As filed with the Securities and Exchange Commission on July 15, 2015
Registration No. 333-204695
SECURITIES AND EXCHANGE COMMISSION
Amendment No. 1 to
Form F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
RADA ELECTRONIC INDUSTRIES LTD.
(Exact Name of Registrant as Specified in its Charter)
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State of Israel
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5065
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Not Applicable
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(State or Other Jurisdiction
of Incorporation or
Organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification No.)
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7 Giborei Israel Street
Netanya 4250407, Israel
Tel: (972)(9) 892-1111
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal
Executive Offices)
Puglisi & Associates
850 Library Avenue, Suite 204
P.O. Box 885
Newark, Delaware 19715
Tel. (302) 738-6680
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)
Copies of Communications including Communications sent to Agent for Service, should be sent to:
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Steven J. Glusband, Esq.
Carter Ledyard & Milburn LLP
Two Wall Street
New York, NY 10005
Tel: 212-238-8605
Fax: 212-732-3232
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Sarit Molcho, Adv.
S. Friedman & Co., Advocates
Amot Investment Tower
2 Weizman Street
Tel Aviv 64239 Israel
Tel: +972-3-693-1931
Fax: +972-3-693-1930
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Yvan-Claude Pierre, Esq.
Daniel I. Goldberg, Esq.
Reed Smith LLP
599 Lexington Avenue
New York, NY 10022
Tel: 212-549-0380
Fax: 212-521-5450
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Adrian Daniels, Esq.
Eric Spindel, Esq.
Yigal Arnon & Co.
1 Azrieli Center
Tel Aviv 6702101
Israel
Tel: +972-3-608-7777
Fax: +972-3-608-7724
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Approximate date of commencement of proposed sale to the public: As soon as practicable after effectiveness of this registration statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”), check the following box. o
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earliest effective registration statement for the same offering. o
If delivery of the prospectus is expected to be made pursuant to Rule 434 under the Securities Act, check the following box. o
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the SEC, acting pursuant to said Section 8(a), may determine.
The information contained in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
| PRELIMINARY PROSPECTUS |
SUBJECT TO COMPLETION, DATED JULY 15, 2015 |
$8,500,000 Ordinary Shares
This is a public offering of the ordinary shares of Rada Electronic Industries Ltd.
Our ordinary shares are listed on the NASDAQ Capital Market under the symbol “RADA.” The last reported sale price of our ordinary shares on July 14, 2015 was $1.94 per share. We are offering all of the ordinary shares offered by this prospectus.
Investing in our ordinary shares involves a high degree of risk. See “Risk Factors” beginning on page 6 of this prospectus for a discussion of information that should be considered in connection with an investment in our ordinary shares.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
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Per Share
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Total
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Public offering price
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$ |
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$ |
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Underwriting discount and commissions (1)
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$ |
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$ |
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Proceeds to us (before expenses)
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$ |
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$ |
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(1) In addition, we have agreed to reimburse the underwriters for certain expenses. See the section captioned “Underwriting” in this prospectus for additional information.
We have granted the underwriters an option to purchase up to additional ordinary shares from us at the public offering price, less the underwriting discount, within 45 days from the date of the final prospectus solely to cover over-allotments, if any.
The underwriters expect to deliver the shares to purchasers in the offering on or about , 2015.
Chardan Capital Markets, LLC
, 2015
TABLE OF CONTENTS
Page
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1
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4
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5
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6
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18
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25
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34
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45
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48
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57
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60
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67
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67
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67
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68
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68
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69
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Unless the context otherwise requires, references in this prospectus to “the company,” “our company,” “we,” “our,” “us,” or “Rada” means Rada Electronic Industries Ltd. and its subsidiary. You should rely only on the information contained in this prospectus and in any free writing prospectus which we file with the Securities and Exchange Commission. We have not, and the underwriters have not, authorized anyone to provide you with information different from that contained in this prospectus or such free writing prospectus, if any. We and the underwriters are not offering to sell, and seeking offers to buy, ordinary shares only in jurisdictions where offers and sales are not permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the ordinary shares.
Presentation of Financial Information
The term “NIS” refers to new Israeli shekels, and “dollar,” “USD” or “$” refers to U.S. dollars. Unless otherwise indicated, USD translations of the NIS amounts presented in this prospectus are translated using the rate of NIS 3.889 per $1.00, the representative rate of exchange as of December 31, 2014, as published by the Bank of Israel. In reading this prospectus, you should note that currency fluctuations may positively or negatively affect the presentation of our operating expenses and net income in U.S. dollars depending on increases or decreases of the U.S. dollar conversion amounts.
Market, Industry and Other Data
This prospectus includes statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe these industry publications and third-party research, surveys and studies are reliable, we have not independently verified such data and you are cautioned not to give undue weight to this information.
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The following summary highlights information contained in other parts of this prospectus and provides an overview of the material aspects of this offering. The following summary does not contain all of the information you should consider before investing in our ordinary shares. You should read this entire prospectus carefully, including the risks of investing in our ordinary shares discussed under “Risk Factors” beginning on page 6, our financial statements incorporated by reference to this prospectus and the related notes included in this prospectus and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Our Company
We are an Israeli-based defense electronics contractor specializing in the development, manufacture, marketing and sales of military avionics systems for manned and unmanned aircraft, inertial navigation systems for air and land platforms and tactical land radars for force and border protection applications.
We develop, manufacture and sell defense electronics, including avionics solutions (including avionics for unmanned aerial vehicles, or UAVs), airborne data/video recording and management systems, inertial navigation systems and tactical land radars for defense forces and border protection systems. In addition, we continue to sell and support our legacy commercial aviation products and services, mainly through our Chinese subsidiary, Beijing Hua Rui Aircraft Maintenance and Service, Co., Ltd., known as CACS.
We primarily provide integrated solutions. Our aim is to provide not only state-of-the-art products, but to also provide comprehensive end-to-end solutions for one or more systems. Our current product lines are:
· Military avionics (data/video recorders, core avionics for aircraft and UAVs), which accounted for approximately 89% of our sales in 2014;
· Inertial navigation systems, or INS, for aerial and land platforms; and
· Tactical radars for defense forces and land based border protection systems.
We have been a developer and manufacturer of core avionics systems for over 30 years and have developed, fielded and supported a wide range of solid-state digital recorders, cameras and debriefing systems for aerospace and military applications, including flight data recorders for fighter aircraft, digital video/audio/data recorders, high-rate (no compression) data recorders for aircraft and airborne pods, video recorders and airborne data servers, a wide range of head-up-displays color video cameras for fighter aircraft and a variety of ground debriefing solutions.
We currently offer a wide spectrum of military avionics systems designed for integration in new and upgraded military aircraft and UAVs worldwide. Our avionics solutions range from fully integrated avionics suites, to Military off-the-shelf, or MOTS, core avionics subsystems, to tailor-made “built-to-spec” units, backed by our teams of experts dedicated to providing global technical and maintenance support. Our avionic products are operational in aircraft of leading air forces and in aircraft sold by prime integrators worldwide, such as the Israeli Air Force, or IAF, Lockheed Martin Corporation, or Lockheed Martin, The Boeing Company, or Boeing, GE Aviation, a subsidiary of General Electric Company, Hindustan Aeronautics Limited, or HAL, Embraer S.A., or Embraer, Israel Aerospace Industries, or IAI, Rafael Advanced Defense Systems, or Rafael, the Chilean Air Force (Fuerza Aérea de Chile) or FACh, and many others. Our units are installed onboard F-16, F-15, A-4, Jaguar, MiG-27, Su-30MKI, Dhruv Helicopter, MiG-29, Super-Tucano and other aircraft and onboard a number of UAVs.
Leveraging our long-standing scientific research and algorithmic expertise, utilizing state-of-the-art fiber optic gyro and micro-electro mechanical system sensors and taking advantage of our experience in electronic and mechanical design, we independently developed a line of advanced, yet affordable, INS. Our INS products are adaptable to the performance and interface requirements of multiple combat platforms and weapon systems. Among our customers for INS are leading air forces and prime integrators worldwide, including the IAF, IAI, Rafael, Embraer, Indra Sistemas S.A., or Indra, and India’s Defense Research and Development Organization, or DRDO.
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We also independently developed advanced ground radars for tactical applications such as defense forces protection and border protection. Our pulse Doppler, software-defined radars are solid-state, fully digital, incorporate active electronically scanned array, or AESA, antenna, are compact, mobile and highly reliable, provide hemispheric spatial coverage and multi-mission capabilities, and demonstrate unprecedented performance-to-price ratio. We offer two radar hardware platforms: (i) a compact hemispheric radar, or CHR, which is tailored for use in combat vehicles and short-range protection applications; and (ii) a multi-mission hemispheric radar, or MHR, which is tailored for use in force and border protection applications. Among our customers who have purchased our ground radars for research and testing purposes are prime integrators and air forces, including Boeing, Lockheed Martin, DRS Technologies, Inc., or DRS, the US Office of Naval Research, or the ONR,(all of which have purchased radar systems for research and experimental purposes only) and a leading ministry of defense for its national alert system.
In addition, we continue to support our legacy commercial aviation test stations. We also provide test and repair services through CACS, our China-based subsidiary.
Industry Background
The defense electronics market has grown in recent years and currently accounts for a large part of the defense business. We believe that the defense electronics market reflects two contradictory trends, the increased use of defense electronics, which has been offset by the significant reduction in the price of electronic systems, resulting in a reduction in the dollar value of the market. These two trends have kept the annual total global defense electronics market size at an almost constant level during recent years. With our new inertial navigation systems and tactical radar products, the size of the markets which we address has expanded. According to a report issued in June 2014 by the market research company Yole Développement, titled “High-End Gyroscopes Accelerometers and IMUs for Defense Aerospace and Industrial,” the estimated market for INS was approximately $2 billion in 2014 and that the market was expected to grow by a 4.5% compounded annual growth rate, or CAGR, through 2019. Similarly, in an article published in the Microwave Journal in December 2014, the program director of Strategy Analytics reported that the global military radar market would grow at a CAGR of 3.6% from 2013 to 2023 with a total market worth of over $18.5 billion in 2023. Today, new military vehicles of all kinds are equipped with significantly more electronic systems than they used to carry in the past. The increasing usage of advanced electronics in modern vehicles, including upgrades of existing technology and the growing use of unmanned vehicles of all kinds, have provided significant growth number of units sold in the market.
Today’s advanced defense electronics systems typically incorporate components that are derived from the industrial or the consumer electronics markets, especially from the telecom markets. Most of the defense electronics systems are built with commercial components and sub-systems, which reduce the overall price, and at the same time generate component obsolescence issues. The obsolescence issues arise because commercial suppliers generally do not sell or support components or subsystems for the lengthy periods of time required by purchasers of defense electronic systems. As a result, we may be required to invest additional amounts to source, substitute and integrate the components and subsystems and keep them updated.
Purchasers of our defense electronics products are either governments or major defense contractors acting as integrators. Engagement in business relationships with these customers is complex, has long sales cycles and requires long-term commitments for future support of delivered hardware. Production batches of such products are usually small. Suppliers of defense electronic systems with whom we compete are either providers of sub-systems to major integrators or providers of integrated systems to the industry or to armed forces. Our competitors are typically very large companies with substantially greater resources than us and have diversified product offerings.
Our Strengths
We believe that, because of the following competitive strengths, we will be able to enhance our position as a provider of defense electronics:
● As an industry innovator, we continue to develop and incorporate cutting edge technologies into our products;
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● We employ approximately 45 persons in our research and development activities who have hands-on experience and expertise;
● We provide innovative and cost-effective products, often at prices significantly lower than our competitors;
● In our industry, we offer a rare combination of being a small, well established and highly responsive company with a wealth of experience;
● We provide a high level of responsiveness to customer needs; and
● We have an experienced management team with almost 200 years of industry and military experience and an average tenure with our company of 17 years.
Our Strategy
Our business development strategy is based on the following principles:
● Maintaining our business focus on electronic systems for the military and para-military markets;
● Expanding our product offerings by adding new applications to our existing product lines and by adapting our products to land systems;
● Expanding our customer base by including our products in solutions and integrated systems for airborne and land vehicles;
● Establishing sales channels with system integrators and major manufacturers such as Embraer, HAL, Lockheed Martin, Boeing, Israel Military Industries, or IMI, IAI, Rafael,
DRS and others;
● Expanding our products base through identification of current and future applications that may become affordable by the incorporation of advanced commercial off-the-shelf
technologies that offer superior performance and/or significant price savings; and
● Developing new marketing channels aimed directly at large potential markets, especially land-based defense systems and homeland security segments.
Recent Developments
On May 26, 2015 we published our 2015 first quarter results in a press release. We announced that our revenues declined to $3.6 million in the first quarter of 2015 from $5 million in the corresponding quarter in 2014. The decline in revenues in the first quarter of 2015 was mainly due to the request of several customers to delay deliveries of certain avionics production items. We incurred a net loss of $777,000, or $(0.09) per share in the first quarter of 2015 compared to net income of $158,000, or $0.02 per share in the first quarter of 2014.
On May 25, 2015, our board of directors approved the adoption of our 2015 Israel Stock Option Plan, or the 2015 Option Plan, pursuant to which 3,000,000 ordinary shares will be reserved for issuance. No options have been granted as yet under the 2015 Option Plan. See “Recently Adopted Employee Share Option Plan.”
In April and June 2015, following shareholder approval, the standstill agreement with our two lenders was amended and the forbearance period was extended to August 31, 2016. In the event that this offering is not completed by September 30, 2015, our controlling shareholder and the other director lender to our company will be entitled, on a pro rata basis, to convert some or all of the remaining outstanding debt from time to time into our ordinary shares. The terms of such conversion, which were approved by the shareholders of our company are as follows: (i) the minimum amount to be converted at any one time is $300,000 of debt; (ii) the share issue price will be the lower of $1.00 or 15% below the preceding seven (7) days volume weighted average price; and (iii) any unconverted debt will continue to be subject to the terms of the Standstill Agreement. See “Related Party Transactions” beginning on page 45 of this prospectus for further details.
Corporate Information
We were incorporated under the laws of the State of Israel on December 8, 1970. We are a public limited liability company under the Israeli Companies Law 1999-5759, or the Israeli Companies Law, and operate under this law and associated legislation. Our registered offices and principal place of business are located at 7 Giborei Israel Street, Netanya 4250407, Israel, and our telephone number is +972-9-892-1111. Our website address is www.rada.com. The information on our website is not incorporated by reference into this prospectus.
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Ordinary shares offered by us
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$8,500,000 of our ordinary shares
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Over-allotment option
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The underwriters have an option for a period of 45 days to purchase up to $1,275,000 additional ordinary shares to cover over-allotments, if any.
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| Ordinary shares currently outstanding |
8,988,396 ordinary shares
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Ordinary shares to be outstanding after the offering
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13,369,839 ordinary shares (or 14,027,056 ordinary shares if the underwriter exercises in full its option to purchase additional ordinary shares)
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| Use of Proceeds |
We estimate that we will receive $7.6 million in net proceeds from the sale of the securities in this offering, based on a price of $1.94 per ordinary share and after deducting underwriting discounts and commissions and offering expenses payable by us. If the representative of the underwriters exercises the over-allotment option in full, we estimate that the net proceeds from this offering will be approximately $8.8 million, based on the offering price of $1.94 per ordinary share, and after deducting underwriting discounts and commissions and offering expenses payable by us. We intend to use the net proceeds from this offering to repay debt of approximately $7.6 million (including accrued interest), and the repayment of certain expenses incurred by an affiliate of our controlling shareholder. See “Use of Proceeds” beginning on page 20 of this prospectus.
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| Risk Factors |
See “Risk Factors” beginning on page 6, and other information included in this prospectus for a discussion of factors you should carefully consider when making an investment decision.
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| NASDAQ Capital Market symbol |
RADA
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The number of our ordinary shares that will be outstanding immediately after this offering is based on 8,988,396 ordinary shares outstanding as of July 14, 2015, and assumes the issuance and sale of $8,500,000 of our ordinary shares in this offering at an assumed offering price of $1.94 per share, which was the closing price of our ordinary shares on the NASDAQ Capital Market on July 14, 2015.
The number of our ordinary shares outstanding after this offering excludes:
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1,435,407 ordinary shares issuable upon exercise of a currently outstanding $3,000,000 convertible loan having an exercise price of $2.09 per share; and |
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up to 3,000,000 ordinary shares issuable under the company’s 2015 Option Plan. |
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Unless otherwise indicated, all information in this prospectus assumes:
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no exercise of the underwriters’ over-allotment option to purchase up to an additional $1,275,000 of our ordinary shares; and
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a public offering price of $1.94, the closing price on the NASDAQ Capital Market for our ordinary shares on July 14, 2015.
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Unless otherwise stated, all information in this prospectus reflects an assumed public offering price $1.94 per share, which was the closing price of our ordinary shares on the NASDAQ Capital Market on July 14, 2015. To the extent a portion of our outstanding debt of approximately $9.9 million remains outstanding after the offering, the holders of the remaining debt will have the right to convert such debt into our ordinary shares at the lower of $1.00 or 15% below the preceding seven (7) days volume weighted average price.
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The following summary consolidated financial data for and as of the five years ended December 31, 2014 are derived from our audited consolidated financial statements, which have been prepared in accordance with U.S. GAAP. We derived the following summary consolidated statements of operations data for the years ended December 31, 2014, 2013 and 2012 and the consolidated balance sheets data as of December 31, 2014 and 2013 from our audited consolidated financial statements incorporated by reference in this prospectus from our Annual Report on Form 20-F for the year ended December 31, 2014. You should read this data together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus and our audited consolidated financial statements and related notes and the information under the captions “Consolidated Statements and Other Financial Information” and “Operating and Financial Review and Prospects” in our Annual Report on Form 20-F for the year ended December 31, 2014, which is incorporated by reference in this prospectus. For more details on how you can obtain the documents incorporated by reference in this prospectus, see “Where You Can Find Additional Information” and “Documents Incorporated by Reference” appearing elsewhere in this prospectus. Our historical results are not necessarily indicative of future results.
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Year ended December 31,
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2014
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2013
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2012
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2011
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2010
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(U.S. dollars in thousands, except per share data)
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Summary Statement of Operations Data:
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Revenues
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$ |
22,481 |
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$ |
21,761 |
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$ |
21,551 |
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$ |
19,405 |
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$ |
27,523 |
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Cost of revenues
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15,944 |
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17,160 |
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16,233 |
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13,800 |
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20,117 |
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Gross profit
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6,537 |
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4,601 |
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5,318 |
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5,605 |
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7,406 |
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Operating expenses:
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Research and development, net
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789 |
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1,459 |
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2,423 |
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2,543 |
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1,182 |
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Selling and marketing
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2,392 |
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1,959 |
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1,664 |
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2,106 |
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2,563 |
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General and administrative
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1,901 |
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1,919 |
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2,137 |
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1,944 |
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1,732 |
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Total operating expenses
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5,082 |
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5,337 |
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6,224 |
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6,593 |
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5,477 |
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Operating income (loss)
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1,455 |
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(736 |
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(906 |
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(988 |
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1,929 |
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Financial income (expenses)
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(1,254 |
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(1,907 |
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(1,149 |
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(531 |
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(1,184 |
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Income (loss)
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201 |
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(2,643 |
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(2,055 |
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(1,519 |
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745 |
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Net (income) loss attributable to non-controlling interest
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7 |
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8 |
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4 |
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(7 |
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(11 |
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Net income (loss) attributable to RADA Electronic Industries Ltd.’s shareholders
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$ |
208 |
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$ |
(2,635 |
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$ |
(2,051 |
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$ |
(1,526 |
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$ |
734 |
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Per Share Data:
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Basic and diluted net income (loss) per ordinary share attributable for RADA Electronic Industries Ltd.’s shareholders
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0.02 |
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(0.30 |
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(0.23 |
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(0.17 |
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0.08 |
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Weighted average number of shares used to compute basic and diluted net income (loss) per share
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8,945 |
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8,919 |
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8,919 |
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8,899
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8,869 |
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As of December 31, 2014 |
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Actual
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Adjusted
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Summary Balance Sheet Data:
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(in thousands)
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Working capital
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|
|
|
|
|
|
|
|
|
|
|
|
$ |
35 |
|
|
$ |
7,518 |
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|
Total assets
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,097 |
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|
|
20,097 |
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|
Convertible note, short-term credits and shareholders' loans
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,709 |
|
|
|
4,048 |
|
|
Shareholders’ equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,547 |
|
|
$ |
11,130 |
|
Investing in our ordinary shares involves a high degree of risk and uncertainty. You should carefully consider the risks and uncertainties described below before investing in our ordinary shares. Our business, prospects, financial condition and results of operations could be adversely affected due to any of the following risks. In that case, the value of our ordinary shares could decline, and you could lose all or part of your investment.
Risks Related to Our Business and Our Industry
We have a history of operating losses and may not be able to sustain profitability in the future. To the extent that we continue to incur operating losses, we may not have sufficient working capital to fund our operations in the future.
We incurred operating losses in each of the years 2011, 2012 and 2013 and we incurred an operating loss of $458,000 and a net loss of $777,000 in the quarter ended March 31, 2015. We may not be able to achieve or sustain profitable operations in the future or generate positive cash flows from operations. As of March 31, 2015, our accumulated deficit was over $68 million. To the extent that we incur operating losses in the future or are unable to generate free cash flows from our business, we may not have sufficient working capital to fund our operations and will be required to obtain additional financing to maintain our operations. Such financing may not be available, or, if available, may not be on terms satisfactory to us. If adequate funds to maintain operations are not available to us, our business, results of operations and financial condition will be adversely affected.
We may not be able to implement our growth strategy which could adversely affect our business, financial condition and results of operations.
In pursuit of our growth strategy, we entered into a number of strategic relationships with Embraer, HAL, IAI, Lockheed Martin, Boeing, Rafael, IMI, and DRS to increase our penetration into the defense electronics market. We are currently focusing our business development efforts to further develop these relationships and to enter into new relationships. Should our relationships fail to materialize into significant agreements or should we fail to work efficiently with these companies, we may lose sales and marketing opportunities and our business, results of operations and financial condition could be adversely affected.
Our military avionic products accounted for more than 89% of our sales in the year ended December 31, 2014. Our future growth is dependent on our gaining market acceptance and regular production orders for both our land-based tactical radar products and our inertial navigation systems for aerial platforms. In the event we are not successful in obtaining a significant volume of orders for our tactical radar products and inertial navigation systems, we will face significant obstacles in expanding our business.
Our growth is also dependent on the development of new products, based on internal research and development. We may not accurately identify market needs before we invest in the development of a new product. In addition, we might face difficulties or delays in the development process that will result in our inability to timely offer products that satisfy the market and competing products may emerge during the development and certification process.
There can be no assurance that our advanced ground radar products will gain market acceptance and therefore we may never recover our investment in this new product family.
We have developed two radar hardware platforms for use in combat vehicles and short-range protection applications and in defense forces and border protection applications. In December 2014, we announced the first significant order for this product family, a $2.8 million order from a leading ministry of defense for its national alert system. Shipments under this order are not expected to begin until the fourth quarter of 2015. To date, we have not received any other significant orders. In March 2015 we announced that we entered into (i) a contract with Lockheed Martin, which selected our multi-mission hemispheric radar product to support internally funded high energy laser weapon system prototype testing, and (ii) an agreement with DRS under which they agreed to sell, produce, and support, our tactical radars as part of their tactical radar portfolio. Other than a single radar unit ordered and delivered to Lockheed Martin and two radar units ordered and delivered to DRS, we have not yet received any orders arising from Lockheed Martin’s weapon development efforts or from DRS with respect to the sale of our radar products to third parties and there can be no assurance that we will ever receive any such orders. If these products do not achieve market acceptance, our business, results of operations and financial condition will be adversely affected.
Competition in the market for defense electronics is intense. Our products may not achieve market acceptance which could adversely affect our business, financial condition and results of operations.
The market for our products is highly competitive and we may not be able to compete effectively in our market. Our principal competitors in the defense electronics markets on which we focus include Elbit Systems Ltd., Goodrich Corporation, Honeywell International Inc., IAI, Northrop Grumman Corporation, Sagem Avionics LLC, Thales Group, Zodiac Aerospace Group and SRC Inc. We expect to continue to face competition from these and other competitors. Most of our competitors are larger and have substantially greater resources than us, including financial, technological, marketing and distribution capabilities and enjoy greater market recognition than we do. These competitors are able to achieve greater economies of scale and may be less vulnerable to price competition than us. We may not be able to offer our products as part of integrated systems to the same extent as our competitors or successfully develop or introduce new products that are more cost effective or offer better performance than those of our competitors. Failure to do so could adversely affect our business, results of operations and financial condition.
Reductions in defense budgets worldwide may cause a reduction in our revenues, which would adversely affect our business, operating results and financial condition.
The vast majority of our revenues are derived from the sale of products with military applications. These revenues totaled approximately $21.6 million, or 96% of our revenues, in 2014, $20.3 million, or 93% of our revenues, in 2013 and $20.3 million, or 94% of our revenues, in 2012. The defense budgets of a number of countries may be reduced in the future. Declines in defense budgets may result in reduced demand for our products and manufacturing services. This would result in reduction in our core business’ revenues and adversely affect our business, results of operations and financial condition.
Unfavorable national and global economic conditions could have a material adverse effect on our business, operating results and financial condition.
During periods of slowing economic activity, our customers may reduce their demand for our products and technology, which would reduce our sales, and our business, operating results and financial condition may be adversely affected. Economies throughout the world currently face a number of challenges, including threatened sovereign defaults, credit downgrades, restricted credit for businesses and consumers and potentially falling demand for a variety of products and services. Notwithstanding the improving economic conditions in some of our markets, many companies are still cutting back expenditures or delaying plans to add additional personnel or systems. Any further worsening of the global economic condition could result in longer sales cycles, slower adoption of new technologies and increased price competition for our products and services. We could also be exposed to credit risk and payment delinquencies on our accounts receivable, which are not covered by collateral. Any of these events would likely harm our business, operating results and financial condition.
Sales of our products are subject to governmental procurement procedures and practices; termination, reduction or modification of contracts with our customers or a substantial decrease in our customers’ budgets may adversely affect our business, operating results and financial condition.
Our products are primarily sold to governmental agencies, governmental authorities and government-owned companies, many of which have complex and time consuming procurement procedures. A substantial period of time often elapses from the time we begin marketing a product until we actually sell that product to a particular customer. In addition, our sales to governmental agencies, authorities and companies are directly affected by these customers’ budgetary constraints and the priority given in their budgets to the procurement of our products. A decrease in governmental funding for our customers’ budgets would adversely affect our results of operations. This risk is heightened during periods of global economic slowdown. Accordingly, governmental purchases of our systems, products and services may decline in the future as the governmental purchasing agencies may terminate, reduce or modify contracts or subcontracts if:
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their requirements or budgetary constraints change;
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they cancel multi-year contracts and related orders if funds become unavailable;
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they shift spending priorities into other areas or for other products; or
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they adjust contract costs and fees on the basis of audits.
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Any such event may have a material adverse effect on us. Further, our business with the State of Israel and other governmental entities is, in general, subject to delays in funding and performance of contracts and the termination for convenience (among other reasons) of contracts or subcontracts with governmental entities. The termination, reduction or modification of our contracts or subcontracts with the Government of Israel in the event of changes in requirements, policies or budgetary constraints would have an adverse effect on our business, operating results and financial condition.
If we do not receive the governmental approvals necessary for the export of our products, our revenues may decrease. Similarly, if our suppliers and partners do not receive government approvals necessary to export their products or designs to us, our revenues may decrease and we may fail to implement our growth strategy.
Israel’s defense export policy regulates the sale of our systems and products. Current Israeli policy encourages export to approved customers of defense systems and products, such as ours, as long as the export is consistent with Israeli government policy. A license is required to initiate marketing activities. We are also required to obtain a specific export license for any hardware exported from Israel. We may not be able to receive all the required permits and licenses for which we may apply in the future. If we do not receive the required permits for which we apply, our revenues may decrease.
We are subject to laws regulating export of “dual use” items (items that are typically sold in the commercial market, but that also may be used in the defense market) and defense export control legislation. If government approvals required under these laws and regulations are not obtained, or if authorizations previously granted are not renewed, our ability to export our products from Israel could be negatively impacted, which may cause a reduction in our revenues and a potential material negative impact on our financial results. Additionally, our participation in governmental procurement processes in Israel and other countries is subject to specific regulations governing the conduct of the process of procuring defense contracts. Furthermore, solicitations for procurements by governmental purchasing agencies in Israel and other countries are governed by laws, regulations and procedures relating to procurement integrity, including avoiding conflicts of interest and corruption in the procurement process. We may not be able to respond quickly and effectively to changing laws and regulations and any failure to comply with such laws and regulations may subject us to significant liability and penalties.
We depend on sales to key customers and the loss of one or more of our key customers would result in a loss of a significant amount of our revenues, which would adversely affect our business, financial condition and results of operations.
A significant portion of our revenues is derived from a small number of customers. During the years ended December 31, 2014 and 2013, 51% and 54% of our revenues, respectively, were attributable to three customers. We anticipate that a significant portion of our future revenues will continue to be derived from sales to a small number of customers. No assurances can be given that our customers will continue to purchase our products, that we will be successful in any bid for new contracts to provide such products, or that if we are grantedsubsequent orders, that such orders would be of a scope comparable to the sales that we have experienced to date. If our principal customers do not continue to purchase products from us at current levels or if we do not retain such customers and we are not able to derive sufficient revenues from sales to new customers to compensate for their loss, our revenues would be reduced and adversely affect our business, results of operations and financial condition.
We depend on a limited number of suppliers of components for our products and if we are unable to obtain these components when needed, we could experience delays in the manufacturing of our products and our financial results could be adversely affected.
We acquire most of the components for the manufacture of our products from a limited number of suppliers and subcontractors, most of whom are located in Israel and the United States. Certain of these suppliers are currently the sole source of one or more key components. Suppliers of some of the components require us to place orders with significant lead-times to assure supply in accordance with our manufacturing requirements. Our present lack of working capital may cause us to delay the placement of such orders and may result in delays in supply. Delays in supply may significantly hurt our ability to fulfill our contractual obligations and may significantly hurt our business and result of operations. In addition, we may not be able to continue to obtain such components from these suppliers on satisfactory commercial terms. Disruptions of our manufacturing operations would ensue if we were required to obtain components from alternative sources, which would have an adverse effect on our business, results of operations and financial condition.
Rapid technological changes may adversely affect the market acceptance of our products and could adversely affect our business, financial condition and results of operations.
The defense electronics market in which we compete is subject to technological changes, introduction of new products, change in customer demands and evolving industry standards. Our future success will depend upon our ability to keep pace with technological developments and to timely address the increasingly sophisticated needs of our customers by supporting existing and new technologies and by developing and introducing enhancements to our current products and new products. We may not be successful in developing and marketing enhancements to our products that will respond to technological change, evolving industry standards or customer requirements. In addition, we may experience difficulties that could delay or prevent the successful development, introduction and sale of such enhancements and such enhancements may not adequately meet the requirements of the market and may not achieve any significant degrees of market acceptance. If release dates of our new products or enhancements are delayed or, if when released, they fail to achieve market acceptance, our business, operating results and financial condition may be adversely affected.
We enter into fixed-price contracts that could subject us to losses in the event we fail to properly estimate our costs.
We enter into firm fixed-price contracts. If our initial cost estimates are incorrect, we can lose money on these contracts. Because many of these contracts involve new technologies, unforeseen events, such as technological difficulties and other cost overruns, can result in the contract pricing becoming less favorable or even unprofitable to us and have an adverse impact on our business financial condition and results of operation.
Breaches of network or information technology security, natural disasters or terrorist attacks could have an adverse effect on our business.
Cyber-attacks or other breaches of network or IT security, natural disasters, terrorist acts or acts of war may cause equipment failures or disrupt our systems and operations. We may be subject to attempts to breach the security of our networks and IT infrastructure through cyber-attack, malware, computer viruses and other means of unauthorized access. The potential liabilities associated with these events could exceed the insurance coverage we maintain. Our inability to operate our facilities as a result of such events, even for a limited period of time, may result in significant expenses or loss of market share to other competitors in the defense electronics market. In addition, a failure to protect the privacy of customer and employee confidential data against breaches of network or IT security could result in damage to our reputation. To date, we have not been subject to cyber-attacks or other cyber incidents which, individually or in the aggregate, resulted in a material adverse effect on our business, operating results and financial condition.
We are subject to risks associated with international operations; we generate a significant portion of our sales from customers located in countries that may be adversely affected by political or economic instability and corruption.
We are a defense electronics company with worldwide operations. While we derived 58% of our sales in the year ended December 31, 2014 from sales in Israel (22%) and from exports to North America (36%), we expect to derive an increasing portion of our sales and future growth from other regions such as Latin America, India and Central and Eastern Europe, which may be more susceptible to political or economic instability. In addition, in many less-developed markets, we rely heavily on third-party distributors and other agents for the marketing and distribution of our products and capabilities. Many of these distributors do not have internal compliance resources comparable to ours. Business activities in many of these markets have historically been more susceptible to corruption. If our efforts to screen third-party agents and detect cases of potential misconduct fail, we could be held responsible for the noncompliance of these third parties under applicable laws and regulations, which may adversely affect our reputation and our business, financial condition or results of operations.
Exports, including to North America, accounted for 78% of our sales in 2014, 80.4% of our sales in 2013 and 75% of our sales in 2012. Our reliance on export sales subjects us to many risks inherent in engaging in international business, including:
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Limitations and disruptions resulting from the imposition of government controls;
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Changes in regulatory requirements;
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Export license requirements;
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Economic or political instability;
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Longer receivable collection periods and greater difficulty in accounts receivable collection;
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Greater difficulty in safeguarding intellectual property;
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Difficulties in managing overseas subsidiaries and international operations; and
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Potential adverse tax consequences.
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Any of these risks could materially affect our international operations, which may adversely affect our business, results of operations and financial condition.
We may not be able to sustain or increase revenues from international operations and may encounter significant difficulties in connection with the sale of our products in international markets.
In addition, as a SEC registrant, we are subject to the regulations imposed by the Foreign Corrupt Practices Act, or FCPA, which generally prohibits registrants and their intermediaries from making improper payments to foreign officials for the purpose of obtaining or keeping business or obtaining an improper business benefit. We have adopted proactive procedures to promote compliance with the FCPA, but we may be held liable for actions taken by our strategic or local partners or agents even though these partners or agents may not themselves be subject to the FCPA. Any determination that we have violated the FCPA could materially and adversely affect our business, results of operations and financial condition.
We are subject to risks associated with currency exchange rate fluctuations in the world markets in which we conduct business.
Most of our revenues are derived from sales denominated in dollars or are linked to the dollar. However, a portion of our expenses, principally salaries and related personnel expenses, are incurred in other currencies, particularly in NIS. Therefore, our costs in such other currencies, as expressed in dollars, are influenced by the exchange rate between the dollar and the relevant currency. We are also exposed to the risk that the rate of inflation in Israel will exceed the rate of depreciation of the NIS in relation to the dollar or that the timing of this depreciation lags behind inflation in Israel. This would have the effect of increasing the dollar cost of our operations. In the past, the NIS exchange rate with the dollar and other foreign currencies has fluctuated, generally reflecting inflation rate differentials. We cannot predict any future trends in the rate of inflation in Israel or the rate of depreciation or appreciation of the NIS against the dollar. If the dollar cost of our operations in Israel increases, our dollar-measured results of operations will be adversely affected. We engage in currency hedging transactions intended to partly reduce the effect of fluctuations in foreign currency exchange rates on our results of operations. However, such transactions may not materially reduce the effect of fluctuations in foreign currency exchange rates on our results of operations.
We are dependent on our senior management and key personnel, and the loss of any key member of our management team could adversely affect our business.
Our future success depends in large part on the continued services of our senior management and key personnel. In particular, we are dependent on the services of Herzle Bodinger, the executive chairman of our Board of Directors, and Mr. Zvi Alon, our chief executive officer. Any loss of their services or the services of other members of senior management or other key personnel could negatively affect our business.
Claims that our products infringe upon the intellectual property of third parties may require us to incur significant costs, enter into licensing agreements or license substitute technology.
Third parties may assert infringement claims against us or claims that we have violated a patent or infringed on a copyright, trademark or other proprietary right belonging to them. Any infringement claim, even one without merit, could result in the expenditure of significant financial and managerial resources to defend against the claim. Moreover, a successful claim of product infringement against us or a settlement could require us to pay substantial amounts or obtain a license to continue to use the technology that is the subject of the claim, or otherwise restrict or prohibit our use of the technology. We might not be able to obtain a license from the third party asserting the claim on commercially reasonable terms, if at all. We also may not be able to obtain a license from another provider of suitable alternative technology to permit us to continue offering the product. Infringement claims asserted against us could have a material adverse effect on our business, operating results and financial condition.
Regulations that impose disclosure requirements regarding the use of “conflict” minerals mined from the Democratic Republic of Congo and adjoining countries in our products will result in additional cost and expense and could result in other significant adverse effects.
Rules adopted by the SEC implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act impose diligence and disclosure requirements regarding the use of “conflict” minerals mined from the Democratic Republic of Congo and adjoining countries in our products. Compliance with these rules may result in additional cost and expense, including for due diligence to determine and verify the sources of any conflict minerals used in our products, in addition to the cost of remediation and other changes to products, processes, or sources of supply as a consequence of such verification activities. These rules may also affect the sourcing and availability of minerals used in the manufacture of components used in our products to the extent that there may be only a limited number of suppliers offering “conflict free” metals that can be used in our products. There can be no assurance that we will be able to obtain such “conflict free” components in sufficient quantities or at competitive prices. Also, since our supply chain is complex, we may face reputational challenges with our customers, shareholders and other stakeholders if we are unable to sufficiently verify the origins of the metals used in our products. We may also encounter customers who require that all of the components of our products be certified as conflict free. If we are not able to meet customer requirements, such customers may choose to disqualify us as a supplier, which could impact our sales and the value of portions of our inventory.
We may fail to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002, which could have an adverse effect on our financial results and the market price of our ordinary shares.
The Sarbanes-Oxley Act of 2002 imposes certain duties on us and our executives and directors. Our efforts to comply with the requirements of Section 404(a) of the Sarbanes-Oxley Act of 2002 governing internal controls and procedures for financial reporting, which started in connection with our 2007 Annual Report on Form 20-F, have resulted in increased general and administrative expense and a diversion of management time and attention, and we expect these efforts to require the continued commitment of significant resources. We may identify material weaknesses or significant deficiencies in our assessments of our internal controls over financial reporting. Failure to maintain effective internal controls over financial reporting could result in investigation or sanctions by regulatory authorities and could have a material adverse effect on our business operating results, financial condition, investor confidence in our reported financial information and the market price of our ordinary shares.
Risks Related to Our Ordinary Shares and to the Offering
Because one of our shareholders owns a majority of our outstanding shares, investors will not be able to affect the outcome of shareholder votes.
As of June 30, 2015, Mr. Howard Yeung beneficially owned approximately 48% of our outstanding shares. For as long as Mr. Yeung has a controlling interest in our company, he will have the ability to exercise a controlling influence over our business and affairs, including any determinations with respect to potential mergers or other business combinations involving us, our acquisition or disposition of assets, our incurrence of indebtedness, our issuance of any additional ordinary shares or other equity securities, our repurchase or redemption of ordinary shares and our payment of dividends. Similarly, as long as Mr. Yeung has a controlling interest in our company, he will have the power to determine or significantly influence the outcome of matters submitted to a vote of our shareholders, including the power to elect all of the members of our Board of Directors (except outside directors, within the meaning of Israeli law), or prevent an acquisition or any other change in control of us. Because the interests of Mr. Yeung may differ from the interests of our other shareholders, actions taken by him with respect to us may not be favorable to our other shareholders.
If the offering is not completed, our controlling shareholder and the other lender to our company may elect to convert some or all of the debt held by them into equity.
As a consequence of our need to invest in research and development, our controlling shareholder and one of our directors have provided us with loans in the aggregate amount of approximately $9.9 million (including accrued interest), which are secured by second degree liens over all of our properties. In the event that this offering is not completed by September 30, 2015, our controlling shareholder and the other director lender to our company will be entitled, on a pro rata basis, to convert some or all of the remaining outstanding debt from time to time into our ordinary shares. The terms of such conversion, which were approved by the shareholders of our company, are as follows: (i) the minimum amount to be converted at any one time is $300,000 of debt; (ii) the share issue price will be the lower of $1.00 or 15% below the preceding seven (7) days volume weighted average price; and (iii) any unconverted debt will continue to be subject to the terms of the Standstill Agreement. Any remaining debt owed to the two lenders after this offering may be converted into our ordinary shares on the same terms as described above. Any such conversion of the outstanding debt will result in dilution to our shareholders, in an increase of our controlling shareholder’s interest in our company, may result in a loss of investor confidence in our company and will likely result in a decline in the share price of our outstanding shares.
Our share price has been volatile in the past and may decline in the future.
Our ordinary shares have experienced significant market price and daily trading volume fluctuations in the past and may experience significant market price and volume fluctuations in the future in response to factors such as the following, some of which are beyond our control:
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Quarterly variations in our operating results;
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Operating results that vary from the expectations of securities analysts and investors;
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Changes in expectations as to our future financial performance, including financial estimates by securities analysts and investors;
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Announcements of technological innovations or new products by us or our competitors;
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Announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments;
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Changes in the status of our intellectual property rights;
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Announcements by third parties of significant claims or proceedings against us;
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Additions or departures of key personnel;
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Future sales of our ordinary shares;
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Delisting of our shares from the NASDAQ Capital Market; and
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Stock market price and volume fluctuations.
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Domestic and international stock markets often experience extreme price and volume fluctuations. Market fluctuations, as well as general political and economic conditions, such as a recession or interest rate or currency rate fluctuations or political events or hostilities in or surrounding Israel, could adversely affect the market price of our ordinary shares.
In the past, securities class action litigation has often been brought against companies following periods of volatility in the market price of its securities. We may in the future be the target of similar litigation. Securities litigation could result in substantial costs and divert management’s attention and resources, both of which could have a material adverse effect on our business, operating results and financial condition.
Our ordinary share price may be volatile as a result of this offering.
The trading price of our ordinary shares may fluctuate substantially. The price of the ordinary shares that will prevail in the market after this offering may be higher or lower than the offering price depending on many factors, some of which are beyond our control and may not be directly related to our operating performance.
Substantial future sales of our ordinary shares by our controlling shareholder may depress our share price.
If our controlling shareholder sells substantial amounts of his ordinary shares, including shares issuable upon the conversion of outstanding convertible notes, or if the perception exists that our controlling shareholder may sell a substantial number of our ordinary shares, the market price of our ordinary shares may fall. Any substantial sales of our shares in the public market also might make it more difficult for us to sell equity or equity-related securities in the future at a time and on terms we deem appropriate.
We do not intend to pay dividends.
We have never declared or paid cash dividends on our ordinary shares and do not expect to do so in the foreseeable future. The declaration of dividends is subject to the discretion of our Board of Directors and will depend on various factors, including our operating results, financial condition, future prospects and any other factors deemed relevant by our Board of Directors. You should not rely on an investment in our company if you require dividend income from your investment in our company. The success of your investment will likely depend entirely upon any future appreciation of the market price of our ordinary shares, which is uncertain and unpredictable. There is no guarantee that our ordinary shares will appreciate in value or even maintain the price at which you purchased your ordinary shares.
You will experience immediate and substantial dilution as a result of this offering and may experience additional dilution in the future.
You will incur immediate and substantial dilution as a result of this offering. An assumed public offering price of $1.94 per share (the closing price of a share of our ordinary shares on July 14, 2015) and after deducting the underwriters’ discount and estimated offering expenses payable by us, investors in this offering can expect an immediate dilution of $1.11 per share. In addition, we have outstanding convertible notes, as well as additional outstanding existing debt, the conversion of which may result in significant future dilution.
Shareholder ownership interest in our company may be diluted as a result of future financings or additional acquisitions.
We may seek to raise funds from time to time in public or private issuances of equity and such financings may take place in the near future or over the longer term. Sales of our securities offered through future equity offerings may result in substantial dilution to the interests of our current shareholders. The sale of a substantial number of securities to investors, or anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect sales. Our Board of Directors recently approved the adoption of our 2015 Option Plan which authorizes the grant of options to purchase up to 3,000,000 of our ordinary shares. Any exercise of grants under the 2015 Option Plan may result in dilution to our shareholders. In addition, we have issued shares of our ordinary shares for various acquisitions in the past and may do so in the future, which may also result in substantial dilution to the interests of our current shareholders.
While we believe that we are not currently a PFIC and do not anticipate becoming a PFIC, United States tax authorities could treat us as a “passive foreign investment company,” which could have adverse United States federal income tax consequences to United States shareholders.
Generally, if for any taxable year, 75% or more of our gross income is passive income, or at least 50% of the value of our assets, averaged quarterly, are held for the production of, or produce, passive income, we will be characterized as a passive foreign investment company (a “PFIC”) for U.S. federal income tax purposes. Determination that we are a PFIC could cause our U.S. shareholders to suffer adverse tax consequences, including having gains realized on the sale of our shares taxed at ordinary income rates, rather than capital gains rates, and being subject to an interest charge on such gain. Similar rules apply to certain “excess distributions” made with respect to our ordinary shares. A determination that we are a PFIC could also have an adverse effect on the price and marketability of our shares. If we are a PFIC for U.S. federal income tax purposes, highly complex rules would apply to U.S. holders owning our ordinary shares. Accordingly, you are urged to consult your tax advisors regarding the application of such rules.
Reports published by securities or industry analysts, including projections in those reports that exceed our actual results, could adversely affect our ordinary shares’ price and trading volume.
Securities research analysts, including those affiliated with our underwriters, may establish and publish their own periodic projections for our business. These projections may vary widely from one another and may not accurately predict the results we actually achieve. Our share price may decline if our actual results do not match securities research analysts’ projections. Similarly, if one or more of the analysts who writes reports on us downgrades our shares or publishes inaccurate or unfavorable research about our business, our share price could decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, our share price or trading volume could decline. While we expect securities research analyst coverage, if no securities or industry analysts begin to cover us, the trading price for our shares and the trading volume could be adversely affected.
Risks Related to Our Location in Israel
Political, economic and military instability in Israel may disrupt our operations and negatively affect our business, harm our results of operations and adversely affect our share price.
We are incorporated under the laws of, and our principal executive offices and manufacturing and research and development facilities are located in, the State of Israel. As a result, political, economic and military conditions affecting Israel directly influence us. Any major hostilities involving Israel, a full or partial mobilization of the reserve forces of the Israeli army, the interruption or curtailment of trade between Israel and its present trading partners, or a significant downturn in the economic or financial condition of Israel could adversely affect our business, financial condition and results of operations.
Since its establishment in 1948, Israel has been involved in a number of armed conflicts with its Arab neighbors and a state of hostility, varying from time to time in intensity and degree, has continued into 2015. Also, since 2011, riots and uprisings in several countries in the Middle East and neighboring regions have led to severe political instability in several neighboring states and to a decline in the regional security situation. Such instability may affect the local and global economy, could negatively affect business conditions and, therefore, could adversely affect our operations. In addition, Iran has threatened to attack Israel and is widely believed to be developing nuclear weapons. Iran is also believed to have a strong influence among extremist groups in neighboring areas to Israel, such as Hamas in Gaza and Hezbollah in Lebanon. Following extensive missile attacks on its southern border and against Israeli population centers in July 2014, Israel invaded the Gaza Strip. On July 21, 2014, all U.S. airlines and most major airlines of other nationalities suspended their flights to Israel’s Ben-Gurion International Airport for several days after a missile landed approximately 1.5 kilometers away. To date, these events have not had any material effect on our business and results of operations; however, the regional security situation and worldwide perceptions of it are outside our control and there can be no assurance that these matters will not negatively affect us in the future.
Furthermore, we could be adversely affected by the interruption or reduction of trade between Israel and its trading partners. Some countries, companies and organizations continue to participate in a boycott of Israeli companies and others doing business with Israel or with Israeli companies. As a result, we are precluded from marketing our products to these countries, companies and organizations. Foreign government defense export policies towards Israel could also make it more difficult for us to obtain the export authorizations necessary for our activities. Also, over the past several years there have been calls in Europe and elsewhere to reduce trade with Israel. Restrictive laws, policies or practices directed towards Israel or Israeli businesses may have an adverse impact on our business operations, operating results, financial condition or the expansion of our business.
Our results of operations may be negatively affected by the obligation of our personnel to perform military service.
Approximately 15% of our employees in Israel are obligated to perform annual military reserve duty and are subject to being called for active duty under emergency circumstances. If a military conflict or war arises, these individuals could be required to serve in the military for extended periods. Our operations could be disrupted by the absence for a significant period of one or more of our key employees or a number of other employees due to military service. Any disruption in our operations could adversely affect our business.
We may not be able to enforce covenants not-to-compete under current Israeli law.
We have non-competition agreements with most of our employees, many of which are governed by Israeli law. These agreements generally prohibit our employees from competing with us or working for our competitors for a specified period following termination of their employment. However, Israeli courts are reluctant to enforce non-compete undertakings of former employees and tend, if at all, to enforce those provisions for relatively brief periods of time in restricted geographical areas and only when the employee has unique value specific to that employer’s business and not just regarding the professional development of the employee. Any such inability to enforce non-compete covenants may cause us to lose any competitive advantage resulting from advantages provided to us by such confidential information.
We may become subject to claims for remuneration or royalties for assigned service invention rights by our employees, which could result in litigation and adversely affect our business.
A significant portion of our intellectual property has been developed by our Israeli employees in the course of their employment by us. Under the Israeli Patent Law, 5727-1967 (the “Israeli Patent Law”), inventions conceived by an employee during the term and as part of the scope of his or her employment with a company are regarded as “service inventions,” which belong to the employer, absent a specific agreement between the employee and employer giving the employee service invention rights. The Israeli Patent Law also provides that if there is no such agreement between an employer and an employee, the Israeli Compensation and Royalties Committee (the “C&R Committee”), a body constituted under the Israeli Patent Law, shall determine whether the employee is entitled to remuneration for his inventions. The C&R Committee (decisions of which have been upheld by the Israeli Supreme Court) has held that employees may be entitled to remuneration for their service inventions despite having specifically waived any such rights. Further, the C&R Committee has not yet set specific guidelines regarding the method for calculating this remuneration or the criteria or circumstances under which an employee’s waiver of his right to remuneration will be disregarded. We generally enter into intellectual property assignment agreements with our employees pursuant to which such employees assign to us all rights to any inventions created in the scope of their employment or engagement with us. Although our employees have agreed to assign to us service invention rights and have specifically waived their right to receive any special remuneration for such assignment beyond their regular salary and benefits, we may face claims demanding remuneration in consideration for assigned inventions. As a consequence of such claims, we could be required to pay additional remuneration or royalties to our current or former employees, or be forced to litigate such claims, which could negatively affect our business.
Service and enforcement of legal process on us and our directors and officers may be difficult to obtain.
Service of process upon our directors and officers and the Israeli experts named in this prospectus, most of who reside outside the U.S., may be difficult to obtain within the U.S. Furthermore, since substantially most our assets, our directors and officers and the Israeli experts named in this prospectus are located outside the U.S., any judgment obtained in the U.S. against us or these individuals or entities may not be collectible within the U.S.
There is doubt as to the enforceability of civil liabilities under the Securities Act and the Securities Exchange Act in original actions instituted in Israel. However, subject to certain time limitations and other conditions, Israeli courts may enforce final judgments of U.S. courts for liquidated amounts in civil matters, including judgments based upon the civil liability provisions of those Acts. See “Enforceability of Civil Liabilities”.
The rights and responsibilities of our shareholders are governed by Israeli law and differ in some respects from those of a typical U.S. corporation.
We are incorporated under Israeli law and the rights and responsibilities of holders of our ordinary shares are governed by our articles of association and by Israeli law. These rights and responsibilities differ in some respects from the rights and responsibilities of shareholders in typical 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 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 to 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 actions and transactions involving interests of officers, directors or other interested parties which require the shareholders’ 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. However, Israeli law does not define the substance of this duty of fairness. There is little case law available to assist in understanding the implications of these provisions that govern shareholder behavior. These provisions may be interpreted to impose additional obligations and liabilities on holders of our ordinary shares that are not typically imposed on shareholders of U.S. corporations.
Provisions of Israeli law may delay, prevent or otherwise encumber a merger with or an acquisition of our company, which could prevent a change of control, even when the terms of such transaction are favorable to us and our shareholders.
Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for transactions involving directors, officers or significant shareholders and regulates other matters that may be relevant to these types of transactions. These provisions of Israeli law could delay, prevent or impede a merger with or an acquisition of our company, which could prevent a change of control, even when the terms of such transaction are favorable to us and our shareholders and therefore potentially depress the price of our shares. For further details see “Description of Share Capital – Provisions Restricting Change in Control of Our Company.”
Israeli government programs and tax benefits may be terminated or reduced in the future.
We participate from time to time in programs of the Office of the Chief Scientist in the Ministry of Economy, or OCS, for which we receive funding for the development of technologies and products. The benefits available under these programs depend on meeting specified conditions. If we fail to comply with these conditions, we may be required to pay penalties, make refunds and may be denied future benefits. From time to time, the government of Israel has discussed reducing or eliminating the benefits available under these programs, and therefore these benefits may not be available to us in the future at their current levels or at all.
As a foreign private issuer whose shares are listed on the NASDAQ Capital Market, we may follow certain home country corporate governance practices instead of certain NASDAQ requirements.
As a foreign private issuer whose shares are listed on the NASDAQ Capital Market, we are permitted to follow certain home country corporate governance practices instead of certain requirements of the NASDAQ Stock Market Rules. Among other things, as a foreign private issuer we may follow home country practice with regard to the composition of the Board of Directors, director nomination procedure, and quorum at shareholders’ meetings. In addition, we may follow our home country law, instead of the NASDAQ Stock Market Rules, which require that we obtain shareholder approval for certain dilutive events, such as for the establishment or amendment of certain equity-based compensation plans, an issuance that will result in a change of control of the company, certain transactions other than a public offering involving issuances of a 20% or more interest in the company and certain acquisitions of the stock or assets of another company. A foreign private issuer that elects to follow a home country practice instead of NASDAQ requirements must submit to NASDAQ in advance a written statement from an independent counsel in such issuer’s home country certifying that the issuer’s practices are not prohibited by the home country’s laws. In addition, a foreign private issuer must disclose in its annual reports filed with the SEC each such requirement that it does not follow and describe the home country practice followed by the issuer instead of any such requirement. Accordingly, our shareholders may not be afforded the same protection as provided under NASDAQ’s corporate governance rules.
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated in it by reference contain forward-looking statements that involve known and unknown risks and uncertainties. Examples of forward-looking statements include: projections of capital expenditures, competitive pressures, revenues, growth prospects, product development, financial resources and other financial matters. You can identify these and other forward-looking statements by the use of words such as “may,” “will,” “should,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “intends,” “potential” or the negative of such terms, or other comparable terminology.
Such statements reflect our current views with respect to future events and are subject to certain risks, uncertainties and assumptions. Actual results may differ materially from those expressed in these forward-looking statements due to a number of uncertainties and risks, including the risks described in this prospectus and in the documents incorporated by reference into this prospectus and other unforeseen risks. These risks and uncertainties include factors relating to, without limitation: (i) our ability to sustain profitability and have sufficient working capital to fund our operations in the future; (ii) the competitive nature of the industry and our products’ ability to achieve market acceptance; (iii) our ability to manage our growth effectively; (iv) effects of reductions in defense budgets worldwide; (v) material adverse changes in our industry or the global economy; (vi) our expectation to be able to continue to participate in the government market; (vii) our ability to retain key personnel; (viii) our ability to maintain business relationships with our customers and suppliers; (ix) our ability to predict future commerce trends and technology; and (x) the political or economic instability and corruption level in markets worldwide.
Our ability to predict the results of our operations or the effects of various events on our operating results is inherently uncertain. Therefore, we caution you to consider carefully the matters described under the caption “Risk Factors” and certain other matters discussed in this prospectus, the documents incorporated by reference in this prospectus, and other publicly available sources. These factors and many other factors beyond the control of our management could cause our actual results, performance or achievements to be materially different from any future results, performance or achievements that may be expressed or implied by the forward-looking statements. We are not under any obligation, and expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise. All subsequent forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section, and you are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date of this prospectus.
The following table shows, for each of the months indicated, the high and low exchange rates between the NIS and the U.S. dollar, expressed as NIS per U.S. dollar and based upon the daily representative rate of exchange as published by the Bank of Israel:
|
Month
|
|
High
|
|
|
Low
|
|
|
January 2015
|
|
|
3.998 |
|
|
|
3.899 |
|
|
February 2015
|
|
|
3.966 |
|
|
|
3.844 |
|
|
March 2015
|
|
|
4.053 |
|
|
|
3.926 |
|
|
April 2015
|
|
|
4.014 |
|
|
|
3.861 |
|
|
May 2015
|
|
|
3.890 |
|
|
|
3.819 |
|
| June 2015 |
|
|
3.872 |
|
|
|
3.761 |
|
The following table shows, for the periods indicated, the average exchange rate between the NIS and the U.S. dollar, expressed as NIS per U.S. dollar, calculated based on the average of the representative rate of exchange on the last day of each month during the relevant period as published by the Bank of Israel:
|
Year
|
|
Average
|
|
|
2010
|
|
|
3.730 |
|
|
2011
|
|
|
3.579 |
|
|
2012
|
|
|
3.847 |
|
|
2013
|
|
|
3.598 |
|
|
2014
|
|
|
3.589 |
|
|
2015 (through June 30)
|
|
|
3.895 |
|
As of July 14, 2015, the daily representative rate of exchange between the NIS and the U.S. dollar as published by the Bank of Israel was NIS 3.775 to $1.00.
USE OF PROCEEDS
We estimate that we will receive $7.6 million, or $8.8 million if the underwriters exercise in full their option to purchase additional ordinary shares, in net proceeds from the sale of the securities in this offering, based on a per share purchase price of $1.94 and after deducting underwriting discounts and commissions and offering expenses payable by us. The proceeds of the offering will be used as follows: (i) approximately $7.5 million for repayment of debt, including accrued interest, all of which is payable on August 31, 2016 and bears interest at a default interest rate of LIBOR plus 9% (9.4% at June 30, 2015); and (ii) the payment of $100,000 to an affiliate of our controlling shareholder for expenses incurred by the affiliate in the course of our financing negotiations, including the fees and expenses of its financial and legal advisers. See "Related Party Transactions."
PRICE RANGE OF ORDINARY SHARES
Our ordinary shares traded on the NASDAQ Global Market from 1985 until June 10, 2002, when the listing of our ordinary shares was transferred to the NASDAQ Capital Market. On March 15, 2007, we changed our symbol to “RADA.”
The following table sets forth, for the periods indicated, the high and low closing prices of our ordinary shares on the NASDAQ Capital Market.
|
Year
|
|
High
|
|
|
Low
|
|
|
2010
|
|
$ |
2.93 |
|
|
$ |
1.81 |
|
|
2011
|
|
$ |
4.48 |
|
|
$ |
1.55 |
|
|
2012
|
|
$ |
2.37 |
|
|
$ |
0.95 |
|
|
2013
|
|
$ |
2.26 |
|
|
$ |
0.96 |
|
|
2014
|
|
$ |
6.29 |
|
|
$ |
1.26 |
|
|
2015 (through July 14)
|
|
$ |
3.25 |
|
|
$ |
1.55 |
|
Quarterly Stock Information
The following table sets forth for each of the full financial quarters in the years indicated, the range of high ask and low bid prices of our ordinary shares on the NASDAQ Capital Market:
| |
|
High
|
|
Low |
|
|
2013
|
|
|
|
|
|
|
|
First Quarter
|
|
$ |
1.92 |
|
|
$ |
1.05 |
|
|
Second Quarter
|
|
$ |
1.52 |
|
|
$ |
0.96 |
|
|
Third Quarter
|
|
$ |
1.60 |
|
|
$ |
1.00 |
|
|
Fourth Quarter
|
|
$ |
2.26 |
|
|
$ |
1.33 |
|
| |
|
|
|
|
|
|
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$ |
1.80 |
|
|
$ |
1.26 |
|
|
Second Quarter
|
|
$ |
1.73 |
|
|
$ |
1.30 |
|
|
Third Quarter
|
|
$ |
6.29 |
|
|
$ |
1.31 |
|
|
Fourth Quarter
|
|
$ |
3.86 |
|
|
$ |
1.80 |
|
| |
|
|
|
|
|
|
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$ |
3.25 |
|
|
$ |
1.55 |
|
|
Second Quarter
|
|
$ |
2.94 |
|
|
$ |
1.79 |
|
Monthly Stock Information
The following table sets forth, for the most recent six months, the range of high ask and low bid prices of our ordinary shares on the NASDAQ Capital Market:
|
Month
|
|
High
|
|
|
Low
|
|
|
January 2015
|
|
$ |
2.66 |
|
|
$ |
2.26 |
|
|
February 2015
|
|
$ |
2.56 |
|
|
$ |
2.28 |
|
|
March 2015
|
|
$ |
3.25 |
|
|
$ |
1.55 |
|
|
April 2015
|
|
$ |
2.94 |
|
|
$ |
2.33 |
|
|
May 2015
|
|
$ |
2.76 |
|
|
$ |
2.00 |
|
| June 2015 |
|
$ |
2.21 |
|
|
$ |
1.79 |
|
We have never paid cash dividends on our ordinary shares and do not anticipate paying cash dividends in the near future. In accordance with our Articles of Association, our Board of Directors may from time to time declare and cause our company to pay to the shareholders such interim or final dividends as the Board of Directors deems appropriate considering the profits of the company and in compliance with the provisions of the Israeli Companies Law.
The following table sets forth our cash and cash equivalents and our capitalization as of December 31, 2014, on an actual basis, and on an as adjusted basis to give effect to the receipt by us of estimated net proceeds of $7.6 million, or $8.8 million if the underwriters exercise in full their option to purchase additional ordinary shares, from the issuance and sale of $8.5 million of our ordinary shares offered by us at an assumed price of $1.94 per share (which was the closing price of our ordinary shares of the NASDAQ Capital Market on July 14, 2015), after deducting the underwriting discount and estimated offering expenses payable by us.
The information set forth below should be read in conjunction with the “Management’s Discussion and Analysis of Financial Condition and Results or Operations” included elsewhere in this prospectus and our consolidated financial statements and related notes for the year ended December 31, 2014 included in our Annual Report on Form 20-F for the year ended December 31, 2014, which is incorporated herein by reference.
| |
|
|
|
| |
|
|
|
|
|
|
| |
|
(in thousands)
|
|
|
Cash and cash equivalents
|
|
$ |
1,786 |
|
|
$ |
1,786 |
|
|
Convertible Note, shareholders' loans and accrued interest
|
|
|
9,494 |
|
|
|
2,459 |
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
Ordinary shares NIS 0.015 par value (16,333,333 shares authorized);
Issued 8,988,396 actual; 13,369,839 as adjusted
|
|
|
119 |
|
|
|
136 |
|
|
Additional paid-in capital
|
|
|
70,884 |
|
|
|
78,450 |
|
|
Accumulated other comprehensive income
|
|
|
536 |
|
|
|
536 |
|
|
Accumulated deficit
|
|
|
(67,992 |
) |
|
|
(67,992 |
) |
|
Non-controlling interest
|
|
|
625 |
|
|
|
625 |
|
|
Total equity
|
|
|
4,172 |
|
|
|
11,755 |
|
|
Total capitalization
|
|
$ |
13,666 |
|
|
$ |
14,214 |
|
The above table is based on 8,988,396 ordinary shares outstanding as of June 30, 2015, and excludes:
|
|
·
|
1,435,407 ordinary shares issuable upon exercise of a currently outstanding $3,000,000 convertible loan having an exercise price of $2.09 per share;
|
|
|
·
|
up to 3,000,000 ordinary shares issuable under the company’s 2015 Option Plan;
|
|
|
·
|
any ordinary shares issuable upon exercise of the underwriters’ over-allotment option; and
|
|
|
·
|
accumulated interest subsequent to December 31, 2014.
|
In the event that there are insufficient proceeds to repay our outstanding debt and accrued interest of $9.9 million (as of June 30, 2015) in full, the holders of the remaining debt will have the right to convert such remaining debt into our ordinary shares at the lower of $1.00 or 15% below the preceding seven (7) days volume weighted average price per share. See "Related Party Transactions".
If you invest in our ordinary shares, your interest will be diluted to the extent of the difference between the public offering price per ordinary share and the pro forma net tangible book value per ordinary share immediately after this offering. Dilution results from the fact that the public offering price per ordinary share is substantially in excess of the book value per ordinary share attributable to the existing shareholders for the presently outstanding ordinary shares.
Our net tangible asset as of December 31, 2014 was $3,585,000, or $0.40 per ordinary share. Net tangible book value per share represents the amount of our total tangible assets less our total liabilities, divided by the pro forma number of ordinary shares outstanding upon consummation of this offering.
Our pro forma as adjusted net tangible book value dilution per ordinary share represents the difference between the amount per share paid by purchasers of ordinary shares in this offering and net tangible book value per ordinary share immediately after the completion of this offering on a pro forma as adjusted basis. After giving effect to the sale of 4,381,443 ordinary shares by us in this offering at an assumed public offering price of $1.94 per share (the closing price of our ordinary shares on July 14, 2015), and after deducting the estimated offering expenses payable by us, our pro forma as adjusted net tangible book value would have been $11,067,000, or approximately $0.83 per ordinary share based on 13,369,839 shares outstanding upon completion of this offering. This represents an immediate increase in pro forma net tangible book value of $0.43 per ordinary share to existing shareholders and an immediate dilution of $1.11 per ordinary share to new investors in this offering.
The following table illustrates this per share dilution:
|
Assumed public offering price per ordinary share
|
|
|
|
$ |
1.94 |
|
|
Net tangible book value per ordinary share as of December 31, 2014
|
$ |
0.40 |
|
|
|
|
|
Increase in net tangible book value per ordinary share attributable to this offering
|
|
0.43 |
|
|
|
|
|
Net tangible book value per ordinary share after this offering
|
|
|
|
|
0.83 |
|
|
Dilution per ordinary share to new investors
|
|
|
|
$ |
1.11 |
|
If the underwriters’ over-allotment option to purchase additional shares from us is exercised in full, and based on an assumed public offering price of $1.94 per share, the pro forma net tangible book value per share after this offering would be approximately $0.87 per share, the increase in the pro forma net tangible book value per share attributable to existing shareholders would be approximately $0.47 per share and the dilution to new investors purchasing shares in this offering would be approximately $1.07 per share.
The forgoing discussion is based on 8,988,396 ordinary shares outstanding as of June 30, 2015, and excludes:
|
|
·
|
1,435,407 ordinary shares issuable upon exercise of a currently outstanding $3,000,000 convertible loan having an exercise price of $2.09 per share;
|
|
|
·
|
up to 3,000,000 ordinary shares issuable under the company’s 2015 Option Plan; and
|
|
|
·
|
accumulated interest subsequent to December 31, 2014.
|
If the underwriters exercise their over-allotment option to purchase additional units in full, the following will occur:
|
|
·
|
the percentage of ordinary shares held by existing shareholders will decrease to approximately 64% of the total number of ordinary shares outstanding after this offering; and
|
|
|
·
|
the number of ordinary shares held by new investors will increase to 5,038,660, or approximately 36% of the total number of ordinary shares outstanding after this offering.
|
In the event that there are insufficient proceeds to repay the outstanding debt and accrued interest of $9.9 million (as of June 30, 2015) in full, the holders of the remaining debt will have the right to convert such remaining debt into our ordinary shares at the lower of $1.00 or 15% below the preceding seven (7) days volume weighted average price per share. See "Related Party Transactions".
The following selected consolidated financial data for and as of the five years ended December 31, 2014 are derived from our audited consolidated financial statements, which have been prepared in accordance with U. S. GAAP. Our audited consolidated financial statements for the three years ended December 31, 2014 and as of December 31, 2014 and 2013 are incorporated by reference in this prospectus from our Annual Report on Form 20-F for the year ended December 31, 2014. Our selected consolidated financial data as of December 31, 2012, 2011 and 2010 and for the years ended December 31, 2011 and 2010 have been derived from audited consolidated financial statements not included in this prospectus. The selected consolidated financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included below and our consolidated financial statements and related notes incorporated by reference in this prospectus from our Annual Report on Form 20-F for the year ended December 31, 2014.
| |
|
Year ended December 31,
|
|
| |
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
| |
|
(U.S. dollars in thousands, except per share data)
|
|
|
Summary Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
22,481 |
|
|
$ |
21,761 |
|
|
$ |
21,551 |
|
|
$ |
19,405 |
|
|
$ |
27,523 |
|
|
Cost of revenues
|
|
|
15,944 |
|
|
|
17,160 |
|
|
|
16,233 |
|
|
|
13,800 |
|
|
|
20,117 |
|
|
Gross profit
|
|
|
6,537 |
|
|
|
4,601 |
|
|
|
5,318 |
|
|
|
5,605 |
|
|
|
7,406 |
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development, net
|
|
|
789 |
|
|
|
1,459 |
|
|
|
2,423 |
|
|
|
2,543 |
|
|
|
1,182 |
|
|
Selling and marketing
|
|
|
2,392 |
|
|
|
1,959 |
|
|
|
1,664 |
|
|
|
2,106 |
|
|
|
2,563 |
|
|
General and administrative
|
|
|
1,901 |
|
|
|
1,919 |
|
|
|
2,137 |
|
|
|
1,944 |
|
|
|
1,732 |
|
|
Total operating expenses
|
|
|
5,082 |
|
|
|
5,337 |
|
|
|
6,224 |
|
|
|
6,593 |
|
|
|
5,477 |
|
|
Operating income (loss)
|
|
|
1,455 |
|
|
|
(736 |
) |
|
|
(906 |
) |
|
|
(988 |
) |
|
|
1,929 |
|
|
Financial income (expenses)
|
|
|
(1,254 |
) |
|
|
(1,907 |
) |
|
|
(1,149 |
) |
|
|
(531 |
) |
|
|
(1,184 |
) |
|
Income (loss)
|
|
|
201 |
|
|
|
(2,643 |
) |
|
|
(2,055 |
) |
|
|
(1,519 |
) |
|
|
745 |
|
|
Net (income) loss attributable to non-controlling interest
|
|
|
7 |
|
|
|
8 |
|
|
|
4 |
|
|
|
(7 |
) |
|
|
(11 |
) |
|
Net income (loss) attributable to RADA Electronic Industries Ltd.’s shareholders
|
|
$ |
208 |
|
|
$ |
(2,635 |
) |
|
$ |
(2,051 |
) |
|
$ |
(1,526 |
) |
|
$ |
734 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net income (loss) per ordinary share attributable for RADA Electronic Industries Ltd.’s shareholders
|
|
|
0.02 |
|
|
|
(0.30 |
) |
|
|
(0.23 |
) |
|
|
(0.17 |
) |
|
|
0.08 |
|
|
Weighted average number of shares used to compute basic and diluted net income (loss) per share
|
|
|
8,945 |
|
|
|
8,919 |
|
|
|
8,919 |
|
|
|
8,899 |
|
|
|
8,869 |
|
| |
|
As of December 31,
|
|
| |
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
| |
|
(U.S. dollars in thousands)
|
|
|
Summary Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital (deficiency)
|
|
$ |
35 |
|
|
$ |
(152 |
) |
|
$ |
1,977 |
|
|
$ |
2,954 |
|
|
$ |
7,594 |
|
|
Total assets
|
|
|
20,097 |
|
|
|
22,007 |
|
|
|
22,886 |
|
|
|
24,190 |
|
|
|
27,098 |
|
|
Short-term credits and current maturities of long-term loans
|
|
|
6,709 |
|
|
|
7,194 |
|
|
|
7,140 |
|
|
|
6,338 |
|
|
|
4,274 |
|
|
Convertible note – short-term
|
|
|
3,000 |
|
|
|
3,000 |
|
|
|
3,000 |
|
|
|
2,810 |
|
|
|
- |
|
|
Long-term shareholders loans, net of current maturities
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
176 |
|
|
|
881 |
|
|
Convertible note - long term
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,598 |
|
|
Shareholders’ equity
|
|
|
3,547 |
|
|
|
3,350 |
|
|
|
5,906 |
|
|
|
7,224 |
|
|
|
8,583 |
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our financial statements incorporated by reference in this prospectus. The following discussion and analysis contain forward-looking statements that involve risks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” and elsewhere in this prospectus.
Overview
We develop, manufacture and sell defense electronics including military avionics systems for manned and unmanned aircraft, inertial navigation systems for air and land platforms, and tactical land radars for force and border protection applications. We sell and support our commercial aviation electronic products and services, mainly through our 80% -owned Chinese subsidiary.
General
Our consolidated financial statements are prepared in dollars and in accordance with U.S. GAAP. Transactions and balances originally denominated in dollars are presented at their original amounts. Transactions and balances in other currencies are re-measured into dollars in accordance with the principles set forth in the Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC 830. The majority of our sales are made outside of Israel and a substantial part of them are in dollars. In addition, a substantial portion of our costs are incurred in dollars. Since the dollar is the primary currency of the economic environment in which we operate, the dollar is our functional and reporting currency and, accordingly, monetary accounts maintained in currencies other than the dollar are re-measured using the foreign exchange rate at the balance sheet date. Operational accounts and non-monetary balance sheet accounts are measured and recorded at the exchange rate in effect at the date of the transaction. All monetary balance sheet accounts have been re-measured using the exchange rates in effect at the balance sheet date. Statement of operations amounts have been re-measured using the average exchange rate for the period. The financial statements of our foreign subsidiary, whose functional currency is not the dollar, have been translated into dollars. All balance sheet amounts have been translated using the exchange rates in effect at balance sheet date. Statement of operation amounts have been translated using the average exchange rate prevailing during the year. Such translation adjustments are reported as a component of accumulated other comprehensive income (loss) in shareholders’ equity.
Critical Accounting Policies and Estimations
Our critical accounting policies, including the assumptions and judgments underlying them, are disclosed in the notes to our consolidated financial statements. These policies have been consistently applied in all material respects. While the estimates and judgments associated with the application of these policies may be affected by different assumptions or conditions, we believe the estimates and judgments associated with the reported amounts are appropriate under the circumstances. We believe the following accounting policies are the most critical in fully understanding and evaluating our financial condition and results of our operations under U.S. GAAP.
Revenue Recognition. Our revenues are mainly derived from sales of defense electronics (solid-state recorders, computers, inertial navigation systems, etc.) and their supporting ground systems (automated testers, data debriefing stations). Product revenue is recognized when there is persuasive evidence of an arrangement, the fee is fixed or determinable, delivery of the product to the customer has occurred and the collection of the fee is probable. If the product requires specific customer acceptance, revenue is deferred until customer acceptance occurs or the acceptance provisions lapse, unless we can objectively and reliably demonstrate that the criteria specified in the acceptance provisions are satisfied.
Revenues from long-term fixed price contracts are recognized by the percentage-of-completion method in accordance with the “input method.” We apply this method when the total of the costs and revenues of the contract can reasonably be estimated. The percentage of completion is determined based on the ratio of actual costs incurred to total costs estimated to be incurred over the duration of the contract. With regard to contracts for which a loss is anticipated, a provision is made for the entire amount of the estimated loss at the time such loss becomes evident. Estimated gross profit or loss from long-term contracts may change due to changes in estimates resulting from differences between actual performance and original forecasts. Such changes in estimated gross profit or loss are recorded in results of operations when they are reasonably determined by management, on a cumulative catch-up basis. Revenues under long-term fixed-price contracts that involve both development and production are recorded using the cost-to-cost method (development phase) and units-of-delivery method (production phase) as applicable to each phase of the contract, as the basis to measure progress toward completion.
We also generate revenues from repair services using our automated test equipment, mainly through CACS. Revenues from services are recognized when the service is performed.
Impairment of Long-Lived Assets. We are required to assess the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. We assess the impairment of our assets based on a number of factors, including any significant changes in the manner of our use of the respective assets or the strategy of our overall business and significant negative industry or economic trends. Upon determination that the carrying value of a long-lived asset may not be recoverable, based upon a comparison of expected undiscounted future cash flows to the carrying amount of the asset, an impairment charge is recorded in the amount of the carrying value of the asset exceeds its fair value. As of December 31, 2014 and 2013, no impairment losses have been identified.
Impairment of Goodwill. We are required to assess the impairment of goodwill at least annually (or more frequently if impairment indicators arise). FASB ASC 350 “Intangibles-Goodwill and other” prescribes a two-phase process for impairment testing of goodwill. The first phase screens for impairment while the second phase (if necessary) measures it. In the first phase of impairment testing, goodwill attributable to each reporting unit is tested for impairment by comparing the fair value of each reporting unit with its carrying value. We have only one reporting unit and we determine its fair value according to our market capitalization. The goodwill was tested for impairment by comparing the fair market value with its carrying amount and as of December 31, 2014 and 2013 (our annual assessment date), no impairment indicators have been identified.
Accounting for income taxes. On January 1, 2007, we adopted FASB ASC 740-10 “Income Taxes,” which contains a two-step approach to recognizing and measuring uncertain tax positions accounted for in accordance with ASC 740-10. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement ASC 740-10. We provided a valuation allowance in respect to the deferred tax assets resulting from operating loss carryforwards and other temporary differences. Our management currently believes that since our company has a history of losses, it is more likely than not that the deferred tax regarding the loss carryforwards and other temporary differences will not be realized in the foreseeable future.
Derivatives and hedging. We are required to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income as stipulated in FASB ASC 815 “Derivatives and Hedging,” or ASC 815. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative’s change in fair value is immediately recognized in earnings. We use derivatives to hedge certain cash flow foreign currency exposures in order to further reduce our exposure to foreign currency risks.
In 2014, 2013 and 2012, we entered into forward contracts in order to hedge certain expense transactions denominated in NIS. Our forward contracts did not qualify as hedging instruments under ASC 815. Changes in the fair value of forward contracts are reflected in the consolidated statements of operations as financial income or expense and not against other comprehensive income. As of December 31, 2014, the fair value of the outstanding forward contracts was $216,000, which was recorded in other payables against financial expense and as of December 31, 2013, the fair value of the outstanding forward contracts was $46,000, which was recorded in other receivables against financial income.
Inventory valuation. The majority of our inventory consists of work in progress, raw materials and components. Inventories are valued at the lower of cost or market. Cost of finished goods is determined on the basis of direct manufacturing costs plus allocable indirect costs representing allocable operating overhead expenses and manufacturing costs. Raw material is valued using the “FIFO” method. We assess the valuation of our inventory on a quarterly basis and periodically write down the value for different finished goods and raw material items based on their potential utilization. If we consider specific inventory to be damaged, we write such inventory down to zero. Inventory write-offs are provided to cover risks arising from slow-moving items, discontinued products, and excess inventories. The process for evaluating these write-offs often requires us to make subjective judgments and estimates concerning the future utilization of the inventory items. Inventory write-offs were $138,000, $313,000 and $72,000 as of December 31, 2014, 2013 and 2012, respectively.
Allowance for doubtful accounts. Our trade receivables are derived from sales to customers all over the world. We perform ongoing credit evaluations of our customers. In certain circumstances, we may require letters of credit or prepayments. We maintain an allowance for doubtful accounts for estimated losses from the inability of our customers to make required payments that we have determined to be doubtful of collection. We determine the adequacy of this allowance by regularly reviewing our accounts receivable and evaluating individual customers’ receivables, considering customers’ financial condition, credit history and other current economic conditions. If a customer’s financial condition were to deteriorate which might impact its ability to make payment, then additional allowances may be required. Provisions for doubtful accounts are recorded in general and administrative expenses. Our allowance for doubtful accounts was $24,000, $36,000 and $15,000 as of December 31, 2014, 2013 and 2012, respectively.
Explanation of Key Income Statement Items
Revenues. Our revenues are mainly derived from sales of defense electronics (solid-state recorders, computers, inertial navigation systems, etc.) and their supporting ground systems (automated testers, data debriefing stations).
Cost of Revenues. Cost of revenues consists primarily of salaries, raw materials, subcontractor expenses, related depreciation costs, inventories write-downs and overhead allocated to cost of revenues activities.
Marketing and Selling Expenses. Marketing and selling expenses consist primarily of salaries for marketing and business development personnel, marketing activities, distributors’ fees, public relations, promotional materials, travel expenses and trade show exhibit expenses.
General and Administrative Expenses. General and administrative expenses consist primarily of salaries and related expenses for executive, accounting, legal, administrative personnel, professional fees, provisions for doubtful accounts and other general corporate expenses.
Research and Development Expenses, Net. Research and development expenses consist primarily of salaries for research and development personnel, use of subcontractors and other costs incurred in the process of developing product prototypes.
Financial Expenses, Net. Financial expenses consist of interest and bank expenses, interest on convertible note and loans, amortization expenses of discount on convertible note, deferred charges and currency re-measurement losses. Financial income consists of interest on cash and cash equivalent balances and currency re-measurement gains.
Results of Operations
The following table presents certain financial data expressed as a percentage of total revenues for the periods indicated:
| |
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
Cost of revenues
|
|
|
70.9 |
% |
|
|
78.9 |
% |
|
|
75.3 |
% |
|
Gross profit
|
|
|
29.1 |
% |
|
|
21.1 |
% |
|
|
24.7 |
% |
|
Research and development, net
|
|
|
3.5 |
% |
|
|
6.7 |
% |
|
|
11.2 |
% |
|
Marketing and selling
|
|
|
10.6 |
% |
|
|
9.0 |
% |
|
|
7.7 |
% |
|
General and administrative
|
|
|
8.5 |
% |
|
|
8.8 |
% |
|
|
9.9 |
% |
|
Operating income (loss)
|
|
|
6.5 |
% |
|
|
(3.4 |
)% |
|
|
(4.2 |
)% |
|
Financial expenses, net
|
|
|
(5.6 |
)% |
|
|
(8.8 |
)% |
|
|
(5.3 |
)% |
|
Net income (loss)
|
|
|
0.9 |
% |
|
|
(12.2 |
)% |
|
|
(9.5 |
)% |
|
Net Loss attributable to non-controlling interest
|
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
Net income (loss) attributable to RADA shareholders
|
|
|
0.9 |
% |
|
|
(12.2 |
)% |
|
|
(9.5 |
)% |
Year Ended December 31, 2014 Compared with Year Ended December 31, 2013
Revenues. Our revenues increased by 3% to $22.5 million in 2014 from $21.8 million in 2013.
Cost of Revenues. Cost of revenues decreased by 7% to $15.9 million in 2014 from $17.2 million in 2013. The decrease in our cost of revenues is attributable to the significant reduction of low margin programs in 2014 compared to 2013.
Gross Profit. Our gross profit increased by 42% to $6.5 million in 2014 from $4.6 million in 2013. Our profit margin was approximately 29% in 2014 and 21% in 2013. The increase in gross profit in 2014 was mainly attributable to the decrease in the cost of revenues.
Research and Development Expenses, Net. Our research and development expenses, net decreased by 46% to approximately $0.8 million in 2014 from $1.5 million in 2013 (net of $15,000 in grants received from the OCS). Our research and development expenses decreased as the result of the maturation of our radar products. We expect that our research and development expenses in 2015 will remain similar to those we incurred in 2014, and we will sustain a base level of development for our existing products, as well as developing new applications for our products.
Marketing and Selling Expenses. Marketing and selling expenses increased by 22% to approximately $2.4 million in 2014 from $2 million in 2013. This increase is primarily due to our increased efforts to sell our new radar products, mainly reflected in the costs incurred as part of our participation in field demonstrations requested by our potential customers.
General and Administrative Expenses. General and administrative expenses decreased by 1% to approximately $1.9 million in 2014 from $1.92 million in 2013. We expect that in 2015 our general and administrative expenses will remain similar to those we incurred in 2014.
Financial Expenses, Net. Our financial expenses, net decreased by 34% to $1.25 million in 2014 compared to $1.9 million in 2013. Our interest expense, net was $708,000 in 2014 compared to $729,000 in 2013. Our expense resulting from the amortization of the discount on a convertible note and loans from shareholders was $43,000 in 2014 compared to $489,000 in 2013. Foreign currency exchange differences, net resulted in loss of $63,000 in 2014 compared to loss of $120,000 in 2013, primarily due to changes in the NIS/dollar exchange rate. We expect that in 2015 our financial expenses will remain similar to those we incurred in 2014.
Year Ended December 31, 2013 Compared with Year Ended December 31, 2012
Revenues. Our revenues increased by 1% to $21.8 million in 2013 from $21.6 million in 2012.
Cost of Revenues. Cost of revenues increased by 6% to $17.2 million in 2013 from $16.2 million in 2013. The increase was primarily due to the erosion of the dollar against the NIS.
Gross Profit. Our gross profit decreased by 13% to $4.6 million in 2013 from $5.3 million in 2012. Our profit margin was approximately 21% in 2013 and 25% in 2012. The decrease in gross profit in 2013 was mainly attributable to the increase in the cost of revenues.
Research and Development Expenses, Net. Our research and development expenses, net decreased by 40% to approximately $1.5 million in 2013 (net of $15,000 of grants received from the OCS) from $2.4 million in 2012 (net of $142,000 in grants received from the OCS).
Marketing and Selling Expenses. Marketing and selling expenses increased by 18% to approximately $2 million in 2013 from $1.7 million in 2012. This increase was primarily due to an increase in commissions and the costs associated with the engagement of a U.S. market consultant.
General and Administrative Expenses. General and administrative expenses decreased by 10% to approximately $1.9 million in 2013 from $2.2 million in 2012.
Financial Expenses, Net. Our financial expenses, net increased by 66% to $1.9 million in 2013 compared to $1 million in 2012. Our interest expense, net was $729,000 in 2013 compared to $376,000 in 2012. Our expense resulting from the amortization of the discount on a convertible note and loans from shareholders was $489,000 in 2013 compared to $516,000 in 2012. Foreign currency exchange differences, net resulted in a loss of $120,000 in 2013 compared to income of $106,000 in 2012, primarily due to changes in the NIS/dollar exchange rate.
Off-Balance Sheet Arrangements
We are not a party to any material off-balance sheet arrangements. In addition, we have no unconsolidated special purpose financing or partnership entities that are likely to create material contingent obligations.
Liquidity and Capital Resources
We have historically met our financial requirements primarily through cash generated by operations, funds generated by our public offering in 1985, private placements of our ordinary shares and debt securities, loans from our principal shareholders, short-term loans and credit facilities from banks (most recently Bank Leumi Le-Israel B.M. and the Israeli branch of State Bank of India, or the Banks), research and development grants from the government of Israel and the Israel-U.S. Binational Industrial Research and Development Foundation, investment grants for approved enterprise programs and marketing grants from the government of Israel.
As of December 31, 2014, we owed $0.9 million under a bank annual line of credit and $0.69 million of secured borrowing with a bank against specific accounts receivable. In addition, the Banks provided $0.5 million of guarantees on our behalf, mainly to our customers and suppliers in the ordinary course of business. The guarantees are secured by a first priority floating charge on all of our assets and by a fixed charge on our property in Beit She’an, goodwill (intangible assets), unpaid share capital and insurance rights (rights to proceeds on insured assets in the event of loss). Our agreements with the Banks prohibit us from: (i) selling or otherwise transferring any assets except in the ordinary course of business; (ii) placing a lien on our assets without the Banks’ consent; or (iii) declaring dividends to our shareholders.
We had working capital as of December 31, 2014 of $0.035 million compared with a working capital deficit of $0.15 million at December 31, 2013. Cash and cash equivalents amounted to $1.8 million (of which approximately $1 million was held by our Chinese subsidiary) as of December 31, 2014 compared to $2.1 million as of December 31, 2013. The cash held by our Chinese subsidiary has been accumulated from its operations and we have not sought to repatriate such funds. Restricted short-term and long-term bank deposits amounted to $0.68 million as of December 31, 2014 compared to $1.0 million as of December 31, 2013. As a result of our net loss in the first quarter of 2015, we had a working capital deficit of approximately $855,000 at March 31, 2015.
In July 2008, we borrowed $1.5 million from Faith Content Development Limited, or FCD, a company controlled by Mr. Yeung, our controlling shareholder, in order to facilitate further development of our INS technology. This loan carried interest at LIBOR + 3% payable at the beginning of every quarter. On September 2, 2012, FCD agreed to postpone the repayment of $1.5 million of the principal that was due to be repaid, so that 50% of such amount would be paid on December 10, 2012 and the remaining 50% would be payable on February 10, 2013. In August 2013, FCD agreed to reissue $350,000 of the loan that had been previously repaid by our company in March 2013 and to facilitate an additional short-term loan in the amount of up to $1,000,000 to be repaid by December 31, 2013, or the Credit Facility. The Credit Facility provided for interest at 3.5% per annum above the three-month LIBOR rate. In September 2013, we borrowed $850,000 under the Credit Facility and the total amount of the loan increased to $1,200,000. As of December 31, 2014, we repaid the amount due under the Credit Facility but not the remaining balance of the original INS loan ($1,150,000). According to the first amendment to the Standstill Agreement, as described below, we began to incur default interest payments at the rate of 4% above the original interest rate on such loan effective February 1, 2013.
In October 2010, a $3 million convertible note originally issued to Mr. Yeung in December 2007 (subsequently assigned by him to FCD) was extended to October 2012. In addition, the expiration date of a warrant to purchase up to an aggregate of 1,578,947 ordinary shares granted to Mr. Yeung at such time was extended to October 2014. Such warrant has expired. The convertible note bears interest at a rate of six-month LIBOR + 3.5% and is convertible into ordinary shares at a conversion price of $2.09 per share. The note is secured by a second degree floating charge over all of our assets. From February 1, 2013, the loan bears a default increased interest rate of six-month LIBOR + 7.5%. According to the first amendment to the Standstill Agreement, as described below, we began to incur default interest payments at the rate of 4% above the original interest rate on such loan effective February 1, 2013.
In September 2011, we entered into a revolving loan agreement with FCD. The loan was in the principal amount of $1.7 million, bearing interest of three-month LIBOR + 2.5% per annum. The principal and all the unpaid and accrued interest was paid on February 29, 2012 with the proceeds from a new loan from FCD and Mr. Ben Zion Gruber, a shareholder and member of our Board of Directors. The loan was approved by our Audit Committee and Board of Directors, and the transaction was also approved by our shareholders at an extraordinary meeting of shareholders held in January 2012. FCD provided $2.7 million and Mr. Ben Zion Gruber provided $300,000. We used $1.7 million of the loan to repay in full all of the amounts due and payable under the September 2011 loan, as described above. The remaining portion of the loan was added to our working capital. The loan bore interest at the rate of the greater of three-months LIBOR + 5% per annum, or 7% per annum. Interest is payable quarterly in arrears and the principal was due on January 31, 2014. In addition, on February 28, 2012, we issued to FCD and to Mr. Ben Zion Gruber warrants to purchase 1,080,000 and 120,000 ordinary shares, respectively, at an exercise price of $2.50 per share. These warrants had a term of three years. The second degree floating charge that was granted with respect to the convertible note of 2007 secures this loan as well. As of December 31, 2014, the outstanding balance of this loan was $2.97 million.
In April 2014, we borrowed $1.0 million from FCD for working capital. This loan carried interest at three-month LIBOR + 3.5% payable at the beginning of every quarter, and the principal was due on January 31, 2015.
Due to our cash flow and working capital difficulties, we were not able to timely and fully make the repayment of interest and principal amounts to our lenders. As a result we were required to pay the default interest on account of all such loans and all such loans may be accelerated by our lenders.
However, we entered into a Standstill Agreement with our lenders, effective as of February 1, 2013, according to which, except in extraordinary circumstances, no action was to be taken to accelerate the loans or to exercise their rights prior to January 31, 2014. In April 2014, the Standstill Agreement was amended and the forbearance period pursuant to such agreement was extended until January 31, 2015.
On April 27, 2015, following the approval by our shareholders, the Standstill Agreement was further amended and the termination of the forbearance period was extended to the earlier of (i) August 31, 2016 or (ii) 30 days after the closing of a potential offering, resulting in the repayment of at least $7.5 million on account of the debt owed to our lenders. Pursuant to the April 27, 2015 amendment of the Standstill Agreement, as of and after February 1, 2015, the default interest on all outstanding principal amounts is six-month LIBOR+ 9%. On June 1, 2015 we entered into a further amendment to the Standstill Agreement that provides clarification that in the event that this offering results in the repayment of a minimum amount of $7.5 million of the outstanding debt, the forbearance for such remaining debt will be extended to August 31, 2016. A copy of the April 27, 2015 amendment to the Standstill Agreement as well as the amendment dated June 1, 2015 are filed as exhibits to the registration statement of which this prospectus is a part.
We made capital expenditures of $328,000 in the year ended December 31, 2014, primarily for machinery and equipment. We currently do not have any significant capital spending or purchase commitments.
Contractual Obligations
The following table summarizes our minimum contractual obligations and commercial commitments, as of December 31, 2014 and the effect we expect them to have on our liquidity and cash flow in future periods.
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt obligations
|
|
$ |
8,120,000 |
|
|
$ |
8,120,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Operating lease obligations
|
|
|
1,591,000 |
|
|
|
576,000 |
|
|
|
1,015,000 |
|
|
|
- |
|
|
|
- |
|
|
Total
|
|
$ |
9,711,000 |
|
|
$ |
8,696,000 |
|
|
$ |
1,015,000 |
|
|
|
- |
|
|
|
- |
|
In addition, we have long-term liabilities for severance pay for certain employees that are calculated pursuant to Israeli law generally based on the most recent salary of the employees multiplied by the number of years of employment, as of the balance sheet date. Under Israeli law, employees are entitled to one month’s salary for each year of employment or a portion thereof upon termination of employment in certain circumstances, including the retirement or death of an employee or the termination of employment of an employee without due cause. As of December 31, 2014 our severance pay liability was $634,000.
Foreign Currency Exchange Risk
The depreciation of the NIS against the dollar has the effect of reducing the dollar amount of any of our expenses or liabilities which are payable in NIS (unless such expenses or payables are linked to the dollar). As of December 31, 2014, we had liabilities payable in NIS which are not linked to the dollar in the amount of $3.8 million and cash and receivables in the amount of $1.6 million denominated in NIS. Accordingly, 1% appreciation of the NIS against the dollar would increase our financing expenses by approximately $54,000. A 1% depreciation of the NIS against the dollar would decrease our financing expenses by the same amount. Neither a 10% increase nor decrease in current exchange rates would have a material effect on our consolidated financial statements. However, the amount of liabilities payable and/or cash and receivables in NIS is likely to change from time to time.
Because exchange rates between the NIS and the dollar fluctuate continuously, exchange rate fluctuations and especially larger periodic devaluations will have an impact on our profitability and period-to-period comparisons of our results. The effects of foreign currency re-measurements are reported in our consolidated financial statements in continuing operations.
Impact of Currency Fluctuation and of Inflation
A significant portion of the cost of our Israeli operations, primarily personnel and facility-related, is incurred in NIS. Therefore, our NIS related costs, as expressed in dollars, are influenced by the exchange rate between the dollar and the NIS. In addition, if the rate of inflation in Israel will exceed the rate of devaluation of the NIS in relation to the dollar, or if the timing of such devaluations were to lag considerably behind inflation, our cost as expressed in dollars may increase. NIS linked balance sheet items, may also create foreign exchange gains or losses, depending upon the relative dollar values of the NIS at the beginning and end of the reporting period, affecting our net income and earnings per share. Although we may use hedging techniques, we may not be able to eliminate the effects of currency fluctuations. Therefore, exchange rate fluctuations could have a material adverse impact on our operating results and share price. The caption “Financial expenses, net” in our consolidated financial statements includes the impact of these factors as well as traditional interest income or expense.
The following table sets forth, for the periods indicated, (i) depreciation or appreciation of the NIS against the most important currency for our business, the dollar, until December 31 each year and the year before, and (ii) inflation as reflected in changes in the Israeli consumer price index.
| |
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NIS vs. U.S. Dollar
|
|
|
12 |
% |
|
|
(7.0 |
)% |
|
|
(2.3 |
)% |
|
|
7.7 |
% |
|
|
(6.0 |
)% |
|
Israeli Consumer Price Index
|
|
|
(0.2 |
)% |
|
|
1.8 |
% |
|
|
1.6 |
% |
|
|
2.2 |
% |
|
|
2.7 |
% |
Because exchange rates between the NIS and the dollar fluctuate continuously, exchange rate fluctuations, particularly larger periodic devaluations, may have an impact on our profitability and period-to-period comparisons of our results. We cannot assure you that in the future our results of operations may not be materially adversely affected by currency fluctuations.
Cash Flows
The following table summarizes our cash flows for the periods presented:
| |
|
|
|
| |
|
|
|
|
|
|
|
|
|
| |
|
(U.S. dollars in thousands)
|
|
|
Net cash provided by (used in) operating activities
|
|
|
122 |
|
|
|
1,432 |
|
|
|
(752 |
) |
|
Net cash provided by (used in) investing activities
|
|
|
66 |
|
|
|
(85 |
) |
|
|
(219 |
) |
|
Net cash provided by (used in) financing activities
|
|
|
(528 |
) |
|
|
(435 |
) |
|
|
1,008 |
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(11 |
) |
|
|
61 |
|
|
|
20 |
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(351 |
) |
|
|
973 |
|
|
|
57 |
|
|
Cash and cash equivalents at beginning of the year
|
|
|
2,137 |
|
|
|
1,164 |
|
|
|
1,107 |
|
|
Cash and cash equivalents at end of the year
|
|
|
1,786 |
|
|
|
2,137 |
|
|
|
1,164 |
|
Net cash provided by operating activities was $122,000 in 2014. This was primarily due to a decrease in trade receivables of $1,435,000, depreciation and amortization of $690,000 and a decrease in inventories of $111,000. This was offset by an increase in costs and estimated earnings in excess of billings, net of $599,000, decrease in trade payables of $1,594,000 and a decrease in other payables of $163,000. Net cash provided by operating activities was $1,432,000 in 2013. This was primarily due to a decrease in trade receivables of $491,000, depreciation and amortization of $752,000, amortization expense on a convertible note and loans of $489,000. a decrease in other receivables of $484,000, a decrease in inventories of $449,000, an increase in trade payables of $981,000 and an increase in other payables of $600,000. This was offset by an increase in costs and estimated earnings in excess of billings, net of $236,000. Net cash used in operating activities was $752,000 in 2012. This was primarily due to a decrease in trade receivables of $1.5 million, depreciation and amortization of $897,000, a decrease in inventories of $325,000 and amortization expense on a convertible note and loans of $516,000. This was offset by an increase in other receivables of $337,000, an increase of costs and estimated earnings in excess of billings, net of $943,000, a decrease in trade payables of $463,000 and a decrease in other payables of $392,000.
Net cash provided by investing activities was approximately $66,000 in 2014, primarily due to a change in restricted deposits of $392,000 and offset by an investment of $328,000 in property, plant and equipment. Net cash used in investing activities was approximately $85,000 in 2013, primarily due to a change in restricted deposits of $282,000 offset by an investment of $370,000 in property, plant and equipment. Net cash used in investing activities was approximately $219,000 in 2012, primarily due to a change in restricted deposits of $472,000 and our investment of $688,000 in property, plant and equipment.
Net cash used in financing activities was $528,000 in 2014, reflecting net repayment of $230,000 from a shareholder loans transaction and a decrease in short-term bank credit of $298,000. Net cash used in financing activities was $435,000 in 2013, reflecting net proceeds of $850,000 from a shareholder loans transaction and a decrease in short-term bank credit of $1,285,000. Net cash provided by financing activities was $1,008,000 in 2012, reflecting net proceeds of $1,769,000 from a shareholder loans transaction and a decrease in short-term bank credit of $761,000.
As a result of the foregoing, at December 31, 2014, we had working capital of $35,000 and cash and cash equivalents of $1,786,000 (of which approximately $1 million was held by our Chinese subsidiary) as compared to a working capital deficit of $152,000 and cash and cash equivalents of $2,137,000 at December 31, 2013.
We expect to fund our short-term liquidity needs, including our obligations under our credit facilities, other contractual agreements and any other working capital requirements, from our cash and cash equivalents, operating cash flow and our credit facilities. We believe that our current cash and cash equivalents, credit facilities and our expected cash flow from operations will be sufficient to meet our cash requirements in 2015.
Our Company
We develop, manufacture and sell defense electronics, including avionics solutions (including avionics for unmanned aerial vehicles), airborne data/video recording and management systems, inertial navigation systems and tactical land radars for defense forces and border protection systems. In addition, we continue to sell and support our legacy commercial aviation products and services, mainly through our Chinese subsidiary.
We primarily provide integrated solutions. Our aim is to provide not only state-of-the-art products, but to also provide comprehensive end-to-end solutions for one or more systems. Our current product lines include:
|
|
·
|
Military avionics (data/video recorders, core avionics for aircraft and UAVs) which accounted for approximately 89% of our sales in 2014;
|
|
|
·
|
INS for aerial and land platforms; and
|
|
|
·
|
Tactical radars for defense forces and land based border protection systems.
|
We have been a developer and manufacturer of core avionics systems for over 30 years and have developed, fielded and supported a wide range of solid-state digital recorders, cameras and debriefing systems for aerospace and military applications, including flight data recorders for fighter aircraft, digital video/audio/data recorders, high-rate (no compression) data recorders for aircraft and airborne pods, video recorders and airborne data servers, a wide range of head-up-displays color video cameras for fighter aircraft and a variety of ground debriefing solutions.
We currently offer a wide spectrum of military avionics systems designed for integration in new and upgraded military aircraft and UAVs worldwide. Our avionics solutions range from fully integrated avionics suites, MOTS, core avionics subsystems, to tailor-made “built-to-spec” units, backed by our teams of experts dedicated to providing global technical and maintenance support. Our avionic products are utilized by leading air forces and prime integrators worldwide, such as the IAF, Lockheed Martin, Boeing, GE Aviation, HAL, Embraer, IAI, Rafael, FACh and many others. Our units are installed onboard F-16, F-15, A-4, Jaguar, MiG-27, Su-30MKI, Dhruv Helicopter, MiG-29, Super-Tucano and other aircraft, and onboard a number of UAVs.
Leveraging our long-standing scientific research and algorithmic expertise, utilizing state-of-the-art fiber optic gyro and micro-electro mechanical system sensors, and taking advantage of our experience in electronic and mechanical design, we independently developed a line of advanced, yet affordable, inertial navigation systems, or INS. Our INS products are adaptable to the performance and interface requirements of multiple combat platforms and weapon systems. Among our customers for inertial navigation solutions are leading air forces and prime integrators worldwide, including the IAF, IAI, Rafael, Embraer, Indra, and India’s DRDO.
We also independently developed advanced ground radars for tactical applications such as defense forces protection and border protection. Our pulse Doppler, software-defined radars are solid-state, fully digital, incorporate active electronically scanned array antenna, or AESA, are compact, mobile and highly reliable, provide hemispheric spatial coverage and multi-mission capabilities, and demonstrate unprecedented performance-to-price ratio. Among our customers who have purchased our ground radars for research and testing purposes are prime integrators and air forces, including Boeing, Lockheed Martin, DRS, the ONR, (all of which have purchased radar systems for research and experimental purposes only) and a leading ministry of defense for its national alert system.
In addition, we continue to support our legacy commercial aviation test stations. We also provide test and repair services through our China-based subsidiary.
Industry Background
The defense electronics market has grown in recent years and currently accounts for a large part of the defense business. We believe that the defense electronics market reflects two contradictory trends, the increased use of defense electronics, which has been offset by the significant reduction in the price of electronic systems, resulting in a reduction in the dollar value of the market. These two trends have kept the annual total global defense electronics market size an almost a constant level during the recent years. With our new inertial navigation systems and tactical radar products, the size of the markets which we address has expanded. According to a report issued in June 2014 by the market research company Yole Développement titled “High-End Gyroscopes, Accelerometers and IMUs for Defense Aerospace and Industrial” the estimated market for INS was approximately $2 billion in 2014 and that the market was expected to grow by a 4.5% compounded annual growth rate, or CAGR, through 2019. Similarly, in an article published in the Microwave Journal in December 2014, the program director of Strategy Analytics reported that the global military radar market would grow at a CAGR of 3.6% from 2013 to 2023 with a total market worth of over $18.5 billion in 2023. Today, new military vehicles of all kinds are equipped with significantly more electronic systems than they used to carry in the past. The increasing usage of advanced electronics in modern vehicles, including upgrades of existing technology and the growing use of unmanned vehicles of all kinds, have provided significant growth in the number of units sold in the market.
Today’s advanced defense electronics systems typically incorporate components that are derived from the industrial or the consumer electronics markets, especially from the telecom markets. Most of the defense electronics systems are built with commercial components and sub-systems, which reduce the overall price, and at the same time generate component obsolescence issues. The obsolescence issues arise because commercial suppliers generally do not sell or support components or subsystems for the lengthy periods of time required by purchasers of defense electronic systems. As a result, we may be required to invest additional amounts to source, substitute and integrate components and subsystems and keep them updated.
Purchasers of our defense electronics products are either governments or major defense contractors acting as integrators. Engagement in business relationships with these customers is complex, has long sales cycles and requires long-term commitments for future support of delivered hardware. Production batches of such products are usually small. Suppliers of defense electronic systems with whom we compete are either providers of sub-systems to major integrators or providers of integrated systems to the industry or to armed forces. Our competitors are typically very large companies with substantially greater resources than us and have diversified product offerings.
Our Strengths
We believe that, because of the following competitive strengths, we will be able to enhance our position as a provider of defense electronics:
|
|
●
|
As an industry innovator, we continue to develop and incorporate cutting edge technologies into our products;
|
|
|
●
|
We employ approximately 45 persons in our research and development activities who have hands-on experience and expertise;
|
|
|
●
|
We provide innovative and cost-effective products, often at prices significantly lower than our competitors;
|
|
|
●
|
In our industry. we offer a rare combination of being a small, well established and highly responsive company with a wealth of experience;
|
|
|
●
|
We provide a high level of responsiveness to customer needs; and
|
|
|
●
|
We have an experienced management team with almost 200 years of industry and military experience and an average tenure with our company of 17 years.
|
Our Strategy
Our business development strategy is based on the following principles:
|
|
·
|
Maintaining our business focus on electronic systems for the military and para-military markets;
|
|
|
·
|
Expanding our product offerings by adding new applications to our existing product lines and by adapting our products to land systems;
|
|
|
·
|
Expanding our customer base by including our products in solutions and integrated systems for airborne and land vehicles;
|
|
|
·
|
Establishing sales channels with system integrators and major manufacturers such as Embraer, HAL, Lockheed Martin, Boeing, IMI, IAI, Rafael, DRS and others;
|
|
|
·
|
Expanding our products base through identification of current and future applications that may become affordable by the incorporation of advanced commercial off-the-shelf technologies that offer superior performance and/or significant price savings; and
|
|
|
·
|
Developing new marketing channels aimed directly at large potential markets, especially land-based defense systems and homeland security segments.
|
Our Products
Military Avionics
We are a leader in the field of mission data recording, management, and post-mission analysis and debriefing. Over the past 25 years we have developed, fielded and supported a wide range of solid-state digital recorders, cameras and debriefing systems for aerospace and military applications, including:
|
|
·
|
Flight data recorders, or FDR, for fighter aircraft;
|
|
|
·
|
Digital video/audio/data recorders, or DVDR (with data transfer functions);
|
|
|
·
|
High-rate (no compression) data recorders, or HRDR, for aircraft and airborne pods;
|
|
|
·
|
Video recorders and airborne data servers, or VRDS, the latest approach to avionic data management;
|
|
|
·
|
A wide range of head-up-displays color video cameras, or HCVC, for fighter aircraft; and
|
|
|
·
|
A variety of ground debriefing solutions, or GDS.
|
During the year ended December 31, 2014, military avionics sales accounted for approximately 89% of our revenues.
Featuring state-of-the-art technologies, our digital recorders are designed for military applications. Our high-performance recorders provide simultaneous, high-capacity video (both analog and digital/HD), audio and data recording, high throughput and mass storage handling capabilities, supporting rapid dissemination and real time playback. Our video recorders implement MPEG-2 and/or MPEG-4 (H.264) compression formats, supporting up to 128GB of solid state memory, facilitating continuous recording over extended mission durations.
Our GDS feature synchronized video, audio, data, and air combat maneuvering debriefing. GDS vary from personal, laptop-size debriefing units, through robust desktop multi-channel systems supporting the mission debriefing of four-aircraft formations up to large-scale simultaneous debriefing systems. These network-based systems support large numbers of participants operating from different locations, and provide advanced data management features.
We currently offer a wide spectrum of military avionics systems designed for integration in new and upgraded military aircraft and UAVs worldwide. Our avionics solutions range from fully integrated avionics suites, MOTS core avionics subsystems, to tailor-made “built-to-spec” units, backed by our teams of experts dedicated to providing global technical and maintenance support. Our avionics systems are easily adapted to western, eastern, and indigenous-origin platforms of all kinds. We provide our avionic expertise as team members and subcontractors and as prime contractors for avionic upgrades. In particular, our avionics for UAVs are extremely compact through modern board connectivity solutions, use of innovative conductive cooling techniques, withstand extreme environmental conditions and are very reliable and affordable.
We offer the following avionics solutions:
|
|
·
|
Complete integrated avionics upgrade suites for fighters and mission aircraft;
|
|
|
·
|
Mission and display computers;
|
|
|
·
|
Weapon management systems;
|
|
|
·
|
Data interface and processing computers;
|
|
|
·
|
Mission data recorders and debriefing solutions;
|
|
|
·
|
Avionics for UAVs (interface control processors, engine control computers, payload management computers, and others).
|
Our products are qualified and utilized by leading air forces and prime integrators worldwide, such as the IAF, Lockheed Martin, Boeing, GE Aviation, HAL, Embraer, IAI, Rafael, FACh and others. Our units are installed onboard F-16, F-15, A-4, Jaguar, MiG-27, Su-30MKI, Dhruv Helicopter, MiG-29, Super-Tucano and other aircraft, and onboard a continuously-growing number of UAVs.
Inertial Navigation Systems
Leveraging on our in-depth scientific research and algorithmic expertise, utilizing state-of-the-art fiber optic gyro, or FOG, and micro-electro mechanical systems, or MEMS, sensors, and taking advantage of our experience in electronic and mechanical design, we have introduced a line of advanced - yet affordable - inertial navigation systems, or INS. Our INS products are adaptable to the performance and interface requirements of multiple combat platforms and weapon systems. Among our navigation products are:
|
|
·
|
R-100F: FOG-based, navigation-grade Embedded GPS-INS;
|
|
|
·
|
R-200M: Compact, MEMS-based, multiple-sensor aided INS for combat platforms and weapons;
|
|
|
·
|
MAVINS – Modular Avionics and MEMS-based INS: Specially-designed compact integrated solution for UAVs and disposable applications; and
|
|
|
·
|
Inertial measurement units, or IMUs.
|
Our navigation solutions introduce sophisticated and proprietary sensor fusion algorithms and embed modular design principles, leading to minimal integration efforts into larger mission systems. The compact, reliable, and affordable INS are applicable to manned and unmanned platforms, as well as to disposable applications.
Our INS line of products ranges from IMUs through fully-integrated and compact modular avionics and INS/GPS for UAVs, to navigation-grade, high-performance systems. Our navigation products are backed by our global, dedicated, and professional technical and maintenance services. We are continuing with our research and development efforts and intend to design a complete family of applications that will provide solutions for various manufacturers’ needs. At the same time, we are marketing our products to our strategic customers and are working together to define the next versions of this family of solutions.
Among our customers for navigation solutions are leading air forces and prime integrators worldwide, including the IAF, IAI, Rafael, Embraer, Indra, Urban Aeronautics Ltd., Avibras Indústria Aeroespacial and India’s DRDO.
Tactical Radars for Defense Forces and Border Protection Solutions
We develop advanced ground radars for tactical applications such as defense forces protection and border protection. Our pulse Doppler, software-defined radars are solid-state, fully digital, incorporate active electronically scanned array, or AESA, antenna, are compact, mobile and highly reliable, provide hemispheric spatial coverage and multi-mission capabilities, and demonstrate unprecedented performance-to-price ratio.
The asymmetric and irregular conflicts in which modern armies have been engaged in recent years dictate the need for instantaneous and real-time intelligence, minimal cycle time for target acquisition, highly accurate weapons with minimal collateral damage and discrimination between hostiles and civilians. Our tactical radars, which move with maneuvering combat units in the field, provide the real-time knowledge of whether and from where they are threatened, detect all relevant threats from any firing angles (including very high angles), discriminate among threats and provide the needed intelligence for any course of action, whether counter-fire or avoidance. The performance-over-price ratio of our radars makes them ideal solutions to the needs and requirements imposed by the asymmetric arena.
We offer two radar hardware platforms: the CHR, which is tailored for use in combat vehicles and short-range protection applications; and the MHR, which is tailored for use in force and border protection applications. For each radar platform we implement several operational missions by changing the radar operational parameters.
The current operational missions of the CHR platform are the following:
|
|
·
|
The RPS-10 radar sensors for active protection systems, or APS, detect all relevant threats that may be fired at combat vehicles, including RPGs, anti-tank guided missiles (ATGMs) and projectiles and provide 360° hemispheric coverage. The system delivers threat data to the APS, enabling it to neutralize threats.
|
|
|
·
|
The RPS-15 comprehensive hostile fire management system for combat vehicles detects, tracks, classifies and locates direct and elevated threats fired at combat vehicles, allowing the mobile force to successfully complete its mission while operating in a hostile environment.
|
The current operational missions of the MHR platform are the following:
|
|
·
|
The RPS-40 hostile fire detection radar system detects, tracks, classifies and locates direct and elevated threats fired at stationary or mobile forces. It computes the Point-Of-Origin (POO) and Point-Of-Impact (POI) of the threats, which may be rockets, artillery, mortars, ATGMs, RPGs, and additional other threats. The system can be integrated with any protection and Command, Control, Communications, Computers and Intelligence (C4I) system and be installed at stationary bases and posts or onboard fighting vehicles.
|
|
|
·
|
The RPS-42 tactical hemispheric air surveillance radar system can detect, classify and track all types of aerial vehicles, including fighters, helicopters, UAVs, transport aircraft, etc. at tactical ranges. Mobile or stationary, the system can be integrated with any C4I system and other radars and sensors and can operate either as a stand-alone or as part of a large-scale surveillance system.
|
|
|
·
|
The RHS-44 radar system for border protection can detect, identify, and track aerial and surface border intruders including slow and small aircraft, vehicles, vessels, and pedestrians at tactical ranges. The RHS-44 can operate either as a stand-alone or as part of a large-scale surveillance system.
|
Among our customers for radar systems are leading prime integrators and air forces, including Boeing, Lockheed Martin, DRS, the ONR (all of which have purchased radar systems for research and experimental purposes only) and a leading ministry of defense for its national alert system.
Support of Legacy Products
We support our customers that use our commercial aviation test stations by providing ongoing maintenance and repair services through product support agreements.
Business Development, Sales and Marketing
Strategic Relationships and Customers
As part of our business development strategy, we have entered into a number of strategic relationships with leading global defense contractors and several air forces. We have focused our marketing and sales efforts to support these relationships.
Lockheed Martin. Lockheed Martin is the manufacturer of the F-16 aircraft, one of the most popular fighter aircraft in the western world today. We are supplying the DVDR and GDS for new F-16 aircraft production and for F-16 upgrade programs led by Lockheed Martin. In 2015, Lockheed Martin ordered a single radar system for integration in their internally funded high energy laser research and development program.
Israel Military Industries. IMI is a world leader in the field of APS for land platforms and is the developer and manufacturer of the “Iron Fist” APS. We are teamed with IMI on the integration and production of our RPS-10 radars as part of their “Iron Fist” APS solution for local and global customers. In July 2011, the “Iron Fist” APS successfully completed trials conducted by the U.S. Defense Department. In 2013, it was integrated and successfully demonstrated through live fire tests on the NAMER heavy infantry fighting vehicle.
Israel Aerospace Industries. We actively supply avionics and test equipment to four different divisions of IAI, and in particular to the LAHAV and MALAT divisions of IAI, which are major aircraft integrators and utilize our products and services.
Hindustan Aeronautics Ltd. HAL is the major aerospace integrator in India. We are currently cooperating with four divisions of HAL and supply DVDRs, HCVCs, GDS, support equipment and other services in growing numbers.
Embraer S.A. The Military Aircraft Division of Embraer is a strategic customer. In addition to supplying avionics such as DVDR, INS and HCVC to Embraer, we are participating to a greater degree in Embraer’s programs through the development and supply of avionic units per their specifications and their training and support activities.
Rafael Advanced Defense Systems Ltd. Rafael is a world leader in the development and supply of missiles, smart weapons and pods of various types. Rafael has become a strategic customer of ours as a result of our development and production of a few advanced built-to-specification products in recent years.
Boeing Defense, Space and Security. Boeing, a provider of air defense and high-energy laser systems, acquired our MHR in 2013 for evaluation of its use as part of its directed energy tactical systems. Field testing of the system has commenced.
DRS Technologies, Inc. DRS is a major player in the defense electronics market in North America, with focus on tactical systems and radars. In 2015, we signed a teaming agreement with DRS to market, sell, produce and maintain our tactical radars in the North American market. In March 2015, DRS purchased two MHR radar units for demonstration needs as part of their marketing activities.
Military Forces. We are the sole providers of digital recorders and debriefing solutions to an air force in Latin America. We are the primary provider of recorders and debriefing solutions to a major Asian air force. Our tactical radars are used by the U.S. Navy as part of their ground-based air defense advanced technology development program and are under evaluation by the defense forces of a Far-Eastern country. Relationships with military forces introduce the potential of prolonged cooperation.
Business Development and Marketing
Our executive chairman, Maj. Gen. (Ret.) Herzle Bodinger, our chief executive officer, Mr. Zvi Alon, and our chief business development officer, Mr. Dov Sella, lead our business development and marketing efforts. We currently employ six additional professionals in the marketing and sales of our products, three of them part-time. Our chief technology officer and our engineering department support our marketing and sales efforts with respect to proposal preparations and products demonstrations. In addition, we have business development consultants in Europe, South America and Asia, who receive fees for sales generated by them, and two part-time consultants, who assist us in the development of the North American market.
The Israeli Ministry of Defense has historically supported, and continues to support, our marketing efforts through its defense export assistance branch and through various projects for the IDF and its related divisions. There is no guarantee that this type of assistance will be available to us in the future.
We take part in and present our tactical radars at the major land systems exhibitions on a regular basis, such as the Association of the United States Army (AUSA) Annual Meeting in Washington, D.C., Eurosatory in Paris, DSEI in London, and in regional exhibitions such as LAAD in Brazil, Seoul Aerospace & Defense, and DefExpo in India.
Principal Customers
Generally, we complete a few major transactions each year, each in an amount comprising more than 10% of our revenues for such year. As a result, each year a significant portion of our revenues is derived from a small number of customers. The following table sets forth the percentage of our revenues attributable to our principal customers in the three years ended December 31, 2014:
| |
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
Embraer S.A.
|
|
|
16 |
% |
|
|
20 |
% |
|
|
32 |
% |
|
Lockheed Martin Corporation
|
|
|
13 |
% |
|
|
17 |
% |
|
|
5 |
% |
|
Hindustan Aeronautics Ltd
|
|
|
22 |
% |
|
|
17 |
% |
|
|
6 |
% |
|
Israel Aerospace Industries
|
|
|
10 |
% |
|
|
12 |
% |
|
|
11 |
% |
|
A Latin America Customer
|
|
|
- |
|
|
|
11 |
% |
|
|
9 |
% |
|
Israeli Ministry of Defense
|
|
|
5 |
% |
|
|
1 |
% |
|
|
5 |
% |
|
GE Aviation
|
|
|
4 |
% |
|
|
2 |
% |
|
|
4 |
% |
|
Russian Aircraft Corporation MiG
|
|
|
2 |
% |
|
|
2 |
% |
|
|
11 |
% |
Although we continually strive to increase the number of our customers, we anticipate that a significant portion of our future revenues will continue to be derived from a small number of customers. Because of our dependency on a small number of customers and on government contracts, we are subject to business risks, including changes in governmental appropriations and changes in national defense policies and priorities. Although many of the programs in which we participate as a contractor or subcontractor may extend for several years, our business is dependent upon annual appropriations and funding of new and existing contracts. Most of the contracts are subject to termination for the convenience of the customer, pursuant to which the customer pays only for reimbursement of costs incurred and the applicable profit on work performed. The Israeli government or any other government may discontinue funding purchases of our products over the long term.
Geographical Markets
We sell our products to various air forces and companies worldwide. The following table presents our revenues by geographical markets for the periods indicated:
| |
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
Israel
|
|
|
22 |
% |
|
|
20 |
% |
|
|
25 |
% |
|
South and Latin America
|
|
|
12 |
% |
|
|
31 |
% |
|
|
41 |
% |
|
Asia
|
|
|
29 |
% |
|
|
25 |
% |
|
|
21 |
% |
|
North America
|
|
|
36 |
% |
|
|
23 |
% |
|
|
11 |
% |
|
Europe
|
|
|
0 |
% |
|
|
1 |
% |
|
|
1 |
% |
Backlog
On March 31, 2015, our backlog for equipment sales and revenues from multi-year service contracts for our products was approximately $ 24.8 million, down from approximately $29.2 million at March 31, 2014. Backlog is not necessarily indicative of future sales. Many of our contracts can be terminated at the convenience of the customer. In addition, some of our contracts may include product specifications that require us to complete additional product development. Any inability to meet the specifications or complete the product development could lead to a termination of the related contract.
Customer Service
Customer service plays a significant role in our sales and marketing efforts. Our ability to maintain customer satisfaction is critical to building our reputation and increasing growth in our existing markets as well as penetrating new markets. In addition, customer contact and the customer feedback we receive in our ongoing support services provide us with information on customer needs and contribute to our product development efforts. We generally provide maintenance services under separate customized agreements. We provide services through customer training, local third-party service organizations, our subsidiaries, or our personnel, including sending appropriate personnel from any of our offices in Israel. We generally provide our customers with a warranty for our products for periods between one to two years. Costs incurred annually by us for product warranties have to date been insignificant; however, there can be no assurance that these costs will not increase significantly in the future.
Competition
The markets for our products are highly competitive. Our principal competitors in the defense electronics market include Elbit Systems Ltd., Goodrich Corporation, Honeywell International Inc., IAI, Northrop Grumman Corporation, Sagem Avionics LLC., Thales Group, Zodiac Aerospace Group and SRC Inc. We expect to continue to face competition from these and other competitors. Most of our competitors are larger and have substantially greater resources than us, including financial, technological, marketing and distribution capabilities, and enjoy greater market recognition than we do. These competitors may be able to achieve greater economies of scale and may be less vulnerable to price competition than us. We may not be able to offer our products as part of integrated systems to the same extent as our competitors or successfully develop or introduce new products that are more cost effective or offer better performance than those of our competitors. Failure to do so could adversely affect our business, financial condition and results of operations.
Research and Development
Our research and development investments focus on improvements to our existing products and the development of complementary products that would provide continued support for our current customers and would improve our capability to market our products to new customers. In 2014, 2013 and 2012 we incurred $0.8 million, $1.5 million and $2.4 million, respectively, of research and development expenses, net of grants. The vast majority of these expenses are attributable to research on our radars. In 2015, we will continue to invest in the research and development of new products. As of December 31, 2014, we employed 45 engineers (including 5 sub-contractors) in research and development, who concentrate mainly on research and development activities generated through customer orders and to a lesser extent on internal research and development activities.
The OCS encourages research and development by providing grants to Israeli companies, pursuant to the Law for the Encouragement of Industrial Research and Development, 1984, as amended. The terms of such grants prohibit the manufacture of the developed products outside of Israel and the transfer of technologies developed using the grants to any person without the prior written consent of the OCS. We received grants of $5.5 million for 14 programs, of which six (6) programs were closed due to marketing failure. We are awaiting a decision on our request to the OCS to close an additional five (5) programs that failed to generate revenues in the past few years.We fully refunded one (1) program and we currently have two (2) active programs. During 2009 and until 2012 we developed a new radar sensor for APS, partly financed by the OCS through grants equal to 40% of research and development expenses related to that program. In 2009, 2010, 2011, 2012 and 2013, we received royalty bearing grants of $203,000, $180,000, $382,000, $142,000 and $15,000, respectively, from the OCS. Pursuant to applicable Israeli law, we are currently required to pay royalties at the rate of 3-5% of sales of products developed with certain grants received from the OCS, up to 100% of the amount of such grants, adjusted by the exchange rate with the dollar and bearing interest at an annual rate of LIBOR applicable to dollar deposits. As of December 31, 2014, our total obligation for royalty payments, net of royalties paid or accrued was approximately $1.5 million. Of such amount, our obligation with respect to the new radar programs is approximately $1.1 million and approximately $0.4 million is related to avionics products (automated test equipment) from which we failed to generate revenues in the past few years. We are awaiting a decision on our request to the OCS to close those programs.
Transfer of OCS supported know-how or derivatives thereof to a foreign entity may also entail an obligation to make payments to the OCS. The maximum amount payable to the OCS upon transfer of know-how is limited to six (6) times the amounts granted by the OCS with respect to the know-how developed under all applicable OCS programs, plus annual interest, less royalties paid. The OCS may approve a lower payment ceiling equal to three (3) times the aggregate amounts received from the OCS plus annual interest, less royalties paid, if a certain number of R&D positions are maintained in Israel for a specified period. There is currently no mechanism for obtaining approval to license OCS funded know-how to a non-Israeli entity.
The transfer abroad of the manufacturing of any OCS-supported product or technology is also subject to various conditions, including the payment of increased royalties equal to, in the aggregate, up to 300% of the total grant amounts received in connection with the product or technology, plus interest, depending on the portion of total manufacturing that is performed outside of Israel. Payment of the increased royalties would constitute the repayment amount required with respect to the OCS grants received for the development of the products or technology for which the manufacturing is performed outside of Israel. In addition, any decrease in the percentage of manufacture performed in Israel of any product or technology, as originally declared in the application to the OCS with respect to the product or technology, may require us to notify, or to obtain the approval of, the OCS, and may result in increased royalty payments to the OCS of up to 300% of the total grant amounts received in connection with the product or technology, plus interest, depending on the portion of total manufacturing that is performed outside of Israel. In addition, the OCS has the discretion to permit overseas manufacture in excess of the declared percentage (deviations of up to 10% do not require consent, but the OCS must be notified). Consent is contingent upon payment of additional royalties, at rates and subject to ceilings set out in the relevant regulations, up to three times the amount of the grants.
We are committed to pay royalties to the Israel - United States Binational Industrial Research and Development Foundation (BIRD ) at the rate of 5% of the sales proceeds up to 150% of the research and development expenses financed by the foundation. Since the company had stated to BIRD that no revenues were generated from the funded projects, the foundation had agreed that no royalties are due until future revenues, if any.
Proprietary Information
We generally do not consider patent protection significant to our current operations and rely upon a combination of security devices, trade secret laws and contractual restrictions to protect our rights in our products. Our policy is to require employees and consultants to execute confidentiality agreements upon the commencement of their relationships with us. These measures may not be adequate to protect our technology from third-party infringement, and our competitors might independently develop technologies that are substantially equivalent or superior to ours. Additionally, our products may be sold in foreign countries that provide less protection for intellectual property rights than that provided under U.S. or Israeli laws.
The Israeli government usually retains certain rights in technologies and inventions resulting from our performance as a prime contractor or subcontractor under Israeli government contracts and may generally disclose such information to third parties, including other defense contractors. When the Israeli government funds research and development, it may acquire rights to proprietary data and title to inventions and be entitled to receive royalties on export sales in relation to sales resulting from government financed development. We may retain a non-exclusive license for such inventions. However, if the Israeli government purchases only the end product, we may retain the principal rights and the government may use the data and take an irrevocable, non-exclusive, royalty-free license.
Manufacturing and Supply
Our production plant is located in Beit She’an, Israel. The plant is equipped to handle most of our manufacturing processes and testing requirements. For several specific processes we utilize outsourced resources. This structure provides us flexibility and versatility.
We place great emphasis on quality control in our production processes. Commencing with customer requirements and expectations, via raw material inspection through completion, specifications are repeatedly checked. We maintain a quality assurance team that participates in every stage of the design and manufacturing of the products. Our quality management system is certified by the Standards Institute of Israel, or SII, pursuant to ISO 9001:2008 for hardware design and production and ISO 90003:2004 for software design. SII performs quality system audits twice a year and various customers perform audits four to six times a year. Our environmental management system is certified by SII to ISO 14001:2004. Our quality management system is also certified according to AS-9100C, a quality management system for aerospace requirements.
According to the standard warranty incorporated in most of our sales contracts, we warrant that our products will be free from defects in design, materials or workmanship, and guarantee repair or replacement of defective parts typically for periods between one to two years following delivery of a product to a customer. We also provide maintenance services to customers who sign maintenance contracts.
Source and Availability of Raw Materials
We acquire most of the components for the manufacturing of our products from a limited number of suppliers and subcontractors, most of whom are located in Israel and the United States. Some of these suppliers are currently the sole source of one or more components upon which we are dependent. Since many of our purchases require long lead-times, a delay in supply of an item can significantly delay the delivery of a product. To date, we have not experienced any particular difficulties in obtaining timely deliveries of necessary components. We depend on a limited number of suppliers of components for our products and if we are unable to obtain these components when needed, we would experience delays in manufacturing our products and our financial results could be adversely affected.
Government Regulation
Israel’s defense export policy regulates the sales of our systems and products. Current Israeli policy encourages export to approved customers of defense systems and products, such as ours, as long as the export is consistent with Israeli government policy.
A license is required to initiate marketing activities. We are also required to obtain a specific export license for any hardware exported from Israel. We are regulated by an Israeli law regulating export of “dual use” items (items that are typically sold in the commercial market, but that also may be used in the defense market) and the Defense Export Control Law and its supplemental regulations. Those laws and regulations govern the enforcement of export control and defined certain new areas of licensing, particularly with respect to transfer of technology. Some of these laws and regulations carry major penalty provisions for non-compliance, including disqualification from participating in future contracts. It is not certain that we will receive all the required permits and licenses for which we may apply in the future. Our participation in governmental procurement processes in Israel and other countries is subject to specific regulations governing the process of procuring defense contracts. Furthermore, solicitations for procurements by governmental purchasing agencies in Israel and other countries are governed by laws, regulations and procedures relating to procurement integrity, including avoiding conflicts of interest and corruption in the procurement process.
Our books and records may be subject to audits by the Israeli Ministry of Defense and other governmental agencies, including the U.S. Department of Defense. These audits may result in adjustments to contract costs and profits. In addition, antitrust laws and regulations in Israel and other countries often require governmental approvals for transactions that are considered to limit competition. Such transactions may include cooperative agreements for specific programs or areas, as well as mergers and acquisitions.
Fixed Price Contracts
The vast majority of our contracts are fixed-price contracts, under which the price is not subject to adjustment by reason of the costs incurred in the performance of the contracts, as long as the costs incurred and work performed fall within governmental guidelines. Under our fixed-price contracts, we assume the risk of increased or unexpected costs that may reduce our profits or even generate losses. This risk can be particularly significant under fixed-price contracts for research and development involving new technologies.
Employees
As of December 31, 2014, we employed 108 persons, of whom 45 persons were employed in research, development and engineering, 51 persons in manufacturing and logistics, 4 persons in sales and marketing, and 8 persons in administration, management and finance. All of our employees are located in Israel. In addition, CACS, our 80% owned subsidiary, employed 16 persons in China as of such date.
As of December 31, 2013, we employed 115 persons, of whom 47 persons were employed in research, development and engineering, 56 persons in manufacturing and logistics, 4 persons in sales and marketing, and 8 persons in administration, management and finance. All of our employees are located in Israel. In addition, CACS, our 80% owned subsidiary, employed 17 persons in China as of such date.
As of December 31, 2012, we employed 112 persons, of whom 53 persons were employed in research, development and engineering, 46 persons in manufacturing and logistics, 4 persons in sales and marketing, and 9 persons in administration, management and finance. All of our employees are located in Israel. In addition, CACS, our 80%-owned subsidiary, employed 19 persons in China as of such date.
Our technical employees have signed nondisclosure agreements covering all proprietary information that they might possess or to which they might have access. Employees are not organized in any union, although they are employed according to provisions established by the Israeli Ministry of Economy (formerly the Ministry of Industry, Trade and Labor). Certain provisions of the collective bargaining agreements between the General Federation of Labor in Israel (Histadrut) and the Coordination Bureau of Economic Organizations (including the Industrialists Association) are applicable to our Israeli employees by order of the Israeli Ministry of Economy. These provisions primarily concern the length of the workday, minimum daily wages for professional workers, contributions to a pension fund, insurance for work-related accidents, procedures for dismissing employees, determination of severance pay and other conditions of employment. We generally provide our employees with benefits and working conditions beyond the required minimums. Under the collective bargaining agreements, the wages of most of our employees are linked to the Israeli consumer price index, although the extent of the linkage is limited.
Israeli law generally requires severance pay upon the retirement or death of an employee or termination of employment without due cause. Further, Israeli employees and employers are required to pay predetermined sums to the National Insurance Institute; such amounts also include payments for national health insurance. Most of our ongoing severance obligations for our Israeli employees are provided for by monthly payments made by us for insurance policies to cover these obligations.
Facilities
We own a 30,000 square feet industrial building in Beit She’an, Israel. The building, which includes manufacturing facilities and warehouse space, is situated on land leased from the Israel Land Authority for a period of 49 years ending in 2034. The plant has sufficient capacity to meet our current requirements.
Our executive offices and research and development facilities are located in a 17,782 square feet office facility in Netanya, Israel. The lease for this facility expires in January 2018. The aggregate annual rent for our offices in Israel was approximately $333,000 in 2014.
Legal Proceedings
From time to time, we may be involved in litigation that arises through the normal course of business. As of the date of this prospectus, we are not a party to any material litigation nor are we aware of any such threatened or pending litigation.
There are no material proceedings in which any of our directors, officers or affiliates or any registered or beneficial shareholder of more than 5% of our ordinary shares, or any associate of any of the foregoing is an adverse party or has a material interest adverse to our interest.
RELATED PARTY TRANSACTIONS
In July 2007, we entered into a loan agreement with Mr. Yeung, our controlling shareholder, pursuant to which we issued to Mr. Yeung a $3.0 million convertible note, dated December 10, 2007, that is convertible into ordinary shares at a conversion price of $2.09 per share. The convertible note was initially scheduled to mature on October 14, 2010. In addition, Mr. Yeung received warrants to purchase up to an aggregate of 1,578,947 ordinary shares at an exercise price of $2.375 per share, exercisable for a period of five years beginning on October 15, 2007. Effective as of April 2010, our Audit Committee and Board of Directors approved an amendment to the loan transaction according to which the maturity date of the notes and the expiration date of the warrants was extended by two years, until October 14, 2012 and October 15, 2014, respectively. Such warrants expired without being exercised. This loan was assigned by Mr. Yeung to FCD, a company controlled by Mr. Yeung. We did not repay the loan and as a result, we began to incur default interest at the rate of six-month LIBOR +9% effective February 1, 2015.
In July 2008, we borrowed $1.5 million from FCD in order to facilitate further development of our INS technology. This loan bore interest of LIBOR + 3% payable at the beginning of every quarter. Principal payments equal to $90,000 each were payable in six equal installments commencing July 1, 2009 and the remaining principal amount was to be payable in eight equal installments, commencing April 1, 2011. On September 2, 2012, Mr. Yeung agreed to postpone the repayment of $1.5 million of the principal that was due to be repaid to him, such that 50% of such amount would be paid on December 10, 2012 and the remaining 50% would be payable on February 10, 2013. Subject to the approval of the Israeli Ministry of Defense, we also agreed to grant FCD a non-exclusive license to use the technology developed for non-military/commercial purposes. The non-exclusive license will automatically convert into an exclusive license should we default on any of our obligations under the loan agreement. We have also agreed, subject to the approval of several governmental authorities including the Israeli Ministry of Defense, to establish in the future a joint venture with Mr. Yeung or an affiliated entity that will be engaged in the production and marketing of such non-military products and technology.
In September 2011, we entered into a revolving $1.7 million loan agreement with FCD, bearing interest at the three-month LIBOR rate plus 2.5% per annum. The principal and all the unpaid interest accrued thereupon were paid on February 29, 2012 from the proceeds of the loan received from FCD and Mr. Ben Zion Gruber, a shareholder and director of our company, as described below.
In February 2012, we entered into a $3.0 million loan agreement with FCD and Mr. Ben Zion Gruber. The loan was approved by our Audit Committee and Board of Directors, and the transaction was also approved by our shareholders at an extraordinary meeting held in January 2012. FCD provided $2.7 million and Mr. Ben Zion Gruber provided $300,000. We used $1.7 million of the loan to repay in full all of the amounts due and payable under the September 2011 loan, as described above. The remaining $1.3 million was used to finance our future operations, including the continued development of our INS technology and tactical radars. The loan bore interest at the rate of the greater of three-months LIBOR plus 5% per annum, or 7% per annum. Interest is payable quarterly in arrears and the principal was due on January 31, 2014. In addition, on February 28, 2012 we issued to FCD and Mr. Ben Zion Gruber three-year warrants to purchase 1,080,000 and 120,000 ordinary shares, respectively, at an exercise price of $2.50 per share. During September 2014, we issued 69,749 ordinary shares upon the exercise of 120,000 of these warrants on a cashless exercise basis. In February 2015, the remaining 1,080,000 warrants expired.
In August 2013, FCD agreed to reissue $350,000 of the loan that had been previously repaid by us in March 2013 and to facilitate an additional short-term loan in the amount of up to $1,000,000 to be repaid by December 31, 2013, or the Credit Facility. The Credit Facility provided for interest at 3.5% per annum above the three-month LIBOR rate. In September 2013, we borrowed $850,000 under the Credit Facility and the total amount of the loan increased to $1,200,000. We repaid the new loan ($1,200,000), but not the remaining balance of the original INS loan ($1,150,000). According to the first amendment to the Standstill Agreement, as described below, we began to incur default interest payments at the rate of 4% above the original interest rate on such loan effective February 1, 2013. We did not repay the loan and as a result, we began to incur default interest at the rate of six-month LIBOR +9% effective February 1, 2015.
In April 2014, we and Mr. Yeung agreed on an additional short-term loan for $1 million. This short-term loan bore interest at the rate of three-month LIBOR +3.5%, and was to be repaid by December 31, 2014. The loan has not yet been repaid and in accordance with the Standstill Agreement described below, we are now subject to default interest payments at the rate of six-month LIBOR +9% effective February 1, 2015.
In order not to default on our loans’ obligations, we initially entered into a Standstill Agreement, effective February 1, 2013, with our lenders, according to which, except in extraordinary circumstances, no action was to be taken to accelerate the loans or to exercise their rights prior to January 31, 2014. In April 2014, the term of the forbearance period was extended to January 31, 2015. On April 27, 2015, following the approval of our shareholders, the Standstill Agreement was further amended and the forbearance period was extended to August 31, 2016.
As of March 31, 2015, the debt owed to the lenders consisted of US$ 7,850,000 in principal and US$ 1,517,584 of unpaid interest owed to FCD and US$ 270,000 of principal and US$ 30,826 of unpaid interest owed to Mr. Gruber, or US$ 9,668,410 in the aggregate.
Pursuant to the amendment to the Standstill Agreement, the default interest payable, as of and after February 1, 2015 on all outstanding principal amounts of the debt owed to the two lenders is six-month LIBOR + 9%.
Under the negotiated terms, the lenders will be able to purchase securities from us on the same terms and conditions as the underwriters or placement agent establish for this offering. The underwriters have agreed to allow our lenders to participate in this offering. In the event the lenders agree to participate in the offering to an extent that would result in this offering not being deemed to be a “public offering” under the federal securities laws, the lenders will have the right to subscribe for the shares that were to be offered in the potential offering in a private placement. The net proceeds of such private placement will be used in the same manner as described above.
In April and June 2015, following shareholder approval, the standstill agreement with our two lenders was amended and the forbearance period was extended to August 31, 2016.
In the event that by September 30, 2015, (i) neither this offering or the private placement is completed or (ii) the net proceeds of such offerings are insufficient to repay the outstanding debt and accrued interest of $9.9 million (as of June 30, 2015) the lenders will, on a pro rata basis, be entitled to convert some or all of the remaining debt, at such time and from time to time into our ordinary shares. The terms of such conversion are as follows: (x) the minimum amount to be converted at any one time is $300,000 of debt; (y) the share issue price will be the lower of $1.00 or 15% below the preceding seven (7) days volume weighted average price; and (z) any unconverted debt will continue to be subject to the terms of the amended Standstill Agreement. To the extent that we repay $7.5 million of the lenders debt with the proceeds of the offering, any remaining debt will be convertible into outstanding shares pursuant to the terms set forth above. Any such conversion will result in substantial dilution to our shareholders and in an increase of our controlling shareholder’s interest in our company and will likely result in the decline in the market price of our ordinary shares. In addition, we have agreed to enter into a registration rights agreement with the lenders that will provide them with the right to demand from us that we file a registration statement at our expense and that we keep the registration statement continuously effective for such period as may be designated by the lenders until they may freely resell the shares covered by the registration statement.
The following table sets forth information with respect to the beneficial ownership of our ordinary shares (i) immediately prior to this offering and (ii) as adjusted to give effect to this offering, by:
|
|
·
|
each of our directors and executive officers;
|
|
|
·
|
all of our current directors and executive officers as a group; and
|
|
|
·
|
each person known to us to own beneficially more than 5% of our ordinary shares.
|
The percentage of beneficial ownership of our ordinary shares before the offering is based on 8,988,396 ordinary shares outstanding as of June 30, 2015. The percentage of beneficial ownership of our ordinary shares after the offering is based on ordinary shares outstanding after the offering, which includes the ordinary shares identified in the immediately preceding sentence plus the ordinary shares to be sold by us in the offering, assuming no exercise of the over-allotment by the underwriters.
As of May 31, 2015, based on the information available to us, there were 110 holders of record of our ordinary shares, of which 99 record holders holding approximately 65% of our ordinary shares had registered addresses in the United States, including banks, brokers and nominees.
Except as described in the footnotes below, we believe each shareholder has voting and investment power with respect to the ordinary shares indicated in the table as beneficially owned.
Unless otherwise indicated, the principal address of each of the persons below is c/o RADA, 7 Giborei Israel Street Netanya 4250407, Israel.
|
Name and Address of Beneficial Owner
|
|
Shares
Beneficially Owned
|
|
|
Percentage
Beneficially Owned
|
|
| |
|
|
|
|
|
|
|
|
|
5% Shareholders
|
|
|
|
|
|
|
|
|
|
|
Howard P.L. Yeung (2) (3)
|
|
|
5,007,426 |
|
|
|
48.0 |
% |
|
34
|
%
|
|
Kenneth Yeung (3) (4)
|
|
|
450,029 |
|
|
|
5.0 |
% |
|
3
|
%
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Directors and Officers
|
|
|
|
|
|
|
|
|
|
|
|
|
Herzle Bodinger
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
Zvi Alon
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
Dov Sella
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
Shiri Lazarovich
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
Oleg Kiperman
|
|
|
4,000 |
|
|
|
* |
|
|
|
* |
|
|
Adrian Berg (5)
|
|
|
1,533 |
|
|
|
* |
|
|
|
* |
|
|
Roy Kui Chuen Chan (6)
|
|
|
1,533 |
|
|
|
* |
|
|
|
* |
|
|
Ben Zion Gruber
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
Michael Letchinger
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
Nurit Mor
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
Elan Sigal
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
Directors and executive officers as a group (11 persons)
|
|
|
7,066 |
|
|
|
* |
|
|
|
* |
|
|
(1)
|
Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Ordinary shares relating to options and notes currently exercisable or convertible or exercisable or convertible within 60 days of the date of this table are deemed outstanding for computing the percentage of the person holding such securities but are not deemed outstanding for computing the percentage of any other person. Except as indicated by footnote, and subject to community property laws where applicable, the persons named in the table above have sole voting and investment power with respect to all shares shown as beneficially owned by them.
|
|
(2)
|
Based on a Schedule 13D/A filed on April 7, 2015. Includes (i) 3,572,019 outstanding ordinary shares (including 450,029 ordinary shares held by Horsham Enterprises Ltd., a British Virgin Islands corporation jointly owned by Messrs. Howard P.L. Yeung and his brother Kenneth Yeung; and (ii) 1,435,407 ordinary shares issuable upon conversion of a convertible note held by Faith Content Development Limited, an affiliate of Mr. Howard Yeung. Mr. Howard Yeung may be deemed to control our company.
|
|
(3)
|
The address of Messrs. Howard Yeung and Kenneth Yeung is 2202 Kodak House II, 39 Healthy Street, North Point, Hong Kong.
|
|
(4)
|
The shares are held by Horsham Enterprises Ltd., a British Virgin Islands corporation jointly owned by Messrs. Howard Yeung and his brother Kenneth Yeung.
|
|
(5)
|
The business address of Mr. Berg is Alexander & Co., 17 St. Ann’s Square, Manchester M2 7 PW, U.K.
|
|
(6)
|
The business address of Mr. Roy Chan is Gearhart Holdings (H.K.) Limited, 2202 Kodak House II, 39 Healthy Street, E. North Point, Hong Kong.
|
RECENTLY ADOPTED EMPLOYEE SHARE OPTION PLAN
On May 25, 2015, our Board approved the adoption of the 2015 Israel Stock Option Plan, or the 2015 Option Plan, pursuant to which 3,000,000 ordinary shares were reserved for issuance to employees, directors, consultants and service providers of the company.
The purpose of our 2015 Option Plan is to enable us to attract and retain qualified persons as employees, officers, directors, consultants and advisors and to motivate such persons by providing them with an equity participation in our company.
The 2015 Option Plan will be administered by the Board of Directors, which has broad discretion, subject to certain limitations, to determine the persons entitled to receive options. Under the 2015 Option Plan, the terms and conditions under which options are granted and the number of shares subject thereto will be determined by the Board of Directors. The Board of Directors also has discretion to determine the nature of the consideration to be paid upon the exercise of an option under the 2015 Option Plan. Such consideration generally may consist of cash, or, at the discretion of the Board of Directors, cash and 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 such options were granted or shares issued.
We have elected to designate the 2015 Option Plan as a section 102 plan in the "capital gains" track, designed to afford qualified optionees certain tax benefits under the Israel Income Tax Ordinance. Pursuant to the election made by the company, capital gains derived by optionees arising from the sale of shares derived from the exercise of options granted to them under the 2015 Option Plan will be subject to a flat capital gains tax rate of 25% (instead of the gains being taxed as salary income at the employee’s marginal tax rate). However, as a result of this election, we are not allowed to claim as an expense for tax purposes the amounts credited to such employees as a benefit when the related capital gains tax is payable by them. We may change the election from time to time, as permitted by the Tax Ordinance. There are various conditions that must be met in order to qualify for these benefits, including registration of the options in the name of a trustee, or the Trustee, for each of the employees who is granted options. Each option, and any ordinary shares acquired upon the exercise of an option, must be held by the Trustee for a period commencing on the date of grant and ending no earlier than 24 months from the date of grant. Section 102 plans must be in a prescribed format and notification to the Israel Tax Authority must be made at least 30 days before the 2015 Option Plan is first implemented.
DESCRIPTION OF SHARE CAPITAL
Our authorized share capital consists of 30,000,000 ordinary shares of a nominal value of NIS 0.015 each. At December 31, 2014, the authorized share capital was 16,333,333 ordinary shares. All our ordinary shares have the same rights, preferences and restrictions, some of which are detailed below.
Dividend and Liquidation Rights
Under Israeli law, we may declare and pay dividends only if, upon the determination of our Board of Directors, there is no reasonable concern that the distribution will prevent us from being able to meet the terms of our existing and foreseeable obligations as they become due. Under the Israeli Companies Law, the distribution amount is further limited to the greater of retained earnings or earnings generated over the two most recent years legally available for distribution deducted by previous distributions (unless such previous distributions were already deducted from the retained earnings or earnings generated over the two most recent years) according to our then last reviewed or audited financial statements, provided that the date of the financial statements is not more than six months prior to the date of distribution. In the event that we do not have retained earnings or earnings generated over the two most recent years legally available for distribution, we may seek the approval of a court in Israel in order to distribute a dividend. The court may approve our request if it is convinced that there is no reasonable concern that the payment of a dividend will prevent us from satisfying our existing and foreseeable obligations as they become due.
In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of ordinary shares on a pro-rata basis. Dividend and liquidation rights may be affected by the grant of preferential dividend or distribution rights to the holders of a class of shares with preferential rights that may be authorized in the future.
The Powers of the Directors
Under the provisions of the Israeli Companies Law, and our articles of association, a director cannot participate in a meeting nor vote on a proposal, arrangement or contract in which he or she is materially interested. In addition, our directors cannot vote compensation to themselves or any members of their body without the approval of our audit committee and our shareholders at a general meeting. The authority of our directors to enter into borrowing arrangements on our behalf is not limited, except in the same manner as any other transaction by us.
Under our articles of association, retirement of directors from office is not subject to any age limitation and our directors are not required to own shares in our company in order to qualify to serve as directors.
Rights Attached to Shares
The rights attached to the ordinary shares are as follows:
Dividend rights. Holders of our ordinary shares are entitled to the full amount of any cash or share dividend subsequently declared. The Board of Directors may declare interim dividends and propose the final dividend with respect to any fiscal year only out of the retained earnings, in accordance with the provisions of the Israeli Companies Law. Our articles of association provide that the declaration of a dividend requires approval by an ordinary resolution of the shareholders, which may decrease but not increase the amount proposed by the board of directors. If after one year a dividend has been declared and it is still unclaimed, the Board of Directors is entitled to invest or utilize the unclaimed amount of dividend in any manner to our benefit until it is claimed. We are not obligated to pay interest or linkage differentials on an unpaid dividend.
Voting rights. Holders of ordinary shares have one vote for each ordinary share held on all matters submitted to a vote of shareholders. Such voting rights may be affected by the grant of any special voting rights to the holders of a class of shares with preferential rights that may be authorized in the future.
An ordinary resolution, such as a resolution for the declaration of dividends, requires approval by the holders of a majority of the voting rights represented at the meeting, in person, by proxy or by written ballot and voting on the matter. Under our articles of association, a special resolution, such as amending our memorandum of association or articles of association, approving any change in capitalization, winding-up, authorization of a class of shares with special rights, or other changes as specified in our articles of association, requires approval of a special majority, representing the holders of no less than 75% of the voting rights represented at the meeting in person, by proxy or by written ballot, and voting on the matter.
Pursuant to our articles of association, our directors are elected at our annual general meeting of shareholders for a term of three years by a vote of the holders of a majority of the voting power represented and voting at such meeting, and hold office until the third next annual general meeting of shareholders and until their successors have been elected. All the members of our Board of Directors (except the outside directors) may be reelected upon completion of their term of office.
Rights to share in the company’s profits. Our shareholders have the right to share in our profits distributed as a dividend and any other permitted distribution.
Rights to share in surplus in the event of liquidation. In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of ordinary shares in proportion to the nominal value of their holdings. This right may be affected by the grant of preferential dividend or distribution rights to the holders of a class of shares with preferential rights that may be authorized in the future.
Liability to capital calls by the company. Under our memorandum of association and the Israeli Companies Law, the liability of our shareholders is limited to the par value of the shares held by them.
Changing Rights Attached to Shares
According to our articles of association, in order to change the rights attached to any class of shares, unless otherwise provided by the terms of the class, such change must be adopted by a general meeting of the shareholders and by a separate general meeting of the holders of the affected class with a majority of 75% of the voting power participating in such meeting.
Annual and Special General Meetings
The Board of Directors must convene an annual meeting of shareholders at least once every calendar year, within 15 months of the last annual meeting. Depending on the matter to be voted upon, notice of at least 21 days or 35 days prior to the date of the meeting is required. Our Board of Directors may, in its discretion, convene additional meetings as “special general meetings.” In addition, the Board of Directors must convene a special general meeting upon the demand of two of the directors, 25% of the directors in office, one or more shareholders having, in the aggregate, at least 5% of the outstanding share capital and at least 1% of the voting power in the company, or one or more shareholders having at least 5% of the voting power in the company.
The quorum required for an ordinary meeting of shareholders consists of at least two shareholders present in person or represented by proxy who hold or represent, in the aggregate, at least one third of the voting rights of the issued share capital. A meeting adjourned for lack of a quorum generally is adjourned to the same day in the following week at the same time and place or any time and place as the directors designate in a notice to the shareholders. At the reconvened meeting, the required quorum consists of any two members present in person or by proxy.
Limitations on the Rights to Own Securities in Our Company
Neither our memorandum of association or our articles of association nor the laws of the State of Israel restrict in any way the ownership or voting of shares by non-residents, except with respect to subjects of countries which are in a state of war with Israel.
Provisions Restricting Change in Control of Our Company
The Israeli Companies Law requires that mergers between Israeli companies be approved by the Board of Directors and general meeting of shareholders of both parties to the transaction. The approval of the Board of Directors of both companies is subject to such board’s confirmation that there is no reasonable doubt that after the merger the surviving company will be able to fulfill its obligations towards its creditors. Each company must notify its creditors about the contemplated merger. Generally, under the Israeli Companies Law, our articles of association are deemed to include a requirement that such merger be approved by a special resolution of the shareholders, as explained above. The approval of the merger by the general meetings of shareholders of the companies is also subject to additional approval requirements as specified in the Israeli Companies Law and regulations promulgated thereunder. For purposes of the shareholders’ approval, the merger will not be deemed as granted, unless the court determines otherwise, if it is not supported by the majority of the shares represented at the general meeting, other than those shares that are held by the other party to the merger or by any shareholder holding 25% or more of the outstanding share capital of the company or the right to appoint 25% or more of the members of the Board of Directors. In addition, a merger may not be completed unless at least (i) 50 days have passed from the time that the requisite proposals for approval of the merger were filed with the Israeli Registrar of Companies by each merging company and (ii) 30 days have passed since the merger was approved by the shareholders of each merging company. The Israeli Companies Law also provides that an acquisition of shares of 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 25% or greater shareholder of the company and there is no existing 25% or greater shareholder in the company. An acquisition of shares of a public company must also be made by means of a tender offer if as a result of the acquisition the purchaser would become a 45% or greater shareholder of the company and there is no existing 45% or greater shareholder in the company. These requirements do not apply if the acquisition (i) was made through a private placement that received shareholder approval, (ii) was from a 25% shareholder of the company and resulted in the acquirer becoming a 25% shareholder of the company or (iii) was from a 45% shareholder of the company and resulted in the acquirer becoming a 45% shareholder of the company. The special tender offer must be extended to all shareholders but, the offer may include explicit limitations allowing the offeror not to purchase shares representing more than 5% of the voting power attached to the company’s outstanding shares, regardless of how many shares are tendered by shareholders. The special tender offer may be effected 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 number of shares tendered in the offer exceeds the number of shares whose holders objected to the offer.
If, as a result of an acquisition of shares, the acquirer will hold more than 90% of the outstanding shares, the acquisition must be made by means of a tender offer for the entire outstanding shares. In such event, if less than 5% of the outstanding shares are not tendered in the tender offer, all the shares of the company will be deemed as tendered and sold. However, if more than 5% of the outstanding shares are not tendered in the tender offer, then the acquirer may not acquire any shares at all. The law provides for appraisal allowing any shareholder to file a motion to the court within six months following the consummation of a full tender offer. However, in the event of a full tender offer, the offeror may determine that any shareholder who accepts the offer will not be entitled to appraisal rights. Such determination will be effective only if the offeror or the company has timely published all the information that is required to be published in connection with such full tender offer pursuant to all applicable laws.
In addition, the purchase of 25% or more of the outstanding share capital of a company or the purchase of substantial assets of a company requires, under certain conditions the approval of the Restrictive Practices Authority. Furthermore if the target company has received tax incentives of grants from the OCS, changes in ownership may require also the approval of the tax authorities or the OCS, as applicable.
Disclosure of Shareholders Ownership
The Israeli Securities Law and regulations promulgated thereunder do not require a company whose shares are publicly traded solely in a stock exchange outside of Israel, as in the case of our company, to disclose its share ownership.
Changes in Our Capital
Changes in our capital are subject to the approval of the shareholders at a general meeting by a special majority of 75% of the votes of shareholders participating and voting in the general meeting.
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain material U.S. federal income tax consequences that apply to U.S. Holders (as defined below) who hold ordinary shares as capital assets. This summary is based on the United States Internal Revenue Code of 1986, as amended, (the “Code”). Treasury regulations promulgated thereunder, judicial and administrative interpretations thereof, and the U.S.-Israel Tax Treaty (the “Treaty”), all as in effect on the date hereof and all of which are subject to change either prospectively or retroactively. This summary does not address all tax considerations that may be relevant with respect to an investment in ordinary shares. This summary does not account for the specific circumstances of any particular investor, such as:
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dealers or traders in securities who use a mark-to-market method of tax accounting;
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certain financial institutions;
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certain insurance companies;
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investors liable for alternative minimum tax;
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real estate investment trusts;
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tax-exempt organizations;
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non-resident aliens of the United States;
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taxpayers whose functional currency is not the U.S. dollar;
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persons who hold the ordinary shares through partnerships or other pass-through entities;
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persons who acquire their ordinary shares through the exercise or cancellation of employee stock options or otherwise as compensation for services;
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persons holding ordinary shares in connection with a trade or business conducted outside of the United States;
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certain former citizens or residents of the United States under Section 877 or Section 877A of the Code;
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persons that actually or constructively own 10% or more of our voting shares; and
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persons holding ordinary shares as part of a straddle, wash sale, integrated transaction appreciated financial position, a hedging transaction, conversion transaction, or persons entering into a constructive sale with respect to the ordinary shares.
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If a partnership or an entity treated as a partnership for U.S. federal income tax purposes owns ordinary shares, the U.S. federal income tax treatment of a partner in such a partnership will generally depend upon the status of the partner and the activities of the partnership. A partnership that owns ordinary shares and the partners in such partnership should consult their tax advisors about the U.S. federal income tax consequences of purchasing, holding and disposing of ordinary shares.
This summary does not address the effect of any U.S. federal taxation (such as estate and gift tax) other than U.S. federal income taxation. In addition, this summary does not include any discussion of state, local or foreign taxation.
You are urged to consult your tax advisors regarding the foreign and U.S. federal, state and local tax consequences of an investment in ordinary shares.
For purposes of this summary, a U.S. Holder is:
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an individual who is a citizen or, for U.S. federal income tax purposes, a resident of the United States;
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a corporation or other entity taxable as a corporation created or organized in or under the laws of the United States or any political subdivision thereof;
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an estate whose income is subject to U.S. federal income tax regardless of its source; or
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a trust that (a) is subject to the primary supervision of a court within the United States and the control of one or more U.S. persons or (b) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.
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Taxation of Dividends
Subject to certain limitations (including the discussion below under the heading “Passive Foreign Investment Companies”), the gross amount of any distributions received with respect to ordinary shares, including the amount of any Israeli taxes withheld therefrom, will constitute dividends for U.S. federal income tax purposes to the extent of our current and accumulated earnings and profits, as determined for U.S. federal income tax purposes. You will be required to include this amount of dividends in gross income as ordinary income in the year the dividend is paid. Distributions in excess of our current and accumulated earnings and profits will be treated as a non-taxable return of capital to the extent of your tax basis in the ordinary shares and any amount in excess of your tax basis will be treated as gain from the sale of ordinary shares. We do not expect to maintain calculations of our earnings and profits under U.S. federal income tax principles. Therefore, a U.S. Investor should expect that the entire amount of any distribution generally may be treated as dividend income. See “-Disposition of Ordinary Shares” below for a discussion of the taxation of capital gains. Our dividends will not qualify for the dividends-received deduction generally available to corporations under section 243 of the Code.
Dividends that we pay in NIS, including the amount of any Israeli taxes withheld therefrom, will be included in your income in a U.S. dollar amount calculated by reference to the exchange rate in effect on the day such dividends are received. If the amount received as dividends is converted to U.S. dollars on the date of receipt, a U.S. Holder generally will not recognize a foreign currency gain or loss. However, if the U.S. Holder converts the NIS into U.S. dollars on a later date, the U.S. Holder must include, in computing its income, any gain or loss resulting from any exchange rate fluctuations between the dividend and the conversion dates. The gain or loss will be equal to the difference between (i) the U.S. dollar value of the amount included in income when the dividend was received and (ii) the amount received on the conversion of the NIS into U.S. dollars. Such gain or loss will generally be ordinary income or loss and United States source for U.S. foreign tax credit purposes. U.S. Holders should consult their own tax advisors concerning the U.S. tax consequences of acquiring, holding, converting and disposing of NIS.
Subject to complex limitations, any Israeli withholding tax imposed on such dividends will be a foreign income tax eligible for credit against a U.S. Holder’s U.S. federal income tax liability (or, alternatively, for deduction against income in determining such tax liability). The limitations set out in the Code include computational rules under which foreign tax credits allowable with respect to specific classes of income cannot exceed the U.S. federal income taxes otherwise payable with respect to each such class of income. Dividends generally will be treated as foreign-source passive category income for U.S. foreign tax credit purposes. Further, there are special rules for computing the foreign tax credit limitation of a taxpayer who receives dividends subject to a reduced tax rate, see discussion below. The rules relating to the determination of the foreign tax credit are complex, and you should consult with your personal tax advisors to determine whether and to what extent you would be entitled to this credit.
Subject to certain limitations discussed below, “qualified dividend income” received by a non-corporate U.S. Holder will be subject to tax at a reduced maximum tax rate of 20%. Distributions taxable as dividends paid on the ordinary shares should qualify for the 20% rate provided that either: (i) we are entitled to benefits under the Treaty or (ii) the ordinary shares are readily tradable on an established securities market in the United States and certain other requirements are met. We believe that we are entitled to benefits under the Treaty and that the ordinary shares currently are readily tradable on an established securities market in the United States. However, no assurance can be given that the ordinary shares will remain readily tradable. The rate reduction does not apply unless certain holding period requirements are satisfied. With respect to the ordinary shares, the U.S. Holder must have held such shares for at least 61 days during the 121-day period beginning 60 days before the ex-dividend date. The rate reduction also does not apply to dividends received from a passive foreign investment company, see discussion below, in respect of certain hedged positions, or in certain other situations. The legislation enacting the reduced tax rate on qualified dividends contains special rules for computing the foreign tax credit limitation of a taxpayer who receives dividends subject to the reduced tax rate. U.S. Holders of ordinary shares should consult their own tax advisors regarding the effect of these rules in their particular circumstances.
Additional Tax on Investment Income
U.S. Holders that are individuals, estates or trusts will be required to pay an additional 3.8 percent tax on the lesser of (i) the U.S. Holder’s “net investment income” for the relevant taxable year; and (ii) the excess of the U.S. Holder’s modified adjusted gross income for the taxable year over a certain threshold (which in the case of individuals will be between US $125,000 and US $250,000, depending on the individual’s circumstances). A U.S. Holder’s “net investment income” will generally include, among other things, dividends and capital gains. Such tax will apply to dividends and to capital gains from the sale or other disposition of the ordinary shares, unless derived in the ordinary course of the conduct of a trade or business (other than a trade or business that consists of certain passive or trading activities). Potential investors should consult with their own tax advisors regarding the application of the net investment income tax to them as a result of their investment in our ordinary shares.
Disposition of Ordinary Shares
Subject to the passive foreign investment company rules described below, for U.S. federal income tax purposes, gain or loss realized on the sale or other disposition of ordinary shares generally will be capital gain or loss, and will be long-term capital gain or loss (currently taxed at the maximum rate of 20%) if the U.S. Holder held the ordinary shares for more than one year. The amount of the gain or loss will equal the difference between the U.S. Holder’s tax basis in the ordinary shares disposed of and the amount realized on the disposition, in each case as determined in U.S. dollars.
Passive Foreign Investment Companies
For U.S. federal income tax purposes, we will be considered a PFIC for any taxable year in which either (i) 75% or more of our gross income is passive income, or (ii) at least 50% of the average value of all of our assets for the taxable year produce or are held for the production of passive income. For this purpose, passive income generally includes dividends, interest, royalties, rents, annuities and the excess of gains over losses from the disposition of assets that produce passive income. Included in the calculation of our income and assets is a pro rata portion of the income and assets of each corporation in which we own, directly or indirectly, at least a 25% interest, by value. If we were determined to be a PFIC for U.S. federal income tax purposes, unfavorable and highly complex rules would apply to U.S. Holders owning ordinary shares directly or indirectly. Accordingly, you are urged to consult your tax advisors regarding the application of such rules.
Based on our current and projected income, assets and activities, we believe that we are not currently a PFIC, nor do we expect to become a PFIC in the foreseeable future. However, because the determination of whether we are a PFIC is based upon the composition of our income and assets from time to time, there can be no assurance that we will not become a PFIC for any future taxable year.
If we are treated as a PFIC for any taxable year, dividends on our ordinary shares would not qualify for the reduced tax rate on qualified dividend income, discussed above.
If we are determined to be a PFIC for any taxable year and the U.S. Holder does not make either a (i) a timely election to treat their investment in the ordinary shares as an investment in a “qualified electing fund” (by making a “QEF Election”) for our first taxable year as a PFIC in which the U.S. Holder held (or was deemed to hold) the ordinary shares, or (ii) a mark-to-market election, each as described below, such holder generally will be subject to special rules for regular U.S. federal income tax purposes with respect to:
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any gain recognized by the U.S. Holder on the sale or other disposition of its ordinary shares; and
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any “excess distribution” made to the U.S. Holder (generally, any distributions to such U.S. Holder during a taxable year of the U.S. Holder that are greater than 125% of the average annual distributions received by such U.S. Holder in respect of the ordinary shares during the three preceding taxable years of such U.S. Holder or, if shorter, such U.S. Holder’s holding period for the ordinary shares).
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Under the PFIC rules:
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the U.S. Holder’s gain or excess distribution will be allocated ratably over the U.S. Holder’s holding period for the ordinary shares;
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the amount deemed realized by the U.S. Holder in each year will be subject to tax at the highest marginal rate in effect for such year (other than income allocated to the current period or any taxable period before we became a PFIC, which would be subject to tax, at the U.S. Holder’s regular ordinary income rate for the current year and would not be subject to the interest change discussed below); and
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the interest charge generally applicable to underpayments of tax will be imposed in respect of the tax attributable to each such other taxable year of the U.S. Holder.
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If you make either a timely QEF Election or a timely mark-to-market election in respect of your ordinary shares, you would not be subject to the rules described above. If you make a timely QEF Election, you would be required to include in your income for each taxable year your pro rata share of our ordinary earnings as ordinary income and your pro rata share of our net capital gain as long-term capital gain, whether or not such amounts are actually distributed to you. You would not be eligible to make a QEF Election unless we comply with certain information reporting requirements.
Alternatively, assuming the ordinary shares continue to trade on the NASDAQ or another national securities exchange which is registered with the SEC, if you elect to “mark-to-market” your ordinary shares, you will generally include in income, in each year in which we are considered a PFIC, any excess of the fair market value of the ordinary shares at the close of each tax year over your adjusted basis in the ordinary shares. If the fair market value of the ordinary shares had depreciated below your adjusted basis at the close of the prior tax year, you may generally deduct the excess of the adjusted basis of the ordinary shares over its fair market value at that time. However, such deductions would generally be limited to the net mark-to-market gains, if any, that you included in income with respect to such ordinary shares in prior years. Income recognized and deductions allowed under the mark-to-market provisions, as well as any gain or loss on the disposition of ordinary shares with respect to which the mark-to-market election is made, is treated as ordinary income or loss (except that loss on a disposition of ordinary shares is treated as capital loss to the extent the loss exceeds the net mark-to-market gains, if any, that you included in income with respect to such ordinary shares in prior years). Gain or loss from the disposition of ordinary shares (as to which a mark-to-market election was made) in a year in which we are no longer a PFIC, will be capital gain or loss.
A U.S. Holder that owns (or is deemed to own) ordinary shares in a PFIC during any taxable year of the U.S. Holder may have to file an Internal Revenue Service (“IRS”) Form 8621 (whether or not a mark-to-market election is or has been made) with such U.S. Holder’s U.S. federal income tax return and provide such other information as may be required by the U.S. Treasury Department.
The rules dealing with PFICs are very complex and are affected by various factors in addition to those described above. Accordingly, U.S. Holders of our ordinary shares should consult their own tax advisors concerning the application of the PFIC rules to our ordinary shares under their particular circumstances.
Backup Withholding and Information Reporting
Payments in respect of ordinary shares may be subject to information reporting to the IRS and to U.S. backup withholding tax (currently at 28%). Backup withholding will not apply, however, if you (i) are a corporation or fall within certain exempt categories, and demonstrate such fact when so required, or (ii) furnish a correct taxpayer identification number and make any other required certification.
Backup withholding is not an additional tax. Amounts withheld under the backup withholding rules may be credited against a U.S. Holder’s U.S. tax liability A U.S. Holder may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the IRS and furnishing any required information in a timely manner. U.S. Holders of ordinary shares should consult their tax advisors regarding the application of the U.S. information reporting and backup withholding rules.
U.S. individuals that hold certain specified foreign financial assets, including stock in a foreign corporation, with values in excess of certain thresholds are required to report such specified foreign financial assets on Form 8938 with their U.S. federal income tax return. Taxpayers who fail to file the form when required are subject to penalties. An exemption from reporting applies to foreign assets held through a U.S. financial institution, generally including a non-U.S. branch or subsidiary of a U.S. institution or a U.S. branch of a non-U.S. institution. Investors are encouraged to consult with their own tax advisors regarding the possible application of this disclosure requirement to their investment in ordinary shares.
CERTAIN ISRAELI TAX CONSIDERATIONS
The following is a summary of the current tax structure applicable to companies in Israel, with special reference to its effect on us. The following also contains a discussion of the material Israeli tax consequences to purchasers of our ordinary shares and Israeli government programs benefiting us. This summary does not discuss all the aspects of Israeli tax law that may be relevant to a particular investor in light of his or her personal investment circumstances or to some types of investors subject to special treatment under Israeli law. Examples of this kind of investor include residents of Israel or traders in securities who are subject to special tax regimes not covered in this discussion. Since some parts of this discussion are based on new tax legislation that has not yet been subject to judicial or administrative interpretation, we cannot assure you that the appropriate tax authorities or the courts will accept the views expressed in this discussion.
General Corporate Tax Rate
The Israeli corporate tax rate was 24% in 2011, 25% in 2012 and 25% in 2013 and 26.5% in 2014 and onwards. The corporate tax rate is expected to be at 26.5% in 2015 and thereafter. In view of this increase in the corporate tax rate to 25% in 2012 and to 26.5% in 2014, the real capital gains tax rate and the real betterment tax rate were also increased accordingly. Capital gains derived after January 1, 2003 (the gains derived from the sale of listed securities that are taxed at the prevailing corporate tax rates) are subject to the applicable corporate tax rate of 26.5% in 2014 and onwards.
Law for the Encouragement of Industry (Taxes), 1969
The Law for the Encouragement of Industry (Taxes), 1969, generally referred to as the Industry Encouragement Law, provides several tax benefits for industrial companies. We believe that we currently qualify as an “Industrial Company” within the meaning of the Industry Encouragement Law. The Industry Encouragement Law defines “Industrial Company” as a company resident and incorporated in Israel, of which 90% or more of its income in any tax year, other than of income from defense loans, capital gains, interest and dividend, is derived from an “Industrial Enterprise” owned by it which is located in Israel or the Area (as such term is defined in the Israeli Tax Ordinance). An “Industrial Enterprise” is defined as an enterprise whose major activity in a given tax year is industrial production activity.
The following corporate tax benefits, among others, are available to Industrial Companies:
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Amortization of the cost of purchased know-how and patents and/or right to use a patent and know-how which are used for the development or advancement of the company, over an eight-year period;
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Accelerated depreciation rates on equipment and buildings;
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Under specified conditions, an election to file consolidated tax returns with additional related Israeli Industrial Companies; and
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Expenses related to a public offering are deductible in equal amounts over three years.
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Eligibility for the benefits under the Industry Encouragement Law is not subject to receipt of prior approval from any governmental authority. We cannot assure that we qualify or will continue to qualify as an “Industrial Company” or that the benefits described above will be available in the future.
Capital Gains Tax on Sales of Our Ordinary Shares
Capital gains tax is imposed on the disposal of capital assets by an Israeli resident and on the disposal of such assets by a non-Israeli resident if those assets are either (i) located in Israel; (ii) shares or rights to shares in an Israeli resident company, or (iii) represent, directly or indirectly, rights to assets located in Israel. The Israeli Income Tax Ordinance distinguishes between “Real Capital Gain” and “Inflationary Surplus.” The Real Capital Gain on the disposition of a capital asset is the amount of total capital gain in excess of Inflationary Surplus. Inflationary Surplus is computed, generally, on the basis of the increase in the Israeli Consumer Price Index between the date of purchase and the date of disposal of the capital asset.
Under Israeli Income Tax Ordinance, shareholders that are not Israeli residents are generally exempt from Israeli capital gains tax on any gains derived from the sale, exchange or disposition of our ordinary shares, provided that: (i) the securities were purchased upon or after the registration of the securities on a stock exchange; and (ii) such gains did not derive from a permanent establishment or business activity of such shareholders in Israel. Under some conditions shareholders that are not Israeli residents are generally exempt from Israeli capital gains tax on any gains derived from the sale, exchange or disposition of securities that are not listed on a stock exchange. However, non-Israeli corporations will not be entitled to the foregoing exemptions if Israeli resident(s) (i) have a controlling interest of 25% or more in such non-Israeli corporation, or (ii) are the beneficiaries of or is entitled to 25% or more of the revenues or profits of such non-Israeli corporation, whether directly or indirectly.
Under the U.S.-Israel Tax Treaty, the sale, exchange or disposition of our ordinary shares by a shareholder who is a U.S. resident (for purposes of the U.S.-Israel Tax Treaty) holding the ordinary shares as a capital asset is exempt from Israeli capital gains tax unless either (i) the shareholder holds, directly or indirectly, shares representing 10% or more of our voting capital during any part of the 12-month period preceding such sale, exchange or disposition, (ii) ) or the seller, if an individual, has been present in Israel for more than 183 days (in the aggregate) during the taxable year, or (iii) the capital gains arising from such sale are attributable to a permanent establishment of the shareholder located in Israel. However, under the U.S.-Israel Tax Treaty, U.S. Residents would be permitted to claim a credit for such taxes against the U.S. federal income tax imposed with respect to such sale, exchange or disposition, subject to limitations in U.S. laws applicable to foreign tax credits. The treaty does not relate to U.S. state or local taxes.
Shareholders may be required to demonstrate that they are exempt from tax on their capital gains in order to avoid withholding at source at the time of sale.
Individual and corporate shareholders dealing in securities in Israel are taxed at the tax rates applicable to business income (a tax rate of 24% for a corporation in 2011, 25% in 2012 and 2013 and 26.5% in 2014 and thereafter) and a marginal tax rate of up to 45% for an individual in 2011, 48% in 2012 and 50% in 2013 and thereafter. In 2014, an additional tax liability of 2% was added to the applicable tax rate on the annual taxable income of individuals (whether any such individual is an Israeli resident or non-Israeli resident) exceeding NIS 811,560 ($208,681) (NIS 810,720 as of 2015).
Taxation of Foreign Resident Holders of Shares
Non-residents of Israel are generally subject to Israeli income tax on the receipt of dividends paid on our ordinary shares at the rate of 25%, which tax will be withheld at source, unless a different rate is provided in a treaty between Israel and the shareholder’s country of residence. With respect to a substantial shareholder, the applicable tax rate is at 30% Under the U.S.-Israel Tax Treaty, the maximum rate of tax withheld in Israel on dividends paid to a holder of our ordinary shares who is a U.S. resident (for purposes of the U.S.-Israel Tax Treaty) is 25%. However, generally, the maximum rate of withholding tax on dividends, not generated by our Approved Enterprise, that are paid to a U.S. corporation holding 10% or more of our outstanding voting capital throughout the tax year in which the dividend is distributed as well as the previous tax year, is 12.5%.
Residents of the United States will generally have taxes in Israel withheld at source. Such persons generally would be entitled to a credit or deduction for United States federal income tax purposes for the amount of such taxes withheld, subject to limitations applicable to foreign tax credits.
A non-resident of Israel who receives dividends from which tax was withheld is generally exempt from the duty to file returns in Israel in respect of such income; provided such income was not derived from a business conducted in Israel by the taxpayer, and the taxpayer has no other taxable sources of income in Israel.
Foreign Exchange Regulations
Dividends (if any) paid to the holders of our ordinary shares, and any amounts payable with respect to our ordinary shares upon dissolution, liquidation or winding up, as well as the proceeds of any sale in Israel of the ordinary shares to an Israeli resident, may be paid in non-Israeli currency or, if paid in Israeli currency, may be converted into freely reparable U.S. dollars at the rate of exchange prevailing at the time of conversion, however, Israeli income tax is required to have been paid or withheld on these amounts.
Controlled Foreign Corporation
In general, and subject to the provisions of all relevant legislation, an Israeli resident who holds, directly or indirectly, 10% or more of the rights in a foreign corporation whose shares are not publicly traded, in which more than 50% (in certain circumstances less than 50%) of the rights are held directly or indirectly by Israeli residents, and a majority of whose income in a tax year is considered passive income (generally referred to as a Controlled Foreign Corporation, or CFC) and such income is subject to tax outside of Israel at the rate of 15% or less (20% until 2013), is liable for tax on the portion of his income attributed to holdings in such corporation, as if such income was distributed to him as a dividend.
Share Allocations to controlling shareholders
If an individual controlling shareholder realized a right received in the past to acquire an asset (such as shares) or service, and if at the time of the realization there was a difference between the price normally payable for that asset or service and the price that person paid, or if a controlling shareholder received a loan, and if that loan was free of interest or bore a lower rate of interest than an annual rate of 4.07% (for corporations a rate of 3.05%), as of 2015, then the difference will be taxable under section 3(i) to the Tax Ordinance (according to the marginal tax rate of the grantee- up to 48% in 2015 an additional tax rate of 2% will apply if the taxable income in a tax year exceed the amount of NIS 810,720). In case the controlling shareholder is a corporation then the difference will be taxable at 26.5%.
Under the terms and subject to the conditions contained in an underwriting agreement, dated , 2015, we have agreed to sell to the underwriters named below, for which Chardan Capital Markets, LLC, or Chardan, is acting as representative, and the underwriters named below have agreed to purchase from us, the number of ordinary shares set forth opposite their respective names below.
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Underwriters
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Number of Shares
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Chardan Capital Markets, LLC
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Total
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The underwriting agreement provides that the obligation of the underwriters to purchase the ordinary shares offered hereby is subject to certain conditions and that the underwriters are obligated to purchase all of the shares offered hereby if any of the shares are purchased.
If the underwriters sell more shares than the above number, the underwriters have an option for 45 days to buy up to an aggregate of additional shares (15% of the shares sold in this offering) from us at the public offering price less the underwriting commissions and discounts to cover these sales.
Commissions, Discounts and Other Compensation
The underwriters have advised us that they propose to offer the shares to the public at the public offering price set forth on the cover page of this prospectus and to certain dealers at that price less a concession not in excess of $ per share. After this offering, the public offering price and concession may be changed by the underwriters. No such change shall change the amount of proceeds to be received by us as set forth on the cover page of this prospectus. The shares are offered by the underwriters as stated herein, subject to receipt and acceptance by the underwriters and subject to their right to reject any order in whole or in part.
We have agreed to pay to the underwriters a fee equal to 7.5% of the aggregate gross proceeds of the shares sold in this offering. This fee is to be paid by means of a discount from the offering price to purchasers in the offering. In addition, we have agreed to reimburse the underwriters for their reasonable out-of-pocket expenses incurred in connection with this offering in an aggregate amount not to exceed $80,000 for all such expenses. We estimate that expenses payable by us in connection with this offering, other than the underwriting discounts and commissions referred to above, will be approximately $280,000.
We have paid an expense deposit of $10,000 to the representative, which will be applied against the accountable expenses that will be paid by us to the representative in connection with this offering. The underwriting agreement provides that in the event the offering is terminated, the $10,000 expense deposit paid to the representative will be returned to us to the extent that offering expenses are not actually incurred by the representative.
The following table summarizes the public offering price, underwriting discounts and commissions and proceeds before expenses to us assuming both no exercise and full exercise of the underwriters’ option to purchase additional shares:
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Total
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Per
Share
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Without
Over-
Allotment
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With
Over-
Allotment
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Public offering price
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Underwriting discounts and commissions
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Proceeds to us (before expenses)
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Lock-up Agreements
We have agreed not to offer, sell, contract to sell, pledge, grant options to purchase, or otherwise dispose of any of our ordinary shares or securities exchangeable for or convertible into our ordinary shares for a period of 90 days after the date of this prospectus without the prior written consent of Chardan. This agreement does not apply to the issuance of shares upon the exercise of rights to acquire ordinary shares pursuant to any existing stock option or similar equity incentive or compensation plan. Our directors, executive officers and holders of 5% or more of our ordinary shares have agreed, subject to certain exceptions, not to, directly or indirectly, sell, hedge, or otherwise dispose of any ordinary shares, options to acquire ordinary shares or securities exchangeable for or convertible into ordinary shares, for a period of 90 days from the date on which the Registration Statement on Form F-1 of which this prospectus forms a part is declared effective by the U.S. Securities and Exchange Commission without the prior written consent of Chardan.
The lock-up periods described in the preceding paragraph will be automatically extended if: (i) during the last 17 days of the lock-up period, we issue an earnings release or announce material news or a material event; or (ii) prior to the expiration of the lock-up period, we announce that we will release earnings results during the 16-day period beginning on the last day of the lock-up period, in which case the restrictions described in the preceding paragraph will continue to apply until the expiration of the 18-day period beginning on the date of the earnings release.
Right of First Refusal
Subject to certain terms and exceptions, for a period of one hundred eighty (180) days after the date of effectiveness of the registration statement of which this prospectus is a part, Chardan as representative of the underwriters has a right of first refusal to act as lead underwriter or placement agent on any future capital raising transactions involving our securities in which we elect to engage an investment banker or placement agent during such one hundred eighty (180) day period.
Indemnification and Contribution
The underwriting agreement provides for indemnification between us and the underwriters against specified liabilities, including liabilities under the Securities Act, and for contribution by us and the underwriters to payments that may be required to be made with respect to those liabilities. We have been advised that, in the opinion of the U.S. Securities and Exchange Commission, indemnification of liabilities under the Securities Act is against public policy as expressed in the Securities Act, and is therefore, unenforceable.
Offerings on Exchange
Our ordinary shares are listed on the NASDAQ Capital Market under the symbol “RADA.”
Short Sales, Stabilizing Transactions and Penalty Bids
In order to facilitate this offering, persons participating in this offering may engage in transactions that stabilize, maintain, or otherwise affect the price of ordinary shares during and after this offering. Specifically, the underwriters may engage in the following activities in accordance with the rules of the U.S. Securities and Exchange Commission.
Short sales. Short sales involve the sales by the underwriters of a greater number of securities than they are required to purchase in the offering. Covered short sales are short sales made in an amount not greater than the underwriters’ over-allotment option to purchase additional shares from us in this offering. The underwriters may close out any covered short position by either exercising their over-allotment option to purchase shares or purchasing shares in the open market. In determining the source of securities to close out the covered short position, the underwriters will consider, among other things, the price of securities available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option. Naked short sales are any short sales in excess of such over-allotment option. The underwriters must close out any naked short position by purchasing securities in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of securities in the open market after pricing that could adversely affect investors who purchase in this offering.
Stabilizing transactions. The underwriters may make bids for or purchases of the securities for the purpose of pegging, fixing, or maintaining the price of the securities, so long as stabilizing bids do not exceed a specified maximum.
Penalty bids. If the underwriters purchase securities in the open market in a stabilizing transaction or syndicate covering transaction, they may reclaim a selling concession from the underwriters and selling group members who sold those securities as part of this offering. Stabilization and syndicate covering transactions may cause the price of the securities to be higher than it would be in the absence of these transactions. The imposition of a penalty bid might also have an effect on the price of the securities if it discourages re-sales of the securities.
The transactions above may occur on the NASDAQ Capital Market or otherwise. Neither we nor the underwriters make any representation or prediction as to the effect that the transactions described above may have on the price of the securities. If these transactions are commenced, they may be discontinued without notice at any time.
Passive Market Making
In connection with this offering, underwriters and selling group members may engage in passive market making transactions in ordinary shares on the NASDAQ Capital Market in accordance with Rule 103 of Regulation M under the Exchange Act, during a period before the commencement of offers or sales of the shares and extending through the completion of the distribution. A passive market maker must display its bid at a price not in excess of the highest independent bid of that security. However, if all independent bids are lowered below the passive market maker’s bid, that bid must then be lowered when specified purchase limits are exceeded.
Electronic Distribution
A prospectus in electronic format may be made available on the internet sites or through other online services maintained by one or more of the underwriters participating in this offering, or by their affiliates. Other than the prospectus in electronic format, the information on any underwriters’ web site and any information contained in any other web site maintained by an underwriter is not part of the prospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsed by us or any underwriter in its capacity as underwriter and should not be relied upon by investors.
Affiliations
Except for services provided in connection with this offering, none of the underwriters has provided any investment banking or other financial services to us during the past 180 days and we do not expect to retain any of the underwriters to perform any investment banking or other financial services to us for at least 90 days after the date of this prospectus.
Controlling Shareholder
Under the negotiated terms, the lenders will be able to purchase securities from us on the same terms and conditions as the underwrites or placement agent establishes for this offering. In the event the lenders agree to participate in the offering to an extent that would result in this offering not being deemed to be a “public offering” under the federal securities laws, the lenders will have the right to subscribe for the shares that would have been offered in the potential offering in a private placement. The net proceeds of such private placement will be used in the same manner as described above.
Offer Restrictions Outside the United States
Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the securities offered by this prospectus in any jurisdiction where action for that purpose is required. The securities offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.
Australia
This prospectus is not a disclosure document under Chapter 6D of the Australian Corporations Act, has not been lodged with the Australian Securities and Investments Commission and does not purport to include the information required of a disclosure document under Chapter 6D of the Australian Corporations Act. Accordingly, (i) the offer of the securities under this prospectus is only made to persons to whom it is lawful to offer the securities without disclosure under Chapter 6D of the Australian Corporations Act under one or more exemptions set out in section 708 of the Australian Corporations Act; (ii) this prospectus is made available in Australia only to those persons as set forth in clause (i) above; and (iii) the offeree must be sent a notice stating in substance that by accepting this offer, the offeree represents that the offeree is such a person as set forth in clause (i) above, and, unless permitted under the Australian Corporations Act, agrees not to sell or offer for sale within Australia any of the securities sold to the offeree within 12 months after its transfer for the offeree under this prospectus.
China
The information in this document does not constitute a public offer of the shares, whether by way of sale or subscription, in the People’s Republic of China (excluding, for purposes of this paragraph, Hong Kong Special Administrative Region, Macau Special Administrative Region and Taiwan). The securities may not be offered or sold directly or indirectly in the PRC to legal or natural persons other than directly to “qualified domestic institutional investors.”
European Economic Area - Belgium, Germany, Luxembourg and the Netherlands
The information in this document has been prepared on the basis that all offers of shares will be made pursuant to an exemption under the Directive 2003/71/EC (“Prospectus Directive”), as implemented in Member States of the European Economic Area (each, a “Relevant Member State”), from the requirement to produce a prospectus for offers of securities.
An offer to the public of shares have not been made, and may not be made, in a Relevant Member State except pursuant to one of the following exemptions under the Prospectus Directive as implemented in that Relevant Member State:
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to legal entities that are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities;
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to any legal entity that has two or more of (i) an average of at least 250 employees during its last fiscal year; (ii) a total balance sheet of more than €43 million (as shown on its last annual unconsolidated or consolidated financial statements); and (iii) an annual net turnover of more than €50 million (as shown on its last annual unconsolidated or consolidated financial statement);
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to fewer than 100 natural or legal persons (other than qualified investors within the meaning of Article 2(1)I of the Prospectus Directive) subject to obtaining the prior consent of the company or any underwriter for any such offer; or
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in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of shares shall result in a requirement for the publication by the company of a prospectus pursuant to Article 3 of the Prospectus Directive.
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France
This document is not being distributed in the context of a public offering of financial securities (offre au public de titres financiers) in France within the meaning of Article L.411-1 of the French Monetary and Financial Code (Code monétaire et financier) and Articles 211-1 et seq. of the General Regulation of the French Autorité des marchés financiers (“AMF”). The shares have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in France.
This document and any other offering material relating to the shares have not been, and will not be, submitted to the AMF for approval in France and, accordingly, may not be distributed or caused to distributed, directly or indirectly, to the public in France.
Such offers, sales and distributions have been and shall only be made in France to (i) qualified investors (investisseurs qualifiés) acting for their own account, as defined in and in accordance with Articles L.411-2-II-2° and D.411-1 to D.411-3, D. 744-1, D.754-1 and D.764-1 of the French Monetary and Financial Code and any implementing regulation; and/or (ii) a restricted number of non-qualified investors (cercle restreint d’investisseurs non-qualifiés) acting for their own account, as defined in and in accordance with Articles L.411-2-II-2° and D.411-4, D.744-1, D.754-1 and D.764-1 of the French Monetary and Financial Code and any implementing regulation.
Pursuant to Article 211-3 of the General Regulation of the AMF, investors in France are informed that the ordinary shares cannot be distributed (directly or indirectly) to the public by the investors otherwise than in accordance with Articles L.411-1, L.411-2, L.412-1 and L.621-8 to L.621-8-3 of the French Monetary and Financial Code.
Ireland
The information in this document does not constitute a prospectus under any Irish laws or regulations and this document has not been filed with or approved by any Irish regulatory authority as the information has not been prepared in the context of a public offering of securities in Ireland within the meaning of the Irish Prospectus (Directive 2003/71/EC) Regulations 2005 (the “Prospectus Regulations”). The shares have not been offered or sold, and will not be offered, sold or delivered directly or indirectly in Ireland by way of a public offering, except to (i) qualified investors as defined in Regulation 2(l) of the Prospectus Regulations; and (ii) fewer than 100 natural or legal persons who are not qualified investors.
Israel
The shares offered by this prospectus may not be offered or sold to any person resident in Israel or entity organized or formed in Israel, unless it is an “institutional investor,” as set forth in Section 15A(b)(1) of the Israeli Securities Law 5728-1968, or the Israeli Securities Law, and has provided the requisite certification under the First Addendum of the Israeli Securities Law, or pursuant to other exemptions available under the Israeli Securities Law.
Italy
The offering of the shares in the Republic of Italy has not been authorized by the Italian Securities and Exchange Commission (Commissione Nazionale per le Società e la Borsa, “CONSOB” pursuant to the Italian securities legislation and, accordingly, no offering material relating to the shares may be distributed in Italy and such securities may not be offered or sold in Italy in a public offer within the meaning of Article 1.1(t) of Legislative Decree No. 58 of 24 February 1998 (“Decree No. 58”), other than:
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to Italian qualified investors, as defined in Article 100 of Decree no. 58 by reference to Article 34-ter of CONSOB Regulation no. 11971 of 14 May 1999 (“Regulation no. 1197l”) as amended (“Qualified Investors”); and
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in other circumstances that are exempt from the rules on public offer pursuant to Article 100 of Decree No. 58 and Article 34-ter of Regulation No. 11971 as amended. Any offer, sale or delivery of the shares or distribution of any offer document relating to the ordinary shares in Italy (excluding placements where a Qualified Investor solicits an offer from the issuer) under the paragraphs above must be:
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made by investment firms, banks or financial intermediaries permitted to conduct such activities in Italy in accordance with Legislative Decree No. 385 of 1 September 1993 (as amended), Decree No. 58, CONSOB Regulation No. 16190 of 29 October 2007 and any other applicable laws; and
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in compliance with all relevant Italian securities, tax and exchange controls and any other applicable laws.
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Any subsequent distribution of the shares in Italy must be made in compliance with the public offer and prospectus requirement rules provided under Decree No. 58 and the Regulation No. 11971 as amended, unless an exception from those rules applies. Failure to comply with such rules may result in the sale of such shares being declared null and void and in the liability of the entity transferring the shares for any damages suffered by the investors.
Japan
The shares have not been and will not be registered under Article 4, paragraph 1 of the Financial Instruments and Exchange Law of Japan (Law No. 25 of 1948), as amended (the “FIEL”) pursuant to an exemption from the registration requirements applicable to a private placement of securities to Qualified Institutional Investors (as defined in and in accordance with Article 2, paragraph 3 of the FIEL and the regulations promulgated thereunder). Accordingly, the shares may not be offered or sold, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan other than Qualified Institutional Investors. Any Qualified Institutional Investor who acquires shares may not resell them to any person in Japan that is not a Qualified Institutional Investor, and acquisition by any such person of shares are conditional upon the execution of an agreement to that effect.
Portugal
This document is not being distributed in the context of a public offer of financial securities (oferta pública de valores mobiliários) in Portugal, within the meaning of Article 109 of the Portuguese Securities Code (Código dos Valores Mobiliários). The shares have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in Portugal. This document and any other offering material relating to the shares have not been, and will not be, submitted to the Portuguese Securities Market Commission (Comissão do Mercado de Valores Mobiliários) for approval in Portugal and, accordingly, may not be distributed or caused to distributed, directly or indirectly, to the public in Portugal, other than under circumstances that are deemed not to qualify as a public offer under the Portuguese Securities Code. Such offers, sales and distributions of shares in Portugal are limited to persons who are “qualified investors” (as defined in the Portuguese Securities Code). Only such investors may receive this document and they may not distribute it or the information contained in it to any other person.
Sweden
This document has not been, and will not be, registered with or approved by Finansinspektionen (the Swedish Financial Supervisory Authority). Accordingly, this document may not be made available, nor may the shares be offered for sale in Sweden, other than under circumstances that are deemed not to require a prospectus under the Swedish Financial Instruments Trading Act (1991:980) (Sw. lag (1991:980) om handel med finansiella instrument). Any offering of shares in Sweden is limited to persons who are “qualified investors” (as defined in the Financial Instruments Trading Act). Only such investors may receive this document and they may not distribute it or the information contained in it to any other person.
Switzerland
The shares may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange (“SIX”) or on any other stock exchange or regulated trading facility in Switzerland. This document has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering material relating to the shares may be publicly distributed or otherwise made publicly available in Switzerland.
Neither this document nor any other offering material relating to the shares have been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of shares will not be supervised by, the Swiss Financial Market Supervisory Authority (FINMA).
This document is personal to the recipient only and not for general circulation in Switzerland.
United Arab Emirates
Neither this document nor the shares have been approved, disapproved or passed on in any way by the Central Bank of the United Arab Emirates or any other governmental authority in the United Arab Emirates, nor have we received authorization or licensing from the Central Bank of the United Arab Emirates or any other governmental authority in the United Arab Emirates to market or sell the shares within the United Arab Emirates. This document does not constitute and may not be used for the purpose of an offer or invitation. No services relating to the shares, including the receipt of applications and/or the allotment or redemption of such shares, may be rendered within the United Arab Emirates by us.
No offer or invitation to subscribe for ordinary shares is valid or permitted in the Dubai International Financial Centre.
United Kingdom
Neither the information in this document nor any other document relating to the offer has been delivered for approval to the Financial Services Authority in the United Kingdom and no prospectus (within the meaning of section 85 of the Financial Services and Markets Act 2000, as amended (“FSMA”)) has been published or is intended to be published in respect of the ordinary shares. This document is issued on a confidential basis to “qualified investors” (within the meaning of section 86(7) of FSMA) in the United Kingdom, and the shares may not be offered or sold in the United Kingdom by means of this document, any accompanying letter or any other document, except in circumstances that do not require the publication of a prospectus pursuant to section 86(1) FSMA. This document should not be distributed, published or reproduced, in whole or in part, nor may its contents be disclosed by recipients to any other person in the United Kingdom.
Any invitation or inducement to engage in investment activity (within the meaning of section 21 of FSMA) received in connection with the issue or sale of the shares have only been communicated or caused to be communicated and will only be communicated or caused to be communicated in the United Kingdom in circumstances in which section 21(1) of FSMA does not apply to us.
In the United Kingdom, this document is being distributed only to, and is directed at, persons (i) who have professional experience in matters relating to investments falling within Article 19(5) (investment professionals) of the Financial Services and Markets Act 2000 (Financial Promotions) Order 2005 (“FPO”); (ii) who fall within the categories of persons referred to in Article 49(2)(a) to (d) (high net worth companies, unincorporated associations, etc.) of the FPO; or (iii) to whom it may otherwise be lawfully communicated (together “relevant persons”). The investments to which this document relates are available only to, and any invitation, offer or agreement to purchase will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents.
The validity of the shares being offered by this Registration Statement and other legal matters concerning this offering relating to Israeli law will be passed upon for us by S. Friedman & Co., Tel Aviv, Israel. Certain legal matters in connection with this offering relating to U.S. law will be passed upon for us by Carter Ledyard & Milburn LLP, New York, New York. Certain legal matters in connection with this offering will be passed upon for the underwriters by Reed Smith LLP, New York, New York, and Yigal Arnon & Co., Tel Aviv, Israel.
EXPERTS
Our consolidated financial statements included in our Annual Report on Form 20-F as of December 31, 2014 and 2013, and for each of the three years in the period ended December 31, 2014, incorporated by reference in this Prospectus and Registration Statement, have been audited by Kost Forer Gabbay & Kasierer, a member firm of Ernst & Young Global, an independent registered public accounting firm, as set forth in their report thereon and incorporated by reference herein. The consolidated financial statements referred to above are incorporated by reference in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
ENFORCEABILITY OF CIVIL LIABILITIES
We are incorporated under the laws of the State of Israel. Service of process upon us and upon our directors and officers and the Israeli experts named in this prospectus, substantially all of whom reside outside the United States, may be difficult to obtain within the United States. Furthermore, because substantially all of our assets, and those of our directors and officers and the Israeli experts named herein, are located outside the United States, any judgment obtained in the United States against us or any of these persons may not be collectible within the United States.
We have irrevocably appointed Puglisi & Associates as our agent to receive service of process in any action against us in any United States federal or state court arising out of this offering or any purchase or sale of securities in connection with this offering. The address of Puglisi & Associates is 850 Library Avenue, Suite 204, P.O. Box 885, Newark, Delaware 19715.
We have been informed by our legal counsel, S. Friedman & Co., Tel Aviv, Israel, that there is doubt as to the enforceability of civil liabilities under U.S. securities laws pursuant to original actions instituted in Israel. Israeli courts may refuse to hear a claim based on an alleged violation of U.S. securities laws on the grounds that Israel is not the most appropriate forum to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact by expert witnesses, which can be a time-consuming and costly process. Certain matters of procedure may also be governed by Israeli law.
Subject to certain time limitations and legal procedures, Israeli courts may enforce a U.S. judgment in a civil matter, including a judgment based upon the civil liability provisions of the Securities Act and the Exchange Act and including a monetary or compensatory judgment in a non-civil matter, provided that, among other things:
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the judgment was rendered by a court which was, according to the laws of the state of the court, competent to render the judgment;
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the judgment may no longer be appealed;
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the obligation imposed by the judgment is enforceable according to the rules relating to the enforceability of judgments in Israel and the
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substance of the judgment is not contrary to public policy; and
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the judgment is executory in the state in which it was given.
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Even if such conditions are met, an Israeli court may not declare a foreign civil judgment enforceable if:
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the judgment was given in a state whose laws do not provide for the enforcement of judgments of Israeli courts (subject to exceptional cases);
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the enforcement of the judgment is likely to prejudice the sovereignty or security of the State of Israel;
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the judgment was obtained by fraud;
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the opportunity given to the defendant to bring its arguments and evidence before the court was not reasonable in the opinion of the Israeli court;
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the judgment was rendered by a court not competent to render it according to the laws of private international law as they apply in Israel;
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the judgment is contradictory to another judgment that was given in the same matter between the same parties and that is still valid; or
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at the time the action was brought in the foreign court, a lawsuit in the same matter and between the same parties was pending before a court or tribunal in Israel.
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Foreign judgments enforced by Israeli courts generally will be payable in Israeli currency, which can then be converted into non-Israeli currency and transferred out of Israel. The usual practice in an action before an Israeli court to recover an amount in a non-Israeli currency is for the Israeli court to render judgment for the equivalent amount in Israeli currency at the rate of exchange in force on the date of the judgment, but the judgment debtor may make payment in foreign currency. Pending collection, the amount of the judgment of an Israeli court stated in Israeli currency ordinarily will be linked to the Israeli consumer price index plus interest at the annual statutory rate set by Israeli regulations prevailing at that time. Judgment creditors must bear the risk of unfavorable exchange rates.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We are subject to the informational requirements of the Exchange Act, applicable to foreign private issuers. We, as a “foreign private issuer,” are exempt from the rules under the Exchange Act prescribing certain disclosure and procedural requirements for proxy solicitations, 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 purchases and sales of shares. In addition, we are not required to file annual, quarterly and current 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 will 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 also expect to furnish quarterly reports on Form 6-K containing unaudited interim financial information for the first three quarters of each fiscal year, within 90 days after the end of such quarter.
You may read and copy any document we file or furnish with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 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, N.E., Washington, DC 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference facilities. You can review our SEC filings and the registration statement by accessing the SEC’s internet site at http://www.sec.gov.
DOCUMENTS INCORPORATED BY REFERENCE
The SEC allows us to “incorporate by reference” into this prospectus the information we have filed with the SEC, which means that we can disclose important information to you by referring you to those filed documents. The information incorporated by reference is considered to be a part of this prospectus. Additional information regarding our directors, executive officers and employees, Board practices, compensation of management and our directors, quantitative and qualitative disclosures about market risk, as well as our consolidated financial statements are incorporated in this prospectus by reference to:
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our Annual Report on Form 20-F for the fiscal year ended December 31, 2014, filed with the SEC on April 29, 2015; and
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our Reports on Form 6-K, filed with the SEC on March 12, 2015, March 23, 2015, April 17, 2015, April 21, 2015, April 30, 2015, May 26, 2015, and July 6, 2015.
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This prospectus may contain information that updates or modifies information in one or more of the documents incorporated by reference in this prospectus.
You may request a paper copy of our SEC filings, at no cost, by writing to or telephoning us at the following address:
Rada Electronic Industries Ltd.
c/o Shiri Lazarovich, CFO
7 Giborei Israel Street
Netanya 4250407, Israel
+972 9 892 1122 (telephone number)
These reports may also be obtained on our website http://www.rada.com/corp/corporate-ir. None of the information on our website is a part of this prospectus.
EXPENSES RELATING TO THIS OFFERING
Set forth below is an itemization of the total expenses, other than underwriting discounts and commissions, which are expected to be incurred in connection with the offer and sale of the ordinary shares by us. With the exception of the SEC registration fee, and the FINRA filing fee, all amounts are estimates.
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SEC registration fee
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$ |
1,737.19 |
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FINRA filing fee
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2,742.50 |
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Printing fees and expenses
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1,500
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Legal fees and expenses
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105,000
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Accounting fees and expenses
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70,000
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Miscellaneous
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99,020
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Total
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$ |
280,000 |
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$8,500,000
Ordinary Shares
Chardan Capital Markets, LLC
, 2015
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
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Item 6.
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Indemnification of Office Holders (Including Directors)
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The Israeli Companies Law and the Israeli Securities Law 5728 – 1968 (the “Israeli Securities Law”), as were most recently amended, provide that a company may include in its articles of association provisions allowing it to:
1. partially or fully, exempt in advance, an office holder of the company from his or her responsibility for damages caused by the breach of his or her duty of care to the company, except for damages caused to the company due to any breach of such Office Holder’s duty of care towards the company in a “distribution” (as defined in the Israeli Companies Law).
2. enter into a contract to insure the liability of an office holder of the company by reason of acts or omissions committed in his or her capacity as an office holder of the company with respect to the following:
(a) the breach of his or her duty of care to the company or any other person;
(b) the breach of his or her fiduciary duty to the company to the extent he acted in good faith and had a reasonable basis to believe that the act or omission would not prejudice the interests of the company; and
(c) monetary liabilities or obligations which may be imposed upon him in favor of other persons.
3. indemnify an office holder of the company for:
(a) monetary liabilities or obligations imposed upon, or actually incurred by, such officer holder in favor of other persons pursuant to a court judgment, including a compromise judgment or an arbitrator’s decision approved by a court, by reason of acts or omissions of such officer holder in his or her capacity as an office holder of the company;
(b) reasonable litigation expenses, including attorney’s fees, actually incurred by such office holder or imposed upon him or her by a court, in an action, suit or proceeding brought against him or her by or on behalf of us or by other persons, or in connection with a criminal action from which he or she was acquitted, or in connection with a criminal action which does not require criminal intent in which he was convicted, in each case by reason of acts or omissions of such officer holder in his or her capacity as an office holder; and
(c) reasonable litigation expenses, including attorneys’ fees, actually incurred by such office holder due to an investigation or a proceeding instituted against such office holder by an authority competent to administrate such an investigation or proceeding, and that was finalized without the filing of an indictment against such office holder and without any financial obligation imposed on such office holder in lieu of criminal proceedings, or that was finalized without the filing of an indictment against such office holder but with financial obligation imposed on such office holder in lieu of criminal proceedings of a crime which does not require proof of criminal intent, in each case by reason of acts of such officer holder in his or her capacity as an office holder of the company.
The Israeli Companies Law provides that a company’s articles of association may provide for indemnification of an office holder post-factum and may also provide that a company may undertake to indemnify an office holder in advance, as described in:
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sub-section 3(a) above, provided such undertaking is limited to and actually sets forth the types of occurrences, which, in the opinion of the company’s Board of Directors based on the current activity of the company, are, at the time such undertaking is provided, foreseeable, and to an amount and degree that the Board of Directors has determined is reasonable for such indemnification under the circumstances; and
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sub-sections 3(b) and 3(c) above.
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The Israeli Companies Law provides that a company may not indemnify or exempt the liabilities of an office holder or enter into an insurance contract which would provide coverage for the liability of an office holder with respect to the following:
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a breach of his or her fiduciary duty, except to the extent described above;
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a breach of his or her duty of care, if such breach was done intentionally, recklessly or with disregard of the circumstances of the breach or its consequences;
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an act or omission done with the intent to unlawfully realize personal gain; or
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a fine or monetary settlement imposed upon him.
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The Israeli Companies Law adds that such clauses in a company’s Articles of Association that contradict the clauses of the Israeli Companies Law regarding indemnification or exemption of, or insurance for liabilities for an office holder are void.
The Israeli Companies Law also states that accepting a company’s undertaking for indemnification or exemption of the liabilities of an office holder, or entering into an insurance contract which would provide coverage for the liability of an office holder with respect to such office holder’s breach of his or her fiduciary duty, is also void and amounts to that office holder’s breach of his or her fiduciary duty towards the company.
Further, the Israeli Securities Law prohibits companies from exempting or indemnifying in advance or entering into a contract to insure the liability of an office holder of the company for (A) financial sanction pursuant to the provisions of Chapter H’3 of the Israeli Securities Law; (B) administrative infringements pursuant to the provisions of Chapter H’4 of the Israeli Securities Law or (C) infringements pursuant to the provisions of Chapter I’1 of the Israeli Securities Law.
However, an office holder, acting in the capacity of an office holder, could be exempted or indemnified by a company, and the company may enter into a contract to insure the liability of its office holders, for (A) expenses, including reasonable attorney’s fees and litigation expenses pursuant to the mentioned chapters of the Israeli Securities Law, and (B) payments to an injured party of infringement under Section 52ND(a)(1)(a) of the Israeli Securities Law.
Under the Israeli Companies Law, the term “office holder” may include a director, managing director, general manager, chief executive officer, executive vice president, vice president, other managers directly subordinate to the managing director and any other person fulfilling or assuming any such position or responsibility without regard to such person’s title.
The grant of an exemption, an undertaking to indemnify or indemnification of, and procurement of insurance coverage for, an office holder of a company requires, pursuant to the Israeli Companies Law, the approval of our audit committee and Board of Directors, and, in certain circumstances, including if the office holder is a director, the approval of our shareholders.
Our Articles of Association allow for indemnification of, and procurement of insurance coverage for our officers and directors to the maximum extent provided for by the Israeli Companies Law. Under our compensation policy, indemnification shall not cover any amounts payable under the directors’ and officers’ insurance and the aggregate amounts payable to all directors and officers with respect to any indemnification event shall not be greater than 25% of the company’s shareholders equity on the date of payment of the indemnification amount.
In the opinion of the Securities and Exchange Commission, indemnification of directors and office holders for liabilities arising under the Securities Act, however, is against public policy and therefore unenforceable.
There is no pending litigation or proceeding against any of our office holders as to which indemnification is being sought, nor are we aware of any pending or threatened litigation that may result in claims for indemnification by any office holder.
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Item 7.
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Recent Sales of Unregistered Securities
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Item 8.
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Exhibits and Financial Statement Schedules
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(a) Exhibits
See Exhibit Index beginning on page II-6 of this registration statement.
The agreements included as exhibits to this registration statement contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties were made solely for the benefit of the other parties to the applicable agreement and (i) were not intended to be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate; (ii) may have been qualified in such agreement by disclosure that was made to the other party in connection with the negotiation of the applicable agreement; (iii) may apply contract standards of “materiality” that are different from “materiality” under the applicable securities laws; and (iv) were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement.
We acknowledge that, notwithstanding the inclusion of the foregoing cautionary statements, we are responsible for considering whether additional specific disclosure of material information regarding material contractual provisions is required to make the statements in this registration statement not misleading.
(b) Financial Statement Schedules
Schedules have been omitted because the information required to be set forth therein is not applicable or is shown in the Consolidated Financial Statements or the Notes thereto.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4), or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form F-1 and has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Netanya, State of Israel on July 15, 2015.
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RADA ELECTRONIC INDUSTRIES LTD.
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By:
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/s/ Zvi Alon |
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Name: Zvi Alon |
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Title: Chief Executive Officer |
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Pursuant to the requirements of the Securities Act, this Amendment No. 1 to the Registration Statement has been signed below on July 15, 2015 by or on behalf of the following persons in the capacities and on the dates indicated.
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Title
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/s/ Zvi Alon
Zvi Alon
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Chief Executive Officer
(Principal Executive Officer)
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/s/ Shiri Lazarovich
Shiri Lazarovich
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Chief Financial Officer
(Principal Financial and Accounting Officer)
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Chairman of the Board
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Director
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Director
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Ben Zion Gruber
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Director
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Michael Letchinger
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Director
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Nurit Mor
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Outside Director
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Elan Sigal
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Outside Director
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*: Zvi Alon
Attorney-in-fact
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AUTHORIZED REPRESENTATIVE
Pursuant to the requirements of Section 6(a) of the Securities Act of 1933, the undersigned has signed this Amendment No. 1 to the Registration Statement, solely in its capacity as the duly authorized representative of Rada Electronic Industries Ltd., in the City of Newark, Delaware on the 13th day of July, 2015.
Puglisi & Associates
By: /s/ Donald J. Puglisi
Title: Managing Director
850 Library Avenue, Suite 204
Newark, Delaware 19711
Tel. (302) 738-6680
EXHIBITS
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Exhibit
Number
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Description
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1.1*
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Form of Underwriting Agreement
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3.1*
3.2*
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Memorandum of Association of the Company
Articles of Association of the Company
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4.1**
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Specimen of Share Certificate
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5.1*
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Opinion of S. Friedman & Co.
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10.1
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Loan Agreement dated July 1, 2008, between the Company and Faith Content Development Ltd. (1)
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10.2
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License Agreement dated July 2, 2008 between the Company and Faith Content Development Ltd. (2)
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10.3
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First Amendment to the Loan Agreement dated February 27, 2012, by and among the Company, Faith Content Development Limited and Mr. Benzion Gruber (3)
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10.4**
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Second Amendment to the Loan Agreement dated April 27, 2014, by and among the Company, Faith Content Development Limited and Mr. Benzion Gruber
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10.5**
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Third Amendment to the Loan Agreement dated June 1, 2015, by and among the Company, Faith Content Development Limited and Mr. Benzion Gruber
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21.1
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List of Subsidiaries (4)
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23.1*
23.2*
24.1**
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Consent of Kost Forer Gabbay & Kasierer, A Member of Ernst & Young Global
Consent of S. Friedman & Co. (included in Exhibit 5.1)
Power of Attorney (included on signature page)
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(1)
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Filed as Exhibit 4.4 to our Annual Report on Form 20-F for the year ended December 31, 2008 and incorporated herein by reference.
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(2)
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Filed as Exhibit 4.6 to our Annual Report on Form 20-F for the year ended December 31, 2008 and incorporated herein by reference.
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(3)
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Filed as Exhibit 4.3 to our Annual Report on Form 20-F for the year ended December 31, 2012 and incorporated herein by reference.
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(4)
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Filed as Exhibit 8.1 to our Annual Report on Form 20-F for the year ended December 31, 2014 and incorporated herein by reference.
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II-6
Exhibit 1.1
RADA ELECTRONIC INDUSTRIES LTD.
[INSERT NUMBER] Ordinary Shares, NIS 0.015 par value
UNDERWRITING AGREEMENT
[INSERT DATE], 2015
Chardan Capital Markets, LLC
As Representative of the
Several Underwriters
c/o Chardan Capital Markets, LLC
17 State Street, Suite 1600
New York, NY 10004
Ladies and Gentlemen:
RADA Electronic Industries Ltd., an Israeli company (the “Company”), proposes, subject to the terms and conditions stated herein, to issue and sell to the several underwriters named in Schedule A hereto (the “Underwriters,” or, each, an “Underwriter”), for whom you are acting as representative (the “Representative”), an aggregate of [INSERT NUMBER] ordinary shares, NIS 0.015 par value per share (each, an “Ordinary Share” and, collectively, the “Ordinary Shares”), of the Company (the “Firm Shares”). The Company has granted the Underwriters the option to purchase an aggregate of up to [INSERT NUMBER] additional Ordinary Shares (the “Additional Shares”) as may be necessary to cover any over-allotments made in connection with the offering. The Firm Shares and the Additional Shares are collectively referred to as the “Securities.” The offering and sale of the Securities contemplated by this Underwriting Agreement (this “Agreement”) is referred to herein as the “Offering.”
The Company and the Underwriters hereby confirm their agreement as follows:
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1.
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PURCHASE, SALE AND DELIVERY OF OFFERED SECURITIES.
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(a) On the basis of the representations, warranties and agreements herein contained, but subject to the terms and conditions herein set forth, the Company agrees to sell to the Underwriters, and the Underwriters agree, severally and not jointly, to purchase from the Company, at a price of $[XX.XX] per share (the “Purchase Price”), the respective number of Firm Shares set forth opposite the names of the Underwriters in Schedule A hereto. The Company will deliver the Firm Shares to the Representative for the respective accounts of the several Underwriters, through the facilities of The Depository Trust Company, or, at the election of the Representative, in the form of definitive certificates, in each such case, issued in such names and in such denominations as the Representative may direct by notice in writing to the Company given at or prior to 12:00 noon, New York time, on the second (2nd) full business day preceding the Closing Date against payment of the aggregate Purchase Price therefor by wire transfer in federal (same day) funds to an account at a bank acceptable to the Representative payable to the order of the Company for the Firm Shares sold by them. Time shall be of the essence, and delivery at the time and place specified pursuant to this Agreement is a further condition of the obligations of each Underwriter hereunder. The time and date of the delivery and closing shall be at 10:00 a.m.., New York time, on [INSERT DATE], 2015, in accordance with Rule 15c6-1 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The time and date of such payment and delivery are herein referred to as the “Closing Date.” The Closing Date and the location of delivery of, and the form of payment for, the Firm Shares may be varied by agreement by and between the Company and the Representative.
(b) For the purpose of covering any over-allotments in connection with the distribution and sale of the Firm Shares as contemplated by the Prospectus, the Underwriters may purchase all or less than all of the Additional Shares. The price per share to be paid for the Additional Shares shall be the Purchase Price. The Company agrees to sell to the Underwriters the number of Additional Shares specified in the written notice delivered by the Representative to the Company described below and the Underwriters agree, severally and not jointly, to purchase such Additional Shares. The option granted hereby may be exercised as to all or any part of the Additional Shares at any time, and from time to time, not more than forty-five (45) days subsequent to the date of this Agreement. No Additional Shares shall be sold and delivered unless the Firm Shares previously have been, or simultaneously are, sold and delivered. The right to purchase the Additional Shares or any portion thereof may be surrendered and terminated at any time upon notice by the Representative to the Company. The option granted hereby may be exercised by written notice being given to the Company by the Representative setting forth the number of Additional Shares to be purchased by the Underwriters and the date and time for delivery of and payment for the Additional Shares. Each date and time for delivery of and payment for the Additional Shares (which may be the Closing Date, but not earlier) is herein called the “Option Closing Date” and shall in no event be earlier than two (2) business days nor later than five (5) business days after written notice is given. The Option Closing Date and the Closing Date are herein called the “Closing Dates.” The Company will deliver the Additional Shares to the Representative for the respective accounts of the several Underwriters through the facilities of The Depository Trust Company or, at the election of the Representative, in the form of definitive certificates, issued in such names and in such denominations as the Representative may direct by notice in writing to the Company given at or prior to 12:00 noon, New York time, on the second (2nd) full business day preceding the Option Closing Date against payment of the aggregate Purchase Price therefor by wire transfer in federal (same day) funds to an account at a bank acceptable to the Representative payable to the order of the Company for the Additional Shares. The Company, in the event the Representative elects to have the Underwriters take delivery of definitive certificates instead of delivery from the Company of the certificates through the facilities of The Depository Trust Company, shall make the certificates for the Additional Shares available to the Representative for examination on behalf of the Underwriters in New York, New York not later than 10:00 a.m., New York Time, at least one (1) full business day prior to the Option Closing Date. The Option Closing Date and the location of delivery of, and the form of payment for, the Additional Shares may be varied by agreement by the Company and the Representative.
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2.
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REPRESENTATIONS AND WARRANTIES. The Company represents and warrants to the several Underwriters, as of the date hereof and as of the Closing Dates, and agrees with the several Underwriters that:
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(a) The Company has filed with the U.S. Securities and Exchange Commission (the “Commission”) a registration statement (including all pre-effective amendments thereto) on Form F-1 (File No. 333-XXXXXX), including any related prospectus or prospectuses, for the registration of the Securities under the Securities Act of 1933, as amended (the “Securities Act”), which registration statement (including all pre-effective amendments thereto) have been prepared by the Company in all material respects in conformity with the requirements of the Securities Act and the rules and regulations of the Commission under the Securities Act (the “Rules and Regulations”) and contains or will contain all material statements that are required to be stated therein in accordance with the Securities Act and the Rules and Regulations. Except as the context may otherwise require, such registration statement (as amended) on file with the Commission at the date and time the registration statement is declared effective (including the Preliminary Prospectus (defined below) included in the registration statement, financial statements, schedules, exhibits and all other documents filed as a part thereof or incorporated therein and all information deemed to be a part thereof, as of the date and time the Registration Statement is declared effective, pursuant to paragraph (b) of Rule 430A of the Securities Act Regulations (the “Rule 430A Information”)), is referred to herein as the “Registration Statement.” If the Company files any registration statement pursuant to Rule 462(b) of the Securities Act Regulations (a “Rule 462(b) Registration Statement”), then after such filing, the term “Registration Statement” shall include such Rule 462(b) Registration Statement. The Registration Statement has been declared effective by the Commission on the date hereof.
Each prospectus used prior to the effectiveness of the Registration Statement, and each prospectus that omitted the Rule 430A Information that was used after such effectiveness and prior to the execution and delivery of this Agreement, is herein called a “Preliminary Prospectus.” The Preliminary Prospectus, subject to completion, dated [INSERT DATE], 2015, that was included in the Registration Statement immediately prior to the Applicable Time is hereinafter called the “Pricing Prospectus.” The final prospectus in the form first furnished to the Underwriters for use in the Offering is hereinafter called the “Prospectus.”
“Applicable Time” means [5:30 p.m.], New York time, on the date of this Agreement or such other time as agreed to by the Company and the Representative.
“Israeli Companies Law” means the Israeli Companies Law, 5759-1999, as amended, and the regulations promulgated thereunder.
“Israeli Securities Law” means the Israeli Securities Law, 5728-1968, as amended, and the regulations promulgated thereunder.
“Issuer Free Writing Prospectus” means any “issuer free writing prospectus,” as defined in Rule 433 of the Rules and Regulations relating to the Securities in the form filed or required to be filed with the Commission or, if not required to be filed, in the form retained in the Company’s records pursuant to Rule 433(g) of the Rules and Regulations.
“General Disclosure Package” means any General Use Free Writing Prospectus (defined below) issued at or prior to the Applicable Time, the Pricing Prospectus and the information included on Schedule B hereto, all considered together.
“General Use Free Writing Prospectus” means any Issuer Free Writing Prospectus that is identified on Schedule C to this Agreement.
“Limited Use Free Writing Prospectuses” means any Issuer Free Writing Prospectus that is not a General Use Free Writing Prospectus.
“For purposes of this Agreement, all references to the Registration Statement, the Rule 462(b) Registration Statement, the Prospectus or any amendment or supplement to any of the foregoing shall be deemed to include the copy filed with the Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval System or any successor system.
(b) Neither the Commission nor, to the Company’s knowledge, any state regulatory authority has issued any order preventing or suspending the use of the Registration Statement, any Preliminary Prospectus, any Issuer Free Writing Prospectus or the Prospectus, or has instituted or, to the Company’s knowledge, threatened to institute, any proceedings with respect to such an order. The Company has complied with each request (if any) from the Commission for additional information.
(c) Each of the Registration Statement and any post-effective amendment thereto, at the time it became effective, complied in all material respects with the requirements of the Securities Act and the Rules and Regulations. Each Preliminary Prospectus delivered to the Underwriters in connection with the Offering, and the Prospectus, at the time each was filed with the Commission, complied in all material respects with the requirements of the Securities Act and the Rules and Regulations.
(d) Neither the Registration Statement nor any amendment thereto, at its effective time, as of the Applicable Time, or at the Closing Dates, contained, contains or will contain an untrue statement of a material fact or omitted, omits or will omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading.
(e) The General Disclosure Package, as of the Applicable Time and as of the Closing Dates, did not, does not and will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; and each Issuer Limited Use Free Writing Prospectus hereto does not conflict with the information contained in the Registration Statement, any Preliminary Prospectus, the Pricing Prospectus or the Prospectus, and each such Issuer Limited Use Free Writing Prospectus, as supplemented by and taken together with the Pricing Prospectus as of the Applicable Time, did not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that the Company makes no representations or warranties as to information contained in or omitted from the Pricing Prospectus, in reliance upon, and in conformity with, written information furnished to the Company through the Representative by or on behalf of any Underwriter specifically for inclusion therein, which information the parties hereto agree is limited to the Underwriter’s Information as defined in Section 18.
(f) Neither the Prospectus nor any amendment or supplement thereto (including any prospectus wrapper), as of its issue date, at the time of any filing with the Commission pursuant to Rule 424(b) or at the Closing Dates, included, includes or will include an untrue statement of a material fact or omitted, omits or will omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the Company makes no representations or warranties as to information contained in or omitted from the Prospectus, in reliance upon, and in conformity with, written information furnished to the Company through the Representative by or on behalf of any Underwriter specifically for inclusion therein, which information the parties hereto agree is limited to the Underwriter’s Information as defined in Section 18.
(g) The Company has not, directly or indirectly, distributed and will not distribute any offering material in connection with the Offering and sale of the Securities other than any Preliminary Prospectus, the Prospectus and other materials, if any, permitted under the Securities Act. The Company will file with the Commission all Issuer Free Writing Prospectuses in the time and manner required under Rules 163(b)(2) and 433(d) of the Rules and Regulations.
(h) At the time of filing the Registration Statement, any Rule 462(b) Registration Statement and any post-effective amendments thereto, and at the date hereof, the Company was not, and the Company currently is not, an “ineligible issuer,” as defined in Rule 405 of the Rules and Regulations and the Company is eligible to incorporate information by reference pursuant to General Instruction VI to Form F-1.
(i) The Company has been duly organized and is validly existing under the laws of the State of Israel, with requisite power and authority to own or lease its properties and conduct its business as described in the Registration Statement, the General Disclosure Package and the Prospectus. The Company is duly qualified to transact business in all jurisdictions in which the conduct of its business requires such qualification except where the failure to be so qualified would not (i) have, individually or in the aggregate, a material adverse effect on the earnings, business, management, properties, assets, rights, operations, condition (financial or otherwise) or prospects of the Company or (ii) prevent the consummation of the transactions contemplated hereby (the occurrence of any such effect or any such prevention described in the foregoing clauses (i) and (ii) being referred to as a “Material Adverse Effect”). The Company has not been designated as a “breaching company” (within the meaning of Section 362A of the Israeli Companies Law) by the Registrar of Companies of the State of Israel (the “Registrar”) and it has not received any notice or warning (in writing or otherwise) concerning any intention of the Registrar to register and/declare the Company a “breaching company.” The articles of association of the Company comply with Israeli law and are in full force and effect.
(j) The Company has the power and authority to enter into this Agreement, and to authorize, issue and sell the Securities as contemplated by this Agreement. This Agreement has been duly and validly authorized by the Company and, when executed and delivered, will constitute a valid, legal and binding obligation of the Company, enforceable against the Company in accordance with its terms, except: (i) as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors’ rights generally; (ii) as enforceability of any indemnification or contribution provision may be limited under the federal and state securities laws; and (iii) that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to the equitable defenses and to the discretion of the court before which any proceeding therefor may be brought.
(k) The execution, delivery and performance of this Agreement by the Company, and the consummation of the transactions contemplated hereby will not (with or without notice or lapse of time or both) conflict with or result in a breach or violation of any of the terms or provisions of, constitute a default or a Debt Repayment Triggering Event (as defined below) under, give rise to any right of termination or other right or the cancellation or acceleration of any right or obligation or loss of a benefit under, or give rise to the creation or imposition of any lien, encumbrance, security interest, claim or charge upon any property or assets of the Company pursuant to, (i) any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company is a party or by which the Company is bound or to which any of the property or assets of the Company is subject, (ii) the articles of association of the Company, or (iii) any law, statute, rule, regulation, judgment, order or decree of any court or governmental agency or regulatory agency or body, domestic or foreign, applicable to the Company having jurisdiction over the Company or any of its properties or assets, except for any such breach, violation, default, termination, cancellation, acceleration, loss, encumbrance, security interest, claim or charge that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. A “Debt Repayment Triggering Event” means any event or condition that gives, or with the giving of notice or lapse of time would give the holder of any note, debenture or other evidence of indebtedness (or any person acting on such holder’s behalf) the right to require the repurchase, redemption or repayment of all or a portion of such indebtedness by the Company.
(l) The Securities have been duly authorized for issuance and sale and, when issued and paid for in accordance with this Agreement, will be validly issued, fully paid and non-assessable; the holders thereof are not and will not be subject to personal liability by reason of being such holders, other than to the extent set forth in the Israeli Companies Law; the Securities are not and will not be subject to the preemptive rights of any holders of any security of the Company or similar contractual rights granted by the Company or such rights shall have been expressly waived in writing; and all corporate action required to be taken for the authorization, issuance and sale of the Securities has been duly and validly taken. The Securities conform in all material respects to all statements with respect thereto contained in the Registration Statement, the General Disclosure Package and the Prospectus.
(m) The Company has an authorized capitalization as set forth under the heading “Capitalization” in the Pricing Prospectus, and all of the issued shares of the Company have been duly and validly authorized and issued, are fully paid and non-assessable, have been issued in compliance with federal, state and local, including Israeli, securities laws and the Israeli Companies Law, and conform to the description thereof contained in the Registration Statement, General Disclosure Package and the Prospectus. As of the date of this Agreement (without giving effect to the transactions contemplated hereby, there were 8,998,396 ordinary shares issued and outstanding. All of the Company’s options, warrants and other rights to purchase or exchange any securities for shares of the Company’s share capital have been duly authorized and validly issued and were issued in compliance with federal, state and local, including Israeli, securities laws and the Israeli Companies Law. None of the outstanding Ordinary Shares was issued in violation of any preemptive rights, rights of first refusal or other similar rights to subscribe for or purchase securities of the Company. There are no authorized or outstanding options, warrants, preemptive rights, rights of first refusal or other rights to purchase, or equity or debt securities convertible into or exchangeable or exercisable for, any share capital of the Company other than those described above or accurately described in the Registration Statement, General Disclosure Package and the Prospectus. The Company has not issued any options under its stock option plan.
(n) There is no shareholders’ agreement, voting agreement, investor rights agreement or similar agreement with respect to the Company current in effect, except as disclosed in the Registration Statement, General Disclosure Package and the Prospectus.
(o) Other than ownership of Beijing Hua Rui Aircraft Components Maintenance and Service, Co., Ltd. (“ACS”) and Rada Electronic Industries Inc., the Company does not own or control, directly or indirectly, any interest in any corporation, partnership, limited liability partnership, limited liability company, association or other entity.
(p) Kost Forer Gabbay & Kasierer (the “Auditors”), a member firm of Ernst & Young Global, who has certified certain of the financial statements, together with related notes, filed with the Commission as part of or incorporated by reference in the Registration Statement, the General Disclosure Package and the Prospectus, is an independent registered public accounting firm with respect to the Company within the meaning of the Securities Act and the applicable Rules and Regulations and the Public Company Accounting Oversight Board (United States) (the “PCAOB”) as required by the Securities Act.
(q) The financial statements of the Company, together with related notes, as incorporated by reference in the Registration Statement, the General Disclosure Package and the Prospectus, comply in all material respects with the applicable requirements of the Securities Act and present fairly in all material respects the financial position and the results of operations and cash flows of the Company, at the indicated dates and for the indicated periods. Such financial statements and related schedules have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), consistently applied throughout the periods involved, except as disclosed therein, and all adjustments necessary for a fair presentation of results for such periods have been made. The summary and selected financial and statistical data included in the Registration Statement, the General Disclosure Package and the Prospectus present fairly in all material respects the information shown therein and such data has been compiled on a basis consistent with the financial statements presented therein and the books and records of the Company. All disclosures contained in the Registration Statement, the General Disclosure Package and the Prospectus regarding “non-GAAP financial measures” comply with Regulation G of the Exchange Act and Item 10 of Regulation S-K under the Securities Act, to the extent applicable. The Company does not have any material liabilities or obligations, direct or contingent (including any off-balance sheet obligations), not disclosed in the Registration Statement, the General Disclosure Package and the Prospectus. There are no financial statements (historical or pro forma) that are required to be included in the Registration Statement, the General Disclosure Package or the Prospectus that are not included or incorporated by reference as required.
(r) Except as disclosed in the Registration Statement, the General Disclosure Package or the Prospectus, since the date of the most recent financial statements incorporated by reference in the Registration Statement, the General Disclosure Package and the Prospectus, (i) there has not been any material adverse change or any development involving a prospective material adverse change in or affecting the earnings, business, management, properties, assets, rights, operations, condition (financial or otherwise), or prospects of the Company, whether or not occurring in the ordinary course of business, (ii) there has not been any material transaction entered into or any material transaction that is probable of being entered into by the Company, other than transactions in the ordinary course of business and changes and transactions described in the Registration Statement, the General Disclosure Package and the Prospectus, as each may be amended or supplemented, and (iii) the Company has not sustained any loss or interference with its business that is material to the Company and that is either from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor disturbance or dispute or any action, order or decree of any court or arbitrator or governmental or regulatory authority, except in each case as otherwise disclosed in the Registration Statement, the General Disclosure Package and the Prospectus. There is not pending, or to the knowledge of the Company, threatened, any action, suit or proceeding to which the Company is a party or of which any property or assets of the Company is the subject before or by any court or governmental agency, authority or body, or any arbitrator or mediator that is required to be disclosed in the Registration Statement, the General Disclosure Package or the Prospectus that is not disclosed.
(s) Except as described in the Registration Statement, the General Disclosure Package and the Prospectus, as applicable, the Company (i) is and at all times has been in compliance with all statutes, rules and regulations applicable to the ownership, testing, development, manufacture, packaging, processing, use, distribution, marketing, advertising, labeling, promotion, sale, offer for sale, storage, import, export or disposal of any product currently manufactured or distributed by the Company, including, without limitation, the civil U.S. False Claims Act (31 U.S.C. §§ 3729 et seq.), Israeli export laws and the Defense Export Control Law and its supplemental regulations,and all other comparable local, state, federal, national, supranational and foreign, including Israeli, laws relating to the regulation of the Company (collectively, the “Applicable Laws”); (ii) has not received any written notice from any court or arbitrator or governmental or regulatory authority or third party alleging or asserting non-compliance with any Applicable Laws or any licenses, exemptions, certificates, approvals, clearances, qualifications, authorizations, permits, registrations and supplements or amendments thereto required by any such Applicable Laws (“Authorizations”), except for such non-compliance as would not, individually or in the aggregate, have a Material Adverse Effect; (iii) possesses all Authorizations necessary for the operation of its business as currently conducted as described in the Registration Statement, the General Disclosure Package and the Prospectus, except where the failure to obtain such Authorizations would not, individually or in the aggregate, have a Material Adverse Effect, and such Authorizations are valid and in full force and effect and the Company is not in violation of any term of any such Authorizations, except for such violations as would not, individually or in the aggregate, have a Material Adverse Effect; (iv) has not received written notice of any claim, action, suit, proceeding, hearing, enforcement, investigation, arbitration or other action from any court or arbitrator or governmental or regulatory authority or third party alleging that any product, operation or activity is in violation of any Applicable Laws or Authorizations nor, to the Company’s knowledge, is any such claim, action, suit, proceeding, hearing, enforcement, investigation, arbitration or other action threatened in writing, except as would not, individually or in the aggregate, have a Material Adverse Effect; (v) has not received written notice that any court or arbitrator or governmental or regulatory authority has taken, is taking or intends to take action to materially limit, suspend, materially modify or revoke any Authorizations nor, to the Company’s knowledge, is any such limitation, suspension, modification or revocation threatened, except as would not, individually or in the aggregate, have a Material Adverse Effect; (vi) has filed, maintained or submitted all material reports, documents, forms, notices, applications, records, claims, submissions and supplements or amendments as required by any Applicable Laws or Authorizations and that all such reports, documents, forms, notices, applications, records, claims, submissions and supplements or amendments were complete and accurate on the date filed in all material respects (or were corrected or supplemented by a subsequent submission); and (vii) is not a party to any material corporate integrity agreements, monitoring agreements, consent decrees, settlement orders, or similar agreements with or imposed by any governmental or regulatory authority.
(t) Each approval, consent, order, authorization, designation, declaration or filing by or with any regulatory, administrative or other governmental body necessary for, or in connection with, the execution and delivery by the Company of this Agreement and the consummation of the transactions herein contemplated has been obtained or made and is in full force and effect, except (i) such additional steps as may be required by the Commission, the Financial Industry Regulatory Authority, Inc. (“FINRA”) or such additional steps as may be necessary to qualify the Securities for public offering by the Underwriters under state securities or Blue Sky laws and (ii) the filing of certain notices with the Registrar of Companies of the State of Israel regarding the issuance of the Securities or the filing of certain information following the Closing Date with the Office of the Chief Scientist of the Ministry of Economy of the State of Israel (the “Chief Scientist”), in each case, in order to satisfy notice and information requirements in connection with and following the consummation of the Offering. No event has occurred that allows or results in, or after notice or lapse of time or both would allow or result in, revocation, suspension, termination or invalidation of any such authorization or any other impairment of the rights of the holder or maker of any such authorization. All company approvals (including those of shareholders) necessary for the Company to consummate the transactions contemplated by this Agreement have been obtained and are in effect. Subject to the accuracy of the Underwriters’ representation and warranties and compliance with their obligations under Section 4A of this Agreement, the Company is not required to publish a prospectus in the State of Israel under the laws of the State of Israel with respect to the offer or sale of the Securities.
(u) The Company is not nor with the giving of notice or lapse of time or both, will be, (i) in violation of its articles of association, (ii) in violation of or in default under any agreement, lease, contract, indenture or other instrument or obligation to which it is a party or by which it, or any of its properties, is bound, including any instrument of approval granted to it by the Chief Scientist, (iii) in violation with respect to any instrument of approval granted to it by the Investment Center of the Ministry of Economy of the State of Israel (the “Investment Center”) or (iv) in violation of any law, order, rule or regulation judgment, order, writ or decree applicable to the Company of any court or of any government, regulatory body or administrative agency or other governmental body having jurisdiction over the Company, or any of its properties or assets, except in the case of clauses (ii), (iii) and (iv), for such violations or defaults as would not, individually or in the aggregate, have a Material Adverse Effect.
(v) No supplier, customer, distributor or sales agent of the Company has notified the Company that it intends to discontinue or decrease the rate of business done with the Company, except where such decrease would not, individually or in the aggregate, have a Material Adverse Effect.
(w) No stamp, issue, registration, documentary, transfer or other taxes and duties, including interest and penalties, are payable in Israel on or in connection with the issuance and sale of the Shares by the Company or the execution and delivery of this Agreement.
(x) Neither the Company nor any of its properties or assets has any immunity from the jurisdiction of any court or from any legal process (whether through service of notice, attachment prior to judgment, attachment in aid of execution or otherwise) under the laws of the State of Israel.
(y) Except as would not, individually or in the aggregate, have a Material Adverse Effect, the Company (i) holds all licenses, registrations, certificates, authorizations and permits from governmental authorities (collectively, “Governmental Licenses”) which are necessary to the conduct of its business, (ii) is in compliance with the terms and conditions of all Governmental Licenses, and all Governmental Licenses are valid and in full force and effect, and (iii) has not received any written or other notice of proceedings relating to the revocation or modification of any Governmental License. All of the Governmental Licenses of the Company are valid and in full force and effect. The Company has not received any notice of proceedings relating to the revocation or modification of any Governmental Licenses which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would reasonably be expected to result in a Material Adverse Effect. The Company has not received any notice denying, revoking or modifying any “approved enterprise,” “benefited enterprise” or “preferred enterprise” status with respect to any of the Company’s facilities or operations or with respect to any grants or benefits from the Chief Scientist or the Israeli Tax Authority (including, in all such cases, notice of proceedings or investigations related thereto). All information supplied by the Company with respect to the applications or notifications relating to such “benefited enterprise” status and to grants and benefits from the Chief Scientist and/or the Israeli Tax Authority was true, correct and complete in all material respects when supplied to the appropriate authorities.
(z) The Company is not and, after giving effect to the offering of the Securities and the application of the proceeds thereof as described in the Registration Statement, the General Disclosure Package and the Prospectus, will not become an “investment company” within the meaning of the Investment Company Act of 1940, as amended, and the rules and regulations of the Commission thereunder.
(aa) Neither the Company nor any of its officers, directors or affiliates has taken or will take, directly or indirectly, any action designed or intended to stabilize or manipulate the price of any security of the Company, or which caused or resulted in, or which might in the future reasonably be expected to cause or result in, stabilization or manipulation of the price of any security of the Company. In addition, the Company has not engaged in any form of solicitation, advertising or other action constituting an offer or a sale under the Israeli Securities Law in connection with the transactions contemplated hereby which would require the Company to publish a prospectus in the State of Israel under the laws of the State of Israel. All grants and issuances of the Company’s securities were made in compliance with the Israeli Securities Law and the Israeli Companies Law. Without limiting the generality of the preceding sentence, all grants and issuances of the Company’s securities to its employees were made in accordance with the Israeli Securities Law.
(bb) The Company owns or possesses the valid right to use all (i) valid and enforceable trademarks, trademark registrations, service marks, service mark registrations, Internet domain name registrations, copyrights, copyright registrations, licenses, trade secret rights (collectively, “Intellectual Property Rights”) and (ii) inventions, software, works of authorships, trademarks, service marks, trade names, databases, formulae, know how, Internet domain names and other intellectual property (including trade secrets and other unpatented and/or unpatentable proprietary confidential information, systems, or procedures) (collectively, “Intellectual Property Assets”) necessary to conduct their respective businesses as currently conducted, and as proposed to be conducted and described in the Registration Statement, the General Disclosure Package and the Prospectus. The Company has no patents or patent applications. To the Company’s knowledge, no activities of its business infringes, misappropriates, or otherwise violates, valid and enforceable Intellectual Property Rights of any other person, and the Company has not received written notice of any challenge, which is to its knowledge still pending, by any other person to the rights of the Company with respect to any Intellectual Property Rights or Intellectual Property Assets owned or used by the Company, except as part of patent prosecution procedures. To the knowledge of the Company, the Company’s business as now conducted does not give rise to any infringement of, any misappropriation of, or other violation of, any valid and enforceable Intellectual Property Rights of any other person. All licenses for the use of the Intellectual Property Rights described in the Registration Statement, the General Disclosure Package and the Prospectus are valid, binding upon, and enforceable by or against the parties thereto in accordance to its terms. The Company has complied in all material respects with, and is not, to the best of its knowledge, in breach nor has it received any asserted or threatened claim of breach of any Intellectual Property license, and the Company has no knowledge of any breach or anticipated breach by any other person to any Intellectual Property license. Except as described in the Registration Statement, the General Disclosure Package and the Prospectus, no claim has been made against the Company alleging the infringement by the Company of any patent, trademark, service mark, trade name, copyright, trade secret, license in or other intellectual property right or franchise right of any person. The Company has taken all reasonable steps to protect, maintain and safeguard its Intellectual Property Rights, including the execution of appropriate nondisclosure and confidentiality agreements. The consummation of the transactions contemplated by this Agreement will not result in the loss or impairment of or payment of any additional amounts with respect to, nor require the consent of any other person in respect of, the Company’s right to own, use, or hold for use any of the Intellectual Property Rights as owned, used or held for use in the conduct of the business as currently conducted. The Company has at all times complied with all applicable laws relating to privacy, data protection, and the collection and use of personal information collected, used, or held for use by the Company in the conduct of the Company's business, except where the failure to do so would not, individually or in the aggregate, have a Material Adverse Effect. No claims have been asserted or threatened against the Company alleging a violation of any person's privacy or personal information or data rights and the consummation of the transactions contemplated hereby will not breach or otherwise cause any violation of any law related to privacy, data protection, or the collection and use of personal information collected, used, or held for use by the Company in the conduct of the Company's business. The Company takes commercially reasonable measures to ensure that such information is protected against unauthorized access, use, modification, or other misuse. The Company has taken commercially reasonable actions to obtain ownership of all works of authorship and inventions made by its employees, consultants and contractors during the time they were employed by or under contract with the Company and which relate to the Company’s business. All founders and key employees have signed confidentiality and invention assignment agreements with the Company.
(cc) The Company has good and marketable title in fee simple to, or have valid rights to lease or otherwise use, all items of real or personal property which are material to the business of the Company, free and clear of all liens, encumbrances, security interests, claims and defects that do not, singularly or in the aggregate, materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company; and all of the leases and subleases material to the business of the Company, and under which the Company holds properties described in the Registration Statement, the General Disclosure Package and the Prospectus, are in full force and effect, and the Company has received no written notice of any material claim of any sort that has been asserted by anyone adverse to the rights of the Company under any of the leases or subleases mentioned above, or affecting or questioning the rights of the Company to the continued possession of the leased or subleased premises under any such lease or sublease.
(dd) No labor disturbance by or dispute with employees of the Company exists or, to the knowledge of the Company, is contemplated or threatened. No labor dispute with the employees of the Company exists nor, to the knowledge of the Company, is imminent. The Company is not aware of any existing or imminent labor disturbance by the employees of any of its principal suppliers, manufacturers, customers or contractors, which, in either case, would reasonably be expected to result in a Material Adverse Effect.
(ee) Except as disclosed in the Registration Statement, the General Disclosure Package and the Prospectus, the Company has no employees in the United States and does not maintain, sponsor or contribute to any employee benefit plan (within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”)) that is subject to ERISA.
(ff) Except in each case as otherwise disclosed in the Registration Statement, the General Disclosure Package and the Prospectus: (i) the Company has complied and is in compliance, in all material respects, with all applicable federal, state, local, foreign, including Israeli, and international laws (including the common law), statutes, rules, regulations, orders, judgments, decrees or other legally binding requirements of any court, administrative agency or other governmental authority relating to pollution or to the protection of the environment, natural resources or human health or safety, or to the manufacture, use, generation, treatment, storage, disposal, release or threatened release of hazardous or toxic substances, pollutants, contaminants or wastes, or the arrangement for such activities (“Environmental Laws”) except for any such noncompliance as would not, individually or in the aggregate, have a Material Adverse Effect; (ii) the Company has obtained and is in compliance, in all material respects, with all permits, licenses, authorizations or other approvals required of them under Environmental Laws to conduct its business and is not subject to any action to revoke, terminate, cancel, limit, amend or appeal any such permits, licenses, authorizations or approvals; (iii) the Company is not a party to any judicial or administrative proceeding (including a notice of violation) under any Environmental Laws (A) to which a governmental authority is also a party and which involves potential monetary sanctions, unless it could reasonably be expected that such proceeding will result in monetary sanctions of less than $100,000, individually or in the aggregate, or (B) which is otherwise material; and no such proceeding has been threatened in writing or is known to be contemplated; (iv) the Company has not received notice nor is otherwise aware of any pending or threatened material claim or potential liability under Environmental Laws in respect of its past or present business, operations (including the disposal of hazardous substances at any off-site location), facilities or real property (whether owned, leased or operated) or on account of any predecessor or any person whose liability under any Environmental Laws it has agreed to assume; and the Company is not aware of any facts or conditions that could reasonably be expected to give rise to any such claim or liability; and (v) the Company is not aware of any matters regarding compliance with existing or reasonably anticipated Environmental Laws, or with any liabilities or other obligations under Environmental Laws (including asset retirement obligations), that could reasonably be expected to have a Material Adverse Effect.
(gg) The Company (i) has timely filed all necessary Israeli, federal, state, local and foreign tax returns, and all such returns were true, complete and correct, and no issues have been raised (and are currently pending ) by any taxing authority in connection with any such tax returns, (ii) has paid all federal, state, local and foreign taxes, assessments, governmental or other charges due and payable for which it is liable, including, without limitation, all sales and use taxes and all taxes which the Company is obligated to withhold from amounts owing to employees, creditors and third parties, and (iii) does not have any tax deficiency or claims outstanding or assessed or, to its knowledge, proposed against any of them, except those, in each of the cases described in clauses (i), (ii) and (iii) of this paragraph (gg), that would not, singularly or in the aggregate, have a Material Adverse Effect. The Company has not engaged in any transaction which is a corporate tax shelter or which could be characterized as such by the Internal Revenue Service or any other taxing authority. The accruals and reserves on the books and records of the Company in respect of tax liabilities for any taxable period not yet finally determined are adequate to meet any assessments and related liabilities for any such period, and since December 31, 2014 the Company has not incurred any liability for taxes other than in the ordinary course. The term “tax returns” means all returns, declarations, reports, statements, and other documents required to be filed in respect of all federal, state, local, foreign, and other net income, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, licenses, lease, service, service use, withholding, payroll, employment, excise, severance, stamp, occupation, premium, property, windfall profits, customs, duties or other taxes, fees, assessments, or charges of any kind whatsoever, with any interest and any penalties, additions to tax, or additional amounts with respect thereto.
(hh) The Company carries insurance in such amounts and covering such risks as it deems is adequate for the conduct of its business and the value of its properties and as is customary for companies engaged in similar businesses in similar industries in Israel. The Company has no reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a Material Adverse Effect. All policies of insurance owned by the Company are, to the Company’s knowledge, in full force and effect and the Company is in compliance with the terms of such policies in all material respects. The Company has not received any written notice from an insurer, agent of such insurer or the broker of the Company that any material capital improvements or any other material expenditures (other than premium payments) are required or necessary to be made in order to continue such insurance. The Company does not insure risk of loss through any captive insurance, risk retention group, reciprocal group or by means of any fund or pool of assets specifically set aside for contingent liabilities other than as described in the Registration Statement, the General Disclosure Package and the Prospectus.
(ii) The Company maintains systems of “internal control over financial reporting” (as defined in Rule 13a-15(f) of the Exchange Act) that comply with the requirements of the Exchange Act and has been designed by, or under the supervision of, its principal executive and principal financial officers, or persons performing similar functions, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP, including, but not limited to, internal accounting controls sufficient to provide reasonable assurance that: (i) transactions are executed in accordance with management’s general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. There are no material weaknesses in the Company’s internal control over financial reporting, and there has been no change in internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting since the respective dates as of which information is given in the Registration Statement, the General Disclosure Package and the Prospectus. The Company’s auditors and the board of directors of the Company have been advised of: (A) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which have adversely affected or are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and (B) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls over financial reporting.
(jj) The Company has made and keeps books, records and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company in all material respects.
(kk) The Company has established and maintains “disclosure controls and procedures” (as defined in Rules 13a-14(c) and 15d-14(c) under the Exchange Act); the Company’s “disclosure controls and procedures” are reasonably designed to ensure that all information (both financial and non-financial) required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and regulations under the Exchange Act, and that all such information is accumulated and communicated to the Company’s management as appropriate to allow timely decisions regarding required disclosure and to make the certifications of the Chief Executive Officer and Chief Financial Officer of the Company required under the Exchange Act with respect to such reports.
(ll) The minute books of the Company have been made available to the Underwriters and counsel for the Underwriters, and such books (i) contain a complete summary in all material respects of all meetings and actions of the board of directors (including each board committee) and shareholders of the Company (or analogous governing bodies and interest holders, as applicable), since the time of its organization through the date of the latest meeting and action, and (ii) accurately in all material respects reflect all transactions referred to in such minutes.
(mm) No relationship, direct or indirect, exists between or among the Company on the one hand, and the directors, officers, shareholders (or analogous interest holders), customers or suppliers of the Company or any of its affiliates on the other hand, which is required to be described in the Registration Statement, the General Disclosure Package and the Prospectus and which is not so described.
(nn) No person or entity has the right to require registration of Ordinary Shares or other securities of the Company because of the filing or effectiveness of the Registration Statement, except for persons and entities who have expressly waived such right in writing or who have been given timely and proper written notice and have failed to exercise such right within the time or times required under the terms and conditions of such right. Except as described in the Registration Statement, the General Disclosure Package and the Prospectus, there are no persons with registration rights or similar rights to have any securities registered by the Company under the Securities Act.
(oo) The Company does not own any “margin securities” as that term is defined in Regulation U of the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”), and none of the proceeds of the sale of the Securities will be used, directly or indirectly, for the purpose of purchasing or carrying any margin security, for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry any margin security or for any other purpose which might cause any of the Securities to be considered a “purpose credit” within the meanings of Regulation T, U or X of the Federal Reserve Board.
(pp) The Company is a “foreign private issuer” within the meaning of Rule 405 under the Securities Act.
(qq) Since the date as of which information is given in the Registration Statement, the General Disclosure Package and the Prospectus through the date hereof, and except as set forth in the Pricing Prospectus, the Company has not (i) issued or granted any securities, (ii) incurred any material liability or obligation, direct or contingent, other than liabilities and obligations which were incurred in the ordinary course of business, (iii) entered into any material transaction other than in the ordinary course of business or (iv) declared or paid any dividend on its share capital.
(rr) No forward-looking statement (within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act) contained in the Registration Statement, the General Disclosure Package or the Prospectus has been made or reaffirmed without a reasonable basis or has been disclosed other than in good faith.
(ss) The Securities have been approved for listing subject to notice of issuance on the Exchange.
(tt) The Company is in compliance with all provisions of the Sarbanes-Oxley Act of 2002 , as amended, and the rules and regulations promulgated by the Commission and the Exchange thereunder (collectively, the “Sarbanes-Oxley Act”) that are in effect and with which the Company is required to comply (including Section 402 related to loans) and is actively taking steps to ensure that it will be in compliance with other provisions of the Sarbanes-Oxley Act which will become applicable to the Company. There are no outstanding personal loans made, directly or indirectly, by the Company to any director or executive officer of the Company.
(uu) The Company is in compliance with all applicable corporate governance requirements set forth in the rules of the Exchange that are then in effect.
(vv) Neither the Company nor any director, or officer, nor, to the Company’s knowledge, any agent, employee, affiliate or other person associated with or acting on behalf of the Company: (i) has used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity: (ii) has made any direct or indirect unlawful contribution or payment to any official of, or candidate for, or any employee of, any federal, state, Israeli or foreign office from corporate funds; (iii) has made any bribe, unlawful rebate, payoff, influence payment, kickback or other unlawful payment; or (iv) is aware of or has taken any action, directly or indirectly, that would result in a violation by such persons of the OECD Convention on Bribery of Foreign Public Officials in International Business Transactions (“OECD Convention”), the Foreign Corrupt Practices Act of 1977, as amended, and the rules and regulations thereunder (collectively, the “FCPA”) or any similar law or regulation to which the Company, any director, officer, agent, employee, affiliate or other person associated with or acting on behalf of the Company is subject. The Company has conducted its business in compliance with the FCPA and any applicable similar law or regulation and has instituted and maintains policies and procedures designed to ensure, and which are reasonably expected to continue to ensure, continued compliance therewith. The foregoing representation and warranty shall also be deemed given regarding laws of non-U.S. jurisdictions similar to the FCPA, including, without limitation, Sections 291 and 291A of the Israel Penal Law, 5737-1977 and the rules and regulations thereunder.
(ww) There are no transactions, arrangements or other relationships between and/or among the Company, any of its affiliates (as such term is defined in Rule 405 of the Rules and Regulations) and any unconsolidated entity, including, but not limited to, any structured finance, special purpose or limited purpose entity that could reasonably be expected to materially affect the Company’s liquidity or the availability of or requirements for its capital resources required to be described in the Registration Statement, the General Disclosure Package and the Prospectus which have not been described as required.
(xx) There are no outstanding loans, advances (except normal advances for business expenses in the ordinary course of business) or guarantees of indebtedness by the Company to or for the benefit of any of the officers or directors of the Company, or any of their respective family members, except as disclosed in the Registration Statement, the General Disclosure Package and the Prospectus. All transactions by the Company with office holders or control persons of the Company have been duly approved by the board of directors of the Company, or duly appointed committees or officers thereof, if and to the extent required under Applicable Laws.
(yy) The statistical and market related data included in the Registration Statement, the General Disclosure Package and the Prospectus are based on or derived from sources that the Company believes to be reliable and accurate in all material respects, and such data agree with the sources from which they are derived.
(zz) The operations of the Company are and have been conducted at all times in compliance with applicable financial record-keeping and reporting requirements, including those of the Bank Secrecy Act, as amended by Title III of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act), the Currency and Foreign Transactions Reporting Act of 1970, as amended, Israel Prohibition on Money Laundering Law, 5760-2000 and the Israel Prohibition on Funding of Terrorism Law, 5765-2005 and the regulations and decrees promulgated thereunder, the applicable money laundering statutes of jurisdictions where the Company conducts business, the applicable rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any governmental agency (collectively, the “Money Laundering Laws”), and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company with respect to the Money Laundering Laws is pending or, to the Company’s knowledge, threatened.
(aaa) Neither the Company nor, to the Company’s knowledge, any director, officer, agent, employee, affiliate or representative of the Company is currently subject to any sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC”), the United Nations Security Council (“UNSC”), the European Union, Her Majesty’s Treasury and the Foreign and Commonwealth Office of the United Kingdom (“HMT”), or any similar sanctions imposed by any other body, governmental or other, to which the Company is subject (collectively, “other economic sanctions”); and the Company will not directly or indirectly use the proceeds of the offering of the Securities hereunder, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other person or entity, for the purpose of financing the activities of any person currently subject to any sanctions administered by OFAC, UNSC, the European Union, HMT or other economic sanctions.
(bbb) The Company has not been designated as a “defense entity” under the Israeli Defense Entities Law (Protection of Defense Interests) -2006 and the Company has not received any notice (in writing or otherwise) concerning any intention to register and/or declare the Company as such.
(ccc) Except in each case as otherwise disclosed in the Registration Statement, the General Disclosure Package and the Prospectus the Company is not as of the date hereof, and after giving effect to the transactions contemplated hereby to occur on the Closing Dates, will not be Insolvent (as defined below). For purposes of this Section 2(ccc), “Insolvent” means, with respect to any person, (i) the present fair saleable value of such person's assets is less than the amount required to pay such person's total indebtedness, (ii) such person is unable to pay its debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured, (iii) such person intends to incur or believes that it will incur debts that would be beyond its ability to pay as such debts mature or (iv) such person has unreasonably small capital with which to conduct the business in which it is engaged as such business is now conducted and is proposed to be conducted.
(ddd) Other than the Underwriters, no person has the right to act as an underwriter or as a financial advisor to the Company in connection with the Offering or the transactions contemplated hereby. Except for this Agreement, the Company is not a party to any contract, agreement or understanding with any person that would give rise to a valid claim against the Company or the Underwriters for a brokerage commission, finder’s fee or like payment in connection with the offering and sale of the Securities or any transaction contemplated by this Agreement, the Registration Statement, the General Disclosure Package or the Prospectus. There are no claims, payments, issuances, arrangements or understandings for services in the nature of a finder’s, consulting or origination fee with respect to the introduction of the Company to the Representative or the sale of the Securities hereunder or any other arrangements, agreements, understandings, payments or issuances with respect to the Company that may affect the Underwriters’ compensation, as determined by FINRA.
(eee) Except as disclosed to the Representative in writing during the 180-day period prior to the initial submission of the Registration Statement to the Commission, the Company has not made any direct or indirect payments (in cash, securities or otherwise) to (i) any person, as a finder’s fee, investing fee or otherwise, in consideration of such person raising capital for the Company or introducing to the Company persons who provided capital to the Company, (ii) any FINRA member, or (iii) any person or entity that has any direct or indirect affiliation or association with any FINRA member within the 180-day period prior to the date on which the Registration Statement was filed with the Commission or thereafter.
(fff) None of the net proceeds of the Offering will be paid by the Company to any participating FINRA member or any affiliate or associate of any participating FINRA member, except as specifically authorized herein.
(ggg) To the Company’s knowledge, no (i) officer or director of the Company, (ii) owner of 5% or more of the Company’s unregistered securities or (iii) owner of any amount of the Company’s unregistered securities acquired within the 180-day period prior to the date on which the Registration Statement was filed with the Commission, has any direct or indirect affiliation or association with any FINRA member. The Company will advise the Representative and its counsel if it becomes aware that any officer, director or shareholder of the Company is or becomes an affiliate or associated person of a FINRA member participating in the Offering.
(hhh) For a period of twelve months prior to and including the date hereof, the Company has not offered or sold any of its securities in Israel except pursuant to employee benefit plans or qualified stock option plans.
Any certificate signed by or on behalf of the Company and delivered to the Representative or to counsel for the Underwriters shall be deemed to be a representation and warranty by the Company to each Underwriter as to the matters covered thereby.
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3.
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FURTHER AGREEMENTS OF THE COMPANY. The Company agrees with the several Underwriters:
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(a) To prepare the Rule 462(b) Registration Statement, if necessary, in a form approved by the Representative and file such Rule 462(b) Registration Statement with the Commission by 10:00 p.m., New York time, on the date hereof, and the Company shall at the time of filing either pay to the Commission the filing fee for the Rule 462(b) Registration Statement or give irrevocable instructions for the payment of such fee pursuant to Rule 111(b) under the Rules and Regulations; to prepare the Prospectus in a form approved by the Representative containing information previously omitted at the time of effectiveness of the Registration Statement in reliance on Rules 430A, 430B or 430C of the Rules and Regulations and to file such Prospectus pursuant to Rule 424(b) of the Rules and Regulations not later than the second business (2nd) day following the execution and delivery of this Agreement or, if applicable, such earlier time as may be required by Rule 430A of the Rules and Regulations; to notify the Representative immediately of the Company’s intention to file or prepare any supplement or amendment to any Registration Statement or to the Prospectus and to make no amendment or supplement to the Registration Statement, the General Disclosure Package or to the Prospectus to which the Representative shall reasonably object by notice to the Company after a reasonable period to review; to advise the Representative, promptly after it receives notice thereof, of the time when any amendment to any Registration Statement has been filed or becomes effective or any supplement to the General Disclosure Package or the Prospectus or any amended Prospectus has been filed and to furnish the Underwriters with copies thereof; to file promptly all material required to be filed by the Company with the Commission pursuant to Rules 433(d) or 163(b)(2) of the Rules and Regulations, as the case may be; to advise the Representative, promptly after it receives notice thereof, of the issuance by the Commission of any stop order or of any order preventing or suspending the use of any Preliminary Prospectus, any Issuer Free Writing Prospectus or the Prospectus, of the suspension of the qualification of the Securities for offering or sale in any jurisdiction, of the initiation or threatening of any proceeding for any such purpose, or of any request by the Commission for the amending or supplementing of the Registration Statement, the General Disclosure Package or the Prospectus or for additional information; and, in the event of the issuance of any stop order or of any order preventing or suspending the use of any Preliminary Prospectus, any Issuer Free Writing Prospectus or the Prospectus or suspending any such qualification, and promptly to use its best efforts to obtain the withdrawal of such order.
(b) The Company represents and agrees that, unless it obtains the prior consent of the Representative, and each Underwriter represents and agrees that, unless it obtains the prior consent of the Company and the Representative, it has not made and will not, make any offer relating to the Securities that would constitute a “free writing prospectus” as defined in Rule 405 of the Rules and Regulations unless the prior written consent of the Representative has been received (each, a “Permitted Free Writing Prospectus”); provided that the prior written consent of the Representative hereto shall be deemed to have been given in respect of the Issuer Free Writing Prospectuses included in Schedule C hereto. The Company represents that it has treated and agrees that it will treat each Permitted Free Writing Prospectus as an Issuer Free Writing Prospectus, comply with the requirements of Rules 164 and 433 of the Rules and Regulations applicable to any Issuer Free Writing Prospectus, including the requirements relating to timely filing with the Commission, legending and record keeping and will not take any action that would result in an Underwriter or the Company being required to file with the Commission pursuant to Rule 433(d) of the Rules and Regulations a free writing prospectus prepared by or on behalf of such Underwriter that such Underwriter otherwise would not have been required to file thereunder. The Company will satisfy the condition in Rule 433 of the Rules and Regulations to avoid a requirement to file with the Commission any electronic road show.
(c) If at any time prior to the expiration of nine (9) months after the later of (i) the latest effective date of the Registration Statement or (ii) the date of the Prospectus, when a prospectus relating to the Securities is required to be delivered (or in lieu thereof, the notice referred to in Rule 173(a) of the Rules and Regulations) any event occurs or condition exists as a result of which the Prospectus as then amended or supplemented would include any untrue statement of a material fact, or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made when the Prospectus is delivered (or in lieu thereof, the notice referred to in Rule 173(a) of the Rules and Regulations), not misleading, or if it is necessary at any time to amend or supplement any Registration Statement or the Prospectus to comply with the Securities Act, that the Company will promptly notify the Representative thereof and upon its request will prepare an appropriate amendment or supplement in form and substance satisfactory to the Representative which will correct such statement or omission or effect such compliance and will use commercially reasonable efforts to have any amendment to any Registration Statement declared effective as soon as possible. The Company will furnish without charge to each Underwriter and to any dealer in securities as many copies as the Representative may from time to time reasonably request of such amendment or supplement. In case any Underwriter is required to deliver a prospectus (or in lieu thereof, the notice referred to in Rule 173(a) of the Rules and Regulations) relating to the Securities nine (9) months or more after the later of (i) the latest effective date of the Registration Statement or (ii) the date of the Prospectus, the Company upon the request of the Representative will prepare promptly an amended or supplemented Prospectus as may be necessary to permit compliance with the requirements of Section 10(a)(3) of the Securities Act and deliver to such Underwriter as many copies as such Underwriter may request of such amended or supplemented Prospectus complying with Section 10(a)(3) of the Securities Act.
(d) If the General Disclosure Package is being used to solicit offers to buy the Securities at a time when the Prospectus is not yet available to prospective purchasers and any event shall occur as a result of which, in the judgment of the Company or in the reasonable opinion of the Underwriters, it becomes necessary to amend or supplement the General Disclosure Package in order to make the statements therein, in the light of the circumstances then prevailing, not misleading, or to make the statements therein not conflict with the information contained in the Registration Statement then on file and not superseded or modified, or if it is necessary at any time to amend or supplement the General Disclosure Package to comply with any law, the Company promptly will prepare, file with the Commission (if required) and furnish to the Underwriters and any dealers an appropriate amendment or supplement to the General Disclosure Package.
(e) If at any time following issuance of an Issuer Free Writing Prospectus there occurred or occurs an event or development as a result of which such Issuer Free Writing Prospectus conflicted or will conflict with the information contained in the Registration Statement, Pricing Prospectus or Prospectus and not superseded or modified or included or would include an untrue statement of a material fact or omitted or would omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances prevailing at the subsequent time, not misleading, the Company has promptly notified or will promptly notify the Representative so that any use of the Issuer Free Writing Prospectus may cease until it is amended or supplemented and has promptly amended or will promptly amend or supplement, at its own expense, such Issuer Free Writing Prospectus to eliminate or correct such conflict, untrue statement or omission. The foregoing sentence does not apply to statements in or omissions from any Issuer Free Writing Prospectus in reliance upon, and in conformity with, written information furnished to the Company through the Representative by or on behalf of any Underwriter specifically for inclusion therein, which information the parties hereto agree is limited to the Underwriter’s Information (as defined in Section 18).
(f) To furnish promptly to the Representative and to counsel for the Underwriters a signed copy of each of the Registration Statement as originally filed with the Commission, and of each amendment thereto filed with the Commission, including all consents and exhibits filed therewith.
(g) To deliver promptly to the Representative in New York City such number of the following documents as the Representative shall reasonably request: (i) conformed copies of the Registration Statement as originally filed with the Commission (in each case excluding exhibits), (ii) each Preliminary Prospectus, (iii) any Issuer Free Writing Prospectus, (iv) the Prospectus (the delivery of the documents referred to in clauses (i), (ii), (iii) and (iv) of this paragraph (i) to be made not later than 10:00 a.m., New York time, on the business day following the execution and delivery of this Agreement), (v) conformed copies of any amendment to the Registration Statement (excluding exhibits), and (vi) any amendment or supplement to the General Disclosure Package or the Prospectus (the delivery of the documents referred to in clauses (v) and (vi) of this paragraph (i) to be made not later than 10:00 a.m., New York City time, on the business day following the date of such amendment or supplement).
(h) To make generally available to its shareholders, an earnings statement of the Company (which need not be audited) complying with Section 11(a) of the Securities Act and the Rules and Regulations (including, at the option of the Company, Rule 158), and to furnish to its shareholders as soon as practicable after the end of each fiscal year an annual report (including a balance sheet and statements of income, shareholders’ equity and cash flows of the Company and any consolidated subsidiaries certified by independent public accountants), and as soon as possible after each six month period following each fiscal year end (beginning with the first six month period following the first fiscal year end after the effective date of such Registration Statement), an interim balance sheet and income statement of the Company and any consolidated subsidiaries as of the end of the Company’s second quarter.
(i) To take promptly from time to time such actions as the Representative may reasonably request to qualify the Securities for offering and sale under the securities or Blue Sky laws of such jurisdictions (domestic or foreign) as the Representative may designate and to continue such qualifications in effect, and to comply with such laws, for so long as required to permit the offer and sale of Securities in such jurisdictions; provided that the Company shall not be obligated to qualify as foreign corporations in any jurisdiction in which they are not so qualified or to file a general consent to service of process in any jurisdiction.
(j) Upon request, during the period of five (5) years from the date hereof, to deliver to each of the Underwriters, (i) as soon as they are available, copies of all reports or other communications furnished to shareholders, and (ii) as soon as they are available, copies of any reports and financial statements furnished or filed with the Commission or any national securities exchange on which the Securities are listed. However, so long as the Company is subject to the reporting requirements of either Section 13 or Section 15(d) of the Exchange Act and is timely filing reports with the Commission on its Electronic Data Gathering, Analysis and Retrieval system (“EDGAR”), it is not required to furnish such reports or statements to the Underwriters.
(k) That the Company will not, for a period of ninety (90) days from the date of this Agreement, (the “Lock-Up Period”) without the prior written consent of the Representative, directly or indirectly offer, sell, assign, transfer, pledge, contract to sell, or otherwise dispose of, any Ordinary Shares or any securities convertible into or exercisable or exchangeable for Ordinary Shares, other than the Company’s sale of the Securities hereunder and the issuance of options to acquire Ordinary Shares pursuant to the Company’s employee benefit plans, qualified stock option plans or other employee compensation plans as such plans are in existence on the date hereof and described in the Prospectus and the issuance of Ordinary Shares pursuant to the valid exercises of options, warrants or rights outstanding on the date hereof. The Company will cause each officer, director and shareholder listed in Schedule D to furnish to the Representative, prior to the Closing Date, a letter, substantially in the form of Exhibit I hereto. The Company also agrees that during such period, other than for the sale of the Securities hereunder, the Company will not file any registration statement, preliminary prospectus or prospectus, or any amendment or supplement thereto, under the Securities Act for any such transaction or which registers, or offers for sale, Ordinary Shares or any securities convertible into or exercisable or exchangeable for Ordinary Shares, except for a registration statement on Form S-8 relating to employee benefit plans. The Company hereby agrees that (i) if it issues an earnings release or material news, or if a material event relating to the Company occurs, during the last seventeen (17) days of the Lock-Up Period, or (ii) if prior to the expiration of the Lock-Up Period, the Company announces that it will release earnings results during the sixteen (16)-day period beginning on the last day of the Lock-Up Period, the restrictions imposed by this paragraph (l) or the letter shall continue to apply until the expiration of the eighteen (18)-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event. The Company will provide the Representative and any co-managers and each shareholder subject to the Lock-Up Period with prior notice (in accordance with Section 13 herein) of any such announcement that gives rise to an extension of the Lock-Up Period.
(l) To supply the Representative with copies of all correspondence to and from, and all documents issued to and by, the Commission in connection with the registration of the Securities under the Securities Act or any of the Registration Statement, any Preliminary Prospectus or the Prospectus, or any amendment or supplement thereto or document incorporated by reference therein.
(m) Prior to the Closing Dates, to furnish to the Representative, as soon as they have been prepared, copies of any unaudited interim consolidated financial statements of the Company for any periods subsequent to the periods covered by the financial statements appearing in the Registration Statement, the General Disclosure Package and the Prospectus that have been prepared by the Company.
(n) For a period of forty-five (45) days, commencing on the date of this Agreement, the Company agrees not to issue any press release or other communication directly or indirectly or hold any press conference with respect to the Company, its condition, financial or otherwise, or earnings, business affairs or business prospects (except for routine oral marketing communications in the ordinary course of business and consistent with the past practices of the Company and of which the Representative is notified), without the prior written consent of the Representative (which consent will not be unreasonably withheld, conditioned or delayed), unless in the judgment of the Company and its counsel, and after notification to the Representative, such press release or communication is required by law.
(o) Until the Representative shall have notified the Company of the completion of the resale of the Securities, that the Company will not, and will cause its affiliated purchasers (as defined in Regulation M under the Exchange Act) not to, either alone or with one or more other persons, bid for or purchase, for any account in which it or any of its affiliated purchasers has a beneficial interest, any Securities, or attempt to induce any person to purchase any Securities; and not to, and to cause its affiliated purchasers not to, make bids or purchase for the purpose of creating actual, or apparent, active trading in or of raising the price of the Securities.
(p) Not to take any action prior to latest of the Closing Dates which would require the Prospectus to be amended or supplemented pursuant to Section 3(c).
(q) To at all times comply with all applicable provisions of the Sarbanes-Oxley Act in effect from time to time.
(r) To maintain, at its expense, a registrar and transfer agent for the Securities acceptable to the Representative (the “Transfer Agent”). The Representative acknowledges that American Stock Transfer & Trust Company is acceptable to the Representative to act as Transfer Agent for the Securities.
(s) As of the date of this Agreement, the Company shall retain an independent registered public accounting firm reasonably acceptable to the Representative, and the Company shall continue to retain a nationally recognized independent registered public accounting firm for a period of at least three (3) years after the date of this Agreement. The Representative acknowledges that the Auditors are acceptable to the Representative.
(t) To apply the net proceeds from the sale of the Securities as set forth in the Registration Statement, the General Disclosure Package and the Prospectus under the heading “Use of Proceeds,” and except as disclosed in the General Disclosure Package, the Company does not intend to use any of the proceeds from the sale of the Securities hereunder to repay any outstanding debt owed to any affiliate of any Underwriter. The Company shall manage its affairs and investments in such a manner as not to be or become an “investment company” within the meaning of the Investment Company Act and the rules and regulations thereunder.
(u) To use its commercially reasonable efforts to list, subject to notice of issuance, and to maintain the listing of the Securities on The NASDAQ Capital Market (the “Exchange”).
(v) To use best efforts to do and perform all things required to be done or performed under this Agreement by the Company prior to each of the Closing Dates and to satisfy all conditions precedent to the delivery of the Securities.
(w) Upon request of any Underwriter, to furnish, or cause to be furnished, to such Underwriter an electronic version of the Company’s trademarks, servicemarks and corporate logo for use on the website, if any, operated by such Underwriter for the purpose of facilitating the on-line offering of the Securities (the “License”); provided, however that the License shall be used solely for the purpose described above, is granted without any fee and may not be assigned or transferred.
(x) Provided that the Firm Shares are sold in accordance with the terms of this Agreement, Chardan Capital Markets, LLC (“Chardan”) shall have an irrevocable right of first refusal (the “Right of First Refusal”), for a period of one hundred eighty (180) days from the date of effectiveness of the Offering, to act as lead underwriter or placement agent for each and every future public and private equity and debt offerings of the Company, or any successor to or any subsidiary of the Company (each, a “Subject Transaction”) on any exchange during such one hundred eighty (180) day period, according to the mechanism to be agreed upon by Chardan and the Company. The Company shall notify Chardan of its intention to pursue a Subject Transaction, including the material terms thereof, by providing written notice thereof by registered mail or overnight courier service addressed to Chardan. If Chardan fails to exercise its Right of First Refusal with respect to any Subject Transaction within ten (10) Business Days after the mailing of such written notice, then Chardan shall have no further claim or right with respect to the Subject Transaction. Chardan may elect, in its sole and absolute discretion, not to exercise its Right of First Refusal with respect to any Subject Transaction; provided that any such election by Chardan shall not adversely affect Chardan’s Right of First Refusal with respect to any other Subject Transaction. The terms and conditions of any such engagements shall be set forth in separate agreements and may be subject to, among other things, satisfactory completion of due diligence by Chardan, market conditions, the absence of a material adverse change to the Company’s business, financial condition and prospects, approval of Chardan’s internal committee and any other conditions that Chardan may deem appropriate for transactions of such nature.
4. PAYMENT OF EXPENSES. The Company agrees to pay, or reimburse if paid by any Underwriter, whether or not the transactions contemplated hereby are consummated or this Agreement is terminated: (a) the costs incident to the authorization, issuance, sale, preparation and delivery of the Securities and any taxes payable in that connection; (b) the costs incident to the registration of the Securities under the Securities Act; (c) the costs incident to the preparation, printing and distribution of the Registration Statement, any Preliminary Prospectus, any Issuer Free Writing Prospectus, the General Disclosure Package, the Prospectus, any amendments, supplements and exhibits thereto, and the costs of printing, reproducing and distributing the “Agreement Among Underwriters” between the Representative and the Underwriters, the Master Selected Dealers’ Agreement, the Underwriters’ Questionnaire, this Agreement, any blue sky surveys and any closing documents by mail, telex or other means of communications; (d) the fees and expenses incurred in connection with securing any required review by FINRA of the terms of the sale of the Securities and any filings made with FINRA; (e) any applicable listing fees; (f) all fees, expenses and disbursements relating to the registration or qualification of the Securities under the “blue sky” securities laws of such states and other jurisdictions as the Representative may reasonably designate (including, without limitation, all filing and registration fees, and the reasonable fees and disbursements of “blue sky” counsel; (g) all fees, expenses and disbursements relating to the registration, qualification or exemption of the Securities under the securities laws of such foreign jurisdictions as the Representative may reasonably designated; (h) the cost of preparing, printing and delivering stock certificates; (i) all fees and expenses of the registrar and transfer agent of the Securities; (j) Company expenses incurred in connection with the “road show,” including, without limitation, the costs of recording and hosting on the Internet of the Company’s road show presentation and travel and lodging expense associated with such trips, (k) all reasonable fees, expenses and disbursements relating to background checks of the Company’s officers and directors; (l) all other reasonable costs and expenses incident to the Offering of the Securities or the performance of the obligations of the Company under this Agreement (including, without limitation, the fees and expenses of the Company’s counsel, the Company’s independent accountants and the Company’s other agents and representatives); provided that, except to the extent otherwise provided in this Section 4 and in Sections 8 and 9, the Underwriters shall pay their own costs and expenses, including the fees and expenses of their counsel, any transfer taxes on the resale of any Securities by them and the expenses of advertising any offering of the Securities made by the Underwriters. The Company shall promptly reimburse the Underwriters, upon the consummation of the Offering, their reasonable out-of-pocket costs and expenses incurred in connection with their rendering services under this Agreement (including fees and expenses relating to due diligence, fees and expenses of the Underwriters’ legal counsel, and the fees and expenses of any other independent experts retained by the Representative) (exclusive of any amounts due to the Underwriters pursuant to Section 6 hereof); provided, however, that the aggregate reimbursement amount pursuant to this Agreement shall not exceed $80,000. The Representative may deduct from the net proceeds of the Offering payable to the Company on the Closing Date, or the Option Closing Date, if any, the expenses set forth herein to be paid by the Company to the Underwriters.
4A. COMPLIANCE WITH ISRAELI SECURITIES LAWS. The Company acknowledges, understands and agrees that Securities may be sold in Israel only by the Underwriters. Each Underwriter hereby severally represents, warrants and covenants that it has not offered or sold and will not offer or sell any Securities to offerees in Israel, other than to investors listed on the First Addendum to the Israeli Securities Law (“Israeli Qualified Investors” and the “First Addendum”); provided further that as a prerequisite to the offer or sale of Securities by the Underwriters to Israeli Qualified Investors, each of them shall be required to submit written confirmation to the Underwriters and the Company that such investor (a) falls within the scope of the First Addendum and (b) is acquiring the Securities being offered to it for investment not with a view to, or for the resale in connection with, any distribution thereof.1
5. CONDITIONS OF UNDERWRITERS’ OBLIGATIONS. The respective obligations of the several Underwriters hereunder are subject to the accuracy, when made and as of the Applicable Time and on such Closing Date, of the representations and warranties of the Company contained herein, to the accuracy of the statements of the Company made in any certificates pursuant to the provisions hereof, to the performance by the Company of its obligations hereunder, and to each of the following additional terms and conditions:
(a) The Registration Statement has become effective under the Securities Act, and no stop order suspending the effectiveness of any Registration Statement or any part thereof, preventing or suspending the use of any Preliminary Prospectus, the Prospectus or any Permitted Free Writing Prospectus or any part thereof shall have been issued and no proceedings for that purpose or pursuant to Section 8A under the Securities Act shall have been initiated or threatened by the Commission, and no injunction, restraining order or order of any nature by a federal or state or Israeli court of competent jurisdiction shall have been issued as of the Closing Date which would prevent the issuance of the Securities or the Representative’s Securities, and all requests for additional information on the part of the Commission (to be included in the Registration Statement or the Prospectus or otherwise) shall have been complied with to the reasonable satisfaction of the Representative; the Rule 462(b) Registration Statement, if any, each Issuer Free Writing Prospectus and the Prospectus shall have been filed with, the Commission within the applicable time period prescribed for such filing by, and in compliance with, the Rules and Regulations and in accordance with Section 3(a), and the Rule 462(b) Registration Statement, if any, shall have become effective immediately upon its filing with the Commission; and FINRA shall have raised no objection to the fairness and reasonableness of the terms of this Agreement or the transactions contemplated hereby.
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1 Reed Smith Note: Subject to confirmation as to whether Chardan plans to sell any Securities to investors in Israel.
(b) None of the Underwriters shall have discovered and disclosed to the Company on or prior to such Closing Date that any Registration Statement or any amendment or supplement thereto contains an untrue statement of a fact which, in the opinion of counsel for the Underwriters, is material or omits to state any fact which, in the opinion of such counsel, is material and is required to be stated therein or is necessary to make the statements therein, in the light of the circumstances in which they were made, not misleading, or that the General Disclosure Package, any Issuer Free Writing Prospectus or the Prospectus or any amendment or supplement thereto contains an untrue statement of fact which, in the opinion of such counsel, is material or omits to state any fact which, in the opinion of such counsel, is material and is necessary in order to make the statements, in the light of the circumstances in which they were made, not misleading.
(c) All corporate proceedings and other legal matters incident to the authorization, form and validity of each of this Agreement, the Securities, the Registration Statement, the General Disclosure Package, each Issuer Free Writing Prospectus and the Prospectus and all other legal matters relating to this Agreement and the transactions contemplated hereby shall be reasonably satisfactory in all material respects to counsel for the Underwriters, and the Company shall have furnished to such counsel all documents and information that they may reasonably request to enable them to pass upon such matters.
(d) The Representative shall have received an opinion and 10b-5 statement from Carter Ledyard & Milburn LLP, U.S. securities counsel for the Company, dated the Closing Date or the Option Closing Date, as the case may be, in form and substance reasonably satisfactory to the Representative and previously agreed upon with counsel for the Underwriters.
(e) The Representative shall have received an opinion and 10b-5 statement from S. Friedman & Co., Israeli counsel for the Company, dated the Closing Date or the Option Closing Date, as the case may be, in form and substance reasonably satisfactory to the Representative and previously agreed upon with counsel for the Underwriters.
(f) The Representative shall have received an opinion and 10b-5 statement from Reed Smith LLP, U.S. counsel for the Underwriters, dated the Closing Date or the Option Closing Date, as the case may be, with respect to such matters as the Representative may reasonably request, and such counsel shall have received such documents and information as they may reasonably request to enable them to pass upon such matters.
(g) The Representative shall have received an opinion from Yigal Arnon & Co., Israeli counsel for the Underwriters, dated the Closing Date or the Option Closing Date, as the case may be, with respect to such matters as the Representative may reasonably request, and such counsel shall have received such documents and information as they may reasonably request to enable them to pass upon such matters.
(h) At the time of the execution of this Agreement, the Representative shall have received from the Auditors a letter, addressed to the Underwriters, executed and dated such date, in form and substance satisfactory to the Representative (i) confirming that they are an independent registered accounting firm with respect to the Company within the meaning of the Securities Act and the Rules and Regulations and PCAOB and (ii) stating the conclusions and findings of such firm, of the type ordinarily included in accountants’ “comfort letters” to underwriters, with respect to the financial statements and certain financial information contained or incorporated by reference in the Registration Statement, the General Disclosure Package and the Prospectus.
(i) On the effective date of any post-effective amendment to any Registration Statement and on such Closing Date, the Representative shall have received a letter (the “bring-down letter”) from the Auditors addressed to the Underwriters and dated such Closing Date confirming, as of the date of the bring-down letter (or, with respect to matters involving changes or developments since the respective dates as of which specified financial information is given in the Registration Statement, the General Disclosure Package and the Prospectus, as the case may be, as of a date not more than three (3) business days prior to the date of the bring-down letter), the conclusions and findings of such firm, of the type ordinarily included in accountants’ “comfort letters” to underwriters, with respect to the financial information and other matters covered by its letter delivered to the Representative concurrently with the execution of this Agreement pursuant to paragraph (h) of this Section 5.
(j) The Company shall have furnished to the Representative a certificate, dated such Closing Date, of its Chairman of the Board or Chief Executive Officer and its Chief Financial Officer stating that (i) such officers have carefully examined the Registration Statement, the General Disclosure Package, any Permitted Free Writing Prospectus and the Prospectus and, in their opinion, the Registration Statement and each amendment thereto, as of their respective effective dates and as of such Closing Date did not include any untrue statement of a material fact and did not omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and the General Disclosure Package, as of the Applicable Time and as of such Closing Date, any Permitted Free Writing Prospectus as of its date and as of such Closing Date, the Prospectus and each amendment or supplement thereto, as of the respective date thereof and as of such Closing Date, did not include any untrue statement of a material fact and did not omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances in which they were made, not misleading, (ii) since the effective date of the Registration Statement, no event has occurred which should have been set forth in a supplement or amendment to the Registration Statement, the General Disclosure Package or the Prospectus, (iii) to the best of their knowledge after reasonable investigation, as of such Closing Date, the representations and warranties of the Company in this Agreement are true and correct and the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to such Closing Date, and (iv) there has not been, subsequent to the date of the most recent audited financial statements included in the General Disclosure Package, any material adverse change in the financial position or results of operations of the Company, or any change or development that, singularly or in the aggregate, would involve a material adverse change or a prospective material adverse change, in or affecting the condition (financial or otherwise), results of operations, business, assets or prospects of the Company, except as set forth in the Prospectus.
(k) Since the date of the latest audited financial statements included in the General Disclosure Package, (i) the Company shall not have sustained any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth in the General Disclosure Package, and (ii) there shall not have been any change in the share capital or long-term debt of the Company, or any change, or any development involving a prospective change, in or affecting the business, general affairs, management, financial position, shareholders’ equity or results of operations of the Company, otherwise than as set forth in the General Disclosure Package, the effect of which, in any such case described in clause (i) or (ii) of this paragraph (k), is, in the judgment of the Representative, so material and adverse as to make it impracticable or inadvisable to proceed with the sale or delivery of the Securities on the terms and in the manner contemplated in the General Disclosure Package.
(l) No action shall have been taken and no law, statute, rule, regulation or order shall have been enacted, adopted or issued by any Israeli, federal, state or foreign governmental or regulatory agency or body which would prevent the issuance or sale of the Securities or materially and adversely affect or potentially materially and adversely affect the business or operations of the Company; and no injunction, restraining order or order of any other nature by any Israeli, federal, state or foreign court of competent jurisdiction shall have been issued which would prevent the issuance or sale of the Securities or materially and adversely affect or potentially materially and adversely affect the business or operations of the Company.
(m) Subsequent to the execution and delivery of this Agreement there shall not have occurred any of the following: (i) trading in securities generally on the New York Stock Exchange, the Exchange, The NYSE MKT, any other national securities exchange or in the over-the-counter market, or trading in any securities of the Company on any exchange or in the over-the-counter market, shall have been suspended or materially limited, or minimum or maximum prices or maximum range for prices shall have been established on any such exchange or such market by the Commission, by such exchange or market or by any other regulatory body or governmental authority having jurisdiction, (ii) a banking moratorium shall have been declared by the United States, New York State or Israeli authorities or a material disruption has occurred in commercial banking or securities settlement or clearance services in the United States or Israel, (iii) there shall have occurred any outbreak or escalation of hostilities in which the United States or Israel is involved or declaration by the United States or Israel of a national emergency or war or other calamity or crisis as to make it, in the judgment of the Representative, impracticable or inadvisable to proceed with the sale or delivery of the Securities on the terms and in the manner contemplated in the Registration Statement, the General Disclosure Package and the Prospectus or (iv) there shall have occurred such a material adverse change in general economic, political or financial conditions in the United States or Israel (or the effect of international conditions on the financial markets in the United States and/or Israel shall be such) as to make it, in the judgment of the Representative, impracticable or inadvisable to proceed with the sale or delivery of the Securities on the terms and in the manner contemplated in the Registration Statement, the General Disclosure Package and the Prospectus.
(n) The Exchange shall have approved the Securities for listing therein, subject only to official notice of issuance and evidence of satisfactory distribution.
(o) FINRA shall have raised no objection to the fairness and reasonableness of the underwriting terms and arrangements.
(p) On or after the date hereof (i) no downgrading shall have occurred in the rating accorded any of the Company’s securities by any “nationally recognized statistical organization,” as that term is defined by the Commission for purposes of Rule 436(g)(2) under the Securities Act, and (ii) no such organization shall have publicly announced that it has under surveillance or review, with possible negative implications, its rating of any of the Company’s securities.
(q) The Representative shall have received on and as of such Closing Date satisfactory evidence of the valid existence of the Company as a non-breaching company (within the meaning of Section 362A of the Israeli Companies Law) in its jurisdiction of organization and its good standing as a foreign entity in such other jurisdictions as the Representative may reasonably request (to the extent applicable in such jurisdiction), in each case in writing or any standard form of telecommunication from the appropriate Governmental Authorities of such jurisdictions.
(r) The Representative shall have received the written agreements, substantially in the form of Exhibit I hereto, of the officers, directors and 5% shareholders of the Company listed in Schedule D to this Agreement.
(s) On or prior to such Closing Date, the Company shall have furnished to the Representative such further certificates and documents as the Representative may reasonably request.
All opinions, letters, evidence and certificates mentioned above or elsewhere in this Agreement shall be deemed to be in compliance with the provisions hereof only if they are in form and substance reasonably satisfactory to counsel for the Underwriters.
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6.
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INDEMNIFICATION AND CONTRIBUTION.
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(a) The Company shall indemnify and hold harmless each Underwriter, its directors, officers, managers, members, employees, representatives and agents and each person, if any, who controls any Underwriter within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (collectively, the “Underwriter Indemnified Parties,” and, each, an “Underwriter Indemnified Party”) against any loss, claim, damage, expense or liability whatsoever (or any action, investigation or proceeding in respect thereof), joint or several, to which such Underwriter Indemnified Party may become subject, under the Securities Act or otherwise, insofar as such loss, claim, damage, expense, liability, action, investigation or proceeding arises out of or is based upon (i) any untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, any Issuer Free Writing Prospectus, any “issuer information” filed or required to be filed pursuant to Rule 433(d) of the Rules and Regulations, any Registration Statement or the Prospectus, or in any amendment or supplement thereto or (ii) the omission or alleged omission to state in any Preliminary Prospectus, any Issuer Free Writing Prospectus, any “issuer information” filed or required to be filed pursuant to Rule 433(d) of the Rules and Regulations, any Registration Statement or the Prospectus, or in any amendment or supplement thereto, a material fact required to be stated therein or necessary to make the statements therein not misleading (and solely with respect to the Prospectus, in the light of the circumstances in which such statements were made, not misleading), and shall reimburse each Underwriter Indemnified Party promptly upon demand for any legal fees or other expenses reasonably incurred by that Underwriter Indemnified Party in connection with investigating, or preparing to defend, or defending against, or appearing as a third party witness in respect of, or otherwise incurred in connection with, any such loss, claim, damage, expense, liability, action, investigation or proceeding, as such fees and expenses are incurred; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, expense or liability arises out of or is based upon an untrue statement or alleged untrue statement in, or omission or alleged omission from any Preliminary Prospectus, any Registration Statement or the Prospectus, or any such amendment or supplement thereto, or any Issuer Free Writing Prospectus made in reliance upon and in conformity with written information furnished to the Company through the Representative by or on behalf of any Underwriter specifically for use therein, which information the parties hereto agree is limited to the Underwriter’s Information (as defined in Section 18). The indemnity agreement in this Section 6(a) is not exclusive and is in addition to each other liability which the Company might have under this Agreement or otherwise, and shall not limit any rights or remedies which may otherwise be available under this Agreement, at law or in equity to any Underwriter Indemnified Party.
(b) Each Underwriter, severally and not jointly, shall indemnify and hold harmless the Company and its directors, its officers who signed the Registration Statement and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (collectively, the “Company Indemnified Parties” and, each, a “Company Indemnified Party”) against any loss, claim, damage, expense or liability whatsoever (or any action, investigation or proceeding in respect thereof), joint or several, to which such Company Indemnified Party may become subject, under the Securities Act or otherwise, insofar as such loss, claim, damage, expense, liability, action, investigation or proceeding arises out of or is based upon (i) any untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, any Issuer Free Writing Prospectus, any "issuer information" filed or required to be filed pursuant to Rule 433(d) of the Rules and Regulations, any Registration Statement or the Prospectus, or in any amendment or supplement thereto, or (ii) the omission or alleged omission to state in any Preliminary Prospectus, any Issuer Free Writing Prospectus, any “issuer information” filed or required to be filed pursuant to Rule 433(d) of the Rules and Regulations, any Registration Statement or the Prospectus, or in any amendment or supplement thereto, a material fact required to be stated therein or necessary to make the statements therein not misleading (and solely with respect to the Prospectus, in the light of the circumstances in which such statements were made, not misleading), but in each case only to the extent that the untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company through the Representative by or on behalf of that Underwriter specifically for use therein, which information the parties hereto agree is limited to the Underwriter’s Information as defined in Section 18, and shall reimburse the Company Indemnified Parties for any legal or other expenses reasonably incurred by such party in connection with investigating or preparing to defend or defending against or appearing as third party witness in connection with any such loss, claim, damage, liability, action, investigation or proceeding, as such fees and expenses are incurred. This indemnity agreement is not exclusive and will be in addition to any liability which the Underwriters might otherwise have and shall not limit any rights or remedies which may otherwise be available under this Agreement, at law or in equity to the Company Indemnified Parties.
(c) Promptly after receipt by an indemnified party under this Section 6 of notice of the commencement of any action, the indemnified party shall, if a claim in respect thereof is to be made against an indemnifying party under this Section 6, notify such indemnifying party in writing of the commencement of that action; provided, however, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have under this Section 6 except to the extent it has been materially prejudiced by such failure; and, provided, further, that the failure to notify an indemnifying party shall not relieve it from any liability which it may have to an indemnified party otherwise than under this Section 6. If any such action shall be brought against an indemnified party, and it shall notify the indemnifying party thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense of such action with counsel reasonably satisfactory to the indemnified party (which counsel shall not, except with the written consent of the indemnified party, be counsel to the indemnifying party). After notice from the indemnifying party to the indemnified party of its election to assume the defense of such action, except as provided herein, the indemnifying party shall not be liable to the indemnified party under Section 6 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense of such action other than reasonable costs of investigation; provided, however, that any indemnified party shall have the right to employ separate counsel in any such action and to participate in the defense of such action but the fees and expenses of such counsel (other than reasonable costs of investigation) shall be at the expense of such indemnified party unless (i) the employment thereof has been specifically authorized in writing by the Company in the case of a claim for indemnification under Section 6(a) or the Representative in the case of a claim for indemnification under Section 6(c), (ii) such indemnified party shall have been advised by its counsel that there may be one or more legal defenses available to it which are different from or additional to those available to the indemnifying party, or (iii) the indemnifying party has failed to assume the defense of such action and employ counsel reasonably satisfactory to the indemnified party within a reasonable period of time after notice of the commencement of the action or the indemnifying party does not diligently defend the action after assumption of the defense, in which case, if such indemnified party notifies the indemnifying party in writing that it elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of (or, in the case of a failure to diligently defend the action after assumption of the defense, to continue to defend) such action on behalf of such indemnified party and the indemnifying party shall be responsible for legal or other expenses subsequently incurred by such indemnified party in connection with the defense of such action; provided, however, that the indemnifying party shall not, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys at any time for all such indemnified parties (in addition to any local counsel), which firm shall be designated in writing by the Representative if the indemnified parties under this Section 6 consist of any Underwriter Indemnified Party or by the Company if the indemnified parties under this Section 6 consist of any Company Indemnified Parties. Subject to this Section 6(c), the amount payable by an indemnifying party under Section 6 shall include, but not be limited to, (x) reasonable legal fees and expenses of counsel to the indemnified party and any other expenses in investigating, or preparing to defend or defending against, or appearing as a third party witness in respect of, or otherwise incurred in connection with, any action, investigation, proceeding or claim, and (y) all amounts paid in settlement of any of the foregoing. No indemnifying party shall, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of judgment with respect to any pending or threatened action or any claim whatsoever, in respect of which indemnification or contribution could be sought under this Section 6 (whether or not the indemnified parties are actual or potential parties thereto), unless such settlement, compromise or consent (1) includes an unconditional release of each indemnified party in form and substance reasonably satisfactory to such indemnified party from all liability arising out of such action or claim and (2) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. Subject to the provisions of the following sentence, no indemnifying party shall be liable for settlement of any pending or threatened action or any claim whatsoever that is effected without its written consent (which consent shall not be unreasonably withheld or delayed), but if settled with its written consent, if its consent has been unreasonably withheld or delayed or if there be a judgment for the plaintiff in any such matter, the indemnifying party agrees to indemnify and hold harmless any indemnified party from and against any loss or liability by reason of such settlement or judgment. In addition, if at any time an indemnified party shall have requested that an indemnifying party reimburse the indemnified party for fees and expenses of counsel, such indemnifying party agrees that it shall be liable for any settlement of the nature contemplated by Section 6(a) effected without its written consent if (A) such settlement is entered into more than forty-five (45) days after receipt by such indemnifying party of the request for reimbursement, (B) such indemnifying party shall have received notice of the terms of such settlement at least thirty (30) days prior to such settlement being entered into and (C) such indemnifying party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement.
(d) If the indemnification provided for in this Section 6 is unavailable or insufficient to hold harmless an indemnified party under Section 6(a) or 6(b), then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid, payable or otherwise incurred by such indemnified party as a result of such loss, claim, damage, expense or liability (or any action, investigation or proceeding in respect thereof), as incurred, (i) in such proportion as shall be appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other from the offering of the Securities, or (ii) if the allocation provided by clause (i) of this Section 6(d) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) of this Section 6(d) but also the relative fault of the Company on the one hand and the Underwriters on the other with respect to the statements, omissions, acts or failures to act which resulted in such loss, claim, damage, expense or liability (or any action, investigation or proceeding in respect thereof) as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters on the other with respect to such offering shall be deemed to be in the same proportion as the total net proceeds from the offering of the Securities purchased under this Agreement (before deducting expenses) received by the Company bear to the total underwriting discounts and commissions received by the Underwriters with respect to the Securities purchased under this Agreement, in each case as set forth in the table on the cover page of the Prospectus. The relative fault of the Company on the one hand and the Underwriters on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or the Underwriters on the other, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such untrue statement, omission, act or failure to act; provided that the parties hereto agree that the written information furnished to the Company through the Representative by or on behalf of the Underwriters for use in the Preliminary Prospectus, any Registration Statement or the Prospectus, or in any amendment or supplement thereto, consists solely of the Underwriter’s Information as defined in Section 18.
(e) The Company and the Underwriters agree that it would not be just and equitable if contributions pursuant to Section 6(d) above were to be determined by pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to Section 6(d) above. The amount paid or payable by an indemnified party as a result of the loss, claim, damage, expense, liability, action, investigation or proceeding referred to in Section 6(d) above shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating, preparing to defend or defending against or appearing as a third party witness in respect of, or otherwise incurred in connection with, any such loss, claim, damage, expense, liability, action, investigation or proceeding. Notwithstanding the provisions of this Section 6, no Underwriters shall be required to contribute any amount in excess of the amount by which the total underwriting discounts and commissions received by such Underwriter with respect to the offering of the Securities exceeds the amount of any damages which the Underwriter has otherwise paid or become liable to pay by reason of any untrue or alleged untrue statement, omission or alleged omission, act or alleged act or failure to act or alleged failure to act. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters’ obligations to contribute as provided in this Section 6 are several in proportion to their respective underwriting obligations and not joint.
7. TERMINATION. The obligations of the Underwriters hereunder may be terminated by the Representative, in its absolute discretion by notice given to the Company prior to delivery of and payment for the Securities if, prior to that time, any of the events described in Sections 5 (k), (l) or (m) have occurred or if the Underwriters shall decline to purchase the Securities pursuant to the terms of Section 9 of this Agreement.
8. REIMBURSEMENT OF UNDERWRITERS’ EXPENSES. Notwithstanding anything to the contrary in this Agreement, if (a) this Agreement shall have been terminated pursuant to Section 7 or 9, (b) the Company shall fail to tender the Securities for delivery to the Underwriters for any reason not permitted under this Agreement, (c) the Underwriters shall decline to purchase the Securities for any reason permitted under this Agreement or (d) the sale of the Securities is not consummated because any condition to the obligations of the Underwriters set forth herein is not satisfied or because of the refusal, inability or failure on the part of the Company to perform any agreement herein or to satisfy any condition or to comply with the provisions hereof, then the Company shall reimburse the Underwriters their out-of-pocket expenses as shall have been reasonably incurred by them in connection with this Agreement and the proposed purchase of the Securities, including, without limitation, the fees and expenses of the Underwriters’ counsel and travel and lodging expenses of the Underwriters, up to a total of $100,000 for all such expenses, and, upon demand the Company shall pay the full amount thereof to the Representative, provided, however, that if this Agreement is terminated pursuant to Section 9 by reason of the default of one or more Underwriters, the Company shall not be obligated to reimburse the Underwriters for any expenses.
9. SUBSTITUTION OF UNDERWRITERS. If any Underwriter or Underwriters shall default in its or their obligations to purchase Securities hereunder on any Closing Date and the aggregate number of Securities which such defaulting Underwriter or Underwriters agreed but failed to purchase does not exceed ten percent (10%) of the total number of Securities to be purchased by all Underwriters on such Closing Date, the other Underwriters shall be obligated severally, in proportion to their respective commitments hereunder, to purchase the Securities which such defaulting Underwriter or Underwriters agreed but failed to purchase on such Closing Date. If any Underwriter or Underwriters shall so default and the aggregate number of Securities with respect to which such default or defaults occur is more than ten percent (10%) of the total number of Securities to be purchased by all Underwriters on such Closing Date and arrangements satisfactory to the Representative and the Company for the purchase of such Securities by other persons are not made within forty-eight (48) hours after such default, this Agreement shall terminate.
If the remaining Underwriters or substituted Underwriters are required hereby or agree to take up all or part of the Securities of a defaulting Underwriter or Underwriters on such Closing Date as provided in this Section 9, (i) the Company shall have the right to postpone such Closing Date for a period of not more than five (5) full business days in order that the Company may effect whatever changes may thereby be made necessary in the Registration Statement or the Prospectus, or in any other documents or arrangements, and the Company agrees promptly to file any amendments to the Registration Statement or supplements to the Prospectus which may thereby be made necessary, and (ii) the respective numbers of Securities to be purchased by the remaining Underwriters or substituted Underwriters shall be taken as the basis of their underwriting obligation for all purposes of this Agreement. Nothing herein contained shall relieve any defaulting Underwriter of its liability to the Company or the other Underwriters for damages occasioned by its default hereunder. Any termination of this Agreement pursuant to this Section 9 shall be without liability on the part of any non-defaulting Underwriter or the Company, except that the representations, warranties, covenants, indemnities, agreements and other statements set forth in Section 2, the obligations with respect to expenses to be paid or reimbursed pursuant to Sections 4 and 8 and the provisions of Section 6 and Sections 10 through 20, inclusive, shall not terminate and shall remain in full force and effect.
10. ABSENCE OF FIDUCIARY RELATIONSHIP. The Company acknowledges and agrees that:
(a) each Underwriter’s responsibility to the Company is solely contractual in nature, the Representative has been retained solely to act as underwriters in connection with the sale of the Securities and no fiduciary, advisory or agency relationship between the Company and the Representative has been created in respect of any of the transactions contemplated by this Agreement, irrespective of whether the Representative has advised or is advising the Company on other matters;
(b) the price of the Securities set forth in this Agreement was established by the Company following discussions and arms-length negotiations with the Representative, and the Company is capable of evaluating and understanding, and understands and accepts, the terms, risks and conditions of the transactions contemplated by this Agreement;
(c) it has been advised that the Representative and its affiliates are engaged in a broad range of transactions which may involve interests that differ from those of the Company and that the Representative has no obligation to disclose such interests and transactions to the Company by virtue of any fiduciary, advisory or agency relationship; and
(d) it waives, to the fullest extent permitted by law, any claims it may have against the Representative for breach of fiduciary duty or alleged breach of fiduciary duty and agrees that the Representative shall have no liability (whether direct or indirect) to the Company in respect of such a fiduciary duty claim or to any person asserting a fiduciary duty claim on behalf of or in right of the Company, including stockholders, employees or creditors of the Company.
11. SUCCESSORS; PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement shall inure to the benefit of and be binding upon the several Underwriters, the Company, and their respective successors and assigns. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any person, other than the persons mentioned in the preceding sentence, any legal or equitable right, remedy or claim under or in respect of this Agreement, or any provisions herein contained, this Agreement and all conditions and provisions hereof being intended to be and being for the sole and exclusive benefit of such persons and for the benefit of no other person; except that the representations, warranties, covenants, agreements and indemnities of the Company contained in this Agreement shall also be for the benefit of the Underwriter Indemnified Parties, and the indemnities of the several Underwriters shall be for the benefit of the Company Indemnified Parties. It is understood that each Underwriter’s responsibility to the Company is solely contractual in nature and the Underwriters do not owe the Company, or any other party, any fiduciary duty as a result of this Agreement. No purchaser of any of the Securities from any Underwriter shall be deemed to be a successor or assign by reason merely of such purchase.
12. SURVIVAL OF INDEMNITIES, REPRESENTATIONS, WARRANTIES, ETC. The respective indemnities, covenants, agreements, representations, warranties and other statements of the Company and the several Underwriters, as set forth in this Agreement or made by them respectively, pursuant to this Agreement, shall remain in full force and effect, regardless of any investigation made by or on behalf of any Underwriter, the Company or any person controlling any of them and shall survive delivery of and payment for the Securities. Notwithstanding any termination of this Agreement, including without limitation any termination pursuant to Section 7 or Section 9, the indemnities, covenants, agreements, representations, warranties and other statements forth in Sections 2, 4, 6 and 8 and Sections 10 through 22, inclusive, of this Agreement shall not terminate and shall remain in full force and effect at all times.
13. NOTICES. All communications hereunder shall be in writing and, except as otherwise provided herein, will be mailed, delivered, telecopied or telegraphed and confirmed as follows:
If to the Underwriters:
Chardan Capital Markets, LLC
17 State Street, Suite 1600
New York, NY 10004
Attention: Scott Blakeman
Facsimile: (646) 465-9025
Email: sblakeman@chardancm.com
With a copy to:
Reed Smith LLP
599 Lexington Avenue
New York, NY 10022
Attention: Yvan-Claude J. Pierre, Esq.
Facsimile: (212) 521-5450
Email: ypierre@reedsmith.com
RADA Electronic Industries Ltd.
7 Giborei Israel Street
Netanya 4250407
Israel
Attention: Zvika Alon
Facsimile: +972-9-892-
Email: zvika.alon@rada.com
Carter Ledyard & Milburn LLP
2 Wall Street,
New York, NY 10005
Attention: Steven J. Glusband, Esq.
Facsimile: (212) 732-3232
Emails: glusband@clm.com
14. DEFINITION OF CERTAIN TERMS. For purposes of this Agreement, “business day” means any day on which the New York Stock Exchange, Inc. is open for trading.
15. GOVERNING LAW. This Agreement and any claim, controversy or dispute arising under or related to this Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements made and to be performed in such state.
16. AGENT FOR SERVICE; SUBMISSION TO JURISDICTION; WAIVER OF IMMUNITIES. The Company hereby irrevocably designates and appoints Puglisi & Associates as the authorized agent of the Company upon whom process may be served in any suit, proceeding or other action against the Company instituted by any Underwriter or by any person controlling an Underwriter as to which such Underwriter or any such controlling person is a party and based upon this Agreement, or in any other action against the Company in any federal or state court sitting in the County of New York, arising out of the offering made by the Prospectus or any purchase or sale of Securities in connection therewith. The Company expressly accepts jurisdiction of any such court in respect of any such suit, proceeding or other action and, without limiting other methods of obtaining jurisdiction, expressly submits to nonexclusive personal jurisdiction of any such court in respect of any such suit, proceeding or other action. Such designation and appointment shall be irrevocable, unless and until a successor authorized agent in the County and State of New York reasonably acceptable to the Underwriters shall have been appointed by the Company, such successor shall have accepted such appointment and written notice thereof shall have been given to the Underwriters. The Company further agrees that service of process upon their authorized agent or successor shall be deemed in every respect personal service of process upon the Company in any such suit, proceeding or other action. In the event that service of any process or notice of motion or other application to any such court in connection with any such motion in connection with any such action or proceeding cannot be made in the manner described above, such service may be made in the manner set forth in conformance with the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents on Civil and Commercial Matters or any successor convention or treaty. The Company hereby irrevocably waives any objection that it may have or hereafter have to the laying of venue of any such action or proceeding arising out of or based on the Securities, or this Agreement or otherwise relating to the offering, issuance and sale of the Securities in any federal or state court sitting in the County of New York and hereby further irrevocably waives any claim that any such action or proceeding in any such court has been brought in an inconvenient forum. The Company agrees that any final judgment after exhaustion of all appeals or the expiration of time to appeal in any such action or proceeding arising out of the sale of the Securities or this Agreement rendered by any such federal court or state court shall be conclusive and may be enforced in any other jurisdiction by suit on the judgment or in any other manner provided by law. Nothing contained in this Agreement shall affect or limit the right of the Underwriters to serve any process or notice of motion or other application in any other manner permitted by law or limit or affect the right of the Underwriters to bring any action or proceeding against the Company or any of its property in the courts of any other jurisdiction. The Company further agrees to take any and all action, including the execution and filing of all such instruments and documents, as may be necessary to continue such designations and appointments or such substitute designations and appointments in full force and effect. The Company hereby agrees with the Underwriters to the nonexclusive jurisdiction of the courts of the State of New York, or the federal courts sitting in the County of New York in connection with any action or proceeding arising from the sale of the Securities or this Agreement brought by the Company or the Underwriters.
17. JUDGMENT CURRENCY. The obligation of the Company in respect of any sum due to any Underwriter under this Agreement shall, notwithstanding any judgment in a currency other than U.S. dollars or any other applicable currency (the “Judgment Currency”), not be discharged until the first business day, following receipt by such Underwriter of any sum adjudged to be so due in the Judgment Currency, on which (and only to the extent that) such Underwriter may in accordance with normal banking procedures purchase U.S. dollars or any other applicable currency with the Judgment Currency; if the U.S. dollars or other applicable currency so purchased are less than the sum originally due to such Underwriter hereunder, the Company agrees, as a separate obligation and notwithstanding any such judgment, to indemnify such Underwriter against such loss. If the U.S. dollars or other applicable currency so purchased are greater than the sum originally due to such Underwriter hereunder, such Underwriter agrees to pay to the Company an amount equal to the excess of the U.S. dollars or other applicable currency so purchased over the sum originally due to such Underwriter hereunder.
18. UNDERWRITERS’ INFORMATION. The parties hereto acknowledge and agree that, for all purposes of this Agreement, the Underwriters’ Information consists solely of the following information in the Prospectus: (i) the last paragraph on the front cover page concerning the terms of the offering by the Underwriters; and (ii) the following statements concerning the Underwriters contained in the “Underwriting” section of the Prospectus: (a) the first sentence under the heading “Commissions, Discounts and Other Compensation”; and (b) the first sentence under the heading “Short Sales, Stabilizing Transactions and Penalty Bids — Stabilizing transactions.”
19. AUTHORITY OF THE REPRESENTATIVE. In connection with this Agreement, you will act for and on behalf of the several Underwriters, and any action taken under this Agreement by the Representative, will be binding on all the Underwriters.
20. PARTIAL UNENFORCEABILITY. The invalidity or unenforceability of any section, paragraph, clause or provision of this Agreement shall not affect the validity or enforceability of any other section, paragraph, clause or provision hereof. If any section, paragraph, clause or provision of this Agreement is for any reason determined to be invalid or unenforceable, there shall be deemed to be made such minor changes (and only such minor changes) as are necessary to make it valid and enforceable.
21. GENERAL. This Agreement constitutes the entire agreement of the parties to this Agreement and supersedes all prior written or oral and all contemporaneous oral agreements, understandings and negotiations with respect to the subject matter hereof. In this Agreement, the masculine, feminine and neuter genders and the singular and the plural include one another. The section headings in this Agreement are for the convenience of the parties only and will not affect the construction or interpretation of this Agreement. This Agreement may be amended or modified, and the observance of any term of this Agreement may be waived, only by a writing signed by the Company and the Representative.
22. COUNTERPARTS. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.
[Remainder of page intentionally left blank.]
If the foregoing is in accordance with your understanding of the agreement between the Company and the several Underwriters, kindly indicate your acceptance in the space provided for that purpose below.
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Very truly yours,
RADA ELECTRONIC INDUSTRIES LTD.
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By:
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Name |
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Accepted as of
the date first above written:
CHARDAN CAPITAL MARKETS, LLC
Acting on its own behalf
and as Representative of the several
Underwriters referred to in the
foregoing Agreement.
By:______________________________
Name:
Title:
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SCHEDULE A
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Number of Firm Shares to be Purchased
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Number of Additional Shares to be Purchased
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Chardan Capital Markets, LLC
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Total
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[XXXX]
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[XXXX]
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SCHEDULE B
Pricing Information
Number of Firm Shares:
Number of Additional Shares:
Public Offering Price per Share: $
Underwriting Discount per Share: $
Proceeds to Company per Share (before expenses): $
SCHEDULE C
General Use Free Writing Prospectuses
SCHEDULE D
Parties Subject to Lock-Up
List of officers, directors and 5% shareholders subject to Section 3(k) or otherwise executing Lock-Up Agreements
EXHIBIT I
Form of Lock-Up Agreement
[DATE], 20__
CHARDAN CAPITAL MARKETS, LLC
As Representative of the several Underwriters
c/o Chardan Capital Markets, LLC
17 State Street, Suite 1600
New York, NY 10004
Re: RADA Electronic Industries Ltd. – Registration Statement on Form F-1 for Ordinary Shares
Ladies and Gentlemen:
As an inducement to the underwriter (the “Underwriter”) to execute an underwriting agreement (the “Underwriting Agreement”) providing for a public offering (the “Offering”) of ordinary shares, NIS 0.015 nominal value (the “Ordinary Shares”) of RADA Electronic Industries Ltd., an Israeli company (the “Company”), the undersigned hereby agrees that without, in each case, the prior written consent of Chardan Capital Markets, LLC (the “Representative”) during the period specified in the second succeeding paragraph (the “Lock-Up Period”), the undersigned will not (1) offer, pledge, announce the intention to sell, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, make any short sale or otherwise transfer or dispose of, directly or indirectly, any Ordinary Shares, or any securities convertible into, exercisable or exchangeable for or that represent the right to Ordinary Shares (including, without limitation, Ordinary Shares which may be deemed to be beneficially owned by the undersigned in accordance with the rules and regulations of the Securities and Exchange Commission and securities which may be issued upon exercise of a stock option or warrant or upon conversion of convertible security) whether now owned or hereafter acquired (the “Undersigned’s Shares”) or (2) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the Undersigned’s Shares, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Ordinary Shares or such other securities, in cash or otherwise. The foregoing restriction is expressly agreed to preclude the undersigned from engaging in any hedging or other transaction which is designed to or which reasonably could be expected to lead to or result in a sale or disposition of the Undersigned’s Shares even if such Undersigned’s Shares would be disposed of by someone other than the undersigned. Such prohibited hedging or other transactions would include, without limitation, any short sale or any purchase, sale or grant of any right (including without limitation any put or call option) with respect to any of the Undersigned’s Shares or with respect to any security that includes, relates to, or derives any significant part of its value from such Undersigned’s Shares.
In addition, the undersigned agrees that, without the prior written consent of the Representative, it will not, during the Lock-Up Period, make any demand for or exercise any right with respect to, the registration of any Ordinary Shares or any security convertible into or exercisable or exchangeable for Ordinary Shares other than as contemplated in the registration statement relating to the Offering.
The initial Lock-Up Period will commence on the date of this Lock-Up Agreement and continue and include the date 90 days after the date of the final prospectus used to sell Ordinary Shares in the Offering pursuant to the Underwriting Agreement.
If (i) the Company issues an earnings release or material news or a material event relating to the Company occurs during the last 17 days of the Lock-Up Period, or (ii) prior to the expiration of the Lock-Up Period, the Company announces that it will release earnings results during the 16-day period beginning on the last day of the Lock-Up Period, the Lock-Up Period shall be extended and the restrictions imposed by this Agreement shall continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event.
Notwithstanding the foregoing, (1) the undersigned may transfer the Undersigned’s Shares (i) to an immediate family member or as a bona fide gift or gifts or by will or intestacy and (ii) to any trust for the direct or indirect benefit of the undersigned or the immediate family of the undersigned, or (2) if the undersigned is a corporation, company, business trust, association, limited liability company, partnership, limited liability partnership, limited liability limited partnership or other entity (collectively, the “Entities” or, individually, the “Entity”), the undersigned may transfer the Undersigned’s Shares to any shareholders, members or other equity holders of the undersigned or to the undersigned’s affiliates or to any investment fund or any person or Entity which controls, is directly or indirectly controlled by, or is under common control with the undersigned and, if the undersigned is a partnership or limited liability company, it may transfer the Undersigned’s Shares to its partners, former partners or an affiliated partnership (or members, former members or an affiliated limited liability company) managed by the same manager or managing partner (or managing member, as the case may be) or management company, or managed by an entity controlling, controlled by, or under common control with, such manager or managing partner (or managing member) or management company in accordance with partnership (or membership) interests or if the undersigned is a trust, to a trustee or beneficiary of the trust; provided, in each case of transfer pursuant to clause (1) or (2), that (x) such transfer shall not involve a disposition for value, (y) the transferee agrees in writing with the Underwriters to be bound by the terms of this Lock-Up Agreement, and (z) no filing by any party under Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), shall be required or shall be made voluntarily in connection with such transfer. For purposes of this Lock-Up Agreement, “immediate family” shall mean any relationship by blood, marriage or adoption, not more remote than first cousin.
In addition, the foregoing restrictions shall not apply to (i) the exercise of any options or warrants disclosed in the Prospectus (as defined in the Underwriting Agreement) or any document or filing incorporated by reference into such Prospectus or any stock options granted pursuant to the Company’s equity incentive plans; provided that it shall apply to any of the Undersigned’s Shares issued upon such exercise but shall not apply to sales of the Undersigned’s Shares issued upon such exercise made to satisfy tax liabilities arising from such exercise of any options or warrants that expire during the Lock-Up Period, (ii) any transfers made by the undersigned to the Company to satisfy tax withholding obligations pursuant to the Company’s equity incentive plans, (iii) the establishment of any contract, instruction or plan (a “Plan”) that satisfies all of the requirements of Rule 10b5-1(c)(1)(i)(B) under the Exchange Act; provided that no sales of the Undersigned’s Shares shall be made pursuant to such a Plan prior to the expiration of the Lock-Up Period, and such a Plan may only be established if no public announcement of the establishment or existence thereof and no filing with the Securities and Exchange Commission or other regulatory authority in respect thereof or transactions thereunder or contemplated thereby, by the undersigned, the Company or any other person, shall be required, and no such announcement or filing is made voluntarily, by the undersigned, the Company or any other person, prior to the expiration of the Lock-Up Period, or (iv) any transfer of the Undersigned’s Shares that occurs by operation of law or by order of a court of competent jurisdiction; provided that the undersigned shall use its reasonable best efforts to cause the transferee to sign and deliver a lock-up agreement substantially in the form of this Lock-Up Agreement prior to such transfer.
Further, the undersigned may transfer the Undersigned’s Shares if (i) the transfer is made pursuant to a Plan already established prior to the date hereof (an “Existing Plan”), (ii) such Existing Plan was either publicly disclosed by the Company or disclosed in writing to the Representative, and (iii) any transfer under such Existing Plan is made in amounts consistent with the terms of such Existing Plan.
In furtherance of the foregoing, the Company and its transfer agent and registrar are hereby authorized to decline to make any transfer of Ordinary Shares or securities convertible into or exchangeable for any Ordinary Shares if such transfer would constitute a violation or breach of this Lock-Up Agreement.
The undersigned understands that the undersigned shall be released from all obligations under this Lock-Up Agreement if (i) the Company or the Representative informs the other that it does not intend to proceed with the Offering, (ii) the Registration Statement does not become effective, or if the Underwriting Agreement (other than the provisions thereof which survive termination) shall terminate or be terminated prior to payment for and delivery of the Securities to be sold thereunder, or (iii) the Offering is not completed by [September 30, 2015].
The undersigned understands that the Underwriters are entering into the Underwriting Agreement and proceeding with the Offering in reliance upon this Lock-Up Agreement.
This Lock-Up Agreement shall be governed by, and construed in accordance with, the laws of the State of New York.
Whether or not the Offering actually occurs depends on a number of factors, including market conditions. Any Offering will only be made pursuant to the Underwriting Agreement, the terms of which are subject to negotiation among the parties thereto.
[Signature Page Follows]
The undersigned hereby represents and warrants that the undersigned has full power and authority to enter into this Lock-Up Agreement and that, upon request, the undersigned will execute any additional documents necessary in connection with the enforcement hereof. All authority herein conferred or agreed to be conferred and any obligations of the undersigned shall be binding upon the successors, assigns, heirs or personal representatives of the undersigned.
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Very truly yours,
__________________________________
Printed Name of Holder
By:_______________________________
Signature
__________________________________
Printed Name of Person Signing
(and indicate capacity of person signing if
signing as custodian, trustee, or on behalf ofan entity)
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Exhibit 3.1
THE COMPANIES ORDINANCE
A COMPANY LIMITED BY SHARES
MEMORANDUM OF ASSOCIATION
OF
RADA ELECTRONICS CONSULTING & SERVICES COMPANY LTD.
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1.
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The name of the Company is:
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In Hebrew: ראדא חברה ליעוץ ושרותים אלקטרוניים בע"מ
In English: Rada Electronics Consulting & Services Company Ltd.
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2.
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The objects for which the Company was established are:
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a.
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To manage, advise, plan, organize, instruct and assist, to act, produce, manufacture, work, and engage in the business of service and consultation in the field of electronics and, inter alia, to undertake and execute projects of planning, development, consultation and instruction in the branch of electronics.
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b.
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To act as engineers and consultants of all kinds and to carry on the business of planning and engineering.
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c.
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To carry on the business of buying, selling, trade, marketing, import and export supplies of raw materials, commodities, products, goods and materials of all kinds and for whatever use, necessary and/or conducive to the attainment of the objects of the Company.
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d.
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To engage in haulage, transportation and any other means of transport and carriage that may be necessary or conducive to the attainment of the objects of the Company, in whole or in part.
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e.
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To apply for, purchase or otherwise acquire, to obtain rights of use or exploitation of, protect, prolong or renew, whether in Israel or abroad, any patents, patent rights, brevets d’invention, licenses, protections and concessions (hereinafter collectively called “Patent Rights”), which may be thought by the Company to be advantageous, and to use, manufacture under, exploit and derive any benefit from the patent rights, to enter into any agreements and do any acts in respect of the use, exploitation or derivation of any benefit from the patent rights and to sell or otherwise dispose of and grant licenses and privileges in respect of the same.
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f.
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To enter into any arrangement or agreement with any government or authority, supreme, municipal, local or otherwise that may seem beneficial to the objects of the Company, in whole or in part, and to obtain from any such government or authority any right, privilege or concession which the Company may think desirable to obtain, exploit or execute.
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g.
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To purchase or acquire, take in exchange or otherwise any business, whether as a going concern or not, and any property, whether movable or immovable, goodwill, rights, privileges or any other rights of any person or company, necessary or convenient for the attainment of all or any of the Company’s objects or any object connected therewith.
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h.
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To establish or promote or concur in establishing or promoting any company which shall acquire or undertake all or any of the assets and liabilities of this Company and having any other object which the Company think may directly or indirectly assist this Company to advance any business within the ambit of any of the objects of this Company.
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i.
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To amalgamate or merge with any other company.
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j.
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To enter into any partnership or arrangement for sharing profits, union of interests or cooperation with any person or Company.
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k.
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To subscribe for, take, purchase or otherwise acquire, hold, sell, transfer, or enter into an agreement in respect of shares, stock, debenture, debenture stock, obligations and other securities, and interests of any other company having objects altogether or in part similar to those of this Company, in whole or in part, or of any company carrying on or intending or entitled to miry on business which may directly or indirectly be beneficial to the Company.
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l.
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To borrow and raise monies and secure the payment of any monies in such manner and upon such terms as the Company may deem fit and, particularly, by the issue of debentures, series of debentures, debenture stock secured by the all or any of the assets of the Company, present and future, whether movable or immovable, or the uncalled share capital, to acquire, redeem and release any such security, to mortgage the land of the Company and to redeem and release any such security, mortgage or pledge as aforesaid.
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m.
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To lend and advance money or give credit to and to guarantee the debts and contracts of such persons, firms or companies on such terms as may seem expedient, and in particular to customers and others having dealings with the Company, and to give guarantees or become security for any such persons, firms or companies, and to accept from those to or for whom the Company shall lend money or give credit or guarantees, such guarantees and collateral securities as the Company or its directors may deem proper, including mortgages, pledge, charges, floating charges or any security on land and chattels, and to release and waive the right to any security as aforesaid upon such terms as the Company may deem proper.
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n.
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To enter into, sign and execute any agreements and contracts, to make, accept, endorse, issue, transfer, cancel, redeem, purchase or otherwise dispose of bills of exchange, promissory notes, cheques, letters of credit, bills of lading, any instruments, whether negotiable or not negotiable, and any deeds, documents, certificates and securities.
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o.
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To sell and transfer the whole or any part of the undertaking of the Company, either together or in portions, for such consideration as the Company think fit, including for shares, debentures or other securities, to any other company whose objects, in whole or in part, are similar to the objects of the Company.
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p.
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To insure the Company and its property, plants, undertakings and operations, in whole or in part, against all damages, losses, risks and liabilities.
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q.
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To invest and deal with the monies of the Company not immediately required for its business, in such manner as the Company shall from time to time determine.
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r.
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To distribute the assets of the Company among its members in specie or distribute the proceeds of its assets sold or delivered, provided that by the distribution of the assets, no reduction of capital shall result otherwise than in compliance with the Companies Ordinance, to grant allowances, grants and prizes to its employees and directors.
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s.
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To do all or any of the things set out in the Second Schedule to the Companies Ordinance, and it is hereby declared that any object or power added to the Second Schedule to the Companies Ordinance by any amendment of the Ordinance or otherwise, shall be deemed to be added expressly to this memorandum of association; However, any object or power omitted from the Second Schedule to the Companies Ordinance by any amendment of the Ordinance or otherwise, shall not be deemed to be omitted from this memorandum of association, and same shall be deemed to continue to be included in this memorandum of association, except where such object or power shall be prohibited under the law in force at that time.
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t.
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To do all such acts as are connected with or related to the objects included in this memorandum of association, either expressly or impliedly, or as may in any way assist in, facilitate or be conducive to the attaining of all or any of the said objects.
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u.
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To do all the above things, and either as principals, agents, contractors or trustees or otherwise, and either alone or in conjunction with others, and either by or through agents, contractors or trustees or others.
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v.
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To do in every country and place in the world all the acts which the Company is by virtue of the law and the memorandum of association, authorized to do in Israel.
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w.
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And it is hereby agreed and declared that in this memorandum of association the following expressions, whether appearing in the memorandum of association itself or in the Second Schedule to the Companies Ordinance, shall have the following meanings:
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“person” includes company and corporation.
“company” or “corporation” includes, unless it refers to this Company, any other company, cooperative society, any other society, body politic, public or juristic, association, partnership or body of persona, whether incorporated or not incorporated, whether domiciled in Israel or abroad.
“to manage”, “to engage in”, “to do” include to be engaged and act as merchants, importers, exporters, buyers, sellers, exchangers, financiers, agents, brokers, distributors, partners, founders, promoters, holders, helpers, directors, organizers, developers, improvers, searchers, producers, issuers, cultivators, renovators, handlers, lessees, lessors, chargors, chargees, recipients of rights or interests, grantors of rights and interests and in any other manner.
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x.
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And it is hereby further agreed and declared that, unless it is expressly otherwise stated, each of the objects and powers specified in each of the paragraphs of this clause, including, having regard to the provisions of paragraph o. of this clause, each of the paragraphs of the Second Schedule to the Companies Ordinance, is a main and independent object, and shall in no way be limited or restricted by any inference from any other paragraph of this Clause or of the Second Schedule to the Companies Ordinance, or by any reference to or inference from the name of the Company.
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3.
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The liability of the members is limited.
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4.
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The share capital of the company is 450,000 (four hundred and fifty thousand) New Israeli Shekels, divided into 30,000,000 Ordinary Shares of a nominal value of 0.015 New Israeli Shekels (0.015 NIS) each, all ranking, pari-passu. [last amended, April 16, 2015]
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5.
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The Company may make alterations in the original or increased capital, including the creation of new capital from time to time with such rights and subject to such limitations as are specified in the attached articles of association, as from time to time amended.
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We, the several persons whose names and addresses are subscribed, are desirous of being formed into a company in pursuance of this Memorandum of Association and we respectively agree to take the number of shares in the capital of the Company set opposite our respective names.
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Names of Subscribers
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Addresses & Description
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Number of Shares taken
by each Subscriber
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Signature
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Founders
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Ordinary
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1. David Reitner
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145A Derech Hayam Haifa, Engineer
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4
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100
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(-)
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2. Aviva Reitner
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145A Derech Hayam Haifa, Housewife
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1
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10
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(-)
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Haifa, 13th September, 1970
I authenticate the above signatures:
advocate Yom-Tov Elkayam
4
Exhibit 3.2
THE COMPANIES ORDINANCE
COMPANY LIMITED BY SHARES
ARTICLES OF ASSOCIATION
of
RADA ELECTRONIC INDUSTRIES LIMITED
ראדא תעשיות אלקטרוניות בע"מ
INTERPRETATION
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1.
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In these Articles the words standing in the first column of the table next hereinafter contained shall bear the meanings set opposite them respectively in the second column thereof, if not inconsistent with the subject or context:
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Words
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Meanings
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The Company
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The above-named Company.
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Companies Ordinance
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The Companies Ordinance (new Version) 1983 ("The Companies Ordinance") as amended and as amended from time to time including any law or statute replacing it.
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The Statutes
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The Companies Ordinance, The Securities Law 1968, and every other Ordinance or Law for the time being in force concerning joint stock companies and affecting the Company.
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These Articles
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These Articles of Association or as shall be altered from time to time by Special Resolution
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The Office
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The registered office for the time being of the Company.
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The Seal
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The rubber stamp of the Company.
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Month
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Gregorian month.
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Writing
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printing, lithography, photography, and any other mode or modes of representing or reproducing words in a visible form.
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Word importing the singular only shall include the plural, and vice versa.
Words importing the masculine gender shall include the feminine gender and words importing person shall include corporations.
Subject as aforesaid, any words or expressions defined in the Statutes except where the subject or context forbids, bear the same meanings in these Articles.
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2.
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The Regulations in Table "A" in Schedule II to the Companies Ordinance shall not apply to the Company.
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NON-PRIVATE COMPANY
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3.
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The Company is a non-private company; consequently:
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(a)
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No limitations will apply to the transfer of its shares,
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(b)
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The number of shareholders is unlimited;
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(c)
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The company may issue to the public shares, debentures or any other securities.
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4.
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The share capital of the company is 450,000 (four hundred and fifty thousand) New Israeli Shekels, divided into 30,000,000 Ordinary Shares of a nominal value of 0.015 New Israeli Shekels (0.015 NIS) each, all ranking, pari-passu.
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SHARES
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5.
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Subject to these Articles or to the terms of any resolution creating new shares, the unissued shares from time to time shall be under the control of the Board of Directors, who shall have the power to allot shares or otherwise dispose of them to such persons, on such terms and conditions, and either at par or at premium, or, subject to the provisions of the Companies Ordinance, at a discount, and at such times, as the Board of Directors may think fit, and the power to give to any person the option to acquire from the Company any shares, either at par or at a premium, or, subject as aforesaid, at a discount, during such time and for such consideration as the Board of Directors may think fit.
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6.
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If two or more persons are registered as joint holders of any share, any one of such persons may give effectual receipts for any dividends or other moneys in respect of such share.
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7.
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No person shall be recognized by the Company as holding any share upon any trust, and the Company shall not be bound by or required to recognize any equitable, contingent, future or partial interest in any share or any right whatsoever in respect of any share other than an absolute right to the entirety thereof in the registered holder.
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8.
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Every shareholder shall be entitled without payment to receive within six months after allotment or registration of transfer (unless the conditions of issue provide for a longer interval) one certificate under the Seal for all the shares registered in his name, specifying the number and denoting numbers of the shares in respect of which it is issued and the amount paid up thereon. Provided that in the case of joint holders the Company shall not be bound to issue more than one certificate to all the joint holders, and delivery of such certificate to one of them shall be sufficient delivery to all. Every certificate shall be signed by one Director and countersigned by the Secretary or some other person nominated by the Directors for the purpose.
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9.
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If any share certificate shall be defaced, worn out, destroyed or lost, it may be renewed on such evidence being produced, and such indemnity (if any) being given as the Directors shall require and (in case of defacement or wearing out) on delivery up of the old certificate, and in any case on payment of such sum not exceeding NIS 100 (One Hundred Israeli Shekels) as the Directors may from time to time require.
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10.
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No part of the funds of the Company shall be employed in the purchase of or in loans upon the security of the Company's shares, but nothing in this Article shall prohibit the transactions mentioned in the proviso to Section 139 of the Companies Ordinance.
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11.
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Where any shares are issued for the purpose of raising money to defray the expenses of the construction of any works or buildings or the provision of any plant which cannot be made profitable for a length period, the Company may pay interest on so much of such share capital as is for the time being paid up for the period, and subject to the conditions and restrictions mentioned in Section 140 of the Companies Ordinance, and may charge the sum so paid by way of interest to capital as part of the cost of the construction of the work or building or the provision of a plant.
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12.
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The Company may pay a commission at a rate not exceeding fifteen percent of the price at which the shares or other securities are issued to any person in consideration of his subscribing or agreeing to subscribe (whether absolutely or conditionally) for any shares in the Company, or other securities of the Company, or procuring or agreeing to procure subscriptions (whether absolute or conditional) for any shares in the Company or other securities of the Company.
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CALLS ON SHARES
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13.
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No shareholder shall be entitled to receive any dividend or to exercise any privileges as a shareholder until he shall have paid all calls for the time being due and payable on every share held by him, whether alone or jointly with any other person, together with interest and expenses (if any).
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14.
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(a)
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If under the conditions of the issuance of shares there is no fixed date for the payments due therefor, the Directors may from time to time make such calls upon the shareholders in respect of all moneys then unpaid on shares possessed by them and every shareholder will pay the sum demanded of him at the place and time appointed by the Directors, provided that fourteen days’ notice as to the place and date of payment was served on him. The Directors may revoke or postpone any call.
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(b)
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A call shall be deemed to have been made at the time when the Resolution of the Directors authorizing such call was passed.
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(c)
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The joint holders of a share shall be jointly and severally liable for the payment of all calls and installments in respect thereof.
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(d)
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if before or on the day appointed for payment thereof, a call or installment payable in respect of a share is not paid, the holder or allottee of the share shall pay interest on the amount of the call or installment a such rate not exceeding the debitory rate prevailing at the largest Israeli commercial bank on the clay appointed for the payment referred to, as the Directors shall fix, from the day appointed for payment thereof to the time of actual payment, but the Directors may waive payment of such interest wholly or in part.
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15.
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(a)
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Any sum which by the terms of allotment of a share is made payable upon allotment or at any fixed date, whether on account of the amount of the share or by way of premium, shall for all purposes of these Articles be deemed to be a call duly made, and payable on the date fixed for payment, arid in case of non-payment the provisions of these Articles as to payment of interest expenses, forfeiture and the like, and all other relevant provisions of these Articles shall apply as if such sum were a call duly made and notified as hereby provided.
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(b)
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The Directors may at the time of allotment of shares make arrangements on the issue of shares for a difference between the holders of such shares in the amount of calls to be paid and in the time of payment of such call.
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16.
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The Directors may, if they think fit, receive from any shareholder willing to advance the same, all or any part of the moneys due upon his shares beyond the sums actually called up thereon and upon the moneys so paid in advance, or so much thereof as exceeds the amount for the time being called up on the shares in respect of which such advance has been made, the Directors may pay or allow such interest as may be agreed by them and the Company.
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TRANSFER OF SHARES
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17.
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No transfer of shares shall be registered unless a proper writing or instrument of transfer (in any customary form or any other form satisfactory to the Board of Directors) has been submitted to the Company (or its transfer agent), together with the share certificate(s) and such other evidence of title as the Board of Directors may reasonably require. Until the transferee has been registered in the Company's Share register in respect of the shares so transferred, the Company may continue to regard the transferor as the owner thereof.
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18.
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The Directors may refuse, without giving any reasons therefor, to register any transfer of shares where the Company has a lien on the share, constituting the subject matter of the transfer, but fully paid-up shares may be transferred freely and such transfers do not require the approval of the Directors.
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All instruments of transfer shall remain in the custody of the Company but any such instrument which the Directors refused to register shall be returned to the person from whom it was received, if such request be made by him.
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19.
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The Transfer Records and the Company's Shareregister and Debenture Holders (if any) and Debenture Stock Holders (if any) and other securities (if any) of the Company may be closed during such time as the Directors may deem fit, not exceeding in the aggregate, thirty days in each year.
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TRANSMISSION OF SHARES
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20.
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In the case of the death of a shareholder, of a holder of a debenture, the survivor or survivors, where the deceased was a joint holder, and the executors and or administrators and/or the legal heirs of the deceased where he was a sole or only surviving holder, shall be the only persons recognized by the Company as having any title to his shares or his debentures, but nothing herein contained shall release the estate of a deceased joint holder from any liability in respect of any share or any debenture jointly held by him.
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21.
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Any person who becomes entitled to a share or a debenture in consequence of the death or bankruptcy of any shareholder, may, upon producing such evidence of title as the Directors shall require, with the consent of the Directors, be registered himself as holder of the share or the debenture or, subject to the provisions as to transfers herein contained, transfer the same to some other person.
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22.
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A person entitled to a share or a debenture by transmission shall be entitled to receive, and may give a discharge for, any dividends or interest or other moneys payable in respect of the share or debenture, but he shall not be entitled in respect of it to receive notices of, or to attend or vote at meetings of the Company, or, save as aforesaid, to exercise any of the rights or privileges of a shareholder or a holder of a debenture unless and until he shall become a shareholder in respect of the share or a holder of the debenture.
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FORFEITURE OF SHARES
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23.
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If any shareholder fails to pay the whole or any part of any call or installment of a call on or before the day appointed for the payment thereof, the Directors may at any time thereafter, during such time as the call or installment or any part thereof remains unpaid, serve a notice on him, or on the person entitled to the share by transmission requiring him to pay such call or installment to: such part thereof as remains unpaid together with any expenses incurred by the company by reason of such non-payment.
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24.
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The notice shall name a further day (not earlier than the expiration of thirty days from the date of the notice) on or before which such call or installment or such part as aforesaid, and all interest and expenses that have accrued by reason of such non-payment, is to be made, and shall state that in the event of non-payment at or before the time and at the place appointed, the shares in respect of which such call was made will be liable to be forfeited.
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25.
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If the requisitions of any such notice as aforesaid are not complied with, any share in respect of which such notice has been given may at any time thereafter, before the payment required by the notice has been made, be forfeited by a resolution of the Directors to that effect. A forfeiture of shares shall include all dividends in respect of the shares not actually paid before the forfeiture, notwithstanding that they shall have been declared.
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26.
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Notwithstanding any such forfeiture as aforesaid, the Directors may, at any time before the forfeited share has been otherwise disposed of, annul the forfeiture upon the terms of payment of all call and interest due upon and expenses incurred in respect of the shares and upon such further terms (if any) as they shall see fit.
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27.
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Every share which shall be forfeited shall thereupon become the property of the Company and may be either canceled or sold or re-allotted or otherwise disposed of either to tile person who was before forfeiture the holder thereof, or entitled thereto, or to any other person, upon such terms and in such manner as the Directors shall think fit.
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28.
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A shareholder whose shares have been forfeited shall, notwithstanding, be liable to pay to the Company all calls made and not paid on such shares at the time of forfeiture, and interest thereon to the date of payment, in the same manner in all respects as if the shares had not been forfeited and to satisfy all (if any) the claims and demands which the Company might have enforced in respect of the shares at the time of forfeiture, without any deduction or allowance for the value of the shares at the time of forfeiture.
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29.
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The forfeiture of a share shall involve the extinction at the time of forfeiture of all interest in and all claims and demands against the Company in respect of the share, and all other rights and liabilities incidental to the share as between the shareholder whose share is forfeited and the Company, except only such of those rights and liabilities as are by these Articles expressly saved, or as are by the Statutes given or imposed in the case of past shareholders.
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30.
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A sworn declaration in writing that the declaration is a Director of the Company, and that a share has been duly forfeited in pursuance of these Articles and stating the date upon which it was forfeited, shall, as against all persons claiming to be entitled to the share adversely to the forfeiture thereof; be conclusive evidence of the facts therein stated, and such declaration, together with the receipt of the Company for the consideration (if any) given for the share on the sale or disposition thereof, and a certificate of proprietorship of the share under the Seal delivered to the person to whom the same is sold or disposed of, shall constitute a good title to the share, and such person shall be registered as the holder of the share and shall be discharged from all calls made prior to such sale or disposition, and shall not be bound to see to the application of the purchase money (if any) nor shall his title to the share be affected by any act, omission or irregularity relating to or connected with the proceedings in reference to the forfeiture, sale, re-allotment or disposal of the share.
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LIEN
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31.
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The Company shall have a first and paramount lien upon all shares (which are not fully paid up) registered in the name of any shareholder, either alone or jointly with any other, for his debts, liabilities and engagements, whether solely or jointly with any other person, to or with the Company, whether the period for the payment, fulfillment or discharge thereof shall have actually arrived or not, and such lien shall extend to all dividends from time to time declared in respect of such shares, but the Directors may at any time declare any share to be exempt wholly or partially from the provisions of this Article.
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32.
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The Directors may sell the shares subject to any such lien at such time or times and in such manner as they shall think fit, but no sale shall be made until such time as the moneys in respect of which such lien exists, or some part thereof are or is presently payable, or the liability or engagement in respect of which such lien exists is liable to be presently fulfilled or discharged, and until a demand and notice in writing stating the amount due or specifying the liability or engagement and demanding payment or fulfillment or discharge thereof and giving notice of intention to sell in default shall have been served on such shareholder, or the persons (if any) entitled by transmission to the shares, and default in payment, fulfillment or discharge shall have been made by him or them for fourteen days after such notice.
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33.
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The net proceeds of such sale shall be applied in or towards satisfaction of the amount due to the Company, or of the liability or engagement, as the case may be, and the balance (if any) shall be paid to the shareholder or the person (if any) entitled by transmission to the shares so sold.
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34.
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Upon any such sale (i.e., following forfeiture or foreclosing on a lien for and the bona fide use of the powers granted with respect thereto) the Directors may enter the purchaser's name in the Register as holder of the shares and the purchaser shall not be bound to see to the application of the purchase money, nor shall his title to the shares be affected by any irregularity or invalidity in the proceedings in reference to the sale.
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SHARE WARRANTS TO BEARER
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35.
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(a)
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The Company may, subject to the provisions of the Statutes, with respect to fully paid up shares, issue warrants (hereinafter called "Share Warrants"), stating that the bearer is entitled to the shares therein specified and may provide by coupons or otherwise for the payment of dividends on the shares included in such warrants. The Directors may determine and from time to time vary, the conditions upon which Share warrants shall be issued, and in particular the conditions upon which a new share warrant or coupon will be issued in the place of one worn out, defaced, lost or destroyed, or upon which a share warrant may be surrendered, and the name of the bearer entered in the Register in respect of the shares therein specified. The bearer of a share warrant shall be subject to the conditions for the time being in force, whether made before or alter the issue of such share warrant.
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No new share warrant or coupon shall be issued in the place of one which has been lost or destroyed unless it shall have been established to the satisfaction of the Directors that the same has been lost or destroyed.
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(b)
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A share warrant shall entitle the bearer to the shares included in it, and such shares shall be transferred by the delivery of the share warrant and the provisions of these Articles with respect to transfer and transmission of shares shall riot apply thereto.
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(c)
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The bearer of a share warrant may at any time deposit the warrant at the office or at any other place, if any, indicated by the Directors, arid after the expiration of two clear days from the time of deposit, and so long as the warrant remains so deposited, the depositor shall have the same right of signing a requisition for calling a meeting of the Company, and of attending and voting and exercising the other privileges of a shareholder at any meeting held, as if his name was inserted in the Register as the Holder of the shares included in the deposited warrant. Not more than one person shall be recognized as depositor of a share warrant.
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Upon prior notice in writing of two days, the Company shall return to the depositor the share warrant deposited by him.
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(d)
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Subject as otherwise expressly provided herein, no person shall, as bearer of a share warrant, sign a requisition for calling a Meeting of the Company, or attend, or vote, or exercise any other privilege of a shareholder at a Meeting of the Company and said person shall not be entitled to receive any notices from the Company.
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But the bearer of a share warrant shall be a shareholder of the Company and entitled in all other respects to the same privileges and advantages as if he were named in the Register as the holder of the shares included in the warrant.
STOCK
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36.
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(a)
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The Board of Directors may, with the sanction of the shareholders previously given by Special Resolution, convert any paid-up shares into stock, and may, with like sanction, reconvert any stock into paid-up shares of any denomination.
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(b)
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The holders of stock may transfer the same, or any part thereof, in the same manner and subject to the same regulations, as the shares, from which the stock arose, might have been transferred prior to conversion, or as near thereto as circumstances admit, provided however, that the Board of Directors may from time to time fix the minimum amount of stock so transferable, and restrict or forbid the transfer of fractions of such minimum, but the minimum shall not exceed the nominal value of each of the shares from which such stock arose.
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(c)
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The holders of stock shall, in accordance with the amount of stock held by them, have the same rights and privileges as regards dividends, voting at Meetings of the Company and other matters as if they held the shares from which such stock arose, but no such right or privilege, except participation in the dividends and profits of the Company, shall be conferred by any such aliquot part of such stock as would not, if existing in shares, have conferred that right or privilege.
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(d)
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Such of the Articles of the Company as are applicable to paid-up shares shall apply to stock, rand the words "share" and "shareholder" (or "shareholder") therein shall include "stock" and "stockholder".
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ALTERATIONS OF CAPITAL
|
37.
|
The Company may from time to time by Special Resolution:
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(a)
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Consolidate and divide all or any of its share capital into shares of larger amount than its existing shares; or
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(b)
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Cancel any shares not taken or agreed to be taken by any person, or
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(c)
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Divide its share capital or any part thereof into shares of smaller amount than is fixed by its Articles of Association by sub-division of its existing shares or any of them, subject, nevertheless, to the provisions of the Statutes, and so that as between the resulting shares, one or more of such shares may by the Resolution by which such sub-division is effected be given any preference or advantage as regards dividend, capital, voting or otherwise over the others or any other shares; or
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(d)
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Reduce its share capital and any capital redemption reserve fund in any way that may be considered expedient and, in particular exercise all or any of the powers conferred by Section 15 of the Companies Ordinance, or any statutory modification thereof.
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38.
|
The Company may, subject to applicable law, issue redeemable shares and redeem the same.
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INCREASE OF CAPITAL
|
39.
|
The Company may from time to time by Special Resolution, whether all the shares for the time being authorized shall have been issued or all the shares for the time being issued shall have been fully called up or not, increase its share capital by the creation of new shares; such new capital to be of such amount and to be divided into shares of such respective amounts and (subject to any special rights for the time being attached to any existing class of shares) to carry such preferential, deferred or other special rights (if any) or to be subject to such conditions or restrictions (if any) in regard to dividend, return of capital, voting or otherwise as the General Meeting deciding upon such increase directs.
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40.
|
Except so far as otherwise provided by or pursuant to these Articles or by the conditions of issue, any new share capital shall be considered as part of the original ordinary share capital of the Company, and shall be subject to the same provisions with reference to the payment of calls, lien, transfer, transmission, forfeiture and otherwise as the original share capital.
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MODIFICATION OF CLASS RIGHTS
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41.
|
If at any time the share capital is divided into different classes of shares, the rights attached to any class (unless otherwise provided by the terms of issue of the shares of that class) may be varied with the consent in writing of the holders of all the issued shares of that class, or with the sanction of a Special Resolution passed at a separate General Meeting of the holders of the shares of the class. The provisions of these Articles relating to General Meeting 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.
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42.
|
Unless otherwise provided by the conditions of issue, 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.
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BORROWING POWERS
|
43.
|
The Board of Directors may from time to time, in its discretion, cause the Company to borrow or secure the payment of any sum or sums of money for the purposes of the Company, and may secure or provide for the repayment of such sum or sums in such manner, at such times and upon such terms and conditions in all respects as it thinks fit, and, in particular, by the issuance of bonds, perpetual or redeemable debentures, debenture stock, or any mortgages, charges, or other securities on the undertaking, or, the whole or any part of the property of the Company, both present and future, including units uncalled or called but unpaid capital for the time being.
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GENERAL MEETINGS
|
44.
|
(a)
|
General Meetings shall be held at least once in every calendar year on such date, not being more than fifteen months after the holding of the last preceding General Meeting, and at such hour and place, either within or outside the State of Israel, as may be determined by the Board of Directors. Such Annual General Meetings shall be called "Ordinary Meetings" and all other General Meetings of the Company shall be called "Extraordinary Meetings". The Annual General Meeting shall receive and consider the Directors' Report, the Profit and Loss Account and Balance Sheet, shall elect Directors, appoint Auditors and transact any other business which under these Articles or by the Statutes are to be transacted at a General Meeting of the Company, provided that notice of such other business was given to the shareholders in accordance with the provisions of these Articles.
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(b)
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Only shareholders of record as reflected on the Company's 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. The Board of Directors will fix the record date of not less than 30 nor more than 50 days before the date of the General Meeting.
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45.
|
The Board of Directors may, whenever it deems necessary, and shall upon such request in writing as provided for by Section 109 of the Companies Ordinance, convene an Extraordinary Meeting. Any request for an Extraordinary Meeting must state the purpose for which the meeting is to be called, be signed by the shareholders who made the request, and must be delivered to at the Company's principal executive office. Such request may consist of several documents in like form, each signed by one or more requesting shareholders. If the Board or Directors does not, within twenty-one days from the date of the delivery of such request, proceed to establish record and meeting dates, the requesting shareholders, or any of them representing more than one-half of the total voting rights of all of such shareholders, may convene the Extraordinary Meeting, but any meeting so convened shall not be held later than three months from the date of the delivery of such request. The provision of Articles 44(b) and 46(a) shall apply, with the required changes, to an Extraordinary Meeting convened by the requesting shareholders.
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46.
|
(a)
|
At least thirty (30) days prior notice of a General Meeting, specifying the date, the place, and the hour of such General Meeting and in the case of special business - the general nature of such business, will be given to shareholders of record who are entitled to receive notice of, and vote at General Meetings pursuant to the provisions of Article 44(b). Notices will be given by mail or by personal delivery to every shareholder of record of the Company, to such shareholder's address as reflected on the Company's share register or such other address as designated by such shareholder in writing for this purpose, provided, however, that the accidental omission to give such notice to, or the non-receipt of such notice by, any such shareholder shall not invalidate any resolution or proceeding which took place at such General Meeting.
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|
(b)
|
Notice with respect to any General Meeting shall be regarded proper and sufficient if it specifies in a general manner the general nature of the matter to be transacted at the General Meeting, or, without making the procedure hereinafter set forth mandatory, if it specifies that the draft of the resolution to be proposed to the General Meeting is available for inspection at a designated place during a designated time period.
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(c)
|
The Company will not be required to distribute copies of its annual audited financial statements to its shareholders.
|
PROCEEDINGS AT GENERAL MEETINGS
|
47.
|
No business shall be transacted at any General Meeting unless a quorum 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 one third of the total voting rights in the Company.
|
|
48.
|
If within half an hour from the time appointed for the holding of a General Meeting a quorum is not present, the meeting, shall stand adjourned to the same day in the next week at the same time and place or any time and hour as Directors shall designate and state in a notice to the shareholders, and if, at such adjourned meeting, a quorum is not present within half an hour from the time appointed for holding the meeting, two shareholders present in person or by proxy shall be a quorum.
|
|
49.
|
The Chairman (if any), chosen as such among the Directors, shall preside at every General Meeting, but if there shall be no such Chairman or if at any meeting he shall not be present within fifteen minutes after the time appointed for holding the same, or shall be unwilling to act as Chairman, the shareholders present shall choose a Director, or, if no Director be present, or if all the Directors present decline to take the Chair, they shall choose a shareholder present to be Chairman of the meeting.
|
|
50.
|
The Chairman may, with the consent of any meeting at which a quorum is present, and shall, if so directed by the meeting, adjourn any meeting from time to time and from place to place as the meeting shall determine. Whenever a meeting is adjourned pursuant to the provisions of this Article for seven days or more, notice of the adjourned meting shall be given in the same manner as in the case of an original meeting. Save as aforesaid, no shareholder shall be entitled to any notice of an adjournment, or of the business to be transacted at an adjourned to meeting. No business shall be transacted at any adjourned meeting other than business which might have been transacted at the meeting from which adjournment took place.
|
VOTES OF SHAREHOLDERS
|
51.
|
An Ordinary Resolution shall be deemed adopted if approved by the holders of a majority of the voting rights in the Company represented at the meeting person or by proxy and voting thereon. In the case of an equality of votes, either on a show of hands or a poll, the Chairman of the meeting shall not be entitled to a further or casting vote.
|
|
52.
|
At all General Meeting a resolution put to a vote at the meeting sall be decided on a show of hands unless, before or upon the declaration of the result or the show of hands, a poll be demanded in writing by the Chairman (being a person entitled to vote) or by at least two shareholders present, in person or by proxy, ho1dng at least one twentieth part of the issue share capital of the Company, and unless a poll be so demanded, a declaration by the Chairman of the meeting that a resolution has been carried, or has been carried unanimously or by a particular majority, or lost, or not carried by a particular majority, shall be conclusive, and an entry to that effect in the Minute Book of the Company shall be conclusive evidence thereof, without proof of the number or proportion of the votes recorded in favor of or against such resolution.
|
|
53.
|
If a poll be demanded in manner aforesaid, it shall be taken forthwith, and the result of the poll shall be deemed to be the resolution of the meeting at which the poll was demanded.
|
|
54.
|
The demand of a poll shall not prevent the continuance of a meeting for the transaction of any business other than the question on which a poll has been demanded.
|
|
55.
|
Subject to any rights or restrictions for the time being attached to any class or classes of shares, every shareholder shall have one vote for each share of which he is the holder, whether on a show of hands or on a poll.
|
|
56.
|
If any shareholder be a lunatic, idiot, or non compos mentis, he may vote by his committee, receiver, curator bonis or other legal curator and such last mentioned persons may give their votes either personally or by proxy.
|
|
57.
|
If two or more persons are jointly entitled to a share, then in voting upon any question the vote of the senior who tenders a vote, whether in person of 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 Company's Shareregister.
|
|
58.
|
Votes may be given either personally or by proxy. A proxy need not be a shareholder of the Company.
|
|
59.
|
(a)
|
The instrument appointing a proxy shall be in writing in the usual common form, or such form as may be approved by the Directors, and shall be signed by the appointor or by his attorney duly authorized in writing, or, if the appointor is a corporation, the corporation shall vote by its representative, appointed by an instrument duly signed by the corporation.
|
|
|
(b)
|
The instrument appointing a proxy shall be deemed to include authorization to demand a poll or to vote on a poll on behalf of the appointor.
|
|
60.
|
A vote given in accordance with the terms of an instrument of proxy shall be valid notwithstanding the previous death or insanity of the principal or revocation of the proxy or transfer of the share in respect of which the vote is given unless an intimation in writing of the death, revocation or transfer shall have been received at the Office before the commencement of the meeting or adjourned meeting at which the proxy is used.
|
|
61.
|
The instrument appointing a proxy, together with the power of attorney or other authority (if any) under which it is signed or a notarially certified or office copy of such power of attorney, shall be deposited at the Office or at such other place or places, whether in Israel or elsewhere, as the Directors may from time to time either generally or in a particular case or class of cases prescribe, at least forty-eight hours before the time appointed for holding the meeting or adjourned meeting at which the person named in such instrument proposes to vote; otherwise the person so named shall not be entitled to vote in respect thereof, but no instrument appointing a proxy shall be valid after the expiration of twelve months from the date of its execution.
|
|
62.
|
Subject to the provisions of the Statutes, a resolution in writing signed by all the shareholders, in person or by proxy, for the time being entitled to vote at General Meeting of the Company shall be as valid and as effectual as a resolution adopted by a General Meeting duly convened, held and constituted for the purpose of passing such resolution.
|
|
63.
|
A shareholder will be entitled to vote at the Meetings of the Company by several proxies appointed by him, provided that each proxy shall be appointed with respect to different shares held by the appointing shareholder. Every proxy so appointed on behalf of the same shareholder shall be entitled to vote as he sees fit.
|
|
64.
|
No person shall be entitled to vote at any General Meeting (or be counted as a part of the quorum thereof) unless all calls then payable by him in respect of his shares in the Company shall have been paid.
|
|
64.
|
Any resolution relating to the merger of the Company with or into another company, the amalgamation of the Company with another company, the liquidation of the Company or the transfer of all, or substantially all, of the assets or the Company, shall be deemed to be a "Special Resolution" as defined in the Companies Ordinance.
|
DIRECTORS
|
65.
|
The Board of Directors of the Company shall consist of such number of Directors as may be fixed from time to time by an Ordinary Resolution of a General Meeting, provided it shall not be less than two or more than eleven.
|
|
66.
|
(a)
|
The number of Directors of the Company shall be fixed from time to time in accordance with the Articles of Association. All Directors shall be classified, with respect to the time for which they severally hold office, into three classes, as nearly equal in number as possible, one class to hold office initially for a term expiring at the 1994 Annual General Meeting of the Company, another class to hold office initially for a term expiring at the 1995 Annual General Meeting of the Company, and another class to hold office initially for a term expiring at the 1996 Annual General Meeting of the Company, with the shareholders of each class to hold office until their successors have been duly elected arid qualified. At each Annual General Meeting following the 1994 Annual General Meeting, the successor to the class of Directors whose term expires at that meeting shall be elected to hold office for a term expiring at the Annual General Meeting of the Company held in the third year following the year of their election and until their successors have been duly elected and qualified. Directors whose terms of office have expired may be re-elected.
|
|
|
(b)
|
In the event of any increase in the number of Directors, the additional Director or Directors, and in the event of any vacancy on the Board of Directors due to death, resignation, removal, disqualification or any other cause, the successors to fill the vacancies shall be elected only by a majority of the Directors then in office.
|
|
|
(c)
|
Directors appointed to newly created Directorships in the manner provided in Clause (b) resulting from any increase in the authorized number of Directors or any vacancies on the Board of Directors resulting from death, resignation, removal, disqualification or any other cause, shall hold office for a term expiring at the next Annual General Meeting of the Company at which term of the class to which they have been elected expires.
|
|
|
(d)
|
No decrease in the number of Directors constituting the Board of Directors shall shorten the term of any incumbent Director.
|
|
|
(e)
|
Any Director or Directors may be removed from office at any time, but only for "cause" and only by the affirmative vote of (i) the holders of 75% of the Ordinary Shares present in person or by proxy and voting thereon, or (ii) a majority of the Board of Directors. For purposes of this Clause (e), "cause" shall mean the willful and continuous failure of a Director substantially to perform such Director's duties to the Company (other than any such failure resulting from incapacity due to physical or mental illness) or the willful engaging by a director in gross misconduct materially and demonstrably injurious to the Company.
|
|
|
(f)
|
Notwithstanding the foregoing, in the event that the Company is required to appoint Independent Directors pursuant to the Companies Ordinance, the Board of Directors may, by majority vote, substitute such Independent Directors for any two incumbent directors. The Independent Directors shall hold office pursuant to the provisions of the Companies Ordinance and any other applicable law, and shall not be included in any particular class of Directors.
|
|
67.
|
Except for Directors whose term of office expired at the time a General Meeting was convened and for persons nominated to serve as director by the Board of Directors, no person shall be nominated to serve as director at the General Meeting unless, not less than twenty-five (25) days and not more than fifty (50) days prior to the date of such meeting, a notice signed by a shareholder (or by the nominee) entitled to receive notice of and vote at the meeting with respect to which notice was given, was delivered to the Company's principal offices. The notice shall set forth: (i) the name and address, as they appear on the Company's share register, or the shareholder proposing such nominee, (ii) the identity and background of the nominee, (iii) the class and number of Ordinary Shares of the Company beneficially owned by such shareholder, (iv) a representation that such shareholder is a shareholder of record and intends to appear by person or by proxy at such General Meeting to bring before the General Meeting the nominee specified in the notice, (v) a brief description of the reasons for wanting to nominate such nominee as a director, (vi) any material interest that the shareholder has in the election of such nominee, and (vii) a written consent of the nominee to serve as a director.
|
|
68.
|
The Directors in their capacity as such, shall be entitled to receive remuneration and reimbursement of expenses incurred by them in the course of carrying out their dudes as Directors.
|
|
69.
|
The office of a Director shall be vacated, ipso facto:
|
|
|
(a)
|
upon his resignation by written notice signed by him and delivered o the office;
|
|
|
(b)
|
if he becomes bankrupt or enters into an arrangement with his creditors;
|
|
|
(c)
|
if he be found to be a lunatic or becomes or unsound mind;
|
|
|
(d)
|
if he be relieved of his office as provided in Article 66 hereof.
|
|
70.
|
No Director shall be disqualified by virtue of his office from holding any office, or, deriving any profit from any other office in the Company or from any company in which the Company shall be a shareholder or otherwise interested, or from contracting with the Company as vendor, purchaser or otherwise, nor shall any such contract, or any contract or arrangement entered into by or on behalf of the Company in which the Director shall in any way be interested, be avoided, nor shall any Director be liable to account to the Company for any profit arising from any such office or realized by any such contract or arrangement by reason only, of such Director's holding that office or of the fiduciary relations thereby established, but the nature of his interest must be disclosed by him at the meeting of the Board of Directors at which the contract or arrangement is first considered, if his interest then exists, or, in any other case, at the first meeting of the Board of Directors after the acquisition of his interest. After such disclosure, every Director shall be entitled to vote as Director in respect of any contract or arrangement in which he is so interested as aforesaid. A general notice that a Director is a shareholder of any firm or company and is to be regarded as interested in all transactions with that firm or company shall be a sufficient disclosure under this Article and after such general notice it shall not be necessary to give any special notice relating to any particular transaction with such firm or company.
|
|
71.
|
The Company may from time to time at a General Meeting, increase or decrease the number of Directors subject always to Article 65.
|
|
72.
|
In the event of one or more vacancies in the Board of Directors, the continuing Directors may continue to act as long as the Board of Directors consists of at least a majority of the total number of Directors elected and not less than two. However, in the event that the remaining Directors are not a majority of the total number of Directors, or less man two, the remaining Director or Directors may call for the convening of a General Meeting for the purpose of the election of Directors.
|
PRESIDENT AND CHIEF EXECUTIVE OFFICER
|
75.
|
The Board of Directors may from time to time appoint one or more persons as President or Chie1Exccutvc Officer or Presidents or Chief Executive Officers of the Company whether for a fixed term or without any limitation of time and the Board of Directors may from time to time remove or discharge him or them from office (subject to the provisions of any agreement between any such person and the Company) and appoint another or others in his or their place or places.
|
|
76.
|
The Directors may from time to time appoint one or more Vice Presidents for certain functions, to carry out duties delegated to him (them) by the President or by the Chief Executive Officer.
|
|
77.
|
The Directors may from time to time confer upon and delegate to a President or Chief Executive Officer then holding office such authorities and duties of the Board of Directors as they may deem fit, and they may delegate such authorities for such period and for such purposes and subject to such conditions and restrictions which they consider advantageous, and they may delegate such authorities with or without waiving the authorities of the Directors with respect thereto and their being in lieu of their authorities, in whole, or in part, and they may from time to time revoke, cancel and alter such authorities in whole or in part.
|
|
78.
|
The remuneration of a President or a Chief Executive Officer shall be fixed by the Directors, taking into consideration any agreement between him and the Company, and it may be in whole or in part, in the form of wages or commissions or profit sharing or a combination thereof.
|
|
79.
|
Notwithstanding anything to the contrary contained in Articles 77 and 87 hereof, the remuneration of the President or Chief Executive Officer shall be fixed exclusively by the Directors.
|
DIRECTORS ACTS AND AUTHORITIES
|
80.
|
The management of the business of the Company shall be vested in the Board of Directors, which may exercise all such powers and do all such acts and things as the Company is authorized to exercise and do, and are not hereby or by law required to be exercised or done by the Company in General Meeting. The authority conferred on the Board of Directors by this Article 80 shall be subject to the provisions of the Companies Ordinance, of these Articles and any regulation or resolution consistent with these Articles adopted from time to time by the Company in General Meeting, provided, however, that no such regulation or resolution shall invalidate any prior act done by or pursuant to a decision of the Board of Directors which would have been valid if such regulation or resolution had not been adopted.
|
|
81.
|
The Directors may meet together for the dispatch of the business of the Company and they may postpone their meetings and otherwise regulate them as they shall deem fit. A director may call a meeting of the Board of Directors upon at least forty eight (48) hours notice (orally or otherwise), and the Secretary or the Chairman of the Board of Directors shall accordingly convene such meeting. The quorum for the dispatch of business by the Board of Directors shall be determined by the vote of a majority of the Board of Directors and if not so determined shall be the majority of the Directors then holding office.
|
|
82.
|
(a)
|
A resolution in writing signed or otherwise approved by all the Directors then in office shall be as valid and as effectual as a resolution adopted by the Board of Directors at a meeting of the Board of Directors duly convened and held.
|
|
|
(b)
|
Some or all of the Directors may attend meetings of the Board of Directors through telephone, radio or any other media of instantaneous audio communication, enabling the Directors to communicate with each other, in the deemed presence of all the participating Directors, provided due prior notice detailing the time and manner of holding a given meeting is served (orally or otherwise) upon all the Directors pursuant to Article 81. Any resolution adopted by the Directors in such meeting will promptly be recorded in writing and signed by the Chairman of the Board of Directors or the Chairman of the meeting or the Secretary, and shall be valid as if adopted at a meeting of the Board of Directors duly convened and held.
|
|
83.
|
Every Director shall be entitled to be represented and to vote at any meeting of the Board of Directors by another Director or by another person appointed by him and whose appointment was agreed to by the Directors in a written resolution or at the next meeting of the Board of Directors, who shall act as his alternate for one meeting or for another specified period or until notice be given of the cancellation of the appointment. Each alternate shall have the number of votes equivalent to the number of Directors who appointed him as alternate and if he himself is a Director he shall have such number of votes in addition to his own vote. The appointment of an alternate shall be made in writing. A Director may appoint two alternates However, if the two alternates of the same Director shall be present at the Board of Directors' meeting, only one of them shall have the right to vote thereat.
|
|
85.
|
(a)
|
The Board of Directors may from time to time elect a Chairman for their meeting and fix the term of his office, and unless otherwise decided, the Chairman shall be elected annually. In the event that a Chairman was not elected and if the Chairman should fail to be present at a meeting 15 minutes after the time set for its convening, the remaining Directors shall elect one of those present to be Chairman of the meeting.
|
|
|
(b)
|
All questions that arise at meetings of the Board of Directors shall be decided by a majority of votes. In the case of an equality of votes, the Chairman of the meeting shall have a further or casting vote.
|
|
86.
|
Any meeting of the Board of Directors, at which a quorum is present, shall have the authority to exercise all or part of the authorities, powers of attorney and discretion invested at such time in the Directors or regularly exercised by them.
|
|
87.
|
The Directors may delegate their authorities in whole or in part to committees as they shall deem fit and they may from time to time revoke such delegation. Any committee so created, must, in exercising the authorities granted to it, adhere to all the instructions of the Board of Directors given from time to time.
|
|
|
The meetings and proceedings of any such committee comprised of two or more members shall be governed by the provisions of these Articles regulating the meetings of the Board of Directors in so far as appropriate thereto unless the Board of Directors shall otherwise regulate the meetings of such a committee (hereinafter "Committee of the Board of Directors").
|
|
88
|
All acts done bona fide at any meeting of the Board of Directors, or of a Committee of the Board of Directors or by any person(s) acting as Director(s), shall, notwithstanding that it may afterwards be discovered that there was some defect in the appointment of the participants in such meeting or any of them or any person(s) acting as aforesaid, or that they or any of them or any person(s) acting as aforesaid, or that they or any of them were disqualified, be as valid as if there were no such defect or disqualification.
|
|
89.
|
The Directors shall cause proper Minutes to be kept of the following:
|
|
|
(a)
|
The names of all the Directors present at any meeting of the Board of Directors and at any meeting of a Committee of the Board of Directors;
|
|
|
(b)
|
All resolutions and proceedings of General Meetings of the Company, Board of Directors' meetings and Committee of the Board of Directors' meetings.
|
|
|
Any Minutes as aforesaid, if purporting to be signed by the Chairman of the meeting or by the Chairman of the next succeeding meeting, shall constitute prima facie evidence of the matters recorded therein.
|
|
90.
|
All bona fide acts carried out at any meeting of the Board of Directors held in Israel or thereafter as a result therefrom shall be valid notwithstanding the fact that a Director who was absent from Israel at the time of the meeting did not receive a notice with respect to its convening.
|
BRANCH REGISTERS
|
91.
|
Subject to and in accordance with the provisions of the Companies Ordinance and to all orders and regulations issued thereunder, the Company may cause branch resisters to be kept in any place outside Israel as the Board of Directors may think fit, and, subject to all applicable legal requirements, the Board of Directors may from time to time adopt such rules and procedures as it may think fit in connection with the keeping of such branch registers.
|
SECRETARY
|
92.
|
The Board of Directors may from time to time appoint a Secretary to the Company as it deems fit and may appoint a temporary Assistant-Secretary who shall act as Secretary for the term of his appointment.
|
RIGHTS OF SIGNATURE - STAMP AND SEAL
|
93.
|
(a)
|
Authorization to sign on behalf of the Company and thereby bind it shall be made and granted from time to time by the Board of Directors. The Company shall have at least one rubber stamp. The Company shall be bound by the signature of the aforesaid appointees if appearing together after its stamp or imprinted name (e.g., cheques).
|
|
|
(b)
|
The Board of Directors may provide for a seal. If the Board of Directors so provide, it shall also provide for the safe custody thereof. Such seal shall not be used except by the authority of the Board of Directors and in the presence of the person(s) authorized to sign on behalf of the Company, who shall sign every instrument to which such seal is affixed.
|
DIVIDENDS
|
94.
|
Subject to any preferential, deferred, qualified or other rights, privileges or conditions attached to any special class of shares, with regard to dividends, the profits of the Company available for dividend and resolved to be distributed shall be applied in payment of dividends upon the shares of the Company in proportion to the amount paid up or credited as paid up per the nominal value thereon respectively, otherwise than in advance of calls. Unless not otherwise specified in the conditions of issuing of the shares, all dividends with respect to shares which were not fully paid up within a certain period, for which dividends were paid, shall be paid proportionally to the amounts paid or credited as paid or the nominal value of the shares during any portion of the above mentioned period (Pro rata temporis).
|
|
95.
|
The Company in General Meeting may declare a dividend to be paid to the shareholders according to their rights and interests in the profits and may fix the time for payment. No larger dividend shall be declared than is recommended by the Directors, but the Company in General Meeting may declare a smaller dividend.
|
|
96.
|
The Directors may from time to time pay to the shareholders on account of the next forthcoming dividend such interim dividends as in their judgment the position of the Company justifies.
|
|
97.
|
A transfer of shares shall not pass the right to any dividend declared thereon after such transfer and before the registration of the transfer.
|
|
98.
|
Notice of the declaration of any dividend, whether interim or otherwise, shall be given to the holders of registered shares in manner hereinafter provided.
|
|
99.
|
Unless otherwise directed, any dividend may be paid by cheque or warrant, sent through the post to the registered address of the shareholder or person entitled, or in the case of joint registered holders to that one of them first named in the register in respect of the joint holding. Every such cheque shall be made payable to the order of the person to whom it is sent. The receipt of the person whose name, at the date of the declaration of the dividend, appears on the Company's Shareregister as the owner of any share, or in the case of joint holders, of any one of such joint holders, shall be a good discharge to the Company of all payments made in of such share. All dividends unclaimed for one year after having been declared may be invested or otherwise used by the Directors for the benefit of the Company until claimed. No unpaid dividend or interest shall bear interest as against the Company.
|
PAYMENT IN SPECIE AND CAPITALIZATION OF PROFITS
|
100.
|
Upon the recommendation of the Board of Directors approved by Ordinary Resolution of the Company, a dividend may be paid, wholly or partly, by the distribution of specific assets of the Company or by distribution of paid up shares, debentures or debenture stock or any other securities of the Company or of any other companies or in any one or more of such ways.
|
|
101.
|
Upon the recommendation of the Board of Directors, approved by Ordinary Resolution of the Company, the Company -
|
|
|
(i)
|
may cause any moneys, investments, or other assets forming part of the undivided profits of the Company, standing to the credit of a reserve fund, or to the credit of a reserve fund for the redemption of capital, or in the hands of the Company and available for dividends, or representing premiums received on the issuance of shares and standing to the credit of the share premium account, to be capitalized and distributed among such of the shareholders as would be entitled to receive the same if distributed by way of dividend and in the same proportion, on the footing that they become entitled thereto as capital, or may cause any part of such capitalized fund to be applied on behalf of such shareholders in paying up in full, either at par or at such premium as the resolution may provide, any unissued shares or debentures or debenture stock or any other securities of the Company which shall be distributed accordingly, or in payment, in full or in part, of the uncalled liability on any issued shares or debentures or debenture stock; and -
|
|
|
(ii)
|
may cause such distribution or payment to be accepted by such shareholders in full satisfaction of their interest in the said capitalized sum. When distributing shares for capitalized profits all shareholders shall receive shares of one class - whether such class existed prior thereto or was created therefor; or, every shareholder shall receive shares of the same class which conferred upon him the right to receive shares from the capitalization of profits, or of any other class or a combination of several classes of shares - in accordance with the approval of the General Meeting.
|
|
102.
|
For, purposes of Article 101 the persons entitled to the aforementioned bonuses derived from capitalization, as a result of their holding bearer certificates shall be determined in accordance with the provisions of this Article. The following provisions shall be applicable to the issuance of any shares or debentures or other securities by way of capitalization and relating to shares represented by a bearer certificate:
|
|
|
(a)
|
The Directors may issue and allot to a representative(s) appointed by them for such purpose, all the shares or debentures or other securities which are to be issued to all the holders of bearer shares, and may give such representative(s) authority or powers with respect to the realization of the shares or debentures or other securities issued to them, in whole or in part, in order to facilitate their distribution or for any other purpose as the Directors shall deem fit. Any such issuance and allotment shall be deemed an issue and allotment to such persons as are entitled to part of the aforementioned capitalization with respect to bearer shares.
|
|
|
(b)
|
In order to determine the shareholders who are entitled to such bonuses derived from the aforesaid capitalization with respect to bearer certificates, the Directors shall publish at least once in an Israeli newspaper, a notice with respect to the resolution to capitalize and the manner in which the capitalized amounts shall be distributed and the number of the coupon which is to be presented in order to receive the bonus. Upon presentation of the aforesaid coupon and its delivery at the place designated therefor in the notice, the deliveror of the coupon shall be entitled to the bonuses derived from the aforesaid capitalization proportionate to the number of shares specified in the bearer share certificate to which the coupons appertain.
|
In addition thereto, the Directors may specify in the said notice a date (which shall not be earlier than six months after the date of the publication of the notice), after which all the shares or debentures or other securities which were not demanded shall be sold by the representative(s), and any person presenting himself thereafter and presenting the coupon designated in the notice shall he entitled to receive only the net receipts derived from the sale and the interest accrued thereon.
|
|
(c)
|
The Company and the representative(s) may recognize the absolute right of the person presenting the coupon designated in the notice, in the aforesaid manner, to receive the bonuses derived from the capitalization and relating to the shares specified in the bearer share certificates to which the coupons are attached. The delivery of the coupon to the Company shall constitute a proper exoneration to the Company and the representative(s) for the delivery of the shares or debentures or other securities to the deliveror of the coupons in proportion to the amount of shares represented by the coupons, or, for the payment of the net proceeds of the sale of the shares or the debentures or the other securities, as the case may be.
|
|
103.
|
For the purpose of giving full effect to any resolution under Article 100 and 101 the Directors may settle any difficulty which may arise in regard to the distribution as it thinks expedient, and, in particular, may issue fractional certificates, and may fix the value for distribution to any shareholders upon the footing of the value so fixed or determine that fractions of less nominal value than one Israeli Shekel may be disregarded in order to adjust the rights of all parties, and may vest any such cash, shares, debentures, debenture stock or specific assets with trustees upon such trusts for the persons entitled to the dividend or capitalized find as may seem expedient to the Board of Directors. Where requisite, a proper contract shall be filled in accordance with Sections 129 and 130(A) (2) of the Companies Ordinance, and the Board of Directors may appoint any person to sign such contract on, behalf of the persons entitled to the dividend or capitalized fund.
|
ACCOUNTS
|
104.
|
The Board of Directors shall cause accurate books of account to be kept in accordance with the provisions of the Companies Ordinance and of any other applicable law. Such books of account shall be kept at the Registered Office of the Company, or at such other place or places as the Board of Directors may think fit, and they shall always be open to inspection by all Directors. No shareholder, not being a Director, shall have any right to inspect any account or book or other similar document of the Company, except as conferred by law or authorized by the Board of Directors or by Ordinary Resolution of the Company.
|
|
105.
|
At least once in every fiscal year the accounts of the Company shall be audited and the correctness of the profit and loss account and balance sheet certified by one or more duly qualified auditors.
|
|
106.
|
The appointment, authorities, rights and duties of the auditor(s) of the Company, shall be regulated by the applicable law.
|
|
107.
|
(a)
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any notice or other document may be served by the Company upon any shareholder either personally or by sending it by prepaid mail in Israel (by air mail if sent to a place outside Israel or by first class mail if sent within the U.S. or Canada) addressed to such shareholder at his, her or its address as reflected on the Company's share resister or such other address as he, she or it may have designated in writing for the receipt of notices and other documents. Any written notice or other document shall be deemed to have been served forty-eight (48) hours after it has been mailed, (seven (7) days if sent to a place or mailed at a place outside of Israel, forty-eight (48) hours if sent with the U.S. or Canada), or when actually received by the addressee if sooner than forty-eight (48) hours or seven (7) days, as the case may be, after it has been mailed, or when actually tendered in person to such shareholder (or to the Secretary or President or Chief Executive Officer of the Company, as the case may be), provided, however, that such notice or other document mentioned above may be sent by facsimile and confirmed by prepaid mail as aforesaid, and such notice shall be deemed to have been given twenty-four (24) hours after such facsimile has been sent or when actually received by such shareholder (or by the Company), whichever is earlier. If a notice is, in fact, received by the addressee, it shall be deemed to have been duly served when received, notwithstanding that it was defectively addressed or failed in some respect to comply with the provisions of this Article.
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(b)
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Unless otherwise specified in bearer share warrants, the holders of such warrants shall not be entitled to receive notice of any General Meeting of the Company, and the Company is under no obligation to give notice of General Meetings to a person entitled to a share by virtue of its delivery to him, unless he is duly registered as a shareholder.
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(c)
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All notices to be given to the shareholders shall, with respect to any share to which persons are jointly entitled, be given to whichever of such persons is named first in the Company's Shareregister, and any notice so given shall be sufficient notice to the holders of such share.
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(d)
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Any shareholder whose address is not described in the Company's Shareregister, and who shall not have designated in writing an address for the receipt of notices, shall not be entitled to receive any notice from the Company.
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(e)
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Any notice or other document-served upon or sent to any shareholder by publication in accordance with these Articles shall, notwithstanding that he be then deceased or bankrupt, and whether the Company has notice of his death or bankruptcy or not, be deemed to be duly served or sent in respect of any shares held by him (either alone or jointly with others) until some other person is registered in his stead as the holder or joint holder of such shares, and such service or sending shall be a sufficient service on or sending to his heirs, executors, administrators or assigns and all other persons (if any) interested in such share.
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(f)
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Where a given number of days notice or notice extending over any period is required to be given, the day of service shall be counted in such number of days or other period.
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RECONSTRUCTION
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108.
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On any sale of the undertaking of the Company, the Directors, or the liquidators on a winding-up, may, if authorized by Special Resolution, accept fully paid or partly paid up shares, debentures or securities of any other company, whether Israeli or foreign, either then existing or to be formed, for the purchase in whole or in part of the property of the Company, and the Directors (if the profits of the Company permit), or the liquidators (on a winding-up), may distribute such shares, or securities, or any other property of the Company, amongst the shareholders, without realization, or vest the same in trustees for them, and any Special Resolution may provide for the distribution or appropriation of the cash, shares, or other securities, benefits, or property, otherwise than in accordance with the strict legal rights of the shareholders as contributories of the Company, and for valuation of any such securities or property at such price and in such manner as the meeting may approve, and all holders of shares shall be bound to accept and shall be bound by any valuation or distribution so authorized, and waive all rights in relation thereto, save only in the event that the Company is proposed to be or is in the course of being wound up, such statutory rights (if any) under the provisions of the Statutes as are incapable of being varied or excluded by these presents.
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INDEMNITY AND INSURANCE OF OFFICERS
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109.
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(1) Subject to the provisions of the Companies Law, 5759-1999 (the “Companies Law”), the Company may enter into an agreement to insure an Office Holder (as such term is defined in the Companies Law) for any liability that may be imposed on such Office Holder in connection with an act performed by such Office Holder by virtue of his or her office, with respect to each of the following:
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a)
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breach of the duty of care of the Office Holder towards the Company or towards another person;
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b)
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breach of the fiduciary duty against the Company, provided that the Office Holder acted in good faith and had reasonable cause to assume that his or her act would not prejudice our interests; or
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c)
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a financial liability imposed upon the office holder in favor of another person.
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(2) Subject to the provisions of the Companies Law, the Company may indemnify an Officer Holder of the Company retrospectively, or may also undertake in advance to indemnify an Office Holder of the Company, provided the undertaking is limited to events of a kind which the Board believes can be anticipated at the time of such undertaking in light of the Company’s actual activities, and in an amount or criteria that the Board determines is reasonable under the circumstance, and provided further that such events, amounts and criteria shall be specified in such undertaking.
(3)The Company may, to the extent permitted by the Israeli Companies Law, release an Office Holder of the Company, in advance, from his or her liability, in whole or in part, for damages resulting from the breach of his or her duty of care towards the Company.
(4) In this Article, the term "Officer" shall mean: a Director, General Manager, Chief Executive Officer, Deputy General Manager, any other manager directly subordinate to the General Manager, and any person who fills one of the said positions in the Company, even if he carries a different title.
WINDING-UP
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110.
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If the Company shall be wound up, whether voluntarily or otherwise, the liquidators may with the sanction of an Extraordinary Resolution divide among the shareholders in specie any part of the assets of the Company, and may, with like sanction, vest any part of the assets of the Company in trustees upon such trusts, for the benefit of the shareholders, as the liquidators with like sanction shall think fit. The resolution sanctioning any such division may also sanction a division otherwise than in accordance with the legal rights of the shareholders and may confer special rights on any class of shareholder, but in case any resolution shall be passed sanctioning any division otherwise than in accordance with the legal rights of the shareholders, any shareholder who would be prejudiced thereby shall have a right to dissent, and, ancillary rights if such resolution were a Special Resolution passed pursuant to Section 203 of the Companies Ordinance.
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Exhibit 5.1
Tel-Aviv, July 15, 2015
Our file: 220041/104
RADA Electronic Industries Ltd.
7 Giborei Israel Blvd.
Netanya, 4250407
Israel
Re: Underwritten Public Offering
We have acted as counsel to RADA Electronic Industries Ltd., an Israeli corporation (the “Company”), in connection with the preparation and filing with the Securities and Exchange Commission (the “Commission”) pursuant to the Securities Act of 1933, as amended (the “Securities Act”), of a Registration Statement on Form S-1 (File No. 333-204695) (as amended through the date hereof, the “Registration Statement”) pertaining to the issuance and sale by the Company of ordinary shares, par value $0.015 per share (the “Shares”), with a proposed maximum aggregate offering price of $9,775,000, including Shares issuable upon the exercise of an option granted by the Company to the underwriters to purchase additional shares. The Shares are to be sold by the Company pursuant to an underwriting agreement (the “Underwriting Agreement”) to be entered into by and between the Company and Chardan Capital Markets, LLC, the form of which is being filed on even date herewith as Exhibit 1.1 to the Registration Statement.
In rendering the opinion set forth herein, we have examined originals or copies, certified or otherwise identified to our satisfaction, of such documents, corporate records, certificates of public officials and other instruments as we have deemed necessary or advisable. In such examination, we have assumed the genuineness of all signatures, the legal capacity of natural persons, the authenticity of all items submitted to us as originals, the conformity with originals of all items submitted to us as copies, and the authenticity of the originals of such copies. As to any facts material to the opinions expressed herein that we did not independently establish or verify, we have relied upon statements and representations of officers and other representatives of the Company and public officials.
We are members of the Israel Bar, and the opinions expressed herein are limited to questions arising under the Laws of the State of Israel, and we disclaim any opinion whatsoever with respect to matters governed by the laws of any other jurisdiction.
Based upon and subject to the foregoing, we are of the opinion that: the Shares have been duly authorized for issuance and, when issued, delivered and paid for in accordance with the terms of the Underwriting Agreement, the Shares will be validly issued, fully paid and non-assessable.
We consent to the inclusion of this opinion as an exhibit to the Registration Statement and further consent to all references to us under the caption “Legal Matters” in the Prospectus. In giving this consent, we do not admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations of the Commission.
Yours faithfully,
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the reference to our firm under the caption "Experts" in Amendment No. 1 to the Registration Statement (Form F-1 No. 333-204695) and related Prospectus of RADA Electronic Industries Ltd. dated July 15, 2015 and to the incorporation by reference therein of our report dated April 29, 2015, with respect to the consolidated financial statements of RADA Electronic Industries Ltd., included in its Annual Report (Form 20-F) for the year ended December 31, 2014, filed with the Securities and Exchange Commission.
| Haifa, Israel
July 15, 2015
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/s/ Kost Forer Gabbay & Kasierer
Kost Forer Gabbay & Kasierer
A Member of Ernst & Young Global
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