(Name, Telephone and/or Facsimile number
and Address of Company Contact Person)
Securities registered or to be registered
pursuant to Section 12(b) of the Act:
Securities registered or to be registered
pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting
obligation pursuant to Section 15(d) of the Act: None
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.
Indicate by check mark whether the registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
If this report is an annual or transition
report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
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.
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Act).
Indicate by check mark which basis of accounting
the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP
x
International Financial Reporting
Standards as issued by the International Accounting Standards Board
¨
If this is an annual report, indicate by
check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Unless otherwise indicated, all references to the "Company,"
"we," "our" and "ClickSoftware" refer to ClickSoftware Technologies Ltd. and its subsidiaries. References
to "U.S. dollars" and "$" are to the lawful currency of the United States of America, and references to "NIS"
are to new Israeli shekels. References to "Ordinary Shares" are to our Ordinary Shares, par value of NIS 0.02 per share.
We do not endorse or adopt any third-party research or forecast
firms’ statements or reports referred to in this annual report and assume no responsibility for the contents or opinions
represented in such statements or reports, nor for the updating of any information contained therein.
This annual report contains
express or implied "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of
1995 and other U.S. Federal securities laws. These forward-looking statements include, but are not limited to, those statements
regarding future results of operations, future changes in our expenses and investments, trend information, sufficiency of our office
space, visibility into future periods, expected growth, expected rates of growth, expansion into new territories, and expectations
regarding future closing of contracts, receipt of orders, recognition of revenues, exploration of acquisitions, future tax rates,
revenue trends, collection of accounts receivable and deferred revenues. In some cases, forward-looking statements are identified
by terminology such as "may," "will," "could," "should," "expects," "plans,"
"anticipates," "believes," "intends," "estimates," "predicts," "potential,"
or "continue" or the negative of these terms or other comparable terminology. Such forward-looking statements involve
known and unknown risks, uncertainties and other factors that may cause actual results or performance to differ materially from
those projected. Achievement of these results by ClickSoftware may be affected by many factors, including, but not limited to,
risks and uncertainties regarding the general economic outlook, the length of or changes in ClickSoftware's sales cycle, ClickSoftware's
ability to close sales to potential customers in a timely manner and maintain or strengthen relationships with strategic partners,
the timing of revenue recognition, foreign currency exchange rate fluctuations, and ClickSoftware's ability to maintain or increase
its sales pipeline. The forward-looking statements contained in this annual report are subject to risks and uncertainties, including
those discussed under Item 3.D. – "Risk Factors" and in our other filings with the Securities and Exchange Commission,
or the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date
hereof. Except as otherwise required by law, ClickSoftware is under no obligation to (and expressly disclaims any such obligation
to) update or alter its forward-looking statements whether as a result of new information, future events, or otherwise.
|
Item 1.
|
Identity
of directors, senior management and advisErs
|
Not applicable.
|
Item 2.
|
Offer
statistics and expected timetable
|
Not applicable.
|
3.A.
|
Selected financial data
|
Our historical consolidated
financial statements are prepared in accordance with generally accepted accounting principles in the United States and are presented
in U.S. dollars. The selected historical consolidated financial information as of December 31, 2011 and 2012 and for each of the
years ended December 31, 2010, 2011 and 2012 have been derived from, and should be read in conjunction with, the consolidated financial
statements of ClickSoftware Technologies Ltd. and notes thereto appearing elsewhere in this annual report. The selected financial
data as of December 31, 2008, 2009 and 2010 and for each of the years ended December 31, 2008 and 2009 have been derived from the
audited financial statements of ClickSoftware Technologies Ltd. not included in this annual report.
The information presented
below is qualified by the more detailed historical consolidated financial statements set forth in this annual report, and should
be read in conjunction with those consolidated financial statements, the notes thereto and the discussion under Item 5 –
"Operating and Financial Review and Prospects" - included elsewhere in this annual report.
Consolidated Statement of Operations
Data – Year Ended December 31
(in thousands of U.S. dollars, except
share and per share data)
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Revenues
|
|
$
|
100,046
|
|
|
$
|
87,087
|
|
|
$
|
71,019
|
|
|
$
|
61,123
|
|
|
$
|
52,262
|
|
Cost of revenues
|
|
|
38,871
|
|
|
|
31,696
|
|
|
|
26,913
|
|
|
|
20,831
|
|
|
|
18,079
|
|
Gross profit
|
|
|
61,175
|
|
|
|
55,391
|
|
|
|
44,106
|
|
|
|
40,292
|
|
|
|
34,183
|
|
Research and Development, net
|
|
|
13,146
|
|
|
|
9,019
|
|
|
|
7,920
|
|
|
|
6,499
|
|
|
|
6,459
|
|
Selling and Marketing
|
|
|
31,977
|
|
|
|
23,382
|
|
|
|
19,213
|
|
|
|
16,240
|
|
|
|
16,002
|
|
General and Administrative
|
|
|
8,779
|
|
|
|
7,386
|
|
|
|
6,747
|
|
|
|
6,423
|
|
|
|
5,446
|
|
Impairment of goodwill
|
|
|
-
|
|
|
|
939
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total operating expenses
|
|
|
53,902
|
|
|
|
40,726
|
|
|
|
33,880
|
|
|
|
29,162
|
|
|
|
27,907
|
|
Operating income
|
|
|
7,273
|
|
|
|
14,665
|
|
|
|
10,226
|
|
|
|
11,130
|
|
|
|
6,276
|
|
Other income
|
|
|
110
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Interest income, net
|
|
|
274
|
|
|
|
7
|
|
|
|
189
|
|
|
|
380
|
|
|
|
149
|
|
Net income before taxes
|
|
|
7,657
|
|
|
|
14,672
|
|
|
|
10,415
|
|
|
|
11,510
|
|
|
|
6,425
|
|
Taxes on income (Tax benefit)
|
|
|
169
|
|
|
|
2,462
|
|
|
|
1,370
|
|
|
|
(1,004
|
)
|
|
|
(1,686
|
)
|
Net income
|
|
$
|
7,488
|
|
|
$
|
12,210
|
|
|
$
|
9,045
|
|
|
$
|
12,514
|
|
|
$
|
8,111
|
|
Basic net income per share
|
|
$
|
0.24
|
|
|
$
|
0.39
|
|
|
$
|
0.30
|
|
|
$
|
0.43
|
|
|
$
|
0.28
|
|
Diluted net income per share
|
|
$
|
0.23
|
|
|
$
|
0.38
|
|
|
$
|
0.28
|
|
|
$
|
0.40
|
|
|
$
|
0.27
|
|
Dividend declared per share
|
|
$
|
0.24
|
|
|
$
|
0.32
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Shares used in computing basic net income per share
|
|
|
31,545,435
|
|
|
|
31,014,373
|
|
|
|
30,415,679
|
|
|
|
29,400,973
|
|
|
|
28,564,496
|
|
Shares used in computing diluted net income per share
|
|
|
32,837,789
|
|
|
|
32,226,883
|
|
|
|
32,037,399
|
|
|
|
31,137,238
|
|
|
|
29,503,217
|
|
20-F ClickSoftware Technologies Ltd.
|
Page
4
|
Consolidated Balance Sheet Data –
Year Ended December 31
(in thousands of U.S. dollars, except
for share data)
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Working capital
|
|
$
|
58,565
|
|
|
$
|
54,726
|
|
|
$
|
48,710
|
|
|
$
|
37,666
|
|
|
$
|
27,898
|
|
Total assets
|
|
|
94,469
|
|
|
|
90,632
|
|
|
|
79,827
|
|
|
|
66,449
|
|
|
|
46,162
|
|
Long-term liabilities
|
|
|
5,968
|
|
|
|
5,855
|
|
|
|
5,208
|
|
|
|
5,461
|
|
|
|
5,854
|
|
Shareholders' equity
|
|
$
|
62,918
|
|
|
$
|
59,104
|
|
|
$
|
54,088
|
|
|
$
|
42,658
|
|
|
$
|
26,086
|
|
Number of shares outstanding
|
|
|
31,654,942
|
|
|
|
31,368,888
|
|
|
|
30,634,227
|
|
|
|
30,244,330
|
|
|
|
28,655,670
|
|
|
3.B.
|
Capitalization and indebtedness
|
Not applicable.
|
3.C.
|
Reasons for the offer and use of proceeds
|
Not applicable.
In conducting
our business, we face many risks that may interfere with our business objectives. Some of these risks could materially and adversely
affect our business, financial condition and results of operations. In particular, we are subject to various risks resulting from
changing economic, political, industry, business and financial conditions. The risks and uncertainties described below are not
the only ones we face.
You should carefully consider the following factors and other
information in this annual report before you decide to invest in our Ordinary Shares. If any of the negative events referred to
below occur, our business, financial condition and results of operations could suffer. In any such case, the trading price of our
Ordinary Shares could decline, and you may lose all or part of your investment.
Risks Related to Our Business
We face competition, which could
make it difficult for us to achieve our targets.
The market for our products is competitive and rapidly changing.
Competition may increase in the future as current competitors expand their product offerings and new companies attempt to enter
the market. In addition, smaller competitors have been acquired by large organizations with broader product offerings. The industries
where we are active have witnessed a substantial amount of merger and acquisition activity over the past few years and this trend
of industry consolidation will likely continue, particularly as larger, better capitalized companies seek to acquire smaller, weaker
rivals that have been adversely affected by the economic downturn.
Competitors vary in size and in the scope and breadth of the
products and services they offer. Some of our current and potential competitors are among the largest and most well capitalized
software companies in the world and have significant competitive advantages over us, including greater name recognition, longer
operating histories, larger customer bases and significantly greater financial, technical, marketing, public relations, sales,
distribution and other resources than us. Because the market for workforce management and optimization software is evolving, we
expect additional competition from other established and emerging companies if this market continues to develop and expand. For
example, we could face competition from our strategic partners or from other companies that may in future decide to enter and compete
in our market. In particular, since our contracts with large resellers generally do not include non-competition provisions, it
may be easier for these partners to compete with us in the future. One of our partners, SAP A.G., recently acquired Syclo, one
of our competitors in the mobility space.
20-F ClickSoftware Technologies Ltd.
|
Page
5
|
We also now offer mobility and shift-planning solutions, as
well as Cloud-based solutions, for which competition may be more intense than our traditional offerings. The mobility market is
oriented more towards the mass market which is more competitive than our traditional markets. Competition with our Cloud-based
solutions may be particularly fierce. Competition could result in price reductions, fewer customer orders, reduced gross margin
and loss of market share, any of which could cause our business, financial condition and results of operations to suffer. We may
not be able to compete successfully with existing or future competitors. If we fail to compete successfully against current and
future competitors, our business, financial condition and results of operations would be materially and adversely affected.
The market may not accept our products
and services.
Historically, all of our operating revenue has come from sales
of, and services related to, our end-to-end optimization suite of products, or our Service Optimization Suite, which includes ClickSchedule,
ClickAnalyze, ClickPlan, ClickMobile, ClickRoster, ClickForecast, ClickLocate and ClickContact. Our packaging includes three distinct
entry points for a customer organization: a Field Service Suite, a Mobility Suite and a Roster Suite. We also offer our Service
Optimization Suite under a Cloud-based model. We continually aim to improve and enhance our products and services to meet market
requirements. We have commenced multiple initiatives aimed at gaining market share, capitalizing on market opportunities and improving
efficiencies in our operations in general and around our Cloud offerings specifically. We have invested in labor, consultancy and
management attention to promote initiatives such as mobility, Cloud services and shift planning. Our growth depends on the market
acceptance of these products and services. If our products and services do not achieve continued customer acceptance, our business,
financial condition and results of operations would be materially and adversely affected.
Failure to fully develop or maintain
key alliance relationships could limit our ability to sell additional licenses, thereby decreasing our revenues and increasing
our sales and marketing expenses.
Our success in penetrating our target markets depends, in part,
on our ability to develop and maintain relationships with key value-added resellers, agents, systems integrators and distribution
partners. We have entered into agreements with third parties relating to the integration of our products with their product offerings,
and distribution, reselling and consulting services. We derive revenues from these agreements, but may not be able to continue
to do so in the future. Also, our marketing strategy includes selling through distributors, value-added resellers and agents, as
well as direct selling by our own sales force. We may not be successful in extending the terms of our various agreements or establishing
similar relationships with these partners if our current agreements expire or are terminated. If we fail to fully develop or maintain
key alliance relationships, we could materially and adversely affect our business, financial condition or results of operations.
Our quarterly operating results
are subject to significant fluctuations.
Our quarterly operating results are subject to significant fluctuations
and are difficult to predict. Historically, a significant percentage of our quarterly revenues has been derived from orders placed
towards the end of a given quarter. If sales forecasted from a specific customer or partner for a particular quarter are not realized
in that quarter, we may not be able to generate revenues from alternate sources in time to compensate for the shortfall. Also,
frequently our quarterly revenue performance depends upon a sale of significant size to a single customer. Due to the relatively
large size of some orders, a lost or delayed sale could have a material adverse effect on our quarterly revenue.
The factors that may cause significant fluctuations in our quarterly
operating results include, but are not limited to, the following:
|
·
|
the volume, timing and recognition of customer orders;
|
|
·
|
internal budget constraints and approval processes of our customers;
|
|
·
|
the length and unpredictability of our sales cycle;
|
|
·
|
the recognition of a portion of our revenues on a contract accounting basis;
|
|
·
|
the indirect nature of some of our sales efforts through our channel and strategic partners;
|
|
·
|
the mix of revenue generated by product licenses and professional services;
|
|
·
|
new product introductions or enhancements by us or our competitors;
|
|
·
|
price and product competition;
|
|
·
|
changes to our pricing strategies and those of our competitors;
|
|
·
|
timing and amount of sales and marketing expenses;
|
20-F ClickSoftware Technologies Ltd.
|
Page
6
|
|
·
|
changes in the composition and success of our business and partner relationships;
|
|
·
|
technical difficulties affecting the operation of our software;
|
|
·
|
foreign currency exchange rate fluctuations;
|
|
·
|
general economic conditions, including a prolonged economic recession; and
|
|
·
|
difficulties in collecting accounts receivable.
|
Because
of the numerous factors that may cause significant fluctuations in our quarterly operating results, we believe that period-to-period
comparisons of our results of operations are not necessarily meaningful and that such comparisons should not be relied upon as
an indication of future performance.
We may not be able to maintain
the same level of profitability.
Although
we recorded a profit for each of the fiscal years 2006 through 2012, we may not generate sufficient revenues to maintain the same
level of profitability in the future. For instance, in 2012 our profitability dropped relative to our profitability in 2011. To
maintain or increase profitability, we must increase our revenues while controlling our expenses. We plan to continue to invest
in research and development and expect to continue to incur significant sales and marketing costs. In 2013 we plan to continue
increasing our employee head count and expanding our operations into new geographic territories. Some of our expenses, such as
administrative and management payroll and rent and utilities, are fixed in the short term, must be incurred in advance of when
revenue is generated and cannot be quickly reduced if we experience revenue declines. Therefore, if our projected revenue does
not meet our expectations, we are likely to experience an even larger adverse impact on our operating profit. As a result, we must
generate and maintain growing revenues to maintain the same level of profitability, which we may not accomplish.
Our sales cycle is variable, often
long, dependent on factors outside our control and involves investment of significant resources on our part, but may never result
in actual sales.
The length of our sales cycle – the period between initial
contact with a potential customer and the signing of a license and related agreements - has historically been lengthy and variable,
typically lasting from three to nine months. We generally must educate our potential customers about the use and benefit of our
products and services, which can require the investment of significant time and resources, causing us to incur most of our selling
and marketing expenses in advance of a potential sale. In addition, a number of companies decide which products to buy through
a request for proposal process. In those situations, we run the risk of investing significant resources in a proposal that results
in a competitor obtaining the desired contract from the customer or in a decision by a customer not to proceed. Sales of licenses
are subject to a number of risks outside our control, including budgeting, approval and competitive evaluation processes that typically
accompany significant capital expenditures. Potential customers consider many factors in evaluating our products, and the length
of time a customer devotes to evaluation, contract negotiation and budgeting processes varies significantly from company to company.
In certain circumstances, we may invest significant resources in a sales process that does not result in actual sales.
Our implementation cycle depends
on factors outside our control.
Depending on the nature and specific needs of a customer, the
implementation of our products typically takes six to twelve months. During the implementation cycle, there are a number of factors
beyond our control that may affect the implementation timeline, including a customer's budgetary constraints and internal acceptance
reviews, the success and continued internal support of a customer's own development efforts, the nature, size and specific needs
of a customer, the possibility that a customer cancels an order and the level and quality of service provided by third-party implementation
and professional services partners. Long implementation cycles may delay the recognition of revenue as some of our customers engage
us to perform system implementation services, which can defer revenue recognition for the related software license revenue. In
addition, when we experience long implementation cycles, we may incur costs at a higher level than anticipated, which may reduce
the anticipated profitability of a given implementation. Because our implementation cycle depends on factors outside of our control,
we may experience delays or other complications with our implementation timeline that may materially and adversely affect our business,
financial condition and results of operations.
20-F ClickSoftware Technologies Ltd.
|
Page
7
|
If we fail to expand our relationships
with third parties that provide implementation and professional services to our customers, we may be unable to increase our revenues.
In order for us to focus more effectively on our core business
of developing and licensing software solutions, we must continue to establish relationships with third parties that provide implementation
and professional services to our customers. Third-party implementation and professional services firms can be influential in the
choice of optimization applications by new customers. These third parties are under no obligation to recommend or support our products;
they could recommend or give higher priority to the products of other companies or to their own products. If we are unable to establish
and maintain effective, long-term relationships with implementation and professional services providers, or if these providers
do not meet the needs or expectations of our customers, we may be unable to increase our revenues, which would materially and adversely
affect our business, financial condition and results of operations.
Even if we establish relationships with these third party implementation
and professional services firms, we may be unable to attract sufficient focus and resources from them to meet all of our customers'
needs as a result of the limited resources and capacities of many third-party providers. If sufficient resources are unavailable,
we could be required to provide these services internally, which could limit our ability to meet other demands. We cannot control
the level and quality of service provided by these partners.
Our revenues still depend on a small
number of products, and in particular ClickSchedule and our results may be vulnerable to unexpected shifts in demand.
While other offerings gained momentum (both in absolute terms
and relative to overall revenue) ClickSchedule still accounted for the majority of our license revenues in each of years ended
December 31 2012, 2011 and 2010 and we expect that this will be the case in the foreseeable future. Accordingly, any decline in
the demand for ClickSchedule will have a material adverse effect on our license revenues. A decline in the demand for ClickSchedule
may also reduce revenues derived from our other products.
Failure to fully develop or maintain
key supplier relationships could limit our ability to sell additional licenses, thereby decreasing our revenues and increasing
our sales and marketing expenses.
Our success in penetrating our target markets depends, in part,
on our ability to develop and maintain key relationships with software vendors. For example, we depend on certain suppliers for
the development, supply and support of third-party software components that are integrated into our products. We do not have long-term
contracts with some of these suppliers, and they are not obligated to provide us with products or services for any specified period
of time. If we fail to maintain these relationships, our ability to sell additional licenses could be limited. Furthermore, if
any of our software vendors cease production, cease operations or fail to timely deliver orders, we could be required to provide
these services internally, which could limit our ability to meet other demands and we may not be able to meet our delivery obligations
to our customers, in which case we could lose revenues and harm our customer relationships. If we fail to fully develop or maintain
key supplier relationships, we could materially and adversely affect our business, financial condition or results of operations.
Our risk from exposure to foreign
currency fluctuations is increasing, and we may not be able to fully mitigate the risk.
We are exposed to movements in foreign currency exchange rates
since we realize our revenues and expenses in several currencies and we translate foreign currencies into U.S. dollars for reporting
purposes. Our primary exposures have related to operating expenses and sales, principally in Europe and Israel, which were not
U.S. dollar-denominated
. In 2012, the rate of growth of our revenues decreased in part due
to exchange rate fluctuations and strength in the U.S. dollar compared to other currencies that significantly decreased the cost
of our European and Israel-based operations.
We continue to expand our global operations, and revenue recognized in currencies
other than U.S. dollars may increase. In 2012, 67% of our expenses and 41% of our revenues were incurred in non-U.S. dollar currencies.
We incur a portion of our expenses, principally with respect to salaries and related personnel expenses in Israel, in NIS. In 2012,
43% of our expenses were incurred in NIS. Currency fluctuations in any of the currencies in which we operate could materially and
adversely affect our business, financial condition and results of operations. In addition, we have balance sheet exposure related
to foreign net assets. Although we engage in non-speculative hedging transactions from time to time to minimize the impact of changes
in foreign currency exchange rates on earnings, we may not be able to fully mitigate these risks.
20-F ClickSoftware Technologies Ltd.
|
Page
8
|
Our cash may be subject to a risk
of loss and we may be exposed to fluctuations in the market values of our portfolio investments and in interest rates.
Our assets include a significant component of cash, as well
as marketable securities. We adhere to an investment policy which requires investment in high-quality investment-grade securities
provided, however, that up to $10 million of our total cash and investments may be invested in companies that have a policy to
regularly distribute dividends or in Exchange Traded Funds, or ETFs, of a similar nature. We believe that our cash is held in institutions
whose credit risk is minimal and that the value and liquidity of our marketable securities are accurately reflected in our consolidated
financial statements as of December 31, 2012. However, nearly all of our cash and marketable securities are not insured by
the Federal Deposit Insurance Corporation, or the FDIC, or similar governmental deposit insurance outside the United States. Therefore,
our cash and any marketable securities that we now hold or may acquire in the future may be subject to risks, including the risk
of loss or of reduced value or liquidity, particularly in light of the recent volatility and worldwide pressures in the financial
and banking sectors. In the future, should we determine that there is a decline in value of any of our portfolio securities which
is not temporary in nature, this would result in a loss being recognized in our consolidated statements of operations.
We depend on key personnel, and the
loss of any key personnel could affect our ability to compete and impair our ability to attract additional key personnel.
Our future success depends on the continued service of our executive
officers, including Moshe BenBassat, Hannan Carmeli and Shmuel Arvatz, and other key sales and marketing, product development and
professional services personnel. Competition for these employees can be intense, including in a number of our key markets and locations,
such as Israel, India, the United States and the United Kingdom. More generally, we may be unable to attract and retain a sufficient
number of highly qualified professional services personnel to meet our business needs.
Customers that license our software typically engage our professional
services organization to assist with the installation and operation of our software applications. Our professional services organization
also typically assists with the installation and implementation of our customers' software systems. Future growth in licenses of
our software will depend, in part, on our ability to continue providing customers with these services. To the extent that we receive
several large orders simultaneously or in close proximity to one another, we could place added strain on our existing personnel.
The market for the qualified personnel we require is very competitive because of the limited number of people available with the
necessary technical and sales skills and understanding of our products and technology. If we are unable to maintain and expand
our professional services organization, our ability to support our service business would be limited.
The services of our key personnel would be difficult to replace
and the loss of any of these employees could harm our business significantly. Although we have employment or consulting agreements
with our executive officers that generally require 60 to 90 days notification prior to departure, our relationships with these
officers and key employees are at will and can be terminated by either party without cause. The loss of any of our key personnel
could harm our ability to execute our business strategy and remain competitive.
Any future mergers with or acquisitions
of companies, products or technologies and the resultant integration process may distract our management and disrupt our business.
One of our business strategies is to consider strategic partnerships,
alliances, mergers and/or acquisitions of complementary businesses, products and technologies. Mergers with or acquisitions of
companies, products or technologies involve a number of risks, including:
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the diversion of management time and resources;
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the difficulty of assimilating the operations
and personnel of the merged or acquired companies;
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the possibility the business cultures will
not be compatible;
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the difficulty of incorporating acquired
technology and rights into our products and services;
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unanticipated expenses related to integration
of the acquired companies;
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difficulties in implementing and maintaining
uniform standards, controls and policies;
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the impairment of relationships with employees
and customers as a result of any integration of new personnel;
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potential inability to retain, integrate
and motivate key management, marketing, technical sales and customer support personnel;
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potential unknown liabilities associated
with acquired businesses;
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expending significant cash;
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incurring substantial debt;
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dilution of current shareholders' percentage
ownership (if equity securities are issued as consideration);
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assumption of contingent liabilities; and
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impairment of goodwill and other assets acquired.
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Pursuant to our business strategy, we will continue to consider
additional merger or acquisition transactions.
Any future merger and acquisition activity could distract our
management and disrupt our business, thereby materially and adversely affecting our business, financial condition or results of
operations.
Our market may experience rapid technological
changes that could cause our products to fail or require us to redesign our products, which would result in increased research
and development expenses.
Our market is characterized by rapid technological change, dynamic
customer needs and frequent introductions of new products and product enhancements. If we fail to anticipate or respond adequately
to technology developments and customer requirements, or if our product development or introduction is delayed, our business will
suffer. Client product requirements can change rapidly as a result of computer hardware and software innovations or changes in
and the emergence, evolution and adoption of new industry standards. The actual or anticipated introduction of new products has
resulted, and will continue to result, in some reformulation of our product offerings. Technology and industry standards can make
existing products obsolete or unmarketable or result in delays in the purchase of such products. For example, new vendors have
emerged that offer hosted and Cloud-based solutions which are easier to implement and for which the up-front investment by the
customer is lower. These offerings are consistent with the global trend in the software industry towards SaaS applications. In
the mobility sector, technological changes with regard to platforms and operating systems with which we integrate are typically
rapid. As a result, the life cycles of our products are difficult to estimate. We must respond to developments rapidly and continue
to make substantial product development investments. We have previously experienced delays in introducing new products and features,
and we may experience delays in the future that could impair our revenue and operating results. Our business, financial condition
and results of operations will be materially and adversely affected if we fail to respond to our rapidly changing market by enhancing
our product functionality to meet our customers' needs.
Global economic conditions may
adversely affect our business.
Our operations and performance depend on worldwide economic
conditions and their impact on levels of business spending, which have deteriorated significantly in many countries and regions
and may remain depressed for the foreseeable future. This may adversely affect the budgeting and purchasing behavior of our customers
and our partners' customers, which could adversely affect our product sales.
Continuing uncertainties in the macroeconomic conditions may
adversely affect the ability of our customers, suppliers and channel partners (e.g., distributors and resellers) to obtain financing
for significant purchases and operations and to perform their contractual obligations with us. For example, in 2011 and 2012, we
encountered a slowdown in the EMEA region. As a result, we could encounter, among other adverse effects, a decrease in or cancellation
of orders for our products and services, and an increase in additional reserves for uncollectible accounts receivable being required.
If our relationships with our key
customers are terminated, our revenues will decline and our business will be adversely affected.
During 2012, our five largest customers together accounted for
approximately 36% of our revenues. If for any reason, our relationship with a key customer is terminated, or if any of our key
customers reduces purchases of our products, then our business, financial condition and results of operations could be materially
and adversely affected. The impact of the termination or reduction in demand of a key customer would be intensified if we were
unable to increase sales to other customers to offset this termination or reduction in demand. We expect that a significant portion
of our future revenues will continue to be derived from a small number of customers.
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Our products could be susceptible
to errors or defects or contain inaccurate data from third-party vendors.
Complex software products, such as ours, often contain errors
or defects, particularly when first introduced or when new versions or enhancements are released. In the past, some of our products
have contained errors and defects that have delayed implementation or required us to expend additional resources to correct the
problems. Testing of our products is particularly challenging because it is difficult to simulate the wide variety of customer
environments into which our products are deployed. Despite internal testing, testing by current and potential customers and the
history of use by our installed base of customers, our current and future products may contain defects or errors. Any such defects
or errors could result in adverse customer reaction and publicity, damage to our reputation, diversion of resources, increased
service and maintenance costs, loss of market demand, loss of market share, loss of potential new customers, lost revenues, liability
or a delay in market acceptance of these products, any of which could have a material adverse effect on our business, financial
condition and results of operations.
The performance of our products also depends, in part, upon
the accuracy and continued availability of third-party data. We rely on third parties that provide information such as street and
address locations and mapping functions that we incorporate into our products. If these parties do not provide accurate information,
or if we are unable to maintain our relationships with them, our reputation and competitive position could suffer and we could
be unable to develop or enhance our products as required.
Security breaches could expose
us to liability and our reputation and business could suffer.
We retain sensitive data, including intellectual property, books
of record and personally identifiable information, on our networks. It is critical to our business strategy that our infrastructure and
other infrastructure we use to host our solutions remain secure and are perceived by customers and partners to be secure.
Despite our security measures, our infrastructure and third party infrastructure we use to host our solutions may be vulnerable
to attacks by hackers or other disruptive problems. Our Cloud-based offering may create additional vulnerabilities due to the inherent
risks of doing business on the internet. Any such security breach may compromise information stored on our networks. Such an occurrence
could negatively affect our reputation as a trusted provider of solutions and hosting such solutions by adversely affecting
the market's perception of the security or reliability of our products or services.
Our intellectual property could be
used by third parties without our consent because protection of our intellectual property is limited.
Our success and ability to compete substantially depend upon
our internally developed technology, which we protect through a combination of trade secrets, copyrights, trademarks, patents and
intellectual property law, together with non-disclosure and invention assignment agreements. These legal protections are limited.
Unauthorized parties may attempt to copy or otherwise obtain and use our products or technology. Policing unauthorized use of our
products and technology is difficult and costly, particularly in countries where the laws may not protect our proprietary rights
as fully as in the United States. The steps we have taken may not prevent infringement or misappropriation of our intellectual
property rights.
Our end-user licenses are designed to prohibit unauthorized
use, copying or disclosure of our software and technology in the United States, Israel and other countries. However, these provisions
may be unenforceable under the laws of some jurisdictions. Unauthorized third parties may be able to copy portions of our products,
reverse engineer or obtain and use information and technology that we regard as proprietary. In addition, some of our licensed
users may allow additional unauthorized users to use our software, and if we do not detect such use, we could lose potential license
fees. In addition, as we deepen our ties with our channel and strategic partners, the number of people who are exposed to and interact
with our software and other intellectual property increases. Despite our best efforts to protect our intellectual property, our
channel or strategic partners, or their employees or customers, may copy portions of our products or otherwise obtain and use information
and technology that we regard as proprietary. Our channel or strategic partners might also improperly incorporate portions of our
technology into their own products or otherwise exceed the authorized scope of their licenses to our technology. If we are unable
to successfully detect infringement and/or to enforce our intellectual property rights, our competitiveness may be adversely affected.
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Our technology and other intellectual
property may be subject to infringement claims.
Substantial litigation regarding technology rights and other
intellectual property rights exists in the software industry both in terms of infringement and ownership issues. We expect that
software products may be increasingly subject to third-party infringement or ownership claims as the number of competitors in our
industry segment grows and the functionality of products in different industry segments overlaps. A successful claim of patent,
copyright or trademark infringement or conflicting ownership rights against us could require us to make changes in our business.
Third parties may make a claim of infringement or conflicting
ownership rights against us with respect to our products and technology. Any claims, with or without merit, could:
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be expensive and time-consuming to defend;
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divert management's attention and resources;
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cause product shipment and installation delays; or
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require us to enter into royalty or licensing agreements to obtain the right to use a necessary
product or component, which may not be available on commercially reasonable terms, if at all.
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We also generally indemnify our customers against claims that
our products infringe the intellectual property rights of others. We have only conducted a partial search for existing patents
and other intellectual property registrations, and our products may infringe issued patents. In addition, because most patent applications
are not publicly disclosed until sometime after the application is filed, applications may have been filed that relate to our products.
If a successful claim was made against us and we failed to commercially develop or license a substitute technology, our business,
financial condition and results of operations could be materially and adversely affected.
Our business is susceptible to
numerous risks associated with international operations.
We derive a substantial portion of our revenues from international
sales and we maintain significant portions of our operations outside the United States. We expect international revenues to continue
to account for a significant percentage of total revenues and we believe we must continue to expand our international sales and
professional services activities to be successful. Our facilities are located in North America, Israel, the European continent,
the United Kingdom, Australia, India and South Africa, and our executive officers and other key employees are dispersed throughout
the world. This geographic dispersion requires significant management resources that may place us at a disadvantage compared to
our locally-based competitors. In addition, our international operations are generally subject to a number of risks, including
but not limited to:
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foreign currency exchange rate fluctuations;
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multiple, conflicting and changing governmental laws and regulations;
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difficulties in staffing and managing foreign operations;
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licenses, tariffs and other trade barriers;
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loss of proprietary information due to piracy, misappropriation or weaker laws regarding intellectual
property protection;
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difficulties in communication and monitoring compliance with our internal corporate controls and policy;
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difficulties in complying with a variety of foreign laws and legal standards;
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potentially adverse tax consequences;
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differing labor standards;
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expenses associated with customizing products for foreign countries;
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protectionist laws and business practices that favor local competition;
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difficulties in collecting accounts receivable; and
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political and economic instability.
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Also, as we continue to expand into new geographic territories
such as Latin America and Russia/Commonwealth of Independent States, adequate controls must be applied to our operations in these
new territories in order to ensure compliance with all applicable laws and regulations.
One or more of these risks could harm our future international
sales. Our business, financial condition and results of operations could be materially and adversely affected if we fail to manage
the risk of doing business internationally.
Investment Risks
If our tax structure is challenged
or determined to be inappropriate, our tax liabilities could increase.
We have created an intercompany tax structure based on accepted
tax standards and in consultation with our tax advisors. We have potential tax exposures resulting from the varying application
of statutes, regulations and interpretations, including exposures with respect to marketing, sales and distribution functions.
Tax authorities in various jurisdictions may disagree with and challenge the amount of profits taxed in such jurisdictions, which
may increase our tax liabilities and could have a material adverse effect on the results of our operations.
Our Chief Executive Officer serves
as Chairman of the Board and owns a significant percentage of our Ordinary Shares and therefore could significantly influence the
outcome of actions.
As of March 20, 2013, our Chief Executive Officer and Chairman
of the Board, Dr. Moshe BenBassat, beneficially owned approximately 6.8% of our outstanding Ordinary Shares in the form of Ordinary
Shares and options for the purchase our Ordinary Shares. Dr. BenBassat's wife, Idit BenBassat, owns approximately 5.3% of our outstanding
Ordinary Shares (of which Dr. BenBassat disclaims beneficial ownership and voting control). Due to the wide dispersion of our share
capital, Dr. BenBassat may be able to influence certain matters requiring approval by our shareholders, including the election
of directors, or a change of control of our Company. The influence of our Chief Executive Officer and Chairman could adversely
affect our stock price.
If we are characterized as a passive
foreign investment company, our U.S. shareholders will be subject to adverse tax consequences.
If, for any taxable year, either, (1) 75% or more of our gross
income is passive income or (2) 50% or more of our assets, averaged over the year and generally determined based upon value, including
cash (even if held as working capital), produce or are held to produce passive income, we may be characterized as a "passive
foreign investment company", or PFIC for United States federal income tax purposes. As a result of our cash position and the
value of our assets, we may be deemed to be a PFIC for U.S. federal income tax purposes.
If we are characterized as a PFIC, our shareholders who are
residents of the United States will be subject to adverse U.S. tax consequences. Our treatment as a PFIC could result in a reduction
in the after-tax return to shareholders resident in the United States and may cause a reduction in the value of our shares. If
we were to be treated as a PFIC, our shareholders will be required, absent certain elections, to pay an interest charge together
with tax calculated at the then prevailing highest tax rates on ordinary income on certain "excess distributions" including
any gain on the sale of Ordinary Shares. The consequences of holding shares in a PFIC are described below under "Additional
Information – United States Federal Income Tax Consequences – Passive Foreign Investment Companies." Prospective
investors should consult with their own tax advisors with respect to the tax consequences applicable to them of investing in our
Ordinary Shares.
We may raise additional equity from
time to time, which could cause dilution for our existing shareholders or a decline in our share price.
We may raise equity capital through the issuance of additional
Ordinary Shares, subject to market and other conditions. The future issuances of Ordinary Shares could cause the market price of
our Ordinary Shares to decline and could cause our existing shareholders to experience significant dilution.
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Risks Relating to Our Location
in Israel
We are incorporated in Israel and
have important facilities and resources located in Israel, which could be negatively affected due to military or political tensions.
We are incorporated under the laws of the State of Israel and
our research and development facilities, as well as significant executive offices, are located in Israel. Although substantially
all of our sales are to customers located outside of Israel, we are directly influenced by the political, economic and military
conditions in Israel. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between
Israel and its Arab neighbors and a state of hostility, varying in degree and intensity, has led to security and economic problems
for Israel. Historically, Arab states have boycotted any direct trade with Israel and, to varying degrees, have imposed a secondary
boycott on any company carrying on trade with, or doing business in, Israel. Although Israel has entered into agreements with Egypt,
Jordan and Palestinian representatives, there have been continued and increasing difficulties in the relationship with the Palestinians
and no prediction can be made as to whether a resolution of past problems will be achieved or as to the nature of any such resolution.
Recent political uprisings and civil resistance demonstrations in various countries in the Middle East, including Egypt and Syria,
are affecting the political stability of those countries. It is not clear how this instability, or the ‘Arab Spring’
in general, will develop and how it will affect the political and security situation in the Middle East. This instability may lead
to deterioration of the political relationships that exist between Israel and these countries, and have raised concerns regarding
security in the region and the potential for armed conflict. In addition, it is widely believed that Iran, which has previously
threatened to attack Israel, has been stepping up its efforts to achieve nuclear capability. Iran is also believed to have a strong
influence among extremist groups in the region, such as Hamas in Gaza and Hezbollah in Lebanon. The tension between Israel and
Iran and/or these groups may escalate in the future and turn violent, which could affect the Israeli economy generally and us in
particular. Any armed conflicts, terrorist activities or political instability in the region could adversely affect business conditions
and could harm our results of operations.
For example, any major escalation in hostilities in the region
could result in a portion of our employees being called up to perform military duty for an extended period of time. Certain of
our employees in our office in Israel are currently obligated to perform up to 36-45 days of annual reserve duty in the Israel
Defense Forces and are subject to being called for active military duty at any time. The loss or extended absence of any of our
key personnel due to these requirements could harm our business.
To date, these matters have not had a material and adverse effect
on our business, financial condition or results of operations, but they may do so in the future.
We have taken measures to put in place a Business Continuity
Plan (BCP) addressing foreseen scenarios. However these scenarios do not include the whole range of possibilities and combinations
of circumstances.
The tax benefits available to us require
us to meet several conditions, and may be terminated or reduced in the future, which would increase our taxes.
For
the year ended December 31, 2012, our effective tax rate was 2%. We have benefited or currently benefit from a variety of government
programs and tax benefits that generally carry conditions that we must meet in order to be eligible to obtain any benefit.
Going forward we expect our effective tax rates to increase due to the utilization of
tax losses carry forwards in most countries as well as our move to a less favorable tax bracket in Israel.
If we fail
to meet the conditions upon which certain favorable tax treatment is based, we would not be able to claim future tax benefits and
could be required to refund tax benefits already received. Additionally, some of these programs and the related tax benefits are
available to us for a limited number of years, and these benefits expire from time to time.
Any of the
following could have a material effect on our overall effective tax rate:
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some programs may be discontinued;
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we may be unable to meet the requirements for continuing to qualify
for some programs;
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these programs and tax benefits may be unavailable at their current
levels;
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upon expiration of a particular benefit, we may not be eligible
to participate in a new program or qualify for a new tax benefit that would offset the loss of the expiring tax benefit; or
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we may be required to refund previously recognized tax benefits
if we are found to be in violation of the stipulated conditions.
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Additional
details are provided in "Item 5 – Operating and Financial Review and Prospects" under the caption "Taxes on
income", in "Item 10 – Additional Information" under the caption "Israeli taxation, foreign exchange
regulation and investment programs" and in Note 14 to our consolidated financial statements.
Your rights and responsibilities as
a shareholder will be governed by Israeli Law and differ in some respects from the rights and responsibilities of shareholders
under U.S. law.
We are incorporated under
the laws of the State of Israel. The rights and responsibilities of holders of our Ordinary Shares are governed by our memorandum
of association, articles of association and by Israeli law. These rights and responsibilities may differ in some respects from
the rights and responsibilities of shareholders in U.S. corporations. In particular, a shareholder of an Israeli company has a
duty to act in good faith in exercising his or her rights and fulfilling his or her obligations toward the company and other shareholders
and to refrain from abusing his or her power in the company, including, among other things, in voting at the general meeting of
shareholders on certain matters. Israeli law provides that these duties are applicable in shareholder votes at the general meeting
with respect to, among other things, amendments to a company's articles of association, increases in a company's authorized share
capital, mergers and acquisitions and transactions involving interests of officers, directors or other interested parties which
require the shareholders' general meeting's approval. In addition, a controlling shareholder of an Israeli company or a shareholder
who knows that he or she possesses the power to determine the outcome of a vote at a meeting of our shareholders, or who has, by
virtue of the company's articles of association, the power to appoint or prevent the appointment of an office holder in the company,
or any other power with respect to the company, has a duty of fairness toward the company. The Israeli Companies Law, or the Companies
Law, does not establish criteria for determining whether or not a shareholder has acted in good faith. Moreover, the Companies
Law is relatively new and there is little case law available on the duty of a non-controlling shareholder to act in good faith.
It may be difficult to effect service
of process and enforce judgments against directors, officers and experts in Israel.
We are incorporated and maintain significant operations in Israel.
Some of our executive officers and directors and the Israeli accountants named in this annual report reside outside the United
States and a significant portion of our assets and the assets of these persons are located outside the United States. Therefore,
it may be difficult for an investor, or any other person or entity, to affect service of process on us or any of those persons
or to enforce a U.S. court judgment based upon the civil liability provisions of the U.S. federal securities laws, against us or
any of those persons, in an Israeli court. Additionally, it may be difficult for an investor or any other person or entity to enforce
civil liabilities under U.S. federal securities laws in original actions instituted in Israel.
We are subject to anti-takeover
provisions that could delay or prevent our acquisition by another entity.
Provisions of Israeli corporate and tax law and of our articles
of association may have the effect of delaying, preventing or making more difficult any merger or acquisition of us. In addition,
any merger or acquisition of us will require the prior consent of the office of the chief scientist, or the Chief Scientist, if
intellectual property is removed from Israel, as well as the Investment Center of the Israeli Ministry of Industry, Trade and Employment,
or the Investment Center. Israeli law regulates mergers, votes required to approve a merger, acquisition of shares through tender
offers and transactions involving significant shareholders. In addition, our articles of association provide for a staggered board
of directors. Any of these provisions may make it more difficult to acquire us. Accordingly, our acquisition by another entity
could be delayed or prevented even if it would be beneficial to our shareholders.
The government programs in which we
have participated and the tax benefits we receive require us to satisfy prescribed conditions and may be delayed, terminated or
reduced in the future.
Until 2010, we accepted grants from the Chief Scientist that
helped us finance a portion of our research and development expenditures in Israel. In 2010 2% of our research and development
expenses were financed with royalty-exempt grants from the Chief Scientist. Since 2010 we have not requested any further grants
from the Chief Scientist. Although we do not rely on financing provided by the Chief Scientist and we have fully repaid our royalty
commitments to the Chief Scientist, we must continue to satisfy the conditions of the grants. For example, if we fail to comply
with the representations and covenants we made to the Chief Scientist concerning our research and development activities in Israel,
we could be required to refund the amount of the benefits we have received, adjusted for interest, inflation and penalties.
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In addition, we are subject to other restrictions with respect
to products developed with grants from the Chief Scientist. Any know-how from the research developed with the grants from the Chief
Scientist may not be transferred to third parties without prior approval of the Chief Scientist, and approval is contingent on
the recipient agreeing to abide by the provisions of the Encouragement of Industrial Research and Development, 1984, or the Research
Law, and related regulations. Also, our ability to manufacture products outside Israel without the approval of the Chief Scientist
is restricted under Israeli law and we are required to pay increased royalties to the Chief Scientist of up to 300% of the original
grant amount with respect to any products manufactured outside Israel. Since we conduct all of our manufacturing activities in
Israel and intend to continue doing so, we do not expect any increase in the amount of royalties we pay to the Chief Scientist.
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Item 4.
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Information
on the company
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4.A.
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History
and
development
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Our corporate name is ClickSoftware Technologies Ltd. for both
legal and commercial purposes. We were incorporated as a company under the laws of the State of Israel in 1979 and are subject
to the Companies Law. From inception until 1996, we operated as a consulting company in the area of optimization and intelligent
decision support systems. Thereafter, we transformed our business model to provide workforce management and optimization products
and solutions. We have been listed for trading on the Nasdaq stock market since 2000. Our principal executive offices are located
at Azorim Park, Oren Building, 94 Em Hamoshavot Road, Petach Tikva 49527, Israel, and the telephone number at that location is
+972-3-765-9400. Our website is located at http://www.clicksoftware.com
,
which
is not a part of this annual report. Our wholly owned U.S. subsidiary, ClickSoftware, Inc., has been appointed our agent in the
United States and is located at 35 Corporate Drive, Suite 400, Burlington, Massachusetts.
Our capital expenditures for 2012, 2011, and 2010 amounted to
$2.5 million, $2.0 million, and $1.5 million, respectively. These expenditures were primarily for hardware and software and leasehold
improvements. Our current capital expenditures are primarily for leasehold improvements and hardware and software, and we expect
to finance these expenditures primarily from cash on hand.
Who We Are
We are a leading provider of software
products and solutions for workforce management and optimization both for mobile and in-house resources. We derive revenues from
the licensing of our software products and the provision of consulting and support services. We also generate revenues from Cloud-based
solutions. Our products for resource optimization are aimed at the service sector, where the primary resources are people (e.g.,
service technicians), unlike the manufacturing sector, where the primary resources are machines and raw materials. Another key
differentiator from manufacturing is that a customer receiving service is typically part of the service process, having to stay
home for the service, while in manufacturing
the customer is not required to be present during the actual production process.
Thus time utilization is critical for both the service resource and the customer, with the service provider
seeking to avoid the well-known scenario of a customer waiting at home for the service resource to arrive, while also maximizing
the utilization of its workforce.
Our Strategic Plan
Leveraging the investments made in 2012, our strategic plan
for 2013 and beyond calls for accelerated growth in 2013 and beyond. It is focused on three major growth engines: new territories,
mobility and cloud services.
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(1) New Territories
Establish local presence in Latin America and Eastern Europe
to support acceleration of sales in these territories and increase brand awareness. This initiative capitalizes on early successes
in these emerging markets and our global leadership position in the utilities, telecommunication, and oil & gas industries,
all of which are experiencing rapid growth in these markets.
(2) Mobility
Accelerate sales to prospective customers see value in first
addressing workforce management improvement through mobility solutions, as opposed to optimization solutions. This is expected
to significantly expand our addressable market. We will leverage its leadership position in deploying large scale enterprise mobility
solutions to some of the most demanding organizations in the world as well as our ClickAppStore for business mobility solutions.
We are already working to broaden awareness of our patent-pending ClickButler technology, a context-aware intelligent inference
engine that increases productivity of mobile workers. Once a customer uses ClickSoftware’s mobility products, it dramatically
increases the potential that we can upsell our schedule optimization and decision-making products.
(3) Cloud Services
In November 2011, we established a separate division fully dedicated
to selling cloud-based solutions of all our products, including our cloud-based ClickExpress product for the mid- market and its
built-in mobility component. With this offering, we now have one of the best solutions for the field service mid-market where cloud-based
solutions are gaining popularity.
Our Mission
In today’s highly competitive environment, o
ur
mission is to enable service organizations to execute on their service commitments at the right time and place effectively and
efficiently. We achieve that goal by leveraging optimization and mobility technologies, as well as best practices, for real time
on-going management of customers' commitments and the organization’s resources. By so doing we improve the experience of
our customers’ customers, maximize, productivity and service revenues, and , minimize the cost of service delivery. The end
result is higher customer acquisition and retention as well as improved financial performance.
Our products and solutions incorporate best business practices,
key business functions of service operations, and sophisticated decision-making algorithms that enable our customers to manage
their service operations more efficiently in a scalable, integrated manner. Our products for daily management are mission critical
applications that manage incoming jobs from the moment a job is opened until it is successfully closed, including generating the
appointment time for a customer, assigning the job to the appropriate technician, designing the optimal route for the technician
to minimize travel, and monitoring progress. Mobility solutions on smartphones, tablets and laptops are also part of our offering
aimed at on-going real time optimization of customer response and at increasing the productivity of technicians, supervisors, managers
and executives. Our solutions have become the backbone of service operations management in many large scale leading organizations
worldwide by addressing the fundamental question of job fulfillment: Who does What, for Whom, With what, Where and When (W-6).
Our enterprise mobility initiative continues to serve as a major
growth engine for our company and generates value for our customers in several ways. First, at the group level of matching jobs
and resources, it addresses the dynamic decision-making required during the day of service
.
Second, once a given resource
receives its sequence of jobs for the day, our mobile software enhances his/her productivity. With the proliferation of new tablets
and smartphones for consumer usage, businesses are looking for ways to leverage these new devices and technologies in their businesses.
We view the mobile device as the field office of the technician, and accordingly offer functionality to facilitate his/her daily
activities and to promote paperless operations. The market for enterprise mobility is expanding with the explosive growth in consumer-related
mobile applications, or apps. With years of experience in developing and deploying business mobility solutions, we believe that
we have the right platform at the right time to take full advantage of these opportunities. In 2012 our Mobility solutions and
ClickAppStore won four categories in the eleventh annual Mobile Star Awards™ program, including Dr. Moshe BenBassat, our
Chairman and CEO, winning the enterprise mobile software visionary category.
The enterprise mobility initiative is based on our ClickAppStore
which includes numerous ready-to-use mobile business apps, as well as a unique integrated development environment (IDE) in which
IT professionals can assemble business apps into end-user solutions using primarily no-coding ‘drag and drop’ visual
wizards. As more companies move to build their own application stores for smartphones and tablets, we believe that we have one
of the best platforms for enabling IT professionals to develop their own application store with minimal time to market per app,
and with considerably lower technical skills requirements.
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By offering scaled down versions of our products, or specially
developed versions for medium and small businesses, or SMB, we now address the needs of service sector companies of all sizes -
from companies with 50,000 employees to companies with five employees. Recognizing that many large service companies today outsource
or utilize external contractors, we offer capabilities in our products to support such operations under a variety of arrangements
between our client and its contractors.
While other service management applications, such as Customer
Relationship Management (CRM), Enterprise Asset Management (EAM), or Outage Management Systems (OMS), produce work orders to be
executed, our products for Workforce Management and Service Optimization (WFM & SO) focus on the fulfillment/delivery of these
work orders in a cost-effective manner. In a way our WFM & SO is the flip side of CRM, EAM and OMS. All of these combined may
also be categorized as an Asset Performance Optimization (APO) offering.
Internal and External Interoperability
Our products operate on the same software architecture with
extensive interoperability within our own products, as well as with external products. In 2009 we released Version 8 of our products
which is based on Service Oriented Architecture (SOA), an architecture which, we believe, is the standard in the software industry.
This architecture enables interoperability via web services and greatly facilitates integration with the outside world. The ease
with which our products can be integrated with leading CRM, Enterprise Resource Planning, or ERP, and EAM solutions, often with
standard interface adaptors, enables our customers to efficiently deploy our solutions.
In our ClickPlatform we have also adopted an extensive approach
towards interoperability. Our Mobility Platform is infrastructure-agnostic and can integrate with various state-of-the-art vendors
such as Microsoft (RDA), SAP (Sybase/SUP) and pure HTML5WebService. We further provide an innovative set of visual configuration
tools and a flexible object model for building mobile business applications and storing them in our shared ClickAppStore. Our ClickStudio,
using drag-&-drop functions, allows the creation of modules and workflows components based on ClickApps, with the ability to
connect them together into one or more business applications.
Methodically Expanding the Industry
Verticals We Address
Over the years we have been methodically expanding, and continue
to expand, the industry verticals we address. Historically our focus was on mobile workforce for field service operations, including
utility (electricity, gas and water) companies, telecommunication, computer and office equipment, medical equipment, and the like.
A typical scenario would be optimal resource and time slot allocation for a stream of incoming service calls to install, repair
or service customer or infra-structure/network equipment. Over the years, this group expanded to include insurance agents, home
health care and oil and gas companies. With the introduction of enhanced shift scheduling (rostering) products, we expanded to
cover industry verticals that operate a shift-based workforce - 24x7 or more than one shift. These verticals include both field
service operations such as public transportation, airport security and in-house service operations such as prison contact centers,
retail stores, and more. A typical scenario involves the assignment of people to shifts in such a way that estimated customer demand
for service is optimally covered, employee desires are respected, and cost is minimized.
Value to Our Customers
We sell
end-to-end solutions
to support decision-making and execution needs across the service enterprise covering long, mid, and short term needs, including
intense real time processes to address the dynamic aspects
during
the day of service. We sell to service operations that
need to (1) optimize the delivery of their service commitments, and (2) grow the cost of service at slower pace than their revenue
growth. We create value by considerably increasing compliance with service commitments, resource productivity and overall visibility
and control.
We offer value to customers at several levels which can be generally
categorized into two main categories. The first category is group productivity (W-6). The second category is personal productivity
– maximizing the resource’s individual productivity and job quality.
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Before optimization and mobility solutions are introduced to
a service organization, W-6 decisions are made manually by schedulers/dispatchers, and communication with the field during the
day is non-existent or limited to voice communication. Our products are designed to markedly improve the customer experience in
today's intense and demanding service world. Our goal is to eliminate the so called "service guy syndrome" – a
situation we are all too familiar with of waiting at home endlessly for the service technician to arrive. In addition to improving
customer service, which by itself has substantial impact on business success and market share, our products enable our clients
to improve productivity by reducing travel time, reducing overtime, increasing on-site efficiency and minimizing overall time waste.
The value delivered by our products is quantifiable and can be measured by business metrics that directly impact the financial
results of our clients. These metrics include, for instance, impact on revenues derived from improvements in productivity as measured
by an increase in the number of jobs delivered, or impact on operating profit. With our products, our clients can scale up their
revenues and profits faster than the scale up needed in their cost of operation in order to achieve their business growth.
Markets and Product Offerings
Task-based versus Shift-based Service
Operations
Service operations can also be classified into field service
operations - operations where the service is delivered at the customer location - and in-house operations - where the customer
comes to the service provider to receive service, or receives the service by phone, e.g. hospitals, retail, or airports. In field
service operations, the basic time units in daily management are job duration at customer sites and travel time from customer to
customer, or task-based scheduling. On the other hand, in many in-house service operations the basic time units for daily management
are shifts, e.g. 7AM to 3PM, 3PM to 11PM, etc., and the challenge for these operations is shift-based scheduling. Many service
operations requires both shift scheduling as well as intra-shift task-based scheduling, such as position switching of airport security
agents within a shift, or agents in contact centers within a given shift, or accompanying prisoners to the court house. One of
our unique differentiators is the ability to address within one set of integrated products a wide range of field service and in-house
service scenarios - from operations with relatively low changes during the day to companies with high rates of dynamic changes
requiring real time workforce optimization. We believe that this unique differentiator increases our win rate for new clients in
certain industries. By adding shift optimization solutions to our offerings we increased considerably the size of our addressable
market by expanding into in-house service operations, or other shift-based operations such as public safety forces and transportation.
Service Chain Optimization: From Daily
Management to Tactical and Strategic Decision Making
The optimization and decision-making support which our products
offer do not start on the day of service. By the time we reach the day of service, the workforce's size and skill mix have already
been determined down to the names of the individuals and the shift each one of them will be staffing on that day. This capacity
is the result of a sequence of decisions, some of which may have been made as long as a year or more in advance. In the period
just before the day of service individuals are assigned to shifts for the coming weeks in a way that their quantity and skill mix
can cover the estimated demand for each hour of the day/week. In the months prior to staffing the shifts for a given week, we need
to first ensure that an adequate group of people mix by skill and sites will be available for selection from the personnel available
for the shifts, e.g., approving vacation requests, training assignments and delegation to sub-contractors. Hiring options at this
stage are fairly limited. This stage is for "master" planning, also known as tactical resource planning.
Several months prior to the day of service, capacity planning
takes place. This phase involves determining the size and the skill mix in each territory as a function of the company's strategic
plan and forecasted demand for customer service. For example, a company may plan to introduce a new product line or expand in a
given territory. At this stage, sufficient time is available for hiring and training new employees or relocating or re-training
existing employees. For each of these decision-making stages, a key input is demand forecasting by job type and territories with
the time accuracy required for that stage.
This concept of continuous optimization over the decision making
time horizon is known as "service chain optimization," a process pioneered by us in the 1990's and for which we have
been issued a U.S. patent (see "Intellectual Property" below).
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Our products cover the needs of companies
across the entire service decision making chain. This holistic approach – which is a key differentiator of our offering -
streamlines operations across all levels and functions in the organization from executives to forecasters and planners all the
way to regional service mangers, dispatchers and individual resources, e.g. technicians. We leverage recent technology developments
in devices (e.g., tablets, smartphones) as well as delivery models (e.g., on-premise, hosted). By incorporating these into our
offerings, we provide the latest and most advanced work force management solutions to our clients, and the best possible customer
experience to their customers.
We continue to grow a knowledge base and approach to service optimization and time-related
needs. Our scalability, algorithmic intelligence and power, broadly applicable service platform (ClickPlatform), and integration
of all aspects of the service model allow us to address nearly every service problem, in any environment, for any size and type
of organization.
Mobility Technology Enabling the Real
Time Service Enterprise
A service operation is ultimately measured by its performance
at the day of service. A typical day in a field service operation starts with the morning schedule that contains the assignments
for all the known work orders of the day.
As the day develops, emergencies may arise,
cancellations may occur, jobs may take longer or shorter than expected, and traffic problems may cause unexpected delays. These
contingencies present significant challenges and an effective workforce management solution must minimize the disruptions to the
existing work orders while accommodating the new emergency orders that must be delivered on the same day. By integrating real-time
updates from the technician's mobile devices and/or GPS-based location reporting devices with our decision-making algorithms, our
solutions offer comprehensive coverage to address these challenges and help ensure that the work-plan is continually optimized.
The wide acceptance of mobile devices, including smartphones
and tablets offer unique opportunities to continually optimize service delivery execution. We believe that handheld data communication
devices and GPS location reports can be used far beyond their traditional role of data transmission to and from the field. These
tools can be used for real-time decision-making in order to increase productivity and customer responsiveness. For instance, our
products and solutions enable a concept known as "drip feed" management by which, initially, every technician receives
only the first two tasks of the day. Upon completing the first task, the technician confirms task completion and a new task is
assigned. This technique contributes to improved priority management, travel minimization and customer responsiveness. Similarly,
with a GPS reporting system, the dispatcher need not ask technicians where they are located since he or she knows at all times
where every technician is located, generating additional efficiencies by improved customer-technician assignments. We also provide
applications via mobile devices that support specific business process flows that enables the technician to manage business process
including connectivity to back office systems like ERP and CRM.
Our solutions constantly monitor the incoming list of new tasks
at all levels of frequency in full synchronization with the delivery status of the existing tasks and the availability of technicians
and spare parts in order to maximize productivity and output while complying with promised delivery dates and other business rules.
Mobility Technology Enabling Higher Personal Productivity
The early mobile devices were quite limited in terms of screen
size, graphics, typing, and overall user-interface, and not much could be done with them beyond job-dispatch and job-delivery exchange.
With the introduction of smartphones and tablets, greater opportunities exist to support the individual user. Once several jobs
have been assigned to a resource, our mobility apps further improve the resource’s productivity by offering timely help in
navigation, asset information, timesheets, job reporting, upselling and more. The mobile device transforms into the mobile office
of the resource, virtually eliminating paperwork, minimizing errors, and increasing productivity even further. All these benefits
are compounded on top of the business gain derived from the group productivity.
ClickAppStore and Enterprise Mobility
With the proliferation of smartphones and tablets for consumer
use, business people are naturally looking for ways to use them for business needs. According to VDC Research estimates, there
were approximately 300 million smartphone users and 25 million tablet users in the enterprise market in 2012, – and by 2014,
the research firm projects the mobile workforce will grow to 1.2 billion workers.
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Types of mobile users and advantages
: Two main types
of mobile business users can be distinguished: an office worker who is occasionally in the field, and a mobile worker who spends
most of his/her working time in the field.
Examples of the mobile worker are:
utility and telecommunication
engineers - for both consumer work as well as infrastructure work, oil and gas employees, technicians for office, high tech or
medical equipment, insurance claim adjustors, home healthcare providers, field door to door sales agents, pharmaceutical agents,
and the like. While the advantages of mobile devices for the occasional user are moderate, they offer tremendous benefits for the
field mobile worker in terms of productivity gains and customer satisfaction. The mobile field user's attention, e.g., cable technician,
or insurance agent, is focused on the mobile device for only short time slots as most of their time should be devoted to interacting
with people, servicing equipment, driving, or other tasks involved in getting the job done. Thus it is critical to have streamlined
user interfaces that require minimal typing and easily handle all back-office communication. Without these prerequisites, users
will resort back to paper-work and voice communication despite all their limitations, e.g., time consumption and errors.
Uniqueness of business mobile apps
: The main difference
between consumer mobile apps and business mobile apps is in the type of need they answer for the user of the mobile device. Consumer
mobile apps are designed for the single user, typically are not interoperable and do not easily connect to enterprise back-end
organizational systems. They are not geared for the tight security requirements of business systems. Additionally, business people
often need to use multiple apps to carry out their business role, where the output of one app serves as the input for another app,
and apps are assumed to be aware of common data (as opposed to having the user copy and paste data from one app to another). The
need for streamlined workflow is critical for the business mobile apps. The benefits of these apps, specifically those designed
for the enterprise, are that they work together and provide an end-to-end connection between the mobile device and the back-office
enterprise IT systems. In addition to simplifying everyday processes and improving productivity, business apps provide the potential
to significantly increase customer satisfaction by introducing processes that automate response or notifications to the customer.
The
ClickAppStore
is a virtual store implemented through
an application website that contains a wide variety of business-oriented “ClickApps”. The ClickApps address a range
of common business scenarios/processes for different industries, including upselling, employee collaboration, timesheet management,
employee safety and travel navigation.
Using an integrated development environment called “ClickStudio,”
discrete apps can be combined to form composite apps for complete end to end work flows and solutions. A significant portion of
this process is accomplished via “drag & drop” operations with minimal coding and without having to upgrade the
existing underlying infrastructure. Our ClickAppStore uses our ClickPlatform to keep track and maintain context across multiple
mobile apps, in order to make these workflows seamless and friendly.
We intend to embed the ClickButler technology serving as the
user’s ultimate personal assistant in just about every ClickApp where it may be useful. Contemporary mobile solutions require
too much swiping and typing which consume precious time and reduce user-acceptance and usage. ClickButler technology leads to significant
efficiencies and improvement in compliance with company policies derived from prompts and reminders, minimal typing, health and
safety aids, and more. The ClickButler concept is designed to improve the built-in “intelligence” of our mobile and
non-mobile apps by anticipating what the user needs and acting on it proactively, and within the right context. Our notion of a
“Context Board” and its related actions expands the definition of “state,” “context” and “action”
to just about any parameter in the ‘Business Universe’ under consideration - such as customer contract, technician
skill, spare-part availability or job urgency. Unlike the consumer world where location-awareness, time-awareness, and weather-awareness
cover the vast majority of the behaviors seen today, ClickButlers’ generalized engine for context- aware computing, systematizes
the creation of butler behavior, including tools to configure them at a group and individual level. (Certain butler behaviors are
derived from company practices and policies and thus are common to all users, e.g. service technicians).
Suites, Products and Services
Our solutions are designed to deliver improvements in:
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workforce productivity;
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responsiveness to customers;
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customer service experience;
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profitability of the service operation; and
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reduction in missed customer commitments.
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Once we sell our products we are frequently
contracted for services to help with their deployment. To ensure success and minimize cost to our customers, each of our services
engagements follows a structured implementation methodology which has proven successful in hundreds of customer implementations. This
methodology includes the following phases: planning, requirements gathering, design, delivery, training, testing, go-live
and transition to worldwide support organization. Each phase requires the cooperation of and contributions from the customer in
order to ensure a successful delivery.
Unlike more traditional methodologies, when we start working
with a new client, we do not start with a blank slate, ask the users what they want, write down the answers, and return months
later with an implemented version, only to learn that certain points were missing or misunderstood. To deliver what the users really
need, we have developed a set of "starter kits" and automatic adaptation processes that together deliver ready-to-go
"close-enough" solutions. We work with the users on real-life scenarios on a working solution, and the users only need
to point out what they like and what they want to change, leading to a much faster and more reliable process of delivering a usable
solution. We call this methodology "WISIK", or "When I See (it) I’ll Know (it)". Users are much better
at adapting on a working system than they are at designing a system from scratch.
Suites
Our solutions are offered individually or packaged into four
main suites which together comprise our Service Optimization Suite:
Field Service Daily Suite
covers automatic decision making
and optimization support to manage field service operations: commencing from appointment booking and scheduling during the period
around the day of service, followed by real time scheduling and optimization during the day of service and culminating with reports
and business metrics analytics after the day of service.
Roster (Shift Planning) Suite
covers shift planning needs
for both the manager as well as the employee to optimize the balance between staffing levels needed for serving customers and managing
labor costs, and employee preferences. This suite is offered in several configurations for different industry verticals ranging
from police forces to contact centers, and more.
ClickMobile and Mobility Suite
covers the needs of the
mobile individual and back-office staff for field data communication, such as sending jobs from the back office to the person's
hand-held device, and the person's ability to accept/decline the job, report on progress and job completion, as well as up-selling
by a repair technician, capturing customers' signatures, or sending the person's own time sheet to the back office. Geography support,
such as travel guidance and information about underground equipment are also covered. Together with the Field Service Daily Suite,
the Mobility Suite offers a complete solution for the real time service enterprise, another concept which we have pioneered.
Forecasting and Planning Suite
covers tactical short
term resource planning, such as vacation requests and training needs, as well as longer term capacity planning that addresses the
question: what should be the size and skill mix of the field force in each of the territories. To perform these planning questions
we also offer forecasting capabilities by which our customer predicts the volume and type of service calls that will arrive at
each territory unit for a given time horizon.
Products
ClickSchedule
optimizes service scheduling and routing
to improve workforce productivity by balancing customer, service and asset resources, and organizational preferences, including
contractual commitments, priority, drive time, skills, and service and asset resources availability. Configuration capabilities,
a high degree of scalability and use of standard service oriented architecture compliant web services interface coupled with graphic
mapping tools are designed to ease and improve integration with other enterprise systems and deployment according to organizational
business policies and processes. ClickSchedule is our main software platform and accounted for the majority of our license revenues
in each of 2012, 2011 and 2010.
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ClickAnalyze
provides reporting, monitoring and service
business analytics for workforce performance measurement and strategic decision support. ClickAnalyze enables analysis of key performance
indicators, including resource productivity, operational costs, and responsiveness to customers. Integrated within the Service
Optimization Suite, ClickAnalyze provides executive level summaries, as well as operational detailed reporting and analysis by
territory, job type, time frame and other criteria.
ClickLocate (LBS)
captures the location information of
a field service engineer and/or his or her vehicle obtained via GPS or other technology and integrates it with ClickSchedule for
use in optimized scheduling. LBS then enables service organizations to improve their service operations by allowing them to make
decisions and take actions based on location information, including near real-time engineer locations. In effect, LBS enables service
managers to "see" the current location of the entire mobile workforce at one time.
ClickContact
is a customer interaction management solution
that enables self-service appointment booking, order updating, automatic customer notifications and customer satisfaction surveying.
From scheduling the initial appointment through enabling a post-service follow-up survey, ClickContact provides enhanced customer
interaction management throughout the service lifecycle.
ClickRoster
provides interactive and automated workforce
shift planning based on forecasted workload by quantities and skill requirements, rules and regulations, working contracts, engineer
skills, calendar and preferences.
ClickPlan
provides interactive and automated workforce
planning for staffing and deployment of the field workforce based on forecasted workload. ClickPlan is designed to enable service
organizations to resolve workforce shortages and surpluses weeks and months in advance. Comparing available resources to forecasted
workloads, ClickPlan helps determine the best strategy to ensure the right people are in the right place at the right time.
ClickForecast
provides field service workload forecasting
to enable companies to project workforce capacity. ClickForecast can combine historical service workload with future business events
to create a forecast for each territory, job type, or business unit. ClickForecast enables service managers, marketing, and sales
to collaboratively determine the demand levels of customers, and to create multiple forecast scenarios, each with different business
assumptions.
ClickSoftware Cloud Services
ClickSoftware Cloud Services
enable the customer to utilize
our full product offering in the cloud, thus gaining low total cost of ownership, shorter deployment period, minimal up-front investment,
scalability and single sign-on from any location.
ClickCloud
offers medium and large market enterprise
customers an alternative to our classic on-premises deployment of the Service Optimization Suite. ClickCloud also enables a hybrid
IT model, which is a solution comprised of a mix of Cloud and on-premises deployment. Using ClickCloud customers can choose to
control their maintenance and upgrade schedule, as well as the add-ons that they use to enhance their individual solution.
ClickExpress
offers SMB customers the ability to be up
and running within a relatively short period of time, with the latest version of our products. ClickExpress provides the key
capabilities required by a service organization including work order management, automated scheduling, mobile dispatching and reporting
from the field using our advanced device agnostic mobility solution and a full range of analytics and reporting tools.
Principal Markets
Traditionally, we have focused on
the large enterprise market.
We have over 200 enterprise customers and dozens of smaller customers. Our workforce management
and optimization solutions are utilized by leading organizations in a number of service industry segments, including: utilities
and energy, telecommunications, oil and gas, retail, insurance, high-technology, computer and office equipment, industrial equipment,
medical equipment, building automation, public security, home services and transportation.
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In addition to expanding to new industry verticals we have recently
started to expand the territories we address with special focus on Russia/Commonwealth of Independent States and Latin America.
We sell our products to a broad base of customers representing
a variety of industries with unique needs. During 2012, our five largest customers together accounted for approximately 36% of
our revenues. See Item 3.D – Risk factors "If our relationships with our key customers are terminated, our revenues
will decline and our business will be adversely affected."
With the introduction of additional products and services as
described above we expanded our addressable market in a significant way as well as addressing new markets, as follows:
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The Mobility Suite enables us to
attract customers who prefer to start with mobility needs as opposed
to optimization
. See “ClickMobile and Mobility Suite” above.
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(b)
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ClickSoftware Cloud Services enable us to attract customers who prefer cloud-based solutions as opposed to the more traditional
on-premise software solutions. See “ClickSoftware Cloud Services” above.
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The above offerings join our traditional workforce management
and optimization products for our markets. We remain focused on the service sector, and intend to capitalize on the positive synergies
between our offerings to create force multipliers. For example, most enterprise field operations require a mobility solution. Thus
a client for the Field Service Daily Suite is also a candidate for the Mobility Suite and vice versa. Many enterprise field operations
employ small contractors that can use the SMB or Cloud solutions, and via integration of the two a win-win situation is created
to streamline the interaction between a service provider and its contractors. Finally, many in-house service operations that face
intra-day scheduling challenges can also use our classic scheduling products.
Sales and Marketing Channels
We market and sell our products through our direct sales force
located in North America, Europe and the Asia Pacific region, as well as through reseller agreements with partners. Recently we
have increased our focus on markets in Latin America and Russia/Commonwealth of Independent States. We continue to create and strengthen
partner relations. Our multidisciplinary sales teams consist of direct sales executives and sales executives who work with our
resellers, or Indirect Sales Team, sales support consultants and internal sales staff. The internal sales staff is responsible
for generating leads and screening prospective customers. Sales support engineers assist the sales executives in the technical
aspects of the sales process, including preparing demonstrations and technical proposals. Our sales executives are responsible
for completing the sales process and managing the post-sale customer relationship, which consists of ongoing relationship management
and the sale of additional licenses and products. Our management also takes an active role in our sales efforts. The knowledge
gained by our sales, alliances and marketing force is also communicated to our product marketing group, which guides our development
team. This enables our organization to align the functionality of our products with customer and partner needs.
We typically focus our direct sales and marketing efforts on
the customer's executive officers, including the vice president of customer service, the chief information officer, the chief financial
officer and other senior executives responsible for improving customer service at our customers' organization. To effectively promote
product awareness, we engage in marketing activities in a wide variety of areas, including public relations and analyst relations,
email campaigns, web seminars with our customers and industry analysts, newsletters and advertising creation and placement, direct
mailings and trade shows.
In 2008, we entered into a global reseller agreement with SAP
AG, pursuant to which SAP resells certain of our products. We also provide second-level support to SAP in connection with our products.
Our products are included on SAP's global pricelist in specified bundles, and sold under the standard SAP end-user license agreement
and global support commitments. We believe that our alliance with SAP increases our presence in our existing markets and assists
with introducing our products into new markets. In 2011, we entered into a global solution partner agreement with Infor Global
Solutions Limited, or Infor.
Our corporate development organization supports joint sales
and marketing activities with our business partners. Our business relationships with large ERP, CRM, Human Capital Management,
or HCM, and EAM enterprise software vendors enable us to use our partners' market presence and sales channels to create significant
additional revenue opportunities. Our strategy is based on entering into reseller relationships with the leading enterprise software
vendors. This strategy is further enhanced through our offering of adaptors that enable rapid integration and implementation of
our products into other major ERP, HCM, CRM and EAM systems such as SAP ERP and CRM, and Infor EAM and ERP.
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We also market our products through the systems integrator community,
or SIs, including companies such as Accenture, IBM, Infosys and Cap Gemini. These relationships complement our enterprise software
reseller agreements and extend our presence and brand name in new and existing markets. These SIs provide various levels of resources
to integrate, customize and implement our solutions. Depending on the strength of the relationship, we have co-invested via our
partner enablement program in jointly developing industry-specific solutions, training and certifying the partner's professional
services teams, developing co-marketing programs, and incorporating our products into their marketing/referral strategies.
Implementation Methodology and Implementation
Partners
We also invested in the development of a methodology and a set
of tools to support implementation processes which have evolved in a way that streamlines the deployment phase and shortens "time
to value." This methodology and the tool set are used by both our internal project teams as well as by certified implementation
partners. We also provide best-practice consulting on improving and transforming the service process.
Agile Development Methodology
Since 2010 our research and development department has implemented
the “Agile” development methodology known as “scrum” framework. The Agile methodology allows us to be more
flexible and dynamic and to deliver new features on short notice. Our customers can influence our product road map “on the
fly” so that we can adjust our development plans on a monthly or even weekly basis. The Agile methodology brings our research
and development efficiency to a new level of accuracy in meeting the demands of our customers. The Agile methodology is based on
sophisticated electronic tools that support the procedures and processes of the scrum framework and provide monitoring and control
mechanisms.
Competition
The market for our products
is competitive and rapidly changing. Competition may increase in the future as
the workforce management and optimization
market gains size and increased business focus, current competitors expand their product offerings, and new companies enter the
market. See Item 3D – Risk factors – "We face competition, which could make it difficult to compete successfully."
In 2012, Gartner, a leading information
technology research and advisory company, identified us among a select group of companies included in Gartner's Magic Quadrant
for Field Service Management. We were positioned within the "Leaders" quadrant (source: Magic Quadrant for Field Service
Management, by William McNeill, Michael Maoz and Gordon Van Huizen, publication date: October 17, 2012).
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The principal competitive factors in the workforce management
and optimization industry are:
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the technological capabilities and performance of the solution;
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·
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installed base, domain expertise and experience with large-scale implementations;
|
|
·
|
the acceptance and adaptability of the workforce management and optimization solution to the solution offerings of large SIs
and CRM/ERP vendors, and the ability to form marketing alliances with the foregoing; and
|
1
The Gartner Report described herein, (the "Gartner
Report") represents data, research opinion or viewpoints published, as part of a syndicated subscription service, by Gartner,
Inc. ("Gartner"), and are not representations of fact. The Gartner Report speaks as of its original publication date
(and not as of the date of this Annual Report) and the opinions expressed in the Gartner Report(s) are subject to change without
notice. Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise technology
users to select only those vendors with the highest ratings. Gartner research publications consist of the opinions of Gartner's
research organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied,
with respect to this research, including any warranties of merchantability or fitness for a particular purpose.
20-F ClickSoftware Technologies Ltd.
|
Page
25
|
We believe our solutions compare favorably with our competitors'
solutions based on these competitive factors. Other key competitive factors include a broad base of users, strategic alliances,
key reference customers, interoperability, integration of complementary products and services, technological leadership, product
performance, price, customer support, name recognition, relationships with partners and distribution channels, the ability to respond
quickly to emerging opportunities and our financial strength.
Our current and potential competitors include:
|
·
|
software application vendors that offer workforce management solutions with certain optimization modules as part of their overall
offerings, either on premises or via a hosted/Cloud service including, but not limited to, Oracle, ServicePower Technologies plc.,
Ventyx (part of ABB Ltd.), TOA Technologies and Astea;
|
|
·
|
systems integrators and internal information technology departments that may elect to develop a solution in-house;
|
|
·
|
software vendors developing solutions that compete with our shift management solutions, such as Quintiq, Kronos, Verint and
Allocate Software; and
|
|
·
|
mobile field service vendors such as Syclo (an SAP company) and Antenna Software.
|
Intellectual Property
We believe that the improvement in our existing products and
technologies and the development of new products are important in establishing and maintaining a competitive advantage.
We have been issued three patents.
One of these patents was issued in the United States and describes a method and system for assigning human resources to provide
services. We own a similar patent in Israel. A third United States patent relates to workforce collaboration on real-time problem
resolution and automatic reuse of the discussion for solving similar problems in the future. Our patents will expire during 2020-2022.
We also have
five patent applications pending in the United States and four patent applications pending in Israel. As we
continue to develop new applications of our products, we will consider submitting additional patent applications. Patents may not
issue from any of these pending applications and, even if patents do issue, the claims allowed may not be sufficiently broad to
protect our technology. In addition, patents issued to us may be challenged, invalidated or circumvented, and the rights granted
thereunder may not adequately protect us.
We own several trademark registrations for various marks in
the U.S., the European Community, the UK and Israel.
Our success and ability to compete substantially depend on our
internally developed technology, which we protect through a combination of trade secrets, copyrights, trademarks, patents and intellectual
property law, together with non-disclosure and invention assignment agreements. These legal protections provide only limited protection.
See Item 3.D – Risk factors – "Our intellectual property could be used by third parties without our consent because
protection of our intellectual property is limited" and this Item 4.B – Business Overview - "Competition".
Although we rely on a combination of means by which to protect our intellectual property, we believe that factors such as the technological
and creative skills of our personnel, new product developments, frequent product enhancements and reliable product maintenance
are more essential to establishing and maintaining a technology leadership position than intellectual property protection.
We generally enter into non-disclosure agreements with our customers,
business partners, employees and consultants and generally control access to and distribution of our software, documentation and
other proprietary information. Also, our end-user licenses are designed to prohibit unauthorized use, copying and disclosure of
our software and technology in the United States, Israel and other countries.
Substantial litigation regarding technology rights exists in
the software industry, and we expect that software products may be increasingly subject to third-party infringement and ownership
claims as the number of competitors in our industry segment grows and the functionality of products in different industry segments
overlap. See Item 3.D – Risk factors – "Our technology and other intellectual property may be subject to infringement
claims".
20-F ClickSoftware Technologies Ltd.
|
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26
|
Regulation
We do not operate in a market governed by specific regulations
but our business is affected by certain government regulations. For example, our ability to manufacture products outside Israel
without the approval of the Chief Scientist is restricted under law and we are required to pay increased royalties to the Chief
Scientist of up to 300% with respect to any products manufactured outside Israel. See Item 3.D – Risk factors – "The
government programs in which we have participated and the tax benefits we receive require us to satisfy prescribed conditions and
may be delayed, terminated or reduced in the future." Also, any merger or acquisition of us will require the prior consent
of the Chief Scientist, as well as authorization from the Investment Center.
|
4.C.
|
Organizational structure
|
Our directly and indirectly held principal operating, wholly-owned
subsidiaries and their countries of incorporation are:
|
·
|
ClickSoftware, Inc. (United States)
|
|
·
|
ClickSoftware Central Europe GmbH (Germany)
|
|
·
|
ClickSoftware Europe Limited (United Kingdom)
|
|
·
|
ClickSoftware Belgium N.V. (Belgium)
|
|
·
|
ClickSoftware Australia Pty. Ltd. (Australia)
|
|
·
|
ClickSoftware India Private Limited (India)
|
|
·
|
ClickSoftware Singapore Pte. Ltd. (Singapore)
|
|
·
|
ClickSoftware Technologies (Pty) Ltd. (South Africa)
|
|
·
|
ClickSoftware Brazil Soluções em Gestão de Forças de Trabalho Ltda.
(Brazil)
|
|
4.D.
|
Property, plants and equipment
|
We have a lease for approximately 58,000 square feet of office
space located in Petach Tikva, Israel. This lease expires in January 2015 and includes an option allowing us to extend the lease
term to January 2019. This office space is used for management, marketing, sales, research and development and implementation activities.
Our subsidiaries lease offices in several locations and typically
engage in sales and marketing, implementation and support, and administration activities.
Our U.S. subsidiary operates from a leased facility of approximately
25,000 square feet of office space located in Burlington, Massachusetts. This lease expires in May 2017.
Our U.K. subsidiary operates from a leased facility of approximately
11,500 square feet located in Burnham, near London. This lease expires in March 2023 and includes an early termination right allowing
us to terminate the lease term in March 2018.
Our Australian subsidiary operates from a leased facility of
approximately 10,000 square feet located in Melbourne. This lease expires in December 2017 and includes an option allowing us to
extend the lease term to December 2022.
Our Indian subsidiary operates from a leased facility of approximately
22,000 square feet located in Gurgaon near New-Delhi. This lease expires in December 2015 and includes an option allowing us to
extend the lease term to December 2021.
We also lease additional smaller offices in various sites in
the Americas, Europe and Asia.
We consider that our current office space
is sufficient to meet our anticipated needs for the foreseeable future and is suitable for the conduct of our business.
|
ITEM 4A.
|
UNRESOLVED STAFF COMMENTS
|
None.
20-F ClickSoftware Technologies Ltd.
|
Page
27
|
|
ITEM 5.
|
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
|
Overview
We derive revenues from the licensing of our software products
and the provision of consulting and support services. We recognize revenues in accordance with the Accounting Standards Codification
Topic, or ASC, 985-605 "Software Revenue Recognition", as amended, or ASC 985-605 (see Note 2 of the notes to our consolidated
financial statements included later in this annual report).
Service revenues are comprised of revenues from consulting,
training, and post-contract customer support. Consulting services are billed at an agreed-upon rate, plus incurred expenses. Customers
licensing our products generally enter into consulting agreements with us. Post-contract customer support arrangements provide
technical support and the right to software updates. Post-contract customer support revenues are charged as a percentage of license
fees depending on the level of support coverage requested by the customer. Our support contracts typically renew automatically
for successive 12-month periods, unless the customer informs us of its desire not to renew.
In 2012, 2011 and 2010, we also derived an immaterial amount
of revenues from cloud-based subscription services (SaaS).
Highlights
Our revenues grew by 15% in 2012 compared to 2011, representing
growth in the Americas as well as growth in all revenue types. Our growth was primarily attributable to our ability to attract
large customers – mainly in the telecommunications markets, strong repeat business and new business.
We reported positive net income in each of the last seven years.
Net income for 2012 was $7.5 million compared to $12.2 million in 2011. We generated $16.2 million in positive cash-flow from operations
in 2012.
As of December 31, 2012, our cash and cash-equivalents, and
short and long-term investments increased to $59.4 million from $55.0 million as of December 31, 2011 after distribution of cash
dividends aggregating $10.1 million.
Critical Accounting Policies
In preparing our consolidated financial statements, we are required
to make estimates, judgments and assumptions that affect the reported amounts of revenues and expenses, assets and liabilities
and contingent assets and liabilities at the date of the financial statements.
On an ongoing basis, we evaluate our estimates, judgments and
assumptions, including those related to revenue recognition, allowances for doubtful accounts, stock-based compensation and goodwill
and other intangible assets. We base our estimates, judgments and assumptions on historical experience and
forecasts
,
and on various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates
under different assumptions or conditions. We believe that the following critical accounting policies affect our more significant
estimates, judgments and assumptions used in the preparation of our consolidated financial statements.
Revenue Recognition
Revenue results are difficult to predict, and any shortfall
in revenues or delay in recognizing revenues could cause our operating results to vary significantly from quarter to quarter and
could result in future operating losses. In addition, the timing of our revenue recognition influences the timing of certain expenses,
such as commissions and royalties. We follow very specific and detailed guidelines in measuring revenues; however, certain judgments
affect the application of our revenue recognition policy.
Our revenues are principally derived from licensing the rights
to use our software and sales of professional services, including consulting, implementation and training. We recognize revenues
in accordance with ASC 985-605 ("Software Revenue Recognition"). Revenues from software license fees are recognized when
persuasive evidence of an arrangement exists, either by written agreement or a purchase order signed by the customer, the software
product has been delivered, the license fees are fixed and determinable, and collection of the license fees is considered probable.
20-F ClickSoftware Technologies Ltd.
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|
License fees from software arrangements that involve multiple
elements, such as consulting, training and post-contract customer support, are allocated to each element based on the residual
method. Under the residual method, consideration is allocated to undelivered elements based upon the fair value of those elements,
with the residual of the arrangement fee allocated to and recognized as software license revenue. We determine the fair value of
each element in multiple-element arrangements, other than license based on vendor specific objective evidence, or VSOE. We determine
the VSOE for each element according to the price charged when the element is sold separately. For post-contract customer support,
we determine the VSOE based on the renewal rates agreed to in the contracts. For other services, such as consulting and training,
we determine the VSOE based on the fixed hourly/daily rate charged in stand-alone service transactions.
Arrangements that include professional services are evaluated
to determine whether those services are essential to the functionality of other elements of the arrangement. When services are
considered essential, revenue under the arrangement is recognized using contract accounting. When services are not considered essential,
revenue allocable to the services is recognized as the services are performed.
Revenue from software licenses that require significant customization,
integration and implementation are recognized based on ASC 605-35
("Construction-Type
and Production-Type Contracts ") using contract accounting on the percentage-of-completion method, based on the relationship
of actual working hours incurred to total working hours estimated to be incurred over the duration of the contract. In recognizing
revenues based on the percentage-of-completion method, we estimate time to completion with revisions to estimates reflected in
the period in which changes become known. If we do not accurately estimate the resources required or the scope of work to be performed,
or do not manage our services properly within the planned periods of time or satisfy our obligations under the contracts, then
future services margins may be significantly and negatively affected or losses on existing contracts may need to be recognized.
Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are first determined, in the
amount of the estimated loss on the entire contract.
Service revenues are comprised of revenues from consulting,
training, and post-contract customer support. Revenues from consulting services are recognized on a time and material basis, or
in a fixed price contract, on a percentage of completion basis. Revenues from training are recognized as the services are provided.
Post-contract customer support arrangements provide for technical support and the right to unspecified updates on an if-and-when-available
basis. Revenues from these arrangements are recognized ratably over the term of the arrangement, usually one year.
We categorize revenue as either software license revenue or
services revenue. We allocate revenue to each of these categories based on the VSOE for elements in each revenue arrangement and
based on the application of the residual method for arrangements in which we have established the VSOE for all undelivered elements.
Where we are unable to establish the VSOE for some of the undelivered
elements, we take a systematic approach, whereby we first allocate revenue to any undelivered elements for which the VSOE has been
established, and then allocate revenue to any undelivered elements for which the VSOE has not been established based on management's
best estimate of the fair value of those undelivered elements. We then apply a residual method to determine the license fee. Management's
best estimate of fair value of undelivered elements for which the VSOE has not been established is based upon the VSOE of similar
offerings and other objective criteria.
We also enter into software arrangements with resellers whereby
revenues are recognized upon sale through to the end user by the reseller.
Our standard payment terms are between 30 and 120 days. Our
policy is not to grant extended payment terms to our customers over 120 days.
We generally do not grant a right-of-return to our customers.
We generally provide a warranty period of about three months at no extra charge. As of December 31, 2012 and 2011, the provision
for warranty cost was immaterial.
20-F ClickSoftware Technologies Ltd.
|
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29
|
Allowance for Doubtful Accounts
We maintain an allowance for doubtful accounts using estimates
that we make based on factors we believe appropriate, such as the composition of the accounts receivable aging, historical bad
debts, changes in payment patterns, customer creditworthiness and current economic trends. If we used different assumptions, or
if the financial condition of customers were to deteriorate, resulting in an impairment of their ability to make payments, additional
provisions for doubtful accounts would be required and would increase our bad debt expense.
In judging the probability that we will be able to collect software
license fees, we continuously monitor collection and payments from our customers and maintain a provision for estimated credit
losses based on our historical experience generally, as well as our experience with specific customers. In connection with customers
with whom we have no previous experience, we typically utilize public financial information or independent resources to evaluate
the creditworthiness of these customers. We perform on-going credit evaluations of our customers.
Goodwill and Other Intangible Assets
Under the revised guidance, entities testing goodwill for impairment
have the option of performing a qualitative assessment before calculating the fair value of the reporting unit (i.e., step 1 of
the goodwill impairment test). If entities determine, on the basis of qualitative factors, that the fair value of the reporting
unit is more likely than not less than the carrying amount, the two-step impairment test would be required.
ASC 350, "Intangibles - Goodwill and Other", requires
that goodwill and intangible assets with an indefinite life be tested for impairment at least annually. Goodwill and intangible
assets with an indefinite life are required to be written down when impaired. Goodwill impairment testing is a two-step process
and may be preceded by a qualitative impairment assessment. Qualitative impairment assessment should be made to changes in circumstances
and events indicating whether some of the intangible assets were impaired. When determined, on the basis of qualitative factors,
that the fair value of the reporting unit is more likely than not less than the carrying amount, the two-step impairment test would
be required. The first step involves comparing the fair value of a company’s reporting units to their carrying amount. If
the fair value of the reporting unit is determined to be greater than its carrying amount, there is no impairment. If the reporting
unit’s carrying amount is determined to be greater than the fair value, the second step must be completed to measure the
amount of impairment, if any. Step two calculates the implied fair value of goodwill by deducting the fair value of all tangible
and intangible assets, excluding goodwill, of the reporting unit from the fair value of the reporting unit as determined in step
one. The implied fair value of the goodwill in this step is compared to the carrying value of goodwill. If the implied fair value
of the goodwill is less than the carrying value of the goodwill, an impairment loss equivalent to the difference is recorded.
Significant estimates used in the fair value methodologies include
estimates of future cash flows, future short-term and long-term growth rates and weighted average cost of capital.
Critical estimates in valuing certain intangible assets include,
but are not limited to, future expected cash flows from customer relations, acquired developed technologies and trade names, and
values of open contracts. In addition, other factors considered are the brand awareness and the market position of the acquired
products and assumptions about the period of time the brand will continue to be used in the combined company's product portfolio.
Management's estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and
unpredictable.
Fair values are determined by using a discounted cash flow methodology
for each business unit. The discounted cash flow methodology is based on projections of future cash flows, future short-term and
long-term growth rates and weighted average cost of capital. We also consider factors such as historical performance, anticipated
market conditions, operating expense trends and capital expenditure requirements. Additionally, the discounted cash flow analysis
takes into consideration cash expenditures for further product development.
We perform our annual impairment tests in the fourth quarter. In
the fourth quarter of 2012, as a result of our analysis, we determined that the fair value of each of the company's reporting units
supported its carrying amount. For goodwill impairment testing we identified 2 separate reporting units: ClickSoftware and Service
Tycoon (ST).
For ClickSoftware the fair value was significantly higher than the carrying amount
.
For ST the goodwill was determined to be impaired and was written off in 2011.
20-F ClickSoftware Technologies Ltd.
|
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30
|
Should future results or economic events cause additional changes
in projected cash flows or changes to other assumptions, or should our business or operational strategies change, future determinations
of fair value may not support the current carrying amount of a reporting unit, and the related goodwill would need to be written
down to an amount considered recoverable.
Recent Accounting Pronouncements
On July 27, 2012, the Financial Accounting Standards Board,
or FASB, issued Accounting Standards Update, or ASU, 2012-02, which amends the guidance in ASC 350-30 on testing indefinite-lived
intangible assets, other than goodwill, for impairment. The FASB issued the ASU in response to feedback on ASU 2011-08, which amended
the goodwill impairment testing requirements by allowing an entity to perform a qualitative impairment assessment before proceeding
to the two-step impairment test. Similarly, under ASU 2012-02, an entity testing an indefinite-lived intangible asset for impairment
has the option of performing a qualitative assessment before calculating the fair value of the asset. Although ASU 2012-02 revises
the examples of events and circumstances that an entity should consider in interim periods, it does not revise the requirements
to test (1) indefinite-lived intangible assets annually for impairment and (2) between annual tests if there is a change in events
or circumstances. We do not expect the adoption of this update to have any material impact on our consolidated financial statements.
|
5.A.
|
Results of operations
|
Our operating results for each of the three years ended December
31, 2012, 2011 and 2010 expressed as a percentage of revenues are as follows:
|
|
YEAR ENDED
DECEMBER 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Software license
|
|
|
35
|
%
|
|
|
36
|
%
|
|
|
36
|
%
|
Services
|
|
|
65
|
|
|
|
64
|
|
|
|
64
|
|
Total revenues
|
|
|
100
|
|
|
|
100
|
|
|
|
100
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Software license
|
|
|
4
|
|
|
|
3
|
|
|
|
3
|
|
Services
|
|
|
35
|
|
|
|
33
|
|
|
|
35
|
|
Total cost of revenues
|
|
|
39
|
|
|
|
36
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
61
|
|
|
|
64
|
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development , net
|
|
|
13
|
|
|
|
10
|
|
|
|
11
|
|
Selling and marketing
|
|
|
32
|
|
|
|
27
|
|
|
|
27
|
|
General and administrative
|
|
|
9
|
|
|
|
9
|
|
|
|
9
|
|
Impairment of goodwill
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
Total operating expenses
|
|
|
54
|
|
|
|
47
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
7
|
|
|
|
17
|
|
|
|
15
|
|
Other income
|
|
|
0
|
|
|
|
-
|
|
|
|
-
|
|
Interest income, net
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Net income before taxes
|
|
|
7
|
|
|
|
17
|
|
|
|
15
|
|
Taxes on income
|
|
|
0
|
|
|
|
3
|
|
|
|
2
|
|
Net income
|
|
|
7
|
%
|
|
|
14
|
%
|
|
|
13
|
%
|
20-F ClickSoftware Technologies Ltd.
|
Page
31
|
Our operating results for each of the three years ended December
31, 2012, 2011 and 2010 are as follows:
|
|
YEAR ENDED DECEMBER 31,
(In thousands)
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Software license
|
|
$
|
34,541
|
|
|
$
|
31,542
|
|
|
$
|
25,825
|
|
Services
|
|
|
65,505
|
|
|
|
55,545
|
|
|
|
45,194
|
|
Total revenues
|
|
|
100,046
|
|
|
|
87,087
|
|
|
|
71,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Software license
|
|
|
3,686
|
|
|
|
2,519
|
|
|
|
2,299
|
|
Services
|
|
|
35,185
|
|
|
|
29,177
|
|
|
|
24,614
|
|
Total cost of revenues
|
|
|
38,871
|
|
|
|
31,696
|
|
|
|
26,913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
61,175
|
|
|
|
55,391
|
|
|
|
44,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
13,146
|
|
|
|
9,019
|
|
|
|
8,081
|
|
Less – participation by the Chief Scientist of the Government of Israel
|
|
|
-
|
|
|
|
-
|
|
|
|
161
|
|
Research and development, net
|
|
|
13,146
|
|
|
|
9,019
|
|
|
|
7,920
|
|
Selling and marketing
|
|
|
31,977
|
|
|
|
23,382
|
|
|
|
19,213
|
|
General and administrative
|
|
|
8,779
|
|
|
|
7,386
|
|
|
|
6,747
|
|
Impairment of goodwill
|
|
|
-
|
|
|
|
939
|
|
|
|
-
|
|
Total operating expenses
|
|
|
53,902
|
|
|
|
40,726
|
|
|
|
33,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
7,273
|
|
|
|
14,665
|
|
|
|
10,226
|
|
Other income
|
|
|
110
|
|
|
|
-
|
|
|
|
-
|
|
Interest income, net
|
|
|
274
|
|
|
|
7
|
|
|
|
189
|
|
Net income before taxes
|
|
|
7,657
|
|
|
|
14,672
|
|
|
|
10,415
|
|
Taxes on income
|
|
|
169
|
|
|
|
2,462
|
|
|
|
1,370
|
|
Net income
|
|
$
|
7,488
|
|
|
$
|
12,210
|
|
|
$
|
9,045
|
|
Comparison of results for years ended
December 31, 2012, 2011 and 2010:
Revenues
|
|
Revenue Breakdown
|
|
|
|
2012
|
|
|
%Change
|
|
|
2011
|
|
|
%Change
|
|
|
2010
|
|
|
|
(In thousands)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software license
|
|
$
|
34,541
|
|
|
|
10
|
%
|
|
$
|
31,542
|
|
|
|
22
|
%
|
|
$
|
25,825
|
|
Percentage of total revenues
|
|
|
35
|
%
|
|
|
|
|
|
|
36
|
%
|
|
|
|
|
|
|
36
|
%
|
Services
|
|
|
65,505
|
|
|
|
18
|
%
|
|
|
55,545
|
|
|
|
23
|
%
|
|
|
45,194
|
|
Percentage of total revenues
|
|
|
65
|
%
|
|
|
|
|
|
|
64
|
%
|
|
|
|
|
|
|
64
|
%
|
Total Revenues
|
|
$
|
100,046
|
|
|
|
15
|
%
|
|
$
|
87,087
|
|
|
|
23
|
%
|
|
$
|
71,019
|
|
Revenues increased 15% to $100.0 million in 2012, compared with
$87.1 million in 2011 and $71.0 million in 2010. The growth in revenues in 2012 was attributable to an increased demand for professional
services and post-contract services and an increase in the volume of licenses sold via our partners and directly, mostly from the
telecommunications and retail industries. In addition, the strengthening of the U.S. dollar against other currencies decreased
our revenue growth from about 17% to about 15%. The growth in revenues in 2011 was attributable to an increase in the volume of
licenses sold and increased demand for professional services and post-contract services via our partners and directly, mostly from
the telecommunications industry. In addition, the weakening of the U.S. dollar against other currencies increased our revenue growth
in 2011 from about 21% to about 23%.
20-F ClickSoftware Technologies Ltd.
|
Page
32
|
|
|
Revenues by Territory
|
|
|
|
2012
|
|
|
%
Revenues
|
|
|
2011
|
|
|
%
Revenues
|
|
|
2010
|
|
|
%
Revenues
|
|
|
|
(In thousands)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
60,123
|
|
|
|
60
|
%
|
|
$
|
40,070
|
|
|
|
46
|
%
|
|
$
|
28,681
|
|
|
|
40
|
%
|
EMEA
|
|
|
32,888
|
|
|
|
33
|
%
|
|
|
39,455
|
|
|
|
45
|
%
|
|
|
37,080
|
|
|
|
52
|
%
|
Israel
|
|
|
456
|
|
|
|
0
|
%
|
|
|
847
|
|
|
|
1
|
%
|
|
|
849
|
|
|
|
1
|
%
|
Asia Pacific
|
|
|
6,579
|
|
|
|
7
|
%
|
|
|
6,715
|
|
|
|
8
|
%
|
|
|
4,409
|
|
|
|
7
|
%
|
Total Revenues
|
|
$
|
100,046
|
|
|
|
100
|
%
|
|
$
|
87,087
|
|
|
|
100
|
%
|
|
$
|
71,019
|
|
|
|
100
|
%
|
In 2012, 60% of our revenues were generated in the Americas
(with 42% in the United States, 11% in Canada and 7% in Latin America), 33% in EMEA (including 15% in the United Kingdom, 3% in
Germany and 3% in Sweden), 7% in Asia Pacific (including 4% in Australia) and less than 1% in Israel. Revenues in the Americas
grew by $20.0 million, or 50%, compared to 2011. Revenues in EMEA decreased by $6.6 million, or 17%, compared to 2011. Revenues
in Asia Pacific decreased by $0.1 million, or 2%, compared to 2011.
In 2012, due to the macro-economic slowdown in Europe, we focused
more of our sales effort on growth opportunities in the Americas. As a result, sales in the Americas reached a record level and
we anticipate continued growth in the Americas as we increase our investment to drive top line revenues. The growth in the Americas
has more than offset the weakness we continue to see in some of our European markets which are still being impacted by challenging
economic conditions.
In 2011, 46% of our revenues were generated in the Americas
(with 39% in the United States and 7% in Canada), 45% in EMEA (including 21% in the United Kingdom, 6% in The Netherlands and 5%
in Sweden), 8% in Asia Pacific (including 5% in Australia) and 1% in Israel. Revenues in the Americas grew by $11.4 million, or
40%, compared to 2010. Revenues in Asia Pacific grew by $2.3 million, or 52%, compared to 2010. The increases in revenues in all
regions were attributable mainly to increased demand for our products from the telecommunications industry, large implementation
projects and demand for post-contract services. The higher growth in the Americas was due to better macroeconomic conditions and
our ability to attract large customers mostly in the telecommunications industry. This relatively slower growth in EMEA was due
to overall weak macroeconomic conditions and a slowdown in revenues from our customers in the utility sector.
In 2010, 52% of our revenues were generated in EMEA (including
26% in the United Kingdom and 6% in Germany), 40% in the Americas (with 32% in the United States and 8% in Canada), and 7% in Asia
Pacific (including 4% in Australia) and 1% in Israel. Revenues in EMEA grew by $9.2 million, or 33%, compared to 2009. The increases
in revenues in the Americas and EMEA were attributable mainly to increased demand for our products, large implementation projects
and demand for post-contract services. The decrease in revenues in Asia Pacific was attributable mainly to the end of a large implementation
project.
Software Licenses
Software license revenues were $34.5 million, or 35% of revenues,
in 2012, compared with $31.5 million, or 36% of revenues, in 2011, and $25.8 million, or 36% of revenues, in 2010. The increase
in software license revenues from 2011 to 2012 of $ 3.0 million, or 10%, was primarily due to an increase in the volume of licenses
sold to new customers directly and via our partners in the Americas. The increase in software license revenues from 2010 to 2011
of $ 5.7 million, or 22%, was primarily due to an increase in the volume of licenses sold to new customers directly and via our
partners, mostly in the Americas and Asia Pacific.
Services
Service revenues were $65.5 million or 65% of revenues in 2012,
compared with $55.5 million, or 64% of revenues in 2011, and $45.2 million, or 64% of revenues in 2010. The increase in service
revenues from 2011 to 2012 was due to increased demand for our professional services in the Americas and post-contract services
in all regions. The increase in service revenues from 2010 to 2011 was due to increased demand for our professional services and
post-contract services in all regions.
20-F ClickSoftware Technologies Ltd.
|
Page
33
|
Cost of Revenues
Cost of revenues consists of cost of software license revenues
and cost of services. Cost of software license revenues consists of expenses related to costs of software purchased or licensed
for resale and of costs related to hosting. Cost of services consists of expenses related to salaries and expenses of our professional
services organizations, costs related to third-party consultants, and equipment costs.
Cost of revenues was $38.9 million, or 39% of revenues, in 2012,
compared with $31.7 million, or 36% of revenues, in 2011 and $26.9 million, or 38% of revenues, in 2010. The increase in the cost
of revenues from 2011 to 2012 was primarily due to higher costs associated with meeting increased demand for our services and software.
In 2012 the cost of licenses increased at a higher pace then the increase in license revenues resulting in lower profitability
compared to 2011, the cost of services increased at a higher pace than the increase in service revenues, as explained below in
"Cost of Services," resulting in lower profitability from services for 2012 as compared to 2011. In 2011 the cost of
licenses increased in line with the increase in license revenues, the cost of services increased at a slower pace than the service
revenues, as explained below in "Cost of Services," resulting in higher profitability from services for 2011 as compared
to 2010.
Cost of Software Licenses
Cost of software license revenues was $3.7 million, or 4% of
revenues, in 2012, compared with $2.5 million, or 3% of revenues, in 2011 and $2.3 million, or 3% of revenues, in 2010. The increase
in cost of software license revenues from 2011 to 2012 was primarily due to an increase by $1.0 million in hosting costs (including
payroll costs) and an increase by $0.2 million in costs of third party licenses. The increase in cost of software license revenues
from 2010 to 2011 in absolute terms was primarily due to an increase by $0.2 million in costs of third party licenses.
Cost of Services
Cost of service revenues was $35.2 million, or 35% of revenues,
in 2012, compared with $29.2 million, or 33% of revenues, in 2011 and $24.6 million, or 35% of revenues, in 2010.
The increase in the cost of
services revenues from 2011 to 2012 of $6.0 million, or 21%, was primarily due to higher expenses associated with the provision
of our services as described below. In 2012, services revenues grew at a slower pace than cost of services resulting in a decline
in profitability.
This decline in profitability relates to our consulting activities that generated lower margins due to
newly launched versions of our products that required us to increase our implementation efforts and thus reduced our efficiency.
Compared with our costs relating to providing services in 2011, in 2012 there was an increase in
our related payroll expenses of $4.0 million, an increase in subcontractors' costs of $0.5 million and an increase of $1.5 million
in other costs, mainly overhead. In addition, the overall impact of the
strengthening
U.S.
dollar against certain currencies in 2012 spread over the various expense items above decreased our costs by about $1.4 million.
The increase in the cost of
services revenues from 2010 to 2011 of $4.6 million, or 19%, in absolute terms was primarily due to higher expenses described below
associated with the provision of our services. In 2011, services revenues grew at a faster pace than cost of services resulting
in improvement in profitability.
This improvement in profitability relates to our post-contract services activities and
consulting activities that generated higher margins due to improvement in our methodologies and implementation process. In addition,
profitability of our services increased relative to previous years due to the decreased use we made of subcontractors' services
and increased usage of our own personnel. Such use of subcontractors' services costs more relative to using internal resources
.
Compared with our costs relating to providing services in 2010, in 2011 there was an increase in
our related payroll expenses of $4.2 million, a decrease in subcontractors' costs of $0.5 million, a decrease in travel costs of
$0.2 million, and an increase of $1.1 million in other costs, mainly overhead. In addition, the overall impact of the weakening
U.S. dollar against certain currencies in 2011 spread over the various expense items above increased our costs by about $0.8 million.
20-F ClickSoftware Technologies Ltd.
|
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34
|
Gross Profit
Gross profit was $61.2 million, or 61% of revenues, in 2012
compared with $55.4 million, or 64% of revenues, in 2011, and $44.1 million, or 62% of revenues, in 2010. The increase in gross
profit from 2011 to 2012 of $5.8 million, or 10%, was due to an increase in gross profit both from services activities and license
revenues. The increase in gross profit from 2010 to 2011 of $11.3 million, or 26%, was due to an increase in gross profit from
services activities and higher gross profit derived from our license revenues. The decrease in gross margin from 2011 to 2012 was
mainly due to a decrease in margins generated by consulting and licenses activities as explained in cost of services section above.
The increase in gross margin from 2010 to 2011 was mainly due to an increase in margins generated by all our activities as explained
in cost of services section above.
Operating Expenses
Operating expenses are categorized into research and development
expenses, selling and marketing expenses and general and administrative expenses.
Total operating
expenses were $53.9 million, or 54% of revenues, in 2012, compared with $40.7 million, or 47% of revenues, in 2011 and $33.9 million,
or 47% of revenues, in 2010.
The increase in operating expenses from 2011 to 2012 of $13.2
million, or 32%, was primarily due to an increase in research and development expenses and selling and marketing expenses. The
increases in research and development expenses and selling and marketing expenses result from our efforts to maintain our competitive
advantage in the market, capture additional market share and place ourselves in a better position to accelerate the growth of our
future revenues. We plan to continue to increase our operating expenses in 2013, specifically in research and development and sales
and marketing, in order to support our growth plans in 2013 and beyond. The increase in absolute terms of operating expenses from
2010 to 2011 of $6.8 million, or 20%, was primarily due to an increase in selling and marketing expenses, research and development
expenses and impairment of goodwill expenses. The increases in selling and marketing expenses and research and development expenses
result from our efforts to maintain our competitive advantage in the market and capture additional market share. The impairment
of goodwill expenses reflect impairment of the Service Tycoon reporting unit which we acquired from AST Technologies in 2009. The
reduction of operating expenses as a percentage of overall revenues is due to lower research and development costs as well as lower
general and administrative costs as a percentage of revenues offset by impairment costs.
Research and Development Expenses, Net
Research
and development expenses consist primarily of personnel costs for product development, net of grants received from the Chief Scientist.
In return for some of these grants, we are obligated to pay the Israeli government royalties as described below which are included
in cost of revenues. In 2008, we completed repayment of our royalty commitments to the Chief Scientist, but remain subject to continued
compliance with the conditions of the grants we received. Grants which we received in 2008 through 2010 are not subject to royalty
payments. See Item 3.D – Risk factors – "The government programs in which we have participated and the tax benefits
we receive require us to satisfy prescribed conditions and may be delayed, terminated or reduced in the future." Software
research and development costs incurred prior to the establishment of technology feasibility are included in research and development
expenses as incurred. Software development costs incurred subsequent to the establishment of technological feasibility through
the period of general market availability of the products are capitalized, if material, after consideration of various factors,
including net realizable value. To date, software development costs that are eligible for capitalization have not been material
and have been expensed.
Research and development expenses, net of related grants, were
$13.1 million, or 13% of revenues, in 2012, compared with $9.0 million, or 10% of revenues, in 2011 and $7.9 million, or 11% of
revenues, in 2010. We did not receive or accrue grants from the Chief Scientist in 2012 and 2011 and received or accrued grants
of $0.2 million in 2010. The increase in research and development expenses from 2011 to 2012 was primarily due to an increase of
$2.7 million in payroll expenses, an increase of $0.6 million in subcontractor’s costs and an increase in other costs, mainly
overhead of $0.8 million. The increased efforts in research and development were aimed at improving our product and cloud platforms,
our mobility offering, including the launch of our ClickAppStore as well as our Rostering offering. In addition, the overall impact
of the strengthening of the U.S. dollar against the NIS in 2012 spread over the various expense items above decreased our research
and development costs by about $0.9 million. The increase in research and development expenses from 2010 to 2011 in absolute terms
was primarily due to an increase of $0.6 million in payroll expenses and an increase in other costs, mainly overhead of $0.3 million.
In addition, the overall impact of the weakening of the U.S. dollar against the NIS in 2011 spread over the various expense items
above increased our research and development costs by about $0.3 million.
20-F ClickSoftware Technologies Ltd.
|
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35
|
Selling and Marketing Expenses
Selling and marketing expenses consist primarily of personnel
and related costs for marketing and sales functions, including related travel, direct advertising costs, expenditures on trade
shows, market research and promotional printing.
Selling and marketing expenses were $32.0 million, or 32% of
revenues, in 2012, compared with $23.4 million, or 27% of revenues, in 2011 and $19.2 million, or 27% of revenues, in 2010. We
increased our selling and marketing expenses in order to support the increase in our revenues. Specifically, we increased sales
capacity in the Americas to support our expansion in Latin America. The increase in the selling and marketing expenses from 2011
to 2012 of $8.6 million, or 37%, was due to an increase of $6.2 million in payroll expenses and an increase in our other selling
and marketing activities of $2.4 million. In addition the overall impact of the strengthening U.S. dollar against certain currencies
in 2012 spread over the various expense items above decreased our selling and marketing costs by about $1.0 million. The increase
in absolute terms in the selling and marketing expenses from 2010 to 2011 of $4.2 million, or 22%, was due to an increase of $2.7
million in payroll expenses and an increase in our other selling and marketing activities of $1.5 million. In addition the overall
impact of the weak U.S. dollar against certain currencies in 2011 spread over the various expense items above increased our selling
and marketing costs by about $0.5 million.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel
and related costs for corporate functions, including information services, finance, legal, accounting, human resources, facilities,
provision for doubtful accounts and costs related to our status as a public company.
General and administrative expenses were $8.8 million, or 9%
of revenues, in 2012, compared with $7.4 million, or 9% of revenues, in 2011 and $6.7 million, or 9% of revenues, in 2010. The
increase of $1.4 million in general and administrative expenses from 2011 to 2012 was mostly due to an increase of $0.6 million
in payroll expenses and an increase in other costs, mainly professional fees and stock-based compensation costs of $0.8 million.
In addition, the overall impact of the strengthening U.S. dollar against certain currencies in 2012 spread over the various expense
items above decreased our general and administrative costs by about $0.4 million. The increase in absolute terms of $0.7 million
in general and administrative expenses from 2010 to 2011 was mostly due to an increase of $0.4 million in payroll expenses and
an increase in other costs, mainly stock-based compensation costs of $0.3 million. In addition, the overall impact of the weakening
U.S. dollar against certain currencies in 2011 spread over the various expense items above increased our general and administrative
costs by about $0.2 million.
Impairment of goodwill and other intangible
assets
We perform our annual impairment
tests in the fourth quarter. For impairment testing we identified two separate reporting units: ClickSoftware and ST
(acquired
from AST Technologies in 2009)
. For ClickSoftware the fair value was significantly higher than the carrying
amount.
For ST the goodwill was determined to be impaired and was written off in 2011. In both reporting units no events
or circumstances indicating impairment of definite lived intangible assets were detected during 2012.
Should future results or economic events cause additional changes
in projected cash flows or changes to other assumptions, or should our business or operational strategies change, future determinations
of fair value may not support the current carrying amount of a reporting unit, and the related goodwill would need to be written
down to an amount considered recoverable.
Interest Income, Net
Interest income includes interest income and gains earned on
our cash, cash equivalents, short and long-term investments and marketable securities, offset by interest expense, and also includes
the effects of foreign currency fluctuations.
Interest income net of interest
expenses, was $0.3 million, or 0% of revenues, in 2012, compared with $0.0 million, or 0% of revenues, in 2011 and $0.2 million,
or 0% of revenues, in 2010. The increase in interest income from 2011 to 2012 was attributable to lower
foreign currency exchange rate fluctuations.
The
decrease in interest income from 2010 to 2011 was attributable to negative
foreign currency exchange rate fluctuations partially
offset by higher returns on our investments
.
20-F ClickSoftware Technologies Ltd.
|
Page
36
|
Income Taxes
Income taxes expenses consist of deferred taxes and current
taxes.
Income tax expenses were $0.2
million, or 0% of revenues, in 2012, compared with $2.5 million, or 3% of revenues, in 2011 and $1.4 million, or 2% of revenues,
in 2010. The reduction in income taxes from 2011 to 2012 was mainly due to changes in deferred taxes and lower pre-tax income.
Deferred taxes assets increased due to temporary differences in the research and development costs in Israel and higher than expected
utilization of loss carry forwards, partially offset by a deferred tax provision as described below
.
Income taxes in 2011 were affected mainly by a higher tax liability in the United States due to higher taxable income and limitations
on our ability to utilize
loss carry forwards as well as a decrease in deferred taxes assets due to utilization of loss
carry forwards.
See Note 14 to our consolidated financial statement for further information. We
expect higher tax rates in 2013 due to the full utilization of tax loss carry forwards in Israel as well as our move to a less
favorable tax bracket.
Our future consolidated tax expense is expected to reflect various
statutory tax rates in the United States, Israel, United Kingdom, Germany, Australia and India. Future tax rates may also increase
due to tax withholdings by various tax authorities, which are not expected to be utilized in the foreseeable future.
As of December 31, 2012, net operating loss carry forwards in
Israel were fully utilized. Additional tax loss carry forwards of approximately $19.0 million at the federal level and approximately
$6.3 million at the state level remain attributable to our U.S. subsidiary. Other tax loss carry forwards in other jurisdictions
are immaterial. The U.S. net operating loss carry forwards will expire gradually from 2013 through 2024. Utilization of U.S. net
operating losses would be subject to substantial annual limitations due to the "change in ownership" provisions of the
Internal Revenue Code of 1986 and similar state law provisions. The annual limitations would result in the expiration of part of
net operating losses before utilization.
In November 2012, a law was enacted in
Israel to incentivize companies to pay taxes on those Approved Enterprises earnings as if distributed, and effectively release
the earnings from any further tax liabilities at the company level. The law, although not mandatory, offers lower tax rates on
those earnings, accumulated through the year ended December 31, 2011, elected to be "released" which as applicable to
us will be around 6%. During 2013, we elected to use the incentive available under the law by paying tax of $0.7 million, thereby
releasing 2011 tax-exempt earnings of $12.2 million for future dividends distributions. Deferred tax provision was included in
our financial statements for the year ended December 31, 2012.
Net Income
Net income for 2012 was $7.5 million, or $0.23 per fully diluted
share, or 7% of revenues, compared with net income of $12.2 million, or $0.38 per fully diluted share, or 14% of revenues, in 2011
and net income of $9.0 million, or $0.28 per fully diluted share, or 13% of revenues, in 2010. Net income in 2012 was lower relative
to 2011 due to increased operating and cost of revenues expenses. Net income in 2011 was higher compared to 2010 due to higher
revenues and increased operating profit and margin, offset partially by higher tax expenses.
Foreign Currency Fluctuations
Our reporting and functional currency is the U.S. dollar. A
significant portion of our expenses related to our Israeli operations are incurred in NIS, and a portion of our revenues and expenses
are incurred in British pounds, Euros, Australian dollars and Indian Rupees. The results of our operations are subject to fluctuations
in these exchange rates. In 2012, 67% of our expenses and 41% of our revenues were incurred in non-U.S. dollar currencies. We engage
in non-speculative forward contracts related to foreign currencies in order to minimize the impact of changes in foreign currency
exchange rates on our earnings. In 2012, the net effect of the change in value of the U.S. dollar against other currencies was
a decrease in revenues by $2.0 million, a decrease in costs of revenues by $1.4 million and a decrease in operating expenses by
$2.2 million. See Item 3.D – Risk factors "Our risk exposure to foreign currency fluctuations is increasing, and we
may not be able to fully mitigate the risk."
20-F ClickSoftware Technologies Ltd.
|
Page
37
|
|
5.B.
|
Liquidity and capital resources
|
Our cash and investments increased by $4.4 million, or 8%, to
$59.4 million as of December 31, 2012, compared with $55.0 million as of December 31, 2011, which was an increase of $4.0 million,
or 8%, compared with $51.0 million as of December 31, 2010. Our primary sources of cash and investments during 2012 were cash flows
of $16.2 million generated from operations and $0.7 million from exercises of employee stock options.
During
2012 we distributed cash dividends aggregating $10.1 million
. Our primary sources of cash and investments during 2011 were
cash flows of $11.9 million generated from operations and $1.5 million from exercises of employee stock options.
During
2011 we distributed cash dividends aggregating $7.5 million
. In March 2013 we distributed a cash dividend of $2.5 million.
As of December 31, 2012, we had cash and cash equivalents of
$12.8 million, short-term deposits of $30.3 million, marketable securities of $15.6 and long-term deposits of $0.6 million. As
of December 31, 2012, $0.6 million in long-term deposits had been deposited with banks to secure letters of credit totaling $0.6
million, which are described below. Our cash, short-term deposits and long-term deposits are deposited primarily in low–risk
and predominantly U.S. dollar denominated investments and bank deposits. The bank deposits are typically held in the form of certificates
of deposit for a period of more than three months and up to 12 months and bear fixed income interest. As of December 31, 2012,
these bank deposits had an average interest rate per annum of 1.3%. Our marketable securities are invested in government and corporate
bonds and had an average annual yield of 1.55%. We adhere to an investment policy which requires investment in high-quality investment-grade
securities provided, however, that as of March 2012, up to $10 million of our total cash and investments may be invested in equities
of companies that have a policy to regularly distribute dividends or in ETFS of a similar nature. As of December 31, 2012, out
of $15.6 million invested in marketable securities, approximately $5 million was invested in dividend yielding equity securities.
Nearly all of our cash and investments are not insured by the
FDIC or other similar governmental insurance limits. See Item 3.D – Risk Factors "Our cash may be subject to risk of
loss and we may be exposed to fluctuations in the market value of our portfolio investments and in interest rates."
|
|
Cash and Investments
December 31,
|
|
|
|
2012
|
|
|
% Change
|
|
|
2011
|
|
|
% Change
|
|
|
2010
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
12,793
|
|
|
|
|
|
|
$
|
14,683
|
|
|
|
|
|
|
$
|
25,749
|
|
Short-term deposits
|
|
|
30,310
|
|
|
|
|
|
|
|
28,243
|
|
|
|
|
|
|
|
16,747
|
|
Marketable securities
|
|
|
15,635
|
|
|
|
|
|
|
|
10,945
|
|
|
|
|
|
|
|
7,839
|
|
Long-term deposits
|
|
|
621
|
|
|
|
|
|
|
|
1,093
|
|
|
|
|
|
|
|
620
|
|
Total cash and investments
|
|
$
|
59,359
|
|
|
|
8
|
%
|
|
$
|
54,964
|
|
|
|
8
|
%
|
|
$
|
50,955
|
|
For the year ended December 31, 2012, net cash provided by operations
was $16.2 million, comprising net income of $7.5 million, a decrease in trade receivables of $1.6 million, an increase in deferred
taxes of $0.5 million, an increase in other receivables of $0.1 million, an increase in accounts payable of $2.9 million, and a
decrease in deferred revenues of $0.8 million, which was partially offset by non-cash charges of $5.7 million.
The increase in cash provided from operations in 2012 compared
to 2011 was mostly due to from timing of booking and invoicing more evenly spread during the year which resulted in strong collections
during 2012.
For the year ended December 31, 2011, net cash provided by operations
was $11.9 million, comprising net income of $12.2 million, an increase in trade receivables of $9.1 million, a decrease in deferred
taxes of $1.3 million, an increase in other receivables of $0.4 million, an increase in accounts payable of $1.0 million, and an
increase in deferred revenues of $1.6 million, which was partially offset by non-cash charges of $5.3 million.
The decrease in cash provided from operations in 2011 compared
to 2010 was mostly due to an increase in the balance of accounts receivable by $9.1 from the end of 2010 resulting from timing
of booking towards the end of the quarter and specific customer milestones.
For the year ended December 31, 2010, net cash provided by operations
was $16.4 million, comprising net income of $9.0 million, a decrease in trade receivables of $2.2 million, a decrease in deferred
taxes of $0.9 million, an increase in other receivables of $0.7 million, an increase in accounts payable of $1.0 million, and an
increase in deferred revenues of $0.4 million, which was partially offset by non-cash charges of $3.5 million.
20-F ClickSoftware Technologies Ltd.
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Net cash used in investment activities was $8.6 million in 2012,
consisting of $1.6 million used in investments in deposits, $7.5 million invested in marketable securities and $2.5 million used
for purchases of equipment and systems, including computer equipment and fixtures and furniture and for leasehold improvements,
partially offset by $2.9 million provided by proceeds from sales of marketable securities.
Net cash used in investment activities was $17.0 million in
2011, consisting of $12.0 million used in investments in deposits, $8.3 million invested in marketable securities and $2.0 million
used for purchases of equipment and systems, including computer equipment and fixtures and furniture and for leasehold improvements,
partially offset by $5.3 million provided by proceeds from sales of marketable securities.
Net cash used in investment activities was $7.3 million in 2010,
consisting of $0.7 million provided by investments in deposits, $8.5 million invested in marketable securities, $2.0 million provided
by proceeds from sales of marketable securities and $1.5 million used for purchases of equipment and systems, including computer
equipment and fixtures and furniture and for leasehold improvements.
Net cash used in financing activities was $9.5 million in 2012,
consisting of $10.1 million used for cash dividends, which was partially offset by exercise of employee stock options
of
$0.7 million. Net cash used in financing activities was $6.0 million in 2011, consisting of $7.5 million used for cash
dividends, which was partially offset by exercise of employee stock options
of
$1.5 million.
Net cash provided by financing activities was $1.1 million in 2010 as a result of the exercise of employee stock options.
The majority of our cash balances are held at the parent level
and, as evidenced by our balance sheet, we have no material debt (except for routine working capital). There are no restrictions
on the flow of funds between us and any of our subsidiaries.
As of December 31, 2012, we had outstanding trade receivables
of approximately $21.8 million, which represented approximately 22% of revenue in 2012. As of December 31, 2011, we had outstanding
trade receivables of approximately $23.4 million, which represented approximately 27% of revenue in 2011. As of December 31, 2010,
we had outstanding trade receivables of approximately $14.3 million, which represented approximately 20% of revenue in 2010. Our
standard payment terms are typically between 30 and 120 days and our policy is not to grant extended payment terms to our customers
over 120 days. Days sales outstanding, or DSO, calculated based on revenues for the most recent quarter and accounts receivable
at the balance sheet date, decreased to 69 DSO as of December 31, 2012, compared with 88 DSO as of December 31, 2011, and 69 DSO
as of December 31, 2010, due to timing of booking towards the end of the quarter and specific customer milestones. DSO was relatively
high in 2011 compared to 2010 and 2012 due to relatively strong bookings towards the end of 2011.
Since inception, we have received aggregate royalty-bearing
grants from the Chief Scientist in the amount of $8.7 million related to research and development. As of December 31, 2008, we
had paid or accrued royalties equal to our entire commitment to the Chief Scientist. However, even though we have repaid all grants
received from the Chief Scientist, we are still subject to the restrictions in the Research Law regarding transfer of our intellectual
property developed with the Chief Scientist's funding. See Item 3.D – Risk Factors "The government programs in which
we have participated and the tax benefits we receive require us to satisfy prescribed conditions and may be delayed, terminated
or reduced in the future". We received additional grants from the Chief Scientist of $0.2 million in 2010 and of $0.2 million
in 2009, but such grants are not subject to royalty payment by us.
Our capital requirements depend on numerous factors, including
market demand and acceptance of our products, the resources we devote to developing, marketing, selling and supporting our products,
the timing and extent of establishing additional international operations, investments in computers, office equipment and office
fixtures and our acquisition activities. We intend to continue investing significant resources in our selling and marketing, research
and development operations in the future and expect to continue investing in computers, office equipment and office fixtures. We
also intend to continue exploring acquisition opportunities.
We believe that we have sufficient cash to fund our operations
for at least the next 12 months.
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|
|
5.C.
|
Research and development
|
We have invested significant time and resources in creating
a structured process for undertaking all product development projects. These include documenting product requirements, specifying
product features and workflow, developing software, performing quality assurance and creating documentation and packaging. Our
research and development center in Israel is ISO 9001 compliant and continuously updates its software development procedures to
maintain an ongoing improvement process and high quality products.
Our future research and development strategies will concentrate
on strengthening our product offerings in decision support and optimization, mobility, forecasting, capacity and shift planning
and monitoring; continuing to enhance the technology and scalability of our products; continuing to improve our mobile and location-based
capabilities; and continuing the development of offerings for specific vertical industries.
We invested $13.1 million in 2012, $9.0 million in 2011 and
$7.9 million in 2010 in research and development activities.
We operate in the rapidly evolving market for workforce management
and optimization for the service sector including field and in-house resources. Workforce management spending remained strong in
2012. Despite the current uncertainties in the global economy, we have continued to experience strong demand for our products and
services. This is supported by analyst findings. For example, 52% of large organizations and 36% of small organizations planned
for increasing service automation budgets in 2012 (source: The State of Service Management, an Aberdeen Group research brief, by
Sumair Dutta and Aly Pinder, published January 2012).
We believe that the market for field
service management is largely untapped. Gartner estimates that market penetration for field service applications has reached 25%
of the addressable market
(source:
Magic Quadrant for Field Service Management
, b
y
William McNeill, Michael Maoz
and Gordon Van Huizen, p
ublication
d
ate:
October 17, 2012).
Our strategy is to continue to increase marketing efforts through
our channel and strategic partners to target these potential customers, side by side with our direct sales force. Companies in
the mid-market are also seeking solutions to improve productivity, and we address this need with some of our offerings including
ClickExpress and ClickCloud.
Since 2009 we have invested significantly in our mobility offering. We
believe there is a global trend of moving enterprise software to mobile devices to enable service people to manage applications
through their mobile devices. Overall, there is a growing focus on mobility, outpacing even social media. For example, Citigroup
Global Markets says “Internet focus shifts from social / local to mobile as device proliferation continues and mobile continues
to disrupt the traditional web” (Source: Technology Sector 2012 Year In Review, published January 2013). This focus is prominent
in corporate strategies. According to the 2012 Gartner CIO Survey, 61% of respondents plan to enhance their mobility capability
during the next three years, and 48% believe they will become leaders in their industries by fully adopting innovative mobility
solutions. (Source: Magic Quadrant for Mobile Application Development Platforms, by William Clark, Ian Finley and Song Chuang,
published: 26 April 2012).
As part of our strategic plan, we expect significant sales in
2013 from new territories. We believe that developing countries such as Russia and those in Latin America are investing in solutions
which provide improved quality of service and efficiency, reduce cost and increase regulatory compliance.
In 2012, the ratio of our license revenues to service revenues
remained stable. We expect license and services revenues to grow in 2013. We expect to continue to grow our revenues in 2013 despite
the continued uncertainty in the economic conditions. In 2012, the Americas grew whereas other regions declined but we expect revenue
from all regions to grow in 2013.
We believe that companies focused
on cost control are likely to demand products and services, such as our workforce management and optimization solutions, that aim
to maximize efficiency and decrease customers' operating expenses. As of December 31, 2012,
we had a backlog of approximately
$33.2 million, compared to $29.7 million at the end of 2011.
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The economic uncertainties may affect the competitive environment
in our industry. For example, larger, better capitalized companies may seek to acquire smaller, weaker rivals that have been adversely
affected by the economic downturn.
In 2012, approximately 41% of our revenues and 67% of our expenses
were denominated in non-U.S. dollar currencies. Any changes in the value of the U.S. dollar against these currencies affect our
reported earnings in U.S. dollars. In 2012, the net effect of the change in value of the U.S. dollar against other currencies was
a decrease in revenues by $2.0 million, a decrease in costs of revenues by $1.4 million and a decrease in operating expenses by
$2.2 million. At the start of 2013, the U.S. dollar has strengthened against each of the Euro, British Pound and weakened against
the NIS.
The net effect was on our financial results was immaterial.
|
5.E.
|
Off-balance sheet arrangements
|
Except for the arrangements with the Chief Scientist discussed
in Item 5.B above and Item 5.F below, we do not have any off-balance sheet arrangements.
|
5.F.
|
Tabular disclosure of contractual obligations
|
We have various commitments primarily related to guarantees,
letters of credit and capital lease obligations. The following table provides details regarding our contractual cash obligations
and other commercial commitments as of December 31, 2012:
|
|
Payments due by Period
|
|
|
|
(in thousands)
|
|
Contractual
Obligations
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
2016-2021
(aggregate
amount)
|
|
|
Total
|
|
Office Lease Obligations
|
|
$
|
3,247
|
|
|
$
|
3,373
|
|
|
$
|
2,050
|
|
|
$
|
3,279
|
|
|
$
|
11,949
|
|
Net Severence Pay Obligation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
2,500
|
|
|
$
|
2,500
|
|
Total
|
|
$
|
3,247
|
|
|
$
|
3,373
|
|
|
$
|
2,050
|
|
|
$
|
5,779
|
|
|
$
|
14,449
|
|
|
|
Total Amounts
Committed
|
|
|
Amount of Commitment
Expiration Per Period
(in thousands)
|
|
Commercial Commitments
|
|
(in thousands)
|
|
|
2013-2014
|
|
|
|
|
|
|
|
|
|
|
Guarantees/Letters of Credit*
|
|
$
|
621
|
|
|
$
|
621
|
|
|
*
|
We have entered into standby letter of credit agreements with banks and financial institutions
primarily relating to the guarantee of rental agreements. As of December 31, 2012, contingent liabilities on outstanding letter
of credit agreements aggregated $0.6 million. We expect to renew most of these letters of credit. The letters of credit are secured
by $0.6 million in deposits to cover potential payments under the guarantees.
|
20-F ClickSoftware Technologies Ltd.
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|
|
ITEM 6.
|
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
|
|
6.A.
|
Directors and senior management
|
Senior Management
The members of our executive management
are as follows:
Name
|
|
Age
|
|
Position
|
Dr. Moshe BenBassat
|
|
65
|
|
Chief Executive Officer and Chairman of the Board
|
Shmuel Arvatz
|
|
50
|
|
Executive Vice President and Chief Financial Officer
|
Hannan Carmeli
|
|
54
|
|
President and Chief Operating Officer
|
DR. MOSHE BENBASSAT
co-founded ClickSoftware in 1979
and has served as our Chairman and Chief Executive Officer since our inception. From 1987 to 1999, Dr. BenBassat served as a Professor
of Information Systems at the Faculty of Management at Tel-Aviv University. Dr. BenBassat has also held academic positions at the
University of Southern California and the University of California in Los Angeles. Dr. BenBassat holds B.S., M.S. and Ph.D. degrees
in Mathematics and Statistics from Tel-Aviv University.
Dr.
BenBassat pioneered the field of 'service chain optimization', a term he coined in the 1990s and is considered to be one of the
world's leading experts in the field.
SHMUEL ARVATZ
has served as our Executive Vice President
and Chief Financial Officer since 2002. Prior to joining ClickSoftware, Mr. Arvatz served as the Chief Financial Officer at Shrem,
Fudim, Kelner Technologies Ltd., at that time a leading investment house in Israel. From 1999 to 2001, Mr. Arvatz served as Executive
Vice President and Chief Financial Officer of Tecnomatix Technologies Ltd., a provider of software e-manufacturing solutions. From
1990 to 1999, Mr. Arvatz served as Vice President and Chief Financial Officer at ADC Israel Ltd. (previously Teledata Communications
Ltd.), a telecommunications equipment provider. Mr. Arvatz holds a Bachelor of Arts degree in Accounting and Economics from Bar-Ilan
University in Tel Aviv, Israel and is a Certified Public Accountant in Israel.
HANNAN CARMELI
has served as our Chief Operating Officer
since 2006 and as our President since 2008. Previously, Mr. Carmeli served as our Executive Vice President of Sales & Professional
Services and managed our Professional Services organizations worldwide. From 1996 to 2000, Mr. Carmeli held various executive roles,
including General Manager of the ClickFix Division as well as Manager of Product Services and Operations. Prior to joining us,
Mr. Carmeli held research and development and field positions, ranging from software development through product management and
sales management, with various software vendors. Mr. Carmeli holds a B.S. degree from the Technion Institute of Technology in Haifa,
Israel and an M.S. degree in Computer Science from Boston University.
Our executive officers serve at the discretion of our board
of directors. The employment of each of our executive officers is at will and may be terminated at any time, with or without cause,
subject to contractual notice provisions.
Directors
Our articles of association provide for a minimum of two members
and a maximum of eleven members on our board of directors. Except for External Directors (as defined in the Companies Law), all
directors are classified into three classes, as nearly equal in number as possible, based on the amount of time they have held
office, with the members of each class to hold office until their successors have been duly elected and qualified. At each annual
meeting, the class of directors whose term expires at that meeting shall be elected to hold office for a term expiring at the annual
meeting to be held in the third year following their election and until their successors have been duly elected and qualified.
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|
We have a classified board of directors as set forth below:
Name of Director and Class
|
|
Age
|
|
Term
Expires
|
|
Independent
Director (1)
|
|
Member of
Audit
Committee
|
|
Member of
Compensation
Committee
|
|
Member of
Corporate
Governance and
Nominating
Committee
|
Israel Borovich, Class II
|
|
71
|
|
2014
|
|
X
|
|
|
|
|
|
|
Gil Weiser, Class II
|
|
71
|
|
2014
|
|
X
|
|
X
|
|
|
|
|
Moshe BenBassat, Class III
|
|
65
|
|
2015
|
|
|
|
|
|
|
|
|
Shlomo Nass, Class III (2)
|
|
52
|
|
2015
|
|
X
|
|
X
|
|
|
|
X
|
Nira Dror, External Director (3)
|
|
58
|
|
2015
|
|
X
|
|
X
|
|
X
|
|
X
|
Shai Beilis, External Director
|
|
64
|
|
2015
|
|
X
|
|
X
|
|
X
|
|
X
|
Menahem Shalgi, External Director
|
|
62
|
|
2013
|
|
X
|
|
X
|
|
X
|
|
|
(1) as defined under Rule 5605(a)(2) to the Nasdaq Listing
Rules, or the Nasdaq Rules.
(2) "Audit Committee Financial Expert" under SEC
rules and requisite experience under Nasdaq Rules with respect to membership on the Audit Committee. See Item 16A below.
(3) "Financial Expert" as required by the Companies
Law with respect to membership on the Audit Committee.
DR. ISRAEL BOROVICH
rejoined the board of directors in
2011, having previously served as a director of the Company from 1997 (and as an External Director according to the Companies Law
from 2001) until March 2009. Dr. Borovich serves as the Dean of the School of Business and Economics at the Academic College of
Tel Aviv-Jaffa. From 2005 to 2011, Dr. Borovich served as a member of the Board of Directors of El Al Israel Airlines Ltd. and
as its Chairman from 2005 until 2008. From 1993 until 2006, he served as President and Chief Executive Officer of Knafaim Holdings
Ltd., from 2006 to 2010, he served as its Vice Chairman, and from 1994 until now, he serves as a director on its Board of Directors.
From 1999 until 2006, Dr. Borovich served as Chairman of Granit Hacarmel Investments Ltd. From 2006 until 2010, Dr. Borovich served
on the Board of Trustees of the Polytechnic Institute of New York University in New York. From 2006 to 2008, he served as Chairman
of the Board of Governors of Afeka Tel Aviv Academic College of Engineering. From 2008 until 2011 he served as Chairman of Alut
Society for Autistic Children. From 2008 until 2012, he served as Chairman of the Board of Trustees of the Wingate Institute. From
2010 until 2012, he served as a member on the advisory board of All Cargo Logistics Services, and from 2011 until 2012 as Chairman
of the Board of Galil Cargo. Currently, Dr. Borovich serves as Chairman of the Board of Ayalon Highways Co. Ltd. (since 1998),
director of the Interdisciplinary Center Herzliya (since 1994), and director of Kenes International (since 2010). Dr. Borovich
previously served as a Professor on the Faculty of Management of Tel Aviv University where he is currently a Professor Emeritus.
Dr. Borovich holds B.Sc. and M.Sc. degrees in Industrial Engineering and a Ph.D. degree in Operations Research from the Polytechnic
Institute in New York City.
GIL WEISER
has served as a director of the Company since
2003. Mr. Weiser has been active in the high tech industry for the past 30 years. He is currently Chairman of the Board of
BG Negev Technologies and a member of the board of Attunity Ltd. Mr. Weiser served as CEO of Orsus Solutions Ltd., Hewlett-Packard
Israel, Fibronics Corporation and Digital Corporation Israel. He has also served as director of numerous companies including the
Tel Aviv Stock Exchange. Mr. Weiser served as Chairman of the Executive Committee of Haifa University from 1994 to 2006. He holds
a B.Sc. degree from the Technion Institute and an M.Sc. degree from the University of Minnesota in Minneapolis.
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DR. SHLOMO NASS
has served as a director of the Company
since 2009. Dr. Nass currently serves as Senior Partner in Dr. Shlomo Nass & Co., an Israeli law firm that he founded in December
2002, specializing in real estate, liquidations, receiverships and corporate rehabilitation, arbitration, corporate and commercial
law. Since 2001 he has served as President, Partner and Director of the group of investment companies within I. G. B. – Israel
Global Business. Since 2011 he has served as a director of Citigroup Financial Products Ltd. (part of the Citibank Group). From
2009 until 2013, he served as a director, as a member of the investment committee and as a member of the Auditing Committee of
Partner Communications Company Ltd. Since 2011 he has served as a director and a member of the Auditing Committee of Tempo Beer
Industries Ltd. Since 2008 he has served on the Board of Directors of The Blue Shore Development Company (Tel Aviv-Herzliya) Ltd.
Since 1991 he has served as Vice Chairman of The Public Advisory Committee on Trade Levies. From 2005 until 2008, Dr. Nass served
as the Chairman of the Board of Directors of Ayalon Insurance Co. Ltd. and Ayalon Financial Solutions Ltd., and from 2008 until
2009 of Aviv Alron Ltd. (formerly Yuli Capital Markets Ltd.) From 2006 until 2011, he served on the Board of Directors of NMC United
Entertainment Ltd. From 2003 until 2009, Dr. Nass served as Chairman of the Financial Statement Committee and as a member of the
Board of Directors of IBC-Industrial Buildings Corporation Ltd. From 2003 until 2010, he served as Chairman of the Financial Statement
and Auditing Committee of Formula Systems (1985) Ltd. Dr. Nass also serves as Chairman of the Board of Directors of the following
companies: since 2011 of Hevruta Marketing Ltd. and Hevruta Consumering Ltd., since 2008 of Chaniman Entrepreneurship Ltd., since
2005 of M.D.K Touch Ltd. and since 2004 of Shir-Lak Ltd. Dr. Nass received his Ph.D. and LL.B. in Law and B.Sc., Economics and
Accounting from Bar-Ilan University; and completed a Mediators Course of the Ministry of Justice. He is a member of the Israeli
Bar Association and is a Certified Public Accountant in Israel. Dr. Nass is also a Certified Information System Auditor, C.I.S.A.
(USA). Dr. Nass is a lecturer on Corporate Law at IDC – Interdisciplinary Center Herzliya, Bar-Ilan University and Sha’arei
Mishpat. He is also a lecturer in a Directors’ Training seminar at “Lahav” Executive Education at the Recanati
Faculty of Management in Tel-Aviv University. In his military service, Dr. Nass served as an officer in the Israeli Defense Forces,
or IDF, the Information Systems Auditing Team for the Paymaster General Administration.
NIRA DROR
has served as a director of the Company since
2009. Ms. Dror is the owner and the General Manager of Nira Dror Ltd., a company which she founded in 2006 that provides consulting
and representation services for companies in the aviation and tourism industries. From 2003 to 2005, Ms. Dror served as Deputy
General Manager and as General Manager of North America at El Al. From 1999 to 2003, she served as General Manager of Eastern Europe
and East Mediterranean at British Airways, and from 1989 to 1999, as General Manager for Israel. From 1984 to 1985, Ms. Dror served
as the chief economist for Teus Azorei Pituach Ltd. and from 1985 to 1989, she served as the General Manager of Histour Ltd., a
tourism company. Ms. Dror currently serves on the board of directors and as chairperson of the audit committee of Shemen Oil and
Gas Resources Limited. Ms. Dror currently serves on the board of directors and as a member of the audit committee of the following
companies: Dikla Insurance Company Ltd., Tzur Shamir Holdings Ltd., S. Shlomo Holding Ltd. and Sharonim Ltd. She served on the
board of directors and as chairperson of the audit committee of Bank Hapoalim Ltd. from 2006 to 2012. She was a member of the board
of directors of H&O Ltd. from 2005 to 2008, and of Chamei Yoav Tourism from 2005 to 2008. Ms. Dror was also a member of the
executive committee of the panel of airlines in Israel from 1990 to 1999. Ms. Dror holds a B.A. in Economics and Business Administration
and an M.B.A. from Tel Aviv University.
SHAI BEILIS
has served as a director of the Company since
2009. Mr. Beilis is currently Chairman of the Board of Keebali Media Ltd. and BotanoCap Ltd. and a member of the board of directors
of Earnix Ltd. Mr. Beilis founded Formula Ventures (within the Formula Group) in 1998 and has been the Chairman of the Board since
its inception. Formula Ventures Ltd. is the advisor and General Partner of two venture capital funds: Formula Ventures I and Formula
Ventures II. Mr. Beilis joined the Formula Group in 1994 as chief executive officer of Argotec. Mr. Beilis was CEO of Clal Computers
and Technology Ltd. from 1993 to 1995, an Israeli IT holding company traded in the Tel-Aviv Stock Exchange. From 1987 to 1993 Mr.
Beilis was Vice President at Digital Equipment Corporation Israel. From 1978 to 1986, he was Chief Executive Officer of Yael Software
and Services. From 2002 to 2006 Mr. Beilis was the Chairman of Formula Vertex UK Ltd., which was the advisor for the European Technology
Venture Portfolio of UBS Capital. Mr. Beilis has served as director or chairman of over sixty Israeli high tech companies (including
the following Nasdaq listed companies: Wiztec Solutions Ltd. (1996 to 1999), BluePhoenix Solutions Ltd. (1995 to 2008), RadView
Software Ltd. (1998 to 2010), and Formula Systems (1985) Ltd. (1997 to 2005)). Mr. Beilis holds an M.Sc. in Computer Science from
the Weizmann Institute of Science in Rehovot, Israel, and a B.Sc., cum laude, in Mathematics and Economics from the Hebrew University
in Jerusalem, Israel.
MENAHEM SHALGI
has served as a director of the Company
since 2010. Mr. Shalgi served at Amdocs Ltd. as Vice President of Business Development and M&A from 1998 to 2003, and as Vice
President and Executive Account Manager from 1993 to 1998, and at various other positions from 1985 to 1993. Mr. Shalgi has served
as an external director of Mind CTI since April 2005 and serves as the chairman of AfterDox Ltd., an investment house in Israel,
since June 2007. Mr. Shalgi served as a director of Pilat Media PLC in the UK from 2006 until mid-2009. Mr. Shalgi holds a B.A.
in Economics and Statistics from Tel-Aviv University and an M.Sc. in Computer Sciences from the Weizmann Institute of Science.
There are no family relationships between any members of our
executive management and our directors.
20-F ClickSoftware Technologies Ltd.
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|
There are no arrangements or understandings with major shareholders,
customers, suppliers or others pursuant to which any of our executive management or our directors were selected.
The aggregate amount of compensation paid or accrued to all
of our directors and executive officers as a group of 9 persons with respect to 2012 was $1.8 million in salaries, consulting fees,
directors' fees, and bonuses, compared to $1.7 million in 2011, and $0.4 million in amounts set aside or accrued to provide pension,
retirement or similar benefits but does not include expenses (including business travel, professional and business association
dues) compared to $0.3 million in 2011. In addition, we granted an aggregate of 250,000 options to purchase Ordinary Shares to
our officers (including the option granted Dr. Moshe BenBassat, described below) at an average exercise price of $10.03 per share.
At our June 28, 2012 Annual Shareholders Meeting, or 2012 ASM, our shareholders approved the grant of options to Dr. Moshe BenBassat
(or a consulting company through which he provides services to us). Consequently, the Company granted Dr. BenBassat options to
purchase 100,000 Ordinary Shares at an exercise price of $8.22, the closing sale price of our Ordinary Shares on the trading day
immediately preceding the 2012 ASM.
In 2011 we granted an aggregate of 130,000 options to our officers
(including the option granted Dr. Moshe BenBassat, described below) at an average exercise price of $9.66 per share. Our July 21,
2011 Annual Shareholders Meeting, or 2011 ASM, approved the grant of options to Dr. Moshe BenBassat (or a consulting company through
which he provides services to us) to purchase 100,000 Ordinary Shares at an exercise price of $9.71, the closing sale price of
our Ordinary Shares on the trading day immediately preceding the 2011 ASM.
Options granted to our officers in 2011 and 2012 expire seven
years after the date of the grant and vest as follows: 25% on the first anniversary date of grant and 1/48 at the end of each month
thereafter.
In addition, we granted an aggregate of 48,000 RSUs in each
of 2011 and 2012 to our non-employee directors in accordance with a plan for equity compensation of our non-employee directors.
The exercise price of the RSUs equals the par value of our Ordinary Shares, which is NIS 0.02. This plan provides that (i) each
non-employee director who is appointed as our director in 2011 or thereafter is automatically granted 8,000 RSUs, or the First
Grant, upon the date such individual first becomes a director; and (ii) each non-employee director is automatically granted 8,000
RSUs, or the Subsequent Grant, following each annual meeting of our shareholders, beginning in 2011, if on such date he or she
shall have served on our Board for at least the preceding six months. The terms of each RSU are as follows: (i) the term of the
RSU shall be seven years; (ii) the exercise price per share shall be equal to the par value of each share underlying the RSU; (iii)
the First Grant shall vest on the first anniversary of the date of grant, provided that the grantee continues to serve as a director
on such date; and (iv) each Subsequent Grant shall vest in twelve equal monthly installments after the date of grant, provided
that the grantee continues to serve as a director on the applicable vesting date.
In addition to equity compensation, each non-employee director
receives an annual cash compensation package of $22,000 plus VAT, if applicable, and reimbursement of expenses incurred by such
director in connection with participation in meetings of the board of directors or committees thereof.
Our executive officers participate in a bonus plan in which
they may receive bonuses based on achieving Company goals on revenues and operating profit, and based on achieving personal performance-related
goals. The goals for our Chief Executive Officer are determined on an annual basis by the Compensation Committee, and the goals
for our other executive officers are determined by the Chief Executive Officer.
In December 2012, an amendment to the Companies Law, or Amendment
20, became effective, requiring companies to appoint a compensation committee. Our existing compensation committee as detailed
in Item 6.C. “Board Practices. Compensation Committee” below meets this requirement.
Amendment 20 also requires that companies adopt a compensation
policy by September 11, 2013, which will set forth company policy, or the Compensation Policy, regarding the terms of office
and employment of office holders, including compensation, equity awards, severance and other benefits, exemption from liability
and indemnification, referred to as the Terms of Office and Employment. The term “office holder,” as defined in the
Companies Law, includes directors, executive officers and any manager directly subordinate to the chief executive officer.
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The Compensation Policy must be approved by the board of directors,
after considering the recommendations of the compensation committee. The Compensation Policy must also be approved by a majority
of the company’s shareholders, provided that (i) such majority includes at least a majority of the shareholders who
are not controlling shareholders and who do not have a personal interest in the matter, present and voting (abstentions are disregarded),
or (ii) the non-controlling shareholders and shareholders who do not have a personal interest in the matter who were present
and voted against the policy hold two percent or less of the voting power of the company. The Compensation Policy must be approved
by the board of directors and the shareholders every three years. If the Compensation Policy is not approved by the shareholders,
the compensation committee and the board of directors may nonetheless approve the policy, following further discussion of the matter
and for specified reasons.
Under Amendment 20, the Terms of Office and Employment of office
holders require the approval of the compensation committee and the board of directors. The Terms of Office and Employment of directors
and the chief executive officer must also be approved by shareholders.
Changes to existing Terms of Office and Employment of office
holders (other than directors) can be made with the approval of the compensation committee only, if the committee determines that
the change is not substantially different from the existing terms.
Under certain circumstances, the compensation committee and
the board of directors may approve an arrangement that deviates from the Compensation Policy, provided that such arrangement is
approved by the special majority of the company’s shareholders mentioned above. Such shareholder approval will also be required
with respect to determining the Terms of Office and Employment of a director or the chief executive officer during the transition
period until the company adopts a Compensation Policy. Notwithstanding the foregoing, a company may be exempted from receiving
shareholder approval with respect to the Terms of Office and Employment of a candidate for chief executive officer if such candidate
meets certain independence criteria, the terms are in line with the Compensation Policy and the compensation committee has determined
for specified reasons that shareholder approval would prevent the engagement.
Under the
Companies Law and related regulations, the compensation payable to statutory independent directors and independent directors is
subject to certain further limitations. See Item 6.C. “Board
Practices.
External
and Independent Directors” below.
We
are subject to the provisions of the Companies Law, which requires, in part, that
Israeli companies whose shares have
been offered to the public in or outside of Israel appoint
at least two External Directors (as such
term is defined in the Companies Law) to serve on their board of directors. In the event that the board does not nominate a candidate
to be appointed to a specific class of directors at any annual meeting of shareholders, then instead of electing directors to succeed
the directors whose term in office expires at the date of such annual meeting, the shareholders may elect one or more additional
External Directors in addition to the minimum number of External Directors required by the Companies Law.
There are no service contracts between us or any of our subsidiaries,
on the one hand, and our directors in their capacity as directors, on the other hand, providing for benefits upon termination of
service, except for the termination provisions included in the consulting agreement of our chief executive officer who is also
a director. The benefits upon termination provided for in such consulting agreements relate solely to the termination of Mr. BenBassat
from his position as a consultant, and not from his position as a director or chairman of the board.
In addition to the insurance coverage, we have agreed to indemnify
our directors and officers in an amount not to exceed $20 million, for all persons and all events to be indemnified, for certain
events and occurrences while the director or officer is, or was serving, at our request in such capacity. The indemnification agreements
entered into with the directors and officers are substantially in the form of the Amended Form of Indemnification Agreement previously
filed as an exhibit to this annual report. As permitted under the Companies Law, the indemnification agreements provide protection
against personal liability. We have director and officer insurance coverage that may limit our exposure and may enable us to recover
a portion of any future amounts paid.
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External and Independent Directors
Under Israeli law, publicly held Israeli companies, such as
us, are required to appoint at least two External Directors, each of whom must also serve on the audit committee. All other board
committees exercising powers delegated by the board of directors must include at least one External Director. Our External Directors
must meet certain non-affiliation criteria, all as provided under Israeli law. An external director is appointed for an initial
term of three consecutive years
.
The initial three-year term of service of External Directors
can be extended, at the election of the Company subject to certain conditions, by two additional three-year terms. External Directors
must be elected by a majority vote at a shareholders’ meeting, provided that either the majority of shares voted at the meeting,
including at least one- half (instead of one-third, as under the current law) of the shares held by non-controlling shareholders
voted at the meeting, vote in favor; or the total number of shares held by non-controlling shareholders voted against does not
exceed two percent (instead of one percent, as under current law) of the aggregate voting rights in the company. Furthermore, External
Directors may be re-elected for additional terms by means of one of the following mechanisms: (i) the board of directors proposed
the nominee and his appointment was approved by the shareholders in the manner required to appoint external directors for their
initial term (which was the only available way to re-elect external directors prior to the adoption of this new amendment), or
(ii) a shareholder holding 1% or more of the voting rights proposed the nominee, and the nominee is approved by a majority of the
votes cast by the shareholders of the company, excluding the votes of controlling shareholders and those who have a personal interest
in the matter as a result of their relations with the controlling shareholders, provided that, the aggregate votes cast by shareholders
who are not controlling shareholders and do not have a personal interest in the matter as a result of their relations with the
controlling shareholders in favor of the nominee constitute more than 2% of the voting rights in the Company.
Each of Mr. Beilis, Ms. Dror and Mr. Shalgi serves as an external
director.
The independence requirements of External Directors were enhanced
by a recent amendment to the Companies Law such that an individual may not be appointed as an External Director in a company that
does not have a controlling shareholder, in the event that he has affiliation, at the time of his appointment, to the chairman,
chief executive officer, a 5% shareholder or the chief financial officer; in addition, an individual may not be appointed as an
External Director if his relative, partner, employer, supervisor, or an entity he controls, has other than negligible business
or professional relations with any of the persons with which the External Director himself may not be affiliated.
Israeli law further requires that at least one External Director
has financial and accounting expertise, and that at least one other External Director has professional competence, as determined
by the Company's board of directors. Under relevant regulations, a director having financial and accounting expertise is a person
who, due to his or her education, experience and talents, is highly skilled in respect of, and understands, business and accounting
matters and financial reports, in a manner that enables him or her to have an in-depth understanding of the Company's financial
information and to stimulate discussion in respect of the manner in which the financial data is presented. Under relevant regulations,
a director having professional competence is a person who has an academic degree in either economics, business administration,
accounting, law or public administration or an academic degree in an area relevant to the Company's business, or has at least five
years experience in a senior position in the business management of a corporation with a substantial scope of business, in a senior
position in the public service or in the field of the Company's business.
Ms. Dror was determined by our board of directors to be a financial
and accounting expert and Mr. Beilis was determined to have professional competence, each as determined by Israeli law.
Audit Committee
Our audit committee consists of Dr. Nass, Ms. Dror, Mr. Beilis,
Mr. Weiser and Mr. Shalgi, each of whom is "independent," as such term is currently defined in Rule 5605(a)(2) to the
Nasdaq Rules. Our board of directors has determined that Dr. Nass also qualifies as an "audit committee financial expert"
within the meaning of SEC rules and has the requisite experience under Nasdaq Rules. The audit committee provides assistance to
the board of directors in fulfilling its legal and fiduciary obligations with respect to matters involving the accounting, auditing,
financial reporting and internal control functions of our Company and our subsidiaries as well as complying with the legal requirements
under Israeli law and the regulation promulgated under the Sarbanes-Oxley Act of 2002. The purposes of the audit committee include:
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|
|
·
|
overseeing the accounting and financial reporting processes of our Company and audits of its financial statements;
|
|
·
|
assessing the scope of work of the independent registered public accounting firm and recommending to our shareholders to appoint
and approve the compensation of the independent registered public accounting firm engaged to audit our financial statements;
|
|
·
|
overseeing and monitoring (i) the integrity of our financial statements, (ii) our compliance with legal and regulatory
requirements as they relate to financial statements or accounting matters, (iii) the independent registered public accounting
firm's qualifications, independence and performance, and (iv) our internal accounting and financial controls;
|
|
·
|
provide our board of directors with the results of its monitoring and recommendations derived therefrom;
|
|
·
|
provide to our board of directors such additional information and materials as it may deem necessary to make it aware of significant
financial matters that require its attention;
|
|
·
|
monitor deficiencies in the management of the Company, inter alia, in consultation with the independent registered public accounting
firm and internal auditor, and advise our board of directors on how to correct the deficiencies;
|
|
·
|
decide whether to approve engagements or transactions that require Audit Committee approval under the Companies Law, relating
generally to certain related party transactions, approval of the terms of employment of officers and determining whether certain
related party actions and transactions are "material" or "extraordinary" in connection with their approval
procedures;
|
|
·
|
meet and receive reports from both the internal auditors and independent registered public accounting firm dealing with matters
that arise in connection with their audits;
|
|
·
|
assessing the our internal audit system and the performance of our internal auditor;
|
|
·
|
determining whistle blower procedures (including in respect of the protections afforded to whistle blowers); and
|
|
·
|
conduct any investigation appropriate to fulfilling its responsibilities, and have direct access to the independent registered
public accounting firm as well as anyone in our Company.
|
Under a recent amendment to the Companies Law, the majority
of the members of the audit committee, as well as the majority of members present at audit committee meetings, will be required
to be “independent directors” (as defined in the Companies Law) and the chairman of the audit committee will be required
to be an External Director. In addition, under the amendment, the following will be disqualified from serving as members of the
audit committee: the chairman of the board, the controlling shareholder and his relatives, any director employed by the company
or by its controlling shareholder or by an entity controlled by the controlling shareholder, a director who regularly provides
services to the company or to its controlling shareholder or to an entity controlled by the controlling shareholder, and any director
who derives most of his or her income from the controlling shareholder. Any persons disqualified from serving as a member of the
audit committee may not be present at the audit committee meetings, unless the chairman of the audit committee has determined that
such person is required to be present at the meeting or if such person qualifies under one of the exemptions specified in the Companies
Law.
Our audit committee convenes at least once per quarter to review
our quarterly financial results and to address other matters within the committee's responsibilities. Our audit committee duties
are governed by a written charter.
Compensation Committee
The Companies
Law mandates the appointment of a compensation committee comprising at least three directors. Under the Companies Law, the compensation
committee must include all of the statutory independent directors, one of which must serve as the chairman of the committee, and
the committee must include only additional members that satisfy the criteria for remuneration applicable to the statutory independent
directors.
Our
compensation committee
consists of Mr. Beilis, Ms. Dror and Mr. Shalgi,
each of whom is "independent," as such term is defined in Rule 5605(a)(2) to the Nasdaq Rules and our compensation committee
meets the requirements of the Companies Law.
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Under the Companies Law, the compensation
committee is responsible for: (i) making recommendations to the board of directors with respect to the approval of the Compensation
Policy and any extensions thereto; (ii) periodically reviewing the implementation of the Compensation Policy and providing
the board of directors with recommendations with respect to any amendments or updates thereto; (iii) reviewing and resolving
whether or not to approve arrangements with respect to the Terms of Office and Employment of office holders; and (iv) determining
whether or not to exempt a transaction with a candidate for chief executive officer from shareholder approval.
Our compensation committee meets at least twice a year and its
duties are governed by a written charter.
Corporate Governance and Nominating Committee
Our corporate governance and nominating committee consists of
Dr. Nass, Ms. Dror and Mr. Beilis, each of whom is "independent," as such term is defined in Rule 5605(a)(2) to the Nasdaq
Rules. Our corporate governance and nominating committee meets at least once a year. Functions of the corporate governance and
nominating committee include:
|
·
|
to monitor the composition of our board of directors and, when appropriate, seek, screen and recommend for nomination qualified
candidates for election to our board of directors at the Company's annual meeting of shareholders;
|
|
·
|
to seek qualified candidates to fill vacancies on our board of directors;
|
|
·
|
to evaluate candidates identified on its own initiative as well as candidates referred to it by other members of the board
of directors, by our management, by shareholders who submit names to our secretary for referral to the corporate governance and
nominating committee, or by other external sources; and
|
|
·
|
to evaluate the structure and practices of our board of directors and, when appropriate, recommend new policies.
|
Our corporate governance and nominating committee duties are
governed by a written charter. In addition, a code of recommended corporate governance practices has been attached to a recent
amendment to the Companies Law which we intend to refer to if applicable and not inconsistent with our written charter.
At December 31, 2012, we had 509 full time employees. Of these
employees, 264 were based in Israel, 123 in the United States, 32 in Asia Pacific and 90 in EMEA.
The following is a detailed breakdown of persons employed by
main category of activity, as at December 31, 2012:
|
|
YEAR ENDED DECEMBER 31,
|
|
Department
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
|
245
|
|
|
|
199
|
|
|
|
142
|
|
Research and Development
|
|
|
88
|
|
|
|
66
|
|
|
|
56
|
|
Sales and Marketing
|
|
|
112
|
|
|
|
85
|
|
|
|
72
|
|
General and Administrative
|
|
|
64
|
|
|
|
55
|
|
|
|
48
|
|
Total
|
|
|
509
|
|
|
|
405
|
|
|
|
318
|
|
In addition to the number of full-time employees listed above,
as at December 31, 2012 we had 52 full-time contractors in Israel (compared to 51 full-time contractors as at December 31, 2011)
who work at an offsite location, focusing mainly on quality assurance for our professional services and research and development
organizations.
We believe that our relations with our employees are good. Neither
our employees nor we are party to any collective bargaining agreements, except for provisions of such agreements that are applicable
to the industry by virtue of extension orders issued under applicable Israeli laws.
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Israeli law and certain provisions of the nationwide collective
bargaining agreements between the Histadrut (General Federation of Labor in Israel) and the Manufacturer's Association of Israel
(MAI) apply to our Israeli employees. These provisions principally concern the maximum length of the work day and the work week,
minimum wages, paid annual vacation, contributions to a pension fund, insurance for work-related accidents, procedures for dismissing
employees, determination of severance pay and other conditions of employment. We provide our employees with benefits and working
conditions above the required minimums. Furthermore, pursuant to such provisions, the wages of most of our employees are subject
to cost of living adjustments, based on changes in the Israeli CPI. The amounts and frequency of such adjustments are modified
from time to time. Israeli law generally requires the payment of severance upon the retirement or death of an employee or upon
termination of employment by the employer or, in certain circumstances, by the employee. We currently fund our ongoing severance
obligations for our Israeli employees by making monthly payments for insurance policies and severance funds.
Outside
of Israel we accrue severance pay obligations when required under the applicable laws in such jurisdictions. Severance pay obligations
made to Israeli employees are significant compared to employees of our subsidiaries outside of Israel.
Severance payment
expenses, net of changes in the value the insurance policies and severance funds, amounted to $1,632,000 in 2012, $1,383,000 in
2011, and $911,000 in 2010. The increase in 2012 and 2011 was largely attributable to appreciation in the value of the insurance
policies and severance funds as well as to an increase in the number of employees and to accruals made in other jurisdictions.
We obtain and maintain for all of our Israeli employees' pension funds or manager's insurance as required by applicable Israeli
law.
We typically maintain non-competition agreements with our employees
which prohibit them, if they cease working for us, from directly competing with us or working for our competitors. Israeli courts
have required employers seeking to enforce non-compete undertakings of a former employee to demonstrate that the competitive activities
of the former employee will harm one of a limited number of material interests of the employer which have been recognized by the
courts, such as the secrecy of a Company's confidential commercial information or its intellectual property. If we cannot demonstrate
that material harm would be caused to us, we will be unable to enforce these non-competition agreements and our competitors may
be able to benefit from the expertise of our former employees.
As of March 20, 2013, each of our executive officers and directors
beneficially owned less than 1% of our Ordinary Shares, with the exception of Dr. Moshe BenBassat, who beneficially owned 2,385,037
Ordinary Shares (or 6.8% of our outstanding Ordinary Shares), which includes 1,092,458 options for the purchase of our Ordinary
Shares, and Mr. Hannan Carmeli, who beneficially owned 325,220 Shares (or 1.0% of our outstanding Ordinary Shares in the aggregate),which
includes 231,563 options for the purchase of our Ordinary Shares.
The following table summarizes
information about the options
to purchase our Ordinary Shares
owned by Dr. Moshe BenBassat
that were outstanding as of March 20, 2013:
RANGE OF
EXERCISE PRICE
$
|
|
NUMBER
OUTSTANDING AT
MARCH 20, 2013
|
|
|
NUMBER
EXERCISABLE AT
MARCH 20, 2013
(1)
|
|
|
EXPIRATION
DATE
|
|
1.3
|
|
|
250,000
|
|
|
|
250,000
|
|
|
|
2013
|
|
1.92-2.81
|
|
|
536,000
|
|
|
|
536,000
|
|
|
|
2013-2015
|
|
4.43
|
|
|
70,000
|
|
|
|
70,000
|
|
|
|
2014
|
|
5.91
|
|
|
100,000
|
|
|
|
70,833
|
|
|
|
2017
|
|
8.12
|
|
|
130,000
|
|
|
|
121,875
|
|
|
|
2016
|
|
8.22
|
|
|
100,000
|
|
|
|
-
|
|
|
|
2019
|
|
9.71
|
|
|
100,000
|
|
|
|
43,750
|
|
|
|
2018
|
|
|
|
|
1,286,000
|
|
|
|
1,092,458
|
|
|
|
|
|
(1)
Includes options for Ordinary Shares held that are exercisable within
60 days of the date stated above.
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|
The following table summarizes
information about the options
for the purchase of our Ordinary Shares
owned by Mr. Hannan
Carmeli that were outstanding as of March 20, 2013:
RANGE
OF
EXERCISE
PRICE
$
|
|
|
NUMBER
OUTSTANDING AT
MARCH
20, 2013
|
|
|
NUMBER
EXERCISABLE
AT
MARCH
20,
2013
(1)
|
|
|
EXPIRATION
DATE
|
|
|
2.00
|
|
|
|
110,000
|
|
|
|
110,000
|
|
|
|
2015
|
|
|
2.55
|
|
|
|
35,000
|
|
|
|
35,000
|
|
|
|
2015
|
|
|
3.33
|
|
|
|
35,000
|
|
|
|
35,000
|
|
|
|
2014
|
|
|
5.80
|
|
|
|
75,000
|
|
|
|
51,563
|
|
|
|
2017
|
|
|
11.24
|
|
|
|
100,000
|
|
|
|
-
|
|
|
|
2019
|
|
|
|
|
|
|
355,000
|
|
|
|
231,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Includes options for Ordinary Shares held that are exercisable
within 60 days of the date stated above.
Share Incentive Plans
We have established a number of employee option plans containing
terms and conditions for the vesting and exercising of options granted to employees for the purchase of our Ordinary Shares.
Our umbrella stock option plan, as amended, or the Plan, was
adopted in 2000 and defines our stock option pool available for grants worldwide. Employees outside of the United States typically
receive options under a local stock option plan from the worldwide pool defined by the Plan. Pursuant to the Plan’s evergreen
mechanism, or Evergreen Mechanism, the number of Ordinary Shares made available thereunder automatically increases on the first
day of the Company's fiscal year to equal the lesser of: (i) 5% of the outstanding Ordinary Shares on such date, (ii) 1,250,000
Ordinary Shares or (iii) an amount determined by the Company's board of directors. In accordance with the Evergreen Mechanism,
the board of directors increased the number of Ordinary Shares reserved under the Plan by 7,097,269 Ordinary Shares in the aggregate.
As of March 20, 2013, 3,367,638 options were available under the Plan.
The purposes of the Plan are to enable us to attract and retain
qualified persons as employees, officers, directors, consultants, advisors and service providers and to motivate such persons
by providing them with an equity participation in our company. The Plan will expire in 2017, unless terminated earlier by the
board of directors.
The Plan was amended at our 2010 ASM to include the right to
grant RSUs. Currently, RSUs have been granted only to independent directors. For more information about grants of RSUs to our
directors, please see Item 6.B. "Compensation".
The Plan is administered by our board of directors or a committee
of our board of directors, which has broad discretion, subject to certain limitations, to determine the persons entitled to receive
options. Options generally have a term of between seven and ten years. Earlier termination may occur if an individual's employment
with us is terminated or if certain corporate changes or transactions occur. Our board of directors determines the grant and the
exercise price at the time the options are granted.
Under the Plan, the terms and conditions under which options
are granted and the number of shares subject thereto are determined by our board of directors or a committee of our board of directors.
The board of directors or such committee also has discretion to determine the nature of the consideration to be paid upon the
exercise of an option under the Plan. Such consideration generally consists of cash, but may include a recourse promissory note.
The Ordinary Shares acquired upon exercise of an option are
subject to certain restrictions on transfer, sale or hypothecation. Options are exercisable and restrictions on disposition of
shares lapse pursuant to the terms of the individual agreements under which the options were granted or the shares were issued.
The exercise price per share is usually granted at the approximate
fair market value of the shares on the date of grant, as determined by the closing price of our Ordinary Shares as reported by
Nasdaq on the date immediately prior to the date of grant.
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Each share incentive agreement specifies the date and period
over which
the option becomes exercisable. Options granted by us generally vest over a period of four
years.
Vesting is conditional
upon
the employee remaining continuously employed by us, or in the case of a director, remaining a director.
In 2001, we adopted the 2000 Approved U.K. Share Scheme for
our employees located in the United Kingdom and in 2003, we adopted the 2003 Israeli Share Option Plan for our employees located
in Israel, both of which were adopted under the Plan.
|
Item 7.
|
Major
Shareholders and Related Party Transactions
|
The following table sets forth, as of the date indicated below,
the total number of Ordinary Shares beneficially owned by (i) all shareholders known to us to own more than 5% of our outstanding
Ordinary Shares, and (ii) all of our directors and executive officers as a group. Unless otherwise set forth below, the information
below reflects holdings as of March 20, 2013.
|
|
Ordinary Shares Beneficially Owned
|
|
Name and Address
|
|
Number
|
|
|
Percent
(1)
|
|
Dr. Moshe BenBassat
(2)
|
|
2,385,037
|
|
|
|
6.8
|
%
|
Idit BenBassat
(3)
|
|
1,686,111
|
|
|
|
5.3
|
%
|
G. Nicholas Farwell
(4)
|
|
2,149,920
|
|
|
|
6.8
|
%
|
FMR LLC
(5)
|
|
3,161,051
|
|
|
|
10.0
|
%
|
Soros Fund Management LLC
(6)
|
|
3,130,000
|
|
|
|
9.9
|
%
|
Officers and directors as a group
(7)
(9 persons)
|
|
2,996,717
|
|
|
|
9.0
|
%
|
|
(1)
|
The percentages
shown are based
on 31,776,258 shares
issued and outstanding
as of March 20,
2013.
|
|
(2)
|
Includes
(i) 977,875 options
to purchase the
Company's ordinary
shares, exercisable
within 60 days of
March 20, 2013 and
held by Dr. BenBassat;
(ii) 1,292,579 shares
held by Singuno
Pte. Ltd., a Singapore
company controlled
by Dr. BenBassat;
and (iii) 114,583
options to purchase
the Company's Ordinary
Shares exercisable
within 60 days of
March 20, 2013 held
by Plataine Technologies
Ltd., an Israeli
corporation controlled
by Idit BenBassat
and Dr. BenBassat
(the "Plataine
Options").
The Plataine Options
were granted by
the Company in connection
with services provided
to the Company by
Dr. BenBassat through
Plataine Technologies
Ltd.. The Plataine
Options are reported
as beneficially
owned in their entirety
by both Idit BenBassat,
on the amendment
to Schedule 13G
she filed on February
7, 2013, and by
Dr. BenBassat, herein,
because of their
shared control of
Plataine Technologies
Ltd.; however, they
constitute only
a single set of
options.
|
|
(3)
|
Based on
Amendment No. 2
to Schedule 13G
filed with the SEC
on February 7, 2013
by Idit BenBassat,
and which reflect
holdings as of December
31, 2012. Consists
of 1,581,944 shares
held by Singdos
Pte. Ltd., a Singapore
company controlled
by Idit BenBassat
and includes 104,167
options to purchase
the Company's Ordinary
Shares exercisable
within 60 days of
December 31, 2012
held by Plataine
Technologies Ltd.,
an Israeli corporation
controlled by Idit
BenBassat and Dr.
Moshe BenBassat.
The Plataine Options
were granted by
the Company in connection
with services provided
through Plataine
by Dr. Moshe BenBassat
to the Company.
The Plataine Options
are reported as
beneficially owned
in their entirety
by both Dr. Moshe
BenBassat and Idit
BenBassat on the
amendments to Schedule
13G that each filed
because of their
shared control of
Plataine Technologies
Ltd., but constitute
only a single set
of options.
|
|
(4)
|
Based solely
on information provided
by G. Nicholas Farwell
to us on February
13, 2013.
|
|
(5)
|
Based solely
on Amendment No.
3 to Schedule 13G
filed with the SEC
on February 14,
2013 by FMR LLC
and certain of its
affiliates, which
reflect holdings
as of December 31,
2012. Edward C.
Johnson 3d, together
with family members,
is reported as being
deemed to control
FMR LLC.
|
|
(6)
|
Based solely
on Amendment No.
1 to Schedule 13G
filed with the SEC
on February 14,
2013 by Soros Fund
Management LLC and
its affiliates George
Soros and Robert
Soros, and which
reflect holdings
as of December 31,
2012.
|
|
(7)
|
Includes
1,395,979 Ordinary
Shares for which
options and RSUs
exercisable within
60 days of the date
stated above, but
does not include
373,423 Ordinary
Shares for which
options and RSUs
granted to officers
and directors which
are not currently,
and will not within
60 days be, exercisable.
|
20-F ClickSoftware Technologies Ltd.
|
Page
52
|
Changes in the percentage of ownership
of major shareholders during the past three years were as follows:
|
|
Year Ended December 31,
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2012
|
|
|
|
|
|
|
%
|
|
|
|
|
|
%
|
|
Total shares
|
|
|
30,244,330
|
|
|
|
|
|
|
|
31,654,942
|
|
|
|
|
|
Dr. Moshe BenBassat
|
|
|
2,497,885
|
|
|
|
7.9
|
%
|
|
|
2,369,204
|
|
|
|
6.8
|
%
|
Idit BenBassat
|
|
|
1,680,887
|
|
|
|
5.6
|
%
|
|
|
1,686,111
|
|
|
|
5.3
|
%
|
FMR LLC
|
|
|
(*)
|
|
|
|
-
|
%
|
|
|
3,161,051
|
|
|
|
10.0
|
%
|
Soros Fund Management LLC
|
|
|
(*)
|
|
|
|
-
|
%
|
|
|
3,130,000
|
|
|
|
9.9
|
%
|
G. Nicholas Farwell
|
|
|
2,134,105
|
|
|
|
7.1
|
%
|
|
|
2,149,920
|
|
|
|
6.8
|
%
|
Our major shareholders do not have different
voting rights from each other or other shareholders.
According to our transfer agent, as of December 31, 2012, there
were 19 holders of record of our Ordinary Shares in the United States, representing approximately 94% of our outstanding shares. The
number of record holders in the United States is not representative of the number of beneficial holders nor is it representative
of where such beneficial holders reside since many of our Ordinary Shares are held by brokers or other nominees. None of the Company’s
Preferred Shares are issued or outstanding.
To
our knowledge, we are not directly or indirectly owned or controlled by another corporation, any foreign government or any other
natural or legal person severally or jointly.
|
7.B.
|
Related party transactions
|
Since January 1, 2012, we have engaged in no material commercial
transactions with related parties, nor are there any outstanding loans to related parties concerning this period of time, except
for service agreements with our Chairman and Chief Executive Officer Dr. Moshe BenBassat (See Item 10.C "Material contracts
not in the ordinary course of business") and compensation to our directors and officers (See Item 6.B "Compensation").
|
7.C.
|
Interests of experts and counsel
|
Not
applicable.
|
Item 8.
|
Financial
Information
|
|
8.A.
|
Consolidated statements and other financial information
|
See Item 18 – Financial Statements.
Export Sales
Export sales from Israel in 2012 were $99.6 million, or 99.5%
of revenues, compared with $86.2 million, or 99.0% of revenues, in 2011, and $70.2 million, or 98.8% of revenues, in 2010.
Legal Proceedings
From time to time, we are involved in various routine legal
proceedings incidental to the ordinary course of our business. We do not believe that the outcome of these legal proceedings have
had in the recent past, or will have (with respect to any pending proceedings), significant effects on our financial position
or profitability.
20-F ClickSoftware Technologies Ltd.
|
Page
53
|
Dividends
We do not have a formal dividend policy governing the amounts
and payment of dividends. Until 2011, we retained all earnings for use in our business. During 2011 we declared a cash dividend
to our shareholders in the amount of $10 million ($0.32 per share). During 2011 we distributed a cash dividend of $7.5 million
($0.24 per share). During 2012 we declared a cash dividend to our shareholders in the amount of $7.5 million ($0.24 per share)
and distributed a cash dividend of $10 million ($0.32 per share). Subsequent to December 31, 2012, we distributed a cash dividend
in the amount of $2.5 million. Payment of future dividends is at the discretion of our board of directors.
Except as disclosed elsewhere in this annual report, there
have been no other significant changes since December 31, 2012.
|
Item 9.
|
The
Offer and Listing
|
|
9.A.
|
Offer and listing details
|
Our Ordinary Shares are listed for trading on the Nasdaq Global
Select Market. The following table sets forth for the periods listed the high and low market prices of our Ordinary Shares on
the Nasdaq Global Select Market (since July 1, 2009) or Nasdaq Capital Market (prior to July 1, 2009).
|
|
High
|
|
|
Low
|
|
|
|
($)
|
|
|
($)
|
|
Annual Information
|
|
|
|
|
|
|
|
|
2008
|
|
|
4.00
|
|
|
|
1.81
|
|
2009
|
|
|
8.43
|
|
|
|
1.88
|
|
2010
|
|
|
8.07
|
|
|
|
4.82
|
|
2011
|
|
|
10.70
|
|
|
|
7.24
|
|
2012
|
|
|
12.98
|
|
|
|
6.88
|
|
|
|
|
|
|
|
|
|
|
Quarterly Information
|
|
|
|
|
|
|
|
|
First quarter 2011
|
|
|
9.36
|
|
|
|
7.24
|
|
Second quarter 2011
|
|
|
10.70
|
|
|
|
8.62
|
|
Third quarter 2011
|
|
|
10.36
|
|
|
|
7.42
|
|
Fourth quarter 2011
|
|
|
9.90
|
|
|
|
8.33
|
|
First quarter 2012
|
|
|
12.98
|
|
|
|
9.48
|
|
Second quarter 2012
|
|
|
12.96
|
|
|
|
8.02
|
|
Third quarter 2012
|
|
|
8.74
|
|
|
|
7.09
|
|
Fourth quarter 2012
|
|
|
8.72
|
|
|
|
6.88
|
|
|
|
|
|
|
|
|
|
|
Monthly Information
|
|
|
|
|
|
|
|
|
September 2012
|
|
|
8.05
|
|
|
|
7.58
|
|
October 2012
|
|
|
7.74
|
|
|
|
6.88
|
|
November 2012
|
|
|
7.75
|
|
|
|
6.92
|
|
December 2012
|
|
|
8.72
|
|
|
|
7.27
|
|
January 2013
|
|
|
8.94
|
|
|
|
7.91
|
|
February 2013
|
|
|
8.59
|
|
|
|
8.00
|
|
March 2013 (through March 20)
|
|
|
9.06
|
|
|
|
8.11
|
|
20-F ClickSoftware Technologies Ltd.
|
Page
54
|
|
9.B
.
|
Plan of distribution
|
Not applicable.
|
9.C.
|
Market for Ordinary Shares
|
Our Ordinary Shares have been quoted on the Nasdaq Global Select
Market since July 1, 2009 under the symbol CKSW. From August 29, 2002 to July 1, 2009, our Ordinary Shares were traded on the
Nasdaq Capital Market under the same symbol (except between November 6, 2002 and March 6, 2003, when our symbol was
CKSWE). Prior to that, beginning on June 22, 2000, our Ordinary Shares were quoted on the Nasdaq National Market under the same
symbol, CKSW.
|
9.D.
|
Selling shareholders
|
Not applicable
.
Not applicable
.
|
9.F.
|
Expenses
of the issue
|
Not applicable.
|
Item 10.
|
Additional
information
|
Not applicable.
|
10.B.
|
Memorandum
and articles of association
|
Securities Register
We are registered with the Israeli Registrar of Companies.
Our registration number is 510829971. Section 2 of our articles of association provides that we may engage in any type of lawful
business as may be determined by our board of directors from time to time.
Board of Directors
The Companies Law requires that certain transactions, actions
and arrangements be approved as provided for in a company's articles of association and in certain circumstances by the audit
committee, by the board of directors itself and by the shareholders. The vote required by the audit committee and the board of
directors for approval of such matters, in each case, is a majority of the disinterested directors participating in a duly convened
meeting.
The Companies Law requires that an office holder in the company
or a controlling shareholder in a public company promptly disclose any personal interest that he or she may have (either directly
or by way of any corporation in which he or she is, directly or indirectly, a 5% or greater shareholder, director or general manager
or in which he or she has the right to appoint at least one director or the general manager) and all related material information
known to him or her, in connection with any existing or proposed transaction by the company, no later than the first meeting of
the board of directors to discuss such existing or proposed transaction. In addition, if the transaction is an extraordinary transaction
(that is, a transaction other than in the ordinary course of business, otherwise than on market terms, or is likely to have a
material impact on the company's profitability, assets or liabilities), the office holder in the company or a controlling shareholder
in a public company also must disclose any personal interest held by his or her spouse, siblings, parents, grandparents, descendants,
spouse's descendants and the spouses of any of the foregoing. According to a recent amendment to the Companies Law, extraordinary
transactions with a controlling shareholder or in which a controlling shareholder has a personal interest, and agreements relating
to employment and compensation of a controlling shareholder, require shareholders’ approval that shall either include at
least one- half (instead of one-third, as was applicable prior to the amendment) of the shares held by disinterested shareholders
participating in the vote, or, alternatively, the total shareholdings of disinterested shareholders voting against the transaction
must not represent more than two percent (instead of one percent, as under current law) of the voting rights; agreements relating
to engagement or provision of services for a period exceeding three years, must generally be approved once every three years.
20-F ClickSoftware Technologies Ltd.
|
Page
55
|
Once the office holder in the company complies with the above
disclosure requirement, a company may approve the transaction in accordance with the provisions of its articles of association.
If the transaction is with a third party in which the office holder in the company has a personal interest, the approval must
confirm that the transaction is not adverse to the company's interest. Furthermore, if the transaction is an extraordinary transaction,
then, in addition to any approval stipulated by the articles of association, it also must be approved by the company's audit committee
and then by the board of directors, and, under certain circumstances, by the shareholders.
Our articles of association provide that, all actions done
bona fide at any meeting of the board of directors or by a committee thereof or by any person(s) acting as director(s) will, 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 were disqualified, be as valid as if there were no such
defector disqualification.
|
·
|
Our
articles
of
association
provide
that
a
director
who
has
a
personal
interest
in
an
extraordinary
transaction
which
is
brought
for
discussion
before
our
board
of
directors
or
our
audit
committee
shall
neither
vote
in
nor
attend
discussions
concerning
the
approval
of
such
transaction.
If
the
director
did
vote
or
attend
as
aforesaid,
the
approval
given
to
the
aforesaid
activity
or
arrangement
will
be
invalid.
|
|
·
|
Our
articles
of
association
provide
that,
subject
to
the
Companies
Law,
our
board
of
directors
may
delegate
its
authority,
in
whole
or
in
part,
to
such
committees
of
the
board
of
directors
as
it
deems
appropriate,
and
it
may
from
time
to
time
revoke
such
delegation.
To
the
extent
permitted
by
the
Companies
Law,
our
board
of
directors
may
from
time
to
time
confer
upon
and
delegate
to
a
President,
Chief
Executive
Officer,
Chief
Operating
Officer
or
other
executive
officer
then
holding
office,
such
authorities
and
duties
of
the
board
of
directors
as
it
deems
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
our
best
interests,
without
waiving
the
authorities
of
the
board
of
directors
with
respect
thereto.
|
|
·
|
Arrangements
regarding
compensation
of
directors
require
the
approval
of
the
compensation
committee,
audit
committee,
our
board
of
directors
and
the
shareholders.
|
Rights, Preferences and Restrictions of Shares
|
·
|
General.
Our
share
capital
is
NIS
2,100,000,
divided
into:
(i)100,000,000
Ordinary
Shares,
and
(ii)
5,000,000
Special
Preferred
Shares
of
NIS
0.02
par
value
each.
Our
Ordinary
Shares
do
not
have
preemptive
rights.
|
|
·
|
The
Ordinary
Shares
do
not
have
cumulative
voting
rights
in
the
election
of
directors.
As
a
result,
the
holders
of
Ordinary
Shares
that
represent
more
than
50%
of
the
voting
power
have
the
power
to
elect
all
the
Directors.
|
|
·
|
Dividend
and
liquidation
rights.
Our
board
of
directors
may
declare
a
dividend
to
be
paid
to
the
holders
of
our
Ordinary
Shares
according
to
their
rights
and
interests
in
our
profits
and
may
fix
the
record
date
for
eligibility
and
the
time
for
payment.
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,
our
position
justifies.
All
dividends
unclaimed
for
one
year
after
having
been
declared
may
be
invested
or
otherwise
used
by
the
directors
for
our
benefit
until
claimed.
No
unpaid
dividend
or
interest
shall
bear
interest
as
against
us.
Our
board
of
directors
may
determine
that
a
dividend
may
be
paid,
wholly
or
partially,
by
the
distribution
of
certain
of
our
assets
or
by
a
distribution
of
paid
up
shares,
debentures
or
debenture
stock
or
any
of
our
securities
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.
|
20-F ClickSoftware Technologies Ltd.
|
Page
56
|
|
·
|
Transfer
of
shares;
record
dates.
Fully
paid
up
Ordinary
Shares
may
be
freely
transferred
pursuant
to
our
articles
of
association
unless
such
transfer
is
restricted
or
prohibited
by
another
instrument
or
securities
laws.
Each
shareholder
who
would
be
entitled
to
attend
and
vote
at
a
General
Meeting
of
shareholders
is
entitled
to
receive
notice
of
any
such
meeting.
For
purposes
of
determining
the
shareholders
entitled
to
notice
and
to
vote
at
such
meeting,
the
board
of
directors
will
fix
a
record
date.
|
|
·
|
Voting;
annual
general
and
extraordinary
meetings.
Subject
to
any
rights
or
restrictions
for
the
time
being
attached
to
any
class
or
classes
of
shares,
each
shareholder
shall
have
one
vote
for
each
share
of
which
he
or
she
is
the
holder,
whether
on
a
show
of
hands
or
on
a
poll.
Our
articles
of
association
do
not
permit
cumulative
voting
and
it
is
not
mandated
by
Israeli
law.
Votes
may
be
given
either
personally
or
by
proxy.
A
proxy
need
not
be
a
shareholder.
If
any
shareholder
is
without
legal
capacity,
he
may
vote
by
means
of
a
trustee
or
a
legal
custodian,
who
may
vote
either
personally
or
by
proxy.
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
shareholder
register.
|
|
·
|
No
business
shall
be
transacted
at
any
General
Meeting
unless
a
quorum
is
present
when
the
meeting
proceeds
to
business.
The
quorum
at
any
Meeting
shall
be
two
shareholders
present
in
person
or
by
proxy,
holding
or
representing
at
least
33%
of
our
total
voting
rights.
A
meeting
adjourned
for
lack
of
quorum
is
adjourned
to
the
same
day
in
the
next
week
at
the
same
time
and
place,
or
any
time
and
hour
as
the
board
of
directors
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
is
convened
at
the
demand
of
shareholders
as
permitted
by
of
the
Companies
Law,
then
a
quorum
at
such
adjourned
meeting
shall
be
one
or
more
shareholders
holding
in
the
aggregate
at
least
5%
of
our
issued
share
capital
and
at
least
1%
of
our
voting
rights,
or
one
or
more
shareholders
who
hold
in
the
aggregate
at
least
5%
of
our
voting
rights.
Rule
5620(c)
to
Nasdaq
Rules
requires
that
an
issuer
listed
on
the
Nasdaq
Global
Select
Market
should
have
a
quorum
requirement
that
in
no
case
be
less
than
33
1/3%
of
the
outstanding
shares
of
the
company's
common
voting
stock.
However,
as
mentioned
above,
our
articles
of
association,
consistent
with
the
Companies
Law,
provide
for
a
lower
general
quorum
requirement
of
33%
of
our
outstanding
shares
and
an
even
lower
quorum
in
the
event
that
the
required
quorum
is
not
present
within
half
an
hour
from
the
time
appointed
for
holding
an
adjourned
meeting,
or,
in
the
case
the
meeting
that
was
adjourned
was
convened
by
the
shareholders,
if
the
required
quorum
is
not
present
at
the
time
appointed
for
holding
such
adjourned
meeting.
|
|
·
|
Unless
a
longer
period
for
notice
is
prescribed
by
the
Companies
Law,
at
least
10
days
and
not
more
than
60
days’
notice
of
any
general
meeting
shall
be
given,
specifying
the
place,
the
day
and
the
hour
of
the
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
our
articles
of
association,
entitled
to
receive
notices
from
us.
Only
shareholders
of
record
as
reflected
on
our
share
register
at
the
close
of
business
on
the
date
fixed
by
the
board
of
directors
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.
|
|
·
|
General
Meetings
are
held
at
least
once
in
every
calendar
year
at
such
time
(within
a
period
of
15
months
after
the
holding
of
the
last
preceding
General
Meeting),
and
at
such
time
and
place
as
may
be
determined
by
the
board
of
directors.
At
a
General
Meeting,
decisions
shall
be
adopted
only
on
matters
that
were
specified
on
the
agenda.
The
board
of
directors
is
obligated
to
call
extraordinary
general
meeting
of
the
shareholders
upon
a
written
request
in
accordance
with
the
Companies
Law.
The
Companies
Law
provides
that
an
extraordinary
general
meeting
of
shareholder
may
be
called
by
the
board
of
directors
or
by
a
request
of
two
directors
or
25%
of
the
directors
in
office,
or
by
shareholders
holding
at
least
5%
of
the
issued
share
capital
of
the
company
and
at
least
1%
of
the
voting
rights,
or
of
shareholders
holding
at
least
5%
of
the
voting
rights
of
the
company.
|
|
·
|
Except
as
otherwise
provided
in
the
articles
of
association,
any
resolution
at
a
General
Meeting
shall
be
deemed
adopted
if
approved
by
the
holders
of
a
majority
of
our
voting
rights
represented
at
the
meeting
in
person
or
by
proxy
and
voting
thereon.
In
the
case
of
an
equality
of
votes,
the
chairman
of
the
meeting
shall
not
be
entitled
to
a
further
or
casting
vote.
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·
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Discrimination
against
shareholders.
According
to
our
articles
of
association,
there
are
no
discriminating
provisions
against
any
existing
or
prospective
holders
of
our
shares
as
a
result
of
a
shareholder
holding
a
substantial
number
of
shares.
|
Modification of Class Rights
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 consent in writing of
the holders
of all the issued shares of that class, or 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 our articles of association 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.
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. These conditions provide for the minimum
shareholder approvals permitted by the Companies Law.
Restrictions on Shareholders Rights to Own Securities
Our articles of association and the laws of the State of Israel
do not restrict in any way the ownership or voting or our shares by non-residents of Israel, except with respect to subjects of
countries which are in a state of war with Israel.
Acquisitions under Israeli Law
Full tender offer
A person wishing to acquire shares of an Israeli public company
and who would as a result hold over 90% of the target company’s issued and outstanding share capital is required by the
Companies Law to make a tender offer to all of the company’s shareholders for the purchase of all of the issued and outstanding
shares of the company.
A person wishing to acquire shares of an Israeli public company
and who would as a result hold over 90% of the issued and outstanding share capital of a certain class of shares is required to
make a tender offer to all of the shareholders who hold shares of the same class for the purchase of all of the issued and outstanding
shares of the same class.
If the shareholders who do not respond to or accept the offer
hold less than 5% of the issued and outstanding share capital of the company or of the applicable class of the shares, and more
than half of the shareholders who do not have a personal interest in the offer accept the offer, all of the shares that the acquirer
offered to purchase will be transferred to the acquirer by operation of law. However, a tender offer will be accepted if the shareholders
who do not accept it hold less than 2% of the issued and outstanding share capital of the company or of the applicable class of
the shares.
Upon a successful completion of such a full tender offer, any
shareholder that was an offeree in such tender offer, whether such shareholder accepted the tender offer or not, may, within six
months from the date of acceptance of the tender offer, petition the Israeli court to determine whether the tender offer was for
less than fair value and that the fair value should be paid as determined by the court. However, under certain conditions, the
offeror may determine in the terms of the tender offer that an offeree who accepted the offer will not be entitled to petition
the Israeli court as described above.
If the shareholders who did not respond or accept the tender
offer hold at least 5% of the issued and outstanding share capital of the company or of the applicable class, the acquirer may
not acquire shares of the company that will increase its holdings to more than 90% of the company’s issued and outstanding
share capital or of the applicable class from shareholders who accepted the tender offer.
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Special tender offer
The Companies Law provides that an acquisition of shares of
an Israeli public company must be made by means of a special tender offer if as a result of the acquisition the purchaser would
become a holder of at least 25% of the voting rights in the company. This rule does not apply if there is already another holder
of at least 25% of the voting rights in the company.
Similarly, the Companies Law provides that an acquisition of
shares in a public company must be made by means of a special tender offer if as a result of the acquisition the purchaser would
become a holder of more than 45% of the voting rights in the company, if there is no other shareholder of the company who holds
more than 45% of the voting rights in the company.
These requirements do not apply if the acquisition (i) occurs
in the context of a private offering, on the condition that the shareholders meeting approved the acquisition as a private offering
whose purpose is to give the acquirer at least 25% of the voting rights in the company if there is no person who holds at least
25% of the voting rights in the company, or as a private offering whose purpose is to give the acquirer 45% of the voting rights
in the company, if there is no person who holds 45% of the voting rights in the company; (ii) was from a shareholder holding
at least 25% of the voting rights in the company and resulted in the acquirer becoming a holder of at least 25% of the voting
rights in the company; or (iii) was from a holder of more than 45% of the voting rights in the company and resulted in the
acquirer becoming a holder of more than 45% of the voting rights in the company.
The special tender offer may be consummated only if (i) at
least 5% of the voting power attached to the company’s outstanding shares will be acquired by the offeror and (ii) the
special tender offer is accepted by a majority of the votes of those offerees who gave notice of their position in respect of
the offer; in counting the votes of offerees, the votes of a holder of control in the offeror, a person who has personal interest
in acceptance of the special tender offer, a holder of at least 25% of the voting rights in the company, or any person acting
on their or on the offeror’s behalf, including their relatives or companies under their control, are not taken into account.
In the event that a special tender offer is made, a company’s
board of directors is required to express its opinion on the advisability of the offer or shall abstain from expressing any opinion
if it is unable to do so, provided that it gives the reasons for its abstention.
An office holder in a target company who, in his or her capacity
as an office holder, performs an action the purpose of which is to cause the failure of an existing or foreseeable special tender
offer or is to impair the chances of its acceptance, is liable to the potential purchaser and shareholders for damages resulting
from his acts, unless such office holder acted in good faith and had reasonable grounds to believe he or she was acting for the
benefit of the company. However, office holders of the target company may negotiate with the potential purchaser in order to improve
the terms of the special tender offer, and may further negotiate with third parties in order to obtain a competing offer.
If a special tender offer was accepted by a majority of the
shareholders who announced their stand on such offer, then shareholders who did not respond to the special offer or had objected
to the special tender offer may accept the offer within four days of the last day set for the acceptance of the offer.
In the event that a special tender offer is accepted, then
the purchaser or any person or entity controlling it and any corporation controlled by them shall refrain from making a subsequent
tender offer for the purchase of shares of the target company and may not execute a merger with the target company for a period
of one year from the date of the offer, unless the purchaser or such person or entity undertook to effect such an offer or merger
in the initial special tender offer.
Merger
The Companies Law permits merger transactions if approved by
each party’s board of directors and, unless certain requirements described under the Companies Law are met, a majority of
each party’s shareholders, by a majority of each party’s shares that are voted on the proposed merger at a shareholders’
meeting.
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The board of directors of a merging company is required pursuant
to the Companies Law to discuss and determine whether in its opinion there exists a reasonable concern that as a result of a proposed
merger, the surviving company will not be able to satisfy its obligations towards its creditors, taking into account the financial
condition of the merging companies. If the board of directors has determined that such a concern exists, it may not approve a
proposed merger. Following the approval of the board of directors of each of the merging companies, the boards of directors must
jointly prepare a merger proposal for submission to the Israeli Registrar of Companies.
For purposes of the shareholder vote, unless a court rules
otherwise, the merger will not be deemed approved if a majority of the shares voting at the shareholders meeting (excluding abstentions)
that are held by parties other than the other party to the merger, any person who holds 25% or more of the means of control of
the other party to the merger or any one on their behalf including their relatives or corporations controlled by any of them,
vote against the merger.
If the transaction would have been approved but for the separate
approval of each class of shares or the exclusion of the votes of certain shareholders as provided above, a court may still rule
that the company has approved the merger upon the request of holders of at least 25% of the voting rights of a company, if the
court holds that the merger is fair and reasonable, taking into account the appraisal of the merging companies’ value and
the consideration offered to the shareholders.
Under the Companies Law, each merging company must send a copy
of the proposed merger plan to its secured creditors. Unsecured creditors are entitled to receive notice of the merger, as provided
by the regulations promulgated under the Companies Law. Upon the request of a creditor of either party to the proposed merger,
the court may delay or prevent the merger if it concludes that there exists a reasonable concern that, as a result of the merger,
the surviving company will be unable to satisfy the obligations of the target company. The court may also give instructions in
order to secure the rights of creditors.
In addition, a merger may not be completed unless at least
50 days have passed from the date that a proposal for approval of the merger was filed with the Israeli Registrar of Companies
and 30 days from the date that shareholder approval of both merging companies was obtained.
Potential Issues that Could Delay a Merger
Our articles of association provides
for a staggered board of directors, which could delay, defer or prevent a change of control. In addition,
certain provisions
of Israeli corporate and tax law may have the effect of delaying, preventing or making more difficult any merger or acquisition
of us. For example, any merger or acquisition of us will require the prior consent of the Chief Scientist, as well as the Investment
Center. See Item 3.D – Risk factors "We are subject to anti-takeover provisions that could delay or prevent our acquisition
by another entity."
Requirement of Disclosure of Shareholder Ownership
There are no provisions of our memorandum of association or
articles of association governing the ownership threshold above which shareholder ownership must be disclosed. We are subject,
however, to U.S. securities rules that require beneficial owners of more than 5% of our Ordinary Shares to make certain filings
with the SEC.
Changes in Capital
Our memorandum of association and articles of association do
not impose any conditions governing changes in capital that are more stringent than required by the Companies Law.
None.
There are currently no Israeli currency control restrictions
on payments of dividends or other distributions with respect to our Ordinary Shares or the proceeds from the sale of shares, except
for the obligation of Israeli residents to file reports with the Bank of Israel regarding certain transactions. However, legislation
remains in effect pursuant to which currency controls can be imposed by administrative action at any time.
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Non-residents of Israel who purchase our securities with non-Israeli
currency will be able to repatriate dividends (if any), liquidation distributions and the proceeds of any sale of such securities,
into non-Israeli currencies at the rate of exchange prevailing at the time of repatriation, provided that any applicable Israeli
taxes have been paid (or withheld) on such amounts.
Neither our articles of association nor the laws of the State
of Israel restrict in any way the ownership or voting of Ordinary Shares by non-residents of Israel, except with respect to citizens
of countries that are in a state of war with Israel.
The following is a summary of the current tax structure, which
is applicable to companies in Israel, with special reference to its effect on us. The following also contains a discussion of
material Israeli and U.S. tax consequences to persons purchasing our Ordinary Shares and government programs from which we and
some of our group companies benefit. To the extent that the discussion is based on new tax legislation, which has yet to be subject
to judicial or administrative interpretation, there can be no assurance that the views expressed in the discussion will accord
with any such interpretation in the future. 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. An Israeli company that is subject to Israeli taxes on the
income of its non-Israeli subsidiaries will receive a credit for income taxes paid/withheld or that will be paid/withheld by the
subsidiary in its country of residence, according to the terms and conditions determined in the Israeli Tax Ordinance.
The following summary is included herein as general information
only and is not intended as a substitute for careful tax planning. Accordingly, each investor should consult his or her own tax
advisor as to the particular tax consequences to such investor of the purchase, ownership or sale of an ordinary share, including
the effect of applicable state, local, foreign or other tax laws and possible changes in tax laws.
Israeli Taxation Considerations
General Corporate Tax Structure
Income not eligible for "Approved
enterprise" benefits was taxed in 2012 at a regular corporate tax rate of 25% (24% in 2011 and 25% in 2010). The tax rate
was scheduled to be gradually reduced to 18% in 2016 and beyond.
This scheduled gradual reduction in corporate tax rates
was repealed. Instead, the corporate tax rate was increased to 25% in 2012 and thereafter.
However,
the effective rate of tax payable by a company which derives income from an "Approved Enterprise" may be considerably
lower – see discussion below. Due to budgetary constraints, from time to time the Israeli Government has considered delaying
the Israeli company tax rate decreases but no decisions have yet been taken in this regard.
Law for the Encouragement of Capital Investments, 1959
General.
Certain of our production and development facilities
have been granted approved enterprise status pursuant to the Law for the Encouragement of Capital Investments, 1959 (the "Investment
Law"). Pursuant to the Investment Law, an Industrial Company is a company resident in Israel, if at least 90% of the income
of which, in a given tax year, determined in Israeli currency (exclusive of income from some government loans, capital gains,
interest and dividends), is derived from an Industrial Enterprise owned by it. An "Industrial Enterprise" is defined
as an enterprise whose major activity in a given tax year is industrial production activity. The Investment Law provides that
a capital investment in eligible facilities may, upon application to the Investment Center of the Ministry of Industry and Trade
of the State of Israel, or the Investment Center, be designated as an Approved Enterprise. Each certificate of approval for an
Approved Enterprise relates to a specific investment program delineated both by its financial scope, including its capital sources,
and by its physical characteristics, e.g., the equipment to be purchased and utilized pursuant to the program. The tax benefits
derived from any such certificate of approval relate only to taxable income attributable to the specific Approved Enterprise.
Subject to certain provisions concerning income and subject to the Alternative Benefits (see below), any distributed dividends
are deemed attributable to the entire enterprise, and the effective tax rate and the effective withholding tax rates represent
the weighted combination of the various applicable tax rates.
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Tax Benefits
. Taxable income of a company derived from
an Approved Enterprise is subject to company tax at the rate of up to 25%, instead of the tax rates under the "General Corporate
Tax Structure" above, for a certain period of time. The benefit period is a period of seven years commencing in the year
in which the Approved Enterprise first generates taxable income. The benefits may be shorter as it is limited to 12 years from
the commencement of production of the Approved Enterprise or 14 years from the date of approval, whichever is earlier. Under certain
circumstances (as further detailed below), the benefit period may extend to a maximum of ten years or fifteen years (see the 2005
Amendment below) from the commencement of the benefit period. A company which operates under more than one approval or that has
capital investments which are only partly approved (such a company being designated as a Mixed Enterprise), may have an effective
company tax rate that is the result of a weighted combination of the various applicable rates.
A company owning an approved enterprise which was approved
after April 1, 1986 may elect to forego the entitlement to grants or state guarantees and apply for an alternative package of
tax benefits. These benefits provide that undistributed income from the approved enterprise is fully tax exempt from corporate
tax for a defined period, which ranges between two and ten years from the first year of taxable income, subject to the limitations
described above, depending principally upon the geographic location within Israel and the type of the approved enterprise. Upon
expiration of such period, the approved enterprise is eligible for a beneficial tax rate (25% or lower in the case of an FIC,
as described below), for the remainder of the otherwise applicable period of benefits, as described above.
Should the percentage of share capital of the companies having
Approved Enterprises held by foreign shareholders exceed 25%, future Approved Enterprises of such companies would qualify for
reduced tax rates for an additional three years, after the seven years mentioned above. The company tax rate applicable to income
earned from Approved Enterprise programs (currently, for programs on which an application for an approved enterprise status was
submitted before December 31, 2004) in the benefit period by a company meeting these qualifications is as follows:
% of Foreign Ownership
|
|
Tax Rate
|
|
|
|
|
|
Over 25% but less than 49%
|
|
|
25
|
%
|
49% or more but less than 74%
|
|
|
20
|
%
|
74% or more but less than 90%
|
|
|
15
|
%
|
90% or more
|
|
|
10
|
%
|
Entitlement to these tax benefits for enterprises to which
Investment Center granted an Approved Enterprise status prior to December 31, 2004 (see the 2005 Amendment below) is subject to
the final ratification of the Investment Center, and is conditioned upon fulfillment of all terms of the approved program. However,
there can be no assurance that we will obtain approval for additional Approved Enterprises, or that the provisions of the Investment
Law will not change with respect to future approvals, or that the above-mentioned shareholding portion will be reached for each
subsequent year. In the event of our failure to comply with these conditions, the tax and other benefits could be canceled, in
whole or in part, and we might be required to refund the amount of the canceled benefits, together with the addition of CPI linkage
difference and interest. We believe that our Approved Enterprise substantially complies with all such conditions at present, but
there can be no assurance that it will continue to do so. The undistributed income derived from each of our approved enterprise
programs is tax-exempt for a two year period beginning with the first year in which it generates otherwise taxable income and
is subject to a reduced tax rate for the remainder of the benefit period.
A company that pays a dividend out of income derived from the
Approved Enterprise(s) during the tax exemption period will be subject to deferred company tax in respect of the amount distributed
(including the recipient's tax thereon) at the rate which would have been applicable had such company not elected the Alternative
Package. This rate is generally 10% to 25%, depending on the extent to which non-Israeli shareholders hold such company's shares.
The dividend recipient is taxed at the reduced rate applicable
to dividends from Approved Enterprises (generally 15% as compared to 25% for individuals or an exemption for companies), if the
dividend is distributed during the tax benefit period or within 12 years after this period. However, the limitation does not apply
if the company qualifies as a foreign investors' company. This tax must be withheld by such company at source, regardless of whether
the dividend is converted into foreign currency.
Subject to certain provisions concerning income subject to
Mixed Enterprises, all dividends are considered to be attributable to the entire enterprise and the effective tax rate on the
dividend is the result of a weighted combination of the various applicable tax rates. However, such company is not obliged to
distribute exempt retained profits under the Alternative Package, and such company may generally decide from which year's profits
to declare dividends.
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Each application to the Investment Center is reviewed separately,
and a decision as to whether or not to approve such application is based, among other things, on the then prevailing criteria
set forth in the Investment Law, on the specific objectives of the applicant company set forth in such application and on certain
financial criteria of the applicant company. Accordingly, there can be no assurance that any such application by any of our group
companies will be approved. In addition, the benefits available to an Approved Enterprise are conditional upon the fulfillment
of certain conditions stipulated in the Investment Law and its regulations and the criteria set forth in the certificate of approval,
as described above. In the event that these conditions are violated, in whole or in part, a company with an Approved Enterprise
would be required to refund the amount of tax benefits, with the addition of the Israeli consumer price index linkage differences
and interest.
A company which qualifies as a foreign investment company,
or FIC, is a company, like us, in which more than 25% of the share capital (in terms of shares, rights to profit, voting rights
and appointment of directors) and of the combined share and loan capital is owned, directly or indirectly, by non-residents of
Israel and is therefore entitled to further tax benefits relating to its approved enterprises. Such a company will be eligible
for an extension of the period of tax benefits for its approved enterprises (up to ten years) and further tax benefits, should
the level of foreign ownership in it increase above 49%.
Notwithstanding the foregoing, proceeds received from the sale
of our products may be deemed to be royalties under the domestic law of the country of residence of the purchaser/licensee or
under an applicable tax treaty and as such subject to withholding tax in such country.
Where withholding tax is paid by our company to the country
of residence of the purchaser/licensee, such tax would generally be creditable by our company for Israeli income tax purposes,
pursuant to any relevant income tax treaty and under Israeli law against income derived from the same source. However, where we
do not have taxable income for Israeli tax purposes because of the application of a tax exemption available to an Approved Enterprise
or because of losses for tax purposes, we would have no Israeli tax liability against which to credit the foreign tax withheld
and paid by us. Furthermore, under Israeli law, if certain conditions are not met we may not carry forward such unused credit
to utilize in future tax years.
From time to time, the Government of Israel has discussed reducing
the benefits available to companies under the Investment Law and currently such proposal is pending. The termination or substantial
reduction of any of the benefits available under the Investment Law could have a material adverse effect on future investments
by our company in Israel.
The law also provides that an approved enterprise is entitled
to accelerated depreciation on property and equipment included in an approved investment program, generally ranging from 200%
for equipment, to 400% for buildings, of ordinary depreciation rates during the first five tax years of the operation of these
assets with a ceiling of 20% per year for depreciation on buildings.
Notwithstanding the foregoing, on March 29, 2005, the Israeli
Parliament passed an amendment to the Investment Law, or the 2005 Amendment, which revamps the Israeli tax incentives for future
industrial and hotel investments. A tax "holiday" package can now be elected for up to 15 years for a "Privileged
Enterprise" as defined in the 2005 Amendment, if certain conditions are met, without needing to obtain approval. The extent
of the tax benefits available depends upon the level of foreign investment.
The 2005 Amendment became effective on April 1, 2005. Taxpayers
may, under certain conditions, claim Privileged Enterprise status for new and expanded enterprises with respect to 2004 or subsequent
years, unless the Investment Center granted such taxpayer Approved Enterprise status prior to December 31, 2004.
Subject to certain conditions, various alternative tax-only
benefit packages can now be elected with respect to investments in a "Privileged Enterprise", without prior approval.
Companies in industry or tourism in Israel may elect between:
|
·
|
Tax
"holiday"
package
–
for
a
"Privileged
Enterprise":
a
tax
exemption
applies
to
undistributed
profits
for
2
to
10
years
depending
on
geographical
location
of
the
"Privileged
Enterprise"
and
the
level
of
foreign
ownership.
Company
tax
rates
of
between
10%
and
25%
apply
to
distributed
exempt
profits
or
profits
derived
subsequent
to
the
exempt
period.
The
total
period
of
tax
benefits
is
7
to
15
years,
or
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·
|
Grant
/
Reduced
tax
package
–
for
an
"Approved
Enterprise":
Fixed
asset
grants
of
between
20%
and
32%
for
enterprises
in
a
development
area
and
reduced
company
tax
rates
between
0%
and
25%
for
a
period
of
7
to
15
years.
|
Dividend withholding tax also applies at a rate of 4% or 15%
depending on the package selected and the residency of the shareholder.
Recently, new legislation amending the Investment Law was adopted.
Under this new legislation, a uniform corporate tax rate will apply to all qualifying income of certain Industrial Companies (requirement
of a minimum export of 25% of the company's total turnover), as opposed to the current law's incentives, which are limited to
income from Approved Enterprises during their benefits period. Under the new law, the uniform tax rate will be 10% in areas in
Israel designated as Development Zone A and 15% elsewhere in Israel during 2011-2012, 7% and 12.5%, respectively, in 2013-2014, and
6% and 12%, respectively thereafter. The profits of these Industrial Companies will be freely distributable as dividends, subject
to a 15% withholding tax (or lower, under an applicable tax treaty).
Under the transition provisions of the new legislation, we
may decide to irrevocably implement the new law while waiving benefits provided under the current law or to remain subject to
the current law. We chose not to adopt the new law during 2012. Changing from the current law to the new law is permitted at any
time. We do not expect the new law to have material ramifications on the tax payable in respect of our Israeli operations.
Grants under the Law for the Encouragement of Industrial
Research and Development, 1984.
Israeli tax laws have allowed, under certain conditions, a
tax deduction for expenditures (including capital expenditures) in scientific research and development projects, if the expenditures
are approved or funded by the Government of Israel and the research and development is for the promotion of the enterprise and
is carried out by or on behalf of the company seeking such deduction. Expenditures not approved as above or funded are deductible
in equal portions over a three-year period.
Under the Research Law, research and development programs that
meet specified criteria and are approved by a committee of the Chief Scientist, are eligible for grants of up to 50% of the program's
expenses. Under the provisions of Israeli law in effect until 1996, royalties of 2%-3% of the revenues derived in connection with
products developed according to, or as a result of, a research and development program funded by the Chief Scientist had to be
paid to the State of Israel. Pursuant to an amendment effected in 1996 effective with respect to Chief Scientist programs funded
in or after 1994, royalties at the rate of 3% during the first three years, 4% over the following three years and 5% in or after
the seventh year of the revenues derived in connection with products developed according to such programs are payable to the State
of Israel. The maximum aggregate royalties will not exceed 100% (or, for funding prior to 1994, 100%-150%) of the dollar-linked
value of the total grants received. Pursuant to an amendment effected in 2000, effective with respect to Chief Scientist programs
funded in or after 2000, the royalty rates described above were updated to 3% during the first three years and 3.5% in or after
the fourth year, of the revenues derived in connection with products developed under such programs. Pursuant to an amendment effected
on January 1, 1999, effective with respect to Chief Scientist programs approved in or after 1999, funds received from the Chief
Scientist shall bear annual interest at a rate equal to LIBOR for twelve months.
Generally, the Research Law requires that the manufacturing
of any product developed through research and development funded by the Government of Israel shall be in Israel. It also provides
that know-how from the research and development that is used to produce the product may not be transferred to third parties without
the approval of a research committee of the Chief Scientist. Such approval is not required for the export of any products resulting
from such research and development.
However, under the Regulations, in the event that any portion
of the manufacturing is not performed in Israel, if approved by the Chief Scientist, we would be required to pay an increased
royalty at the rates of 120%, 150% or 300% of the grant if the manufacturing portion that is performed outside of Israel is less
than 50%, between 50% and 90% and more than 90%, respectively.
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In 2002, the Research Law was amended to, among other things,
enable companies applying for grants from the Chief Scientist to seek prior approval for conducting manufacturing activities outside
of Israel without being subject to increased royalties. However, this amendment will not apply to any of our existing grants.
In addition, the amendment provides that one of the factors to be taken into consideration by the Chief Scientist in deciding
whether to approve a grant application is the percentage of the manufacturing of the relevant product that will be conducted outside
of Israel. Accordingly, should we seek additional grants from the Chief Scientist in connection with which we also seek prior
approval for manufacturing products outside of Israel, we may not receive such grant or may receive a grant in an amount that
is less than the amount we sought.
Law for the Encouragement of Industry (Taxes), 1969
Pursuant to the Law for the Encouragement of Industry (Taxes),
1969, a company qualifies as an "Industrial Company" if it is a resident of Israel and at least 90% of its gross income
in any tax year (exclusive of income from certain defense loans, capital gains, interest and dividends) is derived from an "industrial
enterprise" it owns. An "industrial enterprise" is defined as an enterprise whose major activity, in a given tax
year, is industrial manufacturing.
We believe that we currently qualify as an Industrial Company.
Accordingly, we are entitled to certain tax benefits, including a deduction of 12.5% per annum on the purchase of patents or certain
other intangible property rights (other than goodwill) used for the development or promotion of the industrial enterprise over
a period of eight years beginning with the year in which such rights were first used.
The tax laws and regulations dealing with the adjustment of
taxable income for local inflation provide that an industrial enterprise is eligible for special rates of depreciation deductions.
These rates vary in the case of plant and machinery according to the number of shifts in which the equipment is being operated
and range from 20% to 40% on a straight-line basis, or 30% to 50% on a declining balance basis (instead of the regular rates which
are applied on a straight-line basis).
Moreover, industrial enterprises which are Approved Enterprises
can choose between (a) the special rates referred to above and (b) accelerated regular rates of depreciation applied on a straight-line
basis with respect to property and equipment, generally ranging from 200% (with respect to equipment) to 400% (with respect to
buildings) of the ordinary depreciation rates during the first five years of service of these assets, provided that the depreciation
on a building may not exceed 20% per annum. In no event may the total depreciation exceed 100% of the cost of the asset.
In addition, Industrial Companies may (i) elect to file consolidated
tax returns with additional related Israeli Industrial Companies and (ii) deduct expenses related to public offerings in equal
amounts over a period of three years.
Eligibility for benefits under the Encouragement of Industry
Law is not contingent upon the approval of any governmental authority. No assurance can be given that we will continue to qualify
as an Industrial Company, or will avail ourselves of any benefits under this law in the future or that Industrial Companies will
continue to enjoy such tax benefits in the future.
Taxation under Inflationary Conditions
The
Income Tax Law (Inflationary Adjustments), 5745-1985, generally referred to as the “Inflationary Adjustments Law,”
was designed to deal with taxation issues caused by rapid inflation. Under the Inflationary Adjustments Law, taxable results of
Israeli companies up to and including the year 2007 were measured on a real basis, taking into account the rate of change in the
Israeli Consumer Price Index. The Inflationary Adjustments Law was repealed commencing from tax year 2008.
Pursuant to a recent amendment to the Investments Law which
became effective on November 12, 2012, a company that elects by November 11, 2013 to pay a corporate tax rate as set
forth in that amendment (rather than the regular corporate tax rate applicable to Approved Enterprise income) with respect to
undistributed exempt income accumulated by the company up until December 31, 2011, will be entitled to distribute a dividend
from such income without being required to pay additional corporate tax with respect to such dividend. A company that has so elected
must make certain qualified investments in Israel over the five-year period commencing in 2013. A company that has elected to
apply the amendment cannot change its election. We have elected to take advantage of the amendment in 2013 and were required to
pay about $0.7 million as a one-time payment.
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Taxation of our Shareholders
Capital Gain
Capital gain tax is imposed on the disposal of capital assets
by an Israeli resident, and on the disposal of such assets by a non- Israel resident if those assets are either (i) located in
Israel; (ii) are shares or a right to a share in an Israeli resident corporation (iii) represent, directly or indirectly, rights
to assets located in Israel. The Israeli Tax Ordinance distinguishes between "Real Gain" and the "Inflationary
Surplus". Real Gain is the excess of the total capital gain over Inflationary Surplus computed generally on the basis of
the increase in the Israeli CPI between the date of purchase and the date of disposal.
The capital gain accrued by individuals on the sale of an asset
purchased on or after January 1, 2003 will be taxed at the rate of 25%. However, if the individual shareholder is a "Controlling
Shareholder" (
i.e
., a person who holds, directly or indirectly, alone or together with other, 10% or more of one of
the Israeli resident company's means of control at the time of distribution or at any time during the preceding 12 months period)
such gain will be taxed at the rate of 30%. In addition, capital gain derived by an individual claiming deduction of financing
expenses in respect of such gain will be taxed at the rate of 25%. The real capital gain derived by a corporation will be generally
subject to tax at the rate of 25%. However, the real capital gain derived from sale of securities, as defined in Section 6 of
the Inflationary Adjustment Law, by a corporation, which was subject upon December 31, 2005 to the provisions of Section 6 of
the Inflationary Adjustment Law, will be taxed at the corporate tax rate (24% in 2011 and 25% in 2012 and thereafter). The capital
gain accrued at the sale of an asset purchased prior to January 1, 2003 will be subject to tax at a blended rate. The marginal
tax rate for individuals (up to 45% in 2011,up to 48% in 2012 and up to 50% in 2013 and thereafter) and the regular corporate
tax rate for corporations (24% in 2011 and 25% in 2012 and thereafter) will be applied to the gain amount which bears the same
ratio to the total gain realized as the ratio which the holding period commencing at the acquisition date and terminating on January
1, 2003 bears to the total holding period. The remainder of the gain realized will be subject to capital gains tax at the rates
applicable to an asset purchased after January 1, 2003 (see aforementioned).
Individual and corporate shareholder dealing in securities
in Israel are taxed at the tax rates applicable to business income (at a tax rate in 2011 of 24% and 25% in 2012 and thereafter
for a corporation and a marginal tax rate of up to 45% in 2011, up to 48% in 2012 and up to 50% in 2013 and thereafter for individuals).
Notwithstanding the foregoing, if the shareholder is a non-Israeli resident, then such taxation is subject to the provision of
any applicable double tax treaty. Moreover, capital gain derived from the sale of the shares by a non-Israeli shareholder may
be exempt under the Israeli income tax ordinance from Israeli taxation provided the following cumulative conditions are met: (i)
the shares were purchased upon or after the registration of the shares at the stock exchange, (ii) the seller doesn't have a permanent
establishment in Israel to which the derived capital gain is attributed, and (iii) if the seller is a corporation, less than 25%
of its means of control are held by Israeli resident shareholders. In addition, the sale of the shares may be exempt from Israeli
capital gain tax under an applicable tax treaty. Thus, the U.S.-Israel Double Tax Treaty exempts U.S. resident from Israeli capital
gain tax in connection with such sale, provided (i) the U.S. resident owned, directly or indirectly, less than 10% of an Israeli
resident company's voting power at any time within the 12 – month period preceding such sale; (ii) the seller, being an
individual, is present in Israel for a period or periods of less than 183 days at the taxable year; and (iii) the capital gain
from the sale was not derived through a permanent establishment of the U.S. resident in Israel.
Either the seller, the Israeli stockbroker or financial institution
through which the sold securities are held, are obliged, subject to the above mentioned exemptions, to withhold tax upon the sale
of securities from the real capital gain at the rate of 25% in respect of a corporation and 20% in respect of an individual in
2011.
Generally, within 30 days of a transaction,
a detailed return, including a computation of the tax due, should be submitted to the Israeli Tax Authority, and an advanced payment
amounting to the tax liability arising from the capital gain is payable. At the sale of traded securities, the aforementioned
detailed return may not be submitted and the advanced payment should not be paid if all tax due was withheld at source according
to applicable provisions of the Israeli income tax ordinance and regulations promulgated thereunder. Capital gain is also reportable
on the annual income tax return.
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Dividends
A distribution of dividend from income attributed to an "Approved
Enterprise" will be subject to tax in Israel at the rate of 15%, subject to a reduced rate under any applicable double tax
treaty. A distribution of dividend from income, which is not attributed to an "Approved Enterprise" to an Israeli resident
individual, will generally be subject to income tax at a rate of 25%. However, a 30% tax rate will apply if the dividend recipient
is a "Controlling Shareholder" (i.e., a person who holds, directly or indirectly, alone or together with other, 10%
or more of one of the Israeli resident company's means of control at the time of distribution or at any time during the preceding
12 months period). If the recipient of the dividend is an Israeli resident corporation, such dividend will be exempt from income
tax provided the income from which such dividend is distributed was derived or accrued within Israel.
Under the Israeli income tax ordinance, a non-Israeli resident
(either individual or corporation) is generally subject to an Israeli income tax on the receipt of dividends at the rate of 25%
(30% if the dividends recipient is a Controlling Shareholder at the time of distribution or at any time during the preceding 12-month
period); those rates are subject to a reduced tax rate under an applicable double tax treaty. Thus, under the Double Tax Treaty
concluded between the State of Israel and the U.S. the following rates will apply in respect of dividends distributed by an Israeli
resident company to a U.S. resident: (i) if the U.S. resident is a corporation which holds during that portion of the taxable
year which precedes the date of payment of the dividend and during the whole of its prior taxable year (if any), at least 10%
of the outstanding shares of the voting stock of the Israeli resident paying corporation and not more than 25% of the gross income
of the Israeli resident paying corporation for such prior taxable year (if any) consists of certain type of interest or dividends
– the tax rate is 12.5%, (ii) if both the conditions mentioned in section (i) above are met and the dividend is paid from
an Israeli resident company's income which was entitled to a reduced tax rate applicable to an "approved enterprise"
under the Israeli Law for the Encouragement of Capital Investments of 1959– the tax rate is 15%, and (iii) in all other
cases, the tax rate is 25%. The aforementioned rates under the Israel U.S. Double Tax Treaty will not apply if the dividend income
was derived through a permanent establishment of the U.S. resident in Israel.
An Israeli resident company whose shares are listed on a stock
exchange is obligated to withhold tax, upon the distribution of a dividend attributed to an Approved Enterprise's income, from
the amount distributed, at the following rates: (i) Israeli resident corporation – 15%, (ii) Israeli resident individual
– 15%, and (iii) non-Israeli resident – 15%, subject to a reduced tax rate under an applicable double tax treaty.
Estate and Gift Tax
Israel law presently does not impose estate
or gift tax.
United States Federal Income Tax Consequences
THE FOLLOWING SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATION
AND IS NOT INTENDED TO BE, AND SHOULD NOT BE CONSIDERED TO BE, LEGAL OR TAX ADVICE. EACH U.S. HOLDER SHOULD CONSULT WITH HIS OR
HER OWN TAX ADVISOR AS TO THE PARTICULAR U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND SALE OF ORDINARY
SHARES, INCLUDING THE EFFECTS OF APPLICABLE STATE, LOCAL, FOREIGN OR OTHER TAX LAWS AND POSSIBLE CHANGES IN THE TAX LAWS.
U.S. Federal Income Taxation
Subject to the limitations described in the next paragraph,
the following discussion summarizes the material U.S. federal income tax consequences to a "U.S. Holder" arising from
the purchase, ownership and sale of the Ordinary Shares. For this purpose, a "U.S. Holder" is a holder of Ordinary Shares
that is: (1) an individual citizen or resident of the United States, including an alien individual who is a lawful permanent resident
of the United States or meets the substantial presence residency test under U.S. federal income tax laws; (2) a corporation (or
other entity treated as a corporation for U.S. federal income tax purposes) or a partnership (other than a partnership that is
not treated as a U.S. person under any applicable U.S. Treasury Regulations) created or organized in or under the laws of the
United States or the District of Columbia or any political subdivision thereof; (3) an estate, the income of which is subject
to U.S. federal income tax regardless of source; (4) a trust if a court within the United States is able to exercise primary supervision
over the administration of the trust and one or more U.S. persons have authority to control all substantial decisions of the trust;
(5) a trust that has a valid election in effect to be treated as a U.S. person to the extent provided in U.S. Treasury regulations;
or (6) any person otherwise subject to U.S. federal income tax on a net income basis in respect of the Ordinary Shares, if such
status as a U.S. Holder is not overridden pursuant to the provisions of an applicable tax treaty.
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This summary is for general information purposes only and does
not purport to be a comprehensive description of all of the U.S. federal income tax considerations that may be relevant to a decision
to purchase or hold our Ordinary Shares. This summary generally considers only U.S. Holders that will own our Ordinary Shares
as capital assets. Except to the limited extent discussed below, this summary does not consider the U.S. federal tax consequences
to a person that is not a U.S. Holder, nor does it describe the rules applicable to determine a taxpayer's status as a U.S. Holder.
This summary is based on the provisions of the Internal Revenue Code of 1986, as amended, or the Code, final, temporary and proposed
U.S. Treasury Regulations promulgated thereunder, administrative and judicial interpretations thereof, and the U.S./Israel Income
Tax Treaty, all as in effect as of the date hereof and all of which are subject to change, possibly on a retroactive basis, and
all of which are open to differing interpretations. The Company will not seek a ruling from the U.S. Internal Revenue Service,
or the IRS, with regard to the U.S. federal income tax treatment of an investment in our Ordinary Shares by U.S. Holders and,
therefore, can provide no assurances that the IRS will agree with the conclusions set forth below.
This discussion does not address all of the aspects of U.S.
federal income taxation that may be relevant to a particular shareholder based on such shareholder's particular circumstances
and in particular does not discuss any estate, gift, generation-skipping, transfer, state, local or foreign tax considerations.
In addition, this discussion does not address the U.S. federal income tax treatment of a U.S. Holder who is: (1) a bank, life
insurance company, regulated investment company, or other financial institution or "financial services entity"; (2)
a broker or dealer in securities or foreign currency; (3) a person who acquired our Ordinary Shares in connection with employment
or other performance of services; (4) a U.S. Holder that is subject to the U.S. alternative minimum tax; (5) a U.S. Holder that
holds our Ordinary Shares as a hedge or as part of a hedging, straddle, conversion or constructive sale transaction or other risk-reduction
transaction for U.S. federal income tax purposes; (6) a tax-exempt entity; (7) real estate investment trusts; (8) a U.S. Holder
that expatriates out of the United States or a former long-term resident of the United States; or (9) a person having a functional
currency other than the U.S. dollar. This discussion does not address the U.S. federal income tax treatment of a U.S. Holder that
owns, directly or constructively, at any time, Ordinary Shares representing 10% or more of our voting power. Additionally, the
U.S. federal income tax treatment of persons who hold Ordinary Shares through a partnership or other pass-through entity are not
considered.
You are encouraged to consult your own tax advisor with respect
to the specific U.S. federal and state income tax consequences to you of purchasing, holding or disposing of our Ordinary Shares,
including the effects of applicable state, local, foreign or other tax laws and possible changes in the tax laws.
Distributions on Ordinary Shares
Subject to the discussion under the heading "Passive Foreign
Investment Companies" below, a U.S. Holder will be required to include in gross income as ordinary income the amount of any
distribution paid on Ordinary Shares (including the amount of any Israeli tax withheld on the date of the distribution), to the
extent that such distribution does not exceed our current and accumulated earnings and profits, as determined for U.S. federal
income tax purposes. The amount of a distribution which exceeds our earnings and profits will be treated first as a non-taxable
return of capital, reducing the U.S. Holder's tax basis for the Ordinary Shares to the extent thereof, and then capital gain.
Corporate holders generally will not be allowed a deduction for dividends received. For noncorporate U.S. Holders, to the extent
that their total adjusted income does not exceed applicable thresholds, the maximum federal income tax rate for "qualified
dividend income" and long-term capital gains is generally 15%. For those noncorporate U.S. Holders whose total adjusted income
exceeds such income thresholds, the maximum federal income tax rate for "qualified dividend income" and long-term capital
gains is generally 20%. For this purpose, "qualified dividend income" means,
inter alia
, dividends received from
a "qualified foreign corporation." A "qualified foreign corporation" is a corporation that is entitled to
the benefits of a comprehensive tax treaty with the United States which includes an exchange of information program. The IRS has
stated that the Israel/U.S. Tax Treaty satisfies this requirement and we believe we are eligible for the benefits of that treaty.
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In addition, our dividends will be qualified dividend income
if our Ordinary Shares
are readily tradable on NASDAQ or another established securities market in the United States. Dividends
will not qualify for the preferential rate if we are treated, in the year the dividend is paid or in the prior year, as a passive
foreign investment company, or PFIC. A U.S. Holder will not be entitled to the preferential rate: (1) if the U.S. Holder has not
held our Ordinary Shares or ADRs for at least 61 days of the 121 day period beginning on the date which is 60 days before the
ex-dividend date, or (2) to the extent the U.S. Holder is under an obligation to make related payments on substantially similar
property. Any days during which the U.S. Holder has diminished its risk of loss on our Ordinary Shares are not counted towards
meeting the 61-day holding period. Finally, U.S. Holders who elect to treat the dividend income as "investment income"
pursuant to Code section 163(d)(4) will not be eligible for the preferential rate of taxation.
The amount of a distribution with respect to our Ordinary Shares
will be measured by the amount of the fair market value of any property distributed, and for U.S. federal income tax purposes,
the amount of any Israeli taxes withheld therefrom. (See discussion above under "Israeli Taxation Considerations - Taxation
of Our Shareholders – Dividends.") Cash distributions paid by us in NIS will be included in the income of U.S. Holders
at a U.S. dollar amount based upon the spot rate of exchange in effect on the date the dividend is includible in the income of
the U.S. Holder, and U.S. Holders will have a tax basis in such NIS for U.S. federal income tax purposes equal to such U.S. dollar
value. If the U.S. Holder subsequently converts the NIS, any subsequent gain or loss in respect of such NIS arising from exchange
rate fluctuations will be U.S. source ordinary exchange gain or loss.
Distributions paid by us will generally be foreign source income
for U.S. foreign tax credit purposes. Subject to the limitations set forth in the Code, U.S. Holders may elect to claim a foreign
tax credit against their U.S. income tax liability for Israeli income tax withheld from distributions received in respect of the
Ordinary Shares. In general, these rules limit the amount allowable as a foreign tax credit in any year to the amount of regular
U.S. tax for the year attributable to foreign source taxable income. This limitation on the use of foreign tax credits generally
will not apply to an electing individual U.S. Holder whose creditable foreign taxes during the year do not exceed $300, or $600
for joint filers, if such individual's gross income for the taxable year from non-U.S. sources consists solely of certain passive
income. A U.S. Holder will be denied a foreign tax credit with respect to Israeli income tax withheld from dividends received
with respect to the Ordinary Shares if such U.S. Holder has not held the Ordinary Shares for at least 16 days out of the 31-day
period beginning on the date that is 15 days before the ex-dividend date or to the extent that such U.S. Holder is under an obligation
to make certain related payments with respect to substantially similar or related property. Any day during which a U.S. Holder
has substantially diminished his or her risk of loss with respect to the Ordinary Shares will not count toward meeting the 16-day
holding period. A U.S. Holder will also be denied a foreign tax credit if the U.S. Holder holds the Ordinary Shares in an arrangement
in which the U.S. Holder's reasonably expected economic profit is insubstantial compared to the foreign taxes expected to be paid
or accrued. The rules relating to the determination of the U.S. foreign tax credit are complex, and U.S. Holders should consult
with their own tax advisors to determine whether, and to what extent, they are entitled to such credit. U.S. Holders that do not
elect to claim a foreign tax credit may instead claim a deduction for Israeli income taxes withheld, provided such U.S. Holders
itemize their deductions.
Disposition of Shares
Except as provided under the PFIC rules described below, upon
the sale, exchange or other disposition of our Ordinary Shares, a U.S. Holder will recognize capital gain or loss in an amount
equal to the difference between such U.S. Holder's tax basis in the sold Ordinary Shares and the amount realized on the disposition
of such Ordinary Shares (or its U.S. dollar equivalent determined by reference to the spot rate of exchange on the date of disposition,
if the amount realized is denominated in a foreign currency). The gain or loss realized on the sale or exchange or other disposition
of Ordinary Shares will be long-term capital gain or loss if the U.S. Holder has a holding period of more than one year at the
time of the disposition.
In general, gain realized by a U.S. Holder on a sale, exchange
or other disposition of Ordinary Shares will generally be treated as U.S. source income for U.S. foreign tax credit purposes.
A loss realized by a U.S. Holder on the sale, exchange or other disposition of Ordinary Shares is generally allocated to U.S.
source income. However, U.S. Treasury Regulations require such loss to be allocated to foreign source income to the extent specified
dividends were received by the taxpayer within the 24-month period preceding the date on which the taxpayer recognized the loss.
The deductibility of a loss realized on the sale, exchange or other disposition of Ordinary Shares is subject to limitations.
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Tax on Net Investment Income
U.S. Holders who are individuals, estates or trusts will generally
be required to pay a new 3.8% tax on their net investment income (including dividends on and gains from the sale or other disposition
of our Ordinary Shares), or in the case of estates and trusts on their net investment income that is not distributed. In each
case, the 3.8% Medicare tax applies only to the extent the U.S. Holder's total adjusted income exceeds applicable thresholds.
Passive Foreign Investment Companies
Special U.S. federal income tax laws apply to a U.S. Holder
who owns shares of a corporation that was (at any time during the U.S. Holder's holding period) a PFIC. We would be treated as
a PFIC for U.S. federal income tax purposes for any tax year if, in such tax year, either:
|
·
|
75%
or
more
of
our
gross
income
(including
our
pro
rata
share
of
gross
income
for
any
company,
U.S.
or
foreign,
in
which
we
are
considered
to
own
25%
or
more
of
the
shares
by
value),
in
a
taxable
year
is
passive
(the
"Income
Test");
or
|
|
·
|
At
least
50%
of
our
assets,
averaged
over
the
year
and
generally
determined
based
upon
value
(including
our
pro
rata
share
of
the
assets
of
any
company
in
which
we
are
considered
to
own
25%
or
more
of
the
shares
by
value),
in
a
taxable
year
are
held
for
the
production
of,
or
produce,
passive
income
(the
"Asset
Test").
|
For this purpose, passive income generally consists of dividends,
interest, rents, royalties, annuities and income from certain commodities transactions and from notional principal contracts.
Cash is treated as generating passive income.
If we are or become a PFIC, each U.S. Holder who has not elected
to treat us as a qualified electing fund by making a "QEF election", or who has not elected to mark the shares to market
(as discussed below), would, upon receipt of certain distributions by us and upon disposition of our Ordinary Shares at a gain,
be liable to pay U.S. federal income tax at the then prevailing highest tax rates on ordinary income plus interest on such tax,
as if the distribution or gain had been recognized ratably over the taxpayer's holding period for the Ordinary Shares. In addition,
when shares of a PFIC are acquired by reason of death from a decedent that was a U.S. Holder, the tax basis of such shares would
not receive a step-up to fair market value as of the date of the decedent's death, but instead would be equal to the decedent's
basis if lower, unless all gain were recognized by the decedent. Indirect investments in a PFIC may also be subject to special
U.S. federal income tax rules.
The PFIC rules would not apply to a U.S. Holder who makes a
QEF election for all taxable years that such U.S. Holder has held the Ordinary Shares while we are a PFIC, provided that we comply
with specified reporting requirements. Instead, each U.S. Holder who has made such a QEF election is required for each taxable
year that we are a PFIC to include in income such U.S. Holder's
pro rata
share of our ordinary earnings as ordinary income
and such U.S. Holder's
pro rata
share of our net capital gains as long-term capital gain, regardless of whether we make
any distributions of such earnings or gain. In general, a QEF election is effective only if we make available certain required
information. The QEF election is made on a shareholder-by-shareholder basis and generally may be revoked only with the consent
of the IRS. U.S. Holders should consult with their own tax advisors regarding eligibility, manner and advisability of making a
QEF election if we are treated as a PFIC.
A U.S. Holder of PFIC shares which are traded on qualifying
public markets, including the NASDAQ, can elect to mark the shares to market annually, recognizing as ordinary income or loss
each year an amount equal to the difference as of the close of the taxable year between the fair market value of the PFIC shares
and the U.S. Holder's adjusted tax basis in the PFIC shares. Losses are allowed only to the extent of net mark-to-market gain
previously included income by the U.S. Holder under the election for prior taxable years.
In light of the complexity of PFIC rules, we cannot assure
you that we have not been or are not a PFIC or will avoid becoming a PFIC in the future. U.S. Holders who hold Ordinary Shares
during a period when we are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC, subject to specified
exceptions for U.S. Holders who made a QEF or mark-to-market election. U.S. Holders are strongly urged to consult their tax advisors
about the PFIC rules, including tax return filing requirements and the eligibility, manner, and consequences to them of making
a QEF or mark-to-market election with respect to our Ordinary Shares in the event we that qualify as a PFIC.
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Information Reporting and Withholding
A U.S. Holder may be subject to backup withholding (at a rate
of 28%) with respect to cash dividends and proceeds from a disposition of Ordinary Shares. In general, back-up withholding will
apply only if a U.S. Holder fails to comply with specified identification procedures. Backup withholding will not apply with respect
to payments made to designated exempt recipients, such as corporations and tax-exempt organizations. Backup withholding is not
an additional tax and may be claimed as a credit against the U.S. federal income tax liability of a U.S. Holder, provided that
the required information is timely furnished to the IRS.
Under the Hiring Incentives to Restore Employment Act of 2010
(the "HIRE Act"), some payments made to "foreign financial institutions" in respect of accounts of U.S. stockholders
at such financial institutions may be subject to withholding at a rate of 30%. U.S. Treasury Regulations provide that such withholding
will only apply to distributions paid on or after January 1, 2014, and to other "withholdable payments" (including payments
of gross proceeds from a sale or other disposition of our Ordinary Shares) made on or after January 1, 2017. U.S. Holders should
consult their tax advisors regarding the effect, if any, of the HIRE Act on their ownership and disposition of our Ordinary Shares.
See "Non-U.S. Holders of Ordinary Shares."
Non-U.S. Holders of Ordinary Shares
Except as provided below, an individual, corporation, estate
or trust that is not a U.S. Holder generally will not be subject to U.S. federal income or withholding tax on the payment of dividends
on, and the proceeds from the disposition of, our Ordinary Shares.
A non-U.S. Holder may be subject to U.S. federal income or
withholding tax on a dividend paid on our Ordinary Shares or the proceeds from the disposition of our Ordinary Shares if: (1)
such item is effectively connected with the conduct by the non-U.S. Holder of a trade or business in the United States or, in
the case of a non-U.S. Holder that is a resident of a country which has an income tax treaty with the United States, such item
is attributable to a permanent establishment or, in the case of gain realized by an individual non-U.S. Holder, a fixed place
of business in the United States; (2) in the case of a disposition of our Ordinary Shares, the individual non-U.S. Holder is present
in the United States for 183 days or more in the taxable year of the sale and other specified conditions are met; (3) the non-U.S.
Holder is subject to U.S. federal income tax pursuant to the provisions of the U.S. tax law applicable to U.S. expatriates.
In general, non-U.S. Holders will not be subject to backup
withholding with respect to the payment of dividends on our Ordinary Shares if payment is made through a paying agent, or office
of a foreign broker outside the United States. However, if payment is made in the United States or by a U.S. related person, non-U.S.
Holders may be subject to backup withholding, unless the non-U.S. Holder provides on an applicable Form W-8 (or a substantially
similar form) a taxpayer identification number, certifies to its foreign status, or otherwise establishes an exemption. A U.S.
related person for these purposes is a person with one or more current relationships with the United States.
The amount of any backup withholding from a payment to a non-U.S.
Holder will be allowed as a credit against such holder's U.S. federal income tax liability and may entitle such holder to a refund,
provided that the required information is timely furnished to the IRS.
The HIRE Act may impose withholding taxes on some types of
payments made to "foreign financial institutions" and some other non-U.S. entities. Under the HIRE Act, the failure
to comply with additional certification, information reporting and other specified requirements could result in withholding tax
being imposed on payments of dividends and sales proceeds to U.S. Holders that own Ordinary Shares through foreign accounts or
foreign intermediaries and specified non-U.S. Holders. The HIRE Act imposes a 30% withholding tax on dividends on, and gross proceeds
from the sale or other disposition of, Ordinary Shares paid from the United States to a foreign financial institution or to a
foreign nonfinancial entity, unless (1) the foreign financial institution undertakes specified diligence and reporting obligations
or (2) the foreign nonfinancial entity either certifies it does not have any substantial U.S. owners or furnishes identifying
information regarding each substantial U.S. owner. In addition, if the payee is a foreign financial institution, it generally
must enter into an agreement with the U.S. Treasury that requires, among other things, that it undertake to identify accounts
held by specified U.S. persons or U.S.-owned foreign entities, annually report certain information about such accounts, and withhold
30% on payments to other specified account holders. U.S. Treasury Regulations provide that such withholding will only apply to
distributions paid on or after January 1, 2014, and to other "withholdable payments" (including payments of gross proceeds
from a sale or other disposition of our Ordinary Shares) made on or after January 1, 2017. You should consult your tax advisor
regarding the HIRE Act.
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10.F.
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Dividends and paying agents
|
Not applicable.
|
10.G.
|
Statement by experts
|
Not applicable.
|
10.H.
|
Documents on display
|
We are subject to certain of the information reporting requirements
of the Securities Exchange Act of 1934, or the Exchange Act. As a foreign private issuer, we are exempt from the rules and regulations
under the Exchange Act prescribing the furnishing and content of proxy statements, and our officers, directors and principal shareholders
are exempt from the reporting and "short-swing" profit recovery provisions contained in Section 16 of the Exchange Act,
with respect to their purchase and sale of our shares. In addition, we are not required to file reports and financial statements
with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. However, we
are required to file with the SEC, within four months after the end of each fiscal year, an annual report on Form 20-F containing
financial statements audited by an independent accounting firm. We publish unaudited interim financial information after the end
of each quarter. We furnish this quarterly financial information to the SEC under cover of a Form 6-K.
You may read and copy any document we file with the SEC at
its public reference facilities at 100 F Street, NE, Washington, D.C. 20549. You may also obtain copies of the documents at prescribed
rates by writing to the Public Reference Section of the SEC at 100 F Street, NE, Washington, D.C. 20549. The SEC also maintains
a website that contains reports, proxy and information statements and other information regarding registrants that file electronically
with the SEC. The address of this website is http://www.sec.gov. Please call the SEC at 1-800-SEC-0330 for further information
on the operation of the public reference facilities.
|
10.I.
|
Subsidiary information
|
Not applicable.
|
item 11.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
In the ordinary course of our operations, we are exposed to
certain market risks, primarily changes in foreign currency exchange rates and interest rates.
Foreign Currency Exchange Rate Risk
.
We develop products in Israel and sell them primarily in the Americas, EMEA, and the Asia Pacific region. As a result,
our financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions
in foreign markets. In 2012, 59% of our revenues and 33% of our expenses were denominated in U.S. dollars. Since our financial
results are reported in U.S. dollars, fluctuations in the rates of exchange between the U.S. dollar and non-U.S. dollar currencies
may have a material adverse effect on our business, financial condition and results of operations. We believe that our exposure
to currency exchange rate risk is somewhat reduced due to the number of different countries and currencies in which we conduct
business, including the main currencies of NIS, British pounds and Euros. For example, a ten percent increase or decrease from
2012 exchange rates could have a net effect of about $2 million on our operating income. In 2012, the net effect of the change
in value of the U.S. dollar against other currencies was a decrease in revenues by $2.0 million, a decrease in costs of revenues
by $1.4 million and a decrease in operating expenses by $2.2 million.
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In addition, we have balance
sheet exposure arising from assets and liabilities denominated in currencies other than U.S. dollars, mainly in Euros, British
pounds, NIS and Australian dollars. Any change of the conversion rates between the U.S. dollar and these currencies may create
financial gain or loss. We enter from time to time into forward contracts related to foreign currencies in order to protect against
monetary balances denominated in foreign currencies, and certain forecasted transactions. We do not participate in any speculative
investments. At December 31, 2012, we had short forward exchange contracts to sell up to Euro 1.8 million for a total amount
of $2.4 million, British Pounds 4.8 million for a total amount of $7.7 million, Australian
Dollar
2.2 million for a total amount of $2.2 million and NIS 2.9 million for a total amount of $0.8 million.
Interest Rate Risk.
As of December 31, 2012, we had
cash, cash equivalents and short-term investments of $58.7 million, which consist mainly of cash, short-term bank deposits with
major banks, government and corporate bonds. Of this, a total of $3.6 million is denominated in non-U.S. dollar currencies. Nearly
all of these cash and investments are not insured by the FDIC or similar governmental deposit insurance outside the United States.
We believe a substantial decrease in market interest rates or market value would have an immaterial impact on our business, financial
condition and results of operations. Our policy is that up to $10 million of our total cash and investments may be invested in
companies that have a policy to regularly distribute dividends or in ETFs of a similar nature. As of December 31, 2012, $5 million
of our cash, cash equivalents and investments were invested in equity securities of such companies.
The following table provides information about our investment
portfolio, cash, and investments as of December 31, 2012 and presents principal cash flows and related weighted averages interest
rates by expected maturity dates.
YEAR OF MATURITY
|
|
2013
|
|
|
|
(in thousands of dollars)
|
|
|
|
|
|
A) Cash, cash equivalents and investments portfolio:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
12,793
|
|
Average interest rate
|
|
|
0.2
|
%
|
Government and corporate bonds
|
|
$
|
10,600
|
|
Average interest (yield) rate
|
|
|
1.55
|
%
|
Bank deposits
|
|
$
|
30,310
|
|
Average interest rate
|
|
|
1.3
|
%
|
Equity securities
|
|
$
|
5,035
|
|
Total cash, cash equivalents and investments portfolio
|
|
$
|
58,738
|
|
|
|
|
|
|
B) Long-term debts:
|
|
|
|
|
None
|
|
|
|
|
|
Item
12.
|
Description of Securities other than Equity
Securities
|
The Company does not have any outstanding
American Depositary Shares or American Depositary Receipts.
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Part
two