As filed with the Securities and Exchange Commission on September 13, 2004
Registration No. 333-117529
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO 1.
TO
FORM F-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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B.O.S BETTER ONLINE SOLUTIONS LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
ISRAEL NOT APPLICABLE
(STATE OR OTHER JURISDICTION OF INCORPORATION (I.R.S. EMPLOYER
OR ORGANIZATION) IDENTIFICATION NO.)
Beit Rabin, 100 BOS Road
Teradyon Industrial Park,
Misgav, 20179, Israel
(+972) 4-990-7500
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
Corporation Service Company
1133 Avenue of the Americas, Suite 3100
New York, NY 10036
Tel: (212) 299-9100
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
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Copies To:
BRIAN BRODRICK, ESQ. SHLOMO LANDRESS, ADV.
PHILLIPS NIZER LLP AMIT, POLLAK, MATALON & BEN-NAFTALI, EREZ & CO.
666 FIFTH AVENUE NYP TOWER, 17 YITZHAK SADEH STREET
NEW YORK, NEW YORK 10103 TEL AVIV 67775, ISRAEL
(212) 841-0700 972-3-561-5268
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after this registration statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_] _______
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] ________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. NO
SELLING SHAREHOLDER MAY SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO
BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
================================================================================
SUBJECT TO COMPLETION, DATED September 13, 2004
PROSPECTUS
B.O.S BETTER ONLINE SOLUTIONS LTD.
UP TO 1,190,228 ORDINARY SHARES
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The selling shareholders identified in this prospectus, may offer to sell up to
an aggregate of 1,190,228 of our ordinary shares, consisting of the following:
o 357,143 ordinary shares that were issued to two selling shareholders
in a private placement completed on December 14, 2003. The ordinary
shares were issued at a price per share of $2.80. As part of the
transaction, BOS agreed to grant to the selling shareholders certain
incidental registration rights,
o Up to 833,085 ordinary shares issuable upon the conversion of a
convertible note due June 10, 2007 and upon the exercise of a warrant,
both of which were issued by BOS to the a selling shareholder in a
private placement transaction on June 10, 2004 and shares that may be
issued in lieu of cash interest payments on the convertible note.
BOS is filing the registration statement of which this prospectus is a part at
this time primarily to fulfill a contractual obligation to do so, which the
company undertook at the time of the sale of the convertible note and warrant.
Our ordinary shares are traded on the Nasdaq National Market, or NMS, under the
symbol "BOSC" and on the Tel-Aviv Stock Exchange under the symbol "BOSC". On
September 10, 2004, the last reported sale price of our ordinary shares on the
NMS was $1.79 per share. You are urged to obtain current market quotations for
the ordinary shares.
We will not receive any of the proceeds from the sale of these ordinary shares
other than the exercise price payable to us upon the exercise of the warrants
held by a certain selling shareholder. We have agreed to bear all of the
expenses in connection with the registration and sale of these ordinary shares
other than underwriting discounts and sales commissions.
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.
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.
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The date of this prospectus is ________, 2004
TABLE OF CONTENTS
ITEM PAGE
---- ----
Prospectus Summary 3
Risk Factors 4
Forward-Looking Statements 12
Use of Proceeds 12
Selling Shareholders 12
Plan of Distribution 13
Validity of Securities 15
Experts 15
Where You Can Find More Information 16
Incorporation of Certain Documents by Reference 16
Enforceability of Civil Liabilities 17
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.
2
PROSPECTUS SUMMARY
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 1,190,228 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."
This prospectus does not contain all of the information set forth in the
registration statement, certain parts sole of which are omitted in accordance
with the rules and regulations of the SEC. Accordingly, you should refer to the
registration statement and its exhibits for further information about us and our
ordinary shares. Copies of the registration statement and its exhibits are on
file with the SEC. Statements contained in this prospectus concerning the
documents we have filed with the SEC are not intended to be comprehensive, and
in each instance we refer you to copy of the actual document filed as an exhibit
to the registration statement or otherwise filed with the SEC.
We have not authorized anyone to provide you with information different
from that contained or incorporated by reference in this prospectus. The selling
shareholders are offering to sell, and seeking offers to buy, our ordinary
shares only in jurisdictions where offers and sales are permitted. The
information contained in this prospectus is accurate only as of the date of this
prospectus, regardless of the time of delivery of this prospectus or of any sale
of ordinary shares.
Unless the context otherwise requires, all references in this prospectus to
"BOS," "we," "our," "our company," "us" and the "Company" refer to BOS Better
Online Solutions Ltd. and its consolidated subsidiaries.
All references in this prospectus to "ordinary shares" refer to our
ordinary shares, par value NIS 4.00 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
We were incorporated in Israel in 1990 and are subject to the Israel Companies
Law 1999 - 5759. Our headquarters and manufacturing facilities are located at
100 Bos Road, Teradyon Industrial Zone, Misgav 20179 Israel. Our telephone
number is 972-4-990-7555. Our website address is www.boscorporate.com. The
information contained on, or linked from, our website is not a part of this
prospectus.
BOS develops, manufactures and markets multi-purpose communications and network
products for companies and organizations. We operate in three main business
product lines: Connectivity, Software Utilities and Communications Solutions. We
create innovative and powerful solutions for seamless integration of personal
computers and Local Area Networks into the midrange host environment. We also
design, integrate, test, market and support superior products that provide
efficient solutions to personnel connecting personal computers to IBM midrange
hosts. These connectivity products account for a majority of our sales. Under
software utilities, we offer innovative and powerful solutions for document
design, distribution and management solutions for a wide range of operating
systems, including mainframe and UNIX. Our communication solutions include a
series of intelligent and highly versatile VoIP communication products designed
for the corporate market. We sell and support our products worldwide through
distributors, and value-added resellers.
THE OFFERING
This prospectus relates to 1,190,228 ordinary shares that may be offered for
sale by the selling shareholders, as follows:
o A total of 357,143 ordinary shares were issued to two selling
shareholders in a private placement completed on December 14, 2003.
The ordinary shares were issued at a price per share of $2.80. BOS
granted to such selling shareholders incidental registration rights.
3
o Up to 833,085 ordinary shares are issuable upon the conversion of a
convertible note due June 10, 2007 and upon the exercise of warrants,
both of which were issued by BOS to a certain selling shareholder in a
private placement transaction on June 10, 2004 and shares that may be
issued in lieu of cash interest payments on the convertible note. The
convertible note has an aggregate principal amount of $2.0 million and
a conversion price of $3.08 per share. The principal amount of the
note is repayable in monthly installments commencing as of October 1,
2004, in the initial amount of $20,000 eventually increasing to
$73,600, and may be paid in cash or, under certain conditions
described below, in ordinary shares.
The note conversion price is subject to proportional adjustment in the
event of stock spits, combinations, subdivisions of the ordinary
shares or if dividend is paid on the ordinary shares in ordinary
shares. In addition, if BOS issues stock in certain types of
transactions at a price lower than the initial conversion price, then
the conversion price will adjusted to a lower price based on a
weighted average formula.
The convertible note bears interest at a fluctuating interest rate
equal at all times to the prime rate plus 3%, subject to reduction in
any particular month, if the average closing price of our ordinary
shares for any five consecutive trading days during the fifteen days
immediately prior to the last business day of the previous month,
exceeded the conversion price by at least 25%. The interest reduction
rate is 100 basis points (1.0%) for each incremental twenty five
percent increase, or 200 basis points (2.0%) for such increase, if the
ordinary shares shall have already been, at that time, registered
pursuant to an effective registration statement.
All or a portion of the monthly required payments on the convertible
note (comprised of principal amortization and interest) shall be made
in the form of ordinary shares, if the market price of the ordinary
shares at the time of payment is at least 10% greater than the
conversion price per ordinary share. The note is secured by a first
priority floating charge on all of our company's assets and by a first
priority fixed charge on all of our company's right, title and
interest in our wholly-owned subsidiary, BOScom Ltd.
The warrants are exercisable at $4.04 per share. The warrant may be
exercised in whole or in part, and payment of the exercise price may
be made either in cash or in a "cashless" exercise (or in a
combination of both methods). The warrant exercise price is also
subject to proportional adjustment in the event of combinations,
subdivisions of the ordinary shares or if dividend is paid on the
ordinary shares in ordinary shares.
BOS is filing the registration statement of which this prospectus is a part at
this time primarily to fulfill its contractual obligation to do so. Registration
of the ordinary shares does not necessarily mean that all or any portion of such
ordinary shares will be offered for sale by the selling shareholders.
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.
RISKS RELATING TO OUR BUSINESS.
OUR SALES IN THE US DEPEND ON ONE MASTER DISTRIBUTOR. IN THE EVENT THAT WE
ENCOUNTER PROBLEMS WORKING WITH THE MASTER DISTRIBUTOR, WE MAY EXPERIENCE AN
INTERRUPTION IN SALES UNTIL AN ALTERNATIVE SOURCE OF DISTRIBUTION CAN BE FOUND,
WHICH MAY HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.
Up until the fourth quarter of 2002, we marketed our BOScom products through a
US subsidiary (the BOS US division of PacInfoSystems). Currently, we market our
products through one master distributor, Bosanova Inc. The sales of our products
in the US market currently account for more than 50% of our sales. In the event
that we encounter problems working with the master distributor, we may
experience an interruption in sales until an alternative source of distribution
can be found, which may have a material adverse effect on our business.
4
IN EARLY 2002 WE TRANSFORMED OUR CORPORATE STRUCTURE INTO A HOLDING COMPANY
SPECIALIZING IN TECHNOLOGY. LATER IN 2002, WE DECIDED THAT WE WOULD FOCUS ON
VOIP PRODUCTS, THE CORE BUSINESS OF ITS ISRAELI SUBSIDIARY, BOSCOM LTD. OUR
STATUS AS A HOLDING COMPANY MAY PROVE BURDENSOME WHICH WOULD ADVERSELY AFFECT
OUR LONG-TERM GROWTH, AND OUR DECISION TO CONCENTRATE ON OUR CORE BUSINESS MAY
NOT PROVE PROFITABLE.
Our decision to operate as a holding company may increase costs and not prove
profitable, and the focus on the VOIP products of our Israeli subsidiary, BOScom
Ltd., has not yet proven to be successful. There can be no assurance that this
focus on VOIP, rather than seeking a wide-range of technology investments, shall
be successful and profitable in the future, and such focus may materially
adversely affect our business condition and results of operations.
WE ARE ENGAGED IN A HIGHLY COMPETITIVE INDUSTRY, AND IF WE ARE UNABLE TO KEEP UP
WITH OR AHEAD OF THE TECHNOLOGY OUR SALES COULD BE ADVERSELY AFFECTED.
ADDITIONALLY, WE ARE FAIRLY NEW PLAYERS IN THE HIGHLY COMPETITIVE VOIP SECTOR,
AND THERE ARE NO ASSURANCES THAT WE WILL BE ABLE TO EFFECTIVELY COMPETE WITH THE
MORE ESTABLISHED BUSINESSES IN THE SECTOR.
IBM sells competing products to our own, and can exercise significant customer
influence and technology control in the IBM host connectivity market. We may
experience increased competition in the future from IBM or other companies,
which may adversely affect our ability to continue to market our products and
services successfully.
We also compete against various companies that offer computer communications
products based on other technologies that in certain circumstances can be
competitive in price and performance to our products. There can be no assurance
that these or other technologies will not capture a significant part of the
existing or potential IBM midrange computer communications market.
The market for our products is also characterized by significant price
competition. We may therefore face increasing pricing pressures. There can be no
assurance that competitors will not develop features or functions similar to
those of our products, or that we will be able to maintain a cost advantage or
that new companies will not enter these markets. We believe, however, that our
significant proprietary know-how and experience in emulation technology gives us
long-term advantages.
The VOIP market is very competitive with large companies such as Cisco competing
for the same market segment. There can be no assurance that we will be able to
successfully penetrate the market or realize significant revenues from our line
of products and become profitable.
Some of our current and potential competitors have longer operating histories,
greater name recognition, access to larger customer bases and significantly
greater financial, technical and marketing resources than ours. As a result,
they may be able to adapt more quickly to new or emerging technologies and
changes in customer requirements or to devote greater resources to the promotion
and sale of their products, than us.
IN LATE 2002 WE DECIDED TO WIND UP THE BUSINESS OF OUR SUBSIDIARY, PACIFIC
INFORMATION SYSTEMS, INC. ("PACINFOSYSTEMS"), DUE TO ITS SEVERE FINANCIAL
SITUATION. PACINFOSYSTEMS HAS ALREADY SETTLED WITH A MAJORITY OF ITS EXTERNAL
CREDITORS.
In May 2002, we announced our intention to sell PacInfoSystems due to a change
in our business strategy. PacInfoSystems was our wholly owned U.S. subsidiary
that resold, installed and provided computer networking products to various
business entities. Later, we decided to wind up PacInfoSystems instead of
selling it due to its severe financial situation. As of this date, a settlement
has been reached with a majority of PacInfoSystems' creditors, however, there
can be no assurance that such a settlement will be reached with the remainder of
the creditors, thus resulting in additional costs to us.
Furthermore, certain actions involving PacInfoSystems, if occurred before the
end of 2003, may have triggered a tax event for Mr. Jacob Lee, who sold
PacInfoSystems to us in 1998. In such event, we may be obligated, under the
purchase agreement, to grant Mr. Lee a loan on a full recourse basis for certain
tax payments Mr. Lee may be liable for, currently estimated at approximately
$1.5 million. The purchase agreement provides that we are to receive a security
interest in shares of our company that Mr. Lee holds at the time of the loan
with a fair market value as of the date of the loan of at least 125% of the
amount of the loan as security for the repayment of the loan. In addition, in
the event we are required to loan such sum to Mr. Lee, we may also be required
to reimburse Mr. Lee for certain interest on taxes that he may owe. It is
possible that the windup of PacInfoSystems during 2002 and 2003 may have
triggered such a tax event for Mr. Lee, which would result in an obligation by
us to loan Mr. Lee such amount and to reimburse him for interest expenses
incidental to the tax event. Such a loan and reimbursement may have a material
adverse effect on our business condition and results of operations.
5
IF ACTUAL MARKET CONDITIONS PROVE LESS FAVORABLE THAN THOSE PROJECTED BY
MANAGEMENT, ADDITIONAL INVENTORY WRITE-DOWNS MAY BE REQUIRED
Inventories may be written down for estimated obsolescence based upon
assumptions about future demand and market conditions and could adversely affect
our business condition and results of operations. As of December 31, 2003,
inventory is presented net of $300,000 general provision for technological
obsolescence and slow moving items (see also Note 5 to the Consolidated
Financial Statements included in our Annual Report on Form 20-F for the fiscal
year ended December 31, 2003, incorporated by reference hereto).
OUR FUTURE LEVELS OF SALES AND PROFITABILITY ARE UNPREDICTABLE.
Our ability to maintain and improve future levels of sales and profitability
depends on many factors. These factors include:
o the continued demand for our existing products;
o our ability to develop and sell new products to meet customer needs;
o management's ability to control costs and successfully implement our
business strategy; and
o our ability to manufacture and deliver products in a timely manner.
There can be no assurance that we will experience any growth in sales or
profitability in the future or that the levels of historic sales or
profitability experienced during previous years will continue in the future.
WE DEPEND ON CERTAIN KEY PRODUCTS FOR THE BULK OF OUR SALES AND IF SALES OF
THESE PRODUCTS DECLINE, IT WOULD HAVE A MATERIAL ADVERSE EFFECT ON US.
Our IBM midrange related products account for most of our sales. We anticipate
that our IBM midrange related products will continue to account for a
significant portion of our sales and profitability. If sales of our IBM midrange
products were to decline significantly for any reason, or the profit margins on
such products were to decrease significantly for any reason (including in
response to competitive pressures), our financial results would be adversely
affected. Over the past few years there has been a continuous global decrease in
sales and revenues from the connectivity solutions sector (also known as the
legacy family products). Although our revenues in this sector have decreased as
a result, in comparison to other players in this field, we have fared quite
well, but there can be no assurance that we will continue to do so.
To reduce the risk of such a decline or decrease due to competitive pressures or
technical obsolescence, we are continually seeking to reduce costs, upgrade and
expand the features of our IBM related products, expand the applications for
which the products can be used and increase marketing efforts to generate new
sales.
Although we are developing and introducing new remote communications products
and increasing our marketing efforts, there can be no assurance that the planned
enhancements or the new developments will be commercially successful, or that we
will be able to increase sales of our IBM midrange products.
IF WE ARE UNSUCCESSFUL IN DEVELOPING AND INTRODUCING NEW PRODUCTS, WE MAY BE
UNABLE TO EXPAND OUR BUSINESS.
The market for some of our products is characterized by rapidly changing
technology and evolving industry standards. The introduction of products
embodying new technology and the emergence of new industry standards can render
existing products obsolete and unmarketable and can exert price pressure on
existing products.
We established our subsidiary Lynk, which is now known as BOScom, for the
purpose of developing, manufacturing and marketing new products for remote
networking connectivity and VOIP. However, the VOIP market has been unstable and
vulnerable over the past years, and competing in such a market may be a risky
endeavor. The VOIP market has suffered from low image due to availability,
reliability and quality problems. As such, there can be no assurance that we
will realize significant revenues from products developed and introduced by
BOScom.
Our ability to anticipate changes in technology and industry standards and
successfully develop and introduce new and enhanced products as well as
additional applications for existing products, in each case on a timely basis,
will be critical in our ability to grow and remain competitive. Although these
products are related to, and even incorporate our existing products, there can
be no assurance that we will be able to successfully develop and market any such
new products. If we are unable to develop products that are competitive in
technology and price and responsive to customer needs, for technological or
other reasons, our business will be materially adversely affected.
6
WE DEPEND ON KEY PERSONNEL AND NEED TO BE ABLE TO RETAIN THEM AND OUR OTHER
EMPLOYEES.
Our success depends, to a significant extent, on the continued active
participation of our executive officers, other members of management and key
technical and sales and marketing personnel. In addition, there is significant
competition for employees with technical expertise in our industry. Our success
will depend, in part, on:
o our ability to retain the employees who have assisted in the
development of our products;
o our ability to attract and retain additional qualified personnel to
provide technological depth and support to enhance existing products
and develop new products; and
o our ability to attract and retain highly skilled computer operating,
marketing and financial personnel.
We cannot make assurances that we will be successful in attracting, integrating,
motivating and retaining key personnel. If we are unable to retain our key
personnel and attract additional qualified personnel as and when needed, our
business may be adversely affected.
WE HAVE INDEMNIFICATION AGREEMENTS WITH OUR OFFICERS AND DIRECTORS, WHICH COULD
HAVE A MATERIALLY ADVERSE EFFECT ON OUR FINANCIAL CONDITION.
We have agreements with our directors and senior officers which provide, subject
to Israeli law, for us to indemnify these directors and senior officers for (a)
monetary liability imposed upon them in favor of a third party by a judgment,
including a settlement or an arbitral award confirmed by the court, as a result
of an act or omission of such person in his capacity as a director or officer of
is, and (b) reasonable litigation expenses, including attorney's fees, incurred
by such a director or officer or imposed on him by a court, in a proceeding
brought against him by or on behalf of us or by a third party, or in a criminal
action in which he was acquitted, or in a criminal action which does not require
criminal intent in which he was convicted, in each case relating to acts or
omissions of such person in his capacity as a director or officer of us. Such
indemnification may materially adversely affect our financial condition.
WE MAY BE UNABLE TO EFFECTIVELY MANAGE OUR GROWTH AND EXPANSION, AND AS A
RESULT, OUR BUSINESS RESULTS MAY BE ADVERSELY AFFECTED.
Our goal is to grow significantly over the next few years. The management of our
growth, if any, will require the continued expansion of our operational and
financial control systems, as well as a significant increase in our
manufacturing, testing, quality control, delivery and service capabilities.
These factors could place a significant strain on our resources.
Our inability to meet our manufacturing and delivery commitments in a timely
manner (as a result of unexpected increases in orders, for example) could result
in losses of sales, our exposure to contractual penalties, costs or expenses, as
well as damage to our reputation in the marketplace.
Our inability to manage growth effectively could have a material adverse effect
on our business, financial condition and results of operations.
WE HAVE LIMITED EXPERIENCE IN MAKING ACQUISITIONS.
We may wish to pursue the acquisition of businesses, products and technologies
that are complementary to ours. However, to date, our management has had limited
experience in making acquisitions. In June 1998, we acquired PacInfoSystems,
which was based in Portland, Oregon, and in 2001 PacInfoSystems acquired Dean
Technologies LLC ("Dean Tech"), which was based in Grapevine, Texas. Both
businesses have since ceased operations. Acquisitions involve a number of other
risks, including the difficulty of assimilating geographically diverse
operations and personnel of the acquired businesses or activities and of
maintaining uniform standards, controls, procedures and policies. There can be
no assurance that we will not encounter these and other problems in connection
with any acquisitions we may undertake. There can be no assurance that we will
ultimately be effective in executing additional acquisitions. Any failure to
effectively integrate future acquisitions could have an adverse effect on our
business, operating results or financial condition.
THE MEASURES WE TAKE IN ORDER TO PROTECT OUR INTELLECTUAL PROPERTY MAY NOT BE
EFFICIENT OR SUFFICIENT.
Our success is dependent upon our proprietary rights and technology. We
currently rely on a combination of trade secret, copyright and trademark law,
together with non-disclosure and invention assignment agreements, to establish
and protect the proprietary rights and technology used in our products. Much of
our proprietary information is not patentable. We generally enter into
confidentiality agreements with our employees, consultants, customers and
potential customers and limit the access to and the distribution of our
proprietary information. Despite these precautions, it may be possible for a
third party to copy or otherwise obtain and use our technology without
authorization, or to develop similar technology independently. We do not believe
that our products and proprietary rights infringe upon the proprietary rights of
others. However, there can be no assurance that any other party will not argue
otherwise. The cost of responding and adequately protecting ourselves against
any such assertion may be material, whether or not the assertion is valid.
Further, the laws of certain countries in which we sell our products do not
protect our intellectual property rights to the same extent as do the laws of
the United States. Substantial unauthorized use of our products could have a
material adverse effect on our business. We cannot make assurances that our
means of protecting our proprietary rights will be adequate or that our
competitors will not independently develop similar technology.
7
WE RELY ON CERTAIN KEY SUPPLIERS FOR THE SUPPLY OF COMPONENTS IN OUR PRODUCTS.
We purchase certain components and subassemblies used in our existing products
from a single supplier or a limited number of suppliers. In the event that any
of our suppliers or subcontractors become unable to fulfill our requirements in
a timely manner, we may experience an interruption in production until an
alternative source of supply can be obtained, although we are of the opinion
that the level of inventory held by us would probably be sufficient to cover
such a period.
FLUCTUATIONS IN OUR OPERATING RESULTS COULD RESULT IN LOWERED PRICES.
Our sales and profitability may vary in any given year, and from quarter to
quarter, primarily depending on the number of products sold in the United States
and in Europe. In order to maintain and increase sales to the United States and
to Europe, we may find it necessary to decrease prices. We will need to offer
competitive, low entry prices in order to enter into new markets with new
products and to continue our penetration into the European market with our VOIP
products.
WE HAVE LIMITED CAPITAL RESOURCES AND WE MAY ENCOUNTER DIFFICULTIES RAISING
CAPITAL.
The continued expansion into the VOIP market will require additional resources
and especially working capital. Our efforts to obtain a significant credit line
from a financial institution have not been successful, and therefore we plan to
raise additional capital and/or to enter into strategic alliances. However, the
VOIP market has been unstable and vulnerable and we may encounter difficulties
raising capital. If our efforts to raise capital do not succeed, our efforts to
increase the business and to compete with our competitors may be seriously
jeopardized, thus having a materially adverse effect on our business.
THERE CAN BE NO ASSURANCE THAT WE WILL NOT BE CLASSIFIED AS A PASSIVE FOREIGN
INVESTMENT COMPANY (A "PFIC").
Based upon its current and projected income, assets and activities, we do not
believe that at this time we are a passive foreign investment company (a "PFIC")
for US federal income tax purposes, but there can be no assurance that we won't
be classified as such in the future. Such classification may have grave tax
consequences for US shareholders. One method of avoiding such tax consequences
is by making a "qualified electing fund" election for the first taxable year in
which we are a PFIC. However, such an election is conditioned upon our
furnishing US shareholders annually with certain tax information. We do not
presently prepare or provide such information, and such information may not be
available to US shareholders if we are subsequently determined to be a PFIC.
WE HAVE SIGNIFICANT SALES WORLDWIDE AND COULD ENCOUNTER PROBLEMS IF CONDITIONS
CHANGE IN THE PLACES WHERE WE MARKET OUR PRODUCTS.
We have sold and intend to continue to sell our products in markets through
distributors in North America and Europe.
A number of risks are inherent in engaging in international transactions,
including -
o international sales and operations being limited or disrupted by
longer sales and payment cycles,
o possible encountering of problems in collecting receivables,
o governmental controls, or export license requirements being imposed,
o political and economic instability in foreign countries,
o trade restrictions or changes in tariffs being imposed, and
o laws and legal issues concerning foreign countries.
If we should encounter such difficulties in conducting our international
operations, it may adversely affect our business condition and results of
operations.
AS PART OF A GLOBAL SLOWDOWN IN TECHNOLOGY MARKETS, TECHNOLOGY-FOCUSED
CORPORATIONS HAVE SUFFERED AND AS A RESULT THEIR SHARES HAVE DECLINED IN VALUE.
Our company, like other technology companies, has been significantly impacted by
the current market slowdown in the technology industry. Lately, the industry has
been showing initial signs of recovery, however, there can be no assurance that
the technology market will fully recover or that our operating results will not
continue to suffer as a consequence.
8
INFLATION AND FOREIGN CURRENCY FLUCTUATIONS SIGNIFICANTLY IMPACT OUR BUSINESS
RESULTS.
The vast majority of our sales are made in US Dollars and most of our expenses
are in US Dollars and New Israel Shekels ("NIS"). The Dollar cost of our
operations in Israel is influenced by the extent to which any increase in the
rate of inflation in Israel over the rate of inflation in the United States is
offset by the devaluation of the NIS in relation to the Dollar. Our Dollar costs
in Israel will increase if inflation in Israel exceeds the devaluation of the
NIS against the Dollar or if the timing of such devaluations lags behind
inflation rate increases in Israel.
IF WE ARE FORCED TO REPAY OUR SECURED CONVERTIBLE NOTE IN CASH, WE MAY NOT HAVE
ENOUGH CASH TO FUND OUR OPERATIONS AND MAY NOT BE ABLE TO OBTAIN ADDITIONAL
FINANCING.
Our secured convertible term note issued in June 2004, contains certain
provisions and restrictions, which if violated, could result in the full
principal amount together with interest and other amounts becoming immediately
due and payable in cash. If such an event occurred and if the holder of such
note demanded repayment, we might not have the cash resources to repay such
indebtedness when due. The note is repayable in 33 monthly installments
commencing on October 1, 2004, with principal payments which start at $20,000
and increase to $73,600. Subject to certain conditions, the monthly principal
and interest payment on the note may be paid in cash or ordinary shares. If we
make the payments on the note in cash rather than ordinary shares, it would
reduce the amount of cash available to fund operations. Also, in connection with
the issuance of the note, we agreed to certain restrictions upon incurring
additional indebtedness. The existence of debt service obligations and the terms
and anti-dilution provisions of the note may limit our ability to obtain
additional financing on favorable terms, or at all.
IF THE INVESTOR IN OUR RECENT FINANCING CONVERTS OR EXERCISES ITS WARRANTS, OR
IF WE ELECT TO PAY PRINCIPAL AND/OR INTEREST ON THE NOTE WITH OUR ORDINARY
SHARES, OUR EXISTING STOCKHOLDERS WILL BE DILUTED. IN ADDITION, SALES OF
SUBSTANTIAL AMOUNTS OF OUR ORDINARY SHARES COULD CAUSE THE MARKET PRICE TO GO
DOWN.
To the extent that the note is converted and/or the warrants that were issued
with the note are exercised, a significantly greater number of our ordinary
shares will be outstanding and the interests of our existing shareholders will
be diluted. If these additional shares are sold into the market, it could
decrease the market price of our ordinary shares and encourage short sales
although the purchaser of the note has agreed to not engage in short sales of
our ordinary shares. Short sales and other hedging transactions could place
further downward pressure on the price of our ordinary shares. We cannot predict
whether or how many of our ordinary shares will become issuable as a result of
these provisions. Additionally, we may elect to make payments of principal of
and interest on the note in ordinary shares, which could result in increased
downward pressure on our share price and further dilution to our existing
shareholders.
RISKS RELATED TO OUR LOCATION IN ISRAEL
POLITICAL, ECONOMIC, AND SECURITY CONDITIONS IN ISRAEL AFFECT OUR OPERATIONS AND
MAY LIMIT OUR ABILITY TO PRODUCE AND SELL OUR PRODUCTS OR PROVIDE OUR SERVICES.
We are incorporated under the laws of the State of Israel, where we also
maintain our headquarters and our principal manufacturing, research and
development facilities. Political, economic, security and military conditions in
Israel directly influence us. We could be adversely affected by any major
hostilities involving Israel, the interruption or curtailment of trade between
Israel and its trading partners or a significant downturn in the economic or
financial condition of Israel. The future of the "peace process" with the
Palestinians is uncertain and has deteriorated due to Palestinian violence.
Furthermore, the threat of a large-scale attack by Palestinians on Israeli
civilians and key infrastructure remains a constant fear. The past three years
of renewed terrorist attacks by the Palestinians has severely affected the
Israeli economy in many ways. In addition, several countries still restrict
business with Israel and with companies doing business in Israel. We could be
adversely affected by adverse developments in the "peace process" or by
restrictive laws or policies directed towards Israel or Israeli businesses.
Generally, all nonexempt male adult citizens and permanent residents of Israel,
including some of our officers and employees, are obligated to perform military
reserve duty annually, and are subject to being called to active duty at any
time under emergency circumstances. While we have operated effectively under
these requirements since its incorporation, we cannot predict the full impact of
such conditions on us in the future, particularly if emergency circumstances
occur. If many of our employees are called for active duty, our business may be
adversely affected.
9
Additionally, in recent years Israel has been going through a period of
recession in economic activity, resulting in low growth rates and growing
unemployment. Our operations could be adversely affected if the economic
conditions in Israel continue to deteriorate. Also, due to significant economic
reforms proposed by the Israeli government, there have been several general
strikes and work stoppages in 2003 and 2004, affecting all banks, airports and
ports. These strikes have had an adverse effect on the Israeli economy and on
business. Following the passing of laws to implement economic measures, the
Israeli trade unions have threatened further strikes or work stoppages, and
these may have an adverse effect on the Israeli economy and our business.
IF THE ISRAELI GOVERNMENT PROGRAMS THAT WE BENEFIT FROM ARE REDUCED OR
TERMINATED, OUR COSTS AND TAXES MAY INCREASE.
Under the Israeli Law for Encouragement of Capital Investments, 1959, facilities
that meet certain conditions can apply for "Approved Enterprise" status. This
status confers certain benefits including tax benefits. Our existing facilities
have been designated as Approved Enterprises. If we attain taxable income in
Israel, these tax benefits will help reduce our tax burden.
In addition, in order to maintain our eligibility for the grants and tax
benefits we receive, we must continue to satisfy certain conditions, including
making certain investments in fixed assets and operations and achieving certain
levels of exports. If we fail to satisfy such conditions in the future, we could
be required to refund tax benefits which may have been received with interest
and linkage differences to the Israeli Consumer Price Index.
The law and regulations prescribing the benefits provide for an expiration date
for the grant of new benefits. The expiration date has been extended several
times in the past. The expiration date currently in effect is October 30, 2004
(which may be extended by ministerial decision until December 31, 2004), and no
new benefits will be granted after that date unless the expiration date is again
extended. There can be no assurance that new benefits will be available after
June 30, 2004, or that existing benefits will be continued in the future at
their current level or at any level. The Israeli Government authorities have
indicated that the government may reduce or eliminate these benefits in the
future. A termination or reduction of certain programs and tax benefits
(particularly benefits available to us as a result of the Approved Enterprise
status of our facilities and programs) or a requirement to refund the tax
benefits already received, would have a material adverse effect on our business,
operating results and financial condition.
Under the Law for the Encouragement of Industrial Research and Development, 1984
(the "Research Law"), research and development programs approved by a research
committee appointed by the Israeli Government are eligible for grants in
exchange for payment to the Government of royalties from the sale of products
developed in accordance with the Program. Regulations issued under the Research
Law generally provide for the payment of royalties to the Office of the Chief
Scientist equal to 3.5% of sales of products developed as a result of a research
project so funded until 100% of the dollar-linked grant is repaid. Royalties
payable with respect to grants received under programs approved by the Office of
Chief Scientist after January 1, 1999, are subject to interest on the U.S.
dollar-linked value of the total grants received at the annual rate of LIBOR
applicable to U.S. dollar deposits on the date the grants were received.
The Research Law requires that the manufacture of any product developed as a
result of research and development funded by the Israeli Government take place
in Israel. It also provides that know-how from the research may not be
transferred to third parties without the approval of the Israeli Office of the
Chief Scientist in the Ministry of Industry, Trade & Labor.
THE ANTI-TAKEOVER EFFECTS OF ISRAELI LAWS MAY DELAY OR DETER A CHANGE OF
CONTROL.
Under the Israeli Companies Law, a merger is generally required to be approved
by the shareholders and board of directors of each of the merging companies.
Shares held by a party to the merger and certain of its affiliates are not
counted toward the required approval. If the share capital of the company that
will not be the surviving company is divided into different classes of shares,
the approval of each class is also required. A merger may not be approved if the
surviving company will not be able to satisfy its obligations. At the request of
a creditor, a court may block a merger on this ground. In addition, a merger can
be completed only after all approvals have been submitted to the Israeli
Registrar of Companies and 70 days have passed from the time that a proposal for
approval of the merger was filed with the Registrar.
The Israeli Companies Law provides that an acquisition of shares in a public
company must be made by means of a tender offer, if as a result of the
acquisition, the purchaser would become a holder of 25% or more of the voting
power at general meetings, and no other shareholder owns a 25% stake in us.
Similarly, the Israeli Companies Law provides that an acquisition of shares in a
public company must be made by means of a tender offer if, as a result of the
acquisition, the purchaser would become a holder of 45% or more of the voting
power at general meetings, unless someone else already holds a majority of the
voting power. These rules do not apply if the acquisition is made by way of a
merger.
10
The Israeli Companies Law provides specific rules and procedures for the
acquisition of shares held by minority shareholders, if the majority shareholder
holds more than 90% of the outstanding shares. Israeli tax law treats specified
acquisitions, including a stock-for-stock swap between an Israeli company and a
foreign company, less favorably than does U.S. tax law.
These laws may have the effect of delaying or deterring a change in control of
us, thereby limiting the opportunity for shareholders to receive a premium for
their shares and possible affecting the price that some investors are willing to
pay for our securities.
ALL OF OUR DIRECTORS AND OFFICERS ARE NON-U.S. RESIDENTS AND ENFORCEABILITY OF
CIVIL LIABILITIES AGAINST THEM IS UNCERTAIN.
All of our directors and officers reside outside of the United States. Service
of process upon them may be difficult to effect within the United States.
Furthermore, because the majority of our assets are located in Israel, any
judgment obtained in the United States against us or any of our directors and
officers may not be collectible within the United States.
RISKS RELATED TO OUR ORDINARY SHARES
OUR SHARE PRICE HAS BEEN AND MAY CONTINUE TO BE VOLATILE, WHICH COULD RESULT IN
SUBSTANTIAL LOSSES FOR INDIVIDUAL SHAREHOLDERS
The market price of our ordinary shares has been and may continue to be highly
volatile and subject to wide fluctuations. Since June 2003 through June 2004,
the price of our ordinary shares has ranged from $ 1.61 to $5.75 per share. We
believe that these fluctuations have been in response to a number of factors
including the following, some of which are beyond our control:
o actual or anticipated variations in our quarterly operating results;
o announcements of technological innovations or new products or services
or new pricing practices by us or our competitors;
o increased market share penetration by our competitors;
o announcements by us or our competitors of significant acquisitions,
strategic partnerships, joint ventures or capital commitments;
o additions or departures of key personnel; and
o sales of additional ordinary shares.
In addition, the stock market in general, and stocks of technology companies in
particular, have from time to time experienced extreme price and volume
fluctuations. This volatility is often unrelated or disproportionate to the
operating performance of these companies. These broad market fluctuations may
adversely affect the market price of our ordinary shares, regardless of our
actual operating performance.
OUR SHARES MAY BE DELISTED FROM THE NASDAQ NATIONAL MARKET FOR FAILURE TO MEET
NASDAQ'S REQUIREMENTS.
In late 2002 and early 2003 we received notice from the Nasdaq Stock Market that
our ordinary shares were subject to delisting from the Nasdaq National Market
for failure to meet Nasdaq's minimum bid price and shareholders' equity
requirements ($10 million) for continued listing on the National Market. As a
result of the hearing requested by us and supplemental information presented by
us to the Nasdaq Listing Qualifications Panel, the Panel determined to continue
the listing of our securities on the Nasdaq National Market pursuant to a
detailed exception to the Nasdaq National Market Rules, and we successfully met
all the conditions set forth in the exception.
On August 30, 2004, we received notice from the Nasdaq Stock Market that our
ordinary shares are subject to delisting from the Nasdaq National Market for
failure to meet Nasdaq's minimum market value of publicly held shares
requirement ($5 million) for continued listing on the National Market. We have a
90 day period during which we can regain compliance with this requirement. There
can be no assurance that we will be able to meet this or other Nasdaq
requirements to maintain our Nasdaq National Market listing, in which case we
will need to apply for a transfer of our ordinary shares to the Nasdaq Small Cap
Market.
11
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that are intended to be, and
are hereby identified as, forward looking statements for the purposes of the
safe harbor provisions of the Private Securities Reform Act of 1995. These
statements address, among other things: our strategy; the anticipated
development of our products; our anticipated use of proceeds; our projected
capital expenditures and liquidity; our development of additional revenue
sources; our development and expansion of relationships; the market acceptance
of our products; and our technological advancement. Actual results could differ
materially from those anticipated in these forward-looking statements as a
result of various factors, including all the risks discussed below and elsewhere
in this prospectus. 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 which use the terms "believe", "do
not believe", "expect", "plan", "intend", "estimate", "anticipate",
"projections", "forecast" 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. Except as required by applicable law, including the federal
securities laws of the United States, we do not intend to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. 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.
Market data and forecasts used in this prospectus have been obtained from
independent industry sources. We have not independently verified the data
obtained from these sources and we cannot assure you of the accuracy or
completeness of the data. Forecasts and other forward-looking information
obtained from these sources are subject to the same qualifications and
additional uncertainties accompanying any estimates of future market size.
USE OF PROCEEDS
All of the proceeds from the sale of the ordinary shares offered under this
prospectus are for the account of the selling shareholders. Accordingly, we will
not receive any proceeds from the sales of these shares other than the exercise
price payable to us upon the exercise of warrants held by one of the selling
shareholders.
SELLING SHAREHOLDERS
The table sets forth below certain information concerning the number of ordinary
shares owned by the selling shareholders as of July 1, 2004, and the number of
ordinary shares that may be offered from time to time by the selling
shareholders under this prospectus. Because the selling shareholders may offer
all or some portion of the ordinary, BOS has assumed for the purposes of the
table below that the selling shareholders will sell all of the ordinary shares
they have acquired from us.
12
SHARES OWNED OR UNDERLYING
CONVERTIBLE SECURITIES SHARES BEING SHARES BENEFICIALLY OWNED
PRIOR TO OFFERING OFFERED AFTER THE OFFERING
---------------------------- ------- -----------------------
Number Percent Number Percent
------- ------- ------ -------
LAURUS MASTER FUND, 833,085(2) 16.65%(3) 833,085 0 0%
LTD. (1)
825 Third Avenue,
14th Floor
New York, NY 10022
HILLSWOOD HOLDINGS
LTD. (4)
PO Box 3136, Akara
Building, Suite 8, 310,119 7.44%(3) 267,857 42,262 1.01%(3)
Wickams Cay 1, Road
Town
Tortola, BVI
VAMOS INC. (5)
c/o GISE
37 G. Sisini Street
Athens 115 28 89,286 2.14% 89,286 0 0%
Greece
----------
(1) Laurus Capital Management, LLC is the investment manager of Laurus Master
Fund Ltd., and in accordance with Rule 13d-3 under the Securities Exchange
Act of 1934, as amended, may be deemed a control person of the ordinary
shares owned by Laurus Master Fund Ltd. Messrs. David Grin and Eugene Grin
are the managing members of Laurus Capital Management, LLC and as such
share sole voting and investment control over the ordinary shares owned by
Laurus Master Fund Ltd., and each disclaims beneficial ownership of such
shares.
(2) Number of shares represents the maximum number of shares receivable by
Laurus Master Fund, Ltd. ("Laurus") upon conversion of the full amount of
the convertible note (including applicable interest) and full exercise of
the warrants into ordinary shares. However, the terms of the convertible
note and the warrants expressly limit the number of shares that Laurus can
convert, and beneficially own at any one time pursuant to such conversions
or exercises (as defined in Rule 13d-3 of the Securities Exchange Act of
1934, as amended) to 4.99% of the total outstanding ordinary shares ,
provided that Laurus has the right to waive this limitation upon at least
75 days prior written notice to us.
(3) Calculated based upon 4,167,509 ordinary shares outstanding as of June 30,
2004.
(4) Hillswood Holdings Ltd. is indirectly owned by a trust whose principal
beneficiary is Mr. Robert Haggiag. By virtue of such relationship, Mr.
Haggiag may be deemed to have sole dispositive power over the shares owned
by Hillswood Holdings Ltd.
(5) Vamos Inc. is controlled by Messrs. Minos A. Zombanakis and Costi
Zombanakis, who by virtue of such relationship may be deemed to share sole
dispositive power over the shares owned by Vamos Inc.
PLAN OF DISTRIBUTION
The selling shareholders and any of their pledgees, donees, assignees,
transferees, and successors in interest, may sell any or all of their securities
from time to time on any stock exchange or automated interdealer quotation
system on which the securities are listed, in the over-the-counter market, in
privately negotiated transactions or otherwise, at fixed prices that may be
changed, at market prices prevailing at the time of sale, at prices related to
prevailing market prices or at prices otherwise negotiated. The selling
shareholders may sell the securities by one or more of the following methods,
without limitation:
o block trades in which the broker or dealer so engaged will attempt to
sell the securities as agent but may position and resell a portion of
the block as principal to facilitate the transaction;
o purchases by a broker or dealer as principal and resale by the broker
or dealer for its own account pursuant to this prospectus;
o an exchange distribution in accordance with the rules of any stock
exchange on which the securities are listed;
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchases, which may include long sales or
short sales effected after the effective date of the prospectus of
which this registration statement is part;
o privately negotiated transactions;
o "at the market" or through market makers or into an existing market
for the shares;
o through the writing or settlement of options or other hedging
transactions on the securities, whether through an options exchange or
otherwise;
13
o through the distribution of the securities by any selling shareholder
to its partners, members or shareholders;
o one or more underwritten offerings on a firm commitment or best
efforts basis;
o any combination of any of these methods of sale; and
o any other method permitted pursuant to applicable law.
A selling shareholder may also transfer the securities by gift. We do not know
of any arrangements by any of the selling shareholders for the sale of any of
the securities.
A selling shareholder may engage brokers and dealers, and any brokers or dealers
may arrange for other brokers or dealers to participate in effecting sales of
the securities. These brokers, dealers or underwriters may act as principals, or
as an agent of the selling shareholder. Broker-dealers may agree with the
selling shareholder to sell a specified number of the securities at a stipulated
price per security. If the broker-dealer is unable to sell securities acting as
agent for the selling shareholder, it may purchase as principal any unsold
securities at the stipulated price. Broker-dealers who acquire securities as
principals may thereafter resell the securities from time to time in
transactions in any stock exchange or automated interdealer quotation system on
which the securities are then listed, at prices and on terms then prevailing at
the time of sale, at prices related to the then-current market price or in
negotiated transactions. Broker-dealers may use block transactions and sales to
and through broker-dealers, including transactions of the nature described
above. A selling shareholder may also sell the securities in accordance with
Rule 144 under the Securities Act, rather than pursuant to this prospectus,
regardless of whether the securities are covered by this prospectus.
From time to time, a selling shareholders may pledge, hypothecate or grant a
security interest in some or all of the securities owned by it. The pledgees,
secured parties or persons to whom the securities have been hypothecated will,
upon foreclosure in the event of default, be deemed to be selling shareholders.
The number of the selling shareholder's securities offered under this prospectus
will decrease as and when it takes such actions. The plan of distribution for a
selling shareholder's securities will otherwise remain unchanged.
To the extent required under the Securities Act, the aggregate amount of the
selling shareholder's securities being offered and the terms of the offering,
the names of any agents, brokers, dealers or underwriters and any applicable
commission with respect to a particular offer will be set forth in an
accompanying prospectus supplement. Any underwriters, dealers, brokers or agents
participating in the distribution of the securities may receive compensation in
the form of underwriting discounts, concessions, commissions or fees from the
selling shareholder and/or purchasers of selling shareholders' securities, for
whom they may act (which compensation as to a particular broker-dealer might be
in excess of customary commissions).
The selling shareholder and any underwriters, brokers, dealers or agents that
participate in the distribution of the securities may be deemed to be
"underwriters" within the meaning of the Securities Act, and any discounts,
concessions, commissions or fees received by them and any profit on the resale
of the securities sold by them may be deemed to be underwriting discounts and
commissions.
A selling shareholder may enter into hedging transactions with broker-dealers
and the broker-dealers may engage in short sales of the securities in the course
of hedging the positions they assume with that selling shareholder, including,
without limitation, in connection with distributions of the securities by those
broker-dealers.
The anti-manipulation provisions of Regulation M under the Exchange Act will
apply to purchases and sales of ordinary shares by the selling shareholders.
Under Regulation M, the selling shareholders or their agents may not bid for,
purchase, or attempt to induce any person to bid for or purchase our ordinary
shares while such selling shareholders are distributing ordinary shares covered
by this prospectus. The selling shareholders are not permitted to cover short
sales by purchasing ordinary shares while the distribution is taking place.
Furthermore, Regulation M provides for restrictions on market-making activities
by persons engaged in the distribution of the ordinary shares.
A selling shareholder may enter into option or other transactions with
broker-dealers that involve the delivery of the securities offered hereby to the
broker-dealers, who may then resell or otherwise transfer those securities. A
selling shareholder may also loan or pledge the securities offered hereby to a
broker-dealer and the broker-dealer may sell the securities offered hereby so
loaned or upon a default may sell or otherwise transfer the pledged securities
offered hereby.
We have agreed to indemnify in certain circumstances the selling shareholders of
the securities covered by the registration statement, against certain
liabilities, including liabilities under the Securities Act. The selling
shareholders have agreed to indemnify us in certain circumstances against
certain liabilities, including liabilities under the Securities Act.
14
The securities offered hereby were originally issued to the selling shareholders
pursuant to an exemption from the registration requirements of the Securities
Act.
We have agreed to pay certain fees and expenses in connection with this
offering, not including any selling commissions. We will not receive any
proceeds from sales of any securities by the selling shareholder.
We cannot assure you that the selling shareholder will sell all or any of the
securities offered for sale under this prospectus.
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 Amit, Pollak,
Matalon & Ben-Naftali, Erez & Co. our Israeli counsel.
EXPERTS
Our consolidated financial statements, included in our Annual Report on
Form 20-F for the year ended December 31, 2003, have been audited by Kost Forer
Gabbay & Kasierer, independent registered public accounting firm and a member of
Ernst & Young Global as set forth in their report thereon included therein and
incorporated herein by reference. Such consolidated statements are incorporated
herein by reference in reliance upon such report given on the authority of such
firm as experts in auditing and accounting.
The value attributed to our holdings in Surf Communication System Ltd., was
supported by an external valuation prepared by Vega Consultants Ltd.
15
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,
N.W., 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 and 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 June 17, 2004 (SEC File No. 001-14184);
(b) The description of our ordinary shares contained in our registration
statement on form 8-A filed with the SEC on April 1, 1996;
(c) Our current reports on Form 6-K filed with the SEC on August 5, 2004,
on August 23, 2004 (to the extent designated therein) and on September
1, 2004.
In addition, all subsequent annual reports on Form 20-F filed prior to the
termination of this 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:
B.O.S. Better Online Solutions Ltd.
Beit Rabin, 100 BOS Road
Teradyon Industrial Park,
Misgav 20179, Israel
Tel.: (+972) 4-990-7500
Fax: (+972) 4-999-0334
Attn.: Nehemia Kaufman, CFO
16
ENFORCEABILITY OF CIVIL LIABILITIES
We have been informed by our legal counsel in Israel, Amit, Pollak, Matalon
& Ben-Naftali, Erez & Co., 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 appointed Corporation Service Company 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.
17
BOS BETTER ONLINE SOLUTIONS LTD.
UP TO 1,190,228 ORDINARY SHARES
--------------------------------------------------------------------------------
PROSPECTUS
18
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 8. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Consistent with the provisions of the Israeli Companies Law, 1999 (the
"Companies Law"), the amended Articles of Association of the Registrant (the
"Articles") include provisions permitting the Registrant to procure insurance
coverage for its "office holders", exempt them from certain liabilities and
indemnify them, to the maximum extent permitted by law. An "office holder" is
defined in the Companies Law and the Articles as a director, managing director,
chief business manager, executive vice president, vice president, other manager
reporting directly to the managing director and any other person assuming the
responsibilities of any of the foregoing positions without regard to such
person's title.
INSURANCE
Under the Companies Law, a company may obtain insurance for any of its
office holders for: (i) a breach of his duty of care to the company or to
another person; (ii) a breach of his duty of loyalty to the company provided
that the office holder acted in good faith and had reasonable cause to assume
that his act would not prejudice the company's interests; or (iii) a financial
liability imposed upon him in favor of another person concerning an act
preformed by him in his capacity as an office holder.
We have obtained directors' and officers' liability insurance covering our
officers and directors and those of our subsidiaries.
INDEMNIFICATION
The Companies Law provides that a company may indemnify an officer holder
against: (i) a financial liability imposed on him in favor of another person by
any judgment concerning an act preformed in his capacity as an office holder;
and (ii) reasonable litigation expenses, including attorneys' fees, expended by
the office holder or charged to him by a court relating to an act preformed in
his capacity as an office holder in connection with: (a) proceedings the company
institutes against him or instituted on its behalf or by another person; (b) a
criminal charge from which he was acquitted; or (c) a criminal charge in which
he was convicted for a criminal offence that does not require proof of criminal
intent. The Articles of the Registrant authorize the Registrant to indemnify its
office holders to the fullest extent permitted under the law. The Companies Law
also authorizes a company to undertake in advance to indemnify an office holder,
provided that the undertaking is: (a) limited to the categories of events which
the board of directors determines that can be anticipated; and (b) limited in
amount determined by the board of directors to be reasonable for the
circumstances.
We have entered into indemnification agreements with directors and some officers
providing for indemnification under certain circumstances for acts and omissions
which may not be covered (or not be covered in full) by any directors' and
officers' liability insurance. Such indemnification agreement appears in our
Current Report on Form 6-K as filed with the Securities and Exchange Commission
on January 17, 2003.
EXEMPTION
Under the Companies Law, an Israeli company may not exempt an office holder from
liability for a breach of his duty of loyalty, but may exempt in advance an
office holder from his liability to the company, in whole or in part, for a
breach of his duty of care. The Articles authorize the Registrant to exempt any
office holder from liability to the Registrant to the extent permitted by law.
Both the Companies Law and the Articles provide that the Registrant may not
exempt or indemnify an office holder nor enter into an insurance contract which
would provide coverage for liability incurred as a result of any of the
following: (a) a breach by the office holder of his duty of fidelity (however,
the Registrant may insure such breach if the office holder acted in good faith
and had a reasonable basis to believe that the act would not prejudice the
Registrant); (b) a breach by the office holder of his duty of care if the breach
was done intentionally or recklessly; (c) any act of omission done with the
intent to derive an illegal personal benefit; or (d) any fine or monetary
penalty levied against the office holder.
19
ITEM 9. EXHIBITS
EXHIBIT NO. DESCRIPTION
----------- -----------
4.2* Form of share certificate.
5.1** Opinion of Amit, Pollak, Matalon & Ben-Naftali, Erez & Co. Israeli counsel for B.O.S Better
Online Solutions Ltd., as to the validity of the ordinary shares.
10.1*** Share Purchase Agreement, dated as of February 23, 2003, and Option Agreement and
Registration Rights Agreement, dated as of March 30, 2003, by and between Catalyst
Investments L.P. and the Registrant.
10.2*** Share Purchase Agreement and Registration Rights Agreement, dated as of December 14, 2003, by
and among Hillswood Holdings Limited, Vamos Inc. and the Registrant.
10.3*** Securities Purchase Agreement, dated as of June 10, 2004, by and between Laurus Master Fund
Ltd. and the Registrant.
23.1** Consent of Amit, Pollak, Matalon & Ben-Naftali, Erez & Co. (included in Exhibit 5.1).
23.2** Consent of Kost Forer Gabbay & Kasierer, a Member Firm of Ernst & Young Global.
23.3**** Consent of Vega Consultants Ltd.
24.1** Power of Attorney (included on signature page).
99.1 Secured Convertible Term Note, incorporated by reference to Exhibit 4.6 of the Company's Form
20-F filed on June 17, 2004.
99.2 Ordinary Shares Purchase Warrant, incorporated by reference to Exhibit 4.6 of the Company's
Form 20-F filed on June 17, 2004.
-------------
* Previously filed with the SEC on November 24, 2003 as Exhibit 4.1 to the
Company's Registration Statement on Form S-8, SEC File Number 333-110696,
and incorporated herein by reference.
** Previously filed
*** Previously filed as an exhibit to the Registrant's annual report on Form
20-F for the fiscal year ended December 31, 2003, filed with the SEC on
June 17, 2004 (SEC File No. 001-14184), and incorporated herein by
reference.
**** Filed herewith.
ITEM 10. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the
most recent post- effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed with or furnished
to the Commission by the registrant pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
20
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
(4) To file a post-effective amendment to the registration statement to
include any financial statements required by Item 8.A of Form 20-F at
the start of any delayed offering or throughout a continuous offering.
Financial statements and information otherwise required by Section
10(a)(3) of the Act need not be furnished, provided that the
registrant includes in the prospectus, by means of a post-effective
amendment, financial statements required pursuant to this paragraph
(a)(4) and other information necessary to ensure that all other
information in the prospectus is at least as current as the date of
those financial statements. Notwithstanding the foregoing, with
respect to registration statements on Form F-3, a post-effective
amendment need not be filed to include financial statements and
information required by Section 10(a)(3) of the Act Item 8.A of Form
20-F if such financial statements and information are contained in
periodic reports filed with or furnished to the Commission by the
registrant pursuant to Section 13 or Section l5(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the Form
F-3.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or Section 15(d)
of the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section l5(d) of
the Securities Exchange Act of 1934) that is incorporated by reference in
the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to the directors, officers and controlling persons
of the registrant pursuant to the provisions described under "Item 8.
Indemnification of Directors and Officers" above, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of our counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
21
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form F-3 and has duly caused this Amendment No. 1 to
its registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in Misgav, in the State of Israel, on September 13,
2004.
B.O.S. BETTER ONLINE SOLUTIONS LTD.
--------------------------------------------------
BY: /s/ Adiv Baruch /s/ Nehemia Kaufman
--------------------- -----------------------
NAME: Adiv Baruch Nehemia Kaufman
TITLE: President and Chief Chief Financial Officer
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to the Registration Statement has been signed by the following
persons in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
--------- ----- ----
* Chairman of the Board of Directors September 13, 2004
---------------------------------
Mr. Edouard Cukierman
* President and Chief Executive Officer of September 13, 2004
--------------------------------- the Board of Directors
Mr. Adiv Baruch (Principal Executive Officer)
* Chief Financial Officer September 13, 2004
--------------------------------- (Principal Financial and Accounting Officer)
Mr. Nehemia Kaufman
* Director September 13, 2004
---------------------------------
Mr. Israel Gal
* Director September 13, 2004
---------------------------------
Mr. Yair Shamir
* Director September 13, 2004
---------------------------------
Mr. Ronen Zavlik
* Director September 13, 2004
---------------------------------
Mr. Andrea Mandel-Mantello
* Director September 13, 2004
---------------------------------
Mr. Avishai Gluck
* Director September 13, 2004
---------------------------------
Dr. Yael Ilan
* Director September 13, 2004
---------------------------------
Prof. Adi Raveh
AUTHORIZED REPRESENTATIVE IN THE U.S.:
Corporation Service Company
BY: *
----------------------
NAME: David Nickelson
TITLE: Assistant Secretary
DATE: September 13, 2004
*BY /s/ ADIV BARUCH
-------------------
(ATTORNEY-IN-FACT)
CONSENT
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement on Form F-3 and related prospectus of BOS Better Online
Solutions Ltd. for the registration of up to 1,190,228 of its ordinary shares.
/s/ Vega Consultants Ltd.
-------------------------
VEGA CONSULTANTS LTD.
Tel Aviv, Israel
September 5, 2004