Tti Team Telecom International (TTIL) Inactive
Filed: 20 Jun 06, 12:00am
PROSPECTUS
Filed Pursuant to Rule 424(b)(3)
File No: 333-128138
 |
TTI TEAM TELECOM INTERNATIONAL LTD.
4,408,123 ORDINARY SHARES
----------
This prospectus covers 4,408,123 of our ordinary shares which the selling
shareholders identified in this prospectus under "Selling Shareholders" may
offer and sell from time to time.
Our ordinary shares are quoted on the Nasdaq National Market under the
symbol "TTIL". The last reported sale price of our ordinary shares on the Nasdaq
National Market on June 19, 2006 was $4.47 per share.
INVESTING IN OUR ORDINARY SHARES INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 4 OF THIS PROSPECTUS TO READ ABOUT FACTORS YOU SHOULD
CONSIDER BEFORE PURCHASING OUR ORDINARY SHARES.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
----------
The date of this prospectus is June 20, 2006
TABLE OF CONTENTS
ITEM PAGE
- ---------------------------------------------------------- ---------
ABOUT THIS PROSPECTUS 3
PROSPECTUS SUMMARY 3
RISK FACTORS 4
FORWARD-LOOKING STATEMENTS 17
OFFER STATISTICS AND EXPECTED TIMETABLE 17
CAPITALIZATION AND INDEBTEDNESS 17
REASONS FOR THE OFFER AND USE OF PROCEEDS 18
PRICE HISTORY OF OUR ORDINARY SHARES 18
SELLING SHAREHOLDERS 19
PLAN OF DISTRIBUTION 21
EXPENSES ASSOCIATED WITH THE REGISTRATION 22
VALIDITY OF SECURITIES 22
EXPERTS 23
MATERIAL CHANGES 23
ENFORCEABILITY OF CIVIL LIABILITIES 23
WHERE YOU CAN FIND MORE INFORMATION 24
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE 24
2
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
United States Securities and Exchange Commission, or the SEC.
Unless the context otherwise requires, all references in this prospectus to
"TTI," "we," "our," "our company, "us" and the "Company" refer to TTI Team
Telecom International Ltd. and its consolidated subsidiaries.
All references in this prospectus to "ordinary shares" refer to our
ordinary shares, par value 0.50 NIS per share.
All references in this prospectus to "dollars" or "$" are to United States
dollars.
All references in this prospectus to "shekels" or "NIS" are to New Israeli
Shekels.
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information about us, the ordinary shares that may be sold from time to time,
and our financial statements and the related notes, all of which appear
elsewhere in this prospectus or in the documents incorporated by reference in
this prospectus.
TTI TEAM TELECOM INTERNATIONAL LTD.
We are a leading global provider of network management systems, or NMS,
operations support system, or OSS, and business support system, or BSS,
solutions for the communications industry. Our software solutions enable
communications service providers to maximize and leverage their investments in
network infrastructure and to automate, simplify and manage the complex process
of delivering multiple communications services over diverse networks. Our Netrac
suite of products supports multi-vendor voice and data architectures over
wireline, wireless and optical networks, allowing our customers to streamline
operations and efficiently and rapidly roll out new services. We are currently
developing our next-generation operations support system, or NGOSS, family of
products under our proven Netrac platform to address next-generation
architectures and managed Internet Protocol, or IP, services. Certain modules
from our NGOSS family of products are currently being commercially deployed by
one of our tier 1 communications service provider customers.
We have a significant installed base of solutions with more than 55
customers, including some of the world's largest communications service
providers, commonly referred to as tier 1 and tier 2 operators. We have
established working relationships with a number of leading network and
communications equipment providers which allow us to provide end-to-end
integrated solutions as well as stand-alone modules to meet our customers'
needs. Our Netrac suite of products is based on proven technology, which, when
combined with our professional service offerings, including customization,
implementation and integration expertise and post-sales customer support, make
us an attractive turn-key solution provider. Our turn-key solution occasionally
incorporates third-party software and may incorporate services performed by
third-party integrators or subcontractors. Our software products are designed to
work with a wide range of network equipment manufacturers and varied
technologies increasing the potential market for our systems.
TTI Team Telecom International Ltd. was incorporated under the laws of the
State of Israel in February 1990. Our principal executive offices are located at
7 Martin Gehl Street, Kiryat Aryeh, Petach Tikva 49512 Israel, and our telephone
number is +972-3-926-9700. We have subsidiaries in the following locations:
Israel, U.S.A., UK, The Netherlands, Australia, British Virgin Islands, Hong
Kong, India, Costa Rica and Malta.
3
We commenced independent operations in September 1992, as a subsidiary of
Team Computers and Systems Ltd., after having operated as a division of Team
Computers since 1988. Team Computers is a publicly traded company in Israel. We
became a publicly traded company on the Nasdaq National Market, traded under the
symbol "TTIL", upon our initial public offering in December 1996.
THE OFFERING
Ordinary Shares Offered 4,408,123 shares
Nasdaq National Market Symbol "TTIL"
Use of Proceeds We will not receive any proceeds from the sale
of the ordinary shares offered hereby.
Ordinary Shares Outstanding 15,091,119
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision regarding our ordinary shares. Our business, financial
condition and results of operations could be materially adversely affected by
any of these risks. The trading price of our ordinary shares could decline due
to any of these risks, and you may lose all or part of your investment.
RISKS RELATING TO OUR BUSINESS AND OUR INDUSTRY
OUR CUSTOMERS ARE CONCENTRATED IN THE PUBLIC CARRIER COMMUNICATIONS INDUSTRY
AND, ACCORDINGLY, TRENDS IN THIS INDUSTRY COULD HAVE A MATERIAL ADVERSE EFFECT
ON OUR RESULTS OF OPERATIONS.
Slowly recovering from the telecommunications spending slowdown, global
operational support system, or OSS, spending is expected to grow in the coming
years.Growth is built on the need for service providers to support new services
and network equipment. However, we are unable to predict the duration of these
trends or the extent of any impact that it may have on our results of
operations. If any of these trends reverses and the slow-down in capital
expenditures resumes, it would reduce our sales and could result in pressure on
the price of our products, each of which would have a material adverse effect on
our operating results.
Recently, the communications service provider industry is undergoing a
period of consolidation and mergers. Consolidations and mergers of the providers
and the resulting consolidation of customers may delay or cause cancellations of
significant sales of our products, which could seriously harm our operating
results.
In addition, the OSS market is undergoing a period of merger and acquisition
transactions. Transactions like the Watchmark (a.k.a Vallent) acquisition of
Metrica (end of 2004), the Micromuse acquisition of Quallaby (June 2005), the
IBM acquisition of Micromuse (Dec 2005) and other similar transactions are
examples of this trend. These competitors' consolidation could result in
stronger competition with a larger installation base that could threaten our
market positioning and decrease our sales. In addition, the potential for us to
engage in a merger or acquisition transaction, whether friendly or not could
negatively affect our customers' decisions to purchase our products.
WE DEPEND ON A SMALL NUMBER OF CUSTOMERS FOR A LARGE PORTION OF OUR REVENUES AND
THE LOSS OF ANY ONE MAJOR CUSTOMER WOULD DECREASE OUR REVENUES.
A large portion of our revenues is derived from substantial orders placed
by a relatively small number of customers. Our revenues from our five largest
customers represented 40% of our total revenues in 2003, 43% of our total
revenues in 2004 and 47% of our total revenues in 2005. Because of our
dependence on a small number of customers and large orders, if expected orders
are not received, or orders are postponed, reduced or cancelled, our revenues
and profitability will be significantly reduced.
4
OUR PROFITABILITY HAS BEEN, AND MAY CONTINUE TO BE, VOLATILE, WHICH COULD
ADVERSELY AFFECT THE PRICE OF OUR ORDINARY SHARES.
We reported net losses attributed to our ordinary shares of $30.1 million
in 2003, $29.5 million in 2004 and $9.1 million in 2005. Although we have been
profitable in the past, we may not be profitable or meet the level of
expectations of the investment community in the future, which could have a
material adverse impact on our share price. In addition, our operating results
may be adversely affected by timing of sales of our products or a shift in our
mix of products and services.
WE MAY NEED ADDITIONAL CAPITAL IN THE FUTURE AND MAY NOT BE ABLE TO SECURE
ADEQUATE FUNDS ON TERMS ACCEPTABLE TO US.
In January 2005, we closed a private placement transaction in which we
raised approximately $14.6 million, before expenses of $1.2 million. Please see
"Item 4A - History and Development of the Company" of our Annual Report on Form
20-F for the fiscal year ended December 31, 2005 for more information regarding
this transaction. Although we currently believe that we have sufficient capital
to finance our operations for the next twelve months, we may choose to raise
additional capital. We have recently incurred operating losses that resulted in
negative cash flow from operations and may do so in the future. If our cash
flows are less than expected, we may need to raise additional funds to respond
to unforeseen technological or marketing hurdles, satisfy unforeseen
liabilities, or take advantage of unanticipated opportunities. We may not be
able to obtain funds at the time or times needed on terms acceptable to us, or
at all. If we are unable to obtain adequate funds on acceptable terms, we may
not be able to take advantage of market opportunities, develop new products, or
otherwise respond to competitive pressures.
OUR FUTURE OPERATING RESULTS DEPEND SIGNIFICANTLY ON THE CONTINUED MARKET
ACCEPTANCE OF OUR NETRAC SUITE OF PRODUCTS, AND IF THESE PRODUCTS DO NOT
CONTINUE TO ACHIEVE OR MAINTAIN MARKET ACCEPTANCE, WE MAY HAVE REDUCED REVENUES.
Revenues from licensing, servicing and supporting our Netrac suite of
products account for a substantial majority of our total revenues. Our future
operating results will depend significantly on the continued market acceptance
of our Netrac suite of products, and improvements to these products. Our
products may not achieve or maintain market acceptance. If they lose acceptance,
we may have reduced revenues. This makes it difficult to rely on future revenues
from these products.
OUR PRODUCTS GENERALLY HAVE LONG SALES CYCLES AND IMPLEMENTATION PERIODS OVER
WHICH WE MAY NOT HAVE CONTROL.
Prospective users of our products generally must make a significant
commitment of resources. Sales cycles of our products are often lengthy,
generally ranging from six to 24 months. Our sales process is often subject to
delays caused by lengthy approval processes that usually accompany significant
expenditures. In addition, the time required to implement our products can vary
significantly with the needs of our customers and generally lasts for six to 24
months. The implementation process is also subject to delay. We cannot control
these delays and cannot control the timing of our sales revenue.
OUR FUTURE SUCCESS DEPENDS ON OUR ABILITY TO KEEP PACE WITH TECHNOLOGICAL
CHANGES AND EMERGING INDUSTRY STANDARDS.
The market for our products is characterized by:
o rapidly changing technologies;
o evolving industry standards;
o changing regulatory environments;
o frequent new product introductions;
o rapid changes in communications service providers' requirements; and
o emergence of new types of networks.
5
In addition, the introduction of new technologies and new industry
standards and practices can render our existing products obsolete and
unmarketable. As a result, the life cycles of our products are difficult to
estimate and we could lose market acceptance and have reduced related revenues.
Accordingly, our financial performance and growth is dependent on our ability
to, among other things:
o enhance our existing products;
o develop and introduce, on a timely and cost-effective basis, new
products and product features that keep pace with technological
developments and emerging industry standards, including
next-generation and third-generation networks;
o address the increasingly sophisticated needs of our customers;
o incorporate new technologies and new infrastructures; and
o develop new interfaces between our products and complimentary
products.
We may not be successful at these tasks. We may also experience
difficulties that could delay or prevent the successful development,
introduction and marketing of new products and features. In addition, our new
products and features may not meet the requirements of the marketplace and may
not achieve market acceptance.
OUR FUTURE OPERATING RESULTS WILL DEPEND ON THE MARKET ACCEPTANCE OF OUR NEW
MODULES AND FEATURES SUPPORTING NEXT-GENERATION NETWORK, OR NGN, AND IF THESE
INVESTMENTS DO NOT ACHIEVE MARKET ACCEPTANCE, OUR BUSINESS AND FINANCIAL
CONDITION MAY BE ADVERSELY AFFECTED.
We are in the process of developing, enhancing and deploying our NGN
modules and features to support next-generation network architectures and
services. We cannot assure you that our NGN modules and features will receive
market acceptance. If our NGN modules and features do not receive market
acceptance, we may not be able to recover significant resources we invested in
the development and enhancement of these modules and features and we may lose
future revenues. As a result, our business, financial condition and results of
operations may be adversely affected.
IF THE NGN SERVICES (WIRELINE AND WIRELESS COMMUNICATION SERVICE PROVIDERS)
GROWTH SLOWS, DEMAND FOR OUR NGN SUPPORTING MODULES AND FEATURES MAY DECLINE.
The success of our NGN supporting modules and features will depend heavily
on the continued acceptance of the next generation services in the wireline and
wireless communication service providers. If use of the next generation services
does not continue to grow or grows slower than expected, the market for software
that manages communications over NGN modules would be adversely affected.
HIGH PROJECT PRICES AND THE LOW NUMBER OF PROJECTS SOLD BY US MAY RESULT IN
MATERIAL FLUCTUATIONS IN OUR OPERATING RESULTS, AND MAY ALSO CAUSE OUR STOCK
PRICE TO VARY SIGNIFICANTLY.
Our quarterly and annual operating results have varied significantly in the
past as a result of many factors, many of which are outside of our control. In
particular, the high project prices and the low number of such projects sold, as
well as the timing of sales, can produce significant fluctuations in our
quarter-to-quarter and year-to-year financial performance. These fluctuations
may increase in the future if we succeed in obtaining larger contracts for
projects. The fact that a significant portion of our revenues has been, and will
continue to be, derived from substantial orders placed by a few customers
exaggerates these fluctuations. The timing and amount of such orders and their
fulfillment have caused and will continue to cause material fluctuations in our
operating results, particularly on a quarterly basis. Our stock price may also
vary significantly as a result of misinterpretation by potential investors of
period-to-period comparisons.
6
WE DEPEND ON STRATEGIC RELATIONSHIPS AND OUR REVENUES MAY BE REDUCED IF SUCH
RELATIONSHIPS ARE NOT SUCCESSFUL. IN ADDITION, OUR FUTURE GROWTH WILL DEPEND IN
PART ON OUR ABILITY TO FORM NEW STRATEGIC RELATIONSHIPS.
We rely on strategic relationships with system integrators and hardware
vendors such as Nortel, Siemens, and CMGLogica to sell our products and services
and these relationships may account for a larger portion of our revenues in the
future. These parties are not obligated to sell any of our products. Any failure
of these relationships to generate significant revenues for us, a termination of
any of these relationships, or if we are unable to form additional strategic
alliances in the future that will prove beneficial to us, could harm our
operations and profitability.
WE RELY ON REVENUE FROM OUR INTERNATIONAL OPERATIONS, AND IF WE CANNOT OVERCOME
INHERENT RISKS, THESE OPERATIONS WILL NOT SUCCEED.
Our current customers are located in more than 20 countries worldwide and
we are seeking to expand into other markets. We expect our revenues from
international sales to continue to account for a large portion of our total
revenues in the future.
Our international operations and revenues are subject to a number of
inherent risks, including:
o difficulty in staffing and managing foreign operations generally, and
time and costs spent on staffing and managing operations in markets
from which we do not derive substantial revenue but still need to
maintain a presence;
o the impact of possible recessionary environments in certain economies;
o changes in regulatory requirements, including a slowdown in the rate
of privatization of communications service providers;
o difficulties in enforcing our rights in various jurisdictions;
o reduced protection for intellectual property rights in some countries;
o tariffs and other trade barriers;
o adverse tax consequences;
o restrictions on the conversion of currencies or the repatriation of
earnings;
o the burdens of complying with a wide variety of foreign laws and
regulations; and
o economic and political instability.
We may not be able to manage these risks and these risks may lead to
disputes with our customers. This may have an adverse effect on our operational
margins. We may not be able to sustain or increase revenues derived from our
international operations.
GOVERNMENT REGULATORY POLICIES IN THE COMMUNICATIONS INDUSTRY MAY HARM OUR
BUSINESS.
Government regulatory policies have had a major impact on our ability to
attract and retain customers. For example, regulatory authorities have overseen
the pricing of new and existing communications services, which, in turn, has
impacted our customers' abilities to make significant capital expenditures. The
enactment of new laws or regulations or changes in the interpretation of
existing regulations could inhibit or prevent our customers from purchasing our
products.
WE OCCASIONALLY PERFORM A LARGE AMOUNT OF OUR OBLIGATIONS TO CUSTOMERS BEFORE WE
RECEIVE PAYMENT, AND IN SOME INSTANCES, WE COMMENCE OUR PERFORMANCE BEFORE WE
HAVE CONCLUDED A WRITTEN AGREEMENT WITH A CUSTOMER, WHICH FORCES US TO FINANCE
OUR PERFORMANCE AND RISK NONPAYMENT.
We occasionally perform a large amount of our obligations to customers
before receiving payment. In some instances we commence our performance before
we have concluded a written agreement with a customer. Because of this, we must
finance the costs of performing under our customer agreements, and risk
nonpayment. Although our customers are generally large companies, they may not
pay our fees when due. Payment of our fees is generally not secured or
guaranteed. Delayed payment or failure to receive payment may strain our
finances.
7
SOME OF OUR CUSTOMERS MAY TERMINATE THEIR AGREEMENTS WITH US AFTER WE HAVE
PARTIALLY PERFORMED UNDER SUCH AGREEMENTS, AND IN SUCH EVENT, WE MAY HAVE
DIFFICULTY RECOVERING OUR COSTS AND MAY LOSE FUTURE REVENUES.
In order to continue to sell our products despite the slow-down of
expenditures by communications service providers, and resulting increased
competition, we have often been required to agree to provisions in our contracts
with customers that generally make it easier for customers to terminate their
agreements with us at various stages of performance, with payments covering only
actual costs incurred by us up to the date of termination. Our performance often
largely comprises services and customized products which we cannot recover and
resell. As a result, if any of our customers terminate their agreements with us,
we may have difficulty recovering our costs up to the date of any termination,
despite a customer's obligation to reimburse us. In such event, we may have
reduced future revenues. Please see the discussion regarding the termination of
a contract with a major customer in "Item 8A - Legal Proceedings" of our Annual
Report on Form 20-F for the fiscal year ended December 31, 2005.
WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY IN THE HIGHLY COMPETITIVE MARKETS FOR
OUR PRODUCTS.
The markets for our products are very competitive, and we expect
competition to increase in the future. Our current and prospective competitors
offer a variety of solutions to address the markets for network management
system, or NMS, operational support system, or OSS, and Business support system,
or BSS. Our current and potential competitors include:
o organizations' IT departments that provide NMS, OSS and BSS
applications for their particular internal needs;
o providers of NMS, OSS and BSS, such as Agilent Technologies, Syndesis
Ltd., Hewlett-Packard, Infovista, Metasolv, IBM (Micromuse) and
Telecordia Technology;
o communications equipment vendors, such as Nortel, Ericsson, and Lucent
Technologies; and
o systems integrators who provide programming services to develop
customer-specific applications, such as CMGLogica, BusinessEdge,
Accenture, Cap Gemini and IBM Global Services.
o managed service providers, such as Nortel and Ericsson, that offer
their customers management services on top of their networks rather
than building their own Network Operation Center, or NOC, and
purchasing an independent management system.
Many of our current and potential competitors have significantly greater
financial, technical, sales, customer support, marketing and other resources and
longer operating histories than we have. Many also have greater name recognition
and a larger installed base of their products and technologies. Any of these
competitors may be able to respond more quickly than us to new or emerging
technologies and changes in customer requirements. They may be able to devote
greater resources to the development, promotion and sale of their products and
may develop products comparable or superior to ours. In addition, our
competitive position may be adversely affected by the recent trend towards
consolidation amongst our competitors.
Increased competition could result in price reductions, reduced margins or
loss of market share. If we are unable to compete successfully against current
and future competitors, our revenues and profitability may be reduced.
WE MAY COMPETE WITH OUR CUSTOMERS' INTERNAL EFFORTS TO DESIGN NMS, OSS AND BSS
SOLUTIONS.
Some of our customers continuously evaluate whether to design and develop
their own NMS, OSS and BSS solutions or purchase them from outside vendors. As a
result, we may lose customers and customer opportunities.
CURRENCY FLUCTUATIONS COULD REDUCE OUR REVENUES AND PROFITABILITY.
A portion of our revenues and expenses are in currencies other than U.S.
dollars. Accordingly, fluctuations in exchange rates between these currencies
and the U.S. dollar could reduce our revenues and profitability.
8
WE MAY BE UNABLE TO ATTRACT OR EXPLOIT INDIRECT SALES CHANNELS THAT WILL MARKET
OUR PRODUCTS EFFECTIVELY.
In the past, we have relied primarily on direct sales to customers. In the
future, we expect to make increasing use of original equipment manufacturers,
commonly referred to as OEMs, strategic marketing agreements, alliances with
system integrators and other indirect channels for sales and support of our
products. However, we may not be able to attract OEMs and strategic marketing
partners that will be able to market our products effectively. The inability to
recruit, or the loss of, important OEMs or strategic marketing partners could
cause a reduction in our revenues and profitability.
OUR FUTURE EXPANSION MAY PLACE A STRAIN ON OUR MANAGEMENT PERSONNEL AND
RESOURCES.
In the near future, we intend to expand into new markets worldwide. In
addition, to support our expanded operations we will have to hire additional
skilled personnel. We may not be successful in expanding our operations or in
hiring additional skilled personnel. Competition for qualified personnel is
generally intense. Our ability to compete effectively and to manage the future
expansion of our operations will require us to continue to improve our financial
and management controls, reporting systems and procedures. We may not be able to
perform any of these activities successfully and this could harm our business
and reduce our profitability.
DUE TO RECENT CHANGES IN OUR SENIOR MANAGEMENT, WE MAY NOT BE ABLE TO ACHIEVE
OUR OBJECTIVES.
In March 2005, Menahem Tirosh resigned from his position as our Chief
Executive Officer. Meir Lipshes served as our acting Chief Executive Officer
from March 2005 to November 2005. In December 2005, we employed Reuven Markus as
our new Chief Executive Officer. In addition, during 2004 and 2005, several
other members of our senior management left the employment of the Company and as
a result, we employed several new high-level officers in 2005 and at the
beginning of 2006. The difficulties inherent in selecting a suitable Chief
Executive Officer and other members of the management team, transitioning the
Company under the leadership of new management, including a new Chief Executive
Officer, and assimilating new management personnel into the Company's corporate
culture could cause a reduction in our efficiency and profitability, may harm
perceptions of us in the investment community and may cause our stock price to
decline.
IF WE ARE UNABLE TO RETAIN AND ATTRACT MANAGEMENT AND TECHNICAL PERSONNEL, WE
MAY NOT BE ABLE TO ACHIEVE OUR OBJECTIVES.
The success of our business depends in large part on the continuing
contributions of our management and technical personnel. If we are unable to
retain several key people, this could cause a reduction in our efficiency and
profitability, may harm perceptions of us in the investment community and may
cause our stock price to decline.
Our future success also depends on our continuing ability to attract and
retain highly qualified management and technical personnel. Highly qualified
technical personnel are in demand in Israel, and competition for such personnel
is generally intense. If we are not able to attract and retain such personnel
when and as needed, our business could be harmed.
9
ONE PERSON BENEFICIALLY OWNS A SUBSTANTIAL AMOUNT OF OUR SHARES AND MAY
INFLUENCE OUR AFFAIRS.
As of March 24, 2006, Shlomo Eisenberg, the former chairman of our board of
directors, beneficially owns 4,436,224 ordinary shares, which represents
approximately 23.6% of our voting power. As a result, he may have an influence
on the election of our directors and on decisions by our shareholders on matters
submitted to shareholder vote, including mergers, consolidations and the sale of
all or substantially all of our assets. For additional details, see "Item 7 -
Major Shareholders and Related Party Transactions" of our Annual Report on Form
20-F for the fiscal year ended December 31, 2005. This concentration of
ownership of our ordinary shares could delay or prevent proxy contests, mergers,
tender offers, open-market purchase programs or other purchases of our ordinary
shares that might otherwise give our shareholders the opportunity to realize a
premium over the then-prevailing market price for our ordinary shares. This
concentration of ownership may also adversely affect our share price. For more
information on the effect such concentration of ownership could have on our
share price, please see the risk factor entitled "Substantial future sales of
our ordinary shares may depress our share price."
OUR PROPRIETARY TECHNOLOGY IS DIFFICULT TO PROTECT AND WE MAY LOSE OUR RIGHTS TO
IT.
Our success and ability to compete depend in part on our proprietary
software technology. We rely on a combination of trade secret, copyright and
trademark laws, nondisclosure and other contractual agreements and technical
measures to protect our proprietary rights. We currently have no registered
patents.
We are subject to a number of risks relating to intellectual property
rights, including the following:
o the measures we have taken to protect our proprietary rights may not
be adequate to prevent others from misappropriating our technology or
from independently developing or selling technology or products with
features based on or similar to ours;
o our customers that are given access to our intellectual property
rights under rare circumstances, may infringe these rights;
o our intellectual property rights may be challenged, invalidated,
violated or circumvented and may not provide us with any competitive
advantage;
o any future litigation to protect our proprietary rights could result
in substantial cost to us, even if we ultimately prevail; and
o a determination against us in any such litigation could subject us to
significant liabilities to other parties and could prevent us from
manufacturing, selling or using our products.
If we lose any of our rights to our proprietary technology, we may not be
able to continue our business.
WE CURRENTLY RELY ON SOFTWARE THAT WE LICENSE FROM THIRD PARTIES, AND WE MAY IN
THE FUTURE RELY ON SOFTWARE THAT WE INTEND TO LICENSE FROM THIRD PARTIES. IF WE
FAIL TO MAINTAIN THESE LICENSES, WE MAY EXPERIENCE DELAYS OR REDUCTIONS IN OUR
PRODUCT SHIPMENTS AND HAVE DIFFICULTY CONTINUING OUR BUSINESS.
We rely on software that we license from third parties, including software
that is integrated with internally developed software and used in our products
to perform key functions. In the future, we may rely on additional software that
we intend to license from third parties. Some of these third party software
licensors are small or early-stage companies that are not as stable as larger
and more established software licensors. Our third-party licensors that are
larger and more established software licensors may impose on us stringent
conditions to maintain our licenses and may unilaterally change the price and
other terms of our licenses. These third party software licenses may not
continue to be available to us on commercially reasonable terms or at all or, if
available, may infringe upon the proprietary rights of other parties. Our loss
of or inability to maintain our existing software licenses or obtain future
licenses could result in delays or reductions in our product shipments. These
delays or reductions in shipments could cause a reduction in our revenues or
profitability and could harm our business.
OUR TECHNOLOGY MAY INFRINGE ON THE INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES
AND WE MAY LOSE OUR RIGHTS TO IT.
We rely on our proprietary software technology to compete in our markets.
We are subject to a number of risks relating to intellectual property rights,
including the following:
10
o we expect that software product developers will be increasingly
subject to infringement claims as the number of products and
competitors in our industry segment grows and the functionality of
products in different industry segments overlaps;
o we may inadvertently violate the intellectual property rights of other
parties and other parties may assert infringement claims against us;
o if we violate the intellectual property rights of other parties we may
be required to modify our products or intellectual property or obtain
a license to permit their continued use;
o any future litigation to defend us against allegations that we have
infringed the rights of others could result in substantial cost to us,
even if we ultimately prevail; and
o determination against us in any such litigation could subject us to
significant liabilities to other parties and could prevent us from
manufacturing, selling or using our products.
If we lose any of our rights to our proprietary technology, we may not be
able to continue our business.
DEFECTS IN OUR SOFTWARE PRODUCTS COULD REDUCE OUR REVENUES AND HARM OUR
REPUTATION.
The development, enhancement and implementation of our complex software
products involve substantial risks of product defects or failures. Despite
testing by us and our customers, errors may be found in products after they are
licensed to customers. This could result in:
o a delay in recognition or loss of revenues;
o loss of market share; and
o failure to achieve market acceptance (brand recognition).
The complexities of the implementation of our products involve additional
risks of performance failure and substantial delays. Because our customer base
consists of a relatively limited number of users, the harm to our reputation
that could result from product defects or implementation errors could be
especially damaging. This could seriously harm our business.
THE RIGHTS OF THE HOLDERS OF OUR SERIES A PREFERRED SHARES ARE SUPERIOR TO THOSE
OF THE HOLDERS OF OUR ORDINARY SHARES.
In January 2005, we issued 6,636,391 Series A Preferred Shares to investors
in the private placement transaction described elsewhere in this prospectus.
These preferential rights include:
o weighted-average anti-dilution protection in the event that following
the closing of the transaction we issue or are deemed to have issued
(subject to certain exceptions) ordinary shares at a price per share
that is lower than the conversion price in effect at the time of such
issuance or deemed issuance, which could result in dilution of the
holdings of ordinary shareholders;
o a preference in the event we are liquidated, which could result in the
holders of our ordinary shares recovering a lesser amount in the event
of our liquidation than they would have received had we not issued the
Series A Preferred Shares;
o veto rights over certain material actions taken by us, which could be
exercised by the holders of the Series A Preferred Shares in a manner
detrimental to the interests of the holders of our ordinary shares;
and
o the right to nominate one member to our board of directors, which
could result in such member voting on matters brought before our board
of directors in a manner detrimental to the interests of the holders
of our ordinary shares.
11
For more information on the private placement transaction, see "Item 10.C -
Private Placement of Series A Preferred Shares" of our Annual Report on Form
20-F for the fiscal year ended December 31, 2005.
As of March 24, 2006, 2,181,820 Series A Preferred Shares had been
converted into ordinary shares and 4,454,571 remain outstanding. In addition,
2,671,648 warrants are still outstanding out of 3,026,193 warrants granted to
the investors in the private placement transaction.
A SECURITIES CLASS ACTION LAWSUIT AGAINST US COULD HARM OUR BUSINESS.
A shareholder class action lawsuit was filed in September 2004 against us,
Team Software Industries Ltd., which was then our principal shareholder, and
certain of our executive officers. The lawsuit alleges that material
misrepresentations and omissions concerning the Company's operations and
performance artificially inflated the Company's stock price, causing damages to
investors. Based on our initial review of the recently-filed amended complaint,
we believe that the claims are without merit and intend to vigorously defend the
action. However, this purported class action is at an early stage and we cannot
predict the outcome of this dispute. In the event of an unfavorable resolution,
we may be required to pay damages and other costs in excess of the amounts
covered by our insurance. In addition, the defense of this action may divert the
attention of some of our management from other aspects of our business.
Accordingly, this action could have a materially adverse effect on our results
of operations and financial condition.
WE MAY NOT BE SUCCESSFUL IN OUR ONGOING LAWSUIT WITH A FORMER MAJOR CUSTOMER.
In November 2002, we received a letter from a major customer notifying us
of the termination of an agreement for the supply by us of a Manager of Managers
system ("MoM"), and its intention to call the 1 million pound performance bond
issued by a bank on our behalf under the agreement. We believe that the customer
terminated the agreement unlawfully, and in violation of the termination
provisions set out in the agreement. We filed an application in an English court
on November 18, 2002, requesting an injunction to prevent the customer from
calling the bond. On January 23, 2003, an order was issued denying our request
for the injunction to continue, on a number of grounds, including that our
submissions were fact-based and related to the merits of the termination and not
the procedural validity of the termination or the conformity of the written
notice with the requirements of the agreement. Because we believe that the
termination of the agreement was unlawful, court proceedings were commenced (as
part of the injunction proceedings) claiming damages for the customer's wrongful
repudiation of the agreement.
Our management believes, in light of the facts surrounding our relationship
with this customer, and following consultations with legal counsel, that we have
reasonably good prospects of establishing that the customer was not entitled to
terminate the agreement and by its conduct repudiated the agreement. We cannot
currently quantify the amount of damages that we would receive if we were to
succeed in a lawsuit against the customer. The claim and particulars were served
on the customer in December 2005. On March 28, 2006, we were served with the
defense and counterclaim and it is currently under review. We cannot presently
estimate the amount of damages that could be sought by the customer in a
potential counterclaim.
WE DO NOT INTEND TO PAY DIVIDENDS.
We have never declared or paid any cash dividends on our ordinary shares.
We currently intend to retain any future earnings to finance operations and to
expand our business and, therefore, do not expect to pay any cash dividends in
the foreseeable future.
IF WE ARE CHARACTERIZED AS A PASSIVE FOREIGN INVESTMENT COMPANY, OUR U.S.
SHAREHOLDERS MAY SUFFER ADVERSE TAX CONSEQUENCES.
If, for any taxable year, our passive income, or our assets which produce
passive income, exceed specified levels, we may be characterized as a passive
foreign investment company, or PFIC, for U.S. federal income tax purposes. This
characterization could result in adverse U.S. tax consequences for our U.S.
shareholders, which may include having gains realized on the sale of our
ordinary shares treated as ordinary income, rather than as capital gains income,
having potentially punitive interest charges apply to those gains, and the
denial of the taxation of certain dividends paid by us at the lower rates
applicable to long-term capital gains. Although we do not believe that we have
been a PFIC for any tax year through and including 2005, the tests for
determining PFIC status are applied annually and are based in part on reference
to the market value of our shares or valuing our assets, and it is difficult to
make accurate determinations about these items. Accordingly, we cannot make any
assurances to you about our status. U.S. shareholders are urged to consult with
their own U.S. tax advisors with respect to the U.S. tax consequences of
investing in our ordinary shares. For a discussion of the rules relating to PFIC
and related tax consequences, please see the section of our Annual Report on
Form 20-F for the fiscal year ended December 31, 2005 entitled "Taxation --
United States Federal Income Tax Considerations."
12
RISKS RELATING TO OPERATIONS IN ISRAEL
CONDITIONS IN ISRAEL COULD HARM OUR RESULTS OF OPERATIONS.
We are incorporated under the laws of Israel, and our principal offices are
located in Israel. Accordingly, political, economic and military conditions in
Israel directly affect our operations. A state of hostility, varying in degree
and intensity, has led to security and economic problems for Israel. Since
October 2000, there has been a high level of violence and hostilities between
Israel and the Palestinians, which has strained Israel's relationship with its
Arab citizens and several Arab countries. Such ongoing hostilities may hinder
Israel's international trade relations and may limit the geographic markets
where we can sell our products. Furthermore, several countries restrict business
with Israel and Israeli companies, and additional companies may restrict doing
business with Israel and Israeli companies as the result of the recent increase
in hostilities.
In January 2006, Hamas, an Islamic movement responsible for many attacks
against Israelis, won the majority of the seats in the Parliament of the
Palestinian Authority. The election of a majority of Hamas-supported candidates
is expected to be a major obstacle to relations between Israel and the
Palestinian Authority, as well as to the stability in the Middle East as a
whole.
We do not believe that the political and security situation has had a
material impact on our business to date; however, we can give no assurance that
it will have no such effect in the future. Any hostilities involving Israel or
threatening Israel, or the interruption or curtailment of trade between Israel
and its present trading partners or a significant downturn in the economic
conditions in Israel could adversely affect our operations.
THE RATE OF INFLATION IN ISRAEL MAY NEGATIVELY IMPACT OUR COSTS IF IT EXCEEDS
THE RATE OF DEVALUATION OF THE NIS AGAINST THE U.S. DOLLAR.
The majority of our revenues are denominated in U.S. dollars or are U.S.
dollar-linked, but we incur a significant portion of our expenses, principally
the rent for our facilities in Israel and salaries and related personnel
expenses in Israel, in NIS. As a result, we are exposed to the risk that the
rate of inflation in Israel will exceed the rate of devaluation of the NIS in
relation to the U.S. dollar or that the timing of this devaluation lags behind
inflation in Israel. In that event, the U.S. dollar cost of our operations in
Israel will increase and our U.S. dollar-measured results of operations will be
adversely affected.
To date, we have not engaged in hedging transactions. In the future, we may
enter into currency hedging transactions to decrease the risk of financial
exposure from fluctuations in the exchange rate of the U.S. dollar against the
NIS. If we perform hedging transactions, they may not adequately protect us from
the effects of inflation in Israel.
THE TAX BENEFITS WE CURRENTLY RECEIVE REQUIRE US TO MEET SEVERAL CONDITIONS,
WHICH WE MAY FAIL TO SATISFY.
Our investment programs were granted the status of an approved enterprise
under Israel's Law for Encouragement of Capital Investments, 1959, or the
Investments Law. An approved enterprise is eligible for tax benefits on taxable
income derived from its approved enterprise programs. The benefits available to
an approved enterprise are dependent upon the fulfillment of conditions
stipulated in applicable law and the certificate of approval. If we fail to
comply with these conditions, in whole or in part, with respect to any approved
enterprise program we establish, we may be required to pay additional taxes for
the period in which we benefited from the tax exemption or reduced tax rates and
we would likely be denied these benefits in the future. This could harm our
business and our profitability.
13
THE TAX BENEFITS WE CURRENTLY RECEIVE MAY BE REDUCED IN THE FUTURE.
The Israeli government may reduce or eliminate in the future tax benefits
available to approved enterprise programs. Our approved enterprise program and
the tax benefits thereunder may not continue in the future at their current
levels or at any level. The termination or reduction of these tax benefits would
likely increase our taxes. The amount, if any, by which our taxes would increase
will depend upon the rate of the tax increase, the amount of any tax benefit
reduction, and the amount of any taxable income that we may earn in the future.
WE MAY BE REQUIRED TO PAY STAMP DUTY ON AGREEMENTS EXECUTED BY IT ON OR AFTER
JUNE 1, 2003. THIS WOULD INCREASE THE COMPANY'S TAXES.
The Israeli Stamp Duty on Documents Law, 1961, or the Stamp Duty Law,
provides that most documents signed by Israeli companies are subject to a stamp
duty, generally at a rate of between 0.4% and 1% of the value of the subject
matter of such document. De facto, it has been common practice in Israel not to
pay such stamp duty unless a document is filed with a governmental authority or
with the courts. As a result of an amendment to the Stamp Duty Law that came
into effect on June 1, 2003, the Israeli tax authorities have approached many
companies in Israel, including us, and have requested disclosure of all
agreements signed by such companies since June 1, 2003, with the aim of
collecting stamp duty with respect to such agreements. Based on advice from our
Israeli counsel, we believe that we may only be required to pay stamp duty on
documents signed on or after August 2004. However, we cannot assure you that the
tax authorities or the courts will accept such view. Although at this stage it
is not yet possible to evaluate the effect, if any, on us of the amendment to
the Stamp Duty Law, the same could materially adversely affect our results of
operations.
Under an order published in December 2005, the requirement to pay stamp
duty was cancelled with respect to documents signed on or after January 1, 2006.
THE GOVERNMENT PROGRAMS IN WHICH WE HAVE PARTICIPATED IN THE PAST REQUIRE US TO
MEET SEVERAL CONDITIONS, WHICH WE MAY FAIL TO SATISFY. SUCH GRANTS MAY BE
REDUCED IN THE FUTURE, WHICH WOULD INCREASE OUR COSTS.
We received grants and participated in programs sponsored by the Office of
the Chief Scientist of the Israeli Ministry of Industry, Trade and Labor, the
Israel-United States Binational Industrial Research and Development Foundation,
known as the BIRD Foundation and from the European Union. To maintain our
eligibility for these programs we must continue to meet several conditions under
these grant programs and the Law for the Encouragement of Research and
Development in the Industry, 1984, and the regulations promulgated thereunder,
or the R&D Law. In addition, some of these programs restrict our ability to
manufacture particular products or transfer particular technology outside of
Israel, or require that we share with others intellectual property rights that
are the subject of such grants. If we fail to comply with these conditions in
the future we might be subject to certain sanctions such that, the benefits
received could be cancelled. We could also be required to refund any payment
previously received under these programs. Any non-Israeli who becomes a direct
holder of 5% or more of our share capital is generally required to notify the
Chief Scientist and to undertake to observe the law governing the grant programs
of the Chief Scientist, the principal restrictions of which are the
transferability limits described above in this paragraph.
In addition, these programs may not continue in the future at their current
levels or at any level. From time to time, we may submit requests for new grants
from the Chief Scientist. These requests might not be approved, particularly in
light of the reduction in government spending in Israel. The termination or
reduction of these grants would require us to divert other funds to product
development and increase our other operational costs.
OUR RESULTS OF OPERATIONS COULD BE NEGATIVELY AFFECTED BY THE OBLIGATIONS OF OUR
PERSONNEL TO PERFORM MILITARY SERVICE.
Most of our executive officers and employees in Israel are obligated to
perform annual military reserve duty. They may also be further subject to being
called to active duty at any time under emergency circumstances and could be
required to serve in the military for extended periods of time. Our operations
could be disrupted by the absence for a significant period of one or more of our
executive officers or key employees or a significant number of other employees
because of military service. The full impact on our workforce or business if
some of our executive officers and employees are called upon to perform military
service, especially in times of national emergency, is difficult to predict. Any
disruption in our operations as the result of military service by key personnel
could harm our business.
14
IT MAY BE DIFFICULT TO ENFORCE A U.S. JUDGMENT AGAINST US, OUR OFFICERS AND
DIRECTORS OR TO ASSERT U.S. SECURITIES LAW CLAIMS IN ISRAEL.
Service of process upon our directors and officers may be difficult to
effect within the United States because some of these people reside outside the
United States. Any judgment obtained in the United States against us or these
individuals or entities may not be enforceable within the United States.
There is doubt as to the enforceability of civil liabilities under the
Securities Act and the Exchange Act in original actions instituted in Israel.
However, subject to specified time limitations, Israeli courts may enforce a
U.S. final executory judgment in a civil matter, provided that:
o adequate service of process has been effected and the defendant has
had a reasonable opportunity to be heard;
o the judgment and its enforcement are not contrary to the law, public
policy, security or sovereignty of the State of Israel;
o the judgment was obtained after due process before a court of
competent jurisdiction according to the rules of private international
law prevailing in Israel;
o the judgment was not obtained by fraudulent means and does 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 U.S.
court; and
o the U.S. court is not prohibited from enforcing the judgments of
Israeli courts.
PROVISIONS OF ISRAELI LAW COULD DELAY, PREVENT OR MAKE DIFFICULT A MERGER OR
OTHER BUSINESS COMBINATION.
Provisions of Israeli corporate law may have the effect of delaying,
preventing or making more difficult a merger with, or acquisition of, us. The
Israeli Companies Law generally provides that a merger be approved by the board
of directors and a majority of the shares present and voting on the proposed
merger. For purposes of the shareholder vote, unless a court rules otherwise,
the merger will not be deemed approved if shares, representing a majority of the
voting power present at the shareholders meeting, and which are not held by the
other party to the merger (or by any person who holds 25% or more of the shares
or the right to appoint 25% or more of the directors of the other party or its
general manager) have voted against the merger. Upon the request of any creditor
of a party to the proposed merger, a court may delay or prevent the merger if it
concludes that there is a reasonable concern that, as a result of the merger,
the surviving company will be unable to satisfy the obligations of the surviving
company. Finally, a merger may generally not be completed unless at least (i) 50
days have passed since the filing of a merger proposal signed by both parties
with the Israeli Registrar of Companies and (ii) 30 days have passed since the
merger was approved by the shareholders of each of the parties to the merger.
Also, in certain circumstances an acquisition of shares in a public company must
be made by means of a tender offer. Lastly, Israeli tax law treats some
acquisitions, such as stock-for-stock exchanges between an Israeli company and a
foreign company, less favorable than U.S. tax laws. These provisions of Israeli
corporate and tax law may have the effect of delaying, preventing or make more
difficult an acquisition of or merger with us, which could depress our share
price.
15
WE MAY NOT BE SUCCESSFUL IN OUR NEGOTIATIONS WITH THE ISRAELI TAX AUTHORITIES
RELATING TO A TAX ASSESSMENT FOR THE YEARS 2000, 2001 AND 2002.
In January 2006, we were notified by the Israeli Tax Authorities of a tax
assessment in the amount of approximately $3.8 million relating to our tax
liabilities for the years ended December 31, 2000, 2001 and 2002. We are
currently negotiating a settlement agreement with the Israeli Tax Authorities as
well as, in parallel, preparing an appeal to the assessment. We have, based on
our legal counsel's opinion, increased our reserves to an aggregate amount of
$1.6 million to account for such assessment. In the event we are required to pay
more than the reserved $1.6 million, it could have a materially adverse effect
on our results of operations and financial condition.
In addition, we have assessed that a tax exposure contingency may exist
with regard to relocation expenses of certain of our subsidiaries' employees and
former employees. We cannot reasonably estimate the related amount of loss, if
any, for the tax contingency. Accordingly, and based on our legal counsel's
opinion, we have not recorded an accrual for the said tax contingency.
RISKS RELATED TO THE MARKET FOR OUR ORDINARY SHARES
OUR SHARE PRICE HAS DECREASED SIGNIFICANTLY AND COULD CONTINUE TO FLUCTUATE
SIGNIFICANTLY.
The market price for our ordinary shares, as well as the prices of shares
of other technology companies, has been volatile. Our share price has decreased
significantly since late 2002. Numerous factors, many of which are beyond our
control, may cause the market price of our ordinary shares to fluctuate
significantly, such as:
o fluctuations in our quarterly revenues and earnings and those of our
publicly held competitors;
o shortfalls in our operating results from levels forecast by securities
analysts;
o announcements concerning us or our competitors;
o the introduction of new telecommunications services and new industry
standards;
o changes in pricing policies by us or our competitors;
o general market conditions, and changes in market conditions in our
industry;
o the general state of the securities market (particularly the
technology sector); and
o political, economic and other developments in the State of Israel and
worldwide.
SUBSTANTIAL FUTURE SALES OF OUR ORDINARY SHARES MAY DEPRESS OUR SHARE PRICE.
We have several shareholders who are the beneficial owners of 5% or more of
our ordinary and/or preferred shares. For information on the share ownership of
our majority shareholders, please see "Item 7.A. - Major Shareholders" of our
Annual Report on Form 20-F for the fiscal year ended December 31, 2005.
On January 3, 2005, we completed a private placement transaction in which
we issued (i) 6,636,391 Series A Convertible Preferred Shares, par value NIS
0.50 each, or the Series A Preferred Shares, at a purchase price of $2.20 per
share, resulting in aggregate proceeds (before expenses) of approximately $14.6
million, before expenses of $1.2 million and (ii) warrants to purchase up to
3,026,193 of our ordinary shares, pursuant to a Purchase Agreement dated as of
November 29, 2004. As of March 24, 2006, 2,181,820 Series A Preferred Shares had
been converted into ordinary shares and 4,454,571 remain outstanding. As of
March 24, 2006, 354,545 warrants have been exercised and 2,671,648 remain
outstanding. In addition, as of March 24, 2006, the exercise price of the
warrants was lower than the market price. For more information on the private
placement transaction, see "Item 10.C. - Private Placement of Series A Preferred
Shares" of our Annual Report on Form 20-F for the fiscal year ended December 31,
2005. These ordinary shares and warrants have since been registered with the
U.S. Securities and Exchange Commission.
Furthermore, certain of our major shareholders have registration rights
with respect to our ordinary shares. In August 2005, we received a notice of
exercise of certain of these registration rights with respect to 4,408,123
ordinary shares. Upon completion and effectiveness of this registration
statement, these 4,408,123 ordinary shares will become freely tradeable. For
more information on the registration rights, see "Item 7.B. Related Party
Transactions - Registration Rights" of our Annual Report on Form 20-F for the
fiscal year ended December 31, 2005.
16
If our shareholders sell substantial amounts of our ordinary shares,
including shares issued upon the exercise of outstanding preferred shares,
warrants or employee options, or if the perception exists that our shareholders
may sell a substantial number of our ordinary shares, the market price of our
ordinary shares may fall. Any substantial sales of our shares in the public
market also might make it more difficult for us to sell equity or equity related
securities in the future at a time and upon terms and conditions we deem
appropriate.
FORWARD-LOOKING STATEMENTS
This prospectus contains or incorporates historical information and
forward-looking statements within the meaning of the federal securities laws.
Statements looking forward in time are included in this prospectus pursuant to
the "safe harbor" provision of the Private Securities Litigation Reform Act of
1995. They involve known and unknown risks and uncertainties that may cause our
actual results in future periods to be materially different from any future
performance suggested herein, including all of the risks and uncertainties
discussed under "Risk Factors" and elsewhere in this prospectus, as well as in
the documents we have incorporated by reference. Future events and actual
results could differ materially from those set forth in, contemplated by or
underlying the forward-looking statements and you should therefore not rely on
these forward-looking statements, which are applicable only as of the date
hereof.
We urge you to consider that statements that use the terms "believe," "do
not believe," "expect," "plan," "intend," "estimate," "anticipate," "project"
and similar expressions are intended to identify forward-looking statements.
These statements reflect our current views with respect to future events and are
based on assumptions and are subject to risks and uncertainties. Our actual
results may differ materially from the results discussed in forward-looking
statements. Factors that could cause our actual results to differ materially
include, but are not limited to, those discussed above under "Risk Factors,"
elsewhere in this prospectus and in the documents we have incorporated by
reference.
Except as required by applicable law, including the securities laws of the
United States, we do not intend to update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise
and we disclaim any obligation to publicly revise any such statements to reflect
any change in expectations or in events, conditions, or circumstances on which
any such statements may be based.
OFFER STATISTICS AND EXPECTED TIMETABLE
The selling shareholders identified in this prospectus may sell from time
to time up to 4,408,123 ordinary shares. See "The Offer and the Listing" below.
The offering shall remain open for up to ninety (90) days. We will announce the
closure of the offering through a press release or other means reasonably
sufficient to notify prospective purchasers.
CAPITALIZATION AND INDEBTEDNESS
The following table sets forth audited consolidated short-term debt and
capitalization, determined in accordance with accounting principles generally
accepted in the United States ("GAAP"), as at December 31, 2005. The information
in this table should be read in conjunction with and is qualified by reference
to the consolidated financial statements and notes thereto and other financial
information incorporated by reference into this prospectus.
AS OF DEC 31,
2005
ACTUAL
(IN THOUSANDS)
------
Short-term debt --
Long-term debt --
-------
Total shareholders' equity $32,443
-------
17
REASONS FOR THE OFFER AND USE OF PROCEEDS
The selling shareholders are the holders of registration rights pursuant to
a Registration Rights Agreement between us and Team Software Industries Ltd.
("Team Software"), dated as of October 22, 1996 (the "Registration Rights
Agreement"). Under the Registration Rights Agreement, Team Software is entitled
to demand registration of all its shares in TTI at any time after the passage of
12 months from the date of our initial public offering. In June of 2005, Team
Software assigned certain of its rights under the Registration Rights Agreement
to the other selling shareholders. On August 2, 2005, we received a notice of
exercise of these registration rights from Arad Investment & Industrial
Development Ltd., one of the assignees under the assignment agreement, delivered
on behalf of itself and the other selling shareholders.
This prospectus has been prepared, and the registration statement of which
this prospectus is a part has been filed with the SEC, to satisfy our
obligations to the selling shareholders under the Registration Rights Agreement.
Accordingly, this prospectus covers the disposition by the selling
shareholders of 4,408,123 ordinary shares specified in the aforementioned notice
of exercise of registration rights.
We will not receive any of the proceeds from the sale of our ordinary
shares by the selling shareholders.
PRICE HISTORY OF OUR ORDINARY SHARES
Our ordinary shares have been traded on the Nasdaq National Market under
the symbol "TTIL" since our initial public offering on December 4, 1996. The
following tables set forth, for the periods indicated, the high ask and low bid
prices of our ordinary shares, as reported by the Nasdaq National Market.
HIGH LOW
------ ------
2001:
Full Year $26.84 $10.19
2002:
Full Year $34.50 $ 4.11
2003:
Full Year $ 6.65 $ 4.05
2004:
Full Year $ 6.40 $ 1.71
First Quarter 6.40 4.67
Second Quarter 6.19 3.11
Third Quarter 3.20 1.71
Fourth Quarter 2.63 1.82
2005:
Full Year $ 3.58 $ 1.84
First Quarter 2.58 1.84
Second Quarter 2.40 1.96
Third Quarter 3.49 2.28
Fourth Quarter 3.58 2.68
2006:
First Quarter $ 4.42 $ 3.12
18
MOST RECENT SIX MONTHS:
November 2005 $ 3.58 $ 2.84
December 2005 3.39 2.73
January 2006 3.83 3.12
February 2006 4.04 3.44
March 2006 3.82 4.42
April 2006 4.30 4.99
On June 19, 2006, the last reported sale price of our ordinary shares on
the Nasdaq National Market was $4.47 per share.
SELLING SHAREHOLDERS
This prospectus covers 4,408,123 ordinary shares held by the selling
shareholders.
The following table sets forth information about the beneficial ownership
of each selling shareholder as to:
o the number of ordinary shares that are beneficially held by the
selling shareholder; and
o the maximum number of shares that may be offered by each selling
shareholder by this prospectus.
We cannot estimate the number of ordinary shares that will be beneficially
owned by the selling shareholders after completion of this offering because the
selling shareholders may sell all, some or none of the ordinary shares
beneficially owned by them prior to this offering, and may subsequently acquire
the beneficial ownership of other shares. Our registration of these securities
does not necessarily mean that the selling shareholders will dispose of any or
all of the securities.
The information provided in the table below is provided as of April 30,
2006 and is based on information provided by the selling shareholders. For
purposes of calculating each person's or entity's percentage ownership of
outstanding ordinary shares, there were 15,091,119 ordinary shares outstanding
on April 30, 2006. Except as indicated in the footnotes below, to our knowledge,
the persons named in this table:
o have sole voting and investment power with respect to the shares
beneficially owned by them;
o have not acquired any of the shares offered hereby within the past three
years;
o have not had any position, office or other material relationship with us,
or our affiliates, within the past three years; and
o are not registered broker-dealers or affiliates of registered broker
dealers.
19
ORDINARY SHARES
BENEFICIALLY OWNED PERCENTAGE OF NUMBEROFORDINARY
NAME OF SELLING PRIOR TO THE OUTSTANDING SHARES OFFERED
SHAREHOLDER OFFERING ORDINARYSHARES HEREBY
- -------------------------------- --------- ---- ---------
Arad Investment & Industrial Development Ltd.(1)
3 Har Sinai St., Tel Aviv 65816, Israel 1,270,665 8.42% 1,270,665
Barzeverin Corporation Ltd.(2)
3 Har Sinai St., Tel Aviv 65816, Israel 1,688,123 11.18% 1,688,123
Shlomo Eisenberg(3)
5 Amiel Street, Bnei Brak, Israel 594,836 3.94% 566,735
Tirza Eisenberg(4)
5 Amiel Street, Bnei Brak, Israel 188,912 1.25% 188,912
Team Computers and Systems Ltd. (5)
7 Martin Gehl Street, Kiryat Aryeh, Petach Tikva 49512, Israel 13,458 0.09% 13,458
Team Software Industries Ltd. (5)
7 Martin Gehl Street, Kiryat Aryeh, Petach Tikva 49512, Israel 680,230 4.51% 680,230
(1) Arad Investment and Development Ltd. ("Arad") owns 58.21% of Team Computers
and Systems Ltd. ("Team Computers"), and Team Computers owns 100% of the
issued and outstanding shares of Team Software Industries Ltd. ("Team
Software"), and, therefore, Arad may be deemed to beneficially own the
ordinary shares held by Team Computers and Team Software. Arad disclaims
any such beneficial ownership. Arad is an Israeli company whose shares are
publicly traded on the Tel Aviv Stock Exchange. Arad acquired the shares
offered hereby in April 2005 as part of the distribution, for no
consideration, by Team Computers of an aggregate of 5,166,062 of our
ordinary shares pro rata to all of its shareholders. Ilan Toker, the
President and Chief Financial Officer of Arad, is a member of our Board of
Directors.
(2) Barzeverin Corporation Ltd. ("Barzeverin") is a wholly owned subsidiary of
Arad.Barzeverin acquired the shares offered hereby in April 2005 as part of
the distribution, for no consideration, by Team Computers of an aggregate
of 5,166,062 of our ordinary shares pro rata to all of its shareholders.
(3) Shlomo Eisenberg, directly and indirectly (through a wholly owned
subsidiary), owns approximately 14.87% of Team Computers and is also a
member of the controlling group of shareholders of Arad. Therefore, Mr.
Eisenberg may be deemed to beneficially own the ordinary shares held by
Arad, Barzeverin, Team Computers and Team Software. Mr. Eisenberg disclaims
any such beneficial ownership. From our inception in September 1992 to
December 29, 2004, Mr. Eisenberg was the Chairman of our Board of
Directors. He is currently an officer of Team Computers, and was formerly
Chairman of the Board of Directors of Team Computers and Arad. Mr.
Eisenberg acquired the shares offered hereby in a private transfer from
Ashrat Financial Consultants Ltd. ("Oshrat"), which he owns together with
his wife, Tirza Eisenberg. Oshrat acquired the shares offered hereby in
April 2005 as part of the distribution, for no consideration, by Team
Computers of an aggregate of 5,166,062 of our ordinary shares pro rata to
all of its shareholders.
(4) Ms. Eisenberg acquired the shares offered hereby in a private transfer from
Oshrat, which she owns together with her husband, Shlomo Eisenberg. Oshrat
acquired the shares offered hereby in April 2005 as part of the
distribution, for no consideration, by Team Computers of an aggregate of
5,166,062 of our ordinary shares pro rata to all of its shareholders.
(5) Team Computers is an Israeli company whose shares are publicly traded on
the Tel Aviv Stock Exchange. Team Computers owns 100% of the issued and
outstanding shares of Team Software. As of August 31, 2005, Meir Lipshes,
the Chairman of our Board of Directors and, from March 2005 through,
November 2005, our acting Chief Executive Officer, owned approximately
8.51% of Team Computers' shares. Mr. Lipshes disclaims any beneficial
ownership in our ordinary shares owned by Team Software. Mr. Lipshes was
formerly President, Chief Executive Officer and a director of Team
Computers. All of the shares offered hereby by Team Software and Team
Computers were acquired more than three years prior to the date of this
prospectus.
20
PLAN OF DISTRIBUTION
The selling shareholders, which as used herein includes donees, pledgees,
transferees or other successors-in-interest selling ordinary shares or interests
in ordinary shares received after the date of this prospectus from a selling
shareholder as a gift, pledge, partnership distribution or other transfer, may,
from time to time, sell, transfer or otherwise dispose of any or all of their
ordinary shares or interests therein on any stock exchange, market or trading
facility on which the ordinary shares are traded or in private transactions.
These dispositions may be at fixed prices, at prevailing market prices at the
time of sale, at prices related to the prevailing market price, at varying
prices determined at the time of sale, or at negotiated prices.
The selling shareholders may use any one or more of the following methods
when disposing of ordinary shares or interests therein:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o privately negotiated transactions;
o short sales effected after the date the registration statement of
which this prospectus is a part is declared effective by the SEC;
o through the writing or settlement of options or other hedging
transactions, whether through an options exchange or otherwise;
o broker-dealers may agree with the selling shareholders to sell a
specified number of such shares at a stipulated price per share;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The selling shareholders may, from time to time, pledge or grant a security
interest in some or all of the ordinary shares owned by them and, if they
default in the performance of their secured obligations, the pledgees or secured
parties may offer and sell the ordinary shares, from time to time, under this
prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or
other applicable provision of the Securities Act of 1933 amending the list of
selling shareholders to include the pledgee, transferee or other successors in
interest as selling shareholders under this prospectus.
The selling shareholders also may transfer the shares of ordinary shares in
other circumstances, in which case the transferees, pledgees or other successors
in interest will be the selling beneficial owners for purposes of this
prospectus.
In connection with the sale of ordinary shares or interests therein, the
selling shareholders may enter into hedging transactions with broker-dealers or
other financial institutions, which may in turn engage in short sales of
ordinary shares in the course of hedging the positions they assume. The selling
shareholders may also sell ordinary shares short and deliver these securities to
close out their short positions, or loan or pledge ordinary shares to
broker-dealers that in turn may sell these securities. The selling shareholders
may also enter into option or other transactions with broker-dealers or other
financial institutions or the creation of one or more derivative securities
which require the delivery to such broker-dealer or other financial institution
of ordinary shares offered by this prospectus, which shares such broker-dealer
or other financial institution may resell pursuant to this prospectus (as
supplemented or amended to reflect such transaction).
21
The aggregate proceeds to the selling shareholders from the sale of the
ordinary shares offered by them will be the purchase price of the ordinary
shares less discounts or commissions, if any. Each of the selling shareholders
reserves the right to accept and, together with their agents from time to time,
to reject, in whole or in part, any proposed purchase of ordinary shares to be
made directly or through agents. We will not receive any of the proceeds from
this offering.
The selling shareholders also may resell all or a portion of the shares in
open market transactions in reliance upon Rule 144 under the Securities Act of
1933, provided that they meet the criteria and conform to the requirements of
that rule.
The selling shareholders and any underwriters, broker-dealers or agents
that participate in the sale of the ordinary shares or interests therein may be
"underwriters" within the meaning of Section 2(11) of the Securities Act. Any
discounts, commissions, concessions or profits they earn on any resale of the
ordinary 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.
To the extent required, the ordinary shares to be sold, the names of the
selling shareholders, the respective purchase prices and public offering prices,
the names of any agents, dealer or underwriter, any applicable commissions or
discounts with respect to a particular offer will be set forth in an
accompanying prospectus supplement or, if appropriate, a post-effective
amendment to the registration statement that includes this prospectus.
In order to comply with the securities laws of some states, if applicable,
the ordinary shares may be sold in these jurisdictions only through registered
or licensed brokers or dealers. In addition, in some states 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.
We have advised the selling shareholders that the anti-manipulation rules
of Regulation M under the Exchange Act may apply to sales of shares in the
market and to the activities of the selling shareholders and their affiliates.
In addition, we will make copies of this prospectus (as it may be supplemented
or amended from time to time) available to the selling shareholders for the
purpose of satisfying the prospectus delivery requirements of the Securities
Act.
We have agreed to indemnify the selling shareholders against liabilities,
including liabilities under the Securities Act and state securities laws,
relating to the registration of the ordinary shares offered by this prospectus.
We have agreed with the selling shareholders to keep the registration
statement of which this prospectus constitutes a part effective for a period of
up to ninety (90) days.
EXPENSES ASSOCIATED WITH THE REGISTRATION
We have agreed to bear all expenses relating to the registration of the
ordinary shares registered pursuant to the registration statement of which this
prospectus is a part. We estimate these expenses to be approximately $12,000,
which include the following categories of expenses:
SEC registration fee $ 1,500
Printing, EDGAR and photocopying fees $ 500
Legal fees and expenses $28,000
Accounting fees and expenses $10,000
Transfer agent and registrar fees and expenses $ 1,000
Miscellaneous expenses $ 1,500
-------
Total Expenses $42,500
=======
VALIDITY OF SECURITIES
The validity of the ordinary shares offered hereby will be passed upon for
us by Goldfarb, Levy, Eran, Meiri & Co., our Israeli counsel.
22
EXPERTS
The consolidated financial statements of TTI Team Telecom International
Ltd. appearing in TTI Team Telecom International Ltd.'s Annual Report (Form
20-F) for the year ended December 31, 2005, have been audited by Kost, Forer,
Gabbay & Kasierer, independent registered public accounting firm and a member of
Ernst & Young Global, 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.
MATERIAL CHANGES
Except as otherwise described herein, in our Annual Report on Form 20-F for
the fiscal year ended December 31, 2005 filed under the Exchange Act and
incorporated by reference herein, no material changes have occurred since
December 31, 2005.
ENFORCEABILITY OF CIVIL LIABILITIES
Service of process upon us and upon our directors and officers and the
Israeli experts named in this prospectus, a substantial number of whom reside
outside the United States, may be difficult to obtain within the United States.
Furthermore, because our principal assets and a substantial number of our
directors and officers are located outside the United States, any judgment
obtained in the United States against us or any of our directors and officers
may not be collectible within the United States.
We have been informed by our legal counsel in Israel, Goldfarb, Levy, Eran,
Meiri & Co., that there is doubt concerning the enforceability of civil
liabilities under the Securities Act and the Exchange Act in original actions
instituted in Israel. However, subject to specified time limitations, Israeli
courts may enforce a United States final executory judgment in a civil matter,
including a monetary or compensatory judgment in a non-civil matter, 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. The rules of private
international law currently prevailing in Israel do not prohibit the enforcement
of a judgment by Israeli courts provided that:
o the judgment is enforceable in the state in which it was given;
o adequate service of process has been effected and the defendant has
had a reasonable opportunity to present his arguments and evidence;
o the judgment and the enforcement of the judgment are not contrary to
the law, public policy, security or sovereignty of the state of
Israel;
o the judgment was not obtained by fraud and does not conflict with any
other valid judgment in the same matter between the same parties; and
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.
We have irrevocably appointed TTI Team Telecom International, Inc. as our
agent to receive service of process in any action against us in any competent
court of the United States arising out of this offering or any purchase or sale
of securities in connection with this offering.
If a foreign judgment is enforced by an Israeli court, it generally will be
payable in Israeli currency, which can then be converted into non-Israeli
currency and transferred out of Israel. The usual practice in an action before
an Israeli court to recover an amount in a non-Israeli currency is for the
Israeli court to issue a judgment for the equivalent amount in Israeli currency
at the rate of exchange in force on the date of the judgment, but the judgment
debtor may make payment in foreign currency. Pending collection, the amount of
the judgment of an Israeli court stated in Israeli currency ordinarily will be
linked to the Israeli consumer price index plus interest at an annual statutory
rate set by Israeli regulations prevailing at the time. Judgment creditors must
bear the risk of unfavorable exchange rates.
23
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form F-3 under the
Securities Act of 1933 with respect to the securities offered by this
prospectus. However, as is permitted by the rules and regulations of the SEC,
this prospectus, which is part of our registration statement on Form F-3, omits
certain information, exhibits, schedules and undertakings set forth in the
registration statement. For further information about us, and the securities
offered by this prospectus, please refer to the registration statement.
We are subject to the reporting requirements of the Securities Exchange Act
of 1934, as amended, or the Exchange Act, that are applicable to a foreign
private issuer. In accordance with the Exchange Act, we file reports with the
SEC, including annual reports on Form 20-F which are required to be filed by
June 30 of each year. We also furnish to the SEC under cover of Form 6-K
material information required to be made public in Israel, filed with and made
public by any stock exchange or distributed by us to our shareholders.
The registration statement on Form F-3 of which this prospectus forms a
part, including the exhibits and schedules thereto, and reports and other
information filed by us with the SEC may be inspected without charge and copied
at prescribed rates at the SEC's Public Reference Room at 100 F Street, N.E.,
Washington, D.C. 20549. Copies of this material are also available by mail from
the Public Reference Section of the SEC, at 100 F Street, N.E., Washington D.C.
20549, at prescribed rates. The public may obtain information on the operation
of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC
maintains an Internet site that contains reports, proxy and information
statements, and other information regarding issuers, such as us, that file
electronically with the SEC (http://www.sec.gov). You can find additional
information about us at our website, www.tti-telecom.com. The information
contained on, or linked from, our website is not a part of this prospectus.
As a foreign private issuer, we are exempt from the rules under the
Exchange Act prescribing the furnishing and content of proxy statements to
shareholders. In addition, our officers, directors and principal shareholders
are exempt from the "short-swing profits" reporting and liability provisions
contained in Section 16 of the Exchange Act and related Exchange Act rules.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with or submit to it, which 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 or
submitted to the SEC will update and supersede this information. We incorporate
by reference into this prospectus the documents listed below:
(a) Our annual report on Form 20-F for the fiscal year ended December 31,
2005, filed with the SEC on April 11, 2006;
(b) Our report on Form 6-K furnished to the SEC on February 16, 2006; and
(c) The description of our ordinary shares contained in our registration
statement on Form 8-A, filed with the SEC on November 15, 1996, and
any amendment or report filed for the purpose of updating such
description.
In addition, all subsequent annual reports on Form 20-F and any reports on
Form 6-K subsequently submitted to the SEC or portions thereof that we
specifically identify in such forms as being incorporated by reference into the
registration statement of which this prospectus forms a part, shall be
considered to be incorporated into this prospectus by reference and shall be
considered a part of this prospectus from the date of filing or submission of
such documents.
As you read the above documents, you may find inconsistencies in
information from one document to another. If you find inconsistencies between
the documents and this prospectus, you should rely on the statements made in the
most recent document.
24
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:
TTI Team Telecom International Ltd.
7 Martin Gehl Street, Kiryat Aryeh, Petach Tikva 49512, Israel
Tel.: (+972) 3-926-9884
Fax: (+972) 3-926-9849
Attn.:Chief Financial Officer
25
You should rely only on the information contained or incorporated by
reference in this prospectus or any supplement. We have not authorized any other
person to provide you with different information. If anyone provides you with
different or inconsistent information, you should not rely on it. We are not,
and any underwriter or agent is not, making an offer to sell these securities in
any jurisdiction where the offer or sale is not permitted. You should assume
that the information appearing in this prospectus is accurate only as of the
date on the front cover of this prospectus. Our business, financial condition,
results of operations and prospects may have changed since that date.
4,408,123 Ordinary Shares
|
TTI TEAM TELECOM INTERNATIONAL LTD.
Ordinary Shares
----------
PROSPECTUS
----------
June 20, 2006