EXHIBIT 4.18
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CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
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OF
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SERIES C PREFERRED SHARES
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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.
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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.
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"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.
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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.
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Existing pledge. The Company's assets are currently pledged in favor of the
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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.
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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
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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
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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.
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Section 4. Conversion of Series C Preferred Shares.
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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
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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
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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
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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
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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
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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
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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;
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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
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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
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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
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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
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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.
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(a) General. Except as expressly set forth in this Section 5 and except as
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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
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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
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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
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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
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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
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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.
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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
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