AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 8, 2004.
REGISTRATION NO. 333-______
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM F-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------
ON TRACK INNOVATIONS LTD.
(Exact Name of Registrant as Specified in its Charter)
STATE OF ISRAEL 3674 NOT APPLICABLE
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification Number)
Incorporation or Organization) Classification Code Number)
----------------------
Z.H.R. INDUSTRIAL ZONE
P.O. BOX 32, ROSH PINA, ISRAEL 12000
(011) 972-4-686-8000
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
OHAD BASHAN
OTI AMERICA, INC.
1601 SOUTH DE ANZA BLVD., SUITE 201
CUPERTINO, CALIFORNIA 95014
(408) 252-0333
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
----------------------
COPIES OF COMMUNICATIONS TO:
DAVID P. STONE, ESQ. SHMUEL ZYSMAN, ADV.
WEIL, GOTSHAL & MANGES LLP ZYSMAN AHARONI GAYER
767 FIFTH AVENUE & CO. LAW OFFICES
NEW YORK, NY 10153 52A HAYARKON STREET
(212) 310-8000 TEL AVIV 63432, ISRAEL
(011) 972-3-795-5555
------------------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER EFFECTIVENESS OF THIS REGISTRATION STATEMENT.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box.
[ ]
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. [X]
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. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. [ ]
-----------------------------
CALCULATION OF REGISTRATION FEE
====================================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES TO AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
BE REGISTERED REGISTERED UNIT(1) PRICE(1) REGISTRATION FEE
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Ordinary shares, nominal value NIS 0.1 4,092,849 $14.49 $59,305,382 $4,798
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(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(c) under the Securities Act of 1933, based on the
average of the reported bid and ask prices of the ordinary shares on the Nasdaq
SmallCap Market on January 5, 2004. The ordinary shares we are registering are
to be sold by selling shareholders, including affiliates. We will not receive
any proceeds from the sale of shares by the selling shareholders.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
SUBJECT TO COMPLETION
DATED JANUARY 8, 2004
PROSPECTUS
4,092,849 ORDINARY SHARES
----------------------------
ON TRACK INNOVATIONS LTD.
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--------------------
On Track Innovations Ltd. is registering 4,092,849 ordinary shares
for sale by the selling shareholders identified in this prospectus, at such
price or prices as each selling shareholder may, from time to time, determine.
We will pay all expenses of registering the securities. We will not receive any
proceeds from the sale of ordinary shares by the selling shareholders. Our
ordinary shares are listed on the Nasdaq SmallCap Market under the symbol
"OTIV." On January 6, 2004 the last reported sale price of our ordinary shares
on Nasdaq was $14.74 per share. Our ordinary shares also are listed on the Prime
Standard Segment of the Frankfurt Stock Exchange under the symbol "OT5." On
January 6, 2004, the last reported sale price of our ordinary shares on the
Frankfurt Stock Exchange was (euro)11.98 per share, equivalent to $15.29 per
share, calculated using the exchange rate of $1.2766 per euro on such date.
INVESTING IN OUR ORDINARY SHARES INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
-------------------------
The date of this prospectus is___________, 2004.
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THE INFORMATION 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 JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
--------------------------------------------------------------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
DIFFERENT OR ADDITIONAL INFORMATION. WE ARE NOT MAKING AN OFFER OF THESE
SECURITIES IN ANY STATE WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD NOT ASSUME
THAT THE INFORMATION PROVIDED BY THIS PROSPECTUS IS ACCURATE AS OF ANY DATE
OTHER THAN THE DATE ON THE FRONT OF THIS PROSPECTUS. OUR BUSINESS, FINANCIAL
CONDITION, RESULTS OF OPERATIONS AND PROSPECTS MAY HAVE CHANGED SINCE THEN.
-----------------------
TABLE OF CONTENTS
PROSPECTUS SUMMARY.............................................................1
RISK FACTORS`..................................................................5
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS.............................17
CAPITALIZATION................................................................18
USE OF PROCEEDS...............................................................18
PRICE RANGE OF OUR SHARES.....................................................18
SELLING SHAREHOLDERS..........................................................21
PLAN OF DISTRIBUTION..........................................................28
DIVIDEND POLICY...............................................................29
DESCRIPTION OF ORDINARY SHARES................................................29
LEGAL MATTERS.................................................................29
EXPERTS.......................................................................29
ENFORCEABILITY OF CIVIL LIABILITIES...........................................30
WHERE YOU CAN FIND MORE INFORMATION...........................................31
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...............................32
EXPENSES......................................................................32
i
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in
this prospectus. This summary may not contain all of the information that you
should consider before buying ordinary shares in this offering. You should
carefully read this entire prospectus, including each of the documents
incorporated herein by reference, before making an investment decision.
We design, develop and sell contactless microprocessor-based smart
card products. A smart card is traditionally a credit card-sized plastic card
containing a semiconductor chip. The type of semiconductor chip determines the
amount of information that the card can store and the number and complexity of
applications that can be provided by the card, or how "smart" the card is. Our
products support smart cards that contain microprocessor chips which run
multiple applications, can be reprogrammed and support high levels of security.
A smart card system consists of smart cards, readers that transmit and receive
data from the smart card and computers that process data received from the
readers.
Traditionally, the information stored on the smart card chip was
updated through contact of the card with the reader either by swiping the card
through, or inserting it in, a reader. However, our products utilize
"contactless" smart cards which do not require physical contact with a reader,
as power and data are transferred to the card through a magnetic field generated
by the reader.
By combining the advantages of microprocessors and contactless smart
cards, we believe that our products offer the following benefits:
o The information stored on one of our cards and transferred
between the card and the reader is secure;
o Our products support multiple, independent applications on the
same card;
o Our products provide for a reliable transfer of information to
and from a card;
o Our cards are durable, easy to use and take a variety of forms,
such as key chains, tags, stickers and wristwatches;
o Our products are easy to install and maintain; and
o Our products enable the transition from other card technologies
to our contactless microprocessor-based technology.
Substantially all of our contactless microprocessor-based products
are based on a common platform which we currently refer to as the OTI Platform.
The OTI Platform is based on our patented technology and consists of our smart
cards, our readers, software that enables the development of applications for
the smart card and a communications technology that ensures the transmission of
data to and from the card. The OTI Platform can be customized to support a large
number of applications such as credit and debit card functions, identification
and loyalty programs. The OTI Platform has been deployed in different markets,
such as petroleum and mass transit, and is being developed for other markets
such as national documentation and medical services. For some markets, we have
developed extensively customized hardware and software systems based on our OTI
Platform, such as a gasoline management system for fleet managers, an electronic
parking payment system and a closed campus system.
Additionally, as a result of our acquisition of InterCard GmbH
Kartensysteme and InterCard GmbH Systemelectronic, which we refer to as the
InterCard group, we offer closed campus products for universities and products
that operate copying machines. These products are based on other card
technologies that require physical contact between the card and the reader and
that do not use microprocessors. The InterCard group also manufactures
electronic devices, some of which it incorporates into contact-based smart card
readers that it sells and some of which it sells for nonsmart card applications
in the transportation industry.
1
We intend to enhance our position in the design and development of
contactless microprocessor based smart card products by developing new
applications for our technology. We also intend to enter new markets, either
alone or through relationships with other parties. We have established such
relationships with, among others, Beyond Petroleum (formerly known as British
Petroleum).
Our sales and marketing efforts are directed from Cupertino,
California, and effected through our global network of subsidiaries in North
America, Africa and Europe, as well as through e-Smart System Inc., our joint
venture with Cheung Kong Infrastructure Holdings, a Hong Kong-based
infrastructure company, for the marketing and distribution of our products in
Greater China (the People's Republic of China, Taiwan, Hong Kong and Macau).
Since our initial public offering in Germany in 1999, we have
acquired City Smart, a Hong Kong-based system integrator; the SoftChip group, an
Israeli designer of microprocessors and operating systems for smart cards; and
the InterCard group.
Our shares are traded on the Prime Standard Segment of the Frankfurt
Stock Exchange and on the Nasdaq Small-Cap Market. Our headquarters are located
in Rosh Pina, Israel. As of September 30, 2003, we employed 192 employees
worldwide, of whom 68 were employed at our headquarters and the remainder were
employed by our subsidiaries. In this prospectus we sometimes refer to ourselves
as OTI.
RECENT DEVELOPMENTS
In November and December 2003 and in January 2004, we entered into
agreements with a number of non-"U.S. persons" pursuant to which we issued to
such persons in "offshore transactions" the following securities:
o 113,235 ordinary shares at a purchase price of $3.40 per share,
together with warrants to purchase 56,618 additional ordinary
shares at an exercise price of $5 per share and 100,000 ordinary
shares at a purchase price of $3.15 per share;
o 288,889 ordinary shares at a purchase price of $4.50 per share,
together with warrants to purchase 144,444 additional ordinary
shares at an exercise price of $6.50 per share;
o 62,241 ordinary shares at a purchase price of $4.82 per share,
together with warrants to purchase 31,120 additional ordinary
shares at an exercise price of $6.50 per share;
o 20,000 ordinary shares at a purchase price of $5.00 per share,
together with warrants to purchase 10,000 additional ordinary
shares at an exercise price of $6.50 per share;
o 983,333 ordinary shares at a purchase price of $5.25 per share,
together with warrants to purchase 491,667 additional ordinary
shares at an exercise price of $6.50 per share; and
o 117,143 ordinary shares at a purchase price of $5.25 per share,
together with warrants to purchase 58,571 additional ordinary
shares at an exercise price of $7.50 per share.
The total number of ordinary shares which we sold in the transactions
described above is 1,684,841 at an aggregate purchase price of $8,177,500. The
total number of additional ordinary shares issuable upon the exercise of the
warrants described above is 792,420 at an aggregate exercise price of
$5,124,372. Each of the warrants is immediately exercisable in full and has a
five-year term. We did not receive any independent consideration for our
issuance of the warrants to the investors who purchased our ordinary shares.
Purchasers of 1,354,463 of such ordinary shares and warrants to purchase 677,231
additional ordinary shares have granted to Mr. Oded Bashan, the Chairman of our
Board of Directors, our President and Chief Executive Officer, irrevocable
proxies to vote the shares so long as they are owned by those persons. Pursuant
to the registration statement of which this prospectus is a part, we have
registered under the Securities Act of 1933 all of the ordinary shares sold and
all of the ordinary shares issuable upon exercise of the warrants issued, for
resale by the respective holders thereof.
2
Until the accounting firm of Arthur Andersen ceased to provide
auditing services, Luboshitz Kasierer, a member firm of Arthur Andersen served
as our independent auditors. Thereafter, Luboshitz Kasierer became an affiliate
member of Ernst & Young International and continued to serve as our independent
auditor. Effective November 30, 2003, Luboshitz Kasierer was merged into another
firm. As a result, we engaged the firm of Somekh Chaikin, a member of KPMG
International, to act as our independent auditor for the year ended December 31,
2003. In a shareholders' meeting held on December 30, 2003 our shareholders
approved the engagement of that firm. In addition, at that meeting our
shareholders elected Mr. Eli Akavia, a retired senior partner in Luboshitz
Kasierer (where he was responsible for that firm's high-technology practice,
including its engagement by us), to serve as a member of our board of directors
and approved an increase in the number of shares available for issuance upon
exercise of options under our existing share option plan from 2,250,000 to
2,750,000.
RISK FACTORS
Our ability to attain our objectives depends upon our success in
addressing the risks relating to our business, industry and conditions in Israel
discussed in "Risk Factors" and elsewhere in this prospectus, including the
following:
o We have a history of losses and may not achieve profitability in
the foreseeable future.
o The market for smart cards in general, and for contactless
microprocessor-based smart cards in particular, may not grow as
we expect.
o To date we have generated our revenues from a limited number of
products. We are currently developing and beginning to market new
products and the success of our business is dependent on market
acceptance for these new products.
o We derive a portion of our revenues from sales to system
integrators who are not the end-users of our products and we are
dependent on their ability to market our products.
o Our operations could be materially and adversely affected by acts
of terror or by military hostilities between Israel and the
Palestinians and/or its Arab neighbors.
3
THE OFFERING
Ordinary shares which may be sold by
the Selling Shareholders..............................4,092,849 shares, including ordinary shares issuable upon
exercise of options and warrants. See "Selling Shareholders."
Ordinary shares to be outstanding after this
Offering..............................................6,326,390 shares, excluding the ordinary shares issuable as of
the date of this prospectus upon exercise of options, but
including ordinary shares issuable upon the exercise of
warrants. We have outstanding options to acquire 1,478,000
ordinary shares, 875,537 of which are currently exercisable.
Use of proceeds.........................................We will receive no proceeds from the sales
described in this prospectus.
Prime Standard Segment symbol...........................OT5
Nasdaq SmallCap Market symbol...........................OTIV
Risk factors............................................See "Risk Factors" and the other information
included in this prospectus for a discussion
of risk factors you should carefully consider before
deciding to invest in our ordinary shares.
The share numbers set forth above and, unless otherwise noted,
throughout this prospectus give effect to our 10-for-1 reverse share split
effective as of June 17, 2002.
We were incorporated in the State of Israel in February 1990. The
address of our registered and principal executive office is Z.H.R. Industrial
Zone, P.O. Box 32, Rosh Pina, Israel 12000, and our telephone number is (011)
972-4-686-8000. Our web site address is www.otiglobal.com. The information on
our web site does not constitute part of this prospectus.
"OTI" and "OTI INSIGHT" are both registered trademarks in the United
States and Israel and are European Community Trade Marks which cover all the
countries of the European Union, "SCIENCE -- NON FICTION" is subject to a
pending European Community Trade Mark application and a pending trademark
application in the United States and Israel and "EASYPARK" is a registered
trademark of Easy Park Ltd., one of our subsidiaries, in the United States,
Canada and Israel and has been accepted in Singapore. Certain other trademarks
and trade names are owned and used by us on an unregistered basis. All other
registered trademarks appearing in this prospectus are owned by their respective
holders.
As used in this prospectus:
o all references to "New Shekels" or "NIS" are to the lawful
currency of Israel;
o all references to "euros," "EUR" or "(euro)" are to the lawful
currency of the European Union;
o all references to "dollars" or "$" are to the lawful currency of
the United States.
o all references to "Deutsche Mark" or "DM" are to the currency
used in the Federal Republic of Germany until December 31, 2001,
before its conversion into euro at the rate of EUR 1.00=DM
1.95583.
4
RISK FACTORS
This offering involves a high degree of risk. You should carefully
consider the following risks together with the other information in this
prospectus before deciding to invest in our ordinary shares. If any of the
following risks actually occur, our business, financial condition and results of
operations could be materially and adversely affected. In that case, the trading
price of our ordinary shares could decline, and you may lose all or part of your
investment. The risks described below are not necessarily in order of degree or
magnitude of risk.
RISKS RELATED TO OUR BUSINESS
WE HAVE A HISTORY OF LOSSES AND MAY NOT ACHIEVE PROFITABILITY IN THE FORESEEABLE
FUTURE.
We have incurred losses in each year since we commenced operations in
1990. We reported net losses of $2.9 million in 1998, $3.1 million in 1999, $8.3
million in 2000, $11.7 million in 2001, $6.2 million in 2002 and $3.7 million
for the nine months ended September 30, 2003. Our losses resulted primarily from
expenses we incurred in selling and marketing, as well as in research and
development and general and administrative expenses, which have offset any
increases in revenues over these periods. We expect to continue to incur
operating losses in future periods as we invest in the expansion of our global
marketing network, reduce our product prices in return for transaction fees
based on the volume of transactions effected in systems that contain our
products, enhance our research and development capabilities and expand our
internal manufacturing capabilities.
IF THE MARKET FOR SMART CARDS IN GENERAL, AND FOR CONTACTLESS
MICROPROCESSOR-BASED SMART CARDS IN PARTICULAR, DOES NOT GROW AS WE EXPECT, WE
MAY NOT SUCCEED IN SELLING OUR PRODUCTS.
The success of our products depends on commercial enterprises,
governmental authorities and other potential card issuers adopting contactless
microprocessor-based smart card technologies. Other card technologies, such as
magnetic strips or bar codes, are widely used and could be viewed by potential
customers as more cost effective alternatives to our products. Additionally,
potential customers in developed countries such as the United States may already
have installed systems that are based on technologies different from ours and
may therefore be less willing to incur the capital expenditure required to
install or upgrade to a contactless microprocessor-based smart card system. As a
result, we cannot assure you that there will be significant market opportunities
for contactless microprocessor-based smart card products. If demand for
contactless microprocessor-based smart card products such as ours does not
develop or develops more slowly than we anticipate, we may have fewer
opportunities for growth than we expect.
IF WE FAIL TO DEVELOP NEW PRODUCTS OR ADAPT OUR EXISTING PRODUCTS FOR USE IN NEW
MARKETS, OUR REVENUE GROWTH MAY BE IMPEDED AND WE MAY INCUR SIGNIFICANT LOSSES.
To date, we have sold products incorporating our technology within a
limited number of markets. In 1999, our gasoline management system, or GMS,
accounted for 40% of our product sales and sales of other products for use in
the petroleum industry accounted for 13%. We are currently developing and
marketing products such as medical cards for use in hospitals and identity cards
for use by governmental authorities. We have yet to recognize revenues from
sales of these products. We are devoting significant resources to developing and
marketing these and other products and adapting our existing products for use in
new markets. From the beginning of 1999 through September 30, 2003, we spent
$18.7 million on research and development and $20.5 million on selling and
marketing. If we fail to develop new products or adapt our existing products for
new markets, our revenue growth may be impeded and we may incur significant
losses.
5
WE HAVE HISTORICALLY DERIVED A SIGNIFICANT PORTION OF OUR REVENUES FROM SALES TO
SYSTEMS INTEGRATORS WHO ARE NOT THE END-USERS OF OUR PRODUCTS. ALTHOUGH THE
PERCENTAGE OF OUR REVENUES ATTRIBUTABLE TO SUCH SALES IS DECLINING, WE ARE TO A
CERTAIN EXTENT DEPENDENT ON THE ABILITY OF THESE INTEGRATORS TO MAINTAIN THEIR
EXISTING BUSINESS AND SECURE NEW BUSINESS.
In 2000, 2001, 2002 and in the nine months ended September 30, 2003,
46%, 18%, 22% and 25%, respectively, of our revenues were derived from sales to
systems integrators, some of whom are distributors of our products, who
incorporate our products into systems which they supply and install for use in a
specific project. To the extent our revenues depend on systems integrators'
ability to successfully market, sell, install and provide technical support for
systems in which our products are integrated or to sell our products on a
stand-alone basis, our revenues may decline if such systems integrators' efforts
fail. Further, the faulty or negligent implementation and installation of our
products by systems integrators may harm our reputation and dilute our brand
name. Because we are one step removed from the end-users of our products, it may
be more difficult for us to rectify damage to our reputation caused by systems
integrators who have direct contact with end-users. In addition, termination of
agreements with systems integrators or revocation of exclusive distribution
rights within a certain area can be difficult. If we are unable to maintain our
current relationships with systems integrators or develop relationships with new
systems integrators, we may not be able to sell our products and our results of
operations could be impaired.
Unless we continue to expand our direct sales, our future success
will depend upon the timing and size of future purchases by systems integrators
and the success of the projects and services for which they use our products.
OUR INABILITY TO MAINTAIN OUR CURRENT, AND ESTABLISH NEW, STRATEGIC
RELATIONSHIPS COULD IMPAIR OUR REVENUE GROWTH.
The markets for our products are usually highly specialized and
require us to enter into strategic relationships in order to facilitate or
accelerate our penetration into new markets. We consider a relationship to be
strategic when we integrate our technology into some of the product offerings of
a manufacturer or systems integrator that has a significant position in a
specified market, and then we cooperate in marketing the resulting product. The
termination of any of our strategic relationships or our failure to develop
additional relationships in the future may limit our ability to expand the
markets in which our products are deployed or to sell particular products, and
thereby impair our revenue growth.
SOME OF OUR AGREEMENTS RESTRICT OUR ABILITY TO CONDUCT BUSINESS. ALTHOUGH THE
TYPES OF RESTRICTIONS ARE CUSTOMARY IN A COMMERCIAL SETTING, THE RESULT MAY BE
THAT IN THE FUTURE WE MAY NOT BE ABLE TO TAKE ACTIONS THAT WE MAY BELIEVE ARE
DESIRABLE.
Under some of our agreements with suppliers, distributors and joint
venture partners, we have agreed to restrict ourselves in some areas of business
for different time periods ranging from several months to several years,
depending upon the circumstances. For example, we have granted our joint venture
with Cheung Kong, e-Smart, exclusive rights to distribute our products in
Greater China and we granted our joint venture partner veto rights over key
business decisions relating to the distribution of our products in that region.
In addition, in the event that our products are sold in Greater China by third
parties other than through e-Smart, we have agreed to pay to e-Smart 7.5% of the
net revenues we receive from such sales. Our agreement with Samsung concerning
the development and manufacture of a particular type of microprocessor chip that
we refer to as a "monochip" requires us not to sell that microprocessor chip to
the existing customers of Samsung. In addition, in some markets we sell our
products through distributors who, in general, if sales quota are met, have
exclusive distribution rights in that market.
WE FACE INTENSE COMPETITION. IF WE ARE UNABLE TO COMPETE SUCCESSFULLY, OUR
BUSINESS PROSPECTS WILL BE IMPAIRED.
We face intense competition from developers of contact and
contactless microprocessor-based technologies and products, developers of
contactless products that use other types of technologies that are not
microprocessor-based, and non-smart card technologies. We compete on the basis
6
of a range of competitive factors including price, compatibility with the
products of other manufacturers, and the ability to support new industry
standards and introduce new reliable technologies. Many of our competitors, such
as Philips Semiconductors, a division of Philips Electronics N.V., and Infineon
Technologies AG, have greater market recognition, larger customer bases, and
substantially greater financial, technical, marketing, distribution, and other
resources than we possess. As a result, they may be able to introduce new
products, respond to customer requirements and adapt to evolving industry
standards more quickly than we can. In addition, we may not be able to
differentiate our products sufficiently from those of our competitors.
From time to time, we or one or more of our present or future
competitors may announce new or enhanced products or technologies that have the
potential to replace or shorten the life cycles of our existing products. The
announcement of new or enhanced products may cause customers to delay or alter
their purchasing decisions in anticipation of such products, and new products
developed by our competitors may render our products obsolete or achieve greater
market acceptance than our products.
If we cannot compete successfully with our existing and future
competitors, we could experience lower sales, price reductions, loss of
revenues, reduced gross margins and reduced market share.
IF THERE IS A SUSTAINED INCREASE IN DEMAND FOR MICROPROCESSORS, AVAILABILITY
MIGHT BE LIMITED AND PRICES MIGHT INCREASE.
Our products require microprocessors. The microprocessor industry
periodically experiences increased demand and limited availability due to
production capacity constraints. For example, there has been a shortage in the
availability of microprocessors since the middle of 1999 until the end of 2001.
Increased demand for, or limited availability of, microprocessors could
substantially increase the cost of producing our products. Because some of our
contracts have fixed prices, we may not be able to pass on any increases in
costs to these customers, and consequently our profit margin could be reduced.
In addition, as a result of a shortage, we may be forced to delay
shipments of our products, or devote additional resources to maintaining higher
levels of microprocessor inventory. Consequently, we may experience substantial
period-to-period fluctuations in our cost of revenues and, therefore, in our
future results of operations.
OUR PRODUCTS HAVE LONG DEVELOPMENT CYCLES AND WE MAY EXPEND SIGNIFICANT
RESOURCES IN RELATION TO A SPECIFIC PROJECT WITHOUT REALIZING ANY REVENUES.
The development cycle for our products varies from project to
project. Typically, the projects in which we are involved are complex and
require that we customize our products to our customers' needs and
specifications in return for payment of a fixed amount. We then conduct
evaluation, testing, implementation and acceptance procedures of the customized
products with the customer. Only after successful completion of these procedures
will customers place orders for our products in commercial quantities. In
addition, our contracts do not typically include minimum purchase requirements.
We, therefore, cannot assure you that contracts which we enter into will result
in commercial sales. Our average development cycle is typically between 12 and
18 months from initial contact with a potential customer until we deliver
commercial quantities to the customer and recognize significant revenues. As a
result, we may expend financial, management and other resources to develop
customer relationships before we recognize any revenues.
FLUCTUATIONS IN OUR QUARTERLY FINANCIAL PERFORMANCE MAY CREATE VOLATILITY IN THE
MARKET PRICE OF OUR SHARES AND MAY MAKE IT DIFFICULT TO PREDICT OUR FUTURE
PERFORMANCE BASED ON OUR RESULTS IN ANY QUARTER.
Our quarterly revenues and operating results have varied in the past
and are likely to do so in the future. These fluctuations may be driven by
various factors which are beyond our control, are difficult to predict and may
not meet the expectations of analysts and investors. These factors include:
7
o The size and timing of orders placed by our customers,
particularly in government projects. Government projects
typically involve a protracted competitive procurement process
and in some circumstances litigation following the award of a
contract. As a result, it is difficult to predict the timing and
size of orders under such contracts. For example, we started to
prepare our offer for the Israeli national electronic parking
system project in 1992, we were awarded the contract in May 1998
and deployment began in January 2000. We started recognizing
revenues in the second half of 2000.
o The fact that our rental and financing expenses are fixed and we
may not be able to reduce them in the event of a reduction in
revenues in a particular quarter. In addition, our payroll
expenses are relatively fixed and we would not expect to reduce
our workforce due to a reduction in revenues in any particular
quarter.
o The tendency of our clients to place orders for products toward
the last quarter of their financial year.
Because of these factors, our revenues and operating results in any
quarter may not be indicative of our future performance, and it may be difficult
for you to evaluate our prospects.
ALTHOUGH THE EXTENT OF OUR DEPENDENCE ON A SMALL NUMBER OF SUPPLIERS IS
DECREASING, DELAYS OR DISCONTINUANCE OF THE SUPPLY OF COMPONENTS MAY STILL
HAMPER OUR ABILITY TO PRODUCE OUR PRODUCTS ON A TIMELY BASIS AND CAUSE
SHORT-TERM ADVERSE EFFECTS.
The components we use in our products, including microprocessors and
cards, are supplied by third party suppliers and manufacturers. Except for
Samsung, which is currently the sole supplier of the chip that integrates our
antenna interface into Samsung's microprocessor, none of these suppliers are
sole suppliers. Nevertheless, and although we continue to seek additional
sources of supply, we sometimes experience short-term adverse effects due to
delayed shipments which have in the past interrupted and delayed, and could in
the future interrupt and delay, the supply of our products to our customers, and
may result in cancellation of orders for our products. In addition, we do not
generally have long term supply contracts under which our suppliers are
committed to supply us with components at a fixed price. Suppliers could
increase component prices significantly without warning or could discontinue the
manufacture or supply of components used in our products. We may not be able to
develop alternative sources for product components if and as required in the
future. Even if we are able to identify any alternative source of supply, we may
need to modify our products to be compatible with other components, which may
cause delays in product shipments, increase manufacturing costs and increase
product prices.
Because some of our suppliers are located in Europe and the Far East,
we may experience logistical problems in our supply chain, including long lead
times for receipt of products or components and shipping delays. In addition,
our subcontractors located in Israel and the Far East may, on occasion, feel the
impact of potential economic or political instability in their regions, which
could affect their ability to supply us with components for our products in a
timely manner.
WE CURRENTLY RELY ON A THIRD PARTY FOR LICENSING AND UPDATING THE PRIMARY
OPERATING SYSTEM WE USE IN OUR PRODUCTS.
We are currently required to license operating system software for
the operation of our products. Since 1995, the principal licensor of this
software has been Personal Cipher Card Corporation, or PC3, pursuant to a
license agreement that terminates on July 5, 2005. If PC3 terminates the license
it granted us, we may face some delays in providing our products to our
customers and we expect that it may take several months to provide an adequate
alternative.
8
IF WE FAIL TO HIRE, TRAIN AND RETAIN QUALIFIED RESEARCH AND DEVELOPMENT
PERSONNEL, OUR ABILITY TO ENHANCE OUR EXISTING PRODUCTS, DEVELOP NEW PRODUCTS
AND COMPETE SUCCESSFULLY MAY BE MATERIALLY AND ADVERSELY AFFECTED.
Our success depends in part on our ability to hire, train and retain
qualified research and development personnel. Individuals who have expertise in
research and development in our industry are scarce. Competition for such
personnel is intense in the electronics industry, particularly in Israel, and
therefore hiring, training and retaining such personnel is both time consuming
and expensive. In addition, it may be difficult to attract qualified personnel
to Rosh Pina, which is in the North of Israel. If we fail to hire, train and
retain employees with skills in research and development, we may not be able to
enhance our existing products or develop new products.
OUR ABILITY TO COMPETE DEPENDS ON OUR CONTINUING RIGHT TO USE, AND OUR ABILITY
TO PROTECT, OUR INTELLECTUAL PROPERTY RIGHTS.
Our success and ability to compete depend in large part on using our
intellectual property and proprietary rights to protect our technology and
products. We rely on a combination of patent, trademark, copyright and trade
secret law, as well as confidentiality agreements and other contractual
relationships with our employees, customers, affiliates, distributors and
others. While substantially all of our employees are subject to non-compete
agreements, these agreements may be difficult to enforce as the result of new
Israeli case law which limits the scope of employee non-competition undertakings
and may make them unenforceable in Israeli courts.
We currently have patents in the United States, Israel and other
countries covering some of our technology and have pending applications in the
United States, Europe, Israel and elsewhere which have not yet resulted in
granted patents. We cannot be certain that patents will be issued with respect
to any of our pending or future patent applications or that the scope of our
existing patents, or any future patents that are issued to us, will provide us
with adequate protection for our technology and products. Others may challenge
our patents or registered trademarks. We do not know whether any of them will be
upheld as valid or will be enforceable against alleged infringers and thus we do
not know whether they will enable us to prevent or hinder the development of
competing products or technologies. Moreover, patents provide legal protection
only in the countries where they are registered and the extent of the protection
granted by patents varies from country to country.
The measures we have taken to protect our technology and products may
not be sufficient to prevent their misappropriation by third parties or
independent development by others of similar technologies or products.
Competitors may also develop competing technology by designing around our
patents and will then be able to manufacture and sell products which compete
directly with ours. In that case, our business and operating results would be
harmed.
In order to protect our technology and products and enforce our
patents and other proprietary rights, we may need to initiate litigation against
third parties or defend opposition proceedings before the European Patent Office
or prosecute interference proceedings before the U.S. Patent and Trademark
Office. These legal and administrative proceedings could be expensive and occupy
significant management time and resources. Our European patent covering
contactless transmission of power and data between a microprocessor and a reader
was revoked as the result of a third party opposing our patent. Currently, this
patent is the subject of an appeal proceeding before the European Patent Office.
If our appeal is not successful, we will lose our European patent and therefore
the right to prevent others in Europe from using the technology covered by the
patent.
Furthermore, a successful opposition to our patent could provide a
basis for our competitors to claim that our patents in other jurisdictions
covering this technology are invalid.
9
OUR PRODUCTS MAY INFRINGE THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS.
It is not possible to know with certainty that the manufacture and
sale of our products do not or will not infringe patents or other intellectual
property rights owned by third parties. There may, for example, be patent
applications pending at the moment, which if granted, may cover products that we
have just developed or are developing. In certain other jurisdictions there is
no publication of the subject matter of patents until the patents are issued.
Third parties may from time to time claim that our current or future products
infringe their patent or other intellectual property rights. In addition, if
third parties claim that our customers are violating their intellectual property
rights, our customers may seek indemnification from us, which could be costly,
or may terminate their relationships with us. Our products depend on operating
systems licensed to us and we may also be subject to claims by third parties
that our use of these operating systems infringes their intellectual property
rights. Any intellectual property claim could involve time-consuming and
disruptive litigation and, if determined adversely to us, could prevent us from
making or selling our products, subject us to substantial monetary damages or
require us to seek licenses.
Intellectual property rights litigation is complex and costly, and we
cannot be sure of the outcome of any such litigation. Even if we prevail, the
cost of such litigation could harm our results of operations. In addition, such
litigation is time consuming and could divert our management's attention and
resources away from our business. If we do not prevail in any litigation, in
addition to any damages we might have to pay, we might be required to
discontinue the use of certain processes, cease the manufacture, use and sale of
infringing products and solutions, expend significant resources to develop
non-infringing technology or obtain licenses on unfavorable terms. Licenses may
not be available to us on acceptable terms or at all. In addition, some licenses
are non-exclusive and, therefore, our competitors may have access to the same
technology licensed to us. If we fail to obtain a required license or cannot
design around any third party patents or otherwise avoid infringements, we may
be unable to sell some of our products.
THE LOSS OF THE SERVICES OF OUR CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER,
ODED BASHAN, COULD SERIOUSLY HARM OUR BUSINESS.
Our success depends, in part, on the continued service of Oded
Bashan, our Chairman, President and Chief Executive Officer. Mr. Bashan is one
of our founders and has developed our business and technology strategy since our
inception. The loss of services of Mr. Bashan could disrupt our operations and
harm our business.
IN THE PAST FOUR YEARS WE HAVE ACQUIRED THREE COMPANIES OR GROUPS OF COMPANIES
AND WE INTEND TO CONTINUE TO PURSUE STRATEGIC ACQUISITIONS IN THE FUTURE. THE
FAILURE TO SUCCESSFULLY INTEGRATE ACQUIRED COMPANIES AND BUSINESSES OR TO
ACQUIRE NEW COMPANIES AND BUSINESSES MAY HARM OUR FINANCIAL PERFORMANCE AND
GROWTH.
In the past four years we have acquired City Smart, a systems
integrator in Hong Kong; the SoftChip group, an Israeli designer of
microprocessors and operating systems for smart cards; and the InterCard group,
a German systems integrator for card systems and manufacturer of electronic
devices. These and future acquisitions could result in:
o Difficulties in integrating our operations, technologies,
products and services with those of the acquired companies. For
example, we cannot be sure if the InterCard group's current
customer base will upgrade their systems to incorporate our
products.
o Difficulty in integrating operations spread across significant
geographic distances as our three acquisitions were made in two
continents.
o Diversion of our capital and our management's attention away from
other business issues.
o Potential loss of key employees and customers of companies we
acquire.
o Increased liabilities as a result of liabilities of the companies
we acquire.
o Dilution of your shareholding in the event we acquire companies
in exchange for our shares. All three of our recent acquisitions
were made through the issuance of our ordinary shares.
10
We may not successfully integrate any technologies, manufacturing
facilities or distribution channels that we have or may acquire and we cannot
assure you that any of our recent acquisitions will be successful. In addition,
if we do not acquire new companies and businesses in the future, we may not be
able to grow our business as expected. If any of our recent or future
acquisitions are not successful, our financial performance and business may be
adversely affected.
WE ARE SUSCEPTIBLE TO CHANGES IN INTERNATIONAL MARKETS AND DIFFICULTIES WITH
INTERNATIONAL OPERATIONS COULD HARM OUR BUSINESS.
Over the last five years and nine months ended September 30, 2003, we
have derived revenues from different geographical areas. The following table
sets forth our sales in different geographical areas as a percentage of
revenues:
FAR NORTH SOUTH
AFRICA EUROPE EAST AMERICA AMERICA ISRAEL
------ ------ ---- ------- ------- ------
1998............................................... 25% 21% 45% 4% -% 5%
1999............................................... 16 16 33 30 2 3
2000............................................... 8 56 13 19 1 3
2001............................................... 6 71 10 9 1 3
2002............................................... 13 67 3 11 1 5
NINE-MONTHS ENDED SEPTEMBER 30, 2003 (UNAUDITED)... 14 67 1 9 1 8
Our ability to maintain our position in existing markets and to
penetrate new, regional and local markets, is dependent, in part, on the
stability of regional and local economies. Our regional sales may continue to
fluctuate widely and may be adversely impacted by future political or economic
instability in these or other foreign countries or regions.
In addition, there are certain inherent risks in these international
operations which include:
o Changes in regulatory requirements and communications standards;
o Required licenses, tariffs and other trade barriers;
o Difficulties in enforcing intellectual property rights across, or
having to litigate disputes in, various jurisdictions;
o Difficulties in staffing and managing international operations;
o Potentially adverse tax consequences; and
o The burden of complying with a wide variety of complex laws and
treaties in various jurisdictions.
If we are unable to manage the risks associated with our focus on
international sales, our business may be harmed.
BECAUSE WE REPORT IN DOLLARS, WHILE A PORTION OF OUR REVENUES AND EXPENSES ARE
INCURRED IN OTHER CURRENCIES, PRINCIPALLY IN EUROS, SOUTH AFRICAN RANDS AND NIS,
CURRENCY FLUCTUATIONS COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.
Our functional and reporting currency is the U.S. dollar. We generate
a significant portion of our revenues in dollars and incur a large portion of
our expenses in other currencies, principally some of our employees' salaries in
Shekels and the majority of the expenses of the InterCard group in euros. To the
extent that OTI and its subsidiaries based in Israel and Germany conduct their
business in different currencies, their revenues and expenses, and as a result,
their assets and liabilities, are not necessarily in the same currency and
therefore they are exposed to foreign exchange rate fluctuations. These
fluctuations may negatively affect their results of operations. Our operations
11
also could be adversely affected if we are unable to limit our exposure against
currency fluctuations in the future. Accordingly, we may enter into currency
hedging transactions to decrease the risk of financial exposure from
fluctuations in the exchange rate of the dollar against the NIS.
However, these measures may not adequately protect us from material
adverse effects due to the impact of currency fluctuations. In addition, if we
wish to maintain the dollar-denominated value of our products in non-U.S.
markets, such as Europe, devaluation in the local currencies of our customers
relative to the dollar could cause our customers to cancel or decrease orders or
default on payment.
WE MAY HAVE TO ADAPT OUR PRODUCTS IN ORDER TO INTEGRATE THEM INTO OUR CUSTOMERS'
SYSTEMS OR IF NEW GOVERNMENT REGULATIONS OR INDUSTRY STANDARDS ARE ADOPTED OR
CURRENT REGULATIONS OR STANDARDS ARE CHANGED.
Some of our products are subject to mandatory government regulation
in the countries in which they are used. For example, card readers that are used
in the United States require certification of compliance with regulations of the
Federal Communications Commission and in Europe of compliance with regulations
of the European Telecommunications Standards Institute regarding emission limits
of radio frequency devices. In addition, governmental certification for the
systems into which our products are integrated may be required. The
International Standards Organization is in the process of approving industry
standards regulating the transfer of data between contactless smart cards and a
reader. If there is a change to government regulations or industry standards, we
may have to make significant modifications to our products and, as a result,
could incur significant costs and may be unable to deploy our products in a
timely manner.
In addition, prior to purchasing our products, some customers may
require us to receive certification that our products can be integrated
successfully into their systems or comply with applicable regulations. Receipt
of these certifications may not occur in a timely manner or at all. In some
cases, in order for our products, or for the system into which they are
integrated, to be certified, we may have to make significant product
modifications. Failure to become so certified could render us unable to deploy
our products in a timely manner or at all.
OUR PRODUCTS MAY CONTAIN DEFECTS THAT WE FIND ONLY AFTER DEPLOYMENT, WHICH COULD
HARM OUR REPUTATION, RESULT IN LOSS OF CUSTOMERS AND REVENUES AND SUBJECT US TO
PRODUCT LIABILITY CLAIMS.
Our products are highly technical and deployed as part of large and
complex projects. Because of the nature of our products, they can only be fully
tested when fully deployed. For example, the testing of our parking payment
product required distribution of sample parking payment cards to drivers,
installation of electronic kiosks at which a card holder can increase the
balance on his or her card, linking the kiosks to financial and parking
databases, collecting data through handheld terminals, processing of data that
is collected by the system, compilation of reports and clearing the parking
transactions. Any defects in our products could result in:
o Harm to our reputation;
o Loss of, or delay in, revenues;
o Loss of customers and market share;
o Failure to attract new customers or achieve market acceptance for
our products; and
o Unexpected expenses to remedy errors.
In addition, we could be exposed to potential product liability
claims. While we currently maintain product liability insurance, we cannot
assure you that this insurance will be sufficient to cover any successful
product liability claim. Any product liability claim could result in changes to
our insurance policies, such as premium increases or the imposition of a large
deductible or co-insurance requirements. Any product liability claim in excess
of our insurance coverage would have to be paid out of our cash reserves, which
would harm our business. Furthermore, the assertion of product liability claims,
regardless of the merits underlying the claim, could result in substantial costs
to us, divert management's attention away from our operations and damage our
reputation.
12
CURRENT TERRORIST ATTACKS MAY HAVE A MATERIAL ADVERSE EFFECT ON OUR OPERATING
RESULTS.
Terrorist attacks, such as the attacks that occurred in New York and
Washington, D.C. on September 11, 2001, and other acts of violence or war may
affect the markets on which our ordinary shares trade, the markets in which we
operate, our operations and profitability and your investment. There can be no
assurance that there will not be further terrorist attacks against the United
States or Israel, or against American or Israeli businesses. These attacks or
subsequent armed conflicts resulting from or connected to them may directly
impact our physical facilities or those of our suppliers or customers.
Furthermore, these terrorist attacks may make travel and the transportation of
our supplies and products more difficult and/or expensive and ultimately affect
the sales of our products. Also, as a result of terrorism, the United States and
other countries may enter into an armed conflict that could have a further
impact on our sales, profitability, supply chain, production capability and
ability to deliver product and services to customers.
RISKS RELATED TO OUR ORDINARY SHARES
OUR SHARE PRICE HAS FLUCTUATED IN THE PAST AND MAY CONTINUE TO FLUCTUATE IN THE
FUTURE.
The market price of our ordinary shares has experienced significant
fluctuations and may continue to fluctuate significantly. See "Price Range of
Our Shares." The market price of our ordinary shares may be significantly
affected by factors such as the announcements of new products or product
enhancements by us or our competitors, technological innovations by us or our
competitors or quarterly variations in our results of operations. In addition,
while we cannot assure you that any securities analysts will continue to
maintain research coverage of our company and our ordinary shares, any
statements or changes in estimates by analysts covering our shares or relating
to the smart card industry could result in an immediate and adverse effect on
the market price of our shares. Further, we cannot predict the effect, if any,
that market sales of ordinary shares or the availability of ordinary shares for
sale will have on the market price of the ordinary shares prevailing from time
to time. Sales of a substantial number of ordinary shares in the public market
following this offering, or the perception that such sales could occur, could
have a material adverse effect on the market price of our ordinary shares.
Trading in shares of companies listed on the Nasdaq SmallCap and the
Prime Standard Segment of the Frankfurt Stock Exchange in general and trading in
shares of technology companies in particular has been subject to extreme price
and volume fluctuations that have been unrelated or disproportionate to
operating performance. These factors may depress the market price of our
ordinary shares, regardless of our actual operating performance.
Securities class action litigation has also often been brought
against companies following periods of volatility in the market price of its
securities. In the future, we may be the target of similar litigation that could
result in substantial costs and diversion of our management's attention and
resources.
WE CANNOT PREDICT THE FURTHER IMPACT ON THE PRICE OF OUR ORDINARY SHARES
FOLLOWING OUR RESTATEMENT IN AUGUST 2002 OF CERTAIN OF OUR FINANCIAL STATEMENTS
OR THE EXTENT OF THE POTENTIAL CLAIMS THAT MAY BE ASSERTED AGAINST US.
We have reevaluated our accounting treatment of certain past
transactions and restated our financial statements for the fiscal years ended
December 31, 1999, December 31, 2000 and December 31, 2001. We have filed our
restated financial statements in accordance with the requirements of the Neuer
Markt in Frankfurt, Germany where our ordinary shares were also listed. The
current market for our ordinary shares in Germany was adversely affected by our
restatement and the adverse effect in Germany may have an adverse impact on the
value of our ordinary shares listed on the Nasdaq SmallCap Market. On August 31,
2002, the date in which we published the restatement in Germany our share price
was (euro)6.30. Since then, our share price, along with the broader market,
13
declined, and on July 31, 2003 was (euro)3.24 in Germany and $3.20 on the Nasdaq
SmallCap Market. Our share price may also be adversely affected by the threat of
any litigation commenced in Germany based upon our restatement and the recovery
by plaintiffs in any litigation actually commenced against us.
IF OUR ORDINARY SHARES ARE EVER CONSIDERED A PENNY STOCK, ANY INVESTMENT IN OUR
ORDINARY SHARES WILL BE CONSIDERED A HIGH-RISK INVESTMENT AND BECOME SUBJECT TO
RESTRICTIONS ON MARKETABILITY.
If the bid price of our ordinary shares falls below $5.00 and we fail
to maintain our Nasdaq listing, our ordinary shares may be a "penny stock" for
the purposes of the Securities Exchange Act of 1934, as amended, or the Exchange
Act. The bid price of our ordinary shares as of December 2, 2003, was $8.95 but
was less than $5.00 from February 26, 2003 until October 22, 2003. We continue
to maintain our Nasdaq listing. Brokers effecting transactions in a penny stock
are subject to additional customer disclosure and record keeping obligations.
The additional obligations include disclosure of the risks associated with low
price stocks, stock quote information and broker compensation. In addition,
brokers making transactions in penny stocks are subject to additional sales
practice requirements under the Exchange Act. These additional requirements
include making inquiries into the suitability of penny stock investments for
each customer or obtaining the prior written agreement of the customer for the
penny stock purchase. Because of these additional obligations, some brokers will
not effect transactions in penny stocks. If our shares become "penny stock" in
the future, this designation could have an adverse effect on the liquidity of
our ordinary shares and your ability to sell our ordinary shares.
OUR SHARE PRICE COULD BE ADVERSELY AFFECTED BY FUTURE SALES OF OUR ORDINARY
SHARES.
As of the date of this prospectus, we have outstanding 4,878,715
ordinary shares, warrants to purchase 1,553,957 additional ordinary shares at a
weighted average exercise price of $5.94 per share and options to purchase
1,478,000 additional ordinary shares at a weighted average exercise price of
$7.42 per share. We have recently entered into agreements pursuant to which we
sold 1,684,841 ordinary shares, and issued warrants to purchase up to 792,420
additional ordinary shares. Please see the section of this prospectus entitled
"Summary - Recent Developments" for additional information with respect to these
agreements.
All of the ordinary shares being sold by the selling shareholders by
means of this prospectus will be freely tradeable.
We may in the future sell or issue additional ordinary shares. The
market price of our ordinary shares could drop as a result of sales of
substantial amounts of our ordinary shares in the public market or the
perception that such sales may occur. These factors could also make it more
difficult to raise additional funds through future offerings of our ordinary
shares or other securities.
OUR SHAREHOLDERS COULD EXPERIENCE DILUTION OF THEIR OWNERSHIP INTEREST BY REASON
OF OUR ISSUING MORE SHARES THAT ARE PURCHASED BY THIRD PARTIES.
Under Israeli law, shareholders in public companies such as us do not
have preemptive rights. This means that our shareholders do not have the legal
right to purchase shares in a new issue before they are offered to third
parties. In addition, our board of directors may approve the issuance of shares
in many instances without shareholder approval. As a result, our shareholders
could experience dilution of their ownership interest by reason of our raising
additional funds through the issuance of more shares that are purchased by third
parties. The weighted average price per share at which we sold shares during
2003 was $4.40. In addition, we may continue to acquire companies or businesses
in exchange for our shares, resulting in dilution of your shareholding.
14
WE DO NOT ANTICIPATE PAYING CASH DIVIDENDS IN THE FORESEEABLE FUTURE.
We have never declared or paid cash dividends and we do not
anticipate paying cash dividends in the foreseeable future. We intend to retain
all future earnings to fund the development of our business. In addition,
because we have received benefits under Israeli law for our "Approved
Enterprises," payment of a cash dividend may create additional tax liabilities
for us. See "Dividend Policy."
OUR CONCENTRATION OF SHARE OWNERSHIP WILL LIMIT YOUR ABILITY TO INFLUENCE OR
CONTROL CORPORATE ACTIONS.
A significant percentage of our outstanding share capital (currently
approximately 49% of the outstanding ordinary shares) is beneficially owned by a
small number of shareholders, including Oded Bashan, who owns approximately
41.21% of the outstanding shares and holds proxies to vote approximately 36.40%
more of the outstanding shares). If these shareholders act together, they will
have the ability to significantly influence, if not control, the election of
directors and the outcome of all corporate actions requiring shareholder
approval. This concentration of ownership also may have the effect of delaying
or preventing a change in control of us, which in turn could reduce the market
price of our ordinary shares.
OUR UNITED STATES INVESTORS COULD SUFFER ADVERSE TAX CONSEQUENCES IF WE ARE
CHARACTERIZED AS A PASSIVE FOREIGN INVESTMENT COMPANY.
We cannot assure you that we will not be treated as a passive foreign
investment company in 2003 or in future years. We could be a passive foreign
investment company if 75% or more or our gross income in a taxable year is
passive income. We would also be a passive foreign investment company if at
least 50% of the average value, or possibly the adjusted bases of our assets in
particular circumstances, of our assets in a taxable year produce, or are held
for the production of, passive income. Passive income includes interest,
dividends, royalties, rents and annuities. If we are or become a passive foreign
investment company, many of our U.S. shareholders may be subject to adverse tax
consequences.
RISKS RELATED TO ISRAEL
CONDITIONS IN ISRAEL MAY HARM OUR ABILITY TO PRODUCE AND SELL OUR PRODUCTS AND
SERVICES AND MAY ADVERSELY AFFECT OUR SHARE PRICE.
Our principal executive offices and research and development
facilities, as well as some of our suppliers, are located in Israel. Political,
economic and military conditions in Israel directly affect our operations. Since
the establishment of the State of Israel in 1948, a number of armed conflicts
have taken place between Israel and its Arab neighbors. A state of hostility,
varying in degree and intensity, has led to security and economic problems for
Israel. Despite the progress towards peace between Israel and its Arab
neighbors, the future of these peace efforts remains uncertain. In addition,
since October 2000, there has been a substantial deterioration in the
relationship between Israel and the Palestinian Authority and a significant
increase in violence, primarily in the West Bank and Gaza Strip. During 2002,
violence has intensified between Palestinians and Israelis and Israel has
undertaken military actions in the West Bank and the Gaza Strip. The future
effect of the substantial deterioration and the ongoing violence between Israel
and the Palestinians is unknown. The ongoing violence between Israel and the
Palestinians or any future armed conflicts, political instability or continued
violence in the region would likely have a negative effect on our business
condition, harm our results of operations and adversely affect the share price
of publicly traded Israeli companies such as us. In addition, Israel's economy
has been subject to numerous destabilizing factors, including a period of
rampant inflation in the early to mid-1980s, low foreign exchange reserves,
fluctuations in world commodity prices, military conflicts and civil unrest.
Furthermore, several countries still restrict business with Israel and Israeli
companies, which may limit our ability to make sales in those countries. These
restrictions may have an adverse impact on our operating results, financial
15
condition or the expansion of our business. Since 2001, the economic conditions
in Israel have deteriorated. As a result of political instability, the increased
level of hostilities with the Palestinian Authority and the world-wide economic
crisis in the hi-tech and communications industries, during 2001 and 2002, the
Israel rate of economic growth deteriorated. The Israeli Government has proposed
certain budgetary cuts and other changes which were adopted by the Israeli
Parliament. However, the impact on the Israeli economy of these and other
measures that may eventually be adopted is uncertain. In addition, certain
credit agencies have stated that they are reviewing Israel's credit rating.
Should such agencies lower Israel's credit rating, the ability of the Israeli
government to generate foreign financial and economic assistance may be
adversely affected. We cannot assure you that the Israeli government will be
successful in its attempts to stabilize the Israeli economy or to maintain
Israel's current credit rating. Economic decline as well as price and exchange
rate instability may have a material adverse effect on us.
OUR OPERATIONS COULD BE DISRUPTED AS A RESULT OF THE OBLIGATION OF KEY PERSONNEL
TO PERFORM ISRAELI MILITARY SERVICE.
Some of our executive officers and employees must perform annual
military reserve duty in Israel and may be called to active duty at any time
under emergency circumstances. Our operations could be disrupted by the absence
for a significant period of one or more of our executive officers or other key
employees due to military service. Any disruption to our operations would harm
our business.
THE ISRAELI GOVERNMENT PROGRAMS AND TAX BENEFITS IN WHICH WE CURRENTLY
PARTICIPATE OR WHICH WE CURRENTLY RECEIVE REQUIRE US TO MEET SEVERAL CONDITIONS
AND MAY BE TERMINATED OR REDUCED IN THE FUTURE, WHICH WOULD INCREASE OUR COSTS
OR TAXES.
We are entitled to tax benefits under Israeli government programs,
largely as a result of the "Approved Enterprise" status granted to $4.5 million
of our capital investment programs by the Israeli Ministry of Industry and
Trade. Taxable income derived from each program is tax exempt for a period of
ten years beginning in the year in which the program first generates taxable
income, up to 14 years from the date of approval or 12 years from the date of
the beginning of production. Without such benefits our taxable income would be
taxed at a rate of 36%. To maintain our eligibility for these tax benefits, we
must continue to meet conditions, including making specified investments in
property, plant and equipment, 30% of which must be from paid-in capital. We
cannot assure you that we will continue to receive these tax benefits at the
same rate or at all. From time to time, we submit requests for expansion of our
approved enterprise programs. These requests might not be approved. The
termination or reduction of these programs and tax benefits could increase our
taxes and could have a material adverse effect on our business.
IT MAY BE DIFFICULT TO ENFORCE A UNITED STATES JUDGMENT AGAINST US, OUR OFFICERS
AND DIRECTORS AND SOME OF THE EXPERTS NAMED IN THIS PROSPECTUS OR TO ASSERT
UNITED STATES SECURITIES LAW CLAIMS IN ISRAEL.
We are incorporated in Israel. Most of our executive officers and
directors and the Israeli experts named in this prospectus are non residents of
the United States and a substantial portion of our assets and the assets of
these persons are located outside of the United States. Therefore, it may be
difficult for an investor, or any other person or entity, to enforce a United
States court judgment based upon the civil liability provisions of the United
States federal securities laws in an Israeli court against us or any of these
persons or to effect service of process upon these person in the United States.
Additionally, it may be difficult for an investor, or any other person or
entity, to enforce civil liabilities under United States federal securities laws
in original actions instituted in Israel. See "Enforceability of Civil
Liabilities."
PROVISIONS OF ISRAELI LAW MAY DELAY, PREVENT OR MAKE UNDESIRABLE AN ACQUISITION
OF ALL OR A SIGNIFICANT PORTION OF OUR SHARES OR ASSETS.
Israeli corporate law regulates acquisitions of shares through tender
offers, requires special approvals for transactions involving significant
shareholders and regulates other matters that may be relevant to these types of
transactions. These provisions of Israeli law could have the effect of delaying
or preventing a change in control and may make it more difficult for a third
party to acquire us, even if doing so would be beneficial to our shareholders.
These provisions may limit the price that investors may be willing to pay in the
future for our ordinary shares. Furthermore, Israeli tax considerations may make
potential transactions undesirable to us or to some of our shareholders.
16
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. We have based
these forward-looking statements on our current expectations and projections
about future events.
Words such as "believe," "anticipate," "expect," "intend," "seek,"
"will," "plan," "could," "may," "project," "goal," "target" and similar
expressions often identify forward-looking statements but are not the only way
we identify these statements.
These forward-looking statements involve risks, uncertainties,
assumptions and other factors that could cause our actual results to differ
materially from future results expressed or implied by the forward-looking
statements. Important factors that could cause actual results to differ
materially from the information set forth in any forward-looking statements
include the risk factors described in "Risk Factors" above and other factors
discussed elsewhere in this prospectus.
Many of these factors are beyond our ability to control or predict.
You should not assume that forecasts and anticipated events will occur, or that
our expectations and plans will not change. We do not have any intention to
update forward-looking statements after we distribute this prospectus unless we
are required to do so under U.S. federal securities laws or other applicable
laws.
17
CAPITALIZATION
The following table sets forth our capitalization as of September 30,
2003 (in thousands) on an actual basis and as adjusted to give effect to the
issuance, subsequent to September 30, 2003, of 1,934,250 ordinary shares for an
aggregate purchase price of $8,802,000 and the conversion, subsequent to
September 30, 2003, of $190,000 principal amount of convertible notes into
52,000 of our ordinary shares.
You should read this table in conjunction with "Selling
Shareholders," and our consolidated financial statements and related notes
incorporated by reference to this prospectus.
SEPTEMBER 30, 2003
----------------------------
ACTUAL AS ADJUSTED
---------- ---------
(UNAUDITED)
Current portion of long-term loans...................................................... $ 1,137 $ 1,137
========== =========
Long-term loans (excluding current portion)............................................. $ 3,116 $ 3,116
---------- ---------
Convertible notes....................................................................... 459 269
Total shareholders' equity.............................................................. 11,020 19,013
---------- ---------
Total capitalization........................................................ $ 14,595 $ 22,398
========== =========
USE OF PROCEEDS
We will not receive any proceeds from the sale of the ordinary shares
by the selling shareholders.
PRICE RANGE OF OUR SHARES
Our ordinary shares were quoted on the Neuer Markt of the Frankfurt
Stock Exchange from August 31, 1999 until January 31, 2003. Since January 31,
2003, the shares have been listed on the new Prime Standard Segment of the
Frankfurt Stock Exchange. Commencing November 12, 2002, our shares have also
been listed for trading on the Nasdaq SmallCap Market.
The following table shows, for the periods indicated, the high and
low closing prices of our ordinary shares in euros giving effect to the reverse
split as reported on the Neuer Markt of the Frankfurt Stock Exchange. The
closing prices that are indicated below commencing January 31, 2003 were as
reported in the Prime Standard Market of the Frankfurt Stock Exchange. It also
shows, for the periods indicated, the high and low closing prices of our
ordinary shares expressed in U.S. dollars based on the noon buying rate in New
York City for cable transfers in foreign currencies, as certified for customs
purposes by the Federal Reserve Bank of New York on the relevant dates. See the
discussion below for the exchange rates applicable during the periods set forth
below. The following table also shows, for the periods indicated since November
12, 2002, the high and low closing prices of our ordinary shares in U.S. dollars
as reported on the Nasdaq SmallCap Market.
18
FRANKFURT STOCK FRANKFURT STOCK
EXCHANGE (1) PER EXCHANGE (1) PER NASDAQ SMALLCAP
SHARE(EURO) SHARE $ PER SHARE $
--------------------- ------------------- ----------------
HIGH LOW HIGH LOW HIGH LOW
---- --- ---- --- ---- ---
1999
Third quarter (from August 31, 1999)........... 77.8 51.0 82.0 53.6 n/a n/a
Fourth quarter................................. 71.0 49.5 72.0 49.6 n/a n/a
Annual 1999.................................... 77.8 49.5 82.3 49.7 n/a n/a
2000 n/a n/a
First quarter.................................. 334.0 64.7 322.1 66.4 n/a n/a
Second quarter................................. 220.0 149.5 200.6 144.2 n/a n/a
Third quarter.................................. 193.5 86.0 180.2 75.9 n/a n/a
Fourth quarter................................. 102.5 32.5 90.2 60.4 n/a n/a
Annual 2000.................................... 313.0 32.5 301.7 30.2 n/a n/a
2001 n/a n/a
First quarter.................................. 77.5 31.4 73.8 29.8 n/a n/a
Second quarter................................. 40.4 24.0 35.6 20.7 n/a n/a
Third quarter.................................. 25.7 8.5 22.5 7.4 n/a n/a
Fourth quarter................................. 23.1 12.2 20.9 10.8 n/a n/a
Annual 2001.................................... 77.5 8.5 73.1 7.4 n/a n/a
2002 n/a n/a
First quarter.................................. 14.5 10.4 12.8 9.1 n/a n/a
Second quarter................................. 11.4 7.0 10.7 6.8 n/a n/a
Third quarter.................................. 9.6 3.9 9.7 3.8 n/a n/a
Fourth quarter................................. 8.4 3.5 8.4 3.5 8.10 4.65
Annual 2002.................................... 14.5 3.5 12.8 3.5 8.10 4.65
2003
First quarter.................................. 5.3 3.0 5.7 3.2 5.03 3.60
Second quarter................................. 4.7 3.2 5.4 3.7 4.06 3.40
Third quarter ................................. 4.4 3.0 4.9 3.4 4.50 3.20
Fourth quarter................................. 9.7 3.6 12.1 4.3 13.80 3.90
Annual 2003.................................... 9.7 3.0 12.1 3.3 13.80 3.20
January 2003................................... 5.2 3.9 5.5 4.2 5.00 4.60
February 2003.................................. 5.3 3.8 5.7 4.1 5.03 4.11
March 2003..................................... 4.2 3.0 4.4 3.3 4.11 3.60
April 2003..................................... 4.2 3.3 4.5 3.5 4.06 3.49
May 2003....................................... 4.7 3.6 5.4 4.3 3.90 3.40
June 2003...................................... 4.0 3.2 4.7 3.7 3.70 3.49
July 2003...................................... 3.6 3.0 4.1 3.5 3.75 3.20
August 2003.................................... 4.4 3.0 4.9 3.4 4.50 3.21
September 2003................................. 4.0 3.4 4.5 3.9 4.37 3.75
October 2003................................... 6.9 3.6 8.1 4.1 8.01 3.90
November 2003................................. 8.2 5.9 9.8 7.1 9.35 7.24
December 2003 ................................. 9.7 5.7 12.1 6.9 13.80 7.25
January 2004 (through January 6, 2004)......... 11.9 10.3 15.2 13.0 14.74 12.86
(1) Our shares were quoted on the Neuer Markt of the Frankfurt Stock Exchange
from August 31, 1999 until January 31, 2003 after which, the shares have been
listed on the new Prime Standard Segment of the Frankfurt Stock Exchange. To the
extent required, share prices are adjusted to give effect to our 10-for-1
reverse share split effective as of June 17, 2002.
19
Our ordinary shares, to the extent they are admitted to the Prime
Standard Segment, are represented by global share certificates registered in the
name of Clearstream Banking AG. As a result, we do not know the number of our
outstanding ordinary shares held in the United States or the number of holders
of our ordinary shares who reside in the United States.
The following table sets forth, for the periods and dates indicated,
information concerning the noon buying rate for the euro, express in euros per
dollar.
AVERAGE PERIOD-
RATE(1) HIGH LOW END RATE
------- ---- --- --------
1999.......................................................... 0.9455 0.9984 0.8466 0.9930
2000.......................................................... 1.0860 1.2090 0.9675 1.0650
2001.......................................................... 1.1173 1.2346 1.0488 1.1235
2002.......................................................... 0.9454 1.1636 0.9537 0.9537
2003.......................................................... 1.1321 0.9652 0.7938 0.7938
(1) The average daily noon buying rate from the Federal Reserve Bank of New
York.
Our ordinary shares are traded publicly on the Nasdaq SmallCap Market
under the symbol "OTIV." Our ordinary shares are also traded publicly on the
Prime Standard Segment of the Frankfurt Stock Exchange under the symbol "OT5."
On January 6, 2004, the last reported sale prices of our ordinary
shares on the Prime-Standard Segment and the Nasdaq SmallCap Market were $15.29
and $14.74 per share, respectively. According to our transfer agent, as of
January 6, 2004, there were 15 holders of record of our ordinary shares.
20
SELLING SHAREHOLDERS
We understand that the selling shareholders named below may sell the
ordinary shares held by them as listed below as of the date of this prospectus.
Except as indicated below, to our knowledge, none of the selling shareholders is
a director, officer, consultant or holder of 10% or more of our shares, or a
broker-dealer or an affiliate of a broker-dealer. The information provided in
the table below with respect to each selling shareholder has been obtained from
that selling shareholder. For the selling shareholders that are entities, we
have identified in the footnotes the individuals who have or share voting and/or
investment control over such selling shareholder. The numbers set forth below
include certain unexercised options held by the selling shareholders. Because
the selling shareholders may sell all, some or no portion of the ordinary shares
beneficially owed by them, we cannot estimate either the number or percentage of
ordinary shares that will be beneficially owned by the selling shareholders
following this offering. We believe that the selling shareholders have sole
voting and investment powers over their ordinary shares, except as indicated
below.
AMOUNT TO BE
OFFERED AMOUNT PERCENT
FOR THE BENEFICIALLY BENEFICIALLY
RELATIONSHIP TOTAL AMOUNT SELLING OWNED AFTER OWNED
WITH US WITHIN BENEFICIALLY SHAREHOLDERS' THE AFTER THE
NAME PAST 3 YEARS OWNED(*) ACCOUNT OFFERING(**) OFFERING(***)
---- ------------ -------- ------- ------------ -------------
Goldstrand Investment Inc. Shareholder 250,000 (1) 250,000 - -
1040 1st Avenue, #190
New York, NY 10022
Herald Investment Trust PLC Shareholder 358,441 (2) 358,441 - -
12 Charterhouse Square
London ECIM 6AX
Sands Brothers International Ltd. Finder 31,382 (3) 31,382 - -
90 Park Avenue,
New York, NY 10016
Alpine Capital Partners Inc. Finder 5,000 (4) 5,000 - -
570 Lexington Avenue
32nd Floor
New York, NY 10022
Bridges & Pipes LLC Lender; Shareholder 55,005 (5) 55,005 - -
c/o Rockwood Inc.
830 3rd Avenue, 14th Floor
New York, NY 10022
Dan Purjes Lender; Shareholder 13,751 (6) 13,751 - -
c/o Rockwood Inc.
830 3rd Avenue, 14th Floor
New York, NY 10022
Rockwood Inc. Finder/Consultant 84,343 (7) 84,343 - -
830 3rd Avenue, 14th Floor
New York, NY 10022
21
AMOUNT TO BE
OFFERED AMOUNT PERCENT
FOR THE BENEFICIALLY BENEFICIALLY
RELATIONSHIP TOTAL AMOUNT SELLING OWNED AFTER OWNED
WITH US WITHIN BENEFICIALLY SHAREHOLDERS' THE AFTER THE
NAME PAST 3 YEARS OWNED(*) ACCOUNT OFFERING(**) OFFERING(***)
---- ------------ -------- ------- ------------ -------------
Zysman, Aharoni Gayer & Co. Law Offices Israeli Counsel 36,666 (8) 36,666 - -
52A Hayarkon St.
Tel-Aviv 63432, Israel
Broadband Capital Consultant 75,000 (9) 75,000 - -
Management LLC
805 Third Avenue,
New York, NY 10022
Oded Bashan President, CEO, Chairman and 3,203,199 (10) 95,368 2,791,956 40.11%
8 Hachaluzim St., Rosh Pina, Israel 10% Shareholder
Ronnie Gilboa Vice President, Director 139,810 (11) 103,060 36,750 2.88%
Beit Hillel, Israel
Moshe Aduk Vice President 48,123 (12) 24,248 23,875 1.02%
Korazim, Israel
Nehemya Itai Vice President 84,380 (13) 54,255 30,125 1.78%
Beit Hillel, Israel
Ohad Bashan Manager of Global Marketing, 104,345 (14) 18,220 86,125 2.20%
11262 La Jolla Court CEO, OTI America
Cupertino, CA 95014
Yossef Tussya Cohen Shareholder 32,936 32,936 - -
7 Yafo St.
Jerusalem, Israel
Michael Cohen Shareholder 100 100 - -
418/4 Frankfurter St. POB 23410 Jerusalem
91233, Israel
Dov Shure Shareholder 8,000 8,000 - -
23 Ha'erez St.
Kfar Vradim, Israel
Guri Jackobs Shareholder 47,115 47,115 - -
6 Havazelet St.
Kiryat Ono, Israel 55454
Platinum Partners Value Arbitrage Fund Lender; Shareholder 136,364 (15) 136,364 - -
c/o Platinum Partners LLC
152 West 57th Street
54th Floor
New York, NY 10019
22
AMOUNT TO BE
OFFERED AMOUNT PERCENT
FOR THE BENEFICIALLY BENEFICIALLY
RELATIONSHIP TOTAL AMOUNT SELLING OWNED AFTER OWNED
WITH US WITHIN BENEFICIALLY SHAREHOLDERS' THE AFTER THE
NAME PAST 3 YEARS OWNED(*) ACCOUNT OFFERING(**) OFFERING(***)
---- ------------ -------- ------- ------------ -------------
Platinum Global Macro Fund c/o Platinum Lender; Shareholder 68,227 (16) 68,227 - -
Partners LLC
152 West 57th Street
54th Floor
New York, NY 10019
West End Convertible Fund L.P. Lender; Shareholder 255,194 (17) 255,194 - -
c/o WEC Partners LLC
145 Huguenot Street
Suite 404
New Rochelle, NY 10801
WEC Partners LLC Lender; Shareholder 40,909 (18) 40,909 - -
145 Huguenot Street
Suite 404
New Rochelle, NY 10801
Michael H. Weiss Lender; Shareholder 54,000 (19) 54,000 - -
25 Briarwood Lane
Lawrence, NY 11559
Sunny Electronics Ltd. Shareholder 66,666 (20) 66,666 - -
46 Segula St.
Petach Tikva, Israel
Y.A.Z Investments and assets Ltd. Shareholder 154,901(21) 154,901 - -
24 Lilinblum St., Tel Aviv, Israel
Moshe Noodelman Shareholder 66,666(22) 66,666 - -
18 Ahot Haya St., Ramat Gan, Israel
Lapidoth Oil Prosepectors Ltd. Shareholder 58,334(23) 58,334 - -
19 Brodetsky St., Tel Aviv, Israel
Ben Dov Holdings Ltd. Shareholder 33,333(24) 33,333 - -
46 Segula St. Petach Tikva, Israel
Union Bank Provident Funds Shareholder 33,333(25) 33,333 - -
6 Achuzat Bait St. Tel Aviv
G.V. Otzar Trusteeship Ltd. Shareholder 25,003(26) 25,003 - -
Kremnitzki 1
Merkaz Ashdar, Tel Aviv, Israel
A. Heifetz Technologies Ltd. Shareholder 16,667(27) 16,667 - -
22 Kanfey Nesharim, Jerusalem, Israel
23
AMOUNT TO BE
OFFERED AMOUNT PERCENT
FOR THE BENEFICIALLY BENEFICIALLY
RELATIONSHIP TOTAL AMOUNT SELLING OWNED AFTER OWNED
WITH US WITHIN BENEFICIALLY SHAREHOLDERS' THE AFTER THE
NAME PAST 3 YEARS OWNED(*) ACCOUNT OFFERING(**) OFFERING(***)
---- ------------ -------- ------- ------------ -------------
Sami Totah Shareholder 16,667(28) 16,667 - -
38 Harafsoda St.
Rishon Lezion, Israel
Yourdent Ltd. Shareholder 16,667(29) 16,667 - -
Smilansky St., Netanya, Israel
Dov Lifshitz Shareholder 16,667(30) 16,667 - -
3 Hlperin St., Tel Aviv, Israel
Arie Gruber Shareholder 16,667(31) 16,667 - -
7 Ogarit St., Tel Aviv, Israel
Itzik Babayov Shareholder 93,361(32) 93,361 - -
5 Shahaf St.
Hod Ha'sharon 45351, Israel
Clovely Trading Ltd. Shareholder 30,000(33) 30,000 - -
7 Barnes Terrace St. Michaels Road Newbury,
RG14 5PT, UK
Oded Unger Shareholder 975,000(34) 975,000 - -
5 Tarfon St. Bnei Brak, Israel
Whalehaven Fund Limited Shareholder 42,857(35) 42,857 - -
P.O. Box HM 2257 Hamilton HM OX Barmuda
Stonestreet LP Shareholder 100,001(36) 100,001 - -
Suite 201-260 Town Centre Blvd. Markham,
Ontario, Canada
Alpha Capital AG Shareholder 142,857(37) 142,857 - -
160 Central Park South, Suite 2701, New
York, NY 10019
Bank Privee Edmond De Rothchild Shareholder 90,000(38) 90,000 - -
18 rue de Hesse 1204
Geneve, Switzerland
Pelgo Ltd. & Scorpio Investment Shareholder 45,500(39) 45,500 - -
c/o Mr. Arye Weber
47 Vinik St.
Rishon Lezion, Israel
Meitav Mutual Funds Management (1982) Ltd. Shareholder 100,000 100,000 - -
40 Einstein St.
Tel Aviv 61540, Israel
Meitav Security Advisors and Investment Shareholder 37,500(40) 37,500 - -
Management Ltd.
P.O. Box 54001 Tel Aviv, Israel 61540
24
AMOUNT TO BE
OFFERED AMOUNT PERCENT
FOR THE BENEFICIALLY BENEFICIALLY
RELATIONSHIP TOTAL AMOUNT SELLING OWNED AFTER OWNED
WITH US WITHIN BENEFICIALLY SHAREHOLDERS' THE AFTER THE
NAME PAST 3 YEARS OWNED(*) ACCOUNT OFFERING(**) OFFERING(***)
---- ------------ -------- ------- ------------ -------------
Bauhinia Investments Ltd. Shareholder 22,059(41) 22,059 - -
POB, 2177
Hertzelia 46120, Israel
Elgev Holdings Ltd. Shareholder 22,059(42) 22,059 - -
Beit Bareket, 1 Golan St.
Kiriat Sde Hateufa 70100, Israel
Shai Stern Shareholder 22,500 22,500 - -
43 Maple Ave.
Cedarhurst, NY 11516
----------------------
(*) Except as otherwise noted and pursuant to applicable community property
laws, each person or entity named in the table has sole voting and
investment power with respect to all ordinary shares listed as owned by
that person or entity. Shares beneficially owned include shares that may
be acquired pursuant to options and warrants exercisable within 60 days of
the date of this prospectus.
(**) Assuming the sale of all shares registered for the account of the selling
shareholders. The selling shareholders may sell all, some or no portion of
the ordinary shares registered hereunder.
(***) Based on 4,878,715 ordinary shares outstanding as of January 7, 2004.
Ordinary shares deemed to be beneficially owned by virtue of the right of
any person to acquire these shares within 60 days of the date of this
prospectus are treated as outstanding only for purposes of determining the
percent owned by such person.
(1) Includes 50,000 ordinary shares underlying warrants exercisable within
60 days with an exercise price of $5.75 per share currently
outstanding. Also includes 100,000 ordinary shares and 50,000 ordinary
shares underlying warrants exercisable within 60 days with an exercise
price of $5.75 per share, to be issued prior to the effectiveness of
the registration statement, of which this prospectus forms a part.
Seth Fireman has voting and/or investment control over this selling
shareholder.
(2) Includes 90,909 ordinary shares underlying warrants exercisable within
60 days with an exercise price of $3.85 per share and 28,571 ordinary
shares underlying warrants exercisable within 60 days with an exercise
price of $7.5 per share. This selling shareholder is a publicly-traded
company.
(3) Comprised of 5,000 ordinary shares underlying warrants exercisable
within 60 days with an exercise price of $5.75 per share and 18,182
ordinary shares underlying warrants exercisable within 60 days with an
exercise price of $3.85 per share and 8,200 ordinary shares underlying
warrants exercisable within 60 days with an exercise price of $7.5 per
share. Michael C. Caska has voting and/or investment control over this
selling shareholder.
(4) Comprised of 5,000 ordinary shares underlying warrants exercisable
within 60 days with an exercise price of $5.75 per share. Evan Bines
and Leslie Bines have voting and/or investment control over this
selling shareholder.
(5) Includes 13,405 ordinary shares underlying warrants exercisable within
60 days with an exercise price of $7.46 per share. Faith Griffin and
David Fuchs have voting and/or investment control over this selling
shareholder.
25
(6) Includes 3,351 ordinary shares underlying warrants exercisable within
60 days with an exercise price of $7.46 per share.
(7) Comprised of 6,000 ordinary shares, 50,000 ordinary shares underlying
warrants exercisable within 60 days with different exercise prices,
1,676 ordinary shares underlying warrants exercisable within 60 days
with an exercise price of $7.46 per share and 26,667 ordinary shares
underlying warrants exercisable within 60 days with an exercise price
of $6.5 per share. Paul Decaprio and David Fuchs have voting and/or
investment control over this selling shareholder.
(8) Comprised of 36,666 ordinary shares underlying options exercisable
within 60 days with an exercise price of NIS 0.1 per share. Shmuel
Zysman, Erez Aharoni and Joseph Gayer have voting and/or investment
control over this selling shareholder.
(9) Comprised of 25,000 ordinary shares underlying warrants exercisable
within 60 days with an exercise price of $6.66 per share; 25,000
ordinary shares underlying warrants exercisable within 60 days with an
exercise price of $7.99 per share and 25,000 ordinary shares
underlying warrants exercisable within 60 days with an exercise price
of $9.99 per share. Michael Rapp has voting and/or investment control
over this selling shareholder.
(10) Consists of (i) 95,368 ordinary shares held directly by Mr. Bashan,
(ii) 311,875 ordinary shares underlying options exercisable within 60
days, (iii) 4,000 ordinary shares underlying options exercisable
within 60 days held by Mr. Bashan's spouse (as to which Mr. Bashan
disclaims beneficial ownership) and (iv)1,844,065 ordinary shares and
947,891 ordinary shares, underlying warrants exercisable within 60
days with an exercise price of $5.75 per share, as to which Mr. Bashan
has (a) voting power pursuant to irrevocable proxies granted in
connection with private placements and (b) no disposition power.
(11) Comprised of 103,060 ordinary shares and 36,750 ordinary shares
underlying options exercisable within 60 days.
(12) Comprised of 24,248 ordinary shares and 23,875 ordinary shares
underlying options exercisable within 60 days.
(13) Comprised of 54,255 ordinary shares and 30,125 ordinary shares
underlying options exercisable within 60 days.
(14) Comprised of 18,220 ordinary shares and 86,125 ordinary shares
underlying options exercisable within 60 days.
(15) Includes 91,364 ordinary shares and 45,000 ordinary shares underlying
warrants exercisable within 60 days with an exercise price of $5.75
per share. Mark Nordlicht has voting and/or investment control over
this selling shareholder.
(16) Includes 45,682 ordinary shares and 22,545 ordinary shares underlying
warrants exercisable within 60 days with an exercise price of $5.75
per share. Mark Nordlicht has voting and/or investment control over
this selling shareholder.
(17) Includes 170,266 ordinary shares, 13,500 ordinary shares underlying
warrants exercisable within 60 days with an exercise price of $5.75
per share and 71,428 ordinary shares underlying warrants exercisable
within 60 days with an exercise price of $6.5 per share. Ethan
Benovitz, Daniel Saks and Jaime Hartman have voting and/or investment
control over this selling shareholder.
(18) Includes 27,409 ordinary shares and 13,500 ordinary shares underlying
warrants exercisable within 60 days with an exercise price of $5.75
per share. Ethan Benovitz, Daniel Saks and Jaime Hartman have voting
and/or investment control over this selling shareholder.
(19) Includes 36,180 ordinary shares and 17,820 ordinary shares underlying
warrants exercisable within 60 days with an exercise price of $5.75
per share.
(20) Includes 44,444 ordinary shares and 22,222 ordinary shares underlying
warrants exercisable within 60 days with an exercise price of $6.5 per
share.
(21) Includes 103,268 ordinary shares, 29,411 ordinary shares underlying
warrants exercisable within 60 days with an exercise price of $5 per
share and 22,222 ordinary shares underlying warrants exercisable
within 60 days with an exercise price of $6.5 per share.
(22) Includes 44,444 ordinary shares and 22,222 ordinary shares underlying
warrants exercisable within 60 days with an exercise price of $6.5 per
share.
(23) Includes 38,889 ordinary shares and 19,445 ordinary shares underlying
warrants exercisable within 60 days with an exercise price of $6.5 per
share.
26
(24) Includes 22,222 ordinary shares and 11,111 ordinary shares underlying
warrants exercisable within 60 days with an exercise price of $6.5 per
share.
(25) Includes 22,222 ordinary shares and 11,111 ordinary shares underlying
warrants exercisable within 60 days with an exercise price of $6.5 per
share.
(26) Includes 16,667 ordinary shares and 8,334 ordinary shares underlying
warrants exercisable within 60 days with an exercise price of $6.5 per
share.
(27) Includes 11,111 ordinary shares and 5,556 ordinary shares underlying
warrants exercisable within 60 days with an exercise price of $6.5 per
share.
(28) Includes 11,111 ordinary shares and 5,556 ordinary shares underlying
warrants exercisable within 60 days with an exercise price of $6.5 per
share.
(29) Includes 11,111 ordinary shares and 5,556 ordinary shares underlying
warrants exercisable within 60 days with an exercise price of $6.5 per
share.
(30) Includes 11,111 ordinary shares and 5,556 ordinary shares underlying
warrants exercisable within 60 days with an exercise price of $6.5 per
share.
(31) Includes 11,111 ordinary shares and 5,556 ordinary shares underlying
warrants exercisable within 60 days with an exercise price of $6.5 per
share.
(32) Includes 62,241 ordinary shares and 31,120 ordinary shares underlying
warrants exercisable within 60 days with an exercise price of $6.5 per
share.
(33) Includes 20,000 ordinary shares and 10,000 ordinary shares underlying
warrants exercisable within 60 days with an exercise price of $6.5 per
share.
(34) Includes 650,000 ordinary shares and 325,000 ordinary shares
underlying warrants exercisable within 60 days with an exercise price
of $6.5 per share.
(35) Includes 28,571 ordinary shares and 14,286 ordinary shares underlying
warrants exercisable within 60 days with an exercise price of $6.5 per
share.
(36) Includes 66,667 ordinary shares and 33,334 ordinary shares underlying
warrants exercisable within 60 days with an exercise price of $6.5 per
share.
(37) Includes 95,238 ordinary shares and 47,619 ordinary shares underlying
warrants exercisable within 60 days with an exercise price of $6.5 per
share.
(38) Includes 60,000 ordinary shares and 30,000 ordinary shares underlying
warrants exercisable within 60 days with an exercise price of $7.5 per
share.
(39) Includes 45,500 ordinary shares underlying warrants exercisable within
60 days with an exercise price of $6.5 per share.
(40) Includes 25,000 ordinary shares and 12,500 ordinary shares underlying
warrants exercisable within 60 days with an exercise price of $5 per
share.
(41) Includes 14,706 ordinary shares and 7,353 ordinary shares underlying
warrants exercisable within 60 days with an exercise price of $5 per
share.
(42) Includes 14,706 ordinary shares and 7,353 ordinary shares underlying
warrants exercisable within 60 days with an exercise price of $5 per
share.
27
PLAN OF DISTRIBUTION
Our selling shareholders may sell their shares on the Prime Standard
Segment of the Frankfurt Stock Exchange or on the Nasdaq SmallCap Market after
the registration statement of which this prospectus forms a part is declared
effective. The selling shareholders and their successors, including their
permitted transferees, pledgees or donees or their successors, may sell the
ordinary shares directly to purchasers or through underwriters, broker-dealers
or agents, who may receive compensation in the form of discounts, concessions or
commissions from the selling shareholders or the purchasers. These discounts,
concessions or commissions as to any particular underwriter, broker-dealer or
agent may be in excess of those customary in the types of transactions involved.
The shares covered by this prospectus to be sold from time to time by
the selling shareholders may be sold in one or more transactions at fixed
prices, at prevailing market prices at the time of sale, at prices related to
the prevailing market prices, at varying prices determined at the time of sale,
or at negotiated prices. These sales may be effected in transactions:
o on any national securities exchange or U.S. inter-dealer system
of a registered national securities association on which the
ordinary shares may be listed or quoted at the time of sale;
o in the over-the-counter market;
o in private transactions;
o by pledge to secure debts and other obligations; or
o a combination of any of the above transactions.
The selling shareholders may either sell shares directly to
purchasers, or sell shares to, or through, broker-dealers. These broker-dealers
may act either as an agent of the selling shareholders, or as a principal for
the broker-dealer's own account. These transactions may include transactions in
which the same broker-dealer acts as an agent on both sides of the trade. Such
broker-dealers may receive compensation in the form of discounts, concessions or
commissions from the selling shareholders and/or the purchasers of the shares.
This compensation may be received both if the broker-dealer acts as an agent or
as principal. This compensation might also exceed customary commissions.
If any selling shareholder notifies us that any material arrangement
has been entered into with a broker-dealer for the sale of shares through:
o a block trade,
o a special offering,
o an exchange distribution or secondary distribution, or
o a purchase by a broker or dealer,
then we will file, if required, a supplement to this prospectus under Rule
424(b) of the Securities Act.
The supplement will disclose, to the extent required:
o the names of the selling shareholders and of the participating
broker-dealer(s); o the number of shares involved;
o the price at which such shares were sold; o the commissions paid
or discounts or concessions allowed to such broker-dealer(s),
where applicable;
o that such broker-dealer(s) did not conduct any investigation to
verify the information set out or incorporated by reference in
this prospectus; and
o any other fact material to the transaction.
28
The selling shareholders and any underwriters, broker-dealers or
agents that participate in the sale or distribution of the ordinary shares may
be deemed "underwriters" within the meaning of Section 2(11) of the Securities
Act. Any discounts, commissions, concessions or profit they earn on any resale
of the shares may be underwriting discounts and commissions under the Securities
Act. Selling shareholders who are "underwriters" within the meaning of Section
2(11) of the Securities Act will be subject to the prospectus delivery
requirements of the Securities Act.
Under the Securities Exchange Act, any person engaged in the
distribution of the shares may not simultaneously engage in market making
activities with respect to our ordinary shares for a period of up to 5 business
days prior to the commencement of such distribution. In addition, the selling
shareholders will be subject to the applicable provisions of the Securities
Exchange Act, including Regulation M, which may limit the timing of purchases
and sales of ordinary shares by the selling shareholders or any other such
persons. These restrictions may affect the marketability of the shares and the
ability of any person or entity to engage in market-making activities with
respect to the shares.
In order to comply with the securities laws of some jurisdictions, if
applicable, the ordinary shares must be sold in these jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain
jurisdictions, the ordinary shares may not be sold unless they have been
registered or qualified for sale or an exemption from registration or
qualification requirements is available and is complied with.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our ordinary
shares or other securities. We currently expect to retain all future earnings,
if any, to finance the development of our business, and do not anticipate paying
any cash dividends in the foreseeable future. Any future determination relating
to dividend policy will be made by our board of directors and will depend on a
number of factors, including future earnings, capital requirements, financial
condition and future prospects and other factors the board of directors may deem
relevant. In the event of a distribution of a cash dividend out of tax exempt
income, we will be liable to corporate tax at a rate of 25% in respect of the
amount distributed.
DESCRIPTION OF ORDINARY SHARES
As of January 7, 2004, our authorized share capital consists of
10,000,000 ordinary shares, nominal value of NIS 0.1 per share, of which
4,878,715 are issued and outstanding, excluding shares issuable upon exercise of
warrants or options.
The ownership or voting of ordinary shares by non-residents of Israel
is not restricted in any way by our articles of association or the laws of the
State of Israel, except that nationals of countries which are in a state of war
with Israel might not be recognized as owners of ordinary shares.
LEGAL MATTERS
The validity of the ordinary shares offered in this offering and
certain other matters in connection with this offering relating to Israeli law
will be passed upon for us by Zysman Aharoni Gayer & Co. Law Offices, Tel Aviv,
Israel. Weil, Gotshal & Manges LLP, New York, New York, has advised us with
respect to United States legal matters in connection with this offering. As of
the date of this prospectus, Zysman Aharoni Gayer & Co. beneficially owns
options to acquire 36,666 of our ordinary shares.
EXPERTS
Our consolidated financial statements appearing in our annual report (Form 20-F)
for the year ended December 31, 2002, have been audited by Luboshitz Kasierer,
independent auditors, an affiliate member firm of Ernst & Young International,
as set forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such report given on the authority of such firm as
experts in accounting and auditing.
29
ENFORCEABILITY OF CIVIL LIABILITIES
We are incorporated under the laws of the State of Israel. Service of
process upon our directors and executive officers and the Israeli experts named
in this prospectus, substantially all of whom reside outside the United States,
will be difficult to obtain within the United States. Furthermore, because
substantially all of our assets and the assets of these persons are located
outside the United States, any judgment obtained in the United States against us
or any of our directors and officers or the Israeli experts named in the
prospectus, will be difficult to collect outside those countries.
We have been informed by our legal counsel in Israel, Zysman Aharoni
Gayer & Co. Law Offices, that 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,
Israeli courts generally enforce a final executory judgment of a foreign court
in civil matters including judgments based upon the civil liability provisions
of the Securities Act and the Securities Exchange Act or the German securities
laws and including a monetary or compensatory judgment in a non-civil matter,
provided that:
o the judgments are obtained after due process before a court of
competent jurisdiction, according to the laws of the state in
which the judgment is given and the rules of private
international law currently prevailing in Israel;
o the foreign court is not prohibited by law from enforcing
judgments of Israeli courts;
o adequate service of process has been effected and the defendant
has had a reasonable opportunity to be heard and to present his
evidence;
o the judgments and the enforcement of the civil liabilities are
not contrary to the law, public policy, security or sovereignty
of the State of Israel;
o the judgments were not obtained by fraud and do not conflict with
any other valid judgment in the same matter between the same
parties;
o an action between the same parties in the same matter is not
pending in any Israeli court at the time the lawsuit is
instituted in the foreign court; and
o the obligations under the judgment are enforceable according to
the laws of the State of Israel.
We have irrevocably appointed OTI America, Inc. as our agent solely
to receive service of process in any action against us in any United States
federal court or the courts of the State of New York arising out of this
offering.
Foreign judgments enforced by Israeli courts 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 thereof, 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 law prevailing at that time. Judgment creditors must bear the risk of
unfavorable exchange rate movement.
30
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form F-3, including the
exhibits and schedules thereto, with the Securities and Exchange Commission, or
SEC, under the Securities Act, and the rules and regulations thereunder, for the
registration of the ordinary shares that are being offered by this prospectus.
This prospectus does not include all of the information contained in the
registration statement. You should refer to the registration statement and its
exhibits for additional information. Whenever we make reference in this
prospectus to any of our contracts, agreements or other documents, the
references are not necessarily complete and you should refer to the exhibits
attached to the registration statement for copies of the actual contract,
agreements or other document.
We are subject to the informational requirements of the Securities
Exchange Act, applicable to foreign private issuers. As a "foreign private
issuer," we are exempt from the rules under the Securities 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 Securities 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 United States companies whose securities are registered under the
Securities Exchange Act. However, we will file with the SEC, within 180 days
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 furnish
quarterly reports on Form 6-K containing unaudited interim financial information
for the first three quarters of each fiscal year.
You may read and copy any document we file or furnish with the SEC at
the SEC's Public Reference Room at 450 Fifth Street, N.W., 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 450 Fifth Street, NW, Washington, DC
20549. Please call the SEC at 1-800-SEC-0330 to obtain information on the
operation of the Public Reference Room. In addition, the SEC maintains an
Internet site that contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the SEC. You can
review our SEC filings, including the registration statement by accessing the
SEC's Internet site at http://www.sec.gov.
Documents may also be inspected at the National Association of
Securities Dealers, Inc., 1735 K street, N.W., Washington D.C. 20006. In
addition, under German law, documents referred to in this prospectus, in so far
as they relate to us may be inspected during normal business hours at On Track
Innovations Ltd., Z.H.R. Industrial Zone, P.O. Box 32, Rosh Pina, Israel 12000.
31
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we
file with the SEC. This means that we can disclose important information to you
by referring to those documents. The information incorporated by reference is
considered to be part of this prospectus, and later information filed with the
SEC will update and supersede information previously filed. We incorporate by
reference the documents listed below:
o Our annual report on Form 20-F for the fiscal year ended December
31, 2002, filed with the SEC on June 30, 2003 (SEC File No.
0-49877);
o Our report on Form 6-K dated December 31, 2003;
o The description of our ordinary shares contained in our
registration statement on Form 8-A filed with the SEC on June 19,
2002.
We also incorporate by reference all of our subsequent annual reports
filed with the SEC on Form 20-F and all of our subsequent reports on Form 6-K
under the Securities Act of 1934 submitted to the SEC that we specifically
identify in such form as being incorporated by reference into this prospectus.
As you read the above documents, you may find inconsistencies in
information from one document to another. If you find inconsistencies among the
documents, or between any of the documents and this prospectus, you should rely
on the statements made in the most recent document. All information appearing in
this prospectus is qualified in its entirety by the information and financial
statements, including the notes thereto, contained in the documents incorporated
by reference in this prospectus.
We will deliver to each person (including any beneficial owner) to
whom this prospectus has been delivered a copy of any or all of the information
that has been incorporated by reference into this prospectus but not delivered
with this prospectus. We will provide this information upon written or oral
request, and at no cost to the requester. Requests should be directed to On
Track Innovations Ltd., Z.H.R. Industrial Zone P.O. Box 32, Rosh-Pina 12000
Israel, Attention: Investor Relations. Our phone number is +011-972-4-686-8000.
EXPENSES
We anticipate that our total expenses with respect to the
registration statement of which this prospectus is a part and the offering to be
made hereby will aggregate approximately $28,798, of which $4,798 is
attributable to the SEC registration fee, approximately $20,000 is attributable
to legal fees and approximately $4,000 is attributable to accounting fees.
32
4,092,849 ORDINARY SHARES
============================== ==============================
------------------------------
ON TRACK INNOVATIONS LTD
------------------------------
-----------
PROSPECTUS
-----------
, 2004
============================== ==============================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 8. Indemnification of Directors and Officers.
Under the Companies Law, an Israeli company may only exculpate an
office holder in advance, in whole or in part, for breach of duty of care and
only if a provision authorizing such exculpation is included in its articles of
association. Our articles of association include such a provision. A company may
not exculpate an office holder for breach of duty of loyalty. However, the
company may approve an act performed in breach of the duty of loyalty of an
office holder provided that the office holder acted in good faith, the act or
its approval does not harm the company, and the office holder discloses the
nature of his or her personal interest in the act and all material facts and
documents a reasonable time before discussion of the approval.
Under the Companies Law, an Israeli company may indemnify an office
holder in respect of certain liabilities either in advance of an event or
following an event provided a provision authorizing such indemnification is
inserted in its articles of association. Advance indemnification of an office
holder must be limited to foreseeable liabilities and reasonable amounts
determined by the board of directors. A company may indemnify an office holder
against the following liabilities incurred for acts performed as an office
holder:
o a financial liability imposed on him in favor of another person
pursuant to a judgment, settlement or arbitrator's award approved
by court; and
o reasonable litigation expenses, including attorneys' fees,
incurred by the office holder or imposed by a court in
proceedings instituted against him by the company, on its behalf
or by a third party, in connection with criminal proceedings in
which the office holder was acquitted or as a result of
conviction for a crime that does not require proof of criminal
intent.
A company may insure an office holder against the following liabilities incurred
for acts performed as an office holder:
o a breach of duty of loyalty to the company, to the extent that
the office holder acted in good faith and had a reasonable basis
to believe that the act would not prejudice the company;
o a breach of duty of care to the company or to a third party; and
o a financial liability imposed on the office holder in favor of a
third party.
An Israeli company may not indemnify or insure an office holder against any of
the following:
o a breach of duty of loyalty, except to the extent that the office
holder acted in good faith and had a reasonable basis to believe
that the act would not prejudice the company;
o a breach of duty of care committed intentionally or recklessly;
o an act or omission committed with intent to derive illegal
personal benefit; or
o a fine levied against the office holder.
Under the Companies Law, indemnification and insurance of office
holders must be approved by our audit committee and our board of directors and,
in specified circumstances, by our shareholders.
Our articles of association provide that we may indemnify and insure
our office holders to the fullest extent permitted by the Companies Law. Our
office holders are currently covered by a directors and officers' liability
insurance policy with an aggregate claim limit of $5 million.
II-1
Our board of directors has resolved to indemnify and insure our
office holders with respect to liabilities resulting from this offering to the
extent that these liabilities are not covered by insurance. The applicable
indemnification was limited to up to $5 million. In the opinion of the U.S.
Securities and Exchange Commission, however, indemnification of directors and
office holders for liabilities arising under the Securities Act is against
public policy and therefore unenforceable.
Our U.S. subsidiary has also entered into indemnification agreements
with certain of its key employees. These agreements provide, independent of the
indemnification these individuals are entitled to by law and under the
provisions of the subsidiary's charter, indemnification for certain acts while
employed by the subsidiary. These indemnification agreements contain exclusions,
such as limiting indemnification that would be unlawful or that is covered by
other liability insurance. Moreover, employees are not indemnified against
liability to the extent that the employee gained a personal profit to which he
or she is not legally entitled, including proceeds obtained from the illegal
trading of our equity securities. The performance of these agreements is
guaranteed by OTI as parent of the U.S. subsidiary, to the extent permitted by
Israeli law.
II-2
Item 9. Exhibits and Financial Statement Schedules
(a) Exhibits
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------ -------------------
4.1 -- Specimen share certificate.*
5.1-- Opinion of Zysman Aharoni Gayer & Co. Law Offices, Israeli counsel to
the Registrant, as to the validity of the ordinary shares (including
consent).
23.1-- Consent of Luboshitz Kasierer, an affiliate member of Ernst & Young
International, independent auditors.
23.2-- Consent of Zysman Aharoni Gayer & Co. Law Offices, Israeli counsel to
the Registrant (included in Exhibit 5.1).
24.1-- Powers of Attorney (included in signature page to Registration
Statement).
---------------
* Incorporated herein by reference from the Registrant's Registration Statement
on Form F-1 (Registration No. 333-90496), filed with the SEC on June 14, 2002.
All Other schedules are omitted because they are either not required,
are not applicable or because equivalent information has been included in the
consolidated financial statements, the notes thereto or elsewhere herein.
Item 10. Undertakings
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers or 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 Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than any payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement; and
II-3
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement,
provided, however, that paragraphs (i) and (ii) shall not apply to the extent
that the information required to be included in a post-effective amendment by
these paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in this registration
statement.
(2) that, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment 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.
(3) to remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(4) to file a post-effective amendment to the registration statement
to include any financial statements required by Item 8.A. of Form 20-F at the
start of any delayed offering or throughout a continuous offering; provided,
however, that this Paragraph (4) shall not apply to the extent that such
financial statements and information are contained in periodic reports filed or
furnished to the Commission by the Registrant pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 that are incorporated by reference in this
registration statement.
(5) that, for purposes of determining any liability under the
Securities Act of 1933, each filing of the Registrant's annual report pursuant
to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-4
SIGNATURES
Pursuant to the requirement 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-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized in Rosh Pina, Israel, on January 8, 2004.
ON TRACK INNOVATIONS LTD.
By: /S/ Oded Bashan
---------------------------------------------
Name: Oded Bashan
Title: Chairman of the Board of Directors,
President and Chief Executive Officer
By: /S/ Ronnie Gilboa
---------------------------------------------
Name: Ronnie Gilboa
Title: Vice President-Projects
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears
below constitutes and appoints Oded Bashan, Ohad Bashan and Guy Shafran, and
each of them, his true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to (i) act on, sign and file with the Securities and
Exchange Commission any and all amendments (including post-effective amendments)
to this registration statement together with all schedules and exhibits thereto
and any subsequent registration statement filed pursuant to Rule 462(b) under
the Securities Act of 1933, as amended, together with all schedules and exhibits
thereto, (ii) act on, sign and file such certificates, instruments, agreements
and other documents as may be necessary or appropriate in connection therewith,
(iii) act on and file any supplement to any prospectus included in this
registration statement or any such amendment or any subsequent registration
statement filed pursuant to Rule 562(b) under the Securities Act of 1933, as
amended, and (iv) take any and all actions which may be necessary or appropriate
to be done, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming that all said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by each of the following persons in the capacities and
on the dates indicated.
NAME TITLE DATE
---- ----- ----
/s/ Oded Bashan Chairman of the Board of Directors, January 8, 2004
---------------- President and Chief Executive Officer
Oded Bashan (Principal Executive Officer)
/s/ Guy Shafran Chief Financial Officer (Principal January 8, 2004
---------------- Financial and Accounting Officer)
Guy Shafran
/s/ Ronnie Gilboa Vice President-Projects and Director January 8, 2004
------------------
Ronnie Gilboa
/s/ Shulamith Shiffer Director January 8, 2004
----------------------
Shulamith Shiffer
/s/ Felix Goehart Director January 8, 2004
------------------
Felix Goehart
/s/ Raanan Ellran Director January 8, 2004
------------------
Raanan Ellran
/s/ Eliezer Manor Director January 8, 2004
------------------
Eliezer Manor
/s/ Liora Katzenstein Director January 8, 2004
----------------------
Liora Katzenstein
Authorized Representatives
in the United States:
OTI AMERICA, INC.
By: /s/ Ohad Bashan
-------------------------
Ohad Bashan January 8, 2004
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------ -------------------
4.1 -- Specimen share certificate.*
5.1-- Opinion of Zysman Aharoni Gayer & Co. Law Offices, Israeli counsel to
the Registrant, as to the validity of the ordinary shares (including
consent).
23.1-- Consent of Luboshitz Kasierer, an affiliate member of Ernst & Young
International, independent auditors.
23.2-- Consent of Zysman Aharoni Gayer & Co. Law Offices, Israeli counsel to
the Registrant (included in Exhibit 5.1).
24.1-- Powers of Attorney (included in signature page to Registration
Statement).
---------------
* Incorporated herein by reference from the Registrant's Registration Statement
on Form F-1 (Registration No. 333-90496), filed with the SEC on June 14, 2002.