The following risk factors, among others, could in the future affect our actual results of operations and could cause our actual results to differ materially from those expressed in forward-looking statements made by us in this Annual Report, press releases, SEC filings or elsewhere. Before you decide to buy, hold, or sell our Ordinary Shares, you should carefully consider the risks described below, in addition to the other information contained elsewhere in this Annual Report. The following risk factors are not the only risk factors facing our Company. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business. Our business, financial condition and results of operations could be seriously harmed if any of the events underlying any of these risks or uncertainties actually occurs. In that event, the market price for our Ordinary Shares could decline, and you may lose all or part of your investment.
Risks Related to Our Business
We have a history of losses and we may continue to incur full-year losses in 2016 and in subsequent years.
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We have incurred losses in each year since we commenced operations in 1990. We reported net losses attributable to shareholders of $3 million in 2013, $9.9 million in 2014 and $7.2 million in 2015. We may continue to incur full year losses in 2016 and afterwards, as we invest in the expansion of our global sales and marketing network, reduce our product prices in return for future transaction fees based on the volume of transactions in systems that contain our products, invest in fixed assets that may generate revenues more slowly than expected, and enhance our research and development capabilities to develop existing and new products.
We are assessing possible alternatives to maximize value for our shareholders. This process may not result in a viable alternative, or such alternative might not be implemented successfully.
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Our Board has been identifying and assessing possible alternative strategies to maximize value for our shareholders and is constantly looking to implement new strategies for growing our businesses and building shareholder value. However, there is no certainty that we will be able to identify the strategy that will work best for us and for our shareholders, or that the strategy we choose will be actually implemented successfully, since such strategy implementation generally depends on a number of factors, many of which are outside of our control. If we fail to identify the appropriate strategy or to implement successfully the strategy we choose, this could have a material adverse effect on our business, financial condition and results of operations.
We may desire to exit certain product lines or businesses, or to restructure our operations, but may not be successful in doing so.
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Our Board has been identifying and assessing possible alternative strategies to maximize value for our shareholders. Such process may result in a decision to divest certain product lines and businesses or restructure our current corporate structure or current operations, including, without limitation, through the contribution of assets to joint ventures or sale of some assets to third parties. However, our ability to successfully exit product lines and businesses, or to close or consolidate operations, or to sell successfully some of our assets, depends on a number of factors, many of which are outside of our control. For example, if we are seeking a buyer for a particular business line, none may be available, or we may not be successful in negotiating satisfactory terms with prospective buyers or a buyer may not meet its obligations under the applicable purchase agreement.
If we are unable to exit a product line or business in a properly or timely manner, or to restructure our current corporate structure or our operations in a manner we deem to be advantageous, or to enforce that a buyer meets its contractual obligations, this could have a material adverse effect on our business, financial condition and results of operations. Even if a divestment is successful, among others, we may face indemnity and other liability claims by the acquirer or other parties.
We depend on a small number of large customers, and the loss of one or more of them would lower our revenues.
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Our customer base is concentrated among a limited number of large customers. Our revenues may continue to depend on a limited number of major customers. The customers we consider to be our major customers and the percentage of our revenue represented by each major customer vary from period to period. In 2013, 2014 and for 2015, our largest customer in North America provided 19%, 22% and 15% respectively, of our total revenues for such periods. In addition, another customer, related to mass transit in Poland, accounted for 15%, 14% and 15% of our total revenues for 2013, 2014 and 2015, respectively. If we were to lose any one of our major customers, or if any of our customers were to have difficulty meeting their financial obligations to us for any reason, our financial condition and results of operations would be adversely affected.
If the market for contactless microprocessor-based smart cards and/or NFC does not grow, sales of our products may not grow and may even decline.
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The success of some of our products depends on commercial enterprises, governmental authorities and other potential card issuers adopting contactless microprocessor-based smart card and NFC technologies. Other card technologies, such as magnetic stripes or bar codes, are widely used and could be viewed by potential customers as more cost effective alternatives to our products and/or the market for contactless microprocessor-based smart cards and/or NFC products may not grow or actually meet our current forecasts.
Additionally, potential customers in developed countries, such as the United States and others, may already have installed systems that are based on technologies different from ours and therefore may be less willing to incur the capital expenditures required to install or upgrade to a contactless microprocessor-based smart card system. As a result, we cannot assure that there will be sufficient market opportunities for our contactless microprocessor-based smart cards and/or NFC products. New technologies for payments different than ours, such as HCE or others, might also be adopted by the markets and could override the need for our contactless and NFC payment solutions.
We face intense competition. If we are unable to compete successfully, our business prospects will be impaired.
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We face intense competition from developers of contact and contactless microprocessor-based technologies, NFC payment solutions and products, developers of contactless payments products that use other types of technologies that are not microprocessor-based, NFC and non-smart card technologies. In some of our markets we are facing competition from new emerging technologies such as Bluetooth Low Energy and HCE, among others. We compete on the basis of a range of competitive factors including price, compatibility with the products of other manufacturers, and the ability to support new industry standards and introduce new reliable technologies. Many of our competitors have greater market recognition, larger customer bases, and substantially greater financial, technical, marketing, distribution, and other resources than we possess. As a result, they may be able to introduce new products, respond to customer requirements and adapt to evolving industry standards more quickly than we can.
From time to time, we or one or more of our present or future competitors may announce new or enhanced products or technologies that have the potential to replace or shorten the life cycles of our existing products. The announcement of new or enhanced products may cause customers to delay or alter their purchasing decisions in anticipation of such products, and new products developed by our competitors may render our products obsolete or achieve greater market acceptance than our products.
If we cannot compete successfully with our existing and future competitors, we could experience lower sales, price reductions, loss of revenues, reduced gross margins and reduced market share.
If we fail to develop new products or adapt our existing products for use in new markets, our revenue growth may be impeded and we may incur significant losses.
To date, we have sold products incorporating our technology within a limited number of markets. Although we are devoting significant resources to develop new products, such as our new telemetry and IoT devices, and adapting our existing products for use in new markets, such as cashless payment solutions, parking solutions, mass transit ticketing solutions and petroleum solutions, if we fail to develop our new products or adapt our existing products for existing or new markets, we may not recoup the expenses incurred in our efforts to do so, our revenue growth may be impeded and we may incur significant losses.
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Our revenue growth may be impaired if we are unable to maintain our current, and establish new, strategic relationships.
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The markets for our products are usually highly specialized and sometimes require us to enter into strategic relationships in order to facilitate or accelerate our penetration into existing or new markets. We consider a relationship to be strategic when we integrate our technology into some of the product offerings of a business partner or manufacturer or systems integrator that has a significant position in a specified market and cooperate in marketing the resulting product. Failure of our strategic partners to perform in a satisfactory manner or to meet their undertakings in the penetration of new markets, or the termination of any of our strategic relationships or our failure to develop additional relationships in the future may limit our ability to expand the markets in which our products are deployed or to sell particular products.
The terms of certain of our agreements may restrict our ability to take actions that we believe to be desirable.
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Certain agreements that we have entered into with our suppliers, sales agents and joint venture partners, provide exclusivity for different time periods, ranging from several months to several years, or with respect to specific regions. For example, in certain markets, we sell our products through sales agents which, in certain cases, have exclusive sales rights in that market or certain territories if specified sales quotas are met. The foregoing could have a material adverse effect on our business, operating results and financial condition if these partners do not perform in a satisfactory manner.
Our products may have long development cycles and we may expend significant resources in relation to a specific project without realizing any revenues.
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The development cycle for our products varies from project to project. Typically, the projects in which we are involved are complex and require that we customize our products to our customers’ needs and specifications in return for payment of a fixed amount. We then conduct evaluation, testing, implementation and acceptance procedures of the customized products with the customer, and sometimes we are required to perform a long certification process for customized products. Only after successful completion of these procedures will customers place orders for our products in commercial quantities. In addition, our sales contracts sometimes do not include minimum purchase requirements. We therefore cannot always assure that future contracts will result in commercial sales. Our average development cycle is typically between six and 18 months from initial contact with a potential customer until we deliver commercial quantities to the customer and recognize significant revenues. As a result, we may expend financial, management and other resources to develop customer relationships before we recognize revenues, if any.
Fluctuations in our quarterly financial performance may create volatility in the market price of our shares and may make it difficult to predict our future performance.
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Our quarterly revenues and operating results have varied substantially in the past and may continue do so in the future.
These fluctuations may be driven by various factors which are beyond our control, are difficult to predict and may not meet the expectations of analysts and investors. These factors include, among others, the following:
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Our payroll expenses are relatively fixed and are not reflective of revenues in any particular quarter.
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The tendency of some of our clients, due to budgetary reasons, to place orders for products toward the last quarter of their financial year.
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As a result of these factors, our revenues and operating results in any quarter may not be indicative of our future performance, and it may be difficult to evaluate our prospects.
Delays or discontinuance of the supply of components or manufacturing and assembly of our products may hamper our ability to produce our products on a timely basis and cause short-term adverse effects.
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Some of the components we use in our products, including microprocessors and cards, are supplied by third party suppliers and manufacturers. Some of these suppliers are single source manufacturers. Termination of manufacturing of a certain product, provision of services or support (commonly referred to as “end of life”), allocations due to high demand, or delays or shortages could interrupt and delay the supply of our products to our customers, and may result in cancellation of orders for our products. However, we do not always have long-term supply contracts under which our suppliers are committed to supply us with components at fixed or defined prices. Suppliers sometimes may increase component prices significantly without advance warning or could discontinue the manufacturing or supply of components used in our products. In addition, third party suppliers, including our manufacturing and assembly vendors, may face other challenges in fulfilling their contractual obligations with us which are beyond our control. Although we make efforts to identify and retain from time to time second source manufacturers and vendors, we may not be able always to develop alternative sources for product components or for manufacturing and assembly services, if and as may be required in the future. Even if we are able to identify alternative sources of supply and services, we may need to modify our products to render them compatible with other components. This may cause delays in product shipments, increase manufacturing costs and increase product prices.
Some of our suppliers and vendors are located in different countries, such as in Europe and Asia, and therefore we may experience logistical difficulties in our supply chain, including long lead times for receipt of products or components and shipping delays. In addition, our subcontractors may, on occasion, feel the impact of potential economic or political instability in their regions, which could affect their ability to supply us with components for our products in a timely manner.
If we fail to hire, train and retain qualified research and development personnel, our ability to enhance our existing products, develop new products and compete successfully may be materially and adversely affected.
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Our success depends, in part, on our ability to hire and train qualified research and development personnel. Individuals who have expertise in research and development in our industry are scarce. Competition for such personnel in the electronics industry is intense, particularly in Israel. Consequently, hiring, training and retaining such personnel is time consuming and expensive. In addition, it may be difficult to attract qualified personnel to Rosh Pina, which is located in the northern part of Israel. If we fail to hire, train and retain employees with skills in research and development, we may not be able to enhance our existing products or develop new products.
If we are unable to protect or assert our intellectual property rights, our business and results of operations may be harmed.
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Our success and ability to compete depend considerably on using our IP and proprietary rights to protect our technology and products. We rely on a combination of patent, trademark, design, copyright and trade secret laws, confidentiality agreements and other contractual relationships with our employees, customers, affiliates, distributors, suppliers and others. While substantially all of our employees are subject to non-compete agreements, these agreements may be difficult to enforce as a result of Israeli law limiting the scope of employee non-competition undertakings. We further note that the Israeli Supreme Court noted (in an obiter dictum) in 2012, without making any decisive ruling, that an employee who contributes to an invention during his employment could be allowed to seek compensation for it from their employer, even if the employee’s contract of employment specifically states otherwise and the employee has transferred all intellectual property rights to the employer. The Israeli Supreme Court considered the possibility that a contract that revokes the employee’s right for royalties and compensation may not necessarily foreclose the right of the employee to claim a right for royalties. As a result, even if the Company believes that none of its employees has any rights in any of the Company’s intellectual property, or to receive royalties, it is unclear if, and to what extent, our employees may be able to claim compensation with respect to our future revenue. As a result, we may receive less revenue from future products if such claims are successful, or incur additional royalty expenses, which in turn could impact our future profitability.
Our patent portfolio includes registered patents and pending patents applications worldwide encompassing, among others, product applications, system and product architecture and product concepts in the field of NFC, contactless payments, petroleum and parking solutions. Our patents are registered or pending in the United States, Europe, Asia, Australia, Israel, South Africa and other countries. We cannot be certain that patents will be issued with respect to any of our pending or future patent applications or that the scope of our existing patents, or any future patents that are issued to us, will provide us with adequate protection for our technology and products. Others may challenge our patents or patent applications as well as our registered trademarks and other intellectual property rights. We do not know whether any of them will be upheld as valid or will be enforceable against alleged infringers. Thus we do not know whether they will enable us to prevent or hinder the development of competing products or technologies. Moreover, patents provide legal protection only in the countries where they are registered and the extent of the protection granted by patents varies from country to country.
The measures we have taken to protect our technology and products may not be sufficient to prevent their misappropriation by third parties or their independent development by others of similar technologies or products. If our patents and other intellectual property rights do not adequately protect our technology, competitors may be able to offer products similar to our products more easily. Our competitors may also develop competing technology by designing around our patents and thereafter manufacturing and selling products that compete directly with ours, which would harm our business, financial position and results of operations.
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In order to protect our technology and products and enforce our patents and other proprietary rights, we may need to initiate, prosecute or defend litigation and other proceedings before courts and patent and trademark offices in multiple countries. For instance, in September 2015 we filed a patent infringement lawsuit against AT&T and Verizon, alleging infringement on a patent we own. These legal and administrative proceedings could be expensive and could occupy significant management time and resources.
Our strategy to maximize the value of our IP through licensing, enforcement and other strategies may not be successful.
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We expect to generate revenues and related cash flows from the licensing and enforcement of patents that we currently own and may obtain in the future. However, we can give no assurances that we will be able to identify opportunities to exploit such patents or that such opportunities, even if identified, will generate revenues. Our ability to maximize the value of our IP may be adversely effected if we are unable to identify licensees for our IP, or due to delays in completing patent enforcement through litigation, which is often a long and expensive process.
Security breaches and system failures could expose us to liability, harm our business or result in the loss of customers.
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We retain sensitive data, including intellectual property, books of record and personally identifiable information, on our networks. It is critical to our business strategy that our infrastructure and other infrastructure we use to host our solutions remain secure, do not suffer system failures and are perceived by customers and partners to be secure and reliable. Despite our security measures, our infrastructure and third party infrastructure we use to host our solutions may be vulnerable to attacks by hackers or other disruptive problems. Our policy is to cap our liability to damages at the cost of the project. However, we cannot ensure that the actual liabilities imposed on us in case of data security issues or data loss issues would indeed be subject to such cap. Any security breach or system failure may compromise information stored on our networks. Such an occurrence could negatively affect our reputation as a trusted provider of solutions and hosting such solutions by adversely affecting the market’s perception of the security or reliability of our products or services.
If we fail to adhere to regulations and security standards imposed by credit card networks, or if our products are not certified or otherwise fail to comply with such regulations and security standards (such as payment card industry standards, etc.) or if our customers fail to take proper protective measures and hold OTI liable for the consequences, our results of operations could be adversely affected.
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Our products are designed to collect, store, and route certain personal identifiable information from our clients and/or from end-users, as well as processing such clients’ and/or end-users payments using payment information. In addition, we may store such information on our servers.
We are required by some of our customers to meet industry standards imposed by payment systems standards setting organizations such as EMV, credit card associations such as Visa, MasterCard, Interac, Discover and other credit card associations and standard setting organizations such as the Payment Card Industry Security Standards Council, or PCI SSC, and other local organizations. Furthermore, some of our offerings are subject to the Payment Card Industry Data Security Standards, or PCI DSS, which is a set of multifaceted security standards that is designed to protect credit card and personal information as mandated by payment card industry entities. Even though we attempt to protect our company through our contracts with our customers, clients and other third-party service providers, and in certain cases assess their security controls, we have limited oversight or control over their actions and practices. We implemented an off-site backup policy that is expected to help in case of system crash caused by hackers, intruders, attackers or accidents. However, this policy cannot guarantee complete security, as not all attack possibilities are known. We also advise our customers to maintain insurance policies covering cyber-attacks on their systems, including system restore and derived liabilities in case of stolen data, and we further advise them to monitor their backup policies carefully, ensuring off-site backups.
New standards are continually being adopted or proposed as a result of worldwide anti-fraud initiatives, encryption of cardholder or personal information, the increasing need for system compatibility and technology developments such as wireless, optical fiber infrastructure, telecommunication, virtual private network, or VPN, VPN infrastructure, satellite based communication and other wire line IP communication. We cannot ensure that we will be able to design our solutions to comply with future standards or regulations on a timely basis, if at all. Compliance with these standards could increase the cost of developing or producing our products, while non-compliance may harm our reputation or result in customer and client claims. New products designed to meet any new standards need to be introduced to the market and ordinarily need to be certified by the credit card associations and our customers before being purchased. The certification process is costly and time consuming and increases the amount of time and resources it takes to sell our products, as well as the product development cycle time and cost. Selling products that are non-compliant may result in fines against us or our customers, which we may be liable to pay. After selling and/or installation of a system or a product, the customer is responsible for any operational aspect of such system or product ensuring them from unexpected crashes. We advise our clients to take backup and insurance measures for such cases.
In addition, even if our products are designed to be compliant, compliance with certain security standards is determined on the basis of the network environment in which our customers and service providers install our products. Therefore, such compliance depends upon additional factors such as proper installation of the components of the environment (including our systems, compliance of software and system components provided by other vendors), implementation of compliant security processes and business practices and adherence to such processes and practices.
Our business and financial condition could be adversely affected if we do not comply with new or existing industry standards and regulations, or obtain or retain necessary regulatory approval or certifications in a timely fashion, or if compliance results in increasing the cost of our products.
Our products may infringe on the IP rights of others.
It is not always possible to know with certainty whether or not the manufacture and sale of our products or the licenses we are granted from third parties does or will infringe patents or other IP rights owned by third parties. For example, patent applications may be pending at any time which, if granted, cover products that we developed or are developing. In certain jurisdictions, the subject matter of a patent is not published until the patent is issued. Third parties may, from time to time, claim that our products infringe on their patent or other IP rights. In addition, if third parties claim that our customers are violating their IP rights, our customers may seek indemnification from us (which could be costly), or may terminate their relationships with us. Our products depend also on operating systems licensed to us and we may also be subject to claims by third parties that our use of these operating systems infringes on their IP rights.
IP rights litigation is complex and costly, and we cannot be sure of the outcome of any litigation. Even if we prevail, the cost of litigation could harm our results of operations. In addition, litigation is time consuming and could divert our management’s attention and resources away from our business. If we do not prevail in such litigation, in addition to any damages we might have to pay, we might be required to discontinue the use of certain processes, cease the manufacture, use and sale of infringing products and solutions, and expend significant resources to develop non-infringing technology or obtain licenses on unfavorable terms. In addition, some licenses are non-exclusive and, therefore, our competitors may have access to the same technology licensed to us.
We are susceptible to changes in international markets and difficulties with international operations could harm our business.
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We have derived revenues from different geographical areas. Our ability to maintain our position in existing markets and/or to penetrate new, regional and local markets is dependent, in part, on the stability of regional and local economies. Our regional sales may continue to fluctuate widely and may be adversely impacted by future political or economic instability in these or other foreign countries or regions.
In addition, there are inherent risks in these international operations which include, among others:
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changes in regulatory requirements and communications standards;
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changes in external political policies, such as embargos based on manufacturing origin;
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political and economic instability;
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required licenses, tariffs and other trade barriers;
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difficulties in enforcing IP rights across, or having to litigate disputes in, various jurisdictions;
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difficulties in staffing and managing international operations;
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potentially adverse tax consequences;
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the burden of complying with a wide variety of complex laws and treaties in various jurisdictions; and
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business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters including earthquakes, typhoons, floods and fires.
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If we are unable to manage the risks associated with our focus on international sales, our business may be harmed.
We report in U.S. dollars while a portion of our revenues and expenses is incurred in other currencies. Therefore currency fluctuations could adversely affect our results of operations.
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We generate a significant portion of our revenues in U.S. dollars but we incur some of our expenses in other currencies. Our principal non-U.S. dollar expenses are for Israeli employees’ salaries, which are in New Israeli Shekels, or NIS, and the expenses of our international subsidiaries. Our subsidiary in Poland, ASEC, incurs expenses in Polish Zloty and our subsidiary in South Africa, OTI PetroSmart, incurs expenses in South African Rand. To the extent that we and our subsidiaries based in Israel, United States, Europe and South Africa conduct our business in different currencies, our revenues and expenses and, as a result, our assets and liabilities, are not necessarily accounted for in the same currency. We are therefore exposed to foreign currency exchange rate fluctuations.
More specifically, we face the risk that our accounts receivable denominated in non-U.S. dollar currencies will be devalued if such currencies weaken quickly and significantly against the U.S. dollar. Similarly, we face the risk that our accounts payable and debt obligations denominated in non-U.S. dollar currencies will increase if such currencies strengthen quickly and significantly against the U.S. dollar. These fluctuations may negatively affect our results of operations. Our operations could also be adversely affected if we are unable to limit our exposure to currency fluctuations in the future.
To mitigate the risk of financial exposure to fluctuations in the exchange rate of the U.S. dollar against the NIS or other currencies, we may enter into currency hedging transactions. However, these measures may not adequately protect us from material adverse effects resulting from currency fluctuations. In addition, if we wish to maintain the U.S. dollar-denominated value of sales made in other currencies, any devaluation of the other currencies relative to the U.S. dollar would require us to increase our other currency denominated selling prices. That could cause our customers to cancel or decrease orders.
Our international sales and operations are subject to complex laws relating to foreign corrupt practices and bribery, among many other subjects. A violation of, or change in, these laws could adversely affect our business, financial condition or results of operations.
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Our operations in countries outside the U.S. are subject, among others, to the Foreign Corrupt Practices Act of 1977 as amended from time to time, or FCPA, which prohibits U.S. companies or foreign companies which their shares are traded in a U.S. stock exchange, or their agents and employees from providing anything of value to a foreign public official as defined in the FCPA for the purposes of influencing any act or decision of these individuals in their official capacity to help obtain or retain business, direct business to any person or corporate entity, or obtain any unfair advantage. We have internal control policies and procedures and have implemented training and compliance programs for our employees and agents with respect to the FCPA. However, we cannot assure that our policies, procedures and programs will always protect us from reckless or criminal acts that may be committed by our employees or agents. Allegations of violations of applicable anti-corruption laws, including the FCPA, may result in internal, independent, or government investigations. Violations of the FCPA may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could have a material adverse effect on our business, consolidated results of operations and consolidated financial condition. In addition, investigations by governmental authorities as well as legal, social, economic, and political issues in countries where we operate could have a material adverse effect on our business and consolidated results of operations. We are also subject to the risks that our employees, joint venture partners or agents outside of the U.S. may fail to comply with other applicable laws. The costs of complying with these and similar laws may be significant and may require significant management time and focus. Any violation of these or similar laws, intentional or unintentional, could have a material adverse effect on our business, financial condition or results of operations.
We are using third parties’ goods and services from time to time. Although we make efforts to ensure the service quality we cannot control the actions of such third parties, and therefore we may be subject to claims and risks.
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We depend on third party service providers, suppliers and licensors to supply some of the services, hardware, software and operational support necessary to provide some of our services. We obtain these materials from a limited number of vendors, some of which do not have a long operating history or which may not be able to continue to supply the equipment and services we desire. Some of our hardware, software and operational support vendors, and service providers represent our sole source of supply or have, either through contract or as a result of IP rights, a position of some exclusivity. If demand exceeds these vendors’ capacity or if these vendors experience operating or financial difficulties, or are otherwise unable to provide the equipment or services we need fully or in a timely manner, at our specifications and at reasonable prices, our ability to provide some services might be materially adversely affected, or the need to procure or develop alternative sources of the affected materials or services might delay our ability to serve our customers. These events could materially and adversely affect our ability to retain and attract customers, and have a material negative impact on our operations, business, financial results and financial condition. A limited number of vendors of key technologies can lead to less product innovation and higher costs. For these reasons, we generally endeavor to establish alternative vendors for materials we consider critical, but may not be able to always establish these relationships or be able to obtain required materials on favorable terms.
We may have to adapt our products in order to integrate them into our customers’ systems if new government regulations or industry standards are adopted or current regulations or standards are changed.
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Some of our products and/or future products under development are or may be subject to government or international regulation in the countries in which they are used. For example, card readers used in the U.S. and in Europe require certification of compliance with regulations of the FCC and the European Telecommunications Standards Institute, respectively, regarding emission limits of radio frequency devices. Some of our systems are also required to meet safety regulation standards. In addition, governmental or international certification for the systems into which our products are integrated may be required. The ISO approved industry standards regulating the transfer of data between cards and readers that we generally meet. If there is a change in government regulations or industry standards, we may have to make significant modifications to our products and, as a result, could incur significant costs and may be unable to deploy our products in a timely manner.
In addition, prior to purchasing our products, some customers may require us to receive or obtain a third party certification, or occasionally certify our products by ourselves, that our products can be integrated successfully into their systems or comply with applicable regulations. In some cases, in order for our products, or for the system into which they are integrated, to be certified, we may have to make significant product modifications. Furthermore, receipt of third party certifications may not occur in a timely manner or at all. Failure to receive third party certifications could render us unable to deploy our products in a timely manner or at all.
Our products may contain defects that are only discovered after the products have been deployed or used. This could harm our reputation, result in loss of customers and revenues or subject us to product liability claims.
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Our products are highly technical and deployed as part of large and complex projects. As a result of the nature of our products, they can only be fully tested when fully deployed. For example, the testing of our parking payment product required the distribution of sample parking payment cards to drivers, installation of electronic kiosks at which a card holder can increase the balance on his or her card, linking of kiosks to financial and parking databases, collection of data through handheld terminals, processing of data that is collected by the system, compilation of reports and clearing of parking transactions. Any defects in our products could result in:
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harm to our reputation;
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loss of, or delay in, revenues;
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loss of customers and market share;
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failure to attract new customers or achieve market acceptance for our products; and
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unexpected expenses to remedy errors.
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In addition, we could be exposed to potential product liability claims. While we currently maintain product liability insurance, we cannot be certain that this insurance will be sufficient to cover any successful product liability claim. Any product liability claim could result in changes to our insurance policies, including premium increases or the imposition of a large deductible or co-insurance requirements. Any product liability claim in excess of our insurance coverage would have to be paid out of our cash reserves. Furthermore, the assertion of product liability claims, regardless of the merits underlying the claim, could result in substantial costs to us, divert management’s attention away from our operations and damage our reputation.
We have certain operations in countries that may be adversely affected by political or economic instability.
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We are a global company with worldwide operations. In addition to being headquartered in Israel, we derive certain portion of our sales and future growth from regions such as Latin America, Eastern Europe and Africa, which may be more susceptible to political or economic instability.
Certain portions of our operations are conducted outside the markets in which our products are sold, and accordingly we often import a substantial number of products into such markets. We may, therefore, be denied access to our customers or suppliers or denied the ability to ship products from any of our sites as a result of a closing of the borders of the countries in which we sell our products, or in which our operations are located, due to economic, legislative or political conditions.
Delays in the implementation stage in some of the projects we are involved with may prevent us from generating sales revenues as expected in the applicable year.
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Delays in projects might occur as a result of factors that are beyond our control, including, without limitation, customer readiness or shortage in purchased components needed for project implementation as well as our readiness to implement the projects. If such delays occur in the future, it might affect our revenues, profitability or our share price.
The general economic outlook may adversely affect our business.
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Our operations and performance depend on worldwide economic conditions and their impact on levels of business and public spending. Fluctuations or downturns in global or regional economies may adversely affect the budgeting and purchasing behavior of our customers and our potential customers, including shifting customers purchasing patterns to lower-cost options, which could adversely affect our product sales.
In addition, uncertainties in financial and credit markets may adversely affect the ability of our customers, suppliers, distributors and resellers to obtain financing for significant purchases and operations and to fulfill their contractual obligations with us. As a result, we could encounter, among other adverse effects, a decrease in or cancellation of orders for our products, and an increase in additional reserves for uncollectible accounts receivable being required.
We derive a portion of our revenues from sales to systems integrators that are not the end-users of our products. We are dependent, to a certain extent, on the ability of these integrators to maintain their existing business and secure new business.
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Some of our revenues derive from sales to systems integrators that incorporate our products into systems which they supply and install for use in a specific project. While we view such system integrators as our final customers, since such orders depend on the ability of systems integrators to successfully market, sell, install and provide technical support for systems in which our products are integrated or to sell our products on a stand-alone basis, our revenues may decline if the efforts of these systems integrators fail. Further, the faulty or negligent implementation and installation of our products by systems integrators may harm our reputation and dilute our brand name. We are one step removed from the end-users of our products, and therefore it may be more difficult for us to rectify damage to our reputation caused by systems integrators that have direct contact with end-users. In addition, termination of agreements with systems integrators or revocation of exclusive distribution rights within certain countries might be difficult. If we are unable to maintain our current relationships with systems integrators or develop relationships with new systems integrators, we may not be able to sell our products and our results of operations could be impaired.
Unless we continue to expand our direct sales, our future success will depend upon the timing and size of future purchases by systems integrators and the success of the projects and services for which they use our products.
We are exposed to credit risk with some of our customers and to credit exposures and currency controls, which could result in material losses.
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A significant portion of our net revenues are on an open credit basis that we provide to our customers. While we assess collectability for revenue recognition purposes on a regular basis, credit risks may be higher and collections may be more difficult to enforce, and future losses for being unable to collect some or a major part of future revenues, if incurred, could harm our business and have a material adverse effect on our operating results and financial condition. Additionally, to the extent that the ongoing uncertainty in the global economy continues to make it more difficult for some customers to obtain financing, our customers' ability to pay could be adversely impacted, which in turn could have a material adverse impact on our business, cash flows, operating results and financial condition.
Our loan and credit line agreements are subject to certain affirmative financial covenants. If we fail to comply with such covenants, the bank may require immediate repayment in full or foreclose on our pledged assets.
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Our loan and credit line agreements with Bank Leumi L’Israel Ltd., or Bank Leumi, are subject to certain affirmative financial covenants regarding liquidity, earnings before interest, taxes, depreciation and amortization, or EBITDA, performance, annual revenues and shareholder equity. If, at any point in time, Bank Leumi claims a default under the covenants due to our failure to meet any of the covenants, we may be required to make immediate repayment of amounts outstanding, which may have an impact on our business, liquidity, and financial condition. Also, if we fail to repay amounts due under our loans, the bank may foreclose on certain of our pledged assets, including short-term deposits and certain of our manufacturing facilities and equipment. As of December 31, 2015, we were not in compliance with the Bank Leumi covenants regarding annual operational profit on an EBITDA basis and annual revenues. On December 31, 2015, Bank Leumi issued a letter waiving its right to prepayment, subject to our compliance with the covenants in the following reporting periods.
We are under relatively new management.
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We have completed management and other changes that could impact our ability to execute on our operational plans as quickly as we have planned. In August 2015, we appointed a new Chief Executive Officer, and thereafter the majority of our management changed, including the recent appointment in January 2016 of our new Chief Financial Officer. Competition for qualified executives is intense and if we are unable retain our existing management or successfully integrate recent replacements within our management team in a manner that enables us to scale our business and operations effectively, our ability to operate effectively and efficiently could be limited or negatively impacted. Accordingly, the changes to our management team and could be disruptive and could negatively affect our operations.
We may face both reputational and SEC enforcement risks with respect to conflict minerals obligations.
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The SEC has adopted disclosure requirements under section 102 of the Dodd-Frank Wall Street Reform and Consumer Protection Act regarding the source of certain minerals for which such conflict minerals are necessary to the functionality or production of a product manufactured, or contracted to be manufactured which are mined from the Democratic Republic of Congo, and adjoining countries, including: Sudan, Uganda, Burundi, United Republic of Tanzania, Zambia, Angola, and Central African Republic. These rules require reporting companies to file a conflict minerals report as an exhibit to a Form SD report with the SEC, which we did as required in 2015. The conflict minerals report is required to set out the due diligence efforts and procedures exercised on the source and chain of custody of such conflict minerals, in accordance with internationally recognized due diligence framework, and a description of the Company’s products containing such conflict minerals. Although we expect that we will be able to continue to comply with the requirements of the applicable rules, we have incurred, and expect to continue to incur, significant costs to conduct country of origin inquiries and to exercise such due diligence. In addition, in preparing to do so the Company is dependent upon the implementation of new systems and processes and information supplied by certain suppliers of products that contain, or potentially contain, conflict minerals. To the extent that the information that it receives from its suppliers is inaccurate or inadequate or its processes in obtaining that information do not fulfill the SEC’s requirements, the Company could face both reputational and SEC enforcement risks.
Risks Related to Our Ordinary Shares
Our share price has fluctuated in the past and may continue to fluctuate in the future.
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The market price of our Ordinary Shares has fluctuated significantly and may continue to do so. The market price of our Ordinary Shares may be significantly affected by factors such as the announcements of new products or product enhancements by us or our competitors, technological innovations by us or our competitors or periodic variations in our results of operations. In addition, any statements or changes in estimates by analysts covering our shares or relating to the smart card industry could result in an immediate effect that may be adverse to the market price of our shares.
Trading in shares of companies listed on NASDAQ in general, and trading in shares of technology companies in particular, has been subject to extreme price and volume fluctuations that have been unrelated or disproportionate to operating performance. These factors may depress the market price of our Ordinary Shares, regardless of our actual operating performance.
Securities litigation has also often been brought against companies following periods of volatility in the market price of its securities. In the future, we may be the target of similar litigation that could result in substantial costs and diversion of our management’s attention and resources.
We may not be able to meet NASDAQ continued listing standards, which require a minimum closing bid price of $1.00 per share, which could result in our delisting and negatively impact the price of our ordinary shares and our ability to access the capital markets.
Our Ordinary Shares are listed on the NASDAQ Global Market.
NASDAQ provides various continued listing requirements that a company must meet in order for its stock to continue trading on the NASDAQ Global Market. Among these requirements is the requirement that the Company’s stock trades at a minimum bid price of $1.00 per share.
On October 14, 2015, we received a written notice from the NASDAQ indicating that we were not in compliance with NASDAQ listing requirements, as our closing bid price for our Ordinary Shares was below $1.00 per share for the previous 30 consecutive business days. Pursuant to NASDAQ rules, we have been granted a 180-calendar day compliance period, or until April 11, 2016, to regain compliance with the minimum bid price requirement. During the compliance period, our Ordinary Shares will continue to be listed and traded on the NASDAQ Global Market. To regain compliance, the closing bid price of our Ordinary Shares must meet or exceed $1.00 per share for at least ten consecutive business days during the 180-calendar day compliance period. If we are not in compliance by April 11, 2016, we may be afforded a second 180-calendar day compliance period, but our Ordinary Shares would be moved to the NASDAQ Capital Market. If we do not regain compliance within the allotted compliance period(s), including any extensions that may be granted by NASDAQ, NASDAQ will provide notice that our Ordinary Shares will be subject to delisting. There can be no assurance that we will be able to regain compliance with the minimum bid price requirement or will otherwise be in compliance with other NASDAQ listing criteria. Any such delisting could also adversely affect our ability to obtain financing for the continuation of our operations and could result in the loss of confidence by investors, customers and employees.
We may need additional funds in the future and our share price could be adversely affected by future sales of our Ordinary Shares.
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As of December 31, 2015, we had 40,835,974 outstanding Ordinary Shares, 1,178,699 Ordinary Shares that were repurchased by us and are held as dormant shares, 317,517 warrants to purchase additional Ordinary Shares at a weighted average exercise price of $3.08 per share and 1,601,379 options to purchase additional Ordinary Shares at a weighted average exercise price of $1.71 per share. On October 6, 2014, we filed a shelf registration statement on Form S-3 with the SEC, or Shelf Registration, which was declared effective on October 22, 2014, under which we may, from time to time, sell up to an aggregate of $50 million of our securities. On November 26, 2014, we sold 7,187,500 Ordinary Shares at a public offering price of $1.60 per share under the Shelf Registration. We have implemented certain cost reduction initiatives and have reached certain arrangements and agreements that we expect will provide additional cash resources and are constantly looking for ways to increase our cash resources to fund our operating expenses and capital requirements. However, there is no assurance we will not need additional funds in the future to meet our operating expenses and capital requirements, and we may use the Shelf Registration in the future to raise funds by additional public offerings or issue additional Ordinary Shares. The market price of our Ordinary Shares could drop as a result of sales of substantial amounts of our Ordinary Shares in the public market or the perception that such sales may occur, including sales or perceived sales by our directors, officers or principal shareholders. These factors could also make it more difficult to raise additional funds through future offerings of our Ordinary Shares or other securities. Also if we are unable to obtain additional funds on terms favorable to us, or at all, we may be required to cease or reduce our operating activities.
Our shareholders could experience dilution of their ownership interest by reason of our issuing more shares.
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Under Israeli law, shareholders in public companies do not have preemptive rights. This means that our shareholders do not have the legal right to purchase shares in a new issue before they are offered to third parties. In addition, our Board may approve in the future the use of the Shelf Registration and the issuance of shares in many instances without shareholder approval. As a result, our shareholders could experience dilution of their ownership interest by reason of our raising additional funds through the issuance of Ordinary Shares. In addition, we may continue to acquire companies or businesses in exchange for our shares, resulting in further dilution.
The number of our authorized and unissued share capital may not be sufficient to allow us to raise additional capital or to otherwise issue equity securities that our Board may deem are in our best interest.
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As of December 31, 2015 we have only 6,406,741 authorized but unissued and unreserved Ordinary Shares. The current number of these unissued and unreserved shares may not be sufficient to allow us to conduct future offerings of our equity securities to raise capital, to grant options or to conduct other strategic transactions with our Ordinary Shares. Under Israeli corporate law, any increase in our authorized share capital requires the approval of our shareholders. Obtaining shareholder approval may delay or otherwise interfere with conducting transactions of the type mentioned above. Furthermore, there is no assurance that our shareholders will approve a proposal to increase our share capital.
We do not anticipate paying cash dividends in the foreseeable future.
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We have never declared or paid cash dividends on our Ordinary Shares, and we do not anticipate paying cash dividends in the foreseeable future. Any return to investors is expected to come, if at all, only from potential increases in the price of our Ordinary Shares. The payment of any dividends by the Company is solely at the discretion of our Board and based on the conditions set forth in the Israeli Companies Law, or the Companies Law.
We may fail to maintain effective internal control in accordance with Section 404 of the Sarbanes-Oxley Act of 2002.
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The Sarbanes-Oxley Act of 2002 imposes certain duties on us and our executives and directors. Our efforts to comply with the requirements of the Sarbanes-Oxley Act, and in particular with Section 404, have resulted in increased general and administrative expenses and a diversion of management time and attention, and we expect these efforts to require the continued commitment of resources. If we fail to maintain the adequacy of our internal controls, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal control over financial reporting. Although our management has determined that we had effective internal control over financial reporting as of December 31, 2015, we may identify material weaknesses or significant deficiencies in our future internal control over financial reporting. In addition, as a smaller reporting company, our internal control over financial reporting is not required to be audited by our independent registered public accounting firm. Failure to maintain effective internal control over financial reporting could result in investigation or sanctions by regulatory authorities, and could have a material adverse effect on our operating results, investor confidence in our reported financial information, and the market price of our Ordinary Shares.
Risks Related to Conducting Business in Israel
Security, political and economic instability in the Middle East may harm our business.
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We are incorporated under the laws of the State of Israel, and our principal offices and research and development facilities are located in Israel. Accordingly, security, political and economic conditions in the Middle East in general, and in Israel in particular, may directly affect our business.
Over the past several decades, a number of armed conflicts have taken place between Israel and its Arab neighbors and a state of hostility, varying in degree and intensity, has led to security and economic problems for Israel. From time to time since late 2000, there has also been a high level of violence between Israel and the Palestinians, which has strained Israel’s relationships with its Arab citizens, with Arab countries and, to some extent, with other countries around the world. In addition, recent political uprisings and conflicts in various countries in the Middle East, including Egypt and Syria, are affecting the political stability of those countries. It is not clear how this instability will develop and how it will affect the political and security situation in the Middle East. This instability has raised concerns regarding security in the region and the potential for armed conflict. In addition, it is widely believed that Iran, which has previously threatened to attack Israel, has been stepping up its efforts to achieve nuclear capability. Iran is also believed to have a strong influence among extremist groups in the region, such as Hamas in Gaza and Hezbollah in Lebanon. Additionally, the Islamic State of Iraq and Levant (ISIL), a violent jihadist group, is involved in hostilities in Iraq and Syria and has been growing in influence. Although ISIL’s activities have not directly affected the political and economic conditions in Israel, ISIL’s stated purpose is to take control of the Middle East, including Israel. The tension between Israel and Iran and/or these groups may escalate in the future and turn violent, which could affect the Israeli economy in general and us in particular. Any armed conflicts or political instability in the region, including acts of terrorism or any other hostilities involving or threatening Israel, would likely negatively affect business conditions and could make it more difficult for us to conduct our operations in Israel, which could increase our costs and adversely affect our financial results.
Furthermore, some countries, as well as certain companies and organizations, participate in a boycott of Israeli firms and others doing business with Israel or with Israeli companies. Restrictive laws, policies or practices directed towards Israel or Israeli businesses could have an adverse impact on the expansion of our business. In addition, we could be adversely affected by the interruption or curtailment of trade between Israel and its trading partners, a significant increase in the rate of inflation, or a significant downturn in the economic or financial condition of Israel.
Our operations could be disrupted as a result of the obligation of key personnel to perform Israeli military service.
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Our employees are required to perform annual military reserve duty in Israel and may be called to active duty at any time under emergency circumstances. Our operations could be disrupted by the absence for a significant period of one or more of our executive officers or other key employees due to military service. Any disruption to our operations would harm our business.
The Israeli government programs in which we currently participate, and the Israeli tax benefits we are currently entitled to, require us to meet several conditions, and they may be terminated or reduced in the future. This could increase our costs and/or our taxes.
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We are entitled to certain tax benefits under Israeli government programs, largely as a result of the “Approved Enterprise” status granted to some of our capital investment programs by the Israeli Ministry of Finance, and due to eligibility of tax benefits under the “Preferred Enterprise” routes. These benefits include tax exemption or reduced tax rates. Without such benefits our taxable income would be taxed at the regular corporate tax rate (26.5% in 2014 and 2015). To maintain our eligibility for these tax benefits, we must continue to meet conditions, including making specified investments in property, plant and equipment and maintaining a certain minimum level of export sales. We cannot assure that we will continue to be eligible for these tax benefits at the same rate or at all. The termination or reduction of these programs and tax benefits could increase our taxes, once we become profitable, and could have a material adverse effect on our business.
Because we received grants from the Israeli Office of the Chief Scientist, we are subject to ongoing restrictions relating to our business.
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In the past, we have received royalty-bearing grants from the OCS for research and development of certain of our products. We are obligated to pay royalties with respect to the grants that we received. In addition, the terms of the OCS grants limit our ability to manufacture products or transfer technologies outside of Israel if such products or technologies were developed using know-how developed with or based upon OCS grants. Pursuant to the Israeli Encouragement of Research and Development in the Industry Law, we and any non-Israeli who becomes a holder of 5% or more of our share capital are generally required to notify the OCS and such non-Israeli shareholder is required to undertake to observe the law governing the grant programs of the OCS, the principal restrictions of which are the transferability limits described above.
The terms of grants we received from the Israeli government for certain of our research and development activities may require us, in addition to the payment of royalties, to satisfy specified conditions in order to manufacture products or transfer technologies outside of Israel. We may also be required to pay penalties in addition to repayment of the grants.
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Our research and development efforts, during the period between 1999 and 2006, were financed in part through royalty-bearing grants that we received from the OCS. As of December 31, 2015, we received a total of approximately $7 million from the OCS ($3.5 million net of royalties paid by us (or accrued for)). With respect to such grants, we are committed to pay the OCS royalties at a rate of 3.5% from the sales of products developed with grant funds, up to the total amount of grants received, linked to the dollar and bearing interest at an annual rate of LIBOR applicable to dollar deposits. Even following full repayment of the OCS grants, we are required to comply with the requirements of the Israeli Encouragement of Industrial Research and Development Law, 5744-1984, and related regulations, or the Research Law. When a company develops know-how, technology or products using OCS grants, the terms of these grants and the Research Law restrict the transfer of such knowhow, and the transfer of manufacturing or manufacturing rights of such products, technologies or know-how outside of Israel, without the prior approval of the OCS. Therefore, if aspects of our technologies are deemed to have been developed with OCS funding, the discretionary approval of an OCS committee would be required for any transfer to third parties outside of Israel of OCS-supported know-how or manufacturing or manufacturing rights related to those aspects of such technologies, and may result in payment of increased royalties (both increased royalty rates and increased royalties ceilings) and/or payment of additional amounts to the OCS. We may not receive such approvals. Furthermore, the OCS may impose certain conditions on any arrangement under which it permits us to transfer technology or development out of Israel (including for the purpose of manufacturing). Licensing OCS-supported technologies may, under certain circumstances, be considered a transfer of knowhow and therefore may require approval as aforementioned.
The transfer of OCS-supported technology, manufacturing or manufacturing rights or know-how outside of Israel may involve the payment of additional amounts depending upon the value of the transferred technology or know-how, the amount of OCS support, the time of completion of the OCS-supported research project and other factors up to a maximum of six times the amount of the grants received. These restrictions and requirements for payment may impair our ability to sell our technology assets outside of Israel or to outsource or transfer development or manufacturing activities with respect to any product or technology outside of Israel.
Furthermore, the consideration available to our shareholders in a transaction involving the transfer outside of Israel of technology or know-how developed with OCS funding (such as a merger or similar transaction) may be reduced by any amounts that we are required to pay to the OCS.
Our obligations and limitations pursuant to the Research Law are not limited in time and may not be terminated by us at will.
It may be difficult to enforce a U.S. judgment against us, our officers and directors or to assert U.S. securities law claims in Israel.
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We are incorporated in Israel. Some of our executive officers are not residents of the United States, and a substantial portion of our assets is located outside of the United States. Therefore, it may be difficult for an investor, or any other person or entity, to enforce a U.S. court judgment based upon the civil liability provisions of the U.S. federal securities laws in an Israeli court against us or any of these persons or to affect service of process upon these persons in the United States. Additionally, it may be difficult for an investor, or any other person or entity, to enforce civil liabilities under U.S. federal securities laws in original actions instituted in Israel.
Provisions of Israeli law may delay, prevent or make undesirable an acquisition of all or a significant portion of our shares or assets.
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The Companies Law regulates acquisitions of shares through tender offers, requires special approvals for transactions involving shareholders holding 25% or more of the company’s capital, and regulates other matters that may be relevant to these types of transactions. These provisions of Israeli law could have the effect of delaying or preventing a change in control and may make it more difficult for a third party to acquire us, even if doing so would be beneficial to our shareholders. These provisions may limit the price that investors may be willing to pay in the future for our Ordinary Shares. Furthermore, Israeli tax considerations may make potential transactions undesirable to us or to some of our shareholders.
Item 10. Directors, Execu
tiv
e Officers and Corporate Governance.
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Our Directors and executive officers, as of the date hereof, together with their ages and business backgrounds are as follows:
Name
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Age
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Position(s) Held
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Dilip Singh (1)
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65
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Chairman of the Board of Directors
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William C. Anderson III (2) (3)(4)
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45
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Director
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John A. Knapp Jr. (1) (3)
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64
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Director
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Donna Seidenberg Marks (2) (3) (4)
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60
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Director
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Mark Stolper (1) (3) (4)
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44
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Director
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Shlomi Cohen
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54
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Chief Executive Officer
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Yishay Curelaru
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34
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Chief Financial Officer
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(1)
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Independent Director under NASDAQ rules
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(3)
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Member of Compensation Committee
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(4)
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Member of Audit Committee
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Dilip Singh
was appointed as a director in 2012 to hold office until the first general meeting of the shareholders of the Company to be held following the termination of a 36-month period that commenced as of December 30, 2012. On February 9, 2015, Mr. Singh was appointed as our Chairman of the Board of Directors. Mr. Singh has served as the General Partner of Value Generation Capital Fund LP since December 2013 and has also served as a director of Concurrent Computer Corporation, Inc., a provider of high-performance, real-time computer systems and software solutions, since July 2012. From April 2012 to April 2013, Mr. Singh served as the interim Chief Executive Officer, President and as a director of InfuSystem Holdings Inc., a provider of ambulatory infusion pumps and associated clinical services. Prior to joining InfuSystem, Mr. Singh served as the interim Chief Executive Officer of MRV Communications, Inc., a provider of optical communications network infrastructure equipment and network management products, as well as network integration and managed services, from July 2010 to December 2011 and as a director from October 2010 to December 2011. From December 2008 to May 2009, Mr. Singh served as the Chief Executive Officer of Telia-Sonera Spice Nepal, a large Asian mobile operator. From October 2004 to November 2008, Mr. Singh served as the Chief Executive Officer and President of Telenity, Inc., a convergence applications, service delivery platform and value added services software company. Mr. Singh earned a Master’s of Science in Physics from the University of Jodhpur and a Masters of Technology in Electronics & Communications Electrical Engineering from the Indian Institute of Technology.
The Company believes Mr. Singh’s vast operational executive management and board experience with global companies make him suitable to serve as a director and Chairman of the Board of Directors of the Company.
William C. Anderson III
was appointed as an External Director under the Companies Law in 2014 to hold office for a three-year term that commenced on May 26, 2014. Mr. Anderson is the founder of AmpThink LLC, a wireless solutions company focused on building large, complex, wireless networks employing different technologies including low and high frequency RFID, wireless bridging, WiFi, near field communications and Bluetooth. AmpThink has led the delivery of networks for three recent major American football sporting events. Mr. Anderson has been acting as Chief Executive Officer of AmpThink LLC since its incorporation in 2011. Prior to AmpThink, Mr. Anderson was co-founder of Genesta, a wireless systems integrator specializing in the design and deployment of warehouse automation systems, where Mr. Anderson from 2000 to 2011 acted as Chief Technology Officer. In this position, Mr. Anderson helped create solutions for clients such as Con Edison, Frito-Lay, and Sara Lee. Mr. Anderson holds a degree in Economics and Philosophy from Boston College and a Master’s degree in Management Science from The State University of New York.
The Company believes Mr. Anderson’s qualifications including his years of experience in the high-tech industry and network solutions business, as well as his experience as Chief Technology Officer and Chief Executive Officer of private American companies, make him suitable to serve as an External Director of the Company.
John A. Knapp Jr.
was appointed as a director in 2012 to hold office until the first general meeting of the shareholders of the Company to be held following the termination of a 36-month period that commenced as of December 30, 2012. Mr. Knapp has been the President and principal shareholder of Andover Group, Inc. since 1978. Andover’s two main business lines are real estate development and investment management. In October 2005, Mr. Knapp became Chief Executive Officer of ICO, Inc. and served in that capacity, as well as a director, until April 2010, when ICO was acquired by A. Schulman, Inc. for a significant premium. Mr. Knapp, through Andover Group, Inc., was a partner in San Juan Partners, LLC. Mr. Knapp is a CFA and serves as a partner of CCM Opportunistic Partners, an investment fund that invests with emerging managers. Mr. Knapp has served as a trustee of Annunciation Orthodox School in Houston, and is currently a trustee of the Armand Bayou Nature Center. Mr. Knapp is a graduate with honors of from Williams College.
The Company believes that Mr. Knapp’s corporate and business strategy experience make him suitable to serve as a director of the Company.
Donna Seidenberg Marks
was appointed as an External Director under the Companies Law on November 2, 2015, effective January 1, 2016 to hold office for a three-year term. Ms. Seidenberg Marks is a Certified Public Accountant with a wide variety of experience serving clients in various industries over her 37 years in the practice of public accounting. Ms. Seidenberg Marks has served as a director at the Fuoco Group, LLC, a certified public accounting firm that provides audit, tax and consulting services to its clients throughout its five locations in Florida and New York. Prior to joining the Fuoco Group, Mrs. Seidenberg Marks was the managing partner of her own firm, Donna Seidenberg, PA and served as a Managing Director at American Express Tax and Business Services (which merged into the international accounting firm of RSM International). Her practice includes performing audits, reviews and compilations of financial statements, preparing tax returns, and rendering consulting services, including forensic accounting and expert witness testimony in mediations and litigation matters in her areas of specialization. Her experience also includes consulting on Sarbanes-Oxley implementation. Ms. Seidenberg Marks is a frequent speaker at local and national meetings of the Community Associations Institute for which she serves on its National Business Partners Council, and is a past President and Treasurer of its local chapter. Ms. Seidenberg Marks earned a B.A. in Business Administration degree in Accounting (magna cum laude) from the University of South Florida in 1978, and is a member of the Florida Institute of Certified Public Accountants.
The Company believes that Ms. Seidenberg Marks’ professional and corporate experience, as well as her knowledge and familiarity with corporate finance and accounting as an experienced Certified Public Accountant, make her suitable to serve as an External Director of the Company.
Mark Stolper
was appointed as a director in 2012 to hold office until the first general meeting of the shareholders of the Company to be held following the termination of a 36-month period that commenced as of December 30, 2012. Since 2004, Mr. Stolper has served as the Executive Vice President and Chief Financial Officer of RadNet, Inc., the largest owner and operator of freestanding medical diagnostic imaging centers in the United States. At RadNet, Mr. Stolper is responsible for all accounting, finance, reimbursement operations, investor relations, treasury and related financial functions. Prior to joining RadNet, Mr. Stolper had diverse experiences in investment banking, private equity, venture capital investing and operations. Mr. Stolper began his career as a member of the corporate finance group at Dillon, Read and Co., Inc., executing mergers and acquisitions, public and private financings and private equity investments with Saratoga Partners LLP, an affiliated principal investment group of Dillon Read. After Dillon Read, Mr. Stolper joined Archon Capital Partners, which made private equity investments in media and entertainment companies. Mr. Stolper also worked for Eastman Kodak, where he was responsible for business development for Kodak’s Entertainment Imaging subsidiary ($1.5 billion in sales). Mr. Stolper was also co-founder of Broadstream Capital Partners, a Los Angeles-based investment banking firm focused on advising middle market companies engaged in financing and merger and acquisition transactions. Mr. Stolper holds a B.A. from the University of Pennsylvania and a finance degree from the Wharton School. Mr. Stolper also has a postgraduate Award in Accounting from UCLA.
The Company believes Mr. Stolper’s professional and corporate experience, as well as his knowledge and familiarity with corporate finance and accounting as an experienced Chief Financial Officer in a NASDAQ-traded company, make him suitable to serve as a director of the Company.
Shlomi Cohen
was appointed by the Board on August 2, 2015, to serve as the Company’s Chief Executive Officer. Prior to joining the Company, Mr. Cohen, served as president and Chief Executive Officer of RayV Technologies Ltd. from 2012 until it was acquired by Yahoo! in 2014. Prior to that and from 2010 to 2012, Mr. Cohen served as president of Europe Middle-East Africa for NICE Systems Ltd (Nasdaq: NICE). Mr. Cohen has also held sales positions with a number of leading technology companies, including Nokia (2007-2010), Siemens (2003-2007), BATM Advanced Communications (1998-2002) and Eldor Computers (1990-1995). Mr. Cohen holds an M.B.A. from the Bar Ilan University and a B.SC. in mechanical engineering from the Tel-Aviv University.
Yishay Curelaru
was appointed as the Company’s Chief Financial Officer effective
January 31, 2016. Prior to his appointment, Mr. Curelaru served as the Company’s controller and deputy Chief Financial Officer from July 2013, and oversaw the Company's finance department in this capacity. Prior to joining the Company, Mr. Curelaru was a senior accountant at PricewaterhouseCoopers (PwC) beginning in 2011. Mr. Curelaru also served as a captain in the Special Forces of the Israeli Defense Forces from 2000 until 2005. Mr. Curelaru holds a B.A. in economics and accounting from the Ben-Gurion University of the Negev, and is a Certified Public Accountant in Israel.
Election of Directors; Appointment of Officers
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Our current Board consists of five directors, of which two directors are External Directors under Israeli law. A majority of these directors must be non-executive directors, who are directors that are neither office holders nor our employees. Our non-External Directors are appointed, removed or replaced by a majority vote of our shareholders present in person or by proxy at a general meeting of our shareholders according to the Companies Law.
Once elected at a shareholders’ meeting, our directors, except for our External Directors, hold office until the first general meeting of shareholders held at least thirty six months after their election. Incumbent directors may be reelected at that meeting. A director may be elected for consecutive terms, unless prohibited by law.
Under the Companies Law, neither the Chief Executive Officer of a public company nor a family member thereof or any person directly or indirectly subordinate to the Chief Executive Officer, may serve as a Chairman of the board of directors, and vice versa. The Chief Executive Officer of a public company or a family member thereof may nevertheless serve as Chairman of the board of directors, and vice versa, if authorized by a general meeting of the shareholders according to the Companies Law and then only for a period of time that does not exceed three years.
Until February 9, 2015, former Board member Mr. Dimitrios Angelis served as the Chairman of our Board. On February 9, 2015, our Board elected Mr. Singh to serve as its chairman.
Our Board appoints our Chief Executive Officer and his terms of employment are approved by the general shareholders meeting according to the provisions of the Companies Law. With the exception of our Chief Executive Officer and our Directors, each of our executive officers serves at the discretion of our Chief Executive Officer, subject to the terms of any employment agreement, and holds office until his or her successor is elected or until his or her earlier resignation or removal.
None of our independent directors serves as the lead independent director. We believe that this leadership structure is appropriate to our Company given the current size and operations of the Company. Our Board’s role in risk oversight includes risk analysis and assessment in connection with each financial and business review, update and decision-making proposal and deliberations. The Board’s role in our risk oversight is consistent with our leadership structure, with our Chief Executive Officer, whose performance is assessed by the Board, and other members of senior management having responsibility for assessing and managing our risk exposure, and the Board providing oversight in connection with those efforts.
Under the Companies Law, companies incorporated under the laws of the State of Israel with shares listed on an exchange, including NASDAQ, must appoint at least two External Directors. On May 26, 2014, Mr. Anderson was elected by the general meeting of shareholders as an External Director. On November 2, 2015, Ms. Seidenberg Marks was elected by the general meeting of shareholders as the second External Director commencing as of January 1, 2016, succeeding Ms. Eileen Segall, whose term of directorship expired on December 30, 2015. Based on the information provided to the Company, both Mr. Anderson and Ms. Seidenberg Marks qualify as External Directors under the Companies Law.
The Companies Law provides that a person may not be appointed as an External Director if the person is a relative of the controlling shareholder of the company or if the person (or any of the person’s relatives, partners, employers or anyone to whom the person is directly or indirectly subjected to or any entity under the person’s control) has or had during the two years preceding the date of appointment any affiliation with the company, its controlling shareholder, any of the controlling shareholder’s relatives, any other entity under the control of the company or the company’s controlling shareholder, and, where there is no controlling shareholder and no shareholder holding 25% or more of the voting power of the company, any affiliation to the chairman of the board of directors of the company, the company’s chief executive officer, any beneficial owner of 5% or more of the issued shares or the voting power of the company or the most senior executive officer of the company in the finance field.
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 External Director following the public offering.
|
“Office holder” is defined in the Companies Law as a chief executive officer, chief business manager, deputy general manager, vice general manager, any person who holds such position in the company, even if such person holds a different title, any director and other manager or officer who reports directly to the chief executive officer.
No person can serve as an External Director if his or her position or other business interests create, or may create, a conflict of interest with his or her responsibilities as an External Director or may otherwise interfere with his or her ability to serve as an External Director.
No person can serve as an External Director if the person (or any of the person’s relatives, partners, employers, anyone to whom the person is directly or indirectly subjected to or any entity under the person’s control) has business or professional relations with anyone the affiliation with whom is prohibited by the Companies Law, even if those affiliations are not of an ongoing nature, excluding negligible affiliations.
Our External Directors are required to possess professional qualifications as set out in regulations promulgated under the Companies Law. In addition, our Board is required to determine how many of our non-External Directors should be required to have financial and accounting expertise. In determining such number, the Board must consider, among other things, the type and size of the company and the scope and complexity of its operations.
Under the Companies Law, each of our External Directors must also serve on our Audit Committee and Compensation Committee. Mr. Anderson and Ms. Seidenberg Marks are both currently members of our Audit Committee and Compensation Committee. Ms. Seidenberg Marks serves as Chairman of our Audit Committee and Mr. Anderson serves as Chairman of our Compensation Committee.
Under the Companies Law, until the lapse of two years from termination of office (and with respect to a relative of an External Director who is not the External Director’s spouse or child, one year from termination of office), we, our controlling shareholders and any corporation in their control, may not grant a person who served as an External Director of the company, or to its spouse or child, any benefit, directly or indirectly, and may not engage a person who served as an External Director of the company, or its spouse or child, as an office holder of the company or an entity under the control of the company’s controlling shareholder and cannot employ or receive services from that person, either directly or indirectly, including through a corporation controlled by that person.
None of the External Directors has any relationship with us besides serving on our Board.
If, at the time an External Director is appointed, all current members of the Board, who are not controlling shareholders or family members thereof, are of the same gender, then that External Director must be of the other gender. Regulations promulgated under the Companies Law provide that the requirement of Israeli residency does not apply to the External Directors of companies whose shares are listed for trading outside of Israel.
External Directors are elected by a majority vote at a shareholders’ meeting at which either the majority of shares voted at the meeting, including at least a majority of the shares held by non-controlling shareholders disinterested with respect to the interests of controlling shareholders voted at the meeting, vote in favor of the election of the External Director, or the total number of shares held by non-controlling shareholders disinterested with respect to the interests of controlling shareholders voted against the election of the External Director does not exceed two percent of the aggregate voting rights in the company.
The initial term of an External Director is three years commencing from the date of his or her election and under regulations that apply to Israeli companies whose shares that have been offered to the public outside of Israel or traded on a stock exchange outside of Israel, may be extended for consecutive additional three year periods (unlike other public companies, in which only two additional three year periods are allowed). External Directors may only be removed by the same percentage of shareholders as is required for their election, or by a court, and then only if the External Directors cease to meet the statutory qualifications for their appointment or if they violate their duty of loyalty to the company. If an External Directorship becomes vacant, our Board is required under the Companies Law to call a shareholders’ meeting promptly to appoint a new External Director. Each committee of our Board that is required by law to be formed must include at least one External Director and the Audit Committee and Compensation Committee must include all of the External Directors. An External Director is entitled to compensation as provided in regulations adopted under the Companies Law and is otherwise prohibited from receiving any other compensation, directly or indirectly, in connection with services provided as an External Director.
Alternate Directors
Under our current articles of association as amended and restated on December 6, 2013, each of our directors may appoint, with the agreement of the Board and subject to the provisions of the Companies Law, by written notice to us, any person to serve as an alternate director. Under the Companies Law, neither a current serving director, nor a currently-serving alternate director or any person not eligible under the Companies Law to be appointed as a director, may be appointed as an alternate director. An alternate director has all the rights and duties of the director appointing him, unless the appointment of the alternate provides otherwise, and the right to remuneration. The alternate director may not act at any meeting at which the appointing director is present. Unless the time period or scope of the appointment is limited by the appointing director, the appointment is effective for all purposes, but expires upon the expiration of the appointing director’s term. Currently, none of our directors has appointed any alternate directors.
Directors’ Service Contracts
|
None of our directors have any services contracts either with us, or with any of our subsidiaries, which provide for benefits upon termination of employment or service.
Our Board has established an Audit Committee and a Compensation Committee.
Under the Companies Law, the board of directors of a public company must appoint an Audit Committee. The Audit Committee must be comprised of at least three directors, including all of the External Directors, one of whom must serve as chairman of the committee. The Audit Committee may not include the chairman of the board, any director employed by or otherwise providing services on a regular basis to the Company, to a controlling shareholder or to any entity controlled by a controlling shareholder, any director whose main livelihood is dependent on a controlling shareholder, nor a controlling shareholder or a relative thereof.
In addition, the Audit Committee of our Board must include at least three independent directors within the meaning of Rule 5605(a)(2) to the NASDAQ Rules. Our External Directors, Ms. Seidenberg Marks and Mr. Anderson, and our director, Mr. Stolper, all of whom are “unaffiliated directors” under the Companies Law, qualify as independent directors under NASDAQ Rules and as Audit Committee independent directors under the NASDAQ Rules. Ms. Seidenberg Marks is the Audit Committee’s Chairman. In addition, our directors Mr. Singh, Mr. Stolper and Mr. Knapp are qualified as independent directors under the NASDAQ Rules. Our Board has determined that Mr. Stolper is an “Audit Committee Financial Expert” within the meaning of SEC rules and has the requisite experience under NASDAQ Rules.
Under the Companies Law, the Audit Committee of a publicly traded company must consist of a majority of unaffiliated directors. An “unaffiliated director” is defined as either an External Director or as a director, classified as an “unaffiliated director” by the Company, who meets the following criteria: (a) he or she meets the qualifications for being appointed as an External Director, except for (i) the requirement that the director be an Israeli resident (which in any event does not apply to companies such as ours whose securities have been offered outside of Israel or are listed outside of Israel), (ii) the requirement for accounting and financial expertise or professional qualifications, and the Audit Committee of the company confirmed such qualifications and (iii) with respect to companies such as ours whose securities have been listed on the NASDAQ Global Market, where the director qualifies as an “independent director” under the NASDAQ Rules, the requirements relating to affiliation other than to controlling shareholder, any of the controlling shareholder’s relatives or any other entity under the control of the company’s controlling shareholder (which is not the company itself or an entity under the company’s control); and (b) he or she has not served as a director of the Company for a period exceeding nine consecutive years. For this purpose, a break of less than two years in the service shall not be deemed to interrupt the continuation of the service.
Our Board adopted an Audit Committee charter that sets forth the responsibilities of the Audit Committee consistent with the rules of the SEC and the Listing Rules of the NASDAQ Stock Market, as well as the requirements for such committee under the Companies Law, as described below. The Audit Committee charter is posted on our website at http://investors.otiglobal.com/phoenix.zhtml?c=144733&p=irol-govHighlights. The information contained in, or accessible through, our website does not constitute part of this Annual Report.
Our Audit Committee provides assistance to our Board in fulfilling its legal and fiduciary obligations in matters involving our accounting, auditing, financial reporting, internal control and legal compliance functions by pre-approving the services performed by our independent accountants and reviewing their reports regarding our accounting practices and systems of internal control over financial reporting. Our Audit Committee also oversees the audit efforts of our independent accountants and takes those actions that it deems necessary to satisfy itself that the accountants are independent of management. During the fiscal year ended December 31, 2015, we had nine meetings of our Audit Committee.
Under the Companies Law and the NASDAQ Rules, our Audit Committee is responsible for (i) determining whether there are deficiencies in the business management practices of our company, including in consultation with our internal auditor or the independent auditor, and making recommendations to the Board to improve such practices, (ii) determining whether to approve certain related party transactions (including transactions in which an office holder has a personal interest) and whether such transaction should be deemed as material or extraordinary, (iii) where the Board approves the working plan of the internal auditor, to examine such working plan before its submission to the Board and propose amendments thereto, (iv) examining our internal controls and internal auditor’s performance, including whether the internal auditor has sufficient resources and tools to dispose of its responsibilities, (v) examining the scope of our auditor’s work and compensation and submitting a recommendation with respect thereto to our Board or shareholders, depending on which of them is considering the appointment of our auditor, and (vi) establishing procedures for the handling of employees’ complaints as to the management of our business and the protection to be provided to such employees. Our Audit Committee may not approve an action or a related party transaction, or take any other action required under the Israeli Companies Law, unless at the time of approval a majority of the committee’s members are present, which majority consists of unaffiliated directors including at least one External Director, and it further complies with the committee composition set forth above.
Under the Companies Law, the Board must appoint an internal auditor who is recommended by the Audit Committee. The role of the internal auditor is to examine, among other things, whether the company’s actions comply with the law and orderly business procedure. Under the Companies Law, the internal auditor may not be an office holder or an interested party, as defined below, or a relative of an office holder or an interested party, or the company’s independent accountant or the independent accountant’s representative. The Companies Law defines an “interested party” as a holder of 5% or more of the issued shares or voting rights of a company, a person or entity who has the right to designate at least one director or the general manager of the company, and a person who serves as a director or general manager. Since March 5, 2012, Mr. Gali Gana, of Rosenblum Holzman & Co., has served as our internal auditor.
Under the Companies Law and pursuant to the NASDAQ Rules, the board of directors of a public company must appoint a Compensation Committee. The Compensation Committee must be comprised of at least three directors, including all of the External Directors, who shall be a majority of the members of the Compensation Committee; however, so long as our securities are traded on the NASDAQ Global Market, we do not have a controlling shareholder, the Compensation Committee meets other Companies Law composition requirements and our Compensation Committee meets the requirements of U.S. law and NASDAQ, we will generally not have to meet this majority requirement. An External Director must serve as chairman of the committee. The rest of the members of the Compensation Committee shall be directors who do not receive direct or indirect compensation for their role as directors (other than compensation paid or given in accordance with the regulations of the Companies Law applicable to the compensation of External Directors, or amounts paid pursuant to indemnification and/or exculpation contracts or commitments and insurance coverage).
The Compensation Committee may not include the chairman of the board, any director employed by or otherwise providing services on a regular basis to the Company, to a controlling shareholder or to any entity controlled by a controlling shareholder, any director whose main livelihood is dependent on a controlling shareholder, nor a controlling shareholder or a relative thereof.
Our Board adopted a charter for our Compensation Committee. The Compensation Committee charter is posted on our website at http://investors.otiglobal.com/phoenix.zhtml?c=144733&p=irol-govHighlights. The information contained in, or accessible through, our website does not constitute part of this Annual Report.
Under the Companies Law and the NASDAQ Rules, our Compensation Committee is responsible for (i) proposing an office holder compensation policy to the board of directors, (ii) proposing necessary revisions to the compensation policy and examine its implementation, (iii) determining whether to approve compensation of office holders, and (iv) determining, in accordance with our office holder compensation policy, whether to exempt an engagement with an unaffiliated nominee for the position of chief executive officer from requiring shareholders’ approval.
During 2015, our Compensation Committee had five meetings and one written resolution in lieu of a meeting. The current members of our Compensation Committee are Mr. Anderson, Ms. Seidenberg Marks, Mr. Stolper and Mr. Knapp. Mr. Anderson is the Compensation Committee’s Chairman.
Under the Companies Law, all public Israeli companies, including companies whose shares are only publicly-traded outside of Israel, such as the Company, are required to adopt a written compensation policy for their executives, which addresses certain items prescribed by the Companies Law. The adoption, amendment, and restatement of the policy is to be recommended by the Compensation Committee and approved by the Board and shareholders, except that the approval of the shareholders may be waived in certain circumstances prescribed by the Companies Law.
In accordance with Israeli law requirements, our Compensation Committee reviewed and adopted a written compensation policy for our executive officers, which addresses the items prescribed by the Companies Law. Our Board subsequently approved the policy and recommended that it be adopted by the shareholders. On December 6, 2013, the general meeting of shareholders of the Company approved the Executive Compensation Policy, or the Compensation Policy. The Compensation Committee engages the services of external compensation consultants on a case by case basis, and has engaged the services of such consultant with respect to the preparation of the Compensation Policy. We believe all compensation consultants we have engaged are independent for the purposes of NASDAQ Rules.
Under the Companies Law, compensation of executive officers (including exculpation, indemnification and insurance) is determined and approved by our compensation committee and our Board, and in certain circumstances by our shareholders, either in consistency with Compensation Policy or, in special circumstances in deviation therefrom, taking into account certain considerations stated in the Companies Law. On December 6, 2013, the general shareholders meeting of the Company approved the Company the issuance of Indemnification Agreements to the directors and officers of the Company in the form prescribed in the invitation for the general meeting.
Shareholder approval is required (i) in the event approval by our Board and our compensation committee is not consistent with our Compensation Policy, (ii) for the compensation of our chief executive officer or (iii) for the compensation of an executive officer who is also the controlling shareholder of our company (including an affiliate thereof). Such shareholder approval shall require a majority vote of the shares present and voting at a shareholders meeting, provided either (i) such majority includes a majority of the shares held by non-controlling shareholders who do not otherwise have a personal interest in the compensation arrangement that are voted at the meeting, excluding for such purpose any abstentions disinterested majority, or (ii) the total shares held by non-controlling and disinterested shareholders voted against the arrangement does not exceed two percent (2%) of the voting rights in our company.
Additionally, approval of the compensation of an executive officer, who is also a director, requires a simple majority vote of the shares present and voting at a shareholders meeting, if consistent with our Compensation Policy. Our Compensation Committee and Board may, in special circumstances, approve the compensation of an executive officer (other than a director, a chief executive officer or a controlling shareholder) or approve the Compensation Policy despite shareholders’ objection, based on specified arguments and taking shareholders’ objection into account. Our Compensation Committee may further exempt an engagement with a nominee for the position of chief executive officer, who meets the non-affiliation requirements set forth for an external director, from requiring shareholders’ approval, if such engagement is consistent with our Compensation Policy and our Compensation Committee determines based on specified arguments that presentation of such engagement to shareholders’ approval is likely to prevent such engagement. To the extent that any such transaction with a controlling shareholder is for a period extending beyond three years, approval is required once every three years.
A director or executive officer may not be present when the board of directors of a company discusses or votes upon the terms of his or her compensation, unless the chairman of the board of directors (as applicable) determines that he or she should be present to present the transaction that is subject to approval.
Under Rule 5605(d)(1) to the NASDAQ Rules, compensation of the chief executive officer must be determined, or recommended to the board of directors for determination, either by: (i) a majority of the independent directors, or (ii) a compensation committee comprised solely of independent directors. The Chief Executive Officer may not be present during voting or deliberations. Under Rule 5605(d)(2) to the NASDAQ Rules compensation of all executive officers, except the chief executive officer, must be determined, or recommended to the board of directors for determination, either by (i) a majority of the independent directors, or (ii) a compensation committee comprised solely of independent directors.
Nominating Committee; Director Candidates
|
We do not have a Nominating Committee or any committees of a similar nature, nor any charter governing the nomination process. Our Board does not believe that such committees are needed for a company our size. However, our independent directors will consider stockholder suggestions for additions to our Board.
We have adopted a Code of Business Conduct and Ethics that applies to our directors, executive and financial officers and all of our employees. The Code of Business Conduct and Ethics is publicly available on our website at http://investors.otiglobal.com/phoenix.zhtml?c=144733&p=irol-govHighlights and we will provide, at no charge, persons with a written copy upon written request made to us. If we make any substantive amendments to the Code of Business Conduct and Ethics or grant any waivers, including any implicit waiver, from a provision of this code to our Chief Executive Officer, Chief Financial Officer or corporate controller, we will disclose the nature of such amendment or waiver on our website within four business days. The information contained in, or accessible through, our website does not constitute part of this Annual Report.
Section 16(a) Beneficial Ownership Reporting Compliance
|
Based solely upon a review of Forms 3, 4 and 5, and amendments thereto, submitted to the SEC during the fiscal year ended December 31, 2015, we believe that during said year, our executive officers, directors and all persons who own more than ten percent of a registered class of our equity securities complied with all Section 16(a) filing requirements, except for Shay Tomer and John A. Knapp Jr.,
who both failed to timely file Form 4.
Item 11. Executive Co
m
pensation.
|
The following table sets forth the compensation earned during the years ended December 31, 2015 and 2014 by (i) Chief Executive Officer (ii) former Chief Executive Officer, (iii) former Chief Financial Officer, and (iv) the former director and the former Chief Executive Officer of OTI America, who we refer to collectively as the Named Executive Officers. As required by Israeli law, it also sets forth the compensation during those years for our former General Counsel and Corporate Secretary.
Summary Compensation Table
|
Name
|
|
|
|
Salary
|
|
|
Bonus
|
|
|
Option Awards
|
|
|
Non-equity Incentive Plan Compensation
|
|
|
All other Compensation
|
|
|
Total
|
|
and Principal Position
|
|
Year
|
|
($) (1)
|
|
|
($)
|
|
|
($) (2)
|
|
|
($)
|
|
|
($) (3)
|
|
|
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shlomi Cohen
|
|
2015
|
|
|
177,153
|
|
|
|
52,098
|
|
|
|
80,120
|
|
|
|
-
|
|
|
|
24,499
|
|
|
|
333,870
|
|
Chief Executive Officer (4)
|
|
2014
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arie G. Rubinstein
|
|
2015
|
|
|
140,117
|
|
|
|
-
|
|
|
|
12,038
|
|
|
|
10,665
|
|
|
|
43,647
|
|
|
|
206,467
|
|
Former General Counsel and Corporate Secretary (5)
|
|
2014
|
|
|
138,903
|
|
|
|
-
|
|
|
|
10,764
|
|
|
|
15,091
|
|
|
|
46,947
|
|
|
|
211,705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ofer Tziperman
|
|
2015
|
|
|
233,652
|
|
|
|
33,806
|
|
|
|
-
|
|
|
|
-
|
|
|
|
190,799
|
|
|
|
458,257
|
|
Former Chief Executive Officer (6)
|
|
2014
|
|
|
342,779
|
|
|
|
-
|
|
|
|
-
|
|
|
|
45,274
|
|
|
|
93,377
|
|
|
|
481,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shay Tomer
|
|
2015
|
|
|
197,401
|
|
|
|
20,993
|
|
|
|
22,034
|
|
|
|
-
|
|
|
|
50,034
|
|
|
|
290,462
|
|
Former Chief Financial Officer (7)
|
|
2014
|
|
|
171,809
|
|
|
|
7,713
|
|
|
|
14,352
|
|
|
|
24,985
|
|
|
|
52,767
|
|
|
|
271,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dimitrios J. Angelis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Former Director and
|
|
2015
|
|
|
175,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
251,925
|
|
|
|
329,603
|
|
|
|
756,528
|
|
Former Chief Executive Officer of OTI America (8)
|
|
2014
|
|
|
300,000
|
|
|
|
-
|
|
|
|
48,970
|
|
|
|
50,000
|
|
|
|
61,427
|
|
|
|
460,397
|
|
(1)
|
Salary payments which were in NIS were translated into U.S. dollars according to annually average exchange rate of 3.89 NIS per U.S. dollar in 2015 and 3.58 NIS per U.S. dollar in 2014.
|
(2)
|
The fair value recognized for the stock-based awards was determined as of the grant date in accordance with FASB ASC Topic 718 (see Note 10C to our consolidated financial statements included elsewhere in this Annual Report).
|
(3)
|
This cost reflects social benefits (as required under applicable Israeli law), car expenses and termination payments.
|
(4)
|
Mr. Shlomi Cohen appointed on August 2, 2015 as Chief Executive Officer. The 2015 “All Other Compensation” of Mr. Cohen, as shown in the table above, is comprised of $8,361 of car expenses and $16,137 of social benefits.
|
(5)
|
The 2015 “All Other Compensation” of Mr. Rubinstein, as shown in the table above is comprised of $20,067 of car expenses and $23,580 of social benefits. The 2014 “All Other Compensation” of Mr. Rubinstein, as shown in the table above is comprised of $21,600 of car expenses and $25,347 of social benefits. On January 24, 2016, Mr. Rubinstein resigned from his respective positions.
|
(6)
|
The 2015 “All Other Compensation” of Mr. Tziperman, as shown in the table above, is comprised of $12,606 of car expenses, $39,264 of social benefits and $138,928 of one-time expenses upon termination of his employment. The 2014 “All Other Compensation” of Mr. Tziperman, as shown in the table above, is comprised of $23,475 of car expenses and $69,902 of social benefits. On August 10, 2015, Mr. Tziperman has resigned from his respective positions.
|
(7)
|
The 2015 “All Other Compensation” of Mr. Tomer, as shown in the table above is comprised of $20,067 of car expenses and $29,967 of social benefits. The 2014 “All Other Compensation” of Mr. Tomer, as shown in the table above is comprised of $21,798 of car expenses and $30,969 of social benefits. On January 6, 2016, Mr. Tomer provided advance notice of his resignation from his respective positions. On January 31, 2016, Mr. Tomer resigned from his respective positions.
|
(8)
|
Mr. Dimitrios J. Angelis served as Chairman of the Board of Directors from April 26, 2013, until February 9, 2015, and served as the Chief Executive Officer of OTI America from December 6, 2013 until August 3, 2015. The 2015 “All Other Compensation” of Mr. Angelis, as shown in the table above is comprised of $29,603 of social benefits and $300,000 of one-time expenses upon termination of his employment. The 2014 “All Other Compensation” of Mr. Angelis, as shown in the table above is comprised of $61,427 of social benefits.
|
All of the incumbent Named Executive Officers and our directors mentioned in the table above are entitled to acceleration of the vesting of any unvested share options and restricted shares in the event of a change of control of the Company.
Pension, Retirement or Similar Benefit Plans
|
Except as required by applicable law (relating to severance payments to Israeli employees), none of our current officers or employees are entitled to receive any payments upon termination of employment.
Executive Officers Compensation Policy
|
In accordance with recent requirements and limitations set forth in the Companies Law, we adopted a Compensation Policy, which was formulated by our Compensation Committee, approved by our Board and recommended to our shareholders, which approved the adoption of the Compensation Policy at our annual general meeting held on December 6, 2013.
The Compensation Policy sets rules and guidelines with respect to our compensation strategy for executive officers, and is designed to provide for the retention of, and to attract, highly qualified executives. The Policy is designed to balance competitive compensation of executive officers with our financial resources, while creating appropriate incentives considering,
inter alia
, risk management factors arising from our business, executive compensation benchmarks used in the industry, our size (including without limitation, sales volume and number of employees), the nature of our business and our then current cash flow situation, in order to promote our long-term goals, work plan, policies and the interests of our shareholders.
The Compensation Policy is designed to allow us to create a full compensation package for each of our executives based on common principles. With respect to variable compensation components, the Compensation Policy is designed to allow us to consider each executive’s contribution in achieving our short-term and long-term strategic goals and in maximizing its profits from long-term perspective and in accordance with the executive’s position.
The Compensation Policy further provides for an annual performance bonus payable to executive officers. The payment of such bonus is tied to long-term corporate performance, rather than short-term stock market performance. Bonuses are paid in accordance with specific performance targets and based, among others, upon the following factors: (i) the Company’s achievement of certain financial performance metrics, consisting of annual revenue targets, EBITDA target and free cash flow target, each based on our annual budget; (ii) achievement by the respective executive of certain predetermined objectives; and (iii) other discretionary considerations, taking into account tangible and intangible performance factors, including the executive’s relative contribution to the Company.
Bonus payments shall not exceed, in the case of a Chief Executive Officer, an aggregate amount equivalent to 12 months’ base salary, and for other executive officers, an aggregate amount equivalent to nine months’ base salary of the respective executive.
We maintain written employment and related agreements with all of our current executive officers. These agreements provide for monthly salaries and contributions by us to executive insurance and vocational studies funds. The employment agreements of certain executive officers provide for the achievement of an annual bonus, as described above. In addition, we may decide to grant our executive officers stock options from time to time. All of our executive officers’ employment and related agreements contain provisions regarding noncompetition, confidentiality of information and assignment of inventions. The enforceability of covenants not to compete in Israel is unclear.
We have the following written agreements and other arrangements concerning compensation with our current executive officers:
(1)
|
Agreement with Shlomi Cohen.
We entered into an employment agreement with Mr. Cohen, effective August 2, 2015, which provides that Mr. Cohen will enter into office as the Chief Executive Officer of the Company and its subsidiaries on August 11, 2015, in consideration of a monthly gross salary of NIS 90,000 and other standard benefits. In addition, and pursuant to the employment agreement, Mr. Cohen received options to purchase 200,000 Ordinary Shares of the Company, with an exercise price of $0.75 per Ordinary Share. The options are subject to a three years vesting period, so that 66,334 options shall be vested on July 31, 2016, 66,333 options shall be vested on July 31, 2017 and an additional 66,333 options shall be vested on July 31, 2018, all subject to the terms and provisions of the Company’s 2001 Share Option Plan. In addition, on February 14, 2016, Mr. Cohen received additional options to purchase 40,000 Ordinary Shares of the Company with an exercise price of $0.44 per Ordinary Share. The options are subject to a three years vesting period, so that 13,333 options shall be vested on February 3, 2017, 13,333 options shall be vested on February 3, 2017 and an additional 13,334 options shall be vested on February 3, 2018, all subject to the terms and provisions of the Company’s 2001 Share Option Plan. Additional options to purchase up to 100,000 Ordinary Shares may be granted on an annual basis to promote retention and as an incentive. The issuance of such options will be subject to the discretion and approval of both the Company’s Compensation Committee and the Board of Directors. According to the employment agreement Mr. Cohen is eligible to receive an annual bonus in an amount up to 12 months’ gross base salary, all subject to the approval of the Company’s general meeting of shareholders. In November 2, 2015, the general meeting of shareholders approved Mr. Cohen’s terms of employment.
|
(2)
|
A
greement with Yishay Curelaru.
We entered into an employment agreement with Mr. Curelaru, dated July 2, 2013, which provided that Mr. Curelaru shall act as the Company’s controller and deputy Chief Financial Officer. In January, 2016, Mr. Curelaru was promoted and appointed as the Company’s Chief Financial Officer, and accordingly on March 23, 2016 we entered into a new employment agreement with Mr. Curelaru. The new employment agreement provides that Mr. Curelaru shall serve as the Company’s and its subsidiaries’ Chief Financial Officer starting January 31, 2016, in consideration of a monthly gross base salary of NIS 38,000 and other standard benefits. In addition, Mr. Curelaru shall be eligible to receive an annual bonus in an amount up to four months’ gross base salary, subject to the Company’s Compensation Policy. Mr. Curelaru’s employment shall be for an unspecified term and either party may terminate the employment agreement upon three months’ advance notice. Pursuant to the employment agreement, Mr. Curelaru shall receive options to purchase 40,000 Ordinary Shares of the Company. The exercise price shall be equal to the average closing price of the Company’s Ordinary Shares during the 30 calendar days prior to the date of the grant, and will be subject to a three years vesting period, all subject to the terms and provisions of the Company’s 2001 Share Option Plan.
|
Outstanding Equity Awards at Fiscal Year-End
|
The following table shows options to purchase our ordinary shares outstanding on the last day of the fiscal year ended December 31, 2015 held by each of our Named Executive Officers.
Number of Securities Underlying Unexercised
|
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
Name
|
|
Number of securities underlying unexercised options (#) exercisable
|
|
|
Number of securities underlying unexercised options (#) unexercisable
|
|
|
Option exercise price($)
|
|
|
Option expiration date
|
|
|
Number of shares that have not vested (#)
|
|
|
Market value of shares that have not vested ($)
|
|
|
Shlomi Cohen
(1)
|
|
-
|
|
|
200,000
|
|
|
$
|
0.75
|
|
|
11/02/2020
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shay Tomer
(2)
|
|
21,666
4,445
-
-
|
|
|
13,334
8,888
20,000
10,000
|
|
|
$
$
$
$
|
1.46
2.36
1.68
1.29
|
|
|
04/30/2016 (3)
04/30/2016 (3)
04/30/2016 (3)
04/30/2016 (3)
|
|
|
-
-
-
-
|
|
|
-
-
-
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ofer Tziperman
(3)
|
|
-
-
|
|
|
23,148
22,222
|
|
|
$
$
|
0.90
3.18
|
|
|
06/30/2016(5)
06/30/2016(5)
|
|
|
-
-
|
|
|
-
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dimitrios Angelis (4)
|
|
-
|
|
|
-
|
|
|
$
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1)
|
On November 2, 2015, 200,000 options were granted to Mr. Cohen under the 2001 Stock Option Plan. The options vest in three equal annual installments, commencing July 31, 2016.
|
(2)
|
On July 20, 2013, 40,000 options were granted to Mr. Tomer under the 2001 Stock Option Plan, out of which 5,000 options were exercised by Mr. Tomer as of December 31, 2015. The options vest in three equal annual installments, commencing July 20, 2014. On May 13, 2014, 13,333 options were granted to Mr. Tomer under the 2001 Stock Option Plan. The options vest in three equal annual installments, commencing May 13, 2015. On January 1, 2015, 20,000 options were granted to Mr. Tomer under the 2001 Stock Option Plan. The options vest in three equal annual installments, commencing January 1, 2016.
|
On July 28, 2015, 10,000 options were granted to Mr. Tomer under the 2001 Stock Option Plan. The options vest in three equal annual installments, commencing July 28, 2016. On January 31, 2016, Mr. Tomer resigned his role as Chief Financial Officer, and the option expiration date of his remaining granted options is April 30, 2016
(3)
|
On December 6, 2013, 166,666 options were granted to Mr. Tziperman under the 2001 Stock Option Plan. The options vest in three equal annual installments, commencing March 7, 2014. On December 30, 2013, 100,000 options were granted to Mr. Tziperman under the 2001 Stock Option Plan. The options vest in three equal annual installments, commencing December 30, 2014. On August 10, 2015, Mr. Tziperman resigned his role as Chief Financial Officer, and the option expiration date of his remaining granted options is June 30, 2016.
|
(4)
|
On August 3, 2015, Mr. Angelis resigned his role as Chief Executive Officer of OTI America, and as of December 31, 2015, he has no outstanding equity awards.
|
Director Compensation for 2015
|
The following table provides information regarding compensation earned by, awarded or paid to each person for serving as a director who is not an executive officer during the fiscal year ended December 31, 2015:
Name (1)
|
|
Fees Earned or Paid in Cash ($) (2)
|
|
|
Option Awards ($) (3)
|
|
|
Total ($)
|
|
William C. Anderson III
|
|
|
34,964
|
|
|
|
-
|
|
|
|
34,964
|
|
Charles M. Gillman (4)
|
|
|
17,335
|
|
|
|
-
|
|
|
|
17,335
|
|
John A. Knapp Jr.
|
|
|
29,666
|
|
|
|
-
|
|
|
|
29,666
|
|
Eileen Segall (5)
|
|
|
35,830
|
|
|
|
-
|
|
|
|
35,830
|
|
Dilip Singh
|
|
|
27,677
|
|
|
|
-
|
|
|
|
27,677
|
|
Mark Stolper
|
|
|
34,605
|
|
|
|
-
|
|
|
|
34,605
|
|
|
(1)
|
The table above does not include Mr. Angelis, former director, who is included in the description of compensation of Named Executive Officers above.
|
|
(2)
|
This column represents the sums that our non-executive directors received according to the Israeli regulations as an annual fee as well as for attendance to Board and Board Committees meetings.
|
|
(3)
|
As of December 31, 2015, our directors held options to purchase our Ordinary Shares as follows:
|
Name
|
|
Aggregate number of shares Underlying stock options
|
|
William C. Anderson III
|
|
|
50,000
|
|
John A. Knapp Jr.
|
|
|
50,000
|
|
Eileen Segall
|
|
|
50,000
|
|
Dilip Singh
|
|
|
50,000
|
|
Mark Stolper
|
|
|
50,000
|
|
|
(4)
|
Former director Mr. Gillman resigned from the Board on August 3, 2015, and the table above represents the compensation paid to Mr. Gillman in 2015.
|
|
(5)
|
Ms. Segall’s term as external director expired on December 30, 2015, and the table above represents the compensation paid to Ms. Segall in 2015.
|
We reimburse our directors for expenses incurred in connection with attending board meetings and committee meetings and provide the following compensation for directors: annual compensation of $16,322; meeting participation fees of $853 per in-person meeting; meeting participation by telephone of $512 per meeting; and $427 per written resolution.
Our executive directors do not receive additional separate compensation for their service on the Board or any committee of the Board. During 2015, our non-executive directors were reimbursed for their expenses for each board meeting and committee meeting attended and in addition received the foregoing compensation with respect to attendance in such meetings. The aggregate amount paid by us to our non-executive directors for their service during 2015 was $180,076.
See Item 12 “Security Ownership of Certain Beneficial Owners and Management” for information on beneficial ownership of our shares by our directors and executive officers. We have no outstanding loans to any of our directors or executive officers.
Under the Companies Law, each of our External Directors is entitled to compensation as provided in regulations adopted under the Companies Law and is otherwise prohibited from receiving any other compensation, directly or indirectly, in connection with services provided as an External Director.
Item 12. Se
cu
rity Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters.
|
The following table sets forth certain information, to the best knowledge and belief of the Company, as of March 14, 2016 (unless provided herein otherwise), with respect to holdings of our Ordinary Shares by (1) each person known by us to be the beneficial owner of more than 5% of the total number of shares of our Ordinary Shares outstanding as of such date; (2) each of our directors; (3) each of our Named Executive Officers; and (4) all of our directors and our executive officers as a group.
All information with respect to the ownership of any of the below shareholders has been furnished by such shareholder and, unless otherwise indicated below, we believe that persons named in the table have sole voting and sole investment power with respect to all of the shares shown as owned, subject to community property laws, where applicable. The shares owned by the directors and executive officers include the shares owned by their family members to which such directors and executive officers disclaim beneficial ownership, as provided for below. If a shareholder has the right to acquire shares by exercising options currently exercisable or exercisable within 60 days of the date of this table, these shares are deemed outstanding for the purpose of computing the percentage owned by the specific shareholder (that is, they are included in both the numerator and the denominator), but they are disregarded for the purpose of computing the percentage owned by any other shareholder.
The information in the table below is based on 40,835,974 Ordinary Shares outstanding as of March 14, 2016. Unless otherwise indicated, the address of each of the individuals named below is: c/o On Track Innovations Inc., Z.H.R. Industrial Zone, P.O. Box 32, Rosh Pina, Israel.
Name of beneficial owner
|
|
Position
|
|
Number of Shares Beneficially Owned (*)
|
|
|
% of Class of Shares
|
|
Dilip Singh (1)
|
|
Director, Chairman
|
|
|
398,435
|
|
|
|
1.0%
|
|
Mark Stolper (2)
|
|
Director
|
|
|
50,000
|
|
|
|
**
|
|
William C. Anderson III (3)
|
|
Director
|
|
|
56,667
|
|
|
|
**
|
|
John A. Knapp Jr.(4)
|
|
Director
|
|
|
335,700
|
|
|
|
**
|
|
Donna Seidenberg Marks
|
|
Director
|
|
|
-
|
|
|
|
-
|
|
Shlomi Cohen
|
|
Chief Executive Officer
|
|
|
39,938
|
|
|
|
**
|
|
Ofer Tziperman (5)
|
|
Former Chief Executive Officer
|
|
|
40,247
|
|
|
|
**
|
|
Shay Tomer (6)
|
|
Former Chief Financial Officer
|
|
|
34,444
|
|
|
|
**
|
|
Dimitrios Angelis (7)
|
|
Former Director and Former Chief Executive Officer of OTI America
|
|
|
35,500
|
|
|
|
**
|
|
All executive officers and directors as a group (7 persons)
|
|
|
|
|
886,073
|
|
|
|
2.2
|
%
|
5% Shareholders
|
|
|
|
|
|
|
|
|
|
|
Jerry L. Ivy, Jr. (8)
|
|
Shareholder
|
|
|
3,386,650
|
|
|
|
8.3
|
%
|
Harvest Capital Strategies LLC (9)
|
|
Shareholder
|
|
|
2,543,653
|
|
|
|
6.2
|
%
|
(*)
|
If a shareholder has the right to acquire shares by exercising options currently exercisable or exercisable within 60 days of the date of this table, these shares are deemed outstanding for the purpose of computing the percentage owned by the specific shareholder (that is, they are included in both the numerator and the denominator), but they are disregarded for the purpose of computing the percentage owned by any other shareholder.
|
(1)
|
Based on the information provided by Mr. Singh, includes 22,054 Ordinary Shares held by Mr. Singh, includes 326,381 Ordinary Shares as to which Mr. Singh has voting rights in his capacity as Chairman of the Board, pursuant to irrevocable proxies previously granted to the Chairman of the Board of the Company and includes options held by Mr. Singh to purchase 50,000 Ordinary Shares currently exercisable or exercisable within 60 days of this table.
|
(2)
|
Consist of options held by Mr. Stolper to purchase 50,000 Ordinary Shares currently exercisable or exercisable within 60 days of this table.
|
(3)
|
Includes 40,000 Ordinary Shares held by Mr. Anderson and includes options held by Mr. Anderson to purchase 16,667 Ordinary Shares currently exercisable or exercisable within 60 days of this table.
|
(4)
|
Includes 285,700 Ordinary Shares held by Mr. Knapp and includes options held by Mr. Knapp to purchase 50,000 Ordinary Shares currently exercisable or exercisable within 60 days of this table.
|
(5)
|
Includes 10,000 Ordinary Shares held by Mr. Tziperman and includes options held by Mr. Tziperman to purchase 30,247 Ordinary Shares currently exercisable or exercisable within 60 days of this table.
|
(6)
|
Consist of options held by Mr. Tomer to purchase 34,444 Ordinary Shares currently exercisable or exercisable within 60 days of this table.
|
(7)
|
Based on the information provided by Mr. Angelis, consists of 35,500 Ordinary Shares held by Mr. Angelis.
|
(8)
|
Information is based solely on Schedule 13G/A filed by Mr. Ivy with the SEC on February 9, 2016. Mr. Ivy’s address is 2125 1
st
Ave., Seattle, WA 98121.
|
(9)
|
Information is based solely on Schedule 13G filed by Harvest Capital Strategies LLC with the SEC on February 3, 2016. Includes 2,543,653 Ordinary Shares held by Harvest Capital Strategies LLC. Highland Capital Strategies LLC’s address is 600 Montgomery Street, Suite 1700, San Francisco, CA 94111.
|
The following table summarizes certain information regarding our equity compensation plan as of December 31, 2015:
|
Plan Category
|
|
Number of securities to be issued upon exercise of outstanding options
|
|
|
Weighted-average exercise price of outstanding options
|
|
|
Number of securities remaining available for future issuance under equity compensation plans
|
|
Equity compensation plan approved by security holders
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Equity compensation plan not approved by security holders
|
|
|
1,601,379
|
|
|
$
|
1.71
|
|
|
|
838,389
|
|
Total
|
|
|
1,601,379
|
|
|
$
|
1.71
|
|
|
|
838,389
|
|
2001 Stock Option Plan
We established our 2001 Stock Option Plan, or the 2001 Plan, in February 2001 (as amended and restated on December November 30, 2011), and have amended it several times up to the latest amendment on May 26, 2014. The 2001 Plan provides for the grant of options to our employees, directors and consultants, and those of our subsidiaries and affiliates.
Under the 2001 Plan, as of March 14, 2016, options for 14,089,239
Ordinary Shares had been exercised and options for 1,481,823 Ordinary Shares are outstanding, including vested options with respect to 970,302 Ordinary Shares. Of the options that are outstanding, as of March 14, 2016, 508,000 options are held by our directors and officers, and have a weighted average exercise price of $1.39 per share.
Item 13. Certain Re
lati
onships and Related Transactions, and Director Independence.
|
Our policy is to enter into transactions with related parties on terms that are on the whole no less favorable to us than those that would be available from unaffiliated parties at arm’s length.
Agreements with Directors and Officers
|
We have entered into employment agreements with all of our officers as mentioned above. In addition, we have granted options to purchase our Ordinary Shares to our officers, as mentioned elsewhere in this Annual Report.
Other than described above, none of our directors, executive officers of 5% shareholders has any relationship with the Company besides serving as directors.
Our Board has determined that Ms. Seidenberg Marks, Mr. Stolper, and Mr. Anderson, qualify as independent directors under NASDAQ Rules and as Audit Committee independent directors under the NASDAQ Rules.
Item 14. Principal Accounting Fees and Services.
|
Independent Registered Public Accounting Firm
|
The Company has engaged Somekh Chaikin, a member firm of KPMG International, or Somekh Chaikin, as its principal independent registered public accounting firm for the fiscal year ended December 31, 2015.
Policy on Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm
|
Our Audit Committee is generally responsible for the oversight of our independent auditors’ work. The Audit Committee’s policy is to pre-approve all audit and non-audit services provided by Somekh Chaikin. These services may include audit services, audit-related services, tax services and other services, as further described below. The Audit Committee sets forth the basis for its preapproval in detail, listing the particular services or categories of services which are pre-approved, and setting forth a specific budget for such services. Additional services may be pre-approved by the Audit Committee on an individual basis. Once services have been pre-approved, Somekh Chaikin and our management then report to the Audit Committee on a periodic basis regarding the extent of services actually provided in accordance with the applicable pre-approval, and regarding the fees for the services performed.
Our Audit Committee pre-approved all audit and non-audit services provided to us and to our subsidiaries during the periods listed below. The Audit Committee approves discrete projects on a case-by-case basis that may have a material effect on our operations and also considers whether proposed services are compatible with the independence of the independent auditors.
Pursuant to our pre-approval policy, the Audit Committee pre-approves and delegates to our Chairman of the Board the authority to approve the retention of ad-hoc audit and non-audit services from our independent auditors, beyond the scope approved by the Audit Committee as part of the annual audit plan.
Principal Accountant Fees and Services
|
The following fees were billed by Somekh Chaikin, a member firm of KPMG International, and affiliate firms for professional services rendered thereby for the years ended December 31, 2015 and 2014 (in thousands):
|
|
2015
|
|
|
2014
|
|
Audit fees (1)
|
|
$
|
163
|
|
|
$
|
188
|
|
Audit-related fees (2)
|
|
$
|
-
|
|
|
$
|
27
|
|
Tax fees (3)
|
|
$
|
14
|
|
|
$
|
22
|
|
All other fees (4)
|
|
$
|
-
|
|
|
$
|
7
|
|
Total
|
|
$
|
177
|
|
|
$
|
246
|
|
(1)
|
The audit fees for the years ended December 31, 2015 and 2014, are the aggregate fees billed or billable (for the year) for the professional services rendered for the audits of our 2015 and 2014 annual consolidated financial statements, review of consolidated quarterly financial statements of 2015 and 2014, and services that are normally provided in connection with statutory audits of us and our subsidiaries, consents and assistance with review of documents filed with the SEC.
|
(2)
|
The audit-related fees for the year ended December 31, 2014 included services in respect of our registration statement on Form S-3 and related prospectus.
|
(3)
|
Tax fees are the aggregate fees billed (in the year) for professional services rendered for tax compliance and tax advice other than in connection with the audit.
|
(4)
|
All other
fees for the year ended December 31, 2014 included services in respect of the conflict mineral law requires manufacturers to audit their supply chains and report conflict minerals usage.
|