<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
____________________
FORM 10-Q
____________________
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934. For the quarterly period ended September 30, 1999.
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934. For the transition period from __________ to
__________.
Commission file number: 0-26394
LANGUAGEWARE.NET (COMPANY) LTD.
- --------------------------------------------------------------------------------
(Exact Name of Registrant in its Charter)
Israel N/A
- -------------------------------- ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
C/O Yigal Arnon & Co., 22 Rivlin Street, Jerusalem 91000, Israel
011-972-2-623-9200
- --------------------------------------------------------------------------------
(Address, Including Zip Code, and Telephone Number, Including Area Code
of Registrant's Principal Executive Offices.)
With Copies To:
2864 South Circle Drive, Suite 500, Colorado Springs, CO 80906
719-955-3400
- --------------------------------------------------------------------------------
(Address, Including Zip Code, and Telephone Number, Including Area Code
of Registrant's Principal Operating Offices.)
ACCENT SOFTWARE INTERNATIONAL LTD.
- --------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [x] No [ ]
On November 9, 1999, the registrant had outstanding 31,672,456 Ordinary Shares
(including 2,000 Ordinary Shares included in the registrant's outstanding
Units)
<PAGE>
<TABLE>
<CAPTION>
LANGUAGEWARE.NET (COMPANY) LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
U. S. dollars and shares in thousands
September 30, December 31,
1999 1998
------------- ------------
Assets (Unaudited) (Audited)
Current Assets
<S> <C> <C> <C>
Cash and cash equivalents $ 30 $ 141
Trade receivables, net of allowance of
$102 in 1999 and $219 in 1998 188 265
Other receivables 284 91
Prepaid expenses - 5
Inventories - 7
------------- ------------
Total current assets 502 509
Equipment
Cost 111 238
Less - Accumulated depreciation 108 198
------------- ------------
Equipment, net 3 40
Other Long Term Assets - 50
------------- ------------
Total assets $ 505 $ 599
------------- ------------
Liabilities and Shareholders' Equity
Current Liabilities
Short-term and current maturities of long-term debt $ 51 $ 1,180
Accounts payable and accrued expenses 820 785
------------- ------------
Total current liabilities 871 1,965
Accrued severance liability - 15
------------- ------------
Total liabilities 871 1,980
------------- ------------
Shareholders' Equity (Deficit)
Preferred Shares, par value NIS 0.01. authorized
10,000 shares:
Series C - issued and outstanding 4 at
September 30, 1999 and December 31, 1998 - -
Series D - issued and outstanding 2,885 at
September 30, 1999 and 0 at December 31, 1998 7 -
Ordinary Shares, par value NIS 0.01. authorized 130,000
shares, issued and outstanding 31,672 at
September 30, 1999 and 28,223 at December 31, 1995 63 77
Share premium 53,130 52,082
Warrants 73 -
Accumulated deficit (63,559) (53,540)
------------- ------------
Total shareholders' equity (deficit) (366) (1,381)
------------- ------------
Total liabilities and shareholders' equity $ 505 $ 599
------------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
2
<PAGE>
LANGUAGEWARE.NET (COMPANY) LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
U.S. dollars and shares in thousands
(Unaudited)
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
-------------------------------------- -------------------------------------
1999 1998 1999 1998
-------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Net sales $ 550 $ 514 $ 1,561 $ 1,709
Operating costs and expenses
Cost of sales 432 326 980 701
Product development costs 83 498 137 2,341
Marketing expenses 201 351 479 1,140
General and administrative expenses 288 541 1,177 1,944
Restructuring charge - 568 - 568
-------------- -------------- ------------- --------------
Total operating costs and expenses 1,004 2,284 2,773 6,694
-------------- -------------- ------------- --------------
Operating loss (454) (1,770) (1,212) (4,985)
Other Income (Expense) - (61) (24) (152)
-------------- -------------- ------------- --------------
Net loss before extraordinary item (454) (1,831) (1,236) (5,137)
Extraordinary gain from debt extinguishment
(less income taxes of $0) - - 1,117 -
-------------- -------------- ------------- --------------
Net income (loss) $ (454) $(1,831) $ (119) $(5,137)
============== ============== ============= ==============
Net income (loss) per share:
Before extraordinary gain $ (0.01) $(0.07) $ (0.04) $(0.20)
Extraordinary gain - - 0.04 -
-------------- -------------- ------------- --------------
Net income (loss) per share $ (0.01) $(0.07) $ (0.01) $(0.20)
============== ============== ============= ==============
Weighted average number of
shares outstanding 31,336 28,155 29,980 25,359
============== ============== ============= ==============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
3
<PAGE>
LANGUAGEWARE.NET (COMPANY) LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30,
1999 1998
---------------- ---------------
(Unaudited) (Unaudited)
<S> <C> <C>
Operating activities
Net loss before extraordinary gain $(1,236) $(5,137)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 75 789
Change in allowance for doubtful accounts (117) (13)
Change in realizable value of other long term assets - 244
Changes in assets and liabilities:
(Increase) decrease in trade receivables 194 (198)
(Increase) decrease in other receivables (193) (17)
Decrease in prepaid expenses 5 798
Decrease in inventories 7 46
Increase (decrease) in payables & accruals 35 (1,008)
Increase (decrease) in severance liability (15) (215)
---------------- ---------------
Net cash used in operating activities (1,245) (4,711)
---------------- ---------------
Investing activities
Acquisition of equipment (1) -
Proceeds from disposition of assets 25 216
---------------- ---------------
Net cash provided by investing activities 24 216
---------------- ---------------
Financing activities
Repayment of government-guaranteed loans - (1,297)
Net proceeds received on issuance of preferred shares - 3,750
Net proceeds received on issuance of debentures and warrants - 23
Net proceeds received on issuance of ordinary shares 459 -
Loan proceeds 651 -
---------------- ---------------
Net cash provided by financing activities 1,110 2,476
---------------- ---------------
Increase (Decrease) in cash and cash equivalents (111) (2,019)
Cash and cash equivalents, beginning of period 141 2,499
================ ===============
Cash and cash equivalents, end of period $ 30 $ 480
================ ===============
Supplemental Schedule of Non-Cash Investing and Financing Activities
Debt extinguished in exchange for warrants $ 1,191 $ -
================ ===============
Preferred shares issued in satisfaction of convertible debt $ 600 $ -
================ ===============
Cancellation of ordinary shares issued in payment for services $ - $ (61)
================ ===============
Ordinary shares issued in satisfaction of accounts payable $ - $ 422
================ ===============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
<PAGE>
LANGUAGEWARE.NET (COMPANY) LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except per share figures
(Unaudited)
Note 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
of LanguageWare.net (Company) Ltd., and its subsidiaries ("the
Company"), have been prepared in accordance with United States
generally accepted accounting principles for interim financial
information. On October 6, 1999, the Company changed its name to
LanguageWare.net (Company) Ltd. from Accent Software International
Ltd.
The significant accounting policies, certain financial information and
footnote disclosures which are normally included in financial
statements prepared in accordance with generally accepted accounting
principles, but which are not required for interim reporting purposes,
have been condensed or omitted. In the opinion of management, all
adjustments (consisting of adjustments of a normal, recurring nature)
necessary for a fair presentation of these financial statements have
been reflected in the interim periods presented. Operating results for
the three and nine months ended September 30, 1999 are not necessarily
indicative of the results that may be expected for the year ending
December 31, 1999. Although the Company believes that the disclosures
presented herein are adequate to make the information presented not
misleading, it is suggested that these condensed consolidated
financial statements be read in conjunction with the audited financial
statements and footnotes included in the Company's 1998 Annual Report
on Form 10-K for the year ended December 31, 1998.
Note 2 - GOING CONCERN
The consolidated financial statements have been prepared assuming the
Company will continue as a going concern. The report of the Company's
Independent Auditors (included in the Company's 1998 Annual Report on
Form 10-K), however, raises doubt about the Company's ability to
continue as a going concern. Management acknowledges that the
Company's history of operating losses and operating cash flow deficits
raises legitimate concern about the Company's longer-term prospects.
To enhance the Company's longer-term prospects, management is (1)
positioning the Company to be able to focus on global Internet e-
commerce solutions, (2) continuing to focus on increasing revenue
from current operations, (3) reducing expenses and (4) obtaining
additional external financing.
To increase revenue, the Company has developed new products to serve
the language information industry, has redirected its operations
toward Internet products and services, entered into alliances with
other companies in the industry aimed at broadening the Company's
market reach and has expanded its translation services business.
Additionally, the Company is in the process of positioning itself to
be able to provide global Internet e-commerce solutions through active
efforts to locate strategic partners and merger candidates.
5
<PAGE>
LANGUAGEWARE.NET (COMPANY) LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except per share figures
(Unaudited)
To reduce expenses, the Company has reduced its staffing level (which
is its largest element of expense) from approximately 170 employees at
its peak in 1996 to 15 at September 30, 1999.
Related expenses such as rent, telephone, travel and training costs
have been reduced proportionately. The shift away from the retail
market has led to reductions in production and inventory carrying
costs. Product development costs have been reduced by closing the
Company's product development facility in Jerusalem, narrowing the
number of new products under development and focusing on those
opportunities that provide the greatest near-term revenue potential.
The Company has reduced discretionary spending on advertising and
marketing as well as the amount it spends on exhibitions and trade
shows and has closed its sales offices in London, England, and Newport
Beach, California. The sale in 1998 of the assets of the Company's
subsidiary, AgentSoft, also reduced costs with no decrease in total
revenue.
To obtain additional external financing, the Company sold convertible
debentures and convertible preferred stock in the third and fourth
quarters of 1997 and again in the second quarter of 1998. In the
first quarter of 1999 the Company obtained $600 in the form of a
short-term loan convertible, at the discretion of the lender, into
convertible preferred stock. Effective June 30, 1999, the lender
elected to convert the loan, plus accrued interest, into 2.9 million
shares of Series D Preferred Stock. In July 1999, the Company entered
into an agreement which provides for a group of investors to purchase,
at $0.21 per share, up to 9.5 million shares of the Company's ordinary
shares for $2,000. At closing, the investors paid $500 for 2.4
million shares, and one of the investors is required to purchase the
remaining 7.1 million shares for $1,500 in the event the Company
obtains a strategic partner and enters into a strategic alliance with
such partner. In October 1999, the Company obtained $100 by executing
a convertible promissory note to the investor mentioned above who may
be required to purchase the additional 7.1 million ordinary shares.
The principal balance and unpaid interest thereon is convertible, at
the discretion of the lender, into ordinary shares of the Company.
The Company continues to explore sources of additional financing to
satisfy its continuing operational requirements.
In the first quarter of 1999, an extraordinary gain of $1,117 was
recognized by the Company related to the extinguishment of $1,180 of
long-term debt, plus $11 of accrued interest, in exchange for the
issuance of a warrant to the lender to receive 2,448,000 shares of the
Company's Ordinary Shares anytime after January 25, 2001, but before
January 25, 2006.
The accompanying consolidated financial statements do not include any
adjustments relating to the recoverability or classification of asset
carrying amounts or the amounts and classification of liabilities that
may result should the Company be unable to continue as a going
concern.
Note 3 - LIQUIDITY
6
<PAGE>
LANGUAGEWARE.NET (COMPANY) LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except per share figures
(Unaudited)
As of September 30, 1999 and December 31, 1998, the Company had
accumulated deficits of $53,659 and $53,540, respectively. For the
nine months ended September 30, 1999, the Company incurred a loss of
$1,236 before the extraordinary gain from debt extinguishment
mentioned above and recognizes that it may continue to incur operating
losses through the remainder of 1999 and possibly beyond. Furthermore,
the Company has not generated sufficient cash to finance its
operations and has been dependent upon external sources to meet its
liquidity requirements.
In addition to the cost reduction initiatives completed during the
first quarter of 1999 and the fourth quarter of 1998, the Company will
continue to explore new methods to increase revenues and reduce costs
and working capital requirements. As mentioned above the Company
obtained $600 of short-term financing under a loan agreement it
executed with L&H Investment Company, N.V. ("LHIC") on February 19,
1999. On June 30, 1999, pursuant to the terms of the loan agreement,
the principal of the loan, plus $24 of accrued interest, was converted
into 2,884,874 Series D Preferred Shares of the Company. Additionally,
pursuant to the terms of the loan agreement, the Company issued to
LHIC a warrant to purchase 3.0 million Ordinary Shares of the Company
at a price of $0.269 per share.
Additionally, as mentioned above, in July 1999, the Company entered
into an agreement which provides for a group of three investors to
purchase, at $0.21 per share, up to 9.5 million shares of the
Company's ordinary shares for $2,000. At closing, the investors paid
$500 for 2.4 million shares and one of the investors is required to
purchase for $1,500 the remaining 7.1 million shares in the event the
Company obtains a strategic partner and enters into a strategic
alliance with such partner. As of November 9, 1999, management of the
Company had not obtained a strategic partner acceptable to the
investor and consequently, had not issued the 7.1 million Ordinary
Shares to the investor and had not received from the investor the
remaining $1,500 for such shares. In October 1999, the Company
obtained $100 by executing a convertible promissory note to the
investor mentioned above who may be required to purchase the
additional 7.1 million ordinary shares. The principal balance and
unpaid interest thereon is convertible, at the discretion of the
lender, into ordinary shares of the Company. There can be no
assurance the Company will be able to locate and enter into a
definitive agreement with a strategic partner as required by the
agreement, in which case the Company would not receive from the
investor up to $1,500 in exchange for the issuance to it of 7.1
million of the Company's Ordinary Shares.
The Company continues to explore sources of additional financing to
satisfy its operational requirements.
Note 4 - SHARE CAPITAL
The Company executed a Preferred Share Purchase Agreement with Lernout
& Hauspie Speech Products, N.V. ("L&H"), an affiliate of LHIC, on June
4, 1998 pursuant to which the Company issued 4,000 Series C Preferred
shares in exchange
7
<PAGE>
LANGUAGEWARE.NET (COMPANY) LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except per share figures
(Unaudited)
for $4,000. Fees and expenses related to the transaction totaled
approximately $250 resulting in net proceeds to the Company of $3,750.
As mentioned above, LHIC was issued 2,884,874 Series D Preferred
Shares upon conversion of amounts due it under a loan agreement. The
Series C and Series D Preferred Shares held by L&H and LHIC do not pay
interest but do provide the investors with a preference over Ordinary
Shareholders in the event of liquidation. The investors also have the
right to vote the shares as if they had all been converted into
Ordinary Shares.
The Series D Preferred Shares issued to LHIC are convertible at any
time into 2,884,874 Ordinary Shares of the Company which would dilute
existing shareholders by approximately 8%. The Series C Preferred
Shares issued to L&H also are convertible at any time into Ordinary
Shares of the Company. The conversion price of $0.45 per share
represents a 10% premium over the average closing price of the
Company's Ordinary Shares during the ten trading days preceding
execution of the agreement with L&H. Conversion of all 4,000 Series C
Preferred Shares held by L&H would result in the issuance of 8,888,889
Ordinary Shares and would dilute existing shareholders by
approximately 22%.
L&H also received warrants to purchase 4,444,444 Ordinary Shares of
the Company at an exercise price of $0.55 per share. The warrants are
exercisable for five years, the conversion of which would dilute
existing shareholders by an additional 12%. LHIC received warrants,
also exercisable for five years, to purchase 3,000,000 Ordinary Shares
of the Company at an exercise price of $0.269 per share. Exercise of
the warrants would dilute existing shareholders by an additional 9%.
On July 14, 1999, the Company entered into a stock purchase agreement
with a group of three investors who paid $500, $167 each, for 2.4
million shares. One of the investors is required to purchase an
additional 7.1 million shares, one half (3.55 million Ordinary Shares)
of which will be required to be purchased if the Company enters into a
letter of intent with a strategic partner and the remaining one half
if the Company subsequently executes a definitive agreement of
strategic alliance with such partner. The investor will not be
required to purchase the additional 7.1 million shares if the Company
does not perform the requirements stated above. If the additional 7.1
million Ordinary Shares are purchased by the investor, existing
shareholders would be diluted by approximately 18%.
On October 12, 1999, the Company received $100 upon executing a
Convertible Promissory Note (the "Note") in the amount of $100 with
the investor mentioned above who may be required to purchase the
additional 7.1 million shares of the Company's Ordinary Shares. The
principal balance of the Note bears interest at the prime rate at the
date of the Note plus 200 basis points. The principal balance, plus
all accrued and unpaid interest, becomes due and payable on December
31, 1999. The investor has the right at any time to convert all or any
portion of the outstanding principal and unpaid interest into Ordinary
Shares of the Company based on the average of the five(5) lowest
closing trading prices of the Company's Ordinary Shares between the
date of the Note and the conversion date.
8
<PAGE>
LANGUAGEWARE.NET (COMPANY) LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except per share figures
(Unaudited)
During the second and third quarters of 1998, the Company reached
agreements with several of its major creditors pursuant to which the
creditors agreed to accept Ordinary Shares in the Company in payment
for all or a portion of amounts due them. Approximately 1,000,000
shares were issued to such creditors at market value which averaged
approximately $0.45 per share. Dilution, at the date of the
agreements, to existing shareholders from the issuance of these shares
amounted to approximately 3%.
As mentioned in the preceding Note 2, the Company recognized an
extraordinary gain of $1,117 from the extinguishment of bank debt. On
January 25, 1999, the Company executed an agreement with its prime
lending bank in Israel pursuant to which the balances of $1,180 in
principal and approximately $11 in interest due the bank were
extinguished in exchange for the Company issuing to the bank a warrant
to receive 2,448,000 of the Company's Ordinary Shares. The warrant
will fully vest on January 25, 2001 and expires on January 25, 2006.
Note 5 - IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
(a) SOP 97-2, regarding software revenue recognition became effective for
all transactions entered into, in fiscal years commencing December 15,
1997. The Company recognizes revenue in accordance with this Standard.
(b) In June 1998, the Financial Accounting Standards Board issued SFAS
133, Accounting for Derivative Instruments and Hedging Activities.
The Statement establishes accounting and reporting standards requiring
that every derivative instrument (including certain derivative
instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value. The
Statement requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allow a
derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company must
formally document, designate and assess the effectiveness of
transactions that receive hedge accounting.
Statement 133 is effective for fiscal years commencing after June 15,
1999. Statement 133 cannot be applied retroactively. Statement 133
must be applied to (a) derivative instruments and (b) certain
derivative instruments embedded in hybrid contracts that were issued,
acquired, or subsequently modified after December 31,1997.
The Company believes that the adoption of Statement 133 will not have
a material effect on its financial statements.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition. (U.S. dollars in thousands, except per share
data.)
Introduction
Effective October 6, 1999, the Company changed its name to LanguageWare.net
(Company) Ltd. from Accent Software International Ltd.
This Form 10-Q for LanguageWare.net (Company) Ltd., and its subsidiaries
("the Company") contains historical information and forward-looking statements.
Statements looking forward in time are included in this Form 10-Q pursuant to
the "safe harbor" provision of the Private Securities Litigation Reform Act of
1995. Such statements involve known and unknown risks and uncertainties
including, but not limited to, the timely availability of new products and
services, market acceptance of the Company's existing products and services, and
products under development, the impact of competing products, services and
pricing, the availability of sufficient resources including short- and long-term
financing to carry out the Company's product development and marketing plans,
and quarterly fluctuations in operating results. The Company's actual results in
future periods may be materially different from any future performance suggested
herein. Further, the Company operates in an industry sector where securities'
values may be volatile and may be influenced by economic and other factors
beyond the Company's control. In the context of the forward-looking information
provided in this Form 10-Q, please refer to the Company's most recent Form 10-K
and the Company's other filings with the Securities and Exchange Commission.
The Company designs, develops and markets Language Information Technologies
(LIT) over the Internet. These technologies include software products and
services that help businesses easily localize their products and information
into other natural languages. The Company commenced operations in 1988 in
Jerusalem, Israel, and in 1997 moved its operations to Colorado Springs,
Colorado. Since moving its operations, the Company has changed its direction
toward Internet products and services for corporate customers that are reaching
international markets. Revenues are currently being generated through Internet
portals, translation services and software products that increase the
efficiencies of localizing media and products.
The Company has accumulated deficits of $53,659 since its inception through
September 30, 1999, and it may continue to incur deficits through the remainder
of 1999 and possibly beyond. The Company historically has generated operating
cash flow deficits and its liquidity is essentially exhausted. To enhance the
Company's longer-term prospects, management has focused on increasing revenue by
changing its direction toward Internet products and services, reducing expenses
and obtaining additional external financing. There can be no assurance that the
Company will be successful in reversing the trend of operating losses and in
generating sufficient working capital to meet its operating requirements and any
failure on the part of the Company to do so will have a material adverse impact
on the Company and could force it to cease operations. Although the Company
believes it has made substantial progress in penetrating Internet markets and
reducing its operating expenses and annual losses, its historical failure to
generate adequate operating income and cash flow to meet its working capital
requirements create doubt about the Company's ability to continue as a going
concern and there can be no assurance that the Company will be able to continue
as a going concern.
The Company completed a restructuring during 1998 designed to reduce its
working capital requirements and to align its operating expenses with its
revised revenue projections. The restructuring eliminated the Company's
Israeli-based product development, sales and marketing functions and various
general and administrative activities. Staffing was reduced to 15 people during
the first quarter of 1999.
10
<PAGE>
The Company is continuing to work on significant new sales opportunities
and has gradually expanded its sales and marketing operations through the
expanded use of sales representatives and cooperative agreements with other
businesses. There can be no assurance, however, that future revenue will meet
management's expectations.
The Company's ability to generate increased revenue and to fund planned
expenditures is dependent on a number of factors, some of which are outside its
control. In particular, revenue growth and profitability, if any, will depend on
the ability of the Company to develop and market new services, products and
product enhancements, demand for the Company's services and products, the level
of competition, the success of the Company in attracting and retaining motivated
and qualified personnel, the ability of the Company to control its costs and
general economic conditions. There can be no assurance that the Company will
meet such challenges successfully. Any of these or other factors could have a
material adverse effect on the Company's business, operating results or
financial condition.
Results of Operations
The Company's operations produced an operating loss of $454 during the
third quarter of 1999 on revenue of $550 compared with an operating loss of
$1,770 on revenue of $514 during the third quarter of 1998. For the first nine
months of 1999, the Company's net loss before an extraordinary gain from debt
extinguishment of $1,117 was $1,236 on revenue of $1,561 compared to an
operating loss of $4,985 on revenue of $1,709 during the comparable period of
1998.
The improvement in the Company's operating results was achieved through
significant cost reduction efforts in all facets of the business, coupled with
the redirection of the Company's operating strategy as mentioned above. The
Company believes it has now reduced spending to the minimum sustainable level
and has recently begun to focus its efforts on global Internet e-commerce
solutions.
Net Sales. Commencing early in the first quarter of calendar 1999,
management shifted it's focus to generating revenue through Internet portals.
Customer interest in the Company's newest products offered on the Internet,
Loc@le and LanquageWare, has been positive. Additionally, the Company is
encouraged by the number of requests for proposals for translation services from
customers visiting the Company's web site.
Revenue recorded in the three and nine month periods of 1998 included sales
of products that were dropped and/or not supported by the Company in the
comparable periods of 1999. Revenues in the comparable periods of 1999 primarily
include sales of translation services generated through traditional sales
methods. Because the Company is in the early stages of focusing its efforts on
global e-commerce solutions, the benefits, if any, from such efforts have yet to
be realized.
Cost of Sales. Manufacturing, production, warehousing and shipping expenses
have all been eliminated or significantly reduced from the year earlier period
consistent with the Company's shift away from the retail market and toward the
business-to-business market through Internet portals where manufacturing and
support costs are significantly lower. At the same time, the Company increased
its emphasis on translation services which have a relatively high cost of sales
due to a reliance on external translators to meet fluctuating demand.
Cost of sales during the third quarter of 1999 was $432, or 79% of sales,
compared to $326 in cost of sales, 63% of sales, during the same quarter of
1998. For the first nine months of 1999,
11
<PAGE>
cost of sales totaled $980, or 63% of sales, compared to $701, or 41% of sales,
reported during the same period of 1998.
The increased emphasis on translation services with its relatively higher cost
of sales than products previously offered by the Company in the comparable
periods of 1998 is reflected in the above comparisons of cost of sales.
Additionally, an engagement for translation services with one significant
customer in the 1999 periods had relatively low margins compared to standard
engagements.
Product Development Costs. Product development costs were $83 and $137 during
the third quarter and first nine months of 1999, respectively, compared to $498
and $2,341 during the comparable periods of 1998. The reduction in such costs
from the 1998 periods reflects primarily the cost savings realized from the
closure of the Company's product development center in Jerusalem coincident to
the change in the Company's operating strategy.
Product development costs historically included costs incurred by the
Company's subsidiary, AgentSoft. Founded in 1996, AgentSoft was a Jerusalem-
based start-up business focused on developing "intelligent agent" technology for
use on the Internet. Because the Company did not anticipate near-term revenue or
profit from AgentSoft and to allow the Company to focus all of its energies on
its core competencies in the Language Information Industry, the Board of
Directors concluded early in 1998 that the divestiture of AgentSoft would be in
the best interests of all concerned. The assets of AgentSoft were sold for $225
in September, 1998.
Marketing Expenses. The Company's marketing expenses were $201 for the
quarter ended September 30,1999; a reduction of 43% from $351 in the comparable
period in 1998. Marketing expenses for the first nine months of 1999 were
reduced approximately 58% to $479 from $1,140 for the first nine months of 1998.
Sales and marketing personnel were eliminated from the Jerusalem operation
during the third quarter of 1998 as the Company concluded it would be more
economical to rely on sales representatives for its Middle East activity rather
than full time employees. At the same time, the Company commenced establishing
the sales and marketing capability at its U.S. base in Colorado Springs,
Colorado. The Company's shift away from the retail market allows it to function
with fewer sales and marketing personnel and has also led to reductions in non-
personnel expenses such as trade shows, advertising and public relations costs.
General and Administrative Expenses. General and administrative expenses
during the third quarter of 1999 were $288 compared to $541 during the same
quarter of 1998 for a reduction of $253, or 47%. Such costs were $1,177 for the
nine months ended September 30, 1999, a reduction of 39% from $1,944 for the
same period of 1998. The reductions in general and administrative expenses are
primarily attributable to staff reductions from the closure of the Company's
offices in Jerusalem.
Other expenses, net. The Company did not have other income during the three
months ended September 30, 1999. For the comparable period of 1998, $61 in net
other expenses was incurred consisting primarily of interest and expense arising
from foreign exchange rate fluctuations. For the most recent nine month period,
the Company's other expenses totaled $24 compared to $152 during the year
earlier period. As with the three month periods, other expenses consisted
primarily of interest and foreign exchange rate fluctuations, which fluctuations
were significantly reduced upon the move from Jerusalem, Israel to the U.S.
Net loss before extraordinary item. The Company's net loss before an
extraordinary item during the third quarter of 1999 of $454 was less than the
year earlier figure of $1,831. On a per share basis, the Company lost $0.02 per
share before the extraordinary item during the third quarter of 1999 compared to
a net loss of $0.07 per share during the third quarter of 1998. For the
12
<PAGE>
first nine months of 1999 the net loss before an extraordinary item was $1,236,
or $0.04 per share, compared to $5,137, or $0.20 per share, during the first
nine months of 1998. The significant reductions in net losses before the
extraordinary item recorded in 1999 reflect the impact of the Company's cost
reduction initiatives and change in operating strategy.
Extraordinary gain from debt extinguishment. As previously mentioned, the
Company recognized an extraordinary gain of $1,117 in the first quarter of 1999
as a result of the extinguishment of $1,180 of long-term debt, plus $11 of
accrued interest, in exchange for the issuance of a warrant to the lender to
receive 2,448,000 shares of the Company's Ordinary Shares anytime after January
25, 2001, but before January 25, 2006. No such gain or loss was reported in the
first nine months of 1998. The extraordinary gain amounted to $0.04 per share on
a per share basis.
Net Income (Loss). The Company recognized a net loss of $119, or $0.01 per
share, for the nine months ended September 30, 1999 compared to a net loss of
$5,137, or $0.20 per share, for the comparable period of 1998.
Liquidity and Capital Resources
For the nine month period ended September 30, 1999, the Company's operating
activities used cash of $1,245 compared to $4,771 used during the comparable
period of 1998.
The Company has been successful on several occasions during the past two and
one half years in raising additional working capital through the sale of
convertible securities. The Company secured $600 in additional working capital
during the first quarter of 1999 in the form of short-term debt which was
converted to Series D Preferred Shares on June 30, 1999. Those funds, coupled
with cost reduction efforts which substantially reduced its working capital
requirements, were sufficient to meet its requirements through June 1999. In
July 1999, the Company sold 2.4 million Ordinary Shares for $500, and in October
1999 sold a convertible promissory note for $100 under agreements more fully
described above. Those funds were sufficient to meet the Company's cash
requirements through the end of October 1999. Working capital has fallen short
of its requirements and the Company is actively seeking additional financing.
There is no assurance the Company will be successful in securing additional
working capital and any failure on the part of the Company to do so will have a
material adverse impact on the Company and may cause the Company to cease
operations.
On January 25, 1999 the Company entered into an agreement with the government
of Israel and various Israeli banking officials whereby the Company issued a
warrant to the bank to issue to the bank 2,448,000 Ordinary Shares in full
satisfaction of the balance of the loan. The warrant vests on the second
anniversary of the grant (that is, January 25, 2001) and expires on January 25,
2006.
Management has taken additional steps in securing additional external
financing and increasing revenues. At its annual meeting held on June 25, 1999,
shareholders approved a reverse stock split and an increase in the Company's
capitalization. Management believes these actions will provide a sufficient
number of unreserved and unissued shares to pursue, among other things, equity
financing transactions and strategic alliances and enhance the marketability of
the Company's outstanding Ordinary Shares to the investment community.
The Company's investing activities for the first nine months of 1999 provided
cash of $24, primarily from the sale of office furniture and equipment in Israel
coincident to the cessation of operations there. Investing activities for the
comparable period of 1998 provided cash of $216, primarily from the sale of
AgentSoft.
13
<PAGE>
Financing activities provided cash of $1,110 and $2,476 during the nine month
periods ended September 30, 1999, and 1998, respectively. For the 1999 nine
month period proceeds from a short-term loan from LHIC were $600 and net
proceeds from the issuance of Ordinary Shares to the group of three investors
mentioned below were $459, whereas the majority of the cash provided during the
comparable period of 1998 was from proceeds from the sale of Series C Preferred
Shares to L&H, offset by $1,297 used for the repayment of government-guaranteed
loans.
The Company obtained $600 of short-term financing under a Loan Agreement it
executed with L&H Investment Company, N.V. ("LHIC") on February 19, 1999. The
principal amount of the loan, plus $24 of accrued interest, was converted into
2,884,874 Series D Preferred Shares on June 30, 1999. Additionally, pursuant to
the terms of the loan agreement, the Company issued to LHIC a warrant to
purchase 3.0 million Ordinary Shares of the Company at a price of $0.269 per
share.
On July 14, 1999, the Company entered into an agreement with a group of three
investors whereby the investors purchased for $500, 2.4 million Ordinary Shares
of the Company, which, after related fees, provided $459 to the Company.
Additionally, one of the investors is required to purchase an additional 7.1
million shares for $1,500 when and if the Company obtains a strategic partner
and enters into a strategic alliance with such partner. Under the terms of the
agreement, in the event the Company is unable to find and enter into a
definitive agreement with a strategic partner acceptable to the investor, then
the investor will not be required to purchase the remaining 7.1 million ordinary
shares.
On October 12, 1999, the Company received $100 upon executing a Convertible
Promissory Note (the "Note") in the amount of $100 with the investor mentioned
above who may be required to purchase the additional 7.1 million shares of the
Company's Ordinary Shares. The principal balance of the Note bears interest at
the prime rate at the date of the Note plus 200 basis points. The principal
balance, plus all accrued and unpaid interest, becomes due and payable on
December 31, 1999. The investor has the right at any time to convert all or any
portion of the outstanding principal and unpaid interest into Ordinary Shares of
the Company based on the average of the five(5) lowest closing trading prices of
the Company's Ordinary Shares between the date of the Note and the conversion
date.
The Company believes that its operations may not generate adequate cash flow
to meet its needs without additional external financing. The inability of the
Company to find and enter into a strategic alliance with a strategic partner, or
obtain other external financing in the event it is unable to do so will have a
material adverse impact and may cause the Company to cease operations.
Year 2000
The Company has reviewed its operations in relation to the Year 2000 issue and
has concluded that the likelihood of this issue having a material adverse impact
on the Company is remote. Any costs incurred in relation to the Year 2000 issue
are expected to be immaterial.
The Company develops all of its software products in compliance with Year 2000
industry guidelines. The Company's software products are not date sensitive and,
therefore, are not likely to be adversely impacted by Year 2000. The Company,
therefore, believes that it has minimal, if any, exposure to contingencies
related to the Year 2000 issue for the products it manufactures and sells. The
Company has reviewed the third-party custom-written software it uses in its
operations and has determined that this software is also not date sensitive and
poses minimal, if any, Year 2000 risk.
14
<PAGE>
The Company has a policy of purchasing only information technology ("IT")
hardware that is warranted to be Year 2000 compliant and, therefore, believes
its only Year 2000 exposure in this regard is if the hardware fails to perform
as warranted, which is unlikely. The Company also utilizes "off-the-shelf"
software products in its operations. Such software is issued with frequent
updates which have or which are expected to address the Year 2000 issue.
The potential impact of the Year 2000 issue on the Company's non-IT systems
that may include embedded technology, such as microprocessors, is more difficult
to assess. The Company believes, however, that its operations are small enough
that any Year 2000 issue that may arise in its non-IT systems will amount to
inconveniences, which it can work around, rather than significant business
problems.
Because the Company believes the possibility that a Year 2000 issue
significantly disrupting its operations is remote, it has not developed a
contingency plan in this regard. The Company will continue to monitor and assess
the Year 2000 issue, particularly the extent to which its operations are
vulnerable from interactions with its vendors, customers and financial
institutions.
15
<PAGE>
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
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).*
3.1(d) - Certificate of Name Change (filed as Exhibit 99.1 to the Company's
Current Report on Form 8-K on October 18, 1999).*
3.2(a) - Articles of Association of Registrant (filed as Exhibit 3.2 to the
Company's Registration Statement No. 33- 92754).*
3.2(b) - Authorization of Registration of Increase in Share Capital dated
July 18, 1999 (filed as Exhibit 3.2(b) to the Company's Form 10-Q on
August 11, 1999).*
4.1 - Form of Ordinary Share Certificate (filed as Exhibit 4.1 to the
Company's Registration Statement No. 33-92754).*
4.18 - Certificate of Designation for Series C Preferred Stock
4.19 - Certificate of Designation for Series D Preferred Stock
4.2 - Form of Underwriter's Warrant Agreement (filed as Exhibit 4.4 to the
Company's Registration Statement No. 33-92754).*
4.3 - Form of Bridge Financing Warrant dated as of May 22, 1995 between
the Company and each of the Holders (filed as Exhibit 4.5 to the
Company's Registration Statement No. 33-92754).*
4.4 - Form of Representative's Warrant Agreement, between the Company and
Sands Brothers & Co, Ltd., as representative of the several
underwriters (filed as Exhibit 4.4 to the Company's Registration
Statement No. 333-7637). *
- -------------------------
*Incorporated by reference
16
<PAGE>
4.5 - Form of IMR Warrant dated as of November 22, 1996 between the
Company and IMR Fund, L.P. (filed as Exhibit 4.5 to the Company's
Registration Statement No. 333-7637).*
4.6 - Form of Redeemable Warrant Agreement dated as of Exhibit 4.6 to the
Company's Registration November 22, 1996 between the Company, Sands
Statement No. 333-7637).* Brothers & Co., Ltd., as representative of
the several underwriters, and American Stock Transfer & Trust
Company (filed as Exhibit 4.6 to the Company's Registration
Statement No. 333-7637).*
4.7 - Form of Redeemable Warrant Certificate (filed as Exhibit 4.6
to the Company's Registration Statement No. 333-7637).*
4.8 - Form of Unit Certificate (filed as Exhibit 4.6 to the Company's
Registration Statement No. 333-7637).*
4.9 - Securities Purchase Agreement dated August 5, 1997, between CC
Investments LDC and Accent Software International Ltd., which
includes the Convertible Debenture, two Warrant Agreements and the
Registration Rights Agreement as exhibits thereto. (filed as Exhibit
4.1 to the Company's Registration Statement filed on August 27,
1997, Reg. No. 333-34455).*
4.10 - Warrant Agreement with The Shemano Group, Inc. (filed as Exhibit 4.6
to the Company's Registration Statement filed on October 16, 1997,
Reg. No. 333-380043).*
4.11 - Warrant Agreement with Equity Management Partners LLP (filed as
Exhibit 4.7 to the Company's Registration Statement filed on October
16, 1997, Reg. No. 333-38043).*
4.12 - Warrant Agreement with Brad Gillingham (filed as Exhibit 4.8 to the
Company's Registration Statement filed on October 16, 1997, Reg. No.
333-38043).*
4.13 - Form of Warrant Agreement covering warrant agreements with Robert J.
Laikin, Michael Mosher and Manufacturers Indemnity and Insurance
Company of America (filed as Exhibit 4.9 to the Company's
Registration Statement filed on October 16, 1997, Reg. No. 333-
38043).*
- -------------------------
*Incorporated by reference
17
<PAGE>
4.14 - Form of Securities Purchase Agreement dated November 6, 1997,
between Accent Software International Ltd., and CC Investments LDC,
Nelson Partners, Olympus Securities, Ltd., Marshall Companies,
Profinsa Investments, which includes the Convertible Debenture, the
Warrant Agreement, Registration Rights Agreement and Certificate of
Designation as exhibits thereto. (filed as Exhibit 4.1 to the
Company's Registration Statement filed on November 6, 1997, Reg. No.
333-39697).*
4.15 - Warrant Agreement with The Shemano Group, Inc. (filed as Exhibit 4.1
to the Company's Form S-3 filed on November 6, 1997, Reg. No. 333-
39697).*
4.16 - Form of Warrant to Lernout & Hauspie Speech Products, N.V. (filed as
Exhibit 4.16 to the Company's Form 10-Q on August 11, 1999).*
4.17 - Form of Warrant to L&H Investment Company, N.V. (filed as Exhibit
4.17 to the Company's For m 10-Q on August 11, 1999).*
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 on April
1, 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 on April 1,
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
- -------------------------
*Incorporated by reference
18
<PAGE>
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(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 Exhibit 10.7(a) to the
Company's Registration Statement No. 33-92754).*
10.6(b) - Amended and Restated Employee Share Option Plan (1995) (filed as
Exhibit 4.2 to the Company's Registration Statement No. 333-04285).*
10.6(c) - Non-Employee Director Share Option Plan (1995) (filed as Exhibit
10.7(b) to the Company's Registration Statement No. 33-92754).*
10.6(d) - Amended and Restated Non-Employee Share Option Plan (1995) (filed as
Exhibit 4.2 to the Company's Registration Statement No. 333-07965).*
10.6(e) - Amended and Restated Non-Employee Share Option Plan (1995) (filed as
Exhibit 10-6(e) to the Company's Form 10-K on March 31, 1998).*
10.6(f) - CEO Share Option Plan (1999) (filed as Exhibit 10.6(f) to the
Company's Form 10-Q on August 11, 1999).*
10.6(g) - Non-Employee Share Option Plan (1998) (filed as Exhibit B to the
Company's Form DEF14A on April 29, 1998).*
10.7(b) - Employment Agreement between the Company and Todd A. Oseth, dated
February 3, 1997 (filed as exhibit 10.7(b) to the Company's Form 10-
K on March 31, 1998).*
10.8 - Consulting Agreement, dated August 4, 1997, between the
- -------------------------
*Incorporated by reference
19
<PAGE>
Company and Investor Resource Services, Inc. (filed as Exhibit 4.1
to the Company's Registration Statement filed on October 16, 1997,
Reg. No. 333-38043).*
10.9 - Amendment to the Consulting Agreement, dated January 30, 1998,
between Company and Investor Resource Services, Inc. (filed as
Exhibit 10-9 to the Company's Form 10-K on March 31, 1998).*
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 on April 1, 1996).*
10.11 - Debenture between the Company and Bank Leumi (filed as Exhibit 10.11
to the Company's Registration Statement No. 333-7637).*
10.12 - Agreement between the Company and The Bank for Industrial
Development (filed as Exhibit 4-1 to the Company's Form S-3 on
August 4, 1998)*
10.13 - Stock Purchase Agreement between the Company and Gotham Bay Partners
LLC dated July 14, 1999 (filed as Exhibit 10.13 to the Company's
Form 10-Q filed on August 11, 1999).*
21 - Subsidiaries of Registrant (filed as Exhibit 21 to the Company's
Form 10-K filed on April 2, 1996).*
27 - Financial Data Schedule.
(b) Reports on Form 8-K
On October 18, 1999, the Registrant filed a Current Report on Form 8-K
reporting (1) a change in its corporate name, effective October 6, 1999, to
LanguageWare.net (Company) Ltd. from Accent Software International Ltd.; and (2)
changes in its trading symbols to "LWNTF" from "ACNTF" for its Ordinary Shares
and to "LWNUF" from "ACNTUF" for its Units.
- -------------------------
*Incorporated by reference
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LANGUAGEWARE.NET (COMPANY) LTD.
(Registrant)
Date: November 9, 1999 by: /s/ Todd A. Oseth
---------------- -------------------
Todd A. Oseth
(Principal Executive Officer and
acting Principal Financial Officer)
21
<PAGE>
EXHIBIT 4.18
------------
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
---------------------------------------------------
OF
--
SERIES C PREFERRED SHARES
-------------------------
The Series C Preferred Shares of the Company shall have the preferences, voting
rights, qualifications, and special or relative rights or privileges as set
forth in this Certificate.
Section 1. Definitions.
- --------- -----------
For the purposes of this Certificate, the following definitions shall apply:
"Additional Shares of Common Stock" means all shares of Common Stock issued
by the Company after the Original Issue Date, other than shares of Common Stock
issued or issuable:
(A) upon conversion of Series C Preferred Shares;
(B) as a dividend or distribution on Series C Preferred Shares;
(C) by way of a dividend or other distribution on shares of Common Stock
excluded from the definition of Additional Shares of Common Stock by the
foregoing clauses (A), (B) or this clause (C); or
(D) pursuant to an employee stock option plan;
"Board of Directors" shall mean the Board of Directors of this Company.
"Common Stock" shall mean the Company's Ordinary Shares, nominal value New
Israel Shekel 0.01 per share.
"Company" shall mean Accent Software International Ltd., an Israeli company.
"Conversion Price" means the amount set forth in Section 4(a).
"Convertible Securities" means any evidences of indebtedness, shares (other
than Common Stock or the Series C Preferred Shares) or other securities
convertible into or exchangeable for Common Stock.
-I-
<PAGE>
"Junior Shares" means all shares of Common Stock of the Company or any other
stock ranking junior to the Series C Preferred Shares in dividends or
liquidation rights.
"L&H" means Lernout & Hauspie Speech Products N.V., a Belgian Company
"Options" means rights, options or warrants to subscribe for, purchase or
otherwise acquire either Common Stock or Convertible Securities.
"Original Issue Date" means the date on which a share of Series C Preferred
Shares was first issued.
"Subsidiary" means any Company at least 50% of whose outstanding voting
shares shall at the time be owned directly or indirectly by the Company or by
one or more subsidiaries, or by the Company and one or more subsidiaries.
Section 2. Dividend Rights.
- --------- ---------------
The holders of the Series C Preferred Shares shall be entitled to receive
dividends, when as and if declared by the Board of Directors out of any funds
legally available therefor, equal in amount per share to the dividends paid on
the Common Stock. Unless dividends have been paid on the Series C Preferred
Shares, dividends may not be paid or declared and set aside for payment and
other distributions may not be made upon the Common Stock or on any other stock.
Dividends on the Series C Preferred Shares shall be cumulative; i.e., such
dividends shall be deemed to accrue from day to day whether or not earned or
declared
Section 3. Liquidation Preference.
- --------- ----------------------
Existing pledge. The Company's assets are currently pledged in favor of the
- ---------------
Israeli government in return for a bank loan guaranteed by the Israeli
government (hereafter the Government Loan). The Company represents that it
entered into the final stages of negotiations with the government and a bank to
convert the Government Loan into Common Stock, whereby all preferences granted
to the Israeli government would be cancelled upon the sale of the Common Stock
so issued and the application of the proceeds to the redemption of the
Government Loan. Following the completion of such transaction, the Series C
Preferred Shares shall rank prior to all other shares of the Company.
-II-
<PAGE>
The Company will not create, incur, assume or suffer to be created, incurred or
assumed, or to exist, any pledge, mortgage, lien, charge, security interest or
encumbrance of any kind upon any of its properties or assets or own or acquire
or agree to acquire any property of any character subject to or upon any
mortgage, conditional sale agreement or other retention agreement, ranking equal
or prior to the preference rights set forth hereunder without the prior approval
of L&H.
Preference. Subject to and to the extent that the Government Loan has not been
- ----------
redeemed and the relevant lien removed from the Company's assets, in the event
of any liquidation, dissolution or winding up of the affairs of the Company,
voluntarily or involuntarily, the holders of each share of Series C Preferred
Shares, prior to any distribution to the holders of Common Shares, shall be
entitled to receive a preferential amount equal to the face value per share at
the moment of subscription, adjusted to reflect any stock split, stock dividend,
combination, recapitalization or reorganization(the "Series C Preferred Shares
Liquidation Preference"), plus an amount equal to all dividends declared and
unpaid on the Preferred Shares to the date of final distribution. After payment
or setting apart for payment of the Series C Preferred Shares Liquidation
Preference, the remaining assets of the Company, if any, shall be distributed
among the holders of the Common Shares. If upon such liquidation, dissolution or
winding up, the assets of the Company are insufficient to provide for the
payment of the Series C Preferred Shares Liquidation Preference for each share
of Series C Preferred Shares outstanding, such assets as are available shall be
paid out pro rata among the shares of Series C Preferred Shares.
Merger or Acquisition. A merger or consolidation of the Company with or into
- ---------------------
another corporation or entity (whether or not the Company is the surviving
entity if, after the merger or consolidation, more than 50% of the voting stock
of the surviving corporation is owned by persons who were not holders of voting
stock of the Company prior to the merger or consolidation), or the sale of all
or substantially all the assets of the Company, shall be deemed to be a
liquidation, dissolution or winding up the Company for purposes of this Section
3 if the holders of at least 75% of the then outstanding shares of Series C
Preferred Shares, so elect by giving written notice thereof to the Company at
least three days before the effective date of such event. If no such notice is
given, the provisions of section 4(b) shall apply. The amount deemed distributed
to the holders of Series C Preferred Shares upon any such merger or
consolidation shall be the cash or the value of the property, rights or other
securities received in the merger or consolidation which shall be determined in
good faith by the Board of Directors of the Company.
-III-
<PAGE>
Section 4. Conversion of Series C Preferred Shares.
- --------- ----------------------------------------
The holders of the Series C Preferred Shares shall have conversion rights in
accordance with the following provisions:
(a) Right to Convert and Conversion Price. Each share of Series C
-------------------------------------
Preferred Shares shall be convertible, at the option of the holder thereof, at
any time after the date of issuance of such share, at the office of the Company
or any transfer agent for the Series C Preferred Shares. The number of shares of
Common Stock to be issued upon conversion of one Series C Preferred Share shall
be obtained by dividing the principal amount ($1,000) of any such Preferred
Share by the average closing price of the Company's Common Stock on the Nasdaq
Small Cap Market for the ten (10) trading days prior to the closing, increased
with a premium of ten percent (10%) or 0.45USD.
(b) Effect of Acquisition on Series C Preferred Shares. In the event of a
--------------------------------------------------
merger or consolidation of the Company with or into another Company or entity or
a sale by the Company of all or substantially all of its assets, and in the case
of successive such mergers, consolidations or sales, subject to the provisions
of section 4, the shares of Series C Preferred Shares then outstanding shall be
convertible into the number and kind of securities of the acquiring or surviving
corporation (or such other entity whose securities are delivered in exchange for
the Common Stock of the Company) to which the holders of the Series C Preferred
Shares would have been entitled if such holders had converted their Series C
Preferred Shares into Common Stock or the common stock of any successor to the
Company upon the consummation of such sale, merger or consolidation; and, in
such case, appropriate adjustment (as determined in good faith by the Board of
Directors) shall be made in the application of the provisions in this Section 4
with respect to the rights and interest thereafter of the holders of the Series
C Preferred Shares, to the end that the provisions set forth in this Section 4
(including provisions with respect to changes in and other adjustments of the
Conversion Price) shall thereafter be applicable, as nearly as reasonably may
be, in relation to any shares of stock or other property thereafter deliverable
upon the conversion of the Series C Preferred Shares.
(c) Mechanics of Conversion. No fractional shares of Common Stock shall be
-----------------------
issued upon conversion of Series C Preferred Shares. In lieu of any fractional
share to which a holder of Series C Preferred Shares would otherwise be
entitled, the Company shall pay cash equal to such fraction multiplied by the
then effective Conversion Price. Before any holder of Series C Preferred Shares
shall be entitled to convert the same into full shares of Common Stock, the
holder shall surrender the certificate or certificates therefor, duly endorsed
for
-IV-
<PAGE>
transfer, at the office of the Company or of any transfer agent for the Series C
Preferred Shares, and shall give written notice to the Company at such office
that he elects to convert the same. The Company shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of Series C
Preferred Shares a certificate or certificates for the number of shares of
Common Stock to which he shall be entitled as aforesaid and a check payable to
the holder in the amount of any cash amounts payable in order to avoid a
conversion into fractional shares of Common Stock. Except as provided in
paragraph (b), such conversion shall be deemed to have been made immediately
prior to the close of business on the date of such surrender of the shares of
Series C Preferred Shares to be converted, and the person or persons entitled to
receive the shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock on such date.
(d) No Impairment. The Company will not, by amendment of its Articles of
-------------
Association or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Section 4 and in
the taking of all such action as may be necessary or appropriate in order to
protect the conversion rights of the holders of the Series C Preferred Shares
against impairment.
(f) Notices of Record Date, etc. In the event that the Company shall propose
----------------------------
at any time:
(i) to declare any dividend or distribution upon its Common Stock,
whether in cash, property, stock or other securities, whether or not a regular
cash dividend and whether or not out of earnings or earned surplus;
(ii) to offer for subscription pro rata to the holders of any class of
its stock any additional shares of stock of any class;
(iii) to subdivide or combine its outstanding Common Stock;
(iv) to effect any reclassification or recapitalization of its Common
Stock outstanding involving a change in the Common Stock; or
(v) to merge or consolidate with or into any other Company, or sell,
lease or convey all or substantially all its property or business, or to
liquidate, dissolve or wind up;
-V-
<PAGE>
then, in connection with each such event, the Company shall send to the holders
of the Series C Preferred Shares:
(1) at least 20 days' prior written notice of the date on which a
record shall be taken for such dividend, distribution,
subscription rights, subdivision or combination (and specifying
the date on which the holders of Common Stock shall be entitled
thereto) or for determining rights to vote in respect of the
matters referred to in clauses (iv) and (v) above; and
(2) in the case of the matters referred to in clauses (iv) and
(v) above, at least 20 days' prior written notice of the date when
the same shall take place (specifying the date on which the
holders of Common Stock shall be entitled to exchange their Common
Stock for securities or other property deliverable upon the
occurrence of such event).
Each such written notice shall be given by certified mail, postage prepaid,
addressed to the holders of Series C Preferred Shares at the address for each
such holder as shown on the books of the Company.
(g) Reservation of Common Stock. The Company shall, at all times when the
---------------------------
Series C Preferred Shares shall be outstanding, reserve and keep available out
of its authorized but unissued stock, for the purpose of effecting the
conversion of the Series C Preferred Shares, such number of its duly authorized
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding Series C Preferred Shares. Before taking any
action which would cause an adjustment reducing the Conversion Price below the
then nominal value of the shares of Common Stock issuable upon conversion of the
Series C Preferred Shares, the Company will take any corporate action which may,
in the opinion of its counsel, be necessary in order that the Company may
validly and legally issue fully paid and non assessable shares of such Common
Stock at such adjusted Conversion Price.
(h) Cancellation of Series C Preferred Shares. All shares of Series C
-----------------------------------------
Preferred Shares which shall have been surrendered for conversion as herein
provided shall no longer be deemed to be outstanding and all rights with respect
to such shares, including the rights, if any, to receive notices and to vote,
shall forthwith cease and terminate except only the right of the holders thereof
to receive shares of Common Stock in exchange therefor and payment of any
accrued and unpaid dividends
-VI-
<PAGE>
thereon. Any shares of Series C Preferred Shares so converted shall be retired
and cancelled, and shall not be reissued, and the Company may from time to time
take such appropriate action as may be necessary to reduce the authorized Series
C Preferred Shares accordingly.
(i) Restrictions on the Common Stock. The Common Stock issuable upon
--------------------------------
conversion of Series C Preferred Shares may not be sold or transferred unless
(a) they first shall have been registered under the Securities Act or applicable
state securities laws, (ii) the Company shall have been furnished with an
appropriate opinion of legal counsel to the effect that such sale or transfer is
exempt from the registration requirements of the Securities Act or (iii) they
are sold pursuant to Rule 144 under the Act. Except as otherwise provided in the
Securities Purchase Agreement, each certificate for Common Stock issuable upon
conversion of Series C Preferred Shares that have not been so registered and
that have not been sold pursuant to an exemption that permits removal of the
legend, shall bear a legend substantially in the following form, as appropriate:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION OF COUNSEL IN FORM,
SUBSTANCE AND SCOPE REASONABLY SATISFACTORY TO THE COMPANY THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR UNLESS SOLD PURSUANT TO RULE
144 UNDER SAID ACT. ANY SUCH SALE, ASSIGNMENT OR TRANSFER MUST ALSO COMPLY
WITH APPLICABLE STATE SECURITIES LAWS.
Upon the request of a holder of a certificate representing any Common Stock
issuable upon conversion of this Series C Preferred Shares, the Company shall
remove the foregoing legend from the certificate or issue to such holder a new
certificate therefor free of any transfer legend, if (a) with such request, the
Company shall have received either (A) an appropriate opinion of counsel to the
effect that any such legend may be removed from such certificate, or (B)
satisfactory representations from the holder that the holder is eligible to sell
such security pursuant to Rule 144 or (ii) a registration statement under the
Securities Act covering such securities is in effect. Nothing in this
Certificate of Designation shall (i) limit the Company's obligation under the
Share Purchase Agreement, or (ii) affect in any way the holder's obligations to
comply with applicable securities laws upon the resale of the securities
referred to herein.
Section 5. Voting Rights of Series C Preferred Shares.
- --------- ------------------------------------------
(a) General. Except as expressly set forth in this Section 5 and except as
-------
otherwise required by law, each share of Series C Preferred Shares issued and
outstanding shall have the right to vote on all matters the number of
-VII-
<PAGE>
votes equal at any time to the number of shares of Common Stock into which the
Series C Preferred Shares would be convertible at the then applicable Conversion
Price, and the holders of the Series C Preferred Shares shall vote with the
Common Stock as a single class.
(b) Election of Directors. At the moment of executing this Agreement, the
---------------------
authorized number of directors on the Board of Directors of the Company is be
nine (9). The holders of the Series C Preferred Shares, voting as a separate
class, shall be entitled to elect one (1) director and the holders of Common
Stock, voting as a separate class, shall be entitled to elect eight (8)
directors. Vacancies in the director positions elected by any class may be
filled only by the holders of capital stock of the class originally electing the
director whose position is vacant. The Company shall propose an amendment to its
Articles of Association at its next duly convened shareholders meeting
subsequent to the Annual General and Extraordinary Shareholders Meeting to be
held on May 28, 1988, in order to reflect the right of holders of the Series C
Preferred Shares to nominate a list of candidates for one director's seat as
long as those holders hold all or part of the Series C Preferred Shares or at
least 25% of the shares of Common Stock resulting from the conversion of the
Series C Preferred Shares.
(c) Matters Affecting Series C Preferred Shares. So long as any Series C
-------------------------------------------
Preferred Shares shall be outstanding, the Company shall not, without first
obtaining the affirmative vote or written consent of the holders of not less
than a majority of the outstanding shares of Series C Preferred Shares, take any
of the following actions:
(i) amend or repeal any provision of, or add any provision to, the
Company's Articles of Association if such action would alter or change the
preferences, rights, privileges or powers of, or the restrictions provided for
the benefit of, such Series C Preferred Shares; or
(ii) authorize or issue shares of any class of stock having any
preference or priority as to dividends or assets superior to or on a parity with
any such preference or priority of the Series C Preferred Shares; or
(iii) reclassify any Junior Shares into shares having any preference
or priority as to dividends or assets superior to or on a parity with any such
preference or priority of the Series C Preferred Shares.
(d) Special Vote for Liquidations. The Company may not liquidate, dissolve
-----------------------------
or wind up if the assets of the Company then available for distribution to its
stockholders shall be insufficient to pay the holders of shares of Series C
Preferred Shares the full amount to which they shall be entitled upon such
liquidation, dissolution or winding up under section 3(a), without the prior
written approval of the holders of a majority of the then outstanding shares of
Series C Preferred Shares. In the event such approval has been obtained, and the
amount distributed to holders of Series C Preferred Shares shall be less than
the full amount provided under section 3(a), the holders of Series C Preferred
Shares shall share ratably in any distribution of assets according to the
respective amounts which would be payable with
-VIII-
<PAGE>
respect to the shares held by them upon such distribution if all amounts payable
on or with respect to such shares were paid in full.
-IX-
<PAGE>
The Company shall duly convene its Board of Directors who shall vote in favor of
all provisions set out here above.
IN WITNESS WHEREOF, this Certificate of Designations, Preferences and Rights is
executed on behalf of the Company this 4th day of June, 1998.
ACCENT SOFTWARE INTERNATIONAL LTD.
By: ____________________________
Name: Todd Oseth
Title: President/Chief Executive Officer
-X-
<PAGE>
EXHIBIT 4.19
------------
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
---------------------------------------------------
OF
--
SERIES D PREFERRED SHARES
-------------------------
The Series D Preferred Shares of the Accent Software International, Ltd.
shall have the preferences, voting rights, qualifications, and special or
relative rights or privileges as set forth in this Certificate.
Section 1. Definitions.
-----------
For the purposes of this Certificate, the following definitions shall
apply:
"Additional Shares of Common Stock" means all shares of Common Stock issued
by the Company after the Original Issue Date, other than shares of Common Stock
issued or issuable:
(A) upon conversion of Series D Preferred Shares;
(B) as a dividend or distribution on Series D Preferred Shares;
(C) by way of a dividend or other distribution on shares of Common Stock
excluded from the definition of Additional Shares of Common Stock by the
foregoing clauses (A), (B) or this clause (C); or
(D) pursuant to an employee stock option plan.
"Board of Directors" shall mean the Board of Directors of this Company.
"Common Stock" shall mean the Company's Ordinary Shares, nominal value New
Israel Shekel 0.01 per share.
"Company" shall mean Accent Software International Ltd., an Israeli
company.
"Convertible Securities" means any evidences of indebtedness, shares (other
than Common Stock or the Series D Preferred Shares) or other securities
convertible into or exchangeable for Common Stock.
"Face Value" shall mean US $0.216484375 per share
-1-
<PAGE>
"Junior Shares" means all shares of Common Stock of the Company or any
other stock ranking junior to the Series D Preferred Shares in dividends or
liquidation rights.
"Options" means rights, options or warrants to subscribe for, purchase or
otherwise acquire either Common Stock or Convertible Securities.
"Original Issue Date" means the date on which a share of Series D Preferred
Shares was first issued.
"Subsidiary" means any Company at least 50% of whose outstanding voting
shares shall at the time be owned directly or indirectly by the Company or by
one or more subsidiaries, or by the Company and one or more subsidiaries.
Section 2. Dividend Rights.
---------------
The holders of the Series D Preferred Shares shall be entitled to receive
dividends, when as and if declared by the Board of Directors out of any funds
legally available therefor, equal in amount per share to the dividends paid on
the Common Stock. Unless dividends have been paid on the Series D Preferred
Shares, dividends may not be paid or declared and set aside for payment and
other distributions may not be made upon the Common Stock or on any other stock.
Dividends on the Series D Preferred Shares shall be cumulative. i.e., such
dividends shall be deemed to accrue from day to day whether or not earned or
declared
Section 3. Liquidation Preference.
----------------------
Liens. Series D Preferred Shares shall rank prior to all other shares of
-----
the Company, except the Series C Preferred Shares, with which the Series D
Preferred Shares shall rank on par. The Company will not create, incur, assume
or suffer to be created, incurred or assumed, or to exist, any pledge, mortgage,
lien, charge, security interest or encumbrance of any kind upon any of its
properties or assets or own or acquire or agree to acquire any property of any
character subject to or upon any mortgage, conditional sale agreement or other
retention agreement, ranking equal or prior to the preference rights set forth
hereunder without the prior approval of the holders of the Series D Preferred
Shares.
Preference. In the event of any liquidation, dissolution or winding up of
----------
the affairs of the Company, voluntarily or involuntarily, the holders of each
share of Series D Preferred Shares, prior to any distribution to the holders of
Common Shares, shall be entitled to receive a preferential amount equal to the
Face Value per share at the moment of subscription, adjusted to reflect any
stock split, stock dividend, combination, recapitalization or reorganization
(the "Series D Preferred Shares Liquidation Preference"), plus an amount equal
to all dividends declared and unpaid on the Preferred Shares to the date of
final distribution. After payment or setting apart for
-2-
<PAGE>
payment of the Series D Preferred Shares Liquidation Preference, the remaining
assets of the Company, if any, shall be distributed among the holders of the
Common Shares. If upon such liquidation, dissolution or winding up, the assets
of the Company are insufficient to provide for the payment of the Series D
Preferred Shares Liquidation Preference for each share of Series D Preferred
Shares outstanding, such assets as are available shall be paid out pro rata
among the shares of Series D Preferred Shares.
Merger or Acquisition. A merger or consolidation of the Company with or
---------------------
into another corporation or entity (whether or not the Company is the surviving
entity if, after the merger or consolidation, more than 50% of the voting stock
of the surviving corporation is owned by persons who were not holders of voting
stock of the Company prior to the merger or consolidation), or the sale of all
or substantially all the assets of the Company, shall be deemed to be a
liquidation, dissolution or winding up the Company for purposes of this Section
3 if the holders of at least 75% of the then outstanding shares of Series D
Preferred Shares, so elect by giving written notice thereof to the Company at
least three days before the effective date of such event. If no such notice is
given, the provisions of section 4(b) shall apply. The amount deemed distributed
to the holders of Series D Preferred Shares upon any such merger or
consolidation shall be the cash or the value of the property, rights or other
securities received in the merger or consolidation which shall be determined in
good faith by the Board of Directors of the Company.
Section 4. Conversion of Series D Preferred Shares.
---------------------------------------
The holders of the Series D Preferred Shares shall have conversion rights
in accordance with the following provisions:
(1) Right to Convert. Each share of Series D Preferred Shares shall be
----------------
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share, at the office of the Company or any transfer agent for
the Series D Preferred Shares. The number of shares of Common Stock to be issued
upon conversion of one Series D Preferred Share shall be one share of Common
Stock for each Series D Preferred Share.
(2) Effect of Acquisition on Series D Preferred Shares. In the event of a
--------------------------------------------------
merger or consolidation of the Company with or into another Company or entity or
a sale by the Company of all or substantially all of its assets, and in the case
of successive such mergers, consolidations or sales, subject to the provisions
of section 4, the shares of Series D Preferred Shares then outstanding shall be
convertible into the number and kind of securities of the acquiring or surviving
corporation (or such other entity whose securities are delivered in exchange for
the Common Stock of the Company) to which the holders of the Series D Preferred
Shares would have been entitled if such holders had converted their Series D
Preferred Shares into Common Stock or the common stock of any successor to the
Company upon the consummation of such sale, merger or consolidation; and, in
such case, appropriate adjustment (as determined in good faith by the Board of
Directors) shall be made in the application of the provisions in this Section 4
with respect to the rights and interest thereafter of the holders of the Series
D Preferred Shares,
-3-
<PAGE>
to the end that the provisions set forth in this Section 4 (including provisions
with respect to changes in and other adjustments of the conversion) shall
thereafter be applicable, as nearly as reasonably may be, in relation to any
shares of stock or other property thereafter deliverable upon the conversion of
the Series D Preferred Shares.
(3) Mechanics of Conversion. Before any holder of Series D Preferred
-----------------------
Shares shall be entitled to convert the same into full shares of Common Stock,
the holder shall surrender the certificate or certificates therefor, duly
endorsed for transfer, at the office of the Company or of any transfer agent for
the Series D Preferred Shares, and shall give written notice to the Company at
such office that he elects to convert the same. The Company shall, as soon as
practicable thereafter, issue and deliver at such office to such holder of
Series D Preferred Shares a certificate or certificates for the number of shares
of Common Stock to which he shall be entitled as. Except as provided in
paragraph (b), such conversion shall be deemed to have been made immediately
prior to the close of business on the date of such surrender of the shares of
Series D Preferred Shares to be converted, and the person or persons entitled to
receive the shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock on such date.
(4) No Impairment. The Company will not, by amendment of its Articles of
-------------
Association or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Section 4 and in
the taking of all such action as may be necessary or appropriate in order to
protect the conversion rights of the holders of the Series D Preferred Shares
against impairment.
(5) Notices of Record Date, etc. In the event that the Company shall
---------------------------
propose at any time:
(1) to declare any dividend or distribution upon its Common Stock,
whether in cash, property, stock or other securities, whether or not a
regular cash dividend and whether or not out of earnings or earned surplus;
(2) to offer for subscription pro rata to the holders of any class of
its stock any additional shares of stock of any class;
(3) to subdivide or combine its outstanding Common Stock;
(4) to effect any reclassification or recapitalization of its Common
Stock outstanding involving a change in the Common Stock; or
-4-
<PAGE>
(5) to merge or consolidate with or into any other Company, or sell,
lease or convey all or substantially all its property or business, or to
liquidate, dissolve or wind up;
then, in connection with each such event, the Company shall send to the holders
of the Series D Preferred Shares:
(1) at least 20 days' prior written notice of the date on which a
record shall be taken for such dividend, distribution,
subscription rights, subdivision or combination (and specifying
the date on which the holders of Common Stock shall be entitled
thereto) or for determining rights to vote in respect of the
matters referred to in clauses (iv) and (v) above; and
(2) in the case of the matters referred to in clauses (iv) and
(v) above, at least 20 days' prior written notice of the date
when the same shall take place (specifying the date on which the
holders of Common Stock shall be entitled to exchange their
Common Stock for securities or other property deliverable upon
the occurrence of such event).
Each such written notice shall be given by certified mail, postage prepaid,
addressed to the holders of Series D Preferred Shares at the address for each
such holder as shown on the books of the Company.
(6) Reservation of Common Stock. The Company shall, at all times when the
---------------------------
Series D Preferred Shares shall be outstanding, reserve and keep available out
of its authorized but unissued stock, for the purpose of effecting the
conversion of the Series D Preferred Shares, such number of its duly authorized
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding Series D Preferred Shares.
(7) Cancellation of Series D Preferred Shares. All shares of Series D
-----------------------------------------
Preferred Shares which shall have been surrendered for conversion as herein
provided shall no longer be deemed to be outstanding and all rights with respect
to such shares, including the rights, if any, to receive notices and to vote,
shall forthwith cease and terminate except only the right of the holders thereof
to receive shares of Common Stock in exchange therefor and payment of any
accrued and unpaid dividends thereon. Any shares of Series D Preferred Shares so
converted shall be retired and canceled, and shall not be reissued, and the
Company may from time to time take such appropriate action as may be necessary
to reduce the authorized Series D Preferred Shares accordingly.
(8) Restrictions on the Common Stock. The Common Stock issuable upon
--------------------------------
conversion of Series D Preferred Shares may not be sold or transferred unless
(i) they first shall have been registered under the Securities Act or applicable
state securities law, (ii) the Company shall have been furnished with an
appropriate opinion of legal counsel to the effect that such sale
-5-
<PAGE>
or transfer is exempt from the registration requirements of the Securities Act
or (iii) they are sold pursuant to Rule 144 under the Act. Except as otherwise
provided in the Securities Purchase Agreement, each certificate for Common Stock
issuable upon conversion of Series D Preferred Shares that have not been so
registered and that have not been sold pursuant to an exemption that permits
removal of the legend, shall bear a legend substantially in the following form,
as appropriate:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE AND SCOPE
REASONABLY SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID
ACT. ANY SUCH SALE, ASSIGNMENT OR TRANSFER MUST ALSO COMPLY WITH
APPLICABLE STATE SECURITIES LAWS.
Upon the request of a holder of a certificate representing any Common Stock
issuable upon conversion of this Series D Preferred Shares, the Company shall
remove the foregoing legend from the certificate or issue to such holder a new
certificate therefor free of any transfer legend, if (a) with such request, the
Company shall have received either (A) an appropriate opinion of counsel to the
effect that any such legend may be removed from such certificate, or (B)
satisfactory representations from the holder that the holder is eligible to sell
such security pursuant to Rule 144 or (ii) a registration statement under the
Securities Act covering such securities is in effect. Nothing in this
Certificate of Designation affect in any way the holder's obligations to comply
with applicable securities laws upon the resale of the securities referred to
herein.
Section 5. Voting Rights of Series D Preferred Shares.
------------------------------------------
(1) General. Except as expressly set forth in this Section 5 and except
-------
as otherwise required by law, each share of Series D Preferred Shares issued and
outstanding shall have the right to vote on all matters the number of votes
equal at any time to the number of shares of Common Stock into which the Series
D Preferred Shares would be, and the holders of the Series D Preferred Shares
shall vote with the Common Stock as a single class.
(2) Election of Directors. On the date hereof, the authorized number of
---------------------
directors on the Board of Directors of the Company is nine (9). The holders of
the Series D Preferred Shares,
-6-
<PAGE>
voting as a separate class, shall be entitled to elect one (1) director and the
holders of Common Stock, voting as a separate class, shall be entitled to elect
all other directors not designated for election by other outstanding classes of
the Company's Preferred Stock. Vacancies in the director positions elected by
any class may be filled only by the holders of capital stock of the class
originally electing the director whose position is vacant. The Company shall
propose an amendment to its Articles of Association at its next duly Annual
General and Extraordinary Shareholders Meeting, in order to reflect the right of
holders of the Series D Preferred Shares to nominate a list of candidates for
one director's seat as long as those holders hold all or part of the Series D
Preferred Shares or at least 25% of the shares of Common Stock resulting from
the conversion of the Series D Preferred Shares.
(3) Matters Affecting Series D Preferred Shares. So long as any Series D
-------------------------------------------
Preferred Shares shall be outstanding, the Company shall not, without first
obtaining the affirmative vote or written consent of the holders of not less
than a majority of the outstanding shares of Series D Preferred Shares, take any
of the following actions:
(1) amend or repeal any provision of, or add any provision to, the
Company's Articles of Association if such action would alter or change the
preferences, rights, privileges or powers of, or the restrictions provided
for the benefit of, such Series D Preferred Shares; or
(2) authorize or issue shares of any class of stock having any
preference or priority as to dividends or assets superior to or on a parity
with any such preference or priority of the Series D Preferred Shares; or
(3) reclassify any Junior Shares into shares having any preference or
priority as to dividends or assets superior to or on a parity with any such
preference or priority of the Series D Preferred Shares.
(4) Special Vote for Liquidation. The Company may not liquidate,
----------------------------
dissolve or wind up if the assets of the Company then available for distribution
to its stockholders shall be insufficient to pay the holders of shares of Series
D Preferred Shares the full amount to which they shall be entitled upon such
liquidation, dissolution or winding up under section 3(a), without the prior
written approval of the holders of a majority of the then outstanding shares of
Series D Preferred Shares. In the event such approval has been obtained, and the
amount distributed to holders of Series D Preferred Shares shall be less than
the full amount provided under section 3(a), the holders of Series D Preferred
Shares shall share ratably in any distribution of assets according to the
respective amounts which would be payable with respect to the shares held by
them upon such distribution if all amounts payable on or with respect to such
shares were paid in full.
The Company shall duly convene its Board of Directors who shall vote in
favor of all provisions set out here above.
-7-
<PAGE>
IN WITNESS WHEREOF, this Certificate of Designations, Preferences and
Rights is executed on behalf of the Company this 30th day of June, 1999.
ACCENT SOFTWARE INTERNATIONAL LTD.
By: _____________________________________________
Name: Todd Oseth, President/Chief Executive Officer
-8-
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<PAGE>
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 30
<SECURITIES> 0
<RECEIVABLES> 290
<ALLOWANCES> 102
<INVENTORY> 0
<CURRENT-ASSETS> 502
<PP&E> 111
<DEPRECIATION> 108
<TOTAL-ASSETS> 505
<CURRENT-LIABILITIES> 871
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0
7
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<OTHER-SE> (456)
<TOTAL-LIABILITY-AND-EQUITY> 505
<SALES> 1,561
<TOTAL-REVENUES> 1,561
<CGS> 980
<TOTAL-COSTS> 2,773
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 50
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