decrease in the number of issued Shares resulting from a share split, reverse share split, share dividend, combination or reclassification of the Shares, or any other increase or decrease in the number of Shares effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of any class, or securities -7- 8 convertible into shares of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares subject to an option. (b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Offering Period then in progress shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and shall terminate immediately prior to the consummation of such proposed dissolution or liquidation, unless provided otherwise by the Board. The New Exercise Date shall be before the date of the Company's proposed dissolution or liquidation. The Board shall notify each participant in writing, at least ten (10) business days prior to the New Exercise Date, that the Exercise Date for the participant's option has been changed to the New Exercise Date and that the participant's option shall be exercised automatically on the New Exercise Date, unless prior to such date the participant has withdrawn from the Offering Period as provided in Section 10 hereof. (c) Merger or Asset Sale. In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, each outstanding option shall be assumed or an equivalent option substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the option, the Offering Period then in progress shall be shortened by setting a new Exercise Date (the "New Exercise Date"). The New Exercise Date shall be before the date of the Company's proposed sale or merger. The Board shall notify each participant in writing, at least ten (10) business days prior to the New Exercise Date, that the Exercise Date for the participant's option has been changed to the New Exercise Date and that the participant's option shall be exercised automatically on the New Exercise Date, unless prior to such date the participant has withdrawn from the Offering Period as provided in Section 10 hereof. 20. Amendment or Termination. (a) The Board of Directors of the Company may at any time and for any reason terminate or amend the Plan. Except as provided in Section 19 hereof, no such termination can affect options previously granted, provided that an Offering Period may be terminated by the Board of Directors on any Exercise Date if the Board determines that the termination of the Offering Period or the Plan is in the best interests of the Company and its shareholders. Except as provided in Section 19 and Section 20 hereof, no amendment may make any change in any option theretofore granted which adversely affects the rights of any participant. To the extent necessary to comply with Section 423 of the Code (or any other applicable law, regulation or stock exchange rule), the Company shall obtain shareholder approval in such a manner and to such a degree as required. (a) Without shareholder consent and without regard to whether any participant rights may be considered to have been "adversely affected," the Board (or its committee) shall be entitled to change the Offering Periods, limit the frequency and/or number of changes in the amount withheld during an Offering Period, establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars, permit payroll withholding in excess of the amount designated by a -8- 9 participant in order to adjust for delays or mistakes in the Company's processing of properly completed withholding elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Shares for each participant properly correspond with amounts withheld from the participant's Compensation, and establish such other limitations or procedures as the Board (or its committee) determines in its sole discretion advisable which are consistent with the Plan. (c) In the event the Board determines that the ongoing operation of the Plan may result in unfavorable financial accounting consequences, the Board may, in its discretion and, to the extent necessary or desirable, modify or amend the Plan to reduce or eliminate such accounting consequence including, but not limited to: (1) altering the Purchase Price for any Offering Period including an Offering Period underway at the time of the change in Purchase Price; (2) shortening any Offering Period so that Offering Period ends on a new Exercise Date, including an Offering Period underway at the time of the Board action; and (3) allocating Shares. Such modifications or amendments shall not require shareholder approval or the consent of any Plan participants. 21. Notices. All notices or other communications by a participant to the Company under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof. 22. Conditions Upon Issuance of Shares. Shares shall not be issued with respect to an option unless the exercise of such option and the issuance and delivery of such shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an option, the Company may require the person exercising such option to represent and warrant at the time of any such exercise that the shares are being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned applicable provisions of law. -9- 10 23. Term of Plan. The Plan shall become effective upon the earlier to occur of its adoption by the Board of Directors or its approval by the shareholders of the Company. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 20 hereof. -10- 11 EXHIBIT A CLICKSERVICE SOFTWARE LTD. 2000 EMPLOYEE SHARE PURCHASE PLAN SUBSCRIPTION AGREEMENT ____ Original Application Enrollment Date: __________ ____ Change in Payroll Deduction Rate ____ Change of Beneficiary(ies) 1. _____________________________________ hereby elects to participate in the ClickService Software Ltd. 2000 Employee Share Purchase Plan (the "Employee Share Purchase Plan") and subscribes to purchase Ordinary Shares of the Company in accordance with this Subscription Agreement and the Employee Share Purchase Plan. 2. I hereby authorize payroll deductions from each paycheck in the amount of ____% of my Compensation on each payday (from 0 to 12%) during the Offering Period in accordance with the Employee Share Purchase Plan. (Please note that no fractional percentages are permitted.) 3. I understand that said payroll deductions shall be accumulated for the purchase of Shares at the applicable Purchase Price determined in accordance with the Employee Share Purchase Plan. I understand that if I do not withdraw from an Offering Period, any accumulated payroll deductions will be used to automatically exercise my option. 4. I have received a copy of the complete Employee Share Purchase Plan. I understand that my participation in the Employee Share Purchase Plan is in all respects subject to the terms of the Plan. I understand that my ability to exercise the option under this Subscription Agreement is subject to shareholder approval of the Employee Share Purchase Plan. 5. Shares purchased for me under the Employee Share Purchase Plan should be issued in the name(s) of (Employee or Employee and Spouse only): . 6. I understand that if I dispose of any shares received by me pursuant to the Plan within 2 years after the Enrollment Date (the first day of the Offering Period during which I purchased such shares), I will be treated for federal income tax purposes as having received ordinary income at the time of such disposition in an amount equal to the excess of the fair market value of the shares at the time such shares were purchased by me over the price which I paid for the shares. I hereby agree to notify the Company in writing within 30 days after the date of any 12 disposition of shares and I will make adequate provision for Federal, state or other tax withholding obligations, if any, which arise upon the disposition of the Share. The Company may, but will not be obligated to, withhold from my compensation the amount necessary to meet any applicable withholding obligation including any withholding necessary to make available to the Company any tax deductions or benefits attributable to sale or early disposition of Shares by me. If I dispose of such shares at any time after the expiration of the 2-year holding period, I understand that I will be treated for federal income tax purposes as having received income only at the time of such disposition, and that such income will be taxed as ordinary income only to the extent of an amount equal to the lesser of (1) the excess of the fair market value of the shares at the time of such disposition over the purchase price which I paid for the shares, or (2) 15% of the fair market value of the shares on the first day of the Offering Period. The remainder of the gain, if any, recognized on such disposition will be taxed as capital gain. 7. I hereby agree to be bound by the terms of the Employee Share Purchase Plan. The effectiveness of this Subscription Agreement is dependent upon my eligibility to participate in the Employee Share Purchase Plan. 8. In the event of my death, I hereby designate the following as my beneficiary(ies) to receive all payments and shares due me under the Employee Share Purchase Plan: NAME: (Please print) -------------------------------------------- (First) (Middle) (Last) ------------------------- -------------------------------------------- Relationship -------------------------------------------- (Address) Employee's Social Security Number: -------------------------------------------- Employee's Address: -------------------------------------------- -------------------------------------------- -2- 13 I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME. Dated: ------------------- -------------------------------------------- Signature of Employee -------------------------------------------- Spouse's Signature (If beneficiary other than spouse) -3- 14 EXHIBIT B CLICKSERVICE SOFTWARE LTD. 2000 EMPLOYEE SHARE PURCHASE PLAN NOTICE OF WITHDRAWAL The undersigned participant in the Offering Period of the ClickService Software Ltd. 2000 Employee Share Purchase Plan which began on ___________, ______ (the "Enrollment Date") hereby notifies the Company that he or she hereby withdraws from the Offering Period. He or she hereby directs the Company to pay to the undersigned as promptly as practicable all the payroll deductions credited to his or her account with respect to such Offering Period. The undersigned understands and agrees that his or her option for such Offering Period will be automatically terminated. The undersigned understands further that no further payroll deductions will be made for the purchase of shares in the current Offering Period and the undersigned shall be eligible to participate in succeeding Offering Periods only by delivering to the Company a new Subscription Agreement. Name and Address of Participant: ------------------------------------ ------------------------------------ ------------------------------------ Signature: ------------------------------------ Date: ------------------------------- EX-10.3 6 EX-10.3 1 EXHIBIT 10.3 CLICKSERVICE SOFTWARE LTD. EMPLOYMENT AGREEMENT This Agreement is entered into as of February 10, 2000, (the "Effective Date") by and between ClickService Software Ltd. (the "Company"), and Moshe Benbassat (the "Executive"). WHEREAS, Executive currently serves as the Chief Executive Officer of the Company; WHEREAS, the parties desire and agree to enter into an employment relationship by means of this Agreement; and NOW THEREFORE, in consideration of the promises and mutual covenants herein contained, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, it is mutually covenanted and agreed by and among the parties as follows: 1. Duties and Scope of Employment. (a) Positions and Duties. As of the Effective Date, Executive will continue to serve as Chief Executive Officer of the Company. Executive will render such business and professional services in the performance of his duties, consistent with Executive's position within the Company, as shall reasonably be assigned to him by the Company's Board of Directors (the "Board"). The period of Executive's employment under this Agreement is referred to herein as the "Employment Term." (b) Board Membership. During the Employment Term, Executive will serve as a member and Chairman of the Board, subject to the Company's Articles of Association. (c) Obligations. During the Employment Term, Executive will perform his duties faithfully and to the best of his ability and will devote his full business efforts and time to the Company. For the duration of the Employment Term, Executive agrees not to actively engage in any other employment, occupation or consulting activity for any direct or indirect remuneration without the prior approval of the Board. Notwithstanding the foregoing, Executive may serve on the board of directors of any other companies or work in academic pursuits as long as such service does not materially interfere with the performance of his duties to the Company. 2. At-Will Employment. The parties agree that the Executive's employment with the Company will be "at-will" employment and may be terminated at any time with or without cause or notice. Executive understands and agrees that neither his job performance nor promotions, commendations, bonuses or the like from the Company give rise to or in any way serve as the basis for modification, amendment, or extension, by implication or otherwise, of his employment with the Company. 3. Compensation. 2 (a) Base Salary. During the Employment Term, the Company will pay Executive as compensation for his services a base salary at the annualized rate of $225,000 (the "Base Salary"). The Base Salary will be paid periodically in accordance with the Company's normal payroll practices and be subject to the usual, required withholding. (b) Bonus. In addition to the Base Salary, Executive shall be entitled to earn an annual performance bonus of up to 100% of Base Salary (the "Bonus"). Such Bonus, if any, shall be based on the achievement of target milestones to be determined by the Compensation Committee of the Board after consultation with Executive and shall be paid on a quarterly basis. The Bonus may be reviewed annually by the Compensation Committee of the Board for possible increases in light of Executive's performance. (c) Relocation and Temporary Living Reimbursement. During the Employment Term, the Company will reimburse the Executive for: (i) reasonable moving expenses incurred by Executive and his family during their relocation from Executive's primary residence to the Company's headquarters, and (ii) reasonable housing and living expenses to be mutually agreed to by the Company and Executive. The total of all such amounts shall not exceed $75,000 per year. 4. Employee Benefits. During the Employment Term, Executive will be entitled to participate in the employee benefit plans currently and hereafter maintained by the Company of general applicability to other senior executives of the Company, including, without limitation, the Company's group medical, dental, vision, disability, life insurance, and flexible-spending account plans. The Company reserves the right to cancel or change the benefit plans and programs it offers to its employees at any time. 5. Vacation. Executive will be entitled to paid vacation of twenty-six (26) days per year in accordance with the Company's vacation policy, with the timing and duration of specific vacations mutually and reasonably agreed to by the parties hereto. 6. Expenses. The Company will reimburse Executive for reasonable travel, entertainment or other expenses incurred by Executive in the furtherance of or in connection with the performance of Executive's duties hereunder, in accordance with the Company's expense reimbursement policy as in effect from time to time. 7. Severance. (a) Involuntary Termination. If Executive's employment with the Company terminates other than for "Cause" (as defined herein), and Executive signs and does not revoke a standard release of claims with the Company, then, subject to Section 11, Executive shall be entitled to receive continuing payments of severance pay (less applicable withholding taxes) at a rate equal to his Base Salary rate, as then in effect, for a period of twelve (12) months from the date of such termination, to be paid, in Executive's discretion, (i) periodically in accordance with the Company's normal payroll policies or (ii) in a lump-sum within thirty (30) days of such termination. (b) Termination for Cause. If Executive's employment with the Company terminates for Cause by the Company, then Executive will only be eligible for severance benefits in accordance with the Company's established policies as then in effect. -2- 3 8. Change of Control Benefits. In the event of a "Change of Control" (as defined below) that occurs prior to the Executive's termination of service to the Company, the Option will have its vesting accelerated so as to become 100% vested. Thereafter, the Option will continue to be subject to the terms, definitions and provisions of the Option Plan and Option Agreement. 9. Definitions. (a) Cause. For purposes of this Agreement, "Cause" is defined as (i) an act of dishonesty made by Executive in connection with Executive's responsibilities as an employee, (ii) Executive's conviction of, or plea of nolo contendere to, a felony, or (iii) Executive's gross misconduct. (b) Change of Control. For purposes of this Agreement, "Change of Control" of the Company is defined as: (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing 50% or more of the total voting power represented by the Company's then outstanding voting securities; or (ii) a change in the composition of the Board occurring within a two-year period, as a result of which fewer than a majority of the directors are Incumbent Directors. "Incumbent Directors" will mean directors who either (A) are directors of the Company as of the date hereof, or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but will not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company); or (iii) the date of the consummation of a merger or consolidation of the Company with any other corporation that has been approved by the stockholders of the Company, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company; or (iv) the date of the consummation of the sale or disposition by the Company of all or substantially all the Company's assets. 10. Confidential Information. Executive agrees to enter into the Company's standard Confidential Information and Invention Assignment Agreement (the "Confidential Information Agreement") upon commencing employment hereunder. -3- 4 11. Conditional Nature of Severance Payments. (a) Noncompete. Executive acknowledges that the nature of the Company's business is such that if Executive were to become employed by, or substantially involved in, the business of a competitor of the Company during the twelve (12) months following the termination of Executive's employment with the Company, it would be very difficult for the Executive not to rely on or use the Company's trade secrets and confidential information. Thus, to avoid the inevitable disclosure of the Company's trade secrets and confidential information, Executive agrees and acknowledges that Executive's right to receive the severance payments set forth in Section 7 (to the extent Executive is otherwise entitled to such payments) shall be conditioned upon the Executive not directly or indirectly engaging in (whether as an employee, consultant, agent, proprietor, principal, partner, stockholder, corporate officer, director or otherwise), nor having any ownership interested in or participating in the financing, operation, management or control of, any person, firm, corporation or business that competes with Company or is a customer of the Company. Upon any breach of this section, all severance payments pursuant to this Agreement shall immediately cease. 12. Assignment. This Agreement will be binding upon and inure to the benefit of (a) the heirs, executors and legal representatives of Executive upon Executive's death and (b) any successor of the Company. Any such successor of the Company will be deemed substituted for the Company under the terms of this Agreement for all purposes. For this purpose, "successor" means any person, firm, corporation or other business entity which at any time, whether by purchase, merger or otherwise, directly or indirectly acquires all or substantially all of the assets or business of the Company. None of the rights of Executive to receive any form of compensation payable pursuant to this Agreement may be assigned or transferred except by will or the laws of descent and distribution. Any other attempted assignment, transfer, conveyance or other disposition of Executive's right to compensation or other benefits will be null and void. 13. Notices. All notices, requests, demands and other communications called for hereunder shall be in writing and shall be deemed given (i) on the date of delivery if delivered personally, (ii) one (1) day after being sent by a well established commercial overnight service, or (iii) four (4) days after being mailed by registered or certified mail, return receipt requested, prepaid and addressed to the parties or their successors at the following addresses, or at such other addresses as the parties may later designate in writing: If to the Company: ClickService Software Ltd. 3425 South Bascom Avenue, Suite 230 Campbell, CA 95008 Attn: Shimon Rojany If to Executive: at the last residential address known by the Company. -4- 5 14. Severability. In the event that any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement will continue in full force and effect without said provision. 15. Arbitration. (a) Executive agrees that any dispute or controversy arising out of, relating to, or in connection with this Agreement, or the interpretation, validity, construction, performance, breach, or termination thereof, shall be settled by binding arbitration to be held in Santa Clara County, California in accordance with the National Rules for the Resolution of Employment Disputes then in effect of the American Arbitration Association (the "Rules"). The arbitrator may grant injunctions or other relief in such dispute or controversy. The decision of the arbitrator will be final, conclusive and binding on the parties to the arbitration. Judgment may be entered on the arbitrator's decision in any court having jurisdiction. (b) The arbitrator(s) will apply California law to the merits of any dispute or claim, without reference to rules of conflicts of law. The arbitration proceedings will be governed by federal arbitration law and by the Rules, without reference to state arbitration law. The Executive hereby consents to the personal jurisdiction of the state and federal courts located in California for any action or proceeding arising from or relating to this Agreement or relating to any arbitration in which the parties are participants. (c) EXECUTIVE HAS READ AND UNDERSTANDS THIS SECTION, WHICH DISCUSSES ARBITRATION. EXECUTIVE UNDERSTANDS THAT BY SIGNING THIS AGREEMENT, EXECUTIVE AGREES TO SUBMIT ANY CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION WITH THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH OR TERMINATION THEREOF TO BINDING ARBITRATION, AND THAT THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER OF EXECUTIVE'S RIGHT TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THE EMPLOYER/EMPLOYEE RELATIONSHIP, INCLUDING BUT NOT LIMITED TO, DISCRIMINATION CLAIMS. 16. Integration. This Agreement, together with the Option Plan, Option Agreement and the Confidential Information Agreement represents the entire agreement and understanding between the parties as to the subject matter herein and supersedes all prior or contemporaneous agreements whether written or oral. No waiver, alteration, or modification of any of the provisions of this Agreement will be binding unless in writing and signed by duly authorized representatives of the parties hereto. 17. Tax Withholding. All payments made pursuant to this Agreement will be subject to withholding of applicable taxes. 18. Governing Law. This Agreement will be governed by the laws of the State of California (with the exception of its conflict of laws provisions). -5- 6 19. Acknowledgment. Executive acknowledges that he has had the opportunity to discuss this matter with and obtain advice from his private attorney, has had sufficient time to, and has carefully read and fully understands all the provisions of this Agreement, and is knowingly and voluntarily entering into this Agreement. -6- 7 IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by their duly authorized officers, as of the day and year first above written. CLICKSERVICE SOFTWARE LTD. By: Date: ------------------------ ------------------------------- Title: --------------------- EXECUTIVE /s/ Moshe Ben-Bassat --------------------------- Date: Moshe Ben-Bassat ------------------------------- -7- EX-10.4 7 EX-10.4 1 EXHIBIT 10.4 CLICKSERVICE SOFTWARE LTD. EMPLOYMENT AGREEMENT This Agreement is entered into as of February 10, 2000, (the "Effective Date") by and between ClickService Software Ltd. (the "Company"), and Shimon Rojany (the "Executive"). WHEREAS, Executive currently serves as the Chief Financial Officer of the Company; WHEREAS, the parties desire and agree to enter into an employment relationship by means of this Agreement; and NOW THEREFORE, in consideration of the promises and mutual covenants herein contained, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, it is mutually covenanted and agreed by and among the parties as follows: 1. Duties and Scope of Employment. (a) Positions and Duties. As of the Effective Date, Executive will continue to serve as Chief Financial Officer of the Company. Executive will render such business and professional services in the performance of his duties, consistent with Executive's position within the Company, as shall reasonably be assigned to him by the Company's Board of Directors (the "Board"). The period of Executive's employment under this Agreement is referred to herein as the "Employment Term." (b) Obligations. During the Employment Term, Executive will perform his duties faithfully and to the best of his ability and will devote his full business efforts and time to the Company. For the duration of the Employment Term, Executive agrees not to actively engage in any other employment, occupation or consulting activity for any direct or indirect remuneration without the prior approval of the Board. Notwithstanding the foregoing, Executive may serve on the board of directors of any other companies or work in academic pursuits as long as such service does not materially interfere with the performance of his duties to the Company. 2. At-Will Employment. The parties agree that the Executive's employment with the Company will be "at-will" employment and may be terminated at any time with or without cause or notice. Executive understands and agrees that neither his job performance nor promotions, commendations, bonuses or the like from the Company give rise to or in any way serve as the basis for modification, amendment, or extension, by implication or otherwise, of his employment with the Company. 3. Compensation. (a) Base Salary. During the Employment Term, the Company will pay Executive as compensation for his services a base salary at the annualized rate of $185,000 (the "Base Salary"). 2 The Base Salary will be paid periodically in accordance with the Company's normal payroll practices and be subject to the usual, required withholding. (b) Bonus. In addition to the Base Salary, Executive shall be entitled to earn an annual performance bonus of up to $45,000 (the "Bonus"). Such Bonus, if any, shall be based on the achievement of target milestones to be determined by the Compensation Committee of the Board after consultation with Executive and shall be paid on a quarterly basis. The Bonus may be reviewed annually by the Compensation Committee of the Board for possible increases in light of Executive's performance. 4. Employee Benefits. During the Employment Term, Executive will be entitled to participate in the employee benefit plans currently and hereafter maintained by the Company of general applicability to other senior executives of the Company, including, without limitation, the Company's group medical, dental, vision, disability, life insurance, and flexible-spending account plans. The Company reserves the right to cancel or change the benefit plans and programs it offers to its employees at any time. 5. Vacation. Executive will be entitled to paid vacation of twenty-one (21) days per year in accordance with the Company's vacation policy, with the timing and duration of specific vacations mutually and reasonably agreed to by the parties hereto. 6. Expenses. The Company will reimburse Executive for reasonable travel, entertainment or other expenses incurred by Executive in the furtherance of or in connection with the performance of Executive's duties hereunder, in accordance with the Company's expense reimbursement policy as in effect from time to time. In addition, the Company shall pay Executive an annual auto allowance in an amount not to exceed $6,000 per year. 7. Severance. (a) Involuntary Termination. If Executive's employment with the Company terminates other than for "Cause" (as defined herein), and Executive signs and does not revoke a standard release of claims with the Company, then, subject to Section 11, Executive shall be entitled to receive continuing payments of severance pay (less applicable withholding taxes) at a rate equal to his Base Salary rate, as then in effect, for a period of six (6) months from the date of such termination, to be paid, in Executive's discretion, (i) periodically in accordance with the Company's normal payroll policies or (ii) in a lump-sum within thirty (30) days of such termination. (b) Termination for Cause. If Executive's employment with the Company terminates for Cause by the Company, then Executive will only be eligible for severance benefits in accordance with the Company's established policies as then in effect. 8. Definition. (a) Cause. For purposes of this Agreement, "Cause" is defined as (i) an act of dishonesty made by Executive in connection with Executive's responsibilities as an employee, (ii) Executive's conviction of, or plea of nolo contendere to, a felony, or (iii) Executive's gross misconduct. -2- 3 9. Confidential Information. Executive agrees to enter into the Company's standard Confidential Information and Invention Assignment Agreement (the "Confidential Information Agreement") upon commencing employment hereunder. 10. Conditional Nature of Severance Payments. (a) Noncompete. Executive acknowledges that the nature of the Company's business is such that if Executive were to become employed by, or substantially involved in, the business of a competitor of the Company during the six (6) months following the termination of Executive's employment with the Company, it would be very difficult for the Executive not to rely on or use the Company's trade secrets and confidential information. Thus, to avoid the inevitable disclosure of the Company's trade secrets and confidential information, Executive agrees and acknowledges that Executive's right to receive the severance payments set forth in Section 7 (to the extent Executive is otherwise entitled to such payments) shall be conditioned upon the Executive not directly or indirectly engaging in (whether as an employee, consultant, agent, proprietor, principal, partner, stockholder, corporate officer, director or otherwise), nor having any ownership interested in or participating in the financing, operation, management or control of, any person, firm, corporation or business that competes with Company or is a customer of the Company. Upon any breach of this section, all severance payments pursuant to this Agreement shall immediately cease. 11. Assignment. This Agreement will be binding upon and inure to the benefit of (a) the heirs, executors and legal representatives of Executive upon Executive's death and (b) any successor of the Company. Any such successor of the Company will be deemed substituted for the Company under the terms of this Agreement for all purposes. For this purpose, "successor" means any person, firm, corporation or other business entity which at any time, whether by purchase, merger or otherwise, directly or indirectly acquires all or substantially all of the assets or business of the Company. None of the rights of Executive to receive any form of compensation payable pursuant to this Agreement may be assigned or transferred except by will or the laws of descent and distribution. Any other attempted assignment, transfer, conveyance or other disposition of Executive's right to compensation or other benefits will be null and void. 12. Notices. All notices, requests, demands and other communications called for hereunder shall be in writing and shall be deemed given (i) on the date of delivery if delivered personally, (ii) one (1) day after being sent by a well established commercial overnight service, or (iii) four (4) days after being mailed by registered or certified mail, return receipt requested, prepaid and addressed to the parties or their successors at the following addresses, or at such other addresses as the parties may later designate in writing: If to the Company: ClickService Software Ltd. 3425 South Bascom Avenue, Suite 230 Campbell, CA 95008 Attn: Shimon Rojany If to Executive: -3- 4 at the last residential address known by the Company. 13. Severability. In the event that any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement will continue in full force and effect without said provision. 14. Arbitration. (a) Executive agrees that any dispute or controversy arising out of, relating to, or in connection with this Agreement, or the interpretation, validity, construction, performance, breach, or termination thereof, shall be settled by binding arbitration to be held in Santa Clara County, California in accordance with the National Rules for the Resolution of Employment Disputes then in effect of the American Arbitration Association (the "Rules"). The arbitrator may grant injunctions or other relief in such dispute or controversy. The decision of the arbitrator will be final, conclusive and binding on the parties to the arbitration. Judgment may be entered on the arbitrator's decision in any court having jurisdiction. (b) The arbitrator(s) will apply California law to the merits of any dispute or claim, without reference to rules of conflicts of law. The arbitration proceedings will be governed by federal arbitration law and by the Rules, without reference to state arbitration law. The Executive hereby consents to the personal jurisdiction of the state and federal courts located in California for any action or proceeding arising from or relating to this Agreement or relating to any arbitration in which the parties are participants. (c) EXECUTIVE HAS READ AND UNDERSTANDS THIS SECTION, WHICH DISCUSSES ARBITRATION. EXECUTIVE UNDERSTANDS THAT BY SIGNING THIS AGREEMENT, EXECUTIVE AGREES TO SUBMIT ANY CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION WITH THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH OR TERMINATION THEREOF TO BINDING ARBITRATION, AND THAT THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER OF EXECUTIVE'S RIGHT TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THE EMPLOYER/EMPLOYEE RELATIONSHIP, INCLUDING BUT NOT LIMITED TO, DISCRIMINATION CLAIMS. 15. Integration. This Agreement, together with the Option Plan, Option Agreement and the Confidential Information Agreement represents the entire agreement and understanding between the parties as to the subject matter herein and supersedes all prior or contemporaneous agreements whether written or oral. No waiver, alteration, or modification of any of the provisions of this Agreement will be binding unless in writing and signed by duly authorized representatives of the parties hereto. 16. Tax Withholding. All payments made pursuant to this Agreement will be subject to withholding of applicable taxes. 17. Governing Law. This Agreement will be governed by the laws of the State of California (with the exception of its conflict of laws provisions). -4- 5 18. Acknowledgment. Executive acknowledges that he has had the opportunity to discuss this matter with and obtain advice from his private attorney, has had sufficient time to, and has carefully read and fully understands all the provisions of this Agreement, and is knowingly and voluntarily entering into this Agreement. -5- 6 IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by their duly authorized officers, as of the day and year first above written. CLICKSERVICE SOFTWARE LTD. By: Date: ------------------------ ------------------------------- Title: --------------------- EXECUTIVE /s/ Shimon Rojany --------------------------- Date: Shimon Rojany ------------------------------- -6- EX-23.1 8 EX-23.1 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report dated February 14, 2000 (and to all references to our Firm) included in or made a part of this registration statement filed on Form S-1 registering Ordinary Shares. Luboshitz Kasierer Member firm of Arthur Andersen Tel Aviv February 14, 2000 EX-27.1 9 EX-27.1
5 1000 YEAR YEAR DEC-31-1998 DEC-31-1999 JAN-01-1998 JAN-01-1999 DEC-31-1998 DEC-31-1999 3,770 7,838 0 0 2,041 4,096 0 (130) 0 0 6,250 12,269 2,763 3,467 (1,523) (1,969) 7,983 14,195 2,072 4,262 0 0 0 0 52 60 13 13 4,592 8,748 7,983 14,195 6,071 10,326 6,071 10,326 2,326 4,370 2,326 4,370 9,636 13,681 0 0 152 137 (5,858) (7,979) 0 0 (5,858) (7,979) 0 0 0 0 0 0 (5,858) (7,979) (0.99) (1.34) (0.99) (1.34)
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