As filed with the Securities and Exchange Commission on October 19, 2010
(Exact Name of Registrant as Specified in Its Charter)
(Translation of Registrants Name into English)
Israel | 3630 | Not Applicable | ||
(State or Other Jurisdiction
of Incorporation or Organization) |
(Primary Standard Industrial
Classification Code Number) |
(I.R.S. Employer
Identification Number) |
(Address, Including ZIP Code, and Telephone Number,
Including Area Code, of Registrants Principal Executive Offices)
(Name, Address, Including ZIP Code, and Telephone Number,
Including Area Code, of Agent for Service)
Copies to:
Brian B. Margolis
Stuart R. Goldfarb Orrick, Herrington & Sutcliffe LLP 51 West 52 nd Street New York, NY 10019 Tel: 212-506-5000 Fax: 212-506-5151 |
Chaim Y. Friedland
Benjamin J. Waltuch Gornitzky & Co. 45 Rothschild Blvd. Tel Aviv 65784 Israel Tel: +972-3-710-9191 Fax: +972-3-560-6555 |
Colin Diamond
Joshua Kiernan White & Case LLP 1155 Avenue of the Americas New York, NY 10036 Tel: 212-819-8754 Fax: 212-354-8113 |
Barry Levenfeld
Shiri Shaham Yigal Arnon & Co. 22 Rivlin Street Jerusalem 91000 Israel Tel: +972-2-623-9220 Fax: +972-2-623-9236 |
Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. o
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
Title of Each Class of Securities To Be Registered |
Amount to be
Registered(1) |
Proposed
Maximum Offering Price Per Share(2) |
Proposed
Maximum Aggregate Offering Price(2) |
Amount of
Registration Fee |
||||||||||||
Ordinary Shares, par value NIS 0.645 | 5,447,368 | $ | 20.00 | $ | 108,947,360 | $ | 7,768 |
(1) | Includes 710,526 shares which may be sold pursuant to the underwriters over-allotment option. |
(2) | Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(a) under the Securities Act. |
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities, and we are not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
4,736,842 shares
Ordinary Shares
This is an initial public offering of ordinary shares of SodaStream International Ltd. Prior to this offering, there has been no public market for our ordinary shares. We are offering 4,736,842 ordinary shares. The initial public offering price of our ordinary shares is expected to be between $18.00 and $20.00 per share.
We have applied to list our ordinary shares on the Nasdaq Global Market under the symbol SODA.
Investing in our ordinary shares involves a high degree of risk. See Risk factors beginning on page 13 .
Per share | Total | |||||||
Initial public offering price | $ | $ | ||||||
Underwriting discounts and commissions | $ | $ | ||||||
Proceeds to SodaStream, before expenses | $ | $ |
The underwriters have an option to purchase a maximum of 710,526 additional ordinary shares from us, at the public offering price, less the underwriting discounts and commissions, to cover over-allotment of shares, if any. The underwriters can exercise this option at any time within 30 days from the date of this prospectus.
Neither the Securities and Exchange Commission nor any state or foreign securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The underwriters expect to deliver the ordinary shares to purchasers on , 2010.
J.P. Morgan | Deutsche Bank Securities |
William Blair & Company | Oppenheimer & Co. | Stifel Nicolaus Weisel |
, 2010
Neither we nor any of the underwriters have authorized anyone to provide information different from that contained in this prospectus and any free writing prospectus prepared by or on our behalf. When you make a decision about whether to invest in our ordinary shares, you should not rely upon any information other than the information in this prospectus and any free writing prospectus prepared by or on our behalf. Neither the delivery of this prospectus nor the sale of our ordinary shares means that information contained in this prospectus is correct after the date of this prospectus. This prospectus is not an offer to sell or solicitation of an offer to buy these ordinary shares in any circumstances under which the offer or solicitation is unlawful.
Unless we indicate otherwise, U.S. Dollar translations of Euro amounts presented in this prospectus are translated at the rate of €1.00 = $1.3601, the noon buying rate for Euros in New York City, as certified for customs purposes by the Federal Reserve Bank of New York, on September 30, 2010.
We obtained the industry, market and competitive position data in this prospectus from our own internal estimates and research as well as from industry and general publications and research, surveys and studies conducted by third parties. The third-party studies were conducted by Ciao Surveys GmbH, Intervjubolaget Imri AB, Ipsos Tambor, s.r.o., Panels Limited Ltd. and Spinach Ltd., each of which has filed a consent to be named in this prospectus. These third parties surveyed approximately 500 people each in certain of our smaller markets and approximately 1,000 people each in certain of our larger markets.
Industry publications, studies and surveys generally state that they have been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe that each of these studies and publications is reliable, we have not independently verified market and industry data from third-party sources. While we believe our internal company research is reliable and the market definitions are appropriate, neither such research nor these definitions have been verified by any independent source.
i
This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all the information that you should consider before deciding to invest in our ordinary shares. You should read the entire prospectus carefully including Risk Factors and our consolidated financial statements and notes to those consolidated financial statements before making an investment decision.
SodaStream manufactures home beverage carbonation systems, which enable consumers to easily transform ordinary tap water instantly into carbonated soft drinks and sparkling water. We believe our soda makers offer a highly differentiated and innovative solution to consumers of bottled and canned carbonated soft drinks and sparkling water. Our products are environmentally friendly, cost-effective, promote health and wellness, and are customizable and fun to use. In addition, our products offer convenience by eliminating the need to carry bottles home from the supermarket, to store bottles at home or to regularly dispose of empty bottles. Educating consumers of these benefits is a key element of our strategy to build awareness, particularly as we expand into new markets. We believe that we are the worlds leading manufacturer of home beverage carbonation systems. Such belief is based on consumer surveys we commissioned that show SodaStream has the largest market share in each of a dozen of the largest markets in which we operate and the lack of a competing home beverage carbonation system in the significant majority of other markets around the world, including the United States. We estimate, based on consumer surveys and sales of CO 2 refills, that there are currently approximately 4 million consumers who create a carbonated beverage using our system at least once every two weeks, whom we refer to as active consumers, with many of the largest carbonated soft drink and sparkling water markets still remaining virtually untapped.
We develop, manufacture and sell soda makers and exchangeable carbon-dioxide (CO 2 ) cylinders, as well as consumables, consisting of CO 2 refills, reusable carbonation bottles and flavors to add to the carbonated water. We currently sell our products through more than 35,000 retail stores in 39 countries, including 24 countries that we have entered since the beginning of 2007. We distribute our products directly in 12 countries and indirectly through local distributors in our remaining markets. Our products are sold under the SodaStream® brand name in most countries, and under the Soda-Club® brand name or select other brand names in certain other countries. While our distribution strategy is customized for each market, we generally employ a multi-channel distribution approach that is designed to raise awareness and establish positioning of our product offerings, first in specialty retail and direct marketing channels and then in larger food, drug and mass retailers.
We have an attractive razor/razor blade business model, which is designed to increase sales of soda makers and exchangeable CO 2 cylinders (the razors), as well as to generate recurring sales of higher-margin consumables, consisting of CO 2 refills, carbonation bottles and flavors (the razor blades). A more detailed description of each of our products appears below:
Soda makers . Our soda makers are free-standing, lightweight and compact, have a stylish design and do not require electricity. Consumers initially purchase a starter kit, consisting of a soda maker, one or two carbonation bottles together with hermetically-sealing bottle caps and, in some markets, samples of a variety of flavors. The starter kit also includes an exchangeable CO 2 cylinder which can produce between 30 and 130 liters of carbonated beverages depending on the size. Such systems are typically sold in the United States at prices ranging from $79 for a basic plastic model that uses a plastic carbonation bottle, to $199 for the higher-end Penguin model that has stainless steel components and utilizes glass carbonation bottles.
CO 2 refills . We provide beverage-grade CO 2 refills through authorized retailers that participate in our cylinder exchange program. Consumers typically exchange their empty cylinders at retail stores or through online orders for full cylinders and pay only the price of the CO 2 . Empty
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cylinders are then delivered to a filling plant where they are inspected, cleaned and refilled for distribution. We estimate that our active consumers purchase, on average, two to three CO 2 refills per year. Our business model includes expanding the number of locations in each market where we sell our products and where consumers can exchange their empty CO 2 cylinders for full cylinders. Consumers in the United States typically pay either $14.99 for a 60-liter CO 2 refill or $24.99 for a 110-liter CO 2 refill.
Flavors . We offer a wide variety of more than 100 flavors. Several of our flavors, such as our cola flavors, are available in both regular and diet versions, and have similar taste profiles to many popular carbonated soft drinks. We are expanding the variety of natural and enhanced flavors, including fruit, energy and isotonic blends, to satisfy evolving consumer tastes. As part of our focus on healthier beverages, we do not use high-fructose corn syrup in our flavors and we offer certain of our diet versions with Splenda®, and without aspartame and saccharin. We also address local tastes with flavors designed for individual markets, including Root Beer (United States), Irn Brew and Vimto (United Kingdom), Ginger Beer (South Africa), Must (Scandinavia) and Chinotto (Italy). We also offer special limited edition flavors for holidays and seasonal campaigns. Consumers in the United States typically pay $4.99 for a 500 ml bottle of one of our flavors, which usually produces 12 liters of carbonated soft drinks.
Carbonation bottles . We manufacture our own reusable carbonation bottles, which are the only bottles intended for use with our machines. In addition to the bottle(s) that come with the starter kit, many consumers purchase additional carbonation bottles in order to be able to have several bottles of carbonated soft drinks or sparkling water on hand at once. All of our carbonation bottles come with a hermetically-sealing silicon bottle cap, which maintains the carbonation level at a higher level than that achieved by regular bottle caps. Our plastic carbonation bottles are manufactured without Bisphenol A (and are thus referred to as BPA-free), and are reusable for several years. Our glass carbonation bottles are reusable indefinitely. Therefore, our carbonation bottles are significantly better for the environment than traditional single-use bottled or canned carbonated beverages and water bottles. Consumers in the United States typically pay $14.99 for two additional plastic carbonation bottles or for one additional glass carbonation bottle.
Many potential consumers are unfamiliar with the idea of making carbonated drinks at home. We challenge those consumers to re-think the way they obtain carbonated drinks by educating them about the benefits of our products. This consumer education is done through direct advertising, promotional activity, public relations campaigns and activities, and in-store demonstrations at the point of sale. We use both traditional and digital media in these efforts, as well as direct-response marketing. We continuously test and apply marketing tools to improve consumer retention, including subscription programs, newsletters, warranties, trade-in promotions and various other programs to keep consumers engaged.
From 2007 through 2009, our revenues grew at a compound annual growth rate of 10.5% from €86.0 million to €105.0 million. We incurred a loss of €1.6 million in 2007 and had net income of €530,000 and €7.1 million in 2008 and 2009, respectively. Our revenues increased by €22.9 million, or 49.9%, to €68.7 million in the six months ended June 30, 2010 from €45.8 million in the six months ended June 30, 2009. Our net income increased by €3.7 million to €4.2 million in the six months ended June 30, 2010 from €472,000 in the six months ended June 30, 2009. Similarly, from 2007 through 2009, our revenues from soda makers and exchangeable CO 2 cylinders grew from €27.2 million to €39.1 million, while our revenues from sales of consumables grew from €52.0 million to €59.3 million. Our revenues from soda makers and exchangeable CO 2 cylinders grew from €13.5 million in the six months ended June 30, 2009 to €28.0 million in the six months ended June 30, 2010, while our revenues from sales of consumables grew from €27.8 million in the six months ended June 30, 2009 to €36.3 million in the six months ended June 30, 2010. Although we are only in the early stages of our United States marketing investment plan, we have more than tripled our sales in this market from $4.4 million in 2007 to $14.5 million in 2009. Our revenues
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in the United States increased by $5.0 million, or 88.6%, to $10.7 million in the six months ended June 30, 2010 from $5.7 million in the six months ended June 30, 2009. Between 2007 and 2009, we further penetrated key existing markets, including France and Italy, where we previously had minimal presence.
We believe the greatest opportunity for SodaStream is to become an attractive alternative in the very large global carbonated beverage category, where many products currently sold are packaged in disposable bottles and cans. Our initial and primary focus is on off-premise consumption (defined as beverages consumed at home), although we view the out-of-home market (such as offices, hotels and foodservice) as an opportunity for future expansion.
According to Datamonitor, the global off-premise soft drink and global sparkling water industries generated approximately $206 billion and $27 billion, respectively, in retail sales in 2008. The United States led most other markets with annual per capita off-premise carbonated soft drink consumption of 118 liters in 2009, representing an aggregate of $39 billion in sales.
We believe that demand for our products will continue to benefit from several long-term trends in global consumer behavior. These trends include (1) the green movement and the popularity of products perceived to be better for the environment, (2) the increasing importance of value and savings in consumers lifestyle and purchase decisions, and (3) increasing demand for food and beverage products that promote health and wellness.
For consumers who wish to create their own sparkling water, there are currently very limited alternatives to our products, such as soda siphons or at-home carbonated water delivery, which we believe do not offer consumers the same range of benefits or ease of use as our home beverage carbonation systems. There are a limited number of other home beverage carbonation systems available in certain markets. Those companies that do offer home carbonation devices do not offer the full range of products that we offer (such as CO 2 refills, glass carbonation bottles and an extensive range of flavors).
We believe the following business strengths position us well to grow our business:
Clear and compelling consumer benefits . Our products provide an innovative alternative to packaged carbonated beverages and are consistent with long-term trends in consumer behavior. Our products are:
º Environmentally friendly . Use of our products, which include reusable carbonation bottles, reduces the number of plastic bottles and cans used by consumers.
º Convenient . Our products eliminate the need to carry bottles home from the supermarket, store bottles at home and dispose of the empty bottles.
º Cost effective . Our sparkling water and carbonated soft drinks provide savings of up to 70% for sparkling water and of up to 30% for carbonated soft drinks compared to purchasing bottled sparkling water or bottled or canned carbonated soft drinks, in each case as compared to standard retail prices.
º Promoting health and wellness . Among other benefits, our flavors contain two-thirds less sugar, carbohydrates and calories than leading soft drink brands, and one-third less caffeine than popular carbonated soft drinks, thereby promoting a healthier alternative to traditional carbonated soft drinks.
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º Customizable, fun and easy to use . Our products enable consumers to customize beverages at home in a creative way that is a fun and exciting for members of the family of all ages.
Established presence in certain markets . We currently sell our products through more than 35,000 stores in 39 countries. We believe, based on our familiarity with the retail and distribution channels in the markets in which we operate, that we hold the leading market share position in each of the markets in which we compete.
Recurring revenues . Our business model is to increase the installed base of soda makers, in order to generate ongoing demand for higher-margin CO 2 refills, carbonation bottles and flavors. As a result, over time, this change in sales mix generally has a positive impact on our operating margins. In mature markets, we typically target an overall operating margin in excess of 25%.
Strong value proposition for our retailers . We believe that retailers derive significant new sales opportunities and other benefits from featuring our eye-catching and innovative products in their stores. Retailers also benefit from the repeat foot traffic and the revenue stream generated by sales of our consumables.
Ongoing product innovation . We offer a broad range of soda makers, ranging from a basic plastic model that uses a plastic carbonation bottle to our high-end Penguin model that uses a glass carbonation bottle and has a stainless steel finish, in order to meet the needs of consumers at various price points. We are continuously evaluating and improving our product offerings.
Operational expertise and global infrastructure . Our business requires a significant amount of manufacturing and logistical expertise. Our experience with our retailer exchange program, our proprietary manufacturing capabilities and our ability to meet the regulations of several foreign governing bodies and maintain a global network of regulatory compliance, including self-regulated status with several of those organizations, gives us an advantage relative to other market participants or potential new entrants.
Highly experienced management team . We are led by a proven and experienced management team. Our Chief Executive Officer, Daniel Birnbaum, brings significant experience in the consumer sector and has held management positions at Nike, Procter & Gamble and Pillsbury. Our Chief Financial Officer, Daniel Erdreich, previously served as the CFO of two publicly-traded companies. The other members of our senior management team also have significant experience in the consumer products sector, and have previously held positions at major consumer products companies, including Campbell Soup Company, Groupe SEB, Kraft, McDonalds and Nike.
Our principal strategies are (1) to grow our installed base through new purchases of our products and (2) to maintain consumer loyalty and users for life. Our long-term goal is to convert as many carbonated beverage consumers to our products as possible throughout the world. As such, as we grow our company, we measure our success by the level of household penetration our products achieve. Based on consumer surveys we commissioned, we believe that our average household penetration in established markets has generally been in the range of 5% to 15%. Our highest penetration is in Sweden, where we estimate, based on those same surveys, that we have achieved household penetration of approximately 20%.
As we strive to bring our products to a greater number of households worldwide, we intend to focus on the key elements that we believe will drive new purchases and grow our installed base, which include the following:
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Increased awareness of our products and their compelling consumer benefits . Educating consumers on the numerous benefits of our products is a vital component of our strategy to grow our installed base and our revenues. As such, we employ a variety of conventional and specialized marketing activities, many of which are designed to challenge the consumer to rethink the habit of using disposable bottles.
Growth of retail distribution . Increased retail distribution is an essential element in delivering our products to potential consumers. We believe that the United States market will be particularly receptive to our products, because its carbonated beverage market size and per capita consumption are among the highest in the world. In addition, in several of our markets, our relationships with retailers are only in the early stages of development, and we intend to grow these relationships to significantly expand our retail distribution in those markets.
Introduction of new soda maker products . We maintain an active product development department, devising new products that offer improved aesthetics and lifestyle appeals as well as improved functionality. Since 2007, we have introduced several new and more up-scale models of soda makers, some of which use glass or dishwasher-safe plastic carbonation bottles.
Acquiring the new user is only the beginning of the relationship with our consumer. Repeat users are key to driving both the sustainability and the profitability of our business. In fact, in most mature markets, sales of our higher-margin consumables typically approach or exceed sales of our soda makers. We attempt to promote consumer retention by taking the following steps:
Increasing availability of consumables . We will continue to invest in the expansion of our consumables business (primarily CO 2 refills and flavors). We believe that widespread availability and easy access to consumables are key to consumer retention and loyalty, and therefore are working to enhance our already strong CO 2 refill exchange program.
Introducing exciting new flavors . We continue to introduce additional flavors to expand our sales in existing markets. We currently offer more than 100 flavors, including diet and all-natural versions, which can also be mixed to meet consumer preferences.
Employing creative and effective consumer marketing . We believe that our best ambassadors are our own users. We have therefore established ongoing consumer marketing programs to keep our installed base not only engaged but also encouraged and motivated to educate their friends through word-of-mouth. These programs include subscription programs, newsletters, warranties, trade-in promotions, referral programs and various other programs.
Investing in our ordinary shares involves risks. You should carefully consider the risks described in Risk Factors before making a decision to invest in our ordinary shares. If any of these risks actually occurs, our business, financial condition or results of operations would likely be materially adversely affected. In such case, the trading price of our ordinary shares would likely decline, and you may lose all or part of your investment. The following is a summary of some of the principal risks we face:
We may not be successful in our efforts to expand in target markets such as the United States, which will require substantial investment to build awareness and develop an installed base of users.
We may not be successful in developing or maintaining relationships with retailers for the sale of our home beverage carbonation systems and the exchange of our empty CO 2 cylinders in the markets we are targeting for growth.
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We may not be successful in developing and implementing operating infrastructure to effectively support our growth, including increased manufacturing capacity.
Our ability to grow depends on successful implementation of marketing campaigns and media spending and on the continued demand for our product offerings.
Our functional currency is the Euro and we are subject to fluctuations in currency exchange rates and may not have adequately hedged against them.
Our inability to protect our intellectual property rights could reduce the value of our products or permit competitors to more easily compete with us.
We have been found to have a dominant position in certain markets and have been held in certain markets to be unable to prevent third parties from refilling our exchangeable CO 2 cylinders.
Our headquarters and the majority of our employees are located in Israel and our principal manufacturing facility is located east of Jerusalem in the West Bank, thereby subjecting us to the risk of political and economic pressures.
Management has prepared estimates of our revenues in good faith based upon our internal reporting for the three months ended September 30, 2010. The estimates represent the most current information available to management. Such estimates have not been subject to our normal quarterly financial closing processes and interim condensed financial statement preparation. As a result, our actual financial results could be different from these estimates, and those differences could be material. Our consolidated interim condensed financial statements for the three months ended September 30, 2010 are not expected to be reported and filed with the Securities and Exchange Commission until after this offering is completed.
Based on these management estimates, we expect that our revenue growth for the three months ended September 30, 2010 as compared to the three months ended September 30, 2009 will be substantially consistent with our revenue growth achieved in the first half of the 2010 fiscal year as compared to the first half of the 2009 fiscal year. The substantial majority of this revenue growth is attributable to increased sales in Western Europe and the United States.
We believe that the foregoing information about our revenues, even when unaccompanied by information regarding our operating and net income that is not yet available, is important to an investors understanding of our performance and is a meaningful indicator for assessing our operating performance, because it demonstrates the successful implementation of our sales strategy in both our mature markets and in our newest markets, especially the United States.
The final financial results for the three months ended September 30, 2010 may be different from the preliminary estimates we are providing above due to the completion of the quarterly close and review procedures, final adjustments and other developments that may arise between now and the time the financial results for this period are finalized. However, as of this date, we have not identified any unusual or unique events or trends that occurred during that period which might materially affect our results of operations or financial position.
Our principal executive offices are located at Gilboa Street, Airport City, Ben Gurion Airport 70100, Israel and our telephone number is +972 (3) 976-2301. Our website address is www.sodastream.com. The
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information contained therein or connected thereto shall not be deemed to be incorporated into this prospectus or the registration statement of which it forms a part.
On March 11, 2010, we changed our corporate name from Soda-Club Holdings Ltd. to SodaStream International Ltd.
Throughout this prospectus, we refer to various trademarks, service marks and trade names that we use in our business. SodaStream® and Soda-Club® are some of our registered trademarks. Fizz Chip TM is one of our trademarks. We also have a number of other registered trademarks, service marks and pending applications relating to our products. Other trademarks and service marks appearing in this prospectus are the property of their respective holders.
In this prospectus, the terms SodaStream, we, us, our and the company refer to SodaStream International Ltd. and its consolidated subsidiaries.
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Ordinary shares offered by us |
4,736,842 shares |
Ordinary shares to be outstanding after this offering |
17,673,465 shares |
Use of proceeds |
We estimate that we will receive net proceeds, after deducting the underwriting discount and estimated offering expenses, of $81.6 million from the sale by us of ordinary shares in this offering, based on an assumed public offering price of $19.00 per share, the midpoint of the initial public offering price range set forth on the cover page of this prospectus. We intend to use the net proceeds of this offering: |
to repay approximately €24.4 million ($33.2 million) principal amount of indebtedness owed to financial institutions outstanding as of the date of this prospectus; and |
to repay approximately €1.4 million ($1.9 million) of additional indebtedness owed to our shareholders as of the date of this prospectus; |
to pay for various costs associated with the construction or purchase of an additional manufacturing facility in or near one of our existing markets, amounting to approximately €25.0 million ($34.0 million); |
to pay a one-time termination fee in the amount of €1.75 million ($2.4 million) to Fortissimo Capital Fund GP, L.P. (Fortissimo Capital) in consideration for terminating our Management Services Agreement with them upon the completion of this offering; and |
the balance for working capital and for other general corporate purposes. |
In addition, we may use all or a portion of the net proceeds to acquire or invest in complementary companies, products or technologies, although we currently do not have any acquisitions or investments planned. |
Risk factors |
See Risk Factors and other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our ordinary shares. |
Proposed Nasdaq Global Market symbol |
SODA |
The number of ordinary shares to be outstanding after this offering excludes 2,195,838 ordinary shares reserved for issuance under our equity incentive plans, of which, as of June 30, 2010, options to purchase 1,145,838 shares had been granted at a weighted-average exercise price of €2.54 ($3.45) per share. In addition, effective upon the closing of this offering, we intend to grant to our Chief Executive Officer options to purchase 210,000 ordinary shares with an exercise price equal to the initial offering price.
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Unless otherwise indicated, this prospectus:
reflects the conversion of all our outstanding preferred shares into 4,511,365 ordinary shares, which will automatically occur immediately prior to the closing of this offering;
reflects the conversion of €10.7 million of loans into 6,667,838 ordinary shares, which will occur immediately prior to the closing of this offering;
does not reflect the exercise of a warrant for 12,146 ordinary shares on a cashless basis at an exercise price of $6.45 per share, which will occur immediately following the closing of this offering;
assumes an initial public offering price of $19.00 per ordinary share, the midpoint of the initial public offering price range, set forth on the cover page of this prospectus;
assumes no exercise of the underwriters option to purchase up to an additional 710,526 ordinary shares from us to cover overallotments; and
gives effect to a 1-for-6.45 reverse share split effected on October 6, 2010.
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The following table sets forth our summary consolidated financial and other data. You should read the following summary consolidated financial and other data in conjunction with Selected Consolidated Financial and Other Data, Managements Discussion and Analysis of Financial Condition and Results of Operations and our consolidated financial statements and related notes included elsewhere in this prospectus. Historical results are not indicative of the results to be expected in the future. Our financial statements have been prepared in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board.
The consolidated statements of operations data for each of the years in the three-year period ended December 31, 2009 and the consolidated balance sheet data as of December 31, 2009 are derived from our audited consolidated financial statements appearing elsewhere in this prospectus. The consolidated statements of operations data for the six months ended June 30, 2009 and June 30, 2010 and the consolidated balance sheet data as of June 30, 2010 are derived from our unaudited consolidated financial statements appearing elsewhere in this prospectus. The information presented below under the caption Other Financial and Operating Data contains information that is not derived from our financial statements.
In this prospectus, references to Euros or € are to the Euro, the official currency of the European Union, and references to U.S. Dollars, $ or dollars are to United States dollars. The following tables also contain translations of Euro amounts into U.S. Dollars for amounts presented for the year ended and as of December 31, 2009 and for the six months ended June 30, 2010. These translations are solely for the convenience of the reader and were calculated at the rate of €1.00 = $1.3601, the noon buying rate for Euros in New York City, as certified for customs purposes by the Federal Reserve Bank of New York, on September 30, 2010. You should not assume that, on that or on any other date, one could have converted these amounts of Euros into dollars at that or any other exchange rate.
(in thousands, except per share and share amounts) | Year Ended December 31, | Six Months Ended June 30, | ||||||||||||||||||||||||||
2007 | 2008 | 2009 | 2009 | 2009 | 2010 | 2010 | ||||||||||||||||||||||
Consolidated statements of operations data:
|
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Revenues | € | 85,983 | € | 99,949 | € | 105,023 | $ | 142,842 | € | 45,809 | € | 68,676 | $ | 93,406 | ||||||||||||||
Cost of revenues | 39,745 | 45,213 | 46,593 | 63,371 | 20,458 | 32,886 | 44,728 | |||||||||||||||||||||
Gross profit | 46,238 | 54,736 | 58,430 | 79,471 | 25,351 | 35,790 | 48,678 | |||||||||||||||||||||
Operating expenses:
|
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Sales and marketing | 31,449 | 32,184 | 34,692 | 47,185 | 16,497 | 23,943 | 32,565 | |||||||||||||||||||||
General and administrative | 13,769 | 12,675 | 13,134 | 17,863 | 6,733 | 7,804 | 10,614 | |||||||||||||||||||||
Other (income), net | (25 | ) | (19 | ) | (95 | ) | (129 | ) | (58 | ) | (61 | ) | (83 | ) | ||||||||||||||
Total operating expenses | 45,193 | 44,840 | 47,731 | 64,919 | 23,172 | 31,686 | 43,096 | |||||||||||||||||||||
Operating income | 1,045 | 9,896 | 10,699 | 14,552 | 2,179 | 4,104 | 5,582 | |||||||||||||||||||||
Interest expense, net | 2,195 | 2,742 | 2,022 | 2,750 | 1,220 | 804 | 1,094 | |||||||||||||||||||||
Other financial expenses (income), net | 134 | 1,654 | (248 | ) | (337 | ) | (327 | ) | (1,474 | ) | (2,005 | ) | ||||||||||||||||
Total financial expense (income), net | 2,329 | 4,396 | 1,774 | 2,413 | 893 | (670 | ) | (911 | ) | |||||||||||||||||||
Income (loss) before income tax | (1,284 | ) | 5,500 | 8,925 | 12,139 | 1,286 | 4,774 | 6,493 | ||||||||||||||||||||
Income taxes | 306 | 4,970 | 1,793 | 2,439 | 814 | 602 | 819 | |||||||||||||||||||||
Net income (loss) | € | (1,590 | ) | € | 530 | € | 7,132 | $ | 9,700 | € | 472 | € | 4,172 | $ | 5,674 |
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(in thousands, except per share and share amounts) | Year Ended December 31, | Six Months Ended June 30, | ||||||||||||||||||||||||||
2007 | 2008 | 2009 | 2009 | 2009 | 2010 | 2010 | ||||||||||||||||||||||
Net income (loss) per ordinary share:
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||||||||||||||||||||||||||||
Basic | € | (0.29 | ) | € | 0.09 | € | 1.14 | $ | 1.55 | € | 0.08 | € | 0.67 | $ | 0.91 | |||||||||||||
Diluted | € | (0.29 | ) | € | 0.07 | € | 0.57 | $ | 0.78 | € | 0.05 | € | 0.33 | $ | 0.45 | |||||||||||||
Shares used in computing net income (loss) per ordinary share:
|
||||||||||||||||||||||||||||
Basic | 5,466,901 | 5,850,228 | 6,259,393 | 6,259,393 | 6,259,393 | 6,259,446 | 6,259,446 | |||||||||||||||||||||
Diluted | 5,466,901 | 9,629,991 | 13,206,403 | 13,206,403 | 12,725,454 | 13,503,145 | 13,503,145 | |||||||||||||||||||||
Pro forma net income (loss) per ordinary share:(1)
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||||||||||||||||||||||||||||
Basic | € | 0.65 | $ | 0.88 | € | 0.38 | $ | 0.52 | ||||||||||||||||||||
Diluted | € | 0.41 | $ | 0.56 | € | 0.24 | $ | 0.32 | ||||||||||||||||||||
Shares used in computing pro forma net income (loss) per ordinary share:(1)
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||||||||||||||||||||||||||||
Basic | 10,996,238 | 10,996,238 | 10,996,288 | 10,996,288 | ||||||||||||||||||||||||
Diluted | 18,332,563 | 18,332,563 | 18,619,916 | 18,619,916 |
* The CO 2 refills are sold in exchangeable CO 2 cylinders of different sizes. For the purpose of comparison, we have adjusted the number of CO 2 refills to be equivalent to one standard 60-liter cylinder size.
As of June 30, 2010 | ||||||||||||||||
(in thousands) | Actual | Pro Forma As Adjusted(3) | ||||||||||||||
Consolidated balance sheet data:
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Cash and cash equivalents | € | 4,111 | $ | 5,591 | € | 15,048 | $ | 20,466 | ||||||||
Working capital(4) | 13,626 | 18,533 | 13,626 | 18,533 | ||||||||||||
Total assets | 99,654 | 135,539 | 135,591 | 184,417 | ||||||||||||
Loans and borrowings (including short-term obligations) | 20,931 | 28,469 | | | ||||||||||||
Shareholders loans | 11,947 | 16,249 | | | ||||||||||||
Total liabilities | 79,309 | 107,868 | 46,431 | 63,151 | ||||||||||||
Total equity | 20,345 | 27,671 | 89,160 | 121,266 |
(1) Pro forma net income reflects the reduction in interest expenses attributable to the conversion of €10.7 million of loans plus the accrued interest thereon into ordinary shares, which will automatically occur immediately prior to the closing of this offering. Shares used in computing pro forma net income reflects the issuance of (i) 4,511,365 ordinary shares upon the conversion of our outstanding preferred shares and (ii) 6,667,838 ordinary shares upon the conversion of such outstanding indebtedness, each of which will occur immediately prior to the closing of this offering. For additional information on the conversion of our preferred shares, see note 12A to our consolidated financial statements included elsewhere in this prospectus.
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(2) EBITDA is a non-IFRS measure and is defined as earnings before interest expense, taxes, depreciation and amortization. We present EBITDA as a supplemental performance measure because we believe that it facilitates operating performance comparisons from period to period and company to company. EBITDA should not be considered in isolation or as a substitute for operating income or other statement of operations items prepared in accordance with IFRS as a measure of our performance. EBITDA does not take into account our debt service requirements and other commitments, including capital expenditures, and, accordingly, is not necessarily indicative of amounts that may be available for discretionary uses. In addition, EBITDA, as presented in this prospectus, may not be comparable to similarly titled measures reported by other companies due to differences in the way that these measures are calculated.
Year Ended December 31, | Six Months Ended June 30, | |||||||||||||||||||||||||||
(in thousands) | 2007 | 2008 | 2009 | 2009 | 2009 | 2010 | 2010 | |||||||||||||||||||||
Reconciliation of net income (loss) to EBITDA
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||||||||||||||||||||||||||||
Net income (loss) | € | (1,590 | ) | € | 530 | € | 7,132 | $ | 9,700 | € | 472 | € | 4,172 | $ | 5,674 | |||||||||||||
Interest expense, net | 2,195 | 2,742 | 2,022 | 2,750 | 1,220 | 804 | 1,094 | |||||||||||||||||||||
Income taxes | 306 | 4,970 | 1,793 | 2,439 | 814 | 602 | 819 | |||||||||||||||||||||
Depreciation and amortization | 1,833 | 1,976 | 1,641 | 2,232 | 873 | 1,008 | 1,371 | |||||||||||||||||||||
EBITDA | € | 2,744 | € | 10,218 | € | 12,588 | $ | 17,121 | € | 3,379 | € | 6,586 | $ | 8,958 |
(3) Pro forma as adjusted amounts give effect to the issuance and sale of 4,736,842 ordinary shares by us in this offering at an assumed initial public offering price of $19.00 per ordinary share, the midpoint of the initial public offering price range set forth on the cover page of this prospectus, after deducting the underwriting discount and estimated offering expenses payable by us, and the application of the net proceeds therefrom. See Use of Proceeds and Capitalization.
(4) Working capital is defined as (i) total current assets excluding cash and cash equivalents, minus (ii) total current liabilities excluding loans and borrowings, and shareholders loans.
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This offering and an investment in our ordinary shares involve a high degree of risk. You should consider carefully the risks described below, together with the financial and other information contained in this prospectus, before you decide to buy our ordinary shares. If any of the following risks actually occurs, our business, financial condition and results of operations would suffer. In this case, the trading price of our ordinary shares would likely decline and you might lose all or part of your investment.
A key element of our strategy is to grow our business by expanding sales of our soda makers, CO 2 refills and other related consumables in certain existing markets that we believe have high growth potential in which we currently have a limited presence and in select new markets. In particular, we intend to focus our growth efforts on the United States, the worlds largest market for carbonated beverages and our most important target market. Our success will depend, in large part, upon consumer acceptance and adoption of our products. Consumer tastes and preferences differ in the markets into which we are expanding as compared to those in which we already sell a significant amount of products. We will face several challenges in achieving consumer acceptance and adoption of our home beverage carbonation systems in those markets, including consumers desire to carbonate beverages at home rather than purchasing carbonated beverages and consumers willingness to exchange empty CO 2 cylinders for filled CO 2 cylinders. The United States differs from most European markets because of the higher propensity in the United States to consume carbonated beverages rather than sparking water. This will require us to market our products differently than we have in our key European markets. There can be no assurance that we will meet any of these challenges in the existing or new markets we are targeting and the failure to do so would adversely affect our growth in a particular market and may adversely affect our strategy, future growth and prospects.
Our growth both in existing markets and in new markets depends significantly on our ability to develop or maintain our presence in retail networks, as retailers are the primary channel through which consumers initially purchase our home beverage carbonation system and the primary channel through which our consumables are sold. Our ability to successfully expand in the markets that we are targeting for growth depends, in large part, on whether we are able to establish relationships with strong retailers in those markets for the sale of our home beverage carbonation systems and the exchange of our empty CO 2 cylinders. Establishing relationships with retailers may prove more difficult in the United States, our key market for growth, than in our other markets, as retailers in the United States may be more likely to be resistant to establishing the reverse logistics needed for consumers to return empty CO 2 cylinders and exchange them for filled ones. There can be no assurance that we will be successful in establishing relationships with large retailers in the markets we are targeting for growth, particularly the United States, or that if successful, we will do so in a time frame consistent with our projections or that will enable us to achieve significant sales. Our failure to establish and maintain such relationships will adversely affect our ability to grow in a particular market and may adversely affect our future growth and prospects.
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We are targeting certain markets for growth in which we currently have limited or no presence, including the United States. Achieving and successfully managing growth in these markets will require that we develop and implement production and operating infrastructure including, among other things, infrastructure for product development and for manufacturing our products, information technology and financial control systems. In addition, we will need to continue to develop the infrastructure for consumers to conveniently exchange empty CO 2 cylinders for filled ones, whether through retail outlets or otherwise. The development and implementation of this infrastructure will require significant additional investment as our business grows and becomes increasingly complex in these markets. Our future results will depend on managements ability to successfully implement these initiatives on a larger scale, particularly in the United States. Failure to do so could negatively impact our efforts to increase our sales in these markets and have a material adverse effect on our future growth and prospects.
Our future success also requires that we have adequate capacity in our manufacturing facilities to manufacture sufficient products to support our current level of sales and the anticipated increased levels that may result from our growth plans. We intend to expand the use of subcontractors for certain components, as needed to meet expected demand. We believe that the capacity of our current manufacturing facilities and subcontractors is sufficient to meet anticipated demand for our products through 2012.
In addition, we currently intend to increase our manufacturing capabilities for future needs by constructing or purchasing an additional manufacturing facility in or near one of our existing markets, which will require us to secure additional real estate, hire additional employees and obtain additional financing. Construction of a new manufacturing facility involves risks, including the risk of cost overruns and unexpected delays. Appropriate locations or financing for the purchase or lease of such additional real estate, as well as a sufficient pool of employees, may not be available at reasonable costs or at all. If we choose to purchase an existing manufacturing facility and modify it for our manufacturing needs, we may incur similar cost overruns and unexpected delays. In addition, our projected cost to construct or purchase such a facility might be lower than the actual cost.
Any interruption of operations at our existing manufacturing facilities or our failure to secure additional manufacturing capacity when necessary in the future could result in an interruption in the supply of our products to our customers, thereby impeding our growth plans.
Our products are ultimately sold to consumers and, therefore, our future growth depends in large part on our ability to create awareness of our product and our brand name. To create and maintain this awareness, we intend to engage in extensive advertising and promotional campaigns in certain key markets that we believe have significant growth potential. Our future growth and profitability will depend in part on the effectiveness and efficiency of these campaigns and our media spending, including our ability to:
raise awareness of our home beverage carbonation system and brand name;
determine the appropriate creative message and media mix for future expenditures;
create and tailor specific advertisements and promotion campaigns for each country in which we distribute; and
effectively manage advertising costs, including creative and media costs, to maintain acceptable costs per sale and operating margins.
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We intend to allocate a significant portion of our media spending on marketing campaigns targeted at the United States, our largest market for future growth. These campaigns will require significant financial resources and may require additional funds depending on the results they generate.
There can be no assurance that our marketing campaigns will result in increased revenues or increased product or brand awareness, and we may not be able to increase our sales at the same rate as we increase our advertising expenditures, any of which could have a material adverse effect on our business and results of operations.
Our long-term revenue growth and profitability depend upon our ability to apply our business model of selling soda makers to new consumers and our consumables, particularly our CO 2 refills and flavors, to consumers who already own our soda makers. Since we derive our highest profit margins from our consumables, the continued use of our systems by, and the repeat sales of our consumables to, consumers who have already purchased our home beverage carbonation systems is important to our business. In markets where we have an established presence, we face the challenge of maintaining this customer base due to changes in consumer preference, perception and habits, as well as the introduction of competing products, any of which may cause our consumers to stop using our systems or to use them less frequently. In order to maintain the use of our systems by our consumers, we will need to navigate quickly and respond accordingly to such changes, including through creative initiatives such as new product offerings and special promotions. Our failure to adequately respond to changes in consumer behavior could result in a reduction in the size of our customer base, which would have a material adverse effect on our business and results of operations.
We distribute our home beverage carbonation systems and consumables through exclusive relationships with third party distributors in 26 countries, representing 30% of our revenues in 2009. Our distribution agreements are generally exclusive agreements for a given territory with a five year term and option of renewal; however, our contracts contain performance criteria to maintain exclusivity. If any distributor fails to meet its distribution targets, we may attempt to terminate our distribution agreement with that distributor. We may not be successful in terminating our distribution agreements with our distributors and even if we are successful, we may have to pay statutory compensation to such distributors or fines, and we may experience a delay in retaining new distributors. Because we rely on third party distributors, we have less control than when we distribute directly and can be adversely impacted by the actions of our distributors. For example, in 2009, we experienced a decrease in revenues from Western Europe primarily because our distributor in the Nordics experienced significant financial difficulty as a result of the recession in that market as well as certain inventory management issues relating to consumables, which have since been resolved. Furthermore, our distributors also undertake to manage the reverse logistics needed for our end-user consumers to return empty CO 2 cylinders and exchange them for filled CO 2 cylinders. In the event that any of our distributors does not successfully manage those reverse logistics, it will make it more difficult for our end-user consumers to obtain replacement CO 2 cylinders, which will negatively affect their attitude towards us and our revenues in that market. Any disruption in our distribution network could have a negative effect on our ability to sell our products and maintain our customer base, which would in turn materially and adversely affect our business and results of operations.
We face competition in several of our markets from manufacturers of one or more of the components of our home beverage carbonation systems, including the soda makers, exchangeable CO 2 cylinders, carbonation bottles and flavors. We anticipate that our success may attract additional competition, both from other manufacturers of home beverage carbonation systems and consumables and the
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manufacturers of carbonated beverages. The entry of new competitors into our market or the acquisition of our existing competitors by companies with substantial resources could result in further increased competition and harm our business. Increased competition from new competitors may result in price reductions, reduced gross margins and loss of market share, any of which could have a material adverse effect on our business and results of operations.
In addition, we compete with suppliers of CO 2 who seek to refill our exchangeable CO 2 cylinders and other exchangeable CO 2 cylinders compatible for use with our systems. For a variety of reasons, including safety and public health, through various contractual arrangements, we generally require customers to refill their CO 2 cylinders through authorized refillers. These arrangements have not always been effective in the past and there can be no assurance that they will be effective in the future in deterring unauthorized refilling by our competitors. Additionally, third parties have offered in the past, and may offer in the future, CO 2 cylinders and flavors compatible for use in our home beverage carbonation systems. Such sales of consumables by competitors may result in lost sales opportunities for us, decrease our market share and could cause negative publicity if these products cause damage when used with our products.
We also face competition from manufacturers who sell counterfeit reproductions of our soda makers. Although we monitor and attempt to take action against such manufacturers where possible, there can be no assurance that we will be successful in deterring competitors from manufacturing and selling counterfeit reproductions of our products. These actions may result in lost sales opportunities and harm to our reputation due to the lower quality of these counterfeit products compared to our products. The risk of counterfeiting may increase with the expansion of our business and increased recognition of our brand name.
Finally, we face competition from companies that sell sparkling water and carbonated soft drinks. A number of these competitors are substantially larger than we are and have significantly greater financial, sales and marketing, manufacturing and other resources than are available to us, as well as established brands and greater brand awareness. These competitors may use their resources and scale to respond more rapidly than us to competitive pressures and changes in consumer preferences by introducing new products, reducing prices or increasing promotional activities.
Although we include explicit instructions for the operation of our home beverage carbonation systems and have placed safety warnings on all of our products, consumers may misuse our products, including by:
washing our non-dishwasher safe carbonation bottles in the dishwasher or otherwise exposing them to severe heat, which could cause the bottle to crack;
carbonating substances other than water with our soda maker, which could cause the soda maker to fail and possibly cause damage to the other components of our home beverage carbonation system; and
subjecting our exchangeable CO 2 cylinders to pressure beyond their measured stress resistance, which could cause the cylinder to burst.
The misuse of any of the components of our home beverage carbonating systems may cause personal injury and damage to property. In addition, while we have safety approvals from local authorities for our products, these approvals are predicated upon the exclusive use of our proprietary components with our system. Any unauthorized use of our home beverage carbonation system, including by using third party consumables with our system, could lead to failure or malfunction of the system which in turn could cause
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personal injury or property damage. Potential personal injury and property damage may also result from the deterioration of the quality or contamination of the materials used in our systems, including the tap water used in the soda maker.
Our product liability insurance for personal injury and damage to property may not be sufficient or available to cover any successful product liability claim, or similar claims, against us, which could materially adversely impact our financial condition. Whether or not a claim against us would be successful, defense of the claim may be costly and the existence of any claim may adversely impact our reputation, financial condition or results of operations.
While we make efforts to develop and protect our intellectual property, the validity, enforceability and commercial value of our intellectual property rights may be reduced or eliminated by the discovery of prior inventions by third parties, the discovery of similar marks previously used by third parties, non-use or non-enforcement by us, the successful independent development by third parties of the same or similar confidential or proprietary innovations or changes in the supply or distribution chains that render our rights obsolete. We have been in the past and may in the future be subject to opposition proceedings with respect to applications for registrations of our intellectual property, including but not limited to our marks. As we rely in part on brand names and trademark protection to enforce our intellectual property rights, barriers to our registration of our brand names and trademarks in various countries may restrict our ability to promote and maintain a cohesive brand throughout our key markets.
Our ability to compete effectively depends, in part, on our ability to maintain the proprietary nature of our technologies, which include the ability to obtain, protect and enforce patents and trade secrets and other know how relating to our technology. Our current patent portfolio is limited and certain patents of ours that cover significant aspects of our products will expire in the near future, including a patent for the aerating device present in most of our soda makers, which expires in 2011. Although we hold additional utility patents and design registrations and patents (as well as applications for such) that may protect certain aspects of our products for an extended period, there can be no assurance that pending United States or foreign applications will be approved in a timely manner or at all, or that such registrations will effectively protect our intellectual property. There can be no assurance that we will develop patentable intellectual property in the future, and we may choose not to pursue patents or other protection for innovations that subsequently turn out to be important.
To protect our know-how and trade secrets, we have implemented a system in most jurisdictions by which we require certain of our employees to enter into employment contracts, which include clauses requiring such employees to acknowledge our ownership of all inventions and intellectual property rights they develop in the course of their employment and to agree not to disclose our confidential information. Agreements with certain of our employees also typically contain provisions restricting employment with our competitors for a certain period after they stop working for us. Not all employees have executed such employment agreements, and certain of these restrictions may be of no or little enforceability under applicable law. We also typically include non-compete and confidentiality provisions, as well as provisions acknowledging our ownership of all intellectual property rights, in our distributor and supplier agreements. These provisions may not be adequate or enforceable, and despite our efforts, our know-how and trade secrets could be disclosed to third parties, or third parties could independently develop the same or similar information or technology, which could cause us to lose any competitive advantage resulting from such know-how or trade secrets.
From time to time, we may discover that third parties are infringing or otherwise violating our intellectual property rights. For example, we are aware of third party uses of our trademarks and designs, and there may be other third parties using trademarks or names similar to ours of whom we are unaware. Monitoring unauthorized use of intellectual property is difficult and protecting our intellectual property
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rights could be costly and time consuming. The monitoring and protection of our intellectual property rights may become more difficult, costly and time consuming as we expand into new markets, particularly in those markets, such as China, in which legal protection of intellectual property rights is less robust than in the markets in which we currently operate. We are prepared to protect our intellectual property rights vigorously; however, our patent portfolio is limited in certain markets and, as such, we may be unable to institute effective legal action against third parties engaged in copying of our machines and components.
In November 2009, we filed a lawsuit in the District Court of Stockholm, Sweden, against a competitor, Vikingsoda AB, which had been refilling our exchangeable CO 2 cylinders without our authorization. In the suit, we alleged that Vikingsoda had infringed our intellectual property rights by removing our trademarks from our exchangeable CO 2 cylinders and affixing their trademarks to those cylinders. Vikingsoda has filed a complaint with the Swedish Competition Authority against us and our Scandinavian distributor, as more fully described below. The Stockholm Court of Appeal recently held that a preliminary injunction issued by the District Court of Stockholm, which enjoined Vikingsoda from refilling our exchangeable CO 2 cylinders, cannot be enforced pending further notice, allowing Vikingsoda to refill our exchangeable CO 2 cylinders.
There can also be no assurance that we will prevail in any intellectual property infringement litigation we institute to protect our intellectual property rights given the complex technical issues and inherent uncertainties in litigation. Such litigation may be time consuming, expensive, and may distract our management from running the day-to-day operations of our business. If we are unable to successfully defend our intellectual property rights, we could experience a material adverse effect on our business, brand, financial condition and results of operations. There can be no assurance that our intellectual property rights can be successfully asserted or will not be invalidated, circumvented or challenged. In addition, there can be no assurance that these protections will be adequate to deter the use of our intellectual property rights by third parties or to deter the development of products with features based upon, or otherwise similar to, our products.
We have in the past been, and may in the future be, subject to claims by third parties asserting misappropriation, or that our products and other intellectual property rights infringe, or may infringe, or otherwise violate their proprietary rights. Any such claims, regardless of merit, could result in litigation, which could result in expenses, divert the attention of management, cause significant delays and materially disrupt the conduct of our business. As a consequence of such claims, we could be required to pay a damage award, develop non-infringing products, enter into royalty-bearing licensing agreements, stop selling our products or re-brand our products. Litigation is inherently uncertain and any adverse decision could result in a loss of our proprietary rights, subject us to liabilities, require us to seek licenses from others, which may not be available on reasonable terms, if at all, and otherwise negatively affect our business. In the event of a successful claim of infringement against us or our failure or inability to develop non-infringing technology or license the infringed or similar technology, our business, financial condition and results of operations could be materially adversely affected.
Retaining business from refilling our exchangeable CO 2 cylinders is important to the long-term success of our business and our future growth. For safety, public health and other reasons, we retain through contractual means the ownership of the exchangeable CO 2 cylinders included in our home beverage carbonation systems, whether sold with the system or as a separate component, and prohibit the refilling of the exchangeable CO 2 cylinders by third parties not authorized by us. Our agreements with retailers contain an acknowledgement that we retain title to the exchangeable CO 2 cylinders. In addition, the packaging in which the cylinders are distributed, as well as the cylinders themselves, bear notices advising consumers that we retain title to the cylinders and that their use of the cylinders is under license.
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The German Federal Court of Justice, the highest German court, recently upheld a decision by the German Federal Cartel Office that preventing third parties from refilling our exchangeable CO 2 cylinders constituted an abuse of a dominant position in violation of EU and German competition law and requiring us to permit our cylinders to be refilled by or exchanged with third parties.
In addition, in late 2009, Vikingsoda AB, a refiller of our exchangeable CO 2 cylinders in Sweden, has filed a complaint with the Swedish Competition Authority against us and our Scandinavian distributor, alleging that we abused a dominant market position. The Swedish Competition Authority is currently investigating our practices and has issued a preliminary opinion that preventing third parties from refilling our exchangeable CO 2 cylinders may constitute an abuse of a dominant position.
Further, the Swedish Competition Authority submitted this preliminary opinion to the Stockholm Court of Appeal, requesting that the Swedish courts consider the Swedish Competition Authoritys preliminary opinion in evaluating our claim that Vikingsoda had infringed our intellectual property rights by removing our trademarks from our exchangeable CO 2 cylinders and affixing their trademarks to those cylinders. The Stockholm Court of Appeal recently held that a preliminary injunction issued by the District Court of Stockholm, which enjoined Vikingsoda from refilling our exchangeable CO 2 cylinders, cannot be enforced pending further notice.
If we are found to have abused a dominant position, the District Court of Stockholm may impose an administrative fine on us not exceeding 10% of our annual revenues and the Swedish Competition Authority may require us to terminate the abusive conduct under penalty of a fine. We continue to cooperate with the Swedish Competition Authority.
Although neither the decision of the German Federal Court of Justice nor the preliminary opinion of the Swedish Competition Authority is binding on courts in other jurisdictions, either or both could be cited as precedent in other antitrust or competition law proceedings. There can be no assurance that a court of law in any other jurisdiction will determine that we have not violated applicable competition or antitrust laws. For example, there can be no assurance that a court in any of the jurisdictions in which we operate will uphold our refilling restrictions or ownership rights over the exchangeable CO 2 cylinders or find that the cylinder refilling restrictions we impose on unauthorized third parties do not violate applicable competition or antitrust laws. Our failure to successfully enforce our ownership rights to our exchangeable CO 2 cylinders or to prevent unauthorized third parties from refilling our exchangeable CO 2 cylinders could have a material adverse effect on our business and results of operations.
With sales in 39 countries, our operations are subject to risks inherent in multinational operations, including:
fluctuations in exchange rates;
unpredictability of foreign currency exchange controls;
compliance with a variety of local regulations and laws;
changes in tax laws and the interpretation of those laws; and
difficulties enforcing intellectual property and contractual rights in certain jurisdictions.
In addition, certain jurisdictions could impose tariffs, quotas, trade barriers and other similar restrictions on our sales. Moreover, our business operations could be interrupted and negatively affected by economic changes, geopolitical regional conflicts, terrorist activity, political unrest, civil strife, acts of war, and other economic or political uncertainties. All of these risks could result in increased costs or decreased revenues, either of which could adversely affect our profitability.
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We conduct business in multiple countries, which exposes us to fluctuations in currency exchange rates between the Euro (our reporting currency) and certain other currencies in which we conduct business. Fluctuations of the U.S. Dollar and the NIS against the Euro are the most significant to us because most of our revenues are denominated in Euros, while most of our cost of revenues and operating expenses are denominated in Euros, U.S. Dollars and NIS. Although we currently engage in hedging transactions to minimize our currency risk, future currency exchange rate fluctuations that we have not adequately hedged could adversely affect our profitability. We are also exposed to credit risk if counterparties to our derivative instruments are unable to meet their obligations.
Our business experiences seasonal fluctuations because demand for soft drinks is highest in the summer months, while in colder months, consumers tend to drink fewer carbonated beverages. As a result, we ordinarily experience a decline in sales of all of our products during the winter months, other than in December, when we experience an increase in sales as a result of the holidays. In addition, our business is sensitive to unusual weather conditions for example, if temperatures during the winter are colder than average, we will experience decreased revenues.
Because of the seasonality and sensitivity to unusual weather conditions of our business, results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year. The impact on sales volume and operating results due to the timing and extent of these factors can significantly impact our business. For these reasons, our quarterly operating results should not be relied on as indications of our future performance. These fluctuations may also cause volatility in the market price of our ordinary shares.
We have endeavored to structure our activities in a manner so as to minimize our and our subsidiaries aggregate tax liabilities. However, we have operations in various taxing jurisdictions, and there is a risk that our tax liabilities in one or more jurisdictions could be more than reported in respect of prior taxable periods and more than anticipated in respect of future taxable periods. In this regard, the amount of income taxes that we pay in future taxable periods could be higher if earnings are lower than anticipated in jurisdictions where we have lower statutory rates and higher than anticipated in jurisdictions where we have higher statutory rates.
In addition, we have entered into transfer pricing arrangements that establish transfer prices for our inter-company operations. However, our transfer pricing procedures are not binding on the applicable taxing authorities. No official authority in any country has made a binding determination as to whether or not we are operating in compliance with its transfer pricing laws. Accordingly, taxing authorities in any of the countries in which we operate could challenge our transfer prices and require us to adjust them to reallocate our income and potentially to pay additional taxes for past tax periods. For example, following a recent audit, the tax authorities in Germany issued a finding that the amount of royalties we recognized on our CO 2 refills are not in compliance with that jurisdictions transfer pricing guidelines and issued a tax assessment of approximately €8.2 million, of which €5.6 million is directly in respect of these royalties for the period from 2003 to 2005. While we have appealed this assessment and are not bound to comply with the assessment during the pendency of this appeal, our appeal may not be successful and we may be required to pay some or the entire amount assessed. In addition, during the pendency of our appeal, we may be required to place a deposit or a guaranty with the tax authorities to cover a portion of or the entire assessed amount, which may have a material adverse affect on our available cash and credit lines. Moreover, in the event that our appeal is unsuccessful, further assessments for tax periods after 2005
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could be forthcoming and would likely affect our tax liability on a going-forward basis. We are unable to assess the likelihood that the existing finding of non-compliance in the jurisdiction in which we are having this dispute may lead the taxing authorities of other countries to more closely scrutinize our transfer pricing or issue adverse tax assessments.
The issue of the validity of our transfer pricing procedures will become of greater importance as we continue our expansion in markets in which we currently have a limited presence and attempt to penetrate new markets. In particular, the tax authorities in the United States, our most important expansion market, have increased their focus on transfer pricing procedures generally, which could result in a greater likelihood of a challenge to our transfer prices and the risk that we will be required to adjust them and reallocate our income, which could result in a higher effective tax rate than that to which we are currently subject. Any change to the allocation of our income as a result of review by taxing authorities could have a negative effect on our profitability.
In addition, the determination of our worldwide provision for income taxes and other tax liabilities requires significant judgment and there are many transactions and calculations where the ultimate tax determination is uncertain. Although we believe our estimates are reasonable, our ultimate tax liability may differ from the amounts recorded in our financial statements and may materially adversely affect our financial results in the period or periods for which such determination is made. We have created reserves with respect to such tax liabilities where we believe it to be appropriate. However, there can be no assurance that our ultimate tax liability will not exceed the reserves we have created.
Our products are subject to extensive governmental regulation in the markets in which we operate. Among the regulations we must comply with are those governing the manufacturing and transportation of our exchangeable CO 2 cylinders. In the United States, our most significant target market, and in certain other markets in which we currently operate or may in the future operate, our exchangeable CO 2 cylinders are considered hazardous materials due to the CO 2 inside and the applicable regulations consequently restrict our ability to ship our exchangeable CO 2 cylinders by air and also place significant restrictions on their land transportation, which results in additional costs. There can be no assurance that we will comply with all applicable laws and regulations to which we and our products are subject. If we fail to comply, we may be subject to civil remedies, including fines, injunctions, recalls or seizures, as well as potential criminal sanctions, which could have a material adverse effect on our business, results of operations and reputation.
The flavors we manufacture and distribute are also subject to numerous health and safety laws regulating the manufacture and distribution of food products. Our inability to plan and develop effective procedures to address these laws and regulations, and the need to comply with new or revised laws or regulations, or new interpretations or enforcement of existing laws and regulations, may affect our ability to reach our manufacturing and distribution targets, having an overall material adverse effect on our sales and profitability.
Furthermore, new government laws and regulations may be introduced in the future that could result in additional compliance costs, seizures, confiscations, recalls or monetary fines, any of which could prevent or inhibit the development, distribution and sale of our products. Recently, the Finance Committee of the United States Senate, as well as several state and local governmental authorities in the United States, have considered enacting a tax on sugar-sweetened beverages, including carbonated soft drinks. If such a tax were enacted and if it were to apply to our flavors, the sales and consumption of our non-diet flavors might decrease and thereby have a material adverse impact on our sales and profitability.
We use certain raw materials to produce our soda makers, exchangeable CO 2 cylinders and consumables. The most important of these materials are aluminum, brass, CO 2 , certain plastics and sugar. These
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materials represent a significant portion of our cost of goods sold. The availability and cost of such raw materials have fluctuated in the past and may fluctuate in the future widely due to movements in currency exchange rates, government policy and regulation, crop failures or shortages, weather conditions or other unforeseen circumstances. To the extent that any of the foregoing or other unknown factors increase the prices or limits the supply of such materials and we are unable to increase our prices or adequately hedge against such changes in a manner that offsets such changes, our business and results of operations could be materially and adversely affected.
Damage or disruption to our manufacturing or distribution capabilities due to the financial and/or operational instability of key suppliers, distributors, warehousing and transportation providers, or brokers, or other reasons could impair our ability to manufacture or sell our products. To the extent we are unable to retain alternative sources of supply, or cannot financially mitigate the impact of such events, such as by identifying an alternative supplier in a timely and cost-effective manner, or to effectively manage such events if they occur, there could be a material adverse effect on our sales and profitability, and additional resources could be required to restore our supply chain.
We currently produce the majority of our products, including certain key components, at a single manufacturing facility. A natural disaster or other unanticipated catastrophic events, including power interruptions, water shortage, storms, fires, earthquakes, terrorist attacks and wars, could significantly impair our ability to manufacture our products at that facility and operate our business. Our facility and certain equipment located in this facility would be difficult to replace and could require substantial replacement lead-time. Catastrophic events could also destroy any inventory located in this facility. The occurrence of such an event could lead to a halt in production, which would materially and adversely affect our business and results of operations.
Our business involves complex manufacturing processes and hazardous materials that can be dangerous to our employees. Although we employ safety procedures in the design and operation of our facilities, there is a risk that an accident or death could occur in one of our facilities. Any accident could result in manufacturing delays, which could harm our business and our results of operations. The potential liability resulting from any such accident or death, to the extent not covered by insurance, and any negative publicity associated therewith could harm our business, reputation, financial condition or results of operations.
We manufacture some of the components of our home beverage carbonation systems through third parties in China. Any disruption in production or inability of our manufacturers in China to produce adequate quantities to meet our needs, whether as a result of a natural disaster or other causes, could impair our ability to operate our business on a day-to-day basis and to meet the growing demand for our products. Furthermore, since these manufacturers are located in China, we are exposed to the possibility of product supply disruption and increased costs in the event of changes in the policies of the Chinese government, political unrest or unstable economic conditions in China. Any of these matters could materially and adversely affect our business and results of operations.
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Rising fuel, freight and energy costs have in the past and may in the future have an adverse impact on the cost of our operations, including the manufacture, transportation, and distribution of products. Fuel costs may fluctuate due to a number of factors outside our control, including government policy and regulation and weather conditions. Additionally, we may be unable to maintain favorable arrangements with respect to the costs of transporting products, which could result in increased expenses and negatively affect operations. If we are unable to hedge against such increases or raise the prices of our products to offset the changes, our results of operations could be materially and adversely affected.
We retain the ownership of the exchangeable CO 2 cylinders included in our home beverage carbonation systems through contractual means and collect a deposit from distributors and retailers. The amount of the deposit varies from country to country and also changes over time as market conditions vary in a particular country. In addition, in some countries, including certain major markets in Northern and Western Europe, consumers have paid an advance rental fee when they purchased their first exchangeable CO 2 cylinder. A portion of this fee may be refundable when an empty exchangeable CO 2 cylinder is returned and not exchanged for a full one. To date, returns of exchangeable CO 2 cylinders from our distributors, retailers and consumers have been negligible. However, if distributors, retailers or consumers in any one or more of the markets in which we operate return a large number of cylinders without exchanging them for full ones, we may be required to pay out a large amount of cash to refund a portion of the rental fee or the deposit, which could have a material adverse effect on our financial condition and profitability.
Consumer purchases of discretionary items tend to decline during recessionary periods, when disposable income is lower, and may impact sales of our products. As a result of the global recession, consumers may have less money for discretionary purchases as a result of job losses, foreclosures, bankruptcies, reduced access to credit, and sharply falling home prices, among other things. A prolonged economic downturn or recession in any of the countries in which we conduct significant business or in any of the markets we are targeting for expansion, including the United States, may cause significant readjustments in both the volume and mix of our product sales, which could materially and adversely affect our business and results of operations.
Our Chief Executive Officer, Daniel Birnbaum, and certain other members of our senior management were retained in 2007 following our acquisition by Fortissimo Capital. Given their extensive knowledge of the home beverage carbonation industry and the limited number of direct competitors in that industry, we believe that it would be difficult to find replacements should any of them leave. Our inability to find suitable replacements for any of the members of our senior management team, particularly Mr. Birnbaum, would adversely impair our ability to implement our business strategy and could have a material adverse effect on our business and results of operations.
Based on current expectations, we believe that the proceeds from this offering will be sufficient to finance our strategic plans, including our expansion in markets in which we currently have a limited presence and penetration into certain new markets, for the foreseeable future. However, in the future, we may require additional capital in order to finance even further expansion or possible acquisitions. Our ability to satisfy
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our future capital needs, if any, will depend upon the costs of such financing and the availability of attractive terms for additional financing. The recent global financial crisis has made it more difficult in general for companies to finance their capital expenditure requirements. We may be unable to obtain requisite financing or such financing may not be available on terms that are acceptable to us. The incurrence of additional debt would result in increased debt service obligations resulting in further operating and financing covenants that might restrict our ability to pay dividends to our shareholders. If we were to issue equity to meet our financing needs, it would dilute the holdings of our existing shareholders. Any of the foregoing could have a material adverse effect on our business, financial condition and results of operations.
We will be required to comply with the internal control, evaluation and certification requirements of Section 404 of the Sarbanes-Oxley Act in our Annual Report on Form 20-F for the year ending December 31, 2011. We are in the process of determining whether our existing internal controls over financial reporting systems are compliant with Section 404. This process may divert internal resources and will take a significant amount of time and effort to complete. Irrespective of compliance with Section 404, any failure of our internal controls could have a material adverse effect on our stated results of operations and harm our reputation. As a result, we may experience higher than anticipated operating expenses, as well as higher independent auditor fees during and after the implementation of these changes. If we are unable to implement any of the required changes to our internal control over financial reporting effectively or efficiently, it could adversely affect our operations, financial reporting and results of operations and could result in an adverse opinion on internal controls from our independent auditors.
Our principal manufacturing facility is located in Mishor Adumim, an area in the West Bank that is the subject of dispute between Israel and the Palestinian Authority. Mishor Adumim is currently under Israeli jurisdiction and authority. There has recently been negative publicity, primarily in Western Europe, against companies with facilities in the West Bank. A number of political groups have called for consumer boycotts of Israeli products originating in the West Bank, including our products. Though we manufacture certain of our products in other locations, this may not persuade such political groups sufficiently to end their call to boycott our products. In addition, the Palestinian Authority has adopted legislation that may prohibit or restrict Palestinians from working for Israeli companies located in the West Bank. For these reasons, we may in the future be required to transfer a significant portion of our manufacturing activities to a location outside of the West Bank, which may divert the attention of management, require the expenditure of significant capital resources and limit certain of the tax benefits for which we are currently eligible. Any of the foregoing could have a material adverse effect on our business, financial condition and results of operations.
We are incorporated under Israeli law, and our principal offices and a significant portion of our manufacturing facilities are located in Israel. Accordingly, political, economic and military conditions in Israel directly affect our business. Since the establishment of the State of Israel in 1948, a number of armed conflicts have occurred between Israel and its Arab neighbors. A state of hostility, varying in degree and intensity, has caused security and economic problems in Israel. Although Israel has entered into peace treaties with Egypt and Jordan, and various agreements with the Palestinian Authority, there has been a
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marked increase in violence, civil unrest and hostility, including armed clashes, between the State of Israel and the Palestinians, since September 2000. The establishment in 2006 of a government in the Gaza Strip by representatives of the Hamas militant group has created heightened unrest and uncertainty in the region. In mid-2006, Israel engaged in an armed conflict with Hezbollah, a Shiite Islamist militia group based in Lebanon, and in June 2007, there was an escalation in violence in the Gaza Strip. From December 2008 through January 2009, Israel engaged in an armed conflict with Hamas, which involved missile strikes against civilian targets in various parts of Israel and negatively affected business conditions in Israel. Continued hostilities between Israel and its neighbors and any future armed conflict, terrorist activity or political instability in the region could adversely affect our operations in Israel and adversely affect the market price of our ordinary shares. Further escalation of tensions or violence might result in a significant downturn in the economic or financial condition of Israel, which could have a material adverse effect on our operations in Israel and our business.
In addition, several countries restrict doing business with Israel. The State of Israel and Israeli companies have been and are today subjected to economic boycotts. The interruption or curtailment of trade between Israel and its present trading partners could adversely affect our business, financial condition and results of operations.
Generally, all male adult citizens and permanent residents of Israel under the age of 42 (or older, for citizens who hold certain positions in the Israeli armed forces reserves) are, unless exempt, obligated to perform military reserve duty annually. Additionally, all Israeli residents of this age may be called to active duty at any time under emergency circumstances. Many of our officers and employees are currently obligated to perform annual reserve duty. In response to increased tension and hostilities in the region, there have been, at times, call-ups of military reservists, and it is possible that there will be additional call-ups in the future. Our operations could be disrupted by the absence of one or more of our executive officers or key employees for a significant period due to military service. Such disruption could have a material adverse effect on our business and results of operations.
One of our subsidiaries received investment grants and is eligible for tax benefits under the Israeli Law for the Encouragement of Capital Investments, 5719-1959, referred to as the Investment Law, and the Israeli Law for the Encouragement of Industry (Taxes), 5729-1969. This subsidiary has been granted six separate encouragement of investment programs, of which one is currently active and one program has been approved under the amendment to this law but it has not yet received tax benefits from this program. To remain eligible for these tax benefits, this subsidiary must continue to meet certain conditions stipulated in the Investment Law and its regulations, as amended, and the criteria set forth in the specific certificate of approval. If this subsidiary does not meet these requirements, the tax benefits would be canceled and it could be required to refund any tax benefits and investment grants that it received in the past. Further, in the future these tax benefits may be reduced or discontinued.
Effective April 1, 2005, the Investment Law was amended. Under the amended Investment Law, the criteria for new investments qualified to receive tax benefits were revised. In the future, we may not be eligible to receive additional tax benefits under this law. The termination or reduction of these tax benefits would increase our tax liability, which would reduce our profits. Additionally, if we increase our activities outside of Israel through acquisitions, for example, our expanded activities might not be eligible for inclusion in future Israeli tax benefit programs. See Taxation and Government Programs Israeli Tax Considerations and Government Programs Law for the Encouragement of Capital Investments, 5719-1959.
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We are incorporated in Israel. The majority of our executive officers and directors and the Israeli experts named in this prospectus are not residents of the United States, and the majority of our assets and the assets of these persons are located outside the United States. Therefore, it may be difficult for an investor, or any other person or entity, to enforce a judgment of a United States court based upon the civil liability provisions of the United States federal securities laws against us or any of these persons in a United States or Israeli court, or to effect 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 initiate an action with respect to United States securities laws in Israel. Israeli courts may refuse to hear a claim based on an alleged violation of United States securities laws reasoning that Israel is not the most appropriate forum in which to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not United States law is applicable to the claim. If United States law is found to be applicable, the content of applicable United States law must be proven as a fact by expert witnesses, which can be a time-consuming and costly process. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel that addresses the matters described above. As a result of the difficulty associated with enforcing a judgment against us in Israel, you may not be able to collect any damages awarded by either a United States or foreign court. See Enforceability of Civil Liabilities.
Since we are incorporated under Israeli law, the rights and responsibilities of our shareholders are governed by our articles of association and Israeli law. These rights and responsibilities differ in some respects from the rights and responsibilities of shareholders in United States-based corporations. In particular, a shareholder of an Israeli company has a duty to act in good faith towards the company and other shareholders and to refrain from abusing its power in the company, including, among other things, in voting at the general meeting of shareholders on certain matters, such as an amendment to the companys articles of association, an increase of the companys authorized share capital, a merger and approval of related party transactions that require shareholder approval. In addition, a shareholder who knows that it possesses the power to determine the outcome of a shareholders vote or to appoint or prevent the appointment of a director or executive officer in the company has a duty of fairness towards the company. However, Israeli law does not define the substance of this duty of fairness. See Management Fiduciary Duties and Approval of Specified Related Party Transactions under Israeli Law Duties of Shareholders. Because Israeli corporate law underwent extensive revisions approximately ten years ago, the parameters and implications of the provisions that govern shareholder behavior have not been clearly determined. These provisions may be interpreted to impose additional obligations and liabilities on our shareholders that are not typically imposed on shareholders of United States corporations.
As a foreign private issuer whose shares will be listed on the Nasdaq Global Market, we are permitted to follow certain home country corporate governance practices instead of certain requirements of the Marketplace Rules of the Nasdaq Global Market, or the Nasdaq Marketplace Rules. We may in the future elect to follow Israeli corporate governance practices with regard to, among other things, the composition of our board of directors, compensation of officers, director nomination procedures and quorum requirements at shareholders meetings. In addition, we may elect to follow Israeli corporate governance practices instead of the Nasdaq requirements to obtain shareholder approval for certain dilutive events (such as for the establishment or amendment of certain equity-based compensation plans, issuances that will result in a change of control of the company, certain transactions other than a public offering
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involving issuances of a 20% or more interest in the company and certain acquisitions of the stock or assets of another company). Accordingly, our shareholders may not be afforded the same protection as provided under Nasdaqs corporate governance rules. Following our home country governance practices as opposed to the requirements that would otherwise apply to a United States company listed on the Nasdaq Global Market may provide less protection than is accorded to investors of domestic issuers. See Management Corporate Governance Practices.
In addition, as a foreign private issuer, we will be exempt from the rules and regulations under the United States Securities Exchange Act of 1934, as amended, or the Exchange Act, related to the furnishing and content of proxy statements, and our officers, directors, and principal shareholders will be exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we will not be required under the Exchange Act to file annual, quarterly and current reports and financial statements with the Securities and Exchange Commission as frequently or as promptly as domestic companies whose securities are registered under the Exchange Act.
Our articles of association contain certain provisions that may delay or prevent a change of control. These provisions include a classified board of directors and the requirement of a supermajority vote of our shareholders to amend certain provisions of our articles of association. In addition, Israeli corporate law regulates acquisitions of shares through tender offers and mergers, requires special approvals for transactions involving significant shareholders and regulates other matters that may be relevant to these types of transactions. Further, Israeli tax considerations may make potential transactions undesirable to us or to some of our shareholders whose country of residence does not have a tax treaty with Israel exempting such shareholders from Israeli tax. For example, Israeli tax law does not recognize tax-free share exchanges to the same extent as United States tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment of numerous conditions, including a holding period of two years from the date of the transaction during which certain sales and dispositions of shares of the participating companies are restricted. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomes payable even if no actual disposition of the shares has occurred. See Description of Share Capital Acquisitions under Israeli Law. 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, and may limit the price that investors may be willing to pay in the future for our ordinary shares.
Prior to this offering, there has been no public market for our ordinary shares. An active public trading market may not develop after the completion of this offering or, if developed, may not be sustained. Fluctuations in the market price of our ordinary shares may be exaggerated if the trading volume of our ordinary shares is too low. The lack of a trading market may result in the loss of research coverage by any one or more of the securities analysts that may cover our company in the future. Moreover, we cannot assure you that any securities analyst will initiate or maintain research coverage of us and our ordinary shares. The price of the ordinary shares sold in this offering will not necessarily reflect the market price of our ordinary shares after this offering. The market price for our ordinary shares after this offering will be affected by a number of factors, some of which are beyond our control, including, without limitation:
an increase or decrease in our revenue;
quarterly variations in our results of operations or in our competitors results of operations;
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announcements or introductions of new products by us or competitors;
the recruitment or departure of key personnel;
regulatory developments;
changes in earnings estimates, investors perceptions or recommendations by securities analysts or our failure to achieve analysts earning estimates;
developments in our industry; and
general market conditions and political and other factors unrelated to our operating performance or the operating performance of our competitors.
These factors may materially and adversely affect the market price of our ordinary shares and result in significant price fluctuations.
Following this offering, we will have 17,673,465 ordinary shares outstanding. This includes the 4,736,842 ordinary shares we are selling in this offering, which may be resold in the public market immediately after this offering.
We expect that the remaining 12,936,623 ordinary shares, representing 73.2% of our total outstanding ordinary shares following this offering, will become available for resale in the public market as shown in the chart below. Our directors and executive officers, and the holders of substantially all of our outstanding shares, have signed lock-up agreements for a period of 180 days following the date of this prospectus, subject to extension in the case of an earnings release or material news or a material event relating to us. J.P. Morgan Securities LLC and Deutsche Bank Securities Inc. may, in their sole discretion and without notice, release all or any portion of the ordinary shares subject to lock-up agreements. As restrictions on resale end, the market price of our ordinary shares could drop significantly if the holders of these restricted shares sell them or are perceived by the market as intending to sell them. These factors could also make it more difficult for us to raise additional funds through future offerings of our ordinary shares or other securities.
Number of Shares
and % of Total Outstanding |
Date Available for Sale Into Public Market | |
541,053 shares or 3.1% | On the date of this prospectus | |
9,390 shares or 0.1% | Up to and including 180 days after the date of this prospectus | |
12,386,180 shares or 70.1% | More than 180 days after the date of this prospectus, of which 11,454,211, or 64.8%, are subject to volume, manner of sale and other limitations under Rule 144 |
After 180 days following this offering, subject to the lock-up agreements described above, holders of of our ordinary shares will be entitled to request that we register their shares for resale and certain other shareholders have the right to include their shares in any such registration statement or in a registration statement for any public offering we undertake in the future.
After this offering, we also intend to include in a Registration Statement on Form S-8 all of the ordinary shares that we may issue under our share option plans. Once the Form S-8 becomes effective, these ordinary shares may be freely sold in the public market upon issuance, subject to the lock-up agreements described above. The registration or sale of any of these ordinary shares could cause the market price of our ordinary shares to drop significantly.
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Generally, if for any taxable year 75% or more of our gross income is passive income, or at least 50% of our assets are held for the production of, or produce, passive income, we would be characterized as a passive foreign investment company for United States federal income tax purposes. To determine if at least 50% of our assets are held for the production of, or produce, passive income, we may use the market capitalization method for certain periods. Under the market capitalization method, the total asset value of a company would be considered to equal the fair market value of its outstanding shares plus outstanding indebtedness on a relevant testing date. Because the market price of our ordinary shares is likely to fluctuate after this offering and may be volatile, and the market price may affect the determination of whether we will be considered a passive foreign investment company, there can be no assurance that we will not be considered a passive foreign investment company for any taxable year. If we are characterized as a passive foreign investment company, our United States shareholders may suffer adverse tax consequences, including having gains realized on the sale of our ordinary shares treated as ordinary income, rather than capital gain, the loss of the preferential rate applicable to dividends received on our ordinary shares by individuals who are United States holders, and having interest charges apply to distributions by us and the proceeds of share sales. See Taxation and Government Programs.
The initial public offering price of our ordinary shares substantially exceeds the net tangible book value per share of our ordinary shares immediately after this offering. Therefore, based on the initial public offering price of $19.00 per share (the midpoint of the initial public offering price range set forth on the cover page of this prospectus), if you purchase our ordinary shares in this offering, you will suffer, immediate dilution of €9.65, or $13.12, per share (or €9.31, or $12.66, per share if the underwriters exercise their option to purchase additional ordinary shares), as compared to our pro forma as adjusted net tangible book value as of June 30, 2010. As a result of this dilution, investors purchasing ordinary shares from us in this offering will have contributed 75.6% of the total consideration paid by our shareholders to date but will own only 26.8% of our equity. If outstanding options to purchase our ordinary shares are exercised in the future, you will experience additional dilution.
You should not rely on an investment in our ordinary shares to provide dividend income. We do not anticipate that we will pay any dividends to holders of our ordinary shares in the foreseeable future. Instead, we plan to retain any earnings to maintain and expand our existing operations. In addition, our ability to pay dividends is currently limited by the terms of our credit facilities, and any future credit facility may contain terms prohibiting or limiting the amount of dividends that may be declared or paid on our ordinary shares. Accordingly, investors must rely on sales of their ordinary shares after price appreciation, which may never occur, as the only way to realize any return on their investment. As a result, investors seeking cash dividends should not purchase our ordinary shares.
Our management will have broad discretion in determining how to spend the net proceeds from this offering and may use the proceeds in a manner that our shareholders may not deem desirable. We currently intend to use the net proceeds of this offering to repay certain indebtedness, to pay for various costs associated with the construction or purchase of an additional manufacturing facility, and to pay a one-time termination fee to Fortissimo Capital for terminating our Management Services Agreement with them, with the balance being used for working capital and other general corporate purposes. In addition, we may use all or a portion of the net proceeds to acquire or invest in complementary companies, products or technologies, although we currently do not have any acquisitions or investments planned. We
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will have broad discretion in the way that we use the balance of the net proceeds of this offering. We cannot assure you that these uses or any other use of the balance of the net proceeds of this offering will yield favorable returns or results.
Our executive officers, directors and director nominees and their affiliates, together with our current significant shareholders, will beneficially own approximately 48.3% of our outstanding ordinary shares upon completion of this offering. Moreover, our largest shareholder, Fortissimo Capital, will beneficially own approximately 31.7% of our outstanding ordinary shares upon completion of this offering. In addition, individual partners of this shareholder serve on our board of directors. Accordingly, this shareholder will exercise a controlling influence on us and will continue to be able to significantly influence the outcome of corporate actions requiring shareholder approval, including the election of directors, amending our articles of association, raising future capital, any merger, consolidation or sale of all or substantially all of our assets or any other significant corporate transaction. This shareholder could delay or prevent a change of control of our company, even if such a change of control would benefit our other shareholders. The significant concentration of share ownership may adversely affect the market price of our ordinary shares due to investors perception that conflicts of interest may exist or arise.
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This prospectus contains forward-looking statements that are based on our managements beliefs and assumptions and on information currently available to our management. The forward-looking statements are contained principally in Prospectus Summary, Risk Factors, Managements Discussion and Analysis of Financial Condition and Results of Operations and Business. Forward-looking statements include information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, industry environment, potential growth opportunities, potential market opportunities and the effects of competition. Forward-looking statements include all statements that are not historical facts and can be identified by terms such as anticipates, believes, could, seeks, estimates, expects, intends, may, plans, potential, predicts, projects, should, would or similar expressions that convey uncertainty of future events or outcomes and the negatives of those terms. These statements include, but are not limited to, statements regarding:
our planned expansion into, and the acceptance of our products in, the United States;
our ability to re-introduce and increase our presence in Western European countries;
our ability to educate retailers and consumers about the benefits of our products;
the marketing techniques that we intend to use for expansion into new markets;
the estimated cost of constructing or purchasing, and the timing of completion of, an additional manufacturing facility;
our ability to help retailers understand and successfully manage our cylinder exchange program;
our intention to build up our distribution locations, particularly in high foot traffic locations;
our intention to increase the number of stores in each market where we sell our products;
our intention to increase the number of locations in each market where consumers can exchange their empty CO 2 cylinders;
our intention to expand our refilling capabilities;
our belief that demand for sparkling water will increase in the future;
our belief that the sale of soda makers will increase the sale of consumables;
our ability to increase our installed base of soda makers in order to generate ongoing demand for consumables;
future product developments and our plans for the SodaStream Inside program including our plans to license our proprietary carbonating technology to third parties;
the timing of the release of our new Fizz Chip TM ;
plans to have partnership programs with municipal authorities and public water providers;
our intent to enter new markets in collaboration with distributors;
our ability to continue to lower production costs and increase gross margins;
our continued investment in the expansion of our consumable business;
our ability to introduce additional flavors in order to expand sales in existing markets;
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our belief that raw materials for our products will be readily available;
our belief that additional or alternative facilities will be readily available if necessary;
our belief that our liability insurance will provide sufficient protection;
our belief that our capital expenditure requirements and liquidity needs will be met; and
our intended uses of the proceeds from this offering.
The forward-looking statements contained in this prospectus reflect our views as of the date of this prospectus about future events and are subject to risks, uncertainties, assumptions and changes in circumstances that may cause events or our actual activities or results to differ significantly from those expressed in any forward-looking statement. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future events, results, actions, levels of activity, performance or achievements. Readers are cautioned not to place undue reliance on these forward-looking statements. A number of important factors could cause actual results to differ materially from those indicated by the forward-looking statements, including, but not limited to, those factors described in Risk Factors and Managements Discussion and Analysis of Financial Condition and Results of Operations.
All of the forward-looking statements we have included in this prospectus are based on information available to us on the date of this prospectus. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
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In this prospectus, for convenience only, we have translated the Euro amounts reflected in our financial statements as of and for the year ended December 31, 2009 into U.S. Dollars at the rate of €1.00 = $1.3601, the noon buying rate for Euros in New York City, as certified for customs purposes by the Federal Reserve Bank of New York, on September 30, 2010. You should not assume that, on that or on any other date, one could have converted these amounts of Euros into dollars at that or any other exchange rate.
The following table sets forth, for each period indicated, the low and high exchange rates for Euros expressed in U.S. Dollars, the exchange rate at the end of such period and the average of such exchange rates on the last day of each month during such period, based on the noon buying rate in the City of New York for cable transfers in Euros as certified for customs purposes by the Federal Reserve Bank of New York. The source of the exchange rate is: (i) with respect to any period ending on or prior to December 31, 2008, the Federal Reserve Bank of New York, and (ii) with respect to any period ending on or after January 1, 2009, the H.10 statistical release of the Federal Reserve Board. The exchange rates set forth below demonstrate trends in exchange rates, but the actual exchange rates used throughout this prospectus may vary.
Year Ended December 31, | Six Months Ended June 30, | |||||||||||||||||||||||||||
2005 | 2006 | 2007 | 2008 | 2009 | 2009 | 2010 | ||||||||||||||||||||||
High | 1.3476 | 1.3327 | 1.4862 | 1.6010 | 1.5100 | 1.4270 | 1.4536 | |||||||||||||||||||||
Low | 1.1667 | 1.1860 | 1.2904 | 1.2446 | 1.2547 | 1.2547 | 1.1959 | |||||||||||||||||||||
Period End | 1.1842 | 1.3197 | 1.4603 | 1.3919 | 1.4332 | 1.4020 | 1.2291 | |||||||||||||||||||||
Average Rate | 1.2400 | 1.2661 | 1.3797 | 1.4695 | 1.3955 | 1.3353 | 1.3170 |
The following table sets forth, for each of the last six months, the low and high exchange rates for Euros expressed in U.S. Dollars and the exchange rate at the end of the month based on the noon buying rate as described above. The source of the exchange rate is the H.10 statistical release of the Federal Reserve Board.
Last Six Months | ||||||||||||||||||||||||
April | May | June | July | August | September | |||||||||||||||||||
High | 1.3666 | 1.3183 | 1.2385 | 1.3069 | 1.3282 | 1.3638 | ||||||||||||||||||
Low | 1.3130 | 1.2224 | 1.1959 | 1.2464 | 1.2652 | 1.2708 | ||||||||||||||||||
End of Month | 1.3302 | 1.2369 | 1.2291 | 1.3069 | 1.2704 | 1.3601 |
On September 30, 2010, the noon buying rate for Euros in New York City, as certified for customs purposes by the Federal Reserve Bank of New York, was €1.00 = $1.3601.
33
We estimate that our net proceeds from this offering will be approximately $81.6 million, or approximately $94.2 million if the underwriters exercise in full their option to purchase additional ordinary shares, based upon an assumed initial public offering price of $19.00 per share (the midpoint of the initial public offering price range set forth on the cover page of this prospectus), after deducting the underwriting discount and estimated offering expenses payable by us. A $1.00 increase (decrease) in the assumed public offering price would increase (decrease) the net proceeds we receive from this offering by $4.4 million.
We intend to use the net proceeds of this offering:
to repay approximately €24.4 million ($33.2 million) principal amount of indebtedness owed to financial institutions outstanding as of the date of this prospectus; and
to repay approximately €1.4 million ($1.9 million) of additional indebtedness owed to our shareholders as of the date of this prospectus;
to pay for various costs associated with the construction or purchase of an additional manufacturing facility in or near one of our existing markets, amounting to approximately €25.0 million ($34.0 million);
to pay a one-time termination fee in the amount of €1.75 million ($2.4 million) to Fortissimo Capital in consideration for terminating our Management Services Agreement with them upon the completion of this offering; and
the balance for working capital and for other general corporate purposes.
In addition, we may use all or a portion of the net proceeds to acquire or invest in complementary companies, products or technologies, although we currently do not have any acquisitions or investments planned.
The indebtedness to be repaid consists of the following:
Approximately €10.0 million ($13.6 million) will be used to repay debt outstanding as of the date of this prospectus under our existing revolving credit lines. As of June 30, 2010, approximately €8.0 million ($10.9 million) was outstanding under these existing revolving credit facilities. Our revolving credit facilities are generally provided for one year and renewed on various dates ranging from January to July. Our revolving credit lines bear annual interest of between Libor plus 2.3% and Libor plus 5.0%. As of June 30, 2010, the weighted average interest rate on our revolving credit facilities was 4.6%.
Approximately €14.3 million ($19.4 million) will be used to repay debt outstanding as of the date of this prospectus under existing bank loans and approximately €100,000 ($136,000) will be used to repay financing lease liabilities. As of June 30, 2010, €12.8 million ($17.4 million) was outstanding under bank loans and €100,000 ($136,000) was outstanding under financing lease liabilities. Our Euro loans bear annual interest of between Libor plus 2.0% and Libor plus 3.9%. Our U.S. Dollar loans bear annual interest of Libor plus 1.5%. Our New Israeli Shekel loans bear annual interest of Prime plus 2.0%. Our finance leases bear annual interest of Prime plus 2.25%. As of June 30, 2010, the weighted average interest rate on our bank loans was 4.5% and the weighted average interest rate on our finance leases was 5.2%. Principal is generally payable in quarterly installments ranging from €28,000 ($38,000) per quarter increasing to €156,000 ($212,000) per quarter through December 31, 2010. The final payment of the outstanding principal balance is due in March 2015.
34
Approximately €1.4 million ($1.9 million) will be used to repay debt outstanding as of the date of this prospectus under existing non-convertible shareholder loans. Pursuant to our shareholders agreement, these loans bear no interest and are to be repaid in twelve quarterly installments after two consecutive years in which our EBITDA exceeds €10.0 million. Our EBITDA for 2008 and 2009 exceeded €10.0 million and, therefore, we started to repay these loans beginning in March 2010. Our board of directors has decided to accelerate repayment of these loans following the consummation of this offering.
We will have broad discretion in the way that we use the balance of the net proceeds of this offering not used to repay indebtedness. Pending use of the net proceeds, we intend to invest the net proceeds in interest-bearing, investment-grade instruments with maturities of less than one year or deposit the net proceeds in bank accounts.
35
Historically, we have generally not distributed our net income as dividends to our shareholders but rather re-invested such income in our business. We currently intend to retain all future earnings to finance our operations and to expand our business. Any future determination relating to our dividend policy will be made at the discretion of our board of directors and will depend on a number of factors, including future earnings, capital requirements, the provisions of applicable Israeli law, financial condition and future prospects and other factors our board of directors may deem relevant.
Under Israeli law, we may only declare and pay an annual dividend if, upon the reasonable determination of our board of directors, the distribution will not prevent us from being able to meet the terms of our existing and contingent obligations as they become due. Under Israeli law, the amount distributed is further limited to the greater of retained earnings or earnings generated over the two most recent fiscal years. In the event that we do not meet the retained earnings criteria, as defined in the Israeli Companies Law, we may seek the approval of the applicable Israeli court in order to distribute a dividend. The court may approve our request if it is convinced that there is no reasonable concern that the payment of a dividend will prevent us from satisfying our existing and foreseeable obligations as they become due. See Description of Share Capital Dividend and Liquidation Rights.
The payment of dividends may be subject to Israeli withholding taxes. See Taxation and Government Programs Israeli Tax Considerations and Government Programs Taxation of our Shareholders Taxation of Non-Israeli Shareholders on Receipt of Dividends.
36
The following table sets forth our capitalization as of June 30, 2010, as follows:
on an actual basis;
on a pro forma basis to reflect (1) the automatic conversion of all of our outstanding preferred shares into 4,511,365 ordinary shares immediately prior to the closing of this offering, (2) the conversion of €10.7 million of loans into 6,667,838 ordinary shares, which will occur immediately prior to the closing of this offering, and (3) the amendment and restatement of our articles of association as of the closing date of this offering; and
on a pro forma as adjusted basis to give further effect to our issuance and sale of ordinary shares in this offering at an assumed initial public offering price of $19.00 per share, the midpoint of the initial public offering price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discount and estimated offering expenses payable by us, and the application of the net proceeds therefrom.
You should read this information in conjunction with our consolidated financial statements and the related notes appearing at the end of this prospectus and the Managements Discussion and Analysis of Financial Condition and Results of Operations section and other financial information contained in this prospectus.
As of June 30, 2010 | ||||||||||||
(in thousands) | Actual | Pro Forma |
Pro Forma
As Adjusted |
|||||||||
Loans and borrowings | € | 20,931 | € | 20,931 | € | | ||||||
Shareholders loans | 11,947 | 1,382 | | |||||||||
Ordinary shares, par value NIS 0.645 per share; 54,000,000 shares authorized, 1,757,419 shares issued and outstanding, actual; 54,000,000 shares authorized, pro forma and pro forma as adjusted; 12,936,623 shares issued and outstanding, pro forma; 17,673,465 shares issued and outstanding, pro forma as adjusted | 199 | 1,627 | 2,269 | |||||||||
Series A1 and Series A2 Preferred Shares, par value NIS 0.10 per share; 80,000,000 shares authorized; 29,098,301 shares issued and outstanding, actual; no shares authorized and no shares issued or outstanding, pro forma and pro forma as adjusted | 524 | | | |||||||||
Share premium | 11,733 | 21,114 | 80,471 | |||||||||
Translation reserve | (734 | ) | (734 | ) | (734 | ) | ||||||
Retained earnings | 8,623 | 7,153 | 7,153 | |||||||||
Total shareholders equity | 20,345 | 29,160 | 89,160 | |||||||||
Total capitalization | € | 53,223 | € | 51,473 | € | 89,160 |
A $1.00 increase (decrease) in the assumed initial public offering price of $19.00 per share (the midpoint of the initial public offering price range set forth on the cover page of this prospectus) would increase (decrease) the pro forma as adjusted amount of each of share premium, total shareholders equity and total capitalization by approximately $4.4 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discount and estimated offering expenses payable by us.
37
If you invest in our ordinary shares in this offering, your ownership interest will be immediately diluted to the extent of the difference between the initial public offering price per share and the net tangible book value per ordinary share after this offering. Our pro forma net tangible book value as of June 30, 2010 was €16.4 million, corresponding to a net tangible book value of €1.27, or $1.73, per ordinary share (using the noon buying rate for Euros in New York City, as certified for customs purposes by the Federal Reserve Bank of New York, on September 30, 2010 of €1.00 = $1.3601). Pro forma net tangible book value per share represents our total tangible assets reduced by the amount of our total liabilities, divided by the total number of ordinary shares outstanding after giving effect to the automatic conversion of all of our outstanding preferred shares upon the closing of this offering.
After giving effect to the sale of ordinary shares that we are offering at an assumed initial public offering price of $19.00 per share (the midpoint of the initial public offering price range set forth on the cover page of this prospectus) and after deducting the estimated underwriting discounts and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of June 30, 2010 would have been approximately €76.4 million, or approximately €4.32, or $5.88, per ordinary share. This amount represents an immediate increase in pro forma net tangible book value of €3.05, or $4.15, per ordinary share to our existing shareholders and an immediate dilution in pro forma as adjusted net tangible book value of approximately €9.65, or $13.12, per ordinary share to new investors purchasing ordinary shares in this offering. We determine dilution by subtracting the pro forma as adjusted net tangible book value per share after this offering from the amount of cash that a new investor paid for an ordinary share. The following table illustrates this dilution:
€ | $ | € | $ | |||||||||||||
Assumed initial public offering price per share | 13.97 | 19.00 | ||||||||||||||
Pro forma net tangible book value per share as of June 30, 2010(1) | 1.27 | 1.73 | ||||||||||||||
Increase per share attributable to this offering(1) | 3.05 | 4.15 | ||||||||||||||
Pro forma as adjusted net tangible book value per share after this offering(1) | 4.32 | 5.88 | ||||||||||||||
Dilution per share to new investors(1) | 9.65 | 13.12 |
(1) Translated for convenience only using the noon buying rate for Euros in New York City, as certified for customs purposes by the Federal Reserve Bank of New York, on September 30, 2010 of €1.00 = $1.3601.
A $1.00 increase (decrease) in the assumed initial public offering price of $19.00 per share, which is the midpoint of the initial public offering price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash, cash equivalents and short-term investments, additional paid-in capital, total shareholders equity and total capitalization by approximately €3.2 million, or $4.4 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
If the underwriters exercise their option to purchase additional ordinary shares in full in this offering, the pro forma as adjusted net tangible book value after the offering would be €4.66, or $6.34, per share, the increase in pro forma net tangible book value per share to existing shareholders would be €3.39, or $4.61, and the dilution per share to new investors would be €9.31, or $12.66, per share, in each case assuming an initial public offering price of $19.00 per share, which is the midpoint of the initial public offering price range set forth on the cover page of this prospectus.
38
The following table summarizes, as of June 30, 2010, the differences between the number of shares purchased from us, the total consideration paid to us in cash and the average price per share that existing shareholders and new investors paid. The calculation below is based on an assumed initial public offering price of $19.00 per share (the midpoint of the initial public offering price range set forth on the cover page of this prospectus) before deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
Shares Purchased | Total Consideration |
Average Price
Per Share |
||||||||||||||||||
(in thousands) | ||||||||||||||||||||
Number | Percent | Amount | Percent | |||||||||||||||||
Existing shareholders | 12,936,623 | 73.2 | % | $ | 28,987 | 24.4 | % | $ | 2.24 | |||||||||||
New investors | 4,736,842 | 26.8 | % | $ | 90,000 | 75.6 | % | $ | 19.00 | |||||||||||
Total | 17,673,465 | 100.0 | % | $ | 118,987 | 100.0 | % |
The foregoing tables and calculations exclude 2,195,838 ordinary shares reserved for issuance under our equity incentive plans, of which, as of June 30, 2010, options to purchase 1,145,838 shares have been granted at a weighted-average exercise price of €2.54 ($3.45) per share.
To the extent any of these outstanding options is exercised, there will be further dilution to new investors. To the extent all of such outstanding options had been exercised as of June 30, 2010, the pro forma as adjusted net tangible book value per share after this offering would be €4.21, or $5.73, and total dilution per share to new investors would be €9.76, or $13.27.
If the underwriters exercise their over-allotment option in full:
the percentage of ordinary shares held by existing shareholders will decrease to approximately 70.4% of the total number of our ordinary shares outstanding after this offering; and
the number of shares held by new investors will increase to 5,447,368, or approximately
29.6% of the total number of our ordinary shares outstanding after this offering.
39
You should read the following selected consolidated financial data in conjunction with Managements Discussion and Analysis of Financial Condition and Results of Operations and our consolidated financial statements and the related notes appearing elsewhere in this prospectus.
The following table sets forth our selected consolidated financial and other data. You should read the following selected consolidated financial and other data in conjunction with Selected Consolidated Financial and Other Data, Managements Discussion and Analysis of Financial Condition and Results of Operations and our consolidated financial statements and related notes included elsewhere in this prospectus. Historical results are not indicative of the results to be expected in the future. Our financial statements have been prepared in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board.
The consolidated statements of operations data for each of the years in the three-year period ended December 31, 2009 and the consolidated balance sheet data as of December 31, 2008 and December 31, 2009 are derived from our audited consolidated financial statements appearing elsewhere in this prospectus. The consolidated balance sheet data as of December 31, 2007 is derived from our audited consolidated financial statements that are not included in this prospectus. The consolidated statements of operations data for the six months ended June 30, 2009 and June 30, 2010 and the consolidated balance sheet data as of June 30, 2010 are derived from our unaudited consolidated financial statements appearing elsewhere in this prospectus. Selected consolidated financial information as of December 31, 2005 and 2006 and for the years ended December 31, 2005 and 2006 has been omitted because such information could not be provided without unreasonable effort or expense. The information presented below under the caption Other Financial and Operating Data contains information that is not derived from our financial statements.
In this prospectus, references to Euros or € are to the Euro, the official currency of the European Union, and references to U.S. Dollars, $ or dollars are to United States dollars. The following tables also contain translations of Euro amounts into U.S. Dollars for amounts presented for the year ended and as of December 31, 2009 and for the six months ended June 30, 2010. These translations are solely for the convenience of the reader and were calculated at the rate of €1.00 = US$1.3601, the noon buying rate for Euros in New York City, as certified for customs purposes by the Federal Reserve Bank of New York, on September 30, 2010. You should not assume that, on that or on any other date, one could have converted these amounts of Euros into dollars at that or any other exchange rate.
40
(in thousands, except per share and share amounts) | Year Ended December 31, | Six Months Ended June 30, | ||||||||||||||||||||||||||
2007 | 2008 | 2009 | 2009 | 2009 | 2010 | 2010 | ||||||||||||||||||||||
Consolidated statements of operations data:
|
||||||||||||||||||||||||||||
Revenues | € | 85,983 | € | 99,949 | € | 105,023 | $ | 142,842 | € | 45,809 | € | 68,676 | $ | 93,406 | ||||||||||||||
Cost of revenues | 39,745 | 45,213 | 46,593 | 63,371 | 20,458 | 32,886 | 44,728 | |||||||||||||||||||||
Gross profit | 46,238 | 54,736 | 58,430 | 79,471 | 25,351 | 35,790 | 48,678 | |||||||||||||||||||||
Operating expenses:
|
||||||||||||||||||||||||||||
Sales and marketing | 31,449 | 32,184 | 34,692 | 47,185 | 16,497 | 23,943 | 32,565 | |||||||||||||||||||||
General and administrative | 13,769 | 12,675 | 13,134 | 17,863 | 6,733 | 7,804 | 10,614 | |||||||||||||||||||||
Other (income), net | (25 | ) | (19 | ) | (95 | ) | (129 | ) | (58 | ) | (61 | ) | (83 | ) | ||||||||||||||
Total operating expenses | 45,193 | 44,840 | 47,731 | 64,919 | 23,172 | 31,686 | 43,096 | |||||||||||||||||||||
Operating income | 1,045 | 9,896 | 10,699 | 14,552 | 2,179 | 4,104 | 5,582 | |||||||||||||||||||||
Interest expense, net | 2,195 | 2,742 | 2,022 | 2,750 | 1,220 | 804 | 1,094 | |||||||||||||||||||||
Other financial expenses (income), net | 134 | 1,654 | (248 | ) | (337 | ) | (327 | ) | (1,474 | ) | (2,005 | ) | ||||||||||||||||
Total financial expense (income), net | 2,329 | 4,396 | 1,774 | 2,413 | 893 | (670 | ) | (911 | ) | |||||||||||||||||||
Income (loss) before income tax | (1,284 | ) | 5,500 | 8,925 | 12,139 | 1,286 | 4,774 | 6,493 | ||||||||||||||||||||
Income taxes | 306 | 4,970 | 1,793 | 2,439 | 814 | 602 | 819 | |||||||||||||||||||||
Net income (loss) | € | (1,590 | ) | € | 530 | € | 7,132 | $ | 9,700 | € | 472 | € | 4,172 | $ | 5,674 | |||||||||||||
Net income (loss) per ordinary share:
|
||||||||||||||||||||||||||||
Basic | € | (0.29 | ) | € | 0.09 | € | 1.14 | $ | 1.55 | € | 0.08 | € | 0.67 | $ | 0.91 | |||||||||||||
Diluted | € | (0.29 | ) | € | 0.07 | € | 0.57 | $ | 0.78 | € | 0.05 | € | 0.33 | $ | 0.45 | |||||||||||||
Shares used in computing net income (loss) per ordinary share:
|
||||||||||||||||||||||||||||
Basic | 5,466,901 | 5,850,228 | 6,259,393 | 6,259,393 | 6,259,393 | 6,259,446 | 6,259,446 | |||||||||||||||||||||
Diluted | 5,466,901 | 9,629,991 | 13,206,403 | 13,206,403 | 12,725,454 | 13,503,145 | 13,503,145 | |||||||||||||||||||||
Pro forma net income (loss) per ordinary share:(1)
|
||||||||||||||||||||||||||||
Basic | € | 0.65 | $ | 0.88 | € | 0.38 | $ | 0.52 | ||||||||||||||||||||
Diluted | € | 0.41 | $ | 0.56 | € | 0.24 | $ | 0.32 | ||||||||||||||||||||
Shares used in computing pro forma net income (loss) per ordinary share:(1)
|
||||||||||||||||||||||||||||
Basic | 10,996,238 | 10,996,238 | 10,996,288 | 10,996,288 | ||||||||||||||||||||||||
Diluted | 18,332,563 | 18,332,563 | 18,619,916 | 18,619,916 |
Year Ended December 31, | Six Months Ended June 30, | |||||||||||||||||||||||||||
(in thousands) | 2007 | 2008 | 2009 | 2009 | 2009 | 2010 | 2010 | |||||||||||||||||||||
Other financial and operating data:
|
||||||||||||||||||||||||||||
Total number of soda makers sold (unaudited) | 730 | 877 | 1,057 | N/A | 387 | 761 | N/A | |||||||||||||||||||||
Total number of CO 2 refills sold (unaudited) * | 7,364 | 7,496 | 8,166 | N/A | 3,907 | 4,622 | N/A | |||||||||||||||||||||
EBITDA(2) | € | 2,744 | € | 10,218 | € | 12,588 | $ | 17,121 | € | 3,379 | € | 6,586 | $ | 8,958 |
* The CO 2 refills are sold in exchangeable CO 2 cylinders of different sizes. For the purpose of comparison, we have adjusted the number of CO 2 refills to be equivalent to one standard 60-liter cylinder size.
41
As of December 31, | As of June 30, | |||||||||||||||||||||||
(in thousands) | 2007 | 2008 | 2009 | 2009 | 2010 | 2010 | ||||||||||||||||||
Consolidated balance sheet data:
|
||||||||||||||||||||||||
Cash and cash equivalents | € | 1,928 | € | 4,349 | € | 4,185 | $ | 5,692 | € | 4,111 | $ | 5,591 | ||||||||||||
Working capital(3) | 8,610 | 7,415 | 5,086 | 6,917 | 13,626 | 18,533 | ||||||||||||||||||
Total assets | 61,664 | 68,682 | 77,695 | 105,673 | 99,654 | 135,539 | ||||||||||||||||||
Loans and borrowings (including short-term obligations) | 23,398 | 18,329 | 12,754 | 17,347 | 20,931 | 28,469 | ||||||||||||||||||
Shareholders loans | 6,330 | 11,564 | 11,793 | 16,039 | 11,947 | 16,249 | ||||||||||||||||||
Total liabilities | 53,301 | 59,372 | 61,039 | 83,019 | 79,309 | 107,868 | ||||||||||||||||||
Total equity | 8,364 | 9,310 | 16,656 | 22,654 | 20,345 | 27,671 |
(1) Pro forma net income reflects the reduction in interest expenses attributable to the conversion of €10.7 million of loans plus the accrued interest thereon into ordinary shares, which will automatically occur immediately prior to the closing of this offering. Shares used in computing pro forma net income reflects the issuance of (i) 4,511,365 ordinary shares upon the conversion of our outstanding preferred shares and (ii) 6,667,838 ordinary shares upon the conversion of such outstanding indebtedness, each of which will occur immediately prior to the closing of this offering. For additional information on the conversion of our preferred shares, see note 12A to our consolidated financial statements included elsewhere in this prospectus.
(2) EBITDA is a non-IFRS measure and is defined as earnings before interest expense, taxes, depreciation and amortization. We present EBITDA as a supplemental performance measure because we believe that it facilitates operating performance comparisons from period to period and company to company. EBITDA should not be considered in isolation or as a substitute for operating income or other statement of operations items prepared in accordance with IFRS as a measure of our performance. EBITDA does not take into account our debt service requirements and other commitments, including capital expenditures, and, accordingly, is not necessarily indicative of amounts that may be available for discretionary uses. In addition, EBITDA, as presented in this prospectus, may not be comparable to similarly titled measures reported by other companies due to differences in the way that these measures are calculated.
Year Ended December 31, | Six Months Ended June 30, | |||||||||||||||||||||||||||
(in thousands) | 2007 | 2008 | 2009 | 2009 | 2009 | 2010 | 2010 | |||||||||||||||||||||
Reconciliation of net income (loss) to EBITDA
|
||||||||||||||||||||||||||||
Net income (loss) | € | (1,590 | ) | € | 530 | € | 7,132 | $ | 9,700 | € | 472 | € | 4,172 | $ | 5,674 | |||||||||||||
Interest expense, net | 2,195 | 2,742 | 2,022 | 2,750 | 1,220 | 804 | 1,094 | |||||||||||||||||||||
Income taxes | 306 | 4,970 | 1,793 | 2,439 | 814 | 602 | 819 | |||||||||||||||||||||
Depreciation and amortization | 1,833 | 1,976 | 1,641 | 2,232 | 873 | 1,008 | 1,371 | |||||||||||||||||||||
EBITDA | € | 2,744 | € | 10,218 | € | 12,588 | $ | 17,121 | € | 3,379 | € | 6,586 | $ | 8,958 |
(3) Working capital is defined as (i) total current assets excluding cash and cash equivalents, minus (ii) total current liabilities excluding loans and borrowings, and shareholders loans.
42
You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes and other financial information included elsewhere in this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review the Risk Factors section of this prospectus for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
SodaStream manufactures home beverage carbonation systems, which enable consumers to easily transform ordinary tap water instantly into carbonated soft drinks and sparkling water. We develop, manufacture and sell soda makers and exchangeable carbon-dioxide (CO 2 ) cylinders, as well as consumables, consisting of CO 2 refills, reusable carbonation bottles and flavors to add to the carbonated water.
We currently sell our products through more than 35,000 retail stores in 39 countries, including 24 new countries that we have entered since the beginning of 2007. We distribute our products directly in 12 countries and indirectly through local distributors in our remaining markets. Our products are sold under the SodaStream® brand name in most countries, and under the Soda-Club® brand name or select other brand names in certain other countries. While our distribution strategy is customized for each market, we generally employ a multi-channel distribution approach that is designed to raise awareness and establish positioning of our product offerings, first in specialty retail and direct marketing channels and then in larger food, drug and mass retailers.
We have an attractive razor/razor blade business model, which is designed to increase sales of soda makers (the razor); and to generate recurring sales of higher-margin consumables, consisting of CO 2 refills, carbonation bottles and flavors (collectively, the razor blades). As sales of our soda makers increase, we expect that the subsequent sales of related consumables will result in increased gross profits due to the higher gross margin associated with our consumables. However, in order to further develop our user base, we plan to continue to focus on increasing our soda maker sales and expect soda maker sales to continue to be a growing component of our overall revenues. We therefore do not foresee a material overall increase in gross margin over the next few years.
Our revenues grew from €86.0 million in 2007 to €105.0 million in 2009, and from €45.8 million in the six months ended June 30, 2009 to €68.7 million in the six months ended June 30, 2010. We believe that this growth in revenues has been driven by our heightened focus on promoting soda maker sales in both existing markets and new markets to increase our installed base, in particular in Western Europe, but also in North America and Asia-Pacific. The growth of our installed base has in turn resulted in an increase in revenues from sales of consumables.
Our strategy is to expand our active installed base, by further penetrating existing markets and by entering new markets. We intend to continue initiating select marketing activities, including aggressive public relations campaigns, in-store demonstrations, direct response TV advertising (infomercials), point-of-sale advertising, and regional and national media advertising campaigns in order to both inform consumers of our product offerings and test the effectiveness of various demand-creation vehicles. A key part of our strategy is to grow our revenues in the United States, which we believe can become one of our largest markets within a number of years. We also plan on accelerating our efforts and devoting resources to increase our active user base in other markets, in particular in Germany, France and Italy.
43
Our revenues consist primarily of sales of soda makers and recurring sales of higher-margin consumables, including CO 2 refills, carbonation bottles and flavors. We derive revenues from the sale of goods to our customers, who may be consumers, retail partners or distributors, depending on the sales channel through which the goods are sold. The majority of our product distribution to our ultimate customers is through retail stores. Our distribution retail coverage includes many of the leading chain stores in the markets in which we operate. In some markets, such as the United States, we also distribute our soda makers and consumables directly to consumers through telephone service centers or the Internet.
We record revenues from sales of these items at the gross sales price, net of returns, trade discounts, rebates and provisions for estimated returns of exchangeable CO 2 cylinders. We recognize revenues when the significant risks and rewards of ownership have been transferred to the buyer, collection of payment is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods and the amount of revenue can be measured accurately.
The following tables present our revenues, by product type for the periods presented, as well as such revenues by product type as a percentage of total revenues:
Year Ended December 31, | Six Months Ended June 30, | |||||||||||||||||||
(in thousands) | 2007 | 2008 | 2009 | 2009 | 2010 | |||||||||||||||
Revenues | ||||||||||||||||||||
Soda makers and exchangeable CO 2 cylinders | € | 27,202 | € | 31,406 | € | 39,091 | € | 13,495 | € | 28,033 | ||||||||||
Consumables | 51,963 | 59,768 | 59,329 | 27,779 | 36,271 | |||||||||||||||
Other(1) | 6,818 | 8,775 | 6,603 | 4,535 | 4,372 | |||||||||||||||
Total | € | 85,983 | € | 99,949 | € | 105,023 | € | 45,809 | € | 68,676 |
Year Ended December 31, | Six Months Ended June 30, | |||||||||||||||||||
2007 | 2008 | 2009 | 2009 | 2010 | ||||||||||||||||
As a Percentage of Revenues | ||||||||||||||||||||
Soda makers and exchangeable CO 2 cylinders | 31.7 | % | 31.4 | % | 37.2 | % | 29.5 | % | 40.8 | % | ||||||||||
Consumables | 60.4 | 59.8 | 56.5 | 60.6 | 52.8 | |||||||||||||||
Other(1) | 7.9 | 8.8 | 6.3 | 9.9 | 6.4 | |||||||||||||||
Total | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
(1) Other consists primarily of sales of Brita-branded products in Israel.
We believe that the number of soda makers and CO 2 refills sold during each period is an important indicator of the expansion rate of our business. The number of soda maker units sold is indicative of the growth of our user base and the number of CO 2 refills sold is indicative of consumables sales to our active user base. The number of soda maker units that we sold in 2009 increased by 44.8% compared to 2007 and the number of CO 2 refills increased by 10.9%. The number of soda maker units that we sold during the six months ended June 30, 2010 increased by 96.6% compared to the six months ended June 30, 2009 and the number of CO 2 refills that we sold increased by 18.3% over the same period. We estimate, based on consumer surveys and sales of CO 2 refills, that there are currently approximately 4 million consumers who create a carbonated beverage using our system at least once every two weeks, whom we refer to as active consumers, with many of the largest carbonated soft drink and sparkling water markets still remaining virtually untapped.
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We believe that the sale of every soda maker can have a compounding effect because every sale increases the potential demand for our consumables, which consist of CO 2 refills, flavors and carbonation bottles, over time. Each soda maker that is sold comes with a filled exchangeable CO 2 cylinder, which is recorded in the revenues category above referred to as soda makers and exchangeable CO 2 cylinders. A consumer would not typically need to purchase a CO 2 refill, which is recorded in the sales category above referred to as consumables, for several months. Consequently, our general historical experience is that the initial growth in consumables after we enter a new market is slower than growth in soda makers sales, but that the sale of consumables increases correspondingly once have we have established an active user base. This results in a lag between the growth in soda maker sales and growth in the sales of consumables. As an illustration of these trends, for the year ended December 31, 2008, the year ended December 31, 2009, and the six months ended June 30, 2010 (in each case, as compared to the prior comparable period), the annual growth in the volume of soda makers sold was 20%, 20% and 97%, respectively. The increase in CO 2 refills for those periods was 2%, 9% and 18%, respectively. The change in sales of flavors for those periods was an increase of 21%, a decrease of 13% and an increase of 64%, respectively. The increase in sales of carbonation bottles for those periods was 19%, 9% and 57%, respectively. The growth in revenues from the sale of consumables for the six months ended June 30, 2010 reflects the growth in soda maker sales during previous periods.
While we anticipate that this trend will continue, a variety of factors, including consumer retention rates, the growth of our reverse logistics network, weather and competition could affect our results in the future. For example, the sales of consumables was depressed in 2009 as a result of a freeze on orders for flavors during the six months ended June 30, 2009 placed by our distributor in the Nordics, who experienced significant financial difficulty as a result of the global recession and material over-stocking of flavors in the previous year. Both of those issues have since been resolved.
In most of the markets in which our products are sold, we operate through local distributors. Distributors are required to meet annual purchase targets defined as monetary amounts for the first or second year of the distribution contract, as well as defined growth targets for each of the subsequent years until the end of the contract (usually 5 years). In addition, annual and semi-annual discussions with distributors often include more specific volume targets per product type. Distributors that do not meet the defined purchase targets stated in the contract (the annual purchase targets) can be terminated by notice during the first quarter following the year in which they failed to achieve the target. The termination takes effect six months after the notice is given.
Our cost of revenues consists primarily of raw materials and components, as well as production and production-related labor, freight costs and other direct and indirect production costs. We require certain raw materials to manufacture our soda makers, exchangeable CO 2 cylinders, carbonation bottles and flavors, including, in particular, aluminum, plastics, flavoring essences, brass, sugar, CO 2 , sweeteners and fruit concentrate. In addition, cost of sales includes the cost of delivery from the production site to the distribution warehouse. When we sell products to our third-party distributors, they usually collect their orders from our warehouses and bear the cost of delivery. We have opened regional refilling stations and plan to open additional regional refilling stations in new markets to lower the freight costs of filling exchangeable CO 2 cylinders.
Gross profit and gross margin are influenced by each of the following factors:
The gross margins of our consumables are typically higher than the gross margin of our soda makers. We have found that as markets mature, sales of our consumables become a larger portion of our total revenues, thus increasing overall gross margins.
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The gross margin on sales in markets where we distribute directly is generally higher than markets in which we use external distributors, due to the elimination of the external distributors margin. In many markets, our expansion strategy is to work with third party distributors who we believe will have a better ability to increase revenues in their market than we could if we distributed our products directly. However, in several of our key markets targeted for expansion, including the United States, we intend to distribute directly, and thus we believe our gross margins will be positively impacted as the portion of our revenues from these markets increases.
Our cost of revenues, and therefore our gross profit, is impacted by several factors, including the commodity prices of aluminum, plastics, flavoring essences, brass, sugar, CO 2, sweeteners and fruit concentrates; production labor costs; and fuel prices, which affect our freight costs.
The majority of our purchases of raw materials and parts is denominated in U.S. Dollars and the majority of our labor costs is denominated in New Israeli Shekels (NIS). Currently, the majority of our sales are denominated in Euros. As a result, the higher the Euro/U.S. Dollar and the Euro/NIS exchange rates are, the higher our gross margin will be. In the coming years, we expect our sales in the United States to exceed our U.S. Dollar costs and, thereby, reverse our Euro/U.S. Dollar currency exposure. We regularly purchase currency hedging options and enter into forward contracts to hedge against the weakening of the Euro against the U.S. Dollar or the NIS. Such transactions are mostly unrelated to specific operating transactions and therefore included in financial income and expenses.
Increases in our prices have positively impacted our gross margin in each of the past two years. In the coming years, we do not expect that any further price increases will materially impact our gross margins.
We continuously seek to reduce the cost of production, through engineering and purchasing optimization, without compromising the quality of our products. The success of such cost reduction activities in the past has resulted in lower production costs and improved gross margins. We expect these activities and related cost savings to continue.
If our overall revenues grow, certain manufacturing costs, which are fixed in nature such as the cost of production management and engineering employees will constitute a smaller percentage of our overall cost of sales and will positively affect our gross margin.
Our sales and marketing expenses consist primarily of wages, salaries and other employee remuneration to our marketing, selling, distribution and other sales-support employees; advertising and promotions expenses; warehousing and distribution costs; commissions; and bad debts. Our warehousing and distribution expenses principally consist of the cost of delivering our products to our customers premises (home, office, warehouse or other as the case may be). The distribution of our products and the collection of the exchangeable CO 2 cylinders for refill often involve freight costs and require logistical planning and execution. In some countries, and in particular in the United States, we sell our products directly to our consumers homes. In these cases, we bear high distribution expenses for a small volume of deliveries and the collection of the empty exchangeable CO 2 cylinders. In many cases, we are able to pass some delivery costs on to consumers. In the United States, we have significantly reduced such costs by arranging for delivery through regional service providers.
Our advertising and promotion expenses consist primarily of media adverting costs, trade and consumer marketing expenses and public relation expenses. As we intend to invest in increasing our active customer installed base, particularly in the United States, we expect sales and marketing expenses in general, and advertising expenses in particular, to increase in both absolute and percentage terms.
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Our general and administrative expenses consist primarily of wages, salaries and other employee benefits for our managerial and administrative personnel, rental fees, and building maintenance communications and support costs as well as professional advisors. As we expand our installed base of active consumers, primarily in our direct sales markets and in particular in the United States, we expect our administrative expenses to increase. We also expect an increase in our administrative expenses as a result of the additional costs related to this offering and our subsequent status as a public reporting company.
Since our acquisition by Fortissimo Capital, we have undertaken several business realignment initiatives. Associated with these initiatives have been certain selling, marketing and administrative expenses, such as severance expenses related to the termination of personnel following the closing of some of the European headquarters that were managing certain of our direct distribution operations in Europe (this was part of the change in our expansion strategy from operating directly in new markets to opening new markets with external third party distributors), combining the management and administration of some of our markets under one unit, shifting some of our in-house activities to outsourcing, and shifting local support functions to central management by our group headquarters. We currently have no ongoing business realignment initiatives.
Other income, net consists primarily of rental income, capital gains and losses and customs refunds.
Financial expenses, net, consists primarily of (i) borrowing costs, (ii) foreign currency exchange income and expenses, and (iii) gains and losses on derivative instruments. These expenses are offset against interest income on our cash balances and gains and losses on derivative instruments. We expect financial income to increase as we invest the proceeds of this offering in cash, cash equivalents and marketable securities pending their application to grow our business.
The regular corporate tax rate in Israel in 2010 is 25%. The Israeli corporate tax rate for the 2008 tax year was 27% and for the 2009 tax year was 26%. The Israeli corporate tax rate is expected to decline to 18% by the year 2016. Non-Israeli subsidiaries are taxed according to the tax laws in their respective country of organization. Certain of our subsidiaries benefit from tax incentives such as reduced tax rates ranging from 0% to 10%. In previous years, we have received specific tax rulings in certain countries allowing for reduced tax rates, which have subsequently expired. We are currently in the process of attempting to obtain extensions for these tax rulings.
One of our Israeli subsidiaries received Approved Enterprise status under the Israeli Law for the Encouragement of Capital Investments 1959. This subsidiary was certified for six approved investment programs under this law. Its currently active program provides for an exemption from taxable income generated from assets which were approved under this program for a ten-year period beginning with the first year in which taxable income was generated by these assets. Its ten-year benefit period, with respect to this program, will expire in 2011. The rate of the exempt income is calculated based on the increase in the subsidiarys revenues, during each benefit year, in comparison with base revenue, which, in its case, is approximately €36.0 million. This exemption is valid only for undistributed earnings and we are subject to additional tax payments upon their distribution.
We are in the operational stage of an additional program under the 2005 amendment to the Law for the Encouragement of Capital Investments 1959. The additional program provides grants of 24% of the investment value in approved assets and ten years of reduced tax rates, of which the first two years are at a 0% tax rate on taxable income produced by the approved assets and the remaining years are at a tax rate of not more than 20% on such taxable income.
Under this and other Israeli legislation, we are entitled to accelerated depreciation and amortization rates for tax purposes on certain of our assets. For more information about the tax benefits available to us as an approved enterprise, see Taxation and Government Programs.
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Over the years of our business operations, we have accumulated net operating loss carry forwards for tax purposes amounting to approximately €31.0 million as of December 31, 2009. In some cases, the carrying amount of the losses is restricted due to changes in the share ownership of the company or due to limitations on the utilization period of such losses.
In addition, we have entered into transfer pricing arrangements that establish transfer prices for our inter-company operations. However, our transfer pricing procedures are not binding on the applicable taxing authorities. No official authority in any country has made a binding determination as to whether or not we are operating in compliance with its transfer pricing laws and regulations. Taxing authorities in any of the countries in which we operate could challenge our transfer prices and require us to adjust them to reallocate our income. For example, following a recent audit, the tax authorities in Germany challenged the amount of royalties we recognized on our CO 2 refills and issued a tax assessment of approximately €8.2 million, of which €5.6 million is directly in respect of these royalties for the period from 2003 to 2005. While we plan to vigorously challenge this assessment and have applied for a Mutual Agreement Procedure under Article 6 of the EU Arbitration Convention against the tax authoritys assessment, our challenge may not be successful and we may be required to pay some of the entire amount assessed. We have created reserves with respect to such tax liabilities where we believe it to be appropriate. However, there can be no assurance that our ultimate tax liability will not exceed the reserves we have created.
Because we operate in a number of countries, our income is subject to taxation in differing jurisdictions with a range of tax rates. Therefore, we need to apply significant judgment to determine our consolidated income tax position. As a result of our multi-jurisdictional operations, we are exposed to a number of different tax risks including, but not limited to, changes in tax laws or interpretations of these tax laws. The tax authorities in the jurisdictions where we operate may audit our tax returns and may disagree with the position taken in those returns. An adverse outcome resulting from any settlement or future examination of our tax returns may result in additional tax liabilities and may adversely affect our effective tax rate, which could have a material adverse effect on our financial position, results of operations and liquidity. In addition, any examination by the tax authorities could cause us to incur significant legal expenses and divert managements attention from the operation of our business.
We estimate our effective tax rate for the coming years based on our planed future financial results in existing and new markets and the key factors setting our tax liability, in particular our transfer pricing policy and net operating loss carry forwards. Accordingly, we estimate that our effective tax rate will range between 15% and 20% of our income before income tax. There could be no certainty that our plans will be realized and that our assumptions with regard to the key elements affecting tax rates will be accepted by the tax authorities. Therefore, our actual effective tax rate might be higher than our estimate.
During the six months ended June 30, 2010, we granted options to purchase 120,543 ordinary shares under our equity incentive plan. The total amount of share-based compensation derived from the options granted in the six months ended June 30, 2010 is €883,233. The expense will be recognized over a four-year vesting period. The total amount with respect to the 2010 grants that is expected to be recognized in 2010 is €358,217 (of which €104,575 was recognized in the six months ended June 30, 2010).
As we have rapidly entered new markets over the past few years, we have begun to review our performance in distinct operating segments representing geographical regions. Each region has similar characteristics relevant to our business and usually includes several markets in which we sell our products. The sales of our products in each market are managed either by wholly owned subsidiaries or by external
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third party distributors. The reported performances of these markets are provided periodically and consolidated for presentation to our board of directors, which acts as our Chief Operating Decision Maker (the CODM).
We have identified four reportable operating segments, each of which represents a geographical area with similar characteristics. The products sold in all the segments are similar and generally produced in the same production sites. The identified segments are:
Western Europe consists of our markets in western and northern Europe, which are characterized by high standards of living and high price levels. These markets also consume relatively high volumes of sparkling water as compared to carbonated soft drinks.
The Americas consists of the United States and other markets in North America and Central America, which are significantly influenced by the consumption culture of the United States and which are characterized by a very high consumption of carbonated soft drinks.
Central and Eastern Europe, Middle East and Africa (CEMEA) consists of our markets in Central and Eastern Europe, Israel and South Africa. These markets tend to be characterized by a lower price level in comparison with the other geographical markets in which we operate.
Asia-Pacific consists of our Australian and New Zealand, together with our new markets in East Asia, which constitute one unit for the purpose of operations management due to their relative proximity to each other and distance from our main operational units.
The following table presents our revenues, by segment for the periods presented, as well as income (loss) before income tax from each segment:
(in thousands) |
Western
Europe |
CEMEA |
The
Americas |
Asia-Pacific |
Reportable
Segments |
Reconciliation | Consolidated | |||||||||||||||||||||
Year ended December 31, 2007
|
||||||||||||||||||||||||||||
Revenues | € | 69,279 | € | 10,767 | € | 3,177 | € | 2,760 | € | 85,983 | € | | € | 85,983 | ||||||||||||||
Reportable segment income (loss) before income tax | 10,250 | 342 | (714 | ) | (1,096 | ) | 8,782 | (10,066 | ) | (1,284 | ) | |||||||||||||||||
Year ended December 31, 2008
|
||||||||||||||||||||||||||||
Revenues | 81,779 | 10,234 | 4,937 | 2,999 | 99,949 | | 99,949 | |||||||||||||||||||||
Reportable segment income (loss) before income tax | 18,602 | 1,694 | (1,335 | ) | 46 | 19,007 | (13,507 | ) | 5,500 | |||||||||||||||||||
Year ended December 31, 2009
|
||||||||||||||||||||||||||||
Revenues | 74,433 | 13,728 | 10,924 | 5,938 | 105,023 | | 105,023 | |||||||||||||||||||||
Reportable segment income (loss) before income tax | 20,195 | 1,104 | (2,128 | ) | 1,205 | 20,376 | (11,451 | ) | 8,925 | |||||||||||||||||||
Six months ended June 30, 2009
|
||||||||||||||||||||||||||||
Revenues | 33,402 | 6,421 | 4,252 | 1,734 | 45,809 | | 45,809 | |||||||||||||||||||||
Reportable segment income (loss) before income tax | 7,851 | 560 | (284 | ) | 199 | 8,326 | (7,040 | ) | 1,286 | |||||||||||||||||||
Six months ended June 30, 2010
|
||||||||||||||||||||||||||||
Revenues | 46,567 | 9,238 | 8,835 | 4,036 | 68,676 | | 68,676 | |||||||||||||||||||||
Reportable segment income (loss) before income tax | 9,653 | 1,326 | 118 | 784 | 11,881 | (7,107 | ) | 4,774 |
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The following table presents our revenues, as a percentage of total revenues:
Year Ended
December 31, |
Six Months Ended
June 30, |
|||||||||||||||||||
2007 | 2008 | 2009 | 2009 | 2010 | ||||||||||||||||
Western Europe | 80.6 | % | 81.8 | % | 70.9 | % | 72.9 | % | 67.8 | % | ||||||||||
CEMEA | 12.5 | 10.2 | 13.0 | 14.0 | 13.4 | |||||||||||||||
The Americas | 3.7 | 5.0 | 10.4 | 9.3 | 12.9 | |||||||||||||||
Asia-Pacific | 3.2 | 3.0 | 5.7 | 3.8 | 5.9 | |||||||||||||||
Total | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
One of our distributors in Western Europe accounted for 14.7% of our total revenues in 2009 and 12.5% of our total revenues in the six months ended June 30, 2010. This is our only customer that generated in excess of 10% of our revenues for those periods.
We are headquartered in Israel. Revenues from customers located in Israel amounted to €7.6 million in 2007, €8.1 million in 2008, €8.3 million in 2009, €4.2 million in the six months ended June 30, 2009, and €3.8 million in the six months ended June 30, 2010. Our Israeli sales and marketing subsidiary also serves as the exclusive distributor of Brita water filtration systems in Israel and as a distributor of certain other consumer products. Our revenues derived from distributing Brita products declined to 5.2% in 2009 from 5.5% in 2008 and 6.1% in 2007, and to 3.4% in the six months ended June 30, 2010 from 6.4% in the six months ended June 30, 2009, primarily due to the increase in our revenues from home beverage carbonation systems.
Revenues in Western Europe increased by €13.2 million, or 39.4%, to €46.6 million in the six months ended June 30, 2010 from €33.4 million in the six months ended June 30, 2009. This increase is primarily attributable to our marketing efforts, which resulted in increased sales in both our new and existing markets, as well as to a reduction in purchases during the six months ended June 30, 2009 by our distributor in the Nordics that experienced significant financial difficulty as a result of the recession in that market as well as certain inventory management issues relating to consumables, which have since been resolved.
Income before income tax in Western Europe increased by €1.8 million, or 23.0%, to €9.7 million in the six months ended June 30, 2010 from €7.9 million in the six months ended June 30, 2009. This was primarily due to increased revenues, which were partially offset by a reduction in gross margin, caused by an increase in the percentage of revenues derived from soda makers and exchangeable CO 2 cylinders.
Revenues in Western Europe decreased by €7.4 million, or 9.0%, to €74.4 million in 2009 from €81.8 million in 2008. This was primarily due to a reduction in purchases during the six months ended June 30, 2009 by our distributor in the Nordics that experienced significant financial difficulty as a result of the recession in that market as well as certain inventory management issues relating to consumables, which have since been resolved. Revenues from other countries in Western Europe increased during this period despite the worldwide recession affecting many of these markets, through increased household penetration, new retail customers and the acquisition of certain of the assets of one of our competitors in Germany. Revenues in Western Europe increased by €12.5 million, or 18.0%, to €81.8 million in 2008 from €69.3 million in 2007 as a result of our entering into exclusive distributorship agreements in various markets in Europe.
Income before income tax in Western Europe increased by €1.6 million, or 8.6%, to €20.2 million in 2009 from €18.6 million in 2008. This was primarily due to sales to new distributors and higher-margin revenue growth from consumables in some of our existing distribution markets, in particular France and Italy, which were partially offset by reduced consumables sales in other markets in the territory, and increased
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sales and marketing expenses. Income before income tax in Western Europe increased by €8.3 million, or 81.5%, to €18.6 million in 2008 from €10.3 million in 2007 due to revenue growth and the benefits from restructuring and other cost-saving initiatives.
Revenues in CEMEA increased by €2.8 million, or 43.9%, to €9.2 million in the six months ended June 30, 2010 from €6.4 million in the six months ended June 30, 2009. This increase is primarily attributable to growth in certain of our markets in Central Europe, primarily the Czech Republic.
Income before income tax in CEMEA increased by €766,000, or 136.8%, to €1.3 million in the six months ended June 30, 2010 from €560,000 in the six months ended June 30, 2009. This was primarily due to increased revenues.
Revenues in CEMEA increased by €3.5 million, or 34.1%, to €13.7 million in 2009 from €10.2 million in 2008 as a result of growth in certain of our markets in Central Europe, primarily the Czech Republic. Revenues in CEMEA decreased by €533,000, or 5.0%, to €10.2 million in 2008 from €10.8 million in 2007 as a result of reduced revenues following recession and significant local currency devaluation in one of our markets, which was partially offset by revenue growth in other markets.
Income before income tax in CEMEA decreased by €590,000, or 34.8%, to €1.1 million in 2009 from €1.7 million in 2008 due to reduced margins on some of our products and an increase in selling expenses. Income before income tax in CEMEA increased by €1.4 million, or 395.3%, to €1.7 million in 2008 from €342,000 in 2007 due to increased margins and cost-savings initiatives, which were partially offset by reduced margins following recession and significant local currency devaluation in one of our markets.
Revenues in the Americas increased by €4.5 million, or 107.8%, to €8.8 million in the six months ended June 30, 2010 from €4.3 million in the six months ended June 30, 2009. This increase is primarily attributable to the addition of new retail customers and an increase in our revenues from online sales in the United States, and to our entry into the Canadian market.
Income (loss) before income tax in the Americas increased by €402,000 to €118,000 in the six months ended June 30, 2010 from €(284,000) in the six months ended June 30, 2009. This was primarily due to increased revenues.
Revenues in the Americas increased by €6.0 million, or 121.3%, to €10.9 million in 2009 from €4.9 million in 2008, primarily as a result of an increase in our direct Internet revenues, the addition of new retail customers in the United States and our entry into the Canadian market. Revenues in the Americas increased by €1.7 million, or 55.4%, to €4.9 million in 2008 from €3.2 million in 2007 as a result of strong demand through our Internet channel and initial sales to new retailer customers in the United States.
Loss before income tax in the Americas increased by €793,000, or 59.4%, to €2.1 million in 2009 from €1.3 million in 2008 due to higher sales and marketing expenses in the United States supporting the increased installed base and initial sales in various retailers. Loss before income tax in the Americas increased by €621,000, or 87.0%, to €1.3 million in 2008 from €714,000 in 2007 due to increased sales and marketing expenses to support our activities to increase the installed base in the United States.
Revenues in Asia-Pacific increased by €2.3 million, or 132.8%, to €4.0 million in the six months ended June 30, 2010 from €1.7 million in the six months ended June 30, 2009. This increase is primarily attributable to initial sales to new retail customers.
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Income before income tax in Asia-Pacific increased by €585,000, or 294.0%, to €784,000 in the six months ended June 30, 2010 from €199,000 in the six months ended June 30, 2009. This was primarily due to increased revenues and an increase in gross margin.
Revenues in Asia-Pacific increased by €2.9 million, or 98.0%, to €5.9 million in 2009 from €3.0 million in 2008 as a result of an increase in our installed base and the addition of new retailers. Revenues in Asia-Pacific increased by €239,000, or 8.7%, to €3.0 million in 2008 from €2.8 million in 2007 as a result of growth in our installed base.
Income before income tax in Asia-Pacific increased by €1.2 million to €1.2 million in 2009 from €46,000 in 2008 due to a significant increase in revenues in this region that reduced our fixed costs as a percentage of revenues, combined with a reduction in overhead as a result of switching from direct sales to a distributor in one of our markets in this region. Income before income tax in Asia-Pacific was €46,000 in 2008 as compared to a loss before income tax of €1.1 million in 2007. The change to profitability is attributable to cost-savings initiatives and revenue growth.
Revenues increased by €22.9 million, or 49.9%, to €68.7 million in the six months ended June 30, 2010 from €45.8 million in the six months ended June 30, 2009. This increase is attributable primarily to an increase of 96.6% in the volume of soda makers sold to 761,000 in the six months ended June 30, 2010 compared to 387,000 in the six months ended June 30, 2009. CO 2 refills increased by 17.9% to 4.6 million in the six months ended June 30, 2010 from 3.9 million in the six months ended June 30, 2009, primarily due to the expansion of our active installed user base and flavors sales increased by 71.4% to 6.0 million in the six months ended June 30, 2010 from 3.5 million in the six months ended June 30, 2009 primarily due to a reduction in purchases during the six months ended June 30, 2009 by one of our major distributors that experienced significant financial difficulty as a result of the recession in that market as well as certain inventory management issues, which have since been resolved. By segment, the key components of revenue growth were an increase in revenues from Western Europe of €13.2 million or 39.4%, an increase in revenues from the Americas of €4.5 million or 107.8%, an increase in revenues from Central and Eastern Europe, Middle East and Africa of €2.8 million or 43.9% and an increase in revenues from Asia-Pacific of €2.3 million or 132.8%.
Gross profit increased by €10.4 million, or 41.2%, to €35.8 million in the six months ended June 30, 2010 from €25.4 million in the six months ended June 30, 2009. Gross profit as a percentage of revenues, or gross margin, decreased by 3.2% to 52.1% in the six months ended June 30, 2010 compared to 55.3% in the six months ended June 30, 2009. The change in gross margin was primarily caused by an increase in the revenues derived from soda makers and exchangeable CO 2 cylinder to 40.8% total of revenues in the six months ended June 30, 2010 from 29.5% in the six months ended June 30, 2009, and an increase in the revenues derived from third party distributors to 31.0% total of revenues in the six months ended June 30, 2010 from 21.4% in the six months ended June 30, 2009.
Sales and marketing expenses increased by €7.4 million, or 45.1%, to €23.9 million in the six months ended June 30, 2010 from €16.5 million in the six months ended June 30, 2009. This increase was attributable primarily to increased advertising and promotion expenses, as part of our ongoing initiative to increase our active user installed base in the United States, and to an increase in wages and salaries necessary to support our future expansion plans. As a percentage of revenues, sales and marketing expenses decreased to 34.9% in the six months ended June 30, 2010 from 36.0% in the six months ended June 30, 2009.
General and administrative expenses increased by €1.1 million, or 15.9%, to €7.8 million in the six months ended June 30, 2010 from €6.7 million in the six months ended June 30, 2009 primarily due to additional administrative and information technology support required in preparation for an increased customer
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base and the increased revenues expected in the United States and certain European countries. As a percentage of revenues, general and administrative expenses decreased to 11.4% in the six months ended June 30, 2010 from 14.7% in the six months ended June 30, 2009.
Other income increased by €3,000 to €61,000 in the six months ended June 30, 2010 from €58,000 in the six months ended June 30, 2009, due primarily to an increase in rental income from a rental property currently owned by us and leased to a third party.
Financial expenses, net decreased by €1.6 million to net income of €670,000 in the six months ended June 30, 2010 as compared to expenses of €893,000 in the six months ended June 30, 2009, primarily due to the impact of foreign exchange differences on assets and liabilities denominated in currencies other than the Euro.
Income taxes decreased by €212,000 to €602,000 in the six months ended June 30, 2010 as compared to €814,000 in the six months ended June 30, 2009. Our effective tax rate for six months ended June 30, 2010 was 12.6% compared to 63.3% for the six months ended June 30, 2009. The decrease in our effective tax rate was primarily attributable to foreign exchange differences measured in Euros that are not included in the calculation of income for tax purposes, which is made in the local currency. These differences resulted in decreased income tax expenses in the six months ended June 30, 2010 and increased income tax expenses in the six months ended June 30, 2009.
Revenues increased by €5.1 million, or 5.1%, to €105.0 million in 2009 from €99.9 million in 2008. This increase is attributable primarily to an increase of 20.5% in the volume of soda makers sold to 1,057,000 in 2009 compared to 877,000 in 2008. CO 2 refills increased by 9.3% to 8.2 million in 2009 from 7.5 million in 2008, primarily due to the expansion of our active installed user base. By segment, the key components of revenue growth were an increase in revenues from the Americas of €6.0 million, an increase in revenues from Central and Eastern Europe, Middle East and Africa of €3.5 million, and an increase in revenues from Asia-Pacific of €2.9 million, partially offset by a decrease in revenues from Western Europe of €7.4 million.
Gross profit increased by €3.7 million, or 6.7%, to €58.4 million in 2009 from €54.7 million in 2008. Gross profit as a percentage of revenues, or gross margin, increased by 0.8% to 55.6% in 2009 compared to 54.8% in 2008. The change in gross margin was primarily caused by a reduction in our per unit production cost as a result of the increase in soda maker production volumes, continued cost reduction programs and, to a lesser extent, a modest price increase implemented in 2009. The cost savings were largely offset by the negative impact that resulted from an increasing share of soda makers and exchangeable CO 2 cylinders in our overall revenue mix, competition in sales of consumables in some of our markets and a slight strengthening of the U.S. Dollar and the NIS against the Euro in 2009 as compared to 2008.
Sales and marketing expenses increased by €2.5 million, or 7.8%, to €34.7 million in 2009 from €32.2 million in 2008. As a percentage of revenues, sales and marketing expenses increased to 33.0% in 2009 from 32.2% in 2008. These changes were attributable primarily to increased advertising and promotion expenses, primarily in the United States as part of our ongoing initiative to increase our active user installed base in that market, and to an increase in wages and salaries necessary to support our future expansion plans.
General and administrative expenses increased by €459,000, or 3.6%, to €13.1 million in 2009 from €12.7 million in 2008. As a percentage of revenues, general and administrative expenses decreased to 12.5% in 2009 from 12.7% in 2008. Recurring administrative expenses were reduced during 2009 as a result of a continued reduction in most ongoing expense components, although immediate savings were largely offset by higher business realignment and termination expenses recorded in the year.
Other income increased by €76,000 to €95,000 in 2009 from €19,000 in 2008, due primarily to an increase in rental income from a rental property currently owned by us and leased to a third party.
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Financial expenses, net decreased by €2.6 million to €1.8 million in 2009 as compared to €4.4 million in 2008, primarily due to the impact of foreign exchange rates in 2008 on assets and liabilities denominated in currencies other than the Euro and in particular on a financial liability denominated in U.S. Dollars.
Income taxes decreased by €3.2 million to €1.8 million in 2009 as compared to €5.0 million in 2008, of which €3.4 million was attributable to an exceptional tax provision relating to a prior years dispute with the tax authorities in Germany. Our effective tax rate for 2009, excluding this provision, was 20.1%, compared to 28.5% for 2008. The decrease in our effective tax rate was primarily attributable to the utilization of tax losses in some of our taxable units combined with favorable tax rates in comparison with the primary tax rate in Israel resulting from our approved enterprise benefits in Israel and lower tax rates in other countries.
Revenues increased by €14.0 million, or 16.2%, to €99.9 million in 2008 from €86.0 million in 2007 primarily driven by a 20.1% increase in the volume of soda makers sold in 2008 to 877,000 compared to 730,000 in 2007, as well as growth in our retail distribution chain. The higher soda maker sales were as a result of an increase in our installed user base along with the introduction of new soda maker models. CO 2 refills increased by 1.8% to 7.5 million from 7.4 million in 2007, primarily due to the expansion of our active installed base in Europe. By segment, the key components of this revenue growth were an increase in revenues from Western Europe of €12.5 million and an increase in revenues from the Americas of €1.7 million.
Gross profit increased by €8.5 million, or 18.4%, to €54.7 million in 2008 from €46.2 million in 2007. Gross margin increased by 1.0% to 54.8% in 2008 compared to 53.8% during 2007. The higher gross margin was primarily due to price increases relating mostly to our consumables in many of our markets and cost reduction and savings activities initiated in 2007 (with the main effects occurring in 2008), and favorable exchange rates between the Euro and the U.S. Dollar.
Sales and marketing expenses increased by €735,000, or 2.3%, to €32.2 million in 2008 from €31.4 million in 2007. As a percentage of revenues, sales and marketing expenses decreased to 32.2% in 2008 from 36.6% in 2007. This percentage reduction was mainly a result of lower advertising and promotion expenses in 2008 as compared to 2007, following relatively high advertising and promotion expenses in Germany in 2007 relating to the launch of a high-end soda maker, and the shift from direct sales to third-party distribution in certain markets thereby eliminating the associated selling and distribution expenses.
General and administrative expenses decreased by €1.1 million, or 7.9%, to €12.7 million in 2008 from €13.8 million in 2007. As a percentage of revenues, general and administrative expenses were reduced to 12.7% in 2008 from 16.0% for 2007. These savings were primarily attributable to cost saving initiatives in 2007 and the transition from direct sales to third-party distribution in certain markets, which brought about a reduction in operating expenses related to these markets.
Other income decreased by €6,000 to €19,000 in 2008 from €25,000 in 2007, primarily due to a higher level of refunds for customs duty payments in 2007.
Financial expenses, net increased by €2.1 million to €4.4 million in 2008 from €2.3 million in 2007, primarily due to the impact of exchange rate fluctuations in 2008 on assets and liabilities denominated in currencies other than the Euro and in particular on a financial liability denominated in U.S. Dollars.
Income taxes increased by €4.7 to €5.0 million in 2008 as compared to €306,000 in 2007. This increase was attributable primarily to the above-mentioned provision relating to a prior year dispute with the tax authorities in Germany, amounting to €3.4 million in 2008. Our effective tax rate for 2008, excluding the impact of the provision related to the tax dispute, was 28.5%, with the underlying increase in the 2008 current year tax expenses primarily attributable to the shift to income before tax in 2008 from loss before tax in 2007.
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Historically, we have recognized a somewhat larger share of our revenues in the second quarter of the year, driven by increased sales volume in preparation for the warm summer months. The fourth quarter is also generally stronger than the first and third quarters as a result of increased sales associated with holiday shopping. In 2009, this seasonality was not reflected in our quarterly sales as sales in the third quarter were higher than in the second quarter, which was as a result of continued growth of our installed base in our new and fast growing markets. We believe that we may see the same trend in several of the next few years, as we continue to experience rapid growth of our installed base in both new and existing markets.
Our revenues may also be impacted by the effect of the weather. Specifically, in periods when the weather is warmer than usual our revenues would likely increase, and in periods when the weather is colder than usual our revenues would likely decline.
In the short term, due to our expansion in certain key markets, our revenues may increase in each quarter of a given year, as they did in 2009, thereby masking the seasonality fluctuations described above.
Our operating expenses and, therefore, our overall margins are also seasonally impacted. Specifically, we typically increase our advertising and promotion expenditures in the second quarter and, to a lesser extent, in the fourth quarter relating to the holiday season. Consequently, our overall operating income typically is significantly lower in the second quarter.
The following table sets forth certain unaudited consolidated quarterly income statement data for each of the six quarters ended June 30, 2010. This unaudited information has been prepared on a basis consistent with our annual financial statements and includes all adjustments (consisting only of normal recurring adjustments) necessary for the fair statement of the unaudited quarterly data. This information should be read in conjunction with our audited consolidated financial statements and related notes, appearing elsewhere in this prospectus. The results of operations for any quarter are not necessarily indicative of results that we may achieve for any subsequent periods.
(in thousands) |
March 31,
2009 |
June 30,
2009 |
Sept. 30,
2009 |
Dec. 31,
2009 |
March 31,
2010 |
June 30,
2010 |
||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
Consolidated statements of operations data:
|
||||||||||||||||||||||||
Revenues | € | 21,484 | € | 24,325 | € | 27,676 | € | 31,538 | € | 30,159 | € | 38,517 | ||||||||||||
Cost of revenues | 9,575 | 10,883 | 11,920 | 14,215 | 13,894 | 18,992 | ||||||||||||||||||
Gross profit | 11,909 | 13,442 | 15,756 | 17,323 | 16,265 | 19,525 | ||||||||||||||||||
Operating expenses:
|
||||||||||||||||||||||||
Sales and marketing | 7,694 | 8,803 | 8,918 | 9,277 | 9,793 | 14,150 | ||||||||||||||||||
General and administrative | 2,938 | 3,795 | 3,278 | 3,123 | 3,880 | 3,924 | ||||||||||||||||||
Other expense (income) | (4 | ) | (54 | ) | (66 | ) | 29 | (23 | ) | (38 | ) | |||||||||||||
Total operating expenses | 10,628 | 12,544 | 12,130 | 12,429 | 13,650 | 18,036 | ||||||||||||||||||
Operating income | 1,281 | 898 | 3,626 | 4,894 | 2,615 | 1,489 | ||||||||||||||||||
Financial expenses (income), net | 373 | 520 | 678 | 203 | 290 | (960 | ) | |||||||||||||||||
Income (loss) before income tax | 908 | 378 | 2,948 | 4,691 | 2,325 | 2,449 | ||||||||||||||||||
Income taxes | 537 | 277 | 495 | 484 | 284 | 318 | ||||||||||||||||||
Net income (loss) for the period | € | 371 | € | 101 | € | 2,453 | € | 4,207 | € | 2,041 | € | 2,131 |
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March 31,
2009 |
June 30,
2009 |
Sept. 30,
2009 |
Dec. 31,
2009 |
March 31,
2010 |
June 30,
2010 |
|||||||||||||||||||
As a percentage of revenues:
|
||||||||||||||||||||||||
Revenues | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||||||
Gross profit | 55.4 | 55.3 | 56.9 | 54.9 | 53.9 | 50.7 | ||||||||||||||||||
Operating expenses:
|
||||||||||||||||||||||||
Sales and marketing | 35.8 | 36.2 | 32.2 | 29.4 | 32.5 | 36.7 | ||||||||||||||||||
General and administrative | 13.7 | 15.6 | 11.8 | 9.9 | 12.9 | 10.2 | ||||||||||||||||||
Other expense (income) | (0.0 | ) | (0.2 | ) | (0.2 | ) | 0.1 | (0.1 | ) | (0.1 | ) | |||||||||||||
Total operating expenses | 49.5 | 51.6 | 43.8 | 39.4 | 45.3 | 46.8 | ||||||||||||||||||
Net income (loss) for the period | 1.7 | % | 0.4 | % | 8.9 | % | 13.3 | % | 6.8 | % | 5.5 | % | ||||||||||||
As a percentage of full year results:
|
||||||||||||||||||||||||
Revenues | 20.4 | % | 23.2 | % | 26.4 | % | 30.0 | % | N/A | N/A | ||||||||||||||
Gross profit | 20.4 | 23.0 | 27.0 | 29.6 | N/A | N/A | ||||||||||||||||||
Operating expenses:
|
||||||||||||||||||||||||
Sales and marketing | 22.2 | 25.4 | 25.7 | 26.7 | N/A | N/A | ||||||||||||||||||
General and administrative | 22.3 | 28.9 | 25.0 | 23.8 | N/A | N/A | ||||||||||||||||||
Other expense (income) | (4.2 | ) | (56.8 | ) | (69.5 | ) | 30.5 | N/A | N/A | |||||||||||||||
Total operating expenses | 22.3 | 26.3 | 25.4 | 26.0 | N/A | N/A | ||||||||||||||||||
Net income (loss) for the period | 5.2 | % | 1.4 | % | 34.4 | % | 59.0 | % | N/A | N/A |
Our cash requirements have principally been for working capital and capital expenditures. Working capital is funded primarily from cash flows provided by our operating activities, our revolving credit lines, long-term loans, and cash and cash equivalents on hand. Our working capital requirements generally reflect the growth in our business and its seasonality. Historically, we have funded a portion of our working capital (primarily inventory) and capital investments from cash flows provided by our operating activities, cash and cash equivalents on hand and borrowings available under our revolving credit and long-term debt facilities. Our capital investments have included: the expansion of our production capacity and capabilities, in our own and in subcontractors production sites; improvements and expansion of our distribution and corporate facilities to support our growth; and investment and improvements in our information technology systems.
Since 2007, our inventory strategy has included increasing inventory levels to meet anticipated consumer demand for our products. This includes maintaining an inventory of soda makers, exchangeable CO 2 cylinders and other consumables at each of our sites, at levels that we expect to sell during the successive three months. In addition, our inventory strategy included, for some products for which we have limited production capacity, high production volumes during the low selling seasons in order to maximize productivity during our busier seasons and to be prepared with inventory in advance of the high selling seasons. In 2008 and 2009, we continued to focus on meeting market demand for our products while improving our inventory efficiency over the long term by implementing procedures to improve our production planning process. Based on these initiatives and new systems, and processes that we intend to implement, we expect inventory to continue to increase, but at a rate lower than the rate of growth of revenues.
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In August 2008, we terminated a €10.0 million revolving credit facility by repaying its balance to a consortium of lending banks in Germany. This was the last stage in converting our credit facilities to comprise mainly revolving credit lines rather than primarily loans and short-term borrowings. As of June 30, 2010, available borrowings under credit facilities totaled €27.6 million, of which 75.7% was utilized. These facilities are currently provided mainly by banks and the majority of such borrowings are sourced in Israel. In August 2008, we received interim funding in the form of a credit line of €6.0 million from Plenus Mezzanine Fund Israel LP, pursuant to which such fund was issued 1,000,000 of our preferred shares. This credit line was fully repaid by August 2009.
We believe that, based on our current business plan, the proceeds of this offering, our cash and cash equivalents on hand, cash from operations and borrowings available to us under our revolving credit and long term debt facilities will be adequate to meet our capital expenditure requirements and liquidity needs for the foreseeable future. We may require additional capital to meet our longer term liquidity and future growth requirements. Although we believe that we have adequate sources of liquidity, future weakening of economic conditions could adversely affect our business and liquidity. In addition, continued instability in the capital markets could adversely affect our ability to obtain additional capital to grow our business and would affect the cost and terms of such capital.
The following table presents the major components of net cash flows used in and provided by operating, investing and financing activities for the periods presented:
Year Ended December 31, | Six Months Ended June 30, | |||||||||||||||||||
(in thousands) | 2007 | 2008 | 2009 | 2009 | 2010 | |||||||||||||||
Net cash provided by (used in) operating activities | € | (6,550 | ) | € | 6,273 | € | 11,541 | € | (2 | ) | € | (3,353 | ) | |||||||
Net cash provided by (used in) investing activities | (602 | ) | (2,129 | ) | (5,885 | ) | (1,607 | ) | (4,501 | ) | ||||||||||
Net cash provided by (used in) financing activities | 1,381 | (1,717 | ) | (5,882 | ) | 390 | 7,574 |
Operating activities consist primarily of net income adjusted for certain non-cash items. Adjustments to net income for non-cash items include depreciation and amortization, unrealized financial gains and losses, share based compensation and non-cash movements in income our tax provision and deferred taxes. In addition, operating cash flows include the effect of changes in operating assets and liabilities, principally inventories, accounts receivable, prepaid expenses and other assets, accounts payable and accrued expenses.
Cash used in operating activities increased by €3.4 million to €3.4 million in the six months ended June 30, 2010 as compared to €2,000 in the six months ended June 30, 2009. This increase was primarily due to increases in working capital and tax payments for previous years.
Cash provided by operating activities increased by €5.2 million to €11.5 million in 2009 as compared to €6.3 million in 2008. The increase in cash provided by operating activities was primarily due to an increase in our net income to €7.1 million in 2009 compared to €530,000 in 2008, and net cash outflows to operating assets and liabilities of €237,000 compared to €2.6 million in 2008. Adjustments to net income for non-cash items decreased by €3.7 million to €4.6 million in 2009 from €8.3 million in 2008, partially offsetting the net cash outflows described above. The change to net cash inflows from net cash outflows related to changes in operating assets and liabilities period over period and was primarily driven by an increase in accounts payable and other current liabilities of €5.1 million in 2009 compared to €1.1 million in 2008. This increase was attributable primarily to an increase in product purchasing, for which payment
57
was not due, during the fourth quarter of 2009 in comparison with the fourth quarter of 2008 and higher provisions for employees and sales rebates recorded in 2009 as compared to 2008, reflecting the growth in our operational activities. The above noted increases in net cash inflows relating to changes in operating liabilities were partially offset by an increase in inventory of €3.6 million in 2009 as compared to an increase of €3.0 million in 2008 and an increase in accounts receivable of €1.7 million as compared to an increase of €643,000 in 2008, both reflecting the revenue growth in the fourth quarter of 2009 as compared to the revenues in 2008. Adjustments to net income for non-cash items decreased in 2009 as compared to 2008 primarily due to the effect of the tax provision of €3.4 million relating to a prior years dispute with the tax authorities in Germany.
Cash provided by operating activities increased by €12.9 million to €6.3 million in 2008 compared to cash used for operating activities of €6.6 million in 2007. The increase in cash provided by operating activities was driven by a €2.1 million increase in our net income to €530,000 in 2008 as compared to a net loss of €1.6 million in 2007, and a decrease in net cash outflows for operating assets and liabilities of €4.7 million to €2.6 million in 2008 as compared to €7.3 million in 2007. This was principally due to an increase in accounts payable and other current liabilities of €1.1 million in 2008 as compared to a decrease of €4.8 million in 2007. The decrease in 2007 was primarily attributable to payments of commissions to former franchisees, whose contracts were either terminated or turned into distributor agreements, and payments of restructuring liabilities. In addition, the increase in cash provided by operating activities was due to adjustments to net income for non-cash items which increased €6.0 million year over year to €8.3 million from €2.3 million, which is attributable primarily to higher share based compensation and increased tax provision reflecting the shift to income before income tax in 2008 from a loss before income tax in 2007.
Cash flows used in investing activities increased by €2.9 million in the six months ended June 30, 2010 to of €4.5 million from €1.6 in the six months ended June 30, 2009. This increase was primarily due to investments in machinery and equipment and increase in exchangeable CO 2 cylinders inventory to support growth in our cylinder exchange and gas refilling service.
Cash used in investing activities increased €3.8 million to €5.9 million in 2009 from €2.1 million in 2008, principally as a result of additional capital expenditures in machinery and equipment to serve our increasing capacity needs as well as new product molds and tooling, investment in trademarks acquired as part of the acquisition in October 2009 of certain assets of Wassermaxx, one of our competitors in Germany, and investments in information technology systems to support our increasing Internet sales.
Cash used in investing activities increased €1.5 million to €2.1 million in 2008 from €602,000 in 2007. These changes were attributable primarily to initial production capacity expansion and replacement of older equipment with new advanced higher capacity machinery and equipment.
The majority of our capital expenditures have historically been related to the purchase of machinery and equipment and information technology hardware. In order to support our overall business expansion, we will continue to invest in production machinery and equipment, additional gas filling lines, corporate facilities and information technology infrastructure in 2010 and thereafter. In addition, we currently intend to expand our manufacturing capabilities for future needs by constructing or purchasing an additional manufacturing facility in or near one of our exisitng markets. The timing of construction of such facility is not yet finalized, although we are targeting commencement of construction in 2011 and completion within approximately 24 months from the commencement of construction. The total anticipated capital expenditure required for such facility is approximately €25.0 million, although this amount may increase if we are unsuccessful in obtaining grants from the Israeli Ministry of Trade and Industry. Furthermore, we may spend additional amounts of cash on acquisitions from time to time, if and when such opportunities arise.
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Cash flows from financing activities increased by €7.2 million in the six months ended June 30, 2010 to €7.6 million from €390,000 in the six months ended June 30, 2009. This change resulted primarily from higher utilization of our available credit lines and from the proceeds of a new bank loan made for financing our investments, mostly for machinery and equipment, exchangeable CO 2 cylinder inventory and working capital needs.
Our cash used in financing activities increased by €4.2 million to €5.9 million in 2009 from €1.7 million in 2008. These changes were mainly due to a change in net proceeds from the issuance of shareholders loans in 2008 of €4.0 million as compared to payments to shareholders in the amount of €337,000 in 2009.
Cash used in financing activities increased €3.1 million to €1.7 million of cash used in financing activities in 2008 compared to €1.4 million of cash provided by financing activities in 2007. These changes were largely as a result of a decrease of €5.6 million in shareholders net investment to €4.0 million in 2008 as compared to €9.6 million in 2007, which was partially offset by a decrease in net loans and credit facilities repayment of €2.5 million to €5.7 million in 2008 as compared to €8.2 million in 2007.
Our long-term debt is comprised principally of secured long-term loans from Israeli banks. The loans were provided for periods that vary between three to five years and are denominated primarily in Euros. Our long-term debt, net of the current portion, amounted to €7.0 million as of June 30, 2010, and €5.1 million as of December 31, 2009 as compared to €3.2 million as of December 31, 2008 and €3.9 million as of December 31, 2007.
As of June 30, 2010, we had loans and revolving credit lines of €27.6 million. These credit facilities consist of €12.9 million of loans and financing lease liabilities, and €14.7 million of revolving credit lines. As of June 30, 2010, the revolving credit lines were utilized at a rate of 54.4%, or €8.0 million. Since June 30, 2010, we have entered into an additional revolving credit line of €4.3 million, bringing the total loans and revolving credit lines to €31.9 million.
As of June 30, 2010, the loans consist of €12.6 million loaned to us from banks. In addition, we have outstanding €100,000 in financing lease liabilities used primarily for the leasing of vehicles and a €200,000 loan from a short-term line of credit.
Of our credit facilities, €15.6 million are denominated in Euros, €2.0 million are denominated in U.S. Dollars, €2.2 million are denominated in NIS and €1.1 are denominated in Swiss Francs. Our Euro loans bear annual interest of between Libor plus 2.0% and Libor plus 3.5%. Our U.S. Dollar loans bear annual interest of Libor plus 1.5%. Our New Israeli Shekel loans bear annual interest of Prime plus 2.0%. Our Euro revolving credit lines bear annual interest of between Libor plus 2.3% and Libor plus 5.0%. Our U.S. Dollar revolving credit lines bear annual interest of between Libor plus 2.4% and Libor plus 4.0%. Our New Israeli Shekel revolving credit lines bear annual interest of between Prime plus 1.4% and Prime plus 6.0%.
Our Israeli bank lenders are parties to a pari passu agreement that, among other terms, provides each bank with a pro rata floating charge on our assets, including the share capital of certain of our subsidiaries, in accordance with the amount of debt provided by each bank to us. The loans and credit lines are secured with general floating and fixed charges on the assets of our Israeli subsidiaries, guaranties provided by our other affiliated entities and certain financial and other covenants. We and our shareholders subordinated the convertible loans repayment to the repayment of the loans and credit lines of some of the banks and committed not to pay dividends, management fees and other forms of remuneration, except for certain excluded items, to our shareholders without the banks prior consent.
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As of June 30, 2010, we had shareholder loans amounting to €12.1 million. Of these loans, €10.7 million are convertible into our ordinary shares and €1.4 million do not have such conversion rights.
The convertible loans are comprised of two groups of loans: (i) €4.0 million that was borrowed in September 2007, repayable in September 2012, but subordinated to our bank debt, as described above, bearing annual interest of Libor plus 2.5%; and (ii) €6.7 million that was borrowed in June 2008, repayable in December 2010, but subordinated to the our bank debt, as described above, bearing annual interest that was paid in advance to some of the shareholders for the period until December 31, 2010 (the net cash we received was €5.3 million). These shareholders will convert all of these loans into our ordinary shares immediately prior to the closing of this offering.
The non-convertible loans were entered into prior to 2007. Pursuant to our shareholders agreement, these loans bear no interest and are to be repaid in twelve quarterly installments after two consecutive years in which EBITDA exceeds €10.0 million. Our EBITDA for 2008 and 2009 exceeded €10.0 million and, therefore, we started to repay these loans beginning in March 2010. Pursuant to the terms of this agreement, the board of directors has the discretion to accelerate repayment of these loans upon the consummation of an initial public offering, and we intend to use €1.4 million ($1.9 million) of the net proceeds of this offering to repay these shareholder loans.
We do not currently engage in off-balance sheet financing arrangements. In addition, we do not have any interest in entities referred to as variable interest entities, which includes special purposes entities and other structured finance entities.
Our significant contractual obligations and commitments as of June 30, 2010 are summarized in the following table:
Payments Due by Period | ||||||||||||||||||||
(in thousands) |
Less than
1 Year |
1 3
Years |
3 5
Years |
More than
5 Years |
Total | |||||||||||||||
(unaudited) | ||||||||||||||||||||
Long-term debt obligations | € | 14,420 | € | 5,358 | € | 1,954 | € | | € | 21,732 | ||||||||||
Operating lease obligations | 2,565 | 3,544 | 1,295 | 283 | 7,687 | |||||||||||||||
Purchase obligations | 15,488 | 307 | 51 | 26 | 15,872 | |||||||||||||||
Other long-term liabilities | | 173 | | | 173 | |||||||||||||||
Total | € | 32,473 | € | 9,382 | € | 3,300 | € | 309 | € | 45,464 |
Our accounting policies affecting our financial condition and results of operations are more fully described in our consolidated financial statements for the years ended December 31, 2007, 2008 and 2009, included elsewhere in this prospectus. The preparation of our financial statements requires management to make judgments, estimates and assumptions that affect the amounts reflected in the consolidated financial statements and accompanying notes, and related disclosure of contingent assets and liabilities. We base our estimates upon various factors, including past experience, where applicable, external sources and on other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily
60
apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, and could have a material adverse effect on our reported results.
In many cases, the accounting treatment of a particular transaction, event or activity is specifically dictated by accounting principles and does not require managements judgment in its application, while in other cases, managements judgment is required in the selection of the most appropriate alternative among the available accounting principles, that allow different accounting treatment for similar transactions.
We believe that the accounting policies discussed below are critical to our financial results and to the understanding of our past and future performance, as these policies relate to the more significant areas involving managements estimates and assumptions. We consider an accounting estimate to be critical if: (1) it requires us to make assumptions because information was not available at the time or it included matters that were highly uncertain at the time we were making our estimate; and (2) changes in the estimate or different estimates that we could have selected may have had a material impact on our financial condition or results of operations.
As described in note 3K to our audited consolidated financial statements, revenue is recognized when persuasive evidence exists (usually in the form of an executed sales agreement), that the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably. If it is probable that discounts will be granted and the amount can be measured reliably, then the discount is recognized as a reduction of revenue as the sales are recognized.
The exchanging and refilling of exchangeable CO 2 cylinders is a critical component of our operations and, since inception, we have developed various methods to protect our rights over the manufacture, trading and refilling of our exchangeable CO 2 cylinders. In this regard, our primary objective has been to assert that we maintain legal ownership over the exchangeable CO 2 cylinders, while establishing the appropriate business and legal framework in each of our markets for trading and refilling activities related to the exchangeable CO 2 cylinders.
The provision of exchangeable CO 2 cylinders to customers is treated as a final sale and the related income is recorded. In certain circumstances, where no full cylinder is being exchanged for a returned cylinder, we have an obligation to provide a refund upon request for the returned exchangeable CO 2 cylinder. The amount of the refund varies from country to country, from customer to customer (retailer, distributor, end consumer, etc.) and may also change over time as market conditions vary in a particular country. As a result, a provision is recorded for estimated returns based on historical return patterns of customers and the refundable amounts are recorded as reduction of revenue. Although to date, returns of initial exchangeable CO 2 cylinders stock from our distributors and retailers have been negligible, if the distributors or retailers in any one or more of the markets in which we operate return a large number of exchangeable CO 2 cylinders without exchanging them for full ones, we may be required to pay out a large amount of cash, which could have an adverse effect on our business, financial condition and results of operations.
We make ongoing estimates relating to the collectability of our accounts receivable and maintain a reserve for estimated losses resulting from the inability of our customers to make required payments. In determining the amount of the reserve, we consider the payment history of the customers and significant economic developments within the retail environment that could impact the ability of our customers to pay outstanding balances and make judgments about the creditworthiness of significant customers based on ongoing credit evaluations. Because we cannot predict future changes in the financial stability of our customers, actual future losses from uncollectible accounts may differ from our estimates. If the financial
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condition of our customers were to deteriorate, resulting in their inability to make payments, a larger reserve might be required. In the event we determine that a smaller or larger reserve was appropriate, we would record a benefit or charge to selling, general and administrative expense in the period in which we made such a determination.
For financial reporting purposes, we evaluate our inventory to ensure it is carried at the lower of cost or net realizable value. Provision is made against slow moving, obsolete and damaged inventories. Damaged inventories are identified and written down through the inventory counting procedures conducted at each location. Provision for slow moving and obsolete inventories is assessed by each country as part of their ongoing financial reporting. Obsolescence is assessed based on comparison of the level of inventory holding to the projected likely future sales. Future sales are assessed based on historical experience, and adjusted where we will no longer continue to manufacture the particular item. To the extent that future events impact the salability of inventory, these provisions could vary significantly. For example, changes in specifications or regulations may render certain inventory, previously considered to have a realizable value in excess of cost, obsolete and requiring such inventory to be fully written off. Inventories include exchangeable CO 2 cylinders that are provided to customers. Exchangeable CO 2 cylinders that are loaned to distributors and exchangeable CO 2 cylinders that are used by the Company to facilitate the exchange program are included in fixed assets.
Property, plant and equipment represent a significant proportion of our assets, being 24.1% of the total assets as of December 31, 2009 (2008: 23.2%). Therefore, the estimates and assumptions made to determine their carrying value and related depreciation are critical to our financial position and performance.
Exchangeable CO 2 cylinders that are loaned to distributors and certain retailers and exchangeable CO 2 cylinders that are used to facilitate the cylinder exchange program are considered fixed assets. These cylinders represent approximately 50% of our total fixed assets.
The charge in respect of periodic depreciation of an asset is derived after determining its estimated expected useful life. The useful lives of our assets are determined at the time they are acquired and reviewed annually for appropriateness. The assets life is based on historical experience with similar assets as well as anticipation of future events, which may impact its life, such as changes in technology. With respect to the exchangeable CO 2 cylinders, although we have no plans to replace the existing aluminum CO 2 cylinder model and to date new machines have been designed to use our existing stock of cylinders, we have a continuous process of introducing re-designed or newly-designed soda makers that might require a change to the cylinder design in the future. There is no assurance that future soda maker designs will be compatible with the current cylinders models or that changes in governmental regulations, technological developments or other factors would not shorten the useful life of these cylinders in comparison with the current estimates. Our policy is that, if and when new developments lead to the phase-out of the current model of cylinders, at that time, we will change the estimated useful life and adjust the depreciation rate of the exchangeable CO 2 cylinders.
We continuously evaluate our estimates and assumptions for each reporting period, and, when warranted, adjust these assumptions. Generally, these adjustments are accounted for on a prospective basis, through depreciation expense and impairment.
We periodically evaluate the net realizable value of long-lived assets, including goodwill, other intangible assets and tangible fixed assets, relying on a number of factors, including operating results, business plans and projected future cash flows. Assets that have an indefinite useful life, such as goodwill, are not
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subject to amortization and are tested annually for impairment and whenever events or changes in circumstance indicate that the carrying amount may not be recoverable. Assets that are subject to amortization are tested for impairment whenever events or changes in circumstance indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the assets carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an assets fair value less costs to sell and value in use. The fair value is in most cases based on the discounted present value of the future cash flows expected to arise from the cash generating unit to which the goodwill relates, or from the individual asset or asset group. Estimates are used in deriving these cash flows and the discount rate.
The complexity of the estimation process and issues related to the assumptions, risks and uncertainties inherent with the application of the intangible and tangible fixed asset accounting policies affect the amounts reported in the financial statements. In particular, if different estimates of the projected future cash flows or a different selection of an appropriate discount rate or long-term growth rate were made, these changes could materially alter the projected value of the cash flows of the asset, and as a consequence materially different amounts would be reported in the financial statements.
Income taxes comprise the taxes levied on taxable income in the individual countries and the changes in deferred tax assets and liabilities. The income taxes recognized are reflected at the amounts likely to be payable under the statutory regulations in force, or already enacted in relation to future periods, as of the closing date.
In compliance with IAS 12 (Income Taxes), deferred taxes are recognized for temporary differences between the carrying amounts of assets and liabilities in the statement of financial position prepared according to IFRS and those in the statement of financial position drawn up for tax purposes. Deferred taxes are also recognized for consolidation measures and for tax loss carry forwards likely to be realizable. Deferred tax assets relating to deductible temporary differences, tax credits and tax loss carry forwards are recognized where it is sufficiently probable that taxable income will be available in the future to enable the tax loss carry forwards to be utilized. Deferred tax liabilities are recognized on temporary differences taxable in the future. Deferred taxes are calculated at the rates which on the basis of the statutory regulations in force, or already enacted in relation to future periods, as of the closing date are expected to apply in the individual countries at the time of realization. Deferred tax assets and deferred tax liabilities are offset if they relate to income taxes levied by the same taxation authority. The effects of changes in tax rates or tax law on deferred tax assets and liabilities are generally accounted for in the period in which the changes are substantively enacted. Such effects are normally recognized in the income statement. Effects on deferred taxes previously recognized in other comprehensive income are reflected in equity. The probability that deferred tax assets resulting from temporary differences or loss carry forwards can be utilized in the future is the subject of forecasts by the individual consolidated companies regarding their future earnings situation and other parameters. The deferred tax liabilities recognized on planned dividend payments by subsidiaries depend on assumptions regarding the future earnings situation of the subsidiaries concerned, their future financing structure and other factors. Changes in the assumptions or in circumstances may necessitate adjustments that result in allocations to deferred taxes or reversals thereof.
The determination of our worldwide provision for income taxes and other tax liabilities requires significant judgment and there are many transactions and calculations where the ultimate tax determination is uncertain. Although we believe our estimates are reasonable, the ultimate outcome may differ from the amounts recorded in our financial statements and may materially affect our financial results in the period or periods for which such determination is made.
In addition, we have entered into transfer pricing arrangements that establish transfer prices for our inter-company operations. However, our transfer pricing procedures are not binding on the applicable
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taxing authorities. No official authority in any country has made a binding determination as to whether or not we are operating in compliance with its transfer pricing laws. Accordingly, although we have performed transfer pricing studies, benchmarked our inter-company transactions and developed our transfer pricing policies and procedures based such studies and benchmarks, taxing authorities in any of the countries in which we operate could challenge our transfer prices and require us to adjust them to reallocate our income. Any change to the allocation of our income as a result of review by taxing authorities could have a negative effect on our operating results and financial condition.
A number of new standards, amendments to standards and interpretations are not yet in effect for the year ended December 31, 2009, and have not been applied in preparing our consolidated financial statements as of that date:
IFRS 9, Financial Instruments (referred to below as IFRS 9). IFRS 9 is the first part of a comprehensive project to replace IAS 39 Financial Instruments: Recognition and Measurement (referred to below as IAS 39) and it replaces the requirements included in IAS 39 regarding the classification and measurement of financial assets. In accordance with IFRS 9, there are two principal categories for measuring financial assets: amortized cost and fair value, with the basis of classification for debt instruments being the entitys business model for managing financial assets and the contractual cash flow characteristics of the financial asset. In accordance with IFRS 9, an investment in a debt instrument will be measured at amortized cost if the objective of the entitys business model is to hold assets in order to collect contractual cash flows and the contractual terms give rise, on specific dates, to cash flows that are solely payments of principal and interest. All other financial assets are measured at fair value through profit or loss. Furthermore, embedded derivatives are no longer separated from hybrid contracts that have a financial asset host. Instead, the entire hybrid contract is assessed for classification using the principles above. In addition, investments in equity instruments are measured at fair value with changes in fair value being recognized in profit or loss. Nevertheless, IFRS 9 allows an entity on the initial recognition of an equity instrument not held for trading to elect irrevocably to present fair value changes in the equity instrument in other comprehensive income where no amount so recognized is ever classified to profit or loss at a later date. Dividends on equity instruments measured through other comprehensive income are recognized in profit or loss unless they clearly constitute a return on an initial investment. IFRS 9 removes financial liabilities from its scope.
IFRS 9 is effective for annual periods beginning on or after January 1, 2013 but may be applied earlier, subject to providing disclosure and at the same time adopting other IFRS amendments as specified in IFRS 9. IFRS 9 is to be applied retrospectively other than in a number of exceptions as indicated in the transitional provisions included in IFRS 9. In particular, if an entity adopts IFRS 9 for reporting periods beginning before January 1, 2012 it is not required to restate prior periods.
We are evaluating the effect of implementing IFRS 9 on our consolidated financial statements.
IFRS 3 Business Combinations and IAS 27 (2008) Consolidated and Separate Financial Statements (2008), revised (referred to below as IFRS 3). The main revisions to IFRS 3 are: a revised definition of business and business combinations, a change in the measurement method of carried forward items in business combinations, providing two measurement options regarding non-controlling rights, a change in the accounting treatment of transaction costs, the accounting treatment regarding step acquisitions, the allocation of comprehensive income between shareholders, the accounting for acquisitions or sales of equity rights while maintaining control as equity transactions, the accounting for transactions that result in gain or loss of control in full fair value, so that the subsequent holdings after the loss of control are recognized through profit and loss, and the original investment in obtaining control is also recognized in fair value through
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profit and loss, and a broadening of disclosure requirements. IFRS 3 will be applied on annual reporting periods beginning on or after, January 1, 2010. The principal revisions of IFRS 3 will be applied prospectively, meaning in respect of transactions as from the initial date of implementation.
Amendment to IAS 17, Leases Classification of leases of land and buildings (referred to below as IAS 17). In accordance with IAS 17, a lease of land does not have to be classified as an operating lease in every case that ownership is not expected to pass to the lessee at the end of the lease period. In accordance with the amended standard, a land lease is to be examined according to the regular criteria for classifying a lease as a finance lease or as an operating lease.
The Amendment also provides that when a lease includes both a land component and a buildings component, the classification of each component should be based on the criteria of the standard, with the principal consideration regarding the classification of land being the fact that land normally has an indefinite useful life.
The Amendment applies to financial statements for annual periods beginning on or after January 1, 2010. The Amendment is to be implemented retrospectively, which means that the classification of land leases is to be examined on the basis of the information that was available on the date of the lease agreement, and that in the event of reclassification of the lease, the provisions of IAS 17 are to be implemented retrospectively as from the date of the lease agreement. Nevertheless, if the entity does not have the information necessary to apply IAS 17 retrospectively, it should use the information available on the adoption date of IAS 17 and recognize the asset and liability related to a land lease that was classified as a result of IAS 17 as a finance lease according to their fair value as at that date. Any difference between the fair value of the asset and the fair value of the liability shall be recognized in retained earnings. We are evaluating the effect of implementing IAS 17 on our consolidated financial statements.
We are exposed to a variety of risks, including foreign currency exchange fluctuations, changes in interest rates and inflation. We regularly assess currency, interest rate and inflation risks to minimize any adverse effects on our business as a result of those factors. For sensitivity analysis of our exposure to foreign currency exchange fluctuations and changes in interest rates, see Note 25C to our Consolidated Financial Statements as of and for the year ended December 31, 2009.
We conduct business in multiple countries, which exposes us to fluctuations in currency exchange rates between the Euro (our functional and reporting currency) and certain other currencies in which we conduct business (primarily the U.S. Dollar and New Israeli Shekel). At present, our revenues are primarily denominated in Euros. Most of our cost of revenues and operating expenses are denominated in the Euro, NIS and U.S. Dollar. In the future, the percentage of our revenues earned in other currencies may increase as we further expand our sales internationally.
Based on our results in 2009, a 1% increase (decrease) in the value of the U.S. Dollar and NIS against the Euro would have increased (decreased) our revenues by €192,000. Based on our results in 2009, a 1% increase (decrease) in the value of the U.S. Dollar and NIS against the Euro would have increased (decreased) our cost of revenues and expenses by €507,000. Based on our results for the six months ended June 30, 2010, a 1% increase (decrease) in the value of the U.S. Dollar and NIS against the Euro would have increased (decreased) our revenues by €125,000. Based on our results for the six months ended June 30, 2010, a 1% increase (decrease) in the value of the U.S. Dollar and NIS against the Euro would have increased (decreased) our cost of revenues and expenses by €330,000.
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We engage in hedging transactions to minimize our currency risk. Other income (expense), net included the following amounts related to changes in foreign currency exchange rates and derivative foreign currency forward contracts:
Year Ended
December 31, |
Six Months Ended
June 30, |
|||||||||||||||||||
(in thousands) | 2007 | 2008 | 2009 | 2009 | 2010 | |||||||||||||||
Unrealized foreign currency exchange rate gains (losses) | € | 299 | € | (259 | ) | € | 51 | € | 7 | € | (665 | ) | ||||||||
Realized foreign currency exchange rate gains (losses) | 234 | (1,315 | ) | 890 | 703 | 1,359 | ||||||||||||||
Derivative gains (losses) | (34 | ) | (50 | ) | (449 | ) | (39 | ) | 218 |
Although we have entered into foreign currency forward contracts to minimize some of the impact of foreign currency exchange rate fluctuations on future cash flows, we cannot be assured that we have adequately hedged our exposure and that foreign currency exchange rate fluctuations will not have a material adverse impact on our financial condition and results of operations.
Inflationary factors such as increases in the cost of our product and overhead costs may adversely affect our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin and operating expenses as a percentage of revenues if the selling prices of our products do not increase in line with increases in costs.
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SodaStream manufactures home beverage carbonation systems, which enable consumers to easily transform ordinary tap water instantly into carbonated soft drinks and sparkling water. We believe our soda makers offer a highly differentiated and innovative solution to consumers of bottled and canned carbonated soft drinks and sparkling water. Our products are environmentally friendly, cost-effective, promote health and wellness, and are customizable and fun to use. In addition, our products offer convenience by eliminating the need to carry bottles home from the supermarket, to store bottles at home or to regularly dispose of empty bottles. Educating consumers of these benefits is a key element of our strategy to build awareness, particularly as we expand into new markets. We believe that we are the worlds leading manufacturer of home beverage carbonation systems. Such belief is based on consumer surveys we commissioned that show SodaStream has the largest market share in each of a dozen of the largest markets in which we operate and the lack of a competing home beverage carbonation system in the significant majority of other markets around the world, including the United States. We estimate, based on consumer surveys and sales of CO 2 refills, that there are currently approximately 4 million consumers who create a carbonated beverage using our system at least once every two weeks, whom we refer to as active consumers, with many of the largest carbonated soft drink and sparkling water markets still remaining virtually untapped.
We develop, manufacture and sell soda makers and exchangeable carbon-dioxide (CO 2 ) cylinders, as well as consumables, consisting of CO 2 refills, reusable carbonation bottles and flavors to add to the carbonated water. We currently sell our products through more than 35,000 retail stores in 39 countries, including 24 countries that we have entered since the beginning of 2007. We distribute our products directly in 12 countries and indirectly through local distributors in our remaining markets. Our products are sold under the SodaStream® brand name in most countries, and under the Soda-Club® brand name or select other brand names in certain other countries. While our distribution strategy is customized for each market, we generally employ a multi-channel distribution approach that is designed to raise awareness and establish positioning of our product offerings, first in specialty retail and direct marketing channels and then in larger food, drug and mass retailers.
From 2007 through 2009, our revenues grew at a compound annual growth rate of 10.5% from €86.0 million to €105.0 million. We incurred a loss of €1.6 million in 2007 and had net income of €530,000 and €7.1 million in 2008 and 2009, respectively. Our revenues increased by €22.9 million, or 49.9%, to €68.7 million in the six months ended June 30, 2010 from €45.8 million in the six months ended June 30, 2009. Our net income increased by €3.7 million to €4.2 million in the six months ended June 30, 2010 from €472,000 in the six months ended June 30, 2009. Similarly, from 2007 through 2009, our revenues from soda makers and exchangeable CO 2 cylinders grew from €27.2 million to €39.1 million, while our revenues from sales of consumables grew from €52.0 million to €59.3 million. Our revenues from soda makers and exchangeable CO 2 cylinders grew from €13.5 million in the six months ended June 30, 2009 to €28.0 million in the six months ended June 30, 2010, while our revenues from sales of consumables grew from €27.8 million in the six months ended June 30, 2009 to €36.3 million in the six months ended June 30, 2010. Although we are only in the early stages of our United States marketing investment plan, we have more than tripled our sales in this market from $4.4 million in 2007 to $14.5 million in 2009. Our revenues in the United States increased by $5.0 million, or 88.6%, to $10.7 million in the six months ended June 30, 2010 from $5.7 million in the six months ended June 30, 2009. Between 2007 and 2009, we further penetrated key existing markets, including France and Italy, where we previously had minimal presence.
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According to Datamonitor, the global off-premise (defined as beverages consumed at home)soft drink and global sparkling water industries generated approximately $206 billion and $27 billion, respectively, in retail sales in 2008. According to Euromonitor, the United States led most other markets with annual per capita off-premise carbonated soft drink consumption of 118 liters in 2009, representing an aggregate of $39 billion in sales.
Our products address several long-term trends in global consumer behavior, including the rapidly growing popularity of environmentally-friendly (or green) products. In the United States, consumers have clearly adopted more environmentally conscious behavior in recent years, with studies by GfK Roper Consulting and the MIT Sloan Management Review indicating that a growing number of Americans are making purchasing decisions because the label indicated that the product was environmentally beneficial. It is estimated by the Natural Marketing Institute that the United States market for products perceived as green represented $290 billion in sales in 2008 and is expected to grow to $420 billion in 2010.
In addition to this environmental trend, we believe that several other important consumer trends influence demand for our products. Consumers continue to increasingly prioritize health and wellness, including by favoring more natural and fresh food and beverage products. Consumers are also exhibiting an increased focus on value, including by increasingly favoring private label products, do it yourself alternatives and eating more at home instead of at restaurants.
These forces are having a negative impact on the growth rates observed recently in the off-premise carbonated soft drink category in the United States, which in 2009 did not grow as compared to 2008, according to Euromonitor. An even more pronounced impact has been observed in the bottled water category in the United States, where many consumers are reverting to tap and filtered water. According to AC Nielsen, retail sales in the United States of the leading water filtration products, Brita and PUR, increased by 8.9% in 2009, while bottled still water retail sales declined by 6.1%. Canadean is forecasting annual growth in consumption of bottled water in the United States of less than 1% over the next five years, which is a significant deceleration from the double-digit growth rates seen from 2000 to 2008.
We believe the following business strengths position us well to grow our business:
Clear and compelling consumer benefits . Our products provide an innovative alternative to packaged carbonated beverages and are consistent with long-term trends in consumer behavior. Our products are:
º Environmentally friendly . Disposable plastic bottles are harmful to the environment, particularly since only a minority of plastic bottles is recycled. Use of our products, which include reusable carbonation bottles, reduces the number of plastic bottles and cans used by consumers. In addition, the carbon footprint and pollution left by the manufacture and transportation of plastic bottles is significant. In order to minimize the environmental harm caused by the transport of our CO 2 cylinders, we strive to set up CO 2 refilling stations as close as possible to our consumer base. An additional environmental benefit is that our products do not use electricity, thus reducing their environmental impact.
º Convenient . Our products eliminate the need to carry bottles home from the supermarket, store bottles at home and dispose of the empty bottles. Bottled beverages are bulky and difficult for consumers to transport and store, especially for those without private vehicles or large homes. The fact that our products do not require electricity enables them to be easily transported and used anywhere, even on recreational vehicles and boats.
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º Cost effective . There are significant cost savings for a consumer who carbonates soft drinks at home as opposed to purchasing bottled or canned carbonated water or soft drinks. In the United States, we estimate the cost to a SodaStream consumer, excluding the initial cost of the soda maker, of sparkling water to be as little as $0.25 per liter and of carbonated soft drinks to be as little as $0.67 per liter, each of which is significantly lower than most bottled or canned sparkling water or carbonated soft drinks. Our cost estimate for the United States market is based on the typical retail price charged for CO 2 refills and flavors in that market. In comparison to the cost of one liter of bottled sparkling water and the cost of one liter of a bottled or canned carbonated soft drink, based on price studies by Euromonitor in August 2009, we estimate that our sparkling water and carbonated soft drinks provide savings of up to 70% for sparkling water and of up to 30% for carbonated soft drinks, in each case as compared to standard retail prices. The average savings from the use of our products will typically result in an active user recovering the cost of purchasing the basic soda maker within a period of one year.
º Promoting health and wellness . We believe that our products present consumers with a healthier alternative to traditional carbonated soft drinks. Our flavors contain two-thirds less sugar, carbohydrates and calories than leading soft drink brands, and one-third less caffeine than popular carbonated soft drinks. We do not use high-fructose corn syrup in our flavors, and we offer certain diet versions with Splenda®, and without aspartame and saccharin. Our flavors contain significantly less sodium per serving than many popular carbonated soft drinks. We offer consumers the choice of adding to carbonated water a variety of flavors which could be sugar-free, low calorie, naturally sweetened or vitamin-enhanced. As consumers realize the health benefits of drinking more water, we believe that demand for sparkling water is likely to increase, as even unflavored, sparkling water provides a refreshing alternative to plain tap water.
º Customizable, fun and easy to use . Our products enable consumers to customize beverages in a fun and creative way. With our home beverage carbonation system, the consumer has full control over the level of carbonation. In addition, we offer more than 100 different flavors, including diet and all-natural versions, which can also be mixed to meet consumer preference. Each member of the family can consume a different flavor or blend our flavors together to create new flavors. Our soda makers are quick and easy to use, do not require cleaning and provide instant enjoyment by enabling all members of the family to make their own sparkling water or soda within seconds.
Established presence in certain markets . We believe our brand recognition and global footprint position us well to capture additional consumers as they increasingly look for alternatives to bottled or canned carbonated soft drinks. We currently sell our products through more than 35,000 retailers in 39 countries across 6 continents, including 24 new markets that we have entered since the beginning of 2007. Among other home beverage carbonation system marketers and manufacturers, we believe, based on our familiarity with the retail and distribution channels in the markets in which we operate, that we hold the leading market share position in each of the markets in which we compete. Our global presence and the depth of our retailer relationships in our key markets allow us to better address consumer preferences and to enter new markets more quickly and effectively than many of our competitors. In particular, we rely on local sales and marketing capabilities which provide us with knowledge and understanding of local consumer preferences and regulatory requirements.
Recurring revenues . Our business model is to increase the installed base of soda makers, in order to generate ongoing demand for higher-margin CO 2 refills, carbonation bottles and flavors. As we initially penetrate a new market, sales of soda makers typically exceed sales of consumables. Within a few years, however, as our initial user base grows, unit sales of our consumables typically
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exceed unit sales of our soda makers by a multiple of initial purchases. Although each markets performance differs, this trend has been present in all markets in which we currently operate and we expect it to continue in new markets. As a result of the higher margins associated with our consumables, over time, this change in sales mix generally has a positive impact on our operating margins. In mature markets, we typically target an overall operating margin in excess of 25%.
Strong value proposition for our retailers . We believe that retailers derive significant new sales opportunities and other benefits from featuring our eye-catching and innovative products in their stores. Retailers also benefit from the repeat foot traffic and the revenue stream generated by sales of our consumables. We offer non-food retailers the opportunity to participate in the vast soft drink category which typically represents entirely incremental sales for them. To facilitate our strategy of targeting both specialty and mass channels, we have developed different soda makers at various price points to target for the distinct consumer segments served by various retailers.
Ongoing product innovation . We offer a broad range of soda makers, ranging from a basic plastic model that uses a plastic carbonation bottle to our high-end Penguin model that uses a glass carbonation bottle and has a stainless steel finish, in order to meet the needs of consumers at various price points. We are continuously evaluating and improving our product offerings. For example, we recently introduced plastic carbonation bottles which are dishwasher-safe and glass carbonation bottles that can be used in more formal dining settings. We are constantly broadening and adapting our range of flavors to consumer tastes, and now offer more than 100 flavors, including all-natural varieties. In 2010, we plan to release a new soda maker that comes with a Fizz Chip TM , a digital gas gauge that identifies the amount of gas remaining in a CO 2 cylinder as well as the carbonation level during use.
Operational expertise and global infrastructure . Our business requires a significant amount of manufacturing and logistical expertise. Our manufacturing operations include facilities in Israel and in China. At our primary site in Israel, we have an integrated manufacturing facility at which we manufacture most of the components of our products. We are highly committed to ensuring product safety and thus implement rigorous quality control and testing procedures at all our facilities. We consistently meet or exceed safety requirements and meet the regulatory requirements of each country in which our products are sold. Our ability to meet the regulations of several foreign governing bodies and maintain a global network of regulatory compliance, including self-regulated status with several of those organizations, gives us an advantage relative to other market participants or potential new entrants. We conduct CO 2 refilling in Australia, Germany, Israel, New Zealand, South Africa, Sweden and the United States. We have successfully established and continuously refine the reverse logistics needed for consumers to return empty CO 2 cylinders and exchange them for filled CO 2 cylinders in each market in which we operate. Facilitating the ability of retailers to understand and successfully manage reverse logistics is a key element of our ability to gain and retain distribution.
Highly experienced management team . We are led by a proven and experienced management team. Our Chief Executive Officer, Daniel Birnbaum, brings significant experience in the consumer sector and has held management positions at Nike, Procter & Gamble and Pillsbury. Our Chief Financial Officer, Daniel Erdreich, previously served as the CFO of two publicly-traded companies. The other members of our senior management team also have significant experience in the consumer products sector, and have previously held positions at major consumer products companies, including Campbell Soup Company, Groupe SEB, Kraft, McDonalds and Nike.
Our principal strategies are (1) to grow our installed base through new purchases of our products and (2) to maintain consumer loyalty and users for life. Our long-term goal is to convert as many carbonated
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beverage consumers to our products as possible throughout the world. As such, as we grow our company, we measure our success by the household penetration our products achieve. Based on consumer surveys we commissioned, we believe that our average household penetration in established markets has generally been in the range of 5% to 15%. Our highest penetration is in Sweden, where we estimate, based on those same surveys, that we have achieved household penetration of approximately 20%.
As we strive to bring our products to a greater number of households worldwide, we intend to focus on the key elements that we believe will drive new purchases and grow our installed base, which include the following:
Increased awareness of our products and their compelling consumer benefits . Educating consumers on the numerous benefits of our products is a vital component of our strategy to grow our installed base and our revenues. As such, we employ a variety of conventional and specialized marketing activities, many of which are designed to challenge the consumer to rethink the habit of using disposable bottles. In the new markets that we are targeting for expansion, particularly the United States, our strategy will initially involve aggressive marketing, including infomercials and direct-response advertising, public relations campaigns, in-store demonstrations both to educate potential consumers and sales associates in the retail stores that carry our products, partnerships with municipalities and public water companies, social media, digital advertising, affiliate marketing and referral programs in order to inform consumers of our products while testing the effectiveness of various demand-creation vehicles for constant optimization of our marketing expenditures. Our strategy may be somewhat different in markets where we are re-introducing our products, particularly in Western Europe.
Growth of retail distribution . Increased retail distribution is an essential element in delivering our products to potential consumers. We intend to continue to build our retail distribution worldwide by educating retailers about the benefits of carrying our products. During 2009, we added approximately 5,000 additional retail stores, bringing our total worldwide retail distribution to more than 35,000 stores.
We believe that the United States market, where the carbonated beverage market size and per capita consumption are higher than in many of our existing markets, will be particularly receptive to our products. Although we are only in the early stages of our United States marketing investment plan, we have more than tripled our sales in this market from $4.4 million in 2007 to $14.5 million in 2009. Our revenues in the United States increased by $5.0 million, or 88.6%, to $10.7 million in the six months ended June 30, 2010 from $5.7 million in the six months ended June 30, 2009. Our growth in this market has been driven by online sales and through recent retailer launches in the United States, including Bloomingdales, Le Gourmet Chef, Macys, Sur la Table, Williams Sonoma and others. In the United States market, we are in discussions with existing retailers on expanding distribution and with additional national retailers on initiating distribution of our products.
Although Western Europe is our most developed region, we believe that we have significant opportunities to grow distribution as we are only in the early stages of development in many large markets such as France and Italy, and have not yet entered certain other sizeable markets. Our longer term expansion plans also include developing a presence in other large markets globally.
Introduction of new soda maker products . We maintain an active product development department, devising new products that offer improved aesthetics and lifestyle appeals as well as improved functionality. Since 2007, we have introduced several new and more up-scale models of
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soda makers, some of which use glass or dishwasher-safe plastic carbonation bottles. We intend to continue facilitating innovation, and are currently developing several new and improved products, including a soda maker with a digital gas gauge (Fizz Chip TM ) that indicates the amount of gas remaining in a cylinder, as well as the carbonation level during use. Additionally, we are designing an under-sink dispenser, a soda maker with a built-in filter, a single-serve soda maker and a designer-styled upscale soda maker. We have recently launched a program that we refer to as SodaStream Inside, whereby we manufacture a soda maker on behalf of a third party that is marketed under their brand name. We hope to expand this program to include licensing our proprietary carbonating technology to third parties. We believe these innovations will continue to generate excitement around our products and help us attract new customers.
Acquiring the new user is only the beginning of a relationship with our consumer. Repeat users are key to driving both the sustainability and the profitability of our business. In fact, in most mature markets, sales of our higher-margin consumables typically approach or exceed sales of our soda makers. We attempt to promote consumer retention by taking the following steps:
Increasing availability of consumables . We will continue to invest in the expansion of our consumables business (primarily CO 2 refills and flavors). We believe that widespread availability and easy access to consumables are key to consumer retention and loyalty, and therefore are working to enhance our already strong CO 2 refill exchange program. We have successfully established and continuously refine the reverse logistics needed for our end-user consumers to return empty CO 2 cylinders and exchange them for filled CO 2 cylinders in each market in which we operate. Facilitating the ability of retailers to understand and successfully manage reverse logistics is a key element of our ability to gain and retain distribution. We also have plans to expand our distribution presence into high foot traffic locations such as drug and convenience stores. We conduct CO 2 refilling in Australia, Germany, Israel, New Zealand, South Africa, Sweden and the United States. We intend to expand our refilling capabilities, adding capacity in new and existing geographies where it complements our sales and marketing plan.
Introducing exciting new flavors . In addition to our ongoing soda maker innovation, we continue to introduce additional flavors to expand our sales in existing markets. We currently offer more than 100 flavors, including diet and all-natural versions, which can also be mixed to meet consumer preferences. We regularly create and test new flavors to appeal to the demands of our different markets and regions in an effort to remain on-trend with our offerings. We currently offer sparkling vitamin water, energy drinks, clear, green tea and all-natural versions of our products as well as unique seasonal flavors.
Employing creative and effective consumer marketing . We believe that our best ambassadors are our own users. We have therefore established ongoing consumer marketing programs to keep our installed base not only engaged but also encouraged and motivated to educate their friends through word-of-mouth. These programs include subscription programs, newsletters, warranties, trade-in promotions, referral programs and various other programs. An example of this strategy is our recently introduced trade-in program which was initiated in markets where we identified a large base of past consumers of old SodaStream systems. In those markets, we offer consumers discounts if they trade in an older-model soda maker for a new soda maker. Additionally, our referral program allows our existing consumer base to participate in the expansion of sales of our products to new users and sustains the excitement of owning and using a SodaStream system. In certain markets, we have implemented consumer loyalty programs that reward consumers for repeat purchases.
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Soda Maker | CO2 cylinder | Carbonation Bottle | Flavor |
Consumers initially purchase a starter kit, consisting of a soda maker, one or two carbonation bottles together with hermetically-sealing bottle caps and, in some markets, samples of a variety of flavors. The starter kit also includes an exchangeable CO 2 cylinder which can produce between 30 and 130 liters of carbonated beverages, depending on the size. Such systems are typically sold in the United States at prices ranging from $79 for a basic plastic model that uses a plastic carbonation bottle, to $199 for the higher-end Penguin model that has stainless steel components and utilizes glass carbonation bottles.
Soda makers . We currently offer a broad range of soda makers. Our soda makers are free-standing, lightweight and compact, and have a stylish design. They are made of stainless steel and/or plastic. Our soda makers do not require electricity. The CO 2 cylinder fits easily in a rear compartment and by the push of a button carbonates water. Our soda makers are sold in a variety of styles and CO 2 cylinder sizes.
Exchangeable CO 2 cylinders . The basis of the SodaStream home beverage carbonation system is the carbonation of water by means of an aluminum or steel cylinder containing compressed liquid CO 2 . The cylinder is inserted by the consumer into the soda maker. Certain models of soda makers can accommodate different size cylinders, while others fit only the standard 60-liter cylinder. The actual amount of beverage produced per cylinder varies based on the CO 2 content, the type of soda maker used and user preference (the amount of carbonation released during each carbonation). We only use beverage-grade CO 2 in our cylinders, the same as that used by the worlds major soft drink companies. We recently introduced natural sourced CO 2 (derived from natural underground sources) in certain markets, in addition to CO 2 extracted from the atmosphere.
CO 2 refills . We provide beverage-grade CO 2 refills through authorized retailers that participate in our cylinder exchange program. These retailers generally maintain a stock of filled cylinders in their inventory. Consumers typically exchange their empty cylinders at retail stores or through online orders for full cylinders and pay only the price of the CO 2 . In some markets, direct home delivery and exchange is also available, and we use third party carriers to exchange the empty cylinders for full ones. Empty cylinders are then delivered to a filling plant where they are inspected, cleaned, and refilled for distribution. We conduct CO 2 refilling (including third-party facilities) in Australia, Germany, Israel, New Zealand, South Africa, Sweden and the United States. We periodically evaluate opening additional refilling stations in our existing markets based on demand for CO 2 refills and other factors. Consumers in the United States typically pay either $14.99 for a 60-liter CO 2 refill or $24.99 for a 110-liter CO 2 refill.
Carbonation bottles . Our home beverage carbonation system produces sparkling water in a high pressure-resistant plastic or glass bottle, which we manufacture specifically for repeated usage. These specially-designed carbonation bottles are the only bottles intended for use with our home beverage carbonation system. The glass bottle, as well as some versions of the plastic bottle, are dishwasher-safe. For the high-end market, we offer two soda makers specifically intended to be used with glass bottles,
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which are appropriate for a more formal table setting. Carbonation bottles can easily be personalized and are offered in a variety of colors, designs and sizes. The plastic bottles are BPA-free and are designed to have a lifespan of three years. Consumers often purchase additional carbonation bottles to allow for several bottles of carbonated soft drinks or sparkling water to be available at the same time. Consumers in the United States typically pay $14.99 for two additional plastic carbonation bottles or for one additional glass carbonation bottle.
Flavors . We work closely with a leading international flavor and essence manufacturer who provides research and product development services, including sensory testing in order to constantly broaden and adapt the range of flavors to consumer tastes. Flavors come in a highly concentrated form, customized for our home beverage carbonation system. Flavors are usually sold in 500 ml or 750 ml bottles, which typically produce 12 or 18 liters of carbonated soft drinks. Our current product range consists of more than 100 flavors, including a large variety of fruit flavors. We also offer flavors which are designed to appeal to consumers of a range of leading carbonated soft drink brands, as well as enhanced flavors, including fruit, energy, isotonic and natural blends. Most flavors are available in both regular and diet versions, and we are increasingly producing a larger variety of natural and enhanced flavors (green tea essence, pomegranate, and vitamin-enhanced) to meet growing consumer demand in these areas. As part of our focus on healthier beverages, we do not use high-fructose corn syrup in our flavors and we offer diet versions without aspartame and saccharin. In addition, we address local tastes by producing flavors geared for individual markets such as Ginger Beer (South Africa), Root Beer (United States), Must (Scandinavia), and Chinotto (Italy). We also offer special limited edition flavors for holidays or seasonal campaigns such as apple-cinnamon, vanilla-lemon, pear-honey, papaya-lime and mango-coconut. Consumer starter kits sometimes include flavor sample packs to provide the consumer with an opportunity to become acquainted with our flavors. Consumers in the United States typically pay $4.99 for a 500 ml bottle of one of our flavors, which would usually produce 12 liters of carbonated soft drinks.
Other accessories . We also sell additional accessories for our products, including bottle cleaning materials and ice cube trays shaped to produce ice cubes that fit in our carbonation bottles. These products are manufactured by third parties.
We mostly market our products through distributors and retail channels. We distribute our products in 39 markets, 12 directly through our wholly-owned subsidiaries, and the remainder indirectly through our exclusive distribution partnerships.
We generally employ a multi-channel distribution strategy in each geographical market that is designed to raise awareness and establish positioning of our product offerings, first in specialty retail and direct marketing channels and then in larger food, drug and mass retailers. Our products are sold at more than 35,000 stores worldwide, including many of the largest retailers in our markets.
We historically opened subsidiary offices in countries in which we sold our products. In these markets, we typically utilize our own internal sales force and, in certain countries, sub-distributors as well.
In the United States, we have established a logistics network, composed of local delivery agencies, that covers territories in which over two-thirds of the population of the continental United States resides, complemented by national carriers that cover the remainder of the country. The local delivery agencies maintain inventories of our products at locations around the United States, are connected to our enterprise resource planning software and handle local deliveries. In addition, they handle the exchange of empty CO 2 cylinders initiated both by our online consumers and, in some cases, our retail customers. This logistics network enables us to offer full market coverage with direct deliveries through a high quality service at short leadtimes, with high level of compliance and control, and at reasonable cost to us.
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In 2007, we implemented a new distribution strategy and, in order to expedite penetration into certain new markets, we contracted with third party distributors who facilitate distribution of our products. In 2009, our distributors accounted for 30% of our total revenues. The gross margin on sales in markets where we distribute directly is generally higher than markets in which we use external distributors, due to the elimination of the external distributors margin. In many markets, our expansion strategy is to work with third party distributors who we believe will have a better ability to increase revenues in their market than we could if we distributed our products directly.
Distributors sell to retailers in their relevant markets either through their own sales force or through wholesalers and agents, or a combination of these. Sales activities follow typical retail sales processes, including initial pitches and offers, periodic product range and price reviews, offers for seasonal or limited edition activities and promotions. Merchandising and demonstration of the products is managed by the distributor in cooperation with the retailers. Delivery to retailer chains can be to central warehouses or to individual stores depending upon the specific agreements with the chain.
To ensure promotion of our brand in our indirect markets, we provide our distributors with various forms of marketing materials. In all cases, materials that use our brand including our trademarks, all promotions, and all sales and marketing materials must be prepared or approved by us. We agree with our distributors on an annual advertising and promotion budget, of which we contribute a portion.
When we evaluate potential distributors, we take into consideration several factors, including their experience with selling and marketing consumer products to retail channels; existing sales, logistics and distribution capabilities; current product portfolio; financial strength; and suitability to market our products. Distributors are given exclusivity over a particular territory for a given period, so long as they achieve certain requirements relating to minimum purchase amounts and marketing investments. These requirements are set by us after consultation with the distributor. We attempt to set realistic targets for the distributor that are achievable if the distributor dedicates sufficient resources to the distribution of our products. We work closely with our distributors to assist them in preparing and executing a multi-year strategy. Most distributors also operate e-commerce sites in their countries as well as our website in their local language. During the past two years, we significantly increased the number of countries where our products are sold, by appointing exclusive distributors in several countries, including Canada, Colombia, Cyprus, the Czech Republic, Denmark, Finland, Hungary, Italy, Malta, Mexico, the Philippines, Portugal, Russia, Slovakia, Slovenia and Taiwan.
We intend to continue to penetrate new markets in collaboration with distributors. Factors that we consider in prioritizing which markets to enter include: the size of the carbonated soft drink and carbonated water market, per capita consumption of carbonated beverages, the perceived quality of the tap water, household demographics, and environmental and health consciousness.
Our distribution agreements are generally exclusive agreements for a given territory with a five-year term and an option to renew; however, our contracts contain performance criteria to maintain exclusivity. In addition to carrying a full selection of our products, the distributor also agrees to manage the reverse logistics needed for our end-user consumers to return empty CO 2 cylinders and exchange them for filled CO 2 cylinders.
Distributors are required to meet annual purchase targets defined as monetary amounts for the first year or two of the distribution contract, as well as to meet certain defined growth targets for each of the subsequent years until the end of the contract (usually 5 years). In addition, annual and semi-annual discussions with distributors often include more specific volume targets per product type. Distributors that do not meet their defined purchase targets can be terminated by notice during the first quarter following the year in which they failed to achieve the target. The termination takes effect six months after the notice is given. Historically, we have terminated particular distributors on several occasions.
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In addition, SodaStream Israel Ltd., our Israeli sales and marketing subsidiary, also serves as the exclusive distributor of Brita water filtration systems in Israel and as a distributor of certain other consumer products. Britas products sold by SodaStream Israel Ltd. include water containers and filter cartridges used with such water containers. SodaStreams primary responsibilities under the agreement include purchasing, distributing and promoting the sale of Britas products in Israel, after obtaining all legal approvals necessary for the importation and sale of such products in Israel. The agreement is for an indefinite period, and can be terminated by either party upon 12 months prior written notice from the end of the month in which notice is given. Our revenues derived from distributing Brita products declined to 5.2% of our total revenues in 2009 from 5.5% in 2008 and 6.1% in 2007, and to 3.4% of our total revenues in the six months ended June 30, 2010 from 6.4% in the six months ended June 30, 2009, primarily due to the increase in our revenues from home beverage carbonation systems.
In both our direct and indirect markets, we sell our products primarily at retail stores, as well as over the Internet. We target major retailers with either a national footprint or a significant regional concentration. Set forth below is a representative list of our current retailer relationships:
Western Europe |
Central and Eastern Europe, Middle East
and Africa |
The Americas | Asia-Pacific | |||
Ahlens | ACE | Bed Bath & Beyond | Assorted Homeware | |||
Auchan | Ahold | BJs | Automatic Centre | |||
Boulanger | Auchan | Bloomingdales | Betta | |||
Carrefour | Blue Square | Crate and Barrel | Bing Lee | |||
Coop | Clicks | El Palacio de Hierro | Bunnings | |||
Cora | Cora | Kitchen Collection | Clive Peeters | |||
Darty | Darty | Kohls | Coles | |||
Edeka | Datart | Le Gourmet Chef | Djones | |||
Electrolux Home | FoodZone | Liverpool | Globus | |||
elGiganten | Game | Macys | Good Guys | |||
Elkedjan | General Trade | Sears | Harris Scarfe | |||
Euronics | Globus | Shopko | Harvey Norman | |||
Expert | Home Center | Sur La Table | IGA | |||
ICA | InterSpar | Williams Sonoma | John Danks | |||
Intermarche | Makro | Kmart | ||||
InterSpar | Media Markt | M10 | ||||
Jarnia | Media Saturn | Myers | ||||
Karstadt | Metro/Stax | RetraVision | ||||
Kasanova | OK Foods | SM | ||||
Kaufhof | Pickn Pay National | Target | ||||
Kaufland | Planeo Partners | Woolworth | ||||
Leclerc | Shield | |||||
Media Markt | Shoprite Checkers | |||||
Media Saturn | Shufersal | |||||
Metro | Spar | |||||
Migros | ||||||
OBI | ||||||
OnOff | ||||||
Real | ||||||
REWE | ||||||
Rossmann | ||||||
SIBA |
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During 2009, we began selling our products at approximately 5,000 additional retail stores with our home beverage carbonation system, bringing our total worldwide retail distribution to more than 35,000 stores. Our drive toward increased retail distribution is an important element in bringing our products to potential consumers and thereby generating new user acquisition. Additionally, we believe that the widespread availability and easy access to consumables (primarily gas refills and flavors) are key to securing ongoing consumer retention and loyalty. Indeed, one of our most important competitive advantages is our strong network of retail distribution, in particular, that of our gas refill exchange program.
In addition, we intend to further penetrate our existing markets by increasing the number of stores in which our products are currently being sold in each region. We recently began to focus on expanding our presence in the United States and we seek to significantly increase the retail distribution of our products in those countries.
Our marketing objective is to establish and position carbonated beverages created using our soda makers as an attractive alternative to canned and bottled carbonated soft drinks and to position the brand as desirable, yet accessible, as a mass market solution. Consumer demand activities are designed primarily to increase the installed base of soda makers as measured in terms of percentage household penetration in each market. Secondarily, we promote users for life so as to generate ongoing demand for our consumables (the CO 2 refills, carbonation bottles and flavors). We believe that widespread availability and easy access to consumables are key to consumer retention and loyalty.
Our marketing activities include brand and product marketing and management as well as sales support programs. We use a variety of vehicles, including advertising, direct marketing and public relations, in-store demonstrations, infomercials and our website to build brand awareness, educate new consumers about the benefits of home beverage carbonation systems, communicate the advantages of our products and establish brand positioning, all of which are designed to increase our installed base of active user households in our markets. We also use our marketing programs to support the sale of our products through new channels and to enter new markets. Our internal marketing team supports sales at the point-of-sale through trade marketing, developing and executing product and brand initiatives, and consumer education.
We challenge consumers to re-think the way they obtain carbonated drinks and consider home carbonation, specifically our home beverage carbonation system, as a viable alternative. This consumer education is done through various vehicles, including direct advertising, promotional activity, especially in-store demonstrations at the point of sale, and public relations campaigns and activities. We use both traditional media (TV, print and out-of home) as well as digital media (pay-per-click, search engine optimization and affiliate marketing) in these efforts, as well as infomercials. We conduct surveys and use third-party tracking programs in order to track our household penetration, usage behaviors and consumer opinions across markets and to measure the success of our marketing activities over time.
Acquiring a new user is only the beginning of a relationship with our ultimate consumers. To this end, we continuously test and apply various marketing tools to improve user retention. In addition to continuously offering consumers new flavors, we employ subscription programs, newsletters, warranties, trade-in promotions and various other programs to keep users engaged. Moreover, seasonal flavors and limited edition promotional bottles are also directed at user retention. Finally, offering easy access to CO 2 refills through mass distribution of our exchange cylinder program and direct-to-home delivery from web orders. We also encourage our consumers to purchase additional CO 2 cylinders, which also contributes to keeping consumers actively using our products over time. In certain markets, we have implemented consumer loyalty programs that reward consumers for repeat purchases.
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We believe we are also an attractive partner to municipalities and public water companies. For such entities, we provide various benefits, including a reduction in the amount of waste required to be disposed and enabling municipalities to improve the image of their tap water. During the past two years, we have entered into a number of partnership programs with municipal authorities and public water providers. Among these are Veritas, the water company of Venice, Italy; the municipality of Trenta, Italy; and Wasser Vien of Munich and Dresden, Germany and of Vienna, Austria. We are currently exploring several similar partnership programs in certain other markets around the world. These programs typically involve education and special offers for the customers of the municipal water utility, distributed inside the envelopes with the monthly utility bill. These joint programs have included retail tie-in and public relations coverage for us. Municipal partnerships are an important endorsement and source of high-quality public relations for us.
Our marketing activities are managed from our headquarters in Israel. Each market has a representative (either through our subsidiary or through our distributor partner) who works closely with our marketing team to localize our marketing activities in accordance with the individual tastes and preferences in a particular country.
We manufacture most of our products ourselves in our own production sites or in sites of subcontractors under our guidelines and supervision. We believe that in light of our strict quality control and the safety and regulatory standards to which we are subject, self-manufacture is the best and most efficient way to ensure that our consumers receives quality products. Most of our products are manufactured at our two Israeli facilities, in Mishor Adumim, east of Jerusalem, and in Ashkelon, on the Mediterranean coast. In Mishor Adumim, we have a metal factory, plastic and bottle blowing factory, machining factory, assembly factory, cylinder manufacturing facility, CO 2 refill line and cylinder retest facility. In Ashkelon, we manufacture the flavors that are distributed worldwide.
We also outsource the production of certain components of our products to two subcontractors in China. In addition, we conduct CO 2 refilling (including at third-party facilities) in Australia, Germany, Israel, New Zealand, South Africa, Sweden and the United States. We mostly manufacture our CO 2 cylinders ourselves, but in certain cases we also purchase empty CO 2 cylinders from other suppliers who have passed our rigorous safety standards.
Our future success requires that we have adequate capacity in our manufacturing facilities to manufacture sufficient products to support our current level of sales and the anticipated increased levels that may result from our growth plans. We intend to expand the use of subcontractors for certain components, as needed to meet expected demand. We believe that the capacity of our current manufacturing facilities and subcontractors is sufficient to meet anticipated demand for our products through 2012.
In addition, we currently intend to increase our manufacturing capabilities for future needs by constructing or purchasing an additional manufacturing facility in or near one of our existing markets. This will require us to either secure additional real estate or locate a suitable facility to purchase, hire additional employees and obtain additional financing. The timing of construction or purchase of such facility is not yet finalized. If we choose to construct a new manufacturing facility, we are targeting commencement of construction in 2011 and completion within approximately 24 months from the commencement of construction.
We manufacture our products in accordance with relevant safety and regulatory bodies around the world. We also have implemented specific quality assurance procedures throughout the various stages and processes of manufacturing to ensure the quality of all of our products.
We use certain raw materials to manufacture our soda makers, carbonation bottles, CO 2 cylinders and flavors. The most important of these materials are aluminum, brass, certain plastics, flavor ingredients and
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sugar. We believe that these materials are readily available from multiple sources and that we have sufficient inventory to continue manufacturing during the time it would take us to locate and qualify an alternative source of supply.
We maintain an active product development department, which is engaged in devising new products that offer improved aesthetics and lifestyle appeal as well as improved functionality. Since 2007, we have introduced several new and more up-scale models of soda makers, some of which use glass or dishwasher-safe plastic carbonation bottles. We are continuously introducing new flavors, and have increasingly expanded the variety of natural and enhanced flavors, including fruit, energy and isotonic blends, to satisfy evolving consumer tastes. As part of our focus on healthier beverages, we do not use high-fructose corn syrup in our flavors and offer certain of our diet versions with Splenda®, and without aspartame and saccharin. We also address local tastes with flavors designed for individual markets.
We intend to continue innovating, and are currently developing several new and improved products that include:
a machine with a digital gas gauge (Fizz Chip TM ) that identifies the amount of gas remaining in a CO 2 cylinder as well as the carbonation level during use;
an under-sink sparkling water dispenser;
a soda maker with a built-in filter;
a single-serve soda maker; and
a designer-styled upscale soda maker.
Additionally, we have recently launched a program that we refer to as SodaStream Inside, whereby we manufacture a soda maker on behalf of third parties that is marketed under their brand name. These soda makers contain our cylinders and we expect to benefit from the consumable sales that are generated from these appliances in the after-market. Consumers using these products will become our customers, which would increase our household penetration base and generate higher-margin sales of consumables. We hope to expand this program to include licensing our proprietary carbonating technology to third parties.
Our intellectual property portfolio is one of the means by which we attempt to protect our competitive position. We have a variety of trademarks registrations and pending applications, patents and pending applications, and design registrations and pending applications, some of which we acquired as part of our acquisition of certain assets of Wassermaxx in 2009. We rely on a combination of trademark and patent protection for our products, with a focus on trademarks. We are constantly seeking ways to protect our intellectual property through registrations in relevant jurisdictions. As our patent portfolio is limited, and as certain of the more basic patents on our technology approach expiration, we have increasingly turned to design registrations to protect the unique proprietary designs of our products. We have actively monitored and challenged the sale of products that we believe infringe our intellectual property rights in the past, and we intend to continue to actively protect our intellectual property rights in the future to the fullest extent possible. We place trademarks on all of our products, including carbonation bottles, CO 2 cylinders and flavors. To protect our know-how and trade secrets, we generally require our employees with access to our know-how and trade secrets to enter into agreements acknowledging our ownership of all inventions and intellectual property rights which they develop during the course of their employment and to agree not to disclose our confidential information. In addition, we typically include non-compete and confidentiality provisions, as well as provisions acknowledging our ownership of all intellectual property rights, in our distributor and supplier agreements.
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We face competition at several levels. We face direct competition from manufacturers of other home soda makers. Existing competitors in certain regions include AGA and Vikingsoda (Nordics only), Soda 2000, Soda-Quick, Drink-it (India, Sweden), WasserMate, Lacqua di Qui and OBH/Nordica. In September 2009, we acquired most of the assets of Wassermaxx, previously one of our largest competitors in Germany, the Nordic countries, France and Italy.
We also face competition with respect to some of our consumables, in particular in our CO 2 refill business and our flavors. Third parties may manufacture and refill cylinders that can be used with our soda makers, including AGA in the Nordics. We have generally entered into agreements with distributors and retailers that prohibit third parties from refilling our empty cylinders. Notwithstanding such arrangements, a recent court ruling in Germany allows consumers, as well as retailers who are not party to written agreements with SodaStream, to refill cylinders with CO 2 supplied by third parties, and current legal proceedings in Sweden are reviewing such arrangements as well. See Legal Proceedings. We may in the future become subject to similar rulings in other jurisdictions. With respect to our flavors, we face competition from various companies that produce soft drink syrups and fruit-flavored mixes to add to sparkling or still water.
Although manufacturers of consumer products may enter the home beverage carbonation system market as the industry grows, we believe that it will be difficult for new entrants to provide a complete product system to consumers. In particular, we believe that the reverse logistics needed for our end-user consumers to return empty CO 2 cylinders and exchange them for filled CO 2 cylinders at retail stores, currently comprised of a pool of approximately two million cylinders globally, will be difficult and expensive for others to replicate.
Since we are active in the carbonated soft drink and sparkling water markets, we also compete with the large global beverage companies for the dollars spent by consumers on non-alcoholic beverages. These include primarily manufacturers of carbonated soft drinks and sparkling water.
The SodaStream brand has a history that dates back to the beginning of the 20 th century. During the 1970s and 1980s, the SodaStream home carbonation beverage system gained substantial popularity in certain markets, although the company was focused on just a few niche markets and primarily on sparkling water. The company encountered numerous challenges, including ownership changes, unfocused and inadequate marketing, and a lack of product innovation during the years preceding 2007.
In 2007, following our acquisition by Fortissimo Capital, we restructured our operations significantly, including introducing a new management team headed by our Chief Executive Officer, Daniel Birnbaum. Our new management team implemented a new corporate strategy focused on penetration of new markets, consumer-driven product innovation and capitalizing on the consumer benefits of our products, including being environmentally-friendly and health-promoting. Since 2007, we have introduced several new and more up-scale soda makers, some of which use glass or dishwasher-safe plastic carbonation bottles, and have significantly increased our focus on new flavor offerings. Also since 2007, we have significantly increased the number of countries where our products are sold, by appointing exclusive distributors in several countries, including Canada, Colombia, Cyprus, the Czech Republic, Denmark, Finland, Hungary, Italy, Malta, Mexico, the Philippines, Portugal, Russia, Slovakia, Slovenia and Taiwan.
On March 11, 2010, we changed our corporate name from Soda-Club Holdings Ltd. to SodaStream International Ltd.
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Our products, which include both food products and compressed gas, are regulated by governments in most jurisdictions in which we do business. Food products, such as flavors and beverage-grade CO 2 , are subject to regulation both at regional levels such as the European Union, as well as on a national level. These regulations require us to vary product formulations and labeling. In addition, certain marketing claims regarding our flavors differ from jurisdiction to jurisdiction as a result of local regulations.
The transport of compressed gases, such as the CO 2 in our cylinders, is regulated in most jurisdictions. The manufacturing process and cylinder features vary by jurisdiction and we manufacture different cylinders, each of which is subject to a separate regulatory regime, for use in the European Union, Switzerland (SVTI), United States (Department of Transportation) and Canada (Transport Canada). The various regulatory bodies have different requirements for periodic re-testing of cylinders that vary from between five to ten years, procedures for which we are largely self-certified. In addition, the transport of cylinders is regulated on an international level and all of our cylinder packaging bears the international green diamond symbol for a Class 102 product. In the United States, our cylinders are regulated as hazardous materials.
As of June 30, 2010, we had 1,006 employees of whom 696 were based in Israel, 166 were in Germany, 30 were in the United States and 114 were in other countries. Of the total number of employees, 267 were temporary employees (most of whom work at our manufacturing facilities).
The breakdown of our employees by department is as follows:
As of
December 31, |
As of
June 30, |
|||||||||||||||
Department | 2007 | 2008 | 2009 | 2010 | ||||||||||||
Operations and product development | 304 | 319 | 492 | 661 | ||||||||||||
Sales and marketing | 187 | 190 | 205 | 244 | ||||||||||||
General and administration | 69 | 60 | 64 | 83 | ||||||||||||
Management | 16 | 14 | 15 | 18 | ||||||||||||
Total | 576 | 583 | 776 | 1,006 |
Under applicable Israeli law, we and our employees are subject to protective labor provisions such as restrictions on working hours, minimum wages, minimum vacation, sick pay, severance pay and advance notice of termination of employment, as well as equal opportunity and anti-discrimination laws. Orders issued by the Israeli Ministry of Industry, Trade and Labor may make certain industry-wide collective bargaining agreements applicable to us. These agreements affect matters such as cost of living adjustments to salaries, length of working hours and week, recuperation pay, travel expenses and pension rights. Our employees in Israel are not represented by a labor union. We provide our employees with benefits and working conditions which we believe are competitive with benefits and working conditions provided by similar companies in Israel.
Agreements with our employees also forbid disclosure of our proprietary information and contain customary provisions restricting employment with our competitors for a certain period after they stop working for us. Certain of these restrictions may be of no or little enforceability under Israeli law and may be of questionable enforceability in other jurisdictions. In addition, many of the employees in our manufacturing facilities are employed through third-party manpower agencies. Under Israeli Law, after nine consecutive months of employment with the same company, employees employed through third party manpower agencies become employees of the company into which they were placed by the manpower agency, and are entitled to all related protective labor provisions as of the first day of such individuals employment with the company into which they were placed.
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Employees that work for our international subsidiaries are subject to local law and in most cases have entered into personal employment agreements with the particular subsidiary that they work for. These agreements also include non-competition and nondisclosure provisions. Our employees located in Germany are subject to local collective bargaining agreements.
Our headquarters in Airport City, Israel is comprised of 46,070 square feet of office and warehouse space under a lease that terminates in April 2018. We also lease our two Israeli manufacturing facilities: one in Mishor Adumim, east of Jerusalem, which is comprised of 164,214 square feet of factory, warehouse and office space under a lease that terminates in July 2013; and the other in Ashkelon, on the Mediterranean coast, which is comprised of approximately 21,528 square feet of factory, warehouse and office space under a lease that terminates in March 2013.
Our office in Limburg, Germany is comprised of 48,987 square feet of factory, office and warehouse space under a lease that terminates in July 2011. This location is used for sales and marketing activities as well as refilling. Additional gas refilling takes place in Australia, Israel, New Zealand, South Africa, Sweden and the United States.
Our European commercial and logistics center is managed from Breda, the Netherlands. We have marketing and sales subsidiary offices in Australia, Germany, Israel, the Netherlands, South Africa, Switzerland, the United Kingdom and the United States. We believe that our existing facilities are adequate for our current needs and that suitable additional or alternative space will be available on commercially reasonable terms to meet our future needs.
We are currently party to a number of lawsuits in various jurisdictions in which we do business, including product liability actions and employee lawsuits. Product liability suits are generally covered by our product liability insurance and, in many cases, involve the use of third party products with our home carbonating system, such as carbonation bottles or CO 2 cylinders. We believe that our product and employers liability insurance provide sufficient protection for such actions.
We also are a party to a number of actions that grew out of our change of control and management in late 2006 and early 2007. There is a legal dispute with certain past employees, whereby unjust dismissal is alleged against us and we have countered with a claim of breach of fiduciary duty and fraud. We do not believe these claims are material to us.
In November 2009, we filed a lawsuit in the District Court of Stockholm, Sweden, against a competitor, Vikingsoda AB, which had been refilling our exchangeable CO 2 cylinders without our authorization. In the suit, we alleged that Vikingsoda had infringed our intellectual property rights by altering our exchangeable CO 2 cylinders by removing our trademarks from and affixing their trademarks to those cylinders. Vikingsoda is defending this action, and the Stockholm Court of Appeal recently held, without providing its reasoning, that a preliminary injunction issued by the District Court of Stockholm, which enjoined Vikingsoda from refilling our exchangeable CO 2 cylinders, cannot be enforced pending further notice.
Vikingsoda has also filed a complaint with the Swedish Competition Authority against us and our Scandinavian distributor, alleging that we abused a dominant market position. The Swedish Competition Authority is currently investigating our practices and has issued a preliminary opinion concluding that preventing third parties from refilling our exchangeable CO 2 cylinders may constitute an abuse of a dominant position. The Swedish Competition Authority submitted this preliminary opinion to the Stockholm Court of Appeal, directing that the Swedish courts must consider the Swedish Competition Authoritys conclusion in evaluating our trademark infringement claims against Vikingsoda. Should we be
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found to have abused our dominant position, the District Court of Stockholm may impose an administrative fine on us not exceeding 10% of our annual revenues and may also require us to terminate the abusive conduct under penalty of a fine and contract terms in breach of competition rules are automatically void. We continue to cooperate with the authority.
Following a recent audit, tax authorities in one jurisdiction in which we operate issued a finding that the amount of royalties we recognized on our CO 2 refills are not in compliance with the jurisdictions transfer pricing rules and issued a tax assessment of approximately €8.2 million, of which €5.6 million is directly in respect of these royalties for the period from 2003 to 2005. While we have appealed this assessment and are not bound to comply with the assessment during the pendency of this appeal, our appeal may not be successful and we may be required to pay some or all of the entire amount assessed. Moreover, in the event that our appeal is unsuccessful, further assessments for tax periods after 2005 could be forthcoming.
We are engaged in other legal actions arising out of the ordinary course of business and believe that the ultimate outcome of these actions will not have a material adverse effect on our results of operations, financial condition or cash flows.
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The following table sets forth the name, age and position of each of our executive officers, directors and director nominees as of the date of this prospectus.
Name | Age | Position | ||
Executive officers | ||||
Daniel Birnbaum(1) | 48 | Chief Executive Officer | ||
Daniel Erdreich | 47 | Chief Financial Officer | ||
Yonah Lloyd | 44 | Executive Director of International Projects and Corporate Communications | ||
Asaf Snear | 39 | Head of Global Marketing | ||
Tali Haim | 37 | Head of Global Business Development | ||
Yossi Azarzar | 48 | Director of Global Operations | ||
Eyal Shohat | 36 | General Counsel and Corporate Secretary | ||
Rachelle Ostro | 54 | Director of Global Human Resources | ||
Directors | ||||
Yuval Cohen(4)(5) | 48 | Chairman | ||
Shmoulik Barashi(2) | 48 | Director | ||
Maurice Benady | 45 | Director | ||
Eli Blatt(2) | 47 | Director | ||
Marc Lesnick | 43 | Director | ||
David Morris(3)(4)(5) | 41 | Director | ||
Director Nominees | ||||
Eytan Glazer(3)(5) | 48 | Director Nominee | ||
Lauri A. Hanover(3)(4) | 51 | Director Nominee |
(1) Mr. Birnbaum will become one of our directors upon the consummation of this offering.
(2) Each of Mr. Barashi and Mr. Blatt will resign from our Board of Directors, effective upon the consummation of this offering.
(3) Member of our Audit Committee.
(4) Member of our Compensation Committee.
(5) Member of our Nominating and Governance Committee.
Daniel Birnbaum has served as our Chief Executive Officer since January 2007. From 2003 to 2006, Mr. Birnbaum was the General Manager of Nike Israel. Mr. Birnbaum was a founding member of Nuvisio Corporation, a technology start-up, and served as its Chief Executive Officer from 1999 to 2002. In 1995, Mr. Birnbaum established Pillsbury Israel and served as its Chief Executive Officer until 1999. Mr. Birnbaum holds an M.B.A. from Harvard Business School and a B.A. from The Hebrew University of Jerusalem.
Daniel Erdreich has served as our Chief Financial Officer since March 2007. Mr. Erdreich joined us in 1996, served as our Controller until 2000 and served as the Finance Manager for some of our affiliated entities from 2003 until 2007. Between 1993 and 1996 and between 2000 and 2003, Mr. Erdreich was the Chief Financial Officer of public companies traded on Nasdaq and the Tel-Aviv Stock Exchange. Mr. Erdreich is a certified public accountant in Israel and holds a B.A. in Accounting and Economics and an M.A. in Business Administration, both from The Hebrew University of Jerusalem.
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Yonah Lloyd has served as our Executive Director of International Projects and Corporate Communications since April 2010. From 2008 to 2010, Mr. Lloyd consulted for Cupron, Inc., and later served as their Executive Vice-President of Sales and Business Development. From 1996 to 2007, Mr. Lloyd served as Senior Vice-President of Sales and Marketing at Net2Phone, Inc. From 1990 to 1996, Mr. Lloyd was an Assistant District Attorney in Bronx County, New York. Mr. Lloyd holds a J.D. from Fordham University School of Law and a B.A. in Sociology from Queens College.
Asaf Snear has served as our Head of Global Marketing since May 2008. Between 2002 and 2008, Mr. Snear served as the Apparel Business Unit Manager and held other senior marketing positions at Nike Israel. Prior to 2002, Mr. Snear held a variety of marketing positions at various FMCG brands and advertising agencies. Mr. Snear holds a B.A. in Communication and Behavioral Science from the College of Administration in Tel Aviv and an M.A. in Communications and Media from The Hebrew University in Jerusalem.
Tali Haim has served as our Head of Global Business Development since November 2007. From 2001 to 2007, Ms. Haim was a Senior Director of Sales and Marketing at Shonfelds USA, Inc. Prior to 2001, Ms. Haim was an organizational psychologist at the Adam Milo Institute in Israel. Ms. Haim holds a B.A. in Psychology and Philosophy from Bar Ilan University and an M.A. in Clinical Psychology from Tel Aviv University.
Yossi Azarzar has served as our Director of Global Operations since May 2007. From 2000 to 2007, Mr. Azarzar held various positions at Intel Corporation, including Manufacturing Functional Area Manager and Manufacturing Manager. From 1994 to 2000, Mr. Azarzar served as an Area Manager with the McDonalds Corporation in Israel. Mr. Azarzar holds a B.A and an M.A. in Islamic, Middle Eastern & Arabic studies, both from The Hebrew University in Jerusalem.
Eyal Shohat has served as our General Counsel and Corporate Secretary since May 2010. From 2007 to April 2010, Mr. Shohat was the Vice President Legal Affairs of Frutarom Industries Ltd., a public company listed on the Tel Aviv and London Stock Exchanges. From 2002 to 2006, Mr. Shohat served as Legal Counsel for Frutarom. Mr. Shohat holds a B.A. in Accounting, an L.L.B. and an M.B.A. from Tel Aviv University.
Rachelle Ostro has served as our Director of Global Human Resources since 2007. From 1997 to 2007, she served as our Executive Administrator. Ms. Ostro holds a B.A. in Social Work from Tel Aviv University.
Yuval Cohen has served as the Chairman of our board of directors since December 2006. Mr. Cohen is the founding and managing partner of Fortissimo Capital, a private equity fund established in January 2003 and our controlling shareholder. From 1997 through 2002, Mr. Cohen was a General Partner at Jerusalem Venture Partners, where he led investments in, and served on the boards of directors of, numerous companies, including Precise Software Solutions, Inc., PowerDsine Ltd., T.sqware Inc., Sheer Networks, Teleknowledge Group, Celltick Technologies and XMPie. Mr. Cohen currently serves on the board of directors of Emblaze Ltd. (LSE: BLZ), as well as a director of several privately held portfolio companies of Fortissimo Capital. In addition, Mr. Cohen previously served as the Chairman of the board of directors of NUR Macroprinters (the assets of which were sold to Hewlett-Packard Company), and Hadasit Bio-Holdings Ltd. (TASE: HDST). Mr. Cohen received a B.Sc. in Industrial Engineering from Tel Aviv University and an M.B.A. from Harvard Business School.
Shmoulik Barashi has served as a member of our board of directors since December 2006. Mr. Barashi has been a partner in Fortissimo Capital since May 2005. From January 2001 through May 2005, Mr. Barashi served as a senior partner in BDO Ziv Haft. Mr. Barashi currently serves on the board of directors of Emblaze Ltd. and other privately held Fortissimo Capital portfolio companies. Mr. Barashi received an M.B.A. from The Hebrew University of Jerusalem and an L.L.M. from Bar Ilan University. Mr. Barashi will resign from our Board of Directors, effective upon the consummation of this offering.
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Maurice Benady has served as a member of our board of directors since October 2007. Mr. Benady is a solicitor and, since July 2003, has been a partner at Hassans International Law Firm in Gibraltar. Mr. Benady completed his Articles while on secondment to the Attorney Generals Chambers of Gibraltar. Mr. Benady also serves on the board of directors of Kendray Properties Limited and Keswick Properties Limited. Mr. Benady holds an LLB from Manchester Metropolitan University.
Eli Blatt has served as a member of our board of directors since December 2006. Mr. Blatt joined Fortissimo Capital as a partner in January 2005. From March 1999 through May 2004, Mr. Blatt served as the Chief Financial Officer and Vice President of Operations of Noosh, Inc. Mr. Blatt currently serves on the board of directors of RadView Software Ltd. and several privately held portfolio companies of Fortissimo Capital. Mr. Blatt holds a B.Sc. degree in Industrial Engineering from Tel Aviv University and an M.B.A. from Indiana University. Mr. Blatt will resign from our Board of Directors, effective upon the consummation of this offering.
Marc Lesnick has served as a member of our board of directors since December 2006. Mr. Lesnick has been a partner at Fortissimo Capital since May 2003. From October 2001 through May 2003, Mr. Lesnick served as an independent consultant to various high tech companies and institutional investors. From September 1997 through October 2001, Mr. Lesnick served as the Managing Director of Jerusalem Global, a boutique investment bank based in Israel, and its affiliated entities. From 1992 to 1997, Mr. Lesnick was an attorney at Weil, Gotshal & Manges LLP in New York, where he specialized in public offerings and mergers and acquisitions. Mr. Lesnick currently serves on the board of directors of several privately held portfolio companies of Fortissimo Capital. Mr. Lesnick holds a J.D. from the University of Pennsylvania and a B.A. from Yeshiva University.
David Morris has served as a member of our board of directors since October 2010. Mr. Morris served as an observer on our board of directors from 2002 to 2006 and, since 2007, served as an alternate director to his father, Conrad Morris, one of the early and active investors in Soda Club NV, our predecessor company. Mr. Morris is an advisor to a group of companies with extensive business and property investments, including Real Property Investment Limited, one of our principal shareholders. He additionally manages an extensive property portfolio in the United Kingdom and the Ukraine. He is also involved in numerous charitable and community endeavors in Europe and Israel. Mr. Morris holds a B.A. in Business Studies from the University of Westminster.
Eytan Glazer has been nominated, and has agreed to serve, as a director upon the completion of this offering. It is intended that he serve as an external director, subject to ratification at a meeting of our shareholders to be held no later than three months following the completion of this offering. Since 2008, Mr. Glazer has been investing in and actively involved with several emerging companies, providing strategic guidance, business development and assistance with financings. From 1998 through 2008, Mr. Glazer was the founder and served as the Chief Executive Officer of TippCom Ltd., which was sold to Unicell Advanced Cellular Solutions Ltd. in 2008. Prior to 1998, Mr. Glazer served as Vice President, Marketing of SPL WorldGroup, Inc. Mr. Glazer holds a B.Sc in Computer Science and Economics from Bar Ilan University and an M.B.A. from Harvard Business School.
Lauri Hanover has been nominated, and has agreed to serve, as a director upon the completion of this offering. It is intended that she serve as an external director, subject to ratification at a meeting of our shareholders to be held no later than three months following the completion of this offering. Ms. Hanover is the Vice President and Chief Financial Officer of Tnuva Group. From January 2008 through April 2009, she served as Chief Executive Officer of Gross, Kleinhendler, Hodak, Halevy and Greenberg & Co., an Israeli law firm. From August 2004 through December 2007, she served as the Senior Vice President and Chief Financial Officer of Lumenis Ltd., an Israeli medical device company, and from 2000 to 2004, she served as the Corporate Vice President and Chief Financial Officer of NICE Systems Ltd., an Israeli software and analytics company. From 1997 to 2000, she served as Executive Vice President and Chief Financial
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Officer of Sapiens International Corporation N.V. From 1984 to 1997, Ms. Hanover served in a variety of financial management positions, including Corporate Controller at Scitex Corporation Ltd., and from 1981 to 1984 as Financial Analyst at Philip Morris Inc. (Altria). Ms. Hanover holds a B.S. in Finance from the Wharton School of Business and a B.A. from the College of Arts and Sciences, both of the University of Pennsylvania. Ms. Hanover also holds an M.B.A. from New York University.
As a foreign private issuer, we are permitted to comply with Israeli corporate governance practices instead of the Nasdaq Global Market requirements, provided that we disclose those Nasdaq Global Market requirements with which we do not comply and the equivalent Israeli requirement which we follow instead. We intend to rely on this foreign private issuer exemption with respect to the quorum requirement for meetings of our shareholders. As permitted under the Companies Law, pursuant to our articles of association to be effective following this offering, the quorum required for an ordinary meeting of shareholders will consist of at least two shareholders present in person, by proxy or, for certain types of shareholders resolutions, by written ballot, who hold or represent between them at least 25% of the voting power of our shares, instead of 33 1/3% of the issued share capital provided by under the Nasdaq Global Market requirements.
We intend to rely on the transition rules of the Nasdaq Global Market, which allow us to have directors who are not independent directors on our compensation committee and on our nominating and governance committee for a period of 12 months following the completion of this offering.
Under the Companies Law, we are not required to have a majority of independent directors, but are required to appoint at least two external directors, and the appointment of these external directors must be ratified by our shareholders no later than three months after the closing of this offering. See External Directors below. Our articles of association does not require a specified number of independent directors.
Our current board of directors consists of six directors. It is expected that each of Messrs. Birnbaum and Glazer, and Ms. Hanover will become directors upon the consummation of this offering, and that each of Messrs. Barashi and Blatt will resign from our board of directors, also upon the consummation of this offering. After those changes, our board of directors will consist of seven directors. As more fully described below, we expect that Mr. Glazer and Ms. Hanover will serve as our external directors, following the approval of their serving as such at a general meeting of our shareholders to be held no later than three months following the completion of this offering.
Our articles of association to be effective upon the closing of this offering provide that we may have between five and nine directors. Removal of any director shall be upon the vote of the holders of two-thirds of our voting shares, except as provided by applicable law.
Under our articles of association to be effective upon the closing of this offering, our directors (other than the external directors, whose appointment is required under the Companies Law; see External Directors) are divided into three classes. Each class of directors consists, as nearly as possible, of one-third of the total number of directors constituting the entire board of directors (other than the external directors). At each annual general meeting of our shareholders, the election or re-election of directors following the expiration of the term of office of the directors of that class of directors, will be for a term of office that expires on the third annual general meeting following such election or re-election, such that from 2011 and after, each year the term of office of only one class of directors will expire. Class I directors, consisting of Mr. Birnbaum, will hold office until our annual meeting of shareholders to be held in 2011. Class II directors, consisting of Messrs. Benady and Lesnick, will hold office until our annual meeting of shareholders to be held in 2012. Class III directors, consisting of Messrs. Cohen and Morris, will hold office
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until our annual meeting of shareholders to be held in 2013. The directors shall be elected by a vote of the holders of a majority of the voting power present and voting at that meeting (excluding abstentions). Each director will hold office until the annual general meeting of our shareholders for the year in which his or her term expires, unless the tenure of such director expires earlier pursuant to the Companies Law or unless he or she is removed from office as described below.
The articles relating to the number of directors, staggered board and election and removal of a director from office may be changed only by a resolution adopted by two-thirds of our voting shares.
Vacancies on our board of directors, including vacancies resulting from there being fewer than the maximum number of directors permitted by our articles, may be filled by a vote of a simple majority of the directors then in office, even if they do not constitute a quorum. Directors so chosen or appointed shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible. See External Directors for a description of the procedure for the election of external directors.
In addition, under the Companies Law, our board of directors must determine the minimum number of directors who are required to have financial and accounting expertise. Under applicable regulations, a director with financial and accounting expertise is a director who, by reason of his or her education, professional experience and skill, has a high level of proficiency in and understanding of business accounting matters and financial statements. See Qualifications of External Directors. He or she must be able to thoroughly comprehend the financial statements of the listed company and initiate debate regarding the manner in which financial information is presented. In determining the number of directors required to have such expertise, the board of directors must consider, among other things, the type and size of the company and the scope and complexity of its operations. Our board of directors has determined that we require at least one director with the requisite financial and accounting expertise. Ms. Hanover has such financial and accounting expertise.
Each of our executive officers serves at the discretion of the board of directors and holds office until his or her resignation or removal. There are no family relationships among any of our directors or executive officers.
Under the Companies Law, companies incorporated under the laws of the State of Israel that are public companies, including companies with shares listed on the Nasdaq Global Market, are required to appoint at least two external directors. Mr. Glazer and Ms. Hanover are qualified to serve as external directors under the Companies Law. Their appointment as external directors must be confirmed by a general meeting of our shareholders no later than three months following the completion of this offering, and we intend to hold a shareholders meeting within three months of the completion of this offering to seek approval for their appointment as external directors.
A person may not serve as an external director if, at the date of the persons appointment or within the prior two years, the person, the persons relatives, entities under the persons control, the persons partner, the persons employer, or anyone to whom that person is subordinate, whether directly or indirectly, have or have had any affiliation with (1) us; (2) our controlling shareholder at the time of such persons appointment; or (3) any entity that is either controlled by us or under common control with us at the time of such appointment or during the prior two years.
The term affiliation includes:
an employment relationship;
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a business or professional relationship maintained on a regular basis;
control; and
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 initial public offering.
The term relative is defined as a spouse, sibling, parent, grandparent, descendant, spouses descendant and the spouse of each of these persons.
The term office holder is defined as a director, general manager, chief business manager, deputy general manager, vice general manager, other manager directly subordinate to the general manager or any other person assuming the responsibilities of any of the foregoing positions, without regard to such persons title.
No person can serve as an external director if the persons position or other business create, or may create, a conflict of interest with the persons responsibilities as a director or may otherwise interfere with the persons ability to serve as a director. If at the time an external director is appointed all current members of the board of directors are of the same gender, then that external director must be of the other gender. In addition, a director of a company may not be elected as an external director of another company if, at that time, a director of the other company is acting as an external director of the first company.
The Companies Law provides that an external director must meet certain professional qualifications or have financial and accounting expertise, and that at least one external director must have financial and accounting expertise. However, if at least one of our other directors (1) meets the independence requirements of the Exchange Act, (2) meets the standards of the Nasdaq Marketplace Rules for membership on the audit committee and (3) has financial and accounting expertise as defined in the Companies Law and applicable regulations, then neither of our external directors is required to possess financial and accounting expertise as long as both posses other requisite professional qualifications. The board of directors is required to determine whether a director possesses financial and accounting expertise by examining whether, due to the directors education, experience and qualifications, the director is highly proficient and knowledgeable with regard to business-accounting issues and financials statements, to the extent that the director is able to engage in a discussion concerning the presentation of financial information in the companys financial statements, among others. The regulations define a director with the requisite professional qualifications as a director who satisfies one of the following requirements: (1) the director holds an academic degree in either economics, business administration, accounting, law or public administration, (2) the director either holds an academic degree in any other field or has completed another form of higher education in the companys primary field of business or in an area which is relevant to the office of an external director, or (3) the director has at least five years of experience serving in any one of the following, or at least five years of cumulative experience serving in two or more of the following capacities: (a) a senior business management position in a corporation with a substantial scope of business, (b) a senior position in the companys primary field of business or (c) a senior position in public administration.
Until the lapse of a two year period from the date that an external director has ceased to act as an external director, a company may not engage that external director to serve as an office holder and cannot employ or receive professional services for payment from that person, either directly or indirectly, including through a corporation controlled by that person.
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Under Israeli law, external directors are elected by a majority vote at a shareholders meeting, provided that either:
the majority of the shares that are voted at the meeting, including at least one-third of the shares held by any non-controlling shareholders who voted at the meeting, excluding abstentions, vote in favor of the election of the external director; or
the total number of shares held by non-controlling shareholders that are voted against the election of the external director does not exceed one percent of the aggregate voting rights in the company.
Under Israeli law, the initial term of an external director of an Israeli company traded on the Nasdaq Global Market is three years and he or she may be reelected to additional terms of three years by a majority vote at a shareholders meeting, subject to the conditions described above for election of external directors. Reelection to each additional term beyond the first extension must comply with the following conditions: (1) the audit committee and, subsequently, the board of directors must confirm that the reelection for an additional term is beneficial to the company, taking into account the external directors expertise and special contribution to the function of the board of directors and its committees, and (2) the companys shareholders were informed at the general meeting, prior to the approval of the reelection of the external director, of the term previously served by him or her and of the reasons why the board of directors and audit committee recommended the extension of the external directors term.
If the board of directors is made aware of a concern that an external director has ceased to meet the statutory requirements for his or her appointment, or has violated his or her duty of loyalty to the company, then the board of directors is required to discuss the concern and determine whether it is justified. If the board of directors determines that the concern is justified, it must call a special general meeting of the companys shareholders, the agenda of which includes the dismissal of the external director. The external directors may be removed by the same majority of shareholders as is required for their election.
An Israeli court may remove external directors (1) at the request of a director or a shareholder of the company if it determines that the external director has ceased to meet the statutory requirements for his or her appointment, or has violated his or her duty of loyalty to the company, or (2) at the request of the company, a director, a shareholder or a creditor of the company if it determines that the external director is unable to perform his or her duties on a regular basis, or is convicted of certain offenses set forth in the Companies Law.
If the vacancy of an external directorship causes the company to have fewer than two external directors, such companys board of directors is required under the Companies Law to call a special general meeting of the companys shareholders as soon as possible to appoint a new external director.
Under the Companies Law, each committee to which a board of directors delegates power is required to include at least one external director and its audit committee is required to include all of the external directors.
An external director is entitled to compensation and reimbursement of expenses in accordance with regulations promulgated under the Companies Law and is otherwise prohibited from receiving any other compensation, directly or indirectly, in connection with serving as a director.
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Under the Companies Law, the board of directors of any public company must also appoint an audit committee comprised of at least three directors, including all of the external directors. The audit committee may not include:
the chairman of the board of directors;
a controlling shareholder or a relative of a controlling shareholder (as each such term is defined in the Companies Law); and
any director employed by the company or who provides services to the company on a regular basis (other than as a member of the board of directors).
Under the Nasdaq Marketplace Rules, we are required to maintain an audit committee consisting of at least three independent directors, all of whom are financially literate and one of whom has accounting or related financial management expertise.
Our audit committee will, upon the consummation of this offering, consist of Ms. Hanover and Messrs. Glazer and Morris. Ms. Hanover is an audit committee financial expert as defined by the Securities and Exchange Commission rules and has the requisite financial sophistication as defined by the Nasdaq Marketplace Rules. All of the members of our audit committee meet the requirements for financial literacy under the applicable rules and regulations of the Securities and Exchange Commission and the Nasdaq Marketplace Rules.
Ms. Hanover and Messrs. Glazer and Morris are independent as such term is defined in Rule 10A-3(b)(1) under the Exchange Act and under the listing standards of the Nasdaq Global Market.
The approval of the audit committee is required to effect specified actions and transactions with office holders and controlling shareholders, or in which they have an interest. See Fiduciary Duties and Approval of Specified Related Party Transactions under Israeli Law. The term controlling shareholder means a shareholder with the ability to direct the activities of the company, other than by virtue of being an office holder. A shareholder is presumed to be a controlling shareholder if the shareholder holds 50% or more of the voting rights in a company or has the right to appoint the majority of the directors of the company or its general manager. For the purpose of approving transactions with controlling shareholders, the term also includes any shareholder that holds 25% or more of the voting rights of the company if the company has no shareholder that owns more than 50% of its voting rights. For purposes of determining the holding percentage stated above, two or more shareholders who have a personal interest in a transaction that is brought for the companys approval are deemed as joint holders. The audit committee may not approve an action or a transaction with a controlling shareholder or with an office holder unless at the time of approval two external directors are serving as members of the audit committee and at least one of them was present at the meeting at which the approval was granted.
Our board of directors has adopted an audit committee charter setting forth the responsibilities of the audit committee consistent with the rules of the Securities and Exchange Commission and the Nasdaq Marketplace Rules, which include:
retaining and terminating our independent auditors, subject to shareholder ratification;
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pre-approval of audit and non-audit services provided by the independent auditors;
examining our quarterly and annual financial reports prior to their submission to the board of directors; and
approval of transactions with office holders and controlling shareholders, as described above, and other related-party transactions.
Additionally, under the Companies Law, the role of the audit committee is to identify irregularities in our business management in consultation with the internal auditor or our independent auditors and suggest an appropriate course of action to the board of directors and to approve the yearly or periodic work plan proposed by the internal auditor to the extent required. The audit committee charter states that in fulfilling this role the committee is entitled to demand from us any document, file, report or any other information that is required for the fulfillment of its roles and duties and to interview any of our employees or any employees of our subsidiaries in order to receive more details about his or her line of work or other issues that are connected to the roles and duties of the audit committee.
Our compensation committee will, upon the consummation of this offering, consist of Ms. Hanover and Messrs. Cohen and Morris.
Our board of directors has adopted a compensation committee charter setting forth the responsibilities of the committee consistent with the Nasdaq Global Market rules which include:
reviewing and recommending overall compensation policies with respect to our chief executive officer and other executive officers;
reviewing and approving corporate goals and objectives relevant to the compensation of our chief executive officer and other executive officers including evaluating their performance in light of such goals and objectives;
reviewing and approving the granting of options and other incentive awards; and
reviewing, evaluating and making recommendations regarding the compensation and benefits for our non-employee directors.
Ms. Hanover and Mr. Morris are independent under the listing standards of the Nasdaq Global Market. Consistent with the rules of the Nasdaq Global Market, we intend to appoint one additional independent director to the compensation committee within 12 months after our listing on the Nasdaq Global Market, at which time Mr. Cohen will resign from the committee.
Our nominating and governance committee will, upon the consummation of this offering, consist of Messrs. Cohen, Glazer and Morris.
Our board of directors has adopted a nominating and governance committee charter setting forth the responsibilities of the committee consistent with the Nasdaq Global Market rules which include:
reviewing and recommending nominees for election as directors;
developing and recommending to our board corporate governance guidelines and a code of conduct and ethics for our directors, officers and employees in compliance with applicable law;
reviewing developments relating to corporate governance issues;
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reviewing and making recommendations regarding board member skills and qualifications, the nature of duties of board committees and other corporate governance matters; and
establishing procedures for and administering annual performance evaluations of our board.
Messrs. Glazer and Morris are independent under the listing standards of the Nasdaq Global Market. Consistent with the rules of the Nasdaq Global Market, we intend to appoint one additional independent director to the nominating and governance committee within 12 months after our listing on the Nasdaq Global Market, at which time Mr. Cohen will resign from the committee.
Under the Companies Law, the board of directors of a public company must appoint an internal auditor based on the recommendation of the audit committee. The role of the internal auditor is, among other things, to examine whether a companys actions comply with applicable law and orderly business procedure. Under the Companies Law, the internal auditor may be an employee of the company but not an interested party or an office holder or a relative of an interested party or an office holder, nor may the internal auditor be the companys independent auditor or the representative of the same.
An interested party is defined in the Companies Law as (i) a holder of 5% or more of the issued share capital or voting power in a company, (ii) any person or entity who has the right to designate one or more directors or to designate the chief executive officer of the company, or (iii) any person who serves as a director or as a chief executive officer of the company. We intend to appoint an internal auditor following the closing of this offering.
The Companies Law imposes a duty of care and a duty of loyalty on all office holders of a company.
The duty of care of an office holder is based on the duty of care set forth in connection with the tort of negligence under the Israeli Torts Ordinance (New Version) 5728-1968. This duty of care requires an office holder to act with the degree of proficiency with which a reasonable office holder in the same position would have acted under the same circumstances. The duty of care includes a duty to use reasonable means, in light of the circumstances, to obtain:
information on the advisability of a given action brought for his or her approval or performed by virtue of his or her position; and
all other important information pertaining to these actions.
The duty of loyalty requires an office holder to act in good faith and for the benefit of the company, and includes the duty to:
refrain from any act involving a conflict of interest between the performance of his or her duties in the company and his or her other duties or personal affairs;
refrain from any activity that is competitive with the business of the company;
refrain from exploiting any business opportunity of the company for the purpose of gaining a personal advantage for himself or herself or others; and
disclose to the company any information or documents relating to the companys affairs which the office holder received as a result of his or her position as an office holder.
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We may approve an act performed in breach of the duty of loyalty of an office holder provided that the office holder acted in good faith, the act or its approval does not harm the company, and the office holder discloses his or her personal interest, as described below.
The Companies Law requires that an office holder promptly disclose to the company any personal interest that he or she may have and all related material information or documents relating to any existing or proposed transaction by the company. An interested office holders disclosure must be made promptly and in any event no later than the first meeting of the board of directors at which the transaction is considered. An office holder is not obliged to disclose such information if the personal interest of the office holder derives solely from the personal interest of his or her relative in a transaction that is not considered as an extraordinary transaction.
Personal interest is defined under the Companies Law to include the personal interest of a person in an action or in the business of a company, including the personal interest of such persons relative or the interest of any corporation in which the person is an interested party, but excluding a personal interest stemming solely from the fact of holding shares in the company.
Under the Companies Law, an extraordinary transaction which requires approval is defined as any of the following:
a transaction other than in the ordinary course of business;
a transaction that is not on market terms; or
a transaction that may have a material impact on the companys profitability, assets or liabilities.
Under the Companies Law, once an office holder has complied with the above disclosure requirement, a company may approve a transaction between the company and the office holder or a third party in which the office holder has a personal interest, or approve an action by the office holder that would otherwise be deemed a breach of duty of loyalty. However, a company may not approve a transaction or action that is adverse to the companys interest or that is not performed by the office holder in good faith.
Under the Companies Law, unless the articles of association of a company provide otherwise, a transaction with an office holder, a transaction with a third party in which the office holder has a personal interest, and an action of an office holder that would otherwise be deemed a breach of duty of loyalty requires approval by the board of directors. Our articles of association do not provide otherwise. If the transaction or action considered is (i) an extraordinary transaction, (ii) an action of an office holder that would otherwise be deemed a breach of duty of loyalty and may have a material impact on a companys profitability, assets or liabilities, or (iii) an undertaking to indemnify or insure an office holder who is not a director, then audit committee approval is required prior to approval by the board of directors. Arrangements regarding the compensation, indemnification or insurance of a director require the approval of the audit committee, board of directors and shareholders, in that order.
A director who has a personal interest in a matter that is considered at a meeting of the board of directors or the audit committee may generally not be present at the meeting or vote on the matter unless a majority of the directors or members of the audit committee have a personal interest in the matter. If a majority of the directors have a personal interest in the matter, such matter also requires approval of the shareholders of the company.
Under the Companies Law, the disclosure requirements that apply to an office holder also apply to a controlling shareholder of a public company. See Audit Committee Approval of Transactions with Related Parties for a definition of controlling shareholder. Extraordinary transactions with a controlling
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shareholder or in which a controlling shareholder has a personal interest, including a private placement in which a controlling shareholder has a personal interest, and the terms of engagement of a controlling shareholder or a controlling shareholders relative, whether as an office holder or an employee, require the approval of the audit committee, the board of directors and a majority of the shares voted by the shareholders of the company participating and voting on the matter in a shareholders meeting. In addition, the shareholder approval must fulfill one of the following requirements:
at least one-third of the shares held by shareholders who have no personal interest in the transaction and are voting at the meeting must be voted in favor of approving the transaction, excluding abstentions; or
the shares voted by shareholders who have no personal interest in the transaction who vote against the transaction represent no more than 1.0% of the voting rights in the company.
Under the Companies Law, a shareholder has a duty to refrain from abusing its power in the company and to act in good faith and in an acceptable manner in exercising its rights and performing its obligations to the company and other shareholders, including, among other things, voting at general meetings of shareholders on the following matters:
an amendment to the articles of association;
an increase in the companys authorized share capital;
a merger; and
the approval of related party transactions and acts of office holders that require shareholder approval.
A shareholder also has a general duty to refrain from discriminating against other shareholders.
The remedies generally available upon a breach of contract will also apply to a breach of the above mentioned duties, and in the event of discrimination against other shareholders, additional remedies are available to the injured shareholder.
In addition, any controlling shareholder, any shareholder that knows that its vote can determine the outcome of a shareholder vote and any shareholder that, under a companys articles of association, has the power to appoint or prevent the appointment of an office holder, or has another power with respect to a company, is under a duty to act with fairness towards the company. The Companies Law does not describe the substance of this duty except to state that the remedies generally available upon a breach of contract will also apply in the event of a breach of the duty to act with fairness, taking the shareholders position in the company into account.
Under the Companies Law, a company may not exculpate an office holder from liability for a breach of the duty of loyalty. An Israeli company may exculpate an office holder in advance from liability to the company, in whole or in part, for damages caused to the company as a result of a breach of duty of care but only if a provision authorizing such exculpation is inserted in its articles of association. Our articles of association include such a provision. An Israeli company may not exculpate a director from liability arising out of a prohibited dividend or distribution to shareholders.
An Israeli company may indemnify an office holder in respect of the following liabilities and expenses incurred for acts performed as an office holder, either in advance of an event or following an event, provided a provision authorizing such indemnification is contained in its articles of association:
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financial liability imposed on him or her in favor of another person pursuant to a judgment, settlement or arbitrators award approved by a court. However, if an undertaking to indemnify an office holder with respect to such liability is provided in advance, then such an undertaking must be limited to events which, in the opinion of the board of directors, can be foreseen based on the companys activities when the undertaking to indemnify is given, and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances, and such undertaking shall detail the abovementioned events and amount or criteria;
reasonable litigation expenses, including attorneys fees, incurred by the office holder as a result of an investigation or proceeding instituted against him or her by an authority authorized to conduct such investigation or proceeding, provided that (i) no indictment was filed against such office holder as a result of such investigation or proceeding; and (ii) no financial liability, such as a criminal penalty, was imposed upon him or her as a substitute for the criminal proceeding as a result of such investigation or proceeding or, if such financial liability was imposed, it was imposed with respect to an offense that does not require proof of criminal intent; and
reasonable litigation expenses, including attorneys fees, incurred by the office holder or imposed by a court in proceedings instituted against him or her by the company, on its behalf or by a third party or in connection with criminal proceedings in which the office holder was acquitted or as a result of a conviction for an offense that does not require proof of criminal intent.
An Israeli company may insure an office holder against the following liabilities incurred for acts performed as an office holder if and to the extent provided in the companys articles of association:
a breach of duty of loyalty to the company, to the extent that the office holder acted in good faith and had a reasonable basis to believe that the act would not prejudice the company;
a breach of duty of care to the company or to a third party, including a breach arising out of the negligent conduct of the office holder; and
a financial liability imposed on the office holder in favor of a third party.
An Israeli company may not indemnify or insure an office holder against any of the following:
a breach of duty of loyalty, except to the extent that the office holder acted in good faith and had a reasonable basis to believe that the act would not prejudice the company;
a breach of duty of care committed intentionally or recklessly, excluding a breach arising out of the negligent conduct of the office holder;
an act or omission committed with intent to derive illegal personal benefit; or
a fine or forfeit levied against the office holder.
Under the Companies Law, exculpation, indemnification and insurance of office holders must be approved by the audit committee and the board of directors and, with respect to directors, by shareholders.
Our articles of association allow us to indemnify and insure our office holders for any liability imposed on them as a consequence of an act (including any omission) which was performed by virtue of being an office holder. Our office holders are currently covered by a directors and officers liability insurance policy. As of the date of this offering, no claims for directors and officers liability insurance have been filed under this policy and we are not aware of any pending or threatened litigation or proceeding involving any of our directors or officers in which indemnification is sought.
We have entered into agreements with each of our directors and executive officers exculpating them, to the fullest extent permitted by law, from liability to us for damages caused to us as a result of a breach of
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duty of care, and undertaking to indemnify them to the fullest extent permitted by law, including with respect to liabilities resulting from this offering. This indemnification is limited to events determined as foreseeable by the board of directors based on our activities, and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances. The insurance is subject to our discretion depending on its availability, effectiveness and cost. Effective as of the date of this offering, the maximum amount set forth in such agreements is the greater of (1) with respect to indemnification in connection with a public offering of our securities, the gross proceeds raised by us and/or any selling shareholder in such public offering, and (2) with respect to all permitted indemnification, including a public offering of our securities, the greater of (a) an amount equal to 50% of our shareholders equity on a consolidated basis, based on our most recent financial statements made publicly available before the date on which the indemnity payment is made and (b) $50 million. In the opinion of the Securities and Exchange Commission, indemnification of directors and office holders for liabilities arising under the Securities Act of 1933, as amended, or the Securities Act, however, is against public policy and therefore unenforceable.
There is no pending litigation or proceeding against any of our directors or officers as to which indemnification is being sought, nor are we aware of any pending or threatened litigation that may result in claims for indemnification by any director or officer.
The aggregate compensation paid by us and our subsidiaries to our current executive officers, including stock based compensation, for the year ended December 31, 2009, was approximately €1.2 million. This amount does not include any amounts set aside or accrued to provide pension, severance, retirement, holiday or similar benefits or expenses, nor does it include any business travel, relocation, professional and business association dues and expenses reimbursed to office holders, and other benefits commonly reimbursed or paid by companies in Israel.
After the closing of this offering, we intend to pay to each of our non-employee directors an annual cash retainer of $30,000, a per meeting fee of $500 for any board or committee meeting attended, and a fee of $250 per written consent of the board or a committee thereof. The Chairman of the Board will receive an annual cash retainer of $60,000. We also reimburse our directors for expenses arising from their board membership. Our current non-employee directors will each be granted options to purchase 30,000 of our ordinary shares, effective upon the closing of this offering, at an exercise price equal to the initial public offering price on the cover page of this prospectus, which shall vest on the first, second and third anniversaries of the date of grant. Our director nominees will similarly each be granted options to purchase 30,000 of our ordinary shares, effective upon the closing of this offering, at an exercise price equal to the initial public offering price on the cover page of this prospectus, which shall vest on the first, second and third anniversaries of the date of grant.
We have entered into written employment agreements with each of our executive officers. See Certain Relationships and Related Party Transactions Agreements with Directors and Officers for additional information.
There are no arrangements or understandings between us and any of our subsidiaries, on the one hand, and any of our non-employee directors, on the other hand, providing for benefits upon termination of their employment or service as directors of our company or any of our subsidiaries.
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In 2007, we adopted the 2007 Employee Share Option Plan and, in October 2010, we adopted the 2010 Employee Share Option Plan to become effective following the consummation of this offering, or collectively the ESOP. The ESOP allows us to grant options to purchase ordinary shares to our employees, directors and consultants and those of our subsidiaries. This plan is intended to benefit us by enhancing our ability to attract desirable individuals and increasing the holders ownership interests in us. 2,195,838 ordinary shares are reserved for issuance under our ESOP, subject to adjustment to reflect certain events specified in the plan. The following is a summary of the material terms of this plan.
We currently have outstanding options to purchase our ordinary shares that were granted under our ESOP. As of June 30, 2010, there were options outstanding to purchase 1,145,838 ordinary shares under this plan, at a weighted average exercise price of €2.54 ($3.45) per share. Of these outstanding options, as of June 30, 2010, options to purchase 764,145 ordinary shares were vested and exercisable. Through June 30, 2010, 9,390 ordinary shares have been issued upon exercise of options granted under this plan.
The normal vesting schedule for options granted under the ESOP provides that 25% of the options will vest one year after the date of grant; and 6.25% will vest at the end of each quarter thereafter for twelve quarters. The options expire ten years after the date of grant if not exercised earlier. In general, when an option holders employment or service with us terminates, his or her option will no longer continue to vest following termination, and the holder may exercise any vested options for a period of one hundred eighty days following termination without cause. If an option holders employment with us terminates due to disability or if the termination of employment results from his or her death, then the option holder or his or her estate (as applicable) has twelve months to exercise the option; however, the option may not be exercised after its scheduled expiration date. If termination of employment results from the dismissal of the option holder for circumstances in which the option holder is not entitled to a severance payment as stated in Israeli Severance Pay Law 5723-1963, or for cause, his or her outstanding options will expire upon termination.
The option exercise price is determined by the compensation committee and specified in each option award agreement. In general, the option exercise price is the fair market value of the shares on the date of grant as determined in good faith by our board of directors.
We have elected to issue our options and shares granted or issued to Israeli participants in this plan under Section 102(b)(2) of the Israeli Income Tax Ordinance, which is the capital gains track. To comply with the capital gains track, all options and shares under the ESOP are granted or issued to a trustee and are held by the trustee for two years from the date of grant of the option. Under the capital gains track we are not allowed an Israeli tax deduction for the grant or issuance of the options or shares.
Our board of directors compensation committee administers the ESOP. However, our board of directors has residual authority to exercise any powers or duties of the compensation committee concerning the plan if the committee ceases to operate for any reason. The compensation committee recommends to the board of directors, and the board of directors determines or approves, the eligible individuals who receive options under the plan, the number of ordinary shares covered by those options, the terms under which such options may be exercised, and the other terms and conditions of the options, all in accordance with the provisions of the plan.
Option holders may not transfer their options except in the event of death or if the compensation committee determines otherwise.
In the case of certain changes in our share capital structure, such as a consolidation or share split or dividend, appropriate adjustments will be made to the numbers of shares and exercise prices under outstanding options.
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In the event that we undergo a transaction, as described below, subject to any contrary law or rule, or the terms of any option award agreement in effect before the transaction, any unexercised options will be replaced by equally ranking options of the successor company. If the successor company refuses to issue these replacement options, the vesting and exercisability of outstanding options may (in the discretion of the compensation committee or the board of directors) be accelerated prior to a transaction. The plan defines a transaction as (a) a merger, acquisition or reorganization of the company with one or more entities in which we are not the surviving entity, or (b) a sale of all or substantially all of our assets. In the event that a proposal for liquidation is submitted to shareholders, option holders will also be entitled to exercise their options during a 10 day period to participate in a liquidation distribution.
Our compensation committee and/or board of directors may at any time amend or terminate the ESOP; however, any amendment or termination may not adversely affect any options or shares granted under the ESOP prior to such action. The ESOP provides that if the board of directors desires, it can, with the consent of the option holder, cancel an outstanding option or amend an outstanding option, including the exercise price. For amendments affecting our officers, audit committee and/or shareholder approval may also be necessary. See Fiduciary Duties and Approval of Specified Related Party Transactions under Israeli Law and Audit Committee Approval of Transactions with Related Parties.
The following table provides information regarding the options to purchase our ordinary shares held by each of our directors and officers who beneficially own greater than one percent of our ordinary shares or options to purchase more than one percent of our ordinary shares immediately prior to the closing of this offering:
Name (Title) |
Number of
Option(s) |
Exercise
Price |
Expiration
Date |
Total Shares
Underlying Options |
||||||||||||
Daniel Birnbaum, Chief Executive Officer | 123,180 | € | 1.60579 | Sept. 14, 2018 | ||||||||||||
6,496 | € | 1.60579 | July 15, 2018 | |||||||||||||
92,471 | € | 1.60579 | Feb. 25, 2018 | |||||||||||||
437,194 | € | 1.60579 | Dec. 25, 2017 | |||||||||||||
659,341 |
On October 14, 2010, the Board of Directors approved a grant to Daniel Birnbaum, our Chief Executive Officer, of options to purchase 210,000 ordinary shares, effective upon the closing of this offering, at the initial public offering price shown on the cover page of this prospectus.
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The following table sets forth information with respect to the beneficial ownership of our shares as of the date of this prospectus by:
each of our directors, director nominees and executive officers;
each person or entity known by us to own beneficially more than 5% of our outstanding shares; and
all of our directors, director nominees and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting or investment power with respect to those securities, and include shares subject to options that are exercisable within 60 days after the date of this prospectus. Such shares are also deemed outstanding for purposes of computing the percentage ownership of the person holding the option, but not the percentage ownership of any other person.
Ownership and voting power percentages are based on 6,268,783 ordinary shares outstanding immediately prior to the closing of this offering. In addition, upon the closing of this offering, various outstanding convertible notes will convert into an aggregate of 6,667,838 ordinary shares.
Unless otherwise indicated below, to our knowledge, all persons named in the table have sole voting and investment power with respect to their shares, except to the extent that authority is shared by spouses under community property laws. All figures in this table assume no exercise by the underwriters of their over-allotment option to purchase up to an additional shares from us.
As of the date of this prospectus, we are aware of no United States persons or entities that are holders of record of our outstanding ordinary shares. None of our shareholders has informed us that he, she or it is affiliated with a registered broker-dealer or is in the business of underwriting securities.
Unless otherwise indicated, the address of each beneficial owner is c/o SodaStream International Ltd., 4 Gilboa Street, Airport City, P.O.B. 280, Postal Code 70100, Israel.
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Name of Beneficial Owner |
Shares Beneficially
Owned Prior to Offering |
Shares Beneficially
Owned After Offering |
||||||||||||||
Number | Percentage | Number | Percentage | |||||||||||||
Principal shareholders
|
||||||||||||||||
Fortissimo Capital Fund GP, L.P.(1) | 5,597,467 | 56.7 | % | 5,597,467 | 31.7 | % | ||||||||||
Real Property Investment Limited(2) | 3,312,555 | 44.8 | % | 3,312,555 | 18.7 | % | ||||||||||
Kendray Properties Ltd.(3) | 2,035,351 | 26.9 | % | 2,035,351 | 11.5 | % | ||||||||||
Clemente Corsini(4) | 931,969 | 14.2 | % | 931,969 | 5.3 | % | ||||||||||
Keswick Properties Ltd.(5) | 508,838 | 7.7 | % | 508,838 | 2.9 | % | ||||||||||
Executive officers, directors and director nominees
|
||||||||||||||||
Yuval Cohen(6)(1) | 5,597,467 | 56.7 | % | 5,597,467 | 31.7 | % | ||||||||||
Shmoulik Barashi(6)(1) | 5,597,467 | 56.7 | % | 5,597,467 | 31.7 | % | ||||||||||
Eli Blatt(6)(1) | 5,597,467 | 56.7 | % | 5,597,467 | 31.7 | % | ||||||||||
Marc Lesnick(6)(1) | 5,597,467 | 56.7 | % | 5,597,467 | 31.7 | % | ||||||||||
Maurice Benady(7) | 2,544,189 | 32.2 | % | 2,544,189 | 14.4 | % | ||||||||||
David Morris(8) | | | | | ||||||||||||
Eytan Glazer | | | | | ||||||||||||
Lauri A. Hanover | | | | | ||||||||||||
Daniel Birnbaum(9) | 623,912 | 9.1 | % | 623,912 | 3.4 | % | ||||||||||
Daniel Erdreich | * | * | * | * | ||||||||||||
Yonah Lloyd | * | * | * | * | ||||||||||||
Asaf Snear | * | * | * | * | ||||||||||||
Tali Haim | * | * | * | * | ||||||||||||
Yossi Azarzar | * | * | * | * | ||||||||||||
Eyal Shohat | * | * | * | * | ||||||||||||
Rachelle Ostro | * | * | * | * | ||||||||||||
All executive officers, directors and director nominees as a group (16 persons) | 8,914,348 | 72.6 | % | 8,914,348 | 48.3 | % |
* Less than 1%.
(1) Consists of 155 ordinary shares, 12,903,871 Series A1 Preferred Shares and loans convertible into 23,198,792 Series A1 Preferred Shares. Fortissimo Capital Fund GP, L.P. is a Cayman Island limited partnership, which serves as the general partner of each of the following three parallel partnerships each of which holds the amount of shares set forth next to its name: (a) Fortissimo Capital Fund (Israel), L.P., an Israeli limited partnership: 32,646,202, consisting of 11,669,038 Series A1 Preferred Shares and loans convertible into 20,977,164 Series A1 Preferred Shares; (b) Fortissimo Capital Fund (Israel-DP), L.P., an Israeli limited partnership: 2,332,969, consisting of 833,895 Series A1 Preferred Shares and loans convertible into 1,499,074 Series A1 Preferred Shares; and (c) Fortissimo Capital Fund, L.P., a Cayman Island limited partnership: 1,124,491, consisting of 401,938 Series A1 Preferred Shares and loans convertible into 722,553 Series A1 Preferred Shares. The general partner of Fortissimo Capital Fund GP, L.P. is Fortissimo Capital (GP) Management, Ltd., a Cayman Island corporation, which is controlled by Yuval Cohen, one of our directors. Mr. Cohen disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein. The principal address of Fortissimo Capital is 14 Hamelacha St., Park Afek, Rosh Haayin 48091, Israel.
(2) Consists of 1,136,842 ordinary shares, 6,747,686 Series A2 Preferred Shares and loans convertible into 7,285,662 Series A2 Preferred Shares. These shares are held of record by Real Property Investment Limited, a Liberian company, whose shares are held 50% by Cosign Nominees Limited and 50% by Spread Nominees Limited as bare nominees for Line Trust Corporation Limited, a professional trustee company, in its capacity as trustee of a discretionary settlement constituted under the laws of Gibraltar, with the potential beneficiaries being certain of the remoter issue of Conrad Morris, who is the father of our director David Morris. Real Property Investment Limited is a private company and is ultimately controlled by its board of directors, currently consisting of Michael Thomas Cahill, Peter Francis Griffin and Roy Frank Le Hegarat. The directors of Real Property Investment Limited have the power to vote and dispose of the ordinary shares held by Real Property Investment Limited. The principal address of Real Property Investment Limited is c/o Justin Jager, Intertrust International Management Ltd., PO Box 119, Martello Court, Admiral Park, St Peter Port, Guernsey GY1 3HB, Channel Islands.
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(3) Consists of 4,692,287 Series A1 Preferred Shares and loans convertible into 8,435,725 Series A1 Preferred Shares. These shares are held of record by Kendray Properties Ltd (Kendray), a company incorporated in Gibraltar, whose shares are held by Line Nominees Limited as bare Trustee for Trazer Limited as to 25.05% (Trazer), Helen Holdings Limited as to 25.00% (Helen Holdings) and The Brooklands 2002 Settlement the remaining 49.95%. Trazer is a fully owned subsidiary of The Sorrento Trust (Sorrento), whose trustees are Belvedere Trustees Limited (Belvedere). The directors of Belvedere are Nadine Marie Collado, Raquel Moss, Lesley Anne Nuttall and Christopher George White. The class of potential beneficiaries of Sorrento currently consists of Elizabeth Cheryl Bloom, Raphael David Noe and Steven Michael Noe. The shares of Helen Holdings are held by Line Holdings Limited as bare nominee for Line Trust Corporation Limited (LTCL), a professional trustee company constituted under the laws of Gibraltar, in its capacity as trustee of a discretionary settlement, The Helen Trust (the Helen Trust). The directors of LTCL are Moshe J. Anahory, Juan X. Chincotta, Albert A. Mena, Peter C. Montegriffo, Raquel Moss and Desmond R. Reoch. The Trustees of the Helen Trust are also Belvedere. The potential beneficiary of the Helen Trust is currently Elisabeth Smith. The Trustees of The Brooklands 2002 Settlement (Brooklands) are LTCL and Maurice Moses Benady, one of our directors. The class of potential beneficiaries of Brooklands currently consists of Elizabeth Cheryl Bloom, Raphael David Noe and Steven Michael Noe. The board of directors of Kendray, consisting of Moshe Jaacov Anahory, Maurice Moses Benady and Christopher George White, has the power to vote and dispose of the ordinary shares held by Kendray. Each such individual disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein. The principal address of Kendray is 57/63 Line Wall Road, Gibraltar.
(4) Consists of 232,549 ordinary shares, 2,581,385 Series A2 Preferred Shares and loans convertible into 1,929,874 Series A2 Preferred Shares. Mr. Corsinis address is Rue du Coq, 94a, B-1180 Brussels, Belgium.
(5) Consists of 1,173,072 Series A1 Preferred Shares and loans convertible into 2,108,931 Series A1 Preferred Shares. These shares are held of record by Keswick Properties Ltd (Keswick), a company incorporated in Gibraltar, whose shares are held by Line Nominees Limited (LNL) as bare Trustee for Hargate Holdings Limited (Hargate). The shares in Hargate are all held by LNL as bare Trustee for the Trustees of the Gerona Resettlement (Gerona). The trustees of Gerona are Line Trust Corporation Limited (LTCL), a professional trustee company constituted under the laws of Gibraltar. The class of potential beneficiaries of Gerona currently consists of certain charitable institutions, the Feurth Settlement and the remoter issue of Patrice B. Klein, who currently are Daniel Klein, Francoise Klein, Gabrielle Klein and Karen Klein. The directors of LTCL are Moshe J. Anahory, Juan X. Chincotta, Albert A. Mena, Peter C. Montegriffo, Raquel Moss and Desmond R. Reoch. The board of directors of Keswick, consisting of Moshe Jaacov Anahory, Maurice Moses Benady and Christopher George White, has the power to vote and dispose of the ordinary shares held by Keswick. Each such individual disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein. The principal address of Keswick is 57/63 Line Wall Road, Gibraltar.
(6) Consists of 5,597,467 shares held by Fortissimo Capital. Each such individual is a partner of Fortissimo Capital, sits on Fortissimo Capitals Investment Committee which has voting and investment power with respect to such shares and, therefore, may be deemed to have beneficial ownership of the shares owned by Fortissimo Capital. However, each such individual disclaims any such beneficial ownership, except to the extent of his pecuniary interest therein.
(7) Consists of 2,035,351 shares held by Kendray Properties Ltd. and 508,838 shares held by Keswick Properties Ltd. Mr. Benady is a director of both companies, shares voting and investment power and disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein. Mr. Benadys address is 57/63 Line Wall Road, Gibraltar.
(8) Mr. Morris address is c/o PC Clothing Ltd., 55-57 Holmes Road, London NW5 3AN, United Kingdom.
(9) Consists of options to purchase 623,912 shares which are currently exercisable or exercisable within 60 days of the date hereof.
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Since January 1, 2007, we have engaged in the following transactions with our directors and executive officers, holders of more than 5% of our voting securities and affiliates of our directors, executive officers and 5% shareholders. We believe that all of the transactions described below were made on terms no less favorable to us than could have been obtained from unaffiliated third parties.
On December 29, 2006, Fortissimo Capital, we and our shareholders at the time entered into a term sheet with respect to a proposed investment by Fortissimo Capital in us. In connection therewith, Fortissimo Capital provided a guaranty to Bank Mizrachi Tefachot in the amount of €4 million in order to secure a loan from the Bank on our behalf. Such guaranty was cancelled as of October 5, 2007.
In March 2007, Soda-Club Enterprises N.V. (shares of this entity were later exchanged by all shareholders for our shares) entered into a Preferred Share Purchase Agreement with an entity wholly owned by Fortissimo Capital by the name of Soda-Club Holdings Ltd., Kendray Properties Ltd. (or Kendray), Keswick Properties Ltd. (or Keswick), Real Property Investment Limited (or RPI), and Mr. Clemente Corsini (or Corsini). Pursuant to the Preferred Share Purchase Agreement, in exchange for an aggregate investment of €4,000,000, we issued an aggregate of 16,066,618 Series A1 Preferred Shares at a price per share of €0.24896 as follows: Fortissimo Capital 11,045,800; Kendray 4,016,655 and Keswick 1,004,164. In addition, in exchange for an aggregate investment of €1,971,817, most of which had previously been paid to us, we issued an aggregate of 7,920,108 Series A2 Preferred Shares at a price per share of €0.24896 as follows: RPI 5,911,781 and Mr. Corsini 2,008,327.
In September 2007, the holders of Series A1 Preferred Shares invested an additional €4,000,000 in us in exchange for a note convertible into an additional 16,066,618 Series A1 Preferred Shares within five years from issuance. This convertible note bears interest at Libor plus 2.5% compounded annually and is payable at maturity only if the convertible note is not converted into equity prior to maturity. In connection with this transaction, Fortissimo Capital was granted two options, one to invest up to an additional €4,000,000 in us on the same terms for a period of 12 months and another identical option exercisable for 24 months. Neither of these options was exercised and both have since expired.
All outstanding Series A1 Preferred Shares and all outstanding Series A2 Preferred Shares shall be automatically converted into ordinary shares immediately prior to the consummation of this offering. In addition, holders of our outstanding convertible notes will convert his or its convertible notes immediately prior to the consummation of this offering. All pro forma capitalization tables contained herein assume conversion of all outstanding convertible notes, unless otherwise indicated.
In connection with the purchase of the Series A1 and A2 Preferred Shares in 2007, we and all of our major shareholders entered into a shareholders agreement, dated March 26, 2007, which was later amended on July 31, 2008, and which was amended and restated in October 2010. The shareholders agreement includes the following terms:
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Election of directors . The parties to the shareholders agreement agreed to vote in favor of (i) four individuals designated by Fortissimo Capital, (ii) so long as Kendray and Keswick own in the aggregate at least 10% of our outstanding shares, one individual designated by Kendray plus an additional individual designated by Fortissimo Capital; (iii) one individual designated by RPI and (iv) an observer to the Board designated by Mr. Corsini for so long as he holds at least 4% of our outstanding shares; and
Directors fees . We agreed to pay an annual director fee of €20,000 to RPI.
These provisions of this agreement will be terminated effective upon the consummation of this offering.
Pursuant to the terms of our amended and restated shareholders agreement, each of Fortissimo Capital, Kendray, Keswick, RPI and Mr. Corsini may exercise certain registration rights described below with respect to the ordinary shares issuable upon conversion of our preferred shares.
Demand registration rights . We are required to initiate not more than two registrations, subject to certain blackout periods and other conditions, of the 8,141,500 ordinary shares issuable upon conversion of certain of our preferred shares upon the demand of any former holder of at least 30% of the Series A1 Preferred Shares (an Initiating Holder), provided that (i) the anticipated sales price from any such registration is not less than $5.0 million, and (2) we are not required to effect a registration within 180 days after the effective date of the registration statement of which this prospectus forms a part.
Following a request to effect a registration by our shareholders as described above, we are required to offer the other shareholders that are entitled to registration rights an opportunity to include their shares in the registration statement. If such registration is an underwritten offering and the managing underwriter advises us that marketing factors require a limitation on the number of shares that can be included in the registration statement, the shares will be included in the registration statement in the following order of preference: first, shares held by the Initiating Holders, second, shares held by any other former holders of Series A1 Preferred Shares, and third, shares held by any other former holders of Series A2 Preferred Shares.
Registration on Form F-3 . After we become eligible under applicable securities laws to file a registration statement on Form F-3, which will not be until at least 12 months after the date of this prospectus, our shareholders who are former holders of Series A1 or A2 Preferred Shares may request that we register the 11,016,633 ordinary shares issuable upon conversion of such shares on Form F-3, subject to certain blackout periods. We are required to give notice of any such request to the other former holders of Series A1 or A2 Preferred Shares, and offer those other former holders an opportunity to include their ordinary shares issued upon conversion of such shares in such registration statement.
Piggyback registration rights . Following this offering, former holders of Series A1 or A2 Preferred Shares will also have the right to request that we include their ordinary shares issued upon conversion of the preferred shares in any registration statements filed by us in the future for the purposes of a public offering, subject to specified exceptions. In the event that the managing underwriter advises us that marketing factors require a limitation on the number of shares that can be included in the registration statement, the shares will be included in the registration statement in the following order of preference: first, shares held by the former holders of Series A1 Preferred Shares, second, shares held by any other former holders of Series A2 Preferred Shares, and third, shares held by any other shareholder. In no event will the former holders of Series A1 Preferred Shares be reduced below 30% of the amount that such holders propose to register.
Termination . All registration rights granted to former holders of Series A1 and A2 Preferred Shares terminate immediately with respect to any shareholder who holds 1% or less of our aggregate
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outstanding ordinary shares, provided that all of the ordinary shares issued upon conversion of the preferred shares may be publicly sold within any three month period pursuant to Rule 144 under the Securities Act.
Expenses . We will pay all expenses in carrying out the above registrations, other than any underwriting discounts and commissions.
Prior to December 2006, certain of our shareholders provided non-convertible loans to us. As part of Fortissimo Capitals investment in us and pursuant to the terms of the Shareholders Agreement, repayment of these loans in the aggregate amount of $2.4 million, of which $1.9 million is currently outstanding, has been deferred until we achieve two consecutive years in which EBITDA exceeds €10 million. Our EBITDA for 2008 and 2009 exceeded €10 million and, therefore, we started to repay these loans beginning in March 2010. Pursuant to the terms of these agreements, the board of directors has the discretion to accelerate repayment of these loans upon the consummation of an initial public offering, and we intend to use €1.4 million ($1.9 million) of the net proceeds of this offering to repay these shareholder loans.
On December 11, 2007, in order to secure additional financing to fund our growth, Fortissimo Capital, as our largest shareholder, facilitated a financing in the amount of €2.4 million on our behalf by providing a guaranty in that amount to Bank Mizrachi Tefachot to secure such funding.
On February 18, 2008, one of our subsidiaries entered into an agreement with Keswick and Kendray to borrow €1.4 million. Such loan was unsecured, guaranteed by us, bore interest at a rate of 8.5% per annum and was to be repaid in full by December 31, 2008, unless otherwise converted at the same price per share as in effect at the time of the original investment of Kendray and Keswick (€1.60579 per share after giving effect to the 1-for-6.45 reverse share split effected on October 6, 2010). The agreement was later canceled and replaced by an agreement dated as of June 2008 between us and all shareholders holding at least 5% of our shares and CIS (Concept Investment Services) N.V., referred to herein as the Shareholder Loan Agreement, whereby the prior arrangement with respect to the shareholder loan provided in February 2008 was restructured and all parties participated in a loan to us in an aggregate amount of €6.7 million, with the net cash we received being equal to €5.3 million. Each of the participating shareholders contributed its pro rata amount of €5.3 million (Fortissimo Capital, in the form of a bank guaranty, which will be terminated in conjunction with this offering) and certain individuals affiliated with CIS (Concept Investment Services) N.V. contributed €10,000 (in lieu of its pro rata amount). Each of the shareholders participating in the loan to us, their respective contribution and the number of ordinary shares into which such contribution is convertible are set forth in the table below:
Entity |
Loan
Amount (Net) |
Number of Ordinary Shares | ||||||
Fortissimo Capital Fund GP, LP | € | 2,400,000 | 1,884,185 | |||||
Kendray Properties Ltd. | € | 872,688 | 685,127 | |||||
Keswick Properties Ltd | € | 218,172 | 171,282 | |||||
Real Property Investment Limited | € | 1,438,789 | 1,129,560 | |||||
Clemente Corsini | € | 381,116 | 299,205 | |||||
CIS (Concept Investment Services) N.V. | € | 10,000 | 7,530 |
Pursuant to the terms of the Shareholder Loan Agreement, the loan bears interest at a rate of 8.5% per annum, which was paid in advance (the amounts set forth above reflect the net loan amounts), is subordinate to all bank loans, is payable in full in December 2010 if not converted. Shareholders who participated in this loan received their pro rata portion of an additional 5% equity interest in us. Holders of the convertible notes will convert all of the outstanding convertible notes into an aggregate of 4,176,889 ordinary shares prior to the consummation of this offering.
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In connection with our financing on March 26, 2007, we and Fortissimo Capital entered into a Management Services Agreement, with respect to certain services to be provided to us by Fortissimo Capital. Such services include assisting and advising our management on matters concerning our affairs and business, and serving as members of our board of directors. In consideration of the performance of the management and board services, Fortissimo Capital or an affiliated entity designated by Fortissimo Capital is paid an annual management fee equal to the greater of (i) €250,000 or (ii) 4% of EBITDA. With respect to the years ended December 31, 2007, 2008 and 2009, we paid a management services fee to Fortissimo Capital in the amounts of €250,000, €556,000 and €485,000, respectively, and during the six months ended June 30, 2010, we accrued a management services fee to Fortissimo Capital in the amount of €196,000.
The Management Services Agreement, under its original terms, was not structured to terminate upon the consummation of a public offering. We and Fortissimo Capital have agreed that, consistent with the vast majority of other private equity-backed companies undertaking an initial public offering, it would be in our best interest and the best interests of our future shareholders to terminate the Management Services Agreement upon the consummation of this offering. We believe that termination reflects prevailing market practice for private equity-backed companies and allows us in the future to devote all of our excess cash flow to growing our business. In reaching the conclusion to terminate the Management Services Agreement, we also considered the fact that the level of services provided to us by Fortissimo Capital has decreased substantially from the time of Fortissimo Capitals initial investment in us. Following its initial investment, Fortissimo Capital replaced the majority of our senior management and was substantively involved in day-to-day operations and short-term strategic decisions. At the time of this offering, Fortissimo Capitals day-to-day involvement in our operations has decreased and its role can be fulfilled through its representation on our board of directors.
As consideration for Fortissimo Capitals agreement to terminate the Management Services Agreement, we will make a one-time payment of €1.75 million ($2.4 million) to Fortissimo Capital upon the consummation of this offering as consideration for terminating the agreement. The Management Services Agreement did not contemplate a one-time termination fee. The amount of the termination fee is intended to compensate Fortissimo Capital for its agreement to terminate its right to receive 4% of our EBITDA for an indefinite period in the future. The amount represents a multiple of approximately 3.5 times the most recent management fee. We believe that the amount is generally consistent with the range of termination fees paid in connection with comparable offerings by private equity-backed companies. Other than the payment of any accrued but unpaid fees earned by Fortissimo Capital pursuant to the Management Services Agreement prior to the consummation of this offering and any director fees payable to the directors affiliated with Fortissimo Capital, no other compensation will be paid by us to Fortissimo Capital following the consummation of this offering.
We have entered into written employment agreements with all of our executive officers. These agreements each contain provisions regarding non-competition, confidentiality of information and assignment of inventions. The non-competition provision applies for a period that is generally between six and twenty-four months following termination of employment. The enforceability of covenants not to compete in Israel and the United States is subject to limitations. In addition, we are required to provide notice of between two and six months prior to terminating the employment of certain of our senior executive officers other than in the case of a termination for cause.
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Since our inception, we have granted options to purchase our ordinary shares to certain of our officers. We describe our option plan under Management Share Option and Share Incentive Plan.
Our articles of association permit us to exculpate, indemnify and insure our office holders to the fullest extent permitted by the Companies Law. We have entered into agreements with each of our directors and executive officers, exculpating them from a breach of their duty of care to us to the fullest extent permitted by law and undertaking to indemnify them to the fullest extent permitted by law, including with respect to liabilities resulting from this offering to the extent that these liabilities are not covered by insurance. See Management Exculpation, Insurance and Indemnification of Office Holders.
On October 7, 2010, we paid a special bonus of $394,000 to Daniel Birnbaum, our Chief Executive Officer, approximately $217,000 of which he applied to repaying all principal and accrued interest on a loan we made to him in January 2007 and the balance of which was used to pay the taxes owed on such bonus. There are no other loans that have been made by us to our executive officers.
On October 14, 2010, the Board of Directors approved a grant to Mr. Birnbaum of options to purchase 210,000 ordinary shares, effective upon the closing of this offering, at the initial public offering price shown on the cover page of this prospectus.
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As of the date of this prospectus, our authorized share capital consists of 54,000,000 ordinary shares with a par value of NIS 0.645 per ordinary share and 65,000,000 Series A1 Preferred Shares and 15,000,000 Series A2 Preferred Shares, each with a par value of NIS 0.10 per share. As of the date of this prospectus, our issued share capital consists of 1,757,419 ordinary shares, 19,769,230 Series A1 Preferred Shares and 9,329,071 Series A2 Preferred Shares. Immediately prior to the closing of this offering, all of our outstanding preferred shares will automatically convert into an aggregate of 4,511,365 ordinary shares. In addition, immediately prior to the closing of this offering, a total of 6,667,838 ordinary shares will be issued in conversion of shareholder loans.
Upon the closing of this offering, our current articles will be replaced by new articles of association. The description below reflects the terms of our new articles of association.
Upon the closing of this offering, our authorized share capital will consist of 54,000,000 ordinary shares, NIS 0.645 par value, of which 17,673,465 shares will be issued and outstanding.
Our ordinary shares are not redeemable and following the closing of this offering will not have preemptive rights. The ownership or voting of ordinary shares by non-residents of Israel is not restricted in any way by our articles of association or the laws of the State of Israel, except that citizens of countries which are in a state of war with Israel may not be recognized as owners of ordinary shares.
Holders of our ordinary shares have one vote for each ordinary share held on all matters submitted to a vote of shareholders at a shareholder meeting. Shareholders may vote at shareholder meetings either in person, by proxy or by written ballot. Israeli law does not allow public companies to adopt shareholder resolutions by means of written consent in lieu of a shareholder meeting. Shareholder voting rights may be affected by the grant of any special voting rights to the holders of a class of shares with preferential rights that may be authorized in the future. The Companies Law provides that a shareholder, in exercising his or her rights and performing his or her obligations toward the company and its other shareholders, must act in good faith and avoid abusing his or her powers including when voting at general meetings on matters such as amending the articles of association, increasing the companys authorized capital and approving mergers and related party transactions that require shareholder approval. A shareholder also has a general duty to refrain from discriminating against other shareholders. The remedies generally available upon a breach of contract apply in the event of breach of the above mentioned duties, and in the event of harm, other remedies shall also be available to the injured shareholder. In addition, any controlling shareholder, any shareholder who knows that its vote can determine the outcome of a shareholder vote and any shareholder who, under a companys articles of association, can appoint or prevent the appointment of an office holder or has other power with respect to the company, is under a duty to act with fairness towards the company. The Companies Law does not describe the substance of this duty, except to state that the remedies generally available upon a breach of contract will apply also in the event of a breach of the duty to act with fairness.
Fully paid ordinary shares are issued in registered form and may be freely transferred under our articles of association unless the transfer is restricted or prohibited by another instrument, Israeli law or the rules of a stock exchange on which the shares are traded.
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Our ordinary shares do not have cumulative voting rights for the election of directors. Rather, under our articles of association our directors are elected, upon expiration of the term of office of any director, by the holders of a simple majority of our ordinary shares at a general shareholder meeting (excluding abstentions). As a result, the holders of our ordinary shares that represent more than 50% of the voting power represented at a shareholder meeting and voting thereon (excluding abstentions) have the power to elect any or all of our directors whose positions are being filled at that meeting, subject to the special approval requirements for external directors described under Management External Directors. Vacancies on our board of directors may be filled by a vote of a simple majority of the directors then in office as described under Management Board of Directors and Officers.
Under Israeli law, we may only declare and pay an annual dividend if, upon the reasonable determination of our board of directors, the distribution will not prevent us from being able to meet the terms of our existing and contingent obligations as they become due. Under the Companies Law, the distribution amount is further limited to the greater of retained earnings or earnings generated over the two most recent years. In the event that we do not have retained earnings and earnings legally available for distribution, as defined in the Companies Law, we may seek the approval of the court in order to distribute a dividend. The court may approve our request if it is convinced that there is no reasonable concern that the payment of a dividend will prevent us from satisfying our existing and foreseeable obligations as they become due.
In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of ordinary shares on a pro-rata basis. Dividend and liquidation rights may be affected by the grant of preferential dividend or distribution rights to the holders of a class of shares with preferential rights that may be authorized in the future.
We are required to convene an annual general meeting of our shareholders once every calendar year within a period of not more than 15 months following the preceding annual general meeting. Our board of directors may convene a special general meeting of our shareholders and is required to do so at the request of two directors or one quarter of the members of our board of directors, or at the request of one or more holders of 5% or more of our share capital and 1% of our voting power, or the holder or holders of 5% or more of our voting power. All shareholder meetings require prior notice of at least 21 days and, in certain cases, 35 days. The chairperson of our board of directors presides over our general meetings and is appointed by the board of directors. If the chairperson was not appointed or is not present within 15 minutes from the appointed time, the shareholders present shall appoint a chairperson. Subject to the provisions of the Companies Law and the regulations promulgated there under, shareholders entitled to participate and vote at general meetings are the shareholders of record on a date to be decided by the board of directors, which may be between four and 40 days prior to the date of the meeting, depending on the type of meeting and whether written proxies are being used.
The quorum required for a meeting of shareholders consists of at least two shareholders present in person, by proxy or by written ballot, who hold or represent between them at least 25% of our voting power. A meeting adjourned for lack of a quorum generally is adjourned to the same day in the following week at the same time and place, or to such other time, if indicated in the invitation to the meeting or in the notice of the meeting, any time and place set forth in the prior notice to the shareholders, or to a later time, as determined by the chairperson with consent of at least a majority of our voting rights. At
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the reconvened meeting, if a quorum is not present within half an hour, the meeting will take place with whatever number of participants are present, unless the meeting was called pursuant to a request by our shareholders, in which case the quorum required is the number of shareholders required to call the meeting as described under Shareholder Meetings.
Under the Companies Law, unless otherwise provided in the articles of association or applicable law, all resolutions of the shareholders require a simple majority of the voting rights represented at the meeting, in person, by proxy or by written ballot, and voting on the resolution (excluding abstentions). A resolution for the voluntary winding up of the company requires the approval by the holders of 75% of the voting rights represented at the meeting, in person, by proxy or by written ballot and voting on the resolution. Under our articles of association, resolutions to change the minimum and maximum number of our directors require the approval of holders of at least two-thirds of our voting shares.
Under the Companies Law, all shareholders generally have the right to review minutes of our general meetings, our shareholder register, including with respect to material shareholders, our articles of association, our financial statements and any document we are required by law to file publicly with the Israeli Companies Registrar or the Israeli Securities Authority. Any shareholder who specifies the purpose of its request may request to review any document in our possession that relates to any action or transaction with a related party which requires shareholder approval under the Companies Law. We may deny a request to review a document if we determine that the request was not made in good faith, that the document contains a commercial secret or a patent or that the documents disclosure may otherwise impair our interests.
A person wishing to acquire shares of a public Israeli company and who would as a result hold over 90% of the target companys issued and outstanding share capital is required by the Companies Law to make a tender offer to all of the companys shareholders for the purchase of all of the issued and outstanding shares of the company. A person wishing to acquire shares of a public Israeli company and who would as a result hold over 90% of the issued and outstanding share capital of a certain class of shares is required to make a tender offer to all of the shareholders who hold shares of the same class for the purchase of all of the issued and outstanding shares of the same class. If the shareholders who do not respond to or accept the offer hold less than 5% of the issued and outstanding share capital of the company or of the applicable class, all of the shares that the acquirer offered to purchase will be transferred to the acquirer by operation of law. However, a shareholder that had its shares so transferred, whether the shareholder accepted the tender offer or not, may, within three months from the date of acceptance of the tender offer, petition the court to determine whether the tender offer was for less than fair value and that the fair value should be paid as determined by the court. If the shareholders who did not accept the tender offer hold at least 5% of the issued and outstanding share capital of the company or of the applicable class, the acquirer may not acquire shares of the company that will increase its holdings to more than 90% of the companys issued and outstanding share capital or of the applicable class from shareholders who accepted the tender offer.
The Companies Law provides that an acquisition of shares of a public Israeli company must be made by means of a special tender offer if as a result of the acquisition the purchaser would become a holder of at
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least 25% of the voting rights in the company. This rule does not apply if there is already another holder of at least 25% of the voting rights in the company. Similarly, the Companies Law provides that an acquisition of shares in a public company must be made by means of a tender offer if as a result of the acquisition the purchaser would become a holder of more than 45% of the voting rights in the company, if there is no other shareholder of the company who holds more than 45% of the voting rights in the company. These requirements do not apply if the acquisition (i) occurs in the context of a private placement by the company that received shareholder approval, (ii) was from a shareholder holding at least 25% of the voting rights in the company and resulted in the acquirer becoming a holder of at least 25% of the voting rights in the company, or (iii) was from a holder of more then 45% of the voting rights in the company and resulted in the acquirer becoming a holder of more than 45% of the voting rights in the company. The special tender offer may be consummated only if (i) at least 5% of the voting power attached to the companys outstanding shares will be acquired by the offeror and (ii) the number of shares tendered in the offer exceeds the number of shares whose holders objected to the offer.
In the event that a special tender offer is made, a companys board of directors is required to express its opinion on the advisability of the offer, or shall abstain from expressing any opinion if it is unable to do so, provided that it gives the reasons for its abstention. An office holder in a target company who, in his or her capacity as an office holder, performs an action the purpose of which is to cause the failure of an existing or foreseeable special tender offer or is to impair the chances of its acceptance, is liable to the potential purchaser and shareholders for damages, unless such office holder acted in good faith and had reasonable grounds to believe he or she was acting for the benefit of the company. However, office holders of the target company may negotiate with the potential purchaser in order to improve the terms of the special tender offer, and may further negotiate with third parties in order to obtain a competing offer.
If a special tender offer was accepted by a majority of the shareholders who announced their stand on such offer, then shareholders who did not announce their stand or who had objected to the offer may accept the offer within four days of the last day set for the acceptance of the offer.
In the event that a special tender offer is accepted, then the purchaser or any person or entity controlling it or under common control with the purchaser or such controlling person or entity shall refrain from making a subsequent tender offer for the purchase of shares of the target company and cannot execute a merger with the target company for a period of one year from the date of the offer, unless the purchaser or such person or entity undertook to effect such an offer or merger in the initial special tender offer.
The Companies Law permits merger transactions if approved by each partys board of directors and, unless certain requirements described under the Companies Law are met, a majority of each partys shareholders. The board of directors of a merging company is required pursuant to the Companies Law to discuss and determine whether in its opinion there exists a reasonable concern that as a result of a proposed merger, the surviving company will not be able to satisfy its obligations towards its creditors, such determination taking into account the financial status of the merging companies. If the board of directors has determined that such a concern exists, it may not approve a proposed merger. Following the approval of the board of directors of each of the merging companies, the boards of directors must jointly prepare a merger proposal for submission to the Israeli Registrar of Companies.
For purposes of the shareholder vote, unless a court rules otherwise, the merger will not be deemed approved if a majority of the shares represented at the shareholders meeting that are held by parties other than the other party to the merger, or by any person who holds 25% or more of the outstanding shares or the right to appoint 25% or more of the directors of the other party, vote against the merger. In addition, if the non-surviving entity of the merger has more than one class of shares, the merger must be approved by each class of shareholders. If the transaction would have been approved but for the separate approval of each class or the exclusion of the votes of certain shareholders as provided above, a court may
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still approve the merger upon the request of holders of at least 25% of the voting rights of a company, if the court holds that the merger is fair and reasonable, taking into account the value of the parties to the merger and the consideration offered to the shareholders.
Under the Companies Law, each merging company must inform its secured creditors of the proposed merger plans. Creditors are entitled to notice of the merger pursuant to regulations. Upon the request of a creditor of either party to the proposed merger, the court may delay or prevent the merger if it concludes that there exists a reasonable concern that, as a result of the merger, the surviving company will be unable to satisfy the obligations of any of the parties to the merger, and may further give instructions to secure the rights of creditors.
In addition, a merger may not be completed unless at least 50 days have passed from the date that a proposal for approval of the merger was filed with the Israeli Registrar of Companies and 30 days from the date that shareholder approval of both merging companies was obtained.
Our articles of association to be effective upon the closing of this offering provide for a classified board of directors. See Management Board of Directors.
The Companies Law allows us to create and issue shares having rights different from those attached to our ordinary shares, including shares providing certain preferred or additional rights to voting, distributions or other matters and shares having preemptive rights. Following the closing of this offering, we will not have any authorized or issued shares other than ordinary shares. In the future, if we do create and issue a class of shares other than ordinary shares, such class of shares, depending on the specific rights that may be attached to them, may delay or prevent a takeover or otherwise prevent our shareholders from realizing a potential premium over the market value of their ordinary shares. The authorization of a new class of shares will require an amendment to our articles of association which requires the prior approval of a simple majority of our shares represented and voting at a general meeting. Shareholders voting at such a meeting will be subject to the restrictions under the Companies Law described in Voting.
In April 1998, our subsidiary Soda-Club Holdings N.V. issued a warrant to HSBC Bank plc to purchase 78,343 of its shares. In June 2010, we issued a warrant to purchase the same number of ordinary shares of SodaStream International Ltd. to HSBC in exchange for the warrant it previously held in our subsidiary. This warrant was adjusted in connection with the reverse share split of our ordinary shares to purchase 12,146 of our ordinary shares at an exercise price of $6.45 per share. HSBC has agreed to exercise this warrant immediately following the completion of this offering.
The SodaStream brand has a history that dates back to the beginning of the 20th century. Guy Hugh Gilbey of the London gin distillers, W & A Gilbey Limited, invented the forerunner of our machine in London in 1903. During the 1970s and 1980s, the SodaStream home carbonation beverage system gained substantial popularity in certain markets, although the company was focused on just a few niche markets and primarily on sparkling water. In 1998, Soda Stream Ltd. was acquired by Soda Club Enterprises NV, which, at the time, was its Israeli distributor. The company encountered numerous challenges, including ownership changes and a lack of product innovation during the years preceding 2007.
In conjunction with Fortissimo Capitals investment in us, SodaStream International Ltd. was incorporated under the laws of the State of Israel on March 8, 2007, and all of the shares of Soda Club Enterprises NV were exchanged for our ordinary shares. Following our acquisition by Fortissimo Capital, we restructured our operations significantly, including introducing a new management team headed by our Chief
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Executive Officer, Daniel Birnbaum. Our new management team implemented a new corporate strategy focused on penetration of new markets, consumer-driven product innovation and capitalizing on the consumer benefits of our products, including being environmentally-friendly and health-promoting.
We are registered with the Israeli Registrar of Companies in Jerusalem. Our registration number is 51-395125-1. Our purpose as set forth in our articles of association is to engage in any legal business.
The transfer agent and registrar for our ordinary shares is Continental Stock Transfer & Trust Company, 17 Battery Place, New York, New York 10004.
We have applied to have our ordinary shares approved for quotation on the Nasdaq Global Market under the symbol SODA.
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Sales of substantial amounts of our ordinary shares in the public market following this offering, or the perception that such sales may occur, could adversely affect prevailing market prices of our ordinary shares. Assuming no exercise of outstanding options, we will have an aggregate of ordinary shares outstanding upon completion of this offering. The ordinary shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act, unless purchased by affiliates as that term is defined under Rule 144, who may sell only the volume of shares described below and whose sales would be subject to additional restrictions described below.
All of our directors and executive officers, and the holders of substantially all of our outstanding shares have agreed not to offer, sell, agree to sell, directly or indirectly, or otherwise dispose of any ordinary shares or any securities convertible into or exchangeable for ordinary shares without the prior written consent of JP Morgan Securities LLC and Deutsche Bank Securities, Inc. for a period of 180 days after the date of this prospectus, subject to specified exceptions and a possible extension of up to 34 additional days beyond the end of such 180-day period after the date of this prospectus.
Subject to the lock-up agreements described above, the following indicates approximately when the 12,936,623 ordinary shares that are not being sold in this offering, but which will be outstanding at the time this offering is complete, will be eligible for sale into the public market, under the provisions of Rule 144:
on the date of this prospectus, 541,053 shares will be eligible for resale;
up to and including 180 days after the date of this prospectus, 9,390 shares will be eligible for resale; and
more than 180 days after the date of this prospectus, the remaining 12,386,180 shares will be eligible for resale, 11,454,211 of which would be subject to volume, manner of sale and other limitations under Rule 144.
In general, under Rule 144 as currently in effect, once we have been subject to public company reporting requirements for at least 90 days, a person who is not deemed to have been one of our affiliates for purposes of the Securities Act at any time during the 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least six months, including the holding period of any prior owner other than our affiliates, is entitled to sell those shares without complying with the manner of sale, volume limitation or notice provisions of Rule 144, subject to compliance with the public information requirements of Rule 144. If such a person has beneficially owned the shares proposed to be sold for at least one year, including the holding period of any prior owner other than our affiliates, then that person is entitled to sell those shares without complying with any of the requirements of Rule 144.
In general, under Rule 144, as currently in effect, our affiliates or persons selling shares on behalf of our affiliates are entitled to sell upon expiration of the lock-up agreements described above, within any three-month period beginning 90 days after the date of this prospectus, a number of shares that does not exceed the greater of:
1% of the number of ordinary shares then outstanding, which will equal 176,735 shares immediately after this offering; or
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the average weekly trading volume of the ordinary shares during the four calendar weeks preceding the filing of a notice on Form 144 with respect to that sale.
Sales under Rule 144 by our affiliates or persons selling shares on behalf of our affiliates are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us.
In general, under Rule 701, any of our employees, directors, officers, consultants or advisors who purchased ordinary shares from us under a compensatory share option plan or other written agreement before the closing of this offering are entitled to resell these shares. These shares can be resold 90 days after the effective date of this offering in reliance on Rule 144, without having to comply with restrictions, including the holding period, contained in Rule 144.
The Securities and Exchange Commission has indicated that Rule 701 will apply to typical share options granted by an issuer before it becomes subject to the reporting requirements of the Exchange Act, along with the shares acquired upon exercise of these options, including exercises after the date of this prospectus. Securities issued in reliance on Rule 701 are restricted securities and, subject to the contractual restrictions described above, beginning 90 days after the date of this prospectus, may be sold:
by persons other than affiliates without restriction; and
by affiliates under Rule 144 without compliance with its six month minimum holding period requirement.
Following the completion of this offering, we intend to file a registration statement on Form S-8 under the Securities Act to register 2,195,838 ordinary shares reserved for issuance under our share option plan. The registration statement on Form S-8 will become effective automatically upon filing. As of June 30, 2010, options to purchase 1,145,838 ordinary shares were issued and outstanding, of which options to purchase 764,145 ordinary shares had vested. Through June 30, 2010, 9,390 ordinary shares have been issued upon exercise of options granted under this plan.
Ordinary shares issued upon exercise of a share option and registered under the Form S-8 registration statement will, subject to vesting provisions and Rule 144 volume limitations applicable to our affiliates, be available for sale in the open market immediately after the 180-day lock-up agreements expire. See Management Share Option Plan.
Following the completion of this offering, subject to certain blackout dates and other conditions, the holders of up to 8,141,500 ordinary shares who are former holders of our Series A1 Preferred Shares are entitled to request that we register their ordinary shares under the Securities Act, subject to cutback for marketing reasons and certain other conditions. When we become eligible under applicable securities laws to file a registration statement on Form F-3, which will not be until at least 12 months after the date of this prospectus, the holders of up to 11,016,633 ordinary shares (including the above-referenced holders of 8,141,500 ordinary shares), who are former holders of either our Series A1 or Series A2 Preferred Shares, are entitled to request that we register their ordinary shares on Form F-3. These shareholders are also entitled to piggyback registration rights, which are also subject to cutback for marketing reasons and certain other conditions. Registration of such shares under the Securities Act would result in such shares becoming freely tradable without restriction under the Securities Act, except for shares purchased by affiliates, immediately upon the effectiveness of such registration. See Certain Relationship and Related Person Transactions Registration Rights. Any sales of securities by these shareholders could have a material adverse effect on the trading price of our ordinary shares.
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The following description is not intended to constitute a complete analysis of all tax consequences relating to the acquisition, ownership and disposition of our ordinary shares. You should consult your own tax advisor concerning the tax consequences of your particular situation, as well as any tax consequences that may arise under the laws of any state, local, foreign or other taxing jurisdiction.
The following is a brief summary of the material Israeli tax laws applicable to us, and some Israeli Government programs benefiting us. This section also contains a discussion of material Israeli tax consequences concerning the ownership of and disposition of our ordinary shares purchased by initial purchasers in this offering. This summary does not discuss all the aspects of Israeli tax law that may be relevant to a particular investor in light of his or her personal investment circumstances or to some types of investors subject to special treatment under Israeli law. Examples of this kind of investor include residents of Israel or traders in securities who are subject to special tax regimes not covered in this discussion. Since some parts of this discussion are based on new tax legislation that has not yet been subject to judicial or administrative interpretation, we cannot assure you that the appropriate tax authorities or the courts will accept the views expressed in this discussion. All of the foregoing is subject to change, which change could affect the tax consequences described below.
The discussion below does not cover all possible tax considerations. Potential investors are urged to consult their own tax advisors as to the Israeli or other tax consequences of the purchase, ownership and disposition of our ordinary shares, including in particular, the effect of any foreign, state or local taxes.
Israeli companies are generally subject to corporate tax at the rate of 25% of their taxable income in 2010. The corporate tax rate for the tax years 2008 and 2009 was 27% and 26%, respectively. Moreover, the Israeli corporate tax rate is expected to decline to 18% by the year 2016. However, the effective tax rate payable by a company that derives income from an approved enterprise or a beneficiary enterprise (as discussed below) may be considerably less. Capital gains derived by an Israeli company are subject to the prevailing corporate tax rate.
Israeli tax law allows, under certain conditions, a tax deduction for research and development expenditures, including capital expenditures, for the year in which they are incurred. These expenses must relate to scientific research and development projects and must be approved by the relevant Israeli government ministry, determined by the field of research. Furthermore, the research and development must be for the promotion of the company and carried out by or on behalf of the company seeking such tax deduction. The amount of such deductible expenses is reduced by the sum of any funds received through government grants for the finance of such scientific research and development projects. No deduction under these research and development deduction rules is allowed if such deduction is related to an expense invested in an asset depreciable under the general depreciation rules of the Income Tax Ordinance (New version), 5721-1961. Expenditures not so approved are deductible in equal amounts over three years. Although we have not deducted any such research and development expenditures in the last three fiscal years, we may be able to do so in the future.
The Law for the Encouragement of Industry (Taxes), 5729-1969, generally referred to as the Industry Encouragement Law, provides several tax benefits for industrial companies. We believe that one of our subsidiaries is currently qualified as an Industrial Company within the meaning of the Industry
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Encouragement Law. The Industry Encouragement Law defines Industrial Company as a company resident in Israel, of which 90% or more of its income in any tax year, other than of income from defense loans and grants, capital gains, interest and dividends, is derived from an Industrial Enterprise owned by it. An Industrial Enterprise is defined as an enterprise whose principal activity in a given tax year is industrial production activity.
The following corporate tax benefits, among others, are available to Industrial Companies:
Amortization over an eight-year period of the cost of purchased know how and patents and of rights to use a patent and know-how which are used for the development or advancement of the company;
Under specified conditions, an election to file consolidated tax returns with additional related Israeli Industrial Companies; and
Expenses related to a public offering are deductible in equal amounts over three years.
We intend to continue to qualify as an Industrial Company in the future. However, there can be no assurance that we will continue to qualify as an Industrial Company or that the benefits described above will be available in the future.
The Income Tax Law (Inflationary Adjustments), 5745-1985, generally referred to as the Inflationary Adjustments Law, represented an attempt to overcome the problems presented to a traditional tax system by an economy undergoing rapid inflation. Under the Inflationary Adjustments Law, taxable results up to and including the year 2007 were measured on a real basis, taking into account the rate of change in the CPI. However, most of the provisions of the Inflationary Adjustments Law were abolished in 2008. As from the 2008 tax year, income for tax purposes is no longer adjusted to a real measurement basis. Furthermore, the depreciation of inflation immune assets and carried forward tax losses are no longer linked to the CPI, so that these amounts are adjusted until the end of 2007 tax year after which they ceased to be linked to the CPI.
The Investment Law provides that capital investments in a production facility (or other eligible assets) may, upon approval by the Investment Center of the Israel Ministry of Industry, Trade and Labor, be designated as an Approved Enterprise. Each certificate of approval for an Approved Enterprise relates to a specific investment program, delineated both by the financial scope of the investment and by the physical characteristics of the facility or the asset. The tax benefits from any certificate of approval relate only to taxable profits attributable to the specific Approved Enterprise.
One of our subsidiaries in Israel is entitled to tax benefits relating to investment programs that are governed by Approved Enterprise certificates. The benefit period is generally limited to either a seven (7) or a ten (10) year period from the first year that incremental taxable income is generated from the approved assets (such benefits are to be utilized within 12 years from the commencement of operation of the investment program or 14 years from the year in which approval is granted, whichever is earlier).
This subsidiary was approved for six approved investment programs under the Investment Law, one of which it currently receives tax benefits from. The programs were approved during the years 1991 to 2005. One of the programs whose tax benefits ended entitled the subsidiary to an investment grant of 34% of its approved investments, in addition to certain tax benefits, for a period of ten years beginning in the first year the subsidiary had taxable income. The subsidiary received grants of €2.2 million regarding that investment. The benefit period for the investment program that was approved in December 1999 has not yet ended. It provides for a tax exemption on undistributed earnings derived from program assets for a period of ten years through 2011. Calculation of the Approved Enterprise tax benefits is based on the
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increase in the Euro value of revenues during each year of the benefit period, as compared to the defined base year (the year immediately prior to operation of each plant) revenues. The current relevant base revenue is approximately €36.0 million. However, any distribution in respect of previously exempted profits, whether by dividend or pursuant to liquidation or through repurchase of shares is subject to a corporate tax rate of up to 20%. Income from sources other than the Approved Enterprise during the benefit periods will be subject to tax at the regular corporate tax rate. The investment programs also provide certain other tax benefits, such as accelerated depreciation rates for tax purposes.
If this subsidiary qualifies as a Foreign Investment Company (FIC), our Approved Enterprises will be entitled to additional tax benefits. Subject to certain conditions, a FIC is a company with a level of foreign investment of more than 25%. The level of foreign investment is measured as the percentage of rights in the company (in terms of shares, rights to profits, voting and appointment of directors), and of combined share and loan capital, that are owned, directly or indirectly, by persons who are not residents of Israel.
We intend to continue to qualify for benefits under the Investment Law in the future. However, there can be no assurance that we will comply with the above conditions in the future or that we will be entitled to any additional benefits under the Investment Law.
On April 1, 2005, a comprehensive amendment to the Investment Law came into effect. The amendment to the Investment Law includes revisions to the criteria for investments qualified to receive tax benefits. However, the Investment Law provides that terms and benefits included in any certificate of approval already granted will remain subject to the provisions of the Investment Law as they were prior to the aforesaid amendment. Therefore, our existing Approved Enterprise status will generally not be subject to the provisions of the aforesaid amendment. The tax benefits available under any instrument of approval relate only to taxable profits attributable to the specific program and are contingent upon meeting the criteria set out in the instrument of approval. If a company has more than one approval or only a portion of its capital investments are approved, its effective tax rate is the weighted average of the applicable rates. Subject to certain qualifications, however, if a company with one or more approvals distributes dividends, the dividends are deemed attributable to the entire enterprise.
Pursuant to the amendment to the Investment Law, only approved enterprises receiving cash grants require the approval of the Investment Center. Approved Enterprises which do not receive benefits in the form of governmental cash grants, such as benefits in the form of tax benefits, are no longer required to obtain this approval (such enterprises are referred to as Beneficiary Enterprises). However, a Beneficiary Enterprise is required to comply with certain requirements and make certain investments as specified in the amended Investment Law.
A Beneficiary Enterprise may, at its discretion, in order to provide greater certainty, elect to apply for a pre-ruling from the Israeli tax authorities confirming that it is in compliance with the provisions of the amended Investment Law and is therefore entitled to receive such benefits provided under the amended Investment Law. The amendment to the Investment Law addresses benefits that are being granted to Beneficiary Enterprises and the length of the benefits period.
The amended Investment Law specifies certain conditions that a Beneficiary Enterprise has to comply with in order to be entitled to benefits. These conditions include among others:
that the Beneficiary Enterprises revenues during the applicable tax year from any single market (i.e., country or a separate customs territory) do not exceed 75% of the Beneficiary Enterprises aggregate revenues during such year; or
that 25% or more of the Beneficiary Enterprises revenues during the applicable tax year are generated from sales into a single market (i.e., country or a separate customs territory) with a population of at least 12 million residents.
The amendment to the Investment Law changes the definition of foreign investment so that the definition now requires a minimum investment of NIS 5.0 million by foreign investors. Such definition now also includes acquisitions of shares of a company from other shareholders, provided that the total
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cost of such acquisitions is at least NIS 5.0 million and the companys outstanding and paid-up share capital exceeds NIS 5.0 million. These changes take effect retroactively from 2003.
The sixth program, in which one of our Israeli subsidiaries elected to utilize the investment grant route, was approved in December 2005, but the benefit period for such program has not started yet. According to this program, this subsidiary is entitled to a grant of 24% of part of the approved investment. The benefit period will be ten years (a full tax exemption for two years and reduced tax of up to 20% for eight more years) beginning in the first year the subsidiary had taxable income from the approved assets. There can be no assurance that it will comply with the above conditions in the future or that it will be entitled to any additional benefits under the amended Investment Law.
On November 29, 2006, Income Tax Regulations (Determination of Market Terms), 2006, promulgated under Section 85A of the Tax Ordinance, came into force (the Transfer Pricing Regulations). Section 85A of the Tax Ordinance and the Transfer Pricing Regulations generally require that all cross-border transactions carried out between related parties be conducted according to an arms length principle standard and be taxed accordingly and that the intercompany prices be supported by a transfer pricing study.
Taxation of Non-Israeli shareholders on receipt of dividends . Non-residents of Israel are generally subject to Israeli income tax on the receipt of dividends paid on our ordinary shares at the rate of 20%, which tax will be withheld at source, unless a relief is provided in a treaty between Israel and the shareholders country of residence. With respect to a person who is a substantial shareholder at the time of receiving the dividend or on any date in the twelve months preceding it, the applicable tax rate is 25%. A substantial shareholder is generally a person who alone or together with such persons relative or another person who collaborates with such person on a permanent basis, holds, directly or indirectly, at least 10% of any of the means of control of the corporation. Means of control generally include the right to vote, receive profits, nominate a director or an officer, receive assets upon liquidation, or order someone who holds any of the aforesaid rights how to act, and all regardless of the source of such right. Under the United States-Israel Tax Treaty, the maximum rate of tax withheld in Israel on dividends paid to a holder of our ordinary shares who is a United States resident (for purposes of the United States-Israel Tax Treaty) is 25%. However, generally, the maximum rate of withholding tax on dividends, not generated by our Approved Enterprise, that are paid to a United States corporation holding 10% or more of our outstanding voting capital throughout the tax year in which the dividend is distributed as well as the previous tax year, is 12.5%. Furthermore, dividends paid from income derived from our Approved Enterprise are subject, under certain conditions, to withholding at the rate of 15%. We cannot assure you that we will designate the profits that are being distributed in a way that will reduce shareholders tax liability.
A non-resident of Israel who receives dividends from which tax was duly withheld is generally exempt from the duty to file returns in Israel in respect of such income, provided such income was not derived from a business conducted in Israel by the taxpayer, and the taxpayer has no other taxable sources of income in Israel.
Capital Gains Taxes Applicable to Non-Israeli Resident Shareholders . A non-Israeli resident who derives capital gains from the sale of shares in an Israeli resident company that were purchased after the company was listed for trading on a stock exchange outside of Israel will be exempted from Israeli tax so long as the shares were not held through a permanent establishment that the non-resident maintains in Israel. However, non-Israeli corporations will not be entitled to the foregoing exemptions if an Israeli resident (i) has a controlling interest of 25% or more in such non-Israeli corporation or (ii) is the beneficiary of or is entitled to 25% or more of the revenues or profits of such non-Israeli corporation, whether directly or indirectly.
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Additionally, under the United States-Israel Tax Treaty, the sale, exchange (whether from merger, acquisition or similar transaction) or disposition of our ordinary shares by a shareholder who is a United States resident (for purposes of that treaty) holding the ordinary shares as a capital asset is generally exempt from Israeli capital gains tax unless (i) the capital gain arising from such sale is attributed to real estate located in Israel; (ii) the capital gain arising from such sale is attributed to royalties; (iii) the capital gain arising from such sale is attributed to business income derived by a permanent establishment in Israel; (iv) the shareholder holds, directly or indirectly, shares representing 10% or more of our voting capital during any part of the 12-month period preceding such sale, exchange or disposition; or (v) the capital gains arising from such sale are attributable to a permanent establishment of the shareholder located in Israel.
The following is a description of the material United States federal income tax consequences of the acquisition, ownership and disposition of our ordinary shares. This description addresses only the United States federal income tax consequences to holders that are initial purchasers of our ordinary shares pursuant to the offering and that will hold such ordinary shares as capital assets. This description does not address tax considerations applicable to holders that may be subject to special tax rules, including:
financial institutions or insurance companies;
real estate investment trusts, regulated investment companies or grantor trusts;
dealers or traders in securities or currencies;
tax-exempt entities;
certain former citizens or long-term residents of the United States;
persons that received our shares as compensation for the performance of services;
persons that will hold our shares as part of a hedging or conversion transaction or as a position in a straddle for United States federal income tax purposes;
holders that will hold our shares through a partnership or other pass-through entity;
U.S. Holders (as defined below) whose functional currency is not the U.S. Dollar; or
holders that own directly, indirectly or through attribution 10.0% or more, of the voting power or value, of our shares.
Moreover, this description does not address the United States federal estate and gift or alternative minimum tax consequences of the acquisition, ownership and disposition of our ordinary shares.
This description is based on the United States Internal Revenue Code, 1986, as amended (the Code) existing, proposed and temporary United States Treasury Regulations and judicial and administrative interpretations thereof, in each case as in effect and available on the date hereof. All of the foregoing is subject to change, which change could apply retroactively and could affect the tax consequences described below.
For purposes of this description, a U.S. Holder is a beneficial owner of our ordinary shares that, for United States federal income tax purposes, is:
a citizen or resident of the United States;
a corporation (or other entity treated as a corporation for United States federal income tax purposes) created or organized in or under the laws of the United States or any state thereof, including the District of Columbia;
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an estate the income of which is subject to United States federal income taxation regardless of its source; or
a trust if such trust has validly elected to be treated as a United States person for United States federal income tax purposes or if (1) a court within the United States is able to exercise primary supervision over its administration and (2) one or more United States persons have the authority to control all of the substantial decisions of such trust.
A Non-U.S. Holder is a beneficial owner of our ordinary shares that is neither a U.S. Holder nor a partnership (or other entity treated as a partnership for United States federal income tax purposes).
If a partnership (or any other entity treated as a partnership for United States federal income tax purposes) holds our ordinary shares, the tax treatment of a partner in such partnership will generally depend on the status of the partner and the activities of the partnership. Such a partner or partnership should consult its tax advisor as to its tax consequences.
You should consult your tax advisor with respect to the United States federal, state, local and foreign tax consequences of acquiring, owning and disposing of our ordinary shares.
Subject to the discussion below under Passive foreign investment company considerations, if you are a U.S. Holder, for United States federal income tax purposes, the gross amount of any distribution made to you with respect to your ordinary shares, before reduction for any Israeli taxes withheld therefrom, other than certain distributions, if any, of our ordinary shares distributed pro rata to all our shareholders, will be includible in your income as dividend income to the extent such distribution is paid out of our current or accumulated earnings and profits as determined under United States federal income tax principles. Subject to the discussion below under Passive foreign investment company considerations, non-corporate U.S. Holders may qualify for the lower rates of taxation with respect to dividends on ordinary shares applicable to long-term capital gains (i.e., gains from the sale of capital assets held for more than one year) with respect to taxable years beginning on or before December 31, 2010, provided that certain conditions are met, including certain holding period requirements and the absence of certain risk reduction transactions. However, such dividends will not be eligible for the dividends received deduction generally allowed to corporate U.S. Holders. Subject to the discussion below under Passive foreign investment company considerations, to the extent, if any, that the amount of any distribution by us exceeds our current and accumulated earnings and profits as determined under United States federal income tax principles, it will be treated first as a tax-free return of your adjusted tax basis in your ordinary shares and thereafter as capital gain. We do not expect to maintain calculations of our earnings and profits under United States federal income tax principles and, therefore, if you are a U.S. Holder you should expect that the entire amount of any distribution generally will be reported as dividend income to you.
If you are a U.S. Holder, dividends paid to you with respect to your ordinary shares will be treated as foreign source income, which may be relevant in calculating your foreign tax credit limitation. Subject to certain conditions and limitations, Israeli tax withheld on dividends may be deducted from your taxable income or credited against your United States federal income tax liability. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends that we distribute generally should constitute passive category income, or, in the case of certain U.S. Holders, general category income. A foreign tax credit for foreign taxes imposed on distributions may be denied if you do not satisfy certain minimum holding period requirements. The rules relating to the determination of the foreign tax credit are complex, and you should consult your tax advisor to determine whether and to what extent you will be entitled to this credit.
Subject to the discussion below under Backup withholding tax and information reporting requirements, if you are a Non-U.S. Holder, you generally will not be subject to United States federal income (or
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withholding) tax on dividends received by you on your ordinary shares, unless you conduct a trade or business in the United States and such income is effectively connected with that trade or business.
Subject to the discussion below under Passive foreign investment company considerations, if you are a U.S. Holder, you generally will recognize gain or loss on the sale, exchange or other disposition of your ordinary shares equal to the difference between the amount realized on such sale, exchange or other disposition and your adjusted tax basis in your ordinary shares. Such gain or loss will be capital gain or loss. If you are a non-corporate U.S. Holder, capital gain from the sale, exchange or other disposition of ordinary shares is eligible for the preferential rate of taxation applicable to long-term capital gains, with respect to taxable years beginning on or before December 31, 2010, if your holding period for such ordinary shares exceeds one year (i.e., such gain is long-term capital gain). The deductibility of capital losses for United States federal income tax purposes is subject to limitations.
Subject to the discussion below under Backup withholding tax and information reporting requirements, if you are a Non-U.S. Holder, you generally will not be subject to United States federal income or withholding tax on any gain realized on the sale or exchange of such ordinary shares unless:
such gain is effectively connected with your conduct of a trade or business in the United States; or
you are an individual and have been present in the United States for 183 days or more in the taxable year of such sale or exchange and certain other conditions are met.
A non-United States corporation will be classified as a passive foreign investment company, or a PFIC, for United States federal income tax purposes in any taxable year in which, after applying certain look-through rules, either
at least 75% of its gross income is passive income; or
at least 50% of the average value of its gross assets is attributable to assets that produce passive income or are held for the production of passive income.
Passive income for this purpose generally includes dividends, interest, royalties, rents, gains from commodities and securities transactions, the excess of gains over losses from the disposition of assets which produce passive income, and includes amounts derived by reason of the temporary investment of funds raised in offerings of our ordinary shares. If a non-United States corporation owns at least 25% by value of the stock of another corporation, the non-United States corporation is treated for purposes of the PFIC tests as owning its proportionate share of the assets of the other corporation and as receiving directly its proportionate share of the other corporations income.
We were not classified as a PFIC for the taxable year ended on December 31, 2009. Based on certain estimates of our gross income and gross assets, the latter determined by reference to the expected market value of our shares when issued and assuming that we are entitled to value our intangible assets with reference to the market value of our shares, our intended use of the proceeds of this offering, and the nature of our business, we also expect that we will not be classified as a PFIC for the taxable year ending December 31, 2010. However, because PFIC status is based on our income, assets and activities for the entire taxable year, it is not possible to determine whether we will be characterized as a PFIC for the 2010 taxable year until after the close of the year. Moreover, we must determine our PFIC status annually based on tests which are factual in nature, and our status in future years will depend on our income, assets and activities in those years. While we intend to manage our business so as to avoid PFIC status, to the extent consistent with our other business goals, we cannot predict whether our business plans will allow us to avoid PFIC status. In addition, because the market price of our ordinary shares is likely to fluctuate after
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this offering and because that market price may affect the determination of whether we will be considered a PFIC, there can be no assurance that we will not be considered a PFIC for any taxable year.
If we were a PFIC, and you are a U.S. Holder, then unless you make one of the elections described below, a special tax regime will apply to both (a) any excess distribution by us to you (generally, your ratable portion of distributions in any year which are greater than 125% of the average annual distributions received by you in the shorter of the three preceding years or your holding period for our ordinary shares) and (b) any gain realized on the sale or other disposition of the ordinary shares. Under this regime, any excess distribution and realized gain will be treated as ordinary income and will be subject to tax as if (a) the excess distribution or gain had been realized ratably over your holding period, (b) the amount deemed realized in each year had been subject to tax in each year of that holding period at the highest marginal rate for such year (other than income allocated to the current period or any taxable period before we became a PFIC, which would be subject to tax at the U.S. Holders regular ordinary income rate for the current year and would not be subject to the interest change discussed below), and (c) the interest charge generally applicable to underpayments of tax had been imposed on the taxes deemed to have been payable in those years. In addition, dividend distributions made to you will not qualify for the lower rates of taxation applicable to long-term capital gains discussed above under Distributions.
Certain elections are available to U.S. Holders of shares that may serve to alleviate some of the adverse tax consequences of PFIC status described above. If we agreed to provide the necessary information, you could avoid the interest charge imposed by the PFIC rules by making a qualified electing fund (a QEF) election, in which case you generally would be required to include in income on a current basis your pro rata share of our ordinary earnings as ordinary income and your pro rata share of our net capital gains as long-term capital gain. We do not expect to provide to U.S. Holders the information needed to report income and gain pursuant to a QEF election, and we make no undertaking to provide such information in the event that we are a PFIC.
Under an alternative tax regime, you may also avoid certain adverse tax consequences relating to PFIC status discussed above by making a mark-to-market election with respect to your ordinary shares annually, provided that the shares are marketable. Shares will be marketable if they are regularly traded on certain United States stock exchanges (including Nasdaq) or on certain non-United States stock exchanges. For these purposes, the shares will generally be considered regularly traded during any calendar year during which they are traded, other than in negligible quantities, on at least 15 days during each calendar quarter. U.S. Holders should be aware, however, that if we are determined to be a PFIC, the interest charge regime described above could be applied to indirect distributions or gains deemed to be attributable to U.S. Holders in respect of any of our subsidiaries that also may be determined to be a PFIC, and the mark-to-market election generally would not be effective for such subsidiaries.
If you choose to make a mark-to-market election, you would recognize as ordinary income or loss each year in which we are a PFIC an amount equal to the difference as of the close of the taxable year between the fair market value of your ordinary shares and your adjusted tax basis in your ordinary shares. Losses would be allowed only to the extent of net mark-to-market gain previously included by you under the election for prior taxable years. If the mark-to-market election were made, then the PFIC rules described above relating to excess distributions and realized gains would not apply for periods covered by the election. If you do not make a mark-to-market election for the first taxable year in which we are a PFIC during your holding period of our ordinary shares, you would be subject to interest charges with respect to the inclusion of ordinary income attributable to each taxable year in which we were a PFIC during your holding period before the effective date of such election.
If we were a PFIC, a holder of ordinary shares that is a U.S. Holder must file United States Internal Revenue Service Form 8621 for each tax year in which the U.S. Holder owns the ordinary shares. Recently enacted legislation creates an additional annual filing requirement for United States persons who are shareholders of a PFIC. The legislation does not describe what information will be required to be included in the additional annual filing, but rather grants the Secretary of the United States Treasury authority to decide
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what information must be included in such annual filing. If we were a PFIC for a given taxable year, then you should consult your tax adviser concerning your annual filing requirements.
United States backup withholding tax and information reporting requirements generally apply to certain payments to certain non-corporate holders of stock. Information reporting generally will apply to payments of dividends on, and to proceeds from the sale or redemption of, our ordinary shares made within the United States, or by a United States payor or United States middleman, to a holder of our ordinary shares, other than an exempt recipient (including a corporation, a payee that is not a United States person that provides an appropriate certification and certain other persons). A payor will be required to withhold backup withholding tax from any payments of dividends on, or the proceeds from the sale or redemption of, ordinary shares within the United States, or by a United States payor or United States middleman, to a holder, other than an exempt recipient, if such holder fails to furnish its correct taxpayer identification number or otherwise fails to comply with, or establish an exemption from, such backup withholding tax requirements. Any amounts withheld under the backup withholding rules will be allowed as a refund or credit against the beneficial owners United States federal income tax liability, if any, provided that the required information is timely furnished to the IRS.
Newly enacted legislation requires certain U.S. Holders who are individuals, estates or trusts to pay a 3.8% tax on, among other things, dividends and capital gains from the sale or other disposition of shares of common stock for taxable years beginning after December 31, 2012. In addition, for taxable years beginning after March 18, 2010, new legislation requires certain U.S. Holders who are individuals to report information relating to an interest in your ordinary shares, subject to certain exceptions (including an exception for ordinary shares held in accounts maintained by certain financial institutions). U.S. Holders are urged to consult their tax advisers regarding the effect, if any, of the new U.S. federal income tax legislation on their ownership and disposition of your ordinary shares.
The above description is not intended to constitute a complete analysis of all tax consequences relating to acquisition, ownership and disposition of our ordinary shares. You should consult your tax advisor concerning the tax consequences of your particular situation.
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We are offering the ordinary shares described in this prospectus through a number of underwriters. J.P. Morgan Securities LLC and Deutsche Bank Securities Inc. are acting as joint book-running managers of the offering and as representatives of the underwriters. We have entered into an underwriting agreement with the underwriters. Subject to the terms and conditions of the underwriting agreement, we have agreed to sell to the underwriters, and each underwriter has severally agreed to purchase, at the public offering price less the underwriting discounts and commissions set forth on the cover page of this prospectus, the number of ordinary shares listed next to its name in the following table:
Name | Number of Shares | |||
J.P. Morgan Securities LLC | ||||
Deutsche Bank Securities Inc. | ||||
William Blair & Company, LLC | ||||
Oppenheimer & Co. | ||||
Stifel Nicolaus & Company, Incorporated | ||||
Roth Capital Partners, LLC | ||||
Total | 4,736,842 |
The underwriters are committed to purchase all the ordinary shares offered by us if they purchase any shares. The underwriting agreement also provides that if an underwriter defaults, the purchase commitments of non-defaulting underwriters may also be increased or the offering may be terminated.
The underwriters propose to offer the ordinary shares directly to the public at the initial public offering price set forth on the cover page of this prospectus and to certain dealers at that price less a concession not in excess of $ per share. Any such dealers may resell shares to certain other brokers or dealers at a discount of up to $ per share from the initial public offering price. After the initial public offering of the shares, the offering price and other selling terms may be changed by the underwriters. Sales of shares made outside of the United States may be made by affiliates of the underwriters. The representatives have advised us that the underwriters do not intend to confirm discretionary sales in excess of 5% of the ordinary shares offered in this offering.
The underwriters have an option to buy up to 710,526 additional ordinary shares from us to cover sales of shares by the underwriters which exceed the number of shares specified in the table above. The underwriters have 30 days from the date of this prospectus to exercise this over-allotment option. If any shares are purchased with this over-allotment option, the underwriters will purchase shares in approximately the same proportion as shown in the table above. If any additional ordinary shares are purchased, the underwriters will offer the additional shares on the same terms as those on which the shares are being offered.
The underwriting fee is equal to the public offering price per ordinary share less the amount paid by the underwriters to us per ordinary share. The underwriting fee is $ per share. The following table shows the per share and total underwriting discounts and commissions to be paid to the underwriters assuming both no exercise and full exercise of the underwriters option to purchase additional shares.
Paid by Us | ||||||||
Without
over-allotment exercise |
With full
over-allotment exercise |
|||||||
Per Share | $ | |||||||
Total | $ |
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We estimate that the total expenses of this offering, including registration, filing and listing fees, printing fees and legal and accounting expenses, but excluding the underwriting discounts and commissions, will be approximately $2.1 million.
A prospectus in electronic format may be made available on the web sites maintained by one or more underwriters, or selling group members, if any, participating in the offering. The underwriters may agree to allocate a number of shares to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the representatives to underwriters and selling group members that may make Internet distributions on the same basis as other allocations.
We have agreed that we will not (i) offer, pledge, announce the intention to sell, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise dispose of, directly or indirectly, or file with the Securities and Exchange Commission a registration statement under the Securities Act relating to, any ordinary shares or securities convertible into or exchangeable or exercisable for any ordinary shares, or publicly disclose the intention to make any offer, sale, pledge, disposition or filing, or (ii) enter into any swap or other arrangement that transfers all or a portion of the economic consequences associated with the ownership of any ordinary shares or any such other securities (regardless of whether any of these transactions are to be settled by the delivery of ordinary shares or such other securities, in cash or otherwise), in each case without the prior written consent of J.P. Morgan Securities LLC and Deutsche Bank Securities Inc. for a period of 180 days after the date of this prospectus, other than the ordinary shares to be sold hereunder and any ordinary shares issued upon the exercise of options granted under our existing plan. Notwithstanding the foregoing, if (1) during the last 17 days of the 180-day restricted period, we issue an earnings release or material news or a material event relating to our company occurs; or (2) prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of the 180-day period, the restrictions described above shall continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event.
Our directors and executive officers, and the holders of substantially all of our outstanding shares have entered into lock-up agreements with the underwriters prior to the commencement of this offering pursuant to which each of these persons or entities, subject to certain exceptions, for a period of 180 days after the date of this prospectus, may not, without the prior written consent of J.P. Morgan Securities LLC and Deutsche Bank Securities Inc., (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any ordinary shares or any securities convertible into or exercisable or exchangeable for our ordinary shares (including, without limitation, ordinary shares or such other securities which may be deemed to be beneficially owned by such directors, executive officers, managers and members in accordance with the rules and regulations of the Securities and Exchange Commission and securities which may be issued upon exercise of a share option or warrant) or (2) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the ordinary shares or such other securities, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of ordinary shares or such other securities, in cash or otherwise, or (3) make any demand for or exercise any right with respect to the registration of any ordinary shares or any security convertible into or exercisable or exchangeable for our ordinary shares. Notwithstanding the foregoing, if (1) during the last 17 days of the 180-day restricted period, we issue an earnings release or material news or a material event relating to our company occurs; or (2) prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of the 180-day period, the restrictions described above shall continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event.
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All of the ordinary shares held by our shareholder Real Property Investment Limited (or RPI) have been pledged to a third-party to secure a loan. In addition to the customary exceptions included in each lock-up agreement, if this pledge is realized, the transfer of beneficial ownership of ordinary shares to such third party by RPI will be permitted, and the transfer would be reported by RPI and such third party on Schedule 13Ds filed under the Exchange Act. In the event of such a transfer, the pledgee will be subject to the same restrictions as RPI.
We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act.
We have applied to have our ordinary shares approved for quotation on the Nasdaq Global Market under the symbol SODA.
In connection with this offering, the underwriters may engage in stabilizing transactions, which involves making bids for, purchasing and ordinary shares in the open market for the purpose of preventing or retarding a decline in the market price of the ordinary shares while this offering is in progress. These stabilizing transactions may include making short sales of the ordinary shares, which involves the sale by the underwriters of a greater number of ordinary shares than they are required to purchase in this offering, and purchasing ordinary shares on the open market to cover positions created by short sales. Short sales may be covered shorts, which are short positions in an amount not greater than the underwriters over-allotment option referred to above, or may be naked shorts, which are short positions in excess of that amount. The underwriters may close out any covered short position either by exercising their over-allotment option, in whole or in part, or by purchasing shares in the open market. In making this determination, the underwriters will consider, among other things, the price of shares available for purchase in the open market compared to the price at which the underwriters may purchase shares through the over-allotment option. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the ordinary shares in the open market that could adversely affect investors who purchase in this offering. To the extent that the underwriters create a naked short position, they will purchase shares in the open market to cover the position.
The underwriters have advised us that, pursuant to Regulation M of the Securities Act, they may also engage in other activities that stabilize, maintain or otherwise affect the price of the ordinary shares, including the imposition of penalty bids. This means that if the representatives of the underwriters purchase ordinary shares in the open market in stabilizing transactions or to cover short sales, the representatives can require the underwriters that sold those shares as part of this offering to repay the underwriting discount received by them.
These activities may have the effect of raising or maintaining the market price of the ordinary shares or preventing or retarding a decline in the market price of the ordinary shares, and, as a result, the price of the ordinary shares may be higher than the price that otherwise might exist in the open market. If the underwriters commence these activities, they may discontinue them at any time. The underwriters may carry out these transactions on the Nasdaq Global Market, in the over-the-counter market or otherwise.
Prior to this offering, there has been no public market for our ordinary shares. The initial public offering price will be determined by negotiations between us and the representatives of the underwriters. In determining the initial public offering price, we and the representatives of the underwriters expect to consider a number of factors including:
the information set forth in this prospectus and otherwise available to the representatives;
our prospects and the history and prospects for the industry in which we compete;
an assessment of our management;
our prospects for future earnings;
127
the general condition of the securities markets at the time of this offering;
the recent market prices of, and demand for, publicly traded shares of generally comparable companies; and
other factors deemed relevant by the underwriters and us.
Neither we nor the underwriters can assure investors that an active trading market will develop for our ordinary shares, or that the shares will trade in the public market at or above the initial public offering price.
Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the securities offered by this prospectus in any jurisdiction where action for that purpose is required. The securities offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.
This document is only being distributed to and is only directed at (i) persons who are outside the United Kingdom or (ii) to investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the Order) or (iii) high net worth entities, and other persons to whom it may lawfully be communicated, falling with Article 49(2)(a) to (d) of the Order (all such persons together being referred to as relevant persons). The securities are only available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such securities will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents.
In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a Relevant Member State), from and including the date on which the European Union Prospectus Directive (the EU Prospectus Directive) is implemented in that Relevant Member State (the Relevant Implementation Date) an offer of securities described in this prospectus may not be made to the public in that Relevant Member State prior to the publication of a prospectus in relation to the shares which has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the EU Prospectus Directive, except that it may, with effect from and including the Relevant Implementation Date, make an offer of shares to the public in that Relevant Member State at any time:
to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities;
to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than €43,000,000 and (3) an annual net turnover of more than €50,000,000, as shown in its last annual or consolidated accounts;
to fewer than 100 natural or legal persons (other than qualified investors as defined in the EU Prospectus Directive) subject to obtaining the prior consent of the book-running mangers for any such offer; or
in any other circumstances which do not require the publication by the Issuer of a prospectus pursuant to Article 3 of the Prospectus Directive.
128
For the purposes of this provision, the expression an offer of securities to the public in relation to any securities in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the securities to be offered so as to enable an investor to decide to purchase or subscribe for the securities, as the same may be varied in that Member State by any measure implementing the EU Prospectus Directive in that Member State and the expression EU Prospectus Directive means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State.
At our request, the underwriters have reserved up to 236,842 of the ordinary shares being sold in this offering for sale to certain of our officers or other employees, business associates and related persons at the initial public offering price through a directed share program. The number of shares available for sale to the general public in this offering will be reduced to the extent that these reserved shares are purchased by these persons. Any reserved shares not purchased by these persons will be offered by the underwriters to the general public on the same basis as the other shares in this offering. We have agreed to indemnify the underwriters against certain liabilities and expenses, including liabilities under the Securities Act, in connection with the sales of the directed shares.
Certain of the underwriters and their affiliates have provided in the past to us and our affiliates and may provide from time to time in the future certain commercial banking, financial advisory, investment banking and other services for us and such affiliates in the ordinary course of their business, for which they have received and may continue to receive customary fees and commissions. In addition, from time to time, certain of the underwriters and their affiliates may effect transactions for their own account or the account of customers, and hold on behalf of themselves or their customers, long or short positions in our debt or equity securities or loans, and may do so in the future.
The validity of the ordinary shares being offered by this prospectus and other legal matters concerning this offering relating to Israeli law will be passed upon for us by Gornitzky & Co., Tel Aviv, Israel. Certain legal matters in connection with this offering relating to United States law will be passed upon for us by Orrick, Herrington & Sutcliffe LLP, New York, New York. Certain legal matters in connection with this offering relating to Israeli law will be passed upon for the underwriters by Yigal Arnon & Co., Tel Aviv, Israel. Certain legal matters concerning this offering relating to United States law will be passed upon for the underwriters by White & Case LLP, New York, New York.
The consolidated financial statements as of December 31, 2008 and 2009 and for each of the years in the three-year period ended December 31, 2009 have been included herein and in the registration statement of which this prospectus forms a part in reliance upon the report of Somekh Chaikin, an independent registered public accounting firm and a member firm of KPMG International, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.
129
We are incorporated under the laws of the State of Israel. Service of process upon us and upon our directors and officers and the Israeli experts named in this prospectus, substantially all of whom reside outside the United States, may be difficult to obtain within the United States. Furthermore, because substantially all of our assets and substantially all of our directors and officers are located outside the United States, any judgment obtained in the United States against us or any of our directors and officers may not be collectible within the United States.
We have irrevocably appointed SodaStream USA Inc. as our agent to receive service of process in any action against us in any United States federal or state court arising out of this offering or any purchase or sale of securities in connection with this offering.
We have been informed by our legal counsel in Israel, Gornitzky & Co., that it may be difficult to initiate an action with respect to United States securities law in Israel. Israeli courts may refuse to hear a claim based on an alleged violation of United States securities laws reasoning that Israel is not the most appropriate forum to hear such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not United States law is applicable to the claim. If United States law is found to be applicable, the content of applicable United States law must be proved as a fact by expert witnesses which can be a time-consuming and costly process. Certain matters of procedure may also be governed by Israeli law.
Subject to specified time limitations and legal procedures, Israeli courts may enforce a United States judgment in a civil matter which, subject to certain exceptions, is non-appealable, including judgments based upon the civil liability provisions of the Securities Act and the Exchange Act and including a monetary or compensatory judgment in a non-civil matter, provided that:
the judgment was rendered by a court which was, according to the laws of the state of the court, competent to render the judgment;
the judgment may no longer be appealed;
the obligation imposed by the judgment is enforceable according to the rules relating to the enforceability of judgments in Israel and the substance of the judgment is not contrary to public policy; and
the judgment is executory in the state in which it was given.
Notwithstanding the previous sentence, an Israeli court will not declare a foreign civil judgment enforceable if:
the judgment was given in a state whose laws do not provide for the enforcement of judgments of Israeli courts (subject to exceptional cases);
the enforcement of the judgment is likely to prejudice the sovereignty or security of the State of Israel;
the judgment was obtained by fraud;
the possibility given to the defendant to bring its arguments and evidence before the court was not reasonable in the opinion of the Israeli court;
the judgment was rendered by a court not competent to render it according to the laws of private international law as they apply in Israel;
the judgment is contradictory to another judgment that was given in the same matter between the same parties and that is still valid; or
130
at the time the action was brought in the foreign court, a lawsuit in the same matter and between the same parties was pending before a court or tribunal in Israel.
If a foreign judgment is enforced by an Israeli court, it generally will be payable in Israeli currency, which can then be converted into non-Israeli currency and transferred out of Israel. The usual practice in an action before an Israeli court to recover an amount in a non-Israeli currency is for the Israeli court to issue a judgment for the equivalent amount in Israeli currency at the rate of exchange in force on the date of the judgment, but the judgment debtor may make payment in foreign currency. Pending collection, the amount of the judgment of an Israeli court stated in Israeli currency ordinarily will be linked to the Israeli consumer price index plus interest at the annual statutory rate set by Israeli regulations prevailing at the time. Judgment creditors must bear the risk of unfavorable exchange rates.
We have filed with the Securities and Exchange Commission a registration statement on Form F-1 under the Securities Act relating to this offering of our ordinary shares. This prospectus does not contain all of the information contained in the registration statement. The rules and regulations of the Securities and Exchange Commission allow us to omit various information from this prospectus that is included in the registration statement. Statements made in this prospectus concerning the contents of any contract, agreement or other document are summaries of all material information about the documents summarized, but are not complete descriptions of all terms of these documents. If we filed any of these documents as an exhibit to the registration statement, you may read the document itself for a complete description of its terms.
You may read and copy the registration statement, including the related exhibits and schedules, and any document we file with the Securities and Exchange Commission without charge at the Securities and Exchange Commissions public reference room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may also obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the Securities and Exchange Commission at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please call the Securities and Exchange Commission at 1-800-SEC-0330 for further information on the public reference room. The Securities and Exchange Commission also maintains an Internet site that contains reports and other information regarding issuers that file electronically with the Securities and Exchange Commission. Our filings with the Securities and Exchange Commission are also available to the public through this web site at http://www.sec.gov .
We are not currently subject to the informational requirements of the Exchange Act. As a result of this offering, we will become subject to the informational requirements of the Exchange Act applicable to foreign private issuers and will fulfill the obligations of these requirements by filing reports with the Securities and Exchange Commission. As a foreign private issuer, we will be exempt from the rules under the Exchange Act relating to the furnishing and content of proxy statements, and our officers, directors and principal shareholders will be exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we will not be required under the Exchange Act to file periodic reports and financial statements with the Securities and Exchange Commission as frequently or as promptly as United States companies whose securities are registered under the Exchange Act. However, we intend to file with the Securities and Exchange Commission, within 180 days after the end of our 2010 fiscal year and within 120 days after the end of each subsequent fiscal year, an annual report on Form 20-F containing financial statements which will be examined and reported on, with an opinion expressed, by an independent public accounting firm. We also intend to file with the Securities and Exchange Commission reports on Form 6-K containing unaudited financial information for the first three quarters of each fiscal year, within 60 days after the end of each quarter.
We also maintain a website at www.sodastream.com . Information contained in or connected to our website does not constitute part of this prospectus.
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F-1
To the Shareholders and the Board of Directors of
SodaStream International Ltd.
We have audited the accompanying consolidated balance sheets of SodaStream International Ltd. and subsidiaries (hereinafter the Company) as of December 31, 2009 and 2008, the consolidated statements of operations, comprehensive income (loss), changes in shareholders equity and cash flows for each of the years in the three-year period ended December 31, 2009. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2009, in conformity with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).
The accompanying consolidated financial statements as of and for the year ended December 31, 2009 have been translated into United States dollars (dollars) solely for the convenience of the reader. We have audited the translation and, in our opinion, the consolidated financial statements expressed in Euro have been translated into dollars on the basis set forth in Note 2D to the consolidated financial statements.
/s/ Somekh Chaikin
Somekh Chaikin
Certified Public Accountants (Isr.)
Member Firm of KPMG International
Tel Aviv, Israel
October 18, 2010
F-2
As of December 31 | ||||||||||||||||
(in thousands) | Note | 2008 | 2009 |
Convenience
translation into U.S. Dollar (Note 2D) 2009 |
||||||||||||
Assets
|
||||||||||||||||
Cash and cash equivalents | 11 | € | 4,349 | € | 4,185 | $ | 5,692 | |||||||||
Inventories | 9 | 16,737 | 20,326 | 27,645 | ||||||||||||
Trade and other receivables | 10 | 18,166 | 19,273 | 26,213 | ||||||||||||
Derivative financial instruments | 25 | 410 | 486 | 661 | ||||||||||||
Assets classified as available-for-sale | 25 | 500 | 500 | 680 | ||||||||||||
Total current assets | 40,162 | 44,770 | 60,891 | |||||||||||||
Property, plant and equipment | 7 | 15,900 | 18,760 | 25,516 | ||||||||||||
Intangible assets | 8 | 11,649 | 12,538 | 17,053 | ||||||||||||
Deferred tax assets | 23 | 896 | 1,450 | 1,972 | ||||||||||||
Other receivables | 75 | 177 | 241 | |||||||||||||
Total non-current assets | 28,520 | 32,925 | 44,782 | |||||||||||||
Total assets | 68,682 | 77,695 | 105,673 | |||||||||||||
Liabilities
|
||||||||||||||||
Loans and borrowings | 13 | 15,084 | 7,645 | 10,398 | ||||||||||||
Shareholders loans | 14 | 307 | 6,380 | 8,677 | ||||||||||||
Derivative financial instruments | 25 | 346 | 364 | 495 | ||||||||||||
Trade payables | 16 | 14,154 | 17,625 | 23,972 | ||||||||||||
Income tax payable | 5,652 | 7,615 | 10,357 | |||||||||||||
Provisions | 17 | 1,595 | 1,219 | 1,658 | ||||||||||||
Other current liabilities | 18 | 6,651 | 8,676 | 11,800 | ||||||||||||
Total current liabilities | 43,789 | 49,524 | 67,357 | |||||||||||||
Loans and borrowings | 13 | 3,245 | 5,109 | 6,949 | ||||||||||||
Shareholders loans | 14 | 11,257 | 5,413 | 7,362 | ||||||||||||
Employee benefits | 15 | 164 | 82 | 112 | ||||||||||||
Provisions | 17 | 315 | 306 | 416 | ||||||||||||
Deferred tax liabilities | 23 | 602 | 605 | 823 | ||||||||||||
Total non-current liabilities | 15,583 | 11,515 | 15,662 | |||||||||||||
Total liabilities | 59,372 | 61,039 | 83,019 | |||||||||||||
Shareholders equity
|
||||||||||||||||
Share capital | 12 | 610 | 722 | 982 | ||||||||||||
Share premium | 11,501 | 11,552 | 15,712 | |||||||||||||
Translation reserve | (120 | ) | (69 | ) | (94 | ) | ||||||||||
Retained earnings (accumulated deficit) | (2,681 | ) | 4,451 | 6,054 | ||||||||||||
Total shareholders equity | 9,310 | 16,656 | 22,654 | |||||||||||||
Total liabilities and shareholders equity | € | 68,682 | € | 77,695 | $ | 105,673 |
The accompanying notes are an integral part of these consolidated financial statements.
F-3
For the year ended December 31 | ||||||||||||||||||||
(in thousands) | Note | 2007 | 2008 | 2009 |
Convenience
translation into U.S. Dollar (Note 2D) 2009 |
|||||||||||||||
Revenues | € | 85,983 | € | 99,949 | € | 105,023 | $ | 142,842 | ||||||||||||
Cost of revenues | 39,745 | 45,213 | 46,593 | 63,371 | ||||||||||||||||
Gross profit | 46,238 | 54,736 | 58,430 | 79,471 | ||||||||||||||||
Operating expenses
|
||||||||||||||||||||
Sales and marketing | 21 | 31,449 | 32,184 | 34,692 | 47,185 | |||||||||||||||
General and administrative | 20 | 13,769 | 12,675 | 13,134 | 17,863 | |||||||||||||||
Other income, net | 19 | (25 | ) | (19 | ) | (95 | ) | (129 | ) | |||||||||||
Total operating expenses | 45,193 | 44,840 | 47,731 | 64,919 | ||||||||||||||||
Operating income | 1,045 | 9,896 | 10,699 | 14,552 | ||||||||||||||||
Interest expense, net | 22 | 2,195 | 2,742 | 2,022 | 2,750 | |||||||||||||||
Other financial expenses, net | 22 | 134 | 1,654 | (248 | ) | (337 | ) | |||||||||||||
Total financial expenses, net | 2,329 | 4,396 | 1,774 | 2,413 | ||||||||||||||||
Income (loss) before income tax | (1,284 | ) | 5,500 | 8,925 | 12,139 | |||||||||||||||
Income taxes | 23 | 306 | 4,970 | 1,793 | 2,439 | |||||||||||||||
Net income (loss) for the period | (1,590 | ) | 530 | 7,132 | 9,700 | |||||||||||||||
Net income (loss) per share
|
||||||||||||||||||||
Basic | 27 | (0.29 | ) | 0.09 | 1.14 | 1.55 | ||||||||||||||
Diluted | 27 | (0.29 | ) | 0.07 | 0.57 | 0.78 |
The accompanying notes are an integral part of these consolidated financial statements.
F-4
(in thousands) | 2007 | 2008 | 2009 |
Convenience
translation into U.S. Dollar (Note 2D) 2009 |
||||||||||||
Other comprehensive income (loss)
|
||||||||||||||||
Net income (loss) | € | (1,590 | ) | € | 530 | € | 7,132 | $ | 9,700 | |||||||
Foreign currency translation differences for foreign operations | 299 | (259 | ) | 51 | 70 | |||||||||||
Total comprehensive income (loss) for the period | € | (1,291 | ) | € | 271 | € | 7,183 | $ | 9,770 |
The accompanying notes are an integral part of these consolidated financial statements.
F-5
Attributable to equity holders of the Company | ||||||||||||||||||||
(in thousands) |
Share
capital |
Share
premium |
Translation
reserve |
Retained
earnings (accumulated deficit) |
Total | |||||||||||||||
Balance as of January 1, 2007 | € | 161 | € | 4,546 | € | (160 | ) | € | (1,350 | ) | € | 3,197 | ||||||||
Total comprehensive loss | | | 299 | (1,590 | ) | (1,291 | ) | |||||||||||||
Share-based payment | | 11 | | | 11 | |||||||||||||||
Share issuance | 430 | 5,176 | | | 5,606 | |||||||||||||||
Capital reserve in respect of transactions between the Group and a shareholder | | 841 | | | 841 | |||||||||||||||
Balance as of December 31, 2007 | 591 | 10,574 | 139 | (2,940 | ) | 8,364 | ||||||||||||||
Total comprehensive income | | | (259 | ) | 530 | 271 | ||||||||||||||
Share-based payment | | 245 | | | 245 | |||||||||||||||
Share issuance | 19 | 682 | | | 701 | |||||||||||||||
Capital reserve in respect of transactions between the Group and a shareholder | | | | (271 | ) | (271 | ) | |||||||||||||
Balance as of December 31, 2008 | 610 | 11,501 | (120 | ) | (2,681 | ) | 9,310 | |||||||||||||
Total comprehensive income | | | 51 | 7,132 | 7,183 | |||||||||||||||
Share-based payment | | 163 | | | 163 | |||||||||||||||
Share issuance | 112 | (112 | ) | | | | ||||||||||||||
Balance as of December 31, 2009 | € | 722 | € | 11,552 | € | (69 | ) | € | 4,451 | € | 16,656 | |||||||||
Convenience translation into U.S. Dollar (Note 2D) as of December 31, 2009 | $ | 982 | $ | 15,712 | $ | (94 | ) | $ | 6,054 | $ | 22,654 |
The accompanying notes are an integral part of these consolidated financial statements.
F-6
For the year ended December 31 | ||||||||||||||||
(in thousands) | 2007 | 2008 | 2009 |
Convenience
translation into U.S. Dollar thousands (Note 2D) 2009 |
||||||||||||
Cash flows from operating activities
|
||||||||||||||||
Net income (loss) for the period | € | (1,590 | ) | € | 530 | € | 7,132 | $ | 9,700 | |||||||
Adjustments:
|
||||||||||||||||
Amortization of intangible assets | 235 | 160 | 115 | 156 | ||||||||||||
Change in fair value of derivative financial instruments | 34 | 50 | 449 | 611 | ||||||||||||
Depreciation of property, plant and equipment | 1,598 | 1,816 | 1,526 | 2,076 | ||||||||||||
Loss (gain) on sales of property, plant and equipment | (8 | ) | (6 | ) | 38 | 52 | ||||||||||
Share based payment | 11 | 245 | 163 | 222 | ||||||||||||
Interest expense, net | 2,195 | 2,742 | 2,022 | 2,750 | ||||||||||||
Income tax expense | 306 | 4,970 | 1,793 | 2,439 | ||||||||||||
2,781 | 10,507 | 13,238 | 18,006 | |||||||||||||
Increase in inventories | (3,869 | ) | (3,034 | ) | (3,631 | ) | (4,939 | ) | ||||||||
Decrease (increase) in trade and other receivables | 1,381 | (643 | ) | (1,657 | ) | (2,254 | ) | |||||||||
Increase in trade payables | 2,048 | 1,191 | 3,477 | 4,729 | ||||||||||||
Increase (decrease) in provision for employee benefits | (231 | ) | 1 | 179 | 243 | |||||||||||
Increase (decrease) in provisions and other current liabilities | (6,604 | ) | (84 | ) | 1,395 | 1,897 | ||||||||||
(4,494 | ) | 7,938 | 13,001 | 17,682 | ||||||||||||
Interest paid | (1,955 | ) | (920 | ) | (1,048 | ) | (1,426 | ) | ||||||||
Income tax paid | (101 | ) | (745 | ) | (412 | ) | (560 | ) | ||||||||
Net cash provided from operating activities | (6,550 | ) | 6,273 | 11,541 | 15,696 | |||||||||||
Cash flows from investing activities
|
||||||||||||||||
Interest received | 57 | 75 | 47 | 64 | ||||||||||||
Proceeds from sale of property, plant and equipment | 100 | (4 | ) | 103 | 140 | |||||||||||
Proceeds from (payments for) derivative financial instruments | (68 | ) | (80 | ) | (507 | ) | (690 | ) | ||||||||
Acquisition of property, plant and equipment | (689 | ) | (2,113 | ) | (4,526 | ) | (6,156 | ) | ||||||||
Acquisition of intangible assets | (2 | ) | (7 | ) | (1,002 | ) | (1,363 | ) | ||||||||
Net cash used in investing activities | (602 | ) | (2,129 | ) | (5,885 | ) | (8,005 | ) | ||||||||
Cash flows from financing activities
|
||||||||||||||||
Proceeds from issuance of convertible shareholders loan | 4,000 | 5,310 | 10 | 14 | ||||||||||||
Issuance of share capital | 5,606 | | | | ||||||||||||
Receipts of long-term loans and borrowings | 3,301 | 2,084 | 4,784 | 6,507 | ||||||||||||
Repayments of long-term loans and borrowings | (11,658 | ) | (3,667 | ) | (2,561 | ) | (3,483 | ) | ||||||||
Proceeds from shareholders loans | 507 | | | | ||||||||||||
Repayment of shareholder loans | (507 | ) | | (347 | ) | (472 | ) | |||||||||
Repayment of former shareholder loans | | (1,299 | ) | | | |||||||||||
Change in short-term debt | 132 | (4,145 | ) | (7,768 | ) | (10,565 | ) | |||||||||
Net cash from (used in) financing activities | 1,381 | (1,717 | ) | (5,882 | ) | (7,999 | ) | |||||||||
Net increase (decrease) in cash and cash equivalents | (5,771 | ) | 2,427 | (226 | ) | (308 | ) | |||||||||
Cash and cash equivalents at the beginning of the year | 7,747 | 1,928 | 4,349 | 5,915 | ||||||||||||
Effect of exchange rates fluctuations on cash and cash equivalents | (48 | ) | (6 | ) | 62 | 85 | ||||||||||
Cash and cash equivalents at the end of the year | € | 1,928 | € | 4,349 | € | 4,185 | $ | 5,692 |
The accompanying notes are an integral part of these consolidated financial statements.
F-7
SodaStream International Ltd. (formerly Soda-Club Holdings Ltd.) (the Company) is a company incorporated in Israel. The Company was formed in December 2006, pursuant to a share exchange agreement for the purpose of fully controlling Soda-Club Enterprises N.V. (SCNV). The acquisition was accounted for according to the reverse acquisition method (Note 3A.2). The consolidated financial statements of the Company as of and for the year ended December 31, 2009 comprise the Company, its subsidiary SCNV and all the subsidiaries of SCNV (together referred to as the Group and individually as Group entities).
The Group is engaged in the developing, manufacturing and marketing of home beverage carbonation systems and related products.
The Groups operational activities are managed by SCNVs wholly owned subsidiary, Soda-Club International BV (SCBV), registered in the Netherlands. Most of the Groups products are manufactured by SodaStream Industries Ltd. (formerly Soda-Club Ltd.) in two Israeli facilities and by Soda-Club GmbH in a German facility; both companies are wholly-owned subsidiaries of SCBV. Marketing support and services are carried out by third party distributors and wholly owned subsidiaries located in various countries. Such subsidiaries primarily purchase finished goods directly from other Group companies for marketing in their specific geographic areas.
In these consolidated financial statements
1. International Financial Reporting Standards (hereinafter IFRS) Standards and interpretations that were adopted by the International Accounting Standards Board (IASB) and which include international financial reporting standards and international accounting standards (IAS) along with the interpretations to these standards of the International Financial Reporting Interpretations Committee (IFRIC) or interpretations of the Standing Interpretations Committee (SIC), respectively.
2. The Company SodaStream International Ltd.
3. The Group SodaStream International Ltd. and its subsidiaries
4. Subsidiaries Companies, which financial statements are fully consolidated, directly or indirectly, with the financial statements of the Company.
5. Related party Within its meaning in IAS 24, Related Party Disclosures.
6. CPI The Consumer Price Index as published by the Israeli Central Bureau of Statistics.
The consolidated financial statements have been prepared in conformity with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standard Board (IASB).
The consolidated financial statements were authorized by the Board of Directors on October 15, 2010.
F-8
The consolidated financial statements have been prepared on the historical cost basis except for derivative financial instruments measured at fair value and available-for-sale financial assets measured at fair value.
Deferred tax assets and liabilities are provided for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred taxes are measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.
Provisions are recognized according to the best possible estimate at the end of the reporting period of the outflow required for settling the present obligation. When the value of time is material, the future cash flows are discounted at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability.
The amount recognized as a defined benefit liability is the present value of the defined benefit obligation at the end of the reporting period less any unrecognized past service cost and less the fair value at the end of the reporting period of plan assets that will directly serve to settle the obligation.
These consolidated financial statements are presented in Euro (€). All financial information presented in Euro has been rounded to the nearest thousand.
For the convenience of the reader the reported Euro figures as of December 31, 2009, have been presented in dollars, translated at the representative rate of exchange as of September 30, 2010 (€1.00 = $1.3601). The dollar amounts presented in these financial statements should not be construed as representing amounts that are receivable or payable in dollars or convertible into dollars, unless otherwise indicated.
The preparation of consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
Information about assumptions and estimations made by the Group with respect to the future and other reasons for uncertainty with respect to estimates that have a significant risk of resulting in a material adjustment in the next financial year are included in the following notes:
Note 7, property, plant and equipment.
F-9
Note 8, intangible assets.
Note 9, inventories.
Note 15, employee benefits, regarding the measurement of a defined benefit obligation.
Note 17, provisions.
Note 23, taxes on income, regarding the utilization of tax losses and deferred taxes assessments.
Note 25, financial instruments.
Note 26, contingencies.
The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, and have been applied consistently by Group entities.
Subsidiaries are entities controlled by the Group. Control exists when the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that currently are exercisable are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The accounting policies of subsidiaries have been changed when necessary to align them with the policies adopted by the Group.
Consolidated financial statements prepared following a reverse acquisition are issued under the name of the legal parent, but described in the notes as a continuation of the financial statements of the legal subsidiary (i.e. the acquirer for accounting purposes) because such consolidated financial statements represent a continuation of the financial statements of the legal subsidiary:
(a) The assets and liabilities of the legal subsidiary are recognized and measured in those consolidated financial statements at their pre-combination carrying amounts.
(b) The retained earnings and other equity balances recognized in those consolidated financial statements are the retained earnings and other equity balances of the legal subsidiary immediately before the business combination.
(c) The amount recognized as issued equity instruments in those consolidated financial statements is determined by adding to the issued equity of the legal subsidiary immediately before the business combination the cost of the combination determined as described. However, the equity structure appearing in those consolidated financial statements (i.e., the number and type of equity instruments issued) reflects the equity structure of the legal parent, including the equity instruments issued by the legal parent to effect the combination.
(d) Comparative information presented in those financial statements should be that of the legal subsidiary.
F-10
Consolidated financial statements prepared following a reverse acquisition shall reflect the fair values of the assets, liabilities and contingent liabilities of the legal parent (i.e., the acquiree for accounting purposes).
The acquisition of the controlling interests in SCNV has been accounted for according to the reverse acquisition method and the comparative figures for the periods prior to the acquisition reflect the results of SCNV.
Following the reverse acquisition of SCNV by the Company in December 2006, approximately 6% of the outstanding shares of SCNV were still held by the minority shareholders until 2009 when their shares in SCNV were formally exchanged for the shares of the Company. These financial statements have been prepared assuming that these shares exchanged along with the majority shareholders.
Intra-Group balances and transactions, and any unrealized income and expenses arising from intra-Group transactions, are eliminated in preparing the consolidated financial statements.
Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment.
Transactions in foreign currencies are translated into the respective functional currency of the Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the respective functional currency at the exchange rate of the reporting date.
The foreign currency gain or loss on monetary items is the difference between amortized cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortized cost in foreign currency translated at the exchange rate at the end of the period. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences arising on retranslation are recognized in the statement of income (loss).
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.
The assets and liabilities of foreign operations are translated to Euro at exchange rates at the reporting date. The income and expenses of foreign operations are translated to Euro at the average exchange rate of the period.
Foreign currency differences are recognized directly in other comprehensive income. Such differences have been recognized in the translation reserve. When a foreign operation is disposed of, in part or in full, the relevant amount in the translation reserve is transferred to the statements of operations.
Foreign exchange gains and losses arising from a monetary item receivable from or payable to foreign operations, the settlement of which is neither planned nor likely in the foreseeable future, are considered
F-11
to form part of a net investment in a foreign operation, are recognized in other comprehensive income, which is presented within equity in the foreign currency translation reserve.
The Group initially recognizes receivables and deposits on the date that they are originated. All other financial assets are recognized initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument.
The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognized as a separate asset or liability.
Financial assets and liabilities are offset and the net amount presented in the Balance Sheets when, and only when, the Group has a legal right to offset the amount and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously.
The Group has the following non-derivative financial assets:
Loans, receivables and cash and cash equivalents
Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognized initially at fair value plus any directly attributable transaction cost. Subsequent to initial recognition, receivables are measured at amortized cost using the effective interest method, less any impairment losses.
Receivables comprise trade and other receivables (see Note 10).
Cash and cash equivalents comprise cash balances and deposits with original maturities of three months or less.
Available-for-sale financial assets
Available-for-sale financial assets are non-derivative financial assets that are designated as available-for-sale. Subsequent to initial recognition, they are measured at fair value and changes therein, are recognized in other comprehensive income and presented within equity in the fair value reserve. When an investment is derecognized, the cumulative gain or loss in other comprehensive income is transferred to profit or loss.
The Group initially recognizes debt securities issued and subordinated liabilities on the date that they are originated. All other financial liabilities are recognized initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument.
The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire.
F-12
Financial assets and liabilities are offset and the net amount presented in the Balance Sheets when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously.
The Group has the following non-derivative financial liabilities: loans and borrowings, bank overdrafts, and trade and other payables.
Such financial liabilities are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortized cost using the effective interest method.
As a Group with global operations, the Group is exposed to the risk of currency and interest rate fluctuations and has entered into currency derivative contracts to moderate its exposure on the basis of planned transactions. These contracts generally cover a period of less than one year. The Groups hedging activities do not meet the criteria for hedge accounting.
Derivatives are recognized initially at fair value; attributable transaction costs are recognized in statement of income when incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes in fair value of derivatives are recognized immediately in profit or loss as financial income or expense.
The nominal value of these contracts is not reflected in the consolidated financial statements. Instead, the contracts are reported at their fair value on the date of reporting and are included as current assets or liabilities in the consolidated financial statements (see Note 25). Changes in the fair value of these derivative instruments are recognized each reporting period in the consolidated income statement as a financial income/expense.
Compound financial instruments issued by the Group comprise convertible notes that can be converted to share capital at the option of the holder, and the number of shares to be issued does not vary with changes in their fair value.
The liability component of a compound financial instrument is recognized initially at the fair value of a similar liability that does not have an equity conversion option. The equity component is recognized initially at the difference between the fair value of the compound financial instrument as a whole and the fair value of the liability component. Any directly attributable transaction costs are allocated to the liability and equity components in proportion to their initial carrying amounts.
Subsequent to initial recognition, the liability component of a compound financial instrument is measured at amortized cost using the effective interest method. The equity component of a compound financial instrument is not remeasured subsequent to initial recognition.
Interest, dividends, losses and gains relating to the financial liability are recognized in the statement of income. Distributions to the equity holders are recognized against equity, net of any tax benefit.
The value of CPI-linked financial liabilities, which are not measured at fair value, is remeasured every period in accordance with the actual increase in the CPI.
F-13
All shares are classified as equity.
Incremental costs directly attributable to the issuance of shares and share options are recognized as a deduction from equity, net of any tax effects
Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses, if any.
The cost of assets in respect of which an investment grants received, according to the Israeli law for the encouragement of capital investments 1959, is stated net of the amount of the grant.
Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labor, any other costs directly attributable to bringing the asset to a working condition for its intended use and the cost of dismantling and removing the item and restoring the site on which it is located. Purchased software that is integral to the functionality of the related equipment is capitalized as part of that equipment.
When major components of an item of property, plant and equipment (including costs of major periodic inspections) have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.
Changes in the obligation to dismantle and remove the items and to restore the site, on which they are located, other than changes deriving from the passage of time, are added to or deducted from the cost of the asset in the period in which they are first calculated or changes occur. The amount deducted from the cost of the asset shall not exceed the balance of the carrying amount, and any balance is recognized immediately in profit or loss.
Exchangeable CO 2 cylinders that are loaned to distributors and exchangeable CO 2 cylinders that are used by the Company to facilitate the exchange program are considered as fixed assets.
The cost of replacing components of an item of property, plant and equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the item will flow to the Group and its cost can be measured reliably. The carrying amount of the replaced item is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognized in the statement of income as incurred.
Depreciation is a systematic allocation of the depreciable amount of an asset over its useful life. The depreciable amount is the cost of the asset, or other amount substituted for cost, less its residual value.
Depreciation is recognized in the statement of income on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. Land is not depreciated. Leasehold improvements are amortized over the shorter of the lease period or the estimated useful life of the improvements.
F-14
The estimated useful lives for the current and comparative periods are as follows:
- Leasehold improvement | 5 12 years | |||
- Machinery and equipment | 3 10 years | |||
- Office furniture and equipment | 3 5 years | |||
- Vehicles | 5 7 years | |||
- Cylinders | 20 50 years | |||
- Buildings | 50 years |
Depreciation methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate.
Goodwill arises on the acquisition of subsidiaries. Goodwill represents the excess of the cost of the acquisition over the Groups interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquirer.
Subsequent measurement
Goodwill is measured at cost less accumulated impairment losses.
Other intangible assets that are acquired by the Group, which have finite useful lives, are measured at cost less accumulated amortization and accumulated impairment losses.
Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognized in the statement of income as incurred.
Amortization is a systematic allocation of the amortizable amount of an intangible asset over its useful life. The amortizable amount is the cost of the asset, or other amount substituted for cost, less its residual value.
Amortization is recognized in the statement of income on a straight-line basis over the estimated useful lives of intangible assets, other than goodwill, from the date that they are available for use.
The estimated useful lives for the current and comparative periods are as follows:
- Software licenses | 3 5 years | |||
- Trademarks | Indefinite |
Amortization methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate.
F-15
Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition, the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset.
Other leases are operating leases and the leased assets are not recognized on the Groups balance sheets.
Inventories are measured at the lower of cost and net realizable value. The cost of inventories is based on the first-in, first-out (FIFO) principle and includes expenditures incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of production overhead based on normal operating capacity. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.
A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably.
Objective evidence that financial assets are impaired can include, among others, default or delinquency by a debtor, restructuring of an amount due to the Group on terms that the Group would not otherwise consider or indications that a debtor will enter bankruptcy, or the disappearance of an active market for a security.
The Group considers evidence of impairment for receivables at each specific asset. All individual significant receivables are assessed for specific impairment. All individually significant receivables found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified.
An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the assets original effective interest rate. Losses are recognized in profit or loss and reflected in an allowance account against receivables. Interest on the impaired asset continues to be recognized through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.
Impairment losses on available-for-sale investment securities are recognized by transferring the cumulative loss that has been recognized in other comprehensive income, and presented in the fair value reserve in equity, to profit or loss. The cumulative loss that is removed from other comprehensive income and recognized in profit or loss is the difference between the acquisition cost, net of any principal
F-16
repayment and amortization, and the current fair value, less any impairment loss previously recognized in profit or loss. Changes in impairment provisions attributable to time value area reflected as a component of interest income.
The carrying amounts of the Groups non-financial assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the assets recoverable amount is estimated. The Group estimates, once a year and on the same date for each asset, or more frequently if there are indications of impairment, the recoverable amount of goodwill and intangible assets that have indefinite useful lives or are unavailable for use.
The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its net selling price (fair value less costs to sell). In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the cash-generating unit).
The Groups corporate assets do not generate separate cash inflows. If there is an indication that a corporate asset may be impaired, then the recoverable amount is determined for the cash-generating unit to which the corporate asset belongs.
An impairment loss is recognized if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount. Impairment losses are recognized in profit or loss. Impairment losses recognized in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amounts of the other assets in the cash-generating unit on a pro rata basis.
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the assets carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.
The Group has a number of post-employment benefit plans. The plans are usually financed by deposits with insurance companies or with funds managed by a trustee, and they are classified as defined contribution plans and as defined benefit plans.
a. Defined contribution plans
Obligations for contributions to defined contribution plans are recognized as an expense in profit or loss in the periods during which services are rendered by employees.
b. Defined benefit plans
A defined benefit plan is a post-employment benefit other than a defined contribution plan.
F-17
The Groups net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods. That benefit is discounted to determine its present value, and the fair value of any plan assets is deducted. The discount rate is the yield at the reporting date on Government debentures denominated in the same currency, that have maturity dates approximating the terms of the Groups obligations. The calculation is based on independent actuarial reports using the projected unit credit method.
When the calculation results in a net asset for the Group, an asset is recognized up to the net present value of economic benefits available in the form of a refund from the plan or a reduction in future contributions to the plan. An economic benefit in the form of refunds or reductions in future contributions is considered available when it can be realized over the life of the plan or after settlement of the obligation.
The Group recognizes all actuarial gains and losses arising from defined benefit plans in profit or loss as they occur.
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided.
A liability is recognized for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.
Termination benefits are recognized as an expense when the Group is committed demonstrably, without realistic possibility of withdrawal, to a formal detailed plan to terminate employment before the normal retirement date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are recognized as an expense if the Group has made an offer of voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably.
The grant date fair value of share-based payment awards granted to employees is recognized as employee expense, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the awards. The amount recognized as an expense in respect of share-based payment awards that are conditional upon meeting service and non-market performance conditions is adjusted to reflect the number of awards that are expected to vest. For share-based payment awards with non-vesting conditions, the grant date fair value of the share-based payment awards is measured to reflect such conditions, and therefore the Group recognized an expense in respect of the awards at the grant date. There is no true-up for differences in actual outcomes.
A provision is recognized if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows
F-18
at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognized as a finance cost.
A provision for warranties is recognized when the underlying products or services are sold. The provision is based on historical warranty data and a weighting of all possible outcomes against their associated probabilities.
A provision for claims is recognized if, as a result of a past event, the Company has a present legal or constructive obligation and it is more likely than not that an outflow of economic benefits will be required to settle that obligation and the amount of obligation can be estimated reliably.
A provision for estimated product returns is recognized when there is an obligation to provide a refund upon request for returned products (see also 3K).
A provision for machinery and land dismantling is recognized when there is a contractual obligation for such activities.
Revenue from the sale of goods in the ordinary course of business is measured at the fair value of the consideration received or receivable, net of returns, trade discounts and volume rebates. When the credit period is short and constitutes the accepted credit in the industry, the future consideration is not discounted.
Revenue is recognized when persuasive evidence exists (usually in the form of an executed sales agreement) that the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably. If it is probable that discounts will be granted and the amount can be measured reliably, then the discount is recognized as a reduction of revenue as the sales are recognized.
Transfers of risks and rewards vary depending on the individual terms of the contract of sale. For sales of products in domestic markets, transfer usually occurs when the product is received at the customers warehouse, but for some international shipments transfer occurs upon loading the goods onto the relevant carrier.
The Group recognizes the supply of exchangeable CO 2 cylinders to customers, for which in certain circumstances, there is an obligation to provide a refund upon their return, as a final sale. The amount of the refund varies by country and customer (retailer, distributor and consumer, etc.) and may also change over time as market conditions vary in a particular country. As a result, a provision is recorded for estimated returns based on historical return patterns of customers and the refundable amounts are recorded as reduction of revenue.
Customers loyalty award credits (often called points) are accounted for as the obligation to provide free or discounted goods if and when the customers redeem the points. The fair value of the customer loyalty programs is estimated based on the fair value of the goods that can be acquired in exchange of the
F-19
points redemption. The expected redemption rate and the timing of such expected redemptions are taken into account for the calculation. Such amount is deferred and revenue is recognized only when the award credits are redeemed and the Group has fulfilled its obligations.
The Group has entered into an approved investment program initiated by the State of Israel, in which it received an investment grant to which certain conditions are attached. Grants received from the Chief Scientist are recognized as a liability according to their fair value on the date of their receipt, unless on that date it is reasonably certain that the amount received will not be refunded. Grants that compensate the Group for the cost of an asset are presented as a deduction from the related assets and are recognized in profit or loss on a systematic basis over the useful life of the asset.
Payments made under operating leases are recognized in the statement of income on a straight-line basis over the term of the lease. Lease incentives received are recognized as an integral part of the total lease expense, over the term of the lease.
Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent lease payments are accounted for by revising the minimum lease payments over the remaining term of the lease when the lease adjustment is confirmed.
Financial income comprises mainly interest income on funds invested (including available-for-sale financial assets) and changes in the fair value of financial assets and liabilities through profit and loss. Interest income is recognized as it accrues in statement of income, using the effective interest method.
Financial expenses comprise of borrowing costs and changes in the fair value of financial assets and liabilities through profit and loss. All borrowing costs are recognized in statement of income using the effective interest method.
Foreign currency gains and losses are reported on a net basis.
Income tax expense comprises both current and deferred tax expenses. Income tax expense is recognized in statement of income.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or
F-20
loss, and differences relating to investments in subsidiaries to the extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred tax is not recognized for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.
A deferred tax asset is recognized to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
Deferred tax in respect of intra-Group transactions in the consolidated financial statements is recorded according to the tax rate applicable to the buying company.
The Group may be required to pay additional tax if a dividend is distributed between Group companies. This additional tax was not included in the consolidated financial statements since the Groups policy is to not distribute a dividend which creates an additional tax liability for the Group.
The Group presents basic and diluted earnings per share (EPS) data for its shares. Basic EPS is calculated by dividing the profit or loss attributable to shareholders of the Company by the weighted average number of shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to shareholders and the weighted average number of shares outstanding, for the effects of all dilutive potential shares, which comprise ordinary shares issuable upon the conversion of convertible notes or the exercise of share options granted to employees.
An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses. An operating segments operating results are reviewed regularly by the Chief Operating Decision Maker (CODM) to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available.
Assets and liabilities included in a transaction with a controlling shareholder are measured at fair value on the date of the transaction. As the transaction is on the equity level, the Company recognizes the difference between the fair value and the consideration from the transaction in its equity.
A number of new standards, amendments to standards and interpretations are not yet in effect for the year ended December 31, 2009, and have not been applied in preparing these consolidated financial statements:
1. IFRS 9, Financial Instruments (hereinafter the Standard). This standard is the first part of a comprehensive project to replace IAS 39 Financial Instruments: Recognition and Measurement (hereinafter IAS 39) and it replaces the requirements included in IAS 39 regarding the classification and measurement of financial assets. In accordance with the Standard, there are two principal categories for
F-21
measuring financial assets: amortized cost and fair value, with the basis of classification for debt instruments being the entitys business model for managing financial assets and the contractual cash flow characteristics of the financial asset. In accordance with the Standard, an investment in a debt instrument will be measured at amortized cost if the objective of the entitys business model is to hold assets in order to collect contractual cash flows and the contractual terms give rise, on specific dates, to cash flows that are solely payments of principal and interest. All other financial assets are measured at fair value through profit or loss. Furthermore, embedded derivatives are no longer separated from hybrid contracts that have a financial asset host. Instead, the entire hybrid contract is assessed for classification using the principles above. In addition, investments in equity instruments are measured at fair value with changes in fair value being recognized in profit or loss. Nevertheless, the Standard allows an entity on the initial recognition of an equity instrument not held for trading to elect irrevocably to present fair value changes in the equity instrument in other comprehensive income where no amount so recognized is ever classified to profit or loss at a later date. Dividends on equity instruments measured through other comprehensive income are recognized in profit or loss unless they clearly constitute a return on an initial investment. The Standard removes financial liabilities from its scope.
The Standard is effective for annual periods beginning on or after January 1, 2013 but may be applied earlier, subject to providing disclosure and at the same time adopting other IFRS amendments as specified in the Standard. The Standard is to be applied retrospectively other than in a number of exceptions as indicated in the transitional provisions included in the Standard. In particular, if an entity adopts the Standard for reporting periods beginning before January 1, 2012 it is not required to restate prior periods.
The Group is evaluating the effect of implementing the amendments on its consolidated financial statements.
2. IFRS 3 Business Combinations and IAS 27 (2008) Consolidated and Separate Financial Statements (2008), (hereinafter the Standards). The main revisions to the new Standards are: a revised definition of business and business combinations, a change in the measurement method of carried forward items in business combinations, providing two measurement options regarding non-controlling rights, a change in the accounting treatment of transaction costs, the accounting treatment regarding step acquisitions, the allocation of comprehensive income between shareholders, the accounting for acquisitions or sales of equity rights while maintaining control as equity transactions, the accounting for transactions that result in gain or loss of control in full fair value, so that the subsequent holdings after the loss of control are recognized through profit and loss, and the original investment in obtaining control is also recognized in fair value through profit and loss, and a broadening of disclosure requirements. The Standards shall be applied on annual reporting periods beginning on, or after, January 1, 2010. The principal revisions of these Standards shall be applied prospectively, meaning in respect of transactions as from the initial date of implementation.
3. Amendment to IAS 17, Leases Classification of leases of land and buildings (hereinafter the Amendment) In accordance with the Amendment, a lease of land does not have to be classified as an operating lease in every case that ownership is not expected to pass to the lessee at the end of the lease period. In accordance with the amended standard, a land lease is to be examined according to the regular criteria for classifying a lease as a finance lease or as an operating lease.
F-22
The Amendment also provides that when a lease includes both a land component and a buildings component, the classification of each component should be based on the criteria of the standard, with the principal consideration regarding the classification of land being the fact that land normally has an indefinite useful life.
The Amendment applies to financial statements for annual periods beginning on or after January 1, 2010. The Amendment is to be implemented retrospectively, which means that the classification of land leases is to be examined on the basis of the information that was available on the date of the lease agreement, and that in the event of reclassification of the lease, the provisions of IAS 17 are to be implemented retrospectively as from the date of the lease agreement. Nevertheless, if the entity does not have the information necessary to apply the Amendment retrospectively, it should use the information available on the adoption date of the Amendment and recognize the asset and liability related to a land lease that was classified as a result of the Amendment as a finance lease according to their fair value as at that date. Any difference between the fair value of the asset and the fair value of the liability shall be recognized in retained earnings. The Company is evaluating potential impacts on its consolidated financial statements.
The fair value of trade and other receivables, which is determined for disclosure purposes only, is estimated as the present value of future cash flows, discounted at the market rate of interest at the reporting date.
The fair value of forward exchange contracts is based on their listed market price, if available. If a listed market price is not available, then fair value is estimated by discounting the difference between the contractual forward price and the current forward price for the residual maturity of the contract using a risk-free interest rate (based on government debentures).
The fair value of options is estimated using the Black-Scholes formula.
The fair value of interest rate swaps is based on bank/broker quotes. Those quotes are tested for reasonableness by discounting estimated future cash flows based on the terms and maturity of each contract and using market interest rates for a similar instrument at the measurement date.
The fair value of the derivative reflects the credit risk of the instruments parties and therefore the valuation method takes account the credit risk of the parties to the derivative when appropriate.
For further information regarding the fair value hierarchy see Note 25 regarding financial instruments.
Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date. In respect of the liability component of convertible notes, the market rate of interest is determined by reference to similar liabilities that do not have a conversion option. For finance leases, the market rate of interest is determined by reference to similar lease agreements.
F-23
The fair value of employee stock options is measured using the Black-Scholes formula. Measurement inputs include share price on measurement date, exercise price of the instrument, expected volatility (based on weighted average historic volatility of comparable companies), weighted average expected life of the instruments (based on historical experience and general option holder behavior), expected dividends, and the risk-free interest rate (based on government bonds). Service and non-market performance conditions attached to the transactions are not taken into account in determining fair value.
The fair value of loyalty points, granted through a customer loyalty program, reflects the expected redemption rate and the timing of such expected redemptions (see also 3.k.).
The fair value of inventories acquired in a business combination is determined based on the estimated selling price in the ordinary course of business less the estimated costs of completion and sale, and a reasonable profit margin based on the effort required to complete and sell the inventories.
The fair value of patents and trademarks acquired in a business combination is based on the discounted estimated royalty payments that have been avoided as a result of the patent or trademark being owned. The fair value of customer relationships acquired in a business combination is determined using the multi-period excess earnings method, whereby the subject asset is valued after deducting a fair return on all other assets that are part of creating the related cash flows.
The fair value of other intangible assets is based on the discounted cash flows expected to be derived from the use and eventual sale of the assets.
The fair value of available-for-sale financial assets is calculated as the present value of future estimated cash flows discounted at market rates of interest.
The Group has exposure to the following risks from its use of financial instruments:
credit risk
liquidity risk
market risk (including currency, interest and other market price risks)
F-24
This note presents information about the Groups exposure to each of the above risks, the Groups objectives, policies and processes for measuring and managing risk, and the Groups management of capital. Further quantitative disclosures are included throughout these consolidated financial statements.
The Groups risk management policies are established to identify and analyze the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Groups activities. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.
The Board of Directors has overall responsibility for the establishment and oversight of the Groups risk management framework.
The Company established an economic department in charge of risk management in three primarily levels: Currency, interest and commodity.
The Groups strategy is to minimize its exposure to currency and interest rates risk by using derivative instrument, mainly plain vanilla options and, on a much minor basis, cylinders. The Groups tendency is not to enter derivatives transactions that can increase its exposure and not to protect immaterial activity amounts. The Company does not enter into derivative transactions for trading or speculative purposes.
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Groups receivables from customers.
The Groups exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the Groups customer base, including the default risk of the industry and country in which customers operate, has less of an influence on credit risk.
The Groups exposure to credit risk and impairment losses related to trade accounts receivables is further disclosed in Note 25.
The Group has established a credit policy under which each new customer is analyzed individually for creditworthiness before the Groups standard payment and delivery terms and conditions are offered. The Groups review includes external ratings, when available, and in some cases bank references. Purchase limits are established for each customer, which represents the maximum open amount without requiring specific approval from the management. These limits are reviewed periodically. The majority of the balances are secured by letters of credit, bank guarantees or insurance. Customers that fail to meet the Groups benchmark creditworthiness may transact with the Group only on a prepayment basis.
The Group establishes a provision for impairment that represents its estimate of incurred losses in respect of trade receivables. The main components of this allowance are a specific loss component that relates to individually significant exposures. All individually significant receivables found not to be specifically impaired are collectively assessed for any impairment that has been incurred but not identified.
F-25
Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Groups approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Groups reputation.
The Group uses activity-based costing to cost its products and services, which assists it in monitoring cash flow requirements and optimizing its cash return on investments. Typically the Group ensures that it has sufficient cash on demand to meet expected operational expenses for a period of 60 days, including the servicing of financial obligations; this excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such as natural disasters. In addition, the Group maintains a secured line of credit in the amount of Euro 12 million with Israeli banks. Interest would be payable at a rate of LIBOR plus between 300 and 400 basis points.
Market risk is the risk that changes in market prices, such as foreign exchange rates, Interest rates and equity prices will affect the Groups income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return.
The Group buys and sells derivatives, and also incurs financial liabilities, in order to manage market risks. Generally the Group seeks to moderate its exposure to market risks and manage volatility in profit or loss.
The Group is exposed to currency risk on sales, purchases and borrowings that are denominated in a currency other than the respective functional currencies of Group entities, primarily the Euro, but also dollars, Sterling (GBP), New Israeli Shekel (NIS), Australian Dollar (AUD), New Zealand Dollar (NZD), South African Rand (ZAR) and Swiss Francs (CHF).
The Group is primarily exposed to Euro/USD and Euro/NIS currencies movements, the Euro being the principal currency of sales and expenses whereas USD and NIS currencies are significant element of material purchasing and production costs.
The Group uses derivative instruments in order to reduce the exposure to currency risks.
The Groups investments in subsidiaries are not covered by these derivative contracts, as these positions are considered to be long-term in nature.
The Groups bank deposits, overdrafts and loans are subject to fluctuating interest rates, which depend on the loan period and the currency involved. The Group is not a party to financial instruments that reduce exposure to fluctuations in interest rates at the respective balance sheets date, except for interest rate cap contracts to reduce the risk of increasing interest rates (see Note 25). Management closely monitors the Groups interest rate exposures on an on-going basis and evaluates the need to enter into any financial instruments to mitigate the risk.
F-26
The Boards policy is to maintain a strong capital base so as to maintain investor and creditor confidence and to sustain future development of the business. The Group is also committed to maintenance of safety margins, as determined by bank loan covenants (see Note 13).
The Group segments performance is assessed periodically by the Groups management and reported to the Groups Board of Directors, which acts as the Groups chief operating decision maker (CODM). These segments are represented by geographical regions. Each region has similar characteristics relevant to the Group business and usually includes several markets in which it sells its products. The sales of the Group products in the markets are managed either by wholly owned subsidiaries or by external third party distributors. The reported performance of these markets is provided periodically and consolidated in the Groups headquarters for the purpose of presentation to the CODM.
As from January 1, 2009 the Group has early adopted the revision to IFRS 8, Operating Segments, that was published in the framework of the 2009 improvements to IFRS project, pursuant to which disclosure of information on segment asset is required only if such information is reported regularly to the chief operating decision maker.
The Company identified four reportable segments which are the main areas which the Group operates in, which are set forth below:
Western Europe
Central and Eastern Europe, Middle East and Africa
The Americas
Asia-Pacific
Segment information:
Segment information is based on the geographical location of customers as reported to the CODM. The CODM business decisions are primarily based on the markets data of the various markets in which the Group operates. The data received by CODM consists of revenues from external customers and contribution by market (before income taxes). The operating segments accounting policy is identical to the accounting policy applied in these financial statements. Inter company transactions are not reported in the management reports and thus not presented in the segment information. Assets and liabilities data is not reported in the operating segment information since it is not reviewed by the CODM.
Segment results are calculated in accordance with the management reports reported to the CODM and as follows:
1. For markets in which marketing is performed by third party distributors, segment results represent revenues from external customers, less direct cost of revenues based on standard costs and less advertising expenses for that market.
F-27
2. For markets in which marketing is performed by the Groups wholly owned subsidiaries, segment results represent revenues from external customers, less direct cost of revenues, less other operating expenses (general, administrative and selling expenses) and less net financial expenses paid to third parties.
Reconciliation to consolidated financial statements
The reconciliation amounts include all other operating and financial expenses which were not related directly to the Group sales and distribution activities and were not included in the expenses allocation to specific segments in the reports to the CODM.
Year ended December 31, 2007 | ||||||||||||||||||||||||||||
(in thousands) |
Western
Europe |
Central and Eastern Europe, Middle East and Africa |
The
Americas |
Asia-
Pacific |
Reportable
Segments |
Reconciliation | Consolidated | |||||||||||||||||||||
Revenues | € | 69,279 | € | 10,767 | € | 3,177 | € | 2,760 | € | 85,983 | € | 85,983 | ||||||||||||||||
Financial expenses, net | (765 | ) | (66 | ) | (95 | ) | (2 | ) | (928 | ) | (1,401 | ) | (2,329 | ) | ||||||||||||||
Depreciation and amortization | 635 | 163 | 43 | 89 | 930 | 903 | 1,833 | |||||||||||||||||||||
Reportable segment income before income tax | 10,250 | 342 | (714 | ) | (1,096 | ) | 8,782 | (10,066 | ) | (1,284 | ) |
External revenues from customers located in Israel amounted to Euro 7.6 million in the year ended December 31, 2007.
Year ended December 31, 2008 | ||||||||||||||||||||||||||||
(in thousands) |
Western
Europe |
Central and Eastern Europe, Middle East and Africa |
The
Americas |
Asia-
Pacific |
Reportable
Segments |
Reconciliation | Consolidated | |||||||||||||||||||||
Revenues | € | 81,779 | € | 10,234 | € | 4,937 | € | 2,999 | € | 99,949 | € | 99,949 | ||||||||||||||||
Financial expenses, net | (591 | ) | (67 | ) | (142 | ) | 3 | (797 | ) | (3,599 | ) | (4,396 | ) | |||||||||||||||
Depreciation and amortization | 483 | 193 | 23 | 25 | 724 | 1,252 | 1,976 | |||||||||||||||||||||
Reportable segment income before income tax | 18,602 | 1,694 | (1,335 | ) | 46 | 19,007 | (13,507 | ) | 5,500 |
External revenues from customers located in Israel amounted to Euro 8.1 million in the year ended December 31, 2008.
F-28
Year ended December 31, 2009 | ||||||||||||||||||||||||||||
(in thousands) |
Western
Europe |
Central and Eastern Europe, Middle East and Africa |
The
Americas |
Asia-
Pacific |
Reportable
Segments |
Reconciliation | Consolidated | |||||||||||||||||||||
Revenues | € | 74,433 | € | 13,728 | € | 10,924 | € | 5,938 | € | 105,023 | € | 105,023 | ||||||||||||||||
Financial expenses, net | (8 | ) | (73 | ) | (259 | ) | 1 | (339 | ) | (1,435 | ) | (1,774 | ) | |||||||||||||||
Depreciation and amortization | 404 | 87 | (16 | ) | 28 | 503 | 1,138 | 1,641 | ||||||||||||||||||||
Reportable segment income before income tax | 20,195 | 1,104 | (2,128 | ) | 1,205 | 20,376 | (11,451 | ) | 8,925 |
External revenues from customers located in Israel amounted to Euro 8.3 million in the year ended December 31, 2009.
The reconciliation amounts include all other operating and financial expenses which were not related directly to the Group sales and distribution activities and were not included in the expenses allocation to specific segments in the reports to the CODM.
Year ended December 31 | ||||||||||||
(in thousands) | 2007 | 2008 | 2009 | |||||||||
Reportable segments income before income tax | € | 8,782 | € | 19,007 | € | 20,376 | ||||||
Expenses not allocated to the operating segments | (10,066 | ) | (13,507 | ) | (11,451 | ) | ||||||
Consolidated income (loss) before income tax | € | (1,284 | ) | € | 5,500 | € | 8,925 |
Year ended December 31 | ||||||||||||
(in thousands) | 2007 | 2008 | 2009 | |||||||||
Reportable segments financial expenses | € | (928 | ) | € | (797 | ) | € | (339 | ) | |||
Financial expenses not allocated to the operating segments | (1,401 | ) | (3,599 | ) | (1,435 | ) | ||||||
Consolidated financial expenses | € | (2,329 | ) | € | (4,396 | ) | € | (1,774 | ) |
F-29
Segment information on assets is not reported in the operating segment information since it is not reviewed by the CODM. Information on the assets of each geographical segment is detailed below. The information includes non-current assets data, of which the depreciated cost of property, plant and equipment is allocated to each of the geographical segments and the intangible assets amortized cost is not allocated to the geographical segments.
(in thousands) |
Western
Europe |
Central and Eastern Europe, Middle East and Africa |
The
Americas |
Asia-
Pacific |
Reportable
Segments |
Reconciliation | Consolidated | |||||||||||||||||||||
December 31, 2009 | € | 9,331 | € | 8,061 | € | 784 | € | 584 | € | 18,760 | € | 12,538 | € | 31,298 | ||||||||||||||
December 31, 2008 | € | 8,429 | € | 6,630 | € | 291 | € | 550 | € | 15,900 | € | 11,649 | € | 27,549 | ||||||||||||||
December 31, 2007 | € | 8,749 | € | 5,955 | € | 313 | € | 558 | € | 15,575 | € | 11,799 | € | 27,374 |
Reconciliation of geographical segments of non-current assets
Year ended December 31 | ||||||||||||
(in thousands) | 2007 | 2008 | 2009 | |||||||||
Geographical segments non-current assets | € | 15,575 | € | 15,900 | € | 18,760 | ||||||
Intangible assets | 11,799 | 11,649 | 12,538 | |||||||||
Consolidated non-current assets | € | 27,374 | € | 27,549 | € | 31,298 |
During 2009, the revenues from one of the Groups customers, which is a distributor, located in Western Europe represent 14.7% of the total revenue of the Group (2008: 26.8% and 2007: 19.4%).
F-30
Land and
buildings |
Leasehold
improvements |
Machinery and equipment |
Office
furniture and equipment |
Cylinders | Vehicles | Total | ||||||||||||||||||||||||||
(in thousands) | Cost | Grants | ||||||||||||||||||||||||||||||
Cost
|
||||||||||||||||||||||||||||||||
Balance at January 1, 2008 | € | | € | 6,344 | € | 22,927 | € | (2,385 | ) | € | 6,766 | € | 10,400 | € | 907 | € | 44,959 | |||||||||||||||
Additions | | 73 | 1,752 | | 282 | | 37 | 2,144 | ||||||||||||||||||||||||
Disposals | | | (20 | ) | | (27 | ) | | (6 | ) | (53 | ) | ||||||||||||||||||||
Effect of movement in exchange rates | | 13 | | | 8 | | 10 | 31 | ||||||||||||||||||||||||
Balance at December 31, 2008 | | 6,430 | 24,659 | (2,385 | ) | 7,029 | 10,400 | 948 | 47,081 | |||||||||||||||||||||||
Additions | 476 | 114 | 2,903 | | 857 | | 176 | 4,526 | ||||||||||||||||||||||||
Disposals | | (76 | ) | (163 | ) | | (258 | ) | | (48 | ) | (545 | ) | |||||||||||||||||||
Effect of movement in exchange rates | | (2 | ) | 3 | | (4 | ) | | 4 | 1 | ||||||||||||||||||||||
Balance at December 31, 2009 | 476 | 6,466 | 27,402 | (2,385 | ) | 7,624 | 10,400 | 1,080 | 51,063 | |||||||||||||||||||||||
Accumulated depreciation
|
||||||||||||||||||||||||||||||||
Balance at January 1, 2008 | | 4,479 | 19,135 | (2,256 | ) | 6,279 | 1,004 | 743 | 29,384 | |||||||||||||||||||||||
Depreciation for the period | | 218 | 1,109 | (18 | ) | 259 | 184 | 64 | 1,816 | |||||||||||||||||||||||
Disposals | | | (2 | ) | | (25 | ) | | (4 | ) | (31 | ) | ||||||||||||||||||||
Effect of movement in exchange rates | | 2 | | 3 | | 7 | 12 | |||||||||||||||||||||||||
Balance at December 31, 2008 | | 4,699 | 20,242 | (2,274 | ) | 6,516 | 1,188 | 810 | 31,181 | |||||||||||||||||||||||
Depreciation for the period | 11 | 197 | 746 | (18 | ) | 302 | 204 | 84 | 1,526 | |||||||||||||||||||||||
Disposals | | (38 | ) | (107 | ) | | (212 | ) | | (48 | ) | (405 | ) | |||||||||||||||||||
Effect of movement in exchange rates | | | 1 | | (2 | ) | | 2 | 1 | |||||||||||||||||||||||
Balance at December 31, 2009 | 11 | 4,858 | 20,882 | (2,292 | ) | 6,604 | 1,392 | 848 | 32,303 | |||||||||||||||||||||||
Carrying amount at January 1, 2008 | | 1,865 | 3,792 | (129 | ) | 487 | 9,396 | 164 | 15,575 | |||||||||||||||||||||||
Carrying amount at December 31, 2008 | | 1,731 | 4,417 | (111 | ) | 513 | 9,212 | 138 | 15,900 | |||||||||||||||||||||||
Carrying amount at December 31, 2009 | € | 465 | € | 1,608 | € | 6,520 | € | (93 | ) | € | 1,020 | € | 9,008 | € | 232 | € | 18,760 |
Depreciation of machinery equipment and investment grants is charged to cost of revenues. Depreciation of other categories of property, plant and equipment is charged to departments which utilize the relevant assets, primarily in General and Administrative expenses.
F-31
The Group leases vehicles under a number of finance lease agreements. Certain of these leases provide the Group with the option to purchase the equipment at a beneficial price. As of December 31, 2009, the net carrying amount of the leased vehicles was Euro 73,000 (December 31, 2008: Euro 157,000).
See Note 13 regarding loans and borrowings for information on finance lease liabilities.
As of December 31, 2009, property, plant and equipment of the Group with a carrying amount of Euro 6.0 million (December 31, 2008: Euro 5.3 million) are pledged as security for bank loans (see Note 13 regarding loans and borrowings with respect to terms and repayment dates).
The Group has assets that have been fully depreciated and are still in use. As of December 31, 2009, the original cost of such assets is approximately Euro 25 million (December 31, 2008: approximately Euro 20 million).
(in thousands) | Trademarks, patents and other intellectual property | Software | Total | |||||||||
Cost
|
||||||||||||
Balance at January 1, 2008 | € | 24,968 | € | 3,603 | € | 28,571 | ||||||
Additions | | 7 | 7 | |||||||||
Effect of movement in exchange rates | | 6 | 6 | |||||||||
Balance at December 31, 2008 | 24,968 | 3,616 | 28,584 | |||||||||
Additions | 778 | 224 | 1,002 | |||||||||
Effect of movement in exchange rates | | 4 | 4 | |||||||||
Balance at December 31, 2009 | 25,746 | 3,844 | 29,590 | |||||||||
Amortization
|
||||||||||||
Balance at January 1, 2008 | 13,417 | 3,355 | 16,772 | |||||||||
Amortization for the year | 10 | 150 | 160 | |||||||||
Effect of movement in exchange rates | | 3 | 3 | |||||||||
Balance at December 31, 2008 | 13,427 | 3,508 | 16,935 | |||||||||
Amortization for the year | 20 | 95 | 115 | |||||||||
Effect of movement in exchange rates | | 2 | 2 | |||||||||
Balance at December 31, 2009 | 13,447 | 3,605 | 17,052 | |||||||||
Carrying amounts
|
||||||||||||
As of January 1, 2008 | 11,551 | 248 | 11,799 | |||||||||
As of December 31, 2008 | 11,541 | 108 | 11,649 | |||||||||
As of December 31, 2009 | € 12,299 | € 239 | € 12,538 |
F-32
The Group has pledged intangible software assets with a carrying amount of Euro 80,000 as of December 31, 2009 (as of December 31, 2008: Euro 86,000) to secure banking facilities granted to Group companies (see Note 13).
Amortization of intangible assets is recognized in the statement of income, in the general and administrative expenses line item.
As of December 31 | ||||||||
(in thousands) | 2008 | 2009 | ||||||
Raw materials and work in process | € | 7,434 | € | 8,226 | ||||
Finished goods | 8,819 | 9,367 | ||||||
Refill cylinder stock | 484 | 2,733 | ||||||
Total | € | 16,737 | € | 20,326 |
During the year 2009, the write-down of inventories to net realizable value amounted to Euro 691,000 (2008 Euro 501,000).
As of December 31 | ||||||||
(in thousands) | 2008 | 2009 | ||||||
Trade receivables | € | 14,684 | € | 16,201 | ||||
VAT Refundable | 669 | 706 | ||||||
Prepaid expenses and other | 2,813 | 2,366 | ||||||
Total | € | 18,166 | € | 19,273 |
The Group exposure to currency risk and impairment losses related to trade receivables is disclosed in Note 25.
As of December 31 | ||||||||
(in thousands) | 2008 | 2009 | ||||||
Bank balances | € | 4,349 | € | 4,185 |
The Groups exposure to interest rate risk for financial assets and liabilities is disclosed in Note 25.
F-33
Ordinary shares | Series A1 | Series A2 | ||||||||||||||||||||||
(in thousands of shares) | 2008 | 2009 | 2008 | 2009 | 2008 | 2009 | ||||||||||||||||||
On issue at January 1 | 1,417 | 1,417 | 16,067 | 17,067 | 7,920 | 7,920 | ||||||||||||||||||
Facility agreement(1) | | | 1,000 | | | | ||||||||||||||||||
Shareholders loan(2) | | 1 | | 2,702 | | 1,409 | ||||||||||||||||||
Exchange of shares(3) | | 330 | | | | | ||||||||||||||||||
On issue at December 31 | 1,417 | 1,748 | 17,067 | 19,769 | 7,920 | 9,329 |
(1) See Note 13.2
(2) See Note 14.4
(3) During the year ended December 31, 2009, the Group, pursuant to an agreement signed in December 2006 with the former SCNVs shareholders, performed the exchange of SCNVs shares for the Companys shares; accordingly 330,000 ordinary shares were issued.
(4) On September 27, 2010, the Board of Directors approved, and as of October 6, 2010, the shareholders ratified, a 1-for-6.45 reverse split of the Companys ordinary shares. Fractional shares have been rounded to the nearest whole share number. These financial statements have been prepared to retroactively reflect the reverse share split. As a result, as of December 31, 2009, the number of ordinary shares was reduced from 11,274,787 to 1,748,029 (as of December 31, 2008, the number of ordinary shares was reduced from 9,137,325 to 1,416,640). The conversion ratio of the Series A1 and A2 Preferred Shares was adjusted accordingly such that every 6.45 Series A1 and A2 Preferred Shares is convertible into 1 ordinary share.
As of December 31 | ||||||||
2008 | 2009 | |||||||
Ordinary shares
|
||||||||
Authorized ordinary share capital:
|
||||||||
15,503,875 ordinary shares of par value NIS 0.645 each (in NIS thousands) | 10,000 | 10,000 | ||||||
Issued and fully paid ordinary share capital:
|
||||||||
1,748,029 (2008: 1,416,640) ordinary shares of par value NIS 0.645 each (in
Euro thousands) |
161 | 198 | ||||||
Convertible preferred shares
|
||||||||
Authorized convertible preferred share capital
|
||||||||
65,000,000 Series A1 convertible preferred shares (series A1) of par value
NIS 0.10 each (in NIS thousands) |
6,500 | 6,500 | ||||||
15,000,000 Series A2 convertible preferred shares (series A2) of par value
NIS 0.10 each (in NIS thousands) |
1,500 | 1,500 | ||||||
Issued and fully paid convertible preferred share capital:
|
||||||||
19,769,230 (2008: 17,066,619) Series A1 convertible preferred shares of par value NIS 0.10 each (in Euro thousands) | 309 | 358 | ||||||
9,329,071 (2008: 7,920,108) Series A2 convertible preferred shares of par value NIS 0.10 each (in Euro thousands) | 140 | 166 | ||||||
449 | 524 |
Holders of ordinary, Series A1 and Series A2 shares are entitled to participate equally in the payment of cash dividends and in stock dividend distributions. Each ordinary share and preferred share is entitled to one vote on all matters to be voted on by shareholders.
In addition, Series A1 holders (A1 holders) are entitled to vote as a separate class to elect the series A1 Directors.
F-34
Preferred shares shall be converted into ordinary shares at the option of the holder. In addition, at any moment, the outstanding shares of a particular class shall be converted into ordinary shares upon the affirmative consent of the majority of the holders of the outstanding Series A1 shares.
In the event of a Qualified Initial Public Offering (QIPO) in which the proceeds to the Company are not less than USD twenty (20) million, each preferred share shall, immediately prior to the closing of the QIPO, automatically be converted into ordinary shares.
Every 6.45 Series A1 and A2 Preferred Shares is convertible into 1 ordinary share.
Liquidation event is defined to be each of the following; a) a merger, consolidation or other similar transaction (or series of transactions) after which the Companys shareholders own less than fifty percent (50%) of the outstanding shares or the voting rights of the surviving entity; or b) any event of liquidation, winding up or dissolution.
In the event of liquidation of the Company, the A1 holders will have preference over the holders of other classes of shares on the company assets ratably up to the initial price paid for their shares plus any declared but unpaid dividends. In addition, A1 holders will be entitled to a 8% dividend compounded annually up to the remaining assets amount after Series A2 holders (A2 holders) rights are satisfied (see next paragraph) and only if the total payments done to the Series A1 holders including their part on the remaining assets according to this and the next paragraph are less than two times the initial price paid for their shares.
If any assets remain, and after A1 holders rights are satisfied, but before the compounded dividends are calculated, A2 holders will ratably be entitled to receive the initial amount paid for their shares plus any declared but unpaid dividends.
Finally, if any assets remain after all A1 holders and A2 holders rights are satisfied, the remaining assets will be distributed ratably between the preferred shareholders and ordinary shareholders of the Company.
The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations.
F-35
As of December 31 | ||||||||
(in thousands) | 2008 | 2009 | ||||||
Current liabilities
|
||||||||
Secured revolving bank facility(1) | € | 7,095 | € | 2,625 | ||||
Secured bank loans | 2,420 | 2,300 | ||||||
Short term current portion of secured bank loans | 2,332 | 2,680 | ||||||
Other institutions(2) | 3,197 | | ||||||
Current portion of finance lease liabilities (see C) | 40 | 40 | ||||||
Total | 15,084 | 7,645 | ||||||
Non-current liabilities
|
||||||||
Secured bank loans | 3,219 | 5,052 | ||||||
Finance lease liabilities (see C) | 26 | 57 | ||||||
Total | € | 3,245 | € | 5,109 |
Changes in loans during the current year
1. During the year ended December 31, 2009, the secured revolving bank facilities lines with Israeli banks were increased to Euro 14.7 million (2008: Euro 9.3 million). These facilities were 18% utilized as of December 31, 2009 (2008: 68%).
2. The facility agreement was signed in July 2008, according to which the Company received a Libor + 3.8% U.S. Dollar denominated credit facility in an aggregate maximum amount of Euro 6 million. When entering to the credit facility agreement, the Company granted one (1) million Series A1 convertible preferred shares to the lender. This facility agreement was ultimately cash-settled in August 2009.
Terms and conditions of outstanding loans are as follows:
Currency |
Nominal
interest rate |
Year of
maturity |
December 31
2008 |
December 31
2009 |
||||||||||||||||||||||||
(in thousands) |
Face
value |
Carrying
amount |
Face
value |
Carrying
amount |
||||||||||||||||||||||||
Secured bank loans | Euro | Libor+2% 3.5% | 2010 2012 | € | 7,042 | € | 7,069 | € | 9,649 | € | 9,662 | |||||||||||||||||
Secured bank loans | USD | Libor+1.5% | 2010 2012 | 336 | 336 | 195 | 195 | |||||||||||||||||||||
Secured bank loans | NIS | Prime+4% 4.5% | 2010 | 566 | 566 | 175 | 175 | |||||||||||||||||||||
Secured revolving bank facility | Euro | Libor+2.3% 4% | 2010 | 4,371 | 4,371 | 1,484 | 1,484 | |||||||||||||||||||||
Secured revolving bank facility | NIS | Libor+2.3% | 2010 | 387 | 387 | 573 | 573 | |||||||||||||||||||||
Secured revolving bank facility | USD | Libor+1.5% 3.5% | 2010 | 1,754 | 1,754 | 4 | 4 | |||||||||||||||||||||
Secured revolving bank facility | CHF | Libor+2.5% | 2010 | 583 | 583 | 564 | 564 | |||||||||||||||||||||
Other institutions | USD | Libor+3.8% | | 3,197 | 3,197 | | | |||||||||||||||||||||
Finance lease liabilities | NIS | Prime+2.25% | 2010 | € | 66 | 66 | € | 97 | 97 | |||||||||||||||||||
Total | € | 18,329 | € | 12,754 |
F-36
The loan agreements with Israeli banks contain various financial covenants. Such covenants relate to interest coverage, debt service coverage and minimum adjusted net worth (see Note 25). The covenants were not breached either during the year 2009 nor during the year 2008.
The Group has pledged property, plant and equipment, inventory and intangible software assets having a combined carrying amount of Euro 15.7 million (2008: Euro 14.7 million) to secure banking facilities granted to Group entities (see Notes 7, 8 and 9).
The CHF credit line is guaranteed with trade receivables balances owed to the Swiss distributor of the Group.
As of December 31 | ||||||||
(in thousands) | 2008 | 2009 | ||||||
Amounts payable under finance leases:
|
||||||||
Within one year | € | 40 | € | 40 | ||||
In the second year | 26 | 57 | ||||||
Total | € | 66 | € | 97 |
Finance lease original terms vary between 3 to 5 years; interest rates are fixed at the contract date.
As of December 31 | ||||||||
(in thousands) | 2008 | 2009 | ||||||
Shareholder Euro loan interest bearing at Libor + 2.5%(1) | € | 4,305 | € | 4,465 | ||||
Shareholder USD loan non-interest bearing(2) | 1,313 | 1,422 | ||||||
Shareholder USD loan 6% interest bearing(3) | 307 | | ||||||
Shareholder Euro loan(4) | 5,639 | 5,906 | ||||||
11,564 | 11,793 | |||||||
Short term | 307 | 6,380 | ||||||
Long term | € | 11,257 | € | 5,413 |
(1) Between June 2007 and September 2007, certain shareholders provided a Euro loan to the Company. The loan, which is payable in one installment after 5 years, bears interest at Libor + 2.5% and its capital is convertible into 16.1 million Series A1 Preferred Shares upon holders decision. The conversion ratio of the loan was adjusted to retroactively reflect the reverse split (See Note 12.A(4)). Each €1.60579 of the loan is exercisable to one ordinary share. Interest is payable on maturity only if the loan is not converted to equity prior to maturity. The loan is subordinated to bank loans.
(2) During March 2007, certain shareholders agreed to convert their interest bearing loans to non-interest bearing loans to the Company, which will be repaid in twelve (12) consecutive quarterly payments starting in March 2010. If the Company declares a dividend, ten percent (10%) of the total amount of the dividend will be allocated to repay the Loan. In the event of a QIPO, the Board of Directors may resolve to effect the payment of the loan at a prior date.
(3) During March 2007, certain shareholders granted a USD loan to the Company bearing an annual interest of 6% which was paid in March 2009.
(4) During June 2008, certain shareholders provided Euro loans bearing interest of 8.5% in advance and a bank loan guaranteed by a shareholder at Libor + 3%. These loans are convertible into ordinary shares at the shareholders option in December 2010 or earlier, if decided by the Companys board. The conversion ratio of the loan was adjusted to retroactively reflect the reverse split (See Note 12.A(4)). Each €1.60579 of the loan is exercisable to one ordinary share. As a part of the loan agreement, the Company granted 4.1 million preferred shares and 1,152 ordinary shares to the lenders, issued during the year 2009. These loans are subordinated to bank loans.
F-37
Employee benefits include post-employment benefits, short-term benefits and share-based payments.
Short term benefits comprised of salary and related expenses and liability for holiday pay.
The Groups liability for employee severance benefits in respect of its Israeli employees is calculated in accordance with the Israeli severance pay law. Regarding these post-employment benefits, the Group has defined benefit plans for which it makes contributions to central severance pay funds and appropriate insurance policies. The defined benefit plans provide the entitled employees a lump-sum amount based on the amounts accrued in the funds or policies or annual pension payments. The company has an additional reserve deposited in the companys name in a recognized compensation fund. Withdrawal of the reserve monies is contingent upon fulfillment of detailed provisions in the Severance Pay Law. The Company also has a defined contribution plan for some of its employees who are subject to Section 14 of the Severance Pay Law 1963. These contributions are in lieu of payments of severance pay.
Some of the non-Israeli subsidiaries calculate an actuary obligation regarding post-employment benefits according to the local defined benefit plans employees are entitled to.
For information regarding share-based payments, see Note 28.
December 31 | ||||||||
(in thousands) | 2008 | 2009 | ||||||
Present value of funded obligations | € | 3,060 | € | 3,663 | ||||
Less fair value of plan assets | (2,896 | ) | (3,581 | ) | ||||
Recognized liability for defined benefit obligations | 164 | 82 | ||||||
Short term benefits
|
||||||||
Salary and related expenses | 1,991 | 2,056 | ||||||
Liability for holiday pay | 793 | 887 | ||||||
Total short-term benefits | 2,784 | 2,943 | ||||||
Total employee benefits | € | 2,948 | € | 3,025 |
December 31 | ||||||||
(in thousands) | 2008 | 2009 | ||||||
Presented under the following items:
|
||||||||
Other current liabilities | € | 2,784 | € | 2,943 | ||||
Long-term employee benefits | 164 | 82 | ||||||
Total | € | 2,948 | € | 3,025 |
F-38
(in thousands) | 2008 | 2009 | ||||||
Defined benefit obligation as of January 1 | € | 3,215 | € | 3,060 | ||||
Benefits paid by the plan | (703 | ) | (146 | ) | ||||
Current service costs and interest costs | 580 | 557 | ||||||
Changes in respect of foreign exchange differences | 104 | (22 | ) | |||||
Actuarial (gains) losses | (136 | ) | 214 | |||||
Defined benefit obligation as of December 31 | € | 3,060 | € | 3,663 |
(in thousands) | 2008 | 2009 | ||||||
Fair value of plan assets as of January 1 | € | 3,032 | € | 2,896 | ||||
Contributions paid into the plan | 503 | 548 | ||||||
Benefits paid by the plan | (674 | ) | (129 | ) | ||||
Changes in respect of foreign exchange differences | 104 | (22 | ) | |||||
Expected return on plan assets | 114 | 99 | ||||||
Actuarial gains (losses) | (183 | ) | 189 | |||||
Fair value of plan assets as of December 31 | € | 2,896 | € | 3,581 |
Year ended December 31 | ||||||||||||
(in thousands) | 2007 | 2008 | 2009 | |||||||||
Current service costs | € | 466 | € | 443 | € | 433 | ||||||
Interest costs | 212 | 137 | 124 | |||||||||
Expected return on plan assets | (181 | ) | (114 | ) | (99 | ) | ||||||
Actuarial (gains) losses | (160 | ) | 46 | 24 | ||||||||
Total | € | 337 | € | 512 | € | 482 |
Year ended December 31 | ||||||||||||
(in thousands) | 2007 | 2008 | 2009 | |||||||||
Actual return on plan assets | € | 146 | € | (68 | ) | € | 288 |
F-39
(5) Actuarial assumptions
Principal actuarial assumptions at the reporting date (expressed as weighted averages):
2007 | 2008 | 2009 | ||||||||||
Discount rate as of December 31(1) | 3.40 | % | 3.82 | % | 3.81 | % | ||||||
Expected return on plan assets as of January 1(2) | 3.66 | % | 3.13 | % | 3.59 | % | ||||||
Future salary nominal increases(3) | 2.03 | % | 1.87 | % | 1.95 | % |
Assumptions regarding future mortality are based on published statistics and mortality tables.
(1) Based on the yield on government bonds at a fixed interest rate with lifetime equals to that of the gross liability.
(2) Regarding the Israeli plans in funds which are subsidized by the government, the expected return is based on the guaranteed real return and inflation expectations, otherwise based on the discount rate.
The overall expected long-term rate of return on assets is 4.81%. The expected long-term rate of return is based on the returns of government debentures.
Regarding the Europe plans based on adjusted past experience.
(3) Based on management assessment.
December 31 | ||||||||||||
(in thousands) | 2007 | 2008 | 2009 | |||||||||
Present value of the defined benefit obligation | € | 3,215 | € | 3,060 | € | 3,663 | ||||||
Fair value of plan assets | (3,032 | ) | (2,896 | ) | (3,581 | ) | ||||||
Deficit (surplus) in the plan | 183 | 164 | 82 | |||||||||
Past experience adjustments arising on plan liabilities | 128 | 163 | (190 | ) | ||||||||
Past experience adjustments arising on plan assets | € | 67 | € | (193 | ) | € | 161 |
The Company expects Euro 599,000 in contributions to be paid to the funded defined benefit plan in 2010.
December 31 | ||||||||||||
(in thousands) | 2007 | 2008 | 2009 | |||||||||
Amount recognized as expense in respect of defined contribution plan | € | 263 | € | 224 | € | 212 |
Trade payables principally comprise amounts outstanding for trade purchases and services obtained under normal commercial terms and conditions. Management considers that the carrying amount of trade payables reasonably represents their fair value.
F-40
(in thousands) |
Legal
claims* |
Custom
duties* |
Right of
return* |
Machinery
and plant dismanting** |
Total | |||||||||||||||
Balance as of January 1, 2009 | € | 1,050 | € | 269 | € | 276 | € | 315 | € | 1,910 | ||||||||||
Provisions made during the period | 253 | | 13 | | 266 | |||||||||||||||
Provisions used during the period | | (263 | ) | (8 | ) | | (271 | ) | ||||||||||||
Provisions reversed during the period | (365 | ) | (6 | ) | | | (371 | ) | ||||||||||||
Unwind of discount | | | | 15 | 15 | |||||||||||||||
Changes in respect of foreign exchange differences | | | | (24 | ) | (24 | ) | |||||||||||||
Balance as of December 31, 2009 | € | 938 | € | | € | 281 | € | 306 | € | 1,525 |
* Current liability
** Non-current liability
Legal claims are filed against Group companies in the ordinary course of business by customers, suppliers and former employees of the Group. As of December 31, 2009, such claims (excluding claim with no specified amounts) amounted to Euro 3.2 million. This amount consists of labor proceedings in the amount of Euro 1.3 million, body injury claims in the amount of Euro 1.8 million (excluding claim with no specified amounts), and other general proceedings in the amount of Euro 0.1 million. In the opinion of the Group companies managements, which are based, inter alia, on legal opinions regarding the outcome of the claims, appropriate provisions in the amount of Euro 0.9 million were included in the financial statements where such provisions are required in order to cover the estimated exposure to the claims. See also Note 26A.
The Group sells certain specific products with an unlimited time right of return that entitle customers to a refund. In the opinion of the management of the Company, appropriate provisions have been included in the financial statement to cover the estimated refund obligations. The estimation was based on previous experience and relevant management assumptions.
A provision of Euro 0.3 million was made based on the Group estimation of dismantling costs related to the Israeli and Germany production plants.
The Group provides a limited time warranty to products sold to customers. The obligation that arises from the Group calculation is estimated to be immaterial.
F-41
As of December 31 | ||||||||
(in thousands) | 2008 | 2009 | ||||||
Employees and payroll related accruals | € | 2,784 | € | 2,943 | ||||
Bonuses to retailers | 1,251 | 1,449 | ||||||
Marketing accrual | 302 | 503 | ||||||
Professional advise | 411 | 476 | ||||||
Other | 1,903 | 3,305 | ||||||
Total | € | 6,651 | € | 8,676 |
For the year ended December 31 | ||||||||||||
(in thousands) | 2007 | 2008 | 2009 | |||||||||
Rental income | € | 38 | € | 40 | € | 155 | ||||||
Capital gain (loss) on sales of property, plant and equipment | 8 | 5 | (38 | ) | ||||||||
Other losses | (21 | ) | (26 | ) | (22 | ) | ||||||
Total other income | € | 25 | € | 19 | € | 95 |
For the year ended December 31 | ||||||||||||
(in thousands) | 2007 | 2008 | 2009 | |||||||||
Wages and salaries | € | 6,490 | € | 5,099 | € | 6,520 | ||||||
Communication and support costs | 1,177 | 878 | 1,504 | |||||||||
Rental and building maintenance | 1,082 | 1,047 | 918 | |||||||||
Professional advisors | 817 | 734 | 518 | |||||||||
Legal | 971 | 800 | 458 | |||||||||
Depreciation | 463 | 468 | 433 | |||||||||
Travel expenses | 454 | 316 | 343 | |||||||||
Other | 2,315 | 3,333 | 2,440 | |||||||||
Total General and Administrative expenses | € | 13,769 | € | 12,675 | € | 13,134 |
For the year ended December 31 | ||||||||||||
(in thousands) | 2007 | 2008 | 2009 | |||||||||
Wages and salaries | € | 9,030 | € | 8,832 | € | 9,364 | ||||||
Advertising and promotions | 11,220 | 9,578 | 10,482 | |||||||||
Distribution costs | 6,302 | 7,830 | 7,772 | |||||||||
Commissions | 1,864 | 1,350 | 1,617 | |||||||||
Travel expenses | 316 | 425 | 456 | |||||||||
Storage expenses | 1,475 | 1,407 | 2,136 | |||||||||
Depreciation | 463 | 717 | 841 | |||||||||
Bad debt | (209 | ) | 226 | 325 | ||||||||
Other | 988 | 1,819 | 1,699 | |||||||||
Total Sales and Marketing expenses | € | 31,449 | € | 32,184 | € | 34,692 |
F-42
For the year ended December 31 | ||||||||||||
(in thousands) | 2007 | 2008 | 2009 | |||||||||
Interest on financial liabilities measured at amortized cost | 2,232 | 2,817 | 2,069 | |||||||||
Interest on cash surplus and deposit | € | (37 | ) | € | (75 | ) | € | (47 | ) | |||
Total interest expenses, net | 2,195 | 2,742 | 2,022 | |||||||||
Other financial expenses (income), net
|
||||||||||||
Bank charges | 183 | 261 | 470 | |||||||||
Foreign exchange differences | | 1,315 | | |||||||||
Other | 212 | 150 | 183 | |||||||||
Other financial expenses | 395 | 1,726 | 653 | |||||||||
Foreign exchange differences | 234 | | 890 | |||||||||
Interest income from Tax Authorities | 27 | 22 | 1 | |||||||||
Other | | 50 | 10 | |||||||||
Other financial income | 261 | 72 | 901 | |||||||||
Total other financial expenses (income), net | 134 | 1,654 | (248 | ) | ||||||||
Total financial expenses, (net) | 2,329 | 4,396 | 1,774 |
The Group subsidiaries are incorporated in various countries where income is basically taxed at statutory rates. Certain subsidiaries benefit from tax incentives or subject to specific tax rulings.
The regular corporate tax rate in Israel in 2009 is 26% (2008: 27% and 2007: 29%). Tax incentives to the Israeli subsidiaries are described below. Non-Israeli subsidiaries are taxed according to the tax laws in their respective country of residence.
On July 25, 2005, the Israeli Parliament passed the Law for the Amendment of the Income Tax Ordinance (No. 147) 2005, which provides, inter alia, for a gradual reduction in the company tax rate to 25% commencing with the 2010 tax year.
On July 14, 2009, the Israeli Parliament passed the Economic Efficiency Law (Legislation Amendments for Implementation of the 2009 and 2010 Economic Plan) 2009, which provided, inter alia, an additional gradual reduction in the company tax rate to 18% commencing with the 2016 tax year. In accordance with the aforementioned amendments, the company tax rates applicable commencing with the 2009 tax year are as follows: In the 2009 tax year 26%, in the 2010 tax year 25%, in the 2011 tax year 24%, in the 2012 tax year 23%, in the 2013 tax year 22%, in the 2014 tax year 21%, in the 2015 tax year 20% and commencing with the 2016 tax year the company tax rate will be 18%.
Current and deferred tax balances for the periods reported in these financial statements are calculated in accordance with the new tax rates specified in the Economic Efficiency Law.
F-43
An Israeli subsidiary of the Company was granted Approved Enterprise status in accordance with the Law for the Encouragement of Capital Investments 1959 (hereinafter the Encouragement Law).
According to the provisions of the Encouragement Law the subsidiary is entitled to tax benefits relating to investment programs that are evidenced by approved enterprise certificates. In general, the benefit period is limited to ten years from the first year that incremental taxable income is generated from the approved assets (such benefits to be utilized within 12 years from commencement of operation of the investment program or 14 years from the year in which approval is granted, whichever is earlier). Any distribution of previously exempted profit whether by dividend, pursuant to liquidation or through purchase of shares, is subject to corporate tax rate of up to 20%.
The subsidiary was certified for six approved investment programs under this law. The programs were approved during the years 1991 to 2005. The tax benefits period of four programs ended in the tax years 2003, 2004, 2006 and 2008. One of these programs entitled the subsidiary to an investment grant of 34% of the subsidiarys approved investments, in addition to certain tax benefits, for a period of ten years beginning in the first year the subsidiary had taxable income. The Company received grants of Euro 2.2 million regarding this investment.
The benefits period of another investment program that was approved in December 1999 has not yet ended. It provides a tax exemption on undistributed earnings derived from program assets for a period of ten years from the first year in which taxable income is generated from the approved assets. The ten year period will end after the 2011 tax year. Calculation of the approved enterprise tax benefits is based on the increase in Euro value in revenues during each year of the benefit period, compared to the base year (the prior year to operation of the program) revenues (Base Revenue). The current base revenue is approximately Euro 36.0 million.
The operation phase of another program, which is in the investment grant course and was approved in December 2005, has not been started. The subsidiary is entitled to a grant of 24% of part of the approved investment. The benefit period for this program will be ten years (tax exemption for two years and reduced tax for eight more years) beginning in the first year the subsidiary had taxable income from the approved assets.
The subsidiarys income that is not derived from assets eligible for reduced taxation benefits, as described above, is taxed at the statutory income tax rate in Israel of 26% in 2009 (2008: 27%).
F-44
Year ended December 31 | ||||||||||||
(in thousands) | 2007 | 2008 | 2009 | |||||||||
Current tax expense (income)
|
||||||||||||
Current period(1) | € | 732 | € | 1,330 | € | 2,356 | ||||||
Adjustments for prior periods, net (see E. below) | | 3,399 | | |||||||||
732 | 4,729 | 2,356 | ||||||||||
Deferred tax expense (income)
|
||||||||||||
Creation and reversal of temporary differences(2) | (426 | ) | 284 | (521 | ) | |||||||
Change in tax rate | | (43 | ) | (42 | ) | |||||||
(426 | ) | 241 | (563 | ) | ||||||||
Income tax expense from continuing operations | 306 | 4,970 | 1,793 | |||||||||
(1) Including amount of the benefit arising from a previously unrecognized tax loss, tax credit or temporary difference of a prior period that was used to reduce current tax expense | €776 | €378 | €462 | |||||||||
(2) Including amount of the benefit arising from a previously unrecognized tax loss, tax credit or temporary difference of a prior period that was used to reduce deferred tax expense | | | €331 |
Year ended December 31 | ||||||||||||
(in thousands) | 2007 | 2008 | 2009 | |||||||||
Income (loss) before income tax | € | (1,284 | ) | € | 5,500 | € | 8,925 | |||||
Primary tax rate of the Company | 29 | % | 27 | % | 26 | % | ||||||
Tax calculated according to the Companys primary tax rate | (372 | ) | 1,485 | 2,321 | ||||||||
Additional tax (tax saving) in respect of:
|
||||||||||||
Different tax rate of foreign subsidiaries | (4,458 | ) | (4,195 | ) | (2,521 | ) | ||||||
Tax exempt income | (43 | ) | (380 | ) | (362 | ) | ||||||
Non-deductible expenses | 74 | 151 | 72 | |||||||||
Utilization of tax losses and benefits from prior years for which deferred taxes were not created | (776 | ) | (378 | ) | (462 | ) | ||||||
Current year tax losses and benefits for which deferred taxes were not created | 6,761 | 4,137 | 2,497 | |||||||||
Creation of deferred taxes for tax losses and benefits from previous periods for which deferred taxes were not created in the past | | | (331 | ) | ||||||||
Taxes in respect of previous years | | 3,399 | | |||||||||
Effect of change in tax rate | | (43 | ) | (42 | ) | |||||||
Other differences(1) | (880 | ) | 794 | 621 | ||||||||
Income tax expense | € | 306 | € | 4,970 | € | 1,793 |
(1) Other differences in 2007 are comprised mainly of deductible expenses for tax purposes according to tax ruling. Regarding 2008-2009 see Note 23E.
F-45
Deferred taxes in respect of companies in Israel are calculated according to the tax rate anticipated to be in effect on the date of reversal as stated above. Deferred taxes in respect of foreign subsidiaries are calculated according to the relevant tax rates of each country.
Deferred tax assets and liabilities are attributable to the following items:
(in thousands) |
Property,
plant and equipment |
Employee
benefits |
Carry-
forward tax losses and deductions |
Unrealized
intra-Group profits |
Tax
deductible provisions for product returns |
Total | ||||||||||||||||||
Balance of deferred tax asset (liability) as of January 1, 2008 | € | (77 | ) | € | 139 | | € | 944 | € | (444 | ) | € | 562 | |||||||||||
Changes recognized in profit or loss | 106 | (24 | ) | | (239 | ) | (127 | ) | (284 | ) | ||||||||||||||
Effect of change in tax rate | 76 | (28 | ) | | (1 | ) | (4 | ) | 43 | |||||||||||||||
Changes in respect of foreign exchange differences | | | | | (27 | ) | (27 | ) | ||||||||||||||||
Balance of deferred tax asset (liability) as of December 31, 2008 | 105 | 87 | | 704 | (602 | ) | 294 | |||||||||||||||||
Changes recognized in profit or loss | 83 | | 331 | 104 | | 518 | ||||||||||||||||||
Effect of change in tax rate | 47 | (2 | ) | | (9 | ) | 6 | 42 | ||||||||||||||||
Changes in respect of foreign exchange differences | | | | | (9 | ) | (9 | ) | ||||||||||||||||
Balance of deferred tax asset (liability) as of December 31, 2009 | € | 235 | € | 85 | € | 331 | € | 799 | € | (605 | ) | € | 845 |
Total accumulated losses available for carry forward at December 31, 2009 amounted to Euro 7.1 million. These tax losses do not expire under current tax legislation. The Group has not recognized Euro 1.2 million of the potential future tax benefits due to uncertainties regarding the realization of the benefits arising from projected future income. The Group has recorded deferred tax assets of Euro 0.3 million at the end of 2009.
F-46
A Tax Authority issued a tax assessment, for the 2003 2005 tax years, to one of the Group subsidiaries according to which demanded a payment of €5.6 million, excluding interest, in excess of the recorded tax provisions for such years. The Company rejects the demand made by the Tax Authority and filed an appeal regarding the assessment.
Tax authorities may have different interpretations than the companys in various tax issues. In the opinion of the Groups management, appropriate provisions have been included in the financial statements to cover estimated tax obligations.
The Group leases its manufacturing and distribution facilities, sales offices and vehicles under long-term non-cancelable leases, certain of which provide for renewal options.
Leasing expenses for the year 2009 were Euro 2.2 million (2008: Euro 2.1 million and 2007: Euro 1.8 million).
Future minimum lease payments for all existing long-term, non-cancelable operating leases as of December 31, 2009 are as follows:
(in thousands) | 2009 | |||
2010 | € | 2,137 | ||
2011 | 1,777 | |||
2012 | 1,456 | |||
2013 | 733 | |||
2014 | 476 | |||
2015 and thereafter | 432 | |||
Total | € | 7,011 |
The financial assets carrying amount represents the maximum credit exposure. The Groups maximal credit risk exposure, as of the reporting date, was as following:
December 31 | ||||||||
(in thousands) | 2008 | 2009 | ||||||
Cash and cash equivalents | € | 4,349 | € | 4,185 | ||||
Derivative financial instruments | 410 | 486 | ||||||
Trade receivables | 14,684 | 16,201 | ||||||
Assets classified as available-for-sale | 500 | 500 | ||||||
Loans to a related party | 148 | 147 | ||||||
Total | € | 20,091 | € | 21,519 |
F-47
The Groups trade account receivables are mainly composed of different retailers or retailer groups in various countries. The Groups management considers that the carrying amount of the trade receivables approximates their fair value and that there is no significant concentration of credit risk.
The average age of trade receivables balance, at the reporting date:
December 31 | ||||||||
(in thousands) | 2008 | 2009 | ||||||
Not past due | € | 12,125 | € | 13,663 | ||||
Past due 0 30 days | 1,218 | 2,063 | ||||||
Past due 31 91 days | 1,130 | 464 | ||||||
More than 91 days | 809 | 339 | ||||||
15,282 | 16,529 | |||||||
Allowance for doubtful accounts | (598 | ) | (328 | ) | ||||
Total | € | 14,684 | € | 16,201 |
Allowance for doubtful accounts activity:
December 31 | ||||||||
(in thousands) | 2008 | 2009 | ||||||
Balance as of January 1, | € | 468 | € | 598 | ||||
Period activity recorded as expense in selling expenses | 226 | 325 | ||||||
Write-offs charged against the allowance | (96 | ) | (595 | ) | ||||
Balance as of December 31, | € | 598 | € | 328 |
The maximum exposure to credit risk for trade account receivables at the reporting date by geographic region and currency is as follows:
As of December 31 | ||||||||||||
(in thousands) | Currency | 2008 | 2009 | |||||||||
Euro-zone countries | EURO | € | 8,316 | € | 7,381 | |||||||
Israel | NIS | 2,598 | 2,660 | |||||||||
Australia | AUD | 1,008 | 2,095 | |||||||||
South Africa | ZAR | 931 | 1,136 | |||||||||
United States | USD | 304 | 1,032 | |||||||||
Switzerland | CHF | 971 | 965 | |||||||||
United Kingdom | GBP | 345 | 670 | |||||||||
New Zealand | NZD | 186 | 175 | |||||||||
Others | USD | 25 | 87 | |||||||||
Total | € | 14,684 | € | 16,201 |
F-48
The Groups most significant customers balances are comprised as follows:
Payment terms in days | As of December 31 | |||||||||||
(in thousands) | 2008 | 2009 | ||||||||||
Customer A | 45 | € | 3,998 | € | 3,063 | |||||||
Customer B | 60 | 1,367 | 816 | |||||||||
Customer C | 42 | 1,236 | 692 | |||||||||
Total | € | 6,601 | € | 4,571 |
The maximum exposure to credit risk for trade account receivables at the reporting date by type of counterparty was:
Carrying amount | ||||||||
(in thousands) | 2008 | 2009 | ||||||
Wholesale customers | € | 9,851 | € | 11,235 | ||||
Distributors | 4,529 | 3,934 | ||||||
End-user customers | 304 | 1,032 | ||||||
Total | € | 14,684 | € | 16,201 |
The following tables present the Groups financial liabilities contractual payment schedule, including interest payments estimation. This disclosure is based, wherever relevant, on interest rates and exchange rates as of reporting date:
December 31, 2008 | ||||||||||||||||||||||||
(in thousands) |
Carrying
amount |
Expected
cash flow |
Within
1 6 Months |
Within
7 12 Months |
Within
1 3 Years |
Within
3 5 Years |
||||||||||||||||||
Financial liabilities
|
||||||||||||||||||||||||
Trade payables | € | 14,154 | € | 14,154 | € | 14,154 | | | | |||||||||||||||
Other current liabilities | 3,533 | 3,533 | 3,533 | | | | ||||||||||||||||||
Loans and borrowings | 18,329 | 19,182 | 10,742 | 5,050 | 2,810 | 580 | ||||||||||||||||||
Shareholders loans | 11,564 | 14,894 | 513 | | 8,727 | 5,654 | ||||||||||||||||||
Financial Liabilities Derivatives
|
||||||||||||||||||||||||
Forward and Swap
contracts that are not used for hedging |
€ | 346 | € | 346 | € | 305 | € | 41 | | |
F-49
December 31, 2009 | ||||||||||||||||||||||||
(in thousands) |
Carrying
amount |
Expected
cash flow |
Within
1 6 Months |
Within
7 12 Months |
Within
1 3 Years |
Within
3 5 Years |
||||||||||||||||||
Financial liabilities (excluding derivatives)
|
||||||||||||||||||||||||
Trade payables | € | 17,625 | € | 17,625 | € | 17,625 | | | | |||||||||||||||
Other current liabilities | 4,733 | 4,733 | 4,733 | | | | ||||||||||||||||||
Loans and borrowings | 12,754 | 13,456 | 6,443 | 1,606 | 4,119 | 1,288 | ||||||||||||||||||
Shareholders loans | 11,793 | 14,381 | 594 | 6,561 | 7,226 | | ||||||||||||||||||
Financial liabilities Derivatives
|
||||||||||||||||||||||||
Forward and Swap contracts that are not used for hedging | € | 364 | € | 364 | € | 67 | € | 283 | € | 14 | |
1. Linkage and foreign currency risks
i. Exposure to linkage and foreign currency risk
The Groups exposure to linkage and foreign currency risk was as follows:
December 31, 2008 | ||||||||||||||||||||||||
(in thousands) | Euro | Dollar | NIS | CHF | Other | Total | ||||||||||||||||||
Current assets
|
||||||||||||||||||||||||
Trade receivables | € | 8,159 | € | 338 | € | 2,765 | € | 971 | € | 2,451 | € | 14,684 | ||||||||||||
Cash and cash equivalents | 2,692 | 607 | 338 | 285 | 427 | 4,349 | ||||||||||||||||||
Assets classified as available-for-sale | | | 500 | | | 500 | ||||||||||||||||||
Loans to a related party | | 148 | | | | 148 | ||||||||||||||||||
Derivative financial instruments | 410 | | | | | 410 | ||||||||||||||||||
Total assets | 11,261 | 1,093 | 3,603 | 1,256 | 2,878 | 20,091 | ||||||||||||||||||
Current liabilities
|
||||||||||||||||||||||||
Loans and borrowings | (10,177 | ) | (3,332 | ) | (997 | ) | (578 | ) | | (15,084 | ) | |||||||||||||
Shareholder loans | | (307 | ) | | | | (307 | ) | ||||||||||||||||
Trade payables | (4,163 | ) | (1,015 | ) | (7,782 | ) | (472 | ) | (722 | ) | (14,154 | ) | ||||||||||||
Other current liabilities | (1,361 | ) | (168 | ) | (714 | ) | (672 | ) | (618 | ) | (3,533 | ) | ||||||||||||
Derivative financial instruments | (346 | ) | | | | | (346 | ) | ||||||||||||||||
Non-current liabilities
|
||||||||||||||||||||||||
Loans and borrowings | (3,044 | ) | (201 | ) | | | | (3,245 | ) | |||||||||||||||
Shareholders loans | (9,944 | ) | (1,313 | ) | | | | (11,257 | ) | |||||||||||||||
Total liabilities | (29,035 | ) | (6,336 | ) | (9,493 | ) | (1,722 | ) | (1,340 | ) | (47,926 | ) | ||||||||||||
Total assets (liabilities), net | € | (17,774 | ) | € | (5,243 | ) | € | (5,890 | ) | € | (466 | ) | € | 1,538 | € | (27,835 | ) |
F-50
December 31, 2009 | ||||||||||||||||||||||||
(in thousands) | Euro | Dollar | NIS | CHF | Other | Total | ||||||||||||||||||
Current assets
|
||||||||||||||||||||||||
Trade receivables | € | 7,298 | € | 1,119 | € | 2,743 | € | 965 | € | 4,076 | € | 16,201 | ||||||||||||
Cash and cash equivalents | 2,413 | 653 | 17 | 559 | 543 | 4,185 | ||||||||||||||||||
Assets classified as available-for-sale | | | 500 | | | 500 | ||||||||||||||||||
Loan to a related party | | 147 | | | | 147 | ||||||||||||||||||
Derivatives financial instruments | 486 | | | | | 486 | ||||||||||||||||||
Total assets | 10,197 | 1,919 | 3,260 | 1,524 | 4,619 | 21,519 | ||||||||||||||||||
Current liabilities
|
||||||||||||||||||||||||
Loans and borrowings | (6,261 | ) | (130 | ) | (690 | ) | (564 | ) | | (7,645 | ) | |||||||||||||
Shareholders loans | (5,906 | ) | (474 | ) | | | | (6,380 | ) | |||||||||||||||
Trade payables | (3,867 | ) | (1,811 | ) | (10,819 | ) | (435 | ) | (693 | ) | (17,625 | ) | ||||||||||||
Other current liabilities | (2,921 | ) | (584 | ) | (223 | ) | (411 | ) | (594 | ) | (4,733 | ) | ||||||||||||
Derivative financial instruments | (364 | ) | | | | | (364 | ) | ||||||||||||||||
Non-current liabilities
|
||||||||||||||||||||||||
Loans and borrowings | (4,964 | ) | | (145 | ) | | | (5,109 | ) | |||||||||||||||
Shareholders loans | (4,465 | ) | (948 | ) | | | | (5,413 | ) | |||||||||||||||
Total liabilities | (28,748 | ) | (3,947 | ) | (11,877 | ) | (1,410 | ) | (1,287 | ) | (47,269 | ) | ||||||||||||
Total assets (liabilities), net | € | (18,551 | ) | € | (2,028 | ) | € | (8,617 | ) | € | 114 | € | 3,332 | € | (25,750 | ) |
During 2009, the Group held a limited number of derivative contracts, to offset specific risks resulting from a difference in the currency in which Group entities generate their revenues and the currency in which most of the raw-material purchases are made (mainly USD).
As of December 31, 2009, the Group notional investment in currency options is approximately Euro 17 million with fair value of Euro 104 thousand. As of December 31, 2008, the Group notional investment in currency options is approximately Euro 15 million with fair value of Euro 112 thousand.
Information regarding significant exchange and spot rates applied during the year:
Year ended December 31 | Year ended December 31 | |||||||||||||||
2008 | 2009 | 2008 | 2009 | |||||||||||||
Annual change | Reporting date spot rate | |||||||||||||||
1 NIS | 6.78 | % | (5.26 | )% | € | 0.19 | € | 0.18 | ||||||||
1 USD | 5.59 | (4.17 | ) | 0.72 | 0.69 | |||||||||||
1 CHF | 11.03 | | 0.67 | 0.67 | ||||||||||||
1 AUD | (17.42 | ) | 26.53 | € | 0.49 | € | 0.62 |
F-51
Strengthening or weakening of the Euro against the following currencies as of December 31, 2009 would have increased (decreased) equity and the net income (loss) by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant. The analysis is performed on the same basis for 2008:
December 31
2008 |
December 31
2008 |
December 31
2009 |
December 31
2009 |
|||||||||||||
(in thousands) | Equity | Net income | Equity | Net income | ||||||||||||
Devaluation of 10% in:
|
||||||||||||||||
USD | € | 381 | € | 381 | € | 53 | € | 53 | ||||||||
NIS | 563 | 563 | 727 | 727 | ||||||||||||
CHF | € | 288 | € | 288 | € | 85 | € | 85 |
December 31
2008 |
December 31
2008 |
December 31
2009 |
December 31
2009 |
|||||||||||||
(in thousands) | Equity | Net income | Equity | Net income | ||||||||||||
Revaluation of 10% in:
|
||||||||||||||||
USD | € | (129 | ) | € | (129 | ) | € | 359 | € | 359 | ||||||
NIS | (470 | ) | (470 | ) | (662 | ) | (662 | ) | ||||||||
CHF | € | (89 | ) | € | (89 | ) | € | 8 | € | 8 |
Interest rate risk profile
As of the reporting date, the interest rate profile of the Groups interest-bearing financial instruments was:
December 31 | ||||||||
2008 | 2009 | |||||||
(in thousands) | Carrying amount | |||||||
Fixed rate instruments
|
||||||||
Financial liabilities | € | 4,461 | € | 4,444 | ||||
Variable rate instruments
|
||||||||
Financial liabilities (linked to Libor) | € | 25,432 | € | 20,103 |
The carrying amounts of certain financial assets and liabilities, including cash and cash equivalents, trade receivables, assets classified as available-for-sale, derivatives, loans and borrowings, trade payables and other current liabilities are the same or proximate to their fair value.
F-52
As of the reporting date the fair value of shareholders loans and their carrying amount presented in the balance sheet were:
December 31, 2009 | ||||||||||||||||
2008 | 2009 | |||||||||||||||
Carrying
amount |
Fair
value |
Carrying
amount |
Fair
value |
|||||||||||||
Shareholders loans | 11,564 | 11,543 | 11,793 | 11,851 |
Interest used to determine fair value
2008 | 2009 | |||||||
Loans and borrowings | 5.9% | 4.6% | ||||||
Derivatives:
|
||||||||
Euro | 1.97% 3.45% | 0.09% 1.09% | ||||||
U.S. Dollar | 0.23% 2.10% | 0.16% 0.95% | ||||||
NIS | 0% 2.99% | 0.45% 1.18% | ||||||
CHF | 0% 1.44% | 0.08% 0.53% |
Fair value hierarchy
The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:
Level 1: quoted prices (unadjusted) in active markets for identical instruments.
Level 2: inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly.
Level 3: inputs that are not based on observable market data (unobservable inputs).
December 31, 2009 | ||||||||||||||||
(in thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Financial assets at fair value through profit or loss
|
||||||||||||||||
Assets classified as available-for-sale | | | € | 500 | € | 500 | ||||||||||
Derivatives | 30 | 456 | | 486 | ||||||||||||
Total assets | € | 30 | € | 456 | € | 500 | € | 986 | ||||||||
Financial liabilities at fair value through profit or loss
|
||||||||||||||||
Derivatives | | € | (364 | ) | | € | (364 | ) | ||||||||
Total liabilities | | € | (364 | ) | | € | (364 | ) |
F-53
December 31, 2008 | ||||||||||||||||
(in thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Financial assets at fair value through profit or loss
|
||||||||||||||||
Assets classified as available-for-sale | | | € | 500 | € | 500 | ||||||||||
Derivatives | | 410 | | 410 | ||||||||||||
Total assets | | € | 410 | € | 500 | € | 910 | |||||||||
Financial liabilities at fair value through profit or loss
|
||||||||||||||||
Derivatives | | € | (346 | ) | | € | (346 | ) | ||||||||
Total liabilities | | € | (346 | ) | | € | (346 | ) |
The Group holds a financial asset classified as available-for-sale of Euro 500,000 as of December 31, 2009 and December 31, 2008.
The Group, from time to time, is a party to various legal proceedings (both as claimant and defendant) in the ordinary course of its business. In the opinion of management of the Company, which is based, inter alia, on the opinion of its legal counsel, appropriate provisions have been included in the financial statements (see Note 17), where warranted, to cover the exposure resulting from such claims.
Legal claims and proceedings (excluding claim with no specified amounts) amounted to Euro 3.2 million as of December 31, 2009. This amount consists of labor proceedings amounted to Euro 1.3 million, proceeding relating to personal injury claims of Euro 1.8 million (excluding claim with no specified amounts), and other general proceedings of Euro 0.1 million. The provisions included in the financial statement for such legal claims and proceedings totaled Euro 0.9 million as of December 31, 2009. The sum of the additional exposure of claims which possibility of any outflow in settlement is not remote amounted to Euro 2.3 million as of December 31, 2009.
The company is also a party to various personal injury claims, as a direct party or a third party, in which the amounts of the claims were not specific. These cases are handled by the companys insurance. In the opinion of the management of the company, it is not possible at this stage to estimate the chances of these claims and therefore no provision has been recorded in respect thereof.
On December 2009, the Swedish Competition Authority asked a subsidiary and distributor to respond to allegations regarding an abuse of dominant position. SodaStream filed its response on January 2010. The case is at an early stage and it is currently not possible to predict the outcome.
In October 2005, the Companys Swiss subsidiary (the Swiss company) received a request for payment from the Swiss Customs authorities specifies an amount of approximately Euro 910,000 arguing that preferential duty rates could not be applied on some goods imported into Switzerland from contentious areas in Israel between 2000 and 2004. The Swiss company appealed against this decision and furthermore contested the period over which the reassessment was calculated. In February 2009, the Company paid
F-54
Euro 0.9 million to the Swiss authorities in settlement of this matter and received reimbursements of a substantial part from the Israeli authorities. A provision for the expected amount to exceed the reimbursement from Israeli authorities was set aside in the relevant period covering also associated legal expenses.
The numbers of shares in the income (loss) per share calculation have been adjusted in a 1:6.45 ratio to retroactively reflect the reverse stock split (See Note 12.A.(4)).
As of December 31 | ||||||||||||
(in thousands) | 2007 | 2008 | 2009 | |||||||||
Net income (loss) | € | (1,590 | ) | € | 530 | € | 7,132 | |||||
Effect of assumed conversion, net of tax | | 164 | 439 | |||||||||
Net income (loss) including effect of assumed conversion | (1,590 | ) | 694 | 7,571 | ||||||||
Weighted average shares outstanding basic | 5,467 | 5,850 | 6,259 | |||||||||
Effect of dilutive convertible debt | | 3,780 | 6,281 | |||||||||
Effect of share-based payments | | | 666 | |||||||||
Weighted average shares outstanding diluted | 5,467 | 9,630 | 13,206 | |||||||||
Net income (loss) per share (In €)
|
||||||||||||
Basic | (0.29 | ) | 0.09 | 1.14 | ||||||||
Diluted | € | (0.29 | ) | € | 0.07 | € | 0.57 |
For additional information on the convertible debt see Note 14.
The value of the Companys shares for purposes of calculating the dilutive effect of share options was based on the Companys share valuation performed for the period during which the options were outstanding.
On December 25, 2007, the Group established an employee stock option plan that entitles key management personnel and senior employees to purchase shares in the Company. The option plan is intended to provide incentive to retain employees, and to attract new employees, which the board of directors shall decide their services are considered valuable to the Group. The administration of the option plan is under the responsibility of a committee appointed by the Board of directors.
See Note 31D regarding subsequent events.
The numbers of stock options have been adjusted in a 1:6.45 ratio and the exercise prices have been adjusted accordingly to retroactively reflect the reverse stock split (See Note 12.A.(4)). The changes in the plan as a result of the split are as follows:
As of December 31, 2009, the number of stock options outstanding was reduced from 6,823,891 to 1,057,968 (as of December 31, 2008, the number of stock options outstanding was reduced from 6,498,144 to 1,007,464 and as of December 31, 2007, the number of stock options outstanding was reduced from 4,258,363 to 660,211).
F-55
As of December 31, 2009, the number of exercisable stock options was reduced from 3,522,395 to 546,108 (as of December 31, 2008, the number of exercisable stock options was reduced from 2,216,197 to 343,596 and as of December 31, 2007, the number of exercisable stock options was reduced from 118,273 to 18,337).
The exercise prices of the options were changed from €0.25 to €1.61 and from €0.75 to €4.84.
For the year ended December 31, 2009, the average fair value at grant date was changed from €0.39 to €2.52 (for the year ended December 31, 2008 changed from €0.06 to €0.39 and for the year ended December 31, 2007 changed from €0.04 to €0.26).
The total number of ordinary shares that the company reserved for the purpose of the stock option plan was reduced from 8,000,000 to 1,240,310.
The company has reserved a total of 1,240,310 ordinary shares for the purpose of the stock option plan. The contractual life of the options shall be ten years from the respective date of grant. Unless otherwise determined, one quarter of the options included in each grant vest, based on employment periods, one year after the grant date, and the rest vest over the sequential three years, quarterly, in twelve equal portions. The options were granted for no consideration. The options are exercisable only during the period the option holder is employed or providing service the Group. Each option entitles the option holder to purchase one ordinary share of the company at the exercise price, which is €1.61 for each option granted until January 15, 2009. The exercise price of each option granted after January 15, 2009 is €4.84.
The grants are pursuant to section 102(b) of the Israeli income tax ordinance (capital gain option).
Option holders rights to purchase shares will be adjusted upon certain events described in the plan, subject to the approval of the applicable tax authority.
The terms and conditions of the grants are as follows; all options are to be settled by physical delivery of shares:
Options grant period |
Number
of options |
Vesting conditions | ||||||||||||||
(1) | (2) | (3) | ||||||||||||||
Quarter 4, 2007 | 660,211 | 641,874 | 18,337 | | ||||||||||||
Quarter 1, 2008 | 92,470 | | 92,470 | | ||||||||||||
Quarter 2, 2008 | 90,332 | 54,264 | 36,068 | | ||||||||||||
Quarter 3, 2008 | 147,816 | 95,180 | 52,636 | | ||||||||||||
Quarter 4, 2008 | 82,171 | 38,228 | | 43,943 | ||||||||||||
Quarter 1, 2009 (Granted on January 15) | 8,616 | | 8,616 | | ||||||||||||
Quarter 2, 2009 | | | | | ||||||||||||
Quarter 3, 2009 | 34,109 | 34,109 | | | ||||||||||||
Quarter 4, 2009 | 29,457 | 29,457 | | | ||||||||||||
Total share options granted | 1,145,182 |
Contractual life of all options granted is 10 years.
F-56
Vesting conditions:
(1) 25% 1 year after grant date. Additional 6.25% on the end of each quarter beginning one year after the grant date.
(2) Fully vested at grant date.
(3) 25% 9 months after grant date. Additional 6.25% on the end of each quarter beginning nine month after the grant date.
Number of options | Weighted average exercise price (€) | |||||||||||||||||||||||
2007 | 2008 | 2009 | 2007 | 2008 | 2009 | |||||||||||||||||||
Outstanding at January 1 | | 660,211 | 1,007,464 | | 1.61 | 1.61 | ||||||||||||||||||
Forfeited during the period | | (65,536 | ) | (21,678 | ) | | 1.61 | 1.61 | ||||||||||||||||
Granted during the period | 660,211 | 412,789 | 72,182 | 1.61 | 1.61 | 4.45 | ||||||||||||||||||
Outstanding at December 31 | 660,211 | 1,007,464 | 1,057,968 | 1.61 | 1.61 | 1.81 | ||||||||||||||||||
Exercisable at December 31 | 18,337 | 343,596 | 546,108 | 1.61 | 1.61 | 1.61 | ||||||||||||||||||
Weighted average remaining contractual life (years) | 9.98 | 9.22 | 8.25 | |||||||||||||||||||||
Weighted average contractual life (years) | 10.00 | 10.00 | 10.00 |
The options outstanding at December 31, 2009 have an exercise price of € 1.61 or € 4.84.
The grant date fair value of the options granted through the employee stock purchase plan was estimated using the Black-Scholes formula.
The common share valuation is based on the Black-Scholes option pricing method.
Expected volatility is estimated based on comparable firms and industry indicators. The expected life until exercise date of the option is determined based on averaging the vesting schedule of the options and the contractual term, since the company was formed in 2007 and thus does not have a history of option exercises. The risk-free interest was determined on the basis of AAA rated Euro area central government bonds with a remaining life equal to the expected life of the options.
F-57
The inputs used in the measurement of the fair values at grant date of the share-based payment plans are as follows:
Share option plans | ||||||||||||
2007 | 2008 | 2009 | ||||||||||
Average fair value at grant date | € | 0.26 | € | 0.39 | € | 2.52 | ||||||
The parameters used to calculate fair value:
|
||||||||||||
Share price | € | 0.65 | € | 1.10 | € | 5.74 | ||||||
Exercise price | € | 1.61 | € | 1.61 | € | 1.61 or € 4.84 | ||||||
Expected volatility (weighted average) | 48% 61% | 48% 88% | 61% 76% | |||||||||
Option life (expected weighted average life) (years) | 9.98 | 9.22 | 8.25 | |||||||||
Expected dividends* | 0% | 0% | 0% | |||||||||
Risk-free interest rate | 4.04% 4.38% | 1.85% 5.09% | 0.74% 3.74% |
* Management assessment
The annual pre-vesting forfeiture rate is 5% for management and 15% for other employees based on the management assessment.
Year ended December 31 | ||||||||||||
Euro thousands | 2007 | 2008 | 2009 | |||||||||
Salary expenses arising from share-based payment grants settled by the Groups equity instruments | € | 11 | € | 245 | € | 163 |
See Note 29 on related parties regarding options that were granted to related parties.
The ultimate controlling party of the Group is Fortissimo Capital Fund. See Note 30 on Group entities regarding subsidiaries.
In addition to their salaries, the Group also provides non-cash benefits to executive officers (such as a car), and contributes to a post-employment defined benefit plan on their behalf. See Note 15 regarding post employment compensation.
Executive officers also participate in the Companys share option program (see Note 28 regarding share-based payments).
F-58
Compensation to key management personnel that are employed by the Company:
Additional
details |
Year ended December 31 | December 31 | ||||||||||||||||||||||
2007 | 2008 | 2009 | 2008 | 2009 | ||||||||||||||||||||
(in thousands) | Value of transactions | Outstanding balance | ||||||||||||||||||||||
Related party
|
||||||||||||||||||||||||
Parent company | (1 | ) | € | 250 | € | 541 | € | 461 | € | 256 | € | 262 | ||||||||||||
Parties having significant influence over the Company | (2 | ) | € | 20 | € | 20 | € | 20 | € | | € | |
(1) Management fees to controlling party
The controlling party entitled to receive management fees from the Company at an annual amount equal to the greater than Euro 250,000 or 4% of EBITDA.
On September 27, 2010, the Board of Directors approved, subject to the closing of the Companys initial public offering on the Nasdaq Global Market, the termination of the management agreement signed in 2007 with the controlling party. The controlling party will be entitled to a one-time payment of €1.75 million from the proceeds of the public offering, if it is completed, for terminating the management agreement.
(2) Directors fees to a party having significant influence over the company
The party having significant influence over the Company entitled to receive annual directors fees of Euro 20,000.
F-59
Additional
details |
Year ended December 31 | December 31 | ||||||||||||||||||||||
2007 | 2008 | 2009 | 2008 | 2009 | ||||||||||||||||||||
(in thousands) | Finance expenses | Outstanding balance | ||||||||||||||||||||||
Related Party
|
||||||||||||||||||||||||
Parent company | (1 | ) | € | 51 | € | 297 | € | 209 | € | 5,409 | € | 5,510 | ||||||||||||
Parties having significant influence over the Company | (2 | ) | € | 5 | € | 262 | € | 167 | € | 2,871 | € | 2,732 |
Convertible loan into preferred shares granted by the controlling party amounted to Euro 2.75 million in September 2007 bearing an annual interest rate of Libor+2.5%. The loan is to be settled in one payment after a period of five years. Interest is payable on maturity only if the loan is not converted to equity prior to maturity. The loan is subordinated to bank loans. See Note 14(1).
A bank loan, bearing an annual interest rate of Libor+3%, guaranteed by a shareholder that amounted to Euro 2.4 million was granted in June 2008. The loan is convertible into preferred shares. The loan is to be settled in one payment on December 2010. The loan is subordinated to bank loans. See Note 14(4).
Loan amounted to Euro 1.1 million granted in March 2007. The loan does not bear any interest. The loan is to be paid in 12 quarterly payments beginning in March 2010. If the Company declares a dividend, 10% of the total amount of the dividend will be allocated to repay the loan. In the event of a QIPO, the Board of Directors may resolve to effect the payment at a prior date. See Note 14(2).
Loan amounted to Euro 0.3 million in March 2007 bearing an annual interest rate of 6%. The loan was paid in March 2009. See Note 14(3).
Convertible loan into preferred shares amounted to Euro 1.4 million granted in June 2008 bearing an annual interest rate of 8.5% in advance. The loan is to be settled in one payment in December 2010. The loan is subordinated to bank loans. See Note 14(4).
December 31 | ||||||||
(in thousands) | 2008 | 2009 | ||||||
Loans to key management personnel | € | 148 | € | 147 |
During 2007, the Company granted a loan in the amount of U.S. Dollar 200,000 to a key management member. The loan bears interest of Libor+0.05% and is to be repaid by deduction from future bonuses or the sale of shares or options by the key management member.
On October 2010, the loan was fully repaid.
F-60
A listing of each of SodaStream International Ltds subsidiaries as of December 31, 2009 is as follows:
Name of subsidiary | Incorporated in |
Ownership
interest |
||
Soda-Club Enterprises N.V. | Netherlands Antilles | 100% | ||
Soda-Club International B.V. | The Netherlands | 100% | ||
Soda-Club Worldwide B.V. | The Netherlands | 100% | ||
Soda-Club GmbH. | Germany | 100% | ||
SodaStream Industries Ltd. | Israel | 100% | ||
Sodapop Ltd. | Israel | 100% | ||
Soda-Club Distribution SA | Switzerland | 100% | ||
Soda-Club Österreich GmbH | Austria | 100% | ||
Soda-Club Australia PTY Ltd. | Australia | 100% | ||
SodaStream (New Zealand) Ltd. | New Zealand | 100% | ||
Soda-Club (SA) (Pty) Ltd. | South Africa | 100% | ||
Soda-Club USA, Inc. | United States | 100% | ||
Soda-Club CO2 Ltd. | British Virgin Islands | 100% | ||
Soda-Club (Europe) Limited | United Kingdom | 100% | ||
Soda-Club Switzerland GmbH | Switzerland | 100% | ||
Soda-Club (CO2) SA/AG/Ltd. | Switzerland | 100% | ||
SodaStream (CO2) SA/AG/Ltd. | Switzerland | 100% | ||
Soda-Club (CO2) Atlantic GmbH | Switzerland | 100% | ||
Soda-Club Z.O.O Oddziel w polsce Branch | Poland | 100% | ||
Soda-Club Worldwide Trading Company Branch | United Kingdom | 100% | ||
Soda-Club Worldwide BV (Sweden) Branch | Sweden | 100% | ||
Soda-Club Worldwide BV (France) Branch | France | 100% | ||
Soda-Club Worldwide BV (Greece) Branch | Greece | 100% |
F-61
A. On October 14, 2010, the Companys board of directors approved managements plans to file a registration statement with the Securities Exchange Commission for its initial public offering in the United States on the Nasdaq Global Market. There is no assurance that the planned initial public offering will be completed.
B. On September 27, 2010, the Board of Directors approved, and as of October 6, 2010, the shareholders ratified, a 1-for-6.45 reverse split of the Companys ordinary shares (See Note 12.A.(4)).
C. On September 27, 2010, the Board of Directors approved, subject to the closing of the Companys initial public offering on the Nasdaq Global Market, the termination of the management agreement signed in 2007 with the controlling party (see Note 29C(1)).
D. On October 14, 2010, the Board of Directors approved, subject to the closing of the companys initial public offering on the Nasdaq Global Market, the 2010 share option plan. According to the plan, the company will have a total of 1,050,000 shares reserved for issuance under the share option plans, including the remainder of the reserved but ungranted shares from the 2007 share option plan.
E. On October 14, 2010, the Board of Directors approved, subject to shareholders ratification, an increase in authorized capital stock to 54,000,000 shares, par value NIS 0.645, which will take effect upon completion of the initial public offering.
F-62
(in thousands) |
December 31,
2009 |
June 30,
2010 |
Convenience
translation into U.S. Dollar (Note 2B) June 30, 2010 |
|||||||||
(unaudited) | ||||||||||||
Assets
|
||||||||||||
Cash and cash equivalents | € | 4,185 | € | 4,111 | $ | 5,591 | ||||||
Inventories | 20,326 | 27,049 | 36,789 | |||||||||
Trade and other receivables | 19,273 | 29,805 | 40,538 | |||||||||
Derivative financial instruments | 486 | 1,345 | 1,829 | |||||||||
Assets classified as available-for-sale | 500 | 572 | 778 | |||||||||
Total current assets | 44,770 | 62,882 | 85,525 | |||||||||
Property, plant and equipment | 18,760 | 22,155 | 30,133 | |||||||||
Intangible assets | 12,538 | 12,755 | 17,348 | |||||||||
Deferred tax assets | 1,450 | 1,688 | 2,296 | |||||||||
Other receivables | 177 | 174 | 237 | |||||||||
Total non-current assets | 32,925 | 36,772 | 50,014 | |||||||||
Total assets | 77,695 | 99,654 | 135,539 | |||||||||
Liabilities
|
||||||||||||
Loans and borrowings | 7,645 | 13,959 | 18,986 | |||||||||
Shareholders loans | 6,380 | 6,557 | 8,918 | |||||||||
Derivative financial instruments | 364 | 1,005 | 1,367 | |||||||||
Trade payables | 17,625 | 24,289 | 33,035 | |||||||||
Income tax payable | 7,615 | 6,365 | 8,657 | |||||||||
Provisions | 1,219 | 1,150 | 1,564 | |||||||||
Other current liabilities | 8,676 | 12,336 | 16,778 | |||||||||
Total current liabilities | 49,524 | 65,661 | 89,305 | |||||||||
Loans and borrowings | 5,109 | 6,972 | 9,483 | |||||||||
Shareholders loans | 5,413 | 5,390 | 7,331 | |||||||||
Employee benefits | 82 | 290 | 395 | |||||||||
Provisions | 306 | 323 | 439 | |||||||||
Deferred tax liabilities | 605 | 673 | 915 | |||||||||
Total non-current liabilities | 11,515 | 13,648 | 18,563 | |||||||||
Total liabilities | 61,039 | 79,309 | 107,868 | |||||||||
Shareholders equity
|
||||||||||||
Share capital | 722 | 723 | 983 | |||||||||
Share premium | 11,552 | 11,733 | 15,958 | |||||||||
Translation reserve | (69 | ) | (734 | ) | (998 | ) | ||||||
Retained earnings | 4,451 | 8,623 | 11,728 | |||||||||
Total shareholders equity | 16,656 | 20,345 | 27,671 | |||||||||
Total liabilities and shareholders equity | € | 77,695 | € | 99,654 | $ | 135,539 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
F-63
For the six months ended June 30,
|
||||||||||||
(in thousands) (per share amounts in units) | 2009 | 2010 |
Convenience
translation into U.S. Dollar (Note 2B) 2010 |
|||||||||
(unaudited) | ||||||||||||
Revenues | € | 45,809 | € | 68,676 | $ | 93,406 | ||||||
Cost of revenues | 20,458 | 32,886 | 44,728 | |||||||||
Gross profit | 25,351 | 35,790 | 48,678 | |||||||||
Operating expenses
|
||||||||||||
Sales and marketing | 16,497 | 23,943 | 32,565 | |||||||||
General and administrative | 6,733 | 7,804 | 10,614 | |||||||||
Other income, net | (58 | ) | (61 | ) | (83 | ) | ||||||
Total operating expenses | 23,172 | 31,686 | 43,096 | |||||||||
Operating income | 2,179 | 4,104 | 5,582 | |||||||||
Interest expense, net | 1,220 | 804 | 1,094 | |||||||||
Other financial income, net | (327 | ) | (1,474 | ) | (2,005 | ) | ||||||
Total financial expenses (income), net | 893 | (670 | ) | (911 | ) | |||||||
Income before income taxes | 1,286 | 4,774 | 6,493 | |||||||||
Income taxes | 814 | 602 | 819 | |||||||||
Net income for the period | € | 472 | € | 4,172 | $ | 5,674 | ||||||
Net income per share
|
||||||||||||
Basic | € | 0.08 | € | 0.67 | $ | 0.91 | ||||||
Diluted | € | 0.05 | € | 0.33 | $ | 0.45 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
F-64
For the six months ended June 30, | ||||||||||||
(in thousands) | 2009 | 2010 |
Convenience
translation into U.S. Dollar (Note 2B) 2010 |
|||||||||
(unaudited) | ||||||||||||
Comprehensive income
|
||||||||||||
Net income | € | 472 | € | 4,172 | $ | 5,674 | ||||||
Foreign currency translation differences for foreign operations | 7 | (665 | ) | (904 | ) | |||||||
Total comprehensive income | € | 479 | € | 3,507 | $ | 4,770 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
F-65
Attributable to equity holders of the Company | ||||||||||||||||||||
(in thousands) |
Share
capital |
Share
premium |
Translation
reserve |
Retained
earnings (accumulated deficit) |
Total | |||||||||||||||
(unaudited) | ||||||||||||||||||||
Balance as of January 1, 2009 | € | 610 | € | 11,501 | € | (120 | ) | € | (2,681 | ) | € | 9,310 | ||||||||
Total comprehensive income | | | 7 | 472 | 479 | |||||||||||||||
Share-based payment | | 64 | | | 64 | |||||||||||||||
Balance as of June 30, 2009 | 610 | 11,565 | (113 | ) | (2,209 | ) | 9,853 | |||||||||||||
Balance as of January 1, 2010 | 722 | 11,552 | (69 | ) | 4,451 | 16,656 | ||||||||||||||
Total comprehensive income | | | (665 | ) | 4,172 | 3,507 | ||||||||||||||
Share-based payment | | 167 | | | 167 | |||||||||||||||
Share issuance | 1 | 14 | | | 15 | |||||||||||||||
Balance as of June 30, 2010 | € | 723 | € | 11,733 | € | (734 | ) | € | 8,623 | € | 20,345 | |||||||||
Convenience translation into U.S. Dollar (Note 2B) as of June 30, 2010 | $ | 983 | $ | 15,958 | $ | (998 | ) | $ | 11,728 | $ | 27,671 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
F-66
For the six months ended June 30, | ||||||||||||
(in thousands) | 2009 | 2010 |
Convenience
translation into U.S. Dollar (Note 2B) 2010 |
|||||||||
(unaudited) | ||||||||||||
Cash flows from operating activities
|
||||||||||||
Net income for the period | € | 472 | € | 4,172 | $ | 5,674 | ||||||
Adjustments:
|
||||||||||||
Amortization of intangible assets | 102 | 29 | 39 | |||||||||
Change in fair value of derivative financial instruments | 39 | (218 | ) | (297 | ) | |||||||
Depreciation of property, plant and equipment | 771 | 979 | 1,332 | |||||||||
Loss (gain) on sales of property, plant and equipment | 13 | (4 | ) | (5 | ) | |||||||
Share based payment | 64 | 167 | 227 | |||||||||
Interest expense, net | 1,220 | 804 | 1,094 | |||||||||
Income taxes expense | 814 | 602 | 819 | |||||||||
3,495 | 6,531 | 8,883 | ||||||||||
Increase in inventories | (945 | ) | (7,264 | ) | (9,880 | ) | ||||||
Decrease (increase) in trade and other receivables | 760 | (10,951 | ) | (14,894 | ) | |||||||
Increase (decrease) in trade payables | (2,814 | ) | 6,760 | 9,194 | ||||||||
Increase (decrease) in provision for employee benefits | (53 | ) | 215 | 292 | ||||||||
Increase in provisions and other current liabilities | 590 | 4,052 | 5,511 | |||||||||
1,033 | (657 | ) | (894 | ) | ||||||||
Interest paid | (667 | ) | (524 | ) | (713 | ) | ||||||
Income taxes paid | (368 | ) | (2,172 | ) | (2,954 | ) | ||||||
Net cash used in operating activities | (2 | ) | (3,353 | ) | (4,561 | ) | ||||||
Cash flows from investing activities
|
||||||||||||
Interest received | | 22 | 30 | |||||||||
Proceeds from sale of property, plant and equipment | 9 | 7 | 10 | |||||||||
Proceeds from derivative financial instruments | 24 | | | |||||||||
Acquisition of property, plant and equipment | (1,627 | ) | (4,283 | ) | (5,825 | ) | ||||||
Acquisition of intangible assets | (13 | ) | (247 | ) | (336 | ) | ||||||
Net cash used in investing activities | (1,607 | ) | (4,501 | ) | (6,121 | ) | ||||||
Cash flows from financing activities
|
||||||||||||
Proceeds from issuance of convertible shareholders loan | 10 | | | |||||||||
Issuance of share capital | | 15 | 20 | |||||||||
Receipts of long-term loans and borrowings | 174 | 3,266 | 4,442 | |||||||||
Repayments of long-term loans and borrowings | (1,200 | ) | (1,534 | ) | (2,086 | ) | ||||||
Repayment of shareholder loans | (347 | ) | (305 | ) | (415 | ) | ||||||
Change in short-term debt | 1,753 | 6,132 | 8,340 | |||||||||
Net cash provided by financing activities | 390 | 7,574 | 10,301 | |||||||||
Net decrease in cash and cash equivalents | (1,219 | ) | (280 | ) | (381 | ) | ||||||
Cash and cash equivalents at the beginning of the year | 4,349 | 4,185 | 5,692 | |||||||||
Effect of exchange rates fluctuations on cash and cash equivalents | 39 | 206 | 280 | |||||||||
Cash and cash equivalents at the end of the year | € | 3,169 | € | 4,111 | $ | 5,591 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
F-67
SodaStream International Ltd. (the Company) is a company incorporated in Israel. The condensed consolidated interim financial statements of the Group as of June 30, 2010 comprise the Company and all its subsidiaries (together referred to as the Group and individually as Group entities). The Group is engaged in the developing, manufacturing and marketing of in-house carbonated beverage systems and related products.
These condensed consolidated interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting and do not include all of the information required for full annual financial statements. They should be read in conjunction with the consolidated financial statements of the Company as at and for the year ended December 31, 2009 (the annual financial statements). The condensed consolidated balance sheet data as of December 31, 2009 were derived from the audited consolidated financial statements as of and for the year ended December 31, 2009.
For the convenience of the reader the reported Euro figures as of June 30, 2010, have been presented in dollars, translated at the representative rate of exchange as of September 30, 2010 (€1.00 = $1.3601). The dollar amounts presented in these financial statements should not be construed as representing amounts that are receivable or payable in dollars or convertible into dollars, unless otherwise indicated.
The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. The significant judgments made by the groups management and by the Groups entities managements in applying the Groups accounting policies and the principal assumptions used in the estimation of uncertainty were the same as those that applied to the annual financial statements.
Except as described below in Items (1) and (2), the accounting policies applied by the Group in these condensed consolidated interim financial statements are the same as those applied by the Group in its annual financial statements.
Presented hereunder is a description of the changes in accounting policies that were applied in these condensed consolidated interim financial statements and their effect.
F-68
Commencing on January 1, 2010, the Group has implemented IFRS 3 Business Combinations (2008) and IAS 27 Consolidated and Separate Financial Statements (2008) (hereinafter IFRS 3 and IAS 27, respectively).
The principal revisions are as follows:
The definition of a business has been broadened, so that more acquisitions will be treated as business combinations.
Transactions resulting in the parent company losing control over a subsidiary are to be accounted for so that the residual holding after discontinuance of the consolidation is remeasured on the date of discontinuing the consolidation, at fair value, through profit or loss.
In business combinations achieved in stages, the difference between the fair value at the first date of consolidation and the carrying amount of the original investment at that date, is recognized in profit or loss.
Non-controlling interests will be measured at the date of the business combination at either fair value, or at their proportionate interest in the identifiable assets and liabilities of the acquiree, on a transaction-by-transaction basis.
Transactions with non-controlling interests while retaining control are accounted for as equity transactions, so that any difference between the consideration paid or received and the change in non-controlling interests is included in the share of the Companys owners in equity.
Costs associated with the acquisition that were incurred by the acquirer in respect of the business combination are accounted for as an expense in the period they are incurred and the services are received.
Contingent consideration is measured at fair value at the date of the business combination. Subsequent to the date of acquisition, changes in the fair value of a contingent consideration classified as a financial liability are recognized in profit or loss.
Goodwill is not to be adjusted in respect of the utilization of carry-forward tax losses that existed on the date of the business combination.
Profit or loss and any part of other comprehensive income are allocated to the equity holders of the Company and the non-controlling interests, even when the result is a negative balance of the non-controlling interests.
The discounted exercise price of a put option granted by the Group to non-controlling interests is recognized as a financial liability. In subsequent periods, changes in value of the liability are recognized in profit or loss.
On the acquisition date, the acquirer recognizes a contingent liability assumed in a business combination, even if it is not included in the financial statements of the acquiree, if there is a present obligation resulting from past events and its fair value can be reliably measured.
F-69
The definition of non-controlling interests has been broadened and includes in it additional components such as: the equity component of convertible debentures of subsidiaries, share-based payments that will be settled with equity instruments of subsidiaries and share options of subsidiaries.
The implementation of the new standard had no effect on the Companys financial position and results of operations.
Commencing on January 1, 2010, the Group has implemented the amendment to IAS 17, Leases Classification of leases of land and buildings (hereinafter the Amendment), which was published in the framework of the 2009 Improvements to IFRSs project.
In accordance with the Amendment, a lease of land does not have to be classified as an operating lease in every case that ownership is not expected to pass to the lessee at the end of the lease period. In accordance with the amended standard, a land lease is to be examined according to the regular criteria for classifying a lease as a finance lease or as an operating lease.
The Amendment also provides that when a lease includes both a land component and a buildings component, the classification of each component should be based on the criteria of the standard, with the principal consideration regarding the classification of land being the fact that land normally has an indefinite useful life.
The implementation of the new standard had no effect on the Companys financial position and results of operations.
The grant date fair value of share-based payment awards granted to employees is recognized as a salary expense, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the awards. For share-based payment awards with non-vesting conditions, the grant date fair value of the share-based payment awards is measured to reflect such conditions, and therefore the Group recognizes an expense in respect of the awards whether or not the conditions have been met.
IFRS 9, Financial Instruments (hereinafter the Standard). This standard is the first part of a comprehensive project to replace IAS 39 Financial Instruments: Recognition and Measurement (hereinafter IAS 39) and it replaces the requirements included in IAS 39 regarding the classification and measurement of financial assets. In accordance with the Standard, there are two principal categories for measuring financial assets: amortized cost and fair value, with the basis of classification for debt instruments being the entitys business model for managing financial assets and the contractual cash flow characteristics of the financial asset.
F-70
In accordance with the Standard, an investment in a debt instrument will be measured at amortized cost if the objective of the entitys business model is to hold assets in order to collect contractual cash flows and the contractual terms give rise, on specific dates, to cash flows that are solely payments of principal and interest. All other financial assets are measured at fair value through profit or loss. Furthermore, embedded derivatives are no longer separated from hybrid contracts that have a financial asset host. Instead, the entire hybrid contract is assessed for classification using the principles above. In addition, investments in equity instruments are measured at fair value with changes in fair value being recognized in profit or loss. Nevertheless, the Standard allows an entity on the initial recognition of an equity instrument not held for trading to elect irrevocably to present fair value changes in the equity instrument in other comprehensive income where no amount so recognized is ever classified to profit or loss at a later date. Dividends on equity instruments measured through other comprehensive income are recognized in profit or loss unless they clearly constitute a return on an initial investment. The Standard removes financial liabilities from its scope.
The Standard is effective for annual periods beginning on or after January 1, 2013 but may be applied earlier, subject to providing disclosure and at the same time adopting other IFRS amendments as specified in an annex to the Standard. The Standard is to be applied retrospectively other than in a number of exceptions as indicated in the transitional provisions included in the Standard. In particular, if an entity adopts the Standard for reporting periods beginning before January 1, 2012 it is not required to restate prior periods.
The Company is evaluating the effects of the standard on the Companys financial position and results of operations.
The Groups sales are subject to seasonal fluctuations that derive from a variety of factors, including weather and holiday seasons. Because of the seasonality, results of any interim periods are not necessarily indicative of the results that may be achieved for a full year.
The Group identified four reportable segments which are the main areas in which the Group operates, as described below:
Western Europe
Central and Eastern Europe, Middle East and Africa
The Americas
Asia-Pacific
The basis of segmentation and the measurement basis for the segment profit or loss are the same as that presented in Note 6 in the annual financial statements regarding operating segments.
The accounting policies of the operating segments are the same as described in Note 3 regarding significant accounting policies.
F-71
Six months ended June 30, 2009 | ||||||||||||||||||||||||||||
(in thousands) | Western Europe | Central and Eastern Europe, Middle East and Africa |
The
Americas |
Asia-
Pacific |
Reportable
Segments |
Reconciliation | Consolidated | |||||||||||||||||||||
Revenues | € | 33,402 | € | 6,421 | € | 4,252 | € | 1,734 | € | 45,809 | € | 45,809 | ||||||||||||||||
Reportable segment income before income tax | € | 7,851 | € | 560 | € | (284 | ) | € | 199 | € | 8,326 | € | (7,040 | ) | € | 1,286 |
Six months ended June 30, 2010 | ||||||||||||||||||||||||||||
(in thousands) | Western Europe | Central and Eastern Europe, Middle East and Africa |
The
Americas |
Asia-
Pacific |
Reportable
Segments |
Reconciliation | Consolidated | |||||||||||||||||||||
Revenues | € | 46,567 | € | 9,238 | € | 8,835 | € | 4,036 | € | 68,676 | € | 68,676 | ||||||||||||||||
Reportable segment income before income tax | € | 9,653 | € | 1,326 | € | 118 | € | 784 | € | 11,881 | € | (7,107 | ) | € | 4,774 |
The reconciliation amounts include all other operating and financial expenses which were not related directly to the Group sales and distribution activities and were not included in the expenses allocation to specific segments in the reports to the chief operating decision maker.
Six months ended June 30 | ||||||||
(in thousands) | 2009 | 2010 | ||||||
Reportable segments income before income tax | € | 8,326 | € | 11,881 | ||||
Expenses not allocated to the operating segments | (7,040 | ) | (7,107 | ) | ||||
Consolidated income before income tax | € | 1,286 | € | 4,774 |
Income tax expense is recognized based on each subsidiarys managements best estimate of the weighted average annual income tax rate expected for the full financial year applied to the interim period. The Groups consolidated effective tax rate for the six months ended June 30, 2010 was 12.6% (six months ended June 30, 2009 63.3%). The change in the effective tax rate was caused mainly by foreign
F-72
exchange differences of a subsidiary that were not accounted for in the basis of measurement for tax purposes. These differences resulted in a decreased income tax expense in the first half of 2010 and an increased income tax expense in the first half of 2009.
Presented hereunder are details of new loans received during the six-month period ended June 30, 2010, relating to the Groups principal borrowings:
Currency |
Nominal
interest |
Face value
Euro in thousands |
Year of
maturity |
|||||||||
Euro | Libor+3.5 | % | 3,135 | 2015 | ||||||||
New Israeli Shekel | Prime+2 | % | (*)715 | 2015 |
(*) According to June 30, 2010, exchange rate.
A. On October 14, 2010, the Companys board of directors approved managements plans to file a registration statement with the Securities Exchange Commission for its initial public offering in the United States on the Nasdaq Global Market. There is no assurance that the planned initial public offering will be completed.
B. On September 27, 2010, the Board of Directors approved, and as of October 6, 2010, the shareholders ratified, a 1-for-6.45 reverse split of the Companys ordinary shares. Fractional shares have been rounded to the nearest whole share number. These financial statements have been prepared to retroactively reflect the reverse share split. As a result, as of June 30, 2010, the number of ordinary shares was reduced from 11,335,350 to 1,757,418 (as of December 31, 2009, the number of ordinary shares was reduced from 11,274,787 to 1,748,029), and the conversion ratio of the Series A1 and A2 Preferred Shares was adjusted accordingly such that every 6.45 Series A1 and A2 Preferred Shares is convertible into 1 ordinary share.
C. On September 27, 2010, the Board of Directors approved, subject to the closing of the Companys initial public offering on the Nasdaq Global Market, the termination of the management agreement signed in 2007 with the controlling party (see Note 29C(1) of the Companys annual consolidated financial statements for the year ended December 31, 2009). The controlling party will be entitled to a one-time payment of €1.75 million from the proceeds of the public offering, if it is completed, for terminating the management agreement.
D. On October 14, 2010, the Board of Directors approved, subject to the closing of the companys initial public offering on the Nasdaq Global Market, the 2010 share option plan. According to the plan, the company will have a total of 1,050,000 shares reserved for issuance under the share option plans, including the remainder of the reserved but ungranted shares from the 2007 share option plan.
E. On October 14, 2010, the Board of Directors approved, subject to shareholders ratification, an increase in authorized capital stock to 54,000,000 shares, par value NIS 0.645, which will take effect upon completion of the initial public offering.
F-73
J.P. Morgan | Deutsche Bank Securities |
William Blair & Company | Oppenheimer & Co. | Stifel Nicolaus Weisel |
, 2010
Until , 2010, U.S. federal securities laws may require all dealers that effect transactions in our ordinary shares, whether or not participating in this offering, to deliver a prospectus. This is in addition to the dealers obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
An Israeli company may indemnify an office holder in respect of the following liabilities and expenses incurred for acts performed as an office holder, either in advance of an event or following an event provided a provision authorizing such indemnification is inserted in its articles of association:
financial liability imposed on him or her in favor of another person pursuant to a judgment, settlement or arbitrators award approved by a court. However, if an undertaking to indemnify an office holder with respect to such liability is provided in advance, then such an undertaking must be limited to events which in the opinion of the board of directors can be foreseen based on the companys activities when the undertaking to indemnify is given, and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances, and such undertaking shall detail the abovementioned events and amount or criteria.
reasonable litigation expenses, including attorneys fees, incurred by the office holder as a result of an investigation or proceeding instituted against him or her by an authority authorized to conduct such investigation or proceeding, provided that (i) no indictment was filed against such office holder as a result of such investigation or proceeding; and (ii) no financial liability, such as a criminal penalty, was imposed upon him or her as a substitute for the criminal proceeding as a result of such investigation or proceeding or, if such financial liability was imposed, it was imposed with respect to an offense that does not require proof of criminal intent; and
reasonable litigation expenses, including attorneys fees, incurred by the office holder or imposed by a court in proceedings instituted against him or her by the company, on its behalf or by a third party or in connection with criminal proceedings in which the office holder was acquitted or as a result of a conviction for an offense that does not require proof of criminal intent.
An Israeli company may insure an office holder against the following liabilities incurred for acts performed as an office holder if and to the extent provided in the companys articles of association:
a breach of duty of loyalty to the company, to the extent that the office holder acted in good faith and had a reasonable basis to believe that the act would not prejudice the company;
a breach of duty of care to the company or to a third party, including a breach arising out of the negligent conduct of the office holder; and
a financial liability imposed on the office holder in favor of a third party.
An Israeli company may not indemnify or insure an office holder against any of the following:
a breach of duty of loyalty, except to the extent that the office holder acted in good faith and had a reasonable basis to believe that the act would not prejudice the company;
a breach of duty of care committed intentionally or recklessly, excluding a breach arising out of the negligent conduct of the office holder;
an act or omission committed with intent to derive illegal personal benefit; or
a fine or penalty levied against the office holder.
Under the Companies Law, exculpation, indemnification and insurance of office holders must be approved by our audit committee and our board of directors and, in respect of our directors, by our shareholders.
II-1
Our articles of association allow us to indemnify and insure our office holders to the fullest extent permitted by the Companies Law. Our office holders are currently covered by a directors and officers liability insurance policy. As of the date of this offering, no claims for directors and officers liability insurance have been filed under this policy and we are not aware of any pending or threatened litigation or proceeding involving any of our directors or officers in which indemnification is sought.
We have entered into agreements with each of our directors and executive officers exculpating them, to the fullest extent permitted by law, from liability to us for damages caused to us as a result of a breach of duty of care, and undertaking to indemnify them to the fullest extent permitted by law, including with respect to liabilities resulting from this offering. This indemnification is limited to events determined as foreseeable by the board of directors based on our activities, and to an amount or according to criteria determined by the board of directors as reasonable under the circumstances, and the insurance is subject to our discretion depending on its availability, effectiveness and cost. Effective as of the date of this offering, the maximum amount set forth in such agreements is the greater of (1) with respect to indemnification in connection with a public offering of our securities, the gross proceeds raised by us and/or any selling shareholder in such public offering, and (2) with respect to all permitted indemnification, including a public offering of our securities, an amount equal to the greater of (a) 50% of our shareholders equity on a consolidated basis, based on our most recent financial statements made publicly available before the date on which the indemnity payment is made and (b) $50 million. In the opinion of the United States Securities and Exchange Commission, indemnification of directors and office holders for liabilities arising under the Securities Act, however, is against public policy and therefore unenforceable.
The proposed form of Underwriting Agreement filed as Exhibit 1.1 to this Registration Statement provides for indemnification of directors and officers of the Registrant by the underwriters against certain liabilities.
Other than transactions and the grant and exercise of options described below, there have been no transactions during the preceding three fiscal years involving sales of our securities that were not registered under the Securities Act.
On March 26, 2007, Soda-Club Enterprises N.V. (shares of this entity were later exchanged by all shareholders for shares of the company) entered into a Preferred Share Purchase Agreement with an entity wholly owned by Fortissimo Capital by the name of Soda-Club Holding Ltd., Kendray Properties Ltd. (or Kendray), Keswick Properties Ltd. (or Keswick), Real Property Investment Limited (or RPI), and Mr. Clemente Corsini (or Corsini). Pursuant to the Preferred Share Purchase Agreement, in exchange for an aggregate investment of €4,000,000, we issued an aggregate of 16,066,618 Series A1 Preferred Shares at a price per share of €0.24896 as follows: Fortissimo Capital 11,045,800; Kendray 4,016,655 and Keswick 1,004,164. In addition, in exchange for an aggregate investment of €1,971,817, we issued an aggregate of 7,920,108 Series A2 Preferred Shares at a price per share of €0.24896 as follows: RPI 5,911,781 and Mr. Corsini 2,008,327. These securities were issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act.
In September 2007, the holders of Series A1 Preferred Shares invested an additional €4,000,000 into us in exchange for notes convertible into an additional 16,066,618 Series A1 Preferred Shares within five years from issuance. These securities were issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act. Pursuant to the Preferred Share Purchase Agreement, Fortissimo Capital was granted two options, one to invest up to an additional €4,000,000 in us at the same terms for a period of 12 months and another identical option exercisable for 24 months. Neither of these options was exercised and both have since expired.
II-2
On December 11, 2007, in order to secure additional financing to fund our growth, Fortissimo Capital, as our largest shareholder, facilitated a financing in the amount of €2.4 million on our behalf by providing a guaranty in that amount to Bank Mizrachi Tefachot to secure such funding.
On February 18, 2008, one of our subsidiaries entered into an agreement with Keswick and Kendray to borrow €1.4 million. Such loan was unsecured, guaranteed by us, bore interest at a rate of 8.5% per annum and was to be repaid in full by December 31, 2008, unless otherwise converted at the same price per share as in effect at the time of the original investment of Kendray and Keswick (€1.60579 per share after giving effect to the 1-for-6.45 reverse share split effected on October 6, 2010). The agreement was later canceled and replaced by an agreement dated as of November 28, 2008 between us and all shareholders holding at least 5% of our shares and CIS (Concept Investment Services) N.V., referred to herein as the Shareholder Loan Agreement, whereby the prior arrangement with respect to the shareholder loan provided in February 2008 was restructured and all parties participated in a loan to us in an aggregate amount of €6.7 million, with the net cash we received being equal to €5.3 million. Each of the participating shareholders contributed its pro rata amount of €5.3 million (Fortissimo Capital, in the form of a bank guaranty, which will be terminated in conjunction with this offering) and certain individuals affiliated with CIS (Concept Investment Services) N.V. contributed €10,000 (in lieu of its pro rata amount). Each of the shareholders participating in the loan to us, their respective contribution and the number of ordinary shares into which such contribution is convertible are set forth in the table below:
Entity |
Loan
Amount (Net) |
Number of
Ordinary Shares |
||||||
Fortissimo Capital Fund GP, LP | € | 2,400,000 | 1,884,185 | |||||
Kendray Properties Ltd. | € | 872,688 | 685,127 | |||||
Keswick Properties Ltd | € | 218,172 | 171,282 | |||||
Real Property Investment Limited | € | 1,438,789 | 1,129,560 | |||||
Clemente Corsini | € | 381,116 | 299,205 | |||||
CIS (Concept Investment Services) N.V. | € | 10,000 | 7,530 |
Pursuant to the terms of the Shareholder Loan Agreement, the loan bears interest at a rate of 8.5% per annum, which was paid in advance (the amounts set forth above reflect the net loan amounts), is subordinate to all bank loans, is payable in full in December 2010 if not converted. Shareholders who participated in this loan received their pro rata portion of an additional 5% equity interest in us. Holders of the convertible notes will convert all of the outstanding convertible notes into an aggregate of 4,176,889 ordinary shares prior to the consummation of this offering.
In August 2008, we issued 1,000,000 Series A1 Preferred Shares to Plenus Mezzanine Fund Israel LP. Such shares will convert into an aggregate of 155,039 ordinary shares at the time of the completion of this offering.
From January 1, 2007 through December 31, 2009, no ordinary shares were issued upon the exercise of options granted to our and our subsidiaries directors, employees and consultants. During the six months ended June 30, 2010, 9,390 ordinary shares were issued upon the exercise of options. We believe that the issuance of these options was exempt from registration under the Securities Act because they were made pursuant to exemptions from registration provided by Rule 701 or Regulation S promulgated thereunder.
In April 1998, our subsidiary Soda-Club Holdings N.V. issued a warrant to HSBC Bank plc to purchase 78,343 of its shares. In June 2010, we issued a warrant to purchase the same number of ordinary shares of SodaStream International Ltd. to HSBC in exchange for the warrant it previously held in our subsidiary. This warrant was adjusted in connection with the reverse share split of our ordinary shares to purchase 12,146 of our ordinary shares at an exercise price of $6.45 per share. HSBC has agreed to exercise this warrant immediately following the completion of this offering.
II-3
No underwriter or underwriting discount or commission was involved in any of the issuances set forth in this Item 7.
(a) The Exhibit Index is hereby incorporated herein by reference.
(b) Financial Statement Schedules.
All schedules have been omitted because they are not required, are not applicable or the information is otherwise set forth in the Consolidated Financial Statements and related notes thereto.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions described in Item 6 hereof, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
1. To provide the underwriters specified in the Underwriting Agreement, at the closing, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
2. That for purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4), or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
3. That for the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and this offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
II-4
Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form F-1 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Airport City, Israel, on this 19 th day of October, 2010.
SodaStream International Ltd. | ||
By:
/s/ Daniel Birnbaum
|
Each person whose signature appears below constitutes and appoints Daniel Birnbaum, Daniel Erdreich and Eyal Shohat, and each of them, as attorney-in-fact with full power of substitution, for him or her in any and all capacities, to do any and all acts and all things and to execute any and all instruments which said attorney and agent may deem necessary or desirable to enable the registrant to comply with the Securities Act, and any rules, regulations and requirements of the Securities and Exchange Commission thereunder, in connection with the registration under the Securities Act of ordinary shares of the registrant (the Shares), including, without limitation, the power and authority to sign the name of each of the undersigned in the capacities indicated below to the Registration Statement on Form F-1 (the Registration Statement) to be filed with the Securities and Exchange Commission with respect to such Shares, to any and all amendments or supplements to such Registration Statement, whether such amendments or supplements are filed before or after the effective date of such Registration Statement, to any related Registration Statement filed pursuant to Rule 462(b) under the Securities Act, and to any and all instruments or documents filed as part of or in connection with such Registration Statement or any and all amendments thereto, whether such amendments are filed before or after the effective date of such Registration Statement, and each of the undersigned hereby ratifies and confirms all that such attorney and agent shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
Signatures | Title | Date | ||
/s/ Daniel Birnbaum
Daniel Birnbaum |
Chief Executive Officer | October 19, 2010 | ||
/s/ Daniel Erdreich
Daniel Erdreich |
Chief Financial Officer | October 19, 2010 | ||
/s/ Yuval Cohen
Yuval Cohen |
Chairman of the Board | October 19, 2010 | ||
/s/ Shmoulik Barashi
Shmoulik Barashi |
Director | October 19, 2010 | ||
/s/ Maurice Benady
Maurice Benady |
Director | October 19, 2010 | ||
/s/ Eli Blatt
Eli Blatt |
Director | October 19, 2010 | ||
/s/ Marc Lesnick
Marc Lesnick |
Director | October 19, 2010 | ||
/s/ David Morris
David Morris |
Director | October 19, 2010 | ||
SodaStream USA Inc. | ||||
By:
/s/ Gerard Meyer
|
Authorized Representative in the
United States |
October 19, 2010 |
Exhibit
No. |
Description | |
1.1 | Form of Underwriting Agreement* | |
3.1 | Articles of Association of the Registrant, as amended as of September 1, 2009, as currently in effect | |
3.2 | Form of Amended and Restated Articles of Association of the Registrant to become effective upon closing of this offering | |
4.1 | Specimen share certificate | |
5.1 | Opinion of Gornitzky & Co., Israeli counsel to the Registrant, as to the validity of the ordinary shares (including consent) | |
10.1 | Form of Indemnification and Release Agreement | |
10.2(a) | 2007 Employee Share Option Plan | |
10.2(b) | 2010 Employee Share Option Plan* | |
10.3(a) | Management Services Agreement, dated as of March 26, 2007, by and among (i) Soda-Club Enterprises N.V., on behalf of the several companies constituting the Soda-Club Group and (ii) Fortissimo Capital Fund GP, L.P., on behalf of the several parallel partnerships for which it serves as General Partner, as well as Fortissimo Capital Management Ltd. | |
10.3(b) | Amendment to the Management Services Agreement, dated as of October , 2010, by and among SodaStream International Ltd. and Fortissimo Capital Fund GP, L.P.* | |
10.4 | Amended and Restated Shareholders Agreement, dated as of October , 2010, by and among Soda-Club Enterprises N.V., Soda-Club Holdings Ltd. (now known as SodaStream International Ltd.), Fortissimo Capital Fund GP, L.P., Kendray Properties Ltd., Keswick Properties Limited, Clemente Corsini and Real Property Investment Limited* | |
21.1 | List of Subsidiaries | |
23.1 | Consent of Somekh Chaikin, a member firm of KPMG International | |
23.2 | Consent of Gornitzky & Co., Israeli counsel to the Registrant (included in Exhibit 5.1) | |
23.3 | Consent of Ciao Surveys GmbH | |
23.4 | Consent of Intervjubolaget Imri AB | |
23.5 | Consent of Ipsos Tambor, s.r.o. | |
23.6 | Consent of Panels Limited Ltd. | |
23.7 | Consent of Spinach Ltd. | |
24.1 | Power of Attorney (included in signature page to Registration Statement) | |
99.1 | Consent of Daniel Birnbaum (Director Nominee) | |
99.2 | Consent of Eytan Glazer (Director Nominee) | |
99.3 | Consent of Lauri A. Hanover (Director Nominee) |
* | To be filed by amendment. |
PREAMBLE
AND INTERPRETATION
|
4
|
|
NAME
OF THE COMPANY
|
6
|
|
LIMITED
PRIVATE COMPANY
|
6
|
|
OBJECTS
OF THE COMPANY
|
7
|
|
DONATIONS
|
7
|
|
BUSINESS
|
||
THE
REGISTERED OFFICE
|
7
|
|
THE
ARTICLES OF ASSOCIATION
|
7
|
|
THE
AUTHORIZED SHARE CAPITAL
|
8
|
|
SHARES
|
8
|
|
SHARE
CERTIFICATES
|
8
|
|
SHARE
WARRANTS
|
9
|
|
PAYMENTS
FOR SHARES
|
9
|
|
FORFEITURE
OF SHARES
|
9
|
|
TRANSFER
AND TRANSMISSION OF SHARES
|
13
|
|
REDEEMABLE
SHARES
|
19
|
|
CHANGES
TO THE SHARE CAPITAL
|
19
|
|
CHANGE
IN RIGHTS
|
19
|
|
THE
ISSUING OF SHARES AND OTHER SECURITIES
|
20
|
|
GENERAL
MEETINGS
|
21
|
|
THE
PASSING OF RESOLUTIONS AT GENERAL MEETINGS
|
25
|
|
THE
BOARD OF DIRECTORS
|
28
|
|
ALTERNATE
DIRECTORS
|
30
|
|
THE
BOARD OF DIRECTORS’ POWERS AND FUNCTIONS
|
31
|
|
BORROWING
POWERS
|
32
|
|
THE
BOARD OF DIRECTORS’ ACTS
|
32
|
|
THE
BOARD OF DIRECTORS’ COMMITTEES
|
35
|
|
THE
GENERAL MANAGER
|
36
|
|
SECRETARY,
CLERKS AND OFFICERS
|
37
|
|
SIGNATORY
RIGHTS ON THE COMPANY’S BEHALF
|
37
|
|
APPOINTMENT
OF AN ATTORNEY
|
37
|
|
VALIDITY
OF ACTS AND APPROVAL OF TRANSACTIONS
|
37
|
|
EXEMPTION,
INDEMNITY AND INSURANCE
|
38
|
|
THE
AUDITOR AND FINANCIAL STATEMENTS
|
40
|
|
THE
ACQUISITION OF COMPANIES
|
41
|
|
DIVIDENDS,
FUNDS AND CAPITALIZATION OF FUNDS AND PROFITS
|
41
|
THE
COMPANY’S DOCUMENTS
|
43
|
|
WINDING-UP
|
44
|
|
NOTICES
|
45
|
1.
|
In
these Articles of Association, unless the context requires
otherwise:
|
the
“
Company
”
|
-
|
Soda
- Club Holdings Ltd.;
|
“
Corporation
”
|
-
|
A
company, partnership, cooperative society, non-profit organization and any
other body corporate, whether or not incorporated;
|
“
Incapacitated
Person
”
|
-
|
within
the meaning thereof in the Legal Capacity and Guardianship Law,
5722-1962;
|
“
IPO
”
|
-
|
the
closing of the sale of the shares of Ordinary Shares of the Company to the
public in a bona fide firm commitment underwriting pursuant to a
registration statement under the Securities Act or similar law of another
applicable jurisdiction;
|
the
“
Law
” or
the
|
||
“
Companies
Law
”
|
-
|
the
Companies Law, 5759-1999, as shall prevail from time to time, and the
regulations which shall be promulgated by virtue
thereof;
|
“
Lead
Investor
”
|
-
|
Fortissimo
Capital Fund GP, LP, a limited partnership incorporated under the laws of
the Cayman Islands, in its capacity as holder of A1 Shares, acting on
behalf of the several parallel partnerships in which it serves as the
general partner;
|
“
M&A
Transaction
”
|
-
|
the
merger or consolidation of the Company with or into, or the sale of all or
substantially all of the assets or shares of the Company to, another
person or entity, under circumstances in which holders of a majority of
the issued and outstanding share capital of the Company immediately before
such transaction (or series of related transactions) hold less than a
majority of the issued and outstanding share capital of the Company or the
surviving entity after such transaction (or series of related
transactions;
|
the
“
Office
” or
the
|
||
“
Registered
Office
”
|
-
|
the
Company’s office, whose address shall be recorded at the Registrar, as
shall be from time to time;
|
“
Officer
”
|
-
|
as
defined in the Companies Law (the Hebrew term is
);
|
“
Ordinance
” or
the
|
||
“
Companies
Ordinance
”
|
-
|
the
Companies Ordinance [New Version], 5743-1983, as well as the regulations
promulgated by virtue
thereof;
|
“
Ordinary
Majority
”
|
-
|
an
ordinary majority of all the votes of the Shareholders who are present at
an Annual or Special General Meeting or at a class meeting, as the case
may be, who are eligible to vote at the meeting and who voted thereat,
without counting the abstaining votes;
|
“
Original Issue
Price
”
|
-
|
€0.248976,
which is the price for which each A-1 Shares and A-2 Shares were
originally issued to the shareholders;
|
“
Person
” or “
Persons
”
|
-
|
including
a Corporation;
|
“
Preferred
Shares
”
|
-
|
the
A1 Shares and the A2 Shares;
|
“
Qualified
Public
|
||
Offering
”
|
-
|
an
IPO at a per share offering price of at least three times the Original
Issue Price as adjusted for stock dividends, splits, reverse splits,
combinations and similar events in which the proceeds to the Company are
not less than twenty million United States Dollar (US$20,000,000), before
deduction of underwriter’s commissions and expenses and the Company’s
securities will be listed on the New York stock exchange, the Nasdaq stock
market or any Designated Offshore Securities Market (as such term is
defined in Reg S of the Securities Act);
|
“
Register
” or
the
|
||
“
Register of
Members
”
|
-
|
the
Company’s Register of Members which must be kept in accordance with the
Law;
|
“
Secretary
”
|
-
|
the
person appointed as secretary of the Company;
|
“Securities
Act”
|
-
|
the
U.S. Securities Act of 1933, as amended, or any similar federal statute
and the rules and regulations thereunder, all as the same shall be in
effect the time;
|
“
Shareholder
”
|
-
|
a
shareholder who is registered in the Company’s Register of Shareholders,
or a person who holds a share warrant;
|
“
Shares
”
|
-
|
the
Ordinary Shares and the Preferred Shares, unless specifically otherwise
indicated;
|
“
these Articles
”
or
|
||
"
the
Articles
”
|
-
|
the
articles of association which have been formulated in this document, as
may vary from time to time;
|
“
Year
” or “
Month
”
|
-
|
according
to the Gregorian
calendar;
|
2.
|
Any
term in these Articles which was not defined in the above article, shall
have the meaning ascribed thereto in the Companies Law, unless the
aforesaid is in contradiction of the provisions of these Articles; words
appearing in the singular shall include the plural, and vice versa, and
words appearing in the masculine gender shall include the feminine gender,
all unless the context requires
otherwise.
|
3.
|
The
headings in these Articles were designed for convenience only and shall
not be used in construing these
Articles.
|
4.
|
Where
it has been stipulated in these Articles that any of the provisions
thereof shall be applicable subject to the provisions of any law, the
meaning is to the provisions of the Ordinance or to the provisions of the
Companies Law or to the provisions of any law, which may not be contracted
out, or to the provisions which may be contracted out but which were not
explicitly contracted out, unless the context requires
otherwise.
|
5.
|
All
provisions of these Articles shall apply subject to the provisions of the
Ordinance or to the provisions of the Companies Law or to the provisions
of any law, which may not be contracted out. The provisions which may be
contracted out in the Companies Law shall apply to the Company, to the
extent it has not been stipulated otherwise in these Articles and insofar
as there is no contradiction between them and the provisions of these
Articles.
|
6.
|
The
name of the Company is as follows:
|
|
6.1.
|
In
Hebrew:
|
|
|
6.2.
|
In
English:
|
Soda-Club
Holdings Ltd.
|
7.
|
The
Company is a private company in which the liability of each of its
Shareholders is limited to the amount they undertook to pay for the shares
which they received at the time of founding the Company or the occasion of
allotting shares subsequently thereto.The Company may not alter the
liability of the Shareholders or obligate any Shareholder to acquire
additional shares without their
consent.
|
8.
|
The
right to transfer shares in the Company is restricted, as stipulated
hereinafter in these Articles.
|
9.
|
Any
offering to the public of securities of the Company is
prohibited.
|
10.
|
The
number of Shareholders in the Company shall not exceed fifty, save for
persons employed by the Company or persons who were formerly employees of
the Company and who, by virtue thereof and also after termination of their
employment, continue to be Shareholders of the Company. For the purpose of
this article, two or more persons who are joint holders of one or more of
the Company’s shares shall be deemed one
Shareholder.
|
11.
|
The
objects and purpose of the Company are to engage in any legal
business.
|
12.
|
The
board of directors may decide that the Company shall make reasonable
donations to worthy causes, even if such donations are not in the
framework of the Company’s business
considerations.
|
13.
|
Intentionally
Left Blank .
|
14.
|
The
Company’s registered office shall be at an address which shall be
determined from time to time by the board of
directors.
|
15.
|
The
Company may alter these Articles by a resolution that was passed at the
General Meeting by an Ordinary Majority, except as provided by law
and
|
|
15.1.
|
Amending
these Articles in a manner which requires a Shareholder to acquire
additional shares or to increase the scope of his liability to the Company
will not be binding without the written consent of the
Shareholder.
|
|
15.2.
|
Any
other amendment to these Articles shall be made by a resolution adopted at
a General Meeting, by Shareholders participating in the vote and holding a
majority of the shares participating in the vote (the votes of those
Shareholders abstaining will not be taken into account for purposes of
counting votes but will be taken into account for purposes of
quorum).
|
16.
|
Subject
to the provisions of the Companies Law, changes to these Articles shall be
in force from the date of passing the resolution thereon at the Company or
on a later date that was stipulated in the
resolution.
|
17.
|
The
Company’s authorized share capital is NIS 18,000,000 (eighteen million New
Israeli Shekels) divided into 180,000,000 shares
of par value NIS
0.1 each split up into 65,000,000 Series A1 Convertible Preferred Shares
of par value NIS 0.1 each (“
A1
Shares
”) 15,000,000 Series A2 Convertible Preferred
Shares of par value NIS 0.1 each (“
A2 Shares
”) and
100,000,000 Ordinary Shares of par value NIS 0.1 each (“
Ordinary
Shares
”).
|
18.
|
The
Company may alter the authorized share capital in accordance with the
provisions of the Companies Law and the provisions of these
Articles.
|
19.
|
The
Company may issue securities of whatsoever nature and/or class and/or
rights which are convertible into shares carrying rights in accordance
with the provisions of these Articles and/or as shall be determined in the
resolution deciding on their
creation.
|
20.
|
The
ordinary shares shall be equal in rights and in rank,
inter se
, in all
respects.
|
21.
|
Each
of the ordinary shares entitles its holder with the right to participate
in the General Meetings of the Company and to one vote per
share.
|
22.
|
A
Shareholder of the Company is a person who is registered as a Shareholder
in the Register of Shareholders, or whoever holds a share
warrant.
|
23.
|
A
Shareholder shall not be entitled to a dividend and shall not be
authorized to exercise any right of a Shareholder in the Company
(including, but not only, the right to participate in or vote at any
General Meeting, in person or by proxy), save by virtue of the shares in
respect of which the consideration thereon, as determined and called by
the board of directors, has been paid in full to the
Company.
|
24.
|
Without
derogating from the foregoing and subject to the provisions of these
Articles, save for Shareholders of the Company, no person shall be
recognized by the Company as holding any right in a share and the Company
shall not be bound and shall not recognize any benefit pursuant to the
laws of equity or any equitable right, future or partial, in any share or
in any benefit, in a fraction of a share or in any other right relating to
a share, except for the right of a Shareholder, in a whole share, save if
a competent court has directed
otherwise.
|
25.
|
Certificates
attesting to a proprietary right in the shares shall bear the Company’s
stamp and shall be signed by two directors, or by one director together
with the General Manager of the Company or together with the Secretary of
the Company or together with any person authorized to sign on behalf of
the Company.
|
26.
|
Save
in a case in which the terms of allotment of shares provide otherwise,
each Shareholder shall be entitled to receive from the Company, on request
and without payment, one share certificate in respect of the shares
registered in his name. The Company shall not refuse a Shareholder’s
demand to receive a number of share certificates instead of one share
certificate, unless, in the board of directors’ opinion, the demand is
unreasonable. A Shareholder, who has sold or transferred a
portion of his shares, shall be entitled to receive a share certificate in
respect of the balance of his shares, free of
charge.
|
27.
|
Each
share certificate shall state the quantity of shares in respect of which
it has been issued, their nominal value and serial numbers, unless the
board of directors has determined
otherwise.
|
28.
|
A
share certificate relating to a share which is registered in the name of
two or more persons, shall be delivered to the person whose name appears
first in the Register of Shareholders in relation to such share, unless
all the registered owners of such share instruct the Company to deliver it
to another registered owner.
|
29.
|
Where
a share certificate has been destroyed, spoiled, lost or defaced, the
board of directors may issue a new share certificate in its place,
provided the previous share certificate has been furnished to the Company
and was destroyed by it, or that the board of directors has received
satisfactory proof that the share certificate was lost or destroyed and
the Company has received warranties, to the board of directors’
satisfaction, for any possible
damage.
|
30.
|
The
Company may not issue bearer
shares.
|
31.
|
The
amount to be paid to the Company at the time of submitting a request for
each share shall be according to its nominal value, unless determined
otherwise by the board of
directors.
|
32.
|
Without
derogating from the aforesaid in article
31 above,
the board of directors may forfeit a share which the Company has allotted
and sell it, if the consideration undertaken by the Shareholder, in whole
or in part, was not paid to the Company, and the provisions of the
Companies Law shall apply in this
regard.
|
33.
|
The
holders of the Preferred Shares shall have conversion rights as
follows:
|
|
33.1.
|
Optional
Conversion
. Each Preferred Share shall be convertible at
the option of the holder thereof, at any time after the date of issuance
of such Preferred Share, at the office of the Company, into such number of
fully paid Ordinary Shares as is calculated by dividing the applicable
Original Issue Price by the applicable Conversion Price that is in effect
at such time for such shares.
|
|
33.2.
|
Automatic
Conversion
. Each Preferred Share shall, immediately
prior to the closing of a Qualified Public Offering, automatically be
converted into such number of fully paid and non-assessable Ordinary
Shares as is determined pursuant to Article
33.1.
|
|
33.3.
|
Mandatory Class
Conversion
. Each outstanding Share of a particular series of
Preferred Shares shall be converted into such number of fully paid
Ordinary Shares as is determined pursuant to Article 33.1 upon the
affirmative vote or written consent of the holders of a majority of the
voting power of all then outstanding shares of a particular series of
Preferred Shares.
|
34.
|
Before
any holder of Preferred Shares shall be entitled (in the case of a
conversion at such holder’s option) to convert the same into Ordinary
Shares, such Shareholder shall surrender the share certificate or share
certificates therefor, duly endorsed, at the office of the Company, and
give written notice to the Company of the election to convert the same.
Such conversion (in the case of a conversion at such holder’s option)
shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the share certificate
representing the Preferred Shares to be converted, and the person or
persons entitled to receive the Ordinary Shares issuable upon such
conversion shall be treated for all purposes as the holder of such
Ordinary Shares as of such date. If the conversion is in connection with
an Qualified Public Offering, then the conversion shall be deemed to have
taken place automatically, regardless of whether the share certificates
representing such shares have been tendered to the Company, but from and
after such conversion any such share certificates not tendered to the
Company shall be deemed to evidence solely the Ordinary Shares to be
received upon such conversion and the right to receive a share certificate
for such Ordinary Shares. If the conversion is in connection
with a Qualified Public Offering, the conversion may, at the option of any
holder tendering Preferred Shares for conversion, be conditioned upon the
closing with the underwriter of the sale of securities pursuant to such
offering, in which event the person(s) entitled to receive the Ordinary
Shares issuable upon such conversion of the Preferred Shares shall not be
deemed to have converted such Preferred Shares until immediately prior to
the closing of such offer of securities. The Company shall, as soon as
practicable after the conversion and tender of the share certificate for
the Preferred Shares converted, issue and deliver at such office to such
holder of Preferred Shares or to the nominee or nominees of such holder of
Preferred Shares, a share certificate or share certificates for the number
of Ordinary Shares to which such holder shall be entitled as
aforesaid.
|
35.
|
The
“
Conversion Price
”
with respect to the Preferred Shares shall initially be equal to the
applicable Original Issue Price of each Preferred Share, but shall be
subject to adjustment under this Article 35. The Conversion Price shall be
adjusted from time to time as
follows:
|
|
35.1.
|
If
the Company subdivides or combines its Ordinary Shares, the Conversion
Price shall be proportionately reduced, in case of subdivision of shares,
as at the effective date of such subdivision, or if the Company fixes a
record date for the purpose of so subdividing, as at such record date,
whichever is earlier, or shall be proportionately increased, in the case
of combination of shares, as at the effective date of such combination,
or, if the Company fixes a record date for the purpose of so combining, as
at such record date, whichever is
earlier.
|
|
35.2.
|
If
the Company at any time pays a dividend, with respect to its Ordinary
Shares only, payable in additional Ordinary Shares or other securities or
rights convertible into, or entitling the holder thereof to receive
directly or indirectly, additional Ordinary Shares, without any comparable
payment or distribution to the holders of Preferred Shares (hereinafter
referred to as “
Common
Stock Equivalents
”), then the Conversion Price shall be adjusted as
at the date the Company fixes as a record date for the purpose of
receiving such dividend (or if no such record date is fixed, as at the
date of such payment) to that price determined by multiplying the
applicable Conversion Price in effect immediately prior to such record
date (or if no record date is fixed then immediately prior to such
payment) by a fraction (a) the numerator of which shall be the total
number of Ordinary Shares outstanding and those issuable with respect to
Common Stock Equivalents prior to the payment of such dividend and (b) the
denominator of which shall be the total number of Ordinary Shares
outstanding and those issuable with respect to such Common Stock
Equivalents (determined as aforesaid) immediately after the payment of
such dividend.
|
|
35.3.
|
In
the event the Company declares a distribution payable in securities of
other persons, evidences of indebtedness issued by the Company or other
persons, assets (excluding cash dividends) or options or rights not
referred to in Article 33 above, then, in each such case, the holders of
the Preferred Shares shall be entitled to receive such distribution, in
respect of their holdings on an as-converted basis as of the record date
for such distribution.
|
|
35.4.
|
If
at any time or from time to time there shall be a recapitalization of the
Ordinary Shares (other than a subdivision, combination or merger or sale
of assets transaction provided for elsewhere in Article 35), provision
shall be made so that the holders of the Preferred Shares shall thereafter
be entitled to receive, upon conversion of the Preferred Shares, the
number of Ordinary Shares or other securities or property of the Company
or otherwise, to which a holder of Common Stock
Equivalents deliverable upon conversion of the Preferred Shares
would have been entitled immediately prior to such
recapitalization. In any such case, appropriate adjustments
shall be made in the application of the provisions of this Article 35 with
respect to the rights of the holders of the Preferred Shares after the
recapitalization so that the provisions of this Article 35 (including
adjustments of the Conversion Price then in effect and/or the number of
shares issuable upon conversion of the Preferred Shares) shall be
applicable after that event to the largest extent
possible.
|
|
35.5.
|
No
fractional shares shall be issued upon conversion of the Preferred Shares,
and the number of Ordinary Shares to be issued shall be rounded to the
nearest whole share.
|
|
35.6.
|
Upon
the occurrence of each adjustment or readjustment of the Conversion Price
pursuant to this Article 35, the Company, at its expense, shall promptly
compute such adjustment or readjustment in accordance with the terms of
these Articles of Association and prepare and furnish to each holder of
Preferred Shares a certificate setting forth each adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Company shall furnish or cause to be
furnished to such holder a like certificate setting forth (A) such
adjustment or readjustment, (B) the Conversion Price, as the case may be,
at the time in effect, and (C) the number of Ordinary Shares and the
amount, if any, of other property which at the time would be received upon
the conversion of a Preferred
Share.
|
36.
|
In
addition, the Conversion Price shall be adjusted from time to time as
follows:
|
|
36.1.
|
Upon
each issuance (or deemed issuance, as described below) by the Company of
any Shares at a price per share less than the applicable Conversion Price
then in effect with respect to a particular series of Preferred Shares,
such Conversion Price will be reduced to the price at which such Shares
were issued (or deemed issued).
|
|
36.2.
|
No
adjustment of a Conversion Price shall be made in an amount less than one
United States Dollar cent (US$0.01) per share. No adjustment of a
Conversion Price shall be made if it has the effect of increasing the
Conversion Price beyond the applicable Conversion Price in effect for the
Preferred Shares immediately prior to such
adjustment.
|
|
36.3.
|
The
consideration for the issuance of Shares shall be deemed to be the amount
of cash received therefor after giving effect to any discounts or
commissions paid or incurred by the Company for any underwriting or
otherwise in connection with the issuance and sale
thereof.
|
|
36.4.
|
In
the case of the issuance of options to purchase or rights to subscribe for
Ordinary Shares, or securities by their terms convertible into or
exchangeable for Ordinary Shares or options to purchase or rights to
subscribe for such convertible or exchangeable securities, the aggregate
maximum number of Ordinary Shares deliverable upon exercise (assuming the
satisfaction of any conditions to exercise, including, without limitation,
the passage of time, but without taking into account potential
anti-dilution adjustments) of such options to purchase or rights to
subscribe for Ordinary Shares, or upon the exchange or conversion of such
security, shall be deemed to have been issued at the time of issuance of
such options, rights or securities, at a consideration equal to the
consideration (determined in the manner provided in subsection (iii)
immediately above), received by the Company upon the issuance of such
options, rights or securities plus any additional consideration payable to
the Company pursuant to the term of such options, rights or securities
(without taking into account potential anti-dilution adjustments) for the
Ordinary Shares covered thereby.
|
|
36.5.
|
If
the Company issues or sells as a unit both (1) Ordinary Shares or
securities convertible into or exchangeable Ordinary Shares, and (2)
options to purchase or rights to subscribe Ordinary Shares or securities
convertible into or exchangeable for Ordinary Shares, then the board of
directors shall make a good faith allocation of such unit price between
such Ordinary Shares or securities convertible into or exchangeable for
Ordinary Shares, and such purchase options or subscription rights. The
calculation of any adjustment to the Conversion Price pursuant to this
Article 36 as a result of such unit issuance shall first be calculated
with respect to the issuance, at the price allocated thereto, of the
Ordinary Shares or securities convertible into or exchangeable for shares
of Common Stock, and then shall also be calculated with respect to the
issuance of the entire unit (including, with respect to the purchase
options or subscription rights, the deemed issuance calculated pursuant to
Article 36.4 above).
|
|
36.6.
|
For
purposes of this Article 36, the consideration of any Shares shall be
taken into account at the equivalent thereof in United States Dollars on
the day such Shares are issued or deemed to be issued pursuant to Article
36.4 above.
|
37.
|
Subject
to the provisions of these Articles and the terms of issue of shares of
any class, any transfer of shares shall require approval of the board of
directors. The board of directors may refuse to register a transfer of
shares without having to provide reasons for its
refusal.
|
38.
|
Where
the board of directors has refused to approve a transfer of shares, it
shall provide notice thereof to the transferor by no later than one month
from the date of receiving a deed of
transfer.
|
39.
|
Prohibited
Transfers.
No holder of Shares, options, warrants or other rights
to subscribe for Shares or securities convertible into or exchangeable for
Shares shall Transfer all or any portion of his Shares, options, warrants
or other rights to subscribe for Shares or securities convertible into or
exchangeable for Shares unless and until the provisions of Articles 37
through 51 have been complied with. Notwithstanding the foregoing, the
provisions of this Article shall not apply to (i) the sale of Shares to
the public pursuant to a registration statement filed with, and declared
effective by any securities exchange in furtherance to a resolution of the
board of directors and (ii) the sale of Shares in connection with an
M&A Transaction. In this Article 39 “
Transfer
” shall mean:
offer to sell, contract to sell, or otherwise sell, dispose of, loan,
pledge or grant any rights with respect to any Share (including any
options, warrants or other rights to subscribe for Shares or securities
convertible into or exchangeable for Shares) now owned or hereafter
acquired by such person or with respect to which such person has or
hereafter acquires the power of disposition, other than by will or the
laws of intestacy.
|
40.
|
Permitted
Transfers
. Notwithstanding anything to the contrary
herein, a shareholder may freely Transfer its Shares, without being
subject to this Article 40, to the following (“
Permitted
Transferee
”):
|
|
40.1.
|
in
the case of Transfers from a shareholder to any other entity which
Controls, is Controlled by or is under common Control with, such
shareholder, and as to any shareholder which is a general or limited
partnership, assignments and transfers to its partners and to affiliated
partnerships managed by the same management company or managing general
partner or by an entity which Controls, is Controlled by, or is under
common Control with, such management company or managing general partner
(the term “
Control
” for the
purposes of this Article 40 shall mean owning, directly or indirectly more
than fifty percent (50%) of the outstanding shares or other voting
interest of any party and the right to appoint fifty percent (50%) of the
members to such party's board of directors or other governing body). All
limited partners of the Lead Investor shall be considered Permitted
Transferees;
|
|
40.2.
|
in
the case of a Shareholder who is an individual, to his spouse, siblings or
their spouses and children of siblings, children or grandchildren or the
spouses of any of the above (“
Close Family Members
”),
or to a trust in which the beneficiary(ies) are themselves exclusively the
shareholder or his Close Family
Members;
|
|
40.3.
|
in
the event of a Transfer by the Lead Investor to a financial entity, bank
or other party that provides the requisite financing to facilitate the
acquisition of the Shares, upon a default by the Lead Investor under its
arrangement with such financing
source;
|
|
40.4.
|
any
Transfer to a third party, provided that the transferor retains the rights
and obligations of the Shares (voting
rights);
|
|
40.5.
|
any
Transfer of all of the shares held by C.I.S. (Concept Investment Services)
NV (“
CIS
”) to a
nominee shareholder (with voting rights) chosen by the beneficial owners
of the shares held by CIS, provided that there shall be no change in the
identities of the beneficial owners of such shares and that the new
nominee shall fulfill the same role and functions as CIS currently
fulfills for its beneficial owners.
|
41.
|
Right of First
Refusal
. Until immediately prior to the closing of a Qualified
Public Offering:
|
|
41.1.
|
If
a shareholder (an “
Offering Holder
”)
receives from any third party or any other shareholder (the “
Offeror
”) a bona fide
offer (a “
Transfer
Offer
”) to Transfer any or all of the Preferred Shares or the
shares of Common Stock then owned by such Offering Holder (the “
Transfer Stock
”), which
such Offering Holder desires to accept, such Offering Holder, not less
than fifteen (15) days prior to the anticipated effective or closing date
of the proposed Transfer, shall deliver written notice to the Company and
the other shareholders of the Company (the “
Transfer Notice
”) of the
material terms and conditions of the Transfer Offer and the identity of
the Offeror, and each of the other shareholders thereafter (each, an
“
Offeree
Shareholder
” for purposes of this Article 40) shall have the right
and option (but not the obligation) to purchase up to such Offeree
Shareholder's pro rata share of the Transfer Stock, at the same price and
upon the same terms and conditions set forth in the Transfer
Notice.
|
|
41.2.
|
Each
Offeree Shareholder shall have fifteen (15) days from delivery of the
Transfer Notice to agree to purchase up to the full amount of its pro-rata
share of such Transfer Stock (the “
Basic Amount
”) for the
price and upon the general terms specified in the Transfer Notice, by
giving written notice to the Company setting forth the quantity of
Transfer Stock to be purchased and, if such Offeree Shareholder shall
elect to purchase all of its Basic Amount, such additional portion of the
Transfer Stock as such Offeree Shareholder shall indicate it will purchase
should other Offeree Shareholders subscribe for less than their pro rata
portion of the Transfer Stock (the “
Undersubscription
Amount
”). If the Basic Amounts subscribed for by all Offeree
Shareholders are less than the total amount of the Transfer Stock, then
each Offeree Shareholder who has set forth Undersubscription Amounts in
its notice of acceptance shall be entitled to purchase, in addition to the
Basic Amounts subscribed for, all Undersubscription Amounts it has
subscribed for;
provided
,
however
, that should
the Undersubscription Amounts subscribed for exceed the difference between
the Transfer Stock and the Basic Amounts subscribed for (the “
Available Undersubscription
Amount
”), each Offeree Shareholder who has subscribed for any
Undersubscription Amount shall be entitled to purchase only that portion
of the Available Undersubscription Amount as the Undersubscription Amount
subscribed for by such Offeree Shareholder bears to the total
Undersubscription Amounts subscribed for by all Offeree Shareholders,
subject to rounding by the Board to the extent it reasonably deems
necessary.
|
|
41.3.
|
If
the Offeree Shareholders fail to purchase all of the Transfer Stock
subject to the rights of first refusal described in this Article 41 within
the time periods described herein, the right of first refusal shall cease
to have any effect and the Offering Holder shall have the right for a
period of thirty (30) days following the expiration of the last of such
rights to sell any or all of the Transfer Stock subject to the Transfer
Offer, with due observance of the restrictions or limitations of Article
41.4, free and clear of the restrictions or limitations of this Article
41.3, in a bona fide transaction (or transactions);
provided
,
however
, that
such Transfer shall only be made to the original Offeror and pursuant to
terms and conditions not more beneficial to the original Offeror than
those contained in the Transfer Offer. If any Transfer Stock is not sold
pursuant to the provisions of Article 41.3 prior to the expiration of the
thirty (30) day period specified in the immediately preceding sentence,
such Transfer Stock shall once again become subject to the provisions and
restrictions of this Article 41.
|
|
41.4.
|
No
offer to purchase Transfer Stock shall be deemed to be a bona fide
Transfer Offer unless the purchase price of such offer is payable by
certified or bank cashier's check, by wire transfer of immediately
available funds or by tradable
securities.
|
42.
|
Co-Sale
/Tag Along
. Until immediately
prior to the closing of a Qualified Public Offering, no shareholder shall
directly or indirectly Transfer to a third party any of his, hers or its
Shares unless such Transferring Shareholder first shall have complied with
Article 41.3 and the other shareholders shall have failed to exercise
their right of first refusal with respect to such Shares in accordance
with Article 41.3, and the terms and conditions of such Transfer to such
third party include an offer to each of the other shareholders to include,
at the option (but not the obligation) of each of the other shareholders,
in the Transfer to the third party, a number of Shares owned by each other
shareholder determined in accordance with the provisions of Article 41.4.
If any Shareholder (the “
Transferring
Shareholder
”) receives a bona fide offer from a third party to
purchase any or all of his or its Shares, which such Transferring
Shareholder desires to accept, the Transferring Shareholder shall cause
the third party's offer to be reduced to writing (which writing shall
include an offer to purchase or otherwise acquire Shares from the other
shareholders in accordance with the terms and subject to the conditions of
and shall deliver written notice of the third party's offer (the “
Tag Along Notice
”) to
each of the other shareholders (which Tag Along Notice may be delivered
concurrently with the Transfer Notice under Article 41). The Tag Along
Notice shall be accompanied by a true and correct copy of the third
party's offer.
|
|
42.1.
|
Not
later than fifteen (15) days after their receipt of the Tag Along Notice,
each of the other shareholders shall have the right (but not the
obligation) to accept the offer included in the Tag Along Notice (which
acceptance may be conditioned upon the non-exercise of the shareholders'
right of first refusal under Article 41) for up to such number of Shares
(as hereafter determined in accordance with Article 41.2) by furnishing
written notice of such acceptance to the Transferring Shareholder and
delivering to the Transferring Shareholder the certificate (or
certificates) representing the Shares to be Transferred pursuant to such
offer by the other shareholders, as the case may be, together with a
limited power-of-attorney authorizing the Transferring Shareholder to
Transfer the Shares to be Transferred pursuant to the terms of such third
party's offer.
|
|
42.2.
|
Each
of the Shareholders (other than the Transferring Shareholder) shall have
the right pursuant to Article 42 to Transfer, pursuant to the
third party's offer, not less than a number of Shares equal to the product
of (X) the aggregate number of Shares to be acquired by the third party
and (Y) such shareholder's pro-rata share. The Transferring Shareholders
shall have the right to Transfer pursuant to the third party's offer, the
total number of Shares to be acquired by the third party, minus the number
thereof to be sold by other shareholders exercising their tag along rights
pursuant to this Article 42 and the immediately preceding
sentence.
|
|
42.3.
|
The
purchase from the shareholders (other than the Transferring Shareholder)
pursuant to this Article 42 shall be on the same terms and conditions,
including the price per share of the Shares to be Transferred and the date
of Transfer, as are received by the Transferring Shareholder and stated in
the Tag Along Notice provided to the other
shareholders.
|
|
42.4.
|
Simultaneously
with consummation of the Transfer of the Shares of the Transferring
Shareholder and the other shareholders to the third party pursuant to the
third party's offer, the Transferring Shareholder shall notify the other
shareholders and shall remit to the other shareholders the total sales
price of the Shares of the other shareholders Transferred pursuant
thereto, and shall furnish such other evidence of the completion and time
of completion of such Transfer and the terms thereof as reasonably may be
requested by the other
shareholders.
|
|
42.5.
|
If
within fifteen (15) days after the receipt of the Tag Along Notice any of
the other shareholders has not accepted the offer contained in the Tag
Along Notice, such non-accepting shareholder shall be deemed to have
waived any and all rights with respect to the Transfer of Shares described
in the Tag Along Notice and the Transferring Shareholder shall have thirty
(30) days in which to Transfer not more than the number of Shares
described in the Tag Along Notice, minus the number of shares sought to be
Transferred by other shareholders who have accepted the offer contained in
the Tag Along Notice, on terms not more favorable to the Transferring
Shareholder than were set forth in the Tag Along
Notice.
|
43.
|
Bring
Along.
Until immediately prior to the closing of a
Qualified Public Offering:
|
44.
|
Any
transfer of shares registered in the Register of Shareholders shall be in
writing, as set forth in Article 45 hereinbelow, provided the deed of
transfer is signed by the transferor and by the transferee, or in their
name, and is delivered to the Registered Office or to any other place
determined by the board of directors for such purpose. A transfer of
shares shall not be registered in the Register of Shareholders until the
deed of transfer has been delivered to the Company, as provided above; the
transferor shall continue to be regarded as holder of the transferred
shares until registration of the transferee as owner of the transferred
shares in the Register of
Shareholders.
|
45.
|
The
share transfer form shall be in writing, in the following form or as
similar thereto as possible, or in any other form as approved by the board
of directors:
|
Signature
of the
|
Signature
of the
|
|
Transferor
|
Transferee
|
|
Witness
to signature
|
Witness
to signature
|
|
of
the Transferor
|
of
the
Transferor”
|
46.
|
Any
deed of transfer shall be submitted to the Office or to any other place as
shall be determined by the board of directors for the sake of
registration, together with the share certificate or certificates which
are to be transferred (if same were issued). The deeds of transfer that
are registered shall be retained by the Company, but all transfer deeds
which the board of directors refuses to register shall be returned upon
demand to the persons who furnished
them.
|
47.
|
Where
it has been proven to the Company, to the board of directors’ satisfaction
and in the manner stipulated thereby, that the conditions have been
fulfilled for assigning the right to the shares registered in the
register, the Company shall acknowledge the assignee and him alone as
holder of the right in the said
shares.
|
48.
|
The
company will be entitled to establish a fee for the registration of the
transfer based on a sum which will be determined by the board of directors
from time to time, and which shall be reasonable in light of the given
circumstances.
|
49.
|
Alteration of the
Registration in the Register of
Shareholders
|
|
49.1.
|
The
Company shall alter the registration of title to the shares in the
Register of Shareholders where a deed of transfer or Court order have been
furnished to the Company for amendment of the registration, or if proof
was provided to the Company, to the board of directors’ satisfaction and
in the manner stipulated thereby, that the conditions prescribed by law
and in these Articles for transmission of the right in the shares have
been fulfilled and the Company shall not recognize any right of a person
in the shares before his right has been recognized, as
aforesaid.
|
|
49.2.
|
Without
derogating from the foregoing, the board of directors may refuse to
execute the registration or delay it, as it would have been entitled to do
had the registered owner himself transferred the share before assigning
the right.
|
50.
|
A
person who has become entitled to a share, as stated in article
47 above,
shall be entitled to dividends and to other rights in respect of the
share, as though he were the registered owner of the shares, even if same
has yet to be registered. However, before being registered in the register
as Shareholder in respect of that share, such person shall not be
entitled, by virtue of the share, to benefit from any right of a
Shareholder with respect to meetings of the
Company.
|
51.
|
Notwithstanding
the foregoing, the board of directors may at all times demand of the
person entitled to the share, as provided in article
47 above, to
be registered in the register or to transfer the share to another. Where
the said demand has not been complied with within 60 days from the date of
its delivery, the board of directors may delay dividends or other rights
in respect of the share until the demand is
executed.
|
52.
|
The
Company may issue redeemable shares and redeem them according to and in
the manner established by the board of directors, based on its
discretion.
|
53.
|
The
Company may increase its authorized share capital, by a resolution adopted
at the general meeting, by an Ordinary
Majority.
|
54.
|
The
Company may, by a resolution adopted at the general meeting, by an
Ordinary Majority:
|
|
54.1.
|
consolidate
all or any of its share capital and divide it into shares of a nominal
value greater than that of its existing
shares;
|
|
54.2.
|
sub-divide
all or any of its shares, into shares of a nominal value smaller than that
of its existing shares;
|
|
54.3.
|
cancel
shares which on the date of passing the resolution thereon, have not been
acquired by any person and which the Company has not undertaken, including
by way of a contingent undertaking, to issue and to reduce its
capital.
|
55.
|
For
the purpose of executing any resolution, as provided in article
54 above,
the board of directors may, in its discretion, settle any difficulty which
arises in this context.
|
56.
|
At
any time during which the share capital is divided into different classes,
the Company shall be entitled, by a resolution passed at the general
meeting, to convert, extend, add to, limit or alter in any other manner,
the rights of a class of its shares, provided consent has been received in
writing of all the Shareholders of that class, or that the resolution was
ratified by an Ordinary Majority at a general meeting of the Shareholders
of that class, or where it has been stipulated otherwise in the terms of
issue of a certain class of shares of the Company – as was stipulated in
the terms of issue of that class.
|
57.
|
The
provisions prescribed in these Articles with regard to general meetings
shall apply,
mutatis
mutandis
, to any class meeting, provided a quorum at the class
meeting shall be constituted when at least two Shareholders, who hold 25%
(twenty five percent) or more of the number of shares which have been
issued of that class, are present at the time of commencing the meeting,
in person or by proxy. Where a quorum has not been constituted, as
mentioned, the class meeting shall be deferred to another date and at the
deferred meeting, any number of participants, irrespective of the number
of shares which they hold, shall be considered a quorum. In the event that
all the shares of a certain class are held by one Shareholder, a quorum at
that class meeting shall be constituted when the said Shareholder is
present in person or by proxy.
|
58.
|
The
rights vested in the Shareholders or the owners of a class of shares,
which were issued whether with ordinary rights or with preference rights
or with other special rights, shall not be deemed as though having been
converted, limited, impaired or altered in any other manner by the
creation or issuance of additional shares of whatsoever class, whether
ranking equal to them or ranking differently to them or in preference to
them, and shall not be deemed as having been converted, limited, impaired
or altered in any other manner, by altering the rights attached to the
shares of whatsoever class, all unless explicitly stipulated otherwise in
the terms of issuance of those shares and subject to the provisions of
these Articles of Association.
|
59.
|
The
board of directors may issue shares and other securities, which are
convertible or exercisable into shares, up to the amount of the Company’s
authorized share capital. Without derogating from the generality of the
foregoing, the board of directors may issue the shares and other
securities to persons, on the dates, at the prices and on the conditions
which it decides, grant rights of choice for their acquisition, including
options or grant them in any other way, as well as to determine any other
provision in connection therewith, including instructions regarding the
method for dividing shares and the securities to be issued by the Company
amongst the purchasers thereof, including in the case of an
over-subscription, all the foregoing in the board of directors’
discretion.
|
60.
|
Without
derogating from the generality of the foregoing and subject to the
provisions of these Articles, the board of directors may determine that
the consideration for the shares shall be paid in cash or in property in
kind, including in securities or in any other way, in its discretion, or
that the shares shall be issued for consideration which is equal to or
higher than their nominal value, whether in units or in series, all the
forgoing on the conditions and dates determined by the board of directors,
in its discretion.
|
61.
|
Prior
to a Qualified Public Offering, upon any issuance or allotment of a
particular series or class of Shares, each Shareholder shall have a right
to purchase or subscribe for these Shares, on a pro rata basis (based on
its percentage of Shares of the Company held by the Shareholder at such
time), and upon the same terms and conditions offered in the said issuance
or allotment, such number of new Shares, so that immediately after said
issuance or allotment the percentage of Shares held by the shareholder of
the Company shall equal its percentage of Shares held in the Company
immediately prior to said issuance or
allotment.
|
62.
|
If
the Company proposes to issue Shares, it shall give the shareholders
written notice (the “
Rights Notice
”) of its
intention, describing the Shares, the price, the general terms upon which
the Company proposes to issue such Shares, and the number of shares and
that each of the shareholders has the right to acquire under Article 59.
Each Shareholder shall have twenty-one (21) days from delivery of the
Rights Notice to agree to purchase up to the full amount of its pro-rata
share of such Shares for the price and upon the general terms specified in
the Rights Notice, by giving written notice to the Company setting forth
the quantity of Shares to be purchased and, if such shareholder shall
elect to purchase all of its pro rata share, such additional portion of
the Shares as such shareholders shall indicate it will purchase should
other shareholders subscribe for less than their pro rata portion of the
Shares. If not all of the shareholders purchase their pro rata share, then
each shareholder who has purchased its pro rata share and indicates that
it will purchase additional amount in its notice of acceptance shall be
entitled to purchase, in addition to the pro rata share subscribed for,
all additional amounts it has subscribed for;
provided
,
however
, that should
the additional amounts subscribed for exceed the pro rata share of all of
the shareholders in the Shares, each shareholder who has subscribed for
any additional amount shall be entitled to purchase only that portion of
the amounts not purchased by other shareholders as the additional amount
subscribed for by such shareholder bears to the total amounts not
subscribed for by all shareholders, subject to rounding by the board of
directors to the extent it reasonably deems
necessary.
|
63.
|
If
a Shareholder fails to exercise in full its pre-emptive rights within the
period specified above, the Company shall have one hundred twenty (120)
days after delivery of the Rights Notice to sell or issue the unsold or
unissued Shares at a price and upon general terms no more favorable to the
purchasers thereof than specified in the Rights Notice. If the Company has
not sold or issued the Shares within said one hundred twenty (120) day
period, the Company shall not thereafter issue or sell any Shares without
first offering such securities to the shareholders in the manner provided
above.
|
64.
|
Subject
to the prior approval by the General Meeting of Shareholders, the board of
directors may resolve to limit or deny pre-emptive rights in respect to a
specific contemplated issue of Shares. The resolution by the board of
directors holding a limitation or denial of pre-emptive rights will
contain a written statement stating the reasons for such limitation or
denial and for the selection of the proposed issue
price.
|
65.
|
The
provisions of Articles 59-65 apply also to the granting of rights to
subscribe for Shares but do not apply to the issuance of Shares to a
person who exercises a previously acquired right to subscribe for such
Shares.
|
66.
|
The
Company is not required to convene an Annual Meeting,
except:
|
|
66.1.
|
as
required in order to appoint an Accountant - Auditor;
or
|
|
66.2.
|
in
the event a Shareholder demands convening an Annual Meeting;
or
|
|
66.3.
|
in
the event a director demands convening an Annual
Meeting.
|
67.
|
The
Company’s resolutions in the following matters shall be adopted at the
general meeting:
|
|
67.1.
|
changes
to the Articles;
|
|
67.2.
|
the
exercising of powers of the board of directors in accordance with the
provisions of section 52(a) of the
Law;
|
|
67.3.
|
appointment
of the Company’s auditor and termination of his
employment;
|
|
67.4.
|
appointment
of directors and termination of their
employment;
|
|
67.5.
|
approval
of acts and transactions which require approval of the general meeting
according to the provisions of sections 255 and 268 to 275 of the
Law;
|
|
67.6.
|
an
increase and reduction of the authorized share capital;
and
|
|
67.7.
|
a
merger, as provided in section 320(a) of the
Law.
|
68.
|
The
board of directors may call an extraordinary general meeting whenever they
deem fit, and it may be convened on the request of any single director or
a Shareholder or Shareholders holding either the right to vote 10% of
shares of the Company or a shareholder or shareholders holding 10% of the
capital stock of the company and a right to vote at least 1% of the shares
of the Company, as provided in section 63 of the Law, and if the directors
do not convene it, the persons demanding it may do so pursuant to sections
64 and 65 of the Law. If for any reason, the directors do not convene such
meeting, any director or the shareholders (as provided in section 63 of
the Law) may convene it in a manner akin, as far as possible, to that in
which meetings are convened by directors. If the Company has one
Shareholder, the Shareholder may convene it himself, as
aforesaid.
|
69.
|
The agenda of a
General Meeting
|
|
69.1.
|
Subject
to the provisions of articles
69.2 and
69.3
hereinbelow, the agenda of a general meeting shall be determined by the
board of directors.
|
|
69.2.
|
The
agenda at an annual general meeting shall include issues as
follows:
|
|
69.2.1.
|
A
discussion of the Company’s financial statements and the board of
directors’ report on the state of the Company’s affairs, which is
submitted to the general meeting;
|
|
69.2.2.
|
Appointment
of an auditor;
|
|
69.2.3.
|
A
report of the board of directors of the auditor’s fees for the auditing
work, as well as for additional services, if
any;
|
|
69.2.4.
|
The
appointment of directors; and
|
|
69.2.5.
|
Any
other matter that was decided by the board of
directors.
|
|
69.3.
|
One
or more Shareholders, who have at least 1% of the voting rights in the
General Meeting, may request the board of directors to include a matter on
the agenda of the general meeting which shall be held in the future,
provided the matter is suitable for deliberation at the general meeting. A
request, as above-mentioned, shall be submitted to the Company in writing
before issuing the notice of the convening of the general meeting, and the
text of the resolution proposed by the Shareholder in such matter shall be
attached thereto.
|
70.
|
Notice of a General
Meeting
|
|
70.1.
|
The
Company shall send written notice of a general meeting, to all holders of
the ordinary shares who are registered in the Register of Shareholders, no
less than 7 (seven) days and no more than 45 (forty five) days before the
date of convening, unless all the shareholders have agreed
otherwise.
|
|
70.2.
|
The
place, date and time of the general meeting shall be stated in the notice
of the general meeting and it shall include the agenda and all other
details which are required according to
law.
|
71.
|
Subject
to the provisions of any law, a defect in good faith in convening the
general meeting shall not disqualify any resolution that was passed at the
general meeting and shall not disqualify the discussions held thereat.
Without derogating from the foregoing, an accidental omission or error in
furnishing notice of the meeting to one of the Shareholders entitled to
receive such notice or non-receipt of the notice by one of such
Shareholders shall not invalidate any resolution passed at such
meeting.
|
72.
|
The
board of directors may change the venue for convening the general meeting
and the time thereof, provided the above shall not affect the provisions
of these Articles regarding the minimal timeframes which must elapse
between the date of the notice and the date of the general meeting, and
subject to the notice regarding the aforesaid change being delivered in
the same manner as the notice of the general meeting in respect of which a
change has been made in the place or date of its
convening.
|
73.
|
Quorum
|
|
73.1.
|
No
discussion may be commenced at a general meeting unless a quorum is
present at the time the meeting began the discussion. A quorum shall be
constituted when there are present, in person or by proxy, Shareholders
who are entitled, by virtue of the shares held or represented by them, to
at least 51% of the voting rights at the meeting. In the event that the
Company has only one Shareholder, a quorum shall be constituted when the
sole Shareholder is present in person or by
proxy.
|
|
73.2.
|
If
a quorum is not present within half an hour of the time fixed for a
meeting (hereinafter: the “
First Meeting
”), the
meeting shall be adjourned to the same day in the following week, at the
same time and place, without repeat notice of the convening of the
adjourned meeting, or to any other day and/or time and/or place as the
directors determine in a notice to the Shareholders; and if a quorum is
not present at the adjourned meeting within half an hour of the time fixed
for the meeting, the meeting shall be held with any number of
participants. No matters may be discussed at the adjourned meeting save
for those matters which were included in the agenda of the First
Meeting.
|
74.
|
The
election of a chairman of the meeting shall be made at the beginning of
the meeting, which shall be opened by the chairman of the board of
directors or by a director who the board of directors has authorized for
such purpose. The voting shall be according to a show of
hands.
|
75.
|
Where
a chairman is not present, as aforesaid, or was present at the meeting and
refused to chair it, or did not attend the meeting within a quarter of an
hour of the time fixed therefore, the Shareholders present shall appoint a
chairman from amongst them.
|
76.
|
The
chairman may, with the consent of the meeting at which a quorum is
present, adjourn it to another time or place, and he must do so if the
meeting so demands; no matters may be discussed at the adjourned meeting
save for those matters which was not completed at the meeting at which the
adjournment was resolved upon; notice need not be given of the adjournment
and of the matters on the agenda for the adjourned meeting; however, if
the meeting was adjourned for ten days or more, notice of the adjourned
meeting shall be given in the same manner as notice of the original
meeting.
|
77.
|
On
the consent of all the Shareholders who are entitled to receive notices of
the general meetings and to vote thereat, the general meeting may be
convened even if notice of less than 7 days has been given, as the case
may be.
|
78.
|
Any
resolution signed by all the Shareholders of the Company who are entitled
to receive notices of general meetings and to vote thereat, shall be
regarded as having been passed at the Company’s general
meeting.
|
79.
|
Minutes
|
|
79.1.
|
The
Company will draw up minutes of the proceedings of the general meeting
which will include the following
details:
|
|
79.1.1.
|
The
names of the participating Shareholders in the general meeting and the
number of shares held by them.
|
|
79.1.2.
|
The
matters discussed in the general meeting and the resolutions passed
therein.
|
|
79.2.
|
Minutes
signed by the chairman of the general meeting shall serve as
prima facie
proof of
their contents.
|
|
79.3.
|
The
minute book of the general meetings will be kept in the Company's offices
and shall be available to any shareholder for inspection. A copy of the
minutes will be sent to any shareholder upon
request.
|
80.
|
A
resolution up for vote at a general meeting shall be decided on a show of
hands or by an Ordinary Majority; the chairman shall decide on the method
of voting. The chairman’s decision that a resolution has been passed, or
has been passed unanimously or by a certain majority, and a note recorded
to such effect in the Company’s protocol book, shall serve as
prima facie
proof of
such fact and it shall not be necessary to prove the number of votes or
proportion of votes given for and against the proposed resolution. The
chairman’s decision on whether a resolution at the general meeting has
been passed or rejected, whether unanimously or by a certain majority,
shall serve as
prima
facie
proof of the accuracy of its
contents.
|
81.
|
The
chairman of the meeting, whether or not he is chairman of the board of
directors, shall not have any additional or casting
vote.
|
82.
|
The
Company may hold a general meeting by using any means of communications,
provided all the Shareholders participating may hear one another at the
same time through such means. The Company may regulate the manner and way
in which a meeting is conducted through means of communications, as
aforesaid.
|
83.
|
A
Shareholder may vote at a general meeting or at a class meeting, in person
or by proxy, all in accordance with the provisions hereof. A proxy for
voting need not be a Shareholder of the
Company.
|
84.
|
A
proxy for voting may participate in discussions at the general meeting and
be elected as chairman of the meeting, as the appointing Shareholder would
have so been entitled, provided it was not noted to the contrary in his
deed of appointment.
|
85.
|
Instrument Appointing
a Proxy for Voting
|
|
85.1.
|
The
instrument appointing a proxy for voting (hereinafter: the “
Instrument of
Appointment
”) and the power of attorney pursuant whereto the
Instrument of Appointment was signed (if any), or a suitable copy thereof,
to the board of directors’ satisfaction, shall be deposited at the
Company’s office prior to the
meeting.
|
|
85.2.
|
An
Instrument of Appointment appointing a proxy shall be prepared in the
following form or in the closest possible
form:
|
Signature”
|
|
85.3.
|
The
Instrument of Appointment shall state the class of shares in respect of
which it is being given and their number. Where the Instrument of
Appointment fails to state the numbers of the shares in respect of which
it was given or where a number of shares was stated therein which is
higher than the shares registered in the Shareholder’s name, the
Instrument of Appointment shall be regarded as having been given in
respect of all the Shareholder’s
shares.
|
|
85.4.
|
Where
an Instrument of Appointment was given in respect of a number of shares
which is lower than the shares registered in the Shareholder’s name, the
Shareholder shall be regarded as having abstained from being present at
the voting in respect of the balance of his shares and the Instrument of
Appointment shall be valid for the number of shares stated
therein.
|
|
85.5.
|
An
Instrument of Appointment shall be valid also with respect to any
adjourned meeting to which the Instrument of Appointment refers, provided
it was not specified otherwise
therein.
|
86.
|
Without
derogating from the provisions hereof regarding the appointment of a
proxy, a Shareholder who holds more than one share may appoint more than
one proxy, subject to the following
provisions:
|
|
86.1.
|
Each
Instrument of Appointment shall specify the class and the number of the
shares in respect of which it was
given.
|
|
86.2.
|
Where
the overall number of shares of any particular class stated in the
Instruments of Appointments given by a Shareholder exceeds the number of
shares of that class which are registered in his name or which are
specified in the confirmation of ownership, as the case may be, all the
instruments of appointment given by that Shareholder shall be cancelled
and the Shareholder shall be regarded as having abstained from being
present at the voting in respect of all his shares in respect of which the
said Instruments of Appointment were
given.
|
87.
|
A
Shareholder or proxy may vote by virtue of some of the shares held by him
or for which he serves as proxy.
|
88.
|
A
vote cast by virtue of the Instrument of Appointment shall be valid
notwithstanding any defect therein and also if prior to the voting, the
appointer died or became incapacitated or the Instrument of Appointment
was cancelled or the share in respect of which the Instrument of
Appointment was given was transferred, unless notice in writing of the
defect, death, disqualification, cancellation or transfer, as the case may
be, was received at the Company’s registered office, prior to commencing
the meeting.
|
89.
|
Subject
to the provisions of any law, in the case of joint Shareholders, each of
them may vote at any meeting, whether in person or by proxy in relation to
such share, as though he was the sole party entitled thereto. Where more
than one of the joint Shareholders participated in the meeting, in person
or by proxy, the name of the Shareholder whose name appears first in the
Register of Shareholders in relation to the share shall vote, unless all
the registered owners of that share direct otherwise in
writing.
|
90.
|
So
long as a majority of the A1 Shares issued at the closing of the
investment at which the initial issuance of A1 Shares occurred are
outstanding no action - either directly or by amendment, merger,
consolidation, or otherwise - shall be taken by the Company, the board of
directors or the General Meeting of Shareholders as may be the case,
without the written consent of the Lead Investor,
to:
|
|
90.1.
|
liquidate,
dissolve or wind-up the affairs of the
Company;
|
|
90.2.
|
effect
a merger or consolidation (other than one in which shareholders of the
Company own a majority by voting power of the outstanding shares of the
surviving or acquiring corporation) or a sale, lease, transfer or other
disposition of all or substantially all of the assets of the
Company;
|
|
90.3.
|
amend,
alter, or repeal any provision of these Articles of Association or
By-laws, if any;
|
|
90.4.
|
create
or authorize the creation of or issue any Share, option, warrant or other
right to subscribe for Shares or securities convertible into or
exchangeable for Shares;
|
|
90.5.
|
purchase
or redeem Shares or options (other than management options) or warrants or
other rights to subscribe for Shares or securities convertible into or
exchangeable for Shares;
|
|
90.6.
|
pay
any dividend on any Share prior to payment of dividend on the A1 Shares,
or
|
|
90.7.
|
increase
or decrease the size of the board of
directors.
|
91.
|
A
director is not obliged to be a Shareholder of the
Company.
|
92.
|
A
corporation may serve as a
director.
|
93.
|
The
board of directors shall consist of at least one (1) and not more than
nine (9) members. With due observance of Article 93 and the board of
directors itself shall fix the number of persons constituting the whole
board of directors.
|
94.
|
The
members of the board of directors shall be appointed and any vacancies in
the board of directors shall be filled as
follows:
|
|
94.1.
|
four
(4) members shall be appointed by the Lead
Investor;
|
|
94.2.
|
one
(1) member shall be appointed by Real Property Investment Ltd. as long as
it is a holder of A2 Shares;
|
|
94.3.
|
for
so long as Keswick Properties Ltd and Kendray Properties Ltd. collectively
hold at least ten percent (10%) of the shares of the Company; (i) They
shall be entitled to appoint one member of the board of directors and (ii)
one (1) additional director shall be appointed by the Lead Investor;
and
|
|
94.4.
|
the
remaining number of directors shall be appointed by the board of
directors.
|
95.
|
The
directors may be removed or suspended at any time by the person or body
that has appointed such director as provided in this Article 95 and/or by
the General Meeting of Shareholders. Such suspension shall end in case the
director concerned shall not be dismissed within two (2) months after the
suspension, whereupon the director concerned shall resume his normal
activities.
|
96.
|
So
long as Mr. Corsini holds at least four percent (4%) of the Shares of the
Company, Mr. Corsini shall receive notice of and shall have the right to
be an observer at meetings of the board of
directors.
|
97.
|
Appointment of
Directors and Termination of Their
Office
|
|
97.1.
|
The
directors shall be appointed by a resolution of the general meeting. The
Company may, at any time, by resolution of the general meeting, remove a
director from his position, and appoint a different director in his place.
A director who was removed from office in such manner may be
reappointed.
|
|
97.2.
|
The
directors may at all times appoint another person as director, whether for
the sake of filling the office of director which has become vacant or for
the sake of adding a director to the board of directors, provided the
number of directors does not exceed the maximum number prescribed in the
Articles. However, the general meeting may at any time dismiss a person
who was appointed as aforesaid, and also, should it so wish, appoint
another director in his place. A director who was appointed under this
article, shall resign at the next Annual Meeting, however the above shall
not preclude him from being re-elected as
director.
|
|
97.3.
|
Notwithstanding
all of the aforementioned, the general meeting may, at any time, by a
decision passed by an Ordinary Majority, dismiss a director from his post
prior to the end of his term, provided that the director was given a
reasonable opportunity to state his case in front of the general
meeting.
|
|
97.4.
|
The
general meeting or the board of directors may decide that the term of a
director appointed by them shall begin on a later date than the date of
his nomination.
|
|
97.5.
|
Where
the office of a director has become vacant, the board of director may
continue to act in all matters as long as the number of directors is not
less than the minimal number of directors prescribed in article 93
above.
|
|
97.6.
|
The
office of director shall become vacant of itself – in addition to the
cases specified in the Law – in any of the following
cases:
|
|
97.6.1.
|
on
his death, and where the director is a corporation – on its being expunged
or wound-up;
|
|
97.6.2.
|
if
he became legally incapacitated;
|
|
97.6.3.
|
if
he became bankrupt or if he reached a compromise with his
creditors;
|
|
97.6.4.
|
if
the general meeting has removed him from his office or does not re-elect
him;
|
|
97.6.5.
|
if
he has resigned;
|
|
97.6.6.
|
if
he was convicted of a crime under section 232 to the Companies
Law;
|
|
97.6.7.
|
if
a competent court has determined that his term has expired under section
233 to the Companies Law.
|
98.
|
The
following provisions shall apply to the
directors:
|
|
98.1.
|
The
Company may pay the directors remuneration for fulfilling their positions
as directors.
|
|
98.2.
|
The
Company may reimburse the directors for reasonable transportation
expenses, travel and living expenses and other expenses relating to their
participation in meetings of the board of directors and in fulfilling
their position as directors.
|
|
98.3.
|
The
Company may pay a further fee to a director who was requested to render
special services or to invest special efforts for the Company, including
to travel abroad or to stay there.
|
99.
|
Each
director may, by notice in writing which shall be given to the board of
directors, appoint one person as an alternate and may also cancel such
appointment and appoint another alternate.
|
100.
|
Without
derogating from the foregoing, a person shall not be appointed as an
alternate if he is not entitled and/or eligible to be appointed as
director.
|
101.
|
An
alternate director may be a person serving as a director or as an
alternate director of the Company.
|
102.
|
Such
alternate director shall have all those rights and powers, both with
respect to participating in the Company’s management and with respect to
signatures and the like, which the director who appointed him has. The
office of an alternate director shall be vacated in and of itself upon
vacation of the office of the director for whom he substitutes. The
appointment of an alternate director is subject to approval of the board
of directors.
|
103.
|
The
board of directors shall have the powers and authority conferred thereon
hereunder, according to the Companies Law and pursuant to any law. Without
derogating from the provisions hereof, the board of directors shall
formulate the Company’s policy and shall supervise performance of the
General Manager’s functions and acts,
including:
|
|
103.1.
|
It
shall determine the Company’s program of operations, principles for
financing them and the order of priority between
them;
|
|
103.2.
|
It
shall examine the Company’s financial position, and shall determine the
credit facilities which the Company may
receive;
|
|
103.3.
|
It
shall determine the organizational structure and the salary
policy;
|
|
103.4.
|
It
shall be responsible for drawing up the financial statements and for their
ratification, as provided in section 171 of the Companies
Law;
|
|
103.5.
|
It
shall report to the Annual Meeting regarding the state of the Company’s
affairs and on the business results, as provided in section 173 of the
Companies Law;
|
|
103.6.
|
It
shall appoint and dismiss the General
Manager;
|
|
103.7.
|
It
shall decide on acts and transactions which require its approval pursuant
hereto or according to the provisions of sections 255 and 268 to 275 of
the Companies Law;
|
|
103.8.
|
It
may decide on the distribution of a dividend or on the distribution of
bonus shares;
|
|
103.9.
|
It
may issue shares and securities convertible to shares up to the maximum
value of the registered capital of the
Company;
|
103.10.
|
It
may decide on a distribution, within the meaning of this term in section 1
of the Companies Law, as provided in sections 307 or 308 of the Companies
Law;
|
|
103.11.
|
It
may approve a merger, as provided in sections 314 to 327 of the
Law.
|
104.
|
Any
authority of the Company which was not vested in another organ, by law or
under these Articles, may be exercised by the board of
directors.
|
105.
|
Subject
hereto, the board of directors may delegate some of its powers to the
General Manager, to an officer of the Company or to another person. A
delegation of the board of directors’ power may be for a specific matter
or for a certain period of time, all in the board of directors’
discretion.
|
106.
|
Without
derogating from the provisions hereof, the directors may from time to time
and at their discretion, borrow and secure the payment of any amount or
amounts of money for the Company’s
objects.
|
107.
|
The
directors may secure the discharge of any such amounts in such manner and
on such terms and conditions as it deems fit and in particular, by issuing
promissory notes, debentures or any floating charge over all or any of the
Company’s property, in the present or in the future, including the share
capital which has not yet been called and against any charges and other
collateral of whatsoever nature.
|
108.
|
All
promissory notes, debentures or other collateral may be issued at a
discount, at a premium or in another manner and with the grant of any
special privileges regarding redemption and conversion into
shares.
|
109.
|
The
directors may convene for the sake of conducting business, adjourn their
meetings and conduct their acts and discussions as they deem fit,
including the holding of meetings by using means of communications
(including, without limitation, electronic means of communications,
telephone, video-conferencing etc.) or the holding meetings without
convening in practice, all in accordance with the stipulations of the
Law.
|
110.
|
A
simple majority of the directors, who are present, whether in person or by
proxy, shall constitute a quorum.
|
111.
|
The
agenda of meetings of the board of directors shall be set by the chairman
of the board of directors, in accordance with the
Law.
|
112.
|
Notice
of a board of directors’ meeting shall be given to all its members, unless
the Articles stipulate another provision for determining the date of
delivery. Any notice of a board of directors’ meeting shall include a
reasonable itemization of all matters on the agenda. The notice may be
oral, in a telephone conversation, in writing or by cable or telex or
telefax or electronic mail, provided the notice is given a reasonable time
before the time of the meeting, and not less than 24 hours prior thereto,
unless all the directors entitled to receive notice have agreed to waive
receipt of the notice as aforesaid.
|
113.
|
A
director who is out of the country at any time, shall be entitled to
receive notice of the convening of a meeting during his absence, at the
address given for sending the notice. In the event of the appointment of
an alternate director, the alternate director shall receive notice of the
board of directors’ meeting, all provided he has informed the Company of
his aforesaid appointment.
|
114.
|
INTENTIONALLY
LEFT BLANK.
|
115.
|
Questions
which arise at meetings of the board of directors shall be resolved by a
majority of the votes participating in the
meeting.
|
116.
|
If
the votes for and against any proposed resolution are tied, the chairman
shall not have an additional or casting
vote.
|
117.
|
The
directors may elect one of their members as chairman of the board of
directors and determine the term of his office; they may further dismiss
the chairman and appoint another in his stead. However, if the chairman is
not present at any meeting of the board of directors within 15 minutes of
the time fixed for the meeting’s commencement, the directors may elect one
of their number to serve as chairman of the
meeting.
|
118.
|
A
board of directors’ meeting at which a quorum is present may exercise all
the powers, authority and discretions vested at such time in the board of
directors, or which are generally exercised by
it.
|
119.
|
Where
a director is precluded from voting in accordance with the provisions of
any law, the quorum for the purposes of such voting shall be the number of
directors who are present in his absence. The foregoing does not derogate
from the provisions of section 278 of the
Law.
|
120.
|
Any
act performed at a board of directors’ meeting or at a directors’
committee or by whoever fulfills the position of director, shall not be
invalidated merely by reason of a defect in the appointment of one or more
of the persons performing the act or that they were not qualified to hold
office.
|
121.
|
Minutes of
Meetings
|
|
121.1.
|
The
board of directors will ensure the drafting of minutes of the proceedings
of the board of directors' meetings. The minutes shall include, inter
alia, the following details:
|
|
121.1.1.
|
The
names of the participating directors and all others
present;
|
|
121.1.2.
|
The
issues that were discussed and the resolutions that were
passed;
|
|
121.1.3.
|
Each
minutes of meeting shall be signed by the chairman or by the head of the
meeting, as applicable. Minutes of meeting signed in such manner shall
serve as
prima facie
proof of
their content.
|
122.
|
A
resolution in writing which is signed by all the directors, entitled to
vote on a matter, shall be valid as though it was passed at a board of
directors’ meeting which was duly
convened.
|
123.
|
So
long as a majority of the A1 Shares issued at the closing of the
investment at which the initial issuance of A1 Shares occurred are
outstanding, the board of directors shall require the prior approval of at
least one director appointed by the Lead Investor for the following
resolutions, acts of management and actions resulting therefrom and no
director shall be permitted to enter into any binding obligation on behalf
of the Company without the board of directors having first obtained such
approval from at least one director appointed by the Lead
Investor:
|
|
123.1.
|
make
any loan or advance to, or own any stock or other securities of, any
subsidiary or other Company, partnership, or other entity unless it is
wholly owned by the Company;
|
|
123.2.
|
make
any loan or advance to any person, including, any employee or director,
except advances and similar expenditures in the ordinary course of
business or under the terms of a employee stock or option plan approved by
the board of directors;
|
|
123.3.
|
guarantee,
any indebtedness except for trade accounts of the Company or any
subsidiary arising in the ordinary course of
business;
|
|
123.4.
|
make
any investment other than investments in secure government
securities;
|
|
123.5.
|
incur
any aggregate indebtedness in excess of one hundred and fifty thousand
United States Dollar (US$150,000) that is not already included in a budget
approved by the board of directors, other than trade credit incurred in
the ordinary course of business;
|
|
123.6.
|
enter
into or be a party to any transaction with any director, officer or
employee of the Company other than upon fair and reasonable terms that are
approved by a majority of the board of
directors;
|
|
123.7.
|
hire,
fire, or change the compensation of the executive officers, including
approving any option plans;
|
|
123.8.
|
change
the principal business of the Company, enter new lines of business, or
exit the current line of business;
or
|
|
123.9.
|
sell,
transfer, license, pledge or encumber assets, technology or intellectual
property, other than licenses granted in the ordinary course of
business.
|
124.
|
Subject
to the provisions hereof, the board of directors may, as it deems fit,
establish committees, appoint members thereof from amongst members of the
board of directors (hereinafter: a “
Board of Directors’
Committee
”), and to delegate all or any of its powers to such
committee. Notwithstanding the foregoing, the board of directors may not
delegate any of its powers to a Board of Directors’ Committee in the
following matters, other than for the sake of recommendation
alone:
|
|
124.1.
|
the
determining of the Company’s general
policy;
|
|
124.2.
|
any
distribution, unless it involves a purchase of the Company’s shares in
accordance with the framework which has been formulated in advance by the
board of directors;
|
|
124.3.
|
the
determining of the board of directors’ position in a matter requiring
approval of the general meeting;
|
|
124.4.
|
the
appointment of directors;
|
|
124.5.
|
an
allotment of shares or securities which are convertible into shares or
which may exercised for shares, or of a series of debentures, unless the
allotment of shares is due to an exercise or conversion of the Company’s
securities;
|
|
124.6.
|
ratification
of the financial statements;
|
|
124.7.
|
the
board of directors’ approval of transactions and acts requiring the board
of directors’ approval pursuant to sections 255 and 268 to 275 of the
Companies Law.
|
125.
|
A
resolution that was passed or an act performed at a Board of Directors’
Committee, shall be treated as a resolution passed or an act performed at
the board of directors, unless explicitly stipulated otherwise by the
board of directors, for a specific matter or with respect to a certain
committee.
|
126.
|
The
board of directors may from time to time expand, limit or cancel the
delegation of authority to a Board of Directors’ Committee. However,
nothing in the aforesaid limitation or cancellation of powers shall serve
to impair the validity of a resolution of a committee on which the Company
acted, in respect of any other person who was not aware of its
cancellation.
|
127.
|
The
provisions included herein regarding the board of directors’ acts shall
apply also,
mutatis
mutandis
, to Board of Directors’ Committees, as long as they have
not been replaced by instructions which were given by the board of
directors in this regard.
|
128.
|
A
Board of Directors’ Committee shall report to the board of directors, as
promptly as practicable on its resolutions or
recommendations. If such resolution or recommendation has not
been reported within 30 days, it shall be null and
void.
|
129.
|
The
board of directors may, from time to time, appoint a general manager of
the Company (hereinafter: the “
General Manager
”) and it
may dismiss or replace him whenever it deems
fit.
|
130.
|
The
General Manager does not have to be a director or Shareholder of the
Company.
|
131.
|
The
General Manager is responsible for the ongoing management of the Company’s
affairs, in the framework of the policy laid down by the board of
directors and is subject to its
directions.
|
132.
|
The
General Manager shall have all the management and executive powers which
were not conferred under the Law or in these Articles or by virtue thereof
to any other organ of the Company; the General Manager shall be under the
supervision of the board of
directors.
|
133.
|
Subject
to the provisions hereof, the board of directors may from time to time,
give and grant powers to the General Manager which the board of directors
has pursuant hereto, as it sees fit, and it may grant some of these powers
for such period, for such purposes, on such terms and conditions and with
such restrictions as the board of directors sees fit. The board of
directors may grant these powers, both without waiving its powers in the
matter as well as in place or instead of all or any of these powers, and
it may from time to time cancel, negate and alter these powers, in whole
or in part.
|
134.
|
The
General Manager may, with the board of directors’ approval, delegate some
of his powers, to another or to others, who are subordinate to him. Such
approval may be given, whether by general approval or for a specific
matter, whether in a specific resolution or in the framework of the board
of directors’ procedures.
|
135.
|
The
General Manager’s fee may be paid by means of the payment of a salary or
commissions or participation in profits or by awarding securities or a
right to purchase them, or in any other
way.
|
136.
|
The
General Manager may from time to time appoint clerks, employees, agents
and non-executive officers, for temporary or special permanent positions,
as the General Manager shall deem fit from time to time. Similarly, the
General Manager may discontinue the service of one or more of the above
persons from time to time and at any time, in his sole discretion. The
General Manager may determine the powers and duties of those persons
mentioned above, as well as their salaries and grants, and demand security
in such cases and in such amounts as he sees
fit.
|
137.
|
Subject
to the Law and the provisions hereof, the board of directors may empower
any person to act and to sign in the Company’s name, whether alone or
together with another person, whether in a general manner or for specific
matters.
|
138.
|
The
Company may have a seal and/or stamp for the purpose of stamping its name
on documents to be signed and if the board of directors so determines,
documents binding the Company shall carry the seal or stamp in addition to
the signatures required by article
137 above.
Except in the cases where the seal or stamp is required as specified
above, the Company shall be bound in respect of documents signed on its
behalf by such person or persons authorized by the Directors to sign on
behalf of the Company in accordance with article 137, together with the
written or typewritten name of the
Company.
|
139.
|
The
board of directors may at any time empower any person to serve as the
Company’s attorney, for such objects and with such powers, authority and
discretion, for such period and subject to such terms, as it deems fit.
The board of directors may grant such person,
inter alia
, authority
to transfer the powers, authorizations and discretion vested in him to
another, either fully or partially.
|
140.
|
All
acts which have been executed by (i) the board of directors (ii) by a
Board of Directors’ Committee (iii) by any person who acts as director or
as a member of a Board of Directors’ Committee (iv) by the General Manager
shall be valid even if it is subsequently discovered that there was a
defect in appointing such person or entity, or that any of same was
ineligible to serve in his
position.
|
141.
|
Being
a shareholder of the Company, an interested party or an officer in any
other company, including a corporation in which the Company is an
interested party or which is a Shareholder of the Company, shall not
disqualify the person from serving as an officer in the Company.
Similarly, a person shall not be disqualified from serving as an officer
of the Company due to such person or any corporation, mentioned above from
entering into a contract with the Company, in any matter and in any
manner.
|
142.
|
The
fact that a person is an officer of the Company shall not disqualify him
or any of his relatives or any other corporation in which he is an
interested party, from executing transactions with the
Company.
|
143.
|
Subject
to applicable law, an officer may participate in and vote at discussions
concerning the ratification of transactions or acts in which he has a
personal interest.
|
144.
|
An
officer of the Company who knows that he has a personal interest in an
existing or proposed transaction of the Company, shall disclose to the
Company without delay and by no later than the board of directors’ meeting
at which the transaction is first discussed, the nature of his personal
interest, including any material fact or document. The provisions of this
section shall not apply when the personal interest derives solely from the
existence of a personal interest of a relative in a transaction which is
not exceptional.
|
145.
|
A
transaction of the Company with an officer thereof, as well as a
transaction of the Company with another person in which the officer of the
Company has a personal interest and which are not exceptional
transactions, shall be approved in the following
manner:
|
|
145.1.
|
The
officer shall notify the board of directors of the nature of the personal
interest, as a result of the foregoing, for the purpose of any execution
of a transaction which is not
exceptional.
|
|
145.2.
|
The
execution of a transaction which is not exceptional, as above-mentioned,
requires approval of the board of directors or of the audit committee or
of any other party which shall be authorized for such purpose by the board
of directors, whether by a specific resolution or by a general
consent.
|
|
145.3.
|
The
approval of transactions which are not exceptional, as stated above, can
be carried out by giving general approval to certain types of transactions
or by approval of a specific
transaction.
|
146.
|
The
Company shall be entitled to enter into contracts to insure the liability
of any officer thereof, in full or in part, for any of the
following:
|
|
146.1.
|
a
breach of the duty of care vis-à-vis the Company or vis-à-vis another
person, but excluding the duty of care which was intentionally or
recklessly breached;
|
|
146.2.
|
a
breach of a fiduciary duty vis-à-vis the Company, provided that the
officer acted in good faith and had a reasonable basis to believe that the
act would not prejudice the Company’s
interests;
|
|
146.3.
|
any
monetary liability imposed on him in favor of another person by reason of
an act done by virtue of his being an officer of the Company;
and
|
|
146.4.
|
any
other liability which may be insured according to
law.
|
147.
|
Subject
to the provisions of the Law, the Company may indemnify
post factum
and/or undertake in advance to indemnify any of its officers
due to any liability or expense imposed on him as a result of an act which
he performed by virtue of his being an officer of the Company, the
aforesaid for any of the following:
|
|
147.1.
|
Any
monetary liability imposed on him in favor of another person pursuant to a
judgment, including a judgment rendered in a settlement, or an
arbitrator’s award that has been approved by a
court;
|
|
147.2.
|
Reasonable
litigation expenses, including lawyers’ fees incurred by an officer
relating to investigative action against him by competent authority, which
concluded without resulting in (i) any indictment or (ii) any financial
penalty as an alternative to criminal proceedings, as defined by the
Companies Law, or concluded without resulting in any indictment, yet
concluded with a financial penalty as an alternative to criminal
proceedings relating to a strict liability
offense;
|
|
147.3.
|
Reasonable
litigation expenses, including lawyers’ fees, incurred by an officer or
which he is ordered to pay by a court, in proceedings filed against him by
the Company, in its name or by another person, or in a criminal indictment
from which he is acquitted or in a strict liability criminal indictment in
which he was convicted; and
|
|
147.4.
|
Any
other act or omission in respect of which an officer may be indemnified
according to law.
|
148.
|
The
Company may release an officer, in advance, of his liability, in whole or
in part, due to damage which it incurs as a result of the officer's breach
of the duty of care towards the Company. Notwithstanding the previous
sentence, the Company cannot release a director of his
liability in advance due to for damage which the Company incurs as a
result of a breach in the duty of care relating to a distribution (as
defined by the Companies Law).
|
149.
|
The
Company may undertake to indemnify an officer, in advance, subject to the
Company’s ability to indemnify an officer thereof in accordance with the
provisions of any law (hereinafter: the “
Undertaking of
Indemnity
”). An Undertaking of Indemnity shall be for the following
events:
|
|
149.1.
|
Events
as stipulated in article
147.1 above,
provided that the undertaking of indemnity will be limited to the events
that the board of directors stated as predictable in view of the Company's
activities at the time such undertaking was adopted and to an amount or a
standard which the board of directors stated as reasonable under the
circumstances. In the undertaking of indemnity, it shall be stipulated in
writing the events that the board of directors stated as predictable in
view of the Company's activities at that time and in a reasonable amount
or standard under the
circumstances.
|
|
149.2.
|
Events
as stipulated in article 147.2 and
147.3
above.
|
150.
|
The
Company may, subject to the provisions hereof, approve the retroactive
indemnification of an officer thereof, either fully or partially, as it
elects.
|
151.
|
The
Company may undertake to an employee of the Company, including an officer
of the Company who is not a director therein, who serves or shall serve on
the Company’s behalf or at its request, as a director in another company
whose shares are held by the Company, directly or indirectly (hereinafter:
“
Director of the Other
Company
”), to indemnify him for any liability or
expense, as set forth in article
147 above,
which shall be imposed on him due to an act which he performed by virtue
of his being a Director of the Other Company, provided the undertaking
shall be limited to types of events which, in the board of directors’
opinion, may be anticipated, at the time of giving the undertaking of
indemnity and the amount which the board of directors has deemed
reasonable in the circumstances of the
matter.
|
152.
|
Without
derogating from the provisions of article
151 above,
the Company may retroactively indemnify a Director of the Other Company,
due to any liability or expense, as set forth in article
147 above,
which was imposed on such Director of the Other Company due to an act
which was performed by virtue of being a Director of the Other
Company.
|
153.
|
The
provisions hereof shall not serve to restrict the Company, in any way,
from entering into any insurance contract, or as regards awarding an
exemption or indemnity:
|
|
153.1.
|
in
connection with a person who is not an officer of the Company or a
Director of the Other Company, including but without derogating from the
generality of the foregoing, employees, contractors or
consultants.
|
|
153.2.
|
in
connection with an officer of the Company or a Director of the Other
Company, to the extent the insurance, exemption or indemnity are not
prohibited according to law.
|
154.
|
An
auditor shall be appointed at each Annual Meeting, and shall serve in his
position until the end of the next Annual Meeting. Notwithstanding the
foregoing, the Company may appoint an auditor for a longer period of time
at a general meeting, provided, however, that the said period does not
exceed the period set out in the provisions of the
Law.
|
155.
|
Where
an auditor of the Company has been appointed, as provided in article
154 above,
the board of directors shall use its discretion to fix his fee for the
auditing work, in the board of directors’
discretion.
|
156.
|
The
auditor’s fee for additional services to the Company, which are not
auditing work, shall be fixed by the board of directors, in its
discretion.
|
157.
|
An
auditor may be present at all general meetings of the Company and express
his opinion by virtue of his position as auditor of the
Company.
|
158.
|
Any
act performed by the auditor shall be valid vis-à-vis any person who deals
with the Company in good faith, notwithstanding a defect in the
appointment or training of the
auditor.
|
159.
|
The
Company shall prepare financial statements for every year, which shall
include a balance sheet as of 31 December and an annual profit and loss
statement, as well as additional financial statements, all in accordance
with what is required according to accepted accounting procedures; the
auditor shall audit the said financial
statements.
|
160.
|
The
Company’s financial statements shall be prepared within nine months of the
31
st
of December of the preceding year.
|
161.
|
Any
act of merger in which the Company is involved shall require approval of
the board of directors and the general meeting, in accordance with the
stipulations prescribed in the Law.
|
162.
|
The
board of directors may, prior to deciding on the distribution of a
dividend as provided in article
165
hereinbelow, allocate such amounts as they deem fit, as a general fund or
a reserve fund for whatsoever needs or objects, as the board of directors
shall decide in its discretion.
|
163.
|
RESERVED.
|
164.
|
RESERVED.
|
165.
|
The
board of directors may adopt a decision on the distribution of a dividend.
The board of directors which decides on the distribution of a dividend may
decide that the dividend shall be paid, in whole or in part, in cash or by
way of a distribution of assets in kind, including securities or in any
other way, all in the board of directors’
discretion.
|
166.
|
Allotment of Bonus
Shares
|
|
166.1.
|
The
board of directors may decide on the distribution of bonus shares and on
the conversion into share capital part of the Company’s profits, within
the meaning thereof in section 302(b) of the Companies Law, from a premium
on shares or from any other source in its equity, which are stated in its
most recent financial statements, in an amount to be determined by the
board of directors and which shall not be less than the nominal value of
the bonus shares. Bonus shares which are allotted pursuant hereto shall be
deemed as being fully paid-up.
|
|
166.2.
|
The
board of directors which decides on an allotment of bonus shares may
decide that the Company shall transfer to a special fund, which shall be
designated for distributing bonus shares in the future, such amount whose
conversion into share capital shall be sufficient for the allotment, to
whoever shall at such time be, for whatsoever reason, eligible to purchase
shares of the Company (including a right which may only be exercised on a
later date), bonus shares to which he would have been entitled had he
exercised the right to purchase all or some of the shares, the aforesaid
by way of converting a suitable part of the said special fund into share
capital.
|
|
166.3.
|
The
bonus shares shall confer on their holders the right to participate in a
distribution of the dividends, in cash or in bonus shares, commencing from
the date determined by the board of directors and in any other right, as
determined by the board of directors. With regard to determining the
amount to be transferred to the said special fund, any amount transferred
to such fund in respect of previous distributions of bonus shares shall be
seen as though it has already been capitalized and that shares entitling
the holders of the right to purchase shares, to bonus shares, have been
allotted from such amount.
|
167.
|
Where
the rights attached to any shares, or the terms of issue of the shares do
not stipulate otherwise, shares that were paid-up or which were credited
as being fully or partially paid-up during any particular period in
respect of which dividends are paid, shall entitle their owners to a
dividend relative to the amount which was paid-up or which was credited as
being paid-up on the nominal value of those shares and on the date of
their payment (
pro rata
temporis
), without taking into account any premium that was paid
thereon.
|
168.
|
For
the purpose of implementing a resolution with regard to the distribution
of a dividend or the allotment of bonus shares, the board of directors
may:
|
|
168.1.
|
settle,
as it sees fit, any difficulty which arises in connection therewith and
adopt all steps which it sees fit in order to overcome this
difficulty.
|
|
168.2.
|
decide
that fractions, in general, or fractions in an amount lower than a certain
amount as decided by the board of directors, shall not be taken into
account for the purpose of adjusting the right of the Shareholders or sell
fractions of shares and pay the (net) consideration to those persons who
are eligible.
|
|
168.3.
|
empower
to sign, in the name of the Shareholders, any contract or other document
which shall be necessary for giving validity to an allotment or
distribution, and in particular, to empower, sign and submit for
registration, a document in writing, as provided in section 291 of the
Companies Law.
|
|
168.4.
|
make
any arrangement or other settlement which may be necessary in the board of
directors’ opinion in order to facilitate the
allotment.
|
169.
|
A
dividend or other benefits in respect of shares shall not bear
interest.
|
170.
|
Without
derogating from the provisions hereof, the board of directors may retain
any dividend or bonus shares or other benefits in respect of a share for
which the consideration thereon has not been paid, in whole or in part, to
the Company and to collect any such amount or consideration received on
the sale of any bonus shares or other benefit on account of the debts or
obligations in respect of the said
share.
|
171.
|
The
board of directors may from time to time determine the method of payment
of the dividends or the allotment of bonus shares or the transfer thereof
to other eligible parties, as well as instructions, procedures and
arrangements in connection
therewith.
|
172.
|
If
two or more persons are registered in the Register as joint Shareholders,
each one may give a valid receipt for any dividend, share or other value,
or other monies or benefits which are due in respect of the share and the
cheque or the payment order may be drawn up to the order of one of them
and the cheque may be sent by registered mail to his address, as recorded
in the register.
|
173.
|
The
Shareholders have a right to inspect the documents of the Company detailed
in section 184 of the Companies Law, upon fulfillment of the conditions
stipulated in this regard.
|
174.
|
Without
derogating from the provisions of article
173 above,
the board of directors may, in its discretion, decide to grant a right to
inspect all or any of the Company’s documents, including to all or any of
the Shareholders, as it deems fit.
|
175.
|
The
Shareholders shall not have a right to inspect all or any of the Company’s
documents, unless they were granted such right, under Law or according to
these Articles, or if they were so authorized by the board of directors,
as provided in article
174
above.
|
176.
|
Subject
to the provisions of any law, any book, ledger or register which the
Company is obliged to keep, according to law or pursuant hereto, shall be
kept by technical, mechanical or other means, as shall be decided by the
board of directors.
|
177.
|
Without
derogating from a liquidator’s authority under section 334 of the
Ordinance and subject to the rights attached to the classes of shares
issued in the Company, if the Company is wound-up voluntarily or in any
other manner, the Company’s assets shall be distributed after discharging
all its liabilities amongst the Shareholders, in a manner relative to the
amount which was paid-up or which was credited as being paid-up on the
nominal value of those shares and on the date of their payment (
pro rata temporis
),
without taking into account any premium that was paid
thereon.
|
178.
|
Subject
to the provisions of any law, a liquidator may distribute in kind amongst
the eligible Shareholders, according to a resolution of the general
meeting passed by an Ordinary Majority, all or some of the surplus assets
and the liquidator may also, according to a resolution of the general
meeting passed by an Ordinary Majority, deposit any part of the surplus
assets with trustees who shall hold them in trust for the Shareholders, as
the liquidator shall see fit. For the purpose of dividing the surplus
assets in kind, the liquidator may determine the fair value of the
distributable assets and decide how the distribution amongst the ordinary
Shareholders shall be executed, having regard for the rights attached to
the various classes of shares of the Company which they
own.
|
179.
|
Notwithstanding
any other provision of these Articles of Association, any resolution
providing for the dissolution, liquidation or winding up of the Company
shall be valid only if duly adopted at a General Meeting of Shareholders
by the holder or holders of at least sixty-six percent (66%) of the Shares
of the Company at the time outstanding, the notice of which meeting shall
have specified the nature of any such resolution to be voted upon at such
meeting.
|
|
179.1.
|
In
the event of dissolution of the Company, the liquidation shall be effected
under such provisions, as the General Meeting of Shareholders shall
decide.
|
|
179.2.
|
Following
its dissolution, the object of the Company shall be the liquidation of its
assets and all such things as may be useful
therefor.
|
180.
|
The
liquidation balance shall be distributed to the shareholders, and any such
distribution of the liquidation balance shall be effected according to the
following order:
|
|
180.1.
|
First,
the holders of the A1 Shares shall be entitled to receive, ratably among
themselves, prior and in preference to the holders of any other class or
series of Shares by reason of their ownership thereof, an amount per share
equal to the equivalent in Israel New Shekels (NIS) of the sum of (x) the
Original Issue Price for each such A1 Share, and (y) an amount equal to
accrued and declared but unpaid dividends on each such
share.
|
|
180.2.
|
Second,
if any assets remain in the Company after the distribution contemplated by
subsection (i) above has been fully made, the holders of the A2 Shares
shall be entitled to receive, ratably among themselves as one series of
shares on an as converted basis, prior and in preference to the holders of
any other class or series of capital stock or shares of the Company,
except for the A1 Shares, by reason of their ownership thereof, an amount
per share equal to the equivalent in Israel New Shekels (NIS) of the sum
of (x) the Original Issue Price for each such A2 Share, and (y) an amount
equal to accrued and declared but unpaid dividends on each such
share.
|
|
180.3.
|
Third,
if (i) any assets remain in the Company after the distributions
contemplated by subsections (i) and (ii) above have been fully made, and
(ii) the aggregate amount payable to the holders of A1 Shares in such
transaction (after giving effect to all payments, including the payments
in subsection (iv) below) is less than two times the Original Issue Price,
then an eight percent (8%) dividend compounded annually will be payable to
such holders of A1 Shares.
|
|
180.4.
|
Fourth,
if any assets remain in the Company after the distributions contemplated
by subsections (i) and (ii) above have been fully made, such assets shall
be distributed ratably to the holders of the Preferred Shares and the
holders of the Common Stock based upon the number of Common Stock held by
(or which, upon conversion of the Preferred Shares into Common Stock,
would be held by) such holders.
|
181.
|
During
ten (10) years after the end of the liquidation, the books and records of
the Company shall remain in the custody of the liquidator of the Company
or the custodian designated thereto by the judge at the liquidator’s
request.
|
182.
|
The
giving of notices or the delivery of documents to Shareholders according
to the provisions of the Law or pursuant hereto shall be carried out in
one of the ways mentioned in this chapter
hereinbelow.
|
183.
|
The
Company may deliver a notice or document to a Shareholder by hand
delivery, or by facsimile or by sending it by mail or by means of
electronic mail; delivery by mail shall be made according to the address
of the Shareholder as recorded in the Register, and if there is no such
address recorded, according to the address which has been given to the
Company for the purpose of sending notices to him. A notice delivered by
means of transmitting a facsimile shall be sent to the Shareholder in
accordance with the facsimile number which was given by him to the
Company. A notice which is delivered by electronic mail shall be sent to
the Shareholder according to the electronic mail address which he has
given the Company.
|
184.
|
A
notice or document which was delivered by hand to a Shareholder, shall be
deemed as having been properly delivered when physically delivered to that
address. A notice or document which was sent by mail shall be deemed as
having been properly delivered if deposited for dispatch at a post office,
while bearing the correct address and duly stamped. Notice by
fax or email shall be effective on the next business day in Israel after
sent to the number or email address provided by such Shareholder after
with a fax confirmation of delivery for notice by fax and no delivery
failure message within 24 hours if by
email.
|
185.
|
In
the case of joint Shareholders, the Company may send notice to the joint
Shareholder whose name appears first in the Register in respect of the
share.
|
186.
|
Any
document or notice which have been furnished to Shareholders of the
Company, in accordance with the provisions hereof, shall be deemed as
having been duly served notwithstanding the death, bankruptcy or
winding-up of that Shareholder or assignment of the right in the shares
according to law (whether or not the Company was aware thereof), as long
as any other person has not been recorded as Shareholder in his place and
such dispatch or delivery shall be deemed for all purposes as being
sufficient with respect to any person who has an interest in those shares
or who is entitled thereto, by virtue of an assignment of the right,
pursuant to law, whether together with such Shareholder or by virtue or in
lieu of such Shareholder.
|
187.
|
Subject
to the provisions of any law, a Shareholder, director or any other person,
who is entitled to receive notice pursuant hereto or in accordance with
the Law, may waive the receipt thereof, whether in advance or
post factum
, whether
for a special case or in general, and once he has done so, it shall be
deemed as though the notice has been duly served, and any proceeding or
act in respect of which the furnishing of notice was necessary, shall be
considered as being in full force and
effect.
|
188.
|
Written
confirmation which is signed by a director or by the secretary of the
Company regarding the serving of a document or the furnishing of notice in
any of the manners specified herein, shall be deemed
prima facie
proof with
respect to the accuracy of any detail contained
therein.
|
189.
|
Whenever
it is necessary to give advance notice of a few days or notice which is
valid for a specific period, the date of delivery shall be counted amongst
the number of days of the period, unless determined otherwise. Where
notice has been given in one of the above-mentioned ways, it shall be
deemed as having been received on the earliest possible date on which it
is deemed as having been delivered, as provided
above.
|
190.
|
Notices
to holders of bearer shares shall be given by advertising in a daily
newspaper appearing in Israel and such notice shall be deemed as having
been duly served on the date of its publication, as
mentioned.
|
191.
|
In
the event that these Articles should be drawn up in both Hebrew and in
English, this English document shall be the binding
version.
|
1.
|
In
these Articles of Association, unless the context otherwise
requires:
|
|
1.1.
|
“Articles”
- means the
Articles of Association of the Company (as defined below), as shall be in
force from time to time.
|
|
1.2.
|
“Board of Directors”
-
means the board of directors of the Company as appointed from time to time
in accordance with the Articles.
|
|
1.3.
|
“Business Day”
- means
Monday
through
Thursday excluding any public holidays on which most of the branches of a
majority of the five major banks in Israel are closed to the
public.
|
|
1.4.
|
“Companies Law”
- means
the Israeli Companies Law, 5759-1999, as amended from time to time,
including any regulations promulgated
thereunder.
|
|
1.5.
|
“Companies Ordinance”
-
means the relevant sections of the Companies Ordinance (New Version),
5743-1983, as currently in effect, and as may be amended from time to
time, and any regulations promulgated by virtue
thereof.
|
|
1.6.
|
“Company”
- means
SodaStream
International Ltd.
|
|
1.7.
|
“General Meeting”
-
means the annual general meeting of the Company’s Shareholders and any
special general meeting of the Company’s
Shareholders.
|
|
1.8.
|
“Office”
- means the
office of the Company as recorded with the Israeli Registrar of
Companies.
|
|
1.9.
|
“Office Holder”
– means
any person who fits the definition of an Office Holder in Section 1 of the
Companies Law.
|
|
1.10.
|
“Ordinary Majority”
-
means a majority of more than 50% of all the votes of the Shareholders
present (either in person, through proxy or through written ballot), and
entitled to vote at a particular meeting or class meeting of the Company,
as applicable, without taking into account the votes of
abstainees.
|
|
1.11.
|
“Personal Interest”
-
shall have the meaning defined in Section 1 of the Companies
Law.
|
|
1.12.
|
“Register”
- means the
official share register of the Company kept pursuant to Sections 130 - 134
of the Companies Law and including an “Additional Register” kept pursuant
to Section 138 of the Companies Law, if the Company elects to have an
Additional Register. For the avoidance of doubt, the list of
shareholders kept by the Company’s transfer agent regarding the holder(s)
of the Company’s securities shall be deemed an “Additional Register” for
the purposes of these Articles.
|
|
1.13.
|
“Shareholder”
- shall
include any individual or entity specified in Section 177 of the Companies
Law.
|
2.
|
The
captions in these Articles are for convenience only and shall not be
deemed a part hereof or affect the construction of any provision hereof.
The specific provisions of these Articles shall supersede the provisions
of the Companies Law and the Companies Ordinance, as applicable, to the
extent permitted under the Companies Law and the Companies Ordinance, as
applicable. With respect to any matter that is not specifically addressed
in these Articles, the provisions of the Companies Law and the Companies
Ordinance, as applicable, shall
govern.
|
3.
|
The
name of the company is as follows:
|
|
|
3.1.
|
In
Hebrew:
סודהסטרים אינטרנשיונל
בע”מ
|
|
3.2.
|
In
English: SodaStream International
Ltd.
|
4.
|
The
purpose of the Company is to engage in any lawful act or activity for
which companies may be organized under the Companies
Law.
|
5.
|
The
liability of each Shareholder for the Company’s obligations is limited to
the unpaid sum, if any, owing to the Company in consideration for the
issuance of the shares held by such
Shareholder.
|
6.
|
The
authorized share capital of the Company is NIS 34,830,000, divided into
54,000,000 shares, nominal value NIS 0.645 per share (“
Ordinary
Shares
”).
|
7.
|
The
Company may alter the authorized share capital in accordance with the
provisions of the Companies Law.
|
8.
|
The
Company may make reasonable contributions of money to worthy causes, as
the Board of Directors may determine in its discretion, even if such
contributions are not within the framework of the Company’s business
considerations.
|
9.
|
Subject
to the Companies Law, if at any time the share capital of the Company is
divided into different classes of shares, the rights attached to any
class, unless otherwise provided by these Articles, may be modified or
abrogated by the Company by an Ordinary Majority at a General Meeting,
subject to the approval by an Ordinary
M
ajority of such class present and
voting at a separate
c
lass
m
eeting of the holders of the
shares of such class
. Subject to the Companies Law, the provisions
of these Articles relating to General Meetings shall,
mutatis mutandis
, apply
to any separate meeting of the holders of the shares of a particular
class.
|
10.
|
Subject
to the provisions of these Articles and applicable law, the Company may,
from time to time by Ordinary Majority at a General Meeting, subject to
approval by an Ordinary Majority at a class meeting, if
applicable:
|
|
10.1.
|
consolidate
all or any of its
issued
or unissued share
capital into shares of larger nominal value than its existing
shares;
|
|
10.2.
|
subdivide its shares (issued or
unissued) or any of them, into shares of smaller nominal value than is
fixed by these Articles, and the resolution whereby any share is
subdivided may determine that, as among the holders of the shares
resulting from such subdivision, one or more of the shares may, as
compared with the others, have any such preferred or deferred rights or
rights of redemption or other special rights, or be subject to any such
restrictions, as the Company has power to attach to unissued or new
shares;
|
|
10.3.
|
cancel
any
authorized shares not yet issued,
provided that the Company has made no commitment, including a conditional
commitment, to issue such shares;
or
|
|
10.4.
|
reduce its share capital in any
manner, subject to any authorization or consent required by applicable
law.
|
11.
|
With
respect to any consolidation of shares and any other action which may
result in fractional shares, the Board of Directors may settle any
difficulty which may arise with regard thereto, as it deems fit,
including, inter alia, by resort to one or more of the following
actions:
|
|
11.1.
|
allot,
in contemplation of or subsequent to such consolidation or other action,
such shares or fractional shares sufficient to preclude or remove
fractional share holdings;
|
|
11.2.
|
to
the extent as may be permitted under the Companies Law, redeem or purchase
such shares or fractional shares sufficient to preclude or remove
fractional shareholdings;
|
|
11.3.
|
to
the extent as may be permitted under the Companies Law, cause the transfer
of fractional shares by certain Shareholders of the Company to other
Shareholders thereof so as to most expediently preclude or remove any
fractional shareholdings, and cause the transferees to pay the transferors
the fair value of fractional shares so transferred, and the Board of
Directors is hereby authorized to act as agent for the transferors and
transferees with power of substitution for purposes of implementing the
provisions of this sub-Article.
|
12.
|
Subject
to the provisions of these Articles, the authorized and unissued share
capital of the Company shall be at the disposal of the Board of Directors
who may without limiting or affecting any rights previously conferred on
the holders of any existing shares, offer, allot, grant options over or
otherwise dispose of shares or other securities convertible into shares of
the Company, to such persons, at such times and upon such terms and
conditions as the Company may determine by resolution of the Board of
Directors.
|
13.
|
RESERVED.
|
14.
|
Share
certificates shall bear the signature of the Chairman of the Board and the
Chief Executive Officer. One of the signatures of the Chairman
of the Board or the Chief Executive Officer can be replaced by the
signature of the Chief Financial Officer or the Secretary. The Board of
Directors may authorize other person or persons to sign the Company’s
share certificates in addition or in lieu of any of the
foregoing. Without limiting the generality of the foregoing,
the Company shall be entitled to issue one or more global share
certificates representing shares held, or to be held, through a book-entry
system.
|
15.
|
Each
Shareholder shall be entitled to one or more numbered certificate(s) for
all the shares of any class registered in such Shareholder’s name, and if
Board of Directors or the Company's secretary so approves, each for one or
more of such shares. Each certificate shall specify the nominal value and
the serial numbers of the shares represented thereby and may also specify
the amount paid up thereon.
|
16.
|
A
share certificate registered in the names of two or more persons shall be
delivered to the person first named in the Register in respect of such
co-ownership and the Company shall not be obligated to issue more than one
certificate to all the joint
holders.
|
17.
|
If
a share certificate is defaced, lost or destroyed, it may be replaced,
upon payment of such fee, and upon the furnishing of such evidence of
ownership and such indemnity, as the Board of Directors or the Company’s
secretary may think fit.
|
18.
|
Except
as otherwise provided in these Articles, the Company shall be entitled to
treat any Shareholder as the absolute owner of any shares registered in
such Shareholder’s name, and, accordingly, shall not, except as ordered by
a court of competent jurisdiction, or as required by statute, be bound to
recognize any equitable or other claim to, or interest in, such share on
the part of any other person.
|
19.
|
All
the shares in the Company’s issued capital shall be fully paid up
shares.
|
20.
|
No
transfer of shares, including to and from a nominee company or a transfer
agent, shall be registered unless a proper instrument of transfer (in form
and substance satisfactory to the Board of Directors) has been submitted
to the Company or its transfer agent, together with the share
certificate(s) and such other evidence of title as the Board of Directors
may reasonably require provided that the Board of Directors may approve
other methods of recognizing the transfer of Shares, taking into account
the manner of trading of the Company’s Shares. Subject to the
terms of these Articles, the effectiveness of such transfer of shares
shall not require the prior approval of the Board of
Directors.
|
21.
|
All
transfers of shares shall be made in writing in the form appearing herein
below, or in a similar form, or in any form approved by the Board of
Directors or the Company’s transfer agent from time to
time:
|
Transferee
|
Transferor
|
Witness
|
Witness”
|
22.
|
Subject
to the provisions of the Companies Law, the transferor shall be deemed to
remain a Shareholder until the name of the transferee is entered into the
Register in respect thereof.
|
23.
|
The
Company may impose a fee for registration of a share transfer, at a
reasonable rate as may be determined by the Board of Directors from time
to time.
|
24.
|
Decedents
Shares
.
Subject to applicable law, any person becoming entitled to a share
in consequence of the death of any person, upon producing evidence of the
grant of probate or letters of administration or declaration of succession
(or such other evidence as the Board of Directors, or a Company’s
secretary, may reasonably deem sufficient), shall be registered as a
Shareholder in respect of such share, or may, subject to the regulations
as to transfer herein contained, transfer such
share.
|
25.
|
Receivers
and Liquidators
.
Subject to applicable law, the Company may recognize the receiver
or liquidator of any corporate Shareholder in winding-up or dissolution,
or the receiver or trustee in bankruptcy of any Shareholder, as being
entitled to the shares registered in the name of such Shareholder. Subject
to applicable law, the receiver or liquidator of a corporate Shareholder
in winding-up or dissolution, or the receiver or trustee in bankruptcy of
any Shareholder, upon producing such evidence as the Board of Directors
may deem sufficient that he or she is entitled to appear in such capacity,
shall be registered as a Shareholder in respect of such shares, or may,
subject to the regulations as to transfer herein contained, transfer such
shares.
|
26.
|
The
Shareholders entitled to receive notice of, to participate in and to vote
thereon at a General Meeting, or to express consent to or dissent from any
corporate action in writing, shall be determined by the Board of Directors
subject to the restrictions set forth under the Companies Law and the
regulations promulgated thereunder. A determination of Shareholders of
record with respect to a General Meeting shall apply to any adjournment of
such meeting.
|
27.
|
Annual
General Meeting
.
An Annual General
Meeting shall be held once in every calendar year at such time as is
required in accordance with applicable law and at such place either within
or outside of the State of Israel as may be determined by the Board of
Directors and shall deliberate over the matters required by the Companies
Law or any other applicable law or such other matters as shall be
determined by the Board of
Directors.
|
28.
|
Special
General Meetings
.
All General Meetings other than Annual General Meetings shall be
called “Special General Meetings”. The Board of Directors may,
whenever it deems fit, convene a Special Meeting at such time and place,
within or outside of the State of Israel, as may be determined by the
Board of Directors, and shall be obligated to do so upon requisition in
writing in accordance with Section 63 of the Companies Law. The
Shareholders of the Company may convene a Special General Meeting in
accordance with Section 64 of the Companies
Law.
|
29.
|
Notice
of General Meetings
.
Sub
ject to these Articles and to the
applicable law, including the applicable laws and regulations of any stock
market or over-the-counter market on which the Company’s shares are
listed, the Company shall provide to those who are entitled to participate
in a General Meeting or publish, as provided in applicable law, a written
notice not less than twenty-one (21) days prior to any General
Meeting.
To the
extent permitted by applicable law,
the Company is not required to
deliver personal notice, financial statements or annual reports to
Shareholders, whether registered or
not.
|
30.
|
Quorum
.
Two or more
Shareholders (not in default in payment of any sum referred to in these
Articles) present in person by proxy or through written ballot (to the
extent relevant), who hold or represent between or among them at least 25%
of the Company’s issued share capital shall constitute a quorum at General
Meetings. No business shall be transacted at a General Meeting, or at any
adjournment thereof, unless the requisite quorum is present when the
meeting proceeds to business. If within a half hour from the time
appointed for the meeting a quorum is not present, the General Meeting
shall stand adjourned for one week, to the same day, time and place,
without it being necessary to notify the Shareholders of such or such
other time and place as specified in the notice or to such later day and
at such time and place as the Chairperson (as defined below) may determine
with the consent of an Ordinary Majority. If a quorum is not
present at the adjourned meeting within half an hour of the time fixed for
the commencement thereof, subject to the provisions of applicable law, the
persons present shall constitute a quorum, unless the meeting was called
pursuant to a request by the Company’s Shareholders, in which case the
quorum required shall be the number of Shareholders required to call the
meeting. No business shall be transacted at any adjourned meeting
except business that might lawfully have been transacted at the meeting as
originally called.
|
31.
|
Chairperson
.
The Chairperson of the
Board of Directors (the “
Chairperson
”) shall
preside as chairperson at every General Meeting of the Company. If at any
meeting such Chairperson is not present within fifteen (15) minutes after
the time fixed for holding the meeting or is unwilling to act as
chairperson of the meeting, the Shareholders present shall choose someone
of their member to serve as chairperson of the
meeting.
|
32.
|
Adoption
of Resolutions at General Meetings
.
|
|
32.1.
|
Unless
otherwise specifically provided in these Articles or under any applicable
law, all resolutions submitted to the Shareholders shall be deemed adopted
if approved by an Ordinary Majority. In the event of a tie
vote, the proposed resolution shall be
rejected.
|
|
32.2.
|
The
Board of Directors may determine, in its discretion, the matters that may
be voted at the General Meeting by written ballot in addition to those
matters required to be voted on by written ballot by applicable
law.
|
|
32.3.
|
Every
question submitted to a General Meeting shall be decided by a count of
votes.
|
|
32.4.
|
Minutes
of each meeting of the Shareholders shall be recorded and duly entered in
books provided for that purpose. Such minutes shall, in all events, set
forth the names of the persons present at the meeting and all resolutions
adopted thereat. Any minutes as aforesaid, if purporting to be signed by
the chairperson of the General Meeting shall constitute prima facie
evidence of the matters recorded
therein.
|
33.
|
Power
to Adjourn
.
The chairperson of a General Meeting at which a quorum is present
may, with the consent of an Ordinary Majority (and shall if so directed by
the meeting), adjourn the meeting from time to time and from place to
place, but no business shall be transacted at any adjourned meeting except
business which might lawfully have been transacted at the meeting as
originally called. It shall not be necessary to give any notice of an
adjournment unless the meeting is adjourned for twenty-one (21) days or
more, in which event notice thereof shall be given in the manner required
for the meeting as originally called. The Board of Directors may adjourn a
General Meeting prior to the time that it was originally called for except
for those General Meetings it was required to call under applicable
law.
|
34.
|
Voting
Power
.
Subject to any provision hereof conferring special rights as to
voting, or restricting the right to vote, every Shareholder shall have one
vote for each share held by such Shareholder, on every resolution, without
regard to whether the vote hereon is conducted by a show of hands, by
proxy or by any other means.
|
35.
|
Voting
Rights.
|
|
35.1.
|
Subject
to the terms of applicable law, the right of a Shareholder to vote at any
General Meeting (or be counted as a part of the quorum thereat), shall be
subject to regulations and procedures with regard to proof of title to the
Company’s shares prescribed by the Board of
Directors.
|
|
35.2.
|
A
company or other corporate body that is a Shareholder of the Company may,
by resolution of its directors or any other managing body thereof,
authorize any person to be its representative at any General Meeting. Any
person so authorized shall be entitled to exercise on behalf of such
Shareholder all the power that the latter could have exercised if it were
an individual Shareholder. Upon the request of the chairperson of the
General Meeting, written evidence of such authorization (in form
acceptable to the chairperson) shall be delivered to the
chairperson.
|
|
35.3.
|
Any
Shareholder entitled to vote may vote either personally or by proxy (who
need not be a Shareholder of the Company), or, if the Shareholder is a
company or other corporate body, by a representative authorized pursuant
to Article 35.2.
|
|
35.4.
|
If
two or more persons are registered as joint holders of any share, the vote
of the senior who tenders a vote, in person or by proxy, shall be accepted
to the exclusion of the vote(s) of the other joint holder(s); and for this
purpose seniority shall be determined by the order in which the names
stand in the Register. Separate guardians or separate executors of estates
of a deceased registered Shareholder shall be deemed, for the purposes of
this Article 35.4, as joint Shareholders in such
cases.
|
|
35.5.
|
Minors
and legally incompetent persons shall only be allowed to vote through
their legal guardian, and any such guardian may vote as a
proxy.
|
36.
|
Proxy
.
The instrument
appointing a proxy shall be in writing and shall be substantially in the
following form:
|
37.
|
Effect
of Death of Appointer or Revocation of Appointment
.
Subject to applicable
law, a vote cast pursuant to an instrument appointing a proxy shall be
valid notwithstanding the previous death, liquidation or winding-up of the
appointing Shareholder (or of his or her attorney-in-fact, if any, who
signed such instrument), or the revocation of the appointment or the
transfer of the share in respect of which the vote is cast, provided no
written intimation of such death, liquidation, winding-up revocation or
transfer shall have been received by the Company or by the chairperson of
the General Meeting before such vote is cast and provided, further, that
the appointing Shareholder, if present in person at said meeting, may
revoke the appointment by means of a writing, oral notification to the
chairperson of the General Meeting, or
otherwise.
|
38.
|
Powers
of Board of Directors
.
The Board of Directors
shall determine the Company’s policies, oversee the activities of the
Chief Executive Officer, and take such other actions as are described in
these Articles, Section 92 of the Companies Law or any other applicable
law. The Board of Directors in its discretion may, from time to time,
borrow funds or guarantee the payment of any sum or sums as needed by the
Company. The Board of Directors may secure the payment of such sums in the
same manner and under the same conditions as it deems fit, whether by
means of issuing debt securities, debentures, or stock of debentures,
against either a floating charge on all or a portion of the Company's
property whether owned now or in the future, including capital not yet
called, or against liens or other security interests of any kind.
Any debt securities, debentures,
stock of debentures or other security interest may be issued at a discount
or a premium or in any other matter and with any other pre-financial
redemption, conversion, or allotment rights.
The authority
conferred on the Board of Directors by this Article 38 shall be
subject to the provisions of the Companies Law, of these Articles and any
regulation or resolution consistent with these Articles adopted from time
to time by the Company in a General Meeting, provided, however, that no
such regulation or resolution shall invalidate any prior act done by or
pursuant to a decision of the Board of Directors which would have been
valid if such regulation or resolution had not been
adopted.
The
Board of Directors may execute any power of the Company that is not
specifically allocated by applicable law or by these Articles to another
organ of the Company.
|
39.
|
Exercise
of Powers of Directors
.
A meeting of the Board
of Directors at which a quorum is present shall be competent to exercise
all the authorities, powers and discretions vested in or exercisable by
the Board of Directors. A resolution proposed at any meeting of the Board
of Directors shall be deemed adopted if approved by a majority of the
Directors present when such resolution is put to a vote and voting
thereon, without taking into account the votes of abstainees and with each
director entitled to only one vote. The Chairperson of the Board of
Directors will not have an additional or casting vote, in the case of a
tie. A resolution in writing signed by all directors then in office and
lawfully entitled to vote thereon (as conclusively determined by the
Chairperson of the Board of Directors) or to which all such directors have
given their written consent (by e-mail, facsimile, letter or otherwise)
and which has been signed by the Chairperson of the Board of Directors
shall be deemed to have been unanimously adopted by a meeting of the Board
of Directors duly convened and
held.
|
40.
|
Delegation
of Powers
.
Subject to applicable law, the Board of Directors may delegate any
or all of its powers to committees, each consisting of two or more
persons, and it may from time to time revoke such delegation or alter the
composition of any such committee. Any Committee so formed (in these
Articles referred to as a “
Committee of the Board of
Directors
”), shall, in the exercise of the powers so delegated,
conform to any regulations imposed on it by the Board of Directors. The
meetings and proceedings of any such Committee of the Board of Directors
shall,
mutatis
mutandis
, be governed by the provisions herein contained for
regulating the meetings of the Board of Directors, so far as not
superseded by any regulations adopted by the Board of Directors under this
Article 40. Unless otherwise expressly provided by the Board of Directors
in delegating powers to a Committee of the Board of Directors, such
Committee of the Board of Directors shall not be empowered to further
delegate such powers;
and
s
ubject to the provisions of the
Companies Law and except as otherwise prescribed by the Board of
Directors, any resolution by a Committee of the Board of Directors within
its authority shall be binding as if it was adopted by the Board of
Directors.
|
41.
|
Number
of Directors
.
The number of directors serving on the Board of Directors may be
determined from time to time by the Board of Directors or at a General
Meeting provided however that the overall number of directors at a given
time be not less than five and not more than nine. This number shall
include the external directors required under the terms of the Companies
Law.
|
42.
|
Election
and Removal of Directors
.
|
|
42.1.
|
The
Directors of the Company (other than any external directors elected
pursuant to the Companies Law) shall be divided into three classes,
designated class I, class II and class III. Each class of
Directors shall consist, as nearly as possible as determined by the Board
of Directors, of one-third of the total number of directors constituting
the entire Board of Directors (excluding the external directors). The
first term of office of the class I Directors shall expire at the
annual General Meeting occurring in 2011; the first term of office of the
class II Directors shall expire at the annual General Meeting in
2012; and the first term of office of the class III Directors shall
expire at the annual General Meeting in 2013. Any Director
whose term has expired may be reelected to the Board of Directors except
as provided by applicable law.
|
|
42.2.
|
At
each annual General Meeting, election or re-election of Directors
following the expiration of the term of office of the Directors of a
certain class, will be for a term of office that expires on the third
Annual General Meeting following such election or re-election, such that
from 2011
and
forward, each year the term of office of only one class of Directors will
expire (i.e., the term of office of Class I will initially expire at
the Annual Meeting held in 2011 and thereafter at 2014, 2017 etc.). A
Director shall hold office until the annual General Meeting for the year
in which his or her term expires.
|
|
42.3.
|
Upon
a change in the number of Directors (other than as a result of a vacancy),
in accordance with the provisions hereof, any increase or decrease shall
be apportioned by the Board of Directors at their discretion among the
classes so as to maintain the number of Directors in each class as nearly
equal as possible.
|
|
42.4.
|
Any
Director shall assume his or her position as Director on the date of his
election to the Board of Directors, unless a later date has been
designated in the resolution appointing such
Director.
|
|
42.5.
|
The
Board shall have power at any time and from time to time to appoint any
person to be a Director, either to fill an occasional vacancy or as an
addition to the existing Board, so long as the total number of Directors
shall not at any time exceed the maximum number prescribed by the Articles
and shall place any such new director in a class so that each class is as
nearly equal as possible.
|
|
42.6.
|
The removal of any director prior
to the expiry of his or her term (regardless of how the director was
appointed or elected), other than in accordance with Article 44 below,
shall be upon the vote of two thirds of the voting shares of the Company
except as provided by applicable
law.
|
43.
|
Continuing
Directors in the Event of Vacancies.
The continuing Directors may
act notwithstanding any vacancy or vacancies in the Board of Directors.
But if the number of Directors is reduced below the minimum number fixed
by the Articles, the continuing Directors may act for the purpose either
of filling vacancies in the Board in order to fulfill the minimum number
of director requirement as prescribed by the Articles or of summoning a
General Meeting for this
purpose.
|
44.
|
Vacation
of Office
.
The office of a director shall be vacated by the director’s written
resignation in accordance with the procedure set forth by applicable law.
Such resignation shall become effective on the date fixed therein, or upon
the delivery thereof to the Company, whichever is later. With the
exception of the vacation of the office of an external director which
shall be governed in accordance with the provisions of the Companies Law,
the office of a director shall be vacated,
ipso facto
, upon the
occurrence of any of the following: (i) such director’s death, (ii) such
director is convicted of a crime as described in Section 232 of the
Companies Law, (iii) such director is removed by a court of law in
accordance with Section 233 or the Companies Law, (iv) such director
becomes legally incompetent, (v) if such director is an individual, such
director is declared bankrupt, (vi) if the Company at a General Meeting
fails to re-elect a director at which he or she was up for reelection,
(vii) if such director is a corporate entity, upon its winding-up
liquidation, whether voluntary or involuntary or (viii) if such director
is prohibited by applicable law or listing requirements from servicing as
a director of the Company.
|
45.
|
Remuneration
of Directors
.
The Company is entitled to compensate the members of the Board of
Directors for their services as directors provided that such remuneration
shall have been approved pursuant to the provisions of the Companies Law
and in the case of external directors, the Company must compensate its
external directors pursuant to the provisions of the Companies Law and the
regulations promulgated thereunder. The Company may reimburse directors
for their reasonable expenses for traveling, board and lodging and other
expenses connected with their participation at meetings of the Board of
Directors and the performance of their position as directors. The Company
may pay additional remuneration to a director who has been asked to
provide special services to the Company or who makes special efforts for
the Company, subject to approval pursuant to the provisions of the
Companies Law.
|
46.
|
Conflict
of Interests.
Subject to
the provisions of any applicable law,
the Company may enter into
any contract or otherwise transact any business with any Office Holder in
which contract or business such Director has a personal interest, directly
or indirectly; and may enter into any contract or otherwise transact any
business with any third party in which contract or business an Office
Holder has a personal interest, directly or indirectly. The
Board of Directors shall be entitled to delegate its approval power under
Section 271 of the Companies Law to a Committee of the Board, and the
power of such committee shall be regarded as another method of approval
within the meaning of Section 271 of the Companies
Law.
|
47.
|
Changes
to composition of the Board of Directors
.
Any change
to Articles 41-44 shall only be carried out by a resolution of the
Shareholders of the Company, adopted by the holders of Ordinary Shares
representing at least two thirds of the entire voting shares of the
Company then outstanding.
|
48.
|
Meetings
.
The Board of Directors
may meet and adjourn its meetings and otherwise regulate such meetings and
proceedings as the directors think fit, provided that the Board of
Directors shall convene at least once every three months. All
meetings of the Board of Directors shall be called on not less than two
(2) Business Days’ prior written notice
(provided that under extraordinary
circumstances, as determined by the Chairperson of the Board of Directors,
the Chairperson of the Board of Directors, with the consent of the
majority of the other directors then in office, may call a meeting upon a
shorter notice)
, specifying the place, date, hour and detailed
agenda of such meeting, unless such notice as to a particular meeting is
waived in writing by all of the directors not prevented from participating
in such a meeting by applicable law. The Company may require each
director to provide it with a fax number or e-mail address to which the
Company may send notices and which shall be deemed to have been received
by such director upon transmission.
|
49.
|
Quorum
.
Until otherwise
unanimously decided by the Board of Directors, a quorum at a meeting of
the Board of Directors shall be constituted by the presence, in person or
by any other means of communication by which the directors may hear each
other simultaneously, of a majority of the directors then in office who
are lawfully entitled to participate in the meeting and vote thereon (as
conclusively determined by the Chairperson of the Board of Directors). If
within half an hour from the time appointed for the meeting a quorum is
not present, the meeting shall stand adjourned to such time, date and
place as the Chairperson may determine, provided that not less than two
(2) Business Days’ prior written notice shall have been provided to each
of the directors of such adjourned meeting. No business shall be
transacted at any adjourned meeting except business that might lawfully
have been transacted at the meeting as originally called. At such
adjourned meeting, the majority of the Board of Directors present in
person shall constitute a quorum.
|
50.
|
Chairperson
of the Board of Directors
.
The Board of Directors
may from time to time elect one of its members to be the Chairperson,
remove such Chairperson from office and appoint another in its place. The
Chairperson shall preside at every meeting of the Board of Directors, but
if he or she is not present within fifteen (15) minutes of the time fixed
for the meeting, or if the appointed Chairperson has previously notified
that he or she will not attend the meeting or is unwilling to take the
chair, the directors present shall choose one of their number to be the
chairperson of such meeting.
|
51.
|
Validity
of Acts Despite Defects
.
Subject to the
provisions of the Companies Law, all acts done bona fide at any meeting of
the Board of Directors, or of a Committee of the Board of Directors, shall
be as valid as if there were no such defect or disqualification
notwithstanding that it may afterwards be discovered that there was some
defect in the appointment of the participants in such meetings, any of
them or any person(s) acting as aforesaid or that they or any of them were
disqualified or any other defect in the
proceedings.
|
52.
|
Minutes
.
Minutes of each
meeting of the Board of Directors (or any Committee of the Board of
Directors) shall be recorded and duly entered in books provided for that
purpose. Such minutes shall set forth the names of the persons present at
the meeting and all resolutions adopted thereat. Any minutes as aforesaid,
if purporting to be signed by the chairperson of the meeting or by the
chairperson of the next succeeding meeting, shall constitute prima facie
evidence of the matters recorded
therein.
|
53.
|
The
Board of Directors shall appoint from time to time one or more persons, as
Chief Executive Officers(s) of the Company and may confer upon such
person(s), and from time to time modify or revoke, such title(s)
(including General Manager, Managing Director, Director General or any
similar or dissimilar title). The appointment of the Chief Executive
Officer(s) may be either for a fixed term or without any limitation of
time. Subject to the terms of the employment agreement of the Chief
Executive Officer(s) and any applicable law, the Board of Directors may
from time to time remove or dismiss the Chief Executive Officer(s) from
office and appoint another or others in the Chief Executive Officer(s)’s
place.
|
54.
|
Subject
to the Companies Law and the terms set forth in these Articles, the Chief
Executive Officer(s) shall manage the business of the Company pursuant to
the policies established by the Board of
Directors.
|
55.
|
The
Board of Directors may from time to time determine the Chief Executive
Officer’s salary and other terms and conditions of the Chief Executive
Officer’s employment, subject to the terms of his employment agreement and
the provisions of any applicable
law.
|
56.
|
Subject
to the provisions of the Companies Law, all Company employees shall be
subordinate to the Chief Executive Officer of the Company who shall have
the right to remove any Company employee from his position and/or
terminate the employment of any such employee with the
Company.
|
57.
|
Exemption
from Duty of Care
.
Subject to the provisions of the Companies Law including the
receipt of all approvals as required therein or under any applicable law,
the Company may resolve in advance to exempt an Office Holder from all or
part of such Office Holder’s responsibility or liability for damages
caused to the Company due to any breach of such Office Holder’s duty of
care towards the Company
other than with respect to
liability arising out of a
P
rohibited Distribution
(as such term is defined in the
Companies Law)
.
|
58.
|
Indemnification
.
Subject to the
provisions of the Companies Law, including the receipt of all approvals as
required therein or under any applicable law, the Company may indemnify
any Office Holder to the fullest extent permitted by the Companies Law,
including retroactively, with respect to the following liabilities and
expenses, provided that such liabilities or expenses were incurred by such
Office Holder in such Office Holder’s capacity as an Office Holder of the
Company:
|
|
58.1.
|
a
monetary liability imposed on an Office Holder pursuant to a judgment in
favor of another person, including a judgment imposed on such Office
Holder in a settlement or in an arbitration decision that was approved by
a court of law;
|
|
58.2.
|
reasonable litigation expenses,
including without limitation attorneys’ fees, expended by an Office Holder
as a result of an investigation or proceeding instituted against the
Office Holder by an authority authorized to conduct such investigation or
proceeding, which: (i) is Concluded Without The Filing Of An
Indictment (as defined in the Companies Law) against the Office Holder and
without the imposition on the Office Holder of any Financial Obligation In
Lieu of Criminal Proceedings (as defined in the Companies Law), or
(ii) which is Concluded Without The Filing Of An Indictment against
the Office Holder, but with the imposition on the Office Holder of a
Financial Obligation In Lieu of Criminal Proceedings in respect of an
offense that does not require proof of criminal
in
tent.
|
|
58.3.
|
reasonable litigation expenses,
including without limitation attorneys’ fees, expended by the Office
Holder or charged to him
or her
by court, (i) in a
proceeding instituted against the Office Holder by the Company or on its
behalf or by another person, or (ii) in any criminal proceeding in
which the Office Holder is acquitted, or (iii) in any criminal
proceeding for an offense which does not require proof of criminal intent
of which the Office Holder convicted;
and
|
|
58.4.
|
any
other obligation or expense for which it is or shall be permitted to
indemnify an Office Holder under
law.
|
59.
|
Insurance
.
Subject to the
provisions of the Companies Law including the receipt of all approvals as
required therein or under any applicable law, the Company may enter into
an agreement to insure of an Office Holder for any liability that may be
imposed on such Office Holder in connection with an act (including any
omission) performed by such Office Holder in such Office Holder’s capacity
as an Office Holder of the Company, with respect to each of the following:
(i) violation of the duty of care of the Office Holder towards the Company
or towards another person; (ii) breach of the fiduciary duty towards the
Company, provided that the Office Holder acted in good faith and with
reasonable grounds to assume that the action in question was in the best
interests of the Company; (iii) a financial obligation imposed on
the Office Holder for the benefit of another person; and (iv) any other
obligation or expense for which it is or shall be permitted to insure an
Office Holder.
|
60.
|
In
accordance with Section 263 of the Companies Law: Articles 57, 58 and 59
shall not apply under any of the following circumstances: (i) a breach of
an Office Holder’s duty of loyalty, in which the Office Holder did not act
in good faith and with reasonable grounds to assume that the action in
question was in the best interest of the Company; (ii) a reckless or
intentional violation of an Office Holder’s duty of care; (iii) an
intentional action or omission by an Office Holder in which such Office
Holder intended to reap a personal gain illegally; and (iv) a fine or
forfeit that an Office Holder was made to
pay.
|
61.
|
The
provisions in these Articles shall not be interpreted, so as to restrict
the Company in any manner in respect of the procurement of insurance or in
respect of indemnification in connection with any person who is not an
Office Holder including, without limitation, any employee, agent,
consultant or contractor of the Company who is not an Office
Holder.
|
62.
|
Declaration
of Dividends
.
Subject to the provisions of the Companies Law, the Board of
Directors may from time to time declare, and cause the Company to pay,
such dividends as may appear to the Board of Directors to be justified by
the profits of the Company. Subject to the Companies Law, the Board of
Directors shall determine the time for payment of such dividends and the
record date for determining the Shareholders entitled thereto. The
Shareholders entitled to receive dividends shall be the Shareholders on
the date upon which it was resolved to distribute the dividends or at such
later date as shall be provided in the resolution in
question.
|
63.
|
Implementation
of Powers
.
The Board of Directors may settle any difficulty which may arise in
regard to the distribution of dividends as it thinks expedient, and, in
particular, may issue fractional certificates, and may determine that cash
payments shall be made to any Shareholders upon the footing of the value
so fixed, or that fractions of less value than the nominal value of one
share may be disregarded in order to adjust the rights of all parties, and
may vest any such cash with a trustee in trust for the persons entitled to
the dividend or capitalized fund as may seem expedient to the Board of
Directors.
|
64.
|
Deductions
from Dividends
.
The Board of Directors may deduct from any dividend or other moneys
payable to any Shareholder in respect of a share any and all sums of money
then payable by such Shareholder to the Company on account of any matter
or transaction or as required by
law.
|
65.
|
Retention
of Dividends
.
The Board of Directors may retain any dividend or other moneys
payable or property distributable in respect of a share in respect of
which any person is, under these Articles, entitled to become a
Shareholder, or which any person is, under these Articles, entitled to
transfer, until such person shall become a Shareholder in respect of such
share or shall transfer the same.
|
66.
|
Interest
.
No dividend or other
benefit in respect of shares shall bear interest against the
Company.
|
67.
|
Mechanics
of Payment
.
Any dividend or other moneys payable in cash in respect of a share
may be paid by check sent through the post to, or left at, the registered
address of the Shareholder or by transfer to a bank account specified by
such person (or, if two or more persons are registered as joint holders of
such share or are entitled jointly thereto in consequence of the death or
bankruptcy of the holder or otherwise, to any one of such persons or to
his bank account), or to such person and at such address as the person
entitled thereto may by writing direct. Every such check shall be made
payable to the order of the Shareholder, or to such person as the person
entitled thereto as aforesaid may direct, and payment of the check by the
banker upon whom it is drawn shall be a good discharge to the Company.
Every such check shall be sent at the risk of the person entitled to the
money represented thereby.
|
68.
|
Unclaimed
Distribution
. All unclaimed dividends or other moneys
payable in respect of a Share may be invested or otherwise made use of by
the Board of Directors for the benefit of the Company until
claimed. Subject to applicable law, the payment by the Board of
Directors of any unclaimed dividend or such other money into a separate
account shall not constitute the Company a trustee in respect thereof, and
any dividend unclaimed after a period of seven (7) years from the date of
declaration of such dividend, and any such other moneys unclaimed after a
like period from the date the same were payable, shall be forfeited and
shall revert to the Company, provided, however, that the Board of
Directors may, at its discretion, cause the Company to pay any
such dividend or such other moneys, or any part thereof, to a
person who would have been entitled thereto had the same not reverted to
the Company.
|
69.
|
The
Board of Directors shall be entitled to authorize any person or persons
(who need not be directors) to act and sign on behalf of the Company, and
the signature of such person(s) on behalf of the Company, together with
the Company’s name in print or handwriting, shall bind the Company insofar
as such person(s) acted and signed within the scope of such person’s
authority.
|
70.
|
All
notices and other communications made pursuant to these Articles shall be
in writing and shall be conclusively deemed to have been duly given:
Any notice shall be deemed to have
been served two (2) Business Days after it has been posted
(
five
(
5
) Business Days if sent
internationally), or when actually received by the addressee if sooner.
Notice sent by facsimile or electronic or other similar form shall be
deemed to have been served twenty four (24) hours after being sent or
when actually received by the addressee if sooner. A declaration in
writing of person authorized therefore by the Company or an authorized
person from the Company’s designated transfer agent stating that a notice
was sent to a
S
hareholder shall suffice as
evidence of the same for the purposes of this Article
. The term
“Address” means, (i) with respect to each Shareholder - such Shareholder’s
mail address, facsimile number or email address, as the case may be, as
specified in the Register; and (ii) with respect to the Company – the
address of the Office or the facsimile number or email address of the
Chief Executive Office of the Company at the Office. A Shareholder may
change or supplement the Address for service of any notice pursuant to
these Articles, or designate additional addresses, facsimile numbers and
email addresses for the purposes of this Article 70 by giving the Company
a written notice of the new contact details in the manner set forth above.
If a notice is, in fact, received by the addressee, it shall be deemed to
have been duly served, when received, notwithstanding that it was
defectively addressed or failed, in some respect, to comply with the
provisions of this Article 70. All notices to be given to the Shareholders
shall, with respect to any share to which persons are jointly entitled, be
given to whichever of such persons is named first in the Register, and any
notice so given shall be sufficient notice to the holders of such share.
Any Shareholder whose address is not described in the Register, and who
shall not have designated in writing an address for the receipt of
notices, shall not be entitled to receive any notice from the Company.
Whenever is it necessary to give prior notice of a number of days or
notice which is valid for a particular period, the day of delivery and the
date of the meeting or last date of the period shall be counted in
reckoning the number of days or the period, unless otherwise determined by
the Board of Directors. If notice is given in more than one of the manners
specified above, it shall be deemed to have been received on the earliest
date on which it is deemed to have been delivered, as provided
above.
|
71.
|
Subject
to the provisions of any applicable law, if the approval of the General
Meeting to a “merger” (as described in the Companies Law) is required by
law, the “merger” shall be approved by an Ordinary Majority at a General
Meeting or at a class meeting, if any, as the case may
be.
|
72.
|
If
the Company is wound up on liquidation or dissolution, then, subject to
applicable law, all the assets of the Company available for distribution
among the Shareholders shall be distributed to them in proportion to the
sum paid on account of the nominal value of the shares held by them. A
voluntary winding up of the Company shall require the approval set forth
in the Companies Ordinance or any other approval as may be required by any
applicable law.
|
73.
|
Unless
provided otherwise herein and specifically in Section 47, any amendment of
these Articles shall require the approval of an Ordinary Majority, in
person or by proxy, as shall be permitted, and voting thereon in
accordance with the provisions of the Companies Law. Unless provided
otherwise herein and specifically in Section 47, a resolution passed at a
General Meeting by Ordinary Majority which amends any of the provisions
set forth herein, shall be deemed a resolution to amend these Articles
even if not expressly stated as such in the resolution or at the General
Meeting.
|
74.
|
As
of the date that these Articles were duly adopted by the Shareholders,
these Articles automatically replace and amend any and all previously
adopted articles of association of the
Company.
|
75.
|
The
independent
auditor(s) of the Company shall be
appointed by resolution of the Company’s
S
hareholders at the General Meeting
and shall serve until its/their re-election, removal or replacement by
subsequent resolution. The authorities, rights and duties of the outside
auditor(s) of the Company, shall be regulated by the applicable law,
provided, however, that the Board of Directors shall have the power and
authority to fix the remuneration of the
auditor(s).
|
TEN
COM
|
– |
as
tenants in common
|
UNIF
GIFT MIN ACT–
|
Custodian
|
||
TEN
ENT
|
– |
as
tenants by the entireties
|
(Cust)
|
(Minor)
|
||
JT
TEN
|
– |
as
joint tenants with right
|
under
Uniform Gifts to Minors
|
|||
of
survivorship and not as
|
Act
|
|||||
tenants
in common
|
(State)
|
PLEASE
INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING
NUMBER OF ASSIGNEE
|
|
|
PLEASE
PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF
ASSIGNEE
|
|
|
Dated,
|
NOTICE:
|
THE
SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON
THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT, OR ANY CHANGE
WHATEVER.
|
THE
SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.
|
October
19, 2010
To:
SodaStream
International Ltd.
Gilboa
Street, Airport City,
Ben
Gurion Airport 70100
Israel
Re:
Registration
Statement on Form F-1
Ladies
and Gentlemen:
We
have acted as special Israeli counsel for SodaStream International Ltd.,
an Israeli company (the “
Company
”),
in connection with the underwritten initial public offering by the Company
of up to an aggregate of 4,736,842 ordinary shares, par value NIS
0.645 per share of the Company, and, in addition, up to 710,526 ordinary
shares, par value NIS 0.645 per share (collectively, the “
Shares
”),
that are subject to an over-allotment option contemplated to be granted by
the Company to the underwriters of the offering (the “
Offering
”).
This opinion letter is rendered pursuant to Item 8(a) of Form F-1 and
Item 601(b)(5) of the SEC’s Regulation S-K under the United
States Securities Act of 1933, as amended (the “
Act
”).
In
connection herewith, we have examined the originals, or photocopies or
copies, certified or otherwise identified to our satisfaction, of: (i) the
form of the registration statement on Form F-1 (File No. 333-_____) (the
“
Registration
Statement
”), filed by the Company with the United States Securities
and Exchange Commission (the “
SEC
”)
and to which this opinion is attached as an exhibit; (ii) copies of the
articles of association of the Company, as currently in effect; (iii) a
draft of the amended and restated articles of association of the Company
to become effective concurrently with the Offering (the “
Restated
Articles
”); (iv) resolutions of the board of directors (the “
Board
”)
which have heretofore been approved and draft resolutions of the
shareholders of the Company to be adopted by the shareholders of the
Company and, in each case, which relate to the Registration Statement and
the actions to be taken in connection with the Offering (the “
Resolutions
”);
and (v) such other corporate records, agreements, documents and other
instruments, and such certificates or comparable documents of public
officials and of officers and representatives of the Company and have made
inquires of such officers and representatives, as we have deemed relevant
and necessary as a basis for the opinions hereafter set
forth.
In
such examination, we have assumed the genuineness of all signatures, the
legal capacity of all natural persons, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified, confirmed as photostatic copies
and the authenticity of the originals of such latter
documents. As to all questions of fact material to these
opinions that have not been independently established, we have relied upon
certificates or comparable documents of officers and representatives of
the Company.
|
Pinhas
Rubin
Moriel
Matalon
Ariel
Zelichov
Zvi
Ephrat
Jack
Smith
Daphna
Talgam
Eyal
Marom
Gur
Y. Savir
Ofer
Tzur
Itay
Geffen
Eyal
Raz
Erez
Harel
Chaim
Y. Friedland*
Lior
Porat
Yaron
Elhawi
Sharon
Werker-Sagy
Editte
Galli Heyne
Elite
Elkon May-Tal
Eli
Elya
Shlomo
Cohen
Daniel
Paserman****
Gil
Grady****
Benjamin
J. Waltuch**
Noam
Ronen
Eli
Cohen
Ayeleth
Inav-Ripstein
Dr.
Yael Aridor Bar-Ilan
Yoram
Arad
Maya
Sabari (Sadeh)
Ari
Fried***
Adi
Ben-Hur Efroni
Orly
Tenennbaum
Hezi
Kattan
Timor
Belan
Meir
Levin
Rani
Haj-Yachya
Idan
Baki
Aviram
Handel
Eldad
Tsabari
Yair
Shiloni
Shiri
Shani
Inbal
Aviad
Hagar
Alon
Inbal
Zackai-Horev
Kfir
Yadgar
Ilan
D. Jonas
Michael
Ayalon
Guy
Sturm
Guy
Ne'eman
Omer
Poraz
Sagit
Ohana-Livne
Mirit
Ber-Hoffman****
Assaf
Shlush
Adi
Osovski
Nurit
Traurik
Lior
Relevy
Tamar
Cohen
Eyal
Nirenberg
Harel
Shaham
Itai
Itzkovich
Tuvia
Grossman
Hezy
Z. Shalev
Jonathan
Matalon
Dafna
Michalevich-Bacharach
Adi
Nahmias-Twina
Idan
Netser
Yisrael
Spero
Tal
Karni
Etai
Mashiah
Inbal
Ravid-Badner
Daniel
Hoffnung
Yonatan
Puterman
Guy
Keren
Anat
Burger
Ofer
Fleischer
Yoav
Friedman
Ronit
Rozenstein-Barel
Miki
Roitman
Maya
Hoftman
Asaf
Avtuvi
Ori
Yitzhak
Itzchak
Lazar
Yiftach
Farber
Gidon
Even-Or
Moran
Erez
Ehud
Katzenelson
Ido
Naftali
Assaf
Prussak
Adam
Chakir
Yoav
Kremer
Yehonatan
Raff
|
|||||
Zion
Building
45
Rothschild Blvd., Tel-Aviv
Israel
65784 I P.O.B 29141
Phone:
972-3-7109191
Fax:
972-3-5606555
office@gornitzky.co.il
|
Aba
Even Blvd. 1
Herzlia
Pituach 46120
Israel
Phone:972-9-9589594
Fax:
972-9-9589596
herzlia@gornitzky.co.il
|
*
Member of the Bar of the State of New York
**
Member of the Bar of the States
of
New York and New Jersey
***
Member of the Bar of the States
of
New York and Massachusetts
****
Certified Public Accountant
____________________
Zvi
Sohar, Of-Counsel
Dr. Dalia
Even-Lahav
,
Of-Counsel
|
||||
www.gornitzky.com
|
_____________________
Eric
J. Gornitzky
(1921
– 1997)
Boaz
Nahir
(1930
– 2006)
Dalia
Ronen
(1956
– 2000)
_____________________
ESTABLISHED
-
1938
|
Very
truly yours,
|
|
/s/
Gornitzky & Co.
|
|
1.
|
Without
derogating from the Company’s right to indemnify you post factum, the
Company hereby undertakes to indemnify you to the maximum extent permitted
by applicable law for any and all liabilities or expenses, as set forth in
Sections 1.1 to 1.4 hereto, imposed on or incurred by you in respect of
any act or omission or alleged act or omission
(each,
an
“action”
) taken
or made by you in your capacity as an Office Holder (as defined in the
Israeli Companies Law, 5759-1999 (the “
Companies Law
”)) of the
Company or of any other company within the SodaStream
Group:
|
|
1.1.
|
any
financial obligation imposed on or incurred by you in favor of another
person by a court judgment, including a settlement or an arbitrator’s
award approved by court; and
|
|
1.2.
|
reasonable
litigation expenses, including without limitation attorneys’ fees and, to
the extent permitted by applicable law, including also the fees and
expenses of investigators, accountants and other experts, expended by you
as a result of an investigation or proceeding instituted against you by an
authority authorized to conduct such investigation or proceeding, which:
(i) is Concluded Without The Filing Of An Indictment (as defined in the
Companies Law) against you and without the imposition on you of any
Financial Obligation In Lieu of Criminal Proceedings (as defined in the
Companies Law), or (ii) which is Concluded Without The Filing Of An
Indictment against you, but with the imposition on you of a Financial
Obligation In Lieu of Criminal Proceedings in respect of an offense that
does not require proof of criminal intent;
and
|
|
1.3.
|
reasonable
litigation expenses, including without limitation attorneys’ fees and, to
the extent permitted by applicable law, including also the fees and
expenses of investigators, accountants and other experts, expended by you
or charged to you by a court, (i) in a proceeding instituted against you
by the Company or on its behalf or by another person, or (ii) in any
criminal proceeding in which you are acquitted, or (iii) in any criminal
proceeding for an offense which does not require proof of criminal intent
of which you are convicted; and
|
|
1.4.
|
any
other liability or expense for which the Company is, or will be, permitted
to indemnify you in accordance with applicable
law.
|
2.
|
The
Company will not indemnify you for, and will not waive, any amount you may
be obligated to pay in respect of any of the
following:
|
|
2.1.
|
a
breach of your duty of loyalty, except, to the extent permitted by law,
for a breach of a duty of loyalty to the Company, a Subsidiary or an
Affiliate while acting in good faith and having reasonable cause to assume
that such act would not prejudice the interests of the Company, the
Subsidiary or the Affiliate, as
applicable;
|
|
2.2.
|
a
willful breach of the duty of care, or reckless disregard for the
circumstances or to the consequences of a breach of the duty of care other
than a breach arising solely out of
negligence;
|
|
2.3.
|
an
action, taken or not taken, with the intent of unlawfully realizing
personal gain;
|
|
2.4.
|
a
fine or penalty imposed upon you for an offense;
and
|
|
2.5.
|
a
counterclaim made by the Company or a Subsidiary or in its name in
connection with a claim against the Company or such Subsidiary filed by
you, other than for indemnification
hereunder.
|
3.
|
The
indemnification undertaking in paragraph 1.1 will be limited to the
matters mentioned therein insofar as they result from your actions in the
following matters or in connection therewith (which have been determined
by the Board of Directors of the Company as foreseeable in view of the
Company’s current and expected activity), and whether such actions are in
the ordinary course of business or
not:
|
|
3.1.
|
The
offering of securities by the Company and/or by a shareholder to the
public and/or to private investors or the offer by the Company to purchase
securities from the public and/or from private investors or other holders
pursuant to a prospectus, agreements, notices, reports, tenders and/or
other proceedings;
|
|
3.2.
|
Occurrences
resulting from the Company’s becoming, or its status as, a public company,
and/or from the fact that the Company’s securities were offered to the
public and/or are traded on a stock exchange, whether in Israel or
abroad;
|
|
3.3.
|
Occurrences
in connection with investments that the Company and/or Subsidiaries and/or
Affiliates make in other corporations whether before and/or after the
investment is made, entering into the transaction, the execution,
development and monitoring thereof, including actions taken by you in the
name of the Company and/or a Subsidiary and/or an Affiliate as a director,
officer, employee and/or board observer of the corporation the subject of
the transaction and the like;
|
|
3.4.
|
The
sale, purchase and holding of negotiable securities or other investments
for or in the name of the Company, a Subsidiary and/or an
Affiliate;
|
|
3.5.
|
Actions
in connection with any sale or acquisition of assets by the Company, a
Subsidiary and/or an Affiliate or the merger of the Company, a Subsidiary
and/or an Affiliate with or into another
entity;
|
|
3.6.
|
Actions
in connection with the sale of the operations and/or business, or part
thereof, of the Company, a Subsidiary and/or an
Affiliate;
|
|
3.7.
|
Without
derogating from the generality of the above, actions in connection with
the purchase or sale of companies, legal entities or assets, and the
division or consolidation thereof;
|
|
3.8.
|
Actions
taken in connection with labor relations and/or employment matters in, and
agreements, transactions and trade relations of, the Company, its
Subsidiaries and/or Affiliates with third parties, including without
limitation with employees, consultants, independent contractors,
customers, suppliers and various service
providers;
|
|
3.9.
|
Actions
concerning the approval of transactions of the Company, its Subsidiaries
and/or Affiliates with officers and/or directors and/or holders of
controlling interests in the Company, its Subsidiaries and/or Affiliates,
and/or transactions in which any of the persons mentioned above has
personal interest;
|
|
3.10.
|
Actions
taken in connection with the approval and execution of financial
statements and business reports and the representations made in connection
therewith;
|
|
3.11.
|
Actions
in connection with the testing of products developed by the Company, its
Subsidiaries and/or Affiliates or in connection with the distribution,
sale, license or use of products;
|
|
3.12.
|
Actions
taken in connection with the intellectual property of the Company, its
Subsidiaries and/or Affiliates, and its protection, including the
registration or assertion of rights to intellectual property and the
defense of claims related to intellectual property;
and
|
|
3.13.
|
Actions
taken pursuant to or in accordance with the policies and procedures of the
Company, its Subsidiaries and/or Affiliates, whether such policies and
procedures are published or not.
|
|
3.14.
|
Occurrences
resulting from any claim or demand made by any third party suffering any
personal injury and/or bodily injury and/or property damage and/or
monetary damage to business or personal property through any act or
omission attributed to the Company, its subsidiaries or affiliates, or
their respective employees, agents or other persons acting or allegedly
acting on their behalf.
|
|
3.15.
|
Any
claim or demand made by purchasers, holders, lessors or other users of
products of the SodaStream Group, or individuals using such products, for
damages, losses or personal injuries related to such use or
treatment.
|
|
3.16.
|
Occurrences
resulting from any claim or demand made directly or indirectly in
connection with complete or partial failure, by the Company, its
Subsidiaries and/or Affiliates or their directors, officers and employees,
to pay, report, keep applicable records or otherwise, any state, municipal
or foreign taxes or other mandatory payments of any nature whatsoever,
including, without limitation, income, sales, use, transfer, excise, value
added, registration, severance, stamp, occupation, customs, duties, real
property, personal property, capital stock, social security, unemployment,
disability, payroll or employee withholding or other withholding,
including any interest, penalty or addition thereto, whether disputed or
not.
|
|
3.17.
|
Any
violation of laws requiring the Company and/or its Subsidiaries and/or
Affiliates to obtain regulatory and governmental licenses, permits and
authorizations in any jurisdiction.
|
|
3.18.
|
Actions
taken in connection with the approval of corporate actions including the
approval of the acts of the Company’s management, their guidance and their
supervision.
|
|
3.19.
|
Actions
relating to environmental and public health matters of the Company and/or
its Subsidiaries and/or Affiliates.
|
|
3.20.
|
Actions
relating to the failure to maintain appropriate insurance and or
inadequate safety measures and or a malpractice of risk
management.
|
|
3.21.
|
Any
claim or demand, not covered by any of the categories of events above,
which, pursuant to any applicable law, a director or officer of the
SodaStream Group, my be held liable to any government or agency thereof,
or any person or entity, in connection with actions taken by such director
or officer in such capacity.
|
4.
|
The
Company will make available to you or will procure that the relevant
company within the SodaStream Group make available, all amounts needed in
accordance with paragraph 1 above on the date on which such amounts are
first payable by you (
“Time of Indebtedness”
),
and with respect to items referred to in paragraphs 1.2 and 1.3 above,
even prior to a court decision. Advances given to cover legal expenses in
a criminal proceeding or in administrative or investigative proceeding
that result in a criminal proceeding will be repaid by you to the Company
if you are found guilty of a crime which requires proof of criminal
intent. Other advances will be repaid by you to the Company if it is
determined that you are not lawfully entitled to such
indemnification.
|
|
As
part of the aforementioned undertaking, the Company will make available to
you any security or guarantee that you may be required to post in
accordance with an interim decision given by a court or an arbitrator,
including for the purpose of substituting liens imposed on your
assets.
|
|
All
amounts paid as indemnification pursuant hereto will be grossed-up to
cover any tax payments you may be required to make if the indemnification
payments are taxable to you.
|
5.
|
The
Company, or the relevant company within the SodaStream Group, will
indemnify you even if at the relevant Time of Indebtedness you are no
longer an Office Holder of the Company or of a Subsidiary or an officer,
director or board observer of an Affiliate, provided that the obligations
are in respect of actions taken by you while you were an Office Holder,
director, officer, and/or board observer, as aforesaid, and in such
capacity, including if taken prior to the date of this Indemnification and
Release Agreement and the indemnity will extend to your heirs, executors,
administrators and legal
representatives.
|
6.
|
The
Company, or the relevant company within the SodaStream Group, will not
indemnify you for any liability with respect to which you have received
payment by virtue of an insurance policy or another indemnification
agreement other than for amounts which are in excess of the amounts
actually paid to you pursuant to any such insurance policy or another
indemnity agreement (including deductible amounts not covered by insurance
policies).
|
7.
|
Subject
to the provisions of paragraph 6 above, the indemnification under
paragraph 1.1 above with respect to all Office Holders in the aggregate
will be limited to an aggregate amount (which has been determined by the
Board of Directors of the Company to be reasonable under the
circumstances) per case for which indemnification is sought, which is the
greatest of: (i) with respect to indemnification in connection with a
public offering of the Company’s securities, the gross proceeds raised by
the Company and/or any Selling Shareholder in such public offering, (ii)
with respect to any and all matters mentioned in paragraph 3 above
(including a public offering of the Company’s securities), an amount equal
to 50% of the Company’s shareholders equity (on a consolidated basis),
based on the Company’s most recent financial statements made publicly
available before the date on which the indemnity payment is made and (iii)
$50 million. If the aforesaid amount is insufficient to cover all amounts
to which all Office Holders are entitled, such amount shall be allocated
among such persons pro rata to the amounts to which they are so
entitled.
|
8.
|
The
Company, or the relevant company within the SodaStream Group, will be
entitled to reimbursement of amounts collected from a third party in
connection with liabilities for which you were indemnified hereunder, such
reimbursement not to exceed the amounts for which you were indemnified by
the SodaStream Group.
|
9.
|
In
all indemnifiable circumstances indemnification will be subject to the
following:
|
|
9.1.
|
You
shall promptly notify the Company of any legal proceedings initiated
against you and of all possible or threatened legal proceedings and, to
the extent permitted by law, all administrative or investigative
proceedings initiated against you, without delay following your first
becoming aware thereof, and you shall deliver to the Company, or to such
person as it shall advise you, without delay all documents you receive in
connection with these proceedings and provide such other information and
cooperation as the Company shall reasonably
request.
|
|
Similarly,
you shall advise the Company on an ongoing and current basis concerning
all events which you suspect may give rise to the initiation of legal
proceedings against you.
|
|
Failure
to notify the Company as aforesaid will not relieve the Company of its
indemnification obligations pursuant hereto except to the extent that it
has been actually prejudiced as a result of such
failure.
|
|
9.2.
|
Other
than with respect to proceedings that have been initiated against you by a
company within the SodaStream Group, or in its name, the Company shall be
entitled to assume the conduct of your defense in respect of such
proceedings and/or to hand over the conduct thereof to any attorney which
the Company may choose for that purpose, except to an attorney who is not,
upon reasonable grounds, acceptable to
you.
|
|
9.3.
|
You
will fully cooperate with the Company and/or its attorney as aforesaid in
every reasonable way as may be required of you within the context of their
conduct of such legal proceedings, including but not limited to the
execution of power(s) of attorney and other documents, provided that the
Company shall cover all costs incidental thereto such that you will not be
required to pay the same or to finance the same yourself; and provided,
further, that you shall not be required to take any action that would in
any way prejudice your defense or waive any defense or position available
to you in connection with any
proceeding.
|
|
9.4.
|
You
will do all things reasonably requested by the Board of Directors of the
Company to subrogate to the Company any rights of recovery (including
rights to insurance or indemnification from persons other than the
Company) which you may have with respect to any
proceeding.
|
|
9.5.
|
If,
in accordance with paragraph 9.2 above, the Company has assumed the
conduct of your defense, the Company will have no liability or obligation
pursuant to this Indemnification and Release Agreement or the resolutions
referred to below to indemnify you for any legal expenses, including any
legal fees, that you may expend in connection with your defense following
such assumption of defense, except in the event that you are entitled to
retain separate counsel pursuant to the terms of such
paragraph.
|
|
9.6.
|
The
Company will have no liability or obligation pursuant to this
Indemnification and Release Agreement or the resolutions referred to below
to indemnify you for any amount expended by you pursuant to any compromise
or settlement agreement reached in any suit, demand or other proceeding as
aforesaid without the Company’s prior consent to such compromise or
settlement.
|
|
9.7.
|
That,
if required by law, the Company’s authorized organs will consider the
request for indemnification and the amount thereof, and will determine if
you are entitled to indemnification and the amount
thereof.
|
10.
|
Subject
to paragraph 2 above, the Company and any relevant company within the
SodaStream Group, hereby exempts and releases you, to the fullest extent
permitted by law, from any liability for damages caused as a result of a
breach of your duty of care to the Company in your capacity as an Office
Holder of the Company, whether such breach occurred or occurs prior or
subsequent to the resolutions referred to below, provided that no such
exemption shall apply to a breach of your duty of care in connection with
a Distribution (as defined in the Companies
Law).
|
11.
|
If
for the validation of any of the undertakings in this Indemnification and
Release Agreement any act, resolution, approval or other procedure is
required, the Company undertakes to initiate and make its best efforts to
cause them to be done or adopted in a manner which will enable the Company
to fulfill all its undertakings as
aforesaid.
|
12.
|
For
the avoidance of doubt, it is hereby clarified that nothing contained in
this Indemnification and Release Agreement or in the above resolutions
derogates from the Company’s right to indemnify you post factum for any
amounts which you may be obligated to pay as set forth in paragraph 1
above without the limitations set forth in paragraphs 3 and 7
above.
|
13.
|
If
any undertaking included in this Indemnification and Release Agreement is
held invalid or unenforceable, such invalidity or unenforceability will
not affect any of the other undertakings, exemptions or releases, which
will remain in full force and effect. Furthermore, if such invalid or
unenforceable undertaking exemption or release may be modified or amended
so as to be valid and enforceable as a matter of law, such undertakings
exemptions or releases will be deemed to have been modified or amended,
and any competent court or arbitrator are hereby authorized to modify or
amend such undertaking exemption or release, so as to be valid and
enforceable to the maximum extent permitted by
law.
|
14.
|
This
Indemnification and Release Agreement and the agreement herein shall be
governed by and construed and enforced in accordance with the laws of the
State of Israel, as such laws are applied to contracts entered into and to
be performed entirely within the State of Israel, without regard to its
conflict of laws rules.
|
15.
|
This
Indemnification and Release Agreement contains the entire agreement and
understanding between the Company and yourself in respect of the subject
matter hereof and terminates and replaces any previous agreement in such
respect any previous indemnification agreement with
you.
|
16.
|
Subject
to all indemnification limitations set herein, the Company shall reimburse
you for all of your reasonable out-of-pocket expenses, including legal
expenses, in enforcing this Indemnification and Release Agreement against
the Company in the event that you prevail in such
enforcement.
|
Sincerely,
|
||||
SodaStream
International Ltd.
|
||||
By:
|
||||
Name:
|
||||
Title:
|
||||
Date:
|
||||
Acknowledged
and agreed:
|
||||
Name:
|
||||
Title:
|
||||
Date:
|
1.
|
PURPOSE OF THE
ESOP
|
2.
|
DEFINITIONS
|
|
2.1.
|
“
Affiliate
” means any
“employing company” within the meaning of Section 102(a) of the
Ordinance.
|
|
2.2.
|
“
Approved 102 Option
”
means an Option granted pursuant to Section 102(b) of the Ordinance and
held in trust by a Trustee for the benefit of the
Optionee.
|
|
2.3.
|
“Board”
means the Board
of Directors of the Company.
|
|
2.4.
|
“
Capital Gain Option
” or
“
CGO
” as defined
in Section 5.4 below.
|
|
2.5.
|
“
Cause”
means, (i)
conviction of any felony involving moral turpitude or affecting the
Company; (ii) any failure (as a result of gross negligence or willful
misconduct) to carry out, as an employee of the Company or its Affiliates,
a reasonable directive of the chief executive officer, the Board or the
Optionee’s direct supervisor, which involves the business of the Company
or its Affiliates and which was capable of being lawfully performed by
Optionee; (iii) embezzlement or theft of funds of the Company or its
Affiliates; (iv) any breach of the Optionee’s fiduciary duties
or duties of care of the Company; including, without limitation,
self-dealing, prohibited disclosure of confidential information of, or
relating to, the Company, or engagement in any business competitive to the
business of the Company or of its Affiliates; and (v) any circumstances
(other than voluntarily resignation by Optionee) that do not entitle
Optionee to severance payments and/or notice period under any applicable
law, judicial decision of a competent tribunal and/or an agreement setting
forth the relationship (employment, service provider or otherwise) between
the Company (or its Affiliates) and such Optionee, or any circumstances
that constitutes a “cause” for such relationship termination- or that
enable a “termination for cause” thereof - under the aforesaid
agreement.
|
|
2.6.
|
“Chairman”
means the
chairman of the Committee.
|
|
2.7.
|
“Committee”
means a
share option compensation committee appointed by the Board, which shall
consist of no fewer than one member of the
Board.
|
|
2.8.
|
“Company”
means
Soda-Club Holdings Ltd., a corporation incorporated under the laws of the
state of Israel, registration number
513951251.
|
|
2.9.
|
“
Controlling Shareholder
”
shall have the meaning ascribed to it in Section 32(9) of the
Ordinance.
|
2.10.
|
“Date of
Grant”
means, the date of grant of an Option, as determined by the
Board and set forth in the Optionee’s Option
Agreement.
|
2.11.
|
“
Employee”
means a person who is employed by the Company or its Affiliates, including
an individual who is serving as an office holder, but excluding
Controlling Shareholder and members of the Board of
Directors.
|
2.12.
|
“Expiration
date”
means the date upon which an Option shall expire, as set
forth in Section 10.2 of the
ESOP.
|
2.13.
|
“Fair Market
Value”
means as of any date, the value of a share determined as
follows:
|
2.14.
|
“IPO”
means the underwritten initial public offering of the Company’s stock
pursuant to a registration statement filed with and declared effective
under the Israeli Securities Law, 1968, under the U.S. Securities Act of
1933, as amended, or under any similar law of any other
jurisdiction.
|
2.15.
|
“ESOP”
means as defined in the preface
hereto.
|
2.16.
|
“
ITA”
means the Israeli Tax
Authorities.
|
2.17.
|
“Non-Employee”
means a consultant, adviser, service provider, Controlling
Shareholder or any other person who is not an
Employee.
|
2.18.
|
“
Ordinary
Income Option
” or “
OIO
” as
defined in Section 5.5 below.
|
2.19.
|
“Option”
means an option to purchase one or more Shares of the Company pursuant to
the ESOP.
|
2.20.
|
“102 Option”
means any Option granted to Employees in accordance with and
subject to Section 102 of the
Ordinance.
|
2.21.
|
“3(i) Option”
means an Option granted in accordance with and subject to Section
3(i) of the Ordinance to any person who is Non-
Employee.
|
2.22.
|
“Optionee”
means a person who receives or holds an Option under the
ESOP.
|
2.23.
|
“Option
Agreement”
means
the share option agreement between the Company and an Optionee that sets
out the terms and conditions of an
Option.
|
2.24.
|
“
Ordinance”
means the Israeli Income Tax Ordinance [New Version] 1961, as now
in effect or as hereafter amended.
|
2.25.
|
“Purchase
Price”
means the purchase price for each Share underlying an
Option.
|
2.26.
|
“Section 102”
means section 102 of the Ordinance as now in effect or as hereafter
amended.
|
2.27.
|
“
Share
”
means an ordinary share of the Company, 0.01 NIS par value each or any
other class of shares of the Company, as the Company may
decide.
|
2.28.
|
“Successor
Company”
means any entity into or with which the Company is merged
or by which the Company is acquired, pursuant to a Transaction in which
the Company is not the surviving
entity.
|
2.29.
|
“Transaction”
means (i) merger, acquisition or reorganization of the Company with
one or more other entities pursuant to which the Company is not the
surviving entity, (ii) a sale of all or substantially all of the assets or
shares of the
Company.
|
2.30.
|
“Trustee”
means any individual appointed by the Company to serve as a trustee
and approved by the ITA, all in accordance with the provisions of Section
102(a) of the
Ordinance.
|
2.31.
|
“
Unapproved 102
Option
” means an Option granted pursuant to Section 102(c) of the
Ordinance and – unless required otherwise by the Company - not held in
trust by a Trustee.
|
2.32.
|
“Vested
Option”
means any Option that has already become vested and
exercisable according to its Vesting Date or otherwise (e.g. acceleration
upon certain events).
|
2.33.
|
“Vesting
Dates”
means, with respect to any Option, the date as of which the
Optionee shall be entitled to exercise such Option, as set forth in
section 11 of the
ESOP.
|
3.
|
ADMINISTRATION OF THE
ESOP
|
|
3.1.
|
The
Board or the Committees shall have the power to administer the ESOP, all
as provided by applicable law and in the Company’s incorporation
documents. Notwithstanding the above, for all intents and purposes
hereunder, the Board shall automatically have residual authority if no
Committee shall be constituted or if such Committee shall cease or
otherwise be unable to operate for any reason. To the extent permitted by
the applicable law, the Board shall have the right to delegate some or all
of its authorities hereunder to the
Committee.
|
|
3.2.
|
The
Committee shall select one of its members as its Chairman and shall hold
its meetings at such times and places, as the Chairman shall determine or
as otherwise convened in accordance with the incorporation documents of
the Company. The Committee shall keep records of its meetings and shall
make such rules and regulations for the conduct of its business, as it
shall deem advisable.
|
|
3.3.
|
The
Committee shall have the full power and authority, subject to the approval
of the Board and to the extent permitted under applicable law or under the
company’s incorporation documents, to: (i) designate Optionees; (ii)
determine the terms and provisions of the respective Option Agreements
(which need not be identical), including, but not limited to, the number
of Options to be granted to each Optionee, the number of Shares to be
covered by each Option, provisions concerning the time and the extent to
which the Options may be exercised and the nature and duration of
restrictions as to the transferability, or restrictions constituting
substantial risk of forfeiture upon occurrence of certain events, and to
cancel or suspend awards, as necessary; (iii) determine the Fair Market
Value of the Shares covered by each Option; (iv) make an Election (as
defined in Section 5.6 hereinafter) as to the type of 102 Approved Option;
and (v) designate the type of Options; (vi) alter any restrictions and
conditions of any Options or Shares subject to any Options (vii) interpret
the provisions and supervise the administration of the ESOP; (viii)
accelerate the right of an Optionee to exercise in whole or in part, any
previously granted Option; (ix) determine the Purchase Price of the
Option; (x) prescribe, amend and rescind rules and regulations relating to
the ESOP in cases specifically set forth hereunder; and (xi) make all
other determinations deemed necessary or advisable for the administration
of the ESOP.
|
|
3.4.
|
Subject
to the Company’s incorporation documents, all decisions and selections
made by the Board or the Committee pursuant to the provisions of the ESOP
shall be made by a majority of its members except that no member of the
Board or the Committee shall vote on, or be counted for quorum purposes,
with respect to any proposed action of the Board or the Committee relating
to any Option to be granted to that member. Any decision reduced to
writing shall be executed in accordance with the provisions of the
Company’s incorporation documents, as the same may be in effect from time
to time.
|
|
3.5.
|
The
interpretation and construction by the Committee of any provision of the
ESOP or of any Option Agreement thereunder shall be final and conclusive
unless otherwise determined by the
Board.
|
|
3.6.
|
Subject
to the Company’s incorporation documents, to applicable law, to the
Company’s decision, and to all approvals legally required, each member of
the Board or the Committee shall be indemnified and held harmless by the
Company against any cost or expense (including counsel fees) reasonably
incurred by such member, or any liability (including any sum paid in
settlement of a claim with the approval of the Company) arising out of any
act or omission to act in connection with the ESOP unless arising out of
such member's own fraud or bad faith, to the extent permitted by
applicable law. Such indemnification shall be in addition to any rights of
indemnification the member may have as a director or otherwise under the
Company's incorporation documents, any agreement, any vote of shareholders
or disinterested directors, insurance policy or
otherwise.
|
4.
|
DESIGNATION OF
PARTICIPANTS
|
|
4.1.
|
The
persons eligible for participation in the ESOP as Optionees shall include
any Employees and/or Non-Employees of the Company or of any Affiliate
thereof, excluding members of the Board of Directors;
provided
,
however
,
that (i) Employee may only be granted 102 Options; and (ii) Non Employees
may only be granted 3(i) Options.
|
|
4.2.
|
The
grant of an Option hereunder shall neither entitle the Optionee to
participate nor disqualify the Optionee from participating in, any other
grant of Options pursuant to the ESOP or any other option or share plan of
the Company or any of its
Affiliates.
|
|
4.3.
|
Anything
in the ESOP to the contrary notwithstanding, all grants of Options to
directors and office holders shall be authorized and implemented in
accordance with the provisions of the Company’s incorporation documents or
any applicable law, as in effect from time to
time.
|
5.
|
DESIGNATION OF OPTIONS PURSUANT
TO SECTION 102
|
|
5.1.
|
The
Company may designate Options granted to Employees pursuant to Section 102
as Unapproved 102 Options or Approved 102
Options.
|
|
5.2.
|
The
grant of Approved 102 Options shall be made under this ESOP adopted by the
Board as described in Section 16 below, and shall be conditioned upon the
approval of this ESOP by the ITA.
|
|
5.3.
|
Approved
102 Option may either be classified as Capital Gain Option (or as
CGO
) or Ordinary Income
Option (or as
OIO
).
|
|
5.4.
|
Approved
102 Option elected and designated by the Company to qualify under the
capital gain tax treatment in accordance with the provisions of Section
102(b)(2) shall be referred to herein as
CGO
.
|
|
5.5.
|
Approved
102 Option elected and designated by the Company to qualify under the
ordinary income tax treatment in accordance with the provisions of Section
102(b)(1) shall be referred to herein as
OIO
.
|
|
5.6.
|
The
Company’s election of the type of Approved 102 Options as CGO or OIO
granted to Employees (the “
Election
”), shall be
appropriately filed with the ITA before the Date of Grant of an Approved
102 Option under such Election. Such Election shall become effective
beginning the first Date of Grant of an Approved 102 Option under such
Election, and shall remain in effect until the end of the year following
the year during which the Company first granted Approved 102 Options under
such Election. The Election shall obligate the Company to grant
only
the type of
Approved 102 Option it has elected, and shall apply to all Optionees who
were granted Approved 102 Options during the period indicated herein, all
in accordance with the provisions of Section 102(g) of the Ordinance. For
the avoidance of doubt, such Election shall not prevent the Company from
granting Unapproved 102 Options
simultaneously.
|
|
5.7.
|
All
Approved 102 Options must be held in trust by a Trustee, as described in
Section 6 below.
|
|
5.8.
|
For
the avoidance of doubt, the designation of Unapproved 102 Options and
Approved 102 Options shall be subject to the terms and conditions set
forth in Section 102 of the Ordinance and the regulations promulgated
thereunder.
|
6.
|
TRUSTEE
|
|
6.1.
|
Approved
102 Options which shall be granted under the ESOP and/or any Shares
allocated or issued upon exercise of such Approved 102 Options and/or
other shares received subsequently following any realization of rights,
including, without limitation, bonus shares, shall be allocated or issued
to the Trustee (and registered in the Trustee’s name in the register of
members of the Company) and held for the benefit of the Optionees for such
period of time as required by Section 102 or any regulations, rules or
orders or procedures promulgated thereunder (the “
Holding Period
”). All
certificates representing Shares issued to the Trustee under the Plan
shall be deposited with the Trustee along with an authorized copy of each
relevant Board resolution issuing such Options to purchase Shares to
Optionees, and shall be held by the Trustee until such time that such
Shares are released from the aforesaid trust as herein provided. In the
case the requirements for Approved 102 Options are not met, then the
Approved 102 Options may be treated as Unapproved 102 Options, all in
accordance with the provisions of Section 102 and regulations promulgated
thereunder.
|
|
6.2.
|
Notwithstanding
anything to the contrary, the Trustee shall not release any Shares
allocated or issued upon exercise of Approved 102 Options prior to the
full payment of the Optionee’s tax liabilities arising from Approved 102
Options which were granted to such Optionee and/or any Shares allocated or
issued upon exercise of such
Options.
|
|
6.3.
|
With
respect to any Approved 102 Option, subject to the provisions of Section
102 and any rules or regulation or orders or procedures promulgated
thereunder, an Optionee shall not sell or release from trust any Share
received upon the exercise of an Approved 102 Option and/or any share
received subsequently following any realization of rights, including
without limitation, bonus shares, until the lapse of the Holding Period
required under Section 102 of the Ordinance. Notwithstanding the above, if
any such sale or release occurs during the Holding Period, the provisions
of Section 102 of the Ordinance and under any rules or regulation or
orders or procedures promulgated thereunder shall apply to and shall be
borne by such Optionee.
|
|
6.4.
|
Upon
receipt of Approved 102 Option, the Optionee will sign an undertaking to
release the Trustee from any liability in respect of any action or
decision duly taken and bona fide executed in relation with the ESOP, or
any Approved 102 Option or Share granted to him
thereunder.
|
7.
|
SHARES RESERVED FOR THE ESOP;
RESTRICTION THEREON
|
|
7.1.
|
The
Company has reserved a total of 5,838,000 authorized but unissued Ordinary
Shares (and/or previously issued Shares (such issued shares, if any, being
held in trust for such purpose or held as dormant shares by the Company or
its Affiliates)), for the purposes of the ESOP and for the purposes of any
other share option plans which have previously been, or may in the future
be, adopted by the Company, subject to adjustment as set forth in Section
9 below. Any Shares which remain unissued and which are not subject to the
outstanding Options at the termination of the ESOP shall cease to be
reserved for the purpose of the ESOP, but until termination of the ESOP
the Company shall at all times reserve sufficient number of Shares to meet
the requirements of the ESOP. Should any Option for any reason expire or
be canceled prior to its exercise or relinquishment in full, the Shares
subject to such Option may again be subjected to an Option under the ESOP
or under the Company’s other share option
plans.
|
|
7.2.
|
Each
Option granted pursuant to the ESOP, shall be evidenced by a written
Option Agreement between the Company and the Optionee, in such form as the
Board or the Committee shall from time to time approve. Each Option
Agreement shall state, among other matters, the number of Shares to which
the Option relates, the type of Option granted thereunder (whether a CGO,
OIO, Unapproved 102 Option or a 3(i) Option), the Vesting Dates, the
Purchase Price per share, the Expiration Date and such other terms and
conditions as the Committee or the Board in its discretion may prescribe,
provided that they are consistent with this
ESOP.
|
|
7.3.
|
The
Company, at its sole discretion, may require that, until the consummation
of an IPO, any Shares issued upon exercise of Options (and securities of
the Company issued with respect thereto) shall be non voting Shares, or be
voted by an irrevocable proxy (the ”
Proxy
”), such Proxy to
be assigned to the person or persons designated by the Board and to
provide for the power of such designated person(s) to act, instead of the
Optionee and on its behalf, with respect to any and all aspects of the
Optionee’s shareholdings in the Company. The Proxy may be contained in the
Option Agreement of an Optionee or otherwise as the Committee determines.
If contained in the Option Agreement, no further document shall be
required to implement such Proxy, and the signature of the Optionee on the
Option Agreement shall indicate approval of the Proxy thereby granted.
Such person or persons designated by the Board shall be indemnified and
held harmless by the Company against any cost or expense (including
counsel fees) reasonably incurred by him/her, or any liability (including
any sum paid in settlement of a claim with the approval of the Company)
arising out of any act or omission to act in connection with the voting of
such Proxy unless arising out of such member's own fraud or bad faith, to
the extent permitted by applicable law. Such indemnification shall be in
addition to any rights of indemnification the person(s) may have as a
director or otherwise under the Company's incorporation documents, any
agreement, any vote of shareholders or disinterested directors, insurance
policy or otherwise. Without derogating from the above, with respect to
Shares issuable upon exercise of Approved 102 Options, such Shares shall
be voted in accordance with the provisions of Section 102 and of any
rules, regulations or orders promulgated
thereunder.
|
8.
|
PURCHASE
PRICE
|
|
8.1.
|
The
Purchase Price of each Share subject to an Option shall be determined by
the Board at its sole and absolute discretion in accordance with
applicable law, and, if such authority is delegated by the Board to the
Committee in compliance with the then effective applicable law, it shall
be subject to any guidelines as may be determined by the Board from time
to time. Each Option Agreement will contain the Purchase Price determined
for each Option covered thereby (but in any event, not less than the par
value of the Share issuable upon exercise
thereof).
|
|
8.2.
|
The
Purchase Price shall be payable upon the exercise of the Option in a form
satisfactory to the Committee, including without limitation, by cash or
check. The Committee shall have the authority to postpone the date of
payment on such terms as it may
determine.
|
|
8.3.
|
The
Purchase Price shall be denominated in the currency of the primary
economic environment of, either the Company or the Optionee (that is the
functional currency of the Company or the currency in which the Optionee
is paid), as determined by the
Company.
|
9.
|
ADJUSTMENTS
|
|
9.1.
|
In
the event of Transaction, the unexercised Options then outstanding under
the ESOP shall be assumed or substituted for options to purchase an
appropriate number of shares of such class of shares, or other securities
(as determined by the Company), of the Successor Company (or a parent or
subsidiary of the Successor Company), per each Share underlying the
assumed or substituted Option, as were distributed to the holders of
Shares of the Company per each Share held, in connection with and pursuant
to the Transaction. In the case of such assumption and/or substitution of
Options, appropriate adjustments shall be made to the Purchase Price so as
to reflect such action and all other terms and conditions of the Option
Agreements shall remain unchanged, including but not limited to the
vesting schedule, all subject to the determination of the Committee or the
Board, which determination shall be in their sole discretion and final.
The Company shall notify the Optionee of the Transaction in such form and
method as it deems applicable and at such time in advance as notified to
the holders of all other Shares which were issued neither upon exercise of
Options under this ESOP nor upon exercise of options to purchase shares of
the Company granted under any other share option plans of the
Company.
|
|
9.2.
|
Notwithstanding
the above and subject to any applicable law, the Board shall have full
power and authority to determine with respect to any Options, that in the
Option Agreement applicable to such Options there shall be a clause
instructing that, if, in any such Transaction, the Successor Company (or
parent or subsidiary of the Successor Company) does not agree to assume or
substitute any unexercised Options underlying such Option Agreement, the
Vesting Dates of such Options shall be accelerated so that any such
unexercised Options that are then unvested shall be immediately vested as
of the date that is ten (10) days prior to the effective date of the
Transaction for a 10-day period thereafter (upon expiration of which
period the Options shall expire).
|
|
9.3.
|
For
the purposes of section 9.1 above, an Option shall be considered assumed
or substituted if, following the Transaction, the assumed or substituted
Option confers the right to purchase or receive, for each Share underlying
such an assumed or substituted Option immediately prior to the
Transaction, the consideration (whether shares, options, cash, or other
securities or property) received in the Transaction for each Share held by
holders of Shares of the Company on the effective date of the Transaction
(and if such holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding
Shares);
provided
,
however
,
that if such consideration received in the Transaction is not solely
shares (or their equivalent) of the Successor Company or its parent or
subsidiary, the Board may, with the consent of the Successor Company,
provide for the consideration to be received upon the exercise of the
assumed or substituted Option to be solely shares (or their equivalent) of
the Successor Company or its parent or subsidiary equal in Fair Market
Value to the per Share consideration received by holders of a majority of
the outstanding shares in the Transaction; and
provided
further
that the Board may determine, in its discretion, that in lieu of such
assumption or substitution of Options for options of the Successor Company
or its parent or subsidiary, such Options will be substituted for any
other type of asset or property.
|
|
9.4.
|
If
the Company is voluntarily liquidated or dissolved while unexercised
Options remain outstanding under the ESOP, the Company shall immediately
notify all unexercised Option holders of such liquidation, and the Option
holders shall then have ten (10) days to exercise any unexercised Vested
Option held by them at that time, in accordance with the exercise
procedure set forth herein. Upon the expiration of such ten-day period,
all remaining unexercised Options will terminate
immediately.
|
|
9.5.
|
If
the outstanding shares of the Company shall at any time be changed or
exchanged by declaration of a share dividend (bonus shares), share split,
combination or exchange of shares, recapitalization, or any other like
event by or of the Company, and as often as the same shall occur, then the
number, class and kind of the Shares subject to the ESOP or subject to any
Options therefore granted, and the Purchase Prices, shall be appropriately
and equitably adjusted so as to maintain the proportionate number of
Shares without changing the aggregate Purchase Price,
provided
,
however
,
that no adjustment shall be made by reason of the distribution of
subscription rights (rights offering) on outstanding shares. Upon
occurrence of any of the foregoing, the class and aggregate number of
Shares issuable pursuant to the ESOP (as set forth in Section 7 hereof),
in respect of which Options have not yet been exercised, shall be
appropriately adjusted, all as will be determined by the Board whose
determination shall be final.
|
|
9.6.
|
Except
as expressly provided herein, no issuance by the Company of shares of any
class, or securities convertible into shares of any class, shall affect,
and no adjustment by reason thereof shall be made with respect to, the
number or price of Shares subject to an
Option.
|
10.
|
TERM AND EXERCISE OF
OPTIONS
|
10.1.
|
Options
shall be exercised by the Optionee by giving written notice to the Company
and/or to any third party designated by the Company (the “
Representative
”), in
such form and method as may be determined by the Company and when
applicable, by the Trustee in accordance with the requirements of Section
102, which exercise shall be effective upon receipt of such notice by the
Company and/or the Representative and the payment of the Purchase Price at
the Company’s or the Representative’s principal office. The notice shall
specify the number of Shares with respect to which the Option is being
exercised.
|
10.2.
|
Options,
to the extent not previously exercised, shall terminate forthwith upon the
earlier of: (i) the date set forth in the Option Agreement (unless
otherwise determined in accordance with the provisions of this ESOP with
respect to any Option(s), such date shall be ten (10) years from the
respective Date of Grant); and (ii) the expiration of any extended period
in any of the events set forth in section 10.5
below.
|
10.3.
|
The
Options may be exercised by the Optionee in whole at any time or in part
from time to time, to the extent that the Options become vested and
exercisable, prior to the Expiration Date, and
provided
that, subject to the provisions of section 10.5 below, the Optionee is
employed by or providing services to the Company or any of its Affiliates,
at all times during the period beginning with the granting of the Option
and ending upon the date of
exercise.
|
10.4.
|
Subject
to the provisions of section 10.5 below, in the event of termination of
Optionee’s employment or services, with the Company or any of its
Affiliates, all Options granted to such Optionee will immediately expire.
A notice of termination of employment or service shall be deemed to
constitute termination of employment or service. For the avoidance of
doubt, in case of such termination of employment or service, the unvested
portion of the Optionee’s Option shall not vest and shall not become
exercisable and any unvested portion of the Optionee’s Option shall revert
to the ESOP.
|
10.5.
|
Notwithstanding
anything to the contrary hereinabove and unless otherwise determined in
the Optionee’s Option Agreement, an Option may be exercised after the date
of termination of Optionee's employment or service with the Company or any
Affiliates during an additional period of time beyond the date of such
termination, but only with respect to the number of Vested Options at the
time of such termination according to the Vesting Dates, if
:
|
10.6.
|
To
avoid doubt, the Optionees shall not be deemed owners of the Shares
issuable upon the exercise of Options and shall not have any of the rights
or privileges of shareholders of the Company in respect of any Shares
purchasable upon the exercise of any part of an Option, until registration
of the Optionee as holder of such Shares in the Company’s register of
shareholders upon exercise of the Option in accordance with the
provisions of the ESOP, but in case of Options and Shares held by the
Trustee, subject to the provisions of Section 6 of the
ESOP.
|
10.7.
|
Any
form of Option Agreement authorized by the ESOP may contain such other
provisions as the Committee may, from time to time, deem
advisable.
|
10.8.
|
The
inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company to be
necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or
sell such Shares as to which such requisite authority shall not have been
obtained.
|
10.9.
|
With
respect to Unapproved 102 Options, if the Optionee ceases to be employed
by the Company or any Affiliate, the Optionee shall extend to the Company
and/or its Affiliate a security or guarantee for the payment of tax due at
the time of Sale of Shares, all in accordance with the provisions of
Section 102 and the rules, regulations or orders promulgated
thereunder.
|
11.
|
VESTING OF
OPTIONS
|
11.1.
|
Subject
to the provisions of the ESOP, each Option shall vest and become
exercisable commencing on the Vesting Date thereof, as determined by the
Board, for the number of Shares as shall be provided in the Option
Agreement. However, no Option shall be exercisable after the Expiration
Date. Unless otherwise determined in accordance with the provisions of
this ESOP with respect to any, some or all Options, each Option shall vest
and become exercisable over a 4-year period from its Date of Grant,
according to the following: One quarter of the shares shall vest on the
first anniversary of the Date of Grant. The balance shall vest over the
sequential three years, quarterly, in twelve equal portions, with each
6.25% of such Option becoming vested and exercisable on the last day of
each quarter
provided
,
however
,
that the Option Agreement may specify differently, and that the Committee,
in its absolute discretion, may, on such terms and conditions as it may
determine to be appropriate, accelerate or otherwise change the time at
which such Option or any portion thereof may be exercised. The Option may
contain other provisions with respect to any Option and any Option need
not be the same as the provisions with respect to any other
Option.
|
11.2.
|
An
Option may be subject to such other terms and conditions on the time or
times when it may be exercised, as the Committee may deem appropriate. The
vesting provisions of individual Options may
vary.
|
12.
|
SHARES SUBJECT
TO RIGHT OF FIRST REFUSAL AND BRING
ALONG
|
12.1.
|
Notwithstanding
anything to the contrary in the incorporation documents of the Company,
none of the Optionees shall have a right of first refusal in relation with
any Sale (as hereinafter defined) of shares in the
Company.
|
12.2.
|
Unless
otherwise determined by the Committee, until such time as the Company
completes an IPO or a Transaction, an Optionee shall not have the right to
effect a Sale of Shares issued upon the exercise of an Option within six
(6) months and one day of the date of the later of the exercise of such
Option or the issuance of such Shares (if such an issuance is not made
immediately upon exercise).
|
12.3.
|
Sale,
transfer, assignment or other disposal (collectively, “
Sale
”)
of Shares issuable upon the exercise of an Option shall be subject to the
right of first refusal of other shareholders of the Company as set forth
in the Certificate of Incorporation or Bylaws of the Company or in any
agreement among the Company and all or substantially all of its
shareholders. In the event that neither the Certificate of Incorporation
or Bylaws of the Company nor any such agreement shall provide for
applicable rights of first refusal, then, unless otherwise determined by
the Board, until such time as the Company shall complete an IPO, the Sale
of Shares issuable upon the exercise of an Option shall be subject to a
right of first refusal on the part of the Repurchaser(s), as
follows:
|
|
(a)
|
Repurchaser(s)
means (i) the Company, if permitted by applicable law, (ii) if the
Company is not permitted by applicable law, then any Affiliate of the
Company designated by the unanimous decision of the Board; or (iii) if no
decision is reached by the Board, then the Company’s existing shareholders
(save, for avoidance of doubt, for other Optionees who already exercised
their Options), pro rata in accordance with their respective shareholdings
in the Company’s issued and outstanding share capital, on an as-converted
basis.
|
|
(b)
|
The
Optionee shall give a notice of Sale (hereinafter the “
Notice
”) to the Company
in order to offer the Shares to the Repurchaser(s). The Company will
forward the Notice to the applicable
Repurchaser(s).
|
|
(c)
|
The
Notice shall specify the name of each proposed purchaser or other
transferee (hereinafter the “
Proposed Transferee
”),
the number of Shares offered for Sale, the price per Share and the payment
terms. The Repurchaser(s) will be entitled for thirty (30) days from the
day of receipt of the Notice (hereinafter the “
Notice Period
”), to
purchase all or part of the offered Shares (if the Repurchaser(s) are
shareholders of the Company, then such entitlement shall be on a pro rata
basis, based on their respective holdings in the Company’s issued and
outstanding share capital, on an as-converted
basis).
|
|
(d)
|
If,
by the end of the Notice Period, not all of the offered Shares have been
purchased by the Repurchaser(s), the Optionee shall be entitled to Sell
the Shares so remained unpurchased, at any time during the ninety (90)
days following the end of the Notice Period on terms not more favorable to
the Proposed Transferee than those set out in the Notice,
provided
that the Proposed Transferee agrees in writing that the provisions of this
section shall continue to apply to the Shares in the hands of such
Proposed Transferee. Any Sale of Shares issued under the ESOP by the
Optionee that is not made in accordance with the ESOP or the Option
Agreement shall be null and void.
|
|
(e)
|
If
the consideration to be paid for the Shares is not cash, the value of the
consideration shall be determined in good faith by the Board, and if the
Company cannot for any reason pay for the Shares in the form of non-cash
consideration, the Company may pay the cash equivalent thereof, as
determined by the Board.
|
12.4.
|
Prior
to an IPO, and in addition to the right of first refusal, any transfer of
Shares by an Optionee shall require the Board’s approval as to the
identity of the transferee and as required under the Company’s Certificate
of Incorporation or Bylaws. The Board may refuse to approve the transfer
of Shares to any competitor of the
Company.
|
12.5.
|
Anything
herein to the contrary notwithstanding, the Optionees shall be bound by
the “bring along” provisions of the Company’s Certificate of Incorporation
and/or Bylaws and/or any agreement among the Company and all or
substantially all of its shareholders, as in effect from time to time, and
in the event that neither the Certificate of Incorporation or Bylaws of
the Company nor any such agreement shall provide for such "bring along"
provision, then, unless otherwise determined by the Board, until such time
as the Company shall complete an IPO, in the event that shareholders
holding 60% of the Company’s share capital (“
Proposing Holders
”),
elect to sell all of their equity securities in the Company to a third
party, or agree to merge or consolidate the Company with or into another
entity, and such sale or merger is conditioned upon the sale of all
remaining stock of the Company to such third party, or to the agreement of
all of the shareholders, the Optionees shall be required, if so demanded
by the Proposing Holders, to sell or transfer all of their equity
securities in the Company to such third party at the same price and upon
the same terms and conditions as the Proposing
Holders.
|
13.
|
PURCHASE FOR INVESTMENT;
LIMITATIONS UPON IPO;
REPRESENTATIONS
|
13.1.
|
The
Company’s obligation to issue or allocate Shares upon exercise of an
Option granted under the ESOP is expressly conditioned upon: (a) the
Company’s completion of any registration or other qualifications of such
Shares under all applicable laws, rules and regulations or (b)
representations and undertakings by the Optionee (or his legal
representative, heir or legatee, in the event of the Optionee’s death) to
assure that the sale of the Shares complies with any registration
exemption requirements which the Company in its sole discretion shall deem
necessary or advisable. Such required representations and undertakings may
include representations and agreements that such Optionee (or his legal
representative, heir, or legatee): (a) is purchasing such Shares for
investment and not with any present intention of selling or otherwise
disposing thereof; and (b) agrees to have placed upon the face and reverse
of any certificates evidencing such Shares a legend setting forth (i) any
representations and undertakings which such Optionee has given to the
Company or a reference thereto and (ii) that, prior to effecting any sale
or other disposition of any such Shares, the Optionee must furnish to the
Company an opinion of counsel, satisfactory to the Company, that such sale
or disposition will not violate the applicable laws, rules, and
regulations, whether of the State of Israel or of the United States or any
other State or country having or that shall have jurisdiction
over the Company and the Optionee.
|
13.2.
|
The
Optionee acknowledges that in the event that the Company’s shares shall be
registered for trading in any public market, Optionee’s rights to sell the
Shares may be subject to certain limitations (including a lock-up period),
as will be requested by the Company or its underwriters, and the Optionee
unconditionally agrees and accepts any such
limitations.
|
13.3.
|
Upon
the grant of Options to an Optionee or the issuance of Shares upon the
exercise thereof, the Company shall obtain from such the representations
and undertakings as follows:
|
|
(a)
|
That
the Optionee is familiar with the Company, its activity and its financial
and commercial forecast, and that the Optionee knows that there is no
certainty that the exercise of the Options will be financially worthwhile.
The Optionee hereby undertakes not to have any claim against the Company
or any of its directors, employees, shareholders or advisors if it
emerges, at the time of exercising the Options, that the Optionee’s
investment in the Company‘s Shares was not worthwhile, for any reason
whatsoever.
|
|
(b)
|
That
the Optionee knows that his rights regarding the Options and the Shares
are subject for all intents and purposes to the instructions of the
Company’s documents of incorporation and to the agreements of the
shareholders in the Company.
|
|
(c)
|
That
the Optionee knows that in addition to the allocations set forth above,
the Company has allocated and/or is entitled to allocate Options and
Shares to other employees and other people, and the Optionee shall have no
claim regarding such allocations, their quantity, the relationship among
them and between them and the other shareholders in the Company,
exercising of the options or any matter related to or stemming from
them.
|
|
(d)
|
That
the Optionee knows that neither the ESOP nor the grant of Option or Shares
thereunder shall impose any obligation on the Company to continue the
engagement of the Optionee, and nothing in the ESOP or in any Option or
Shares granted pursuant thereto shall confer upon any Optionee any right
to continue being engaged by the Company, or restrict the right of the
Company to terminate such engagement at any
time.
|
14.
|
DIVIDENDS
|
15.
|
RESTRICTIONS ON ASSIGNABILITY
AND SALE OF OPTIONS
|
15.1.
|
No
Option or any right with respect thereto, purchasable hereunder, whether
fully paid or not, shall be assignable, transferable or given as
collateral or any right with respect to it given to any third party
whatsoever, except as specifically allowed under the ESOP, and during the
lifetime of the Optionee each and all of such Optionee's rights to
purchase Shares hereunder shall be exercisable only by the
Optionee.
|
15.2.
|
Notwithstanding
anything to the contrary in this ESOP, so long as Options and/or Shares
are held by the Trustee on behalf of the Optionee, all rights of the
Optionee over the Shares are personal, can not be transferred, assigned,
pledged or mortgaged, other than by will or pursuant to the laws of
descent and distribution (in which case such transfer shall be conditional
upon the transferee’s agreement in writing to be bound by the terms and
conditions on which the Optionee held the same, including, without
limitation, the ESOP and the respective Option
Agreement).
|
16.
|
EFFECTIVE DATE AND DURATION OF
THE ESOP
|
17.
|
AMENDMENTS OR
TERMINATION
|
18.
|
GOVERNMENT
REGULATIONS
|
19.
|
CONTINUANCE OF EMPLOYMENT OR
HIRED SERVICES
|
20.
|
GOVERNING LAW &
JURISDICTION
|
21.
|
INTEGRATION OF SECTION 102 AND
TAX COMMISSIONER’S
PERMIT
|
21.1.
|
With
regard to 102 Options, the provisions of the ESOP and/or the Option
Agreement shall be subject to the provisions of Section 102 and the Income
Tax Rules (Tax Relieves for Grants of Shares to Employees), 2003-5763 and
the Income Tax Commissioner’s permit, and the said provisions and permit
shall be deemed an integral part of the ESOP and of the Option
Agreement.
|
21.2.
|
Any
provision of Section 102 and/or the said permit which is necessary in
order to receive and/or to keep any tax benefit pursuant to Section 102,
which is not expressly specified in the ESOP or the Option Agreement,
shall be considered binding upon the Company and the
Optionees.
|
22.
|
TAX
CONSEQUENCES
|
22.1.
|
Any
tax consequences arising from the grant or exercise of any Option, from
the payment for Shares covered thereby or from any other event or act (of
the Company and/or its Affiliates, the Trustee or the Optionee),
hereunder, including but not limited to National Insurance payments and
income tax, shall be borne solely by the Optionee. The Company and/or its
Affiliates and/or the Trustee shall withhold taxes according to the
requirements under the applicable laws, rules, and regulations, including
withholding taxes at source. Furthermore, the Optionee shall agree to
indemnify the Company and/or its Affiliates and/or the Trustee and hold
them harmless against and from any and all liability for any such tax or
interest or penalty thereon, including without limitation, liabilities
relating to the necessity to withhold, or to have withheld, any such tax
or other compulsory payment deriving from any payment made to the
Optionee.
|
22.2.
|
The
Company and/or, when applicable, the Trustee, shall not be required to
release any Share certificate to an Optionee until all required payments
have been fully made.
|
22.3.
|
To
the extent provided by the terms of an Option Agreement, the Optionee may
satisfy any tax withholding obligation relating to the exercise or
acquisition of Shares under an Option by any of the following means (in
addition to the Company’s right to withhold from any compensation paid to
the Optionee by the Company) or by a combination of such means: (i)
tendering a cash payment; (ii) subject to the Committee’s approval (on or
prior to the payment date), after consultation with the Company’s
accountants, authorizing the Company to withhold Shares from the Shares
otherwise issuable to the Optionee as a result of the exercise or
acquisition of Shares under the Option in an amount not to exceed the
minimum amount of tax required to be withheld by law; or (iii) subject to
Committee approval (on or prior to the payment date), after consultation
with the Company’s accountants, delivering to the Company owned and
unencumbered Shares;
provided
that Shares acquired on exercise of Options have been held for at least 6
months from the date of exercise.
|
23.
|
NON-EXCLUSIVITY OF THE
ESOP
|
24.
|
MULTIPLE
AGREEMENTS
|
Whereas
,
|
the
Company, Fortissimo and certain other investors have entered into a Share
Purchase Agreement dated March 26, 2007 (the “
SPA
”; all capitalized
terms used and not otherwise defined herein shall have the meanings
ascribed to them in the SPA); and
|
Whereas
,
|
Fortissimo
and its co-investors will purchase, subject to the closing of the
transactions contemplated under the SPA (the “
Closing
”), a substantial
shareholding position in the Company and they intend to actively
participate in the management of the Company, including by way of election
of members of the Company's Board of Directors (the “
Board
”);
and
|
Whereas
,
|
the
Company desires to retain management services of Fortissimo, or more
specifically, the management company of Fortissimo, pursuant to the terms
and conditions set forth in this Agreement, and Fortissimo agrees to
provide such services to the Company on such terms and
conditions.
|
|
1.
|
Scope
of Services
|
|
1.1.
|
Fortissimo,
through its employees, officers and directors, will conduct regular
meetings and discussions with members of the Company's management, to
assist and advise them on matters concerning the affairs and business of
the Company and render such other management services and advice as may be
agreed to from time to time by the Company and Fortissimo (the “
Management
Services
”).
|
|
1.2.
|
In
rendering the Management Services hereunder, Fortissimo shall cooperate
with the Company and utilize professional skill and diligence to provide
the expertise required in connection with such services. Fortissimo shall
dedicate as much time as will be reasonably necessary for the proper
performance of the Management
Services.
|
|
1.3.
|
Fortissimo
is entitled, under the terms of the SPA and subject to the Closing, to
elect a majority of the Board, including as the chairman of the Board (the
“
Fortissimo
Directors
”). The services rendered by the directors and
the Chairman will be referred hereinafter as the “
Board
Services
”.
|
|
1.4.
|
For
the avoidance of doubt, it is clarified that in serving as members of the
Board, the Fortissimo Directors, including the Chairman, shall not be
employees of the Company, nor shall the payment of the Management Fee
(defined below) by the Company create employee-employer relations between
the parties hereto or entitle the Fortissimo Directors to any social
benefits.
|
|
1.5.
|
In
providing the Board Services, the Fortissimo Directors shall be subject to
any and all fiduciary and other duties applicable under law upon members
of the board of directors.
|
|
2.
|
Compensation
|
|
2.1.
|
In
consideration of the performance of the Management Services and the Board
Services hereunder, the Company shall pay to Fortissimo, or an affiliated
entity designated by Fortissimo an annual management services fee equal to
the greater of: (i) two hundred fifty thousand (250,000) Euro or (ii) 4%
of Earnings Before Interest, Taxes, Depreciation and Amortization (“
EBITDA
”), for so long at
it retains the right to appoint at least two board seats, either alone or
together with the other holders of the A1 Shares purchased pursuant to the
SPA.
|
|
2.2.
|
The
Company will reimburse Fortissimo for reasonable documented out-of-pocket
business expenses borne by Fortissimo or any of its employees, directors
or officers in connection with the provision of the Management Services,
in accordance with policies approved by the
Board.
|
|
2.3.
|
All
payments under this Agreement shall be made against the issuance of valid
invoices by Fortissimo to the Company. Value Added Tax (“
VAT
”) pursuant to
applicable law shall be added to all payments
hereunder.
|
|
2.4.
|
Except
for VAT, the Management Fee shall be inclusive of all taxes that may be
incurred by the Company and/or Fortissimo Directors and/or Fortissimo in
connection with the payment thereof, and any such taxes shall be borne by
the Fortissimo Directors and/or Fortissimo. Furthermore, the Management
Fee and Additional Fees are the full and final compensation for the
provision of the Management Services and the Board Services and shall be
in lieu of any and all payments that are due to the Fortissimo Directors
in their capacity as members of the Board or any of its committees to
which they are appointed, except for the right to receive options to
purchase ordinary shares of the Company granted to the Company’s directors
from time to time. Notwithstanding the above, Fortissimo Directors who are
not employees, directors or officers of Fortissimo shall be entitled to
such compensation, payments and options as are provided to the other
Company Board members.
|
|
3.
|
Term
and Termination
|
|
3.1.
|
This
Agreement shall only come into effect at the Closing of the
SPA.
|
|
3.2.
|
This
Agreement may be terminated by Board resolution that may be adopted at
such time as the Board includes less than two (2) Fortissimo Directors,
and subject to thirty (30) days prior written notice to Fortissimo. In the
event of termination hereunder, Fortissimo shall be entitled to receive a
pro-rated part of the Management
Fee.
|
|
4.
|
Independent
Contractor
.
Fortissimo
is an independent contractor and is not an agent or employee of, and has
no authority to bind the Company by contract or otherwise. Fortissimo will
perform the Management Services under the general direction of the
Company.
|
|
5.
|
Miscellaneous
|
|
5.1.
|
Entire
Agreement
. This Agreement and the SPA contain the entire agreement
of the parties with relation to the subject matter hereof, and cancel and
supersede all prior and contemporaneous negotiations, correspondence,
understandings and agreements (oral or written) of the parties relating to
such subject matter.
|
|
5.2.
|
Amendment
. This
Agreement may not be modified or amended except by mutual written
agreement of the parties.
|
|
5.3.
|
No Waiver
. No
failure, delay of forbearance of either party in exercising any power or
right hereunder shall in any way restrict or diminish such party's rights
and powers under this Agreement, or operate as a waiver of any breach or
nonperformance by either party of any terms of conditions
hereof.
|
|
5.4.
|
Assignment
.
Except as provided herein, this Agreement shall not be assigned by a party
hereof to a third party without the other party's prior written consent
and any attempt to effect an assignment of this Agreement or any portion
thereof without obtaining such consent shall be null and
void.
|
|
5.5.
|
Severability
.
In case any one or more of the provisions contained in this Agreement
shall for any reason be held to be invalid, illegal or unenforceable in
any respect, such invalidity, illegality or unenforceability shall not
affect any other provision hereof and this Agreement shall be construed as
if such invalid, illegal or unenforceable provision had never been
contained herein
|
|
5.6.
|
Notices
. Any
notice under this Agreement shall be in writing and shall be deemed to
have been duly given for all purposes (a) seven (7) days after it is
mailed by registered mail; (b) upon the transmittal thereof by facsimile;
or (c) upon the manual delivery thereof, to the respective party’s address
set forth in the preamble or to such other address with respect to a party
as such party shall notify the other party in accordance with the
above.
|
|
5.7.
|
Counterparts
.
This Agreement may be executed in multiple counterparts, including,
without limitation, by facsimile signature, which taken together shall
constitute a single document.
|
|
5.8.
|
Governing Law and
Jurisdiction
. This Agreement and the transactions contemplated
hereunder shall be governed by and construed in accordance with the laws
of the State of Israel, without giving effect to rules respecting conflict
of law that would cause the laws of any jurisdiction other than the State
of Israel to be applied. The competent courts of Tel Aviv-Jaffa shall have
sole and exclusive jurisdiction to hear and resolve any disputes among the
parties related to this Agreement.
|
Soda
Club Enterprises N.V.
|
||
By:
|
/s/ Gad Shoshany
|
|
Name:
Gad Shoshany
|
||
Title:
In-House Counsel
|
||
Fortissimo
Capital Fund GP LP.
|
||
By:
Fortissimo Capital (GP) Management Ltd., its general
partner
|
||
By:
|
/s/ Yuval Cohen
|
|
Name:
Yuval Cohen
|
||
Title:
Director
|
Name
of Subsidiary
|
Jurisdiction
|
|
Soda-Club
Enterprises N.V.
|
Netherlands
Antilles
|
|
SodaStream
International B.V.
|
The
Netherlands
|
|
Soda-Club
Worldwide B.V.
|
The
Netherlands
|
|
SodaStream
GmbH
|
Germany
|
|
SodaStream
Industries Ltd.
|
Israel
|
|
SodaStream
Israel Ltd.
|
Israel
|
|
SodaStream
(Switzerland) AG
|
Switzerland
|
|
Soda-Club
Österreich GmbH
|
Austria
|
|
Soda-Club
Australia PTY Ltd.
|
Australia
|
|
SodaStream
(New Zealand) Ltd.
|
New
Zealand
|
|
Soda-Club
(SA) (Pty) Ltd.
|
South
Africa
|
|
SodaStream
USA, Inc.
|
Delaware
(United States)
|
|
Soda-Club
CO
2
Ltd.
|
British
Virgin Islands
|
|
Soda-Club
(Europe) Limited
|
United
Kingdom
|
|
Soda-Club
Switzerland GmbH
|
Switzerland
|
|
Soda-Club
(CO
2
)
SA/AG/Ltd.
|
Switzerland
|
|
SodaStream
(CO
2
)
SA/AG/Ltd.
|
Switzerland
|
|
Soda-Club
(CO
2
)
Atlantic GmbH
|
Switzerland
|
|
Soda-Club
Worldwide BV Sp. Z.O.O Oddziel w polsce Branch
|
Poland
|
|
Soda-Club
Worldwide Trading Company Branch
|
United
Kingdom
|
|
Soda-Club
Worldwide BV (Sweden) Branch
|
Sweden
|
|
Soda-Club
Worldwide BV (France) Branch
|
France
|
|
Soda-Club
Worldwide BV (Greece) Branch
|
Greece
|
|
SodaStream
Direct, LLC
|
Delaware
(United States)
|
/s/
Somekh Chaikin
|
Somekh
Chaikin
|
Certified
Public Accountants (lsr.)
|
Member
Firm of KPMG International
|
Country
|
Date
of Survey
|
Number
of Respondents
|
||
Austria
|
September
2009
|
1014
|
||
Australia
|
September
2009
|
997
|
||
Belgium
|
September
2009
|
1007
|
||
Finland
|
September
2009
|
1000
|
||
France
|
June
2009
|
506
|
||
Germany
|
September
2009
|
1024
|
||
Italy
|
September
2009
|
1023
|
||
South-Africa
|
September
2009
|
984
|
||
Switzerland
|
|
September
2009
|
|
1004
|
|
1.
|
Do
you have or have you ever had a home carbonation system or a similar
appliance in your household? (refer to the past 5
years)
|
2.
|
Which
make is / was this Home Carbonation
System?
|
Sincerely,
|
Ciao
Surveys GmbH
|
|
Hopfenstrasse
8
|
||
/s/ Anna Meiler |
D-80335
München
|
|
Ciao
Surveys GmbH
|
Tel:
+49 (0)89 444 451 0100
|
|
Fax:
+49 (0)89 3580 4639
|
||
Name:
Anna Meiler
|
||
Title:
Key Account Manager
|
|
Country
|
Date
of Survey
|
Number
of Respondents
|
||
Sweden
|
|
June
2009
|
|
503
|
|
1.
|
Do
you have or have you ever had a home carbonation system or a similar
appliance in your household? (refer to the past 5
years)
|
2.
|
Which make is / was this Home
Carbonation System?
|
Sincerely,
|
||
/s/ Michaela Klenkar | ||
Intervjubolaget
Imri AB
|
||
Name:
|
Michaela Klenkar
|
|
Title:
|
Project Manager
|
|
|
Ipsos
Tambor, s.r.o.
N
á
rodní
6, 110 00 Praha 1
Č
esk
á
republika
I
Č
:
267 38 902, DI
Č
:
CZ267 38 902
Tel:
+420 226 513 111
czoffice@ipsos.com
www.ipsos.cz
|
Country
|
Date
of Survey
|
Number
of Respondents
|
||
Czech
Republic
|
|
June
2010
|
|
1020
|
1.
|
Do
you have or have you ever had a home carbonation system or a similar
appliance in your household? (refer to the past 5
years)
|
2.
|
Which
make is / was this Home Carbonation
System?
|
Sincerely,
|
|
/s/ Robert Str á nsk ý | |
Ipsos
ASI (Tambor)
|
Country
|
Date
of Survey
|
Number
of Respondents
|
||
Israel
|
|
June
2009
|
|
503
|
Sincerely,
|
|
/s/ Avital Guttmann | |
Panels
Limited Ltd.
|
Country
|
Date
of Survey
|
Number
of Respondents
|
||
United
Kingdom
|
|
June
2010
|
|
1009
|
1.
|
Do
you have or have you ever had a home carbonation system or a similar
appliance in your household, either as an adult or a
child?
|
2.
|
Which
brand is / was this Home Carbonation
System?
|
Sincerely,
|
|
/s/ Guy Jones | |
Spinach
Ltd
|
|
Name:
Guy Jones
|
|
Title: Senior
Account Manager
|
Date:
October 17, 2010
|
/s/ Daniel Birnbaum
|
Daniel
Birnbaum
|
Date:
October 17, 2010
|
/s/ Eytan Glazer
|
Eytan
Glazer
|
Date:
October 17, 2010
|
/s/ Lauri A. Hanover
|
Lauri
A. Hanover
|