Filed Pursuant to Rule 424(b)(1)
Registration No. 333-114260
PROSPECTUS
VOCALTEC COMMUNICATIONS LTD.
Up to 3,600,000 Ordinary Shares
_____________________________________
This prospectus relates to the resale, from time to time, by the
selling shareholders identified in this prospectus of up to 3,600,000 of our
ordinary shares, 2,400,000 of which were issued by us on March 11, 2004 in a
private placement transaction. The remainder of these ordinary shares are
issuable upon the exercise of warrants to purchase up to 1,200,000 of our
ordinary shares which were issued by us in the private placement transaction.
We will not receive any of the proceeds from the sale of the ordinary
shares by the selling shareholders, but we will receive the proceeds from the
exercise of the warrants.
You should read both this prospectus and any prospectus supplement,
together with the additional information described under the heading
"Incorporation of Certain Documents by Reference" before you decide to invest
in our ordinary shares.
Our ordinary shares are quoted on the Nasdaq National Market under the
symbol "VOCL." The last reported sale price of our ordinary shares on the
Nasdaq National Market on April 20, 2004 was $3.40 per share.
Investing in our ordinary shares involves a high degree of risk. See
"Risk Factors" beginning on page 4 of this prospectus to read about factors you
should consider before purchasing our ordinary shares.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities or
determined if this prospectus is truthful or complete. Any representation to
the contrary is a criminal offense.
_____________________________________
The date of this prospectus is April 21, 2004
TABLE OF CONTENTS
Item Page
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About this Prospectus 3
The Company 3
The Offering 3
Risk Factors 4
Where You Can Find More Information 12
Incorporation of Certain Documents by Reference 13
Forward-Looking Statements 14
Use of Proceeds 15
Selling Shareholders 15
Plan of Distribution 19
Validity of Securities 21
Experts 21
Enforceability of Civil Liabilities 22
You should rely only on the information contained or incorporated by
reference in this prospectus or any supplement. We have not authorized any
other person to provide you with different information. If anyone provides you
with different or inconsistent information, you should not rely on it. We are
not, and any underwriter or agent is not, making an offer to sell these
securities in any jurisdiction where the offer or sale is not permitted. You
should assume that the information appearing in this prospectus is accurate
only as of the date on the front cover of this prospectus. Our business,
financial condition, results of operations and prospects may have changed since
that date.
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with
the United States Securities and Exchange Commission, or the SEC, utilizing a
"shelf" registration process. Under this shelf process, the selling
shareholders may offer up to a total of 3,600,000 ordinary shares, from time to
time, in one or more offerings in any manner described under the section in
this prospectus entitled "Plan of Distribution."
Unless the context otherwise requires, all references in this
prospectus to "VocalTec," "we," "our," "our company," "us" and the "Company"
refer to VocalTec Communications Ltd. and its consolidated subsidiaries.
All references in this prospectus to "ordinary shares" refer to our
ordinary shares, par value 0.01 NIS per share.
All references in this prospectus to "dollars" or "$" are to United
States dollars.
All references in this prospectus to "shekels" or "NIS" are to New
Israeli Shekels.
THE COMPANY
Our commercial and legal name is VocalTec Communications Ltd. We are a
company organized under the laws of the State of Israel and are subject to the
Israel Companies Law 1999 - 5759. We began operations in 1989. Our principal
offices are located at 2 Maskit Street, Herzlia Pituach 46733, Israel and our
telephone number is + 972-9-970-7800. Our U.S. agent is our subsidiary,
VocalTec Communications Inc., located at Two Executive Drive, Suite 592, Fort
Lee, NJ 07024, telephone: (201) 228-7000. Our website address is
www.vocaltec.com. The information contained on, or linked from, our website is
not a part of this prospectus.
We are a leading supplier of packet-based voice solutions for next
generation telecommunication networks suitable for the telecommunications and
enterprise markets. Our solutions incorporate carrier-class switching equipment
and software that enables voice to be delivered over packet-based networks,
including the Internet. Our solutions enable telecommunications carriers and
service providers to reduce both capital and operating expenses by utilizing a
more efficient network infrastructure to establish and operate voice networks.
In addition, our solutions provide a platform for telecommunications carriers
and service providers to increase their revenues through the delivery of
Internet Protocol, or IP, based voice and data services (such as voice virtual
private networks), helping them to retain and expand their customer base.
THE OFFERING
On March 11, 2004, we completed a private placement transaction in
which we issued 2,400,000 of our ordinary shares at $4.10 per share, for an
aggregate purchase of approximately $9.8 million before expenses, and warrants
to purchase up to 1,200,000 of our ordinary shares. The warrants are
exercisable for four and a half years, beginning on September 12, 2004, and
have an exercise price of $4.75. We agreed with the recipients of our ordinary
shares and warrants to register for public resale the 2,400,000 ordinary shares
issued to them in the private placement and the 1,200,000 ordinary shares
issuable to them upon exercise of the warrants. This prospectus has been
prepared, and the registration statement of which this prospectus is a part has
been filed with the SEC, to satisfy our obligations to the recipients of our
common stock and warrants.
Accordingly, this prospectus covers:
o the resale by selling shareholders of our ordinary shares issued
in the private placement; and
o the resale by selling shareholders of our ordinary shares
issuable upon exercise of the warrants issued in the private
placement.
Investing in our ordinary shares involves risks. You should carefully
consider the information under "Risk Factors" beginning on page 4 and the other
information included or incorporated by reference in this prospectus before
investing in our ordinary shares.
RISK FACTORS
You should carefully consider the risks described below and all the
information contained or incorporated by reference into this prospectus before
making an investment decision regarding our ordinary shares. The risks
described below are not the only risks facing our company. Our business,
financial condition or results of operations could be materially adversely
affected by any of these risks. The trading price of our ordinary shares could
decline due to any of these risks, and you may lose all or part of your
investment.
WE HAVE EXPERIENCED AND MAY CONTINUE TO EXPERIENCE SIGNIFICANT
FLUCTUATIONS IN OUR QUARTERLY RESULTS, WHICH MIGHT MAKE IT DIFFICULT FOR
INVESTORS TO MAKE RELIABLE PERIOD-TO-PERIOD COMPARISONS AND MAY CONTRIBUTE TO
VOLATILITY IN THE MARKET PRICE FOR OUR ORDINARY SHARES.
Our operating results have fluctuated and may continue to fluctuate
from period to period for a number of reasons. Over the past few years,
telecommunications carriers, who are our primary customers, have reduced their
capital expenditures as a result of excess capacity, heavy debt, and
significant operating losses. In addition, the Voice over Internet Protocol, or
VoIP, market for telecommunications carriers is experiencing a shift from H.323
technology to softswitch technology, resulting in a transitional period for
many VoIP vendors, including ourselves. Large carriers have only recently begun
to show a serious interest in migrating their public switch telephone networks,
or PSTN, to VoIP softswitch networks, and there is still uncertainty with
respect to the extent and timing of shifting PSTN networks to VoIP softswitch
networks. We have long sales cycles and short delivery cycles, and as a result
we do not usually have a large order backlog. These factors make the
forecasting of sales inherently uncertain. Significant annual and quarterly
fluctuations in our results of operations may also be caused by, among other
factors, the timing and composition of orders from our customers, reduced
prices for our products, the economic viability and credit-worthiness of our
customers, and the collectability of our receivables, some of which are
recognized on a cash basis, the timing of new product announcements and
releases by us and by our competitors, and still generally depressed economic
conditions in the telecommunications markets and the VoIP industry in which we
operate.
Our future results may also be affected by factors that include our
ability to continue to develop, introduce and deliver enhanced and new products
in a timely manner, to offer new products at competitive prices, to offer
existing products at lower prices, to compete with competitors that are larger
than we are, and to anticipate customer demands. There can be no assurance that
sales in any particular quarter will not be lower than those of the preceding
quarters, including comparable quarters.
As a result, we believe that period-to-period comparisons of our
results of operations are not necessarily meaningful and should not be relied
upon as indications of future performance. The volatility in our operating
results may also result in significant volatility in our share price.
Furthermore, our share price is also subject to the price volatility
experienced by many companies in the telecommunications sector, VoIP industry
and related sectors. It is also possible that our quarterly results of
operations may be below the expectations of public market analysts and
investors. If this happens, the price of our ordinary shares is likely to
decrease.
WE HAVE INCURRED SIGNIFICANT HISTORICAL OPERATING LOSSES AND MAY
CONTINUE TO INCUR OPERATING LOSSES.
Since our incorporation in 1989, we have had limited sales and have
incurred significant operating losses. We had operating losses in 2003, 2002
and 2001 of $8.1 million, $21.7 million, and $23.6 million, respectively. To
achieve profitability and increased sales levels, we must, among other things,
establish and increase market demand and acceptance of our products and
systems, respond effectively to competitive pressures, offer high quality
customer service and support, and introduce advanced versions, enhancements,
and new products that meet market needs on a timely basis.
We may continue to incur operating losses in 2004 and thereafter if
revenues are insufficient to cover sales and marketing, product development,
administrative and other expenses. If revenue levels do not sufficiently
increase, operating results will be adversely affected because any reduction in
expenses may not sufficiently cover reduction in revenues. There can be no
assurance that we will achieve or sustain significant sales or profitability in
the future.
IF VOIP MARKETS FOR OUR PRODUCTS AND TECHNOLOGY FAIL TO GROW, OR OUR
CURRENT OR NEW PRODUCTS FAIL TO ACHIEVE MARKET ACCEPTANCE, OUR BUSINESS WILL BE
ADVERSELY AFFECTED.
The markets for our products are relatively new, are rapidly evolving
technologically, and are characterized by competitors that have developed
similar products and services. Conversion from PSTN to VoIP is not as
widespread as expected, and carriers are only now beginning to show a serious
interest in migrating their PSTN networks to VoIP softswitch networks. Sales of
VoIP products have fluctuated and have been generally unpredictable, as
fluctuation in demand for voice infrastructure products is dependent on the
customers establishing and/or expansion of their networks. As is typical in the
case of an evolving industry, demand and market acceptance for recently
introduced technology products and services are subject to a high level of
uncertainty. Further, there is continuing uncertainty as to whether and when
the size of the VoIP market will further increase, if at all. Broad market
demand and acceptance of our technology, products and solutions, including our
new Essentra product line, and interoperability of our products with other VoIP
products are very important to our success and to our ability to generate
revenues. Market demand and acceptance of our technology, products and
solutions will be highly dependent on functionality, interoperability,
reliability, stability and performance as well as on matters beyond our control
such as the introduction of competing products or technologies into the market
before our new technologies and products. There can be no assurance that packet
based voice networks will become widespread, that connections between IP
networks and the publicly switched telephone networks, or PSTN, will become
widespread or that our products and solutions, including our new Essentra
softswitch, will generate sales or gain market acceptance. The adaptation
process of connecting IP networks and PSTNs can be time consuming and costly to
both us and our customers and the acceptance of the product or system may
depend, to a substantial extent, on the success of the adaptation. There can be
no assurance that the market for our products and services will grow above
current levels or that our products and solutions will achieve market
acceptance. If the market does not grow above current levels, or if our
products and solutions do not achieve market acceptance, our business,
financial condition and results of operations will be materially adversely
affected.
LOW LEVELS OF CAPITAL SPENDING BY TELECOMMUNICATIONS COMPANIES WILL
ADVERSELY AFFECT OUR REVENUES AND OUR FUTURE GROWTH.
The turbulent economic events of the past several years precluded the
establishment of potential new carrier customers. In addition, numerous
competitive local exchange carriers entered into bankruptcy, while other
existing telecommunications providers, including many of our customers,
sustained significant economic losses and were forced to reduce planned capital
expenditures in order to reduce debt and operating expenses. This environment
resulted in decreased market demand for our products and longer sales and
procurement cycles, and adversely affected our revenues.
IF OUR RELATIONSHIPS WITH OUR KEY CUSTOMERS ARE TERMINATED, OUR
REVENUES WILL DECLINE AND OUR BUSINESS WILL BE ADVERSELY AFFECTED.
During 2003, our two main customers, Deutsche Telekom and its
T-Systems subsidiary and DataAccess (India) Limited, accounted for 52% and 22%
of our sales, respectively. If for any reason, our relationship with Deutsche
Telekom or DataAccess is terminated, or if either of these key customers
reduces purchases of our products, then our business, financial condition and
results of operations would be materially adversely affected. In addition, if
any of our key customers decided to replace our existing equipment in their
networks with competitor's equipment, this would pose a serious competitive
problem. The impact of the termination or reduction of our key customer
relationships would be intensified if we are unable to increase sales to other
customers in order to offset this termination or reduction.
IF OUR NEW SOLUTIONS DO NOT MEET MARKET AND CUSTOMER REQUIREMENTS OR
IF OUR PRODUCTS DO NOT ACHIEVE INDUSTRY STANDARD CERTIFICATIONS IN EXISTING OR
EMERGING MARKETS, WE WILL NOT ATTRACT AND RETAIN CUSTOMERS.
Maintaining and increasing our sales revenues are dependent upon the
ability of our products to meet market and customer requirements. To this end,
we are involved in a continuous process to evaluate changing market demands and
customer requirements, and to develop and introduce new products, features and
applications to meet such changing demands and requirements. A number of risks
are inherent in this process. We may not successfully anticipate market
requirements or complete the development or introduction of these products. In
addition, the development of new technologies and products is increasingly
complex and uncertain. This can result in delay in the introduction of new
technologies and products, and requires close collaboration and continued
technological advancement involving multiple hardware and software design teams
and outside suppliers of key components. The failure of any one of these
elements could cause new products to fail to meet specifications, market
requirements or customer demands, or to miss delivery schedules. As the variety
and complexity of our product lines increase, the process of planning
production and inventory levels also becomes increasingly complex.
Our results could be adversely affected by factors such as lack of
market acceptance of our new products, development or manufacturing delays, and
delays in customer purchases of products in anticipation of the introduction of
new products and the rapidly changing landscape of emerging standards. In
addition, products in our inventory that are not timely sold may become
obsolete, resulting in inventory write-downs.
Further, telecommunications carriers outside the U.S. increasingly
require that VoIP products be designed to meet local homologation requirements
to demonstrate interoperability with existing networks of incumbent
telecommunications carriers, each of which may have different specifications.
Failure to obtain such homologation certifications or other industry standard
certifications for our products may result in decreased revenues, significant
warranty, support and repair costs, may divert the attention of our engineering
personnel, and cause significant customer relations problems.
WE MAY NEED TO RAISE ADDITIONAL FUNDS TO SUSTAIN OUR FUTURE
OPERATIONS, RESEARCH AND DEVELOPMENT AND SALES INFRASTRUCTURES. ADDITIONAL
CAPITAL MAY NOT BE AVAILABLE ON TERMS ACCEPTABLE TO US OR AT ALL, AND IF RAISED
MAY DILUTE OUR SHAREHOLDERS.
Our total cash, cash equivalents, restricted cash, and short-term
deposits as of December 31, 2003 were approximately $12.2 million. In March
2004, we completed a private placement of equity securities to institutional
investors of 2.4 million of our ordinary shares. We received approximately $9.3
million, net of expenses, which will be used for working capital and general
corporate purposes. We also issued to the institutional investors warrants to
purchase up to 1.2 million ordinary shares at an exercise price of $4.75 per
share. The warrants are exercisable for four and a half years, beginning six
months after closing. If we do not increase our revenues, we may need to
further reduce expenses and/or raise additional capital or funds in order to
cover the cost of our operations, research and development, and sales
infrastructures. Such additional funding, whether obtained through public or
private debt or equity financing, or from strategic alliances, may not be
available when needed or may not be available on terms acceptable to us, if at
all. If additional funds are raised through the issuance of equity securities,
the value of our shares may decrease, the percentage ownership of our then
current shareholders may be diluted and such equity securities may have rights,
preferences or privileges senior or more advantageous to those of the holders
of our ordinary shares. If additional funds are raised through debt
instruments, we may become subject to various covenants, restrictions, pledges
and other security interests that typically accompany such funding. Any
downturn in capital markets and the potential difficulties in raising funds
faced by high technology companies are likely to make it difficult to raise
additional capital.
THE MARKET PRICE OF OUR ORDINARY SHARES MAY BE VOLATILE AND INVESTORS
MAY NOT BE ABLE TO RESELL THEIR SHARES AT OR ABOVE THE PRICE PAID, OR AT ALL.
In addition to our significant operating losses, generally depressed
economic conditions have adversely affected our share price and trading volumes
over the past few years. In December 2002, the Nasdaq approved our application
to transfer the quotation of our ordinary shares to the Nasdaq SmallCap Market
from the Nasdaq National Market. On July 29, 2003, our ordinary shares were
listed back on the Nasdaq National Market, where they continue to be traded
under the symbol "VOCL".
Additional factors that could cause the market price of our stock to
further decrease significantly include the loss of any of our major customers
or key personnel, new product developments or enhancements by our competitors,
sales of our securities by our shareholders, quarterly fluctuations in actual
or anticipated operating results, continued significant operating losses,
market conditions in the industry, analysts reports, announcements by
competitors, regulatory actions or other events or factors, including the risk
factors described herein and general economic conditions. In the past,
following decreases or volatility in the market price of a company's
securities, securities class action litigation has often been instituted. Such
litigation could result in substantial costs and a diversion of management's
attention and resources, which would have a material adverse effect on our
business, operating results and financial condition.
WE ARE SUBJECT TO STRONG COMPETITION. GREATER MARKET DEMAND AND
ACCEPTANCE OF OUR COMPETITORS' PRODUCTS AND TECHNOLOGY COULD RESULT IN REDUCED
REVENUES OR GROSS MARGINS.
The competition in the VoIP communications market is very strong. Our
competitors include telecommunications companies, data communication companies
and pure voice over IP companies. Almost all of our competitors are larger than
we are, and can offer more comprehensive solutions either on their own or by
partnering with others. In addition, many of our competitors have greater name
recognition, larger installed customer bases, broader product offerings, and
significantly greater financial, technical and marketing resources than we do.
Such competition may result in a reduction in prices. Even if we reduce the
prices of our products, there can be no assurance that we will be able to
successfully launch our new products, or compete successfully and effectively
for deals against other companies' product offerings. Furthermore, if we reduce
our prices below current levels due to the competition, our operating losses
may increase and we may be unable to maintain revenues and gross margins.
We expect that additional companies will compete in the packet based
voice networks market. In the future, we may also develop and introduce other
products with new or additional telecommunications capabilities or services. As
a result of any such development or introductions, we may compete directly with
traditional telecommunications infrastructure and service providers. Additional
competitors may include companies that currently provide computer software
products and services, such as telephone, media, and cable television. The
ability of some of our competitors to bundle other enhanced services and other
products with VoIP products could give these competitors an advantage over us.
OUR COSTS OF SALES HAVE INCREASED AND ARE EXPECTED TO CONTINUE
INCREASING DUE TO INCREASED COMPETITION, AND THE PROVISIONING OF TURNKEY
SOLUTIONS. THIS HAS AND WILL CONTINUE TO NEGATIVELY IMPACT OUR OPERATING
MARGINS.
During the past few years, our costs of sales have increased due to
the higher costs of the hardware components contained in our solutions.
Further, most of our customers and potential customers are demanding end-to-end
turnkey solutions consisting of all necessary hardware and software for their
VoIP communications solutions. Accordingly, we purchase hardware components,
such as servers and circuit boards to integrate into our solutions from a small
number of manufacturers some of which may not always have sufficient quantities
of inventory available to timely fill our orders. We also rely on partial
outsourcing for the integration and assembly of our turnkey solutions.
IF WE ARE UNABLE TO MAINTAIN OUR RELATIONSHIPS WITH OUR SUPPLIERS, OR
IF OUR SUPPLIERS' BUSINESSES ARE ADVERSELY AFFECTED BY DEVELOPMENTS UNRELATED
TO US, OUR SALES COULD BE HARMED.
We are dependent on a number of suppliers for the manufacture, supply
and support of hardware components that are integrated into our solutions. We
do not have long-term contracts with some of our suppliers and integrators, and
they are not obligated to provide us with products or services for any
specified period of time. If any of our hardware manufacturers or integrators
cease production, cease operations or fail to make timely delivery of orders,
we may not be able to meet our delivery obligations to our customers, and may
lose revenues and suffer damage to our customer relationships. The need to
stock up on such components would increase our inventories and costs of sales,
and would negatively impact our gross margins. In addition, increased inventory
levels may result in obsolete inventory if such inventory was not sold. Any
continuation or intensification of these trends would negatively affect our
results of operations and could delay or prevent us from achieving
profitability.
POLITICAL, ECONOMIC AND MILITARY CONDITIONS IN DOMESTIC OR FOREIGN
LOCATIONS, INCLUDING ISRAEL, COULD NEGATIVELY IMPACT OUR BUSINESS.
Significant portions of our operations are conducted outside the
United States, and our principal offices and research and development
facilities are located in the State of Israel. Although virtually all of our
sales currently are made to customers outside Israel, we are nonetheless
directly influenced by the political, economic, military and other conditions
in and around Israel and in other countries in which our business is located or
in which our products are sold. In addition, any major hostilities involving
Israel or the interruption or curtailment of trade between Israel and its
present trading partners could have a material adverse effect on our business,
financial conditions or results of operations.
The general state of political and economic instability in the Middle
East has adversely affected security and economic conditions in Israel.
Throughout the years, Israel experienced hostilities with its Arab neighbors,
and several Arab countries still restrict business with Israeli companies.
Since October 2000, there has been a significant increase in hostility and
violence between Israel and the Palestinians.
It is possible that the situation may deteriorate further and may
impact our operations in Israel. There can be no assurance that ongoing or
revived hostilities or other events related to Israel will not have a material
adverse effect on us or on our business. In addition, we could be adversely
affected by restrictive laws or policies directed towards Israel and Israeli
businesses.
WE EXTEND CREDIT TO CUSTOMERS FOR PURCHASES OF OUR PRODUCTS AND MAY
NOT BE ABLE TO COLLECT ACCOUNTS RECEIVABLE.
A portion of our receivables result from credit extended to customers
for purchases of our products. There can be no assurance that any of our
accounts receivable will be completely collected. Any failure in the collection
of accounts receivables will adversely affect our cash flow position and will
result in decreased revenues.
SOME OF OUR DIRECTORS, OFFICERS AND EMPLOYEES ARE OBLIGATED TO PERFORM
MILITARY RESERVE DUTY.
Some of our Israeli directors, and many of our Israeli male officers
and employees, are currently obligated to perform up to 36 days of annual
reserve duty. Additionally, all such persons are subject to being called to
active duty at any time under emergency circumstances. We have operated
effectively under these requirements since we began operations. No assessment
can be made, however, as to the full impact of these requirements on our
workforce or business if conditions should change, and we cannot predict the
effect on us of any expansion or reduction of these obligations.
UNDETECTED ERRORS OR DEFECTS IN OUR PRODUCTS COULD INCREASE OUR COSTS
AND HARM OUR BUSINESS.
Products offered by us may contain undetected errors or defects when
first introduced or as new versions are released. The introduction of products
with reliability, quality or compatibility problems could result in reduced
revenues and orders, uncollectible accounts receivable, delays in collecting
accounts receivable and additional costs. There can be no assurance that,
despite testing by us or by our customers, errors will not be found in our
products after commencement of commercial deployment. Errors of this sort could
result in product redevelopment costs and loss of market demand, delay in
market acceptance, loss of revenues, loss of market share, loss of potential
new customers, and increased warranty and maintenance costs. In addition, there
can be no assurance that we will not experience significant product returns in
the future. Any such event could have a material adverse effect on our
business, financial condition or results of operations.
WE ARE DEPENDENT UPON THE CONTINUED EMPLOYMENT OF KEY PERSONNEL.
Our future success depends to a significant extent upon the continued
active participation of Dr. Elon Ganor, our Chairman of the Board of Directors
and Chief Executive Officer. The loss of his services could have a material
adverse effect on our business. In addition to Dr. Ganor, the success of our
company depends upon the continued services of our senior executive officers.
These officers, including Dr. Ganor, are not bound by employment agreements for
any specific term. The loss of the services of any of our officers may
adversely affect the development and sales of our products, and the management
of our company. Our future is also dependent upon our continuing ability to
attract and retain highly qualified personnel and key engineers, to perform
research and development, commercialize products, and perform the sales and
marketing functions required to bring these products to the market. There can
be no assurance that we will continue to attract and retain such personnel.
OUR INTERNATIONAL OPERATIONS EXPOSE US TO THE RISKS INHERENT IN
CONDUCTING BUSINESS IN INTERNATIONAL MARKETS.
A substantial portion of our sales are in international markets. There
are certain risks inherent in conducting business in international markets,
including unexpected changes in regulatory requirements, export restrictions,
homologation certifications, tariffs and other trade barriers, difficulties in
staffing and managing foreign operations, longer payment cycles,
credit-worthiness of potential customers, and political instability, all of
which can adversely impact the success of our international operations. There
can be no assurances that one or more of such factors will not have a material
adverse effect on our international operations and, consequently, on our
business, financial condition or results of operations.
WE MAY BE UNABLE TO ADEQUATELY PROTECT OUR PROPRIETARY RIGHTS, WHICH
MAY LIMIT OUR ABILITY TO COMPETE EFFECTIVELY.
Our success is dependent, to a certain extent, upon our proprietary
technology. We currently rely on a combination of trade secret, patent,
copyright and trademark law, together with non-disclosure, contractual
licensing restrictions, and invention assignment agreements, to establish and
protect the proprietary rights and technology used in our products. There can
be no assurance, however, that such measures will provide commercially
significant protection for our proprietary technology, that competitors will
not develop products with features based upon, or otherwise similar to, our
products or that we will be able to prevent competitors from selling similar
products.
In addition, the software market has traditionally experienced
widespread unauthorized reproduction of products in violation of manufacturers'
intellectual property rights. Such activity is difficult to detect and legal
proceedings to enforce the manufacturers' intellectual property rights are
often burdensome and involve a high degree of uncertainty and costs.
Unauthorized use and reproduction of the registration codes contained in our
various software products has occurred from time to time and may continue to
occur in the future. There can be no assurance that our software products will
not experience unauthorized use or reproduction on a massive scale, which will
adversely affect our business, financial condition and results of operations.
LITIGATION AND OTHER DISPUTES REGARDING OUR INTELLECTUAL PROPERTY
COULD PROVE COSTLY AND THEREBY ADVERSELY IMPACT OUR FINANCIAL POSITION AND
COULD ALSO RESULT IN AN INJUNCTION OR JUDGMENT AGAINST US, WHICH COULD
ADVERSELY AFFECT OUR BUSINESS.
Third parties have asserted patent infringement and other claims
against us from time to time. A number of these claims were directed at certain
basic and fundamental components of our products. There can be no assurance
that third parties will not assert such claims against us in the future or that
such present and future claims will not be successful. Patents relating to
basic technologies in the communications and multimedia areas have been
recently allowed and patents may be filed in the future which relate to basic
technologies incorporated in our products. We would incur substantial costs and
would experience diversion of management resources with respect to the defense
of any claims relating to proprietary rights, and this could have a material
adverse effect on our business, financial condition and results of operations.
Furthermore, parties making such claims could secure a judgment awarding
substantial damages, as well as injunctive or other equitable relief which
could effectively block our ability to make, use, sell, distribute or otherwise
license our products in the United States or abroad. Such a judgment could have
a material adverse effect on our business, financial condition and results of
operations. Litigation, which is generally costly and time consuming, may be
necessary to determine the scope and validity of others' proprietary rights or
to enforce any patents issued to us, in judicial or administrative proceedings.
In the event a claim relating to proprietary technology or information is
asserted against us, we may seek licenses for such intellectual property. There
can be no assurance, however, that licenses could be obtained on commercially
reasonable terms, if at all, or that the terms of any offered licenses will be
acceptable to us. The failure to obtain the necessary licenses or other rights
could preclude the sale, manufacture or distribution of our products and,
therefore, could have a material adverse effect on our business, financial
condition or results of operations. The cost of responding to any such claim
may be material, whether or not the assertion of such claim is valid.
IF WE ARE UNABLE TO MAINTAIN OUR RELATIONSHIPS WITH OUR DISTRIBUTORS,
OR IF OUR DISTRIBUTORS' BUSINESSES ARE ADVERSELY AFFECTED BY DEVELOPMENTS
UNRELATED TO US, OUR SALES COULD BE HARMED.
Our marketing strategy includes sales through distributors and
resellers, as well as direct sales by our own sales force. There is no
assurance that we will be successful in extending the terms of our various
agreements or in establishing similar relationships with other entities if our
current agreements are not extended, and changes in our relationships with our
suppliers, distributors, value added resellers and agents, or other changes to
their respective businesses could have a material adverse effect on our
business, financial condition or results of operations.
ANY FUTURE MERGERS WITH OR ACQUISITIONS OF COMPANIES OR TECHNOLOGIES
AND THE RESULTANT INTEGRATION PROCESS MAY DISTRACT OUR MANAGEMENT AND DISRUPT
OUR BUSINESS.
One of our business strategies is to pursue strategic partnerships,
alliances, mergers and/or acquisitions of complementary businesses, products
and technologies. Pursuit of such strategies requires significant investments
in management time and attention.
We have no current understandings, commitments or agreements with
respect to any mergers or acquisitions. However, mergers with or acquisitions
of companies involve a number of risks including the difficulty of assimilating
the operations and personnel of the merged or acquired companies and of
maintaining uniform standards, controls and policies. There can be no assurance
that technology or rights acquired by us will be incorporated successfully into
products we introduce or market, that such products will achieve market
acceptance or that we will not encounter other problems in connection with such
acquisitions. If we consummate one or more significant acquisitions in which
the consideration consists of ordinary shares, shareholders would suffer
significant dilution of their interests in us.
OUR PRINCIPAL SHAREHOLDERS, INCLUDING OUR EXECUTIVE OFFICERS AND
DIRECTORS, ARE ABLE TO INFLUENCE MATTERS REQUIRING SHAREHOLDER APPROVAL.
As of March 30, 2004, our principal shareholders, including our
directors and certain executive officers, beneficially owned more than 30.6% of
our outstanding ordinary shares. As a result, such shareholders together have
the ability to significantly influence the election of our directors and most
corporate actions.
CERTAIN PROVISIONS OF OUR ARTICLES OF ASSOCIATION AND ISRAELI LAW
COULD DELAY, HINDER OR PREVENT A CHANGE IN OUR CONTROL.
Our articles of association contain provisions that could make it more
difficult for a third party to acquire control of us, even if that change would
be beneficial to our shareholders. Specifically, our articles of association
provide that our board of directors is divided into three classes, each serving
three-year terms. In addition, certain provisions of the Israeli Companies Law,
which came into effect in February 2000, could also delay or otherwise make
more difficult a change in our control.
OUR UNITED STATES INVESTORS COULD SUFFER ADVERSE TAX CONSEQUENCES IF
WE ARE CHARACTERIZED AS A PASSIVE FOREIGN INVESTMENT COMPANY.
Depending on various factors, we could be characterized, for United
States income tax purposes, as a passive foreign investment company, or PFIC.
Such characterization could result in adverse United States tax consequences to
any beneficial owner of our ordinary shares who, for United States federal
income tax purposes, is (i) a citizen or resident of the United States, (ii) a
corporation or partnership (or other entity or arrangement treated as a
corporation or partnership) organized in or under the laws of the United States
or any state thereof or the District of Columbia, (iii) an estate the income of
which is subject to United States federal income taxation regardless of source,
or (iv) a trust, if a United States court is able to exercise primary
supervision over its administration and one or more United States persons have
the authority to control all of its substantial decisions or a trust that was
in existence on August 10, 1996 and validly elected to continue to be treated
as a domestic trust. Our status as a PFIC could cause, among other things, any
gain recognized on the sale or disposition of our ordinary shares to be treated
as ordinary income for persons that meet one of the criteria set forth in
clauses (i) through (iv). Although we do not believe that we have been a PFIC
for any tax year through and including 2003, we may be deemed to have been a
PFIC by the United States Internal Revenue Service during 2001 and 2002 as a
result of our substantial holdings of cash, cash equivalents and securities
combined with a decline in our share price. Furthermore, even if we have not
been a PFIC in past years, there can be no assurance that we will not be a PFIC
in the future.
THE TAX AND OTHER BENEFITS AVAILABLE TO US FROM ISRAELI GOVERNMENT
PROGRAMS MAY BE DISCONTINUED OR REDUCED AT ANY TIME, WHICH WOULD LIKELY
INCREASE OUR TAXES IN THE LONG TERM AND OUR NET RESEARCH AND DEVELOPMENT
EXPENSES.
We benefit from certain tax and other benefits, particularly as a
result of the "Approved Enterprise" status of certain existing facilities and
approved programs from the Government of Israel. In addition, we benefit from
participation by the Office of the Chief Scientist of the State of Israel in
research and development projects. To be eligible for these participations and
tax benefits, we must continue to meet certain conditions, including, with
respect to the tax benefits, making certain specified investments in fixed
assets. There can be no assurance that such participations and tax benefits
will be continued at their current levels or otherwise. The termination or
reduction of certain tax benefits (particularly benefits available to us as a
result of the "Approved Enterprise" status of certain of our existing
facilities and approved programs) could have a material adverse effect on our
business, financial condition or results of operations. The termination or
reduction of the participation of the Chief Scientist in research and
development projects could increase our net research and development expenses
or limit or terminate certain research and development projects.
WE MAY BE ADVERSELY AFFECTED IF THE RATE OF INFLATION IN ISRAEL
EXCEEDS THE RATE OF DEVALUATION OF THE NEW ISRAELI SHEKEL (NIS) AGAINST THE
DOLLAR.
A significant portion of our sales are made outside of Israel in
dollars and we incur a significant portion of our expenses in NIS. The cost of
our operations in Israel, as expressed in dollars, is influenced by the extent
to which any increase in the rate of inflation is not offset by the devaluation
of the NIS in relation to the dollar. During the calendar years 2001, 2002 and
2003 the annual rate of inflation (deflation) was 1.4%, 6.5% and -1.9%
respectively. In 2001 and 2002, the NIS was devalued against the dollar by
approximately 9.3% and 7.3% and appreciated against the dollar by 7.6% in 2003.
As of March 25, 2004, the rate of inflation for 2004 was 0%, and the NIS
depreciated by approximately 3.3%. Although to date we have not purchased
forward currency options to decrease our exchange rate risk, we may do so in
the future, to the extent we deem it advisable.
SERVICE AND ENFORCEMENT OF LEGAL PROCESS ON US AND OUR DIRECTORS AND
OFFICERS MAY BE DIFFICULT TO OBTAIN.
Service of process upon our non-U.S. directors and officers may be
difficult to obtain within the United States. Furthermore, any judgment
obtained in the United States against us or these individuals may not be
collectible within the United States. There is doubt as to the enforceability
of civil liabilities under the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended, in original actions instituted in
Israel. However, subject to certain time limitations and other conditions,
Israeli courts may enforce final judgments of United States courts for
liquidated amounts in civil matters, including judgments based upon the civil
liability provisions of the Securities Act and the Exchange Act.
COMMUNICATIONS AUTHORITIES MAY IMPOSE CHARGES, CONTRIBUTION AND OTHER
COMMON CARRIER REGULATIONS ON IP TELEPHONY PROVIDERS.
To date, neither the Federal Communications Commission, or the FCC,
state communications authorities, nor the communications authorities of other
countries have subjected IP telephony providers or VoIP solutions providers to
the regulations that apply to long distance telecommunications carriers. At
this time it is uncertain whether or to what extent the FCC, state
communications authorities, or the communications authorities of other
countries will impose access charges, universal service contributions, and
other common carrier regulations on IP telephony providers or to VoIP solutions
providers. There can be no assurance that future action by the FCC or other
communications authorities will not have an impact on us, directly or
indirectly.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form F-3 under
the Securities Act, with respect to the securities offered by this prospectus.
However, as is permitted by the rules and regulations of the SEC, this
prospectus, which is part of our registration statement on Form F-3, omits
certain non-material information, exhibits, schedules and undertakings set
forth in the registration statement. For further information about us, and the
securities offered by this prospectus, please refer to the registration
statement.
We are subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended, or the Exchange Act, that are applicable to a
foreign private issuer. In accordance with the Exchange Act, we file reports,
including annual reports on Form 20-F by June 30 of each year. We also furnish
to the SEC under cover of Form 6-K material information required to be made
public in Israel, filed with and made public by any stock exchange or
distributed by us to our shareholders.
The registration statement on Form F-3 of which this prospectus forms
a part, including the exhibits and schedules thereto, and reports and other
information filed by us with the SEC may be inspected without charge and copied
at prescribed rates at the SEC's Public Reference Room at 450 Fifth Street,
NW., Washington, D.C. 20549. Copies of this material are also available by mail
from the Public Reference Section of the SEC, at 450 Fifth Street, N.W.,
Washington D.C. 20549, at prescribed rates. The public may obtain information
on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy
and information statements, and other information regarding issuers, such as
us, that file electronically with the SEC (http://www.sec.gov).
As a foreign private issuer, we are exempt from the rules under the
Exchange Act prescribing the furnishing and content of proxy statements to
shareholders. In addition, our officers, directors and principal shareholders
are exempt from the "short-swing profits" reporting and liability provisions
contained in Section 16 of the Exchange Act and related Exchange Act rules.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we
file with or submit to it, which means that we can disclose important
information to you by referring to those documents. The information
incorporated by reference is considered to be part of this prospectus, and
later information filed with or submitted to the SEC will update and supersede
this information. We incorporate by reference into this prospectus the
documents listed below:
(a) Our annual report on Form 20-F for the fiscal year ended
December 31, 2003, filed with the SEC on April 2, 2004 (SEC File
No. 2-0-27648);
(b) Our current reports on Form 6-K, submitted to the SEC on January
29, 2004 and March 11, 2004; and
(c) The description of our ordinary shares contained in our
registration statement on Form 8-A (SEC File No. 0-27648), filed
with the SEC on January 29, 1996, and any amendment or report
filed for the purpose of updating such description.
In addition, all subsequent annual reports on Form 20-F, Form 40-F or
10-K, and all of our subsequent filings on Form 10-Q and 8-K filed by us
pursuant to the Exchange Act, prior to the termination of the offering, and any
reports on Form 6-K subsequently submitted to the SEC or portions thereof that
we specifically identify in such forms as being incorporated by reference into
the registration statement of which this prospectus forms a part, shall be
considered to be incorporated into this prospectus by reference and shall be
considered a part of this prospectus from the date of filing or submission of
such documents.
As you read the above documents, you may find inconsistencies in
information from one document to another. If you find inconsistencies between
the documents and this prospectus, you should rely on the statements made in
the most recent document.
We will deliver to each person (including any beneficial owner) to
whom this prospectus has been delivered a copy of any or all of the information
that has been incorporated by reference into this prospectus but not delivered
with this prospectus. We will provide this information upon written or oral
request, and at no cost to the requester. Requests should be directed to:
VocalTec Communications Ltd.
2 Maskit Street, Herzlia Pituach
Israel 46733
Tel.: (+972) 9-970-7800
Fax: (+972) 9-956-1867
Attn.: Terry Gerstner, Adv.
General Counsel
FORWARD-LOOKING STATEMENTS
This prospectus contains or incorporates historical information and
forward-looking statements within the meaning of the federal securities laws.
Statements looking forward in time are included in this prospectus pursuant to
the "safe harbor" provision of the private securities litigation reform act of
1995. They involve known and unknown risks and uncertainties that may cause our
actual results in future periods to be materially different from any future
performance suggested herein, including all of the risks and uncertainties
discussed under "Risk Factors" and elsewhere in this prospectus. Future events
and actual results could differ materially from those set forth in,
contemplated by or underlying the forward-looking statements and you should
therefore not rely on these forward-looking statements, which are applicable
only as of the date hereof.
We urge you to consider that statements that use the terms "believe,"
"do not believe," "expect," "plan," "intend," "estimate," "anticipate,"
"project" and similar expressions are intended to identify forward-looking
statements. These statements reflect our current views with respect to future
events and are based on assumptions and are subject to risks and uncertainties.
Our actual results may differ materially from the results discussed in
forward-looking statements. Factors that could cause our actual results to
differ materially include, but are not limited to, those discussed above under
"Risk Factors", elsewhere in this prospectus and in the documents we have
incorporated by reference.
Except as required by applicable law, including the securities laws of
the U.S., we do not intend to update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise and we
disclaim any obligation to publicly revise any such statements to reflect any
change in expectations or in events, conditions, or circumstances on which any
such statements may be based.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the ordinary shares
by the selling shareholders in this offering. If the warrants are exercised in
full, we would realize proceeds, before expenses in the amount of $5,700,000.
The net proceeds of the exercise of the warrants will be used for working
capital and general corporate purposes.
SELLING SHAREHOLDERS
The selling shareholders, including their transferees, pledgees,
donees or any of their successors in interest may, from time to time, offer and
sell the ordinary shares covered by this prospectus. The ordinary shares and
the warrants to purchase ordinary shares were issued to the selling
shareholders pursuant to the transaction described above under "The Offering."
On March 11, 2004, we completed a private placement transaction in
which we issued 2,400,000 of our ordinary shares at an aggregate purchase price
of $9.8 million ($9.3 million net of expenses), or $4.10 per ordinary share, as
well as warrants to purchase up to 1,200,000 of our ordinary shares at an
exercise price of $4.75 per share. The warrants are exercisable for four and a
half years, beginning on September 12, 2004.
Pursuant to the terms of the securities purchase agreement, we agreed
to prepare and file with the SEC, not later than April 9, 2004, a registration
statement on Form F-3, to enable the resale by the selling shareholders from
time to time on Nasdaq of the shares issued to the selling shareholders and the
sale of the shares underlying the warrants issued to the selling shareholders
as described above. We also agreed to use all commercially reasonable efforts
to cause such registration statement, among other things, to remain
continuously effective until the earlier of (i) the second anniversary of the
effective date of the registration statement, (ii) the date on which all of the
shares issued and shares underlying warrants issued to the selling shareholders
as described above have been sold hereunder or (iii) the date on which all of
the shares issued and shares underlying warrants issued to the selling
shareholders as described above can be sold by holders thereof pursuant to Rule
144(k) promulgated under the Securities Act.
The selling shareholders agreed that they will not offer to sell or
make any sale, assignment, pledge, hypothecation or other transfer with respect
to the shares issued and shares underlying warrants issued to the selling
shareholders as described above that would constitute a sale within the meaning
of the Securities Act, except pursuant to either (i) an effective registration
statement, (ii) Rule 144 promulgated under the Securities Act or (iii) any
other exemption from registration under the Securities Act.
The following table presents information with respect to the
beneficial ownership of our ordinary shares by each selling shareholder and the
number of shares that may be offered for sale pursuant to this prospectus by
each such selling shareholder. This information was compiled from information
provided to us by or on behalf of the selling shareholders with respect to
their holdings as of March 10, 2004. The amounts set forth may have increased
or decreased since the date such information was provided. Our registration of
these shares does not necessarily mean that the selling shareholders will sell
any or all of the registered shares. Since the selling shareholders may sell
all or part of their shares and such offerings are not being underwritten on a
firm commitment basis, no estimate can be given as to the number of shares that
will be held by any selling shareholder upon termination of any offering made
hereby.
--------------------------------------- ---------------------------- ----------------------------- --------------------
Number of Shares Percent of Outstanding
Name and Address of Selling beneficially owned prior Shares prior to the Number of Shares
Shareholder to the Offering(1) Offering (2) to be Offered(3)
--------------------------------------- ---------------------------- ----------------------------- --------------------
Longview Equity Fund, LP 207,000 1.4% 310,500
25 Longview Court
Hillsborough, CA 94010
--------------------------------------- ---------------------------- ----------------------------- --------------------
Longview International Equity Fund, LP 69,000 0.5% 103,500
c/o Redwood Grove Capital Management, LLC
25 Longview Court
Hillsborough, CA 94010
--------------------------------------- ---------------------------- ----------------------------- --------------------
Longview Fund, LP 122,000 0.8% 183,000
13235 Howard Avenue
Burlingame, CA 94010
--------------------------------------- ---------------------------- ----------------------------- --------------------
Gamma Opportunity Capital Partners, L.P. 122,000 0.8% 183,000
605 Crescent Executive Court
Building Three, Suite 416
Lake Mary, FL 32746
--------------------------------------- ---------------------------- ----------------------------- --------------------
Heartland Value Fund 445,000 2.9% 667,500
789 North Water Street, Suite 500
Milwaukee, WI 53202
--------------------------------------- ---------------------------- ----------------------------- --------------------
SF Capital Partners Ltd. 250,000 1.7% 375,000
3600 S. Lake Drive
St. Francis, WI 53235
--------------------------------------- ---------------------------- ----------------------------- --------------------
Deutsche Bank Securities Inc. 200,000 1.3% 300,000
60 Wall Street
New York, NY 10005
--------------------------------------- ---------------------------- ----------------------------- --------------------
Deephaven Small Cap Growth Fund LLC 175,000 1.2% 262,500
130 Cheshire Lane, Suite 102
Minnetonka, MN 55305
--------------------------------------- ---------------------------- ----------------------------- --------------------
Castle Creek Technology Partners LLC 100,000 0.7% 150,000
111 West Jackson Blvd., Suite 2020
Chicago, IL 60604
--------------------------------------- ---------------------------- ----------------------------- --------------------
RHP Master Fund Ltd. 100,000 0.7% 150,000
c/o Rock Hill Investment Management,
L.P.
3 Bala Plaza East, Suite 585
Bala Cynwyd, PA 19004
--------------------------------------- ---------------------------- ----------------------------- --------------------
Manuel A. Villafana 10,000 0.07% 15,000
c/o Perkins Capital Management
730 E. Lake Street
Wayzata, MN 55391
--------------------------------------- ---------------------------- ----------------------------- --------------------
Piper Jaffray as custodian FBO James 10,000 0.07% 15,000
B. Wallace SPN/PRO
c/o Perkins Capital Management
730 E. Lake Street
Wayzata, MN 55391
--------------------------------------- ---------------------------- ----------------------------- --------------------
Donald O. & Janet M. Voight TTEE's 10,000 0.07% 15,000
FBO Janet M. Voight TR u/a dtd 8/29/96
c/o Perkins Capital Management
730 E. Lake Street
Wayzata, MN 55391
--------------------------------------- ---------------------------- ----------------------------- --------------------
Daniel B. and Linda O. Ahlberg JTWROS 10,000 0.07% 15,000
c/o Perkins Capital Management
730 E. Lake Street
Wayzata, MN 55391
--------------------------------------- ---------------------------- ----------------------------- --------------------
Alice Ann Corporation 10,000 0.07% 15,000
C/o Perkins Capital Management
730 E. Lake Street
Wayzata, MN 55391
--------------------------------------- ---------------------------- ----------------------------- --------------------
David C/Carole A Brown TTEE's FBO 10,000 0.07% 15,000
David C/Carole A Brown Rev TR u/a dtd
10/23/97
c/o Perkins Capital Management
730 E. Lake Street
Wayzata, MN 55391
--------------------------------------- ---------------------------- ----------------------------- --------------------
John T. Potter 10,000 0.07% 15,000
c/o Perkins Capital Management
730 E. Lake Street
Wayzata, MN 55391
--------------------------------------- ---------------------------- ----------------------------- --------------------
E. Terry Skone 10,000 0.07% 15,000
c/o Perkins Capital Management
730 E. Lake Street
Wayzata, MN 55391
--------------------------------------- ---------------------------- ----------------------------- --------------------
Basso Equity Opportunity Holding Fund 30,000 0.2% 45,000
Ltd.
c/o Basso Capital Management, L.P.
1266 East Main Street, 4th Floor
Stamford, CT 06902
--------------------------------------- ---------------------------- ----------------------------- --------------------
Basso Multi-Strategy Holding Fund 40,000 0.3% 60,000
Ltd.
c/o Basso Asset Management, L.P.
1266 East Main Street, 4th Floor
Stamford, CT 06902
--------------------------------------- ---------------------------- ----------------------------- --------------------
DKR SoundShore Strategic Holding Fund 30,000 0.2% 45,000
Ltd.
c/o DKR Capital Partner, L.P.
1281 East Main Street, 4th Floor
Stamford, CT 06902
--------------------------------------- ---------------------------- ----------------------------- --------------------
Vertical Ventures, LLC 100,000 0.7% 150,000
641 Lexington Avenue, 26th Floor
New York, NY 10022
--------------------------------------- ---------------------------- ----------------------------- --------------------
Kensington Partners L.P. 80,792 0.5% 121,188
200 Park Avenue, Suite 3900
New York, NY 10166
--------------------------------------- ---------------------------- ----------------------------- --------------------
Bald Eagle Fund Ltd. 4,208 0.03% 6,312
200 Park Avenue, Suite 3900
New York, NY 10166
--------------------------------------- ---------------------------- ----------------------------- --------------------
C.E. Unterberg, Towbin Capital 50,000 0.34% 75,000
Partners I, L.P.
c/o C.E. Unterberg, Towbin
350 Madison Avenue
New York, NY 10017
--------------------------------------- ---------------------------- ----------------------------- --------------------
Portside Growth and Opportunity Fund 50,000 0.34% 75,000
c/o Ramius Capital Group, LLC
666 Third Avenue, 26th Floor
New York, NY 10017
--------------------------------------- ---------------------------- ----------------------------- --------------------
Crown Investment Partners, LP 50,000 0.34% 75,000
540 Maryvill Centre Dr., Ste. 120
St. Louis, MO 63141
--------------------------------------- ---------------------------- ----------------------------- --------------------
Senvest Israel Partners LP 40,000 0.3% 60,000
680 Fifth Avenue, Suite 1300
New York, NY 10019
--------------------------------------- ---------------------------- ----------------------------- --------------------
David I. Goodfriend 2,000 0.01% 3,000
10 Camelot Drive
Livingston, NJ 07039
--------------------------------------- ---------------------------- ----------------------------- --------------------
Amnon Mandelbaum 18,000 0.1% 27,000
345 East 94th Street, Apt. 14A
New York, NY 10128
--------------------------------------- ---------------------------- ----------------------------- --------------------
F. Berdon Co. LP 15,000 0.1% 22,500
717 Post Road, Suite 105
Scarsdale, NY 10577
--------------------------------------- ---------------------------- ----------------------------- --------------------
Covenant Capital, L.L.C. 15,000 0.1% 22,500
350 California Street, Suite 1750
San Francisco, CA 94104
--------------------------------------- ---------------------------- ----------------------------- --------------------
Nicusa Capital Partners, LP 5,000 0.03% 7,500
20 Exchange Place, 38th Floor
New York, NY 10005
--------------------------------------- ---------------------------- ----------------------------- --------------------
(1) Based upon the information provided to us by or on behalf of the selling
shareholders, none of the selling shareholders held any ordinary shares other
than those issued by us in the private placement transaction described above.
(2) Based on 14,887,899 ordinary shares outstanding as of March 30, 2004.
(3) Includes the 1,200,000 ordinary shares issuable upon the exercise of the
warrants issued to the selling shareholders in the private placement
transaction, which warrants will not become exercisable until September 12,
2004. For each selling shareholder, the number of ordinary shares issuable
upon the exercise of its warrant is equal to 50% of the ordinary shares issued
to such selling shareholder in the private placement transaction.
PLAN OF DISTRIBUTION
The selling shareholders may sell, directly or through brokers, the
ordinary shares offered hereby in one or more transactions at fixed prices, at
market prices at the time of sale, at varying prices determined at the time of
sale or at negotiated prices, subject to the limitations and restrictions set
forth below.
Although none of the selling shareholders has advised us of the manner
in which such selling shareholder currently intends to sell ordinary shares
offered hereby, the selling shareholders may choose to sell all or a portion
(or none) of such shares from time to time in one or more of the following
transactions:
o On any national securities exchange or quotation service on
which the ordinary shares may be listed or quoted at the time of
sale, including the Nasdaq National Market;
o In the over-the-counter market;
o In private transactions;
o Through options or other derivative instruments;
o By pledge to secure debts or other obligations;
o Through block transactions;
o Any other legally available means; or
o A combination of any of the above transactions.
In addition, any securities covered by this prospectus that qualify
for sale pursuant to Rule 144 under the Securities Act may be sold under Rule
144 rather than pursuant to this prospectus.
Selling shareholders may enter into hedging transactions with
broker-dealers or other financial institutions, which may in turn engage in
short sales of the ordinary shares and deliver the ordinary shares to close out
short positions, or loan or pledge the ordinary shares to broker-dealers that
in turn may sell these securities.
In order to comply with the securities laws of some jurisdictions, if
applicable, the holders of ordinary shares may sell in some jurisdictions
through registered or licensed broker-dealers. If broker-dealers are used in
the sale, unless otherwise indicated in a prospectus supplement with respect to
the securities being offered thereby, the selling security holder will sell
such securities to the broker-dealers as principals. The broker-dealers may
then resell such securities to the public at varying prices to be determined by
such broker-dealers at the time of resale.
Broker-dealers engaged by the selling shareholders may arrange for
other broker-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the selling shareholders (or, if any
broker-dealer acts as agent for the purchaser of shares, from the purchaser) in
amounts to be negotiated. Any profits on the resale of ordinary shares by a
broker-dealer acting as principal might be deemed to be underwriting discounts
or commissions under the Securities Act. Discounts, concessions, commissions
and similar selling expenses, if any, attributable to the sale of shares will
be borne by a selling shareholder. The selling shareholders may agree to
indemnify any agent, dealer or broker-dealer that participates in transactions
involving sales of the shares if liabilities are imposed on that person under
the Securities Act.
The selling shareholders may from time to time pledge or grant a
security interest in some or all of the ordinary shares owned by them and, if
they default in the performance of their secured obligations, the pledgees or
secured parties may offer and sell the ordinary shares from time to time under
this prospectus after we have filed an amendment to this prospectus under Rule
424(b)(3) or other applicable provision of the Securities Act amending the list
of selling shareholders to include the pledgee, transferee or other successors
in interest as selling shareholders under this prospectus.
The selling shareholders also may transfer the ordinary shares in
other circumstances, in which case the transferees, pledgees or other
successors in interest will be the selling beneficial owners for purposes of
this prospectus and may sell the ordinary shares from time to time under this
prospectus after we have filed an amendment to this prospectus under Rule
424(b)(3) or other applicable provision of the Securities Act amending the list
of selling shareholders to include the pledgee, transferee or other successors
in interest as selling shareholders under this prospectus.
In connection with such sales, the selling shareholders and any
participating broker may be deemed to be "underwriters" of the shares within
the meaning of Section 2(11) of the Securities Act, although the offering of
these securities may not be underwritten by a broker-dealer firm. If a selling
shareholder qualifies as an "underwriter" under the Securities Act and the
rules and regulations and interpretations thereunder, such selling shareholder
will be subject to the prospectus delivery requirements of the Act. Such
broker-dealers may receive compensation in the form of underwriting discounts,
concessions or commissions from the selling shareholders. Any such commissions
and profits realized on any resale of the shares might be deemed to be
underwriting discounts and commissions under the Securities Act. Sales in the
market may be made to broker-dealers making a market in the ordinary shares or
other broker-dealers, and such broker-dealers, upon their resale of such
securities, may be deemed to be underwriters in this offering.
The selling shareholders have agreed that they will not offer to sell
or make any sale, assignment, pledge, hypothecation or other transfer with
respect to the shares issued and shares underlying warrants issued to the
selling shareholders as described above that would constitute a sale within the
meaning of the Securities Act, except pursuant to either (i) an effective
registration statement, (ii) Rule 144 promulgated under the Securities Act or
(iii) any other exemption from registration under the Securities Act.
The selling shareholders have also agreed that, upon the happening of
any pending corporate development, public filing with the SEC or similar event,
that, in the judgment of our board of directors, renders it advisable to
suspend the use of this prospectus or upon the request by an underwriter in
connection with an underwritten public offering of our securities, we may, on
not more than two (2) occasions for not more than thirty (30) days on each such
occasion, suspend the use of this prospectus until a supplemented or amended
prospectus is distributed to the selling shareholders or until the selling
shareholders are advised in writing by us that sales of the shares under the
applicable prospectus may be resumed.
In addition, the selling shareholders have agreed that in the event
of: (i) any request by the SEC or any other federal or state governmental
authority during the registration period of this registration statement for
amendments or supplements to this registration statement or prospectus or for
additional information, (ii) the issuance by the SEC or any other federal or
state governmental authority of any stop order suspending the effectiveness of
this registration statement or the initiation of any proceedings for that
purpose, (iii) the receipt by us of any notification with respect to the
suspension of the qualification or exemption from qualification of any of the
shares issued to such selling shareholder as described above and the ordinary
shares underlying warrants issued to such selling shareholder as described
above for sale in any jurisdiction or the initiation of any proceeding for such
purpose, or (iv) any event or circumstance which necessitates the making of any
changes in this registration statement or prospectus, or any document
incorporated or deemed to be incorporated herein by reference, the selling
shareholders will discontinue disposition of any of the ordinary shares until a
supplemented or amended prospectus is filed by us, or until this prospectus may
be used again.
We have agreed to use all commercially reasonable efforts to cause
this registration statement, among other things, to remain continuously
effective until the earlier of (i) the second anniversary of the effective date
of this registration statement, (ii) the date on which all of the shares issued
and shares underlying warrants issued to the selling shareholders as described
above have been sold hereunder or (iii) the date on which all of the shares
issued and shares underlying warrants issued to the selling shareholders as
described above can be sold by holders thereof pursuant to Rule 144(k)
promulgated under the Securities Act.
We will make copies of this prospectus available to the selling
shareholders and have informed the selling shareholders of the need for
delivery of a copy of this prospectus to each purchaser of the ordinary shares
prior to or at the time of such sale.
The aggregate proceeds to the selling shareholders from the sale of
the ordinary shares will be the purchase price of the ordinary shares less any
discounts and commissions, if applicable. A selling shareholder reserves the
right to accept and, together with its agents, to reject, any proposed purchase
of ordinary shares to be made directly or through agents. We will not receive
any of the proceeds from the resale of these securities by the selling
shareholders. We may, however, receive cash consideration in connection with
the exercise of the warrants for cash.
If required, the ordinary shares to be sold, the names of the selling
shareholders, the respective purchase prices and public offering prices, the
names of any agent, dealer or underwriter, and any applicable commissions or
discounts with respect to a particular offer will be set forth in an
accompanying prospectus supplement or, if appropriate, a post-effective
amendment to the registration statement of which this prospectus is a part.
The selling shareholders and we have agreed to indemnify each other
and our respective controlling persons against, and in certain circumstances to
provide contribution with respect to, specific liabilities in connection with
the offer and sale of the ordinary shares, including liabilities under the
Securities Act. We will pay the expenses incident to the registration of the
ordinary shares, except that the selling shareholders will pay all underwriting
discounts, commissions or fees attributable to the sale of the securities and
will pay the costs of their own counsel.
Each selling shareholder and any other persons participating in a
distribution of securities will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, including, without
limitation, Regulation M, which may restrict certain activities of, and limit
the timing of purchases and sales of securities by, the selling shareholders
and other persons participating in a distribution of securities. Furthermore,
under Regulation M, persons engaged in a distribution of securities are
prohibited from simultaneously engaging in market making and certain other
activities with respect to such securities for a specified period of time prior
to the commencement of such distribution, subject to specified exceptions or
exemptions. All of the foregoing may affect the marketability of the securities
offered hereby.
VALIDITY OF SECURITIES
The validity of the ordinary shares, including the ordinary shares
issuable upon exercise of the warrants, will be passed upon for us by Meitar,
Liquornik, Geva & Leshem, Brandwein, our Israeli counsel.
EXPERTS
The consolidated financial statements of the Company as of December
31, 2003, and for the year ended December 31, 2003, included in the Company's
Annual Report on Form 20-F for the year ended December 31, 2003 and
incorporated by reference in this prospectus and Registration Statement, have
been audited by Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global
as set forth in their report thereon incorporated by reference. The financial
statements referred to above are included in reliance on such reports given on
the authority of such firms as experts in auditing and accounting.
ENFORCEABILITY OF CIVIL LIABILITIES
We have been informed by our legal counsel in Israel, Meitar,
Liquornik, Geva & Leshem, Brandwein, that there is doubt concerning the
enforceability of civil liabilities under the Securities Act and the Exchange
Act in original actions instituted in Israel. However, subject to specified
time limitations, Israeli courts may enforce a United States final executory
judgment in a civil matter, including a monetary or compensatory judgment in a
non-civil matter, obtained after due process before a court of competent
jurisdiction according to the laws of the state in which the judgment is given
and the rules of private international law currently prevailing in Israel. The
rules of private international law currently prevailing in Israel do not
prohibit the enforcement of a judgment by Israeli courts provided that:
o the judgment is enforceable in the state in which it was given;
o adequate service of process has been effected and the defendant
has had a reasonable opportunity to present his arguments and
evidence;
o the judgment and the enforcement of the judgment are not
contrary to the law, public policy, security or sovereignty of
the state of Israel;
o the judgment was not obtained by fraud and does not conflict
with any other valid judgment in the same matter between the
same parties; and
o an action between the same parties in the same matter is not
pending in any Israeli court at the time the lawsuit is
instituted in the foreign court.
We have irrevocably appointed VocalTec Communications Inc. as our
agent to receive service of process in any action against us in any competent
court of the United States arising out of this offering or any purchase or sale
of securities in connection with this offering.
If a foreign judgment is enforced by an Israeli court, it generally
will be payable in Israeli currency, which can then be converted into
non-Israeli currency and transferred out of Israel. The usual practice in an
action before an Israeli court to recover an amount in a non-Israeli currency
is for the Israeli court to issue a judgment for the equivalent amount in
Israeli currency at the rate of exchange in force on the date of the judgment,
but the judgment debtor may make payment in foreign currency. Pending
collection, the amount of the judgment of an Israeli court stated in Israeli
currency ordinarily will be linked to the Israeli consumer price index plus
interest at an annual statutory rate set by Israeli regulations prevailing at
the time. Judgment creditors must bear the risk of unfavorable exchange rates.
VOCALTEC COMMUNICATIONS LTD.
Up to 3,600,000 Ordinary Shares
PROSPECTUS
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