-----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, JAKQyhnQnBPi3BnsiE25M3NIIFndGGbZ1N6PLghT9uy26Dj19UekJGLq9xHvILsh hqWMHaeoFfPGwqlgspCfjQ== 0000912057-01-523982.txt : 20010717 0000912057-01-523982.hdr.sgml : 20010717 ACCESSION NUMBER: 0000912057-01-523982 CONFORMED SUBMISSION TYPE: 20-F PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010716 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MARNETICS BROADBAND TECHNOLOGIES LTD CENTRAL INDEX KEY: 0001062447 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRICAL WORK [1731] FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 20-F SEC ACT: SEC FILE NUMBER: 001-14886 FILM NUMBER: 1682084 BUSINESS ADDRESS: STREET 1: 10 HAYETZIRA STREET STREET 2: PO BOX 2640 CITY: RA ANANA ISRAEL STATE: L3 FORMER COMPANY: FORMER CONFORMED NAME: STAV ELECTRICAL SYSTEMS LTD DATE OF NAME CHANGE: 19980526 20-F 1 a2054264z20-f.txt 20-F SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 20-F (Mark One) [ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or (g) OF THE SECURITIES EXCHANGE ACT OF 1934 OR [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended DECEMBER 31, 2000. OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to _______________ Commission file number 000-29736 MARNETICS BROADBAND TECHNOLOGIES LTD. (Exact Name of Registrant as specified in its charter) NOT APPLICABLE (Translation of Registrant's name into English ISRAEL (Jurisdiction of incorporation or organization) 10 HAYETZIRA STREET RA'ANANA 43000 ISRAEL ---------------------- (Address of principal executive offices) Securities registered or to be registered pursuant to Section 12(b) of the Act: Title of each Name of each exchange Class on which registered ------------ -------------------- None Securities registered to or to be registered pursuant to Section 12(g) of the Act. ORDINARY SHARES, NOMINAL VALUE NIS 0.08 PER SHARE (Title of Class) Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act. NONE (Title of Class) Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report. As of December 31, 2000, 6,407,333 of the Registrant's Ordinary Shares, par value NIS 0.08 per share, were issued and outstanding. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark which financial statement item the registrant has elected to follow Item 17 Item 18 X --- --- CAUTIONARY STATEMENT Our disclosure and analysis in this report contains statements relating to future results of Marnetics Broadband Technologies Ltd. (the "COMPANY," which may be referred to as "WE," "US" or "OUR" and unless context indicates otherwise, includes its wholly-owned subsidiary, Marnetics, Ltd.) (including certain projections and business trends) that are considered "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected as a result of certain risks and uncertainties, including but not limited to, changes in economic conditions and competitive pressures within the Company's markets, as well as other risks and uncertainties detailed from time to time in the filings of the Company with the Securities and Exchange Commission. PART I ITEM 1. NOT APPLICABLE. ITEM 2. NOT APPLICABLE. ITEM 3. KEY INFORMATION. A. Selected Financial Data The following selected summary of financial information was derived from our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. Effective December 31, 2000, Marnetics Ltd. was acquired by the Company (formerly named Stav Electrical Systems (1994) Ltd.) in exchange for which the Company issued to the shareholders and optionholders of Marnetics Ltd. shares and options in the Company representing approximately 75% of its outstanding shares, on a fully diluted basis. The acquisition of Marnetics Ltd. by the Company was accounted for as a reverse acquisition. Marnetics Ltd. was determined to be the "accounting acquirer" in the transaction since the former shareholders and optionholders of Marnetics Ltd., as a group, received the largest ownership interest in the Company. As a result, the historical financial statements of the Company prior to December 31, 2000 were replaced with the historical financial statements of Marnetics Ltd. Therefore, the following financial summary of the Company refers to the results of operation of Marnetics Ltd. The selected summary data should be read in conjunction with and are qualified in their entirety by our Consolidated Financial Statements and notes thereto, which are presented elsewhere herein and by reference to "Item 5: Operations and Financial Review and Prospects." 2
CUMULATIVE FROM JUNE 1, 1998 (DATE OF SEVEN MONTHS COMMENCEMENT OF YEAR ENDED ENDED OPERATIONS) TO DECEMBER 31, DECEMBER 31, DECEMBER 31, --------------- ------------ ------------ 2000 1999 1998(1) 2000 ---- ---- ------- ---- US$ IN THOUSANDS Research and development costs 252 33 131 416 Sales and marketing expenses, net 142 -- -- 142 General and administrative expenses 722 44 181 947 Non-cash compensation expenses 2,408 2,408 -------- -------- -------- -------- OPERATING LOSS (3,524) (77) (312) (3,913) Financial income, net 167 9 8 184 Loss on sale of property and equipment -- (28) -- (28) Share in losses of affiliate (639) (21) -- (660) -------- -------- -------- -------- LOSS FOR THE PERIOD (3,996) (117) (304) (4,417) ======== ======== ======== ======== Per share data (Note 2h) Loss per share: Basic and diluted (4.15) (0.20) (0.91) Shares used in computing Loss per ordinary share Basic and diluted 962,553 575,234 335,143
AT DECEMBER 31, ------------------------------ BALANCE SHEET DATA 2000 1999 1998(1) ---- ---- ------- Working capital.................... 4,925 282 342 Total assets....................... 25,376 418 445 Short term credits and current maturities of long-term debt....... 3,337 -- -- Long-term debt..................... 213 -- -- Shareholders' equity............... 18,527 408 379
- ---------------------------------------- (1) Marnetics Ltd. was established and commenced its operations in June 1998 B. NOT APPLICABLE. C. NOT APPLICABLE. D. RISK FACTORS The Company's operations consist of two lines of business: (1) our current core business of developing and marketing Internet performance enhancement solutions (the "INTERNET BUSINESS"), which is handled through our wholly-owned subsidiary, Marnetics Ltd. (the "MARNETICS SUBSIDIARY"), and (2) our historical business of electrical and communications contracting and engineering business (the "ELECTRICAL BUSINESS"), which we propose to sell, following a request for bids announced on May 15, 2001 and concluded on May 30, 2001, and subject to shareholders' approval at our Annual General Meeting scheduled to be held in the third quarter, 2001. See "ITEM 8B - SIGNIFICANT CHANGES." 3 RISKS RELATING TO INTERNET BUSINESS TECHNOLOGICAL FACTORS; UNCERTAINTY OF PRODUCT DEVELOPMENT Our products are still under development. No assurances can be given that our investment in research and development will be translated into marketable products. There can be no assurance that any of our products in development will satisfactorily perform all of the functions for which they have been designed or that they will be reliable or durable in extensive applications. Such efforts remain subject to all of the risks inherent in development of new products, including unanticipated delays, expenses and technical problems or difficulties, as well as the possible insufficiency of funds to implement efforts, which could result in abandonment or substantial change in product development. Our success will depend upon our products meeting targeted cost and performance objectives and the timely introduction of products into the marketplace. In order to obtain a strong market position, we must continue to allocate substantial resources to research and development and there is no guarantee that we will have the necessary funds to be able to keep pace with the rate of technological change. INTELLECTUAL PROPERTY RIGHTS Our success is substantially dependent upon our proprietary software technology. We do not yet hold any patents related to our software technology and currently rely or, in the future, expect to rely on a combination of contractual rights, copyrights, trademarks, and non-disclosure agreements with our employees, suppliers, distributors and customers. Marnetics submitted a patent application on December 6, 2000 (US Patent Application No. 2196/1), for a method of data transfer acceleration in a TCP network environment, which is the core engine in BITmax(TM). The patent application is still pending. We intend to file additional patent applications in Israel and the United States for new technologies currently under development. The methods used and proposed for the protection of our intellectual property rights, however, may not afford complete protection and there can be no assurance that third parties will not independently develop such know-how or obtain access to our know-how, ideas, concepts and documentation. Although we believe that our products have been developed independently and do not infringe on the proprietary rights of others, there can be no assurances that the technology does not and will not so infringe or that third parties will not assert infringement claims against us in the future. In the case of infringement, we could, under certain circumstances, be required to modify our products or obtain a license. There can be no assurance that we would be able to do either in a timely manner, upon acceptable terms and conditions, or at all, or that we will have the financial or other resources necessary to defend successfully a patent infringement or other proprietary rights infringement action. Failure to do any of the foregoing could have a material adverse effect on us. Furthermore, if our products or technologies are deemed to infringe upon the rights of others, we could become liable for damages, which would have a material adverse effect on us. 4 RISKS ASSOCIATED WITH ACQUISITION STRATEGY GENERAL. As part of its operating history and growth strategy, the Company seeks to acquire other businesses. The Company continually seeks acquisition candidates in selected and, if possible, synergetic markets and from time to time engages in exploratory discussions with potential acquisition candidates. There can be no assurance, however, that the Company will be able to identify and acquire targeted businesses or obtain financing for such acquisitions on satisfactory terms. Furthermore, there can be no assurance that competition for acquisition candidates will not escalate, thereby increasing the costs of making acquisitions or making suitable acquisitions unattainable. LIMITED KNOWLEDGE AND OPERATING HISTORY. Notwithstanding its own due diligence investigation, management may have limited knowledge about the specific operating history, trends and customers of businesses acquired in future acquisitions. Consequently, no assurance can be given that the Company will be able to make future acquisitions at favorable prices, that acquired lines of business will perform as well as they had performed historically or that the Company will have sufficient information to analyze accurately the markets in which it elects to make acquisitions. Furthermore, additions by the Company of new products present certain risks and uncertainties resulting from the Company's relative unfamiliarity with these new products, the market for such new products, and the financial and operating controls required to manage such new product offerings. There can be no assurance that the Company will be successful in marketing these or other additions to its product offering or that its existing customers will accept such additions to the products currently purchased from the Company. INTEGRATION. The process of integrating future acquired businesses into the Company's operations may result in unforeseen difficulties and may require a disproportionate amount of resources and management attention. Although the Company will endeavor to integrate and assimilate the operations of acquired lines of business in an effective and timely manner, no assurance can be given that the Company will be successful in such integration attempts or that the Company will be able to hire, train, retain and assimilate individuals employed at the acquired businesses. Further, no assurance can be given that the Company will successfully integrate its recent acquisitions or any other future acquired businesses into the Company's purchasing, marketing and management information systems, or that the Company's management and financial controls, personnel, computer systems and other corporate support systems will be adequate to manage the increase in the size and scope of the Company's operations and acquisition activity. Integration of acquisitions is often a complex process which may entail material, non-recurring expenditures, including facility closing costs, warehouse assimilation expenses, asset writedowns and severance payments. SIGNIFICANT FUTURE CHARGES TO EARNINGS. Future acquisitions may involve the recording of a significant amount of intangible assets, particularly goodwill, on the Company's balance sheet, which will be amortized over varying periods of time. 5 LIMITED RELEVANT OPERATING HISTORY OF MARNETICS SUBSIDIARY; 1999 BUSINESS CONTRACTION The Marnetics Subsidiary, which is the operating entity for the Internet Business, has been in operation since June 1998. Accordingly, the Marnetics Subsidiary has a limited relevant operating history upon which an evaluation of the Marnetics Subsidiary's performance and prospects can be made. The Marnetics Subsidiary is subject to all of the risks, expenses, delays, problems, and difficulties typically encountered in the establishment of a new business. In 1999, while our technology was in the research and development stage, as a result of differing views on which market the Marnetics Subsidiary should target for product development, and the ultimate decision to focus on the broadband Internet business market, the initial investors, who desired to focus the Marnetics Subsidiary's business on the end-user market, did not want to continue funding the Marnetics Subsidiary's start-up operations. Consequently, there was then a need to conserve cash and scale back operations until, the Marnetics Subsidiary found new financing and investors. Later that same year, the Marnetics Subsidiary was able to attract new investors and obtain additional capital resources to enable it to renew research and development efforts targeting the Internet broadband business market. The interests of such initial investors in the Marnetics Subsidiary were bought out at that time. TECHNOLOGY MARKET DECLINE AND SLOWDOWN IN BROADBAND IMPLEMENTATION Phenomenal investments in 3G cellular frequencies and telecom infrastructure during the past several years, contributed to the global decline of technology markets in early 2001. The anticipated rapid adoption of broadband Internet access has been significantly delayed both in Europe and the United States, due to technological and financial considerations. Obtaining investments from venture capital firms has become increasingly difficult. The market is currently characterized by massive lay-offs, severe budget cuts, closings of under-financed and under-performing companies, and major reductions in purchases and investments that do not contribute immediately and directly to revenues and profits. The state of the global broadband environment and technology industry materially adversely affected the results of operations for our Broadband enhancement products and services. COMPETITION; TECHNOLOGICAL OBSOLESCENCE The market for solutions improving the performance and speed of Internet connections and for expanding the capacity for communication networks is characterized by intense competition, price erosion over the life of the product and rapidly changing business conditions, customer requirements and technology. Our management believes that currently, the Company has few, if any, direct competitors for its Internet Business which combines capacity enhancement with acceleration and differentiated services. It is also anticipated that our new product line will enhance rather than conflict with other Internet performance enhancement solutions. Our products may, in the future, compete directly with or be rendered obsolete by products developed and marketed by numerous well-established companies, including traffic management vendors, network optimization solution developers 6 and cellular vendors. In addition, our products will compete indirectly with other Internet performance solutions and enhancements. Many of these competitors have substantially greater financial, technical, personnel and other resources than the Company and have established reputations for success in the development, licensing, and sale of their products and technology. Certain of these competitors are industry leaders with the financial resources necessary to enable them to withstand substantial price competition or downturns in the market. There are also numerous other companies that have developed or may be expected to develop technologies or products that may be functionally similar to some or all of those being developed by us. There can be no assurance that other companies with greater financial resources and expertise do not have or are not currently developing functionally equivalent or superior products, or that functionally equivalent or superior products will not become available in the near future. In addition, the markets for our technology, products and proposed products are characterized by rapid changes and evolving industry standards, often resulting in product obsolescence or shortened product life span. Accordingly, our ability to compete will be dependent upon our ability continually to enhance and improve our future products and technologies, and to complete development of new products. There can be no assurance that we will be able to compete successfully, that our competitors or future competitors will not develop technologies or products that will render our products and technology obsolete or less marketable, or that the Company will be able to successfully enhance or satisfactorily adapt our existing technology or develop new products. COMPETITION AND PRICING The Company may face strong competition by large and well-established players in the communications and Internet industries. Thus, our products may come under competitive pressure in terms of feasibility and price with a negative impact on future performance. PROPOSED EXPANSION The Company intends to pursue a strategy of growth. We have, however, limited experience in effectuating rapid expansion or in managing operations that are geographically dispersed. We intend to pursue our growth strategy by entering into strategic alliances for the marketing of our products or technology (OEM Agreements), hiring and retaining skilled management, as well as financial, marketing, technical, and other personnel and successfully managing growth (including monitoring operations and controlling costs and maintaining effective quality controls). Our prospects could be adversely affected by unfavorable general economic conditions, including any downturns in the Israeli or international economies, or a decline in the economic prospects of particular governmental or commercial customers or segments or targeted markets, which could result in reduction or deferral of expenditures by prospective customers. There can be no assurance that we will be able to achieve significant market acceptance of future products, successfully introduce new products, or achieve significant penetration in new geographic markets. Our products may require a sophisticated marketing and sales effort targeted at several levels within a prospective customer's organization. We have recently expanded our marketing and sales staff and plan to further increase our staff, including sales, technical and 7 customer support personnel. Competition for qualified sales personnel is intense and we may not be able to hire sufficient sales personnel to support our marketing efforts. As the Company grows, we will need to increase our staff to support new customers, as well as our continued research and development operations. The installation of Internet traffic management solutions, the integration of these solutions into existing networks and ongoing support can be complex. Accordingly, the Company needs highly-trained technical and customer support personnel. Hiring technical and customer support personnel is very competitive in this industry, due to the limited number of people available with the necessary technical skills and understanding of our products. This is particularly true in Israel, where competition for such personnel is intense. Our success depends upon our ability to attract, train and retain highly-qualified technical and customer support personnel. SIGNIFICANT CAPITAL REQUIREMENTS; NEED FOR ADDITIONAL FINANCING; DEPENDENCE ON FINANCING TO IMPLEMENT EXPANSION The Company's capital requirements have been and will continue to be significant and our cash requirements have historically exceeded and will likely exceed cash flow from operations. As a result, we may need to depend upon bank credit lines and sales of the Company's securities to fund our development and marketing activities. The Company's ability to obtain additional financing, and the terms of any such financing, could be adversely affected by a variety of existing circumstances. No assurance can be given that the Company will be able to obtain such financing or that the financing obtained will be on terms satisfactory or favorable to the Company. LIMITED MARKETING CAPABILITIES; DEPENDENCE ON THIRD PARTY MARKETING ARRANGEMENTS The Company has not yet commenced marketing activities relating to product commercialization and has limited marketing experience and limited financial, personnel and other resources to undertake extensive marketing activities independently. Accordingly, we may rely on arrangements with third parties for the marketing and distribution of our products, including arrangements with distributors. There can be no assurance that we or any third parties will be able to market our products successfully or that their efforts will result in any significant revenue. The Company could also be dependent upon such dealers and distributors and other third parties to provide installation and support services. To the extent that such third parties provide inadequate services and support, over which we will not have direct control, our reputation and our ability to continue to sell additional products through such distributors or dealers would be adversely affected. While we believe that any independent distributors or other strategic partners with which it enters into such arrangements will have an economic motivation to commercialize our products, the time and resources devoted to these activities generally will be contributed and controlled by such entities and not by us. A decline in the financial prospects of particular distributors or other strategic partners or of any of their customers, could have an adverse effect on the Company. Moreover, joint ventures or similar arrangements may require financial or other commitments by us. There can be no assurance that we will be able, for financial or other reasons, to finalize any additional third party distribution, marketing, or joint venture 8 arrangements or that such arrangements, if finalized, will result in the successful commercialization of any of our products. RELIANCE ON INTERNATIONAL SALES The Company anticipates having sales outside of Israel, but there can be no assurance that we will be able to do so or that such markets will be viable. To the extent we are able to expand successfully, it will become increasingly subject to the risks associated with international sales, including economic and political instability, shipping delays, customs duties, export quotas, and other trade restrictions, any of which could have a significant impact on our ability to deliver products on a competitive and timely basis and exacerbate the risks inherent in our business. In addition, we may encounter significant difficulties in connection with the sales of our products in international markets, future imposition of, or significant increases in, the level of custom duties, export quotas, or other trade restrictions that may have an adverse effect on us. CURRENCY EXCHANGE RISKS ASSOCIATED WITH INTERNATIONAL SALES It is anticipated that most of our revenues will be derived in currencies other than NIS, while a significant portion of our expenses are currently incurred in NIS. Therefore, the Company may be adversely affected by fluctuations in currency exchange rates. We have not engaged in currency-hedging transactions intended to reduce the effect of fluctuations in foreign currency exchange rates on our results of operations. Even if we were to determine that it was in our best interests to enter into any such hedging transactions in the future, there can be no assurance that we will be able to do so or that such transactions, if entered into, will materially reduce the effect of fluctuations in foreign currency exchange rates on our results of operations. In addition, the imposition of exchange or price controls or other restrictions on the conversion of foreign currencies into NIS may have a material adverse effect on our results of operations. POTENTIAL PRODUCT LIABILITY; WARRANTY EXPENSE The Company may be exposed to potential product liability claims by our customers and users of our products. We may experience future material warranty expense. DEPENDENCE ON KEY PERSONNEL The success of the Company will be largely dependent on the abilities and continued personal efforts of Marnetics Ltd.'s senior management, particularly those of Menachem Reinschmidt, Founder of Marnetics Ltd. and President of the Company; David Sheetrit, Acting Chief Executive Officer and Chief Operating Officer; Isaac Nissim, Chief Financial Officer; Hanoch Newman, Vice President of Research and Development; Karen Gold Anisfeld, Vice President Strategic Marketing; Ron Nuta, Director of Business Development; and Baruch Schechter, Director of Marketing. Although some of the officers have entered into employment/consulting agreements with the Company, these employment/consulting agreements are terminable on relatively short notice. The loss of the services of one or more of such key personnel would have a material effect on our ability to develop or commercialize our products and technologies. 9 REGULATION We intend to provide the Company's products to customers located throughout the United States and in several foreign countries. As a result, the Company may be required to qualify to do business, or be subject to tax or other laws and regulations, in these jurisdictions even if it does not have a physical presence or employees or property in these jurisdictions. The application of these multiple sets of laws and regulations is uncertain, but we could find the Company is subject to regulation, taxation, enforcement or other liability in unexpected ways, which could materially adversely affect our business, financial condition and results of operations. CONTROL BY PRINCIPAL SHAREHOLDERS As of July 10, 2001, our Executive Officers and Directors and principal shareholders will beneficially own an aggregate of 89% of the Company's Ordinary Shares. Such Shareholders, if voting together, would likely have sufficient voting power to elect a majority of the Board of Directors, exercise control of the business, policies and affairs of the Company and, in general, determine the outcome of any corporate transaction or other matter submitted to Shareholders for approval such as: (i) any amendment to the Company's Articles of Association, (ii) any merger, consolidation, sale of all or substantially all of the assets of the Company and (iii) any privatization transaction, and in general prevent or cause a change in control of the Company, all of which may adversely affect the Company and its Shareholders. In addition, certain shareholders have the right to appoint members of the Board of Directors. Although certain shareholders are contractually obligated to vote for certain director nominees, there is no joint ownership of the shares held by such shareholders under Israeli law and such shareholders do not constitute a "controlling group" under Israeli corporate or securities laws. SEE "ITEM 6A - DIRECTORS AND SENIOR MANAGEMENT" and "ITEM 7-MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS." RISKS RELATING TO SALE OF ELECTRICAL BUSINESS FAILURE TO COMPLETE THE ASSET SALE COULD NEGATIVELY IMPACT THE COMPANY'S STOCK PRICE, FUTURE BUSINESS AND OPERATIONS. If the Asset Sale is not completed for any reason, the Company may be subject to a number of material risks, including the following: o The price of our Ordinary Shares may decline to the extent that the current market price of our Ordinary Shares reflects a market assumption that the Asset Sale will be completed; o We would have to assume liabilities for certain expenses, debts and losses relating to the Electrical Business that were transferred to the buyer of the Electrical Business effective as of March 31, 2001; and o Certain costs related to the Asset Sale, such as legal, accounting and financial advisor fees, must be paid even if the transaction is not completed. If our Board of Directors determines to seek another buyer for the assets relating to the Electrical Business, we may be unable to find a buyer willing to enter into such a transaction on terms at least comparable to the terms offered by Mr. Dov Strikovsky. 10 RISKS RELATING TO MARNETICS' LOCATION IN ISRAEL RISK OF POLITICAL INSTABILITY. Our principal offices and the research and development facilities of the Company are located in Israel and, thus, are directly affected by economic, political and military conditions in Israel. Since the establishment of the State of Israel in 1948, a state of hostility has existed, varying in degree and intensity, between Israel and various Arab countries. In addition, Israel and companies doing business with Israel have been the subject of an economic boycott by the Arab countries since Israel's establishment. Although Israel has entered into various agreements with Egypt, Jordan and the Palestinian Authority and various declarations have been signed in connection with efforts to resolve some of the aforementioned problems, no prediction can be made as to whether a full resolution of these problems will be achieved or as to the nature of any such resolution. Since October 2000, there has been a substantial deterioration in the relationship between Israel and the Palestinians, which has resulted in increased violence. The future effect of this deterioration and violence on the Israeli economy and our operations is unclear. Ongoing violence between Israel and its Arab neighbors and the Palestinians have had a material adverse impact on the Electrical Business and our financial condition. However, there can be no assurance that continuation of these problems will not have such an impact in the future. HISTORY OF INFLATION. In the early to mid-1980s, Israel's economy was subject to a period of very high inflation. However, inflation was significantly reduced by the late 1980s due primarily to government intervention. The annual rate of inflation in Israel was 10.6% for 1996, 7.0% for 1997, 8.6% for 1998, 1.3% for 1999 and 0% for 2000. The dollar "carrying value" of certain assets and liabilities of the Company which are denominated or payable in NIS are influenced by the rate of inflation in Israel compared with that of the United States and prevailing NIS/dollar exchange rates. Increases in inflation in Israel could have an adverse impact on our results of operations if the rate of inflation increases without a corresponding devaluation of the NIS against the dollar. MILITARY RESERVE DUTY. 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. We have operated effectively under these requirements since our inception. No prediction can be made as to the effect on the Company of any expansion of these obligations. INCOME TAXATION. Non-residents of Israel are subject to income tax on certain income (including cash dividends) derived from sources in Israel. The convention between the State of Israel and the federal government of the United States with respect to taxes on income provides for a maximum tax of 25% on dividends paid to residents of the United States. 11 ITEM 4. INFORMATION ON THE COMPANY A. History and Development of the Company. The Company was formed in 1994 as Stav Electrical Systems (1994) Ltd., a State of Israel corporation. From 1994 through 2000, the Company was an electrical and communications contracting and engineering firm engaged in the installation and maintenance of infrastructure works located in the State of Israel. In December 2000, the Company completed a combination transaction with Marnetics Ltd. whereby the Company changed its name to Marnetics Broadband Technologies Ltd. The Company acquired all of the outstanding share capital of Marnetics Ltd., an Israeli company formed in 1998, and Marnetics Ltd.'s shareholders received securities representing approximately 75% of the Company's outstanding shares. Marnetics Ltd. became a wholly-owned subsidiary of Marnetics Broadband Technologies Ltd. as a result of this transaction. The Company issued 2,761,236 options in connection with the transaction. As a result of this transaction, the Company changed its focus from electrical contracting to the development and marketing of broadband Internet fortification solutions, designed to enhance performance and infrastructure utilization in the broadband Internet environment. In June 2001, due to changes in the broadband Internet market, the Company subsequently changed its technological focus as described in subsection B below. Our principal executive offices are located at 10 Hayetzira St., Ra'anana 43000 Israel, and our telephone number is ++972-9-761-6868. B. Business Overview The Company's operations consist of two lines of business: (1) our Internet Business, our current core business of developing and marketing Internet performance enhancement solutions, which is handled through the Marnetics Subsidiary, and (2) our Electrical Business, our historical business of electrical and communications contracting and engineering business, which we propose to sell effective March 31, 2001, subject to shareholders' approval at our Annual General Meeting scheduled to be held in third quarter, 2001. See "ITEM 8B - SIGNIFICANT CHANGES." INTERNET BUSINESS GENERAL The Company's operating subsidiary, Marnetics Ltd., is in the product development stage. Marnetics Ltd. had been developing products intended to provide performance enhancement solutions for a bottleneck that may occur when broadband access meets the congested public Internet, thereby decreasing the speed and accuracy of data throughput. In early 2001, the global telecommunications markets experienced a major decline. As a result of the downturn, the deployment of broadband Internet access slowed dramatically, putting in jeopardy Marnetics Ltd.'s business plan, which primarily targeted the broadband market. As a result of the current business climate, the Company is considering leveraging its technological assets, which were developed for the BITmax(TM) 12 product line, to address current market opportunities and near-term trends, including data over cellular and Enterprise solutions. Current priorities in Internet communication in these areas are focusing on better utilization of existing infrastructure, improvement in performance and providing value-added services which can generate revenues. The Company's objective is to utilize its existing technology and integrate it into a solution which addresses these current market priorities. TECHNICAL DESCRIPTION OF WHAT WE DO Marnetics Ltd. does not yet have any commercial products. The Company is evaluating the development of a new product line called Prospera, which will employ Marnetics' existing BITmax(TM) core technology as well as a new traffic management technology currently under development. Prospera is intended to address one of the fundamental problems of communications networks: capacity and scalability, especially in high-volume traffic situations. The product is intended to better manage over-subscription situations in Internet and Intranet networks. In addition, Prospera may offer a new series of value-added features, like differentiated services, billing interface, and traffic analysis and monitoring. Management hopes that Prospera will offer increased functionality, while reducing costs and improving performance. The Company intends that Prospera will combine capacity enhancement, acceleration and differentiated services in one package, thereby increasing the utilization of networks' resources and expanding effective bandwidth. The Company's Management anticipates that the development of the product will present opportunities for OEM agreements, as well as modular solutions that may provide an additional source of revenues from an install base, once it is established, although there can be no assurances that it will do so. CUSTOMERS Prospera is likely to be adapted to four market segments, including Cellular Carriers, Enterprises, Internet Service Providers and Web Hosts. These target audiences will be reached either through direct contact or through various strategic partnerships or marketing channels, such as Value-Added Resellers. The Company plans to focus its initial marketing efforts in the United States and Europe. In early July, Marnetics signed an OEM agreement with Speedwise Technologies, a company in which the Marnetics Subsidiary has a 17.25% holding. Speedwise is engaged in the design, development, distribution and sale of products used in the Internet and mobile data industries. The OEM agreement will enable Marnetics to sell its products for cellular customers (which are currently in development), whether integrated into Speedwise's products or as stand-alone products, to Speedwise's install base of approximately 70 cellular companies worldwide and a much broader network of contacts. Pursuant to this agreement, Speedwise will pay Marnetics 30% of the income generated by the sale and maintenance of the Marnetics products. This agreement has a one year term with automatic renewal unless a party gives one-months' prior written notice of termination. 13 COMPETITION Our management believes that currently, the Company has few, if any, direct competitors for its new Internet performance enhancement focus, which uniquely combines capacity enhancement with acceleration and differentiated services. While various technologies exist which address each of these solutions separately, to date, there is no similar product based on a similar technology like that developed by Marnetics to increase capacity for data over cellular. In the future, competing products may be developed and marketed by numerous well-established, well-financed companies, including traffic management vendors, network optimization solutions developers, cellular application providers and cellular vendors. In addition, our products will compete indirectly with other Internet performance enhancement solutions, although we believe that our new product line will enhance rather than conflict with these products. PRODUCT ROLLOUT SCHEDULE The exact components of Prospera to be commercialized will be examined and determined by the Company by year-end 2001. The timetable for the various stages of development and commercialization is expected to be finalized and announced within this time frame. The Company's current estimation, provided the successful conclusion of its research and development, is that it will be able to generate sales of Prospera by the end of the third quarter in 2002. The Marnetics Subsidiary has sufficient cash to finance the anticipated costs of development and commercialization activities through year-end 2002. The decision to modify the Company's technology road map following the broadband Internet market decline will accordingly delay the commercialization of the Company's products and services from what was previously reported by the Company. RESEARCH AND DEVELOPMENT Our current research and development plan is aimed at leveraging the Company's current technology and developing the Prospera product and related products. GROWTH STRATEGY - ACQUISITIONS As part of its growth strategy, the Company seeks to acquire other businesses. The Company is seeking acquisition candidates in selected markets and from time to time engages in exploratory discussions with potential acquisition candidates, although it has not entered into any definitive agreement to do so. There can be no assurance, however, that the Company will be able to identify and acquire targeted businesses or obtain financing for acquisitions on satisfactory terms. Furthermore, there can be no assurance that competition for acquisition candidates will not escalate, thereby increasing the costs of making acquisitions or making suitable acquisitions unattainable. 14 LICENSING ARRANGEMENTS In April 2001, Marnetics Ltd. entered into a Software License Agreement with Speedwise Technologies Ltd., in which Marnetics Ltd. holds a 17.25% interest. Under this License Agreement, Marnetics granted Speedwise a non-exclusive license to use certain programs and software products owned by Marnetics which Speedwise is using to develop other software products. Marnetics is entitled to receive a fee based on the sale of this derivative software product of either (a) US $25 per product if sold bundled with other Speedwise products, or (b) 15% of net revenues from the product. The agreement has a perpetual term. ELECTRICAL BUSINESS GENERAL Prior to December 2000, the Company's sole business was as an electrical and communications contracting and engineering firm engaged in the installation and maintenance of infrastructure works located in the State of Israel. The Electrical Business has been characterized by intense competition and pricing pressures over the past several years. The results of operation of the Electrical Business have also been materially adversely affected by the economic slowdown and political instability in Israel. As a result and in order to enable the Company to focus on the Internet Business, the Company shall, subject to shareholder approval, sell the Electrical Business effective as of March 31, 2001. See "ITEM 8B - SIGNIFICANT CHANGES." CUSTOMERS/CLIENTS The Company's Electrical Business was primarily directed toward two categories of customers: (i) government entities, including municipalities, requiring electrical maintenance services and whose projects include site development, highways, transport projects, public buildings, and other public works; and (ii) private organizations, particularly, industrial, and commercial real estate developers. MARKETING AND SALES The Company's marketing and sales efforts for the Electrical Business were conducted by the Company's management, engineering staff, and technical employees. A substantial portion of the Company's marketing was accomplished by customer referrals and recommendations. The Company had developed relationships with major contractors in central Israel which serve as a principal source of business for the Company. SUPPLIERS Materials required for the Company's Electrical Business were generally purchased on an as-needed basis in accordance with orders received and work in process. Normally, the Company did not maintain an inventory of such materials, except for certain items 15 necessary to comply with its municipal maintenance obligations and certain items which either have long order lead times or which are subject to shortages. Materials returned from various work sites were also held in inventory. A portion of the materials purchased by the Company for its Electrical Business were produced abroad and purchased by local Israeli companies, which in turn were sold to the Company. Consequently, the Company was be affected by fluctuations in the prices of materials that are produced outside of Israel. All of the supplies required for the Company's work were available from a number of sources at competitive prices, and the Company is not dependent on any one supplier for its components. This allowed the Company to seek better prices and favorable credit terms. The Company researched the market with respect to more expensive materials and selected suppliers which offered these items at the most favorable terms to the Company. COMPETITION The Company primarily competed for two types of Electrical Business contracts: (i) contracts for a term of years for the installation and maintenance of municipal electrical works; and (ii) contracts for the provision of electrical and communications infrastructure contracting and engineering services, e.g., installation services. Such segments of the electrical contracting industry were and continue to be highly competitive and require substantial capital. The Company competed with numerous regional and local companies, and international companies, many of which had significantly larger operations and greater financial, marketing, human, and other resources than the Company, which gave them competitive advantages, such as the ability to negotiate superior terms from suppliers. C. Organizational Structure The following is a list of the Company's direct and indirect significant subsidiaries as of July 10, 2001:
NAME OF PERCENTAGE OF OWNERSHIP SIGNIFICANT SUBSIDIARY COUNTRY OF INCORPORATION INTEREST AND VOTING POWER - ---------------------- ------------------------ ------------------------ Marnetics, Ltd. Israel 100% Speedwise Technologies Ltd. (a subsidiary of Israel 17.25% Marnetics, Ltd.) Nulan Technologies, Ltd.* Israel 100%
- ---------- * This subsidiary is to be transferred to the purchaser of the Electrical Business, subject to shareholder approval. D. Property, Plants and Equipment. During the year 2000, our offices were located at a leased facility in Moshav Batzra, Israel. The facility consisted of a building of approximately 469 square meters and a parking lot of approximately 543 square meters. A portion of the building served as the Company's offices and the remaining portion served as a warehouse for storing tools and inventory. The 16 rent expense for the facility throughout the year 2000 was approximately $2,175 per month, plus Israeli value added tax. As of December 20, 2000, we relocated our headquarters to a facility in Ra'anana, Israel, leased by the subsidiary - Marnetics Ltd. The facility consists of approximately 232 square meters. The lease expires on May 15, 2002. The rent expense for the facility is currently approximately US $ 2,950 per month, plus Israeli value added tax. As part of sale of the Company's electrical operations as described in "Item 8B - Significant Changes", all rights and obligations of the Company regarding the facility in Batzra were assigned to the purchaser of the Company's Electrical Business, Idan Millennium Investments and Assets Ltd., as of March 31, 2001. ITEM 5. Operations and Financial Review and Prospects. The following contains forward-looking statements which involve risks and uncertainties. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors. The following discussion and analysis of financial condition and results of operations should be read along with the accompanying consolidated financial statements for the year ended December 31, 2000 in Item 8.A. These reports are presented in United States dollars and have been prepared in accordance with accounting principles generally accepted in the United States. A. Operating Results OVERVIEW Marnetics Broadband Technologies Ltd. (formerly Stav Electrical Systems (1994) Ltd.) (the "Company" or "Stav") was engaged in the manufacture, installation and maintenance of electrical and lighting systems, mainly for public institutions and in the development of Internet performance enhancement solutions through its wholly-owned subsidiary Marnetics Ltd. ("Marnetics"). On June 1, 2000 a share exchange agreement (the "Agreement") was signed between the Company and Marnetics. The agreement was consummated after final approval of the Company's shareholders on December 31, 2000. Pursuant to the agreement, the Company issued to the shareholders of Marnetics shares and options in the amounts of 4,993,048 and 2,761,236 respectively, representing 75% of its outstanding shares in exchange for all shares in Marnetics. The fair value of Stav shares, US$ 11,314,280 was determined on the basis of the average market price of its outstanding shares US$ 8.00. The acquisition of Marnetics by the Company was accounted for as a reverse acquisition. As the shareholders of Marnetics (as a group) received the largest ownership interest in the Company, Marnetics was determined to be the "accounting acquirer" in the reverse acquisition. As a result, the historical financial statements of the Company (prior to December 31, 2000) were replaced with the historical financial statements of Marnetics. The statements of operations for 2000, 1999 and 1998 include the operations of Marnetics. The 17 December 31, 2000 balance sheet includes the accounts of the Company and Marnetics, and the December 31, 1999 balance sheet includes the accounts of Marnetics. Marnetics has a limited operating history and is subject to risks, expenses and uncertainties frequently encountered by companies in the new and rapidly evolving markets for Internet products and services. In 1999, Marnetics reduced its activities, dismissed most of its employees and sold its fixed assets. During 2000, Marnetics has raised US$ 7.4 million from new investors and recruited additional employees. Marnetics' losses and negative operating cash flow have been significant to date. Marnetics anticipates that both the losses and negative operating cash flow will continue to increase during the foreseeable future until Marnetics develops a customer base that will generate sufficient revenues to fund operating expenses. Since its inception in June 1998, through December 31, 2000, Marnetics has incurred cumulative losses of $4,417,000 and cumulative negative operating cash flows of $1,233,000. As of July 10, 2001, Marnetics Ltd. holds 17.25% of the outstanding shares of Speedwise Technologies Ltd. ("Speedwise"), an Israeli start-up company established in July 1999. The holdings in Speedwise do not currently impose any obligations on Marnetics. YEARS ENDED DECEMBER 31, 2000 AND 1999. OPERATING REVENUES As Marnetics' products are still in the development phase, Marnetics had no sales in either the years ending December 31, 1999 or December 31, 2000. OPERATING EXPENSES Research and Development expenses consisted primarily of salaries and related expenses and sub-contractor expenses. Research and Development expenses increased from $33,000 in the year ending December 31, 1999, to $252,000 in the year ending December 31, 2000. The increase was primarily due to Marnetics' resumption of its research and development activities after Marnetics obtained equity financing in the first quarter of 2000. General and Administrative expenses consisted primarily of salaries and related expenses for administrative and executive staff, fees for professional services, and general office and rent expenses. General and Administrative expenses increased from $44,000 in the year ending December 31, 1999, to $722,000 in the year ending December 31, 2000. The increase was primarily due to the recruiting and hiring of additional employees. 18 NON-CASH COMPENSATION EXPENSES Non-cash Compensation includes the amortization of unearned employee stock-based compensation and expenses for options granted to a related party. Stock-based compensation expenses are amortized over the vesting schedule of the option, typically four years, using the straight-line approach. During the year ending December 31, 2000, Marnetics recorded an aggregate unearned stock-based compensation of $1,836,000. Stock-based compensation included in operating expenses totaled $2,408,000 in the year ending December 31, 2000, compared to no such expenses in the year ended December 31, 1999. FINANCIAL INCOME Net financial income in the year ending December 31, 1999 and the year ending December 31, 2000 was $9,000 and $167,000, respectively. These items consist of interest earned on bank deposits and gains and losses from a remeasurement of monetary balance sheet items resulting from transactions in non-dollar currencies. YEAR ENDED DECEMBER 31, 1999 AND THE SEVEN MONTHS ENDED DECEMBER 31, 1998 OPERATING REVENUES As Marnetics' products are still in the development phase, Marnetics had no sales in either of the year ending December 31, 1998 or the year ending December 31, 1999. OPERATING EXPENSES Research and Development expenses consisted primarily of salaries and related expenses and sub-contractor expenses. Research and Development expenses decreased from $131,000 in 1998, to $33,000 in 1999. The decrease was due primarily to a slowdown in research and development activities and efforts of Marnetics to raise funds in order to finance its activities. General and Administrative expenses consisted primarily of salaries and related expenses for administrative and executive staff, fees for professional services, and general office and rent expenses. General and Administrative expenses decreased from $181,000 in 1998, to $44,000 in 1999. The decrease was due primarily to a slowdown in research and development activities and efforts of Marnetics to raise funds in order to finance its activities. FINANCIAL INCOME Net financial income in 1998 and 1999 was $8,000 and $9,000, respectively. These items consist of interest earned on bank deposits and gains and losses from a remeasurement of monetary balance sheet items, resulting from transactions in non-dollar currencies. 19 B. Liquidity and Capital Resources To date, Marnetics has funded its operations through equity investments. On December 31, 2000, Marnetics had $6.5 million of cash and cash equivalents compared to $284,000 at December 31, 1999. The increase is due to the funds raised during the year 2000. In November 2000, Marnetics raised US $5.1 million through the private placement of 221,200 of its Marnetics Ordinary Shares to a group of venture capital funds including STIVentures Investments No. 2 B.V. and Prime Technology Ventures NV, each a company registered in the Netherlands. On March 2, 2000, Marnetics issued 130,719 Ordinary Shares to ECI Communications Ltd. in exchange for US $2.0 million. On January 16, 2000, Marnetics raised US $0.3 million through the sale of 36,318 Marnetics Ordinary Shares to Sunny.com Ltd. Marnetics' capital requirements have been, and will continue to be, significant and its cash requirements could exceed cash flow from operations. As a result, Marnetics may become dependent on bank credit lines and sales of its securities to fund its development and activities. Currently, Marnetics has $3.3 million short-term bank credit. Net cash used in operating activities in 1998, 1999 and 2000 was $237,000, $122,000 and $872,000, respectively. Since Marnetics has not generated any revenues to date, it must use its working capital to fund its research and development. C. Research and Development As the Company is in the product development stage, it anticipates that a significant amount of its operating expenses will be expended in the area of research and development. Research and Development expenses increased from $33,000 in the year ending December 31, 1999, to $252,000 in the year ending December 31, 2000. The increase was primarily due to Marnetics' resumption of its research and development activities after Marnetics obtained equity financing in the first quarter of 2000. D. Trend Information Phenomenal investments in 3G cellular frequencies and telecom infrastructure during the past several years, contributed to the global decline of technology markets in early 2001. The anticipated rapid adoption of broadband Internet access has been significantly delayed both in Europe and the United States, due to technological and financial considerations. Obtaining investments from venture capital firms has become increasingly difficult. The market is currently characterized by massive lay-offs, severe budget cuts, closings of under-financed and under-performing companies, and major reductions in purchases and investments that do not contribute immediately and directly to revenues and profits. We expect that the state of the global broadband environment and technology industry will materially adversely affect the results of operations for our broadband Internet enhancement products and services. 20 ITEM 6. Directors, Senior Managers and Employees A. DIRECTORS AND SENIOR MANAGEMENT The following is list of our directors and senior management followed by a description of their business background:
NAME POSITION ---- -------- Jacob Ben-Gur....................... Chairman of the Board Moshe Kessner....................... Director Ilja Bobbert........................ Director Moshe Rubin......................... Director Yossi Shelly........................ Director Menachem Reinschmidt................ Director, President and responsible for Marnetics Ltd.'s technology development Baruch Schechter.................... Director, Director of Marketing David Sheetrit...................... Acting Chief Executive Officer and Chief Operating Officer Isaac Nissim........................ Chief Financial Officer Hanoch Newman....................... Vice President - Research and Development Karen Gold Anisfeld................. Vice President Strategic Marketing Ron Nuta............................ Director of Business Development
JACOB BEN-GUR is Chairman of the Board of Marnetics Broadband Technologies, Ltd., a position to which he was appointed in March 2001. He is the former Chairman of Pelephone Communications Ltd., Israel's first and leading cellular carrier, a post which he held for 3 years. Within the framework of his position at Pelephone, Mr. Ben-Gur served as a member of the Boards of Bezeq The Israel Telecommunication Corp. from 1996-2000 and YES - DBS Satellite Services from 1998-2000. He currently serves as Member of the Board of Directors of Liraz Systems Ltd. since 1997. He is a Certified Public Accountant, and earned a BA in Accounting and Economics from Ben-Gurion University. MOSHE KESSNER is Associate Vice President Business Development, ECI Telecom Ltd. (NASDAQ: ECIL), a telecom equipment vendor which holds a 16% stake in the Company. In this capacity, he is involved in the investment strategy and investment companies of ECI Telecom, such as Encotone Ltd. a company in which ECI Telecom has recently invested. Prior to joining ECI in 1999, Mr. Kessner was Vice President Technology and Business Development Tadiran Telecommunications Ltd. He served as Lieutenant Colonel in the Israel Defense Forces as Chief Research Engineer in the Signal Corp, involved in developing the computer security standards and several strategic and tactical communication systems. He holds an M.Sc. in Computer Science and a B.Sc. in Electrical Engineering. ILJA BOBBERT is a founder and managing partner of Prime Technology Ventures. He led many technology investments while he was with Holland Venture BV, one of the oldest and most successful venture capital firms in the Netherlands. He has extensive knowledge and experience in a wide variety of technological areas. Previously he served in both financial and engineering positions at Koninklijke Bijenkorf Beheer, Unilever and Glynwed. Mr. Bobbert is a cum laude graduate in Chemical Engineering and holds an M.Sc. in Business 21 Administration and a BA in business economics. He currently serves on the boards of Tridion and Q-Go. He focuses on the company's technology investments in the Benelux and Israel. MOSHE RUBIN, OUTSIDE DIRECTOR. Mr. Rubin currently serves as a Financing Consultant for the Jerusalem branch of Pama Car Financing. For 15 years, he operated the Dihatsu car dealership, which he opened in Herzliya. He has also sold used cars, car parts and accessories, as well as worked in car maintenance. YOSSI SHELLY, OUTSIDE DIRECTOR. Mr. Shelly, who currently serves as an Outside Director for Marnetics Broadband Technologies, is Managing Director of S. Alexander Ltd. Investment & Consulting firm, based in Beer-Sheva, Israel. During Mr. Shelly's career, he has served on many boards of directors of corporations and organizations. For nearly a decade, he held various posts within the Municipality of Beer-Sheva. Prior to his career in management and consulting, Mr. Shelly served in the Israel Defense Forces for 17 years, dedicating most of his service as the commander of the Computerized Recruitment Center and concluding his service as a Personnel Officer in the Armored Corps. He retired as a Major. He holds a BSc in Industrial Engineering and Management and is currently studying for a degree in law. MENACHEM REINSCHMIDT, DIRECTOR AND PRESIDENT. Mr. Reinschmidt established Marnetics in 1998 and was its first Chief Executive Officer and oversees all technology development activities of the Company. One of the leading data communication experts in Israel, Mr. Reinschmidt has 17 years of experience in the most advanced fields of computer networks, including design, analysis, integration and development. His expertise incorporates advanced networking topics, including frame relay, TCP/IP, Internet architecture, ATM, Local Area Networks, routers and switches, voice-over IP, etc. Prior to founding Marnetics, from 1993 to 1997 Mr. Reinschmidt was President of ATLan, a software development company located in Tel Aviv. He is a lecturer and the author of the Hebrew bestseller LOCAL AREA NETWORKS FOR PC AND COMPATIBLES. BARUCH SCHECHTER, DIRECTOR AND MARKETING DIRECTOR. Baruch Schechter serves as a Director on the Board of Marnetics Ltd. and its affiliate company, Speedwise. He is also Executive Vice President of the Linkware Group, one of the Company's major shareholders. Before joining Linkware, Mr. Schechter served as Senior Division Manager, Corporate & Business Sales Division, Pelephone, as Marketing and Sales manager at Better Office Automation, and as Sales Manager of Major Account Clients at Cellcom, where he was one of the company's sales leaders. At Pelephone and Cellcom, Mr. Schechter became one of Israel's leading sales/marketing specialists in the cellular market. Mr. Schechter served as a Major officer in the Intelligence service of the Israeli army. He holds a B.A. in Economics and has studied Marketing Management. DAVID SHEETRIT, ACTING CHIEF EXECUTIVE OFFICER AND CHIEF OPERATING OFFICER. Mr. Sheetrit has been serving as the Company's Acting Chief Executive Officer and Chief Operating Officer since early 2001 and he also serves as Director of Marnetics Ltd. In early 2000, Mr. Sheetrit was appointed Chief Operating Officer of the Linkware Group, one of the Company's major shareholders. Before joining Linkware and Marnetics, Mr. Sheetrit was 22 Head of the Tel Aviv Branch of the College of Management since 1995. In this capacity he supervised the operations, investments, marketing activities and academic programs of the College, which is comprised of 3,000 students and 200 faculty and staff. Mr. Sheetrit has lectured at various colleges and academies and served as an independent organizational and business consultant to various organizations and institutions. ISAAC NISSIM, CHIEF FINANCIAL OFFICER. Responsible for financial management and control. Mr. Nissim possesses eleven years of experience in financial management positions with particular expertise in facilitating IPO's, spearheading Mergers & Acquisitions and maintaining shareholder and investor relationships. Additionally, Mr. Nissim has extensive experience in managing the operations of multinational enterprises. Prior to joining the Company, Mr. Nissim spent six years with the Makhteshim Agan Group (TASE: MAIN) where he held senior management positions in the Israeli and subsequently the North American operations. As CFO & COO, Mr. Nissim directed all financial and information technology functions for the $100 million North American division. Mr. Nissim is a Certified Public Accountant and holds a B.A. in Economics & Accounting from Tel Aviv University. HANOCH NEWMAN, VICE PRESIDENT RESEARCH AND DEVELOPMENT. Mr. Newman joined Marnetics in June 2000 as its Vice President of Research and Development. He is a specialist in real-time systems, embedded systems, UNIX/WIN, C++/C communication, and device drivers. He also has vast experience in computer programming, with expertise in TCP/IP and other Internet and Communication protocols, as well as system management. His past experience includes serving as Project Manager at Elron Software NCC from 1999 to 2000, R&D Manager at CT Motion (start-up) from 1998 to 1999, and CTO and MIS in the Israeli Air Force for five years prior thereto. He holds a B.A. in Computer Sciences. KAREN GOLD ANISFELD, VICE PRESIDENT STRATEGIC MARKETING. Specializing in Corporate Identity Management and International Business, Ms. Anisfeld has spent the decade before joining Marnetics providing strategy-based communication consulting and marketing support services to some of Israel's largest industrial concerns, high-tech companies, Government ministries and others, to facilitate cooperation between Israeli and foreign companies. From 1997 to 1998, she also served as Vice President and Member of the Management team of Ruder Finn (Israel) Public Relations, and from 1987 to 1989 she was Coordinator of Financial and Public Relations at The Limited, Inc. corporate headquarters (NYSE, LSE, TSE). She has an M.A. in Public Relations/International Business. RON NUTA, BUSINESS DEVELOPMENT DIRECTOR. Prior to joining Marnetics in June 2000, Mr. Nuta had many years of diverse experience in technology research and development, sales and business development. From 1996 until joining Marnetics, Mr. Nuta served as the head of the International Business Unit of Telrad Business Communication. Prior thereto, he was the Managing Director of the Datacom Business Unit of Arad Systems (a start-up) for approximately one year. For eleven years prior, he was the head of the Marketing and Sales Department at Koor Communications and served as Development Engineer in the Signal Corps for five years during his service in the Israel Defense Forces. He holds an M.S.M. degree in Business Management specializing in entrepreneurship and e- 23 business, and a B.B.A. in marketing, international business and technology as well as a Practical Engineer diploma in Electronics. TERM AND RIGHTS TO DESIGNATE BOARD MEMBERS The Articles of Association of the Company provide that each director is elected for a period of one year at the Company's annual meeting of shareholders and serves until the next such meeting or until his or her successor is duly elected and qualified. Directors may be re-elected annually without limitation. The Company's directors, with the exception of two Outside Directors representing the public, do not currently receive any compensation for their services as directors. Certain shareholders and option-holders of the Company the right to nominate and, pursuant to shareholder agreements, have elected their designees for the Company's Board of Directors. Until November 25, 2001, ISG Solid Capital Markets, LLC, the representative of several investors in our initial public offering, has the right, at its option, to designate one director to the Board of Directors, which director will be reasonably acceptable to the Board of Directors. The Company has agreed to pay such director or non-voting advisor an attendance fee of $1,500 per meeting of the Board of Directors. There currently is no such designated member of the Board. The former Marnetics Subsidiary shareholders agreed that they will vote in favor of certain nominees for Director of the Company as follows: (i) two nominees designated by ECI Telecommunications Ltd., (ii) one nominee designated by STI Ventures Investments No. 2 B.V. and (iii) one nominee designated collectively by Prime Technology Ventures NV, Docor International BV and Ronchal Investments NV. To date, STI Ventures Investments No. 2 B.V. has not yet designated a nominee for the Company's board and ECI has only designated one director nominee. ALTERNATE DIRECTORS The Articles of Association of the Company provide that any director may, by written notice to the Company, appoint another director or any other person to serve as an alternate director, and may cancel such appointment. An alternate director has the number of votes equivalent to the number of directors who appointed him. The term of appointment of an alternate director may be for one meeting of the Board of Directors or for a specified period. OUTSIDE DIRECTORS Under the Israel Companies Law (the "COMPANIES LAW"), public companies are required to elect two outside directors who must meet specified standards of independence. Companies that are registered under the laws of Israel and whose shares are listed for trading on a stock exchange outside of Israel, such as the Company, are defined as public companies and under such definition are subject to the requirement of electing two outside directors. An outside director may not have had during the previous two years any economic relationship with the Company. Controlling shareholders of a company, 50% shareholders, 24 and their relatives or employees cannot serve as outside directors. Outside directors are elected by shareholders. No individual shall be appointed as an outside director if his other positions or affairs create or are liable to create a conflict of interest with his position as director, or if they are liable to constrain his ability to serve as director. The shareholders voting in favor of their election must include at least one-third of the shares of the non-controlling shareholders of the Company who are present at the meeting. This minority approval requirement need not be met if the total shareholdings of the non-controlling shareholders who vote against their election represent 1% or less of all of the voting rights in the Company. Under the Companies Law, outside directors serve for a three-year term, which may be renewed for only one additional three-year term. Our two independent directors Messrs. Rubin and Shelly were appointed on October 4, 1999 before the adoption of the Companies Law and under the previous Israeli corporate laws. Pursuant to the former corporate governance law, each shall serve for a five-year term until 2004. Under the Companies law, outside directors can be removed from office only by the same special percentage of shareholders as can elect them, or by a court, and then only if the outside directors cease to meet the statutory qualifications with respect to their appointment or if they violate their duty of loyalty to the Company. If, when an outside director is elected, all members of the board of directors of a company are of one gender, the outside director to be elected must be of the other gender. Any committee of the board of directors must include at least one outside director. An outside director is entitled to compensation as provided in regulations adopted under the Companies Law and is otherwise prohibited from receiving any other compensation, directly or indirectly, in connection with such service. LIABILITY OF OFFICERS AND DIRECTORS The Companies Law provides that an Israeli company cannot exculpate an office holder from liability with respect to a breach of his duty of loyalty, but may exculpate in advance an office holder from his liability to the company, in whole or in part, with respect to a breach of his duty of care. The Company's Articles of Association provide that, subject to any restrictions imposed by corporate law, the Company may enter into a contract for the insurance of the liability of any of the Company's office holders with respect to an act performed by him in his capacity as an office holder and regarding: o a breach of his duty of care to the Company or to another person; o a breach of his duty of loyalty to the Company, provided that the office holder acted in good faith and had a reasonable basis to assume that his act would not prejudice the Company's interests; or o a financial liability imposed upon him in favor of another person. In addition, the Company may indemnify an office holder against: 25 o a financial liability imposed on him in favor of another person by any judgment, including a settlement or an arbitrator's award approved by a court in respect of an act performed in his capacity as an office holder; and o reasonable litigation expenses, including attorneys' fees, expended by such office holder or charged to him by a court, in proceedings the Company institutes against him or instituted on the Company's behalf or by another person, or in a criminal charge from which he was acquitted, or a criminal charge for which he was convicted, providing such charge does not require proof of criminal intent. These provisions are specifically limited in their scope by the Companies Law, which provides that a company may not indemnify an office holder, nor enter into an insurance contract which would provide coverage for any monetary liability incurred as a result of any of the following: o a breach by the office holder of his duty of loyalty unless the office holder acted in good faith and had a reasonable basis to believe that the act would not prejudice the company; o a breach by the office holder of his duty of care if such breach was done intentionally or in disregard of the circumstances of the breach or our consequences; o any act or omission done with the intent to derive an illegal personal benefit; or o any fine levied against the office holder. Under the Companies Law, the Company's shareholders may amend the Articles of Association to include either of the following provisions: o A provision authorizing the Company to grant in advance an undertaking to indemnify an office holder, provided that the undertaking is limited to types of events which the board of directors deems to be anticipated and limited to an amount determined by the board of directors to be reasonable under the circumstances; or o A provision authorizing the Company to retroactively indemnify an office holder. In addition, pursuant to the Companies Law, approval of the Company's audit committee and the Company's Board of Directors and, in specified circumstances, by the Company's shareholders, must be obtained for the indemnification of, and procurement of insurance coverage for, the Company's office holders for the following actions: 26 o breach of duty of care by any office holder owed to the Company or any other person; o breach of fiduciary duty by any office holder owed to the extent that such office holder acted in good faith and had a reasonable basis to assume that the action would not prejudice the Company; and o any financial liability imposed on any office holder for the benefit of a third party as a result of any act or omission such office holder committed as an office holder of the Company. The Company has entered into an indemnification agreement with the officers and directors of the Company as of December 2000 and intends to enter into an agreement with each new director, subject to shareholder approval. Such agreements contain provisions which endeavor to limit the personal liability of the officers and directors, both to the Company and to our shareholders, for monetary damages resulting from breaches of certain of their fiduciary duties as directors and officers of the Company. In particular, such agreements provide that the Company will indemnify such individuals to the fullest extent permitted by the Companies Law, as such rights shall from time to time be amended or limited, against all expense, liability, and loss reasonably incurred or suffered by the indemnitee as a result of serving as an officer or director or employee of the Company, or any affiliate thereof or any other entity at the request of the Company. In addition, the Company has obtained reimbursement indemnity insurance to reimburse directors and officers of the Company for losses sustained as a result of any claim arising from a wrongful act, individually or collectively, in the discharge of their duties or in breach of their fiduciary duties solely in their capacity as officers and directors of the Company, and to reimburse the Company for losses sustained as a result of any claim arising from any such wrongful act where an indemnity has been given or lawfully is required to be given to officers or directors of the Company. Consequently, under the Company's Amended Articles of Association, the Company may indemnify our officers and directors for financial obligations imposed on them in favor of a third party by a court judgment, including a compromise judgment or a court-approved arbitrator's decision, as well as for concomitant reasonable legal expenses, including attorney's fees, as a result of any claim arising from a wrong act in the discharge of their duties in their capacity as officers or directors of the Company which could materially adversely affect the business, prospects, financial condition, or results of operations of the Company. Furthermore, the ability of United States shareholders to recover monetary damages from officers and directors of the Company for certain breaches of their fiduciary duties may be significantly limited. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to officers, directors, and controlling persons of the Company pursuant to the foregoing provisions or otherwise, the Company has been advised that in the opinion of the U.S. Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable in the United States. 27 B. COMPENSATION The Company's directors do not currently receive any compensation for their services as directors, although the director nominee, if any, of ISG Solid Capital Markets, LLC, shall have the right to an attendance fee of $1,500 per meeting. There is currently no such designated member of the Board. In addition, under the Companies Law, outside directors are entitled to annual compensation plus a per meeting attendance fee. The Company currently pays its outside directors an annual fee of NIS 14,420 (US $3,500) and a per meeting attendance fee of NIS 915 (US $222). C. BOARD PRACTICES See Section A for start dates and terms of services for our directors and significant managers. COMMITTEES OF THE BOARD OF DIRECTORS - AUDIT COMMITTEE The Companies Law also provides that public companies must appoint an audit committee. The responsibilities of the audit committee include identifying irregularities in the management of the Company's business and approving related-party transactions as required by law. An audit committee must consist of at least three members, and include all of the Company's outside directors. However, the chairman of the board of directors, any director employed by the Company or providing services to the Company on a regular basis, any controlling shareholder and any relative of a controlling shareholder may not be a member of the audit committee. An audit committee may not approve an action or a transaction with a controlling shareholder, or with an office holder, unless at the time of approval two outside directors are serving as members of the audit committee and at least one of the outside directors was present at the meeting in which an approval was granted. In addition, the Companies Law requires the board of directors of a public company to appoint an internal auditor nominated by the audit committee. A person who does not satisfy the Companies Law's independence requirements may not be appointed as an internal auditor. The role of the internal auditor is to examine, among other things, the compliance of the Company's conduct with applicable law and orderly business practice. Following the combination transaction between the Company and Marnetics, Ltd., the Company has decided to appoint a new internal auditor whose candidacy will be recommended by the Audit Committee and approved by the Company's Board of Directors. The Company has an audit committee which consists of Yossi Shelly, Chairman, Moshe Rubin and Ilja Bobbert. The audit committee exercises the powers of the Board of Directors with respect to the Company's accounting, reporting and financial control practices. D. Employees As of December 31, 2000, the Company employed approximately 14 persons full-time and 6 persons part-time, exclusive of those working in the Electrical Business. The 28 Electrical Business employees will be hired by the purchaser of the Electrical Business upon closing of that sale. The Company believes that relations with our employees are good. Israeli law, as well as collective bargaining agreements and orders of the Israeli Ministry of Labor and Welfare, contain provisions regarding conditions of employment, including, among other things, the length of the workday, minimum wages, insurance for work-related accidents, the determination of severance pay, and adjustments of wages in accordance with inflation. The Company generally provides our employees with benefits and working conditions at or above the required minimums. Furthermore, Israeli employees and employers are required to pay predetermined sums to the National Insurance Institute, which is similar to the United States Social Security Administration. Since January 1, 1995, such amounts have included payments for national health insurance. The payments to the National Insurance Institute are between approximately 10% to 15% of wages, of which 4.93% are contributed by the Company pursuant to Israeli law requirements. Some of the Company's employees are insured through a Managers' Insurance Policy which offers a combination of pension plans, insurance in cases of death and injury, and retirement and severance pay benefits. An amount equal to 5% of an employee's gross salary is contributed to the Managers' Insurance Policy by the Company and an additional 5% by the employee. This 10% comprises the pension component and up to 3.5% covers insurance for damages sustained by employees due to loss of work capability. An additional amount equal to 8.3% of the employee's gross salary is contributed by the Company for severance pay benefits. Most of the Company's employees have elected to be insured through a basic pension fund in "Mivtahim." An amount equal to 6.0% of an employee's gross salary is contributed to Mivtahim by the Company, and an additional 5.5% by the employee. This 11.5% comprises the pension component and up to 3.5% covers insurance for damages sustained by employees due to disability. An additional amount equal to 8.3% of the employees' gross salary is contributed by the Company for severance pay benefits. A portion of the more highly compensated employees are insured both through a basic or limited pension fund in Mivtahim and a Manager's Insurance Policy. In addition, since June 1998, all of the Company's officers have a Keren Hishtalmut saving plan pursuant to which the Company contributes an amount equal to 7.5% of the officer's salary and the officer contributes an amount equal to 2.5% of his salary. Obligations of the Company resulting from the termination of employer-employee relationships are primarily accounted for through allocations made on behalf of the employees to various compensation funds, pension funds, and insurance companies within the framework of Mivtahim and Managers' Insurance Policies. The wages of all of the Company's employees are linked to a percentage of the Israeli standard of living as determined by periodic agreements between the Histadrut and the Israeli Government. Certain of the Electrical Business employees of the Company are members of a workers union. The Company and our employees in the Electrical Business are parties to 29 the collective bargaining agreement relating to the building industry, signed between the Histadrut and The Center of Contractors' and Constructors' Association in Israel, governing relations between the employees and the Company. As of December 31, 2000, the Company had no outstanding loans to employees and officers of the Company except to Mr. Dov Strikovsky who is no longer employed by the Company but is a significant shareholder of the Company. See "ITEM 7B-RELATED PARTY TRANSACTIONS." E. SHARE OWNERSHIP [Not applicable] ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS A. MAJOR SHAREHOLDERS The following table identifies, as of July 10, 2001, certain information with respect to the beneficial ownership of Ordinary Shares of each person or entity by the Company to be the beneficial owner of five percent (5%) or more of the Ordinary Shares of the Company:
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT(1) - ---------------- ------ ------- Linkware Ltd.................................. 1,740,575(2) 25.1% 3 Hadror Street P.O. Box 73 Hod Hasharon 45100 Israel Dov Strikovsky................................ 1,015,714(3) 14.5% 83 Akiva Street Ra'anana, Israel ECI Telecommunications Ltd.................... 1,187,439(4) 18.0% 34 Hasivim Street Kiryat Arye Industrial Park Petah Tikva Israel STI Ventures Investments No. 2 B.V............ 1,180,907(5) 17.9% Hullenbergweg 379 1101 Cr. Amsterdam Zuide - Oost The Netherlands
30
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT(1) - ---------------- ------ ------- Prime Technology Ventures NV.................. 630,550(6) 9.7% Entrada 102, 10g6 EA Amsterdam, Netherlands
(1) The number of shares beneficially owned is determined under rules promulgated by the Securities and Exchange Commission, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under these rules, beneficial ownership includes any shares as to which the individual has sole or shared voting power or investment power and also any shares which the individual has the right to acquire within 60 days after July 10, 2001, through the exercise of any stock option or other right. The inclusion herein of such shares, however, does not constitute an admission that the named shareholder is a direct or indirect beneficial owner of such shares. Unless otherwise indicated, each person or entity named in the table has sole voting power and investment power, or shares such power with his or her spouse, with respect to all shares of capital stock listed as owned by such person or entity. (2) Includes 230,942 shares currently issuable and 302,266 shares that may be acquired pursuant to options which are presently or will become exercisable within 60 days at an exercise price of par value per share. (3) Includes 580,000 shares that may be acquired pursuant to options with an exercise price of $3.00 per share which are presently or will become exercisable within 60 days by O.S.I Limited which is controlled by a trust, the beneficiaries of which are family members of Dov Strikovsky. (4) Includes 190,661 shares currently issuable. (5) Includes 189,612 shares currently issuable. (6) Includes 101,244 shares currently issuable. As of July 10, 2001, 995,926 Ordinary Shares of the Company were held of record in the United States. Such Ordinary Shares were held by five (5) record holders and represented 15.5% of the total Ordinary Shares then outstanding. On July 10, 2001, 5,411,407 of the Ordinary Shares were held of record outside of the United States. Such shares were held by seventeen (17) record holders and represented 84.5% of the total Ordinary Shares outstanding. Since 263,246 of these Ordinary Shares were held by brokers or other nominees, the number of record holders in the United States may not be representative of the number of beneficial holders or where the beneficial holders are resident. B. RELATED PARTY TRANSACTIONS SALE OF ELECTRICAL BUSINESS On June 10, 2001, the Company executed an agreement to sell, subject to shareholder approval, our Electrical Business, including certain related liabilities, to a company wholly-owned by the Company's former chief executive officer and current major stockholder, Mr. Dov Strikovsky. See "ITEM 8B - SIGNIFICANT CHANGES." In July 2001, the 31 Company entered into an OEM agreement with Speedwise, a company in which the Marnetics Subsidiary owns 17% of its outstanding shares. See "ITEM 4B - CUSTOMERS." COMBINATION TRANSACTION Effective December 31, 2000, Stav Electrical Systems (1994) Ltd. acquired Marnetics Ltd. pursuant to the terms of that certain Share Exchange Agreement among the Company, Marnetics Ltd. and the security holders of Marnetics Ltd. Upon the closing of that transaction, certain entities and individuals affiliated with the Company, including Dov Strikovsky, a principal shareholder and the former Chief Executive Officer of the Company or entities affiliated with Mr. Strikovsky, received options to purchase up to 1,000,000 Ordinary Shares of the Company. ASSIGNMENT OF BANK DEBT On May 30, 2001, the Company and Bank Hapoalim, the lender of the Company's long-term debt obligations, entered into an assignment agreement entitled Assignment of Debt Agreement, pursuant to which: o Shlavor Systems Ltd., a company wholly-owned by Mr. Strikovsky, assumed liability for the current debt in the amount of NIS 9,100,000 (approximately $2.2 million); o The Company paid the bank NIS 4,000,000 (US $953,970); o The Company assigned its accounts payable from the City of Hod Hasharon in the face amount of NIS 9,100,000 (US $2.2 million) to the bank; o The Company granted the bank a limited guaranty (up to NIS 3,000,000 (US $0.7 million))of the obligations of Shlavor Systems Ltd. under the assumed debt; and o Bank Hapoalim released the Company from all liability for the current debt in the amount of NIS 13,100,000 (approximately $3.2 million), released the floating charge and any related liens or security interests it holds. INDEMNIFICATION BY SIGNIFICANT SHAREHOLDER In connection with the Stav/Marnetics transaction and pursuant to an amendment to the Share Exchange Agreement, Mr. Strikovsky granted an indemnification to the former shareholders of Marnetics Ltd. against certain losses or damages related to the Electrical Business and had deposited 200,000 shares of the Company held by him in escrow as security for his indemnification obligations. During the audit of the financial statements of Stav Electrical Systems (1994) Ltd. for the year ended December 31, 2000, it was discovered that excess advances were paid to certain suppliers in the amount of $0.5 million. On June 30, 2001, Mr. Strikovsky, the Company and the former shareholders of Marnetics Ltd. entered into a separate Indemnification Agreement that further defined, clarified and expanded the terms of the initial indemnification, added indemnification obligations related to the bank debt restructuring (as described below) and provided for an additional 100,000 shares of the Company held by Mr. Strikovsky to be held in escrow as security for such indemnification obligations. Under this Indemnification Agreement, Mr. Strikovsky agreed to: 32 o Reimburse the Company for NIS 4,000,000 (US $970,875) which is the amount the Company has paid to the bank pursuant to the debt assignment described above, to be paid in monthly installments of NIS 200,000 (US $48,500) commencing June 1, 2004; and o Guaranty the repayment of $0.5 million to the Company by certain suppliers of the Company in connection with excess advances made to such suppliers by the Company in the year-ended December 31, 2000. Such sum was paid to the Company in July 2001 by realization of bank guarantees in favor of the Company. o To indemnify the Company for any amount it may pay to Bank Hapoalim in the future under the guarantee granted by the Company in favor of the bank under the debt assignment or for any losses the Company may incur in connection with such debt assignment documents. LOANS TO SIGNIFICANT SHAREHOLDER AND FORMER DIRECTOR AND OFFICER The Company has, from time-to-time, made loans to Dov Strikovsky during the period of time he was Chairman of the Board of Directors, President, and Chief Executive Officer of the Company. At December 31, 1997, 1998, and 1999 the amount of such loans outstanding was NIS 4,721,000 (US $1,151,000), NIS 5,915,000 (US $l,443,000), and NIS 6,540,000 (US $1,570,000) respectively. Such loans did not bear interest through December 31, 1997. Such loans currently bear interest at the rate per annum equal to LIBOR plus 3%. In addition, during 1999, the Company inadvertently made excess advances to Mr. Strikovsky. Upon discovery of this error, Mr. Strikovsky repaid to the Company the amount of such excess advances in full. In preparation for its initial public offering, in April 1998, the Company entered into an agreement with Mr. Strikovsky which provided that he would pay interest only on such loans through October 1, 1998 and will amortize the principal amount, and pay interest thereon, commencing on January 1, 2000 and terminating on December 31, 2003. In September 1998, such agreement was superceded by an agreement pursuant to which Mr. Strikovsky agreed to repay such loans together with the interest thereon, on or prior to November 25, 2000, subject to extension in the sole discretion of the disinterested members of the Board of Directors of the Company. Mr. Strikovsky applied the net proceeds of the sale in the Company's initial public offering of a number of his Ordinary Shares, approximately US $522,000, and also agreed to apply 50% of all dividends paid, net of taxes, on the Ordinary Shares owned by him to the prepayment of such loans. Pursuant to the September 1998 agreement, in 1999, the disinterested members of the Company's Board of Directors voted to extend the repayment terms of the loan. The loan is currently payable in eight annual installments which commenced in 1999 and shall be repaid in full by December 31, 2007. The first two installments were paid. 33 C. NOT APPLICABLE ITEM 8. FINANCIAL INFORMATION A. Financial Information See "ITEM 18-FINANCIAL INFORMATION". LEGAL PROCEEDINGS The Company is currently not involved in any material litigation. DIVIDEND POLICY The Marnetics Subsidiary has never paid any cash dividends to date on its ordinary shares. Although in 1999 we declared a cash dividend on its Ordinary Shares, we do not anticipate declaring a dividend for the foreseeable future. In addition, the payment of cash dividends in the future (if ever declared by the Board) is limited by Israeli law to the profits of the Company and could potentially be limited or prohibited by the terms of financing agreements we may enter into (E.G., a bank line of credit or an agreement relating to the issuance of debt securities of the Company). B. SIGNIFICANT CHANGES SALE OF ELECTRICAL BUSINESS On June 10, 2001, the Company executed an agreement to sell, subject to shareholder approval, its Electrical Business, including certain related liabilities, to a company (the "Purchaser") wholly-owned by the Company's former chief executive officer and current major stockholder, Dov Strikovsky. The Purchaser was the sole bidder in a public request for proposals which was announced on May 15, 2001 and ended on May 30, 2001. The Board of Directors considered the purchase offer and authorized the Company's acceptance of the Purchaser's bid. ASSETS TO BE SOLD. The Company has contracted to sell certain of its assets related to the Electrical Business and the purchaser shall assume certain related liabilities as of March 31, 2001. SALE PRICE. The Company has contracted to sell the assets of its Electrical Business to the Purchaser for NIS 2.5 million (approximately $587,000) in installments of NIS 100,000 (approximately $24,000) commencing on February 1, 2002. In addition, the Purchaser will also assume approximately NIS 3.0 million (approximately $715,000) of liabilities related to the Electrical Business. This summary highlights selected information about the Electrical Business Purchase Agreement and may not contain all of the information that is important to you. To understand the sale of the Electrical Business more fully and for a more complete 34 description of the legal terms, you should read the agreement which is attached as Exhibit 10.8 hereto and the other documents referred to herein. ITEM 9. THE LISTING A. LISTING DETAILS The following are the low and high sales prices by fiscal quarter for the quarterly periods in which the Ordinary Shares have been traded on the American Stock Exchange.
ORDINARY SHARES TRADING PRICES --------------- HIGH LOW ---- --- 1998 Fourth Quarter (from November, 25, 1998)......... US $6.125 US $4.875 1999 First Quarter.................................... 5.250 4.000 Second Quarter................................... 4.125 1.750 Third Quarter.................................... 2.500 1.500 Fourth Quarter................................... 3.500 1.3125 2000 First Quarter.................................... 24.750 2.500 Second Quarter .................................. 15.750 6.750 Third Quarter.................................... 17.500 14.0625 Fourth Quarter................................... 14.500 6.3125 2001 First Quarter.................................... 7.750 4.000 Second Quarter................................... 4.500 1.100 Third Quarter (through July 11, 2001)............ 2.200 2.000
B. NOT APPLICABLE. C. MARKETS The Company's Ordinary Shares are quoted on the American Stock Exchange under the symbol "MXB." The Company has no present intention to list or quote its securities on any markets outside of the United States. However, the Company may seek such listings in the future if its Board of Directors determines that it is in the best interest of the Company. 35 D. - F. NOT APPLICABLE. ITEM 10. ADDITIONAL INFORMATION A. Not applicable. B. MEMORANDUM AND ARTICLES OF ASSOCIATION PURPOSES AND OBJECTS OF THE COMPANY Pursuant to Section 3 of our Articles of Association, the Company's purpose is to operate according to business considerations for the production of profits. POWERS OF THE DIRECTORS The Directors shall formulate the Company's policy and shall supervise the exercise of the General Manager's office and his acts, including, but not limited to the determination of the Company's plans of activity, the principles for financing such plans and the organizational structure of the Company. The power of our directors to vote on a proposal, arrangement or contract in which the director is materially interested is limited by the relevant provisions of the Companies Law. RIGHTS ATTACHED TO SHARES Our registered share capital consists of a single class of 25,000,000 ordinary shares, par value NIS 0.08 per share, of which 6,407,333 ordinary shares were issued and outstanding as of July 10, 2001. All outstanding ordinary shares are validly issued, fully paid and non-assessable. The rights attached to the Ordinary Shares are as follows: DIVIDEND RIGHTS Subject to the permitted distribution provisions of the Companies Law, the Board of Directors may declare a dividend to be paid to the shareholders according to their rights and interests in the profits, and may fix the record date for eligibility and the time for payment. 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. The Board of Directors may from time to time pay to the shareholders on account of the next forthcoming dividend such interim dividends as, in their judgment, the position of the Company justifies. 36 VOTING RIGHTS Holders of our ordinary shares have one vote for each ordinary share held on all matters submitted to a vote of shareholders. Such voting rights may be affected by the grant of any special voting rights to the holders of a class of shares with preferential rights that may be authorized in the future. The quorum required for any meeting of shareholders consists of at least two shareholders present in person or by proxy who hold or represent, in the aggregate, at least one third of the voting rights of the issued share capital. In the event that a quorum is not present within fifteen minutes of the scheduled time, the shareholders' meeting will be adjourned to the same day in the following week, or such time and place as the board of directors may determine. If at such reconvened meeting a quorum is not present within half an hour from the time appointed for holding the meeting, any two shareholders present in person or by proxy will constitute a quorum. Notwithstanding the aforesaid, if a General Meeting was convened at the demand of shareholders as permitted by Section 63(b) of the Companies Law, then a quorum at such adjourned meeting shall be present only if one or more shareholders are present who held in the aggregate at least 5% of the issued share capital of the Company and at least 1% of the voting rights in the Company or one or more shareholders who hold in the aggregate at least 5% of the voting rights in the Company. Subject to the Companies Law, except decisions regarding the amendment of Article 101 of our Articles Association and/or the approval of transactions with interested parties (as listed in our Articles of Associations), any resolution at a General Meeting 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. The Directors of the Company are appointed by the Annual General Meeting, unless appointed by the Board to fill a vacancy, and shall serve as Directors from the time of appointment until the next Annual General Meeting, unless such Director is disqualified for whatever reason. RIGHTS IN THE EVENT OF LIQUIDATION If the Company shall be liquidated, whether voluntarily or otherwise, the liquidators may, subject to the provision of the Statutes, divide among the shareholders any part of the assets of the Company and may vest any part of the assets of the Company in trustees upon such trusts, for the benefit of the shareholders, as the liquidators deem appropriate. CHANGING RIGHTS ATTACHED TO SHARES If, at any time, the share capital is divided into different classes of shares, the rights attached to any class may be varied with the sanction of a majority vote at a meeting of the shareholders passed at a separate meeting of the holders of the shares of the class. 37 GENERAL MEETINGS An Annual General Meeting 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 Annual General Meeting, and at such time and place as may be determined by the Board of Directors. Such Annual General Meetings shall be called "Annual Meetings", and all other Meetings of the shareholders shall be called "Extraordinary Meetings". The Annual Meeting shall receive and consider the Directors' Report, the Financial Statements, appoint auditors, elect Directors, and transact any other business which, under these Articles or by the Companies Law, may be transacted at a General Meeting of the Company, provided that notice of such other business was given to shareholders in accordance with the provisions of the Articles. At least twenty-one (21) days and not more than sixty (60) days notice of any General Meeting shall be given, specifying the place, the day and the hour of meeting and, in the case of special business, the nature of such business, shall be given in the manner hereinafter mentioned, to such shareholders as are under the provisions of the Articles, entitled to receive notices from the Company. An Extraordinary Meeting may be convened by the Board of Directors, whenever they think fit or upon a demand in writing by members holding at least 10% of our issued capital. INCREASE IN OUR CAPITAL The Company may from time to time by a majority vote at a meeting of shareholders, 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. C. MATERIAL CONTRACTS Software License Agreement by and between Marnetics Ltd. and Speedwise Technologies, Ltd. dated as of April 17, 2001. See "ITEM 4B - BUSINESS OVERVIEW - LICENSING ARRANGEMENTS." Indemnification Agreement between Dov Strikovsky, the Company and the former shareholders of Marnetics Ltd. dated as of June 30, 2001. See "ITEM 7B - MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS - RELATED PARTY TRANSACTIONS - INDEMNIFICATION BY SIGNIFICANT SHAREHOLDER." Asset Purchase Agreement between the Company and Idan Millennium Investments and Assets dated as of June 10, 2001. See "ITEM 8B - SIGNIFICANT CHANGES - SALE OF ELECTRICAL BUSINESS." Agreements to the Assignment of Debt by and among the Company, Bank Hapoalim Ltd. and Shlavor Systems Ltd. dated as of May 30, 2001. See "ITEM 7B - 38 MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS - RELATED PARTY TRANSACTIONS - ASSIGNMENT OF BANK DEBT." OEM Agreement by and between Marnetics Ltd. and Speedwise Technologies Ltd. dated as of July 8, 2001. See "ITEM 4B - CUSTOMERS." D. EXCHANGE CONTROLS 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 our affairs, as well as the proceeds of any sale in Israel of our 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 Israeli income tax has been paid on (or withheld from) such payments. Neither our Memorandum of Association, Articles of Association nor the laws of the State of Israel restrict in any way the ownership or voting of shares by non-residents, except with respect to subjects of countries which are in a state of war with Israel. E. TAXATION The following is a summary of the current tax structure applicable to companies in Israel, with special reference to its effect on the Company. The following also contains a discussion of Israeli tax consequences to persons purchasing or holding Ordinary Shares. To the extent that the discussion is based on new tax legislation that has not been subject to judicial or administrative interpretation, there can be no assurance that the views expressed in the discussion will be accepted by the tax authorities in question. The discussion is not intended, and should not be construed, as legal or professional tax advice and is not exhaustive of all possible tax considerations. Prospective purchasers and holders of Ordinary Shares should consult their own tax advisors as to the U.S., Israeli, or other tax consequences of the purchase, ownership, and disposition of the Ordinary Shares, including, in particular, the effect of any foreign, state, or local taxes. GENERAL CORPORATE TAX STRUCTURE Currently, the regular rate of corporate tax to which Israeli companies are subject is 36%. TAXATION UNDER INFLATIONARY CONDITIONS The Income Tax (Inflationary Adjustments) Law, 1985 (the "INFLATIONARY ADJUSTMENTS LAW"), was designed to neutralize the erosion of capital investments in 39 business and to prevent tax benefits resulting from deduction of inflationary expenses. This law applies a supplementary set of inflationary adjustments to the normal taxable profits computed under regular historical cost principles. The Inflationary Adjustments Law introduced a special tax adjustment for the preservation of equity based on changes in the Israeli consumer price index, whereby certain corporate assets are classified broadly into fixed (inflation-resistant) assets and non-fixed assets. Where a corporation's equity (as defined in the Inflationary Adjustments Law) exceeds the depreciated cost of fixed assets, a tax deduction that takes into account the effect of the annual rate of inflation on such excess is allowed (up to a ceiling of 70% of taxable income for companies in any single year, with the unused portion carried forward on a linked basis, without limit). For income derived from state bonds or funds invested above 75% in state bonds, such ceiling is not used (100% is deducted). If the depreciated cost of fixed assets exceeds shareholders' equity, then such excess, multiplied by the annual inflation rate, is added to taxable income. 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 gains generated by an Israeli company, which is subject to the Inflationary Adjustments Law on the disposition of securities, will be taxed according to the provisions of such Law. Pursuant to the Convention Between the Government of the United States of America and the Government of Israel with Respect to Taxes on Income (the "U.S.-ISRAEL TAX TREATY"), the sale, exchange or disposition of ordinary shares or redeemable warrants by a person who qualifies as a resident of the United States within the meaning of the U.S.-Israel Tax Treaty and who is entitled to claim the benefits afforded to such resident by the U.S.-Israel Tax Treaty ("TREATY U.S. RESIDENT") will not be subject to the Israeli capital gains tax unless such Treaty U.S. Resident holds, directly or indirectly, shares representing 10% or more of our voting power during any part of the 12-month period preceding such sale, exchange or disposition. 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 our voting power at any time during such preceding 12-month period would 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. TAXATION OF NON-RESIDENTS 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% is withheld at source, unless a different rate is provided in a treaty between Israel and the shareholder's country of residence. The U.S.-Israel Tax Treaty provides for a maximum tax of 25% on dividends paid to a Treaty U.S. Resident, and for a 40 rate of 12.5% on dividends paid to a United States corporation that holds 10% or more of the shares of the Israeli company. PROPOSED TAX REFORM On May 4, 2000, a committee chaired by the Director General of the Israeli Ministry of Finance issued a report recommending a significant reform in the Israeli system of taxation. The proposed reform would significantly alter the taxation of individuals, and would also affect corporate taxation. In particular, the proposed reform would reduce, but not eliminate, the tax benefits available to approved enterprises. The Israeli cabinet has approved the recommendation in principle, but implementation of the reform requires legislation by Israel's Knesset. We cannot be certain whether the proposed reform will be adopted, when it will be adopted or what form any reform will ultimately take. F. Not applicable. G. Not applicable. H. DOCUMENTS ON DISPLAY The Company (formerly named Stav Electrical Systems (1994) Ltd.) is subject to certain of the informational requirements of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission. Reports, proxy statements and other information filed by the Company may be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N. W., Washington, D. C. 20549 and at the Regional Offices thereof at 7 World Trade Center, Suite 1300, New York, New York and at Northwestern Atrium Center, Suite 1400, 500 West Madison Street, Chicago, Illinois. Copies of such information can be obtained by mail from the Public Reference Section of the Commission at 450 Fifth Street, N. W., Washington, D. C. 20549 at prescribed rates. In addition, beginning in July 2001 the Company began filing its reports with the Commission electronically and any reports, proxy statements and other information filed by the Company after such date may also be inspected the Commission's web site at WWW.SEC.GOV. I. SUBSIDIARY INFORMATION. Not Applicable. ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The Company is exposed to various market risks, including but not limited to risks deriving from changes in interest rates and inflation rates and changes in the exchange rate of the NIS against foreign currencies. INTEREST RATE RISK. At December 31, 2000, the Company had cash, cash equivalents and short term bank deposits in the aggregate amount of $6.5 million, deposited primarily in major Israeli banks and $6.6 million in short-term and long-term interest bearing loans or 41 debts. These amounts accrue or bear nominal interest which is linked to the interest fixed by the Bank of Israel, therefore any inflationary changes in the consumer price index in Israel or changes in the exchange rate between NIS and the U.S. dollar may effect these amounts. FOREIGN CURRENCY EXCHANGE RISKS. At December 31, 2000, one-half of the Company's current assets were cash deposits denominated in NIS in the aggregate amount of $6.5 million. These amounts as presented in U.S. dollars may be affected by changes in the exchange rate between NIS and the U.S. dollars. FAIR VALUE OF FINANCIAL INSTRUMENTS. The financial instruments of the Company consist primarily of cash and cash equivalents and accounts payable. In view of their nature, the fair value of the financial instruments included in the Company's working capital is usually identical or close to their carrying amount. ITEM 12. Not applicable. PART II ITEM 13. DEFAULTS, DIVIDEND ARREARAGE AND DELINQUENCIES. None. ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS. Not applicable. ITEM 15. [RESERVED] ITEM 16. [RESERVED] PART III ITEM 17. FINANCIAL STATEMENTS. Not applicable. The Company has elected to furnish financial statements pursuant to Item 18 below. ITEM 18. FINANCIAL STATEMENTS. See Financial Statements Attached 42 MARNETICS BROADBAND TECHNOLOGIES LTD. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 MARNETICS BROADBAND TECHNOLOGIES LTD. CONSOLIDATED FINANCIAL STATEMENTS CONTENTS
PAGE ---- MARNETICS BROADBAND TECHNOLOGIES LTD REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2 CONSOLIDATED BALANCE SHEETS as at December 31, 2000 and 1999 F-3 CONSOLIDATED STATEMENTS OF OPERATIONS for the years ended December 31, 2000 and 1999 for the period of seven months ended December 31, 1998 and for the cumulative period from June 1, 1998 to December 31, 2000 F-4 STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY for the years ended December 31, 2000 and 1999 for the period of seven months ended December 31, 1998 and for the cumulative period from June 1, 1998 to December 31, 2000 F-5 CONSOLIDATED STATEMENTS OF CASH FLOWS for the years ended December 31, 2000 and 1999 for the period of seven months ended December 31, 1998 and for the cumulative period from June 1, 1998 to December 31, 2000 F-6 NOTES TO THE FINANCIAL STATEMENTS F-8 STAV ELECTRICAL SYSTEMS (1994) LTD. (PREVIOUS REGISTRANT) CONSOLIDATED BALANCE SHEETS F-19 as at December 31, 2000 and 1999 CONSOLIDATED STATEMENTS OF OPERATIONS F-20 for the years ended December 31,2000, 1999 and 1998 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY F-21 for the years ended December 31,2000, 1999 and 1998 CONSOLIDATED STATEMENTS OF CASH FLOWS F-22 for the years ended December 31,2000, 1999 and 1998 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-24 APPENDIX A - CONSOLIDATED FINANCIAL STATEMENTS OF SPEED-WISE TECHNOLOGIES LTD.
F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO THE SHAREHOLDERS OF MARNETICS BROADBAND TECHNOLOGIES LTD. We have audited the accompanying consolidated balance sheets of MARNETICS BROADBAND TECHNOLOGIES LTD. ("the Company") (a development- stage company) as of December 31, 2000 and 1999, and the related consolidated statements of operations, changes in shareholders' equity and cash flows for the years ended December 31, 2000 and 1999, the seven months ended December 31, 1998 and the cumulative period from June 1, 1998 (date of commencement of operations) to December 31, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 the Company's 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 aforementioned consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company (a development-stage company) as of December 31, 2000 and 1999, and its consolidated results of operations, changes in shareholders' equity and cash flows for the years ended December 31, 2000 and 1999, the seven months period ended December 31, 1998 and the cumulative period from June 1, 1998 (date of commencement of operations) to December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. BRIGHTMAN ALMAGOR & CO. CERTIFIED PUBLIC ACCOUNTANTS (ISRAEL) A MEMBER OF DELOITTE TOUCHE TOHMATSU Tel Aviv, Israel April 26, 2001 F-2 MARNETICS BROADBAND TECHNOLOGIES LTD. (A DEVELOPMENT STAGE COMPANY) (U.S$ IN THOUSANDS) CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ------------ 2000 1999 ---- ---- US$ IN THOUSANDS CURRENT ASSETS: Cash and cash equivalents 6,546 284 Receivables: Trade, net of allowance for doubtful accounts totaling as of December 31, 2000 and 1999, $ 48,000 and $ 43,000 , respectively 723 8 Related parties (Note 3) 690 -- Other (Note 6a) 123 -- Inventories 224 -- Recoverable costs and estimated earnings- not yet billed 3,255 -- ------ ----- TOTAL CURRENT ASSETS 11,561 292 ------ ----- LONG-TERM LOAN TO RELATED PARTIES (Note 3) 1,272 -- ------ ----- Investment in affiliate (Note 4) 126 ----- 582 ------ FIXED ASSETS (Notes 2f & 5) Cost 1,065 -- Less - accumulated depreciation 413 -- ------ ----- 652 -- ------ ----- OTHER ASSETS 11,309 -- ------ ----- 25,376 418 ====== ===== CURRENT LIABILITIES: Short-term bank credit (Note 6b) 3,337 -- Payables: Trade 1,553 -- Other (Note 6c) 1,745 2 Related parties (Note 6d) 1 8 ------ ----- TOTAL CURRENT LIABILITIES 6,636 10 ------ ----- LONG-TERM LIABILITIES (Note 7) 65 -- ------ ----- ACCRUED SEVERANCE PAY 148 -- ------ ----- COMMITMENTS AND CONTINGENT LIABILITIES (Note 8) SHAREHOLDERS' EQUITY (Note 9) Share capital: Ordinary shares of NIS 0.08 par value (Authorized, 5,000,000 shares, issued and outstanding 6,407,303 and 266,559 at December 31, 2000 and 1999 respectively) 130 1 Additional paid-in capital 25,143 828 Deferred stock compensation (2,329) -- Accumulated deficit (4,417) (421) ------ ----- 18,527 408 ------ ----- 25,376 418 ====== =====
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS F-3 MARNETICS BROADBAND TECHNOLOGIES LTD. (A DEVELOPMENT STAGE COMPANY) (U.S$ IN THOUSANDS) CONSOLIDATED STATEMENTS OF OPERATIONS
CUMULATIVE FROM JUNE 1, 1998 (DATE OF SEVEN MONTHS COMMENCEMENT OF YEAR ENDED ENDED OPERATIONS) TO DECEMBER 31, DECEMBER 31, DECEMBER 31, ------------ ------------ ------------ 2000 1999 1998 2000 ---- ---- ---- ---- US$ IN THOUSANDS ---------------- Research and development costs (excluding $138,000 of non-cash compensation in the year ended December 31, 2000) (Note 11a) 252 33 131 416 Sales and marketing expenses, net (Note 11b) 142 -- 142 General and administrative expenses (excluding $2,270,000 of non-cash compensation in the year ended December 31, 2000) (Note 11c) -- 44 181 947 Non-cash compensation expenses 2,408 2,408 -------- ------- ------- ------- OPERATING LOSS (3,524) (77) (312) (3,913) Financial income, net 167 9 8 184 Loss on sale of property and equipment (28) (28) Share in losses of affiliate (63 (21) (660) -------- ------- ------- ------- LOSS FOR THE PERIOD (3,996) (117) (304) (4,417) ======== ======= ======= ======= PER SHARE DATA (NOTE 2h) LOSS PER SHARE: BASIC AND DILUTED (4.15) (0.20) (0.91) ======== ======= ======= Shares used in computing Loss per ordinary share BASIC AND DILUTED 962,553 575,234 335,143 ======== ======= =======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS F-4 MARNETICS BROADBAND TECHNOLOGIES LTD. (A DEVELOPMENT STAGE COMPANY) (U.S$ IN THOUSANDS) STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
DEFICIT ACCUMULATED NUMBER ADDITIONAL DURING THE OF SHARE PAID-IN DEFERRED DEVELOPMENT SHARES CAPITAL CAPITAL COMPENSATION STAGE TOTAL ------ ------- ---------- ------------ ----------- ----- US$ IN THOUSANDS ---------------- BALANCE AT JUNE 1, 1998 (DATE OF COMMENCEMENT OF OPERATIONS) CHANGES IN THE SEVEN MONTHS FROM JUNE 1, 1998 TO DECEMBER 31, 1998: Issuance of shares 266,000 1 682 683 Loss for the period (304) (304) --------- ------- ---------- ------------ ----------- ------ Balance at December 31, 1998 266,000 1 682 -- (304) 379 --------- ------- ---------- ------------ ----------- ------ Issuance of shares for no consideration 559 Adjustment due to issuance of shares of a development - stage affiliate to a third party 146 146 Loss for the year (117) (117) --------- ------- ---------- ------------ ----------- ------ Balance at December 31, 1999 266,559 1 828 -- (421) 408 --------- ------- ---------- ------------ ----------- ------ Issuance of share capital 388,237 1 7,297 7,298 Adjustments due to issuance of shares of a development - stage affiliate to a third party 1,095 1,095 Issuance of options to a related party 270 270 Deferred compensation related to employee stock option grants 631 (631) -- Adjustments due to reverse merger - additional compensation due to a new measurement date 1,836 (1,836) -- Amortization of deferred compensation 138 138 Adjustments due to reverse merger 759,489 30 30 Issuance of shares in a reverse merger 4,993,048 98 11,186 11,284 Compensation relating to options granted to former CEO and chairman of the board 2,000 2,000 Loss for the period (3,996) (3,996) --------- ------- ---------- ------------ ----------- ------ Balance at December 31, 2000 6,407,333 130 25,143 (2,329) (4,417) 18,527 ========= ======= ========== ============ =========== ======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS F-5 MARNETICS BROADBAND TECHNOLOGIES LTD. (A DEVELOPMENT STAGE COMPANY) (U.S$ IN THOUSANDS) STATEMENTS OF CONSOLIDATED CASH FLOWS
CUMULATIVE FROM JUNE 1, 1998 (DATE OF SEVEN MONTHS COMMENCEMENT OF YEAR ENDED ENDED OPERATIONS) TO DECEMBER 31, DECEMBER 31, DECEMBER 31, ------------ ------------ ------------ 2000 1999 1998 2000 ---- ---- ---- ---- US$ IN THOUSANDS ---------------- CASH FLOWS FROM OPERATING ACTIVITIES: Loss for the period (3,996) (117) (304) (4,417) Adjustments to reconcile loss for the period to cash used in operating activities (Appendix A): 3,124 (7) 67 3,184 -------- ------- ------- ------- Net cash used in operating activities (872) (124) (237) (1,233) -------- ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Cash acquired in a non-cash reverse merger 22 -- -- 22 Purchase of property and equipment (186) -- (47) (233) Proceeds from sale of property and equipment -- 10 -- 10 -------- ------- ------- ------- Net cash provided by (used in) investing activities (164) 10 (47) (201) -------- ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of share capital 7,298 -- 683 7,981 Investment in affiliate -- (1) -- (1) -------- ------- ------- ------- Net cash provided by (used in) financing activities 7,298 (1) 683 7,980 -------- ------- ------- ------- Increase (decrease) in cash and cash equivalents 6,262 (115) 399 6,546 Cash and cash equivalents at the beginning of the period 284 399 -- -- -------- ------- ------- ------- Cash and cash equivalents at the end of the period 6,546 284 399 6,546 ======= ====== ======= =======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS F-6 MARNETICS BROADBAND TECHNOLOGIES LTD. (A DEVELOPMENT STAGE COMPANY) (U.S$ IN THOUSANDS) APPENDICES TO CONSOLIDATED STATEMENTS OF CASH FLOWS
CUMULATIVE FROM JUNE 1, 1998 (DATE OF SEVEN MONTHS COMMENCEMENT OF YEAR ENDED ENDED OPERATIONS) TO DECEMBER 31, DECEMBER 31, DECEMBER 31, ------------ ------------ ------------ 2000 1999 1998 2000 ---- ---- ---- ---- US$ IN THOUSANDS ---------------- APPENDIX A ADJUSTMENTS TO RECONCILE LOSS FOR THE PERIOD TO NET CASH USED IN OPERATING ACTIVITIES: Depreciation 8 2 7 17 Loss on sale of property and equipment -- 28 -- 28 Share in losses of affiliate 639 21 -- 660 Non cash compensation expenses 2,408 -- -- 2,408 Changes in assets and liabilities: Increase in accounts receivable (61) (1) (6) (68) Increase (decrease) in trade payables 34 (20) 21 35 Increase (decrease) in other payables and accrued expenses 96 (37) 45 104 ----- --- -- ------ 3,124 (7) 67 3,184 ===== === == ====== SUPPLEMENTAL CASH FLOW DATA PURCHASE OF A SUBSIDIARY IN A REVERSE MERGER: Current assets 4,947 4,947 Non-current assets 1,272 1,272 Fixed assets 474 474 Goodwill 11,309 11,309 Current liabilities (6,497) (6,497) Long-term liabilities (213) (213) Cash acquired 22 22 ----- ------ Total non-cash consideration 11,314 11,314 ====== ======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS F-7 MARNETICS BROADBAND TECHNOLOGIES LTD. (A DEVELOPMENT STAGE COMPANY) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - GENERAL MARNETICS BROADBAND TECHNOLOGIES LTD. (FORMERLY STAV ELECTRICAL SYSTEMS (1994) LTD.) ("the Company or Stav") is engaged in the manufacture, installation and maintenance of electrical and lighting systems, mainly for public institutions and in the development of performance enhancement solutions for Internet applications through its wholly owned subsidiary Marnetics Ltd. ("Marnetics"). On June 1, 2000 a share exchange agreement ("the agreement") was signed between the Company and Marnetics. The agreement was consummated after final approval of the Company's shareholders on December 31, 2000. Pursuant to the agreement, the Company issued to the shareholders of Marnetics shares and options in the amounts of 4,993,048 and 1,761,236 respectively, representing 75% of its outstanding shares and options, on a fully diluted basis, in exchange for all shares in Marnetics. The acquisition of Marnetics by the Company was accounted for as a reverse acquisition. As the shareholders of Marnetics (as a group) received the largest ownership interest in the Company, Marnetics was determined to be the "accounting acquirer" in the reverse acquisition. As a result, the historical financial statements of the Company (prior to December 31, 2000) were replaced with the historical financial statements of Marnetics. The statements of operations for 2000, 1999 and 1998 include the operations of Marnetics. The December 31, 2000 balance sheet includes the accounts of the Company and Marnetics, and the December 31, 1999 balance sheet includes the accounts of Marnetics. The fair value of Stav shares, US$ 11,314,280 was determined on the basis of the average market price of its outstanding shares US$ 8.00. The following unaudited pro forma summary presents information as if the acquisition of Stav occurred at the beginning of the periods presented. The pro forma information, which is provided for informational purposes only, is based on historical information and does not necessarily reflect the results that would have occurred, nor is it necessarily indicative of future results of operations of the consolidated entities.
(UNAUDITED) YEAR ENDED DECEMBER 31, 2000 1999 ---- ---- Revenues 4,498 5,152 Net income (10,751) (1,227) Earnings per share: Basic (1.68) (0.19) Diluted (1.68) (0.19)
Marnetics has a limited operating history and is subject to risks, expenses and uncertainties frequently encountered by companies in the new and rapidly evolving markets for Internet products and services. In 1999, Marnetics reduced its activities, dismissed most of its employees and sold its fixed assets. During 2000, Marnetics has raised US$ 2.3 million from new investors and recruited additional employees. F-8 MARNETICS BROADBAND TECHNOLOGIES LTD. (A DEVELOPMENT STAGE COMPANY) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES a. DEVELOPMENT-STAGE ENTERPRISE Since planned principal operations have not yet begun to generate any revenues, Marnetics is a development-stage company. All pre-operating costs have been expensed as incurred. b. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS 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 periods. Actual results could differ from those estimates. c. FINANCIAL STATEMENTS IN U.S. DOLLARS The reporting currency of the Company is the U.S. dollar. The currency of the primary economic environment in which the operations of the Company are conducted is the dollar, and the dollar has been determined to be the Company's functional currency. Transactions and balances originally denominated in dollars are presented at their original amounts. Non-dollar transactions and balances have been remeasured into dollars in accordance with the principles set forth in Statement of Financial Accounting Standard ("SFAS") No. 52. All exchange gains and losses from remeasurement of monetary balance sheet items resulting from transactions in non-dollar currencies are reflected in the statement of operations as they occur. d. CASH EQUIVALENTS Cash equivalents consist of short-term, highly liquid investments that are readily convertible into cash with original maturities when purchased of three months or less. e. INVENTORIES Raw materials are stated at the lower of cost or market value. Cost is determined using the "first in-first out" method. f. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, as follows: Computers and software 3 years Furniture and fixtures 10-15 years In accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," management reviews long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable based on estimated future cash flows. An impairment loss is recognized when the undiscounted future cash flows are less than the carrying value of the assets. The loss recognized would be equal to the difference between the carrying value and the fair value of the asset. F-9 MARNETICS BROADBAND TECHNOLOGIES LTD. (A DEVELOPMENT STAGE COMPANY) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.) g. RESEARCH AND DEVELOPMENT EXPENSES Research and development expenses are expensed as incurred. h. EARNINGS PER SHARE The Company has adopted Statement No. 128 of the FASB "Earnings Per Share" (SFAS 128"). Basic and diluted earnings per ordinary share are computed using the weighted average number of shares outstanding. i. DEFERRED INCOME TAXES Deferred income taxes are provided for temporary differences between the assets and liabilities, as measured for financial statement purposes and for tax purposes, at tax rates expected to be in effect when these differences reverse. j. FAIR VALUE OF FINANCIAL INSTRUMENTS The financial instruments of the Company consist mainly of cash and cash equivalents, current accounts receivable, accounts payable and accruals. Due to the relatively short period to maturity, the fair value of the financial instruments included in the working capital of the Company approximates their carrying amounts. k. RECENT ACCOUNTING PRONOUNCEMENTS Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended (SFAS 133) standardizes the accounting for derivative instruments by requiring that an entity recognize all derivatives as assets or liabilities in the statement of financial position and measure these instruments at fair value. When certain criteria are met, it also provides for matching the timing of gain or loss recognition on the derivative hedging instrument with the recognition of (a) the changes in the fair value or cash flows of the hedged asset or liability attributable to the hedged risk or (b) the earnings effect of the hedged forecasted transaction. This statement will be adopted effective January 1, 2001, but is not expected to materially effect the Company's financial statements. NOTE 3 - RELATED PARTIES Comprised as follows:
December 31, December 31, 2000 1999 ---- ---- US$ IN THOUSANDS MR. DOV STRIKOVSKI (FORMER CEO AND CHAIRMAN OF THE BOARD): Loan (1) 1,484 -- ====== ==== Current account (2) 478 -- ====== ====
(1) The loan is linked to the Israeli CPI and bears interest of 2% per annum. The loan is repaid in eight annual installments each comprised of 1/8 of the principal and the accrued interest thereon. The loan is not secured. F-10 MARNETICS BROADBAND TECHNOLOGIES LTD. (A DEVELOPMENT STAGE COMPANY) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (2) During the audit of the financial statements of Stav for the year ended December 31, 2000 it was discovered that excess advances were paid to certain suppliers in the amount of $ 478,000. In accordance with the share exchange agreement (see Note 1) the Company asked Mr. Strikovsky for the repayment of such amounts. To secure the repayment Mr. Strikovsky provided the Company with a bank guaranty to be exercised not earlier than within 30 days from June 30, 2001. NOTE 4 - INVESTMENT IN AFFILIATE Until September 2000 the Company held 33.6% of the outstanding shares of Speedwise Technologies Ltd ("Speedwise"). In September 2000, Speedwise issued shares to a third party resulting in a decrease in the Company's holdings in Speedwise to 19.19%. The Company retained its significant influence over Speedwise. The investment in the affiliate consists of the following:
DECEMBER 31, ----------- 2000 1999 ---- ---- US$ IN THOUSANDS ---------------- Investment in shares 1 1 Adjustment due to issuance of shares to a third party 1,241 146 Share in losses of affiliate (660) (21) ------ ----- 582 126 ====== =====
Following is the condensed balance sheet of Speedwise Technologies Ltd. as at December 31, 2000 and 1999.
DECEMBER 31, ----------- 2000 1999 ---- ---- US$ IN THOUSANDS ---------------- Current assets 3,078 361 Property and equipment 407 39 Other assets 56 9 ------- ------ 3,541 409 ======= ====== Current liabilities 505 33 Shareholders' equity: Ordinary shares 6 3 Additional paid-in capital 7,083 436 Deferred stock compensation (969) -- Deficit accumulated during the development stage (3,084) (63) ------- ------ 3,036 376 ------- ------ 3,541 409 ======= ======
F-11 MARNETICS BROADBAND TECHNOLOGIES LTD. (A DEVELOPMENT STAGE COMPANY) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 5 - PROPERTY AND EQUIPMENT Consist of the following:
DECEMBER 31, ----------- 2000 1999 ---- ---- US$ IN THOUSANDS ---------------- Cost: Computers and software 304 -- Leasehold improvements 116 -- Motor vehicles 610 Furniture and fixtures 35 -- ------- ------ 1,065 -- ======= ====== Accumulated depreciation: Computers and software (100) -- Leasehold improvements (55) -- Motor vehicles (257) Furniture and fixtures (1) -- ------- ------ (413) -- ======= ======
NOTE 6 - SUPPLEMENTARY BALANCE SHEET INFORMATION a. OTHER RECEIVABLES
DECEMBER 31, -------------------------- 2000 1999 ---- ---- US$ IN THOUSANDS ---------------------------- Prepaid expenses 77 -- Restricted cash 24 -- Advances to suppliers 14 -- Others 8 -- ----- ----- 123 -- ===== =====
b. SHORT-TERM BANK CREDIT
DECEMBER 31, ------------ 2000 1999 INTEREST RATES ---- ---- % US$ IN THOUSANDS -------------- ---------------- UNLINKED SHEKEL CREDIT Overdraft 13.7-10.2 2,609 -- Short-term loans 6.2-10.2 680 -- ------ ----- 3,289 -- Current maturities of long-term loans 48 -- ------ ----- 3,337 -- ====== ===== Liens - see Note 8d.
F-12 MARNETICS BROADBAND TECHNOLOGIES LTD. (A DEVELOPMENT STAGE COMPANY) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 6 - SUPPLEMENTARY BALANCE SHEET INFORMATION (cont.) c. OTHER PAYABLES:
DECEMBER 31, ------------------------ 2000 1999 ---- ---- US$ IN THOUSANDS ---------------- Wages and related accruals 508 -- Accrual for taxes less payments Government authorities 834 -- Accrued expenses 284 -- Other 119 -- ------ ----- 1,745 -- ====== =====
d. RELATED PARTIES: Consist of the following:
DECEMBER 31, ----------------- 2000 1999 ---- ---- US$ IN THOUSANDS ---------------- Speedwise Technologies Ltd. 1 2 Infotier Ltd. -- 7 ---- ---- 1 9 ==== ====
NOTE 7 - LONG-TERM DEBT
DECEMBER 31, ------------------------- 2000 1999 ---- ---- US$ IN THOUSANDS ---------------- Long-term loan 44 -- Finance leases (1) 85 -- Less - current maturities 48 -- ----- ---- 81 -- Less - deposit(2) 16 -- ----- ---- 65 -- ===== ====
(1) The loans are linked to the Israeli CPI and bear average interest at 7.5% per annum. (2) Under each of the lease agreements, the Company undertook to deposit amount equal to the last three payments. The deposit is linked to the terms of the loan principal. F-13 MARNETICS BROADBAND TECHNOLOGIES LTD. (A DEVELOPMENT STAGE COMPANY) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 8 - COMMITMENTS AND CONTINGENT LIABILITIES a. LEASE AGREEMENT The facilities of the Company are rented under an operating lease for a period ending November 30, 2000. The future minimum lease commitment under the operating lease for the year ended December 31, 2000 is US$ 26,100. The facilities of the subsidiary are rented under an operating lease for a period of one year commencing May 14, 2000 and include a two-year lease extension option to extend the lease for one year periods upon prior written notice. The rent expenses under the operating lease for the year ended December 31, 2000 totaled $ 27,281. b. EMPLOYMENT AGREEMENT In June 1999, the Company entered into an employment agreement with Mr. Strikovsky providing that, through December 31, 2002, Mr. Strikovsky will serve as President and Chief Executive Officer of the Company at a base salary of $15,000 per month payable in New Israeli Shekels (subject to increase by the Board of Directors) and such bonuses as may be determined by the Board of Directors. Mr. Strikovsky participates in pension severance pay funds and insurance policies and savings plans. In addition, Mr. Strikovsky will receive reimbursement for certain business expenses including use of a Company-owned automobile, and reimbursement of telephone expenses and insurance. Upon termination of Mr. Strikovsky's employment, the Company is required to transfer to him title of severance pay and related insurance policies in lieu of severance payments. Upon the termination of such agreement, Mr. Strikovsky is subject to certain noncompete, non-disturbance, and non-interference provisions for a period of two years during which time and in consideration of which and provided that he is not otherwise employed, Mr. Strikovsky shall continue to draw his last salary and benefits. The contract was terminated on March 31, 2001. c. FAIR VALUE OF FINANCIAL INSTRUMENTS The financial instruments of the Company consist mainly of current accounts receivable, short-term credits, accounts payable, accruals and long term debt. In view of their nature, the fair value of the financial instruments included in working capital of the Company are usually identical or close to their carrying amounts. d. LIENS, SECURITIES AND GUARANTEES 1. Liabilities of the Company to banks, totalling, as at December 31, 2000, US$ 3,337,000 are secured by a lien on the Company's assets. In addition, the Company has registered a fixed and floating lien on its unpaid share capital, goodwill and assets. 2. Liabilities of the Company to finance leasing companies, totalling as at December 31, 2000, US$ 69,000 are secured by a lien on the vehicles. 3. As at December 31, 2000, the Company was contingently liable for bank guarantees under performance obligations to customers totaling US$ 184,000. 4. As at December 31, 2000 the Company guaranteed discounted checks totaling US$682,000. F-14 MARNETICS BROADBAND TECHNOLOGIES LTD. (A DEVELOPMENT STAGE COMPANY) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 9 - SHARE CAPITAL a. In December 1998 the Company consummated an Initial Public Offering (IPO). Subsequent to the IPO, the Company's ordinary shares are quoted and listed on the American Stock Exchange (AMEX). b. In January 2000, Marnetics issued 36,318 ordinary shares of NIS 0.01 par value to an investor in consideration for $ 295,000. In addition, Marnetics granted the investor options to purchase 10,465 outstanding shares of the Company at $ 8.12 per share. c. In February 2000, Marnetics issued 130,719 ordinary shares of NIS 0.01 par value to ECI Communications Ltd. for $ 2,000 thousand. d. Through September 30, 2000, Marntics has agreed to grant to specific employees options to purchase 40,437 ordinary shares of the Company pursuant to their employment agreements. The exercise price of the options is $1. Most of the options vest over four years. As part of the share exchange agreement such options were replaced with 308,300 options to purchase ordinary shares of the Company (see also Note 9(g) below). e. In October 2000 Marnetics reached an agreement with a group of new investors (the "Investors"). In accordance with the agreement, the Company issued to the Investors 221,200 ordinary shares in consideration of $5,076 thousand. f. On June 1, 2000 a share exchange agreement ("the agreement") was signed between the Company and Marnetics. The agreement was consummated after final approval of the Company's shareholders on December 20, 2000. Pursuant to the agreement the Company issued to the shareholders of Marnetics shares and options in the amounts of 4,993,048 and 1,761,236 (including 308,300 options to employees of Marnetics - see 9(g) below.) respectively, representing 75% of its outstanding shares and options, on a fully diluted basis, in exchange for all shares in Marnetics. g. Pursuant to the agreement the Company issued newly unvested options to purchase 308,300 ordinary shares of the Company to the employees of Marnetics for their unvested options in Marnetics. In connection with this issuance, the Company recorded a deferred stock compensation expense totaling $ 1,836,000. h. In connection with the agreement, the Board of Directors of the Company adopted an unwritten Option Plan (the "Option Plan"). The Option Plan provides for the grant of options to purchase up to an aggregate of 1,000,000 Ordinary Shares to directors, key employees and consultants of the Company. The Board of Directors of the Company will determine the terms of the grants. Under the Option Plan, the Company granted, to a company under the control of the former CEO and chairman of the board of the Company, 400,000 fully vested options to purchase shares at the exercise price of $3. With respect to these options non-cash compensation expenses totaling $2,000,000 were recorded and charged to earnings in accordance with APB 25 "Accounting for Stock Issued to Employees". After the consummation of the reverse merger the amount of outstanding ordinary shares of the Company is 6,407,333 and the amount of options outstanding is 2,918,379 of which 1,045,443 were granted to employees and 420,000 were granted to two consultants. F-15 MARNETICS BROADBAND TECHNOLOGIES LTD. (A DEVELOPMENT STAGE COMPANY) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 10 - TAXES ON INCOME The Company is assessed under the provisions of the Israeli Income Tax Law (Inflationary Adjustments) 1985, pursuant to which results for tax purposes are measured in new Israeli shekels in real terms in accordance with changes in the Israeli consumer price index. Income is taxable at the ordinary corporate tax rate of 36%. DEFERRED TAXES The main components of the Company's deferred tax assets are as follows:
DECEMBER 31, ------------------ 2000 1999 ---- ---- US$ IN THOUSANDS ---------------- Deferred tax assets: Net operating loss carryforwards in Israel (1,786) (101) Accrued severance pay, inventory adjustments, accrued vacation pay and allowances for doubtful debts (96) -- Less - Valuation allowance 1,882 101 ------- ----- Balance -- -- ======= =====
Under SFAS No. 109, deferred tax assets are to be recognized for the anticipated tax benefits associated with net operating loss carryforwards and deductible temporary differences, unless it is more likely than not that some or all of the deferred tax assets will not be realized. The adjustment is made by a valuation allowance. Since the realization of the net operating loss carryforwards is less likely than not, a valuation allowance has been established for the amounts of the related tax benefits. Tax loss carryforwards of the Company and its subsidiary company totalling US$ 4,961 thousand are unlimited in duration, denominated in NIS and linked to the Israeli consumer price index. TAX ASSESSMENTS The Company has not been assessed for income tax purposes since incorporation. NOTE 11 - SUPPLEMENTARY STATEMENT OF OPERATIONS INFORMATION a. RESEARCH AND DEVELOPMENT COSTS
CUMULATIVE FROM JUNE 1, 1998 (DATE OF SEVEN MONTHS COMMENCEMENT OF YEAR ENDED ENDED OPERATIONS) TO DECEMBER 31, DECEMBER 31, DECEMBER 31, ------------ ------------ ------------ 2000 1999 1998 2000 ---- ---- ---- ---- US$ IN THOUSANDS ---------------- Salaries and related expenses 355 11 100 466 Sub-contractors 17 20 23 60 Depreciation 6 2 8 16 Other 12 -- -- 12 ----- ---- ----- ----- 390 33 131 554 ===== ==== ===== =====
F-16 MARNETICS BROADBAND TECHNOLOGIES LTD. (A DEVELOPMENT STAGE COMPANY) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 11 - SUPPLEMENTARY STATEMENT OF OPERATIONS INFORMATION (cont.) b. SALES AND MARKETING EXPENSES, NET
CUMULATIVE FROM JUNE 1, 1998 (DATE OF SEVEN MONTHS COMMENCEMENT OF YEAR ENDED ENDED OPERATIONS) TO DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 1999 1998 2000 ---- ---- ---- ---- US$ IN THOUSANDS ---------------- Salaries and related expenses 95 -- -- 95 Advertising and marketing costs 61 -- -- 61 ----- ---- ---- ----- Gross sales and marketing costs 156 -- -- 156 Less-participation from the Government of Israel (14) -- -- (14) ----- ---- ---- ----- 142 142 ===== ==== ==== =====
c. GENERAL AND ADMINISTRATIVE EXPENSES
CUMULATIVE FROM JUNE 1, 1998 (DATE OF SEVEN MONTHS COMMENCEMENT OF YEAR ENDED ENDED OPERATIONS) TO DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 1999 1998 2000 ---- ---- ---- ---- US$ IN THOUSANDS ---------------- Salaries and related expenses 242 11 101 354 Professional services 305 8 26 339 Management fee 43 -- -- 43 Others 132 25 54 211 ----- ---- ----- ----- 722 44 181 947 ===== ==== ===== =====
F-17 STAV ELECTRICAL SYSTEMS (1994) LTD. (PREVIOUS REGISTRANT) CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 F-18 STAV ELECTRICAL SYSTEMS (1994) LTD.(PREVIOUS REGISTRANT) CONSOLIDATED BALANCE SHEETS
ADJUSTED NEW ISRAELI CONVENIENCE SHEKELS TRANSLATION -------------------- ----------- December 31, December 31, 2000 1999 2000 ---- ---- ---- US$ IN THOUSANDS ---------------- CURRENT ASSETS Cash and cash equivalents 87 19 22 Restricted cash 99 -- 24 Receivables: Trade, net of allowance for doubtful accounts totaling as of December 31, 1999 and 2000, NIS 175,000 and NIS 194,000 (US$ 48,000), respectively 2,645 1,896 655 Related parties (Note 3) 2,789 818 690 Other (Note 5a) 402 1,536 99 Inventories (Note 2d, 5c) 907 1,600 224 Recoverable costs and estimated earnings- not yet billed 13,152 14,045 3,255 -------- -------- -------- TOTAL CURRENT ASSETS 20,081 19,914 4,969 -------- -------- -------- LONG-TERM LOAN TO RELATED PARTIES (Note 3) 5,141 5,722 1,272 -------- -------- -------- FIXED ASSETS (Notes 2e&4) Cost 3,553 3,335 879 Less - accumulated depreciation 1,638 1,225 405 -------- -------- -------- 1,915 2,110 474 -------- -------- -------- OTHER ASSETS (Note 5b) - 135 - -------- -------- -------- 27,137 27,881 6,715 ======== ======== ======== CURRENT LIABILITIES Short-term bank credit (Note 5d) 13,485 4,172 3,337 Payables: Trade 6,139 4,254 1,519 Other (Note 5e) 6,632 7,717 1,641 -------- -------- -------- TOTAL CURRENT LIABILITIES 26,256 16,143 6,497 -------- -------- -------- LONG-TERM LIABILITIES (Notes 6) 261 333 65 -------- -------- -------- ACCRUED SEVERANCE PAY (Note 7) 597 374 148 -------- -------- -------- COMMITMENTS AND CONTINGENT LIABILITIES (Note 8) SHAREHOLDERS' EQUITY (Note 9) Share capital: Ordinary shares of NIS 0.08 par value 127 127 31 (Authorized - 5,000,000 shares, issued and outstanding 1,414,285 at December 31, 2000 and 1999) Additional paid-in capital 27,955 11,660 6,918 (Accumulated deficit) Retained earnings (28,059) (756) (6,944) -------- -------- -------- 23 11,031 5 -------- -------- -------- 27,137 27,881 6,715 ======== ======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS F-19 STAV ELECTRICAL SYSTEMS (1994) LTD. CONSOLIDATED STATEMENTS OF OPERATIONS
CONVENIENCE TRANSLATION INTO ADJUSTED NEW ISRAELI SHEKELS U.S. DOLLARS ---------------------------- ---------------- YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, ----------------------- ------------ 2000 1999 1998 2000 ---- ---- ---- ---- U.S.$ IN THOUSANDS NIS IN THOUSANDS (EXCEPT PER SHARE AND (EXCEPT PER SHARE AND SHARE DATA) SHARE DATA) --------------------------------- --------------------- Revenues (Notes 2g&13a) 18,176 20,821 32,632 4,498 COST OF REVENUES (NOTE 13b) 20,698 14,621 19,541 5,122 ----------- ---------- --------- ---------- GROSS PROFIT (LOSS) (2,522) 6,200 13,091 (624) Selling expenses 73 138 87 18 General and administrative expenses (excluding NIS 16,295,000 (US$4,032,000) (Note 13c) 5,872 6,937 2,319 1,453 ----------- --------- -------- ---------- 5,945 7,075 2,406 1,471 ----------- --------- -------- ---------- Non-cash compensation expenses 16,295 - - 4,032 ----------- --------- -------- ---------- OPERATING (LOSS) INCOME (24,762) (875) 10,685 (6,127) Financial expenses, net (Note 13d) (1,894) (2,342) (2,591) (468) Other income 8 - - 2 ----------- --------- -------- ---------- INCOME BEFORE TAXES ON INCOME (26,648) (3,217) 8,094 (6,593) Taxes on income (Notes 2f&10) 655 1,268 2,940 162 ----------- --------- -------- ---------- (LOSS) NET INCOME FOR THE YEAR (27,303) (4,485) 5,154 (6,755) =========== ========= ======== ========== PER SHARE DATA (NOTE 2h) (LOSS) EARNINGS PER SHARE: BASIC AND DILUTED (19.31) (3.17) 6.67 (4.78) Weighted average number =========== ========= ======== ========== of shares outstanding BASIC AND DILUTED 1,414,285 1,414,285 772,618 1,414,285 ========== ========= ======== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS F-20 STAV ELECTRICAL SYSTEMS (1994) LTD. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Adjusted New Israeli Shekels ----------------------------------------------------------------------- RETAINED ADDITIONAL EARNINGS NUMBER OF SHARE PAID-IN (ACCUMULATED SHARES CAPITAL CAPITAL DEFICIT) TOTAL ----- ------- ------- -------- ----- NIS in thousands ---------------- BALANCE AS AT JANUARY 1, 1998 297,500 34 158 192 Share issuance (net of issuance expenses) 1,116,785 93 11,660 11,753 Net income for the year 5,154 5,154 --------- ------- ------- -------- -------- BALANCE AS AT DECEMBER 31, 1998 1,414,285 127 11,660 5,312 17,099 Loss for the year (4,485) (4,485) Dividends (1,583) (1,583) --------- ------- ------- -------- -------- BALANCE AS AT DECEMBER 31, 1999 1,414,285 127 11,660 (756) 11,301 Issuance of share options to To consultants and shareholders 16,295 16,295 Loss for the year (27,303) (27,303) BALANCE AS AT DECEMBER 31, 2000 --------- ------- ------- -------- -------- 1,414,285 127 27,955 (28,059) 23 ========= ======= ======= ======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS F-21 STAV ELECTRICAL SYSTEMS (1994) LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS
CONVENIENCE TRANSLATION INTO ADJUSTED NEW ISRAELI SHEKELS U.S. DOLLARS ---------------------------- ---------------- YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, ----------------------- ------------ 2000 1999 1998 2000 ---- ---- ---- ---- NIS IN THOUSANDS U.S.$ IN THOUSANDS ---------------- ------------------ Cash flows from operating activities: (Loss) net income for the year (27,303) (4,485) 5,154 (6,755) Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities (Appendix A) 20,067 (1,534) (4,608) 4,967 -------- -------- -------- -------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (7,236) (6,019) 546 (1,788) -------- -------- -------- -------- CASH FLOW FROM INVESTING ACTIVITIES Payment for acquisition of consolidated subsidiary(Appendix B) - - (525) Increase in restricted cash (99) - - (24) Proceeds from long-term loan to related parties 581 1,961 2,086 142 Long-term loan to related party - (2,473) (1,213) - Increase in related party- current account (1,971) - - (488) Additions to fixed assets (540) (555) (655) (134) Proceeds from sale of fixed assets 92 68 6 23 -------- -------- -------- -------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (1,937) (999) (301) (481) -------- -------- -------- -------- CASH FLOW FROM FINANCING ACTIVITIES Dividends paid - (1,583) - - Share issuance - - 12,708 - Share issuance costs - - (699) - Long-term loan received 179 325 173 44 Long-term loan paid (359) (539) (231) (89) Short-term credit from banks, net 9,421 3,699 (7,061) 2,332 -------- -------- -------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES 9,241 1,902 4,890 2,287 -------- -------- -------- -------- (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 68 (5,116) 5,135 18 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 19 5,135 - 4 -------- -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD 87 19 5,135 22 ======== ======== ======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS F-22 STAV ELECTRICAL SYSTEMS (1994) LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS APPENDIX A- ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
CONVENIENCE TRANSLATION INTO ADJUSTED NEW ISRAELI SHEKELS U.S. DOLLARS ---------------------------- ---------------- YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, ----------------------- ------------ 2000 1999 1998 2000 ---- ---- ---- ---- NIS IN THOUSANDS U.S.$ IN THOUSANDS ---------------- ------------------ INCOME AND EXPENSES NOT RELATING TO CASH FLOWS Depreciation and amortization 585 427 245 144 Amortization of deferred stock based compensation 16,295 - - 4,032 Increase in accrued severance pay 223 212 108 55 Loss from sale of fixed assets 8 51 6 2 Erosion of long-term loan - (36) 5 - -------- -------- -------- -------- 17,111 654 364 4,233 -------- -------- -------- -------- CHANGES IN ASSETS AND LIABILITIES ITEMS: Increase in trade receivables (749) (604) (677) (185) Decrease (increase) in other receivables 1,184 739 (1,683) 293 Decrease (Increase) in deferred taxes 135 1,044 (158) 33 Decrease (Increase) in recoverable costs and estimated earnings - not yet billed 893 (4,325) (5,689) 221 Decrease (Increase) in inventories 693 (65) (30) 174 Increase (decrease) in trade payables 1,885 1,048 (801) 466 Increase (decrease) in other payables (1,085) (25) 4,066 (268) -------- -------- -------- -------- 2,956 (2,188) (4,972) 734 -------- -------- -------- -------- 20,067 (1,534) (4,608) 4,967 ======== ======== ======== ======== APPENDIX B Assets acquired 1,145 Assumed liabilities (620) ----- 525 =====
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS F-23 STAV ELECTRICAL SYSTEMS (1994) LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - GENERAL a. STAV ELECTRICAL SYSTEMS (1994) LTD. ("the Company") is engaged in the manufacture, installation and maintenance of electrical and lighting systems, mainly for public institutions. b. On June 1, 2000 a share exchange agreement ("the agreement") was signed between the Company and Marnetics Ltd, an Israeli company, engaged in the development of performance enhancement solutions for Internet applications ("Marnetics"). Pursuant to the agreement the Company issued to the shareholders of Marnetics shares and option in the amounts representing 75% of its outstanding shares in exchange for all their shares in Marnetics. NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES a. USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS 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 reported period. Actual results could differ from those estimates. b. ADJUSTED FINANCIAL STATEMENTS 1. GENERAL The Company maintains its accounts in nominal new Israeli shekels ("NIS"). The nominal figures have been adjusted to NIS of constant purchasing power, in accordance with principles prescribed by statements of the Institute of Certified Public Accountants in Israel, based on changes in the Israeli consumer price index ("CPI"). The financial statements are presented on the basis of historical cost in NIS of constant purchasing power (NIS of December 2000) ("adjusted new Israeli shekels"). Following is the annual increase in the CPI. Year ended December 31, 2000 0% Year ended December 31, 1999 1.3% Year ended December 31, 1998 8.6% The term "cost" in these financial statements refers to cost in adjusted NIS. 2. PRINCIPLES OF ADJUSTMENTS: i. BALANCE SHEETS: Monetary items (items whose values represents their current or realizable value at the balance sheet date) are presented at their nominal values. Comparative figures have been adjusted to the Israeli CPI of December 2000. Non-monetary items (principally, fixed assets and share capital) have been adjusted in accordance with changes in the Israeli CPI between the date of acquisition or origination to the balance sheet date. The adjusted values of non-monetary items included in the financial statements do not necessarily represent realizable value or any other economic value, but only their original historical cost in terms of constant NIS. F-24 STAV ELECTRICAL SYSTEMS (1994) LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.) b. ADJUSTED FINANCIAL STATEMENTS (cont.) 2. PRINCIPLES OF ADJUSTMENTS (CONT.): ii. STATEMENTS OF OPERATIONS: Income and expense items (other than financial income or expenses and those deriving from non-monetary items) are adjusted from the transaction date to the balance sheet date. Income and expenses deriving from non-monetary items are adjusted on the same basis as the related balance sheet items. The effects of the inflationary erosion of monetary items and interest are included in financial income or expenses, as appropriate. c. RATE OF EXCHANGE AND LINKAGE BASIS Assets and liabilities in, or linked to, foreign currency are included on the basis of the representative exchange rate prevailing at the balance sheet date. Representative rates of exchange for the U.S. dollar were as follows: December 31, 2000 - NIS 4.041 December 31, 1999 - NIS 4.153 December 31, 1998 - NIS 4.160 Balances linked to the Israeli CPI are stated using the specific index to which the balances are linked. d. INVENTORIES Raw materials are stated at the lower of cost or market value. Cost is determined using the "first in-first out" method. Work-in-progress - represents the cost of development in progress. e. FIXED ASSETS Fixed assets are presented at cost. Depreciation is calculated using the straight-line method, over the estimated useful lives of the assets, at the following annual rates: Motor vehicles 15% Furniture and equipment 6-33% (mainly 10%) Leasehold improvements over the term of the lease f. DEFERRED INCOME TAXES Deferred income taxes are provided for net operating loss carryforwards and temporary differences between the assets and liabilities, as measured in the financial statements, and for tax purposes at the tax rates expected to be in effect when these differences reverse, if it is more likely than not that some or all of the deferred tax assets will not be realized an adjustment is made by means of valuation allowance, in accordance with Statement No. 109 of the Financial Accounting Standards Board ("FASB") (Accounting for Income Taxes). F-25 STAV ELECTRICAL SYSTEMS (1994) LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (cont.) g. REVENUE RECOGNITION MAINTENANCE CONTRACTS Revenues from maintenance services, mainly from municipalities, are billed monthly and are recognized on straight line basis over the term of the respective contracts. Under these contracts the Company provides electrical services to public facilities on customer's request. Costs, mainly salaries, are recorded on a monthly basis as incurred. INSTALLATION AND MANUFACTURE CONTRACTS These are "fixed price contracts" under which revenues are recognized based on the unit-of-delivery method, which is a modified percentage of completion method. Revenues and billings are computed by multiplying the units supplied by the price per unit on a monthly basis. Costs incurred on undelivered units are reported as work in progress in inventories. A provision for anticipated losses is made during the period when these losses become evident. h. EARNINGS PER SHARE The Company has adopted Statement No. 128 of the FASB "Earnings Per Share" (SFAS 128"). Basic and diluted earnings per ordinary share are computed using the weighted average number of shares outstanding. i. CONVENIENCE TRANSLATION Solely for the reader's convenience the financial statements have been translated from NIS into the US dollars using the representative exchange rate as at December 31, 2000 (U.S.$1 = NIS 4.041). The translated United States dollar figures should not be construed as a representation that the Israeli currency amounts actually represent, or could be converted into, United States dollars. j. EFFECT OF INFLATION In accordance with Israeli GAAP, the Company comprehensively includes the effects of price level changes in the accompanying financial statements as described in Note 2b. Such Israeli accounting principles measure the effects of price level changes in the inflationary Israeli economy and, as such, is considered a more meaningful presentation than financial reporting based on nominal historical cost, for Israeli and US accounting purposes. Accordingly, price level adjustments have not been reversed as a reconciliation of Israeli accounting principles to U.S. GAAP. F-26 STAV ELECTRICAL SYSTEMS (1994) LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 - RELATED PARTIES Comprised as follows:
CONVENIENCE ADJUSTED NEW TRANSLATION ISRAELI SHEKELS INTO U.S. DOLLARS --------------- ----------------- December 31 December 31 ----------- ----------- 2000 1999 2000 ---- ---- ---- NIS IN THOUSANDS US$ IN THOUSANDS ---------------- ----------------- MR. DOV STRIKOVSKI: Loan (1) 5,998 6,540 1,484 ======= ======= ======= Current account (2) 1,932 - 478 ======= ======= =======
(1) The loan is linked to the Israeli CPI and bears interest of 2% per annum. The loan is repaid in eight annual installments each comprised of 1/8 of the principal and the accrued interest thereon. The loan is not secured. (2) During the audit of the financial statements of Stav for the year ended December 31, 2000 it was discovered that excess advances were paid to certain suppliers in the amount of $ 478,000. In accordance with the share exchange agreement (see Note 1) the Company asked Mr. Strikovsky for the repayment of such amounts. To secure the repayment Mr. Strikovsky provided the Company with a bank guaranty to be exercised not earlier than within 30 days from June 30, 2001. NOTE 4 - FIXED ASSETS a. COMPRISED AS FOLLOWS:
CONVENIENCE ADJUSTED NEW TRANSLATION ISRAELI SHEKELS INTO U.S. DOLLARS --------------- ----------------- December 31 December 31 ----------- ----------- 2000 1999 2000 ---- ---- ---- NIS IN THOUSANDS US$ IN THOUSANDS ---------------- ----------------- COST: Computers and office equipment 771 768 191 Motor vehicles (*) 2,463 2,248 610 Leasehold improvements 319 319 78 ------- ------- ------- 3,553 3,335 879 ======= ======= ======= ACCUMULATED DEPRECIATION: Computers and office equipment 376 260 93 Motor vehicles 1,040 801 257 Leasehold improvements 222 164 55 ------- ------- ------- 1,638 1,225 405 ======= ======= =======
(*) Including motor vehicles held under a financial lease totalling NIS 533,000 (US$ 132,000). b. Liens - see Note 8e. F-27 STAV ELECTRICAL SYSTEMS (1994) LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 5 - SUPPLEMENTARY BALANCE SHEET INFORMATION a. OTHER RECEIVABLES
CONVENIENCE ADJUSTED NEW TRANSLATION ISRAELI SHEKELS INTO U.S. DOLLARS --------------- ----------------- December 31 December 31 ----------- ----------- 2000 1999 2000 ---- ---- ---- NIS IN THOUSANDS US$ IN THOUSANDS ---------------- ----------------- Prepaid expenses 310 326 77 Advances to suppliers 59 1,077 14 Deferred taxes - 124 - Others 33 9 8 ------- ------- ------- 402 1,536 99 ======= ======= ========
b. OTHER ASSETS
CONVENIENCE ADJUSTED NEW TRANSLATION ISRAELI SHEKELS INTO U.S. DOLLARS --------------- ----------------- December 31 December 31 ----------- ----------- 2000 1999 2000 ---- ---- ---- NIS IN THOUSANDS US$ IN THOUSANDS ---------------- ----------------- Deferred taxes - 135 - ======= ======= ========
c. INVENTORIES
CONVENIENCE ADJUSTED NEW TRANSLATION ISRAELI SHEKELS INTO U.S. DOLLARS --------------- ----------------- December 31 December 31 ----------- ----------- 2000 1999 2000 ---- ---- ---- NIS IN THOUSANDS US$ IN THOUSANDS ---------------- ----------------- Raw materials 907 1,600 224 ======= ======= ========
F-28 STAV ELECTRICAL SYSTEMS (1994) LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 5 - SUPPLEMENTARY BALANCE SHEET INFORMATION (cont.) d. SHORT-TERM BANK CREDIT
CONVENIENCE TRANSLATION INTO U.S. ADJUSTED NEW ISRAELI SHEKELS DOLLARS ---------------------------- ----------- December 31 December 31 ----------- ----------- 2000 1999 2000 ---- ---- ---- NIS IN INTEREST NIS IN US$ IN THOUSANDS RATE THOUSANDS THOUSANDS --------- -------- --------- --------- % --- UNLINKED SHEKEL CREDIT Overdraft 10,541 15-18/5 2,194 2,609 Short-term loans 2,749 8.2 1,675 680 -------- ------- ------- 13,290 3,869 3,289 -------- ------- ------- Current maturities of Long-term loans 195 303 48 -------- ------- ------- 13,485 4,172 3,337 ======== ======= =======
Liens - see Note 8e. e. OTHER PAYABLES:
CONVENIENCE ADJUSTED NEW TRANSLATION ISRAELI SHEKELS INTO U.S. DOLLARS --------------- ----------------- December 31 December 31 ----------- ----------- 2000 1999 2000 ---- ---- ---- NIS IN THOUSANDS US$ IN THOUSANDS ---------------- ----------------- Wages and related accruals 1,934 1,027 478 Accrual for taxes less payments - 4,833 - Government authorities 3,086 1,070 764 Accrued expenses 1,132 738 280 Other 480 49 119 ------- ------- ------- 6,632 7,717 1,641 ======= ======= =======
F-29 STAV ELECTRICAL SYSTEMS (1994) LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6 - LONG-TERM LIABILITIES
CONVENIENCE ADJUSTED NEW TRANSLATION ISRAELI SHEKELS INTO U.S. DOLLARS --------------- ----------------- December 31 December 31 ----------- ----------- 2000 1999 2000 ---- ---- ---- NIS IN THOUSANDS US$ IN THOUSANDS ---------------- ----------------- Long-term loan 179 - 44 Finance leases (1) 342 797 85 Less - current maturities 195 303 48 ----- ----- ----- 326 494 81 Less - deposit(2) 65 161 16 ----- ----- ----- 261 333 65 ===== ===== =====
(1) The leases are linked to the Israeli CPI and bear average interest at 7.5% per annum. (2) Under the leases agreement, the Company undertook to deposit a leasing deposit in the amount of the last three payments. The deposit is linked to the terms of the loan principal. Liens - see Note 8e. NOTE 7 - ACCRUED SEVERANCE PAY Israeli laws and labor agreements determine the obligations of the Company to make severance payments to dismissed employees leaving employment under certain other circumstances. The liability for severance pay benefits, as determined by Israeli Law, is based upon length of service and the employee's most recent monthly salary. This liability is primarily covered by regular deposits made by the Company into recognized severance and pension funds and by insurance policies purchased by the Company. The amounts so funded are not reflected on the balance sheet, since they are controlled by the fund trustees and insurance companies and are not under the control and management of the Company. The aggregate value of the insurance plans for the years ended December 31, 1999 and 2000 was NIS 737,920 and NIS 970,000 (US$ 240,000) respectively. Severance pay expenses for the years ended December 31, 1998, 1999 and 2000 was NIS 110,000 NIS 212,000 and NIS 245,000 (US$ 61,000) respectively. F-30 STAV ELECTRICAL SYSTEMS (1994) LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 8 - COMMITMENTS AND CONTINGENT LIABILITIES a. LEASE AGREEMENT The facilities of the Company are rented under operating lease for a period ending November 30, 2000. Future minimum lease commitment under operating lease for the year ended December 31, 2000 is NIS 108,393 (US$ 26,100). b. EMPLOYMENT AGREEMENT In June 1999, the Company entered into an employment agreement with Mr. Strikovsky providing that, through December 31, 2002, Mr. Strikovsky will serve as President and Chief Executive Officer of the Company at a base salary of $15,000 per month payable in New Israeli Shekels (subject to increase by the Board of Directors) and such bonuses as may be determined by the Board of Directors. Mr. Strikovsky participates in Mivtahim policy and Keren Hishtalmut saving plan. In addition, Mr. Strikovsky will receive reimbursement for certain business expenses including use of a Company-owned automobile, borne telephone expenses, and insurance. Upon termination of Mr. Strikovsky's employment, the Company is required to transfer title to him of severance pay and related insurance policies in lieu of severance payments. Upon the termination of such agreement, Mr. Strikovsky is subject to certain noncompete, non-disturbance, and non-interference provisions for a period of two years during which time and in consideration of which and provided that he is not otherwise employed, Mr. Strikovsky shall continue to draw his last salary and benefits. c. CONCENTRATION OF CREDIT RISK For the year ended December 31, 2000, three of the Company's customers accounted for 54% of total revenues for the year then ended (as at December 31, 1998 and 1999 - four and two customers respectively accounted for 67% and 68% of the revenues for the years then ended). On the basis of past experience, the Company maintains an allowance for doubtful accounts, which in management's estimation adequately covers all anticipated losses in respect of trade receivables. d. FAIR VALUE OF FINANCIAL INSTRUMENTS The financial instruments of the Company consist mainly of current accounts receivable, short-term credits, accounts payable, accruals and long term debt. In view of their nature, the fair value of the financial instruments included in working capital of the Company are usually identical or close to their carrying amounts. e. LIENS, SECURITIES AND GUARANTEES 1. Liabilities of the Company to banks, totalling, as at December 31, 2000, NIS 13,469,000 (US$ 3,333,000) are secured by a lien on the Company's assets. In addition, the Company has registered a fixed and floating lien on its unpaid share capital, goodwill and assets. 2. Liabilities of the Company to finance leasing companies, totalling as at December 31, 2000, NIS 277,000 (US$ 69,000) are secured by a lien on the vehicles. 3. As at December 31, 2000, the Company was contingently liable for a bank guarantees under performance obligations to customers totaling NIS 742,000 (US$ 184,000). 4. As at December 31, 2000 the Company has guaranteed discounted checks totaling NIS 2,754,000 (US$682,000). F-31 STAV ELECTRICAL SYSTEMS (1994) LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 9 - SHARE CAPITAL a. In December 1998 the Company consummated an Initial Public Offering (IPO) pursuant to which the Company sold 800,000 ordinary shares NIS 0.08 par value (including 100,000 ordinary shares NIS 0.08 par value sold by Mr. Strikovsky, president and Chief Executive Officer) for net proceeds of approximately U.S.$ 3.6 million (see also Note 3). Subsequent to the IPO, the Company's ordinary shares are quoted and listed on the American Stock Exchange (AMEX). b. In September 2000 the Company declared and paid a cash dividend in the per share amount of NIS 1.11 (US$ 0.26). The gross amount was NIS 1,583,000 (US$ 380,000), representing 30% of the net income for the year ended December 31, 1999. c. On June 1, 2000 a share exchange agreement ("the agreement") was signed between the Company and Marnetics. The agreement was consummated after final approval of the Company's shareholders on December 20, 2000. Pursuant to the agreement the Company issued to the shareholders of Marnetics shares and options in the amounts of 4,993,048 and 1,761,236 respectively, representing 75% of its outstanding shares, on a fully diluted basis, in exchange for all shares in Marnetics. d. Pursuant to the agreement the Company issued to two consultants and to the CEO of the Company 420,000 and 180,000 respectively, options to purchase ordinary shares of the Company. The exercise prices of the options are $3 and are fully vested immediately. The Company accounted for the grant to the consultants under the fair value method of SFAS No. 123 and EITF 96-18. The fair value for these options was estimated using the Black-Scholes option-pricing model with the following assumptions: risk-free interest rate of 8%, dividend yield of 0%, volatility rate of 100% and expected life of the options of 0.5 years. The options granted to the CEO were accounted for under the intrinsic value in accordance with APB 25 "Accounting for Stock Issued to Employees". The Company recorded non-cash compensation expenses totaling $ 3,247,000. e. The Board of Directors of the Company adopted the 1999 Stock Option Plan (the "Plan"). The Plan provides for the grant of options to purchase up to an aggregate of 157,143 Ordinary Shares to employees, directors, and consultants of the Company. Pursuant to the agreement between the Company and the underwriters of the Company's initial public offering, options cannot be granted with an exercise price less than fair market value on the date of grant. Under the terms of the Plan, options are granted to employees for no consideration, and are exercisable by the employees at a price to be determined from time to time by the Company's Board of Directors or a committee of the Board of Directors, selected in accordance with the Company's Amended Articles of Association (the "Committee"). In December 31, 2000 prior to the final approval of the agreement with Marnetics, the Company agreed to grant to specific employees the options to purchase 157,143 ordinary shares of the Company. The exercise price of the options is $3. The options vest immediately. With respect to these options non-cash compensation expenses totaling $785,000 were recorded and charged to earnings in accordance with APB 25 "Accounting for Stock Issued to Employees". F-32 STAV ELECTRICAL SYSTEMS (1994) LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 10 - TAXES ON INCOME a. TAXATION UNDER INFLATIONARY CONDITIONS The Company is assessed under the provisions of the Income Tax Law (Adjustments Due To Inflation), 1985, pursuant to which the results for tax purposes are measured in real terms in accordance with changes in the Israeli CPI. b. DEFERRED TAXES Deferred taxes are computed for temporary differences in respect of the provision for doubtful debts, vacation pay, severance pay and inventory:
CONVENIENCE TRANSLATION INTO ADJUSTED NEW ISRAELI SHEKELS U.S. DOLLARS ---------------------------- ----------- December 31 December 31 ----------- ----------- 2000 1999 1998 2000 ---- ---- ---- ---- NIS in thousands US$ IN THOUSANDS --------------------------------- ---------------- Net operating loss carry forwards 4,555 1,130 1,145 1,127 Accrued severance pay, inventory adjustments, accrued vacation pay and allowances for doubtful debts 387 259 158 96 ------- ------- ------- -------- 4,942 1,389 1,303 1,223 Valuation allowance (4,942) (1,130) - (1,223) ------- ------- ------- -------- - 259 1,303 - ======= ======= ======= ========
1. Under Statement No. 109 of the FASB, deferred tax assets are to be recognized for the anticipated tax benefits associated with net operating loss carryforwards and deductible temporary differences, unless it is more likely than not that some or all of the deferred tax assets will not be realized. The adjustment is made by means of a valuation allowance. 2. The Company and its subsidiary have not been assessed for income tax purposes since its incorporation. 3. Tax loss carry forwards of the Company totalling $3,130,000 are unlimited in duration, denominated in NIS and linked to the Israeli CPI. F-33 STAV ELECTRICAL SYSTEMS (1994) LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 10 - TAXES ON INCOME (cont.) c. THEORETICAL INCOME TAXES A reconciliation of the theoretical tax amount, assuming all income is taxed at the statutory rates, to the actual tax in the statement of operations is as follows:
CONVENIENCE TRANSLATION INTO ADJUSTED NEW ISRAELI SHEKELS U.S. DOLLARS ---------------------------- ----------- YEAR ENDED YEAR ENDED DECEMBER 31 DECEMBER 31 ---------------------- ----------- 2000 1999 1998 2000 ---- ---- ---- ---- NIS IN THOUSANDS US$ IN THOUSANDS ----------------- ---------------- (Loss) Income before taxes on income (26,648) (3,217) 8,094 (6,593) ======== ======= ====== ========= Theoretical tax on the Above amount (9,593) (1,158) 2,913 (2,373) Increase (decrease) in valuation allowance 3,812 1,130 (101) 943 Change in prior years' accrual for income taxes 400 -- -- 100 Non-deductible compensation expenses 5,866 -- -- 1,451 Other permanent differences 170 1,296 128 41 -------- ------- ------- -------- 655 1,268 2,940 162 ======== ======= ======= ======== Theoretical tax rates 36% 36% 36% 36% ======== ======= ======= ========
NOTE 11 - TRANSACTIONS WITH RELATED PARTIES
CONVENIENCE TRANSLATION INTO ADJUSTED NEW ISRAELI SHEKELS U.S. DOLLARS ---------------------------- ----------- YEAR ENDED YEAR ENDED DECEMBER 31 DECEMBER 31 ---------------------- ----------- 2000 1999 1998 2000 ---- ---- ---- ---- NIS IN THOUSANDS US$ IN THOUSANDS ----------------- ---------------- Financial income 177 98 641 44 Expenses - General and administrative expenses 720 747 166 178
F-34 STAV ELECTRICAL SYSTEMS (1994) LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 12 - SUPPLEMENTARY STATEMENT OF OPERATIONS DATA a. PRINCIPAL CUSTOMERS SALES TO FOLLOWING CUSTOMERS CONSTITUTED 10% OR MORE OF TOTAL SALES:
YEAR ENDED DECEMBER 31, ----------------------- 2000 1999 1998 ---- ---- ---- Customer F 21% 13% 19% Customer H 23% 30% 24% Customer I 14% 11% 12% Customer J - - 12%
CONVENIENCE TRANSLATION INTO ADJUSTED NEW ISRAELI SHEKELS U.S. DOLLARS ---------------------------- ----------- YEAR ENDED YEAR ENDED DECEMBER 31 DECEMBER 31 ---------------------- ----------- 2000 1999 1998 2000 ---- ---- ---- ---- NIS IN THOUSANDS US$ IN THOUSANDS ----------------- ---------------- b. COST OF REVENUES Purchase of raw materials 9,813 5,979 10,207 2,428 Salaries, wages and benefits 6,896 5,157 4,503 1,707 Subcontract 2,236 2,533 3,514 553 Other expenses 1,502 746 1,251 372 Depreciation 251 206 66 62 ------ ------ ------ ------ 20,698 14,621 19,541 5,122 ====== ====== ====== ====== c. GENERAL AND ADMINISTRATIVE EXPENSES Including bad debt expenses 19 9 79 5 ====== ====== ====== ====== d. FINANCIAL EXPENSES, NET Bank commissions 73 96 76 18 Interest on short-term credit 830 1,922 2,836 205 Interest from related parties (177) (106) (684) (44) Interest on long-term credit 591 228 80 146 Interest on debts to governments authorities 680 - - 168 Inflationary erosion of the Israeli currency (103) 202 283 (25) ------ ------ ------ ------ 1,894 2,342 2,591 468 ====== ====== ====== ======
F-35 APPENDIX A SPEED - WISE LTD. (FORMERLY SPEED-ON TECHNOLOGIES LTD.) (A DEVELOPMENT-STAGE COMPANY) CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 SPEED - WISE LTD. (FORMERLY SPEED-ON TECHNOLOGIES LTD.) (A DEVELOPMENT-STAGE COMPANY) CONSOLIDATED FINANCIAL STATEMENTS CONTENTS
PAGE ---- REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 1 FINANCIAL STATEMENTS: CONSOLIDATED BALANCE SHEET as at December 31, 2000 2 CONSOLIDATED STATEMENTS OF OPERATION for the year ended December 31, 2000 3 CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY for the year ended December 31, 2000 4 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 5 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO THE SHAREHOLDERS OF SPEED - WISE LTD. We have audited the accompanying consolidated balance sheet of SPEED - WISE LTD. ("the Company") (a development- stage Company) and its subsidiary as of December 31, 2000 and 1999, and the related consolidated statements of operations, changes in shareholders' equity for the year ended December 31, 2000, for the period of six months ended December 31, 1999 and the cumulative period from July 1, 1999 (date of commencement of operations) to December 31, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 the Company's 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 aforementioned consolidated financial statements present fairly, in all material respects, the financial position of the Company (a development-stage company) and its subsidiary as of December 31, 2000 and 1999, and its consolidated results of operations and changes in shareholders' equity for the year ended December 31, 2000, the period of six months ended December 31, 1999 and the cumulative period from July 1, 1999 (date of commencement of operations) to December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. BRIGHTMAN ALMAGOR & CO. CERTIFIED PUBLIC ACCOUNTANTS (ISRAEL) A MEMBER OF DELOITTE TOUCHE TOHMATSU Tel Aviv, Israel April 26, 2001. -1- SPEED - WISE LTD. (A DEVELOPMENT-STAGE COMPANY) CONSOLIDATED BALANCE SHEETS DECEMBER 31, ------------------------ 2000 1999 --------- --------- US$ US$ --------- --------- ASSETS CURRENT ASSETS Cash and cash equivalents 2,964,755 343,592 Accounts receivable 50,149 17,012 Other receivables 63,307 -- --------- ------- Total current assets 3,078,211 360,602 --------- ------- PROPERTY AND EQUIPMENT (Note 3) Cost 469,877 40,937 Less - Accumulated depreciation 62,460 1,736 --------- ------- 407,417 39,201 --------- ------- OTHER ASSETS (Note 4) 55,547 9,148 --------- ------- 3,541,175 408,953 ========= ======= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Short-term bank credit 77,810 3,598 Accounts payables and accrued expenses (Note 8) 426,947 29,302 --------- ------- Total current liabilities 504,757 32,900 --------- ------- SHAREHOLDERS' EQUITY Share capital: Ordinary shares of NIS 0.01 par value (Authorized - 3,800,000 shares, issued and outstanding - 2,345,000 at December 31, 2000 ) 5,863 3,260 Deferred stock compensation (969,150) -- Additional paid-in capital 7,083,517 435,740 Deficit accumulated during the development stage (3,083,812) (62,947) --------- ------- 3,036,418 376,053 --------- ------- 3,541,175 408,953 ========= =======
The accompanying notes are an integral part of the financial statements. -2- SPEED - WISE LTD. (A DEVELOPMENT-STAGE COMPANY) CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM FOR THE PERIOD OF JULY 1, 1999 (DATE OF FOR THE YEAR ENDED SIX MONTHS ENDED COMMENCEMENT OF OPERATIONS) DECEMBER 31, DECEMBER 31, TO DECEMBER 31, ------------------ ----------------- --------------------------- 2000 1999 2000 ------------------ ----------------- --------------------------- US$ US$ US$ ------------------ ----------------- --------------------------- Revenues 44,774 -- 44,774 Research and development costs (Note 9) 914,168 52,562 966,730 General and administrative expenses (Note 9) 1,945,288 25,191 1,970,479 Non-cash compensation 138,450 -- 138,450 --------- --------- --------- OPERATING LOSS 2,953,132 77,753 3,030,885 Financial (expenses) income, net (67,733) 14,806 (52,927) --------- --------- --------- LOSS FOR THE PERIOD 3,020,865 62,947 3,083,812 ========= ========= =========
The accompanying notes are an integral part of the financial statements. -3- SPEED - WISE LTD. (A DEVELOPMENT-STAGE COMPANY) CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
NUMBER OF SHARE DEFERRED STOCK ADDITIONAL SHARES CAPITAL COMPENSATION PAID-IN CAPITAL --------- ------- -------------- --------------- US$ US$ US$ US$ --------- ------- -------------- --------------- Balance at July 1, 1999 (date of commencement of operations) -- -- -- -- Changes in the six months from July 1, 1999 to December 31, 1999: Issuance of shares 1,339,000 3,260 435,740 Loss for the period --------- --------- ---------- --------- Balance at December 31, 1999 1,339,000 3,260 -- 435,740 Changes during 2000: Issuance of shares 1,006,100 2,603 5,540,177 Deferred compensation related to employee stock (1,107,600) 1,107,600 option grants Amortization of stock based compensation 138,450 Loss for the year --------- --------- ---------- --------- Balance at December 31, 2000 2,345,100 5,863 (969,150) 7,083,517 ========= ========= ========== ========= DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE TOTAL -------------------------- ----- US$ US$ -------------------------- ----- Balance at July 1, 1999 (date of commencement of operations) -- -- Changes in the six months from July 1, 1999 to December 31, 1999: Issuance of shares 439,000 Loss for the period (62,947) (62,947) ---------- ---------- Balance at December 31, 1999 (62,947) 376,053 Changes during 2000: Issuance of shares 5,542,780 Deferred compensation related to employee stock option grants Amortization of stock based compensation 138,450 Loss for the year (3,020,865) (3,020,865) ---------- ---------- Balance at December 31, 2000 (3,083,812) 3,036,418 ========== ==========
The accompanying notes are an integral part of the financial statements. -4- SPEED - WISE LTD. (A DEVELOPMENT STAGE COMPANY) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 -- GENERAL SPEED - WISE LTD. (the "Company"), an Israeli company, was established in 1999. The Company is engaged in the development of technology for accelerating by Internet on the cellular market. SPEED - WISE INC. (the "Subsidiary"),a wholly owned subsidiary of the Company, was incorporated puruant to the laws of the state of Delaware on May 16, 2000, and commenced its operations on June 6, 2000. The Company has a limited operating history and its prospects are subject to risks, expenses and uncertainties frequently encountered by companies in the new and rapidly evolving markets for Internet products and services. NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES DEVELOPMENT-STAGE ENTERPRISE Since planned principal operations have not yet begun to generate any revenues, the Company is a development-stage company. All pre-operating costs have been expensed as incurred. USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 reported period. Actual results could differ from those estimates. FINANCIAL STATEMENTS IN U.S. DOLLARS The reporting currency of the Company is the U.S. dollar. The currency of the primary economic environment in which the operations of the Company are conducted is the dollar, and the dollar has been determined to be the Company's functional currency. Transactions and balances originally denominated in dollars are presented at their original amounts. Non-dollar transactions and balances have been remeasured into -5- dollars in accordance with the principles set forth in Statement of Financial Accounting Standard ("SFAS") No. 52. All exchange gains and losses from remeasurement of monetary balance sheet items resulting from transactions in non-dollar currencies are reflected in the statement of operations as they arise. CASH EQUIVALENTS Cash equivalents consist of short-term, highly liquid investments that are readily convertible into cash with original maturities when purchased of three months or less. NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES (CONTD.) PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of assets, as follows: Computers and software 3 years Furniture and fixtures 6-7 years
In accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," management reviews long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable based on estimated future cash flows. An impairment loss is recognized when the undiscounted future cash flows are less than the carrying value of the assets. The loss recognized will be equal to the difference between the carrying value and the fair value of the asset. RESEARCH AND DEVELOPMENT EXPENSES Research and development expenses are expensed as incurred. DEFERRED INCOME TAXES Deferred income taxes are provided for temporary differences between the assets and liabilities, as measured in the financial statements and for tax purposes, at tax rates expected to be in effect when these differences reverse. -6- FAIR VALUE OF FINANCIAL INSTRUMENTS The financial instruments of the Company consist mainly of cash and cash equivalents, current accounts receivable, accounts payable and accruals. Due to the relatively short period to maturity, the fair value of the financial instruments included in the working capital of the Company approximates their carrying amounts. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities"(amended in June 2000 by SFAS 138). SFAS No. 133 is effective for all fiscal quarters of all fiscal years beginning after June 15, 2000 (as amended by SFAS No. 137). SFAS No. 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each year in current earnings or other comprehensive income, depending on whether a derivative is designed as part of a hedge transaction, and if it is the type of hedge transaction. The Company does not expect the adoption of SFAS No. 133 (as amended by SFAS 138) to have a material impact on its consolidated financial statements. As of December 31, 1999, the Company has no derivative instruments. -7- NOTE 3 -- PROPERTY AND EQUIPMENT Consist of the following:
DECEMBER 31, --------------------- 2000 1999 ---- ---- US$ US$ ---- ---- Cost: Computers and software 385,146 35,865 Furniture and fixtures 26,577 5,072 Leaseholds improvements 58,154 ------- - ------- 469,877 40,937 ======= ====== Accumulated depreciation: Computers and software 58,528 1,596 Furniture and fixtures 2,531 140 Leaseholds improvements 1,401 ------- - ------- 62,460 1,736 ====== =====
NOTE 4 -- OTHER ASSETS Other assets include US$ 47,291 prepaid expenses in respect of the last six months' rental of motors vehicles, which are due for payment in 2002 and US$ 8,256 security deposit. NOTE 5 -- COMMITMENTS AND CONTINGENT LIABILITIES a. In November 1999, the Company signed an operational motor vehicle lease agreement, according to which the Company will from time to time lease motor vehicles for a period of 36 months, in consideration of monthly leasing fees linked to the Israeli CPI to be fixed periodically. As at the balance sheet date, the Company leased sixteen motor vehicles and undertook to pay in respect thereof monthly leasing fees of US$ 11,511. b. In December 1999, the Company signed an operational equipment and computer system lease agreement, according to which the Company will from time to time lease computer software and equipment for the period of 24 -8- months, in consideration of monthly leasing fees linked to the Israeli CPI to be fixed periodically. As at the balance sheet date, the Company leased one computer and undertook to pay in respect thereof monthly leasing fees of US$ 243. c. The premises of the Company are rented under two operating lease agreements. The first agreement expires in February 2002. The second agreement expires in August 2001 and includes a two year lease extention option to extend the lease for one year periods upon prior written notice. Lease expenses for the year ended December 31, 2000 were US$ 25,000. NOTE 6 -- SHARE CAPITAL ISSUANCE OF SHARES During 2000, the Company issued 1,006,100 shares to eight investors for consideration of US$ 5,534 thousand. Through December 31, 2000, the Company has committed to grant to specific employees options to purchase 340,400 ordinary shares of the Company pursuant to their employment agreements of which 247,400 were actually granted . The exercise price of the options is $1. The options vest over four years. With respect to these options a deferred compensation is recorded and charged to earnings over the vesting period in accordance with APB 25 "Accounting for Stock Issued to Employees". NOTE 7 -- TAXES ON INCOME The Company is assessed under the provisions of the Israeli Income Tax Law (Inflationary Adjustments) 1985, pursuant to which results for tax purposes are measured in new Israeli shekels in real terms in accordance with changes in the Israeli consumer price index. Income is taxable at the ordinary corporate tax rate of 36%. -9- DEFERRED TAXES The main components of the Company's deferred tax assets are as follows:
DECEMBER 31, ---------------------- 2000 1999 ---- ---- US$ US$ ---- ---- Deferred tax assets: Net operating loss carryforwards in Israel (1,037,670) (9,573) Less - Valuation allowance 1,037,670 9,573 ---------- ------ Balance -- -- ========== ======
Under SFAS No. 109, deferred tax assets are to be recognized for the anticipated tax benefits associated with net operating loss carryforwards and deductible temporary differences, unless it is more likely than not that some or all of the deferred tax assets will not be realized. The adjustment is made by a valuation allowance. Since the realization of the net operating loss carryforwards is less likely than not, a valuation allowance has been established for the amounts of the related tax benefits. TAX ASSESSMENTS The Company has not been assessed for income tax purposes since incorporation. -10- NOTE 8 -- SUPPLEMENTARY BALANCE SHEET INFORMATION ACCOUNTS PAYABLES AND ACCRUED EXPENSES Consist of the following:
DECEMBER 31, ------------------------- 2000 1999 ---- ---- US$ US$ ---- ---- Accounts payables 240,137 4,341 Payroll and related amounts 51,770 10,978 Accrued expenses 57,557 13,983 Other payables 77,483 -- ------- ------ 426,947 29,302 ======= ======
NOTE 9 -- SUPPLEMENTARY STATEMENT OF OPERATIONS INFORMATION RESEARCH AND DEVELOPMENT COSTS
FOR THE PERIOD FROM FOR THE PERIOD OF JULY 1, 1999 (DATE OF FOR THE YEAR ENDED SEVEN MONTHS ENDED COMMENCEMENT OF OPERATIONS) DECEMBER 31, DECEMBER 31, TO DECEMBER 31, ------------------ ------------------ --------------------------- 2000 1999 2000 ---- ---- ---- US$ US$ US$ ---- ---- ---- Salaries and related expenses 716,770 37,030 735,800 Sub-contractors 58,301 13,543 71,844 Depreciation 50,837 1,454 52,291 Others 88,260 535 88,795 -------- ------- -------- 914,168 52,562 966,730 ======== ======= ========
-11- NOTE 9 -- SUPPLEMENTARY STATEMENT OF OPERATIONS INFORMATION (CONT.) GENERAL AND ADMINISTRATIVE EXPENSES FOR THE PERIOD FROM FOR THE PERIOD OF JULY 1, 1999 (DATE OF FOR THE YEAR ENDED SEVEN MONTHS ENDED COMMENCEMENT OF OPERATIONS) DECEMBER 31, DECEMBER 31, TO DECEMBER 31, ------------------ ------------------ --------------------------- 2000 1999 2000 ---- ---- ---- US$ US$ US$ ---- ---- ---- Advertising (*) 116,891 9,752 126,643 Professional services 243,014 4,238 247,252 Rent and maintenance 115,597 3,080 118,677 Vehicle maintenance 72,883 2,800 75,683 Salaries and related expenses 848,681 -- 848,681 Travel expenses 374,672 -- 374,672 Others 173,550 5,321 178,871 --------- ------- --------- 1,945,288 25,191 1,970,479 ========= ======= =========
(*) Net of US$ 9 thousand Grants from the Government of Israel. NOTE 10 -- SUBSEQUENT EVENTS Subsequent to the balance sheet date the Company issued 178,126 of NIS 0.01 shares for consideration of US$ 2,000 thousand. -12- ITEM 19. FINANCIAL STATEMENT AND EXHIBITS. (a) Financial Statements. CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- MARNETICS BROADBAND TECHNOLOGIES LTD REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2 CONSOLIDATED BALANCE SHEETS as at December 31, 2000 and 1999 F-3 CONSOLIDATED STATEMENTS OF OPERATIONS for the years ended December 31, 2000 and 1999 for the period of seven months ended December 31, 1998 and for the cumulative period from June 1, 1998 to December 31, 2000 F-4 STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY for the years ended December 31, 2000 and 1999 for the period of seven months ended December 31, 1998 and for the cumulative period from June 1, 1998 to December 31, 2000 F-5 CONSOLIDATED STATEMENTS OF CASH FLOWS for the years ended December 31, 2000 and 1999 for the period of seven months ended December 31, 1998 and for the cumulative period from June 1, 1998 to December 31, 2000 F-6 NOTES TO THE FINANCIAL STATEMENTS F-8 STAV ELECTRICAL SYSTEMS (1994) LTD. (PREVIOUS REGISTRANT) CONSOLIDATED BALANCE SHEETS F-19 as at December 31, 2000 and 1999 CONSOLIDATED STATEMENTS OF OPERATIONS F-20 for the years ended December 31,2000, 1999 and 1998 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY F-21 for the years ended December 31,2000, 1999 and 1998 CONSOLIDATED STATEMENTS OF CASH FLOWS F-22 for the years ended December 31,2000, 1999 and 1998 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-24
APPENDIX A - CONSOLIDATED FINANCIAL STATEMENTS OF SPEED-WISE TECHNOLOGIES LTD. (b) Exhibits. 3.1 Memorandum of Association of the Registrant (filed as Exhibit 3.1 to Form F-1 Registration Statement No. 333-8800 and by this reference incorporated herein). 3.2 Amended and Restated Articles of Associations of the Registrant. 4.1 2001 Share Option Plan 10.1 Form of Officers' and Directors' Indemnification Agreement (filed as Exhibit 10.3 to Form F-1 Registration Statement No. 333-8800 and by this reference incorporated herein). 10.2 Loan Agreement between Bank Hapoalim and the Registrant (filed as Exhibit 10.4 to Form F-1 Registration Statement No. 333-8800 and by this reference incorporated herein). 10.3 Promissory Note issued by Dov Strikovsky to the Company (filed as Exhibit 10.5 to Form F-1 Registration Statement No. 333-8800 and by this reference incorporated herein). 10.4 Share Exchange Agreement among Marnetics Ltd., its Shareholders and the Registrant dated as of May 31, 2000, as amended (filed as Exhibit 10.6 to Form 20-F for the year-ended December 31, 2000 and by this reference incorporated herein). 10.5 Software License Agreement by and between Marnetics Ltd. and Speedwise Technologies, Ltd. dated as of April 17, 2001. 10.6 Indemnification Agreement between Dov Strikovsky, the Company and the former shareholders of Marnetics Ltd. dated as of June 30, 2001. 10.7 Request for Proposals. 10.8 Asset Purchase Agreement between the Company and Idan Millennium Investments and Assets dated as of June 10, 2001. 10.9 Agreements to the Assignment of Debt by and among the Company, Bank Hapoalim Ltd. and Shlavor Systems Ltd. dated as of May 9, 2001. 10.10 OEM Agreement by and between Marnetics Ltd. and Speedwise Technologies Ltd. dated as of July 8, 2001. SIGNATURES The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf. MARNETICS BROADBAND TECHNOLOGIES LTD. By: /S/ JACOB BEN-GUR ------------------------------------ Jacob Ben-Gur, Chairman By: /S/ MENACHEM REINSCHMIDT ------------------------------------ Menachem Reinschmidt, President Date: July 12, 2001 EXHIBIT INDEX Exhibit NO. DESCRIPTION - ------- ----------- 3.1 Memorandum of Association of the Registrant (filed as Exhibit 3.1 to Form F-1 Registration Statement No. 333-8800 and by this reference incorporated herein). 3.2 Amended and Restated Articles of Associations of the Registrant. 4.1 2001 Share Option Plan 10.1 Form of Officers' and Directors' Indemnification Agreement (filed as Exhibit 10.3 to Form F-1 Registration Statement No. 333-8800 and by this reference incorporated herein). 10.2 Loan Agreement between Bank Hapoalim and the Registrant (filed as Exhibit 10.4 to Form F-1 Registration Statement No. 333-8800 and by this reference incorporated herein). 10.3 Promissory Note issued by Dov Strikovsky to the Company (filed as Exhibit 10.5 to Form F-1 Registration Statement No. 333-8800 and by this reference incorporated herein). 10.4 Share Exchange Agreement among Marnetics Ltd., its Shareholders and the Registrant dated as of May 31, 2000, as amended (filed as Exhibit 10.6 to Form 20-F for the year-ended December 31, 2000 and by this reference incorporated herein). 10.5 Software License Agreement by and between Marnetics Ltd. and Speedwise Technologies, Ltd. dated as of April 17, 2001. 10.6 Indemnification Agreement between Dov Strikovsky, the Company and the former shareholders of Marnetics Ltd. dated as of June 30, 2001. 10.7 Request for Proposals. 10.8 Asset Purchase Agreement between the Company and Idan Millennium Investments and Assets dated as of June 10, 2001. 10.9 Agreements to the Assignment of Debt by and among the Company, Bank Hapoalim Ltd. and Shlavor Systems Ltd. dated as of May 9, 2001. 10.10 OEM Agreement by and between Marnetics Ltd. and Speedwise Technologies, Ltd. dated as of July 8, 2001. EX-3.2 2 a2054264zex-3_2.txt EXHIBIT 3.2 EXHIBIT 3.2 ARTICLES OF ASSOCIATION OF MARNETICS BROADBAND TECHNOLOGIES LTD. AMENDED AND RESTATED AS OF 8 DECEMBER, 2000 ARTICLES OF ASSOCIATION OF MARNETICS BROADBAND TECHNOLOGIES LTD. ---------------------------------------------------------------------- 1. INTERPRETATION In these Articles, the words in the first column of the following table 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 Marnetics Broadband Technologies Ltd. The Board The Board of Directors of the Company Companies Law The Companies Law 1999 (the "Companies Law") and all orders and regulations issued thereunder as amended from time to time, including any law or statute replacing it. The Statutes The Companies Law, the Securities Law of 1968 and every other ordinance or law for the time being in force concerning companies and affecting the Company. These Articles These Articles of Association, as shall be amended from time to time. Officer A "NOSEH MISRA", as defined in the Companies Law, to wit, a Director, General Manager, chief business manager, deputy General Manager, vice General Manager, or any other manager directly subordinate to the managing director or any other person assuming the responsibiltities of any of the foregoing positions without regard to such person's title. Audit Committee As defined in the Companies Law. The Office The registered office of the Company. The Seal Any of (i) the rubber stamp of the Company, (ii) the facsimile signature of the Company, or (iii) the electronic signature of the Company as approved by the Board. Shareholders Register The shareholders register required to be kept according to the Companies Law and any other shareholders register permitted to be kept by the Company according to the Companies Law. Month A Gregorian month. NIS New Israeli Shekel Writing Printing, lithography, photography and any other mode or modes of representing or reproducing words in a visible form. Words denoting the singular number shall include the plural number and vice versa; words denoting the masculine gender shall include the feminine and neuter genders; words denoting persons shall include any individual, company, corporation, partnership, trust, unincorporated association or other entity or any combination of the foregoing. Subject as aforesaid, any words or expressions defined in the Statutes shall, except where the subject or context forbids, bear the same meanings in these Articles. 2. PUBLIC COMPANY The Company is a public company which may have an unlimited number of Shareholders and may offer Securities to the public. The liability of a Shareholder for debts of the Company is limited to the unpaid portion of the consideration (including any premium) in exchange for which the Shareholder's Ordinary Shares were issued. The Company may not alter the liability of a Shareholder or require the acquisition of Securities without his consent. THE COMPANY'S PURPOSE 3. The Company's purpose is to operate according to business considerations for the production of profits. 4. SHARE CAPITAL (One) The registered share capital of the Company is NIS 2,000,000 (Two Million New Israeli Shekel), divided into 25,000,000 (Twenty-five Million) Ordinary Shares of NIS 0.08 nominal value each (the "Ordinary Shares"). -3- (Two) Each Ordinary Share shall rank pari passu. The Ordinary Shares shall entitle their holders the right to participate and vote in all General Meetings of the Company, the right to receive dividends and the right to participate in the distribution of surplus assets of the Company in the event of the winding up of the Company, and all other rights generally conveyed to the holders of ordinary shares. AMENDMENT OF ARTICLES 5. These Articles (with the exception of Article 101 which may be amended as provided therein) may be amended by a majority vote at a meeting of shareholders of the Company, with the exception of Article 101 which may be amended only by the affirmative vote of two - thirds of the shareholders present (in person or by proxy) and voting on such resolution at a General Meeting. Notwithstanding the provisions of this Article , a change of these Articles that obligates a shareholder to acquire additional shares or to increase the extent of his liability shall not obligate the shareholder without his consent. SHARES 6. Subject to these Articles or to the terms of any resolution creating new shares, the unissued shares in the registered share capital of the Company from time to time shall be under the control of the Board, which 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 Statutes, at a discount, and at such times as the Board may think fit, and the power to give to any person the option to acquire from the Company any shares, either at nominal value or at a premium or, subject as aforesaid, at a discount, during such time and for such consideration as the Board may determine. 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. A share certificate registered in the names of two or more persons shall be delivered to the person first named in the Register of Members in respect of such co-ownership. 8. Every shareholder registered in the Shareholders' Register shall be entitled, without payment, to receive within thirty days after allotment or registration of transfer (unless the conditions of issuance provide for a longer interval), one certificate under the Seal for all the shares registered in his name, and if the Board so approves, several certificates, each for one or more of such shares. Each certificate shall specify the number and denoting numbers of the shares in respect of which it is issued and may also specify 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 -4- shall be signed by one Director and countersigned by the Secretary or some other person nominated by the Board for this purpose. 9. 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 Board shall require and (in the case of defacement or wearing out) upon delivery of the old certificate and, in any case, upon payment of such sum not exceeding NIS 50 (Fifty New Israeli Shekels) as the Board may from time to time require. 10. The Company may, directly or indirectly, purchase its own shares subject to the provisions of the Companies Law. If the Company purchases its own shares, such shares will not have any rights as long as they are owned by the Company. 11. (a) A subsidiary or some other corporate body under the Company's control in this Article: "ACQUIRING CORPORATE BODY") may acquire shares of the Company subject to the provisions of the Companies Law, on condition that the subsidiary's Board or the Directors of the acquiring corporate body determined that - had the acquisition been made by the Company - it would have been permitted by the provisions of the Companies Law. (b) If the Company's shares are acquired by a subsidiary or by an acquiring corporate body, such shares shall not grant voting rights so long as they are owned by the subsidiary or by the acquiring corporate body. (c) If a prohibited distribution (as defined in Section 301 to the Companies Law) was made, then the refund specified in Section 310 to the Companies Law shall be made to the subsidiary or to the acquiring body corporate and the provisions of Section 311 shall apply, mutatis mutandis, to the Directors of the subsidiary and to the Directors of the acquiring body corporate. However, if the Company's Board determined that the distribution is permitted, then the responsibility shall be that of the Company's Directors, as provided in Section 311 to the Companies Law. (d) Notwithstanding the provisions of Sub-article (a), acquisition by a subsidiary or by an acquiring corporate body that is not wholly owned by the Company constitutes a distribution in an amount equal to the amount of the acquisition, multiplied by the proportion of rights in the subsidiary's capital or in the capital of the acquiring corporate body held by the Company. TRANSFER OF SHARES 12. No transfer of shares shall be registered unless a proper writing or instrument of transfer (in any customary form or any other form satisfactory to the Board) has been submitted to the Company (or its transfer agent), together with the share certificate(s) and such other evidence of title as the Board may reasonably require. Until the transferee has been registered in the Shareholders Register (which the Company shall perform promptly from submission to it of the foregoing) in respect of the shares so transferred, the Company may continue to regard the transferor as the owner thereof. -5- 13. The Board may refuse, without giving any reasons therefor, to register any transfer of shares where the Company has a lien on the shares, constituting the subject matter of the transfer, but fully paid-up shares may be transferred freely and such transfers do not require the approval of the Board. All instruments of transfer shall remain in the custody of the Company, but any such instrument which the Board refused to register shall be returned to the person from whom it was received, if such request be made by him. 14. The Transfer Records and the Shareholders Register and Debenture Holders (if any) Register and Debenture Stock Holders (if any) Register and other securities (if any) Register of the Company may be closed during such time as the Board may deem fit, not exceeding, in the aggregate, thirty (30) days in each year. TRANSMISSION OF SHARES 15. In the case of the death of a shareholder, or a holder of a debenture, the survivor or survivors, where the deceased was a joint holder, and the executors and/or administrators and/or the legal heirs of the deceased where he was a sole or only surviving holder, shall be the only persons recognized by the Company as having any title to his shares or his debentures, but nothing herein contained shall release the estate of a deceased joint holder from any liability in respect of any share or any debenture jointly held by him. 16. Any person who becomes entitled to a share or a debenture in consequence of the death or bankruptcy or any shareholder may, upon producing such evidence of title as the Board shall require, with the consent of the Board, be registered himself as holder of the share or the debenture or, subject to the provisions as to transfers herein contained, transfer the same to some other person. 17. A person entitled to a share or a debenture by transmission shall be entitled to receive, and may give a discharge for, any dividends or interest or other monies payable in respect of the share or debenture, but he shall not be entitled in respect of it to receive notices of, or to attend or vote at meetings of the Company or, save as aforesaid, to exercise any of the rights or privileges of a shareholder or a holder of a debenture unless and until he shall become a shareholder in respect of the share or a holder of the debenture. ALTERATIONS OF CAPITAL 18. Subject to the provisions of the Companies Law, the Company may from time to time by a majority vote at a General Meeting of shareholders of the Company: (a) consolidate and divide all or any of its share capital into shares of larger amount than its existing shares; or (b) cancel registered share capital that has not yet been issued, on condition that there are no undertakings of the Company - including conditional undertakings - to issue such shares; or -6- (c) 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 , 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, return of 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. 19. The Company may, subject to the Companies Law, issue redeemable shares and redeem the same according to the terms and conditions which the Company shall determine. INCREASE IN CAPITAL 20. The Company may from time to time by a majority vote at a meeting of shareholders, 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. 21. Except so far as otherwise provided by or pursuant to these Articles or by the conditions of issuance, any new share capital shall be considered as part of the original ordinary share capital of the Company, and shall be subject to the same provisions with reference to liens, transfer, transmission and otherwise as the original share capital. MODIFICATION OF CLASS RIGHTS 22. 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 issuance of the shares of that class) may be varied with the sanction of a majority vote at a meeting of the shareholders passed at a separate meeting of the holders of the shares of the class. The provisions of these Articles relating to General Meetings shall apply, mutatis mutandis, to every such separate General Meeting. Any holder of shares of the class present in person or by proxy may demand a secret poll. 23. Unless otherwise provided by the conditions of issuance, the enlargement of an existing class of shares, or the issuance of additional shares thereof, shall not be deemed to modify or abrogate the rights attached to the previously issued shares of such class or of any other class. -7- BORROWING POWERS 24. The Board 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 sees 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 units uncalled or called but unpaid capital for the time being. POWERS OF THE GENERAL MEETING 25. Without derogating from the authority of the General Meeting pursuant to these Articles, the Company's decisions on the following matters shall be adopted at a General Meeting: (1) any changes in these Articles; (2) exercise of the powers of the Board in accordance with the provisions of Section 52(a) of the Companies Law; (3) appointment of the Company's Auditor; (4) appointment of External Directors, in accordance with the provisions of the Companies Law; (5) approval of acts and transactions that require approval by the General Meeting under the provisions of Articles 255 and 268 to 275 of the Companies Law; (6) the increase and reduction of the registered share capital, in accordance with the provisions of Articles 286 and 287 to the Companies Law; (7) a merger, as specified in Article 320(a) to the Companies Law. GENERAL MEETING 26. (a) An Annual General Meeting 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 Annual General Meeting, and at such time and place as may be determined by the Board. Such Annual General Meetings shall be called "Annual Meetings", and all other Meetings of the shareholders shall be called "Extraordinary Meetings". The Annual Meeting shall receive and consider the Directors' Report, the Financial Statements, appoint auditors, elect directors, and transact any other business which, under these Articles or by the Companies Law, may be transacted at a General Meeting of the Company, provided that notice of such other business was given to shareholders in accordance with the provisions of these Articles. -8- At a General Meeting, decisions shall be adopted only on matters that were specified on the agenda. (b) Any reference in these Articles to a "General Meeting" will be either a Annual General Meeting or a Extraordinary Meeting, according to the context. 27. The Board may, whenever it deems necessary, and shall upon such requisition in writing as is provided by Section 63(b) of the Companies Law, convene a General Meeting. Any such request must state the purposes for which the meeting is to be called, be signed by the requesting shareholders, and must be deposited at the Office. Such request may consist of several documents in like form, each signed by one or more requesting shareholder. 28. Except as otherwise prescribed by the Companies Law, at least ten (10) days and not more than sixty (60) days notice of any General Meeting shall be given, specifying the place, the day and the hour of meeting and, in the case of special business, the nature of such business, shall be given in the manner hereinafter mentioned, to such shareholders as are under the provisions of these Articles, entitled to receive notices from the Company. Notices shall be given by mail or by personal delivery to every registered shareholder of the Company, to his address as described in the Shareholders Register of the Company or such other address as designated by him in writing for this purpose. Provided that the accidental omission to give such notice to, or the non-receipt of such notice by, any such shareholder shall not invalidate any resolution passed or proceeding held at any such meeting and, with the consent of all the shareholders 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 shareholders may approve. Such consent may be given at the meeting or retrospectively after the meeting. If the shareholder did not provide the Company any address for the delivery of notices, the shareholder shall be deemed to have waived his right to receive notices. 29. Only shareholders of record as reflected on the Company's Share Register at the close of business on the date fixed by the Board as the record date determining the then shareholders who will be entitled to vote, shall be entitled to notice of, and to vote, in person or by proxy, at a General Meeting and any postponement or adjournment thereof. The Board will fix the record date of not less than four (4) nor more than twenty-one (21) days before the date of the General Meeting. PROCEEDINGS AT GENERAL MEETINGS 30. No business shall be transacted at any General Meeting, or at an adjournment thereof, unless a quorum is present when the meeting proceeds to business. The quorum at any Meeting shall be two shareholders present in person or by proxy, holding or representing at least thirty three and a third percent (33 1/3%) of the total voting rights in the Company. A company being a shareholder shall be deemed to be personally present for the purpose of this Article if represented by its representative duly authorized in accordance with Article 42. -9- 31. If, within fifteen minutes from the time appointed for the holding of a General Meeting, a quorum is not present, 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 Board shall designate and state in a notice to the shareholders entitled to vote at the original meeting, and if, at such adjourned meeting, a quorum is not present within half an hour from the time appointed for holding the meeting any two shareholders present in person or by proxy shall constitute a quorum. Notwithstanding the aforesaid, if a General Meeting was convened at the demand of shareholders as permitted by Section 63(b) of the Companies Law, then a quorum at such adjourned meeting shall be present only if one or more shareholders are present who held in the aggregate at least 5% of the issued share capital of the Company and at least 1% of the voting rights in the Company or one or more shareholders who hold in the aggregate at least 5% of the voting rights in the Company. 32. The President of the Company or in his absence any other person nominated for that purpose by the Board, shall preside as chairman at every General Meeting of the Company. If there is no such President or other person, or if at any General Meeting neither the President nor the other person is present, or if at any General Meeting neither the President nor the other person is present within fifteen (15) minutes after the time fixed for holding the General Meeting or is willing to act as Chairman of the General Meeting, the Directors present shall choose one of themselves or if no Director is present, or if all the Directors present decline to take the chair, the members present shall choose one of themselves to be chairman of the General Meeting. The chairman of the General Meeting shall have no second or casting vote (without derogating from the rights of such chairman to vote as a shareholder or proxy of a shareholder if, in fact, he is also a shareholder or such proxy). 33. 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 more than seven days, notice of the adjourned meeting shall be given in the same manner as in the case of an original meeting. Save as aforesaid, no shareholder shall be entitled to any notice of an adjournment, or of the business to be transacted at an adjourned meeting. No 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. VOTES OF THE SHAREHOLDERS 34. Except as otherwise provided in these Articles, any resolution at a General Meeting 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 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. -10- 35. At all General Meetings, a resolution put to a vote at the meeting shall be decided on a show of hands unless, 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 shareholders present, in person or by proxy, holding at least 5% 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 vote, or lost, or not carried by a particular vote, 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. 36. 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. 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. 37. Any shareholder which is not a natural person may, by resolution of its directors or other governing body, authorize such person as it thinks fit to act as its representative at any General Meeting, and the person so authorized to the satisfaction of the Company shall be entitled to exercise the same powers on behalf of such company, which he represents as that company could exercise if it were an individual shareholder. 38. Subject to any rights or restrictions for the time being attached to any class or classes of shares, every shareholder shall have one vote for each share of which he is the holder, whether on a show of hands or on a poll. 39. If any shareholder 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. 40. If two or more persons are jointly entitled to a share then, in voting upon any question, the vote of the senior person 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 Shareholders Register. 41. Votes may be given either personally or by proxy. A proxy need not be a shareholder of the Company. 42. (a) The instrument appointing a proxy shall be in writing in the usual common form, or such form as may be approved by the Board, 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. -11- 43. 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. 44. The instrument appointing a proxy shall be deposited at the Office or at such other place or places, whether in Israel or elsewhere, as the Board may from time to time, either generally or in a particular case or class of cases prescribe, at least twenty-four (24) 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. 45. A shareholder 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 shareholder. Every proxy so appointed on behalf of the same shareholder shall be entitled to vote as he sees fit. 46. 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. DIRECTORS POWERS AND RESPONSIBILITIES OF THE BOARD 47. (a) Without derogating from the authority of the General Meeting pursuant to these Articles and the Companies Law, the Board shall formulate the Company's policy and shall supervise the exercise of the General Manager's office and his acts, and as part thereof it - (1) shall determine the Company's plans of activity, the principles for financing such plans and the order of priority among them; (2) shall examine the Company's financial situation and set the framework of credit which the Company may take; (3) shall determine the organizational structure and the compensation policy of employees; (4) may decide to issue a series of debentures; (5) is responsible for the preparation and approval of the financial reports according to Section 171 to the Companies Law; (6) shall report to the Annual Meeting about the state of the Company's affairs and on its business results, as required by Section 173 to the Companies Law; (7) shall appoint and dismiss the General Manager, as provided by Section 250 to the Companies Law; -12- (8) shall decide on the acts and transactions that require its approval in accordance with these articles or under the provisions of Sections 255 and 268 to 275 to the Companies Law; (9) may issue shares and securities convertible into shares up to the limit of the Company's registered share capital, under the provisions of Section 288 to the Companies Law; (10) may decide on a distribution according to Sections 307 and 308 to the Companies Law; (11) shall express its opinion on a special purchase offer, according to Section 329 to the Companies Law. (b) The powers of the Board under this Article cannot be delegated to the General Manager. DIRECTORS 48. The Board of the Company shall consist of a minimum of two (2) and a maximum of eleven (11) Directors. Each Director shall be appointed by the Annual General Meeting unless appointed according to Section 57, and shall serve as Director from the time of appointment until the next Annual General Meeting unless such Director is disqualified for whatever reason. 49. (a) Any director or directors may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of the majority of the Ordinary Shares present in person or by proxy and voting thereon. For purposes of this clause (a): "cause" shall mean the willful and continuous failure of a director substantially to perform such director's duties to the Company (other than any such failure resulting from incapacity due to physical or mental illness) or the willful engaging by a director in gross misconduct materially and demonstrably injurious to the Company. (b) The General Meeting shall appoint External Directors as and to the extent required by, and they shall hold office according to, the Companies Law, as long as the Company is required by the Companies Law to appoint such External Directors. 50. A Director may appoint, dismiss and/or replace an individual as a substitute for himself as a Director (an "ALTERNATE DIRECTOR"). The person appointed as an Alternate Director must be qualified to serve as a Director and may not already be acting as a Director or an Alternate Director. The appointment, replacement and/or dismissal of an Alternate Director shall be by written notice by the appointing Director either to the Company or to the Chairman of the Board. Upon expiration or termination of the term of an appointing Director, the term of his Alternate Director will also expire. An Alternate Director will not be entitled to participate or vote at a Board Meeting at which the appointing Director is present. An Alternate Director shall have all the powers and obligations of the appointing Director, except the power to appoint an Alternate Director. -13- 51. (a) No person shall be nominated for the office of a director at a General Meeting except for persons nominated for the office of a director as provided for in Article 51(b). (b) Any shareholder entitled to receive notice of and vote at a General Meeting desiring to propose a nominee for director to be elected at an Annual General Meeting of Shareholders has to deliver notice to the Secretary, at the Company's principal offices, not later than forty-five (45) days prior to the date of the annual General Meeting at which meeting such election is to occur, whichever date is later. The notice shall set forth: (i) the name and address, as they appear on the Company's share register, of the shareholder proposing such nominee, (ii) the identity and background of the nominee, (iii) the class and number of shares of the Company beneficially owned by such shareholder, (iv) a representation that such shareholder is a shareholder of record and intends to appear by person or by proxy at such General Meeting to bring the General Meeting the nominee specified in the notice, (v) a brief description of the reasons for wanting to nominate such nominee as a director, (vi) any material interest that the shareholder has in the election of such nominee and (vii) the written consent of the nominee to be elected as a director of the Company. 52. 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. 53. The office of a Director 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 is or becomes of unsound mind; (d) if he be relieved of his office as provided in Article 50(b) hereof; (e) if he is prevented by applicable law from serving as a director of the Company. (f) if the Board terminate his office according to Section 231 of the Companies Law; (g) if court order is given according to Section 233 of the Companies Law. 54. (a) Subject to the provisions of the Companies Law, 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. -14- (b) Transactions entered into by the Company in which an Officer of the Company has a personal interest, directly or indirectly, will be valid in respect of the Company and the Officer only if approved by the Company's Board in accordance with the requirements of the Companies Law. 55. A Director who has a personal interest in a matter which is brought for discussion before the Board may participate in said discussion, provided that he shall neither vote in nor attend discussions concerning the approval of the activities or the arrangements. If said Director did vote or attend as aforesaid, the approval given to the aforesaid activity or arrangements shall be invalid. 56. In the event of one or more vacancies on the Board, the continuing Directors may continue to act as long as the Board consists of at least a majority of the total number of Directors elected. However, in the event that the remaining Directors are not a majority of the total number of Directors elected, the remaining Director or Directors may call for the convening of a General Meeting for the purpose of the election of Directors. 57. Subject to the limitation on the number of Directors as specified in Article 49, the Board may, at any time and from time to time, appoint any other person as a Director, whether to fill a vacancy or to add to their number. Any Director so appointed shall hold office until the next Annual Meeting at which the term of the class to which they have been elected expires, and may be re-elected. 58. In case of any increase in the number of directors, the additional director or directors, and in case of any vacancy in the Board due to a death, resignation, removal, disqualification or any other cause, the successors appointed according to Article 57 to fill the vacancies shall be elected by a majority of the directors then in office. CONVENING THE BOARD 59. (a) The Chairman of the Board may convene a meeting of the Board at any time. (b) The Board shall hold a meeting on a specified subject on the demand of two Directors, or if the Board consists of up to five Directors - one Director; (c) The Chairman of the Board shall convene the Board upon a demand said in Sub-article (b) of this Article 59 or if Section 122(d) to the Companies Law applies, due to a notice or report from the General Manager or due to a notice from the Auditor of the Company under Section 169 to the Companies Law. (d) If a meeting of the Board was not convened within 14 days after the date of a demand pursuant to Sub-article (b) of this Article 59, or after the date of a notice or report of the General Manager according to Section 122(d) to the Companies Law, or after notice of the Auditor under Section 169 to the Companies Law, then each of those persons enumerated in Sub-articles (b) and (c) may convene a meeting of the Board, which shall discuss the subject specified in the demand, notice or report, as the case may be. -15- MEETINGS OF THE BOARD AND THEIR CONDUCT 60. The agenda of a meeting of the Board shall be set by the Chairman of the Board, and it shall include: (1) subjects determined by the Chairman of the Board; (2) subjects determined as said in Section 98 to the Companies Law; (3) any subject which a Director or the General Manager requested at a reasonable time before the meeting was convened - of the Chairman of the Board to include in the agenda 61. Notice of a meeting of the Board shall be delivered to all its members at a reasonable time before the meeting, but not later than forty eight (48) hours prior to the time set for any such meeting. 62. A notice under Section 61 may be given orally, by telephone, in writing or by mail, electronic mail, telex or facsimile. Notwithstanding anything to the contrary herein, failure to deliver notice to a Director of any such meeting in the manner required hereby may be waived by such Director, and a meeting shall be deemed to have been duly convened notwithstanding such defective notice if such failure or defect is waived prior to action being taken at such meeting by all Directors entitled to participate at such meeting to whom notice was not duly given as aforesaid. 63. Any person, either a Director or not, may be substitute member of the Board, and one person may substitute several members of the Board. Any substitute member of the Board who is also a member of the Board shall have, in addition to his own vote, a number of votes equal to the number of members of the Board that he substitutes. A substitute member of the Board shall have, subject to his letter of appointment, all authorities vested to the member of the Board he substitutes, and if and as long as such substitute member is, for himself, a member of the Board, the aforesaid authorities as substitute member shall be in addition to his authorities as a member of the Board. The tenure of office of a substitute member of the Board shall automatically be terminated upon the dismissal of such member, or upon the office of the member of the Board he substitutes being vacated for any reason, or upon the occurrence of one of the situations stated in Article 53 above in relation with such substitute member. GENERAL MANAGER 64. The Board will appoint one or more persons as General Manager, and they will be titled as President or Chief Executive Officer (CEO) or Chief Operating Officer (COO). The Board may from time to time remove or discharge him or them from office (subject to the provisions of any agreement between any such person and the Company) and appoint another or others in his or their place or places. -16- 65. The Board may from time to time appoint one or more Vice Presidents for certain functions, to carry out duties delegated to him (them) by the President, CEO or COO. 66. To the extent permitted by the Companies Law, the Board may from time to time confer upon and delegate to a President, CEO, COO or other Executive Officer then holding office, such authorities and duties of the Board as they may deem fit, and they may delegate such authorities and duties for such period and for such purposes and subject to such conditions and restrictions which they consider in the bests interests of the Company, and they may delegate such authorities and duties without waiving the authorities of the Board with respect thereto and it may from time to time revoke, cancel and alter such authorities and duties in whole or in part. 67. The remuneration of a President, CEO, COO or other Executive Officer shall be fixed by the Board, taking into consideration any agreement between him and the Company, and it may be in whole or in part, in the form of salary, share options, or commissions or profit sharing or a combination thereof. DIRECTOR'S ACTS AND AUTHORITIES 68. The management of the business of the Company shall be vested in the Board, which may exercise all such powers and do all such acts and things as the Company is authorized to exercise and do, and are not hereby or by law required to be exercised or done by the Company in a General Meeting. The authority conferred on the Board by this Article 68 shall be subject to the provisions of the Companies Law, of these Articles and any regulation or resolution consistent with these Articles adopted from time to time by the Company in a General Meeting, provided, however that no such regulation or resolution shall invalidate any prior act done by or pursuant to a decision of the Board which would have been valid if such regulation or resolution had not been adopted. 69. The Directors may postpone their meetings and otherwise regulate them as they shall deem fit. The quorum for the dispatch of business by the Board shall be determined by the Directors and, if not so determined, shall be the majority of the Directors then holding office. 70. A resolution in writing signed or otherwise approved in writing (by letter, telegram, telex, facsimile, electronic mail or otherwise) by all the Directors then in office shall be as valid and as effectual as a resolution adopted by the Board at a meeting of the Board duly convened and held. 71. Members of the Board, or of any committee designated by the Board, may participate in a meeting of the Board, or of any committee, by means of a telephone conference 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. 72. (a) The Board shall elect a Chairman for the meeting and fix the term of his office. The CEO shall not serve as Chairman of the Board and vice versa unless the holders of two thirds of the voting rights in the Company represented in -17- person or by proxy and voting on such resolution at a General Meeting, who are not controlling shareholders of the Company or their representatives and who are present at the vote, adopt a decision to appoint the Chairman of the Board as the CEO, for a period not exceeding three years after the date of the adoption of the decision. (b) In the event that a Chairman was not elected or if the Chairman should fail to be present at a meeting fifteen (15) minutes after the time set for its convening, the remaining Directors shall elect one of those present to be Chairman of the meeting. (c) All questions that arise at meetings of the Board shall be decided by a majority of votes. In the event of a tie vote, the Chairman of the Board shall not have a casting vote. 73. Any meeting of the Board at which a quorum is present shall have the authority to exercise all or part of the authorities, powers of attorney and discretion invested at such time in the Directors or regularly exercised by them. 74. Subject to the Companies Law, the Board may delegate its authorities in whole or in part to committees as it shall deem fit, and it may from time to time revoke such delegation. Any committee so created must, in exercising the authorities granted to it, adhere to all the instructions of the Board given from time to time and/or to the provisions of the Companies Law. 75. All acts done bona fide at any meeting of the Board, or of a committee of the Board or by any person(s) acting as Director(s) shall, notwithstanding that it may afterwards be discovered that there was some defect in the appointment of the participants in such meeting or any of them or any person(s) acting as aforesaid, or that they or any of them or any person(s) acting as aforesaid, or that they or any of them were disqualified, be as valid as if there were no such defect or disqualification. 76. The Board shall cause proper Minutes to be kept of the following: (a) the names of all the Directors present at any meeting of the Board and at any meeting of a committee of the Board; (b) all proceedings and resolutions of General Meetings of the Company, Board meetings and Committees of the Board meetings. Any Minutes as aforesaid, if purporting to be signed by the Chairman of such meeting or by the Chairman of the next succeeding meeting, shall be accepted as prima facie evidence of the matters therein recorded. 77. [Reserved.] SHAREHOLDER REGISTERS 78. Subject to, and in accordance with, the provisions of the Companies Law, the Company may cause the Shareholder Register to be kept at any place in Israel -18- and may cause a copy of the Shareholder Register to be kept outside Israel as the Board may think fit and, subject to all applicable legal requirements, the Board may from time to time adopt such rules and procedures as it may think fit in connection with the keeping of such registers. In addition to the Shareholders Register, the Company shall also keep a Register of Substantial Shareholders as defined in the Companies Law. SECRETARY 79. The Board 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 80. (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. 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 printed name. (b) The Board may provide for a seal. If the Board so provides, it shall also provide for the safe custody thereof. Such seal shall not be used except by the authority of the Board and in the presence of the person(s) authorized to sign on behalf of the Company, who shall sign every instrument to which such seal is affixed. DIVIDENDS 81. Subject to any preferential, deferred, qualified or other rights, privileges or conditions attached to any special class of shares with regard to dividends, the profits of the Company available for dividend and resolved to be distributed shall be applied in payment of dividends upon the shares of the Company in proportion to the amount paid up or credited as paid up per the nominal value thereon respectively. Unless not otherwise specified in the conditions of issuance of the shares, all dividends with respect to shares which were not fully paid up within a certain period, for which dividends were paid, shall be paid proportionally to the amounts paid or credited as paid on the nominal value of the shares during any portion of the above-mentioned period. 82. The Board may declare a dividend to be paid to the shareholders according to their rights and interests in the profits, and may fix the record date for eligibility and the time for payment. 83. The Directors may from time to time pay to the shareholders on account of the next forthcoming dividend such interim dividends as, in their judgment, the position of the Company justifies. 84. A transfer of shares shall not pass the right to any dividend declared thereon after such transfer and before the registration of the transfer. -19- 85. Notice of the declaration of any dividend, whether interim or otherwise, shall be given to the holders of registered shares in the manner hereinafter provided. 86. Unless otherwise directed, any dividend may be paid by check, bank transfer or warrant, sent through the post to the registered address of the shareholder 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 shareholders 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 year 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. 87. The Board may determine that, a dividend may be paid, wholly or partly, by the distribution of specific assets of the Company or by distribution of paid-up shares, debentures or debenture stock or any other securities of the Company or of any other companies or in any one or more of such ways in the manner and to the extent permitted by the Companies Law. PROHIBITED DISTRIBUTION 88. (a) If the Company made a prohibited distribution as defined in the Companies Law, then the shareholder must return to the Company whatever he received, unless he did not know and did not need to know that the distribution carried out was prohibited. (b) It is assumed that a shareholder in the Company, who at the time of the distribution is not a Director, General Manager or controlling member of the Company, did not know and did not need to know that the distribution carried out was a prohibited distribution. 89. If the Company carried out a prohibited distribution, then every person who was a Director at the time of the distribution shall be treated as a person who thereby committed breach of trust against the Company, unless he proved one of the following: (1) that he opposed the prohibited distribution and took all reasonable steps to prevent it; (2) that he exercised reasonable reliance on information under which - had it not been misleading - the distribution would have permitted; (3) that under the circumstances of the case he did not know and did not need to know of the distribution. -20- MERGER 90. A merger requires approval by the Board and by the General Meeting, in accordance with the provisions of the Companies Law. 91. (a) The Board of the Company, while considering whether to approve the merger, shall discuss and determine taking the Company's financial situation into account - whether in its opinion there is a reasonable suspicion that in consequence of the merger the merged Company will not be able to meet the Company's obligations to its creditors. (b) If the Board determined that there is a suspicion as said in Sub-article (a), then it shall not approve the merger. 92. If each of the Boards of Directors of the merging companies approved the merger, then they shall jointly draw up a proposal for the approval of the merger (hereafter: merger proposal) and sign it. 93. (a) The Company shall deliver the merger proposal to the Companies Registrar within three days after the General Meeting was called. (b) The Company shall inform the Companies Registrar of the General Meetings decision within three days after the decision was adopted, shall inform him that the notice was given to the creditors under Section 318 to the Companies Law, and shall also deliver to the Registrar a copy of the Court decision under Sections 319 to 321 to the Companies Law within three days after the said decision was given. ACCOUNTS 94. The Board shall cause accurate books of account to be kept in accordance with the provisions of the Companies Law and of any other applicable law. Such books of account shall be kept at the Registered Office of the Company, or at such other place or places as the Board may think fit, and they shall always be open to inspection by all Directors. No shareholder not being a Director shall have any right to inspect any account or book or other similar document of the Company, except as conferred by law or authorized by the Board of the Company. 95. At least once in every fiscal year the accounts of the Company shall be audited and the correctness of the profit and loss account and balance sheet certified by one or more duly qualified auditors. 96. The appointment, authorities, rights and duties of the auditor(s) of the Company shall be regulated by the applicable law. NOTICES 97. (a) A notice or any other document may be served by the Company upon any shareholder either personally or by sending it by prepaid mail in Israel (by prepaid air mail if sent to a place outside Israel other than the U.S, or by first -21- class mail if sent within the U.S.) addressed to such shareholder at his address as recorded in the Company's Shareholder Register or such other address as he may have designated in writing for the receipt of notices and other documents. Any written notice or other document shall be deemed to have been served forty-eight (48) hours after it has been mailed (seven (7) days if mailed to a place outside of Israel or forty-eight (48) hours if mailed from within the U.S. to a location within the U.S.), or when actually received by the addressee if sooner than forty-eight (48) hours or seven (7) days, as the case may be, after it has been mailed, or when actually tendered in person to such shareholder (or to the Secretary or the President of the Company, as the case may be); provided, however, that such notice or other document mentioned above may be sent by facsimile and confirmed by registered mail as aforesaid, and such notice shall be deemed to have been given twenty-four (24) hours after such facsimile has been sent or when actually received by such shareholder (or by the Company), whichever is earlier. If a notice is, in fact, received by the addressee, it shall be deemed to have been duly served when received, notwithstanding that it was defectively addressed or failed in some respect to comply with the provisions of this Article. (b) Unless otherwise specified in bearer share warrants, the holders of such warrants shall not be entitled to receive notice of any General Meeting of the Company, and the Company is under no obligation to give notice of General Meetings to a person entitled to a share by virtue of its delivery to him, unless he is duly registered as a shareholder. (c) All notices to be given to the shareholders shall, with respect to any shares to which persons are jointly entitled, be given to whichever of such persons is named first in the Shareholders Register, and any notice so given shall be sufficient notice to the holders of such shares. (d) Any shareholder whose address is not described in the Shareholders Register, and who shall not have designated in writing an address for the receipt of notices, shall not be entitled to receive any notice from the Company. (e) Any notice or other document served upon or sent to any shareholder by publication in accordance with these Articles shall, notwithstanding that he be then deceased or bankrupt, and whether or not the Company has notice of his death or bankruptcy, be deemed to be duly served or sent in respect of any shares held by him (either alone or jointly with others) until some other person is registered in his stead as the holder or joint holder of such shares, and such service or sending shall be a sufficient service on or sending to his heirs, executors, administrators or assigns and all other persons (if any) interested in such share. (f) 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. -22- RECONSTRUCTION 98. On any sale of the undertaking of the Company, the Board or the liquidators on a winding-up may, if authorized by a majority vote at a meeting of shareholders, accept fully 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 Board (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 shareholders without realization, or vest the same in trustees for them, and the shareholders of the Company at any General Meeting may provide for the distribution or appropriation of the cash, shares or other securities, benefits or property, in accordance with the legal rights of the shareholders 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 Statutes as are incapable of being varied or excluded by these presents. INDEMNITY AND INSURANCE OF OFFICERS 99. The Company may, to the maximum extent permitted by the Companies Law: (a) enter into a contract for the insurance of the liability, in whole or in part, of any of its Officers, (b) may indemnify an Officer of the Company post factum; and (c) may indemnify an Officer of the Company in advance for the following events: (i) Any financial obligation imposed on an Officer in favor of a third party by a court judgment, including a compromise judgment approved by court (provided that the Company approved the compromise in advance) or an arbitrator's award approved by court (provided that it was given pursuant to arbitration agreed to by the Company in advance), for an act or omission performed by an Officer in his capacity as an Officer.; and (ii) reasonable legal expenses, including attorneys' fees, expended by or charged to an Officer or adjudicated against an Officer by a court in a proceeding commenced against an Officer by the Company or on its behalf or by another person, or in a criminal charge from which an Officer was acquitted, or in a criminal charge that does not require intent, in which an Officer was convicted, all for an act or omission performed in his capacity as an Officer . Such indemnity shall apply in certain forseeable events and up to a feasible amount under the circumstances, as determined by the Board. -23- WINDING-UP 100. If the Company shall be wound up, whether voluntarily or otherwise, the liquidators may, subject to the provision of the Statutes, divide among the shareholders in specie any part of the assets of the Company and may, with like sanction, vest any part of the assets of the Company in trustees upon such trusts, for the benefit of the shareholders, as the liquidators with like sanction shall think fit. BUSINESS COMBINATIONS WITH INTERESTED SHAREHOLDERS 101. Notwithstanding any other provision of these Articles, the Company shall not engage in any business combination with any interested shareholder for a period of three years following the time that such shareholder became an interested shareholder, unless: (a) prior to such time the Board of the Company approved either the business combination or the transaction which resulted in the shareholder becoming an interested shareholder, or (b) upon consummation of the transaction which resulted in the shareholder becoming an interested shareholder, the interested shareholder owned at least 85% of the voting shares of the Company outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned (i) by persons who are directors and also officers and (ii) employee share plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer, or (c) at or subsequent to such time the business combination is approved by the Board and authorized at a General Meeting, and not by written consent, by the affirmative vote of at least 66 2/3% of the oustanding voting shares which is not owned by the interested shareholder. (d) A shareholder becomes an interested shareholder inadvertently and (i) as soon as practicable diverts itself of ownership of sufficient shares so that the shareholder ceases to be an interested shareholder; and (ii) would not, at any time within the three - year period immediately prior to a business combination between the Company and such shareholder, have been an interested shareholder but for the inadvertent acquisition of ownership; or (e) The business combination is proposed prior to consummation or abandonment of and subsequent to the earlier of the public announcement or the notice required hereunder of a proposed transaction which (i) constitutes one of the transactions described in the second sentence of this paragraph; (ii) is with or by a person who either was not an interested shareholder during the previous three years or who became an interested shareholder with the approval of the Company's Board; and (iii) is approved or not opposed by a majority of the members of the Boards of Directors then in office who were directors prior to any person becoming an interested shareholder during the previous three years or were recommended for election or were elected to -24- succeed such directors by a majority of such directors. The proposed transactions referred to in the preceding sentences are limited to (x) a merger or consolidation of Company (except for merger in respect of which no vote of shareholders of the Company is required according to the Companies Law); (y) a sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions), whether as part of a dissolution or otherwise of assets of the Company or of any direct or indirect majority-owned subsidiary of the Company (other than to any direct or indirect wholly owned subsidiary or to the Company) having an aggregate market value equal to 50% or more of either that aggregate market value of all of the assets of the Company determined on a consolidated basis or the aggregate market of all the outstanding shares of the Company; or (z) a proposed tender or exchange offer for 50% or more of the outstanding voting shares of the Company. The Company shall give not less than 20 days notice to all interested shareholders prior to the consummation of any of the transaction described in clause (x) or (y) of the second sentence of this paragraph. As used in this Article only, the term: (1) "affiliate" means a person that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with another person. (2) "associate" when used to indicate a relationship with any person, means (I) any corporation, partnership, unincorporated association or other entity of which such person is a director, officer or partner or is, directly or indirectly, the owner of 20% or more of any class of voting shares, (ii) any trust or other estate in which such person has at least a 20% beneficial interest or as to which such person serves as trustee or in a similar fiduciary capacity, and (iii) any relative or spouse of such person, or any relative of such spouse, who has the same residence as such person. (3) "business combination" when used in reference to the Company and any interested shareholder of the Company, means: (i) any merger or consolidation of the Company or any direct or indirect majority owned subsidiary of the Company with (A) an interested shareholder, or (B) with any other corporation, partnership, unincorporated association or other entity if the merger or consolidation is caused by an interested shareholder and as a result of such merger or consolidation Sub-article (a) of this Article 101 is not applicable to the surviving entity; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions), except proportionately as a shareholder of such Company to or with the interested shareholder, -25- whether as part of a dissolution or otherwise, of assets of the Company or of any direct or indirect majority owner subsidiary of the Company, which assets have an aggregate market value equal to 10% or more of either the aggregate market value of all of the assets of the Company determined on a consolidated basis or the aggregate market value of all of the outstanding shares of the Company. (iii) any transaction which results in the issuance or transfer by the Company or by any direct or indirect majority-owned subsidiary of the Company of any shares of the Company or of such subsidiary to the interested shareholder, except (A) pursuant to the exercise, exchange or conversion of securities exercisable for or convertible into shares of the Company or any such subsidiary, which securities were outstanding prior to the time that the interested shareholder became such, (B) pursuant to a dividend or distribution paid or made, or the exercise, exchange or conversion of securities exercisable for, exchangeable for or convertible into shares of the Company or any such subsidiary, which security is distributed pro rata to all holders of a class or series of shares of the Company subsequent to the time the interested shareholder became such, (C) pursuant to an exchange offer by the Company to purchase shares made on the same terms to all holders of said shares or (D) any issuance or transfer of shares by the Company; PROVIDED, that in no case under (B)-(D) above shall there be an increase in the interested shareholder's proportionate share of the shares of any class or series of the Company or of the voting shares of the Company. (iv) any transaction involving the Company or any direct or indirect majority owned subsidiary of the Company which has the effect directly or indirectly of increasing the proportionate share of the shares of any class or series or securities convertible into the shares of any class or series of the Company or of any such subsidiary which is owned by the interested shareholder except as a result of immaterial changes due to fractional share adjustments or as a result of any purchase or redemption of any shares not caused, directly or indirectly, by the interested shareholder; or (v) any receipt by the interested shareholder of the benefit, directly or indirectly (except proportionately as a shareholder of such Company), of any loans, advances, guarantees, pledges or any other financial benefits (other than those expressly permitted in subparagraphs (i)-(iv) -26- above) provided by or through the Company or any direct or indirect majority owned subsidiary. (4) "control" including the term "controlling," "controlled by" and "under common control with," means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting shares, by contract or otherwise. A person who is the owner of 20% or more of the outstanding voting shares of any company, partnership, unincorporated association or other entity shall be presumed to have control of such entity. Notwithstanding the foregoing, a presumption of control shall not apply where such person holds voting shares in good faith and not for the purpose of circumventing this Article as an agent, bank, broker, nominee, custodian or trustee for one or more owners who do not individually or as a group have control of such entity. (5) "interested shareholder" means any person (other than the Company and any direct or indirect majority owner subsidiary of the Company) that (i) is the owner of 15% or more of the outstanding voting shares of the Company, or (ii) is an affiliate or associate of the Company and was the owner of 15% or more of the outstanding voting shares of the Company at any time within the three year period immediately prior to that date on which it is sought to be determined whether such person is an interested shareholder and the affiliates and associates of such person, or (iii) any person whose ownership of shares in excess of the 15% limitation set forth herein is the result of action taken solely by the Company provided that such person shall be an interested shareholder if thereafter such person acquires additional voting shares of the Company, except as a result of further corporate action not caused, directly or indirectly, by such person. For the purpose of determining whether a person is an interested shareholder, the voting shares of the Company deemed to be outstanding shall include shares deemed to be owned by the person through application of paragraph (8) of this Sub-article but shall not include any other unissued shares of the Company which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise. (6) "share" means with respect to the Company shares of its capital and with respect to any other entity any equity interest. (7) "voting shares" means any class or series entitled to vote generally in the election of directors of the Company and generally. -27- (8) "owner" including the terms "own" and "owned," when used with respect to any share, means a person that individually or with or through any of its affiliates or associates: (i) beneficially owns such share, directly or indirectly; or (ii) has (A) the right to acquire such share (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, warrants or options, or otherwise, PROVIDED, HOWEVER, that a person shall not be deemed the owner of share tendered pursuant to a tender or exchange; or (B) the right to vote such share pursuant to any agreement, arrangement or understanding; PROVIDED, HOWEVER, that a person shall not be deemed the owner of any share because of such person's right to vote such share if the agreement, arrangement, or understanding to vote such share arises solely from a revocable proxy or consent given in response to a proxy or consent solicitation made to 10 or more persons: or (iii) has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting (except voting pursuant to a revocable proxy or consent as described in item (b) of clause (ii) of this paragraph) or disposing of such share with any other person that beneficially owns or whose affiliates or associates beneficially own, directly or indirectly, such share. ********************** -28- EX-4.1 3 a2054264zex-4_1.txt EXHIBIT 4.1 EXHIBIT 4.1 MARNETICS BROADBAND TECHNOLOGIES LTD. 2001 SHARE OPTION PLAN 1. PURPOSES OF THE PLAN. The purpose of this Share Option Plan (the "PLAN") is to advance the interests of Marnetics Broadband Technologies Ltd (the "COMPANY") and its shareholders by attracting and retaining the best available personnel for positions of substantial responsibility, providing additional incentive to employees, directors and consultants and promoting a close identity of interests between those individuals and the Company. 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 3 hereof. (b) "BOARD" means the Board of Directors of the Company or of any parent or subsidiary of the Company. (c) "COMMITTEE" means a committee of Directors appointed by the Board in accordance with Section 3 hereof. (d) "COMMON STOCK" means the Common Stock, par value NIS _____ per share, of the Company. (e) "CONSULTANT" means any person who is engaged by the Company or any parent or subsidiary to render consulting or advisory services to such entity. (f) "DIRECTOR" means a member of the Board. (g) "EMPLOYEE" means any person, including officers and directors, employed by the Company or any subsidiary of the Company or any parent or subsidiary of the Company. A Service Provider 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, any parent, any subsidiary, or any successor. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient to constitute "employment" by the Company. (h) "FAIR MARKET VALUE" means, as of any date, the value of a Share determined as follows: (i) If the Shares are listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market 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 prior to the time of determination, as reported in THE WALL STREET JOURNAL or such other source as the Administrator deems reliable; (ii) 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; (iii) In the absence of an established market for the Shares, the Fair Market Value thereof shall be determined in good faith by the Administrator. (i) "OPTION" means a share option granted pursuant to the Plan. (j) "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. (k) "OPTIONEE" means the holder of an outstanding Option granted under the Plan. (l) "SERVICE PROVIDER" means an Employee, Director or Consultant. (m) "SHARE" means a share of the common stock of the Company. 3. ADMINISTRATION OF THE PLAN. (a) PROCEDURE. The Plan shall be administered by the Board or a Committee appointed by the Board, which Committee shall be constituted to comply with applicable laws. -2- (b) Subject to the provisions of any applicable law, every right, power or authority vested in the Board pursuant to the Plan is exercisable by the Committee. The Board shall automatically have a residual authority if no Committee shall be constituted or if such Committee shall cease to operate for any reason whatsoever or in any event the Committee is not authorized by any applicable law to perform any act or to take any decision in connection with the Plan. (c) 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 construe and interpret the terms of the Plan and any Options granted pursuant to the Plan; (ii) to designate 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 prescribe forms of agreement for use under the Plan; (v) to determine the terms and conditions of any Option granted hereunder; (vi) to determine the exercise price of any Option granted hereunder; (vii) to determine the Fair Market Value of Shares; (viii) to prescribe, amend and rescind rules and regulations relating to the Plan; (ix) subject to applicable laws, to allow Optionees to satisfy withholding tax obligations by electing to have the Company, if permitted under applicable laws, withhold from the Shares to be issued upon exercise of an Option that number of Shares having a Fair Market Value equal to the amount required to be withheld. The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined. All elections by Optionees to have Shares withheld -3- for this purpose shall be made in such form and under such conditions as the Administrator may deem necessary or advisable; and (x) to take all other action and make all other determinations necessary for the administration of the Plan. (d) EFFECT OF ADMINISTRATOR'S DECISION. All decisions, determinations and interpretations of the Administrator shall be final and binding on all Optionees. 4. ELIGIBILITY. (a) Subject to the provisions of the Plan, the Administrator may at any time, and from time to time, grant Options under the Plan. Options granted under this Plan may or may not contain such terms as will qualify the Options as Incentive Stock Options ("ISOS") or as Nonstatutory Stock Options ("NSOS"). Options granted under this Plan may or may not contain such terms as will qualify the Options as qualified options under applicable laws of any country or jurisdiction where Options are granted under the PLAN("QUALIFIED OPTIONS"). (b) All Service Providers of the Company or a parent or subsidiary of the Company shall be eligible to receive Options under the Plan; PROVIDED, however, that Options qualifying as ISOs shall be granted only to Employees of the Company or a parent or subsidiary of the Company. (c) No individual shall at any time have a right to receive an Option under the Plan. The receipt of an Option under the Plan shall not confer upon any Optionee any right with respect to continuing the Optionee's relationship as a Service Provider with the Company or a parent or subsidiary of the Company, nor shall it interfere in any way with his or her right or the Company's right, or the right of the Company's parent or subsidiary, to terminate such relationship at any time, with or without cause. 5. SHARES SUBJECT TO THE PLAN. Subject to the provisions of Section 10 hereof, the maximum aggregate number of Shares which may be received upon the exercise of Options under the Plan is ______________(________________) Shares. Shares distributed pursuant to the Plan may consist of authorized but unissued Shares. -4- If an Option expires or becomes unexercisable without having been exercised in full, the unpurchased Shares which were subject thereto shall become available for 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. 6. TERM OF OPTION. The term of an Option shall expire on such date or dates as the Administrator shall determine at the time of the grant of the Option; PROVIDED, however, that the term of an Option shall not exceed ten (10) years from the date of grant thereof. 7. OPTION EXERCISE PRICE AND CONSIDERATION. (a) The exercise price of an Option shall be determined by the Administrator on the date of grant of such Option in accordance with applicable laws and the guidelines as shall be suggested by the Board from time to time, but shall be subject to the following: (i) In the case of an ISOs, the exercise price shall be not less than the Fair Market Value of the Company shares on the date the Option is granted; provided, however, that if an ISO is granted to an employee who, at the time of grant of such Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any parent or subsidiary, the exercise price shall be no less than 110% of the Fair Market Value of the Company shares on the date the Option is granted. (ii) In the case of an NSOs, the exercise price shall be not less than eighty five (85%) of the Fair Market Value of the Company shares on the date the Option is granted; provided, however, that if an NSO is granted to an employee who, at the time of grant of such Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any parent or subsidiary, the exercise price shall be no less than 110% of the Fair Market Value of the Company shares on the date the Option is granted. (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 may consist entirely of (1) cash, (2) check, or (3) any combination of the foregoing -5- methods of payment.. 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. (c) The proceeds received by the Company from the issuance of Shares subject to the Options will be added to the general funds of the Company and used for its corporate purposes. 8. EXERCISE OF OPTION; RIGHT AS A SHAREHOLDER; (a) 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. 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. (b) 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 applicable laws, the Option Agreement and the Plan. Shares issued upon exercise of an Option shall be issued in the name of the Optionee or, if requested by the Optionee, in the name of the Optionee and his or her spouse, provided that Shares issued upon exercise of a Qualified Option, within two years from the date of the grant, shall be issued in the name of the Escrow Agent for the benefit of the Optionee. Prior to exercise, an Optionee, as such, shall have none of the rights of a shareholder of the Company. Upon exercise of an Option, an Optionee shall have no shareholder rights 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. Upon their issuance, the Shares shall carry equal voting rights on all matters where such vote is permitted by Applicable Law. 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 shareholder right for which the record date precedes the date of issuance of the Shares, except as provided in Section 10 hereof. -6- (c) If any law or regulation requires the Company to take any action with respect to the Shares specified in such notice before the issuance thereof, then the date of their issuance shall be extended for the period necessary to take such action. (d) An Option may not be exercised unless, at the time the Optionee gives notice of exercise to the Company, the Optionee includes with such notice payment in cash or by bank check of all withholding taxes due, if any, on account of his or her acquired Shares under the Option or gives other assurance satisfactory to the Administrator of the payment of those withholding taxes. (e) 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. 9. TERMINATION OF EMPLOYMENT (a) In the event of termination of Optionee's employment with the Company or any of its subsidiaries, or if applicable, the termination of services given by the Optionee to the Company or any of its subsidiaries, all Options granted to the Optionee, which are vested and exercisable at the time of such termination, may, unless earlier terminated in accordance with the Option Agreement, be exercised within six (6) months after the date of such termination (or such different period as the Administrator shall prescribe). 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 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. (b) In the event of termination of Optionee's employment with the Company or any of its subsidiaries, or if applicable, the termination of services given by the Optionee to the Company or any of its subsidiaries by reason of death or total and permanent disability, the outstanding Options, which were vested on the date of termination, may be exercised by the Optionee, the Optionee's legal guardian, the Optionee's estate or a person who acquires the right to exercise the Option by bequest or inheritance, as the case may be, within twelve (12) months after termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). If, -7- on the date of termination, there are Options which are not entirely vested, the Shares covered by the unvested portion of the Options 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. (c) In the event of termination of Optionee's employment with the Company or any of its subsidiaries, or if applicable, the termination of services given by the Optionee to the Company or any of its subsidiaries for CAUSE (as defined hereunder), all outstanding Options granted to such Optionee (whether vested or not) shall, to the extent not theretofore exercised, terminate on the date of such termination, unless otherwise determined by the Administrator. For purposes of this Section, termination for "cause" shall mean discharged from the employ of the Company for reasons of negligence in the discharge of Optionee's duties, breach of fiduciary duty, willful cause of damage or loss to the Company in any fashion or similar cause, or any other breach of Optionee's employment agreement with the Company. 10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. (a) CHANGES IN CAPITALIZATION. In the event of a shares split, reverse shares split, shares dividend, recapitalization, combination or reclassification of the Shares, rights issues or any other increase or decrease in the number of issued Shares effected without receipt of consideration by the Company (but not the conversion of any convertible securities of the Company), the Administrator in its sole discretion shall make an appropriate adjustment in the number of Shares related to each outstanding Option, the number of Shares reserved for issuance under the Plan, as well as the exercise price per Share of each outstanding Option. Except as expressly provided herein, no issuance by the Company of shares of any class, or securities 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 Administrator shall notify each Optionee as soon as practicable prior to the effective date of such proposed transaction. The Administrator -8- in its discretion may allow the exercise of any or all outstanding Options, whether or not vested, until fifteen (15) days prior to such transaction. 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 company, 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 company or a parent or subsidiary of the successor company. In the event that the successor company refuses to assume or substitute the Option, all outstanding Options shall immediately become fully exercisable. In such case, 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 purposes of this paragraph, the Option shall be considered assumed or substituted if, following the merger or sale of assets, the Option receives the right to purchase or receive, for each Optioned Share, the consideration (whether shares, cash, or other securities or property) received in the merger or sale of assets by holders of Shares of the Company 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 is not solely shares of the common stock (or their equivalent) of the successor company or its parent or subsidiary, the Administrator may, with the consent of the successor company, provide for each Optionee to receive solely shares of the common stock (or their equivalent) of the successor company or its parent or subsidiary equal in fair market value to the per Share consideration received by holders of Shares in the merger or sale of assets. 11. CHANGE IN CONTROL (a) "CHANGE IN CONTROL" shall mean a change in ownership or control of the Company effected through any of the following transactions: (i) Secondary public offering; -9- (ii) the acquisition, directly or indirectly by any person or related group of persons (other than the Company or a person that directly or indirectly controls, is controlled by, or is under common control with, the Company), of beneficial ownership of securities possessing substantially all the voting power of the Company's outstanding securities; (iii) a merger, consolidation, reorganization of the Company or a similar business combination, in which the Company is not the surviving entity ("Merger"); or (iv) the sale, transfer or other disposition of all or substantially all of the Company's assets ("SALE OF ALL OF THE COMPANY'S ASSETS"). (b) In the event of any Change in Control, the Administrator can decide, upon his full discretion, that each outstanding Option not vested shall automatically vest in full so that each such Option shall, immediately prior to the effective date of the Change in Control, become fully exercisable for all of the shares of the Company underlying such Option. Each such Option shall remain exercisable until its expiration as provided in the Plan. 12. DATE OF GRANT. Subject to applicable laws, the date of grant of an Option shall, for all purposes, be the date on which the Administrator makes the determination granting such Option. 13. AMENDMENT AND TERMINATION OF THE PLAN. (a) AMENDMENT AND TERMINATION. The Board may at any time amend, alter, suspend or terminate the Plan, provided however, that such amendment or alternation may not change the terms and conditions of Options that have been granted prior to such amendment or alternation. (b) SHAREHOLDER APPROVAL. The Board shall obtain shareholder approval of any Plan amendment to the extent necessary or desirable to comply with applicable laws. (c) EFFECT OF AMENDMENT OR TERMINATION. Notwithstanding subsection 13 (a) above, 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. -10- 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. 14. 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, the method of payment 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 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. 15. 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 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. 16. 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. 17. NON-TRANSFERABILITY OF OPTIONS. Except as set forth in Section 9(b) hereof, 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. 18. MULTIPLE AGREEMENTS. The terms of each Option may differ from other Options granted under the Plan at the same time. The Administrator may also grant more than one Option to a given Optionee during the term of the Plan, either in addition to, or in substitution for, one or more Options previously granted to that Optionee. -11- 19. 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 after the earlier of its adoption by the Board or by the holders of the Company's Shares, unless sooner terminated under Section 14 hereof. 20. 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. 21. INFORMATION TO OPTIONEES AND PURCHASERS. To the extent required under applicable laws, the Company shall provide copies of annual financial statements to each individual who holds Options or acquires Shares pursuant to the Plan, not less frequently than annually during the period that such Options or Shares are held. The Company shall not be required to provide such statements to key employees whose duties in connection with the Company assure their access to equivalent information. 22. GOVERNING LAW. This Plan shall be governed by and construed and enforced in accordance with the laws of the state of Israel applicable to tax and contracts and in accordance with the laws of the U.S. applicable to corporate, without giving effect to the principles of conflict of laws. 23. APPOINTMENT OF ESCROW AGENT. (a) The Administrator, in its sole discretion, shall be entitled to elect and appoint a trustee for this Plan ("ESCROW AGENT"). Upon such appointment an escrow agreement, which comply with the relevant and applicable laws, will be signed between the Escrow Agent and the Company. (b) In the event that an Escrow Agent has been appointed, any or all Options granted to Employees according to this Plan may be issued to the Escrow Agent and registered in the Escrow Agent's name, in the Administrator's sole discretion. (c) In the event that the Company issues any Options to the Escrow Agent, the Administrator shall determine whether, in order to ensure that the Plan should qualify under the laws of any country or jurisdiction where Options are granted under the Plan, the exercise of any Options or the sale or transfer of the Options or the underlying Shares shall be restricted for a certain period of time as required under the relevant laws. -12- (d) The Escrow Agent shall be exempt from any liability in respect of any action or decision duly taken in its capacity as Escrow Agent. 24. TAX CONSEQUENCES. Any tax consequences arising from the grant or exercise of any Option or from the payment for Shares or from any other event or act (whether of the Optionee or of the Company or its Subsidiaries or of its Escrow Agent) hereunder, shall be borne solely by the Optionee. The Company and/or the Escrow Agent shall withhold taxes according to the requirements under the applicable laws, rules, and regulations, including withholding taxes at source. Furthermore, such Optionee shall agree to indemnify the Company and/or Subsidiary that employs the Optionee and/or the Escrow Agent, and/or the Company's shareholders and/or directors and/or officers if applicable, and hold them harmless against and from any and all liability for any such tax or interest or penalty thereon, including without limitation, liabilities relating to the necessity to withhold, or to have withheld, any such tax from any payment made to the Optionee. Except as otherwise required by law, the Company shall not be obligated to honor the exercise of any Option by or on behalf of an Optionee until all tax consequences (if any) arising from the exercise of such Options are resolved in a manner reasonably acceptable to the Company. 25. DISPUTE (a) The parties do hereby agree that any future disagreements/disputes in connection with the Company's affairs and business activities stemming from the Plan and the Agreement will be submitted to a sole arbitrator agreed upon by the parties (or to anyone appointed by him). (b) Should such an arbitrator not be selected within 30 days from the date when such a need was determined, the Institute of Certified Public Accountants in Israel would appoint the arbitrator (c) The arbitration proceedings would be administered in accordance with the Arbitration Law, 1968. (d) This section constitutes an agreeable arbitration agreement under the provisions of the Arbitration Law, 1968. EX-10.5 4 a2054264zex-10_5.txt EXHIBIT 10.5 EXHIBIT 10.5 - -------------------------------------------------------------------------------- SOFTWARE LICENSE AGREEMENT - -------------------------------------------------------------------------------- This Agreement is made and signed on this the 17th day of April, 2001. BY AND BETWEEN MARNETICS LTD., a company duly organized under the laws of Israel, having its principal place of business at 10 Hayitzira Street, Raanana, Israel (hereinafter - "MARNETICS") OF THE FIRST PART A N D SPEEDWISE TECHNOLOGIES LTD., a company duly organized under the laws of Israel, having its principal place of business at 10 Hayitzira Street, Raanana, Israel (hereinafter - "SPEEDWISE") OF THE SECOND PART WHEREAS Marnetics is the owner of certain computer programs and related documentation as detailed in EXHIBIT "A" attached hereto; and WHEREAS Marnetics desire to grant to Speedwise and Speedwise desires to obtain, a non-exclusive license to use such software and related documentation on the terms and conditions set forth below. NOW THEREFORE, THE PARTIES AGREE AS FOLLOWS: 1. DEFINITIONS As used in this Agreement, the following terms shall have the following meanings: 1.1 "DOCUMENTATION" means the documents relevant to the use of the Licensed Software. -2- "Documentation" includes, without limitation, user guides, manuals and other materials. 1.2 "LICENSED SOFTWARE" means the programs and software products as described in Exhibit "A" attached hereto. 1.3 "USE" means the right to integrate the Licensed Software within Speedwise's product and to sub-license the Licensed Software as part of and integrated in Speedwise's Products, in the fields and areas as detailed in Exhibit "B" attached hereto. 1.4 "THE PRODUCT" means the product developed by Speedwise which contains the Licensed Software. 2. GRANT OF LICENSE 2.1 Marnetics hereby grants and Speedwise hereby accepts, subject to the terms hereinafter set forth a non-exclusive license to Use the Licensed Software and the Documentation, all as set forth in this Agreement. 2.2 Except as expressly permitted by statute, Speedwise shall not disassemble, decompile or reverse engineer the Licensed Software. 3. TERMS 3.1 This Agreement is signed for an unlimited period commencing on the date of the execution of this Agreement. 3.2 Notwithstanding the above licenses and sublicenses, for the Licensed Software enabled pursuant to the terms and conditions of this Agreement and paid for by Speedwise, are perpetual licenses, and shall continue to exist after the termination of this Agreement. 3.3 Each party shall have the right to terminate this Agreement if the other party violates a material provision of this Agreement ("EVENT OF DEFAULT"). Upon the occurrence of an Event of Default, a party shall deliver to the defaulting party a notice of intent to terminate that identifies in detail the Event of Default. If the Event of Default remains uncured during thirty (30) days, the party may terminate this -3- Agreement by delivering to the defaulting party a notice of termination that identifies the effective date of the termination, which date shall not be less than thirty (30) days after the date of the delivery of the notice of intent to terminate. 3.4 Within ten (10) days after termination of this Agreement, Speedwise shall return the code for the Licensed Software and all copies thereof, delete or destroy all other copies of the Licensed Software and deliver to Marnetics a certification in writing that the Licensed Software has been returned, all copies deleted or destroyed and its Use discontinued. 4. LICENSE FEE AND PAYMENT TERMS 4.1 In consideration of the granting of the license to Use pursuant to this Agreement, Speedwise shall pay Marnetics license fees which shall be generated from the revenues as detailed in Exhibit "C" attached hereto (hereinafter - "THE LICENSE FEE"). 4.2 License Fees and charges shall be stated and paid in US Dollars. 4.3 All invoices shall be paid within thirty (30) days of Speedwise's receipt of payment by the purchaser of the Product. 4.4 The fees shall not be paid out of the overheads and other payments that Speedwise shall receive including, but not limited to, maintenance fees, support and installation fees, etc. 4.5 Furthermore, Speedwise shall submit to Marnetics a quarterly report regarding the sales of the Product. 5. PROPERTY RIGHTS 5.1 Marnetics shall solely own and have exclusive worldwide right, title and interest in and to all patents, trademarks, service marks, copyrights, mask works, trade secrets and all other intellectual and industrial property rights in any way related to the Licensed Software and/or the Documentation ("MARNETICS' PROPRIETARY RIGHTS"). Title to all Marnetics' Proprietary Rights embodied in the Licensed Software shall always remain with Marnetics, and Speedwise's Use thereof shall be restricted under a non-exclusive license granted to Speedwise under this Agreement. Subject to Speedwise's performance of all obligations hereunder, Marnetics hereby -4- grants to Speedwise a non-exclusive, non-transferable and indivisible license to Use Marnetics' Proprietary Rights only as they are integrated in Speedwise's products and for no other purpose. 5.2 Both Parties hereby agree that Speedwise shall not be entitled and be prohibited from transferring, assigning, selling or make any other disposition with any of the source codes that Speedwise shall obtain from Marnetics pursuant to the grant of license, according to this Agreement, and that the source codes shall be kept under Speedwise's exclusive provision. 5.3 Notwithstanding the aforesaid, title to all modifications, improvements and derivation works related to the Licensed Software performed solely by Speedwise ("THE IMPROVEMENTS") shall remain with Speedwise who shall have all proprietary and Intellectual property rights in the Improvements. 5.4 Licensed Software shall bear Marnetics' copyright notice, tradename and trademark as given to Speedwise by Marnetics. 5.5 Speedwise shall not remove Marnetics' trademark notices, copyright notices, patent marking or mask work notices on any other materials supplied by Marnetics. This paragraph 5 shall survive the termination of this Agreement, and shall be specifically enforceable by injunctive and other relief against Speedwise in the event of Speedwise's breach since both parties agree that Marnetics will be irreparably harmed and money damages would be inadequate compensation to Marnetics for Speedwise's breach. In the event of such breach, Marnetics shall be entitled to injunctive relief against Speedwise in addition to any other remedies to which it is entitled. 6. LIMITATION OF LIABILITY 6.1 MARNETICS SHALL NOT BE LIABLE FOR ANY CONSEQUENTIAL, INCIDENTAL, SPECIAL OR EXEMPLARY DAMAGES SUFFERED BY SPEEDWISE AND/OR ANY CUSTOMER RELATED TO OR ARISING OUT OF THIS AGREEMENT. THE TRANSACTIONS CONTEMPLATED HEREBY AND/OR THE USE OR INABILITY TO USE THE LICENSED SOFTWARE, INTEGRATION OF THE LICENSED SOFTWARE WITH EQUIPMENT NOT PROVIDED BY MARNETICS, LOSS OF GOODWILL OR PROFITS AND/OR FROM ANY OTHER -5- CAUSE WHATSOEVER, EVEN IF IT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. 6.2 Marnetics' liability to Speedwise under any provision of this Agreement, shall be limited to the amount actually paid by Speedwise to Marnetics for License Fees pursuant to this Agreement. The existence of more than one claim shall not enlarge or extend the limit. 6.3 The above limitation of liability does not apply: 6.3.1 if and to the extent that Speedwise, as a result of Marnetics' default or breach of contract becomes exposed to claims of third parties resulting from an Infringement of any intellectual property regarding the Licensed Software; 6.3.2 with respect to damages caused by Marnetics' gross negligence or willful acts. 7. INFRINGEMENT INDEMNITY 7.1 Marnetics shall, at its own expense, defend or, at its option, settle any claim, suit or proceeding brought against Speedwise on the issue of infringement of any patent, trade name, trademark, trade secret, copyright or other proprietary rights of any third party by the Use of any of the Licensed Software, pursuant to the terms of this Agreement ("INFRINGEMENT"). Marnetics shall indemnify Speedwise against any costs, expenses or damages caused by an Infringement, provided that Speedwise promptly notifies Marnetics in writing of the Infringement. 7.2 If the Licensed Software is, or in Marnetics' opinion likely to become, the subject of a claim, suit or proceeding of Infringement, Marnetics may: 7.2.1 procure for Speedwise, at no cost to Speedwise, the right to continue Usage of the Licensed Software; or 7.2.2 replace or modify the Licensed Software at no cost to Speedwise to make it non-infringing, provided that the same function is performed by the replacement or modified Licensed Software. In the event that Martnetics will not be able to provide Speedwise with the right to continue usage of the Licensed Software, Speedwise will forthwith not take any further commitment on its usage. -6- 8. CONFIDENTIALITY AND NON-DISCLOSURE 8.1 Both parties acknowledge that in the course of performing their respective obligations hereunder, they shall be receiving information which is proprietary and confidential to the disclosing party and which the disclosing party wishes to protect from public disclosure ("PROPRIETARY INFORMATION"). Proprietary Information as used herein includes, without limitation, all information marked as confidential and disclosed at any time before, after or at the time of execution of this Agreement relating to the Licensed Software, Speedwise's Use of the Licensed Software and any other confidential information or trade secrets which have been or shall be disclosed between the parties relating to their respective businesses, customers, products, marketing and sales plans, financial status, product development plans, strategies and the like. 8.2 Each party shall: 8.2.1 hold such Proprietary Information in confidence and not disclose it, except to its employees or representatives to whom disclosure is necessary to effect the purposes of this Agreement and who are similarly bound to hold the Proprietary Information in confidence; 8.2.2 use its best efforts to prevent inadvertent or unauthorized disclosure, publication or dissemination of any Propriety Information; 8.2.3 not make any use of any Propriety Information nor circulate proprietary Information in its organization, except to the extent necessary to carry out the intent of this Agreement. 8.3 Nothing in this Agreement shall be interpreted as placing any obligation of confidence and non-use on a party with respect to any Proprietary Information that: 8.3.1 can be demonstrated to have been in the public domain as of the effective date of this Agreement or comes into the public domain during the term of this Agreement through no fault of such party; or 8.3.2 can be demonstrated by clear and convincing evidence to have been independently developed by such party; or -7- 8.3.3 is rightfully received by such party from a third party not under an obligation of confidence to the other party hereto with respect thereto. 9. ASSIGNMENTS Each party shall have the right to assign or otherwise transfer its rights and obligations under this Agreement to anyone, only, as part of the sale or transfer of such a Party's business or of any part thereof, or pursuant to any merger, consolidation or reorganization. In case of an assignment or transfer to a third party, each party shall promptly inform the other party thereof and shall effect the assignment or transfer only after the other party's prior written approval, each party shall not unreasonably deny its approval. 10. FORCE MAJEUR Neither party shall be liable to the other party for delays in the performance of this Agreement caused by unforeseen circumstances beyond its control, including, but not limited to, acts of God, wars, riots, strikes, fires, floods, or other causes beyond a party's reasonable control. In the event of any such delay, the date of performance of delivery shall be deferred for a period equal to the time lost by reason of delay. A party shall notify the other party in writing of any such events or circumstances promptly after their occurrence. 11. MISCELLANEOUS 11.1 All notices, requests and demands to be given, made or provided for under this Agreement shall be in writing and deemed to have been duly given; 11.1.1 by its personal delivery; or 11.1.2 by its being sent by facsimile, confirmed in writing by registered mail, return receipt requested; and addressed as follows: To: Speedwise 10 Hayiztira Street, Raanana, Israel Attn: CEO To: Marnetics 10 Hayiztira Street, Raanana, Israel Attn: CEO -8- or such other address or such other address as either party may designate by notice given as aforesaid, provided that notice of a change in address shall not be effective until it is actually received. 11.2 If any provision of this Agreement shall be held void, voidable, invalid or inoperative, no other provision of this Agreement shall be affected as a result thereof and, accordingly, the remaining provisions of this Agreement shall remain in full force and effect as though such a void, voidable, invalid or inoperative provision had not been contained herein. In such event, the parties agree to negotiate in good faith substitute provisions which shall most nearly effect the parties' original intent in entering into this Agreement. 11.3 The validity, construction and performance of this Agreement shall be governed exclusively by the laws of the State of Israel. 11.4 All disputes out of or relating to this Agreement shall be resolved in accordance with the following provisions: 11.4.1 In the event of a dispute, the principals of either party shall meet and attempt in good faith to resolve such dispute. This duty to attempt to resolve a dispute in good faith shall continue for at least thirty (30) days after one party requests a meeting for the purpose of resolving a dispute. If, after thirty (30) days the parties are unable to resolved their dispute amicably, then either party may submit to the other an arbitration demand. Arbitration shall be conducted in accordance with the Israeli Rules of Arbitration Act, 1968, of the International Chamber of Commerce. 11.4.2 The prevailing party in arbitration shall be entitled to recover from the other party its reasonable attorneys' fees and costs incurred herein. 11.5 This Agreement and the Exhibits hereto constitute the entire agreement between the parties concerning the subject matter hereof. It supersedes any proposal or prior agreement, oral or written, and any other communication and may only be modified in a writing signed by both parties. -9- IN WITNESS WHEREOF, the parties have caused this License Agreement to be executed by their undersigned and duly authorized representative on the day and year first above written. SPEEDWISE MARNETICS Signed by: Signed by: /s/ Dan Gilat /s/ Moshe Kessner - ----------------------------------- ----------------------------------- Dan Gilat Moshe Kessner /s/ Amit Mattatia /s/ David Sheetrit - ----------------------------------- ----------------------------------- Amit Mattatia David Sheetrit E X H I B I T A 1. LOCAL ACKNOWLEDGMENT (LOCALACK) - This module generates TCP acknowledgment messages in order to take control over the TCP flow control mechanism from the destination data server. This module also includes functions that manage the transmission timing of the LocalAcks and queuing management of the acknowledged data messages. 2. SESSION CAPACITY MANAGER - determines the maximum amount of information, which can be in an "in-flight" situation. This amount may be fixed or changed from time to time based on the network dynamics. 3. SLICING - Transmission of an artificial message which includes the last transmitted byte/s in order to enforce a duplicate Ack situation, if the previous packet/s got lost, which will further enable fast retransmission of the lost packets. 4. INTER PACKET INTERVAL - generates artificial delay between any pair of consequent packets in order to "smooth" the transmission, and to reduce the probability of packet loss. This delay may be fixed or dynamic, based on the different conditions in the network. E X H I B I T B Speedwise will use the Licensed Modules for the sole purpose of streamlining and accelerating TCP traffic between cellular data users and certain data servers, which are installed in the cellular carrier's data network. E X H I B I T C 1. In event that Speedwise sells the Product without bundling the Product with Speedwise's other products, then Speedwise shall pay Marnetics License Fees in the sum of 15% of the net revenues (excluding the price of third party products) generated from the Product. 2. In event that Speedwise sells the Product as part of a bundle of other Speedwise's products, then the minimum price of the Product shall be USD 25 per each concurrent user, of which Marnetics shall be entitled to receive the fees as detailed in section 1 hereinabove. 3. Both parties agree that that in such events as both parties may mutually agree the fees may be updated accordingly. EX-10.6 5 a2054264zex-10_6.txt EXHIBIT 10.6 EXHIBIT 10.6 INDEMNIFICATION AGREEMENT This Indemnification Agreement (the "AGREEMENT") is made this 30th day of June 2001 by and between Dov Strikovsky, I.D. No. 051276897, of Akiva Street, Raanana ("STRIKOVSKY") and Marnetics Broadband Technologies Ltd. (formerly - Stav Electrical Systems (1994) Ltd.), Israeli public company No. 52-004389-4 of 10 Haietzira Street, Industrial, Raanana ("MXB"). WHEREAS Marnetics Ltd. ("MARNETICS"), the shareholders of Marnetics (the "SHAREHOLDERS") and MXB have entered into a Share Exchange Agreement dated May 31, 2000, whereby, in consideration for the purchase of all of Marnetics' shares by MXB, the shareholders of Marnetics were issued shares of MXB equaling 75% of the issued and outstanding share capital of MXB on a fully diluted basis (the "SEA"); and WHEREAS pursuant to an addendum to the SEA dated October 30, 2000 (the "ADDENDUM"), Strikovsky and/or any Company under his control agreed to indemnify the shareholders of Marnetics against any loss or damage incurred by MXB as a result of MXB's liability with respect to Current Projects (as defined in the Addendum)(the "INITIAL INDEMNIFICATION"); and WHEREAS pursuant to the Addendum, in order to secure the Initial Indemnification, Strikovsky has transferred 200,000 shares of MXB (the "ESCROW SHARES") to be held in escrow (the "ESCROW") by Advocate Menahem Gurman (the "ESCROW AGENT") according to the Escrow Agreement signed by Strikovsky and the Escrow Agent (the "ESCROW AGREEMENT") set forth in ANNEX A hereto ; and WHEREAS on the date hereof the status of the Current Projects, including collection of debts from customers and issuance of invoices by suppliers, evidence that MXB may face more liabilities than the ones anticipated at the time of signature of the SEA, the Addendum and the Escrow Agreement; and WHEREAS, in light of the above, the parties wish to elaborate and add to the terms and provisions of the Initial Indemnification (the Initial Indemnification and its amendments hereunder: the "COMPLETE INDEMNIFICATION") and the Escrow Agreement pursuant to the terms and conditions of this Agreement. NOW, WHEREFORE, the parties hereby agree as follows: 1. PREAMBLE; ANNEXES The preamble to this Agreement and all its Annexes form an integral part thereof. 2. THE BANK AGREEMENT 2.1. MXB UNDERTAKINGS 2.1.1. On May 9, 2001, an agreement (the "BANK AGREEMENT") was signed between MXB and Bank Hapoalim, Ltd. (the "BANK") with respect to MXB's debt to the Bank in the amount of NIS 13,100,000 (Thirteen Million One Hundred Thousand)(the "DEBT"). 2.1.2. In accordance with the Bank Agreement, the Bank has agreed to release MXB from its obligation to repay the Debt and to cancel the floating charge and the liens registered in favor of the Bank on properties of MXB provided that, by May 31, 2001 at the latest, the following shall occur: 2.1.2.1. Shlavor Systems Ltd., a company wholly owned by Strikovsky, ("SHLAVOR") shall have agreed in writing to assume liability for the Debt; and 2.1.2.2. MXB shall have paid NIS 4,000,000 to the Bank on account for the Debt (the "REPAID AMOUNT"); and 2.1.2.3. MXB shall have assigned to the Bank, by way of a lien all the rights of MXB with respect to the debt of the City of Hod Hasharon to MXB in the sum of NIS 9,100,000. 2.1.2.4. MXB shall have provided a guarantee to the Bank in the amount of NIS 3,000,000 (the "GUARANTEE") to secure Shlavor's obligation to repay the Debt, subject to reduction as provided in the Bank Agreement. 2.2. STRIKOVSKY'S UNDERTAKINGS 2.2.1. In the framework of the Complete Indemnification, Strikovsky and/or any -2- Company under his control hereby agrees and undertakes as follows: 2.2.1.1. To reimburse MXB the Repaid Amount; and 2.2.1.2. To reimburse MXB any amount that MXB may have to pay to the Bank if the Bank exercises the Guarantee; and 2.2.1.3. To indemnify and hold MXB harmless for all costs, expenses and other amounts payable by MXB in connection with the Debt pursuant to the Bank Agreement. 2.2.2. All amounts due and payable to MXB pursuant to this Section 2.2 shall be linked to the consumer cost of living index and bear annual interest of four percent (4%) per annum from the date of payment to the Bank by MXB until the date of actual payment by Strikovsky to MXB plus VAT. 2.2.3. All amounts due and payable to MXB pursuant to this Section 2.2 shall be paid in monthly installments of NIS 200,000 (Two Hundred Thousand) commencing on June 1, 2004 until paid in full. 2.3. ADDITIONAL ESCROW SHARES 2.3.1. As a security for the performance of Strikovsky's undertakings under this Section 2, Strikovsky shall deliver 100,000 additional shares of MXB (the "ADDITIONAL ESCROW SHARES") to the Escrow Agent, which shall be held, upon their delivery to the Escrow Agent, pursuant to the terms of the Escrow Agreement. 2.3.2. In addition, the Escrow Shares and the Additional Escrow Shares shall be subject to the following conditions: 2.3.2.1. The Escrow Shares and the Additional Escrow Shares shall be released by the Escrow Agent to Strikovsky, pursuant to the Escrow Agreement and this Section 2.3 upon -3- satisfaction of the terms of the Escrow Agreement and after the receipt by the Escrow Agent of a certificate from the independent auditors of MXB that (a) no further amounts are owed by MXB with respect to the Repaid Amount and the Guarantee pursuant to the Bank Agreement and (b) all amounts to be reimbursed to MXB by Strikovsky pursuant to Section 2.2.1 hereto and the Initial Indemnification. 2.3.2.2. In the event that, prior to receipt of the certificate described in Section 2.3.2.1 above, the Escrow Agent receives notice of a claim against Strikovsky and/or any Company under his control pursuant to the initial Indemnification or the Complete Indemnification, the Escrow Agent shall be authorized to retain any or all of the Escrow Shares and/or Additional Shares until such claim is resolved and, in the unrestricted discretion of the Escrow Agent, shall be authorized to sell or otherwise dispose of all or any portion of the Escrow Shares and/or Additional Shares so as to satisfy any alleged liability. 2.3.2.3. In the event that, at any time, (even before the amounts under Section 2.2.3 become due) the price per share of MXB shares shall equal US$ 15, then, subject to MXB's written consent, the Escrow Agent shall sell or otherwise dispose of 100,000 shares out of the Escrow Shares or the Additional Shares and transfer the consideration therefor to MXB in satisfaction of any indemnification due by Strikovsky and/or any Company under his control to MXB at such time and any amount due by Strikovsky and/or any Company under his control as indemnification at that time (including the Indemnity Amount defined below) shall be reduced proportionately. -4- 2.3.2.4. In the event that, at any time, (even before the amounts under Section 2.2.3 become due) the price per share of MXB shares shall equal US$ 20, then, subject to MXB's written consent, the Escrow Agent shall sell or otherwise dispose of an additional 100,000 shares out of the Escrow Shares or the Additional Shares and transfer the consideration therefor to MXB in satisfaction of any indemnification due by Strikovsky and/or any Company under his control to MXB at such time and any amount due by Strikovsky and/or any Company under his control as indemnification at that time (including the Indemnity Amount) shall be reduced proportionately. 2.3.2.5. In no event shall the Escrow Agent be subject to any liability with respect to any actions taken pursuant to this Section 2.3. Each of Strikovsky and/or Company under his control and MXB agrees to indemnify and hold the Escrow Agent harmless from all cost, loss or expense which may be incurred by him in connection with performance of his duties hereunder and under the Escrow Agreement. 3. INDEMNITY AMOUNT 3.1. In the framework of the Complete Indemnification, Strikovsky hereby agrees to pay to MXB, not later than July 30, 2001, an amount of NIS 1,932,316 (One Million Nine Hundred Thirty Two Thousand Three Hundred and Sixteen) (the "INDEMNITY AMOUNT"). The parties hereby acknowledge that the Indemnity Amount represents the aggregate of missing invoices that should have been issued to MXB by the entities listed in Annex 3.3. hereto. 3.2. The Indemnity Amount shall be paid in the form of the delivery by the Escrow Agent of bank guaranties deposited by Strikovsky in escrow with the Escrow Agent. Strikovsky hereby instructs the Escrow Agent to deliver the bank guaranties to MXB not later than the above-mentioned date. 3.3. Subject to the payment of the Indemnity Amount by Strikovsky and/or any Company under his control to MXB as set forth above, MXB hereby assigns to Strikovsky all right, title and interest to any -5- claim, demand, and/or cause of action whatsoever that MXB may have now or shall have in the future against or with respect to the entities set forth in ANNEX 3.3 hereto. 4. IRREVOCABLE WAIVER AND RELEASE 4.1. This Agreement sets forth the complete obligations of Strikovsky with respect to the subject matters of this Agreement and vis-a-vis the entities referred to in this Agreement. 4.2. Each of MXB and each of the Shareholders hereby irrevocably waives any claim and/or demand it has now or may have in the future against Strikovsky and/or any Company under his control for any liability covered by this Agreement and the Addendum other than pursuant to this Agreement and grants Strikovsky an irrevocable release therefrom. 4.3. If any liability and/or obligation related to the liabilities covered by this Agreement and/or the Addendum is imposed on Strikovsky not pursuant to this Agreement or if any action or measure is taken by MXB and/or any of the Shareholders and/or any other person or entity which results in Strikovsky becoming liable or obligated other than pursuant to this Agreement or the Addendum, this Agreement shall be null and void and MXB shall indemnify Strikovsky in full against any such liability and/or obligation. 5. APPLICABLE LAW The laws of the State of Israel shall govern the interpretation and enforcement of this Agreement. The parties irrevocably consent to the personal jurisdiction of the courts of Tel Aviv-Yaffo with respect to any dispute arising out of or in connection with this Agreement. If any provision hereof is deemed unenforceable, said provision shall be severed and the remainder of this Agreement shall be enforced in accordance with its terms. 6. MISCELLANEOUS 6.1. NOTICES. All communications provided for in this Agreement shall be in writing and shall be sent or faxed to each party at such address as a party may from time to time designate in writing to the other parties. Notices shall be sent by personal delivery, by registered mail, return receipt requested, express courier, facsimile copy or electronic mail. Notices shall be deemed to be received three business days after being mailed or on the next business day after being faxed. -6- 6.2. ENTIRE AGREEMENT. This Agreement, together with the attached Annexes, constitutes the entire agreement among the parties regarding the transactions contemplated herein and therein and supercedes all prior agreements and arrangements between or among the parties with respect to the subject matter hereof, whether oral or written, except for the SEA, the Addendum and the Escrow Agreement. In the event of discrepancies between the provisions of SEA, the Addendum, the Escrow Agreement and the provisions of this Agreement, the provisions of this Agreement shall prevail. 6.3. HEADINGS. The headings contained in this Agreement are solely for convenience of reference and shall not affect the interpretation of this Agreement. 6.4. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 6.5. SUCCESSORS AND ASSIGNS; ASSIGNMENT. Neither party shall sell, assign, transfer, or otherwise convey any of its rights or delegate any of its duties under this Agreement, except to a company which has succeeded to substantially all of the business and assets of the Company and has assumed in writing its obligations under this Agreement. 6.6. DELAYS OR OMISSIONS: WAIVER. No delay or omission to exercise any right, power, or remedy accruing to any party upon any breach or default by any other party under this Agreement shall impair any such right or remedy nor shall it be construed to be a waiver of any such breach or default, or any acquiescence therein or in any similar breach or default thereafter occurring. 6.7. FURTHER ACTIONS. At any time and from time to time, each party agrees, without further consideration, to take such actions and to execute and deliver such documents as may be reasonably necessary to effectuate the purposes of this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date set forth above. /S/ DOV STRIKOVSKY /S/ DAVID SHEETRIT - -------------------------------------- ------------------------------------- Dov Strikovsky Marnetics Broadband Technologies Ltd. By: DAVID SHEETRIT --------------------------------- Title: ACTING CHIEF EXECUTIVE OFFICER ------------------------------- -7- /S/ ISAAC NISSIM ------------------------------------- Marnetics Broadband Technologies Ltd. By: ISAAC NISSIM --------------------------------- Title: CHIEF FINANCIAL OFFICER ------------------------------- We, the undersigned, agree and are bound by the terms and provision of this Agreement. GAP TECHNOLOGIES LTD SAHAR (SECURITIES) TECHNOLOGIES LTD By: __________________ By: __________________ Title: __________________ Title: __________________ DERMISTOCK (1998) LTD LIMASSA ENTERPRISES CORPORATION (BVI) By: __________________ By: __________________ Title: __________________ Title: __________________ TECHBYTE L.L.C. ECI TELECOMMUNICATIONS LTD By: __________________ By: __________________ Title: __________________ Title: __________________ OFEK RECHASIM TECHNOLOGIES 1999 LTD By: __________________ ______________________ Title: __________________ EMANUEL VIND DUGAZ MARKETING (1995) LTD SUNNY.COM LTD By: __________________ Title: __________________ By: __________________ Title: __________________ -8- LINKWARE LTD STI Ventures INVESTMENTS NO. 2 NV By: __________________ By: __________________ Title: __________________ Title: __________________ Docor International BV Ronchal Investments NV By: __________________ By: __________________ Title: __________________ Title: __________________ Prime Technology Ventures NV By: __________________ Title: __________________ I, the undersigned, hereby agree to the content of Sections __of this Agreement. /S/ MENAHEM GURMAN - -------------------------------- Menahem Gurman, Adv. -9- ANNEX 3.3 1. Zur Neeman 2. David Bar- Aquiva 3. Kivnun Electricity Works (98) LTD. EX-10.7 6 a2054264zex-10_7.txt EXHIBIT 10.7 EXHIBIT 10.7 MARNETICS BROADBAND TECHNOLOGIES LTD. ("THE COMPANY") REQUEST FOR PROPOSALS 1. In accordance with the resolution of the Board of Directors of the Company, the Company hereby requests proposals for the purchasing of the operation of installation and maintenance of electricity infrastructure systems, which are managed by the Company, as of March 31st 2001 (hereinafter: "The Determining Date"), as specified in the Sale Agreement. 2. The assets, offered for sale, are to be sold according to their current condition, as is, as of the Determining Date, subject to the conditions stated in the Sale Agreement. The proposer, either by itself and/or by means of anyone on its behalf, bears the full liability for the examination of the provisions of the Sale Agreement, including all its conditions, the legal and physical condition of the sold assets and also any other essential detail with respect to the sold assets, including the possibility of their utilization by the proposer, tax charges, impositions, fees, licenses and any expenses, which would apply in connection with the purchasing of the sold assets. A condition to the completion of the commitment in the Sale Agreement is the receipt of all the approvals, required in accordance with any Law and/or Agreement, pursuant to the sale of the sold -1- assets, including the furnishing by the proposer of all the required consents of clients of the Company and its creditors. 3. The Company is not and shall not be liable for any representation and/or damage and/or discrepancy with respect to the sold assets. 4. Proposals for the purchasing of the assets should be submitted in writing not later than May 30th 2001, 12:00 hours (hereinafter: "The Completion of the Period for Receipt of Proposals") to Advocate Menachem Gurman of Haim Samet, Steinmetz, Haring & Co. - Law Offices, 23 Derech Petach Tikva, Tel Aviv, Tel. 03-5607111; Fax. 03-5607112 (hereinafter: "The Law Offices"). 5. The proposal should include the name of the proposer, his identity certificate number or another identifying number and also the amount of the proposal, indicated in New Israeli Shekels. In any event, the amount of the proposal shall not be under an inclusive amount of NIS2,500 thousand, including the cost of the depreciated and adjusted fixed assets (including equipment, vehicles and movable), amounting to NIS 1,781 thousand, as of the Determining Date, and the cost of stock, amounting to NIS 640 thousand, as of the Determining Date. The proposal should be enclosed with an autonomic bank guarantee in favor of the Company, valid for three months, at a rate of 5% of the proposal. It is hereby clarified that the sold assets include various liabilities, as defined in the Agreement, including financial liabilities, which are -2- evaluated in an amount of approx. NIS 2,734 thousand, as of December 31st 2001. 6. A proposer, whose proposal was accepted, and who retracts his proposal or declines to sign the Sale Agreement, his guarantee shall be forfeited, as a fixed and agreed in advance compensation. 7. The draft of the Sale Agreement, audited financial statements of the Company, as of September 30th 2000, a trial balance sheet of the sold assets, as of March 31st 2001, and a report on Form 20-F for 1999, can be obtained at the Law Offices during normal work hours. A proposer, whose proposal, as per the opinion of the Company, meets the conditions specified in this RFP, shall be entitled, subject to the signing of a Confidentiality Agreement up until June 7th 2001, to visit at the offices of the Company and receive data with respect to the sold assets. In addition to that stated above, on May 23rd 2001, 10:00 hours, the Company shall allow those interested, who has submitted their proposals as yet, to visit at the offices of the Company in Basra Village, and receive information with respect to the sold assets, subject to the signing of a Confidentiality Agreement. 8. The Company is not obligated to accept the highest proposal or any proposal whatsoever, and it reserves the right to handle negotiations, at any stage whatsoever, with the proposers and/or with others except them, or to carry out a competition between the proposers and/or to -3- extend the Period for Receipt of Proposals, and all in accordance with the exclusive discretion of the Company. 9. No brokerage commission shall be paid. Sincerely Yours, Marnetics Broadband Technologies Ltd. -4- EX-10.8 7 a2054264zex-10_8.txt EXHIBIT 10.8 EXHIBIT 10.8 AGREEMENT DRAWN UP AND SIGNED IN TEL AVIV, ON JUNE 10TH 2001 BETWEEN MARNETICS BROADBAND TECHNOLOGIES LTD. Public Company No. 52-004389-4 12 Hayetzira St. Raanana Industrial Zone (HEREINAFTER: "THE COMPANY") OF THE FIRST PART; AND IDAN MILLENIUM INVESTMENTS AND ASSETS (HEREINAFTER: "THE PURCHASER") OF THE SECOND PART; WHEREAS the Company, inter alia, engages in the installation and maintenance of electricity and communication infrastructure systems (hereinafter: "The Operations"); AND WHEREAS the Company is interested to sell the sold assets to the Purchaser, according to their definition hereunder, including the fixed assets, the rights and obligations, emerging from its commitments, the know-how in its possession, pertaining to the Operations, goodwill, clients and the connections of the Company, which are serving it in the carrying out of the Operations, and all as specified in this Agreement; AND WHEREAS the Purchaser was one of the proposers, who responded to the Request for Proposals of the Company, and on the basis of the proposal of the Purchaser, the Company is interested to sell the sold assets to the Purchaser, and the Purchaser agrees to purchase the sold assets, all subject to the conditions, specified in this Agreement hereunder; AND WHEREAS the Company and the Purchaser are interested to arrange their relations in connection with the sale of the sold assets and the payment of the consideration; THEREFORE, IT HAS BEEN DECLARED, AGREED AND STIPULATED BETWEEN THE PARTIES, AS FOLLOWS: 1. PREAMBLE, HEADINGS AND APPENDICES 1.1. The preamble to this Agreement and its Appendices constitute an integral part thereof. 1.2. The headings of the Sections are intended for purposes of reference in this Agreement and should not be used for its interpretation. 2. DEFINITIONS In this Agreement, the terms specified hereunder shall bear the following meaning: "THE DETERMINING DATE" - MARCH 31ST 2001 "THE SOLD ASSETS" - The full Operations of the Company with respect to the carrying out of electricity jobs, including fixed assets, stock, commitments, obligations, the contractor's license, goodwill, legal claims and the holdings of the -2- Company in Newline, and all as of the Determining Date, according to its definition hereunder, with the exception of assets, which are not purchased, and liabilities, which are not purchased, as per their definition in this Agreement; "FIXED ASSETS" - The equipment, facilities, vehicles and other movable, owned by the Company, as of the Determining Date, as specified in APPENDIX A to this Agreement; "THE STOCK" - Components, spare parts, auxiliary materials, accessories and the like, serving for the Operations, as of the Determining Date, as specified in Appendix B to this Agreement; "THE COMMITMENTS" - All the rights and obligations of the Company, within the framework of Agreements by which the Company is committed, and which are serving for the management and execution of the Operations, whether made in writing or verbally, as of the Determining Date, including guarantees and securities, given by the Company and/or by anyone on its behalf within the framework of the Agreements, as stated, and/or pursuant to the assurance of their execution and the quality of the execution, including Employment Agreements, loans to employees, Leasing Agreements, Rent Agreement, and any Agreement of any kind and type by which the Company is committed in connection with the Operations, as of the Determining Date, and also any future commitments pertaining to Operations in respect of which the Company filed proposals within the framework of tenders and/or in respect of -3- which the Company is currently handling negotiations, including obligations for the carrying out of jobs, with the exception of the assets, which are not purchased; "THE ASSETS WHICH ARE NOT PURCHASED" - The rights and obligations of the Company in accordance with the Marnetics Agreement; the balance of clients, debtors and receivable income, emerging from commitments during the period up until the Determining Date; rights and obligations in accordance with insurance policies; the bookkeeping and payroll computer, including software and the entire bookkeeping data of the Company, and any documents and records pertaining to its Operations and also loans, which were placed by the Company in favor of interested parties of the Company; "OBLIGATIONS" - The full obligations of the Company, as of the Determining Date, including toward leasing companies and toward other creditors, including employees of the Company for leave, recuperation, and reserve for compensation, income tax, other authorities, Marnetics Ltd., with the exception of the obligations, which are not purchased; "THE OBLIGATIONS, WHICH ARE NOT PURCHASED" - The balance of the current obligations, as of the Determining Date, toward banks and suppliers, including: open debts to suppliers, payable cheques and payment of work wages to employees up until March 2001, up to an -4- inclusive amount of NIS 7,455 thousand, as specified in APPENDIX C to this Agreement; "THE CONTRACTOR LICENSE" - The contractor license, registered in favor of the Company, to the extent that it would be possible to transfer it; "THE GOODWILL" - The goodwill of the Company, the accumulated know-how in its possession, its connections with its clients and suppliers, and also any other right of any kind and type whatsoever in connection with the Operations; "THE HOLDINGS OF THE COMPANY IN NEWLINE" - The holdings of the Company in the Subsidiary, Stav - Newline Ltd.; "LEGAL CLAIMS" - Any claim, filed against the Company and/or on its part, prior to the Determining Date and/or a claim which is filed against the Company after the determining date, whose ground emerged at a date prior to the determining Date; "THE MARNETICS AGREEMENT" - An Agreement, signed on May 31st 2000, between the Company and Marnetics Ltd. (a private company) pursuant to the purchasing of the entire share capital of Marnetics Ltd. against the allotment of 75% of the shares of the Company, including all the amendments and Appendices thereto; -5- "THE CONSIDERATION" - The inclusive amount, which would be paid to the Company by the Purchaser, against the sale of the sold assets, as specified in Section 6 hereunder; "EMPLOYEES" - All the employees, who as of the Determining Date, were employed by the Company within the framework of the Operations, by way of an employer - employee relationship between them and the Company, as specified in the list, APPENDIX D to this Agreement, including the wages and accompanying benefits to which the employees are entitled, as of the Determining Date, and also the amount of severance pay, which the Company actually deposited solely with compensation funds and/or executive insurance policies for the employees, as stated; "LOANS TO EMPLOYEES" - Loans placed by the Company in favor of its employees, amounting as of the Determining Date to a total of NIS 32,769; "THE FINANCIAL STATEMENTS" - The audited financial statements of the Company, as of December 31st 2000, which would be published by July 15th 2001, and the certified Financial Statements of the Company, as of March 31st 2001, which would be enclosed with this Agreement, as an appendix, immediately upon the completion of their preparation, and also a trial balance sheet with respect to the Operations, as of the Determining Date, as stated in Section 5.3 of this Agreement; -6- 3. THE DECLARATIONS OF THE COMPANY The Company hereby declares, as follows: 3.1. The Board of Directors of the Company approved the commitment of the Company in this Agreement and the fulfillment of its obligations, as specified therein; the approval of the Board of Directors is in line with the provisions of the documents of incorporation of the Company and the provisions of any Law, and according to the best knowledge of the Company, there is no need for any additional resolution, approval or document, pursuant to the fulfillment of the obligations of the Company, as specified in this Agreement, and there is no impediment and/or restriction, whether by Law or an Agreement, to the signing of this Agreement by the Company and the fulfillment of all its obligations in accordance with it, with the exception of that stated in Sections 3.3 and 7 hereunder. 3.2. The Company is the sole proprietor and holder of all the sold assets, and no one other then the Company has any right of possession or use of said assets, with the exception of a general floating lien, imposed on the Operations of the Company in favor of Bank Hapoalim Ltd., which would be removed up until the conclusion of the transaction. 4. THE DECLARATIONS OF THE PURCHASER The Purchaser hereby declares, as follows: -7- 4.1. It has viewed the sold assets, including their physical and legal condition and also all the legal, accounting and other data, pertaining to the sold assets, including with respect to the commitments, allowances to employees, obligations and legal claims, and found them all to be suitable for its purposes, and it hereby explicitly waives any contention of defect and/or flaw and/or discrepancy in connection with the sold assets, and it shall not have any contention and/or claim against the Company with respect to their condition and/or nature and/or kind. 4.2. Furthermore, the Purchaser approves that this commitment is made after having examined, personally and independently, including by means of professionals on its behalf, all the relevant data, including the monetary and physical data, and the utilization possibilities of the sold assets, and after having conducted all the legal and other examinations in connection with the sold assets, including the fixed assets, the commitments, allowances to employees, obligations and legal claims, the goodwill and rights of the Company therein, and found them all to be suitable for its objectives, and it shall not have any contention and/or claim toward the Company, including with respect to any datum, which would not accord with its examination following the purchasing of the sold assets. 4.3. The Purchaser declares, that it is aware and it agrees, notwithstanding anything stated in this Agreement, that the -8- Company sells and transfers to it and that it purchases and receives the sold assets from the Company, as is upon the Determining Date, and that the Purchaser shall not have any contentions and/or claims and/or demands of any kind toward the Company in connection with the sold assets, as they are upon the Determining Date. 4.4. Without prejudice to the generality of that stated above, the Purchaser declares that it is aware and it agrees and approves, that it shall not have any contention or claim against the Company with respect to the condition and/or quality and/or possibilities of use and the potential of the sold assets. 4.5. In order to remove any doubt, the Purchaser is aware, notwithstanding anything stated in this Agreement, that the Purchaser is committed upon the date of signature of this Agreement in an Agreement for the purchasing of the sold assets, according to their condition upon the Determining Date, and it is aware that from the date of examination of the sold assets by it and the signature of the Agreement until the Determining Date, changes took place in the normal course of business, inter alia, in the operations of the Company, its commitments, rights and obligations, and it waives any contention and/or claim against the Company in connection with any change, that has occurred, as stated. -9- 4.6. The Purchaser declares that it is aware and it agrees that the sold assets were not qualitatively examined by the Company and that the Company is not liable for their characteristics, quality and utilization possibilities, entirely or partially. 5. THE TRANSACTION 5.1. Subject to the provisions of this Agreement, the Company is obligated to sell to the Purchaser and the Purchaser, upon the date of completion of the transaction, effective from April 1st 2001, is obligated to purchase and receive the transfer of the sold assets, including each and every element thereof, including the obligations, and all of these according to their condition, as is upon the Determining Date. 5.2. The Company is obligated to deliver the possession of the sold assets to the Purchaser, upon the date of completion of the transaction, occurring on June 10th 2001 or an earlier date in the agreement of the parties (hereinafter: "The Completion Date of the Transaction"), according to their condition, as is upon the Determining Date, and all subject to the depositing of the full consideration by the Purchaser, as stated in Section 6 hereunder. 5.3. Upon the Completion Date of the Transaction, the Company shall furnish the Purchaser with a trial balance with respect to the Operations, as of the Determining Date. Upon the completion of the preparation of the Financial Statements of the Company, as of March 31st 2001, an adjustment shall be carried out between the -10- parties with respect to the amount paid by the Purchaser for elements of the sold assets, and in any event whereby any of the parties should receive moneys from the other party in consequence of the adjustment, same party shall receive payment of same amounts which are due to it. 6. THE CONSIDERATION AND PAYMENT DATE 6.1. In consideration of the sold assets and the fulfillment of all the obligations of the Company in accordance with this Agreement, the Purchaser is obligated to pay to the Company and undertake a liability in a total amount of NIS 6,088 thousand, together with the lawful addition of VAT, upon the date and according to the terms specified hereunder (hereinafter: "The Total Consideration"). Out of the Total Consideration, the Purchaser shall pay to the Company an amount of NIS 2,500 thousand, to be paid as specified in Section 6.2 hereunder (hereinafter: "The Paid Consideration"), and as the Purchaser liabilities, which are estimated based on the trial balance sheet, as of March 31st 2001, as stated in Section 5.3 above, in the amount of approx. NIS 3,588 thousand (hereinafter: "The Consideration as per the Commitment"). The Consideration as per the Commitment shall be paid by the Purchaser upon the payment date of each of the elements of the Consideration as per the Commitment, as specified in Appendix E to this Agreement, in accordance with any Law and/or the Agreement. -11- It is hereby agreed between the parties that the Total Consideration was offered by the Purchaser within the framework of the Request for Proposals, as the amount of NIS 1,781 thousand out of which is offered by the Purchaser for the fixed assets (including equipment, vehicles and movable), while the balance of the Total Consideration is offered by the Purchaser with respect to the stock, accumulation of orders and jobs in performance. 6.2. The Paid Consideration shall be paid to the Company by the Purchaser, as from February 1st 2002, payable in 25 consecutive and successive monthly installments, in such a manner that each payment shall be in the amount of NIS 100,000 (hereinafter: "The Monthly Payment"). The Monthly Payment shall be linked to the Consumer Price Index, in such a manner whereby the payment shall change according to the recent Consumer Price Index, known upon the making of the payment, in relation to the Consumer Price index, known upon the date of signature of this Agreement. 7. COMMITMENTS 7.1. Within the framework of the sale of the sold assets and their transference to the Purchaser, the Company shall assign to the Purchaser and the Purchaser shall undertake the rights and liabilities of the Company in accordance with the commitments and the obligations, effective from the Determining Date, including obligations for the carrying out of jobs, proposals in tenders and commitments in respect of which negotiations were handled. -12- 7.2. The Purchaser shall be solely and exclusively liable for obtaining all the consents, as such would be required, if and to the extent that they are required, pursuant to the transferring, assignment and endorsement of the commitments and obligations in favor of the Purchaser. In the event that according to any of the commitments and/or obligations, it is not possible to transfer and/or assign and/or endorse them without the consent of a third party, then the Purchaser is obligated to act pursuant to the receipt of the required consent of such a third party, as stated, up until the Completion Date of the Transaction. 7.3. I any event, whereby the consent of any third party, required in accordance with that stated in the provisions of this Agreement, is not obtained up until the Completion Date of the Transaction, the Company may decide on the completion of the transaction and it shall act, up to the receipt of the consent of the third party, as follows: 7.3.1. It shall maintain the commitments, as stated, in trust on behalf of the Purchaser and shall give to the Purchaser all the powers of attorney, which are required and which might be reasonable required by the Purchaser, in order to act according to the commitments, as stated. The Company shall pass to the Purchaser, immediately upon their receipt, any notice or other document, which are pertaining or connected to the commitments, as stated, -13- and the Purchaser shall act in the stead of the Company in accordance with the commitments, as stated, at its expense and in its liability; and, 7.3.2. To the extent permitted by Law, the Company shall transfer to the Purchaser all the rights and liabilities, emerging from the commitments, as stated, as if the Purchaser was a party to the commitments, as stated, and it shall act under the reasonable guidance of the Purchaser. The Purchaser shall not have any contention and/or claim against the Company and it shall indemnify the Company with respect to its activity within the framework of the fulfillment of the Agreements, as stated, to the extent that it has acted upon them in accordance with the instructions of the Purchaser. 7.3.3. If and until receipt of the consent of the third party, the Company shall assist the Purchaser in accordance with the requirement of the Purchaser and at its expenses, in order to allow the Purchaser to enforce the rights of the Company in accordance with the commitments. 7.3.4. In the event, by which the conditions of any commitment prevents the transferring of liabilities to the Purchaser, due to any cause whatsoever, the Company, according to its exclusive discretion, and subject to any Law, shall determine arrangements allowing maximum -14- implementation of a transfer to the Purchaser, as stated, in accordance with the conditions of the commitments. 7.4. In order to remove any doubt, it is hereby agreed between the parties that bearing in mind that the commitment is valid as from the Determining Date, the Purchaser shall bear all the expense, actually borne by the Company, and shall be entitled to all the revenues of the Company, applying from the Determining Date until the completion date of the transaction, subject of this Agreement. Without prejudice to the generality of that stated above, it is hereby agreed as follows: 7.4.1. Within 30 days from the date of signature of the Agreement, the Purchaser shall receive the bookkeeping records of the Company with respect to the expenses of the Company for the months April and May 2001. 7.4.2. The expenses for April 2001, which were borne by the Company, shall be paid by the Purchaser up until August 31st 2001. 7.4.3. The expenses for May 2001, which were borne by the Company, shall be paid by the Purchaser up until September 31st 2001. 7.5. It is hereby clarified, that the date of completion of the transaction, as stated in Section 5.2 above, shall take place prior to the approval of the general meeting of shareholders of the Company with respect to the commitment, subject of this Agreement. The Purchaser is -15- obligated to receive the sold assets upon the date of completion of the transaction and to act with them in trust in accordance with the Trust Law, 1979. In the event that the approval of the commitment by the general meeting of shareholders of the Company is received, the sold assets shall transfer to the title and full proprietorship of the Purchaser. In the event that the approval of the general meeting of shareholders of the Company was declined, the Purchaser shall return the sold assets to the Company and the parties shall determine between them the necessary arrangements, pursuant to the return of the sold assets, as stated. 8. TRANSFERRING THE EMPLOYEES OF THE COMPANY TO THE PURCHASER 8.1. The Company is obligated to transfer and the Purchaser is obligated to absorb all the employees of the Company, as of the Determining Date, effective from April 1st 2001, as these employees shall become the employees of the Purchaser, effective from April 1st 2001, while preserving the continuity of their rights, taking into account the seniority accumulated by them from the commencement of their work with the Company. 8.2. The Purchaser shall bear the exclusive liability for the making of all the payments to the employees, whether those continuing their employment or those, who decide to terminate their employment with the Purchaser, if any, and the Purchaser shall pay to them all the amounts, which are due to them in accordance with the Law and the conditions of their employment, and also in connection with -16- their resignation from work, as from the commencement of their period of employment with the Company. In order to remove any doubt, the Company shall bear no liability with respect to same employees, and it shall not bear any payment whatsoever toward the employees, as stated, with the exception of the transferring of the amounts which were actually deposited in favor of the employees, as stated, with the severance pay funds. The Purchaser explicitly declares, without prejudice to the generality of that stated above, that it is aware that the amounts, which were actually deposited by the Company with the severance pay funds, in favor of the employees, as stated, do not cover the full liability, which the Company might have toward the employees, as stated, and that the Purchaser shall in any event supplement the due amount, in any event of payment of severance pay to the employees in accordance with the provisions of the Law. 8.3. The Company, upon the date of this Agreement, shall pass to each of the employees, a letter according to the draft, attached to this Agreement, as APPENDIX F. 9. LIABILITY AND INDEMNIFICATION 9.1. The Purchaser shall be liable for all the sold assets, including toward any party with whom the Company is committed according to any commitment whatsoever within the scope of the Operations, even prior to the Determining Date, including for jobs, which the Company commenced with their execution prior to the Determining -17- Date, including jobs which the Company was awarded within the framework of tenders and which it did not commence with their execution, prior to the Determining Date. Without prejudice to the generality of that stated above, the Purchaser is obligated to indemnify the Company for any claim and/or requirement and/or contention, filed against the Company in connection with the sold assets, including a claim, as stated, whose ground originated prior to the Determining Date. An indemnification, as stated, may include any expense and/or lacking, which would be borne by the Company, including legal fees and expenses. 9.2. The Company is obligated to notify to the Purchaser in writing and without any delay of any requirement and/or claim for the payment of any amount whatsoever, which is covered within the framework of the indemnification liability, given by the Purchaser, as stated above, and to allow to the Purchaser to defend, at its expense, against any requirement and/or claim, as stated. 9.3. The Company is obligated not to bear any payment whatsoever on the account or for the covering of a requirement and/or claim, as stated, and also not to settle with parties, that are presenting requirements and/or claims, as stated, without receiving the early written consent of the Purchaser. The Purchaser, on its part, shall as soon as possible take all the necessary actions, in order to defend against requirements and/or claim, as stated. -18- In the event that interim orders and/or attachments are issued against the Company or if plaintiffs, as stated, are given interim relieves, the Purchaser shall act, at its expense, as early as possible and while taking all the reasonable steps, required in order to cancel and/or remove such relieves, as stated. In addition, the parties hereby agree that the Purchaser shall bear the exclusive liability for any claim and/or contention and/or requirement, which would be filed against the Company, prior to the Determining Date, and it shall indemnify the Company for any damage and/or loss and/or lacking, caused to it in consequence of a claim and/or contention and/or requirement, as stated, including expenses and legal fees. 10. BREACH AND REMEDIES 10.1. In any of the events, specified hereunder, the Purchaser hereby agrees, that the Company shall be entitled, in accordance with its exclusive and absolute discretion, to require from the Purchaser to pay the full amount of the Consideration and/or to notify of the cancellation of this Agreement: 10.1.1. The Purchaser breached an obligation, the breach of which is viewed as a fundamental breach of this Agreement, particularly as the Purchaser fails to pay to the Company any amount whatsoever upon the Determining Date, so long as the Purchaser received a notice with respect to the breach and the breach is not -19- cured within seven business days from the date of the notice, which was passed to the Purchaser with respect to the breach. 10.1.2. Procedures of bankruptcy and/or liquidation and/or receivership and/or execution and/or attachment were applied against the Purchaser, prior to the payment to the Company of the full Consideration in accordance with this Agreement, and these procedures are not revoked within 15 days from the time that the Purchaser or the Company became aware of them, whichever is the earlier. 10.2. In order to remove any doubt, that stated above shall not restrict the right of the Company to act pursuant to the cancellation of this Agreement. 10.3. It is agreed between the parties, that Section 4, 5.3, 6, 7, 8 and 9 of this Agreement are fundamental Sections of this Agreement. A failure to meet these conditions or any of them over a period exceeding three days from the date by which the Purchaser was supposed to fulfill them, or any of them, shall entitle the Company to an agreed in advance fixed compensation of NIS 500,000, together with differences of linkage to the index, that being in addition to any other relief to which the Company is entitled in accordance with any Law. It is hereby clarified, that in such an event, the Company shall be entitled, but not obligated, to realize the original bank guarantee on the account of the agreed upon -20- compensation or any other compensation, which would be due to the Company from the Purchaser. 10.4. It is hereby clarified that nothing in this Agreement shall be interpreted, as if it may prejudice the rights of the Company in accordance with the Contracts Law (Remedies for Breach of Contract), 1971, its other rights in accordance with any Law, including showing a higher damage, if any, in consequence of the breach of the Agreement on the part of the Purchaser. 11. TAXES, PAYMENTS AND TRANSITORY PROVISIONS 11.1. The tax liability, which might apply to the Company in connection with the sale of the assets, sold to the Purchaser only, in accordance with the previsions of this Agreement, if and to the extent that it would apply, shall be borne solely by the Company. 11.2. All the payments and taxes, applying to the sold assets, if any, with the exception of the tax liability, as stated in Section 11.1 above, prior to the Determining Date, shall apply to the Purchaser and be borne by it, including expenses and payments of any kind whatsoever, whether governmental or municipal, which apply and/or would apply by Law to the transferring of the possession and the full rights of the Company in the assets, which are sold to the Purchaser. 11.3. The Purchaser is obligated to carry out all the required actions, including actions opposite various authorities, the signing of documents and the placing of any required deposit, if any, pursuant -21- to the transferring and endorsement of all the commitments of the Company in favor of the Purchaser. The expenses incurred in the making of these actions shall apply solely to the Purchaser. 11.4. The Purchaser shall be liable for the receipt of a permit, a license, including a business license, a contractor license or any other license, required or which would be required by any authority whatsoever and/or by Law, pursuant to the management of an enterprise. The expenses of the licensing and permits shall apply solely to the Purchaser. 11.5. In the event that the Company paid any amount, the liability for its payment, entirely or partially, applies to the Purchaser, the Purchaser shall refund the amount, which was paid, within five days from the receipt of a written requirement in this respect, as the amount bears interest, according to the maximum rate, accustomed with respect to current debitory accounts with Bank Hapoalim Ltd. 12. WAIVER AND CHANGE OF STIPULATIONS IN THE AGREEMENT 12.1. Any change or amendment of the Agreement, including a supplement to the Agreement or to any of its conditions shall be made in writing and signed by both parties. 12.2. This Agreement expresses all the conditions, agreed upon between the parties and/or it nullifies all Agreements, either verbally or in writing, made by the parties prior to the signing of this Agreement, which are not explicitly stated therein. -22- 12.3. No conduct on the part of the Company shall be viewed as a waiver of any of its rights in accordance with the Agreement and/or by any Law or as a consented waiver on its part with respect to any breach or failure to fulfill any condition whatsoever, unless such a waiver, consent, deferral, change, cancellation or supplement were made explicitly and in writing. 13. THE EXECUTION OF THE AGREEMENT Immediately following the signing of this Agreement, the parties are obligated to cooperate and to sign any document, deed, application, power of attorney, and any other document, required pursuant to the execution of the provisions of this Agreement, in due time, and to appear before any authority and/or person, as would be required for the execution of this Agreement. Without prejudice to the generality of the obligation stated above, the parties declare that they shall fulfill the reporting duties to all the authorities, to the extent required in consequence of the signing of this Agreement and its execution. 14. JURISDICTION Claims pertaining to this Agreement and/or emerging therefrom shall be filed with the Court having the material jurisdiction, located in Tel Aviv, and the Court, as stated, shall have the local and exclusive jurisdiction to hear claims, as stated. 15. STAMPING The Purchaser shall bear the stamping expenses of this Agreement. -23- 16. ADDRESSES OF THE PARTIES AND NOTICES The addresses of the parties are as indicated in the preamble to this Agreement. Any notice passed by registered mail from one party to the other, according to the aforementioned addresses, shall be viewed as if reached its destination within three business days from the date of its posting at a post office in Israel. A notice transmitted via facsimile shall be viewed as a notice received upon the first business day following its transmission. IN WITNESS THEREOF, THE PARTIES HAVE SIGNED: /s/ DAVID SHEETRIT /S/ DOV STRIKOVSKY - -------------------------------------- --------------------------------- David Sheetrit - Acting CEO Dov Strikovsky - Director Marnetics Broadband Technologies Ltd. Idan Millenium Investments and Assets Company Ltd. /S/ ISAAC NISSIM - -------------------------------------- Isaac Nissim Marnetics Broadband Technologies Ltd. -24- APPENDIX C THE OBLIGATIONS, WHICH ARE NOT PURCHASED
--------------------------------------------------------------------------------- DEBTS TO SUPPLIERS 3,327 --------------------------------------------------------------------------------- PAYABLE CHEQUES 3,618 --------------------------------------------------------------------------------- EMPLOYEES AND ENTITLED FOR FEE 510 ------ --------------------------------------------------------------------------------- TOTAL 7,455 ---------------------------------------------------------------------------------
APPENDIX D EMPLOYEE INDEX
- --------------------------------------------------------------------------------------------------------------- IDENTITY EMPLOYEE NO. DEPARTMENT SURNAME FIRST NAME CERTIFICATE NO. - --------------------------------------------------------------------------------------------------------------- 1. 1 Strikovsky Dov 51276897 - --------------------------------------------------------------------------------------------------------------- 2. 1 Ganah Eli 053296893 - --------------------------------------------------------------------------------------------------------------- 3. 1 Barel Yaakov 77412534 - --------------------------------------------------------------------------------------------------------------- 4. 1 Levi Menachem 057196503 - --------------------------------------------------------------------------------------------------------------- 5. 1 Hag Yichieh Haled 5817311 - --------------------------------------------------------------------------------------------------------------- 6. 1 Mory Shlomo 54902119 - --------------------------------------------------------------------------------------------------------------- 7. 1 Biton Nisim 22985592 - --------------------------------------------------------------------------------------------------------------- 8. 1 Hag Yichieh Said 58174855 - --------------------------------------------------------------------------------------------------------------- 9. 1 Cohen Daniel 12042958 - --------------------------------------------------------------------------------------------------------------- 10. 2 Navon Sima 000301630 - --------------------------------------------------------------------------------------------------------------- 11. 2 Hag Yichieh Omar 57551863 - --------------------------------------------------------------------------------------------------------------- 12. 1 Dadon David 056714520 - --------------------------------------------------------------------------------------------------------------- 13. 1 Biton Yigal 025272600 - --------------------------------------------------------------------------------------------------------------- 14. 1 Amar Eliyahu 058869421 - --------------------------------------------------------------------------------------------------------------- 15. 1 Goutin Igor 309231652 - --------------------------------------------------------------------------------------------------------------- 16. 1 Nachmias Gilbert 065382640 - --------------------------------------------------------------------------------------------------------------- 17. 1 Gurevich Viadi Saleb 311722672 - --------------------------------------------------------------------------------------------------------------- 18. 1 Hag Yichieh Jaafar 58933631 - --------------------------------------------------------------------------------------------------------------- 19. 1 Ben - Shalom Michael 054956875 - --------------------------------------------------------------------------------------------------------------- 20. 1 Levi Ezra 50820067 - --------------------------------------------------------------------------------------------------------------- 21. 1 Atira Yechiel 42412403 - --------------------------------------------------------------------------------------------------------------- 22. 1 Yahav Adiv 029424504 - --------------------------------------------------------------------------------------------------------------- 23. 1 Fedida Abraham 057997934 - --------------------------------------------------------------------------------------------------------------- 24. 1 Strikovsky Asaf 37536950 - --------------------------------------------------------------------------------------------------------------- 25. 1 Hag Yichieh Husam Taleb 026307314 - --------------------------------------------------------------------------------------------------------------- 26. 1 Fogel Yaakov 032019390 - --------------------------------------------------------------------------------------------------------------- 27. 1 Hag Yichieh Viam 026306878 - --------------------------------------------------------------------------------------------------------------- 28. 1 Lantzer Vladimir 319337937 - ---------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------- IDENTITY EMPLOYEE NO. DEPARTMENT SURNAME FIRST NAME CERTIFICATE NO. - --------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------- 29. 1 Amir Albert 67824623 - --------------------------------------------------------------------------------------------------------------- 30. 1 Mashali Reuven 069671006 - --------------------------------------------------------------------------------------------------------------- 31. 1 Mogilevsky Vladimir 306006297 - --------------------------------------------------------------------------------------------------------------- 32. 1 Hag Yichieh Raami 025898297 - --------------------------------------------------------------------------------------------------------------- 33. 1 Baashef Ibrahim 042350124 - --------------------------------------------------------------------------------------------------------------- 34. 1 Greber Abraham 030015168 - --------------------------------------------------------------------------------------------------------------- 35. 2 Shealtiel Ayala 023094410 - --------------------------------------------------------------------------------------------------------------- 36. 1 Hag Yichieh Yossef 023434855 - --------------------------------------------------------------------------------------------------------------- 37. 1 Niv Amalia 055986616 - --------------------------------------------------------------------------------------------------------------- 38. 1 Nashef Hamed 066095373 - --------------------------------------------------------------------------------------------------------------- 39. 1 Shabtay Avi 031822067 - --------------------------------------------------------------------------------------------------------------- 40. 1 Hag Yichieh Ahmad 029807799 - --------------------------------------------------------------------------------------------------------------- 41. 1 Azem Shadi 0299408014 - --------------------------------------------------------------------------------------------------------------- 42. 1 Gabar Garir 023214141 - --------------------------------------------------------------------------------------------------------------- 1 Mesarawa Muhamad 039287230 - ---------------------------------------------------------------------------------------------------------------
-2- APPENDIX F LETTER TO THE EMPLOYEE To: _______________________________ Date: __________ Here Dear Sir / Madam, Re: YOUR TRANSFERRING TO IDAN MILLENIUM INVESTMENTS AND ASSETS COMPANY LTD. 1. We hereby notify you that within the framework of the sale of the electrical operations from Marnetics Broadband Technologies Ltd. (hereinafter: "Marnetics") to Idan Millenium Investments and Assets Company Ltd. (hereinafter: "Idan"), you are hereby transferred to work with Idan, as from ________. 2. Upon your transfer, in order to serve as an employee with Idan, the labor relationship between you and Marnetics shall actually be terminated, and your new employer shall be Idan. 3. We would to clarify that the continuous of your rights, similarly to all your work conditions, as they were shortly before the transfer, shall be fully maintained. 4. In order to remove any doubt, Idan shall be liable toward you with respect to all the liabilities, emerging from your terms of employment, as from the commencement date of your work with Marnetics. 5. We wish you success in your future. ------------------------------------ ------------------------------ Marnetics Broadband Technologies Ltd. Idan Millenium Investments and Assets Company Ltd. -2- EX-10.9 8 a2054264zex-10_9.txt EXHIBIT 10.9 EXHIBIT 10.9 BANK HAPOALIM Financing Services and Customer Administration Division Date: May 9th 2001 Our Ref. 997/2388/01 MARNETICS BROADBAND TECHNOLOGIES LTD. (FORMERLY STAV ELECTRICAL SYSTEMS (1994) LTD.) Dear Sirs, Re: AN AGREEMENT FOR THE ASSIGNMENT OF THE DEBT TO SHLAVOR SYSTEMS LTD. (FORMERLY STAV [LIGHTING] PRODUCTION OF ELECTRICAL SYSTEMS LTD.) (HEREINAFTER: "SHLAVOR") WHEREAS your debt to Bank Hapoalim Ltd. (hereinafter: "The Bank"), as of April 4th 2001, is in the amount of NIS 14.208 million (including interest up until March 31st 2001) (not including bank guarantees, which were issued by the Bank, at your request) (hereinafter: "The Debt to the Bank"); AND WHEREAS you have conveyed to us that a part of the Debt to the Bank emerges from the debt of the Hod Hasharon Municipality (hereinafter: "The Municipality") toward you at the rate of NIS 9.1 million, as per the approval of the Municipality, attached hereto (hereinafter: "The Debt of the Municipality"); AND WHEREAS pursuant to the assurance of your debts and liabilities toward the Bank, you have issued in favor of the Bank pledges on your assets, including a floating charge on all your assets and property of any kind and type whatsoever (hereinafter: "The Pledges"); AND WHEREAS you requested the agreement of the Bank for the assignment of the Debt of the Municipality in favor of the Bank and for the cancellation of the Pledges; THEREFORE, ACCORDING TO YOUR REQUEST, WE HEREBY NOTIFY YOU, AS FOLLOWS: The Bank irrevocably agrees to the assignment of a debt in the amount of NIS 13.1 million out of the Debt to the Bank (hereinafter: "The Assigned Debt") and the cancellation of the Pledges, upon the fulfillment of the following accumulative conditions: 1. An amount of NIS 4 million of the Assigned Debt shall be paid by you in cash up until May 31st 2001, but not later than the date of assignment of the Assigned Debt (hereinafter: "The Determining Date"). 2. Upon the Determining Date, you shall issue in favor of the Bank a fixed charge and an assignment by way of a mortgage on all your rights with regard to the Debt of the Municipality, that being pursuant to the assurance of all your debts and liabilities and the debts and liabilities of Shlavor to the Bank (both the current debt in the account of Shlavor and the debt to the Bank). Furthermore, you shall obtain the consent of the Municipality to the assignment of the right and its obligation to act according to it. The assignment of the right, as stated, is and shall not deny you and/or anyone on your behalf (in coordination with the Bank and -2- at your expense) the right to file a claim against the Municipality, pursuant to the refund of the Debt of the Municipality and also for any damage and/or loss and/or expenditure, which would be incurred by you in consequence of the non payment of the Debt of the Municipality. 3. The Assigned Debt, which would be assigned in favor of Shlavor upon the Determining Date, shall not include the bank guarantees, which were issued by the Bank at your request. You shall remain liable for the payment of any debt to the Bank, which would evolve in connection with the aforementioned guarantees (whose total amount, as of the date of this letter, is approx. NIS 550 thousand), immediately upon receipt of the requirement of the Bank. 4. Following the assignment of the Assigned Debt (to Shlavor), you shall pay the balance of the credit, above the amount of assignment of the debt, and the guarantee remaining in your account, with the exception of the credit framework, which would be made available in your account, in the amount of NIS 200,000 (according to a P + 1% interest), that being up until December 31st 2001. In the event that your account would show a deviation from the aforementioned credit framework, you shall be liable for its payment immediately upon receipt of the requirement of the Bank. Immediately upon the completion of the period of the aforementioned credit framework, you shall pay your full debt to the Bank. 5. You shall sign a guarantee to the debts of Shlavor to the Bank, which would be restricted to an amount of up to NIS 3 million, as this amount is -3- linked to the index, as from the date of signature of this document. The guarantee shall decrease following payment of the Debt of the Municipality, which is assigned to the Bank, according to a ratio of 2:1 (I.E., the Debt of the Municipality, which is assigned to the Bank, shall decrease by one million Shekel, the guarantee shall decrease by one half of a million Shekel, and in any event by which an amount of NIS 6 million is paid - the guarantee shall be cancelled). We hereby agree that we shall not be entitled to raise any requirement and/or claim toward you in connection with the guarantee for a period of 12 months from the Determining Date, and in any event whereby you took legal actions against the Municipality, pursuant to the collection of the Debt - for an additional period of six months, following the aforementioned period, and in total not more than 18 months from the Determining Date. The guarantee shall be cancelled in any event, whereby the rate of your share on the United States Stock Exchange reaches a price of not less than $50 per share, over a period of 14 consecutive days of trade. 6. You shall sign a deed of obligation in accordance with which you are obligated, as from the Determining Date until the cancellation of the guarantee, as per Section 5 above, not to issue a floating charge on all the assets of the Company, but only if a floating charge of the same priority is concurrently registered in our favor. 7. You shall not make nor consent to the making of any obligation of Shlavor toward you, other than that explicitly stated in this letter. -4- 8. Shlavor shall approve at the bottom of this letter its consent to the assignment of the Assigned Debt and also its consent that all the securities, which were issued by it in favor of the Bank, pursuant to the assurance of its debts and liabilities to the Bank, shall also serve in order to secure the Assigned Debt, after its assignment to Shlavor, and it shall sign all the documents required by the Bank for this purpose. 9. We hereby undertake that upon the assignment of the Assigned Debt and the transferring of the amount, stated in Section 1 above, in favor of the Bank; upon the assignment of the debt of the Municipality in favor of the Bank, as stated in Section 2 above, and the signing of the guarantee, as stated in Section 5 above - the Pledges, including the floating charge registered in our favor, shall be cancelled, and the Bank shall not have any contention and/or claim toward you in connection with the Assigned Debt. This agreement on our part is irrevocable and it shall remain valid up until June 30th 2001, as after this date it shall be null and void. Until the fulfillment of all the aforementioned conditions, all our rights on the strength of the pledges, mortgages and other obligations of any kind and type whatsoever, which were issued and given to the Bank, are definitely reserved and shall remain in full force without any change. This letter replaces our letter, dated April 18th 2001 Sincerely Yours, Bank Hapoalim Ltd. Chief Management A. Zamir -5- We agree to all that is stated above and we are obligated to act accordingly. /S/ MENACHEM REINSCHMIDT ------------------------------------ Menachem Reinschmidt - President Marnetics Broadband Technologies Ltd. /S/ DAVID SHEETRIT ------------------------------------ David Sheetrit - Acting CEO Marnetics Broadband Technologies Ltd. We consent to the assignment of the Debt to the Bank, according to its definition above, and we are obligated to act in accordance with that stated in Section 8 above. /S/ DOV STRIKOVSKY ------------------------------------- Dov Stikovsky Shlavor Systems Ltd. We consent to all that is stated above and we are obligated to act in accordance with that stated in Section 7 above. /S/ MR. ZAMIR ------------------------------------- Bank Hapoalim Ltd. /S/ MR. ZILLBERSTEIN ------------------------------------- Bank Hapoalim Ltd. -6- EX-10.10 9 a2054264zex-10_10.txt EXHIBIT 10.10 EXHIBIT 10.10 - -------------------------------------------------------------------------------- O E M A G R E E M E N T - -------------------------------------------------------------------------------- This OEM Agreement (hereinafter - "AGREEMENT") is entered into as of 8 JULY 2001 (hereinafter - "EFFECTIVE DATE"). BY AND BETWEEN SPEEDWISE TECHNOLOGIES LTD. an Israeli Corporation with its principal place of business at 10 Hayetzira St. Raanana, Israel (hereinafter - "INTEGRATOR") OF THE FIRST PART A N D MARNETICS LTD. an Israeli Corporation, having its principal place of business at 10 Hayetzira St. Raanana, ISRAEL (hereinafter - "Marnetics") OF THE SECOND PART R E C I T A L S Integrator is engaged in the business of design, development, distribution and sale of products used in the Internet and mobile data industries. Marnetics is engaged in the development, distribution and sale of products used in the Internet traffic management industry. Integrator wishes to purchase certain of Marnetics' products, either for integration into Integrator's own products, or for sale of a stand alone products, in accordance with the terms of this Agreement. NOW THEREFORE, IN CONSIDERATION OF THE RECITALS SET FORTH ABOVE AND FOR OTHER GOOD AND VALUABLE CONSIDERATION, THE RECEIPT AND SUFFICIENCY OF WHICH ARE HEREBY ACKNOWLEDGED, THE PARTIES HERETO HEREBY AGREE AS FOLLOWS: -2- 1. Definitions As used in this Agreement, the following terms shall have the meaning specified below: 1.1 "MARNETICS' PRODUCT(S)" - shall mean certain products developed by Marnetics described in ATTACHMENT A attached hereto, as the same may be amended from time to time in writing by mutual consent of the Parties in accordance with this Agreement. 1.2 "INTEGRATOR'S PRODUCT(S)" - shall mean certain products developed by Integrator described in ATTACHMENT B attached hereto, as the same may be amended from time to time, in writing, by mutual consent of the Parties in accordance with this Agreement. 2. SALE, PURCHASE AND RESALE OF PRODUCTS 2.1 SALE OF MARNETICS' PRODUCTS. Integrator will sell Marnetics' Products under its own brand name. Integrator may sell Marnetic's Product either integrated with Integrator's Products or as a stand alone product, either to end-users or to Integrator's distribution partners. Sales by Integrator of stand alone Products to Integrator's OEM Customers will require the prior approval of Marnetics. 2.2 Integrator will sell Marnetics' Product(s) at price determined by Integrator. The minimum price set by Marnetics is US $25 per concurrent user. Nevertheless, in the event that this price proves to be too high, Integrator may lower the price subject to Marnetics' prior agreement. 2.3 SALE OF INTEGRATOR'S PRODUCTS. Integrator agrees to sell to Marnetics, at Marnetics' request, Integrator's Product(s) for resale by Marnetics, on a worldwide basis, subject to the provisions of this Agreement. The territories and customers to which Marnetics will sell Integrator's products will be addressed and agreed on a case by case basis. The terms and conditions of sale with respect to Integrator's Product(s) shall be Integrator's standard terms of sale, unless otherwise agreed, in writing, separately between Integrator and Marnetics. 3. INTELLECTUAL PROPERTY RIGHTS 3.1 EXISTING INTELLECTUAL PROPERTY OF INTEGRATOR. Integrator specifically retains all rights, title and interest in and to the designs of Integrator's Product(s) and all intellectual -3- property rights embodied in Integrator's product(s), including, without limitation, all copyrights, trade secret rights and other proprietary rights, provided, however, that Marnetics specifically retains all rights, title and interest in and to all elements of Marnetics' Product(s) and other proprietary specifications or technology developed and/or provided to Integrator by Marnetics. Except as otherwise set forth herein, Marnetics is not receiving any rights in Integrator's Product(s) other than the right to purchase and resell Integrator's Product(s) in accordance with the terms of this Agreement. 3.2 EXISTING INTELLECTUAL PROPERTY OF MARNETICS. Marnetics specifically retains all rights, titles and interests in and to the designs of Marnetics' Product(s), and all intellectual property rights embodied in Marnetics' Product(s), including without limitation, all copyrights, trade secret rights and other proprietary rights with respect thereto. Integrator shall not use Marnetics' Product(s) or any part thereof or any intellectual property rights embodied therein, for the design, development, manufacture, marketing, use or sale of any other products or services. 3.3 NEWLY DEVELOPED INTELLECTUAL PROPERTY. Except as otherwise, specifically provided in this Agreement, and subject to Section 3.1 and Section 3.2 above. each Party shall own and retain all rights, title and interest in and to any and all products, inventions, know-how, discoveries, improvements, designs, programs, source code, circuit, designs, protocols and other intellectual property rights which are made conceived or reduced to practice independently by such Party, whether or not as part of and in connection with the transaction contemplated in this Agreement. 4. ADDITIONAL DUTIES AND OBLIGATIONS 4.1 SUPPORT MATERIALS. From time to time, Marnetics shall, without requiring any compensation, supply Integrator with samples of advertising and selling literature, drawings, engineering and other non-proprietary product data as Marnetics may have available and which would be helpful in advancing Integrator's sale of Integrator's Product(s). Integrator may use any such items and materials in preparing and distributing advertising and selling literature developed by or on behalf of Integrator for purposes of promoting the marketing and sale of Integrator's Product(s). -4- 4.2 Marnetics will be responsible for the technical content of Support Materials, however the Integrator is responsible for production of these materials. Marnetics will support up to $10,000 toward the cost of these materials, and this amount will be deducted from payments by the Integrator to Marnetics. 4.3 TRAINING AND SUPPORT. 4.3.1 TRAINING. Marnetics shall, from time to time, upon the request of Integrator, but not more often than quarterly, per a schedule that will be determined by Marnetics, and at no charge to Integrator, conduct training courses at Marnetics' facilities in Israel for a limited number of Integrator's personnel with respect to the use, installation, operation, maintenance and repair of Marnetics' Product(s). All salary, travel and lodging expenses of Integrator's personnel shall be borne by Integrator. 4.3.2 TECHNICAL SUPPORT. During the term of this Agreement, Marnetics shall, at no additional charge to Integrator, provide Integrator with technical support of Marnetics' Product(s), consisting of, limited to: (i) technical consultation and support by phone and email, as well as on-line support, when available and (ii) troubleshooting assistance. During the first year as from the date of the signature of this Agreement, the support will not be limited, but during the second year and thereafter, the support will be limited to up to eighty (80) hours per annum for as long as the agreement is valid. This Support will be made available by Integrator's employees who have undergone training on BITmax for cellular carriers. Any face-to-face meetings will take place in Israel, unless coordinated between the Parties and financed by the Integrator. Integrator may enter into a technical support agreement with Marnetics for additional technical support of Marnetics' Product(s), and all terms and conditions of such additional technical support, and all charges related thereto, shall be as set forth in such separate agreement (field service will be charged separately). 4.3.3 PRODUCT CERTIFICATION/ APPROVAL. Integrator shall be responsible for obtaining any and all certifications and/or approvals necessary in -5- connection with the marketing and sale of Integrator's Product(s) such as, for example, FCC certification, Underwriters Laboratories and equivalent foreign certifications and approvals, for product safety, emissions and the like, all at Integrator's expense. To the extent necessary, Marnetics agrees to cooperate with Integrator, at Integrator's expense, in obtaining such certifications and approvals. 4.3.4 MAINTENANCE AGREEMENT. Simultaneous to the execution of this Agreement, Integrator and Marnetics shall enter into a separate maintenance agreement pertaining to Marnetics' Product(s). Such maintenance agreement shall provide that, upon payment of the maintenance fees specified therein, Integrator shall be entitled to receive from Marnetics any and all upgrades, patches, bug fixes and other releases with respect to Marnetics' Product(s), including, but not limited to, updates to the software drivers developed by Marnetics for Marnetics' Product(s) The fees charged to customers will be divided between Integrator and Marnetics, proportionately to the sales fees, i.e.; 70/30. 5. PAYMENT TERMS 5.1 Integrator will pay Marnetics for Marnetics' Products, fees which shall be generated from the revenues of Integrator, as detailed in ATTACHMENT 5.1. Payment terms will be divided between Integrator and Marnetics at a rate of 70/30, respectively, based on the invoiced price. Payment must be transferred by the Integrator to Marnetics within 15 days of receipt of payment from the client. 6. PROTECTION OF THE TECHNOLOGY 6.1 NOTICE OF INFRINGEMENT. Integrator and Marnetics shall each promptly advise the other in writing of any claim, action, lawsuit or proceeding that is threatened, made or brought against them, or either of them, for violation of a third party's patent, trade secret or other intellectual property rights based in any instance upon Integrator's sale, use, lease or distribution of any of Marnetics' product(s). 6.2 INFRINGEMENT BY TECHNOLOGY. In the event that Marnetics' Product(s) are, or in the reasonable judgment of Marnetics are likely to become, the subject of any legal action based, in -6- whole or in part, on a claim that Marnetics' Product(s) infringe the proprietary rights of any Party, Marnetics shall have the right to defend and in such an event,, shall have control of the defense of any such claim, action, lawsuit or proceeding and shall pay the costs thereof, including but not limited to, any final awards or settlement costs incurred by Integrator in connection therewith; provided, however, that Integrator shall assist Marnetics in the defense of such matter at Marnetics' expense, and shall have the right to be represented by its attorney, at its own expense, in any such controversy. 7. EXCLUSIVITY AND MINIMUM QUANTITY 7.1 Marnetics agrees to grant Integrator exclusivity for the first year with no conditions. 7.2 This exclusivity for second year is subject to the following: 7.2.1 Integrator's net sales of Marnetics Products (including maintenance) of not less than US $1,000,000 entitling Marnetics to fees in the sum of not less than US $300,000 for the first year following the date of execution of this Agreement; or 7.2.2 Integrator will pay Marnetics a sum of US $300,000 in the aggregate for the first year following the date of the execution of this Agreement, not withstanding Integrator's sales. 7.3 This exclusivity for third year is subject to the following: 7.3.1 Integrator's net sales of Marnetics Products (including maintenance) of not less than US $3,000,000 entitling Marnetics to fees in the sum of not less than US $900,000 for the second year following the date of execution of this Agreement. 7.4 The exclusivity for following years will be negotiated between the Parties. 8. TERM AND TERMINATION 8.1 TERM. This Agreement shall take effect on the Effective Date hereof and, subject to earlier termination as provided in this Agreement, shall continue in full force for a period of 12 months, and the terms of this Agreement shall be automatically renewed for consecutive twelve (12) month periods thereafter, unless written notice to the contrary is received by either Party from the other Party at least one (1) -7- months prior to the expiration of the then-current term As from the end of the second 12 month period, each Party shall have the right to terminate the agreement, regardless of reason, with notification in writing, within 30 days. 8.2 TERMINATION. 8.2.1 TERMINATION FOR BREACH. In the event of a material breach or default by a Party in the performance of its respective duties, obligations or undertakings set forth in this Agreement, the other Party shall have the right to give written notice to the defaulting Party, notifying such Party of the specific breach or default involved. If, within (a) ten (10) days, in the case of any payment default; or (b) thirty (30) days, in all other cases, after such notice, the defaulting Party shall not have remedied or commenced diligently to remedy the breach or default and thereafter prosecute such remedy to completion within a commercially reasonable time, the aggrieved Party shall have the right, in addition to any other right, remedy or benefit it may have under this Agreement or applicable law, to terminate the Agreement by giving written notice of such termination to the defaulting Party. 8.2.2 TERMINATION FOR INSOLVENCY. In addition to the rights, described in Section 9.2(a) above, either Party may terminate this Agreement at any time by giving the other Party written notice to that effect, effective on the date of receipt of such notice, if such other Party enters into compulsory liquidation or bankruptcy or suffers any similar action in consequence of debt, or becomes unable to pay its debts as they become due, or otherwise becomes insolvent or ceases to conduct its business in the ordinary course. 8.3 RIGHTS UPON TERMINATION OF THE AGREEMENT. Each Party understands that the rights of termination hereunder are absolute and that it has no rights to a continued relationship with the other after termination, except as expressly stated herein. Neither Party shall incur any liability whatsoever for any damage, loss or expenses of any kind suffered or incurred by the other (or for any other compensation to the other) arising from or incident to any termination of this Agreement by such Party that complies with the terms of this Agreement, whether or not such Party is aware of any such damage, loss or expenses. -8- 8.4 RETURN OF MATERIALS. Upon the termination of the Agreement, Integrator shall not use further, except as herein provided, and shall return to Marnetics all specifications, data sheets, drawings, designs, documentation, schematics, photographs, recordings and other electronic records, and any other documents or materials furnished to Integrator or otherwise obtained by Integrator from Marnetics and relating to Marnetics' Product(s) or other Marnetics technology, and all copies and reproductions thereof and any and all similar materials in any way, in whole or in part, based thereon. 8.5 OTHER RIGHTS. Each Party acknowledges and agrees that termination of this Agreement is not the sole remedy under this Agreement and, whether or not termination is effected, all other remedies available to a Party as a result of any breach or nonperformance by the other Party, shall remain available to the non-defaulting Party. 9. WARRANTY 9.1 WARRANTY. Marnetics warrants that, for a period of thirty (30) days after Integrator's receipt of a particular product, each of Marnetics' Product(s) delivered hereunder shall perform in accordance with the specifications for such product current as of the date of such shipment, and shall be free from defects in design, materials and workmanship. Prior to any return of a defective product to Marnetics, Integrator shall first request a Return Material Authorization (RMA) from Marnetics, which shall also include a written description of the problem and reason for return of such products. If Integrator rightfully and in a timely manner returns any defective products to Marnetics pursuant to the warranty provisions described herein, Marnetics' sole and exclusive liability will be, at Marnetics' option, within twenty (20) days after Marnetics' receipt of such defective products, to repair or replace such products or to issue a full refund to Integrator with respect to such products. Cost of return freight for any defective product shall be at Marnetics' expense when Products are returned to Integrator pursuant to the warranty provisions herein, provided, however, that Marnetics reserves the right to charge back to Integrator any reasonable costs incurred in evaluating any RMA in which there has been no failure identified and the applicable product(s) is deemed in satisfactory working order and returned to Integrator . 9.2 DISCLAIMER OF WARRANTIES. Except as otherwise specifically provided in this Agreement, the warranties in this Agreement are in lieu of all other warranties, express, -9- implied or statutory, including, but not limited to, the implied warranties of merchantability or fitness for a particular purpose, and the remedy provided in Section 10.1 shall be Integrator's sole remedy in the event such warranties are breached . 10. LIMITATION OF LIABILITY 10.1 LIMITATION OF DAMAGES. Neither Party shall be liable to the other Party, or any other entity or person, for any loss of profits, loss of use, interruption of business or for any indirect, special, incidental, punitive or consequential damages of any kind, whether under this Agreement or otherwise, resulting from the use of any product shipped hereunder, even if advised of the possibility of such damages. 10.2 RELIANCE ON DISCLAIMERS AND LIMITATIONS. The Agreement, and the substance of the other rights and duties of Integrator and Marnetics under this Agreement, have been negotiated in reliance on, and are based upon the applicability and enforceability of the disclaimer of warranties and limitations of liability contained in Articles 10 and 11. 11. REPORTS Integrator will deliver to Marnetics a quarterly report detailing sales made by Integrator in the previous months and a forecast for the following quarter. 12. RELATIONSHIP BETWEEN THE PARTIES Nothing in this Agreement shall be construed as constituting either Party as a partner or an employee or an agent of the other Party. Neither Integrator nor Marnetics shall have the authority to bind or act for the other in any respect. Marnetics and Integrator shall each remain an independent contractor responsible only for its own actions. Integrator shall not, without prior written approval of Marnetics, make any representations or give any guarantees or warranties concerning Marnetics' Product(s) on behalf of Marnetics. 13. APPROVAL Marnetic's power and authority to enter into this Agreement and to execute and perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby, shall be subject to the approval of this Agreement by Marnetic's Board of Directors and of the Shareholders, if such an approval by the Shareholders is required by any law. -10- 14. MISCELLANEOUS 14.1 SUCCESSORS AND ASSIGNS AND BINDING EFFECT. Without contradicting the restrictions on transfer as set forth in Section 13.2 below, the rights and benefits of the Parties under this Agreement shall accrue to, and run in favor of each Party's successors and assigns. The rights and obligations of the Parties under this Agreement shall be binding upon their respective successors and assigns. 14.2 ASSIGNMENTS. Neither Party shall make or purport to make any assignment, transfer or conveyance, in whole or in part, of its rights and obligations under this Agreement without the prior written consent of the other Party, such consent to be at such other Party's reasonable discretion. 14.3 GOVERNING LAW; JURISDICTION. This Agreement shall take effect under, be construed and enforced according to, and be governed by the laws in force in the State of Israel, without reference to conflict of laws principles. The sole jurisdiction and venue for actions related to the subject matter of this Agreement shall be the Tel-Aviv-Yafo courts, and both Parties consent to the jurisdiction of such courts. 14.4 SEVERABILITY. The provisions of this Agreement are severable. If any provision or part of this Agreement shall be held by any court or other official body of competent jurisdiction to be invalid or unenforceable for any reason, the remaining provisions or parts hereof shall continue to be given effect and shall bind the Parties hereto unless the enforceability or illegality has the consequence of substantially altering the respective rights and obligations of the Parties hereto. 14.5 WAIVER. The failure of either Party to insist in any one or more instances upon performance of any term, covenant or condition of this Agreement, shall not be construed as a waiver of its future performance. The obligations of either Party with respect to such term, covenant or condition shall continue unchanged and in full force and effect. 14.6 NOTICES. All notices, requests, demands and other communications hereunder, shall be in writing and shall be deemed to have been duly given if: (a) delivered by hand; (b) sent by electronic means if confirmed and promptly followed by written confirmation, inserted for convenience of reference only and shall in no way affect the interpretation of any of the terms or conditions of this Agreement. -11- 14.7 COUNTERPARTS. This Agreement may be executed in multiple counterparts, each of which shall constitute an original of this Agreement, but all of which, taken together shall constitute but one agreement. 14.8 NON-EXCLUSIVITY. This Agreement is a non-exclusive agreement and does not limit either Party from developing or marketing its own products, or cooperating with any third party in the development of such products, provided that the provisions of this Agreement regarding confidentiality, product and intellectual property ownership rights, and all other provisions of this Agreement are strictly observed and complied with. INTEGRATOR: MARNETICS: By: /S/ DAN GILAT By: /S/ MOSHE KESSNER --------------------------- --------------------------- Name: DAN GILAT Name: MOSHE KESSNER ---------------------------- --------------------------- Title: DIRECTOR Title: DIRECTOR ------------------------------ ---------------------------- By: /S/ AMIT MATTATIA By: /S/ DAVID SHEETRIT ------------------------------ ---------------------------- Chief Executive Officer Acting Chief Executive Officer ATTACHMENT A Bitmax(TM) ATTACHMENT B Speedwise Accellence(TM) Speedwise OnTCP(TM) Speedwise ISPower(TM) Speedwise EnterPower(TM) Speedwise WeBreeze(TM) -----END PRIVACY-ENHANCED MESSAGE-----