RADVISION LTD, 424B4, 2000-03-14

RADVISION LTD
424B4, 2000-03-14
COMPUTER COMMUNICATIONS EQUIPMENT

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<PAGE>
As Filed Pursuant to Rule 424(b)(4)
Registration No. 333-30916
PROSPECTUS
3,800,000 SHARES

[LOGO]

ORDINARY SHARES

------------------------------------------------------------

This is our initial public offering of ordinary shares. We are offering
3,800,000 ordinary shares. No public market currently exists for our ordinary
shares.

Our ordinary shares have been approved for quotation on the Nasdaq National
Market under the symbol RVSN.

INVESTING IN THE ORDINARY SHARES INVOLVES RISKS. RISK FACTORS BEGIN ON PAGE 4.

<TABLE>
<CAPTION>
Per Share Total
--------- -----------
<S> <C> <C>
Public Offering Price....................................... $20.00 $76,000,000
Underwriting Discount....................................... $ 1.40 $ 5,320,000
Proceeds to RADVision....................................... $18.60 $70,680,000
</TABLE>

We have granted the underwriters the right to purchase up to 570,000 additional
ordinary shares within 30 days to cover over-allotments.

Upon the sale of the ordinary shares in the initial public offering, we and some
of our existing shareholders will sell an additional 1,625,228 ordinary shares
to Siemens and an additional 1,000,000 ordinary shares to Samsung in a
concurrent private placement at $17.00 per ordinary share.

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 ISRAEL SECURITIES AUTHORITY HAS GRANTED US AN EXEMPTION FROM ISRAEL'S
PROSPECTUS DELIVERY REQUIREMENTS APPLICABLE TO THIS OFFERING. YOU SHOULD NOT
INTERPRET THAT EXEMPTION AS ENDORSING THE MATTERS CONTAINED IN THIS PROSPECTUS
OR AS AN APPROVAL OF THEIR RELIABILITY OR ADEQUACY, NOR SHOULD YOU INTERPRET
THAT EXEMPTION AS AN EXPRESSION OF OPINION CONCERNING THE QUALITY OF THE
SECURITIES OFFERED BY THIS PROSPECTUS.

Lehman Brothers, on behalf of the underwriters, expects to deliver the ordinary
shares to purchasers on or about March 17, 2000.

- --------------------------------------------------------------------------------
LEHMAN BROTHERS

SALOMON SMITH BARNEY

U.S. BANCORP PIPER JAFFRAY

FIDELITY CAPITAL MARKETS
A DIVISION OF NATIONAL FINANCIAL SERVICES CORPORATION

March 13, 2000
<PAGE>
[Picture of packet network depicting deployment of
RADVision products and technology]
<PAGE>
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 4
Forward-Looking Statements............ 13
Note to Investors..................... 13
Private Placement..................... 14
Use Of Proceeds....................... 14
Dividend Policy....................... 14
Capitalization........................ 15
Dilution.............................. 16
Selected Consolidated Financial
Data................................ 17
Management's Discussion And Analysis
Of Financial Condition And Results
Of Operations....................... 18
Business.............................. 30
Management............................ 45
</TABLE>

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Principal Shareholders................ 55
Related Party Transactions............ 57
Shares Eligible For Future Sale....... 61
Description Of Share Capital.......... 63
Conditions In Israel.................. 66
Taxation And Government Programs...... 68
Underwriting.......................... 77
Legal Matters......................... 80
Experts............................... 80
Enforceability Of Civil Liabilities... 80
Where You Can Find Additional
Information......................... 81
Index To Consolidated Financial
Statements.......................... F-1
</TABLE>

Until April 7, 2000, 25 days after the date of this prospectus, all dealers
that buy, sell or trade our ordinary shares, whether or not participating in
this offering, may be required to deliver a prospectus. This is in addition to
the dealers' obligation to deliver a prospectus when acting as underwriters and
when selling their unsold allotments or subscriptions.

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<PAGE>
PROSPECTUS SUMMARY

THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED IN THIS PROSPECTUS. BEFORE YOU
DECIDE TO INVEST IN OUR ORDINARY SHARES, YOU SHOULD CAREFULLY READ THE ENTIRE
PROSPECTUS, INCLUDING THE SECTION ENTITLED "RISK FACTORS" AND OUR CONSOLIDATED
FINANCIAL STATEMENTS AND THE NOTES TO THOSE FINANCIAL STATEMENTS.

RADVISION

We are a leading designer, developer and supplier of products and technology
that enable real-time voice, video and data communications over packet networks,
including the Internet and other networks based on the Internet protocol or IP.
We have over 250 customers including Alcatel, Bosch, Cisco Systems, Madge
Networks, Nippon Telegraph & Telephone, Nortel Networks, Philips Electronics,
Shanghai Bell, Siemens and 3Com. Our products and technology are used by our
customers to develop systems that enable enterprises and service providers to
migrate their voice and video communications from traditional telephone networks
to next generation packet networks.

The use of packet networks for real-time voice, video and data
communications is expected to grow dramatically. This anticipated growth is due
to the inherent benefits of packet networks and the advent of new technologies
and standards that have enabled real-time communications over these networks.
ICM Global Intelligence, a market research firm, forecasts that revenues for
network equipment associated with voice-over-IP, or IP telephony, will grow from
$477 million in 1999 to $7.1 billion in 2004. Perey Research & Consulting, an
industry consulting firm, forecasts revenues for network equipment associated
with IP video communications to grow from $22 million in 1999 to more than
$643 million in 2003.

We are one of the few companies to offer customers IP communications
products and technology that support both real-time voice and video as well as
voice-only packet-based communications. Our products and technology consist of:

- RADVision gateways, which interface between traditional telephone networks
and IP networks;

- RADVision gatekeepers, which control, manage and monitor real-time voice,
video and data traffic over packet networks;

- RADVision IP conferencing bridges, which enable voice and multimedia
conferencing over packet networks among three or more participants; and

- RADVision software development kits, which provide the core technology
necessary to build interoperable, standards-compliant products,
applications and services for real-time voice and video communication over
packet networks.

We believe that we have established ourselves as a technology leader in
providing enabling technology and products for a broad range of standards-based
IP communications products and services. Our goal is to continue to be the
leading provider of innovative products and technology for real-time IP
communications. Our customers rely on our accumulated expertise with IP
communications standards and technology to significantly reduce their
development cycle and improve their time to market in the rapidly growing market
for IP-based voice and video communication. Our customers can deploy our
products as a complete network solution for real-time IP communications,
integrate our products into their own IP communications systems, or use our
technology to build their own standards-compliant IP communications products,
systems and applications for enterprises and service providers.

We were incorporated under the laws of the State of Israel in 1992 and began
operations in October 1992. Our principal executive offices are located at 24
Raoul Wallenberg St., Tel Aviv 69719, Israel and our telephone number is
011-972-3-645-5220.

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THE OFFERING

Ordinary shares offered in this offering..... 3,800,000 shares

Private placement

Ordinary shares offered by us to Siemens... 365,767 shares

Ordinary shares offered by us to Samsung... 225,055 shares

Ordinary shares to be outstanding after this
offering and the private placement......... 18,028,596 shares

Use of proceeds.............................. We expect to use the net proceeds from this
offering to finance the continued growth of
our business and for general corporate
purposes.

Nasdaq National Market symbol................ RVSN
</TABLE>

The number of ordinary shares referred to in the preceding table to be
outstanding after this offering excludes:

- 3,048,873 shares issuable upon the exercise of outstanding options under
our share option plans; and

- up to 61,900 additional ordinary shares reserved for issuance under our
share option plans.

PRIVATE PLACEMENT

Concurrently with this offering, Samsung Electro-Mechanics Co. Ltd. and
Samsung Venture Investment Corporation, members of the Samsung group, and
Siemens Aktiengesellschaft have agreed to purchase an aggregate of 2,625,228 of
our ordinary shares at $17.00 per ordinary share in a private placement. Of the
2,625,228 ordinary shares, we will sell 590,822 ordinary shares in the private
placement and the remaining 2,034,406 ordinary shares will be sold by some of
our existing shareholders, including our chairman of the board, our chief
executive officer and some of our other directors.

ABOUT THIS PROSPECTUS

Unless otherwise indicated, all information contained in this prospectus:

- gives effect to the sale of an aggregate of 590,822 ordinary shares by us
to Siemens and Samsung in a private placement concurrent with this
offering at $17.00 per ordinary share to be effected immediately after the
closing of this offering;

- assumes no exercise of the underwriters' option to purchase from us up to
570,000 additional ordinary shares to cover over-allotments;

- reflects the conversion of all our preferred shares into ordinary shares
on a 1-to-1 basis before the share recapitalization referred to below;

- reflects the conversion of 2,770 ordinary shares into deferred shares
before the share dividend referred to below; and

- reflects a 211-for-1 share recapitalization of our ordinary shares,
following the conversion of our preferred shares into ordinary shares, as
the result of a share split and share dividend that will be effected
before this offering.
------------------------

We have a registered trademark for RADVision-Registered Trademark-. All
other trademarks and trade names appearing in this prospectus are owned by their
holders.

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SUMMARY CONSOLIDATED FINANCIAL DATA

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
--------------------------
PRO FORMA
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 2,605 $81,391
Working capital............................................. 814 79,600
Total assets................................................ 13,261 92,047
Total bank debt, net of current maturities.................. 67 67
Total shareholders' equity.................................. 3,481 82,268
</TABLE>

Pro forma basic and diluted net loss per ordinary share gives effect to the
conversion of all outstanding preferred shares into ordinary shares, which will
take place before the completion of this offering.

The pro forma as adjusted information included above in the consolidated
balance sheet data gives effect to:

- the conversion of our preferred shares;

- the issuance of 52,750 ordinary shares upon the exercise of options after
December 31, 1999 and the receipt of $62,500 in proceeds from the option
exercise;

- this offering of our ordinary shares; and

- the private placement by us of 590,822 ordinary shares to Siemens and
Samsung at $17.00 per ordinary share.

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RISK FACTORS

INVESTING IN OUR ORDINARY SHARES INVOLVES A HIGH DEGREE OF RISK. BEFORE
PURCHASING OUR ORDINARY SHARES, YOU SHOULD CAREFULLY CONSIDER THE RISKS
DESCRIBED BELOW IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS. OUR
BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION MAY BE MATERIALLY AND
ADVERSELY AFFECTED DUE TO ANY OF THE FOLLOWING RISKS. THE TRADING PRICE OF OUR
ORDINARY SHARES COULD DECLINE DUE TO ANY OF THESE RISKS, AND YOU COULD LOSE ALL
OR PART OF YOUR INVESTMENT.

RISKS RELATING TO OUR BUSINESS

WE HAVE A HISTORY OF LOSSES AND WE CANNOT ASSURE YOU THAT WE WILL OPERATE
PROFITABLY IN THE FUTURE.

We incurred significant losses in every fiscal year from our inception and
we may continue to incur losses in the future. We reported net losses of
$829,000 and $2,696,000 for 1998 and 1999. As of December 31, 1999, our
accumulated deficit was $9,277,000. We cannot assure you that we will operate
profitably in the future.

OUR QUARTERLY FINANCIAL PERFORMANCE IS LIKELY TO VARY SIGNIFICANTLY IN THE
FUTURE. OUR REVENUES AND OPERATING RESULTS IN ANY QUARTER MAY NOT BE INDICATIVE
OF OUR FUTURE PERFORMANCE AND IT MAY BE DIFFICULT FOR INVESTORS TO EVALUATE OUR
PROSPECTS.

Our quarterly revenues and operating results have varied significantly in
the past and are likely to continue to vary significantly in the future.
Fluctuations in our quarterly financial performance may result from the fact
that we may receive a small number of relatively large orders in any given
quarter. Because these orders generate disproportionately large revenues, our
revenues and the rate of growth of our revenues for that quarter may reach
levels that may not be sustained in subsequent quarters. In addition, some of
our products have lengthy sales cycles. For example, it typically takes from
three to twelve months after we first begin discussions with a prospective
customer before we receive an order from that customer. We also have a limited
order backlog, which makes revenues in any quarter substantially dependent upon
orders we deliver in that quarter. Because of these factors, our revenues and
operating results in any quarter may not meet market expectations or be
indicative of future performance and it may be difficult for investors to
evaluate our prospects.

UNLESS OUR REVENUES GROW IN EXCESS OF OUR INCREASING EXPENSES, WE WILL NOT BE
PROFITABLE.

We expect that our operating expenses will increase significantly in the
future, both to finance the planned expansion of our sales and marketing and
research and development activities and to fund the anticipated growth in our
revenues. However, our revenues may not grow apace or even continue at their
current level. If our revenues do not increase as anticipated or if expenses
increase at a greater pace than our revenues, we will not be profitable. Even if
we achieve profitability, we may not be able to sustain or increase
profitability on a quarterly or annual basis.

IF THE USE OF PACKET-BASED NETWORKS AS A MEDIUM FOR REAL-TIME VOICE, VIDEO AND
DATA COMMUNICATIONS DOES NOT CONTINUE TO GROW, THE DEMAND FOR OUR PRODUCTS AND
TECHNOLOGY WILL SLOW AND OUR REVENUES WILL DECLINE.

Our future success depends on the growth in the use of packet-based
networks, including the Internet and other IP networks, as a medium for
real-time voice, video and data communications. If the use of packet-based
networks does not expand, the demand for our products and technology will slow
and our revenues will decline. Market acceptance of packet-based networks as a
viable alternative to circuit-switched networks for the transmission of
real-time voice and video communications is not proven and may be inhibited by
concerns about quality of service and potentially inadequate development of the
necessary infrastructure.

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WE MUST DEVELOP NEW PRODUCTS AND TECHNOLOGY AND ENHANCEMENTS TO EXISTING
PRODUCTS AND TECHNOLOGY TO REMAIN COMPETITIVE. IF WE FAIL TO DO SO, WE MAY LOSE
MARKET SHARE TO OUR COMPETITORS AND OUR REVENUES MAY DECLINE.

The market for our products and technology is characterized by rapid
technological change, new and improved product introductions, changes in
customer requirements and evolving industry standards. Our future success will
depend to a substantial extent on our ability to:

- timely identify new market trends; and

- develop, introduce and support new and enhanced products and technology on
a successful and timely basis.

If we fail to develop and deploy new products and technology or product and
technology enhancements on a successful and timely basis, we may lose market
share to our competitors and our revenues may decline.

We are currently developing new products and technology and enhancements to
our existing products and technology. For example, we are currently developing
technology in the form of a software development kit designed to be compatible
with the new Media Gateway Control Protocol industry standard, commonly referred
to as MGCP, a standard complementary to the H.323 standard designed for larger
networks, as well as a gatekeeper software development kit designed for
telecommunications carriers. We expect to commercially introduce these software
development kits in 2000. We may not be successful in developing or introducing
to the market these or any other new products or technology.

WE HAVE INVESTED, AND WILL CONTINUE TO INVEST, IN PRODUCTS AND TECHNOLOGY WHICH
COMPLY WITH THOSE INDUSTRY STANDARDS WHICH WE BELIEVE HAVE BEEN, OR WILL BE,
BROADLY ADOPTED. IF ONE OR MORE ALTERNATIVE STANDARDS WERE TO GAIN GREATER
ACCEPTANCE THAN THE STANDARDS WHICH WE BELIEVE HAVE OR WILL BE BROADLY ADOPTED,
SALES OF OUR PRODUCTS AND TECHNOLOGY MIGHT SUFFER.

Currently, all of our revenues are derived from the sale of products and
technology which comply with the H.323 industry standard for real-time voice,
video and data communications over packet networks. If one or more alternative
standards, including, for example, Session Initiation Protocol, commonly
referred to as SIP, were to gain general acceptance, our sales of
H.323-compliant products and our anticipated sales of MGCP-compliant products
might suffer. Because of our concentration on developing H.323 and
MGCP-compliant products and technology, we might be at a disadvantage in
developing and marketing products and technology compliant with alternative
standards and our revenues might decline if alternative standards were to gain
general acceptance. In addition, we intend to invest substantial resources to
develop new products and technology to address industry standards that we expect
to be adopted and to address markets which we expect to develop. If these
expectations ultimately prove to be incorrect, our investments may be of little
or no value, even if we are successful in developing the new products or
technology.

COMPETITION IN THE MARKETS FOR OUR PRODUCTS AND TECHNOLOGY IS INTENSE. WE MAY
NOT BE ABLE TO COMPETE EFFECTIVELY IN THESE MARKETS AND WE MAY LOSE MARKET SHARE
TO OUR COMPETITORS.

The markets for our products and technology are highly competitive and we
expect competition to intensify in the future. We may not be able to compete
effectively in these markets and we may lose market share to our competitors.
The principal competitors in the market for our products currently include
Ezenia!, formerly known as Video-Server, White Pine Software and the in-house
developers employed by manufacturers of telecommunications equipment and
systems. Other companies, including Accord Networks, have announced products
that may compete with our products. The principal competitors in the market for
our technology, primarily sold in the form of software development kits,

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currently include DataBeam, a subsidiary of Lotus/IBM; DynamicSoft; Elemedia, a
subsidiary of Lucent; and Trillium Digital Systems. Additional competitors may
enter each of our markets at any time. Moreover, our customers may seek to
develop internally the products that we currently sell to them and compete with
us.

OUR SOFTWARE DEVELOPMENT KIT REVENUES WILL DECREASE IF OUR CUSTOMERS CHOOSE TO
USE SOURCE CODE WHICH IS AVAILABLE FOR FREE.

Both Vovida Networks, Inc. and OpenH323 offer H.323 source code for free. In
addition, Vovida offers MGCP and SIP source code for free. If our customers
choose to use the free source code offered by these organizations instead of
purchasing our technology, our revenues from the sale of our software
development kits will decline.

MOST OF OUR COMPETITORS HAVE GREATER RESOURCES THAN WE DO. THIS MAY LIMIT OUR
ABILITY TO COMPETE EFFECTIVELY WITH THEM AND DISCOURAGE CUSTOMERS FROM
PURCHASING OUR PRODUCTS AND TECHNOLOGY.

Most of our competitors have greater financial, personnel and other
resources than we do, which may limit our ability to compete effectively with
them. These competitors may be able to respond more quickly to new or emerging
technologies or changes in customer requirements. These competitors may also:

- benefit from greater economies of scale;

- offer more aggressive pricing; or

- devote greater resources to the promotion of their products.

Any of these advantages may discourage customers from purchasing our
products and technology. If we are unable to compete successfully against our
existing or potential competitors, our revenues and margins will decline.

OUR AGREEMENTS WITH OUR CUSTOMERS DO NOT HAVE MINIMUM PURCHASE REQUIREMENTS. IF
OUR CUSTOMERS DECREASE OR CEASE PURCHASING OUR PRODUCTS AND TECHNOLOGY, OUR
REVENUES WILL DECLINE.

Our agreements with our customers do not have minimum purchase requirements
nor do they require our customers to purchase any products from us. If any or
all of our customers cease to purchase or reduce their purchases of our products
and technology at any time, our revenues will decline. We cannot assure you that
our customers will not choose to independently develop for themselves, or
purchase from others, products and technology similar to our products and
technology. Moreover, if our customers do not successfully market and sell the
systems and products into which they incorporate our products and technology,
the demand of these customers for our products and technology will decline. Our
customers' sales of systems and products containing our products and technology
may be adversely affected by circumstances over which we have no control and
over which our customers may have little, if any, control.

WE ARE DEPENDENT UPON A LIMITED NUMBER OF SUPPLIERS OF KEY COMPONENTS. IF THESE
SUPPLIERS DELAY OR DISCONTINUE MANUFACTURE OF THESE COMPONENTS, WE MAY
EXPERIENCE DELAYS IN SHIPMENTS, INCREASED COSTS AND CANCELLATION OF ORDERS FOR
OUR PRODUCTS.

We currently obtain key components used in the manufacture of our products
from a single supplier or from a limited number of suppliers. We do not have
long-term supply contracts with our suppliers. Any delays in delivery of or
shortages in these components could interrupt and delay manufacturing of our
products and result in the cancellation of orders for our products. In addition,
these suppliers could discontinue the manufacture or supply of these components
at any time. We may

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not be able to identify and integrate alternative sources of supply in a timely
fashion or at all. Any transition to alternate suppliers may result in delays in
shipment and increased expenses and may limit our ability to deliver products to
our customers. Furthermore, if we are unable to identify an alternative source
of supply, we would have to modify our products to use a substitute component,
which may cause delays in shipments, increased design and manufacturing costs
and increased prices for our products.

Recently, we have experienced shortages in the supply of flash memory
components that we integrate into our gateway and IP conferencing bridges as a
result of an earthquake in Taiwan, the location of the manufacturer who supplies
our principal supplier of flash memory components. We cannot assure you that we
will be able to obtain sufficient supplies of flash memory components in a
timely manner or at all. If we cannot obtain sufficient supplies of these
components, the shipment of our products may be delayed and we may lose
customers. Even if sufficient supplies are available, we cannot assure you that
these supplies will be available to us on favorable terms.

WE INTEND TO MANUFACTURE AND MAINTAIN AN INVENTORY OF CUSTOMIZED PRODUCTS FOR
SOME CUSTOMERS WHO WILL HAVE NO OBLIGATION TO PURCHASE THESE PRODUCTS. IF THESE
CUSTOMERS FAIL TO PURCHASE THESE PRODUCTS, OUR FINANCIAL RESULTS MAY BE HARMED.

To satisfy the timing requirements of some of our larger customers, we
intend to manufacture and maintain an inventory of some of our products that we
will customize to the specifications of these customers. The size of this
inventory will be based upon the purchasing history and forecasts of these
customers, which we currently estimate to be approximately two months of sales
to these customers. These customers will have no obligation to purchase the
inventoried products at any time. If the customers for whom the inventoried
products are manufactured do not purchase them, we may be required to modify the
products for sale to others and we may be unable to find other purchasers. In
either case, the value of the products may be materially diminished which may
have a negative impact on our financial results.

UNDETECTED ERRORS MAY INCREASE OUR COSTS AND IMPAIR THE MARKET ACCEPTANCE OF OUR
PRODUCTS AND TECHNOLOGY.

Our products and technology have occasionally contained, and may in the
future contain, undetected errors when first introduced or when new versions are
released. Our customers integrate our products and technology into systems and
products that they develop themselves or acquire from other vendors. As a
result, when problems occur in equipment or a system into which our products or
technology have been incorporated, it may be difficult to identify the cause of
the problem. Regardless of the source of these errors, we must divert the
attention of our engineering personnel from our research and development efforts
to address the errors. We cannot assure you that we will not incur warranty or
repair costs, be subject to liability claims for damages related to product
errors or experience delays as a result of these errors in the future. Any
insurance policies that we may have may not provide sufficient protection should
a claim be asserted. Moreover, the occurrence of errors, whether caused by our
products or technology or the products of another vendor, may result in
significant customer relations problems and injury to our reputation and may
impair the market acceptance of our products and technology.

WE RELY ON THIRD PARTY TECHNOLOGY LICENSES. IF WE ARE UNABLE TO CONTINUE TO
LICENSE THIS TECHNOLOGY ON REASONABLE TERMS, WE MAY FACE DELAYS IN RELEASES OF
OUR PRODUCTS AND MAY BE REQUIRED TO REDUCE THE FUNCTIONALITY OF OUR PRODUCTS
DERIVED FROM THIS TECHNOLOGY.

We rely on technology that we license from third parties, including software
that is integrated with internally developed software and used in our products
to perform key functions. For example, we

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license T.120 data collaboration software from Data Connection Limited and voice
compression technology from Siemens. If we are unable to continue to license any
of this software on commercially reasonable terms, we will face delays in
releases of our products or will be required to reduce the functionality of our
products until equivalent technology can be identified, licensed or developed,
and integrated into our current products.

THIRD PARTIES MAY INFRINGE UPON OR MISAPPROPRIATE OUR INTELLECTUAL PROPERTY,
WHICH COULD IMPAIR OUR ABILITY TO COMPETE EFFECTIVELY AND NEGATIVELY AFFECT OUR
PROFITABILITY.

Our success depends upon the protection of our technology, trade secrets and
trademarks. Our profitability could suffer if third parties infringe upon our
intellectual property rights or misappropriate our technology and other assets.
To protect our rights to our intellectual property, we rely on a combination of
trade secret protection, trademark law, confidentiality agreements and other
contractual arrangements. The protective steps we have taken may be inadequate
to deter infringement or misappropriation. We may be unable to detect the
unauthorized use of our intellectual property or take appropriate steps to
enforce our intellectual property rights. Policing unauthorized use of our
products and technology is difficult. In addition, the laws of some foreign
countries in which we currently or may in the future sell our products do not
protect our proprietary rights to as great an extent as do the laws of the
United States. Failure to adequately protect or to promptly detect unauthorized
use of our intellectual property could devalue our proprietary content and
impair our ability to compete effectively. Further, defending our intellectual
property rights could result in the expenditure of significant financial and
managerial resources, whether or not the defense is successful.

OUR PRODUCTS MAY INFRINGE ON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS, WHICH
COULD INCREASE OUR COSTS AND NEGATIVELY AFFECT OUR PROFITABILITY.

Third parties may assert against us infringement claims or claims that we
have infringed a patent, copyright, trademark or other proprietary right
belonging to them. For example, in 1998, Lucent alleged that some products
manufactured by us infringed specified Lucent patents. See "Business--Legal
Proceedings." Any infringement claim, even if not meritorious, could result in
the expenditure of significant financial and managerial resources and could
negatively affect our profitability.

OUR GROWTH WILL CONTINUE TO PLACE A SIGNIFICANT STRAIN ON OUR RESOURCES AND MUST
BE MANAGED EFFECTIVELY. IF WE ARE UNABLE TO MANAGE OUR EXPANDING OPERATIONS
EFFECTIVELY, OUR REVENUES MAY NOT INCREASE, OUR COST OF OPERATIONS MAY RISE AND
WE MAY REMAIN UNPROFITABLE.

Because of the growth in our revenues, we are actively expanding our
operations. If we are unable to manage our expanding operations effectively, our
revenues may not increase, our cost of operations may rise and we may remain
unprofitable. From January 1, 1998 through December 31, 1999, the number of our
employees increased from 42 to 192. This growth has placed, and will continue to
place, a significant strain on our managerial, operational and financial
resources. We cannot assure you that:

- we have made adequate allowance for the costs and risks associated with
this expansion; or

- our systems, procedures or controls will be adequate to support our
expanding operations.

Any delay in implementing, or transitioning to, new or enhanced systems,
procedures or controls may seriously harm our ability to forecast sales demand
accurately, manage our product inventory and record and report financial and
management information on a timely and accurate basis.

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OUR BUSINESS COULD BE ADVERSELY AFFECTED IF OUR SENIOR MANAGERS, INCLUDING OUR
CHIEF FINANCIAL OFFICER WHO RECENTLY JOINED US, DO NOT WORK TOGETHER EFFECTIVELY
AS A TEAM.

Our chief financial officer joined us in November 1999 and has not
previously worked with us. If our senior managers do not work together
effectively as a team to successfully manage our growth, our business could be
adversely affected.

WE ARE DEPENDENT ON OUR SENIOR MANAGEMENT, PARTICULARLY AMI AMIR, OUR CO-FOUNDER
AND CHIEF EXECUTIVE OFFICER. ANY LOSS OF THE SERVICES OF OUR SENIOR MANAGEMENT
WOULD NEGATIVELY AFFECT OUR BUSINESS.

Our future success depends to a large extent on the continued services of
our senior management and key personnel. In particular, we are highly dependent
on the services of Ami Amir, our co-founder and chief executive officer. We do
not carry key-man life insurance for any of our senior management. Any loss of
the services of Mr. Amir, other members of senior management or other key
personnel would negatively affect our business.

OUR FAILURE TO RETAIN AND ATTRACT PERSONNEL COULD HARM OUR BUSINESS, OPERATIONS
AND PRODUCT DEVELOPMENT EFFORTS.

Our products require sophisticated research and development, marketing and
sales, and technical customer support. Our success depends on our ability to
attract, train and retain qualified research and development, marketing and
sales and technical customer support personnel. We intend to increase
substantially the number of our employees who perform these functions.
Competition for personnel in all of these areas is intense and we may not be
able to hire sufficient personnel to achieve our goals or support the
anticipated growth in our business. The market for the highly-trained personnel
we require is very competitive, due to the limited number of people available
with the necessary technical skills and understanding of our products and
technology. If we fail to attract and retain qualified personnel, our business,
operations and product development efforts would suffer.

OUR NON-COMPETITION AGREEMENTS WITH OUR EMPLOYEES MAY NOT BE ENFORCEABLE. IF ANY
OF THESE EMPLOYEES LEAVES US AND JOINS A COMPETITOR, OUR COMPETITOR COULD
BENEFIT FROM THE EXPERTISE OUR FORMER EMPLOYEE GAINED WHILE WORKING FOR US.

We currently have non-competition agreements with all of our employees in
Israel. These agreements prohibit our employees, if they cease to work for us,
from directly competing with us or working for our competitors. Under current
U.S. and Israeli law, we may not be able to enforce these non-competition
agreements. If we are unable to enforce any of these agreements, our competitors
that employ our former employees could benefit from the expertise our former
employees gained while working for us. In addition, we do not have
non-competition agreements with our employees outside of Israel.

GOVERNMENT REGULATION COULD DELAY OR PREVENT PRODUCT OFFERINGS, RESULTING IN
DECREASED REVENUES.

Our products are designed to operate with local telephone systems throughout
the world and therefore must comply with the regulations of the Federal
Communications Commission and other regulations affecting the transmission of
voice, video and data over telecommunications and other media. Each time we
introduce a new product, we are required to obtain regulatory approval in the
countries in which it is offered. In addition, we must periodically obtain
renewals of the regulatory approvals for the use of our products in countries
where we have already obtained approval. We cannot assure you that regulatory
approval for our current products will be renewed or that regulatory approval
for future products will be obtained. If we do not obtain the necessary
approvals and renewals, we may be required to delay the sales of our products in
those countries until approval for use is granted or renewed. This could result
in decreased revenues.

9
<PAGE>
RISKS RELATING TO THIS OFFERING

SOME OF OUR SHAREHOLDERS, INCLUDING YEHUDA AND ZOHAR ZISAPEL, DUE TO A VOTING
AGREEMENT AND THE SIZE OF THEIR SHAREHOLDINGS, WILL HAVE SIGNIFICANT INFLUENCE
OVER MATTERS REQUIRING SHAREHOLDER APPROVAL, WHICH COULD DELAY OR PREVENT A
CHANGE OF CONTROL.

After this offering and the private placement, Yehuda and Zohar Zisapel, who
are brothers, will beneficially own, directly or through entities they control,
approximately 25.0% of the ordinary shares then outstanding. In addition,
concurrent with the private placement, Yehuda and Zohar Zisapel, Ami Amir,
Siemens and some of our other existing shareholders, who will collectively own
approximately 47.7% of the ordinary shares after this offering and the private
placement, have agreed to enter into a voting agreement under which they will
act together in the nomination and election of directors. As a result, these
shareholders may control the outcome of various actions that require shareholder
approval. For example, they may be able to elect most of our directors, delay or
prevent a transaction in which shareholders might receive a premium over the
prevailing market price for their shares or prevent changes in control or
management.

A TOTAL OF 14,228,596, OR 78.9%, OF OUR OUTSTANDING ORDINARY SHARES FOLLOWING
THIS OFFERING AND THE CONCURRENT PRIVATE PLACEMENT ARE RESTRICTED FROM RESALE,
BUT MAY BE SOLD INTO THE MARKET IN THE NEAR FUTURE. THIS COULD CAUSE THE MARKET
PRICE OF OUR ORDINARY SHARES TO DROP SIGNIFICANTLY, EVEN IF OUR BUSINESS IS
DOING WELL.

After this offering and the concurrent private placement, we will have
18,028,596 ordinary shares outstanding. This includes the 3,800,000 ordinary
shares we are selling in this offering, which may be resold in the public market
immediately after this offering. The remaining 14,228,596 ordinary shares,
representing approximately 78.9% of our total outstanding ordinary shares
following this offering, will become available for resale in the public market
as shown in the chart below. As restrictions on resale end, the market price of
our ordinary shares could drop significantly if the holders of these restricted
shares sell them or are perceived by the market as intending to sell them.

<TABLE>
<CAPTION>
NUMBER OF SHARES/
PERCENTAGE OF TOTAL
OUTSTANDING DATE OF AVAILABILITY FOR RESALE INTO PUBLIC MARKET
- ------------------- ------------------------------------------------------------
<C> <S>
472,682 / 2.6% Upon the effective date of this prospectus under
Rule 144(k) of the Securities Act.
96,652 / 0.5% 90 days after the date of this prospectus, due to the
requirements of the U.S. securities laws.
10,875,784 / 60.3% 180 days after the date of this prospectus, due to an
agreement these shareholders have with the underwriters.
However, the underwriters may waive this restriction and
allow these shareholders to sell their shares at any time.
2,625,228 / 14.6% 270 days after the date of this prospectus, due to an
agreement these shareholders will enter into with us in
connection with the private placement.
158,250 / 0.9% More than 270 days after the date of this prospectus, due to
the requirements of the U.S. securities laws.
</TABLE>

OUR MANAGEMENT WILL HAVE BROAD DISCRETION CONCERNING THE USE OF THE PROCEEDS OF
THIS OFFERING, AND IF THE PROCEEDS ARE NOT APPLIED EFFECTIVELY, OUR RESULTS OF
OPERATIONS MAY SUFFER.

Our management will have broad discretion concerning the use of the proceeds
of this offering. Investors will be relying on the judgment of management for
the application of the proceeds of this offering. The results and the
effectiveness of the application of the proceeds are uncertain and if the
proceeds are not applied effectively, our results of operations may suffer.

10
<PAGE>
YOU WILL EXPERIENCE IMMEDIATE AND SIGNIFICANT DILUTION OF BOOK VALUE PER SHARE
FROM THE PRICE YOU PAY FOR ANY ORDINARY SHARES YOU PURCHASE IN THIS OFFERING.

The initial public offering price of our ordinary shares will be
substantially higher than the net tangible book value per ordinary share of the
outstanding ordinary shares immediately after this offering. Based on the
initial public offering price of $20.00 per ordinary share, you will incur
immediate dilution of $15.44 in the net tangible book value per ordinary share
from the price you pay for any ordinary shares you purchase in this offering.

IF WE ARE CHARACTERIZED AS A PASSIVE FOREIGN INVESTMENT COMPANY, OUR U.S.
SHAREHOLDERS MAY SUFFER ADVERSE TAX CONSEQUENCES, INCLUDING HIGHER TAX RATES AND
POTENTIALLY PUNITIVE INTEREST CHARGES ON THE PROCEEDS OF SHARE SALES.

Generally, if for any taxable year 75% or more of our gross income is
passive income, or at least 50% of our assets are held for the production of, or
produce, passive income, we may be characterized as a passive foreign investment
company for U.S. federal income tax purposes. If we are characterized as a
passive foreign investment company, our U.S. shareholders may suffer adverse tax
consequences, including having gains realized on the sale of our shares be
treated as ordinary income, rather than capital gain income, and having
potentially punitive interest charges apply to the proceeds of share sales. For
purposes of determining if we are a passive foreign investment company, the
proceeds of this offering will constitute a passive asset and the income
generated by the proceeds will, until we employ it in the course of our
business, constitute passive income. Therefore, the timeliness of our use of the
proceeds of this offering may affect our status as a passive foreign investment
company.

RISKS RELATING TO OUR LOCATION IN ISRAEL

CONDITIONS IN ISRAEL AFFECT OUR OPERATIONS AND MAY LIMIT OUR ABILITY TO PRODUCE
AND SELL OUR PRODUCTS, WHICH COULD DECREASE OUR REVENUES.

We are incorporated under Israeli law and our principal offices, our
manufacturing facilities and our research and development facilities are located
in Israel. Political, economic and military conditions in Israel directly affect
our operations. Since the establishment of the State of Israel in 1948, a number
of armed conflicts have taken place between Israel and its Arab neighbors and a
state of hostility, varying in degree and intensity, has led to security and
economic problems for Israel. We could be adversely affected by any major
hostilities involving Israel, the interruption or curtailment of trade between
Israel and its trading partners, a significant increase in inflation, or a
significant downturn in the economic or financial condition of Israel. Despite
the progress towards peace between Israel and its Arab neighbors, the future of
these peace efforts is uncertain. Several Arab countries still restrict business
with Israeli companies. We could be adversely affected by restrictive laws or
policies directed towards Israel or Israeli businesses.

BECAUSE ALL OF OUR REVENUES ARE GENERATED IN U.S. DOLLARS OR ARE LINKED TO THE
U.S. DOLLAR WHILE A PORTION OF OUR EXPENSES ARE INCURRED IN NEW ISRAELI SHEKELS,
OUR RESULTS OF OPERATIONS WOULD BE ADVERSELY AFFECTED IF INFLATION IN ISRAEL IS
NOT OFFSET ON A TIMELY BASIS BY A DEVALUATION OF THE NEW ISRAELI SHEKEL AGAINST
THE U.S. DOLLAR.

All of our revenues are in dollars or are linked to the dollar, while a
portion of our expenses, principally salaries and the related personnel
expenses, are in new Israeli shekels, or NIS. As a result, we are exposed to the
risk that the rate of inflation in Israel will exceed the rate of devaluation of
the NIS in relation to the dollar or that the timing of this devaluation lags
behind inflation in Israel. This would have the effect of increasing the dollar
cost of our operations. In 1997 and 1998, the rate of devaluation of the NIS
against the dollar exceeded the rate of inflation, a reversal from prior years.
However, in 1999, while the rate of inflation was low, there was a devaluation
of the dollar against the NIS. We cannot predict any future trends in the rate
of inflation in Israel or the rate of devaluation of

11
<PAGE>
the NIS against the dollar. If the dollar cost of our operations in Israel
increases, our dollar-measured results of operations will be adversely affected.

THE GOVERNMENT GRANTS WE HAVE RECEIVED FOR RESEARCH AND DEVELOPMENT EXPENDITURES
RESTRICT OUR ABILITY TO MANUFACTURE PRODUCTS AND TRANSFER TECHNOLOGIES OUTSIDE
OF ISRAEL AND REQUIRE US TO SATISFY SPECIFIED CONDITIONS THAT WE MAY FAIL TO
SATISFY. IF WE FAIL TO SATISFY THESE CONDITIONS, WE MAY BE REQUIRED TO REFUND
GRANTS PREVIOUSLY RECEIVED.

We currently receive grants from the government of Israel through the Office
of the Chief Scientist of the Ministry of Industry and Trade, commonly referred
to as the Chief Scientist, for the financing of a significant portion of our
research and development expenditures in Israel. In 1998 and 1999, we received
grants from the Chief Scientist totaling approximately $1.1 million and
$1.1 million, representing 26.0% and 14.3% of our total research and development
expenditures in these periods. The terms of the Chief Scientist grants restrict
our ability to manufacture products, or transfer technologies, developed using
Chief Scientist grants outside of Israel. This restriction may impair our
ability to enter into original equipment manufacturer agreements or similar
arrangements for those products or technologies. In the past, we obtained
approvals from the Chief Scientist for the licensing of source code of some of
our products and we expect that similar approvals will be required in the
future. We cannot assure you that the approvals of the Chief Scientist will be
obtained on terms that are acceptable to us. In addition, if we fail to comply
with any of the conditions imposed by the Chief Scientist, we may be required to
refund any payments previously received, together with interest and penalties.

THE TAX BENEFITS THAT WE CURRENTLY RECEIVE FROM OUR APPROVED ENTERPRISE PROGRAMS
REQUIRE US TO SATISFY SPECIFIED CONDITIONS. IF WE FAIL TO SATISFY THESE
CONDITIONS, WE MAY BE REQUIRED TO PAY ADDITIONAL TAXES AND WOULD LIKELY BE
DENIED THESE BENEFITS IN THE FUTURE.

The Investment Center of the Ministry of Industry and Trade has granted
approved enterprise status to several investment programs at our manufacturing
facility. The portion of our income derived from these approved enterprise
programs commencing when we begin to generate net income from these programs
will be exempt from tax for a period of two years and will be subject to a
reduced tax for an additional five to eight years, depending on the percentage
of our share capital held by non-Israelis. The benefits available to an approved
enterprise program are dependent upon the fulfillment of conditions stipulated
in applicable law and in the certificate of approval. If we fail to comply with
these conditions, in whole or in part, we may be required to pay additional
taxes for the period in which we benefited from the tax exemption or reduced tax
rates and would likely be denied these benefits in the future.

THE TAX BENEFITS AVAILABLE TO APPROVED ENTERPRISE PROGRAMS MAY BE REDUCED OR
ELIMINATED IN THE FUTURE. THIS WOULD LIKELY INCREASE OUR TAXES.

From time to time, the government of Israel has discussed reducing or
eliminating the benefits available to approved enterprise programs. We cannot
assure you that these tax benefits will be continued in the future at their
current levels or at all. If these tax benefits were reduced or eliminated, our
taxes would likely increase.

IT MAY BE DIFFICULT TO ENFORCE A U.S. JUDGMENT AGAINST US, OUR OFFICERS AND
DIRECTORS AND THE ISRAELI EXPERTS NAMED IN THIS PROSPECTUS OR TO ASSERT U.S.
SECURITIES LAWS CLAIMS IN ISRAEL OR SERVE PROCESS ON SUBSTANTIALLY ALL OF OUR
OFFICERS AND DIRECTORS AND THESE EXPERTS.

We are incorporated in Israel. Substantially all of our executive officers
and directors and the Israeli experts named in this prospectus are nonresidents
of the United States, and a substantial portion of our assets and the assets of
these persons are located outside the United States. Therefore, it may be
difficult for an investor, or any other person or entity, to enforce a U.S.
court judgment based upon the civil liability provisions of the U.S. federal
securities laws in an Israeli court against us or any of those persons or to
effect service of process upon these persons in the United States. Additionally,
it may be difficult for an investor, or any other person or entity, to enforce
civil liabilities under U.S. federal securities laws in original actions
instituted in Israel.

12
<PAGE>
FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that address our
strategy; the anticipated development of our products and technology; our
anticipated use of proceeds; our projected capital expenditures and liquidity;
our development of additional revenue sources; the market acceptance of our
products and technology; and our technological advancement. These statements may
be found in the sections of this prospectus entitled "Prospectus Summary," "Risk
Factors," "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" and in this prospectus
generally, including the section of this prospectus entitled "Business--Industry
Background" which contains information obtained from independent industry
sources. Actual results could differ materially from those anticipated in these
forward-looking statements as a result of various factors, including all the
risks discussed in "Risk Factors" and elsewhere in this prospectus.

In addition, statements that use the terms believe, do not believe, expect,
plan, intend, estimate, anticipate and similar expressions are intended to
identify forward-looking statements. All forward-looking statements in this
prospectus reflect our current views about future events and are based on
assumptions and are subject to risks and uncertainties. Except as required by
applicable law, including the securities laws of the United States, we do not
intend to update or revise any forward-looking statements.

NOTE TO INVESTORS

Investors may rely only on the information contained in this prospectus. We
and the underwriters have not authorized anyone to provide any different or
additional information. This prospectus is not an offer to sell or a
solicitation of an offer to buy ordinary shares in any jurisdiction where it is
unlawful. 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.

13
<PAGE>
PRIVATE PLACEMENT

Siemens and Samsung have agreed to purchase in a private placement
concurrently with this offering an aggregate of 2,625,228 ordinary shares from
us and some of our existing shareholders, including our chairman of the board,
our chief executive officer and some of our other directors. Each shareholder
participating in the private placement will sell approximately 19.3% of its
holdings. The price per share in the private placement was set to be equal to
the initial public offering price, net of the underwriting discount, up to a
maximum of $17.00 per share. Siemens and Samsung have represented that they will
be purchasing our ordinary shares for investment and not with a view to resale,
and have agreed to a 270-day lock-up following the closing of this offering.
Based on the initial public offering price of $20.00 per share, the price per
share in the private placement will be $17.00. The number of shares they will
purchase from us and our existing shareholders and the aggregate purchase price
they will pay to us and our existing shareholders are as follows:

<TABLE>
<CAPTION>
NUMBER OF ORDINARY SHARES AGGREGATE PURCHASE PRICE
--------------------------------- ----------------------------------
PRICE PER PURCHASED PURCHASED FROM OUR PAID TO OUR EXISTING
SHARE FROM US EXISTING SHAREHOLDERS PAID TO US SHAREHOLDERS
--------- --------- --------------------- ----------- --------------------
<S> <C> <C> <C> <C> <C>
Siemens.............. $17.00 365,767 1,259,461 $ 6,218,039 $21,410,837
Samsung.............. 17.00 225,055 774,945 3,825,935 13,174,065
------- --------- ----------- -----------
590,822 2,034,406 $10,043,974 $34,584,902
======= ========= =========== ===========
</TABLE>

Concurrent with Siemen's agreement to invest in us, we entered into a
licensing agreement with Siemens to license our technology to Siemens worldwide.
In addition, we have entered into a letter of intent with Samsung to jointly
develop voice over IP products and solutions. We believe that the private
placement and the associated business agreements will enhance our ongoing
relationships with these key strategic customers and will help us sustain our
market leadership position.

USE OF PROCEEDS

We estimate that we will receive net proceeds of approximately
$78.7 million from:

- the sale by us of 3,800,000 ordinary shares in this offering, after
deducting the underwriting discount and the estimated offering expenses;
and

- the sale by us of 590,822 ordinary shares to Siemens and Samsung in the
concurrent private placement at $17.00 per ordinary share.

We expect to use the net proceeds to finance the continued growth of our
business and for general corporate purposes. Our principal purposes for
conducting this offering are to:

- provide working capital for general corporate purposes;

- fund possible acquisitions of additional businesses and technologies or
investments in public or private companies in related businesses or the
establishment of joint ventures that are complementary to our current or
future business; and

- provide a public market for our ordinary shares, which would facilitate
our issuing equity securities as consideration for acquisitions and
incentive compensation to employees.

We have no plans or commitments for any specific acquisition, investment or
joint venture and we cannot be sure that we will complete any acquisition,
investment or joint venture.

Pending use of the net proceeds as described above, we intend to invest the
net proceeds in short-term, interest-bearing, investment-grade instruments, or
bank deposits with interest and principal linked to the U.S. dollar or the
Israel consumer price index, or deposit the net proceeds in U.S. dollar bank
accounts in Israel or outside of Israel.

DIVIDEND POLICY

We have never declared or paid any cash dividend on our ordinary shares and
we do not anticipate paying any cash dividends on our ordinary shares in the
future. We currently intend to retain all future earnings to finance our
operations and to expand our business.

14
<PAGE>
CAPITALIZATION

The following table presents our capitalization as of December 31, 1999:

- on an actual basis;

- on a pro forma basis to give effect to the conversion of all outstanding
preferred shares into ordinary shares, which will take place before this
offering, and the issuance of 52,750 ordinary shares upon the exercise of
options after December 31, 1999 and the receipt of $62,500 in proceeds
from the option exercise; and

- on a pro forma as adjusted basis to give effect to:

- the conversion of preferred shares referred to above;

- the sale by us of 3,800,000 ordinary shares in this offering at the
initial public offering price and the receipt by us of the estimated
net proceeds of this offering, after deducting the underwriting
discount and estimated offering expenses payable by us; and

- the sale by us of 590,822 ordinary shares in the concurrent private
placement to Siemens and Samsung at $17.00 per ordinary share and the
receipt by us of the proceeds of the private placement.

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
---------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long term debt, excluding current maturities................ $ 67 $ 67 $ 67
Shareholders' equity:
Preferred shares:
Authorized actual--5,275,000 shares; authorized pro
forma and pro forma as adjusted--none; issued and
outstanding actual--2,957,165 shares; issued and
outstanding pro forma and pro forma as
adjusted--none........................................ 4 -- --
Ordinary shares:
Authorized actual--12,332,317 shares; authorized pro
forma and pro forma as adjusted--24,984,470 shares;
issued and outstanding actual--10,627,859 shares;
issued and outstanding pro forma--13,637,774 shares;
issued and outstanding pro forma as
adjusted--18,028,596 shares........................... 17 21 128
Additional paid-in capital................................ 13,789 13,789 92,469
Deferred compensation..................................... (1,052) (1,052) (1,052)
Accumulated deficit....................................... (9,277) (9,277) (9,277)
------ ------ -------
Total shareholders' equity.............................. 3,481 3,481 82,268
------ ------ -------
Total capitalization.................................. $3,548 $3,548 $82,335
====== ====== =======
</TABLE>

The actual, pro forma and pro forma as adjusted information presented in the
table excludes:

- 3,048,873 ordinary shares issuable upon exercise of options outstanding
under our share option plans as of the date of this prospectus at a
weighted average exercise price of $2.86 per ordinary share; and

- up to 61,900 additional ordinary shares reserved for issuance under our
share option plans.

The number of ordinary shares in the table are presented on an actual basis
after giving effect to the conversion of 2,770 ordinary shares into deferred
shares which will occur before completion of this offering. The 2,770 deferred
shares reflect the 10-for-1 stock split that will be effected before this
offering but do not reflect the 20.1 share dividend which will not be
distributed to holders of deferred shares.

Immediately before the completion of this offering, we will increase our
authorized share capital to 24,984,470 ordinary shares and 15,530 deferred
shares.

15
<PAGE>
DILUTION

Our pro forma consolidated net tangible book value as of December 31, 1999
was approximately $3.5 million, or $0.26 per ordinary share. We have calculated
our pro forma consolidated net tangible book value per share by:

- subtracting our consolidated liabilities from our consolidated tangible
assets; and

- dividing the difference by the number of ordinary shares outstanding on a
pro forma basis after giving effect to the conversion of all outstanding
preferred shares into ordinary shares, the share recapitalization that
will be effected before this offering and the issuance of 52,750 ordinary
shares upon the exercise of options after December 31, 1999.

After giving effect to:

- the sale by us of 3,800,000 ordinary shares in this offering at the
initial public offering price and receipt by us of the estimated net
proceeds of this offering, after deducting the underwriting discount and
estimated offering expenses; and

- the sale by us of 590,822 ordinary shares in the aggregate to Siemens and
Samsung in the concurrent private placement at $17.00 per ordinary share
and receipt by us of the proceeds of the private placement,

our pro forma consolidated net tangible book value as of December 31, 1999 would
have been approximately $82.3 million, or $4.56 per ordinary share. This
represents an immediate increase in pro forma consolidated net tangible book
value of $4.30 per ordinary share to existing shareholders and an immediate
dilution of $15.44 per ordinary share to new investors purchasing ordinary
shares in this offering.

Dilution per share represents the difference between the price per share to
be paid by new investors for the ordinary shares sold in this offering and the
pro forma consolidated net tangible book value per share immediately after this
offering and the private placement. The following table illustrates this per
share dilution:

<TABLE>
<S> <C> <C>
Initial public offering price per share..................... $20.00
Pro forma consolidated net tangible book value per share
before this offering.................................... $0.26
Increase in pro forma consolidated net tangible book value
per share attributable to new investors in this
offering................................................ 3.80
Increase in pro forma consolidated net tangible book value
per share attributable to the private placement to
Siemens and Samsung..................................... 0.50
-----
Pro forma consolidated net tangible book value per share
after this offering and the private placement............. 4.56
------
Dilution per share to new investors......................... $15.44
======
</TABLE>

The following table presents the differences between the total consideration
paid to us and the average price per share paid by existing shareholders, by the
investors in the private placement and by new investors purchasing ordinary
shares in this offering:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- -------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders...................... 13,637,774 75.6% $12,242,500 12.5% $ 0.90
Siemens and Samsung........................ 590,822 3.3% 10,043,974 10.2% 17.00
New investors.............................. 3,800,000 21.1% 76,000,000 77.3% 20.00
---------- ----- ----------- -----
Total.................................... 18,028,596 100.0% $98,286,474 100.0%
========== ===== =========== =====
</TABLE>

The above table does not reflect:

- 3,048,873 ordinary shares issuable upon exercise of options outstanding
under our share option plans; and

- up to 61,900 additional ordinary shares reserved for issuance under these
plans.

To the extent outstanding options are exercised, there will be further
dilution to new investors.

16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA

We have derived the following selected consolidated financial data from our
consolidated financial statements.

The following data were derived from our audited consolidated financial
statements presented elsewhere in this prospectus:

- consolidated statement of operations data for the years ended December 31,
1997, 1998 and 1999; and

- consolidated balance sheet data as of December 31, 1998 and 1999.

The following data were derived from our audited consolidated financial
statements not included in this prospectus:

- consolidated statement of operations data for the years ended December 31,
1995 and 1996; and

- consolidated balance sheet data as of December 31, 1995, 1996, 1997.

Our consolidated financial statements have been prepared in U.S. dollars and
according to generally accepted accounting principles in the United States.

You should read the selected consolidated financial data together with the
section of this prospectus entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our consolidated financial
statements included elsewhere in this prospectus.

We have calculated pro forma basic and diluted net loss per share assuming
the conversion of all outstanding preferred shares into ordinary shares. Please
see notes 2 and 17 of the notes to our consolidated financial statements for an
explanation of the number of shares used in computing per share data.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues.................................................... $ 871 $ 1,491 $ 4,899 $8,894 $17,550
Cost of revenues............................................ 570 770 1,211 1,412 2,853
------- ------- ------- ------ -------
Gross profit................................................ 301 721 3,689 7,482 14,697
------- ------- ------- ------ -------
Operating expenses:
Research and development.................................. 1,331 1,775 2,763 4,379 7,667
Less participation by the Chief Scientist................. 438 497 890 1,140 1,097
------- ------- ------- ------ -------
Research and development, net............................. 893 1,278 1,873 3,239 6,570
Marketing and selling, net................................ 660 1,260 2,384 4,425 9,502
General and administrative................................ 242 250 494 670 1,426
------- ------- ------- ------ -------
Total operating expenses.................................... 1,795 2,788 4,751 8,334 17,498
------- ------- ------- ------ -------
Operating loss.............................................. (1,494) (2,067) (1,062) (852) (2,801)
Financing income (expenses), net............................ (5) 42 6 23 105
------- ------- ------- ------ -------
Net loss.................................................... $(1,499) $(2,025) $(1,056) $ (829) $(2,696)
======= ======= ======= ====== =======
Basic and diluted net loss per ordinary share............... $ (0.21) $ (0.21) $ (0.10) $(0.08) $ (0.26)
Weighted average number of ordinary shares used in computing
basic and diluted net loss per ordinary share............. 7,217 9,499 10,234 10,492 10,538
Pro forma basic and diluted net loss per ordinary share..... $ (0.20)
Weighted average number of ordinary shares used in computing
pro forma basic and diluted net loss per ordinary share... 13,496
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 481 $1,349 $ 435 $3,305 $ 2,605
Working capital............................................. 2,088 1,071 873 4,318 814
Total assets................................................ 3,006 3,073 3,704 9,371 13,261
Total bank debt, less current maturities.................... -- 23 106 130 67
Shareholders' equity........................................ 2,361 1,453 1,363 5,450 3,481
</TABLE>

17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

We were incorporated in January 1992, commenced operations in October 1992
and commenced sales of our products in the fourth quarter of 1994. Before that
time, our operations consisted primarily of research and development and
recruiting personnel. In 1995, we established a wholly owned subsidiary in the
United States, RADVision Inc., which conducts our sales and marketing activities
in North America.

All of our revenues are generated in U.S. dollars or are linked to the
dollar and a majority of our expenses are incurred in dollars. Consequently, we
use the dollar as our functional currency. Transactions and balances in other
currencies are converted into dollars according to the principles in Financial
Accounting Standards Board Statement No. 52. Gains and losses arising from
conversion are recorded as interest income or expense, as applicable. Our
consolidated financial statements are prepared in dollars and according to
generally accepted accounting principles in the United States.

REVENUES. We generate revenues from the sale of our products and our
technology, which is primarily sold in the form of software development kits, as
well as related maintenance and support services. We generally recognize
revenues from the sale of our products and technology upon shipment and when
collection is probable. Revenues generated from maintenance and support services
are deferred and recognized ratably over the period of the term of service. We
price our products on a per unit basis, and grant discounts based upon unit
volumes. We price our software development kits on the basis of a fixed-fee plus
royalties from products developed using the software development kits. We expect
our revenues from the sale of both our products and our technology to increase,
though we expect that the rate of growth of our revenues from the sale of our
products will exceed the rate of growth of our revenues from the sale of our
technology.

We sell our products and technology through direct sales and various
indirect distribution channels in North America, Europe, the Far East and
Israel. For the year ended December 31, 1999, approximately 52% of our revenues
were generated in the United States.

COST OF REVENUES. Our cost of revenues consists of component and material
costs, direct labor costs, subcontractor fees, overhead related to manufacturing
and depreciation of manufacturing equipment. Our gross margin is affected by the
selling prices for our products as well as the proportion of our revenues
generated from the sale of our technology. Our revenues from the sale of our
technology have higher gross margins than our revenues from the sale of our
products and we offer greater discounts to our high volume OEM customers. As the
relative proportion of our revenues from our products increases as a percentage
of our total revenues and we generate a higher percentage of our revenues from
sales to our high volume OEM customers, our gross margins will decline.

RESEARCH AND DEVELOPMENT EXPENSES, NET. Our research and development
expenses consist primarily of compensation and related costs for research and
development personnel, expenses for testing facilities and depreciation of
equipment. All of our research and development costs are expensed as incurred.
Research and development expenses are presented net of payments received from
the Chief Scientist. We do not currently intend to apply for a material amount
of grants from the Chief Scientist in the future. However, we expect to continue
to make substantial investments in research and development.

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<PAGE>
MARKETING AND SELLING EXPENSES, NET. Our marketing and selling expenses
consist primarily of compensation and related costs for sales personnel,
marketing personnel, sales commissions, marketing programs, public relations,
promotional materials, travel expenses, trade show exhibit expenses and
royalties paid to the government of Israel. Marketing and selling expenses are
presented net of marketing grants received from the government of Israel.

GENERAL AND ADMINISTRATIVE EXPENSES. Our general and administrative
expenses consist primarily of salaries and related expenses for executive,
accounting and human resources personnel, professional fees, provisions for
doubtful accounts and other general corporate expenses.

Operating expenses also include amortization of stock-based compensation,
which is allocated among research and development expenses, marketing and
selling expenses and general and administrative expenses based on the division
in which the recipient of the option grant is employed. Amortization of
stock-based compensation results from the granting of options to employees with
exercise prices per share determined to be below the fair market value per share
of our ordinary shares on the dates of grant. The stock-based compensation is
being amortized to operating expenses over the vesting period of the individual
options.

FINANCING INCOME, NET. Our financing income consists primarily of interest
earned on bank deposits, gains and losses from the conversion of monetary
balance sheet items denominated in non-dollar currencies into dollars and
interest expense incurred on outstanding debt.

TAXES. Israeli companies are generally subject to income tax at the
corporate tax rate of 36%. However, several of our investment programs at our
manufacturing facility in Tel Aviv have been granted approved enterprise status
and, therefore, we are eligible for the reduced tax benefits described later in
this section in "--Corporate Tax Rate." These benefits should result in income
recognized by us being tax exempt or taxed at a lower rate for a specified
period after we begin to report taxable income and exhaust any net operating
loss carry-forwards. However, these benefits may not be applied to reduce the
tax rate for any income derived by our U.S. subsidiary.

RESULTS OF OPERATIONS

The following table presents consolidated statement of operations data for
the periods indicated as a percentage of total revenues.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Revenues.................................................... 100.0% 100.0% 100.0%
Cost of revenues............................................ 24.7 15.9 16.3
----- ----- -----
Gross profit................................................ 75.3 84.1 83.7
Operating expenses:
Research and development.................................. 56.4 49.2 43.7
Less participation by the Chief Scientist................. 18.2 12.8 6.3
----- ----- -----
Research and development, net............................. 38.2 36.4 37.4
Marketing and selling, net................................ 48.7 49.8 54.1
General and administrative................................ 10.1 7.5 8.1
----- ----- -----
Total operating expenses................................ 97.0 93.7 99.6
----- ----- -----
Operating loss.............................................. (21.7) (9.6) (15.9)
Financing income, net....................................... 0.1 0.3 0.6
----- ----- -----
Net loss.................................................... (21.6)% (9.3)% (15.3)%
===== ===== =====
</TABLE>

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<PAGE>
YEARS ENDED DECEMBER 31, 1998 AND 1999

CONSOLIDATED STATEMENT OF OPERATIONS

REVENUES. Revenues increased from $8.9 million for the year ended
December 31, 1998 to $17.6 million for the year ended December 31, 1999, an
increase of $8.7 million, or 97.3%. This increase was due to an increase of
$1.5 million, or 214.3%, in sales of RADVision IP conferencing bridges, an
increase of $283,000, or 52.9%, in sales of our standards-compliant version of
RADVision video interface units, which we introduced in 1998, an increase of
$2.9 million, or 67.4%, in sales of H.323 software development kits, as well as
an increase in sales of our other products and technology in response to
increased market demand.

Revenues from IP conferencing bridges increased from $699,000 for the year
ended December 31, 1998 to $2.2 million for the year ended December 31, 1999.
The increase in revenues from IP conferencing bridges was primarily attributable
to an increase in the sales price of our IP conferencing bridges.

Revenues from video interface units increased from $535,000 for the year
ended December 31, 1998 to $818,000 for the year ended December 31, 1999. The
increase in revenues from video interface units was primarily attributable to a
global growth in demand for these units as customers moved from integrated
services digital networks, or ISDN, to IP-based networks.

Revenues from H.323 software development kits increased from $4.3 million
for the year ended December 31, 1998 to $7.2 million for the year ended
December 31, 1999. This increase in revenues from H.323 software development
kits was primarily attributable to increased market demand for this technology.

Revenue from sales to customers in the United States increased from
$4.6 million, or 51.7% of revenue, for the year ended December 31, 1998, to
$9.1 million, or 51.6% of revenue, for the year ended December 31, 1999, an
increase of $4.5 million, or 97.8%. This increase in sales to customers in the
United States was primarily attributable to the more rapid adoption of our
technology in the United States as compared to the rest of the world.

Revenue from sales to customers in Europe increased from $2.3 million, or
25.8% of revenue, for the year ended December 31, 1998, to $4.0 million, or
23.1% of revenue, for the year ended December 31, 1999, an increase of
$1.7 million, or 73.9%.

Revenue from sales to customers in the Far East increased from $942,000, or
10.6% of revenue, for the year ended December 31, 1998, to $2.7 million, or
15.2% of revenue, for the year ended December 31, 1999, an increase of
$1.8 million, or 191.1%. This increase in sales to customers in the Far East as
a percentage of total sales was primarily attributable to increased sales
efforts in this region.

COST OF REVENUES. Cost of revenues increased from $1.4 million for the year
ended December 31, 1998 to $2.9 million for the year ended December 31, 1999, an
increase of $1.5 million, or 107.1%. This increase was attributable to the
increase in our revenues. Gross profit as a percentage of revenues decreased
from 84.1% for the year ended December 31, 1998 to 83.7% for the year ended
December 31, 1999.

RESEARCH AND DEVELOPMENT, NET. Research and development expenses, net
increased from $3.2 million for the year ended December 31, 1998 to
$6.6 million for the year ended December 31, 1999, an increase of $3.4 million,
or 106.3%. This increase was primarily attributable to an increase in the number
of research and development personnel whom we employed. We have increased our
research and development personnel to support our existing and expected new
product lines and to accommodate the growth of our business. Research and
development expenses, net as a percentage of

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<PAGE>
revenues increased from 36.4% for the year ended December 31, 1998 to 37.4% for
the year ended December 31, 1999.

MARKETING AND SELLING, NET. Marketing and selling expenses, net increased
from $4.4 million for the year ended December 31, 1998 to $9.5 million for the
year ended December 31, 1999, an increase of $5.1 million, or 115.9%. This
increase was primarily attributable to a $2.5 million, or 114.7%, increase in
personnel-related expenses resulting from our increasing the number of our sales
and marketing employees in 1999 and to an increase of $836,000, or 78.8%, in
promotional expenses. We have increased our sales and marketing expenses in
response to current and expected growth in the market for our products.
Marketing and selling expenses, net as a percentage of revenues increased from
49.8% for the year ended December 31, 1998 to 54.1% for the year ended
December 31, 1999. We expect that marketing and selling expenses will continue
to increase in proportion to our continued growth.

GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
from $670,000 for the year ended December 31, 1998 to $1.4 million for the year
ended December 31, 1999, an increase of $730,000, or 109.0%. This increase was
primarily attributable to an increase of $340,000, or 89.5%, in personnel
expenses and occupancy costs and to an increase of $96,000, or 114.3%, in
recruitment costs. General and administrative expenses as a percentage of
revenues increased from 7.5% for the year ended December 31, 1998 to 8.1% for
the year ended December 31, 1999. We expect that general and administrative
expenses will increase due to our recruiting efforts as we continue to increase
the number of our employees.

NET LOSS. Net loss increased from $829,000 for the year ended December 31,
1998 to $2.7 million for the year ended December 31, 1999, an increase of
$1.9 million, or 229.2%. Net loss increased as a percentage of revenues from
9.3% for the year ended December 31, 1998 to 15.3% for the year ended
December 31, 1999.

CONSOLIDATED BALANCE SHEET

TRADE RECEIVABLES. Trade receivables increased from $2.6 million for the
year ended December 31, 1998 to $3.2 million for the year ended December 31,
1999, an increase of $0.6 million, or 23.1%. This increase was primarily
attributable to an increase in sales of our products during the year ended
December 31, 1999.

ALLOWANCE FOR DOUBTFUL ACCOUNTS. Allowance for doubtful accounts increased
from $73,000 for the year ended December 31, 1998 to $225,000 for the year ended
December 31, 1999, an increase of $152,000, or 208.2%. This increase was
primarily attributable to an increase in sales of our products during the year
ended December 31, 1999. Allowance for doubtful accounts as a portion of trade
receivables increased from 2.77% for the year ended December 31, 1998 to 6.54%
for the year ended December 31, 1999. This increase was primarily attributable
to an outstanding debt from one customer for $105,000.

OTHER RECEIVABLES AND PREPAID EXPENSES. Other receivables and prepaid
expenses increased from $887,000 for the year ended December 31, 1998 to
$1.5 million for the year ended December 31, 1999, an increase of $0.6 million,
or 67.6%. This increase was primarily attributable to an increase in grants from
the Chief Scientist, which increased other receivables and prepaid expenses from
$336,000 for the year ended December 31, 1998 to $731,000 for the year ended
December 31, 1999, an increase of $395,000, or 117.6%.

INVENTORIES. Inventories increased from $873,000 for the year ended
December 31, 1998 to $2.4 million for the year ended December 31, 1999, an
increase of $1.5 million, or 171.8%. This

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<PAGE>
increase was primarily attributable to an increase in inventory in response to
anticipated growth in sales.

TRADE PAYABLES. Trade payables increased from $0.6 million for the year
ended December 31, 1998 to $2.6 million for the year ended December 31, 1999, an
increase of $2.0 million, or 333.3%. This increase was primarily attributable to
an increase in trade payables resulting from the increase in inventory.

OTHER PAYABLES AND ACCRUED EXPENSES. Other payables and accrued expenses
increased from $2.6 million for the year ended December 31, 1998 to
$6.3 million for the year ended December 31, 1999, an increase of $3.7 million,
or 142.3%. This increase was primarily attributable to an increase of $788,000
in accrued employee expenses, an increase of $699,000 in accrued deferred income
and an increase of $710,000 in development costs paid by customers which will be
recognized only after all criteria for revenue recognition according to
SOP 97-2 are met.

YEARS ENDED DECEMBER 31, 1997 AND 1998

REVENUES. Revenues increased from $4.9 million for the year ended
December 31, 1997 to $8.9 million for the year ended December 31, 1998, an
increase of $4.0 million, or 81.6%. This increase was due primarily to an
increase in sales of RADVision H.323 software development kits and related
support services, as well as the receipt of several large orders in 1998 for our
products and technology. Revenue from H.323 software development kits and
related support services increased from $2.4 million for the year ended
December 31, 1997 to $4.4 million for the year ended December 31, 1998, an
increase of $2.0 million, or 83.3%. This increase in revenues from sales of
H.323 software development kits was primarily attributable to the release of an
enhanced version of the software development kits during the first quarter of
1998, which resulted in increased sales.

Revenue from sales to customers in the United States increased from
$3.0 million, or 61.2% of revenue, for the year ended December 31, 1997, to
$4.6 million, or 51.7% of revenue, for the year ended December 31, 1998, an
increase of $1.6 million, or 53.3%.

Revenue from sales to customers in Europe increased from $632,000, or 12.9%
of revenue, for the year ended December 31, 1997, to $2.3 million, or 25.8% of
revenue, for the year ended December 31, 1998, an increase of $1.7 million, or
263.9%.

Revenue from sales to customers in the Far East increased from $332,000, or
6.8% of revenue, for the year ended December 31, 1997, to $942,000, or 10.6% of
revenue, for the year ended December 31, 1998, an increase of $610,000, or
183.7%.

This increase in sales to customers in Europe and the Far East as a
percentage of total sales was primarily attributable to the increased adoption
of our technologies in those regions. These technologies had been adopted in the
United States in the previous year. As a result, sales to customers in the
United States as a percentage of total sales decreased, despite the growth in
actual sales to these customers.

COST OF REVENUES. Cost of revenues increased from $1.2 million for the year
ended December 31, 1997 to $1.4 million for the year ended December 31, 1998, an
increase of $200,000, or 16.7%. This increase was due to the increase in our
revenues, which was partially offset by a decrease in our cost of materials.
Gross profit as a percentage of revenues increased from 75.3% for 1997 to 84.1%
for 1998. This increase was due to the increase in our sales of technology,
which generated higher margins.

RESEARCH AND DEVELOPMENT, NET. Research and development expenses, net
increased from $1.9 million for the year ended December 31, 1997 to
$3.2 million for the year ended December 31, 1998, an increase of $1.3 million,
or 68.4%. This increase was attributable to an increase in personnel-related
expenses resulting from our increasing the number of our research and
development employees

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<PAGE>
in 1998 associated with new product and technology development. Research and
development expenses, net decreased as a percentage of revenues from 38.2% for
the year ended December 31, 1997 to 36.4% for the year ended December 31, 1998.

MARKETING AND SELLING, NET. Marketing and selling expenses, net increased
from $2.4 million for the year ended December 31, 1997 to $4.4 million for the
year ended December 31, 1998, an increase of $2.0 million, or 83.3%. This
increase was primarily attributable to an increase of $1.1 million, or 101.8%,
in personnel and related expenses and an increase of $513,000, or 93.6%, in
public relations, advertising and other promotional expenses. Marketing and
selling expenses, net increased as a percentage of revenues from 48.7% for the
year ended December 31, 1997 to 49.8% for the year ended December 31, 1998.

GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
from $494,000 for the year ended December 31, 1997 to $670,000 for the year
ended December 31, 1998, an increase of $176,000, or 35.6%. This increase was
primarily attributable to an increase of $54,000, or 17.3%, in personnel
expenses and to an increase of $81,000, or 2,700%, in travel expenses. General
and administrative expenses as a percentage of revenues decreased from 10.1% for
the year ended December 31, 1997 to 7.5% for the year ended December 31, 1998.

NET LOSS. Net loss decreased from $1,056,000 for the year ended
December 31, 1997 to $829,000 for the year ended December 31, 1998, a decrease
of $227,000, or 21.5%. Net loss decreased as a percentage of revenues from 21.6%
for the year ended December 31, 1997 to 9.3% for the year ended December 31,
1998.

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<PAGE>
QUARTERLY RESULTS OF OPERATIONS

The following tables present consolidated statements of operations data for
each of the eight fiscal quarters ended December 31, 1999, in dollars and as a
percentage of revenues. In management's opinion, this unaudited information has
been prepared on the same basis as our audited consolidated financial statements
and includes all adjustments, consisting only of normal recurring adjustments,
necessary for fair presentation of the unaudited information for the quarters
presented. The results of operations for any quarter are not necessarily
indicative of results that we might achieve for any subsequent periods.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- --------- -------- -------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues.................. $1,357 $1,657 $2,875 $3,006 $3,393 $3,979 $4,623 $ 5,555
Cost of revenues.......... (216) (284) (458) (454) (454) (592) (642) (1,165)
------ ------ ------ ------ ------ ------ ------ -------
Gross profit.............. 1,141 1,373 2,417 2,552 2,939 3,387 3,981 4,390
Operating expenses:
Research and
development........... 844 1,085 1,133 1,317 1,408 1,917 2,124 2,217
Less participation by
the Chief Scientist... (193) (298) (309) (339) (208) (318) (245) (325)
------ ------ ------ ------ ------ ------ ------ -------
Research and
development, net...... 651 787 824 978 1,200 1,599 1,879 1,892
Marketing and selling,
net................... 865 1,000 1,204 1,357 1,661 1,844 2,327 3,670
General and
administrative........ 112 147 195 216 240 291 299 596
------ ------ ------ ------ ------ ------ ------ -------
Operating income (loss)... (487) (561) 194 1 (162) (347) (524) (1,768)
Financing income
(expenses), net......... 7 (14) 26 3 97 (1) 20 (11)
------ ------ ------ ------ ------ ------ ------ -------
Net income (loss)......... $ (480) $ (575) $ 220 $ 4 $ (65) $ (348) $ (504) $(1,779)
====== ====== ====== ====== ====== ====== ====== =======
AS A PERCENTAGE OF
REVENUES:
Revenues.................. 100% 100% 100% 100% 100% 100% 100% 100%
Cost of revenues.......... (16) (17) (16) (15) (13) (15) (14) (21)
------ ------ ------ ------ ------ ------ ------ -------
Gross profit.............. 84 83 84 85 87 85 86 79
Operating expenses:
Research and
development........... 62 66 39 44 42 48 46 40
Less participation by
the Chief Scientist... (14) (18) (11) (11) (6) (8) (5) (6)
------ ------ ------ ------ ------ ------ ------ -------
Research and
development, net...... 48 48 28 33 36 40 41 34
Marketing and selling,
net................... 64 60 42 45 49 47 50 66
General and
administrative........ 8 9 7 7 7 7 6 11
------ ------ ------ ------ ------ ------ ------ -------
Operating income (loss)... (36) (34) 7 0 (5) (9) (11) (32)
Financing income
(expenses), net......... 1 (1) 1 0 3 0 0 (0)
------ ------ ------ ------ ------ ------ ------ -------
Net income (loss)......... (35)% (35)% 8% 0% (2)% (9)% (11)% (32)%
====== ====== ====== ====== ====== ====== ====== =======
</TABLE>

We expect our operating results to fluctuate significantly in the future as
a result of various factors, many of which are outside our control.
Consequently, we believe that period-to-period comparisons of

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<PAGE>
our operating results may not necessarily be meaningful and, as a result, you
should not rely on them as an indication of future performance.

LIQUIDITY AND CAPITAL RESOURCES

Since our inception, we have financed our operations through cash generated
by operations and a combination of private placements of our share capital and
borrowings under lines of credit. Through December 31, 1999, we have raised a
total of approximately $12.2 million in aggregate net proceeds in four private
placements. As of December 31, 1999, we had approximately $2.6 million in cash
and cash equivalents. As of December 31, 1999, our working capital was $814,000.

In December 1999, we issued 158,250 ordinary shares to Intel for $250,000,
or $1.58 per share, which is $18.42 less than the initial public offering price
of $20.00 per share. The shares were issued under an agreement entered into with
Intel in 1996 under which Intel agreed to invest $1.0 million in us through the
purchase of ordinary shares in three installments of $500,000, $250,000 and
$250,000 upon our achieving specified milestones or, in the case of the third
installment, at Intel's option before the initial public offering of our
ordinary shares.

Net cash used in operating activities was approximately $1.0 million for the
year ended December 31, 1997 and $0.8 million for the year ended December 31,
1998. Net cash provided by operating activities was $1.4 million for the year
ended December 31, 1999.

For the year ended December 31, 1997, cash used in operating activities was
primarily attributable to a net loss of $1.1 million and an increase in trade
receivables of $1.4 million, offset in part by an increase in other payables and
accrued expenses of $1.1 million. For the year ended December 31, 1997, the
increase in accounts receivable was attributable to our increase in sales.

For the year ended December 31, 1998, cash used in operating activities was
attributable primarily to a net loss of approximately $829,000, an increase in
trade receivables of $724,000, an increase in other receivables and prepaid
expenses of $626,000 and an increase in inventory of $447,000. These increases
in cash used in operating activities were offset in part by depreciation of
approximately $360,000 and an increase in other payables and accrued expenses of
approximately $964,000. For the year ended December 31, 1998, the increase in
accounts receivable was primarily attributable to higher sales levels during the
fourth quarter.

For the year ended December 31, 1999, cash provided by operating activities
was primarily attributable to an increase in trade payables of $1.9 million, an
increase of $3.5 million in other payables and accrued expenses and an increase
in depreciation of $718,000. These increases in cash provided by operating
activities were offset in part by a net loss of approximately $2.7 million, an
increase in trade receivables of $647,000, an increase in other receivables and
prepaid expenses of $430,000 and an increase in inventory of $1.6 million.

The increase in inventory for the year ended December 31, 1999 was primarily
in anticipation of expected growth in product revenue as well as a greater need
for evaluation units. The increase in accounts receivable for the year ended
December 31, 1999 was primarily the result of increased sales as compared to the
previous year. In addition, we increased our allowance for doubtful accounts to
address the increase in our accounts receivable balance. The increase in
payables for the year ended December 31, 1999 was primarily due to a change in
the timing of some of our accounts payable.

Net cash used in investing activities was approximately $428,000 for the
year ended December 31, 1997, $1.1 million for the year ended December 31, 1998
and $2.3 million for the year ended December 31, 1999. For the year ended
December 31, 1999, $2.4 million of cash used in investing activities was for
purchases of property and equipment, partially offset by $74,000 in proceeds
from the sale of property and equipment.

Net cash provided by financing activities was $484,000 for the year ended
December 31, 1997, $4.8 million for the year ended December 31, 1998, and
$177,000 for the year ended December 31,

25
<PAGE>
1999. For the year ended December 31, 1997, cash provided by financing
activities was attributable to $889,000 in proceeds from the issuance of
ordinary shares, offset in part by $525,000 in decrease in short term credit.
For the years ended December 31, 1998 and 1999, cash provided by financing
activities was attributable principally to proceeds from the issuance of
preferred shares.

As of December 31, 1999, our principal commitments consisted of obligations
outstanding under operating leases. Although we have no material commitments for
capital expenditures, we anticipate an increase in capital expenditures and
lease commitments consistent with our anticipated growth in operations,
infrastructure and personnel. We also may establish additional operations as we
expand globally.

As of December 31, 1999, we had $131,000 outstanding under an equipment term
loan facility. As of December 31, 1999, we had a $2.5 million line of credit,
all of which was unused.

Our capital requirements are dependent on many factors, including market
acceptance of our products and the allocation of resources to our research and
development efforts, as well as our marketing and sales activities. In the last
three years, we have experienced substantial increases in our expenditures as a
result of the growth in our operations and personnel. We intend to increase our
expenditures in the future consistent with our anticipated growth. We anticipate
that our cash resources will be used primarily to fund our operating activities,
as well as for capital expenditures.

We believe that the net proceeds from this offering and the private
placement, together with our current cash, cash equivalents and borrowing
capacity, will be sufficient to meet our anticipated cash needs for working
capital and capital expenditures for at least the next 12 months. During and
after this period, if cash generated from operations is insufficient to satisfy
our liquidity requirements, we may seek to sell additional equity or increase
the available borrowings under our line of credit. If we are unable to obtain
this additional financing, we may be required to reduce the scope of our planned
product development and marketing efforts, which could harm our business,
financial condition and operating results.

CORPORATE TAX RATE

Israeli companies are generally subject to income tax at the corporate tax
rate of 36%. However, several investment programs at our manufacturing facility
in Tel Aviv have been granted approved enterprise status and we are, therefore,
eligible for tax benefits under the Law for the Encouragement of Capital
Investments, 1959. We have derived, and expect to continue to derive, a
substantial portion of our income from the approved enterprise programs at our
manufacturing facility.

Subject to compliance with applicable requirements, the portion of our
income derived from the approved enterprise programs will be eligible for the
following tax benefits commencing in the first year in which it generates
taxable income:

<TABLE>
<CAPTION>
YEAR AFTER WE
BEGIN GENERATING
TAXABLE INCOME TAX BENEFIT
---------------- -----------
<S> <C>
1-2........................ Tax-exempt
3-7........................ Corporate tax of up to 25%
8-10....................... Corporate tax of up to 25% if more than 25% of
our shares are held by non-Israeli investors
</TABLE>

The period of tax benefits for our approved enterprise programs has not yet
commenced, because we have yet to realize taxable income. These benefits should
result in income recognized by us being tax exempt or taxed at a lower rate for
a specified period after we begin to report taxable income and exhaust any net
operating loss carry-forwards. However, these benefits may not be applied to
reduce the tax rate for any income derived by our U.S. subsidiary.

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As of December 31, 1999, our net operating loss carry-forwards for Israeli
tax purposes amounted to approximately $2.3 million. Under Israeli law, these
net operating losses may be carried forward indefinitely and offset against
future taxable income. We expect that, during the period in which these tax
losses are utilized, our income will be substantially tax exempt. Therefore,
there will be no tax benefit available from these losses and no deferred income
taxes have been included in our financial statements. Deferred taxes for other
temporary differences are immaterial.

As of December 31, 1999, the net operating loss carry-forwards of our U.S.
subsidiary for U.S. tax purposes amounted to approximately $2.2 million. These
losses are available to offset any future U.S. taxable income of our U.S.
subsidiary and will expire in the years 2010 through 2014.

IMPACT OF INFLATION AND CURRENCY FLUCTUATIONS

The dollar cost of our operations is influenced by the extent to which any
inflation in Israel is offset, is offset on a lagging basis, or is not offset by
the devaluation of the NIS in relation to the dollar. When the rate of inflation
in Israel exceeds the rate of devaluation of the NIS against the dollar,
companies experience increases in the dollar cost of their operations in Israel.
Unless offset by a devaluation of the NIS, inflation in Israel will have a
negative effect on our profitability as we receive payment in dollars or
dollar-linked NIS for all of our sales while we incur a portion of our expenses,
principally salaries and related personnel expenses, in NIS.

The following table presents information about the rate of inflation in
Israel, the rate of devaluation of the NIS against the U.S. dollar, and the rate
of inflation of Israel adjusted for the devaluation:

<TABLE>
<CAPTION>
ISRAELI INFLATION
YEAR ENDED ISRAELI INFLATION ISRAELI DEVALUATION ADJUSTED FOR
DECEMBER 31, RATE % RATE % DEVALUATION %
------------ ----------------- ------------------- -----------------
<S> <C> <C> <C>
1995 8.1 3.9 4.1
1996 10.6 3.7 6.6
1997 7.0 8.8 (1.7)
1998 8.6 17.6 (7.7)
1999 1.3 (0.1) 1.3
</TABLE>

We cannot assure you that we will not be materially and adversely affected
in the future if inflation in Israel exceeds the devaluation of the NIS against
the dollar or if the timing of the devaluation lags behind inflation in Israel.

A devaluation of the NIS in relation to the dollar has the effect of
reducing the dollar amount of any of our expenses or liabilities which are
payable in NIS, unless these expenses or payables are linked to the dollar. This
devaluation also has the effect of decreasing the dollar value of any asset
which consists of NIS or receivables payable in NIS, unless the receivables are
linked to the dollar. Conversely, any increase in the value of the NIS in
relation to the dollar has the effect of increasing the dollar value of any
unlinked NIS assets and the dollar amounts of any unlinked NIS liabilities and
expenses.

Because exchange rates between the NIS and the dollar fluctuate
continuously, with a historically declining trend in the value of the NIS,
exchange rate fluctuations and especially larger periodic devaluations will have
an impact on our profitability and period-to-period comparisons of our results.
The effects of foreign currency re-measurements are reported in our consolidated
financial statements in current operations.

MARKET RISK

We currently do not invest in, or hold for trading or other purposes, any
financial instruments subject to market risk. We currently pay interest on our
equipment term loan facility based on the London interbank offered rate. As a
result, changes in the general level of interest rates directly affect

27
<PAGE>
the amount of interest payable by us under this facility. However, because our
outstanding debt under this facility has never exceeded $218,000, we do not
expect our exposure to market risk from changes in interest rates to be
material.

GOVERNMENT GRANTS

We principally conduct our research and development operations in Israel.
Our research and development efforts have been financed through internal
resources and grants from the Chief Scientist. For the years ended December 31,
1998 and 1999, the Chief Scientist provided grants for research and development
efforts of approximately $1.1 million in 1998 and 1999, representing 26.0% and
14.3% of our total research and development expenses in these periods. We do not
intend to apply for a material amount of grants from the Chief Scientist in the
future.

Under Israeli law, royalties on the revenues derived from sales of products
and services developed using Chief Scientist grants are payable to the Israeli
government, generally at the rate of 3.0% during the first three years, 4.0%
over the following three years and 5.0% in or after the seventh year. The
maximum aggregate royalties payable generally cannot exceed 100%-150% of the
dollar-linked value of the total grants received. Royalties payable for grants
received under programs approved after January 1, 1999, however, will be subject
to interest on the dollar-linked value of the total grants received at an annual
rate of the London interbank offered rate applicable to 12-month dollar
deposits. Based upon the aggregate grants received to date, we expect that we
will continue to pay royalties to the Israeli government on sales of our
products and related services for the next few years. For the last three years,
we have paid or accrued royalties to the Israeli government as follows:

<TABLE>
<CAPTION>
YEAR ENDED ROYALTIES PAID
DECEMBER 31, OR ACCRUED
- ------------ --------------
<S> <C>
1997 $ 83,000
1998 178,000
1999 495,000
</TABLE>

The government of Israel does not own proprietary rights in technology
developed using its funding and there is no restriction on the export of
products manufactured using the technology. The technology is, however, subject
to other legal restrictions, including the obligation to manufacture the product
based on this technology in Israel and to obtain the Chief Scientist's consent
to transfer the technology to a third party. This restriction may impair our
ability to enter into original equipment manufacturer agreements or similar
arrangements for those products and technologies. In the past, we obtained
approvals from the Chief Scientist for the licensing of source code of some of
our products and we expect that similar approvals will be required in the
future. These restrictions continue to apply even after we have paid the full
amount of royalties payable for the grants.

The Israeli government, through the Fund for the Encouragement of Marketing
Activities, awards grants to Israeli companies for overseas marketing expenses,
including expenses for maintaining branches, advertising, catalogs, exhibitions
and surveys, up to a maximum rate of 33% of these expenses, not to exceed
$1.2 million annually. In 1998, we received grants from the marketing fund
totaling approximately $178,000, and are required to pay royalties in connection
with these grants at a rate of 3.0% of the increase in our sales generated
outside of Israel from the date of the grant up to the total dollar-linked
amount of the grants. Marketing grants are currently awarded only to companies
whose annual exports in the year preceding the application did not exceed
$15.0 million. As of December 31, 1999, our contingent liability to the Israeli
government for grants received from the marketing fund was $199,000. If we fail
to satisfy the terms and conditions of the grants, we may be required to refund
the grants already received and would likely be denied these grants in the
future.

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YEAR 2000

The year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any computer programs
or hardware that have date-sensitive software may recognize a date using 00 as
the year 1900 rather than the year 2000. This could result in system failures or
miscalculations, causing disruptions of operations for any company using these
computer programs or hardware. As a result, many companies' computer systems may
need to be upgraded or replaced to avoid year 2000 issues.

Our products and technology are generally integrated into larger networks
involving sophisticated hardware and software products supplied by other
vendors. Each of our customers' networks involves different combinations of
third-party products. We cannot evaluate whether all of their products are year
2000 compliant. We may face claims based on year 2000 problems in other
companies' products or based on issues arising from the integration of multiple
products within the overall network. Although no claims have been made, we may
in the future be required to defend our products and technology in legal
proceedings that could be expensive regardless of the merits of these claims.

Our internal systems have not suffered any interruptions following
December 31, 1999. In addition, we have not been made aware that any of our
major suppliers or manufacturers have suffered disruptions in their systems.

We have not indentified any year 2000 problems that could adversely affect
our business operations. However, we believe that it is not possible to
determine with complete certainty that all year 2000 problems affecting us have
been identified or corrected. The number of devices that could be affected and
the interactions among these devices are simply too numerous. As a result, we
believe that the following consequences are possible:

- operational inconveniences and inefficiencies for us, our suppliers, our
manufacturers and our customers that will divert management's time and
attention and financial and human resources from ordinary business
activities;

- business disputes and claims for pricing adjustments or penalties due to
year 2000 problems by our customers; and

- business disputes alleging that we failed to comply with the terms of
contracts or industry standards of performance, some of which could result
in litigation or contract termination.

To date, we have not experienced any material interruptions in our
operations related to year 2000 issues and do not expect that future costs will
be material. We have not incurred any significant expenses to date, and we do
not anticipate that the total costs associated with our year 2000 remediation
efforts, including both expenses incurred and any to be incurred in the future,
will be of any significance to our operations. However, if we, our customers,
our suppliers, or our customers' third-party providers fail to remedy any year
2000 issues, our business could be interrupted and we could experience a
material loss of revenues.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
established accounting and reporting standards requiring that every derivative
instrument be recorded on the balance sheet at its fair value. SFAS No. 133
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the statement of operations. SFAS No. 133 is
effective for fiscal years beginning after June 15, 2000. We believe that the
adoption of SFAS No. 133 will not have a material effect on our financial
statements.

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<PAGE>
BUSINESS

OVERVIEW

We are a leading designer, developer and supplier of products and technology
that enable real-time voice, video and data communications over packet networks,
including the Internet and other networks based on the Internet protocol or IP.
Our products and technology are used by our customers to develop systems that
enable enterprises and service providers to use next generation packet networks
for real-time IP communications. We have over 250 customers including Alcatel,
Bosch, Cisco, Madge, NTT, Nortel, Philips, Shanghai Bell, Siemens and 3Com.

INDUSTRY BACKGROUND

GROWTH IN COMMUNICATIONS

In recent years, communications networks have experienced dramatic growth in
traffic. This growth is expected to continue due to a number of factors,
including:

- an increasing need for enterprises to expand their networks to enable them
to send, access and receive information quickly, economically and
globally;

- an increasing use of the Internet and other packet networks for
communicating and engaging in commercial transactions;

- an increase in available bandwidth at declining prices; and

- the introduction of new voice, video and data communications services and
applications.

LIMITATIONS OF TRADITIONAL NETWORKS

Traditionally, circuit-switched networks have been the principal medium for
the transmission of communications. Circuit-switched technology dedicates a
circuit with a fixed amount of bandwidth for the duration of the connection,
regardless of a user's actual bandwidth usage. The recent growth in data
communications traffic, particularly the growth in the number of Internet users,
has placed significant strains on the capacity of traditional circuit-switched
networks. Circuit-switched networks were initially deployed to handle only voice
communications. These networks were not designed to handle data efficiently and
cannot scale cost-effectively to accommodate the growth in data traffic.
Moreover, circuit-switched networks were built based on proprietary, complex
technologies which have historically limited the entrance of new competitors and
hindered the development and introduction of new services.

ADVANTAGES OF PACKET-BASED NETWORKS

While circuit-switched networks were principally designed to handle analog
voice traffic, packet-based networks were principally designed for transmitting
digital information. Packet-based networks, including IP networks, transmit
voice, video and data information in the form of small digital packages called
packets. Voice, video and data packets are sent over a single network
simultaneously and reassembled at the destination. Packet switching enables more
efficient utilization of available network bandwidth than circuit-switching,
allowing more calls to travel through a packet network at the same time.
Moreover, packet networks allow for the cost-efficient expansion of capacity as
communications traffic increases. In addition, packet networks are built using
open standards, like IP, which promote competition by allowing different vendors
to build products and applications that can interoperate with one another. By
using packet technologies based on open standards, new services can be deployed
rapidly and economically.

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<PAGE>
THE NEED FOR INDUSTRY STANDARDS FOR REAL-TIME IP COMMUNICATIONS

Originally, enterprises and communications service providers deployed packet
networks primarily for handling data traffic and not for real-time IP
communications. Technical barriers initially hampered the use of packet networks
for real-time communications. For example, packet networks were not designed to
guarantee the sequential delivery of packets and packets could be lost. In
addition, the time of delivery of packets was dependent upon the amount of
packet traffic being transmitted over the network. For real-time communications,
it is critical that the packets associated with a specific voice or video
communication be transmitted in the correct sequence and in a timely manner.
Early attempts at real-time IP communications solved these technical problems by
using proprietary solutions developed by individual vendors. However,
proprietary solutions from different vendors meant that different vendor
products could not inter-operate with one another.

To enable the global deployment of real-time IP communications networks,
industry standards and protocols were developed to promote interoperability of
real-time communications over packet networks. H.323 is currently the most
widely deployed industry-wide protocol for real-time IP communications. H.323
was developed by a team of computing, telephony and networking experts under the
direction and auspices of the International Telecommunications Union, or ITU-T,
a United Nations organization, with the goal of specifying a universal real-time
standard that would ensure interoperability of all packet-based networks and
products. H.323 provides the technical framework for developing
standards-compliant products and systems for real-time voice and video
communication over packet networks. All components of an H.323 compliant
network, including terminals, gateways, gatekeepers and conferencing bridges,
use the H.323 protocol to communicate.

Today, H.323 is the standard of choice for the builders of real-time IP
communications solutions for enterprises. The ITU-T is continuously enhancing
H.323 and publishing new versions to support the evolving requirements of next
generation packet networks. Other emerging standards like MGCP, or Media Gateway
Control Protocol, and SIP, or Session Initiation Protocol, are also being
developed to address the complex requirements of multi-protocol packet networks.
The widespread acceptance of industry protocols and standards for IP
communications has enabled the deployment of packet networks for real-time
communications by ensuring interoperability and is facilitating the migration to
IP communications.

GROWTH IN REAL-TIME VOICE AND VIDEO IP COMMUNICATIONS

Due to the inherent benefits of packet networks and the advent of new
technologies and standards that have enabled real-time communications over these
networks, the use of packet networks for real-time voice, video and data
communications is expected to grow dramatically. ICM Global Intelligence, a
market research firm, forecasts that revenues for network equipment associated
with voice-over-IP, or IP telephony, will grow from $477 million in 1999 to
$7.1 billion in 2004. Perey Research & Consulting, an industry consulting firm,
forecasts revenues for network equipment associated with IP video communications
to grow from $22 million in 1999 to more than $643 million in 2003.

This anticipated growth in real-time IP communications is expected to be
driven primarily by enterprises and communications service providers migrating
to packet networks. As enterprises move from centralized organizations to
distributed networks of employees, customers, suppliers and business partners,
they require more effective communications capabilities to support their
operations and remain competitive in a global and rapidly changing market.
Packet networks are well-suited for enterprises because they provide enterprises
with the following advantages:

- cost-effective increases in capacity to meet increasing communications
traffic demands;

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- support for new communications applications, like video conferencing and
data collaboration, for improved workforce productivity;

- interoperability with different network configurations of their customers,
suppliers and partners; and

- cost savings associated with simplified network management resulting from
creating a single network that handles all communications, rather than
having to maintain separate telephone and computer networks.

Communications service providers have also begun to deploy packet networks
in an effort to compete more effectively in a deregulated market. Global
deregulation and rapid technological advances have resulted in the emergence of
many new communications service providers, increased competition among
traditional telecommunications carriers, lower prices, innovative new product
and service offerings and accelerated customer turnover. To remain competitive,
communications service providers must be able to develop and introduce new
services to differentiate themselves in the market and attract and maintain
customers. Packet networks are well-suited to accomplish these objectives
because they enable the rapid deployment of new and differentiated solutions. In
addition, packet-based technology allows new competitors to enter the market
quickly without substantial investment in infrastructure.

KEY ATTRIBUTES OF REAL-TIME VOICE AND VIDEO IP COMMUNICATIONS SOLUTIONS

To migrate their voice and video communications to packet networks,
enterprises and communications service providers require a real-time IP
communications solution that provides:

- reliable real-time voice, video and data communications functionality;

- interoperability with the existing circuit-switched networks as well as
with other IP equipment and systems;

- applications, features and functionality comparable to those available
over traditional telephone networks, including call transfer, conferencing
and caller identification;

- scalability to permit cost-effective increases in capacity to meet demand;

- standards compliance, so that products from different vendors can work
together in one network; and

- flexibility to adapt to rapidly changing network environments in response
to the evolving needs of enterprises and to accommodate a mobile business
environment.

OUR SOLUTION

We provide standards-based products and technology for real-time voice,
video and data communications over packet networks for enterprises and service
providers. Our products and technology offer the following benefits:

REAL-TIME VOICE, VIDEO AND DATA COMMUNICATIONS FUNCTIONALITY. We are one of
the few companies that offer IP communications products which support both
voice-only, as well as combined voice, video and data communications. We believe
that this dual functionality is attractive to enterprises and service providers
that seek a flexible IP communications solution which can provide enhanced
multimedia functionality in addition to IP telephony capabilities. We believe
our products enable developers of IP communications solutions to offer features
and functions generally unavailable in competitive solutions.

MARKET LEADING TECHNOLOGY FOR STANDARDS BASED REAL-TIME IP
COMMUNICATIONS. We were one of the original five members of the ITU-T committee
responsible for defining the H.323 standard which has

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been adopted worldwide for real-time packet-based communications. We believe our
technology is recognized as the market-leading implementation of the H.323
industry standard for real-time voice, video and data communications over packet
networks. We have been actively involved in the development of protocols for
real-time communications since the inception of the industry in 1994 and were
the first-to-market with enabling products and technology for voice, video and
data communications over IP networks. We believe that our technology has become
the technology of choice among developers of standards-compliant IP
communications systems. Because we were first to market and have achieved broad
market penetration, our customers benefit from our ability to develop and
provide them market-tested, proven products and technology. Using our products
and technology, our customers can develop unique capabilities with increased
functionality that will differentiate their IP communications solutions in the
market. We believe that the accumulated knowledge that we have gained
participating in the development of industry standards provides us with a
competitive advantage and positions us to be among the first to market products
and technology based on the latest technological advances.

INTEROPERABILITY. We provide our customers with products and technology
that are interoperable across a broad range of IP communications systems. Our
products and technology have been integrated into IP communications systems
developed by more than 250 communications equipment providers. Because our
products and technology are broadly deployed across various segments of the IP
communications industry, we believe that the interoperability of our products
and technology with products from different vendors is virtually assured. We
believe that our long-standing involvement in the definition of standards and
accumulated experience with product development across our broad customer base
provides us with a competitive advantage in addressing interoperability needs.
We continue to participate actively in defining industry standards by working
closely with industry consortia on a broad spectrum of IP communications
protocols to ensure continued interoperability of our products and technology
across multiple protocols.

IMPROVED TIME TO MARKET. Our customers rely on our accumulated expertise
with IP communications standards and core technology to significantly reduce
their development cycle and improve time to market. Communications equipment
providers seeking to market standards-compliant systems for real-time voice and
video communications over packet networks require standards-compliant building
blocks to develop their products. Implementing standards as deployable products
and technology is a complex task that requires significant technical knowledge
and expertise as well as substantial investments of time and resources. Our
products and technology enable our customers to shorten their own development
time by integrating our proven enabling products and technology into their
solutions. Rather than dedicate in-house resources to implementing industry
standards, these developers can use our products and technology and focus their
core competencies on building enhanced systems, products and applications.

BROAD RANGE OF PRODUCT ENVIRONMENTS. Our products and technology provide
our customers with flexibility to design individual products and applications or
complete systems. Our customers can build a complete network solution for
real-time IP communications using our full suite of products or integrate
RADVision products with their own products or other vendor products into their
real-time IP communications solution. Similarly, our technology has been
designed to enable the development of a broad range of products and
applications, from those that can service single users, including hand held
devices and residential IP phones, to multi-user products, like highly complex,
powerful carrier class gateways. Taken together, our products and technology
provide all of the key network components necessary to build a real-time IP
communications solutions.

DISTRIBUTED ARCHITECTURE. We designed our products based on a distributed
architecture. With a distributed architecture, the core functions needed for
real-time IP communications are dispersed throughout the network at the site of
each gateway, IP conferencing bridge and gatekeeper, rather than

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aggregated at a single centralized location. This distributed approach offers
several advantages compared to a traditional centralized architecture. The
distributed architecture of our products enables better utilization of network
bandwidth, because communications need not be routed through a centralized
location but rather can be routed over the shortest path to minimize bandwidth
usage. Similarly, our distributed architecture is a scalable solution, allowing
a network manager to add network resources at distributed locations
incrementally as the network grows. Our distributed architecture also provides
redundancy and increased fault tolerance and reliability because, unlike a
centralized architecture, failure at one location will not compromise the entire
network.

OUR STRATEGY

Our goal is to be the leading provider of innovative products and technology
that enable real-time voice and video communications over packet networks. Key
elements of our strategy include the following:

- MAINTAIN AND EXTEND OUR TECHNOLOGY LEADERSHIP. We believe that we have
established ourselves as a technology leader in providing core-enabling
technology for a broad range of IP communications products and services.
We have accumulated extensive knowledge and expertise as designers and
developers of commercial products and technology for real-time
packet-based communications. We place considerable emphasis on research
and development to expand the capabilities of our existing products, to
develop new products and to improve our existing technology and
capabilities. We believe that our future success will depend upon our
ability to maintain our technological leadership, to enhance our existing
products and to introduce on a timely basis new commercially viable
products addressing the needs of our customers. We intend to continue to
devote a significant portion of our personnel and financial resources to
research and development.

- STRENGTHEN AND EXPAND OUR RELATIONSHIPS WITH OEM CUSTOMERS. We have
established and continue to maintain collaborative working relationships
with many OEMs in the IP communications market, including Bosch, Cisco,
Nortel, Philips, Polycom and Siemens. We work closely with our OEM
customers to integrate our products and core technology into their
solutions. Our core technology and our system design expertise enable us
to assist these customers in the development of complete solutions that
contain enhanced features and functionality compared to competitive
alternatives. We have generally established long-term relationships with
our OEM customers by starting with a few products and subsequently
expanding these relationships by increasing the number and range of
products sold to these customers. We intend to expand the depth and
breadth of our existing OEM relationships while initiating similar new
relationships with leading OEMs focused on the IP communications market.

- CONTINUE TO OFFER NEW AND ENHANCED PRODUCTS AND FEATURES. We believe we
have consistently been either first, or among the first, to market
products that support real-time voice, video and data communications over
packet networks. We were the first to market with IP gateways that provide
combined voice, video and data functionality, and first to market with
software development kits for the development of H.323-compliant IP
communications products and applications. We intend to utilize our
technological expertise as a basis for market leadership by continuing to
be first-to-market with new and enhanced products and features that
address the increasingly sophisticated needs of our customers and the
evolving markets they serve. In addition, we believe that our
participation in the drafting of industry standards gives us the ability
to quickly identify emerging trends to develop new products and
technologies that are at the forefront of technological evolution in the
IP communications industry. We currently expect to introduce several new
or enhanced products in 2000, including our MGCP software development kits
and carrier class gatekeepers for large-scale networks.

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- EXPAND THE DISTRIBUTION CHANNELS FOR OUR PRODUCTS. We intend to continue
to focus our sales and marketing efforts on expanding our distribution
channels, including broadening the number of systems integrators that
distribute our products. Systems integrators provide us a channel for
feedback from their customers, the end-users of our products, which gives
us valuable insight into evolving industry trends and customer
requirements. Systems integrators represent an important independent
marketing channel for our products that provides us with increased market
presence through the relationships and existing customer base of these
systems integrators. In addition, endorsements by leading systems
integrators strengthen our brand name awareness. As part of this strategy
to expand our distribution channels, we intend to open an office in Asia
in 2000.

- CONTINUE OUR ACTIVE INVOLVEMENT IN SHAPING INDUSTRY STANDARDS FOR IP
COMMUNICATIONS. We actively participate in and contribute to the
formulation of standards for IP communications. We intend to continue our
active involvement in the organizations that define the standards for
real-time communications over next generation packet networks. Our
knowledge and expertise gained in participating in the development of
these industry standards enable us to be among the first to market
products based on new standards adopted. We are continually improving and
enhancing our core enabling H.323 technology to ensure that we maintain
our leadership position as a provider of superior H.323 software
development kits. We are also investing significant resources in
developing other emerging protocols, like MGCP. Because of our involvement
in defining these IP communications standards, we believe we are
well-positioned to quickly develop enhanced functionality and new products
based on multiple protocols.

OUR PRODUCTS AND TECHNOLOGY

RADVision products and technology provide the core building blocks needed
for standards-based real-time voice, video and data communications over packet
networks. Our customers can deploy our products as a complete network solution
for IP communications, integrate our products into their own IP communications
systems or use our technology to build their own standards-compliant IP
communications products, systems and applications for enterprises and service
providers.

Our products and technology consist of:

- RADVision gateways, which interface between traditional circuit-switched
networks and IP networks;

- RADVision gatekeepers, which control, manage and monitor real-time voice,
video and data traffic over packet networks;

- RADVision IP conferencing bridges, which enable voice or multimedia
conferencing over packet networks among three or more participants; and

- RADVision software development kits, which provide the core technology
necessary to build interoperable, standards-compliant products, systems
and applications for real-time voice and video communication over packet
networks.

RADVISION GATEWAYS

To achieve the successful deployment of IP communications systems by
enterprises and service providers, users who are connected to packet networks
must be able to communicate with users who are connected to circuit-switched
telephone networks. RADVision gateways provide an interface between traditional
circuit-switched telephone networks and the new packet-based networks. A gateway
converts voice, video and data signals received from a circuit-switched network
into packets, that it then transmits in real-time over a packet-based network.
When the direction of the communication is reversed, the gateway converts the
packets back into circuit-switched signals.

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We offer RADVision multimedia gateways, which support real-time voice, video
and data communications, and RADVision voice gateways, which support voice-only
communications.

RADVISION MULTIMEDIA GATEWAYS

Our RADVision multimedia gateways can support up to 30 voice calls or 15
multimedia calls simultaneously. We sell these gateways principally to systems
integrators and OEMs who offer IP communications solutions to enterprises for
next generation networks. These gateways provide the following benefits:

- REAL-TIME VOICE, VIDEO AND DATA COMMUNICATIONS. Our multimedia gateways
support real-time voice and video calls, data collaboration as well as
voice-only calls.

- INTEROPERABILITY. Our multimedia gateways are H.323 compliant and are
designed to be fully interoperable with other IP network components.

- EMBEDDED GATEKEEPER. Our multimedia gateways contain an embedded
gatekeeper that provides the gateway with similar functionality to that of
a corporate telephone system, known as a private branch exchange, or PBX,
including call and network management capabilities such as controlling how
calls are routed, who may use the networks and how bandwidth is allocated.
This embedded gatekeeper is offered free to the customer who may choose to
use it or disable it. Customers who disable the embedded gatekeeper can
purchase a gatekeeper from us or from another gatekeeper vendor.

- ADVANCED CALL FUNCTIONALITY. Our multimedia gateways can support advanced
PBX-like functions including call transfer and call forwarding.

A typical configuration of our RADVision multimedia gateways in a packet
network is shown below.

[LOGO]

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RADVISION VOICE GATEWAYS

Our RADVision voice gateways are optimized for voice-only functionality. Our
RADVision voice gateways can support up to 30 voice calls simultaneously. These
gateways were developed based upon the technology contained in our multimedia
gateways for voice and video calls and can be easily up-graded to a multimedia
gateway. We sell our RADVision voice gateways to OEMs that build solutions for
enterprises and require gateways to interface voice calls between traditional
circuit-switched telephone networks and packet networks.

Our voice gateways are designed for two principal applications:

- as gateways to connect traditional PBXs for circuit-switched networks with
new PBXs built for packet-based networks, also known as IP/PBXs, and

- as gateways to interconnect two circuit-switched PBX systems over a packet
network, thus bypassing the circuit-switched network.

Our RADVision voice gateways contain embedded gatekeepers and are
interoperable with other H.323 compliant network components. Our RADVision voice
gateways also provide the advanced call functionality of our multimedia
gateways.

A configuration of our RADVision voice gateways demonstrating both
applications of these gateways is shown below.

[LOGO]

RADVISION VIDEO INTERFACE UNITS

Enterprises have invested significant resources in outdated, or legacy,
videoconferencing equipment that are designed to function only over
circuit-switched networks. Our RADVision video interface unit

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<PAGE>
was designed to extend the life of this equipment by allowing legacy
videoconferencing systems to be connected directly to a packet network rather
than the circuit-switched network. Our RADVision video interface units are
affordable, single user gateways designed specifically to interconnect legacy
video equipment with packet networks. Because most new videoconferencing systems
are designed to connect directly to packet networks, we expect that the market
for these units will decrease significantly over time.

RADVISION GATEKEEPERS

Gatekeepers perform the essential network function of controlling and
managing real-time voice, video and data communications on a packet-based
network. Gatekeepers define and control how traffic is routed over a
packet-based network by identifying the IP destination address and routing the
traffic to that destination. Gatekeepers also enable the provisioning of
advanced PBX-like functions, including call forwarding, multi-point conferencing
and call transfer. Network managers use gatekeepers to configure, monitor and
manage the voice and video call activity on a packet network to ensure optimal
implementation of the network. Gatekeepers log and track call activity and
maintain details of network activity which permit the network manager to monitor
IP communications activity on the network, including number of calls, number of
users and bandwidth usage.

We provide a free embedded gatekeeper in our gateways. We also sell a
stand-alone gatekeeper software application that is designed to be installed on
any computer that supports the Microsoft Windows NT operating system. We sell
this off-the-shelf application to systems integrators as a complementary product
to our family of gateways and IP conferencing bridges. These customers combine
RADVision gatekeeper application software with other IP network components to
build complete IP communications solutions. These customers typically purchase
our gatekeeper application in conjunction with the purchase of our gateways or
IP conferencing bridges to use instead of our free embedded gatekeeper.

We also sell gatekeeper technology in the form of software development kits
that enable our OEM customers to build and customize their own gatekeeper
applications. Our gatekeeper software development kit offers the software
developer full control over a wide range of gatekeeper functions and the
flexibility to customize and further differentiate the gatekeeper to respond to
the needs of their particular market. By using RADVision software development
kits, our customers can build upon our proven technology and bring their
gatekeeper products to market quickly.

RADVISION IP CONFERENCING BRIDGES

While communications between two parties involves point-to-point
connections, conferencing between multiple parties involves multipoint
communications among three or more participants. In traditional circuit-switched
networks, conferencing bridges connect callers to each other through a central
bridge that conducts the conference call. As enterprises migrate to packet
networks, IP conferencing bridges are needed to conduct conference calls over
these next generation networks. We were one of the first and remain one of a few
companies to offer IP conferencing bridges for multipoint communications.

Traditionally, voice or video conferencing required the conference to be
arranged in advance by a network administrator and remain attended by an
operator for the duration of the conference. Our RADVision IP conferencing
bridges allow voice or video conferencing among multiple participants over IP
networks without any advance arrangements or the assistance of an operator.
Participants simply dial a number and the conferencing bridge automatically
arranges the conference call. Additional participants can join the conference
while it is in progress or by being added to the conference by any party already
participating in the conference. Traditional conferencing bridges were primarily
built as large complex carrier class bridges that were not appropriate for
installation within an enterprise, requiring enterprises to contract with
external service providers to conduct conference calls. Our

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RADVision IP conferencing bridges are substantially less expensive and are
designed to be deployed locally within an enterprise network, eliminating the
need to contract with a service provider for conferencing services.

Our RADVision IP conferencing bridges can support up to 15 simultaneous
voice and video calls or 24 voice-only calls. Like our gateways, our
conferencing bridges include an embedded gatekeeper. Multiple conferencing
bridges can be combined to increase the number of simultaneous conferences, and
conferencing bridges can be linked together to provide a solution for very large
conferences, allowing for multiple conference panels with many remote viewers.

A configuration of our RADVision IP conferencing bridges for multipoint
conferencing between three or more participants is shown below.

[LOGO]

RADVISION H.323 SOFTWARE DEVELOPMENT KIT

H.323 is currently the most widely deployed standard for real-time IP
communications. All components of an H.323-compliant network, including
terminals, gateways, gatekeepers and conferencing bridges, use the H.323
protocol to communicate. As a result, communications equipment providers seeking
to market H.323-compliant IP telephony and multimedia products, systems and
applications need H.323 core software to develop their solutions. Rather than
dedicate in-house resources to developing H.323 technology, these providers seek
to build upon our proven enabling technologies.

We sell the core enabling technology for real-time IP communications in the
form of software development kits. Our RADVision H.323 software development kits
provide developers with the core software building blocks needed to develop
H.323-compliant products, systems and applications. Our RADVision H.323 software
development kit is an integrated set of software programs which execute

39
<PAGE>
the H.323 protocol and perform the functions necessary to establish and maintain
real-time voice, video and data communications over packet-based networks. Our
technology enables our customers to focus on their core competencies and
dramatically reduces the time to market of H.323-compliant IP communications
products, systems and applications. Our RADVision H.323 software development
kits can be used to develop a broad spectrum of products, including gateways,
gatekeepers, conferencing bridges, IP telephones and other H.323-compliant
products.

PRODUCTS AND TECHNOLOGY UNDER DEVELOPMENT

We intend to capitalize upon our technological leadership in real-time IP
communications to develop new products and technology that meet the evolving
needs of the IP communications market. Our future product and technology
offerings are expected to include:

RADVISION MGCP SOFTWARE DEVELOPMENT KITS. Media gateway control protocol,
commonly referred to as MGCP, provides functions that complement H.323 and has
been developed for large packet networks operated by telecommunications carriers
and service providers that require gateways that can support a practically
unlimited number of calls. MGCP is the protocol by which a centralized gateway
controller communicates with and controls the numerous gateways throughout a
packet network and manages the network traffic through those gateways. MGCP has
been adopted by large telecommunications companies and Internet service
providers as well as by cable television companies building IP communications
solutions over their networks. Our RADVision MGCP software development kit will
be used to build MGCP compliant gateways. We intend to commercially release our
MGCP software development kit in 2000. We may also develop and introduce in the
future products that are based on other industry standards such as SIP,or
Session Initiation Protocol, to the extent we believe that these products are
feasible and there is a market opportunity for these products.

RADVISION CARRIER CLASS GATEKEEPERS. Gatekeepers are generally designed to
manage hundreds of simultaneous voice calls. Large packet networks operated by
telecommunications carriers and service providers require gatekeepers that can
support a practically unlimited number of calls. We are currently enhancing our
RADVision gatekeeper to provide core functionality necessary for large IP
communications networks operated by telecommunications carriers and services
providers. Our carrier class gatekeeper software development kit release will
support high performance, high reliability, carrier class platforms, including
network platforms developed by Cisco, Compaq and Hewlett-Packard. We expect our
customers to introduce systems for creating new IP-based services incorporating
our carrier class gatekeeper in 2000.

CUSTOMERS

We sell our products to OEMs, systems integrators and value added resellers,
or VARs. Our OEM customers purchase our products to integrate with products that
they developed in-house to build complete IP communications solutions. Our
systems integrator customers either purchase our full suite of products or
integrate our individual products with products of other manufacturers to build
complete IP communications solutions. Our VAR customers purchase our products to
resell to end-users as separate units, or as part of a family of related product
offerings, either under our RADVision label or under their private label.

We sell our technology in the form of software development kits to
developers of IP communications products, systems and applications for
developing their own IP communications solutions based on our core enabling
technology.

40
<PAGE>
The following is a representative list of our customers who have purchased
more than $200,000 of our products or technology since January 1, 1999:

<TABLE>
<S> <C> <C>
Alcatel Frebon International PictureTel
Bosch Telecommunications LG Information and Philips
Cisco Systems Communications Shanghai Bell
Computer and Communications Madge Networks Siemens
Laboratory NTT 3Com
France Telecom Nortel VCON
</TABLE>

SALES AND MARKETING

SALES ORGANIZATION. We market and sell our products through multiple
channels in North America, Europe, the Far East and Israel. Our products are
sold to end-users principally through indirect channels by OEMs, system
integrators and value added resellers. We market and sell our technology,
primarily in the form of software development kits, directly to developers of IP
communications products and applications. In Taiwan, Korea and Japan, we sell
our software development kits indirectly through local sales representatives.

Our sales organization is managed from our corporate headquarters in Tel
Aviv. We currently have sales offices in Tel Aviv, Israel, in Mahwah, New Jersey
and in Sunnyvale, California. We intend to establish a sales office in Asia in
the year 2000. North America is currently our largest market, contributing
approximately 54% of our total sales for the year ended December 31, 1999.

We have dedicated sales teams to support our larger strategic accounts as
well as to identify potential strategic customers who would deploy our products
on large scales and generate significant revenues for us.

MARKETING ORGANIZATION. Our marketing organization develops strategies and
implements programs to support the sale of our products and technology and to
support and enhance our market position as an industry leader. Our current
marketing efforts include various programs designed to increase industry
visibility, including press/analyst tours, trade shows and events, speaking
engagements and ongoing interaction with analysts and the media as well as
targeted marketing programs. Additional programs include technical seminars
where customers and other industry participants are educated in real-time IP
communications technology and the benefits of our products and technology. We
also view our web site as an important marketing tool. We intend to enhance our
web site to create a reference site for IP communications, featuring broad-based
coverage of issues relevant to the IP communications industry, as well as
important product and market trends.

To reinforce and further strengthen our market position as a technology
leader in the field of real-time IP communications, we actively participate in
key industry consortia. We are a member of the board of directors of the
International Multimedia Telecommunications Consortia, or IMTC, a global
organization to promote interoperable multimedia communications solutions based
on international standards, and are responsible for directing its marketing
activities. We regularly participate in IMTC-sponsored InterOP events, a
vendor-neutral forum where IMTC members test the interoperability of their
products.

We are also active in defining and reviewing evolving IP communications
standards that are being developed by international standards bodies including:

- the ITU-T, which has published the H.323 standard;

- the Internet Engineering Task Force, or IETF, which has published the SIP
standard; and

- CableLabs, an organization of cable operators which is currently working
on defining the MGCP standard.

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<PAGE>
CUSTOMER CARE AND SUPPORT

Our ability to provide our customers with responsive and qualified customer
care and support services globally is essential to attract and retain customers,
build brand loyalty and maintain our leadership position in the market. We
believe our customer care and support organizational structure enables us to
provide superior technical support and customer service on a cost- and
time-efficient basis.

We provide global customer care and support for our products and technology.
Our customer care and technical support teams are located in Tel Aviv, Israel,
in Mahwah, New Jersey and in Sunnyvale, California. We assist our customers with
the initial installation, set-up and training. In addition, our technical
support team trains and certifies our customers to provide local support in each
of the geographical areas in which our products are sold. We also provide
customers the option of obtaining, for a fee, 24 hours a day, 7 days a week
help-desk support.

In addition, customers who purchase our software development kits generally
request that we provide them ongoing engineering and technical support services
to integrate our technology into their products, although these services are not
essential for the use of our software development kits. Our standard software
development kit contract provides for one year of support services, renewable
annually at the customer's option. Customers who have contracted for support
services receive all relevant software updates and enhancements as well as
access to our customer care and technical support teams.

RESEARCH AND DEVELOPMENT

We place considerable emphasis on research and development to expand the
capabilities of our existing products and technology, to develop new products
and to improve our existing technologies and capabilities. We believe that our
future success will depend upon our ability to maintain our technological
leadership, to enhance our existing products and technology and to introduce on
a timely basis new commercially viable products and technology addressing the
needs of our customers. We intend to continue to devote a significant portion of
our personnel and financial resources to research and development. As part of
our product development process, we seek to maintain close relationships with
our customers to identify market needs and to define appropriate product
specifications.

As of December 31, 1999, our research and development staff consisted of
approximately 94 employees. Our research and development activities are
conducted at our facilities in Tel Aviv, Israel and in our office in Mahwah, New
Jersey. To introduce new, high quality products, we deploy procedures for the
design, development and quality assurance of our new product developments. Our
team is divided according to our existing product lines. Each product line team
is headed by a team leader and includes software or hardware engineers and
quality control technicians.

MANUFACTURING AND ASSEMBLY

Our manufacturing operations consist of materials planning and procurement,
out-sourcing of sub-assemblies, final assembly, product assurance testing,
quality control and packaging and shipping. We assemble and test our products at
our facilities in Tel Aviv, Israel. We test our products both during and after
the assembly process using internally developed product assurance testing
procedures. We have a flexible assembly process that enables us to configure our
products at the final assembly stage for customers who require that our products
be modified to bear their private label. This flexibility is designed to reduce
our assembly cycle time and reduce our need to maintain a large inventory of
finished goods. We use an enterprise resource planning, or ERP, system that we
purchased from BAAN Systems that we modified to our specific needs. This system
allows us to use just in time procurement and manufacturing procedures. We
believe that the efficiency of our assembly process to date is largely due to
our product architecture and our commitment to assembly process design. We
manufacture our

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<PAGE>
software development kits on CD-ROMs and package and ship them accompanied by
relevant documentation.

As part of our commitment to quality, we have been certified as an ISO 9002
supplier. The ISO 9002 standard defines the procedures required for the
manufacture of products with predictable and stable performance and quality. We
are continuously trying to improve our quality based on the guidelines dictated
by the ISO 9002 standard.

INTELLECTUAL PROPERTY

We rely on copyright, trademark and trade secret laws, confidentiality
agreements and other contractual arrangements with our customers, third-party
distributors, employees and others to protect our intellectual property.

Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products and technology or obtain and use
information that we regard as proprietary. Policing unauthorized use of our
products and technology is difficult. In addition, the laws of some foreign
countries in which we currently or may in the future sell products do not
protect our proprietary rights to as great an extent as do the laws of the
United States. Our means of protecting our proprietary rights may not be
adequate and our competitors may independently develop similar technology,
duplicate our products or design around our intellectual property.

We rely on technology that we license from third parties, including software
that is integrated with internally developed software and used in our products
to perform key functions. For example, we license T.120 data collaboration
software from Data Connection Limited and voice compression technology from
Siemens. If we are unable to continue to license any of this software on
commercially reasonable terms, we will face delays in releases of our products
or will be required to reduce the functionality of our products until equivalent
technology can be identified, licensed or developed, and integrated into our
current products.

COMPETITION

We compete in a new, rapidly evolving and highly competitive and fragmented
market. We expect competition to intensify in the future. We believe that the
main competitive factors in our market are time to market, product quality,
features, cost, technological performance, scalability, compliance with industry
standards and customer relationships.

The principal competitors in the market for our products and software
development kits currently include:

<TABLE>
<CAPTION>
PRODUCTS SOFTWARE DEVELOPMENT KITS
- --------------------------------------- ------------------------------------------------------
<S> <C>
- - Ezenia!, formerly known as Video- - DataBeam, a subsidiary of Lotus/IBM
Server - DynamicSoft
- - White Pine Software - Elemedia, a subsidiary of Lucent
- - In-house developers employed by - Trillium Digital Systems
manufacturers of telecommunications
equipment and systems
</TABLE>

Other companies, including Accord Networks, have announced products that may
compete with ours. Additional competitors may enter each of our markets at any
time.

43
<PAGE>
FACILITIES

Our headquarters and principal administrative, finance, sales and marketing
and promotion operations are located in approximately 25,481 square feet of
leased office space in Tel Aviv, Israel. The expiration dates of the lease of
our principal offices range from August 2000 to December 2000. We intend to
relocate our corporate headquarters in Tel Aviv, Israel to new facilities in
2000. In the United States, we lease approximately 9,000 square feet in Mahwah,
New Jersey expiring in May 2002 and approximately 1,232 square feet in
Sunnyvale, California expiring in December 2002.

EMPLOYEES

As of December 31, 1999, we had 192 employees worldwide, of whom 94 were
employed in research and development, 53 in sales and marketing, 10 in
management and administration and 35 in operations. We have standard employment
agreements with all of our employees located in Israel. Of our employees, 153
are based in Israel and 39 are based in the United States.

None of our employees is represented by a labor union. To date, we have not
experienced any work stoppages.

LEGAL PROCEEDINGS

We are not party to any material legal proceedings.

In 1998, Lucent sent correspondence to our affiliate, RAD Data
Communications Ltd., alleging that some products manufactured by RAD and some of
its affiliates, including us, infringe upon specified Lucent patents and
offering to license these patents to RAD and its affiliates. In subsequent
correspondence, RAD requested that Lucent specifically substantiate each
allegation of infringement before RAD or any of its affiliates would be prepared
to enter into any licensing arrangements. RAD has recently received further
correspondence from Lucent in which Lucent has reiterated its claims. RAD does
not believe Lucent has substantiated its claims and has communicated this belief
to Lucent. RAD advises us that the alleged infringement claims are unresolved.

The elements of our products that Lucent has alleged infringe upon its
patents are contained within components which we obtain from a third party
manufacturer. We believe that the third party manufacturer has a license to use
these patents and that we may be entitled to the benefits of this license.

In addition, based on Lucent's fee and royalty schedule for licensing the
relevant patents, we believe that any licensing fee and royalty payments that we
may be required to pay for the right to use Lucent's patents would not have a
material impact on our earnings. As a result, we do not believe that Lucent's
allegations will have a material adverse effect upon us, our business, financial
condition or liquidity.

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<PAGE>
MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table lists our current directors and executive officers:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------------------------------------------------------
<S> <C> <C>
Yehuda Zisapel 57 Chairman of the Board of Directors

Ami Amir 55 Chief Executive Officer, President and Director

Eli Doron 47 Chief Technical Officer and Executive Vice President

Yeshayahu Gordon 43 Vice President, Global Sales

Michelle Blank 45 Vice President, Global Marketing

David Seligman 41 Chief Financial Officer

Yael Langer 35 General Counsel and Secretary

Zohar Zisapel 50 Director

Adi Gan 31 Director

Dan Goldstein 45 Director

Hillel E. Milo 49 Director

Efraim Wachtel 54 Director

Andreas Mattes 38 Director Nominee
</TABLE>

- ---------------

Adi Gan, Dan Goldstein and Hillel Milo are independent directors.

Andreas Mattes shall become a director upon the closing of the private
placement.

YEHUDA ZISAPEL has served as a director of RADVision since November 1992 and
as our chairman of the board of directors since August 1999. Mr. Zisapel is also
a founder and a director of RAD Data Communications Ltd., a leading worldwide
data communications company headquartered in Israel, of which he has served as a
director since 1979, and its affiliate, BYNET Data Communications Ltd.
Mr. Zisapel also serves as the chairman of the board of RIT Technologies Ltd.
and RADWARE Ltd. and as a director of other companies in the RAD-BYNET group,
including SILICOM Ltd. and RADCOM Ltd. Mr. Zisapel has a B.Sc. and an M.Sc.
degree in electrical engineering from the Technion, Israel Institute of
Technology and an M.B.A. degree from Tel Aviv University. Yehuda Zisapel and
Zohar Zisapel are brothers.

AMI AMIR, our co-founder, has served as our chief executive officer,
president and a director since November 1992. From March 1987 to November 1992,
Mr. Amir was the president of RAD Data Communications Inc. Before March 1987,
Mr. Amir held senior engineering positions for Simtech Advanced Training and
Simulation Systems, Tadiran Electronic Industries and Elbit Systems Ltd.
Mr. Amir has a B.Sc. degree in electronics and computer science from the
Technion Israel Institute of Technology.

ELI DORON, our co-founder, has served as our executive vice president and
chief technical officer since July 1998. From October 1992 to July 1998,
Mr. Doron was our vice president of research and development. From October 1983
to October 1992, Mr. Doron held senior engineering positions at Simtech Advanced
Training and Simulation Systems. Mr. Doron has a B.Sc. degree in electronics and
computer science from Ben Gurion University.

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<PAGE>
YESHAYAHU GORDON has served as our vice president of global sales since May
1999 and as our vice president of sales and marketing since August 1997. From
April 1995 to July 1997, Mr. Gordon was president of RADVision Inc. From
May 1994 to April 1995, Mr. Gordon was president of Radlinx Inc. From
August 1990 to May 1994, Mr. Gordon was the district sales manager for
Orbotech Inc. and, before August 1990, sales representative for DEC Israel.
Mr. Gordon has a B.Sc. degree in physics and computer science from Tel Aviv
University.

MICHELLE BLANK has served as our vice president of global marketing since
May 1999. From June 1997 to May 1999, Ms. Blank was president of RADVision Inc.
From September 1990 to June 1997, Ms. Blank acted as an independent consultant
to several technology companies. Ms. Blank has a Ph.D. degree in cognitive
science from The University of Texas.

DAVID SELIGMAN has served as our chief financial officer since
November 1999. From July 1996 until November 1999, Mr. Seligman was the chief
financial officer and secretary of LanOptics Ltd. From October 1993 until
June 1996, Mr. Seligman was a senior financial analyst for Fidelity Investments
Systems Company. Mr. Seligman has a B.A. in political science and geography and
an M.B.A. in accounting and finance from Tel Aviv University.

YAEL LANGER has served as our general counsel since July 1998. Ms. Langer is
also general counsel and secretary of RAD and other companies in the RAD-BYNET
group. From December 1995 to July 1998, Ms. Langer served as assistant general
counsel to companies in the RAD-BYNET group. From September 1993 until
July 1995, Ms. Langer was a member of the legal department of Poalim Capital
Markets and Investments Ltd. Ms. Langer has an LL.B. degree from the Hebrew
University in Jerusalem.

ZOHAR ZISAPEL has served as a director of RADVision since November 1992 and
was chairman of the board of directors until August 1999. Mr. Zisapel is also a
founder and a director of RAD, of which he has served as president since
January 1982, and a director of other companies in the RAD-BYNET group,
including RADCOM, SILICOM, RIT and RADWARE. Mr. Zisapel previously served as
head of the electronics research department in the Israeli Ministry of Defense.
Mr. Zisapel received B.Sc. and M.Sc. degrees in electrical engineering from the
Technion, Israel Institute of Technology and an M.B.A. degree from Tel Aviv
University. Zohar Zisapel and Yehuda Zisapel are brothers.

ADI GAN has served as a director of RADVision since August 1998. Since
January 1998, Mr. Gan has been an investment manager with Evergreen's Venture
Capital Group. From August 1995 until January 1998, Mr. Gan was employed by
TesCom Ltd., initially as a project manager and then as a manager of the
real-time system division of TesCom Ltd. Mr. Gan has a B.Sc. in physics from the
Technion, Israel Institute of Technology, and a M.Sc. in chemistry from Tel Aviv
University.

DAN GOLDSTEIN has served as a director of RADVision since January 2000. In
1985, Mr. Goldstein founded Formula Systems (1985) Ltd. and has been its chief
executive officer and chairman of the board of directors since that time.
Mr. Goldstein is also the chairman of the board of directors of other companies
in the Formula Systems group, including ForSoft Ltd., Sintec Advanced
Technologies Ltd., F.C.T. Formula Computer Technologies Ltd. and Applicom
Software Industries (1990) Ltd., and is a director of Crystal Systems Solutions
Ltd. Mr. Goldstein has a B.Sc. degree in mathematics and computer science and an
M.B.A. in business administration from Tel Aviv University.

HILLEL E. MILO has served as a director of RADVision since May 1995. Until
July 1999, Mr. Milo was president and chief executive officer of Israel Infinity
Venture Capital Fund. Since January 1995, Mr. Milo has been chief executive
officer and managing director of Clal Venture Capital Fund L.P. In 1993,
Mr. Milo co-founded Walden Israel Venture Capital fund and has been the general
partner of that fund since that time. Mr. Milo has a B.Sc. in mechanical
engineering and a M.A. in management science from the University of Alabama.

46
<PAGE>
EFRAIM WACHTEL has served as a director of RADVision since March 1998.
Mr. Wachtel has been president and chief executive officer of RAD since
November 1997. From October 1985 to November 1997, Mr. Wachtel was vice
president of sales and marketing of RAD. Before October 1985, Mr. Wachtel held
various research and development positions in several companies in Israel and in
the U.S. Mr. Wachtel has a B.Sc. degree in electrical engineering from the
Technion, Israel Institute of Technology.

ANDREAS MATTES will be appointed a director of RADVision effective upon the
closing of the private placement. Since April 1999, Mr. Mattes has been the
president of enterprise networks of Siemens ICN. From October 1998 until April
1999, Mr. Mattes was the president of central sales of Siemens ICN. From June
1997 until October 1998, Mr. Mattes was the president of international sales of
Siemens PN. From January 1996 until June 1997, Mr. Mattes was the vice president
of product management of Siemens PN. From October 1985 until January 1996,
Mr. Mattes held various sales, marketing and business administration positions
at Siemens.

BOARD OF DIRECTORS

Our articles of association to be adopted before the consummation of this
offering provide that directors are elected at our annual general meeting of the
shareholders by a vote of the holders of a majority of the voting power
represented at that meeting. Each director, except for the external directors
described below, holds office until the next annual general meeting of the
shareholders.

INDEPENDENT DIRECTORS

Upon the completion of this offering, our ordinary shares will be listed for
quotation on the Nasdaq National Market and we will be subject to the rules of
the Nasdaq National Market applicable to listed companies. Under the Nasdaq
rules, we are required to appoint a minimum of three independent directors. The
independence standard under the Nasdaq rules excludes any person who is a
current or former employee of a company or its affiliates as well as the
immediate family members of an executive officer of a company or its affiliates.
Our three independent directors, Adi Gan, Dan Goldstein and Hillel Milo, meet
the independence standard of the Nasdaq rules.

ISRAELI COMPANIES LAW

We are subject to the provisions of the new Israeli Companies Law,
5759-1999, which became effective on February 1, 2000 and supersedes most of the
provisions of the Israeli Companies Ordinance (New Version), 5743-1983. The
Companies Law authorizes the minister of justice to adopt regulations exempting
from the provisions described below companies, like us, whose shares are traded
outside of Israel.

EXTERNAL DIRECTORS

QUALIFICATIONS OF EXTERNAL DIRECTORS

Under the Companies Law, companies incorporated under the laws of Israel
whose shares have been offered to the public in or outside of Israel are
required to appoint two external directors. The Companies Law provides that a
person may not be appointed as an external director if he or his relative,
partner, employer or any entity under his control has or had during the two
years preceding the date of appointment any affiliation with:

- the company;

- any entity controlling the company; or

- any entity controlled by the company or by this controlling entity.

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<PAGE>
The term affiliation includes:

- an employment relationship;

- a business or professional relationship maintained on a regular basis;

- control; and

- service as an office holder.

No person can serve as an external director if the person's position or
other business creates, or may create, conflict of interests with the person's
responsibilities as an external director.

Until the lapse of two years from termination of office, a company may not
engage an external director to serve as an office holder and cannot employ or
receive services from that person, either directly or indirectly, including
through a corporation controlled by that person.

ELECTION OF EXTERNAL DIRECTORS

External directors are to be elected by a majority vote at a shareholders'
meeting, provided that either:

- the majority of shares voted at the meeting, including at least one third
of the shares of non-controlling shareholders voted at the meeting, vote
in favor of the election; or

- the total number of shares voted against the election of the external
director does not exceed one percent of the aggregate voting rights in the
company.

The initial term of an external director is three years and may be extended
for an additional three years. Each committee of a company's board of directors
is required to include at least one external director. Under the provisions of
the Companies Law, we are required to designate the initial external directors
at a shareholders' meeting to be convened no later than August 1, 2000. We
intend to elect two directors as external directors after this offering.

AUDIT COMMITTEE

NASDAQ REQUIREMENTS

Under the Nasdaq rules, we are required to form an audit committee
consisting of at least three independent directors, all of whom are financially
literate and one of whom has accounting or related financial management
expertise. The responsibilities of the audit committee under the Nasdaq rules
include evaluating the independence of a company's outside auditors. Our current
audit committee complies with the Nasdaq rules. In addition, we are required to
adopt an audit committee charter. We have adopted an audit committee charter
that complies with Nasdaq specifications.

COMPANIES LAW REQUIREMENTS

Under the Companies Law, the board of directors of any company that is
required to nominate external directors must also appoint an audit committee,
comprised of at least three directors including all of the external directors,
but excluding a:

- chairman of the board of directors;

- general manager;

- chief executive officer; and

- controlling shareholder and any director employed by the company or who
provides services to the company on a regular basis.

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The role of the audit committee is to examine flaws in the business
management of the company, in consultation with the internal auditor and the
company's independent accountants, and suggest appropriate course of action.

APPROVAL OF INTERESTED PARTY TRANSACTIONS

The approval of the audit committee is required to effect specified actions
and transactions with office holders and interested parties. An interested party
is defined in the Companies Law as a 5% or greater shareholder, any person or
entity who has the right to designate one director or more or the general
manager of the company or any person who serves as a director or as a general
manager. An audit committee may not approve an action or a transaction with an
interested party or with an office holder unless at the time of approval the two
external directors are serving as members of the audit committee and at least
one of whom was present at the meeting in which an approval was granted.

INTERNAL AUDITOR

Under the Companies Law, the board of directors must appoint an internal
auditor proposed by the audit committee. The role of the internal auditor is to
examine, whether the company's actions comply with the law, integrity and
orderly business procedure. Under the Companies Law, the internal auditor may
not be an interested party, an office holder, or an affiliate, or a relative of
an interested party, an office holder or affiliate, nor may the internal auditor
be the company's independent accountant or its representative. We intend to
appoint an internal auditor that complies with the requirements of the Companies
Law after this offering.

APPROVAL OF SPECIFIED RELATED PARTY TRANSACTIONS UNDER ISRAELI LAW

FIDUICIARY DUTIES OF OFFICE HOLDERS

The Companies Law imposes a duty of care and a duty of loyalty on all office
holders of a company, including directors and executive officers. The duty of
care requires an office holder to act with the level of care which a reasonable
office holder in the same position would have acted under the same
circumstances. The duty of care includes a duty to use reasonable means to
obtain:

- information on the appropriateness of a given action brought for his
approval or performed by him by virtue of his position; and

- all other important information pertaining to these actions.

The duty of loyalty of an office holder includes a duty to:

- refrain from any conflict of interest between the performance of his
duties in the company and his personal affairs;

- refrain from any activity that is competitive with the company;

- refrain from exploiting any business opportunity of the company to receive
a personal gain for himself or others; and

- disclose to the company any information or documents relating to a
company's affairs which the office holder has received due to his position
as an office holder.

Each person listed in the table under "--Directors and Executive Officers"
above is an office holder.

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DISCLOSURE OF PERSONAL INTERESTS OF AN OFFICE HOLDER

The Companies Law requires that an office holder of a company promptly
disclose any personal interest that he may have and all related material
information known to him relating to any existing or proposed transaction by the
company. If the transaction is an extraordinary transaction, the office holder
must also disclose any personal interest held by:

- the office holder's spouse, siblings, parents, grandparents, descendants,
spouse's descendants and the spouses of any of these people; or

- any corporation in which the office holder is a 5% or greater shareholder,
director or general manager or in which he has the right to appoint at
least one director or the general manager.

Under Israeli law, an extraordinary transaction is a transaction:

- other than in the ordinary course of business;

- otherwise than on market terms; or

- that is likely to have a material impact of the company's profitability,
assets or liabilities.

Under the Companies Law, once an office holder complies with the above
disclosure requirement, the board of directors may approve a transaction between
the company and an office holder, or a third party in which an office holder has
a personal interest, unless the articles of association provide otherwise. A
transaction that is adverse to the company's interest may not be approved.

If the transaction is an extraordinary transaction, both the audit committee
and the board of directors must approve the transaction. Under specific
circumstances, shareholder approval may also be required. An office holder who
has a personal interest in a matter, which is considered at a meeting of the
board of directors or the audit committee, may not be present at this meeting or
vote on this matter.

DISCLOSURE OF PERSONAL INTERESTS OF A CONTROLLING SHAREHOLDER

Under the Companies Law, the disclosure requirements which apply to an
office holder also apply to a controlling shareholder of a public company. A
controlling shareholder includes a shareholder that holds 25% or more of the
voting rights in a public company if no other shareholder owns more than 50% of
the voting rights in the company. Extraordinary transactions with a controlling
shareholder or in which a controlling shareholder has a personal interest, and
the terms of compensation of a controlling shareholder who is an office holder,
require the approval of the audit committee, the board of directors and the
shareholders of the company. The shareholder approval may include either:

- at least one-third of the shareholders who have no personal interest in
the transaction and are present and voting, in person, by proxy or by
written ballot, at the meeting; or

- a majority of the voting power present and voting, provided that the
shareholders who have no personal interest in the transaction who vote
against the transaction do not represent more than one percent of the
voting rights in the company.

EXCULPATION, INSURANCE AND INDEMNIFICATION OF DIRECTORS AND OFFICERS

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.

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OFFICE HOLDER INSURANCE

Our articles of association provide that, subject to the provisions of the
Companies Law, we may enter into a contract for the insurance of the liability
of any of our office holders for:

- a breach of his duty of care to us or to another person;

- a breach of his duty of loyalty to us, provided that the office holder
acted in good faith and had reasonable cause to assume that his act would
not prejudice our interests; or

- a financial liability imposed upon him in favor of another person
concerning an act performed by him in his capacity as an office holder.

INDEMNIFICATION OF OFFICE HOLDERS

Our articles of association provide that we may indemnify an office holder
against:

- a financial liability imposed on him in favor of another person by any
judgment concerning an act performed in his capacity as an office holder;
and

- reasonable litigation expenses, including attorneys' fees, expended by the
office holder or charged to him by a court relating to an act performed in
his capacity as an office holder, resulting from:

- proceedings we institute against him or instituted on our behalf or by
another person;

- a criminal charge from which he was acquitted; or

- a criminal charge in which he was convicted for a criminal offense that
does not require proof of intent.

Our articles of association also include the following:

- We are authorized to grant in advance an undertaking to indemnify an
office holder, provided that the undertaking is:

- limited to specified events which the board of directors determines to
be anticipated; and

- limited in amount determined by the board of directors to be reasonable
under the circumstances.

- We are authorized to indemnify retroactively an office holder.

LIMITATIONS ON INSURANCE AND INDEMNIFICATION

The Companies Law provides that a company may not indemnify an office holder
nor enter into an insurance contract which would provide coverage for any
monetary liability incurred as a result of any of the following:

- a breach by the office holder of his duty of loyalty unless the office
holder acted in good faith and had a reasonable basis to believe that the
act would not prejudice the company;

- a breach by the office holder of his duty of care if the breach was done
intentionally or recklessly;

- any act or omission done with the intent to derive an illegal personal
benefit; or

- any fine levied against the office holder.

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In addition, under the Companies Law, indemnification of, and procurement of
insurance coverage for, our office holders must be approved by our audit
committee and our board of directors and, in specified circumstances, by our
shareholders.

We have agreed to indemnify our office holders to the fullest extent
permitted under the Companies Law. In connection with this offering, we have
obtained directors and officers liability insurance for the benefit of our
office holders.

COMMITTEES

Our board of directors has formed an audit committee, a share incentive
committee, an option committee, an executive committee and a compensation
committee.

Our audit committee, which consists of Adi Gan, Dan Goldstein and Hillel
Milo, our three independent directors, exercises the powers of the board of
directors in matters relating to our accounting, reporting and financial control
practices. Upon the appointment of our external directors under the Companies
Law, the external directors will also serve on our audit committee.

Our share incentive committee, which consists of Yehuda Zisapel, Hillel Milo
and Ami Amir, administers our key employee share incentive plan.

Our option committee, which consists of Yehuda Zisapel, Hillel Milo and Ami
Amir, administers our consultants option plan.

Our executive committee, which consists of Yehuda Zisapel, Hillel Milo and
Ami Amir, is responsible for managing our daily operations and acting on behalf
of our board of directors in exigent circumstances.

Our compensation committee, which consists of Yehuda Zisapel and Hillel
Milo, sets the annual compensation for Ami Amir, our chief executive officer.

COMPENSATION OF DIRECTORS AND OFFICERS

The following table presents all compensation we paid to all of our
directors and officers as a group for the year ended December 31, 1999. The
table does not include any amounts we paid to reimburse any of our affiliates
for costs incurred in providing us with services during this period, including
services provided by Yael Langer who is also our officer.

<TABLE>
<CAPTION>
PENSION,
RETIREMENT
SALARIES, FEES, AND OTHER
COMMISSIONS AND SIMILAR
BONUSES BENEFITS
--------------- ----------
<S> <C> <C>
All directors and officers as a group, consisting of eleven
persons................................................... $628,000 $73,000
</TABLE>

As of December 31, 1999, our directors and executive officers as a group,
consisting of eleven persons, held options to purchase an aggregate of 320,298
ordinary shares. All our officers work full time for us except Yael Langer, who
is also an officer of other companies in the RAD-BYNET group. Ms. Langer devotes
between 15% to 30% of her time to us. Other than reimbursement for expenses, we
do not compensate our directors for serving on our board of directors.

Under the Companies Law, the board of directors must approve all
compensation arrangements of office holders who are not directors. Directors'
compensation arrangements also require audit committee approval before board
approval and shareholder approval.

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KEY EMPLOYEE SHARE INCENTIVE PLAN

GENERAL

In April 1996, we adopted our key employee share incentive plan. Employees
of RADVision and its subsidiaries or of affiliates of RADVision belonging to the
RAD-BYNET group are eligible to participate in the plan. Options granted under
this plan are for a term of sixty-two months from the date of the grant of the
option. The following table presents option grant information for this plan as
of December 31, 1999:

<TABLE>
<CAPTION>
ORDINARY SHARES RESERVED WEIGHTED AVERAGE
FOR OPTION GRANTS OPTIONS GRANTED EXERCISE PRICE
- ------------------------ --------------- ----------------
<S> <C> <C>
3,163,523 3,038,323 $2.86
</TABLE>

The 3,163,523 ordinary shares indicated in the table as having been reserved
for option grants reflect the total number of ordinary shares reserved for
grants under this plan and our consultants option plan in the aggregate. After
December 31, 1999, 52,750 of the 3,038,323 options granted were exercised. We
intend to grant further options under this plan to our executive officers and
employees.

PLAN ADMINISTRATION

The share incentive committee of our board of directors administers the
plan. Under the plan, the committee has the authority to determine, in its
discretion:

- the persons to whom options are granted;

- the number of shares underlying each option award;

- the time or times at which the award shall be made;

- the exercise price, vesting schedule and conditions under which the
options may be exercised; and

- any other matter necessary or desirable for the administration of the
plan.

OPTION TRUST

Under the plan, all options, or shares issued upon exercise of options, are
held in trust and registered in the name of a trustee selected by the share
incentive committee. The trustee may not release the options or ordinary shares
to the beneficiaries of these options or shares before the later of:

- the second anniversary of the registration of the options in the name of
the trustee; and

- the initial public offering of our ordinary shares.

During this period, voting rights attached to the ordinary shares issued
upon exercise of the options may be exercised by the trustee.

TERMINATION AND AMENDMENT

Our board of directors may terminate or amend the plan, provided that any
action by our board of directors, which will alter or impair the rights of an
option holder, requires the prior consent of that option holder.

CONSULTANTS OPTION PLAN

GENERAL

In March 1999, we adopted our consultants option plan. Our employees and
directors and consultants employed by us are eligible to participate in the
plan. Options granted under the plan are

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for a term of sixty-two months from the date of grant of the option. The
following table presents option grant information for this plan as of
December 31, 1999:

PLAN ADMINISTRATION

The option committee of our board of directors administers the plan. Under
the plan, the committee has the authority to determine, in its discretion:

- the persons to whom options are granted;

- the number of shares underlying each option award;

- the time or times at which the award shall be made;

- the exercise price, vesting schedule and conditions under which the
options may be exercised; and

- any other matter necessary or desirable for the administration of the
plan.

OPTION TRUST

Under the plan, all options, or shares issued upon exercise of options, are
held in trust and registered in the name of a trustee selected by the option
committee. The trustee may not release the options or ordinary shares to the
beneficiaries of these options or shares before the initial public offering of
our ordinary shares.

During this period, voting rights attached to the ordinary shares issued
upon exercise of the options may be exercised by the trustee.

TERMINATION AND AMENDMENT

EMPLOYMENT AGREEMENTS

At the start of their employment, our employees in North America generally
sign offer letters specifying basic terms and conditions of employment as well
as non-disclosure agreements. At the start of their employment, our employees in
Israel generally sign written employment agreements that include confidentiality
and non-compete provisions.

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PRINCIPAL SHAREHOLDERS

The following table presents information covering the beneficial ownership
of our ordinary shares as of the date of this prospectus, as adjusted to reflect
the sale of the ordinary shares in this offering and the concurrent private
placement, by:

- each person who is known to own beneficially more than 5% of the
outstanding ordinary shares; and

- all directors and executive officers as a group.

The percentage of ordinary shares in the table below is based on:

- 13,637,774 ordinary shares outstanding before this offering and the
concurrent private placement; and

- 18,028,596 ordinary shares outstanding immediately following this offering
and the concurrent private placement.

Total shares beneficially owned in the table below include shares that may
be acquired upon the exercise of options that are exercisable within 60 days of
the date of this prospectus. The shares that may be issued under these options
are treated as outstanding only for purposes of determining the percent owned by
the person or group holding the options but not for the purpose of determining
the percentage ownership of any other person or group.

Unless otherwise noted below, each shareholder's address is c/o
RADVision Ltd., 24 Raoul Wallenberg St., Tel Aviv 69719, Israel.

<TABLE>
<CAPTION>
TOTAL SHARES PERCENTAGE OF
BENEFICIALLY OWNED ORDINARY SHARES
-------------------------------- --------------------------------
BEFORE OFFERING AFTER OFFERING BEFORE OFFERING AFTER OFFERING
AND PRIVATE AND PRIVATE AND PRIVATE AND PRIVATE
NAME PLACEMENT PLACEMENT PLACEMENT PLACEMENT
- ---- --------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Yehuda Zisapel (1)........................ 3,000,209 2,432,097 22.0% 13.5%
Zohar Zisapel (2)......................... 3,141,368 2,545,977 23.0 14.1
Siemens Aktiengesellschaft (3)............ -- 1,625,228 -- 9.0
Clal Venture Capital Fund LP (4).......... 1,244,900 1,004,330 9.1 5.6
Evergreen group (5)....................... 1,167,463 941,858 8.6 5.2
Samsung entities (6)...................... -- 1,000,000 -- 5.5
All directors and executive officers as a
group
(12 persons) (7)........................ 9,075,110 7,983,278 66.5 44.3
</TABLE>

- ------------------------

(1) After giving effect to the private placement, includes 470,249 ordinary
shares owned of record by RAD Data Communications Ltd.

(2) After giving effect to the private placement, includes:

- 470,249 ordinary shares owned of record by RAD Data Communications Ltd.;

- 571,106 ordinary shares owned of record by Michael and Klil Holdings
(93) Ltd.; and

- 571,106 ordinary shares owned of record by Lomsha Ltd.

(3) The address of Siemens Aktiengesellschaft is Hofmannstrasse 51, D-81359,
Munich, Germany.

(4) The address of Clal Venture Capital Fund LP is Atidim Technological Park,
Building No. 4, Tel Aviv, Israel. Hillel Milo, chief executive officer and
managing director of Clal Venture Capital Fund LP and a director of
RADVision, disclaims beneficial ownership of the ordinary shares held by
Clal Venture Capital Fund LP except to the extent of his proportional
interest in the ordinary shares.

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<PAGE>
(5) After giving effect to the private placement, consists of:

- 29,960 ordinary shares owned by Evergreen Canada-Israel Management Ltd.;

- 127,839 ordinary shares owned by the Periscope I Fund, Israeli
Partnership;

- 498,931 ordinary shares owned by the Periscope I Fund, L.P.; and

- 285,128 ordinary shares owned by IJT Technologies Ltd.

The address of the Evergreen group is 96 Rothschild Avenue, Tel Aviv,
Israel. Adi Gan, an investment manager of the Evergreen group's venture
capital group and a director of RADVision, disclaims beneficial ownership of
the ordinary shares held by the Evergreen group except to the extent of his
proportional interest in the ordinary shares.

(6) After giving effect to the private placement, consists of:

- 510,000 ordinary shares owned by Samsung Electro-Mechanics Co. Ltd.; and

- 490,000 ordinary shares owned by Samsung Venture Investment Corporation.

The address of Samsung Electro-Mechanics Co. Ltd. is 314 Maetan 3-Dong,
Paldal-Gu, Suwon, Kyunggi-D, Korea 442-743. The address of Samsung Venture
Investment Corporation is Samsung Yeok Sam Bldg. 647-9, Yeok Sam-Dong, Kang
Nam-Gu, Korea 135-080.

(7) Includes 152,764 ordinary shares issuable upon the exercise of options
exercisable within 60 days of the date of this prospectus.

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<PAGE>
RELATED PARTY TRANSACTIONS

THE RAD-BYNET GROUP

Yehuda and Zohar Zisapel are directors and principal shareholders of
RADVision. Individually or together, they are also directors and principal
shareholders of several other companies which, together with us and the other
subsidiaries and affiliates, are known as the RAD-BYNET group. These
corporations include:

AB-NET Ltd.

BYNET Data Communications Ltd.

BYNET Electronics Ltd.

BYNET SEMECH Ltd.

BYNET Systems Applications Ltd.

Commerce.net Ltd.

Giganet Ltd.

IP-RAD Ltd.

RADCOM Ltd.

RAD Data Communications

RADGuard Ltd.

RADLAN Computer Communications Ltd.

RAD Network Devices

RAD-OP Ltd.

RADView Software Ltd.

RADWARE Ltd.

RADWIN Ltd.

RIT Technologies Ltd.

RND Networks

SILICOM Ltd.

In addition to engaging in other businesses, members of the RAD-BYNET group
are actively engaged in designing, manufacturing, marketing and supporting data
communications products, none of which currently compete with our products. Some
of the products of members of the RAD-BYNET group are complementary to, and may
be used in connection with, our products.

Members of the RAD-BYNET group provide us with legal, human resources and
administrative services, and we reimburse each company for its costs in
providing these services. The aggregate amount of these reimbursements was
approximately $155,000, $152,000 and $196,000 in 1997, 1998 and 1999.

AGREEMENT WITH RADCOM LTD.

In January 1999, we entered into an agreement to license our H.323 software
development kit to RADCOM Ltd., an affiliated company controlled by Yehuda and
Zohar Zisapel and a member of the RAD-BYNET group. The agreement, which was
based on our standard form, provides for an aggregate fee of $187,000. This fee
includes maintenance and support services for one year and minimum royalty
payments on sales of products which incorporate the technology contained in the
software development kit during the first two years of the agreement. In
addition, the agreement provides that RADCOM has an option to extend the
maintenance and support services for additional annual periods as well as an
option to purchase additional RADVision products and technology at specified
discounts.

LEASE ARRANGEMENTS

We lease from RIT Technologies Ltd., RAD Data Communication Ltd. and several
other companies, all of which are affiliated companies controlled by Yehuda
Zisapel and Zohar Zisapel and members of the RAD-BYNET group, office space of
approximately 21,830 square feet in Tel Aviv, Israel, for an aggregate monthly
rent of approximately $40,000. The expiration dates of these lease agreements
range from August 2000 to December 2000. Under most of these lease agreements,
we have the option to extend the term of the lease for additional periods.

We lease from RAD Data Communications, an affiliated company controlled by
Yehuda Zisapel and Zohar Zisapel and a member of the RAD-BYNET group,
approximately 9,000 square feet for our facility in New Jersey, for a monthly
rent of approximately $6,500. The term of the lease is five years, commencing
May 1997 and terminating in May 2002. The monthly rent payments include a 15%
intra-group discount. If the property is sold, this discount would no longer
apply and our monthly payments will increase.

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SUPPLY ARRANGEMENT

We purchase from RAD Data Communications components which we integrate into
our multimedia RADVision products. The aggregate purchase price of these
components was approximately $252,000 for the year ended December 31, 1998, and
approximately $301,000 for the year ended December 31, 1999.

We generally ascertain the market prices for goods and services that can be
obtained at arms length from unaffiliated third parties before entering into any
transaction with a member of the RAD-BYNET group for those goods and services.
In addition, all of our transactions to date with members of the RAD-BYNET group
were approved unanimously by our shareholders. As a result, we believe that the
terms of the transactions in which we have engaged and are currently engaged
with other members of the RAD-BYNET group are beneficial to us and no less
favorable to us than terms which might be available to us from unaffiliated
third parties. Any future transaction and arrangement with entities, including
other members of the RAD-BYNET group, in which our office holders have a
personal interest will require approval by our audit committee, our board of
directors and, if applicable, our shareholders.

PRIVATE PLACEMENTS

1995

In April 1995, we issued in a private placement to investors, including RAD
Data Communications Ltd. and Clal Venture Capital Fund LP, an aggregate of
5,159,583 ordinary shares for an aggregate purchase price of approximately
$4.9 million, or $0.95 per share.

1996

In September 1996, we agreed to issue in a private placement to new
investors and existing shareholders, including Clal Venture Capital Fund LP, an
aggregate of 1,030,946 ordinary shares at an aggregate purchase price of
approximately $1.6 million, or $1.55 per share. Out of the aggregate 1,030,946
shares, we issued 714,235 shares during September and October 1996. Under an
agreement with Intel Corporation, we issued an additional 158,461 shares in
November 1997 and an additional 158,250 shares in December 1999 in exchange for
an additional aggregate investment in us of $500,000.

1997

In May through July 1997, we issued in a private placement to existing
shareholders, including RAD Data Communications Ltd., Zohar Zisapel and Clal
Venture Capital Fund LP, an aggregate of 269,447 ordinary shares at an aggregate
purchase price of approximately $650,000, or $2.41 per share.

1998

In May 1998, we issued in a private placement to new investors and existing
shareholders, including the Evergreen group, Zohar Zisapel, RAD Data
Communications Ltd. and Clal Venture Capital Fund LP, an aggregate of 2,957,165
preferred shares at an aggregate purchase price of approximately $5 million, or
$1.69 per share. We also issued 121,114 ordinary shares at NIS 0.1 per share to
the May 1997 investors as an anti-dilution adjustment to the shares they
purchased in the May 1997 private placement.

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<PAGE>
REGISTRATION RIGHTS

1995

In the private placement of our ordinary shares in April 1995, several of
our shareholders were granted registration rights for their ordinary shares. The
agreements grant registration rights to each of:

- Yehuda Zisapel, Zohar Zisapel, RAD Data Communications Ltd. and the
employees' trust, as a group;

- Clal Venture Capital Fund LP and ECI Telecom Ltd., as a group; and

- other shareholder groups specified in the agreements.

Under the agreements, each of these shareholder groups will have the right
to make a single demand for the registration of their ordinary shares
outstanding at the time of this offering, provided that:

- the shareholder group owns at least 2% of our outstanding share capital;
and

- the demand covers shares representing a market value of at least
$3 million and does not include shares which may be sold without
restriction within three months from the date of the demand.

The shareholders' rights will be exercisable at any time commencing on the
first anniversary of the consummation of this offering and for a period of three
years. In addition, each of the investors in the April 1995 private placement
has the right to have its ordinary shares included in some of our registration
statements, provided that the shareholder owns at least 2% of our outstanding
share capital at the time it exercises this right.

1996

In the private placement of our ordinary shares in September 1996, Intel
Corporation was granted registration rights for their ordinary shares. The
agreement provides for registration rights on the same terms and conditions as
contained in the private placement agreements of April 1995.

1998

In the private placement of our preferred shares in May 1998, several of our
shareholders were granted registration rights for the ordinary shares
outstanding or to be issued upon conversion of their preferred shares, which
represent 2,957,165 ordinary shares in the aggregate.

The agreement provides that the purchasers of the preferred shares in
May 1998, as a group, will have the right to make a demand on two occasions for
the registration of their ordinary shares outstanding at the time of this
offering, provided that:

- the demand covers shares representing a market value of at least
$3 million; and

- the demand does not include shares which may be sold without restriction
within three months from the date of the demand.

The shareholders' rights will be exercisable at any time commencing on the
first anniversary of the consummation of this offering and for a period of three
years or, in specified cases, for a period of five years. In addition, each of
the investors in the May 1998 private placement has the right to have its
ordinary shares included in some of our registration statements. The agreement
also provides that if subsequent investors in RADVision are granted more
favorable terms concerning demand or other registration rights, each of the
investors will be granted identical rights, for so long as they own at least 5%
of our outstanding shares at that time.

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<PAGE>
AGREEMENTS WITH OUR CHIEF EXECUTIVE OFFICER

FOUNDERS AGREEMENT

In January 1992, Messrs. Yehuda and Zohar Zisapel entered into an agreement
with Ami Amir, under which Ami Amir agreed to serve as our chief executive
officer for a period of not less than 5 years. In consideration for his
services, Zohar Zisapel and Yehuda Zisapel transferred 11% of our then
outstanding share capital to Ami Amir. The agreement provides that so long as
Ami Amir is our shareholder or director, he may not engage in business
activities that compete with us or pertain to data communications. In addition,
none of the parties may disclose to third parties information pertaining to our
business. The agreement also gives each of Messrs. Yehuda and Zohar Zisapel and
Ami Amir a right of first refusal if any of them offers to transfer their shares
to a third party.

GRANT OF SECURITIES

Under agreements between us, Messrs. Yehuda and Zohar Zisapel and Ami Amir
dated April 7, 1995 and January 1, 1999, we issued 196,652 ordinary shares and
granted 119,848 options to Ami Amir. The shares and options will vest over a
five year period, commencing January 1, 1999. This five-year period will be
reduced by a factor of two upon the consummation of this offering.

LOAN AGREEMENT

In July 1997, we entered into an agreement with Ami Amir under which we
loaned him approximately $66,000 at an annual interest rate of 1% linked to the
Israel consumer price index. The loan is scheduled to be repaid upon the earlier
of the termination of his employment with us or the sale by Ami Amir of all or
any portion of his shares of RADVision. As of December 31, 1999, the outstanding
balance of this loan was approximately $65,000, consisting of principal and
accrued interest. Ami Amir's shares of RADVision serve as collateral for the
payment of the loan.

VOTING AGREEMENT

Upon the completion of the private placement, Siemens and some of our
existing shareholders, including our chairman of the board, our chief executive
officer, the Evergreen group, Clal Venture Capital Fund LP and Zohar Zisapel,
will enter into a voting agreement. The voting agreement provides that, in the
election of our directors, the shareholders party to the agreement will nominate
and vote for a nominee of Siemens to serve as a director and as many other
nominees as the other shareholders party to the agreement shall unanimously
propose to serve as directors. However, the number of directors that the other
shareholders propose to serve as directors shall at a minimum be equal to the
number of directors which these shareholders have appointed to the board at the
date of this prospectus. If all directors, except for one director, decide that
the continuation of a director on our board may damage our business prospects,
then the director shall be removed from our board.

The voting agreement expires three years following the date of this
prospectus, provided that it shall be automatically extended for two additional
one-year periods, unless any of the parties to the agreement notifies each of
the other parties 60 days before the expiration date of the then current term.
After giving effect to this offering and the concurrent private placement,
8,608,642 ordinary shares, representing approximately 47.7% of the outstanding
shares, will be subject to the voting agreement.

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SHARES ELIGIBLE FOR FUTURE SALE

Sales of substantial amounts of our ordinary shares in the public market
could adversely affect prevailing market prices of our ordinary shares.

Assuming no exercise of outstanding options, we will have an aggregate of
18,028,596 ordinary shares outstanding upon completion of this offering and the
concurrent private placement. Of these shares, the 3,800,000 shares sold in this
offering will be freely tradable without restriction or further registration
under the Securities Act, unless the shares are purchased by affiliates under
Rule 144 of the Securities Act.

The remaining 14,228,596 ordinary shares will be held by our existing
shareholders and the investors in the concurrent private placement and will be
restricted securities. Restricted securities may be sold in the public market
only if registered or if they qualify for an exemption from registration under
Rule 144 of the Securities Act. These rules are summarized below.

The following table indicates approximately when the 14,228,596 ordinary
shares that are not being sold in this offering, but which will be outstanding
at the time this offering is complete, will be eligible for sale into the public
market, under the provisions of Rule 144 or 701:

ELIGIBILITY OF RESTRICTED SHARES FOR SALE IN PUBLIC MARKET

<TABLE>
<S> <C>
Upon the effective date of this prospectus.................. 472,682
90 days after the date of this prospectus................... 96,652
180 days after the date of this prospectus.................. 10,875,784
270 days after the date of this prospectus.................. 2,625,228
More than 270 days after the date of this prospectus........ 158,250
</TABLE>

LOCK-UP AGREEMENTS

Our officers and directors, all of our employees and substantially all of
our existing shareholders have signed lock-up agreements under which they agreed
not to dispose of or hedge any ordinary shares or any securities convertible
into or exchangeable for ordinary shares for a period of 180 days after the date
of this prospectus. Dispositions can be made sooner with the prior written
consent of Lehman Brothers Inc. In addition, as a condition to the private
placement, Siemens and Samsung have signed lock-up agreements prohibiting the
disposition of the shares they acquire in the private placement for a period of
270 days after the date of this prospectus.

RULE 144

In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned ordinary shares
for at least one year would be entitled to sell within any three-month period a
number of shares that does not exceed the greater of:

- 1% of the number of ordinary shares then outstanding, which will equal
approximately 180,285 ordinary shares immediately after this offering; or

- the average weekly trading volume of the ordinary shares on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 in connection with the sale.

Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us.

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RULE 144(K)

Under Rule 144(k), a person:

- who is not considered to have been one of our affiliates at any time
during the 90 days preceding a sale; and

- who has beneficially owned the shares proposed to be sold for at least two
years, including the holding period of any prior owner other than an
affiliate,

is entitled to sell his shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. Therefore,
unless otherwise restricted, these shares may be sold immediately upon the
completion of this offering.

RULE 701

In general, under Rule 701, any of our employees, directors, officers,
consultants or advisors who purchases ordinary shares from us under a
compensatory stock or option plan or other written agreement before the
effective date of this offering is entitled to resell these shares. These shares
can be resold 90 days after the effective date of this offering in reliance on
Rule 144, without having to comply with restrictions, including the holding
period, contained in Rule 144.

The Securities and Exchange Commission has indicated that Rule 701 will
apply to typical stock options granted by an issuer before it becomes subject to
the reporting requirements of the Securities Exchange Act of 1934, along with
the shares acquired upon exercise of these options, including exercises after
the date of this prospectus. Securities issued in reliance on Rule 701 are
restricted securities and, subject to the contractual restrictions described
above, beginning 90 days after the date of this prospectus, may be sold:

- by persons other than affiliates subject only to the manner of sale
provisions of Rule 144; and

- by affiliates under Rule 144 without compliance with its one year minimum
holding period requirement.

OPTIONS

Following the completion of this offering we intend to file a registration
statement on Form S-8 under the Securities Act covering 3,163,523 ordinary
shares reserved for issuance under our share option plans. The registration
statement on Form S-8 will become effective automatically upon filing. As of
December 31, 1999, options to purchase 3,101,623 ordinary shares were issued and
outstanding, of which options to purchase 542,903 ordinary shares had vested.
After December 31, 1999, 52,750 options were exercised. Ordinary shares
registered under the registration statement will, subject to vesting provisions
and Rule 144 volume limitations applicable to our affiliates, be available for
sale in the open market immediately after the 180-day lock-up agreements expire.

REGISTRATION RIGHTS

Beginning on the first anniversary of the completion of this offering, the
holders of 13,336,255 ordinary shares are entitled to request that we register
their ordinary shares under the Securities Act. After these ordinary shares are
registered, they will become freely tradable without restriction under the
Securities Act. Any sales of securities by these shareholders could have a
material adverse effect on the trading price of our ordinary shares.

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DESCRIPTION OF SHARE CAPITAL

Upon completion of this offering, our authorized share capital will be
25,000,000 shares, of we will be authorized to issue 24,984,470 ordinary shares
and 15,530 deferred shares. On January 18, 2000, our board of directors
declared, and our shareholders approved, effective immediately before this
offering:

- a share dividend of 20.1 ordinary shares for each ordinary share then
outstanding; and

- a 10-for-1 share split.

In addition, before the share split and the distribution of the share
dividend, each preferred share will automatically convert into one ordinary
share. Immediately following the conversion of our preferred shares, the share
split and the distribution of the share dividend, there will be 13,637,774
ordinary shares issued and outstanding.

Upon completion of this offering, all outstanding ordinary shares, including
the ordinary shares issued in this offering, will be validly issued and fully
paid and will not have preemptive rights, rights of first refusal, except for a
contractual right of first refusal among the founders, or co-sale rights. The
ownership or voting of ordinary shares by non-residents of Israel is not
restricted in any way by our memorandum of association, our articles of
association or the laws of the State of Israel, except for ownership by
nationals of countries which are, or have been, in a state of war with Israel
may not be recognized as owners of ordinary shares.

DEFERRED SHARES

As of December 31, 1999, our authorized share capital includes 12,760
deferred shares, as adjusted for the share split, all of which are issued and
outstanding. The deferred shares were created upon the conversion of ordinary
shares allocated to a trust and held on behalf of our employees when the
employees to whom the shares were allocated left us. Our shareholders have
resolved that, effective upon completion of this offering, an additional 2,770
ordinary shares be converted into deferred shares due to additional employee
departures. The deferred shares confer no rights or privileges on their holders
except for the right to receive upon our dissolution or liquidation NIS 0.1 per
deferred share. Holders of deferred shares will not receive the share dividend.

TRANSFER OF SHARES AND NOTICES

Fully paid ordinary shares are issued in registered form and may be freely
transferred under our articles of association unless the transfer is restricted
or prohibited by another instrument. Our articles of association provide that
each shareholder of record is entitled to receive at least 21 days' prior notice
of any shareholders' meeting.

ELECTION OF DIRECTORS

Our ordinary shares do not have cumulative voting rights in the election of
directors. As a result, the holders of ordinary shares that represent more than
50% of the voting power represented at a shareholders meeting have the power to
elect most of our directors.

DIVIDEND AND LIQUIDATION RIGHTS

We may declare a dividend to be paid to the holders of ordinary shares
according to their rights and interests in our profits. In the event of our
liquidation, after satisfaction of liabilities to creditors, our assets will be
distributed to the holders of ordinary shares in proportion to the nominal value
of their holdings. This right may be affected by the grant of preferential
dividend or distribution rights to the holders of a class of shares with
preferential rights that may be authorized in the future. The board of directors
may declare interim dividends and propose the final dividend for any fiscal year
only out of

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retained earnings. Under the Companies Law, the declaration of a dividend does
not require the approval of the shareholders of the company, unless the
company's articles of association require otherwise. Our articles of association
provide that the declaration of a dividend must be approved by an ordinary
shareholders' resolution, which may decrease but not increase the amount
proposed by the board of directors.

VOTING

Holders of ordinary shares have one vote for each ordinary share held on all
matters submitted to a vote of shareholders. These voting rights may be affected
by the grant of any special voting rights to the holders of a class of shares
with preferential rights that may be authorized in the future.

QUORUM

The quorum required for an ordinary meeting of shareholders consists of at
least two shareholders present in person or by proxy who hold or represent
between them at least 33 1/3% of the issued share capital. A meeting adjourned
for lack of a quorum generally is adjourned to the same day in the following
week at the same time and place or any time and place as the directors designate
in a notice to the shareholders. At the reconvened meeting, the required quorum
consists of any two members present in person or by proxy.

RESOLUTIONS

An ordinary resolution, like a resolution for the declaration of dividends,
requires approval by the holders of a majority of the voting rights represented
at the meeting, in person, by proxy or by written ballot, and voting on the
resolution. Under our articles of association, a special or extraordinary
resolution requires approval of the holders of 65% of the voting rights
represented at the meeting and voting on the resolution. Special or
extraordinary resolutions include resolutions for:

- amending our memorandum of association or articles of association;

- approving changes in capitalization;

- winding-up; or

- authorization of a class of shares with special rights.

Under the Companies Law, unless otherwise provided in the articles of
association or applicable law, all resolutions of the shareholders require a
simple majority and all shareholders meetings require prior notice of at least
21 days. However, companies, such as ours, which have been incorporated before
the Companies Law became effective, must specifically amend their articles of
association to provide for the shareholder voting requirements contained in the
Companies Law. The Companies Law requires that the first amendment of a
company's articles of association following the effective date of the Companies
Law be approved by holders of 75% of the voting rights represented at the
meeting, in person, by proxy or by written ballot, and voting on the amendment.

SHAREHOLDER DUTIES

Under the Companies Law, a shareholder has a duty to act in good faith
towards the company in which he hold shares and towards the company's other
shareholders and to refrain from abusing his power in the company. This duty
extends to voting in the general meeting of shareholders on the following
matters:

- any amendment to the articles of association;

- an increase of the company's authorized share capital;

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- a merger; or

- approval of some of the acts and transactions which require shareholder
approval.

In addition, a shareholder has the general duty to refrain from depriving
rights of other shareholders. Furthermore, any controlling shareholder, any
shareholder who knows that it possesses the power to determine the outcome of a
shareholder vote and any shareholder that, under the provisions of the articles
of association, has the power to appoint an office holder in the company, is
under a duty to act in fairness towards the company. The Companies Law does not
describe the substance of these duties.

REGISTRATION RIGHTS

For a discussion of registration rights we have granted to shareholders,
please see the section of this prospectus entitled "Related Party
Transactions--Registration Rights."

ANTI-TAKEOVER PROVISION

The Companies Law requires a party who wishes to acquire shares of a
publicly-held company without the approval of its minority shareholders to
acquire 95% of all outstanding shares not held by the acquirer before the
acquisition. Even if the acquirer acquires 95% of the outstanding shares, the
remaining minority shareholders may seek to block the acquisition in court.

MERGERS AND ACQUISITIONS UNDER ISRAELI LAW

The Companies Law includes provisions that allow a merger transaction and
requires that each company that is party to a merger approve the transaction by
its board of directors and a vote of the majority of its shares, voting on the
proposed merger at a shareholders' meeting called on at least 21 days' prior
notice. In determining whether a majority has approved the merger, shares held
by the other party to the merger or any person holding at least 25% of the other
party to the merger are excluded from the vote. The Companies Law does not
require court approval of a merger other than in specified situations. Upon the
request of a creditor of either party to the proposed merger, the court may
delay or prevent the merger if it concludes that there exists a reasonable
concern that as a result of the merger, the surviving company will be unable to
satisfy the obligations of any of the parties to the merger. In addition, a
merger may not be completed unless at least 70 days have passed from the time
that a proposal for approval of the merger has been filed with the Israeli
Registrar of Companies.

The Companies Law also provides that an acquisition of shares in a public
company on the open market must be made by means of a tender offer if as a
result of the acquisition the purchaser would become a 25% shareholder of the
company. If there already is another shareholder who holds more than 25% but
less than 50% of the company's outstanding share capital, the Companies Law
provides that an acquisition of shares in a public company on the open market
must be made by means of a tender offer if as a result of the acquisition the
purchaser would become a 45% shareholder of the company. However, under the
Companies Law, if following any acquisition of shares, the acquirer who hold 90%
or more of the company's shares, the acquisition must be made by means of a
tender offer for all of the shares of the class. These rules do not apply if the
acquisition is made by way of a merger.

MODIFICATION OF CLASS RIGHTS

Under our articles of association, the rights attached to any class, unless
otherwise provided by the terms of the class, including voting, rights to
dividends and the like, may be varied by:

- written consent of holders of 65% of the issued shares of that class; or

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- adoption of a resolution by the holders of 65% of the shares of that class
at a special meeting of the holders of that class.

ISRAELI SECURITIES LAW REQUIREMENTS

We have received from the Israeli Securities Authority an exemption from
Israel's prospectus delivery requirements applicable to the offering. We have
also received from the Israeli Securities Authority an exemption from the
reporting obligations to which Israeli companies whose shares are publicly
traded are subject, provided that a copy of each of the reports filed by us
under applicable United States securities laws shall be available for public
review at our offices.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for our ordinary shares is American Stock
Transfer & Trust Company, New York, New York.

CONDITIONS IN ISRAEL

We are incorporated under the laws of, and our principal offices and
manufacturing and research and development facilities are located in, the State
of Israel. Therefore, we are directly affected by political, economic and
military conditions in Israel.

POLITICAL CONDITIONS

Since the establishment of the State of Israel in 1948, a number of armed
conflicts have taken place between Israel and its Arab neighbors and a state of
hostility, varying from time to time in intensity and degree, has led to
security and economic problems for Israel. Israel signed a peace treaty with
Egypt in 1979 and a peace treaty with Jordan in 1994. Since 1993, a joint
Israeli-Palestinian declaration of principles and several other agreements have
been signed between Israel and the Palestinians. As of the date of this
prospectus, Israel has not entered into any peace agreement with Syria and
Lebanon. We cannot assure you whether any peace agreement with Syria and Lebanon
will be signed.

Despite the progress towards peace between Israel and its Arab neighbors and
the Palestinians, some countries, companies and organizations continue to
participate in a boycott of Israeli firms and others doing business with Israel
or with Israeli companies. Although we are precluded from marketing our products
to these countries, we believe that in the past, the boycott has not had a
material adverse effect on us. However, restrictive laws, policies or practices
directed towards Israel or Israeli businesses could have an adverse impact on
the expansion of our business.

All male adult citizens and permanent residents of Israel under the age of
48 are, unless exempt, obligated to perform up to 39 days of military reserve
duty annually. Additionally, these residents are subject to being called to
active duty at any time under emergency circumstances. Many of our officers and
employees are currently obligated to perform annual reserve duty. While we have
operated effectively under these requirements since we began operations, we
cannot assess 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.

ECONOMIC CONDITIONS

Israel's economy has been subject to numerous destabilizing factors,
including a period of rampant inflation in the early to mid-1980s, low foreign
exchange reserves, fluctuations in world commodity prices, military conflicts
and civil unrest. The Israeli government has intervened in various sectors of
the economy, by utilizing fiscal and monetary policies, import duties, foreign
currency restrictions and

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control of wages, prices and foreign currency exchange rates. In 1998, the
Israeli currency control regulations were liberalized significantly to allow
Israeli residents to deal in foreign currency and non-residents of Israel to
purchase and sell Israeli currency and assets. The Israeli government has
periodically changed its policies in all these areas. There are currently no
Israeli currency control restrictions on remittances of dividends on the
ordinary shares or the proceeds from the sale of the shares. However,
legislation remains in effect under which currency controls can be imposed by
administrative action at any time.

The Israeli government's monetary policy contributed to relative price and
exchange rate stability in recent years, despite fluctuating rates of economic
growth and a high rate of unemployment. We cannot assure you that the Israeli
government will be successful in its attempts to keep prices and exchange rates
stable. Price and exchange rate instability may have a material adverse effect
on us.

TRADE RELATIONS

Israel is a member of the United Nations, the International Monetary Fund,
the International Bank for Reconstruction and Development and the International
Finance Corporation. Israel is a member of the World Trade Organization and is
signatory to the Global Agreement on Trade in Services. In addition, Israel has
been granted preferences under the Generalized System of Preferences from the
United States, Australia, Canada and Japan. These preferences allow Israel to
export the products covered by these programs either duty-free or at reduced
tariffs.

Israel and the EEC, known now as the European Union, concluded a free trade
agreement in July 1975 which confers various advantages on Israeli exports to
most European countries and obligates Israel to lower its tariffs on imports
from these countries over a number of years. In 1985, Israel and the United
States entered into an agreement to establish a free trade area. The free trade
area has eliminated all tariff and specified non-tariff barriers on most trade
between the two countries. On January 1, 1993, an agreement between Israel and
the European Free Trade Association, known as the EFTA, established a free-trade
zone between Israel and the EFTA nations. In November 1995, Israel entered into
a new agreement with the European Union, which includes redefinement of rules of
origin and other improvements, including providing for Israel to become a member
of the research and technology programs of the European Union. In recent years,
Israel has established commercial and trade relations with a number of other
nations, including Russia, China, India, Turkey and other nations in Eastern
Europe and Asia.

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TAXATION AND GOVERNMENT PROGRAMS

ISRAELI TAX CONSIDERATIONS AND GOVERNMENT PROGRAMS

The following is a summary of the current tax structure applicable to
companies in Israel, with special reference to its effect on us. The following
also contains a discussion of the material Israeli and United States tax
consequences to persons purchasing our ordinary shares offered by this
prospectus and Israeli government programs benefiting us. To the extent that the
discussion is based on new tax legislation which has not been subject to
judicial or administrative interpretation, we cannot assure you that the tax
authorities will accept the views expressed in the discussion in question. The
discussion is not intended, and should not be taken, as legal or professional
tax advice and is not exhaustive of all possible tax considerations.

PROSPECTIVE PURCHASERS OF OUR ORDINARY SHARES SHOULD CONSULT THEIR OWN TAX
ADVISORS CONCERNING THE UNITED STATES, ISRAELI OR OTHER TAX CONSEQUENCES OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF ORDINARY SHARES, INCLUDING, IN
PARTICULAR, THE EFFECT OF ANY FOREIGN, STATE OR LOCAL TAXES.

GENERAL CORPORATE TAX STRUCTURE

Israeli companies are subject to company tax at the rate of 36% of taxable
income. However, the effective tax rate payable by a company, which derives
income from an approved enterprise discussed further below, may be considerably
less.

TAX BENEFITS UNDER THE LAW FOR THE ENCOURAGEMENT OF CAPITAL INVESTMENTS,
1959

The Law for the Encouragement of Capital Investments, 1959, commonly
referred to as the Investment Law, provides that a proposed capital investment
in eligible facilities may, upon application to the Investment Center of the
Ministry of Industry and Trade of the State of Israel, be designated as an
approved enterprise. Each certificate of approval for an approved enterprise
relates to a specific investment program delineated both by its financial scope,
including its capital sources, and by its physical characteristics, for example,
the equipment to be purchased and utilized under the program. The tax benefits
derived from any certificate of approval relate only to taxable income
attributable to the specific approved enterprise. If a company has more than one
approval or only a portion of its capital investments is approved, its effective
tax rate is the result of a weighted average of the applicable rates.

Taxable income of a company derived from an approved enterprise is subject
to company tax at the maximum rate of 25%, rather than 36%, for the benefit
period. This period is ordinarily seven years, or ten years if the company
qualifies as a foreign investors' company as described below, commencing with
the year in which the approved enterprise first generates taxable income.
However, this period is limited to twelve years from commencement of production
or 14 years from the date of approval, whichever is earlier. The Investment Law
also provides that a company that has an approved enterprise within Israel will
be eligible for a reduced tax rate for the remainder of the benefit period.

A company owning an approved enterprise may elect to receive an alternative
package of benefits. Under the alternative package of benefits, a company's
undistributed income derived from an approved enterprise will be exempt from
company tax for a period of between two and ten years from the first year of
taxable income, depending on the geographic location of the approved enterprise
within Israel, and the company will be eligible for a reduced tax rate for the
remainder of the benefits period.

A company that has an approved enterprise program is eligible for further
tax benefits if it qualifies as a foreign investors' company. A foreign
investors' company is a company more than 25% of whose share capital and
combined share and loan capital is owned by non-Israeli residents. A company
which qualifies as a foreign investors' company and has an approved enterprise
program is eligible for tax benefits for a ten year benefit period. Income
derived from the approved enterprise program will be

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exempt from tax for a period of two years and will be subject to a reduced tax
for an additional eight years. The tax rate is for the additional eight years is
25% unless the level of foreign investment exceeds 49%, in which case the tax
rate is 20% if the foreign investment is more than 49% and less than 74%; 15% if
more than 74% and less than 90%; and 10% if 90% or more.

A company that has elected the alternative package of benefits and that
subsequently pays a dividend out of income derived from the approved enterprise
during the tax exemption period will be subject to tax on of the amount
distributed. The rate of the tax will be the rate which would have been
applicable had the company not elected the alternative package of benefits. This
rate is generally 10%-25%, depending on the percentage of the company's shares
held by foreign shareholders. The dividend recipient is taxed at the reduced
rate applicable to dividends from approved enterprises which is 15%, if the
dividend is distributed during the tax exemption period or within 12 years after
the period. The company must withhold this tax at source, regardless of whether
the dividend is converted into foreign currency.

Subject to applicable provisions concerning income under the alternative
package of benefits, all dividends are considered to be attributable to the
entire enterprise and their effective tax rate is the result of a weighted
average of the various applicable tax rates. Under the Investment Law, a company
that has elected the alternative package of benefits is not obliged to
distribute exempt retained profits, and may generally decide from which year's
profits to declare dividends. We currently intend to reinvest any income derived
from our approved enterprise programs and not to distribute the income as a
dividend.

The Investment Center bases its decision whether or not to approve an
application on the criteria in the Investment Law and regulations, the then
prevailing policy of the Investment Center and the specific objectives and
financial criteria of the applicant. Therefore, we cannot assure you that any of
our applications will be approved. In addition, the benefits available to an
approved enterprise are conditional upon the fulfillment of conditions
stipulated in the Investment Law and its regulations and the criteria in the
specific certificate of approval, as described above. If a company does not meet
these conditions, it would be required to refund the amount of tax benefits,
with the addition of the consumer price index linkage adjustment and interest.

The Investment Center of the Ministry of Industry and Trade has granted
several investment programs at our manufacturing facility approved enterprise
status under Israeli law. We have elected the alternative package of benefits
under these approved enterprise programs. The portion of our income derived from
these approved enterprise programs will be exempt from tax for a period of two
years and will be subject to a reduced tax for an additional five to eight years
depending on the percentage of our share capital held by non-Israelis,
commencing when we begin to realize net income from these programs. The benefits
available to an approved enterprise program are dependent upon the fulfillment
of conditions stipulated in applicable law and in the certificate of approval.

We have derived, and expect to continue to derive, a substantial portion of
our income from our approved enterprise programs. Subject to compliance with
applicable requirements, income derived from our approved enterprise programs
will be tax exempt for a period of two years commencing in the first year in
which there is taxable income and will be subject for the subsequent period of
five years to a reduced company tax of up to 25%, or eight years if the
percentage of non-Israeli investors who hold our ordinary shares exceeds 25%.
The period of tax benefits for our approved enterprise programs has not yet
commenced, because we have yet to realize taxable income.

GRANTS UNDER THE LAW FOR THE ENCOURAGEMENT OF INDUSTRIAL RESEARCH AND
DEVELOPMENT, 1984

Under the Law for the Encouragement of Industrial Research and Development,
1984, commonly referred to as the Research Law, research and development
programs which meet specified criteria and are approved by a governmental
committee of the Office of the Chief Scientist are eligible for grants of up to
50% of the project's expenditure, as determined by the research committee, in
exchange for the

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payment of royalties from the sale of products developed under the program.
Regulations under the Research Law generally provide for the payment of
royalties to the Chief Scientist of 3-5% on sales of products and services
derived from our technology developed using these grants until 100%-150% of the
dollar-linked grant is repaid. Following the full repayment of the grant, there
is no further liability for repayment.

The terms of the Israeli government participation also require that the
manufacture of products developed with government grants be performed in Israel.
However, under the regulations of the Research Law, if any of the manufacturing
is performed outside Israel by any entity other than us, assuming we receive
approval from the Chief Scientist for the foreign manufacturing, we may be
required to pay increased royalties. The increase in royalties depends upon the
manufacturing volume that is performed outside of Israel follows:

<TABLE>
<CAPTION>
MANUFACTURING VOLUME ROYALTIES TO THE CHIEF SCIENTIST
OUTSIDE OF ISRAEL AS A PERCENTAGE OF GRANT
- ------------------------------------- -------------------------------------
<S> <C>
less than 50% 120%
between 50% and 90% 150%
more than 90% 300%
</TABLE>

The technology developed with Chief Scientist grants may not be transferred
to third parties without the prior approval of a governmental committee under
the Research Law. The approval, however, is not required for the export of any
products developed using the grants. Approval of the transfer of technology may
be granted in specific circumstances, only if the recipient abides by the
provisions of the Research Law and related regulations, including the
restrictions on the transfer of know-how and the obligation to pay royalties in
an amount that may be increased. We cannot assure you that any consent, if
requested, will be granted.

Effective for grants received from the Chief Scientist under programs
approved after January 1, 1999, the outstanding balance of the grants will be
subject to interest equal to the 12 month London interbank offered rate
applicable to dollar deposits that is published on the first business day of
each calendar year.

The funds generally available for grants from the Chief Scientist were
reduced for 1998, and the Israeli authorities have indicated that the government
may further reduce or abolish grants from the Chief Scientist in the future.
Even if these grants are maintained, we cannot assure you that we will receive
Chief Scientist grants in the future. In addition, each application to the Chief
Scientist is reviewed separately, and grants are based on the program approved
by the research committee. Generally, expenditures supported under other
incentive programs of the State of Israel are not eligible for grants from the
Chief Scientist. We cannot assure you that applications to the Chief Scientist
will be approved and, until approved, the amounts of any grants are not
determinable.

TAX BENEFITS AND GRANTS FOR RESEARCH AND DEVELOPMENT

Israeli tax law allows, under specific conditions, a tax deduction in the
year incurred for expenditures, including capital expenditures, relating to
scientific research and development projects, if:

- the expenditures are approved by the relevant Israeli government ministry,
determined by the field of research;

- the research and development is for the promotion of the company; and

- the research and development is carried out by or on behalf of the company
seeking the deduction.

Expenditures not so approved are deductible over a three-year period.
However, expenditures made out of proceeds made available to us through
government grants are not deductible according to Israeli law.

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<PAGE>
TAX BENEFITS UNDER THE LAW FOR THE ENCOURAGEMENT OF INDUSTRY (TAXES), 1969

According to the Law for the Encouragement of Industry (Taxes), 1969,
generally referred to as the Industry Encouragement Law, an industrial company
is a company resident in Israel, at least 90% of the income of which, in a given
tax year, determined in Israeli currency exclusive of income from specified
government loans, capital gains, interest and dividends, is derived from an
industrial enterprise owned by it. An industrial enterprise is defined as an
enterprise whose major activity in a given tax year is industrial production
activity. We believe that we currently qualify as an industrial company within
the definition of the Industry Encouragement Law.

Under the Industry Encouragement Law, industrial companies are entitled to
the following preferred corporate tax benefits:

- deduction of purchases of know-how and patents over an eight-year period
for tax purposes;

- deduction of specified expenses incurred for a public issuance of
securities over a three-year period for tax purposes;

- right to elect, under specified conditions, to file a consolidated tax
return with additional related Israeli industrial companies; and

- accelerated depreciation rates on equipment and buildings.

Eligibility for benefits under the Industry Encouragement Law is not subject
to receipt of prior approval from any governmental authority.

We believe that we currently qualify as an industrial company within the
definition of the Industry Encouragement Law. We cannot assure you that we will
continue to qualify as an industrial company or that the benefits described
above will be available to us in the future.

SPECIAL PROVISIONS RELATING TO TAXATION UNDER INFLATIONARY CONDITIONS

The Income Tax Law (Inflationary Adjustments), 1985, generally referred to
as the Inflationary Adjustments Law, represents an attempt to overcome the
problems presented to a traditional tax system by an economy undergoing rapid
inflation. The Inflationary Adjustments Law is highly complex. Its features
which are material to us can be described as follows:

- There is a special tax adjustment for the preservation of equity as
follows:

- Where a company's equity, as calculated under the Inflationary
Adjustments Law, exceeds the depreciated cost of fixed assets, a
deduction from taxable income is permitted equal to the excess
multiplied by the applicable annual rate of inflation. The maximum
deduction permitted in any single tax year is 70% of taxable income,
with the unused portion permitted to be carried forward.

- Where a company's depreciated cost of fixed assets exceeds its equity,
then the excess multiplied by the applicable annual rate of inflation
is added to taxable income.

- Subject to specified limitations, depreciation deductions on fixed assets
and losses carried forward are adjusted for inflation based on the
increase in the consumer price index.

- Gains on traded securities, which are normally exempt from tax, are
taxable in specified circumstances. However, dealers in securities are
subject to the regular tax rules applicable to business income in Israel.

CAPITAL GAINS TAX ON SALES OF OUR ORDINARY SHARES

Israeli law imposes a capital gains tax on the sale of capital assets. The
law distinguishes between real gain and inflationary surplus. The inflationary
surplus is a portion of the total capital gain that is equivalent to the
increase of the relevant asset's purchase price which is attributable to the
increase in

71
<PAGE>
the Israeli consumer price index between the date of purchase and the date of
sale. The real gain is the excess of the total capital gain over the
inflationary surplus. The inflationary surplus accumulated from and after
December 31, 1993, is exempt from any capital gains tax in Israel while the real
gain is added to ordinary income, which is taxed at ordinary rates of 30% to 50%
for individuals and 36% for corporations.

Under current law, sales of our ordinary shares offered by this prospectus
are exempt from Israeli capital gains for so long as they are quoted on Nasdaq
or listed on a stock exchange in specified countries and we qualify as an
industrial company. We cannot assure you that we will maintain this
qualification or our status as an industrial company. Moreover, dealers in
securities in Israel are taxed at regular tax rates applicable to business
income.

Under the convention between the United States and Israel concerning taxes
on income, Israeli capital gains tax will not apply to the sale, exchange or
disposition of ordinary shares by a person:

- who qualifies as a resident of the United States within the meaning of the
U.S.-Israel tax treaty; and

- who is entitled to claim the benefits available to the person by the
U.S.-Israel tax treaty.

However, this exemption will not apply if the treaty U.S. resident holds,
directly or indirectly, shares representing 10% or more of our voting power
during any part of the 12-month period preceding the sale, exchange or
disposition, subject to specified conditions. In this case, the sale, exchange
or disposition would be subject to Israeli tax, to the extent applicable.
However, under the U.S.-Israel tax treaty, the treaty U.S. resident would be
permitted to claim a credit for the taxes against the U.S. federal income tax
imposed on the sale, exchange or disposition, subject to the limitations in U.S.
laws applicable to foreign tax credits. The U.S.-Israel tax treaty does not
relate to U.S. state or local taxes.

TAXATION OF NON-RESIDENT HOLDERS OF SHARES

Non-residents of Israel are subject to income tax on income accrued or
derived from sources in Israel. These sources of income include passive income,
including dividends, royalties and interest, as well as non-passive income from
services provided in Israel. On distributions of dividends other than bonus
shares or stock dividends, income tax is withheld at source. Unless a different
rate is provided in a treaty between Israel and the shareholder's country of
residence, the withholding rate is as follows:

<TABLE>
<CAPTION>
DIVIDENDS NOT GENERATED BY AN
APPROVED ENTERPRISE
---------------------------------------
DIVIDENDS GENERATED BY AN U.S. COMPANY HOLDING 10% OTHER
APPROVED ENTERPRISE OR MORE OF OUR SHARES NON-RESIDENT
------------------------- ------------------------ ------------
<S> <C> <C>
15% 12.5% 25%
</TABLE>

Under an amendment to the Inflationary Adjustments Law, non-Israeli
corporations might be subject to Israeli taxes on the sale of traded securities
in an Israeli company, subject to the provisions of any applicable double
taxation treaty.

FOREIGN EXCHANGE REGULATIONS

We are permitted to pay in Israeli and non-Israeli currency:

- dividends to holders of our ordinary shares; and

- any amounts payable to the holders of our ordinary shares upon our
dissolution, liquidation or winding up.

If we make any payments in Israeli currency, the payments may be converted
into freely repatriable dollars at the rate of exchange prevailing at the time
of conversion.

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<PAGE>
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

Subject to the limitations described in the next paragraph, the following
discussion describes the material United States federal income tax consequences
to a holder of our ordinary shares, referred to for purposes of this discussion
as a U.S. holder, that is:

- a citizen or resident of the United States,

- a corporation created or organized in the United States or under the laws
of the United States or of any state,

- an estate, the income of which is includible in gross income for United
States federal income tax purposes regardless of its source, or

- a trust, if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more U.S.
persons have the authority to control all substantial decisions of the
trust.

This summary is not a comprehensive description of all of the tax
considerations that may be relevant to each person's decision to purchase
ordinary shares. This summary considers only U.S. holders that will own ordinary
shares as capital assets.

This discussion is based on current provisions of the Internal Revenue Code
of 1986, current and proposed Treasury regulations, and administrative and
judicial decisions as of the date of this prospectus, all of which are subject
to change, possibly on a retroactive basis. This discussion does not address all
aspects of United States federal income taxation that may be relevant to any
particular shareholder based on the shareholder's individual circumstances. In
particular, this discussion does not address the potential application of the
alternative minimum tax or the United States federal income tax consequences to
U.S. holders that are subject to special treatment, including U.S. holders that:

- are broker-dealers or insurance companies;

- have elected mark-to-market accounting;

- are tax-exempt organizations;

- are financial institutions or financial services entities;

- hold ordinary shares as part of a straddle, hedge or conversion
transaction with other investments;

- own directly, indirectly or by attribution at least 10% of our voting
power; and

- have a functional currency that is not the U.S. dollar.

In addition, this discussion does not address any aspect of state, local or
non-United States tax laws.

Additionally, the discussion does not consider the tax treatment of persons
who hold ordinary shares through a partnership or other pass-through entity or
the possible application of United States federal gift or estate tax. Material
aspects of United States federal income tax relevant to a holder other than a
U.S. holder, or a non-U.S. holder, are also discussed below.

EACH PROSPECTIVE INVESTOR IS ADVISED TO CONSULT HIS OWN TAX ADVISOR FOR THE
SPECIFIC TAX CONSEQUENCES TO HIM OF PURCHASING, HOLDING OR DISPOSING OF OUR
ORDINARY SHARES.

TAXATION OF DIVIDENDS PAID ON ORDINARY SHARES

A U.S. holder will be required to include in gross income as ordinary income
the amount of any distribution paid on ordinary shares, including any Israeli
taxes withheld from the amount paid, on the date the distribution is received to
the extent the distribution is paid out of our current or accumulated earnings
and profits as determined for United States federal income tax purposes.
Distributions in

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<PAGE>
excess of earnings and profits will be applied against and will reduce the U.S.
holder's basis in the ordinary shares and, to the extent in excess of the basis,
will be treated as gain from the sale or exchange of ordinary shares.

Distributions of current or accumulated earnings and profits paid in foreign
currency to a U.S. holder will be includible in the income of a U.S. holder in a
U.S. dollar amount calculated by reference to the exchange rate on the day the
distribution is received. A U.S. holder that receives a foreign currency
distribution and converts the foreign currency into U.S. dollars after receipt
will have foreign exchange gain or loss based on any appreciation or
depreciation in the value of the foreign currency against the U.S. dollar, which
will generally be U.S. source ordinary income or loss.

U.S. holders will have the option of claiming the amount of any Israeli
income taxes withheld at source either as a deduction from gross income or as a
dollar-for-dollar credit against their United States federal income tax
liability. Individuals who do not claim itemized deductions, but instead utilize
the standard deduction, may not claim a deduction for the amount of the Israeli
income taxes withheld, but the amount may be claimed as a credit against the
individual's United States federal income tax liability. The amount of foreign
income taxes that may be claimed as a credit in any year is subject to complex
limitations and restrictions, which must be determined on an individual basis by
each shareholder. These limitations include rules which limit foreign tax
credits allowable for specific classes of income to the United States federal
income taxes otherwise payable on each class of income. The total amount of
allowable foreign tax credits in any year cannot exceed the pre-credit U.S. tax
liability for the year attributable to foreign source taxable income.

A U.S. holder will be denied a foreign tax credit for Israeli income tax
withheld from dividends received on the ordinary shares:

- to the extent the U.S. holder has not held the ordinary shares for at
least 16 days of the 30 day period beginning on the date which is 15 days
before the ex-dividend date; or

- to the extent the U.S. holder is under an obligation to make related
payments on substantially similar or related property.

Any days during which a U.S. holder has substantially diminished its risk of
loss on the ordinary shares are not counted toward meeting the 16 day holding
period required by the statute. In addition, distributions of current or
accumulated earnings and profits will be foreign source passive income for
United States foreign tax credit purposes and will not qualify for the dividends
received deduction available to corporations.

TAXATION OF THE DISPOSITION OF ORDINARY SHARES

Upon the sale, exchange or other disposition of ordinary shares, a U.S.
holder will recognize capital gain or loss in an amount equal to the difference
between the U.S. holder's basis in the ordinary shares, which is usually the
cost of the shares, and the amount realized on the disposition. If, as
anticipated, the ordinary shares are publicly traded, a disposition of shares
will be considered to occur on the trade date, regardless of the holder's method
of accounting. Capital gain from the sale, exchange or other disposition of
ordinary shares held more than one year is long-term capital gain, and is
eligible for a maximum 20% rate of taxation for individuals. Gain or loss
recognized by a U.S. holder on a sale, exchange or other disposition of ordinary
shares will be treated as United States source income for United States foreign
tax credit purposes. The deductibility of a capital loss recognized on the sale,
exchange or other disposition of ordinary shares is subject to limitations.

A U.S. holder that uses the cash method of accounting calculates the U.S.
dollar value of the proceeds received on the sale as of the date that the sale
settles. However, a U.S. holder that uses the accrual method of accounting is
required to calculate the value of the proceeds of the sale as of the trade date
and may therefore realize foreign currency gain or loss. The U.S. holder may
avoid realizing foreign currency gain or loss if he has elected to use the
settlement date to determine its proceeds of

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<PAGE>
sale for purposes of calculating the foreign currency gain or loss. In addition,
a U.S. holder that receives foreign currency upon disposition of ordinary shares
and converts the foreign currency into U.S. dollars after receipt will have
foreign exchange gain or loss based on any appreciation or depreciation in the
value of the foreign currency against the U.S. dollar, which will generally be
U.S. source ordinary income or loss.

TAX CONSEQUENCES IF WE ARE A PASSIVE FOREIGN INVESTMENT COMPANY

We will be a passive foreign investment company, or PFIC, if 75% or more of
our gross income in a taxable year, including the pro rata share of the gross
income of any company, U.S. or foreign, in which we are considered to own 25% or
more of the shares by value, is passive income. Alternatively, we will be
considered to be a PFIC if at least 50% of our assets in a taxable year,
averaged over the year and ordinarily determined based on fair market value and
including the pro rata share of the assets of any company in which we are
considered to own 25% or more of the shares by value, are held for the
production of, or produce, passive income. Passive income includes amounts
derived by reason of the temporary investment of funds raised in this offering.

If we were a PFIC, and a U.S. holder did not make an election to treat us as
a qualified electing fund as described below, excess distributions by us to a
U.S. holder would be taxed in a special way. Excess distributions are amounts
received by a U.S. holder on our stock in any taxable year that exceed 125% of
the average distributions received by the U.S. holder from us in the shorter of:

- the three previous years; or

- the U.S. holder's holding period for ordinary shares before the present
taxable year.

Excess distributions must be allocated ratably to each day that a U.S.
holder has held our stock. A U.S. holder would then be required to include
amounts allocated to the current taxable year in its gross income as ordinary
income for that year. Further, a U.S. holder would be required to pay tax on
amounts allocated to each prior taxable year at the highest rate in effect for
that year on ordinary income and the tax would be subject to an interest charge
at the rate applicable to deficiencies for income tax.

The entire amount of gain that is realized by a U.S. holder upon the sale or
other disposition of ordinary shares will also be treated as an excess
distribution and will be subject to tax as described above.

A U.S. holder's tax basis in our ordinary shares that were inherited from a
deceased person who was a U.S. holder would not receive a step-up to fair market
value as of the date of the deceased's death but would instead be equal to the
deceased's basis, if lower.

The special PFIC rules described above will not apply to a U.S. holder if
the U.S. holder makes an election to treat us as a qualified electing fund in
the first taxable year in which the U.S. holder owns ordinary shares and if we
comply with specified reporting requirements. Instead, a shareholder of a
qualified electing fund is required for each taxable year to include in income a
pro rata share of the ordinary earnings of the qualified electing fund as
ordinary income and a pro rata share of the net capital gain of the qualified
electing fund as long-term capital gain, subject to a separate election to defer
payment of taxes. If deferred, the taxes will be subject to an interest charge.
We will supply U.S. holders with the information needed to report income and
gain under a QEF election if we are classified as a PFIC.

The QEF election is made on a shareholder-by-shareholder basis and can be
revoked only with the consent of the Internal Revenue Service, or IRS. A
shareholder makes a QEF election by attaching a completed IRS Form 8621,
including the PFIC annual information statement, to a timely filed United States
federal income tax return and by filing a copy of the form with the IRS Service
Center in

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<PAGE>
Philadelphia, Pennsylvania. Even if a QEF election is not made, a shareholder in
a PFIC who is a U.S. person must file a completed IRS Form 8621 every year.

A U.S. holder of PFIC stock which is publicly traded could elect to mark the
stock to market annually, recognizing as ordinary income or loss each year an
amount equal to the difference as of the close of the taxable year between the
fair market value of the PFIC stock and the U.S. holder's adjusted tax basis in
the PFIC stock. Losses would be allowed only to the extent of net mark-to-market
gain previously included by the U.S. holder under the election for prior taxable
years. If the mark-to-market election were made, then the rules presented above
would not apply for periods covered by the election.

We do not believe that we will be a PFIC in 2000. However, the tests for
determining PFIC status are applied annually and it is difficult to make
accurate predictions of future income and assets, which are relevant to this
determination. Therefore, there can be no assurance that we will not become a
PFIC in 2000 or in a subsequent year. U.S. holders who hold ordinary shares
during a period when we are a PFIC will be subject to these rules, even if we
cease to be a PFIC, subject to specified exceptions for U.S. holders who made a
QEF election. U.S. holders are urged to consult their tax advisors about the
PFIC rules, including QEF and mark-to-market elections.

TAX CONSEQUENCES FOR NON-U.S. HOLDERS OF ORDINARY SHARES

Except as described in "Information Reporting and Back-up Withholding"
below, a non-U.S. holder of ordinary shares will not be subject to U.S. federal
income or withholding tax on the payment of dividends on, and the proceeds from
the disposition of, ordinary shares, unless:

- the item is effectively connected with the conduct by the non-U.S. holder
of a trade or business in the United States and:

- in the case of a resident of a country which has a treaty with the
United States, the item is attributable to a permanent establishment;
or

- in the case of an individual, the item is attributable to a fixed place
of business in the United States;

- the non-U.S. holder is an individual who holds the ordinary shares as a
capital asset and is present in the United States for 183 days or more in
the taxable year of the disposition and does not qualify for an exemption;
or

- the non-U.S. holder is subject to tax under the provisions of United
States tax law applicable to U.S. expatriates.

INFORMATION REPORTING AND BACK-UP WITHHOLDING

U.S. holders generally are subject to information reporting requirements for
dividends paid in the United States on ordinary shares. Under existing
regulations, dividends are not subject to back-up withholding. U.S. holders are
subject to information reporting and back-up withholding at a rate of 31% on
proceeds paid from the disposition of ordinary shares unless the U.S. holder
provides IRS Form W-9 or establishes an exemption.

Non-U.S. holders generally are not subject to information reporting or
back-up withholding for dividends paid on, or upon the disposition of, ordinary
shares, provided that the non-U.S. holder provides a taxpayer identification
number, certifies to its foreign status, or establishes another exemption to the
information reporting or back-up withholding requirements.

Treasury regulations effective January 1, 2001 impose back-up withholding on
dividends paid in the United States on ordinary shares unless the U.S. holder
provides IRS Form W-9 or establishes an exemption. Prospective investors should
consult their tax advisors concerning the effect, if any, of these Treasury
regulations on an investment in ordinary shares.

The amount of any back-up withholding will be allowed as a credit against a
U.S. or non-U.S. holder's United States federal income tax liability and may
entitle the holder to a refund, provided that required information is furnished
to the IRS.

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<PAGE>
UNDERWRITING

GENERAL

Under the underwriting agreement, which is filed as an exhibit to the
registration statement relating to this prospectus, each of the underwriters
named below, for whom Lehman Brothers Inc., Salomon Smith Barney Inc., U.S.
Bancorp Piper Jaffray Inc. and Fidelity Capital Markets, a division of National
Financial Services Corporation, are acting as representatives, has agreed to
purchase from us the number of ordinary shares shown opposite its name below:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Lehman Brothers Inc......................................... 1,637,500
Salomon Smith Barney Inc.................................... 982,500
U.S. Bancorp Piper Jaffray Inc.............................. 655,000
Fidelity Capital Markets, a division of
National Financial Services Corporation................... 50,000
CIBC World Markets Corp..................................... 50,000
FleetBoston Robertson Stephens Inc.......................... 50,000
Hambrecht & Quist LLC....................................... 50,000
Prudential Securities Incorporated.......................... 50,000
C.E. Unterberg, Towbin...................................... 50,000
Warburg Dillon Read LLC..................................... 50,000
Thomas Weisel Partners LLC.................................. 50,000
Dain Rauscher Incorporated.................................. 25,000
Doft & Co., Inc............................................. 25,000
Gruntal & Co., L.L.C........................................ 25,000
Pacific Growth Equities, Inc................................ 25,000
Raymond James & Associates, Inc............................. 25,000
---------
Total................................................. 3,800,000
=========
</TABLE>

The underwriting agreement provides that the underwriters' obligations to
purchase ordinary shares depend on the satisfaction of the conditions contained
in the underwriting agreement, and that if any of the ordinary shares are
purchased by the underwriters under the underwriting agreement, then all of the
ordinary shares which the underwriters have agreed to purchase under the
underwriting agreement must be purchased. The conditions contained in the
underwriting agreement include that:

- the representations and warranties made by us to the underwriters are
true;

- there is no material change in the financial markets; and

- we deliver customary closing documents to the underwriters.

COMMISSIONS AND EXPENSES

The representatives had advised us that the underwriters propose to offer
the ordinary shares directly to the public at the public offering price
presented on the cover page of this prospectus, and to selected dealers, who may
include the underwriters, at the public offering price less a selling concession
not in excess of $0.81 per share. The underwriters may allow, and the selected
dealers may reallow, a concession not in excess of $0.10 per share to brokers
and dealers. After the offering, the underwriters may change the offering price
and other selling terms.

The following table summarizes the underwriting discounts and commissions we
will pay. The underwriting discounts and commissions are equal to the public
offer price per share less the amount

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<PAGE>
paid to us per share. The underwriting discounts and commissions will equal 7%
of the public offering price.

<TABLE>
<CAPTION>
TOTAL
-------------------------------
WITHOUT WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
--------- -------------- --------------
<S> <C> <C> <C>
Underwriting discounts and commissions to be paid by
us.................................................... $ 1.40 $5,320,000 $6,118,000
</TABLE>

We estimate that the total expenses of the offering, including registration,
filing and listing fees, printing fees and legal and accounting expenses but
excluding underwriting discounts and commissions, will be approximately
$2,000,000.

OVER-ALLOTMENT OPTION

We have granted to the underwriters an option to purchase up to an aggregate
of 570,000 additional ordinary shares, exercisable solely to cover
over-allotments, if any, at the public offering price less the underwriting
discounts and commissions shown on the cover page of this prospectus. The
underwriters may exercise this option at any time, and from time to time, until
30 days after the date of the underwriting agreement. To the extent the
underwriters exercise this option, each underwriter will be committed, so long
as the conditions of the underwriting agreement are satisfied, to purchase a
number of additional ordinary shares proportionate to that underwriter's initial
commitment as indicated in the preceding table, and we will be obligated, under
the over-allotment option, to sell the ordinary shares to the underwriters.

LOCK-UP AGREEMENTS

We have agreed that, without the prior written consent of Lehman
Brothers Inc., we will not, directly or indirectly, offer, sell or dispose of
any ordinary shares or any securities which may be converted into or exchanged
for any ordinary shares for a period of 180 days from the date of this
prospectus. Each of our officers and directors, all of our employees and
substantially all of our existing shareholders have agreed under lock-up
agreements that, without the prior written consent of Lehman Brothers Inc., they
will not, directly or indirectly, offer, sell or otherwise dispose of any
ordinary shares or any securities which may be converted into or exchanged for
any ordinary shares for a period of 180 days from the date of this prospectus.
In addition, as a condition to the private placement, Siemens and Samsung have
agreed not to dispose of the shares they acquire in the private placement for a
period of 270 days from the date of this prospectus.

OFFERING PRICE DETERMINATION

Before this offering, there has been no public market for the ordinary
shares. The initial public offering price was negotiated between the
representatives and us. In determining the initial public offering price of the
ordinary shares, the representatives considered prevailing market conditions,
our historical performance and capital structure, estimates of our business
potential and earnings prospects, an overall assessment of our management and
the consideration of these factors in relation to market valuation of companies
in related businesses.

INDEMNIFICATION

We have agreed to indemnify the underwriters against liabilities relating to
the offering, including liabilities under the Securities Act and liabilities
arising from breaches of the representations and warranties contained in the
underwriting agreement and to contribute to payments that the underwriters may
be required to make for these liabilities.

STABILIZATION, SHORT POSITIONS AND PENALTY BIDS

Until the distribution of the ordinary shares is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters and
selling group members to bid for and purchase ordinary shares. As an exception
to these rules, the representatives are permitted to engage in transactions that
stabilize the price of the ordinary shares. These transactions may consist of
bids or purchases for the purpose of stabilizing, fixing or maintaining the
price of the ordinary shares.

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<PAGE>
The underwriters may create a short position in the ordinary shares in
connection with the offering, which means that they may sell more ordinary
shares than are presented on the cover page of this prospectus. If the
underwriters create a short position, then the representatives may reduce that
short position by purchasing ordinary shares in the open market. The
representatives also may elect to reduce any short position by exercising all or
part of the over-allotment option described in this prospectus.

The underwriters have informed us that they do not intend to confirm sales
to discretionary accounts that exceed 5% of the total number of ordinary shares
offered by them.

The representatives also may impose a penalty bid on underwriters and
selling group members. This means that if the representatives purchase ordinary
shares in the open market to reduce the underwriters' short position or to
stabilize the price of the ordinary shares, they may reclaim the amount of the
selling concession from the underwriters and selling group members who sold
those ordinary shares as part of the offering.

In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might be in the absence of these purchases. The imposition of a
penalty bid could have an effect on the price of a security to the extent that
it were to discourage resales of the security by purchasers in an offering.

Neither we nor any of the underwriters make any representation or prediction
concerning the direction or magnitude of any effect that the transactions
described above may have on the price of the ordinary shares. In addition,
neither we nor any of the underwriters make any representation that the
representatives will engage in these transactions or that any transaction, once
commenced, will not be discontinued without notice.

STAMP TAXES

Purchasers of the ordinary shares offered in this prospectus may be required
to pay stamp taxes and other charges under the laws and practices of the country
of purchase, in addition to the offering price listed on the cover page of this
prospectus.

FIDELITY CAPITAL MARKETS

Fidelity Capital Markets, a division of National Financial Services
Corporation, is acting as an underwriter in this offering and will be
facilitating electronic distribution of information through the Internet,
intranet and other proprietary electronic technology.

OFFERS AND SALES IN ISRAEL

The underwriters have agreed that:

- they will not offer or sell the ordinary shares in Israel to more than 35
potential purchasers in the aggregate;

- they will deliver to us the names and addresses of these potential
purchasers within seven days of the consummation of this offering; and

- they will obtain representations from each of these potential purchasers
who purchases ordinary shares that he is purchasing ordinary shares for
investment purposes only, and not for the purposes of resale.

DIRECTED SHARE PROGRAM

At our request, the underwriters have reserved up to 228,000 ordinary
shares, or 6% of the ordinary shares offered by this prospectus, for sale under
a directed share program to officers, directors, employees, business associates
and persons otherwise connected to us. All of the persons purchasing the
reserved shares must commit to purchase no later than the close of business on
the day following the date of this prospectus. The number of shares available
for sale to the general public will be reduced to the extent these persons
purchase the reserved shares.

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LEGAL MATTERS

The validity of the ordinary shares being offered by this prospectus and
other legal matters concerning this offering relating to Israeli law will be
passed upon for us by Goldfarb, Levy, Eran & Co., Tel Aviv, Israel. Some legal
matters concerning this offering relating to United States law will be passed
upon for us by Weil, Gotshal & Manges LLP, New York, New York.

Some legal matters concerning this offering relating to Israeli law will be
passed upon for the underwriters by Meitar, Liquornik, Geva & Co., Ramat Gan,
Israel. Some legal matters concerning this offering relating to United States
law will be passed upon for the underwriters by Brobeck, Phleger & Harrison LLP,
New York, New York.

EXPERTS

Our financial statements at December 31, 1998 and 1999 and for the years
ended December 31, 1997, 1998 and 1999 appearing in this prospectus have been
audited by Luboshitz Kasierer, a member firm of Arthur Andersen, independent
auditors, as stated in their report on the financial statements appearing
elsewhere in this prospectus, and are included in reliance upon their report
given upon the authority of this firm as experts in auditing and accounting.

ENFORCEABILITY OF CIVIL LIABILITIES

Service of process upon us and upon our directors and officers and the
Israeli experts named in this prospectus, substantially all of whom reside
outside the United States, may be difficult to obtain within the United States.
Furthermore, because substantially all of our assets and substantially all of
our directors and officers are located outside the United States, any judgment
obtained in the United States against us or any of our directors and officers
may not be collectible within the United States.

We have been informed by our legal counsel in Israel, Goldfarb, Levy,
Eran & 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 judgment of Israeli courts, provided that:

- the judgment is enforceable in the state in which it was given;

- adequate service of process has been effected and the defendant has had a
reasonable opportunity to present his arguments and evidence;

- the judgment and the enforcement of the judgment are not contrary to the
law, public policy, security or sovereignty of the State of Israel;

- 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

- 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 RADVision Inc. as our agent to receive service
of process in any action against us in any federal court or court of the State
of New York 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

80
<PAGE>
in an action before an Israeli court to recover an amount in a non-Israeli
currency is for the Israeli court to issue a judgment for the equivalent amount
in Israeli currency at the rate of exchange in force on the date of the
judgment, but the judgment debtor may make payment in foreign currency. Pending
collection, the amount of the judgment of an Israeli court stated in Israeli
currency ordinarily will be linked to the Israeli consumer price index plus
interest at the annual statutory rate set by Israeli regulations prevailing at
the time. Judgment creditors must bear the risk of unfavorable exchange rates.

WHERE YOU CAN FIND ADDITIONAL INFORMATION

We have filed with the Securities and Exchange Commission a registration
statement on Form F-1 under the Securities Act relating to this offering of our
ordinary shares. This prospectus does not contain all of the information
contained in the registration statement. The rules and regulations of the
Securities and Exchange Commission allow us to omit various information from
this prospectus that is included in the registration statement. Statements made
in this prospectus concerning the contents of any contract, agreement or other
document are summaries of all material information about the documents
summarized, but are not complete descriptions of all terms of these documents.
If we filed any of these documents as an exhibit to the registration statement,
you may read the document itself for a complete description of its terms.

You may read and copy the registration statement, including the related
exhibits and schedules, and any document we file with the Securities and
Exchange Commission without charge at the Securities and Exchange Commission's
public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies
of the material may be obtained by mail from the public reference branch of the
Securities and Exchange Commission at this address at rates specified by the
Securities and Exchange Commission. Please call the Securities and Exchange
Commission at 1-800-SEC-0330 for further information on the public reference
room. In addition, the registration statement is publicly available through the
website maintained by the Securities and Exchange Commission on the Internet's
worldwide web located at http://www.sec.gov.

We are not currently subject to the informational requirements of the
Securities Exchange Act of 1934. As a result of this offering, we will become
subject to the informational requirements of the Exchange Act applicable to
foreign private issuers and will fulfill the obligations of these requirements
by filing reports with the Securities and Exchange Commission. You may obtain
copies of the documents that we file electronically with the Securities and
Exchange Commission through its website located at http://www.sec.gov.

As a foreign private issuer, we will be exempt from the rules under the
Exchange Act relating to the furnishing and content of proxy statements, and our
officers, directors and principal shareholders will be exempt from the reporting
and short-swing profit recovery provisions contained in Section 16 of the
Exchange Act.

In addition, we will not be required under the Exchange Act to file periodic
reports and financial statements with the Securities and Exchange Commission as
frequently or as promptly as United States companies whose securities are
registered under the Exchange Act. However, we intend to file with the
Securities and Exchange Commission, within 180 days after the end of each fiscal
year, an annual report on Form 20-F containing financial statements which will
be examined and reported on, with an opinion expressed, by an independent public
accounting firm. We also intend to file with the Securities and Exchange
Commission reports on Form 6-K containing unaudited financial information for
the first three quarters of each fiscal year, within 60 days after the end of
each quarter.

81
<PAGE>
[This page intentionally left blank]
<PAGE>
RADVISION LTD.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Report of Independent Public Accountants.................... F-2

Consolidated Balance Sheets as of December 31, 1998 and
1999...................................................... F-3

Consolidated Statements of Operations for the years ended
December 31, 1997, 1998 and 1999.......................... F-4

Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 31, 1997, 1998 and 1999 ..... F-5

Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999.......................... F-6

Notes to the Consolidated Financial Statements.............. F-7
</TABLE>

F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and the Shareholders of
RADVision Ltd.

We have audited the accompanying consolidated balance sheets of
RADVision Ltd. (an Israeli corporation) as of December 31, 1998 and 1999, and
the related consolidated statements of operations, changes in shareholders'
equity and cash flows for the years ended December 31, 1997, 1998 and 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with generally accepted auditing
standards in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provides a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Company as of December 31, 1998 and 1999, and the results of operations,
changes in shareholders' equity and cash flows for the years ended December 31,
1997, 1998 and 1999, in conformity with accounting principles generally accepted
in the United States.

LUBOSHITZ KASIERER
MEMBER FIRM OF ARTHUR ANDERSEN

Tel Aviv, Israel

March 7, 2000

F-2
<PAGE>
RADVISION LTD.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, 1999
DECEMBER 31, PRO FORMA
------------------------- SHAREHOLDERS' EQUITY
NOTE 1998 1999 NOTE 2
-------- ----------- ----------- ---------------------
<S> <C> <C> <C> <C>
Current assets
Cash and cash equivalents................................. (3) $ 3,304,738 $ 2,604,735
Trade receivables, net of allowance for doubtful
accounts................................................ (4) 2,567,346 3,214,462
Other receivables and prepaid expenses.................... (4) 886,951 1,516,576
Inventories............................................... (5) 872,632 2,433,422
----------- -----------
Total current assets.................................... 7,631,667 9,769,195
----------- -----------
Property and equipment, net of accumulated depreciation..... (6) 1,444,534 3,021,015
----------- -----------
Deposit with insurance companies............................ 295,001 470,361
----------- -----------
Total assets............................................ $ 9,371,202 $13,260,571
=========== ===========
Current liabilities
Current maturities of long-term loans..................... $ 74,602 $ 63,901
Trade payables............................................ 634,083 2,557,978
Other payables and accrued expenses....................... (7) 2,604,836 6,333,376
----------- -----------
Total current liabilities............................... 3,313,521 8,955,255
----------- -----------
Long-term liabilities
Bank loans................................................ (8) 130,146 67,383
Accrued severance pay..................................... (9) 477,836 756,812
----------- -----------
607,982 824,195
----------- -----------
Total liabilities......................................... 3,921,503 9,779,450
----------- -----------

Commitments and contingencies (10)
Shareholders' equity (11)
Preferred shares of NIS 0.1 par value:
Authorized 5,275,000 shares; issued and outstanding
2,957,165 shares as of December 31, 1998 and 1999;
issued and outstanding pro forma as of December 31, 1999
- none.................................................. 3,825 3,825
Ordinary shares of NIS 0.1 par value:
Authorized - 12,332,317 shares as of December 31, 1998 and
1999; issued and outstanding - 10,528,056 and 10,627,859
shares as of December 31, 1998 and 1999; authorized pro
forma - 24,984,470 shares; issued and outstanding pro
forma - 13,585,024 shares as of December 31, 1999....... 16,641 16,820 $ 20,645
Additional paid-in capital.................................. 12,088,150 13,788,618 13,788,618
Deferred compensation....................................... (78,378) (1,051,549) (1,051,549)
Accumulated deficit......................................... (6,580,539) (9,276,593) (9,276,593)
----------- ----------- -----------
Total shareholders' equity.............................. 5,449,699 3,481,121 $ 3,481,121
----------- ----------- -----------
Total liabilities and shareholders' equity.............. $ 9,371,202 $13,260,571
=========== ===========
</TABLE>

THE ACCOMPANYING NOTES FORM AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.

F-3
<PAGE>
RADVISION LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
----------------------------------------
NOTE 1997 1998 1999
-------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenues........................................ (12) $ 4,899,211 $ 8,894,414 $17,549,903
Cost of revenues................................ 1,210,650 1,412,147 2,853,393
------------ ----------- -----------
Gross profit.................................... 3,688,561 7,482,267 14,696,510
------------ ----------- -----------
Operating expenses
Research and development expenses............. 2,763,786 4,378,829 7,666,583
Less-participation by the Chief Scientist of
the Government of Israel.................... (10) 890,326 1,139,749 1,096,722
------------ ----------- -----------
Research and development expenses, net........ 1,873,460 3,239,080 6,569,861
Marketing and selling expenses, net........... (13) 2,383,704 4,425,231 9,501,682
General and administrative expenses........... 493,593 669,578 1,426,154
------------ ----------- -----------
Total operating expenses.................... 4,750,757 8,333,889 17,497,697
------------ ----------- -----------
Operating loss.................................. (1,062,196) (851,622) (2,801,187)
Financing income, net........................... 6,001 22,447 105,133
------------ ----------- -----------
Net loss........................................ $ (1,056,195) $ (829,175) $(2,696,054)
============ =========== ===========
Basic and diluted net loss per ordinary share... $ (0.10) $ (0.08) $ (0.26)
============ =========== ===========
Weighted average number of ordinary shares
outstanding--basic and diluted................ 10,233,711 10,491,764 10,538,395
============ =========== ===========
Pro forma basic and diluted net loss per
ordinary share (unaudited).................... (2) $ (0.20)
===========
Weighted average number of ordinary shares
outstanding--pro forma basic and diluted
(unaudited)................................... (2) 13,495,560
===========
</TABLE>

THE ACCOMPANYING NOTES FORM AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.

F-4
<PAGE>
RADVISION LTD.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED SHARES ORDINARY SHARES
-------------------- --------------------- ADDITIONAL DEFERRED ACCUMULATED
SHARES AMOUNT SHARES AMOUNT PAID-IN CAPITAL COMPENSATION DEFICIT
--------- -------- ---------- -------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of
January 1, 1997........ -- $ -- 10,065,333 $15,893 $ 6,132,408 $ -- $(4,695,169)
Ordinary shares issued... -- -- 373,048 589 888,763 (1) -- --
Deferred compensation.... -- -- -- -- 159,084 (159,084) --
Amortization of deferred
compensation........... -- -- -- -- -- 76,591 --
Net loss................. -- -- -- -- -- -- (1,056,195)
--------- ------ ---------- ------- ----------- ----------- -----------
Balance as of
December 31, 1997...... -- -- 10,438,381 16,482 7,180,255 (82,493) (5,751,364)
Ordinary shares issued... -- -- 89,675 159 -- -- --
Preferred shares
issued................. 2,957,165 3,825 -- -- 4,795,895 (2) -- --
Deferred compensation.... -- -- -- -- 112,000 (112,000) --
Amortization of deferred
compensation........... -- -- -- -- -- 116,115 --
Net loss................. -- -- -- -- -- -- (829,175)
--------- ------ ---------- ------- ----------- ----------- -----------
Balance as of
December 31, 1998...... 2,957,165 3,825 10,528,056 16,641 12,088,150 (78,378) (6,580,539)
Ordinary shares issued... -- -- 158,250 179 249,821 -- --
Deferred compensation.... -- -- -- -- 1,466,647 (1,466,647) --
Amortization of deferred
compensation........... -- -- -- -- (16,000) 493,476 --
Net loss................. -- -- -- -- -- -- (2,696,054)
--------- ------ ---------- ------- ----------- ----------- -----------
Balance as of
December 31, 1999...... 2,957,165 $3,825 10,686,306 $16,820 $13,788,618 $(1,051,549) $(9,276,593)
========= ====== ========== ======= =========== =========== ===========

TOTAL
-----------
<S> <C>
Balance as of
January 1, 1997........ $ 1,453,132
Ordinary shares issued... 889,352
Deferred compensation.... --
Amortization of deferred
compensation........... 76,591
Net loss................. (1,056,195)
-----------
Balance as of
December 31, 1997...... 1,362,880
Ordinary shares issued... 159
Preferred shares
issued................. 4,799,720
Deferred compensation.... --
Amortization of deferred
compensation........... 116,115
Net loss................. (829,175)
-----------
Balance as of
December 31, 1998...... 5,449,699
Ordinary shares issued... 250,000
Deferred compensation.... --
Amortization of deferred
compensation........... 477,476
Net loss................. (2,696,054)
-----------
Balance as of
December 31, 1999...... $ 3,481,121
===========
</TABLE>

- ------------------------------

(1) Net of issuance expenses of approximately $9,000.

(2) Net of issuance expenses of approximately $85,000.

THE ACCOMPANYING NOTES FORM AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.

F-5
<PAGE>
RADVISION LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
------------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................. $(1,056,195) $ (829,175) $(2,696,054)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Income and expenses not affecting operating cash
flows:
Depreciation........................................ 204,357 360,331 718,444
Severance pay....................................... 31,741 39,051 103,616
Amortization of deferred compensation............... 76,591 116,115 477,476
Other............................................... 1,511 17,159 19,308
Changes in operating assets and liabilities:
Increase in trade receivables....................... (1,391,255) (724,060) (647,116)
Increase in other receivables and prepaid
expenses.......................................... (32,324) (625,820) (429,625)
Decrease (increase) in inventories.................. 101,043 (447,200) (1,560,790)
Increase in trade payables.......................... 42,826 282,924 1,923,895
Increase in other payables and accrued expenses..... 1,051,813 963,589 3,528,540
----------- ----------- -----------
Net cash provided by (used in) operating
activities.................................... (969,892) (847,086) 1,437,694
----------- ----------- -----------

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment........................ (460,193) (1,102,164) (2,388,490)
Proceeds from sale of property and equipment.............. 32,097 19,285 74,257
----------- ----------- -----------
Net cash used in investing activities........... (428,096) (1,082,879) (2,314,233)
----------- ----------- -----------

CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of share capital................................. 889,352 4,799,879 250,000
Decrease in short-term credit............................. (524,716) (54,055) (10,701)
Long-term loans received.................................. 452,080 100,000 --
Repayment of long-term loans.............................. (333,336) (45,734) (62,763)
----------- ----------- -----------
Net cash provided by financing activities....... 483,380 4,800,090 176,536
----------- ----------- -----------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ (914,608) 2,870,125 (700,003)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 1,349,221 434,613 3,304,738
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 434,613 $ 3,304,738 $ 2,604,735
=========== =========== ===========
CASH PAID DURING THE PERIOD IN RESPECT OF INTEREST.......... $ 29,387 $ 22,715 $ 15,839
NON-CASH ACTIVITY........................................... -- -- $ 200,000
=========== =========== ===========
</TABLE>

THE ACCOMPANYING NOTES FORM AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.

F-6
<PAGE>
RADVISION LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--GENERAL

RADVision Ltd., referred to in these consolidated financial statements as
the Company, an Israeli corporation, designs, develops and supplies products and
technology that enable real-time voice, video and data communications over
packet networks, including the Internet and other networks based on the Internet
protocol.

The consolidated financial statements include the financial statements of
the Company and its wholly-owned subsidiaries, RADVision Inc., in the United
States and RADVision B.V. in the Netherlands. The subsidiaries are primarily
engaged in the sale and marketing of the Company's products and technology.

The financial statements of the Company have been prepared in U.S. dollars,
as the currency of the primary economic environment in which the operations of
the Company are conducted is the U.S. dollar. All of the Company's sales are in
U.S. dollars or are dollar-linked. Most purchases of materials and components
and most marketing costs are denominated in U.S. dollars. Therefore, the
functional currency of the Company is the U.S. dollar.

Transactions and balances originally denominated in U.S. dollars are
presented at their original amounts. Transactions and balances in other
currencies are translated into U.S. dollars in accordance with the principles
set forth in Statement No. 52 of the Financial Accounting Standards Board of the
United States. Items have been translated as follows:

-- Monetary items--at the exchange rate in effect on balance sheet date.

-- Non monetary items--at historical exchange rates.

-- Revenue and expense items--at the exchange rates in effect as of date of
recognition of those items, excluding depreciation and other items
deriving from non-monetary items.

All exchange gains and losses from the translation mentioned above, which
are immaterial for all periods presented, are reflected in the statement of
operations. The representative rate of exchange at December 31, 1999 was
U.S.$1.00 = NIS 4.153; and at December 31, 1998 and 1997 was U.S.$1.00 =
NIS 4.16 and NIS 3.536.

NOTE 2--SIGNIFICANT ACCOUNTING POLICIES

The financial statements are prepared according to generally accepted
accounting principles in the United States. The significant accounting policies
followed in the preparation of the financial statements, applied on a consistent
basis, are as follows:

A. PRINCIPLES OF CONSOLIDATION

The financial statements include the accounts of the Company and its
wholly-owned subsidiaries in the United States and Netherlands. Material
intercompany balances and transactions have been eliminated.

B. CASH AND CASH EQUIVALENTS

All highly liquid investments with an original maturity of three months or
less are considered cash equivalents.

F-7
<PAGE>
RADVISION LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
C. ALLOWANCE FOR DOUBTFUL ACCOUNTS

Allowance for doubtful accounts is computed for specific debts the
collectibility of which is doubtful based upon the Company's experience.

D. INVENTORIES

Inventories are valued at the lower of cost or market. Cost is determined on
the moving average basis.

E. PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation is computed by the
straight-line method over the estimated useful life of the assets, ranging from
3 to 15 years.

F. REVENUE RECOGNITION

Revenues from sales of products and technology are recognized in accordance
with Statement of Position (SOP) 97-2, as amended by SOP 98-4, upon delivery,
when collection is probable, the vendor's fee is fixed or determinable and
persuasive evidence of an arrangement exists. Provided that all other elements
of SOP 97-2 are met, revenues are recognized upon delivery, whether the customer
is a distributor or the final end user. Revenues for maintenance and support
services are deferred and recognized ratably over the service period.

In accordance with SOP 97-2, revenues for multi-element arrangements, that
is, sales of products or technology in conjunction with post-contract customer
support services, are segregated. Revenues allocated to the delivered elements
are recognized upon delivery, provided that the other elements of SOP 97-2 are
satisified. Revenues allocated to the undelivered elements (post-contract
customer support services) are deferred and recognized ratably over the service
period. The portion of the fee for multi-element arrangements allocated to the
undelivered elements (post-contract customer support services) is based on
vendor-specific object evidence determined, in the case of post-contract
customer support services, based on the annual renewal rate for such services
actually charged to customers for years subsequent to the first year following
sale. The remaining portion of the fee is allocated to the delivered elements
based on the residual value method.

G. RESEARCH AND DEVELOPMENT COSTS

Research and development costs, net of participations by the Government of
Israel through the Ministry of Industry and Trade, Office of the Chief
Scientist, are charged to operations as incurred. Software development costs are
considered for capitalization when technological feasibility is established
according to Statement of Financial Accounting Standards No. 86, "Accounting for
the Costs of Computer Software to be Sold, Leased or Otherwise Marketed." Costs
incurred after achievement of technological feasibility in the process of
software production have not been material. Therefore, the Company has not
capitalized any of its research and development expenses and does not anticipate
that its development process will differ materially in the future.

F-8
<PAGE>
RADVISION LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
H. INCOME TAXES

The Company accounts for income taxes under the liability method of
accounting. Under the liability method, deferred taxes are determined based on
the differences between the financial statement and tax bases of assets and
liabilities at enacted tax rates in effect in the year in which the differences
are expected to reverse. Valuation allowances are established, when necessary,
to reduce deferred tax assets to amounts expected to be realized.

I. FAIR VALUE OF FINANCIAL INSTRUMENTS

Unless otherwise noted, the carrying amount of financial instruments
approximates fair value.

J. PROVISION FOR WARRANTY COSTS

The Company warrants its products for a twelve-month period. Provisions for
warranty costs are based on the Company's past experience.

K. BASIC AND DILUTED NET LOSS PER SHARE

Basic and diluted net loss per share are presented according to SFAS
No. 128, "Earnings per share", for all periods presented.

Basic and diluted net loss per share have been computed using the
weighted-average number of ordinary shares outstanding during the period. Basic
and diluted pro forma net loss per share, as presented in the statements of
operations, have been computed using the weighted average number of ordinary
shares outstanding during the period and also give effect to the automatic
conversion of the preferred shares into ordinary shares upon the closing of an
initial public offering, using the as-if converted method from original date of
issuance.

All preferred shares and outstanding share options have been excluded from
the calculation of diluted net loss per share because all these securities are
antidilutive for all periods presented. The total number of shares related to
the outstanding options excluded from the calculations of diluted net loss per
share were 649,880, 1,430,580 and 2,667,251 for the years ended December 31,
1997, 1998 and 1999.

L. PRO FORMA SHAREHOLDERS' EQUITY

Upon the closing of an initial public offering, all of the preferred shares
outstanding will automatically be converted into an identical number of ordinary
shares. Pro forma shareholders' equity at December 31, 1999, as adjusted for the
assumed conversion of the preferred shares outstanding at December 31, 1999, is
disclosed in the balance sheet. Pro forma share and per share data is adjusted
to reflect the conversion and the share split and share dividend effected after
December 31, 1999. See note 17.

M. SHARE-BASED COMPENSATION

The Company has adopted the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation," and the accounting rules in
Accounting Principles Board Opinion No. 25, "Accounting

F-9
<PAGE>
RADVISION LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
for Stock Issued to Employees." The Company has provided the necessary pro forma
disclosures as if the fair value method had been applied. See note 11(B).

N. USE OF ESTIMATES

The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

O. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
established accounting and reporting standards requiring that every derivative
instrument be recorded on the balance sheet at its fair value. SFAS No. 133
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the statement of operations. SFAS No. 133 is
effective for fiscal years beginning after June 15, 2000. The Company believes
that the adoption of SFAS No. 133 will not have a material effect on its
financial statements.

NOTE 3--CASH AND CASH EQUIVALENTS

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1999
---------- ----------
<S> <C> <C>
Cash in banks, primarily in U.S. dollars............. $ 955,053 $1,828,335
Bank deposits in U.S. dollars, bearing annual
interest rate of 4.3%.............................. 1,350,000 615,875
Bank deposits in NIS, bearing annual interest rate of
10.3%.............................................. 999,685 160,525
---------- ----------
$3,304,738 $2,604,735
========== ==========
</TABLE>

The interest rates are as of December 31, 1999.

NOTE 4--TRADE RECEIVABLES, NET

A. Trade receivables are presented net of allowance for doubtful accounts in
the amount of $72,539 and $224,705 as of December 31, 1998 and 1999. The Company
generally provides customers with a thirty day post-sale acceptance period,
during which customers can return products for a full refund. Historically,
returns during this period have been negligible.

B. Other receivables and prepaid expenses include grants receivable from the
Government of Israel in the amount of $442,681 and $864,444 as of December 31,
1998 and 1999.

F-10
<PAGE>
RADVISION LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 5--INVENTORIES

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1998 1999
-------- ----------
<S> <C> <C>
Materials and components.............................. $393,206 $1,037,633
Work in process....................................... 136,772 634,969
Finished products..................................... 342,654 760,820
-------- ----------
$872,632 $2,433,422
======== ==========
</TABLE>

NOTE 6--PROPERTY AND EQUIPMENT

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1999
---------- ----------
<S> <C> <C>
COST
Research and development equipment........................ $ 751,565 $1,370,345
Motor vehicles............................................ 513,200 1,039,715
Manufacturing equipment................................... 114,366 236,208
Office furniture and equipment and leasehold
improvements............................................ 811,833 1,753,264
---------- ----------
2,190,964 4,399,532
---------- ----------
ACCUMULATED DEPRECIATION
Research and development equipment........................ 378,017 669,773
Motor vehicles............................................ 105,704 148,674
Manufacturing equipment................................... 62,396 109,383
Office furniture and equipment and leasehold
improvements............................................ 200,313 450,687
---------- ----------
746,430 1,378,517
---------- ----------
NET BOOK VALUE.............................................. $1,444,534 $3,021,015
========== ==========
</TABLE>

For the years ended December 31, 1997, 1998 and 1999, depreciation expense
was $204,357, $360,331 and $718,444.

The Company's property and equipment are primarily located in Israel.

F-11
<PAGE>
RADVISION LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7--OTHERS PAYABLES AND ACCRUED EXPENSES

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1999
---------- ----------
<S> <C> <C>
Deferred income............................................. $1,521,763 $2,930,587
Employees and employee institutions(1)...................... 705,973 1,493,704
Accrued royalties........................................... 289,000 476,000
Tax withholding payable..................................... -- 403,000
Offering expenses payable................................... -- 200,000
Accrued expenses............................................ 88,100 830,085
---------- ----------
$2,604,836 $6,333,376
========== ==========
</TABLE>

- ------------------------

(1) Employees and employee institutions include salaries, bonuses and employee
institutions payable. The employee institutions include amounts deducted
from employees payroll for December 1998 and 1999, respectively, for
educational funds and insurance policies funds. For the years ended December
31, 1997, 1998 and 1999, educational funds expenses were $72,205, $122,239
and $232,996 and insurance policies funds expenses were $136,060, $208,195
and $409,598.

NOTE 8--LONG-TERM BANK LOANS

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Loans linked to the U.S. dollar......................... $204,748 $131,284
Less--current maturities................................ 74,602 63,901
-------- --------
$130,146 $ 67,383
======== ========
</TABLE>

The loans bear interest at an annual rate of the London interbank offered
rate plus 1%, which was 5.5% at December 31, 1999, and mature in equal quarterly
installments through 2002.

NOTE 9--ACCRUED SEVERANCE PAY

Under Israeli law and labor agreements, the Company is required to make
severance payments to its dismissed employees and employees leaving its
employment in other circumstances. The Company's severance pay liability to its
employees, which is calculated on the basis of the salary of each employee for
the last month of the reported period multiplied by the years of the employee's
employment, is reflected in the Company's balance sheet on the accrual basis,
and is partially funded by purchase of insurance policies in the name of the
Company. The severance pay expense for the years ended December 31, 1997, 1998
and 1999 amounted to $113,579, $134,248 and $365,076.

NOTE 10--COMMITMENTS AND CONTINGENCIES

A. In connection with its research and development, the Company received and
accrued participation payments from the Office of the Chief Scientist of
the Ministry of Industry and Trade in Israel in the total amount of
approximately $4.5 million. In return for the Government of Israel's
participation, the Company is committed to pay royalties at a rate of
3% - 5% of sales of the developed product, up to 100% - 150% of the
amount of grants

F-12
<PAGE>
RADVISION LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10--COMMITMENTS AND CONTINGENCIES (CONTINUED)
received, or for grants received under programs approved after
January 1, 1999, 100% plus interest at the London interbank offered rate.
The Company's total commitment for royalties payable with respect to
future sales, based on Government of Israel participations received or
accrued, net of royalties paid or accrued, totaled approximately
$3.7 million as of December 31, 1999. In the event that the development
program does not result in the sale of products, the Company is not
obligated to repay any grants. However, if the Company fails to comply
with any of the conditions imposed by the Chief Scientist, it could be
required to refund any payments previously received, together with
interest and penalties.

B. In connection with its marketing activities, the Company received and
accrued participation payments from the Government of Israel--Fund for
the Encouragement of Marketing Activities, in the total amount of
approximately $686,000. In return for the participation payments, the
Company is committed to pay royalties at a rate of 3% of the Company's
total increase in export sales, from the end of the second year of
implementation of the marketing plan until the date at which the
participation has been fully repaid. The Company's total commitment for
royalties payable with respect to future sales, based on Government of
Israel participations received or accrued, net of royalties paid or
accrued, totaled approximately $199,000 as of December 31, 1999.

C. In connection with its research and development, the Company received
and accrued participation payments from the Israel U.S. Binational
Industrial Research and Development Foundation (BIRDF), in the total
amount of approximately $188,000. In return for the participation, the
Company is committed to pay royalties at a rate of 2.5% of proceeds from
the first year's sales and 5% of the proceeds from the succeeding years'
sales, up to the amount of the grant. Once the amount of the grant has
been repaid, royalties will be payable at the rate of 2.5% of proceeds,
until additional royalties equal to one half of the grant amount have
been repaid. The Company's total commitment for royalties payable with
respect to future sales, based on Government participations received or
accrued, net of royalties paid or accrued, totaled approximately $276,000
as of December 31, 1999.

D. The Company and its U.S. subsidiary operate from leased premises in Tel
Aviv, Israel and in Mahwah, New Jersey and Sunnyvale, California. Lease
agreements expire in December 1999 through May 2002 (some with renewal
options). Annual minimum future rental payments due under the above
agreements, at the exchange rate in effect on December 31, 1999, are
approximately as follows:

E. The Company is committed to pay royalties to third parties for the
integration of these third parties' technologies into the Company's
products. Royalties are payable based on the sales volume of these
products, for as long as the Company uses these technologies, without
limit on the amount of royalties payable. The rates of these royalties
are based on a fixed amount per product sold by the Company in the range
of $1.00 to $5.00 per unit sold. The agreements

F-13
<PAGE>
RADVISION LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10--COMMITMENTS AND CONTINGENCIES (CONTINUED)

pursuant to which the royalties are payable have no expiration date.
Annual minimum future royalty payments are approximately as follows:

F. In 1998, a third party sent correspondence to the Company's affiliate
alleging that some products manufactured by the Company infringe upon
patents held by the third party and offered to license these patents to
the Company. In subsequent correspondence, the Company's affiliate
requested that the third party specifically substantiate each allegation
of infringement before the Company's affiliate would be prepared to enter
into any licensing arrangements. The Company does not believe that these
allegations will have a material adverse effect upon its business,
financial condition or liquidity. The Company's affiliate has recently
received further correspondence from the third party, in which the third
party has, among other things, reiterated its claims. The Company's
affiliate does not believe the third party has substantiated its claims
and has communicated this belief to the third party. The Company's
affiliate has advised the Company that the alleged infringement claims
are unresolved.

NOTE 11--SHAREHOLDERS' EQUITY

A. The Company's preferred shares confer the same right as the Company's
ordinary shares except that the preferred shares have preference over the
ordinary shares in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Company. Each share of preferred shares
is convertible into ordinary shares at a conversion rate of 1-to-1 at any
time, at the holder's option, and automatically upon an initial public
offering of the Company. The preferred shares have anti-dilution rights
which provide that the conversion ratio pursuant to which the preferred
shares convert into ordinary shares is to be adjusted upon any share
dividend, share split or similar event affecting the ordinary shares in
order to preserve the 1-to-1 preferred shares to ordinary shares
conversion rate in effect at the time the preferred shares were issued.

B. The Company adopted a key employee share incentive plan which provides
for the grant by the Company of option awards to purchase up to an
aggregate of 3,163,523 ordinary shares to officers, employees, directors
and consultants of the Company, its subsidiaries and affiliates. The
options vest ratably over vesting periods ranging from three to five
years. The options expire 62 months from the date of issuance. The
exercise price of options under the plan is at varying prices ranging
from $0.95 to $1.74.

F-14
<PAGE>
RADVISION LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 11--SHAREHOLDERS' EQUITY (CONTINUED)

Transactions related to the share incentive plan during the years ended
December 31, 1997, 1998 and 1999 and the weighted average exercise prices
per share and weighted average fair value of the options at the date of
grant are summarized as follows:

<TABLE>
<CAPTION>
WEIGHTED
WEIGHTED AVERAGE FAIR
AVERAGE VALUE OF
OUTSTANDING EXERCISE PRICE OPTIONS
OPTIONS PER SHARE GRANTED
----------- -------------- ------------
<S> <C> <C> <C>
Outstanding as of January 1, 1997......... 132,930 $1.33
Options granted........................... 516,950 1.43 $0.57
--------- -----

Outstanding as of December 31, 1997....... 649,880 1.41
Options granted........................... 791,250 1.18 $0.29
Options forfeited......................... (10,550) 1.64
--------- -----

Outstanding as of December 31, 1998....... 1,430,580 1.28
Options granted........................... 1,421,296 1.18 $1.14
Options forfeited......................... (184,625) 1.18
--------- -----
Outstanding as of December 31, 1999....... 2,667,251 $1.23
========= =====
</TABLE>

The following table summarizes information about options outstanding and
exercisable at December 31, 1999:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------- -------------------------
NUMBER WEIGHTED- NUMBER
OUTSTANDING AVERAGE WEIGHTED- OUTSTANDING WEIGHTED-
AT REMAINING AVERAGE AT AVERAGE
DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
EXERCISE PRICE 1999 LIFE PRICES 1999 PRICES
- -------------- ------------ ----------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C>
$0.95 - $0.98........ 860,458 4.38 $0.95 34,182 $0.96
1.18................. 1,023,350(1) 3.43 1.18 349,838 1.18
1.58 - 1.64.......... 688,493 4.01 1.59 114,573 1.63
1.74................. 94,950 2.42 1.74 44,310 1.74
--------- -------
2,667,251 542,903
========= =======
</TABLE>

- ------------------------

(1) Includes 63,300 options that were granted in 1998 to two consultants that
meet the definition of a common law employee for U.S. GAAP purposes because
the Company has the right to direct and control the work of each consultant,
that is, both the final results and the details of when, where and how the
work is to be done. If deferred compensation for the options granted to
these consultants had been accounted for under SFAS No. 123, deferred
compensation would have been increased by approximately $10,000.

F-15
<PAGE>
RADVISION LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 11--SHAREHOLDERS' EQUITY (CONTINUED)
The amounts of deferred compensation recognized arising from the
difference between the exercise price and the fair market value on the
date of the grant of $112,000 and $1,466,647 for options granted in the
years ended December 31, 1998 and 1999 are included in shareholders'
equity and was amortized over the vesting periods of the options
according to APB 25. Under APB 25, the deferred compensation expense for
the years ended December 31, 1997, 1998 and 1999, amounted to $76,591,
$116,115 and $477,476.

If deferred compensation had been determined under the alternative fair
value accounting method provided for under SFAS Statement No. 123,
"Accounting for Stock-Based Compensation," the Company's net loss and net
loss per share would have been increased to the following pro forma
amounts:

<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
--------------------------------------
1997 1998 1999
----------- --------- ------------
<S> <C> <C> <C>
Net loss:
As reported........................... $(1,056,195) $(829,175) $ (2,696,054)
Pro forma............................. (1,148,999) (956,396) (2,733,876)
Net loss per share:
As reported........................... $ (0.10) $ (0.08) $ (0.26)
Pro forma............................. (0.11) (0.09) (0.26)
</TABLE>

Under SFAS No. 123, the fair value of each option grant is estimated on
the date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants in 1997, 1998 and
1999:

- expected life of the options of 2.57, 2.72 and 2.84;

- no dividend yield;

- expected volatility of 0%; and

- risk-free interest rate of 5%.

C. Authorized share capital includes 12,760 deferred shares of par value
NIS 0.1 each. The deferred shares confer no rights or privileges on their
holders except for the right to receive upon dissolution or liquidation
the par value of the deferred shares.

D. In 1998, the Company issued 121,114 ordinary shares at NIS 0.1 per share
as an anti-dilution adjustment to existing shareholders that purchased
shares in a 1997 private placement. Pursuant to a resolution adopted by
the board of directors of the Company in connection with the 1997 private
placement, the shareholders who participated in the private placement
were granted anti-dilution rights. These anti-dilution rights were
triggered in 1998 when the Company issued preferred shares at a lower
price per share than the price per share at which the shares sold in the
1997 private placement were offered.

E. Amounts due for shares issued, but not yet fully paid, as of
December 31, 1999 was approximately $300,000.

F. In December 1999, the Company issued 158,250 ordinary shares to Intel
for $250,000, or $1.58 per share, which is $18.42 less than the initial
public offering price of $20.00 per share. The

F-16
<PAGE>
RADVISION LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 11--SHAREHOLDERS' EQUITY (CONTINUED)
shares were issued under an agreement entered into with Intel in 1996
under which Intel agreed to invest $1.0 million in the Company through
the purchase of ordinary shares in three installments of $500,000,
$250,000 and $250,000 upon the Company's achieving specified milestones
or, in the case of the third installment, at Intel's option before the
Company's initial public offering of its ordinary shares.

G. Subsequent Events--see notes 17(C) and 17(D).

NOTE 12--REVENUES

The Company's sales by geographic area are as follows:

<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-------------------------------------
1997 1998 1999
---------- ---------- -----------
<S> <C> <C> <C>
United States........................................... $3,012,256 $4,569,477 $ 9,062,187
Europe.................................................. 632,278 2,248,880 4,045,882
Far East................................................ 331,649 942,460 2,662,865
Israel.................................................. 616,804 857,552 1,310,208
Other................................................... 306,224 276,045 468,761
---------- ---------- -----------
$4,899,211 $8,894,414 $17,549,903
========== ========== ===========
</TABLE>

The Company manages its business on the basis of one reportable segment.

NOTE 13--MARKETING AND SELLING EXPENSES, NET

<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
------------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Marketing and selling expenses........................... $2,465,071 $4,603,336 $9,699,745
Participation by the Government of Israel................ 81,367 178,105 198,063
---------- ---------- ----------
Marketing and selling expenses, net...................... $2,383,704 $4,425,231 $9,501,682
========== ========== ==========
Marketing and selling expenses include: Royalties to the
Government of Israel................................... $ 175,236 $ 366,736 $ 896,249
========== ========== ==========
</TABLE>

NOTE 14--CONCENTRATION OF CREDIT RISK

For the periods ended December 31, 1998 and 1999, no single customer
accounted for more than 10% of the Company's sales and no customer represented
more than 10% of trade receivables. The Company does not generally require
collateral to support credit sales. Allowances are maintained for potential
credit losses.

F-17
<PAGE>
RADVISION LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 15--RELATED PARTY BALANCES AND TRANSACTIONS

A. BALANCES WITH RELATED PARTIES

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Receivables............................................. $ 72,476 $124,264
Trade payables.......................................... 88,946 305,325
</TABLE>

B. TRANSACTIONS WITH RELATED PARTIES

<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
---------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Revenues(1).................................. $285,813 $ 47,429 $166,812
Cost of revenues(3)(4)....................... 124,177 252,655 384,951
Research and development
expenses(2)(3)............................. 12,823 3,017 362,573
Marketing, selling, general and
administrative expenses(2)(3).............. 405,650 201,238 343,873
Purchase of property and
equipment(5)............................... 37,695 64,225 283,752
</TABLE>

- ------------------------

(1) Includes revenues from agreements to license the Company's technology
to RADCOM Ltd. and RAD Data Communications Ltd., affiliated
companies. The agreements are based on the Company's standard form
and include a licensing fee, maintenance and support services for one
year and minimum royalty payments on sales of products which
incorporate the technology.

(2) Includes legal, human resources and administrative services provided
to the Company by affiliated companies which the Company reimburses
for the costs incurred in providing these services.

(3) Includes rental fees based on lease agreements with RIT Technologies
Ltd., RAD Data Communications Ltd., and several other affiliated
companies. Under these lease agreements, the Company leases office
space of approximately 21,830 and 9,000 square feet, in Israel and in
New Jersey, respectively. The expiration dates of these lease
agreements range from August 2000 to May 2002.

(4) Includes the purchase of components from RAD Data Communications
Ltd., an affiliated company, which the Company integrates into its
products.

(5) Includes property and equipment that were purchased mainly from BYNET
Data Communications Ltd., an affiliated company.

NOTE 16--TAXES ON INCOME

A. The Company's investment program totaling $122,000 has been granted
Approved Enterprise status under the Law for Encouragement of Capital
Investments, 1959. In addition, the Company was granted Approved
Enterprise status for an expansion of a previous program totaling
$210,000. The Company is entitled to a benefit period of seven years on
income derived from these programs, as follows: a full income tax
exemption for the first two years

F-18
<PAGE>
RADVISION LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 16--TAXES ON INCOME (CONTINUED)
and a reduced income tax rate of 25% (instead of the regular rate of 36%)
for the remaining five year period. If foreign shareholdings in the
Company exceed 25%, the period for which the Company is entitled to a
reduced income tax is extended to eight years.

If the Company distributes a cash dividend out of retained earnings which
were tax exempt due to its approved enterprise status, the Company would
have to pay a 25% corporate tax on the amount distributed, and a further
15% withholding tax would be deducted from the amounts distributed to the
recipients.

Should the Company derive income from sources other than the approved
enterprise programs during the relevant period of benefits, this income
will be taxable at the regular corporate tax rate, which is 36%.

The benefits from the Company's approved enterprise programs are
dependent upon the Company fulfilling the conditions stipulated by the
Law for Encouragement of Capital Investments, 1959, and the regulations
published under this law, as well as the criteria in the approval for the
specific investment in the Company's approved enterprise programs. If the
Company does not comply with these conditions, the tax benefits may be
canceled, and the Company may be required to refund the amount of the
canceled benefits, with the addition of linkage differences and interest.
As of the date of these financial statements, the Company believes it has
complied with these conditions.

B. The Company is subject to the Income Tax Law (Inflationary Adjustments),
1985, measuring income on the basis of changes in the Israeli Consumer
Price Index.

C. The Company is an Industrial Company under the Law for Encouragement of
Industry (Taxes), 1969 and is therefore entitled to tax benefits, mainly
accelerated depreciation of machinery and equipment and deduction of
expenses incurred in connection with a public offering.

D. Through December 31, 1994, the Company's losses for tax purposes were
assigned to a shareholder, and are not available to the Company.

E. As of December 31, 1999, the Company's net operating loss carryforwards
for tax purposes amounted to approximately $2.3 million. These net
operating losses may be carried forward indefinitely and offset against
future taxable income. The Company expects that during the period in
which these tax losses are utilized its income would be substantially tax
exempt. Therefore, the income tax rate of the Company during the
tax-exempt period will be zero, and there will be no tax benefit
available from these losses and no deferred income taxes have been
included in these financial statements. Deferred taxes in respect of
other temporary differences are immaterial.

F. The U.S. subsidiary's carryforward tax losses through December 31, 1999
amounted to approximately $2.2 million. These losses are available to
offset any future U.S. taxable income of the U.S. subsidiary and will
expire in the years 2010 - 2014.

F-19
<PAGE>
RADVISION LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 16--TAXES ON INCOME (CONTINUED)
Details of deferred tax assets are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1998 1999
--------- ---------
<S> <C> <C>
Net operating loss carryforwards.............. $ 560,000 $ 770,000
Less--valuation allowance..................... (560,000) (770,000)
========= =========
$ -- $ --
========= =========
</TABLE>

G. The Company has been assessed for tax purposes through the year 1995.

H. A reconciliation between the theoretical tax benefit, assuming all income
is taxed at the statutory rate applicable to the income of the Company,
and the actual tax expense as reported in the statements of operations is
as follows:

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Theoretical tax benefit computed at the
statutory rate (36%)...................... $(380,230) $(298,503) $(863,264)
Loss and other items for which deferred
taxes were not provided................... 369,000 277,000 819,000
Non-deductible expenses..................... 11,230 21,503 44,264
--------- --------- ---------
Income tax benefit.......................... $ -- $ -- $ --
========= ========= =========
</TABLE>

NOTE 17--SUBSEQUENT EVENTS

A. After December 31, 1999, the Company:

- increased its authorized share capital to 25,000,000 shares;

- effected a 10-for-1 share split with respect to its ordinary shares and
deferred shares;

- converted 2,770 ordinary shares into deferred shares;

- issued 20.1 shares for each outstanding ordinary share as a share
dividend; and

- issued 52,750 ordinary shares upon exercise of outstanding options.

After the conversion of preferred shares into ordinary shares (see
note 2(L)), the increase in share capital, the share dividend and the
share split, the Company's authorized share capital consists of
24,984,470 ordinary and 15,530 deferred shares of NIS 0.1 par value each,
of which 13,637,774 ordinary shares and 15,530 deferred shares are issued
and outstanding. All references to per share amounts and the number of
shares in these financial statements have been restated to reflect the
above increase in share capital, share split and share dividend.

B. The Board of Directors has authorized the Company to file a registration
statement with the United States Securities and Exchange Commission for
an initial public offering of its ordinary shares. Upon the closing of
the initial public offering, all outstanding preferred shares will be
converted into an identical number of ordinary shares.

F-20
<PAGE>
RADVISION LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 17--SUBSEQUENT EVENTS (CONTINUED)
C. Concurrently with the initial public offering, the Company has agreed to
issue 590,822 ordinary shares at the initial public offering price in a
private placement to Siemens Aktiengesellschaft, Samsung
Electro-Mechanics Co. Ltd. and Samsung Venture Investment Corporation for
aggregate consideration of approximately $10.0 million.

D. Subsequent to December 31, 1999, the Company granted 480,159 options to
its employees. The options vest ratably over vesting periods ranging from
four to five years with exercise prices ranging from $10.20 to $12.00.
The Company expects to recognize deferred compensation expenses related
to these grants in the aggregate amount of $218,000, which will be
amortized to operating expenses over the vesting periods.

F-21
<PAGE>
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<PAGE>
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<PAGE>
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<PAGE>
3,800,000 SHARES

[LOGO]

Ordinary Shares

----------------

PROSPECTUS
March 13, 2000

------------------------

LEHMAN BROTHERS

SALOMON SMITH BARNEY

U.S. BANCORP PIPER JAFFRAY

FIDELITY CAPITAL MARKETS
a division of National Financial Services Corporation