<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 3, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
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
972-2-793-723
(Address and telephone number of Registrant's principal executive offices)
ACCENT WORLDWIDE, INC.
1401 DOVE STREET
SUITE 470
NEWPORT BEACH, CALIFORNIA 92660
TEL: (714) 223-0620
(Name, address and telephone number of agent for service of process)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
Stephen M. Besen, Esq. Barry P. Levenfeld, Esq.
Weil, Gotshal & Manges LLP Yigal Arnon & Co.
767 Fifth Avenue 3 Daniel Frisch Street
New York, New York 10153 Tel Aviv 64731 Israel
Telephone: (212) 310-8000 Telephone: 972-3-692-6868
Kenneth J. Bialkin, Esq. Hanina Brandes, Adv.
Alan G. Straus, Esq. Naschitz, Brandes & Co.
Skadden, Arps, Slate, Meagher & Flom 136 Rothschild Boulevard
919 Third Avenue Tel Aviv 65272, Israel
New York, New York 10022 Telephone: 972-3-685-7766
Telephone: (212) 735-3000
</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
OFFERING PRICE PROPOSED MAXIMUM
PER AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO ORDINARY OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED SHARE (1) PRICE (1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Ordinary Shares, nominal value NIS .01 per
share...................................... 2,300,000(2) $30.875 $71,012,500 $24,487
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(c) of the Securities Act of 1933, as
amended, based upon the average of the high and low prices of the Ordinary
Shares as quoted on The Nasdaq SmallCap Market on July 1, 1996.
(2) Includes 300,000 Ordinary Shares which the Underwriters have an option to
purchase from certain Selling Shareholders to cover over-allotments, if any.
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ACCENT SOFTWARE INTERNATIONAL LTD.
CROSS REFERENCE SHEET
FURNISHED PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION IN FORM S-1 LOCATION IN PROSPECTUS
- ---------------------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
1. Forepart of Registration Statement and Outside Front
Cover Page of Prospectus............................ Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus.......................................... Inside Front and Outside Back Cover Pages of
Prospectus
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges. Prospectus Summary; Risk Factors
4. Use of Proceeds...................................... Use of Proceeds
5. Determination of Offering Price...................... Not Applicable
6. Dilution............................................. Not Applicable
7. Selling Security Holders............................. Principal and Selling Shareholders
8. Plan of Distribution................................. Outside Front Cover Page of Prospectus; Underwriting
9. Description of Securities to be Registered........... Description of Securities
10. Interest of Named Experts and Counsel................ Not Applicable
11. Information with Respect to the Registrant........... Prospectus Summary; Risk Factors; Use of Proceeds;
Dividends; Capitalization; Management's Discussion
and Analysis of Financial Condition and Results of
Operations; Business; Management; Principal and
Selling Shareholders; Certain Transactions;
Description of Securities; Taxation and Foreign
Exchange Regulation; Financial Statements
12. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities...................... Not Applicable
</TABLE>
<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 , 1996
PROSPECTUS
[LOGO]
2,000,000 ORDINARY SHARES
ACCENT SOFTWARE INTERNATIONAL LTD.
------------
Of the 2,000,000 Ordinary Shares, nominal value NIS 0.01 each (the "Ordinary
Shares"), of Accent Software International Ltd. (the "Company" or "Accent"),
offered hereby (the "Offering"), 1,400,000 are being sold by the Company and
600,000 are being sold by certain shareholders of the Company (the "Selling
Shareholders"). The Company will not receive any proceeds from the sale of
Ordinary Shares by the Selling Shareholders. See "Principal and Selling
Shareholders."
The Ordinary Shares are quoted on The Nasdaq SmallCap Market under the
symbol "ACNTF." On , 1996, the last reported sale price of the
Ordinary Shares on The Nasdaq SmallCap Market was $ per Ordinary Share.
The Company intends to apply for quotation of the Ordinary Shares on the Nasdaq
National Market under the symbol "ACNTF" and expects that the Ordinary Shares
will begin to be quoted on the Nasdaq National Market simultaneously with the
completion of the Offering.
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING
ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN
CONNECTION WITH AN INVESTMENT IN THE ORDINARY SHARES OFFERED HEREBY.
---------------------
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 APPLIED TO THE SECURITIES AUTHORITY OF THE STATE OF ISRAEL FOR
AN EXEMPTION FROM THE OBLIGATION TO PUBLISH THIS PROSPECTUS IN THE MANNER
REQUIRED PURSUANT TO THE PREVAILING LAWS OF THE STATE OF ISRAEL. NOTHING IN
SUCH EXEMPTION OF THE SECURITIES AUTHORITY OF THE STATE OF ISRAEL 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>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) SHAREHOLDERS(2)
<S> <C> <C> <C> <C>
Per Ordinary Share......... $ $ $ $
Total (3).................. $ $ $ $
</TABLE>
(1) The Company and the Selling Shareholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses estimated at $ , payable by the Company.
The Company will bear all expenses of the Offering other than the
underwriting discount attributable to the Ordinary Shares being offered by
the Selling Shareholders, which will be borne by the respective Selling
Shareholders.
(3) Certain of the Selling Shareholders have granted to the several Underwriters
an option, exercisable within 30 days after the date hereof, to purchase up
to an additional 300,000 Ordinary Shares on the same terms and conditions
set forth above solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to Public, Underwriting Discount,
Proceeds to Company and Proceeds to Selling Shareholders will be $ ,
$ , $ and $ , respectively. See "Underwriting."
--------------------------
The Ordinary Shares are offered by the several Underwriters, subject to
prior sale, when, as and if issued to and accepted by them, subject to approval
of certain legal matters by counsel for the Underwriters and certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the Ordinary Shares will be made in New York, New York on or about
, 1996.
--------------------------
MERRILL LYNCH & CO.
J.P. MORGAN & CO.
OPPENHEIMER & CO., INC.
----------------
The date of this Prospectus is , 1996.
<PAGE>
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE ORDINARY SHARES
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, CERTAIN UNDERWRITERS MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE ORDINARY SHARES 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 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 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 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 marketing subsidiary, Accent Worldwide, Inc. ("Accent
Worldwide"). ACCENT is a registered trademark of the Company in the United
Kingdom, Germany and the Benelux countries. LANGUAGEWARE is a registered
trademark of the Company in the United Kingdom and Israel. DAGESH is a
registered trademark of the Company in Israel. WEBTAMER and MAILPAD are
trademarks of the Company. Windows is a registered trademark and Windows NT and
Windows95 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 trademark of Delrina Corporation ("Delrina").
Lotus Organizer is a trademark of Lotus Development Corporation ("Lotus"). 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 Windows95 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 CERTAIN NON-MANAGEMENT SELLING SHAREHOLDERS IS
NOT EXERCISED AND (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.
THE COMPANY
Accent develops, markets and supports multilingual Internet publishing,
browsing and e-mail 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. Accent's INTERNET WITH
AN ACCENT, the world's 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 one of the world's leading developers
and suppliers of multilingual word processing software. Accent's Internet and
word processing software serve users in every major region of the world and are
marketed directly by the Company and through distributors in more than 30
countries worldwide and in the Americas through Accent Worldwide its U.S. sales
and marketing subsidiary.
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. 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 2000. International Data Corporation estimated that approximately 22%
of current 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 the fastest 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.
Accent has used its multilingual word processing technology as a platform to
launch several multilingual Internet products addressing the needs of its target
users. By offering a unique line of multilingual Internet user applications and
development tools during the initial stages of the Internet's commercial
development, Accent management believes it will be able to secure a position as
the multilingual solution of choice among Internet users, permitting it to
capitalize on the expected growth and increased internationalization of the
Internet. In December 1995, Accent introduced INTERNET WITH AN ACCENT, which
includes a Web browser that 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 the only 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, the
only multilingual browser plug-in for Netscape Navigator. By the end of 1996,
Accent plans to release a Pacific Rim version of INTERNET WITH AN ACCENT,
supporting the Chinese, Japanese and Korean languages ACCENT WEB PUBLISHER PRO,
a Web authoring tool designed for corporate users, and ACCENT INSTANT
GLOBALIZATION API, a set of standards and tools that will enable the
globalization of any Windows software application.
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 these
software applications will be based primarily on intelligent agent technology.
Intelligent agents are electronic assistants that will help automate the
Internet by performing complex, repetitive or time-consuming operations. 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 subsidiary dedicated to the
development of intelligent agent-based technology and applications for the
Internet. In the third quarter of
4
<PAGE>
1996, Accent intends to release WEBTAMER, a collection of Internet user
productivity tools and the first Accent product utilizing AgentSoft's
intelligent agent technology. WEBTAMER is targeted beyond multilingual and
non-English speaking Internet users to the broader market for Internet software
applications.
Accent's business objective is to strengthen its position as the leading
provider of multilingual Internet and word processing applications and
development tools, while establishing itself as a leading participant in the
emerging market for Internet software based on intelligent agent technology. To
achieve these objectives, Accent's business strategy is to (i) leverage its
experience in multilingual software development; (ii) rapidly introduce new
Internet products and product enhancements; (iii) add new technologies to its
core technology platforms; (iv) aggressively pursue global opportunities; (v)
develop strategic relationships with leading industry participants; and (vi)
leverage its investment in distribution networks.
Accent Software International Ltd. is a corporation organized in 1988 under
the laws of the State of Israel. The Company's home page can be located on the
Web at http://www.accentsoft.com. The Company's principal executive offices are
located at 28 Pierre Koenig Street, Jerusalem 91530, Israel, and its telephone
number is 972-2-793-723. Information contained in the Company's Web site shall
not be deemed to be a part of this Prospectus.
THE OFFERING
<TABLE>
<S> <C>
Ordinary Shares Offered:
By the Company....................... 1,400,000 Ordinary Shares
By Selling Shareholders.............. 600,000 Ordinary Shares
Ordinary Shares to be outstanding after
the Offering (1)...................... 11,186,776 Ordinary Shares
Use of Proceeds........................ The net proceeds of the Offering will be applied to
research and development, marketing, capital
expenditures, repayment of long term debt,
acquisitions, working capital and general corporate
purposes.
Nasdaq National Market symbol.......... ACNTF
</TABLE>
- ------------------------
(1) Excludes (i) 518,663 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); (ii) 840,125 Ordinary Shares issuable
upon exercise of employee and non-employee stock options; (iii) 275,000
Ordinary Shares issuable upon the exercise of founders' options; and (iv)
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."
5
<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>
THREE
MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- ---------
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 $ 633
Gross profit.......................................... 211 7 654 696 2,163 73
Operating income (loss)............................... 60 (377) (742) (2,997) (7,685) (1,689)
Net income (loss)..................................... 41 (321) (735) (3,134) (7,848) (1,805)
Net income (loss) per share (1)....................... $ 0.06 $ (0.48) $ (0.39) $ (0.68) $ (1.22) $ (0.35)
Weighted average number of shares and equivalent
shares outstanding (1)............................... 664 664 1,893 4,619 6,421 5,209
<CAPTION>
MARCH 31,
1996
DECEMBER 31, ---------
-----------------------------------------------------
1991 1992 1993 1994 1995 ACTUAL
--------- --------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............................. $ 9 $ -- $ -- $ 78 $ 9,633 $ 5,210
Working capital (deficit)............................. (217) (563) (1,433) (1,009) 10,329 6,739
Total assets.......................................... 182 262 1,050 2,503 17,650 15,214
Shareholders' equity (deficit)........................ (174) (496) (932) (1,064) 10,133 6,842
<CAPTION>
1996
-----------
<S> <C>
(UNAUDITED)
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Net sales............................................. $ 2,843
Gross profit.......................................... 1,476
Operating income (loss)............................... (3,925)
Net income (loss)..................................... (3,932)
Net income (loss) per share (1)....................... $ (0.41)
Weighted average number of shares and equivalent
shares outstanding (1)............................... 9,570
AS
ADJUSTED (2)
-----------
<S> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............................. $ 41,853
Working capital (deficit)............................. 43,508
Total assets.......................................... 51,857
Shareholders' equity (deficit)........................ 45,842
</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) Adjusted to reflect the sale of 1,400,000 Ordinary Shares offered by the
Company in the Offering, based on an assumed offering price of $31.00 per
Ordinary Share, the last reported sale price of the Ordinary Shares on July
1, 1996, after deducting the underwriting discount and estimated offering
expenses, and the anticipated application of the estimated net proceeds
therefrom. See "Use of Proceeds."
6
<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 ANTICIPATED FUTURE LOSSES; LIMITED OPERATING
HISTORY
The Company has incurred net losses since 1992 of approximately $7.8
million, $3.1 million and $0.7 million for the years ended December 31, 1995,
1994 and 1993 and a net loss of approximately $3.9 million for the first three
months of 1996. The Company intends to continue to make significant investments
in 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 and 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."
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. 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."
7
<PAGE>
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 Microsoft 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 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."
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 with the three month period ended March 31, 1996, a majority 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. 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"). 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 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
8
<PAGE>
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."
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING
The Company currently anticipates that the net proceeds of the Offering,
together with available funds and cash flows generated from product sales, will
be sufficient to meet its anticipated needs for working capital, capital
expenditures and business expenses through the end of 1997. Thereafter, the
Company may need to raise additional funds in order to fund more rapid
expansion, to develop new or enhanced services or products, to respond to
competitive pressures or to acquire complementary products, businesses or
technologies. If additional funds are raised through the issuance of equity or
convertible debt securities, the percentage ownership of the shareholders of the
Company will be reduced, shareholders may experience additional dilution and
such securities may have rights, preferences or privileges senior to those of
the holders of the Company's Ordinary Shares. There can be no assurance that
additional financing will be available on terms acceptable to the Company, or at
all. If adequate funds are not available or are not available on acceptable
terms, the Company may not be able to fund its expansion, develop or enhance its
products or respond to competitive pressures. Such inability could have a
material adverse effect on the Company's business, operating results or
financial condition. See "Use of Proceeds" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
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. See "Business -- Distribution and Marketing."
9
<PAGE>
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 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 three
months ended March 31, 1996, net sales increased 357% to approximately $2.8
million from approximately $0.6 million in the comparable period of 1995. In
addition, the number of employees increased from 76 to 135 during the period
from January 1, 1995 to March 31, 1996, and the Company expects to hire
additional personnel during 1996. The Company is continuing to expand its sales
and marketing organizations, develop its distribution channels to penetrate
different and broader markets, fund increasing levels of research and
development and grow its support organization to accommodate the increasing
installed base of products. 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
10
<PAGE>
leave of absence from Hebrew University for the two-year period commencing
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 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."
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
trademark, 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 protect the Company's trade secrets,
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 three months ended March 31, 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."
11
<PAGE>
POSSIBLE VOLATILITY OF MARKET PRICE OF THE ORDINARY SHARES
The market price of the Company's Ordinary Shares may be highly volatile and
in the past 52 weeks has ranged from $6 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. 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.
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Upon completion of the Offering, there will be 11,186,776 Ordinary Shares
outstanding, including 7,689,619 shares that will be freely tradeable without
restriction or further registration under the Securities Act. All of the
remaining 3,497,157 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 3,497,157
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).
In addition, the Company has granted to certain of its security-holders,
including certain of its executive officers, directors and IMR Investments
V.O.F., 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 all of the Selling 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 Merrill Lynch, Pierce, Fenner & Smith Incorporated. 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
12
<PAGE>
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 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 ordinary 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 1,400,000 Ordinary
Shares by the Company in the Offering (based upon an assumed public offering
price of $31.00 per Ordinary Share, the last reported sale price of the Ordinary
Shares on July 1, 1996, and after deducting the underwriting discount and
estimated offering expenses) are estimated to be approximately $39,000,000. The
Company will not receive any proceeds from the sale of Ordinary Shares by the
Selling Shareholders. The Company intends to apply the net proceeds for research
and development ( ), marketing ( ), capital expenditures
( ), repayment of long-term debt ( ), acquisitions
( ) and working capital and general corporate purposes
( ). However, since the proceeds of the Offering will be applied over
time, the actual expenditures of such proceeds could vary from the application
set forth above.
Long-term debt to be repaid out of the net proceeds of the Offering consists
of loans made to the Company under the Approved Enterprise Program administered
by the Israel Investment Center. The loans bear interest at annual rates varying
between 7.375% and 7.625%. The loans mature at various times through 2002.
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 to obtain a permit from the Bank of Israel to retain the
proceeds of the Offering, or a portion thereof, outside of Israel.
13
<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."
14
<PAGE>
PRICE RANGE OF ORDINARY SHARES AND LISTING
The Company's Ordinary Shares are quoted through The Nasdaq SmallCap Market
under the symbol "ACNTF." Application has been made for quotation of the
Ordinary Shares on the Nasdaq National Market under the symbol "ACNTF." The
Company expects that the Ordinary Shares will begin to be quoted on the Nasdaq
National Market simultaneously with the completion of the Offering. 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.................................................................. $ 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 (through July 2, 1996)........................................... $ 29.50 $ 32.25
</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 July 2, 1996, the last
reported sale price of the Ordinary Shares on The Nasdaq SmallCap Market was
$31.25 per Ordinary Share.
As of June 30, 1996, there were approximately 81 holders of record of
Ordinary Shares.
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1996, and as adjusted to reflect the sale by the Company of the 1,400,000
Ordinary Shares offered hereby (based upon an assumed public offering price of
$31.00 per Ordinary Share, the last reported sale price of the Ordinary Shares
on July 1, 1996, and 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>
MARCH 31, 1996
-----------------------
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt..................................................................... $ 2,231 $ --
---------- -----------
Shareholders' equity:
Ordinary Shares of nominal value NIS 0.01 per share;
30,000,000 shares authorized; 9,673,500 (actual) shares issued
and outstanding and 11,073,500 (as adjusted) shares issued and
outstanding (1)................................................................. 22 26
Share premium...................................................................... 22,965 61,961
Accumulated deficit................................................................ (16,145) (16,145)
---------- -----------
Total shareholders' equity....................................................... 6,842 45,842
---------- -----------
Total capitalization............................................................. $ 9,073 45,842
---------- -----------
---------- -----------
</TABLE>
- ------------------------
(1) Excludes (i) 518,663 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); (ii) 845,125 Ordinary Shares issuable
upon exercise of employee and non-employee stock options; (iii) 275,000
Ordinary Shares issuable upon the exercise of founders' options; and (iv)
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."
16
<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 three months ended March 31, 1995 and 1996 and as of March
31, 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>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------------------------------- ----------------------
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 $ 633 $ 2,843
Cost of sales........................... 125 248 566 1,155 2,972 560 1,367
--------- ---------- ---------- ---------- ---------- ---------- ----------
Gross profit............................ 211 7 654 696 2,163 73 1,476
--------- ---------- ---------- ---------- ---------- ---------- ----------
Product development costs, net.......... 117 311 363 507 1,097 235 648
Marketing expenses...................... 7 17 673 2,115 5,955 1,247 3,273
General and administrative expenses..... 27 56 360 1,071 2,796 280 1,480
--------- ---------- ---------- ---------- ---------- ---------- ----------
Total operating expenses.............. 151 384 1,396 3,693 9,848 1,762 5,401
--------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income (loss)................. 60 (377) (742) (2,997) (7,685) (1,689) (3,925)
Other income (expense), net............. (19) 56 7 (137) (163) (116) (7)
--------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) (1)................... $ 41 $ (321) $ (735) $ (3,134) $ (7,848) $ (1,805) $ (3,932)
--------- ---------- ---------- ---------- ---------- ---------- ----------
--------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) per share (1)......... $ 0.06 $ (0.48) $ (0.39) $ (0.68) $ (1.22) $ (0.35) $ (0.41)
Weighted average number of shares and
equivalent shares outstanding.......... 664 664 1,893 4,619 6,421 5,209 9,570
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------- MARCH 31,
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 $ 5,210
Working capital (deficit).......... (217) (563) (1,433) (1,009) 10,329 6,739
Total assets....................... 182 262 1,050 2,503 17,650 15,214
Total debt......................... 262 515 1,034 1,680 2,358 2,357
Accumulated deficit................ (174) (495) (1,231) (4,365) (12,213) (16,145)
Shareholders' equity (deficit)..... (174) (496) (932) (1,064) 10,133 6,842
</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.
17
<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 and e-mail software. The Company is also one of the world's leading
developers and suppliers of multilingual word processing software. The Company
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, the Company'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. For the three months ended March
31, 1996, the Company achieved record sales levels of $2,843,000, compared to
$633,000 for the comparable period in 1995. This increase was almost entirely
due to sales of INTERNET WITH AN ACCENT, which accounted for 62% of the
Company's revenues during the period. The Company believes that revenues from
its Internet products will account for an increasing percentage of its total
sales throughout 1996 and for the foreseeable future.
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 $7,848,000, $3,134,000 and $735,000 for the fiscal years
ended 1995, 1994 and 1993, respectively. In the three months ended March 31,
1996, the Company incurred a net loss of $3,932,000 and had an accumulated
deficit of $16,145,000 as of March 31, 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. The Company expects its marketing
expenditures to continue to be significant. Additionally, Accent Management
believes that effective research and development is critical to the achievement
of its business objectives. Accordingly, to facilitate the introduction of new
Internet products and product enhancements, Accent intends to substantially
increase its research and development expenditures during the next 12 to 18
months. See "Use of Proceeds" and "--Liquidity and Capital Resources."
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 increased profitability 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
18
<PAGE>
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 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 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 will be significantly shorter.
19
<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>
THREE MONTHS ENDED MARCH
YEAR ENDED DECEMBER 31, 31,
---------------------------------------- --------------------------
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 88.5 48.1
------ ------ ------ ------ ------
Gross profit...................................... 53.6 37.6 42.1 11.5 51.9
------ ------ ------ ------ ------
Product development costs, net.................... 29.7 27.4 21.4 37.1 22.8
Marketing expenses................................ 55.2 114.2 116.0 197.0 115.1
General and administrative expenses............... 29.5 57.9 54.4 44.2 52.1
------ ------ ------ ------ ------
Total operating costs and expenses.............. 114.4 199.5 191.8 278.3 189.9
------ ------ ------ ------ ------
Operating loss.................................... (60.8)% (161.9)% (149.7)% (266.8)% (138.0)%
------ ------ ------ ------ ------
------ ------ ------ ------ ------
</TABLE>
THREE MONTHS ENDED MARCH 31, 1996 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1995
NET SALES. Net sales increased to $2,843,000 in the three months ended
March 31, 1996 from $633,000 in the comparable period in 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 accounted for
approximately 62% of the Company's revenue during the period. A substantial
percentage of sales in the three months ended March 31, 1996 was attributable to
two OEM license agreements, primarily for INTERNET WITH AN ACCENT, which
represent firm revenue commitments as well as potentially providing additional
revenue opportunities based on end-user utilization. Aggregate sales to two
customers of approximately $1,600,000 exceeded 10% of the Company's total net
sales in the first quarter of 1996.
COST OF SALES. Cost of sales increased to $1,367,000 in the three months
ended March 31, 1996 from $560,000 in the comparable period in 1995. This
increase is attributable to the increased level of sales during the first three
months of 1996. As a percentage of net sales, cost of sales decreased to 48.1%
in the three month period ended March 31, 1996 from 88.5% in the comparable
period in 1995. This decrease was the result of a greater percentage of OEM
sales to packaged software sales and the reduction in per unit manufacturing
costs due to the higher volume production and a shift to lower cost CD-ROM
products. Cost of sales included increased royalty expenses associated with
INTERNET WITH AN ACCENT and significantly increased amortization of software
development costs compared to the prior period.
PRODUCT DEVELOPMENT COSTS, NET. Product development costs, net increased to
$648,000 in the three months ended March 31, 1996 from $235,000 in the
comparable period in 1995. This increase is due primarily to an increase in the
number of employees in the engineering department to 49 at March 31, 1996 from
36 at March 31, 1995 and a decrease in the percentage of costs capitalized
during the 1996 period as compared to the 1995 period.
MARKETING EXPENSES. Marketing expenses increased to $3,273,000 in the three
months ended March 31, 1996 from $1,247,000 in the comparable period in 1995.
The increase in marketing expenses is principally attributable to an increase of
$1,300,000 in 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. In
20
<PAGE>
addition, the Company significantly increased the number of employees in
marketing and sales to 51 at March 31, 1996 from 31 at March 31, 1995. A
significant portion of the increase in marketing expenses is attributable to the
establishment of Accent Worldwide, the Company's U.S. sales and marketing
subsidiary. The increase in marketing expenditures was due to higher travel and
related costs which resulted from expanded sales and marketing efforts.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $1,480,000 in the three months ended March 31, 1996 from $280,000
in the comparable period in 1995. As a percentage of net sales, general and
administrative expenses increased to 52.1% in the three months ended March 31,
1996 from 44.2% in the comparable period in 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 $490,000 for the three month period ended March 31, 1996.
OTHER INCOME (EXPENSE). Financing expenses, net (consisting of net interest
expense net of interest income) decreased to $7,000 in the three months ended
March 31, 1996 from $116,000 in the comparable period in 1995. During the first
quarter of 1996 the Company had outstanding borrowings of $2,357,000 compared to
$3,413,000 during the comparable period in 1995.
NET LOSS. As a result of the foregoing, the Company's net loss increased to
$3,932,000 in the three months ended March 31, 1996 from $1,805,000 in the
comparable period in 1995.
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,
21
<PAGE>
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 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
22
<PAGE>
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.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations primarily
through net proceeds from sales of equity securities, bank and other credit
facilities, revenue from sales of its word processing software and loans from
certain affiliated parties. Accent received net proceeds of $2,600,000 from a
private placement of 60 units, each consisting of Ordinary Shares, warrants to
purchase Ordinary Shares and an unsecured promissory note in May 1995 (the
"Private Placement"). Accent received net proceeds of $9,785,000 from the IPO of
Ordinary Shares and warrants to purchase Ordinary Shares (the "IPO Warrants") in
July 1995. Accent called the IPO Warrants for redemption in November 1995 as a
result of which substantially all of the IPO Warrants were exercised raising
proceeds for the Company of $8,160,000.
Historically, the Company has experienced delays in the collection of
certain receivables associated with sales of its word processing software and
has been unable to realize certain of such receivables. Although the Company has
had limited experience in the sale of its Internet products, the Company
believes that it will have more favorable experience in the collection of
receivables related to such products. However, there can be no assurance that
the Company will not experience delays in the collection of accounts receivable
or experience additional unrealizable receivables in the future. See "Risk
Factors--Product Returns; Collection of Accounts Receivable; Consignment
Arrangements."
The Company's operating activities used cash of $4,629,000, $8,733,000,
$2,622,000 and $301,000 for the three months ended March 31, 1996 and for the
years ended December 31, 1995, 1994 and 1993, respectively. The Company's
investing activities used cash of $434,000, $1,435,000 $949,000 and $528,000 for
the three months ended March 31, 1996 and for the years ended December 31, 1995,
1994 and 1993, respectively. Financing activities provided $640,000,
$19,723,000, $3,649,000 and $829,000 for the three months ended March 31, 1996
and for the years ended December 31, 1995, 1994 and 1993, 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. In April 1995, the Company
borrowed $1,000,000 from certain persons, including certain shareholders, which
borrowings were converted into an aggregate of 20 units issued in the Private
Placement. In July 1995, utilizing proceeds from the IPO, the Company repaid all
of its promissory notes issued in the Private Placement in an aggregate amount
of $1,500,000 plus interest, and repaid short-term bank borrowings which
approximated $200,000. In addition, the Company utilized certain of the proceeds
to bring creditors current in the amount owed to them.
23
<PAGE>
Long-term bank loans were $2,357,000 at March 31, 1996. Such loans are part
of the Approved Enterprise Program that is administered by the Israel Investment
Center. The Company intends to repay such loans in their entirety with the
proceeds from the Offering.
The Company expects to continue to make significant expenditures in support
of its marketing activities. In addition, the Company plans to continue to
increase expenditures in research and development over the next year. A
significant portion of the net proceeds from the Offering will be used for
marketing and research and development activities. The Company also anticipates
incurring expenditures to open a new sales office in Europe and possibly in Asia
and Latin America.
At March 31, 1996, the Company had cash and cash equivalents of $5,210,000
and working capital of $6,739,000. The Company believes that the net proceeds
from the Offering, together with its current cash balances and its future cash
flow from operations, if any, will be sufficient to meet its working capital and
capital expenditure requirements through the end of 1997. Thereafter, the
Company may need to raise additional funds. The Company may need to raise
additional funds sooner in order to fund more rapid expansion, to develop new or
enhanced services or products, to respond to competitive pressures or to acquire
complementary products, businesses or technologies. If additional funds are
raised through the issuance of equity or convertible debt securities,
shareholders may experience dilution. There can be no assurance that additional
financing will be available, if needed, on terms acceptable to the Company or at
all.
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 and e-mail 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. Accent's INTERNET WITH
AN ACCENT, the world's 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 one of the world's leading developers and suppliers of
multilingual word processing software. Accent's Internet and word processing
software serve users in every major region of the world and are marketed
directly by the Company and through distributors in more than 30 countries
worldwide and in the Americas through Accent Worldwide its U.S. Sales and
Marketing subsidiary.
Accent has used its multilingual word processing technology as a platform to
launch several multilingual Internet products addressing the needs of its target
users. By offering a unique line of multilingual Internet user applications and
development tools during the initial stages of the Internet's commercial
development, Accent management believes it will be able to secure a position as
the multilingual solution of choice among Internet users, permitting it to
capitalize on the expected growth and increased internationalization of the
Internet. In December 1995, Accent introduced INTERNET WITH AN ACCENT, which
includes a Web browser that 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 the only 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, the
only multilingual browser plug-in for Netscape Navigator. By the end of 1996,
Accent plans to release a Pacific Rim version of INTERNET WITH AN ACCENT,
supporting Chinese, Japanese and Korean language ACCENT WEB PUBLISHER PRO, a Web
authoring tool designed for corporate users, and ACCENT INSTANT GLOBALIZATION
API, a set of standards and tools that will enable the globalization of any
Windows software application.
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 these
software applications will be based primarily on intelligent agent technology.
Intelligent agents are electronic assistants that will help automate the
Internet by performing complex repetitive or time-consuming operations. 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, a subsidiary dedicated to the development of intelligent
agent-based technology and applications for the Internet. In the third quarter
of 1996, Accent intends to release WEBTAMER, a collection of Internet user
productivity tools and the first Accent product utilizing AgentSoft's
intelligent agent technology. WEBTAMER is targeted beyond multilingual and non-
English speaking Internet users to the broader market of Internet software
applications. For information as to ownership of AgentSoft see "Certain
Transactions."
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). Until
recently, the Internet had been used primarily by 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
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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.
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 2000. International Data Corporation estimated approximately
22% of current 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.
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
non-technical users to find, retrieve and link information on the Internet and
allows individuals or organizations to offer 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 strengthen its position as the leading
provider of multilingual Internet and word processing applications and
development tools, while establishing itself as a leading provider of Internet
software based on intelligent agent technology. To achieve these objectives,
Accent's business strategy is to:
-LEVERAGE ITS EXPERIENCE IN MULTILINGUAL SOFTWARE DEVELOPMENT. Accent
believes it is uniquely positioned to exploit the opportunities for
multilingual Internet and word processing applications and development
tools due to its unparalleled experience in multilingual software
development. The Company has been at the forefront of multilingual software
development since 1988. In 1991 it collaborated with Microsoft to develop
the bi-directional Hebrew and Arabic versions of the Microsoft Windows
operating system. Through the development of its word processing and
Internet products during the past five years, the Company has acquired
unrivaled experience in designing software to meet the unique requirements
of multilingual users. The Company is leveraging its experience to develop
ACCENT INSTANT GLOBALIZATION API, a set of standards and tools that will
enable the globalization of any Windows software application utilizing the
Company's multilingual technology. In the future, the Company believes that
its experience in multilingual software development will provide it with
important competitive advantages in new product development and product
enhancement, time to market, strategic alliances and the use of emerging
technologies in its multilingual Internet products.
-RAPIDLY INTRODUCE NEW INTERNET PRODUCTS AND PRODUCT ENHANCEMENTS. The
Company believes the rapid growth in the number of Internet users, the
changing composition of the Internet user base, continued globalization of
the Internet and the rapid evolution of Internet applications create
opportunities for the introduction of new Internet products or product
enhancements every three to six months. The Company's product development
strategy is designed to rapidly introduce new products and product
enhancements to capitalize on these opportunities. The Company's planned
product introductions in 1996 include WEBTAMER, ACCENT WEB PUBLISHER PRO,
the Pacific Rim version of INTERNET WITH AN ACCENT and ACCENT INSTANT
GLOBALIZATION API. The Company is currently investigating opportunities for
the development of a number of additional Internet products such as
advanced intelligence agent and Internet productivity tools.
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-ADD NEW TECHNOLOGIES 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 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 of the industry's leading experts in distributed artificial
intelligence technology research. AgentSoft's intelligent agent technology
will be included for the first time in Accent's WEBTAMER line of Internet
user productivity tools to be introduced in the third quarter of 1996.
Accent believes that AgentSoft gives it access to artificial intelligence
experts with extensive experience in the development of commercial software
and 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.
-
AGGRESSIVELY PURSUE GLOBAL OPPORTUNITIES. Accent views its market
opportunities from a global perspective and pursues such opportunities
aggressively. Accent's strategy is to identify the geographic regions with
the strongest potential for its products, rapidly establish distribution
channels in such regions and introduce products in the local language of
the target market. For example, in December 1995, Accent simultaneously
launched INTERNET WITH AN ACCENT in the European and U.S. markets, followed
by introductions of the product in Canada and Latin America in the first
six months of 1996. The release of the Pacific Rim version of INTERNET WITH
AN ACCENT in the fourth quarter of 1996 will enable Accent to pursue the
rapidly growing market for Internet software in Asia. Accent is also
pursuing opportunities created by multinational corporations, governments
and educational institutions seeking to meet their international
communication needs by establishing multilingual Intranets. Accent shipped
its first product intended for the international market in 1994 and its
products are currently marketed in more than 30 countries worldwide.
-
DEVELOP STRATEGIC RELATIONSHIPS WITH LEADING INDUSTRY PARTICIPANTS. As a
leading supplier of multilingual Internet development tools and
applications software and one of the pioneers in the development of
multilingual software solutions, Accent is strongly positioned to enter
into strategic alliances with leading industry participants. Accent
believes such alliances, which are expected to include joint marketing and
sales and joint product and technology development efforts, will become
increasingly important as the Internet continues to grow and becomes
increasingly global. Accent has historically pursued 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. Accent intends to use the Accent Instant Globalization API as a
vehicle to enter into additional strategic relationships in the future.
-
LEVERAGE ITS INVESTMENT IN DISTRIBUTION NETWORKS. Accent has made
significant investments in establishing a comprehensive multi-channel
distribution network encompassing major computer software distributors,
retailers, OEMs and ISPs. Accent's distribution channels include the
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 developing 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 aggressively marketing new products and product enhancements through
its established channels.
THE ACCENT INTERNET SOLUTION
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
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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:
-
ACCENT MULTILINGUAL MOSAIC enables a user to browse pages on the Web that
have been published in any of more than 30 languages and eight alphabets.
ACCENT MULTILINGUAL MOSAIC is capable of displaying Unicode and virtually
all other encodings used on the Internet today and provides user interfaces
in 20 languages. ACCENT MULTILINGUAL MOSAIC can detect a character set
(alphabet and accented characters) of an appropriately configured Web site
and automatically switch to the correct one. This multilingual browser can
be used either as a standalone browser solution or is available as NAVIGATE
WITH AN ACCENT, the only multilingual plug-in for Netscape Navigator. The
ACCENT MULTILINGUAL MOSAIC is based on the Spyglass Mosaic Browser, which is
licensed by Accent.
-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 unique
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
including 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 the second half of 1996. In the fourth quarter of
1996, the Company plans to release a Pacific Rim version of INTERNET WITH AN
ACCENT (supporting the Chinese, Japanese and Korean languages), ACCENT WEB
PUBLISHER PRO, a Web authoring tool designed for corporate users and ACCENT
INSTANT GLOBALIZATION API, a set of standards and tools that will enable the
globalization of any Windows software application.
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In the third quarter of 1996, Accent intends to release WEBTAMER, a
collection of Internet user productivity tools and the first Accent product
utilizing AgentSoft's intelligent agent technology. Although WEBTAMER will
contain the Company's multilingual features, it will be the Company's first
product targeted beyond multilingual and non-English speaking Internet users to
the broader market for Internet software applications. WEBTAMER will be made
available as a Netscape plug-in and as a stand-alone application. WEBTAMER
expands Accent's basic product segments from multilingual Internet applications
and text processing to Internet productivity tools and intelligent agents.
Beyond 1996, Accent's product strategy will be focused on the introduction
of (i) advanced intelligent agent based products utilizing AgentSoft technology;
(ii) additional Internet productivity tools as part of its WEBTAMER product
line; (iii) multilingual site management tools for the Web; (iv) enhanced text
processing and authoring capabilities, (v) intelligent document based products;
(vi) enhanced language utilities such as more advanced translation products and
(vii) multilingual versions of popular Internet communications tools.
THE ACCENT WORD PROCESSING SOLUTION
Accent is one of the world's leading suppliers of multilingual word
processing software. Since 1988, Accent has been at the forefront of
multilingual software development. In 1991, it collaborated with Microsoft to
develop the bi-directional Hebrew and Arabic versions of the Microsoft Windows
operating system. 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.
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 and Russian. ACCENT PROFESSIONAL incorporates several add-ins
including additional Bitstream fonts, Delrina's WinFax Lite 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 (English, French, German, Italian and Spanish) 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 bilingual Language Assistant translation program
licensed from Globalink Inc. ("Globalink") with the Company's bilingual word
processing software. Current machine translation programs, such as those offered
by Globalink, are only 70-75% accurate. By tightly integrating a translation
program with its Accent multilingual word processor, ACCENT DUO permits users to
enhance the machine translation and produce a finished product. The ACCENT DUO
product line includes products with translation capabilities for English-French,
English-German, English-Italian and English-Spanish.
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DISTRIBUTION AND MARKETING
The Company's principal target markets are individual users, business
organizations, academic institutions and government organizations. 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 Europe and the Americas. Additionally, the Company believes that the
Pacific Rim market will become increasingly important in the future.
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 can be found in
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 expects to 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 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. Accent believes that it has opportunities to increase its
revenues from ISPs through the bulk sale of the Company's Internet software,
optional software upgrades and "bounties" or payments for each new Internet
subscriber introduced to the ISPs by the Company.
DIRECT SALES. Accent has a sales force of 35 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 in the third quarter of 1996. 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.
In addition, the Company's products are sold through a large number of catalogs,
which the Company believes is a cost effective method of selling, as well as
advertising, its products.
MARKETING. The Company utilizes 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. The Company also maintains a multilingual Web site on the
Internet at www.accentsoft.com, through which it publishes general information
about its products, services, dealers and distributors for prospective
customers. The Company is currently exploring electronic distribution and is
already distributing beta and time-limited Accent Internet products over the
Web, at no cost.
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PRODUCT DEVELOPMENT
The Company develops or acquires technology that it believes will give it a
sustainable competitive advantage, such as its core multilingual technology or
intelligent agent technology. Accent's core development team consists of 25
software engineers and 25 other employees engaged in product development and
enhancement, quality assurance, product management and translation and
documentation activities. In addition, AgentSoft, the Company's subsidiary that
focuses on intelligent agent technology, has its own engineering staff, headed
by a team of the industry's leading 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
investment in product development was $694,000 for the three months ended March
31, 1996, $1,797,000 in 1995, $1,075,000 in 1994 and $751,000 in 1993.
The Company's near term product development efforts are focused on the
release of new products and product enhancements including its WEBTAMER 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 INSTANT GLOBALIZATION API, a
set of standards and tools that will enable the globalization of any Windows
software application. The Company's long term development efforts will also
focus on the development of additional Internet productivity tools as part of
its 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. With the explosive growth of the Internet and
Intranets, the Company believes that applications for electronic agents are only
now beginning to reach their commercial potential. For example, the Company
believes significant opportunities may exist for the application of intelligent
agents in the areas of network user productivity enhancement, workflow and
coordination, scheduling and electronic commerce.
The Company expects that AgentSoft will develop intelligent agent 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. 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 the 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 its royalty obligation to the
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 the OCS take place
in Israel. In the case of software, the OCS allows the manufacture of the
software outside of Israel as long as control over the
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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 the OCS. Such
approval is not required for the export of any products resulting from such
research and development.
COMPETITION
INTERNET PRODUCTS
The market for the Company's products is highly competitive and competition
is increasing as additional market opportunities arise. The Company competes
with Alis Technologies, Inc., which has also released a Spyglass-based
multilingual browser. However, that product does not provide the breadth of
languages that Accent's product does without the need for local language
versions of the Windows operating system. 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, while still in beta form,
incorporates improved multilingual display capabilities. However, unlike
Accent's browser, this product requires Windows95 to display some languages, and
in the opinion of the Company, provides less comprehensive and flexible language
display capabilities than the Company's browser.
Accent believes that the principal competitive advantage of the Company's
products is that no competing product is able to display the full diversity of
Web content available today without the concomitant use of a local language
version of Windows, and significantly, to the Company's knowledge, only INTERNET
WITH AN ACCENT has full multilingual Web authoring and e-mail capabilities.
WORD PROCESSING PRODUCTS
Accent's 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. Accent competes primarily with Word for
Windows and WordPerfect for Windows in those markets where these competitors
have add-on kits to add a second language to their products. The Company
believes that it competes favorably with respect to the factors it faces in the
word processing market.
While Accent believes that the multilingual aspects of its products give it
significant differentiation and expects its existing technological base to give
it a sustainable lead 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.
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 free 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 and that it is unlikely that IBM/Lotus would terminate its
relationship with the Company, 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 its products and the processes used to produce 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 made
an application for patent protection of certain elements of its Internet
technology. In the future, the Company intends to consider seeking such
protection where appropriate.
The Company provides its products to customers under a non-exclusive,
non-transferable license. 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 in which the products are marketed.
The Company believes that its products are proprietary and are protected by
copyright, trade secret and trademark law, as well as by the contractual
agreements described above. However, certain protections, such as limitations on
use of a product and limitations on warranties and liability, are not afforded
by copyright law and may not be available without an enforceable license
agreement. Moreover, there can be no assurance that the proprietary technology
of the Company will continue to be secret or that others will not 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, with the exception of its HebCorel
product sold in Israel which contains a mechanism to prohibit unauthorized use.
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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 technology licensed from third
parties. These licenses are generally for a one year term with automatic
renewal. 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.
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. The statement of claim has not yet been served on the defendent
pending the outcome of settlement discussions. In the action, the Company is
seeking approximately $380,000 as compensation for Mainframe's breach of
contract.
EMPLOYEES
The Company currently has approximately 145 employees, almost all of whom
are presently located in Jerusalem. Of this total, approximately 50 are employed
in the engineering department and product support, approximately 35 in sales and
marketing, and approximately 40 are employed in manufacturing and
administration. Accent Worldwide currently employs 15 persons in various
capacities, the majority of whom are in sales and marketing, and AgentSoft
employs five persons. The Company anticipates that the number of its employees
will continue to increase during the next several years.
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 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
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<PAGE>
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. 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 twelve month lease agreement. 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.
35
<PAGE>
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 44 Executive Vice President and Director
Dr. Jeffrey Rosenschein 39 Senior Vice President, Engineering, Chief Scientist, and Director
Herbert Zlotogorski 44 Senior Vice President, Operations
Michael Sondhelm 33 Controller
Elliott B. Broidy 38 Director
Roger R. Cloutier, II 43 Director
Meldon E. Levine 53 Director
Mark A. Tebbe 34 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 S.B. 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 high revenue growth 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.
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.
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,
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Mr. Sondhelm was an audit manager with Kesselman & Kesselman in Jerusalem. From
1991 to 1994, he was employed by Luboshitz, Kasierer & Co. in Tel Aviv. Prior to
1991, Mr. Sondhelm worked for seven years with Arthur Andersen & Co. in Chicago,
Illinois.
ELLIOT 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, Incorporated, a
chemicals and manufacturing company. He began his career with Arthur Andersen &
Co., and is a certified public accountant.
ROGER R. CLOUTIER, II has served as a director of the Company since May
1994. 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.
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.
AVI BASHER will, commencing on September 1, 1996, join the Company as Vice
President and Chief Financial Officer. Mr. Basher has been Chief Financial
Officer of InterPharm Laboratories Ltd., an Israeli biotechnology company whose
shares are publicly traded in the United States, since December 1992. Prior
thereto, Mr. Basher was Vice President and Chief Financial Officer of Rosh
Intelligent Systems, Inc., a developer of software productivity packages.
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
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<PAGE>
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 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.
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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 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.
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.
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
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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.
COMMITTEES
The Board of Directors currently has two committees: the Audit Committee,
and the Compensation and Share Option 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 current members of each of the Audit Committee and the Compensation and
Share Option Committee are Messrs. Broidy and Cloutier. Each of Messrs. Levine
and Tebbe and Ms. Dyson has recently been elected to the Board of Directors but
has not yet been appointed to any Board Committees. It is anticipated that one
or more of such persons will be added to these committees, as appropriate.
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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. Shareholders 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
41
<PAGE>
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.
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. 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 $120,750 and an
annual living expense allowance of $30,000, 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 to certain persons involved in the formation and
ongoing business of AgentSoft, including Dr. Jeffrey Rosenschein. 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 commencing one year from the date of grant, and will be subject to
Dr. Jeffrey Rosenschein's continued service at AgentSoft. The Company intends to
have Dr. Jeffrey Rosenschein involve himself 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 and Cloutier serves as a member of the Compensation
and Share Option Committee, and neither 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 subsidiary
so
42
<PAGE>
as to create an insider participation. For information with respect to certain
transactions between the Company and Mr. Broidy and IMR Investments and IMR
Fund, L.P., with which entities Mr. Cloutier is affiliated, see "Certain
Transactions."
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).
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.
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 employees 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. 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 719,125 Ordinary Shares under the Employee Share Option Plan, and thus
only 405,875 options currently remain available to be granted thereunder.
43
<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 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 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.
44
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
Set forth below is certain information with respect to the beneficial
ownership of Ordinary Shares as of June 27, 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 June 27, 1996,
there were 9,786,776 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 ORDINARY NUMBER PERCENT
- -------------------------------------------------- --------------- --------- SHARES ---------- ---------
BEING
OFFERED
------------
<S> <C> <C> <C> <C> <C>
Group consisting of IMR Investments V.O.F......... 2,361,765(3) 23.5% 264,487 2,097,278 18.3%
and IMR Fund, L.P.
St. Michielslaam 50
Brussels 1040, Belgium
Elliott B. Broidy................................. 986,732(4) 9.9% 110,513 876,219 7.7%
10100 Santa Monica Boulevard,
Suite 300
Los Angeles, California 90067
Robert S. Rosenschein............................. 592,000(5) 6.0% 75,000 517,000 4.6%
Dr. Jeffrey Rosenschein........................... 515,196(6) 5.2% 75,000 440,196 3.9%
Group consisting of:
AXA Assurances I.A.R.D. Mutuelle, AXA........... 476,250 4.9% -- 476,250 4.3%
Assurances Vie Mutuelle, Alpha Assurances
I.A.R.D. Mutuelle, Alpha Assurances vie
Mutuelle, UniEurope Assurance Mutuelle, as a
Group, and AXA and The Equitable Companies
Incorporated and its subsidiaries
787 Fifth Avenue
New York, New York 10019
KZ Overseas Holding Corp.......................... 78,839(7) 0.8% 37,500 41,339 0.4%
c/o Wyszogrod
522 West End Avenue
New York, New York 10024
Mitchell R. Joelson............................... 45,001(8) 0.5% 37,500 7,501 *
Roger R. Cloutier, II............................. 22,500(9) 0.2% -- 22,500 0.2%
100 South Fifth Street, Suite 2500
Minneapolis, Minnesota 55402
Meldon E. Levine.................................. 2,250(10) * -- 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 100111
All Executive Officers and Directors as a Group 2,356,268(11) 23.4% 600,000 1,756,268 14.9%
(10 persons).....................................
</TABLE>
- ------------------------
* Less than 0.1%.
(1) Unless otherwise indicated the address of each beneficial owner identified
is 28 Pierre Koenig Street, P.O. Box 53063, Jerusalem 91530, Israel.
45
<PAGE>
(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 June 27, 1996 have been exercised.
(3) Includes warrants to purchase 276,750 Ordinary Shares.
(4) Includes: (i) 822,857 Ordinary Shares directly owned by Mr. Broidy; (ii)
options to purchase 22,500 Ordinary Shares; and (iii) warrants to purchase
141,375 Ordinary Shares.
(5) Includes options to purchase 79,875 Ordinary Shares and warrants to purchase
41,875 Ordinary Shares.
(6) Includes options to purchase 87,750 Ordinary Shares and warrants to purchase
24,375 Ordinary Shares.
(7) Includes 70,714 Ordinary Shares and warrants to purchase 8,125 Ordinary
Shares. KZ Overseas Holdings Corp. is an affiliate of Mr. Zlotogorski,
Senior Vice President, Operations of the Company.
(8) Includes options to purchase 45,001 Ordinary Shares.
(9) Includes options to purchase 22,500 Ordinary Shares. Roger R. Cloutier, II
is a Vice President of IMR General, Inc., one of the partners of IMR
Investments V.O.F. ("IMR Investments") and the general partner of IMR
Management Partners, L.P. which, in turn, is the general partner of IMR
Fund, L.P. Mr. Cloutier disclaims beneficial ownership of the equity
securities owned by IMR Fund, L.P. and IMR Investments.
(10)Mr. Levine and his sister indirectly own 4,500 Ordinary Shares. Mr. Levine
disclaims beneficial ownership of the 2,250 Ordinary Shares indirectly owned
by his sister.
(11)Includes options to purchase 371,376 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 its 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.
In January 1995, Messrs. Robert S. Rosenschein and Elliot B. Broidy, Dr.
Jeffrey Rosenschein, KZ Overseas Holding Corp., and IMR Fund, L.P. (an affiliate
of IMR Investments) 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
46
<PAGE>
"Guarantor Warrants"). Specifically, Mr. Robert S. Rosenschein, Dr. Jeffrey
Rosenschein, Mr. Elliot B. Broidy, KZ Overseas Holding Corp. and IMR Fund, L.P.
were issued Guarantor Warrants to purchase 41,875 Ordinary Shares, 24,375
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 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 each of IMR Investments
and 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 2 Units in the Private Placement and an additional 1 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."
In connection with the formation of AgentSoft, the Company caused AgentSoft
to issue certain shares and options 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.
DESCRIPTION OF SECURITIES
The Company is authorized to issue 30,000,000 Ordinary Shares, nominal value
NIS .01 per share. As of June 27, 1996, 9,786,776 Ordinary Shares were issued
and outstanding, and held of record by approximately 81 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.
47
<PAGE>
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 and Selling 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
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
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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.
TRANSFER AGENT
The transfer agent for the Ordinary Shares 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 has agreed with the Underwriters 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 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.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 11,186,776 Ordinary
Shares outstanding. Of these shares, the 2,000,000 Ordinary Shares sold in the
Offering and 5,689,619 Ordinary Shares outstanding 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 3,497,157 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 3,497,157 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 110,000
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.
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All of the Company's officers and directors and all of the Selling
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 Merrill Lynch, Pierce,
Fenner & Smith Incorporated.
The Company has granted options and warrants to purchase 1,614,000 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."
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 five months of 1996, the
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inflation rate was 6.3%. There can be no assurance that the inflation rate for
1996 or thereafter will continue at this low rate 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, 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 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 SHOULD CONSULT THEIR OWN TAX
ADVISORS AS TO THE UNITED STATES, ISRAEL, OR OTHER TAX CONSEQUENCES OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF ORDINARY SHARES, INCLUDING, IN
PARTICULAR, THE EFFECT OF ANY FOREIGN, STATE OR LOCAL TAXES.
GENERAL CORPORATE TAX STRUCTURE
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."
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The Company has carryforward losses for tax purposes and deductible
temporary differences in the approximate amount of $11 million as of December
31, 1995. There are no deferred tax balances as of December 31, 1995 or March
31, 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.
The Company has been approved to receive guaranteed loans of approximately
$4.4 million under the Approved Enterprise Program which is administered by the
Israel Investment Center, of which $2.4 million has been received by the Company
to date. In order for the Company to be eligible to receive the remainder of
these guaranteed loans, the Company must continue to comply with the various
conditions of each respective approved program, including compliance with
minimum investment levels (of which no less than 30% of such amounts must be in
the Company's share capital) and achieving certain levels of sales of the
Company's products. The Company believes that it will continue to comply with
these conditions.
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
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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."
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.
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.
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
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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 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 TAX
Israeli law imposes a capital gains tax on the sale of capital assets,
including securities held by the Company and Ordinary Shares 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 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 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 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.
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
of the U.S.-Israel Tax Treaty 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 would otherwise tax such
gain). However, under the U.S.-Israel Tax Treaty, such Treaty U.S. Resident
would be permitted to claim a credit for such taxes against the U.S. income tax
imposed with respect to such sale, exchange or disposition, subject to the
limitations applicable to foreign tax credits and limitations under Section
865(h) of the Code.
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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 United States federal income tax consequences to a
holder of Ordinary Shares 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 includable 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 tax considerations that may be relevant to a decision
to purchase Ordinary Shares. This summary generally considers only U.S. Holders
that will own Ordinary Shares as capital assets. Except to the limited extent
discussed below, this summary 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, holders which own at least 10%
of the voting power of the Company (directly, indirectly or by attribution),
non-United States corporations, non-resident aliens of the United States or
taxpayers whose functional currency is not the dollar) or any aspect of state,
local or non-United States tax laws. EACH PROSPECTIVE INVESTOR IS ADVISED TO
CONSULT SUCH PERSON'S OWN TAX ADVISOR WITH RESPECT TO THE SPECIFIC TAX
CONSEQUENCES TO SUCH PERSON OF PURCHASING, HOLDING OR DISPOSING OF THE ORDINARY
SHARES.
TAXATION OF ORDINARY SHARES
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
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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 deduction 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
advisors regarding the treatment of foreign currency gain or loss, if any, or
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 either as a deduction from gross income
or as a dollar-for-dollar credit against their United States federal income tax
liability. Individuals who do not claim itemized deductions, but instead utilize
the standard deduction, may not claim a deduction for the amount of the Israeli
income taxes withheld, but such amount may be claimed as a credit against the
individual's United States federal income tax liability. The amount of foreign
income taxes which may be claimed as 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
which limit foreign tax credits allowable with respect to specific classes of
income to the United States federal income taxes otherwise payable with respect
to each such class of income. Dividends paid by the Company generally will be
foreign source "passive income" for United States foreign tax credit purposes
or, in the case of a financial services entity, "financial services income."
Foreign income taxes exceeding a shareholder's 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, subject to the credit limitation applicable in
each of such years. Additionally, the foreign tax credit in any taxable year may
not offset more than 90% of a shareholder's liability for United States
individual or corporate alternative minimum tax.
DISPOSITION OF 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. (or its U.S. dollar
equivalent, determined by reference to the spot rate of exchange on the date of
disposition, if the amount realized is denominated in a foreign currency). The
gain or loss realized on the sale, exchange or other 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 United States source income for United States foreign tax
credit purposes. Under current law, the source of any loss on the sale, exchange
or other disposition of Ordinary Shares is uncertain. U.S. Holders should
consult their own tax advisors regarding other treatment of any foreign currency
gain or loss on any foreign currency 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 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 shareholder who is a U.S. person would, upon
certain distributions by the Company and upon disposition of the Company shares
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 for the Ordinary
Shares. Additionally, if the Company were to become a PFIC, U.S. Holders who
acquire Ordinary Shares from decedents would be denied the normally available
step-up of the income tax basis for such Ordinary Shares to fair market value at
the date of death and instead would have a tax basis equal to the decedent's
basis, if lower.
56
<PAGE>
The Company does not believe it will be a PFIC at the conclusion of the
Offering, 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 that such holder has held the Ordinary Shares and the Company was
a PFIC, distributions and gain will not be 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.
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.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Under the Code, a U.S. Holder of Ordinary Shares may be subject, under
certain circumstances, to "backup withholding" at a 31% rate on cash payments in
the United States of dividends on, and the proceeds of disposition of, an
Ordinary Share. 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 IRS. In
addition, U.S. persons who own an interest in a foreign corporation may be
required to file Form 5471 with the IRS.
NON-U.S. HOLDERS OF ORDINARY SHARES
A Non-U.S. Holder of Ordinary Shares will not be subject to U.S. federal
income or withholding tax on the payment of dividends on, and the proceeds from
the disposition of, an 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 on Ordinary Shares unless
payment is made through a paying agent (or office) in the United States.
Non-U.S. Holders generally will be subject to information reporting and backup
withholding at 31% with respect to the payment within the United States of
dividends on Ordinary Shares unless the holder provides a taxpayer
identification number, certifies to its foreign status, or otherwise establishes
an exemption.
Non-U.S. Holders generally will be subject to information reporting and
backup withholding at 31% on the payment of the proceeds from the disposition of
Ordinary Shares to or through the United States office of a broker, whether
domestic or foreign, unless the holder provides a taxpayer identification
number, certifies to its foreign status or otherwise establishes an exemption.
Non-U.S. Holders will not be subject to information reporting or backup
withholding with respect to the payment of proceeds from the disposition of
Ordinary Shares 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
57
<PAGE>
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 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 IRS.
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.
58
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in a Purchase Agreement (the
"Purchase Agreement"), the Company and the Selling Shareholders have agreed to
sell to each of the underwriters listed below (the "Underwriters"), for whom
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), J.P.
Morgan Securities Inc. and Oppenheimer & Co., Inc. are acting as representatives
(the "Representatives"), and each of the Underwriters severally has agreed to
purchase from the Company and the Selling Shareholders, the respective number of
Ordinary Shares set forth opposite its name below. In the Purchase Agreement the
several Underwriters have agreed, subject to the terms and conditions set forth
therein, to purchase all of the Ordinary Shares offered hereby if any of the
Ordinary Shares are purchased. In the event of default by an Underwriter, the
Purchase Agreement provides that, in certain circumstances, the commitments of
non-defaulting Underwriters may be increased or the Purchase Agreement may be
terminated.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ----------------------------------------------------------------------------------------------------- ----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...............................................................................
J.P. Morgan Securities Inc...........................................................................
Oppenheimer & Co., Inc...............................................................................
----------
Total........................................................................................
----------
----------
</TABLE>
The Representatives have advised the Company that the Underwriters propose
initially to offer the Ordinary Shares 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 Ordinary Share. The Underwriters may allow, and such dealers may
reallow, a discount not in excess of $ per Ordinary Share to certain other
dealers. After the Ordinary Shares are released for sale to the public, the
offering price and other selling terms may from time to time be varied by the
Underwriters.
Two of the Selling Shareholders (IMR Investments V.O.F. and Mr. Broidy) have
granted to the Underwriters an option, exercisable for 30 days after the date
hereof, to purchase up to an aggregate of 300,000 additional Ordinary Shares,
solely to cover over-allotments, if any, at the public offering price set forth
on the cover page hereof, less the underwriting discount. To the extent that 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 Ordinary Shares to be purchased by it
shown in the foregoing table bears to the total number of Ordinary Shares
initially offered to the Underwriters hereby.
All of the Company's executive officers and directors and all of the Selling
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 Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
The Underwriters do not intend to confirm sales of Ordinary Shares offered
hereby to any accounts over which they exercise discretionary authority.
59
<PAGE>
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including certain liabilities under
the Securities Act, or to contribute to payments the Underwriters may be
required to make in respect thereof.
The Underwriters have undertaken that (a) they will not offer the Ordinary
Shares to the public in Israel within the meaning of the Israeli Securities Law,
1968, (b) they will not offer the Ordinary Shares in Israel to more than 35
offerees in the aggregate, (c) 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 (d) they will obtain warranties from each such
offeree that it is purchasing the Ordinary Shares for investment purposes only
and not for purposes of resale.
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, certain of the Underwriters and 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.
LEGAL MATTERS
The validity of the Ordinary Shares will be passed upon for by the Company
by Yigal Arnon & Co., Tel Aviv, Israel. Certain legal matters in connection with
the Offering will be passed upon for the Company by Weil, Gotshal & Manges LLP,
New York, New York and Yigal Arnon & Co. Certain legal matters in connection
with the Offering will be passed upon for the Underwriters by Skadden, Arps,
Slate, Meagher & Flom, New York, New York, and by Naschitz, Brandes & Co., Tel
Aviv, Israel. As to matters of Israeli law, Weil, Gotshal & Manges LLP is
relying and will rely upon the opinion of Yigal Arnon & Co. and Skadden, Arps,
Slate, Meagher & Flom is relying and will rely upon the opinion of Naschitz,
Brandes & Co. As to matters of United States law, Yigal Arnon & Co. is relying
and will rely upon the opinion of Weil Gotshal & Manges LLP and Naschitz,
Brandes & Co. will rely upon the opinion of Skadden, Arps, Slate, Meagher &
Flom.
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.
Statements concerning Israeli law included under the captions "Risk Factors
- -- Service of Process and Enforcement of Judgments," "Dividends," "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources," "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.
60
<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 March 31,
1996............................................................................................ F-3
Consolidated Statements of Operations for the years ended December 31, 1993, 1994 and 1995 and
unaudited for the three month periods ended March 31, 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 three month period ended March 31, 1996..................... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995 and
unaudited for the three month periods ended March 31, 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).
/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, as to
which the date is June 6, 1996).
F-2
<PAGE>
ACCENT SOFTWARE INTERNATIONAL LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
U.S. DOLLARS AND SHARES IN THOUSANDS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
--------------------- -----------
1994 1995 1996
--------- ---------- -----------
<S> <C> <C> <C>
(UNAUDITED)
Current assets
Cash and cash equivalents................................................... $ 78 $ 9,633 $ 5,210
Trade receivables, net of allowances of $116 in 1994, $997 in 1995 and $767
in 1996.................................................................... 600 2,661 3,803
Other receivables........................................................... 50 696 843
Prepaid expenses............................................................ 125 656 774
Inventories................................................................. 310 1,659 2,027
--------- ---------- -----------
Total current assets...................................................... 1,163 15,305 12,657
--------- ---------- -----------
Equipment................................................................... 721 1,456 1,844
Less -- accumulated depreciation............................................ 175 339 416
--------- ---------- -----------
Equipment, net............................................................ 546 1,117 1,428
--------- ---------- -----------
Capitalized software development costs, net of accumulated amortization of
$113 in 1994, $379 in 1995 and $524 in 1996.................................. 794 1,228 1,129
--------- ---------- -----------
Total assets.............................................................. $ 2,503 $ 17,650 $ 15,214
--------- ---------- -----------
--------- ---------- -----------
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
<S> <C> <C> <C>
Current liabilities
Short-term bank borrowings.................................................. $ 335 $ -- $ --
Current maturities of long-term loans....................................... -- 27 126
Accounts payable and accrued expenses....................................... 1,837 4,949 5,792
--------- ---------- -----------
Total current liabilities................................................. 2,172 4,976 5,918
Long-term bank loans.......................................................... 1,345 2,331 2,231
Accrued severance pay......................................................... 50 210 223
--------- ---------- -----------
Total liabilities......................................................... 3,567 7,517 8,372
--------- ---------- -----------
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, 9,480 shares
as of December 31, 1995, and 9,673 shares as of March 31, 1996........... 11 21 22
Share premium............................................................... 3,290 22,325 22,965
Accumulated deficit......................................................... (4,365) (12,213) (16,145)
--------- ---------- -----------
Total shareholders' equity (deficit)...................................... (1,064) 10,133 6,842
--------- ---------- -----------
Total liabilities and shareholders' equity (deficit)...................... $ 2,503 $ 17,650 $ 15,214
--------- ---------- -----------
--------- ---------- -----------
</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
THREE MONTHS ENDED
FOR THE YEAR ENDED DECEMBER 31 MARCH 31
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Net sales.................................................... $ 1,220 $ 1,851 $ 5,135 $ 633 $ 2,843
Cost of sales................................................ 566 1,155 2,972 560 1,367
--------- --------- --------- --------- ---------
Gross profit................................................. 654 696 2,163 73 1,476
--------- --------- --------- --------- ---------
Operating expenses
Product development costs, net............................. 363 507 1,097 235 648
Marketing expenses......................................... 673 2,115 5,955 1,247 3,273
General and administrative expenses........................ 360 1,071 2,796 280 1,480
--------- --------- --------- --------- ---------
Total operating expenses............................... 1,396 3,693 9,848 1,762 5,401
--------- --------- --------- --------- ---------
Operating loss......................................... (742) (2,997) (7,685) (1,689) (3,925)
--------- --------- --------- --------- ---------
Other income (expense):
Interest income............................................ -- 114 -- 14
Interest expense........................................... (77) (121) (284) (61) (21)
Other...................................................... 84 (16) 7 (55) --
--------- --------- --------- --------- ---------
Net other income (expense)............................. 7 (137) (163) (116) (7)
--------- --------- --------- --------- ---------
Net loss............................................... $ (735) $ (3,134) $ (7,848) $ (1,805) $ (3,932)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net loss per share........................................... $ (0.39) $ (0.68) $ (1.22) $ (0.35) $ (0.41)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average number of shares and equivalent shares
outstanding................................................. 1,893 4,619 6,421 5,209 9,570
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</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......................................... 2,811 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................... 9,480 21 22,325 -- (12,213) 10,133
Warrants exercise (unaudited)..................... 193 1 640 -- -- 641
Net loss (unaudited).............................. -- -- -- -- (3,932) (3,932)
----- ----- --------- ----------- ------------ ---------
Balance as of March 31, 1996 (unaudited).......... 9,673 $ 22 $ 22,965 $ -- $(16,145) $ 6,842
----- ----- --------- ----------- ------------ ---------
----- ----- --------- ----------- ------------ ---------
</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 THREE MONTHS ENDED
MARCH 31
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Operating activities
Net loss for the year....................................... $ (735) $ (3,134) $ (7,848) $ (1,805) $ (3,932)
Adjustments to reconcile net loss to net cash used in
operating activities....................................... 434 512 (885) 196 (697)
--------- --------- --------- --------- ---------
Net cash used in operating activities................... (301) (2,622) (8,733) (1,609) (4,629)
--------- --------- --------- --------- ---------
Investing activities
Acquisition of equipment.................................... (189) (381) (735) (52) (388)
Capitalized software development costs...................... (388) (568) (700) (150) (46)
Grants received from the Government Chief
Scientist.................................................. 49 -- -- -- --
--------- --------- --------- --------- ---------
Net cash used in investing activities..................... (528) (949) (1,435) (202) (434)
--------- --------- --------- --------- ---------
Financing activities
Increase (decrease) in short-term bank borrowings........... 341 (511) (335) 699 --
Increase (decrease) in short-term loan from a shareholder... 100 (100) -- -- --
Borrowings under long-term bank loans....................... 88 1,347 1,013 1,035 --
Repayment of long-term loans................................ -- (88) -- -- (1)
Proceeds received on issuance of shares, net of expenses.... 300 3,001 9,294 -- 641
Proceeds received on issuance and exercise of warrants, net
of expenses................................................ -- -- 9,751 -- --
--------- --------- --------- --------- ---------
Net cash provided by financing activities................. 829 3,649 19,723 1,734 640
--------- --------- --------- --------- ---------
Increase (decrease) in cash and cash equivalents.............. -- 78 9,555 (77) (4,423)
Cash and cash equivalents at beginning of year................ -- -- 78 78 9,633
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of year...................... $ -- $ 78 $ 9,633 $ 1 $ 5,210
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Adjustments to reconcile net loss to net cash used in
operating activities
Items not involving cash flows:
Depreciation and amortization............................. $ 34 $ 199 $ 430 $ 58 $ 222
Increase in severance pay................................. 33 16 160 1 13
Increase in allowance for doubtful accounts and sales
returns.................................................. 8 107 881 37 491
Changes in operating assets and liabilities:
Increase in trade receivables............................. (197) (407) (2,942) (125) (1,633)
Increase in inventories................................... (59) (251) (1,349) (55) (368)
(Increase) decrease in other receivables.................. (49) 51 (646) -- (147)
Increase in prepaid expenses.............................. (8) (125) (531) (56) (118)
Increase in accounts payable and accrued expenses......... 672 922 3,112 336 843
--------- --------- --------- --------- ---------
Net adjustments......................................... $ 434 $ 512 $ (885) $ 196 $ (697)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Cash paid during the year in respect of interest.............. $ 43 $ 86 $ 246 $ 60 $ 44
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</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 MARCH 31, 1996 AND FOR
THE THREE MONTHS ENDED MARCH 31, 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 March 31, 1996, U.S.$1 = New
Israeli Shekel ("NIS") NIS 3.111 (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.
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.
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.
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 MARCH 31, 1996 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED
NOTE 2 -- SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)
CASH AND CASH EQUIVALENTS
For the purpose of the statements of cash flows, all highly liquid
investments (including 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 three month
periods ended March 31, 1995 and 1996 the Company capitalized software costs of
$388, $568, $700, $150 and $46, and amortized $0, $113, $266, $28 and $145 of
such costs. 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 a specific distributor,
revenue is recorded upon shipment of the product to the customer and a provision
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 MARCH 31, 1996 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED
NOTE 2 -- SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)
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,
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 $1,174 during the three
months ended March 31, 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 expects to adopt SFAS
No. 123 in 1996. While the Company is still evaluating SFAS No. 123, it
currently expects to elect to measure compensation cost under APB No. 25 and to
comply with the pro forma disclosure requirements. If the Company makes this
election, this statement will have no impact on the Company's 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 MARCH 31, 1996 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED
NOTE 2 -- SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)
UNAUDITED INFORMATION
The financial statements include the unaudited balance sheet as of March 31,
1996 and the unaudited statements of operations and cash flows for the three
month periods ended March 31, 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 three month period ended March 31, 1996
are not necessarily indicative of results to be expected for the entire year.
NOTE 3 -- INVENTORIES
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
-------------------- -----------
1994 1995 1996
--------- --------- -----------
<S> <C> <C> <C>
Materials....................................................... $ 103 $ 372 $ 537
Finished goods.................................................. 207 1,287 1,490
--------- --------- -----------
$ 310 $ 1,659 $ 2,027
--------- --------- -----------
--------- --------- -----------
</TABLE>
NOTE 4 -- ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
-------------------- -----------
1994 1995 1996
--------- --------- -----------
<S> <C> <C> <C>
Suppliers...................................................... $ 981 $ 2,881 $ 3,818
Employees and related expenses................................. 298 670 839
Accrued expenses and other payables............................ 558 1,398 1,135
--------- --------- -----------
$ 1,837 $ 4,949 $ 5,792
--------- --------- -----------
--------- --------- -----------
</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 a certain margin above the LIBOR rate. The interest rates as of
December 31, 1995 are between 7.0% and 7.62% and as of March 31, 1996 are
between 7.25% and 7.5%. The loan repayment terms generally have a two year grace
period with a subsequent two year period of repayment.
The loans were received in connection with the Company's approved investment
program and are guaranteed by the State of Israel. As of the balance sheet date,
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 MARCH 31, 1996 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED
NOTE 5 -- LONG-TERM BANK LOANS (CONTINUED)
MATURITIES
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------- -----------
<S> <C> <C>
First year -- current maturities.................................... $ 27 $ 126
Second year......................................................... 915 1,085
Third year.......................................................... 1,086 871
Fourth year......................................................... 233 190
Fifth year.......................................................... 60 55
Thereafter.......................................................... 37 30
------ -----------
$ 2,358 $ 2,357
------ -----------
------ -----------
</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 three
months ended March 31, 1996, warrants to purchase 192,225 shares were exercised
and proceeds received amounted to $640,109. As of March 31, 1996, warrants to
purchase 498,875 ordinary shares and 215,025 ordinary shares at an exercise
price of $1.83 per share and $3.33 per share, respectively, were oustanding. The
warrants to purchase 215,025 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 are exercisable during the four-year period
commencing in July 1996.
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 MARCH 31, 1996 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED
NOTE 7 -- SHARE CAPITAL (CONTINUED)
Subsequent to March 31, 1996, warrants to purchase 63,112 ordinary shares
were exercised for total proceeds of approximately $115,496.
OPTIONS
The Company has granted options to shareholders, senior employees and,
pursuant to formal share option plans adopted in 1995 under which 750,000 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...................................................... 629,250 $3.03 - 17.00
Exercised.................................................... (105,000) $0.24
----------
Outstanding December 31, 1995.................................. 914,250
Granted...................................................... 95,250 $13.12 - 29.50
----------------
Forfeited.................................................... (3,750) $3.03 - 4.33
---------- ----------------
Outstanding March 31, 1996 1,005,750
----------
----------
</TABLE>
As of December 31, 1995, 262,500 options were fully vested but have not been
exercised, and the remaining 651,750 options will vest as follows: 1996 --
282,401; 1997 -- 184,891; 1998 -- 184,458.
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 800 ordinary
shares of AgentSoft (8% 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 MARCH 31, 1996 AND FOR
THE THREE MONTHS ENDED MARCH 31, 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, MARCH 31,
1995 1996
------------ ----------
<S> <C> <C>
Warrants........................................................... 1,272,875 1,080,650
Employee and Non-Employee Directors Share Option Plans (1995)...... 1,185,000 1,185,000
------------ ----------
2,457,875 2,265,650
------------ ----------
------------ ----------
</TABLE>
INCREASE IN AUTHORIZED SHARES AND STOCK SPLIT
Subsequent to March 31, 1996, in 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.
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 MARCH 31, 1996 AND FOR
THE THREE MONTHS ENDED MARCH 31, 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 quarter ended March 31, 1996, the Company had sales of $1,000
(35%) to one customer and $600 (21%) to another customer. During the quarter
ended March 31, 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 MARCH 31, 1996 AND FOR
THE THREE MONTHS ENDED MARCH 31, 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 ON SCHEDULE
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. Our audit was made for the purpose of forming an opinion on
the basic financial statements taken as a whole. The schedule on page F-17 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, fiarly 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
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>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
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................................... 7
Use of Proceeds................................ 13
Dividends...................................... 14
Price Range of Ordinary Shares and Listing..... 15
Capitalization................................. 16
Selected Financial Data........................ 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 18
Business....................................... 25
Management..................................... 36
Principal and Selling Shareholders............. 45
Certain Transactions........................... 46
Description of Securities...................... 47
Shares Eligible for Future Sale................ 49
Conditions in Israel........................... 50
Taxation and Foreign Exchange Regulation....... 51
Underwriting................................... 59
Legal Matters.................................. 60
Experts........................................ 60
Index to Consolidated Financial Statements..... F-1
</TABLE>
--------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE ORDINARY SHARES IN THE U.S., WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
2,000,000 ORDINARY SHARES
ACCENT SOFTWARE
INTERNATIONAL LTD.
-------------------
PROSPECTUS
-------------------
MERRILL LYNCH & CO.
J.P. MORGAN & CO.
OPPENHEIMER & CO., INC.
, 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 (except for the SEC registration fee and The Nasdaq Stock Market
filing fee) to be as follows:
<TABLE>
<CAPTION>
Securities and Exchange Commission Registration Fee................ $ 24,487
<S> <C>
National Association of Securities Dealers, Inc. Filing Fee........ 7,630
The Nasdaq Stock Market Filing Fee.................................
Israeli Taxes......................................................
Printing and Engraving Expenses....................................
Legal Fees and Expenses............................................
State Securities Qualification Fees and Expenses (including counsel
fee).............................................................. 20,000
Accounting Fees and Expenses.......................................
Transfer Agent Fees................................................
Miscellaneous......................................................
---------
Total............................................................ $
---------
---------
</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 (a) 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 (b) 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 (a) breach of the duty of care by any director
or offer owed to the Company or to any other person, (b) 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 (c) 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
(a) an act or omission which constitutes a breach of fiduciary duty, except to
the extent described above, (b) a willful breach of the duty of care or reckless
disregard of the circumstances or consequences of such breach, (c) an act or
omission done with the intent to unlawfully realize personal gain or (d) 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 $2.75 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) 5,500 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.
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. The Registrant will place stop transfer
instructions with its transfer agent with respect to all such securities.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES [TO BE REVIEWED AND
UPDATED.]
(a) EXHIBITS
<TABLE>
<S> <C> <C>
1.1 -- Form of Underwriting Agreement.*
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).**
5.1 -- Opinion of Yigal Arnon & Co.*
5.2 -- Opinion of Weil, Gotshal & Manges LLP.*
</TABLE>
- ------------
* To be filed by amendment.
** Previously filed.
II-3
<PAGE>
<TABLE>
<S> <C> <C>
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).**
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).**
</TABLE>
- ------------
* To be filed by amendment.
** Previously filed.
II-4
<PAGE>
<TABLE>
<S> <C> <C>
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., Member Firm of Andersen Worldwide, SC.
23.2 -- Consent of Yigal Arnon & Co., contained in their opinion filed as Exhibit 5.1.*
24 -- Power of Attorney (included on signature pages to Registration Statement).
</TABLE>
- ------------
* To be filed by amendment.
** Previously filed.
(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
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
II-5
<PAGE>
(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 Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Jerusalem, State of
Israel, on the 3rd day of July, 1996.
ACCENT SOFTWARE INTERNATIONAL LTD.
By: /s/ ROBERT S. ROSENSCHEIN
-----------------------------------
Name: Robert S. Rosenschein
Title: President, Chief Executive
Officer
and Director
II-7
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears
below constitutes and appoints Robert S. Rosenschein, Mitchell Joelson, Jeffrey
Rosenschein, Herbert Zlotogorski, and each of them, his true and lawful
attorney-in-fact and agent with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign
this Registration Statement and any and all amendments (including post-effective
amendments) to this Registration Statement, and any registration statement under
Rule 462(b) of the Securities Act of 1933, as amended, and any amendments
thereto, and to file the same with all exhibits thereto, and all documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
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 July 3, 1996
Robert S. Rosenschein Director (principal executive officer)
/s/ MITCHELL JOELSON
------------------------------------------- Executive Vice President and Director July 3, 1996
Mitchell Joelson
/s/ JEFFREY ROSENSCHEIN
------------------------------------------- Vice President, Engineering Chief July 3, 1996
Jeffrey Rosenschein Scientist and Director
/s/ MICHAEL SONDHELM
------------------------------------------- Controller (principal financial and July 3, 1996
Michael Sondhelm accounting officer)
/s/ ELLIOTT B. BROIDY
------------------------------------------- Director July 3, 1996
Elliott B. Broidy
/s/ ROGER R. CLOUTIER, II
------------------------------------------- Director July 3, 1996
Roger R. Cloutier, II
/s/ MELDON E. LEVINE
------------------------------------------- Director July 3, 1996
Meldon E. Levine
------------------------------------------- Director
Mark A. Tebbe
/s/ ESTHER DYSON
------------------------------------------- Director July 3, 1996
Esther Dyson
Authorized Representative in the United States:
ACCENT WORLDWIDE, INC.
/s/ HOWARD B. CRYSTAL
------------------------------------------- July 3, 1996
Howard B. Crystal
</TABLE>
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
1.1 -- Form of Underwriting Agreement.*
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).**
5.1 -- Opinion of Yigal Arnon & Co.*
5.2 -- Opinion of Weil, Gotshal & Manges LLP.*
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).**
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>
<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., Member Firm of Andersen Worldwide, SC.
23.2 -- Consent of Yigal Arnon & Co., contained in their opinion filed as Exhibit 5.1.*
24 -- Power of Attorney (included on signature pages to Registration Statement).
</TABLE>
- ------------
* To be filed by amendment.
** Previously filed.
<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 THREE MONTHS
FOR THE YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Loss................................................. $ (735) $ (3,134) $ (7,848) $ (1,805) $ (3,932)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted Average Number of Shares and Equivalent Shares
Outstanding:
Weighted average number of shares outstanding............ 1,259 3,985 6,263 5,051 9,570
Effect of stock options and warrants(1).................. 634 634 158 158 --
--------- --------- --------- --------- ---------
1,893 4,619 6,421 5,209 9,570
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net Loss Per Share....................................... $ (0.39) $ (0.68) $ (1.22) $ (0.35) $ (0.41)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</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
To Accent Software International Ltd. and Subsidiaries:
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.
/s/ LUBOSHITZ, KASIERER & CO.
LUBOSHITZ, KASIERER & CO.
Member Firm of Andersen Worldwide, SC
Jerusalem, Israel
July 3, 1996
