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in Tel Aviv and a joint M.B.A. from the Kellogg School of Management at Northwestern University and the Recanati Graduate School of Business Administration at Tel Aviv University and an M.A. in Communications from New York University.
Jay Gorajia has served as our Vice President of Professional Services since 2005. As our Vice President of Professional Services, Mr. Gorajia is responsible for the customer support and consultancy services operations. Mr. Gorajia has also served as our Vice President of Customer Support and Engineering in Japan and the Asia Pacific Regions since 1997. Mr. Gorajia holds a B.Sc. in Electronic Engineering from California State University at Fullerton and an M.B.A. in Technology Management from the University of Phoenix.
Patrick McGoffhas served as Vice President of Design Market since January 2007. Since 1996, Mr. McGoff held various positions with our company, including Vice President of Sales for North America, Vice President of Sales for China, and Director of Sales Strategic Accounts. In 2000, Mr. McGoff managed North American Sales for Frontline. From 1987 to 1996, Mr. McGoff was the Eastern Regional Sales Manager for Gerber Scientific Instruments, a company in the electronics imaging industry. Mr. McGoff holds a B.A. in Marketing from Georgia State University.
Julian Coates has served as the Vice President of Process Engineering Market since January 2007. From 1998 to 2007, Mr. Coates held the position of Vice President of Marketing. From 1994 to 1998, Mr. Coates was the Managing Director of Valor Computerized Systems NV, our subsidiary in Europe. From 1986 to 1994, Mr. Coates was the Northern European Sales Manager and later the Vice President of Sales in Europe for Optrotech S.A. and later Orbotech S.A., Belgium, both of which are companies that create tools for inspecting electronic chips. From 1979 to 1986, Mr. Coates worked at British Aerospace as a mechanical design engineer, PCB production engineer and production manager. Mr. Coates holds a B.Sc. in Engineering Science from Exeter University.
Meir Zelzer has served as the Vice President of Research and Development since June 2007. From 2001 to 2007, Mr. Zelzer was the Senior Vice President of Development at SAP AG, managing the SAP Netweaver User Interaction Group. From 1997 to 2001, Mr. Zelzer served as the Vice President of Research and Development at Toptier Software Inc., a developer of enterprise information portal software that was acquired by SAP in 2001. From 1995 to 1997, Mr. Zelzer was Director of Information Technology at Tescom, Ltd., a company specializing in software quality assurance. Mr. Zelzer holds a B.A. in Mathematics and Computer Science from Tel Aviv University.
Dan Weitzman has served as President of Valor Computerized Systems, Inc., our U.S. subsidiary, since January 2007. From 2006 to 2007, Mr. Weitzman served as our Vice President of Sales. From 1999 to 2006, Mr. Weitzman held several positions at our company. Mr. Weitzman held various sales and marketing positions at VeriBest, Inc. from 1998 to 1999 and at Viewlogic Systems, Inc. from 1996 to 1998, both of which are companies in electronic design automation. Mr. Weitzman holds a B.Sc. in Environmental Geology from the University of Massachusetts at Amherst.
Stephan Häfele has served as President of Valor Computerized Systems NV, our subsidiary in Europe, since January 2007. From 2003 to 2006, Mr. Häfele was the European Sales Manager and Global Accounts manager for strategic accounts at Sigma-C Software AG, a company that provides electronic design automation software and services and which was later acquired by Synopsys, Inc. Mr. Häfele served in various European sales management and key account management positions at GSI Lumonics Inc., a company that creates lasers for manufacturing, from 2001 to 2003, and at Orbotech S.A., from 1998 to 2001. From 1995 to 1997, Mr. Häfele served as an independent sales representative for us, EIE Systems S.A. and ETEC Systems, Inc. in Central Europe.
Kay Huat Ong has served as President of Valor Far East since February 2006. From 2000 to 2006, Mr. Ong served in various senior positions at Universal Instruments Corporation, a company in the electronics manufacturing industry, including Vice President of Asia Sales and Support. From 1990 to 1999, Mr. Ong worked for Singatronics Electronics Ltd, Siemens Components Pte Ltd. and Panasonic Industry of Asia (Matsushita). Mr. Ong holds an M.B.A. from Macquarie Graduate School of Management, and an M.A. in International Marketing Management from Macquarie University of Australia.
Masahiro Yoshida has served as President of Valor Japan since July 2003. From 2001 to 2002, Mr. Yoshida was the General Manager of Valor Japan. From 1998 to 2001, Mr. Yoshida joined our company and co-established Valor Computerized Systems Japan. Mr. Yoshida holds a B.Sc. in Science of Information Management from Otaru University of Commerce.
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Directors
Kobi Rozengarten was elected Chairman of our board of directors in July 2007. Mr. Rozengarten has served as a director of Saifun Semiconductors, Ltd. since 2006. From 2004 to 2007, Mr. Rozengarten served as the President of Saifun Semiconductors, Ltd. and from 1997 to 2004, Mr. Rozengarten was Executive Vice President — Business and Chief Executive Officer of Saifun Semiconductors, Ltd. From 1994 to 1997, he served as Managing Director of Micro-Swiss Ltd., a subsidiary of Kulicke and Soffa Industries, Inc., a leading supplier of equipment for the semiconductor industry. From 1987 to 1994, Mr. Rozengarten held several senior management positions at Kulicke and Soffa Industries, including Director of Operations and Vice President of Business Development. From 1983 to 1987, Mr. Rozengarten worked at Elbit Computer Ltd., an Israeli defense electronics supplier, as Manager of Finance Planning and Control. Mr. Rozengarten holds an M.Sc. in Industrial Management and a B.Sc. in Industrial Engineering from the Technion — The Israel Institute of Technology.
Dr. Michael Brunstein has served as a director since May 2006. Dr. Brunstein has served as Chairman of the board of directors of Nova Measuring Instruments Ltd. since 2006 and has been Chairman of the board of directors of Giant Steps Ltd. since 2003. From 1998 to 2006, Dr. Brunstein was employed at Ital Strategic Ltd., a company which he founded. From 1990 to 1998, Dr. Brunstein founded and was the Managing Director of Applied Materials Israel, a subsidiary of the leading provider of capital equipment for the semiconductor industry. From 1986 to 1989, Dr. Brunstein founded and was the Chief Executive Officer of Opal Inc. From 1983 to 1986, Dr. Brunstein was Director of New Business Development of Optrotech Ltd., a company involved in PCB computer assisted manufacturing. Dr. Brunstein has also served on the board of directors of Ham-Let Advanced Control Technology since 1997. Dr. Brunstein holds a B.Sc. in Mathematics and Physics from the Hebrew University, Jerusalem, and an M.Sc. and a Ph.D. in Physics from Tel Aviv University.
Charles Feingold has served as a director since April 2006. Mr. Feingold co-founded our company and, from 1992 to 2006, held the position of President of Valor Computerized Systems, Inc., our U.S. subsidiary. From 1985 to 1992, Mr. Feingold worked at Optrotech Ltd., a company involved in PCB computer assisted manufacturing, and ultimately became the business unit manager for North America. Mr. Feingold has been a guest lecturer at the University of California Irvine’s Merage School of Business, Executive Program since 2004, and a guest lecturer at Long Beach State University of California’s Executive M.B.A. program since 2006. Mr. Feingold studied Industrial Engineering at Beer Sheva University and Tel Aviv University, and is a graduate of the Executive Program from the Stanford Graduate School of Business.
Dr. Shlomo Kalish has served as a director since 1999. Dr. Kalish serves as the Chairman and Chief Executive Officer of Jerusalem Global Ventures Ltd., an Israeli venture capital fund, which he founded in 1999. From 1997 to 1999, Dr. Kalish also served as a general partner of Concord (K.T.) Ventures. From 1994 to 1997, he served as the Chairman of Jerusalem Global Group which he founded in 1994. From 1985 to 1994, Dr. Kalish was a member of the faculty at Tel Aviv University School of Management. Dr. Kalish is a member of the boards of several non-profit organizations and academic institutions, including the Board of Trustees of Bar Ilan University; the Board of Governors of the Technion — Israel Institute of Technology; the Jerusalem College of Technology; and High-Tech Management School, a joint venture between Northwestern University and Tel Aviv University. In addition, Dr. Kalish also serves as a director on the boards of several other public and private technology companies. Dr. Kalish holds a Ph.D. in Operations Research from the Massachusetts Institute of Technology (MIT), an M.Sc. in Management from Sloan School of Management at MIT and a B.Sc. in Mathematics from Tel Aviv University.
Amit Mantzur has served as a director since August 2006. Since 2002, Mr. Mantzur has served as the Vice President of Investments at Ampal-American Israel Corporation, an Israeli investment company. From September 2000 through December 2002, Mr. Mantzur was in charge of Strategy and Business Development at Alrov Group, an Israeli real estate company. Prior to 2000 Mr. Mantzur was a projects manager at KPMG Somekh Chaikin, the Israeli member firm affiliated with KPMG International., a tax and accounting firm, in its Financial Advisory Services Division in Israel. Mr. Mantzur holds an M.B.A. and a B.A. in Accounting and Economics from Ben Gurion University, and is a licensed CPA and a member of the Institute of Certified Public Accountants in Israel.
Ayelet Tal has served as a director since August 2006. Since March 2005, Ms. Tal has also served as an IL Executive Director and Chief Financial Officer of the Israel Venture Network, a venture philanthropy network of high-tech entrepreneurs and business executives from Israel and the United States. From 2004 to April 2005, Ms. Tal served as the Chief Financial Officer of dbMotion Ltd., an innovative provider of medical informatics. In 2003, Ms. Tal served
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as a financial consultant to companies in the high-tech industry. From 1996 to 2002, Ms. Tal served as Vice President of Finance and Corporate Controller at Check Point Software Technologies Ltd., an internet security company. From 1991 to 1996, Ms. Tal served as an audit manager at Deloitte & Touche Israel, a tax and audit firm. Ms. Tal holds an M.A. in Accounting and Economics from Bar-Ilan University and is an Israeli Certified Public Accountant.
Raviv Zoller has served as a director since July 2007. From June 2001 to March 2007, Mr. Zoller served as President and Chief Executive Officer of Ness Technologies, Inc., a global provider of end-to-end IT services that is listed on the Nasdaq Global Market. From October 1999 to May 2001, Mr. Zoller served as Chief Financial Officer of Ness Technologies. From 1994 to 1998, Mr. Zoller founded and was a partner in Apex-Mutavim, an Israeli investment banking firm. From 1991 to 1999, Mr. Zoller was a partner in Zoller, Radiano and Co., an Israeli CPA firm. Mr. Zoller holds dual B.A.’s in economics and accounting from Tel Aviv University. Mr. Zoller is a certified public accountant in Israel.
Corporate Governance Practices
As a foreign private issuer, we are permitted to follow Israeli corporate governance practices instead of the Nasdaq Global Market listing requirements, provided we disclose which requirements we are not following and the equivalent Israeli requirement. We do not intend to rely on this “foreign private issuer exemption” and intend to comply with the rules of the Securities and Exchange Commission and the Nasdaq Global Market requiring that listed companies maintain an audit committee comprised of three independent directors, and with the Nasdaq Global Market rules requiring that listed companies have a majority of independent directors and maintain a compensation and nominating committee composed entirely of independent directors. Following the closing of this offering, we will continue to comply with Israeli corporate governance requirements applicable to companies incorporated in Israel whose securities are listed for trading on a stock exchange outside of Israel.
Following the completion of this offering we intend to delist our ordinary shares from the Frankfurt Stock Exchange. We expect that this process will not occur simultaneously with our listing on the Nasdaq Global Market and there will be a period during which our shares will be traded on both the Frankfurt Stock Exchange and the Nasdaq Global Market.
Board of Directors and Officers
Our current board of directors consists of seven directors, including two outside directors whose appointment is required under the Israeli Companies Law (see “ — Outside Directors”). Our articles of association provide that we may have between seven and fifteen directors. The directors are elected, and may be removed, by a vote of the holders of a majority of the voting power present and voting (excluding abstentions) at an annual general meeting of our shareholders. Each director will hold office until the next annual general meeting of our shareholders, unless the tenure of such director expires earlier pursuant to the Companies Law or unless he or she is removed from office as described below.
Vacancies on our board of directors, other than vacancies created by an outside director, may be filled by a vote of a simple majority of the directors then in office. A director so chosen or appointed will hold office until the next annual general meeting of our shareholders or until a special general meeting is convened in order to fill such vacancy. See “Management — Outside Directors” for a description of the procedure for election of outside directors.
In addition, under the Israeli Companies Law, our board of directors must determine the minimum number of directors having financial and accounting expertise that our board of directors should include. Under applicable regulations, a director with financial and accounting expertise is a director who, by reason of his or her education, professional experience and skill, has a high level of proficiency in and understanding of business accounting matters and financial statements. He or she must be able to thoroughly comprehend the financial statements of the listed company and initiate debate regarding the manner in which financial information is presented. In determining the number of directors required to have such expertise, the board of directors must consider, among other things, the type and size of the company and the scope and complexity of its operations. Our board of directors has determined that we require at least two directors with the requisite financial and accounting expertise and that Amit Mantzur and Ayelet Tal have such expertise.
Each of our executive officers serves at the discretion of the board of directors and holds office until his or her resignation or removal. There are no family relationships among any of our directors or executive officers.
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Outside Directors
Qualifications of Outside Directors
Under the Israeli Companies Law, companies incorporated under the laws of the State of Israel that are “public companies,” which also includes companies with shares listed on the Nasdaq Global Market or the Frankfurt Stock Exchange, are required to appoint at least two outside directors. Our outside directors are Amit Mantzur and Ayelet Tal. The terms of their directorships expire in August 2009.
A person may not serve as an outside director if, at the date of the person’s appointment or within the prior two years, the person, the person’s relatives, entities under the person’s control, or the person’s partner or employer, have or had any affiliation with us or any entity controlled by us or under common control with us during the prior two years, or which controls us at the time of such person’s appointment.
The term affiliation includes:
| • | an employment relationship; |
| • | a business or professional relationship maintained on a regular basis; |
| • | service as an office holder, excluding service as a director in a private company prior to the first offering of its shares to the public if such director was appointed as a director of the private company in order to serve as an outside director following the initial public offering. |
The term relative is defined as spouses, siblings, parents, grandparents, descendants, spouse’s descendants and the spouses of each of these persons.
The term office holder is defined as a director, general manager, chief business manager, deputy general manager, vice general manager, executive vice president, vice president, other manager directly subordinate to the general manager or any other person assuming the responsibilities of any of the foregoing positions, without regard to such person’s title.
No person can serve as an outside director if the person’s position or other business create, or may create, a conflict of interest with the person’s responsibilities as a director or may otherwise interfere with the person’s ability to serve as a director. If at the time an outside director is appointed all current members of the board of directors are of the same gender, then that outside director must be of the other gender.
The Companies Law provides that an outside director must meet certain professional qualifications or have financial and accounting expertise, and that at least one outside director must have financial and accounting expertise. However, if at least one of our directors meets the independence requirements of the Securities Exchange Act of 1934, as amended, and the standards of the Nasdaq Global Market rules for membership on the audit committee and also has financial and accounting expertise as defined in the Companies Law and applicable regulations, then our outside directors are required to meet the professional qualifications only. The regulations define a director with the requisite professional qualifications as a director who satisfies one of the following requirements: (1) the director holds an academic degree in either economics, business administration, accounting, law or public administration, (2) the director either holds an academic degree in any other field or has completed another form of higher education in the company’s primary field of business or in an area which is relevant to the office of an outside director, or (3) the director has at least five years of cumulative experience serving in one or more of the following capacities: (a) a senior business management position in a corporation with a substantial scope of business, (b) a senior position in the company’s primary field of business or (c) a senior position in public administration. In addition, a director of a company may not be elected as an outside director of another company if, at that time, a director of the other company is acting as an outside director of the first company.
Until the lapse of two years from termination of office, a company may not engage an outside director to serve as an office holder and cannot employ or receive professional services for payment from that person, either directly or indirectly, including through a corporation controlled by that person.
Election of Outside Directors
Under Israeli law outside directors are elected by a majority vote at a shareholders’ meeting, provided that either:
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| • | the majority of shares voted at the meeting, including at least one-third of the shares of non-controlling shareholders voted at the meeting, excluding abstentions, vote in favor of the election of the outside director; or |
| • | the total number of shares of non-controlling shareholders voted against the election of the outside director does not exceed one percent of the aggregate voting rights in the company. |
Under Israeli law the initial term of an outside director is three years and he or she may be reelected to one additional term of three years by a majority vote at a shareholders’ meeting, subject to the conditions described above for election of outside directors. Reelection to each additional term beyond the first extension must comply with the following conditions: (1) the audit committee and, subsequently, the board of directors confirmed that the reelection for an additional term is for the benefit of the company, taking into account the outside director's expertise and special contribution to the function of the board of directors and its committees, and (2) the general meeting of the company's shareholders, prior to its approval of the reelection of the outside director, was informed of the term previously served by him or her and of the reasons of the board of directors and audit committee for the extension of the outside director's term. Outside directors may only be removed by the same majority of shareholders as is required for their election, or by a court, as follows: (1) if the board of directors is made aware of a concern that an outside director has ceased to meet the statutory requirements for his or her appointment, or has violated his or her duty of loyalty to the company, then the board of directors is required to discuss the concern and determine whether it is justified, and if the board of directors determines that the concern is justified, to call a special general meeting of the company’s shareholders, the agenda of which includes the dismissal of the outside director; (2) at the request of a director or a shareholder of the company, a court may remove an outside director from office if it determines that the outside director has ceased to meet the statutory requirements for his or her appointment, or has violated his or her duty of loyalty to the company, or (3) at the request of the company, a director, a shareholder or a creditor of the company, a court may remove an outside director from office if it determines that the outside director is unable to perform his or her duties on a regular basis, or is convicted of certain offenses set forth in the Companies Law. If the vacancy of an outside directorship causes the company to have fewer than two outside directors, a company’s board of directors is required under the Companies Law to call a special general meeting of the company’s shareholders as soon as possible to appoint a new outside director.
Each committee to which the company’s board delegates power is required to include at least one outside director and our audit committee is required to include all of the outside directors.
An outside director is entitled to compensation and reimbursement of expenses in accordance with regulations promulgated under the Companies Law and is otherwise prohibited from receiving any other compensation, directly or indirectly, in connection with services provided as an outside director.
Nasdaq Requirements
Under the rules of the Nasdaq Global Market, a majority of directors must meet the definition of independence contained in those rules. Our board of directors has determined that all of our directors are independent under the standards contained in the rules of the Nasdaq Global Market. We do not believe that any of these directors has a relationship that would preclude a finding of independence under these rules and, in reaching its determination, our board of directors determined that the other relationships that these directors have with us do not impair their independence.
Audit Committee
Companies Law Requirements
Under the Companies Law, the board of directors of any public company must also appoint an audit committee comprised of at least three directors including all of the outside directors, but excluding the:
| • | chairman of the board of directors; |
| • | controlling shareholder or a relative of a controlling shareholder; and |
| • | any director employed by the company or who provides services to the company on a regular basis. |
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Nasdaq Requirements
Under the Nasdaq Global Market rules, we are required to maintain an audit committee consisting of at least three independent directors, all of whom are financially literate and one of whom has accounting or related financial management expertise. We have constituted an audit committee. Our audit committee members are required to meet additional independence standards, including minimum standards set forth in rules of the Securities and Exchange Commission and adopted by the Nasdaq Global Market.
Approval of Transactions with Office Holders and Controlling Shareholders
The approval of the audit committee is required to effect specified actions and transactions with office holders and controlling shareholders. See “ — Fiduciary Duties and Approval of Specified Related Party Transactions under Israeli Law.” The term controlling shareholder means a shareholder with the ability to direct the activities of the company, other than by virtue of being an office holder. A shareholder is presumed to be a controlling shareholder if the shareholder holds 50.0% or more of the voting rights in a company or has the right to appoint the majority of the directors of the company or its general manager. For the purpose of approving transactions with controlling shareholders, the term also includes any shareholder that holds 25.0% or more of the voting rights of the company if the company has no shareholder that owns more than 50.0% of its voting rights. For purposes of determining the holding percentage stated above, two or more shareholders who have a personal interest in a transaction that is brought for the company’s approval are deemed as joint holders. The audit committee may not approve an action or a transaction with a controlling shareholder or with an office holder unless at the time of approval two outside directors are serving as members of the audit committee and at least one of them was present at the meeting at which the approval was granted.
Audit Committee Role
Our board of directors has adopted an audit committee charter setting forth the responsibilities of the audit committee consistent with the rules of the Securities and Exchange Commission and the Nasdaq Global Market rules which include:
| • | retaining and terminating our independent auditors, subject to shareholder ratification; |
| • | pre-approval of audit and non-audit services provided by the independent auditors; |
| • | examining our quarterly and annual financial reports prior to their submission to the board of directors; and |
| • | approval of transactions with office holders and controlling shareholders, as described above, and other related-party transactions. |
Additionally, under the Companies Law, the role of the audit committee is to identify irregularities in our business management in consultation with the internal auditor or our independent auditors and suggest an appropriate course of action to the board of directors and to approve the yearly or periodic work plan proposed by the internal auditor to the extent required. The audit committee charter states that in fulfilling this role the committee is entitled to demand from us any document, file, report or any other information that is required for the fulfillment of its roles and duties and to invite any of our employees or any employees of our subsidiaries in order to receive more details about his or her line of work or other issues that are connected to the roles and duties of the audit committee.
Our audit committee consists of our directors, Amit Mantzur, Ayelet Tal and Dr. Michael Brunstein. The financial expert on the audit committee pursuant to the definition of the Securities and Exchange Commission is Ayelet Tal.
Compensation, Nominating and Governance Committee
We have established a compensation, nominating and governance committee consisting of our directors Kobi Rozengarten, Raviv Zoller and Amit Mantzur. Our board of directors has adopted a compensation, nominating and governance committee charter setting forth the responsibilities of the committee consistent with the Nasdaq Global Market rules which include:
| • | formulating and designing our compensation and benefit strategy for our employees and directors; |
| • | reviewing and approving the granting of options and other incentive awards; |
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| • | reviewing and recommending nominees for election as directors; |
| • | developing and recommending to our board corporate governance guidelines and a code of conduct and ethics for our directors, officers and employees in compliance with applicable law; |
| • | reviewing developments relating to corporate governance issues; |
| • | reviewing and making recommendations regarding board member skills and qualifications, the nature of duties of board committees and other corporate governance matters; and |
| • | establishing procedures for and administering annual performance evaluations of our board. |
Internal Auditor
Under the Companies Law, the board of directors of a public company must appoint an internal auditor based on the recommendation of the audit committee. The role of the internal auditor is, among other things, to examine whether a company’s actions comply with applicable law and orderly business procedure. Under the Companies Law, the internal auditor may be an employee of the company but not an interested party or an office holder or a relative of an interested party or an office holder, nor may the internal auditor be the company’s independent auditor or the representative of the same. An interested party is defined in the Companies Law as a holder of 5.0% or more of the issued share capital or voting power in a company, any person or entity who has the right to designate one director or more or the chief executive officer of the company or any person who serves as a director or as a chief executive officer. Our internal auditor is Fahn Kane & Co., an Israeli accounting firm affiliated with Grant Thornton International.
Fiduciary Duties and Approval of Specified Related Party Transactions Under Israeli Law
Fiduciary Duties of Office Holders
The Companies Law imposes a duty of care and a duty of loyalty on all office holders of a company.
The duty of care requires an office holder to act with the degree of care with which a reasonable office holder in the same position would have acted under the same circumstances. The duty of care includes a duty to use reasonable means, in light of the circumstances, to obtain:
| • | information on the advisability of a given action brought for his or her approval or performed by virtue of his or her position; and |
| • | all other important information pertaining to these actions. |
The duty of loyalty requires an office holder to act in good faith and for the benefit of the company, and includes the duty to:
| • | refrain from any conflict of interest between the performance of his or her duties in the company and his or her other duties or personal affairs; |
| • | refrain from any activity that is competitive with the company; |
| • | refrain from exploiting any business opportunity of the company for the purpose of gaining a personal advantage for himself or herself or others; and |
| • | disclose to the company any information or documents relating to a company’s affairs which the office holder received as a result of his or her position as an office holder. |
Disclosure of Personal Interests of an Office Holder
The Companies Law requires that an office holder promptly disclose to the company any personal interest that he or she may have and all related material information or documents in his or her possession relating to any existing or proposed transaction by the company. An interested office holder’s disclosure must be made promptly and in any event no later than the first meeting of the board of directors at which the transaction is considered. An office holder is not obliged to disclose such information if the personal interest of the office holder derives solely of the personal interest of his or her relative in a transaction that is not extraordinary.
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“Personal interest” is defined under the Companies Law to include a personal interest of a person in an action or in the business of a company, including the personal interest of such person’s relative or the interest of any corporation in which the person is an interested party.
Under the Companies Law, an extraordinary transaction is a transaction:
| • | other than in the ordinary course of business; |
| • | that is not on market terms; or |
| • | that may have a material impact on the company’s profitability, assets or liabilities. |
Under the Companies Law, once an office holder has complied with the above disclosure requirement, a company may approve a transaction between the company and the office holder or a third party in which the office holder has a personal interest, or approve an action by the office holder that would otherwise be deemed a breach of duty of loyalty. However, a company may not approve a transaction or action that is adverse to the company’s interest or that is not performed by the office holder in good faith. If the transaction is an extraordinary transaction, both the audit committee and the board of directors must approve the transaction. Under certain circumstances, shareholder approval may also be required. A director who has a personal interest in a matter which is considered at a meeting of the board of directors or the audit committee may generally not be present at the meeting or vote on the matter unless a majority of the directors or members of the audit committee have a personal interest in the matter. If a majority of the directors have a personal interest in the matter, it also requires approval of the shareholders of the company.
Under the Companies Law, unless the articles of association of a company provide otherwise, a transaction with an office holder, or a transaction with a third party in which the office holder has a personal interest, requires approval by the board of directors. Our articles of association do not provide otherwise. If it is an extraordinary transaction or an undertaking to indemnify or insure an office holder who is not a director, audit committee approval is also required. Arrangements regarding the compensation, indemnification or insurance of a director require the approval of the audit committee, board of directors and shareholders, in that order.
Disclosure of Personal Interests of a Controlling Shareholder
Under the Companies Law, the disclosure requirements that apply to an office holder also apply to a controlling shareholder of a public company. Extraordinary transactions with a controlling shareholder or in which a controlling shareholder has a personal interest, and the terms of engagement of a controlling shareholder or a controlling shareholder’s relative, whether as an office holder or an employee, require the approval of the audit committee, the board of directors and a majority of the shares voted by the shareholders of the company participating and voting on the matter in a shareholders’ meeting. In addition, the shareholder approval must fulfill one of the following requirements:
| • | at least one-third of the shares held by shareholders who have no personal interest in the transaction and are voting at the meeting must be voted in favor of approving the transaction, excluding abstentions; or |
| • | the shares voted by shareholders who have no personal interest in the transaction who vote against the transaction represent no more than 1.0% of the voting rights in the company. |
Under the Companies Law, a shareholder has a duty to refrain from abusing its power in the company and to act in good faith and in an acceptable manner in exercising its rights and performing its obligations to the company and other shareholders, including, among other things, voting at general meetings of shareholders on the following matters:
| • | an amendment to the articles of association; |
| • | an increase in the company’s authorized share capital; |
| • | approval of related party transactions that require shareholder approval. |
A shareholder also has a general duty to refrain from acting to the detriment of other shareholders.
In addition, any controlling shareholder, any shareholder that knows that its vote can determine the outcome of a shareholder vote and any shareholder that, under the company’s articles of association, has the power to appoint or prevent the appointment of an office holder, or has another power with respect to the company, is under a duty to act
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with fairness towards the company. The Companies Law does not describe the substance of this duty except to state that the remedies generally available upon a breach of contract will also apply in the event of a breach of the duty to act with fairness, taking the shareholder’s position in the company into account.
Exculpation, Insurance and Indemnification of Office Holders
Under the Companies Law, a company may not exculpate an office holder from liability for a breach of the 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. An Israeli company may exculpate an office holder in advance from liability to the company, in whole or in part, for damages caused to the company as a result of a breach of duty of care but only if a provision authorizing such exculpation is inserted in its articles of association. Our articles of association include such a provision. An Israeli company may not exculpate a director for liability arising out of a prohibited dividend or distribution to shareholders.
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. Our articles of association contain such an authorization. An undertaking provided in advance by an Israeli company to indemnify an office holder with respect to a financial liability imposed on him or her in favor of another person pursuant to a judgment, settlement or arbitrator’s award approved by a court must be limited to events which in the opinion of the board of directors can be foreseen based on the company’s activities when the undertaking to indemnify is given, and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances, and such undertaking shall detail the abovementioned events and amount or criteria. In addition, a company may undertake in advance to indemnify an office holder against the following liabilities incurred for acts performed as an office holder:
| • | reasonable litigation expenses, including attorneys’ fees, incurred by the office holder as a result of an investigation or proceeding instituted against him or her by an authority authorized to conduct such investigation or proceeding, provided that (i) no indictment was filed against such office holder as a result of such investigation or proceeding; and (ii) no financial liability, such as a criminal penalty, was imposed upon him or her as a substitute for the criminal proceeding as a result of such investigation or proceeding or, if such financial liability was imposed, it was imposed with respect to an offense that does not require proof of criminal intent; and |
| • | reasonable litigation expenses, including attorneys’ fees, incurred by the office holder or imposed by a court in proceedings instituted against him or her by the company, on its behalf or by a third party or in connection with criminal proceedings in which the office holder was acquitted or as a result of a conviction for an offense that does not require proof of criminal intent. |
An Israeli company may insure an office holder against the following liabilities incurred for acts performed as an office holder if and to the extent provided in the company’s articles of association:
| • | 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; |
| • | a breach of duty of care to the company or to a third party, including a breach arising out of the negligent conduct of the office holder; and |
| • | 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:
| • | 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; |
| • | a breach of duty of care committed intentionally or recklessly, excluding a breach arising out of the negligent conduct of the office holder; |
| • | an act or omission committed with intent to derive illegal personal benefit; or |
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| • | a fine or forfeit levied against the office holder. |
Under the Companies Law, exculpation, indemnification and insurance of office holders must be approved by our audit committee and our board of directors and, in respect to our directors, by our shareholders.
Our articles of association allow us to indemnify and insure our office holders for any liability imposed on them as a consequence of an act (including any omission) which was performed by virtue of being an office holder. Our office holders are currently covered by a directors and officers’ liability insurance policy. As of the date of this offering, no claims for directors and officers’ liability insurance have been filed under this policy and we are not aware of any pending or threatened litigation or proceeding involving any of our directors or officers in which indemnification is sought.
We have entered into agreements with each of our directors and executive officers exculpating them, to the fullest extent permitted by law, from liability to us for damages caused to us as a result of a breach of duty of care, and undertaking to indemnify them to the fullest extent permitted by law, including with respect to liabilities resulting from this offering. This indemnification is limited to events determined as foreseeable by the board of directors based on our activities, and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances, and the insurance is subject to our discretion depending on its availability, effectiveness and cost. Effective as of the date of this offering, the maximum amount set forth in such agreements is the greater of (1) with respect to indemnification in connection with a public offering of our securities, the gross proceeds raised by us and/or any selling shareholder in such public offering, and (2) with respect to all permitted indemnification, including a public offering of our securities, an amount equal to 50% of our shareholders’ equity on a consolidated basis, based on our most recent financial statements made publicly available before the date on which the indemnity payment is made. In the opinion of the U.S. Securities and Exchange Commission, indemnification of directors and office holders for liabilities arising under the Securities Act, however, is against public policy and therefore unenforceable.
Compensation of Office Holders
The aggregate compensation paid by us and our subsidiaries to our current executive officers, including stock based compensation, for the year ended December 31, 2006, was approximately $1.8 million. This amount includes approximately $0.1 million set aside or accrued to provide pension, severance, retirement or similar benefits or expenses, but does not include business travel, relocation, professional and business association dues and expenses reimbursed to office holders, and other benefits commonly reimbursed or paid by companies in Israel.
We currently pay, and intend to continue to pay after the closing of this offering, an annual cash retainer of $8,400 and per meeting fee of $450 to each of our directors. We also reimburse them for expenses arising from their board membership.
Employment and Consulting Agreements with Executive Officers
We have entered into written employment agreements with all of our executive officers. See “Certain Relationships and Related Party Transactions — Agreements with Directors and Officers” for additional information.
Directors’ Service Contracts
There are no arrangements or understandings between us and any of our subsidiaries, on the one hand, and any of our directors, on the other hand, providing for benefits upon termination of their employment or service as directors of our company or any of our subsidiaries.
Stock Option and Stock Incentive Plans
2008 Incentive Compensation Plan
We adopted the 2008 Incentive Compensation Plan to become effective upon the closing of this offering. Following the approval of the 2008 plan by the Israeli tax authorities, which we expect will be within three months of the date of this prospectus, we will only grant options or other equity incentive awards under the 2008 plan, although previously-granted options will continue to be governed by our other plans. The 2008 plan is intended to further our success by increasing the ownership interest of certain of our and our subsidiaries’ employees, directors and consultants and to enhance our and our subsidiaries’ ability to attract and retain employees, directors and consultants.
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We may issue up to ordinary shares remaining available for issuance and not subject to outstanding awards under our existing plans as of , 2008, upon the exercise or settlement of share options or other equity incentive awards granted under the 2008 plan. The number of ordinary shares that we may issue under the 2008 plan will increase on the first day of each fiscal year during the term of the 2008 plan, in each case in an amount equal to the lesser of (i) 2,500,000 shares, (ii) 3.0% of our outstanding ordinary shares on the last day of the immediately preceding year, or (iii) an amount determined by our board of directors. The number of shares subject to the 2008 plan is also subject to adjustment if particular capital changes affect our share capital. Ordinary shares subject to outstanding awards under our existing plans that are subsequently forfeited or terminated for any other reason before being exercised will again be available for grant under the 2008 plan. As of the closing of this offering, no options or other awards will have been granted under the 2008 plan.
A share option is the right to purchase a specified number of ordinary shares in the future at a specified exercise price and subject to the other terms and conditions specified in the option agreement and the 2008 plan. The exercise price of each option granted under the 2008 plan will be determined by our compensation, nominating and governance committee and for “incentive stock options” shall be equal to or greater than the fair market value of our ordinary shares at the time of grant (except for any options granted under the 2008 plan in substitution or exchange for options or awards of another company involved in a corporate transaction with us or a subsidiary, which will have an exercise price that is intended to preserve the economic value of the award that is replaced). The exercise price of any share options granted under the 2008 plan may be paid in cash, ordinary shares already owned by the option holder or any other method that may be approved by our compensation, nominating and governance committee, such as a cashless broker-assisted exercise that complies with law.
Our compensation, nominating and governance committee may also grant, or recommend that our board of directors to grant, other forms of equity incentive awards under the 2008 plan, such as restricted share awards, share appreciation rights, restricted share units and other forms of equity-based compensation.
Israeli participants in the 2008 plan may be granted options subject to Section 102 of the Israeli Income Tax Ordinance. Section 102 of the Israeli Income Tax Ordinance allows employees, directors and officers who are not controlling shareholders and are considered Israeli residents to receive favorable tax treatment for compensation in the form of shares or options. We have elected to issue our options and shares under Section 102(b)(2) of the ordinance, the capital gains track. To comply with the capital gains track, all options and shares issued under the plan, as well as any shares received subsequently following any realization of rights with respect to such options and shares, are granted to a trustee and should be held by the trustee for a period of two years from the date of grant. Under the capital gains track we are not allowed to deduct an expense with respect to the issuance of the options or shares. Under certain conditions we will be able to change our election with respect to future grants under the plan. In addition, we will be able to make a different election under a new plan. Any stock options granted under the 2008 plan to participants in the United States will be either “incentive stock options,” which may be eligible for special tax treatment under the Internal Revenue Code of 1986, or options other than incentive stock options (referred to as “nonqualified stock options”), as determined by our compensation, nominating and governance committee and stated in the option agreement.
Our compensation, nominating and governance committee will administer the 2008 plan. Our board of directors may, subject to any legal limitations, exercise any powers or duties of the compensation, nominating and governance committee concerning the 2008 plan. The compensation, nominating and governance committee will select which of our and our subsidiaries’ and affiliates’ eligible employees, directors and/or consultants shall receive options or other awards under the 2008 plan and will determine, or recommend to our board of directors, the number of ordinary shares covered by those options or other awards, the terms under which such options or other awards may be exercised (however, options generally may not be exercised later than 10 years from the grant date of an option) or may be settled or paid, and the other terms and conditions of such options and other awards under the 2008 plan in accordance with the provisions of the 2008 plan. Holders of options and other equity incentive awards may not transfer those awards, unless they die or, except in the case of incentive stock options, the compensation, nominating and governance committee determines otherwise.
If we undergo a change of control, as defined in the 2008 plan, subject to any contrary law or rule, or the terms of any award agreement in effect before the change of control, (a) the compensation, nominating and governance committee may, in its discretion, accelerate the vesting, exercisability and payment, as applicable, of outstanding
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options and other awards; and (b) the compensation, nominating and governance committee, in its discretion, may adjust outstanding awards by substituting ordinary shares or other securities of any successor or another party to the change of control transaction, or cash out outstanding options and other awards, in any such case, generally based on the consideration received by our shareholders in the transaction.
Subject to particular limitations specified in the 2008 plan and under applicable law, our board of directors may amend or terminate the 2008 plan, and the compensation, nominating and governance committee may amend awards outstanding under the 2008 plan. The 2008 plan will continue in effect until all ordinary shares available under the 2008 plan are delivered and all restrictions on those shares have lapsed, unless the 2008 plan is terminated earlier by our board of directors. No awards may be granted under the 2008 plan on or after the tenth anniversary of the date of adoption of the plan.
Existing Stock Option Plans
We currently have outstanding options to purchase our ordinary shares that were granted under stock option plans that we adopted annually from 1999 through 2007. As of September 30, 2007, there were options and warrants to purchase 4,477,906 ordinary shares outstanding under these plans, at a weighted average exercise price of $3.34. Of these outstanding options, as of September 30, 2007, options and warrants to purchase 3,887,063 ordinary shares were vested and exercisable. Through September 30, 2007, 2,365,629 of ordinary shares have been issued upon exercise of options granted under these plans. We will not grant any additional options under these plans after consummation of this offering. The following is a summary of the material terms of these plans.
These option plans allow us to grant options to purchase ordinary shares to employees, directors and consultants of us or our subsidiaries. These plans generally are intended to further our success by increasing these individuals’ ownership interests in us and to enhance our and our subsidiaries’ ability to attract these individuals.
We have obtained all necessary approvals under Israeli law for the issuance and exercise of options. The Israeli Securities Authority notified us that, by virtue of its authority under Section 15d of the Israeli Securities Law, or Securities Law, we are exempt from the provisions of the Israeli Securities Law in connection with the granting and the exercise of options to employees, directors and consultants in Israel under these plans. This exemption is contingent upon the satisfaction of certain conditions, which have been satisfied.
The normal vesting schedule for options granted under these plans provides that 50% of the option will vest two years after the date of grant; 25% of the option will vest three years after the date of grant, and the final 25% of the option will vest four years after the date of grant. Options expire ten years after the date of grant if not exercised earlier. In general, when an option holder’s employment or service with us terminates, his or her option will no longer continue to vest following termination, and the holder may exercise any vested options for a period of ninety days following termination. If an option holder’s employment with us terminates due to disability or if the termination of employment results from his or her death, then the option holder or his or her estate (as applicable) has twelve months to exercise the option; however, the option may not be exercised after its scheduled expiration date. If termination of employment results from the dismissal of the option holder for circumstances in which the option holder is not entitled to a severance payment as stated in Israeli Severance Pay Law 5723-1963, or for cause, his or her outstanding options will expire.
The option exercise price is determined by the compensation, nominating and governance committee and specified in each option award agreement. For options granted while our ordinary shares have been listed on the Frankfurt Stock Exchange prior to July 19, 2007, the option exercise price of an option is the closing price of the ordinary shares on the Frankfurt Stock Exchange on the date the option is granted. For options granted prior to the listing of our ordinary shares on the Frankfurt Stock Exchange, the option exercise price is the fair market value of the shares on the date of grant as determined in good faith by the board of directors. For options granted after July 19, 2007, the option exercise price of an option is generally determined in accordance with the average value of Valor’s shares on the thirty trading days prior to the date of grant.
We have elected to issue our options and shares granted or issued to Israeli participants in these plans under Section 102(b)(2) of the Israeli Income Tax Ordinance, which is the capital gains track. To comply with the capital gains track, all options and shares under the plans are granted or issued to a trustee and are held by the trustee for two years from the date of grant of the option. Under the capital gains track we are not allowed an Israeli tax deduction for the grant or issuance of the options or shares.
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Options granted to our U.S. employees under the 1999 through 2005 plans are intended to comply with the incentive stock option rules of the Internal Revenue Code of 1986. Those plans provide that the aggregate fair market value of the shares with respect to which such an incentive stock option is exercisable for the first time under all plans offered by us, our parent, affiliate or subsidiary, may not exceed $100,000. These plans also provide that if an option holder owns more than ten percent of the total combined voting power of all classes of shares, then the option may not have an exercise price less than 110% of the fair market value of a share at the date of grant, and the term of such option may not exceed five years.
Our board of directors’ compensation, nominating and governance committee administers these plans. However, our board of directors has residual authority to exercise any powers or duties of the compensation, nominating and governance committee concerning the plans if the committee ceases to operate for any reason. The compensation, nominating and governance committee recommends to the board of directors, and the board of directors determines or approves, the eligible individuals who receive options under the plans, the number of ordinary shares covered by those options, the terms under which such options may be exercised, and the other terms and conditions of the options, all in accordance with the provisions of the plan.
Option holders may not transfer their options except in the event of death or if the compensation, nominating and governance committee determines otherwise.
In the case of certain changes in our share capital structure, such as a consolidation or share split or dividend, appropriate adjustments will be made to the numbers of shares and exercise prices under outstanding options.
If we offer shareholders rights to purchase any of our securities, we are required (except as to options under the 1999 and 2000 plans) to also offer identical rights to holders of outstanding options on the date of determining the right to receive those rights, as if the holder had exercised his or her options on the eve of such date and purchased the full number of shares for which the option was then exercisable. However, the compensation, nominating and governance committee has discretion to determine whether to allow the option holder to enjoy any other benefit deriving from the rights offering in addition to the right to purchase additional shares at their fair market value.
In the event that we undergo a Transaction, subject to any contrary law or rule, or the terms of any option award agreement in effect before the Transaction, any unexercised options will be replaced by equally ranking options of the successor company. If the successor company refuses to issue these replacement options, the vesting and exercisability of outstanding options may (in the discretion of the compensation, nominating and governance committee or the board of directors) be accelerated, or, in the case of the 2001, 2002 and 2003 plans, will be partially accelerated, prior to a Transaction. The plans define a Transaction as (a) a merger, acquisition or reorganization of Valor with one or more entities in which Valor is not the surviving entity, or (b) a sale of all or substantially all of the assets of Valor. In the event that a proposal for liquidation is submitted to shareholders, option holders will also be entitled to participate in a liquidation distribution.
Our compensation, nominating and governance committee and/or board of directors may at any time amend or terminate these plans; however, any amendment or termination may not adversely affect any options or shares granted under the plan prior to such action. The plans provide that if the board of directors desires, it can, with the consent of the option holder, cancel an outstanding option or amend an outstanding option, including the exercise price.
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The following table provides information regarding the options to purchase our ordinary shares by each of our directors and officers beneficially owning greater than one percent of our ordinary shares or options to purchase more than one percent of our ordinary shares immediately prior to the closing of this offering:
 | | | | | | | | |
| Name | | Number of Shares Underlying Options | | Exercise Price | | Expiration Date | | Total Shares
Underlying Options |
| Ofer Shofman | | | 233,889 | | | $ | 0.97 | | | | February 11, 2012 | | | | | |
| | | | 275,260 | | | | 0.91 | | | | May 6, 2012 | | | | | |
| | | | 70,000 | | | | 3.67 | | | | May 3, 2014 | | | | | |
| | | | 50,000 | | | | 3.16 | | | | May 1, 2015 | | | | | |
| | | | 65,000 | | | | 4.12 | | | | March 9, 2016 | | | | | |
| | | | 70,000 | | | | 4.76 | | | | February 11, 2017 | | | | | |
| | | | 30,000 | | | | 5.70 | | | | May 9, 2017 | | | | | |
| | | | 200,000 | | | | 5.84 | | | | July 19, 2017 | | | | 994,149 | |
| Dan Hoz | | | 4,500 | | | $ | 4.07 | | | | July 1, 2009 | | | | | |
| | | | 25,000 | | | | 4.80 | | | | December 14, 2016 | | | | | |
| | | | 5,000 | | | | 2.48 | | | | May 8, 2011 | | | | | |
| | | | 4,500 | | | | 0.97 | | | | February 11, 2012 | | | | | |
| | | | 20,000 | | | | 0.78 | | | | August 12, 2012 | | | | | |
| | | | 30,000 | | | | 1.08 | | | | December 24, 2012 | | | | | |
| | | | 60,000 | | | | 3.32 | | | | December 21, 2013 | | | | | |
| | | | 75,000 | | | | 3.31 | | | | December 28, 2014 | | | | | |
| | | | 15,000 | | | | 3.03 | | | | December 29, 2015 | | | | | |
| | | | 20,000 | | | | 5.70 | | | | May 9, 2017 | | | | | |
| | | | 100,000 | | | | 5.84 | | | | July 19, 2017 | | | | 359,000 | |
| Charles Feingold | | | 17,500 | | | $ | 1.08 | | | | December 24, 2012 | | | | 17,500 | |
| Julian Coates | | | 68,060 | | | $ | 0.97 | | | | February 11, 2012 | | | | | |
| | | | 46,000 | | | | 1.08 | | | | December 24, 2012 | | | | | |
| | | | 15,000 | | | | 3.10 | | | | October 20, 2015 | | | | | |
| | | | 25,000 | | | | 4.80 | | | | December 14, 2016 | | | | | |
| | | | 8,000 | | | | 6.27 | | | | July 8, 2017 | | | | | |
| | | | 60,000 | | | | 6.00 | | | | November 11, 2017 | | | | 222,060 | |
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Our policy is to enter into transactions with related parties on terms that, on the whole, are no more favorable, or no less favorable, than those available from unaffiliated third parties. Based on our experience in the business in which we operate and the terms of our transactions with unaffiliated third parties, we believe that all of the transactions described below met this policy standard at the time they occurred.
Joint Venture Agreement with Orbotech Ltd.
We entered into a joint venture agreement with Orbotech Ltd. in August 1998 pursuant to which we established Frontline P.C.B. Solutions L.P. and Frontline P.C.B. Solutions (1998) Ltd., which we refer to together as Frontline. Frontline was formed in order to develop, manufacture and sell software for the fabrication segment of the PCB manufacturing market. Pursuant to the joint venture agreement, we and Orbotech agreed to allocate all of Frontline’s revenues, profits and losses equally between us.
Upon the formation of the joint venture both we and Orbotech assigned all purchase orders, outstanding warranty commitments and sales, agency and customer support agreements related to the activities of the joint venture to Frontline. We contributed certain intellectual property to Frontline, but we also retained the right to develop such intellectual property on our own, subject to certain non-compete provisions. We have not made available any other intellectual property to Frontline. All intellectual property developed by Frontline is our property as well as the property of Orbotech, subject to certain non-compete provisions, provided we and Orbotech each hold at least a 30% interest in Frontline. Orbotech and its subsidiaries act as the sole agents for the sale, marketing, servicing, support and maintenance of Frontline’s products worldwide.
Non-Compete Provisions
Pursuant to the joint venture agreement, we and Orbotech agreed not to compete directly or indirectly with Frontline for so long as we hold interests in Frontline and for an additional 36 months thereafter. Neither we nor Orbotech may solicit for employment or hire any employee of Frontline until one year after the termination of such employee’s employment for as long as we hold an interest in Frontline and for an additional 36 months thereafter. In addition, neither we nor Orbotech may use any intellectual property developed by Frontline to compete against Frontline for the duration of the joint venture or after the joint venture is terminated. Frontline may not compete directly or indirectly with any of our or Orbotech’s products or services as long as we or Orbotech hold an interest in Frontline and for 36 months thereafter. If we or Orbotech acquire rights with respect to CAD or archiving products for use by businesses within the printed circuit board fabrication industry while we hold an interest in Frontline, then we or Orbotech, as the case may be, may be required to sell such rights to Frontline.
Board of Directors
Frontline’s board of directors, executive committee, general managers and all committees of the board of directors are divided equally between us and Orbotech and will continue to be so divided as long as our holdings are equal, except that an independent director may be appointed to Frontline’s board of directors by us and Orbotech, acting jointly. Pursuant to the joint venture agreement certain decisions require our approval and the approval of Orbotech, as long as our holdings are equal, including:
| • | a change in the number or composition of the board of directors or the method prescribed for appointing the members of the board of directors; |
| • | any change to Frontline’s organizational or charter documents; |
| • | any change to Frontline’s capital structure; |
| • | the merger, reorganization or consolidation of Frontline or the sale or other transfer of all or substantially all of Frontline’s assets; |
| • | the appointment and removal of Frontline’s auditors and the fixing of their remuneration; |
| • | approval of any agreements with one of our competitor's or a competitor of Orbotech; and |
| • | entry into any contract in excess of $1 million. |
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Certain matters require the approval of Frontline’s board of directors, regardless of whether such matter might otherwise be considered part of the day-to-day management of Frontline.
Transferability of Shares
Neither we nor Orbotech may transfer our interests in Frontline without the prior written consent of the other party. If either we or Orbotech desire to transfer all or a portion of our interests in Frontline, such shareholder must negotiate exclusively with the other shareholder during an initial 30-day negotiation period. If agreement is not reached, then the transferring shareholder may offer its interest for sale to a third party during the immediately subsequent 90-day period. If the transferring shareholder does not reach agreement with a third party during such period, the transferring shareholder must again comply with the initial negotiation period. If the transferring shareholder reaches an agreement with a bona fide third-party purchaser during the specified period it is subject to (a) a right of first refusal, such that the transferring shareholder must first offer its interest on the same terms to the other shareholder, and (b) a right to tag along, such that the transferring shareholder may not sell its interest unless the purchaser agrees to purchase the same percentage of interests from the other shareholder as it is purchasing from the transferring shareholder, on the same terms. Except when the other shareholder exercises its right to tag along, any transfer of interests is also subject to a right of approval of the purchaser by the other shareholder, which approval may not be unreasonably withheld unless the proposed transferee is a competitor of the other shareholder, in which case such approval may be granted in the other shareholder’s sole discretion.
Change of Control
A change in control under the joint venture agreement occurs if (a) our or Orbotech’s board of directors or shareholders (if shareholder approval is required) approve (i) any consolidation or merger whereby we or Orbotech are not the surviving corporation or pursuant to which our shares or the shares of Orbotech would be converted into cash, securities or other property, except when the shareholders have the same proportionate ownership of shares in the surviving corporation, or (ii) the adoption of any plan for liquidation; (b) during any period of two consecutive years, individuals comprising our or Orbotech’s entire board of directors at the beginning of such period cease to constitute a majority of the board of directors, unless the election, or the nomination for election by the shareholders, of each new director was approved by at least two-thirds of the directors then still in office who were directors at the beginning of the period; or (c) one of our or Orbotech’s competitors acquires, directly or indirectly, 10% or more of the voting power of our or Orbotech’s outstanding voting securities.
In the event there is a change in control of us or Orbotech the other shareholder may demand that the shareholder that underwent a change in control negotiate exclusively with the other shareholder for purchase of all of the interests in Frontline of the shareholder that underwent a change in control. If an agreement is not reached, the other shareholder can demand that an appraiser perform a valuation of all the interests in Frontline we and Orbotech own. Each of the shareholders then has thirty days to make an offer to purchase the other shareholder’s interest in Frontline for an amount at least equal to the valuation. If only one shareholder makes such an offer, the other shareholder is obligated to sell its interests at the price offered. If both shareholders make offers, they continue to bid against one another and the shareholder who bids the highest is entitled to buy the other shareholder's interests. If neither shareholder makes an offer, then the shareholders may dissolve Frontline.
Post-Sale Obligations
For a period of one year after either we or Orbotech transfer our interests in Frontline, the transferring party is required to continue supplying Frontline with the same goods and services as it supplied during the six months preceding the sale. All rights to intellectual property granted by the transferring shareholder to Frontline and by Frontline to the transferring shareholder remain in effect after the transfer.
Dispute Resolution
If a dispute arises between us and Orbotech the joint venture agreement requires that the party bringing the dispute provide notice of the dispute and negotiate in good faith with the other party to settle the dispute. If the dispute cannot be settled within three days of when notice of the dispute is given then the party bringing the dispute may initiate binding arbitration procedures. If we and Orbotech cannot agree on an arbitrator or neither party initiates arbitration procedures 30 days after notice of a dispute is given then such disputes are to be settled by the courts of law of Tel Aviv.
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The joint venture agreement states that it is the intention of both parties that neither of us has the right to terminate the joint venture agreement and that the sole remedy for violation of the agreement would be specific enforcement or damages. However, in the event that one of us commits a violation such that a court determines that we would not have intended the agreement to remain in effect, then either of us may terminate the agreement upon 90 days’ prior written notice. The termination of Frontline becomes effective if the dispute is not remedied in the 90-day period, or in the case of violations which cannot be remedied in 90 days, if the defaulting party does not begin to remedy the dispute within ninety days and settle the dispute within an additional 90 days.
Agreements with Directors and Officers
We have entered into written employment agreements with all of our executive officers. These agreements each contain provisions regarding non-competition, confidentiality of information and assignment of inventions. The non-competition provision applies for a period that is generally between six and nine months following termination of employment. The enforceability of covenants not to compete in Israel and the United States is subject to limitations. In addition, we are required to provide notice of between three and six months prior to terminating the employment of certain of our senior executive officers other than in the case of a termination for cause.
Options. Since our inception we have granted options to purchase our ordinary shares to our officers and certain of our directors. We describe our option plans under “Management — Stock Option and Stock Incentive Plans.”
Exculpation, Indemnification and Insurance. Our articles of association permit us to exculpate, indemnify and insure our office holders to the fullest extent permitted by the Companies Law. We have entered into agreements with each of our directors and executive officers, exculpating them from a breach of their duty of care to us to the fullest extent permitted by law and undertaking to indemnify them to the fullest extent permitted by law, including with respect to liabilities resulting from this offering to the extent that these liabilities are not covered by insurance. See “Management — Exculpation, Insurance and Indemnification of Office Holders.”
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PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial ownership of our outstanding ordinary shares as of the date of this prospectus, as adjusted to reflect the sale of the ordinary shares in this offering:
| • | each person who we know beneficially owns 5.0% or more of our outstanding ordinary shares; |
| • | each of our directors individually; |
| • | each of our executive officers individually; |
| • | all of our directors and executive officers as a group; and |
| • | each of the selling shareholders. |
Beneficial ownership of shares is determined under rules of the Securities and Exchange Commission and generally includes any shares over which a person exercises sole or shared voting or investment power. The table also includes the number of ordinary shares underlying warrants, options or rights that are exercisable within 60 days of the date of this offering. Ordinary shares subject to these warrants, options or rights are deemed to be outstanding for the purpose of computing the ownership percentage of the person beneficially holding these warrants, options or rights, but are not deemed to be outstanding for the purpose of computing the ownership percentage of any other person. The table assumes 20,531,081 ordinary shares outstanding as of the date of this prospectus and ordinary shares outstanding upon the completion of this offering.
Any person whose shareholding in us reaches, exceeds or falls below 3 percent, 5 percent, 10 percent, 15 percent, 20 percent, 25 percent, 30 percent, 50 percent or 75 percent of our total voting rights by purchase, sale or by any other means is required to notify us, without undue delay and in any event within four trading days, and simultaneously to notify the German Federal Financial Supervisory Agency (Bundesanstalt fuer Finanzdienstleistungsaufsicht, orBaFin) in accordance with the provisions of the German Securities Trading Act. In the case of securities that are certificated, such as our shares, the notification requirement applies exclusively to the holder of the certificates. The notification period begins when the notifying party learns, or in light of the circumstances should have learned, that his or her percentage of the voting rights has reached, exceeded or fallen below the above-mentioned thresholds. Based on these reporting obligations and on information of which we have otherwise become aware, we have set forth below information known to us regarding the beneficial ownership of ordinary shares by our current shareholders and any significant change in the percentage ownership of our ordinary shares by any major shareholders during the past three years.
All of our shareholders, including the shareholders listed below, have the same voting rights attached to their ordinary shares. See “Description of Share Capital — Voting.”
Unless otherwise noted below, each shareholder’s address is Valor Computerized Systems Ltd., 4 Faran Street, Yavne 70600, Israel.
| | | | | | | | | | | | |
| |
Number of Shares
Beneficially Owned | | Number of Ordinary Shares Being Offered | | Percentage of Shares
Beneficially Owned | | Number of Shares Offered Pursuant to Overallotment Option |
| Name and Address | | Before
Offering | | After
Offering | | Before
Offering | | After
Offering |
Principal and selling shareholders:
| |
| DS Apex Holdings Ltd.(1) | | | 2,428,130 | | | | | | | | | | | | 11.8 | % | | | | | | | | |
| Moshe Kovarsky(2) | | | 1,200,000 | | | | | | | | | | | | 5.8 | | | | | | | | | |
| Shlomo Almog(3) | | | 1,474,500 | | | | | | | | | | | | 7.2 | | | | | | | | | |
Directors and executive officers:
| |
| Ofer Shofman(4) | | | 1,361,649 | | | | | | | | | | | | 6.5 | | | | | | | | | |
| Dan Hoz(5) | | | 197,764 | | | | | | | | | | | | 1.0 | | | | | | | | | |
| Dr. Amit Geva | | | — | | | | | | | | | | | | — | | | | | | | | | |
| David Bengal(6) | | | 52,500 | | | | | | | | | | | | * | | | | | | | | | |
| Jay Gorajia(7) | | | 51,500 | | | | | | | | | | | | * | | | | | | | | | |
| Patrick McGoff(8) | | | 50,000 | | | | | | | | | | | | * | | | | | | | | | |
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| | | | | | | | | | | | |
| |
Number of Shares
Beneficially Owned | | Number of Ordinary Shares Being Offered | | Percentage of Shares
Beneficially Owned | | Number of Shares Offered Pursuant to Overallotment Option |
| Name and Address | | Before
Offering | | After
Offering | | Before
Offering | | After
Offering |
| Julian Coates(9) | | | 401,836 | | | | | | | | | | | | 1.9 | | | | | | | | | |
| Meir Zelzer | | | — | | | | | | | | | | | | — | | | | | | | | | |
| Dan Weitzman(10) | | | 2,500 | | | | | | | | | | | | * | | | | | | | | | |
| Stephan Häfele | | | — | | | | | | | | | | | | — | | | | | | | | | |
| Kay Huat Ong(11) | | | 50,000 | | | | | | | | | | | | * | | | | | | | | | |
| Masahiro Yoshida(12) | | | 168,250 | | | | | | | | | | | | * | | | | | | | | | |
| Kobi Rozengarten | | | — | | | | | | | | | | | | — | | | | | | | | | |
| Dr. Michael Brunstein | | | — | | | | | | | | | | | | — | | | | | | | | | |
| Charles Feingold(13) | | | 1,461,421 | | | | | | | | | | | | 7.2 | | | | | | | | | |
| Dr. Shlomo Kalish(14) | | | 20,000 | | | | | | | | | | | | * | | | | | | | | | |
| Amit Mantzur | | | — | | | | | | | | | | | | — | | | | | | | | | |
| Ayelet Tal | | | — | | | | | | | | | | | | — | | | | | | | | | |
| All directors and executive officers as a group | | | 3,817,420 | | | | | | | | | | | | 18.6 | % | | | | | | | | |
| (1) | Consists of 1,657,714 ordinary shares held by provident funds, each of which is affiliated with DS Apex Holdings group and each of which is managed by different investment managers who hold voting and dispositive power over the shares held by each such fund as trustee for the members of such funds. Also consists of 500,126 ordinary shares owned by DS Apex Holdings Ltd. and its subsidiaries. DS Apex Holdings Ltd. and each such subsidiary has its own board of directors, which hold voting and dispositive power over the shares held by each such entity. Also consists of 270,290 ordinary shares owned by mutual funds, each of which is affiliated with DS Apex Holdings group and each of which is managed by different investment managers who hold voting and dispositive power over the shares held by each such fund as trustee for the investors of such funds. Each such investment manager disclaims any beneficial ownership except to the extent of his respective pecuniary interest therein. The principal address of D.S. Apex Holdings Ltd. is 2 Koyfman Street, Tel Aviv, Israel. Based on information provided to us by a former shareholder, we understand that DS Apex Holdings Ltd., its subsidiaries and related funds acquired the shares shown in the table from such shareholder in February 2006. |
| (2) | Consists of 1,200,000 ordinary shares. Moshe Kovarsky sold 316,985 shares in 2005, which decreased his ownership percentage from 10.9% to 9.3%, 237,751 shares in 2006, which decreased his ownership percentage to 8.2%, and 480,000 shares in 2007, which decreased his ownership percentage to the current 5.8%. The principal address of Moshe Kovarsky is 3 Tzipora Tov Street, Rehovot, Israel. |
| (3) | Consists of 1,474,500 ordinary shares. Shlomo Almog sold 160,000 shares in 2006, which decreased his ownership percentage from 9.4% to 8.6%, and 300,000 shares in 2007, which decreased his ownership percentage to the current 7.2%. The principal address of Shlomo Almog is 7 Glushkin Street, Rehovot, Israel. |
| (4) | Consists of 800,000 ordinary shares and options to purchase 561,649 shares. |
| (5) | Consists of options to purchase 197,764 shares. |
| (6) | Consists of options to purchase 52,500 shares. |
| (7) | Consists of 12,000 ordinary shares and options to purchase 39,500 shares. |
| (8) | Consists of options to purchase 50,000 shares. |
| (9) | Consists of 255,276 ordinary shares held by RS. Payne Ltd. and options to purchase 146,560 shares held by Julian Coates. Mr. Coates is the controlling shareholders of RS. Payne Ltd. and has voting and dispositive power over the shares held by the company. |
| (10) | Consists of options to purchase 2,500 shares. |
| (11) | Consists of options to purchase 50,000 shares. |
| (12) | Consists of options to purchase 168,250 shares. |
| (13) | Consists of 1,443,921 ordinary shares and options to purchase 17,500 shares owned by the Charles and Hadassah Feingold Trust. The trust is controlled by Charles and Hadassah Feingold both of whom share shared voting and dispositive power over the shares held by the trust. |
| (14) | Consists of options to purchase 15,000 shares. |
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DESCRIPTION OF SHARE CAPITAL
As of the date of this prospectus, our authorized share capital consists of 35,599,620 ordinary shares with a par value of NIS 0.1 per share. Upon the closing of this offering, our authorized share capital will consist of 70,000,000 ordinary shares, of which will be issued and outstanding.
Our ordinary shares are not redeemable and following the closing of this offering will not have preemptive rights. The ownership or voting of ordinary shares by non-residents of Israel is not restricted in any way by our memorandum of association, our articles of association or the laws of the State of Israel, except that citizens of countries which are in a state of war with Israel may not be recognized as owners of ordinary shares.
Our current articles will be replaced by new articles of association to be effective upon the closing of this offering. The description below reflects the terms of our articles of association to be effective upon the closing of this offering.
Voting
Holders of our ordinary shares have one vote for each ordinary share held on all matters submitted to a vote of shareholders at a shareholder meeting. Shareholders may vote at shareholder meetings either in person, proxy or by written ballot. Israeli law does not provide for public companies such as us to have shareholder resolutions adopted by means of a written consent in lieu of a shareholder meeting. Shareholder voting rights may be affected by the grant of any special voting rights to the holders of a class of shares with preferential rights that may be authorized in the future. The Companies Law provides that a shareholder, in exercising his or her rights and performing his or her obligations toward the company and its other shareholders, must act in good faith and in an acceptable manner, and avoid abusing his or her powers. This is required when voting at general meetings on matters such as amendments to the articles of association, increasing the company’s authorized capital, mergers and approval of related party transactions that require shareholder approval. A shareholder also has a general duty to refrain from depriving any other shareholder of its rights as a shareholder. In addition, any controlling shareholder, any shareholder who knows that its vote can determine the outcome of a shareholder vote and any shareholder who, under a company’s articles of association, can appoint or prevent the appointment of an office holder or has other power with respect to the company, is under a duty to act with fairness towards the company. The Companies Law does not describe the substance of this duty, except to state that the remedies generally available upon a breach of contract will apply also in the event of a breach of the duty to act with fairness, taking the shareholder’s position in a company into account.
Transfer of Shares
Fully paid ordinary shares are issued in registered form and may be freely transferred under our articles of association unless the transfer is restricted or prohibited by another instrument, Israeli law or the rules of a stock exchange on which the shares are traded.
Election of Directors
Our ordinary shares do not have cumulative voting rights for the election of directors. Rather, under our articles of association our directors are elected by the holders of a simple majority of our ordinary shares at a general shareholder meeting (excluding abstentions). As a result, the holders of our ordinary shares that represent more than 50.0% of the voting power represented at a shareholder meeting and voting thereon (excluding abstentions) have the power to elect any or all of our directors whose positions are being filled at that meeting, subject to the special approval requirements for outside directors described under “Management — Outside Directors.”
Dividend and Liquidation Rights
Under Israeli law, we may only declare and pay an annual dividend if, in the discretion of our board of directors, there is no reasonable concern that the distribution will prevent us from being able to meet the terms of our existing and contingent obligations as they become due. The distribution of dividends is further limited by Israeli law to the greater of retained earnings and earnings generated over the two most recent years. If we do not have retained earnings and earnings legally available for distribution, as defined in the Israeli Companies Law, we may seek the approval of the court to distribute a dividend. The court may approve our request if it is convinced that there is no reasonable concern that a payment of a dividend will prevent us from satisfying our existing and foreseeable obligations as they
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become due. Final dividends must be approved by the shareholders, although interim dividends may be declared and paid by the board of directors without shareholder approval.
In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of ordinary shares on a pro-rata basis. Dividend and liquidation rights may be affected by the grant of preferential dividend or distribution rights to the holders of a class of shares with preferential rights that may be authorized in the future.
Shareholder Meetings
We are required to convene an annual general meeting of our shareholders once every calendar year within a period of not more than 15 months following the preceding annual general meeting. Our board of directors may convene a special general meeting of our shareholders and is required to do so at the request of two directors or one quarter of the members of our board of directors or at the request of one or more holders of 5.0% or more of our share capital and 1.0% of our voting power or the holder or holders of 5.0% or more of our voting power. All shareholder meetings require prior notice of at least 21 days. The chairperson or deputy chairperson of our board of directors presides over our general meetings and is appointed by the board of directors. If neither the chairperson nor the deputy chairperson were appointed or are present within 15 minutes from the appointed time, the shareholders present shall appoint a chairperson. Subject to the provisions of the Companies Law and the regulations promulgated there under, shareholders entitled to participate and vote at general meetings are the shareholders of record on a date to be decided by the board of directors, which may be between four and 40 days prior to the date of the meeting.
Quorum
The quorum required for a meeting of shareholders consists of at least two shareholders present in person, by proxy or by written ballot, who hold or represent between them at least 33 1/3% of our voting power. A meeting adjourned for lack of a quorum generally is adjourned to the same day in the following week at the same time and place or any time and place as the directors designate in a notice to the shareholders. At the reconvened meeting, the required quorum consists of at least two shareholders present, in person, by proxy or by written ballot. See “ — Shareholder Meetings.”
Resolutions
An ordinary resolution requires approval by the holders of a simple majority of the voting rights represented at the meeting, in person, by proxy or by written ballot, and voting on the resolution (excluding abstentions).
Under the Companies Law, unless otherwise provided in the articles of association or applicable law, all resolutions of the shareholders require a simple majority. A resolution for the voluntary winding up of the company requires the approval by the holders of 75.0% of the voting rights represented at the meeting, in person, by proxy or by written ballot and voting on the resolution. Under our articles of association, resolutions to change the minimum and maximum number of our directors require the approval of holders of at least 75% of the voting rights represented at the meeting, in person, by proxy or by written ballot and voting on the resolution (excluding abstentions).
Access to Corporate Records
Under the Companies Law, all shareholders generally have the right to review minutes of our general meetings, our shareholder register, including with respect to material shareholders, our articles of association, our financial statements and any document we are required by law to file publicly with the Israeli Companies Registrar or the Israeli Securities Authority. Any shareholder who specifies the purpose of its request may request to review any document in our possession that relates to any action or transaction with a related party which requires shareholder approval under the Companies Law. We may deny a request to review a document if we determine that the request was not made in good faith, that the document contains a commercial secret or a patent or that the document’s disclosure may otherwise impair our interests.
Acquisitions under Israeli Law
Full Tender Offer. A person wishing to acquire shares of a public Israeli company and who would as a result hold over 90.0% of the target company’s issued and outstanding share capital is required by the Companies Law to
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make a tender offer to all of the company’s shareholders for the purchase of all of the issued and outstanding shares of the company. A person wishing to acquire shares of a public Israeli company and who would as a result hold over 90.0% of the issued and outstanding share capital of a certain class of shares is required to make a tender offer to all of the shareholders who hold shares of the same class for the purchase of all of the issued and outstanding shares of the same class. If the shareholders who do not accept the offer hold less than 5.0% of the issued and outstanding share capital of the company or of the applicable class, all of the shares that the acquirer offered to purchase will be transferred to the acquirer by operation of law. However, a shareholder that had its shares so transferred may, within three months from the date of acceptance of the tender offer, petition the court to determine that tender offer was for less than fair value and that the fair value should be paid as determined by the court. If the shareholders who did not accept the tender offer hold at least 5.0% of the issued and outstanding share capital of the company or of the applicable class, the acquirer may not acquire shares of the company that will increase its holdings to more than 90.0% of the company’s issued and outstanding share capital or of the applicable class from shareholders who accepted the tender offer.
Special Tender Offer. The Companies Law provides that an acquisition of shares of a public Israeli company must be made by means of a special tender offer if as a result of the acquisition the purchaser would become a holder of at least 25.0% of the voting rights in the company. This rule does not apply if there is already another holder of at least 25.0% of the voting rights in the company. Similarly, the Companies Law provides that an acquisition of shares in a public company must be made by means of a tender offer if as a result of the acquisition the purchaser would become a holder of more than 45.0% of the voting rights in the company, if there is no other shareholder of the company who holds more than 45.0% of the voting rights in the company. These requirements do not apply if the acquisition (i) occurs in the context of a private placement by the company that received shareholder approval, (ii) was from a shareholder holding at least 25.0% of the voting rights in the company and resulted in the acquirer becoming a holder of at least 25.0% of the voting rights in the company, or (iii) was from a holder of more then 45.0% of the voting rights in the company and resulted in the acquirer becoming a holder of more than 45.0% of the voting rights in the company. The special tender offer may be consummated only if (i) at least 5% of the voting power attached to the company’s outstanding shares will be acquired by the offeror and (ii) the number of shares tendered in the offer exceeds the number of shares whose holders objected to the offer.
In the event that a special tender offer is made, a company’s board of directors is required to express its opinion on the advisability of the offer, or shall abstain from expressing any opinion if it is unable to do so, provided that it gives the reasons for its abstention. An office holder in a target company who, in his or her capacity as an office holder, performs an action the purpose of which is to cause the failure of an existing or foreseeable special tender offer or is to impair the chances of its acceptance, is liable to the potential purchaser and shareholders for damages, unless such office holder acted in good faith and had reasonable grounds to believe he or she was acting for the benefit of the company. However, office holders of the target company may negotiate with the potential purchaser in order to improve the terms of the special tender offer, and may further negotiate with third parties in order to obtain a competing offer.
If a special tender offer was accepted by a majority of the shareholders who announced their stand on such offer, then shareholders who did not announce their stand or who had objected to the offer may accept the offer within four days of the last day set for the acceptance of the offer.
In the event that a special tender offer is accepted, then the purchaser or any person or entity controlling it or under common control with the purchaser or such controlling person or entity shall refrain from making a subsequent tender offer for the purchase of shares of the target company and cannot execute a merger with the target company for a period of one year from the date of the offer, unless the purchaser or such person or entity undertook to effect such an offer or merger in the initial special tender offer.
Merger. The Companies Law permits merger transactions if approved by each party’s board of directors and, unless certain requirements described under the Companies Law are met, a certain percentage of each party’s shareholders. The board of directors of a merging company is required pursuant to the Companies Law to discuss and determine whether in its opinion there exists a reasonable concern that as a result of a proposed merger, the surviving company will not be able to satisfy its obligations towards its creditors, such determination taking into account the financial status of the merging companies. If the board has determined that such a concern exists, it may not approve
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a proposed merger. Following the approval of the board of directors of each of the merging companies, the boards must jointly prepare a merger proposal for submission to the Israeli Registrar of Companies.
Under the Companies Law, if the approval of a general meeting of the shareholders is required, merger transactions may be approved by holders of a simple majority of shares (including the separate vote of each class of shares of the party to the merger which is not the surviving entity) present, in person, by proxy or by written ballot, at a general meeting and voting on the transaction. In determining whether the required majority has approved the merger, if shares of the company are held by the other party to the merger, or by any person holding at least 25.0% of the voting rights or 25.0% of the means of appointing directors or the general manager of the other party to the merger, then a vote against the merger by holders of the majority of the shares present and voting, excluding shares held by the other party or by such person, or any person or entity acting on behalf of, related to or controlled by either of them, is sufficient to reject the merger transaction. If the transaction would have been approved but for the separate approval of each class or the exclusion of the votes of certain shareholders as provided above, a court may still approve the merger upon the request of holders of at least 25.0% of the voting rights of a company, if the court holds that the merger is fair and reasonable, taking into account the value of the parties to the merger and the consideration offered to the shareholders.
Under the Companies Law, each merging company must inform its secured creditors of the proposed merger plans. Creditors are entitled to notice of the merger pursuant to regulations. Upon the request of a creditor of either party to the proposed merger, the court may delay or prevent the merger if it concludes that there exists a reasonable concern that, as a result of the merger, the surviving company will be unable to satisfy the obligations of any of the parties to the merger, and may further give instructions to secure the rights of creditors.
In addition, a merger may not be completed unless at least 50 days have passed from the date that a proposal for approval of the merger was filed with the Israeli Registrar of Companies and 30 days from the date that shareholder approval of both merging companies was obtained.
Acquisitions Under German Law
Section 21 of the German Securities Trading Act provides that anyone who surpasses by either purchase or sale or in any other manner 3%, 5%, 10%, 15%, 20%, 30%, 50% or 75% of the voting rights of an issuer, must inform us and the BaFin immediately. Section 21 of the German Securities Trading Act applies to us as we would be regarded as a home stated company in Germany. The criteria for such are complicated for a company not domiciled in the EEC but may apply to us anyhow.
Anti-Takeover Measures
The Companies Law allows us to create and issue shares having rights different to those attached to our ordinary shares, including shares providing certain preferred or additional rights to voting, distributions or other matters and shares having preemptive rights. Following the closing of this offering, we will not have any authorized or issued shares other than ordinary shares. In the future, if we do create and issue a class of shares other than ordinary shares, such class of shares, depending on the specific rights that may be attached to them, may delay or prevent a takeover or otherwise prevent our shareholders from realizing a potential premium over the market value of their ordinary shares. The authorization of a new class of shares will require an amendment to our articles of association which requires the prior approval of a simple majority of our shares represented and voting at a general meeting. Shareholders voting at such a meeting will be subject to the restrictions under the Companies Law described in “ — Voting.”
Establishment
We were incorporated under the laws of the State of Israel in 1992 and commenced operations in 1992. We are registered with the Israeli registrar of companies in Jerusalem. Our registration number is 51-166672-9. Our purpose is set forth in our articles of association and, in addition, includes the performance of any activities which appear to us as an appropriate objective.
Transfer Agent and Registrar
The transfer agent and registrar for our ordinary shares is American Stock Transfer & Trust Company. Its address is 59 Maiden Lane, New York, New York 10038 and its telephone number is (718) 921-8200.
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Listing
We have applied to list our ordinary shares on the Nasdaq Global Market under the symbol “VLOR.” Since May 15, 2000, our ordinary shares have been quoted on the Frankfurt Stock Exchange under the symbol “VCR.”
Delisting Procedure Under German Securities Law
Following the completion of this offering, we intend to have our shares delisted from the Frankfurt Stock Exchange. Pursuant to Section 39 article 2 of the German Securities Exchange Act we may determine to delist our shares from the Frankfurt Stock Exchange although we may remain eligible for listing. The legal provisions governing the delisting process are provided in the German Securities Exchange Act and the respective exchange rules of the Frankfurt Stock Exchange. Under German securities laws, we may delist from the Frankfurt Stock Exchange only if delisting does not run contrary to investors’ interests. The delisting process requires the Management Board to publish notice of delisting. The Management Board must promptly publish notice of delisting on the Internet. The period between publication of such notice and the time the delisting becomes effective may not exceed two years.
Pursuant to Section 52 of the Frankfurt Exchange Rules, the Management Board must first revoke the admission to the Prime Standard of the Frankfurt Stock Exchange. The Management Board must publish notice of the revocation of admission to the Prime Standard of the Frankfurt Stock Exchange immediately on the Internet. The period between the date of the publication and the effective date of the delisting is three months. During this time the shares are listed on the General Standard Market of the Frankfurt Stock Exchange.
The Management Board may then approve delisting from the stock exchange upon application by the issuer, unless overriding investor protection concerns prevent such revocation. Overriding investor protection concerns do not prevent such revocation, in particular:
| a) | if the admission of and trading in the security concerned on a domestic or foreign organized market within the meaning of section 2 paragraph 5 of the German Securities Trading Act appears to be ensured, even after the delisting has become effective, or |
| b) | if, after the delisting has become effective, the security concerned is neither admitted to nor traded on another domestic exchange or a foreign organized market, but provided that, after the delisting is made public, the investors have sufficient time to sell the securities affected by the delisting on the exchange. |
Under the Frankfurt Stock Exchange Rules, any delisting takes effect immediately if the company’s securities are admitted to and traded on at least one other domestic exchange or a foreign organized market (in our case, on the Nasdaq Global Market) at the time when the delisting is made public. If the security is admitted and traded exclusively on a foreign market at the time when the delisting is made public, the delisting will become effective three months after it has been published. In other cases, the delisting will become effective six months after it is published.
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ORDINARY SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our ordinary shares in the public market following this offering, or the perception that such sales may occur, could adversely affect prevailing market prices of our ordinary shares. Assuming no exercise of outstanding options, we will have an aggregate of ordinary shares outstanding upon completion of this offering. All of our ordinary shares are freely tradable on the Frankfurt Stock Exchange, subject to compliance with Regulation S in the case of ordinary shares held by affiliates that were not acquired in this offering. The shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act, unless purchased by “affiliates” as that term is defined under Rule 144 of the Securities Act, who may sell only the volume of shares described below and whose sales would be subject to additional restrictions described below.
Lock-up Agreements
The underwriters will require all of our directors and officers and the selling shareholders to agree not to offer, sell, agree to sell, directly or indirectly, or otherwise dispose of any ordinary shares or any securities convertible into or exchangeable for ordinary shares except for the ordinary shares offered in this offering without the prior written consent of Thomas Weisel Partners LLC for a period of 180 days after the date of this prospectus.
Eligibility of Restricted Shares for Sale in the Public Market
The following indicates approximately when the ordinary shares that are not being sold in this offering, but which will be outstanding at the time this offering is complete, will be eligible for sale into the public market, under the provisions of Rule 144:
| • | immediately following the effective date of the registration statement of which this prospectus forms part, shares may be eligible for resale, approximately of which would be subject to volume, manner of sale and other limitations under Rule 144; and |
| • | beginning 180 days after the effective date of this prospectus, the remaining approximately shares will be eligible for resale, approximately of which would be subject to volume, manner of sale and other limitations under Rule 144. |
Rule 144
Under Rule 144 as will be in effect on February 15, 2008, a person:
| • | who is not considered to have been one of our affiliates at any time during the 90 days preceding a sale; and |
| • | who has beneficially owned the shares proposed to be sold for at least six months, including the holding period of any prior owner other than an affiliate, |
is entitled to sell his shares without restriction, subject to our compliance with Exchange Act reporting obligations. Therefore, unless subject to a lock-up agreement or otherwise restricted, such shares may be sold immediately upon the closing of this offering.
In general, under Rule 144 as will be in effect on February 15, 2008, beginning 90 days after the date of this prospectus, a person who is our affiliate and has beneficially owned ordinary shares for at least six months is entitled to sell within any three-month period a number of shares that does not exceed the greater of:
| • | 1.0% of the number of ordinary shares then outstanding, which is expected to equal approximately ordinary shares immediately after this offering; or |
| • | the average weekly trading volume of the ordinary shares on the Nasdaq Global Market during the four calendar weeks preceding the filing of a notice on Form 144 in connection with the sale. |
Any such sales by an affiliate are also subject to manner of sale provisions, notice requirements and our compliance with Exchange Act reporting obligations.
Rule 701
In general, under Rule 701, any of our employees, directors, officers, consultants or advisors who purchased ordinary shares from us under a compensatory stock option plan or other written agreement before the closing of this
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offering is entitled to resell these shares. These shares can be resold 90 days after the effective date of this offering in reliance on Rule 144, without having to comply with restrictions, including the holding period, contained in Rule 144.
The Securities and Exchange Commission has indicated that Rule 701 will apply to typical share options granted by an issuer before it becomes subject to the reporting requirements of the Securities Exchange Act of 1934, along with the shares acquired upon exercise of these options, including exercises after the date of this prospectus. Securities issued in reliance on Rule 701 are restricted securities and, subject to the contractual restrictions described above, beginning 90 days after the date of this prospectus, may be sold:
| • | by persons other than affiliates without restriction; and |
| • | by affiliates under Rule 144 without compliance with its six month minimum holding period requirement. |
Options
Following the completion of this offering we intend to file a registration statement on Form S-8 under the Securities Act to register ordinary shares reserved for issuance under our stock option plans. The registration statement on Form S-8 will become effective automatically upon filing. As of September 30, 2007, options and warrants to purchase 4,477,906 ordinary shares were issued and outstanding, of which options and warrants to purchase 3,887,063 ordinary shares had vested and had not been exercised. Ordinary shares issued upon exercise of a share option and registered under the Form S-8 registration statement will, subject to vesting provisions and Rule 144 volume limitations applicable to our affiliates, be available for sale in the open market immediately after the 180-day lock-up agreements expire. See “Management — Existing Stock Option Plans.”
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TAXATION AND GOVERNMENT PROGRAMS
The following description is not intended to constitute a complete analysis of all tax consequences relating to the acquisition, ownership and disposition of our ordinary shares. You should consult your own tax advisor concerning the tax consequences of your particular situation, as well as any tax consequences that may arise under the laws of any state, local, foreign or other taxing jurisdiction.
Israeli Tax Considerations and Government Programs
The following is a summary of the material Israeli tax laws applicable to us, and some Israeli Government programs benefiting us. This section also contains a discussion of material Israeli tax consequences concerning the ownership of and disposition of our ordinary shares purchased by initial purchasers in this offering. This summary does not discuss all the acts of Israeli tax law that may be relevant to a particular investor in light of his or her personal investment circumstances or to some types of investors subject to special treatment under Israeli law. Examples of this kind of investor include residents of Israel or traders in securities who are subject to special tax regimes not covered in this discussion. Since some parts of this discussion are based on new tax legislation that has not yet been subject to judicial or administrative interpretation, we cannot assure you that the appropriate tax authorities or the courts will accept the views expressed in this discussion. All of the foregoing are subject to change, which change could affect the tax consequences described below.
The discussion below does not cover all possible tax considerations. Potential investors are urged to consult their own tax advisors as to the Israeli or other tax consequences of the purchase, ownership and disposition of our ordinary shares, including in particular, the effect of any foreign, state or local taxes.
General Corporate Tax Structure in Israel.
Israeli companies are generally subject to corporate tax at the rate of 27% of their taxable income in 2008. The corporate tax rate is scheduled to decline to 26% in 2009 and 25% in 2010 and thereafter. However, the effective tax rate payable by a company that derives income from an approved enterprise (as discussed below) may be considerably less. Capital gains derived after January 1, 2003 (other than gains derived from the sale of listed securities that are taxed at the prevailing corporate tax rates) are subject to tax at a rate of 25%.
Tax Benefits and Grants for Research and Development.
Israeli tax law allows, under certain conditions, a tax deduction for expenditures, including capital expenditures, for the year in which they are incurred. These expenses must relate to scientific research and development projects and must be approved by the relevant Israeli government ministry, determined by the field of research. Furthermore, the research and development must be for the promotion of the company and carried out by or on behalf of the company seeking such tax deduction. The amount of such deductible expenses is reduced by the sum of any funds received through government grants for the finance of such scientific research and development projects. No deduction under these research and development deduction rules is allowed if such deduction is related to an expense invested in an asset depreciable under the general depreciation rules of the Income Tax Ordinance, 1961. Expenditures not so approved are deductible in equal amounts over three years.
Law for the Encouragement of Industry (Taxes), 1969.
The Law for the Encouragement of Industry (Taxes), 1969, generally referred to as the Industry Encouragement Law, provides several tax benefits for industrial companies. We believe that we currently qualify as an “Industrial Company” within the meaning of the Industry Encouragement Law. The Industry Encouragement Law defines “Industrial Company” as a company resident in Israel, of which 90% or more of its income in any tax year, other than of income from defense loans, capital gains, interest and dividend, is derived from an “Industrial Enterprise” owned by it. An “Industrial Enterprise” is defined as an enterprise whose major activity in a given tax year is industrial production activity.
The following corporate tax benefits, among others, are available to Industrial Companies:
| • | Amortization of the cost of purchased know how and patents and of rights to use a patent and know-how which are used for the development or advancement of the company, over an eight-year period; |
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| • | Accelerated depreciation rates on equipment and buildings; |
| • | Under specified conditions, an election to file consolidated tax returns with additional related Israeli Industrial Companies; and |
| • | Expenses related to a public offering are deductible in equal amounts over three years. |
Eligibility for the benefits under the Industry Encouragement Law is not subject to receipt of prior approval from any governmental authority. We cannot assure that we qualify or will continue to qualify as an “Industrial Company” or that the benefits described above will be available in the future.
Special Provisions Relating to Taxation Under Inflationary Conditions.
The Income Tax Law (Inflationary Adjustments), 1985, generally referred to as the Inflationary Adjustments Law, represents an attempt to overcome the problems presented to a traditional tax system by an economy undergoing rapid inflation. The Inflationary Adjustments Law is highly complex. Its features, which are material to us, can be generally described as follows:
| • | Where a company’s equity, as calculated under the Inflationary Adjustments Law, exceeds the depreciated cost of its Fixed Assets (as defined in the Inflationary Adjustments Law), a deduction from taxable income is permitted equal to the excess multiplied by the applicable annual rate of inflation. The maximum deduction permitted in any single tax year is 70% of taxable income, with the unused portion permitted to be carried forward, based on the change in the consumer price index. The unused portion that is carried forward may be deducted in full in the following year. |
| • | If the company’s depreciated cost of Fixed Assets exceeds its equity, then the excess multiplied by the applicable annual rate of inflation is added to the company’s ordinary income. |
| • | Subject to certain limitations, depreciation deductions on Fixed Assets and losses carried forward are adjusted for inflation based on the change in the consumer price index. |
The Minister of Finance may, with the approval of the Knesset Finance Committee, determine by decree, during a certain fiscal year (or until February 28th of the following year) in which the rate of increase of the Israeli consumer price index would not exceed or did not exceed, as applicable, 3%, that some or all of the provisions of the Inflationary Adjustments Law shall not apply with respect to such fiscal year, or, that the rate of increase of the Israeli consumer price index relating to such fiscal year shall be deemed to be 0%, and to make the adjustments required to be made as a result of such determination.
The Income Tax Ordinance, 1961, and regulations promulgated thereunder allow Foreign-Invested Enterprises, which maintain their accounts in U.S. dollars in compliance with regulations published by the Israeli Minister of Finance, to base their tax returns on their operating results as reflected in their U.S. dollar financial statements or to adjust their tax returns based on exchange rate changes rather than changes in the Israeli consumer price index in lieu of the principles set forth by the Inflationary Adjustments Law. For these purposes, a Foreign-Invested Enterprise is a company (i) more than 25% of whose share capital, in terms of rights to profits, voting and appointment of directors, and (ii) more than 25% of whose combined share and loan capital is held by persons who are not residents of Israel. A company that elects to measure its results for tax purposes based on the U.S. dollar exchange rate cannot change such election for a period of three years following the election. Commencing with the 2003 tax year, we elected to measure our results for tax purposes on the basis of the changes in the exchange rate of NIS against the dollar.
Law for the Encouragement of Capital Investments, 1959.
The Law for Encouragement of Capital Investments, 1959 (the “Investment Law”) provides that capital investments in a production facility (or other eligible assets) may, upon approval by the Investment Center of the Israel Ministry of Industry, Trade and Labor (the “Investment Center”), be designated as an Approved Enterprise. Each certificate of approval for an Approved Enterprise relates to a specific investment program, delineated both by the financial scope of the investment and by the physical characteristics of the facility or the asset. The tax benefits from any certificate of approval relate only to taxable profits attributable to the specific Approved Enterprise.
We were granted “Approved Enterprise” status for separate investment programs approved in 1992, 1996, 1998, and 2000. In 2005, we notified the Israeli Authority of our intention to claim a new privileged enterprise under the amended Investment Law.
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On April 1, 2005, a comprehensive amendment to the Investment Law came into effect. The amendment to the Investment Law includes revisions to the criteria for investments qualified to receive tax benefits. As the amended Investment Law does not retroactively apply to investment programs having an approved enterprise approval certificate issued by the Investment Center prior to December 31, 2004, our first four Approved Enterprises are subject to the provisions of the Investment Law prior to its revision while new investments, including our last Approved Enterprise and tax benefits related thereof, if any, will be subject to and received under the provisions of the Investment Law, as amended. Accordingly, the following description includes a summary of the Investment Law prior to its amendment as well as the relevant changes contained in the Investment Law, as amended.
The tax benefits available under any instrument of approval relate only to taxable profits attributable to the specific program and are contingent upon meeting the criteria set out in the instrument of approval. If a company has more than one approval or only a portion of its capital investments are approved, its effective tax rate is the weighted average of the applicable rates. Subject to certain qualifications, however, if a company with one or more approvals distributes dividends, the dividends are deemed attributable to the entire enterprise.
Tax Benefits for Income from Approved Enterprises Approved Before April 1, 2005
Before April 1, 2005, an Approved Enterprise was entitled to receive a grant from the Government of Israel or an alternative package of tax benefits, which we refer to as alternative benefits. We have elected to forego the entitlement to grants and have applied for the alternative benefits, under which undistributed income that we generate from our Approved Enterprises will be completely tax-exempt for two years commencing from the year that we first produce taxable income and will be subject to a tax rate of 10% to 25% for an additional eight years, depending on the amount of foreign investment in us. Alternative benefits, excluding the tax exemption for two years, are available to us until the earliest of (i) seven consecutive years, commencing in the year in which the specific Approved Enterprise first generates taxable income, (ii) twelve years from commencement of production and (iii) fourteen years from the date of approval of the Approved Enterprise status.
Dividends paid out of income generated by an Approved Enterprise (or out of dividends received from a company whose income is generated by an Approved Enterprise) are generally subject to withholding tax at the rate of 15%. This withholding tax is deductible at source by the Approved Enterprise. The 15% tax rate is limited to dividends and distributions out of income derived during the benefits period and actually paid at any time up to twelve years thereafter. We elected the alternative benefits track, and will additionally be subject to pay corporate tax at the rate of 10% to 25%, depending on the extent of foreign investment in the company, in respect of the gross amount of the dividend that we may distribute out of profits which were exempt from corporate tax in accordance with the provisions of the alternative benefits track. If we are also deemed to be a Foreign Investors Company, or FIC, and if the FIC is at least 49% owned by non-Israeli residents, the corporate tax rate paid by us in respect of the dividend we may distribute from income derived by our Approved Enterprises during the tax exemption period may be taxed at a lower rate.
As we have elected the alternative benefits package, we are not obligated to attribute any part of dividends that we may distribute to exempt profits, and we may decide from which year's profits to declare dividends. We currently intend to reinvest any income that we may in the future derive from our Approved Enterprise programs and not to distribute the income as a dividend.
If we qualify as a FIC, our Approved Enterprises will be entitled to additional tax benefits. Subject to certain conditions, a FIC is a company with a level of foreign investment of more than 25%. The level of foreign investment is measured as the percentage of rights in the company (in terms of shares, rights to profits, voting and appointment of directors), and of combined share and loan capital, that are owned, directly or indirectly, by persons who are not residents of Israel. Such a company will be eligible for an extension of the period during which it is entitled to tax benefits under its Approved Enterprise status (so that the benefit periods may be up to ten years) and for further tax benefits if the level of foreign investment exceeds 49%. We believe that subsequent to this offering we may qualify as a Foreign-Invested Enterprise under the Investment Law.
The Investment Law also provides that an Approved Enterprise is entitled to accelerated depreciation on its property and equipment that are included in an approved investment program. We have not utilized this benefit.
The tax benefits under the Investment Law also apply to income generated by a company from the grant of a usage right with respect to know-how developed by the approved enterprise, income generated from royalties, and
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income derived from a service which is ancillary to such usage right or royalties, provided that such income is generated within the approved enterprise’s ordinary course of business. Income derived from other sources, other than the “Approved Enterprise,” during the benefit period will be subject to tax at the regular corporate tax rate. If a company has more than one approval or only a portion of its capital investments is approved, its effective tax rate is the result of a weighted average of the applicable rates. The tax benefits under the Investments Law are not, generally, available with respect to income derived from products that are developed outside of Israel.
In addition, the benefits available to an Approved Enterprise are conditioned upon terms stipulated in the Investment Law and the regulations thereunder and the criteria set forth in the applicable certificate of approval. If we do not meet these conditions, in whole or in part, the benefits can be canceled and we may be required to refund the amount of the benefits, with the addition of the Israeli consumer price index linkage differences and interest. We believe that our Approved Enterprise currently operates in substantial compliance with all applicable conditions and criteria, but there can be no assurance that it will continue to do so.
Tax Benefits Under an Amendment that Became Effective on April 1, 2005
Pursuant to the amendment to the Investment Law, only approved enterprises receiving cash grants require the approval of the Investment Center. The Investment Center is entitled to approve such programs only until December 31, 2007. Approved Enterprises which do not receive benefits in the form of governmental cash grants, such as benefits in the form of tax benefits, are no longer required to obtain this approval (such enterprises are referred to as privileged enterprises). However, a privileged enterprise is required to comply with certain requirements and make certain investments as specified in the amended Investment Law.
A privileged enterprise may, at its discretion, in order to provide greater certainty, elect to apply for a pre-ruling from the Israeli tax authorities confirming that it is in compliance with the provisions of the amended Investment Law and is therefore entitled to receive such benefits provided under the amended Investment Law. The amendment to the Investment Law addresses benefits that are being granted to privileged enterprises and the length of the benefits period.
The amended Investment Law specifies certain conditions that a privileged enterprise has to comply with in order to be entitled to benefits. These conditions include among others:
| • | That the privileged enterprise’s revenues during the applicable tax year from any single market (i.e. country or a separate customs territory) do not exceed 75% of the privileged enterprise’s aggregate revenues during such year; or |
| • | That 25% or more of the privileged enterprise’s revenues during the applicable tax year are generated from sales into a single market (i.e. country or a separate customs territory) with a population of at least 12 million residents. |
There can be no assurance that we will comply with the above conditions or any other conditions of the amended Investment Law in the future or that we will be entitled to any additional benefits under the amended Investment Law.
The amendment to the Investment Law changes the definition of “foreign investment” so that the definition now requires a minimal investment of NIS 5 million by foreign investors. Such definition now also includes acquisitions of shares of a company from other shareholders, provided that the total cost of such acquisitions is at least NIS 5 million and the company’s outstanding and paid-up share capital exceeds NIS 5 million. These changes take effect retroactively from 2003.
As a result of the amendment, tax-exempt income generated under the provisions of the Investment Law, will subject us to taxes upon distribution of such income, purchase of shares from shareholder by the company or liquidation, and we may be required to record a deferred tax liability with respect to such tax-exempt income.
Taxation of Our Shareholders
Taxation of Non-Israeli shareholders on receipt of dividends. Non-residents of Israel are generally subject to Israeli income tax on the receipt of dividends paid on our ordinary shares at the rate of 20%, which tax will be withheld at source, unless a different rate is provided in a treaty between Israel and the shareholder’s country of residence. With respect to a person who is a “substantial shareholder” at the time receiving the dividend or on any date in the twelve
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months preceding it, the applicable tax rate is 25%. A “substantial shareholder” is generally a person who alone or together with such person’s relative or another person who collaborates with such person on a permanent basis, holds, directly or indirectly, at least 10% of any of the “means of control” of the corporation. “Means of control” generally include the right to vote, receive profits, nominate a director or an officer, receive assets upon liquidation, or order someone who holds any of the aforesaid rights how to act, and all regardless of the source of such right. Under the U.S.-Israel Tax Treaty, the maximum rate of tax withheld in Israel on dividends paid to a holder of our ordinary shares who is a U.S. resident (for purposes of the U.S.-Israel Tax Treaty) is 25%. However, generally, the maximum rate of withholding tax on dividends, not generated by our Approved Enterprise, that are paid to a U.S. corporation holding 10% or more of our outstanding voting capital throughout the tax year in which the dividend is distributed as well as the previous tax year, is 12.5%. Furthermore, dividends paid from income derived from our Approved Enterprise are subject, under certain conditions, to withholding at the rate of 15%. We cannot assure you that we will designate the profits that are being distributed in a way that will reduce shareholders’ tax liability.
A non-resident of Israel who receives dividends from which tax was completely withheld is generally exempt from the duty to file returns in Israel in respect of such income, provided such income was not derived from a business conducted in Israel by the taxpayer, and the taxpayer has no other taxable sources of income in Israel.
Capital Gains Taxes Applicable to Non-Israeli Resident Shareholders. Shareholders that are not Israeli residents are generally exempt from Israeli capital gains tax on any gains derived from the sale, exchange or disposition of our ordinary shares, provided that (1) such shareholders did not acquire their shares prior to our public offering, (2) the provisions of the Income Tax Law (inflationary adjustments), 1985 do not apply to such gain, and (3) such gains did not derive from a permanent establishment or business activity of such shareholders in Israel. However, non-Israeli corporations will not be entitled to the foregoing exemptions if an Israeli resident (i) has a controlling interest of 25% or more in such non-Israeli corporation, or (ii) is the beneficiary of or is entitled to 25% or more of the revenues or profits of such non-Israeli corporation, whether directly or indirectly.
Under the U.S.-Israel Tax Treaty, the sale, exchange or disposition of our ordinary shares by a shareholder who is a U.S. resident (for purposes of the U.S.-Israel Tax Treaty) holding the ordinary shares as a capital asset is exempt from Israeli capital gains tax unless either (i) the shareholder holds, directly or indirectly, shares representing 10% or more of our voting capital during any part of the 12-month period preceding such sale, exchange or disposition or (ii) the capital gains arising from such sale are attributable to a permanent establishment of the shareholder located in Israel.
United States Federal Income Taxation
The following is a description of the material United States federal income tax consequences of the acquisition, ownership and disposition of our ordinary shares. This description addresses only the United States federal income tax considerations of holders that are initial purchasers of our ordinary shares pursuant to the offering and that will hold such ordinary shares as capital assets. This description does not address tax considerations applicable to holders that may be subject to special tax rules, including:
| • | financial institutions or insurance companies; |
| • | real estate investment trusts, regulated investment companies or grantor trusts; |
| • | dealers or traders in securities or currencies; |
| • | certain former citizens or long-term residents of the United States; |
| • | persons that received our shares as compensation for the performance of services; |
| • | persons that will hold our shares as part of a “hedging” or “conversion” transaction or as a position in a “straddle” for United States federal income tax purposes; |
| • | holders that will hold our shares through a partnership or other pass-through entity; |
| • | U.S. Holders (as defined below) whose “functional currency” is not the United States dollar; or |
| • | holders that own directly, indirectly or through attribution 10.0% or more, of the voting power or value, of our shares. |
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Moreover, this description does not address the United States federal estate and gift or alternative minimum tax consequences of the acquisition, ownership and disposition of our ordinary shares.
This description is based on the United States Internal Revenue Code, 1986, as amended (the “Code”) existing, proposed and temporary United States Treasury Regulations and judicial and administrative interpretations thereof, in each case as in effect and available on the date hereof. All of the foregoing are subject to change, which change could apply retroactively and could affect the tax consequences described below.
For purposes of this description, a “U.S. Holder” is a beneficial owner of our ordinary shares that, for United States federal income tax purposes, is:
| • | a citizen or resident of the United States; |
| • | a corporation (or other entity treated as a corporation for United States federal income tax purposes) created or organized in or under the laws of the United States or any state thereof, including the District of Columbia; |
| • | an estate the income of which is subject to United States federal income taxation regardless of its source; or |
| • | a trust if such trust has validly elected to be treated as a United States person for United States federal income tax purposes or if (1) a court within the United States is able to exercise primary supervision over its administration and (2) one or more United States persons have the authority to control all of the substantial decisions of such trust. |
A “Non-U.S. Holder” is a beneficial owner of our ordinary shares that is neither a U.S. Holder nor a partnership (or other entity treated as a partnership for United States federal income tax purposes).
If a partnership (or any other entity treated as a partnership for United States federal income tax purposes) holds our ordinary shares, the tax treatment of a partner in such partnership will generally depend on the status of the partner and the activities of the partnership. Such a partner or partnership should consult its tax advisor as to its tax consequences.
You should consult your tax advisor with respect to the United States federal, state, local and foreign tax consequences of acquiring, owning and disposing of our ordinary shares.
Distributions
Subject to the discussion below under “Passive Foreign Investment Company Considerations” if you are a U.S. Holder, for United States federal income tax purposes, the gross amount of any distribution made to you with respect to your ordinary shares, before reduction for any Israeli taxes withheld therefrom, other than certain distributions, if any, of our ordinary shares distributed pro rata to all our shareholders will be includible in your income as dividend income to the extent such distribution is paid out of our current or accumulated earnings and profits as determined under United States federal income tax principles. Subject to the discussion below under “Passive Foreign Investment Company Considerations,” non-corporate U.S. Holders may qualify for the lower rates of taxation with respect to dividends on ordinary shares applicable to long-term capital gains (i.e., gains from the sale of capital assets held for more than one year) with respect to taxable years beginning on or before December 31, 2010, provided that certain conditions are met, including certain holding period requirements and the absence of certain risk reduction transactions. However, such dividends will not be eligible for the dividends received deduction generally allowed to corporate U.S. Holders. Subject to the discussion below under “Passive Foreign Investment Company Considerations” to the extent, if any, that the amount of any distribution by us exceeds our current and accumulated earnings and profits as determined under United States federal income tax principles, it will be treated first as a tax-free return of your adjusted tax basis in your ordinary shares and thereafter as capital gain. We do not expect to maintain calculations of our earnings and profits under United States federal income tax principles and, therefore, if you are a U.S. Holder you should expect that the entire amount of any distribution generally will be reported as dividend income to you.
If you are a U.S. Holder, dividends paid to you with respect to your ordinary shares will be treated as foreign source income, which may be relevant in calculating your foreign tax credit limitation. Subject to certain conditions and limitations, Israeli tax withheld on dividends may be deducted from your taxable income or credited against your United States federal income tax liability. The limitation on foreign taxes eligible for credit is calculated separately
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with respect to specific classes of income. For this purpose, for taxable years beginning before January 1, 2007, dividends that we distribute should generally constitute “passive income,” or in the case of certain U.S. Holders, “financial services income,” and, for taxable years beginning after December 31, 2006, dividends that we distribute generally should constitute “passive category income,” or, in the case of certain U.S. Holders, “general category income” A foreign tax credit for foreign taxes imposed on distributions may be denied when you do not satisfy certain minimum holding period requirements. The rules relating to the determination of the foreign tax credit are complex, and you should consult your tax advisor to determine whether and to what extent you would be entitled to this credit.
Subject to the discussion below under “Backup Withholding Tax and Information Reporting Requirements,” if you are a Non-U.S. Holder, you generally will not be subject to United States federal income or withholding tax on dividends received by you on your ordinary shares, unless you conduct a trade or business in the United States and such income is effectively connected with that trade or business.
Sale, Exchange or Other Disposition of Ordinary Shares
Subject to the discussion below under “Passive Foreign Investment Company Considerations” if you are a U.S. Holder, you generally will recognize gain or loss on the sale, exchange or other disposition of your ordinary shares equal to the difference between the amount realized on such sale, exchange or other disposition and your adjusted tax basis in your ordinary shares. Such gain or loss will be capital gain or loss. If you are a non corporate U.S. Holder, capital gain from the sale, exchange or other disposition of ordinary shares is eligible for the preferential rate of taxation applicable to long-term capital gains, with respect to taxable years beginning on or before December 31, 2010, if your holding period for such ordinary shares exceeds one year (i.e. such gain is long-term capital gain). Gain or loss, if any, recognized by you generally will be treated as United States source income or loss for United States foreign tax credit purposes. The deductibility of capital losses for United States federal income tax purposes is subject to limitations.
Subject to the discussion below under “Backup Withholding Tax and Information Reporting Requirements,” if you are a Non-U.S. Holder, you generally will not be subject to United States federal income or withholding tax on any gain realized on the sale or exchange of such ordinary shares unless:
| • | such gain is effectively connected with your conduct of a trade or business in the United States; or |
| • | you are an individual and have been present in the United States for 183 days or more in the taxable year of such sale or exchange and certain other conditions are met. |
Passive Foreign Investment Company Considerations
A non-U.S. corporation will be classified as a “passive foreign investment company,” or a PFIC, for United States federal income tax purposes in any taxable year in which, after applying certain look-through rules, either
| • | at least 75% of its gross income is “passive income”; or |
| • | at least 50% of the average value of its gross assets is attributable to assets that produce “passive income” or are held for the production of passive income. |
Passive income for this purpose generally includes dividends, interest, royalties, rents, gains from commodities and securities transactions, the excess of gains over losses from the disposition of assets which produce passive income, and includes amounts derived by reason of the temporary investment of funds raised in offerings of our ordinary shares. If a non-U.S. corporation owns at least 25% by value of the stock of another corporation, the non-U.S. corporation is treated for purposes of the PFIC tests as owning its proportionate share of the assets of the other corporation and as receiving directly its proportionate share of the other corporation’s income.
Based on certain estimates of our gross income and gross assets, the latter determined by reference to the expected market value of our shares when issued and assuming that we are entitled to value our intangible assets with reference to the market value of our shares, our intended use of the proceeds of this offering, and the nature of our business, we expect that we will not be classified as a PFIC for the taxable year ending December 31, 2007. However, because PFIC status is based on our income, assets and activities for the entire taxable year, it is not possible to determine whether we will be characterized as a PFIC for the 2007 taxable year until after the close of the year. Moreover, we must determine our PFIC status annually based on tests which are factual in nature and our status in future years will depend on our income, assets and activities in those years. While we intend to manage our business so as to avoid
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PFIC status, to the extent consistent with our other business goals, we cannot predict whether our business plans will allow us to avoid PFIC status determination. We have no reason to believe that our income, assets or activities will change in a manner that would cause us to be classified as a PFIC, but there can be no assurance that we will not be considered a PFIC for any taxable year. In addition, because the market price of our ordinary shares is likely to fluctuate after this offering and the market price of the shares of technology companies has been especially volatile, and because that market price may affect the determination of whether we will be considered a PFIC, there can be no assurance that we will not be considered a PFIC for any taxable year. If we were a PFIC, and you are a U.S. Holder, you generally would be subject to ordinary income tax rates, imputed interest charges and other disadvantageous tax treatment (including the denial of the taxation of such dividends at the lower rates applicable to long-term capital gains, as discussed above under “– Distributions”) with respect to any gain from the sale, exchange or other disposition of, and certain distributions with respect to, your ordinary shares.
Under the PFIC rules, unless a U.S. Holder makes one of the elections described in the next paragraphs, a special tax regime will apply to both (a) any “excess distribution” by the Company (generally, the U.S. Holder’s ratable portion of distributions in any year which are greater than 125% of the average annual distribution received by such U.S. Holder in the shorter of the three preceding years or the U.S. Holder’s holding period) and (b) any gain realized on the sale or other disposition of the ordinary shares. Under this regime, any excess distribution and realized gain will be treated as ordinary income and will be subject to tax as if (a) the excess distribution or gain had been realized ratably over the U.S. Holder’s holding period, (b) the amount deemed realized had been subject to tax in each year of that holding period, and (c) the interest charge generally applicable to underpayments of tax had been imposed on the taxes deemed to have been payable in those years. In addition, dividend distributions made to you will not qualify for the lower rates of taxation applicable to long term capital gains discussed above under “Distributions.”
Certain elections are available to U.S. Holders of shares that may serve to alleviate some of the adverse tax consequences of PFIC status. If we agreed to provide the necessary information, you could avoid the interest charge imposed by the PFIC rules by making a qualified electing fund (a “QEF”) election, which election may be made retroactively under certain circumstances, in which case you generally would be required to include in income on a current basis your pro rata share of our ordinary earnings as ordinary income and your pro rata share of our net capital gains as long-term capital gain. We do not expect to provide to U.S. Holders the information needed to report income and gain pursuant to a QEF election, and we make no undertaking to provide such information in the event that we are a PFIC.
Under an alternative tax regime, you may also avoid certain adverse tax consequences relating to PFIC status discussed above by making a mark-to-market election with respect to your ordinary shares annually, provided that the shares are “marketable.” Shares will be marketable if they are regularly traded on certain U.S. stock exchanges (including NASDAQ) or on certain non-U.S. stock exchanges. For these purposes, the shares will generally be considered regularly traded during any calendar year during which they are traded, other than in negligible quantities, on at least 15 days during each calendar quarter.
If you choose to make a mark-to-market election, you would recognize as ordinary income or loss each year an amount equal to the difference as of the close of the taxable year between the fair market value of the PFIC shares and your adjusted tax basis in the PFIC shares. Losses would be allowed only to the extent of net mark-to-market gain previously included by you under the election for prior taxable years. If the mark-to-market election were made, then the PFIC rules set forth above relating to excess distributions and realized gains would not apply for periods covered by the election. If you make a mark-to-market election after the beginning of your holding period of our ordinary shares, you would be subject to interest charges with respect to the inclusion of ordinary income attributable to the period before the effective date of such election.
Under certain circumstances, ordinary shares owned by a Non-U.S. Holder may be attributed to a U.S. person owning an interest, directly or indirectly, in the Non-U.S. Holder. In this event, distributions and other transactions in respect of such ordinary shares may be treated as excess distributions with respect to such U.S. person, and a QEF election may be made by such U.S. person with respect to its indirect interest in the Company, subject to the discussion in the preceding paragraphs.
The Company may invest in stock of non-U.S. corporations that are PFICs. In such a case, provided that the Company is a PFIC, a U.S. Holder would be treated as owning its pro rata share of the stock of the PFIC owned by
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the Company. Such a U.S. Holder would be subject to the rules generally applicable to shareholders of PFICs discussed above with respect to distributions received by the Company from such a PFIC and dispositions by the Company of the stock of such a PFIC (even though the U.S. Holder may not have received the proceeds of such distribution or disposition). Assuming the Company receives the necessary information from the PFIC in which it owns stock, certain U.S. Holders may make the QEF election discussed above with respect to the stock of the PFIC owned by the Company, with the consequences discussed above. However, no assurance can be given that the Company will be able to provide U.S. Holders with such information.
If we were a PFIC, a holder of ordinary shares that is a U.S. Holder must file United States Internal Revenue Service Form 8621 for each tax year in which the U.S. Holder owns the ordinary shares.
Backup Withholding Tax and Information Reporting Requirements
United States backup withholding tax and information reporting requirements generally apply to certain payments to certain non-corporate holders of stock. Information reporting generally will apply to payments of dividends on, and to proceeds from the sale or redemption of, our ordinary shares made within the United States, or by a United States payor or United States middleman, to a holder of our ordinary shares, other than an exempt recipient (including a corporation, a payee that is not a United States person that provides an appropriate certification and certain other persons). A payor will be required to withhold backup withholding tax from any payments of dividends on, or the proceeds from the sale or redemption of, ordinary shares within the United States, or by a United States payor or United States middleman, to a holder, other than an exempt recipient, if such holder fails to furnish its correct taxpayer identification number or otherwise fails to comply with, or establish an exemption from, such backup withholding tax requirements. The backup withholding tax rate is 28.0% for years through 2010.
Any amounts withheld under the backup withholding rules will be allowed as a refund or credit against the beneficial owner’s United States federal income tax liability, if any, provided that the required information is timely furnished to the IRS.
The above description is not intended to constitute a complete analysis of all tax consequences relating to acquisition, ownership and disposition of our ordinary shares. You should consult your tax advisor concerning the tax consequences of your particular situation.
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UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement, each of the underwriters named below has severally agreed to purchase from us and the selling shareholders the aggregate number of ordinary shares set forth opposite their respective names below:
| | |
| Underwriters | | Number of Shares |
| Thomas Weisel Partners LLC | | | | |
| Oppenheimer & Co. Inc. | | | | |
| William Blair & Company, L.L.C. | | | | |
| Collins Stewart LLC | | | | |
| Total | | | | |
Of the shares to be purchased by the underwriters, shares will be purchased from us and will be purchased from the selling shareholders.
The underwriting agreement provides that the obligations of the several underwriters are subject to various conditions, including approval of legal matters by counsel. The nature of the underwriters’ obligations commits them to purchase and pay for all of the ordinary shares listed above if any are purchased.
The underwriting agreement provides that we and the selling shareholders will indemnify the underwriters against liabilities specified in the underwriting agreement under the Securities Act, or will contribute to payments that the underwriters may be required to make relating to these liabilities.
The underwriters expect to deliver the ordinary shares to purchasers on or about , 2008.
We estimate that the total expenses of this offering, including registration, filing and listing fees, printing fees and legal and accounting expenses, but excluding the underwriting discounts and commissions, will be approximately $ million.
Over-Allotment Option
The selling shareholders have granted a 30-day over-allotment option to the underwriters to purchase up to a total of additional ordinary shares at the public offering price, less the underwriting discounts and commissions payable by the selling shareholders, as set forth on the cover page of this prospectus. If the underwriters exercise this option in whole or in part, then each of the underwriters will be separately committed, subject to the conditions described in the underwriting agreement, to purchase the additional ordinary shares in proportion to their respective commitments set forth in the table above.
Determination of Offering Price
Prior to this offering, there has been no public market in the United States for our ordinary shares. The public offering price will be determined through negotiations between us and Thomas Weisel Partners LLC, as representative of the underwriters, although we expect the principal determining factor will be the recent market price of our ordinary shares on the Frankfurt Stock Exchange. We and the representative will also consider demand from new investors in making such a determination. Other factors to be considered in determining the public offering price will include:
| • | our financial information; |
| • | our history and prospects and the outlook for our industry; |
| • | an assessment of our management, our past and present operations, and the prospects for, and timing of, our future revenues; and |
| • | the present state of our business and the progress of our operating plan. |
We cannot assure you that an active or orderly trading market will develop in the United States for our ordinary shares or that our ordinary shares will trade in the public markets subsequent to this offering at or above the offering price.
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Commissions and Discounts
The underwriters propose to offer the ordinary shares directly to the public at the public offering price set forth on the cover page of this prospectus, and at this price less a concession not in excess of $ per share of ordinary shares to other dealers specified in a master agreement among underwriters who are members of the National Association of Securities Dealers, Inc. The underwriters may allow, and the other dealers specified may reallow, concessions not in excess of $ per share of ordinary shares to these other dealers. After this offering, the offering price, concessions and other selling terms may be changed by the underwriters. Our ordinary shares are offered subject to receipt and acceptance by the underwriters and to the other conditions, including the right to reject orders in whole or in part.
The following table summarizes the compensation to be paid to the underwriters by us and the proceeds, before expenses, payable to us and the selling shareholders:
| | | | | | |
| | | | Total |
| | | Per Share | | Without
Over-Allotment | | With
Over-Allotment |
| Public offering price | | $ | | | | $ | | | | $ | | |
| Underwriting discount | | | | | | | | | | | | |
| Proceeds, before expenses, to us | | | | | | | | | | | | |
| Proceeds, before expenses, to selling shareholders | | | | | | | | | | | | |
Indemnification of Underwriters
We and the selling shareholders will indemnify the underwriters against some civil liabilities, including liabilities under the Securities Act and liabilities arising from breaches of our representations and warranties contained in the underwriting agreement. If we or the selling shareholders are unable to provide this indemnification, we and the selling shareholders will contribute to payments the underwriters may be required to make in respect of those liabilities.
No Sales of Similar Securities
The underwriters will require all of our directors and officers and the selling shareholders to agree not to offer, sell, agree to sell, directly or indirectly, or otherwise dispose of any ordinary shares or any securities convertible into or exchangeable for ordinary shares except for the ordinary shares offered in this offering without the prior written consent of Thomas Weisel Partners LLC for a period of 180 days after the date of this prospectus.
We have agreed that for a period of 180 days after the date of this prospectus, we will not, without the prior written consent of Thomas Weisel Partners LLC, offer, sell or otherwise dispose of any ordinary shares, except for the ordinary shares offered in this offering, ordinary shares issuable upon exercise of outstanding options on the date of this prospectus and ordinary shares that are issued under our employee share option plans.
Nasdaq Market Listing
We have applied for approval for listing of our ordinary shares on the Nasdaq Global Market under the symbol “VLOR.” Since May 15, 2000, our ordinary shares have been quoted on the Frankfurt Stock Exchange under the symbol “VCR.” We are considering commencing procedures to delist our shares from the Frankfurt Stock Exchange following the completion of this offering.
Short Sales, Stabilizing Transactions and Penalty Bids
In order to facilitate this offering, persons participating in this offering may engage in transactions that stabilize, maintain or otherwise affect the price of our ordinary shares during and after this offering. Specifically, the underwriters may engage in the following activities in accordance with the rules of the Securities and Exchange Commission.
Short sales. Short sales involve the sales by the underwriters of a greater number of shares than they are required to purchase in the offering. Covered short sales are short sales made in an amount not greater than the underwriters’ over-allotment option to purchase additional shares from the selling shareholders in this offering. The underwriters
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may close out any covered short position by either exercising their over-allotment option to purchase shares or purchasing shares in the open market. In determining the source of shares to close out the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared with the price at which they may purchase shares through the over-allotment option. Naked short sales are any short sales in excess of such over-allotment option. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the ordinary shares in the open market after pricing that could adversely affect investors who purchase in this offering.
Stabilizing transactions. The underwriters may make bids for or purchases of the shares for the purpose of pegging, fixing or maintaining the price of the shares, so long as stabilizing bids do not exceed a specified maximum.
Penalty bids. If the underwriters purchase shares in the open market in a stabilizing transaction or syndicate covering transaction, they may reclaim a selling concession from the underwriters and selling group members who sold those shares as part of this offering. Stabilization and syndicate covering transactions may cause the price of the shares to be higher than it would be in the absence of these transactions. The imposition of a penalty bid might also have an effect on the price of the shares if it discourages presales of the shares.
The transactions above may occur on the Nasdaq Global Market or otherwise. Neither we nor the underwriters make any representation or prediction as to the effect that the transactions described above may have on the price of the shares. If these transactions are commenced, they may be discontinued without notice at any time.
Electronic Offer, Sale and Distribution of Shares
A prospectus in electronic format may be made available on the websites maintained by one or more of the underwriters or selling group members, if any, participating in this offering and one or more of the underwriters participating in this offering may distribute prospectuses electronically. The representatives may agree to allocate a number of shares to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the underwriters and selling group members that will make Internet distributions on the same basis as other allocations. Other than the prospectus in electronic format, the information on these websites is not part of this prospectus or the registration statement of which this prospectus forms a part, has not been approved or endorsed by us or any underwriter in its capacity as underwriter, and should not be relied upon by investors.
Other Relationships
We intend to pay Collins Stewart LLC, as underwriter, (i) an additional amount equal to 5% of the gross underwriting discount and commission paid to the entire underwriting group disclosed on the cover page of the prospectus, or $ , upon the closing of this offering and (ii) if the underwriters exercise their over-allotment option to purchase additional ordinary shares, an additional amount equal to 5% of the gross underwriting discount and commission paid to the entire underwriting group with respect to the over-allotment shares upon the closing of the over-allotment.
Certain of the underwriters may in the future perform various commercial banking, investment banking and other financial services for us and our affiliates in the ordinary course of business.
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LEGAL MATTERS
The validity of the ordinary shares being offered by this prospectus and other legal matters concerning this offering relating to Israeli law will be passed upon for us by Gornitzky & Co., Tel Aviv, Israel. Gornitzky & Co. own warrants to purchase an aggregate of 60,000 of our ordinary shares as of the date of this prospectus. Certain legal matters in connection with this offering relating to United States law will be passed upon for us by White & Case LLP, New York, New York. Certain legal matters in connection with this offering relating to Israeli law will be passed upon for the underwriters by Naschitz, Brandes & Co., Tel Aviv, Israel. Certain legal matters concerning this offering relating to United States law will be passed upon for the underwriters by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York.
EXPERTS
The consolidated financial statements as of December 31, 2005 and 2006 and for each of the three years in the period ended December 31, 2006 included in this prospectus have been so included in reliance on the report of Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global, independent registered public accounting firm, appearing elsewhere herein, which are based in part on the reports of Kesselman & Kesselman, a member of PricewaterhouseCoopers International Limited, independent registered public accounting firm, given upon the authority of said firm as experts in auditing and accounting.
The report of Kesselman & Kesselman, a member of PricewaterhouseCoopers International Limited, independent registered public accounting firm, included in this prospectus, with respect to the financial statements of Frontline as of December 31, 2005 and 2006 and for each of the three years in the period ended December 31, 2006 (not separately included in this prospectus), has been included, given upon the authority of said firm as experts in auditing and accounting.
The financial statements of Valor Denmark as of and for the year ended December 31, 2005, have been included herein in reliance upon the report of KPMG C. Jespersen Statsautoriseret Revisionsinteressentskab (partnership of state authorized public accountants), independent auditors, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. As discussed in the Accounting Principles to the financial statements, the balance sheet as of December 31, 2005 and the related income statement for the year ended December 31, 2005 have been restated.
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ENFORCEABILITY OF CIVIL LIABILITIES
We are incorporated under the laws of the State of Israel. Service of process upon us and upon our directors and officers and the Israeli experts named in this prospectus, substantially all of whom reside outside the United States, may be difficult to obtain within the United States. Furthermore, because substantially all of our assets and substantially all 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, Gornitzky & Co., that it may be difficult to assert U.S. securities law claims in original actions instituted in Israel. Israeli courts may refuse to hear a claim based on a violation of U.S. securities laws because Israel is not the most appropriate forum to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact which can be a time-consuming and costly process. Certain matters of procedure will also be governed by Israeli law.
Subject to specified time limitations and legal procedures, Israeli courts may enforce a United States judgment in a civil matter which, subject to certain exceptions, is non-appealable, including judgments based upon the civil liability provisions of the Securities Act and the Securities Exchange Act and including a monetary or compensatory judgment in a non-civil matter, provided that:
| • | the judgment was rendered by a court which was, according to the laws of the state of the court, competent to render the judgment, |
| • | the judgment may no longer be appealed, |
| • | the obligation imposed by the judgment is enforceable according to the rules relating to the enforceability of judgments in Israel and the substance of the judgment is not contrary to public policy, and |
| • | the judgment is executory in the state in which it was given. |
Notwithstanding the previous sentence, an Israeli court will not declare a foreign civil judgment enforceable if:
| • | the judgment was given in a state whose laws do not provide for the enforcement of judgments of Israeli courts (subject to exceptional cases), |
| • | the enforcement of the judgment is likely to prejudice the sovereignty or security of the State of Israel, |
| • | the judgment was obtained by fraud, |
| • | there is a finding of lack of due process, |
| • | the judgment was rendered by a court not competent to render it according to the laws of private international law in Israel, |
| • | the judgment is at variance with another judgment that was given in the same matter between the same parties and that is still valid, or |
| • | at the time the action was brought in the foreign court, a suit in the same matter and between the same parties was pending before a court or tribunal in Israel. |
We have irrevocably appointed Valor Computerized Systems, Inc. as our agent to receive service of process in any action against us in any United States federal or state court arising out of this offering or any purchase or sale of securities in connection with this offering.
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 the annual statutory rate set by Israeli regulations prevailing at the time. Judgment creditors must bear the risk of unfavorable exchange rates.
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WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration statement on Form F-1 under the Securities Act relating to this offering of our ordinary shares. This prospectus does not contain all of the information contained in the registration statement. The rules and regulations of the Securities and Exchange Commission allow us to omit various information from this prospectus that is included in the registration statement. Statements made in this prospectus concerning the contents of any contract, agreement or other document are summaries of all material information about the documents summarized, but are not complete descriptions of all terms of these documents. If we filed any of these documents as an exhibit to the registration statement, you may read the document itself for a complete description of its terms.
You may read and copy the registration statement, including the related exhibits and schedules, and any document we file with the Securities and Exchange Commission without charge at the Securities and Exchange Commission’s public reference room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may also obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the Securities and Exchange Commission at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please call the Securities and Exchange Commission at 1-800-SEC-0330 for further information on the public reference room. The Securities and Exchange Commission also maintains an Internet site that contains reports and other information regarding issuers that file electronically with the Securities and Exchange Commission. Our filings with the Securities and Exchange Commission are also available to the public through this web site at http://www.sec.gov.
We are not currently subject to the informational requirements of the Securities Exchange Act of 1934. As a result of this offering, we will become subject to the informational requirements of the Exchange Act applicable to foreign private issuers and will fulfill the obligations of these requirements by filing reports with the Securities and Exchange Commission. As a foreign private issuer, we will be exempt from the rules under the Exchange Act relating to the furnishing and content of proxy statements, and our officers, directors and principal shareholders will be exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we will not be required under the Exchange Act to file periodic reports and financial statements with the Securities and Exchange Commission as frequently or as promptly as United States companies whose securities are registered under the Exchange Act. However, we intend to file with the Securities and Exchange Commission, within 180 days after the end of each fiscal year, an annual report on Form 20-F containing financial statements which will be examined and reported on, with an opinion expressed, by an independent public accounting firm. We also intend to file with the Securities and Exchange Commission reports on Form 6-K containing unaudited financial information for the first three quarters of each fiscal year, within 60 days after the end of each quarter.
Our shares are listed on the Frankfurt Stock Exchange. Information about the European and German legal framework concerning this stock market is available on the web site of the German Stock Exchange at www.deutsche-boerse.com
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VALOR COMPUTERIZED SYSTEMS LTD.
Index to Financial Statements
| | |
| | Page |
VALOR COMPUTERIZED SYSTEMS LTD. AND ITS SUBSIDIARIES
| | | | |
Consolidated Financial Statements
| | | | |
| Report of Independent Registered Public Accounting Firm | | | F-2 | |
Consolidated Balance Sheets as of December 31, 2004, 2005 and 2006 (audited) and
September 30, 2007 (unaudited) | | | F-3 | |
Consolidated Statements of Income for each of the three years in the period ended
December 31, 2006 (audited) and nine months period ended September 30, 2006 and
2007 (unaudited) | | | F-5 | |
Statements of Changes in Equity for each of the three years in the period ended
December 31, 2006 (audited) and for the nine months period ended September 30, 2006 and 2007 (unaudited) | | | F-6 | |
Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2006 (audited) and for the nine months periods ended September 30, 2006 and 2007 (unaudited)
| | | F-8 | |
| Notes to the Consolidated Financial Statements | | | F-11 | |
FRONTLINE P.C.B. SOLUTIONS LIMITED PARTNERSHIP
| | | | |
| Report of Independent Registered Public Accounting Firm | | | F-44 | |
VALOR DENMARK A/S
| | | | |
Financial Statements
| | | | |
| Statement by the Executive and Supervisory Boards | | | F-45 | |
| Report of Independent Auditors | | | F-46 | |
| Accounting Policies | | | F-47 | |
Statements of Income for the years ended December 31, 2005 (audited), December 31, 2004
(unaudited) and for the four months period ended April 30, 2006 (unaudited) | | | F-51 | |
Balance Sheets as of December 31, 2005 (audited), December 31, 2004 (unaudited) and
April 30, 2006 (unaudited) | | | F-52 | |
Statements of Changes in Equity for the years ended December 31, 2005 (audited), December 31, 2004 (unaudited) and for the four months period ended April 30, 2006
(unaudited) | | | F-54 | |
| Statements of Cash Flows for the years ended December 31, 2005 (audited), December 31, 2004 (unaudited) and for the period ended April 30, 2006 (unaudited) | | | F-55 | |
| Notes to the Financial Statements | | | F-56 | |
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| | | | | | | | |
![[GRAPHIC MISSING]](https://capedge.com/proxy/F-1/0001144204-08-001775/letterhead_ernst-young.jpg) | | • | | Kost Forer Gabbay & Kasierer
3 Aminadav St.
Tel-Aviv 67067, Israel | | • | | Phone: 972-3-6232525
Fax: 972-3-5622555 |
Report of Independent Registered Public Accounting Firm
To the Shareholders of
VALOR COMPUTERIZED SYSTEMS LTD.
We have audited the accompanying consolidated balance sheets of Valor Computerized Systems Ltd. and subsidiaries as of December 31, 2004, 2005 and 2006, and the related consolidated statements of income, changes in equity, and cash flows for each of the three years in the period ended December 31, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of Frontline P.C.B Solutions Limited Partnership (“Frontline”), a jointly controlled entity, which statements reflect total assets constituting 9.7%, 11.9% and 12.7% of total consolidated assets as of December 31, 2004, 2005 and 2006, respectively, and total revenues constituting 34.0%, 31.5% and 36.0% of total consolidated revenues for the years then ended. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Frontline, is based solely on the report of the other auditors.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits and the report of the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Valor Computerized Systems Ltd. and subsidiaries at December 31, 2004, 2005 and 2006, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2006, in conformity with International Financial Reporting Standards, which differ in certain respects from accounting principles generally accepted in the United States of America (see note 22 to the consolidated financial statements).
| | |
| Tel-Aviv, Israel | | /s/ KOST FORER GABBAY & KASIERER |
| October 26, 2007 | | A Member of Ernst & Young Global |
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VALOR COMPUTERIZED SYSTEMS LTD.
Consolidated Balance Sheets
U.S. Dollars in Thousands
| | | | | | | | |
| | December 31, | | September 30,
2007 |
| | | 2004 | | 2005 | | 2006 |
| | | | | | | | | (Unaudited) |
ASSETS
| | | | | | | | | | | | | | | | |
Current Assets:
| | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 17,869 | | | $ | 27,726 | | | $ | 13,863 | | | $ | 13,078 | |
| Short-term deposits | | | 10,029 | | | | — | | | | — | | | | — | |
| Marketable securities available-for-sale (Note 3) | | | 2,467 | | | | 1,652 | | | | 11,360 | | | | 14,861 | |
| Trade receivables, net (Note 4) | | | 5,460 | | | | 5,953 | | | | 5,063 | | | | 5,693 | |
| Receivables from jointly controlled entity (Note 18) | | | 1,893 | | | | 2,861 | | | | 3,298 | | | | 3,259 | |
| Other current assets (Note 5) | | | 1,298 | | | | 1,329 | | | | 1,665 | | | | 2,243 | |
| Total current assets | | | 39,016 | | | | 39,521 | | | | 35,249 | | | | 39,134 | |
Non-Current Assets:
| | | | | | | | | | | | | | | | |
| Property and equipment, net (Note 6) | | | 1,355 | | | | 1,189 | | | | 1,645 | | | | 1,799 | |
| Investment in an associated company (Note 19) | | | 1,869 | | | | 3,191 | | | | — | | | | — | |
| Deferred tax assets (Note 15e) | | | 854 | | | | 1,432 | | | | 1,469 | | | | 1,816 | |
| Intangible assets, net (Note 7) | | | 216 | | | | 264 | | | | 6,760 | | | | 6,052 | |
| Goodwill (Note 20) | | | — | | | | — | | | | 7,148 | | | | 7,736 | |
| Total non-current assets | | | 4,294 | | | | 6,076 | | | | 17,022 | | | | 17,403 | |
| Total assets | | $ | 43,310 | | | $ | 45,597 | | | $ | 52,271 | | | $ | 56,537 | |
The accompanying notes are an integral part of the consolidated financial statements.
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VALOR COMPUTERIZED SYSTEMS LTD.
Consolidated Balance Sheets
U.S. Dollars in Thousands, Except Share and Per Share Data
| | | | | | | | |
| | December 31, | | September 30,
2007 |
| | | 2004 | | 2005 | | 2006 |
| | | | | | | | | (Unaudited) |
LIABILITIES AND EQUITY
| | | | | | | | | | | | | | | | |
Current Liabilities:
| | | | | | | | | | | | | | | | |
| Trade payables | | $ | 438 | | | $ | 442 | | | $ | 860 | | | $ | 1,295 | |
| Associated company payable (Note 19) | | | 1,815 | | | | 2,186 | | | | — | | | | — | |
| Employees and payroll accruals (Note 8a) | | | 1,703 | | | | 3,041 | | | | 2,949 | | | | 2,763 | |
| Deferred revenues | | | 2,908 | | | | 2,693 | | | | 3,439 | | | | 4,347 | |
| Other current liabilities (Note 8b) | | | 835 | | | | 985 | | | | 775 | | | | 1,434 | |
| Income tax payable | | | 130 | | | | 518 | | | | 890 | | | | 1,210 | |
| Total current liabilities | | | 7,829 | | | | 9,865 | | | | 8,913 | | | | 11,049 | |
Non-Current Liabilities:
| | | | | | | | | | | | | | | | |
| Severance pay liability (Note 9) | | | 571 | | | | 536 | | | | 588 | | | | 553 | |
| Deferred tax liability (Note 15d) | | | — | | | | — | | | | 1,771 | | | | 1,381 | |
| Total non-current liabilities | | | 571 | | | | 536 | | | | 2,359 | | | | 1,934 | |
Equity (Note 11):
| | | | | | | | | | | | | | | | |
| Ordinary shares of NIS 0.1 par value — Authorized: 35,599,620 shares; Issued: 19,913,295, 20,132,320, 21,105,956 and 21,969,329 shares at December 31, 2004, 2005, 2006 and September 30, 2007, respectively; Outstanding: 18,421,269, 18,640,294, 19,613,930 and 20,477,303 shares at December 31, 2004, 2005, 2006 and September 30, 2007, respectively | | | 542 | | | | 548 | | | | 569 | | | | 591 | |
| Share premium | | | 36,813 | | | | 37,659 | | | | 39,315 | | | | 41,038 | |
| Treasury shares at cost | | | (3,591 | ) | | | (3,591 | ) | | | (3,591 | ) | | | (3,591 | ) |
| Foreign currency translation adjustments | | | 184 | | | | (67 | ) | | | 387 | | | | 1,522 | |
| Asset revaluation surplus | | | — | | | | — | | | | 1,195 | | | | 1,195 | |
| Net unrealized gains on hedging instruments | | | 20 | | | | 16 | | | | 22 | | | | 73 | |
| Unrealized gains (losses) on marketable securities | | | 36 | | | | (47 | ) | | | 149 | | | | 391 | |
| Retained earnings | | | 906 | | | | 678 | | | | 2,953 | | | | 2,335 | |
| Total equity | | | 34,910 | | | | 35,196 | | | | 40,999 | | | | 43,554 | |
| Total liabilities and equity | | $ | 43,310 | | | $ | 45,597 | | | $ | 52,271 | | | $ | 56,537 | |
| | | | |
| xxx, 2007 | | | | |
Date of approval of the
financial statements | | Ofer Shofman
Chief Executive Officer | | Dan Hoz
Chief Financial Officer |
The accompanying notes are an integral part of the consolidated financial statements.
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VALOR COMPUTERIZED SYSTEMS LTD.
Consolidated Statements of Income
U.S. Dollars in Thousands, Except Share and Per Share Data
| | | | | | | | | | |
| | Year Ended
December 31, | | Nine Months Ended
September 30, |
| | | 2004 | | 2005 | | 2006 | | 2006 | | 2007 |
| | | | | | | | | (Unaudited ) |
Revenues:
| | | | | | | | | | | | | | | | | | | | |
| Product sales | | $ | 18,714 | | | $ | 23,077 | | | $ | 21,611 | | | $ | 15,598 | | | $ | 18,826 | |
| Services | | | 11,948 | | | | 13,262 | | | | 15,130 | | | | 11,136 | | | | 12,582 | |
| Total revenues | | | 30,662 | | | | 36,339 | | | | 36,741 | | | | 26,734 | | | | 31,408 | |
Cost of sales:
| | | | | | | | | | | | | | | | | | | | |
| Product sales | | | 1,943 | | | | 4,240 | | | | 2,724 | | | | 2,215 | | | | 2,379 | |
| Services | | | 1,875 | | | | 2,343 | | | | 1,908 | | | | 1,265 | | | | 1,947 | |
| Total cost of revenues | | | 3,818 | | | | 6,583 | | | | 4,632 | | | | 3,480 | | | | 4,326 | |
| Gross profit | | | 26,844 | | | | 29,756 | | | | 32,109 | | | | 23,254 | | | | 27,082 | |
Operating costs and expenses:
| | | | | | | | | | | | | | | | | | | | |
| Research and development | | | 9,674 | | | | 9,183 | | | | 11,761 | | | | 8,024 | | | | 10,047 | |
| Marketing and selling | | | 13,855 | | | | 16,131 | | | | 14,758 | | | | 11,035 | | | | 13,015 | |
| General and administrative | | | 2,109 | | | | 2,357 | | | | 2,407 | | | | 1,738 | | | | 2,084 | |
| Total operating costs and expenses | | | 25,638 | | | | 27,671 | | | | 28,926 | | | | 20,797 | | | | 25,146 | |
| Operating profit | | | 1,206 | | | | 2,085 | | | | 3,183 | | | | 2,457 | | | | 1,936 | |
| Financial income (Note 16) | | | 817 | | | | 661 | | | | 1,264 | | | | 980 | | | | 702 | |
| Financial expenses (Note 16) | | | (45 | ) | | | (257 | ) | | | (129 | ) | | | (124 | ) | | | (101 | ) |
| Profit before taxes on income | | | 1,978 | | | | 2,489 | | | | 4,318 | | | | 3,313 | | | | 2,537 | |
| Taxes on income (Note 15g) | | | 319 | | | | 267 | | | | 567 | | | | 417 | | | | 338 | |
| Profit after taxes on income | | | 1,659 | | | | 2,222 | | | | 3,751 | | | | 2,896 | | | | 2,199 | |
Equity in losses of an associated
company | | | (435 | ) | | | (828 | ) | | | (480 | ) | | | (480 | ) | | | — | |
| Net profit | | $ | 1,224 | | | $ | 1,394 | | | $ | 3,271 | | | $ | 2,416 | | | $ | 2,199 | |
| Basic earnings per share | | $ | 0.07 | | | $ | 0.08 | | | $ | 0.17 | | | $ | 0.13 | | | $ | 0.11 | |
| Diluted earnings per share | | $ | 0.06 | | | $ | 0.07 | | | $ | 0.16 | | | $ | 0.12 | | | $ | 0.10 | |
| Weighted average number of shares used for computing basic earnings per share (Note 12) | | | 18,273,778 | | | | 18,552,412 | | | | 19,421,445 | | | | 19,157,996 | | | | 20,098,580 | |
| Weighted average number of shares used for computing diluted earnings per share (Note 12) | | | 19,610,209 | | | | 19,618,416 | | | | 20,877,728 | | | | 20,041,121 | | | | 21,439,421 | |
The accompanying notes are an integral part of the consolidated financial statements.
F-5
TABLE OF CONTENTS
VALOR COMPUTERIZED SYSTEMS LTD.
Statements of Changes in Equity
U.S. Dollars in Thousands, Except Per Share Data
| | | | | | | | | | | | | | | | | | | | | | |
| | Ordinary
Shares
Outstanding | | Share
Capital | | Share
Premium | | Treasury
Shares at
Cost | | Foreign
Currency
Translation
Adjustments | | Asset
Revaluation
Surplus | | Net
Unrealized
Gains (losses)
on Hedging
Instruments | | Unrealized
Gains (losses)
on
Marketable
Securities | | Retained
Earnings | | Total
equity | | Total
Recognized
Income
(Expenses) |
| Balance as of January 1, 2004 | | | 18,066,174 | | | $ | 534 | | | $ | 35,937 | | | $ | (3,591 | ) | | $ | 260 | | | $ | — | | | $ | (10 | ) | | $ | 23 | | | $ | 2,277 | | | $ | 35,430 | | | | | |
| Net unrealized gain on hedging instruments | | | | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 20 | | | | — | | | | — | | | | 20 | | | $ | 20 | |
| Exercise of options | | | 355,095 | | | | 8 | | | | 478 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 486 | | | | — | |
| Share-based payments | | | — | | | | — | | | | 398 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 398 | | | | — | |
| Unrealized gains on marketable securities | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 36 | | | | — | | | | 36 | | | | 36 | |
| Realized losses (gains) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 10 | | | | (23 | ) | | | — | | | | (13 | ) | | | (13 | ) |
Foreign currency translation
adjustments | | | — | | | | — | | | | — | | | | — | | | | (76 | ) | | | — | | | | — | | | | — | | | | — | | | | (76 | ) | | | (76 | ) |
| Dividend paid (*) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (2,595 | ) | | | (2,595 | ) | | | — | |
| Net profit | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1,224 | | | | 1,224 | | | | 1,224 | |
| Balance as of December 31, 2004 | | | 18,421,269 | | | | 542 | | | | 36,813 | | | | (3,591 | ) | | | 184 | | | | — | | | | 20 | | | | 36 | | | | 906 | | | | 34,910 | | | $ | 1,191 | |
| Net unrealized gains on hedging instruments | | | | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 16 | | | | — | | | | — | | | | 16 | | | $ | 16 | |
| Exercise of options | | | 219,025 | | | | 6 | | | | 270 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 276 | | | | — | |
| Share-based payments | | | — | | | | — | | | | 576 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 576 | | | | — | |
Unrealized loss on marketable
securities | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (47 | ) | | | — | | | | (47 | ) | | | (47 | ) |
| Realized losses | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (20 | ) | | | (36 | ) | | | — | | | | (56 | ) | | | (56 | ) |
Foreign currency translation
adjustments | | | — | | | | — | | | | — | | | | — | | | | (251 | ) | | | — | | | | — | | | | — | | | | — | | | | (251 | ) | | | (251 | ) |
| Dividend paid (*) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (1,622 | ) | | | (1,622 | ) | | | — | |
| Net profit | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1,394 | | | | 1,394 | | | | 1,394 | |
| Balance as of December 31, 2005 | | | 18,640,294 | | | | 548 | | | | 37,659 | | | | (3,591 | ) | | | (67 | ) | | | — | | | | 16 | | | | (47 | ) | | | 678 | | | | 35,196 | | | $ | 1,056 | |
| Net unrealized gains on hedging instruments | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 3 | | | | — | | | | — | | | | 3 | | | | 3 | |
| Exercise of options | | | 874,791 | | | | 17 | | | | 1,086 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1,103 | | | | — | |
| Share-based payments | | | — | | | | — | | | | 189 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 189 | | | | — | |
| Unrealized gains on marketable securities | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 68 | | | | — | | | | 68 | | | | 68 | |
| Realized gains (losses) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (16 | ) | | | 47 | | | | — | | | | 31 | | | | 31 | |
Foreign currency translation
adjustments | | | — | | | | — | | | | — | | | | — | | | | 25 | | | | — | | | | — | | | | — | | | | — | | | | 25 | | | | 25 | |
| Asset evaluation surplus | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1,195 | | | | — | | | | — | | | | | | | | 1,195 | | | | 1,195 | |
| Dividend paid (*) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (996 | ) | | | (996 | ) | | | — | |
| Net profit | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 2,416 | | | | 2,416 | | | | 2,416 | |
| Balance as of September 30, 2006 (Unaudited) | | | 19,515,085 | | | $ | 565 | | | $ | 38,934 | | | $ | (3,591 | ) | | $ | (42 | ) | | $ | 1,195 | | | $ | 3 | | | $ | 68 | | | $ | 2,098 | | | $ | 39,230 | | | $ | 3,738 | |
F-6
TABLE OF CONTENTS
VALOR COMPUTERIZED SYSTEMS LTD.
Statements of Changes in Equity – (continued)
U.S. Dollars in Thousands, Except Per Share Data
| | | | | | | | | | | | | | | | | | | | | | |
| | Ordinary
Shares
Outstanding | | Share
Capital | | Share
Premium | | Treasury
Shares at
Cost | | Foreign
Currency
Translation
Adjustments | | Asset
Revaluation
Surplus | | Net
Unrealized
Gains (losses)
on Hedging
Instruments | | Unrealized
Gains (losses)
on
Marketable
Securities | | Retained
Earnings | | Total
equity | | Total
Recognized
Income
(Expenses) |
| Balance as of January 1, 2006 | | | 18,640,294 | | | $ | 548 | | | $ | 37,659 | | | $ | (3,591 | ) | | $ | (67 | ) | | $ | — | | | $ | 16 | | | $ | (47 | ) | | $ | 678 | | | $ | 35,196 | | | $ | 1,056 | |
| Net unrealized gains on hedging instruments | | | — | | | | — | | | | — | | | | — | | | | — | | | | 22 | | | | — | | | | — | | | | 22 | | | | 22 | | | | | |
| Exercise of options | | | 973,636 | | | | 21 | | | | 1,322 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1,343 | | | | — | |
| Share-based payments | | | — | | | | — | | | | 334 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 334 | | | | — | |
| Unrealized gains on marketable securities | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 149 | | | | — | | | | 149 | | | | 149 | |
| Realized gains (losses) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (16 | ) | | | 47 | | | | — | | | | 31 | | | | 31 | |
Foreign currency translation
adjustments | | | — | | | | — | | | | — | | | | — | | | | 454 | | | | — | | | | — | | | | — | | | | — | | | | 454 | | | | 454 | |
| Asset evaluation surplus | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1,195 | | | | — | | | | — | | | | — | | | | 1,195 | | | | 1,195 | |
| Dividend paid (*) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (996 | ) | | | (996 | ) | | | — | |
| Net profit | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 3,271 | | | | 3,271 | | | | 3,271 | |
| Balance as of December 31, 2006 | | | 19,613,930 | | | | 569 | | | | 39,315 | | | | (3,591 | ) | | | 387 | | | | 1,195 | | | | 22 | | | | 149 | | | | 2,953 | | | | 40,999 | | | $ | 5,122 | |
| Net unrealized gains on hedging instruments | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 73 | | | | — | | | | — | | | | 73 | | | | 73 | |
| Exercise of options | | | 863,373 | | | | 22 | | | | 1,235 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1,257 | | | | — | |
| Share-based payments | | | — | | | | — | | | | 488 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 488 | | | | — | |
| Unrealized gains on marketable securities | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 391 | | | | — | | | | 391 | | | | 391 | |
| Realized losses | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (22 | ) | | | (149 | ) | | | — | | | | (171 | ) | | | (171 | ) |
Foreign currency translation
adjustments | | | — | | | | — | | | | — | | | | — | | | | 1,135 | | | | — | | | | — | | | | — | | | | — | | | | 1,135 | | | | 1,135 | |
| Dividend paid (*) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (2,817 | ) | | | (2,817 | ) | | | — | |
| Net profit | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 2,199 | | | | 2,199 | | | | 2,199 | |
| Balance as of September 30, 2007 (Unaudited) | | | 20,477,303 | | | $ | 591 | | | $ | 41,038 | | | $ | (3,591 | ) | | $ | 1,522 | | | $ | 1,195 | | | $ | 73 | | | $ | 391 | | | $ | 2,335 | | | $ | 43,554 | | | $ | 3,627 | |
| (*) | Dividend paid per outstanding share – 2004 - $ 0.14; 2005 - $ 0.09; 2006 - $ 0.05 and 2007 - $ 0.14. |
F-7
TABLE OF CONTENTS
VALOR COMPUTERIZED SYSTEMS LTD.
Consolidated Statements of Cash Flows
U.S. Dollars in Thousands
| | | | | | | | | | |
| | Year Ended
December 31, | | Nine Months Ended
September 30, |
| | | 2004 | | 2005 | | 2006 | | 2006 | | 2007 |
| | | | | | | | | (Unaudited) |
Cash flows from operating activities:
| | | | | | | | | | | | | | | | | | | | |
| Net profit | | $ | 1,224 | | | $ | 1,394 | | | $ | 3,271 | | | $ | 2,416 | | | $ | 2,199 | |
Adjustments for:
| | | | | | | | | | | | | | | | | | | | |
| Depreciation and amortization | | | 905 | | | | 549 | | | | 1,472 | | | | 909 | | | | 1,521 | |
| Compensation expense for share-based payments | | | 398 | | | | 576 | | | | 334 | | | | 189 | | | | 488 | |
| Increase in deferred taxes | | | (236 | ) | | | (578 | ) | | | (266 | ) | | | (201 | ) | | | (730 | ) |
| Loss (gain) on sale of marketable securities | | | — | | | | 11 | | | | (344 | ) | | | (293 | ) | | | (130 | ) |
| Loss (gain) on sale of property and equipment | | | 1 | | | | (2 | ) | | | 6 | | | | 6 | | | | 4 | |
| Equity in losses of an associated company | | | 435 | | | | 828 | | | | 480 | | | | 480 | | | | — | |
| Increase (decrease) in accrued severance pay, net | | | 8 | | | | (35 | ) | | | 52 | | | | 95 | | | | (35 | ) |
| Accrued interest on long-term deposit and short-term deposits | | | (29 | ) | | | — | | | | — | | | | — | | | | — | |
| | | | 2,706 | | | | 2,743 | | | | 5,005 | | | | 3,601 | | | | 3,317 | |
| Decrease (increase) in trade receivables and jointly controlled entity | | | (1,003 | ) | | | (1,678 | ) | | | 677 | | | | 830 | | | | (532 | ) |
| Decrease (increase) in other current assets | | | 137 | | | | (98 | ) | | | (102 | ) | | | (373 | ) | | | (425 | ) |
| Increase (decrease) in trade payables | | | (14 | ) | | | 24 | | | | 160 | | | | 181 | | | | 432 | |
| Increase in payable to an associated company | | | 1,315 | | | | 871 | | | | 104 | | | | 104 | | | | — | |
| Increase (decrease) in employees and payroll accruals | | | 30 | | | | 1,466 | | | | (511 | ) | | | (1,008 | ) | | | (193 | ) |
| Increase (decrease) in deferred revenues | | | 607 | | | | (215 | ) | | | 728 | | | | 1,351 | | | | 893 | |
| Increase (decrease) in other current liabilities | | | (8 | ) | | | 278 | | | | (596 | ) | | | 451 | | | | 649 | |
| Increase (decrease) in income tax payable | | | 29 | | | | 388 | | | | 372 | | | | (198 | ) | | | 320 | |
| | | | 1,093 | | | | 1,036 | | | | 832 | | | | 1,338 | | | | 1,144 | |
Net cash provided by operating
activities | | | 3,799 | | | | 3,779 | | | | 5,837 | | | | 4,939 | | | | 4,461 | |
F-8
TABLE OF CONTENTS
VALOR COMPUTERIZED SYSTEMS LTD.
Consolidated Statements of Cash Flows – (continued)
U.S. Dollars in Thousands
| | | | | | | | | | |
| | Year Ended
December 31, | | Nine Months Ended
September 30, |
| | | 2004 | | 2005 | | 2006 | | 2006 | | 2007 |
| | | | | | | | | (Unaudited) |
Cash flows from investing activities:
| | | | | | | | | | | | | | | | | | | | |
| Purchase of property, equipment and intangible assets | | $ | (404 | ) | | $ | (495 | ) | | $ | (1,063 | ) | | $ | (410 | ) | | $ | (695 | ) |
| Acquisition of Valor Denmark, net of cash acquired (see Note 20) | | | — | | | | — | | | | (8,763 | ) | | | (8,763 | ) | | | — | |
| Proceeds from sale of property and equipment | | | 1 | | | | 32 | | | | 5 | | | | 8 | | | | 51 | |
| Proceeds from bank deposits | | | 12,664 | | | | 10,029 | | | | — | | | | — | | | | — | |
| Proceeds from sale of marketable securities | | | 454 | | | | 2,467 | | | | 73,314 | | | | 43,247 | | | | 13,240 | |
| Purchase of marketable securities | | | (2,428 | ) | | | (1,699 | ) | | | (82,482 | ) | | | (52,557 | ) | | | (16,368 | ) |
| Investment in associated company | | | (1,804 | ) | | | (2,650 | ) | | | (1,113 | ) | | | (1,113 | ) | | | — | |
| Net cash provided by (used in) investing activities | | | 8,483 | | | | 7,684 | | | | (20,102 | ) | | | (19,588 | ) | | | (3,772 | ) |
Cash flows from financing activities:
| | | | | | | | | | | | | | | | | | | | |
| Proceeds from exercise of stock options | | | 486 | | | | 276 | | | | 1,343 | | | | 1,103 | | | | 1,257 | |
| Dividend paid | | | (2,595 | ) | | | (1,622 | ) | | | (996 | ) | | | (996 | ) | | | (2,817 | ) |
| Net cash provided by (used in) financing activities | | | (2,109 | ) | | | (1,346 | ) | | | 347 | | | | 107 | | | | (1,560 | ) |
| Increase (decrease) in cash and cash equivalents | | | 10,173 | | | | 10,117 | | | | (13,918 | ) | | | (14,542 | ) | | | (871 | ) |
| Effect of exchange rate changes on cash and cash equivalents | | | 47 | | | | (260 | ) | | | 55 | | | | 43 | | | | 86 | |
| Cash and cash equivalents at beginning of period | | | 7,649 | | | | 17,869 | | | | 27,726 | | | | 27,726 | | | | 13,863 | |
| Cash and cash equivalents at end of period | | $ | 17,869 | | | $ | 27,726 | | | $ | 13,863 | | | $ | 13,227 | | | $ | 13,078 | |
F-9
TABLE OF CONTENTS
VALOR COMPUTERIZED SYSTEMS LTD.
Consolidated Statements of Cash Flows – (continued)
U.S. Dollars in Thousands
| | | | | | | | | | |
| | Year Ended
December 31, | | Nine Months Ended
September 30, |
| | | 2004 | | 2005 | | 2006 | | 2006 | | 2007 |
| | | | | | | | | (Unaudited) |
Acquisition of Valor Denmark:
| | | | | | | | | | | | | | | | | | | | |
Fair value of net assets acquired (excluding cash and cash equivalents) and liabilities assumed at acquisition date:
| | | | | | | | | | | | | | | | | | | | |
| Working capital (excluding cash and cash equivalents) | | $ | — | | | $ | — | | | $ | (545 | ) | | $ | (545 | ) | | $ | — | |
| Fixed assets | | | — | | | | — | | | | 98 | | | | 98 | | | | — | |
| Acquired technology | | | — | | | | — | | | | 1,975 | | | | 1,975 | | | | — | |
| Customer list | | | — | | | | — | | | | 5,029 | | | | 5,029 | | | | — | |
| Goodwill | | | — | | | | — | | | | 6,846 | | | | 6,846 | | | | — | |
| Deferred tax liability | | | — | | | | — | | | | (1,926 | ) | | | (1,926 | ) | | | — | |
| Asset revaluation surplus | | | — | | | | — | | | | (1,195 | ) | | | (1,195 | ) | | | — | |
| Balances with Valor Denmark: | | | | | | | | | | | | | | | | | | | | |
| Amounts payable | | | — | | | | — | | | | 2,305 | | | | 2,305 | | | | — | |
| Investment prior to acquisition | | | — | | | | — | | | | (3,824 | ) | | | (3,824 | ) | | | — | |
| | | $ | — | | | $ | — | | | $ | 8,763 | | | $ | 8,763 | | | $ | — | |
Cash paid and received during the year for:
| | | | | | | | | | | | | | | | | | | | |
| Interest received | | $ | 501 | | | $ | 734 | | | $ | 729 | | | $ | 557 | | | $ | 413 | |
| Income taxes paid | | $ | 237 | | | $ | 73 | | | $ | 276 | | | $ | 320 | | | $ | 241 | |
Supplemental disclosure of non-cash investing and financing activities:
| | | | | | | | | | | | | | | | | | | | |
| Net unrealized gains (losses) on marketable securities | | $ | 13 | | | $ | (83 | ) | | $ | 196 | | | $ | 115 | | | $ | 242 | |
| Net unrealized gains (losses) on hedging instruments | | $ | 30 | | | $ | (4 | ) | | $ | 6 | | | $ | (13 | ) | | $ | 51 | |
| Investment in an associate against payable | | $ | 500 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
F-10
TABLE OF CONTENTS
VALOR COMPUTERIZED SYSTEMS LTD.
Notes To Consolidated Financial Statements
Note 1: General
| (a) | Valor Computerized Systems Ltd. (“the Company”), which is incorporated under the laws of Israel, is located in 4 Faran Street, Yavne, Israel. The Company and its subsidiaries (“the Group”) design, develop, market and support software solutions for the fabrication, design and assembly segments of the Printed Circuit Boards (“PCB”) manufacturing industry. The Group’s products are marketed in Europe, Asia and U.S. through wholly-owned subsidiaries in each region. |
| (b) | The Company has a 50% interest in a joint venture partnership Frontline P.C.B Solutions Ltd. (“the joint venture”) together with Orbotech Ltd. (“Orbotech”), an Israeli developer of inspection and imaging solutions for PCB production. The joint venture is engaged in the design, development, marketing and support of software solutions for the fabrication segment of the PCB manufacturing industry. |
| (c) | In February 2004, the Company signed an agreement with TraceXpert, a Danish company, according to which, Valor and TraceXpert established an entity (“Valor Denmark”), which would facilitate integration of the Company’s and TraceXpert’s products and joint development and marketing of manufacturing execution system (MES) solutions. Until May 2006, the Company had an equity interest in Valor Denmark (see Note 19). In May 2006, the Company signed a purchase agreement to acquire the entire share capital of Valor Denmark and commenced its consolidation thereafter (see Note 20). |
Note 2: Significant Accounting Policies
The consolidated financial statements of the Group for the year ended December 31, 2006 were authorized for issue in accordance with a resolution of the Company’s board of directors dated October 17, 2007. The Group’s consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”). The consolidated financial statements have been prepared on a historical cost basis except for available-for-sale investments and derivatives which have been measured at fair value. The consolidated financial statements are presented in U.S. dollars and all values are rounded to the nearest thousand ($000), except when otherwise indicated.
| (a) | Interim Financial Information |
The Company’s consolidated balance sheet as of September 30, 2007 and the related consolidated statements of operations, statement of changes in equity, and cash flows for the nine months ended September 30, 2006 and 2007 are unaudited. This unaudited information has been prepared by the Company on the same basis as the audited annual consolidated financial statements and, in management’s opinion, reflects all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the financial information, in accordance with generally accepted accounting principles, for interim financial reporting for the periods presented. Results for interim periods are not necessarily indicative of the results to be expected for the entire year. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for audited financial statements.
| (b) | Use of assumptions, estimates and judgments: |
The preparation of financial statements in accordance with IFRS requires estimates and assumptions by the Company’s management. Management is not presently aware of any significant uncertainty in applying these estimates that might result in a material change in the carrying amounts of assets and liabilities within the next financial year. In the process of applying the entity’s accounting policies, management makes various judgments, apart from those involving estimations, that can significantly affect the amounts recognized in the financial statements. The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below:
| — | Impairment of goodwill — The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of “the value in use” of the cash-generating units to which the goodwill is allocated. Estimating the value in use amount requires management to make an estimate of the expected future cash flows from the cash-generating units and also to choose a suitable discount rate in order to calculate the present value of those cash flows. |
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VALOR COMPUTERIZED SYSTEMS LTD.
Notes To Consolidated Financial Statements
Note 2: Significant Accounting Policies – (continued)
| — | Severance pay liability — The cost of defined benefit plan is determined using actuarial valuations. The actuarial valuation involves making assumptions, mainly about discount rates, expected rates of return on assets and future salary increases. Due to the long term nature of this plan, such estimates are subject to significant uncertainty. Further details are given in Note 9. |
| (c) | Foreign currency translation: |
The majority of the Company’s sales are made outside Israel, in non-Israeli currencies, mainly the U.S. dollar. A substantial portion of the Company’s expenses, mainly selling and marketing expenses and service costs are incurred in or linked to U.S. dollars. Therefore, the Company has determined that the U.S. dollar is the currency of the primary economic environment of the Company and of certain of its subsidiaries, and thus its functional and presentation currency. Transactions in non-dollar currencies are converted based on the exchange rate on the date of the transaction. Monetary assets and liabilities in non-dollar currencies are converted at the exchange rate on the balance sheet date. Exchange rate differences are recorded in the statement of income.
Non-monetary items that are measured at historical cost in non-dollar currencies are translated at the historical exchange rate on the date of the transaction.
The financial statements of certain subsidiaries, whose functional currency is not the U.S. dollar, have been translated into U.S. dollars. Assets and liabilities of these subsidiaries have been translated using the exchange rates in effect at the balance sheet date. Statement of income amounts have been translated using an average exchange rate. The resulting translation adjustments are reported as a separate component of equity. At the time of disposal of these subsidiaries, the deferred cumulative amount recognized in equity relating to those subsidiaries will be recognized in the statement of income.
IFRS 2, “Share-Based Payment”, requires an expense to be recognized where the Group buys goods or services in exchange for shares or rights over shares (“equity-settled transactions”), or in exchange for other assets equivalent in value to a given number of shares or rights over shares (“cash-settled transactions”). IFRS 2 requires the Group the expensing of employees’ and directors’ share options (equity-settled transactions).
The Group has applied IFRS 2 to all periods presented and has taken advantage of the transitional provisions of IFRS 2 in respect of equity settled awards. As a result, the Group has applied IFRS 2 only to equity settled awards granted after November 7, 2002 that had not vested by December 31, 2004.
The effect of the adoption of IFRS 2 as of January 1, 2004, resulted in an increase in share premium and a decrease of retained earnings of $318 to reflect the cumulative effect as of that date.
The cost of equity settled transactions is measured by reference to the fair value of the stock options at the date on which they were granted. Fair value is determined by using an option-pricing model.
The cost of equity-settled transactions is recognized, together with a corresponding increase in equity, over the period in which the service conditions are fulfilled, ending on the date the options vest. The cumulative expense, recognized at each reporting date until the vesting date, reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. No expense is recognized for amounts that do not ultimately vest.
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VALOR COMPUTERIZED SYSTEMS LTD.
Notes To Consolidated Financial Statements
Note 2: Significant Accounting Policies – (continued)
The total equity-based compensation expense related to all of the Company’s equity-based awards, recognized for the years ended December 31, 2004, 2005 and 2006, was comprised as follows:
| | | | | | |
| | Year Ended December 31, |
| | | 2004 | | 2005 | | 2006 |
| Cost of revenues | | $ | — | | | $ | 22 | | | $ | 5 | |
| Research and development, net | | | 80 | | | | 160 | | | | 21 | |
| Selling and marketing | | | 199 | | | | 265 | | | | 201 | |
| General and administrative | | | 119 | | | | 129 | | | | 107 | |
| Total stock-based compensation expenses | | $ | 398 | | | $ | 576 | | | $ | 334 | |
| (e) | Principles of consolidation: |
The consolidated financial statements comprise the financial statements of the Company and its subsidiaries, after the elimination of all intercompany balances, transactions, income and expenses and profits and losses resulting from intra-group transactions.
Subsidiaries are consolidated from the date the parent obtains control until such time control ceases. Acquisitions of subsidiaries are accounted for using the purchase method of accounting. The financial statements of subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies.
The financial statements of the 50% owned joint venture are accounted for by the proportionate consolidation method in accordance with IAS 31, “Financial Reporting of Interests in Joint Ventures” which involves recognition of a proportionate share of the joint venture’s assets, liabilities, income and expenses with similar items in the consolidated financial statements on a line-by-line basis. The financial statements of the joint venture are prepared for the same reporting year as the parent company, using consistent accounting policies.
| (f) | Investment in an associated company: |
An associated company is an entity in which the Company has significant influence. The investment in an associated company is accounted for using the equity method of accounting. Under the equity method, the investment in the associate is carried in the balance sheet at cost plus post acquisition changes in the Company’s share of net assets of the associated company.
Goodwill relating to the investment in the associated company is included in the carrying amount of the investment and is not amortized. The income statement reflects the share of the results of operations of the associated company. Profits and losses resulting from transactions between the Group and the associated company are eliminated to the extent of the interest in the associated company.
The reporting dates of the associated company and the Company are identical and the associated company’s accounting policies conform to those used by the Company for like transactions and events in similar circumstances.
| (g) | Scope of consolidation: |
The consolidated financial statements include the financial statements of the Company and of the following companies as of December 31, 2004, 2005 and 2006, except where noted:
| | |
| | Ownership and Control (%) |
| Valor Computerized Systems Inc. | | | 100 | |
| Valor Computerized Systems Far East | | | 100 | |
| Valor Computerized Systems GmbH | | | 100 | |
| Valor Computerized Systems U.K. | | | 100 | |
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VALOR COMPUTERIZED SYSTEMS LTD.
Notes To Consolidated Financial Statements
Note 2: Significant Accounting Policies – (continued)
| | |
| | Ownership and Control (%) |
| Valor Computerized Systems Japan KK | | | 100 | |
| Valor Computerized Systems NV | | | 100 | |
| Valor Computerized Systems Oy (Harelda) | | | 100 | |
| Valor Computerized Systems Singapore | | | 100 | |
| T-V Holding A/S(1) | | | 100 | |
| Valor Denmark(1) | | | 100 | |
| Frontline P.C.B Solutions Ltd.(2) | | | 50 | |
| (1) | Valor Denmark is a wholly-owned subsidiary of T-V Holding A/S – see also Note 20. T-V Holding A/S was acquired during 2006. |
| (h) | Cash and cash equivalents: |
Cash and cash equivalents include short-term, highly liquid investments that are readily convertible to cash with an original maturity of three months or less at the date of purchase.
| (i) | Securities available-for-sale: |
Securities available-for-sale are measured at fair value. Gains or losses on available-for-sale investments are recognized as a separate component of equity until the investment is sold, collected or otherwise disposed of, or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is included in income. The cost of a security sold is determined based on specific identification of the security. The fair value is determined, based on the quoted market price on the balance sheet date.
Trade receivables are recognized and carried at the original invoiced amount less an allowance for any uncollectible amounts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written-off as incurred or identified.
| (k) | Property and equipment: |
Property and equipment are stated at cost net of accumulated depreciation and accumulated impairment of value. Depreciation is calculated using the straight-line method, over the estimated useful lives of the assets as follows:
| | |
| | Years |
| Computers and peripheral equipment | | | 3 – 5 | |
| Office furniture and equipment | | | 6 – 15 | |
| Motor vehicles | | | 6 | |
| Leasehold improvements | | | The shorter of the term of the
lease or the life of the asset | |
The Company periodically assesses the recoverability of the carrying amount of property and equipment and provides for any possible impairment loss based upon the difference between the carrying amount and recoverable amount of such assets in accordance with IAS 36, “Impairment of Assets.” No impairment losses have been identified in the periods presented.
Inventories consist of finished goods and are presented at the lower of cost or net realizable value. Their cost is determined at weighted average cost.
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VALOR COMPUTERIZED SYSTEMS LTD.
Notes To Consolidated Financial Statements
Note 2: Significant Accounting Policies – (continued)
Deferred income tax is provided using the liability method on temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred taxes are determined in accordance with IAS 12, “Income Taxes”.
Deferred income tax assets are recognized for all deductible temporary differences, carry forwards of unused tax credits and unused tax losses to the extent that it is probable they can be utilized. The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized. Deferred taxes are measured at the tax rates that are expected to apply to the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted at the balance sheet date.
The intangible assets which consist of technology and customer list were acquired in a business combination and are recorded at their fair value as of the date of acquisition. Following initial recognition, the technology and customer list are carried at cost and amortized using the straight-line method over an estimated useful life of five years during which benefits are expected to be received. Intangible assets are assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset is reviewed at least at each financial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortization period or method, as appropriate, and treated as changes in accounting estimates. The amortization expense on intangible assets is recognized in the income statements in the expense category consistent with the function of the intangible asset.
As of December 31, 2006, no impairment losses or changes in useful life have been identified.
Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired.
The Group’s goodwill which relates to the assembly segment derives from the acquisition of Valor Denmark in 2006 and is tested for impairment at the cash generating unit level by a comparison of the recoverable amount of the cash generating unit with its carrying value. Impairment losses relating to goodwill cannot be reversed in future periods. The Group performs its annual impairment test of goodwill as at December 31. No impairment losses have been identified in the periods presented.
The recoverable amount of the cash generating unit has been determined based on a “value in use” calculation using cash flow projections from financial budgets approved by senior management covering a five-year period. The pre-tax discount rate applied to cash flow projections is 18% and cash flows beyond the 5-year period are extrapolated using a 5.0% growth rate based on published industry research.
The calculation of the value is based on the following assumptions:
Weighted average cost of capital (“WACC”) or discount rate reflects management estimates of the risks specific to the cash generating unit. The WACC is calculated by weighting the required returns on interest-bearing debt and common equity capital in proportion to their estimated percentages in an expected industry capital structure. In determining the discount rate, consideration has been given to the yield on the twenty-year government bond at the beginning of the forecasted period.
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VALOR COMPUTERIZED SYSTEMS LTD.
Notes To Consolidated Financial Statements
Note 2: Significant Accounting Policies – (continued)
Growth rate estimates – Rates are based on published industry research. The growth rate is used to extrapolate cash flow beyond the projection period.
Sensitivity to changes in assumptions:
There are reasonably possible changes in key assumptions which could cause the carrying value of the cash generating unit to exceed its recoverable amount. The actual recoverable amount of Valor Denmark as of December 31, 2006 exceeded the carrying amount by $6,318. Implications of these key assumptions on the recoverable amount are discussed below:
WACC – The Company has determined that the WACC of Valor Denmark was approximately 15% after tax and the implied WACC before tax was approximately 18%. An increase of 5.7% in the WACC would give a value in use equal to the carrying amount of Valor Denmark.
Growth rate – The Company has determined that the growth rate of Valor Denmark was approximately 5% and, even in case of an adverse change in the business environment which would cause a reduction of 5% in the growth rate, the value in use would exceed the carrying amount of Valor Denmark.
Product sales revenues are comprised of licenses and subscriptions revenues. Licenses revenues are perpetual license fees that are primarily derived from contracts with corporate customers and value added resellers, which are all considered end-users. License revenues are recognized when a license agreement has been executed or a definitive purchase order has been received, the product has been delivered to end customers, the fee is fixed or determinable and collectiblity is probable. The Company considers certain arrangements with payment terms extending beyond customary payment terms not to be fixed or determinable. If the fee is considered not to be fixed or determinable, revenue is deferred and recognized when payments become due. If collectibility is not considered probable, revenues are recognized when the fee is collected. For electronic delivery, the software is considered as delivered when the Company has provided the customer with the access codes that allow for immediate possession of the software. Revenues from subscription contracts are recognized on a straight-line basis, over the life of the related subscription.
Deferred revenues include amounts received from customers for which revenues have not been recognized
Revenues from services include maintenance, consulting, engineering and training revenues. The consulting, engineering and training revenues are recognized when the service is provided. Maintenance revenues are comprised of revenues from support arrangements that include technical support and the right to unspecified upgrades on an if-and-when-available basis. Revenues from these services are deferred and recognized on a straight-line basis, over the life of the related agreement, which is typically one year.
| (q) | Research and development costs: |
Research costs are expensed as incurred. Development costs in respect of individual projects are capitalized only if future recoverability is reasonably assured and various other criteria as set forth in IAS 38 (“Intangible Assets”) have been met. Since these criteria have not been satisfied, development costs are expensed.
| (r) | Severance pay liability: |
The Company operates a defined benefit plan for severance pay pursuant to the Israel’s Severance Pay Law. Under the Severance Pay Law, Israeli resident employees are entitled to receive severance pay upon involuntary termination of employment, or upon retirement, which is calculated based on the most recent monthly salary at the time of termination, multiplied by the number of years of employment.
The Company funds its liability for severance pay by monthly payments to pension funds and insurance companies (“plan assets”). The plan assets include profits accumulated up to the balance sheet date. The plan assets may be withdrawn only in accordance with Israel’s Severance Pay Law or labor agreements.
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VALOR COMPUTERIZED SYSTEMS LTD.
Notes To Consolidated Financial Statements
Note 2: Significant Accounting Policies – (continued)
The cost for providing severance pay is determined using the projected unit credit actuarial valuation method. Actuarial gains and losses are recognized immediately in the period in which they occur.
The severance pay liability recognized in the balance sheet represents the present value of the defined benefit obligation reduced by the fair value of plan assets.
Equity instruments of the Company which are reacquired (treasury shares) are deducted from equity. No gain or loss is recognized as profit or loss, respectively, on the purchase, sale, issue or cancellation of the treasury shares.
Basic earnings per share have been computed using the weighted average number of ordinary shares outstanding during the period. Diluted earnings per share are computed based on the weighted average number of ordinary shares outstanding during each period, adjusted for the effect of dilutive options.
| (u) | Derivative financial instruments: |
The Company uses derivative financial instruments, such as forward exchange rate contracts, to hedge its risks associated primarily with foreign currency fluctuations. The fair value of forward exchange contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles. The derivatives are carried as assets or liabilities, when the fair value is positive or negative, respectively.
For the purpose of hedge accounting, hedges are classified into two categories: (a) fair value hedges, which hedge the exposure to changes in the fair value of a recognized asset or liability; and (b) cash flow hedges, which hedge exposure to variability in cash flows that is either attributable to a particular risk associated with a recognized asset or liability or a forecasted transaction.
In relation to fair value hedges that meet the conditions for hedge accounting, any gains or losses from remeasuring the hedging instrument to fair value are recognized immediately in the statement of income. Any gain or loss arising from the hedged item attributable to the hedged risk is adjusted against the carrying amount of the hedged item and recognized in the statement of income.
In relation to cash flow hedges that meet the conditions for hedge accounting, the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognized directly in equity and the ineffective portion is recognized in the statement of income.
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting. At that point in time, any cumulative gain or loss on the hedging instrument recognized in equity is kept in equity until the forecasted transaction occurs. Where the hedged transaction is no longer expected to occur, the net cumulative gain or loss recognized in equity is transferred to the statement of income for the period.
| (v) | Concentrations of credit risk: |
Financial instruments that potentially subject the Company and its subsidiaries to concentrations of credit risk consist principally of cash and cash equivalents, bank deposits, marketable securities and trade receivables. Cash and cash equivalents are invested mainly in U.S. dollars with major banks in Israel. Accordingly, the Company’s management believes that minimal credit risk exists with respect to cash and cash equivalents. The Company’s trade receivables are derived from sales to customers located in North America, Far East, Japan and Europe. The Group generally does not require collateral; however, in certain circumstances, the Group may require letters of credit, additional guarantees or advance payments. The Group performs ongoing credit evaluations of their customers. Based upon management’s estimate, an allowance for doubtful accounts is determined with respect to specific receivables which the collection may be doubtful.
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VALOR COMPUTERIZED SYSTEMS LTD.
Notes To Consolidated Financial Statements
Note 2: Significant Accounting Policies – (continued)
The Company’s management believes that since the abovementioned activities were transacted with well-established institutions, the liabilities owed to the Company will be fulfilled.
| (w) | IFRSs and IFRIC interpretations: |
The following are IFRSs and IFRIC interpretations that have been issued recently:
| (1) | IFRS 7 – Financial Instruments: Disclosures and Amendment to IAS 1 – Presentation of Financial Statements: |
Pursuant to this standard, comprehensive disclosures are required in respect of capital and the substance of financial instruments and their impact on the entity’s financial position and results of operations as well as qualitative and quantitative disclosures of the nature and scope of risks. The standard was adopted for annual financial statements for periods beginning on or after January 1, 2007.
The adoption the new standard is not expected to have a material effect on the Company’s financial statements.
| (2) | IFRS 8 – Operating Segments: |
IFRS 8 (“the Standard”) discusses operating segments and replaces IAS 14. The Standard applies to companies whose securities are listed or undergoing listing for trade on any securities stock exchange. The Standard will be applicable to annual financial statements for periods commencing after January 1, 2009. The Standard can be applied early. The provisions of the Standard will be applied retrospectively, by restatement, unless the disclosure required is unavailable or impractical to obtain.
The Standard determines that an entity will adopt a management approach to segment reporting. The information reported would be that which management uses internally for evaluating the performance of operating segments and allocating resources to those segments. Furthermore, disclosure is required regarding revenues deriving from the entity’s products or services (or from a group of products and similar services), the countries in which these revenues are derived or the assets or principal customers are located , regardless of whether management uses this information for making operating decisions. The Company estimates that the adoption of IFRS 8 will not have an effect on the financial statements.
| (3) | IFRIC8 – Adoption of IFRS 2 discussing Share-based Payment: |
IFRIC 8 discusses share-based payment transactions where part or all of the goods or services are not specifically identifiable. These goods or services are measured upon the date of grant as the difference between the fair value of the share-based payment and the fair value of the identifiable goods or services. The interpretation will be applicable for annual periods beginning on or after May 1, 2006. The adoption of IFRIC 8 is not expected to have an effect on the financial statements.
| (4) | IFRIC 10 – Interim Financial Reporting and Impairment: |
IFRIC 10 prohibits the reversal of an impairment loss recognized in the past in the interim financial statements with respect to goodwill, investment in an equity instrument or financial asset presented at cost. The interpretation will be applicable for annual periods beginning on or after November 1, 2006. The adoption of IFRIC 10 did not have an effect on the financial statements.
| (5) | IAS 1 (Revised), Presentation of Financial Statements: |
IAS 1 (Revised) requires entities to present a separate statement of comprehensive income disclosing, other than the net income as stated in the income statement, all the items carried in the reported period directly to equity that do not derive from transactions with the shareholders in their capacity as shareholders (other comprehensive income) such as foreign currency translation adjustments of foreign operations, reclassification of fair value to available-for-sale financial assets, adjustments to revaluation reserve of fixed assets and such, while properly allocated between the Company and the minority interests. Alternatively, the items of other comprehensive income may be disclosed along with the items of the income statement in one single statement entitled statement of comprehensive income. Only the
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VALOR COMPUTERIZED SYSTEMS LTD.
Notes To Consolidated Financial Statements
Note 2: Significant Accounting Policies – (continued)
items carried to equity deriving from transactions with the shareholders in their capacity as shareholders (such as capital issuances, dividend distribution etc.) will be disclosed in the statement of changes in equity as will the summary line carried forward from the statement of comprehensive income, while properly allocated between the Company and the minority interests. IAS 1 (Revised) is effective for annual financial statements for periods commencing on January 1, 2009 with early adoption permitted. The effect of the adoption of IAS 1 (Revised) will require the Company to disclose the above items in the financial statements.
| (6) | IFRIC 11 IFRS 2 Group and Treasury Share Transactions: |
IFRIC Interpretation 11 was issued in March 2006 and becomes effective for annual periods beginning on or after March 1, 2007. This interpretation requires arrangements whereby an employee is granted rights to an entity’s equity instruments to be accounted for as an equity-settled scheme, even if the entity buys the instruments from another party, or the shareholders provide the equity instruments needed. The Company expects that this interpretation will have no impact on its financial statements since no such equity instruments currently exist.
| (7) | IFRIC 12 Service Concession Arrangements: |
IFRIC Interpretation 12 was issued in November 2006 and becomes effective for annual periods beginning on or after January 1, 2008. This Interpretation applies to service concession operators and explains how to account for the obligations undertaken and rights received in service concession arrangements. No member of the Group is an operator and hence this Interpretation will have no impact on the Group.
| (8) | IFRIC 13 Customer Loyalty Programs: |
IFRIC Interpretation 13 was issued in June 2007 and becomes effective for annual periods beginning on or after July 1, 2008. This Interpretation requires customer loyalty award credits to be accounted for as a separate component of the sales transaction in which they are granted and therefore part of the fair value of the consideration received is allocated to the award credits and deferred over the period that the award credits are fulfilled. The Company expects that this interpretation will have no impact on its financial statements as no such programs currently exist.
Note 3: Marketable Securities
Marketable securities as of December 31, 2004, 2005 and 2006 were all with contractual maturities of less than 1 year as follows:
| | | | | | | | |
| | December 31, 2004 |
| | | Amortized Cost/Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Fair
Value |
Government and corporate debentures – fixed
interest rate | | $ | 2,431 | | | $ | 36 | | | $ | — | | | $ | 2,467 | |
| | | | | | | | |
| | December 31, 2005 |
| | | Amortized Cost/Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Fair
Value |
Government and corporate debentures – fixed
interest rate | | $ | 1,699 | | | $ | — | | | $ | (47 | ) | | $ | 1,652 | |
| | | | | | | | |
| | December 31, 2006 |
| | | Amortized Cost/Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Fair
Value |
| Government and corporate debentures – fixed interest rate | | $ | 11,211 | | | $ | 149 | | | $ | — | | | $ | 11,360 | |
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VALOR COMPUTERIZED SYSTEMS LTD.
Notes To Consolidated Financial Statements
Note 3: Marketable Securities – (continued)
Marketable securities as of September 30, 2007 were all investments in government and corporate debentures – fixed interest rate with contractual maturities as follows:
| | | | | | | | |
| | September 30, 2007 (Unaudited) |
| | | Amortized Cost/Cost | | Gross
Unrealized
Gains | | Gross
Unrealized Losses | | Fair
Value |
| Less than one year | | $ | 3,483 | | | $ | 263 | | | $ | — | | | $ | 3,746 | |
| Between one year to five years | | | 10,293 | | | | 128 | | | | (6 | ) | | | 10,415 | |
| Over five years | | | 694 | | | | 6 | | | | — | | | | 700 | |
| Total | | $ | 14,470 | | | $ | 397 | | | $ | (6 | ) | | $ | 14,861 | |
The unrealized losses on the Company’s investments in all types of securities are due to interest rate increases. The Company does not consider these investments to be other-than-temporarily impaired as of December 31, 2006 and as of September 30, 2007.
Note 4: Trade Receivables
| | | | | | |
| | December 31, |
| | | 2004 | | 2005 | | 2006 |
| Trade receivables | | $ | 5,824 | | | $ | 6,306 | | | $ | 5,534 | |
| Allowance for doubtful accounts | | | (364 | ) | | | (353 | ) | | | (471 | ) |
| | | $ | 5,460 | | | $ | 5,953 | | | $ | 5,063 | |
Changes in the Group’s allowance for doubtful accounts are as follows:
| | |
| | Allowance for Doubtful Accounts |
| Balance as of January 1, 2004 | | $ | 605 | |
| Provision, net of recoveries | | | (214 | ) |
| Write-off | | | (27 | ) |
| Balance as of December 31, 2004 | | | 364 | |
| Provision, net of recoveries | | | 176 | |
| Write-off | | | (187 | ) |
| Balance as of December 31, 2005 | | | 353 | |
| Provision, net of recoveries | | | 203 | |
| Write-off | | | (85 | ) |
| Balance as of December 31, 2006 | | $ | 471 | |
Note 5: Other Current Assets
| | | | | | |
| | December 31, |
| | | 2004 | | 2005 | | 2006 |
| Government authorities (primarily VAT) | | $ | 319 | | | $ | 123 | | | $ | 350 | |
| Prepaid expenses | | | 325 | | | | 493 | | | | 304 | |
| Employees | | | 33 | | | | 72 | | | | 27 | |
| Inventory | | | — | | | | — | | | | 366 | |
| Deposits | | | — | | | | 261 | | | | 292 | |
| Other | | | 621 | | | | 380 | | | | 326 | |
| | | $ | 1,298 | | | $ | 1,329 | | | $ | 1,665 | |
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VALOR COMPUTERIZED SYSTEMS LTD.
Notes To Consolidated Financial Statements
Note 6: Property and Equipment
| | | | | | | | | | |
| | Computers
and
Peripheral Equipment | | Office
Furniture and
Equipment | | Motor
Vehicles | | Leasehold
Improvements | | Total |
December 31, 2004
| | | | | | | | | | | | | | | | | | | | |
Cost:
| | | | | | | | | | | | | | | | | | | | |
| Balance as of January 1, 2004 | | $ | 2,904 | | | $ | 948 | | | $ | 125 | | | $ | 1,266 | | | $ | 5,243 | |
| Additions during the year | | | 286 | | | | 43 | | | | — | | | | 2 | | | | 331 | |
| Disposals during the year | | | (11 | ) | | | — | | | | — | | | | — | | | | (11 | ) |
| Currency translation differences | | | 23 | | | | 6 | | | | — | | | | 37 | | | | 66 | |
| Balance as of December 31, 2004 | | | 3,202 | | | | 997 | | | | 125 | | | | 1,305 | | | | 5,629 | |
Accumulated depreciation:
| | | | | | | | | | | | | | | | | | | | |
| Balance as of January 1, 2004 | | | 2,626 | | | | 480 | | | | 4 | | | | 590 | | | | 3,700 | |
| Additions during the year | | | 264 | | | | 99 | | | | 18 | | | | 157 | | | | 538 | |
| Disposals during the year | | | (5 | ) | | | — | | | | — | | | | — | | | | (5 | ) |
| Currency translation differences | | | 24 | | | | 5 | | | | — | | | | 12 | | | | 41 | |
| Balance as of December 31, 2004 | | | 2,909 | | | | 584 | | | | 22 | | | | 759 | | | | 4,274 | |
Net carrying amount as of
December 31, 2004 | | $ | 293 | | | $ | 413 | | | $ | 103 | | | $ | 546 | | | $ | 1,355 | |
| | | | | | | | | | |
| | Computers
and
Peripheral
Equipment | | Office
Furniture
and
Equipment | | Motor
Vehicles | | Leasehold
Improvements | | Total |
December 31, 2005
| | | | | | | | | | | | | | | | | | | | |
Cost:
| | | | | | | | | | | | | | | | | | | | |
| Balance as of January 1, 2005 | | $ | 3,202 | | | $ | 997 | | | $ | 125 | | | $ | 1,304 | | | $ | 5,628 | |
| Additions during the year | | | 241 | | | | 14 | | | | 120 | | | | 4 | | | | 379 | |
| Disposals during the year | | | (2 | ) | | | — | | | | (57 | ) | | | — | | | | (59 | ) |
| Currency translation differences | | | (57 | ) | | | (25 | ) | | | — | | | | (34 | ) | | | (116 | ) |
| Balance as of December 31, 2005 | | | 3,384 | | | | 986 | | | | 188 | | | | 1,274 | | | | 5,832 | |
Accumulated depreciation:
| | | | | | | | | | | | | | | | | | | | |
| Balance as of January 1, 2005 | | | 2,909 | | | | 584 | | | | 22 | | | | 759 | | | | 4,274 | |
| Additions during the year | | | 262 | | | | 55 | | | | 28 | | | | 136 | | | | 481 | |
| Disposals during the year | | | (1 | ) | | | — | | | | (29 | ) | | | — | | | | (30 | ) |
| Currency translation differences | | | (42 | ) | | | (19 | ) | | | — | | | | (21 | ) | | | (82 | ) |
| Balance as of December 31, 2005 | | | 3,128 | | | | 620 | | | | 21 | | | | 874 | | | | 4,643 | |
Net carrying amount as of
December 31, 2005 | | $ | 256 | | | $ | 366 | | | $ | 167 | | | $ | 400 | | | $ | 1,189 | |
F-21
TABLE OF CONTENTS
VALOR COMPUTERIZED SYSTEMS LTD.
Notes To Consolidated Financial Statements
Note 6: Property and Equipment – (continued)
| | | | | | | | | | |
| | Computers
and
Peripheral
Equipment | | Office
Furniture
and
Equipment | | Motor
Vehicles | | Leasehold
Improvements | | Total |
December 31, 2006
| | | | | | | | | | | | | | | | | | | | |
Cost:
| | | | | | | | | | | | | | | | | | | | |
| Balance as of January 1, 2006 | | $ | 3,384 | | | $ | 986 | | | $ | 188 | | | $ | 1,274 | | | $ | 5,832 | |
| Additions during the year | | | 271 | | | | 107 | | | | — | | | | 506 | | | | 884 | |
| Disposals during the year | | | — | | | | (4 | ) | | | (26 | ) | | | — | | | | (30 | ) |
| Acquisition of Valor Denmark | | | 56 | | | | 42 | | | | — | | | | — | | | | 98 | |
| Currency translation differences | | | 5 | | | | (10 | ) | | | — | | | | 20 | | | | 15 | |
| Balance as of December 31, 2006 | | | 3,716 | | | | 1,121 | | | | 162 | | | | 1,800 | | | | 6,799 | |
Accumulated depreciation:
| | | | | | | | | | | | | | | | | | | | |
| Balance as of January 1, 2006 | | | 3,128 | | | | 620 | | | | 21 | | | | 875 | | | | 4,644 | |
| Additions during the year | | | 266 | | | | 95 | | | | 27 | | | | 125 | | | | 513 | |
| Disposals during the year | | | — | | | | (4 | ) | | | (13 | ) | | | — | | | | (17 | ) |
| Currency translation differences | | | 4 | | | | (9 | ) | | | — | | | | 19 | | | | 14 | |
| Balance as of December 31, 2006 | | | 3,398 | | | | 702 | | | | 35 | | | | 1,019 | | | | 5,154 | |
Net carrying amount as of
December 31, 2006 | | $ | 318 | | | $ | 419 | | | $ | 127 | | | $ | 781 | | | $ | 1,645 | |
Note 7: Intangible Assets
| | | | | | | | |
| | Acquired
Technology | | Software | | Customer List | | Total |
December 31, 2004
| | | | | | | | | | | | | | | | |
Cost:
| | | | | | | | | | | | | | | | |
| At January 1, 2004 | | $ | — | | | $ | 433 | | | $ | — | | | $ | 433 | |
| Additions during the year | | | — | | | | 73 | | | | — | | | | 73 | |
| At December 31, 2004 | | $ | — | | | $ | 506 | | | $ | — | | | $ | 506 | |
Amortization:
| | | | | | | | | | | | | | | | |
| At January 1, 2004 | | $ | — | | | $ | 189 | | | $ | — | | | $ | 189 | |
| Amortization | | | — | | | | 101 | | | | — | | | | 101 | |
| At December 31, 2004 | | $ | — | | | $ | 290 | | | $ | — | | | $ | 290 | |
| Net carrying amount as of December 31, 2004 | | $ | — | | | $ | 216 | | | $ | — | | | $ | 216 | |
December 31, 2005
| | | | | | | | | | | | | | | | |
Cost:
| | | | | | | | | | | | | | | | |
| At January 1, 2005 | | $ | — | | | $ | 506 | | | $ | — | | | $ | 506 | |
| Additions during the year | | | — | | | | 116 | | | | — | | | | 116 | |
| At December 31, 2005 | | $ | — | | | $ | 622 | | | $ | — | | | $ | 622 | |
Amortization:
| | | | | | | | | | | | | | | | |
| At January 1, 2005 | | $ | — | | | $ | 290 | | | $ | — | | | $ | 290 | |
| Amortization | | | — | | | | 68 | | | | — | | | | 68 | |
| At December 31, 2005 | | $ | — | | | $ | 358 | | | $ | — | | | $ | 358 | |
| Net carrying amount as of December 31, 2005 | | $ | — | | | $ | 264 | | | $ | — | | | $ | 264 | |
F-22
TABLE OF CONTENTS
VALOR COMPUTERIZED SYSTEMS LTD.
Notes To Consolidated Financial Statements
Note 7: Intangible Assets – (continued)
| | | | | | | | |
| | Acquired
Technology | | Software | | Customer List | | Total |
December 31, 2006
| | | | | | | | | | | | | | | | |
Cost:
| | | | | | | | | | | | | | | | |
| At January 1, 2006 | | $ | — | | | $ | 622 | | | $ | — | | | $ | 622 | |
| Additions during the year | | | — | | | | 179 | | | | — | | | | 179 | |
| Acquisition of Valor Denmark (Note 20) | | | 1,975 | | | | — | | | | 5,029 | | | | 7,004 | |
| Foreign currency translation differences | | | 87 | | | | — | | | | 183 | | | | 270 | |
| At December 31, 2006 | | $ | 2,062 | | | $ | 801 | | | $ | 5,212 | | | $ | 8,075 | |
Amortization:
| | | | | | | | | | | | | | | | |
| At January 1, 2006 | | $ | — | | | $ | 358 | | | $ | — | | | $ | 358 | |
| Amortization | | | 223 | | | | 83 | | | | 613 | | | | 919 | |
| Foreign currency translation differences | | | 10 | | | | — | | | | 28 | | | | 38 | |
| At December 31, 2006 | | $ | 233 | | | $ | 441 | | | $ | 641 | | | $ | 1,315 | |
| Net carrying amount as of December 31, 2006 | | $ | 1,829 | | | $ | 360 | | | $ | 4,571 | | | $ | 6,760 | |
Amortization expense is recorded in cost of sales, marketing and selling and in research and development expenses.
Note 8: Employees and Payroll Accruals and Other Current Liabilities
| (a) | Employees and payroll accruals: |
| | | | | | |
| | December 31, |
| | | 2004 | | 2005 | | 2006 |
| Institutions – employees | | $ | 152 | | | $ | 136 | | | $ | 150 | |
| Wages | | | 812 | | | | 2,146 | | | | 1,334 | |
| Provision for vacation pay | | | 656 | | | | 621 | | | | 1,244 | |
| Accrued Commission | | | 83 | | | | 138 | | | | 221 | |
| | | $ | 1,703 | | | $ | 3,041 | | | $ | 2,949 | |
| (b) | Other current liabilities: |
| | | | | | |
| | December 31, |
| | | 2004 | | 2005 | | 2006 |
| Government authorities (primarily VAT) | | $ | 109 | | | $ | 327 | | | $ | 159 | |
| Accrued expenses | | | 726 | | | | 658 | | | | 616 | |
| | | $ | 835 | | | $ | 985 | | | $ | 775 | |
Note 9: Severance Pay Liability
The Company operates a defined benefit plan for severance pay pursuant to the Israel’s Severance Pay Law. The following tables summarize the components of net benefit expense recognized in the income statements and the amounts recognized in the balance sheet.
Information on defined benefit plan:
| (a) | Expenses in respect of employee benefits, net: |
F-23
TABLE OF CONTENTS
VALOR COMPUTERIZED SYSTEMS LTD.
Notes To Consolidated Financial Statements
Note 9: Severance Pay Liability – (continued)
| | | | | | |
| | Year Ended December 31, |
| | | 2004 | | 2005 | | 2006 |
| Cost of current service | | $ | 321 | | | $ | 244 | | | $ | 400 | |
| Interest expenses in respect of benefit liabilities | | | 80 | | | | 54 | | | | 111 | |
| Expected return on the plan’s assets | | | (36 | ) | | | (24 | ) | | | (58 | ) |
| Net actuarial loss (gain) recognized in the year | | | 137 | | | | (144 | ) | | | 36 | |
| Total expenses in respect of employee benefits | | $ | 502 | | | $ | 130 | | | $ | 489 | |
| | | | |
| | Nine Months Ended
September 30, |
| | | 2006 | | 2007 |
| | | (Unaudited) |
| Cost of current service | | $ | 183 | | | $ | 305 | |
| Interest expenses in respect of benefit liabilities | | | 50 | | | | 81 | |
| Expected return on the plan’s assets | | | (30 | ) | | | (52 | ) |
| Net actuarial loss (gain) recognized | | | 35 | | | | (60 | ) |
| Total expenses in respect of employee benefits | | $ | 238 | | | $ | 274 | |
| (b) | The plan’s assets (liabilities): |
| | | | | | | | |
| | December 31, | | September 30,
2007 |
| | | 2004 | | 2005 | | 2006 |
| | | | | | | | | (Unaudited) |
| Liabilities in respect of defined benefit plan | | $ | 1,262 | | | $ | 1,679 | | | $ | 1,942 | | | $ | 2,108 | |
| Fair value of the plan’s assets | | | (691 | ) | | | (1,143 | ) | | | (1,354 | ) | | | (1,555 | ) |
| Total liabilities, net | | | 571 | | | | 536 | | | | 588 | | | $ | 553 | |
| (c) | Changes in the present value of the defined benefit obligations are as follows: |
| | | | | | | | |
| | December 31, | | September 30,
2007 |
| | | 2004 | | 2005 | | 2006 |
| | | | | | | | | (Unaudited) |
| Liability as of January 1 | | $ | 1,051 | | | $ | 1,262 | | | $ | 1,679 | | | $ | 1,942 | |
| Interest cost | | | 80 | | | | 54 | | | | 111 | | | | 81 | |
| Current service cost | | | 321 | | | | 244 | | | | 400 | | | | 305 | |
| Benefits paid | | | (123 | ) | | | (106 | ) | | | (193 | ) | | | (38 | ) |
| Actuarial losses (gains) on obligation | | | (67 | ) | | | 225 | | | | (55 | ) | | | (182 | ) |
| Total liabilities | | $ | 1,262 | | | $ | 1,679 | | | $ | 1,942 | | | $ | 2,108 | |
| (1) | The plan’s assets include primarily stocks and bonds held in a long-term employee benefit fund as well as in managers’ insurance policies. |
| (2) | The Company expects to contribute $477 to its defined benefit plan in 2007. The Company also expects to pay $84 benefit to employees through December 31, 2007. |
| (2) | Changes in the fair value of the plan assets are as follows: |
F-24
TABLE OF CONTENTS
VALOR COMPUTERIZED SYSTEMS LTD.
Notes To Consolidated Financial Statements
Note 9: Severance Pay Liability – (continued)
| | | | | | | | |
| | December 31, | | September 30,
2007 |
| | | 2004 | | 2005 | | 2006 |
| | | | | | | | | (Unaudited) |
| The plan’s assets as of January 1 | | $ | 536 | | | $ | 691 | | | $ | 1,143 | | | $ | 1,354 | |
| Expected return | | | 36 | | | | 24 | | | | 58 | | | | 52 | |
| Contributions by employer | | | 404 | | | | 112 | | | | 437 | | | | 309 | |
| Benefit paid | | | (81 | ) | | | (53 | ) | | | (193 | ) | | | (38 | ) |
| Actuarial gains (losses) | | | (204 | ) | | | 369 | | | | (91 | ) | | | (122 | ) |
| Total assets | | $ | 691 | | | $ | 1,143 | | | $ | 1,354 | | | $ | 1,555 | |
Total expected rate of return on the plan’s assets is determined based on types of assets.
| (e) | The principal assumptions used in determining employee benefit obligations for the Group’s defined benefit plan are shown below: |
| | | | | | | | |
| | December 31, | | September 30,
2007 |
| | | 2004 | | 2005 | | 2006 |
| | | % | | % | | % | | % |
| | | | | | | | | (Unaudited) |
| Discount rate | | | 7.2 | % | | | 6.7 | % | | | 6.0 | % | | | 6.0 | % |
| Expected rate of return on the plan’s assets | | | 4.5 | % | | | 3.2 | % | | | 4.6 | % | | | 4.6 | % |
| Future salary increases | | | 4.0 | % | | | 4.0 | % | | | 4.0 | % | | | 4.0 | % |
Note 10: Commitments
The Group leases their office space under non-cancellable operating lease agreements for periods through 2010. Future minimum commitments under these leases are as follows:
| | | | | | |
| | December 31, |
| | | 2004 | | 2005 | | 2006 |
| 2005 | | $ | 597 | | | $ | — | | | $ | — | |
| 2006 | | | 592 | | | | 596 | | | | — | |
| 2007 | | | 448 | | | | 608 | | | | 668 | |
| 2008 | | | 260 | | | | 466 | | | | 494 | |
| 2009 | | | 165 | | | | 372 | | | | 372 | |
| 2010 | | | 5 | | | | 169 | | | | 112 | |
| | | $ | 2,067 | | | $ | 2,211 | | | $ | 1,646 | |
Expenses for lease of facilities for the years ended December 31, 2004, 2005, and 2006 and for the period ended September 30, 2007 were $872, $718, $621 and $584, respectively.
The Company leases motor vehicle under a cancellable lease agreement. As of September 30, 2007, the Company has an option to cancel the lease agreement, which may result in penalties in the maximum amount of $25.
Note 11: Equity
| (a) | As of December 31, 2005 and 2006, the Company held 1,492,026 treasury shares at a total cost of $3,591. |
Ordinary shares are entitled to voting rights at all shareholders’ meetings, rights to receive dividends and participation rights in the event of liquidation of the Company. There are no special or preferential rights afforded to any ordinary shares as of the date of these financial statements.
F-25
TABLE OF CONTENTS
VALOR COMPUTERIZED SYSTEMS LTD.
Notes To Consolidated Financial Statements
Note 11: Equity – (continued)
The Company’s outstanding warrants to purchase ordinary shares as of December 31, 2006 are as follows:
| | | | | | | | |
| Date granted | | Number of
Warrants | | Amount of Shares
Exercisable Into | | Exercise Price | | Expiration Date |
| 2000(1) | | | 135,000 | | | | 135,000 | | | $ | 7.8 | | | | 2010 | |
| 2002(2) | | | 60,000 | | | | 60,000 | | | $ | 0.996 | | | | 2012 | |
| 2003(3) | | | 51,055 | | | | 51,055 | | | $ | 5.66 | | | | 2013 | |
| Total | | | 246,055 | | | | 246,055 | | | $ | 5.70 | |
| (1) | The Company issued warrants to a former shareholder of Harelda OY, a company acquired in 2000. |
| (2) | The Company issued warrants to its legal counsel for certain legal services. |
| (3) | The Company signed an agreement with a subcontractor in respect of the development of the Company’s products. |
During 2002-2003, the Company recorded compensation expenses with respect to warrants issued to non-employees. The warrants were measured using option valuation models. The cost of those equity-settled transactions is recognized, together with a corresponding increase in equity, over the period in which the service conditions are fulfilled, ending on the date the options vest.
The Company adopted nine stock option plans: the 1994 Stock Option Plan (“1994 Plan”), the 1999 Stock Option Plan (“1999 Plan”), the 2000 Stock Option Plan (“2000 Plan”), the 2001 Voluntary Stock Option Plan (“2001 Plan”), the 2002 Stock Option Plan (“2002 Plan”), the 2003 Stock Option Plan (“2003 Plan”), the 2004 Stock Option Plan (“2004 Plan”), the 2005 stock option plan (“2005 Plan”) and the 2006 stock option plan (“2006 Plan”) and the 2007 stock option plan (“2007 Plan”). Under these plans, the Company’s board of Directors may grant to employees options to purchase ordinary shares. Pursuant to its 2007 plan the Company reserved for issuance 535,000 ordinary shares. As of September 30, 2007, the Company still has 397,475 ordinary shares available for future grant. Options generally have an exercise price equal to the market price of the Company’s shares at the date of grant. Commencing July 19, 2007, the Company changed its policy for grants of stock options to its Israeli employees and determined that the exercise price for such grants equals to the average value of the Company’s shares on the thirty trading days prior to the date of grant. Options generally vest over a period of two to four years.
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | Nine Months Ended September 30, |
| | | 2004 | | 2005 | | 2006 | | 2006 | | 2007 |
| | | Amount | | Weighted Average Exercise Price | | Amount | | Weighted Average Exercise Price | | Amount | | Weighted Average Exercise Price | | Amount | | Weighted Average Exercise Price | | Amount | | Weighted Average Exercise Price |
| | | | | (Unaudited) | | (Unaudited) |
Outstanding at
beginning of year | | | 4,375,250 | | | $ | 1.58 | | | | 4,459,960 | | | $ | 1.90 | | | | 4,680,910 | | | $ | 2.04 | | | | 4,680,910 | | | $ | 2.04 | | | | 4,204,699 | | | $ | 2.54 | |
| Granted(*) | | | 900,000 | | | $ | 3.23 | | | | 538,500 | | | $ | 3.18 | | | | 750,250 | | | $ | 4.36 | | | | 625,075 | | | $ | 4.04 | | | | 940,500 | | | $ | 5.60 | |
| Exercised | | | (355,095 | ) | | $ | 1.39 | | | | (219,025 | ) | | $ | 1.29 | | | | (973,636 | ) | | $ | 1.37 | | | | (874,791 | ) | | $ | 1.07 | | | | (800,373 | ) | | $ | 1.46 | |
| Forfeited | | | (460,195 | ) | | $ | 1.88 | | | | (98,525 | ) | | $ | 3.38 | | | | (252,825 | ) | | $ | 3.14 | | | | (387,650 | ) | | $ | 3.04 | | | | (112,975 | ) | | $ | 3.05 | |
| Outstanding at end of year | | | 4,459,960 | | | $ | 1.90 | | | | 4,680,910 | | | $ | 2.04 | | | | 4,204,699 | | | $ | 2.54 | | | | 4,043,544 | | | $ | 2.46 | | | | 4,231,851 | | | $ | 3.41 | |
| (*) | The weighted average fair value of the options granted in 2004, 2005 and 2006 was $0.68, $1.18 and $1.22, respectively. The fair value of the options granted is estimated as of the date of grant using a Binomial option pricing model taking into account the terms and conditions upon which the options were granted. The following table lists the inputs to the model used for the years ended December 31, 2004, 2005 and 2006: |
| (**) | The weighted average share price at the date of exercise for the years 2004, 2005 and 2006 were $3.09, $3.35 and $4.22, respectively. |
F-26
TABLE OF CONTENTS
VALOR COMPUTERIZED SYSTEMS LTD.
Notes To Consolidated Financial Statements
Note 11: Equity – (continued)
| | | | | | | | |
| | December 31, | | September 30, 2007 |
| | | 2004 | | 2005 | | 2006 |
| | | | | (Unaudited) |
| Dividend yield | | | 5 | % | | | 5 | % | | | 5 | % | | | 5 | % |
| Weighted average expected volatility | | | 58 | % | | | 63 | % | | | 54 | % | | | 51 | % |
| Weighted average risk free interest | | | 3.65 | % | | | 4.21 | % | | | 3.84 | % | | | 4.45 | % |
| Expected life of option (years) | | | 4 | | | | 4 | | | | 4 | | | | 4 | |
| Weighted average share price ($) | | | 3.23 | | | | 3.18 | | | | 4.36 | | | | 5.38 | |
The expected life of the options is based on historical data and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome. The options maximum contractual term is 10 years.
The options outstanding as of December 31, 2006, have been separated into ranges of exercise prices as follows:
| | | | | | | | | Options Outstanding
As of
December 31, 2006 | | Exercise Price | | Weighted Average
Remaining
Contractual Life |
| | | | | | | (Years) |
| | | | 1,362,349 | | | | $0.78 – 0.97 | | | | 6.13 | |
| | | | 161,750 | | | | $1.08 – 1.89 | | | | 5.98 | |
| | | | 701,900 | | | | $2.19 – 2.78 | | | | 5.81 | |
| | | | 1,204,000 | | | | $3.03 – 3.71 | | | | 7.78 | |
| | | | 741,700 | | | | $4.07 – 4.80 | | | | 8.76 | |
| | | | 33,000 | | | | $8.13 – 9.50 | | | | 3.71 | |
| | | | 4,204,699 | | | | | | | | 6.99 | |
The number of options exercisable as of December 31, 2005 and 2006 was 2,594,707 and 2,483,860, respectively. The number of options vested and expected to vest as of December 31, 2006 and September 30, 2007 was 3,357,639 and 3,641,008, respectively. The weighted average exercise price of options exercisable and vested and expected to vest was $1.76 and $2.33 as of December 31, 2006, respectively and $3.20 and $2.01 as of September 30, 2007, respectively. As of December 31, 2006, $779,547 of total unrecognized compensation cost related to stock options is expected to be recognized over a weighted-average period of 3 years.
The weighted average remaining contractual life of options exercisable and vested and expected to vest as of December 31, 2006 was 4.91 years and 6.20 years, respectively.
The total intrinsic value of options outstanding, exercisable, vested and expected to vest as of December 31, 2006 was $12,753, $9,570 and $11,721, respectively. The total intrinsic value of options outstanding, exercisable, vested and expected to vest as of September 30, 2006 was $15,131, $10,436 and $13,264, respectively (unaudited) and as of September 30, 2007 was $11,482, $7,795 and $9,962, respectively (unaudited). The weighted average share price and total intrinsic value of options exercised during the years ended December 31, 2004, 2005, 2006 was approximately $605, $451 and $2,770, respectively.
The total intrinsic value of options exercised during the nine months ended September 30, 2006 and 2007 was $2,565 and $3,084, respectively (unaudited).
The total expense recorded in respect of share-based payments in 2004, 2005 and 2006, and in the nine months ended September 30, 2006 and 2007 amounted to $398, $576, $334, $192 and $488 respectively.
F-27
TABLE OF CONTENTS
VALOR COMPUTERIZED SYSTEMS LTD.
Notes To Consolidated Financial Statements
Note 12: Earnings Per Share
The following reflects the share data used in the basic and diluted earnings per share computations. All share data excludes treasury shares:
| | | | | | | | | | |
| | Year Ended December 31, | | Nine Months Ended
September 30, |
| | | 2004 | | 2005 | | 2006 | | 2006 | | 2007 |
| | | | | (Unaudited) |
| Weighted average number of Ordinary shares for basic earnings per share | | | 18,273,778 | | | | 18,552,412 | | | | 19,421,445 | | | | 19,157,996 | | | | 20,098,580 | |
Effect of dilution:
| | | | | | | | | | | | | | | | | | | | |
| Share options and warrants(1) | | | 1,336,431 | | | | 1,066,004 | | | | 1,456,283 | | | | 883,125 | | | | 1,340,841 | |
| Adjusted weighted average number of Ordinary shares for diluted earnings per share | | | 19,610,209 | | | | 19,618,416 | | | | 20,877,728 | | | | 20,041,121 | | | | 21,439,421 | |
| (1) | Excludes 628,005, 713,955 and 564,055 options which as of December 31, 2004, 2005 and 2006, respectively, are anti-dilutive. |
Note 13: Dividend Paid
In accordance with resolutions approved by the shareholders in meetings held on March 29, 2007, February 5, 2006, March 10, 2005 and February 2, 2004, the Company paid dividends in the amounts of 2,817 ($0.14 per share), $996 ($0.05 per share), $1,622 ($0.09 per share) and $2,595 ($0.14 per share), respectively.
Note 14: Financial Instruments
| (a) | The Company’s cash, cash equivalents, short-term bank deposits and investments in marketable securities are invested in highly rated financial institutions, and approximate their fair value due to the short-term maturities of these instruments. Also the carrying value of trade and other receivables and current liabilities approximate their fair value. |
| (b) | The Company develops and sells its products in several countries and, as a result, is exposed to changes in foreign currency exchange rates. The primary purpose of the Company’s foreign currency hedging activities is to protect against the volatility associated with foreign currency created in the normal course of business. The Company utilizes forward exchange contracts with maturities of less than twelve months to hedge foreign-currency-denominated forecasted transactions. |
The Company has a number of foreign exchange contracts outstanding as of December 31, 2006 that has been entered into as a hedge of budgeted expenses denominated in NIS and Euro. The foreign exchange contracts provide for the Company to sell dollars in exchange for NIS or Euro in the aggregate notional amount of approximately $600 at a predetermined forward rate with settlement dates that range from one month up to nine months.
Note 15: Taxes on Income
Results for tax purposes are measured in accordance with the changes in the exchange rate of the NIS against the dollar for a “foreign investors” company.
The Company has been granted “Approved Enterprise” status for separate investment programs approved in 1992, 1996, 1998, 2000, 2004 and 2005, by the Israeli Government under the Law for Encouragement of Capital Investments, 1959 (“the Law”).
Undistributed Israeli income derived from each of its “Approved Enterprise” programs entitles the Company to a tax exemption for a period of two years and to a reduced tax rate of 10% – 25% for an additional period of five to eight years ending between 2007 through 2014 (depending on the level of foreign-investment in the Company).
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TABLE OF CONTENTS
VALOR COMPUTERIZED SYSTEMS LTD.
Notes To Consolidated Financial Statements
Note 15: Taxes on Income – (continued)
These tax benefits are subject to a limitation of the earlier of 12 years from commencement or operations, or 14 years from receipt of approval. Thereafter, the Company’s income will be subject to the regular income tax rate.
The Company completed the implementation of its first, second, third and fourth investment programs in 1995, 1997, 2000 and 2002, respectively.
The tax-exempt income attributable to the “Approved Enterprise” can be distributed to shareholders without imposing tax liability on the Company only upon the complete liquidation of the Company. In the event of a distribution of such tax-exempt income as a cash dividend in a manner other than in the complete liquidation of the Company, the Company will be required to pay tax at the rate of 10% to 25% on the amount distributed (based on the percentage of foreign ownership in each tax year). In addition, these dividends will be subject to 15% withholding tax.
Income from sources other than the “Approved Enterprise” during the benefit period will be subject to tax at the regular corporate tax rate.
| (1) | On April 1, 2005, an amendment to the Investment Law came into effect (“the Amendment”) and has significantly changed the provisions of the Investment Law. The Amendment limits the scope of enterprises which may be approved by the Investment Center by setting criteria for the approval of a facility as an Approved Enterprise, such as provisions generally requiring that at least 25% of the Approved Enterprise’s income will be derived from export. Additionally, the Amendment enacted major changes in the manner in which tax benefits are awarded under the Investment Law so that companies no longer require Investment Center approval in order to qualify for tax benefits. |
| (2) | However, the Investment Law provides that terms and benefits included in any letter of approval already granted will remain subject to the provisions of the law as they were on the date of such approval. Therefore the Israeli subsidiary’s existing Approved Enterprise will generally not be subject to the provisions of the Amendment. |
| (b) | Reduction in corporate tax rate: |
On July 25, 2005, the Israeli Parliament approved an amendment to the Income Tax Ordinance (No. 147) 2005, which prescribes, among others, a gradual decrease in the corporate tax rate in Israel to the following tax rates: in 2006 – 31%, in 2007 – 29%, in 2008 – 27%, in 2009 – 26%, 2010 and thereafter – 25%.
The Company is an “industrial company” under the Law for the Encouragement of Industry (Taxation), 1969 and as such is entitled to certain tax benefits, including a reduction in the purchase price for patents or certain other intangible property rights at the rate of 12.5% per year beginning with the first year the Company used such intangible property rights and the deduction of public offering expenses over three years.
| (c) | The income tax expense as reported in the financial statements differs from the amount computed by applying the statutory income tax rate, as follows: |
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TABLE OF CONTENTS
VALOR COMPUTERIZED SYSTEMS LTD.
Notes To Consolidated Financial Statements
Note 15: Taxes on Income – (continued)
The effective tax rates during the nine months ended September 30, 2006 and 2007 were 12.6% and 13.3%, respectively.
| (d) | Net operating loss carryforward: |
As of December 31, 2006, the Company’s U.S. subsidiary and its subsidiary in Hong Kong had net operating loss carryforward of approximately $8,500 and $3,200 that can be carried forward and offset against taxable income. The U.S. carryforward losses expire in 2026. Utilization of U.S. net operating losses may be subject to substantial annual limitations due to “change in ownership” provisions of the Internal Revenue Code of 1986 and similar state law provisions. The annual limitations may result in the expiration of net operating losses before utilization. The carryforward loss in Hong Kong can be offset against taxable income for an indefinite period. The Company did not record deferred taxes with respect to these losses since it is more likely than not that the deferred asset will not be realized.
As of December 31, 2006, the Company also has net capital loss carryforward for Israeli tax purposes amounted to approximately $6,000 which can only be offset in the future against capital gains. The Company did not record deferred taxes with respect to this capital loss since it is more likely than not that it will not be realized.
| (e) | Significant components of the Company’s deferred tax liabilities and assets related to temporary differences are as follows: |
| | | | | | |
| | December 31, |
| | | 2004 | | 2005 | | 2006 |
Deferred tax assets:
| | | | | | | | | | | | |
| Employee benefits | | $ | 266 | | | $ | 272 | | | $ | 315 | |
| Development costs | | | 397 | | | | 862 | | | | 823 | |
| Other | | | 191 | | | | 298 | | | | 331 | |
| Total deferred tax assets | | $ | 854 | | | $ | 1,432 | | | $ | 1,469 | |
Deferred tax liabilities:
| | | | | | | | | | | | |
| Customer list | | $ | — | | | $ | — | | | $ | 1,265 | |
| Technology | | | — | | | | — | | | | 506 | |
| Total deferred tax liabilities | | $ | — | | | $ | — | | | $ | 1,771 | |
| (f) | Profit before taxes on income consists of the following: |
| | | | | | |
| | Year Ended December 31, |
| | | 2004 | | 2005 | | 2006 |
| Domestic | | $ | 1,497 | | | $ | 1,993 | | | $ | 4,812 | |
| Foreign | | | 481 | | | | 496 | | | | (494 | ) |
| | | $ | 1,978 | | | $ | 2,489 | | | $ | 4,318 | |
| (g) | Taxes on income consist of the following: |
| | | | | | |
| | Year Ended December 31, |
| | | 2004 | | 2005 | | 2006 |
| Current | | $ | 555 | | | $ | 845 | | | $ | 833 | |
| Deferred | | | (236 | ) | | | (578 | ) | | | (266 | ) |
| | | $ | 319 | | | $ | 267 | | | $ | 567 | |
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TABLE OF CONTENTS
VALOR COMPUTERIZED SYSTEMS LTD.
Notes To Consolidated Financial Statements
Note 15: Taxes on Income – (continued)
| | | | | | |
| | Year Ended December 31, |
| | | 2004 | | 2005 | | 2006 |
| Domestic: | |
| Current | | $ | 301 | | | $ | 630 | | | $ | 730 | |
| Deferred | | | (236 | ) | | | (578 | ) | | | (37 | ) |
| | | | 65 | | | | 52 | | | | 693 | |
| Foreign | |
| Current | | | 254 | | | | 215 | | | | 103 | |
| Deferred | | | — | | | | — | | | | (229 | ) |
| | | | 254 | | | | 215 | | | | (126 | ) |
| | | $ | 319 | | | $ | 267 | | | $ | 567 | |
The Company has received final tax assessments through 2001.
| (i) | The Company and its subsidiaries file income tax returns in Israel and various foreign jurisdictions. The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, on January 1, 2007. The balance at September 30, 2007, includes a liability for unrecognized tax benefits of approximately $1,400 for tax positions which are uncertain of being sustained. Since the Company had a provision for these positions prior to January 1, 2007, no adjustments were required upon the initial implementation of Interpretation 48. The accruals are with respect to the eligibility of certain profits to tax benefits and to the taxation of certain financial income. The Company recognizes interest accrued related to unrecognized tax benefits in income taxes. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: |
| | |
| Balance at January 1, 2007 | | $ | 1,425 | |
| Additions based on tax positions related to the current year | | | — | |
| Additions for tax positions of prior years | | | — | |
| Additions for tax positions of prior years | | | 29 | |
| Reductions for tax positions of prior years | | | — | |
| Settlements | | | — | |
| Balance at September 30, 2007 | | $ | 1,454 | |
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VALOR COMPUTERIZED SYSTEMS LTD.
Notes To Consolidated Financial Statements
Note 16: Supplementary Information to the Statements of Income Data
| | | | | | | | | | |
| | Year Ended December 31, | | Nine Months Ended
September 30, |
| | | 2004 | | 2005 | | 2006 | | 2006 | | 2007 |
| | | | | (Unaudited) |
| Employee benefits expense | | $ | 14,056 | | | $ | 16,217 | | | $ | 16,964 | | | $ | 12,575 | | | $ | 15,781 | |
| Depreciation and amortization | | $ | 905 | | | $ | 549 | | | $ | 1,432 | | | $ | 909 | | | $ | 1,512 | |
| Commissions | | $ | 1,004 | | | $ | 1,594 | | | $ | 1,415 | | | $ | 983 | | | $ | 1,537 | |
Financial income:
| | | | | | | | | | | | | | | | | | | | |
| Interest from bank deposits and gain on sale of marketable securities | | $ | 646 | | | $ | 661 | | | $ | 1,136 | | | $ | 908 | | | $ | 549 | |
| Exchange rate differences | | | 171 | | | | — | | | | 128 | | | | 72 | | | | 153 | |
| | | $ | 817 | | | $ | 661 | | | $ | 1,264 | | | $ | 980 | | | $ | 702 | |
Financial expense:
| | | | | | | | | | | | | | | | | | | | |
| Interest and other bank charges | | $ | (45 | ) | | $ | (51 | ) | | $ | (129 | ) | | $ | (53 | ) | | $ | (67 | ) |
| Exchange rate differences | | | — | | | | (206 | ) | | | — | | | | (71 | ) | | | (34 | ) |
| | | $ | (45 | ) | | $ | (257 | ) | | $ | (129 | ) | | $ | (124 | ) | | $ | (101 | ) |
Note 17: Segment Reporting
The Company operates in three key segments in the PCB manufacturing industry: design of the physical layout of the PCB, fabrication of the bare PCB and assembly of PCB components. The Company reports on three business segments: design, assembly and fabrication. The Financial information regarding these segments is evaluated by management based on revenues and operating profit (loss) before interest and income taxes.
| | | | | | | | |
| | Year Ended December 31, 2004 |
| | | Design | | Assembly | | Fabrication | | Consolidated |
| Sales to external customers | | $ | 6,969 | | | $ | 13,265 | | | $ | 10,428 | | | $ | 30,662 | |
| Operating profit (loss) | | $ | 1,767 | | | $ | (4,723 | ) | | $ | 4,162 | | | $ | 1,206 | |
| Financial income, net | | | | | | | | | | | | | | | 772 | |
| Equity in losses of associate | | | — | | | $ | 435 | | | | — | | | | (435 | ) |
| Income taxes | | | | | | | | | | | | | | | (319 | ) |
| Net profit | | | | | | | | | | | | | | $ | 1,224 | |
Assets and liabilities
| | | | | | | | | | | | | | | | |
| Segment assets | | $ | 3,010 | | | $ | 5,732 | | | $ | 2,334 | | | $ | 11,076 | |
| Investment in an associated company | | | — | | | $ | 1,869 | | | | — | | | $ | 1,869 | |
| Unallocated assets | | | | | | | | | | | | | | $ | 30,365 | |
| Total assets | | | | | | | | | | | | | | $ | 43,310 | |
| Segment liabilities | | $ | 2,546 | | | $ | 4,846 | | | $ | 1,008 | | | $ | 8,400 | |
| Unallocated liabilities | | | | | | | | | | | | | | | — | |
| Total liabilities | | | | | | | | | | | | | | $ | 8,400 | |
Other segment information
| | | | | | | | | | | | | | | | |
| Capital expenditures | | $ | 59 | | | $ | 235 | | | $ | 110 | | | $ | 404 | |
| Property, plant and equipment | | $ | 353 | | | $ | 671 | | | $ | 331 | | | $ | 1,355 | |
| Intangible assets | | $ | 68 | | | $ | 133 | | | $ | 15 | | | $ | 216 | |
| Depreciation and amortization | | $ | 241 | | | $ | 467 | | | $ | 197 | | | $ | 905 | |
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VALOR COMPUTERIZED SYSTEMS LTD.
Notes To Consolidated Financial Statements
Note 17: Segment Reporting – (continued)
| | | | | | | | |
| | Year Ended December 31, 2005 |
| | | Design | | Assembly | | Fabrication | | Consolidated |
| Sales to external customers | | $ | 7,881 | | | $ | 17,029 | | | $ | 11,429 | | | $ | 36,339 | |
| Operating profit (loss) | | $ | 2,877 | | | $ | (6,401 | ) | | $ | 5,609 | | | $ | 2,085 | |
| Financial income, net | | | | | | | | | | | | | | | 404 | |
| Equity in losses of associate | | | — | | | $ | (828 | ) | | | — | | | | (828 | ) |
| Income taxes | | | | | | | | | | | | | | | 267 | |
| Net profit | | | | | | | | | | | | | | $ | 1,394 | |
Assets and liabilities
| | | | | | | | | | | | | | | | |
| Segment assets | | $ | 3,000 | | | $ | 6,682 | | | $ | 3,345 | | | $ | 13,027 | |
| Investment in an associated company | | | — | | | | 3,191 | | | | — | | | | 3,191 | |
| Unallocated assets | | | | | | | | | | | | | | | 29,379 | |
| Total assets | | | | | | | | | | | | | | $ | 45,597 | |
| Segment liabilities | | $ | 2,221 | | | $ | 7,227 | | | $ | 953 | | | $ | 10,401 | |
| Unallocated liabilities | | | | | | | | | | | | | | | — | |
| Total liabilities | | | | | | | | | | | | | | $ | 10,401 | |
Other segment information
| | | | | | | | | | | | | | | | |
| Capital expenditures | | $ | 132 | | | $ | 308 | | | $ | 55 | | | $ | 495 | |
| Property, plant and equipment | | $ | 279 | | | $ | 650 | | | $ | 260 | | | $ | 1,189 | |
| Intangible assets | | $ | — | | | $ | 264 | | | $ | — | | | $ | 264 | |
| Depreciation and amortization | | $ | 106 | | | $ | 246 | | | $ | 197 | | | $ | 549 | |
| | | | | | | | |
| | Year Ended December 31, 2006 |
| | | Design | | Assembly | | Fabrication | | Consolidated |
| Sales to external customers | | $ | 8,728 | | | $ | 14,803 | | | $ | 13,210 | | | $ | 36,741 | |
| Operating profit (loss) | | $ | 4,158 | | | $ | (8,003 | ) | | $ | 7,028 | | | $ | 3,183 | |
| Financial income, net | | | | | | | | | | | | | | | 1,135 | |
| Equity in losses of associate | | | | | | | | | | | | | | | (480 | ) |
| Income taxes | | | | | | | | | | | | | | | 567 | |
| Net profit | | | | | | | | | | | | | | $ | 3,271 | |
| Assets and liabilities | | | | | | | | | | | | | | | | |
| Segment assets | | $ | 2,743 | | | $ | 20,749 | | | $ | 3,556 | | | $ | 27,048 | |
| Unallocated assets | | | | | | | | | | | | | | | 25,223 | |
| Total assets | | | | | | | | | | | | | | $ | 52,271 | |
| Segment liabilities | | $ | 2,249 | | | $ | 8,765 | | | $ | 258 | | | $ | 11,272 | |
| Unallocated liabilities | | | | | | | | | | | | | | | — | |
| Total liabilities | | | | | | | | | | | | | | $ | 11,272 | |
Other segment information
| | | | | | | | | | | | | | | | |
| Capital expenditures | | $ | 195 | | | $ | 782 | | | $ | 86 | | | $ | 1,063 | |
| Property, plant and equipment | | $ | 287 | | | $ | 1,144 | | | $ | 214 | | | $ | 1,645 | |
| Intangible assets and goodwill(1) | | $ | 67 | | | $ | 13,821 | | | $ | 20 | | | $ | 13,908 | |
| Depreciation and amortization | | $ | 207 | | | $ | 1,089 | | | $ | 176 | | | $ | 1,472 | |
| (1) | Goodwill resulted from the acquisition of Valor Denmark and is included in the assembly segment (see Note 20). |
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VALOR COMPUTERIZED SYSTEMS LTD.
Notes To Consolidated Financial Statements
Note 17: Segment Reporting – (continued)
| | | | | | | | |
| | Nine Months Ended September 30, 2006 (Unaudited) |
| | | Design | | Assembly | | Fabrication | | Consolidated |
| Sales to external customers | | $ | 6,544 | | | $ | 10,542 | | | $ | 9,648 | | | $ | 26,734 | |
| Operating profit (loss) | | $ | 3,141 | | | $ | (5,855 | ) | | $ | 5,171 | | | $ | 2,457 | |
| Financial income, net | | | | | | | | | | | | | | | 856 | |
| Equity in losses of associate | | | | | | | | | | | | | | | 480 | |
| Income taxes | | | | | | | | | | | | | | | 417 | |
| Net profit | | | | | | | | | | | | | | $ | 2,416 | |
| | | | | | | | |
| | Nine Months Ended September 30, 2007 (Unaudited) |
| | | Design | | Assembly | | Fabrication | | Consolidated |
| Sales to external customers | | $ | 6,544 | | | $ | 15,245 | | | $ | 9,619 | | | $ | 31,408 | |
| Operating profit (loss) | | $ | 2,779 | | | $ | (6,038 | ) | | $ | 5,195 | | | $ | 1,936 | |
| Financial income, net | | | | | | | | | | | | | | | 601 | |
| Income taxes | | | | | | | | | | | | | | | 338 | |
| Net profit | | | | | | | | | | | | | | $ | 2,199 | |
Assets and liabilities
| | | | | | | | | | | | | | | | |
| Segment assets | | $ | 2,894 | | | $ | 22,138 | | | $ | 3,567 | | | $ | 28,599 | |
| Unallocated assets | | | | | | | | | | | | | | | 27,938 | |
| Total assets | | | | | | | | | | | | | | $ | 56,537 | |
| Segment liabilities | | $ | 2,685 | | | $ | 9,638 | | | $ | 660 | | | $ | 12,983 | |
| Unallocated liabilities | | | | | | | | | | | | | | | — | |
| Total liabilities | | | | | | | | | | | | | | $ | 12,983 | |
Other segment information
| | | | | | | | | | | | | | | | |
| Capital expenditures | | $ | 134 | | | $ | 536 | | | $ | 25 | | | $ | 695 | |
| Property, plant and equipment | | $ | 330 | | | $ | 1,319 | | | $ | 150 | | | $ | 1,799 | |
| Intangible assets and goodwill(1) | | $ | 72 | | | $ | 13,693 | | | $ | 23 | | | $ | 13,788 | |
| Depreciation and amortization | | $ | 291 | | | $ | 1,164 | | | $ | 66 | | | $ | 1,521 | |
| (1) | Goodwill resulted from the acquisition of Valor Denmark and is included in the assembly segment (see Note 20). |
| (b) | The Company’s sales by geographic segments are as follows: |
The Company operates in four principal geographical segments: United States, Europe, Japan and Far-East. Operations in Israel include research and development and marketing. Operations in the U.S., Europe, and Asia include only marketing and sales. The following is a summary of revenues within geographic segments, based on customer location:
| | | | | | | | | | |
| | Year Ended December 31, | | Nine Months Ended
September 30, |
| | | 2004 | | 2005 | | 2006 | | 2006 | | 2007 |
| | | | | (Unaudited) |
| United States | | $ | 10,469 | | | $ | 10,310 | | | $ | 10,999 | | | $ | 8,014 | | | $ | 9,053 | |
| Europe | | | 5,827 | | | | 6,328 | | | | 7,479 | | | | 5,678 | | | | 7,797 | |
| Japan | | | 5,000 | | | | 7,378 | | | | 5,696 | | | | 4,448 | | | | 4,110 | |
| Far East | | | 9,366 | | | | 12,323 | | | | 12,567 | | | | 8,594 | | | | 10,448 | |
| | | $ | 30,662 | | | $ | 36,339 | | | $ | 36,741 | | | $ | 26,734 | | | $ | 31,408 | |
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VALOR COMPUTERIZED SYSTEMS LTD.
Notes To Consolidated Financial Statements
Note 17: Segment Reporting – (continued)
The following tables show the carrying amount of segment assets by geographical segment in which the assets are located and capital expenditures of each geographical segment.
| | | | | | | | |
| | December 31, | | September 30,
2007 |
| | | 2004 | | 2005 | | 2006 |
| | | | | | | | | (Unaudited) |
Carrying amount of segment assets:
| | | | | | | | | | | | | | | | |
| United States | | $ | 4,725 | | | $ | 5,835 | | | $ | 24,691 | | | $ | 8,996 | |
| Europe | | | 4,262 | | | | 5,585 | | | | 3,525 | | | | 17,898 | |
| Japan | | | 2,192 | | | | 5,156 | | | | 1,608 | | | | 3,695 | |
| Far East | | | 5,260 | | | | 4,085 | | | | 4,842 | | | | 3,888 | |
| Israel | | | 26,871 | | | | 24,936 | | | | 17,605 | | | | 22,060 | |
| | | $ | 43,310 | | | $ | 45,597 | | | $ | 52,271 | | | $ | 56,537 | |
| | | | | | | | |
| | Year Ended December 31, | | Nine Months Ended
September 30,
2007 |
| | | 2004 | | 2005 | | 2006 |
| | | | | | | | | (Unaudited) |
Capital expenditures:
| | | | | | | | | | | | | | | | |
| United States | | $ | 37 | | | $ | 38 | | | $ | 11 | | | $ | 95 | |
| Europe | | | 41 | | | | 33 | | | | 160 | | | | 8 | |
| Japan | | | 21 | | | | 17 | | | | 12 | | | | 14 | |
| Far East | | | 51 | | | | 18 | | | | 98 | | | | 18 | |
| Israel | | | 254 | | | | 389 | | | | 782 | | | | 560 | |
| | | $ | 404 | | | $ | 495 | | | $ | 1,063 | | | $ | 695 | |
Note 18: Joint Venture
The Company has a 50% interest in the assets, liabilities, revenues and expenses of Frontline P.C.B. Solutions, a joint venture involved in the development, marketing and support of software solutions for the fabrication segment of the PCB manufacturing market.
Under the agreement governing the joint venture, the Company can be required by Orbotech, the other partner, to sell the interest in the joint venture to Orbotech upon the occurrence of a “change of control” as defined in the agreement.
As of December 31, 2004, 2005 and 2006 the jointly controlled entity’s balance sheet includes accounts receivable from the other partner in the jointly controlled entity, net of profit distribution, in the amount of $1,893, $2,861 and $3,298, respectively.
The Company’s share of the assets, liabilities, revenues and expenses of the joint venture, which are included in the consolidated financial statements for all periods presented are as follows:
| | | | | | | | |
| | December 31, | | September 30,
2007 |
| | | 2004 | | 2005 | | 2006 |
| | | | | (Unaudited) |
Balance sheet items:
| | | | | | | | | | | | | | | | |
| Current assets | | $ | 3,871 | | | $ | 4,910 | | | $ | 6,516 | | | $ | 6,522 | |
| Non-current assets | | $ | 330 | | | $ | 259 | | | $ | 214 | | | $ | 173 | |
| Current liabilities | | $ | 861 | | | $ | 842 | | | $ | 1,040 | | | $ | 542 | |
| Non-current liabilities | | $ | 160 | | | $ | 129 | | | $ | 145 | | | $ | 116 | |
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TABLE OF CONTENTS
VALOR COMPUTERIZED SYSTEMS LTD.
Notes To Consolidated Financial Statements
Note 18: Joint Venture – (continued)
| | | | | | | | | | |
| | Year Ended December 31, | | Nine Months Ended
September 30, |
| | | 2004 | | 2005 | | 2006 | | 2006 | | 2007 |
| | | | | (Unaudited) |
Statement of income items:
| | | | | | | | | | | | | | | | | | | | |
| Revenues | | $ | 10,518 | | | $ | 11,429 | | | $ | 13,210 | | | $ | 9,647 | | | $ | 9,620 | |
| Total expenses | | $ | 6,016 | | | $ | 5,740 | | | $ | 6,149 | | | $ | 4,406 | | | $ | 4,426 | |
| Profit before taxes on income | | $ | 4,502 | | | $ | 5,689 | | | $ | 7,061 | | | $ | 5,241 | | | $ | 5,194 | |
Condensed statement of cash flows:
| | | | | | | | | | | | | | | | | | | | |
| Net cash provided by operating activity | | $ | 4,731 | | | $ | 4,701 | | | $ | 7,129 | | | $ | 4,919 | | | $ | 4,818 | |
| Net cash used for investing activity | | $ | (56 | ) | | $ | (28 | ) | | $ | (43 | ) | | $ | (40 | ) | | $ | (25 | ) |
| Net cash provided by financing activity | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Note 19: Investment in an Associated Company
In February 2004, the Company signed an agreement with TraceXpert, a Danish company, according to which, TraceXpert established an entity, Valor Denmark, which would facilitate integration of the Company’s and TraceXpert’s products and joint development and marketing.
TraceXpert products provide manufacturing execution system (MES) for real-time production monitoring, material management and exact traceability down to the component level of the PCB. Pursuant to the agreements Valor agreed to provide up to $4,000, as a subordinate convertible note at Valor Denmark’s or the other shareholder’s request and cash advance of $500.
The Group served as a worldwide distributor of TraceXpert’s products and as such purchased those products from Valor Denmark and distributed them to the Company’s customers and Valor Denmark conducted certain maintenance and research and development activity related to this product. The Company purchased from Valor Denmark during 2004, 2005 and 2006 products in the amount of $1,200, $4,273 and $1,540, respectively.
The Company applied the equity method of accounting to its investment in the convertible note. The note constituted an investment in the equity of Valor Denmark (“in-substance-common-stock”) because the Company had the ability to exercise significant influence over Valor Denmark (other than in respect to a particular customer where matters were decided by TraceXpert), as a result of holding 50% of the voting rights and the right to appoint 50% of the members of Valor Denmark’s board of directors. Additionally, the note is convertible into common shares of Valor Denmark pro-rata based on the amount funded and each party has the unilateral ability to force conversion into the common shares and to force the repayment of the entire $4,000.
The advances related to the convertible note were made in three phases during 2004 through May 2006 and were deemed to be incremental purchases of interest in Valor Denmark. Such purchase amounts were allocated to the net assets of Valor Denmark based on their estimated fair value at the date of the transactions. The excess of the purchase price over the estimated fair value of tangible and intangible assets acquired was recorded as goodwill.
As of May 4, 2006, total investment amounted to $3,824 which consisted of $929 of amortized tangible and intangible assets and $2,895 of goodwill. Intangible assets were amortized over an estimated useful life of 5-7 years. The Company recorded its share in the losses of the Valor Denmark results in which it had an interest as well as the amortization of the intangible assets as equity in losses of an associated company.
On May 4, 2006, the Company signed a share purchase agreement to purchase the remaining interests in Valor Denmark after which it commenced consolidation of Valor Denmark in its financial statements (see Note 20).
Summarized financial information of Valor Denmark for the years in which the investment was accounted for using the equity method is as follows:
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VALOR COMPUTERIZED SYSTEMS LTD.
Notes To Consolidated Financial Statements
Note 19: Investment in an Associated Company – (continued)
| | | | |
| | December 31, |
| | | 2004 | | 2005 |
Balance sheet items:
| | | | | | | | |
| Current assets | | $ | 3,328 | | | $ | 5,453 | |
| Non-current assets | | $ | 327 | | | $ | 359 | |
| Current liabilities | | $ | 1,977 | | | $ | 1,943 | |
| Non-current liabilities | | $ | 1,333 | | | $ | 3,586 | |
| Shareholders’ equity | | $ | 345 | | | $ | 283 | |
| | | | |
| | Year Ended December 31, |
| | | 2004 | | 2005 |
Statement of income items:
| | | | | | | | |
| Revenues | | $ | 3,346 | | | $ | 6,395 | |
| Cost of sales | | $ | 2,054 | | | $ | 3,215 | |
| Operating expenses from continuing operation | | $ | 1,251 | | | $ | 2,291 | |
| Net profit (loss) | | $ | (21 | ) | | $ | 459 | |
Note 20: Business Combination
| (a) | On May 4, 2006, the Company signed a share purchase agreement to purchase Valor Denmark through the acquisition of T-V Holding A/S (Valor Denmark is a wholly-owned subsidiary of T-V Holding A/S). The acquisition has been accounted for using the purchase method of accounting. The purchase price has been allocated to the assets acquired and liabilities assumed based on their estimated fair value at the date of acquisition. The excess of the purchase price over the estimated fair value of the net assets acquired has been recorded as goodwill. |
| (b) | The total acquisition cost of $10,278 comprised a cash payment of $9,998 and costs of $280 which were directly attributable to the acquisition. |
| | |
| | May 4,
2006 |
| Net cash acquired with the subsidiary | | $ | 1,515 | |
| Cash paid | | | (9,998 | ) |
| Acquisition costs | | | (280 | ) |
| Net cash outflow | | $ | (8,763 | ) |
The fair value of identifiable assets and liabilities of T-V Holding A/S on date of acquisition is as follows:
| | |
| | Fair Value |
| Working capital(1) | | $ | 970 | |
| Fixed assets | | | 98 | |
| Customer list | | | 5,029 | |
| Technology | | | 1,975 | |
| Deferred tax liability | | | (1,926 | ) |
| Associated company payable | | | 2,305 | |
| Investment prior to acquisition | | | (3,824 | ) |
| Asset revaluation surplus(3) | | | (1,195 | ) |
| Net Assets | | | 3,432 | |
| Goodwill arising on acquisition(2) | | | 6,846 | |
| Total purchase price | | $ | 10,278 | |
| (1) | Working capital acquired approximates its fair value on the date of the acquisition. |
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VALOR COMPUTERIZED SYSTEMS LTD.
Notes To Consolidated Financial Statements
Note 20: Business Combination – (continued)
| (2) | Goodwill represents the fair value of expected synergies arising from the acquisition. The amount of Goodwill as of December 31, 2006, includes $303 foreign currency translation adjustment. The entire amount of goodwill was allocated to the assembly segment. |
| (3) | An asset revaluation surplus reflects the recognition of Valor Denmark’s identifiable assets and liabilities which are notionally restated to their fair values at the acquisition date, and any adjustment to those fair values relating to previously held interests in Valor Denmark is a revaluation recorded as an asset revaluation surplus in the shareholders’ equity. |
The following unaudited pro forma financial information presents the Company’s results of operations as if the acquisition had occurred as of the beginning of the fiscal years 2005 and 2006, after giving effect to certain adjustments, including amortization of intangible assets. The unaudited pro forma financial information does not necessarily reflect the results of operations that would have occurred, and is not necessarily indicative of results which may be obtained in the future.
| | | | |
| | Year Ended
December 31,
2005 | | Year Ended
December 31,
2006 |
| Pro forma revenues | | $ | 36,797 | | | $ | 36,822 | |
| Pro forma net profit | | $ | 965 | | | $ | 2,483 | |
| Pro forma basic net earning per share | | $ | 0.05 | | | $ | 0.13 | |
| Pro forma diluted net earning per share | | $ | 0.05 | | | $ | 0.12 | |
Note 21: Compensation of Key Management Personnel of The Group
| | | | | | | | |
| | December 31, | | September 30,
2007 |
| | | 2004 | | 2005 | | 2006 |
| | | | | (Unaudited) |
| Short-term employee benefits | | $ | 1,444 | | | $ | 1,891 | | | $ | 1,753 | | | $ | 1,727 | |
| Severance pay | | | 48 | | | | 33 | | | | 37 | | | | 85 | |
| Share-based payments | | | 131 | | | | 148 | | | | 136 | | | | 250 | |
Total compensation paid to key management
personnel | | $ | 1,623 | | | $ | 2,072 | | | $ | 1,926 | | | $ | 2,062 | |
Note 22: Summary of Differences Between Accounting Principles Followed by The Company and United
States Generally Accepted Accounting Principles
| (a) | Differences between IFRS and U.S. GAAP: |
As discussed in Note 2, the accompanying consolidated financial statements were prepared in accordance with IFRS which differ in certain significant respects from those generally accepted in the United States of America (U.S. GAAP). Information related to the nature and effect of such differences is presented below.
| (1) | Proportionate Consolidation – Frontline: |
In accordance with IFRS:
Under IFRS, in accordance with IAS 31, “Interests in Joint Venture”, entities in which all shareholders, by way of contractual arrangement, jointly control the significant operating policies thereof, are included in the consolidated financial statements by the proportionate consolidation method.
In accordance with U.S. GAAP:
Under U.S. GAAP, investments in entities in which all shareholders, by way of contractual arrangement, jointly control the significant operating policies thereof, are accounted for by the equity method. However, the United States Security and Exchange Commission rules applicable to foreign private issuers permit the omission of reconciling differences related to the classification of the amounts proportionately consolidated, provided that
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VALOR COMPUTERIZED SYSTEMS LTD.
Notes To Consolidated Financial Statements
Note 22: Summary of Differences Between Accounting Principles Followed by The Company and United
States Generally Accepted Accounting Principles – (continued)
the entity is an operating entity, its significant financial and operating policies are by contractual agreement jointly controlled by all parties having an equity interest in the entity, and provided that summarized financial data relating to the entity are given. Since Frontline is an operating entity that develops, manufactures and sells software used in the manufacture of PCBs and is jointly controlled by the Company and Orbotech based on a contractual agreement, the Company has not presented any reconciliation item in this respect. Summarized financial data relating to Frontline is presented in Note 18.
| (2) | Business Combination — Valor Denmar: |
Under IFRS the acquisition of Valor Denmark is accounted for under IFRS 3, Business Combinations. Pursuant to IFRS 3, when a business combination involves more than one exchange transaction (i.e., step acquisition of a business), for transactions that occurred prior to the transaction that resulted in control, the identifiable assets, and liabilities are notionally restated to their fair values at the date of each exchange transaction. At the date of acquisition of control, any corresponding adjustment to those fair values relating to previously held interests of Valor Denmark is a revaluation recorded as an asset revaluation surplus in equity.
Under U.S. GAAP the acquisition of Valor Denmark is accounted for under FAS 141, Business Combinations. Pursuant to such standards, when a business combination involves more than one exchange transaction (i.e., step acquisition of a business), the increased ownership obtained in Valor Denmark is accounted for by “stepping-up” Valor Denmark’s basis from historical cost to fair value for the portion of assets acquired and liabilities assumed based on the percentage interest acquired at each acquisition. This accounting results in layers of accounting bases in acquired assets and assumed liabilities. As such, individual assets, including goodwill, and liabilities of Valor Denmark acquired in steps have an accumulation of accounting bases that result from several fair value determinations, each based on fair value on the various acquisition dates, multiplied by the portion of the business acquired on those dates.
Prior to our acquisition in May 2006, Valor Denmark was considered an investment in a variable interest entity under U.S. GAAP, for which the Company was not determined to be the primary beneficiary. The Company’s maximum exposure to loss related to the investment in Valor Denmark is $4.5 million as of December 31, 2005.
The effect of this difference resulted in a decrease of $1,665 in intangible assets and related deferred tax liability of $470 as of the acquisition of control of Valor Denmark in May 2006. As a result, amortization expenses of the intangible assets under U.S. GAAP during 2006 and the nine months ended September 30, 2007, were lower than under IFRS by $205 and $249, respectively.
| (3) | Share-Based Compensation: |
In accordance with IFRS:
The Company has applied IFRS No. 2, “Share-Based Payment” (“IFRS 2”) for all periods presented to employee stock option plans which applies only to equity settled awards granted after November 7, 2002 that had not vested by December 31, 2004. As a result, the compensation cost related to options granted to employees and directors are measured at fair value. The fair value is determined by using an option-pricing model. The expense is allocated using the accelerated method, over the period in which the service conditions are fulfilled, ending on the date the options vest. The effect of the adoption of IFRS 2 as of January 1, 2004, resulted in an increase in share premium and a decrease of retained earnings of $318 to reflect the cumulative effect as of that date
In accordance with U.S. GAAP:
Under U.S. GAAP, the Company has elected to adopt FAS No. 123(R) “Share-Based Payment” commencing on January 1, 2006, using the “modified prospective” method. Prior to January 1, 2006, the Company accounted for stock-based compensation under the intrinsic value method, based on the provisions of APB No.
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VALOR COMPUTERIZED SYSTEMS LTD.
Notes To Consolidated Financial Statements
Note 22: Summary of Differences Between Accounting Principles Followed by The Company and United
States Generally Accepted Accounting Principles – (continued)
25. “Accounting for Stock Issued to Employees”. Under FAS 123(R), compensation cost is recognized using the accelerated expense attribution method beginning with the effective date (January 1, 2006) (i) based on the requirements of Statement 123(R) for all share-based payments granted after the effective date and (ii) based on the requirements of Statement 123 for all awards granted to employees prior to the effective date of Statement 123(R) that remain unvested on the effective date.
As a result of adopting SFAS No. 123(R) on January 1, 2006, the Company’s net profit for the year ended December 31, 2006, is $350 lower, than if it had continued to account for share-based compensation under APB 25. Basic and diluted net profit per share for the year ended December 31, 2006, are $0.02 lower, than if the Company had continued to account for share based compensation under APB 25.
The pro forma disclosures required by SFAS 123, and Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure — an Amendment of FASB Statement No. 123 (“SFAS 148”) are provided below. The following table provides a reconciliation of net earnings to pro forma net earnings as if compensation cost for stock options granted to employees had been determined using the fair value method prescribed by SFAS 123. The estimated fair value of each stock option is calculated using the Black-Scholes option-pricing model:
| | | | |
| | Year Ended December 31, |
| | | 2004 | | 2005 |
| Net earnings under US GAAP | | $ | 1,820 | | | $ | 1,701 | |
| Add: Stock-based employee compensation expense included in net earnings, as reported | | | — | | | | — | |
| Deduct: Total stock-based employee compensation expense determined under fair value based method | | | (733 | ) | | | (661 | ) |
| Pro forma net earnings under US GAAP | | $ | 1,087 | | | $ | 1,040 | |
Net earnings per share
| | | | | | | | |
Basic net earnings per share:
| | | | | | | | |
| As reported | | $ | 0.10 | | | $ | 0.10 | |
| Pro forma | | $ | 0.06 | | | $ | 0.06 | |
Diluted net earnings per share:
| | | | | | | | |
| As reported | | $ | 0.09 | | | $ | 0.09 | |
| Pro forma | | $ | 0.06 | | | $ | 0.05 | |
In accordance with IFRS:
For IFRS purposes, the Company applied the provisions of IAS 18, “Revenue”. IAS 18 lacks specific detailed guidance relating to matters such as multiple-element revenue arrangements and requires the application of the recognition criteria to the separately identifiable components of a single transaction in order to reflect the substance of the transaction. In applying this guidance, the Company has deferred annual service revenues over their service period based on their fair value.
In accordance with U.S. GAAP:
Under U.S. GAAP, the Company determined the fair value of each element in accordance with the residual method prescribed by AICPA Statement of Position 98-9, Modification of SOP No. 97-2, Software Revenue Recognition, with Respect to Certain Transactions. In determining the fair value of each element, the Company examined the vendor specific objective evidence (VSOE) of their fair value. If sufficient VSOE did not exist for
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VALOR COMPUTERIZED SYSTEMS LTD.
Notes To Consolidated Financial Statements
Note 22: Summary of Differences Between Accounting Principles Followed by The Company and United
States Generally Accepted Accounting Principles – (continued)
the allocation of revenue to the various elements of the arrangement, all revenue from the arrangement should be deferred until all elements have been delivered.
Reconciling items between IFRS and U.S. GAAP reflects and includes a difference in tax treatment between IFRS and U.S. GAAP with respect to the distribution of tax exempt income. The tax-exempt income attributable to the “Approved Enterprise” in Israel can be distributed to shareholders without imposing tax liability on the Company only upon the complete liquidation of the Company. In the event of a distribution of such tax-exempt income as a cash dividend in a manner other than in the complete liquidation of the Company, the Company is required to pay tax at the rate of 10% to 25% on the amount distributed (based on the percentage of foreign ownership in each tax year). Under IFRS, the corporate tax is recorded upon actual distribution of the dividend while under U.S. GAAP, the Company created a deferred tax liability with respect to any accumulated tax exempt income.
Additionally, the Company and its subsidiaries provide a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value if it is more likely than not that some portion or all of the deferred tax asset will not be realized. Since the Company has incurred net operating losses in total of approximately $10,460, $11,360 and $11,700 as of December 31, 2004, 2005 and 2006, respectively, which it is more likely than not that they will not be realized. The Company recorded a valuation allowance in the amounts of $3,320, $3,475 and $3,530 against its deferred tax assets as of December 31, 2004, 2005 and 2006, respectively. During 2006, the Company also incurred a net capital loss carryforward for Israeli tax purposes amounted to approximately $6,000 which can only be offset in the future against capital gains for which a full valuation allowance in the amount of $1,500 was provided since it is more likely than not that it will not be realized.
In accordance with IFRS:
Under IAS 33 “Earnings per Share” the incremental shares included in year-to-date diluted EPS weighted average would be computed using the average market price of shares for the year-to-date period.
In accordance with U.S. GAAP:
Under FAS 128 “Earnings per Share”, the number of incremental shares to be included in the denominator for year-to-date diluted EPS should be determined by computing a year-to-date weighted average of the number of incremental shares included in each quarterly diluted EPS computation (assuming all periods were profitable).
Under U.S GAAP reclassification of deferred taxes into short-term and long-term is required. The effect of this difference resulted in reclassifications from long-term into short-term deferred tax assets of $517, $1,122, $1,040 and $1,015 as of December 31, 2004, 2005, 2006 and as of September 30, 2007, respectively, and in reclassifications from long-term into short-term deferred tax liability of $291 as of December 31, 2006 and as of September 30, 2007.
| (8) | Impact of recently issued Accounting Standards: |
In June 2006, the FASB issued Interpretation 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), an interpretation of FASB Statement 109, “Accounting for Income Taxes”. The Interpretation addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under FIN 48, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the tax authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements
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VALOR COMPUTERIZED SYSTEMS LTD.
Notes To Consolidated Financial Statements
Note 22: Summary of Differences Between Accounting Principles Followed by The Company and United
States Generally Accepted Accounting Principles – (continued)
from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement.
FIN 48 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. FIN 48 applies to all tax positions related to income taxes subject to SFAS 109. This includes tax positions considered to be “routine” as well as those with a high degree of uncertainty. FIN 48 specifically prohibits the use of a valuation allowance as a substitute for de-recognition of tax positions. The provisions of FIN 48 are effective beginning January 1, 2007. The Company adopted this new interpretation effective January 1, 2007, which did not have a significant impact on its consolidated financial position, results of operations or liquidity.
In September 2006, the SEC issued Staff Accounting Bulletin No. 108, “Financial Statements — Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB 108 requires companies to quantify the impact of all correcting misstatements, including both the carryover and reversing effects of prior year misstatements, on the current year financial statements. SAB 108 is effective for fiscal years ending after November 15, 2006. The adoption of SAB 108 did not have any impact on the consolidated financial statements.
In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS 157, “Fair Value Measurements” (“SFAS 157”). This Standard defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The Company is currently assessing the impact that SFAS 157 will have on its consolidated financial statements.
In February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 permits companies to choose to measure certain financial instruments and certain other items at fair value. The Standard requires that unrealized gains and losses on items for which the fair value option has been elected be reported in earnings. SFAS 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years, although earlier adoption is permitted. The Company is currently assessing the impact that SFAS 159 will have on its consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141 (Revised) “Business Combinations”. SFAS 141 (Revised) replaces SFAS 141 “Business Combination” and establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. The statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The guidance will become effective for the fiscal year beginning after December 15, 2008. The management is in the process of evaluating the impact SFAS 141 (Revised) will have on the Company’s financial statements upon adoption.
In December 2007, the FASB issued SFAS 160,Noncontrolling Interests in Consolidated Financial Statements. SFAS 160 amends Accounting Research Bulletin 51,Consolidated Financial Statements, to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It also clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS 160 also changes the way the consolidated income statement is presented by requiring consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. It also requires disclosure, on the face of the consolidated statement of income, of the amounts of consolidated net income attributable to the parent and to the noncontrolling interest. SFAS 160 requires that a parent recognize a
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VALOR COMPUTERIZED SYSTEMS LTD.
Notes To Consolidated Financial Statements
Note 22: Summary of Differences Between Accounting Principles Followed by The Company and United
States Generally Accepted Accounting Principles – (continued)
gain or loss in net income when a subsidiary is deconsolidated and requires expanded disclosures in the consolidated financial statements that clearly identify and distinguish between the interests of the parent owners and the interests of the noncontrolling owners of a subsidiary. SFAS 160 is effective for fiscal periods, and interim periods within those fiscal years, beginning on or after December 15, 2008. The management is in the process of evaluating the impact SFAS 160 will have on the Company’s financial statements upon adoption.
| (b) | Effect of the differences between IFRS and U.S. GAAP on the financial statements |
| | | | | | | | | | |
| | Year Ended December 31, | | Nine Months Ended
September 30, |
| | | 2004 | | 2005 | | 2006 | | 2006 | | 2007 |
| | | | | (Unaudited) |
| a) Net profit as reported, under IFRS | | $ | 1,224 | | | $ | 1,394 | | | $ | 3,271 | | | $ | 2,416 | | | $ | 2,199 | |
Reconciling item for U.S. GAAP reporting:
| | | | | | | | | | | | | | | | | | | | |
Amortization of intangible asset —
Note 22(a)(2) | | | — | | | | — | | | | 205 | | | | 163 | | | | 249 | |
Compensation expense for share-based
payments — Note 22(a)(3) | | | 398 | | | | 576 | | | | (16 | ) | | | (15 | ) | | | — | |
| Revenue recognition, Note 22(a)(4) | | | (310 | ) | | | (157 | ) | | | 441 | | | | 374 | | | | (564 | ) |
Deferred tax related to taxes on dividend —
Note 22(a)(5) | | | 430 | | | | (61 | ) | | | (412 | ) | | | (162 | ) | | | — | |
Taxation related to reconciled items —
Note 22(a)(5) | | | 78 | | | | 39 | | | | (172 | ) | | | (142 | ) | | | 73 | |
| Net profit according to U.S. GAAP | | $ | 1,820 | | | $ | 1,791 | | | $ | 3,317 | | | $ | 2,634 | | | $ | 1,957 | |
b) Earnings per share:
| | | | | | | | | | | | | | | | | | | | |
Basic earnings per share according to
U.S. GAAP | | $ | 0.10 | | | $ | 0.10 | | | $ | 0.17 | | | $ | 0.14 | | | $ | 0.10 | |
Diluted earnings per share according to
U.S. GAAP | | $ | 0.09 | | | $ | 0.09 | | | $ | 0.17 | | | $ | 0.13 | | | $ | 0.09 | |
Weighted average number of shares used for computing basic earnings per share
according to U.S. GAAP | | | 18,273,778 | | | | 18,552,412 | | | | 19,421,445 | | | | 19,157,996 | | | | 20,098,580 | |
| Weighted average number of shares used for computing diluted earnings per share according to U.S. GAAP | | | 20,133,629 | | | | 20,162,270 | | | | 20,057,679 | | | | 19,998,139 | | | | 21,101,656 | |
| (2) | Shareholders’ equity differences: |
| | | | | | | | |
| | As of December 31, | | As of
September 30,
2007 |
| | | 2004 | | 2005 | | 2006 |
| Shareholders’ equity as reported, under IFRS | | $ | 34,910 | | | $ | 35,196 | | | $ | 40,999 | | | $ | 43,554 | |
Reconciling item for U.S. GAAP reporting:
| | | | | | | | | | | | | | | | |
| Deferred revenues | | $ | (1,997 | ) | | $ | (2,154 | ) | | $ | (1,713 | ) | | $ | (2,277 | ) |
| Intangible assets | | $ | — | | | $ | — | | | $ | (1,501 | ) | | $ | (1,190 | ) |
| Share-based payment — Share premium | | $ | (716 | ) | | $ | (1,292 | ) | | $ | (1,276 | ) | | $ | (1,276 | ) |
| Share-based payment — Retained earnings | | $ | 716 | | | $ | 1,292 | | | $ | 1,276 | | | $ | 1,276 | |
| Deferred tax related to taxes on dividend | | $ | 430 | | | $ | 368 | | | $ | (44 | ) | | $ | (44 | ) |
| Taxation related to reconciled items | | $ | 500 | | | $ | 539 | | | $ | 841 | | | $ | 914 | |
| Shareholders’ equity according to U.S. GAAP | | $ | 33,843 | | | $ | 33,949 | | | $ | 38,582 | | | $ | 40,957 | |
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Kesselman & Kesselman
Certified Public Accountants (Isr.)
Trade Tower, 25 Hamered Street
Tel Aviv 68125 Israel
P.O. Box 452 Tel Aviv 61003 Israel
Telephone +972-3-7954555
Facsimile +972-3-7954556
Report of Independent Registered Public Accounting Firm
To the Partners of
Frontline P.C.B. Solutions Limited Partnership.
We have audited the balance sheets of Frontline P.C.B. Solution Limited Partnership (the “Partnership”) as of December 31, 2006, 2005, and 2004 and the statements of operations, changes in partner’s capital and cash flows for each of the three years in the period ended December 31, 2006. These financial statements are the responsibility of the Partnership’s Board of Directors and management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Partnership’s Board of Directors and management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Partnership as of December 31, 2006, 2005 and 2004 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2006, in conformity with International Financial Reporting Standards as adopted by the International Accounting Standards Board (“IFRS”).
IFRS vary in certain aspects from U.S. GAAP, as described in note 15.
| | |
| | ![[GRAPHIC MISSING]](https://capedge.com/proxy/F-1/0001144204-08-001775/sig_kesselman-kesselman.jpg) |
Tel-Aviv, Israel
October 26, 2007 | | Kesselman & Kesselman
Certified Public Accountants (Isr.) |
Kesselman & Kesselman is a member of PricewaterhouseCoopers International Limited, a company limited by guarantee registered in England and Wales.
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Valor Denmark A/S
Financial Statements 30 April 2006, 31 December
Statement by the Executive and Supervisory Boards
The Executive and Supervisory Boards have today discussed and adopted the balance sheet of Valor Denmark A/S as of 30 April 2006, 31 December 2005 and 2004, and the related income statements, the cash flows statements for the periods ended 30 April 2006, 31 December 2005 and 2004, and the statement of changes in equity for the periods ended 30 April 2006, 31 December 2005 and 2004.
The financial statements referred to above have been prepared in accordance with the provisions applying to class B enterprises under the Danish Financial Statements Act. We consider the accounting principles used to be appropriate. Accordingly, the financial statements referred to above present fairly, in all material respects, the financial position of Valor Denmark A/S as of 30 April 2006, 31 December 2005 and 2004 and the result of their operations and their cash flows for the periods ended 30 April 2006, 31 December 2005 and 2004 in accordance with the provisions applying to class B enterprises under the Danish Financial Statements Act.
The accounting principles under the Danish Financial Statements Act vary in certain significant respects from U.S. generally accepted accounting principles. Information related to the nature of such differences is presented in Note 13 to the financial statements.
Aarhus, 24 October 2007
Executive Board:
| | | | |
/s/ Casper Mariegaard
Casper Mariegaard | | | | |
| Supervisory Board: | | | | |
/s/ Ofer Shofman
Ofer Shofman
Chairman | | /s/ Julian Coates
Julian Coates | | /s/ Dan Hoz
Dan Hoz |
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TABLE OF CONTENTS
Independent Auditors’ Report
To the Executive Board and Shareholders of Valor Denmark A/S
We have audited the accompanying balance sheet of Valor Denmark A/S as of 31 December 2005 and the related income statement, cash flows statement, and the statement of changes in equity for the year then ended, prepared in accordance with the Danish Financial Statements Act. The financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Valor Denmark A/S as of 31 December 2005 and the result of their operations and their cash flows for the year then ended, in accordance with the Danish Financial Statements Act.
As discussed in the accounting policies, the accompanying financial statements as of 31 December 2005 and the year ended 31 December 2005 have been restated.
The accounting principles of The Danish Financial Statements Act vary in certain significant respects from US generally accepted accounting principles. Information relating to the nature of such differences is presented in note 13 to the financial statements.
Aarhus, 24 October 2007
KPMG C. Jespersen
Statsautoriseret Revisionsinteressentskab
/s/ Claus Monfeldt
Claus Monfeldt
State Authorised Public Accountant
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TABLE OF CONTENTS
Valor Denmark A/S
Financial Statements 30 April 2006, 31 December 2005 and 2004
Accounting Policies
Basis of Preparation
The Balance Sheet of Valor Denmark A/S as of 30 April 2006, 31 December 2005 and 2004 and the related income statement, cash flows statement for the periods ended 30 April 2006 and 31 December 2005 and 2004 and the statement of changes in equity for the periods ended 30 April 2006, 31 December 2005 and 2004 has been prepared in accordance with the provisions applying to class B enterprises under the Danish Financial Statements Act.
The Financial Statements for the years ended 31 December 2005 and 2004 are prepared based on the Danish statutory annual report for 2005 which has been submitted and registered with the Danish Commerce and Companies Agency.
The Danish statutory annual report for 2005 has been translated into an English version. The attached financial statements are based on the English translation of the annual report.
Compared to Danish statutory annual reports that have been filed with the Danish Commerce and Companies Agency the following changes have been made to the financial statements that are attached:
| • | In the annual report, development projects amounting to DKK 5,488 thousand at 31 December 2005 have been capitalised on the balance sheet. Due to changes in the company's accounting policies at 1 January 2006, according to which development costs are expensed as incurred, development costs have been expensed in all periods covered by the attached financial statements. |
| • | In the annual report, a convertible loan had been measured at nominal value. The convertible loan must be measured at its present value where the difference between the nominal and recorded values is recorded as a discount to the loan amount and a corresponding premium on convertible loan as a deferred credit. Such discount is amortized to interest expense over the term of the loan. |
| • | In the annual report for 2004, establishment costs were recognized against equity. Such costs must be expensed as they are related to a business combination that is recognized based on the pooling of interest method of accounting. |
| | | | |
| DKK | | 2005 | | 2004
(Unaudited) |
Effect to the income statement of the above corrections
| | | | | | | | |
| Profit for the year as reported in the statutory annual report | | | 5,690,898 | | | | 2,834,165 | |
| Intangible assets, development projects | | | -2,896,309 | | | | 735,901 | |
| Convertible loan | | | -44,390 | | | | -239,520 | |
| Establishment costs | | | 0 | | | | -1.282,732 | |
| Profit as restated | | | 2,750,199 | | | | 2,047,814 | |
Effect to equity of the above corrections
| | | | | | | | |
| Year-end equity as reported in the statutory annual report | | | 8,186,117 | | | | 3,777,951 | |
| Intangible assets, development projects | | | -3,951,356 | | | | 496,386 | |
| Convertible loan | | | -283,910 | | | | -239,520 | |
| Establishment costs | | | 0 | | | | 0 | |
| Equity as restated | | | 3,950,851 | | | | 4,034,817 | |
Effect to total assets of the above corrections
| | | | | | | | |
| Year-end total assets as reported in the statutory annual report | | | 40,618,105 | | | | 20,539,900 | |
| Intangible assets, development projects | | | -5,598,403 | | | | -1,465,343 | |
| Deferred tax | | | 598,757 | | | | 15,881 | |
| Convertible loan | | | 175,571 | | | | 0 | |
| Total assets as restated | | | 35,794,030 | | | | 19,090,438 | |
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TABLE OF CONTENTS
Valor Denmark A/S
Financial Statements 30 April 2006, 31 December 2005 and 2004
Accounting Policies
| • | Management's Review that is included in the annual report has not been included as part of these financial statements. |
| • | The financial statements contain various comparative figures. The annual report contains one year of comparative figures. |
| • | Cash flow statement and statement of changes in equity are not included the annual report. |
| • | Revenue, cost of sales, other external charges and other income have been presented separately in the income statement. The annual report has presented these items net as gross profit. |
| • | Footnote 13 has been added to the financial statements describing the nature of differences between the accounting principles of The Danish Financial Statements Act and generally accepted accounting principles in the United States of America (US GAAP). |
Presentation Currency
The functional currency of Valor Denmark A/S is (Danish Krone) DKK and the financial statements have been presented in DKK.
Foreign Currency Translation
On initial recognition, transactions denominated in foreign currencies are translated at the exchange rates at the transaction date. Foreign exchange differences arising between the exchange rates at the transaction date and at the date of payment are recognised in the income statement as interest income or expense and similar items.
Receivables and payables and other monetary items denominated in foreign currencies are translated at the exchange rates at the balance sheet date. The difference between the exchange rates at the balance sheet date and at the date at which the receivable or payable arose or was recognised in the latest financial statements is recognised in the income statement as interest income or expense and similar items.
Income Statement
Revenue
Revenue comprises delivered and invoiced goods and services.
Other Operating Income and Costs
Other operating income and costs comprise items relating to gross profit split and cost allocation with Valor Ltd.
Interest Income and Expense and Similar Items
Interest income and expense and similar items comprise interest income and expense, gains and losses on transactions denominated in foreign currencies, amortisation of financial assets and liabilities as well as surcharges and refunds under the on-account tax scheme, etc.
Tax on Profit/Loss for the Year
The company is jointly taxed with the parent company T-V Holding A/S. The expected current tax on the jointly taxed income for the year is paid by the parent company and is distributed between the jointly taxed Danish companies in proportion to their taxable income (full absorption with refunds regarding tax losses). The jointly taxed companies form part of the joint taxation scheme.
Tax for the year comprises current tax and changes in deferred tax for the year. The tax expense relating to the profit/loss for the year is recognised in the income statement, and the tax expense relating to changes directly recognised in equity is recognised directly in equity.
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Valor Denmark A/S
Financial Statements 30 April 2006, 31 December 2005 and 2004
Accounting Policies
Deferred tax is calculated as 28% of all temporary differences between the carrying amount and tax base of assets and liabilities.
Deferred tax assets, including the tax base of tax loss carryforwards, are recognised at the expected value of their utilisation; either as a set-off against tax on future income or as a set-off against deferred tax liabilities in the same legal tax entity. The effect of the changed tax rate is recognised in profit for the year.
Balance Sheet
Intangible Assets
Goodwill is measured at cost less accumulated amortisation.
Goodwill is amortised on a straight-line basis over the expected useful lives assessed to be five years.
Development costs have been expensed when incurred.
Intangible assets are written down to the recoverable amount if this is lower than the carrying amount.
Property, Plant and Equipment
Fixtures and fittings, tools and equipment are measured at cost less accumulated depreciation.
Depreciation is provided on a straight-line basis over the expected useful lives of the assets assessed to be 2 – 4 years.
Property, plant and equipment are written down to the recoverable amount if this is lower than the carrying amount.
Inventories are measured at cost in accordance with the FIFO method. Where the net realisable value is lower than cost, inventories are written down to this lower value.
Receivables
Receivables are valued at amortised cost and written down to net realisable value.
Equity – Dividends
Dividends are recognised as liabilities at the date when they are adopted at the annual general meeting (declaration date). The expected dividend payment for the year is disclosed as a separate item under equity.
Liabilities
Liabilities are measured at amortised cost.
Convertible loans are measured at their present value where the differences between the nominal and recorded values are recorded as a discount to the loan amount and a corresponding premium on convertible loans as a deferred credit. Such discounts are amortized to interest expense over the term of the loans. The premium is recognised as income if the loan is repaid or recognised against equity if the loan is converted into share capital.
Cash Flow Statement
The cash flow statement shows the Company's cash flows from operating, investing and financing activities for the year, the changes in cash and cash equivalents during the year and the Company's cash and cash equivalents at the beginning and end of the year.
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TABLE OF CONTENTS
Valor Denmark A/S
Financial Statements 30 April 2006, 31 December 2005 and 2004
Accounting Policies
Cash flows from operating activities are presented indirectly as profit or loss before tax adjusted for non-cash operating items, changes to the working capital, net interest expenses paid, dividends received, and income tax paid.
Cash flows from investing activities include acquisitions and disposals of intangible, tangible and other non-current assets.
Cash flows from financing activities include changes in the size or composition of the share capital and costs associated with such changes, raising and repayment of long-term and short-term bank loans and payment of dividends to shareholders.
Cash and cash equivalents include cash at bank and in hand.
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TABLE OF CONTENTS
Valor Denmark A/S
Financial Statements 30 April 2006, 31 December
Financial Statements for the Year Ended 2005
Income Statement
| | | | | | | | |
| DKK | | Note | | 1/1 – 30/4
2006
(Unaudited) | | 2005 | | 2004
(Unaudited) |
| Revenue | | | | | | | 5,480,136 | | | | 28,480,451 | | | | 14,870,752 | |
| Other operating income | | | | | | | 3,969,673 | | | | 9,857,915 | | | | 5,160,650 | |
| Other operating costs | | | | | | | -989,988 | | | | -6,398,838 | | | | -2,980,384 | |
| Cost of goods | | | | | | | -1,886,352 | | | | -7,134,397 | | | | -3,838,695 | |
| Other external charges | | | | | | | -2,523,403 | | | | -5,743,504 | | | | -5,478,250 | |
| Gross Profit | | | | | | | 4,050,066 | | | | 19,061,627 | | | | 7,734,073 | |
| Staff costs | | | 1 | | | | -5,200,155 | | | | -13,277,894 | | | | -7,100,465 | |
Depreciation/amortisation of property, plant and
equipment and intangible assets | | | 4,5 | | | | -149,374 | | | | -458,350 | | | | -390,247 | |
| Gain on sale of fixed assets | | | | | | | 0 | | | | 0 | | | | 3,015,150 | |
| Operating Profit | | | | | | | -1,299,463 | | | | 5,325,383 | | | | 3,258,511 | |
| Interest income and similar items | | | 2 | | | | 2,010,111 | | | | 3,243,498 | | | | 2,227,310 | |
| Interest expense and similar items | | | | | | | -1,415,768 | | | | -4,815,443 | | | | -1,830,984 | |
| Profit Before Tax | | | | | | | -705,120 | | | | 3,753,438 | | | | 3,654,837 | |
| Tax on profit from ordinary activities | | | 3 | | | | 192,406 | | | | -1,003,239 | | | | -1,607,023 | |
| Profit for the Year | | | | | | | -512,714 | | | | 2,750,199 | | | | 2,047,814 | |
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TABLE OF CONTENTS
Valor Denmark A/S
Financial Statements 30 April 2006, 31 December
Financial Statements for the Year Ended 2005
Balance Sheet
| | | | | | | | |
| DKK | | Note | | 30/4/2006
(Unaudited) | | 31/12/2005 | | 31/12/2004
(Unaudited) |
Assets
| | | | | | | | | | | | | | | | |
Fixed Assets
| | | | | | | | | | | | | | | | |
| Intangible Assets | | | 4,11 | | | | | | | | | | | | | |
| Goodwill | | | | | | | 33,333 | | | | 100,000 | | | | 300,000 | |
| Completed development projects | | | | | | | 0 | | | | 0 | | | | 0 | |
| Development projects under construction | | | | | | | 0 | | | | 0 | | | | 0 | |
| | | | | | | | 33,333 | | | | 100,000 | | | | 300,000 | |
| Property, Plant and Equipment | | | 5,11 | | | | | | | | | | | | | |
| Fixtures and fittings, tools and equipment | | | | | | | 555,897 | | | | 525,354 | | | | 435,584 | |
| | | | | | | | 555,897 | | | | 525,354 | | | | 435,584 | |
Financial Fixed Assets
| | | | | | | | | | | | | | | | |
| Deposits | | | 6,11 | | | | 274,617 | | | | 193,244 | | | | 190,192 | |
| Deferred tax | | | 7 | | | | 791,163 | | | | 598,757 | | | | 15,881 | |
| | | | | | | | 1,065,780 | | | | 792,001 | | | | 206,073 | |
| Total Fixed Assets | | | | | | | 1,655,010 | | | | 1,417,355 | | | | 941,657 | |
Current Assets
| | | | | | | | | | | | | | | | |
Inventories
| | | | | | | | | | | | | | | | |
| Finished goods and goods for resale | | | | | | | 1,737,079 | | | | 2,157,956 | | | | 2,031,300 | |
| | | | | | | | 1,737,079 | | | | 2,157,956 | | | | 2,031,300 | |
Receivables
| | | | | | | | | | | | | | | | |
| Trade receivables | | | | | | | 15,175,309 | | | | 16,716,774 | | | | 11,485,139 | |
| Amounts owed by the parent company | | | | | | | 1,781,748 | | | | 1,811,232 | | | | 1,593,984 | |
| Unpaid portion of convertible loan | | | 9 | | | | 4,102,463 | | | | 8,497,298 | | | | 0 | |
| Other receivables | | | | | | | 320,499 | | | | 197,363 | | | | 306,357 | |
| Prepayments | | | | | | | 179,639 | | | | 234,524 | | | | 54,749 | |
| | | | | | | | 21,559,658 | | | | 27,457,191 | | | | 13,440,229 | |
| Cash in bank and at hand | | | | | | | 8,731,213 | | | | 4,761,528 | | | | 2,677,252 | |
| Total Current Assets | | | | | | | 32,027,950 | | | | 34,376,675 | | | | 18,148,781 | |
| Total Assets | | | | | | | 33,682,960 | | | | 35,794,030 | | | | 19,090,438 | |
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TABLE OF CONTENTS
Valor Denmark A/S
Financial Statements 30 April 2006, 31 December
Financial Statements for the Year Ended 2005
Balance Sheet – (continued)
| | | | | | | | |
| DKK | | Note | | 30/4/2006
(Unaudited) | | 31/12/2005 | | 31/12/2004
(Unaudited) |
Equity and Liabilites
| | | | | | | | | | | | | | | | |
Equity
| | | | | | | | | | | | | | | | |
| Share capital | | | | | | | 500,000 | | | | 500,000 | | | | 500,000 | |
| Retained earnings | | | | | | | -2,752,761 | | | | -2,240,047 | | | | 700,652 | |
| Proposed dividends | | | | | | | 5,690,898 | | | | 5,690,898 | | | | 2,834,165 | |
| Total Capital and Reserves | | | | | | | 3,438,137 | | | | 3,950,851 | | | | 4,034,817 | |
Provisions
| | | | | | | | | | | | | | | | |
| Deferred tax | | | 7 | | | | 0 | | | | 0 | | | | 0 | |
| Other provisions | | | 8 | | | | 0 | | | | 0 | | | | 100,000 | |
| Total Provisions | | | | | | | 0 | | | | 0 | | | | 100,000 | |
Liabilities Other Than Provisions
| | | | | | | | | | | | | | | | |
Long-term Liabilities
| | | | | | | | | | | | | | | | |
| Convertible loan | | | 9 | | | | 21,596,601 | | | | 22,609,552 | | | | 0 | |
| Loan payable to Valor Ltd | | | | | | | 0 | | | | 0 | | | | 7,290,132 | |
| | | | | | | | 21,596,601 | | | | 22,609,552 | | | | 7,290,132 | |
Short-term Liabilities
| | | | | | | | | | | | | | | | |
| Bank loans | | | | | | | 0 | | | | 0 | | | | 3,434,301 | |
| Trade payables | | | | | | | 1,062,043 | | | | 1,836,404 | | | | 1,997,044 | |
| Corporation tax | | | | | | | 0 | | | | 0 | | | | 307,302 | |
| Other payables | | | | | | | 3,035,976 | | | | 2,802,500 | | | | 1,731,746 | |
| Deferred income | | | | | | | 1,403,874 | | | | 1,448,394 | | | | 195,096 | |
| Premium on convertible loan | | | 9 | | | | 3,146,329 | | | | 3,146,329 | | | | 0 | |
| | | | | | | | 8,648,222 | | | | 9,233,627 | | | | 7,665,489 | |
| Total liabilities other than provisions | | | | | | | 30,244,823 | | | | 31,843,179 | | | | 14,955,621 | |
| Total Equity and Liabilities | | | | | | | 33,682,960 | | | | 35,794,030 | | | | 19,090,438 | |
| Contingent Liabilities | | | 10 | | | | | | | | | | | | | |
| Mortgages and Security | | | 11 | | | | | | | | | | | | | |
| Related Parties | | | 12 | | | | | | | | | | | | | |
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TABLE OF CONTENTS
Valor Denmark A/S
Financial Statements 30 April 2006, 31 December
Financial Statements for the Year Ended 2005
Changes in Equity
| | | | | | | | |
| DKK | | Share
Capital | | Retained
Earnings | | Proposed
Dividends | | Total |
(Unaudited)
| | | | | | | | | | | | | | | | |
| Balance at 1 January 2004 | | | 500,000 | | | | 3,277,951 | | | | 0 | | | | 3,777,951 | |
| Change in accounting policies | | | 0 | | | | -1,790,948 | | | | 0 | | | | -1,790,948 | |
| Adjusted balance at 1 January 2004 | | | 500,000 | | | | 1,487,003 | | | | 0 | | | | 1,987,003 | |
Changes in Equity for 2004:
| | | | | | | | | | | | | | | | |
| Profit for the year | | | 0 | | | | -786,351 | | | | 2,834,165 | | | | 2,047,814 | |
| Total recognised income and expense for the year | | | 0 | | | | -786,351 | | | | 2,834,165 | | | | 2,047,814 | |
| Changes in equity for 2004 in total | | | 0 | | | | -786,351 | | | | 2,834,165 | | | | 2,047,814 | |
| Balance at 31 December 2004 | | | 500,000 | | | | 700,652 | | | | 2,834,165 | | | | 4,034,817 | |
| Balance at 1 January 2005 | | | 500,000 | | | | 700,652 | | | | 2,834,165 | | | | 4,034,817 | |
Changes in Equity for 2005:
| | | | | | | | | | | | | | | | |
| Profit for the year | | | 0 | | | | -2,940,699 | | | | 5,690,898 | | | | 2,750,199 | |
| Total recognised income and expense for the year | | | 0 | | | | -2,940,699 | | | | 5,690,898 | | | | 2,750,199 | |
| Dividends paid to shareholders | | | 0 | | | | 0 | | | | -2,834,165 | | | | -2,834,165 | |
| Changes in equity for 2005 in total | | | 0 | | | | -2,940,699 | | | | 2,856,733 | | | | -83,966 | |
| Balance at 31 December 2005 | | | 500,000 | | | | -2,240,047 | | | | 5,690,898 | | | | 3,950,851 | |
(Unaudited)
| | | | | | | | | | | | | | | | |
| Balance at 1 January 2006 | | | 500,000 | | | | -2,240,047 | | | | 5,690,898 | | | | 3,950,851 | |
Changes in equity for 1/1 – 30/4 2006:
| | | | | | | | | | | | | | | | |
| Profit for the period 1/1 – 30/4 2006 | | | 0 | | | | -512,714 | | | | 0 | | | | -512,714 | |
| Total recognised income and expense for the period | | | 0 | | | | -512,714 | | | | 0 | | | | -512,714 | |
| Changes in equity for 1/1 – 30/4 2006 in total | | | 0 | | | | -512,714 | | | | 0 | | | | -512,714 | |
| Balance at 30 April 2006 | | | 500,000 | | | | -2,752,761 | | | | 5,690,898 | | | | 3,438,137 | |
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TABLE OF CONTENTS
Valor Denmark A/S
Financial Statements 30 April 2006, 31 December
Financial Statements for the Year Ended 2005
Cash Flow Statement
| | | | | | |
| DKK | | 30/4 2006
(Unaudited) | | 2005 | | 2004
(Unaudited) |
| Operating profit | | | -1,299,463 | | | | 5,325,383 | | | | 3,258,511 | |
| Depreciation/amorisation | | | 149,374 | | | | 458,350 | | | | 390,247 | |
| Changes in trade and other receivables | | | 1,473,214 | | | | -5,302,326 | | | | -9,775,283 | |
| Changes in inventories | | | 420,877 | | | | -126,656 | | | | -1,691,312 | |
| Changes in trade and other payables | | | -585,405 | | | | 2,396,078 | | | | 1,894,111 | |
| Cash flows from (used in) primary activities | | | 158,597 | | | | 2,750,829 | | | | -5,923,726 | |
| Interest income, received | | | 40,938 | | | | 527,807 | | | | 54,088 | |
| Interest expense, paid | | | -192,058 | | | | -152,667 | | | | -89,199 | |
| Unrealized exchange rate adjustments etc. | | | 637,652 | | | | -1,891,200 | | | | 456,009 | |
| Cash flows from (used in) ordinary activities | | | 645,129 | | | | 1,234,769 | | | | -5,502,828 | |
| Income tax, paid | | | 0 | | | | -1,949,302 | | | | -800,000 | |
| Cash flows from (used in) operating activities | | | 645,129 | | | | -714,533 | | | | -6,302,828 | |
| Acquisition of property, plant and equipment | | | -113,250 | | | | -352,429 | | | | -394,766 | |
| Disposal of property, plant and equipment | | | 0 | | | | 4,309 | | | | 0 | |
| Changes of deposits | | | -81,373 | | | | -3,052 | | | | -3,794 | |
| Changes in parent company receivable | | | 29,484 | | | | -217,338 | | | | -1,593,984 | |
| Cash flows used in investing activities | | | -165,139 | | | | -568,510 | | | | -1,992,544 | |
| Changes in bank loans | | | 0 | | | | -3,434,301 | | | | 3,204,977 | |
| Proceeds from convertible loan | | | 3,489,695 | | | | 9,635,785 | | | | 7,622,798 | |
| Dividends paid | | | 0 | | | | -2,834,165 | | | | 0 | |
| Cash flows from financing activities | | | 3,489,695 | | | | 3,367,319 | | | | 10,827,775 | |
Net cash flows from operating, investing and
financing activities | | | 3,969,685 | | | | 2,084,276 | | | | 2,532,403 | |
| Cash and cash equivalents at the beginning of the year | | | 4,761,528 | | | | 2,677,252 | | | | 144,849 | |
| Cash and cash equivalents at year-end | | | 8,731,213 | | | | 4,761,528 | | | | 2,677,252 | |
F-55
TABLE OF CONTENTS
Valor Denmark A/S
Financial Statements 30 April 2006, 31 December
Financial Statements for the Year Ended 2005
Notes
1 Staff Costs
| | | | | | |
| DKK | | 1/1 – 30/4
2006
(Unaudited) | | 2005 | | 2004
(Unaudited) |
| Wages and salaries | | | 4,854,287 | | | | 12,572,283 | | | | 6,740,669 | |
| Pensions | | | 131,572 | | | | 306,742 | | | | 134,010 | |
| Other social security costs | | | 44,615 | | | | 86,965 | | | | 46,633 | |
| Other staff costs | | | 169,681 | | | | 311,904 | | | | 179,153 | |
| | | | 5,200,155 | | | | 13,277,894 | | | | 7,100,465 | |
| Average number of employees | | | 35 | | | | 22 | | | | 13 | |
2 Interest Income and Similar Items
| | | | | | |
| DKK | | 1/1 – 30/4
2006
(Unaudited) | | 2005 | | 2004
(Unaudited) |
| Exchange rate adjustments | | | 1,872,797 | | | | 2,597,173 | | | | 1,952,375 | |
| Interest income, parent company | | | 19,095 | | | | 53,706 | | | | 13,837 | |
| Other interest income | | | 39,978 | | | | 120,863 | | | | 9,798 | |
| Amortization | | | 78,241 | | | | 471,756 | | | | 251,300 | |
| | | | 2,010,111 | | | | 3,243,498 | | | | 2,227,310 | |
3 Tax on Profit from Ordinary Activities
| | | | | | |
| DKK | | 1/1 – 30/4
2006
(Unaudited) | | 2005 | | 2004
(Unaudited) |
Expected corporation tax for the year
(joint taxation contribution to the parent company) | | | 0 | | | | 1,586,115 | | | | 1,082,730 | |
Adjustment of deferred tax at the beginning of the year due to reduced corporation tax rate from 30% to 28%,
note 7 | | | 0 | | | | -32,504 | | | | 0 | |
| Adjustment of deferred tax for the year, note 7 | | | -192,406 | | | | -550,372 | | | | 524,293 | |
| | | | -192,406 | | | | 1,003,239 | | | | 1,607,023 | |
| On-account tax payments totalled | | | 0 | | | | 1,949,302 | | | | 800,000 | |
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Valor Denmark A/S
Financial Statements 30 April 2006, 31 December
Financial Statements for the Year Ended 2005
Notes
4 Intangible Assets
| | | | | | |
| DKK | | Goodwill | | Completed
Development
Projects | | Development
Projects Under
Construction |
| Cost at 1 January 2004 | | | 1,000,000 | | | | 1,011,260 | | | | 1,781,019 | |
| Change in accounting policies | | | 0 | | | | -1,011,260 | | | | -1,781,019 | |
| Cost at 31 December 2004 | | | 1,000,000 | | | | 0 | | | | 0 | |
Accumulated amortisation and impairment at
1 January 2004 | | | -500,000 | | | | -304,851 | | | | 0 | |
| Change in accounting policies | | | 0 | | | | 304,851 | | | | 0 | |
| Amortisation for the year | | | -200,000 | | | | 0 | | | | 0 | |
| Impairment for the year | | | 0 | | | | 0 | | | | 0 | |
Accumulated amortisation and impairment at
31 December 2004 | | | -700,000 | | | | 0 | | | | 0 | |
| Carrying amount at 31 December 2004 (unaudited) | | | 300,000 | | | | 0 | | | | 0 | |
| Cost at 1 January 2005 | | | 1,000,000 | | | | 0 | | | | 0 | |
| Cost at 31 December 2005 | | | 1,000,000 | | | | 0 | | | | 0 | |
Accumulated amortisation and impairment at
1 January 2005 | | | -700,000 | | | | 0 | | | | 0 | |
| Amortisation for the year | | | -200,000 | | | | 0 | | | | 0 | |
| Impairment for the year | | | 0 | | | | 0 | | | | 0 | |
Accumulated amortisation and impairment at
31 December 2005 | | | -900,000 | | | | 0 | | | | 0 | |
| Carrying amount at 31 December 2005 | | | 100,000 | | | | 0 | | | | 0 | |
| Cost at 1 January 2006 | | | 1,000,000 | | | | 0 | | | | 0 | |
| Cost at 30 April 2006 | | | 1,000,000 | | | | 0 | | | | 0 | |
Accumulated amortisation and impairment at
1 January 2006 | | | -900,000 | | | | 0 | | | | 0 | |
| Amortisation for the year | | | -66,667 | | | | 0 | | | | 0 | |
| Impairment for the year | | | 0 | | | | 0 | | | | 0 | |
Accumulated amortisation and impairment at
30 April 2006 | | | -966,667 | | | | 0 | | | | 0 | |
| Carrying amount at 30 April 2006 (unaudited) | | | 33,333 | | | | 0 | | | | 0 | |
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Valor Denmark A/S
Financial Statements 30 April 2006, 31 December
Financial Statements for the Year Ended 2005
Notes
5 Property, Plant and Equipment
| | |
| DKK | | Fixtures and
Fittings, Tools,
Etc. |
| Cost at 1 January 2004 | | | 606,259 | |
| Additions | | | 394,766 | |
| Cost at 31 December 2004 | | | 1,001,025 | |
| Accumulated depreciation and impairment at 1 January 2004 | | | -375,194 | |
| Depreciation for the year | | | -190,247 | |
| Impairment for the year | | | 0 | |
| Accumulated depreciation and impairment at 31 December 2004 | | | 565,441 | |
| Carrying amount at 31 December 2004 (unaudited) | | | 435,584 | |
| Cost at 1 January 2005 | | | 1,001,025 | |
| Additions | | | 352,429 | |
| Disposals | | | -10,890 | |
| Cost at 31 December 2005 | | | 1,342,564 | |
| Accumulated depreciation and impairment at 1 January 2005 | | | -565,441 | |
| Depreciation for the year | | | -258,350 | |
| Impairment for the year | | | 0 | |
| Depreciation on assets sold | | | 6,581 | |
| Accumulated depreciation and impairment at 31 December 2005 | | | -817,210 | |
| Carrying amount at 31 December 2005 | | | 525,354 | |
| Cost at 1 January 2006 | | | 1,342,564 | |
| Additions | | | 113,250 | |
| Cost at 30 April 2006 | | | 1,455,814 | |
| Accumulated depreciation and impairment at 1 January 2006 | | | -817,210 | |
| Depreciation for the year | | | -82,707 | |
| Impairment for the year | | | 0 | |
| Accumulated depreciation and impairment at 30 April 2006 | | | -899,917 | |
| Carrying amount at 30 April 2006 (unaudited) | | | 555,897 | |
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Valor Denmark A/S
Financial Statements 30 April 2006, 31 December
Financial Statements for the Year Ended 2005
Notes
6 Deposits
| | |
| DKK | | |
| Cost at 1 January 2004 | | | 186,398 | |
| Additions | | | 3,794 | |
| Cost at 31 December 2004 | | | 190,192 | |
| Impairment at 1 January 2004 | | | 0 | |
| Impairment at 31 December 2004 | | | 0 | |
| Carrying amount at 31 December 2004 (unaudited) | | | 190,192 | |
| Cost at 1 January 2005 | | | 190,192 | |
| Additions | | | 3,052 | |
| Cost at 31 December 2005 | | | 193,244 | |
| Impairment at 1 January 2005 | | | 0 | |
| Impairment at 31 December 2005 | | | 0 | |
| Carrying amount at 31 December 2005 | | | 193,244 | |
| Cost at 1 January 2006 | | | 193,244 | |
| Additions | | | 81,373 | |
| Cost at 30 April 2006 | | | 274,617 | |
| Impairment at 1 January 2006 | | | 0 | |
| Impairment at 30 April 2006 | | | 0 | |
| Carrying amount at 30 April 2006 (unaudited) | | | 274,617 | |
7 Deferred Tax
| | |
| DKK | | |
| Balance at 1 January 2004 | | | 156,306 | |
| Change in accounting policies | | | -696,480 | |
| Adjustment for the year | | | 524,293 | |
| Carrying amount at 31 December 2004 (unaudited) | | | -15,881 | |
| Balance at 1 January 2005 | | | -15,881 | |
| Adjustment of deferred tax at the beginning of the year due to reduced corporation tax rate from 30% to 28% | | | -32,504 | |
| Adjustment for the year | | | -550,372 | |
| Carrying amount at 31 December 2005 | | | -598,757 | |
| Balance at 1 January 2006 | | | -598,757 | |
| Adjustment for the year | | | -192,406 | |
| Carrying amount at 30 April 2006 (unaudited) | | | -791,163 | |
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Valor Denmark A/S
Financial Statements 30 April 2006, 31 December
Financial Statements for the Year Ended 2005
Notes
8 Other Provisions
| | |
| DKK | | |
| Balance at 1 January 2004 | | | 100,000 | |
| Adjustment for the year | | | 0 | |
| Carrying amount at 31 December 2004 (unaudited) | | | 100,000 | |
| Balance at 1 January 2005 | | | 100,000 | |
| Adjustment for the year | | | -100,000 | |
| Carrying amount at 31 December 2005 | | | 0 | |
| Balance at 1 January 2006 | | | 0 | |
| Adjustment for the year | | | 0 | |
| Carrying amount at 30 April 2006 (unaudited) | | | 0 | |
9 Convertible Loan
The item relates to a loan from the business partner Valor Computerized Systems Ltd., Israel, which was converted into a convertible loan at the beginning of 2005. The loan, totalling USD 4,000 thousand, is paid regularly in six instalments of USD 667 thousand, of which two instalments remain unpaid at 31 December 2005 and one instalment remains unpaid at 30 April 2006.
The loan does not have any interest coupons or instalments. The loan is measured at its present value where the difference between the nominal and recorded value is recorded as a discount to the loan amount and a corresponding premium on convertible loan as a deferred credit. The discount is amortized to interest expense over the term of the loan, based on an interest rate of 4.5 percent. Valor Computerized Systems Ltd. can convert the loan into shares in Valor Denmark A/S until 1 January 2008, corresponding to a 50% ownership share.
10 Contingent Liabilities
The company has entered into a lease commitment which totalled DKK 2,223 thousand (unaudited) at 31 December 2004, DKK 991 thousand at 31 December 2005 and DKK 752 thousand (unaudited) at 30 April 2006.
11 Mortgages and Security
For bank loans, security of up to DKK 1,000 thousand has been provided in the company's fixed assets.
12 Related Parties
Transactions with Related Parties
No transactions have been carried out with the Executive or Supervisory Boards, executive employees, major shareholders or other related parties, apart from the usual remuneration and emoluments.
The company has regular trade with the joint-venture partner Valor Computerized Systems Ltd., Israel. The transactions are carried out on an arm's length basis.
Ownership
The entire share capital is owned by T-V-Holding A/S, Margrethepladsen 1-3, 8000 Aarhus C, Denmark.
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Valor Denmark A/S
Financial Statements 30 April 2006, 31 December
Financial Statements for the Year Ended 2005
Notes
13 Summary of Differences Between Accounting Principles Followed by the Company and US Generally
Accepted Accounting Principles
As discussed in the accounting policy section starting on page 4, the accompanying financial statements were prepared in accordance with Danish GAAP which differs in certain significant respects from those generally accepted in the United States of America (‘US GAAP’). Information related to the nature and effect of such differences is presented below.
Convertible Note from Valor Ltd.
In connection with the loan agreement dated 7 March 2005, Valor Ltd granted an interest-free subordinate and convertible note to Valor DK of USD 4 million.
In accordance with Danish GAAP:
According to Danish GAAP, the loan and related receivable has been recognised based on amortised cost, meaning that the loan and receivable have been discounted back based on the market rate of interest for the loan.
The difference between the proceeds from the loans and the recognised loan and receivable has been recognised in the balance sheet as premium on convertible loan, which will be recognised as income if the loan is repaid or recognised in equity if the loan is converted into share capital.
In accordance with US GAAP:
Under US GAAP the difference between the proceeds from the loan and the recognized loan would have been credited to additional paid-in capital in the period in which the instrument was issued.
Revenue Recognition
In accordance with Danish GAAP:
The revenue recognition principles under Danish GAAP do not principally contradict the guidelines under US GAAP. However, Danish GAAP principles lack specific detailed guidance in relation to matters such as multiple-element revenue arrangements.
Danish GAAP requires the application of the recognition criteria to the separately identifiable components of a single transaction in order to reflect the substance of the transaction. In applying this guidance, the Company has deferred annual service revenue over their service period and installation services when they have been completed based on the proceeds received for these services.
In accordance with US GAAP:
Under US GAAP, the Company would determine the fair value of each element in accordance with the residual method prescribed by AICPA Statement of Position 98-9, Modification of SOP No. 97-2, Software Revenue Recognition, with Respect to Certain Transactions. In determining the fair value of each element, the Company would examine the Vendor Specific Objective Evidence (VSOE) of their fair value. If sufficient VSOE does not exist for the allocation of revenue to the various elements of the arrangement, all revenue from the arrangement should be deferred until all elements have been delivered.
Due to this different approach in determining the fair value of the elements in each arrangement, for certain arrangements, the Company would have recognized the entire amount of revenues (including license fees) either:
| • | At the time of installation completion, if installation services were performed without post-contract support services (PCS); or |
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Valor Denmark A/S
Financial Statements 30 April 2006, 31 December
Financial Statements for the Year Ended 2005
Notes
13 Summary of Differences Between Accounting Principles Followed by the Company and US Generally
Accepted Accounting Principles – (continued)
Tax on Profits (Losses)
The tax effect of the GAAP difference would be calculated based on the Danish corporation tax rate which is 30 percent in 2004 and 28 percent in 2005 and 2006.
Presentation
Under US GAAP, goodwill would have been classified as acquired technology, and would therefore be amortised in the same way as goodwill under Danish GAAP.
Under US GAAP, other operating income and costs would not be included in other operating income.
Under US GAAP, similar items included in interest income and expenses in the income statements, which mainly consist of foreign exchange gains and losses, should be included in operating profit.
The presentation of the cash flow statement does not comply with the requirements under US GAAP. This is due to the cash flow statement reconcile: from operating profit as opposed to net profit under US GAAP (to report cash flows from (used in) operating activities).
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Shares
Ordinary Shares
Thomas Weisel Partners LLC
Oppenheimer & Co.
William Blair & Company
Collins Stewart LLC
Until , 2008, 25 days after the date of this prospectus, all dealers that buy, sell or trade our ordinary shares, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
Neither we nor any of the underwriters have authorized anyone to provide information different from that contained in this prospectus and any free writing prospectus prepared by or on our behalf. When you make a decision about whether to invest in our ordinary shares, you should not rely upon any information other than the information in this prospectus. Neither the delivery of this prospectus nor the sale of our ordinary shares means that information contained in this prospectus is correct after the date of this prospectus. This prospectus is not an offer to sell or solicitation of an offer to buy these ordinary shares in any circumstances under which the offer or solicitation is unlawful.
TABLE OF CONTENTS
Part II
Information Not Required In Prospectus
Item 6. Indemnification of Directors and Officers
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. Our articles of association contain such an authorization. An undertaking provided in advance by an Israeli company to indemnify an office holder with respect to a financial liability imposed on him or her in favor of another person pursuant to a judgment, settlement or arbitrator’s award approved by a court must be limited to events which in the opinion of the board of directors can be foreseen based on the company’s activities when the undertaking to indemnify is given, and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances, and such undertaking shall detail the abovementioned events and amount or criteria. In addition, a company may undertake in advance to indemnify an office holder against the following liabilities incurred for acts performed as an office holder:
| • | reasonable litigation expenses, including attorneys’ fees, incurred by the office holder as a result of an investigation or proceeding instituted against him or her by an authority authorized to conduct such investigation or proceeding, provided that (i) no indictment was filed against such office holder as a result of such investigation or proceeding; and (ii) no financial liability, such as a criminal penalty, was imposed upon him or her as a substitute for the criminal proceeding as a result of such investigation or proceeding or, if such financial liability was imposed, it was imposed with respect to an offense that does not require proof of criminal intent; and |
| • | reasonable litigation expenses, including attorneys’ fees, incurred by the office holder or imposed by a court in proceedings instituted against him or her by the company, on its behalf or by a third party or in connection with criminal proceedings in which the office holder was acquitted or as a result of a conviction for an offense that does not require proof of criminal intent. |
An Israeli company may insure an office holder against the following liabilities incurred for acts performed as an office holder if and to the extent provided in the company’s articles of association:
| • | 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; |
| • | a breach of duty of care to the company or to a third party, including a breach arising out of the negligent conduct of the office holder; and |
| • | 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:
| • | 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; |
| • | a breach of duty of care committed intentionally or recklessly, excluding a breach arising out of the negligent conduct of the office holder; |
| • | an act or omission committed with intent to derive illegal personal benefit; or |
| • | a fine or penalty levied against the office holder. |
Under the Companies Law, exculpation, indemnification and insurance of office holders must be approved by our audit committee and our board of directors and, in respect of our directors, by our shareholders.
Our articles of association allow us to 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. As of the date of this offering, no claims for directors and officers’ liability insurance have been filed under this policy and we are not aware of any pending or threatened litigation or proceeding involving any of our directors or officers in which indemnification is sought.
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We have entered into agreements with each of our directors and executive officers exculpating them, to the fullest extent permitted by law, from liability to us for damages caused to us as a result of a breach of duty of care, and undertaking to indemnify them to the fullest extent permitted by law, including with respect to liabilities resulting from this offering. This indemnification is limited to events determined as foreseeable by the board of directors based on our activities, and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances, and the insurance is subject to our discretion depending on its availability, effectiveness and cost. The current maximum amount set forth in such agreements is the greater of (1) with respect to indemnification in connection with a public offering of our securities, the gross proceeds raised by us and/or any selling shareholder in such public offering, and (2) with respect to all permitted indemnification, including a public offering of our securities, an amount equal to 50% of the our shareholders’ equity on a consolidated basis, based on our most recent financial statements made publicly available before the date on which the indemnity payment is made. In the opinion of the U.S. Securities and Exchange Commission, indemnification of directors and office holders for liabilities arising under the Securities Act, however, is against public policy and therefore unenforceable.
Item 7. Recent Sales of Unregistered Securities
Other than the grant and exercise of options described below, there have been no transactions during the preceding three fiscal years involving sales of our securities that were not registered under the Securities Act.
From January 1, 2005 through December 31, 2007 a total of 2,127,311 ordinary shares have been issued upon the exercise of share options granted to our and our subsidiaries’ directors, employees and consultants. We believe that the issuance of these options was exempt from registration under the Securities Act because they were made pursuant to exemptions from registration provided by Rule 701 or Regulation S promulgated thereunder.
No underwriter or underwriting discount or commission was involved in any of the issuances set forth in this Item 7.
Item 8. Exhibits and Financial Statement Schedules
(a) Exhibits
The following is a list of exhibits filed as a part of this registration statement:
| | |
| 1.1 | | Form of Underwriting Agreement.* |
| 3.1 | | Memorandum of Association of the Registrant. |
| 3.2 | | Articles of Association of the Registrant. |
| 3.3 | | Form of Articles of Association of the Registrant to become effective upon closing of this offering. |
| 4.1 | | Specimen share certificate. |
| 5.1 | | Opinion of Gornitzky & Co., Israeli counsel to the Registrant, as to the validity of the ordinary shares (including consent).* |
| 10.1 | | Joint Venture Agreement, dated August 10, 1998, by and between the Registrant and Orbotech Ltd.† |
| 10.2 | | Limited Partnership Agreement, dated November 1, 1998, by and between the Registrant and Orbotech Ltd. |
| 10.3 | | Revised Framework for the Sale, Marketing, Serving, Support and Maintenance of Frontline Products, dated November 12, 2002, by and among the Registrant, Frontline PCB Solutions (1998) Ltd. and Orbotech Ltd. |
| 10.4 | | Share Purchase Agreement, dated May 4, 2006, by and among the Registrant and the other parties thereto. |
| 10.5 | | Form of Director and Officer Letter of Indemnification. |
| 10.6 | | Share option plan for 1999. |
| 10.7 | | 2000 Share Option Plan. |
| 10.8 | | 2001 Share Option Plan. |
| 10.9 | | 2002 Share Option Plan. |
| 10.10 | | 2003 Share Option Plan. |
| 10.11 | | 2004 Share Option Plan. |
| 10.12 | | 2005 Share Option Plan. |
| 10.13 | | 2006 Stock Option Plan. |
| 10.14 | | 2008 Equity Incentive Plan. |
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| 21.1 | | List of subsidiaries of the Registrant. |
| 23.1 | | Consent of Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global. |
| 23.2 | | Consent of Kesselman & Kesselman, a member of PricewaterhouseCoopers International Limited. |
| 23.3 | | Consent of KPMG C. Jespersen Statsautoriseret Revisionsinteressentskab. |
| 23.4 | | Consent of Gornitzky & Co., Israeli counsel to the Registrant (included in Exhibit 5.1).* |
| 24.1 | | Powers of Attorney (included in signature page to Registration Statement). |
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