<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 7, 1996
REGISTRATION NO. 333-7637
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ACCENT SOFTWARE INTERNATIONAL LTD.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
ISRAEL 7372 N.A.
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Numbers) Identification
incorporation or organization) No.)
</TABLE>
28 PIERRE KOENIG STREET
JERUSALEM 91530, ISRAEL
TELEPHONE: 972-2-679-3723
(Address and telephone number of Registrant's principal executive offices)
ACCENT WORLDWIDE, INC.
1401 DOVE STREET
SUITE 470
NEWPORT BEACH, CALIFORNIA 92660
TELEPHONE: (714) 223-0620
(Name, address and telephone number of agent for service of process)
------------------------------
COPIES TO:
<TABLE>
<S> <C> <C>
Stephen M. Besen, Esq. Mitchell C. Littman, Esq. Barry P. Levenfeld, Esq.
Weil, Gotshal & Manges LLP Littman Krooks & Roth, P.C. Yigal Arnon & Co.
767 Fifth Avenue 120 West 45th Street 3 Daniel Frisch Street
New York, New York 10153 New York, New York 10036 Tel Aviv 64731 Israel
Telephone: (212) 310-8000 Telephone: (212) 768-4646 Telephone: 972-3-692-6868
<CAPTION>
Stephen M. Besen, Esq. Hanina Brandes, Adv.
767 Fifth Avenue 5 Tuval Street
New York, New York 10153 Tel Aviv 67897, Israel
Telephone: (212) 310-8000 Telephone: 972-3-623-5000
<CAPTION>
Weil, Gotshal & Manges LLP Naschitz, Brandes & Co.
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
------------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / _______________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _______________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE PER AGGREGATE
SECURITIES TO BE REGISTERED BE REGISTERED ORDINARY SHARE(1) OFFERING PRICE(1)
<S> <C> <C> <C>
Units, each consisting of one Ordinary Share and one Redeemable
Warrant...................................................... 2,070,000 $ 7.1625 $14,826,375
Ordinary Shares, NIS .01 par value per share, included as part
of the Units................................................. 2,070,000(2) $ -- $ --
Redeemable Warrants, each to purchase one Ordinary Share,
included as part of the Units................................ 2,070,000(3) $ -- $ --
Ordinary Shares, NIS .01 par value per share(4)................ 2,070,000(5) $ 7.0625 $14,619,375
Representative's Unit Warrants................................. 180,000 $ 0.001 $ 180
Units underlying the Representative's Unit Warrants
("Representative's Units")................................... 180,000 $ 10.0275 $ 1,804,950
Ordinary Shares, NIS .01 par value per share, included as part
of the Representative's Units(8)............................. 180,000 $ -- $ --
Warrants, each to purchase one Ordinary Share, included as part
of the Representative's Units(8)............................. 180,000 $ -- $ --
Ordinary Shares, NIS .01 par value per share, included as part
of the Representative's Units(9)............................. 180,000 $ 12.85375 $ 2,313,675
Total Registration Fee..............................................................................................
<CAPTION>
TITLE OF EACH CLASS OF AMOUNT OF
SECURITIES TO BE REGISTERED REGISTRATION FEE
<S> <C>
Units, each consisting of one Ordinary Share and one Redeemable
Warrant...................................................... $ 4,493
Ordinary Shares, NIS .01 par value per share, included as part
of the Units................................................. $ --
Redeemable Warrants, each to purchase one Ordinary Share,
included as part of the Units................................ $ --
Ordinary Shares, NIS .01 par value per share(4)................ $ 4,431
Representative's Unit Warrants................................. (7)
Units underlying the Representative's Unit Warrants
("Representative's Units")................................... $ 547
Ordinary Shares, NIS .01 par value per share, included as part
of the Representative's Units(8)............................. $ --
Warrants, each to purchase one Ordinary Share, included as part
of the Representative's Units(8)............................. $ --
Ordinary Shares, NIS .01 par value per share, included as part
of the Representative's Units(9)............................. $ 702
Total Registration Fee..................................... 10,173(10)
</TABLE>
(1)Based upon the average of the high and low sales prices of the Company's
Ordinary Shares on The Nasdaq SmallCap Market on November 6, 1996 and an
offering price per Warrant of $0.10. Estimated solely for the purpose of
calculating the amount of the registration fee pursuant to Rule 457 of the
Securities Act of 1933, as amended.
(2)Includes 270,000 Ordinary Shares which the Underwriters have an option to
purchase from the Registrant to cover over-allotments, if any.
(3)Includes 270,000 redeemable warrants which the Underwriters have an option
to purchase from the Registrant to cover over-allotments, if any.
(4)Issuable upon exercise of the redeemable warrants to be sold to the public
hereunder, together with such indeterminate number of Ordinary Shares as may
be issuable by reason of the anti-dilution provisions contained therein.
(5)Assumes the Underwriters' option to purchase 270,000 additional redeemable
warrants to cover over-allotments, if any has been exercised.
(6)To be issued by the Company to the Representative at the time of delivery
and acceptance of the securities to be sold to the public hereunder.
(7)No fee due pursuant to rule 457(g).
(8)Issuable upon exercise of the Representative's Warrants.
(9)Issuable upon exercise of the warrants underlying the Representative's
Warrants, together with such indeterminate number of Ordinary Shares as may
be issuable by reason of the anti-dilution provisions contained therein.
(10)A registration fee of $24,437 was previously paid on July 3, 1996.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED NOVEMBER 7, 1996
PROSPECTUS
ACCENT SOFTWARE INTERNATIONAL LTD.
1,800,000 UNITS
[LOGO]
EACH CONSISTING OF
ONE ORDINARY SHARE AND ONE REDEEMABLE WARRANT
TO PURCHASE AN ORDINARY SHARE
------------------
ACCENT SOFTWARE INTERNATIONAL LTD., A CORPORATION ORGANIZED UNDER THE LAWS
OF THE STATE OF ISRAEL ("ACCENT" OR THE "COMPANY"), IS OFFERING HEREBY 1,800,000
UNITS (THE "OFFERING"). EACH UNIT OFFERED HEREBY CONSISTS OF ONE ORDINARY SHARE
(THE "SHARES"), NOMINAL VALUE NIS .01 PER SHARE OF THE COMPANY (THE "ORDINARY
SHARES") AND ONE REDEEMABLE WARRANT (THE "WARRANTS") OF THE COMPANY. EACH
WARRANT ENTITLES THE REGISTERED HOLDER THEREOF TO PURCHASE ONE ORDINARY SHARE AT
A PRICE OF $ , SUBJECT TO ADJUSTMENT IN CERTAIN CIRCUMSTANCES, FROM THE TIME
THE WARRANT BECOMES SEPARATELY TRANSFERABLE THROUGH AND INCLUDING ,
2001. THE SECURITIES COMPRISING THE UNITS WILL NOT BE SEPARABLE OR SEPARATELY
TRANSFERABLE PRIOR TO , 1997, WITHOUT THE CONSENT OF SANDS BROTHERS &
CO., LTD., AS REPRESENTATIVE OF THE SEVERAL UNDERWRITERS (THE "REPRESENTATIVE").
THE WARRANTS WILL BE REDEEMABLE BY THE COMPANY, UPON THE CONSENT OF THE
REPRESENTATIVE AT ANY TIME AFTER THE WARRANTS BECOME SEPARABLE, UPON NOTICE OF
NOT LESS THAN 30 DAYS, AT A PRICE OF $ PER WARRANT, PROVIDED THAT THE
CLOSING BID QUOTATION OF THE ORDINARY SHARES ON ALL 20 OF THE TRADING DAYS
ENDING ON THE THIRD DAY PRIOR TO THE DAY ON WHICH THE COMPANY GIVES NOTICE HAS
BEEN AT LEAST 130% (CURRENTLY $ , SUBJECT TO ADJUSTMENT) OF THE THEN
EFFECTIVE EXERCISE PRICE OF THE WARRANTS. SEE "DESCRIPTION OF SECURITIES."
PRIOR TO THE OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE UNITS OR THE
WARRANTS AND THERE CAN BE NO ASSURANCE THAT SUCH PUBLIC MARKET WILL DEVELOP. THE
COMPANY DOES NOT INTEND TO MAKE AN APPLICATION FOR THE WARRANTS TO BE LISTED OR
TRADED ON ANY SECURITIES EXCHANGE OR MARKET. NO ASSURANCE CAN BE GIVEN THAT ANY
TRADING MARKET FOR THE WARRANTS WILL DEVELOP OR, IF ANY SUCH MARKET DEVELOPS, AS
TO THE LIQUIDITY OF SUCH MARKET. THE ORDINARY SHARES ARE TRADED ON THE NASDAQ
SMALLCAP MARKET UNDER THE SYMBOL "ACNTF". THE COMPANY INTENDS TO APPLY TO HAVE
THE UNITS QUOTED ON THE NASDAQ SMALLCAP MARKET UNDER THE SYMBOL "ACNTU". THE
PUBLIC OFFERING PRICE OF THE UNITS AND THE EXERCISE PRICE OF THE WARRANTS WILL
BE DETERMINED BY NEGOTIATIONS BETWEEN THE COMPANY AND THE REPRESENTATIVE AND
WILL TAKE INTO CONSIDERATION, AMONG OTHER THINGS, THE CLOSING PRICE OF THE
ORDINARY SHARES AS REPORTED BY THE NASDAQ SMALLCAP MARKET. ON NOVEMBER 6, 1996,
THE LAST REPORTED SALES PRICE OF THE ORDINARY SHARES ON THE NASDAQ SMALLCAP
MARKET WAS $7.50 PER ORDINARY SHARE.
IN CONNECTION WITH THE OFFERING, IMR INVESTMENTS V.O.F., THE COMPANY'S
LARGEST SHAREHOLDER ("IMR INVESTMENTS"), AND THE REPRESENTATIVE HAVE AGREED THAT
IMR INVESTMENTS WILL PURCHASE UP TO 178,200 OF THE UNITS OFFERED HEREBY AT THE
PUBLIC OFFERING PRICE PER UNIT, AT AN AGGREGATE PURCHASE PRICE NOT TO EXCEED
$1,500,000. IN ADDITION, TO THE EXTENT THAT THE GROSS PROCEEDS TO THE COMPANY
FROM SUCH PURCHASE ARE LESS THAN $1,500,000, IMR FUND, L.P., ("IMR"), AN
AFFILIATE OF IMR INVESTMENTS, HAS AGREED TO CONVERT INTO ORDINARY SHARES (THE
"CONVERSION SHARES") AS OF THE CONSUMMATION OF THE OFFERING, SUCH AMOUNT OF
OUTSTANDING INDEBTEDNESS OWED TO IT BY THE COMPANY EQUAL TO THE DIFFERENCE
BETWEEN $1,500,000 AND THE GROSS PROCEEDS TO THE COMPANY FROM IMR INVESTMENTS'
PURCHASE OF UNITS OFFERED HEREBY, AT A CONVERSION RATE EQUAL TO THE PUBLIC
OFFERING PRICE PER UNIT LESS $0.10 (THE "DEBT CONVERSION").
------------------------------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. PROSPECTIVE PURCHASERS OF THE
SECURITIES OFFERED HEREBY SHOULD CAREFULLY CONSIDER THE MATTERS SET FORTH
UNDER THE CAPTION "RISK FACTORS" ON PAGE 9.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE COMPANY HAS REQUESTED THAT THE SECURITIES AUTHORITY OF THE STATE OF ISRAEL
EXEMPT THE COMPANY FROM PUBLISHING THIS PROSPECTUS IN THE MANNER REQUIRED
PURSUANT TO THE PREVAILING LAWS OF THE STATE OF ISRAEL. IF SUCH EXEMPTION IS
GRANTED, AS ANTICIPATED, NOTHING IN SUCH EXEMPTION SHALL BE CONSTRUED AS
AUTHENTICATING THE MATTERS CONTAINED IN THIS PROSPECTUS OR AS AN
APPROVAL OF THEIR RELIABILITY OR ADEQUACY OR AN EXPRESSION OF
OPINION AS TO THE QUALITY OF THE SECURITIES HEREBY
OFFERED.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
PER UNIT........................................ $ $ $
TOTAL (3)....................................... $ $ $
</TABLE>
(1) IN ADDITION, THE COMPANY HAS AGREED TO PAY TO THE REPRESENTATIVE A 2%
NONACCOUNTABLE EXPENSE ALLOWANCE AMOUNTING TO (APPROXIMATELY IF
THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS EXERCISED IN FULL); TO SELL TO
THE REPRESENTATIVE, FOR THE NOMINAL COST OF $180.00, WARRANTS (THE
"REPRESENTATIVE'S WARRANTS") TO PURCHASE UP TO 180,000 UNITS AT AN EXERCISE
PRICE OF $ PER UNIT (AND, SUBJECT TO CERTAIN CONDITIONS, TO PAY TO
THE REPRESENTATIVE A FEE OF 5% OF THE EXERCISE PRICE OF EACH WARRANT
EXERCISED (PURSUANT TO SOLICITATION BY THE REPRESENTATIVE) ON OR AFTER THE
FIRST ANNIVERSARY OF THE DATE OF THIS PROSPECTUS (E.G. IF ALL OF THE
WARRANTS ARE EXERCISED PURSUANT TO SOLICITATION BY THE REPRESENTATIVE AND ON
OR AFTER SUCH FIRST ANNIVERSARY DATE, THE REPRESENTATIVE'S 5% FEE WOULD
AMOUNT TO $ OF THE $ IN GROSS PROCEEDS RECEIVED BY THE
COMPANY IN CONNECTION WITH SUCH EXERCISES). IN NO EVENT WILL THE AGGREGATE
UNDERWRITING DISCOUNT AND NONACCOUNTABLE EXPENSE ALLOWANCE EXCEED 10% ON
SALES OF UNITS TO IMR INVESTMENTS. THE COMPANY HAS ALSO AGREED TO INDEMNIFY
THE UNDERWRITERS AGAINST CERTAIN CIVIL LIABILITIES, INCLUDING LIABILITIES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SEE "UNDERWRITING."
(2) BEFORE DEDUCTING EXPENSES, INCLUDING THE NONACCOUNTABLE EXPENSE ALLOWANCE IN
THE AMOUNT OF $ (APPROXIMATELY $ ) IF THE UNDERWRITERS'
OVER-ALLOTMENT OPTION IS EXERCISED IN FULL, ESTIMATED AT $ , PAYABLE
BY THE COMPANY.
(3) THE COMPANY HAS GRANTED THE UNDERWRITERS AN OPTION, EXERCISABLE WITHIN 45
DAYS FROM THE DATE OF THIS PROSPECTUS, TO PURCHASE UP TO 270,000 ADDITIONAL
UNITS, ON THE SAME TERMS SET FORTH ABOVE, SOLELY FOR THE PURPOSE OF COVERING
OVER-ALLOTMENTS, IF ANY. IF THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS
EXERCISED IN FULL, THE TOTAL PRICE TO PUBLIC, UNDERWRITER DISCOUNTS AND
COMMISSIONS, AND PROCEEDS TO COMPANY WILL BE $ , $ AND
$ , RESPECTIVELY. SEE "UNDERWRITING."
------------------------------
THE UNITS ARE BEING OFFERED, SUBJECT TO PRIOR SALE, WHEN, AS AND IF
DELIVERED TO AND ACCEPTED BY THE UNDERWRITERS AND SUBJECT TO THE APPROVAL OF
CERTAIN LEGAL MATTERS BY COUNSEL AND TO CERTAIN OTHER CONDITIONS. THE
UNDERWRITERS RESERVE THE RIGHT TO WITHDRAW, CANCEL OR MODIFY THE OFFERING AND TO
REJECT ANY ORDER IN WHOLE OR IN PART. IT IS EXPECTED THAT DELIVERY OF
CERTIFICATES REPRESENTING THE SECURITIES COMPRISING THE UNITS WILL BE MADE
AGAINST PAYMENT THEREFOR AT THE OFFICES OF THE REPRESENTATIVE, NEW YORK, NEW
YORK, ON OR ABOUT , 1996.
------------------------------
SANDS BROTHERS & CO., LTD.
The date of this Prospectus is , 1996
<PAGE>
[This page will contain color graphics, including photographs of computer
screens showing certain of the Company's current and soon-to-be released
products.]
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE UNITS AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON NASDAQ OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE UNITS ON NASDAQ IN ACCORDANCE WITH RULE 10B-6A
UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
2
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy and information statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy and information statements and other information can be inspected and
copied at the Public Reference Section of the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and the following regional
offices: Northeast Regional Office, Suite 1300, Seven World Trade Center, 13th
Floor, New York, New York 10048, and Midwest Regional Office, Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511, and copies of such material may also be obtained from the Public
Reference Section of the Commission at prescribed rates. The Commission
maintains a Web site at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The reports, proxy, information statements
and other information filed by the Company with the Commission are also filed
with The Nasdaq SmallCap Market and can be inspected at its facility at 1735 K
Street, N.W., Washington, D.C. 20006. The Company intends to furnish its
shareholders with annual reports containing audited financial statements and
such other periodic reports as the Company deems appropriate or as may be
required by law.
The Company has filed with the Commission a registration statement on Form
S-1 (the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the securities offered by this
Prospectus. This Prospectus, which constitutes a part of such Registration
Statement, does not contain all of the information set forth in, or annexed as
exhibits to, the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulation of the Commission. For further
information with respect to the Company and this offering, reference is made to
the Registration Statement, including the exhibits filed therewith, which may be
inspected without charge at the offices of the Commission at the addresses set
forth above. Copies of the Registration Statement may be obtained from the
Commission at its principal office upon payment of prescribed fees. Statements
contained in this Prospectus as to the contents of any contract or other
documents are not necessarily complete and, where the contract or other document
has been filed as an exhibit to the Registration Statement, each statement is
qualified in all respects by reference to the applicable document filed with the
Commission.
------------------------
The Company has received from the Securities Authority of the State of
Israel (the "Israel Securities Authority") an exemption from the reporting
obligations as specified in Chapter Six of the Israel Securities Law 5728-1968,
which include the obligation to submit periodic and immediate reports to the
Israel Securities Authority, provided that a copy of each report submitted in
accordance with applicable United States law shall be available for public
review at the Company's principal offices in Israel.
------------------------
The Company has prepared its financial statements in United States dollars
and in accordance with accounting principles generally accepted in the United
States ("U.S. GAAP") which, in the case of the Company, also complies with the
accounting principles generally accepted in Israel. All references to "dollars"
or "$" in this Prospectus are to United States dollars, and all references to
"Shekels" or "NIS" are to New Israeli Shekels.
------------------------
Unless the context otherwise requires, all references to Accent include its
wholly owned United States subsidiary, Accent Worldwide, Inc. ("Accent
Worldwide"), its wholly owned United Kingdom subsidiary, Accent Software
International (Europe) Ltd. ("Accent Europe"), and its majority owned
subsidiary, AgentSoft Ltd. ("AgentSoft"). ACCENT is a registered trademark of
the Company in the United Kingdom, Germany and the Benelux countries and has
been applied for in the United States Patent and Trademark Office. LANGUAGEWARE
is a registered trademark of the Company in the United Kingdom and Israel and an
application to register the mark in the United States has been approved. DAGESH
is a registered trademark of the Company in Israel. MAILPAD is an unregistered
trademark of the Company. The Company has applied to register WEBTAMER as a
trademark in the United States and in certain other countries.
Windows is a registered trademark and Windows NT and Windows 95 are
trademarks of Microsoft Corporation ("Microsoft"). Mosaic is a trademark of the
University of Illinois, and Enhanced Mosaic is a trademark of Spyglass Inc.
("Spyglass"). WordPerfect is a registered trademark of Corel Corporation
("Corel"). WinFax is a registered trademark of Delrina Technology Inc.
("Delrina"). Lotus Organizer is a trademark of Lotus Development Corporation
("Lotus"). Netscape Navigator is a trademark of Netscape Communications
Corporation. All other trademarks appearing in this Prospectus are the property
of their respective holders. Unless otherwise indicated, all references to
Microsoft Windows are to the 3.xx versions of Windows or Windows 95 and
references to Netscape Navigator are to 2.0 and subsequent versions.
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE
DETAILED INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE NOTES
THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, (A)
ALL INFORMATION IN THIS PROSPECTUS ASSUMES THAT THE OVER-ALLOTMENT OPTION
GRANTED TO THE UNDERWRITERS BY THE COMPANY IS NOT EXERCISED, (B) ALL REFERENCES
TO NUMBERS OF SHARES AND PER SHARE AMOUNTS OF THE COMPANY GIVE EFFECT TO A
THREE-FOR-TWO STOCK SPLIT EFFECTED ON JUNE 6, 1996 AND (C) ALL REFERENCES TO THE
COMPANY INCLUDE THE COMPANY AND ITS SUBSIDIARIES, INCLUDING ITS MAJORITY-OWNED
SUBSIDIARY, AGENTSOFT LTD.
THE COMPANY
Accent develops, markets and supports multilingual Internet publishing,
browsing, e-mail and productivity software. Accent's products address the
growing need for organizations and individuals to view, create, edit and
exchange information in languages other than English and in multiple languages.
WEBTAMER, a soon-to-be-released suite of Internet user productivity tools and
the first Accent product utilizing intelligent agent technology, is targeted
beyond multilingual and non-English speaking Internet users to the broader
market for Internet software applications. Accent's INTERNET WITH AN ACCENT, a
leading multilingual suite of Internet tools in terms of functionality and
number of languages served, enables users to browse the World Wide Web (the
"Web"), author Web pages and send and receive multilingual e-mail in more than
30 languages. Accent is also a leading developer and supplier of multilingual
word processing software. Accent's Internet and word processing software is
marketed directly by the Company and through distributors in more than 30
countries worldwide including, in the Americas, through Accent Worldwide, the
Company's U.S. sales and marketing subsidiary, and in Europe, through Accent
Europe.
Through the introduction of WEBTAMER, Accent is seeking to establish itself
as a leading participant in the emerging market for Internet software based on
intelligent agent technology. Intelligent agents are electronic assistants that
will help automate the Internet by performing complex, repetitive or
time-consuming operations. Accent is also seeking to strengthen its position as
a leading provider of multilingual Internet and word processing applications and
development tools. To achieve these objectives, Accent's business strategy is to
(i) emphasize intelligent agent and software globalization technologies; (ii)
leverage its experience in multilingual software development; (iii) add new
technologies, including intelligent agents, to its core technology platforms;
(iv) increase market share for the Company's products; (v) develop strategic
relationships with leading industry participants; and (vi) leverage its
investments in distribution networks.
As the Internet continues to grow in terms of the number of users,
geographic diversity and breadth of information, Accent management believes that
demand for software applications in the areas of information access and
management, electronic commerce and work-flow management and systems and network
management will increase significantly. Accent management believes that many of
these software applications will be based on intelligent agent technology. In
order to capitalize on the expected growth of this market and to broaden its
Internet product line beyond multilingual-based software, in February 1996
Accent established AgentSoft Ltd. ("AgentSoft"), a majority owned subsidiary
dedicated to the development of intelligent agent-based technology and
applications for the Internet and enterprise Intranet.
Accent's products are designed to capitalize on the rapid growth and
increasing internationalization of the Internet and the need for users to
communicate in languages other than English or in multiple languages. Various
industry sources estimate that the Internet had 56 million users at the end of
1995 and that the number of Internet users could grow to between 200 million and
one billion by the year 2000. International Data Corporation estimated that in
1995 approximately 22% of Internet users were located outside the United States
and forecasted that non-U.S. Internet users will grow from 1995-1999 at a
compound rate of 65% versus 25% for U.S. Internet users. The Company believes
that a significant portion of the increased growth in Internet use will be
driven by users who prefer or need to use languages other than English and by
users who need to communicate in more than one language.
4
<PAGE>
Accent has used its multilingual software globalization technology as a
platform to launch several multilingual Internet products addressing the needs
of its target users. By offering an expanded line of multilingual Internet user
applications and development tools, Accent will seek to secure a position as the
multilingual solution of choice among Internet users, enabling Accent to
capitalize on the growth and increased internationalization of the Internet. In
December 1995, Accent introduced INTERNET WITH AN ACCENT, which enables users to
browse the Web in a wide variety of languages and alphabets independent of the
local language version of the Windows operating system and that contains Web
authoring tools and e-mail with broad multilingual capabilities. Accent has
begun to broaden its Internet product line through the release in June 1996 of
NAVIGATE WITH AN ACCENT, a multilingual browser plug-in for Netscape Navigator.
In early 1997, Accent plans to release a Pacific Rim version of INTERNET WITH AN
ACCENT, supporting the Chinese, Japanese, Korean and Thai languages, ACCENT WEB
PUBLISHER PRO, a Web authoring tool designed for corporate users, and the ACCENT
GLOBAL DEVELOPMENT KIT, a set of standards and tools that will enable the
globalization of any Windows software application.
Accent Software International Ltd. is a corporation organized in 1988 under
the laws of the State of Israel. The Company's principal executive offices are
located at 28 Pierre Koenig Street, Jerusalem 91530, Israel, and its telephone
number is 972-2-679-3723.
5
<PAGE>
RECENT DEVELOPMENTS
As a result of the Company's shareholders' deficit as of September 30, 1996,
the Company is no longer in compliance with the maintenance requirements of The
Nasdaq SmallCap Market, where its Ordinary Shares are traded. The Company is
dependent on the proceeds of the Offering to continue to have the funds
necessary for the development of its technology, the marketing of its products
and to continue to have its Ordinary Shares traded on The Nasdaq SmallCap
Market.
In order to fund a portion of its working capital requirements since June
30, 1996, the Company borrowed an aggregate of $1,335,000 from IMR in August
1996 and October 1996, and IMR will provide the Company with additional loans
aggregating $165,000 prior to the consummation of the Offering (collectively,
the "IMR Notes"). The Company intends to use a portion of the net proceeds of
the Offering to repay these loans to IMR. In connection with the Offering, IMR
Investments has agreed to purchase up to 178,200 Units offered hereby, at an
aggregate purchase price not to exceed $1,500,000. In addition, to the extent
that the gross proceeds to the Company from such purchase are less than
$1,500,000, IMR has agreed to convert into Ordinary Shares, as of the
consummation of the Offering, such amount of outstanding indebtedness owed to it
by the Company equal to the difference between $1,500,000 and the gross proceeds
to the Company from IMR Investments' purchase of Units offered hereby, at a
conversion rate equal to the public offering price per Unit less $0.10. See
"Certain Transactions."
In response to the Company's recent operating results, the Company has
implemented a revised business plan designed to decrease operating expenses and
to improve its operating and financial performance while maintaining product
development activities. Specifically, the Company has commenced a 30% reduction
in the number of its employees which will be substantially completed by the end
of this year. In addition, the Company intends, by the end of the first quarter
of 1997, to reduce (i) its expenditures on marketing and advertising by
approximately 50% and (ii) its other operating expenses by approximately 50% in
all areas exclusive of research and development, which expenses will remain
relatively level so as to enable the Company to achieve its strategic product
development objectives. In addition, Roger R. Cloutier, II, who is currently a
vice president of Jacobs Investors, Inc. and of the general partner of IMR and a
member of the Company's Board of Directors, has been appointed Chairman of the
Board, pursuant to which he will become involved with management to help the
Company achieve its revised business and financial management objectives. Mr.
Cloutier, along with Elliott Broidy and Mark Tebbe, constitute a newly-formed
Executive Committee of the Board of Directors which is responsible for
monitoring the implementation of the Company's revised business plan.
Furthermore, the Company intends to shift certain sales and management functions
to the United States so as to enable such personnel to be more effective in
targeting customers and end-users of the Company's products. In connection
therewith, the Company also is seeking to enhance its senior management team by
hiring one or more additional executives with extensive experience in the
software industry.
In October 1996, the Company engaged Merrill Lynch & Co. ("Merrill Lynch")
to act as a financial advisor with respect to seeking strategic equity
investors, joint venture partners or other persons to invest in the Company.
There can be no assurance that the Company will be successful in attracting any
strategic investor or in engaging in any joint venture or other similar
transactions.
Certain of the foregoing statements are forward-looking, involving known and
unknown risks and uncertainties. There is no assurance that the Company will be
successful in improving its operating and financial performance or maintaining
its product development activities. For a summary of various factors which may
cause the actual results of achievements of the Company to be different from
those indicated above, see "Risk Factors."
6
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities offered by the Company...... 1,800,000 Units, each Unit consisting of one
Ordinary Share and one Warrant. The securities
comprising the Units will not be separable or
separately transferable prior to , 1997,
without the consent of the Representative. See
"Description of Securities."
Ordinary Shares to be outstanding after
the Offering (1)...................... 11,595,902 Ordinary Shares.
Warrants
Number to be outstanding after the
offering(2)........................ 1,800,000 Warrants.
Exercise terms....................... Exercisable immediately, each to purchase one
Ordinary Share for $ , subject to adjustment in
certain circumstances. See "Description of
Securities -- Redeemable Warrants.
Expiration date...................... , 2001.
Redemption........................... Redeemable by the Company upon the consent of the
Representative at any time after the Warrants
become separable, upon notice of not less than 30
days, at a price of $ per Warrant, provided that
the closing bid quotation of the Ordinary Shares on
all 20 trading days ending on the third day prior
to the day on which the Company gives notice has
been at least 130% (currently $ , subject to
adjustment) of the then effective exercise price of
the Warrants. The Warrants will be exercisable
until the close of business on the date fixed for
redemption. See "Description of Securities --
Redeemable Warrants."
Use of Proceeds........................ The net proceeds of the Offering will be applied to
marketing and advertising programs, research and
development, repayment of trade payables, repayment
of the IMR Notes, and working capital and general
corporate purposes. See "Use of Proceeds."
Risk Factors........................... The securities offered hereby are speculative and
involve a high degree of risk and should not be
purchased by investors who cannot afford the loss
of their entire investment. See "Risk Factors."
Nasdaq SmallCap Market symbol for Ordi-
nary Shares........................... ACNTF.
Proposed Nasdaq SmallCap Market
symbol for the Units.................. ACNTU.
</TABLE>
- ------------------------
(1) Includes the 1,800,000 Warrants that are a component of the Units offered
hereby. Excludes (i) 1,800,000 Ordinary Shares reserved for issuance upon
exercise of the Warrants; (ii) an aggregate of 360,000 Ordinary Shares
reserved for issuance upon exercise of the Representative's Warrants and the
warrants included therein; (iii) 180,000 Ordinary Shares reserved for
issuance upon exercise of the IMR Warrants (as defined herein); (iv) an
indeterminate number of Conversion Shares; (v) 512,913 Ordinary Shares
issuable upon exercise of outstanding warrants (issued (a) in connection
with a private placement by the Company in May 1995 and (b) to the
underwriter in connection with the Company's initial public offering in July
1995); (vi) 675,875 Ordinary Shares issuable upon exercise of employee and
non-employee stock options; (vii) 275,000 Ordinary Shares issuable upon the
exercise of founders' options; and (viii) 498,875 Ordinary Shares issuable
upon the exercise of warrants issued to directors, officers and other
persons associated with the Company. See "Management -- Employment
Agreements," "-- Employee Share Option Plan (1995)," "-- Non-Employee Share
Option Plan (1995)," "Certain Transactions" and "Description of Securities."
(2) Includes the 1,800,000 Warrants that are a component of the Units offered
hereby. Does not include any warrants referred to in clauses (ii) and (iii)
of Note (1) above.
7
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Set forth below is certain summary consolidated financial data for the
periods and as of the dates indicated. This information is derived from, and
should be read in conjunction with, the Consolidated Financial Statements of the
Company and the notes thereto appearing elsewhere in this Prospectus. See also
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
NINE
MONTHS
ENDED
SEPTEMBER
YEAR ENDED DECEMBER 31, 30,
----------------------------------------------------- ---------
1991 1992 1993 1994 1995 1995
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Net sales............................................. $ 336 $ 255 $ 1,220 $ 1,851 $ 5,135 $ 3,447
Gross profit (loss)................................... 211 7 654 696 2,163 1,285
Operating income (loss)............................... 60 (377) (742) (2,997) (7,685) (4,148)
Net income (loss)..................................... 41 (321) (735) (3,134) (7,848) (4,330)
Net income (loss) per share (1)....................... $ 0.06 $ (0.48) $ (0.39) $ (0.68) $ (1.22) $ (0.78)
Weighted average number of shares and equivalent
shares outstanding (1)............................... 664 664 1,893 4,619 6,421 5,564
<CAPTION>
1996
-----------
<S> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Net sales............................................. $ 4,731
Gross profit (loss)................................... (114)
Operating income (loss)............................... (15,678)
Net income (loss)..................................... (15,749)
Net income (loss) per share (1)....................... $ (1.62)
Weighted average number of shares and equivalent
shares outstanding (1)............................... 9,698
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------------
DECEMBER 31,
-----------------------------------------------------
1991 1992 1993 1994 1995 ACTUAL PRO FORMA (2)
--------- --------- --------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............... $ 9 $ -- $ -- $ 78 $ 9,633 $ 407 $ 1,482
Working capital (deficit)............... (217) (563) (1,433) (1,009) 10,329 (4,356) (4,356)
Total assets............................ 182 262 1,050 2,503 17,650 7,949 9,024
Short-term borrowings and current
maturities of long term debt........... 262 515 979 335 27 1,443 2,518
Long term debt.......................... -- -- 55 1,345 2,331 2,839 2,839
Accumulated deficit..................... (175) (496) (1,232) (4,365) (12,213) (27,962) (27,962)
Shareholders' equity (deficit).......... (174) (496) (932) (1,064) 10,133 (4,597) (4,597)
<CAPTION>
PRO FORMA
AS
ADJUSTED (3)
-----------
<S> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............... $ 11,521
Working capital (deficit)............... 7,183
Total assets............................ 19,063
Short-term borrowings and current
maturities of long term debt........... 1,018
Long term debt.......................... 2,839
Accumulated deficit..................... (27,962)
Shareholders' equity (deficit).......... 6,942
</TABLE>
- --------------------------
(1) See Note 2 of Notes to the Consolidated Financial Statements for an
explanation of the computation of net income (loss) per share and weighted
average number of shares and equivalent shares outstanding.
(2) Gives effect to the issuance of $1,075,000 principal amount of IMR Notes in
October 1996.
(3) Gives effect to the sale of the 1,800,000 Units offered hereby based on an
assumed public offering price of $7.60 per Unit ($7.50 per Ordinary Share,
the last reported sale price of the Ordinary Shares on November 6, 1996, and
an assumed public offering price of $0.10 per Warrant), after deducting the
underwriting discount and estimated offering expenses, and the anticipated
application of the estimated net proceeds therefrom (including for the
repayment of the IMR Notes in full). See "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations
Liquidity and Capital Resources" and "Certain Transactions."
8
<PAGE>
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS,
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, PRIOR TO MAKING AN
INVESTMENT DECISION. CERTAIN STATEMENTS IN THIS PROSPECTUS THAT ARE NOT
HISTORICAL ARE FORWARD-LOOKING, INVOLVING KNOWN AND UNKNOWN RISKS AND
UNCERTAINTIES. MANY FACTORS, INCLUDING THE RISK FACTORS IDENTIFIED BELOW, COULD
CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY TO BE
MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS THAT
MAY BE EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS.
HISTORY OF OPERATING LOSSES AND ACCUMULATED DEFICIT; ANTICIPATED FUTURE LOSSES;
LIMITED OPERATING HISTORY
The Company has incurred net losses since 1992 of approximately $0.7
million, $3.1 million and $7.8 million for the years ended December 31, 1993,
1994 and 1995 and a net loss of approximately $15.7 million for the nine months
ended September 30, 1996. As of September 30, 1996, the Company had an
accumulated deficit of $28.0 million. Pursuant to its revised business plan, the
Company intends to continue to make expenditures on new product introductions,
marketing, research and development, customer support and administrative
infrastructure over the near term. As a result, the Company expects to incur net
losses through the end of 1997.
Although the Company commenced operations in 1988, and shipped its first
multilingual word processing product in Israel in 1992 and internationally in
1994, the Company shifted the focus of its operations in 1995 to the development
of multilingual Internet tools, and its first Internet product was released in
late 1995. Accordingly, the Company has only a limited operating history upon
which to base an evaluation of its current principal business and prospects.
Operating results for future periods are subject to numerous uncertainties, and
there can be no assurance that the Company will achieve or sustain profitability
on an annual or quarterly basis. The Company's prospects must be considered in
light of the risks encountered by companies in the early stage of development,
particularly companies in new and rapidly evolving markets. Future operating
results will depend upon many factors, including the demand for the Company's
Internet products, the level of product and price competition, the ability of
the Company to develop and market new products and product enhancements, the
growth of activity on the Internet, the Web and private Internet protocol
networks ("Intranets"), the success of the Company in attracting and retaining
motivated and qualified personnel, the ability of the Company to control its
costs and general economic conditions. There can be no assurance that the
Company will be successful in addressing such risks. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
SIGNIFICANT CAPITAL REQUIREMENTS; DEPENDENCE ON OFFERING PROCEEDS; NEED FOR
ADDITIONAL FINANCING
The Company's capital requirements in connection with its development and
marketing activities have been and will continue to be significant. The Company
has been dependent upon the proceeds of sales of its securities, as well as
various government guaranteed and private loans, to fund its initial development
and marketing activities. The Company is not generating sufficient revenues from
its operations to fund its activities and is, therefore, dependent on the
proceeds of the Offering to continue the development of its technology and the
marketing of its products. The Company anticipates, based on its currently
proposed plans and assumptions relating to its operations, that the net proceeds
of the Offering, together with projected cash flow from operations, will be
sufficient to satisfy its contemplated cash requirements for at least 12 months
following the consummation of the Offering. In the event that the proceeds of
the Offering and cash flow prove to be insufficient to fund operations (due to a
change in the Company's plans or a change, or an inaccuracy, in its assumptions
or as a result of unanticipated expenses, technical difficulties, problems or
otherwise), the Company would be required to seek additional financing sooner
than currently anticipated. There can be no assurance that additional financing
will be available to the Company on commercially reasonable terms, or at all.
The Company has no current arrangement with respect to, or sources of,
additional financing. The inability to obtain additional financing, when needed,
would have a material adverse effect on the Company, including possibly
requiring the Company to curtail or cease its operations. See "Use of Proceeds"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
9
<PAGE>
EXPLANATORY PARAGRAPH IN INDEPENDENT PUBLIC ACCOUNTANTS' REPORT
The report of the Company's independent public accountants contains an
explanatory paragraph as to the Company's ability to continue as a going
concern. Among the factors cited by the accountants as raising substantial doubt
as to the Company's ability to continue as a going concern is that the Company
has incurred losses from operations of approximately $15.7 million during the
nine months ended September 30, 1996 and had an accumulated deficit of
approximately $28.0 million as of September 30, 1996. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Financial Statements and Notes thereto and the Report of Independent Public
Accountants included herein.
SUBSTANTIAL INDEBTEDNESS AND ENCUMBRANCES OF ASSETS
The Company's operations have been and continue to be financed in part from
short-term and long-term indebtedness provided by Israeli banks, other financial
institutions and IMR. As of September 30, 1996, on a pro forma basis giving
effect to the Offering, the outstanding balances of the Company's short-term and
long-term indebtedness were approximately $1.0 million and $2.8 million,
respectively. All of the Company's assets are pledged as collateral to secure
the Company's indebtedness. If the Company is unable to generate sufficient cash
flow from operations to meet scheduled debt payments or otherwise to comply with
the terms of such indebtedness, it may be required to refinance all or a portion
of its existing debt or to obtain additional financing. There can be no
assurance that the Company will be able to obtain such refinancing or additional
financing. If no such refinancing or additional financing is available when
needed, the Company may be forced to default on its debt obligations which would
have a material adverse effect on the Company, including the possibility of
receivership or liquidation of the Company. In such an event, the Company's
secured creditors could elect to foreclose on the Company's assets and it is
likely that the Units, the Ordinary Shares and the Warrants would be worthless.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
UNPROVEN ACCEPTANCE OF THE COMPANY'S PRODUCTS
The Company's future operating results will depend primarily upon its
ability to gain market acceptance of its multilingual Internet tools and its
proposed Internet productivity tools, such as WEBTAMER. Because the market for
the Company's Internet-related products is new and evolving, it is difficult to
assess or predict with any assurance the growth rate, if any, or the size of the
market for such products. There can be no assurance that the market for the
Company's products and services will develop, or that the Company's products
will achieve market acceptance. If the market fails to develop, develops more
slowly than expected or becomes saturated with competitors, or if the Company's
products do not achieve significant market acceptance, the Company's business,
operating results or financial condition will be materially adversely affected.
See "Business -- Industry Background."
UNCERTAINTY OF PRODUCT AND TECHNOLOGY DEVELOPMENT
The Company has not completed development and testing of a number of its
proposed products, some of which are still in the planning stage or in
relatively early stages of development. The Company's success will depend in
part upon the ability of its proposed products to meet targeted performance and
cost objectives, and will also depend upon the timely introduction of its
products into the marketplace and the acceptance of its products by end-users.
The Company will be required to commit considerable time, effort and resources
to finalize development of its proposed products and product enhancements.
Product development efforts may be subject to unanticipated delays, expenses,
difficulties, the possible insufficiency of funding to complete development and
other risks inherent in the development of new products and technologies. There
can be no assurance as to when, or whether, such product development efforts
will be successfully completed. See "Business -- Product Development."
DEPENDENCE ON COMPATIBLE THIRD-PARTY SOFTWARE MANUFACTURERS' PRODUCTS AND
DESIGN; DEPENDENCE ON
CERTAIN SOFTWARE LICENSES
The Company's products are currently designed, and its proposed products are
being designed, to be utilized with the Windows operating system and with the
products and standards established by certain other software manufacturers.
Accordingly, the performance of certain of the Company's existing products
depends on the actions of other manufacturers, in particular Microsoft. Such
manufacturers may change their
10
<PAGE>
products or take actions that could make it more difficult for the Company to
develop its products or that could significantly impair the performance of the
Company's products. For example, if Microsoft were to modify future versions of
Windows in ways that required the redesign of the Company's Windows-based
products, such modification could be detrimental to the Company. Although the
Company anticipates that it will be able to adapt its products if necessary,
there can be no assurance that changes in existing products or the introduction
of new products by third parties will not have a material adverse effect on the
performance of the Company's products and technology and on the Company's
financial performance. In addition, the Company's products may need to be
adapted in the future in order to be compatible with other or new operating
systems so that the Company may maintain and expand its product offerings. There
can be no assurance that the Company will be able to make any necessary
adaptations on a timely basis.
The Company's products incorporate certain popular third-party software
programs (such as the Spyglass Mosaic Browser) pursuant to various licensing
arrangements with such third parties in order to increase the marketability of
such products. There can be no assurance that these third parties will continue
to license their software programs to the Company on commercially reasonable
terms, particularly if such companies develop programs that they perceive as
competitive with those developed and marketed by the Company. Although the
Company believes that multiple sources are available for products functionally
comparable with those licensed, if any of the Company's license agreements were
to be terminated and the Company was unable to replace those licenses with
comparable licenses from alternate suppliers, such terminations could have a
material adverse effect on the Company's ability to market its products. See
"Business -- Proprietary Rights."
Certain of the Company's proposed products, including the
soon-to-be-released WEBTAMER, will utilize technology developed and owned by
AgentSoft, its majority-owned subsidiary. The Company intends to enter into a
license agreement with AgentSoft relating to such technology. However, there can
be no assurance that the Company will be able to enter into such a licensing
agreement on commercially reasonable terms, if at all.
PRODUCT CONCENTRATION
Until the beginning of 1996, substantially all of the Company's revenues
were attributable to the sale of its multilingual word processing products.
Beginning in the first quarter of 1996, a substantial portion of the Company's
revenues have been derived from the sale of the Company's Internet-related
products. The Company currently expects that sales of Internet-related products
will account for a substantial portion of its revenues for the foreseeable
future. As a result, factors adversely affecting the pricing of or demand for
such products and services, such as competition or technological change, could
have a material adverse effect on the Company's business, operating results or
financial condition. See "Business -- Product Development."
COMPETITION; TECHNOLOGICAL OBSOLESCENCE
The market for Internet-based software and services is new, intensely
competitive, rapidly evolving and subject to rapid technological change. In
addition, there are relatively few barriers to entry into the software business
in general, including into those areas in which the Company offers and intends
to offer products. The Company expects competition in the market for
multilingual Internet-based products to increase substantially in the future. To
the extent that the Company's multilingual Internet products are substitutes for
single or dual language products, the Company's products presently compete with
those of numerous well-established companies, including Microsoft, Netscape
Communications Corporation ("Netscape"), CompuServe, Inc. ("CompuServe") and
Quarterdeck Office Systems, Inc. ("Quarterdeck"). The Company expects that
AgentSoft will develop intelligent agent technology that the Company will use in
its Internet productivity products and the Company will apply artificial
intelligence concepts to document processing and other applications. To the
extent that the Company and AgentSoft are successful in developing such
technologies, the Company will compete with some of the same well-established
companies listed above as well as with companies to which Accent or AgentSoft
will license such technology. These companies have substantially greater
financial, technical, personnel and other resources than the Company and have
established reputations for success in the development, licensing and sale of
their products and technology. In addition, certain companies have developed, or
may be expected to develop, technologies or products that
11
<PAGE>
may be functionally similar to some or all of those being developed by the
Company. The markets for the technology and products being developed by the
Company are characterized by rapid changes and evolving industry standards,
often resulting in product obsolescence or short product lifecycles.
Accordingly, the ability of the Company to compete will depend upon, among other
factors, its ability to develop and introduce to the marketplace in a timely
manner new products and product enhancements. There can be no assurance that the
Company will be able to compete successfully, that its present or future
competitors will not develop technologies or products that render the Company's
products and technology obsolete or less marketable or that the Company will be
able to introduce new products and product enhancements that are competitive
with other products marketed by industry participants. See "Business --
Competition."
DEPENDENCE ON THE INTERNET
Sales of the Company's products will depend in large part upon the
development and maintenance of a robust industry and infrastructure for
providing Internet access and carrying Internet traffic. Because global commerce
and online exchange of information on the Internet and other similar open wide
area networks are new and evolving, there can be no assurance that the Internet
will prove to be a viable commercial marketplace or a viable medium for the
publication and distribution of information. Further, there can be no assurance
that the necessary infrastructure, such as a reliable network backbone or timely
development of complementary products, such as high speed modems, necessary to
make the Internet a viable commercial marketplace or a viable medium for the
publication and distribution of information will be developed, or, if developed,
that the Internet will become a viable commercial marketplace or a viable medium
for the publication and distribution of information. If the necessary
infrastructure or complementary products are not developed, or if the Internet
does not become a viable commercial marketplace or a viable medium for the
publication and distribution of information, the Company's business, operating
results or financial condition will be materially adversely affected. See
"Business -- Industry Background."
DEPENDENCE ON DISTRIBUTORS AND RETAILERS
Because the Company sells its products primarily to independent software
distributors for resale to retailers, it is highly dependent upon the acceptance
of its products by such distributors and retailers and their active marketing
and distribution efforts relating to the Company's products. The distributors
and retailers to whom the Company sells its products are not contractually
required to make future purchases of the Company's products and could,
therefore, discontinue carrying the Company's products at any time. Due to
increasing competition for limited shelf space, distributors and retailers are
increasingly in a stronger position to negotiate favorable terms of sale,
including price discounts and product return policies. There can be no assurance
that the Company will be able to increase or maintain its current amount of
retail shelf space or promotional resources and, as a result, the Company's
operating results could be adversely affected. In addition, other methods of
product distribution, such as electronic distribution or distribution through
Internet Service Providers ("ISPs") may become important in the future. If the
Company is unable to capitalize on these new distribution channels, its
business, operating results or financial condition could also be adversely
affected. During the nine months ended September 30, 1996, 18% of its sales were
to a single distributor. There can be no assurance that such distributor will
continue to purchase products from the Company at such levels in the future. See
"Business -- Distribution and Marketing."
PRODUCT RETURNS; COLLECTION OF ACCOUNTS RECEIVABLE; CONSIGNMENT ARRANGEMENTS
Consistent with industry practices, the Company may accept product returns
or provide other credits in the event that a distributor or a retailer holds
excess inventory of the Company's products. In addition, the Company's sales are
made on credit terms and it does not hold collateral to secure payment.
Therefore, a default in payment by one or more of the Company's distributors or
retailers could adversely affect the Company's business, operating results or
financial condition. There can be no assurance that actual returns and
uncollectible receivables will not exceed the Company's reserves for such items
and any significant increase in product returns or uncollected accounts
receivable beyond reserves could have a material adverse effect on the Company's
business, operating results or financial condition. Consistent with industry
practice, the Company also, on occasion, transfers products through the
distribution channel on a consignment basis. There can be no assurance that such
consignment arrangements will result in additional sales for
12
<PAGE>
the Company or that they will not result in excess inventory or increased
working capital requirements for the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
MANAGEMENT OF A RAPIDLY CHANGING BUSINESS
The Company's business has grown significantly in size and complexity over
the past three years. Net sales in 1995 increased 177% to approximately $5.1
million in 1995 from approximately $1.8 million in 1994, and for the nine months
ended September 30, 1996, net sales increased 37% to approximately $4.7 million
from approximately $3.4 million in the comparable period of 1995. The growth in
the Company's customer base has placed, and any future growth is expected to
continue to place, a significant strain on the Company's management and
operations, including its sales, customer support, research and development,
finance and administrative operations. In general, the Company's officers have
had limited experience in managing large or rapidly growing business
organizations, and the Company anticipates that continued growth, if any, will
require it to recruit and hire a substantial number of new development,
managerial, finance, sales and marketing and support personnel. There can be no
assurance that the Company will be successful at hiring or retaining such
personnel. The Company's ability to compete effectively and its future growth,
if any, will require the Company to continually improve its financial and
management controls, reporting systems and procedures on a timely basis,
implement new systems as necessary and expand, train and manage its employee
workforce. There can be no assurance that the Company's controls, systems or
procedures will be adequate to support the Company's operations. The failure of
the Company's management to respond effectively to changing business conditions
could have a material adverse effect on the Company's business, operating
results or financial condition. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
PRODUCT DEFECTS AND PRODUCT LIABILITY
The Company's software products are highly complex and sophisticated and
could from time to time contain design defects or software errors that could be
difficult to detect and correct. Errors, bugs or viruses may result in the loss
of or the delay in market acceptance or the loss of customer data. Although the
Company has not experienced any material adverse effect resulting from any
software defects or errors, there can be no assurance that, despite testing by
the Company and its customers, errors will not be found in new products, which
could result in a delay in or inability to achieve market acceptance and thus
could have a material adverse impact upon the Company's business, operating
results or financial condition.
DEPENDENCE ON KEY PERSONNEL; PART-TIME OFFICER
The success of the Company is substantially dependent on the performance of
its executive officers and key employees. Four members of senior management are
parties to employment agreements with the Company that expire in July 1998. The
Company believes that the loss of the services of one or more of such key
personnel could have a material effect on its ability to develop new products
and product enhancements. In addition, Dr. Jeffrey Rosenschein, the Company's
Vice President, Engineering and Chief Scientist, has an academic affiliation
with Hebrew University in Jerusalem. Although Dr. Rosenschein has been granted a
leave of absence from Hebrew University for the two-year period which commenced
in October 1995, there can be no assurance that his affiliation with Hebrew
University will not give rise to a conflict of interest with respect to the
allocation of his business time between the Company and such entity thereafter.
The Company is seeking to enhance its senior management team by hiring one or
more additional executives with extensive experience in the software industry.
There can be no assurance that such efforts will be successful. The success of
the Company also is dependent upon its ability to hire and retain additional
qualified executive, scientific and marketing personnel. There can be no
assurance that the Company will be able to hire or retain such necessary
personnel. The Company maintains "key man" life insurance with respect to its
President/Chief Executive Officer and its Chief Scientist/Vice President,
Engineering (in the amounts of $3 million and $2 million, respectively).
However, there can be no assurance that the loss of the services of any of its
executive officers or other key employees would not have a material adverse
effect on the Company's business, operating results or financial condition. See
"Management."
13
<PAGE>
PROTECTION OF PROPRIETARY INFORMATION
The Company's success and ability to compete is dependent in part upon its
proprietary software technology. While the Company relies on a combination of
trade secret and copyright law, nondisclosure agreements and technical measures
to establish and protect its proprietary rights, there can be no assurance that
the steps taken by the Company to protect its proprietary rights will be
adequate to prevent misappropriation of the technology or independent
development by others of software products with features based upon, or
otherwise similar to, those of the Company's products. To license its products,
the Company primarily relies on "shrink wrap" licenses that are not signed by
the end-user and, therefore, may be unenforceable under the laws of certain
jurisdictions. In addition, effective copyright and trade secret protection may
be unavailable or limited in certain foreign countries, and the global nature of
the Internet makes it virtually impossible to control the ultimate destination
of the Company's products. Despite the Company's efforts to protect its
proprietary rights, unauthorized parties may attempt to copy aspects of the
Company's products or to obtain and use information that the Company regards as
proprietary. Litigation may be necessary in the future to enforce the Company's
intellectual property rights, to determine the validity and scope of the
proprietary rights of others, or to defend against claims of infringement or
invalidity. Such litigation could result in substantial costs and diversion of
resources and could have a material adverse effect on the Company's business,
operating results or financial condition. See "Business -- Proprietary Rights."
IMPACT OF INFLATION AND CURRENCY FLUCTUATION
The vast majority of the Company's sales are made in dollars and most of the
Company's expenses are in dollars and NIS. The cost of the Company's operations
in Israel, as expressed in dollars, is influenced by the extent to which any
increase in the rate of inflation in Israel over the rate of inflation in the
U.S. is not offset by the devaluation of the NIS in relation to the dollar. In
1995 and the nine months ended September 30, 1996, the Company experienced
increases in the cost of the Company's operations in Israel, as expressed in
dollars, as inflation in Israel exceeded the devaluation of the NIS against the
dollar. The increase in the cost of the Company's operations in Israel, as
expressed in dollars, relates primarily to the cost of salaries in Israel, a
substantial portion of which are paid in NIS linked to the Consumer Price Index
in Israel (the "Israeli CPI"). While the Company may in the future, to the
extent it deems advisable, purchase currency options or other hedging
instruments to decrease the risk of the NIS devaluation against the dollar being
less than the rate of inflation in Israel, no assurance can be given that any
such financial strategy will be successful in limiting the Company's risk. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Impact of Inflation and Currency Fluctuations."
NO DIVIDENDS
The Company has never paid cash dividends on its Ordinary Shares. Payment of
dividends on the Ordinary Shares is within the discretion of the Board of
Directors of the Company and will depend upon the Company's earnings, its
capital requirements and financial condition and other relevant factors. It is
the Company's intention to retain earnings, if any, to finance the operation and
expansion of its business and, therefore, it does not expect to pay any cash
dividends on its Ordinary Shares in the foreseeable future. See "Dividends."
SIGNIFICANT OUTSTANDING TRADE PAYABLES; USE OF PROCEEDS TO PAY AFFILIATE DEBT
At September 30, 1996, the Company owed approximately $8.0 million to
various trade and other creditors of which approximately 45% was more than 60
days past due. The inability to obtain credit on commercially reasonable terms,
or at all, resulting in an interruption of supplies or services, would have a
material adverse effect on the Company's operations. To the extent that the
Company is required to use proceeds of the Offering to pay trade payables, the
Company will have less resources available for other purposes, including for the
marketing and development of its existing products and its products under
development. In addition, up to $1.5 million of the net proceeds of the Offering
will be used to repay the IMR Notes. See "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Certain Transactions."
14
<PAGE>
LIMITED TRANSFERABILITY OF WARRANTS; LACK OF TRADING MARKET
Purchasers of the Warrants offered pursuant hereto must be aware of the
potential long-term nature of their investment and be able to bear the economic
risks of their investment for an indefinite period of time. The Company does not
intend to make any application for the Warrants to be listed or traded on any
securities exchange or market, nor is any trading market in the Warrants
expected to develop. In addition, the right of any purchaser to sell or
otherwise dispose of Warrants will be limited by state securities laws and the
regulations promulgated pursuant to them. Consequently, a holder of such
securities may not be able to liquidate such investment. Even if the Company
attempts to register such securities under state blue sky laws, there can be no
assurance that any registration statement relating to such securities will
become effective.
Prior to the Offering, there has been no public trading market for the
Units. The Company intends to apply to have the Units quoted on the Nasdaq
SmallCap Market under the symbol "ACNTU." However, there can be no assurance
that a regular trading market for the Units will develop after the Offering or
that, if developed, it will be sustained.
INABILITY TO EXERCISE WARRANTS
The Company intends to qualify the sale of the Units and the underlying
securities in a limited number of states. Although certain exemptions in the
securities laws of certain states might permit Warrants to be transferred to
purchasers in states other than those in which they were initially qualified,
the Company will be prevented from issuing Ordinary Shares in such other states
upon the exercise of the Warrants unless an exemption from qualification is
available or unless the issuance of Shares upon exercise of the Warrants is
qualified. The Company is under no obligation to seek, and may decide not to
seek or may not be able to obtain, qualification of the issuance of such
Ordinary Shares in all of the states in which the ultimate purchasers of such
Warrants reside. In such a case, the Warrants held will expire and have no value
if such Warrants cannot be sold. Accordingly, if a market for the Warrants were
to develop, of which no assurance can be given, the market for the Warrants
would be limited because of these restrictions. Further, a current prospectus
covering the Ordinary Shares issuable upon exercise of the Warrants must be in
effect before the Company may accept Warrant exercises. There can be no
assurance the Company will be able to have a prospectus in effect when this
Prospectus is no longer current.
MARKET PRICE VOLATILITY
The market price of the Company's Ordinary Shares has been highly volatile
and in the past 52 weeks has ranged from $6 3/8 to $34 1/2. Factors such as the
Company's financial results, introduction of new products by the Company or its
competitors, factors affecting the software industry generally and factors
relating to conditions in the State of Israel may have a significant impact on
the market price of the Company's Ordinary Shares and, therefore, on the market
price of the Units. Additionally, in recent years, the United States stock
markets have experienced a high level of price and volume volatility and market
prices for the stock of many companies (particularly of small and emerging
growth companies, the common stock of which trades in the
over-the-counter-market) have experienced wide price fluctuations that have not
necessarily been related to the operating performance of such companies.
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS
The Warrants may be redeemed by the Company, upon prior consent of the
Representative, at any time after the Warrants become separable, upon notice of
not less than 30 days, at a price $0.10 per Warrant, provided that the closing
bid quotation of the Common Stock on all 20 trading days ending on the third day
prior to the day on which the Company gives notice has been at least 130%
(currently $ ) of the then effective exercise price of the Warrants. Redemption
of the Warrants could force the holders to exercise the Warrants and pay the
exercise price at a time when it may be disadvantageous for the holders to do
so. See "Description of Securities -- Redeemable Warrants."
15
<PAGE>
POSSIBLE DELISTING OF SHARES FROM THE NASDAQ SMALL CAP MARKET;
RISKS RELATING TO LOW-PRICED STOCKS
The Ordinary Shares are quoted on The Nasdaq SmallCap Market as of the date
of this Prospectus. In order to continue to meet The Nasdaq SmallCap Market's
maintenance requirements, however, the Company must maintain $2,000,000 in total
assets, a $200,000 market of the public float, $1,000,000 in total capital and
surplus, and a minimum bid price of $1.00.
The Company has received a notice from Nasdaq Market Services indicating
that, in light of the Company's failure to meet the $1,000,000 in capital and
surplus as reflected in the Company's financial results for the quarter ended
September 30, 1996, the Company no longer meets the requirements to have its
Ordinary Shares quoted on the Nasdaq SmallCap Market. The Company intends to
request an oral hearing for a temporary exception to the provision requiring the
delisting of the Ordinary Shares. The Company believes that, based upon the
receipt of the net proceeds of the Offering, the Company will meet the capital
and surplus requirements and will avoid such delisting. No assurance, however,
can be given that the Company's Ordinary Shares will not be delisted from the
Nasdaq SmallCap Market.
In addition, if the Company's securities were to become delisted from
trading on The Nasdaq SmallCap Market and the trading price of such securities
were to fall below $5.00 per share or per unit, trading in such securities would
also be subject to the requirements of certain rules promulgated under the
Exchange Act, which require additional disclosure by broker-dealers in
connection with any trades involving a stock defined as a penny stock
(generally, any non-Nasdaq equity security that has a market price of less than
$5.00 per share, subject to certain exceptions). Such rules require the
delivery, prior to any penny stock transaction, of a disclosure schedule
explaining the penny stock market and the risks associated therewith, and impose
various sales practice requirements on broker-dealers who sell penny stock to
persons other than established customers and accredited investors (generally
institutions). For these types of transactions, the broker-dealer must make a
special suitability determination for the purchase and have received the
purchaser's written consent to the transaction prior to sale. The additional
burdens imposed upon broker-dealers by such requirements may discourage
broker-dealers from effecting transactions in the Units or the Ordinary Shares
which could severely limit the market liquidity of the Units or the Ordinary
Shares and the ability of purchasers in this offering to sell their Units or
their Ordinary Shares in the secondary market.
CONTRACTUAL OBLIGATIONS TO THE REPRESENTATIVE
The Company will have certain ongoing contractual obligations to the
Representative following the consummation of the Offering, such as the Company's
agreement to pay to the Representative a fee of 5% of the exercise price for
each Warrant exercised (provided the Warrant exercise is solicited by the
Representative and certain other conditions are met) commencing one year after
the date of this Prospectus; to use its best efforts to elect a designee of the
Representative as a member of, or non-voting advisor to, the Company's Board of
Directors, if requested to do so by the Representative, for a period of three
(3) years from the date of this Prospectus; subject to certain limitations and
exclusions, to register, at the Company's expense, the Representative's Warrants
and the securities underlying such warrants under the Securities Act on one
occasion during their exercise term and to include such securities in any
appropriate registration statement which is filed by the Company during the five
years following the date of this Prospectus; and to grant to the Representative
the right of first refusal with respect to future public sales of debt and
equity securities of the Company for a three-year period following the date of
this Prospectus. See "Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Upon completion of the Offering, there will be 11,595,902 Ordinary Shares
outstanding and (assuming no exercise of the Warrants), including 8,098,755
Ordinary Shares (including the 1,800,000 Shares included in the Units offered
hereby) that will be freely tradeable without restriction or further
registration under the Securities Act. All of the remaining 3,497,147 Ordinary
Shares outstanding are "restricted securities," as that term is defined in Rule
144 promulgated under the Securities Act, and in the future may only be sold
pursuant to a registration statement under the Securities Act, in compliance
with the exemption provisions of Rule 144 or pursuant to another exemption under
the Securities Act. All of the 3,497,147 restricted shares are eligible for
sale, without registration, under Rule 144 subject to certain volume limitations
and other conditions prescribed by such rule and to the contractual restrictions
described below.
16
<PAGE>
In addition, the Company has granted to certain of its securityholders,
including certain of its executive officers, directors and IMR Investments,
certain registration rights. No prediction can be made as to the effect, if any,
that sales of such securities or the availability of such securities for sale
will have on the market prices prevailing from time to time. All of the
Company's officers and directors and certain of its shareholders have agreed not
to, subject to certain exceptions, (i) offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase or otherwise transfer or
dispose of, directly or indirectly, any Ordinary Shares or any securities
convertible into or exercisable or exchangeable for Ordinary Shares or file any
registration statement under the Securities Act with respect to any of the
foregoing; or (ii) enter into any swap or any other agreement or any transaction
that transfers, in whole or in part, directly or indirectly, the economic
consequence of ownership of the Ordinary Shares, whether any such swap or
transaction described in clause (i) or (ii) above is to be settled by delivery
of Ordinary Shares or such other securities, in cash or otherwise, for a period
of 180 days after the date of this Prospectus without the prior written consent
of the Representative. However, even the possibility that a substantial number
of the Ordinary Shares may be sold in the public market may adversely affect
prevailing market prices for the Ordinary Shares and could impair the Company's
ability to raise capital through the sale of its equity securities. See "Certain
Transactions" and "Shares Eligible for Future Sale."
LOCATION IN ISRAEL
The Company is incorporated under the laws of, and has its offices and a
significant portion of its operations (including all of its product development
activities) in, the State of Israel. Although most of the Company's sales are
currently made to customers outside Israel, the Company is, nonetheless,
directly influenced by the political, economic and security conditions affecting
Israel. Any major hostilities involving Israel, the interruption or curtailment
of trade between Israel and its trading partners or a significant downturn in
the economic or financial condition of Israel could have a material adverse
effect on the Company's business, financial condition or results of operations.
Despite the progress towards peace among Israel, the Arab States and the
Palestinians, there can be no assurance that ongoing or revived hostilities or
other factors related to the political or economic status of Israel will not
have an adverse impact on the Company's business, operating results or financial
condition. See "Conditions in Israel."
SERVICE OF PROCESS AND ENFORCEMENT OF JUDGMENTS
Service of process upon directors and officers of the Company and the
Israeli experts named herein, many of whom reside outside the United States, may
be difficult to effect within the United States. Furthermore, since the majority
of the Company's assets are located outside the United States, any judgment
obtained in the United States against the Company may not be enforceable within
the United States. The Company has been informed by its legal counsel in Israel,
Yigal Arnon & Co., that in such counsel's opinion there is doubt as to the
enforceability of civil liabilities under the Securities Act and the Exchange
Act, in original actions instituted in Israel. However, subject to certain time
limitations, Israeli courts are empowered to enforce foreign (including United
States) final executory judgments for liquidated amounts in civil matters
obtained after due trial before a court of competent jurisdiction (according to
the rules of private international law currently prevailing in Israel) which
enforces similar Israeli judgments. The enforcement of such judgments is
conditioned upon: (i) adequate service of process having been effected and the
defendant having had a reasonable opportunity to be heard; (ii) such judgments
or the enforcement thereof are not contrary to the law, public policy, security
or sovereignty of the State of Israel; (iii) such judgments were not obtained by
fraud and do not conflict with any other valid judgment in the same matter
between the same parties; and (iv) 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. The Company has irrevocably appointed Accent
Worldwide as the Company's agent to receive service of process in any action
against the Company in any federal or state court sitting in New York County,
State of New York arising out of the Offering or any purchase or sale of
securities in connection therewith.
Foreign judgments enforced by Israeli courts generally will be payable in
Israeli currency, and a special permit of the Israeli Controller of Foreign
Currency will be required to convert the Israeli currency into dollars and to
transfer such dollars out of Israel. The usual practice in an action to recover
an amount in a non-Israeli currency is for the Israeli court to render judgment
for the equivalent in Israeli currency at the
17
<PAGE>
rate of exchange in force on the date thereof. Under existing law, a foreign
judgment payable in foreign currency may be paid in Israeli currency at the rate
of exchange on the date of payment, but the judgment debtor may also make
payment in foreign currency if the Israeli exchange control regulations then in
effect permit such foreign currency payment. Pending collection, the amount of
the judgment of an Israeli court stated in Israeli currency will ordinarily be
linked to the Israeli CPI plus interest at the annual rate (set by Israeli
regulations) prevailing at such time. Judgment creditors must bear the risk that
they will be unable to convert their award into foreign currency that can be
transferred out of Israel. All judgment creditors must bear the risk of
unfavorable exchange rates.
USE OF PROCEEDS
The net proceeds to be received from the sale of the 1,800,000 Units by the
Company in the Offering (based upon an assumed public offering price of $7.60
per Unit ($7.50 per Ordinary Share, the last reported sale price of the Ordinary
Shares on November 6, 1996, and an assumed public offering price of $0.10 per
Warrant), after deducting the underwriting discount and estimated offering
expenses) are estimated to be approximately $11.5 million (approximately $13.4
million if the Underwriters' over-allotment option is exercised in full). The
Company intends to use the net proceeds (assuming no exercise of the
Underwriters' over-allotment option) as follows:
<TABLE>
<CAPTION>
APPROXIMATE
DOLLAR PERCENTAGE OF
APPLICATION OF NET PROCEEDS AMOUNT NET PROCEEDS
- ------------------------------------------------------------- ------------- ---------------
<S> <C> <C>
Marketing and Advertising Programs........................... $ 3,200,000 27.7%
Research and Development..................................... 2,800,000 24.3
Repayment of Trade Payables.................................. 2,200,000 19.1
Repayment of IMR Notes (1)................................... 1,500,000(2) 13.0
Working Capital and General Corporate Purposes............... 1,839,000 15.9
------------- -----
Total.................................................... $ 11,539,000 100.0%
------------- -----
------------- -----
</TABLE>
- ------------------------
(1) Simultaneously with the consummation of the Offering, to the extent that the
gross proceeds to the Company from IMR Investments' purchase of Units in the
Offering does not equal $1,500,000, an amount of outstanding indebtedness
owed to IMR equal to the difference between $1,500,000 and the gross
proceeds to the Company from IMR Investments' purchase of Units offered
hereby will be converted into Ordinary Shares at a conversion rate equal to
the public offering price per Unit less $0.10.
(2) This amount does not include interest payable on the IMR Notes which will
accrue at the rate of 12% on $425,000 principal amount of such notes and at
the rate of 10% for the balance of $1,075,000 principal amount of such
notes. Such interest payments shall result in a corresponding reduction in
the amounts available for repayment of trade payables.
The allocation of the net proceeds from the Offering set forth above
represents the Company's best estimates based upon its present plans and certain
assumptions regarding general economic and industry conditions and the Company's
anticipated future revenues and expenditures. The Company anticipates, based on
its currently proposed plans and assumptions relating to its operations, that
the proceeds of the Offering will be sufficient to satisfy its contemplated cash
requirements for at least 12 months following the consummation of the Offering.
However, there can be no assurance of such and if these funds are insufficient,
the Company would be required to seek additional financing. The Company has no
current arrangements with respect to, or sources of additional financing and it
is not anticipated that any of the Company's current shareholders will provide
any portion of the Company's future financing requirements. There can be no
assurance that additional financing will be available to the Company on
commercially reasonable terms, or at all. The inability to obtain additional
financing, when needed, would have a material adverse effect on the Company,
including possibly requiring the Company to curtail or cease its operations. See
"Risk Factors -- Significant Capital Requirements; Dependence on Offering
Proceeds; Need for Additional Financing."
If the Underwriters' over-allotment option is exercised in full, the Company
will realize additional net proceeds of $1.8 million, which will be added to the
Company's working capital.
18
<PAGE>
If the 1,800,000 Warrants included in the Units offered hereby are
exercised, the Company will realize proceeds relating thereto of approximately
$ , before any solicitation fees which may be paid in connection
therewith. Such additional proceeds are expected to be added to the Company's
working capital. See "Underwriting."
Pending application of the net proceeds of the Offering, the Company intends
to invest the net proceeds in bank certificates of deposit, United States
Government obligations and State of Israel bonds linked to the Israeli CPI or a
weighted basket of foreign currencies. Under existing foreign currency
regulations in Israel, the Company may be required to obtain a special permit
from the Controller of Foreign Currency of the Bank of Israel for the use of
such proceeds outside of Israel, including any acquisition outside of Israel.
The Company has applied for a permit from the Bank of Israel to retain the
proceeds of the Offering outside of Israel.
19
<PAGE>
DIVIDENDS
The Company has not paid cash dividends to date and does not currently
intend to declare any cash dividends on its Ordinary Shares in the foreseeable
future. The Company intends to retain earnings, if any, for the foreseeable
future to fund the development and growth of its business. Payment of dividends
on the Ordinary Shares will depend upon the Company's earnings, its capital
requirements and financial condition, and other relevant factors.
The Company's decisions with respect to dividend payments in the future will
be determined by its Board of Directors. Under Israeli law, certain dividends,
referred to as final dividends (which are comparable to annual dividends and are
not related to distributions on dissolution or liquidation or similar final
distributions), are recommended by the Board of Directors and may be declared by
shareholders at the annual meeting of shareholders, but only in an amount per
share equal to or less than the amount recommended by the Board of Directors. In
addition, the Board of Directors may declare and pay interim dividends on
account of the final dividend. Cash dividends may be paid by an Israeli company
only out of the profits of such company, as determined for statutory purposes.
See "Description of Securities."
Under Israeli law, cash dividends paid by the Company to its shareholders
(other than Israeli corporate shareholders) are subject to a withholding tax.
The applicable withholding tax rate will depend on the particular operations
that have generated the earnings constituting the source of dividends. See
"Taxation and Foreign Exchange Regulation -- Law for the Encouragement of
Capital Investments, 1959."
For a discussion of tax treatment of dividends, if any, see "Taxation and
Foreign Exchange Regulation."
20
<PAGE>
PRICE RANGE OF ORDINARY SHARES AND LISTING
The Company's Ordinary Shares are quoted through The Nasdaq SmallCap Market
under the symbol "ACNTF." The following table sets forth, for the periods
indicated, the high and low closing bid prices of the Company's Ordinary Shares
as reported by The Nasdaq SmallCap Market.
<TABLE>
<CAPTION>
LOW HIGH
--------- ---------
<S> <C> <C>
1995
Third Quarter (commencing July 21, 1995)....................................... $ 6.00 $ 11.50
Fourth Quarter................................................................. $ 8.00 $ 21.00
1996
First Quarter.................................................................. $ 10.50 $ 28.67
Second Quarter................................................................. $ 24.67 $ 34.50
Third Quarter.................................................................. $ 11.13 $ 32.25
Fourth Quarter (through November 6, 1996)...................................... $ 7.250 $ 14.50
</TABLE>
Over-the-counter market quotations for the Company's Ordinary Shares reflect
inter-dealer prices, without retail mark-up, mark-down or commission, and may
not necessarily represent actual transactions. On November 6, 1996, the last
reported sale price of the Ordinary Shares on The Nasdaq SmallCap Market was
$7.50 per Ordinary Share.
The Company intends to apply to have the Units quoted on The Nasdaq SmallCap
Market under the symbol "ACNTU".
As of November 6, 1996, there were approximately 75 holders of record of
Ordinary Shares. Such number of record holders was determined from the Company's
shareholder records, and does not include beneficial owners of the Ordinary
Shares whose shares are held in the names of various shareholders, dealers and
clearing agencies.
21
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
September 30, 1996, (ii) on a pro forma basis giving effect to the consummation
of the sale of the IMR Notes in October 1996 and (iii) as adjusted to reflect
the sale by the Company of the 1,800,000 Units offered hereby (based upon an
assumed public offering price of $7.60 ($7.50 per Ordinary Share, the last
reported sale price of the Ordinary Shares on November 6, 1996, and an assumed
public offering price of $0.10 per Warrant), after deducting the estimated
underwriting discount and estimated offering expenses) and the receipt and
application by the Company of the estimated net proceeds therefrom as set forth
in "Use of Proceeds." This table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's Consolidated Financial Statements and the notes
thereto, appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
----------------------------------------
PRO FORMA AS
ACTUAL PRO FORMA(1) ADJUSTED(2)
---------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term borrowings and current maturities of long term debt.......... $ 1,443 $ 2,518 $ 1,018
---------- ------------- -------------
---------- ------------- -------------
Long-term debt, net of current maturities............................... 2,839 2,839 2,839
---------- ------------- -------------
Shareholders' equity:
Ordinary Shares of nominal value NIS 0.01 per share;
30,000,000 shares authorized; 9,795,902 (actual) shares issued
and outstanding; 9,795,902 (pro forma) shares issued and outstanding;
and 11,595,902 (pro forma as adjusted) shares issued and outstanding
(3).................................................................. 22 22 27
Share premium........................................................... 23,343 23,343 34,877
Accumulated deficit..................................................... (27,962) (27,962) (27,962)
---------- ------------- -------------
Total shareholders' equity (deficit).................................. (4,597) (4,597) 6,942
---------- ------------- -------------
Total capitalization.................................................. $ (1,758) (1,758) 9,781
---------- ------------- -------------
---------- ------------- -------------
</TABLE>
- ------------------------
(1) Gives effect to the borrowing of an aggregate of $1,075,000 pursuant to the
IMR Notes in October 1996, which are classified as short-term debt. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations_-- Liquidity and Capital Resources."
(2) Gives effect to the sale of the 1,800,000 Units offered hereby and to the
anticipated application of the estimated net proceeds therefrom (including
the repayment of the IMR Notes in full). See "Use of Proceeds,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Certain Transactions."
(3) Includes the 1,800,000 Ordinary Shares that are a component of the Units
offered hereby. Excludes (i) 1,800,000 Ordinary Shares reserved for issuance
upon exercise of the Warrants; (ii) an aggregate of 360,000 Ordinary Shares
reserved for issuance upon exercise of the Underwriter's Warrants and the
warrants included therewith; (iii) 180,000 Ordinary Shares reserved for
issuance upon exercise of the IMR Warrants; (iv) an indeterminate number of
Conversion Shares; (v) 512,913 Ordinary Shares issuable upon exercise of
outstanding warrants (issued (a) in connection with a private placement by
the Company in May 1995 and (b) to the underwriter in connection with the
Company's initial public offering in July 1995); (vi) 675,875 Ordinary
Shares issuable upon exercise of employee and non-employee stock options;
(vii) 275,000 Ordinary Shares issuable upon the exercise of founders'
options; and (viii) 498,875 Ordinary Shares issuable upon the exercise of
warrants issued to directors, officers and other persons associated with the
Company. See "Management -- Employment Agreements," "-- Employee Share
Option Plan (1995)," "-- Non-Employee Share Option Plan (1995)," "Certain
Transactions" and "Description of Securities."
22
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected consolidated financial data for each of the years
ended December 31, 1993, 1994 and 1995, and at December 31, 1994 and 1995 are
derived from the Consolidated Financial Statements set forth elsewhere in this
Prospectus that have been audited by Luboshitz, Kasierer & Co., a member firm of
Andersen Worldwide, SC, independent public accountants. The selected
consolidated financial data for each of the years ended December 31, 1991 and
1992, and at December 31, 1991, 1992 and 1993 are derived from audited financial
statements not appearing in this Prospectus. The selected consolidated financial
data for each of the nine months ended September 30, 1995 and 1996 and as of
September 30, 1996 are derived from the Company's unaudited financial statements
for such periods set forth elsewhere in this Prospectus, which reflect all
adjustments (consisting of only normal recurring adjustments) necessary for a
fair presentation thereof. The Company's Consolidated Financial Statements have
been prepared in accordance with U.S. GAAP which, in the case of the Company,
also complies with the accounting principles generally accepted in Israel. The
financial data set forth below should be read in conjunction with the
Consolidated Financial Statements of the Company and the notes thereto appearing
elsewhere in this Prospectus. See also "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
--------------------------------------------------------- -----------------------
1991 1992 1993 1994 1995 1995 1996
--------- ---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Net sales........................... $ 336 $ 255 $ 1,220 $ 1,851 $ 5,135 $ 3,447 $ 4,731
Cost of sales....................... 125 248 566 1,155 2,972 2,162 4,845
--------- ---------- ---------- ---------- ---------- ---------- -----------
Gross profit (loss)................. 211 7 654 696 2,163 1,285 (114)
--------- ---------- ---------- ---------- ---------- ---------- -----------
Product development costs, net...... 117 311 363 507 1,097 785 2,448
Marketing expenses.................. 7 17 673 2,115 5,955 3,201 8,109
General and administrative
expenses........................... 27 56 360 1,071 2,796 1,387 5,007
--------- ---------- ---------- ---------- ---------- ---------- -----------
Total operating expenses.......... 151 384 1,396 3,693 9,848 5,433 15,564
--------- ---------- ---------- ---------- ---------- ---------- -----------
Operating income (loss)............. 60 (377) (742) (2,997) (7,685) (4,148) (15,678)
Other income (expense), net......... (19) 56 7 (137) (163) 182 (71)
--------- ---------- ---------- ---------- ---------- ---------- -----------
Net income (loss) (1)............... $ 41 $ (321) $ (735) $ (3,134) $ (7,848) $ (4,330) $ (15,749)
--------- ---------- ---------- ---------- ---------- ---------- -----------
--------- ---------- ---------- ---------- ---------- ---------- -----------
Net income (loss) per share (1)..... $ 0.06 $ (0.48) $ (0.39) $ (0.68) $ (1.22) $ (0.78) $ (1.62)
Weighted average number of shares
and equivalent shares
outstanding........................ 664 664 1,893 4,619 6,421 5,564 9,698
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------- SEPTEMBER 30,
1991 1992 1993 1994 1995 1996
--------- --------- --------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents....... $ 9 $ -- $ -- $ 78 $ 9,633 $ 407
Working capital (deficit)....... (217) (563) (1,433) (1,009) 10,329 (4,356)
Total assets.................... 182 262 1,050 2,503 17,650 7,949
Total debt...................... 262 515 1,034 1,680 2,358 4,282
Accumulated deficit............. (174) (495) (1,231) (4,365) (12,213) (27,962)
Shareholders' equity (deficit).. (174) (496) (932) (1,064) 10,133 (4,597)
</TABLE>
- ------------------------
(1) See Note 2 of Notes to the Consolidated Financial Statements for an
explanation of the computation of net income (loss) per share and weighted
average number of shares and equivalent shares outstanding.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
preceding "Selected Consolidated Financial Data" and the Company's Consolidated
Financial Statements and notes thereto appearing elsewhere in this Prospectus.
OVERVIEW
Accent develops, markets and supports multilingual Internet publishing,
browsing, e-mail and productivity software, and is a leading developer and
supplier of multilingual word processing software. Accent commenced operations
in 1988 as a software development company and from 1988 to 1992 generated nearly
all of its revenues from consulting services. The Company introduced its first
word processing software product in Israel in 1992 and began shipping its first
product intended for the international market in 1994. During this period,
Accent's revenues were almost entirely attributable to sales of word processing
software. The Company introduced its first Internet product, INTERNET WITH AN
ACCENT, in late 1995. The Company believes that revenues from its Internet
products, including multilingual Internet products (such as INTERNET WITH AN
ACCENT) and Internet produtivity tools (such as the soon-to-be-released
WEBTAMER) will account for an increasing percentage of its total sales in 1997.
Since it first began to develop multilingual software in 1988, Accent has
made substantial expenditures on research and development, expanded its sales
and marketing operations, introduced new products, established customer support
services and the administrative infrastructure necessary to conduct its
operations. As a result of the start-up nature of its business during this
period, Accent has incurred net losses each year since 1992. The Company
incurred net losses of $735,000 and $3,134,000 and $7,848,000 for the fiscal
years ended 1993, 1994 and 1995, respectively. In the nine months ended
September 30, 1996, the Company incurred a net loss of $15,749,000 and had an
accumulated deficit of $27,962,000 as of September 30, 1996.
The Company has historically made significant expenditures on sales and
marketing efforts to establish distribution channels, promote brand recognition,
facilitate geographic expansion and foster long-term consumer demand. Such
expenditures have included the cost of participating in industry trade shows
(including Comdex, CEBIT and Internet shows), public relations, marketing and
advertising expenses. The Company has also made significant expenditures in
connection with the launch of new products.
In response to its recent operating results, the Company has implemented a
revised business plan designed to decrease operating expense and to improve its
operating and financial performance while maintaining its product development
activities. Specifically, the Company has commenced a 30% reduction in the
number of its employees which will be substantially completed by the end of this
year. In addition, the Company intends, by the end of the first quarter of 1997,
to reduce (i) its expenditures on marketing and advertising by approximately 50%
and (ii) its other operating expenses by approximately 50% in all areas
exclusive of research and development, which expenses will remain relatively
level so as to enable the Company to achieve its strategic product development
objectives. The goal of these initiatives is to achieve greater operating
efficiencies by reducing operating expenses, strategically focusing marketing
expenditures by product category and continually monitoring the Company's
operating performance in-line with the revised business plan. In addition, the
Company has implemented a number of corporate governance changes to enable it to
achieve its revised business and financial management objectives. See "Recent
Developments," "Use of Proceeds," "--Liquidity and Capital Resources" and
"Management."
The Company's operating results may fluctuate significantly from period to
period as a result of a variety of factors, including the timing of the
introduction of new products and product enhancements by the Company and its
competitors, the length of the Company's sales cycle to key customers,
distributors, OEMs and ISPs, purchasing patterns of consumers, technological
factors, variations in sales by distribution channel and competitive pricing. In
addition, like other software companies, the Company's sales may be subject to
seasonality, with a larger portion of sales and sales growth generally occurring
in the spring and the last three months of each calendar year.
The Company's ability to generate increased revenue to fund planned
expenditures is dependent on a number of factors, many of which are outside of
its control. In particular, revenue growth and profitability, if
24
<PAGE>
any, will depend on the continued growth in the number of Internet users, demand
for the Company's Internet products, the level of product and price competition,
the ability of the Company to develop and market new products and product
enhancements, the success of the Company in attracting and retaining motivated
and qualified personnel, the ability of the Company to control its costs and
general economic conditions. There can be no assurance that the Company will
meet such challenges successfully. Any of these or other factors could have a
material adverse effect on the Company's business, operating results or
financial condition. In addition, because the market for Internet products is in
the early stages of its commercial development, it is difficult to assess or
predict with any assurance the growth rate, if any, and the size of the market
for the Company's products. Accordingly, there can be no assurance that a market
for the Company's Internet products will develop or that the Company will
generate increased revenues from such products. See "Risk Factors."
REVENUE RECOGNITION
As required by U.S. GAAP, revenue from the sale of software products to
end-users and resellers (including distributors and OEMs) is generally
recognized when a customer purchase order has been received, the software has
been shipped, the Company has a right to invoice the customer, collection of the
receivable is determined to be probable and there are no significant obligations
remaining on the part of the Company.
A significant portion of the Company's revenues are derived from sales to
distributors under agreements that allow certain rights of return on unsold
merchandise. If the Company has sufficient historical experience to estimate
returns for a specific distributor, revenue is recorded upon shipment of the
product to that distributor and a provision for estimated returns is recorded at
that time. If the Company does not have sufficient historical experience to
estimate such returns, the Company defers recognition of such revenue until the
software is sold by the distributor.
OEM arrangements may include non-refundable payments in the form of
guaranteed sublicense fees. These guaranteed sublicense fees are recognized as
revenue upon shipment of the master copy of all software to which the sublicense
fees relate provided there are no significant post-delivery obligations and the
OEM is creditworthy. Additionally, such revenue is recognized only to the extent
that the obligation to pay such fees is not subject to price adjustment, is
non-recoverable and non-refundable and is due within five months. These
guaranteed sublicense fees are applied against sublicense fees reported by the
reseller as it relicenses the Company's products to end-users.
The Company also generally grants the right to limited telephone support to
its retail customers which is generally provided in the first several months
after purchase of the software by the customer. The Company accrues the
estimated cost of such telephone support at the time the related revenue is
recognized.
PRODUCT DEVELOPMENT COSTS
Costs relating to the development of the Company's software products which
are incurred subsequent to establishing the product's technological feasibility
(which has been defined as the time when the Company has a working model of the
product), primarily consisting of engineering salaries and related expenses, are
capitalized consistent with the principles set forth in the Financial Accounting
Standards Board of the United States ("FASB") Statement No. 86. Product
development costs are shown net of these capitalized software costs.
Capitalization of software costs reduces the product development expense
recorded in the current year. Amortization of these costs, which is included in
cost of sales, is first recorded when the products are available for general
release to customers, and is computed on a product-by-product basis as the
greater of: (i) the ratio of current gross revenues for a product to the total
of current and anticipated future gross revenues for the product; or (ii) the
straight-line method over the remaining estimated economic life of the product
which until 1994 was estimated by management to be three years. The lives of the
Company's word processing products whose general release occurred in 1995 have
been estimated by management to be two and a half years; however, the estimated
life of the Company's Internet products are and will be significantly shorter.
25
<PAGE>
The functional currency for the Company is the dollar, which is the currency
of the primary economic environment in which the operations of the Company are
conducted. The majority of the Company's sales are made outside of Israel in or
linked to the dollar, as are a significant portion of the Company's expenses.
Transactions and balances originally denominated in dollars are presented at
their original amounts. Transactions and balances in other currencies (including
NIS) are remeasured into dollars in accordance with principles set forth in FASB
Statement No. 52. Exchange gains and losses arising from remeasurement are
reflected in income or expenses, as applicable.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
sales represented by certain items reflected in the Company's Consolidated
Statements of Operations:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------- --------------------------
1993 1994 1995 1995 1996
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales..................................... 46.4 62.4 57.9 62.7 102.4
------ ------ ------ ------ ------
Gross profit (loss)............................... 53.6 37.6 42.1 37.3 (2.4)
------ ------ ------ ------ ------
Product development costs, net.................... 29.7 27.4 21.4 22.8 51.7
Marketing expenses................................ 55.2 114.2 116.0 94.6 171.4
General and administrative expenses............... 29.5 57.9 54.4 40.2 105.8
------ ------ ------ ------ ------
Total operating costs and expenses.............. 114.4 199.5 191.8 157.6 328.9
------ ------ ------ ------ ------
Operating loss.................................... (60.8)% (161.9)% (149.7)% (120.3)% (331.3)%
------ ------ ------ ------ ------
------ ------ ------ ------ ------
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1995
NET SALES. Net sales increased approximately 37% to $4,731,000 in the nine
months ended September 30, 1996 from $3,447,000 in the nine months ended
September 30, 1995. This increase was due to sales of INTERNET WITH AN ACCENT,
which was released late in the fourth quarter of 1995 and ACCENT DUO, the
Company's translation product introduced in the fourth quarter of 1995. Sales of
INTERNET WITH AN ACCENT and ACCENT DUO accounted for most of the Company's
packaged software sales during the nine months ended September 30, 1996.
Approximately 27% or $1,260,000 of net sales in the nine months ended September
30, 1996 was attributable to two OEM license agreements, primarily for INTERNET
WITH AN ACCENT, which represent revenue commitments as well as potentially
providing additional revenue opportunities based on end-user utilization. These
OEM sales occurred primarily in the first quarter of 1996. OEM sales accounted
for 35% of total revenues for the nine months ended September 30, 1996 and 8% of
total revenues for the nine months ended September 30, 1995.
Net sales decreased approximately 53% to $603,000 in the three months ended
September 30, 1996 from $1,296,000 in the three months ended September 30, 1995.
The Company's revenues for both the three months ended September 30, 1996 and
1995 were primarily derived from packaged software sales. The decrease in net
sales from the three months ended September 30, 1995 to the three months ended
September 30, 1996 can be attributed primarily to a reduction in sales of the
ACCENT 2.0 word processing line of products (which had been released immediately
prior to the earlier period), the elimination of sales to one particular
distributor in early 1996 due to a legal dispute with such distributor and a
reduction in other sales activity in the retail channel. OEM sales accounted for
18% of total revenues for the three months ended September 30, 1996 and 10% of
total revenues for the three months ended September 30, 1995.
COST OF SALES. Cost of sales increased approximately 124% to $4,845,000 in
the nine months ended September 30, 1996 from $2,162,000 in the nine months
ended September 30, 1995. This increase is attributable to fixed royalty
expenses associated with INTERNET WITH AN ACCENT, various other fixed royalty
fees, an increased number of employees and significantly increased amortization
of software development costs compared to the nine months ended September 30,
1995.
26
<PAGE>
PRODUCT DEVELOPMENT COSTS, NET. Product development costs, net increased
approximately 212% to $2,448,000 in the nine months ended September 30, 1996
from $785,000 in the nine months ended September 30, 1995. This increase is due
primarily to an increase in the number of employees in the engineering
department to 70 at September 30, 1996 from 41 at September 30, 1995 and a
significant decrease in the percentage of costs capitalized during the nine
months ended September 30, 1996 as compared to the nine months ended September
30, 1995. Also included in product development cost are the expenses related to
development costs incurred by AgentSoft, which approximated $116,000 in the nine
months ended September 30, 1996.
Product development costs, net increased approximately 137% to $979,000 in
the three months ended September 30, 1996 from $413,000 in the three months
ended September 30, 1995. This increase is due primarily to an increase in the
number of employees in the engineering department to 70 at September 30, 1996
from 41 at September 30, 1995 and a significant decrease in the percentage of
costs capitalized during the three months ended September 30, 1996 as compared
to the three months ended September 30, 1995. Also included in product
development costs are the expenses related to development costs incurred by
AgentSoft which approximated $116,000 in the three months ended September 30,
1996.
MARKETING EXPENSES. Marketing expenses increased approximately 149% to
$8,109,000 in the nine months ended September 30, 1996 from $3,261,000 in the
nine months ended September 30, 1995. The increase in marketing expenses is
principally attributable to increased expenditures for advertising, public
relations and trade shows. The significant increase in advertising and public
relations expenditures reflects the Company's efforts to increase brand
recognition of Accent's products internationally and its launch of INTERNET WITH
AN ACCENT. A significant portion of the increase in marketing expenses resulted
from expanded activities of Accent Worldwide, the Company's U.S. sales and
marketing subsidiary. In addition, the Company significantly increased the
number of employees in marketing and sales to 31 at September 30, 1996 from 21
at September 30, 1995. The increase in marketing expenditures was also due to
higher travel and related costs which resulted from expanded sales and marketing
efforts.
Marketing expenses increased approximately 110% to $1,838,000 in the three
months ended September 30, 1996 from $875,000 in the three months ended
September 30, 1995. The increase in marketing expenses is attributable in part
to an increase in expenditures for advertising and public relations which
reflects the Company's efforts to increase brand recognition of Accent's
products internationally and the continued expansion of marketing efforts
associated with INTERNET WITH AN ACCENT. A significant portion of the increase
in marketing expenses resulted from the expanded activities of Accent Worldwide,
the Company's U.S. sales and marketing subsidiary. For the Company as a whole,
the number of employees in marketing and sales increased to 31 at September 30,
1996 from 21 at September 30, 1995 and the Company contracted with several
independent representatives during the three months ended September 30, 1996.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased approximately 261% to $5,007,000 in the nine months ended September
30, 1996 from $1,387,000 in the nine months ended September 30, 1995. This
increase was primarily due to an increase in the number of general and
administrative employees, as well as an increase in compensation for certain
management personnel. General and administrative personnel includes senior
executives, finance, legal, human resources and office administration. In
addition, the Company experienced delays in the collection of certain customer
accounts and recorded a provision for doubtful accounts of approximately
$1,176,000 for the nine months ended September 30, 1996.
FINANCING EXPENSES, NET. Financing expenses, net (consisting of net
interest expense net of interest income) decreased 61% to $71,000 in the nine
months ended September 30, 1996 from $182,000 in the nine months ended September
30, 1995.
NET LOSS. As a result of the foregoing, the Company's net loss increased
approximately 264% to $15,749,000 in the nine months ended September 30, 1996
from $4,330,000 in the nine months ended September 30, 1995.
27
<PAGE>
YEAR ENDED DECEMBER 31, 1995 COMPARED WITH YEAR ENDED DECEMBER 31, 1994
NET SALES. Net sales increased to $5,135,000 in 1995 from $1,851,000 in
1994. This overall sales increase was primarily attributable to an increase in
sales of the Company's multilingual word processing products. INTERNET WITH AN
ACCENT, which was released at the end of December 1995, accounted for
approximately 5% of revenues in 1995. The Company released several new versions
of existing word processing products and several new products during the year
including DAGESH2 in January, ACCENT 2.0 in June and ACCENT DUO in October.
Revenues derived from sales outside Israel increased from 62% of total revenues
in 1994 to 82% of total revenues in 1995. During 1995, total package software
sales increased 163% and OEM sales increased 258%.
COST OF SALES. Cost of sales increased to $2,972,000 in 1995 from
$1,155,000 in 1994. This increase was a result of increased sales volume. As a
percentage of sales, cost of sales decreased to 57.9% in 1995 from 62.4% in
1994. In 1995, the Company commenced selling Accent products in CD-ROM format.
Production costs of Accent products in CD-ROM format are significantly lower
than those associated with the production of such products in diskette format.
The Company expects cost of sales as a percentage of sales to continue to
decrease during 1996 and in the future as a result of increases in OEM sales,
the growth in electronic distribution, decreases in production costs due to
increases in unit volume and lower production costs related to manufacturing
more of its production in CD-ROM format. There can be no assurance, however,
that production costs will decline in the future either in the aggregate or as a
percentage of revenues.
PRODUCT DEVELOPMENT COSTS, NET. Product development costs, net increased to
$1,097,000 in 1995 from $507,000 in 1994. Product development costs, net
excluded capitalized amounts of $700,000 and $568,000, respectively. This
increase is primarily due to an increase in the number of product development
employees to 42 at December 31, 1995 from 30 at December 31, 1994. In addition,
a higher percentage of salary costs was capitalized related to software
development in 1994 (67%) than in 1995 (48%). During 1994 a higher percentage of
personnel resources was devoted to the development of new products. In 1995, a
higher percentage of personnel resources was devoted to improving and
maintaining products that already were released into the market and whose costs,
in accordance with the Company's accounting policies, were not capitalized.
MARKETING EXPENSES. Marketing expenses increased to $5,955,000 in 1995 from
$2,115,000 in 1994. This increase was attributable to significant increases in
exhibition, advertising and public relations expenditures. In addition, Accent
continued to increase the number of its sales and marketing personnel. At
December 31, 1995 and 1994, the Company's Israel-based sales group included 17
and 12 employees, respectively. In addition, the Company opened a sales and
marketing office in California during the fourth quarter of 1995, which employed
seven people at the end of 1995.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $2,796,000 in 1995 from $1,071,000 in 1994. This increase was
primarily due to increases in the number of general and administrative
employees, including senior executives, finance, legal, human resources and
office administration employees. General and administrative expenses also
increased as a result of a higher provision for doubtful accounts which was
$722,000 in 1995 compared to $169,000 in 1994. Approximately $380,000 of this
increase was due to one customer from whom payments have not been forthcoming
and against whom legal action by the Company has been initiated. Despite these
increases, general and administrative expenses, as a percentage of sales,
decreased to 54% in 1995 from 58% in 1994.
OTHER INCOME (EXPENSE). Other expense increased to $163,000 in 1995 from
$137,000 in 1994. Short-term and long-term bank borrowings increased $2,358,000
at December 31, 1995 from $1,680,000 at December 31, 1994. However, interest
expense was offset by interest income earned from August through December 1995.
As a result of the initial public offering of Ordinary Shares in July 1995 (the
"IPO"), the Company received net proceeds of $9,785,000, of which $2,500,000 was
immediately used to pay short-term debts and certain payables. As a result of
the exercise of the redeemable warrants issued in the IPO and certain other
outstanding warrants, the Company received net proceeds during the fourth
quarter of 1995 of $8,160,000. The Company's cash and cash equivalents at the
end of 1995 were $9,633,000.
Additionally, in 1994 the NIS was devalued by 1% against the dollar from NIS
2.986 to NIS 3.018, while in 1995 the NIS was devalued by 4% to NIS 3.135. A
devaluation of the NIS against the dollar reduces the
28
<PAGE>
Company's financing expense by reducing the amount of the Company's net
NIS-linked liabilities in dollar terms. Because of the smaller devaluation in
1994 and the overall lower level of dollar based liabilities in 1994, the
relative reduction of NIS-linked liabilities was greater in 1995 than in 1994.
NET LOSS. As a result of the foregoing, the Company's net loss during the
year increased to $7,848,000 in 1995 from $3,134,000 in 1994.
YEAR ENDED DECEMBER 31, 1994 COMPARED WITH YEAR ENDED DECEMBER 31, 1993
NET SALES. Net sales increased to $1,851,000 in 1994 compared to $1,220,000
in 1993. This increase was primarily attributable to sales of the Accent line of
multilingual word processors, which was released in January 1994. Sales of the
Accent product line totalled $1,058,000 in 1994. Of this amount, $237,000
resulted from a single sale to Computime Ausweissysteme GmbH in Germany. During
the same period, sales of the DAGESH product line decreased to $455,000 in 1994
compared to $735,000 in 1993 prior to the release of the Company's DAGESH2
product in January 1995. Sales of Corel products distributed by the Company
decreased slightly to $265,000 in 1994, compared to $282,000 in 1993. Revenues
derived from sales made outside of Israel increased to 62% of total revenues in
1994, compared to 25% of total revenues in 1993.
COST OF SALES. Cost of sales increased to $1,155,000 in 1994 as compared to
$566,000 in 1993. This increase is primarily attributable to the 52% increase in
sales between the comparable periods. In addition, the Company incurred cost
increases in production, printing and shipping costs related to the
manufacturing of Accent products outside of Israel and the shipping of products
worldwide.
PRODUCT DEVELOPMENT COSTS, NET. Product development costs, net increased to
$507,000 in 1994 from $363,000 in 1993, net of capitalized amount of $568,000
and $0, respectively. This increase was primarily due to an increase in
non-capitalized salaries and related expenses to $286,000 in 1994 as compared to
$196,000 in 1993 resulting from the addition of 12 new employees in 1994.
Approximately 35% of the total of such employees' salaries and related costs in
both periods were expensed. The remaining increase was attributable to an
increase in the Company's usage of translation and professional services.
MARKETING EXPENSES. Marketing expenses increased to $2,115,000 in 1994 as
compared to $673,000 in 1993. As a percentage of sales, marketing expenses
increased to 114.2% in 1994 from 55.2% in 1993. This increase was attributable
in part to an increase in exhibition-related costs to $851,000 in 1994 from
$266,000 in 1993. Increased marketing expenses were also attributable to the
introduction of the Company's Accent product line to the retail distribution
channel in major markets worldwide. Marketing and sales department salaries
increased to $476,000 in 1994 as compared to $182,000 in 1993, and advertising
costs increased to $498,000 in 1994 from $147,000 in 1993.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $1,071,000 in 1994 as compared to $360,000 in 1993. Salary and
consulting expenses increased to $476,000 in 1994, compared to $182,000 in 1993
as a result of the retention of additional employees and consultants. Provision
for doubtful accounts increased to $169,000 in 1994 from $9,000 in 1993, as a
result of increased sales, particularly in markets outside of Israel. In
addition, the costs of outside legal and accounting services increased $100,000
in 1994. General and administrative expenses, as a percentage of sales,
increased to 57.9% in 1994, compared to 29.5% in 1993.
OTHER INCOME (EXPENSE). Other expenses amounted to $137,000 in 1994,
compared with financing income of $7,000 in 1993. This change resulted from the
significant increase in short-term bank credit and government-guaranteed bank
loans that were used to finance most aspects of the Company's operations in
1994. Additionally, in 1993 the NIS was devalued by 8% against the dollar from
NIS 2.764 to NIS 2.986, while in 1994 the NIS was devalued by only 1% to NIS
3.018. A devaluation of the NIS against the dollar reduces the Company's
financing expense by reducing the amount of the Company's net NIS-linked
liabilities in dollar terms. However, because of the greater devaluation in
1993, the relative reduction of NIS-linked liabilities was smaller in 1994 than
in 1993.
NET LOSS. As a result of the foregoing, the Company's net loss increased
from $735,000 in 1993 to $3,134,000 in 1994.
29
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Future sales of the Company's products and proposed products will depend
principally on customer demand for multilingual software programs, multilingual
Internet products and products utilizing intelligent agent technology. The
computer industry has historically been volatile and, as is typically the case
with newly-introduced products, the ultimate level of demand for the Company's
products is subject to a high degree of uncertainty. Developing market
acceptance, particularly worldwide, for the Company's existing and proposed
products has required substantial marketing efforts and the expenditure of a
significant amount of funds to inform customers of the perceived benefits and
cost advantages of the Company's products. The Company intends to focus its
marketing efforts in the future more narrowly so as to achieve greater sales to
users of the Company's products.
Consistent with industry practices, the Company may accept product returns
or provide other credits in the event that a distributor or retailer holds
excess inventory of the Company's products. The Company's sales are made on
credit terms which vary significantly depending on the nature of the sale and
size of the customer. In addition, the Company does not hold collateral to
secure payment from its distributors and retailers. Therefore, defaults in
payment by several of the Company's distributors or retailers have adversely
affected, and in the future could adversely affect, the Company's business,
results of operations and financial condition. The Company believes it has
established sufficient reserves to accurately reflect the amount or likelihood
of product returns or credits and uncollectible receivables. However, there can
be no assurance that actual returns or uncollected accounts receivable beyond
the reserves established would not have a material adverse effect on the
Company's business, results of operations and financial condition. See "Risk
Factors--Product Returns; Collection of Accounts Receivable; Consignment
Arrangements."
In addition, and also consistent with industry practice for packaged
software companies which are establishing their distribution channel, the
Company will, when appropriate, be transferring product through the distribution
channel on a consignment basis. In the nine months ended September 30, 1996,
significant shipments were made on that basis, resulting in higher inventory
balances and working capital requirements. There can be no assurance that such
inventory consignment will result in additional sales for the Company, or that
such inventory consignment will not result in excess inventory or continued
increased working capital requirements for the Company. See "Risk
Factors--Product Returns; Collection of Accounts Receivable; Consignment
Arrangements."
The Company's operating activities used cash of $301,000, $2,622,000,
$8,733,000 and $10,907,000 for the years ended December 31, 1993, 1994 and 1995
and for the nine months ended September 30, 1996, respectively. The Company's
investing activities used cash of $528,000, $949,000, $1,435,000 and $1,016,000
for the years ended December 31, 1993, 1994 and 1995 and for the nine months
ended September 30, 1996, respectively. Financing activities provided $829,000,
$3,649,000, $19,723,000 and $2,697,000 for the years ended December 31, 1993,
1994 and 1995 and for the nine months ended September 30, 1996, respectively.
In January 1995, the Company obtained short-term bank loans amounting to
$665,000 for general working capital purposes. Such loans were repaid in May
1995 from the proceeds of the Private Placement (as defined below). In April
1995, the Company borrowed $1,000,000 from certain persons, including certain
shareholders, which borrowings were converted into units that were issued in the
Private Placement. To date, the Company's capital requirements in connection
with its development and marketing activities have been and will continue to be
significant. Since its inception, the Company has financed its operations
primarily through net proceeds from sales of equity securities, bank and other
credit facilities, various government guaranteed long-term loans under the
Approved Enterprise Program which is administered by the Israel Investment
Center, revenues from sales of its word processing and Internet software and
loans from certain affiliated parties. In addition, the Company utilized certain
of the proceeds of the IPO to bring creditors current in the amount owed to
them.
In May 1995, the Company received net proceeds of $2,600,000 from a private
placement (the "Private Placement") of units consisting of Ordinary Shares,
warrants to purchase Ordinary Shares and an unsecured promissory note. Accent
received net proceeds of $9,785,000 from the IPO of Ordinary Shares and warrants
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to purchase Ordinary Shares (the "IPO Warrants") in July 1995. The Company
called the IPO Warrants for redemption in November 1995, as a result of which
substantially all of the IPO Warrants were exercised, raising proceeds to the
Company of $8,160,000.
From August 1996 to October 1996, the Company borrowed an aggregate of
$1,335,000 from IMR, consisting of (i) a $425,000 loan at 12% made in August
1996 and (ii) $910,000 in loans at 10% made in October 1996. IMR has also
committed to the Company to provide the Company with additional loans of
$165,000 at 10% at or prior to the consummation of the Offering. In connection
therewith, IMR was issued warrants to purchase 180,000 Ordinary Shares (the "IMR
Warrants"). IMR Investments has agreed to purchase up to 9.9% of the Units being
offered hereby directly from the Company at an aggregate purchase price not to
exceed $1,500,000. The Company intends to repay the $1,500,000 loan out of the
net proceeds of the Offering; to the extent that the gross proceeds to the
Company from IMR Investments' purchase of Units offered hereby are less than
$1,500,000, an amount equal to the difference between $1,500,000 and the gross
proceeds to the Company from IMR Investments' purchase of Units offered hereby
will be converted into equity at the public offering price per Unit less $0.10.
Long term bank loans received as part of the Approved Enterprise Program
totaled $3.9 million as of September 30, 1996, an increase from the $2.4 million
outstanding at December 31, 1995. The Law for the Encouragement of Capital
Investments, 1959 provides that capital investment in certain production
facilities (or other eligible assets) may, upon application to the Israel
Investment Center which administers the program, be designated as an "Approved
Enterprise." Each certificate of approval for an Approved Enterprise relates to
a specific investment program in the Approved Enterprise, delineated both by the
financial scope of the investment and by the physical characteristics of the
facility or other asset. The Company is eligible to receive guaranteed loans of
approximately $4.1 million under the Approved Enterprise Program. The Company
must continue to comply with the various conditions of each respective approved
program, including compliance with minimum investment levels and the achievement
of certain levels of sales. The Company believes it is in compliance with, and
will continue to comply with, these conditions, however, there can be no
assurance that this will continue to occur or that the Company will receive any
additional loans under the Approved Enterprise Program.
Significant increases in sales are essential to the Company's future. The
Company is not generating sufficient revenues from its operations to fund its
activities. Working capital decreased from a surplus of $10,329,000 on December
31, 1995 to a deficit of $4,356,000 on September 30, 1996 due to the Company's
continuing operating losses, working capital needs and capital spending. Sales
activities at the retail customer level and subsequent cash collections from the
Company's customers have been significantly slower than originally anticipated.
In addition, due to the nature of sales terms with several large distributors,
shipments to certain customers represent consignment sales. Accordingly, as of
September 30, 1996, the Company has large balances in receivables and inventory
as it continues to establish its position in the marketplace. The Company is
dependent on remaining cash and cash equivalents, the timely collection of
receivables and obtaining additional financing either through new borrowings or
the sale of equity in order to fund its current obligations and continue the
development of its technology and the marketing of its products. In addition,
the report of the Company's independent public accountants contains an
explanatory paragraph as to the Company's ability to continue as a going
concern. See the Company's Consolidated Financial Statements.
The Company anticipates, based on its currently-proposed plans and
assumptions relating to its operations, that the proceeds of the Offering,
together with projected cash flow from operations, will be sufficient to satisfy
its contemplated cash requirements for at least 12 months following the
consummation of the Offering. Thereafter, the Company will need to raise
additional funds. The Company may need to raise additional funds sooner due to
technical difficulties or problems, in order to fund more rapid expansion, to
develop new or enhanced services or products, or to acquire complementary
products, businesses or technologies. If additional funds are raised through the
issuance of equity or convertible debt securities, the Company's shareholders
may experience dilution. There can be no assurance, however, that additional
financing will be available, if necessary, to the Company on
commercially-reasonable terms or at all. The
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Company has no current arrangements with respect to, or sources of, additional
financing. The inability to obtain additional financing, when needed, would have
a material adverse effect on the Company including possibly requiring the
Company to curtail or cease its operations.
In October 1996, the Company engaged Merrill Lynch to act as a financial
advisor with respect to seeking strategic equity investors, joint venture
partners or other persons to invest in the Company. There can be no assurance
that the Company will be successful in attracting any strategic investor or in
engaging in any joint venture or other similar transaction.
IMPACT OF INFLATION AND CURRENCY FLUCTUATIONS
The dollar cost of the Company's operations in Israel is influenced by the
extent to which any increase in the rate of inflation in Israel over the rate of
inflation in the United States is offset by the devaluation of the NIS in
relation to the dollar. Inflation in Israel will have a negative effect on the
profitability to the Company of contracts under which the Company is to receive
payment in dollars or other foreign currencies while incurring expenses in NIS
linked to the Israeli CPI, unless such inflation is offset by a devaluation of
the NIS. Inflation in Israel and currency fluctuations will also have a negative
effect on the profitability to the Company of fixed price contracts under which
the Company is to receive payment in NIS.
A devaluation of the NIS in relation to the dollar will have the effect of
decreasing the dollar value of any asset of the Company that consists of NIS or
receivables payable in NIS (unless such receivables are linked to the dollar).
Such a devaluation would also have the effect of reducing the dollar amount of
liabilities of the Company that are payable in NIS (unless such payables are
linked to the dollar). Conversely, any increase in the value of the NIS in
relation to the dollar will have the effect of increasing the dollar value of
any unlinked NIS assets of the Company and the dollar amounts of any unlinked
NIS liabilities of the Company.
Because exchange rates between the NIS and the other currencies in which the
Company conducts its business, including the dollar, fluctuate continuously
(albeit with a historically declining trend in the value of the NIS), exchange
rate fluctuation, and especially larger periodic devaluations, have an impact on
the Company's profitability and period-to-period comparisons of the Company's
results. Such impact is recorded in the company's financial statements as
financial income/expense. Favorable exchange rates will tend to increase
reported financial income and unfavorable exchange rates will tend to reduce
reported income. To date, the Company has not engaged in currency-hedging
transactions intended to reduce the effect of fluctuations in foreign currency
exchange rates on the Company's results of operations.
EFFECTIVE CORPORATE TAX RATE
Virtually all of the Company's facilities and investment programs have been
granted "Approved Enterprise" status under the Law for Encouragement of Capital
Investments, 1959. Under the Approved Enterprise program, the Company is
entitled to reductions in the tax rate normally applicable to Israeli companies
with respect to income generated from Approved Enterprise investments. The
Company has derived, and expects to continue to derive, a substantial portion of
its income from Approved Enterprise investments. The Company is entitled to a
ten-year tax exemption commencing in the first year in which taxable income is
earned, subject to certain time restrictions, the benefit period for which has
not yet commenced. In addition, the Company has net operating loss carryforwards
that it intends to utilize to reduce its future income tax liability. See
"Taxation and Foreign Exchange Regulation."
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BUSINESS
OVERVIEW
Accent develops, markets and supports multilingual Internet publishing,
browsing, e-mail and productivity software. Accent's products address the
growing need for organizations and individuals to view, create, edit and
exchange information in languages other than English and in multiple languages.
WEBTAMER, a soon-to-be-released suite of Internet user productivity tools and
the first Accent product utilizing intelligent agent technology, is targeted
beyond multilingual and non-English speaking Internet users to the broader
market for Internet software applications. Accent's INTERNET WITH AN ACCENT, a
leading multilingual suite of Internet tools in terms of functionality and
number of languages served, enables users to browse the Web, author Web pages
and send and receive multilingual e-mail in more than 30 languages. Accent is
also a leading developer and supplier of multilingual word processing software.
Accent's Internet and word processing software is marketed directly by the
Company and through distributors in more than 30 countries worldwide including,
in the Americas, through Accent Worldwide, the Company's U.S. sales and
marketing subsidiary, and in Europe, through Accent Europe.
Through the introduction of WEBTAMER, Accent is seeking to establish itself
as a leading participant in the emerging market for Internet software based on
intelligent agent technology. Intelligent agents are electronic assistants that
will help automate the Internet by performing complex, repetitive or
time-consuming operations. Accent is also seeking to strengthen its position as
a leading provider of multilingual Internet and word processing applications and
development tools. To achieve these objectives, Accent's business strategy is to
(i) emphasize intelligent agent and software globalization technologies; (ii)
leverage its experience in multilingual software development; (iii) add new
technologies, including intelligent agents, to its core technology platforms;
(iv) increase market share for the Company's products; (v) develop strategic
relationships with leading industry participants; and (vi) leverage its
investments in distribution networks.
As the Internet continues to grow in terms of the number of users,
geographic diversity and breadth of information, Accent management believes that
demand for software applications in the areas of information access and
management, electronic commerce and work-flow management and systems and network
management will increase significantly. Accent management believes that many of
these software applications will be based on intelligent agent technology. In
order to capitalize on the expected growth of this market and to broaden its
Internet product line beyond multilingual-based software, in February 1996
Accent established AgentSoft, which is dedicated to the development of
intelligent agent-based technology and applications for the Internet and
enterprise Intranet.
Accent has used its multilingual software globalization technology as a
platform to launch several multilingual Internet products addressing the needs
of its target users. By offering an expanded line of multilingual Internet user
applications and development tools, Accent will seek to secure a position as the
multilingual solution of choice among Internet users, enabling Accent to
capitalize on the growth and increased internationalization of the Internet. In
December 1995, Accent introduced INTERNET WITH AN ACCENT, which enables users to
browse the Web in a wide variety of languages and alphabets independent of the
local language version of the Windows operating system and that contains Web
authoring tools and e-mail with broad multilingual capabilities. Accent has
begun to broaden its Internet product line through the release in June 1996 of
NAVIGATE WITH AN ACCENT, a multilingual browser plug-in for Netscape Navigator.
In early 1997, Accent plans to release a Pacific Rim version of INTERNET WITH AN
ACCENT, supporting the Chinese, Japanese, Korean and Thai languages, ACCENT WEB
PUBLISHER PRO, a Web authoring tool designed for corporate users, and the ACCENT
GLOBAL DEVELOPMENT KIT, a set of standards and tools that will enable the
globalization of any Windows software application.
INDUSTRY BACKGROUND
INTERNET
The Internet is a global collection of computer networks that links
thousands of public and private computer networks and millions of public and
private computers around the world. Developed in 1969, the Internet acts as a
"network of networks," allowing computers connected to the Internet to
communicate with each other using the Internet Protocol (TCP/IP). The Internet
has historically been used primarily by
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academic institutions and government agencies to exchange information via
electronic mail. Recently, the Internet has experienced rapid growth in use and
increased internationalization as a result of, among other things, the growth in
the number of commercial hosts, the expanded breadth of information content, an
increase in the installed base of personal computers, improvements in
telecommunications infrastructure supporting Internet use and technological
advances such as improved graphical user interfaces, all of which make the
Internet more useful and easier to use.
Various industry sources estimate that the Internet had 56 million users at
the end of 1995 and that the number of Internet users could grow to between 200
million and one billion by the year 2000. International Data Corporation
estimated that in 1995 approximately 22% of Internet users were located outside
the United States and forecasted that non-U.S. Internet users will grow from
1995-1999 at a compound annual growth rate of 65% versus 25% for U.S. Internet
users. The Company believes that a significant portion of the increased growth
in Internet use will be driven by users who prefer or need to use languages
other than English and by users who need to communicate in more than one
language.
WORLD WIDE WEB
The Web, a client/server network of hyperlinked multimedia databases, was
introduced in 1992. The Web enables users to find, retrieve and link information
on the Internet in a consistent way that makes the underlying complexities
transparent to the user. Electronic documents are published on Web servers in a
common format described by the Hypertext Markup Language ("HTML"). The Web can
be easily accessed using client software known as Web browsers that use a
standard protocol called Hypertext Transfer Protocol ("HTTP"). The Web allows
users to offer and retrieve textual, graphical and other information.
INTRANET
The technology and protocols that led to the development and rapid growth of
the Internet and the Web have been applied to expand the use of private data
networks through the development of Intranets. In many instances, the same
software applications in use on the Internet can be applied to Intranets thereby
broadening the market for such Internet software applications.
THE ACCENT SOFTWARE STRATEGY
Accent's business objective is to establish itself as a leading participant
in the emerging market for Internet software based on intelligent agent
technology, while strengthening its position as a leading provider of
multilingual Internet and word processing applications and development tools. To
achieve these objectives, Accent's business strategy is to:
-EMPHASIZE INTELLIGENT AGENT AND SOFTWARE GLOBALIZATION TECHNOLOGIES. The
Company intends to emphasize continued development of its state-of-the-art
intelligent agent and software globalization technologies, which management
anticipates will lead to the development of new products and product
extensions, particularly for the Internet and Intranets. Examples of such
products are the Company's soon-to-be-released WEBTAMER product, the first
in a proposed line of Internet user productivity tools, and its NAVIGATE
WITH AN ACCENT multilingual browsing plug-in for Netscape Navigator which
applies the globalization technology to browsing on the World Wide Web.
-LEVERAGE ITS EXPERIENCE IN MULTILINGUAL SOFTWARE DEVELOPMENT. Accent
believes it is positioned to capitalize on the opportunities for
multilingual Internet and word processing applications and development
tools due to its experience in multilingual software development. The
Company has been developing multilingual software development since 1988.
In 1991 it collaborated with Microsoft to develop the bi-directional Hebrew
and Arabic versions of the Windows operating system. Through the
development of its word processing and Internet products during the past
five years, the Company has acquired significant experience in designing
software to meet the requirements of multilingual users. The Company is
leveraging its experience to develop ACCENT GLOBAL DEVELOPMENT KIT, a set
of standards and tools that will enable the globalization of any Windows
software application utilizing the Company's multilingual technology.
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-ADD NEW TECHNOLOGIES, INCLUDING INTELLIGENT AGENTS, TO ITS CORE TECHNOLOGY
PLATFORMS. Accent believes the development of the Internet will create
opportunities for the introduction of new products incorporating
intelligent agents and other new technologies. In order to capitalize on
the expected future growth of this market segment and to broaden its
Internet product line beyond multilingual based software, Accent
established AgentSoft, a majority-owned subsidiary dedicated to the
development of intelligent agent based software applications for the
Internet in February 1996. AgentSoft's development program is headed by a
team of three leading experts in distributed artificial intelligence
technology research. AgentSoft's intelligent agent technology will be
included, for the first time, in Accent's soon-to-be-released WEBTAMER line
of Internet user productivity tools. Through AgentSoft, Accent has access
to artificial intelligence experts with experience in the development of
commercial software. Accent expects that AgentSoft will provide it with
competitive advantages in new product development and product enhancement,
as well as time-to-market advantages for intelligent agent based Internet
software. In the future, the Company intends to develop intelligent
document technology which it expects to use in text handling products to
undertake tasks such as automated indexing, abstraction, editing, rewriting
and translating.
-
INCREASE MARKET SHARE FOR THE COMPANY'S PRODUCTS. Accent intends to
capitalize on its development of state-of-the-art technologies by
introducing end-user and software developer products and product
enhancements targeted to the Company's key market segments: retail,
corporate, academic, government, system/developer and system integrator
purchasers. The Company intends to increase the market share of its
existing and newly-developed products by focusing its efforts on market
segments well suited for the Company's products. The Company will likely
offer certain versions of its products over the Internet at no cost or at
reduced prices in order to generate additional demand and market acceptance
of such products. In the future, the Company's marketing expenditures will
be more narrowly targeted to each of the market segments listed above.
-
DEVELOP STRATEGIC RELATIONSHIPS WITH LEADING INDUSTRY PARTICIPANTS. As a
leading supplier of multilingual Internet development tools and
multilingual software solution applications software for the Internet,
Accent is positioned to enter into strategic alliances with leading
industry participants. Accent believes such alliances, which may include
joint marketing and sales and joint product and technology development
efforts, will become increasingly important as the Internet continues to
grow. Accent pursues strategic relationships with leading industry
participants and, in addition to its collaboration with Microsoft in 1991,
is a member of Netscape's Development Partners Program, which has led to
the development of NAVIGATE WITH AN ACCENT, its browser plug-in that adds
multilingual capability to Netscape Navigator. Accent is also an associate
member of the Unicode Consortium, an industry-wide collaborative effort to
establish universal language coding standards. In October 1996, the Company
engaged Merrill Lynch to act as a financial advisor with respect to seeking
strategic equity investors, joint venture partners or other persons to
invest in the Company. See "Recent Developments."
-
LEVERAGE ITS INVESTMENT IN DISTRIBUTION NETWORKS. Accent has made
significant investments in establishing a multi-channel distribution
network encompassing major computer software distributors, retailers, OEMs
and ISPs. Accent's distribution channels include leading distributors in
each of its largest markets, such as Ingram Micro and Tech Data in the
U.S., Ingram Micro in Germany and GEM in the United Kingdom. Accent is also
expanding its ability to distribute its products electronically over the
Internet. Accent intends to leverage its existing distribution network to
develop new channels such as key corporate accounts while marketing new
products and product enhancements through its established channels.
THE ACCENT INTERNET SOLUTION
INTERNET PRODUCTIVITY TOOLS
The Company's soon-to-be-released WEBTAMER suite of Internet productivity
tools will contain, state-of-the-art, innovative Internet productivity tools
which will speed the use of the Internet. WEBTAMER will be the first product to
feature Java-based proprietary intelligent agent technology developed by
AgentSoft. WEBTAMER will enable users to save time by automating much of what
Internet users do on the Web.
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WEBTAMER has a unified interface to a collection of utilities, including
intelligent agents, that make Web browsing and searching easier, quicker and
more enjoyable. WEBTAMER also offers an extensible architecture, to which new
agents and plug-ins can be easily added. With Accent's Internet Request Time
Compression technology, WEBTAMER will let users access pages on the Web faster
than ever before.
WEBTAMER will also contain Internet productivity tools to perform such
important activities as off-line browsing, single-click page saving, and
meta-search across multiple search engines. Accent's soon-to-be-released
WEBTAMER for Netscape Navigator is expected to be followed by WEBTAMER for
Microsoft Internet Explorer. WEBTAMER will also be made available as an OEM
product for preloading and bundling as well as for licensing for corporate use.
WEBTAMER is expected to offer the following productivity-enhancing
utilities:
-AGENTSOFT LIVEAGENT--a patent-pending technology lets a user create
personalized intelligent agents in Java to automate whatever the user would
do in a browsing session.
-AGENTSOFT SEARCHAGENT--activates multiple Internet search engines
simultaneously and combines results in one report-filtered to user needs,
graded for relevance, with duplicates removed.
-SPEED BROWSE--with Accent's patent-pending Internet Request Time
Compression technology, the user can mark interesting links, and WEBTAMER
will automatically download those pages in the background, waiting and
ready for the user to read them.
-SCHEDULED OFFLINE BROWSING--reduces waiting time and connection costs by
automatically delivering Web pages, according to the user's requests.
-SITE CHANGE NOTIFIER--notifies the user when a favorite Web site changes.
-SITE SAVER--saves entire Web pages, including embedded graphics, in one
simple step.
-WEBFILER--saves and organizes Web content locally on hard drive, with full
retrieval--includes built-in search engine.
-TOTAL RECALL--advanced history list offers one-click path to any Web site
visited, even in prior browsing sessions.
MULTILINGUAL INTERNET PRODUCTS
The Internet was originally developed in the United States. Consequently,
nearly all Internet services, software and content are in English. Prior
attempts to serve the needs of non-English speaking users or users that require
multilingual Internet solutions have traditionally been addressed by developing
a solution in English and then producing separate versions of the solution in
other languages. This localization approach restricts the portability of single
language solutions because the user is generally required to use a specific
language version of Windows. The Accent solution, INTERNET WITH AN ACCENT,
provides a single globalized approach focused on the needs of Internet users who
seek to access the Internet in languages other than English or in more than one
language by providing a comprehensive and multilingual solution to working with
Internet content. INTERNET WITH AN ACCENT provides Internet users with full
functionality in more than 30 languages, including bi-directional languages such
as Arabic and Hebrew, independent of the local language version of the Windows
operating system. The INTERNET WITH AN ACCENT suite includes the following
applications:
-
NAVIGATE WITH AN ACCENT enables a user to browse pages on the Web that have
been published in any of more than 30 languages and ten alphabets. NAVIGATE
WITH AN ACCENT is capable of displaying Unicode and substantially all other
encodings used on the Internet today and provides user interfaces in more
than 20 languages. NAVIGATE WITH AN ACCENT can detect a character set
(alphabet and accented characters) of an appropriately configured Web site
and automatically switch to the correct one. NAVIGATE WITH AN ACCENT is a
multilingual plug-in for Netscape Navigator based on the Spyglass Mosaic
Browser, which is licensed by Accent. For those users of INTERNET WITH AN
ACCENT who do not use Netscape Navigator as their primary browser, Accent
provides ACCENT MULTILINGUAL MOSAIC which serves as a stand-alone browser
with all the functionality of NAVIGATE WITH AN ACCENT.
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-ACCENT MULTILINGUAL PUBLISHER enables users to create Web pages in more
than 30 languages. Based on Accent's WYSIWYG (What You See Is What You Get)
word processing technology, the ACCENT MULTILINGUAL PUBLISHER enables
creation of Web pages in seven alphabets in the same documents (with Asian
language capabilities to be added to the Pacific Rim version scheduled for
release later this year). Accent's multilingual HTML offers a user-friendly
solution to producing multilingual Web pages without requiring users to
obtain language-specific operating systems or keyboards. This authoring
tool also allows creators of Web sites to program options into their pages
allowing users to view these sites in the language of their choice.
-
ACCENT MULTILINGUAL MAILPAD is an e-mail add on that enables users to send
and receive e-mail in more than 30 languages under any language version of
Windows. It allows users to send electronic messages in any of the languages
supported by ACCENT MULTILINGUAL MAILPAD and allows users to send messages
containing multiple languages and alphabets. For instance, a user can send a
message with Greek, Spanish and Arabic text in the same message even though
the three languages have different alphabets and despite the fact that
Arabic is written predominantly right-to-left and Greek and Spanish
left-to-right. ACCENT MULTILINGUAL MAILPAD enables users to create a message
in English or any of the 30 other languages and send it seamlessly by
clicking on the "Send Mail" icon on the tool bar. INTERNET WITH AN ACCENT
includes the Pronto e-mail client, licensed from CommTouch Software, Inc.
and also works with any MAPI-compliant e-mail package such as Microsoft
Exchange or Group Wise.
-
ACCENT MULTILINGUAL VIEWER enables users to view content and e-mail in any
combination of the languages supported. Accent has created a viewer program
that works with mainstream browsers as a helper application to enable
viewing of multilingual content, whether originating from an Accent word
processor, from ACCENT MULTILINGUAL PUBLISHER or from ACCENT MULTILINGUAL
MAILPAD. ACCENT'S MULTILINGUAL VIEWER supports advanced formatting, such as
columns and tables, and also displays multiple documents simultaneously and
in several different zoom modes. The ACCENT MULTILINGUAL VIEWER is supplied
both in the INTERNET WITH AN ACCENT suite and is available for downloading
at no cost from Accent's Web site. ACCENT MULTILINGUAL VIEWER is also
available as part of NAVIGATE WITH AN ACCENT, the Company's plug-in for
Netscape Navigator.
Accent intends to broaden its Internet product line through the introduction
of several new products in early 1997, including the release of a Pacific Rim
version of INTERNET WITH AN ACCENT (supporting the Chinese, Japanese, Korean and
Thai languages), ACCENT WEB PUBLISHER PRO, a Web authoring tool designed for
corporate users.
THE ACCENT WORD PROCESSING SOLUTION
Accent is a leading supplier of multilingual word processing software.
Accent's word processing products are multilingual on three different levels:
(i) user interfaces; (ii) working languages and keyboards for input; and (iii)
utilities. Users of Accent's word processing software can, at the click of a
mouse button, quickly and easily change the user interface language to match
their preference. In addition, the user interface language need not be the same
as that used for word processing.
Accent's multilingual word processing software enables users to input text
in over 30 languages utilizing seven alphabets without changing the user's basic
keyboard hardware. Users can choose from more than 50 different keyboard
layouts, with characters specific to the language chosen. Accent's word
processing software allows users to choose and mix languages (including
bi-directional languages) on the same page or even in the same sentence, while
the choice of a keyboard for a particular language is entirely independent of
the user interface language. Accent also offers a set of comprehensive utilities
as part of its word processing software, such as a spell checker, thesaurus,
single-word spot translation, document translation and hyphenation programs, in
a variety of the languages that automatically adjust to the language of the
text.
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THE ACCENT PRODUCT LINE. The Accent Product line features ACCENT
PROFESSIONAL, the Company's most comprehensive multilingual word processing
product, providing word processing functionality and language utilities for a
broad range of languages, including, among others, the five major European
languages (English, French, German, Italian and Spanish) and Russian. ACCENT
PROFESSIONAL incorporates several add-ins licensed from third parties including
additional Bitstream fonts, Delrina's WinFax and the Lotus Organizer. ACCENT
SPECIAL EDITION is targeted to users who need advanced word processing
functionality and language utilities primarily for the five major European
languages plus Portuguese. ACCENT EXPRESS provides basic multilingual word
processing functionality, and is positioned as a relatively low priced, mass
market software product.
THE DAGESH PRODUCT LINE. Accent introduced the initial version of DAGESH,
its first multilingual word processing product and the predecessor of the Accent
products, in Israel in December 1992. DAGESH, like ACCENT 2.0, is bi-directional
and allows users to enter text in Hebrew, English, Russian and selected European
languages.
THE ACCENT DUO PRODUCT LINE. The Company's ACCENT DUO line of word
processors integrates the Language Assistant Series products licensed from
Globalink Inc. ("Globalink"). The Language Assistant Series products are
full-sentence, natural language translation programs which use machine
translation technology to translate text from one language to another. Because
human language is complex, the translation results will vary depending on the
source text for each translation. The draft translations produced by the ACCENT
DUO Products with Language Assistant enable a user to handle day-to-day
communications in foreign languages quickly, inexpensively and easily. The draft
translations may also be edited using the tools provided by Accent's
Multilingual word processor. The ACCENT DUO product line consists of Language
Assistant products with translation capabilities for English-French,
English-German, English-Italian and English-Spanish.
DISTRIBUTION AND MARKETING
The Company's principal target markets segments are retail, corporate,
academic, government system developers and systems integrators. To reach these
target markets, the Company relies on a variety of distribution channels,
including retail, OEMs, ISPs and direct sales. The Company's principal markets
are in the United States, Canada and Europe. Additionally, the Company believes
that the Pacific Rim market will become increasingly important in the future,
although only limited sales have been made to date in such market.
RETAIL SALES. Accent has developed a multi-level retail distribution
structure in each of its major geographic markets, including distributors,
dealers and chain stores. The Company generally sells its products directly to
large distributors who, in turn, sell to smaller dealers or directly to
retailers. Accent currently has distribution agreements with some of the largest
distributors in the United States, Europe and Latin America including Ingram
Micro, Tech Data, Computer 2000 and Merisel, and its products are sold by major
software retailers including CompUSA, Computer City, Software Etc., Karstadt
(Germany) and Interdiscount (France).
On occasion, the Company also sells directly to certain large retailers. In
smaller niche geographic markets, the Company may also establish a direct sales
channel to dealers. The Company intends to selectively expand its retail
distribution network as the Company develops additional marketing programs for
its products over the next year.
OEMS. OEMs consist of hardware manufacturers, system integrators (I.E.,
VARs) and software publishers. Accent has made OEM sales (either directly or
through agents or distributors) to such major manufacturers as IBM, Digital
Equipment Corporation, Compaq, Lotus, Packard Bell, AT&T and Creative Labs. The
OEM segment purchases large volumes of product or product licenses at relatively
low cost to bundle with hardware and/or software prior to end user purchase. OEM
sales are typically high volume and are made at relatively high margins because
they involve little or no marketing, manufacturing, shipping or
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product return costs. The Company believes that sales of its low end products
through this channel can help increase high end upgrades by quickly increasing
market penetration and capturing the attention of people who influence users'
purchasing decisions.
INTERNET SERVICE PROVIDERS. ISPs typically sell end-user and business
customers connections to the Internet as well as access to basic Internet
services such as the Web and e-mail. ISPs usually offer Internet access software
to subscribers. Although the Company is not currently generating significant
revenues from ISPs, Accent believes that there are opportunities to increase its
revenues from ISPs through the bulk sale of the Company's Internet software,
optional software upgrades and payments for each new Internet subscriber
introduced to the ISPs by the Company.
DIRECT SALES. Accent has a sales force of 25 people dedicated to direct
sales efforts. Accent's sales force operates from its sales offices in Jerusalem
and Newport Beach, California. Accent plans to open a European sales office in
London by early 1997. The Company sells direct or through its representatives to
OEMs, ISPs and key corporate accounts.
ALTERNATIVE DISTRIBUTION CHANNELS. Accent believes electronic distribution
of its products will become increasingly important with the expected development
of Internet-based commerce. The Company is currently exploring electronic
distribution and is already distributing beta and time-limited Accent Internet
products over the Web, at no cost. In addition, the Company's products are sold
through a large number of catalogs, which the Company believes is a cost
effective method of advertising, as well as selling, its products.
MARKETING. The Company has historically utilized a variety of marketing
programs to stimulate and build long-term demand for its products, including
public relations, advertising, trade shows, direct mail, catalogs and on-going
customer communications. Consistent with the Company's revised business plan,
Accent's marketing programs will be highly focused toward selling products into
specific market segments and ultimately through to the end-user. During fiscal
1997, the Company will undertake programs that are specifically sales oriented
rather than image or brand-awareness marketing efforts. Specific programs will
be targeted toward the Company's primary revenue sources, retail and OEM, as
well as to market segments which management believes have significant potential
for use of the Company's current and proposed products, such as corporate,
academic, and government.
The Company intends to de-emphasize lower margin retail sales and increase
its proportion of higher margin licensed sales. Marketing programs that provide
a favorable return on investment will be continued and/or expanded.
Underperforming programs will be modified, replaced, or canceled at an early
date. The Company expects to reduce its expenditures on higher cost marketing
efforts (I.E., trade shows, general media and trade advertising) and concentrate
its marketing expenditures on direct marketing, direct selling, specifically
targeted trade advertising, targeted Web advertising and cooperative marketing
efforts with the Company's distributors and dealers that target the Company's
key market segments.
PRODUCT DEVELOPMENT
The Company has developed, and will seek to develop or acquire, technology
that it believes will give it a competitive advantage, such as its core
multilingual technology or intelligent agent technology. Accent's core
development team consists of 27 software engineers and 31 other employees
engaged in product development and enhancement, quality assurance, product
management and translation and documentation activities. In addition, AgentSoft
has its own engineering staff, headed by a team of experts in artificial
intelligence technology research. Certain non-core technology is licensed by the
Company from third parties, enabling the Company to utilize its development
personnel and resources more effectively and to reduce product time to market.
The Company's expenditures in product development were $751,000 in 1993,
$1,075,000 in 1994, $1,797,000 in 1995 and $2,448,000 for the nine months ended
September 30, 1996.
Accent's strategy for future products is expected to be focused on (i)
advanced intelligent agent based products utilizing AgentSoft technology; (ii)
additional Internet productivity tools as part of its WEBTAMER product line;
(iii) enhanced text processing and authoring capabilities; (iv) intelligent
document based products; and (v) enhanced language utilities such as more
advanced translation products.
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The Company's near term product development efforts are focused on the
release of new products and product enhancements including its
soon-to-be-released WEBTAMER, the first in a line of Internet user productivity
tools, enhancements to its INTERNET WITH AN ACCENT suite including the addition
of Asian language capabilities in the Pacific Rim version, ACCENT WEB PUBLISHER
PRO and its ACCENT GLOBAL DEVELOPMENT KIT, a set of standards and tools that
will enable the globalization of any Windows software application. The Company's
long term development efforts also will focus on the development of additional
Internet productivity tools as part of its soon-to-be-released WEBTAMER product
line, multilingual site management tools for the Web, enhanced text processing
and authoring capabilities and enhanced language utilities, including more
advanced translation products.
The Company believes that the development of intelligent agent technology
will position it to more fully exploit the commercial potential of the Internet
and Intranets. Intelligent agents are electronic assistants, programs that
undertake tasks that would normally be carried out manually. Agents can either
be anchored, residing on an individual user's machine or can be mobile, capable
of moving from machine to machine. Agents can also be either client or server
based. With the rapid growth of the Internet and Intranets, the Company believes
that applications for electronic agents are beginning to reach their commercial
potential. For example, the Company believes significant opportunities may exist
for the application of intelligent agents in areas such as network user
productivity enhancement, workflow and coordination, scheduling and electronic
commerce.
The Company expects that both it and AgentSoft will develop intelligent
document processing technology that the Company will use in products applying
artificial intelligence concepts to document processing and other applications.
Currently available word processing programs merely reformat the characters on a
page, whereas intelligent document processing technology enables the content of
a document to be analyzed, allowing the application to undertake tasks such as
automated indexing, abstracting, editing, rewriting and translating.
From time to time the Company has experienced delays in introducing new
products and product enhancements and there can be no assurance that the Company
will not experience difficulties that could delay or prevent the successful
development, introduction and marketing of new products or product enhancements.
In addition, there can be no assurance that such new products or product
enhancements will meet the requirements of the marketplace and achieve market
acceptance. Any such failure could have a material adverse effect on the
Company's business, operating results or financial condition. See "Risk Factors
- -- Uncertainty of Product and Technology Development."
Certain of the Company's technology was developed with the assistance of
research grants received from the Office of the Chief Scientist of the Ministry
of Industry and Trade of the Government of Israel (the "OCS") pursuant to the
Law for the Encouragement of Industrial Research and Development, 1984 (the
"Research Law"). No OCS funding has been received since 1993. See "Taxation and
Foreign Exchange Regulation--Law for the Encouragement of Capital Investments,
1959--Other Benefits."
COMPETITION
INTELLIGENT AGENT PRODUCTS
The Company has identified competing activities in agent development
environments and agent applications. Most prominent among these potential
competitors are the providers of templates and infrastructures for the
development of agents and agent applications. Existing or potential future
competitors include: General Magic's Tabriz AgentWare and Tabriz Agent
Tools--Tabriz AgentWare, AutoNomy--AutoNomy Corporation in conjunction with
Cambridge Neurodynamics, Bits & Pixels's Java Intelligent Agent Library, IBM's
AgentBuilder, and CyberAgent Technology by FTP Software, Inc.
The agent application providers are another source of competition. The
majority of these agents are information gathering. Existing or potential future
competitors include: Surflogic's SurfBots, Travsoft's
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WebEx, Net mind's URL-minder, First Floor's Smart Bookmarks (also distributed as
Netscape's SmartMarks), Agents Inc.'s Firefly--Agents Inc., Andersen
Consulting's server based agents (InfoFinder, ContactFinder, Bargainfinder, and
NewsFinder), Quarterdeck's WebCompass and Forte's FreeAgent.
INTERNET PRODUCTS
The market for the Company's products is highly competitive and competition
is increasing as additional market opportunities arise. Many of these
competitors have significantly greater resources than the Company. The Company
competes with Alis Technologies, Inc., which has also released a Spyglass-based
multilingual browser and authoring suite. The Company also competes with
Quarterdeck's Internet Suite, CompuServe's Spry Division's Internet in a Box,
Netscape's Personal Edition and other basic Internet software suites. In
addition, the Company competes with the localized versions of browsers developed
by major industry participants such as Netscape, Microsoft and NetManage Inc.
("NetManage"). Microsoft Internet Explorer 3.0 incorporates improved
multilingual display capabilities. However, unlike Accent's browser, this
product requires Windows 95 to display some languages, and in the opinion of the
Company, provides less comprehensive and flexible language display capabilities
than the Company's browser. Microsoft's Front Page web-authoring product is
expected to include certain Unicode features. In addition, Netscape has begun to
add certain additional multilingual capabilities to its products.
The Company believes that the principal competitive advantage of its
products is the ability to display the full diversity of Web content available
today without the concomitant use of a local language version of Windows, and
the broad multilingual Web authoring and e-mail capabilities.
WORD PROCESSING PRODUCTS
The Company's primary competition in the multilingual word processing market
includes Gamma Productions Inc.'s Universe program and WYSIWYG Corp.'s Universal
Word.
In the single language word processing market in Israel, the Company's
DAGESH product line competes directly with the Hebrew version of Word for
Windows and with Q-Text for Windows. Additionally, the Company's products
compete with a number of single-language Windows word processing programs that
are available in different languages. The Company competes primarily with Word
for Windows and WordPerfect for Windows in those markets where these competitors
have add-on kits to add additional languages to their products.
While Accent believes that the multilingual aspects of its products give it
significant differentiation and expects its existing technological base to give
it an advantage over competitors who intend to enter this market, there can be
no assurance that Accent's products will retain either their differentiation or
their competitive lead for any specific period of time.
SOFTWARE GLOBALIZATION TOOLS
The Company intends to enter the market for software globalization tools
with its ACCENT GLOBAL DEVELOPMENT KIT. The Company expects this market to be
highly competitive with companies such as Gamma Productions Inc., which already
has products in this market.
PRODUCT SUPPORT AND MAINTENANCE
Accent's Product Support Group provides the non-technical services needed to
successfully deliver and support the Company's products in the marketplace.
These services include translation, technical support, quality assurance,
training and documentation.
Accent believes that the availability of high-quality technical support is
critical to the successful establishment of its software products and brand
image in the marketplace. To this end, the Company has established contract
telephone technical support centers in the United Kingdom (serving all of
Europe) and in the United States. These support centers can also refer more
difficult problems to the Company's Jerusalem-based Technical Support Group,
which handles technical support for the Israeli market. Worldwide technical
support is also available over the Internet, CompuServe and via facsimile. The
Company provides installation support on all of its products, with the exception
of certain OEM arrangements in which the OEM provides such support.
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The Product Support Group also includes employees who are responsible for
quality assurance. Specifically, such employees review, test and verify software
design (both manually and through automated testing procedures), manage alpha
(internal) and beta (external) testing of the Company's products prior to their
release, review all printed documentation and manage the "change request"
database pursuant to which suggested product enhancements are implemented and
software errors are corrected.
MANUFACTURING AND FULFILLMENT
Accent's software products are manufactured (printing, media duplication and
packaging) primarily by IBM/Lotus in Ireland. The Company believes its use of
IBM/Lotus as a principal manufacturer enables it to maintain superior quality
manufactured product and establish credibility with potential distributors and
customers. IBM/Lotus's just-in-time manufacturing practices give the Company the
ability to reduce costs by maintaining low levels of inventory. The DAGESH
product line is manufactured by various manufacturers in Israel to high quality
standards set by the Company.
All international distributor and dealer orders are processed in Jerusalem.
Most of these orders are filled directly by IBM/Lotus from the manufacturing
sites in Ireland. Local fulfillment for small order quantities is provided
through contract fulfillment centers in the United Kingdom (for Europe) and
California (for North America). Orders from within Israel are filled directly
from Jerusalem.
Although the Company believes that its relationship with IBM/Lotus is
satisfactory, there can be no assurance that IBM/Lotus will continue to dedicate
sufficient production capacity to satisfy the Company's product requirement on
commercially reasonable terms or within scheduled delivery times. Any
interruption of the Company's arrangements with IBM/Lotus could cause a delay in
the production of the Company's products for delivery to customers. However, the
Company believes that if IBM/Lotus were unable or unwilling to continue to
manufacture the Company's products, other manufacturers would be readily
available.
PROPRIETARY RIGHTS
The Company regards the source code of its products and the methods used to
engineer them as proprietary trade secrets and confidential information. Like
many software companies, the Company relies on a combination of trademarks,
trade secret and copyright law and non-disclosure agreements to establish and
protect proprietary rights in its products. In addition, the Company attempts to
protect trade secrets and other proprietary information through confidentiality
agreements with its employees, outside consultants and potential business
partners. The Company requires all of its employees to sign such confidentiality
agreements as a condition of employment.
The Company's products and processes are not patented. The Company has filed
a provisional patent application for patent protection in the United States for
certain elements of its Internet browsing technology. The Company must follow
this provisional application with a regular application within one year. There
is no assurance that a patent will be granted in respect of such patent
application if filed or that it will be issued on terms which will provide broad
protection. In the future, the Company intends to consider seeking patent
protection in this and other patentable elements of its proprietary technology
where appropriate. The Company claims copyright in its computer programs.
Copyright protection in software generally extends only to the source code and
original screen displays. It does not cover the concepts, ideas, systems,
algorithms, program logic or methods embodied in the program. In addition, the
scope of protection and enforceability of copyrights in computer programs is a
newly developing area of law, and, in some countries the ability to effectively
enforce such copyrights is limited.
The Company provides its products to customers under non-exclusive,
non-transferable licenses which contain confidentiality provisions. The Company
does not require end-users of its products to sign license agreements but
instead, as is standard in the industry, the Company includes a license
agreement in its product packaging or, in the case of electronic distribution,
as a condition to down-loading or installation. It is uncertain whether license
agreements of this type are legally enforceable in all countries and
jurisdictions
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in which the products are marketed. In addition, certain protections, such as
limitations on use of a product, limitations on reverse engineering and
limitations on warranties and liability, are not afforded by copyright law and
may not be available without an enforceable license agreement.
The Company believes that its products are proprietary and can be protected
under copyright and trade secret law, as well as by the contractual agreements
described above. However, there can be no assurance that the proprietary
technology of the Company will continue to be secret or that others will not
independently develop similar technology and use such technology to compete with
the Company. The Company does not currently include in its products any
mechanism to prevent or inhibit unauthorized copying or usage. However, the
Company is considering including such protection in products targeted for
certain markets where piracy is a major issue, such as the countries of the
former Soviet Union, Central and Eastern Europe, India and some third world
countries.
All of the Company's products contain software components licensed from
third parties. These licenses are generally for a one year term with automatic
renewal options in favor of the Company, the other party, or both. There can be
no assurance that these third parties will continue to license their software
programs to the Company on commercially reasonable terms, particularly if such
companies develop programs which they perceive as competitive with those
developed and marketed by the Company. Although the Company believes that
multiple sources are available for such products, if any of the Company's
license agreements were terminated and the Company was unable to replace those
licenses with comparable licenses from alternate suppliers, such terminations
could have a material adverse effect on the Company's ability to market its
products.
"Accent" is a registered trademark of the Company in the United Kingdom,
Germany, and the Benelux countries and has been applied for in the United States
Patent and Trademark Office. "LanguageWare" is a registered trademark of the
Company in the United Kingdom and Israel and an application to register the mark
in the United States has been approved. "Dagesh" is a registered trademark of
the Company in Israel. The Company believes that it can assert commonlaw
trademark rights in the "Mailpad" mark, as well as the foregoing marks, in the
United States, and in other countries where such common law protection is
legally available, to the extent that the Company has actually used such marks
on its products. The Company has applied to register WEBTAMER as a trademark in
the United States and in certain other countries.
LEGAL PROCEEDINGS
Neither the Company nor any of its subsidiaries is a party to any material
litigation or is aware of any pending or threatened litigation that would have a
material adverse effect on the Company or any of its subsidiaries.
The Company has filed an action in the District Court in Jerusalem, Israel
against Mainframe Education Consulting GmbH, a German software distributor that
had ordered a large amount of the Company's software in 1995, but had refused to
pay for it. In the action, the Company is seeking approximately $360,000 as
compensation for Mainframe's breach of contract.
EMPLOYEES
As of November 1, 1996, the Company had approximately 120 employees, almost
all of whom are presently located in Jerusalem. Of this total, approximately 60
are employed in the engineering department and product support, approximately 27
are employed in sales and marketing, approximately 27 are employed in
manufacturing and administration and approximately 14 are employed at AgentSoft.
These figures reflect a significant portion of the Company's planned 30%
reduction in the number of employees, which will be substantially completed by
the end of this year.
Certain laws and certain provisions of the collective bargaining agreements
between the Histadrut (the Israeli Federation of Labor) and the Coordination
Bureau of Economic Organizations (including the Industrialists Association) are
applicable to the Company's employees by order of the Israeli Ministry of
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Labor. These provisions concern principally the length of the work day, minimum
daily wages for professional workers, contributions to a pension fund, insurance
for work-related accidents, procedures for dismissing employees, determination
of severance pay and other conditions of employment. The Company generally
provides its employees with benefits and working conditions beyond the required
minimums.
Cost of living adjustments of employees' wages are determined on a
nationwide basis and are legally binding. Under the current inflation rates,
these adjustments compensate employees for approximately 40% of the change in
the cost of living, with certain lag factors in implementation.
Israel employers and employees are required to pay predetermined amounts to
the National Insurance Institute, which is similar to the United States Social
Security Administration. The payments to the National Insurance Institute amount
to approximately 13% of wages, of which approximately two-thirds is contributed
by the employer with the balance contributed by the employee.
Pursuant to Israeli law, the Company is legally required to pay severance
benefits upon the retirement or death of an employee or the termination of
employment of an employee without due cause. The Company finances this
obligation by contributing funds to a fund known as "Managers' Insurance." This
fund provides a combination of savings plans, insurance and severance pay
benefits to the employee, giving the employee a lump sum payment upon retirement
and a severance payment, if legally entitled, upon termination of employment.
Pursuant to the terms of the collective bargaining agreement referred to above,
each employee is required to participate in the plan, and contributes an amount
equal to 5% of his salary and the employer contributes between 13.3% and 15.8%
of his salary.
The Company believes that it has good relations with its employees.
FACILITIES
The Company leases office space in an industrial area of Jerusalem for a
monthly rental of approximately $15,000. The Company believes that its
facilities are suitable for their intended purposes and have adequate productive
capacity for the Company's current utilization. The Company expects to continue
expanding its occupancy of its current building through 1996, while renewing its
existing lease agreements for an appropriate additional length of time, to
accommodate planned personnel and business operations increases beyond the
capacity of the current leased space.
Accent Worldwide occupies office space in Newport Beach, California,
pursuant to a three year lease agreement which expires in September 1999. Accent
Worldwide took possession of its space on October 11, 1995, and anticipates that
it will be able to obtain, on satisfactory terms, sufficient space for its
intended utilization after the end of the lease period.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company as of the date of this
Prospectus and their respective ages and positions with the Company are set
forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------- --- -----------------------------------------------------------------------
<S> <C> <C>
Robert S. Rosenschein 43 President, Chief Executive Officer and Director
Mitchell R. Joelson 45 Executive Vice President and Director
Dr. Jeffrey Rosenschein 39 Senior Vice President, Engineering, Chief Scientist and Director
Herbert Zlotogorski 44 Senior Vice President, Operations
Moshe Kranc 41 Senior Vice President, Product Development
Michael Sondhelm 34 Controller
Roger R. Cloutier, II 43 Chairman of the Board of Directors
Elliott B. Broidy 39 Director
Meldon E. Levine 53 Director
Mark A. Tebbe 35 Director
Esther Dyson 44 Director
</TABLE>
ROBERT S. ROSENSCHEIN has been President, Chief Executive Officer and a
director of the Company since its inception in 1988. Prior thereto, Mr.
Rosenschein worked as an independent consultant to clients including Ashton
Tate, the World Bank and Efrat Future Technology. He holds a B.S. degree from
the Massachusetts Institute of Technology. Robert S. Rosenschein and Dr. Jeffrey
Rosenschein are brothers.
MITCHELL R. JOELSON has been Executive Vice President and a director of the
Company since May 1994. From March 1992 through September 1992, he served in a
short-term position as Chief Operating Officer of MEI Salons, a United States
chain of hair care salons with approximately 2,000 locations, in order to
facilitate the transition from an outside management contract. Prior thereto,
following the passage of the "bailout bill" in 1989, Mr. Joelson was Senior Vice
President and Chief Information Officer of Columbia Savings and Loan, an
institution with approximately $12 billion in assets from October 1989 through
January 1991 and assisted in a strategic plan designed to reposition the
institution as a consumer bank. From 1986 to 1989, he served in various
positions at CVN Companies, Inc., a television direct marketing company,
including serving as president of the Cable Value Network Division from 1988 to
1989. At other times in his career, including from August 1992 through April
1994, Mr. Joelson worked independently as a management consultant, which
activities included, among other things, certain business evaluation projects
for Jacobs Management Co., which is headed by Irwin L. Jacobs, the President of
the general partner of the IMR Fund, L.P.
DR. JEFFREY ROSENSCHEIN has been the Senior Vice President, Engineering of
the Company since July 1995, and prior thereto, the Vice President, Engineering
since 1988. In addition, he has been Chief Scientist and a director of the
Company since its inception in 1988. Dr. Rosenschein also serves as the Chairman
of the Board of Directors of AgentSoft. In addition, he was a Lecturer in
Computer Science at the Hebrew University of Jerusalem from 1989 to 1992, and
has been a Senior Lecturer since 1992. He holds an A.B. degree from Harvard
University in Applied Mathematics and M.S. and Ph.D. degrees in Computer Science
from Stanford University. Dr. Rosenschein has been granted a leave of absence
from Hebrew University for the two-year period commencing October 1995. Dr.
Jeffrey Rosenschein and Robert S. Rosenschein are brothers.
HERBERT ZLOTOGORSKI has been Senior Vice President, Operations of the
Company since July 1995. From March 1993 to June 1995, Mr. Zlotogorski served as
Vice President, Administration and Finance. From 1991 to 1993, Mr. Zlotogorski
was an independent computer consultant providing services to The Bankers Trust
Company. In addition, Mr. Zlotogorski was a Vice President of Bankers Trust from
1987 until 1991, where he managed the development and installation of the bank's
new funds transfer systems.
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MOSHE KRANC has been Senior Vice President, Product Development since
November 1, 1996. He was a founder of Applix, Inc., a market leader in
multi-language multi-platform real-time decision software. He previously served
as the Technical Director of R&D for News Datacom Research, a division of News
Corporation, responsible for digital television systems, broadcast data systems
and interactive TV applications. He holds an M.S. in computer science from the
University of California at Berkley.
MICHAEL SONDHELM joined the Company in February 1995, and serves as
Controller. Mr. Sondhelm is a certified public accountant in both the United
States and Israel. From 1994 until joining the Company, Mr. Sondhelm was an
audit manager with Kesselman & Kesselman in Jerusalem. From 1991 to 1994, he was
employed by Luboshitz, Kasierer & Co., the Company's outside auditors, in Tel
Aviv. Prior to 1991, Mr. Sondhelm worked for seven years with Arthur Andersen &
Co. in Chicago, Illinois.
ROGER R. CLOUTIER, II has served as a director of the Company since May 1994
and as Chairman since October 1996. He currently serves as a Vice President of
Jacobs Investors, Inc. and IMR General, Inc. and is a limited partner of IMR
Management Partners, L.P., the general partner of the IMR Fund, L.P. In
addition, in February 1996, Mr. Cloutier began serving as Executive Vice
President and Chief Financial Officer of Genmar Holdings, Inc., a power boat
manufacturing company controlled by Irwin L. Jacobs. Mr. Cloutier began working
with companies affiliated with Mr. Jacobs in April 1990. Mr. Cloutier previously
served in various executive capacities at CVN Companies, Inc., a television
direct marketing company, from 1984 to 1990. He began his career with Arthur
Andersen & Co., and is a certified public accountant.
ELLIOTT B. BROIDY has served as a director of the Company since July 1993.
He has been an independent investor since May 1991. From 1982 to May 1991, Mr.
Broidy was Managing Director of Bell Enterprises, a private investment company.
Mr. Broidy also serves as a director of Urethane Technologies, Inc., a chemicals
and manufacturing company. He began his career with Arthur Andersen & Co., and
is a certified public accountant.
MELDON E. LEVINE has served as a director of the Company since May 1996. He
has been a partner at the law firm Gibson, Dunn & Crutcher since February 1993.
From 1983 to 1993, he served as a member of the United States House of
Representatives, representing Los Angeles and certain suburbs thereof. Mr.
Levine is a U.S. government appointee to the U.S.-Israel Science and Technology
Advisory Commission. Mr. Levine is a director nominee of the Arden Realty Group,
Inc.
MARK A. TEBBE has served as a director of the Company since May 1996. He has
been the President of Lante Corporation, a Chicago-based microcomputing
consulting and integration firm, since 1984. Mr. Tebbe is a member of the
Advisory Board of Comdex.
ESTHER DYSON has served as a director of the Company since June 1996. Ms.
Dyson has been President of EDventure Holdings, Inc., a diversified holding
company which publishes newsletters and sponsors conferences for the software
industry, for more than the past five years. Ms. Dyson is a member of the
advisory boards of the Software Entrepreneurs Forum, the Poynter Institute for
Media Studies, the Institute for Research on Learning and the Cyberspace Law
Institute. Ms. Dyson is a limited partner of the Mayfield Software Fund.
The Company has agreed, for a period of three (3) years from the date of
this Prospectus, if so requested by the Representative, to nominate and use its
best efforts to cause to be elected a designee of the Representative as a
director of the Company or, at the Representative's option, as a non-voting
advisor to the Company's Board of Directors. The Representative has not yet
exercised its right to designate such person.
Pursuant to the Shareholders' Agreement (as defined below), IMR has the
right to appoint one member to the Company's Board of Directors. Roger R.
Cloutier, II currently serves as IMR's designee to the Company's Board of
Directors.
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AGENTSOFT
The founders of AgentSoft, the Company's majority owned subsidiary, are:
DR. JEFFREY S. ROSENSCHEIN has served as Chairman of the Board of AgentSoft
since its inception. For a description of his professional background, see
"--Directors and Executive Officers."
DR. GILAD ZLOTKIN serves as its President. He holds B.A., M.S. and Ph.D.
degrees in Computer Science from Hebrew University. He was a Research Fellow at
the Center for Coordination Science, Sloan School, MIT during 1994 to 1995.
Prior to that time he was a Project Leader and Engineer at Robcad from 1991 to
1993 and at Daisy Systems from 1987 to 1990. He was also Chief Technical Officer
at Radview Software from 1993 to 1996.
DR. EITHAN EPHRATI serves as its Director of Research. He holds B.A., M.S.
and Ph.D. degrees in Computer Science from Hebrew University. He was a Research
Fellow at the Department of Mathematics and Computer Science, Bar Ilan
University from 1995 to 1996 and at the Department of Computer Science and
Intelligent Systems, University of Pittsburgh from 1993 to 1995.
COMPENSATION OF DIRECTORS
All Directors hold office until the next annual meeting of shareholders and
the election and qualification of their successors. Directors receive no cash
compensation for serving on the Board of Directors other than reimbursement of
reasonable expenses incurred in connection with attending meetings. The Company
has also agreed to reimburse the current non-employee directors for their
reasonable out-of-pocket expenses incurred in performing various services on
behalf of the Company.
In addition, the Company has granted, and will continue to grant, to its
non-employee directors options to purchase Ordinary Shares pursuant to the
Company's Non-Employee Share Option Plan (1995). See "-- Non-Employee Share
Option Plan (1995)."
ALTERNATE DIRECTORS
The Articles of Association of the Company provide that any director may, by
written notice to the Company, appoint another person to serve as an alternate
director, and may cancel such appointment. Any person, whether or not already a
director, may act as an alternate, and the same person may act as the alternate
for several directors. An alternate director has the number of votes equivalent
to the number of the directors who appointed him. The term of appointment of an
alternate may be for one meeting of the Board of Directors or for a specified
period or until notice is given of the cancellation of the appointment.
INDEPENDENT DIRECTORS
The Company is subject to the provisions of the Israeli Companies Ordinance
(New Version), 1983, as amended (the "Companies Ordinance"). Under a 1987
amendment to the Companies Ordinance which became effective in July 1987 (the
"Amendment"), publicly held Israeli companies are required to appoint at least
two independent directors (the "Independent Directors") who have been approved
by a statutory committee consisting of the Chairman of the Israeli Securities
Authority, the Chairman of the Tel Aviv Stock Exchange and a member of the
Israeli judiciary who acts as chairman of the committee (the "Committee"). The
Companies Ordinance details certain standards for independence of these
directors. These directors must be residents of Israel and unaffiliated with the
Company and its principals. They are entitled to obtain all information relating
to the Company's management and assets and to receive assistance, in special
cases, from outside experts at the expense of the Company. The law imposes an
obligation on these directors to report infringements of law and good business
practice as well as improper conduct to the Chairman of the Board of the Company
and in some cases to the Israel Securities Authority. Under the Companies
Ordinance, any committee of the Board of Directors must include at least one
Independent Director. An Independent Director is appointed for five consecutive
years and may not be reappointed until two years have passed since the
conclusion of his previous term.
The District Court of Tel Aviv (the "District Court") ruled on June 6, 1993
that companies registered under the laws of Israel (like the Company) whose
shares have been offered to the public outside Israel are also required to
comply with the requirements of the Amendment. However, this judgment was stayed
by the
47
<PAGE>
Israel Supreme Court in October 1993, pending appeal of the District Court's
decision. Without regard to the outcome of such legal appeal, Messrs. Levine and
Tebbe, and Ms. Dyson, three persons who are unaffiliated with the Company, have
been elected to the Board of Directors. However, if the District Court's ruling
is not upheld on appeal, such individuals would not qualify as Independent
Directors for purposes of the Amendment, and the Company would be required to
designate and apply to the Committee for approval of two individuals qualifying
as Independent Directors.
The Board of Directors of any company required to nominate Independent
Directors must also appoint an internal auditor, in accordance with the
proposals of the Audit Committee (as hereinafter defined). The role of the
internal auditor is to examine, inter alia, whether a company's acts comply with
the law, integrity and orderly business procedure.
The Companies Ordinance also codifies the duty of care and fiduciary duties
which an Office Holder (as defined below) has to the Company whether or not the
Company's shares are publicly traded. An "Office Holder" is defined in the
Companies Ordinance as a director, managing director, chief business manager,
president, executive vice president, vice president, other manager directly
subordinate to the managing director and any other person assuming the
responsibilities of any of the foregoing positions without regard to such
person's title. The Companies Ordinance defines the duty of care as requiring an
Office Holder to function at a level of skill at which a reasonable Office
Holder would function in the same position and under the same circumstances,
including the adoption of reasonable measures to obtain information on the
economic prospects of an act performed by him by virtue of his position and any
other information of importance for purposes of such acts. The Companies
Ordinance also provides that an Office Holder (i) refrain from any act which
involves a conflict of interest between the exercise of his position in the
company and the exercise of any other position or his personal interest; (ii)
refrain from any act which constitutes competition with the company's business;
(iii) refrain from exploiting any business opportunity of the company for the
achievement of an advantage for himself or for another; or (iv) disclose to the
company any information and deliver to it any document that pertains to its
affairs and which came into his possession by virtue of his position with the
company.
Under the Companies Ordinance, all arrangements as to compensation of Office
Holders who are not directors require the approval of the Company's Board of
Directors. Each person listed in the table under "Management" is an Office
Holder of the Company.
APPROVAL OF CERTAIN TRANSACTIONS UNDER THE COMPANIES ORDINANCE; AUDIT COMMITTEE
The Companies Ordinance requires that certain transactions, actions and
arrangements be approved, as provided for in a Company's Articles of
Association, by the Company's Board of Directors (the "Board") and/or by an
audit committee of the Board whose members meet certain criteria of independence
as defined in the Companies Ordinance (the "Audit Committee"). The vote required
by the Audit Committee and the Board for approval of such matters, in each case,
is a majority of the disinterested directors participating in a duly convened
meeting. In certain circumstances, shareholder approval is also required. If the
District Court decision referred to above is affirmed by the Supreme Court, the
Independent Directors will serve on the Audit Committee.
The disclosure provisions of the Companies Ordinance require that an Office
Holder promptly disclose any personal interest that he may have, and all related
material information known to him, in connection with any existing or proposed
transaction by the Company. In addition, if the transaction is an extraordinary
transaction (that is, a transaction other than in the ordinary course of
business, otherwise than on market terms, or likely to have a material impact on
the Company's profitability, assets or liabilities), 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 the foregoing, or by any corporation in which the Office Holder is, directly
or indirectly, a 10% or greater shareholder, director or general partner or in
which he has the right to appoint at least one director or the general manager.
Once the Office Holder complies with the above disclosure requirement, the
Company must approve the transaction in accordance with the provisions of its
Articles of Association. If the transaction is with a
48
<PAGE>
third party in which the Office Holder has a personal interest, the approval
must confirm that the transaction is not adverse to the Company's interest;
furthermore, if the transaction is an extraordinary transaction, then in
addition to any approval stipulated by the Articles of Association it must also
be approved by the Company's Audit Committee and then by the Board of Directors,
and under certain circumstances, the Company's shareholders.
As discussed under the heading "-- Alternate Directors," the Articles of
Association of the Company provide that a director may appoint another person to
act as his alternate. It is unclear under Israeli law whether the disclosure and
approval provisions of the Companies Ordinance described above regarding
transactions in which directors have a personal interest apply if an alternate
is appointed in place of the director with a personal interest. The Company
intends to comply with the approval provisions described above in the event of
personal interest transactions of directors who appoint alternates.
For information concerning the direct and indirect personal interests of
certain Office Holders and principal shareholders of the Company, or entities
with which they are affiliated, in certain transactions with the Company, see
"Certain Transactions."
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Companies Ordinance provides that an Israeli company cannot exempt an
officer from liability with respect to a breach of his duty of care or his
fiduciary responsibilities. However, the Articles of Association of the Company
provide that, subject to the provisions of the Companies Ordinance, the Company
may enter into a contract for the insurance of the liability, in whole or in
part, of any of its officers with respect to: (i) a breach of his duty of care
to the Company or to another person; (ii) a breach of his fiduciary duty to the
Company, provided that the officer acted in good faith and had reasonable
grounds to assume that his act would not harm the good of the Company; or (iii)
a financial liability imposed upon him in favor of another person in respect of
an act performed by him by virtue of his being an officer of the Company. In
addition, the Company may indemnify an officer against: (i) a financial
liability imposed on him in favor of another person by any judgment, including a
judgment given as a result of a settlement or an arbitrator's award that has
been confirmed by a court in respect of an act performed by him in his capacity
as an officer of the Company and (ii) reasonable litigation costs, including
attorneys' fees, expended by such officer or imposed on him by a court, in
proceedings filed against him by the Company or in its name or by any other
person, or in respect of an act performed by him or in connection with a
criminal action from which he was acquitted, in each case in his capacity as an
officer of the Company. The Articles of Association of the Company state that
for these purposes an officer of the Company includes directors and all persons
defined as Office Holders in the Companies Ordinance. The procurement of any
such insurance or provision of any such indemnification, as the case may be,
must be approved by the Audit Committee of the Company and otherwise as required
by law. The Company may not indemnify an Office Holder or enter into an
insurance contract which would provide coverage for any monetary liability
incurred as a result of the following: (i) a breach by the Office Holder of his
duty of care if such breach was done intentionally or in disregard of the
circumstances of the breach or its consequences; (ii) a breach by the Office
Holder of his fiduciary duty unless he acted in good faith and had a reasonable
basis to believe that his act or omission would not prejudice the interest of
the Company; (iii) any act or omission done with the intent to derive an illegal
personal benefit; or (iv) any fine levied against the Office Holder as a result
of a criminal offense. The Company has a directors' and officers' liability
insurance policy that insures the Company's officers and directors against
certain liabilities.
49
<PAGE>
COMMITTEES
The Company's Articles of Association provide that the Board may delegate
all of its powers to committees of the Board as it deems appropriate, subject to
the provisions of the Companies Ordinance.
The Board of Directors currently has three committees: the Audit Committee,
the Compensation and Share Option Committee, and the Executive Committee. The
functions of each committee are described below.
The Audit Committee represents the Board of Directors in discharging its
responsibilities relating to the accounting, reporting and financial control
practices of the Company. The Compensation and Share Option Committee (i)
represents the Board of Directors in discharging its responsibilities with
respect to determining the compensation of the Company's executive officers and
establishing and reviewing the Company's employee benefit plans and (ii) has
complete authority to administer and interpret the Employee Share Option Plan
(1995) and the Non-Employee Share Option Plan (1995), subject to the terms
thereof, including determining the persons to whom options will be granted, the
number of options to be granted and the terms of such options. See "-- Employee
Share Option Plan (1995)" and "--Non-Employee Share Option Plan (1995)." The
Executive Committee will be responsible for monitoring the implementation of the
Company's revised business plan and such other matters as the Board may
determine.
The current members of the Audit Committee are Messrs. Broidy, Cloutier and
Levine. The members of the Compensation and Share Option Committee are Messrs.
Broidy and Cloutier and Ms. Dyson. The members of the Executive Committee are
Messrs. Broidy, Cloutier and Tebbe.
50
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information in respect of the compensation of
the Chief Executive Officer and each of the other executive officers of the
Company who had annual compensation in 1995 in excess of $100,000.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-------------
ANNUAL COMPENSATION NUMBER OF
----------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION (1) OPTIONS COMPENSATION
- ------------------------------------ --------- ---------- ----------- ---------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert S. Rosenschein .............. 1995 $ 75,744 -- $ 16,805 90,000 --
President and Chief 1994 57,315 -- 11,600 -- --
Executive Officer 1993 42,572 -- 5,447 49,875 --
Mitchell R. Joelson (2) ............ 1995 130,322 -- 10,397 105,000 $ 40,077(3)
Executive Vice President 1994 109,115 -- -- -- 31,605(3)
1993 -- -- -- -- --
</TABLE>
- ------------------------
(1) In the case of Mr. Rosenschein, amounts reported as "Other Annual
Compensation" represent contributions made by the Company into a Continuing
Education Fund (similar to a deferred compensation account in the United
States) and a pension fund. In the case of Mr. Joelson, amounts reported as
"Other Annual Compensation" represent cash payments in lieu of such
contributions.
(2) Prior to July 26, 1995, Mr. Joelson served as Executive Vice President of
the Company pursuant to a consulting arrangement between Accent Worldwide
and Mitchell R. Joelson & Associates, Inc., a Minnesota corporation, for
which Mr. Joelson worked. Compensation amounts prior to July 26, 1995,
represent consulting fees paid by Accent Worldwide to Mitchell R. Joelson &
Associates, Inc. as compensation for the services provided by Mr. Joelson
during the relevant period.
(3) These amounts represent payments made by Accent Worldwide to Mitchell R.
Joelson while he worked as a consultant to the Company for reimbursement of
his housing and transportation expenses, and amounts paid to Mr. Joelson
after he became an employee of the Company for his housing and
transportation expenses and for other miscellaneous living expenses incurred
by him in Israel.
OPTION/SAR GRANTS IN LAST FISCAL YEAR (1)
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------------------------------------------- VALUE AT ASSUMED
PERCENT OF TOTAL ANNUAL RATES OF SHARE
NUMBER OF OPTIONS/SARS PRICE APPRECIATION FOR
SECURITIES GRANTED TO EXERCISE OPTION TERM (2)
UNDERLYING OPTION/ EMPLOYEES IN PRICE PER EXPIRATION ----------------------
NAME SAR GRANTED FISCAL YEAR SHARE DATE 5% ($) 10% ($)
- -------------------------- ------------------- ----------------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Robert S. Rosenschein..... 22,500 3.6% $ 3.03 5/25/2002 $ 95,800 $ 132,700
Robert S. Rosenschein..... 67,500 10.7% $ 4.33 7/18/2002 $ 411,600 $ 570,000
Mitchell R. Joelson....... 52,500 8.3% $ 3.03 5/25/2002 $ 223,600 $ 309,700
Mitchell R. Joelson....... 52,500 8.3% $ 4.33 7/18/2002 $ 320,100 $ 443,300
</TABLE>
- ------------------------
(1) No Stock Appreciation Rights (SARs) were granted to the named executive
officers during 1995.
(2) Potential realizable value is based on the assumed annual growth rates for
each of the grants shown over their seven-year option term. The dollar
amounts in these columns are for illustrative purposes only and, therefore,
are not intended to forecast future financial performance or possible future
appreciation, if any, in the price of the Ordinary Shares. Securityholders
are cautioned against drawing any conclusions from the appreciation data
shown, aside from the fact that optionees will realize value from their
option grants only if the price of the Ordinary Shares appreciates, which
would benefit all shareholders commensurately. The Company did not use an
alternative formula for grant valuation as it is not aware of any formula
which will determine, with reasonable accuracy, a present value on future
unknown or volatile factors.
51
<PAGE>
The following table sets forth information concerning outstanding options to
purchase Ordinary Shares held by Robert S. Rosenschein and Mitchell R. Joelson
as of December 31, 1995. The last reported sale price of the Ordinary Shares at
December 31, 1995 was $15.667. Neither Robert S. Rosenschein nor Mitchell R.
Joelson exercised any options to purchase Ordinary Shares in 1995.
FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS AT FISCAL IN-THE- MONEY OPTIONS/SARS
YEAR-END AT FISCAL YEAR-END
-------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Robert S. Rosenschein..................................... 49,875 90,000 $ 769,400 $ 1,049,400
Mitchell R. Joelson....................................... 15,000 90,000 $ 189,600 $ 1,069,000
</TABLE>
EMPLOYMENT AGREEMENTS
The Company has employment agreements with each of Messrs. Robert S.
Rosenschein, Mitchell R. Joelson, Herbert Zlotogorski and Dr. Jeffrey
Rosenschein. Each of these agreements is for a three-year term which commenced
on July 26, 1995, but is terminable earlier by the Company upon two or three
months' notice, as the case may be. The agreements provide for customary
employee benefits, including long-term disability insurance and other benefits
or, in the case of Mr. Joelson, cash payments equivalent to the Company's
contribution for such benefits. Each of these agreements contains provisions
prohibiting the employee from competing with the Company for a two-year period
following termination of employment and requiring the employee not to disclose
confidential or proprietary information of the Company for a six-year period
following termination of employment.
The agreements provide that Mr. Robert S. Rosenschein will be paid an annual
salary of $110,000; Mr. Joelson will be paid an annual salary of $105,000, an
annual living expense allowance of $30,000 (to the extent that Mr. Joelson is
living in Israel) and an annual payment of $15,750 in lieu of certain benefits;
and each of Dr. Jeffrey Rosenschein and Mr. Zlotogorski will be paid an annual
salary of $100,000. Each of these executive officers is entitled, pursuant to
his employment agreement with the Company, to a non-discretionary annual fifteen
percent (15%) increase in his base salary. In addition, each of such individuals
is eligible to receive an annual bonus payment in a discretionary amount
determined by the Compensation and Share Option Committee.
In connection with the formation of AgentSoft, the Company agreed to cause
AgentSoft to grant options with respect to ordinary shares of AgentSoft to
certain persons involved in the formation and ongoing business of AgentSoft,
including Dr. Jeffrey Rosenschein. On March 14, 1996, Dr. Jeffrey Rosenschein
was granted options to purchase up to 800 ordinary shares of AgentSoft (8% of
the currently outstanding shares on a fully diluted basis) at an exercise price
equal to NIS 30 per share. Such options will vest over a three year period which
commenced one year from the date of grant, and will be subject to Dr. Jeffrey
Rosenschein's continued service at AgentSoft. Dr. Jeffrey Rosenschein is engaged
in the day to day affairs of AgentSoft to such degree as is deemed desirable and
in the best interest of the Company and AgentSoft. It is anticipated that Dr.
Jeffrey Rosenschein's existing contract with the Company will be amended to
encompass his additional duties and responsibilities concerning AgentSoft and to
address issues of the ownership of any intellectual property developed by Dr.
Jeffrey Rosenschein that may involve work performed by him for the Company, in
part, and for AgentSoft, in part.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Each of Messrs. Broidy, Cloutier and Levine serves as a member of the
Compensation and Share Option Committee, and none has served as a member of the
compensation committee of another entity so as to create any compensation
committee interlock or has served as an officer of the Company or its
subsidiaries so as to create an insider participation. For information with
respect to certain transactions between the Company and Mr. Broidy and IMR
Investments and IMR, with which entities Mr. Cloutier is affiliated, see
"Certain Transactions."
52
<PAGE>
EMPLOYEE SHARE OPTION PLAN (1995)
In order to attract, retain and motivate employees (including officers) who
perform services for or on behalf of the Company, the Board adopted, and the
shareholders approved, the Employee Share Option Plan (1995) (the "Employee
Share Option Plan"). The Employee Share Option Plan authorizes the granting of
options ("Option Awards") to employees to purchase an aggregate of up to
1,125,000 Ordinary Shares, consisting of options intended to qualify as
"incentive stock options" within the meaning of Section 422 of the United States
Internal Revenue Code of 1986, as amended (the "Code") and options not intended
to satisfy the requirements for incentive stock options. The Employee Share
Option Plan is intended to be a Section 102 Employee Option Plan within the
meaning of the Israel Income Tax Ordinance (New Version). Employee option plans
which qualify under Section 102 enable employees, subject to certain
requirements, to defer payment of taxes until sale of the shares purchased upon
exercise of the option.
The Employee Share Option Plan is administered by the Compensation and Share
Option Committee of the Board. In order to serve as a member of the Compensation
and Share Option Committee, a director must be a "disinterested person" within
the meaning of Rule 16b-3 of the Exchange Act. The Compensation and Share Option
Committee is vested with complete authority to administer and interpret the
Employee Share Option Plan, including determining the persons to whom options
will be granted, the number of options to be granted and the terms of such
option grants. The current members of the Compensation and Share Option
Committee are Messrs. Broidy and Cloutier and Ms. Dyson.
Options granted under the Employee Share Option Plan shall be for no more
than a ten-year term; PROVIDED, HOWEVER, that options that are intended to
qualify as incentive stock options and that are granted to an employee, who on
the date of grant is a 10% shareholder in the Company or any subsidiary
corporation or parent corporation, shall be for no more than a five-year term.
Ordinary Shares issuable upon the exercise of the options granted under the
Employee Share Option Plan may, at the employee's option, be held in trust for
the benefit of the optionee for a period of at least two years after the grant
of the options in order to qualify under Section 102 of the Israel Income Tax
Ordinance (New Version). The exercise price of options granted under the
Employee Share Option Plan may not be less than 100% of the fair market value of
the Ordinary Shares on the date of the grant, as determined by the Share Option
Committee. In the case of options that are intended to be incentive stock
options granted to an employee who, at the date of such grant, is a 10%
shareholder in the Company or any subsidiary corporation or parent corporation,
the exercise price for such options may not be less than 110% of the fair market
value of the Ordinary Shares on the date of such grant. The number of shares
covered by an option granted under the Employee Share Option Plan is subject to
adjustment for stock splits, mergers, consolidations, reorganizations and
recapitalizations. Options are non-assignable except by will or by the laws of
descent and distribution. If an optionee ceases to be employed by the Company,
all of his rights in Option Awards granted to him under the Employee Share
Option Plan which are not yet exercisable on the date of the cessation of
employment shall terminate and, unless otherwise determined by the Board of
Directors of the Company, all of his rights in respect of such Option Awards
which are exercisable on the date of the cessation of employment, but are not
exercised within 90 days after such cessation of employment, shall terminate
upon the expiration of such 90 day period. In the case of optionee's resignation
or discharge, his or her employment shall be deemed to have ceased upon the
delivery to the Company of notice of resignation or the delivery to the employee
of notice of discharge. In the event the employment of an optionee is terminated
by the Company for cause, such optionee shall not be entitled to exercise the
Option Awards subsequent to the time of delivery of the notice of discharge. If
the optionee dies, becomes disabled or retires, the right to exercise the option
will be determined by the Share Option Committee in its sole discretion. The
optionee is responsible for all personal tax consequences of the grant and the
exercise thereof. For so long as the Company is not a U.S. taxpayer, the Company
believes that no tax consequences will result to the Company in connection with
the grant or exercise of options pursuant to the Employee Share Option Plan.
As of the date of this Prospectus, the Company has granted options to
purchase 566,750 Ordinary Shares under the Employee Share Option Plan and, thus,
only 558,250 options currently remain available to be granted thereunder.
53
<PAGE>
NON-EMPLOYEE SHARE OPTION PLAN (1995)
In order to attract and retain the services of non-employee members of the
Board of Directors and consultants and to provide them with increased motivation
and incentive, the Board adopted, and the shareholders approved, the
Non-Employee Share Option Plan (1995) (the "Non-Employee Share Option Plan").
The Non-Employee Share Option Plan authorizes the granting of options ("Option
Awards") to purchase up to 300,000 Ordinary Shares. The Non-Employee Share
Option Plan is administered by the Compensation and Share Option Committee of
the Board. Under the Non-Employee Share Option Plan, the Compensation and Share
Option Committee grants options to any non-employee director according to a
fixed schedule set forth in the NESOP, and may, in its sole discretion, grant
options to a consultant of the Company or an affiliated company.
Under the Non-Employee Share Option Plan, (i) each non-employee who was
serving as a director of the Company upon adoption of the Non-Employee Share
Plan automatically received an initial grant of options to purchase 22,500
Ordinary Shares, of which 11,250 vested upon grant and 11,250 will vest one year
after the date of grant; (ii) each non-employee who becomes a member of the
Board after the adoption of the Non-Employee Share Option Plan will
automatically receive an initial grant of options to purchase 22,500 Ordinary
Shares, vesting one year from the date of grant; and (iii) upon each anniversary
of an initial grant, each director who is still serving as a director of the
Company will automatically receive an annual grant of options to purchase 4,500
Ordinary Shares, vesting six months after the date of grant.
Options granted under the Non-Employee Share Option Plan are for a five-year
term. The exercise price of options granted under the Non-Employee Share Option
Plan shall be equal to 100% of the fair market value of the Ordinary Shares on
the date of the grant, as determined by the Compensation and Share Option
Committee. The number of shares covered by an option granted under the
Non-Employee Share Option Plan is subject to adjustment for stock splits,
mergers, consolidations, reorganizations and recapitalizations. Options are
non-assignable except by will or by the laws of descent and distribution. If a
director or consultant optionee should, for any reason (other than by reason of
death or disability) cease to be a director or a consultant of the Company, as
the case may be, all of his rights, if any, in respect of all Option Awards
granted to him under the Non-Employee Share Option Plan which are not yet
exercisable on the date of the cessation of the directorship or consultancy
shall terminate and, unless otherwise determined by the Board, all of his rights
in respect of such Option Awards which are exercisable on the date of the
cessation of the directorship or consultancy, but are not exercised within 90
days after such cessation of the directorship or consultancy, shall terminate
upon the expiration of such 90-day period. In the event of the resignation or
dismissal of a director or a consultant optionee, the director or consultant
shall be deemed to have ceased to be a director or consultant of the Company, as
the case may be, upon the delivery to the Company of notice of resignation or
the delivery to the director or consultant of notice of dismissal, as the case
may be, irrespective of the effective date of such resignation or dismissal. In
the event the consultancy of a non-director consultant optionee is terminated by
the Company for cause, such optionee shall not be entitled to exercise his
Option Awards subsequent to the time of delivery of the notice of discharge. If
a director optionee should cease to be a director of the Company by reason of
death or disability, all outstanding Option Awards shall be deemed fully vested,
and the successor in interest of the optionee may exercise such Option Awards in
accordance with their terms. If a non-director consultant optionee should die,
or be unable to continue to be employed by the Company by reason of becoming
incapacitated while in the employ of the Company as a result of an accident or
illness or other cause which is approved by the Committee, such optionee shall,
subject to approval of the Committee (which shall not be unreasonably withheld),
continue to enjoy rights under the Plan on such terms and conditions as the
Committee in its discretion may determine. The optionee is responsible for all
personal tax consequences of the grant and the exercise thereof. For so long as
the Company is not a U.S. taxpayer, the Company believes that no tax
consequences will result to the Company in connection with the grant or exercise
of options pursuant to the Non-Employee Share Option Plan.
As of the date of this Prospectus, the Company has granted options to
purchase 156,000 Ordinary Shares under the Non-Employee Share Option Plan and,
thus, only 144,000 options currently remain available to be granted thereunder.
54
<PAGE>
PRINCIPAL SHAREHOLDERS
Set forth below is certain information with respect to the beneficial
ownership of Ordinary Shares as of September 30, 1996 and as adjusted to reflect
the sale of the Ordinary Shares offered hereby by (i) each person who, to the
knowledge of the Company, is the beneficial owner of more than 5% of the
outstanding Ordinary Shares (the Company's only class of voting securities),
(ii) each director and named executive officer of the Company and (iii) all
executive officers and directors of the Company as a group. As of November 6,
1996, there were 9,795,902 Ordinary Shares outstanding.
<TABLE>
<CAPTION>
ORDINARY SHARES
ORDINARY SHARES BENEFICIALLY
BENEFICIALLY OWNED PRIOR OWNED AFTER
TO OFFERING(2) OFFERING
-------------------------- ---------------------
NAME OF BENEFICIAL OWNER(1) NUMBER PERCENT NUMBER PERCENT
- -------------------------------------------------------------- --------------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Group consisting of IMR Investments V.O.F..................... 2,536,765(3) 24.8% 2,888,215 (4) 23.7%
and IMR Fund, L.P.
St. Michielslaam 50
Brussels 1040, Belgium
Elliott B. Broidy............................................. 1,010,232(5) 10.1% 1,010,232 8.6%
237 Woodruff Avenue,
Los Angeles, California 90024
Robert S. Rosenschein......................................... 592,000(6) 6.0% 592,000 5.1%
Dr. Jeffrey Rosenschein....................................... 515,196(7) 5.2% 515,196 4.4%
KZ Overseas Holding Corp...................................... 78,839(8) 0.8% 78,839 0.7%
c/o Wyszogrod
522 West End Avenue
New York, New York 10024
Mitchell R. Joelson........................................... 45,001(9) 0.5% 45,001 0.4%
Roger R. Cloutier, II......................................... 27,000 10) 0.3% 27,000 0.2%
100 South Fifth Street, Suite 2500
Minneapolis, Minnesota 55402
Meldon E. Levine.............................................. 2,250 11) * 2,250 *
333 South Grand Avenue, 50th Floor
Los Angeles, California 90071-3197
Mark A. Tebbe................................................. 0 0.0% 0 0.0%
35 West Wacker Drive, Suite 3200
Chicago, Illinois 60601
Esther Dyson.................................................. 0 0.0% 0 0.0%
EDventure Holdings, Inc.
104 Fifth Avenue
New York, New York 10011
All Executive Officers and Directors as a Group 2,384,268(12) 22.9% 2,384,268 19.6%
(11 persons).................................................
</TABLE>
- ------------------------
Less*than 0.1%.
(1)
Unless otherwise indicated the address of each beneficial owner identified
is 28 Pierre Koenig Street, Jerusalem 91530, Israel.
(2)
Unless otherwise noted, the Company believes that all persons named in the
table have sole voting and investment power with respect to all Ordinary
Shares beneficially owned by them. Each beneficial owner's percentage
ownership is determined by assuming that options or warrants that are held
by such person (but not those held by any other person) and which are
exercisable within 60 days of September 30, 1996 have been exercised. Does
not give effect to the Debt Conversion.
(3)
Includes (i) warrants to purchase 276,750 Ordinary Shares and (ii) the IMR
Warrants to purchase 180,000 Ordinary Shares. Does not include the shares to
be issued in connection with the Debt Conversion.
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(4)
Assumes that IMR Investments purchases 178,200 Units in the Offering.
(5)
Includes: (i) 841,857 Ordinary Shares directly owned by Mr. Broidy; (ii)
options to purchase 27,000 Ordinary Shares; and (iii) warrants to purchase
141,375 Ordinary Shares.
(6)
Includes options to purchase 79,875 Ordinary Shares and warrants to purchase
41,875 Ordinary Shares.
(7)
Includes options to purchase 87,750 Ordinary Shares and warrants to purchase
24,375 Ordinary Shares.
(8)
Includes warrants to purchase 8,125 Ordinary Shares. KZ Overseas Holdings
Corp. is an affiliate of Mr. Zlotogorski, Senior Vice President, Operations
of the Company.
(9)
Includes options to purchase 45,001 Ordinary Shares.
(10)
Includes options to purchase 27,000 Ordinary Shares. Roger R. Cloutier, II
is a Vice President of IMR General, Inc., one of the partners of IMR
Investments and the general partner of IMR Management Partners, L.P. which,
in turn, is the general partner of IMR. Mr. Cloutier disclaims beneficial
ownership of the equity securities owned by IMR and IMR Investments.
(11)
Mr. Levine and his sister indirectly own 4,500 Ordinary Shares in the
aggregate. Mr. Levine disclaims beneficial ownership of the 2,250 Ordinary
Shares indirectly owned by his sister.
(12)
Includes options to purchase 380,376 Ordinary Shares and warrants to
purchase 215,750 Ordinary Shares.
CERTAIN TRANSACTIONS
Pursuant to the terms of the Shareholders' Agreement dated May 11, 1994, as
amended on July 20, 1995 (the "Shareholders' Agreement"), among IMR Investments,
Accent Software Partners (a then-affiliate of Mr. Broidy, a director of the
Company, which entity was subsequently liquidated), Pal-Ron Marketing, Ltd., KZ
Overseas Holdings Corp. (an affiliate of Mr. Zlotogorski, Senior Vice President,
Operations of the Company), Robert S. Rosenschein and Dr. Jeffrey Rosenschein
(the "Principal Shareholders"), the Company has granted each of the Principal
Shareholders certain demand registration rights and certain piggyback
registration rights. Pursuant to the Shareholders' Agreement, IMR Investments
may demand two registrations by the Company, Accent Software Partners may demand
one registration by the Company and any two of the remaining Principal
Shareholders may demand one registration by the Company. Accent Software
Partners has since been liquidated and, pursuant to the Shareholders Agreement
and the terms of the liquidation, its registration rights have been transferred
to Mr. Broidy. In addition, if the Company proposes to register any of its
securities under the Securities Act (other than on Form S-8 or Form S-4), then
each of the Principal Shareholders has the right, upon delivery of a written
request to the Company, to have the Company use its best efforts to include such
shareholders' securities in such registration. The Company has also agreed to
indemnify each Principal Shareholder against all claims, losses, damages and
liabilities arising out of any untrue statement of a material fact contained in
the registration statement or any omission to state therein a material fact
required to be stated therein. The Company has agreed to pay substantially all
expenses in connection with the exercise of the registration rights. Each of the
Principal Shareholders has waived its registration rights with respect to this
Offering.
In January 1995, Messrs. Robert S. Rosenschein and Elliot B. Broidy, Dr.
Jeffrey Rosenschein, KZ Overseas Holding Corp., and IMR each provided bank
deposits or letters of credit to the Company to guarantee certain loans entered
into by the Company. In compensation for providing such bank deposits and
letters of credit, the Company issued warrants to such parties to purchase an
aggregate of 498,875 Ordinary Shares at a purchase price of $1.83 per Ordinary
Share (the "Guarantor Warrants"). Specifically, Mr. Robert S. Rosenschein, Dr.
Jeffrey Rosenschein, Mr. Elliot B. Broidy, KZ Overseas Holding Corp. and IMR
were issued Guarantor Warrants to purchase 56,875 Ordinary Shares, 48,750
Ordinary Shares, 141,375 Ordinary Shares, 8,125 Ordinary Shares and 243,750
Ordinary Shares, respectively. Such warrants are exercisable until December 30,
1999. For so long as the Ordinary Shares are listed on the New York Stock
Exchange, the American Stock Exchange or quoted on Nasdaq, instead of exercising
the warrants for cash, the holder of such warrants will be able to exercise the
warrants by exchanging them for a number of Ordinary Shares
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equal to the aggregate difference between the market price of the Ordinary
Shares and the exercise price of the warrants so exercised, divided by the
market price of the Ordinary Shares. The Company repaid the indebtedness secured
by such deposits and letters of credit in full with the proceeds of the Private
Placement. All of such bank deposits and letters of credit provided as
guarantees of the Company's obligations have been released. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
On April 4, 1995, the Company borrowed $200,000 from IMR Investments and
$200,000 from Mr. Broidy. On May 22, 1995, the promissory notes held by IMR
Investments and Mr. Broidy were each converted into four of the 60 units (the
"Units") issued by the Company in connection with the Private Placement,
pursuant to which each of IMR Investments and Mr. Broidy became the beneficial
owner of $100,000 aggregate principal amount of notes (the "Private Placement
Notes"), 33,000 Ordinary Shares (the "Private Placement Shares"), and 33,000
warrants to purchase Ordinary Shares (the "Private Placement Warrants"). In
addition, Mr. Broidy purchased two Units in the Private Placement and an
additional one Unit from a private investor unaffiliated with the Company
subsequent thereto, and thereby became the beneficial owner of an additional
$75,000 aggregate principal amount of the Private Placement Notes, an additional
24,750 Private Placement Shares and an additional 24,750 Private Placement
Warrants. All of the Private Placement Notes have been paid in full. See
"Management's Discussion and Analysis of Financial Conditions and Results of
Operation -- Liquidity and Capital Resources."
From August 1996 to October 1996, the Company borrowed an aggregate of
$1,335,000 from IMR, consisting of (i) a $425,000 loan at 12% made in August
1996 and (ii) $910,000 in loans at 10% made in October 1996. IMR will provide
the Company with additional loans totalling $165,000 at 10% prior to the
consummation of the Offering. In connection therewith, IMR was issued warrants
to purchase 180,000 Ordinary Shares and the Company granted IMR certain
registration rights with respect to the Ordinary Shares issuable upon exercise
of the IMR Warrants. IMR Investments has agreed to purchase up to 9.9% of the
Units being offered hereby at an aggregate purchase price not to exceed
$1,500,000. The Company intends to repay the $1,500,000 loan out of the net
proceeds of the Offering; to the extent that the gross proceeds to the Company
from IMR Investments' purchase of the Units offered hereby are less than
$1,500,000, the difference between $1,500,000 and the gross proceeds to the
Company from IMR Investments' purchase of Units offered hereby will be converted
into Ordinary Shares at the public offering price per Unit less $0.10.
In connection with the formation of AgentSoft, the Company caused AgentSoft
to issue certain shares of AgentSoft and options with respect to AgentSoft to
certain persons involved in the formation and ongoing business of AgentSoft,
including Dr. Jeffery Rosenchein. AgentSoft currently has 7,960 ordinary shares
outstanding of which 6,700 (approximately 84%) are owned by the Company. In
addition, an aggregate of 1,340 ordinary shares are issuable upon the exercise
of outstanding options, including 800 ordinary shares issuable to Dr. Jeffrey
Rosenchein upon exercise of options with a nominal exercise price of NIS 30 per
share. All of the outstanding options and certain of the outstanding ordinary
shares are subject to vesting over a three year period, which vesting may
accelerate upon certain events. An additional 700 ordinary shares of AgentSoft
are reserved for the grant of options to other AgentSoft employees.
The Company believes that the transactions referred to above were on terms
no less favorable to the Company than terms that could have been obtained from
unrelated third parties. Any future transactions between the Company and
affiliated parties will be approved by a majority of the independent and
disinterested directors and, under certain circumstances, by the audit committee
or the shareholders, and will be on terms no less favorable than those that
could have been obtained from unrelated third parties.
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<PAGE>
DESCRIPTION OF SECURITIES
UNITS
Each Unit consists of one Ordinary Share and one Warrant. The securities
comprising the Units will not be separable or separately transferable until
, 1997, without the consent of the Representative.
ORDINARY SHARES
GENERAL
The Company is authorized to issue 30,000,000 Ordinary Shares, nominal value
NIS .01 per share. As of November 6, 1996, 9,795,902 Ordinary Shares were issued
and outstanding, and held of record by approximately 75 holders.
All of the Company's outstanding Ordinary Shares are, and the Ordinary
Shares offered hereby when issued and paid for will be, validly issued, fully
paid and non-assessable. The Ordinary Shares do not have preemptive rights. The
ownership or voting of Ordinary Shares by non-residents of Israel is not
restricted in any way by the Memorandum of Association or Articles of
Association (the "Articles") of the Company or by the laws of the State of
Israel, except with respect to subjects of countries that are at a state of war
with Israel.
TRANSFER OF SHARES
Fully paid Ordinary Shares are issued in registered form and may be freely
transferred pursuant to the Articles unless such transfer is restricted or
prohibited by another instrument.
MODIFICATION OF CLASS RIGHTS
The rights of any class of the Company's share capital, such as voting
rights and rights to dividends, may be varied with the consent in writing of the
holders of all of the voting rights of the issued shares of that class or upon
the adoption of a special resolution passed at a separate general meeting of the
holders of the shares of such class. Shares that confer preferential or
subordinate rights relating to, among other things, dividends, voting and
payment of capital, can be created only by a special resolution of the
shareholders of the Company. The rights attached to a class of shares may be
altered by a special resolution of the shareholders of the Company, provided
that the holders of 75% of the voting rights of the issued shares of that class
approve such change by agreement in writing, subject to the terms of such class
and special requirements of Israeli law.
ELECTION OF DIRECTORS
The Ordinary Shares do not have cumulative voting rights in the election of
directors. As a result, the holders of Ordinary Shares representing more than
50% of the voting power have the power to elect all the directors. See
"Principal Shareholders."
DIVIDEND AND LIQUIDATION RIGHTS
The Company may declare a dividend to be paid to the holders of Ordinary
Shares according to their rights and interests in the profits of the Company. In
the event of liquidation of the Company, after satisfaction of liabilities to
creditors, the assets of the Company shall be distributed to the holders of
Ordinary Shares in proportion to the nominal value of their respective holdings.
Such 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 with respect to any fiscal year out of profits.
Declaration of a final dividend (which cannot exceed the amounts proposed by the
Board) requires shareholder approval by adoption of an ordinary resolution.
Failure to obtain such shareholder approval does not affect previously paid
interim dividends. See "Dividends."
VOTING, SHAREHOLDERS' MEETINGS AND RESOLUTIONS
Holders of Ordinary Shares have one vote for each Ordinary Share held on all
matters submitted to a vote of shareholders. Such 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. An Ordinary
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<PAGE>
General Meeting of holders of Ordinary Shares of the Company is held at least
once every year, no later than 15 months after the last Ordinary General
Meeting, at such time and at such place as may be fixed by the Company's Board
of Directors. Such Ordinary General Meetings are called "ordinary meetings," and
all other general meetings of the Company are called "extraordinary meetings."
The Board of Directors may, at its discretion, convene an extraordinary meeting,
and it is obliged to do so upon the request in writing of the holders of at
least 10% of the outstanding Ordinary Shares of the Company. Each shareholder of
record is entitled to receive at least seven days' prior notice of an ordinary
meeting.
The quorum required for an ordinary meeting of shareholders consists of at
least two shareholders present in person or by proxy and holding or representing
between them 33% of the voting rights of the issued share capital. The quorum
required for an extraordinary meeting is two shareholders present in person or
by proxy and holding or representing between them 51% of the voting rights 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 such reconvened meeting a quorum is required consisting of any two
shareholders present in person or by proxy, regardless of the number of Ordinary
Shares represented.
An ordinary resolution (such as a resolution for the election of directors,
the declaration of dividends or the appointment of auditors) requires approval
by the holders of a majority of the voting rights represented at the meeting, in
person or by proxy, and voting thereon. A special or extraordinary resolution
(such as a resolution amending the Memorandum of Association or Articles of
Association of the Company or approving any change in capitalization, merger,
consolidation, winding-up, authorization of a class of shares with special
rights or other changes as specified in the Companies Ordinance) requires
approval of the holders of at least 75% of the voting rights represented at the
meeting, in person or by proxy, and voting thereon. An extraordinary resolution
can be considered only if shareholders receive at least 21 days' prior notice of
the meeting at which such resolution will be considered.
REDEEMABLE WARRANTS
Each Warrant offered hereby entitles the registered holder thereof (the
"Warrant Holders") to purchase one Ordinary Share at a price of $ ,
subject to adjustment in certain circumstances, for a period of five years
commencing immediately until 5:00 p.m., Eastern Time, on . The Warrants
will be separately transferable immediately upon issuance.
The Warrants are redeemable by the Company, upon the consent of the
Representative, at any time after the Warrants become separable, commencing on
, upon notice of not less than 30 days, at a price of $ per
Warrant, provided that the closing bid quotation of the Ordinary Shares on all
20 trading days ending on the third day prior to the day on which the Company
gives notice has been at least 130% (currently $ , subject to
adjustment) of the then effective exercise price of the Warrants. The Warrant
Holders shall have the right to exercise their Warrants until the close of
business on the date fixed for redemption. The warrants will be issued in
registered form under a warrant agreement by and among the Company, American
Stock Transfer & Trust Company, as warrant agent, and the Representative (the
"Warrant Agreement"). The exercise price and number of Ordinary Shares or other
securities issuable on exercise of the Warrants are subject to adjustment in
certain circumstances, including in the event of a stock dividend,
recapitalization, reorganization, merger or consolidation of the Company.
However, the Warrants are not subject to adjustment for issuances of Ordinary
Shares at prices below the exercise price of the Warrants. Reference is made to
the Warrant Agreement (which has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part) for a complete description of
the terms and conditions therein.
The Warrants may be exercised upon surrender of the Warrant certificate on
or prior to the expiration date at the offices of the warrant agent, with the
exercise form on the reverse side of the Warrant certificate completed and
executed as indicated, accompanied by full payment of the exercise price (by
certified check or bank draft payable to the Company) to the warrant agent for
the number of Warrants being exercised. The Warrant Holders do not have the
rights or privileges of holders of Ordinary Shares.
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No Warrant will be exercisable unless at the time of exercise the Company
has filed a current registration statement with the Commission covering the
Ordinary Shares issuable upon exercise of such Warrant and such Ordinary Shares
have been registered or qualified or deemed to be exempt from registration or
qualification under the securities laws of the state of residence of the holder
of such Warrant. The Company will use its best efforts to have all such Ordinary
Shares so registered or qualified on or before the exercise date and to maintain
a current prospectus relating thereto until the expiration of the Warrants,
subject to the terms of the Warrant Agreement. While it is the Company's
intention to do so, there can be no assurance that it will be able to do so.
No fractional shares will be issued upon exercise of the Warrants. However,
if a Warrant Holder exercises all Warrants then owned of record by him, the
Company will pay to such Warrant Holder, in lieu of the issuance of any
fractional share which is otherwise issuable, an amount in cash based on the
market value of the Ordinary Shares on the last trading day prior to the
exercise date.
TRANSFER AND WARRANT AGENT
The transfer agent for the Units and the Ordinary Shares, and the warrant
agent for the Warrants, is American Stock Transfer & Trust Company.
REPORTS TO SHAREHOLDERS
The Company has registered its Ordinary Shares under the provisions of
Section 12(g) of the Exchange Act and intends to file an application with the
Commission to register the Units under the same section of the Exchange Act and
to use its best efforts to have such application declared effective prior to the
date that the registration statement containing this Prospectus is declared
effective. In addition, the Company has agreed with the Representative that it
will use its best efforts to continue to maintain such registration. Such
registration requires the Company to comply with periodic reporting, proxy
solicitation and certain other requirements of the Exchange Act.
ISRAELI SECURITIES LAW REQUIREMENTS
The Company has received from the Israel Securities Authority an exemption
from the reporting obligations as specified in Chapter Six of the Israel
Securities Law 1968, which include the obligation to submit periodic and
immediate reports to the Israel Securities Authority, provided that a copy of
each report submitted in accordance with applicable United States law shall be
available for public review at the Company's principal offices in Israel.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 11,595,902 Ordinary
Shares outstanding (assuming no exercise of the Warrants). Of these shares, the
8,098,755 of Ordinary Shares outstanding after the Offering (including the
1,800,000 Ordinary Shares included in the Units offered hereby) will be freely
tradeable without restriction or further registration under the Securities Act
unless, in the case of Ordinary Shares sold in the Offering, such shares are
purchased by "affiliates" of the Company, as that term is defined in Rule 405 of
the Securities Act. All of the remaining 3,497,147 Ordinary Shares outstanding
are "restricted securities," as that term is defined in Rule 144 promulgated
under the Securities Act ("Rule 144"), and may only be sold in the United States
if registered under the Securities Act or in compliance with the exemption
provisions of Rule 144 or pursuant to another exemption under the Securities
Act. All of the 3,497,147 restricted shares are presently eligible for sale,
without registration, under Rule 144 (subject to certain volume limitations and
other conditions prescribed by such rule).
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate of the Company, who has
beneficially owned restricted securities for at least two years is entitled to
sell, within any three-month period, a number of shares that does not exceed the
greater of 1% of the then outstanding Ordinary Shares (approximately 116,000
Ordinary Shares after the Offering) or the average weekly trading volume of the
Ordinary Shares on Nasdaq during the four calendar weeks preceding such sale,
provided that certain public information about the issuer as required by Rule
144 is then available and the seller complies with certain other requirements
relating to the manner and notice of sale. A person who is not an affiliate of
the Company, has not been an affiliate within three months prior to sale, and
has beneficially owned the restricted securities for at least three years is
entitled to sell such shares under Rule 144(k) without regard to any of the
limitations described above.
The Commission has recently proposed amendments to Rule 144 and 144(k) that
would permit resales of "restricted" Ordinary Shares under Rule 144 after a
one-year, rather than two-year holding period, subject to compliance with the
other provisions of Rule 144, and would permit resales of such Ordinary Shares
by non-affiliates under Rule 144(k) after a two-year, rather than a three-year
holding period. Adoption of such amendments could result in resales of Ordinary
Shares sooner than would be the case under Rule 144 and 144(k) as currently in
effect.
All of the Company's officers and directors and certain of its shareholders
have agreed not to (i) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of, directly or
indirectly, any Ordinary Shares or any securities convertible into or
exercisable or exchangeable for Ordinary Shares or file any registration
statement under the Securities Act with respect to any of the foregoing or (ii)
enter into any swap or any other agreement or any transaction that transfers, in
whole or in part, directly or indirectly, the economic consequence of ownership
of the Ordinary Shares, whether any such swap or transaction described in clause
(i) or (ii) above is to be settled by delivery of Ordinary Shares or such other
securities, in cash or otherwise, for a period of 180 days after the date of
this Prospectus without the prior written consent of the Representative.
The Company has granted options and warrants to purchase 1,611,625 Ordinary
Shares to certain employees and directors of the Company as well as other
persons associated with the Company. See "Management -- Employee Share Option
Plan (1995)" and "-- Non-Employee Share Option Plan (1995)" and "Certain
Transactions."
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CONDITIONS IN ISRAEL
THE COMPANY'S OPERATIONS ARE DIRECTLY AFFECTED BY THE ECONOMIC AND POLITICAL
CONDITIONS IN ISRAEL. THE INFORMATION IN THIS SECTION IS INCLUDED IN ORDER TO
ADVISE PROSPECTIVE PURCHASERS OF THE ORDINARY SHARES OF CERTAIN CONDITIONS IN
ISRAEL THAT COULD AFFECT THE OPERATIONS AND FINANCIAL RESULTS OF THE COMPANY.
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. However, a peace agreement between
Israel and Egypt was signed in 1979, a peace agreement between Israel and Jordan
was signed in 1994 and, since 1993, several agreements between Israel and
Palestinian representatives have been signed. In addition, Israel and several
other Arab States have announced their intention to establish trade and other
relations and are discussing certain projects. As of the date of this
Prospectus, Israel has not entered into any peace agreement with Syria or
Lebanon. There can be no assurance as to how the "peace process" will continue
or what effect it may have upon the Company.
Despite the progress towards peace between Israel, its Arab neighbors and
the Palestinians, certain countries, companies and organizations continue to
participate in a boycott of Israeli firms. The Company does not believe that the
boycott has had a material adverse effect on the Company, but there can be no
assurance that restrictive laws, policies or practices directed towards Israel
or Israeli businesses will not have an adverse impact on the expansion of the
Company's business.
Generally, all male adult citizens and permanent residents of Israel under
the age of 51 are, unless exempt, obligated to perform up to 44 days of military
reserve duty annually. Additionally, all such residents are subject to being
called to active duty at any time under emergency circumstances. Some of the
Company's officers and employees are currently obligated to perform annual
reserve duty. While the Company has operated effectively under these
requirements since it began operations, no assessment can be made as to the full
impact of such requirements on the Company's workforce or business if conditions
should change, and no prediction can be made as to the effect on the Company of
any expansion or reduction of such obligations.
ECONOMIC CONDITIONS
In 1995, for the sixth consecutive year, the economy of Israel experienced
significant expansion. During calendar years 1990 through 1995, Israel's gross
domestic product ("GDP") increased by 5.0%, 6.2%, 6.7%, 3.4%, 6.5% and 6.8%,
respectively. The Israeli Government's monetary policy contributed to relative
price and exchange rate stability during most of these years despite fluctuating
rates of economic growth. The inflation rate for 1994 and 1995 was 14.5% and
8.1%, respectively. For the first nine months of 1996, the inflation rate was
8.2% (an annualized rate of approximately 11.0%). There can be no assurance that
the inflation rate for 1996 or thereafter will not increase or that exchange
rates between the dollar and the NIS will remain stable. Price and exchange rate
instability may have a material adverse impact on the Company.
Israel's economy has been subject to numerous destabilizing factors,
including a period of rampant inflation in the early- to mid-1980s that reached
a peak of 445%, low foreign exchange reserves, fluctuations in world commodity
prices, military conflicts and civil unrest. The Israeli government has, for
these and other reasons, intervened in all sectors of the economy by utilizing,
among other means, fiscal and monetary policies, import duties, foreign currency
restrictions and control of wages, prices and exchange rates. The Israeli
government has periodically changed its policies in all these areas.
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 signatory to the General Agreement on Tariffs
and Trade, which provides for the reciprocal lowering of trade barriers among
its members. 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 such
program either duty-free or at reduced tariffs. Israel became associated with
the European Economic Community (now known as the European Union) in a Free
Trade Agreement concluded in 1975,
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which confers certain advantages with respect to Israeli exports to most
European countries and obligates Israel to lower its tariffs with respect to
imports from those countries over a number of years. As of January 1, 1996, an
addendum to the Free Trade Agreement with the European Union was scheduled to
take effect, which, among other things, would provide further flexibility to
rules of origin (including with respect to electronic products) and allow
Israeli companies to participate in European research and development programs
and tenders.
Israel and the United States entered into a Free Trade Agreement ("FTA") in
1985. Under the FTA, most products receive immediate duty-free status. The FTA
is intended to eliminate all tariff and certain non-tariff barriers on most
trade between the two countries by 1995. In September 1992, Israel signed a free
trade agreement with the European Free Trade Association ("EFTA"), whose members
include Switzerland, Austria, Sweden, Finland, Norway, Iceland and
Liechtenstein. The agreement became effective January 1, 1993, and entitles the
exporting countries of EFTA trading with Israel to conditions similar to those
that Israel enjoys when trading with the United States. In recent years, Israel
has established commercial and trade relations with a number of other nations
(including China, Russia, India and other nations in Asia and Eastern Europe)
with which Israel had not previously had such relations.
TAXATION AND FOREIGN EXCHANGE REGULATION
The following is a summary of the current tax structure applicable to
companies in Israel, with special reference to its effect on the Company. The
following also contains a discussion of certain Israeli and United States tax
consequences to persons purchasing the Ordinary Shares and/or Warrants offered
hereby and certain Israeli Government programs benefitting the Company. To the
extent that the discussion is based on new tax legislation which has not been
subject to judicial or administrative interpretation, there can be no assurance
that the views expressed in the discussion will be accepted by the tax
authorities in question. The discussion is not intended, and should not be
construed, as legal or professional tax advice and is not exhaustive of all
possible tax considerations.
PROSPECTIVE PURCHASERS OF ORDINARY SHARES AND/OR WARRANTS SHOULD CONSULT
THEIR OWN TAX ADVISORS AS TO THE UNITED STATES, ISRAELI, OR OTHER TAX
CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF ORDINARY SHARES
AND/OR WARRANTS, INCLUDING, IN PARTICULAR, THE EFFECT OF ANY FOREIGN, STATE OR
LOCAL TAXES.
GENERAL CORPORATE TAX STRUCTURE
The Israeli statutory corporate tax rate on taxable business income is
currently 36%. Notwithstanding the foregoing, the effective tax rate payable by
a company (such as the Company) which is qualified under Israeli law as an
"Industrial Company," and which derives income from an "Approved Enterprise" may
be considerably less. See "-- Law for the Encouragement of Capital Investments,
1959."
The Company has carryforward losses for Israeli corporate income tax
purposes and deductible temporary differences in the approximate amount of $11
million as of December 31, 1995. There were no deferred tax balances as of
December 31, 1995 or September 30, 1996. As the Company is exempt from tax, the
statutory tax rate for the purposes of the reconciliation of tax expense is
zero. See Note 10 of Notes to Financial Statements.
LAW FOR THE ENCOURAGEMENT OF CAPITAL INVESTMENTS, 1959
GENERAL
The Law for the Encouragement of Capital Investments, 1959 (the "Investment
Law") provides that capital investments in certain production facilities (or
other eligible assets) may, upon application to the Israel Investment Center, be
designated as an "Approved Enterprise." Each certificate of approval for an
Approved Enterprise relates to a specific investment program in the Approved
Enterprise, delineated both by the financial scope of the investment and by the
physical characteristics of the facility or other asset. During 1992, 1993, 1994
and 1995 a majority of the Company's revenues was attributable to Approved
Enterprises.
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The Company has been approved to receive guaranteed loans of approximately
$4.1 million under the Approved Enterprise Program which is administered by the
Israel Investment Center, of which $3.9 million had been received by the Company
through September 30, 1996 and all of the remainder has been received to date.
In July 1996, the Government of Israel announced a series of proposed budget
cuts affecting many government-funded programs. In connection with this
announcement, the Government of Israel has stated that it intends to reduce the
benefits available to companies under the Investment Law. The proposed budget
cuts are subject to approval by the Knesset, which has not yet been obtained.
The right to receive investment participations, which was scheduled to expire on
December 31, 1994, has been extended for three years, although it is expected
that the Government of Israel will fund any newly approved projects at a
significantly reduced rate.
TAX BENEFITS
Unless a company elects to participate in an Alternative Benefits Program
(as defined below), it is eligible for certain grants extended to any Approved
Enterprise and entitled to have the income derived from its Approved Enterprise
taxed at lower rates than would otherwise be applicable. The period of reduced
taxation commences in the first year in which the Approved Enterprise generates
taxable income and continues for a maximum of seven consecutive years, but not
later than the twelfth year from commencement of production or the fourteenth
year from the date of approval of such enterprise, whichever is earlier. The
Company has elected the Alternative Benefits Program.
Companies, such as the Company, which qualify as a "Foreign Investors'
Company" are entitled to further reductions in the tax rate normally applicable
to Approved Enterprises. Subject to certain conditions, a Foreign Investors'
Company is a company which has more than 25% of its share capital (in terms of
rights to profits, voting and the appointment of directors) and of its combined
share and loan capital owned by persons who are not residents of Israel. The
amount of benefits enjoyed by a Foreign Investors' Company depends on the
percentage of share capital owned by non-residents, which percentage is
determined for any tax year by the lowest percentage of any of the above rights
held by non-residents during that year. A Foreign Investors' Company pays tax at
reduced rates ranging from 25% to 10% for a ten-year period (rather than the
otherwise applicable seven-year period discussed above). With respect to each
Approved Enterprise, such rate is in effect for the ten-year period, commencing
with the year in which each such Approved Enterprise first generates taxable
income, subject to the aforementioned limitation.
A company owning an Approved Enterprise which was approved after April 1,
1986 may elect to forego any entitlement to such grants and to the tax benefits
otherwise available under the Investment Law and, in lieu of the foregoing,
participate in an alternative benefits program (the "Alternative Benefits
Program"), under which undistributed income from the Approved Enterprise
receives full exemption from corporate tax on business income for a defined
period of time. The period of tax exemption ranges between 2 and 10 years,
depending upon the location within Israel of the Approved Enterprise and the
type of Approved Enterprise. On expiration of the exemption period, the Approved
Enterprise would be eligible for beneficial tax rates under the Investment Law
for the remainder of the otherwise applicable benefits period.
Dividends paid out of income derived from an Approved Enterprise are
generally subject to withholding tax at the rate of 15% (compared to the
standard rate of 25%), and the same rate will also be applicable to
distributions made by a company out of dividends which it had received out of
income derived by an Approved Enterprise (compared to the standard exemption for
intercorporate dividends). The rate of 15% is limited to those dividends and
distributions actually paid to the recipient during the seven-year benefits
period and, generally, at any time up to 12 years thereafter or, in the case of
a Foreign Investor's Company, without limitation thereafter. A company which has
elected to participate in the Alternative Benefits Program and pays a dividend
at any time from income derived by an Approved Enterprise during the tax
exemption period under the Alternative Benefits Program would be liable for
Company Tax in respect of the gross amount distributed (I.E., the amount of the
dividend grossed-up to include corporate and income tax payable or withheld with
respect to the dividend) at the rate that would have been applicable had the
Alternative Benefits Program not been elected. See "-- Taxation Matters Under
Israeli Law Affecting Non-Israeli Shareholders; Estate Taxes."
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The tax benefits derived from a certificate of approval for an Approved
Enterprise relate only to taxable income attributable to the Approved Enterprise
and are conditioned upon fulfillment of the conditions stipulated by the
Investment Law, the regulations promulgated thereunder and the criteria set
forth in the certificate of approval. In the event of a failure by the Company
to comply with these conditions, the tax benefits could be cancelled, in whole
or in part, and the Company would be required to refund the amount of the
cancelled benefits, with the addition of Israeli CPI linkage differences and
interest. The Company believes that its Approved Enterprises operate in
substantial compliance with all such conditions and criteria.
In the event that only a part of a company's taxable income derives from an
Approved Enterprise or if the company operates under more than one approval, its
effective corporate tax rate is the result of a weighted average of the various
applicable rates. A company owning "mixed enterprises" (I.E., a company whose
income derives from both an Approved Enterprise and another source) may not
distribute a dividend attributable to the Approved Enterprise alone. Subject to
certain provisions concerning income subject to the Alternative Benefits
Program, all dividends are considered to be attributable to the entire
enterprise, and the effective tax rate is the result of a weighted combination
of the various applicable tax rates.
OTHER BENEFITS
An Approved Enterprise is also entitled to two other incentives from the
Government of Israel, whether or not the Alternative Benefits Program is
elected. One such incentive is State-guaranteed loans from banks and other
financial institutions in an amount, in the case of the Company, equal to
two-thirds of the approved project expenditures, provided that the remaining
one-third is invested in equity in the form provided for in the Investment Law.
The other incentive is accelerated depreciation on property and equipment,
generally ranging from 200% (in respect of equipment) to 400% (in respect of
buildings) of the ordinary depreciation during the first five-year period of
operation of these assets, provided that the depreciation on buildings shall not
exceed 20% per annum.
Certain of the Company's technology was developed with the assistance of
research grants received from the Office of the Chief Scientist of the Ministry
of Industry and Trade of the Government of Israel (the "OCS") pursuant to the
Law for the Encouragement of Industrial Research and Development, 1984 (the
"Research Law"). No OCS funding has been received since 1993. Under the terms of
OCS assistance, in general, a royalty of 3% of the net sales of the products
developed from a project funded by OCS must be paid, beginning with the
commencement of sales of products developed with grant funds and ending when
150% of the grant is repaid. The Company completed the accrual for its royalty
obligations to OCS in the second half of 1995. Nevertheless, as long as the
Company markets products utilizing technology developed with the help of OCS
grants, it remains subject to the Research Law, which requires that the
manufacture of any product developed as a result of research and development
funded by OCS take place in Israel. In the case of software, OCS allows the
manufacture of the software outside of Israel as long as control over the
technology remains in Israel. It also provides that know-how from the research
and development which is used to produce the product may not be transferred to
third parties without the approval of the Research Committee of OCS. Such
approval is not required for the export of any products resulting from such
research and development.
LAW FOR THE ENCOURAGEMENT OF INDUSTRY (TAXES), 1969
The Company currently qualifies as an "Industrial Company" within the
definition of the Law for the Encouragement of Industry (Taxes), 1969 (the
"Industry Encouragement Law") and is, therefore, entitled to certain benefits
which are described below.
Under the Industry Encouragement Law, a company qualifies as an "Industrial
Company" if it is resident in Israel and at least 90% of its income in any tax
year, determined in NIS (exclusive of income from government compulsory defense
loans, capital gains, interest, and dividends), is derived from Industrial
Enterprises owned by that company. An "Industrial Enterprise" is defined as an
enterprise whose major activity in a particular tax year is industrial
production activity.
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Pursuant to the Industry Encouragement Law, an Industrial Company is
entitled, under certain conditions, to a deduction of 12.5% of the purchase
price of patents or certain other intangible property rights for each of the
first eight years from the tax year in which it commenced use of such intangible
property rights and a deduction of 33 1/3% per annum (for the first three years
after such expenses are incurred) of expenses incurred in connection with the
issuance of publicly-traded shares. To the extent that the income from a
company's Approved Enterprises is exempt from taxation (see "-- Law for the
Encouragement of Capital Investments, 1959"), the deduction that such company
would have otherwise received under the Industry Encouragement Law will be
reduced accordingly.
Eligibility for the benefits under the Industry Encouragement Law is not
conditioned upon the receipt of prior approval from any Israeli Government
authority. No assurance can be given that the Company will continue to qualify
as an Industrial Company or will in the future be able to avail itself of any
benefits under the Industry Encouragement Law.
TAXATION UNDER INFLATIONARY CONDITIONS
The Income Tax Law (Adjustment for Inflation), 1985 (the "Adjustment for
Inflation Law") represents an attempt to overcome some of the problems presented
to a traditional tax system by an economy undergoing rapid inflation. Generally,
the Adjustment for Inflation Law provides significant tax deductions and
adjustments to depreciation methods and tax loss carryforwards to compensate for
loss of value resulting from a hyperinflationary economy. The Company is
assessed tax under the Adjustment for Inflation Law.
The Income Tax Ordinance and the Adjustment for Inflation Law allow
"Foreign-Invested Companies" which maintain their accounts in dollars in
compliance with regulations published by the Israeli Minister of Finance to base
their tax returns on the operating results as reflected in the dollar financial
statements (in lieu of the principles set forth by the Adjustment for Inflation
Law) or to adjust their tax returns based on exchange rate changes rather than
changes in the Israeli CPI. For these purposes, a Foreign-Invested Company is a
company more than 25% of whose share capital (in terms of rights to profits,
voting and the appointment of directors) and of whose combined share and loan
capital is owned by persons who are not residents of Israel. The Company has
elected to base its tax returns on the operating results as reflected in its
dollar financial statements.
CAPITAL GAINS TAXATION OF THE COMPANY AND ITS SHAREHOLDERS
Israeli law imposes a capital gains tax on the sale of capital assets,
including securities held by the Company and Ordinary Shares and Warrants of the
Company sold by holders thereof. The law distinguishes between "Real Gain" and
"Inflationary Surplus." Real Gain is the excess of the total capital gain over
Inflationary Surplus, computed on the basis of the increase in the Israeli CPI
between the date of purchase and the date of sale. Inflationary Surplus
accumulated until December 31, 1993 is taxed at a rate of 10% for residents of
Israel in respect of securities (in respect of securities reduced to no tax for
non-residents if calculated according to the exchange rate of the dollar instead
of the Israeli CPI), while Real Gain is added to ordinary income, which is taxed
at the applicable ordinary rates for individuals (30% to 50%) and for
corporations (36% in 1996 and thereafter), while Inflationary Surplus
accumulated from and after December 31, 1993 is exempt from any capital gains
tax. Under current law, the Ordinary Shares of the Company offered by this
prospectus are upon sale exempt from Israeli capital gains tax so long as they
are listed on Nasdaq or on a stock exchange recognized by the Israeli Ministry
of Finance and the Company qualifies as an "Industrial Company." See "-- Law for
the Encouragement of Industry (Taxes), 1969." There can be no assurance that the
Company will maintain such listing or qualification. Moreover, the Warrants are
not intended to be listed.
Pursuant to the Convention Between the Government of the United States of
America and the Government of Israel with Respect to Taxes on Income (the
"U.S.-Israel Tax Treaty"), the sale, exchange or disposition of Ordinary Shares
by a person who qualifies as a resident of the United States within the meaning,
and who is entitled to claim the benefits afforded to such resident under, the
U.S.-Israel Tax Treaty ("Treaty U.S. Resident") will not be subject to the
Israeli capital gains tax unless such Treaty U.S. Resident holds, directly or
indirectly, shares representing 10% or more of the voting power of the Company
during any part of the 12-month period preceding such sale, exchange or
disposition (assuming that Israeli law
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would otherwise tax such gain). If such gain is taxed by Israel, the gain will
be a foreign source under the U.S.-Israel Tax Treaty and such U.S. Holder can
elect to credit such Israeli tax against the U.S. federal income tax imposed on
the gain, subject to the limitations imposed by U.S. law. See "--Disposition of
Ordinary Shares."
OTHER TAXATION MATTERS UNDER ISRAELI LAW AFFECTING NON-ISRAELI SHAREHOLDERS;
ESTATE TAXES
Non-residents of Israel who are not residents of the United States should
consult their own tax advisors with respect to the tax consequences of owning
equity securities of the Company.
Individuals who are non-residents of Israel are subject to a graduated
income tax on income derived from sources in Israel. Israeli source income is
defined under Israeli law as income derived or accrued in Israel and income
derived or accrued outside of Israel, if such income is received in Israel. A
corporate entity is deemed an "Israeli resident" under Israeli law if it is
controlled and managed from Israel or if it is registered in Israel and its
business activities are primarily in Israel. On the distribution of dividends
other than bonus shares to foreign residents, income tax at the rate of 25% (15%
in the case of dividends distributed from the taxable income attributable to an
Approved Enterprise) is withheld at the source unless a different rate is
provided for in a treaty between Israel and the shareholder's country of
residence. The U.S.-Israel Tax Treaty provides for a maximum tax of 25% on
dividends paid to a Treaty U.S. Resident.
A non-resident of Israel who has interest, dividend or royalty income
derived from, accrued or received in Israel from which tax was withheld at the
source is generally exempt from the duty to file tax returns in Israel in
respect of such income, provided that such income was not derived from a
business conducted in Israel.
Residents of the United States generally will have withholding tax in Israel
deducted at the source. Such persons may be entitled to a credit or deduction
for United States federal income tax purposes for the amount of such taxes
withheld. See "-- United States Federal Income Tax Considerations."
Israel currently has no estate tax.
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 an initial holder of Units that is (i) a citizen or resident of the United
States, (ii) a corporation created or organized in the United States or under
the laws of the United States or of any state or (iii) an estate or trust, the
income of which is includible in gross income for United States federal income
tax purposes regardless of its source (a "U.S. Holder"). This summary is for
general information purposes only and does not purport to be a comprehensive
description of all of the federal income tax considerations that may be relevant
to a decision to purchase Units. This summary generally considers only U.S.
Holders that will own Units as capital assets. Except to the limited extent
discussed below, it does not consider the U.S. tax consequences to a person that
is not a U.S. Holder (a "Non-U.S. Holder").
This discussion is based on current provisions of the Internal Revenue Code
of 1986, as amended (the "Code"), current and proposed Treasury regulations
promulgated thereunder, administrative and judicial decisions as of the date
hereof, 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 such
shareholder's particular circumstances (including potential application of the
alternative minimum tax), United States federal income tax consequences to
certain shareholders that are subject to special treatment (such as taxpayers
who are broker-dealers, insurance companies, tax-exempt organizations, financial
institutions, holders of securities held as part of a straddle, "hedge" or
"conversion transaction" with other investments, non-United States corporations,
non-resident aliens of the United States, holders that own at least 10% of the
voting power of the Company, and taxpayers whose functional currency is not the
dollar) or any aspect of state, local or non-United States tax laws.
Additionally, the tax treatment of persons who hold Units through a partnership
or other pass-through entity are not considered,
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nor are the possible application of United States federal gift or estate taxes.
EACH PROSPECTIVE INVESTOR IS ADVISED TO CONSULT SUCH PERSON'S OWN TAX ADVISOR
WITH RESPECT TO THE SPECIFIC UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO
SUCH PERSON OF PURCHASING, HOLDING OR DISPOSING OF THE UNITS.
TAXATION OF ORDINARY SHARES
DIVIDENDS
U.S. Holders will be required to include in gross income as ordinary
dividend income the amount of any distributions paid on Ordinary Shares
(including the amount of any Israeli taxes withheld therefrom) to the extent
that such distributions are paid out of the Company's current or accumulated
earnings and profits as determined for United States federal income tax
purposes. Distributions in excess of such 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 such basis, will be treated as gain from the sale or
exchange of such Ordinary Shares. Such dividends generally will not qualify for
the dividends received deductions available to corporations. Dividends paid in
foreign currency (including the amount of any Israeli taxes withheld therefrom)
will be includible in the income of a U.S. Holder in a U.S. dollar amount
calculated by reference to the exchange rate in effect on the day they are
received by the U.S. Holder. U.S. Holders should consult their own tax advisor
regarding the treatment of foreign currency gain or loss, if any, on any foreign
currency received which is converted into dollars subsequent to receipt.
Generally, U.S. Holders will have the option of claiming the amount of any
Israeli income taxes withheld at source as either 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 the amount of the Israeli income taxes
withheld as a deduction from their gross income, but such amount may be claimed
as a credit against the individual's United States federal income tax liability.
U.S. Holders claiming a deduction for foreign income taxes in a particular year
must deduct, and cannot claim a credit for, any foreign taxes for that year. The
amount of foreign income taxes for which shareholders may claim a credit in any
year is subject to certain complex limitations and restrictions, which must be
determined on an individual basis by each shareholder. The limitations set out
in the Code include, among others, rules under which foreign tax credits
allowable with respect to specific classes of income cannot exceed the United
States federal income taxes otherwise payable with respect to each class of
income. Dividends paid by the Company generally will be foreign source "passive
income" for U.S. foreign tax credit purposes or, in the case of a financial
services entity, "financial services income." Foreign income taxes exceeding the
credit limitation for the year of payment or accrual of such tax can be carried
back for two taxable years and forward for five taxable years, in order to
reduce United States federal income taxes, subject to the credit limitation
applicable in each of such years. Additionally, a U.S Holder may not utilize
foreign tax credits in any taxable year to reduce not more than 90% of its
liability for United States individual and corporate alternative minimum tax.
DISPOSITION OF ORDINARY SHARES
An initial holder's tax basis in the Units will be equal to the purchase
price of the Units. An initial holders tax basis in the Units will be allocated
between the Ordinary Shares and the Warrants based on their relative fair market
values. A holder's basis in Ordinary Shares acquired by exercise of a Warrant
will equal its basis in the Warrants exercised plus the exercise price paid to
acquire the Ordinary Shares.
Upon the sale, exchange or other disposition of Ordinary Shares, a U.S.
Holder generally will recognize capital gain or loss in an amount equal to the
difference between such U.S. Holder's basis in the Ordinary Shares and the
amount realized on the disposition. The gain or loss realized on the sale,
exchange or disposition of Ordinary Shares will be long-term capital gain or
loss if the U.S. Holder has a holding period of more than one year at the time
of disposition. Gain realized by a U.S. Holder on a sale, exchange or other
disposition of Ordinary Shares generally will be treated as U.S. source income
for U.S. foreign tax credit purposes. However, pursuant to the U.S.-Israel Tax
Treaty, such gain may be foreign source income in certain circumstances. See
"--Capital Gains--Taxation of the Company and its Shareholders." Under proposed
regulations which are proposed to be retroactive, any loss realized by a U.S.
Holder on the sale, exchange or other disposition of Ordinary Shares generally
would be a foreign source loss for U.S. foreign
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tax credit purposes. U.S. Holders should consult their own tax advisors
regarding the treatment of any foreign currency gain or loss on any NIS received
in respect of the sale, exchange or other disposition of Ordinary Shares.
PASSIVE FOREIGN INVESTMENT COMPANIES
The Company will be a passive foreign investment company (a "PFIC") if 75%
or more of its gross income (including the pro rata share of gross income for
any company (U.S. or foreign) in which the Company is considered to own 25% or
more of the shares by value) in a taxable year is passive income. Alternatively,
the Company will be considered to be a PFIC if at least 50% of the assets
(averaged over the year and generally determined based upon fair market value of
the Company (including the pro rata share of the assets of any (U.S. or foreign)
company of which the Company is considered to own 25% or more of the shares by
value) in a taxable year are held for the production of, or produce, passive
income. If the Company becomes a PFIC, each holder of Ordinary Shares or
Warrants who is a U.S. person would, in the absence of an election by a holder
of Ordinary Shares to treat the Company as a qualified electing fund, as
discussed below, upon certain distributions by the Company and upon disposition
of the Ordinary Shares or Warrants at a gain, be liable to pay tax at the then
prevailing income tax rates on ordinary income plus interest on the tax, as if
the distribution or gain had been recognized ratably over the taxpayer's holding
period of the Ordinary Shares or Warrants. Additionally, if the Company were to
become a PFIC, U.S. Holders who acquire Ordinary Shares or Warrants from
decedents would be denied the normally available step-up of the income tax basis
for such Ordinary Shares or Warrants to fair market value at the date of death
and, instead, would have a tax basis equal to the decedent's basis, if lower.
The Company does not believe it will be a PFIC during 1996, and intends to
manage its business so as to avoid PFIC status to the extent consistent with its
other business goals. However, there can be no assurance that the Company will
not become a PFIC.
If a U.S. Holder has made a "qualified electing fund" election for all
taxable years during which both (a) such holder held Ordinary Shares and (b) the
Company was a PFIC, then distributions and gain will not be deemed to have been
recognized ratably over the taxpayer's holding period or subject to an interest
charge, gain on the sale of Ordinary Shares will be characterized as capital
gain and the denial of basis step-up at death described above would not apply.
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,
regardless of whether the Company has made any distribution of such earnings or
gain.
The Company can give no assurance that it will have timely knowledge of its
future status as a PFIC. In this regard, the Company does not assume any
obligation to make timely disclosure with respect to such status. Moreover, the
Company does not plan to provide U.S. Holders with the necessary information to
make a qualified electing fund election. Consequently, as a practical matter,
U.S. Holders should assume that they will not be able to make a qualified
electing fund election.
TAXATION OF WARRANTS
An initial holder's tax basis in a Warrant will be determined as discussed
above in "--Disposition of Ordinary Shares." No gain or loss will be recognized
by a U.S. Holder of a Warrant on the purchase of the Company's Ordinary Shares
for cash on the exercise of the Warrant. The basis of a U.S. Holder's Ordinary
Shares acquired upon exercise of a Warrant will include such holder's basis in
the Warrant plus the amount of cash paid upon exercise of the Warrant. The
holding period of Ordinary Shares acquired upon the exercise of a Warrant,
however, will not include the holder's holding period for the Warrant, unless
the exercise of the Warrants results in the acquisition of Stock in a PFIC.
The redemption of a Warrant by the Company, or the sale of a Warrant by a
U.S. Holder, generally will be treated as a sale or exchange of a capital asset.
Accordingly, such gain or loss will be long-term capital gain or loss provided
the Warrant has been held for more than one year. The gain or loss will be equal
to the difference between the amount realized on such redemption or sale and the
U.S. Holder's tax basis in such Warrant. A U.S. Holder in whose hands a Warrant
lapses unexercised will recognize capital loss equal to such
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holder's tax basis in the Warrant, which will be long or short term capital loss
depending on whether the warrant was held for more than one year. In certain
circumstances, adjustments in the exercise price of a Warrant could result in
dividend income to a Warrantholder equal to the fair market value of the
adjustment.
INFORMATION REPORTING AND BACKUP WITHHOLDING
U.S. Holders are generally subject to information reporting requirements
with respect to dividends and the proceeds of the disposition of all or a part
of a Warrant or Ordinary Share. Under the Code, a U.S. Holder of a Warrant or
Ordinary Share may be subject, under certain circumstances, to "backup
withholding" at a 31% rate on cash payments in the United States of the proceeds
of disposition of all or part of a Warrant or Ordinary Share. Under proposed
regulations, dividends paid in the United States would also be subject to
back-up withholding. Backup withholding will apply only if a U.S. Holder (i)
fails to furnish its social security or other taxpayer identification number
("TIN"), within a reasonable time after the request therefor, (ii) furnishes an
incorrect TIN, (iii) is notified by the IRS that it has failed to properly
report payments of interest and dividends or (iv) under certain circumstances,
fails to certify, under penalty of perjury, that it has furnished a correct TIN
and has not been notified by the IRS that it is subject to backup withholding
for failure to report interest and dividend payments. U.S. Holders should
consult their tax advisors regarding their qualification for exemption from
backup withholding and the procedure for obtaining such an exemption if
applicable. The amount of any backup withholding from a payment to a U.S. Holder
will be allowed as a credit against such holder's federal income tax liability
and may entitle such holder to a refund, provided that the required information
is furnished to the Internal Revenue Service.
Under recently enacted legislation, U.S. Holders who purchase shares of
stock in a foreign corporation from the foreign corporation may be subject to a
penalty equal to 35% of the purchase price unless IRS Form 926 is filed with the
IRS on or before the date of the purchase (I.E., the date of the transfer of
cash to the foreign corporation). Treasury Department and IRS personnel have
indicated, in public statements and in informal conversations, that they are
considering issuing guidance providing for the filing of IRS Form 926 with a
taxpayer's U.S. federal income tax return, rather than on or before the date of
the transfer, as well as other relief from these rules. However, there can be no
assurance that such relief will be granted. U. S. HOLDERS SHOULD CONSULT WITH
THEIR TAX ADVISORS CONCERNING THIS LEGISLATION.
NON-U.S. HOLDERS OF WARRANTS OR ORDINARY SHARES
A Non-U.S. Holder of Warrants or Ordinary Shares will not be subject to
United States federal income or withholding tax on the payment of dividends and
the proceeds from the disposition of all or part of a Warrant or Ordinary Share
unless (i) such 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, such item is
attributable to a permanent establishment (or, in the case of an individual, a
fixed place of business) in the United States or (ii) in the case of gain
realized by an individual Non-U.S. Holder, the Non-U.S. Holder is present in the
United States for 183 days or more in the taxable year of the sale and certain
other conditions are met.
Non-U.S. Holders will not be subject to information reporting or backup
withholding with respect to the payment of dividends and the proceeds from the
disposition of all or part of a Warrant or Ordinary Share by a foreign office of
a foreign broker; PROVIDED, HOWEVER, that if the broker is a U.S. person or a
"U.S. related person", information reporting (but not backup withholding) will
apply unless the broker has documentary evidence in its records of the Non-U.S.
Holder's foreign status or the Non-U.S. Holder certifies to its foreign status
under penalties of perjury or otherwise establishes an exemption. For this
purpose, a "U.S. related person" is a broker or other intermediary that is a
controlled foreign corporation for United States federal income tax purposes or
that is a person 50% or more of the gross income from all sources of which, over
a specified three-year period, is effectively connected with the conduct of a
United States trade or business.
The payment of the items set forth above to or through the United States
office of a broker, whether domestic or foreign, generally will be subject to
information reporting and backup withholding at a rate of 31% unless the holder
provides a taxpayer identification number, certifies to its foreign status or
otherwise establishes an exemption. The amount of any backup withholding from a
payment to a Non-U.S. Holder will be allowed as a credit against such holder's
federal income tax liability and may entitle such holder to a refund, provided
that the required information is furnished to the Internal Revenue Service.
70
<PAGE>
EXCHANGE CONTROLS AFFECTING NON-ISRAELI SHAREHOLDERS
All non-residents of Israel who purchase equity securities of the Company
with certain non-Israeli currencies (including dollars) may freely repatriate in
such non-Israeli currencies all amounts received in respect of such securities
in Israeli currency, whether as a dividend, as a liquidating distribution or as
proceeds from the sale of such securities (provided in each case that any
applicable Israeli income tax is paid or withheld on such amounts) at the rate
of exchange prevailing at the time of conversion, pursuant to the general permit
issued under the Israeli Currency Law, 1978. Israeli residents are eligible to
purchase equity securities of the Company.
71
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the underwriters (the "Underwriters"), for
whom Sands Brothers & Co., Ltd. has agreed to act as representative (the
"Representative"), and each of the Underwriters severally has agreed to purchase
from the Company, the respective number of Units set forth opposite its name
below. The several Underwriters have agreed, subject to the terms and conditions
of the Underwriting Agreement, to purchase all of the Units offered hereby if
any of such securities are purchased. In the event of default by an Underwriter,
the Underwriting Agreement provides that, in certain circumstances, the
commitments of non-defaulting Underwriters may be increased or the Underwriting
Agreement may be terminated.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF UNITS
- ------------------------------------------------------------------------------------------------- ---------------
<S> <C>
Sands Brothers & Co., Ltd........................................................................
---------------
Total.................................................................................... 1,800,000
---------------
---------------
</TABLE>
The Underwriters have advised the Company that they propose to offer the
Units to the public at the public offering price set forth on the cover page of
this Prospectus and to certain dealers (who may include Underwriters) at such
price less a concession, not in excess of $ per Unit, of which not in
excess of $ per Unit may be reallowed to certain other dealers. After
commencement of the Offering, the public offering price and other selling terms
may be varied by the Underwriters.
The Company has granted to the Underwriters an option, exercisable within 45
days from the date of this Prospectus, to purchase up to 270,000 additional
Units, solely to cover over-allotments, if any, at the public offering price set
forth on the cover page of this Prospectus, less the underwriting discounts. To
the extent the Underwriters exercise this option, each of the Underwriters will
have a firm commitment, subject to certain conditions, to purchase approximately
the same percentage thereof that the number of Units to be purchased by it shown
in the foregoing table bears to the total number of Units initially offered to
the Underwriters hereby.
The Company has agreed to pay the Representative a nonaccountable expense
allowance of 2% of the gross proceeds of this offering, $70,000 of which has
been paid to date. The Company has also agreed to pay all expenses in connection
with qualifying the Units offered hereby for sale under the laws of such states
as the Representative may designate, including expenses of counsel retained for
such purpose by the Representative.
At the closing of the Offering, the Company will sell to the Representative
and/or its designees, for nominal consideration, warrants (the "Representative's
Warrants") to purchase up to 180,000 Units of the Company, each Unit consisting
of one Ordinary Share and one Warrant. The Units subject to the Representative's
Warrants will be identical to the Units sold to the public except for the
purchase price as provided below. The exercise price of the Representative's
Warrants will be 140% of the public offering price per Unit, or $ per Unit,
and the exercise price of the warrants included in the Units subject to the
Representative's Warrants will be 140% of the exercise price of the Warrants.
The Representative's Warrants may not be sold, transferred, assigned or
hypothecated for one year from the date of this Prospectus, except to the
officers or shareholders of the Representative or members of the selling group,
and are exercisable during the four-year period commencing one year from the
date of this Prospectus (the "Warrant Exercise Term"). During the Warrant
Exercise Term, the holders of the Representative's Warrants are given, at
nominal cost, the opportunity to profit from a rise in the market price of the
Ordinary Shares. To the extent that the Representative's Warrants are exercised,
dilution to the interests of the Company's shareholders will occur. Further, the
terms upon which the Company will be able to obtain additional equity capital
may be adversely
72
<PAGE>
affected since the holders of the Representative's Warrants can be expected to
exercise them at a time when the Company would, in all likelihood, be able to
obtain any needed capital on terms more favorable to the Company than those
provided in the Representative's Warrants. Any profit realized by the
Representative on the sale of the Representative's Warrants and any securities
issuable thereunder, may be deemed additional underwriting compensation. The
Representative's Warrants contain provisions providing for the adjustment of the
exercise price upon the occurrence of certain events, including
reclassifications, dividends, splits and other similar events. Subject to
certain limitations and exclusions, the Company has agreed, at the request of
the holders of a majority of the Representative's Warrants, at the Company's
expense, to register the Representative's Warrants, and the securities issuable
upon their exercise, under the Securities Act on one occasion during the Warrant
Exercise Term and to include the Representative's Warrants and all such
underlying securities in any appropriate registration statement which is filed
by the Company during the five years following the date of this Prospectus.
Upon the closing of the Offering, the Representative shall be granted the
right of first refusal with respect to future public sales of debt and equity
securities of the Company, any subsidiary or successor to the Company or any
Company securities held by holders of five percent (5%) or more of the Ordinary
Shares for a three year period following the date of this Prospectus.
If following the date of this Prospectus, the Company is a party to any
merger, acquisition, joint venture or other similar transaction introduced
directly or indirectly, by the Representative and the Representative actively
provides merger and acquisition services in connection therewith, the
Representative shall be entitled to receive a fee in consideration of the
origination of such transaction. The fee is based on a percentage of the
consideration paid in the transaction, ranging from 5% of the first $5,000,000
to 1% of any consideration in excess of $8,000,000.
The Company has agreed, in connection with the exercise of the Warrants
pursuant to solicitation (commencing one year from the date of this Prospectus),
to pay to the Representative a fee of 5% of the exercise price for each Warrant
exercised; PROVIDED, HOWEVER, that the Representative will not be entitled to
receive such compensation in Warrant exercise transactions in which (i) the
market price of the Ordinary Shares at the time of exercise is less than the
exercise price of the Warrants; (ii) the Warrants are held in any discretionary
account and prior specific written approval for such exercise has not been
received from the customer; (iii) disclosure of compensation arrangements is not
made, in addition to the disclosure provided in this Prospectus, in documents
provided to holders of the Warrants at the time of exercise; (iv) the exercise
of the Warrants is unsolicited by the Representative; or (v) the solicitation of
exercise of the Warrants was in violation of Rule 10b-6 promulgated under the
Exchange Act. The Company has agreed not to solicit Warrant exercises other than
through the Representative.
The Company has also agreed, for a period of three (3) years from the date
of this Prospectus, to nominate and use its best efforts to elect a designee of
the Representative as a member of or, at the Representative's option, as a
non-voting advisor to the Board of Directors of the Company. As of the date of
this Prospectus, the Representative has not selected such nominee to the
Company's Board of Directors.
All of the Company's officers, directors and holders of five percent (5%) or
more of the Ordinary Shares have agreed not to sell or dispose of any Ordinary
Shares owned by them, directly or indirectly, in any manner whatsoever
(including pursuant to Rule 144 under the Act) for a period of 180 days
following the date of this Prospectus, without obtaining the prior written
approval of the Representative.
The Underwriters have undertaken that (i) they will not offer the Units to
the public in Israel within the meaning of the Israeli Securities Law, 1968,
(ii) they will not offer the Units in Israel to more than 35 offerees in the
aggregate, (iii) they will deliver to the Company and the Israeli Securities
Authority the names and addresses of such offerees within seven days from
closing of the Offering and (iv) they will obtain warranties from each such
offeree that it is purchasing the Units for investment purposes only and not for
purposes of resale.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.
73
<PAGE>
IMR Investments and the Representative have agreed that IMR Investments will
purchase up to 178,200 Units offered hereby at the public offering price per
Unit, at an aggregate purchase price not to exceed $1,500,000. In no event will
the aggregate underwriting discount and nonaccountable expense allowance exceed
10% on sales of Units to IMR Investments.
The rules of the Commission generally prohibit the Underwriters from making
a market in the Ordinary Shares during the two business day period prior to
commencement of sales in this Offering (the "Cooling Off Period"). The
Commission has, however, adopted Rule 10b-6A ("Rule 10b-6A") which provides an
exemption from such prohibition for certain passive market making transactions.
Such passive market making transactions must comply with applicable price and
volume limits and must be identified as passive market making transactions. In
general, pursuant to Rule 10b-6A, a passive market maker may display its bid for
a security at a price not in excess of the highest independent bid for the
security. If all independent bids are lowered below the passive market maker's
bid, however, such bid must then be lowered when certain purchase limits are
exceeded. Further, net purchases by a passive market maker on each day are
generally limited to a specified percentage of the passive market maker's
average daily trading volume in a security during a specified prior period and
must be discontinued when such limit is reached. Pursuant to the exemption
provided by Rule 10b-6A, the Underwriters and the selling group members may
engage in passive market making in the Ordinary Shares during the Cooling Off
Period. Passive market making may stabilize the market price of the Ordinary
Shares at a level above that which might otherwise prevail, and if commenced may
be discontinued at any time.
74
<PAGE>
LEGAL MATTERS
The validity of the securities offered hereby and certain legal matters in
connection with the Offering with respect to Israeli law will be passed upon for
by the Company by Yigal Arnon & Co., Tel Aviv, Israel. Certain legal matters in
connection with the Offering with respect to United States law will be passed
upon for the Company by Weil, Gotshal & Manges LLP, New York, New York. Littman
Krooks & Roth, P.C., New York, New York and Naschitz, Brandes & Co., Tel Aviv,
Israel have acted as counsel for the Underwriters in connection with Offering.
EXPERTS
The audited consolidated financial statements included in this Prospectus
have been audited by Luboshitz, Kasierer & Co., a Member Firm of Andersen
Worldwide, SC, independent public accountants, as indicated in their reports
with respect thereto, and are included herein in reliance upon the authority of
said firm as experts in giving said reports. Reference is made to said reports
which include an explanatory fourth paragraph with respect to the Company's
ability to continue as a going concern.
Statements concerning Israeli law included under the captions "Risk Factors
- -- Service of Process and Enforcement of Judgments," "Dividends," "Management,"
"Description of Securities" and "Taxation and Foreign Exchange Regulation" have
been examined by Yigal Arnon & Co., and have been included upon the authority of
such counsel as an expert in the laws of the State of Israel. Statements
included under the caption "Taxation and Foreign Exchange Regulation -- United
States Federal Income Tax Considerations" have been examined by Weil, Gotshal &
Manges LLP, and have been included upon the authority of such firm as expert in
such matters.
75
<PAGE>
ACCENT SOFTWARE INTERNATIONAL LTD. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-------------
<S> <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS........................................................... F-2
FINANCIAL STATEMENTS
Consolidated Balance Sheets as of December 31, 1994 and 1995 and unaudited as of September 30,
1996............................................................................................ F-3
Consolidated Statements of Operations for the years ended December 31, 1993, 1994 and 1995 and
unaudited for the nine month periods ended September 30, 1995 and 1996.......................... F-4
Consolidated Statements of Shareholders' Equity (Deficit) for the years ended December 31, 1993,
1994 and 1995 and unaudited for the nine month period ended September 30, 1996.................. F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995 and
unaudited for the nine month periods ended September 30, 1995 and 1996.......................... F-6
Notes to the Consolidated Financial Statements................................................... F-7 - F-15
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Accent Software International Ltd. and Subsidiary:
We have audited the accompanying consolidated balance sheets of Accent
Software International Ltd. as of December 31, 1994 and 1995, and the related
consolidated statements of operations, shareholders' equity (deficit) and cash
flows for each of the three years in the period ended December 31, 1995. 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 Israel and in the United States, including those prescribed under
the Auditors' Regulations (Auditor's Mode of Performance), 1973. 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 provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Accent Software
International Ltd. and Subsidiary as of December 31, 1994 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995, in conformity with accounting principles
generally accepted in Israel and in the United States (as applicable to the
financial statements of the Company such principles are practically identical).
As discussed further in Note 1, subsequent to February 21, 1996, the date of
our original report, based on unaudited financial statements, the Company
incurred losses of approximately $16 million during the nine months ended
September 30, 1996. As of that date, the Company has an accumulated deficit of
approximately $28 million. The Company anticipates that it will continue to
incur losses for some time. Based on unaudited financial statements, the
Company's net cash used in operating activities for the period January 1, 1996
to September 30, 1996 amounted to approximately $11 million. These factors,
among others, as described in Note 1, create a substantial doubt about the
Company's ability to continue as a going concern and an uncertainty as to the
recoverability and classification of recorded asset amounts and the amounts and
classification of liabilities. The accompanying financial statements do not
include any adjustments relating to the recoverability and classification of
asset carrying amounts or the amount and classification of liabilities that
might result should the Company be unable to continue as a going concern.
/s/ LUBOSHITZ, KASIERER & CO.
LUBOSHITZ, KASIERER & CO.
Member Firm of Andersen Worldwide, SC
Jerusalem, Israel
February 21, 1996
(except with respect to the increase
in authorized shares and the stock
split described in Note 7, and the matter
described in Note 1, regarding the
Company's financial position, as to
which the dates are June 6, 1996 and
November 1, 1996, respectively).
F-2
<PAGE>
ACCENT SOFTWARE INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
U.S. DOLLARS AND SHARES IN THOUSANDS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30
--------------------- ------------
1994 1995 1996
--------- ---------- ------------
<S> <C> <C> <C>
(UNAUDITED)
Current assets
Cash and cash equivalents.................................................. $ 78 $ 9,633 $ 407
Trade receivables, net of allowances of $116 in 1994, $997 in 1995 and
$1,176 in 1996............................................................ 600 2,661 1,886
Other receivables.......................................................... 50 696 172
Prepaid expenses........................................................... 125 656 734
Inventories................................................................ 310 1,659 1,838
--------- ---------- ------------
Total current assets..................................................... 1,163 15,305 5,037
--------- ---------- ------------
Equipment.................................................................... 721 1,456 2,426
Less -- accumulated depreciation............................................. 175 339 602
--------- ---------- ------------
Equipment, net........................................................... 546 1,117 1,824
Other assets................................................................. -- -- --
Deferred issuance expenses................................................. -- -- 246
--------- ---------- ------------
Capitalized software development costs, net of accumulated amortization of
$113 in 1994, $379 in 1995 and $811 in 1996............................... 794 1,228 842
--------- ---------- ------------
Total assets............................................................. $ 2,503 $ 17,650 $ 7,949
--------- ---------- ------------
--------- ---------- ------------
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
<S> <C> <C> <C>
Current liabilities
Short-term bank and shareholder borrowings................................. $ 335 $ -- $ 415
Current maturities of long-term loans...................................... -- 27 1,028
Accounts payable and accrued expenses...................................... 1,837 4,949 7,950
--------- ---------- ------------
Total current liabilities................................................ 2,172 4,976 9,393
--------- ---------- ------------
Long-term bank loans......................................................... 1,345 2,331 2,839
Accrued severance pay........................................................ 50 210 314
--------- ---------- ------------
Total liabilities........................................................ 3,567 7,517 12,546
--------- ---------- ------------
Commitments and Contingencies (Notes 7 and 10)
Shareholders' equity (deficit)
Share capital
Ordinary shares of NIS 0.01 nominal value; authorized 30,000 shares;
issued and outstanding 4,576 shares as of December 31, 1994, 9,481
shares as of December 31, 1995, and 9,796 shares as of September 30,
1996.................................................................... 11 21 22
Share premium.............................................................. 3,290 22,325 23,343
Accumulated deficit........................................................ (4,365) (12,213) (27,962)
--------- ---------- ------------
Total shareholders' equity (deficit)..................................... (1,064) 10,133 (4,597)
--------- ---------- ------------
Total liabilities and shareholders' equity (deficit)..................... $ 2,503 $ 17,650 $ 7,949
--------- ---------- ------------
--------- ---------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
ACCENT SOFTWARE INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
U.S. DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA
<TABLE>
<CAPTION>
FOR THE
FOR THE YEAR ENDED DECEMBER 31 NINE MONTHS ENDED
SEPTEMBER 30
------------------------------- ---------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Net sales................................................... $ 1,220 $ 1,851 $ 5,135 $ 3,447 $ 4,731
Cost of sales............................................... 566 1,155 2,972 2,162 4,845
--------- --------- --------- --------- ----------
Gross profit (loss)......................................... 654 696 2,163 1,285 (114)
--------- --------- --------- --------- ----------
Operating expenses
Product development costs, net............................ 363 507 1,097 785 2,448
Marketing expenses........................................ 673 2,115 5,955 3,261 8,109
General and administrative expenses....................... 360 1,071 2,796 1,387 5,007
--------- --------- --------- --------- ----------
Total operating expenses.............................. 1,396 3,693 9,848 5,433 15,564
--------- --------- --------- --------- ----------
Operating loss........................................ (742) (2,997) (7,685) (4,148) (15,678)
--------- --------- --------- --------- ----------
Other income (expense):
Interest income........................................... -- 114 34 125
Interest expense.......................................... (77) (121) (284) (213) (211)
Other..................................................... 84 (16) 7 (3) 15
--------- --------- --------- --------- ----------
Net other income (expense)............................ 7 (137) (163) (182) (71)
--------- --------- --------- --------- ----------
Net loss.............................................. $ (735) $ (3,134) $ (7,848) $ (4,330) $ (15,749)
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
Net loss per share.......................................... $ (0.39) $ (0.68) $ (1.22) $ (0.78) $ (1.62)
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
Weighted average number of shares and equivalent shares
outstanding................................................ 1,893 4,619 6,421 5,564 9,698
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
ACCENT SOFTWARE INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
U.S. DOLLARS AND SHARES IN THOUSANDS
<TABLE>
<CAPTION>
NUMBER OF
ORDINARY SHARES
(0.01 NIS NOMINAL SHARE SHARE ACCUMULATED
VALUE) CAPITAL PREMIUM WARRANTS DEFICIT TOTAL
----------------- ----------- --------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Balance as of January 1, 1993..................... 30 $ -- $ -- $ -- $(496) $ (496)
Issuance of shares................................ 2,970 7 293 -- -- 300
Net loss.......................................... -- -- -- -- (735) (735)
----- ----- --------- ----------- ------------ ---------
Balance as of December 31, 1993................... 3,000 7 293 -- (1,231) (931)
Issuance of shares................................ 1,576 4 2,997 -- -- 3,001
Net loss.......................................... -- -- -- -- (3,134) (3,134)
----- ----- --------- ----------- ------------ ---------
Balance as of December 31, 1994................... 4,576 11 3,290 -- (4,365) (1,064)
Issuance of shares in private placement........... 495 1 1,099 -- -- 1,100
Issuance of shares and warrants in initial public
offering*........................................ 2,812 6 8,188 1,591 -- 9,785
Warrants exercised*............................... 1,598 3 9,748 (1,591) -- 8,160
Net loss.......................................... -- -- -- -- (7,848) (7,848)
----- ----- --------- ----------- ------------ ---------
Balance as of December 31, 1995................... 9,481 21 22,325 -- (12,213) 10,133
Warrants and options exercised (unaudited)........ 315 1 1,018 -- -- 1,019
Net loss (unaudited).............................. -- -- -- -- (15,749) (15,749)
----- ----- --------- ----------- ------------ ---------
Balance as of September 30, 1996 (unaudited)...... 9,796 $ 22 $ 23,343 -- $ (27,962) $ (4,597)
----- ----- --------- ----------- ------------ ---------
----- ----- --------- ----------- ------------ ---------
</TABLE>
- ------------------------
(*) The proceeds received from issuances of shares and exercise of warrants in
1995 are net of expenses totaling approximately $3 million.
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
ACCENT SOFTWARE INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. DOLLARS IN THOUSANDS
<TABLE>
<CAPTION>
FOR THE
FOR THE YEAR ENDED DECEMBER 31 NINE MONTHS ENDED
SEPTEMBER 30
------------------------------- ---------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Operating activities
Net loss for the year...................................... $ (735) $ (3,134) $ (7,848) $ (4,330) $ (15,749)
Adjustments to reconcile net loss to net cash used in
operating activities...................................... 434 512 (885) (952) 4,842
--------- --------- --------- --------- ----------
Net cash used in operating activities.................. (301) (2,622) (8,733) (5,282) (10,907)
--------- --------- --------- --------- ----------
Investing activities
Acquisition of equipment................................... (189) (381) (735) (335) (970)
Capitalized software development costs..................... (388) (568) (700) (446) (46)
Grants received from the Government Chief
Scientist................................................. 49 -- -- -- --
--------- --------- --------- --------- ----------
Net cash used in investing activities.................... (528) (949) (1,435) (781) (1,016)
--------- --------- --------- --------- ----------
Financing activities
Increase (decrease) in short-term bank borrowings.......... 341 (511) (335) (335) --
Increase (decrease) in short-term loan from a
shareholder............................................... 100 (100) -- -- 415
Increase in deferred issuance costs........................ -- -- -- -- (246)
Borrowings under long-term bank loans...................... 88 1,347 1,013 1,013 1,550
Repayment of long-term loans............................... -- (88) -- -- (41)
Proceeds received on issuance of shares, net of expenses... 300 3,001 9,294 11,201 --
Proceeds received on issuance and exercise of warrants and
options, net of expenses.................................. -- -- 9,751 -- 1,019
--------- --------- --------- --------- ----------
Net cash provided by financing activities................ 829 3,649 19,723 11,879 2,697
--------- --------- --------- --------- ----------
Increase (decrease) in cash and cash equivalents............. -- 78 9,555 5,816 (9,226)
Cash and cash equivalents at beginning of period............. -- -- 78 78 9,633
--------- --------- --------- --------- ----------
Cash and cash equivalents at end of period................... $ -- $ 78 $ 9,633 $ 5,894 $ 407
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
Adjustments to reconcile net loss to net cash used in
operating activities
Items not involving cash flows:
Depreciation and amortization............................ $ 34 $ 199 $ 430 $ 268 $ 695
Increase in severance pay................................ 33 16 160 148 104
Increase in allowance for doubtful accounts and sales
returns net............................................. 8 107 881 -- 179
Changes in operating assets and liabilities:
(Increase) decrease in trade receivables................. (197) (407) (2,942) (1,894) 596
(Increase) decrease in inventories....................... (59) (251) (1,349) (258) (179)
(Increase) decrease in other receivables................. (49) 51 (646) -- 524
Increase in prepaid and deferred issuance expenses....... (8) (125) (531) (249) (78)
Increase in accounts payable and accrued expenses........ 672 922 3,112 1,032 3,001
--------- --------- --------- --------- ----------
Net adjustments........................................ $ 434 $ 512 $ (885) $ (953) $ 4,842
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
Cash paid during the period in respect of interest........... $ 43 $ 86 $ 246 $ 172 $ 172
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
ACCENT SOFTWARE INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE DATA
INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED
NOTE 1 -- GENERAL
Accent Software International Ltd. and Subsidiaries (the "Company") designs
and develops multilingual Internet and word processing software products for
retail, corporate, educational, government and OEM customers and markets these
products in more than 30 countries. The Company was founded in 1988 and is
located in Jerusalem, Israel. The Company's subsidiaries consist of Accent
Worldwide, Inc. (organized in 1994 as the Company's U.S. based marketing unit)
and AgentSoft Ltd. (AgentSoft-organized in February 1996 to develop intelligent
agent based 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. A majority of the Company's sales
are made outside Israel in foreign currencies (mainly the U.S. dollar), as are a
majority of the purchases of materials. Thus, 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 remeasured into U.S. dollars in accordance with principles
identical to those set forth in Statement No. 52 of the Financial Accounting
Standards Board of the United States (FASB). Exchange gains and losses from the
aforementioned remeasurements are reflected in the statements of operations. The
representative rate of exchange prevailing on September 30, 1996 was U.S.$1 =
New Israeli Shekel ("NIS") NIS 3.220 (December 31, 1993, 1994 and 1995 -- NIS
2.986, NIS 3.018, and NIS 3.135, respectively).
The Company faces risks inherent in software design, development and
marketing. These risks include the uncertainties of future product and
technological development and market acceptance of products, both existing and
future, by software distributors, retailers and end customers. Additionally,
other risk factors such as a history of operating losses, competition from
companies with more resources, excessive customer returns, change in its
principal manufacturer or certain license agreements and/or the loss of key
personnel could impact the future results of the Company.
The Company incurred losses of $15.7 million in the nine months ended
September 30, 1996. Net cash used in operating activities for this period
amounted to $10.9 million. As of December 31, 1995 and September 30, 1996, the
Company's working capital (deficiency) was $10.3 million and $(4.4) million,
respectively. As of December 31, 1995 and September 30, 1996, the Company had
accumulated deficits of $12.2 million and $27.9 million, respectively, and
anticipates that it will continue to incur losses for some time. The Company is
not generating sufficient revenues from its operations to fund its activities.
The Company is continuing its efforts in the product development and sales and
marketing of its products. These efforts will require substantial additional
expenditures. The Company anticipates that these additional expenditures will be
funded either through new borrowings or the sale of equity. While management of
the Company believes that additional funding will be available as necessary,
there can be no assurance that additional financing will be available on terms
acceptable to the Company, if at all, when such financing is required.
USE OF ESTIMATES
The preparation of 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. Significant estimates include those related to revenue
recognition matters and capitalized software development costs. Ultimate results
could differ from those estimates.
F-7
<PAGE>
ACCENT SOFTWARE INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE DATA
INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED
NOTE 2 -- SIGNIFICANT ACCOUNTING PRINCIPLES
The financial statements have been prepared in conformity with accounting
principles generally accepted in the United States which, in the case of the
Company, also complies with the accounting principles generally accepted in
Israel. The significant accounting policies followed in the preparation of the
financial statements, applied on a consistent basis, are:
PRINCIPLES OF CONSOLIDATION
The Consolidated Financial Statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
For the purpose of the statements of cash flows, all highly liquid
investments (consisting of commercial paper) with an original maturity of three
months or less are considered cash equivalents.
ALLOWANCE FOR DOUBTFUL ACCOUNTS AND SALES RETURNS
The allowance for doubtful accounts is calculated principally for specific
accounts the collectibility of which is doubtful and, in part, includes a
general provision based on the aging of the accounts. A provision for estimated
returns is recorded at the time of sale based on past experience in determining
returns for similar types of products.
INVENTORIES
Inventories are stated at the lower of cost or market and consists primarily
of various printed documentation and packaging and assembled box products. Cost
is determined mainly by the "first-in, first-out" method.
EQUIPMENT
Equipment is stated at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the assets, ranging from
five to fifteen years.
CAPITALIZED SOFTWARE DEVELOPMENT COSTS
The Company capitalizes software development costs incurred after
technological feasibility has been established which has been defined as when
the Company has a working model of the product. Amortization is first recorded
when the products are available for general release to customers, and is
computed on a product-by-product basis as the greater of: (a) the ratio of
current gross revenues for a product to the total of current and anticipated
future gross revenues for the product; or (b) the straight-line method over the
remaining estimated economic life of the product which until 1994 was estimated
by management to be three years. The life of those products whose general
release occurred in 1995 is estimated by management to be two and a half years.
During the years ended December 31, 1993, 1994 and 1995 and the nine month
periods ended September 30, 1995 and 1996, the Company capitalized software
costs of $339, $568, $700, $445 and $46, respectively, and amortized $0, $113,
$266, $159 and $431 of such costs, respectively. Principal estimates with
respect to capitalized software development costs involve estimated useful lives
and evaluation of net realizable value.
REVENUES
License fees are earned under software license agreements to end-users and
resellers (including OEMs and distributors) and are generally recognized when a
customer purchase order has been received, the software has been shipped, the
Company has a right to invoice the customer, collection of the receivable is
determined to be probable, and there are no significant obligations remaining.
A significant portion of the Company's revenues are made to distributors
under agreements which allow certain rights of return for unsold merchandise. If
the Company has adequate history to estimate returns for
F-8
<PAGE>
ACCENT SOFTWARE INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE DATA
INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED
NOTE 2 -- SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)
a specific distributor, revenue is recorded upon shipment of the product to the
customer and a provision for the estimated returns is recorded at the time the
revenue is recorded. If the Company does not have adequate history to estimate
such returns, the Company defers recognition of such revenue until the software
is sold by the distributors.
OEM arrangements may include non-refundable payments in the form of
guaranteed sublicense fees. Guaranteed sublicense fees from OEMs are recognized
as revenue upon shipment of the master copy of all software to which the
sublicense fees relate if there are not significant post-delivery obligations
and the OEM is credit worthy. Additionally, such revenue is recognized only to
the extent that the payment obligation is not subject to price adjustment, is
non-recoverable and non-refundable and due within five months. These guaranteed
sublicense fees are applied against sublicense fees reported by the reseller in
relicensing the Company's products to end-users. The Company recognized
guaranteed sublicense fees under such agreements of $1,622 during the nine
months ended September 30, 1996. Principal estimates related to revenue
recognition involve amounts provided for product returns and doubtful accounts.
The Company also grants the right to limited telephone support to its
customers which is generally provided in the first several months after purchase
of the software by the customer. The Company accrues the cost of such telephone
support at the time the related revenue is recognized.
CONCENTRATION OF CREDIT RISK
The Company sells products primarily to distributors who in turn sell to
smaller dealers or directly to retailers. In addition the Company also has
entered into arrangements with original equipment manufacturers who sublicense
the Company's products. The Company performs ongoing credit evaluations of its
customers and maintains allowances of potential credit losses and product
returns.
LOSS PER SHARE
Loss per share is computed based on the weighted average number of ordinary
shares outstanding during each period. This excludes the antidilutive effect of
outstanding options. Retroactive recognition has been given in the calculation
of loss per share to shares and warrants granted in the twelve month period
preceding the Company's initial public offering for a consideration below the
initial public offering price for share capital, although the effect is
antidilutive.
FINANCIAL INSTRUMENTS
The carrying amounts of cash, receivables, accounts payable and bank loans
approximate fair value.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123"), issued by the FASB in October 1995
and effective for fiscal years beginning after December 15, 1995, encourages,
but does not require, a fair value based method of accounting for employee stock
options or similar equity instruments. It also allows an entity to elect to
continue to measure compensation cost under Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25"), but requires
pro forma disclosures of net income and earnings per share as if the fair value
based method of accounting had been applied. The Company intends to elect to
measure compensation cost under APB No. 25 and to comply with the pro forma
disclosure requirements of SFAS No. 123 in 1996. Accordingly, this statement
will have no impact on the Company's reported results of operations or financial
position.
F-9
<PAGE>
ACCENT SOFTWARE INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE DATA
INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED
NOTE 2 -- SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)
UNAUDITED INFORMATION
The financial statements include the unaudited balance sheet as of September
30, 1996 and the unaudited statements of operations and cash flows for the nine
month periods ended September 30, 1995 and 1996. This unaudited information has
been prepared by the Company on the same basis as the audited financial
statements and, in management's opinion, reflects all adjustments (consisting
only of normal recurring adjustments) necessary for a fair presentation of the
results of operations for the interim periods presented.
The results of operations for the nine month period ended September 30, 1996
are not necessarily indicative of results to be expected for the entire year.
NOTE 3 -- INVENTORIES
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30
-------------------- -------------
1994 1995 1996
--------- --------- -------------
<S> <C> <C> <C>
Materials.................................................... $ 103 $ 372 $ 448
Finished goods............................................... 207 1,287 1,390
--------- --------- ------
$ 310 $ 1,659 $ 1,838
--------- --------- ------
--------- --------- ------
</TABLE>
NOTE 4 -- ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30
-------------------- -------------
1994 1995 1996
--------- --------- -------------
<S> <C> <C> <C>
Suppliers................................................... $ 981 $ 2,881 $ 5,736
Employees and related expenses.............................. 298 670 1,195
Accrued expenses and other payables......................... 558 1,398 1,019
--------- --------- ------
$ 1,837 $ 4,949 $ 7,950
--------- --------- ------
--------- --------- ------
</TABLE>
NOTE 5 -- LONG-TERM BANK LOANS
TERMS AND RATES OF INTEREST
The loans are linked to the U.S. dollar and bear interest at variable rates
based on rates of 1.625% and 1.375% above the LIBOR rate.
The loans were received in connection with the Company's approved investment
program and are guaranteed by the State of Israel. As of September 30, 1996 the
Company is in compliance with the terms of the investment program.
F-10
<PAGE>
ACCENT SOFTWARE INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE DATA
INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED
NOTE 5 -- LONG-TERM BANK LOANS (CONTINUED)
MATURITIES
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------- -------------
<S> <C> <C>
First year -- current maturities................................ $ 27 $ 1,028
Second year..................................................... 915 1,726
Third year...................................................... 1,086 806
Fourth year..................................................... 233 119
Fifth year...................................................... 60 103
Thereafter...................................................... 37 85
------ ------
$ 2,358 $ 3,867
------ ------
------ ------
</TABLE>
The loans are collateralized by fixed liens on certain equipment and with
floating liens on all assets of the Company.
NOTE 6 -- SEVERANCE PAY
The Company's severance pay obligation to its employees is partially covered
by payments to insurance companies. The amounts so funded are not reflected in
the balance sheet as they are not under the control and management of the
Company. The accrual for severance pay in the balance sheet reflects that
portion of the liability not covered as above.
NOTE 7 -- SHARE CAPITAL
INITIAL PUBLIC OFFERING ("IPO")
In July 1995, the Company completed an IPO in the United States. Pursuant to
the IPO, the Company issued 2,811,750 ordinary shares and warrants to purchase
1,405,875 ordinary shares at an exercise price of $5.67 per share. The proceeds
received by the Company from the IPO amounted to approximately $9.8 million (net
of underwriting commissions and expenses of approximately $2.5 million).
As of December 31, 1995, substantially all of the abovementioned warrants
were exercised for net proceeds of approximately $7.8 million.
WARRANTS
In 1995, prior to the IPO, the Company issued warrants to purchase ordinary
shares in connection with various short-term financings obtained by the Company.
During 1995, warrants to purchase 87,750 ordinary shares were exercised and
proceeds received amounted to $292,500. As of December 31, 1995, warrants to
purchase 498,875 ordinary shares and 407,250 ordinary shares at an exercise
price of $1.83 and $3.33 per share, respectively, were outstanding. In the nine
months ended September 30, 1996, warrants to purchase 261,087 ordinary shares
were exercised and proceeds received amounted to $869,420. As of September 30,
1996, warrants to purchase 498,875 ordinary shares and 146,163 ordinary shares
at an exercise price of $1.83 per share and $3.33 per share, respectively, were
oustanding. The warrants to purchase 146,163 shares expire on May 22, 1998, and
the warrants to purchase 498,875 shares expire on December 30, 1999.
In connection with the IPO, the Company issued to the underwriter warrants
to purchase (i) 244,500 ordinary shares at an exercise price of $7.15 per share
and (ii) 122,250 warrants (each to purchase one ordinary share at a price of
$8.50). The underwriter's warrants to purchase ordinary shares are exercisable
until July 19, 2000 and the underwriter's warrants to purchase warrants are
exercisable until July 19, 1998.
F-11
<PAGE>
ACCENT SOFTWARE INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)
INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED
NOTE 7 -- SHARE CAPITAL (CONTINUED)
OPTIONS
The Company has granted options to shareholders, senior employees and,
pursuant to formal share option plans adopted in 1995 under which 1,425,000
shares were initially reserved, to employees, non-employee directors and
consultants of the Company. The options are exercisable under certain conditions
and for certain periods and expire between January 1996 and February 2003. The
exercise price of options granted was not less than the fair market value of the
shares on the date of the grants.
Option transactions are summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF
SHARES PRICE PER SHARE
---------- ----------------
<S> <C> <C>
Outstanding January 1, 1993.................................... --
Granted...................................................... 375,000 $0.24
----------
Outstanding December 31, 1993.................................. 375,000
Granted...................................................... 60,000 $1.00
Forfeited.................................................... (45,000)
----------
Outstanding December 31, 1994.................................. 390,000
Granted...................................................... 625,500 $3.03 - 17.83
Exercised.................................................... (105,000) $0.24
----------
Outstanding December 31, 1995.................................. 910,500
Granted...................................................... 192,750 $11.00 - 32.65
Exercised.................................................... (56,875) $0.24 - 3.03
Forfeited.................................................... (95,500)
----------
Outstanding September 30, 1996 950,875
----------
----------
</TABLE>
As of December 31, 1995, 307,500 options were fully vested but have not been
exercised, and the remaining 603,000 options will vest as follows: 1996 --
216,000; 1997 -- 193,500; 1998 -- 193,500.
As of September 30, 1996, 523,125 options were fully vested but have not
been exercised, and the remaining 427,750 will vest as follows: 1996 -- 47,500;
1997 -- 225,750; 1998 -- 143,250; 1999 -- 11,250.
In connection with the formation of AgentSoft, the Company entered into a
shareholders' agreement whereby it agreed to cause AgentSoft to grant options to
certain persons involved in the formation and ongoing business of AgentSoft.
Pursuant to this agreement, options were granted to purchase up to 1,400
ordinary shares of AgentSoft (14% of the currently outstanding shares on a fully
diluted basis) at a nominal exercise price equal to 30 NIS per share. These
options will vest over a three year period commencing one year from the date of
grant, and will be subject to the employee's continued service at AgentSoft.
Compensation expense related to these options was not significant.
F-12
<PAGE>
ACCENT SOFTWARE INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)
INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED
NOTE 7 -- SHARE CAPITAL (CONTINUED)
RESERVED FOR FUTURE ISSUANCES
The Company has reserved authorized but unissued ordinary shares for future
issuance as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
---------------------------
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
Warrants........................................................ 1,272,875 1,011,788
Founders' Share Option Plan..................................... 285,000 275,000
Employee and Non-Employee Share Option Plans (1995)............. 900,000 1,378,125
------------ -------------
2,457,875 2,664,913
------------ -------------
------------ -------------
</TABLE>
INCREASE IN AUTHORIZED SHARES AND STOCK SPLIT
At a general shareholders' meeting held on May 22, 1996, the shareholders
approved an increase in the number of authorized shares from 10,000,000 to
30,000,000. The shareholders also approved increases in the number of authorized
options available for grant pursuant to the Employee and Non-Employee Share
Option Plans (1995) from 750,000 to 1,125,000 and from 150,000 to 300,000,
respectively.
On June 6, 1996, the Company effected a three-for-two stock split. All share
and per share data have been retroactively restated in the accompanying
financial statements to give effect to this stock split.
NOTE 8 -- MONETARY BALANCES IN NON-DOLLAR CURRENCIES
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1994 1995
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................................. $ 25 $ --
Trade receivables.......................................................... 449 728
Other receivables.......................................................... 50 697
--------- ---------
$ 524 $ 1,425
--------- ---------
--------- ---------
Current liabilities:
Short-term bank borrowings................................................. $ 86 $ --
Accounts payable and accrued expenses...................................... 794 1,593
--------- ---------
880 1,593
Accrued severance pay........................................................ 50 210
--------- ---------
$ 930 $ 1,803
--------- ---------
--------- ---------
</TABLE>
F-13
<PAGE>
ACCENT SOFTWARE INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)
INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED
NOTE 9 -- NET SALES
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
-------------------------------
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
The Company's sales by geographic areas are as follows:
Domestic (Israel).............................................. $ 908 $ 696 $ 932
North America.................................................. 245 286 1,173
Germany........................................................ 1 306 1,259
Other European countries....................................... 37 478 1,482
Other.......................................................... 29 85 289
--------- --------- ---------
$ 1,220 $ 1,851 $ 5,135
--------- --------- ---------
--------- --------- ---------
Sales to single customers exceeding 10%:
Customer A..................................................... -- $ 252 --
Customer B..................................................... -- 237 --
</TABLE>
During the nine months ended September 30, 1996, the Company had sales of
$1,000 (21%) to one customer and $859 (18%) to another customer. During the nine
months ended September 30, 1995, no individual customer accounted for more than
10% of sales.
NOTE 10 -- TAXES ON INCOME
TAX BENEFITS UNDER THE LAW FOR THE ENCOURAGEMENT OF CAPITAL INVESTMENTS,
1959
The Company has been granted "approved enterprise" status under the Law for
the Encouragement of Capital Investments, 1959. The Company opted for benefits
under the "alternative path" which entitles it to a ten year tax exemption
commencing in the first year in which taxable income will be earned, subject to
certain time restrictions. Entitlement to the benefits is dependent upon
compliance with the conditions of the letter of approval. The benefit period has
not yet commenced.
The approval was given in respect of investments to be made over a period of
three years in the amount of $6,600 for which the Company is eligible to receive
government guaranteed loans of $4,400. As of December 31, 1995, government
guaranteed loans in the amount of $2,400 have been received and approval has
been given for the Company to receive an additional $250.
INFLATIONARY TAX LAW
The Company is subject to the Income Tax Law (Inflationary Adjustments),
1985, which provides for an adjustment to taxable income for the effects of
inflation (based on the Israeli Consumer Price Index) on that portion of
shareholders' equity not invested in inflation resistant assets.
CARRYFORWARD LOSSES
The Company has carryforward losses for tax purposes and deductible
temporary differences in the approximate amount of $11,000 as of December 31,
1995. There are no deferred tax balances as of December 31, 1995. As the Company
is exempt from tax, the statutory tax rate for the purposes of the
reconciliation of tax expense is zero.
TAX ASSESSMENTS
The Company has received final tax assessments through December 31, 1991.
F-14
<PAGE>
ACCENT SOFTWARE INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)
INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED
NOTE 11 -- TRANSACTIONS WITH RELATED PARTIES
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
-------------------------------------
1993 1994 1995
----- ----- -----
<S> <C> <C> <C>
Sales to shareholder..................................................... $ 85 $ 38 $ 14
--- --- ---
--- --- ---
Purchases from shareholder............................................... $ 23 $ 65 $ --
--- --- ---
--- --- ---
Consulting fees to shareholder........................................... $ -- $ 3 $ 16
--- --- ---
--- --- ---
</TABLE>
As part of short-term financing, the Company issued promissory notes in 1995
to certain shareholders in the amount of $1,500. All of the notes were repaid in
full with the proceeds from the IPO.
F-15
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Accent Software International Ltd. and Subsidiary:
We have audited in accordance with generally accepted auditing standards,
the Consolidated Financial Statements of Accent Software International Ltd.
included in this registration statement and have issued our report thereon dated
February 21, 1996. Reference is made to said report which includes an
explanatory fourth paragraph with respect to the Company's ability to continue
as a going concern. Our audit was made for the purpose of forming an opinion on
the basic financial statements taken as a whole. The schedule on page S-2 is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/s/ LUBOSHITZ, KASIERER & CO.
LUBOSHITZ, KASIERER & CO.
Member Firm of Andersen Worldwide, SC
Jerusalem, Israel
February 21, 1996
(except with respect to the
increase in authorized
shares and the stock split
described in Note 7, and the
matter described in Note 1,
regarding the Company's
financial position, as to
which the dates are June 6,
1996 and November 1, 1996)
S-1
<PAGE>
ACCENT SOFTWARE
INTERNATIONAL LTD. AND SUBSIDIARY
Schedule II
Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
BALANCE AT DEDUCTIONS BALANCE AT
BEGINNING OF CHARGE TO AND END OF
PERIOD EXPENSES WRITEOFFS PERIOD
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Year ended December 31, 1993:
Allowance for doubtful accounts $ -- $ 8,803 $ (431) $ 8,372
Allowance for sales returns -- -- -- --
Year ended December 31, 1994:
Allowance for doubtful accounts 8,372 169,329 (61,871) 115,830
Allowance for sales returns -- -- -- --
Year ended December 31, 1995:
Allowance for doubtful accounts 115,830 722,275 (242,029) 596,076
Allowance for sales returns -- 400,900 -- 400,900
</TABLE>
S-2
<PAGE>
[This page will contain color graphics, including photographs of boxes
containing certain of the Company's current and soon-to-be-released products.]
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE ORDINARY SHARES IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
AVAILABLE INFORMATION.......................... 3
PROSPECTUS SUMMARY............................. 4
RISK FACTORS................................... 9
USE OF PROCEEDS................................ 18
DIVIDENDS...................................... 20
PRICE RANGE OF ORDINARY SHARES AND LISTING..... 21
CAPITALIZATION................................. 22
SELECTED CONSOLIDATED FINANCIAL DATA........... 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.................................... 24
BUSINESS....................................... 33
MANAGEMENT..................................... 45
PRINCIPAL SHAREHOLDERS......................... 55
CERTAIN TRANSACTIONS........................... 56
DESCRIPTION OF SECURITIES...................... 58
SHARES ELIGIBLE FOR FUTURE SALE................ 61
CONDITIONS IN ISRAEL........................... 62
TAXATION AND FOREIGN EXCHANGE REGULATION....... 63
UNDERWRITING................................... 72
LEGAL MATTERS.................................. 75
EXPERTS........................................ 75
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS..... F-1
</TABLE>
1,800,000 UNITS
EACH CONSISTING OF
ONE ORDINARY SHARE AND
ONE REDEEMABLE WARRANT
TO PURCHASE AN
ORDINARY SHARE
ACCENT SOFTWARE
INTERNATIONAL LTD.
-------------------
PROSPECTUS
-------------------
SANDS BROTHERS & CO., LTD.
, 1996
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses, other than underwriting commissions payable by Accent Software
International Ltd. (the "Company"), in connection with the issuance and
distribution of the securities registered under this Registration Statement are
estimated to be as follows:
<TABLE>
<CAPTION>
Securities and Exchange Commission Registration Fee............. $ 24,437
<S> <C>
National Association of Securities Dealers, Inc. Filing Fee..... 7,630
The Nasdaq Stock Market Filing Fee.............................. 7,500
Israeli Taxes................................................... 155,466
Printing and Engraving Expenses................................. 100,000
Legal Fees and Expenses......................................... 200,000
State Securities Qualification Fees and Expenses (including
counsel fee)................................................... 40,000
Accounting Fees and Expenses.................................... 75,000
Transfer Agent Fees............................................. 3,500
Miscellaneous................................................... 36,467
---------
Total......................................................... $ 650,000
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Articles of Association of the Company provide that, to the fullest
extent permitted by the Israeli Companies' Ordinance (New Version), 1983, as
amended (the "Companies Ordinance"), the Company may indemnify its directors and
officers for (i) any financial liability imposed upon them for the benefit of a
third party by a judgment, including a settlement or arbitration decision
certified by a court, as a result of an act or omission of such person in his
capacity as a director or officer of the Company; and (ii) reasonable litigation
expenses, including legal fees, incurred by such director or officer or which he
is obligated to pay by a court order, in a proceeding brought against him by or
on behalf of the Company or by others, or in connection with a criminal
proceeding in which he was acquitted, in each case relating to acts or omissions
of such person in his capacity as a director or officer of the Company
("Indemnifiable Event").
The Company's Articles of Association provide that, to the fullest extent
permitted by the Companies Ordinance, the Company may procure directors' and
officers' liability insurance for (i) breach of the duty of care by any director
or offer owed to the Company or to any other person; (ii) breach of fiduciary
duty by any officer or director owed to the Company, provided such person acted
in good faith and had reasonable cause to assume that the action would not
prejudice the interests of the Company; and (iii) any financial liability
imposed upon any director or officer for the benefit of a third party by reason
of an act or omission of such person in his capacity as a director or officer of
the Company. The Company has a directors' and officers' liability insurance
policy that insures the Company's officers and directors against certain
liabilities.
Under the Companies Ordinance, the Company may not indemnify or procure
insurance coverage for the liability of its Office Holders (as defined in the
Companies Ordinance) in respect of any monetary obligation imposed by reason of
(i) an act or omission which constitutes a breach of fiduciary duty, except to
the extent described above; (ii) a willful breach of the duty of care or
reckless disregard of the circumstances or consequences of such breach; (iii) an
act or omission done with the intent to unlawfully realize personal gain; or
(iv) a fine or penalty imposed for a criminal offense.
The Companies Ordinance defines an "Office Holder" to include a director,
general manager, chief executive officer, executive vice president, vice
president, other managers directly subordinate to the general manager, and any
person assuming the responsibilities of the foregoing positions without regard
to such person's title.
II-1
<PAGE>
In addition, pursuant to the Companies Ordinance, indemnification of, and
procurement of insurance coverage for, an Office Holder of the Company is
permitted if it is approved by the Company's Audit Committee and Board of
Directors. In certain circumstances, the Companies Ordinance also requires
approval of such indemnification and insurance by the Company's shareholders.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the following sales of unregistered securities
were effected by the Company:
1. On July 28, 1993, the Company issued 1,350,000 Ordinary Shares to Accent
Software Partners in consideration for a payment of $325,000.
2. Pursuant to the conversion of a capital note in the amount of NIS 40,000
issued by the Company to Robert S. Rosenschein into 1,510,500 Ordinary Shares,
on July 28, 1993 the Company issued 453,150 shares to Jeffrey Rosenschein, and
528,675 Ordinary Shares to each of Robert S. Rosenschein and Pal-Ron Marketing
Company Ltd.
3. On September 26, 1993, the Company issued 82,500 Ordinary Shares to
Brotek Technology and Development Ltd. in consideration for a payment of NIS 550
and the cancellation of certain expenses claimed in an amount less than $5,000
owed to Saul Orbach.
4. In connection with a Stock Purchase Agreement with IMR Investments
V.O.F., on May 11, 1994 the Company sold 1,575,714 Ordinary Shares of the
Company to IMR for $3,000,000.
5. Pursuant to certain Warrant Acquisition Agreements dated January 1,
1995, the Company issued warrants for the purchase of the Company's Ordinary
Shares in consideration for the provision of certain security for (i) a loan in
the amount of $336,833 from Israel General Bank (the "Israel General Bank
Loan"); (ii) a loan in the amount of $325,000 from Bank Leumi Le'Israel Ltd.
(the "Bank Leumi Loan"); and (iii) a loan in the amount of $73,333 from Israel
Discount Bank (the "Israel Discount Bank Loan"). The warrants were issued as
follows:
(a) In consideration for KZ Overseas Holding Corp.'s provision of a
demand bank account in the amount of $10,833 as security for a portion of
the Israel General Bank Loan; the Company issued KZ Overseas Holding Corp. a
warrant to purchase 8,125 Ordinary Shares, exercisable at a price of $1.83
per Ordinary Share expiring on December 30, 1999.
(b) In consideration for Jeffrey Rosenschein's provision of (i) a demand
bank account in the amount of $50,000 as security for a portion of the
Israel General Bank Loan; and (ii) a demand bank account in the amount of
$15,000 as security for a portion of the Israel Discount Bank Loan, the
Company issued Jeffrey Rosenschein a warrant to purchase 48,750 Ordinary
Shares, exercisable at a price of $1.83 per Ordinary Share expiring on
December 30, 1999.
(c) In consideration for Robert Rosenschein's provision of (i) a demand
bank account in the amount of $67,500 as security for a portion of the
Israel General Bank Loan and (ii) a demand bank account in the amount of
$8,333 as security for a portion of Israel Discount Bank Loan, the Company
issued Robert Rosenschein a warrant to purchase 56,875 Ordinary Shares,
exercisable at a price of $1.83 per Ordinary Share expiring on December 30,
1999.
(d) In consideration for Elliott Broidy's provision of a demand bank
account in the amount of $188,500 as security for a portion of the Israel
General Bank Loan in the amount of $336,833 the Company issued Elliott
Broidy a warrant to purchase 141,375 Ordinary Shares, exercisable at a price
of $1.83 per Ordinary Share expiring on December 30, 1999.
(e) In consideration for IMR Fund L.P.'s provision of a standby letter
of credit issued in favor of Bank Leumi Le'Israel Ltd. in the amount of
$325,000 as security for a portion of the Bank Leumi Loan the Company issued
IMR Fund L.P. a warrant to purchase 243,750 Ordinary Shares, exercisable at
a price of $1.83 per Ordinary Share expiring on December 30, 1999.
II-2
<PAGE>
6. In May 1995, the Company effected a bridge financing (the "Private
Placement") of 60 units (the "Units"), each Unit consisting of (i) an unsecured
9% non-negotiable promissory note of the Company in the principal amount of
$25,000, due on the earlier of the consummation of an initial public offering or
May 22, 1996 (a "Private Placement Note"); (ii) 8,250 Ordinary Shares (the
"Private Placement Shares"); and (iii) a warrant (a "Private Placement Warrant")
to purchase 8,250 Ordinary Shares (the "Private Placement Warrant Shares"),
exercisable at $3.33 per share and expiring on May 22, 1998. The purchase price
per Unit was $50,000.
The Company's sale of 60 Units resulted in the Company's issuance (in
connection with the Private Placement) of a total of $1,500,000 principal amount
of Private Placement Notes, 495,000 Private Placement Shares and Private
Placement Warrants to purchase 495,000 Private Placement Warrant Shares. The
$1,500,000 aggregate principal amount of Private Placement Notes was repaid upon
the consummation, and out of the proceeds, of the Company's initial public
offering in July 1995. The 342,375 Private Placement Shares which remain
outstanding, as well as the 433,125 Private Placement Warrant Shares underlying
the Private Placement Warrants which remain outstanding, are included in this
Registration Statement.
From August 1996 to October 1996, the Company borrowed an aggregate of
$1,335,000 from IMR Fund, L.P., an affiliate of its largest shareholder,
consisting of (i) a $425,000 loan at 12% made in August 1996 and (ii) $910,000
in loans at 10% made in October 1996. IMR Fund, L.P. has also committed to the
Company to provide the Company with an additional loan of $165,000 at 10% at or
prior to the consummation of the Offering. In connection therewith, IMR Fund,
L.P. was issued warrants to purchase 180,000 Ordinary Shares (the "IMR
Warrants") and the Company granted IMR Fund, L.P. certain registration rights
with respect to the Ordinary Shares issuable upon exercise of the IMR Warrants.
IMR Investments' V.O.F. ("IMR Investments") has agreed to purchase up to 9.9% of
the Units being offered in the Offering at an aggregate purchase price not to
exceed $1,500,000. The Company intends to repay the $1,500,000 loan out of the
net proceeds of the Offering; to the extent that the gross proceeds to the
Company from IMR Investments' purchase of Units offered hereby are less than
$1,500,000, the difference between $1,500,000 and the gross proceeds will be
converted into equity at the public offering price per Unit less $0.10.
The issuances of the aforementioned securities were made in reliance upon an
exemption from the registration provisions of the Securities Act of 1933, as
amended (the "Securities Act") afforded by Section 4(2) thereof, as transactions
by an issuer not involving a public offering. The purchasers of the securities
described above acquired them for their own account and not with a view to any
distribution thereof to the public.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<S> <C> <C>
1.1 -- Form of Underwriting Agreement (revised).**
3.1(a) -- Memorandum of Association of Registrant (filed as Exhibit 3.1(a) to the
Company's Registration Statement No. 33-92754).*
3.1(b) -- Certificate of Name Change dated October 23, 1994 (filed as Exhibit 3.1(b) to
the Company's Registration Statement No. 33-92754).*
3.1(c) -- Certificate of Name Change dated April 23, 1995 (filed as Exhibit 3.1(c) to the
Company's Registration Statement No. 33-92754).*
3.2 -- Articles of Association of Registrant (filed as Exhibit 3.2 to the Company's
Registration Statement No. 33-92754).*
4.1 -- Form of Ordinary Share Certificate (filed as Exhibit 4.1 to the Company's
Registration Statement No. 33-92754).*
</TABLE>
- ------------
* Previously filed.
** Filed herewith.
+ To be filed by amendment.
II-3
<PAGE>
<TABLE>
<S> <C> <C>
4.2 -- Form of Underwriter's Warrant Agreement (filed as Exhibit 4.4 to the Company's
Registration Statement No. 33-92754).*
4.3 -- Form of Bridge Financing Warrant dated as of May 22, 1995 between the Company
and each of the Holders (filed as Exhibit 4.5 to the Company's Registration
Statement No. 33-92754).*
4.4 -- Form of Underwriter's Warrant Agreement, between the Company and
Sands Brothers & Co., Ltd., as representative of the several underwriters.**
4.5 -- Form of IMR Warrant dated as of October , 1996 between the Company and each
of the holders.+
4.6 -- Form of Redeemable Warrant Agreement dated as of November , 1996 between the
Company, Sands Brothers & Co., Ltd., as representative of the several
underwriters, and American Stock Transfer & Trust Company (revised).**
5.1 -- Opinion of Yigal Arnon & Co.+
10.1 -- Stock Purchase Agreement between IMR Investments V.O.F. and Kivun Computers
Company (1988), Ltd., Robert Rosenschein, Jeffrey Rosenschein, Accent Software
Partners, Pal-Ron Marketing, Ltd., and KZ Overseas Holding Corp., dated as of
May 11, 1994, as amended July 20, 1995 (filed as Exhibit 10.1 to the Company's
Form 10-K filed on April 2, 1996).*
10.2 -- Shareholders' Agreement by and among Kivun Computers Company (1988) Ltd.,
Robert Rosenschein, Dr. Jeffrey Rosenschein, Pal-Ron Marketing, Ltd., Accent
Software Partners, KZ Overseas Holding Corp. and IMR Investments V.O.F., dated
May 11, 1994, as amended July 20, 1995 (filed as Exhibit 10.2 to the Company's
Form 10-K filed on April 2, 1996).*
10.3(a) -- Option Agreement dated March 23, 1993 between the Company and Robert S.
Rosenschein (filed as Exhibit 10.3(a) to the Company's Registration Statement
No. 33-92754).*
10.3(b) -- Schedule of other option agreements substantially identical in all material
respects to the option agreement filed as Exhibit 10.3(a) (filed as Exhibit
10.3(b) to the Company's Registration Statement No. 33-92754).*
10.4(a) -- Warrant Acquisition Agreement dated January 1, 1995 between the Registrant and
Robert S. Rosenschein (filed as Exhibit 10.4(a) to the Company's Registration
Statement No. 33-92754).*
10.4(b) -- Schedule of other warrant acquisition agreements substantially identical in all
material respects to the warrant agreement (filed as Exhibit 10.4(a) (filed as
Exhibit 10.4(b) to the Company's Registration Statement No. 33-92754).*
</TABLE>
<TABLE>
<S> <C> <C>
10.5 -- Form of Registration Rights Agreements dated as of May 22, 1995 between the
Company and each of the Holders (filed as Exhibit 10.5 to the Company's
Registration Statement No. 33-92754).*
10.6(a) -- Employee Share Option Plan (1995) (filed as Annex A to the Company's definitive
Proxy Statement mailed to shareholders on April 19, 1996, pursuant to
Regulation 14A of the 1934 Act in connection with the 1996 Annual General and
Extraordinary Meeting of Shareholders of the Company).*
</TABLE>
- ------------
* Previously filed.
** Filed herewith.
+ To be filed by amendment.
II-4
<PAGE>
<TABLE>
<S> <C> <C>
10.6(b) -- Non-Employee Share Option Plan (1995) (filed as Annex B to the Company's
definitive Proxy Statement mailed to shareholders on April 19, 1996, pursuant
to Regulation 14A of the 1934 Act in connection with the 1996 Annual General
and Extraordinary Meeting of Shareholders of the Company).*
10.7(a) -- Employment Agreement between the Company and Robert S. Rosenschein, dated July
26, 1995 (filed as Exhibit 10.7(a) to the Company's Form 10-K filed on April
2, 1996).*
10.7(b) -- Employment Agreement between the Company and Mitchell Joelson, dated July 26,
1995 (filed as Exhibit 10.7(b) to the Company's Form 10-K filed on April 2,
1996).*
10.7(c) -- Employment Agreement between the Company and Herbert Zlotogorski, dated July
26, 1995 (filed as Exhibit 10.7(c) to the Company's Form 10-K filed on April
2, 1996).*
10.7(d) -- Agreement between the Company and Jeffrey Rosenschein, dated July 26, 1995
(filed as Exhibit 10.7(d) to the Company's Form 10-K filed on April 2, 1996).*
10.8 -- License Agreement dated October 4, 1994 between the Registrant and Computime
GmbH (filed as Exhibit 10.9 to the Company's Registration Statement No.
33-92754).*
10.9 -- Production and Distribution Agreement between the Registrant and IBM Denmark
A/S, Software Manufacturing Company, dated January 11, 1994 (filed as Exhibit
10.10 to the Company's Registration Statement No. 33-92754).*
10.10 -- Shareholders Agreement by and between Accent Software International Limited and
Gilad Zlotkin, dated February 21, 1996 (filed as Exhibit 10.10 to the
Company's Form 10-K filed on April 2, 1996).*
11 -- Computation of Net Loss Per Share.**
21 -- Subsidiaries of Registrant (filed as Exhibit 21 to the Company's Form 10-K
filed on April 2, 1996).*
23.1 -- Consent of Luboshitz, Kasierer & Co., a Member Firm of Andersen Worldwide,
SC.**
23.2 -- Consent of Yigal Arnon & Co., contained in their opinion filed as Exhibit 5.1.+
</TABLE>
- ------------
* Previously filed.
** Filed herewith.
+ To be filed by amendment.
(b) FINANCIAL STATEMENT SCHEDULES
Report of Independent Public Accountants on Schedule
Schedule II: Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
II-5
<PAGE>
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Securities and Exchange Commission pursuant to
Rule 424(b) if, in the aggregate, with changes in volume and price
represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table
in the effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial BONA FIDE offering thereof;
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering; and
(4) To file a post-effective amendment to the registration statement to
include any financial statements required by Rule 3-19 of this chapter at
the start of any delayed offering or throughout a continuous offering.
(b) The undersigned registrant hereby undertakes:
(1) That, for purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial BONA FIDE offering thereof.
(c) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the underwriting agreements,
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
(d) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 14 above, or
otherwise, the Registrant has been advised that, in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Jerusalem,
State of Israel, on the 7th day of November, 1996.
ACCENT SOFTWARE INTERNATIONAL LTD.
By: /s/ MITCHELL R. JOELSON
-----------------------------------
Name: Mitchell R. Joelson
Title: Executive Vice President
and Director
II-7
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ----------------------------------- --------------------
<C> <S> <C>
/s/ ROBERT S. ROSENSCHEIN* President, Chief Executive Officer
------------------------------------------- and Director (principal executive November 7, 1996
Robert S. Rosenschein officer)
/s/ MITCHELL JOELSON
------------------------------------------- Executive Vice President and November 7, 1996
Mitchell Joelson Director
/s/ JEFFREY ROSENSCHEIN*
------------------------------------------- Vice President, Engineering Chief November 7, 1996
Jeffrey Rosenschein Scientist and Director
/s/ MICHAEL SONDHELM*
------------------------------------------- Controller (principal financial and November 7, 1996
Michael Sondhelm accounting officer)
/s/ ELLIOTT B. BROIDY*
------------------------------------------- Director November 7, 1996
Elliott B. Broidy
/s/ ROGER R. CLOUTIER, II*
------------------------------------------- Director November 7, 1996
Roger R. Cloutier, II
/s/ MELDON E. LEVINE*
------------------------------------------- Director November 7, 1996
Meldon E. Levine
------------------------------------------- Director November , 1996
Mark A. Tebbe
/s/ ESTHER DYSON*
------------------------------------------- Director November 7, 1996
Esther Dyson
Authorized Representative in the United States:
ACCENT WORLDWIDE, INC.
/s/ HOWARD B. CRYSTAL*
------------------------------------------- November 7, 1996
Howard B. Crystal
*By: /s/ MITCHELL JOELSON
---------------------------------------
Mitchell Joelson
ATTORNEY-IN-FACT
</TABLE>
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
1.1 -- Form of Underwriting Agreement (revised).**
3.1(a) -- Memorandum of Association of Registrant (filed as Exhibit 3.1(a) to the Company's Registration
Statement No. 33-92754).*
3.1(b) -- Certificate of Name Change dated October 23, 1994 (filed as Exhibit 3.1(b) to the Company's
Registration Statement No. 33-92754).*
3.1(c) -- Certificate of Name Change dated April 23, 1995 (filed as Exhibit 3.1(c) to the Company's
Registration Statement No. 33-92754).*
3.2 -- Articles of Association of Registrant (filed as Exhibit 3.2 to the Company's Registration Statement
No. 33-92754).*
4.1 -- Form of Ordinary Share Certificate (filed as Exhibit 4.1 to the Company's Registration Statement
No. 33-92754).*
4.2 -- Form of Underwriter's Warrant Agreement (filed as Exhibit 4.4 to the Company's Registration
Statement No. 33-92754).*
4.3 -- Form of Bridge Financing Warrant dated as of May 22, 1995 between the Company and each of the
Holders (filed as Exhibit 4.5 to the Company's Registration Statement No. 33-92754).*
4.4 -- Form of Underwriter's Warrant Agreement, between the Company and Sands Brothers & Co., Ltd., as
representative of the several underwriters.**
4.5 -- Form of IMR Warrant dated as of October , 1996 between the Company and IMR Fund, L.P.+
4.6 -- Form of Redeemable Warrant Agreement dated as of November , 1996 between the Company, Sands
Brothers & Co., Ltd., as representative of the several underwriters, and American Stock Transfer &
Trust Company (revised).**
5.1 -- Opinion of Yigal Arnon & Co.+
10.1 -- Stock Purchase Agreement between IMR Investments V.O.F. and Kivun Computers Company (1988), Ltd.,
Robert Rosenschein, Jeffrey Rosenschein, Accent Software Partners, Pal-Ron Marketing, Ltd., and KZ
Overseas Holding Corp., dated as of May 11, 1994, as amended July 20, 1995 (filed as Exhibit 10.1
to the Company's Form 10-K filed on April 2, 1996).*
10.2 -- Shareholders' Agreement by and among Kivun Computers Company (1988) Ltd., Robert Rosenschein, Dr.
Jeffrey Rosenschein, Pal-Ron Marketing, Ltd., Accent Software Partners, KZ Overseas Holding Corp.
and IMR Investments V.O.F., dated May 11, 1994, as amended July 20, 1995 (filed as Exhibit 10.2 to
the Company's Form 10-K filed on April 2, 1996).*
10.3(a) -- Option Agreement dated March 23, 1993 between the Company and Robert S. Rosenschein (filed as
Exhibit 10.3(a) to the Company's Registration Statement No. 33-92754).*
10.3(b) -- Schedule of other option agreements substantially identical in all material respects to the option
agreement filed as Exhibit 10.3(a) (filed as Exhibit 10.3(b) to the Company's Registration
Statement No. 33-92754).*
10.4(a) -- Warrant Acquisition Agreement dated January 1, 1995 between the Registrant and Robert S.
Rosenschein (filed as Exhibit 10.4(a) to the Company's Registration Statement No. 33-92754).*
10.4(b) -- Schedule of other warrant acquisition agreements substantially identical in all material respects
to the warrant agreement (filed as Exhibit 10.4(a) (filed as Exhibit 10.4(b) to the Company's
Registration Statement No. 33-92754).*
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
10.5 -- Form of Registration Rights Agreements dated as of May 22, 1995 between the Company and each of the
Holders (filed as Exhibit 10.5 to the Company's Registration Statement No. 33-92754).*
10.6(a) -- Employee Share Option Plan (1995) (filed as Annex A to the Company's definitive Proxy Statement
mailed to shareholders on April 19, 1996, pursuant to Regulation 14A of the 1934 Act in connection
with the 1996 Annual General and Extraordinary Meeting of Shareholders of the Company).*
10.6(b) -- Non-Employee Share Option Plan (1995) (filed as Annex B to the Company's definitive Proxy Statement
mailed to shareholders on April 19, 1996, pursuant to Regulation 14A of the 1934 Act in connection
with the 1996 Annual General and Extraordinary Meeting of Shareholders of the Company).*
10.7(a) -- Employment Agreement between the Company and Robert S. Rosenschein, dated July 26, 1995 (filed as
Exhibit 10.7(a) to the Company's Form 10-K filed on April 2, 1996).*
10.7(b) -- Employment Agreement between the Company and Mitchell Joelson, dated July 26, 1995 (filed as
Exhibit 10.7(b) to the Company's Form 10-K filed on April 2, 1996).*
10.7(c) -- Employment Agreement between the Company and Herbert Zlotogorski, dated July 26, 1995 (filed as
Exhibit 10.7(c) to the Company's Form 10-K filed on April 2, 1996).*
10.7(d) -- Agreement between the Company and Jeffrey Rosenschein, dated July 26, 1995 (filed as Exhibit
10.7(d) to the Company's Form 10-K filed on April 2, 1996).*
10.8 -- License Agreement dated October 4, 1994 between the Registrant and Computime GmbH (filed as Exhibit
10.9 to the Company's Registration Statement No. 33-92754).*
10.9 -- Production and Distribution Agreement between the Registrant and IBM Denmark A/S, Software
Manufacturing Company, dated January 11, 1994 (filed as Exhibit 10.10 to the Company's
Registration Statement No. 33-92754).*
10.10 -- Shareholders Agreement by and between Accent Software International Limited and Gilad Zlotkin,
dated February 21, 1996 (filed as Exhibit 10.10 to the Company's Form 10-K filed on April 2,
1996).*
11 -- Computation of Net Loss Per Share.**
21 -- Subsidiaries of Registrant (filed as Exhibit 21 to the Company's Form 10-K filed on April 2,
1996).*
23.1 -- Consent of Luboshitz, Kasierer & Co., a Member Firm of Andersen Worldwide, SC.**
23.2 -- Consent of Yigal Arnon & Co., contained in their opinion filed as Exhibit 5.1.+
</TABLE>
- ------------
* Previously filed.
** Filed herewith.
+ To be filed by amendment.
<PAGE>
ACCENT SOFTWARE INTERNATIONAL LTD.
1,800,000 Units
UNDERWRITING AGREEMENT
November , 1996
Sands Brothers & Co., Ltd.
As Representative of the Several Underwriters
90 Park Avenue
New York, New York 10016
Dear Sirs:
Accent Software International Ltd., a corporation organized under the
laws of the State of Israel (the "Company"), confirms its agreement with Sands
Brothers & Co., Ltd. ("Sands Brothers") and each of the underwriters named in
Schedule A hereto (collectively, the "Underwriters", which term shall also
include any underwriter substituted as provided in Section 9 hereto), for whom
Sands Brothers is acting as representative (in such capacity, Sands Brothers
shall hereinafter be referred to as "you" or the "Representative"), with respect
to the sale by the Company of an aggregate of 1,800,000 units ("Units"), each
Unit consisting of one ordinary share of the Company, nominal value NIS .01 per
share (the "Ordinary Shares") and one Ordinary Share purchase warrant (the
"Warrants") each of which Warrants shall entitle the holder thereof the right to
purchase one (1) Ordinary Share, at an exercise price of $_______ (subject to
adjustment in certain circumstances). The securities comprising the Units will
not be separable or separately transferable prior to ___________ __, 1997,
without the consent of Sands Brothers. The Ordinary Shares and the Warrants are
hereinafter referred to collectively as the "Offered Units."
Each Warrant is exercisable commencing the date such Warrant is
separable from the Units and ending five years from the date of the Prospectus
(as hereinafter defined), unless previously redeemed by the Company. The
Company shall have the right, upon the consent of the Representative, to call
each Warrant for redemption upon not less than thirty (30) days' written notice
at any time commencing at such time the Warrants become separable at a
redemption price of Ten Cents ($.10) per Warrant provided that the closing bid
price of the Ordinary Shares has been at least 120% of the then effective
exercise price of the Warrants on all 20 of the trading days ending on the third
day prior to the day on which the Company gives notice. The Warrants will be
issued pursuant to a Warrant Agreement (the
<PAGE>
"Warrant Agreement") to be dated as of the Closing Date (as hereinafter defined)
by and among the Company, the Underwriters and American Stock Transfer and Trust
Company, as warrant agent (the "Warrant Agent").
In addition, the Company proposes to grant to the Underwriters, for
the purpose of covering over-allotments, if any, the option (which may be
exercised by the Representative, individually) to purchase an aggregate of not
more than 270,000 Units. Such 270,000 Units, and the 270,000 Ordinary Shares
and 270,000 Warrants underlying such Units, are hereinafter referred to as the
"Optional Units." The Company also proposes to issue and sell to you (for your
own account and not as Representative of the Several Underwriters) and/or your
designees, warrants (the "Representative's Warrants") to purchase an additional
180,000 Units, which sale will be consummated in accordance with the terms and
conditions of the form of Representative's Warrant Agreement filed as an exhibit
to the Registration Statement. The Units issuable upon exercise of the
Representative's Warrants, and the 180,000 Ordinary Shares and 180,000 Warrants
underlying such Units, are hereinafter referred to as the "Representative's
Securities." The Offered Units, the Optional Units, the Representative's
Warrants and the Representative's Securities (collectively, the "Securities")
are more fully described in the Registration Statement and the Prospectus, as
defined below.
You have advised the Company that you and the other Underwriters
desire to purchase, severally, the Offered Units, and that you have been
authorized by the Underwriters to execute this agreement on their behalf. The
Company confirms the agreements made by it with respect to the purchase of the
Offered Units by the several Underwriters on whose behalf you are signing this
Agreement, as follows:
1. PURCHASE AND SALE OF OFFERED UNITS. (a) Subject to the terms
and conditions of this Agreement, and upon the basis of the representations,
warranties, and agreements herein contained, the Company agrees to issue and
sell to the Underwriters, and each such Underwriter agrees, severally and not
jointly, to purchase from the Company at $ per Offered Unit, at the place
and time hereinafter specified, the number of Offered Units set forth opposite
the names of the Underwriters in Schedule A attached hereto, plus any additional
Offered Units which such Underwriters may become obligated to purchase pursuant
to the provisions of Section 9 hereof.
(b) The Underwriters shall not offer the Offered Units in Israel to
more than 35 offerees in the aggregate and shall obtain from such offerees in
Israel written confirmation that they are acquiring the Offered Units for
investment purposes only and not with a view toward distribution or resale and
shall provide copies of these written confirmations to the Company at
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<PAGE>
the Closing. At the Closing, the Underwriters shall furnish the Company with a
list of such offerees, the number of Offered Units acquired by such offerees and
the addresses of such offerees.
(c) Notwithstanding anything contained herein to the contrary, in no
event will the aggregate underwriting discount and non-accountable expense
allowance exceed ten percent (10%) on any sales of Offered Units to IMR Fund,
L.P. or its affiliates.
2. PAYMENT AND DELIVERY; REPRESENTATIVE'S WARRANTS.
(a) Delivery to the Underwriters of and payment for the Offered Units
shall take place at 10:00 a.m., New York Time, on the third full business day
(or, if the Offered Units are priced, as contemplated in Rule 15c6-1(c) under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), after 4:30
p.m., New York Time, the fourth full business day) following the date of the
public offering, at the offices of the Representative, 90 Park Avenue, New York,
New York 10016 or at such time on such other date, not later than five business
days after the date of this Agreement, as may be agreed upon by the Company and
the Underwriters (such date hereinafter is referred to as the "Closing Date").
(b) The Company will make the certificates for the Securities to be
purchased by the Underwriters hereunder available to you for inspection at least
24 hours prior to the Closing Date or the Option Closing Date (which are
collectively referred to herein as the "Closing Dates"). The certificates shall
be in such names and denominations as you may request, at least two (2) full
business days prior to the Closing Dates. Time shall be of the essence and
delivery at the time and place specified in this Agreement is a further
condition to the obligations of each Underwriter.
Definitive certificates in negotiable form for the Securities to be
purchased by the Underwriters hereunder will be delivered by the Company to you
for the accounts of the several Underwriters against payment of the respective
purchase prices therefor by the several Underwriters, by federal wire transfer
to the Company. The Representative's written confirmation of the effectuation
of such federal wire transfer, detailing the specific federal wire number, shall
be satisfactory evidence that payment of the purchase price for the Offered
Units has been made for purposes of the Closing Date and, upon presentation of
such confirmation, the Company shall be required to deliver certificates in
negotiable form for the Offered Units at such time.
In addition, in the event the Underwriters (or the Representative,
individually) exercise the option to purchase from the Company all or any
portion of the Optional Units
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<PAGE>
pursuant to the provisions of Section 3 hereof, payment for such securities
shall be made to the Company by the effectuation of a federal wire transfer at
the date of delivery of such securities as required by the provisions of Section
3 hereof.
It is understood that you, individually and not as Representative of
the several Underwriters, may (but shall not be obligated to) make any and all
payments required pursuant to this Section 2 on behalf of any Underwriters whose
check or checks shall not have been received by the Representative at the time
of delivery of the Offered Units to be purchased by such Underwriter or
Underwriters. Any such payment by you shall not relieve any such Underwriter or
Underwriters of any of its or their obligations hereunder. It is also
understood that you individually rather than all of the Underwriters may (but
shall not be obligated to) purchase the Optional Units.
It is understood that the several Underwriters propose to offer the
Offered Units to be purchased hereunder to the public upon the terms and
conditions set forth in the Registration Statement, after the Registration
Statement becomes effective.
The cost of original issue tax stamps, if any, in connection with the
issuance and delivery of the Units by the Company to the Underwriters shall be
borne by the Company. The Company will pay and save each Underwriter and any
subsequent holder of the Units harmless from and any and all liabilities with
respect to or resulting from any failure or delay in paying foreign, Federal
and/or state stamp and other transfer taxes, if any, which may be payable or
determined to be payable in connection with the original issuance or sale to
such Underwriter of Units sold by such entity.
(c) On the Closing Date, the Company will sell the Representative's
Warrants to Sands Brothers, for its own account and not as Representative of the
several Underwriters, or to its designees. The Representative's Warrants will
be in the form of, and in accordance with, the provisions of the
Representative's Unit Purchase Warrant attached as an exhibit to the
Registration Statement. The aggregate purchase price for the Representative's
Warrants is $180.00. Payment for the Representative's Warrants will be made to
the Company by check or checks payable to its order on the Closing Date against
delivery of the certificates representing the Representative's Warrants. The
certificates representing the Representative's Warrants will be in such
denominations and such names as Sands Brothers may request prior to the Closing
Date.
3. OPTION TO PURCHASE OPTIONAL UNITS.
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<PAGE>
(a) For the purposes of covering any overallotments in
connection with the distribution and sale of the Offered Units as contemplated
by the Prospectus, the Company hereby grants an option to the several
Underwriters (which may be exercised, at its option, by the Representative,
individually) to purchase all or any part of the Optional Units from the
Company. This option may be exercised in whole or in part at anytime and from
time to time within 45 days after the Effective Date upon written notice (each
an "Optional Unit Notice") by the Representative to the Company advising as to
the number of Optional Units to be purchased, the names and denominations in
which the certificates for such Optional Units are to be registered and the time
and date for such purchase. Such time and date shall be determined by the
Representative but shall be at least three and no more than ten full business
days before the date specified for closing in the Optional Unit Notice (each an
"Option Closing Date"). Delivery of the Optional Units against payment therefor
shall take place at the offices of the Representative, 90 Park Avenue, New York,
New York 10016. The number of Optional Units to be purchased by each
Underwriter, if any, shall bear the same percentage to the total number of
Optional Units being purchased by the several Underwriters pursuant to this
subsection (a) as the number of Offered Units such Underwriter is purchasing
bears to the total number of Offered Securities being purchased pursuant to
subsection (a) of Section 1, as adjusted, in each case by the Representative in
such manner as the Representative may deem appropriate. The purchase price to
be paid for the Optional Units will be the same price per Optional Unit as the
price per Offered Unit, as the case may be, set forth in Section 1 hereof.
(b) Payment for any Optional Units purchased will be made to the
Company by the effectuation of a federal wire transfer, against receipt of the
certificates for such securities by the Representative for the respective
accounts of the several Underwriters registered in such names and in such
denominations as the Representative may request. The Representative's written
confirmation of the effectuation of such federal wire transfer, reflecting the
specific federal wire number, shall be satisfactory evidence that payment of the
purchase price for the Optional Units has been made for purposes of the Option
Closing Date and, upon presentation of such confirmation, the Company shall be
required to deliver certificates in negotiable form for the Optional Units at
such time.
(c) The obligation of the Underwriters to purchase and pay for
any of the Optional Units is subject to the accuracy and completeness (as of the
date hereof and as of the Option Closing Date) in all material respects of the
representations and warranties of the Company herein, to the accuracy and
completeness of the statements of the Company or its officers made in any
certificate or other document to be delivered by the
-5-
<PAGE>
Company pursuant to this Agreement, to the performance in all material respects
by the Company of its obligations hereunder, to the satisfaction by the Company
of the conditions, as of the date hereof and as of the Option Closing Date, and
to the delivery to the Underwriters of opinions, certificates and letters dated
the Option Closing Date substantially similar in scope to those specified in
Section 5, 6(b), (c), (d) and (e) hereof, but with each reference to "Offered
Units" and "Closing Date" to be, respectively, to the Optional Units and the
Option Closing Date.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to, and agrees with, the several Underwriters that:
(a) The Company is a corporation duly organized and validly
existing under the laws of the State of Israel, with full power and authority,
corporate and other, to own or lease and operate its properties and to conduct
its business as described in the Registration Statement and to execute, deliver
and perform this Agreement, the Warrant Agreement and the Representative's
Warrant Agreement and to consummate the transactions contemplated hereby and
thereby. The Company is duly qualified to do business as a foreign corporation
and is in good standing in all jurisdictions wherein such qualification is
necessary and failure so to qualify could have a material adverse effect on the
financial condition, results of operations, business or properties of the
Company. Other than Accent Worldwide, Inc. ("Accent Worldwide"), Accent
Software International (Europe) Ltd. ("Accent Europe") and AgentSoft Ltd.
("AgentSoft"; Accent Worldwide, Accent Europe and AgentSoft are sometimes
hereinafter individually referred to as a "Subsidiary" and collectively referred
to as the "Subsidiaries"), the Company has no subsidiaries. Except as set forth
in the Prospectus, the Company (i) does not own, and at the Closing Date and, if
later, the Option Closing Date will not own, directly or indirectly, any shares
of stock or any other equity or long-term debt securities of any corporation or
have any equity interest in any corporation, firm, partnership, joint venture,
association or other entity and (ii) is not, and at the Closing Date and, if
later, the Option Closing Date will not be, engaged in any discussions or a
party to any agreement or understanding, written or oral, regarding the
acquisition of an interest in any corporation, firm, partnership, joint venture,
association or other entity. Complete and correct copies of the Memorandum of
Incorporation, Articles of Association or other organizational documents of the
Company and all amendments thereto have been delivered to the Representative,
and no changes therein will be made subsequent to the date hereof and prior to
Closing Date or, if later, the Option Closing Date.
(b) Accent Worldwide is a corporation duly organized, validly
existing and in good standing under the laws
-6-
<PAGE>
of the State of Delaware, with full power and authority, corporate and other, to
own or lease and operate its properties and to conduct its business as described
in the Registration Statement. Accent Worldwide is duly qualified to do
business as a foreign corporation and is in good standing in all jurisdictions
wherein such qualification is necessary and failure so to qualify could have a
material adverse effect on the financial condition, results of operations,
business or properties of the Company or Accent Worldwide. The Company owns all
of the issued and outstanding shares of capital stock of Accent Worldwide, free
and clear of any security interests, liens, encumbrances, claims and charges,
and all of such shares have been duly authorized and validly issued and are
fully paid and nonassessable. There are no options or warrants for the purchase
of, or other rights to purchase, or outstanding securities convertible into or
exchangeable for, any capital stock or other securities of Accent Worldwide.
Complete and correct copies of the Certificate of Incorporation, By-Laws or
other organizational documents of Accent Worldwide and all amendments thereto
have been delivered to the Representative, and no changes therein will be made
subsequent to the date hereof and prior to Closing Date or, if later, the Option
Closing Date.
(c) Accent Europe is a corporation duly organized, validly
existing and in good standing under the laws of the United Kingdom, with full
power and authority, corporate and other, to own or lease and operate its
properties and to conduct its business as described in the Registration
Statement. Accent Europe is duly qualified to do business as a foreign
corporation and is in good standing in all jurisdictions wherein such
qualification is necessary and failure so to qualify could have a material
adverse effect on the financial condition, results of operations, business or
properties of the Company or Accent Europe. The Company owns all of the issued
and outstanding shares of capital stock of Accent Europe, free and clear of any
security interests, liens, encumbrances, claims and charges, and all of such
shares have been duly authorized and validly issued and are fully paid and
nonassessable. There are no options or warrants for the purchase of, or other
rights to purchase, or outstanding securities convertible into or exchangeable
for, any capital stock or other securities of Accent Europe.
Complete and correct copies of the Memorandum of Association, Articles of
Association or other organizational documents of Accent Europe and all
amendments thereto have been delivered to the Representative, and no changes
therein will be made subsequent to the date hereof and prior to Closing Date or,
if later, the Option Closing Date.
(d) AgentSoft is a corporation duly organized, validly existing
and in good standing under the laws of the State of Israel, with full power and
authority, corporate and other, to own or lease and operate its properties and
to conduct its
-7-
<PAGE>
business as described in the Registration Statement. AgentSoft is duly
qualified to do business as a foreign corporation and is in good standing in all
jurisdictions wherein such qualification is necessary and failure so to qualify
could have a material adverse effect on the financial condition, results of
operations, business or properties of the Company or AgentSoft. The Company
owns __% of the issued and outstanding shares of capital stock of AgentSoft,
free and clear of any security interests, liens, encumbrances, claims and
charges, and all of such shares have been duly authorized and validly issued and
are fully paid and nonassessable. There are no options or warrants for the
purchase of, or other rights to purchase, or outstanding securities convertible
into or exchangeable for, any capital stock or other securities of AgentSoft,
except as described in the Registration Statement. Complete and correct copies
of the Memorandum of Association, Articles of Association or other
organizational documents of AgentSoft and all amendments thereto have been
delivered to the Representative, and no changes therein will be made subsequent
to the date hereof and prior to Closing Date or, if later, the Option Closing
Date.
(e) The Company has full corporate power and authority to enter
into this Agreement, the Warrant Agreement and the Representative's Warrant
Agreement. This Agreement has been duly executed and delivered by the Company
and constitutes the valid and binding obligation of the Company, and each of the
Warrant Agreement and the Representative's Warrant Agreement, when executed and
delivered by the Company on the Closing Date, will be valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms, in each case subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally, except that rights to
indemnification and contribution thereunder and under this Agreement may be
limited by United States or state securities laws or public policy relating
thereto. The execution, delivery and performance of this Agreement, the Warrant
Agreement and the Representative's Warrant Agreement by the Company, the
consummation by the Company of the transactions herein and therein contemplated
and the compliance by the Company with the terms of this Agreement, the Warrant
Agreement and the Representative's Warrant Agreement have been duly authorized
by all necessary corporate action and do not and will not, with or without the
giving of notice or the lapse of time, or both, (i) result in any violation of
the Memorandum of Incorporation, Articles of Association or other organizational
documents of the Company; (ii) result in a breach of or conflict with any of the
terms or provisions of, or constitute a default under, or result in the
modification or termination of, or result in the creation or imposition of any
lien, security interest, charge or encumbrance upon any of the properties or
assets of the Company or any of the Subsidiaries pursuant to any indenture,
mortgage, note,
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<PAGE>
contract, commitment or other agreement or instrument to which the Company or
any of the Subsidiaries is a party or by which the Company or any of the
Subsidiaries or any of their respective properties or assets is or may be bound
or affected; (iii) violate any existing applicable law, rule, regulation,
judgment, order or decree of any governmental agency or court, domestic or
foreign, having jurisdiction over the Company or any of the Subsidiaries or any
of their respective properties or business which, in the case of clause (ii) or
(iii), would have a material adverse effect on the financial condition, results
of operations, business or properties of the Company or any of the Subsidiaries
or the ability of the Company or the Subsidiaries to consummate the transactions
contemplated hereby.
(f) The Company has received from the Israel Securities
Authority ("ISA") an exemption (the "ISA exemption") from the requirement to
publish a prospectus in Israel (subject to certain conditions) for the offer and
sale of the Offered Units and such exemption was in full force and effect at the
time of the effectiveness of the Registration Statement and shall be in full
force and effect on the date of the Prospectus, on the date any post-effective
amendments to the Registration Statement shall become effective, and when any
supplement or amendment to the Prospectus is filed with the Commission.
Assuming that the several Underwriters complies with the last two sentences of
Section 1 hereof, no authorization, approval, consent, order, registration,
license or permit of any court or governmental agency or body, other than under
the Securities Act of 1933, as amended (the "Act"), the Regulations (as
hereinafter defined) and applicable state securities or Blue Sky laws, the ISA
exemption, the special permit of the Controller of Foreign Currency of the Bank
of Israel and the approval of the Office of the Chief Scientist of the Ministry
of Trade and Industry ("OCS"), each of which has been received and is in full
force and effect, is required for the valid authorization, issuance, sale and
delivery of the Offered Units, and the consummation by the Company of the
transactions contemplated by this Agreement, the Warrant Agreement or the
Representative's Warrant Agreement or, if so required, all such authorizations,
approvals, consents, orders, registrations, licenses and permits, specifying the
same, have been or, prior to the closing, will be duly obtained and are or will
be in full force and effect.
(g) The Company has prepared in conformity with the requirements
of the Act and the rules and regulations (the "Regulations") of the Securities
and Exchange Commission (the "Commission") and filed with the Commission a
registration statement (File No. 333-7637) on Form S-1 and has filed one or more
amendments thereto, covering the registration of the Securities under the Act,
including the related preliminary prospectus or preliminary prospectuses (each
thereof being herein called a "Preliminary Prospectus") and a proposed final
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<PAGE>
prospectus. Each Preliminary Prospectus was endorsed with the legend required
by Item 501(c)(5) of Regulation S-K of the Regulations, including, if
applicable, Rule 430A of the Regulations. Such registration statement including
any documents incorporated by reference therein and all financial schedules and
exhibits thereto, as amended at the time it becomes effective, and the final
prospectus included therein are herein, respectively, called the "Registration
Statement" and the "Prospectus," except that, (i) if the prospectus filed by the
Company pursuant to Rule 424(b) of the Regulations differs from the Prospectus,
the term "Prospectus" will also include the prospectus filed pursuant to Rule
424(b), and (ii) if the Registration Statement is amended or such Prospectus is
supplemented after the effective date of the Registration Statement (the
"Effective Date") and prior to the Option Closing Date (as hereinafter defined),
the terms "Registration Statement" and "Prospectus" shall include the
Registration Statement as amended or supplemented.
(h) Neither the Commission, the ISA, nor to the best of the
Company's knowledge, any state regulatory authority has issued any order
preventing or suspending the use of any Preliminary Prospectus or has instituted
or, to the Company's knowledge, threatened to institute any proceedings with
respect to such an order.
(i) The Registration Statement when it becomes effective, the
Prospectus (and any amendment or supplement thereto) when it is filed with the
Commission pursuant to Rule 424(b), and both documents as of the Closing Date,
as the case may be, will comply as to form with the Act and the Regulations and
will in all material respects conform to the requirements of the Act and the
Regulations, and neither the Registration Statement nor the Prospectus, nor any
amendment or supplement thereto, on such dates, will contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that this
representation and warranty does not apply to statements or omissions made in
reliance upon and in conformity with information furnished in writing to the
Company by or on behalf of the Underwriters in connection with the Registration
Statement or Prospectus or any amendment or supplement thereto by the
Underwriters expressly for use therein.
(j) Luboshitz, Kasierer & Co., Member Firm of Andersen
Worldwide, SC, the accountants who have certified certain of the financial
statements filed and to be filed with the Commission as part of the Registration
Statement and the Prospectus, are independent public accountants within the
meaning of the Act and Regulations. The financial statements and schedules and
the notes thereto and the selected financial statements and summary financial
statements filed as part of the Registration
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<PAGE>
Statement and included in the Prospectus present fairly in all material respects
the financial position of the Company as of the dates thereof, and the results
of operations and changes in financial position of the Company for the periods
indicated therein, in conformity with generally accepted accounting principles
in Israel and in the United States (which, as applied to the Company for the
periods involved, are substantially identical in all material respects) applied
on a substantially consistent basis throughout the periods involved except as
otherwise stated in the Registration Statement and the Prospectus.
(k) The Company had at the date or dates indicated in the
Prospectus a duly authorized and outstanding capitalization as set forth in the
Registration Statement and the Prospectus. Based on the assumptions stated in
the Registration Statement and the Prospectus, the Company will have on the
Closing Date referred to below the adjusted stock capitalization set forth
therein. Except as disclosed in the Registration Statement or the Prospectus,
on the Effective Date and on the Closing Date referred to below, there will be
no options to purchase, warrants or other rights to subscribe for, or any
securities or obligations convertible into, or any contracts or commitments to
issue or sell, shares of the Company's capital stock or any such warrants,
convertible securities or obligations. Except as set forth in the Prospectus,
no holders of any of the Company's securities have any rights, "demand,"
"piggyback" or otherwise, to have such securities registered under the Act.
(l) The descriptions in the Registration Statement and the
Prospectus of contracts and other documents are accurate and present fairly the
information required to be disclosed, and there are no contracts or other
documents required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement under the
Act or the Regulations which have not been so described or filed as required.
(m) The Company has filed with the appropriate federal, state
and local governmental agencies, and all foreign countries and political
subdivisions thereof, all tax returns, including, without limitation, franchise
tax and sales tax returns, which are required to be filed or has duly obtained
extensions of time for the filing thereof and has paid all taxes shown on such
returns and all assessments received by it to the extent that the same have
become due except where the failure to file tax returns, obtain extensions of
time for filing or pay such taxes and assessment would not have a material
adverse effect on the financial position, results of operations, properties or
business of the Company or any of the Subsidiaries; and the provisions for
income taxes payable, if any, shown on the
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financial statements filed with or as part of the Registration Statement are
sufficient for all accrued and unpaid foreign and domestic taxes, whether or not
disputed, and for all periods to and including the dates of such financial
statements. All payroll withholdings required to be made by the Company with
respect to employees have been made. Except as disclosed in writing to the
Underwriters, the Company has not executed or filed with any taxing authority,
foreign or domestic, any agreement extending the period for assessment or
collection of any income taxes and is not a party to any pending action or
proceeding by any foreign or domestic governmental agency for assessment or
collection of taxes; and no claims for assessment or collection of taxes have
been asserted against the Company.
(n) The outstanding Ordinary Shares and outstanding options and
warrants to purchase Ordinary Shares have been duly authorized and validly
issued. The outstanding Ordinary Shares are fully paid and nonassessable. The
outstanding options and warrants to purchase Ordinary Shares constitute the
valid and binding obligations of the Company, enforceable in accordance with
their terms, in each case subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally, and except that rights to
indemnification and contribution thereunder and under this Agreement may be
limited by United States or state securities laws or public policy relating
thereto. None of the outstanding Ordinary Shares or options or warrants to
purchase Ordinary Shares has been issued in violation of the preemptive rights
of any shareholder of the Company. None of the holders of the outstanding
Ordinary Shares is subject to personal liability solely by reason of being such
a holder. The offers and sales of the outstanding Ordinary Shares and
outstanding options and warrants to purchase Ordinary Shares were at all
relevant times either registered under the Act, the applicable state securities
or Blue Sky laws and any applicable Israeli securities laws or exempt from such
registration requirements. The authorized Ordinary Shares and outstanding
options and warrants to purchase Ordinary Shares conform in all material
respects to the descriptions thereof contained in the Registration Statement and
Prospectus.
(o) The issuance and sale of the Securities have been duly
authorized and, when issued and delivered against payment therefor as
contemplated by this Agreement or by the Warrant Agreement, as the case may be,
the Securities will be validly issued, fully paid and nonassessable. The
holders of the Securities will not be subject to personal liability solely by
reason of being such holders and none of the Securities will be subject to
preemptive rights of any shareholder of the Company.
(p) The issuance and sale of the Warrants and the
Representative's Warrants have been duly authorized and, when
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issued, paid for and delivered pursuant to the terms of this Agreement or the
Representative's Warrant Agreement, as the case may be, the Warrants and the
Representative's Warrants will constitute valid and binding obligations of the
Company, enforceable as to the Company in accordance with their terms, in each
case subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally and except that rights to indemnification and contribution
thereunder and under this Agreement may be limited by United States or state
securities laws or public policy relating thereto. A sufficient number of
Ordinary Shares have been duly reserved for issuance upon exercise of the
Warrants and the Representative's Warrants in accordance with the provisions of
the Warrants and the Representative's Warrants. The Warrants and
Representative's Warrants will conform in all material respects to the
descriptions thereof contained in the Registration Statement and Prospectus.
(q) Neither the Company nor the Subsidiary is in violation of,
or in default under, (i) any term or provision of its Memorandum of Association,
Articles of Association or other organizational documents (ii) any material term
or provision or any financial covenants of any indenture, mortgage, contract,
commitment or other agreement or instrument to which it is a party or by which
it or any of its property or business is or may be bound or affected; or (iii)
any existing applicable law, rule, regulation, judgment, order or decree of any
governmental agency or court, domestic or foreign, having jurisdiction over the
Company or the Subsidiary or any of their respective properties or business,
which, in the case of clause (ii) and (iii), would have a material adverse
effect on the financial condition, results of operations, business or properties
of the Company or the Subsidiary or the ability of the Company or the Subsidiary
to consummate the transactions contemplated hereby. The Company and the
Subsidiary own, possess or have obtained all governmental and other licenses,
permits, certifications, registrations, approvals or consents and other
authorizations ("Permits") necessary to own or lease, as the case may be, and to
operate their properties, and to conduct their respective business or operations
as presently conducted, except where the failure to own, possess or obtain such
Permits would not have a material adverse effect on the financial condition,
results of operations, business or properties of the Company or the Subsidiary.
All such Permits are outstanding and in good standing, and there are no
proceedings pending or, to the best of the Company's knowledge, threatened, or
any basis therefor, seeking to cancel, terminate or limit such Permits.
(r) Except as set forth in the Prospectus, there are no claims,
actions, suits, proceedings, arbitrations, investigations or inquiries before
any governmental agency, court
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or tribunal, domestic or foreign, or before any private arbitration tribunal,
pending, or, to the best of the Company's knowledge, threatened against the
Company or any Subsidiary or involving the Company's or any Subsidiary's
properties or business which, if determined adversely to the Company or any
Subsidiary, would, individually or in the aggregate, have a material adverse
effect on the financial position, results of operations, properties, or business
of the Company or any Subsidiary or which question the validity of the capital
stock of the Company or this Agreement or of any action taken or to be taken by
the Company pursuant to, or in connection with, this Agreement; nor, to the best
of the Company's knowledge, except as disclosed in the Prospectus, is there any
reasonable basis for any such claim, action, suit, proceeding, arbitration,
investigation or inquiry. There are no outstanding orders, judgments or decrees
of any court, governmental agency or other tribunal naming the Company or any
Subsidiary and enjoining the Company or any Subsidiary from taking, or requiring
the Company or any Subsidiary to take, any action, or to which the Company or
any Subsidiary, or the Company's or any Subsidiary's properties or business is
bound or subject which would be material to the Company.
(s) The Company has not incurred any liability for any finder's
fees or similar payments in connection with the transactions herein contemplated
other than payments previously made to the Representative.
(t) (i) The Company and each Subsidiary have sufficient title
and ownership of, or license or other rights to, or have applied for, all
patents, patent applications, trademarks, trademark applications, service marks,
service mark applications, trade names, copyrights, trade secrets, information,
proprietary rights, technologies, know-how and processes (collectively,
"Intellectual Property") necessary for its business as now conducted and as
proposed to be conducted, as described in the Prospectus.
(ii) Except as disclosed in the Prospectus, no claims have
been asserted by any person to the ownership or use of any Intellectual Property
or challenging or questioning the validity or effectiveness of any such license
or agreement and the Company and each Subsidiary have no knowledge of any valid
basis for any such claim. The use of the Intellectual Property by the Company
and each Subsidiary does not infringe on the rights of any person and there are
no pending or, to the knowledge of the Company and each Subsidiary, threatened
claims nor has it been alleged that the Intellectual Property is engaged in such
infringements. All of the trademark and trade name registrations, patents and
copyrights are in full force and effect. Other than potential sublicensees of
the Company and each Subsidiary, no other person has any right to use any
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Intellectual Property for similar or related products in competition with the
products of the Company and each Subsidiary and no other person is infringing
any of the Intellectual Property.
(iii) Each of the Company and each Subsidiary has taken
reasonable steps sufficient to safeguard and maintain the secrecy and
confidentiality of, or their respective proprietary rights in, all of the
unpatented know how, technology, proprietary processes, formulae, and other
information owned by it. Without limiting the generality of the foregoing, each
of the Company and each Subsidiary has obtained confidentiality and secrecy
agreements from all past and present employees and independent third parties
involved in the invention or creation of their respective Intellectual
Properties.
(u) Since the respective dates as of which information is given
in the Registration Statement and the Prospectus, neither the Company nor any
Subsidiary has incurred any material liability or obligation (absolute or
contingent), except liabilities and obligations incurred in the ordinary course
of business, and has not sustained any material loss or interference with its
business from fire, storm, explosion, flood or other casualty, whether or not
covered by insurance, or from any labor dispute or court or governmental action,
order or decree; and since the respective dates as of which information is given
in the Registration Statement and the Prospectus, there have not been, and prior
to the Closing Date referred to below there will not be, any changes in the
capital stock or any material increases in the long-term debt of the Company or
any material adverse change in or affecting the general affairs, management,
financial condition, shareholders' equity, results of operations or prospects of
the Company or any Subsidiary, other than as set forth or contemplated in the
Prospectus.
(v) Neither the Company nor any Subsidiary owns any real
property. Each of the Company and the Subsidiaries have good title to all
material personal property (tangible and intangible) owned by it, free and clear
of all security interests, charges, mortgages, liens, encumbrances and defects,
except such as are described in the Registration Statement and Prospectus or
such as do not materially affect the value or transferability of such property
and do not interfere with the use of such property made, or proposed to be made,
by the Company or any Subsidiary. The leases, licenses or other contracts or
instruments under which the Company and any Subsidiary leases, holds or is
entitled to use any property, real or personal, are valid and subsisting and
neither the Company nor any Subsidiary, nor, to the best of the Company's
knowledge, any other party is in default thereunder and, to the best of the
Company's knowledge, no event has occurred which, with the passage of time or
the giving of notice, or both, would constitute a default thereunder.
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Neither the Company nor any Subsidiary has received notice of any violation of
any applicable law, ordinance, regulation, order or requirement relating to its
owned or leased properties the violation of which would have a material adverse
effect on the Company or any Subsidiary.
(w) Each material contract or other instrument (however
characterized or described) to which the Company or any Subsidiary is a party or
by which their respective properties or business is or may be bound or affected
and to which reference is made in the Prospectus has been duly and validly
executed by the Company and, assuming that such contracts or other instruments
have been properly executed by parties other than the Company, is in full force
and effect in all material respects and is enforceable against the parties
thereto in accordance with its terms, in each case subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally, and subject, as
to enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless or whether
enforcement is sought in a proceeding at law or in equity) and except that
rights to indemnification and contribution thereunder and under this Agreement
may be limited by United States or state securities laws or public policy
relating thereto; and none of such contracts or instruments has been assigned by
the Company or any Subsidiary, and neither the Company nor any Subsidiary, nor,
to the best of the Company's knowledge, any other party is in default thereunder
and, to the best of the Company's knowledge, no event has occurred which, with
the lapse of time or the giving of notice, or both, would constitute a default
thereunder.
(x) The employment agreements between the Company, and between
any Subsidiary, and their respective officers and employees, described in the
Registration Statement, are binding and enforceable obligations upon the
respective parties thereto in accordance with their respective terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
moratorium or other similar laws or arrangements affecting creditors' rights
generally and subject to principles of equity and public policy and subject to
the possible finding by an Israeli court of competent jurisdiction that the
scope, time period or geographic range of any post-employment non-competition
restriction exceeds that required to protect the Company's legitimate interests.
(y) Except as set forth in the Prospectus, neither the Company
nor any Subsidiary has any employee benefit plans (including, without
limitation, profit sharing and welfare benefit plans) or deferred compensation
arrangements that are subject to the provisions of the Employee Retirement
Income Security Act of 1974.
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(z) To the best of the Company's knowledge, no labor problem
exists with any of the Company's or any of the Subsidiaries' employees or is
imminent which could have a material adverse affect on the Company or any
Subsidiary.
(aa) The Company has adequately insured its properties against
loss or damage by fire or other casualty and maintains, in amounts which it
deems, in good faith, to be adequate, such other insurance, including but not
limited to, liability insurance, as is usually maintained by companies engaged
in the same or similar businesses located in its geographic area.
(bb) Neither the Company nor any Subsidiary nor, to their
knowledge any of their respective officers, employees, agents or any other
person acting on behalf of the Company or any of its Subsidiaries has, directly
or indirectly, given or agreed to give any money, gift or similar benefit (other
than legal price concessions to customers in the ordinary course of business) to
any customer, supplier, employee or agent of a customer or supplier, or official
or employee of any governmental agency (domestic or foreign) or instrumentality
of any government (domestic or foreign) or any political party or candidate for
office (domestic or foreign) or other person who was, is, or may be in a
position to help or hinder the business of the Company or the business of any of
its Subsidiaries (or to assist the Company or any of its Subsidiaries in
connection with any actual or proposed transaction) which (a) might subject the
Company or any of its Subsidiaries, or any other such person, to any damage or
penalty in any civil, criminal or governmental litigation or proceeding
(domestic or foreign); (b) if not given in the past, might have had a material
adverse effect on the assets, business or operations of the Company or of any of
its Subsidiaries; or (c) if not continued in the future, might adversely affect
the assets, business, operations or prospects of the Company and of its
Subsidiaries, taken as a whole. The Company believes that its and its
Subsidiaries' international accounting controls are sufficient to cause the
Company and its Subsidiaries to comply with the Foreign Corrupt Practices Act of
1977, as amended.
(ac) The Company has filed in a timely manner all reports and
other documents required to be filed by it with the Commission under the Act and
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
National Association of Securities Dealers Automated Quotation System ("NASDAQ")
and, to the Company's knowledge, each such report or other document contained,
at the time it was filed, such information as was required to be included in
such report or other document and all such information was correct and complete
in all material respects; the Company has made all reports to shareholders
required by law to be made by the Company and each such report was correct and
complete in all material respects; to the
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Company's best knowledge, except as disclosed in the Registration Statement, no
event has occurred or is likely to occur that required would require an
amendment to any report or document referred to in this Section 1(ac) that has
not been filed or distributed as required.
(ad) The Company, in all material respects, has provided to
Littman Krooks & Roth, P.C., counsel to the Representative ("Representative's
Counsel"), all agreements, certificates, correspondence and other items and
documents requested by such counsel's due diligence letter dated October 1,
1996.
(ae) Except as set forth in Prospectus, no officer, director,
principal stockholder or partner of the Company or any of the Subsidiaries, or
any "affiliate" or "associate" (as these terms are defined in Rule 405
promulgated under the Rules and Regulations) of any of the foregoing persons or
entities has or has had, either directly or indirectly, (i) an interest in any
person or entity which (A) furnishes or sells services or products which are
furnished or sold or are proposed to be furnished or sold by the Company or the
Subsidiaries or (B) purchases from or sells or furnishes to the Company or the
Subsidiaries any goods or services, or (ii) a beneficial interest in any
contract or agreement to which the Company or the Subsidiaries is a party or by
which it may be bound or affected. Except as set forth in the prospectus under
"Certain Transactions," there are no existing, agreements, arrangements,
understandings or transactions, or proposed agreements, arrangements,
understandings or transactions, between or among the Company or the
Subsidiaries, and any officer, director, Principal Stockholder (as such term is
defined in the Prospectus) of the Company or the Subsidiaries, or any partner,
affiliate or associate of any of the foregoing persons or entities.
(af) Each of the Company and the Subsidiaries are (i) in
compliance with any and all applicable foreign, Federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) has received all permits, licenses, or
other approvals required of it under applicable Environmental Laws to conduct
its business and (iii) is in compliance with all terms and conditions of any
such permit, license or approval, except where such noncompliance with
Environmental Laws, failure to receive required permits, licenses or other
approvals or failure to comply with the terms and conditions of such permits,
licenses or approvals would not, singly or in the aggregate, have a material
adverse effect on the Company or any of the Subsidiaries or their respective
business, properties, business prospects, condition (financial or otherwise) or
results of operations.
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(ag) Each of the minute books of the Company and the
Subsidiaries have been made available to the Underwriters and contain a complete
record in all material respects of all meetings and actions of the directors and
stockholders of the Company and the Subsidiaries, respectively, since the time
of its respective incorporation, and accurately reflects all transactions
referred to in such minutes in all material respects.
(ah) The Company as of the effective date of the Registration
Statement maintains term key-man insurance on the life of each of Robert S.
Rosenschein and Dr. Jeffrey Rosenschein in the amounts of $3,000,000 and
$2,000,000, respectively, which policies name the Company as the sole
beneficiary thereof.
Any certificate signed by an officer of the Company and delivered
to the Representative or to counsel for the Representative shall be deemed to be
a representation and warranty by the Company to the Representative as to the
matters covered thereby.
5. CERTAIN COVENANTS OF THE COMPANY. The Company covenants with the
several Underwriters as follows:
(a) The Company will not at any time, whether before the
Effective Date or thereafter during such period as the Prospectus is required by
law to be delivered in connection with the sales of the Offered Units by the
several Underwriters, file or publish any amendment or supplement to the
Registration Statement or Prospectus of which the Representative has not been
previously advised and furnished a copy, or to which the Representative shall
object in writing.
(b) The Company will use its best efforts to cause the
Registration Statement to become effective and will advise the Representative
immediately, and, if requested by the Representative, confirm such advice in
writing, (i) when the Registration Statement, or any post-effective amendment to
the Registration Statement or any supplemented Prospectus is filed with the
Commission; (ii) of the receipt of any comments from the Commission; (iii) of
any request of the Commission for amendment or supplementation of the
Registration Statement or Prospectus or for additional information and (iv) of
the issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement or of any order preventing or suspending the use of
any Preliminary Prospectus, or of the suspension of the qualification of the
Offered Units for offering or sale in any jurisdiction, or of the initiation of
any proceedings for any of such purposes. The Company will make every
reasonable effort to prevent the issuance of any such stop order or of any order
preventing or suspending such use and to obtain as soon as possible the lifting
thereof, if any such order is issued.
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(c) The Company will deliver to the several Underwriters,
without charge, from time to time until the Effective Date, as many copies of
each Preliminary Prospectus as the Underwriters may reasonably request, and the
Company hereby consents to the use of such copies for purposes permitted by the
Act. The Company will deliver to the several Underwriters, without charge, as
soon as the Registration Statement becomes effective, and thereafter from time
to time as requested, such number of copies of the Prospectus (as supplemented,
if the Company makes any supplements to the Prospectus) as the Underwriters may
reasonably request. The Company has furnished or will furnish to the
Representative two conformed copies of the Registration Statement as originally
filed and of all amendments thereto, whether filed before or after the
Registration Statement becomes effective, two copies of all exhibits filed
therewith and two conformed copies of all consents and certificates of experts.
(d) The Company will comply with the Act, the Regulations, the
Exchange Act, and the rules and regulations thereunder so as to permit the
continuance of sales of and dealings in the Offered Units, in any Optional Units
which may be issued and sold, and in the Ordinary Shares underlying the
Warrants. If, at any time when a prospectus relating to such Securities is
required to be delivered under the Act, any event occurs as a result of which
the Registration Statement and Prospectus as then amended or supplemented would
include an untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, or if it shall be necessary to amend or
supplement the Registration Statement and Prospectus to comply with the Act or
the regulations thereunder, the Company will promptly file with the Commission,
subject to Section 5(a) hereof, an amendment or supplement which will correct
such statement or omission or which will effect such compliance.
(e) The Company will furnish such proper information as may be
required and otherwise cooperate in qualifying the Securities for offering and
sale under the securities or Blue Sky laws relating to the offering or for sale
in such jurisdictions as the Representative may reasonably designate, provided
that no such qualification will be required in any jurisdiction where, solely as
a result thereof, the Company would be subject to service of general process or
to taxation or qualification as a foreign corporation doing business in such
jurisdiction.
(f) The Company will make generally available to its security
holders, in the manner specified in Rule 158(b) under the Act, and deliver to
the Representative and its counsel as soon as practicable and in any event not
later than 45 days after the end of its fiscal quarter in which the first
anniversary date of the effective date of the Registration
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Statement occurs, an earning statement meeting the requirements of Rule 158(a)
under the Act covering a period of at least 12 consecutive months beginning
after the effective date of the Registration Statement.
(g) For a period of five years from the Effective Date, the
Company will deliver to the Representative and to Representative's Counsel on a
timely basis (i) a copy of each report or document, including, without
limitation, reports on Forms 8-K, 10-C, 10-K and 10-Q and exhibits thereto,
filed or furnished to the Commission, any securities exchange or the National
Association of Securities Dealers, Inc. (the "NASD"); (ii) as soon as
practicable, copies of any reports or communications (financial or other) of the
Company mailed to its security holders; (iii) as soon as practicable, a copy of
any Schedule 13D, 13G, 14D-1 or 13E-3 and Forms 3, 4 and 5 received or prepared
by the Company from time to time; (iv) monthly statements setting forth such
information regarding the Company's results of operations and financial position
(including balance sheet, profit and loss statements but excluding data
regarding outstanding purchase orders) as is regularly prepared by management of
the Company; and (v) such additional information concerning the business and
financial condition of the Company as the Representative may from time to time
reasonably request and which can be prepared or obtained by the Company without
unreasonable effort or expense. The Company will furnish to its shareholders
annual reports containing audited financial statements and such other periodic
reports as it may determine to be appropriate or as may be required by law.
(h) Neither the Company nor any person that is controlled by the
Company will take any action designed to or which might be reasonably expected
to cause or result in the stabilization or manipulation of the price of the
Ordinary Shares or the Securities.
(i) If the transactions contemplated by this Agreement are
consummated, the Representative shall retain the Seventy Thousand Dollars
($70,000) previously paid to it, and the Company will pay or cause to be paid
the following: all costs and expenses incident to the performance of the
obligations of the Company under this Agreement, including, but not limited to,
the fees and expenses of accountants and counsel for the Company, the
preparation, printing, mailing and filing of the Registration Statement
(including financial statements and exhibits), Preliminary Prospectuses and the
Prospectus, and any amendments or supplements thereto, the printing and mailing
of the Selected Dealer Agreement, if any, the issuance and delivery of the Units
to the several Underwriters; all taxes, if any, on the issuance of the Units and
the securities underlying such Units; the fees, expenses and other costs of
qualifying the Units for sale under the Blue Sky or securities laws of those
states in which the
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Units are to be offered or sold, the cost of printing and mailing the "Blue Sky
Survey" and fees and disbursements of counsel in connection therewith, including
those of such local counsel as may have been retained for such purpose; the
filing fees incident to securing any required review by the NASD; the cost of
furnishing to the Underwriters copies of the Registration Statement, Preliminary
Prospectuses and the Prospectus as herein provided; the costs of "bound volumes"
for the Representative and its counsel, the costs of placing "tombstone"
advertisements in the Wall Street Journal and Barrons and all other costs and
expenses incident to the performance of its obligations hereunder which are not
otherwise specifically provided for in this Section 5(i).
In addition, at the Closing Date or the Option Closing Date, as
the case may be, Sands Brothers will, in its individual rather than its
representative capacity, deduct from the payment for the Offered Units and/or
Optional Units purchased two percent (2%) of the gross proceeds of the offering
(less the sum of Seventy Thousand Dollars ($70,000) previously paid to the
Representative), as payment for the Representative's nonaccountable expense
allowance relating to the transactions contemplated hereby.
(j) If the transactions contemplated by this Agreement or
related hereto are not consummated because the Company decides not to proceed
with the offering contemplated hereby for any reason or the Representative on
behalf of the several Underwriters decides not to proceed with the offering
contemplated hereby because of a breach by the Company of any representation,
warranty or covenant contained in this Agreement or as a result of adverse
changes in the affairs of the Company, then the Representative may retain an
amount equal to its actual accountable out-of-pocket expenses up to the sum of
$100,000 (inclusive of the $70,000 previously paid to it); provided, however,
that if the Representative shall terminate this Agreement for any other reason,
then the Company need only reimburse the Representative for its actual
accountable out-of-pocket expenses up to a maximum of $70,000, inclusive of the
$70,000 previously paid to it.
(k) The Company will to apply the net proceeds from the sale of
the Units in the manner, and subject to the conditions, set forth in the
Prospectus under the heading "Use of Proceeds." No portion of the net proceeds
will be used, directly or indirectly, to acquire any securities issued by the
Company.
(l) During the one hundred eighty (180) day period following the
date hereof, none of the Company's officers, directors or holders of five
percent (5%) or more of the Ordinary Shares (the "Principal Shareholders") will
offer for sale or sell or otherwise dispose of any Ordinary Shares owned by
them,
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directly or indirectly, in any manner whatsoever (including pursuant to Rule 144
under the Act), and no holder of registration rights relating to the securities
of the Company will exercise any such registration rights, in either case,
without obtaining the prior written approval of the Representative. The Company
will deliver to the Representative the written undertakings as of the date
hereof of its officers, directors and Principal Shareholders to this effect.
(m) Except for the filing of a Registration Statement on Form
S-3 on or after _______ [180 DAYS FROM DATE HEREOF] to cover the shares
underlying 150,000 warrants issued to IMR Fund, L.P. in connection with the IMR
Notes (as defined in the Prospectus), the Company will not file any registration
statement relating to the offer or sale of any of the Company's securities,
including any registration statement on Form S-8, during the twelve (12) months
following the date hereof without the Representative's prior written consent.
(n) The Company maintains and will continue to maintain a system
of internal accounting controls sufficient to provide reasonable assurances
that: (i) transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary in order to
permit preparation of financial statements in accordance with generally accepted
accounting principles and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(o) The Company will use its best efforts to maintain the
listing of the Shares and the Units on the NASDAQ SmallCap Market for so long as
the Shares and the Units remain qualified for such listing.
(p) Subject to the sale of the Offered Units, the Company shall
cause its legal counsel to provide the several Underwriters with a list, to be
updated at least annually, of those states in which the Ordinary Shares may be
traded on non-issuer transactions under the Blue Sky laws of the several states
until such time as the Ordinary Shares are listed on the New York Stock Exchange
or the American Stock Exchange.
(q) Subject to the sale of the Offered Units, for a period of
not less than three (3) years from the date hereof, the Company will, at
Representative's option and if so requested by Representative, recommend and use
its best efforts to elect one designee of Representative, at the option of
Representative, either as a member of or nonvoting advisor to its Board of
Directors; such designee, if elected or appointed, shall attend
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meetings of the Board and receive no more or less compensation than is paid to
other non-management directors of the Company and shall be entitled to receive
reimbursement for all reasonable costs incurred in attending such meetings
including, but not limited to, food, lodging and transportation. Representative
shall have the right to elect one designee as an nonvoting advisor to the Board
from the Effective Date to the Approval Date. The Company agrees to indemnify
and hold Representative and its designee harmless, to the maximum extent
permitted by law, against any and all claims, actions, awards and judgments
arising out of such designee's service as a director or advisor and in the event
the Company maintains a liability insurance policy affording coverage for the
acts of its officers and directors, to include each of Representative and its
designee as an insured under such policy.
If Representative does not exercise its option to designate such
member of or advisor to the Company's Board of Directors, Representative shall
nonetheless have the right to send a representative (who need not be the same
individual from meeting to meeting) to observe each meeting of the Board of
Directors. The Company agrees to give Representative notice of each such
meeting and to provide Representative with an agenda and minutes of the meeting
no later than it gives such notice and provides such items to the directors.
(r) Subject to the sale of the Offered Units, the Representative
shall have the right of first refusal with respect to future public sales of
debt and equity securities of the Company, any subsidiary or successor to the
Company or any Company securities held by any Principal Shareholders for a three
year period following the date hereof. It is understood that if such a proposed
financing is offered to Representative, Representative shall have thirty (30)
days in which to determine whether or not to accept such offer and, if
Representative refuses, and provided that such a financing is consummated (a)
with another underwriter or placement agent upon the same terms and conditions
as those offered to Representative and (b) within six months after the end of
the aforesaid thirty (30) day period, this right of first refusal shall
thereafter be forfeited and terminated; PROVIDED, HOWEVER, if the financing is
not consummated under the conditions of clauses (a) and (b) above, then the
right of first refusal shall once again be reinstated under the same terms and
conditions set forth in this paragraph.
(s) The Company hereby agrees, at its sole cost and expense, to
supply and deliver to the Representative, within a reasonable period from the
date hereof, four (4) bound volumes, including the Registration Statement, as
amended or supplemented, all exhibits to the Registration Statement, the
Prospectus and all other underwriting documents.
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(t) Subject to the sale of the Offered Units, the Company shall
pay the Representative a finder's fee equal to five (5%) percent of the first $
5 million, four (4%) of the next $1 million, three (3%) of the next $1 million,
two (2%) of the next $1 million and one (1%) percent thereafter, of
consideration in the event the Company, following the Closing, is a party to any
merger, acquisition, joint venture or other similar transaction introduced
directly or indirectly by the Representative and the Representative actively
provides merger and acquisition services in connection therewith.
(u) During the period commencing one year after the Effective
Date, the Representative shall be entitled to receive a warrant solicitation fee
of 5% of the aggregate exercise price of the Warrants for each Warrant
exercised; provided, however, that the Representative will not be entitled to
receive such compensation in Warrant exercise transactions in which (i) the
market price of the Ordinary Shares at the time of exercise is less than the
exercise price of the Warrants; (ii) the Warrants are held in any discretionary
account and prior specific written approval for such exercise has not been
received from the customer; (iii) disclosure of compensation arrangements is not
made, in addition to the disclosure provided in this Prospectus, in documents
provided to holders of the Warrants at the time of exercise; (iv) the exercise
of the Warrants is unsolicited by the Representative; or (v) the solicitation of
exercise of the Warrants was in violation of Rule 10b-6 promulgated under the
Exchange Act.
(v) The Company shall continue to retain a transfer agent for
the Units, Ordinary Shares and Warrants, reasonably acceptable to the
Representative, for a period of five (5) years following the Effective Date. In
addition, for a period of three (3) years from the Effective Date, the Company,
at its own expense, shall cause such transfer agent to provide the
Representative, if so requested in writing, with copies of the Company's daily
transfer sheets, and, when so requested by the Representative, a current list of
the Company's security holders, including a list of the beneficial owners of
securities held by a depository trust company and other nominees.
(w) The Company shall, as of the date hereof, have applied for
listing in Standard & Poor's Corporation Records Service (including annual
report information) or Moody's Industrial Manual (Moody's OTC Industrial Manual
not being sufficient for these purposes) and shall use its best efforts to have
the Company listed in such manual and shall maintain such listing for a period
of five (5) years from the Effective Date.
(x) For a period of two (2) years following the Effective Date,
the Company shall provide the Representative, on a not less than annual basis,
with internal forecasts setting
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forth projected results of operations for each quarterly and annual period in
the two (2) fiscal years following the respective dates of such forecasts. Such
forecasts shall be provided to the Representative more frequently than annually
if revised forecasts which reflect more current information, and significantly
revised assumptions or indicate future results that differ materially from those
set forth in the forecasts.
(y) For a period of five (5) years following the Effective Date,
or until such earlier time as the Ordinary Shares and Warrants are listed on the
New York Stock Exchange or the American Stock Exchange, the Company shall cause
its legal counsel to provide the Representative with a list, to be updated at
least annually, of those states in which the Ordinary Shares and Warrants may be
traded in non-issuer transactions under the Blue Sky laws of the 50 states.
(z) For a period of five (5) years following the Effective Date,
the Company shall continue to retain Luboshitz, Kasierer & Co. (or a nationally
recognized accounting firm acceptable to the Representative) as the Company's
independent public accountants and shall promptly, upon the Company's receipt
thereof, submit to the Representative copies of such accountants' management
reports and similar correspondence between such accountants and the Company.
(aa) For a period of five (5) years following the Effective Date,
the Company, at its expense, shall cause its then independent certified public
accountants, as described in Section 5(x) above, to review (but not audit) the
Company's financial statements for each of the first three fiscal quarters prior
to the announcement of quarterly financial information, the filing of the
Company's 10-Q quarterly report and the mailing of quarterly financial
information to shareholders.
(ab) So long as any Warrants are outstanding or until the
holders thereof can avail themselves of Rule 144(k) (promulgated pursuant to the
Act) without restriction, the Company shall use its best efforts to cause
post-effective amendments to the Registration Statement to become effective in
compliance with the Act as shall be necessary to enable the sale of the Ordinary
Shares underlying the Warrants and cause a copy of each Prospectus, as then
amended, to be delivered to each holder of record of a Warrant as they request
and as otherwise required by law and, to furnish to the several Underwriters as
many copies of each such Prospectus as they may reasonably request.
(ac) For a period of twenty-five (25) days following the
Effective date, the Company will not issue press releases or engage in any other
publicity without the Representative's prior written consent, other than normal
and
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customary releases issued in the ordinary course of the Company's business or
those releases required by law.
6. CONDITIONS OF THE UNDERWRITERS' OBLIGATION TO PURCHASE OFFERED
UNITS FROM THE COMPANY.
The obligation of the several Underwriters to purchase and pay for the
Offered Units which it has agreed to purchase from the Company is subject (as of
the date hereof and the Closing Date) to the accuracy in all material respects
of the representations and warranties of the Company herein, to the accuracy of
the statements of the Company or its officers made pursuant hereto, to the
performance in all material respects by the Company of its obligations
hereunder, and to the following additional conditions:
(a) The Registration Statement will have become effective not
later than 10:30 A.M., New York City time, on the day following the date of this
Agreement, or at such later time or on such later date as the Representative may
agree to in writing; prior to the Closing Date, no stop order suspending the
effectiveness of the Registration Statement will have been issued and no
proceedings for that purpose will have been initiated or will be pending or, to
the best of the Representative's or the Company's knowledge, will be
contemplated by the Commission; and any request on the part of the Commission
for additional information will have been complied with to the satisfaction of
Representative's Counsel.
(b) At the time that this Agreement is executed and at the
Closing Date, there will have been delivered to the Underwriters signed opinions
of Weil, Gotshal & Manges, counsel for the Company; Yigal Arnan & Co., Israeli
counsel to the Company; Robert Trachtenberg, general counsel to the Company; and
Law Offices of ______________, Israeli trademark counsel to the Company, each
dated as of the date hereof or the Closing Date, as the case may be (and any
other opinions of counsel referred to in such opinion of Company Counsel or
relied upon by Company Counsel in rendering their opinion), substantially as set
forth in Exhibit 6b.
(c) At the Closing Date, the Underwriters shall have received an
opinion of Naschitz, Brandes & Co., Israeli counsel to the Underwriters, which
opinion shall be satisfactory in all respects to the Underwriters.
(d) At the Closing Date (i) the Registration Statement and the
Prospectus and any amendments or supplements thereto will conform in all
material respects to the requirements of the Act and the Regulations, and
neither the Registration Statement nor the Prospectus nor any amendment or
supplement thereto will contain any untrue statement of a material fact or
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omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading; (ii) since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there will not have been
any material adverse change in the financial condition, results of operations or
general affairs of the Company from that set forth or contemplated in the
Registration Statement and the Prospectus, except changes which the Registration
Statement and the Prospectus indicates might occur after the Effective Date;
(iii) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there shall have been no material
transaction, contract or agreement entered into by the Company, other than in
the ordinary course of business, which would be required to be set forth in the
Registration Statement and the Prospectus, other than as set forth therein; and
(iv) no action, suit or proceeding at law or in equity will be pending or, to
the best of the Company's knowledge, threatened against the Company which is
required to be set forth in the Registration Statement and the Prospectus, other
than as set forth therein, and no proceedings will be pending or, to the best of
the Company's knowledge, threatened against the Company before or by any
federal, state or other commission, board or administrative agency wherein an
unfavorable decision, ruling or finding would materially adversely affect the
business, property, financial condition or results of operations of the Company,
other than as set forth in the Registration Statement and the Prospectus. At
the Closing Date, there will be delivered to the several Underwriters a
certificate signed by the Chairman of the Board or the President or a Vice
President of the Company, dated the Closing Date, evidencing compliance with the
provisions of this Section 6(d) and stating that the representations and
warranties of the Company set forth in Section 4 hereof were accurate and
complete in all material respects when made on the date hereof and are accurate
and complete in all material respects on the Closing Date as if then made; that
the Company has performed all covenants and complied with all conditions
required by this Agreement to be performed or complied with by the Company prior
to or as of the Closing Date; and that, as of the Closing Date, no stop order
suspending the effectiveness of the Registration Statement has been issued and
no proceedings for that purpose have been initiated or, to his knowledge, are
contemplated or threatened. In addition, the Representative will have received
such other and further certificates of officers of the Company as the
Representative or Representative's Counsel may reasonably request.
(e) At the time that this Agreement is executed and at the
Closing Date, the several Underwriters will have received a signed letter from
Luboshitz, Kasierer & Co., Member Firm of Andersen Worldwide SC, dated the date
such letter is to be received by the Underwriters and addressed to them,
confirming
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that it is a firm of independent public accountants within the meaning of the
Act and Regulations and stating that: (i) insofar as reported on by them, in
their opinion, the financial statements of the Company included in the
Prospectus comply as to form in all material respects with the applicable
accounting requirements of the Act and the applicable Regulations; (ii) on the
basis of procedures and inquiries (not constituting an examination in accordance
with generally accepted auditing standards) consisting of a reading of the
unaudited interim financial statements of the Company, if any, appearing in the
Registration Statement and the Prospectus and the latest available unaudited
interim financial statements of the Company, if more recent than that appearing
in the Registration Statement and Prospectus, inquiries of officers of the
Company responsible for financial and accounting matters as to the transactions
and events subsequent to the date of the latest audited financial statements of
the Company, and a reading of the minutes of meetings of the shareholders, the
Board of Directors of the Company and any committees of the Board of Directors,
as set forth in the minute books of the Company, nothing has come to their
attention which, in their judgment, would indicate that (A) during the period
from the date of the latest financial statements of the Company appearing in the
Registration Statement and Prospectus to a specified date not more than three
business days prior to the date of such letter, there have been any decreases in
net current assets or net assets as compared with amounts shown in such
financial statements or decreases in net sales or increases in total or per
share net loss compared with the corresponding period in the preceding year or
any change in the capitalization or long-term debt of the Company, except in all
cases as set forth in or contemplated by the Registration Statement and the
Prospectus, and (B) the unaudited interim financial statements of the Company,
if any, appearing in the Registration Statement and the Prospectus, do not
comply as to form in all material respects with the applicable accounting
requirements of the Act and the Regulations or are not fairly presented in
conformity with generally accepted accounting principles and practices on a
basis substantially consistent with the audited financial statements included in
the Registration Statement or the Prospectus; and (iii) they have compared
specific dollar amounts, numbers of shares, numerical data, percentages of
revenues and earnings, and other financial information pertaining to the Company
set forth in the Prospectus (with respect to all dollar amounts, numbers of
shares, percentages and other financial information contained in the Prospectus,
to the extent that such amounts, numbers, percentages and information may be
derived from the general accounting records of the Company, and excluding any
questions requiring an interpretation by legal counsel) with the results
obtained from the application of specified readings, inquiries and other
appropriate procedures (which procedures do not constitute an examination in
accordance with generally accepted auditing standards) set forth in the letter,
and found them to be in agreement.
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(f) There shall have been duly tendered to the Representative
certificates representing the Offered Units to be sold on the Closing Date.
(g) The NASD shall have indicated that it has no objection to
the underwriting arrangements pertaining to the sale of the Units by the
Underwriters.
(h) No action shall have been taken by the Commission or the
NASD the effect of which would make it improper, at any time prior to the
Closing Date or the Option Closing Date, as the case may be, for any member firm
of the NASD to execute transactions (as principal or as agent) in the Shares or
Warrants, and no proceedings for the purpose of taking such action shall have
been instituted or shall be pending, or, to the best of the Underwriters' or the
Company's knowledge, shall be contemplated by the Commission or the NASD. The
Company represents at the date hereof, and shall represent as of the Closing
Date or Option Closing Date, as the case may be, that it has no knowledge that
any such action is in fact contemplated by the Commission or the NASD.
(i) All proceedings taken at or prior to the Closing Date or the
Option Closing Date, as the case may be, in connection with the authorization,
issuance and sale of the Shares or Warrants shall be reasonably satisfactory in
form and substance to the Representative and to Representative's Counsel, and
such counsel shall have been furnished with all such documents, certificates and
opinions as they may reasonably request for the purpose of enabling them to pass
upon the matters referred to in Section 6(d) hereof and in order to evidence the
accuracy and completeness of any of the representations, warranties or
statements of the Company, the performance of any covenants of the Company, or
the compliance by the Company with any of the conditions herein contained.
If any of the conditions specified in this Section 6 have not
been fulfilled, this Agreement may be terminated by the Representative on notice
to the Company.
7. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each officer, director, partner, employee and agent of each
Underwriter, and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, from and
against any losses, claims, damages or liabilities, joint or several (which
shall, for all purposes of this Agreement, include, but not be limited to, all
reasonable costs of defense and investigation and all attorneys' fees), to which
they or any of them may become subject, under the Act or otherwise, and will
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reimburse, as incurred, the Underwriters and such persons for any legal or other
expenses reasonably incurred in connection with investigating, defending against
or appearing as a third party witness in connection with any losses, claims,
damages or liabilities, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in (A) the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, (B) any blue sky application or other document
executed by the Company specifically for that purpose or based upon written
information furnished by the Company filed in any state or other jurisdiction in
order to qualify any or all of the Securities under the securities laws thereof
(any such application, document or information being hereinafter called a "Blue
Sky Application"), or arise out of or are based upon the omission or alleged
omission to state in the Registration Statement, any Preliminary Prospectus,
Prospectus, or any amendment or supplement thereto, or in any Blue Sky
Application, a material fact required to be stated therein or necessary to make
the statements therein not misleading; provided, however, that the Company will
not be liable in any such case to the extent, but only to the extent, that any
such loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of the Underwriters specifically for use in the
preparation of the Registration Statement or any such amendment or supplement
thereof or any such Blue Sky Application or any such preliminary Prospectus or
the Prospectus or any such amendment or supplement thereto. This indemnity will
be in addition to any liability which the Company may otherwise have.
(b) Each Underwriter severally, but not jointly, will indemnify
and hold harmless the Company, each of its directors, each nominee (if any) for
director named in the Prospectus, each of its officers who have signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, from
and against any losses, claims, damages or liabilities (which shall, for all
purposes of this Agreement, include, but not be limited to, all costs of defense
and investigation and all attorneys' fees) to which the Company or any such
director, nominee, officer or controlling person may become subject under the
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or the
alleged omission to
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state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto, in reliance
upon and in conformity with written information furnished to the Company by you
or by any Underwriter through you specifically for use in the preparation
thereof.
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section, notify in writing the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under this Section. In case any such action is brought against any indemnified
party, and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, subject to the provisions herein stated, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation. The indemnified party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party; provided that if the indemnified party is an Underwriter
or a person who controls such Underwriter within the meaning of the Act, the
fees and expenses of such counsel shall be at the expense of the indemnifying
party if (i) the employment of such counsel has been specifically authorized in
writing by the indemnifying party or (ii) the named parties to any such action
(including any impleaded parties) include both such Underwriter or such
controlling person and the indemnifying party and in the judgment of the
Representative, it is advisable for the Representative or such Underwriters or
controlling persons to be represented by separate counsel (in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of such Underwriter or such controlling person, it being understood,
however, that the indemnifying party shall not, in connection with any one such
action or separate but substantially similar or related actions in the same
jurisdiction
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arising out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys for all
such Underwriters and controlling persons, which firm shall be designated in
writing by you). No settlement of any action against an indemnified party shall
be made without the consent of the indemnifying party, which shall not be
unreasonably withheld in light of all factors of importance to such indemnifying
party.
8. CONTRIBUTION. In order to provide for just and equitable
contribution under the Act in any case in which (i) any Underwriter makes claim
for indemnification pursuant to Section 7 hereof but it is judicially determined
(by the entry of a final judgment or decree by a court of competent jurisdiction
and the expiration of time to appeal or the denial of the last right of appeal)
that such indemnification may not be enforced in such case, notwithstanding the
fact that the express provisions of Section 7 provide for indemnification in
such case, or (ii) contribution under the Act may be required on the part of any
Underwriter, then the Company and each person who controls the Company, in the
aggregate, and any such Underwriter shall contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (which shall, for
all purposes of this Agreement, include, but not be limited to, all reasonable
costs of defense and investigation and all reasonable attorneys' fees) in either
such case (after contribution from others) in such proportions that all such
Underwriters are responsible in the aggregate for that portion of such losses,
claims, damages or liabilities represented by the percentage that the
underwriting discount per share appearing on the cover page of the Prospectus
bears to the public offering price appearing thereon, and the Company shall be
responsible for the remaining portion, provided, however, that (a) if such
allocation is not permitted by applicable law then the relative fault of the
Company and the Underwriters and controlling persons, in the aggregate, in
connection with the statements or omissions which resulted in such damages and
other relevant equitable considerations shall also be considered. The relative
fault shall be determined by reference to, among other things, whether in the
case of an untrue statement of a material fact or the omission to state a
material fact, such statement or omission relates to information supplied by the
Company or the Underwriters and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such untrue statement or
omission. The Company and the Underwriters agree that it would not be just and
equitable if the respective obligations of the Company and the Underwriters to
contribute pursuant to this Section 7 were to be determined by pro rata or per
capita allocation of the aggregate damages (even if the Underwriters and their
respective controlling persons in the aggregate were treated as one entity for
such purpose) or by any other method of allocation that does not take account of
the
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equitable considerations referred to in the first sentence of this Section 7 and
(b) that the contribution of each contributing Underwriter shall not be in
excess of its proportionate share (based on the ratio of the number of Units
purchased by such Underwriter to the number of Units purchased by all
contributing Underwriters) of the portion of such losses, claims, damages or
liabilities for which the Underwriters are responsible. No person guilty of a
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. As used in this paragraph, the term "Underwriter"
includes any officer, director, or other person who controls an Underwriter
within the meaning of Section 15 of the Act, the word "Company" includes any
officer, director, or person who controls the Company within the meaning of
Section 15 of the Act. If the full amount of the contribution specified in this
paragraph is not permitted by law, then any Underwriter and each person who
controls any Underwriter shall be entitled to contribution from the Company, its
officers, directors and controlling persons to the full extent permitted by law.
The foregoing contribution agreement shall in no way affect the contribution
liabilities of any persons having liability under Section 11 of the Act other
than the Company and the Underwriters. No contribution shall be requested with
regard to the settlement of any matter from any party who did not consent to the
settlement; provided, however, that such consent shall not be unreasonably
withheld in light of all factors of importance to such party.
9. SUBSTITUTION OF UNDERWRITERS. If any Underwriters shall for any
reason not permitted hereunder cancel their obligations to purchase the Offered
Units hereunder, or shall fail to take up and pay for the number of Offered
Units set forth opposite their respective names in Schedule A hereto upon tender
of such Offered Units in accordance with the terms hereof, then:
(a) If the aggregate number of Offered Units which such
Underwriter or Underwriters agreed but failed to purchase does not exceed 10% of
the total number of Offered Units, the other Underwriters shall be obligated
severally, in proportion to their respective commitments hereunder, to purchase
the Offered Units which such defaulting Underwriter or Underwriters agreed but
failed to purchase.
(b) If any Underwriter or Underwriters so default and the agreed
number of Offered Units with respect to which such default or defaults occurs is
more than 10% of the total number of Offered Units, the remaining Underwriters
shall have the right to take up and pay for (in such proportion as may be agreed
upon among them) the Offered Units which the defaulting Underwriter or
Underwriters agreed but failed to purchase. If such remaining Underwriters do
not, at the Closing Date, take up and pay for the
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Offered Units which the defaulting Underwriter or Underwriters agreed but failed
to purchase, the time for delivery of the Offered Units shall be extended to the
next business day to allow the several Underwriters the privilege of
substituting within twenty-four hours (including nonbusiness hours) another
underwriter or underwriters satisfactory to the Company. If no such underwriter
or underwriters shall have been substituted as aforesaid, within such
twenty-four hour period, the time of delivery of the Offered Units may, at the
option of the Company, be again extended to the next following business day, if
necessary, to allow the Company the privilege of finding within twenty-four
hours (including nonbusiness hours) another underwriter or underwriters to
purchase the Offered Units which the defaulting Underwriter or Underwriters
agreed but failed to purchase. If it shall be arranged for the remaining
Underwriters or substituted Underwriters to take up the Offered Units of the
defaulting Underwriter or Underwriters as provided in this Section, (i) the
Company or the Representative shall have the right to postpone the time of
delivery for a period of not more than seven business days, in order to effect
whatever changes may thereby be made necessary in the Registration Statement or
the Prospectus, or in any other documents or arrangements, and the Company
agrees promptly to file any amendments to the Registration Statement or
supplements to the Prospectus which may thereby be made necessary, and (ii) the
respective numbers of Offered Units to be purchased by the remaining
Underwriters or substituted Underwriters shall be taken at the basis of the
underwriting obligation for all purposes of this Agreement.
If in the event of a default by one or more Underwriters and the
remaining Underwriters shall not take up and pay for all the Offered Units
agreed to be purchased by the defaulting Underwriters or substitute another
underwriter or underwriters as aforesaid, and the Company shall not find or
shall not elect to seek another underwriter or underwriters for such Offered
Units as aforesaid, then this Agreement shall terminate.
If, following exercise of the option provided in Section 3(a)
hereof, any Underwriter or Underwriters shall for any reason not permitted
hereunder cancel their obligations to purchase Optional Shares and/or Optional
Warrants at the Option Closing Date, or shall fail to take up and pay for the
number of Optional Shares and/or Optional Warrants, which they become obligated
to purchase at the Option Closing Date upon tender of such Optional Shares
and/or Optional Warrants in accordance with the terms hereof, then the remaining
Underwriters or substituted Underwriters may take up and pay for the Optional
Units of the defaulting Underwriters in the manner provided in Section 9(b)
hereof. If the remaining Underwriters or substituted Underwriters shall not
take up and pay for all such Optional Shares and/or Optional Warrants, then the
Underwriters shall be
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entitled to purchase the number of Optional Shares and/or Optional Warrants for
which there is no default or, at their election, the option shall terminate, the
exercise thereof shall be of no effect.
As used in this Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section. In the event of termination,
there shall be no liability on the part of any nondefaulting Underwriter to the
Company, provided that the provisions of this Section 9 shall not in any event
affect the liability of any defaulting Underwriter to the Company arising out of
such default.
10. SURVIVAL OF INDEMNITIES, CONTRIBUTION, WARRANTIES AND
REPRESENTATIONS. The respective indemnity and contribution agreements of the
Company and the Underwriters contained in Sections 7 and 8 hereof, and the
representations and warranties of the Company contained herein shall remain
operative and in full force and effect, regardless of any investigation made by
or on behalf of the Underwriters, the Company or any of its directors and
officers, or any controlling person referred to in said Sections, and shall
survive the delivery of, and payment for, the Shares and the Warrants.
11. TERMINATION OF AGREEMENT.
(a) The Company, by written or telegraphic notice to the
Underwriter, or the Underwriter, by written or telegraphic notice to the
Company, may terminate this Agreement prior to the earlier of (i) 11:00 A.M.,
New York City time, on the first full business day after the Effective Date; or
(ii) the time when the Underwriter, after the Registration Statement becomes
effective, releases the Offered Units for public offering. The time when the
Underwriter "releases the Offered Units for public offering" for the purposes of
this Section 10 means the time when the Underwriters release for publication the
first newspaper advertisement, which is subsequently published, relating to the
Offered Units, or the time when the Underwriters release for delivery to members
of a selling group copies of the Prospectus and an offering letter or an
offering telegram relating to the Offered Units, whichever will first occur.
(b) This Agreement, including without limitation, the obligation
to purchase the Offered Units and the obligation to purchase the Optional Units
after exercise of the option referred to in Section 3 hereof, are subject to
termination in the absolute discretion of the Representative, by notice given to
the Company prior to delivery of and payment for all the Offered Units or the
Optional Units, as the case may be, if, prior to such time, any of the following
shall have occurred: (i) the Company withdraws the Registration Statement from
the Commission or the Company does not or cannot expeditiously proceed with the
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public offering; (ii) the representations and warranties in Section 4 hereof are
not materially correct or covenants in Section 5 hereof cannot be complied with;
(iii) trading in securities generally on the New York Stock Exchange or the
American Stock Exchange will have been suspended; (iv) limited or minimum prices
will have been established on either such Exchange; (v) a banking moratorium
will have been declared either by United States federal or New York State
authorities; (vi) any other restrictions on transactions in securities
materially affecting the free market for securities or the payment for such
securities, including the Offered Units or the Optional Units, will be
established by NASDAQ, by the Commission, by any other United States federal or
state agency, by action of the Congress or by Executive Order; (vii) trading in
any securities of the Company shall have been suspended or halted by any
national securities exchange, the NASD or the Commission; (viii) there has been
a materially adverse change in the condition (financial or otherwise), prospects
or obligations of the Company; (ix) the Company will have sustained a material
loss, whether or not insured, by reason of fire, flood, accident or other
calamity; (x) any action has been taken by the government of the United States
or the State of Israel or any department or agency thereof which, in the
judgment of the Underwriter, has had a material adverse effect upon the market
or potential market for securities in general; or (xi) the market for securities
in general or political, financial or economic conditions will have so
materially adversely changed that, in the judgment of the Underwriter, it will
be impracticable to offer for sale, or to enforce contracts made by the
Underwriter for the resale of, the Offered Units or the Optional Units, as the
case may be.
(c) If this Agreement is terminated pursuant to Section 6 hereof
or this Section 11 or if the purchases provided for herein are not consummated
because any condition of the Underwriters' obligations hereunder is not
satisfied or because of any refusal, inability or failure on the part of the
Company to comply with any of the terms or to fulfill any of the conditions of
this Agreement, or if for any reason the Company shall be unable to or does not
perform all of its obligations under this Agreement, the Company will not be
liable to the Underwriter for damages on account of loss of anticipated profits
arising out of the transactions covered by this Agreement, but the Company will
remain liable to the extent provided in Sections 5(j), 7, 8 and 10 of this
Agreement.
12. INFORMATION FURNISHED BY THE UNDERWRITERS TO THE COMPANY. It is
hereby acknowledged and agreed by the parties hereto that for the purposes of
this Agreement, including, without limitation, Sections 4(i), 7(a), 7(b) and 8
hereof, the only information given by the Underwriters to the Company for use in
the Prospectus are the statements set forth on page [2] with respect to
stabilization, under the heading "Underwriting" and
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<PAGE>
the identity of counsel to the Underwriters under the heading "Legal Matters,"
as such information appears in any Preliminary Prospectus and in the Prospectus.
13. NOTICES AND GOVERNING LAW. All communications hereunder will be
in writing and, except as otherwise provided, will be delivered at, or mailed by
certified mail, return receipt requested, or telegraphed to, the following
addresses: if to the Placement Agent, to 90 Park Avenue, New York, New York
10016, Attention: Alan Bluestine, Executive Vice President, with a copy to
Littman Krooks & Roth, P.C., Attn: Mitchell C. Littman, Esq., 120 West 45th
Street, New York, New York 10036; if to the Company, addressed to it at 28
Pierre Koenig Street, POB 53063, Jerusalem 91530 Israel, Attention: Robert S.
Rosenschein, President and Chief Executive Officer, with a copy to Weil, Gotshal
& Manges, 767 Fifth Avenue, New York, New York 10153, Attention: Stephen M.
Besen, Esq. and to Yigal Arnon & Co., 3 Daniel Frisch Street, Tel Aviv 64731
Israel, Attention: Barry P. Levenfeld, Esq.; or, in each case, to such other
address as the parties may hereinafter designate by like notice.
This Agreement shall be deemed to have been made and delivered in
New York City and shall be governed as to validity, interpretation,
construction, effect and in all other respects by the internal laws of the State
of New York. The Company (1) agrees that any legal suit, action or proceeding
arising out of or relating to this Agreement shall be instituted exclusively in
New York State Supreme Court, County of New York, or in the United States
District Court for the Southern District of New York, (2) waives any objection
which the Company may have now or hereafter to the venue of any such suit,
action or proceeding, and (3) irrevocably consents to the jurisdiction of the
New York State Supreme Court, County of New York, and the United States District
Court for the Southern District of New York in any such suit, action or
proceeding. The Company further agrees to accept and acknowledge service of any
and all process which may be served in any such suit, action or proceeding in
the New York State Supreme Court, County of New York, or in the United States
District Court for the Southern District of New York and agrees that service of
process upon the Company mailed by certified mail to the Company's address shall
be deemed in every respect effective service of process upon the Company, in any
such suit, action or proceeding.
14. PARTIES IN INTEREST. This Agreement is made solely for the
benefit of the several Underwriters, the Company and, to the extent expressed,
any person controlling the Company or any of the Underwriters, each officer,
director, partner, shareholder, employee and agent of the several Underwriters,
the directors of the Company, its officers who have signed the Registration
Statement, and their respective executors, administrators, successors and
assigns, and, no other person will
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acquire or have any right under or by virtue of this Agreement. The term
"successors and assigns" will not include any purchaser of the Shares or
Warrants from any of the several Underwriters, as such purchaser.
15. VALIDITY. In case any term of this Agreement will be held
invalid, illegal or unenforceable, in whole or in part, the validity of any
other terms of this Agreement will not in any way be affected thereby.
16. ENTIRE AGREEMENT. This Agreement contains the entire agreement
and understanding of the parties with respect to the subject matter hereof, and
there are no representations, inducements, promises or agreements, oral or
otherwise, not embodied herein.
17. COUNTERPARTS. This Agreement may be executed in counterparts and
each of such counterparts will for all purposes be deemed to be an original, and
such counterparts together will constitute one and the same instrument.
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<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement between the Company and the
Underwriter in accordance with its terms.
Very truly yours,
ACCENT SOFTWARE INTERNATIONAL LTD.
By:
-------------------------------------
Name:
Title:
Confirmed and accepted in
New York, N.Y., as of the
date first above written:
SANDS BROTHERS & CO., LTD.
By:
--------------------------------
For itself and as Representative
of the several Underwriters
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<PAGE>
SCHEDULE A
Name of Underwriter Number of Units to be Purchased
- ------------------- -------------------------------
Sands Brothers & Co., Ltd.
Total: 1,800,000
---------
---------
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<PAGE>
EXHIBIT 6(b)
[TO COME]
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<PAGE>
WARRANT AGREEMENT dated as of _________ __, 1996 between Accent
Software International Ltd., a corporation organized under the laws of the State
of Israel (the "Company"), and Sands Brothers & Co., Ltd. (hereinafter referred
to as the "Representative").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to the Representative, in its
individual capacity and not as representative of the several Underwriters
(defined below) warrants ("Warrants") to purchase up to an aggregate of 180,000
units (the "Units") each Unit consisting of one ordinary share of the Company,
nominal value NIS .01 per share (the "Underlying Shares") and one Ordinary Share
purchase warrant (the "Underlying Warrants") to purchase one (1) Ordinary Share
(the "Underlying Warrant Shares"), at an exercise price of $_______ (subject to
adjustment in certain circumstances); and
WHEREAS, the Representative has agreed, pursuant to the underwriting
agreement (the "Underwriting Agreement") dated _________ ___, 1996 between the
Representative, as representative of the several Underwriters named in Schedule
A to the Underwriting Agreement (the "Underwriters") and the Company, to act as
one of the underwriters in connection with the Company's proposed public
offering (the "Public Offering") of 1,800,000 Units (the "Public Units") at a
public offering price of $____ per Public Unit; and
<PAGE>
WHEREAS, the Warrants issued pursuant to this Agreement are being
issued by the Company to the Representative or officers or partners of the
Representative and members of the selling group or the underwriting syndicate
and/or their officers or partners, in consideration for, and as part of the
Representative's compensation in connection with, the Representative acting as
one of the underwriters pursuant to the Underwriting Agreement;
NOW, THEREFORE, in consideration of the premises, the payment by the
Representative to the Company of ONE HUNDRED EIGHTY DOLLARS ($180.00), the
agreements herein set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. GRANT.
The Representative, and/or its designees who are officers or partners
of the Representative or members of the selling group or underwriting syndicate
in connection with the Public Offering, are hereby granted the right to
purchase, at any time from __________ __, 1997 [ONE YEAR ANNIVERSARY OF
EFFECTIVE DATE] until 5:00 P.M., New York City time, on _______ __, 2001 [FIVE
YEAR ANNIVERSARY OF EFFECTIVE DATE] (the "Warrant Exercise Term"), up to 180,000
Units at an initial exercise price (subject to adjustment as provided in Article
8 hereof) of $______ per Unit [140% OF PUBLIC OFFERING PRICE], each Unit
consisting of one Underlying Share and one Underlying Warrant to purchase one
(1) Underlying Warrant Share, at an exercise price of $_______ [140%
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<PAGE>
OF PUBLIC OFFERING PRICE] (subject to adjustment in certain circumstances).
The Underlying Warrants are exercisable until 5:00 P.M., New York City time on
__________ __, 2001. Except as to exercise price and otherwise provided in
Section 13 hereof, the Units are in all respects identical to the Public Units
being sold to the public pursuant to the terms and provisions of the
Underwriting Agreement.
2. WARRANT CERTIFICATES.
The warrant certificates (the "Warrant Certificates") delivered and to
be delivered pursuant to this Agreement shall be in the form set forth as
Exhibit A, attached hereto and made a part hereof, with such appropriate
insertions, omissions, substitutions and other variations as required or
permitted by this Agreement.
3. EXERCISE OF WARRANTS.
3.1 CASH EXERCISE. The Warrants initially are exercisable at a
price of $_____ per Unit purchased [140% OF PUBLIC OFFERING PRICE], payable in
cash or by check to the order of the Company, or any combination of cash or
check, subject to adjustment as provided in Article 8 hereof. Upon surrender of
the Warrant Certificate with the annexed Form of Election to Purchase duly
executed, together with payment of the Exercise Price (as hereinafter defined)
for the Units purchased, at the principal office of the Company in Israel
(presently located at 28 Pierre Koenig Street, P.O. Box 53063, Jerusalem 91530,
Israel) or at the office of its transfer agent, the registered holder of a
Warrant Certificate ("Holder" or "Holders") shall be entitled
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to receive a certificate or certificates for the Underlying Shares so purchased
and a certificate or certificates for the Underlying Warrants so purchased. The
purchase rights represented by each Warrant Certificate are exercisable at the
option of the Holder hereof, in whole or in part (but not as to fractional
Units). In the case of the purchase of less than all the Units purchasable
under any Warrant Certificate, the Company shall cancel said Warrant Certificate
upon the surrender thereof and shall execute and deliver a new Warrant
Certificate of like tenor for the balance of the Units purchasable thereunder.
3.2 CASHLESS EXERCISE. At any time during the Warrant Exercise
Term, the Holder may, at its option, exchange this Warrant, in whole or in part
(a "Warrant Exchange"), into the number of Units determined in accordance with
this Section 3.2, by surrendering this Warrant at the principal office of the
Company or at the office of its transfer agent, accompanied by a notice stating
such Holder's intent to effect such exchange, the number of Units to be
exchanged and the date on which the Holder requests that such Warrant Exchange
occur (the "Notice of Exchange"). The Warrant Exchange shall take place on the
date specified in the Notice of Exchange or, if later, the date the Notice of
Exchange is received by the Company (the "Exchange Date"). Certificates for the
Underlying Shares and Underlying Warrants issuable upon such Warrant Exchange
and, if applicable, a new warrant of like tenor evidencing the balance of the
Units remaining subject to this Warrant, shall be issued as of the Exchange Date
and delivered to the Holder within three (3) days
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<PAGE>
following the Exchange Date. In connection with any Warrant Exchange, this
Warrant shall represent the right to subscribe for and acquire the number of
Units (rounded to the next highest integer) equal to (i) the number of Units
specified by the Holder in its Notice of Exchange (the "Total Number") less (ii)
the number of Units equal to the quotient obtained by dividing (A) the product
of the Total Number and the existing Exercise Price (as hereinafter defined) by
(B) the current market value of a Public Unit.
4. ISSUANCE OF CERTIFICATES.
Upon the exercise of the Warrants, the issuance of certificates [for
the Underlying Shares purchased and the Underlying Warrants purchased, and upon
the exercise of the Underlying Warrants, the issuance of certificates for the
Underlying Warrant Shares purchased shall be made forthwith (and in any event
within three business days thereafter) without charge to the Holder thereof
including, without limitation, any tax which may be payable in respect of the
issuance thereof, and such certificates shall (subject to the provisions of
Article 5 hereof) be issued in the name of, or in such names as may be directed
by, the Holder thereof; provided, however, that the Company shall not be
required to pay any tax which may be payable in respect of any transfer involved
in the issuance and delivery of any such certificates in a name other than that
of the Holder and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of
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<PAGE>
such tax or shall have established to the satisfaction of the Company that such
tax has been paid.
The Warrant Certificates and the certificates representing the
Underlying Shares, the Underlying Warrants and the Underlying Warrant Shares
shall be executed on behalf of the Company by the manual or facsimile signature
of the present or any future Chairman or Vice Chairman of the Board of Directors
or President or Vice President of the Company under its corporate seal
reproduced thereon, attested to by the manual or facsimile signature of the
present or any future Secretary or Assistant Secretary of the Company. Warrant
Certificates shall be dated the date of execution by the Company upon initial
issuance, division, exchange, substitution or transfer.
Upon exercise, in part or in whole, of the Warrants, certificates
representing the Underlying Shares, the Underlying Warrants and the Underlying
Warrant Shares shall bear a legend substantially similar to the following:
"The securities represented by this certificate and the other
securities issuable upon exercise thereof have not been registered
under the Securities Act of 1933, as amended (the "Act"), and may not
be offered or sold except (i) pursuant to an effective registration
statement under the Act, (ii) to the extent applicable, pursuant to
Rule 144 under the Act (or any similar rule under such Act relating to
the disposition of securities), or (iii) upon the delivery by the
holder to the Company of an opinion of counsel, reasonably
satisfactory to counsel to the Company, stating that an exemption from
registration under such Act is available."
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<PAGE>
5. RESTRICTION ON TRANSFER OF WARRANTS.
The Holder of a Warrant Certificate, by its acceptance thereof,
covenants and agrees that the Warrants are being acquired as an investment and
not with a view to the distribution thereof, and that the Warrants may not be
sold, transferred, assigned, hypothecated or otherwise disposed of, in whole or
in part, for a period of one (1) year from the date hereof, except to officers
or partners of the Representative or to any member of the selling group
participating in the distribution to the public of the Public Units and/or their
respective officers or partners.
6. PRICE.
6.1 INITIAL AND ADJUSTED EXERCISE PRICE. The initial exercise
price of each Warrant shall be $_______ per Unit [140% OF PUBLIC OFFERING
PRICE]. The adjusted exercise price shall be the price which shall result from
time to time from any and all adjustments of the initial exercise price in
accordance with the provisions of Article 8 hereof.
6.2 EXERCISE PRICE. The term "Exercise Price" herein shall mean
the initial exercise price or the adjusted exercise price, depending upon the
context.
7. REGISTRATION RIGHTS.
7.1 REGISTRATION UNDER THE SECURITIES ACT OF 1933. None of the
Warrants, the Units, the Underlying Shares, the Underlying Warrants or the
Underlying Warrant Shares have been registered for purposes of public
distribution under the Securities Act of 1933, as amended (the "Act").
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<PAGE>
7.2 REGISTRABLE SECURITIES. As used herein the term
"Registrable Security" means each of the Warrants, the Units, the Underlying
Shares, the Underlying Warrants, the Underlying Warrant Shares and any Ordinary
Shares issued upon any stock split or stock dividend in respect of such
Underlying Shares or Underlying Warrant Shares; provided, however, that with
respect to any particular Registrable Security, such security shall cease to be
a Registrable Security when, as of the date of determination, (i) it has been
effectively registered under the Act and disposed of pursuant thereto, (ii)
registration under the Act is no longer required for subsequent public
distribution of such security or (iii) it has ceased to be outstanding. The
term "Registrable Securities" means any and/or all of the securities falling
within the foregoing definition of a "Registrable Security." In the event of
any merger, reorganization, consolidation, recapitalization or other change in
corporate structure affecting the Ordinary Shares, such adjustment shall be made
in the definition of "Registrable Security" as is appropriate in order to
prevent any dilution or enlargement of the rights granted pursuant to this
Article 7.
7.3 PIGGYBACK REGISTRATION. If, at any time during the five
years following the date of this Agreement, the Company proposes to prepare and
file one or more post-effective amendments to the registration statement filed
in connection with the Public Offering or any new registration statement or
post-effective amendments thereto covering equity or debt securities of the
Company, or any such securities of the Company held by its
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<PAGE>
shareholders (in any such case, other than in connection with a merger,
acquisition or pursuant to Form S-8 or successor form), (for purposes of this
Article 7, collectively, a "Registration Statement"), it will give written
notice of its intention to do so by registered mail ("Notice"), at least thirty
(30) business days prior to the filing of each such Registration Statement, to
all holders of the Registrable Securities. Upon the written request of such a
holder (a "Requesting Holder"), made within twenty (20) business days after
receipt of the Notice, that the Company include any of the Requesting Holder's
Registrable Securities in the proposed Registration Statement, the Company
shall, as to each such Requesting Holder, use its best efforts to effect the
registration under the Act of the Registrable Securities which it has been so
requested to register ("Piggyback Registration"), at the Company's sole cost and
expense and at no cost or expense to the Requesting Holders.
7.4 DEMAND REGISTRATION.
(a) At any time during the Warrant Exercise Term, any
"Majority Holder" (as such term is defined in Section 7.4(c) below) of the
Registrable Securities shall have the right (which right is in addition to the
piggyback registration rights provided for under Section 7.3 hereof),
exercisable by written notice to the Company (the "Demand Registration
Request"), to have the Company prepare and file with the Securities and Exchange
Commission (the "Commission"), on one occasion, at the sole expense of the
Company, a Registration Statement and such other documents, including a
prospectus, as may be necessary (in
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<PAGE>
the opinion of both counsel for the Company and counsel for such Majority
Holder), in order to comply with the provisions of the Act, so as to permit a
public offering and sale of the Registrable Securities by the holders thereof,
for twelve (12) consecutive months.
(b) The Company covenants and agrees to give written notice
of any Demand Registration Request to all holders of the Registrable Securities
within ten (10) days from the date of the Company's receipt of any such Demand
Registration Request. After receiving notice from the Company as provided in
this Section 7.4(b), holders of Registrable Securities may request the Company
to include their Registrable Securities in the Registration Statement to be
filed pursuant to Section 7.4(a) hereof by notifying the Company of their
decision to include such securities within ten (10) days of their receipt of the
Company's notice.
(c) The term "Majority Holder" as used in this Section 7.4
shall mean any holder or any combination of holders of Registrable Securities,
if included in such holders' Registrable Securities are that aggregate number of
Ordinary Shares (including Ordinary Shares already issued, Ordinary Shares
issuable pursuant to the exercise of outstanding Warrants, Underlying Warrant
Shares already issued and Underlying Warrant Shares issuable pursuant to the
exercise of outstanding Underlying Warrants) as would constitute a majority of
the aggregate number of Ordinary Shares (including Ordinary Shares already
issued and Ordinary Shares issuable pursuant to the
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<PAGE>
exercise of outstanding Warrants) included in all of the Registrable Securities.
7.5 COVENANTS OF THE COMPANY WITH RESPECT TO REGISTRATION. The
Company covenants and agrees as follows:
(a) In connection with any registration under Section 7.4
hereof, the Company shall file the Registration Statement as expeditiously as
possible, but in no event later than thirty (30) days following receipt of any
demand therefor, shall use its best efforts to have any such Registration
Statements declared effective at the earliest possible time, and shall furnish
each holder of Registrable Securities such number of prospectuses as shall
reasonably be requested.
(b) The Company shall pay all costs, fees and expenses in
connection with all Registration Statements filed pursuant to Sections 7.3 and
7.4(a) hereof including, without limitation, the Company's legal and accounting
fees, printing expenses, and blue sky fees and expenses.
(c) The Company will take all necessary action which may be
required in qualifying or registering the Registrable Securities included in a
Registration Statement for offering and sale under the securities or blue sky
laws of such states as are requested by the holders of such securities, provided
that the Company shall not be obligated to execute or file any general consent
to service of process or to qualify as a foreign corporation to do business
under the laws of any such jurisdiction.
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<PAGE>
(d) The Company shall indemnify any holder of the
Registrable Securities to be sold pursuant to any Registration Statement and any
underwriter or person deemed to be an underwriter under the Act and each person,
if any, who controls such holder or underwriter or person deemed to be an
underwriter within the meaning of Section 15 of the Act or Section 20(a) of the
Securities Exchange Act of 1934, as amended ("Exchange Act"), against all loss,
claim, damage, expense or liability (including all expenses reasonably incurred
in investigating, preparing or defending against any claim whatsoever) to which
any of them may become subject under the Act, the Exchange Act or otherwise,
arising from such registration statement to the same extent and with the same
effect as the provisions pursuant to which the Company has agreed to indemnify
the Underwriters contained in Section 7 of the Underwriting Agreement and to
provide for just and equitable contribution as set forth in Section 8 of the
Underwriting Agreement.
(e) Any holder of Registrable Securities to be sold
pursuant to a Registration Statement, and its successors and assigns, shall
severally, and not jointly, indemnify, the Company, its officers and directors
and each person, if any, who controls the Company within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act, against all loss, claim,
damage or expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which
they may become subject under the Act, the Exchange Act or otherwise, arising
from information furnished
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<PAGE>
in writing by or on behalf of such holder, or its successors or assigns, for
specific inclusion in such Registration Statement to the same extent and with
the same effect as the provisions contained in Section 7 of the Underwriting
Agreement pursuant to which the Underwriters have agreed to indemnify the
Company and to provide for just and equitable contribution as set forth in
Section 8 of the Underwriting Agreement.
(f) Nothing contained in this Agreement shall be construed
as requiring any Holder to exercise his Warrants or Underlying Warrants prior to
the initial filing of any Registration Statement or the effectiveness thereof.
(g) If the Company shall fail to comply with the provisions
of this Article 7, the Company shall, in addition to any other equitable or
other relief available to the holders of Registrable Securities, be liable for
any or all incidental, special and consequential damages sustained by the
holders of Registrable Securities, requesting registration of their Registrable
Securities.
(h) Except as set forth in Section 7.5(i) hereof, the
Company shall not permit the inclusion of any securities other than the
Registrable Securities to be included in any Registration Statement filed
pursuant to Section 7.4 hereof, or permit any other registration statement to be
or remain effective during the effectiveness of a Registration Statement filed
pursuant to Section 7.4 hereof, without the prior written consent of the
Majority Holders, which consent shall not be unreasonably withheld.
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<PAGE>
(i) The Company shall deliver promptly to each holder of
Registrable Securities participating in the offering in which such Holder's
shares are being registered pursuant to Section 7.3 hereof and requesting the
correspondence and memoranda described in this Section 7.5(i) and to the
managing underwriter, if any, copies of all correspondence between the
Commission and the Company, its counsel or auditors and all memoranda relating
to discussions with the Commission or its staff with respect to the Registration
Statement and permit each holder of Registrable Securities and underwriters to
do such investigation, upon reasonable advance notice, with respect to
information contained in or omitted from the Registration Statement as it deems
reasonably necessary to comply with applicable securities laws or rules of the
National Association of Securities Dealers, Inc. Such investigation shall
include access to books, records and properties and opportunities to discuss the
business of the Company with its officers and independent auditors, all to such
reasonable extent and at such reasonable times and as often as any such holder
of Registrable Securities or underwriter shall reasonably request.
(j) Upon the written request therefor by any holders of
Registrable Securities, the Company shall include in the Registration Statement
covering any of the Registrable Securities any other securities of the Company
held by such holders of Registrable Securities as of the date of filing of such
Registration Statement, including, without limitation,
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restricted Ordinary Shares, options, warrants or any other securities
convertible into Ordinary Shares.
8. ADJUSTMENTS OF EXERCISE PRICE AND NUMBER OF SECURITIES. The
following adjustments apply to the Exercise Price of the Warrants with respect
to the Units purchasable upon exercise of the Warrants.
8.1 COMPUTATION OF ADJUSTED PRICE. In case the Company shall at
any time after the date hereof pay a dividend in Ordinary Shares or make a
distribution in Ordinary Shares, then upon such dividend or distribution the
Exercise Price in effect immediately prior to such dividend or distribution
shall forthwith be reduced to a price determined by dividing:
(a) an amount equal to the total number of Ordinary
Shares outstanding immediately prior to such dividend or distribution multiplied
by the Exercise Price in effect immediately prior to such dividend or
distribution, by
(b) the total number of Ordinary Shares outstanding
immediately after such issuance or sale.
For the purposes of any computation to be made in accordance
with the provisions of this Section 8.1, the Ordinary Shares issuable by way of
dividend or other distribution on any stock of the Company shall be deemed to
have been issued immediately after the opening of business on the date following
the date fixed for the determination of stockholders entitled to receive such
dividend or other distribution.
8.2 SUBDIVISION AND COMBINATION. In case the Company shall at
any time subdivide or combine the outstanding
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Ordinary Shares, the Exercise Price shall forthwith be proportionately decreased
in the case of subdivision or increased in the case of combination.
8.3 ADJUSTMENT IN NUMBER OF SECURITIES. Upon each adjustment of
the Exercise Price pursuant to the provisions of this Article 8, the number of
Units issuable upon the exercise of each Warrant shall be adjusted to the
nearest full Unit by multiplying a number equal to the Exercise Price in effect
immediately prior to such adjustment by the number of Units issuable upon
exercise of the Warrants immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price; provided, however, that if
an event occurs that results in an adjustment of the number and/or price of the
Ordinary Shares issuable upon exercise of the warrants underlying the Public
Units pursuant to Section 9 of the Warrant Agreement by and among the Company,
the Representative and American Stock Transfer & Trust Company dated as of
____________ ____, 1996 ("Public Warrant Agreement"), resulting in automatic
adjustment in the number and/or price of the Underlying Warrant Shares issuable
upon exercise of the Underlying Warrants pursuant to Section 8.5 hereof, then
the adjustment provided for in this Section 8.3 shall not, in such instance,
result in any further adjustment in the aggregate number of Ordinary Shares
ultimately issuable upon exercise of the Underlying Warrants.
8.4 RECLASSIFICATION, CONSOLIDATION, MERGER, ETC. In case of
any reclassification or change of the outstanding Ordinary Shares (other than a
change in nominal value to no
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<PAGE>
nominal value, or from no nominal value to nominal value, or as a result of a
subdivision or combination), or in the case of any consolidation of the Company
with, or merger of the Company into, another corporation (other than a
consolidation or merger in which the Company is the surviving corporation and
which does not result in any reclassification or change of the outstanding
Ordinary Shares, except a change as a result of a subdivision or combination of
such shares or a change in par value, as aforesaid), or in the case of a sale or
conveyance to another corporation of the property of the Company as an entirety,
the Holders shall thereafter have the right to purchase the kind and number of
shares of stock and other securities and property receivable upon such
reclassification, change, consolidation, merger, sale or conveyance as if the
Holders were the owners of both the Underlying Shares and Underlying Warrant
Shares immediately prior to any such events at a price equal to the product of
(x) the number of Ordinary Shares issuable upon exercise of the Holders'
Warrants and Underlying Warrants (y) the Exercise Price in effect immediately
prior to the record date for such reclassification, change, consolidation,
merger, sale or conveyance as if such Holders had exercised the Warrants and the
Underlying Warrants.
8.5 ADJUSTMENT OF UNDERLYING WARRANTS' EXERCISE PRICE AND
SECURITIES ISSUABLE UPON EXERCISE OF UNDERLYING WARRANTS. With respect to any
of the Underlying Warrants, whether or not the Warrants have been exercised and
whether or not the Warrants are issued and outstanding, the exercise price
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for, and the number of, Underlying Warrant Shares issuable upon exercise of the
Underlying Warrants shall be automatically adjusted in accordance with Section 9
of the Public Warrant Agreement, upon the occurrence of any of the events
described therein. Thereafter, until the next such adjustment or until
otherwise adjusted in accordance with this Section 8, the Underlying Warrants
shall be exercisable at such adjusted exercise price and for such adjusted
number of Underlying Warrant Shares.
8.6 DETERMINATION OF OUTSTANDING ORDINARY SHARES. The number of
Ordinary Shares at any one time outstanding shall include the aggregate number
of shares issued or issuable upon the exercise of options, rights, warrants and
upon the conversion or exchange of convertible or exchangeable securities.
8.7 DIVIDENDS AND OTHER DISTRIBUTIONS WITH RESPECT TO
OUTSTANDING SECURITIES. In the event that the Company shall at any time prior
to the exercise of all Warrants declare a dividend (other than a dividend
consisting solely of Ordinary Shares or a cash dividend or distribution or
otherwise distribute to its shareholders any monies, assets, property, rights,
evidences of indebtedness, securities (other than Ordinary Shares), whether
issued by the Company or by another person or entity, or any other thing of
value, the Holder or Holders of the unexercised Warrants shall thereafter be
entitled, in addition to the Ordinary Shares or other securities receivable upon
the exercise thereof, to receive, upon the exercise of such Warrants, the same
monies, property, assets, rights, evidences of
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<PAGE>
indebtedness, securities or any other thing of value that they would have been
entitled to receive at the time of such dividend or distribution. At the time
of any such dividend or distribution, the Company shall make appropriate
reserves to ensure the timely performance of the provisions of this Subsection
8.7.
8.8 SUBSCRIPTION RIGHTS FOR ORDINARY SHARES OR OTHER SECURITIES.
In the case the Company or an affiliate of the Company shall at any time after
the date hereof and prior to the exercise of all the Warrants issue any rights
to subscribe for Ordinary Shares or any other securities of the Company or of
such affiliate to all the shareholders of the Company, the Holders of the
unexercised Warrants shall be entitled, in addition to the Ordinary Shares or
other securities receivable upon the exercise of the Warrants, to receive such
rights at the time such rights are distributed to the other shareholders of the
Company.
9. EXCHANGE AND REPLACEMENT OF WARRANT CERTIFICATES.
Each Warrant Certificate is exchangeable without expense, upon the
surrender hereof by the registered Holder at the principal executive office of
the Company, for a new Warrant Certificate of like tenor and date representing
in the aggregate the right to purchase the same number of Ordinary Shares in
such denominations as shall be designated by the Holder thereof at the time of
such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of any Warrant Certificate, and,
in case of loss, theft or
-19-
<PAGE>
destruction, of indemnity or security reasonably satisfactory to it, and
reimbursement to the Company of all reasonable expenses incidental thereto, and
upon surrender and cancellation of the Warrants, if mutilated, the Company will
make and deliver a new Warrant Certificate of like tenor, in lieu thereof.
10. ELIMINATION OF FRACTIONAL INTERESTS.
The Company shall not be required to issue certificates representing
fractions of Warrant Shares or Underlying Warrants upon the exercise of the
Warrants nor shall it be required to issue scrip or pay cash in lieu of
fractional interests, it being the intent of the parties that all fractional
interests shall be eliminated by rounding any fraction up to the nearest whole
number of Warrant Shares or Underlying Warrants.
11. RESERVATION AND LISTING OF SECURITIES.
The Company shall at all times reserve and keep available out of its
authorized Ordinary Shares, solely for the purpose of issuance upon the exercise
of the Warrants and the Underlying Warrants, such number of Ordinary Shares as
shall be issuable upon the exercise thereof. The Company covenants and agrees
that, upon exercise of the Warrants and payment of the Exercise Price therefor,
all Ordinary Shares which are issuable upon such exercise shall be duly and
validly issued, fully paid, non-assessable and not subject to the preemptive
rights of any shareholder. The Company further covenants and agrees that, upon
exercise of the Underlying Warrants and payment of the respective Underlying
Warrant exercise price therefor, all Underlying Warrant Shares issuable upon
such exercise shall be duly and
-20-
<PAGE>
validly issued, fully paid, non-assessable and not subject to the preemptive
rights of any shareholder. As long as the Warrants shall be outstanding, the
Company shall use its best efforts to cause all Units and Ordinary Shares
issuable upon the exercise of the Warrants and the Underlying Warrants to be
listed on or quoted by the NASDAQ SmallCap Market, or listed on such national
securities exchanges as requested by the Underwriter.
12. NOTICES TO WARRANT HOLDERS.
Nothing contained in this Agreement shall be construed as conferring
upon the Holder or Holders the right to vote or to consent or to receive notice
as a shareholder in respect of any meetings of shareholders for the election of
directors or any other matter, or as having any rights whatsoever as a
shareholder of the Company. If, however, at any time prior to the expiration of
the Warrants and their exercise, any of the following events shall occur:
(a) the Company shall take a record of the holders of its
Ordinary Shares for the purpose of entitling them to receive a
dividend or distribution payable otherwise than in cash, or a cash
dividend or distribution payable otherwise than out of current or
retained earnings, as indicated by the accounting treatment of such
dividend or distribution on the books of the Company; or
(b) the Company shall offer to all the holders of its
Ordinary Shares any additional shares of capital stock of the Company
or securities convertible
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<PAGE>
into or exchangeable for shares of capital stock of the Company, or
any option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation or merger) or a sale of
all or substantially all of its property, assets and business as an
entirety shall be proposed; or
(d) reclassification or change of the outstanding Ordinary
Shares (other than a change in nominal value to no nominal value, or
from no nominal value to nominal value, or as a result of a
subdivision or combination), consolidation of the Company with, or
merger of the Company into, another corporation (other than a
consolidation or merger in which the Company is the surviving
corporation and which does not result in any reclassification or
change of the outstanding Ordinary Shares, except a change as a result
of a subdivision or combination of such shares or a change in par
value, as aforesaid), or a sale or conveyance to another corporation
of the property of the Company as an entirety is proposed; or
(e) The Company or an affiliate of the Company shall
propose to issue any rights to subscribe for Ordinary Shares or any
other securities of the Company or of such affiliate to all the
shareholders of the Company;
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<PAGE>
then, in any one or more of said events, the Company shall give written notice
of such event at least fifteen (15) days prior to the date fixed as a record
date or the date of closing the transfer books for the determination of the
shareholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, options or warrants, or entitled
to vote on such proposed dissolution, liquidation, winding up or sale. Such
notice shall specify such record date or the date of closing the transfer books,
as the case may be. Failure to give such notice or any defect therein shall not
affect the validity of any action taken in connection with the declaration or
payment of any such dividend or distribution, or the issuance of any convertible
or exchangeable securities or subscription rights, options or warrants, or any
proposed dissolution, liquidation, winding up or sale.
13. UNDERLYING WARRANTS.
The form of the certificates representing the Underlying Warrants (and
the form of election to purchase Underlying Warrant Shares upon the exercise of
the Underlying Warrants and the form of assignment printed on the reverse
thereof) shall be substantially as set forth in Exhibit "A" to the Public
Warrant Agreement, provided, however, each Underlying Warrant comprising part of
the Units issuable upon exercise of the Warrants shall evidence the right to
initially purchase one (1) fully paid and non-assessable Ordinary Share in
respect of the Underlying Warrant at an initial purchase price of $ per
share until , 2001. [140% OF PUBLIC OFFERING
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<PAGE>
PRICE] As set forth in Section 8.5 of this Agreement, the exercise price of the
Underlying Warrants and the number of Ordinary Shares issuable upon the exercise
of the Underlying Warrants are subject to adjustment, whether or not the
Warrants have been exercised and the Underlying Warrants have been issued, in
the manner and upon the occurrence of the events set forth in Section 9 of the
Public Warrant Agreement, which is hereby incorporated herein by reference and
made a part hereof as if set forth in its entirety herein. Subject to the
provisions of this Agreement and upon issuance of the Underlying Warrants, each
registered holder of such Underlying Warrants shall have the right to purchase
from the Company (and the Company shall issue to such registered holders) up to
the number of fully paid and non-assessable Underlying Warrant Shares (subject
to adjustment as provided herein and in the Public Warrant Agreement), free and
clear of all preemptive rights of shareholders, provided that such registered
holder complies, in connection with the exercise of such holders' Underlying
Warrants, with the terms governing exercise of the Public Warrants set forth in
the Public Warrant Agreement, and pays the applicable exercise price, determined
in accordance with the terms of the Public Warrant Agreement. Upon exercise of
the Underlying Warrants, the Company shall forthwith issue to the registered
holder of any such Underlying Warrants, in such holder's name or in such name as
they may be directed by such holder, certificates for the number of Underlying
Warrant Shares so purchased. Except as otherwise provided in Section 8.8
hereof, the Underlying Warrants shall be governed in all respects
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<PAGE>
by the terms of the Public Warrant Agreement. The Underlying Warrants shall be
transferable in the manner provided in the Public Warrant Agreement, and upon
any such transfer, a new Underlying Warrant shall be issued promptly to the
transferee. The Company covenants to, and agrees with, each Holder that without
the prior written consent of all the Holders, the Public Warrant Agreement will
not be modified, amended, cancelled, altered or superseded, and that the Company
will send to each Holder, irrespective of whether or not the Warrants have been
exercised, any and all notices required by the Public Warrant Agreement to be
sent to holders of the Public Warrants.
14. NOTICES.
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been duly made when delivered,
or mailed by registered or certified mail, return receipt requested:
(f) If to a registered Holder of the Warrants, to the
address of such Holder as shown on the books of the Company; or
(g) If to the Company, to the address set forth in Section
3 of this Agreement or to such other address as the Company may
designate by notice to the Holders.
15. SUPPLEMENTS AND AMENDMENTS.
The Company and the Representative may from time to time supplement or
amend this Agreement without the approval of any Holders of Warrant Certificates
in order to cure any
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<PAGE>
ambiguity, to correct or supplement any provision contained herein which may be
defective or inconsistent with any provisions herein, or to make any other
provisions in regard to matters or questions arising hereunder which the Company
and the Representative may deem necessary or desirable and which the Company and
the Representative deem not to adversely affect the interests of the Holders of
Warrant Certificates.
16. SUCCESSORS.
All the covenants and provisions of this Agreement by or for the
benefit of the Company and the Holders inure to the benefit of their respective
successors and assigns hereunder.
17. TERMINATION.
This Agreement shall terminate at the close of business on __________,
200_ [THREE YEARS AFTER LAST DATE OF EXERCISE OF WARRANTS TO GIVE SUFFICIENT
COVERAGE FOR REGISTRATION OF THE SECURITIES AND PERIOD OF SALE.]
Notwithstanding the foregoing, this Agreement will terminate on any earlier date
when all Warrants and Underlying Warrants have been exercised and all Warrant
Securities have been resold to the public; provided, however, that the
provisions of Section 7.4 shall survive such termination until the close of
business on _________, 200_ [THREE YEARS PLUS THE TIME PERIOD ABOVE IN THIS
SECTION 17.].
18. GOVERNING LAW.
This Agreement and each Warrant Certificate issued hereunder shall be
deemed to be a contract made under the laws of the State of New York and for all
purposes shall be construed in accordance with the laws of said State.
-26-
<PAGE>
19. BENEFITS OF THIS AGREEMENT.
Nothing in this Agreement shall be construed to give to any person or
corporation other than the Company and the Underwriter and any other registered
holder or holders of the Warrant Certificates, or Warrant Securities any legal
or equitable right, remedy or claim under this Agreement; and this Agreement
shall be for the sole and exclusive benefit of the Company and the Underwriter
and any other holder or holders of the Warrant Certificates, Warrants or the
Shares.
20. COUNTERPARTS.
This Agreement may be executed in any number of counterparts and each
of such counterparts shall for all purposes be deemed to be an original, and
such counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, as of the day and year first above written.
[SEAL] ACCENT SOFTWARE INTERNATIONAL, LTD.
By:__________________________________
Name:
Title:
Attest:
_______________________
SANDS BROTHERS & CO., LTD.
-27-
<PAGE>
By:__________________________________
Name:
Title:
-28-
<PAGE>
EXHIBIT A
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE EXTENT APPLICABLE,
PURSUANT TO RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING
TO THE DISPOSITION OF SECURITIES), OR (iii) UPON THE DELIVERY BY THE HOLDER TO
THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE
COMPANY, STATING THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS
AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., NEW YORK TIME, _________, 199_
No. W- _______ Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that Sands Brothers & Co., Ltd. or
registered assigns, is the registered holder of _______ Warrants to purchase, at
any time from _______, 199_ until 5:00 P.M. New York City time on ________, 199_
("Expiration Date"), up to _____ Units of Accent Software International Ltd., a
corporation organized under the laws of the State of Israel (the "Company") at
the initial exercise price, subject to adjustment in certain events (the
"Exercise Price"), of $____ per Unit, upon surrender of this Warrant Certificate
and payment of the Exercise Price at an office or agency of the Company, but
subject to the conditions set forth herein and in the warrant agreement dated as
of ____________, 1996 between the Company and Sands Brothers & Co., Ltd. (the
"Warrant Agreement"). Each Unit consists of one ordinary share of the Company,
nominal value NIS .01 per share (the "Underlying Shares") and one Ordinary Share
purchase warrant (the "Underlying Warrants"). Payment of the Exercise Price may
be made in cash, or by certified or official bank check in New York Clearing
House funds payable to the order of the Company, or any combination of cash or
check.
The Underlying Warrants comprising part of the Units will be
exercisable until , 2001, each Underlying Warrant entitling the holder
thereof to purchase one fully-paid and non-assessable Ordinary Share, at an
initial exercise price subject to adjustment in certain events, of $ per
share. The Underlying Warrants are issuable pursuant to the terms and
provisions of a certain agreement dated as of , 1996 by and among
the Company, Sands Brothers & Co., Ltd. and
<PAGE>
American Stock Transfer & Trust Company (the "Public Warrant Agreement"). The
Public Warrant Agreement is hereby incorporated by reference in and made a part
of this instrument and is hereby referred to (except as otherwise provided in
the Warrant Agreement) for a description of the rights, limitations of rights,
manner of exercise, anti-dilution provisions and other provisions with respect
to the Underlying Warrants.
No Warrant may be exercised after 5:00 P.M., New York City time, on
the Expiration Date, at which time all Warrants evidenced hereby, unless
exercised prior thereto, shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to in a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Company and the
holders (the words "holders" or "holder" meaning the registered holders or
registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of certain
events, the Exercise Price and/or number of the Company's securities issuable
thereupon may, subject to certain conditions, be adjusted. In such event, the
Company will, at the request of the holder, issue a new Warrant Certificate
evidencing the adjustment in the Exercise Price and the number and/or type of
securities issuable upon the exercise of the Warrants; provided, however, that
the failure of the Company to issue such new Warrant Certificates shall not in
any way change, alter, or otherwise impair, the rights of the holder as set
forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax, or other governmental charge
imposed in connection therewith.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
<PAGE>
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.
Dated: ___________, 199_ ACCENT SOFTWARE INTERNATIONAL LTD.
[SEAL] By:__________________________
Name:
Title:
Attest:
______________________
<PAGE>
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase _________ Shares and
herewith tenders in payment for such Shares cash or a certified or official bank
check payable in New York Clearing House Funds to the order of ACCENT SOFTWARE
INTERNATIONAL LTD in the amount of $ _________ , all in accordance with the
terms hereof. The undersigned requests that a certificate for such Shares be
registered in the name of ____________________ , whose address is
__________________, and that such Certificate be delivered to
__________________, whose address is _____________.
Dated: Signature:
------------------------
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant
Certificate.)
________________________________
________________________________
(Insert Social Security or Other
Identifying Number of Holder)
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED _________________________________
hereby sells, assigns and transfers unto
______________________________________________________________________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _______________, Attorney, to
transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated: Signature:
----------------------------------
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant
Certificate)
_______________________________
_______________________________
(Insert Social Security or Other
Identifying Number of Assignee)
<PAGE>
Exhibit 4.6
WARRANT AGREEMENT
Dated as of November , 1996
by and among
ACCENT SOFTWARE INTERNATIONAL LTD.
a corporation organized under the
laws of the State of Israel
and
SANDS BROTHERS & CO., LTD.
Representative
and
AMERICAN STOCK TRANSFER & TRUST COMPANY
Warrant Agent
<PAGE>
Table of contents
Section Page
1. Appointment of Warrant Agent............................................. 1
2. Form of Warrant.......................................................... 2
3. Countersignature and Registration........................................ 3
4. Transfers and Exchanges.................................................. 3
5. Exercise of Warrants; Payment of Warrant
Solicitation Fee....................................................... 4
6. Payment of Taxes......................................................... 8
7. Mutilated or Missing Warrants............................................ 9
8. Reservation of Ordinary Shares........................................... 9
9. Warrant Price; Adjustments............................................... 11
10. Fractional Interest..................................................... 18
11. Notices to Warrantholders............................................... 19
12. Disposition of Proceeds on Exercise of
Warrants............................................................... 21
13. Redemption of Warrants.................................................. 22
14. Merger or Consolidation or Chance of Name of
Warrant Agent.......................................................... 22
15. Duties of Warrant Agent................................................. 23
16. Change of Warrant Agent................................................. 27
17. Identity of Transfer Agent.............................................. 28
18. Notices................................................................. 28
19. Supplements and Amendments.............................................. 30
20. Governing Law........................................................... 31
21. Benefits of this Agreement.............................................. 31
22. Successors.............................................................. 31
Exhibit A - Form of Warrant
<PAGE>
WARRANT AGREEMENT dated as of November , 1996, by and among Accent
Software International Ltd., a corporation organized under the laws of the State
of Israel (the "Company"), Sands Brothers & Co., Ltd. (the "Representative") and
American Stock Transfer & Trust Company, as warrant agent (hereinafter called
the "Warrant Agent").
WHEREAS, the Company proposes to issue and sell to the public up to
1,800,000 Units (the "Units"), each consisting of one share of the ordinary
shares, nominal value NIS .01 per share, of the Company (hereinafter, together
with the stock of any other class to which such shares may hereafter have been
changed, called "Ordinary Shares"), and one redeemable warrant to purchase an
Ordinary Share (the "Warrants");
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer, exchange and exercise of the Warrants;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto agree as follows:
Section 1. APPOINTMENT OF WARRANT AGENT. The Company hereby appoints
the Warrant Agent to act as Warrant Agent for the Company in accordance with the
instructions hereinafter set forth
<PAGE>
in this Agreement, and the Warrant Agent hereby accepts such appointment.
Section 2. FORM OF WARRANT. The text of the Warrants and of the form
of election to purchase Ordinary Shares to be printed on the reverse thereof
shall be substantially as set forth in Exhibit A attached hereto. The
securities comprising the Units are not separable or separately transferable
prior to _____, 1997, without the consent of the Representative. Each Warrant
shall entitle the registered holder thereof to purchase one (1) Ordinary Share
at a purchase price of Dollars and Cents ($ ), at any time after
they are separated from the Unit until 5:00 p.m. Eastern time, on November ,
2001 (the "Warrant Exercise Period"). The warrant price and the number of
Ordinary Shares issuable upon exercise of the Warrants are subject to adjustment
upon the occurrence of certain events, all as hereinafter provided. The
Warrants shall be executed on behalf of the Company by the manual or facsimile
signature of the present or any future President or Vice President of the
Company, attested to by the manual or facsimile signature of the present or any
future Secretary or Assistant Secretary of the Company.
Warrants shall be dated as of the issuance by the Warrant Agent either
upon initial issuance or upon transfer or exchange.
2
<PAGE>
In the event the aforesaid expiration dates of the Warrants fall on a
Saturday or Sunday, or on a legal holiday on which the New York Stock Exchange,
the American Stock Exchange or The Nasdaq Stock Market is closed, then the
Warrants shall expire at 5:00 p.m. Eastern time on the next succeeding business
day.
Section 3. COUNTERSIGNATURE AND REGISTRATION. The Warrant Agent
shall maintain books for the transfer and registration of Warrants. Upon the
initial issuance of the Warrants, the Warrant Agent shall issue and register the
Warrants in the names of the respective holders thereof. The Warrants shall be
countersigned manually or by facsimile by the Warrant Agent (or by any successor
to the Warrant Agent then acting as warrant agent under this Agreement) and
shall not be valid for any purpose unless so countersigned. Warrants may,
however, be so countersigned by the Warrant Agent (or by its successor as
Warrant Agent) and be delivered by the Warrant Agent, notwithstanding that the
persons whose manual or facsimile signatures appear thereon as proper officers
of the Company shall have ceased to be such officers at the time of such
countersignature or delivery.
Section 4. TRANSFERS AND EXCHANGES. The Warrant Agent shall
transfer, from time to time, any outstanding Warrants upon the books to be
maintained by the Warrant Agent for that purpose, upon surrender thereof for
transfer properly endorsed or accom-
3
<PAGE>
panied by appropriate instructions for transfer. Upon any such transfer, a new
Warrant shall be issued to the transferee and the surrendered Warrant shall be
cancelled by the Warrant Agent. Warrants so cancelled shall be delivered by the
Warrant Agent to the Company from time to time upon request. Warrants may be
exchanged at the option of the holder thereof, when surrendered at the office of
the Warrant Agent, for another Warrant, or other Warrants of different
denominations of like tenor and representing in the aggregate the right to
purchase a like number of Ordinary Shares.
Section 5. EXERCISE OF WARRANTS; PAYMENT OF WARRANT SOLICITATION FEE.
(a) Subject to the provisions of this Agreement, each
registered holder of Warrants shall have the right, which may be exercised
commencing at the opening of business on the first day of the Warrant Exercise
Period, to purchase from the Company (and the Company shall issue and sell to
such registered holder of Warrants) the number of fully paid and non-assessable
Ordinary Shares specified in such Warrants upon surrender of such Warrants to
the Company at the office of the Warrant Agent, with the form of election to
purchase on the reverse thereof duly filled in and signed, and upon payment to
the Company of the warrant price, determined in accordance with the provisions
of Sections 9 and 10 of this Agreement, for the
4
<PAGE>
number of Ordinary Shares in respect of which such Warrants are then exercised.
Payment of such warrant price shall be made in cash or by certified check or
bank draft to the order of the Company. Subject to Section 6, upon such
surrender of Warrants and payment of the warrant price, the Company shall issue
and cause to be delivered with all reasonable dispatch to or upon the written
order of the registered holder of such Warrants and in such name or names as
such registered holder may designate, a certificate or certificates for the
number of full Ordinary Shares so purchased upon the exercise of such Warrants.
Such certificate or certificates shall be deemed to have been issued and any
person so designated to be named therein shall be deemed to have become a holder
of record of such Ordinary Shares as of the date of the surrender of such
Warrants and payment of the warrant price as aforesaid. The rights of purchase
represented by the Warrants shall be exercisable, at the election of the
registered holders thereof, either as an entirety or from time to time for a
portion of the shares specified therein and, in the event that any Warrant is
exercised in respect of less than all of the Ordinary Shares specified therein
at any time prior to the date of expiration of the Warrants, a new Warrant or
Warrants will be issued to the registered holder for the remaining number of
Ordinary Shares specified in the Warrant so surrendered, and the Warrant Agent
is hereby irrevocably authorized to countersign
5
<PAGE>
and to deliver the required new Warrants pursuant to the provisions of this
Section and of Section 3 of this Agreement and the Company, whenever requested
by the Warrant Agent, will supply the Warrant Agent with Warrants duly executed
on behalf of the Company for such purpose. Anything in the foregoing to the
contrary notwithstanding, no Warrant will be exercisable unless at the time of
exercise the Company has filed with the Securities and Exchange Commission a
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), covering the Ordinary Shares issuable upon exercise of such
Warrant and such shares have been so registered or qualified or deemed to be
exempt under the securities laws of the state of residence of the holder of such
Warrant. The Company shall use its best efforts to have all shares so
registered or qualified on or before the date on which the Warrants become
exercisable.
(b) If at the time of exercise of any Warrant after
November , 1997 (i) the per share market price of the Company's Ordinary
Shares is equal to or greater than the then purchase price of the Warrant; (ii)
the exercise of the Warrant is solicited by the Representative (it being
presumed that such exercise was not solicited unless the holder states in
writing that such exercise was solicited by the Representative) at such time
while the Representative is a member of the National Association of Securities
Dealers, Inc. ("NASD"); (iii) the
6
<PAGE>
Warrant is not held in a discretionary account; (iv) disclosure of the Exercise
Fee (as defined below) is made in documents provided to the holders of the
Warrants at the time of exercise; and (v) the solicitation of the exercise of
the Warrant is not in violation of Rule 10b-6 (as such rule or any successor
rule may be in effect as of such time of exercise) promulgated under the
Securities Exchange Act of 1934, as amended, then the Representative shall be
entitled to receive from the Company upon exercise of each of the Warrant(s) so
exercised a fee of five percent (5%) of the aggregate price of the Warrants so
exercised (the "Exercise Fee"). The procedures for payment of the warrant
solicitation fee are set forth in Section 5(c) below.
(c) (1) Within five (5) days of the last day of each month
in which any Warrants are exercised, commencing with November 1997, the Warrant
Agent will notify the Representative of each Warrant Certificate which has been
properly completed for exercise by holders of Warrants during the last month.
The Company and Warrant Agent shall determine, in their sole and absolute
discretion, whether a Warrant Certificate has been properly completed. The
Warrant Agent will provide the Representative with such information, in
connection with the exercise of each Warrant, as the Representative shall
reasonably request.
7
<PAGE>
(2) The Company hereby authorizes and instructs the
Warrant Agent to deliver to the Representative the Exercise Fee promptly after
receipt by the Warrant Agent from the Company of a check payable to the order of
the Representative in the amount of the Exercise Fee. In the event that an
Exercise Fee is paid to the Representative with respect to a Warrant which the
Company or the Warrant Agent determines is not properly completed for exercise
or in respect of which the Representative is not entitled to an Exercise Fee,
the Representative will return such Exercise Fee to the Warrant Agent which
shall forthwith return such fee to the Company.
The Representative and the Company may at any time, after November
, 1997, and during business hours, examine the records of the Warrant Agent,
including its ledger of original Warrant certificates returned to the Warrant
Agent upon exercise of Warrants. Notwithstanding any provision to the contrary,
the provisions of paragraph 5(b) and 5(c) may not be modified, amended or
deleted without the prior written consent of the Representative.
Section 6. PAYMENT OF TAXES. The Company will pay any documentary
stamp taxes attributable to the initial issuance of Ordinary Shares issuable
upon the exercise of Warrants; provided, however, that the Company shall not be
required to pay any tax which may be payable in respect of any transfer involved
in the
8
<PAGE>
issue or delivery of any Ordinary Share certificates in a name other than that
of the registered holder of Warrants in respect of which such shares are issued,
and in such case neither the Company nor the Warrant Agent shall be required to
issue or deliver any certificate for Ordinary Shares or any Warrant until the
person requesting the same has paid to the Company the amount of such tax or has
established to the Company's satisfaction that such tax has been paid or that
such person has an exemption from the payment of such tax.
Section 7. MUTILATED OR MISSING WARRANTS. In case any of the
Warrants shall be mutilated, lost, stolen or destroyed, the Company may, in its
discretion, issue and the Warrant Agent shall countersign and deliver in
exchange and substitution for and upon cancellation of the mutilated Warrant, or
in lieu of and in substitution for the Warrant lost, stolen or destroyed, a new
Warrant of like tenor and representing an equivalent right or interest, but only
upon receipt of evidence satisfactory to the Company and the Warrant Agent of
such loss, theft or destruction and, in case of a lost, stolen or destroyed
Warrant, indemnity, if requested, also satisfactory to them. Applicants for
such substitute Warrants shall also comply with such other reasonable
regulations and pay such reasonable charges as the Company or the Warrant Agent
may prescribe.
9
<PAGE>
Section 8. RESERVATION OF ORDINARY SHARES. There have been reserved,
and the Company shall at all times keep reserved, out of the authorized and
unissued Ordinary Shares, a number of Ordinary Shares sufficient to provide for
the exercise of the rights of purchase represented by the Warrants, and the
transfer agent for the Ordinary Shares and every subsequent transfer agent for
any of the Company's Ordinary Shares issuable upon the exercise of any of the
rights of purchase aforesaid are irrevocably authorized and directed at all
times to reserve such number of authorized and unissued Ordinary Shares as shall
be required for such purpose. The Company agrees that all Ordinary Shares
issued upon exercise of the Warrants shall be, at the time of delivery of the
certificates of such shares, validly issued and outstanding, fully paid and
nonassessable and listed on any national securities exchange upon which the
other Ordinary Shares are then listed. So long as any unexpired Warrants remain
outstanding, the Company will file such post-effective amendments to the
registration statement (Form S-1, Registration No. 333-7637) (the "Registration
Statement") filed pursuant to the Securities Act with respect to the Warrants
(or other appropriate registration statements or post-effective amendment or
supplements) as may be necessary to permit it to deliver to each person
exercising a Warrant, a prospectus meeting the requirements of Section 10(a)(3)
of the Act and otherwise
10
<PAGE>
complying therewith, and will deliver such a prospectus to each such person. To
the extent that during any period it is not reasonably likely that the Warrants
will be exercised, due to market price or otherwise, the Company need not file
such a post-effective amendment during such period. The Company will keep a
copy of this Agreement on file with the transfer agent for the Ordinary Shares
and with every subsequent transfer agent for any of the Company's Ordinary
Shares issuable upon the exercise of the rights of purchase represented by the
Warrants. The Warrant Agent is irrevocably authorized to requisition from time
to time from such transfer agent stock certificates required to honor
outstanding Warrants. The Company will supply such transfer agent with duly
executed stock certificates for that purpose. All Warrants surrendered in the
exercise of the rights thereby evidenced shall be cancelled by the Warrant Agent
and shall thereafter be delivered to the Company, and such cancelled Warrants
shall constitute sufficient evidence of the number of Ordinary Shares which have
been issued upon the exercise of such Warrants. Promptly after the date of
expiration of the Warrants, the Warrant Agent shall certify to the Company the
total aggregate amount of Warrants then outstanding, and thereafter no Ordinary
Shares shall be subject to reservation in respect of such Warrants which shall
have expired.
11
<PAGE>
Section 9. WARRANT PRICE; ADJUSTMENTS.
(i) The warrant price at which Ordinary Shares shall be
purchasable upon the exercise of the Warrants shall be $ per share or after
adjustment, as provided in this Section, shall be such price as so adjusted (the
"Warrant Price").
(ii) The Warrant Price shall be subject to adjustment from time
to time as follows:
(I) In case the Company shall at any time after the date
hereof pay a dividend in Ordinary Shares or make a distribution in Ordinary
Shares, then upon such dividend or distribution the Warrant Price in effect
immediately prior to such dividend or distribution shall forthwith be reduced to
a price determined by dividing:
(A) an amount equal to the total number of Ordinary Shares
outstanding immediately prior to such dividend or distribution multiplied by the
Warrant Price in effect immediately prior to such dividend or distribution, by
(B) the total number of Ordinary Shares outstanding
immediately after such dividend or distribution.
For the purposes of any computation to be made in accordance
with the provisions of this clause (I), the following provisions shall be
applicable: Ordinary Shares issuable by way of dividend or other distribution
on any stock of
12
<PAGE>
the Company shall be deemed to have been issued immediately after the opening of
business on the date following the date fixed for the determination of
shareholders entitled to receive such dividend or other distribution.
(II) In case the Company shall at any time subdivide or
combine the outstanding Ordinary Shares, the Warrant Price shall forthwith be
proportionately decreased in the case of subdivision or increased in the case of
combination to the nearest one cent. Any such adjustment shall become effective
at the time such subdivision or combination shall become effective.
(III) Within a reasonable time after the close of each
quarterly fiscal period of the Company during which the Warrant Price has been
adjusted as herein provided, the Company shall
(A) file with the Warrant Agent a certificate signed by the
President or Vice President of the Company and by the Treasurer or Assistant
Treasurer or the Secretary or an Assistant Secretary of the Company, showing in
detail the facts requiring all such adjustments occurring during such period and
the Warrant Price after each such adjustment; and
(B) the Warrant Agent shall have no duty with respect to
any such certificate filed with it except to keep the same on file and available
for inspection by holders of Warrants during reasonable business hours, and the
Warrant Agent
13
<PAGE>
may conclusively rely upon the latest certificate furnished to it hereunder.
The Warrant Agent shall not at any time be under any duty or responsibility to
any holder of a Warrant to determine whether any facts exist which may require
any adjustment of the Warrant Price, or with respect to the nature or extent of
any adjustment of the Warrant Price when made, or with respect to the method
employed in making any such adjustment, or with respect to the nature or extent
of the property or securities deliverable hereunder. In the absence of a
certificate having been furnished, the Warrant Agent may conclusively rely upon
the provisions of the Warrants with respect to the Ordinary Shares deliverable
upon the exercise of the Warrants and the applicable Warrant Price thereof.
(C) Notwithstanding anything contained herein to the
contrary, no adjustment of the Warrant Price shall be made if the amount of such
adjustment shall be less than $.05, but in such case any adjustment that would
otherwise be required then to be made shall be carried forward and shall be made
at the time and together with the next subsequent adjustment which, together
with any adjustment so carried forward, shall amount to not less than $.05.
(iii) In the event that the number of outstanding Ordinary Shares
is increased by a stock dividend payable in Ordinary Shares or by a subdivision
of the outstanding Ordinary
14
<PAGE>
Shares, then, from and after the time at which the adjusted Warrant Price
becomes effective pursuant to Subsection (ii) of this Section by reason of such
dividend or subdivision, the number of Ordinary Shares issuable upon the
exercise of each Warrant shall be increased in proportion to such increase in
outstanding shares. In the event that the number of Ordinary Shares outstanding
is decreased by a combination of the outstanding Ordinary Shares, then, from and
after the time at which the adjusted Warrant Price becomes effective pursuant to
Subsection (ii) of this Section by reason of such combination, the number of
Ordinary Shares issuable upon the exercise of each Warrant shall be decreased in
proportion to such decrease in the outstanding Ordinary Shares.
(iv) In case of any reorganization or reclassification of the
outstanding Ordinary Shares (other than a change in nominal value, or from
nominal value to no nominal value, or as a result of a subdivision or
combination), or in case of any consolidation of the Company with, or merger of
the Company into, another corporation (other than a consolidation or merger in
which the Company is the continuing corporation and which does not result in any
reclassification of the outstanding Ordinary Shares), or in case of any sale or
conveyance to another corporation of the property of the Company as an entirety
or substantially as an entirety, the holder of each Warrant then
15
<PAGE>
outstanding shall thereafter have the right to purchase the kind and amount of
Ordinary Shares and other securities and property receivable upon such
reorganization, reclassification, consolidation, merger, sale or conveyance by a
holder of the number of Ordinary Shares which the holder of such Warrant shall
then be entitled to purchase; such adjustments shall apply with respect to all
such changes occurring between the date of this Warrant Agreement and the date
of exercise of such Warrant.
(v) In case the Company shall at any time after the date hereof
pay a dividend in Ordinary Shares or make a distribution in Ordinary Shares,
then upon such dividend or distribution, the Warrant Price in effect immediately
prior to such dividend or distribution shall be reduced to a price determined by
dividing an amount equal to the total number of Ordinary Shares outstanding
immediately prior to such dividend or distribution multiplied by the Warrant
Price in effect immediately prior to such dividend or distribution, by the total
number of Ordinary Shares outstanding immediately after such issuance or sale.
For purposes of any computation to be made in accordance with the provisions of
this Section (v), the Ordinary Shares issuable by way of dividend or
distribution shall be deemed to have been issued immediately after the opening
of business on the date following the date fixed for determination of
shareholders entitled to receive such dividend or distribution.
16
<PAGE>
(vi) In case of the dissolution, liquidation or winding up of the
Company, all rights under the Warrants shall terminate on a date fixed by the
Company, such date to be no earlier than ten (10) days prior to the
effectiveness of such dissolution, liquidation or winding up and not later than
five (5) days prior to such effectiveness. Notice of such termination of
purchase rights shall be given to the last registered holder of the Warrants, as
the same shall appear on the books of the Company maintained by the Warrant
Agent, by registered mail at least fifteen (15) days prior to such termination
date.
(vii) In case the Company shall, at any time prior to the
expiration of the Warrants and prior to the exercise thereof, offer to the
holders of its Ordinary Shares any rights to subscribe for additional shares of
any class of the Company, then the Company shall give written notice thereof to
the last registered holder thereof not less than thirty (30) days prior to the
date on which the books of the Company are closed or a record date is fixed for
the determination of the shareholders entitled to such subscription rights.
Such notice shall specify the date as to which the books shall be closed or
record date fixed with respect to such offer of subscription and the right of
the holder thereof to participate in such offer of subscription shall terminate
if the Warrant shall not be exercised on or before the date of such closing of
the books or such record date.
17
<PAGE>
(viii) Any adjustment pursuant to the aforesaid provisions shall
be made on the basis of the number of Ordinary Shares which the holder thereof
would have been entitled to acquire by the exercise of the Warrant immediately
prior to the event giving rise to such adjustment.
(ix) Irrespective of any adjustments in the Warrant Price or the
number or kind of shares purchasable upon exercise of the Warrants, Warrants
previously or thereafter issued may continue to express the same price and
number and kind of shares as are stated in the similar Warrants initially
issuable pursuant to this Warrant Agreement.
(x) The Company may retain a firm of independent public
accountants (who may be any such firm regularly employed by the Company) to make
any computation required under this Section, and any certificate setting forth
such computation signed by such firm shall be conclusive evidence of the
correctness of any computation made under this Section.
(xi) If at any time, as a result of an adjustment made pursuant
to paragraph (iv) above, the holders of a Warrant or Warrants shall become
entitled to purchase any securities other than Ordinary Shares, thereafter the
number of such securities so purchasable upon exercise of each Warrant and the
Warrant Price for such shares shall be subject to adjustment from time to time
in a manner and on terms as nearly equivalent as
18
<PAGE>
practicable to the provisions with respect to the Ordinary Shares contained in
paragraphs (ii) and (iii).
Section 10. FRACTIONAL INTEREST. The Warrants may only be exercised
to purchase full Ordinary Shares and the Company shall not be required to issue
fractions of Ordinary Shares on the exercise of Warrants. However, if a Warrant
holder exercises all Warrants then owned of record by him and such exercise
would result in the issuance of a fractional share, the Company will pay to such
Warrant holder, in lieu of the issuance of any fractional share otherwise
issuable, an amount of cash based on the market value of the Ordinary Shares of
the Company on the last trading day prior to the exercise date.
Section 11. NOTICES TO WARRANTHOLDERS.
(i) Upon any adjustment of the Warrant Price and the number of
Ordinary Shares issuable upon exercise of a Warrant, then and in each such case
the Company shall give written notice thereof to the Warrant Agent, which notice
shall state the Warrant Price resulting from such adjustment and the increase or
decrease, if any, in the number of shares purchasable at such price upon the
exercise of a Warrant, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based. The Company
shall also mail such notice to the holders of the Warrants at their addresses
19
<PAGE>
appearing in the Warrant register. Failure to give or mail such notice, or any
defect therein, shall not affect the validity of
the adjustments.
(ii) In case at any time:
(I) the Company shall pay dividends payable in stock upon
its Ordinary Shares or make any distribution (other than regular cash dividends)
to the holders of its Ordinary Shares; or
(II) the Company shall offer for subscription pro rata to
the holders of its Ordinary Shares any additional shares of stock of any class
or other rights; or
(III) there shall be any capital reorganization or
reclassification of the capital stock of the Company, or consolidation or merger
of the Company with, or sale of substantially all of its assets to another
corporation; or
(IV) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then in any one or more of such cases, the Company shall give written notice in
the manner set forth in Section 11(a) of the date on which (A) a record shall be
taken for such dividend, distribution or subscription rights, or (B) such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up shall take place, as the case may be.
20
<PAGE>
Such notice shall also specify the date as of which the holders of Ordinary
Shares of record shall participate in such dividend, distribution or
subscription rights, or shall be entitled to exchange their Ordinary Shares for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be. Such notice shall be given at least fifteen
(15) days prior to the action in question and not less than fifteen (15) days
prior to the record date in respect thereof. Failure to give such notice, or
any defect therein, shall not affect the legality or validity of any of the
matters set forth in this Section 11(ii).
(iii) The Company shall cause copies of all financial statements
and reports, proxy statements and other documents that are sent to its
shareholders to be sent by first class mail, postage prepaid, on the date of
mailing to such shareholders, to each registered holder of Warrants at his
address appearing in the warrant register as of the record date for the
determination of the shareholders entitled to such documents.
Section 12. DISPOSITION OF PROCEEDS ON EXERCISE OF WARRANTS.
(i) The Warrant Agent shall promptly forward to the Company all
monies received by the Warrant Agent for the
21
<PAGE>
purchase of Ordinary Shares through the exercise of such Warrants.
(ii) The Warrant Agent shall keep copies of this Agreement
available for inspection by holders of Warrants during normal business hours.
Section 13. REDEMPTION OF WARRANTS. The Warrants are redeemable by
the Company upon the consent of the Representative, in whole or in part, on not
less than thirty (30) days' prior written notice at a redemption price of $
per Warrant at any time commencing upon the date hereof, provided that the
closing bid price of the Ordinary Shares on all twenty (20) trading days ending
on the third day prior to the day on which the Company gives notice of
redemption has been at least 130% of the then effective exercise price of the
Warrants. The redemption notice shall be mailed to the holders of the Warrants
at their addresses appearing in the Warrant register. Holders of the Warrants
will have exercise rights until the close of business on the date fixed for
redemption.
Section 14. MERGER OR CONSOLIDATION OR CHANCE OF NAME OF WARRANT
AGENT. Any corporation or company which may succeed to the corporate trust
business of the Warrant Agent by any merger or consolidation or otherwise shall
be the successor to the Warrant Agent hereunder without the execution or filing
of any paper or any further act on the part of any of the parties
22
<PAGE>
hereto, provided that such corporation would be eligible as a successor Warrant
Agent under the provisions of Section 16 of this Agreement. In case at the time
such successor to the Warrant Agent shall succeed to the agency created by this
Agreement, any of the Warrants shall have been countersigned but not delivered,
any such successor to the Warrant Agent may adopt the countersignature of the
original Warrant Agent and deliver such Warrants so countersigned.
In case at any time the name of the Warrant Agent shall be changed and
at such time any of the Warrants shall have been countersigned but not
delivered, the Warrant Agent may adopt the countersignature under its prior name
and deliver Warrants so countersigned. In all such cases such Warrants shall
have the full force provided in the Warrants and in the Agreement.
Section 15. DUTIES OF WARRANT AGENT. The Warrant Agent undertakes
the duties and obligations imposed by this Agreement upon the following terms
and conditions, by all of which the Company and the holders of Warrants, by
their acceptance thereof, shall be bound:
(i) The statements of fact and recitals contained herein and in
the Warrants shall be taken as statements of the Company, and the Warrant Agent
assumes no responsibility for the correctness of any of the same except such as
describe the Warrant Agent or action taken or to be taken by it. The Warrant
23
<PAGE>
Agent assumes no responsibility with respect to the distribution of the Warrants
except as herein expressly provided.
(ii) The Warrant Agent shall not be responsible for any failure
of the Company to comply with any of the covenants in this Agreement or in the
Warrants to be complied with by the Company.
(iii) The Warrant Agent may consult at any time with counsel
satisfactory to it (who may be counsel for the Company) and the Warrant Agent
shall incur no liability or responsibility to the Company or to any holder of
any Warrant in respect of any action taken, suffered or omitted by it hereunder
in good faith and in accordance with the opinion or the advice of such counsel.
(iv) The Warrant Agent shall incur no liability or responsibility
to the Company or to any holder of any Warrant for any action taken in reliance
on any notice, resolution, waiver, consent, order, certificate or other
instrument believed by it to be genuine and to have been signed, sent or
presented by the proper party or parties.
(v) The Company agrees to pay to the Warrant Agent reasonable
compensation for all services rendered by the Warrant Agent in the execution of
this Agreement, to reimburse the Warrant Agent for all expenses, taxes and
governmental charges and other charges incurred by the Warrant Agent in the
24
<PAGE>
execution of this Agreement and to indemnify the Warrant Agent and save it
harmless against any and all liabilities, including judgments, costs and
reasonable counsel fees, for anything done or omitted by the Warrant Agent in
the execution of this Agreement except as a result of the Warrant Agent's
negligence, willful misconduct or bad faith.
(vi) The Warrant Agent shall be under no obligation to institute
any action, suit or legal proceeding or to take any other action likely to
involve expenses unless the Company or one or more registered holders of
Warrants shall furnish the Warrant Agent with reasonable security and indemnity
for any costs and expenses which may be incurred, but this provision shall not
affect the power of the Warrant Agent to take such action as the Warrant Agent
may consider proper, whether with or without any such security or indemnity.
All rights of action under this Agreement or under any of the Warrants may be
enforced by the Warrant Agent without the possession of any of the Warrants or
the production thereof at any trial or other proceeding, and any such action,
suit or proceeding instituted by the Warrant Agent shall be brought in its name
as Warrant Agent, and any recovery of judgment shall be for the ratable benefit
of the registered holders of the Warrants, as their respective rights and
interests may appear.
25
<PAGE>
(vii) The Warrant Agent and any shareholder, director, officer,
partner or employee of the Warrant Agent may buy, sell or deal in any of the
Warrants or other securities of the Company or become pecuniarily interested in
any transaction in which the Company may be interested, or contract with or lend
money to or otherwise act as fully and freely as though it were not the Warrant
Agent under this Agreement. Nothing herein shall preclude the Warrant Agent
from acting in any other capacity for the Company or for any other legal entity.
(viii) The Warrant Agent shall act hereunder solely as agent and
its duties shall be determined solely by the provisions hereof.
(ix) The Warrant Agent may execute and exercise any of the rights
or powers hereby vested in it or perform any duty hereunder either itself or by
or through its attorneys, agents or employees, and the Warrant Agent shall not
be answerable or accountable for any such attorneys, agents or employees or for
any loss to the Company resulting from such neglect or misconduct, provided
reasonable care had been exercised in the selection and continued employment
thereof.
(x) Any request, direction, election, order or demand of the
Company shall be sufficiently evidenced by an instrument signed in the name of
the Company by its President or a Vice President or its Secretary or an
Assistant Secretary or
26
<PAGE>
its Treasurer or an Assistant Treasurer (unless other evidence in respect
thereof be herein specifically prescribed); and any resolution of the Board of
Directors may be evidenced to the Warrant Agent by a copy thereof certified by
the Secretary or an Assistant Secretary of the Company.
Section 16. CHANGE OF WARRANT AGENT. The Warrant Agent may resign
and be discharged from its duties under this Agreement by giving to the Company
notice in writing, and to the holders of the Warrants notice by mailing such
notice to the holders at their addresses appearing on the Warrant register, of
such resignation, specifying a date when such resignation shall take effect.
The Warrant Agent may be removed by like notice to the Warrant Agent from the
Company and the like mailing of notice to the holders of the Warrants. If the
Warrant Agent shall resign or be removed or shall otherwise become incapable of
acting, the Company shall appoint a successor to the Warrant Agent. If the
Company shall fail to make such appointment within a period of thirty (30) days
after such removal or after it has been notified in writing of such resignation
or incapacity by the resigning or incapacitated Warrant Agent or after the
Company has received such notice from a registered holder of a Warrant (who
shall, with such notice, submit his Warrant for inspection by the Company), then
the registered holder of any Warrant may apply to any court of competent
jurisdiction for the appointment of a
27
<PAGE>
successor to the Warrant Agent. Any successor Warrant Agent, whether appointed
by the Company or by such a court, shall be a bank or trust company, in good
standing, incorporated under New York or federal law. After appointment, the
successor Warrant Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Warrant Agent without
further act or deed and the former Warrant Agent shall deliver and transfer to
the successor Warrant Agent all cancelled Warrants, records and property at the
time held by it hereunder, and execute and deliver any further assurance or
conveyance necessary for the purpose. Failure to file or mail any notice
provided for in this Section, however, or any defect therein, shall not affect
the validity of the resignation or removal of the Warrant Agent or the
appointment of the successor Warrant Agent, as the case may be.
Section 17. IDENTITY OF TRANSFER AGENT. Forthwith upon the
appointment of any transfer agent for the Ordinary Shares or of any subsequent
transfer agent for the Ordinary Shares or other Ordinary Shares issuable upon
the exercise of the rights of purchase represented by the Warrants, the Company
will file with the Warrant Agent a statement setting forth the name and address
of such transfer agent.
Section 18. NOTICES. Any notice pursuant to this Agreement to be
given by the Warrant Agent, or by the registered
28
<PAGE>
holder of any Warrant to the Company, shall be sufficiently given if sent by
first-class mail, postage prepaid, addressed (until another is filed in writing
by the Company with the Warrant Agent) as follows:
Accent Software International Ltd.
28 Pierre Koenig Street
Jerusalem 91530 Israel
Attention: Robert S. Rosenschein,
President and Chief Executive Officer
and copies thereof to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Stephen M. Besen, Esq.
Yigal Arnon & Co.
3 Daniel Frisch Street
Tel Aviv 64731 Israel
Attention: Barry P. Levenfeld, Esq.
Any notice pursuant to this Agreement to be given by the Company or by
the registered holder of any Warrant to the Warrant Agent shall be sufficiently
given if sent by first-class mail, postage prepaid, addressed (until another
address is filed in writing by the Warrant Agent with the Company) as follows:
American Stock Transfer and Trust Company
40 Wall Street
New York, New York 10005
Attention: Mr. George Karfunkel
Any notice pursuant to this Agreement to be given by the Warrant Agent
or by the Company to the Representative shall
29
<PAGE>
be sufficiently given if sent by first-class mail, postage prepaid, addressed
(until another address is filed in writing with the Warrant Agent) as follows:
Sands Brothers & Co., Ltd.
90 Park Avenue
New York, New York 10016
Attention: Alan Bluestine
and copies thereof to:
Littman Krooks & Roth, P.C.
120 West 45th Street
New York, New York 10036
Attention: Mitchell C. Littman, Esq.
Naschitz, Brandes & Co.
5 Tuval Street
Tel Aviv 67897 Israel
Attention: Aaron Lampert, Esq.
Section 19. SUPPLEMENTS AND AMENDMENTS. The Company and the Warrant
Agent may from time to time supplement or amend this Agreement in order to cure
any ambiguity or to correct or supplement any provision contained herein which
may be defective or inconsistent with any other provision herein, or to make any
other provisions in regard to matters or questions arising hereunder which the
Company and the Warrant Agent may deem necessary or desirable and which shall
not be inconsistent with the provisions of the Warrants and which shall not
adversely affect the interest of the holders of Warrants.
30
<PAGE>
Section 20. GOVERNING LAW. This Agreement and each Warrant issued
hereunder shall be deemed to be a contract made under the laws of the State of
New York and shall be construed in accordance with the laws of New York
applicable to agreements to be performed wholly within New York.
Section 21. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement
shall be construed to give to any person or corporation other than the Company,
the Warrant Agent and the registered holders of the Warrants any legal or
equitable right, remedy or claim under this Agreement; but this Agreement shall
be for the sole and exclusive benefit of the Company, the Warrant Agent and the
registered holders of the Warrants.
Section 22. SUCCESSORS. All the covenants and provisions of this
Agreement by or for the benefit of the Company, the Warrant Agent or the
Representative shall bind and inure to the benefit of their respective
successors and assigns hereunder.
31
<PAGE>
IN WITNESS WHEREOF, the parties have entered into this Agreement on
the date first above written.
ACCENT SOFTWARE INTERNATIONAL LTD.
By:
--------------------------------------------------
Name:
Title:
AMERICAN STOCK TRANSFER & TRUST COMPANY
By:
--------------------------------------------------
Name:
Title:
SANDS BROTHERS & CO., LTD.
By:
--------------------------------------------------
Name:
Title:
32
<PAGE>
EXHIBIT 11
ACCENT SOFTWARE INTERNATIONAL LTD. AND SUBSIDIARIES
COMPUTATION OF NET LOSS PER SHARE
(U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------- ---------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Net Loss................................................ $ (735) $ (3,134) $ (7,848) $ (4,330) $ (15,749)
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
Weighted Average Number of Shares and Equivalent Shares
Outstanding:
Weighted average number of shares outstanding........... 1,259 3,985 6,263 5,353 9,698
Effect of stock options and warrants(1)................. 634 634 158 211 --
--------- --------- --------- --------- ----------
1,893 4,619 6,421 5,564 9,698
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
Net Loss Per Share...................................... $ (0.39) $ (0.68) $ (1.22) $ (0.78) $ (1.62)
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</TABLE>
(1) Shares related to options and warrants granted within the twelve months
preceding the Company's initial public offering at exercise prices below the
initial public offering price, have been retroactively included in the
calculation of net loss per share, whether or not dilutive, as required by
the regulations of the Securities and Exchange Commission.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of this
Registration Statement No. 333-7637.
/s/ LUBOSHITZ, KASIERER & CO.
LUBOSHITZ, KASIERER & CO.
Member Firm of Andersen Worldwide, SC
Jerusalem, Israel
November 5, 1996
