UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549SCHEDULE 14A
(Rule 14a-101)
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934, as amended
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MARNETICS BROADBAND TECHNOLOGIES LTD.
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(Name of Person(s) Filing Proxy Statement,
if other than the Registrant)
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January 27, 2004
October 24, 2002
Marnetics Broadband Technologies Ltd. ("Marnetics"(“Marnetics” or the "Company"“Company”) will hold an Annual General Meeting of Shareholders on Tuesday, November 26, 2002March 12, 2004 at 11:8:00 A.M.a.m. at the Hotel CEYLAN INTERCONTINENTAL, Asker Ocagi Cad. No:1 Taksim 80200, Istanbul, Turkey,Kibbutz Shefayim, Shefayim, Israel, Tel: +90 212 231 2121,+972-9761-6868, Fax: +90 212 231 2180.+972-9744-7715.
At the Annual General Meeting you will be asked to (1) elect members of the Board of Directors, (2) ratify the appointment of the Company'sCompany’s independent accountantspublic auditors and to authorize the Board of Directors of the Company to fix their compensation, (3) approve an amendment to the Company's Articles of Association to allow for the Company to insure, indemnify and exempt the directors and officers to the maximum as allowed under Israeli Company law, (4) authorize the Company to insure directors and officers, including the newly elected officers and directors, and officers, for the years 2002, 2003, to the maximum extent permitted under the Israeli Company law or any successor law, and to empower the audit committee of the Company to approve payment of insurance premiums above the shareholder limit approved today, if required in the future, (5) indemnify the directors and officers, including the newly elected directors and officers, to the maximum extent permitted under Israeli Company lawCompanies Law or any other successor law, (6)(4) approve the exemption of the newly elected directors and officers from personal liability to the Company and for monetary damages resulting from breach of their duty of care, (7)(5) ratify the following transactions: (a) Amendment to the asset sale agreementextensions of the electrical business in year 2001, (b) Services agreementAgreement with Netlogic Ltd. which is controlled by Menachem Reinschmidt, a major shareholder and Active Chairman of the Board of Directors of the Company, (b) approval of the Services Agreement and extensions thereof with George Balot, a director and CEOacting Chief Financial Officer of the Company, (c) Extensionapproval of payment of an attendance fee to George Balot in respect of Board of Director meetings, (d) authorize the Company to compensate each of Messrs. Reinschmidt and Sheetrit for their continuing support and involvement following March 31, 2004 in legal proceedings initiated by the Company and its subsidiary Marnetics Ltd. by payment to each, 9% of any amounts awarded in such proceedings, (e) authorize the Company to enter into legal services agreement with Netlogic Ltd. which is controlled by Menachem Reinschmidt, a major shareholder, director and CEOfor the benefit of the Company, its wholly owned subsidiary Marnetics Ltd., their officers and (8) approvedirectors and (6) approval of the Company's Operationprinciples for the proposed sale of Marnetics Ltd. and to authorize the Board to consummate the proposed sale in accordance with such principles, and (7) approval of the Company’s Operational Plan for the years 2002, 2003.year 2004.
The official Notice of Annual General Meeting, Proxy Statement and Proxy are included with this letter. Please give all the information contained in the proxy materials your careful attention.
Please use this opportunity to take part in the affairs of Marnetics. Whether or not you plan to attend the Annual General Meeting, please complete, sign, date and return the accompanying proxyProxy in the enclosed self-addressed, stamped envelope. Returning your proxyProxy does not deprive you of your right to attend the Meeting and to vote your shares in person. Your vote is very important. We appreciate your interest in Marnetics and consideration of this matter.
Very truly yours, | ||
—————————————— MENACHEM REINSCHMIDT | ||
Chairman of the Board |
MARNETICS BROADBAND TECHNOLOGIES LTD.
NOTICE OF
20022003 ANNUAL GENERAL MEETING OF SHAREHOLDERS
TO BE HELD ON TUESDAY, NOVEMBER 26, 2002
The 2002 Annual General Meeting of the Shareholders (the "General Meeting"“General Meeting”) of Marnetics Broadband Technologies Ltd., an Israeli company (the "Company"“Company”), for the year 2003 will be held on Tuesday, November 26, 2002March 12, 2004 at 11:8:00 a.m. at the Hotel CEYLAN INTERCONTINENTAL, Asker Ocagi Cad. No:1 Taksim 80200, Istanbul, Turkey,Kibbutz Shefayim, Shefayim , Israel , Tel: +90 212 231 2121,+972-9761-6868, Fax: +90 212 231 2180,+972-9744-7715, for the purpose of receiving and considering the Consolidated Financial Statement of the Company for the year ended December 31, 20012002 and considering and voting upon the following matters:
1. To elect two (2)three (3) Directors to the Board of Directors for one-year terms as well as one (1) External Director to the Board of Directors to serve a term of three (3) years;Directors;
2. To ratify the selection of Deloitte Touche Tohmatsu Brightman Almagor & Co. as independent public auditors of the Company for the year ending December 31, 2002,2003, and to authorize the Board of Directors to fix their compensation;
3. Approve an amendment to the Company's Articles of Association to allow for the Company to insure,To indemnify and exempt the directors and officers to the maximum as allowed under Israeli Company law;
4. To authorize the Company to insure directors and officers, including the newly elected directorsofficers and officers, for the years 2002, 2003directors, to the maximum extent permitted under the Israeli Company law or any successor law, and to empower the audit committee of the Company to approve payment of insurance premiums above the shareholder limit approved today, if required in the future;
5. To indemnify the directors and officers, including the newly elected directors and officers, to the maximum extent permitted under Israeli Company lawCompanies Law or any other successorapplicable law;
6.4. To approve the exemption of the directorsnewly elected officers and officersdirectors from personal liability to the Company for monetary damages resulting from breach of their duty of care;care to the extent permitted under the Israeli Companies Law or any other applicable law;
7.5. To ratify the following transactions:
(a) Amendment to the asset sale agreementExtensions of the electrical business in year 2001;
(b) Services agreement with Netlogic Ltd., which isa company controlled by Menachem Reinschmidt, a major shareholder director and CEOActive Chairman of the Board of Directors of the Company;
(b) Services Agreement and extensions thereof with George Balot, acting Chief Financial Officer and director of the Company;
(c) ExtensionApproval of the payment of an attendance fee to George Balot in respect of Board of Director meetings;
(d) Authorization of the Company to compensate each of Messrs. Reinschmidt and Sheetrit for their continued support and involvement following March 31, 2004 in legal proceedings initiated by the Company and its subsidiary Marnetics Ltd. (see“Legal Proceedings” below) by payment to each, 9% of any amounts awarded in such proceedings;
(e) Authorization of the Company to enter into a legal services agreement with Netlogic Ltd. which is controlled by Menachem Reinschmidt, a major shareholder, director and CEOfor the benefit of the Company;Company, its wholly owned subsidiary Marnetics Ltd., and their respective officers and directors;
8.6. To approve the Company'sprinciples for the proposed sale of the Company’s wholly-owned subsidiary, Marnetics Ltd., and to authorize the Board to consummate the proposed sale in accordance with such principles;
7. To approve the Company’s Operational Plan for the years 2002, 2003;year 2004;
9.8. To transact such other business as may properly come before the General Meeting or any adjournment thereof.
The Board of Directors unanimously recommends that you vote FOR the nominees as directors, FOR the selection of Deloitte Touche Tohmatsu Brightman Almagor & Co. as independent public auditors of the Company for the fiscal year ending December 31, 20022003 and authorization of the Board of Directors to fix their compensation, FOR the amendment of the Company's Articles of Association regarding the Directors' and Officers' insurance, FOR the Directors' and Officers' insurance to the maximum permitted under Israeli Companies Law, FOR the indemnification of the Directors'newly elected officers and Officers',directors, to the maximum extent permitted under the Israeli Companies Law and applicable law, FOR the exemption of the Directors'newly elected directors and Officersofficers from personal liability to the Company and for monetary damages resulting from breach of their duty of care Forto the extent permitted under the Israeli Companies Law and applicable law, FOR the ratification of the following transactions: (a) the addendum to the asset sale agreementExtensions of the electrical business in year 2001; (b) the services agreementServices Agreement with Netlogic Ltd. which is controlled by Menachem Reinschmidt a major shareholder and Active Chairman of the Board of Directors of the Company; (b) Services Agreement and extensions thereof with George Balot, a director and CEOacting Chief Financial Officer of the Company; (c) The payment of an attendance fee to George Balot in respect of Board of Director meetings, (d) the extensionauthorization of the Company to compensate each of Messrs. Reinschmidt and Sheetrit for their continued support and involvement following March 31, 2004 in legal proceedings initiated by the Company and its subsidiary Marnetics Ltd. by payment of 9% of any amounts awarded in such proceedings, (e) the authorization of the Company to enter into a legal services agreement with Netlogic Ltd. which is controlled by Menachem Reinschmidt a major shareholder, director and CEOfor the benefit of the Company; (d)Company, its wholly owned subsidiary Marnetics Ltd., and their respective officers and directors, FOR the approval of the principles for the proposed sale of Marnetics Ltd. and to authorize the Board to consummate the proposed sale in accordance with such principles and FOR the approval of the Company'sCompany’s Operational Plan for the years 2002, 2003.year 2004.
The Board of Directors of the Company knows of no other matter to come before the General Meeting. However, if any matters requiring a vote of the shareholders arise, it is the intention of the persons named in the enclosed form of Proxy to vote such Proxy in accordance with their best judgment, including any matters or motions dealing with the conduct of the General Meeting.
The Board of Directors has fixed the close of business on October 23, 2002February 2, 2004 as the record date (the"“Record Date"Date”) for the determination of shareholders entitled to receive notice of and to vote at the Annual General Meeting or any adjournment thereof.
A copy of the Company's 2001Company��s 2002 Annual Report on Form 20-F, which contains consolidated financial statementsthe Consolidated Financial Statement and other information of interest to shareholders, is being mailed with this Notice and the enclosed Proxy Statement on or about Thursday, October 24, 2002February 6, 2004 to all shareholders of record on the Record Date.
January 27, 2004 | By order of the Board of Directors, | |
BY: /S/ Menachem Reinschmidt | ||
—————————————— Menachem Reinschmidt | ||
Chairman of the Board |
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
MARNETICS BROADBAND TECHNOLOGIES LTD.10 HAYETZIRA STREET
P.O. BOX 2640RA'ANANA,RA’ANANA, ISRAEL 43000PROXY STATEMENT
FOR ANNUAL GENERAL MEETING OF SHAREHOLDERS
TO BE HELD ON TUESDAY, NOVEMBER 26, 2002
This proxy statement (the"“Proxy Statement"Statement”) and the enclosed form of proxyProxy are being furnished by the Board of Directors (the"“Board of Directors"Directors” or"Board"“Board”) of Marnetics Broadband Technologies Ltd. ("Marnetics"“Marnetics” or the"Company"“Company”), in connection with the Company'sCompany’s Annual General Meeting of Shareholders (the"“General Meeting"Meeting”) to be held on Tuesday, November 26, 2002March 12, 2004 at 11:8:00 A.M.a.m. at the Hotel CEYLAN INTERCONTINENTAL, Asker Ocagi Cad. No: 1 Taksim 80200, Istanbul, Turkey,Kibbutz Shefayim, Shefayim, Israel, Tel: +90 212 231 2121,+972-9761-6868, Fax: +90 212 231 2180,+972-9744-7715, or any adjournment or postponement thereof.
All proxies will be voted in accordance with the instructions of the shareholder. If no choice is specified, the proxies will be voted in favor of the matters set forth in the accompanying Notice of Meeting and at the discretion of the proxy holders on any other matter that may properly come before the General Meeting or any adjournment or postponement thereof. A shareholder may revoke any proxy at any time before its exercise by delivery of a written revocation or a subsequently dated proxy to the Secretary of the Company or by voting in person at the General Meeting. Attendance at the General Meeting will not itself be deemed to revoke a proxy unless the shareholder gives affirmative notice at the General Meeting that the shareholder intends to revoke the proxy and vote in person.
On October 23, 2002,As of February 2, 2004, the record date for determination of shareholders entitled to vote at the General Meeting, there were outstanding and entitled to vote an aggregate of 7,362,390 Ordinary Shares of the Company, NIS 0.08 par value per share (the"“Ordinary Shares"Shares”). Each share entitles the record holder to one vote on each of the matters to be voted upon at the General Meeting.
THE NOTICE OF THE GENERAL MEETING, THIS PROXY STATEMENT, THE ENCLOSED PROXY AND THE COMPANY'S 2001COMPANY’S 2002 ANNUAL REPORT ON FORM 20-F TO SHAREHOLDERS ARE BEING MAILED TO SHAREHOLDERS ON OR ABOUT OCTOBER 24, 2002.FEBRUARY 6, 2004. THE SHAREHOLDERS CAN OBTAIN THE EXHIBITS TO THE FORM 20-F FROM THE SEC'sSECURITY AND EXCHANGE COMMISSION’S WEBSITE AT WWW.SEC.GOV.WWW.SEC.GOV, OR FROM THE COMPANY UPON REQUEST AND WITH THE PAYMENT OF AN APPROPRIATE PROCESSING FEE. PLEASE ADDRESS ALL SUCH REQUESTS TO THE COMPANY AT THE ADDRESS SPECIFIED ABOVE, ATTENTION OF THE CHIEF FINANCIAL OFFICER.
The disclosure and analysis in this Proxy Statement contains statements relating to results including certain projections and business trends that are considered "forward-looking statements"“forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Without limiting the foregoing, the words "believes," "anticipates," "plans," "intends," "expects"“believes,” “anticipates,” “plans,” “intends,” “expects” and similar expressions are intended to identify forward-looking statements. Actual results may differ materially from those projected as a result of certain risks and uncertainties, including but not limited to, changes in economic conditions and competitive pressures within the Company'sCompany’s markets, as well as other risks and uncertainties detailed from time to time in the filings of the Company with the Securities and Exchange Commission, including, but are not limited to the risks detailed in the Company'sCompany’s Annual Report on Form 20-F under "Item“Item 3: Key Information -Risk Factors"Factors”.
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Two (2) shareholders holding or representing thirty three and aone third percent (33 1/3%) of the total voting rights of the Company shall constitute a quorum for the transaction of business at the General Meeting. Shareholders present in person or represented by proxy (including shares which abstain or do not vote with respect to one or more of the matters presented for shareholder approval) will be counted for purposes of determining whether a quorum exists at the General Meeting.
All proposals to be voted upon at the Meeting will require the affirmative vote of the holders of a majority of the voting rights in the Company present or represented by proxy and voting on the matter. In addition, Proposal No. 1 regarding the election of an External Director to the Board of Directors must also either (i) be approved by one-third (1/3) of the shares voting at the meeting by shareholders who are not controlling shareholders of the Company ("Non-controlling Shareholders"), or (ii) not be disapproved by Non-controlling Shareholders representing more than one percent (1%) of the voting rights in the Company. Furthermore, Proposal No. 4 regarding the insurance of directors and officers, Proposal No. 5 regarding the indemnification of directors and officers, Proposal No. 6 regarding the exemption of directors and officers, Proposal No. 7(b)5(a) regarding the approval of the extension of the Services agreementAgreement with Netlogic Ltd., a company controlled by Mr. Menachem Reinschmidt, a major shareholder of the Company (18.7%), Proposal No. 5(d) with regard to the compensation that may be payable to Mr. Menachem Reinschmidt for his continued support and involvement following March 31, 2004 in legal proceedings initiated by the Company and its subsidiary Marnetics Ltd., and Proposal No. 7(c) regarding5(e) with regard to legal services to be purchased for the approval ofCompany, its officers and directors, the Extension of the Servicesproposed legal services agreement with Netlogic Ltd. must also either (i) be approved by one-third (1/3) of the shares voted at the meeting by shareholders who have no personal interest in such proposalproposals (the"“Disinterested Shareholders"Shareholders”), or (ii) not be disapproved by the Disinterested Shareholders representing more than one percent (1%) of the voting rights in the CompanyCompany. Shares which abstain from voting as to a particular matter, and shares held in "street name"“street name” by brokers or nominees who indicate on their proxies that they do not have discretionary authority to vote such shares as to a particular matter, will not be counted as votes in favor of such matter, and will also not be counted as votes cast or shares voting on such matter. Accordingly, abstentions and "broker non-votes"“broker non-votes” will have no effect on the voting on a matter that requires the affirmative vote of a certain percentage of the votes cast or shares voting on a matter.
Page The expense of preparing, printing and distributing proxy material to the shareholders of the Company will be borne by the Company.
The executive offices of the Company are located at 10 Hayetzira Street, Ra’anana, Israel, and their telephone number is +972-9761-6868 and Fax number is +972-9744-7715.
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There are currently four (4)five (5) members serving on the Board of Directors, Messrs. Menachem Reinschmidt, Pekka Roine, David Sheetrit and George Balot, as well as Mr. Moshe Rubin and Dr. Ora Setter as External Director.external Directors.
At the General Meeting, the Board of Directors proposes the re-election of two (2)three (3) directors: Menachem Reinschmidt, David Sheetrit and Pekka Roine,George Balot, each of whose term will expire at the 20032004 General Meeting of Shareholders and until his successor istheir successors are elected and qualified. All have been nominated for reelectionre-election at the General Meeting.
Mr. Rubin, who serves as an Externalexternal Director, was previously elected to the Board and is presently serving a five-year term. Mr. Rubin was elected to the Board on October 4, 1999. On October 13, 2002, Mr. Yossi Shelly resigned from his office as External Director. The Board of Directors is proposing
Dr. Ora Setter, who serves as an external Director, was previously elected to the Board and is presently serving a well-known business consultant,three-year term. Dr. Setter was elected to fill the position of second External Director.
Board on November 26, 2002.
Each nominee has indicated his or her willingness to serve, if elected; however,if any nominee should be unable to serve, the person acting under the proxyProxy may vote the proxyProxy for a substitute nominee designated by the Board of Directors. The Board of Directors has no reason to believe that any of the nominees will be unable to serve if elected.
The shares in the enclosed proxyProxy will be votedFOR the persons nominated, unless a vote is withheld for any or all of the individual nominees. Each member of the Board of Directors, including those who are nominees for election as Directors, has provided the following information concerning his respective name, age (as of October 23, 2002)December 31, 2003), length of service as a directorDirector of the Company, principal occupation and business experience for at least the past five years and the names of other publicly held companies of which he serves as a director.
PROPOSED NOMINEES
Name | Age | Since | Position |
---|---|---|---|
Menachem Reinschmidt | 42 | 2001 | Director and Chief Executive Officer |
Pekka Roine | 57 | 2002 | Director |
Dr. Ora Setter.................. | 51 | 2002 | External Director |
Name Age Since Position Menachem Reinschmidt 44 2001 Active Chairman of the Board David Sheetrit 41 2003 Director, Acting Chief Executive Officer George Balot 61 2002 Director, Acting Chief Financial Officer EXTERNAL
DIRECTORDIRECTORS
Name | Age | Since | Position |
---|---|---|---|
Moshe Rubin.......................... | 50 | 1999 | External Director |
Name Age Since Position Moshe Rubin 51 1999 External Director Dr. Ora Setter 52 2002 External Director PROPOSED NOMINEES
Menachem Reinschmidt, Director of the Company since 2001, Director of Marnetics Ltd., and Director of Marnetics Inc,Inc., is currently Chief Executive OfficerActive Chairman of the Company and currently oversees all technology development activitiesBoard of Directors of the Company. Mr. Reinschmidt established Marneticsthe Company in 1998 and was the first Chief Executive Officer of Marnetics.the Company. One of the leading data communication experts in Israel, Mr. Reinschmidt has 1718 years of experience in the most advanced fields of computer networks, including design, analysis, integration and development. His expertise incorporates advanced networking topics, including frame relay, TCP/IP, Internet architecture, ATM, Local Area Networks, routers and switches, and voice-over IP, etc.IP. Prior to founding Marnetics, from 1993 to 1997the Company, Mr. Reinschmidt was President of ATLan, a software development company located in Tel Aviv. HeAviv, from 1993 to 1997. Mr. Reinschmidt is also a lecturerco-founder of Speedwise Technology Ltd.
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David Sheetrit, Director since April 2003, has also served as Marnetics Ltd.‘s President and the authorDirector since April 2003. Mr. Sheetrit has served as acting Chief Executive Officer of the Hebrew bestseller Local Area Networks for PCCompany since June 2003. From January 2001 to June 2003 he served as the Chief Operating Officer of the Company and Compatibles.of Marnetics Ltd. Mr. Sheetrit serves also as a Director of Marnetics Inc. Before joining the Company, Mr. Sheetrit was head of the Tel Aviv Branch of the College of Management since 1995. In this capacity he supervised the operations, investments, marketing activities, teaching activities and academic programs of the College. Mr. Sheetrit has lectured at various colleges and academies and served as an independent organizational and business consultant to various organizations and institutions. He holds a M.Sc. degree in Industrial Management/Business Administration from Ben Gurion University.
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Pekka RoineGeorge Balot, Director of the Company and Director of Marnetics Ltd. since JulyDecember 2002, joined Prime Technology Ventures in 1999 as a General Partner. Pekka has served as chairman or director of numerous technology companies, including Solid, VistaCom, Metorex, AudioSoft, Buscom, Idesco, and Tunturi. He is also a foundermember of the Health On the Net foundation. Previously, Pekka held senior executive positions at Digital Equipment Corporation for 22 years including General Manager Finland, and he was the corporate director worldwide for the Travel and Transportation Industry. He holds an M.Sc and a B.Sc in Physics from the University of Helsinki in Finland. He is also a graduate of the Stanford Executive Program.
Dr. Ora Setter, nominated to fill position of External DirectorAudit Committee of the Company currently servesfrom January 2003 until June 2003, and acting Chief Financial Officer effective as from June 15, 2003. Mr. Balot has extensive experience in the financial management of medium and large corporations, including non-profit organizations, in the United States and Israel. Before coming to Israel in 1978, Mr. Balot, a certified public accountant, was a manager with KPMG in New York, New York. In Israel, Mr. Balot has held positions as chief financial officer at well-known high tech companies, a large non-profit educational institution with branches located throughout the country, and also as External Director onan independent financial consultant to high tech companies and others. Mr. Balot holds a B.S. in accounting from the boardRutgers University School of directors of Israeli Ligtharege and Supply Ltd. and Ravad Ltd., two publicly traded companiesBusiness Administration in the Tel-Aviv stock market. Dr. Setter has 20 years of experience in performing consulting to variety of large enterprises in Israel including the major industrial companies and as well as political parties. Dr. Setter established few start-up companiesUnited States.
Changes in the areaComposition of knowledge management and e-learning. She is a very active lecturer in Israel and in international conferences. Dr. Setter has 10 years positionthe Board of lecturer inDirectors during the Business School of Management at Tel Aviv University. Dr. Setter received her doctorate of businessYear 2003
On March 4, 2003, Mr. Pekka Roine resigned from the Business SchoolBoard of Management at Tel Aviv University.Directors.
In April 2003, David Sheetrit was appointed as a member of the Company’s Board of Directors.
The Board of Directors unanimously recommends that the shareholders of the Company vote FOR “FOR”the
proposals to elect each nominee for Director named above.
EXTERNAL DIRECTORS
Moshe Rubin, External Director of the Company since 1999, currently serves as a Financing Consultantfinancing consultant for the Jerusalem branch of Pama Car Financing. For 15fifteen years, he operated the Dihatsu car dealership, which he opened in Herzliya. He has also sold used cars, car parts and accessories, as well as worked in car maintenance.
If elected, Dr. Ora Setter will fill, External Director of the position of secondCompany since November 2002, currently serves also as External Director. The business experience for Dr. Setter is included in the previous section with the other director nominees.
Changes in the Composition ofDirector on the Board of Directors duringof Israeli Ligtharege and Supply Ltd. and Ravad Ltd., two publicly traded companies. Dr. Setter has twenty years of experience in performing consulting to a variety of large enterprises in Israel, including major industrial companies, as well as political parties. Dr. Setter has established start-up companies in the Year 2002
During 2002 Mr. Jacob Ben Gur, former Chairmanarea of knowledge management and e-learning. She is an active lecturer in Israel and at international conferences. Dr. Setter has been a lecturer for eleven years at the Board, Mr. Moshe Kessner, and Mr. Joshua Piasetzky has resignedBusiness School of Management at Tel Aviv University. Dr. Setter received her doctorate of business from the office as directors. EachBusiness School of the above resignations were for personal reasons and neither of the directors had disagreements with the Company on any matter relating to the Company's operations, policies or practices.
On July 2002, Mr. Pekka Roine joined the Board of Directors and replaced Mr. Ilja Bobbert as a Director.
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On October 22, 2002, Mr. David Sheetrit joined the Board of Directors temporarily until the Annual General Meeting.
On October 13, 2002, Mr. Yossi Shelly resigned from his office as External Director. The Board of Directors is recommending that Dr. Ora Setter be chosen as the second External Director to fill Mr. Shelly's position.Management at Tel Aviv University.
Under the IsraelIsraeli Companies Law – 1999 (the"“Companies Law"Law”), public companies are required to elect two external directorsExternal Directors who must meet specified standards of independence. Companies that are registered under the laws of Israel and whose shares are listed for trading on a stock exchange external of Israel, such as the Company, are defined as public companies and under such definition are subject to the requirement of electing two external directors.External Directors. An external directorExternal Director may not have had, during the previous two years prior to his appointment as an External Director, any economic relationship with the Company. ControllingMajor shareholders of a company 50% shareholders, and their relatives or employees cannot serve as external directors. External directorsDirectors. External Directors are elected by shareholders. No individual shall be appointed as an external directorExternal Director if his other positions or affairs create or are liable to create a conflict of interest with his position as director, or if they are liable to constrain his ability to serve as director. The shareholders voting in favor of their election must include at least one-third of the shares of the non-controllingnon-major shareholders of the Company who are present at the meeting. This minority approval requirement need not be met if the total shareholdings of the non-controllingnon-major shareholders who vote against their election represent 1% or less of all of the voting rights in the Company. Under the Companies Law, external directorsExternal Directors serve for a three-year term, which may be renewed for only one additional three-year term.term, accordingly, Dr. Ora Setter will serve for a three-year term, or until November 2005.
TwoOne External Directors, Messrs.Director, Mr. Rubin, and Shelly (Mr. Shelly resigned on October 2002) werewas appointed on October 4, 1999, before the adoption of the Companies Law and under the previous Israeli corporate laws. Since then, Pursuantpursuant to the provisions of the Companies Law, an external directorExternal Director appointed in accordance with the provisions of the former corporate governance law shall be deemed an external directorExternal Director appointed in accordance with the provisions of the Companies LawLaw; however the term of appointment shall be for a five-year period therefore the external directorsperiod. Therefore Mr. Rubin, as an External Director of the Company, shallwill remain in office until October 2004.
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Under the Companies law, external directorsLaw, External Directors can be removed from office prior to the expiration of their term only by the same special percentage of shareholders as can elect them, or by a court, and then only if the external directorsExternal Directors cease to meet the statutory qualifications with respect to their appointment or if they violate their duty of loyalty to the Company. If, when an external directorExternal Director is elected, all members of the boardBoard of directorsDirectors of a company are of one gender, the external directorExternal Director to be elected must be of the other gender. Any committee of the boardBoard of directorsDirectors must include at least one external director.External Director. An external directorExternal Director is entitled to compensation as provided in regulations adopted under the Companies Law and is otherwise prohibited from receiving any other compensation, directly or indirectly, in connection with such service.
The Company'sCompany’s Amended and Restated Articles of Association providesprovide that the Board of Directors shall consist of a minimum of two (2) and a maximum of eleven (11) directors. Each director, except for External Directors, shall serve as a director from the time of appointment until the next Annual General Meeting. As mentioned above, External Directors elected after the adoption of the Companies Laws in 2000 shall hold office for 3 year terms and an External Director elected under the previous Israeli corporate statute, the Companies Ordinance, such as the Company's outside director, Moshe Rubin, shall serve for five-year terms, until 2004. Dr. Ora Setter, if elected, will serve for three-year terms or until 2005.
The Amended and Restated Articles of Association providesprovide that directors (including External Directors) may be removed only for cause by a majority of shareholders. The Companies Law also provides that a director shall be removed from office in one of the following events: (i) if he has resigned or has been removed in accordance with the provisions stated therein; (ii) upon conviction for a criminal offence as detailed therein; (iii) in the event that a court has ordered his removal; and (iv) in the event that he has been declared bankrupt.
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The Amended and Restated Articles of Association of the Company provide that each director is elected for a period of one year at the Company's annual meetingCompany’s Annual Meeting of shareholdersShareholders and serves until the next such meeting or until his or her successor is duly elected and qualified. Directors may be re-elected annually without limitation.
The Company's directors, withWith the exception of the two external directors representing the publicExternal Directors (who are paid in accordance with the provisions of the Companies Law, as defined below) and of Mr. Menachem Reinschmidt for his services as Active Chairman (under the Services Agreement with Netlogic Ltd., a company wholly owned by Mr. Reinschmidt), the Company’s directors do not currently receive any compensation for their services as directors. Certain shareholders and option-holders ofUnder Proposal No. 5 (c) the Company the rightproposes to nominate and, pursuant to shareholder agreements, have elected their designeespay Mr. George Balot an attendance fee for the Company's Boardhis participation in meetings of Directors.
Until November 25, 2001, ISG Solid Capital Markets, LLC, the representative of several investors in our initial public offering, had the right, at its option, to designate one director to the Board of Directors which director will be reasonably acceptablewere held prior to and up until his becoming acting Chief Financial Officer of the Company.
Certain shareholders of the Company have the right to nominate designees for the Company’s Board of Directors. The Company had agreed to pay such director or non-voting advisor an attendance fee of $1,500 per meetingformer Marnetics Ltd. shareholders, who were issued shares of the Board of Directors. There currently is no such designated member ofCompany pursuant to a merger agreement between the BoardCompany and accordingly the right has expired.
The former Marnetics Subsidiary shareholdersLtd. consummated on December 20, 2000, agreed that they will vote in favor of certain nominees for Director of the Company as follows: (i) one nominee designated by ECI Telecom Ltd. ("ECI"(“ECI”) in the event that ECI holds 12.5% of the issued and outstanding share capital of the Company, or two nominees in the event that ECI holds 25% of the issued and outstanding share capital of the Company, (ii) one nominee designated by STI Ventures Investments No. 2 B.V. ("STI"(“STI”), as long as STI holds not less than 5% of the outstanding share capital of the Company, as well as STI can appoint one member as an observer to the Board of Directors of the Company, (iii) one nominee currently Mr. Pekka Roine, designated collectively by Prime Technology Ventures NV, Docor International BV and Ronchal Investments NV, as long as the Docor Group holds no less than 5% of the outstanding share capital of the Company, and (iv) one nominee designated by Linkware Ltd. (a company under the control of Mr. Reinschmidt) as based on an agreement between the shareholders. To date, STI hasand ECI have not yet designated a nominee for the Company'sCompany’s board and ECI has onlythe last director designated one director nomineeby Prime Technology Ventures, Mr. Joshua Piasetzky that served until October 7, 2002.Pekka Roine, resigned on March 4, 2003.
The Amended and Restated Articles of Association of the Company provide that any director may, by written notice to the Company, appoint another director or any other person to serve as an alternate director, and may cancel such appointment. An alternate director has the number of votes equivalent to the number of directors who appointed him. The term of appointment of an alternate director may be for one meeting of the Board of Directors or for a specified period.
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The following table sets forth certain information regarding the executive officers of the Company as of October 23, 2002.December 31, 2003.
Name | Age | Position |
Director and | ||
Director and | ||
Acting Chief Financial Officer | ||
The biography for Mr. Reinschmidt isbiographies of Messrs. Sheetrit and Balot are included in the previous section with the otherregarding proposed director nominees.
David Sheetrit, Chief Operating Officer, has served as the Company's Acting Chief Executive Officer and Chief Operating Officer during 2001, and also served as Director of Marnetics Ltd. Mr. Sheetrit serves also as a Director of Marnetics Inc. During 2000 Mr. Sheetrit served as the Chief Operating Officer of Linkware Ltd. Before joining Marnetics, Mr. Sheetrit was Headnominees of the Tel Aviv Branch of the College of Management since 1995. In this capacity he supervised the operations, investments, marketing activities and academic programs of the College, which is comprised of 3,000 students and 200 faculty and staff. Mr. Sheetrit has lectured at various colleges and academies and served as an independent organizational and business consultant to various organizations and institutions. Mr. Sheetrit has expressed his will to serve in the Company until December 31, 2002.Company.
Hanoch Newman, Vice President Research and Development, joined Marnetics in June 2000 as its Vice President of Research and Development. He is a specialist in real-time systems, embedded systems, UNIX/WIN, C++/C communication, and device drivers. He also has vast experience in computer programming, with expertise in TCP/IP and other Internet and Communication protocols, as well as system management. His past experience includes serving as Project Manager at Elron Software NCC from 1999 to 2000, R&D Manager at CT Motion (start-up) from 1998 to 1999, and CTO and MIS in the Israeli Air Force for five years prior thereto. He holds a B.A. in Computer Sciences.
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COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
For the year ended December 31, 2001,2002, the aggregate amount of compensation paid by the Company to all directors and officers, as a group, and directors, including former officers and directors, was approximately $799,761$452,000, including amounts set aside or accrued to provide pension, retirement or similar benefits on behalf of all of the Company's directors andCompany’s executive officers during the year 2001. The company expects that the amount of compensation paid by the Company to all directors and officers as a group during 2002 will be lower significantly, and will be further lowered during 2003.directors.
On July 30, 2001, the Company entered into an Agreement, which provides, in part, that beginning on September 1, 2001, Mr. Shlomo Harari will be the Company's Chief Executive Officer during the term of the agreement, in consideration for the following:
The term of the Agreement was for 6 months, following which Mr. Harari and the Company parties agreed to terminate the relationship.
As detailed in Proposal No. 7 (b), effectiveEffective December 2, 2001, Marnetics Ltd. entered into a services agreementServices Agreement with Netlogic Ltd., a company under the control of Menachem Reinschmidt, a major shareholder and providesActive Chairman of the Board of Directors of the Company, for the provision, on a non-exclusive basis, of executive managerial and other related services with respect to the Company, Marnetics Ltd. and any of itstheir affiliated companies, as may be prescribed from time to time by the boardBoard of directorsDirectors of Marnetics, in consideration for the following:
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The term of this Agreement shall terminate in December 2002, unless terminated earlier in accordance with this Agreement. One month prior to the expiration of this Agreement, the parties shall commence negotiations with respect to any future relationship.
Either party may terminate this Agreement without cause upon an advance written notice of at least 30 days. In such event, the Consultant shall be entitled to all compensation due for such period and the Consultant shall assist as necessary with respect to the transfer of responsibilities to a person designated by the Company.Marnetics.
The Board of DirectorDirectors, after receiving the approval of the Audit Committee, decidedapproved an Addendum to approve the extension of the agreement with Netlogic Ltd. Services Agreement (effective December 2, 2002) extending the Services Agreement for another six (6) months, startingfrom December 2, 2002 as detailedto June 2, 2003. The Addendum was approved by the shareholders of the Company in Proposal No. 7 (c).the Annual Meeting held on November 26, 2002. The roleposition of Mr. Reinschmidt duringwith the extension period will be to holdCompany, under the officeAddendum, is that of Active Chairman of the Board of Directors on a fifty percent basis part time position. The duties of the Active Chairman will be to run the Company's strategic issues such as: partnerships, investments and selling the Company's technology and intellectual property.basis. The compensation for such duties will beis a monthly gross fee of $5,000 (five thousand dollars) plus ValueVAT (Value Added Tax.Tax). In addition, the Company will supplysupplies Mr. Reinschmidt with a leased car and cell phone.cellular phone for the duration of the extension of the Netlogic Ltd. Services Agreement.
A Second Addendum to this Services Agreement, effective as of December 2, 2002, was signed on June 2, 2003, for the extension of the Services Agreement for an additional period beginning June 3, 2003 and ending on December 31, 2003, subject to shareholder approval which is being sought under Proposal No. 5(a). Under such Proposal, the Company is also seeking approval of an additional extension of the Services Agreement up to March 31, 2004 for the continued rendition of services of two days per week. The monthly compensation payable under such additional extension shall be $2,000. See“Proposal No. 5(a).”
Under the Companies Law, External directorsDirectors are entitled to annual compensation, plus a per meeting attendance fee. The Company currently pays its External directorsDirectors an annual fee of NIS 14,42013,800 (US $3,100)$ 3,100) and a per meeting attendance fee of NIS 900 (US $ 200). In addition, the Company proposes to pay Mr. George Balot, a director, a per meeting attendance fee of NIS 915 (US $200). Other than its External directors,$ 200) for his attendance at meetings held prior to and up until his becoming Acting Chief Financial Officer of the Company'sCompany (see“Proposal No. 5(c).” The remaining Company’s directors do not currently receive any compensation for their services as directors.directors, with the exception of Mr. Menachem Reinschmidt under the Services Agreement with Netlogic Ltd., a company wholly owned by Mr. Reinschmidt.
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PROPOSAL NO. 2
RATIFICATION OF THE SELECTION OF AUDITORS
The Board of Directors has selected Deloitte Touche Tohmatsu Brightman Almagor & Co. as independent public auditors of the Company for the year ending December 31, 2002,2003, subject to ratification by shareholders at the General Meeting. If the shareholders do not approve the selection of Deloitte Touche Tohmatsu Brightman Almagor & Co., the Board of Directors will reconsider the matter.
Independent Auditors Fees
Deloitte Touche Tohmatsu Brightman Almagor & Co. billed Marnetics Ltd. an aggregate of $27,384$12,389 in fees for professional services rendered in connection with the audit of the Company and Marnetics Ltd.'s financial statements for the recent fiscal year 2001. Deloitte Touche Tohmatsu Brightman Almagor & Co.ended 2002. Of this total amount billed, $5,000 of the Company an aggregate of $4,370 in fees for other services renderedwas applicable to the Company and its affiliates for the fiscal year ended December 31, 2001.$7,389 was applicable to Marnetics Ltd..
The Board of Directors believes that approval to ratify the selection of Deloitte Touche Tohmatsu Brightman Almagor & Co. as the auditors is in the best interest of the Company and its shareholders and therefore, unanimously recommends that the shareholders vote "FOR"“FOR” the approval of the auditors and authorization of the Board of Directors to fix their compensation.
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PROPOSAL NO. 3
AMENDMENT TO THE COMPANY'S ARTICLESINDEMNIFICATION OF ASSOCIATION
Reason for the Amendment According to the Articles of Association
The Company's Articles of Association currently provides that:
INDEMNITY AND INSURANCE OF OFFICERS
99. The Company may, to the maximum extent permitted by the Companies Law:
(a) enter into a contract for the insurance of the liability, in whole or in part, of any of its Officers,
(b) may indemnify an Officer of the Company post factum; and
(c) may indemnify an Officer of the Company in advance for the following events:
The Company desires to provide to the fullest extent allowed under Israeli Companies Law a change of language to provide provisions which endeavor to limit personal liability of an office holder towardsand the CompanyAmended and shareholders regarding insurance coverage, indemnification and exemption from duty of care. Therefore, the desires to amend Article 99 of theRestated Articles of Association of the Company, effective as of October 6, 2002 to the following:
Insurance, Indemnification And EXEMPTION OF OFFICERS
99.
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Recommendation of Board of Directors
The Board of Directors of the Company unanimously recommends that the shareholders of the Company vote FOR the approval of the amendment to the Company's Articles of Association.
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PROPOSALS NO. 4DIRECTORS' AND OFFICERS' INSURANCE COVERAGE
The Company desires to provide to the fullest extent allowed under Israeli Companies Law to limit personal liability of an office holder towards the Company and shareholders regarding insurance coverage.
Pursuant to the Companies Law, approval of the Company's audit committee and the Company's Board of Directors and, in specified circumstances, by the Company's shareholders, must be obtained for the procurement of insurance coverage for, the Company's office holders.
Therefore, the Company would like to enter into an agreement to insure an Officer for any liability that may be imposed on such Officer in connection with an act performed by such Officer in such Officer's capacity as an Officer of the Company, with respect to each of the following: (i) breach of the duty of care of the Officer towards the Company or towards another person; (ii) breach of the fiduciary duty towards the Company, provided that the Officer acted in good faith and had reasonable grounds to assume that the action in question would not be detrimental to the best interests of the Company; and (iii) a financial obligation imposed on the Officer for the benefit of another person.
The Company purchased during 2001 a directors and officers liability insurance policy for the period of February 20, 2001 until February 19, 2002. The Company paid for the policy $94,976. The policy gives coverage of five million dollars.
The Company renewed the policy until March 12, 2002 for a total sum of $168,510.
The Company recorded an expense during the fiscal year 2001 in the sum of $84,281 for the Company's directors and officers' liability insurance policy.
Recommendation of Board of Directors
The Board of Directors of the Company unanimously recommends that the shareholders of the Company vote FOR the approval of the Company to insure directors and officers, including the newly elected directors and officers, for the years 2002, 2003 to the maximum extent permitted under Israeli Company law or any successor law, and to empower the audit committee of the Company to approve payment of insurance premiums above the shareholder limit approved today, if required in the future.
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PROPOSAL NO. 5INDEMNIFCATION OF NEWLY ELECTED DIRECTORS
The Company may indemnify an office holder against:
These provisions are specifically limited in their scope by the Companies Law which provides that a company may not indemnify an office holder, nor enter into an insurance contract, which would provide coverage for any monetary liability incurred as a result of any of the following:
In addition, pursuant to the Companies Law, approval ofby the Company's audit committeeCompany’s Audit Committee and the Company'sCompany’s Board of Directors and, in specified circumstances by the Company'sCompany’s shareholders, must be obtained for the indemnification of, and procurement of insurance coverage for, the Company'sCompany’s office holders for the following actions:
As a result of a Shareholders' Resolution dated September 14, 2001,previous shareholders’ resolutions, the Company has entered into an indemnification agreement with the officers and directors of the Company as of December 2001 and intends to entercontinue entering into an agreement with each new officer and director, subject to shareholder approval. Such agreements contain provisions which endeavor to limit the personal liability of the officers and directors, both to the Company and to ourits shareholders, for monetary damages resulting from breaches of certain of their fiduciary duties as directors and officers of the Company. In particular, such agreements provide that the Company will indemnify such individuals to the fullest extent permitted by the Companies Law, as such rights shall from time to time be amended or limited, against all expense, liability, and loss reasonably incurred or suffered by the indemniteeindemnified as a result of serving as an officer or director or employee of the Company, or any affiliate thereof or any other entity at the request of the Company.
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In addition,Under the Company has obtained reimbursement indemnity insurance to reimburse directorsCompany’s Amended and officers of the Company for losses sustained as a result of any claim arising from a wrongful act, individually or collectively, in the discharge of their duties or in breach of their fiduciary duties solely in their capacity as officers and directors of the Company, and to reimburse the Company for losses sustained as a result of any claim arising from any such wrongful act where an indemnity has been given or lawfully is required to be given to officers or directors of the Company.
Consequently, under the Company's AmendedRestated Articles of Association, the Company may also indemnify its officers and directors for financial obligations imposed on them in favor of a third party by a court judgment, including a compromise judgment or a court-approved arbitrator'sarbitrator’s decision, as well as for concomitant reasonable legal expenses, including attorney'sattorney’s fees, as a result of any claim arising from a wrongwrongful act in the discharge of their duties in their capacity as officers or directors of the Company which could materially adversely affect the business, prospects, financial condition, or results of operations of the Company.
Furthermore,Consequently, the ability of the Company’s shareholders, including United States shareholders, to recover monetary damages from officers and directors of the Company for certain breaches of their fiduciary duties may be significantly limited.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the “Securities Act”) may be permitted to officers, directors, and controlling persons of the Company pursuant to the foregoing provisions or otherwise, the Company has been advised that, in the opinion of the U.S.United States Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable in the United States.
The Board of Directors of the Company unanimously recommends that the shareholders of the Company vote FOR“FOR” the approval of the Company to indemnify the directors and officers, including the newly elected directorsofficers and officers,directors, to the maximum extent permitted under the Israeli Company lawCompanies Law or any other successor law or applicable law.
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PROPOSAL NO.
64
EXEMPTION OF DIRECTORSNEWLY ELECTED OFFICERS AND OFFICERS
Based on Provisionsprovisions of the Companies Law, including the receipt of all approvals as required therein or under any applicable law, the Board of Directors is recommending to exempt in advance to exempt from all or part of such Officer'sthe Company’s newly elected officers and directors responsibility or liability for damages caused to the Company due to any breach of such Officer'soffice holder’s duty of care towards the Company.
The Company, though, will not exempt an office holder for any monetary liability incurred as a result of a breach by the office holder of his duty of loyalty, or a breach by the office holder of his duty of care if such breach was done intentionally or recklessly, or if a fine is levied against such office holder, or any act or omission is done with the intent to derive an illegal personal benefit.
Recommendation of Board of Directors
The Board of Directors of the Company unanimously recommends that the shareholders of the Company vote FOR“FOR” the approval of the Company for the exemption of the newly elected officers and directors and officers from all or part of personal liability to the Company for monetary damages resulting from breach of their duty of loyalty, duty of care to the full extent permitted under the Israeli Companies Law and any act or omission except that done with the intent to derive an illegal personal benefit.applicable law.
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PROPOSAL NO.
75
APPROVAL OF TRANSACTIONS
(a)
AddendumExtensions of Netlogic Ltd. Services Agreement
Effective December 2, 2001, Marnetics Ltd. entered into a Services Agreement with Idan Millenium Investments and Assets Ltd - Sale of Electrical Business
Effective March 2001 the Company sold to Idan Millenium Investments and AssetsNetlogic Ltd., a company under the control of Mr. Strikovsky, allMenachem Reinschmidt, a major shareholder of the fixed assets, inventories,Company and Active Chairman of the Board of Directors of the Company, for the provision, on a non-exclusive basis, of executive managerial and other assets and liabilities and related goodwill, in the amount of $2,000,000, relatingservices with respect to the electrical operationsCompany, Marnetics Ltd. and any of their affiliated companies, as may be prescribed from time to time by the Board of Directors of Marnetics.
The Board of Directors, after receiving the approval of the Audit Committee, approved an Addendum to the Netlogic Ltd. Services Agreement (effective December 2, 2002) for a considerationsix (6) months, from December 2, 2002 to June 2, 2003. The position of $597,000 (based on the then exchange rates). The consideration is payable in 25 monthly installments of $24,000 commencing February 1, 2002. In May 2002Mr. Reinschmidt with the Company signed an addendum with Idan Millenium Investments and Assets Ltd to changeunder the termsAddendum is that of payments toChairman of the Board of Directors, on a part time basis. The compensation for such that the first 11 installments will be reduced to $7,000 (based on the then exchange rates) each and the remaining 14 installments will beduties is a monthly gross fee of $37,000.$5,000 (five thousand dollars) plus Value Added Tax. In addition, the Purchaser has also assumed approximately $715,000Company supplies Mr. Reinschmidt with a leased car and cellular phone for the duration of liabilities relatedthe extension of the Netlogic Ltd. Services Agreement.
A Second Addendum to this Services Agreement, effective as of December 2, 2002, was signed on June 2, 2003, for the extension of the Services Agreement for an additional period beginning June 3, 2003 and ending on December 31, 2003, subject to shareholder approval, which is being sought hereunder.
Under the Second Addendum, the compensation payable for the rendition of the services is subject to the Electrical Business. The Company, consideringCompany’s Budget, as approved by the collectability probability, decidedBoard of Directors, and accordingly has been determined to establish an allowance onbe $5,000 per month. For a copy of the amount not yet collected. SeeNetlogic Services Agreement and its Addendums, see"“the Company'sCompany’s Annual Report on Form 20-F, Item 8B - Significant Changes7B – Related Party Transactions and Item19 - Exhibit 10.7."– Exhibits 4.2 and 4.3.”
Idan Millenium Investments and Assets Ltd paidThe Company proposes that following December 31, 2003, the first eight installments relating to February 2002Services Agreement be extended for an additional period up to September 2002 in full.March 31, 2004 for the continued rendition of services of two days per week. The monthly compensation payable under such additional extension shall be $2,000 and the Company shall continue to supply to Mr. Reinschmidt with a leased car and cellular phone.
The Board of Directors believes that ratification of the transactionsextensions of the Netlogic Services Agreement and the proposed additional extension thereof is in the best interest of the Company and its shareholders and therefore, unanimously recommends that the shareholders vote "FOR"“FOR” the proposal to ratify the Amendment to the asset sale agreementextensions of the electrical business in year 2001.
(b)Services Agreement with Netlogic Ltd., which is controlled by Mr. Menachem Reinschmidt, a major shareholder and Chairman of the Board of Directors of the Company.
(b) Balot Services Agreement.Agreement
Effective December 2, 2001,June 15, 2003, Marnetics Ltd. entered into a services agreementServices Agreement with Netlogic Ltd.,Mr. George Balot, a company under the control of Menachem Reinschmidt, a major shareholder, director and CEO of the Company, for the provision of services as Chief Financial Officer of both the Company and providesMarnetics Ltd., on a non-exclusivepart-time basis, executive managerialthrough to September 30, 2003, and other related services with respectin October 2003 for an additional period through December 31, 2003.
The Board of Directors, after receiving the approval of the Audit Committee, approved the Balot Services Agreement and Extension Agreement subject to shareholder approval, which is required under the Israeli Companies Law, as Mr. Balot serves as a member on the Board of Directors of the Company.
The compensation payable to Mr. Balot under the Services Agreement and Extension Agreement is a monthly fee of $2,000 (two thousand dollars) plus VAT (Value Added Tax).
The Company Marnetics Ltd. and any of its affiliated companies, as mayproposes that following December 31, 2003, the Balot Services Agreement be prescribed from timeextended for an additional period up to time by the board of directors of Marnetics, in considerationMarch 31, 2004, for the following:
It should be noted that Balot and the Company have ceased their negotiations in regard to a finder’s fee agreement for persons and properties. The usethe sale of the Vehicle shall be in accordance with all traffic laws and regulations. The Representative shall ensure the proper maintenance of the Vehicle. The Company shall reimburse all actual expenses incurred by the Representative directly in connection with use of the Vehicle, excluding any fines, which are the sole obligation of the Representative to pay in a timely fashion. All tax consequences of the benefits of use of the Vehicle pursuant to this provision shall be borne by the Consultant. The Company is authorized to withhold at source such amounts of income tax, as it deemsCompany’s technology and/or finding an appropriate in connection therewith.
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The term of this Agreement shall terminate in December 2002, unless terminated earlier in accordance with this Agreement. One month priormerger partner, due to the expirationoffer put forward by Magal Ltd. for the purchase of this Agreement, the parties shall commence negotiations with respect to any future relationship.
Either party may terminate this Agreement without cause upon an advance written notice of at least 30 days. In such event, the Consultant shall be entitled to all compensation due for such periodMarnetics Ltd. and the Consultant shall assist as necessary with respect to the transfer of responsibilities to a person designated by the Company.ensuing negotiations.
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Recommendation of Board of Directors
The Board of Directors believes that ratification of the transactionsBalot Services Agreement and Extension Agreement as well as the proposed additional extension thereof, is in the best interest of the Company and its shareholders and therefore, unanimously recommends that the shareholders vote "FOR"“FOR” the proposal to ratify the Services Agreement and extensions thereof with Netlogic Ltd., which is controlled by Menachem Reinschmidt,Mr. Balot, a major shareholder, director and CEO of the Company.
(c)
Extension of Netlogic Ltd. Services Agreement.
The Board of Directors, after receiving the approval of the Audit Committee, decidedapproved the payment of a per meeting attendance fee of NIS 915 ($ 200) to approve the extensionMr. George Balot, a director of the Netlogic Services Agreement (effective December 2, 2001) with Netlogic Ltd.Company, for another six (6) months, from December 2, 2002his participation in two meetings held prior to and up until June 2, 2003. The rolehis becoming acting Chief Financial Officer of Mr. Reinschmidt during the extension period will be to hold the office of Active ChairmanCompany, one of the Board of Directors on a part-time basis of fifty percent of his time. The duties of the Active Chairman will be to runCompany and the Company's strategic issues such as: partnerships, investments and selling the Company's technology and intellectual property. The compensation for such duties will be a monthly gross fee of $5,000 (five thousand dollars) plus Value Added Tax. In addition, the Company will supply Mr. Reinschmidt with a leased Company car and cellular phone for the durationother of the extension of the Netlogic Services Agreement.Audit Committee, totaling NIS 1,830 ($ 400) plus VAT.
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Recommendation of Board of Directors
The Board of Directors believes that ratificationapproving the payment of the transactionsattendance fee to Mr. George Balot for his participation in meetings of the Board held prior to and up until his becoming acting Chief Financial Officer is in the best interest of the Company and its shareholders and therefore, unanimously recommends that the shareholders vote "FOR"“FOR” the proposal to ratifyapprove the Extensionpayment of the Services Agreement with Netlogic Ltd., which is controlled by Menachem Reinschmidt, a major shareholder,per-meeting attendance fee to Mr. Balot, a director and CEO of the Company.
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PROPOSAL NO. 8Approval In light of the Company's Operational PlanCompany’s need for the years 2002, 2003continued support and involvement of its officers and directors in the legal proceedings which the Company and its subsidiary, Marnetics Ltd., have initiated against the Municipality of Hod Hashron, as well as against Dov Strikovsky and others (see“Legal Proceedings” below), the Company proposes, considering it’s limited financial resources, that it secure the continued involvement and support of Messrs. Menachem Reinschmidt, Chairman of the Board and David Sheetrit, director and acting Chief Executive Officer of the Company following March 31, 2004 by payment to each of Messrs. Reinschmidt and Sheetrit of 9% of any amounts awarded to the Company and/or its subsidiary, Marnetics Ltd., in the abovementioned proceedings.
The following is a summaryBoard of Directors considers Messrs. Reinschmidt and Sheetrit’s continued support and involvement in the above legal proceedings, in light of the Company's working planextent of their previous involvement, to be a pivotal factor in the Company’s ability to prevail in such proceedings, and therefore to be in the best interests of the Company and its shareholders. The Board also believes that the contingent form of payment for such services, concluded in negotiations with Messrs. Reinschmidt and Sheetrit, is appropriate in light of the Company’s limited financial capabilities and prospects.
The Board of Directors of the Company unanimously recommends that the shareholders of the Company vote “FOR” theauthorization of the Company to compensate each of Messrs. Reinschmidt and Sheetrit for their continuing support and involvement following March 31, 2004 in legal proceedings initiated by the Company and its subsidiary Marnetics Ltd. by payment to each, 9% of any amounts awarded in such proceedings.
The Company proposes to enter into a legal services agreement with the offices of Advocate Oded Steiff for the years 2002, 2003.
During the year 2002provision of legal services in Israel to the Company, has launched its ProsperaTM product line,wholly owned subsidiary Marnetics Ltd. and their officers and directors, as from December 31, 2003. Prior to December 31 2003, the Company received legal services for it on-going operations in Israel from the law firm of Haim Samet, Steinmetz, Haring & Co., which currently contains 2 products: Prospera MegaLinkis affiliated with Holland & Knight LLP., the law firm which provided legal services to the Company mostly with regard to U.S. securities issues.
As a result of the Company’s financial restraints, and Prospera Expert.in light of the Company’s now limited scope of operations, the Company sought to enter into a long-term relationship, within a fixed fee structure, which will meet its expected legal needs, especially with regard to its ongoing litigation matters.
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In addition, the legal services agreement that the Company proposes to enter into with the offices of Advocate Oded Steiff will meet the Company’s needs in lieu of obtaining D&O insurance, which the Company maintained in recent years, and which the Company’s finances can no longer support. The Company also introducedbelieves that the legal services agreement will be sufficient to cover those legal expenses that the Company may incur in regard to D&O claims arising from acts prior to entering into the agreement and which are covered under the Company’s previous D&O insurance, and that the scope of the legal services agreement proposed is reasonably sufficient to cover future claims that may arise.
The services to be rendered under the agreement proposed include both ongoing legal services (drafting of correspondence and agreements, legal representation in negotiations, etc.) as well as representation in court proceedings initiated against the above persons and entities, up to but not including evidentiary hearings.
The ongoing legal services will be provided for a new serviceperiod of seven years, beginning January 1, 2004, and are limited to 10 hours per month and representation in up to 6 claims.
In consideration for the above services, the Company will pay a sum of US$ 40,000 plus VAT (Value Added Tax) as a one-time non-refundable payment.
The Board of Directors of the Company unanimously recommends that the shareholders of the Company vote “FOR” the authorization of the Company to enter into the legal services agreement for the benefit of the Company, it’s wholly owned subsidiary Marnetics Ltd., and their respective officers and directors.
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The Board of Directors proposes to sell its wholly-owned subsidiary, Marnetics Ltd. (the “Subsidiary”), which has operated the core business of the Company in developing and marketing network capacity enhancement and network information analysis solutions for IP networks, "NetQA" that enables enterprises the complete check and analysisto Magal Ltd. (“Magal”), a holding company of their IP traffic. With the NetQA analysis the customer can locate hidden performance problems in his network and verify the Qualitya group of Service provided mainly by the enterprise's mission critical application. The Company signed several distribution agreements with distributors in Israel andleading Israeli companies in the Far East. field of data communications and infrastructure (the “Transaction”).
The main principles of the proposed sale of Marnetics Ltd. to Magal, for which the Company is seeking shareholder approval, are as follows:
The Company expects that its operating budget forSale, certain assets recorded in the year 2002books of Marnetics Ltd. will be $1.6 million. The Company expects that almost 40% of this budget will be R&D expenses and 20% of the budget will be M&S expenses.
The Company started to reduce its operating staff and expenses, during the fourth quarter of 2002, in order to form a special "Expert-NetQA" team of six employees that will be composed of: one sales person, one R&D-Team leader, one software engineer, one QA programmer, one GUI programmer and one technical support.
This team will act as a profit center inside the Company and will be budgeted for a maximum exposure of up to $120,000transferred to the Company duringfor no consideration, which are mainly cash and cash equivalents, its holdings in Speedwise Ltd., and other fixed assets which will enable the year 2003. The goalCompany to continue its operations as proposed after consummation of the teamTransaction. The remaining assets of the Subsidiary will be, mainly, all its intellectual property rights in and to reach break-even point atthe technology it has developed (the “Technology”) and certain of the fixed assets related thereto.
The Transaction includes several conditions to closing, chiefly, the completion of a due diligence examination of the Subsidiary by Magal, and the Company’s obtaining all the necessary consents, waivers and approvals required by law or otherwise to reach a year-break-even point for 2003. There will be a profit sharing agreement witheffect the employeesTransaction, including that of the Office of the Chief Scientist in the team, accordingMinistry of Trade and Industry. On August 18, 2003 the Company obtained the consent of principal of Bank Hapoalim Ltd. for the sale, which is required under the terms of the debentures securing the Company’s debt to business performance, as will be considered and approved by the Company's management.Bank.
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The Company will employ one active Chairman on a part-time basisBoard of fifty percent. The company will employ one Chief Financial Officer that will act also as an Acting Chief Executive Officer/Acting Chief Operating OfficerDirectors considers the consummation of the Company.
The Company will budget this operationtransaction for the year 2003 in the sum of up to $150,000. Other Sales, General and Administration expenses will be budgeted in the year 2003 in the sum of $380,000. The Company will devote part of its efforts for raising new working capital to support the Company's subsidiary Marnetics Ltd.
The Company will budget the sum of $50,000 for market research and exploring new opportunities for the Company, including but not limited, to launching new products, merger and acquisition agreements, new ventures, and entering into new markets.
The Operational Plan for the years 2002, 2003 has been prepared assuming normal course of business in the Company, thus no effect of possible outcome of any of the LEGAL PROCEEDINGS AND FINANCIAL THREATS has been implemented in the plan.
The Company will try to integrate the technology of Infotier.com Ltd into the Prospera Expert. Marnetics Ltd. will pay Infotier only royalties of five percent from any revenues generated to Marnetics Ltd. by the sale of Marnetics Ltd.'s products integrated with Infotier products.
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Summary of Expenses for the year 2003:Expert-NetQA team maximum cost $120,000 Management expenses $150,000 G&A and M&S expenses $380,000Budget for Market Research $ 50,000Total Expenses$700,000
The management of the Company is recommending to the shareholdersMagal to decide in favor of the Company's Operational Plan for the years 2002 and 2003 as presented, for the following main reasons:
Following the consummation of the Transaction, the Company proposes to continue its operations for the main purpose of collecting outstanding debts owed to the Company by Mr. Dov Strikovsy and the Municipality of Hod Hasharon, regarding which the Company has initiated legal proceedings, as well as continue its defense in legal proceedings initiated against it, as a resultincluding those which have been threatened or may be possibly initiated. See “Certain Transactions” and “Legal Proceedings” below. In the event that the Transaction is not consummated, for whatever reason, the Company proposes that in addition to the above, it shall continue to seek opportunities for the sale of any future circumstances.
the Subsidiary and its Technology and/or other transactions with respect thereto. The Company’s proposed operations are detailed in the Company’s Operation Plan for the Year 2004 under Proposal No. 7.
The Board of Directors believes that approval of the Company's Operational Plan for the years 2002, 2003Transaction is in the best interest of the Company and its shareholders and therefore, unanimously recommends that the shareholders vote "FOR"“FOR” the approval of the Company's Operationmain principles of the proposed sale of Marnetics Ltd., to authorize the Company’s Board of Directors to consummate the proposed sale in accordance with such principles.
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Following is a summary of the Company’s Operational Plan for the years 2002, 2003.year 2004:
1. Finalize the sale of Marnetics Ltd. to Magal Ltd., or find an alternate purchaser if the proposed transaction with Magal Ltd. is not consummated. (See Proposal No. 6 above).
2. If no agreement for the sale of Marnetics Ltd. is consummated, to seek a purchaser for all of Marnetics Ltd.’s Intellectual Property (technology) as well as for the sale of the Company’s fixed assets not in use..
3. Actively seek a purchaser for the shares of the Company who will bring new business to the Company, or who seeks an investment in the Company. The Company is currently considering an offer for the acquisition of a controlling interest in the Company by a third party which, if consummated, will result in such third party having a 60% holding in the Company, thus effective control.. The proposal the Company is considering has been made along the guidelines detailed below, and if the negotiations are completed, consummation of the transaction will be subject to the receipt of all necessary approvals, including shareholder approval. In addition, the execution of the contemplated transaction will dependent upon the settlement and/or disposition of the proceedings involving Bank Hapoalim and Ananda Capital Partners Inc., to the satisfaction of the third party acquirer.
The guidelines for the proposed transaction are as follows: (a) a cash investment in the Company of $300,000 against issuance of shares according to a post-money valuation of $500,000; (b) continuing legal proceedings initiated by the Company and its subsidiary Marnetics Ltd. against the Municipality of Hod Hasharon and Mr. Strikovsky, with all funds recovered in such proceedings going to the benefit of the current shareholders of the Company.
4. File notice with the Securities and Exchange Commission (SEC) in order to enable the Company to cease SEC filings and reporting.
5. Legal proceedings:
6. Maintain bookkeeping, budgeting and the reporting of results.
7. Provide financial management for the maximization of yields on funds invested.
8. If a purchaser for the Company is not found prior to March 31, 2004, then to begin steps towards liquidation of the Company.
For the year 2004, the Company forecasts the following utilization of its estimated cash balance of $230,000 as follows:
Q1 2004 | Q2-Q4 2 | 004 | ||||||
Director fees | 14,000 | - | ||||||
Salaries | 24,000 | 6,000 | ||||||
Legal fees | 50,000 | 45,000 | ||||||
Filing costs and related expenses | 15,000 | - | ||||||
Outstanding taxes | - | 64,000 | ||||||
Other | 10,000 | 2,000 | ||||||
Total | 113,000 | 117,000 | ||||||
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Due to the Company’s current financial situation, the Board of Directors believes that the course of action detailed in the summary of the Company’s Operational Plan for the Year 2004 sets forth the best alternatives that are available to the Company under the circumstances, and that therefore adoption of the Company’s Operational Plan as proposed is in the best interests of the Company and its shareholders.
The Board of Directors believes that approval of the Operational Plan of the Company for theYear 2004 is in the best interest of the Company and its shareholders and therefore, unanimously recommends that the shareholders vote “FOR” the approval of the Company’s Operational Plan for the Year 2004.
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The following table identifies, as of October 23, 2002,February 2, 2004, certain information with respect to the beneficial ownership of securities of the Company of each person or entity by the Company to be the beneficial owner of five percent (5%) or more of the Ordinary Shares of the Company:
Amount and Nature of Beneficial
Ownership(1)Ownership (1)Name and Address of Beneficial OwnerNumberPercent(2)Linkware Ltd. 3 Hadror Street P.O. Box 73 Hod Hasharon 45100 Israel 1,740,575(3) 18.7% Dov Strikovsky 83 Akiva Street Ra'anana, Israel 1,015,714(4) 10.9% ECI Telecommunications Ltd. 34 Hasivim Street Kiryat Aryeh Industrial Park Petach Tikva Israel 1,187,439(5) 12.8% STI Ventures Investments No. 2 B.V Hullenbergweg 379 1101 Cr. Amsterdam Zuide - Oost The Netherlands 1,180,907 12.7% Prime Technology Ventures NV Stroombaan 6-8 1181 VX Amstelveen, The Netherlands 630,550 6.8%
Name and Address of Beneficial Owner NumberPercent(2) Linkware Ltd. 3 Hadror Street P.O. Box 73 Hod Hasharon 45100 Israel 1,740,575(3) 18.7% Dov Strikovsky 83 Akiva Street Ra'anana, Israel 985,714(4) 10.6% ECI Telecommunications Ltd. 34 Hasivim Street Kiryat Aryeh Industrial Park Petach Tikva Israel 1,187,439(5) 12.8% STI Ventures Investments No. 2 B.V Hullenbergweg 379 1101 Cr. Amsterdam Zuide - Oost The Netherlands 1,180,907 12.7% Prime Technology Ventures NV Stroombaan 6-8 1181 VX Amstelveen, The Netherlands 630,550 6.8% |
(1) | The number of shares beneficially owned is determined under rules promulgated by the Securities and Exchange Commission, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under these rules, beneficial ownership includes any shares as to which the individual has sole or shared voting power or investment power and also any shares that the individual has the right to acquire within 60 days after |
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(2) | Based on 7,362,390 Ordinary Shares outstanding as of |
(3) | |
| Includes 302,266 shares that may be acquired by Linkware Ltd. pursuant to options that are presently or will become exercisable within 60 days at an exercise price of par value per share. Mr. Menachem, Reinschmidt, major shareholder and Active Chairman of the Board of Directors of the Company, is a controlling shareholder of Linkware Ltd. |
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(4) | Includes |
As of October 17, 2002,February 2, 2004, 1,008,809 Ordinary Shares of the Company were held of record in the United States. Such Ordinary Shares were held by five (5) record holders and represented 13.7% of the total Ordinary Shares then outstanding (10.9%(10.1% on fully diluted basis). On October 17, 2002,February 2, 2004, 6,353,581 of the Ordinary Shares were held of record outside of the United States. Such shares were held by seventeen (17) recordRecord holders and represented 86.3% (89.1%(89.9% on a fully diluted basis) of the total Ordinary Shares outstanding. Since brokers or other nominees held 927,546 of these Ordinary Shares, the number of record holders in the United States may not be representative of the number of beneficial holders or where the beneficial holders are resident.
During 2001, 1,084,500 options granted to Marnetics certain shareholder were expired unexercised. According to the agreement such options have to be divided between the formers shareholder of Marnetics. The Company issued without consideration 955,057 shares and 129,433 options that were divided according to the agreement.
The following table sets forth certain information as of October 23, 2002,February 2, 2004, with respect to the beneficial ownership of shares of Ordinary Shares by each of the Company'sCompany’s directors and executive officers, individually, and the directors and executive officers of the Company as a group, assuming conversion of all convertible debt or preferred stock and exercise of all warrants and stock options by such person and only by such person.
Amount and Nature of Beneficial
Ownership(1)Ownership (1)Number of PercentName of Beneficial OwnerSharesof Class(2)Menachem Reinschmidt, Director and CEO 1,740,575(3) 18.7% Pekka Roine, Director 630,550(4) 6.8% Moshe Rubin, External Director -- -- David Sheetrit, Director and COO 27,803(5) * Ilan Hadar, CFO 17,000(6) * Hanoch Newman, VP R&D 35,428 (7) * All Officers and Directors as a Group(6 individuals)2,451,356 26.4% *Less than 1%
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Percent | Number of Shares | ||||
---|---|---|---|---|---|
Name of Beneficial Owner of Class(2) | |||||
Menachem Reinschmidt, Director and | |||||
Chairman of the Board | 1,740,575 | (3) | |||
18.7% | |||||
David Sheetrit, Director and Acting | |||||
Chief Executive Officer | 34,375 | (4) | |||
* | |||||
All Officers and Directors as a Group | |||||
(2 individuals) | 1,774,950 | ||||
19.03% | |||||
*Less than 1% |
(1) | The number of shares beneficially owned is determined under rules promulgated by the Securities and Exchange Commission, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under these rules, beneficial ownership includes any shares as to which the individual has sole or shared voting power or investment power and also any shares that the individual has the right to acquire within 60 days after |
(2) | Based on in 7,362,390 Ordinary Shares outstanding as of |
(3) | Menachem Reinschmidt is a controlling shareholder of Linkware Ltd. and, as such, has the ability to control the voting and disposition of the securities owned by such company. Mr. Reinschmidt disclaims beneficial ownership of such shares. Includes 302,266 shares that may be acquired pursuant to options, which are presently or will become exercisable within 60 days by Linkware Ltd. at an exercise price of par value per share. |
(4) | |
Includes | |
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CERTAIN TRANSACTIONS
SaleReduction of ElectricalMarnetics Business and Research and Development Activities
Effective March 2001As of April 2003, the Company soldand its wholly-owned subsidiary, Marnetics Ltd., decided to Idan Millenium Investmentslay off the majority of its marketing, sales, and Assets Ltd., a company underresearch and development staff. A new updated budget was approved that reflects the controlshut down of Mr. Strikovsky, all the fixed assets, inventories, other assetsresearch and liabilitiesdevelopment and related goodwill, in the amountmarketing and sales operations of $2,000,000, relating to the electrical operations for a consideration of $597,000. The consideration is payable in 25 monthly installments of $24,000 commencing February 1, 2002. In May 2002 the Company signed an addendum with Idan Millenium Investments and Assets Ltd to change the terms of payments to such that the first 11 installments will be reduced to $7,000 each and the remaining 14 installments will be of $37,000. In addition, the Purchaser has also assumed approximately $715,000 of liabilities related to the Electrical Business. The Company, considering the collectability probability, decided to establish an allowance on the amount not yet collected.Marnetics Ltd. See"the Company's Annual Report on Form 20-F Item 8B - Significant Changes.Changes""
Speedwise Technologies Ltd.Delisting of Shares from the AMEX
By letter dated November 15, 2002, the Company was advised that its status was not in compliance with certain of the standards of the American Stock Exchange (the "Exchange"), namely 1) the aggregate market value of the shares publicly held was less than $1 million for more than 90 consecutive days and, 2) the common stock had been selling for a substantial period of time at a low price per share. As a consequence, the Exchange considered suspending dealing in, or removing the common shares from the list. The Company was offered an opportunity to submit a plan which would demonstrate an ability to regain compliance with the continued listing standards. Such a plan was submitted on December 23, 2002 and revised on January 13, 2003.
On January 31, 2003, the Exchange communicated to the Company that it had completed its review and determined to initiate de-listing proceedings.
By correspondence dated February 6, 2003, the Company appealed the Exchange's determination and, in written submission dated March 9, 2003, the Company provided information in support of its request for review.
On March 25, 2003, a hearing was held before an Exchange Listing Qualifications Panel. By letter dated March 26, 2003, the Exchange notified the Company of the Panel's determination that the Company's common stock should be de-listed by the Exchange.
The AMEX suspended trading in the Company's common stock effective April 1, 2003 and the Company did not appeal the Panel's decision.
As from April 1, 2003 the Company's shares began to be quoted on the OTC Pink Sheets.
In April 2001, Marnetics Ltd. entered into a software license agreement with Speedwise Technologies Ltd., a company in which Marnetics Ltd. owns 13.12% interest. See"the Company's Annual Report on Form 20-F Item 4B8B - Licensing Arrangements.Significant Changes."
In July 2001, Marnetics Ltd. entered into an OEM agreement with Speedwise Technologies Ltd., a company in which Marnetics owns 13.12% The Company is currently examining the possibility of terminating the registration of its outstanding shares. See"ordinary shares under the Securities Exchange Act of 1934, hence ceasing its reporting obligations to the Securities Exchange Commission. If the Company will adopt such course of action, it shall make the required notifications and filings. It should be noted that if the Company will terminate the registration of its ordinary shares certain information regarding the Company would no longer be available nor would it continue to be in its current form. Nevertheless, if registration is terminated, the Company will continue to be a public company under the Israeli Companies Law, and as such would still be required to prepare annual financial statements, have External Directors serving on its Board and Audit Committee, and all other requirements as detailed under the Company's Annual Report on Form 20-F Item 4B - Customers." The OEM agreement was cancelled in November 2001. Combination TransactionLaw.
Effective December 31, 2000, Stav Electrical Systems (1994) Ltd. acquired Marnetics Ltd. pursuant to the terms of that certain share exchange agreement among the Company, Marnetics Ltd. and the security holders of Marnetics Ltd. Upon the closing of that transaction, certain entities and individuals affiliated with the Company, including Dov Strikovsky, a principal shareholder and the former Chief Executive Officer of the Company or entities affiliated with Mr. Strikovsky, received options to purchase up to 400,000 Ordinary Shares of the Company.
Assignment of Bank Debt
On May 9, 2001, an agreement was signed between the Company and Bank Hapoalim Ltd. ("Bank") with respect to the Company's debt to the Bank in the amount of $3,127,000 (the "Debt"). In accordance with the Bank agreement with the Bank, hasthe Bank agreed to release the Company from its obligation to repay the Debt and to cancel the floating charge and liens registered in favor of the Bank on properties of the Company provided that, by May 31, 2001, the Company shall pay $954,000 to the Bank on account of the Debt (the "Repaid Amount"), and in addition, the Company shall have assignedassign to the Bank all its rights with respect to the debt of the municipalityMunicipality of Hod Hasharon to the Company in the amount of $2,173,000. The Company paid the $954,000 and made the assignment in the aforesaid amount.amount in May 2001.
In addition, the Company has provided the Bank with a guarantee of up to $716,000, which decreases in the ratio of NIS 1:2 paid on account of the outstanding debt of Hod Hasharon. Until May 31,Hasharon which has been assigned to the Bank. To date, Hod-Hashron has not made any re-payment on account of the debt, and therefore the guarantee has not decreased to date. According to the terms of the agreement with the Bank, following November 30, 2002, the Bank committedis entitled to exercise the outstanding amount of the guarantee. As the guarantee has not to claim the guaranty fromdecreased, the Company but if legal proceduresdecided to collectrecord an allowance in the debt fromfinancial records for the municipalityentire amount of the guarantee.
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The Company has informed the Bank that, following prolonged negotiations, the Municipality of Hod Hasharon werestated its position that it is not obligated towards the Company and that it retains all rights in the matter, and that further has claims against the Company amounting to begin,some NIS 4 Million (approximately $900,000). In light of the position taken by counsel to the Municipality, the Company informed the Bank has committed not to claimthat bringing legal action is unavoidable, and that in the guarantee fromopinion of the Company untilremains the only course of action that may result in the recovery of the funds due to it.
In light of the current relationship between the Company and Mr. Strikovsky (see"Legal Proceedings"below), the Company was of the opinion that the suit brought against the Municipality of Hod Hasharon should be based upon the letter by the head of the municipality's Engineering Department approving the assignment of the debt to the Bank and confirming the debt towards the Company.
Therefore, the Company was of the opinion that it would be proper that the Bank join the Company in bringing such suit and share in its expense. The Bank has yet to formally respond to the Company's suggestion, although it has learned from counsel to the Bank that it is reluctant to join the suit, but may be willing to share some of the expenses involved. The Company is of the opinion that the Bank's position is detrimental to the Company's efforts.
On November 30, 2002.20 2003, the Company's subsidiary, Marnetics Ltd., filed suit against the Municipality of Hod Hasharon and its then head of the Engineering Department, in the sum of NIS 10,000,000 (approximately $2.2 million). (see"Legal Proceedings"below)
Page 25
Indemnification by Significant Shareholder
1. Following the agreement with the Bank, agreement, on June 30, 2001 an agreement was signed between Mr. Strikovsky and the Company pursuant to which Strikovsky agreed to reimburse the Company for the Repaid Amountan amount of US$ 954,000, and any additional amount that the Company may have to pay to the Bank if the Bank exercises the guarantee related to the debt of Hod Hasharon. The reimbursement amount of $954,000 is due and payable to the Company and willis required to be paid in monthly installments of $48,000 commencing on June 1, 2004, until paid in full. All amounts due and payable to the Company are linked to the Israeli CPIConsumer Price Index and bear interest of 4% per annum. The reimbursement amount of $954,000 was not yet recognized as the probability of its realization is in doubt.
2. In connection with the Stav/Marnetics transaction, and pursuant to an amendment to the share exchange agreement, Mr. Strikovsky granted an indemnification to the former shareholders of Marnetics Ltd. against certain losses or damages related to the Electrical Business and had deposited 200,000 shares of the Company held by him in escrow as security for his indemnification obligations.
3. During the audit of the financial statements of Stav Electrical Systems (1994) Ltd. for the year ended December 31, 2000, it was discovered that excess advances were paid to certain suppliers in the amount of $0.5 million. On June 30, 2001, Mr. Strikovsky, the Company and the former shareholders of Marnetics Ltd. entered into a separate indemnification agreement that further defined, clarified and expanded the terms of the initial indemnification, added indemnification obligations related to the bank debt assignment (as described above), and provided for an additional 100,000 shares of the Company held by Mr. Strikovsky to be held in escrow as security for such indemnification obligations. Under this indemnification agreement, Mr. Strikovsky agreed to:
4. The Company, under its former name, and Mr. Dov Strikovsky were named as co-defendants in a claim for specific performance of an agreement allegedly entered into by the Company and the plaintiff, Ananda Capital Partners, Inc., in April 1999, as well as for damages as a result of a breach of the agreement. The Company did not appear or defend the lawsuit because it did not receive notice of its commencement or any of the subsequent proceedings. On July 2, 2001, due to the fact that no defense and/or reply were provided by the co-defendants, judgment was entered against the Company and Mr. Dov Strikovsky in the amount of $725,000. On February 7, 2002, the Company filed a motion to vacate the judgment and on February 27, 2002 the court rejected the motion. The Company filed the appropriate papers to bring an appeal to the rejection of the motion to vacate the judgment. These papers were filed on August 5, 2002. It is expected that decision on the appeal will be issued by the court in or about October 2002.agreement (see "Legal Proceedings" below). On December 5, 2001, Mr. Dov Strikovsky gave an undertaking to indemnify the Company for all legal fees, expenses and court costs arising out or in connection with this claim. The Company has established an allowance in the amount of $750,000 to provide for its possible exposure.
Page 26- 21 -
Loans to Significant Shareholder and Former Director and Officer
The Company has, from time-to-time, made loans to Dov Strikovsky during the period of time he was Chairman of the Board of Directors, President, and Chief Executive Officer of the Company. At December 31, 1997, 1998, and 1999 the amount of such loans outstanding was US $1,151,000, US $1,443,000 and US $1,570,000 respectively. Such loans did not bear interest through December 31, 1997 (such loans are currently linked to the Israeli Consumer Price Index and bear interest at the rate per annum equal to LIBOR plus 2 %). In addition, during 1999 and 2000, the Company inadvertently made excess advances to Mr. Strikovsky. Upon discovery of this error, Mr. Strikovsky started to repay to the Company the amount of such excess advances.
In preparation for its initial public offering, in April 1998, the Company entered into an agreement with Mr. Strikovsky which provided that he would pay interest only on such loans through October 1, 1998 and will amortize the principal amount, and pay interest thereon, commencing on January 1, 2000 and terminating on December 31, 2003. In September 1998, such agreement was superceded by an agreement pursuant to which Mr. Strikovsky agreed to repay such loans together with the interest thereon, on or prior to November 25, 2000, subject to extension in the sole discretion of the disinterested members of the Board of Directors of the Company. Mr. Strikovsky applied the net proceeds of the sale in the Company's initial public offering of a number of his Ordinary Shares, approximately US $522,000, and also agreed to apply 50% of all dividends paid, net of taxes, on the Ordinary Shares owned by him to the prepayment of such loans. Pursuant to the September 1998 agreement, in 1999, the disinterested members of the Company's Board of Directors voted to extend the repayment terms of the net loan. The loan is currently payable in eight annual installments, which commenced in December 31, 2000 and shall be repaid in full by December 31, 2007. Payment was made by way of applying Mr. Strikovsky's net proceeds of the sale of his shares in the Company's initial public offering in the amount of $522,000. In September 1999, a dividend was paid to Mr. Strikovsky in the sum of $90,000, and he applied half of this amount, $45,000, towards repayment of the loan.loans.
During August and September 2002 Mr. Strikovsky paid the Company a sum of $225,000. This amount was credited first against the balance of its currents account in the sum of $87,000 and the sum of $138,000 was credited against the balance due of the loan.
Mr. Strikovsky did not make further payments towards this loan. The balance due of the loan is $134,000. The Company notified Mr. Strikovsky of itshis default and is considering its future legal actions and conducting anconducted ongoing negotiation with Mr. Strikovsky.Strikovsky in this matter, without result.
AtIn December 31, 2001 the Company reassessed the collectability of the net loan, in the amount of $1,228,000 granted to Mr. Strikovsky in previous years, in accordance with provisions of SFAS No. 114 "Accounting by Creditors for Impairment of a Loan", and resolved, considering the probability of its collectability, to establish a loan loss allowance for the entire amount. Income from impaired loan will be recorded using the cash method.
Page 27
OEM Agreement between Marnetics Ltd. and Infotier.com Ltd.
During October 2002, On September 10, 2003, the Company approvedfiled suit against Mr. Strikovsky and others for, among other things, his default under the principles for an OEM agreement with Infotier.com Ltd. ("Infotier")loan extended to enable Marnetics Ltd., a fully owned subsidiary, to use the intellectual property of Infotier and integrate it into Marnetics Ltd.'s line of products, especially into the Prospera Expert. Marnetics Ltd. will pay Infotier only royalties of five percent from any revenues generated to Marnetics Ltd.him by the sale of Marnetics Ltd.'s products integrated with Infotier products. The royalties will be paid up to an aggregate amount of $300,000.Company (see"Legal Proceedings"below).
The agreement will be for a term of five years and will grant Marnetics Ltd. exclusivity for the first year. Infotier will supply the IP without any warranty or the ability to support it in the long run. Marnetics Ltd. will be able to approach Infotier's former employees and hire them to work for it.
Linkware Ltd., a company under the control of Mr. Menachem Reinschmidt, a major shareholder, director and chief executive officer of the Company, owns forty five percent of the outstanding shares of Infotier. The Board of Directors has approved the agreement in principal.
The management of the Company believes that integrating the intellectual property of Infotier into the Prospera line of product will enhance the possibilities of use of the product and will increase the marketing potential of Marnetics Ltd.'s line of products.
Inter Company Loan Agreement
During September 2002 the Company signed a loan agreement with Marnetics Ltd, a fully owned subsidiary where asof the Company, pursuant to which Marnetics LtdLtd. will grant the Company a loan of up to $500,000. The principleprincipal of the loan will be linked to the changes in the Israeli CPI. The interest was set toConsumer Price Index. Interest will accrue at 4% annually.per annum. The loan will be paid until December 31, 2005. In order to secure the repayment of the loan, the Company agreed to pledge in favor of marneticsMarnetics Ltd. the amounts that will be collected from the account of the "Loans to Significant Shareholder and Former Director and Officer" in the amount of $1,228,000.
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LEGAL PROCEEDINGS
Ananda Capital Partners Inc.
The Company under its previous name, and Mr. Dov Strikovsky were named as co-defendantsdefendants in a claim for damages and specific performance of an agreement allegedly entered into by the Company and the plaintiff, Ananda Capital Partners, Inc., in April 1999 as well as damages as a result of a breach of the alleged agreement. The Company did not appear or defend the lawsuit because it did not receive notice of its commencement or any of the subsequent proceedings.
On December 5, 2001, Mr. Dov Strikovsky gave an undertaking to indemnify the Company for all legal fees, expenses and court costs arising out or in connection with this claim. The Company has established an allowance in the amount of $750,000 to provide for its possible exposure.
(the "Agreement"). On July 2, 2001, due to the fact that no defense and/or reply were provided by the co-defendants,Company or Strikovsky, judgment was entered by the Supreme Court of the State of New York, against the Company and Mr. Dov Strikovsky in the amount of $725,000. On February 7, 2002, both the Company and Strikovsky filed a motion to vacate the judgment, and on February 27, 2002, the court rejected the motion. The Company has been informedfiled an appeal that was accepted by US counselthe Supreme Court of the State New York with instructions to allow an evidentiary hearing in regard to the defendants claim that the default judgment was entered without proper service of process. The hearing was held on May 22, 2003, but the court has not yet entered its decision. The plaintiff proposed to schedulesettle the suit for $250,000, and while the Company was willing to further negotiate a datesubstantially lower amount, in light of the plaintiff's position, the Company decided to reject the proposal. In 2001 the Company established an allowance in the amount of $750,000 to provide for oral arguments but that they expect thoseits possible exposure. In light of subsequent developments, the Company decreased the allowance by $500,000 to be heard sometime$250,000, which, in November 2002.light of the judgment against the Company and the settlement offer proposed, represents a conservative estimate of the probable exposure.
Page 28
During June 2002, the plaintiff filed a request of enforcement with the District Court of Tel Aviv, Israel, asking the court to enforce the judgment against the Company and Mr. Dov Strikovsky in the amount of $725,000, in Israel.
The Company filed the appropriate papers to bring an appeal to the rejection of the motion to vacate the judgment. These papers were filedjudgment, in July 2002.
On September 10, 2002, the District Court of Tel Aviv, Israel agreed to grant the Company an extension of thirty days to file its motion to contest the enforcement of the judgment from the date of the Israeli court'sCourt's decision regarding the motion to dismiss the enforcement of judgment claim. The Court later denied the Company's motion. In light of the proceedings conducted in this matter in the United States, a hearing as to the substance of the claims has not yet been held, and Company and opposing counsel have agreed, from time to time, to postpone the date of such hearing. Currently, a preliminary hearing in the case is scheduled for March 9, 2004.
See"the Company's Annual Report on Form 20-F Item 8A (1) - Financial Information -Legal Proceedings"
Dov Strikovsky
On September 10 2003, the Company filed suit against Mr. Strikovsky and others in the sum of NIS 3,193,743 (approximately $700,000) due to default under loans extended to Mr. Strikovsky by the Company, as well as other debts related to the sale of the electrical business of the company to company's under Mr. Strikovsky's control. The Company was able to obtain a court order for the seizure of certain notes credited to the defendants by the Municipality of Hod Hasharon.
The response of the defendants to the claim, as well as to the seizure order, has not yet been filed.
Municipality of Hod Hasharon
On May 9, 2001, an agreement was signed between the Company and Bank Hapoalim, Ltd. with respect to the Company’sCompany's debt to the Bank in the amount of $3,127,000.$3,127,000 (the "Bank Agreement"). SeeSee in the Proxy“"Certain Transactions- Assignment of Bank Debt”Debt".above. After the consummation of the Bank Agreement, the Company was informed that the municipalityMunicipality of Hod Hasharon is delaying the payments due to the Bank. As a consequence, the Company is carrying out negotiation with the municipalityMunicipality of Hod Hasharon for the repayment of the debt including interest accrued thereon. The legal advisor ofto the Company, in a letter dated June 6, 2002, wrote that the present negotiations by the lawyers of the Company with the lawyers representing the municipalityMunicipality of Hod Hasharon can be considered to be legal procedures, and that the guaranty can be considered extended undertherefore the Bank agreementcan withhold proceedings against the Company until November 30 2002. Since then, the B0ank has extended its agreement to withhold proceedings, which has lapsed in May 2003.
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On November 20 2003, the Company's subsidiary, Marnetics Ltd., filed suit against the Municipality of Hod Hasharon and its then head of the Engineering Department, in the sum of NIS 10,000,000 (approximately $2.2 million) (for court fee purposes), claiming that the negligence of and/or misrepresentations made by the Municipality at the time of the reverse merger transaction between the Company and Marnetics Ltd., in regard to the Municipality's debt towards the Company, caused Marnetics Ltd. damages of some NIS 24,000,000 (approximately $5.33 million) between the years 2000 and 2002. The defendant's response has not yet been filed.
Demand Letter
On December 4, 2001, Mr. Menachem Reinschmidt, the Active Chairman of the Board of Directors of the Company, received two letters from Advocate Yori Nehushtan on behalf of two shareholders of the Company, Messrs. Yossi Tessler and Lavni Krasni, shareholders inLavi Krasni. The letters raised the Company sent to Menachem Reinschmidt, a major shareholder, director and CEO ofallegation that the Company, a demand letter with claims regarding information published by the Company regarding the BITmax Line of Products, in theCompany's Proxy Statement filed inon November 17, 2000. Menachem has rejected these claims2000, contained false representations regarding the Company's technology. Mr. Reinschmidt and the so-called damages being claimed. AsCompany contend that no false representations were given, that such representations were given subject to various risk factors clearly detailed in the Company's Proxy Statement, and that in any event, such representations are protected under the "safe harbor" provisions of the dateSecurities and Exchange Act of June 30, 2002, to the best of the knowledge of the Company no action has been taken by the proposed claimants.1934 as forward looking statements under United States securities laws. On September 14, 2001, by waythe shareholders of a Shareholders Meeting, Marnetics Ltd.‘s shareholders approved a resolution to indemnify MenachemMr. Reinschmidt in respect to the demand letter sent by Advocate Yori Nehustan on behalf of Yossi Tessler and Lavie Krasni, in accordance with the provisions and limitations set out in the Israeli Companies Law 5759-1999.Law.
Page 29Marot Imaging Israel Ltd.
During March 2003 the Company received letters from the lawyers of Marot Imaging Israel Ltd., the Israeli representative of Getty Images, Inc., alleging that pictures from GETTYIMAGES were incorporated into the Company's internet site without obtaining the copyright permission of the owner, therefore infringing its rights. The Company denied responsibility for the alleged infringement. Upon notification that the images may be infringing rights of a third party, the Company ceased to use the pictures in question and has so notified the agent of Getty Images. Although Marot Imaging made an offer of settlement, the Company decided not to accept the settlement offer. To date no action has been filed by Marot Imaging.
Ohrenstein & Brown
The Company has an outstanding debt of approximately $27,000 to the law firm of Ohernstein & Brown for legal services rendered to the Company in connection with its defense of the Ananda lawsuit.
AVAILABLE INFORMATION
The Company (formerly named Stav Electrical Systems (1994) Ltd.) is subject to certain of the informational requirements of the Securities Exchange Act of 1934 and the rules and regulations promulgated there under and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission. Reports, proxy statements and other information filed by the Company may be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N. W., Washington, D. C. 20549 and at the Regional Offices thereof at 233 Broadway, New York, New York and at 175 West Jackson Boulevard, Suite 900, Chicago, Illinois.20549. Copies of such information can be obtained by mail from the Public Reference Section of the Commission at 450 Fifth Street, N. W., Washington, D. C. 20549 at prescribed rates. In addition, beginning in July 2001, the Company began filing its reports with the Commission electronically and any reports, proxy statements and other information filed by the Company after such date may also be inspected the Commission's web site atwww.sec.gov.
DOCUMENTS INCORPORATED BY REFERENCE
The CompanyCompany's Annual Report on Form 20-F for the year ended December 31, 2001,2002, is incorporated by reference herein. All documents filed by the Company with the Commission pursuant to the Exchange Act after the date hereof and prior to the date of the General Meeting shall be deemed to be incorporated by reference herein and shall be a part hereof to the extent that a statement contained herein (or in any other subsequently filed document with also is incorporated by reference herein) modifies or supersedes such statement.
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